ORDER AND REASONS
SECTION “N”(2) Flag Section “C”
Before the Court is Smart Business Technology, Inc. (“SBT”), Serafín Fuente (“Fuente”) and Carlos Romero’s (“Romero”) (SBT, Fuente and Romero are collectively referred to as “Defendants”) Motion to Dismiss, brought pursuant to Federal Rule of Civil Procedure 12(b)(6). Rec. Doc. 41. Plaintiff First American Bankcard, Inc. (“Plaintiff’ or “FABI”) opposes the motion. Rec. Doc. 48. The Court granted Defendants’ leave to reply to Plaintiffs opposition. Rec. Doc. 60. Upon review of the record, the arguments of the parties, and applicable law, the Court GRANTS IN PART and DENIES IN PART, with an prder for Plaintiff to file an amended and superseding complaint as set forth below.
I. BACKGROUND
This case centers on a failed business relationship between Plaintiff FABI and Defendant SBT. Rec. Doc. 31 (First-Amended Complaint). Defendants Fuente and Romero are officers of SBT: Id. FABI provides cash access services to casinos across the country. Id. at 3. FABI alleges that, beginning in 2009, FABI and SBT executed a number of agreements to expand and upgrade FABI’s cash access services, such as automatic teller machines (ATMs), and its two flagship products known as FABICash and FABITrack. Id. at 3-4. FABICash allows casinos to process cash advance and check cashing transactions and electronically captures signatures allowing casino operators to document and verify credit arid debit transactions. Id. at 3. FABITrack is designed to allow casino operators to fulfill their reporting obligations to the Internal Revenue Service under The Bank Secrecy Act, 31 U.S.C. § 310. Id.
According to FABI’s amended complaint, SBT’s, President, Fuente, traveled to Louisiana in 2009 in order to meet with FABI’s president and discuss the' services SBT could offer FABI. Id. at 4. Starting in June 2009, several agreements outlining projects to be completed by SBT in exchange for professional service fees from FABI were entered into by the two companies. Id.
The business relationship grew through 2012, culminating in a formal agreement meant to “confirm, clarify and expand upon” FABI and SBT’s past agreements. Id. However, FABI alleges SBT never provided the products and services contemplated, or those that were provided were of “inferior quality and reliability.” Id. at 5. Further, FABI contends there were significant delays in the development of the products FABI had hoped to expand and upgrade due to “SBT’s lack of care,
FABI contends that on or around March 2014, SBT was acquired by Powa Technologies, Inc. (“Powa”). Id. FABI alleges that Powa began directing the affairs of SBT and became a “direct participant in the acts and omissions” giving rise to FABI’s lawsuit. Particularly, FABI cites to various communications that were conducted with FABI by Powa’s former Vice President of Legal, Valerie Chianuri, on behalf of Powa and SBT. Id.
On March 2, 2015, FABI filed a diversity jurisdiction action against SBT, Fuente and Romero (two of SBT’s officers), and POWA Technologies Limited, alleging a variety of Louisiana state law claims sounding in breach of contract, tortious interference, fraud, and conversion. See Rec. Doc. 1. On August 31, 2015, the Court granted plaintiffs motion to amend the complaint — filed in response to a motion to dismiss by POWA Technologies Limited— which substituted in Powa, the actual purchaser and owner of SBT. See Rec. Doc. 31.
On October 5, 2015, SBT and its officers filed the instant motion to dismiss for failure to state a claim under Fed. R. Civ. Pro. 12(b)(6). Rec. Doc. 41. Plaintiff has responded in opposition. Rec. Doc. 48. Defendants were granted leave to file a reply to Plaintiffs response. Rec. Doc. 60. On October 14, 2015, Powa filed its own motion to dismiss alleging lack of personal jurisdiction, which was granted on March 31, 2016. Rec. Doc. 66.
In their motion, SBT and its officers seek to have five claims dismissed, in whole or part, under Fed. R. Civ. Pro. 12(b)(6), specifically: (1) the Louisiana Uniform Trade Secrets Act (“LUTSA”) claim against SBT, Fuente and Romero; (2) the fraudulent concealment claim against SBT, Fuente and Romero; (3) the redhibition claim against SBT; (4) the Louisiana Unfair Trade Practices Act (“LUTPA”) against SBT; and (5) thé conversion claim against Fuente and Romero. Rec. Doc. 41.
II. ARGUMENTS OF THE PARTIES
A. Louisiana Uniform Trade Secrets Act (LUTSA) Claim
Defendants argue that the complaint fails to allege they acquired trade secrets by improper means, and fails to allege that they disclosed and/or used trade secrets. Without these allegations, Defendants contend the claim should be dismissed under Fed. R. Civ. Proc. 12(b)(6). See Rec. Doc. 41-3 at 2-6, and Rec. Doc. 60 at 1-2. Plaintiff argues that Defendants improperly withheld the program, software and data (the “work products”) and that in itself is a violation of LUTSA. Further, Plaintiff alleges it is not necessary to allege both improper acquisition and disclosure, and that only one is enough. See Rec. Doc. 48 at 4-6.
B. Fraudulent Concealment Claim
Defendants argue that under Louisiana law, there is no cause of action for fraudulent concealment, or in the alternative that Plaintiff failed to allege a fraud claim with particularity regarding any duty to speak or disclose and/or any fiduciary duty owed by Defendants to Plaintiff. See Rec. Doc. 41-3 at 6-9. Plaintiff contends that it has
C.Redhibition Claim
Defendants argue Plaintiffs claim for redhibition should be dismissed for one of three reasons: (1) there is no cause of action for redhibition because the contract at issue was not for the sale of a thing; (2) in the alternative, if there is a valid claim of redhibition, that claim is prescribed; or (3) in the alternative, if there .is a valid claim of redhibition, it was waived or is estopped by plaintiffs continued use. See Rec. Doc. 41-3 at 9-19.
D. Louisiana Unfair Trade Practices Act (LUTPA) Claim
. - Defendant SBT argues that Plaintiffs LUTPA claim is merely a rehashing of its breach of contract claim and none of the actions complained of rise to the level of “egregious.” Rec. Doc, 41-3 at 19-20. Plaintiff maintains that determinations of what constitutes an “unfair trade practice” are to be made by the courts on a case-by-case basis. See Rec. Doc. 48 at 18. In addition, FABI argues it has made detailed allegations of SBT’s actions which were intended to punish or harm Plaintiff. Id. In response, SBT avers that LUTPA’s prohibited practices are “extremely narrow,” and unethical actions are not per se a violation of LUTPA. See Rec. Doc. 60 at 8.
E. Conversion Claim
Defendants seek to have only the conversion claims against Fuente and Romero dismissed. See Rec. Doc. 41-3 at 21. The basis of Defendants’ argument for dismissal is that Fuente and Romero are shielded from liability for corporate debts as officers of the corporation acting within their corporate capacity. Id. FABI maintains that since Fuente and Romero personally participated in the alleged act of conversion, they can be held personally liable for the conversion. See Rec. Doc. 19-20. Defendants’ response reiterates their earlier arguments and emphasizes the state policy for shielding corporate officers from corporate debts. See Rec. Doc. 60 at 9-10.
A motion to dismiss under Rule 12(b)(6) may be granted when a complaint fails to allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly,
On a motion to dismiss, the court must take all well-pleaded factual allegations of the complaint as true and draw all reasonable inferences in favor of the plaintiff. In re Katrina Canal Breaches Litigation,
A. Louisiana Uniform Trade Secrets Act (LUTSA) Claim
Under LUTSA, a trade secret is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(a) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and
(b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
La. R.S. § 51:1431(4). To succeed on a LUTSA claim for damages from a misappropriation, a claimant must prove (1) the existence of a trade secret; (2) a misappropriation of the trade secret by another; and (3) the actual loss caused by the misappropriation. Reingold v. Swiftships, Inc.,
“Misappropriation” is defined in the statute as:
(a) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(b) disclosure or use of a trade secret of another without express or implied consent by a person who:
(i) used improper means to acquire knowledge of the trade secret; or
(ii) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was:
(aa) derived from or through a person who had utilized improper means to acquire it; (bb) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(cc) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(iii) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
La. R.S. § 51:1431(2). Further, the statute defines “improper means” to include: theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. La. R.S. § 51:1431(1). However, this is only a partial list of means of acquisition that would be deemed “improper.” Reingold,
The agreement between Plaintiff and SBT states that all “completed computer programs, deliverables, and all other works of authorship developed and created by [SBT] for FABI pursuant to [their pri- or agreements], belong exclusively to FABI...” Rec. Doc. 31-1 at 1-2,
Plaintiff has alleged that SBT has continued to refuse to turn over the source code and “the fully-populated configuration tables, customer lists, and financial records” that are Plaintiffs proprietary information. Rec. Doc. 31 at 8. As a result, Plaintiff argues it has incurred expenses to re-create the work products. Id. However, Plaintiff has not alleged that Defendants have used the work products in any improper applications nor disclosed the work products to any third parties. See id.
Plaintiffs claim rests on the allegation that Defendants have only improperly withheld the work products. SBT legitimately acquired the work products through either Plaintiffs conveyance, or developed them for FABI per the written
B. Fraudulent Concealment Claim
Fraud under Louisiana law entails a “misrepresentation or suppression of the truth made with .the intention to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other.” La. Civ. Code art. 1953. The Fifth Circuit has stated the requisite elements of a fraud claim are: “(1) a misstatement or omission; (2) of material fact; (3) made with the intent to defraud; (4) on which the plaintiff relied; and (5) which proximately caused the plaintiffs injury.” Williams v. WMX Techs.,
For claims of fraud by silence or omission, there first must be a duty to speak. Greene v. Gulf Coast Bank,
Recently, the Louisiana Supreme Court reiterated that state law “‘recognizes that the refusal to speak, in the face of an obligation to do so, is not merely unfair, but is fraudulent.’ ” Lomont v. Myer-Bennett,
Louisiana courts have “tended to impose a duty [to speak] when the circumstances are such that the failure to disclose would violate a standard requiring conformity to what the ordinary ethical person would have disclosed.” Bunge Corp.,
However, fraud by omission or silence “ ‘is by its very nature difficult to plead with particularity.’ Because it does not involve an affirmative misrepresentation, it often does not occur at a specific place or precise time, or involve specific persons.” Chrysler Credit Corp. v. Whitney Nat’l Bank,
Plaintiff has alleged the exact information withheld (only one dedicated server was utilized to host the work products instead of two, resulting in a lack of redundancy), and the dates of omissions (from 2009 until 2014). The main deficiency with Plaintiffs claim is its allegation regarding Defendants’ duty to speak. Plaintiff asserts that a “relationship of professional trust” between the parties gave rise to the duty to speak. FABI contends it was reasonable to rely on statements and information conveyed by the Defendants because the Defendants held themselves out as experts and FABI would not have had access to the same information as Defendants.
Defendants’ motion asks, in the alternative to a dismissal of the claim, for an order requiring Plaintiff to plead the fraudulent concealment claim with particularity. The Court agrees. Plaintiff is thus granted twenty-one days from the issuance of this Order to file an amended complaint to more particularly plead its fraudulent concealment claim, specifically, its factual basis for the argument that Defendants had a duty to disclose. Plaintiff must state facts specific to this claim, rather than reiterating the same facts and allegations as alleged for its breach of contract claim.
For these reasons, Defendants’ Motion to Dismiss is DENIED without prejudice as to Plaintiffs fraudulent concealment claim, and Plaintiff is granted leave to amend its complaint.
C. Redhibition Claim
Louisiana Civil Code Article 2520 provides for the “avoidance of a sale on account of some vice or defect in the thing sold, which renders it either absolutely useless, or its use so inconvenient and imperfect, that it must be supposed that the buyer would not have purchased it, had he known of the vice.” Defects that diminish the thing’s usefulness or its value, without rendering it totally useless, are also redhibitory since it must be presumed the buyer would still have bought the thing but for a lesser price. Chastant v. Oasys Imaging, Inc.,
The thing sold must be reasonably fit for its ordinary use.
When the seller has reason to know the particular use the buyer intends for the thing, or the buyer’s particular purpose for buying the thing, and that the buyer is relying on the seller’s skill or judgment in selecting it, the thing sold must be fit for the buyer’s intended use or for his particular purpose.
The threshold issue is whether' the agreement between SBT and FABI was a contract of sale or a species of a contract “to do” or “to build.” A contract “to build” or “to do” is defined in La. C.C. Arts. 2756 and 2757: “To build by a plot, or to work by the job, is to undertake a building or a work for a certain stipulated price,” and “a person who undertakes to make a work, may agree, either to furnish his work and industry alone, or to furnish also the materials necessary for such a work.” Courts have considered three major factors in determining whether a contract is one of a sale or one to build or do: “(1) in a contract to build, the ‘purchaser’ has some control over the specifications of the object; (2) the negotiations in a contract to build take place' before the object is constructed; and (3) a building contract contemplates not only that the builder will furnish the materials, but that he will also furnish his skill and labor in order to build the desired object.” Alonzo v. Chifici,
However, Louisiana courts have routinely found, in the context of software development and computer programming, that the developers are more analogous to manufacturers, and therefore the contracts are for a sale. See id. “A seller is deemed to know that the thing he sells has a redhibitory defect when he is a manufacturer of that thing.” Id. Louisiana courts have found that software developers are “considered to be the manufacturer and are thus presumed to know of any defect.” Id. See also Land & Marine Services, Inc. v. Diablo Data Systems, Inc.,
The next issue is whether the prescriptive period on the claim has run or whether it was interrupted by Defendants’ efforts to repair. The Fifth Circuit has held that “[a] statute of limitations may support dismissal under Rule 12(b)(6) where it is evident from the plaintiffs pleadings that the action is barred and the pleadings fail to raise some basis for tolling or the like.” Jones v. Alcoa, Inc.,
Prescription is interrupted when the seller accepts the thing for repairs and commences anew from the day he returns it back to the buyer, or notifies the buyer of his refusal or inability to make the repairs. La. C.C. Art. 2534. Waiver of red-hibition occurs when the buyer continues to use the thing with knowledge of the defect and fails to tender it for repair within a reasonable time. See Granger v. Deville,
FABI claims the defects with the programs and systems developed by SBT began in 2010. However, the agreement at issue was signed by the parties in 2012, which Defendants claim equates to a waiver of all redhibitory claims. Louisiana Civil Code Article 2522 requires that a buyer must give the seller notice of the defect within a sufficient time to allow the seller the opportunity to make the required repairs. However, this notice is not required when the seller has actual knowledge of the existence of the defect. La. C.C. Art. 2522. Plaintiff argues that SBT was told of all issues and problems with the work products as they occurred, and continuously made efforts to rectify the problems, but Plaintiff alleges it did not know the issues it was experiencing with the work products were a result of a defect in SBT’s work. Defendants maintain that if the redhibition claim is not prescribed, then it must be waived since FABI continued to use the programs. A genuine issue of fact exists as to whether FABI waived any redhibition claim it had, and in regards to prescription, the extent of its knowledge of the defects and the extent SBT undertook repairs as directed by Plaintiff. Although the Court therefore denies Defendants’ motion at this time, it would entertain a properly supported Federal Rule of Civil Procedure 56 motion on this claim, in the event discovery warrants such a motion.
For these reasons, Defendants Motion to Dismiss is DENIED as to the redhibition claim. Plaintiff is granted leave to amend its complaint within twenty-one days of the issuance of this order to plead all necessary, relevant facts to comport with this Court’s order.
D. Louisiana Unfair Trade Practices Act (LUTPA) Claim
Louisiana Revised Statute Section 51:1401, et seq., known as the Louisiana Unfair Trade Practices Act (LUTPA), governs Plaintiffs claim of unfair trade practices. Under LUTPA: “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.” La. Rev. Stat. § 51:1405(A). LUTPA pro
The threshold issue for LUTPA claims is whether a business which is not a direct competitor or individual consumer purchasing for personal, family or household use, has standing to bring a claim under LUTPA. The Fifth Circuit’s only case on point, Orthopedic Sports Injury Clinic v. Wang Labs., Inc.,
The U.S. Fifth Circuit, however, has not had occasion to revisit its holding in Wang Labs since the Cheramie opinion was reléased. An-apparent split amohg federal- district courts has subsequently emerged: In this district, Judge Vance has found that a'non-competitor business had standing when it alleged ascertainable losses as a result of unfair and deceptive acts (NOLA Fine Art v. Ducks Unlimited, Inc.,
A federal court sitting in diversity is required to apply the law of the state, as declared by its legislature or the state’s highest court. See Erie v. Tompkins,
A successful LUTPA claim requires a showing that the defendant engaged in conduct that “offends established public policy and.. .is immoral, unethical, oppressive, unscrupulous, or substantially injurious.” Cheramie,
Additionally, LUTPA is not an alternative remedy for simple breach of contract claims. Id. “There is a great deal of daylight between a breach of contract claim and the egregious behavior the statute proscribes,” Id. However, there is case law that actions that are in breach of a contract can have deceptive and unethical “undertones” that would allow a LUTPA claim to stand in addition to the breach of contract claims. See Tubos de Acero de Mex. SA v. Am. Int’l Inv. Corp,
Plaintiff has based its LUTPA claim on allegations that SBT “refus[ed] to cooperate” during the transition period, “threatened] to destroy FABI’s business by disabling the work products” before the transition, misrepresentation, seeking additional concessions from FABI before releasing requested materials, providing incomplete or out-of-date materials and theft of Plaintiffs trade secrets. Rec. Doc. 31 at 23. These allegations are similar to the breach of contract claim, but they are not identical as Defendants claim in their motion, since there are different elements alleged for each claim. See Rec. Doc. 31 at 10-11. However, Plaintiff has not included enough details to determine whether the actions alleged are “immoral, unethical, oppressive, unscrupulous, or substantially injurious” so as to give rise to a LUTPA claim.
For these reasons, Defendants Motion to Dismiss is DENIED as to the Louisiana Unfair Trade Practices Act claim. Plaintiff is granted leave to amend its complaint within twenty-one days of the issuance of this order to plead all necessary, relevant facts to comport with this Court’s order.
E. Conversion Claim
Under Louisiana law, a conversion occurs when:
(1) possession is acquired in an unauthorized manner;
(2) the chattel is removed from one place to another with the intent to exercise control over it;
(3) possession of the chattel is transferred without authority; •
(4) possession is withheld from the owner or possessor;
(5) the chattel is altered or destroyed;
(6) the chattel is used improperly; or
(7) ownership is asserted over the chattel.
Dual Drilling Co. v. Mills Equip. Invs.,
FABI has alleged its conversion claim against SBT, and Fuente and Romero individually. Defendants’ motion only seeks to have the conversion claim against Fuente and Romero dismissed. Rec. Doc. 41-3 at 21. Generally, under Louisiana law, third parties do not have a cause of action against corporate directors and officers for negligence, mismanagement, breach of fiduciary duty, or for debts of the corporation. Cameron Equip. Co. v. Stewart & Stevenson Servs.,
Thus, there are exceptions to the general rule shielding corporate officers from liability. In addition to facing liability for their own fraud or wrongdoing, corporate officers can be “held personally liable for damages resulting from [their] acts of conversion committed on behalf of the corporation.” Tubos,
FABI has not alleged the specific actions taken by defendants Fuente and Romero to convert FABI’s property. Without specific allegations that Fuente and Romero, as officers of SBT, personally participated in the act of conversion, the Court cannot evaluate whether FABI has a claim against Fuente and Romero.
For these reasons, Defendants Motion to Dismiss is DENIED as to the conversion claim against Fuente and Romero. Plaintiff is granted leave to amend its complaint within twenty-one days of the issuance of this order to plead all necessary, relevant facts to comport with this Court’s order.
Considering the foregoing,
IT IS HEREBY ORDERED that the defendants Smart Business Technology, Inc., Serafín Fuente and Carlos Romero's Motion to Dismiss (Rec. Doc. 41) is:
■A. GRANTED as to Plaintiffs claim under the Louisiana Uniform Trade Secrets Act. Plaintiffs claims under the Louisiana Uniform Trade Secrets Act against all defendants are hereby DISMISSED WITH PREJUDICE;
B. DENIED as to Plaintiffs claim for fraudulent concealment against all defendants;
C. DENIED as to Plaintiffs claim for redhibition against Smart Business Technology, Inc.;
D. DENIED as to Plaintiffs Louisiana Unfair Trade Practices Act claim against Smart Business Technology, Inc.; and
E. DENIED as to Plaintiffs conversion claim against Serafín Fuente and Carlos Romero.
IT IS FURTHER ORDERED that Plaintiff has twenty-one (21) days from the issuance of this Order to file an amended Complaint containing specific facts to each claim:
A. To more particularly plead its fraudulent concealment claim against all Defendants, specifically its argument that Defendants had a duty to disclose;
B. To plead all necessary and relevant facts for its redhibition claim;
C. To plead all necessary and relevant facts for its Louisiana Unfair Trade Practices Act claim against Smart Business Technology, Inc.; and
D. To plead all necessary and relevant facts for its conversion claim against Serafín Fuente and Carlos Romero.
IT IS FURTHER ORDERED that Plaintiffs amended complaint filed in accordance with this Order shall supersede all prior complaints and shall include and restate all prior paragraphs on which it relies for each remaining claim.
IT IS FURTHER ORDERED that Plaintiff notify the Court if it wishes to abandon any of these claims due to insufficient facts, rather than amending its complaint as ordered.
Notes
. It should be noted that the language quoted by Defendants on pages 9-10 of their memorandum in support of their motion to dismiss as being from a decision by Judge Berrigan is not accurate. The case cited does not contain this quote, and the order cited is actually about service of process and entry of default judgment. Allstate Ins. Co. v. Riverside Roofing & Constr., Inc.,
. Generally, a motion to dismiss submitted with documents outside of the pleadings converts -it to a motion for summary judgment. Tuley v. Heyd,