Gaia Technologies Inc. v. Recycled Products Corp.

• Decision Date: 26 May 1999
• Docket Number: No. 97-21014,97-21014
• Citation: 175 F.3d 365
• Parties: GAIA TECHNOLOGIES INCORPORATED; et al., Plaintiffs, Gaia Technologies Incorporated, Plaintiff-Appellee, v. RECYCLED PRODUCTS CORPORATION; et al., Defendants, David Gordon; Progressive Capital Corporation; Reconversion Technologies Incorporated; Ira Rimer; Joel Holt; Richard Clark; Reconversion Technologies of Texas Incorporated, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 365

175 F.3d 365

50 U.S.P.Q.2d 1830

GAIA TECHNOLOGIES INCORPORATED; et al., Plaintiffs Gaia Technologies Incorporated, Plaintiff-Appellee, v. RECYCLED PRODUCTS CORPORATION; et al., Defendants David Gordon; Progressive Capital Corporation Reconversion Technologies Incorporated; Ira Rimer; Joel Holt; Richard Clark; Reconversion Technologies of Texas Incorporated, Defendants-Appellants.

No. 97-21014.

United States Court of Appeals Fifth Circuit.

May 26, 1999.

Guy Edward Matthews, Timothy M. Donoughue, Matthews, Joseph, Shaddox & Mason, Andrew L. Jefferson, Jr., Houston, TX, for Plaintiff-Appellee.

Richard Thomas Seymour, Charles Robert Burton, Tulsa, OK, for David Gordon, Ira Rimer, Joel Holt and Richard Clark.

Michael A. Maness, Houston, TX, for Progressive Capital Corporation, Reconversion Technologies Inc. and Reconversion Technologies of Texas, Inc.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES, SMITH and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

The corporate defendants Reconversion Technologies of Texas Incorporated ("Retex"), Reconversion Technologies Incorporated ("Retek"), and Progressive Capital Corporation ("Progressive"), and the individual defendants David Gordon, Ira Rimer, Joel Holt, and Richard Clark, appeal the district court's final judgment. We reverse the judgment of the district court and render judgment in favor of the defendants.

I

This is an appeal from a judgment in favor of Gaia Technologies Incorporated ("Gaia") against the corporate and individual defendants. The judgment holds various defendants liable for three state law torts--unfair competition, misappropriation of trade secrets, and tortious interference with prospective contractual relations. Gaia's causes of action involve intellectual property developed initially by James Turner, and now owned by Gaia. Turner devised methods of manufacturing various products from recycled tires. Turner's products included (1) various "hard goods," which included molded boards, fence posts, railroad ties, and buckets, and (2) a flexible porous pipe, which Turner marketed under the name "Leaky Pipe." Turner's inventions resulted in four patents for the hard goods technology, and one trademark for the name "Leaky Pipe." To exploit these inventions, Turner created the Entek Corporation ("Entek"), which he owned.

Turner and Entek filed for bankruptcy. During the bankruptcy proceedings, Banstar Corporation ("Banstar") purchased "all technologies, patents, patent rights, licenses, know-how, trade secrets, trade secret rights, [and] proprietary information," as well as "all trade names, trademarks, service marks, [and] brand names," from Turner and Entek. Eventually, Gaia purchased the Turner-Entek intellectual property from Banstar. The parties dispute the precise date of Gaia's purchase. After his bankruptcy, Turner worked for defendant Retex. Gaia alleges that Retex began selling Leaky Pipe and using the hard goods technology. ¹ Gaia filed the present lawsuit on October 20, 1993, alleging that the defendants' use of the Turner-Entek intellectual property amounted to federal patent and trademark infringement and various Texas law torts.

The jury verdict found the corporate defendants liable for all of Gaia's federal infringement claims, awarding damages totaling $3,972,500. It also found the corporate defendants liable for three state law claims, awarding damages of $125,000 for unfair competition, $0 for misappropriation of trade secrets, and $4,350,000 for tortious interference with prospective contractual relations. The jury found the individual defendants liable for one claim of federal patent infringement, awarding damages of $1,800,000. It found that the individual defendants were not liable for any of Gaia's state law claims. The jury assessed each of the individual defendants punitive damages of $100,000.

The district court modified the jury verdict before entering its final judgment. In its Supplemental Memorandum Opinion, the district court wrote:

The Court further finds, according to [certain] evidence ... and testimony ... that all the defendants, jointly and severally, committed fraud by aiding and abetting James Turner to misappropriate and conceal their use of the trade secret technology and porous pipe.... From this evidence and the jury's verdict assessing punitive damages against each of the individual defendants, Gordon, Rimer, Holt, and Clark because the defendants were actually aware of an extreme risk of serious injury to the plaintiff and acted willfully and maliciously, the Court reforms the jury's verdict under F ED. R. C IV. P. 49(a) and 58 to conform the evidence and law with the jury's verdict and finds that plaintiff shall further recover from the defendants, jointly and severally, lost capital damages of FOUR MILLION THREE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($4,350,000.00), as a result of the defendants' tortious interference with the plaintiff's prospective customers ... and as a result of the defendants' misappropriation and concealment of the plaintiff's trade secret information.

Thus the district court held the individual defendants liable for tortious interference with prospective contractual relations and misappropriation of trade secrets, contrary to the jury's finding that the individual defendants were not liable for any state law torts. The district court also overturned the jury's finding that the damages caused by the corporate defendants' misappropriation of trade secrets was $0. Based on these rulings and what remained of the jury verdict, the district court entered a final judgment on March 17, 1995 ("1995 judgment"). ²

The defendants appealed to the Federal Circuit, which reversed the 1995 judgment as to Gaia's federal patent and trademark infringement claims. The Federal Circuit held that in order to have standing under the federal infringement statutes, Gaia must prove that it owned the relevant patents and trademark when it filed suit on October 20, 1993. See Gaia Technologies, Inc. v. Reconversion Technologies, Inc., 93 F.3d 774, 777 (Fed.Cir.), amended by 104 F.3d 1296 (Fed.Cir.1996). ³ Gaia argued to the Federal Circuit that it acquired the patents and trademark from Banstar on August 4, 1991, pursuant to a vote of Banstar's shareholders. Gaia also cited to a written assignment, which transferred the Turner-Entek intellectual property from Banstar to Gaia. Although undated, the assignment stated that its "effective date" was August 4, 1991. However, Gaia did not file the assignment with the United States Patent and Trademark Office until October 24, 1994, over one year after it filed the present lawsuit.

The Federal Circuit ruled that Banstar did not assign the Turner-Entek patents and trademark to Gaia until after Gaia filed the present lawsuit. See id. at 780. It reasoned that the August 1991 shareholder vote demonstrated, at most, an intent to assign the patents and trademark, but that the vote did not itself amount to an assignment. See id. at 779. The Federal Circuit also rejected Gaia's argument that the assignment filed in October 1994 could retroactively confer standing simply by professing an "effective date" of August 1991. See id. at 779-80. Having extinguished Gaia's federal infringement claims, the Federal Circuit remanded the case to allow the district court to decide whether to exercise supplemental jurisdiction over the state law claims. See id. at 781.

On remand, the district court decided to exercise jurisdiction over Gaia's state law causes of action. It entered final judgment on July 18, 1997 ("1997 judgment") based on its initial state law rulings. The district court thus held the corporate defendants liable for all three state law causes of action, and held the individual defendants liable for misappropriation of trade secrets and tortious interference with prospective contractual relations. It also assessed each individual defendant $100,000 in punitive damages.

The defendants timely appealed. On appeal, the individual defendants argue that the district court erred in holding them liable for Gaia's state law claims, contrary to the jury verdict. The individual defendants also contend that the district court erred in assessing punitive damages. The corporate defendants argue that the evidence is insufficient to support the jury verdict holding them liable on the three state law claims. ⁴

II

First, the individual defendants contend that the district court erred by "reform[ing]" the jury verdict. They argue that Federal Rule of Civil Procedure 49(a) ("Rule 49(a)"), relied upon by the district court, does not allow the district court to make findings contrary to the jury verdict. ⁵ We review de novo whether a district court is authorized to make findings under Rule 49(a). See Askanase v. Fatjo, 130 F.3d 657, 669 (5th Cir.1997).

Nothing in the text of Rule 49(a) authorizes a district court to reform a jury's decision on issues submitted to the jury. Rule 49(a) allows the district court to make its own findings only as to issues not submitted to the jury. See FED.R.CIV.P. 49(a) ("As to an issue omitted [from the jury instructions] ... the court may make a finding."). Furthermore, Rule 49(a) does not permit a district court to make findings contrary to the jury verdict. See Askanase, 130 F.3d at 670 ("Appellant correctly states that a Rule 49(a) finding cannot be inconsistent with the jury verdict."); see also Floyd v. Laws, 929 F.2d 1390, 1397 (9th Cir.1991) (holding that "under Rule 49(a), the trial court simply cannot choose to ignore a legitimate finding that is part of the special verdict"). Here, the district court submitted the elements of Gaia's state law claims to the jury, and the jury found that Gaia failed to prove any of the elements as to the individual defendants. Thus Rule 49(a) does not authorize the district court to reform the jury's state law...