Spear Mktg., Inc. v. BancorpSouth Bank

• Citation: 844 F.3d 464
• Decision Date: 22 December 2016
• Docket Number: No. 16-10155,16-10155
• Parties: Spear Marketing, Incorporated, Plaintiff–Appellant v. BancorpSouth Bank; Argo Data Resource Corporation, Defendants–Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

844 F.3d 464

Spear Marketing, Incorporated, Plaintiff–Appellant

v.BancorpSouth Bank; Argo Data Resource Corporation, Defendants–Appellees

No. 16-10155

United States Court of Appeals, Fifth Circuit.

Filed December 22, 2016

Steven Dominic Sanfelippo, Thomas C. Wright, Cunningham Swaim, L.L.P., Thomas C. Wright, Rose Walker, L.L.P., Dallas, TX, for Plaintiff–Appellant.

Tonya M. Gray, Andrews Kurth, L.L.P., David Harlan Harper, Attorney, Jason Patrick Bloom, Esq., Haynes & Boone, L.L.P., Dallas, TX, for Defendants–Appellees.

Before KING, OWEN, and HAYNES, Circuit Judges.

KING, Circuit Judge:

This case is before us for the second time. Following our first decision, the district court awarded Defendants–Appellees nearly $1 million in attorneys' fees under state law, or, in the alternative, under the Copyright Act. Now, Plaintiff–Appellant Spear Marketing, Inc. appeals this award, arguing that the district court erred in awarding attorneys' fees under state law because its state law claim was preempted and erred in alternatively awarding attorneys' fees under the Copyright Act because it never pleaded or litigated a copyright claim. We conclude that no court has ever held the state law claim to be preempted, and therefore the district court did not err in awarding attorneys' fees under the state law.

I. Factual and Procedural Background

In this appeal, Plaintiff–Appellant Spear Marketing, Inc. (SMI) challenges the district court's award of attorneys' fees to Defendants–Appellees BancorpSouth Bank and Argo Data Resource Corp. (Defendants). This appeal is the second time that this litigation has come before this court. See Spear Mktg., Inc. v. BancorpSouth Bank (Spear Marketing I ), 791 F.3d 586 (5th Cir. 2015). Because the primary disagreement between the parties is over what was decided by the district court in the underlying litigation and by this court in Spear Marketing I , it is necessary for us to provide a detailed review of this case's procedural history pertinent to the resolution of this appeal.

A. Initial Procedural History and Grant of Defendants' Motion for Summary Judgment

SMI is a small software developer that produces VaultWorks, a computer program that assists banks in managing their cash inventories. Id. at 589–90. BancorpSouth Bank (BCS) was one of the banks that used VaultWorks; however, in February 2012, BCS terminated its agreement with SMI because BCS had reached an agreement with Argo, another software developer for the banking industry. Id. at 590–91. BCS agreed to license Argo's new program, Cash Inventory Optimization (CIO), which included functions similar to SMI's VaultWorks. Id.

In August 2012, SMI filed its Original Petition against Defendants in Texas state court, primarily alleging that Defendants had stolen trade secrets related to the operation of VaultWorks in order to create CIO. The allegedly stolen trade secrets included both technical data and information, such as formulas, algorithms, and methods of operation, as well as business information, such as customer lists, cost and pricing information, financial information, and personnel details. The Original Petition asserted ten causes of action, including claims for misappropriation of trade secrets,¹ theft of trade secrets under the Texas Theft Liability Act (TTLA),² and conversion. SMI did not assert a copyright claim.

In September 2012, Defendants removed the case to federal court on the ground that the claims in the Original Petition were completely preempted by the Copyright Act.³ See 17 U.S.C. § 301 (expressly preempting all causes of action falling within the subject matter of the Copyright Act, with a few exceptions not applicable here). Defendants noted that each of SMI's claims concerned the subject matter of copyright and highlighted how the Original Petition alleged that "Defendants ‘copied objects, materials, devices or substances, including writings' belonging to SMI and then ‘communicated and transmitted’ the copied materials." (Emphasis omitted.) Shortly after removal, Defendants moved to dismiss all of SMI's claims, arguing, in relevant part, that each claim was preempted by the Copyright Act.

In response to the motion to dismiss, SMI filed a First Amended Complaint (FAC), which omitted from its TTLA claim allegations of copying, communicating, and transmitting writings and other materials, and deleted its conversion claim, leaving nine total claims. Defendants then filed a second motion to dismiss, arguing once again, in relevant part, that each claim in the FAC was preempted by the Copyright Act. In turn, SMI moved to remand the litigation to Texas state court, arguing that the claims in the FAC were not preempted by the Copyright Act, and thus the district court lacked subject matter jurisdiction over the claims in the FAC.

In May 2013, the district court denied SMI's motion to remand. First, the district court explained that whether removal was proper should be determined based on the claims in the Original Petition, not the FAC. Second, the district court found that the TTLA claim in the Original Petition was completely preempted by the Copyright Act for the purposes of establishing federal jurisdiction. According to the district court, at least some of the allegedly stolen trade secrets on which the TTLA claim and the conversion claim in the Original Petition were based fell within the subject matter of copyright. In July 2013, the district court denied Defendants' second motion to dismiss. Regarding Defendants' preemption argument, the district court found that at least some of SMI's alleged stolen trade secrets, "such as customer lists, business plans, marketing strategies, and customer preferences," fell outside the coverage of the Copyright Act and thus were not preempted. As a caveat, the district court noted that, once the record was fully developed, it may find "that some or all of the state law claims are in fact preempted, and thus [it] may revisit the issue of preemption later in the case."

In September 2013, Defendants moved for summary judgment on all nine claims in the FAC, arguing that (1) all of SMI's allegations were based on the alleged misappropriation of trade secrets, and because SMI could not show that Defendants used SMI's trade secrets in developing CIO, none of the claims was viable; (2) no trade secrets existed; and (3) all of the claims were preempted by the Copyright Act. In June 2014, the district court granted Defendants' motion for summary judgment on all nine claims. The district court concluded that SMI could not establish a trade secret misappropriation claim because SMI failed to show Defendants' unauthorized use of those trade secrets, an essential element of a claim for misappropriation of trade secrets. And the district court found that each of SMI's other state law claims, including its TTLA claim, failed because of the insufficient evidence of Defendants' use of SMI's trade secrets. Given that all of SMI's claims failed on the merits, the district court declined to address Defendants' preemption argument. The district court accordingly dismissed all of SMI's claims with prejudice.

B. Spear Marketing I

SMI appealed both the order denying its motion to remand and the order granting Defendants' motion for summary judgment and dismissing all claims with prejudice, and this court affirmed. Spear Marketing I , 791 F.3d at 591, 598, 600–03. First, with regard to the motion to remand, Spear Marketing I held that the claims in the Original Petition, not the FAC, dictated whether federal jurisdiction existed because that was the operative complaint at the time of removal. Id. at 591–93 ; see Louisiana v. Am. Nat. Prop. & Cas. Co. , 746 F.3d 633, 636 (5th Cir. 2014) ("[J]urisdictional facts are determined at the time of removal, and consequently post-removal events do not affect that properly established jurisdiction."); Brown v. Sw. Bell Tel. Co. , 901 F.2d 1250, 1254 (5th Cir. 1990) ("When a defendant seeks to remove a case, the question of whether jurisdiction exists is resolved by looking at the complaint at the time the petition for removal is filed." (citing Pullman Co. v. Jenkins , 305 U.S. 534, 537–38, 59 S.Ct. 347, 83 L.Ed. 334 (1939) )). Looking to the claims in the Original Petition, Spear Marketing I applied the two-prong complete preemption test⁴ and found that (1) a subset of SMI's allegedly stolen trade secrets, "the technical trade secrets," fell within the subject matter of copyright, and (2) the TTLA claim in the Original Petition, which alleged wrongful acts such as "[c]opying, communicating, and transmitting," was equivalent to a copyright claim. Spear Marketing I , 791 F.3d at 594–98. Thus, Spear Marketing I held that the state law claims in the Original Petition were completely preempted by the Copyright Act, and, accordingly, the district court "properly exercised jurisdiction over" the suit. Id. at 598.

Spear Marketing I then reviewed the district court's grant of summary judgment and dismissal with prejudice, this time considering the claims in the FAC because that was by then the operative complaint. It analyzed SMI's claim for misappropriation of trade secrets and agreed with the district court that SMI failed to show a genuine dispute regarding an essential element of a misappropriation claim because SMI failed to show that Defendants used SMI's trade secrets. Id. at 600–03. With respect to the other eight claims in the FAC, including the TTLA claim, Spear Marketing I held that SMI had waived its right to appeal summary judgment on these claims by entirely omitting any mention of them from its opening brief. Id. at 602–03.

C. Award of Attorneys' Fees

Following the decision in Spear Marketing I , Defendants filed a motion in the district court for attorneys' fees and costs under the TTLA or, alternatively, under the Copyright Act, 17 U.S.C. § 505.⁵ In relevant part, Defendants argued that they prevailed on the merits of SMI's TTLA claim, and therefore, were entitled...