A recent court case from the Eastern District of Louisiana provides some useful guidance for parties seeking fee shifting in trade secrets litigation.
In December 2016, plaintiffs Source Production & Equipment Co., Inc. (SPEC) and affiliates filed an action in which they alleged violations of the Defend Trade Secrets Act (DTSA), the Louisiana Uniform Trade Secrets Act (LUTSA), and the Louisiana Unfair Trade Practices Act (LUTPA) against defendants Isoflex USA (IUSA) and Richard McKannay, Jr. (collectively, the IUSA defendants). After more than three years of litigation that “involved extensive discovery and motion practice,” the IUSA defendants brought a motion for attorneys’ fees and costs because they argued that plaintiffs’ DTSA and LUTSA claims were brought and maintained in bad faith.
The court noted that plaintiffs’ trade secret claims were “ever-evolving” in nature throughout the case. The court eventually analyzed 14 claimed trade secrets, four of which the plaintiffs abandoned in oral argument, and another four of which were dismissed by the court because the plaintiffs raised them for the first time one day before the IUSA defendants’ expert reports were due and just one month before the close of discovery. In reference to the untimely trade secrets, the court noted that early identification of trade secrets is important to prevent the “trial by ambush” caused by the plaintiffs’ untimely identification.
Both the DTSA and the LUTSA have attorneys’ fees provisions, and courts have used a two-part test to analyze whether trade secret claims warrant attorneys’ fees, which asks (1) whether the claims were entirely baseless or objectively specious, and (2) whether the claims were made or pursued in subjective bad faith or for an improper purpose.
The court noted that while plaintiffs’ claims had a “ready-fire-aim quality,” there were some facts, including discovery of unauthorized downloads of hundreds of documents by a former SPEC employee before leaving SPEC to join a company related to the IUSA defendants, that created some merit to their claims. And, despite the plaintiffs’ “ever-evolving conceptualization of their claims,” the court noted that the IUSA defendants did “not have completely clean hands” either, as shown by their tardy production of key documents.
After weighing the missteps of both sides, the court ultimately decided to award a percentage of attorneys’ fees to the IUSA defendants based on the percentage of litigation devoted to the identification of the trade secrets. The court decided that 25% of the fees and costs seemed fair.
Separate from the awarding of attorneys’ fees, the court was clearly annoyed by both parties and the extensive litigation. The court’s order included numerous comments about the need for the case to end and even introduced the case by describing it as a “long and torturous litigation.” The decision to award 25% fees may have been a way for the court to end the case and leave both parties unhappy.
The case is Source Prod. & Equip. Co. v. Schehr, No. 16-17528, 2020 WL 4785048 (E.D. La. Aug. 18, 2020).