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A $183,000 Jurisdiction Miss: What the Tenth Circuit's Flux Drive Decision Means for IP Owners and Their Counsel

An Illinois engineer, his wife and their partnership wired $23,000 into a Colorado engineer's bank account. That wire, together with a string of emails, was enough to show that they had reached into Colorado. It was not enough to keep them in a Colorado trade secret lawsuit. The plaintiffs who sued them now owe $183,653.61 for the defendants' legal fees, and that number may still grow.

No court has decided whether anyone stole the plaintiffs' trade secrets, and no court has found that they sued in bad faith. Under Colorado law, neither question matters. When a tort action against a defendant is dismissed on that defendant's Rule 12(b) motion, the defendant must be awarded its reasonable attorney fees. On October 30, 2026, the Tenth Circuit affirmed that result in a published opinion, Flux Drive Inc. v. Rong.[1]

The plaintiffs believe that one of their senior design engineers, who lives in Colorado, passed their trade secrets to a company in China that makes unauthorized knockoff products. They sued in Colorado and named the engineer, his design firm and the Illinois defendants, who they alleged acted as go-betweens and provided "bridge financing." The Illinois defendants say they translated emails as a favor and made a short-term loan that was repaid within a month. They won dismissal for lack of personal jurisdiction, and the district court awarded them $114,663.11 for the motion to dismiss and another $68,990.50 for the fee litigation that followed.

The lesson for trade secret owners is that, in Colorado, naming a peripheral out-of-state defendant has a price. If you cannot tie that defendant's Colorado contacts to the misappropriation itself, the dismissal comes with a mandatory fee award.[2] The Tenth Circuit applies Colorado's fee statute in federal court, and it treats claims under the Defend Trade Secrets Act (DTSA) and the Colorado Uniform Trade Secrets Act (CUTSA) as tort claims that trigger it.

In June I wrote about how the Federal Circuit has been narrowing fee awards in patent cases, where the prevailing party must show that the case was "exceptional." Colorado's statute does not ask that question. It asks how the case against that defendant ended. This piece is primarily intended for IP owners deciding whom to sue and where, and for the litigation counsel advising them.
 

Contacts are not enough unless they caused the harm

The plaintiffs won the first half of the jurisdiction test. The Illinois engineer had emailed the Colorado engineer repeatedly, knowing where he lived. The Colorado engineer testified that the Illinois engineer "was supposed to be a person that [he] would supposedly report to." And the Illinois defendants had wired $23,000 into a Colorado bank account. Resolving the conflicting affidavits in the plaintiffs' favor, as it must at this stage, the court held that the Illinois defendants had purposefully directed activity at Colorado.

The plaintiffs lost the second half. Specific jurisdiction also requires that the plaintiff's injury arise out of or relate to those contacts. The agreement that the Illinois engineer allegedly transmitted was an independent-contractor agreement between the Chinese company and the Colorado engineer, and it did not mention the plaintiffs or their technology. Nothing in the record explained how that agreement, or the emails about it, enabled the theft. On the loan, the plaintiffs argued on appeal that the money paid for the CAD workstation and software used to take the files. The record did not show that, and it did not show that the lenders knew or controlled how the money would be spent. The complaint said only that the defendants provided bridge financing "to aid and abet" the scheme. A defendant's relationship with a plaintiff or a third party, the court said, quoting Walden v. Fiore, "standing alone, is an insufficient basis for jurisdiction."[3]

The court also closed a door that plaintiffs often try to use. A court may consider affidavits and deposition testimony on a Rule 12(b)(2) motion, but that evidence can only support the claims as pleaded. It cannot change them. Here, the plaintiffs' additional evidence went to the Illinois engineer's role and relationships, not to how his Colorado contacts caused the injury.[4]
 

Colorado's fee statute does not ask whether the case was weak

Section 13-17-201 of the Colorado Revised Statutes provides that when a tort action is dismissed on the defendant's motion under Rule 12(b) before trial, the defendant "shall have judgment for his reasonable attorney fees in defending the action." The Tenth Circuit has applied the statute in federal court for years. Flux Drive applies it to a Rule 12(b)(2) dismissal of an action that included a federal DTSA claim alongside the state-law claims.[5]

The plaintiffs argued that the statute did not apply because their case was predominantly statutory rather than a tort case. The court rejected that argument, explaining that the plaintiffs had confused the source of the legal duty with the nature of the action. Misappropriation sounds in tort whether it is pleaded under CUTSA or under the DTSA, and the statute does not distinguish between common-law torts and statutory torts.[6]

That holding matters because the trade secret statutes have their own fee provisions, and both are narrower. The DTSA and CUTSA allow fees mainly for a misappropriation claim made in bad faith or for willful and malicious misappropriation.[7] Section 13-17-201 requires no finding of bad faith at all. A plaintiff can hold a good-faith claim against the engineer at the center of the case and still owe fees to a defendant who is dismissed for lack of jurisdiction.

The statute does have limits. Colorado courts apply it defendant by defendant, and only when the entire action against that defendant is dismissed under Rule 12(b). A defendant who defeats some claims but not others does not collect.[8] The statute also does not apply if the motion is converted to one for summary judgment. A 2022 amendment excludes good-faith claims brought to extend, modify or reverse existing law, but only if the complaint says so and identifies the law at issue. That exception will rarely fit an ordinary misappropriation case.[9]

Three of the plaintiffs' most interesting arguments were never decided: that § 13-17-201 does not reach purely economic losses, that CUTSA's own fee provision displaces it and that the DTSA preempts it. The plaintiffs raised them for the first time on appeal and did not argue plain error, so the court treated them as waived.[10] A plaintiff who wants to make those arguments has to make them to the magistrate judge.
 

The bill kept growing after the dismissal

The first award covered the motion to dismiss. In their reply on the fee motion, the defendants asked for another $48,658.29 for litigating the fee motion itself. The court did not rule on that request, because the District of Colorado's local rules do not allow a motion to be included in a reply.[11] The defendants then filed a separate supplemental motion within fourteen days of the amended judgment, as Rule 54(d)(2)(B) requires, with the deadline carried past the Christmas holiday. They recovered $68,990.50 more after the court removed a 2.5% administrative charge. The total stands at $183,653.61. Colorado courts allow a defendant that successfully defends a fee award on appeal to recover those appellate fees under the statute as well, so that number may not be final.[12]

The opinion also settles a procedural question that will matter in multi-defendant cases. When a district court certifies the dismissal of some parties as final under Rule 54(b), a later fee award flowing from that judgment is also final and appealable once the amount is fixed, even while the claims against the other defendants continue. The Tenth Circuit had not decided that question before, and it adopted the Third Circuit's rule.[13] For the plaintiff, that means the fee judgment can become final and appealable long before the case against the remaining defendants is over.
 

The waiver rules did much of the work

Many of the plaintiffs' arguments failed on preservation, not on the merits. In the District of Colorado, fee motions and dispositive motions are often referred to a magistrate judge for a recommendation. Arguments raised for the first time in objections to that recommendation are waived, and arguments not raised in the district court are waived on appeal unless the appellant argues plain error. The court noted that the plaintiffs' objections to the dismissal recommendation were general enough that the firm waiver rule could have disposed of that appeal, had the defendants invoked it.[14]

The court also rejected the plaintiffs' complaint that the district court decided the motion without an evidentiary hearing. It observed that a hearing would have raised the plaintiffs' burden from a prima facie showing to proof by a preponderance of the evidence, and the plaintiffs had not identified any fact a hearing would have established.[15]
 

AI did not cut the bill

The plaintiffs argued that defense counsel should have billed fewer hours because they used AI and online research tools. The court allowed that such tools may reduce research time in some cases. But the plaintiffs offered no evidence that AI use inflated the hours actually billed, and the court noted that ethical rules still require counsel to verify every authority cited. Time recorded in tenths of an hour, without block billing and with hours already reduced where appropriate, supported the full lodestar.[16] Counsel who use AI should expect the same question from opposing counsel and from their own clients, and should keep time records that answer it.
 

What it means for IP owners and their counsel

If you own the trade secrets and are deciding whom to sue in Colorado, ask these questions about every out-of-state defendant before the complaint is filed:

• Which Colorado contact of this defendant caused the acquisition, disclosure or use of the trade secret, and what document shows it?

• If money changed hands, what did it pay for, and did this defendant know about or control that use?

• Could this defendant be sued where it resides or where its own conduct occurred, in a separate action if necessary?

• Is this defendant worth the exposure? Price a full Rule 12(b)(2) defense, the fee litigation that follows and an appeal.

• If jurisdiction depends on facts the defendant controls, have we asked for jurisdictional discovery early and stated what it would show?

If your company is named as a peripheral defendant in a Colorado trade secret case:

• Do our contacts with Colorado have any causal link to the alleged misappropriation? If not, a targeted Rule 12(b)(2) motion supported by declarations may end the case against us and shift our fees to the plaintiff.

• Are our lawyers keeping time records that will survive a lodestar review?

• After judgment, will we file the fee motion as a separate motion within fourteen days, and file separate supplemental motions for later work, including any appeal?

In short, counsel must treat the decision to name each defendant as its own jurisdictional analysis with its own fee exposure, and must preserve every fee argument at the magistrate judge stage. In Colorado, naming a defendant you cannot connect to the theft is not a cost-free option, and the client is the one who pays for it.

[1] Binding in the Tenth Circuit (published opinion). Flux Drive Inc. v. Rong, Nos. 25-1308, 26-1013 & 26-1292 (10th Cir. Oct. 30, 2026). https://www.ca10.uscourts.gov/sites/ca10/files/opinions/010111536638.pdf

[2] Binding in Colorado. Colo. Rev. Stat. § 13-17-201(1), as amended by H.B. 22-1272, 2022 Colo. Sess. Laws ch. 445, p. 3131 (approved June 8, 2022). https://leg.colorado.gov/laws/session-laws/HB22-1272/445/download

[3] Binding. Walden v. Fiore, 571 U.S. 277, 286 (2014); see Flux Drive, slip op. at 17–25. https://www.law.cornell.edu/supremecourt/text/12-574

[4] Flux Drive, slip op. at 24 (citing XMission, L.C. v. Fluent LLC, 955 F.3d 833, 840 (10th Cir. 2020)).

[5] Flux Drive, slip op. at 30–31 (citing Jones v. Denver Post Corp., 203 F.3d 748, 757 (10th Cir. 2000)).

[6] Flux Drive, slip op. at 31–33.

[7] Binding federal and Colorado statutes. 18 U.S.C. § 1836(b)(3)(D); Colo. Rev. Stat. § 7-74-105. https://www.law.cornell.edu/uscode/text/18/1836 https://law.justia.com/codes/colorado/title-7/trade-secrets/article-74/section-7-74-105/

[8] Binding Colorado appellate authority on Colorado law. Falcon Broadband, Inc. v. Banning Lewis Ranch Metro. Dist. No. 1, 2018 COA 92, 474 P.3d 1231. Persuasive federal application: Leonite Fund I, LP v. Hawaii Brewery Dev. Co., No. 25-cv-01371-STV, ECF No. 66 (D. Colo. June 2, 2026) (fee order). https://www.govinfo.gov/content/pkg/USCOURTS-cod-1_25-cv-01371/pdf/USCOURTS-cod-1_25-cv-01371-2.pdf

[9] Colo. Rev. Stat. § 13-17-201(1)–(2), as amended by H.B. 22-1272 (see note 2). https://leg.colorado.gov/laws/session-laws/HB22-1272/445/download

[10] Flux Drive, slip op. at 32 n.8 (citing United States v. McBride, 94 F.4th 1036, 1044 (10th Cir. 2024)).

[11] Binding in the District of Colorado. D.C.COLO.LCivR 7.1(d) (rules effective Dec. 1, 2025); see Flux Drive, slip op. at 8–9, 42–43. https://www.cod.uscourts.gov/Portals/0/Documents/LocalRules/2025_Final_Local_Rules.pdf

[12] Fed. R. Civ. P. 54(d)(2)(B); Flux Drive, slip op. at 9, 39–40, 44–45 (citing Dubray v. Intertribal Bison Coop., 192 P.3d 604, 608 (Colo. App. 2008)). https://www.law.cornell.edu/rules/frcp/rule_54

[13] Flux Drive, slip op. at 29–30 (adopting Johnson v. Orr, 897 F.2d 128, 130–31 (3d Cir. 1990)).

[14] Flux Drive, slip op. at 10–11 n.2, 42 n.13, 44 (citing Marshall v. Chater, 75 F.3d 1421, 1426 (10th Cir. 1996)).

[15] Flux Drive, slip op. at 25–28 (citing FDIC v. Oaklawn Apartments, 959 F.2d 170, 174 (10th Cir. 1992)).

[16] Flux Drive, slip op. at 35–37.
 

 
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