292 F.3d 471 (5th Cir. 2002), 00-31054, Tubos de Acero de Mexico, S.A. v. American Intern. Inv. Corp., Inc.

Docket Nº:00-31054, 00-31187.
Citation:292 F.3d 471
Party Name:TUBOS DE ACERO DE MEXICO, S.A., Plaintiff-Appellant-Cross-Appellee, v. AMERICAN INTERNATIONAL INVESTMENT CORP., INC., Defendant-Appellee-Cross-Appellant, George Sfeir, Defendant-Appellee. Tubos de Acero de Mexico, S.A., Plaintiff-Appellant, v. American International Investment Corp., Inc.; George Sfeir, Defendants-Appellees.
Case Date:June 10, 2002
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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292 F.3d 471 (5th Cir. 2002)

TUBOS DE ACERO DE MEXICO, S.A., Plaintiff-Appellant-Cross-Appellee,



George Sfeir, Defendant-Appellee.

Tubos de Acero de Mexico, S.A., Plaintiff-Appellant,


American International Investment Corp., Inc.; George Sfeir, Defendants-Appellees.

Nos. 00-31054, 00-31187.

United States Court of Appeals, Fifth Circuit

June 10, 2002

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Stephen G. Tipps (argued), Baker Botts, Houston, TX, Francis J. Barry, Jr., Bert M. Cass, Jr., Deutsch, Kerrigan & Stiles, Jason Allen Schoenfeld, Terriberry, Carroll & Yancey, New Orleans, LA, for Tubos de Acero de Mexico, SA.

Gerald C. deLaunay (argued), Jean Ouellet, Perrin, Landry, deLaunay, Dartez & Ouellet, Lafayette, LA, for American Intern. Inv. Corp. and Sfeir.

Appeals from the United States District Court for the Western District of Louisiana.

Before BARKSDALE and STEWART, Circuit Judges, and DUVAL, District Judge.[*]

CARL E. STEWART, Circuit Judge:

In this consolidated appeal, Tubos de Acero de Mexico, S.A. (TAMSA) seeks reversal of the district court's order granting summary judgment for George Sfeir ("Sfeir") on its fraud and conversion claims against him personally. TAMSA also appeals the denial of its motion for summary judgment on American International Investment Corp., Inc.'s ("American") unfair trade practices and trade secrets counterclaims. American cross-appeals the district court's order granting summary judgment for TAMSA on its counterclaims for breach of contract and punitive damages. For the reasons that follow, we affirm the decision of the district court in part, reverse in part, and remand for further proceedings.


This case involves a commercial dispute between TAMSA and American and its vice president and chief executive officer, Sfeir, arising from a lease of ultrasonic testing pipe inspection equipment ("UT unit"). TAMSA is a Mexican corporation engaged in the business of manufacturing and selling steel pipe for various applications in the offshore petrochemical industry. As part of its quality control program, TAMSA uses UT units to test the manufactured pipe at its manufacturing plant in Veracruz, Mexico. American is a Louisiana corporation, with its principal place of business in Lafayette, Louisiana. American is an international marketing agent for Technical Industries, Inc. ("Technical"), a Houston-based company that designs and manufactures UT units. In this capacity, American performed the following functions for Technical: (1) international marketing; (2) ensuring Technical's

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customers received its products; (3) guaranteeing customers' payment to Technical; and (4) service and technical support for Technical's UT units placed with customers. American does not design or manufacture any UT units, nor possess any patent or trademark protection as to such equipment.

American supplied TAMSA with UT units manufactured by Technical on two separate occasions: a 1995 sale and a 1997 lease. In December of 1995, American sold TAMSA a UT unit and this purchase was memorialized by a purchase agreement dated December 12, 1995. The 1995 purchase agreement was silent as to the confidentiality or proprietary nature of any alleged trade secrets, contained no restrictions that prevented TAMSA from making design changes to the UT unit, and did not require TAMSA to purchase spare parts for the UT unit from American. In conjunction with this sale, American provided TAMSA with the unit's operation manual, electrical wiring diagram, and mechanical drawings. A separate lease agreement was also signed on December 12, 1995, whereby TAMSA rented a UT unit from American for a four month period, while the new UT unit that it agreed to purchase was being manufactured. Sfeir drafted each of these agreements. The purchased unit was completed and ultimately was delivered to TAMSA in the summer of 1996.

In mid-1997, TAMSA needed another UT unit to meet its production demands and solicited bids from various UT unit suppliers, including American. On November 19, 1997, TAMSA entered into a lease agreement with American for the rental of a UT unit. The 1997 leased UT unit was built prior to the 1995 purchased UT unit. The 1997 lease agreement provided that TAMSA must keep the terms of the lease confidential, but the lease was silent as to the confidentiality or proprietary nature of any alleged trade secrets. The lease was not accompanied by or signed in conjunction with a purchase agreement. Sfeir drafted this agreement. The 1997 lease forms the basis for this lawsuit and appeal.

Technical's UT equipment was built primarily through the efforts of Technical employees, John Krajewski ("Krajewski") and Joe Rose. According to Krajewski, the UT unit purchased in 1995 was "extremely similar" to the UT unit leased in 1997. The only major difference between the two UT units was the addition of a data acquisition package to the 1995 purchased UT unit.1 However, the 1997 leased UT unit contained a ET-26A board, which was a slightly different, allegedly upgraded version of the ET-26 board installed on the 1995 purchased UT unit.

Sfeir testified during his deposition that he did not know whether Technical required confidentiality of other parties with whom it did business. At his deposition, Krajewski testified that while he worked for Technical, its customers were allowed to photograph, inspect, and examine Technical's UT units, including the 1997 leased UT unit. Additionally, photographs of Technical's UT units, and their component parts, were available on Technical's web page. Although Sfeir testified that he tried to "[k]eep it short," American's competitors were permitted to view photographs of Technical's UT units at trade shows.

In conjunction with the 1995 lease and when discussions began between TAMSA and American that lead to the 1997 lease, Sfeir made it clear that the rental of a UT unit was contingent upon TAMSA purchasing

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a new UT unit from American, and TAMSA acknowledged this rental offer. On October 29, 1997, American again advised TAMSA that the rental unit "is to help our clients when they buy new equipment from us or have us renovate old equipment," and TAMSA again acknowledged this rental proposal. TAMSA's Chief Executive Officer, Martin Berardi, testified that if TAMSA had not been able to lease American's UT unit in November of 1997, TAMSA would have lost revenues and it would have been detrimental to their commercial objectives. Further, TAMSA's internal e-mails on November 6th revealed that it had conducted a worldwide search which showed that American's UT unit was the only one available, that TAMSA was in need of a UT unit, and that American's UT unit needed to be acquired without delay. Sfeir's affidavit indicates that during negotiations for the 1997 lease, TAMSA represented to Sfeir that it intended to purchase its UT unit from American.

The 1997 lease provided for the rental of a UT unit for twelve months at a rate of $31,500 per month. Pursuant to the 1997 lease, TAMSA's obligations under the lease were secured by a letter of credit (LOC) in the amount of $650,000 that TAMSA established with Banco Santander (issuing bank) and Hibernia National Bank ("Hibernia") (confirming bank). According to the 1997 lease and the LOC, the purpose of the LOC was to ensure the return of the UT unit, the payment of all money owed to American and its contractors, and compliance with the terms of the lease. The lease agreement and the LOC were negotiated and drafted by Sfeir and accepted by TAMSA. In September of 1998, the parties agreed to extend the lease through May of 1999 at a rate of $34,000 per month and to extend the expiration date of the LOC to July 30, 1999.

The last sentence in paragraph VI of the 1997 lease (the "contingent upon" clause) provides that "[t]his lease is contingent upon Lessee buying their new or used [UT] Units from Lessor, and having Lessor renovate any inspection equipment needed by Lessee while the unit is being leased." The 1997 lease also provided that "[a]ll spare parts replaced must remain original, and must be purchased from Lessor." American provided evidence that at the time it entered into the 1997 lease, TAMSA knew that it was going to purchase a new UT unit, but was no longer considering purchasing that equipment from American. By October of 1997, there is evidence that TAMSA had decided to purchase its new UT unit from a third party and that the commercial negotiations were at an advanced stage. Additionally, TAMSA did not advise American when it purchased its new UT unit from that third party in February or March of 1998.

There is also evidence that as of October of 1997, internal requests were being made by Arnulfo Ruiz to allow expenditures of $425,000 for renovation of the electronic equipment on TAMSA's existing UT units. During the term of the 1997 lease, Sfeir made numerous inquiries into, and expressed desire to perform, any renovations of TAMSA's equipment and TAMSA's professed its intent to comply with its lease obligations. However, American was never offered an opportunity to bid on any renovations. American provided evidence that TAMSA undertook renovation of its existing equipment through other contractors. Furthermore, there is evidence that TAMSA manufactured and/or purchased from parties other than American spare or replacement parts for the 1997 leased UT unit, which TAMSA left on the unit when it was returned to American. Near the end of the 1997 lease, Sfeir also discovered that TAMSA copied the electronic Circuitry

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from the ET-26A board in the 1997 leased...

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