Dunster Live, L.L.C. v. LoneStar Logos Mgmt Compan
Opinion
This is the first Defend Trade Secrets Act case that has reached our court.
I.
Plaintiff and Defendants used to be members of the same limited liability company. The company had a contract with the state to construct and install the blue signs on Texas highways that advertise food, lodging, and gas stations located at approaching exits. In the months leading up to the contract expiration in 2016, Defendants formed a new company without Plaintiff. The new company won the state contract for the signs.
Plaintiff sued in federal court claiming Defendants stole proprietary software and a database in violation of the Defend Trade Secrets Act. The complaint also alleged related state law claims. Plaintiff soon sought a preliminary injunction to stop the new company from taking over the contract and using the alleged trade secrets. The district court denied the request.
Plaintiff then sought court permission to dismiss the case without prejudice. See FED. R. CIV. P. 41(a)(2) (requiring court approval for dismissal once the opposing party has filed an answer or motion for summary judgment). It explained that it no longer wished to pursue the federal trade secret claim, which was the only basis for subject matter jurisdiction. Defendants opposed this motion on the ground that Plaintiff was engaging in "bad faith" by seeking to avoid an adverse merits ruling and liability for substantial attorney's fees. The district court nonetheless allowed the dismissal without prejudice.
*951 After dismissal, Defendants sought upwards of $600,000 in attorney's fees. Adopting the recommendation of a magistrate judge, the district court denied the fee request. It concluded that a dismissal without prejudice does not make the defendant a prevailing party because the plaintiff is "free to resurrect its claims against the defendant and may prevail at a later date." Indeed, after the dismissal Plaintiff filed essentially the same lawsuit in state court except for the federal claim.
II.
Most federal fee statutes allow a court to award fees only to a prevailing party.
1
Buckhannon Bd. and Care Home, Inc. v. W.V. Dept. of Health and Human Res
.,
Defendants suggest that this rule allows plaintiffs to evade paying fees by strategically seeking a dismissal without prejudice once a plaintiff realizes the suit is doomed. That concern ignores that a dismissal without prejudice requires court approval unless it occurs very early in the game.
See
FED. R. CIV. P. 41(a)(2). And one of the reasons a court may deny such a request is bad faith on the plaintiff's part.
See
United States ex rel. Vaughn v. United Biologics, L.L.C.
,
In addition to this Rule 41 barrier to opportunistic dismissals, Rule 11 provides a check on the behavior Defendants are concerned about. Rule 11 sanctions can be imposed against a party litigating in bad faith even when there is no prevailing
*952
party.
See
Szabo Food
,
Defendants contend that what is true of Rule 11 is also true of the Defend Trade Secrets Act attorney's fee provision: a plaintiff's making a bad faith claim of trade secret misappropriation supports a fee award even when the defendant has not officially prevailed. This is what the statute says:
[I]f a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, [a court may] award reasonable attorney's fees to the prevailing party.
Erasing "prevailing party" from the fee statute would be especially troubling because it is a term of art that Congress has used in numerous attorney's fees statutes.
Buckhannon
,
Yet Defendants argue that if prevailing is a requirement for fees under the Defend Trade Secrets Act-and we have just explained that it is-then we should interpret "prevailing party" to mean something different from what it means in all these other laws. This is because, they argue, the federal trade secrets law is modeled after the Uniform Trade Secrets Act and many states that have adopted the language of that model act have taken a broader view of prevailing party status in trade secret cases. One problem with this argument is that those decisions do not seem to turn on anything special about trade secret law, but rather rely on general state attorney's fees law that more liberally awards fees.
See, e.g.
,
Cypress Semiconductor Corp. v. Maxim Integrated Prods., Inc.
,
The bigger problem for Defendant's attempt to import state law is that
*953
"prevailing party" status in a federal statute is a question of federal law. And when Congress repeats a term of art like "prevailing party" in a new statute like the Defend Trade Secrets Act, it "knows and adopts the cluster of ideas that were attached to each borrowed word in the body of learning from which it was taken and the meaning its use will convey to the judicial mind unless otherwise instructed."
Morissette v. United States
,
Defendants argue that even if the dismissal does not make them a prevailing party, they achieved that status earlier in the case when they defeated the request for a preliminary injunction. But prevailing party status ordinarily requires being ahead when the final whistle blows in a case, not at halftime.
See
Planned Parenthood of Houston & Se. Tex. v. Sanchez
,
Taking the lead early in the lawsuit thus did not make Defendants eligible for fees. Nor did the trial court's postponement of the litigation when it allowed Plaintiff to dismiss the federal suit without prejudice. The dispute has now been rescheduled for state court, where the winner will be decided. Because there was never a final score in this federal lawsuit, the Defend Trade Secrets Act does not allow attorney's fees.
The judgment of the district court is AFFIRMED.
Plaintiff argues that the district court lacked jurisdiction to award fees once it dismissed the case. Not true. A court retains the ability to decide a collateral issue like a fee motion after the action is dismissed.
Cooter & Gell v. Hartmarx Corp
.,
Dean
,
Buckhannon
,
Cadkin v. Loose
,
Yousuf v. Motiva Enters. LLC
,
Reference
- Full Case Name
- DUNSTER LIVE, LLC, Individually and Derivatively on Behalf of LoneStar Logos & Signs, L.L.C., Plaintiff-Appellee v. LONESTAR LOGOS MANAGEMENT COMPANY, LLC., Individually and Doing Business as LoneStar Media Group; Media Choice, LLC ; Curtis E. Ford; Drew Cartwright; Vincent Hazen; Johnston Media, L.L.C.; Matt Johnston; LoneStar Logos & Signs, LLC, Defendants-Appellants
- Cited By
- 16 cases
- Status
- Published