Labor & Employment Law Daily Sufficient damages evidence revives stolen trade secrets, unjust enrichment claims
Monday, October 22, 2018

Sufficient damages evidence revives stolen trade secrets, unjust enrichment claims

By Harold S. Berman, J.D.

A company that claimed a competitor appropriated its trade secrets involving invoicing and job productivity software could proceed on its Louisiana Uniform Trade Secrets Act (LUTSA) and some of its common-law conversion claims, the Fifth Circuit ruled, reversing in part the district court’s dismissal of the claims. The appeals court found that the company presented sufficient evidence from which a jury could reasonably estimate unjust enrichment damages under LUTSA. The company’s conversion claims were preempted by LUTSA to the extent they concerned trade secrets, but otherwise survived. The appeals court also found that the district court improperly granted summary judgment without first fully examining the company’s discovery motion, which concerned newly discovered documents (Brand Services, LLC v. Irex Corp., October 17, 2018, Haynes, C.).

An industrial scaffolding company claimed that a former employee stole trade secrets and confidential and proprietary information when he went to work for a competitor. Specifically, the company alleged that the employee transferred files from his work computer containing information the company used to invoice customers and track job productivity, and then used the information to help the competitor develop similar software. The company sued the competitor in federal district court, asserting claims under the Louisiana Uniform Trade Secrets Act (LUTSA) and common-law conversion.

Discovery dispute. The plaintiff asserted that during discovery, the defendant competitor improperly objected to the company’s first production request and did not produce responsive documents by the discovery deadline, despite repeated promises to do so. The plaintiff moved to compel the competitor’s production of responsive documents. The magistrate judge denied the motion as untimely, but directed the competitor to supplement its responses, which the competitor never did. The district court then granted summary judgment for the competitor on the company’s LUTSA claim, concluding the company did not produce sufficient evidence to create a factual issue concerning the amount of unjust enrichment the competitor obtained from allegedly using the company’s trade secrets. The company moved for reconsideration.

The competitor than moved for summary judgment on the plaintiff’s conversion claim. While both the second summary judgment motion and the reconsideration motion were pending, the plaintiff discovered responsive documents produced in related litigation in Pennsylvania. Because those documents were under a protective order, the plaintiff was unable to procure them in time to satisfy the magistrate judge. When the company did obtain the Pennsylvania documents, it moved for reconsideration of the magistrate judge’s denial, but its motion remained unaddressed. The district court, meanwhile, granted summary judgment to the defendant on the conversion claim, holding it was preempted by LUTSA, and also denied the plaintiff’s motion for reconsideration of its LUTSA ruling.

On appeal, the plaintiff argued that the district court prematurely granted summary judgment because it hadn’t yet ruled on the company’s discovery motion, and should not have ruled on its LUTSA and conversion claims before considering the significance of the documents from the Pennsylvania litigation.

District court’s ruling premature. The Fifth Circuit held that the district court improperly granted summary judgment without first fully examining the plaintiff’s discovery motion. The lower court did not address the motion to reconsider the documents that the company alleged would show the competitor did not properly respond to its discovery requests, or requests to supplement, as directed by the magistrate judge.

The plaintiff claimed it moved to compel immediately after discovery of the Pennsylvania documents, and it appeared that the company was diligent in seeking these documents, but could not have discovered them before the discovery deadline had passed. The competitor’s initial objections to the discovery request were blatantly improper, and the competitor subsequently did little to comply with the company’s requests. The competitor’s questionable conduct during discovery required further examination in light of the Pennsylvania documents.

LUTSA claim. The Fifth Circuit reversed the district court’s grant of summary judgment on the company’s LUTSA claim, finding that, independent of the status of the Pennsylvania documents, the plaintiff presented evidence of the amount of its unjust enrichment damages. The appeals court rejected the district court’s conclusion that the plaintiff did not provide a just and reasonable inference of its damages. Rather, although the company provided few details about its blanket assertion that it spent “millions” to design the allegedly stolen software, it did provide some evidence from which a jury could reasonably estimate unjust enrichment damages. The company demonstrated that the competitor’s use of the allegedly stolen information saved the competitor a few days per month in invoicing time.

Conversion claim. Finally, the appeals court reversed the district court’s dismissal of the plaintiff’s common-law conversion claims for information that fell outside the definition of a trade secret, without reaching the merits of the company’s claim. The court affirmed summary judgment on the company’s conversion claims involving trade secret information.

In the absence of Louisiana state court precedent, the Fifth Circuit analyzed whether the plaintiff’s conversion claim was preempted by LUTSA, and concluded that the plain language of LUTSA precluded a common-law conversion claim involving confidential information that qualified as a trade secret under LUTSA. However, if confidential information that was not a trade secret was stolen and unjustly enriched the thief to the victim’s detriment, then a cause of action would remain under Louisiana common law.

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