Source Production & Equipment Co., Inc. et al v. Schehr et al

Filing 53

ORDER AND REASONS granting in part and denying in part 44 Motion to Dismiss for Failure to State a Claim; and 45 Motion to Dismiss for Failure to State a Claim. For the foregoing reasons, the Court GRANTS defendants' motions to dismiss w ith respect to plaintiffs' conversion claim against Isoflex USA, Isoflex Radioactive, and McKannay, as well as plaintiffs' conversion claim against Schehr to the extent plaintiffs seek to recover the value of their trade secrets. The Court otherwise DENIES defendants' motions to dismiss. The Court DISMISSES WITH PREJUDICE plaintiffs' conversion claim against Isoflex USA, Isoflex Radioactive, and McKannay, as well as plaintiffs' conversion claim against Schehr to the extent plaintiffs seek to recover the value of their trade secrets. Signed by Judge Sarah S. Vance on 8/29/2017. (cg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SOURCE PRODUCTION &
EQUIPMENT CO., INC., ET AL.
VERSUS

CIVIL ACTION
NO. 16-17528

KEVIN J. SCHEHR, ISOFLEX USA,
ISOFLEX RADIOACTIVE LLC,
RICHARD H. MCKANNAY, JR., AND
JOHN DOES 1-10

SECTION “R” (1)

ORDER AND REASONS
Before the Court are defendants’ motions to dismiss 1 in part plaintiffs’
first amended complaint. 2 For the following reasons, the Court grants in part
and denies in part each motion.

I.

BACKGROUND
Source Production & Equipment Co., Inc. (“SPEC”) and its affiliates

bring this trade-secret misappropriation and unfair competition action
against Kevin J. Schehr, Isoflex USA, Isoflex Radioactive LLC, and Richard
McKannay, Jr. 3 SPEC is a supplier of industrial and medical radiography

1
2
3

R. Docs. 44, 45.
R. Doc. 33.
The amended complaint also names 10 “John Does” as defendants.
1

equipment and radioactive isotope materials. 4 Schehr is a former executive
officer at SPEC. According to the complaint, Schehr began working for SPEC
in 1995 and held various positions at the company until his termination in
July of 2016.5 Plaintiffs allege that over the course of his employment,
Schehr signed several confidentiality agreements regarding SPEC’s trade
secrets. 6 These trade secrets include technologies used to manufacture
containers for shipping radioactive material. 7
According to the complaint, Schehr unsuccessfully attempted to
acquire an ownership interest in SPEC in 2012 and 2014.8 Plaintiffs further
allege that Schehr’s resentment toward SPEC and its owner, Richard
Dicharry, following these attempts prompted Schehr to engage in conduct
intended to undermine SPEC and benefit Schehr and others affiliated with
Schehr.9 To this end, Schehr allegedly made several misrepresentations to
Dicharry that he knew to be false, caused SPEC to default on the terms of a
sale agreement, negotiated business contracts against Dicharry’s wishes,
filed for and claimed ownership rights to patents developed using SPEC’s

4
5
6
7
8
9

R. Doc. 33 at 8 ¶ 19.
Id. at 14 ¶ 34.
Id. at 15-17 ¶¶ 37-45.
Id. at 11-12 ¶¶ 30-32.
Id. at 17-18 ¶¶ 46-48.
Id. at 18 ¶ 48.
2

resources, and provided false financial information in order to inflate his
personal bonuses, among several other alleged transgressions. 10
SPEC terminated Schehr’s employment on July 10, 2016. 11 Plaintiffs
allege that after his termination, Schehr did not immediately return his
company-issued laptop, despite SPEC’s demand that he do so. 12 Plaintiffs
further allege that once the laptop was returned, a forensic analysis revealed
that Schehr emailed a number of SPEC’s confidential and proprietary files to
his personal email accounts.13 According to plaintiffs, the analysis also
showed that minutes after his termination, Schehr attached two external
hard drives to the laptop and subsequently deleted 5,086 files from the
laptop.14 Plaintiffs allege that Schehr continues to possess other storage
media belonging to SPEC, including thumb drives and CDs. 15
Finally, plaintiffs allege that both before and after his termination,
Schehr conspired with Isoflex USA and McKannay, the managing director of
Isoflex USA, to establish Isoflex Radioactive. Plaintiffs allege that in creating
Isoflex Radioactive, defendants misappropriated plaintiffs’ trade secrets and

10
11
12
13
14
15

Id. at 19-33 ¶¶ 50-99.
Id. at 33 ¶ 101.
Id. at 36 ¶ 110.
Id. at 36 ¶ 111.
Id. at 36-37 ¶¶ 111-113.
Id. at 37 ¶ 115.
3

confidential information. 16 This misappropriation, according to plaintiffs,
will allow Isoflex Radioactive to compete with plaintiffs in the market for
radioactive materials. 17
In their amended complaint, plaintiffs assert against all defendants
claims for violations of the federal Defend Trade Secrets Act (“DTSA”), the
Louisiana Uniform Trade Secrets Act (“LUTSA”), and the Louisiana Unfair
Trade Practices Act (“LUTPA”), as well as for conversion. 18 Against Schehr
individually, plaintiffs assert claims for violation of the Computer Fraud and
Abuse Act (“CFAA”), breach of legal duty, breach of contract, and fraud. 19
Isoflex USA, Isoflex Radioactive, and McKannay now move to dismiss
plaintiffs’ DTSA, LUTSA, conversion, and LUTPA claims.20 Schehr also
moves to dismiss plaintiffs’ conversion claim. 21 Plaintiffs filed a consolidated
response in opposition, 22 and defendants filed replies. 23

16
17
18
19
20
21
22
23

Id. at 2-3 ¶¶ 2-3.
Id. at 25 ¶ 69, 45 ¶ 143.
Id. at 43-50 ¶¶ 136-166, 56-57 ¶¶ 187-194, 59-60 ¶¶ 201-207.
Id. at 50-59 ¶¶ 167-186, 195-200.
R. Docs. 44, 45.
R. Doc. 44.
R. Doc. 46.
R. Docs. 49, 52.
4

II.

LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss, plaintiffs must plead

enough facts to “state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 547 (2007)). A claim is facially plausible “when the plaintiff
pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. at 678. A court
must accept all well-pleaded facts as true and must draw all reasonable
inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d
228, 239, 244 (5th Cir. 2009). But the Court is not bound to accept as true
legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 678.
A legally sufficient complaint must establish more than a “sheer
possibility” that plaintiffs’ claim is true. Id. It need not contain detailed
factual allegations, but it must go beyond labels, legal conclusions, or
formulaic recitations of the elements of a cause of action. Twombly, 550 U.S.
at 555. In other words, the face of the complaint must contain enough factual
matter to raise a reasonable expectation that discovery will reveal evidence
of each element of the plaintiffs’ claim. Lormand, 565 F.3d at 257. If there
are insufficient factual allegations to raise a right to relief above the
speculative level, Twombly, 550 U.S. at 555, or if it is apparent from the face
5

of the complaint that there is an insuperable bar to relief, Jones v. Bock, 549
U.S. 199, 215 (2007); Carbe v. Lappin, 492 F.3d 325, 328 n.9 (5th Cir. 2007),
the claim must be dismissed.

III. DISCUSSION
A.

Failure to State DTSA and LUTSA Claims
1.

DTSA

Isoflex USA, Isoflex Radioactive, and McKannay first argue that the
amended complaint fails to allege sufficient claims under the DTSA and
LUTSA. To state a claim under the DTSA, a plaintiff must allege (1) the
existence of a trade secret; (2) misappropriation of the trade secret by
another; and (3) the trade secret’s relation to a good or service used or
intended for use in interstate or foreign commerce. 18 U.S.C. § 1836(b)(1);
see also RealPage, Inc. v. Enter. Risk Control, LLC, No. 16-737, 2017 WL
3313729, at *9 (E.D. Tex. Aug. 3, 2017).
The DTSA came into effect on May 11, 2016. See Defend Trade Secrets
Act of 2016, Pub. L. No. 114-153, § 2(e), 130 Stat. 376, 381-82. Thus,
plaintiffs’ DTSA claim covers only misappropriation that occurred after that
date. The DTSA’s recent effective date also means that few courts have
applied the statute to trade secrets claims. But the definitional sections of
6

the DTSA and Uniform Trade Secrets Act (“UTSA”) are very similar.
Compare 18 U.S.C. §§ 1836, 1839, with Uniform Trade Secrets Act § 1
(amended 1985). Moreover, both the House and Senate committee reports
suggest that the DTSA largely conforms with state trade secrets law. See H.
Rep. No. 114-529, at 14 (2016) (noting that the DTSA “is not intended to alter
the balance of current trade secret law or alter specific court decisions” on
misappropriation); S. Rep. No. 114-220, at 10 (2016) (same). Thus, existing
state law on trade secrets informs the Court’s application of the DTSA.
As a threshold matter, plaintiffs must allege the existence of a trade
secret. A “trade secret” under the DTSA includes scientific and technical
information that “the owner thereof has taken reasonable measures to keep
. . . secret” and “derives independent economic value . . . from not being
generally known to, and not being readily ascertainable through proper
means by, another person who can obtain economic value from the
disclosure or use of the information.” 18 U.S.C. § 1839(3).
The Court finds that plaintiffs have alleged sufficient facts to show the
existence of trade secrets. In their amended complaint, plaintiffs list a
number of technologies associated with containers for shipping radioactive
materials. 24

24

These technologies include how to produce specialized

R. Doc. 33 at 11-12 ¶¶ 30-32.
7

insulation material, dimensional tolerances for components of plaintiffs’
shipping containers, and methods and processes for producing a selenium
alloy. 25 As manufacturing processes, these technologies are subject to trade
secret protection. See Phillips v. Frey, 20 F.3d 623, 628 (5th Cir. 1994)
(noting that under Texas law, a “method of manufacturing” is a trade secret
if it “give[s] the owner a competitive advantage”). Plaintiffs further assert
that they keep these technologies secret by securing their physical facilities
and limiting access to their electronic data. 26 These policies are reasonable
measures to maintain secrecy. See Reingold v. Swiftships, Inc., 126 F.3d
645, 650 (5th Cir. 1997) (holding that plaintiff reasonably maintained
secrecy of ship mold by limiting its disclosure to third parties). Finally,
plaintiffs assert that maintaining the secrecy of these technologies affords
them a competitive advantage. 27 By misappropriating these technologies,
defendants allegedly will be able to compete with plaintiffs without investing
the time and resources required to develop the technologies independently. 28
The secrecy of plaintiffs’ technologies therefore has independent economic
value. See id. (holding that ship mold’s secrecy had independent economic

25
26
27
28

Id. at 11-12 ¶¶ 30-32.
Id. at 13 ¶ 33.
Id. at 13 ¶ 32.
Id. at 13 ¶ 32, 25 ¶ 69, 45 ¶ 143.
8

value because of the time and resources plaintiff expended in constructing
it).
The Court further finds that plaintiffs’ trade secrets are related to
products used in foreign commerce. Specifically, plaintiffs allege that they
use their trade secrets to supply radiography equipment and radioactive
materials to customers around the world. 29
Plaintiffs must also allege some form of misappropriation. The statute
defines “misappropriation” as:
(A) acquisition of a trade secret of another by a person who
knows or has reason to know that the trade secret was acquired
by improper means; or
(B) disclosure or use of a trade secret of another without express
or implied consent by a person who—
(i) used improper means to acquire knowledge of the trade
secret;
(ii) at the time of disclosure or use, knew or had reason to
know that the knowledge of the trade secret was—
(I) derived from or through a person who had used
improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a
duty to maintain the secrecy of the trade secret or
limit the use of the trade secret; or
(III) derived from or through a person who owed a
duty to the person seeking relief to maintain the

29

Id. at 8 ¶ 21.
9

secrecy of the trade secret or limit the use of the trade
secret; or
(iii) before a material change of the position of the person,
knew or had reason to know that—
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been acquired
by accident or mistake[.]
18 U.S.C. § 1839(5). The statute further defines improper means as including
“breach or inducement of a breach of a duty to maintain secrecy.” Id. §
1839(6)(A).
Defendants first contend that plaintiffs allege only use of trade secrets,
not acquisition of trade secrets by improper means. 30 But the amended
complaint clearly alleges that Isoflex USA, Isoflex Radioactive, and
McKannay both acquired and used plaintiffs’ trade secrets.31 Thus, plaintiffs
may sufficiently plead a DTSA claim by alleging plausible facts in support of
either the defendants’ acquisition or their use of trade secrets.
Defendants next contend that plaintiffs’ vague and conclusory
allegations do not suffice to show either wrongful acquisition or use. 32
Plaintiffs’ sole allegation relating to defendants’ use of the trade secrets is
that Isoflex USA and Isoflex Radioactive have used these trade secrets to

30
31
32

R. Doc. 45-1 at 4-5.
R. Doc. 33 at 45-46 ¶ 146.
R. Doc. 44-1 at 9; R. Doc. 45-1 at 6.
10

compete unfairly against plaintiffs.33 This conclusory allegation is no more
than a formulaic recitation of an element of plaintiffs’ DTSA claim. See
Twombly, 550 U.S. at 555. Accordingly, plaintiffs have failed to allege
sufficient facts in support of defendants’ use of trade secrets.
Nevertheless, the Court finds that plaintiffs have alleged sufficient facts
to support a plausible claim of misappropriation by wrongful acquisition.
The essence of plaintiffs’ wrongful acquisition allegation is that Schehr
improperly conveyed trade secrets to SPEC’s competitors, which accepted
these secrets knowing that Schehr is a former employee of SPEC. Courts
have found that competitors’ acquisition of trade secrets in similar factual
scenarios constitutes misappropriation. See, e.g., In re TXCO Res., Inc., 475
B.R. 781, 818-20 (Bankr. W.D. Tex. 2012) (finding that defendant improperly
discovered trade secrets by accepting competitor’s confidential information
from an individual it knew to be competitor’s former employee); Uncle B’s
Bakery, Inc. v. O’Rourke, 920 F. Supp. 1405, 1429, 1441 (N.D. Iowa 1996)
(enjoining defendant from acquiring competitor’s trade secrets from
competitor’s former employee); PepsiCo, Inc. v. Redmond, No. 94-6838,
1996 WL 3965, at *1 (N.D. Ill. Jan. 2, 1996) (same). Likewise, the

33

R. Doc. 33 at 39-40 ¶ 124.
11

Restatement (Third) of Unfair Competition illustrates acquisition by
improper means using the following facts:
A, a large manufacturing company, employs B as an engineer.
Angered by a termination of the employment, B makes
unauthorized photocopies of engineering drawings depicting
trade secrets used in the machines that manufacture A’s most
successful product. B offers to provide the photocopies to C, a
competing manufacturer. C accepts the photocopies from B with
knowledge that B is a former employee of A. C has acquired A’s
trade secrets by improper means.
Restatement (Third) of Unfair Competition § 43 cmt. B, illus. 4 (Am. Law.
Inst. 1995). The Court therefore finds that defendants’ conduct, as alleged
by plaintiffs, qualifies as misappropriation by acquisition under the DTSA.
Furthermore, ample factual content in the amended complaint
supports plaintiffs’ misappropriation allegation. Plaintiffs assert that Schehr
copied trade secrets from his company-issued laptop onto external hard
drives shortly after his termination.34 They also allege that Schehr emailed
confidential and proprietary files on SPEC’s computer network to his
personal email account. 35

According to plaintiffs, a forensic analysis

conducted after Schehr’s termination supports these assertions. 36

34
35
36

Id. at 37 ¶ 114.
Id. at 36 ¶ 111.
Id.
12

Plaintiffs further allege that Isoflex USA employed or engaged Schehr
following Schehr’s termination. 37

Schehr then allegedly conspired with

Isoflex USA and McKannay to form Isoflex Radioactive. 38 Through Isoflex
Radioactive, defendants allegedly plan to compete with plaintiffs by building
shipping containers for radioactive materials using plaintiffs’ technology. 39
According to plaintiffs, Isoflex Radioactive has even advertised itself as “a
manufacturer and supplier of radiographic NDT equipment and replacement
sources.” 40
In response to these allegations, Isoflex USA and McKannay insist that
they have neither employed nor engaged Schehr. 41 At the motion to dismiss
stage, however, the Court must accept plaintiffs’ allegations as true. See
Lormand, 565 F.3d at 244.

Moreover, plaintiffs present several facts

connecting Schehr with Isoflex USA and McKannay: Schehr talked with
McKannay in person in June 2016 shortly before his termination; Schehr
called McKanny shortly after Schehr’s termination; and Schehr has an
Isoflex email address. 42

37
38
39
40
41
42

Id. at 2 ¶ 1.
Id. at 2 ¶ 1.
Id. at 25 ¶ 69, 45 ¶ 143.
Id. at 39 ¶ 123.
R. Doc. 45-1 at 6.
R. Doc. 33 at 27 ¶ 75, 35 ¶ 108, 39 ¶ 123.
13

Isoflex USA and McKannay next argue that even if they did employ
Schehr, plaintiffs’ claim would still fail. 43 Defendants cite Bayco Products,
Inc. v. Lynch, 10-1820, 2011 WL 1602571, at *5 (N.D. Tex. Apr. 28, 2011),
where the plaintiff merely alleged “that a former employee entered the
employment of a competitor.” The court held that under Texas law, this fact
“does not of itself support a plausible claim that the employee shared
proprietary information.” Id. Here, plaintiffs allege more than Schehr’s
employment by Isoflex USA; plaintiffs allege a concerted attempt to compete
with plaintiffs using plaintiffs’ own trade secrets.
Taken together, the facts alleged in the amended complaint allow the
Court to draw the reasonable inference that Isoflex USA, Isoflex Radioactive,
and McKannay acquired trade secrets that they knew or had reason to know
were “acquired by improper means.” 18 U.S.C. § 1839(5)(A); Iqbal, 556 U.S.
at 678. Accordingly, plaintiffs allege a plausible claim for trade secret
misappropriation under the DTSA.
2.

LUTSA

LUTSA provides for injunctive relief against “[a]ctual or threatened
misappropriation” of trade secrets. La. Rev. Stat. § 51:1432(A). LUTSA also
permits a complainant to recover damages for actual loss caused by the

43

R. Doc. 45-1 at 6.
14

misappropriation of a trade secret. See La. Rev. Stat. § 51:1433. In order to
recover damages under LUTSA, a complainant must prove (1) the existence
of a trade secret; (2) misappropriation of the trade secret by another; and (3)
actual loss caused by the misappropriation. See id.; Comput. Mgmt. Assis.
Co. v. DeCastro, Inc., 220 F.3d 396, 403 (5th Cir. 2000).
The definition of “trade secret” provided by LUTSA is essentially
identical to that provided by the DTSA. Compare La. Rev. Stat. § 51:1431(4),
with 18 U.S.C. § 1839(3).

Manufacturing methods and processes are

generally protectable under LUTSA, as they are under the DTSA. See La.
Rev. Stat. § 51:1431(4).

Additionally, under LUTSA plaintiffs exerted

reasonable effort to keep their technologies secret. See La. Rev. Stat. §
51:1431 cmt. f (“Reasonable efforts to maintain secrecy have been held to
include advising employees of the existence of a trade secret, limiting access
to a trade secret on a ‘need to know basis,’ and controlling plant access.”).
Finally, the secrecy of these technologies has independent economic value
under LUTSA because of the resources plaintiffs expended on their
development. See Reingold, 126 F.3d at 650.
LUTSA also defines “misappropriation” in the same way as does the
DTSA. Compare La. Rev. Stat. § 51:1431(2), with 18 U.S.C. § 1839(5). No
Louisiana case law addresses the exact scenario in this case, where plaintiffs’
15

competitors allegedly acquired but did not use trade secrets from plaintiffs’
ex-employee.

But one Louisiana appellate court did address a similar

situation in South East Auto Dealers Rental Ass’n, Inc. v. EZ Rent To Own,
Inc., 980 So. 2d 89 (La. App. 4 Cir. 2008). There, the plaintiff sought an
injunction to prevent a former client from disclosing trade secrets to a
competitor. Id. at 99-100. The court held that the plaintiff was entitled “to
protection from misappropriation of its trade secrets,” because the
defendant was “operating in conjunction with Rent T Own, [plaintiff’s]
competitor, who could potentially acquire [plaintiff’s] trade secrets.” Id. at
101. Based on South East Auto Dealers, as well as the UTSA case law cited
earlier, the Court finds that defendants’ acquisition of trade secrets qualifies
as misappropriation under LUTSA. Accordingly, plaintiffs allege a plausible
claim for trade secret misappropriation under LUTSA.
A.

Preemption of Conversion and LUTPA Claims
1.

Conversion

Defendants next argue that plaintiffs’ conversion and LUTPA claims
are preempted by LUTSA. LUTSA “displaces conflicting tort, restitutionary,
and other laws of this state pertaining to civil liability for misappropriation
of a trade secret.” La. Rev. Stat. § 51:1437(A); see also Reingold v. Swiftships,
Inc., 210 F.3d 320, 322 (5th Cir. 2000). Nevertheless, LUTSA is not a
16

comprehensive remedy and “does not apply to duties imposed by law that
are not dependent upon the existence of a trade secret.” Defcon, Inc. v.
Webb, 687 So. 2d 639, 643 (La. App. 2 Cir. 1997) (citing La. Rev. Stat. §
51:1437 cmt.); see also La. Rev. Stat. § 51:1437(B) (“This Chapter does not
affect: . . . contractual or other civil liability or relief that is not based upon
misappropriation of a trade secret.”).
Although Louisiana courts have not interpreted the extent of LUTSA’s
preemption provision, federal courts have addressed this provision, as well
as nearly identical provisions adopted by other states. See, e.g., Reingold,
210 F.3d at 322; Brand Servs., LLC v. Irex Corp., No. 15-5712, 2017 WL
3024245, at *2 (E.D. La. July 17, 2017). Generally, these courts have found
that a claim is not preempted as long as it is not based on trade secret
misappropriation. See Reingold, 210 F.3d at 322; Brand Servs., 2017 WL
3024245, at *2; 360 Mortg. Grp., LLC v. Homebridge Fin. Servs., Inc., No.
14-847, 2016 WL 900577, at *6 (W.D. Tex. Mar. 2, 2016). Thus, whether
LUTSA preempts plaintiffs’ conversion claim depends on whether this claim
alleges the conversion only of trade secrets.
The Court finds that LUTSA preempts plaintiffs’ conversion claim
against Isoflex USA, Isoflex Radioactive, and McKannay. Plaintiffs allege
that these defendants wrongfully possess plaintiffs’ confidential and
17

proprietary information. 44

This allegation falls into the heartland of

misappropriation covered by LUTSA. See Brand Servs., 2017 WL 3024245,
at *2. The amended complaint contains no suggestion that these defendants
possess any other property belonging to plaintiffs, or infringed legal duties
not dependent on the existence of a trade secret. Because LUTSA preempts
plaintiffs’ conversion claim against Isoflex USA, Isoflex Radioactive, and
McKannay, this claim must be dismissed.
Whether LUTSA preempts plaintiffs’ conversion claim against Schehr,
on the other hand, is a closer question. Plaintiffs contend that Schehr
converted physical property, including thumb drives and CDs.45

Some

federal courts have found that the UTSA does not preempt conversion claims
for physical property. See Lifesize, Inc. v. Chimene, No. 16-1109, 2017 WL
1532609, at *12-13 (W.D. Tex. Apr. 26, 2017) (conversion claim for laptop
not preempted to extent claim seeks recovery for value of property itself);
Powell Prods., Inc. v. Marks, 948 F. Supp. 1469, 1474-75 (D. Colo. 1996)
(“Because plaintiff’s claim also seeks recovery of the physical items stolen,
including blueprints and drawings, which would not be the subject of a
misappropriation claim under the UTSA, plaintiff’s conversion claim is not

44
45

R. Doc. 33 at 57 ¶ 192.
Id. at 37-38 ¶¶ 115-16, 56 ¶ 190; R. Doc. 46 at 12-13.
18

entirely preempted.”). Other courts have found preemption because the
“value” of physical property containing trade secrets (including computers
and CDs) is derived primarily from the information contained within it. See
Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649, 661 (E.D. Tenn.
2004) (finding conversion claim for physical items preempted because “the
physical property [allegedly] stolen derived its primary, if not entire, value
from the trade secrets contained therein”); AutoMed Techs., Inc. v. Eller, 160
F. Supp. 2d 915, 922 (N.D. Ill 2001) (conversion claim preempted because
although physical items “exist in tangible form, their value is primarily from
the information contained within that form”).
The Court finds that LUTSA does not preempt plaintiffs’ conversion
claim against Schehr to the extent plaintiffs seek to recover physical property
or its value. Louisiana law imposes no de minimis bar on damages claims.
See Sonnier v. U.S. Cas. Co., 165 So. 2d 3, 5 (La. 1964) (“The common law
doctrine of ‘de minimis non curat lex’ is not embodied in the corpus of the
law of this state . . . .”); see also Bauer v. Dean Morris, L.L.P., No. 08-5013,
2011 WL 1303814, at *7-8 (E.D. La. Mar. 30, 2011) (citing Sonnier for this
proposition). Even if the thumb drives and CDs at issue derive their value
primarily from the information contained within them, they clearly have
some value beyond that information. Plaintiffs do not lose their right to
19

recover that value simply because the physical items also contain trade
secrets. Accordingly, to the extent plaintiffs seek to recover the physical
value of their thumb drives and CDs from Schehr, their conversion claim is
not preempted. See Lifesize, Inc, 2017 WL 1532609, at *13. To the extent
plaintiffs seek to recover the value of the trade secrets contained within this
physical property, their conversion claim is preempted.
2.

LUTPA

Defendants also move to dismiss plaintiffs’ LUTPA claim as preempted
by LUTSA.

The Fifth Circuit has explicitly rejected this preemption

argument. See Comput. Mgmt. Assis., 220 F.3d at 405 (finding that LUTSA
did not preempt plaintiff’s LUTPA claim because LUTSA and LUTPA
“provide parallel remedies for similar conduct”). Furthermore, Louisiana
state courts recognize that the same challenged conduct can give rise to both
LUTSA and LUTPA claims. See Bihm v. Deca Sys., Inc., No. 2016-0356, 2017
WL 3405176, at *9 (La. App. 1 Cir. Aug. 8, 2017) (“[C]laims of violations
under both acts are frequently pled and tried together . . . .”). The Court
therefore finds that LUTSA does not preempt plaintiffs’ LUTPA claim.

20

IV.

CONCLUSION
For the foregoing reasons, the Court GRANTS defendants’ motions to

dismiss with respect to plaintiffs’ conversion claim against Isoflex USA,
Isoflex Radioactive, and McKannay, as well as plaintiffs’ conversion claim
against Schehr to the extent plaintiffs seek to recover the value of their trade
secrets. The Court otherwise DENIES defendants’ motions to dismiss. The
Court DISMISSES WITH PREJUDICE plaintiffs’ conversion claim against
Isoflex USA, Isoflex Radioactive, and McKannay, as well as plaintiffs’
conversion claim against Schehr to the extent plaintiffs seek to recover the
value of their trade secrets.
29th
New Orleans, Louisiana, this _____ day of August, 2017

_____________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

21