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Source Production & Equipment Co., Inc. v. Schehr

United States District Court, E.D. Louisiana

August 29, 2017

SOURCE PRODUCTION & EQUIPMENT CO., INC., ET AL.
v.
KEVIN J. SCHEHR, ISOFLEX USA, ISOFLEX RADIOACTIVE LLC, RICHARD H. MCKANNAY, JR., AND JOHN DOES 1-10

         SECTION “R” (1)

          ORDER AND REASONS

          SARAH S. VANCE, UNITED STATES DISTRICT JUDGE.

         Before the Court are defendants' motions to dismiss[1] in part plaintiffs' first amended complaint.[2] For the following reasons, the Court grants in part and denies in part each motion.

         I. BACKGROUND

         Source Production & Equipment Co., Inc. (“SPEC”) and its affiliates bring this trade-secret misappropriation and unfair competition action against Kevin J. Schehr, Isoflex USA, Isoflex Radioactive LLC, and Richard McKannay, Jr.[3] SPEC is a supplier of industrial and medical radiography equipment and radioactive isotope materials.[4] Schehr is a former executive officer at SPEC. According to the complaint, Schehr began working for SPEC in 1995 and held various positions at the company until his termination in July of 2016.[5] Plaintiffs allege that over the course of his employment, Schehr signed several confidentiality agreements regarding SPEC's trade secrets.[6] These trade secrets include technologies used to manufacture containers for shipping radioactive material.[7]

         According to the complaint, Schehr unsuccessfully attempted to acquire an ownership interest in SPEC in 2012 and 2014.[8] Plaintiffs further allege that Schehr's resentment toward SPEC and its owner, Richard Dicharry, following these attempts prompted Schehr to engage in conduct intended to undermine SPEC and benefit Schehr and others affiliated with Schehr.[9] To this end, Schehr allegedly made several misrepresentations to Dicharry that he knew to be false, caused SPEC to default on the terms of a sale agreement, negotiated business contracts against Dicharry's wishes, filed for and claimed ownership rights to patents developed using SPEC's resources, and provided false financial information in order to inflate his personal bonuses, among several other alleged transgressions.[10]

         SPEC terminated Schehr's employment on July 10, 2016.[11] Plaintiffs allege that after his termination, Schehr did not immediately return his company-issued laptop, despite SPEC's demand that he do so.[12] Plaintiffs further allege that once the laptop was returned, a forensic analysis revealed that Schehr emailed a number of SPEC's confidential and proprietary files to his personal email accounts.[13] According to plaintiffs, the analysis also showed that minutes after his termination, Schehr attached two external hard drives to the laptop and subsequently deleted 5, 086 files from the laptop.[14] Plaintiffs allege that Schehr continues to possess other storage media belonging to SPEC, including thumb drives and CDs.[15]

         Finally, plaintiffs allege that both before and after his termination, Schehr conspired with Isoflex USA and McKannay, the managing director of Isoflex USA, to establish Isoflex Radioactive. Plaintiffs allege that in creating Isoflex Radioactive, defendants misappropriated plaintiffs' trade secrets and confidential information.[16] This misappropriation, according to plaintiffs, will allow Isoflex Radioactive to compete with plaintiffs in the market for radioactive materials.[17]

         In their amended complaint, plaintiffs assert against all defendants claims for violations of the federal Defend Trade Secrets Act (“DTSA”), the Louisiana Uniform Trade Secrets Act (“LUTSA”), and the Louisiana Unfair Trade Practices Act (“LUTPA”), as well as for conversion.[18] Against Schehr individually, plaintiffs assert claims for violation of the Computer Fraud and Abuse Act (“CFAA”), breach of legal duty, breach of contract, and fraud.[19]

         Isoflex USA, Isoflex Radioactive, and McKannay now move to dismiss plaintiffs' DTSA, LUTSA, conversion, and LUTPA claims.[20] Schehr also moves to dismiss plaintiffs' conversion claim.[21] Plaintiffs filed a consolidated response in opposition, [22] and defendants filed replies.[23]

         II. LEGAL STANDARD

         To survive a Rule 12(b)(6) motion to dismiss, plaintiffs must plead enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. A court must accept all well-pleaded facts as true and must draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239, 244 (5th Cir. 2009). But the Court is not bound to accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 678.

         A legally sufficient complaint must establish more than a “sheer possibility” that plaintiffs' claim is true. Id. It need not contain detailed factual allegations, but it must go beyond labels, legal conclusions, or formulaic recitations of the elements of a cause of action. Twombly, 550 U.S. at 555. In other words, the face of the complaint must contain enough factual matter to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiffs' claim. Lormand, 565 F.3d at 257. If there are insufficient factual allegations to raise a right to relief above the speculative level, Twombly, 550 U.S. at 555, or if it is apparent from the face of the complaint that there is an insuperable bar to relief, Jones v. Bock, 549 U.S. 199, 215 (2007); Carbe v. Lappin, 492 F.3d 325, 328 n.9 (5th Cir. 2007), the claim must be dismissed.

         III. DISCUSSION

         A. Failure to State DTSA and LUTSA Claims

         1. DTSA

         Isoflex USA, Isoflex Radioactive, and McKannay first argue that the amended complaint fails to allege sufficient claims under the DTSA and LUTSA. To state a claim under the DTSA, a plaintiff must allege (1) the existence of a trade secret; (2) misappropriation of the trade secret by another; and (3) the trade secret's relation to a good or service used or intended for use in interstate or foreign commerce. 18 U.S.C. § 1836(b)(1); see also RealPage, Inc. v. Enter. Risk Control, LLC, No. 16-737, 2017 WL 3313729, at *9 (E.D. Tex. Aug. 3, 2017).

         The DTSA came into effect on May 11, 2016. See Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, § 2(e), 130 Stat. 376, 381-82. Thus, plaintiffs' DTSA claim covers only misappropriation that occurred after that date. The DTSA's recent effective date also means that few courts have applied the statute to trade secrets claims. But the definitional sections of the DTSA and Uniform Trade Secrets Act (“UTSA”) are very similar. Compare 18 U.S.C. §§ 1836, 1839, with Uniform Trade Secrets Act § 1 (amended 1985). Moreover, both the House and Senate committee reports suggest that the DTSA largely conforms with state trade secrets law. See H. Rep. No. 114-529, at 14 (2016) (noting that the DTSA “is not intended to alter the balance of current trade secret law or alter specific court decisions” on misappropriation); S. Rep. No. 114-220, at 10 (2016) (same). Thus, existing state law on trade secrets informs the Court's application of the DTSA.

         As a threshold matter, plaintiffs must allege the existence of a trade secret. A “trade secret” under the DTSA includes scientific and technical information that “the owner thereof has taken reasonable measures to keep . . . secret” and “derives independent economic value . . . from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. § 1839(3).

         The Court finds that plaintiffs have alleged sufficient facts to show the existence of trade secrets. In their amended complaint, plaintiffs list a number of technologies associated with containers for shipping radioactive materials.[24] These technologies include how to produce specialized insulation material, dimensional tolerances for components of plaintiffs' shipping containers, and methods and processes for producing a selenium alloy.[25] As manufacturing processes, these technologies are subject to trade secret protection. See Phillips v. Frey, 20 F.3d 623, 628 (5th Cir. 1994) (noting that under Texas law, a “method of manufacturing” is a trade secret if it “give[s] the owner a competitive advantage”). Plaintiffs further assert that they keep these technologies secret by securing their physical facilities and limiting access to their electronic data.[26] These policies are reasonable measures to maintain secrecy. See Reingold v. Swiftships, Inc., 126 F.3d 645, 650 (5th Cir. 1997) (holding that plaintiff reasonably maintained secrecy of ship mold by limiting its disclosure to third parties). Finally, plaintiffs assert that maintaining the secrecy of these technologies affords them a competitive advantage.[27] By misappropriating these technologies, defendants allegedly will be able to compete with plaintiffs without investing the time and resources required to develop the technologies independently.[28]The secrecy of plaintiffs' technologies therefore has independent economic value. See Id. (holding that ship mold's secrecy had independent economic value because of the time and resources plaintiff expended in constructing it).

         The Court further finds that plaintiffs' trade secrets are related to products used in foreign commerce. Specifically, plaintiffs allege that they use their trade secrets to supply radiography equipment and radioactive materials to customers around the world.[29]

         Plaintiffs must also allege some form of misappropriation. The statute defines “misappropriation” as:

(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(B) disclosure or 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;
(ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was-
(I) derived from or through a person who had used improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(iii) before a material change of the position of the person, knew or had ...

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