Trident Perfusion v. Lesnoff ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
TRIDENT PERFUSION ASSOCIATES,
INCORPORATED,
Plaintiff-Appellant,
v. No. 96-2242
JEFRI W. LESNOFF; MICHAEL R.
STUBBS; G. MARTIN DOWNING,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Virginia, at Harrisonburg.
B. Waugh Crigler, Magistrate Judge.
(CA-95-34-H)
Argued: June 2, 1997
Decided: August 28, 1997
Before WIDENER,* WILLIAMS, and MICHAEL, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Phyllis J. Towzey, STEIN, FORD, SCHAAF & TOW-
ZEY, L.L.P., St. Petersburg, Florida, for Appellant. Mark Dudley
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*Judge Widener heard oral argument but did not participate in the con-
sideration of this case due to illness. The opinion is filed by a quorum
of the panel pursuant to 28 U.S.C. § 46(d).
Obenshain, WHARTON, ALDHIZER & WEAVER, P.L.C., Harri-
sonburg, Virginia, for Appellee Stubbs; Russell Ambrose Fowler,
FOWLER, GRIFFIN, COYNE & COYNE, P.C., Winchester, Vir-
ginia, for Appellees Lesnoff and Downing. ON BRIEF: Henry A.
Stein, STEIN, FORD, SCHAAF & TOWZEY, L.L.P., St. Petersburg,
Florida, for Appellant.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Trident Perfusion Associates, Incorporated (Trident), brought suit
pursuant to the Virginia Trade Secrets Act (the Act), see Va. Code
Ann. §§ 59.1-336 to -343 (Michie 1992), against three former
employees. Specifically, Trident contended that Jefri Lesnoff,
Michael Stubbs, and Martin Downing (collectively"Defendants")
provided Advance Perfusion Care, Incorporated (APC), with Tri-
dent's trade secrets. After a bench trial, a magistrate judge entered
judgment in favor of Defendants.1 Finding that Trident brought its
lawsuit in bad faith, the district court also awarded Defendants attor-
neys' fees. On appeal, Trident argues only that the district court
abused its discretion in awarding Defendants attorneys' fees under the
Act. Finding no error, we affirm.
I.
Trident provides perfusion services2 at numerous hospitals in sev-
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1 The parties consented to the jurisdiction of a magistrate judge pursu-
ant to 28 U.S.C.A. § 636(c)(1) (West 1993). For convenience, we refer
to the magistrate judge as "the district court" throughout the opinion.
2 "Perfusion services" involve both the operation of heart-lung
machines used during cardiac surgery and the provision of supplies for
that equipment.
2
eral states, including Virginia. With the help of Lesnoff, Trident
obtained a lucrative account with Winchester Medical Center (Win-
chester) in 1989.3 Defendants, all certified perfusionists, were
employed by Trident to service the Winchester account. As a result,
Defendants had access to the procedures and protocols, fee schedule,
and "tubing" specifications used by Trident at Winchester.4 Each
Defendant executed an employment agreement with Trident that
expressly prohibited him from disclosing any of Trident's trade secrets.5
In November of 1994, Winchester terminated its perfusion contract
with Trident. Two weeks later, Winchester contracted with APC. On
January 6, 1995, Trident informed Defendants that their employment
would be terminated on February 9, 1995. Several weeks after receiv-
ing the notices terminating their employment with Trident, Lesnoff
and Stubbs accepted employment with APC. Although offered
employment with APC, Downing decided to seek employment else-
where.
According to Trident, Defendants, while employed by Trident, pro-
vided APC with the procedures and protocols, fee schedule, and tub-
ing specifications used by Trident at Winchester. Believing that
Defendants helped APC obtain the Winchester account, Trident com-
menced this diversity action. Trident's complaint alleged claims for
(1) breach of contract;6 (2) tortious interference with prospective busi-
ness relations; (3) breach of fiduciary duty; (4) conspiracy; and (5)
violation of the Virginia Trade Secrets Act. After dismissing Trident's
tortious interference and conspiracy claims, the district court tried the
remaining claims without a jury.
During the bench trial no evidence was introduced showing any
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3 Trident earned more than one million dollars in annual revenues from
the Winchester account.
4 "Tubing" is the primary disposable used by perfusionists. Tubing is
specifically designed and constructed based upon the placement of the
operating room equipment at the particular hospital.
5 The agreement also contained a non-competition provision.
6 Trident contends that Defendants violated the confidentiality and non-
competition provisions in their employment agreements.
3
contact or communications between APC and either Stubbs or Down-
ing until almost two months after Winchester had contracted with
APC. Although Lesnoff admitted that APC contacted him regarding
a job in Dayton, Ohio, no evidence was introduced showing that he
had any contact with APC regarding the Winchester account until
almost two months after Winchester had contracted with APC. In
addition, the district court found that Trident's procedures and proto-
cols, fee schedule, and tubing specifications were"matters of com-
mon knowledge" and, therefore, not protectable trade secrets. (J.A. at
1425-27.) At the close of evidence, the district court entered judgment
in favor of Defendants on all counts.
After judgment was entered, Defendants requested that they be
awarded attorneys' fees pursuant to the Act. The Act provides for an
award of attorneys' fees to a prevailing defendant where it can be
shown that the plaintiff made the claim of misappropriation in "bad
faith," and to a prevailing plaintiff where it can be shown that the
defendant's misappropriation was "willful and malicious." See Va.
Code Ann. § 59.1-338.1 (Michie 1992). In construing the Act, the dis-
trict court concluded that "bad faith" was to be determined by an
objective reasonableness standard. Finding that"there was no evi-
dence to support [Trident's] claims," (J.A. at 1445), the district court
determined that Trident had no objective basis for thinking that it
could prevail under the Act. As a result, the district court held that
Trident made its claim of misappropriation in "bad faith" and awarded
Defendants attorneys' fees. This appeal followed.
II.
On appeal, Trident argues only that the district court erred in
awarding Defendants attorneys' fees pursuant to the Act. We review
the district court's decision to award attorneys' fees for abuse of dis-
cretion. See Pierce v. Underwood, 487 U.S. 552, 557-63 (1988). A
district court abuses its discretion by applying an incorrect legal stan-
dard or by resting its decision on a clearly erroneous finding of mate-
rial fact. On appeal, Trident argues that the district court did both. We
review Trident's arguments in turn.
A.
Trident first argues that the district court erred in determining "bad
faith" by an objective reasonableness standard. Trident contends that
4
the "[c]ommon usage of the term ``bad faith' . . . implies at least some
degree of subjectivity." (Appellant's Br. at 17.) Thus, according to
Trident, a finding of "bad faith" requires clear evidence that the action
was maintained vexatiously, wantonly, or for some other improper
purpose. Whether "bad faith" should be determined by an objective
or subjective standard is a legal question. On appeal, we review the
district court's determination of Virginia law de novo. See Salve
Regina College v. Russell, 499 U.S. 225, 231 (1991).
Regrettably, the Virginia General Assembly did not define the term
"bad faith" under the Act. Trident would have us adopt the Maryland
Court of Appeals' construction of the term "bad faith." (Appellant's
Br. at 19 (citing Optic Graphics, Inc. v. Agee , 591 A.2d 578, 588
(Md. 1991) (requiring that action have been maintained "``vexatiously,
wantonly or for oppressive reasons'" (quoting Needle v. White, 568
A.2d 856, 861 (Md. Ct. Spec. App. 1990)))).) However, in this diver-
sity case Virginia law governs, and Virginia Supreme Court decisions
construing the term "bad faith" in similar contexts have focused on
objective reasonableness rather than on subjective intent. For exam-
ple, in CUNA Mut. Ins. Soc'y v. Norman, 375 S.E.2d 724 (Va. 1989),
the Virginia Supreme Court construed the term "bad faith" in the con-
text of awarding attorneys' fees in insurance disputes and held that "in
evaluating . . . an insurer['s bad faith], courts should apply a reason-
ableness standard." Id. at 726-27. Similarly, in State Farm Mut. Auto.
Ins. Co. v. Floyd, 366 S.E.2d 93 (Va. 1988), the Virginia Supreme
Court expressly rejected State Farm's argument that"bad faith"
required a showing of "fraud, deceit, dishonesty, malice, or ill-will."
Id. at 97.
Virginia courts have also construed the term "good faith." By stat-
ute, a district court may impose sanctions upon a plaintiff whose com-
plaint was not filed in "good faith." See Va. Code Ann. § 8.01-271.1(Michie 1992). According to the Virginia Supreme Court, determin-
ing whether a complaint was filed in "good faith" is governed by "an
objective standard of reasonableness." See County of Prince William
v. Rau, 391 S.E.2d 290, 292 (Va. 1990). As a result, a plaintiff has
acted in "good faith" if "after reasonable inquiry," he could have
formed a reasonable belief that his lawsuit "was warranted by existing
law," Nedrich v. Jones, 429 S.E.2d 201, 204 (Va. 1993), and in "bad
5
faith" if his "claim had no chance of success under existing law,"
Tullidge v. Board of Supervisors, 391 S.E.2d 288, 290 (Va. 1990).
Although the term "bad faith" has not been construed by any Vir-
ginia court in the context of the attorneys' fees provision of the Act,
we see no reason to believe that the Virginia Supreme Court would
abandon its well-established practice of determining"bad faith" by an
objective reasonableness standard.7 As a result, the district court did
not abuse its discretion by applying an incorrect legal standard.
Therefore, Trident's appeal turns on whether the district court rested
its decision on a clearly erroneous finding of material fact.
B.
According to Trident, the district court's finding that it had no
objective basis for believing that it could prevail under the Act was
erroneous. We have reviewed the record, briefs, and pertinent case
law in this matter, and we have had the benefit of oral argument. Our
review persuades us that the district court's factual findings were not
clearly erroneous. See Fed. R. Civ. P. 52(a) (findings of fact shall not
be set aside unless clearly erroneous). Based on those findings, we
agree with the district court's assessment that Trident's allegations
had no chance of success under the Act. Accordingly, the district
court did not abuse its discretion in awarding Defendants attorneys'
fees.
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7 Trident also argues that
a plain reading of the statute suggests that since a showing of
"willful and malicious misappropriation" must be shown for a
prevailing plaintiff to recover fees against the defendant, fairness
would dictate that the legislature intended the same degree of
improper purpose on the part of a plaintiff for the prevailing
defendant to recover fees.
(Appellant's Br. at 17.) We disagree. If anything, the fact that the Vir-
ginia General Assembly used two different standards suggests that "bad
faith" is not synonymous with "willful and malicious."
6
III.
For the reasons stated, the district court's decision to award Defen-
dants attorneys' fees is affirmed.
AFFIRMED
7