AirFacts, Inc. v. de Amezaga

• Court: U.S. Court of Appeals — Fourth Circuit
• Writing for the Court: DIAZ, Circuit Judge
• Citation: AirFacts, Inc. v. de Amezaga, 30 F.4th 359 (4th Cir. 2022)
• Decision Date: 06 April 2022
• Docket Number: 20-2344
• Parties: AIRFACTS, INC., Plaintiff – Appellant, v. Diego de AMEZAGA, an individual, Defendant – Appellee.

30 F.4th 359

AIRFACTS, INC., Plaintiff – Appellant,

v.Diego de AMEZAGA, an individual, Defendant – Appellee.

No. 20-2344

United States Court of Appeals, Fourth Circuit.

Argued: December 9, 2021

Decided: April 6, 2022

Nicholas Hantzes, HANTZES & ASSOCIATES, McLean, Virginia, for Appellant. Jerry R. Goldstein, JERRY R. GOLDSTEIN, P.C., Rockville, Maryland, for Appellee.

Before AGEE and DIAZ, Circuit Judges, and FLOYD, Senior Circuit Judge.

Affirmed in part, reversed in part, vacated in part, and remanded by published opinion. Judge Diaz wrote the opinion, in which Judge Agee and Senior Judge Floyd concurred.

DIAZ, Circuit Judge:

AirFacts, Inc. appeals—for the second time—the district court's judgment for the company's former employee, Diego de Amezaga. AirFacts sued Amezaga for breaching his employment agreement and misappropriating trade secrets under the Maryland Uniform Trade Secrets Act. In AirFacts, Inc. v. de Amezaga , 909 F.3d 84 (4th Cir. 2018) (" AirFacts I "), we vacated the district court's judgment for Amezaga on several breach-of-contract claims and one misappropriation claim. On remand, the court once again found for Amezaga.

AirFacts appealed. It argues that the district court erred in (1) awarding AirFacts only nominal damages for certain contract claims; (2) finding that Amezaga didn't breach the employment agreement as to other claims; and (3) refusing to award AirFacts reasonable royalty damages for Amezaga's trade secrets violation. As we explain, we affirm in part, reverse in part, vacate in part, and again remand to the district court for proceedings consistent with this opinion.

I.

A.

AirFacts develops and licenses revenue accounting software. The company's primary product is TicketGuard, which audits airline ticket sales. In 2008, Amezaga began working for AirFacts as a product development analyst. The company later promoted him to manager and then director of product development. His responsibilities included managing programmers and coders, developing new software, and handling client relationships.

When Amezaga first joined AirFacts, the parties signed an employment agreement. Paragraph 4.2 of the agreement required Amezaga to return all documents containing confidential information to AirFacts before he left the company. Paragraph 2.2 barred Amezaga from disclosing confidential information to third parties and clarified that all such information is AirFacts's property. The agreement also contained an indemnification clause, which provided,

Employee shall defend, indemnify and hold harmless AirFacts ... from any losses, liabilities, damages, demands, suits, causes of action, judgments, costs or expenses (including court costs and reasonable attorney's fees) resulting from or directly or indirectly arising out of any material breach of any material provision of this Agreement by Employee.

J.A. 1422.

During his tenure at AirFacts, Amezaga worked to develop and pitch a new "proration" software. The software would help airlines ensure they receive the appropriate share of a multi-airline ticket sale. AirFacts began development in 2012, and in early 2014, Alaska Airlines agreed to purchase the software.

Amezaga resigned from AirFacts in February 2015. During his last week, he printed out documents related to a project he'd been working on ("pseudocode"). And on his last day, he sent documents related to the new proration software to his personal email account because his superiors told him they may reach out with questions about his work. AirFacts says it told Alaska Airlines about this alleged data breach and then redeveloped part of the software to the tune of nearly $100,000.

A few weeks after leaving AirFacts, Amezaga applied for a job at Fareportal, a travel agency. Fareportal is neither AirFacts's customer nor competitor, but AirFacts, on behalf of its airline clients, has used TicketGuard to audit Fareportal's ticket sales. In connection with his application, Amezaga sent Fareportal two flowcharts he'd created for AirFacts displaying ticket price rules, relevant processing information, and "things from [his] head" to streamline the auditing process ("the flowcharts"). J.A. 830. He downloaded the flowcharts from Lucidchart, an online document-storage provider, using his AirFacts employee credentials. Amezaga says he only sent Fareportal the flowcharts to help them understand the work he did for AirFacts.

B.

AirFacts sued Amezaga for breaching several provisions of his employment agreement and misappropriating trade secrets. After a bench trial, the district court entered judgment for Amezaga on all counts. The court first held that AirFacts had abandoned all its contract claims except one alleging that Amezaga breached the employment agreement's noncompete clause, which the court then rejected.¹

It then turned to AirFacts's trade secrets claims. AirFacts argued that Amezaga misappropriated its trade secrets by taking the flowcharts and proration documents. The court rejected the claim for two reasons. First, it held the flowcharts weren't trade secrets. And second, it said that Amezaga didn't misappropriate the proration documents—which were trade secrets—because he accessed them with authorization while he was still an AirFacts employee.

In AirFacts I , we revived some of the company's contract claims and one of its misappropriation claims. First, we said that AirFacts had preserved its claims that Amezaga breached paragraphs 2 and 4.2 of the employment agreement. AirFacts I , 909 F.3d at 93, 93 n.6. So we remanded those claims for the district court to consider in the first instance. Id. at 93. Then, as for AirFacts's trade secrets claims, we agreed that Amezaga didn't misappropriate the proration documents. Id. at 98. But contrary to the district court, we found that the flowcharts were trade secrets. Id. at 96–97. We then left it to the district court to decide whether Amezaga misappropriated them under the Maryland statute. Id. at 97.

On remand, the district court first addressed AirFacts's breach-of-contract claims. It considered whether Amezaga breached paragraphs 2.2 or 4.2 of the employment agreement by (a) accessing his company Lucidchart account, downloading the flowcharts, and sending them to Fareportal; (b) saving the proration documents; (c) printing the pseudocode; or (d) retaining two more documents—a straight sales processing diagram and a home commission table² —that AirFacts's experts found on Amezaga's devices after litigation began.

The court issued three rulings on these claims. First, it held that Amezaga breached paragraph 2.2 as to the flowcharts and paragraph 4.2 as to the straight sales processing diagram and home commission table. But it said these breaches were de minimis. And because the employment agreement's indemnification clause limited AirFacts's right to recover damages, fees, and costs to those attending material breaches, the court awarded only nominal damages.

Second, the court held Amezaga didn't breach paragraph 4.2 by printing the pseudocode because it didn't contain "confidential information" under the agreement. And third, it determined that retaining the proration documents—which were "confidential information"—didn't violate paragraph 4.2 because Amezaga had "implicit authority to keep these materials." AirFacts, Inc. v. Amezaga , 502 F. Supp. 3d 1027, 1037 (D. Md. 2020).

The district court then addressed AirFacts's trade secrets claim. It concluded that Amezaga misappropriated trade secrets—the flowcharts—because he improperly acquired and disclosed the documents without consent. AirFacts sought only reasonable royalty damages because it couldn't prove any specific injury. But despite discussing AirFacts's damages expert's testimony in detail, the court said that a plaintiff seeking royalty damages under the Maryland trade secrets statute must show the defendant put the trade secrets to commercial use. Finding that AirFacts failed to prove Amezaga put the flowcharts to commercial use, the court declined to award damages.

AirFacts timely appealed the district court's adverse rulings.³ We address each in turn.

II.

"We review a judgment following a bench trial under a mixed standard of review." Roanoke Cement Co. v. Falk Corp. , 413 F.3d 431, 433 (4th Cir. 2005). We review factual findings for clear error and legal conclusions de novo. Id.

III.

As before, we'll begin with AirFacts's breach-of-contract claims, applying Maryland law per the employment agreement's choice-of-law provision.

A.

AirFacts first challenges the district court's decision to award only nominal damages for the breach claims on which the company prevailed on the merits. The court found that the flowcharts, home commission table, and straight sales processing diagram all contained confidential information.⁴ So Amezaga breached paragraph 2.2 of the employment agreement by disclosing the flowcharts to Fareportal without AirFacts's permission. And he violated paragraph 4.2 by keeping the home commission table and straight sales processing diagram after his employment ended.

The district court then turned to a more complicated question: whether AirFacts could claim any remedy under the agreement's indemnification clause. That clause has a two-pronged materiality requirement. For AirFacts to recover damages, fees, or costs, an employee must materially breach a material provision. The court agreed with AirFacts that paragraphs 2.2 and 4.2 were material provisions. But it determined that Amezaga only nominally breached them, and so declined to award AirFacts the attorneys' fees and forensic expenses it sought. Finding no error, we affirm.

The district court's materiality determination is a factual finding we review only for clear error. See Weichert Co. of Md., Inc. v. Faust , 419 Md. 306, 19 A.3d 393, 399 n.1 (2011) ("The materiality of a breach of contract is a factual inquiry."); Schneider v. Saul , 224 Md. 454, 168 A.2d 375, 380 (Md. 1961) ("[T]he question of the materiality of a breach is usually...