Judgment rendered June 29, 2022. Application for rehearing may be filed within the delay allowed by Art. 2166, La. C.C.P.
No. 54,601-CA
COURT OF APPEAL SECOND CIRCUIT STATE OF LOUISIANA
*****
PRAESES, L.L.C. Plaintiff-Appellant
versus
DANA S. BELL AND BLUE LINE Defendant-Appellees INNOVATIONS, LLC
Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 624,726
Honorable Craig O. Marcotte, Judge
DOWNER, JONES, MARINO & WILHITE Counsel for Appellant By: Allison A. Jones Michael A. Marino
COOK, YANCEY, KING & GALLOWAY Counsel for Appellees By: Elizabeth M. Carmody Luke D. Whetstone
Before MOORE, COX, and THOMPSON, JJ. MOORE, C.J.
Praeses, LLC appeals a judgment that denied its request for a
temporary restraining order (“TRO”) and preliminary injunction to enjoin its
former employee, Dana Bell, from breaching the separation agreement she
signed when she left the company, from disclosing or using alleged trade
secrets she got while working for the company, in violation of the La.
Uniform Trade Secrets Act (“LUTSA”), La. R.S. 51:1431-39, and from
executing a contract with a third party that would, in Praeses’s view, breach
the agreement and violate the law. We affirm.
FACTUAL BACKGROUND
Praeses is a software and telecom company with much of its business
devoted to analyzing phone systems for correctional facilities (“CFs”).
According to Praeses, it has developed “proprietary internal auditing
formulas, methods and processes,” including cross-referencing enormous yet
very specific data sets, and it currently provides these analytics to about 300
CFs. It claims that its “formulas, methods and processes” are unique,
superior, and irreproducible: even though the contracts it has entered with
various CFs become public records, nobody examining them would be able
to understand them – unless they had learned the system from Praeses. It
therefore considers its processes to be trade secrets.
Ms. Bell holds a BS in Finance from LSU-Shreveport, became a
Series 7 licensed financial adviser while working for Morgan Stanley, a
large investment bank, and managed her husband’s family business, Bell
Machine Co. In February 2009, Ms. Bell applied to Praeses and was hired
as a national accounts manager; she signed an employment agreement obligating her to keep the trade secrets confidential. She left in February
2013, but returned in July 2014, this time as recruiting coordinator, signing
another employment agreement. She was later promoted to director of
corporate affairs, which included the CFs operation. According to Praeses,
in January 2018, Ms. Bell helped assemble a response to a request for
proposals (“RFP”) from the Alabama Department of Corrections, using all
of Praeses’s trade secrets.
Later that month, for reasons not disclosed in the record, Praeses
terminated Ms. Bell. She was immediately cut off from the company’s
computer network and software, and ordered to return the company laptop.
On March 2, 2018, Praeses presented her, and she signed, a separation
agreement and general release (“Separation Agreement”) that included a
two-year noncompetition and nonsolicitation clause. It also had a
confidentiality clause, in which Ms. Bell recognized that Praeses has
“proprietary interest in * * * business methods and systems, * * * research
and development activities, * * * systems manuals procedures, * * * and
similar documents and products relative to the operation of the Employer’s
business[,]” and she agreed that she would “continue to maintain the
confidentiality of such information.” She further agreed that, in the event of
a breach, Praeses was entitled to “immediate injunctive relief, without the
necessity of establishing irreparable injury.” In exchange, Praeses gave her
a $31,250 severance payment, which, it stressed, was not required under
Louisiana’s at-will employment law.
Ms. Bell testified that after she left Praeses, she took a job with NCIC
Inmate Communications, as an independent consultant, performing work
similar to (but more expansive than) the analytics provided by Praeses. She 2 then worked as director of business development for Corizon Health, which
coordinates healthcare for CFs and responds to RFPs.
Over two years later, in April 2020, the Commonwealth of
Kentucky’s Department of Corrections (“KYDOC”) issued an RFP for
inmate telecom consulting services. This was a contract previously held by
Praeses, but Ms. Bell testified that she had never worked on the KYDOC
contract while there. She quickly formed her own business, Blue Line
Innovations, LLC (“BLI”), and assembled a response to the RFP. She
testified that she did this using Microsoft Excel, Word, Adobe, and various
“interfaces” from the KYDOC website. She submitted it and ultimately
proposed a management fee of 3.92% of gross revenue, or a monthly flat fee
of $19,295.
Praeses also submitted a response to KYDOC’s RFP, using its unique
“formulas, methods and processes.” Ultimately, it proposed a management
fee of 11% of net revenue, including inmate phone, video visitation, tablets,
electronic funding, and recoupment payments.
KYDOC accepted BLI’s proposal. Shocked to have lost this very
lucrative account, Praeses filed an open records request with KYDOC.
Going over the winning proposal, Praeses recognized that BLI was run by its
former employee, Ms. Bell, and then decided that BLI’s approach to the
analytics was “too close” to Praeses’s own formulas, methods, and
processes, which it considered trade secrets.
PROCEEDINGS IN THE DISTRICT COURT
Praeses filed this suit on July 9, 2020, against Ms. Bell and BLI,
seeking a TRO and injunction to prevent them from “unauthorized
appropriation” of its trade secrets. An affidavit from Praeses’s president 3 asserted that while she worked there, Ms. Bell became intimately familiar
with its trade secrets, used those in her response to KYDOC, and thereby
misappropriated Praeses’s confidential information. The petition alleged
that her response to the KYDOC RFP was a breach of the Separation
Agreement, a violation of LUTSA, and a violation of the Louisiana Unfair
Trade Practices Act, La. R.S. 51:1405. Praeses did not actually file its
motion for TRO and preliminary injunction until nearly two weeks later,
July 21, 2020.
The district court fixed the bond at $10,000 and granted the TRO on
July 23. Ms. Bell moved to dissolve the TRO, showing that Praeses had also
filed a protest with KYDOC and, as a result, the contract with BLI had been
halted. Ms. Bell felt there was nothing to enjoin.
The matter proceeded to trial over three days in August 2020. Only
two witnesses testified.
For Praeses, the witness was Ann Day, the director of the company’s
Correctional Services Division.1 She stated that the methods they use are
not things one can gather on an Excel spreadsheet or by simple math; the
data is complicated; the system is a “unique parsing,” which took years to
develop. Praeses takes special steps to ensure its confidentiality, including
two-step authentication to access the system, and only 30 of the 88
employees are even allowed to use it (but Ms. Bell was one of them). Over
and over again, Ms. Day stressed how unique and abstruse their methods
were, and how zealously they try to guard them. She admitted that other
businesses compete with Praeses, but those competitors’ proposals come
1 Adam Rosen, the company’s president, who filed the detailed affidavit in support of the TRO, was not called to testify. 4 nowhere near Praeses’s product, for its breathtaking analytical depth. That
was, of course, until they saw BLI’s proposal: its “methodology and
approach” were “really familiar.” Ms. Day meticulously walked through
various portions of the KYDOC proposals from both BLI and Praeses: even
though BLI’s were not nearly as complete, they were so similar that they
could not have been done without “inside knowledge.” To better illustrate
her point, Ms. Day also discussed proposals from other competitors, such as
Secured Perimeters International, Fidelis, and NCIC, to other CFs. Those
proposals, reproduced in various exhibits, were, in her view, simplistic and
superficial compared to Praeses’s.
On cross-examination, Ms. Day was asked what compilations,
exactly, were proprietary. She responded, “It’s not just compiling,” “not just
straightforward mathematical formulas,” and “nobody can find this out
unless they work for Praeses.” She admitted that some of the desired
analysis can be inferred from KYDOC’s RFP and website, but nobody had
ever used Praeses’s “very unique process.” “There’s no class for this stuff.”
She also admitted that after Ms. Bell left the premises in January 2018, she
had no more access to Praeses’s proprietary information, but she was
adamant that Ms. Bell could not possibly have retained all this process just
from memory. Ms. Day estimated that, based on KYDOC’s projected
annual revenue, Praeses’s proposal would cost about $330,000 a year, and
BLI’s, about $231,000.
On redirect, Ms. Day reiterated her conviction that “business records
are trade secrets.” She also insisted that Ms. Bell had played an active part
in preparing Praeses’s proposal for the Alabama DOC, and this experience
was probably what lodged the unique processes in Ms. Bell’s mind. 5 After Ms. Day stepped down, and Praeses rested its case, BLI moved
for involuntary dismissal. The court denied this, commenting that Praeses
had “made a prima facie case.”
For BLI, Ms. Bell described her background – BS in Finance from
LSU-Shreveport, employment at Morgan Stanley, Series 7 certification, and
employment at Bell Machinery and Corizon Health – implying that she had
some natural ability with numbers and professional experience with figuring
government contracts. She denied that she played any part in the Alabama
DOC proposal while she worked at Praeses. BLI’s KYDOC response, she
maintained, was based entirely on data from the telecom provider and the
specific requests in the RFP, processed with Excel, Word, and Adobe. She
admitted that her figures were not as detailed as Praeses’s – Praeses scored
much higher on KYDOC’s technical count – but they were good enough,
with her lower bottom line, to win the contract. She described Praeses’s
vaunted “debit usage report” as not much different from balancing a
checkbook. On cross-examination, she maintained that Praeses’s work is
not “so unique.”
ACTION OF THE TRIAL COURT
After taking the case under advisement, the court rendered an opinion
citing the basic law of injunction, La. C.C.P. art. 3601, and jurisprudence
that preliminary injunction is proper if the plaintiff makes a “prima facie
showing” of the factors, Fluid Disposal Specialties Inc. v. Unifirst Corp.,
50,356 (La. App. 2 Cir. 1/13/16), 186 So. 3d 210.
The court then found, as a fact, that Praeses did not prove a
“protectable trade secret,” as Ms. Day, the only witness, “failed to articulate
exactly what methods, processes, formulas or systems are purported by 6 Praeses to be proprietary or susceptible of being proprietary.” Further, an
employee is not required to ignore general information acquired by
experience and committed to memory, Theatre Time Clock Inc. v. Stewart,
276 F. Supp. 593 (E.D. La. 1967), and Ms. Bell acquired general
information and knowledge by experience. The court also noted that Ms.
Day admitted that various items were not being claimed as trade secrets –
formatting or generating the kind of reports that BLI submitted to KYDOC,
the names of proposed reports, and the individual maintenance summary
report.
Next, the court found that the Separation Agreement did not “create” a
trade secret: a confidentiality agreement cannot transform information that is
generally known into a trade secret, citing Cason v. Chesapeake Oper. Inc.,
47,084 (La. App. 2 Cir. 4/11/12), 92 So. 3d 436, 178 Oil & Gas Rep. 986,
writ denied, 12-1290 (La. 9/28/12), 98 So. 3d 840. Finally, the court noted
that if there was any loss, Praeses could recover damages later.
The court rendered judgment dissolving the TRO and denying the
preliminary injunction. Praeses appealed suspensively.
APPLICABLE LAW
A preliminary injunction is a procedural device interlocutory in nature
and designed to preserve the existing status pending a trial of the issues on
the merits of the case. La. C.C.P. art. 3601; Levine v. First Nat’l Bank of
Com., 06-0394 (La. 12/15/06), 948 So. 2d 1051; Tanner v. Succession of
Bourland, 52,918 (La. App. 2 Cir. 11/20/19), 285 So. 3d 104. A preliminary
injunction may be issued on merely a prima facie showing by the plaintiff
that he is entitled to relief. Rand v. City of New Orleans, 17-0596 (La.
12/6/17), 235 So. 3d 1077; Tanner v. Succession of Bourland, supra. The 7 grant or denial of preliminary injunction will not be disturbed except for a
clear abuse of the trial court’s discretion. Rand v. City of New Orleans,
supra; Board of Sup’rs v. McCalmont, 54,451 (La. App. 2 Cir. 5/25/22), __
So. 3d __.
The Louisiana Uniform Trade Secrets Act is intended to prevent one
person or business from profiting from a trade secret developed by another,
because it would thus be acquiring a free competitive advantage. Bihm v.
Deca Sys. Inc., 16-0356 (La. App. 1 Cir. 8/8/17), 226 So. 3d 466; Omnitech
Int’l Inc. v. Clorox Co., 11 F. 3d 1316 (5 Cir. 1994), cert. denied, 513 U.S.
815, 115 S. Ct. 71, 130 L. Ed. 2d 26 (1994). The operative definition
appears in La. R.S. 51:1431 (4):
(4) “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.
Actual or threatened misappropriation may be enjoined. La. R.S.
51:1432 A; Innovative Manpower Solutions LLC v. Ironman Staffing LLC,
929 F. Supp. 2d 597 (W.D. La. 2013).
The threshold question in every trade secrecy case is whether a legally
protectable trade secret exists in fact. Fox v. Fox, 49,619 (La. App. 2 Cir.
4/22/15), 164 So. 3d 359, writ not cons., 15-1162 (La. 9/18/15), 177 So. 3d
1063; Marine Pile Drivers LLC v. Welco Inc., 43,498 (La. App. 2 Cir.
8/13/08), 988 So. 2d 878. Information that is generally known or readily
ascertainable is not considered to be confidential. S. Indus. Contractors LLC
v. W. Bldrs. of Amarillo Inc., 45,779 (La. App. 2 Cir. 12/15/10), 56 So. 3d 8 307; Arco Oil & Gas Co. v. DeShazer, 94-504 (La. App. 3 Cir. 11/2/94), 649
So. 2d 11/2/94), 649 So. 2d 444; NCH Corp. v. Broyles, 749 F. 2d 247 (5
Cir. 1985). A confidentiality agreement does not transform information that
is generally known into a trade secret. Arco Oil & Gas Co. v. DeShazer,
supra; Elizabeth A. Rowe, When Trade Secrets Become Shackles: Fairness
and the Inevitable Disclosure Doctrine, 7 Tulane J. Tech. & Intell. Prop. 167
(Spring 2005), and citations therein; Rick J. Norman, La. Prac. Emp. Law §
14:16, Liability to Employer (Nov. 2021 Update), and citations therein.
Whether information or property is a trade secret and whether a party
has improperly disclosed it are questions of fact subject to manifest error
review. Fox v. Fox, supra; Marine Pile Drivers LLC v. Welco Inc., supra;
NCH Corp. v. Broyles, supra.
DISCUSSION
Praeses has designated two assignments of error, but raises a prefatory
argument: the standard for getting a preliminary injunction is that the
plaintiff must make a “prima facie showing that it is entitled to the relief
requested” (emphasis added). Mary Moe LLC v. La. Bd. of Ethics, 03-2220
(La. 4/14/04), 875 So. 2d 22. When the district court denied BLI’s motion
for involuntary dismissal, it commented that Praeses had made a “prima
facie showing.” From this, Praeses suggests that when it rested its case-in-
chief, it made a showing sufficient to obtain the preliminary injunction, and
the issue was settled.
In an action tried by the court without a jury, after the plaintiff has
completed the presentation of his evidence, any party, without waiving his
right to offer evidence in the event the motion is not granted, may move for
a dismissal of the action as to him on the ground that upon the facts and law, 9 the plaintiff has shown no right to relief. La. C.C.P. art. 1672 B. The
standard for ruling on the motion is that the court “may then determine the
facts” and either grant or deny the involuntary dismissal. Id. At times,
courts refer to this standard by the shorthand term “prima facie showing,” as
in Phillips v. State, 43,143 (La. App. 2 Cir. 3/19/08), 978 So. 2d 1223.
However, this means only that the court wishes to hear all the evidence
before ruling, and does not necessarily create a conclusive finding to support
an injunction under La. C.C.P. art. 3601 A. It is permissible for a court to
deny a defendant’s motion for involuntary dismissal, hear the defendant’s
evidence, and then deny the plaintiff’s request for preliminary injunction.
Brookwood-Riverside LLC v. Baton Rouge Water Works Co., 20-1173 (La.
App. 1 Cir. 5/25/21), 327 So. 3d 1. The district court’s ruling on BLI’s
motion for involuntary dismissal did not resolve the issue of injunctive
relief. Praeses’s contention lacks merit.
LUTSA Violation
By its second assignment of error, Praeses urges that the district court
erred in determining that Praeses did not make a prima facie showing that it
was entitled to a preliminary injunction to protect its trade secrets. It
contends that its “methods, formulas and processes” met every essential
element of a trade secret under R.S. 51:1431 (4): they have independent
economic value, they are not generally known or readily ascertainable, they
were subject to reasonable efforts to maintain their secrecy, and Ms. Bell
was under an obligation not to use or disclose them. It suggests the case is
analogous to Technical Indus. Inc. v. Banks, 419 F. Supp. 2d 903 (W.D. La.
2006), in which the court found that the plaintiff proved that its “Visonic”
pipe inspection process “has not been successfully completed by any other 10 company” and was therefore subject to an injunction under LUTSA.
Finally, it submits that it showed irreparable injury, even though R.S.
51:1432 A dispenses with this requirement. Any appropriation of a trade
secret, it shows, must be enjoined. Bihm v. Deca Sys. Inc., supra; Newsouth
Comms. Corp. v. Universal Tel. Co. LLC, 2002 WL 3126558 (E.D. La.
2002).
In support, Praeses cites Ms. Day’s testimony that its reconciliation
services provide a unique way of identifying relevant information from call
data, understanding the data and isolating the relevant information,
efficiently validating the data to generate precise, verified reports, and
summarizing the whole in an easily understood final report. Praeses shows
over 300 CFs nationwide pay for its reports, proving their independent
economic value. It contrasts the reports of its competitors, which are
obviously less detailed and more generic than its own; in Ms. Day’s view,
this proved that Praeses’s services are not generally known or readily
ascertainable. Finally, it shows that it took reasonable measures to protect
the confidentiality of its process, as is broadly stated in the Separation
Agreement.
Of course, an alternative explanation was offered by BLI and Ms.
Bell. They established that about 85% of Praeses’s clients are public
government entities, whose contracts and agreements are matters of public
record, readily accessible and ascertainable, and cannot be considered
confidential or proprietary. In fact, in response to this KYDOC RFP,
Praeses included two reports,2 together with descriptions of what these
These were the “Monthly Remittance Detail Report” and “Monthly Facility 2
Summary Report.” 11 reports contained, all of which was available by public records request. BLI
also showed that Ms. Bell had considerable education and experience in
responding to RFPs, analyzing data, reading contracts, and managing
systems. She was perfectly candid in stating that she studied the KYDOC
RFP, modeled her response on the existing KYDOC contract, and used data
from KYDOC’s telecom provider. She also explained that reports similar to
Praeses’s, though nowhere near as complex, could be generated using Excel,
Word, and Adobe.
In light of the witnesses’ conflicting testimony, we are disinclined to
reverse the district court’s findings. However, further confirmation is
readily seen in the “KYDOC RFP Review and Comparison,” admitted as
Exhibit P-28. This shows that on “Executive Summary” (11 requirements,
savings and efficiencies, examples of report, and description of processes),
out of a maximum of 200 points, Praeses scored 140, compared to BLI’s 90.
On “Implementation Plan” (timeline, problems/complaints, and transition),
out of a maximum 300, Praeses scored 230; BLI scored 210. On
“Experience” (company background, other correctional agencies, and
qualifications), out of a maximum of 100, Praeses scored 80; BLI scored 40.
It was only on “Cost,” out of a maximum of 400 points, that BLI outscored
Praeses, 400 to 93. By this objective measure, and in the view of KYDOC
itself, BLI’s proposal was noticeably inferior to Praeses’s in terms of
technical sophistication and utility to the agency. In short, if Ms. Bell had
really misappropriated Praeses’s secret methods, processes, and systems, the
results would have been much closer to the original. This distinguishes the
case from Technical Indus. Inc. v. Banks, supra, in which the court found
12 that the technique being used by the defendant was the same as the
distinctive Visonic technology developed by the plaintiff.
In light of this large body of evidence, much of it conflicting, we are
unwilling to say that the district court erred in finding no protectable trade
secret. The court commented on Ms. Day’s rather mechanical intonation of
the phrase “methods, processes and systems,” coupled with an inability to
articulate just what they were. The court also noted Ms. Bell’s education,
experience, and initiative; this court would add, she showed great
practicality and complete candor in explaining how she produced her RFP
response. In short, we find no manifest error or abuse of discretion. This
assignment of error lacks merit.
Breach of Contract
By its first assignment of error, Praeses urges the court erred in failing
to grant a preliminary injunction to preclude Ms. Bell from breaching her
contractual obligations. In support, it cites the plain meaning rule of La.
C.C. art. 2046: “When the words of a contract are clear and explicit and lead
to no absurd consequences, no further interpretation may be made in search
of the parties’ intent.” It contends that in both of its employment agreements
and in the Separation Agreement, Ms. Bell accepted the company’s
definition of trade secrets and agreed to keep them confidential; and that, in
the event of a breach, Praeses was entitled to injunctive relief without having
to show irreparable injury. It lists the individual reports that it claims Ms.
Bell misappropriated from its own unique system and Ms. Day’s testimony
13 that each of these is a trade secret.3 Praeses urges this court to reject Ms.
Bell’s opinion to the contrary as self-serving.
The threshold question in every trade secrecy case is whether a legally
protectable trade secret exists in fact. Fox v. Fox, supra; Marine Pile
Drivers LLC v. Welco Inc., supra. The district court’s finding that
information or property is, or is not, a trade secret and whether a party has,
or has not, improperly disclosed it are questions of fact subject to manifest
error review. Fox v. Fox, supra; Marine Pile Drivers LLC v. Welco Inc.,
supra; NCH Corp. v. Broyles, supra. For the reasons already discussed, this
court has found no manifest error in the district court’s conclusion that
Praeses failed to prove a protectable trade secret. Without proof of this,
there can be no injunctive relief.
Moreover, we agree with the jurisprudence and scholarly commentary
that a confidentiality agreement cannot transform information that is
generally known into a trade secret. Arco Oil & Gas Co. v. DeShazer,
supra; Elizabeth A. Rowe, op. cit. at 188-189; Rick J. Norman, op. cit. at
“iv. Duty to Protect Trade Secrets.” This record supports the district court’s
finding that the contents of BLI’s response, while perhaps beyond the ken of
the average citizen, were not misappropriated from Praeses; they could be
inferred from the structure of the RFP, data from KYDOC’s telecom
providers, data processing available in Excel, Word, and Adobe, and general
accounting principles that Ms. Bell obviously had mastered. We perceive no
abuse of the district court’s discretion. This assignment of error lacks merit.
3 These are the “Monthly Facility Report,” “Free Call Analysis Report,” “Station Summary Report,” “Excessive Calls to a Single ANI Report,” “Statistical Call History,” and “Quarterly Call Analysis.” 14 CONCLUSION
For the reasons expressed, the judgment is affirmed. All costs are to
be paid by the appellant, Praeses, LLC.
AFFIRMED.