2002 Decisions

Opinions of the United

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Precedential or Non-Precedential: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 NOT PRECEDENTIAL 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