General Universal Systems, Inc. v. Hal, Inc.

• Decision Date: 17 September 2007
• Docket Number: No. 05-21015.,05-21015.
• Citation: 500 F.3d 444
• Parties: GENERAL UNIVERSAL SYSTEMS, INC.; World Trade Systems, Inc., Plaintiffs-Appellants, v. Jose S. Lopez, Plaintiff-Intervenor Defendant-Appellant, Eli Nassar, Third Party Defendant-Appellant, v. HAL, INC.; et al., Defendants, HAL, Inc.; Joe R. Herrin; Ernest Allen Parkin, Defendants-Third Party Plaintiffs-Appellees, Panalpina, Inc.; Fritz Companies, Inc.; Global Southport Services, Inc.; United States Crating, Inc.; Transworld Logistics, Inc., Defendants-Appellees, Larry Mason Lee; Larry Mason Lee & Associates, Intervenor Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

500 F.3d 444

GENERAL UNIVERSAL SYSTEMS, INC.; World Trade Systems, Inc., Plaintiffs-Appellants, v. Jose S. Lopez, Plaintiff-Intervenor Defendant-Appellant, Eli Nassar, Third Party Defendant-Appellant, v. HAL, INC.; et al., Defendants, HAL, Inc.; Joe R. Herrin; Ernest Allen Parkin, Defendants-Third Party Plaintiffs-Appellees, Panalpina, Inc.; Fritz Companies, Inc.; Global Southport Services, Inc.; United States Crating, Inc.; Transworld Logistics, Inc., Defendants-Appellees, Larry Mason Lee; Larry Mason Lee & Associates, Intervenor Plaintiffs-Appellees.

No. 05-21015.

United States Court of Appeals, Fifth Circuit.

September 17, 2007.

J. Ken Johnson, Fleming & Associates, Claudia Wilson Frost, Jeremy Gaston (argued), Mayer Brown LLP, Houston, TX, for General Universal Systems, Inc., World Trade Systems, Inc., Jose S. Lopez and Eli Nassar.

Mark C. Harwell (argued), Cotham, Harwell & Evans, Houston, TX, for HAL, Inc., Joe R. Herrin and Ernest Allen Parkin.

Daryl G. Dursum, Adams & Reese, Houston, TX, for HAL, Inc., Joe R. Herrin, Ernest Allen Parkin, Panalpina, Inc., Fritz Companies, Inc., United States Crating, Inc. and Transworld Logistics, Inc.

William Samuel Chesney, III, Frank, Elmore, Lievens, Chesney & Turet, Houston, TX, for Larry Mason Lee and Larry Mason Lee & Associates.

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

Before REAVLEY, GARZA and DENNIS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

General Universal Systems, Inc. ("GUS") originally sued HAL, Inc. ("HAL"), Joseph Herrin, and Ernest Allen Parkin ("HAL Defendants") for numerous state and federal claims for stealing proprietary software. GUS also sued a number of companies ("Customer Defendants") to which HAL licensed the software program. We previously ruled on this case in General Universal Systems v. Lee, 379 F.3d 131 (5th Cir.2004) and determined that a remand to the district court was appropriate to settle the sole remaining claim of trade secret misappropriation under Texas law.

On remand, the magistrate judge granted summary judgment to the HAL Defendants, finding that the statute of limitations had expired prior to the initiation of the lawsuit. Further, the magistrate judge granted summary judgment to the Customer Defendants, finding that the claims against those parties were not included in the scope of the remand from this court.

We must now determine the accrual date of an alleged trade secret misappropriation and whether the claims against the Customer Defendants were within the scope of our remand.

I

The facts of this case were thoroughly recounted in General Universal Systems, 379 F.3d at 137-40. Therefore, we will only address those facts and procedural history relevant to the claim of trade secret misappropriation.

In 1979, GUS developed a software program called CHAMPION PACKER for Jose Lopez. CHAMPION PACKER was written in BASIC 4 computer programming language. Later, Lopez created a program based on CHAMPION PACKER but written in COBOL computer programming language instead of BASIC 4; Lopez called the new derivative program LOPEZ COBOL and began selling and leasing the program to clients through his company World Trade Systems, Inc. One of those clients was Superior Packing, Inc., a company owned by Herrin. In 1988, Lopez leased a computer to Superior Packing and licensed Superior Packing to use LOPEZ COBOL. At that time, Superior Packing also had a license from GUS to use CHAMPION PACKER; the GUS license originated in 1985. Both license agreements restricted the use and distribution of the relevant computer programs.

In 1992 Herrin and Parkin agreed to work with Lopez to develop and market a new software program to succeed LOPEZ COBOL. The three intended to form a corporation, HAL, Inc., to develop and market the software and then split the shares and profits amongst each other. The program was to be based in large part on LOPEZ COBOL. They began working on the design of the program, called MEPAW, in the summer of 1992. Beginning in December 1992, Lopez spent seven months incarcerated in a Mexican prison. In a letter of March 22, 1993, Herrin notified Lopez that he and Parkin agreed to oust Lopez from their agreement because Lopez's incarceration prevented him from fulfilling his duties. Through HAL, Herrin and Parkin continued the development of MEPAW until August or September 1993, when they began marketing MEPAW to potential clients.

Just prior to the ousting of Lopez, in February 1993, Herrin sent Lopez a letter stating that Superior Packing was terminating its license agreement with World Trade Systems for the use of LOPEZ COBOL. In March 1993, Lopez's son went to Superior Packing to pick up World Trade Systems's computer, which contained the LOPEZ COBOL software, but was told that Superior Packing was not finished with the program. Lopez claims that his son then entered an oral agreement to allow Superior Packing to use the computer and software until July 1993, and he produced a receipt showing that Superior Packing paid a license fee to World Trade Systems in July 1993.

Although HAL began demonstrating MEPAW in the fall of 1993, it did not license the software to any customers until October 1994; the first licensee was Panalpina, Inc. By then, Lopez and World Trade Systems assigned all their rights in LOPEZ COBOL to GUS. In November 1994, GUS put Panalpina on notice that MEPAW was improperly derived from its packing software. HAL continued to licence MEPAW to other customers as well: Fritz Companies, Inc.; United States Crating, Inc.; and Transworld Logistics, Inc.¹ GUS asserts that all of the Customer Defendants were on notice.

GUS filed suit against the HAL Defendants and the Customer Defendants in May 1995. In that complaint, GUS raised numerous claims, both state and federal, most of which lost on summary judgment; a contract claim went to trial, but the magistrate judge entered judgment as a matter of law for the defendants. On appeal, we affirmed the magistrate judge's ruling on all claims, except the misappropriation of trade secrets claim, on which we reversed and remanded. Following the remand, the magistrate judge granted summary judgment to the defendants, finding the trade secrets misappropriation claim against the HAL Defendants was barred by Texas's two-year statute of limitations and the related claim against the Customer Defendants was outside the scope of our remand.

II

"We review a grant of summary judgment de novo, applying the same standards as the district court." Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir.2007) (footnote omitted). Summary judgment is appropriate if the moving party can show "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We view the evidence in the light most favorable to the non-moving party — in this case, GUS. Triple Tee Golf, 485 F.3d at 261.

A

We look first at the magistrate judge's determination that GUS was time barred from raising its trade secret misappropriation claim against the HAL Defendants on May 23, 1995, the date GUS initially filed its complaint. All parties agree that this claim was subject to a two-year statute of limitations.² Therefore, our task is to determine whether all of GUS's claims of trade secret misappropriation accrued before May 23, 1993.

The Texas courts have held that "a cause of action accrues when a wrongful act causes some legal injury, even if the fact of injury is not discovered until later, and even if all resulting damages have not yet occurred." S.V. v. R.V., 933 S.W.2d 1, 4 (Tex.1996). Under Texas law, there are three elements needed to establish the injury of trade secret misappropriation: "(1) a trade secret exists; (2) Defendants acquired the trade secret by breach of a confidential relationship or other improper means; and (3) Defendants used the trade secret without authorization." Triple Tee Golf, 485 F.3d at 261 (citing Guy Carpenter & Co. v. Provenzale, 334 F.3d 459, 467 (5th Cir.2003) (applying Texas common law)).³

In our prior opinion in this case, only the first and second elements were at issue, and we held that there was a genuine issue of material fact as to each — namely, whether Lopez sufficiently protected his computer software program and whether the agreement between Lopez, Herrin, and Parkin constituted a confidential relationship for the purposes of establishing the elements of the claim. General Universal Sys., 379 F.3d at 150. On remand, the magistrate judge held that it did not need to determine whether LOPEZ COBOL was a trade secret and Lopez's agreement with Herrin and Parkin was a confidential relationship, because even if LOPEZ COBOL were a trade secret and Lopez's agreement were a confidential relationship, GUS's claim accrued before May 23, 1993 and was therefore time barred by the two-year statute of limitations. GUS makes three challenges to this ruling. First, it claims that the HAL Defendants breach of a confidential relationship happened after May 23, 1993. Second, the HAL Defendants did not improperly use LOPEZ COBOL until after May 23, 1993. And third, trade secret misappropriation is a continuing tort so the claim did not accrue until the HAL Defendants stopped using LOPEZ COBOL, which was after May 23, 1993.

The magistrate judge applied the ousting of Lopez from HAL as the date on which the relevant confidential relationship would have been dissolved; therefore, the magistrate judge treated any "use" of LOPEZ COBOL after the ousting as the date on which the action accrued. GUS argues that the confidential relationship issue is more complicated, because aside from the agreement between Lopez, Herrin, and Parkin to form HAL, there are two other agreements relevant to our analysis — specifically, the license agreement between GUS and Superior Packing, which allows Superior Packing to use CHAMPION PACKER, and the...