Court Opinion

ID: 18572
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:16:45+00
Date Added: 2024-06-11T15:04:00.204981
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                                FOR THE FIFTH CIRCUIT

                                     _____________________

                                          No. 98-11400
                                        Summary Calendar
                                     _____________________

       LAWFINDERS ASSOCIATES, INC., a Texas corporation;
       LAWFINDERS ASSOCIATES, INC., a New York corporation;
       LAWFINDERS ASSOCIATES, INC., a Delaware corporation,

                                                              Plaintiffs-Appellants,

                                               versus

       LEGAL RESEARCH CENTER, Inc.,

                                                              Defendant-Appellee.

              _______________________________________________________

                        Appeal from the United States District Court
                            for the Northern District of Texas
                                    (3:98-CV-1766-D)
              _______________________________________________________
                                     August 23, 1999

Before REAVLEY, SMITH and DENNIS, Circuit Judges.

PER CURIAM:*

       In this action for misappropriation of trade secrets, breach of contract, false designation of

origin, and dilution of a service mark, plaintiffs-appellants Lawfinders Associates, Inc., a Texas

corporation, Lawfinders Associates, Inc., a New York corporation, and Lawfinders Associates,

Inc., a Delaware corporation (collectively “Lawfinders”) appeal the district court’s November 4,

1998 order denying Lawfinders’ motion for a preliminary injunction against defendant-appellee

Legal Research Center, Inc. (“LRC”) and dissolving the temporary restraining order entered by

the Texas state court before this case was removed. We affirm.

   *
    Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
       The relevant facts and applicable legal principles are set forth in the district court’s

memorandum opinion and order. The district court held that Lawfinders failed to establish a

substantial likelihood of success on the merits of each of its four claims: misappropriation of

trade secrets; breach of contract; false designation of origin under § 43(a) of the Lanham Act, 15

U.S.C. § 1125(a); and dilution of its service mark under the Texas Anti-Dilution Act, TEX. BUS.

& COM. CODE ANN. § 16.29 (West Supp. 1999). Lawfinders’ primary contention on appeal is

that the district court misconstrued the applicable Texas trade secret and unfair competition law

and, as a result, erroneously determined that Lawfinders’ alleged “trade secrets” were in the

public domain and therefore were not entitled to trade secret protection and were not covered by

the parties’ confidentiality agreement. Lawfinders also asserts that the district court erred in

making factual findings unsupported by the record. Lawfinders does not challenge the district

court’s decision as it relates to the Lanham Act and state anti-dilution claims.

       We review the denial of a preliminary injunction for an abuse of discretion. See Hoover v.

Morales, 164 F.3d 221, 224 (5th Cir. 1998).

       A preliminary injunction is an extraordinary equitable remedy that may be granted
       only if the plaintiff establishes four elements: (1) a substantial likelihood of success
       on the merits; (2) a substantial threat that the movant will suffer irreparable injury
       if the injunction is denied; (3) that the threatened injury outweighs any damage that
       the injunction might cause the defendant; and (4) that the injunction will not
       disserve the public interest. These four elements are mixed questions of law and
       fact. Accordingly, we review the factual findings of the district court only for clear
       error, but we review its legal conclusions de novo. Likewise, although the ultimate
       decision whether to grant or deny a preliminary injunction is reviewed only for
       abuse of discretion, a decision based on erroneous legal principles is reviewed de
       novo.

Id. (quoting Sunbeam Prods., Inc. v. West Bend Co., 123 F.3d 246, 250 (5th Cir. 1997)).

Whether a purported trade secret is in fact secret is a question of fact. See Lehman v. Dow Jones

& Co., 783 F.2d 285, 298 (2d Cir. 1986); K-2 Ski Co. v. Head Ski Co., 506 F.2d 471, 474 (9th

Cir. 1974); Nickelson v. General Motors Corp., 361 F.2d 196, 199 (7th Cir. 1966).

       Lawfinders’ principal argument on appeal is that, in analyzing the “secrecy” aspect of the

trade secret analysis, the district court applied an incorrect legal standard when it concluded that

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Lawfinders’ alleged trade secrets were in the public domain. Specifically, Lawfinders complains

that the district court erroneously interpreted Texas trade secret law to hold (1) that all

information related to the purported trade secret, including any underlying confidential

methodologies, formulas, or strategies, is in the public domain if any aspect of that information is

disclosed to a third party, and (2) that “by placing a service on sale to the public, a company loses

all right to protect the formulations and methodologies that go into providing that service.” This

argument is without merit because the district court did not adopt such an interpretation of Texas

trade secret law and because Lawfinders did not seek trade secret protection for all of its

underlying confidential methodologies and formulations as it now suggests on appeal. Rather,

Lawfinders sought trade secret status for four discrete pieces of information: (1) the formulation

of its results-based guarantee—that it will honor its guarantee “only when the appellate court

decides against a party in its entirety”; (2) the formulation of its fee financing program; (3) two of

its risk management formulations;1 and (4) its direct response marketing strategy. See Pl.’s Br. in

Supp. of Prelim. Inj. at 18-24; R. Vol. 1 at 202A-208. In its reply brief to the district court,

Lawfinders further asserted that the unique combination of the above information constitutes a

trade secret. See Pl.’s Reply Br. at 8-9; R. Vol. 2 at 353-54. In its thorough, well-reasoned,

twenty-six page opinion and order, the district court correctly set forth and applied the relevant

trade secret law and correctly concluded that Lawfinders’ purported trade secrets were in the

public domain.

       Lawfinders also argues that the district court erred in concluding that information

contained in its retainer letters was in the public domain because Lawfinders “produced no

evidence that its customers have a non-disclosure obligation or a duty of confidentiality with

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       The two risk management formulations or strategies that Lawfinders purports to be trade
secrets are (1) the manner in which Lawfinders formulates its retainer agreements and structures
its arrangements with clients to avoid ethical violations by including provisions that Lawfinders
works directly for its attorney customer and has no relationship or dealings with the lay client; and
(2) the information that use of a results-based guarantee will reduce a customer’s reluctance to
pay a fixed-fee in full in advance. See Pl.’s Br. in Supp. of Prelim. Inj. at 22-23; R. Vol. 1 at 206-
07.

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respect to the retainer letters.” Lawfinders points to evidence in the record that two attorneys

who executed the retainer agreements treated the letters as confidential and further asserts that an

implied duty of confidentiality and non-disclosure exists because the retainer letters are protected

by the attorney-client privilege. We disagree. First, the fact that two of Lawfinders’ attorney-

clients happened to treat the letters as confidential is not evidence that Lawfinders itself imposed a

duty of confidentiality on the recipients. On this record, the district court’s finding that

Lawfinders did not impose a duty of confidentiality on the recipients of the retainer letters was not

clearly erroneous and supports the conclusion that information contained therein was in the public

domain. Second, the attorney-client privilege does not protect the type of information contained

in the retainer letters. See, e.g., United States v. Davis, 636 F.2d 1028, 1043-44 (5th Cir. Unit A

Feb. 1981) (stating that attorney-client privilege only extends to communications related to the

rendition of legal advice and holding that “[f]inancial transactions between the attorney and client

. . . are not within the privilege”). Moreover, even assuming the attorney-client privilege applies,

that privilege would belong to the ultimate lay client, who is completely free to disclose the

information.

       Lawfinders also argues that the district court erred in finding that LRC had not used one

of Lawfinders’ risk management formulations—the idea that using a results-based guarantee will

reduce customer reluctance to pay fees in advance and thereby reduce accounts receivable.

Lawfinders disputes the district court’s statement that it “introduced no evidence that LRC is

using this information in any way” and asserts that the district court ignored evidence that LRC

coupled an offer to participate in its guaranteed appellate brief service with a requirement of

advance payment in full. This evidence consists of (1) a June 15, 1998 retainer letter from LRC

to a prospective client offering to accept the project under LRC’s Appellate Brief Guarantee and

requiring full payment in advance, and (2) an accompanying invoice. See Pl.’s App. to Br. in

Supp. of Prelim. Inj. at 654-55. But, as LRC points out, in its argument to the district court,

Lawfinders failed to cite to these documents as evidence that LRC had used the information. See

                                                   4
Pl.’s Br. in Supp. of Prelim. Inj. at 16-24; R. Vol. 1 at 201-08. These documents were buried in

the Appendix to Lawfinders’ brief in support of its motion, which contained over one thousand

pages of documents. Because the district court was not required to comb through Lawfinders’

voluminous appendix in search of evidence on this element, the district court’s finding was not

clearly erroneous.

        Moreover, even if we assume that the district court erred in finding that LRC had not used

Lawfinders’ second risk management formulation, the information simply does not constitute a

protectible trade secret since it does not “‘possess at least that modicum of originality which will

separate it from everyday knowledge.’” Phillips v. Frey, 20 F.3d 623, 628 (5th Cir. 1994)

(quoting Cataphote Corp. v. Hudson, 444 F.2d 1313, 1315 (5th Cir. 1971)). The idea that a

money-back guarantee will reduce customer reluctance to pay in full in advance is nothing more

than common sense general business knowledge, which is not entitled to trade secret protection.

See Cataphote Corp., 444 F.2d at 1315-16 (“Where a process or idea is so common, well known

or readily ascertainable that it lacks all novelty, uniqueness and originality, it necessarily lacks the

element of privacy necessary to make it legally cognizable as a trade secret.”).

        As for Lawfinders’ remaining arguments, after reviewing the parties’ briefs, the record,

and the relevant authorities, we conclude that those arguments are also without merit. The

district court’s ruling that Lawfinders failed to demonstrate a substantial likelihood of success on

the merits of its claims was grounded upon a correct analysis of the applicable legal principles and

supported by factual findings that were not clearly erroneous. Consequently, the district court did

not abuse its discretion by denying Lawfinders’ motion for a preliminary injunction.

        AFFIRMED.

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