ATOM Instrument Corporation v. Petroleum An ( 2020 )


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  •      Case: 19-20151   Document: 00515519611     Page: 1   Date Filed: 08/07/2020
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT
    United States Court of Appeals
    Fifth Circuit
    FILED
    No. 19-20151                     August 7, 2020
    Lyle W. Cayce
    Clerk
    Consolidated with: 19-20371
    In the Matter of: ATOM INSTRUMENT CORPORATION, doing business as
    Excitron Corporation,
    Debtor
    ATOM INSTRUMENT CORPORATION, doing business as Excitron
    Corporation; FRANEK OLSTOWSKI,
    Plaintiffs - Appellants
    v.
    PETROLEUM ANALYZER COMPANY, L.P.,
    Defendant - Appellee
    Appeals from the United States District Court
    for the Southern District of Texas
    USDC No. 4:12-CV-1811
    Before ELROD, SOUTHWICK, and HAYNES, Circuit Judges.
    LESLIE H. SOUTHWICK, Circuit Judge:
    The plaintiff corporation filed for bankruptcy. It brought an adversarial
    proceeding against a former employer of the founder of the bankrupt, claiming
    misappropriation of trade secrets, unfair competition, and civil theft. The
    district court withdrew the reference to the bankruptcy court, held a bench
    trial, and entered a take-nothing judgment. The court also awarded attorneys’
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    fees to the defendant. We AFFIRM the judgment and fee award, and we
    REMAND to allow the district court to make the initial determination and
    award of appellate attorneys’ fees to Petroleum Analyzer.
    FACTUAL AND PROCEDURAL BACKGROUND
    Plaintiff Franek Olstowski once worked for the defendant Petroleum
    Analyzer Co., L.P., where he was a research and development consultant.
    While working there in 2002, Olstowski developed an excimer lamp using
    krypton-chloride to detect sulfur with ultraviolet fluorescence. There is no
    dispute that Olstowski developed the technology on his own time and in his
    own laboratory, but he also performed tests and generated data for the
    technology using Petroleum Analyzer resources. In 2003, and again in 2005,
    Olstowski and Petroleum Analyzer entered into non-disclosure agreements
    regarding the technology. The parties never were able to agree on licensing.
    During the period of the discussions, Olstowski applied for a patent for his
    technology, then twice amended it. The Patent and Trademark Office rejected
    his first application and his first amendment but accepted his second amended
    application. ATOM Instrument Corp. was started in 2004 by Olstowski to
    assist him in the failed licensing discussions with Petroleum Analyzer.
    In 2006, Petroleum Analyzer filed a lawsuit in the 269th District Court
    of Harris County, Texas, seeking a declaratory judgment that Petroleum
    Analyzer is the owner of the technology Olstowski developed. The state court
    ordered the claims to arbitration because the 2005 non-disclosure/non-use
    agreement contained an arbitration clause. The arbitration panel declared
    that Olstowski is the owner of:
    a.    the technology and methods embodied in the patent
    applications styled “Improved Ozone Generator with Duel
    Dielectric Barrier Discharge,” Improved Close-Loop Light
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    Intensity Control and Related Fluorescence Application
    Method;” and “Excimer UV Fluorescence Detection”;
    b.    all of the accompanying drawings, blueprints, schematics
    and formulas created or drawn by either Olstowski or Virgil
    Stamps of the application identified in or in support of ((a)
    and (b) hereinafter referred to as the “Excimer Technology”);
    and
    c.    Issued Patents and/or Patent Applications pending entitled:
    Ozone Generator with Dual Dielectric Barrier Discharge and
    Methods for Using Same, Improved Closed-Loop Light
    Intensity Control and Related Fluorescence Application
    Method, and Excimer UV Fluorescence Detection (as
    amended).
    The panel also concluded that the “[t]echnology and intellectual property
    embodied within the technology set forth in paragraph 5 (a)–(c) above are trade
    secrets of Olstowski.” Accordingly, the panel enjoined Petroleum Analyzer
    from claiming or using the technology. On November 6, 2007, the state court
    confirmed the arbitral award. A Texas appellate court upheld the confirmation
    order. Petroleum Analyzer Co. v. Olstowski, No. 01-09-00076-CV, 
    2010 WL 2789016
    , at *1 (Tex. App.—Houston [1st Dist.] July 15, 2010, no pet.).
    In 2009, Petroleum Analyzer partnered with a German company to
    develop its own sulfur-detecting excimer lamp called a MultiTek, which also
    used krypton-chloride to detect sulfur with ultraviolet fluorescence. Petroleum
    Analyzer manufactured and sold the MultiTek between November 2009 and
    October 2011.
    In December 2010, upon learning that Petroleum Analyzer was selling
    the MultiTek, Olstowski and ATOM filed a motion in state court to hold
    Petroleum Analyzer in contempt because Petroleum Analyzer violated the
    order enjoining it from using Olstowski’s technology. Petroleum Analyzer
    responded that the confirmation order had ambiguously defined the technology
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    that Petroleum Analyzer was enjoined from using. In August 2011, Olstowski
    and ATOM again moved to enforce the injunction, and in December 2011 they
    filed a second contempt motion. The state court granted the motion in part
    merely to clarify the meaning of the confirmation order.         The state court
    concluded that the phrase “technology developed by Olstowski” as used in the
    confirmation order “means technology using an excimer light source that uses
    Krypton-Chloride     specifically   to   measure   sulfur     using    ultraviolet
    fluorescence.” The state court, though, denied the contempt motion due to
    mootness: Petroleum Analyzer had ceased selling the MultiTek sometime
    between September and October of 2011. Significantly, the state court never
    decided whether Petroleum Analyzer’s MultiTek used Olstowski’s technology
    as defined by the arbitration panel and confirmation award.
    In February 2012, ATOM filed for bankruptcy under Chapter 11 of the
    Bankruptcy Code.     Two months later, Olstowski and ATOM initiated an
    adversary proceeding against Petroleum Analyzer, in which they alleged
    misappropriation of trade secrets, unfair competition, and civil theft. On the
    bankruptcy court’s recommendation, the district court withdrew the reference
    to the bankruptcy court and asserted jurisdiction under 28 U.S.C. § 1334. In
    August 2014, the district court entered partial summary judgment for
    Olstowski and ATOM, holding that Petroleum Analyzer “will be liable for using
    the trade secrets of Franek Olstowski and ATOM Instrument, LCC, if it used
    his technology in its MultiTek.”
    Four years later, the district court held a six-hour bench trial to
    determine if Petroleum Analyzer had used any of Olstowski’s protected
    technology. The court entered a judgment in favor of Petroleum Analyzer and
    later awarded attorneys’ fees to Petroleum Analyzer.
    Olstowski and ATOM filed two appeals, which we have consolidated. In
    one, they argue the district court made a legal error in holding that Petroleum
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    Analyzer did not use Olstowski’s technology. In the other, they challenge the
    district court’s award of attorneys’ fees to Petroleum Analyzer.
    DISCUSSION
    Olstowski and ATOM argue the district court made two errors:
    (1) finding that Petroleum Analyzer did not use Olstowski’s trade secrets in
    Petroleum Analyzer’s MultiTek and (2) awarding Petroleum Analyzer
    attorneys’ fees under the Texas Theft Liability Act. We consider the issues in
    that order.
    I.    Whether Petroleum Analyzer used Olstowski’s technology
    Because this “appeal requires the review of the district court’s ruling
    following a bench trial, we review the district court’s findings of fact for clear
    error and legal issues de novo.” Texas Capital Bank N.A. v. Dallas Roadster,
    Ltd. (In re Dallas Roadster, Ltd.), 
    846 F.3d 112
    , 127 (5th Cir. 2017). “We will
    reverse under the clearly erroneous standard only if we have a definite and
    firm conviction that a mistake has been committed.”
    Id. (quotation marks omitted).
    “If the district court made a legal error that affected its factual
    findings, remand is the proper course unless the record permits only one
    resolution of the factual issue.”
    Id. (quotation marks omitted).
          The district court’s findings and conclusions primarily addressed
    “whether the MultiTek used what the panel decided was Olstowski’s
    technology.” The district court rejected Olstowski and ATOM’s assertion “that
    Olstowski’s technology is any device using an excimer light source that uses
    krypton-chloride specifically to measure sulfur using ultraviolet fluorescence,”
    reasoning that the use of krypton-chloride “does not define the technology but
    rather describes its function.” The district court found that Olstowski and
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    ATOM failed to show “the MultiTek’s excimer lamp was sufficiently similar to
    Olstowski’s excimer lamp to be his technology.”
    In explaining that there was insufficient similarity between the
    MultiTek and Olstowski’s technology, the district court focused on three
    contrasting physical characteristics of the two excimer lamps:
    The MultiTek’s inner electrode is hollow — an aluminum spiral.
    Olstowski’s is solid — a rod of some conductive metal. The
    MultiTek does not have an emission aperture; Olstowski’s does.
    The emission aperture concentrates the output. Not having one
    allows the maximum output. Both lamps use krypton and chloride
    in some proportion. Whether they use those gases in the same
    proportion is unknown, because Olstowski did not tell Petroleum
    Analyzer what ratio of krypton and chloride he used.
    Accordingly, the district court found that “Petroleum Analyzer did not use
    Olstowski’s technology in its MultiTek.”
    Olstowski and ATOM first argue that the district court made a legal
    error by misconstruing what the arbitration panel declared Olstowski’s trade
    secrets included. A proper construction of the arbitration panel’s award, they
    argue, would indicate that the three physical differences highlighted by the
    district court are irrelevant as a matter of law. According to the arbitration
    panel’s award, Olstowski’s trade secrets include the “the technology and
    methods embodied in the patent applications styled . . . ‘Excimer UV
    Fluorescence Detection.’”     Olstowski and ATOM contend that patent
    application does not narrowly limit Olstowski’s protected technology to any
    specific structural details. Thus, the structural differences in Olstowski’s and
    Petroleum Analyzer’s technology are irrelevant. According to Olstowski and
    ATOM, the only relevant comparison is Petroleum Analyzer’s use of krypton-
    chloride in its MultiTek. Further, they assert the use of krypton-chloride is
    not merely a function of Olstowski’s protected technology as the district court
    found. Instead, it is a method protected by the panel’s trade-secret award.
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    Olstowski and ATOM base their entire case on Petroleum Analyzer’s use
    of krypton-chloride in the MultiTek. Further, because of the backdrop of the
    arbitration panel’s decision, they argue that what might otherwise look like a
    factual issue on the technology is actually a legal issue of interpretation of the
    panel decision. As they surely realize, it is difficult to argue that a legal
    question is posed when asking whether one company used another’s protected
    technology. We examine the argument to see if overcomes our doubts.
    The arbitration panel stated that the technology described in Olstowski’s
    patents is a trade secret. To be sure, the words “krypton” and “chloride” appear
    in the panel decision. Yet it was unclear to the district court, as it is unclear
    to us, how a gas and a chemical compound commonly used in lamps and lasers
    can be a trade secret.    Olstowski and ATOM could have provided expert
    testimony to show how the use of krypton-chloride is so unique to their device
    as to make it an integral part of their protected trade secret as opposed to a
    generic concept of physics, which is unprotected. They did not. The two
    witnesses they did call merely testified that Petroleum Analyzer’s MultiTek
    used krypton-chloride, a fact Petroleum Analyzer does not contest.
    We conclude that Olstowski and ATOM’s proclaimed legal issue is indeed
    a factual one, and that they failed to carry their burden of proof at trial. On
    this record, we cannot say that the district court’s finding of fact was clearly
    erroneous.
    Olstowski and ATOM also argue that the district court’s decision
    disregards the “law of the case,” which would be another means to transform
    resolution of this appeal into primarily a question of law. They contend that
    the state district and appellate courts confirmed the arbitration panel’s award
    of Olstowski’s trade secret, and that the state district court clarified the
    confirmation order’s description of the technology to include the use of krypton-
    chloride.    According to Olstowski and ATOM, the federal district court’s
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    judgment improperly altered the plain meaning of the previous orders. We
    find, first, that neither the arbitration panel award nor the state clarification
    order explicitly stated that the use of krypton-chloride itself was a protected
    trade secret. Second, ATOM and Olstowski asked the district court to “make
    a ruling . . . defining what technology in dispute belongs to [them], to the
    exclusion of” Petroleum Analyzer. The district court did so by a decision that
    did not deviate from the arbitration panel award or any other order. In fact,
    the district court stated that the arbitration panel award’s description of
    Olstowski’s technology remained in effect.
    The district court did not ignore the “law of the case.”
    II.    Attorneys’ fees
    After the district court entered its judgment on the merits of this dispute,
    Petroleum Analyzer moved for an award of attorneys’ fees under the Texas
    Theft Liability Act (“TTLA”). The Act states: “Each person who prevails in a
    suit under this chapter shall be awarded court costs and reasonable and
    necessary attorney’s fees.” TEXAS CIV. PRAC. & REM. CODE ANN. § 134.005(b).
    In April 2019, the district court awarded Petroleum Analyzer $1,319,260.78 in
    attorneys’ fees. Olstowski and ATOM timely appealed.
    “State law controls both the award of and the reasonableness of fees
    awarded where state law supplies the rule of decision.” Mathis v. Exxon Corp.,
    
    302 F.3d 448
    , 461 (5th Cir. 2002). In reviewing an award of attorneys’ fees, we
    apply an abuse of discretion standard. LifeCare Mgmt. Servs. LLC v. Ins.
    Mgmt. Adm’rs Inc., 
    703 F.3d 835
    , 846 (5th Cir. 2013). That means clear error
    review of fact findings and de novo review of legal conclusions.
    Id. One question before
    us is the need to segregate attorneys’ fees. That is a question
    of law; the extent to which certain claims can or cannot be segregated is a
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    mixed question of law and fact. Tony Gullo Motors I, L.P. v. Chapa, 
    212 S.W.3d 299
    , 312–13 (Tex. 2006).
    Olstowski and ATOM argue that the district court erred in failing to
    segregate Petroleum Analyzer’s fees that were not related to Petroleum
    Analyzer’s defense of their claim under the TTLA. Texas law requires that “[i]f
    any attorney’s fees relate solely to a claim for which such fees are
    unrecoverable, a claimant must segregate recoverable from unrecoverable
    fees.”
    Id. at 313
    . 
    The Texas Supreme Court explained: “Intertwined facts do
    not make tort fees recoverable; it is only when discrete legal services advance
    both a recoverable and unrecoverable claim that they are so intertwined that
    they need not be segregated.”
    Id. at 313
    –14. 
    For example, where segregation
    is required, attorneys are not required to “keep separate time records when
    they drafted the fraud, contract, or DTPA paragraphs of [the] petition.”
    Id. at 314.
    One way to present the facts is for counsel to estimate, “for example, 95
    percent of their drafting time would have been necessary even if there had been
    no fraud claim.”
    Id. Requests for standard
    disclosures, proof of background facts,
    depositions of the primary actors, discovery motions and hearings,
    voir dire of the jury, and a host of other services may be necessary
    whether a claim is filed alone or with others. To the extent such
    services would have been incurred on a recoverable claim alone,
    they are not disallowed simply because they do double service.
    Id. at 313
    (emphasis added).     “To meet a party’s burden to segregate its
    attorney’s fees, it is sufficient to submit to the fact-finder testimony from a
    party’s attorney concerning the percentage of hours” related to claims for which
    fees are not recoverable. Berryman’s S. Fork, Inc. v. J. Baxter Brinkmann Int’l
    Corp., 
    418 S.W.3d 172
    , 202 (Tex. App.—Dallas 2013, pet. denied) (alteration
    and quotation marks omitted).
    As an example of a failure to segregate, Olstowski and ATOM identify
    billing entries for work totaling $3,498 that occurred two days prior to their
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    first assertion of a claim under the TTLA. They say that these entries could
    not have been related to litigation of that claim since they had yet to make the
    particular claim. The total $3,498 amount should have been removed, they
    argue, not just the lesser portion that the district court did segregate. Another
    set of disputed billings relates to an adversary proceeding regarding two
    patents allegedly unrelated to the excimer technology dispute. Olstowski and
    ATOM contend that “numerous tasks” billed “potentially for tens of thousands”
    of dollars in the unrelated patent dispute were not segregated out by the
    district court.
    Petroleum Analyzer responds in two ways: it contends that these
    arguments were not timely made in the district court and, regardless, the work
    that is said to be unrelated to the judgment here was clearly related.
    Regarding possible waiver of the issue, there was a challenge to the fees in the
    district court on the basis that segregation of work was required. Though the
    argument was not presented in any detail beyond the portion of the billing
    entries totaling $3,498 that is contested, we conclude the district court
    addressed the issue of dividing the fees among different aspects of the overall
    dispute and the issues were not waived.
    We find no error as to the billing entries totaling $3,498 used as an
    example of the need for segregating the billings. Though the fees were billed
    for work done via mediation prior to the TTLA claims being filed, the work
    advanced Petroleum Analyzer’s attempt to resolve a threatened claim under
    the TTLA.
    Olstowski and ATOM’s more general claim about error in the award of
    fees is that legal work on different aspects of the dispute among the parties
    involved different patents and different proceedings, some in bankruptcy court
    and some before the district court after the referral was withdrawn. The
    district court considered this argument and concluded it was both difficult and
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    unnecessary to divide the fees, because the subsets of claims were too
    interrelated.   The court’s finding, it seems to us, was that none of the
    “attorney’s fees relate solely to a claim for which such fees are unrecoverable,”
    
    Chapa, 212 S.W.3d at 313
    , and thus there was no need to segregate.
    The district court’s interaction with counsel at the hearing on attorneys’
    fees is the best indicator of the findings on this point.
    THE COURT: Counsel, suggest to me how having pleaded these
    two legal theories that ATOM would segregate its fees had it won
    on just one of them.
    MR. JOSEPH (counsel for ATOM): Well, we would have had to
    have gone through and looked at the time we spent pleading Theft
    Liability Act, the different interrogatories and requests for
    production we sent.
    THE COURT: But they are not different. You did the same thing
    in prosecuting both claims as you would have done if you only had
    one of them.
    It seems to us that the court was saying that these “discrete legal services
    advance[d] both a recoverable and unrecoverable claim,” meaning they did not
    need to be segregated.
    Id. at 313
    –14. 
    Soon after that discussion, ATOM’s
    counsel stated what in his view was necessary in this kind of case:
    MR. JOSEPH: The methodology [employed by Petroleum
    Analyzer] is not incorrect. What you do is, like I said, you have to
    go back and go through your time. And, yes, it’s a tedious task to
    go through your time and look at how many paragraphs of your
    petition went to this claim versus all the other claims and how
    much discovery was specifically for this recoverable claim and the
    other one.
    The district court was not convinced that in this case, such segregation
    could be accomplished.
    THE COURT: But there is no way to divide this up. The same
    proof would have upheld either one of those claims by itself; and
    by choosing to be redundant, ATOM cannot reduce the attorneys
    fees that it took to prepare this case.
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    We see no failure by the district court to understand how the TTLA
    works on awarding attorneys’ fees. Whether and to what extent legal fees can
    be segregated is a mixed question of law and fact. 
    Chapa, 212 S.W.3d at 313
    .
    We find neither clear factual error nor legal error under de novo review.
    Last, Petroleum Analyzer seeks remand of this case for the district court
    to award Petroleum Analyzer appellate attorneys’ fees. 1 Under Texas law, if a
    party is entitled to recover attorneys’ fees in the trial court, the party is also
    entitled to attorneys’ fees after successfully defending on appeal. DP Sols., Inc.
    v. Rollins, Inc., 
    353 F.3d 421
    , 436 (5th Cir. 2003) (citing Gunter v. Bailey, 
    808 S.W.2d 163
    , 166 (Tex. App.—El Paso 1991, no writ)). Olstowski and ATOM
    contend that Petroleum Analyzer waived the right to recover appellate
    attorneys’ fees under Texas law because Petroleum Analyzer “failed to request
    or prove contingent appellate fees” in the original trial.
    The Texas Supreme Court has held that a Texas court of civil appeals
    does not have jurisdiction to initiate an award of appellate attorneys’ fees
    because “the award of any attorney fee is a fact issue which must [first] be
    passed upon the trial court.” International Sec. Life Ins. Co. v. Spray, 
    468 S.W.2d 347
    , 349 (Tex. 1971). In Texas state courts, requesting appellate fees
    at the original trial is a placeholder requirement to ensure the state trial courts
    maintain jurisdiction over the issue. Varner v. Cardenas, 
    218 S.W.3d 68
    , 69–
    70 (Tex. 2007). Those are procedural rules that do not apply in federal court.
    Our local rules provide for appellate litigants to petition this court for
    appellate attorneys’ fees. See 5TH CIR. R. 47.8. Local Rule 47.8 does not require
    a party seeking appellate attorneys’ fees to first request appellate attorneys’
    fees in the district court as a placeholder. See Marston v. Red River Levee &
    1 Though we acknowledge that Petroleum Analyzer’s request for appellate attorneys’
    fees was made in its appellee brief, we treat this request as a petition.
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    Drainage Dist., 
    632 F.2d 466
    , 467–68 (5th Cir. 1980) (awarding appellate
    attorneys’ fees first requested on appeal).
    We AFFIRM the judgment and trial fee award. We REMAND to allow
    the district court to make the initial determination and award of appellate
    attorneys’ fees to Petroleum Analyzer.
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