Spa Time Inc. v. Bally Total Fitness Corp.

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
2-1-2002
Spa Time Inc v. Bally Total Fitness
Precedential or Non-Precedential:
Docket 1-1706
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Recommended Citation
"Spa Time Inc v. Bally Total Fitness" (2002). 2002 Decisions. Paper 85.
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1706
SPA TIME INC.,
Appellant
v.
BALLY TOTAL FITNESS CORPORATION
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW JERSEY
(Dist. Court No. 00-cv-03369)
District Court Judge: Dennis M. Cavanaugh
Submitted Under Third Circuit LAR 34.1(a)
January 17, 2002
Before: ALITO, ROTH, Circuit Judges, and SCHWARZER, Senior District Judge.
(Opinion Filed: Februay 1, 2002 )
MEMORANDUM OPINION OF THE COURT
PER CURIAM:
Spa Time, Inc. ("Spa") appeals from the District Court's grant of
Bally Total
Fitness Corporation's ("Bally's") Rule 12(b)(6) motion to dismiss for
failure to state a
claim and from the District Court's subsequent partial denial of Spa's
motion for
reconsideration and grant of Bally's converted motion for summary
judgment. As the
parties are well aware of the history of these proceedings and the facts
involved, we need
not repeat them here.
Spa raises two issues on appeal. First, Spa argues that Appellee
Bally breached a
trade secret covenant by entering into an agreement with Musak Corporation
("Musak")
to broadcast in Bally's clubs. Second, Spa claims that Bally committed
breach of a
perpetual contract by entering into a new contract with Musak.
We exercise plenary review over a district court's dismissal of a
complaint
pursuant to Rule 12(b)(6), see Maio v. Aetna Inc., 221 F.3d 472, 481 (3d
Cir. 2000), and
over a district court's grant of summary judgment, see Farrell v. Planters
Lifesavers Co.,
206 F.3d 271, 278 (3d Cir. 2000). In both cases, we apply the same test
as the district
court.
First, Appellant Spa asserts that the District Court erroneously
applied the legal
criteria for the tort of misappropriation of trade secrets because Spa was
arguing a
contract claim for breach of a trade secret covenant. Appellant relies
heavily on
Consolidated Boiler Corp. v. Bogue Electric Co., 58 A.2d 759, 141 N.J. Eq.
550 (N.J. Ch.
1948), Bolt Associates v. Alpine Geophysical Associates, Inc., 365 F.2d
742 (3d Cir.
1966), and Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), argue
that disclosure
is not a required element of a breach of trade secret covenant claim. Spa
claims that
misuse is sufficient for breach of a trade secret covenant and that Bally
improperly
misused Spa's trade secret when it contracted with Muzak to provide music
and
advertising broadcasting services.
We need not reach Spa's analysis of Consolidated, Bolt, and Kewanee,
and its
legal conclusion that a trade secret covenant may be breached by either
disclosure or
misuse, because Spa fails to allege sufficient facts for either disclosure
or misuse. Spa
does not claim that Bally disclosed its trade secrets, and the only
allegation of misuse is
that Bally switched to Muzak to provide its music and advertisement
broadcasting
services. Yet if the trade secret at issue is merely the physical
machinery and technical
design of the system itself and its operation, which is what the facts
indicate, then there is
no allegation that either Bally or Musak used Spa's trade secret in any
manner. Bally and
Musak could have misused Spa's secret only if we interpret the trade
secret to encompass
the very idea of broadcasting music and advertising in health clubs. This
interpretation of
the trade secret, however, is not supported by the record. Although the
parties stipulated
to treat the system and its operation as a trade secret, they did not
agree to treat the
concept of a music broadcasting system in a health club as a trade secret.
Therefore, even
if Spa is legally correct that it does not have to show disclosure and
that misuse of a trade
secret is sufficient to prove breach of covenant, the District Court
properly dismissed the
case. Moreover, although the District Court emphasized that Spa had not
alleged
disclosure, it did also observe that Spa had failed to allege misuse. See
Distr. Ct. Op.
(Nov. 14, 2000) at 11, in App. at 11a ("Additionally, Spa has not alleged
any facts
showing that secret information was used by Musak or Bally to the
detriment of Spa.").
Second, Spa claims that it entered into a contract of perpetual
duration with Bally
and that Bally breached this contract by later entering into an agreement
with Muzak.
Our review of the record leads us to conclude that the District Court
correctly determined
that the parties did not enter into a contract of perpetual duration. The
record indicates
clearly that the parties expected to enter into a national agreement at a
future date, which
evidenced an awareness of the limited nature of the parties' continued
relationship and
belied any intention for an intermediate agreement to be perpetual. The
documents
reviewed on rehearing also indicated a clear intent that the new agreement
would be
temporary. Therefore, we agree with the District Court's reasoning,
especially in light of
the disfavor of perpetual contracts shown by New Jersey courts.
In conclusion, the District Court properly found that Appellant Spa
failed to make
a prima facie case for breach of a trade secret covenant and to
demonstrate the existence
of a perpetual contract. Accordingly, the District Court's grants of
Bally's motion to
dismiss and its converted motion for summary judgment are affirmed.
TO THE CLERK OF THE COURT:
Kindly file the foregoing Memorandum Opinion.
Circuit Judge