REVISED UNITED STATES COURT OF APPEALS For the Fifth Circuit
No. 96-30173
IRVING REINGOLD,
Plaintiff-Appellant,
VERSUS
SWIFTSHIPS, INC.,
Defendant-Appellee.
Appeal from the United States District Court for the Western District of Louisiana
October 16, 1997 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.
I.
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 Cockerhan 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. FED. R. CIV. P. 56(c). On summary
judgment the inferences to be drawn from the underlying facts
contained in the affidavits, depositions, and exhibits of record
must be viewed in the light most favorable to the party opposing
the motion. United States v. Diebold, Inc., 369 U.S. 654, 655
(1962).
II.
Construing the record on summary judgment in the light most
favorable to the nonmoving 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
-2- 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 1986 and 1990.
During that time, Swiftships continued conversations with Reingold
over the terms of a lease or a purchase of the 90 foot mold.
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
-3- 3 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.
-4- 4 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
1 The district court denied summary judgment as to Reingold’s claims for breach of contract. Trial has been scheduled for October 20, 1997.
-5- 5 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 Federal Rule of Civil
Procedure 54(b). Reingold filed this appeal challenging the grant
of partial summary judgment. In this diversity jurisdiction
lawsuit, we look to the law of Louisiana to determine the
substantive rights of the parties under both of appellant’s claims.
IV.
A.
Under the Louisiana Uniform Trade Secrets Act (LUTSA), LA.
R.S. 51:1431-39, a complainant may recover damages for the actual
loss caused by the misappropriation of a trade secret. Id. § 1433.
In order to recover damages, a complainant must prove (a) the
existence of a trade secret, Pontchartrain Med. Labs. Inc. v. Roche
Biomedical Labs. Inc., 667 So. 2d 1086, 1090 (La. Ct. App. 1st Cir.
1996); Engineered Mechanical Serv., Inc. v. Langlois, 464 So. 2d
329, 333 (La. Ct. App. 1st Cir. 1984), (b) a misappropriation of
the trade secret by another, and (c) the actual loss caused by the
misappropriation. LA. R.S. 51:1431, 1433. The LUTSA adopts the
Uniform Trade Secrets Act (UTSA) definitions of “trade secret” and
“misappropriation,” in pertinent parts, as follows:
Trade secret
“Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
-6- 6 (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.”
Id.; see also United Group of Nat’l Paper Distr., Inc. v. Vinson,
666 So. 2d 1338, 1345 (La. Ct. App. 2d Cir. 1996); Pontchartrain
Med. Labs, 677 So. 2d at 1091; Sheets v. Yamaha Motors Corp., 849
-7- 7 F.2d 179, 183 (5th Cir. 1988); Vault Corp. v. Quaid Software Ltd.,
655 F. Supp. 750, 763 (E.D. La. 1987), aff’d on other grounds, 847
F.2d 255 (5th Cir. 1988).
As the moving party, appellee Swiftships has the initial
burden of demonstrating that the Rule 56(c) test--“no genuine issue
as to any material fact”--is satisfied and that it is entitled to
judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986); Higginbotham v. State Farm Mutual Auto. Ins. Co.,
103 F.3d 456, 458 (5th Cir. 1997); 10A CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE AND PROCEDURE § 2727 (2d ed. 1983 & Supp. 1997).
In support of its motion for summary judgment Swiftships sought to
show that it had not misappropriated Reingold’s 90 foot ship mold.
Specifically, Swiftships attempted to demonstrate that, contrary to
Reingold’s allegations, it had not improperly used part of
Reingold’s 90 foot mold to develop a new 110 foot mold but that it
had independently designed and built its 110 foot ship mold.
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 connection with building the
RSVs, Le Leux said, a thin “test liner” had been laid inside the 90
foot mold to show the Navy that Swiftships had the capability of
properly laying and removing an intact fiberglass hull.
Afterwards, the “test liner” was partly used as scrap material and
-8- 8 partly discarded, he said. Under a different contract with the
Government of Egypt, Swiftships needed a 110 foot ship mold to
construct three 110 foot coastal minehunter vessel (CMV) hulls. Le
Leux stated that a new 110 foot mold was designed based on a
Swedish Navy hull having a different size, shape, and
characteristics than Reingold’s 90 foot mold. Le Leux conceded
that Swiftships instructed Accurate Fiberglass, Incorporated, its
subcontractor, “to use approximately 40 feet of the bow portion of
the scrap 90 ft. liner as structural material to save time in the
construction process of the new 110 ft. mold.” He added, however,
that “in order to be used as structural material for the new 110
ft. mold, the form and shape of approximately 40 ft. of the forward
portion of the 90 ft. scrap liner had to be altered and changed.”
According to Le Leux, the remaining approximately 50 feet of the 90
foot “scrap liner” was discarded; the 110 foot mold was constructed
from June, 1992 through October, 1992; Swiftships has made three
110 foot fiberglass CMV hulls from the 110 foot mold for Egypt; the
90 foot mold was returned to Reingold after it was used to build
the two RSVs for the United States Navy.
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.
-9- 9 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
-10- 10 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 minor
repairs and slight changes, the front 40 to 45 feet of the plug
pulled from Reingold’s 90 foot mold became the bow portion of the
new 110 foot mold.
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
-11- 11 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. LA.
R.S. 51:1431(4). The ship mold is a 90 foot fiberglass frame
containing a cavity within which glass in fibrous form can be
shaped into a ship hull. Previously, the mold had been used
successfully and effectively to build two vessel hulls, one for a
yacht and the other for a fishing vessel. Thus, the ship mold was
a proven device that united in one matrix a fully developed and
tested pattern, method, technique, and process for constructing a
particular kind of ship hull.
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[.]” Id. § 1431(4)(a).
Originally, it had cost $1 million and had taken nine months to
construct the 90 foot ship mold. Consequently, it would have been
extremely expensive and time consuming for anyone to duplicate the
mold through independent designing, planning, and construction or
by reverse engineering. Swiftships’s agreement to pay $145,000 per
vessel for using the mold in building two initial vessels, and
$20,000 for its use in building each subsequent vessel, cogently
-12- 12 indicates that the mold derived independent economic value from not
being generally known to and not being readily ascertainable by
proper means by other persons.
Finally, the summary judgment evidence indicates that Reingold
exerted efforts that were “reasonable under the circumstances to
maintain its secrecy.” Id. § 1431(4)(b). The LUTSA requires a
party to take reasonable measures to maintain relative, not
absolute, secrecy. Id.; Sheets, 849 F.2d at 183; see also RESTATEMENT
(THIRD) OF UNFAIR COMPETITION § 39 (1995) (evidence probative of secrecy
includes “[p]recautions taken by the claimant to preserve secrecy,
the willingness of licensees to pay for disclosure of the secret,
unsuccessful attempts by the defendant or others to duplicate the
information by proper means, and resort by a defendant to improper
means of acquisition.”). Reasonable use of a trade secret
including controlled disclosure to employees and licensees is
consistent with the requirement of relative secrecy. LA. R.S.
51:1431 comment (f).
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
-13- 13 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. Id. § 1431(b)(i),(ii). Swiftships entered a
contract with the Egyptian government to construct three 110 foot
coastal minehunting vessels (“CMVs”). A reasonable trier of fact
could find that, Swiftships, without notifying Reingold or
obtaining his express or implied consent, improperly used the male
hull or plug made from the 90 foot mold to fashion a 110 foot male
ship mold to make hulls for the Egyptian vessels. Swiftships
admits that it has constructed three CMV hulls using the 110 foot
mold. Swiftships also admits that it made use of the front 40 to
45 feet of the male hull or plug in forming the bow portion of the
110 foot mold. Swiftships did not compensate Reingold for the use
of his ship mold in making the 110 foot ship mold or in
constructing any of the 110 foot CMV hulls for the Egyptians.
Swiftships terminated its lease of Reingold’s 90 foot ship mold,
but Swiftships has not turned over the 110 foot mold, which it
reasonably may be inferred is a modification or a derivative of the
90 foot mold. Drawing reasonable inferences from the record in the
-14- 14 light most favorable to the nonmovant, Reingold, we conclude that
Swiftships misappropriated the trade secret, viz., Reingold’s 90
foot ship mold together with its inherent pattern, method,
technique, and process.
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 forth right duplication is a dull and very rare type of
infringement.” Graver Tank & Mfg., Co. v. Linde Air Products, Co.,
339 U.S. 605, 607 (1950). These precepts are evident in the LUTSA
and have been derived by courts interpreting and applying virtually
-15- 15 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.
LA. R.S. 51:1438.
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.” Id. §
1433. It reasonably may be inferred that Reingold has suffered
actual loss and that Swiftships has been unjustly enriched because
of the misappropriation. Swiftships has used the 110 foot ship
mold to build three fiberglass hulls for CMVs. Swiftships has
refused to compensate Reingold for these uses. Therefore, a
reasonable trier of fact could easily conclude that Reingold has
lost not only the substantial compensation to which he is entitled
under the lease but also that he will suffer an indeterminate
amount of future damages because of Swiftships’s continued
exploitation of the misappropriated mold.
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
-16-16 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., 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
-17- 17 alone, however, does not demonstrate that Reingold had no
protectable intellectual property right in the 90 foot mold.
Second, assuming arguendo that the pre-existing 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. LA. R.S. 51:1431(4)(a).
As established above, it reasonably may be inferred that the 90
foot mold has requisite secrecy to be a trade secret.2
Finally, Swiftships’s contention, even if true, that it could
have reverse engineered a mold from an existing hull is beside the
2 Swiftships’s arguments based on Bonito Boats v. Thunder Craft Boats are inapposite. The Supreme Court in Bonito Boats v. Thunder Craft Boats reaffirmed its holding in Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), which made it clear that federal patent law does not preempt state trade secret law. 489 U.S. 141, 165-66 (1989). Specifically, the Court stated that: In Kewanee, we found that state protection of trade secrets, as applied to both patentable and unpatentable subject matter, did not conflict with the federal patent laws. In both situations, state protection was not aimed exclusively at the promotion of invention itself, and the state restrictions on the use of unpatented ideas were limited to those necessary to promote goals outside the contemplation of the federal patent scheme. Both the law of unfair competition and state trade secret law have coexisted harmoniously with federal patent protection for almost 200 years, and Congress has given no indication that their operation is inconsistent with the operation of the federal patent laws. Id.
-18- 18 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 (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 LA. R.S. 51:1431 comment
(a)(2)(“The acquisition of the known product must of course, also
be by fair and honest means, such as purchase of the item on the
open market for reverse engineering to be lawful.”); see also
RESTATEMENT (THIRD) OF UNFAIR COMPETITION at § 39 comment f.
B.
Reingold also asserts a cause of action under the Louisiana
Unfair Trade Practices Act (LUTPA), La. R.S. 51:1401-1418. That
statute declares unlawful “[u]nfair methods of competition and
unfair or deceptive acts or practices in the conduct of any trade
or commerce[].” Id. § 1405(A). The LUTPA further provides that
“[a]ny person who suffers any ascertainable loss of money or
movable property, corporeal or incorporeal, as a result of the use
or employment by another person of an unfair or deceptive method,
act or practice declared unlawful by R.S. 51:1405, may bring an
action individually but not in a representative capacity to recover
actual damages.” Id. § 1409(A). “The real thrust of the LUTPA,
modeled after the Federal Trade Commission Act, 15 U.S.C. § 45, is
to deter injury to competition.” Omnitech Int’l, Inc. v. Clorox
-19- 19 Co., 11 F.3d 1316 (5th Cir. 1944)(citing Federal Trade Comm’n v.
Raladam, Co., 283 U.S. 643 (1931)).
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
-20- 20 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
-21- 21 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 course of
conduct in misappropriating and converting Reingold’s trade secret
constituted a pattern of unfair trade practices and wrongfully put
Reingold at a severe competitive disadvantage. Swiftships, by
wrongfully misappropriating the substance of Reingold’s ship hull
-22- 22 mold, deprived Reingold of his trade secret, eliminated itself as
a potential customer of Reingold, and set itself up as Reingold’s
formidable competitor in the ship mold market. The loss to
Reingold and the unjust enrichment to Swiftships are enhanced by
the fact that Reingold’s mold and the derivatives of it apparently
have proved very valuable devices in the building of military ships
for the United States and Egyptian navies.
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.” LA.
R.S. 51:1409(E). It reasonably may be inferred, however, that at
least one of Swiftships’s violations of the statute occurred within
the period of limitations. In May of 1994, shortly before the
filing of this action in December of that year, Swiftships
terminated the lease and converted the 110 foot mold that in
substance had been derived from Reingold’s 90 foot mold; Swiftships
intentionally persists in the deception that its 110 foot mold was
derived from independent plans rather than from Reingold’s trade
secret; and Swiftships fully intends to continue to unjustly enrich
itself to the competitive disadvantage of Reingold. For purposes
of summary judgment review, this course of intentional and
fraudulent conduct was clearly a violation of the LUTPA. We need
not decide on the sparse record before us whether this is a type of
case in which (1) “the original violation occurred outside the
-23- 23 statute of limitations, but is closely related to other violations
that are not time-barred,” so that recovery may be had for all
violations; or (2) “one in which an initial violation, outside the
statute of limitations, is repeated later; in [which] case, each
violation begins the limitations period anew, and recovery may be
had for at least those violations that occurred within the period
of limitations.” Hendrix v. City of Yazoo City, Miss., 911 F.2d
1102, 1103 (5th Cir. 1990). If necessary, the legal decision of
whether the case fits in either of these categories, or perhaps in
an entirely different class, may be decided best with the benefit
of a full record. In any event, Reingold’s LUTPA claim should not
have been dismissed on summary judgment.
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:
-24- 24 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." La. Rev. Stat. Ann.
§ 51:1409(E) (emphasis added). Here, the wrongful act that gave
rise to the LUTPA claim was when Swiftships misused a portion of
the 90' plug to create the 110' mold. Because the 110' mold was
completed more than two years prior to Reingold’s bringing his
suit, the LUTPA claim is barred under the clear terms of the
statute. The termination of the lease on the 90' mold one and a
half years later, itself a perfectly valid exercise of contractual
rights, is entirely irrelevant to the LUTPA claim.
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. Because Swiftships failed to
do this, it in effect "converted" the mold to its own use, and this
act gave rise to a cause of action under the LUTPA. Because the
termination occurred within the prescription period, the majority
concludes that the LUTPA claim is not barred.
-25- 25 This holding3 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
3 We should not be misled by the majority's phrasing of the issue as something a reasonable trier of fact could find. This is a simple matter of contract interpretation, and entirely within the province of this court to decide as a matter of law.
-26- 26 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.
-27- 27