IP Law Daily Fuel treatment provider failed to show that former employee, rival used trade secrets
Wednesday, March 14, 2018

Fuel treatment provider failed to show that former employee, rival used trade secrets

By Thomas Long, J.D.

A provider of fuel treatment services failed to come forward with evidence that a former employee breached a noncompetition agreement by soliciting the provider’s customers on behalf of her new employer—a competing company—or that the former employee or the competitor used the complaining provider’s trade secret information, which the former employee allegedly had stolen, the U.S. Court of Appeals in New Orleans has held, affirming a lower court’s grant of summary judgment in favor of the defendants. The provider’s contention that the competitor achieved sales success quickly after entering the "cargo treatment" market as a result of the former employee’s breaches of the agreement and misappropriation of trade secrets amounted to mere speculation, in the court’s view (GE Betz, Inc. v. Moffitt-Johnston, March 13, 2018, Owen, P.).

The plaintiff, GE Betz, Inc., doing business as GE Water and Process Technologies (GE), provided chemical treatment services to various industries. Defendant Michelle Moffitt-Johnston was the first head of GE’s distressed fuels team, which performed "cargo treatments" involving the addition of chemicals to fuel before export to comply with another country’s safety, environmental, or regulatory standards. Moffitt-Johnston had executed an agreement with a clause prohibiting her from soliciting GE’s "customers" or "prospective customers" for 18 months following her termination or resignation. The agreement defined "customer" as any current GE customer with whom Moffitt-Johnston had contact or about whom she learned confidential information during the 18 months preceding her departure, and defined "prospective customer" as any entity whose business Moffitt-Johnston had taken steps to solicit.

In late 2011 or early 2012, defendant AmSpec Services, L.L.C., decided to enter the cargo treatment industry. Previously, AmSpec had served as a third-party inspector for some of GE’s cargo treatments. On September 19, 2012, Moffitt-Johnston told GE she was resigning. She stayed with the company for one more month. Moffitt-Johnston accepted an offer of employment from AmSpec on October 11, 2012. Moffitt-Johnston told GE that she was going to work for AmSpec, but not that she would be competing with GE’s cargo treatment business. During her remaining time with GE, Moffitt-Johnston allegedly downloaded and emailed files containing GE’s proprietary and trade secret information. GE also asserted that, after starting with AmSpec, Moffitt-Johnston began soliciting GE customers. GE filed suit against Moffitt-Johnston and AmSpec for, among other things, breach of a covenant not to compete and misappropriation of trade secrets. The defendants moved for summary judgment, and the court granted summary judgment in their favor. GE appealed.

Breach of noncompetition agreement. The appellate court agreed with the district court that GE had put forth no evidence that Moffitt-Johnston breached the noncompetition agreement. GE asserted that Moffitt-Johnston downloaded over 27,000 GE files prior to leaving the company, many of which contained client information, and then lied about working for a competitor. In the court’s view, the contention that Moffitt-Johnston must have solicited clients because she allegedly misappropriated files with their information amounted to speculation. Although Moffitt-Johnston was seen speaking with two GE customers at a trade show shortly after she left the company, there was no evidence as to the content of those conversations or that she was soliciting the customers on behalf of AmSpec. It also was unclear what was discussed during other alleged communications with GE customers, and any information provided about those communications by third parties was deemed inadmissible hearsay. Nor was there evidence that Moffitt-Johnston directed another AmSpec employee’s solicitation of GE customers, or that any improper conduct led to sales by AmSpec. For similar reasons, the court held that GE’s claim for tortious interference with prospective business relations also failed.

Misappropriation of trade secrets. The Fifth Circuit also affirmed the district court’s grant of summary judgment in favor of Moffitt-Johnston and AmSpec on GE’s claim for misappropriation of trade secrets. GE’s case was primarily based on a report generated by the software on Moffitt-Johnston’s computer (the DLP report). The DLP report allegedly indicated that, days after she announced her resignation, someone using Moffitt-Johnston’s computer downloaded over 27,000 files to an external hard drive, although the parties disputed who had initiated the download. The DLP report also allegedly showed that Moffitt-Johnston had sent GE files to herself at outside email addresses. In the summary judgment proceeding, the court granted Moffitt-Johnston’s motion to strike the DLP report because it was a summary of evidence and GE had not complied with the requirements of Federal Rule of Evidence 1006. On appeal, the Fifth Circuit assumed, without deciding, that the district court’s exclusion was an abuse of discretion, and proceeded with the analysis on the premise that the DLP report was admissible.

Moffitt-Johnston and AmSpec did not contest that some of the information allegedly misappropriated could constitute trade secrets. However, they argued that they did not use the information, which was a required element of a misappropriation claim. GE’s allegation that Moffitt-Johnston used the trade secrets at issue was based on circumstantial evidence. GE alleged that certain facts and circumstances, in combination, supported a reasonable inference that Moffitt-Johnston used GE’s trade secrets. Specifically, Moffitt-Johnston allegedly created a business plan to sacrifice profit margin in order to gain market share; she emailed GE’s most recent financial data to her AmSpec email account on her last day at GE and downloaded 27,000 GE files in a deceptive manner; and AmSpec had success with the clients whose financial data Moffitt-Johnston had just sent. The court noted that the "business plan" was a one-page draft plan prepared by Moffitt-Johnston for an interview with AmSpec, prior to being hired, and it contained no information suggesting that Moffitt-Johnston intended to capitalize on her knowledge of GE’s cost structure to acquire market share for AmSpec.

AmSpec’s commercial success did not permit an inference that the defendants misappropriated GE’s trade secrets, the court said. GE did not explain or present any evidence of how, and to what degree, AmSpec obtained business from former GE clients, just that "many" of AmSpec’s sales had been GE customers during Moffitt-Johnston’s last 12 months with the company. Moreover, AmSpec had previously worked with those customers as an inspector, so the relationships were not entirely new. The allegedly improper circumstances under which Moffitt-Johnston obtained the information did not constitute evidence that the information was actually used. Therefore, the appellate court affirmed the district court’s grant of summary judgment on the misappropriation claim, as well as GE’s claims for illegal use of confidential information and breach of a common-law duty with respect to confidential information. Nor could GE establish a breach of fiduciary duty based on Moffitt-Johnston’s stealing of GE files because there was no evidence of an injury to GE or a benefit to the defendants, due to the lack of evidence that the information was used.

Attorney fees. The district court found that the non-solicitation agreement was unenforceable, and it awarded Moffitt-Johnson her attorney fees incurred in defending against GE’s claim that she breached the non-solicitation agreement. The Fifth Circuit vacated the award of fees because there was no evidence that when GE executed the non-solicitation agreement with Moffitt-Johnston, GE knew the covenant was unreasonable as overly broad.

The case is No. 15-20008.

Attorneys: Charlotte Ann Fields (Gieger, Laborde, & Laperouse, LLC) and Neal Katyal (Hogan Lovells [US], LLP) for GE Betz, Inc. d/b/a GE Water & Process Technologies. David Leslie Barron (Cozen O'Connor, PC) for Michelle Moffitt-Johnston and AmSpec Services, L.L.C.

Companies: GE Betz, Inc. d/b/a GE Water & Process Technologies; AmSpec Services, L.L.C.

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