Brand Services, L.L.C. v. Irex Corporation , 907 F.3d 207 ( 2018 )

Case: 17-30660 Document: 00514686790 Page: 1 Date Filed: 10/17/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 17-30660 October 17, 2018
Lyle W. Cayce
BRAND SERVICES, L.L.C., Clerk
Plaintiff - Appellant
v.
IREX CORPORATION,
Defendant - Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
Before KING, ELROD, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
Appellant Brand Services, L.L.C. (“Brand Services”) challenges the
district court’s grant of summary judgment in favor of Appellee Irex
Corporation (“Irex”) on Brand Services’s Louisiana Uniform Trade Secrets Act
(“LUTSA”) claim and its common law conversion claim. Brand Services argues
the district court erred by concluding that (1) Brand Services failed to produce
sufficient evidence of damages and (2) LUTSA preempted its conversion claim.
Brand Services also argues the district court improperly ruled on its claims
without first considering Brand Services’s pending discovery motion. For the
reasons set forth below, we AFFIRM the district court’s grant of summary
judgment as to the common law conversion claim based upon trade secrets and
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REVERSE the remainder of the district court’s judgment, remanding for
further consideration in light of this opinion.
I. Factual and Procedural Background
Brand Services, an industrial scaffolding company, claims that its former
employee, James Stanich, stole trade secrets and confidential and proprietary
information when he went to work for Irex, a competitor. Specifically, Stanich
allegedly transferred from his work computer files containing information
about software that Brand Services uses to, inter alia, invoice customers and
track job productivity. Stanich then purportedly used this information to help
Irex develop similar software. Brand Services filed suit based on this alleged
misappropriation, asserting claims under LUTSA and for conversion under
Louisiana common law.
After Brand Services filed suit, the district court set the discovery
deadline for February 17, 2017. Brand Services claims Irex filed improper
blanket objections to Brand Services’s first request for production, and
thereafter repeatedly promised to produce responsive documents but had not
done so by the discovery deadline. Brand Services moved to compel production
of responsive documents on March 20, 2017. The magistrate judge denied the
motion as untimely, but reminded Irex of its duty to supplement under Federal
Rule of Civil Procedure 26(e). Irex never supplemented its responses.
The district court then granted summary judgment for Irex on Brand
Services’s LUTSA claim. The district court concluded that Brand Services
failed to proffer evidence sufficient to create a fact issue on the amount of
unjust-enrichment damages Irex obtained from allegedly using Brand
Services’s trade secrets. Brand Services moved for reconsideration of the
ruling, and Irex moved for summary judgment on Brand Services’s conversion
claim.
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While Irex’s second motion for summary judgment and Brand Services’s
motion for reconsideration were pending, Brand Services discovered
responsive documents produced in related proceedings in Pennsylvania.
Although Brand Services moved to compel production of these documents in
the Louisiana case, because the documents in the Pennsylvania case were
provided under a protective order, Brand Services was unable to get
representative documents in time to satisfy the magistrate judge in the
Louisiana case, and the motion was denied. When Brand Services finally
obtained the exemplar documents, it filed a motion for reconsideration. That
motion remains unaddressed in the district court.
After Brand Services filed its motion for reconsideration of the discovery
ruling, but before the magistrate judge ruled on that motion, the district court
granted summary judgment on Brand Services’s conversion claim, holding
LUTSA preempted that claim. The district court also denied Brand Services’s
motion for reconsideration of the LUTSA ruling, reiterating that Brand
Services failed to submit specific evidence to establish its damages. In doing
so, the district court did not discuss Brand Services’s pending discovery motion.
Brand Services timely appealed.
II. Jurisdiction
Although the parties do not contest jurisdiction on appeal, we must
consider our jurisdiction sua sponte. See Ruhrgas AG v. Marathon Oil Co., 526
U.S. 574, 583 (1999); Simon v. Wal-Mart Stores, Inc., 193 F.3d 848, 850 (5th
Cir. 1999). Brand Services filed suit based on diversity jurisdiction under
28 U.S.C. § 1332. Thus, we have jurisdiction over the district court’s final
decision only if diversity jurisdiction was proper below. See 28 U.S.C. § 1291.
Here, two issues exist: (1) whether the parties meet the diversity requirement
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in light of Brand Services’s status as a limited liability company 1 and (2)
whether the $75,000 amount-in-controversy requirement is met. See 28 U.S.C.
§ 1332(a). After we requested supplemental briefing on the former, Brand
Services submitted undisputed evidence that its members are citizens of
Delaware and Georgia. Accordingly, we accept this filing as establishing
diversity. See 28 U.S.C. § 1653; Carlton v. Baww, Inc., 751 F.2d 781, 789 (5th
Cir. 1985); see also Burdett v. Remington Arms Co., L.L.C., 854 F.3d 733, 734
n. 1 (5th Cir. 2017).
As far as the amount in controversy, the face of the complaint alleges
facts showing it is more likely than not that more than $75,000 is at stake. 2
When a complaint alleges an unspecified amount of damages, the party
invoking diversity jurisdiction must show by a preponderance of the evidence
that the amount-in-controversy requirement is met. See St. Paul Reinsurance
Co. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir. 1998). We ask whether “it is
facially apparent [from the complaint] that the claims exceed the jurisdictional
amount,” and if it is not, the court may “rely on summary judgment-type
evidence to ascertain the amount in controversy.” Id. (internal quotation
marks omitted).
Here, Brand Services pleaded damages exceeding the $75,000 floor.
Brand Services alleged that it invested more than $300,000 in
“[r]edevelopment” costs associated with the allegedly misappropriated
software. For its LUTSA claim, Brand Services may recover what it would cost
1In its complaint, Brand Services claimed it was diverse from Irex because Irex is a
Pennsylvania corporation and it is a Delaware corporation with its principal place of business
in Georgia. But a limited liability company’s citizenship turns on the citizenship of its
members. See Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079–80 (5th Cir. 2008).
2We reach this conclusion based upon the pleadings before examining the merits
question of whether Brand Services has proffered sufficient evidence of damages to survive
summary judgment.
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to acquire, lease, or develop misappropriated trade secrets. See Wellogix, Inc.
v. Accenture, L.L.P., 716 F.3d 867, 879 (5th Cir. 2013) (applying Texas law).
Accordingly, we conclude that Brand Services satisfied the amount-in-
controversy requirement and that diversity jurisdiction was proper in the
district court.
III. Standard of Review
“We review a district court’s grant of summary judgment de novo,
applying the same standard of review as would the district court.” Reingold v.
Swiftships, Inc., 126 F.3d 645, 646 (5th Cir. 1997). “Summary judgment is
proper only when it appears that there is no genuine issue of material fact and
that the moving party is entitled to judgment as a matter of law.” Id. (citing
FED. R. CIV. P. 56(c)). “On summary judgment the inferences to be drawn from
the underlying facts contained in the affidavits, depositions, and exhibits of
record must be viewed in the light most favorable to the party opposing the
motion. Reingold, 126 F.3d at 646.
IV. Discussion
Turning to the merits of the appeal, we begin with the discovery
disagreement. Brand Services claims the district court prematurely granted
summary judgment because Brand Services’s discovery motion was never
ruled upon. Brand Services argues that the district court should not have ruled
on its LUTSA and conversion claims before considering the import of the
documents from the Pennsylvania litigation.
A district court has discretion to deny as untimely a motion filed after
the discovery deadline. See Vann v. Gilbert, 482 F. App’x 876, 879 (5th Cir.
2012) (per curiam) (affirming summary judgment and finding no abuse of
discretion in denying a motion to compel where the scheduling order required
all discovery to be completed by a specific date and the motion was filed after
that date); Curry v. Strain, 262 F. App’x 650, 652 (5th Cir. 2008) (per curiam)
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(finding no abuse of discretion where the district court dismissed a motion to
compel in part because it was filed almost one month after the discovery
deadline). But when a properly filed discovery motion is pending, a district
court should not grant summary judgment without first considering whether
more discovery is required. See Smith v. City of Jackson, 351 F.3d 183, 197
(5th Cir. 2003); Wichita Falls Office Assocs. v. Banc One Corp., 978 F.2d 915,
919 n.4, 919–20 (5th Cir. 1992); Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d
1257, 1267 (5th Cir. 1991).
Here, the district court failed to address the motion to reconsider the
proffered exemplar documents that Brand Services alleges would show that
Irex failed to properly respond to the discovery requests and to supplement as
directed by the magistrate judge. Brand Services claims it moved to compel
immediately after discovering the responsive documents in the Pennsylvania
litigation. There is some indication that Brand Services could not have
reasonably discovered these documents sooner: Irex’s initial blanket objections
to Brand Services’s discovery request were grossly improper, and thereafter
Irex did little to comply with Brand Services’s requests. Therefore, Brand
Services was arguably diligent in seeking these documents even though it did
not discover them until after the discovery deadline had passed. At a
minimum, Irex’s conduct in this discovery proceeding is highly questionable
and bears further examination in light of the exemplar documents. Thus, the
district court improperly granted summary judgment without fully examining
Brand Services’s unaddressed discovery motion.
We further conclude that the district court erred in granting summary
judgment on Brand Services’s LUTSA claim because, even disregarding the
Pennsylvania documents, Brand Services presented at least some evidence of
the amount of its unjust-enrichment damages.
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To recover damages under LUTSA, “a complainant must prove (a) the
existence of a trade secret, (b) a misappropriation of the trade secret by
another, and (c) the actual loss caused by the misappropriation.” Reingold, 126
F.3d at 648 (internal citations omitted) (citing LA. STAT. ANN. §§ 51:1431,
1433). “A complainant also may recover for the unjust enrichment caused by
misappropriation that is not taken into account in computing damages for
actual loss.” § 51:1433.
At summary judgment, “the nonmovant must identify specific evidence
in the record . . . sufficient to sustain a finding in favor of the nonmovant on all
issues as to which the nonmovant would bear the burden of proof at trial.”
Johnson v. Deep E. Tex. Reg’l Narcotics Trafficking Task Force, 379 F.3d 293,
301 (5th Cir. 2004). We have previously suggested, applying Louisiana and
other states’ laws, that a plaintiff fulfills its burden for proving trade secret
damages by identifying evidence a jury could use to reasonably estimate
damages in its favor. See Bohnsack v. Varco, L.P., 668 F.3d 262, 280 (5th Cir.
2012); Reingold, 126 F.3d at 651; Univ. Computing Co. v. Lykes-Youngston
Corp., 504 F.2d 518, 545 (5th Cir. 1974). A plaintiff need not prove precise
damages, Bohnsack, 668 F.3d at 280; indeed, uncertainty in damages should
not preclude recovery, Wellogix, 716 F.3d at 879. But a plaintiff must be able
to show “the extent of the damages as a matter of just and reasonable inference,
although the result be only approximate.” Id.
The district court determined that Brand Services failed to provide a just
and reasonable inference of its damages. We disagree. Although Brand
Services provided little in the way of detail about its claim that it spent
“millions” to design the software allegedly stolen, it has, at a minimum,
provided some evidence from which a jury could reasonably estimate unjust-
enrichment damages. For example, it demonstrated that Irex’s use of the
allegedly stolen information saved Irex at least two to three days a month in
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time spent invoicing. Even assuming that Irex’s administrative personnel
worked only an eight-hour day for minimum wage during those two to three
days saved, this is a reasonable inference of unjust-enrichment damages.
Thus, we conclude that Brand Services met its summary-judgment burden
regarding the amount of its damages. Accordingly, we REVERSE the district
court’s judgment on Brand Services’s LUTSA claim.
We now turn to Brand Services’s common-law conversion claim. We ask
only whether, in theory, there can be a common-law conversion claim that
survives LUTSA preemption. The district court went no further, so even if we
determine that a theoretical claim could exist, we will not reach the question
of whether the evidence supports such a claim here. We conclude that LUTSA
preempts a common-law claim for conversion of trade secrets, but does not
preempt a common-law conversion claim for confidential information that is
not a trade secret.
Because the Louisiana Supreme Court has not decided this issue, we
must make an “Erie 3 guess” as to how it would do so. In re Katrina Canal
Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007). We look first to Louisiana’s
primary sources of law—here, LUTSA—and then to the decisions of state
intermediate courts. Id. “[A]lthough we will not disregard the decisions of
Louisiana’s intermediate courts unless we are convinced that the Louisiana
Supreme Court would decide otherwise, we are not strictly bound by them.”
Id.
LUTSA’s preemption provision states:
A. This Chapter displaces conflicting tort, restitutionary,
and other laws of this state pertaining to civil liability
for misappropriation of a trade secret.
B. This Chapter does not affect:
3 Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
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(1) contractual or other civil liability or relief that is not
based upon misappropriation of a trade secret, or
(2) criminal liability for misappropriation of a trade
secret.
LA. STAT. ANN. § 51:1437. Official commentary to the statute explains that
LUTSA “applies to duties imposed by law in order to protect competitively
significant secret information.” Id. cmt. (1981) (Louisiana Official Revision
Comments). But it does not apply to contractual duties or to “duties imposed
by law that are not dependent upon the existence of competitively significant
secret information, such as an agent’s duty of loyalty.” Id. A claim for
conversion of trade secrets plainly seeks protection of competitively significant
information. Thus, we conclude that the plain text of LUTSA would preclude
a common-law conversion claim involving confidential information that
qualifies as a trade secret under LUTSA.
We also conclude that if confidential information that is not a trade
secret is nonetheless stolen and used to the unjust benefit of the thief or
detriment of the victim, then a cause of action remains under Louisiana
common law. LUTSA’s uniformity provision instructs that LUTSA “shall be
applied and construed to effectuate its general purpose to make uniform the
law with respect to the subject of this Chapter among states enacting it.” LA.
STAT. ANN. § 51:1438. But courts interpreting their respective states’ versions
of the Uniform Trade Secret Act (“UTSA”) have not uniformly applied UTSA’s
preemption provision; instead, courts have come to varying conclusions about
the preemption provision’s intended scope. 4 Thus, because there is not enough
4 See Spitz v. Proven Winners N. Am., LLC, 759 F.3d 724, 733 (7th Cir. 2014)
(concluding that Illinois’s UTSA preempts claims “that are essentially claims of trade secret
misappropriation, even when the alleged ‘trade secret’ does not fall within the Act’s
definition”); Unique Paving Materials Corp. v. Fargnoli, 361 F. App’x 689, 690 (6th Cir. 2010)
(affirming without analysis the district court’s conclusion that Ohio’s UTSA preempted
claims for “conversion, misappropriation of trade secrets, tortious interference, and unfair
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uniformity among states to predict how the Louisiana Supreme Court would
decide the issue, we look to intermediate state court decisions. See In re
Katrina, 495 F.3d at 206.
The Louisiana appellate courts have twice held that LUTSA does not
preempt where non-trade secret information was at issue. 5 See B&G Crane
competition”); C&F Packing Co. v. IBP, Inc., 224 F.3d 1296, 1307–08 (Fed. Cir. 2000) (holding
that Kansas’s UTSA preempted a fraud claim where it was “indistinguishable from [the
plaintiff’s] trade secret misappropriation” claim); Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d
1316, 1330 (5th Cir. 1994) (concluding that LUTSA preempted a fiduciary duty claim
“grounded in . . . trade secret allegations”); Integrated Direct Mktg., LLC v. May, 495 S.W.3d
73, 76 (Ark. 2016) (concluding that “intangible property, such as electronic data, standing
alone and not deemed a trade secret, can be converted”); Am. Biomedical Grp., Inc. v.
Techtrol, Inc., 374 P.3d 820, 827 (Okla. 2016) (holding that Oklahoma’s UTSA preempts
“conflicting tort claims only for misappropriation of a trade secret” and “does not displace tort
claims for information not meeting this definition” (internal quotation marks and citation
omitted)); Orca Commc’ns Unlimited, LLC v. Noder, 337 P.3d 545, 547 (Ariz. 2014)
(concluding that the state’s UTSA “leaves undisturbed claims that are not based on
misappropriation of a trade secret,” including claims for misuse of confidential information
(internal quotation marks omitted)); Robbins v. Supermarket Equip. Sales, LLC, 722 S.E.2d
55, 58 (Ga. 2012) (concluding that Georgia’s UTSA did not except from its scope claims for
“the misappropriation of proprietary or confidential information”); BlueEarth Biofuels, LLC
v. Hawaiian Elec. Co., 235 P.3d 310, 323 (Haw. 2010) (concluding that Hawaii’s UTSA
preempts common law claims for misappropriation of trade secrets and other confidential
information); Burbank Grease Servs., LLC v. Sokolowski, 717 N.W.2d 781, 793–94 (Wis. 2006)
(holding that Wisconsin’s UTSA “leave[s] available all other types of civil actions that do not
depend on information that meets the statutory definition of a ‘trade secret’”); Savor, Inc. v.
FMR Corp., 812 A.2d 894, 898 (Del. 2002) (concluding that Delaware’s UTSA preempted
common law unfair competition and conspiracy claims where they were based on the same
alleged wrongful conduct as the trade secret claims); Mortg. Specialists, Inc. v. Davey, 904
A.2d 652, 664 (N.H. 2006) (“[T]he [New Hampshire UTSA] preempts claims that are based
upon the unauthorized use of information, regardless of whether that information meets the
statutory definition of a trade secret.”); Frantz v. Johnson, 999 P.2d 351, 357–58, 357 n.3
(Nev. 2000) (concluding that Nevada’s UTSA preempted various common law tort claims that
“arose from a single factual episode, namely misappropriation of bidding and pricing
information”); Weins v. Sporleder, 605 N.W.2d 488, 491 (S.D. 2000) (concluding that South
Dakota’s UTSA “prevents a plaintiff from merely restating their trade secret claims as
separate tort claims”); Fred’s Stores of Miss., Inc. v. M & H Drugs, Inc., 725 So. 2d 902, 908
(Miss. 1998) (concluding that the state’s UTSA only preempts claims that would fall with a
failed UTSA claim).
5Both of these cases concern breach of fiduciary duty claims, an area specifically
excepted from LUTSA’s preemption provision. We see no reason, however, that Louisiana
courts would think differently about a conversion claim.
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Serv., L.L.C. v. Duvic, 935 So. 2d 164, 166–67 (La. Ct. App. 2006); Defcon, Inc.
v. Webb, 687 So. 2d 639, 642–43 (La. Ct. App. 1997) (holding that LUTSA does
not preempt breach of fiduciary duty claims for misappropriation of
confidential information, as the statutory comments “make it clear that the Act
. . . does not apply to duties . . . that are not dependant [sic] upon the existence
of a trade secret”). These cases appear consistent with the plain text and stated
purpose of LUTSA’s preemption provision: to preempt tort claims “pertaining
to civil liability for misappropriation of a trade secret,” LA. STAT. ANN.
§ 51:1437, which the official commentary explains limits LUTSA’s preemption
to other laws that “protect competitively significant secret information,” id.
cmt. (1981) (Louisiana Official Revision Comments). Because Defcon and B&G
Crane support the plain-text reading of LUTSA’s preemption provision, we
conclude that LUTSA does not preempt common-law claims for conversion of
information that does not constitute a trade secret under LUTSA. Thus, we
REVERSE the district court’s judgment on Brand Services’s common-law claim
for conversion of confidential information outside the definition of a trade
secret without reaching the merits of that claim.
V. Conclusion
For the foregoing reasons, we REVERSE the district court’s judgment as
to Brand Services’s LUTSA claim and its common law claim for conversion of
allegedly non-trade secret information and REMAND for further consideration
in light of this opinion. We AFFIRM the summary judgment as to the common
law claim for conversion of trade secret information.
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