Irving REINGOLD, Plaintiff-Appellant, v. SWIFTSHIPS, INC., Defendant-Appellee.
No. 96-30173.
United States Court of Appeals, Fifth Circuit.
Oct. 16, 1997.
126 F.3d 645
Finally, Dowden‘s allegation that Blue Cross did not assert, in its answer, an affirmative defense that applies to the district court‘s decision, is without merit. Blue Cross affirmatively asserted its defense that Dowden‘s claims were not covered by the ERISA plan and were not medically necessary within the terms, condition and exclusions of the policy as legally construed by the plan administrator. Further, there is no requirement that Blue Cross rely on a fiduciary in order to fall within the abuse of discretion standard governing the interpretation the contract. Blue Cross may rely on its own plan administrator to interpret the contract of insurance. Bruch, 489 U.S. at 115, 109 S.Ct. at 956.
We find no error in the district court‘s holding that the ERISA plan vests discretionary authority in Blue Cross to make determinations as to the medical necessity of treatments. Blue Cross did not abuse its discretion in refusing to pay Dowden‘s claims under Blue Cross‘s interpretation of the plan terms.
AFFIRMED.
Antonio J. Rodriguez, Jon Wesley Wise, Barry A. Brock, Rice & Fowler, New Orleans, LA, for Plaintiff-Appellant.
Philip A. Franco, Sean Damian Moore, Adams and Reese, New Orleans, LA, for Defendant-Appellee.
Before KING, JOLLY and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
Appellant, Irving Reingold, appeals from the district court‘s partial summary judgment dismissing his actions against the appellee, Swiftships, Incorporated, under the Louisiana Uniform Trade Secrets Act and the Louisiana Unfair Trade Practices Act. We reverse and remand these actions to the district court.
We review a district court‘s grant of summary judgment de novo, applying the same standard of review as would the district court. See, e.g., Melton v. Teachers Ins. & Annuity Ass‘n of Am., 114 F.3d 557, 559 (5th Cir.1997); Dawkins v. Sears Roebuck and Co., 109 F.3d 241, 242 (5th Cir.1997) (citing Cockerham v. Kerr-McGee Chem. Corp., 23 F.3d 101, 104 (5th Cir.1995)). 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.
II.
Construing the record on summary judgment in the light most favorable to the non-moving party, Reingold, we find or infer the following facts.
Appellant Irving Reingold purchased a 90 foot portable female fiberglass boat mold from Thompson Industries of Titusville, Florida (“Thompson“) in 1983. Thompson had constructed the mold over a period of nine months at a cost of $1 million. The mold was cast from a plug, which is a hull turned upside down. To make such a mold multiple layers of fiberglass are laid on either side of a balsa wood core over a plug and the structure is braced externally with steel piping. The 90 foot mold built by Thompson was the largest structure of its kind in the United States at the time of its construction. Thompson used the mold to build two hulls for fiberglass boats which were sold to customers.
Swiftships, Incorporated (“Swiftships“) first contacted Reingold about purchasing or leasing the mold in 1986. At that time, Swiftships was attempting to secure a contract with the United States Navy to construct two fiberglass-hulled research survey vessels (“RSVs“). Swiftships had never built a fiberglass hull and owned no fiberglass mold of its own. Swiftships negotiated the agreement to produce the RSVs between
In October of 1990, Swiftships entered the RSV contract with the United States Navy. One week later, Swiftships signed a lease agreement with Reingold for use of the 90 foot mold. The five-year lease provided that Swiftships would pay Reingold $100,000 upon signing and an additional $145,000 each for the first two vessel hulls constructed from the mold. Swiftships also agreed to pay $20,000 for each additional hull made using the mold or $20,000 per year for any year in which a hull was not made from the mold. The terms of the lease required Swiftships to give advance written notice each time the mold was used to construct a hull. At the end of the lease, Swiftships was obligated to turn over any modifications of the mold and any plans for such modifications.
The mold was delivered to Swiftships in November of 1990. During the course of the lease, Swiftships made two hulls from the mold and paid Reingold in accordance with the lease. Swiftships also used the mold to make a third hull, which Swiftships contends was merely a thin “test liner.” Swiftships did not give Reingold notice or compensation for the third or “test” hull. In the meantime, Swiftships secured a second contract with the Government of Egypt to produce three 110 foot coastal minehunting vessels (“CMVs“). Swiftships hired Accurate Fiberglass, Incorporated (“Accurate“) to construct a 110 foot mold to be used in building the hulls for the CMVs. Swiftships instructed Accurate to use a portion of the third or “test” hull made from Reingold‘s 90 foot mold in constructing the 110 foot mold. Accurate incorporated the first 45 feet of the 90 foot “test” hull into the front portion of the 110 foot mold. Reingold contends that Swiftships used his 90 foot mold, without notifying or compensating him, to make the front 40 to 45 feet of a new 110 foot mold for the Egyptian ships and thereby misappropriated his trade secrets and committed unfair trade practices. Swiftships argues, however, that it used the bow portion of the “test” hull only as construction material that it reshaped and reformed according to independently derived design plans to make the new 110 foot mold. In May of 1994 Swiftships terminated the lease and returned the 90 foot mold to Reingold. Swiftships has refused, however, to turn over to Reingold the 90 foot “test” hull or to compensate him for its use.
III.
Reingold filed suit in December of 1994 alleging that Swiftships‘s actions in making and using the third hull constituted: (1) a breach of contract; (2) conversion; (3) fraud; (4) negligent misrepresentation; (5) a violation of the Louisiana Unfair Trade Practices and Consumer Protection Act (“LUTPA“); and (6) a violation of the Louisiana Uniform Trade Secrets Act (“LUTSA“). On April 20, 1995, Swiftships moved for summary judgment on the breach of contract claim, the deceptive trade practices claim, and the trade secrets claim. The district court denied the motion as premature because sufficient discovery had not been conducted to properly rule on the motion. The court set a trial date of August 28, 1995. At the pre-trial conference, Swiftships moved for a continuance as it was attempting to procure documents from the Copyright Office at the Library of Congress which, it averred, were relevant to its defense on the trade secrets claim, but had not yet been obtained. That motion was granted.
Swiftships filed a Supplemental Motion for Summary Judgment on September 7, 1995. The supplemental motion sought dismissal on the same grounds as the original summary judgment motion. The district court granted partial summary judgment and dismissed Reingold‘s claims under the LUTPA and the LUTSA.1 The district court provided no statement of reasons in its order. The district court then directed entry of final judgment in favor of Swiftships on the LUTPA and the LUTSA claims pursuant to
IV.
A.
Under the Louisiana Uniform Trade Secrets Act (LUTSA),
Trade secret
“Trade secret” means 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.
Id. § 1431(4)(a), (b).
Misappropriation
“Misappropriation” means ... 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:
...
(bb) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use[.]
Id. § 1431(2)(b).
A complete catalogue of the means which are “improper” for a person to acquire knowledge of the trade secret is not possible, but Section 1431(1) includes a partial listing: “theft, bribery, misrepresentation, breach, or inducement of breach of a duty to maintain secrecy, or espionage through electronic or other means.”
As the moving party, appellee Swiftships has the initial burden of demonstrating that the
In support of its motion, Swiftships filed the affidavit of its executive vice president, Calvin Le Leux. Le Leux stated that his company used Reingold‘s 90 foot ship mold only twice to build two RSVs for the United States Navy and paid Reingold each time pursuant to the lease. However, in connec-
In opposition to Swiftships‘s motion for summary judgment, Reingold filed the affidavit of William G. Preston, a naval architect, and the deposition of Billy Wayne Sproles, the individual at Accurate Fiberglass, Incorporated charged with making the 110 foot mold.
Preston stated that he had been retained as an expert in naval architecture by Reingold, he had inspected the “90’ female fiberglass mold, a 110’ male mold, and design documents relating to the 90’ vessel hulls and 110’ vessel hulls constructed by Swiftships.” Preston concluded that “the shape and dimensions of the first 40-45 feet of both molds are very similar and I believe it very likely that the 110’ mold is derived from or is a modification of the 90’ mold.” Preston further stated that “the design document produced by Swiftships ... is not the correct design drawing for the 110’ mold. The bow portion depicted in the drawing has a much more rounded shape than observed on the 110’ mold.”
In his deposition, Sproles, the individual at Accurate Fiberglass, Incorporated charged with making the 110 foot mold, stated that he was told by Swiftships to use the 40 to 45 forward portion of the 90 foot plug or test liner to form the forward section of the new 110 foot ship hull mold; that the forward portion of the 90 foot plug “became the hundred-and-ten-foot mold“; that the naval architects at Swiftships told him it was “not a prerequisite that the finished product match the dimensions that they had. They said, ‘Fair it in. Make it look right;‘” that in doing so he changed a portion of the forward section of the 90 foot plug two or three inches at the start of the keel or the forward forefoot area; and that the bracing inside the 90 foot plug was intended for a purpose other than a test because “it was pretty substantial and it wasn‘t something that you would look at and consider it to be a piece of junk or something you were just going to build and throw away.”
We conclude that Swiftships‘s summary judgment evidence does not demonstrate an absence of genuine dispute as to the material fact of whether Swiftships improperly used and substantially incorporated Reingold‘s 90 foot mold as the front end of its new 110 foot ship mold. On the contrary, Le Leux admitted that Swiftships used approximately 40 feet of the bow portion of the 90 foot plug taken from Reingold‘s 90 foot mold in the new 110 foot mold, although he contended that the bow section‘s shape and form were altered in the process. Preston presented evidence that tended to show that, contrary to Swiftships‘s assertion, the 110 foot mold had not been independently developed from design drawings, but had been derived from or was a modification of the hull or plug taken from the 90 foot mold. Sproles‘s deposition indicated that Swiftships had never intended to scrap the 90 foot plug pulled from Reingold‘s 90 foot mold, and that, after
Reading the record in the light most favorable to the nonmoving party, we conclude that Reingold established the essential elements of his trade secret claim, viz., the existence of a trade secret; the misappropriation of it by Swiftships; and the actual loss to Reingold caused by the misappropriation.
For purposes of testing the summary judgment motion, the record shows that Reingold‘s ship mold was a trade secret. First, it was a “device” that incorporated a “pattern, ... method, technique, or process” for the construction of ship hulls.
Second, the ship mold “derive[d] independent economic value... 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[.]”
Finally, the summary judgment evidence indicates that Reingold exerted efforts that were “reasonable under the circumstances to maintain its secrecy.”
According to the summary judgment record, during his ownership of the mold Reingold maintained exclusive control and did not disclose it to or allow its use by anyone prior to leasing it to Swiftships. Before allowing its use by Swiftships, Reingold entered a written lease with the company providing that the mold would be used exclusively by Swiftships, any movement of the mold from lessee‘s shipyard would be contingent upon Reingold‘s prior approval, the lessee would give advance written notice to lessor before using the mold in the construction of each vessel hull, the lessee would have exclusive and non-transferrable use of the mold, the lessee would not assign or transfer any interest in the mold, and the lessee, at the conclusion of the lease, would turn over all copies of the design data for any modifications made to the mold.
It reasonably can be inferred that Swiftships misappropriated Reingold‘s trade secret by acquiring and using it, through improper means, for a purpose to which Reingold did not expressly or impliedly consent.
As we noted above, Swiftships‘s evidence that it changed the shape and pattern of the bow portion of the 90 foot hull or plug before using it to form the bow portion of the 110 foot mold merely creates a disputed issue of fact. Moreover, “the user of another‘s trade secret is liable even if he uses it with modifications or improvements upon it effected by his own efforts, so long as the substance of the process used by the actor is derived from the other‘s secret.” Mangren Research & Dev. v. National Chem. Co., 87 F.3d 937, 944 (7th Cir.1996) (quoting In re Innovative Constr. Sys., Inc., 793 F.2d 875, 887 (7th Cir.1986)). “[I]f the trade secret law were not flexible enough to encompass modified or even new products that are substantially derived from the trade secret of another, the protections that the law provides would be hollow indeed.” Id. (citing Innovative Constr., 793 F.2d at 887; American Can Co. v. Mansukhani, 742 F.2d 314, 329 (7th Cir.1984)). As the Supreme Court remarked in dealing with the analogous problem of patent equivalents, “Outright and forthright duplication is a dull and very rare type of infringement.” Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605, 607, 70 S.Ct. 854, 855, 94 L.Ed. 1097 (1950). These precepts are evident in the LUTSA and have been derived by courts interpreting and applying virtually identical uniform trade secrets statutes. Although Louisiana cases have not yet precisely articulated these principles, we think the Louisiana courts would adopt them in keeping with the legislative mandate that courts apply and construe the LUTSA to effectuate its general purpose to make uniform the law with respect to trade secrets among the states enacting the Uniform Trade Secrets Act.
Under the LUTSA, a party proving trade secret misappropriation is entitled to recover the “actual loss caused by [the] misappropriation,” as well as any “unjust enrichment ... not taken into account in computing damages for actual loss.”
Finally, Swiftships contends that Reingold‘s mold cannot be a trade secret, arguing as follows:
Under Louisiana law, the complained of activity is not prohibited, because the hulls made from Reingold‘s mold were in the public domain and under the Louisiana Uniform Trade Secrets Act, the requirement of a secrecy is therefore not met. Swiftships, or anyone else, could have and still can take one of the five known 90’ hulls made from the mold and, using the direct molding process described in Bonito Boats case, create another mold to make additional hulls. As stated by the United States Supreme Court, this is a perfectly legitimate method of competition, and therefore, necessarily is legitimate under the Louisiana Uniform Trade Secrets Act. Any suggestion that it is not legitimate is in conflict with Louisiana Uniform Trade
Secrets Act, and is in conflict with federal patent law. (Appellee‘s Brief p. 29-30).
There are several flaws in Swiftships‘s argument. First, Swiftships assumes as a premise for its reasoning that hulls made from Reingold‘s mold are in the public domain, but there is no basis in the record for that proposition. Public domain is a legal concept. Mine Safety Appliances Co. v. Electric Storage Battery Co., 56 C.C.P.A. 863, 405 F.2d 901, 902 n. 2 (C.C.P.A.1969). Matter is in the public domain only if no intellectual property law, such as patent, copyright, or trade secrets, protects it. Id.; 1 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 1:2 (4th ed.1997). Swiftships apparently relies on the fact that one or two vessels were made from the mold and were sold to third parties. This fact alone, however, does not demonstrate that Reingold had no protectable intellectual property right in the 90 foot mold.
Second, assuming arguendo that the preexisting hulls were in the public domain, the mold itself may still be a trade secret. See Phillips v. Frey, 20 F.3d 623, 629 (5th Cir.1994) (applying Texas law and holding that a process for manufacturing a product can be a trade secret even if the product is not). To be a trade secret a thing need only derive independent economic value from not being generally known or readily available to others who can obtain economic value from its disclosure or use.
Finally, Swiftships‘s contention, even if true, that it could have reverse engineered a mold from an existing hull is beside the point. While state trade secret law cannot bar reverse engineering or independent discovery, Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 489-90, 94 S.Ct. 1879, 1889-90, 40 L.Ed.2d 315 (1974), protection will be accorded to a trade secret holder against disclosure or unauthorized use gained by improper means, even if others might have discovered the trade secret by legitimate means. See
B.
Reingold also asserts a cause of action under the Louisiana Unfair Trade Practices Act (LUTPA),
The LUTPA leaves particular determinations of what is an “unfair or deceptive method, act or practice” largely to the courts to decide on a case-by-case basis. Marshall v. Citicorp Mortgage, Inc., 601 So.2d 669, 670 (La.Ct.App. 5th Cir.1992); Roustabouts, Inc. v. Hamer, 447 So.2d 543, 548 (La.Ct.App. 1st Cir.1984); Omnitech, 11 F.3d at 1332; Turner v. Purina Mills, Inc., 989 F.2d 1419, 1422 (5th Cir.1993). The Louisiana courts have interpreted these terms to include “a practice that is unethical, oppressive, unscrupulous, or substantially injurious,” Bolanos v. Madary, 609 So.2d 972, 977 (La.Ct.App. 4th Cir.1992) (quoting Moore v. Goodyear Tire and Rubber Co., 364 So.2d 630, 634 (La.Ct.App.2d Cir.1978)); fraud, misrepresentation, deception, but not mere negligence, Marshall, 601 So.2d at 670-71; acts offensive to established public policy and immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, Monroe Med. Clinic, Inc. v. Hospital Corp. of Am., 622 So.2d 760, 781 (La.Ct.App.2d Cir.1993); and acts having some element of fraud, misrepresentation, deception or other unethical conduct, Dufau v. Creole Eng‘g, Inc., 465 So.2d 752, 758 (La.Ct.App. 5th Cir.1985). On the other hand, “the statute does not provide an alternate remedy for simple breaches of contract,” Turner, 989 F.2d at 1422 (citing State v. Orkin Exterminating Co., 528 So.2d 198, 202 (La.Ct.App. 4th Cir.1988)); or “prohibit sound business practices, the exercise of permissible business judgment, or appropriate free enterprise transactions.” Id.; Omnitech, 11 F.3d at 1332. Significantly, however, under the LUTPA the Louisiana courts appear to zealously guard against allowing managers, employees, and persons in a special position of trust to profit from their wrongdoing. Turner, 989 F.2d at 1422 (citing as an example National Oil Serv. of Louisiana v. Brown, 381 So.2d 1269 (La.Ct.App. 4th Cir.1980)); see also Roustabouts, 447 So.2d 543; Dufau, 465 So.2d 752; Potvin v. Wright‘s Sound Gallery, Inc., 568 So.2d 623 (La.Ct.App.2d Cir.1990).
From the pleadings, depositions, affidavits and other evidence of record, we conclude that a reasonable trier of fact could find or infer that Swiftships intentionally defrauded Reingold by surreptitiously using his 90 foot mold to construct a third 90 foot hull or plug, which Swiftships used by modification or incorporation to create a new 110 foot mold; that the 110 foot mold was in substance derived from Reingold‘s 90 foot mold without his knowledge or consent; that Swiftships used the new 110 foot mold, without Reingold‘s knowledge or consent, to build 110 foot vessels for profit under contract with the Government of Egypt; that Swiftships has contracted with third persons to build additional vessels with the 110 foot mold; that Swiftships refuses to compensate Reingold for its surreptitious uses of the 90 foot mold and the 110 foot mold; that Swiftships terminated the lease and refused to turn over to Reingold the 110 foot mold; that this constituted a intentional conversion of the 110 foot mold because that device was in substance a modification of the 90 foot mold; that Swiftships was obliged to turn over all such modifications both under the lease and by virtue of its relationship of trust as a licensee of Reingold; that Swiftships denies its fraud and concealment and intends to continue producing vessels with the 110 foot mold that it derived from the 90 foot mold without compensating Reingold. Reingold specifically alleges that these deliberate acts of fraud and misappropriation constitute unfair trade practices under the LUTPA. We agree.
Drawing inferences from the underlying facts contained in the materials in the light most favorable to the party opposing the motion for summary judgment, we conclude that Swiftships‘s acts were far more reprehensible than a mere breach of contract or a sound business judgment. Cast in this light, Swiftships‘s conduct amounted to intentional deception, fraud, misrepresentation, and unethical conduct. As Reingold‘s licensee, Swiftships was placed in a special position of trust with regard to Reingold‘s trade secret and should not be permitted to profit from its wrongdoing in misappropriating it and in refusing to turn over all molds and hulls derived therefrom. Swiftships‘s intentional
Swiftships argues, however, that Reingold‘s LUTPA action is prescribed because Section 1409(E) provides that such an action “shall be prescribed by one year running from the time of the transaction or act which gave rise to this right of action.”
Because this matter is before us following a grant of summary judgment, however, we make no intimations regarding the correctness vel non of either party‘s factual assertions or the final outcome after a trial on the merits. Rankin v. Klevenhagen, 5 F.3d 103, 108 (5th Cir.1993).
For the reasons assigned, the District Court‘s judgment is REVERSED and the actions are REMANDED for further proceedings consistent with this opinion.
E. GRADY JOLLY, Circuit Judge, concurring in part and dissenting in part:
I join in the court‘s opinion with respect to parts I, II, III, and IV.A. Because I am convinced that Reingold‘s LUTPA claim is prescribed by the statute of limitations, however, I respectfully dissent from part IV.B.
The statute provides that any claim under the LUTPA “shall be prescribed by one year running from the time of the transaction or act which gave rise to th[e] right of action.”
The majority says that the termination of the lease was itself a wrongful act, inasmuch as it amounted to a “conversion” of the 110’ mold. It argues that the entire 110’ mold was a “modification” of the 90’ mold under the lease between Reingold and Swiftships, and that Swiftships was required to turn it over to Reingold upon terminating the lease.
This holding1 is plainly mistaken, as it depends on a distorted reading of the lease agreement that its words simply will not bear. With regard to modifications, the sole clause in the lease was the following:
Lessee may modify the Mold as it desires in order to meet the design requirements of its contracts but at the conclusion of this Agreement, Lessee shall promptly turn over to Lessor copies of the design data for any modifications made to the Mold and Lessor shall have the right to use the mold as modified.
Looking closely at the plain language of this provision, and noting in particular the phrases “modifications made to the Mold” and “right to use the mold as modified,” it seems quite clear that this clause speaks only of minor modifications made to the physical substance of the 90’ mold itself, not derivations of the 90’ mold‘s design. My impression accords with Webster‘s, who defines modification as “the making of a limited change in something.” Webster‘s Seventh New Collegiate Dictionary (Merriam 1963) (emphasis added). The making of the 110’ mold was neither a limited change nor a change “in” the 90’ mold. As such, the 110’ mold was not a modification of the 90’ mold, and there was no contractual duty with regard to it upon termination of the lease. The termination was therefore in no way a wrongful act which could give rise to a cause of action under the LUTPA, and consequently it is irrelevant for purposes of considering the statute of limitations.
I therefore respectfully dissent from the majority‘s holding that the LUTPA claim is not barred by the statute of limitations.