Tubos De Acero De v. Amer Intl Invst Corp ( 2002 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-31054
No. 00-31187
TUBOS DE ACERO DE MEXICO, SA,
Plaintiff-Appellant-Cross-
Appellee,
versus
AMERICAN INTERNATIONAL INVESTMENT CORP., INC.,
Defendant-Appellee-Cross-
Appellant,
GEORGE SFEIR,
Defendant-Appellee.
TUBOS DE ACERO DE MEXICO, SA,
Plaintiff-Appellant,
versus
AMERICAN INTERNATIONAL INVESTMENT CORP., INC;
GEORGE SFEIR
Defendants-Appellees.
Appeals from the United States District Court
for the Western District of Louisiana
June 10, 2002
Before BARKSDALE and STEWART, Circuit Judges, and DUVAL, District Judge.*
CARL E. STEWART, Circuit Judge:
In this consolidated appeal, Tubos de Acero de Mexico, S.A. (TAMSA) seeks reversal of the
district court’s order granting summary judgment for George Sfeir (“Sfeir”) on its fraud and
conversion claims against him personally. TAMSA also appeals the denial of its motion for summary
judgment on American International Investment Corp., Inc.’s (“American”) unfair trade practices and
trade secrets counterclaims. American cross-appeals the district court’s order granting summary
judgment for TAMSA o n its counterclaims for breach of contract and punitive damages. For the
reasons that follow, we affirm the decision of the district court in part, reverse in part, and remand
for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
This case involves a commercial dispute between TAMSA and American and its vice president
and chief executive officer, Sfeir, arising from a lease of ultrasonic testing pipe inspection equipment
(“UT unit”). TAMSA is a Mexican corporation engaged in the business of manufacturing and selling
steel pipe for various applicat ions in the offshore petrochemical industry. As part of its quality
control program, TAMSA uses UT units to test the manufactured pipe at its manufacturing plant in
Veracruz, Mexico. American is a Louisiana corporation, with its principal place of business in
Lafayette, Louisiana. American is an international marketing agent for Technical Industries, Inc.
(“Technical”), a Houston-based company that designs and manufactures UT units. In this capacity,
American performed the following functions for Technical: (1) international marketing; (2) ensuring
*
District Judge of the Eastern District of Louisiana, sitting by designation.
2
Technical’s customers received its products; (3) guaranteeing customers’ payment to Technical; and
(4) service and technical support for Technical’s UT units placed with customers. American does not
design or manufacture any UT units, nor possess any patent or trademark protection as to such
equipment.
American supplied TAMSA with UT units manufactured by Technical on two separate
occasions: a 1995 sale and a 1997 lease. In December of 1995, American sold TAMSA a UT unit
and this purchase was memorialized by a purchase agreement dated December 12, 1995. The 1995
purchase agreement was silent as to the confidentiality or proprietary nature of any alleged trade
secrets, contained no restrictions that prevented TAMSA from making design changes to the UT unit,
and did not require TAMSA to purchase spare parts for the UT unit from American. In conjunction
with this sale, American provided TAMSA with the unit’s operation manual, electrical wiring
diagram, and mechanical drawings. A separate lease agreement was also signed on December 12,
1995, whereby TAMSA rented a UT unit from American for a four month period, while the new UT
unit that it agreed to purchase was being manufactured. Sfeir drafted each of these agreements. The
purchased unit was completed and ultimately was delivered to TAMSA in the summer of 1996.
In mid-1997, TAMSA needed another UT unit to meet its production demands and solicited
bids from various UT unit suppliers, including American. On November 19, 1997, TAMSA entered
into a lease agreement with American for the rental of a UT unit. The 1997 leased UT unit was built
prior to the 1995 purchased UT unit. The 1997 lease agreement provided that TAMSA must keep
the terms of the lease confidential, but the lease was silent as to the confidentiality or proprietary
nature of any alleged trade secrets. The lease was not accompanied by or signed in conjunction with
3
a purchase agreement. Sfeir drafted this agreement. The 1997 lease forms the basis for this lawsuit
and appeal.
Technical’s UT equipment was built primarily through the efforts of Technical employees,
John Krajewski (“Krajewski”) and Joe Rose. According to Krajewski, the UT unit purchased in 1995
was “extremely similar” to the UT unit leased in 1997. The only major difference between the two
UT units was the addition of a data acquisition package to the 1995 purchased UT unit.1 However,
the 1997 leased UT unit contained a ET-26A board, which was a slightly different, allegedly upgraded
version of the ET-26 board installed on the 1995 purchased UT unit.
Sfeir testified during his deposition that he did not know whether Technical required
confidentiality of other parties with whom it did business. At his deposition, Krajewski testified that
while he worked for Technical, its customers were allowed to photograph, inspect, and examine
Technical’s UT units, including the 1997 leased UT unit. Additionally, photographs of Technical’s
UT units, and their component parts, were available on Technical’s web page. Although Sfeir
testified that he tried to “[k]eep it short,” American’s competitors were permitted to view
photographs of Technical’s UT units at trade shows.
In conjunction with the 1995 lease and when discussions began between TAMSA and
American that lead to the 1997 lease, Sfeir made it clear that the rental of a UT unit was contingent
upon TAMSA purchasing a new UT unit from American, and TAMSA acknowledged this rental
offer. On October 29, 1997, American again advised TAMSA that the rental unit “is to help our
clients when they buy new equipment from us or have us renovate old equipment,” and TAMSA
1
Krajewski testified that the data acquisition package was added to “plot[] where the indication
was on both the X and Y position of the pipe,” although it never completely worked.
4
again acknowledged this rental proposal. TAMSA’s Chief Executive Officer, Martin Berardi,
testified that if TAMSA had not been able to lease American’s UT unit in November of 1997,
TAMSA would have lost revenues and it would have been detrimental to their commercial objectives.
Further, TAMSA’s internal e-mails on November 6th revealed that it had conducted a worldwide
search which showed that American’s UT unit was the only one available, that TAMSA was in need
of a UT unit, and that American’s UT unit needed to be acquired without delay. Sfeir’s affidavit
indicates that during negotiations for the 1997 lease, TAMSA represented to Sfeir that it intended
to purchase its UT unit from American.
The 1997 lease provided for the rental of a UT unit for twelve months at a rate of $31,500
per month. Pursuant to the 1997 lease, TAMSA’s obligations under the lease were secured by a
letter of credit (LOC) in the amount of $650,000 that TAMSA established with Banco Santander
(issuing bank) and Hibernia National Bank (“Hibernia”) (confirming bank). According to the 1997
lease and the LOC, the purpose of the LOC was to ensure the return of the UT unit, the payment of
all money owed to American and its contractors, and compliance with the terms of the lease. The
lease agreement and the LOC were nego tiated and drafted by Sfeir and accepted by TAMSA. In
September of 1998, the parties agreed to extend the lease through May of 1999 at a rate of $34,000
per month and to extend the expiration date of the LOC to July 30, 1999.
The last sentence in paragraph VI of the 1997 lease (the “contingent upon” clause) provides
that “[t]his lease is contingent upon Lessee buying their new or used [UT] Units from Lessor, and
having Lessor renovate any inspection equipment needed by Lessee while the unit is being leased.”
The 1997 lease also provided that “[a]ll spare parts replaced must remain o riginal, and must be
purchased from Lessor.” American provided evidence that at the time it entered into the 1997 lease,
5
TAMSA knew that it was going to purchase a new UT unit, but was no longer considering
purchasing that equipment from American. By October of 1997, there is evidence that TAMSA had
decided to purchase its new UT unit from a third party and that the commercial negotiations were at
an advanced stage. Additionally, TAMSA did not advise American when it purchased its new UT
unit from that third party in February or March of 1998.
There is also evidence that as of October of 1997, internal requests were being made by
Arnulfo Ruiz to allow expenditures of $425,000 for renovation of the electronic equipment on
TAMSA’s existing UT units. During the term of the 1997 lease, Sfeir made numerous inquiries into,
and expressed desire to perform, any renovations of TAMSA’s equipment and TAMSA’s professed
its intent to comply with its lease obligations. However, American was never offered an opportunity
to bid on any renovations. American provided evidence that TAMSA undertook renovation of its
existing equipment through other contractors. Furthermore, there is evidence that TAMSA
manufactured and/or purchased from parties other than American spare or replacement parts for the
1997 leased UT unit, which TAMSA left on the unit when it was returned to American. Near the end
of the 1997 lease, Sfeir also discovered that TAMSA copied the electronic circuitry from the ET-26A
board in the 1997 leased UT unit.
In May of 1999, TAMSA returned the leased UT unit from Veracruz to Technical’s facility
in Houston, as designated by American. On May 29, 1999, following an inspection of the 1997
leased UT unit, a TAMSA representative acknowledged damage to the UT unit, as well as the
presence of reproduced and replacement parts on the UT unit. On July 7, 1999, American faxed two
invoices dated July 1, 1999 to TAMSA for amounts allegedly due under the lease, charging $68,000
for “downtime” and $130,925 for replacement parts and alleged physical damage to the UT unit.
6
Sfeir also notified TAMSA by letter of claims for alleged breach of contract. This letter, dated July
7th, made a “formal demand” for four separate categories of damages and stated that Technical was
still repairing the unit. On July 12, 1999, Sfeir submitted an “invoice” to Hibernia for payment under
the LOC, representing that “[a]ll money owed was not paid in full,” that “[n]ot all the terms of the
lease were followed,” and that American was entitled to the entire $650,000. On its face, the invoice
conformed to the terms of the LOC, and Hibernia paid the entire sum to American.
TAMSA filed breach of contract, fraud, and conversion claims against American and Sfeir in
the Western District of Louisiana, alleging that they wrongfully drew down the entire $650,000
irrevocable LOC. American counterclaimed, seeking damages for alleged breach of contract,
violations of the Louisiana Unfair Trade Practices and Consumer Protection Law (LUTPA), LA. REV.
STAT. § 51:1401 et seq. (West 1987), violations of the Louisiana Uniform Trade Secrets Act
(LUTSA), LA. REV. STAT. § 51:1431 et seq. (West 1987), and punitive damages.
American and Sfeir filed motions for partial summary judgment, seeking dismissal of
TAMSA’s fraud and conversion claims. TAMSA filed four motions for summary judgment, seeking
dismissal of American’s counterclaims for (1) punitive damages, (2) breach of contract under
paragraph VI of the lease, (3) unfair trade practices, and (4) violations of trade secret law.
The district court denied American’s motion, but granted Sfeir’s motion. Further, the court
granted TAMSA’s motions on American’s punitive damages and breach of contract counterclaims
and denied TAMSA’s motions on American’s unfair trade practices and trade secrets counterclaims.
The district court gave no explanation for its ruling on the parties’ motions for summary judgment
and partial summary judgment.
7
On August 8, 2000, the district court issued an order certifying its punitive damages, breach
of contract under paragraph VI of the lease, fraud, and conversion rulings as final and appealable
pursuant to Federal Rule of Civil Procedure 54(b) and finding its LUTPA and LUTSA rulings
warranted immediate appeal pursuant to 28 U.S.C. § 1292(b). The district court did not give any
reasons in support of its decision to grant the Rule 54(b) motion.
In this appeal, TAMSA challenges the district court’s grant of partial summary judgment,
dismissing its fraud and conversion claims against Sfeir. TAMSA also appeals the district court’s
denial of its motion for summary judgment on American’s LUTPA and LUTSA counterclaims.
American cross-appeals the dismissal of its counterclaims for breach of contract and punitive
damages.
DISCUSSION
I. Standard of Review
This Court reviews a grant or denial of summary judgment de novo. Mowbray v. Cameron
County, Tex., 274 F.3d 269, 278 (5th Cir. 2001). Summary judgment is proper “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” FED. R. CIV. P. 56(c). A genuine issue of material fact exists if the
reco rd, taken as a whole, could lead a rational trier of fact to find for the non-moving party.
Geoscan, Inc. of Tx. v. Geotrace Techs., Inc., 226 F.3d 387, 390 (5th Cir. 2000). We must view the
facts and inferences to be drawn therefrom in the light most favorable to the non-moving party. Id.
Questions of law are reviewed de novo. Mowbray, 274 F.3d at 278.
II. Grant of Summary Judgment for Sfeir on TAMSA’s Fraud and Conversion Claims
8
TAMSA argues that the district court erred by granting Sfeir’s motion for partial summary
judgment on its fraud and conversion claims. We agree.
Although the district court did not assign reasons for its ruling, our review of the transcript
of the motion hearing proceedings leads us to conclude that the court’s dismissal of TAMSA’s claims
against Sfeir must have rested on a belief that he could not be held personally liable because he was
protected by his capacity as a corporate officer. First, the court seemed to be concerned that
TAMSA did no t plead piercing the corporate veil under the “alter ego” doctrine by alleging
commingling of corporate and officer funds. Second, the court concl uded, “If Mr. Sfeir was the
president of the corporation and he went to the bank and the bank issued the money to the
corporation, and it went into a corporate account, then you sue the corporation. . . . And then you
pierce the corporate veil to go after the corporate owner who may have commingled or used those
funds.” Third, the court also expressed concern with the fact that TAMSA had no proof that the
money drawn down on the LOC personally benefitted Sfeir. Because the transcript had little detail
on the evidence of fraud and conversion in this case, the district court’s decision is best viewed as
based upon categorical rules regarding when a corporate officer can be held individually liable under
Louisiana law. Thus, we review these conclusions of law de novo. Halloran v. Veterans Admin., 874
F.2d 315, 320 (5th Cir. 1989). As to each of the district court’s conclusions, we disagree. Based
upon Louisiana law, we find that Sfeir may be held personally liable if he committed fraud or
conversion on behalf of the corporation.2
2
American accepts the premise that a Louisiana corporate officer can be liable for fraud and
conversion practiced on behalf of a corporation. Principal Brief of Appellees-Cross Appellants, No.
00-31187, at 16-17, 21-22.
9
The general rule is that a corporation is a distinct legal entity, separate from those who
comprise it, and unless directors or officers purport to bind themselves individually, they do not incur
personal liability for corporate debts. Riggins v. Dixie Shoring Co., Inc., 590 So. 2d 1164, 1168-69
(La. 1991). The exception to this rule is when there is a justification for piercing the corporate veil.
Id. Under Louisiana law, the corporate veil may be pierced under the “alter ego” doctrine, where the
corporate entity is disregarded to such an extent that the affairs of the corporation are
indistinguishable from the affairs of the officer or director. First Downtown Dev. v. Cimochowski,
613 So. 2d 671, 676 (La. Ct. App. 1993). Indicia of this disregard include commingling of corporate
and officer funds. Id. Another basis for piercing the corporate veil, which applies in this case, is
where “[a] director or officer who has practiced fraud upon any person, may be held personally liable
for the resultant damages.” Id. Louisiana specifically preserves by statute “any rights which any
person may by law have against a . . . director or officer [of a corporation] because of any fraud
practiced upon him by any of such persons.” LA. REV. STAT. ANN. § 12:95 (West 1994). Contrary
to the district court’s conclusion, an action seeking to hold a corporate officer or director personally
liable for fraud is separate from and does not require disregard of the corporate entity under the alter
ego doctrine. Id. Thus, Sfeir may be held personally liable if he committed fraud.
Further, even absent intent to defraud, Louisiana law provides that a corporate officer may
be held personally liable for damages resulting from his acts of conversion committed on behalf of the
corporation. United States v. Hibernia Nat’l Bank, 882 F.2d 961, 964 (5th Cir. 1989). In Hibernia,
this Court held, applying Louisiana law, that a corporate officer could not escape personal liability
for conversion on the grounds that his status as a corporate officer protected him from liability absent
conscious wrongdoing. Id. at 965. We specifically premised personal liability on the corporate
10
officer’s participation in the corporation’s act of conversion, as opposed to personal benefit, if any,
that the corporate officer gained from the conversion. Id. Thus, Sfeir may be held personally liable
for conversion committed on behalf of the corporation, even if he did not gain personally.
TAMSA argues that the district court erred in granting Sfeir’s motion for partial summary
judgment because it presented evidence sufficient to create a genuine issue of material fact regarding
whether Sfeir, acting through American, committed fraud and conversion in drawing down the entire
$650,000 irrevocable LOC. Fraud is defined as “a misrepresentation or a suppression of the truth
made with the intention either to obtain an unjust advantage for one party or to cause a loss or
inconvenience to another.” LA. CIV. CODE art. 1953 (West 1987). Two elements essential to
establishing fraud are (1) an intent to defraud or to gain an unfair disadvantage and (2) a resulting loss
or damage. First Downtown Dev., 613 So. 2d at 677. “A conversion consists of an act in derogation
of the plaintiff's possessory rights, and any wrongful exercise or assumption of authority over
another's goods, depriving him of the possession, permanently or for an indefinite time, is a
conversion.” Quealy v. Paine, Webber, Jackson & Curtis, Inc., 475 So. 2d 756, 760 (La. 1985). The
intent requirement for conversion is not conscious wrongdoing, but rather, an intent to exercise a
dominion or control over the goods that is inconsistent with another’s rights. La. State Bar Ass’n
v. Hinrichs, 486 So. 2d 116, 121 (La. 1986). A mistake of law or fact is not a defense. Id. Further,
“[i]t is of no importance what subsequent application was made of the converted property, or that
defendant derived no benefit from his act.” Quealy, 475 So. 2d at 760.
The district court found that there were genuine issues of material fact pertaining to fraud
and conversion on the part of American, and thus denied American’s motion for partial summary
judgment on TAMSA’s claims against American. American did not appeal the denial of its motion.
11
We can conceive of no reason, other than the district court’s erroneous belief that Sfeir was protected
by his status as a corporate officer, for this inconsistent ruling. The allegations underlying TAMSA’s
fraud and conversion claims against American and Sfeir would be identical because Sfeir was acting
for American. As such, we conclude that the district court’s summary judgment ruling as to Sfeir was
erroneous.
III. Denial of Summary Judgment for TAMSA on American’s LUTPA Counterclaim
TAMSA contends that it is entitled to summary judgment on American’s LUTPA
counterclaim because American lacks standing to assert the counterclaim. It also argues that the
counterclaim is perempted under Louisiana law. Additionally, TAMSA contends that the evidence
is insufficient to raise a genuine issue of material fact that TAMSA engaged in the type of “egregious”
conduct that forms the basis of a LUTPA violation. The district court correctly rejected the three
arguments asserted by TAMSA.
LUTPA prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices
in the conduct of any trade or commerce.” LA. REV. STAT. ANN. § 51:1405(A). To recover under
LUTPA, a plaintiff must “prove some element of fraud, misrepresentation, deception or other
unethical conduct.” Omnitech Intern., Inc. v. Clorox Co., 11 F.3d 1316, 1332 (5th Cir. 1994). “A
trade practice is unfair under the statute only when it offends established public policy and is immoral,
unethical, oppressive or unscrupulous.” Computer Mgmt. Assistance Co. v. Robert F. DeCastro,
Inc., 220 F.3d 396, 404 (5th Cir. 2000). What constitutes an unfair trade practice is determined by
the courts on a case-by-case basis. Omnitech Intern., Inc., 11 F.3d at 1332.
TAMSA argues that American lacks standing to bring a LUTPA claim because there is
insufficient evidence that TAMSA and American are “competitors,” as required to find a party liable
12
under LUTPA. LUTPA confers a private right of action on “[a]ny person who suffers any
ascertainable loss of money or movable property . . . 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.” LA.
REV. STAT. ANN. § 51:1409(A). LUTPA’s private right of action is limited to direct consumers or
to business competitors. Computer Mgmt. Assistance Co., 220 F.3d at 405. Thus, to have standing
under LUTPA, American must demonstrate that it is either a consumer or a business competitor of
TAMSA. American has put forth evidence to support its allegation that it is a business competitor.
In order to qualify as a business competitor under LUTPA, American must actually or potentially
engage in business that competes directly or indirectly with TAMSA as a business competitor. See
Delta Truck & Tractor, Inc. v. J.I. Case Co., 975 F.2d 1192, 1205 (5th Cir. 1992); Tessier v. Moffatt,
93 F. Supp. 729, 734 (E.D. La. 1998); Morris v. Rental Tools, Inc., 435 So. 2d 528, 533 (La. Ct.
App. 1983).3 As a manufacturer and seller of steel pipe, TAMSA’s business required that many of
its pipes undergo ultrasonic testing. Prior to 1993, ultrasonic testing was provided to TAMSA’s
customers through a third-party contractor, Tubotest. When TAMSA acquired Tubotest in 1993,
TAMSA became the only provider of ultrasonic testing available in Veracruz. At the time the 1997
lease was being negotiated, TAMSA could not supply all of the ultrasonic testing demanded by its
3
LUTPA is modeled after the Federal Trade Commission Act, 15 U.S.C. § 45, and “[t]he
Louisiana courts have recognized the appropriateness of referring to federal interpretation when
deciding unfair trade practices cases.” Omnitech Intern., Inc., 11 F.3d at 1331-32 & n.23. In Federal
Trade Comm’n v. Raladam Co., the Supreme Court, in addressing the meaning of business
competitor in the federal statute, noted that:
It is obvious that the word ‘competition’ imports the existence of present or potential
competitors, and the unfair methods must be such as injuriously affect or tend thus to
affect the business of these competitors–that is to say, the trader whose methods are
assailed as unfair must have present or potential rivals in trade whose business will be,
or is likely to be lessened or otherwise injured.
283 U.S. 643, 649 (1931).
13
customers and had the choice of either allowing third parties to provide ultrasonic testing for
TAMSA’s pipes or acquiring another UT unit. Viewing the evidence in a light most favorable to
American, if TAMSA had not acquired American’s UT unit, the customers that TAMSA and
American had in common would have gone directly to American for ultrasonic testing or American
would have been in a position to provide another pipe manufacturer with its UT unit. Thus, by
securing the 1997 lease, which is at issue in this litigation, TAMSA avoided the potential for
American to directly or indirectly compete with TAMSA for the provision of UT services. We
conclude on this summary judgment record that American has standing to bring suit against TAMSA.
With regard to the peremption argument, the summary judgment hearing transcript indicates
that the district court agreed with American’s argument that its LUTPA counterclaim was not time-
barred because TAMSA’s conduct during the lease was a “continuing violation” that did not abate
until the termination of the 1997 lease, and thus extended the period for filing the LUTPA claim. We
agree. American’s LUTPA counterclaim was filed on August 11, 1999 and alleged conduct in
continuing violation of LUTPA by TAMSA through May of 1999; only at that time did the one-year
LUTPA limitations period begin to run.4
Although this Court has not previously addressed whether the continuing violation doctrine
applies to the LUTPA peremptive period, we have noted the tension between the Louisiana appellate
4
LUTPA provides that a private action “shall be prescribed by one year running from the time of
the transaction or act which gave rise to the right of action.” LA. REV. STAT. § 51:1409(E).
Louisiana courts have interpreted this period to be peremptive rather than prescriptive. America’s
Favorite Chicken Co. v. Cajun Enters., Inc., 130 F.3d 180, 185 & n.6 (5th Cir. 1997). Most
significantly, peremption is not subject to suspension, interruption, or renunciation. Louisiana v.
McInnis Bros. Constr., 701 So. 2d 937, 939 (La. 1997). The doctrine of contra non valentum, which
suspends the running of prescription where the cause of action is not known or reasonably knowable
by the plaintiff, is inapplicable to a peremptive period. Id. at 939-40.
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court and federal district court decisions within this circuit. America’s Favorite Chicken Co. v. Cajun
Enters., Inc., 130 F.3d 180, 185 (5th Cir. 1997). Three Louisiana Court of Appeal cases have found
that where a violation of LUTPA is continuing, the peremptive period does not begin to run until the
violation ceases. Capitol House Preservation Co. v. Perryman Consultants, Inc., 725 So. 2d 523 (La.
Ct. App. 1998) (holding that the defendant successful applicants for riverboat gaming licenses
engaged in a continuing tort by allegedly failing to disclose fraudulent and misleading material
information submitted to the Gaming Enforcement Division, in violation of the continuing statutory
duty to disclose violations of the Riverboat Act, and thus the LUTPA peremptive period began to run
anew each day the successful applicants continued to withhold information); Benton, Benton &
Benton v. La. Pub. Facilities Auth., 672 So. 2d 720, 723 (La. Ct. App. 1996) (holding that the
LUTPA peremptive period cannot begin to run as long as violations of LUTPA continue); Fox v.
Dupree, 633 So. 2d 612 (La. Ct. App. 1993) (holding that the LUTPA peremptive period could not
begin to run until the defendant loan broker complied with the bond filing and disclosure requirements
of the Louisiana Loan Brokers’ statute because every day the loan broker was in violation gave rise
to a new right of action for an unfair trade practice). Each of these state court decisions were
rendered after the federal district court decisions in Neill v. Rusk, 745 F. Supp. 362, 365 (E.D. La.
1988), and Cason v. Texaco, Inc., 621 F. Supp. 1518, 1523 (M.D. La. 1985), which held that the
continuing violation doctrine does not apply to the LUTPA peremptive period. Because we find
these recent Louisiana appellate court opinions persuasive, and the federal district courts did not have
the benefit of these cases, we hold that the cont inuing violation doctrine applies to the LUTPA
peremptive period.
15
TAMSA asserts that the continuing violation doctrine should have limited applicability to
LUTPA claims; specifically, it submits that the doctrine should only be applied to LUTPA claims
based on statutory violations, as in Fox and Capitol House. Further, TAMSA argues that American
has not alleged conduct that is continuing in nature, but rather numerous separate and distinct
breaches of contract giving rise to American’s LUTPA counterclaim. We are not persuaded. During
the entire term of the 1997 lease, TAMSA was under a statutory duty to perform its obligations under
the lease in good faith. See LA. CIV. CODE. ANN. art. 1983 (West 1987). American alleged
continuous unfair or deceptive actions by TAMSA throughout the lease period. Specifically,
American contends that TAMSA denied that it was illegally copying parts; promised that it would
abide by its obligations under the 1997 lease; denied, and continues to deny, that it made renovations
to existing equipment; copied parts for the 1997 leased UT unit; and never advised American that it
intended to purchase, or that it purchased, a new UT unit from a party other than American.
American’s allegations that TAMSA violated its obligations under the lease and failed to comply with
the duty of good faith are of a continuous nature, and may constitute an unfair trade practice should
the factfinder so determine after trial of the case. LUTPA’s peremptive period did not begin to run
until the lease ended in May of 1999.
We now turn to TAMSA’s argument that American’s counterclaim is not actionable under
LUTPA because it alleges mere breach of contract, which does not rise to the level of “egregious”
behavior that LUTPA proscribes. While TAMSA correctly points out that LUTPA “does not provide
an alternative remedy for simple breaches of contract,” Turner v. Purina Mills, Inc., 989 F.2d 1419,
1422 (5th Cir. 1993), considering the deceptive and unethical undertones of TAMSA’s alleged
behavior during the 1997 lease period, we conclude that American’s LUTPA counterclaim is not
16
properly characterized as a mere breach of contract claim. Thus, we affirm the district court’s denial
of summary judgment on American’s LUTPA counterclaim.
IV. Denial of Summary Judgment for TAMSA on American’s LUTSA Counterclaim
TAMSA next argues that it is entitled to summary judgment on American’s LUTSA
counterclaim because American did not own the alleged trade secrets and thus lacks standing to assert
the counterclaim. It also contends that American waived its LUTSA counterclaim by failing to
maintain the secrecy of the alleged “trade secrets.” Further, TAMSA asserts that the evidence is
insufficient to raise a genuine issue of material fact that TAMSA misappropriated any trade secrets.
The trial court rejected the three arguments asserted by TAMSA. The court determined that there
were genuine issues of material fact, stating during the motion hearing that the LUTSA counterclaim
raised “serious issues.” Even if we assume that American has standing5 and that there is a genuine
issue of material fact as to whether TAMSA misappropriated the alleged “trade secrets,” we hold that
the summary judgment evidence demonstrates an absence of genuine issue of material fact as to
whether American used reasonable efforts under the circumstances to maintain the secrecy of the
alleged “trade secrets.”
To recover damages under LUTSA, a plaintiff must prove (1) the existence of a trade secret,
(2) a misappropriation of the trade secret, and (3) actual loss caused by the misappropriation.
Reingold v. Swiftships, Inc., 126 F.3d 645, 648 (5th Cir. 1997). Under LUTSA, a “trade secret” is
defined as:
5
The undisputed evidence proves that American does not own the UT designs constituting the
alleged trade secrets or the 1997 leased UT unit; Technical does. Thus, there is some question as to
whether American has standing, as a non-owner, to assert a LUTSA claim.
17
[I]nformation, 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
secrecy.
LA. REV. STAT. ANN. § 51:1431(4). Comment (f) under this provision shows that LUTSA adopts the
concept of “relative secrecy” rat her than “absolute secrecy.” Sheets v. Yamaha Motors Corp.,
U.S.A., 849 F.2d 179, 183 (5th Cir. 1988).6 “ ‘The efforts required to maintain secrecy are those
reasonable under the circumstances, and courts do not require extreme and unduly expensive
procedures to be taken to protect trade secrets.’ ” Id. (quoting Tubular Threading, Inc. v.
Scandaliato, 443 So. 2d 712, 714 (La. Ct. App. 1983)). “A disclosure of a trade secret to others who
have no obligation of confidentiality extinguishes the property right in the trade secret.” Id. at 183-
84.
American primarily points to the 1997 lease agreement as evidence that it used reasonable
efforts to maintain the secrecy of alleged “trade secrets” with respect the 1997 leased UT unit.
Specifically, the 1997 lease contained a confidentiality provision; provided that “[s]elected [TAMSA]
personnel authorized by [American] will be allowed in, and around the unit”; prohibited TAMSA
from hiring American’s employees; and required all replacement parts to be purchased from
6
Comment (f) under this provision provides:
Reasonable efforts to maintain secrecy have been held to include advising employees
of the existence of a trade secret, limiting access to a trade secret on a “need to know
basis”, and controlling plant access. On the other hand, public disclosure of
information through display, trade journal publications, advertising, or other
carelessness can preclude protection. . . . Reasonable use of a trade secret including
controlled disclosure to employees and licensees is consistent with the requirement
of relative secrecy.
LA. REV. STAT. ANN. § 51:1431 cmt. (f).
18
American. Further, American notes that Krajewski testified that the diagrams of circuitry provided
by American to TAMSA contained the following: “Proprietary Notice: This document contains
proprietary information and is loaned to the receiver in confidence. Its contents may not be disclosed
without the prior written permission of Technical Industries, Inc.” As TAMSA points out, the
confidentiality provision of the 1997 lease agreement required only that the parties keep the terms of
the lease itself confidential, not any information pertaining to the design of the UT unit.7 Further,
Krajewski’s testimony was referring to the manual and diagrams that American provided TAMSA
in conjunction with 1995 sale so that TAMSA would be able to make repairs on that UT unit;
specifically, there was a “proprietary notice” stamped on two drawings of the E-26 board installed
on the 1995 purchased UT unit . There is no evidence that any diagrams of the E-26A board
accompanied the 1997 leased UT unit, much less that they contained a similar “proprietary notice.”
Although Louisiana law does not provide us with the precise contours of what constitutes
relative secrecy, our decisions in Reingold and Sheets are instructive. In Reingold, which involved
the commercial lease of a boat mold used in constructing hulls for fiberglass boats, this Court held
that genuine issues of material fact existed to preclude summary judgment on the lessor’s LUTSA
claim against the lessee. We found that the summary judgment record indicated that the lessor used
reasonable efforts under the circumstances to maintain the secrecy of the boat mold. Prior to leasing
the boat mold, the lessor “maintained exclusive control and did not disclose it to or allow its use by
anyone.” 126 F.3d at 650. The lessor and lessee entered into a written lease which provided as
follows:
7
Paragraph VIII of the lease agreement states that “[t]his lease must be kept confidential and
Lessee may not disclose it to any one other then [sic] their purchasing managers and concerned
managers only.”
19
[T]he mold would be used exclusively by [lessee], any movement of the mold from
lessee’s shipyard would be contingent upon [lessor’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 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.
Id. Sheets involved the alleged misappropriation of a purported inventor’s modification to the
Yamaha tri-motorcycle. The district court dismissed the inventor’s LUTSA claim under Federal Rule
of Civil Procedure 41(b) after finding that the inventor had failed adequately to maintain the secrecy
of his modification. On appeal, we affirmed the dismissal. Prior to the alleged misappropriation, the
inventor allowed one of the modified tri-motorcycles to be shown at a Yamaha service seminar, let
a motorcycle dealership use a modified tri-motorcycle as a demonstrator model without restriction,
installed modification on at least nine tri-motorcycles owned by individuals on the dealership’s tri-
motorcycle racing team and gave them only minimal instructions not to reveal the modification to
others, and also allowed several Yamaha representatives to enter the dealership and examine and
photograph his modification without taking any efforts to maintain its secrecy.
Upon our review of the record, the summary judgment evidence indicates that American did
not exert efforts that were reasonable under the circumstances to preserve the secrecy of any alleged
proprietary information concerning the 1997 leased UT unit. The district court provided no reasons
for its conclusion that there were genuine issues of material fact as to whether relative secrecy exists.
In sum, the 1997 lease agreement is the only evidence that American puts forth of its measures to
maintain relative secrecy. While the 1997 lease agreement limited the access that TAMSA’s
employees would have to the UT, it is silent as to what information American considered to be a trade
secret and contains no restrictions on TAMSA’s use of the information or its disclosure to other
20
parties. Further, prior to leasing the 1997 UT unit, American sold TAMSA a substantially similar UT
unit in 1995 and allowed several competitors to view photographs of the UT units. Apparently,
Technical also allowed customers to photograph, inspect, and examine the 1997 leased UT unit
without taking any efforts to maintain secrecy. American’s limited attempts, if any, at secrecy do not
amount to reasonable efforts under the circumstances. Thus, we conclude that TAMSA is entitled
to summary judgment on American’s LUTSA counterclaim.
V. Grant of Summary Judgment for TAMSA on American’s Breach of Contract Counterclaim
We first must address whether the district court’s ruling on American’s counterclaim for
breach of contract concerning paragraph VI of the lease agreement was suitable for entry as a final
judgment under Federal Rule of Civil Procedure 54(b). Rule 54(b) provides that “[w]hen more than
one claim for relief is presented in an action,” a district court “may direct the entry of a final judgment
as to one or more but fewer than all of the claims . . . only upon an express determination that there
is no just reason for delay and upon an express direction for the entry of judgment.” FED. R. CIV. P.
54(b). The Rule 54(b) requirement that the district court must have disposed of “one or more . . .
claims” in order to enter a final judgment is jurisdictional. Eldredge v. Martin Marietta Corp., 207
F.3d 737, 740 (5th Cir. 2000). We review the Rule 54(b) certification de novo. Id.
When some of the same facts form the basis for several claims, the existence of separate
claims for purposes of Rule 54(b) depends on an analysis of their distinctness.8 Id. at 740-42. For
this Court to have jurisdiction under Rule 54(b), the district court’s ruling that the “contingent upon”
8
In Eldredge, we dismissed the appeal of partial summary judgment for want of jurisdiction where
a statute of limitations ruling that precluded recovery for a past time period but allowed such recovery
for a current time period was not suitable for entry of final judgment because it did not create two
distinct claims for purposes of Rule 54(b)’s requirement that the court dispose of one or more claims,
given the strong factual overlap between the prescribed and non-prescribed portions of the claim.
21
clause constituted a resolutory condition must have resolved a dist inct “claim for relief” against
TAMSA, as contemplated in Rule 54(b). This Court has not expressly adopted a method for
determining what constitutes a distinct “claim for relief” under Rule 54(b). We have recognized,
however, that various courts have looked to the possibility of separate recoveries, have concentrated
on the underlying facts, and have invoked claim-preclusion rules. Id. at 741.
American argues that because the district court’s ruling in this case runs afoul of each of these
competing methods, it was not appropriate for designation for a Rule 54(b) final judgment. Further,
American contends that because it is unclear from the district court’s partial summary judgment ruling
whether the court precluded its entire breach of contract claim or merely part of its claim, the ruling
will create confusion at trial. Specifically, the district court made no factual findings and drew no
conclusions as to the parties’ intent with respect to the “contingent upon” clause or as to whether
TAMSA acted in good faith when it entered into the lease and in its effort to perform under the lease.
It was American, however, that requested Rule 54(b) certification of the district court’s grant
of partial summary judgment pertaining to the resolutory condition. In making this request, American
told that court that paragraph VI was the “heart and soul” of its contract case against TAMSA.
Thus, the district court’s order granted “the Motion for Summary Judgment in regard to the
Resolutory Condition in the Lease Agreement as a bar to Defendant’s Counterclaim under Paragraph
VI of the Lease Agreement,” dismissed American’s counterclaim “for contract damage claims under
Paragraph VI of the lease,” and granted Rule 54(b) certification. In ruling on American’s Motion to
Reconsider or Alternatively to Clarify Ruling, the district court stated that “the issues of good faith
are still before the jury.” American responded as follows: “I guess the bottom line is if the good
22
faith/bad faith issues are still alive, that tells me what I need to know. I think the rest of it becomes
clear.”
It seems evident that the district court’s ruling that the “contingent upon” clause was a
resolutory condition, which was the “heart and soul” of American’s contract claim, set aside
American’s counterclaim for breach of contract. Facts pertaining to TAMSA’s lack of good faith,
such as whether TAMSA negotiated the 1997 lease in bad faith, and violations of TAMSA’s
obligations under the 1997 lease, apart from paragraph VI, are subsumed in American’s remaining
LUTPA counterclaim and its potential fraudulent inducement claim against TAMSA. Those facts are
wholly separate from American’s breach of contract claim based upon paragraph VI’s “contingent
upon” clause. We conclude that American’s breach of contract claim constituted a distinct “claim
for relief.” Thus, the district court’s ruling was suitable for entry as a final judgment under Rule 54(b)
and is, consequently, appropriate for appellate review. We now turn to the merits of American’s
appeal.
American next challenges the district court’s holding that the “contingent upon” clause
created a resolutory condition under Louisiana law. The disputed clause states, “This lease is
contingent upon Lessee buying their new or used Ultrasonic Inspection Units from Lessor, and having
Lessor renovate any inspection equipment needed by Lessee while the unit is being leased.” American
asserts that rather than creating a condition to the 1997 lease, the “contingent upon” clause
constituted an unconditional promise on the part of TAMSA. TAMSA counters that American’s
interpretation is contrary to the plain language of the 1997 lease.
In Louisiana, the construct ion of an unambiguous contract is a question of law. Tex. E.
Transmission Corp. v. Amerada Hess Corp., 145 F.3d 737, 741 (5th Cir. 1998). We review the
23
construction of an unambiguous contract de novo. Id. Under Louisiana statutory law, a court
interpreting a contract shall determine the “common intent” of the parties. LA. CIV. CODE ANN. art.
2045 (West. 1987). However, “[w]hen 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.” LA.
CIV. CODE ANN. art. 2046 (West. 1987). Therefore, when the contract is not ambiguous, we have
no authority to look beyond the four corners of the document. Tex. E. Transmission Corp., 145 F.3d
at 741. Although the trial judge made no express finding that the “contingent upon” clause was
unambiguous, he stated at the hearing on American’s motion to reconsider that he relied on the
“contractual language itself” in determining that the “contingent upon” clause was a resolutory
condition. We agree with the district court’s determination.
The “contingent upon” clause clearly and unambiguously creates a condition. See BLACK’S
LAW DICTIONARY 315 (7th ed. 1999) (defining “contingent” as “[d]ependent on something else;
conditional”); 13 RICHARD A. LORD, WILLISTON ON CONTRACTS § 38.16, at 442 (4th ed. 2000)
(“Although no particular words are necessary for the existence of a condition, such terms as ‘if,’
‘provided that,’ ‘on condition that,’ or some other phrase that conditions performance usually
connote an intent for a condition rather than a promise.”). As this interpretation does not produce
any absurd consequences, it must be given effect without resort to parole evidence. Accordingly, we
reject American’s arguments that the parties’ intended the “contingent upon” clause to obligate
TAMSA to purchase a UT unit from American or allow American to renovate its UT units. If such
a promise was the parties’ true intent, the parties could have established a purchase agreement similar
to the one that accompanied that 1995 lease agreement. It is undisputed that Sfeir drafted the 1997
24
lease agreement and we will not remedy Sfeir’s failure to draft this lease provision to reflect such an
obligation.
Louisiana Civil Code article 1767 provides as follows:
A conditional obligation is one dependent on an uncertain event.
If the obligation may not be enforced until the uncertain event occurs, the condition
is suspensive.
If the obligation may be immediately enforced but will come to an end when the
uncertain event occurs, the condition is resolutory.
LA CIV. CODE ANN. art. 1767 (West 1987). “A suspensive condition temporarily postpones
enforcement of an obligation until the occurrence of a particular event, but does not end [or terminate
or extinguish] an obligation, as does a resolutory condition.” Unkel v. Unkel, 669 So. 2d 472, 475
(La. Ct. App. 1997). In this case, it is clear that while the obligations of the 1997 lease could be
immediately enforced, those obligations could come to an end upon the occurrence of a certain event.
In other words, the 1997 lease was designed to take effect immediately, but was subject to being
terminated if TAMSA did not buy their new or used UT units from American or did not allow
American to renovate TAMSA’s UT units during the lease term. Thus, American was entitled to
terminate the contract if the resolutory condition was not fulfilled. See La Rose v. Defrense, 99 So.
2d 16, 19 (La. 1958).
American also argues that even if the “contingent upon” clause creates a resolutory condition,
summary judgment was improper because it presented evidence which creates a genuine issue of
material fact as to whether TAMSA (1) acted in good faith with respect to the Louisiana Civil Code
articles 1770 and 1983, and (2) was at fault in preventing the fulfillment of the resolutory condition
as contemplated in Louisiana Civil Code article 1772. These provisions of the Louisiana Civil Code
are inapplicable to the issue of whether American can base a breach of contract claim on the
25
resolutory condition. Article 17709 is not applicable because, if anything, it is concerned with
whether TAMSA, as the obligor entitled to terminate the lease,10 exercised its right to terminate in
good faith.11 TAMSA never exercised its right to terminate the 1997 lease. Similarly, article 177212
is inapplicable because in this case, the resolutory condition was fulfilled when TAMSA purchased
a new UT unit from a party other than American. Further, although article 1983 required TAMSA
to perform its obligations under the lease in good faith, the “contingent upon” clause did not create
a performance obligation on the part of TAMSA. We therefore affirm the ruling of the district court
granting summary judgment on American’s breach of contract claim regarding the “contingent upon”
clause.
VI. Grant of Summary Judgment for TAMSA on American’s Punitive Damages Counterclaim
The district court granted summary judgment for TAMSA on American’s punitive damages
counterclaim without pro viding reasons for its decision. From the transcript of the summary
9
Article 1770 provides that “[a] resolutory condition that depends solely on the will of the obligor
must be fulfilled in good faith.” LA. REV. STAT. ANN. art. 1770 (West 1987).
10
Both TAMSA and American were obligated under the 1997 lease agreement. In that sense, both
parties were obligors.
11
Comments (f) to article 1770 sheds light on the obligation of good faith:
In order to comply with the requirement of good faith, a party exercising his right to
terminate a contract at will should consider not only his own advantage, but also the
hardship to which the other part y will be subjected. . . . If termination is improper
under this article, the court may order either continuation of performance for the other
party to overcome the hardship, or may grant damages to the party harmed by the
termination.
LA. CIV. CODE. ANN. art. 1770 cmt.(f).
12
Article 1772 states that “[a] condition is regarded as fulfilled when it is not fulfilled because of
the fault of a party with an interest contrary to the fulfillment.” LA. REV. STAT. ANN. art. 1770 (West
1987).
26
judgment hearing, however, it is evident that the district court applied Louisiana’s choice of law rules
and concluded that Louisiana law did not authorize punitive damages. American does not challenge
the district court’s application of Louisiana’s choice of law rules; however, it contends that under
Louisiana choice of law provisions, summary judgment should not have been rendered on its punitive
damages counterclaim.
In determining the appropriate substantive law, the district court correctly looked to Louisiana
choice of law rules because a federal court exercising diversity jurisdiction applies the choice of law
rules of the forum state. See Marchesani v. Pellerin-Milnor Corp., 269 F.3d 481, 485 (5th Cir. 2001).
The specific article dealing with a conflict of law determination in relation to punitive damages is
Louisiana Civil Code article 3546, which provides:
Punitive damages may not be awarded by a court of this state unless authorized:
(1) By the law of the state where the injurious conduct occurred and by either the law
of the state where the resulting injury occurred or the law of the place where the
person whose conduct caused the injury was domiciled.
(2) By the law of the state in which t he injury occurred and by the law of the state
where the person whose conduct caused the injury was domiciled.
LA. CIV. CODE ANN. art. 3546 (West 1994). This article is subject to the “escape clause” of article
3547 which makes a provision for “exceptional cases” where a court may determine that, although
punitive damages may not be recoverable under article 3546, the denial of punitive damages would
more seriously impair the policies of another state favoring such damages, and thereby may award
punitive damage under the law of that state. Id. cmt.(g).13
13
Louisiana Civil Code article 3547 reads as follows:
The law applicable under Articles 3543-3546 shall not apply if, from the totality of the
circumstances of an exceptional case, it is clearly evident under the principles of
Article 3542, that the policies of another state would be more seriously impaired if its
law were not applied to the particular issue. In such event, the law of the other state
shall apply.
27
Based on article 3546, American argues that Texas law should govern the imposition of
punitive damages since the injurious conduct occurred in Texas and the resulting injury occurred in
Texas. We disagree. American does not contend that TAMSA is domiciled in Texas. Even
assuming that the “resulting injury occurred” in Texas, there is simply no support for American’s
contention that TAMSA’s “injurious conduct occurred” in Texas. American asserts that the injurious
conduct occurred when TAMSA initiated commencement of the 1997 lease by sending a letter to
Technical in Texas, during lease negotiations through international telephone conversations or written
communications between Texas and Mexico, when the UT unit was shipped from Houston to
Veracruz at the commencement of the lease, and when the UT unit was returned from Veracruz to
Houston at the termination of lease. Any injurious conduct, however, occurred in Louisiana and
Mexico. American is a Louisiana corporation; the lease agreement was signed on behalf of American
by Sfeir in Louisiana and on behalf of TAMSA by Erick Maldonado in Mexico; all lease payments
were made to Sfeir in Louisiana; and TAMSA’s alleged improper conduct duri ng the lease term
occurred in Mexico. Thus, the law of either Louisiana or Mexico governs the availability of punitive
damages as to American’s claim against TAMSA.
American does not dispute that Mexican law prohibits punitive damages or that Louisiana law
generally prohibits punitive damages. However, American suggests that we embark on a conflict of
laws exercise to determine whether this is an “exceptional case” as contemplated in Louisiana Civil
Code article 3547. This argument is meritless. American, a Louisiana corporation, entered into a
lease with TAMSA, a Mexican corporation with its headquarters in Veracruz. The lease, which was
drafted by American, contained a Louisiana forum selection clause. American’s remaining LUTPA
LA. CIV. CODE ANN. art. 3547 (West 1994).
28
counterclaim seeks redress for the harm caused by TAMSA, whose actions were centered in Mexico.
The primary connection to Texas in this case is that the leased UT unit was physically located in
Texas before it was shipped to TAMSA in Mexico and then returned from Mexico to Texas at the
expiration of the lease. It is not “clearly evident” that there are exceptional circumstances present that
would trigger the application of article 3547. Thus, we conclude that the district court’s dismissal
of American’s punitive damages claim was proper.
CONCLUSION
We AFFIRM the denial of TAMSA’s motion for summary judgment on American’s LUTPA
counterclaim. In addition, we AFFIRM the grant of summary judgment for TAMSA on American’s
counterclaims for breach of contract and punitive damages. However, we REVERSE the district
court’s grant of summary judgment in favor of Sfeir on TAMSA’s fraud and conversion claims
against him perso nally. We also REVERSE the district court’s summary judgment ruling on
American’s LUTSA claim. Accordingly, we remand for further proceedings not inconsistent with
this opinion
AFFIRMED in part, REVERSED in part, and REMANDED.
29