TLS Management I Marketing Service, LLC v. Mardis Financial Services, Inc. et al

Filing 225

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by District Judge Carlton W. Reeves on 8/3/2018. (AC)

____________________
No. 3:14-CV-881-CWR-LRA
TLS MANAGEMENT & MARKETING SERVICES, LLC,
Plaintiff,
v.
MARDIS FINANCIAL SERVICES, INC., et al.,
Defendants.
____________________
FINDINGS OF FACT & CONCLUSIONS OF LAW
____________________
Before CARLTON W. REEVES, District Judge.
TLS Management & Marketing Services, LLC filed this suit
nearly four years ago, alleging that Defendants hatched a
scheme to steal its trade secrets and launch a competing tax
reduction business. 1 In January 2018, after finding that Defendants had destroyed evidence, the Court entered a default
judgment against them under Federal Rule of Civil Procedure
1

Complaint, Docket No. 1.

37(e)(2). 2 The Court then held a two-day bench trial on damages.
In the Fifth Circuit, “after a default judgment, the plaintiff’s
well-pleaded factual allegations are taken as true, except regarding damages . . . [and] personal jurisdiction.” 3 A defendant “may not challenge the sufficiency of the evidence” in the
wake of a default judgment. 4 But while a default judgment
“conclusively establish[es] a defendant’s liability,” 5 such liability exists “only so far as it is supported by well-pleaded allegations.” 6 In other words, if a particular claim would not
survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), there is no liability under that claim. 7 Therefore, despite the default judgment, the Court must determine
if TLS’s well-pleaded liability-related factual allegations,
taken as true, establish liability.
The analysis begins with jurisdiction. The Court will then consider liability on a claim-by-claim basis, and assess damages
under each claim. The analysis concludes with the questions
of injunctive relief and attorney’s fees.

2

Order, Docket No. 187.

3

Jackson v. FIE Corp., 302 F.3d 515, 525 (5th Cir. 2002) (quotation marks
omitted).
4

Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 496 (5th Cir.
2015).
5

Leedo Cabinetry v. James Sales & Distribution, Inc., 157 F.3d 410, 414 (5th
Cir. 1998).
6

Wooten, 788 F.3d at 496 (quotation marks omitted).

7

See id. at 500.

2

I
Jurisdiction
Subject Matter Jurisdiction. The Court has diversity jurisdiction under 28 U.S.C. § 1332, as the parties are diverse and the
amount in controversy exceeds $75,000. 8 TLS is a Puerto Rico
business. J. Todd Mardis is a Mississippi resident. Capital
Preservation Services and Mardis Financial Services list their
principal places of business in Flowood, Mississippi.
Personal Jurisdiction & Venue. The Court has personal jurisdiction over Defendants, given their places of residence and
principal offices. For these same reasons, the Southern District
of Mississippi is an appropriate venue for this action.
II
Liability
A
Facts 9
TLS’s Business. TLS provides businesses with customized
strategies to reduce their taxes through a group of highly
skilled tax attorneys and accounting professionals. TLS has
designed custom made plans for more than 5,000 clients’ businesses and individual needs, and through these efforts has developed substantial goodwill and a respected reputation in
the industry.
8

Given TLS’s claim under federal trademark law, the Court also has federal question jurisdiction under 28 U.S.C. § 1331.
9

Unless otherwise noted, the facts in this section are taken, with minor
grammatical and formatting changes, from TLS’s complaint.

3

TLS’s Confidential & Proprietary Information. The identity,
contact information, and knowledge of particular needs of
TLS customers (“Customer Information”) are essential to
TLS’s business, and are considered by TLS to be confidential,
proprietary information. Although certain information might
be publicly available—such as a company’s name or corporate mailing address—only a limited number of TLS employees and affiliates know who among the general public are TLS
customers or prospects, and therefore have a specific need for
tax consulting services. TLS also considers information about
its marketing strategies, pricing, and other business-related
information (“Business Information”) to be confidential and
proprietary.
TLS devotes significant time, effort, and capital to the development of its Customer Information and Business Information. TLS pays for subscription information services to enable it to stay up to date on the latest issues relevant to its tax
planning advice. TLS employs at least one individual whose
sole responsibility is to conduct and distill this research. TLS
also employs two full-time employees devoted to marketing
tasks, and invests heavily in branding and marketing efforts.
TLS has developed a lengthy document that thoroughly assesses a client’s financial information and provides recommendations of potential avenues to achieve tax savings (the
“Tax Report”). TLS developed and customized the Tax Report
through the full-time efforts of several individuals that began
before the inception of TLS’s business in 2005 and continues
to this day. The Tax Report contains methods that are unique
to TLS and are not generally available in the industry. TLS’s
extensive experience with regard to tax reduction is reflected
in the Tax Report, TLS analytical methods, TLS forms, and
4

TLS proposals to potential clients. TLS also devotes significant time, effort, and capital to following all developments in
tax law and policy that might affect its strategies or its clients’
needs, and uses that knowledge to constantly update the Tax
Report.
TLS’s Efforts to Keep Information Confidential. TLS maintains its Customer Information and Business Information in
confidence, both to preserve TLS’s competitive advantage
and to meet customer expectations that TLS will maintain sensitive information (such as the amount of money TLS was able
to save a client in tax payments) in confidence. TLS vigilantly
preserves its Customer Information and Business Information
so that it does not become available to competitors who could
use the data to divert customers without the investment of
time, labor, and capital that TLS made to compile the information. TLS does not provide its Customer Information or
Business Information to competitors. It requires individuals
or entities who require access to TLS’s Customer Information
or Business Information to sign non-disclosure, confidentiality, and non-competition agreements before providing them
with such access. Access to TLS’s database containing all Customer Information is password-protected, and access permissions and methods are frequently reviewed and strictly enforced. The business derives substantial economic value from
preserving its Customer Information and Business Information as confidential, keeps this information out of the
hands of its competitors, and considers it a trade secret.
Mardis & Capital Preservation Services. Todd Mardis,
through his company Capital Preservation Services, learned
about TLS’s tax planning and consulting business after entering into a contract with TLS—the CPS Agreement—on June 9,
5

2010. 10 Mardis signed the contract on Capital Preservation
Services’ behalf. The CPS Agreement imposed duties of confidentiality and non-competition on the parties. 11
TLS provided Capital Preservation Services and Mardis with
TLS’s Customer Information and Business Information pursuant to the protections of the CPS Agreement. TLS would not
have provided Capital Preservation Services or Mardis with
its Customer Information and Business Information without
the agreement to protect the information and to refrain from
competing with TLS.
As a result of its relationship with TLS, Capital Preservation
Services has received commissions on sales from TLS and as
a result of insurance policies sold to TLS clients. The sales of
insurance policies are a direct result of a TLS client’s implementation of the recommendations contained in the Tax Report. Therefore, without the TLS proprietary Customer Information, Business Information and Tax Report, TLS clients
would have no reason to buy insurance policies from Capital
Preservation Services.
The CPS Agreement was terminated on November 14, 2014. 12
Mardis & Mardis Financial Services. On February 28, 2011,
TLS expanded its business relationship with Todd Mardis
and his affiliated companies by entering into a subcontractor
10

CPS Agreement, Plaintiff’s Exhibit 2 at 1, 5. Defendants admit that TLS
was a party to the CPS Agreement. See Answer, Docket No. 9 at 4 (“[T]he
parties entered into the [CPS] Agreement[.]”); Pretrial Order, Docket No.
213 at 5 (“TLS entered into [the CPS Agreement.]”).
11

CPS Agreement, Plaintiff’s Exhibit 2.

12

Bersin Report, Plaintiff’s Exhibit 5 at 11.

6

agreement with Mardis Financial Services. 13 The MFS Agreement was signed by Mardis and was jointly prepared by the
parties, each of which was a sophisticated business.
The MFS Agreement allowed Mardis Financial Services to become responsible for gathering Customer Information from
prospective TLS clients, applying proprietary TLS Business
Information to analyze clients’ tax situations, and developing
and pricing TLS sales proposals. In addition, Mardis Financial
Services became responsible for production of the Tax Report.
Mardis Financial Services was given not only the Tax Report,
but all TLS methods and procedures for customizing the Tax
Report to specific client situations. As part of the agreement
to assume these duties, Mardis Financial Services accepted
duties of confidentiality and non-competition. 14
In 2013, the parties amended the MFS Agreement to further
expand their business relationship; the amendments did not
alter the existing duties of confidentiality and non-competition. 15 TLS provided Mardis with additional, significant access to its confidential Customer and Business Information.
Mardis received information about TLS’s financial and business operations, including TLS’s business profitability and external relationships.

13

MFS Agreement, Plaintiff’s Exhibit 3. Defendants admit that TLS is a
party to the MFS Agreement. See Answer, Docket No. 9 at 5 (“[T]he parties entered into the [MFS] Agreement[.]”); Pretrial Order, Docket No. 213
at 6 (“[The MFS Agreement] was signed by [David] Runge for Tax Law
Solutions, LLC, a Puerto Rico company[.]”).

14

Id.

15

Amendments to Second Contract, Plaintiff’s Exhibit 4 at 1, 3.

7

The MFS Agreement was terminated on September 26, 2014.16
Mardis Financial Services failed to return to TLS all Confidential Information in its possession after the termination of the
MFS Agreement.
Defendants’ Wrongdoing. In 2014, Defendants began secretly
and deliberately building their own tax planning business using TLS resources, relationships, and intellectual property.
That business directly competed with TLS and diverted customers from TLS. Defendants began diverting sales opportunities away from TLS and sold tax planning services on their
own behalf to competitors during the spring and summer of
2014.
Defendants now compete with TLS in the market for tax reduction consulting services. Defendants are engaging in the
business of providing tax consulting services similar to those
provided by TLS and performing services for a competitor of
TLS. Defendants are in possession of TLS’s Confidential Information, and continue to use it for their own benefit to divert business away from TLS.
Defendants are intentionally confusing customers about the
nature and source of their services, causing customers to believe that Defendants’ services are provided through or on behalf of TLS. Defendants obtained permission from customers
to use their names to endorse TLS services, then used the customers’ names and comments to promote Defendants’ services. Clients whom Defendants began soliciting while
Mardis was still associated with TLS were not notified that
work on their projects was no longer being performed by TLS.
16

Bersin Report, Plaintiff’s Exhibit 5 at 13.

8

Defendants have distributed advertisements and posted
pages on its website which include false and misleading representations of fact.
B
Analysis
1
Mississippi Uniform Trade Secrets Act
The Mississippi Uniform Trade Secrets Act allows plaintiffs
to “recover damages for misappropriation” of a trade secret,17
and to obtain an injunction to prevent “[a]ctual or threatened
misappropriation.” 18 A trade secret is “information, including
a formula, pattern, compilation, program, device, method,
technique or process, that: [d]erives independent economic
value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other
persons who can obtain economic value from its disclosure or
use, and [is] the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.” 19 One form of misappropriation is the “[d]isclosure or use of a trade secret of
another without express or implied consent by a person
who,” to “acquire knowledge of the trade secret,” used “improper means,” such as “theft, bribery, misrepresentation,

17

Damages, Miss. Code Ann. § 75-26-7.

18

Injunctions; Protective Orders, Miss. Code Ann. § 75-26-5.

19

Definitions, Miss. Code Ann. § 75-26-3.

9

breach or inducement of a breach of a duty to maintain secrecy.” 20
Here, TLS provided Defendants with confidential and proprietary information about its business and customers. TLS derived independent economic value from the secrecy of this information. TLS engaged in reasonable efforts to maintain its
secrecy, like forcing Defendants to sign non-disclosure agreements that required the return of all business and customer
information at the conclusion of their business relationship.
Such information constituted trade secrets. 21 Defendants willfully and maliciously misappropriated TLS’s trade secrets by
using and disclosing them without consent and in breach of
existing duties of non-disclosure. The Court finds that Defendants are liable under the Trade Secrets Act. TLS is entitled
to an injunction and damages for misappropriation.
2
Tortious Interference with Business Relations
Tortious interference with business relations occurs when:
“(1) the acts [of interference] were intentional and willful; (2)
the acts were calculated to cause damage to the plaintiffs in
their lawful business; (3) the acts were done with the unlawful

20

Id.

21

See Tom James Co. v. Hudgins, 261 F. Supp. 2d 636, 641 (S.D. Miss. 2003)
(reviewing Mississippi law on what counts as a trade secret).

10

purpose of causing damage and loss without right or justifiable cause on the part of the defendant (which constitutes malice); and (4) actual loss and damage resulted.” 22
Under this standard, Defendants are liable in tort for interference with business relations. Defendants intentionally interfered with TLS’s business, stole trade secrets in order to effect
that interference, and diverted customers from Defendants,
causing actual loss. This interference was willful and malicious.
3
Unfair Competition
In Mississippi, a person is liable in tort for unfair competition
if they “set[] about to maliciously and wantonly injure a competitor” and cause such an injury. 23 While the Trade Secrets
Act “displaces conflicting tort [ ] law of this state providing

22

PDN, Inc. v. Loring, 843 So. 2d 685, 688 (Miss. 2003). These elements
mirror those of the tort of tortious interference with contract. See Cenac v.
Murry, 609 So. 2d 1257, 1268 (Miss. 1992). In the past, there has been
some confusion about the distinctness of these two torts. See Par Indus.,
Inc. v. Target Container Co., 708 So. 2d 44, 48 (Miss. 1998) (“According to
Cenac, this Court intended there be different elements for interference
with business relations and interference with contract, but in a later case
this Court set out the same four elements for interference with a business
relationship that apply to the separate tort of interference with contract.”). Today, the Mississippi Supreme Court appears to address the
torts as functionally identical. See Springer v. Ausbern Constr. Co., 231 So.
3d 980, 985 (Miss. 2017) (quoting Zumwalt v. Jones Cty. Bd. of Sup'rs, 19
So. 3d 672, 688 (Miss. 2009) to discuss a “claim of tortious interference
with business relations and/or contracts”).
23

Cenac, 609 So. 2d at 1269.

11

civil remedies for misappropriation of a trade secret,” 24 an unfair competition claim is “not . . . displaced” if it can “stand
alone . . . without [a plaintiff] proving that [any relevant information] was a trade secret.” 25
In this case, TLS’s unfair competition claim is not displaced.
Even if TLS had not proven any theft of trade secrets, Defendants’ appropriation of TLS’s customer lists and misrepresentations to prospective customers were parts of a scheme to divert business from TLS. Such a scheme was a successful attempt to maliciously and wantonly injure a competitor. Defendants are liable in tort for unfair competition.
4
Federal Trademark Law
Federal trademark law prohibits the use of a “false or misleading description of fact [that] . . . is likely to cause confusion . . . as to the origin, sponsorship, or approval of [one’s]
services.” 26 Defendants’ advertisements and webpages include false and misleading representations of fact since they
misrepresented the nature of their business to their customers. Defendants are liable for violating the federal ban on false
advertising.

24

Applicability of Chapter, Miss. Code Ann. § 75-26-15.

25

Fred's Stores of Mississippi, Inc. v. M & H Drugs, Inc., 725 So. 2d 902, 908
(Miss. 1998).

26

False Designations of Origin, False Descriptions, and Dilution Forbidden, 15
U.S.C. § 1125.

12

5
Breach of Contract
CPS Agreement. Under the CPS Agreement, Capital Preservation Services was barred from disclosing “information regarding [TLS’s] business” (including “information regarding
business methods and procedures, clients or prospective clients, agent lists, marketing channels and relationships, marketing methods, costs, prices, earnings, products, formulae,
compositions, methods, systems, procedures, prospective
and executed contracts and other business arrangements”)
unless such disclosure was for “the purpose of carrying out
[the CPS Agreement] and all other written agreements between the parties.” 27 Upon termination of the CPS Agreement, Capital Preservation Services had a duty to “promptly
retur[n]” all confidential information to TLS. 28 The CPS
Agreement also barred Capital Preservation Services from,
without prior written permission from TLS, “[b]ecom[ing] involved in the business of offering services substantially similar to any component” of TLS’s business. 29 These duties of
confidentiality and non-competition extended “during the
term [of the CPS Agreement] and for a period of two years
after [its] termination.” 30
The Court finds that Capital Preservation Services breached
the CPS Agreement. By constructing a business founded on
27

CPS Agreement, Plaintiff’s Exhibit 2 at 1-2.

28

Id. at 2.

29

Id. at 2-3.

30

Id. at 3.

13

TLS’s trade secrets, disclosing those trade secrets to clients,
and diverting customers from TLS, Capital Preservation Services willfully breached the duties of confidentiality and noncompetition it had under the CPS Agreement.
Mardis Financial Services. Under the MFS Agreement,
Mardis Financial Services promised to keep confidential
TLS’s business information (including “information regarding clients or prospective clients, marketing channels and relationships, marketing methods, costs, prices, earnings, reports, products, formulae, compositions, methods, systems,
procedures, reports, prospective and executed contracts and
other business arrangement, and sources of supply”). 31
Mardis Financial Services also agreed to “return to TLS any
Intellectual Property of TLS still in [its] possession” upon the
termination of the agreement. 32 Finally, Mardis Financial Services promised to not “engage in the business of providing
any tax consulting services that are packaged, sold, delivered
or implemented in a manner similar to the services provided
by TLS” during the term of the MFS Agreement and for one
year after the contract’s termination. 33
Mardis Financial Services breached the MFS Agreement. By
constructing a business founded on TLS’s trade secrets, disclosing those trade secrets to clients, and diverting customers
from TLS, Mardis Financial Services willfully breached the
duties of confidentiality and non-competition it had under the
MFS Agreement.
31

MFS Agreement, Plaintiff’s Exhibit 3 at 3-5.

32

Id.

33

Id. at 4-5.

14

III
Damages
A
Preliminary Considerations
Defendants are liable to TLS under all the claims described
above. While TLS is entitled to damages on each of these
claims, it is not entitled to recover on each claim if that would
constitute a “double recovery.” 34 Plaintiffs “cannot recover
the same damages twice, even though the recovery is based
on two different theories.” 35 Thus, TLS can only recover under separate claims to the extent each addresses different
damages.
TLS submitted an expert report by Brett Bersin (“the Bersin
Report”) to calculate damages under its Trade Secrets Act and
breach of contract claims. 36 His testimony was consistent with
his report. Bersin is well-qualified. He has a B.B.A. degree in
accounting from the University of Houston, is a Texas-licensed certified public accountant, is certified in financial forensics by the American Institute of Certified Public Accountants, and is a certified licensing professional. 37 At the time of
his involvement in this case, Bersin was managing director of
34

R.K. v. J.K., 946 So. 2d 764, 777 (Miss. 2007); see generally Johnny C. Parker, Miss. Law of Damages § 1:9 (Oct. 2017).

35

Atkinson v. Anadarko Bank & Trust Co., 808 F.2d 438, 441 (5th Cir.1987)
(quoted in Carbo Ceramics, Inc. v. Keefe, 166 F. App'x 714, 725 (5th Cir.
2006)).

36

Bersin Report, Plaintiff’s Exhibit 5.

37

Bersin Report at 1-2.

15

an international financial advisory consulting firm, Duff &
Phelps. 38 Bersin is regularly retained to serve as an expert witness in cases involving forensic accounting and economic
damages. 39
The Bersin Report was based on a “review of the facts, documentary evidence produced in this lawsuit, deposition transcripts, data and information [on Defendants’ businesses], interviews of TLS’s personnel, as well as [Bersin’s] business
training and experiences.” 40 It analyzed hundreds of Defendants’ internal documents, 41 using profit and loss statements,
customer detail reports, and vendor detail reports to calculate
revenues and expenses. 42
Defendants do not challenge Bersin’s qualifications or expertise. 43 They also made the strategic choice to not submit any
expert testimony rebutting Bersin’s conclusions or presenting
an alternative theory of damages.

38

Id.

39

Id. at Attachment 1.1; Day 1 Trial Transcript, Docket No. 208 at 15.

40

Bersin Report at 3.

41

Id. at Attachment 2.0.

42

Day 1 Trial Transcript, Docket No. 208 at 48.

43

See id. at 71-100 (Defendants’ cross-examination of Bersin).

16

B
Analysis
1
Trade Secrets Act
The Trade Secrets Act allows plaintiffs to recover “both the
actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.” 44
Expert Report on Damages. The Bersin Report quantified Defendants’ damages under the Trade Secrets Act as “profits
from [their] alleged unauthorized use of [trade secrets] for the
period of September 2014 through October 2017 (date of
trial).” 45 Bersin began this unjust enrichment calculation by
using Defendants’ total revenues as a baseline. 46 He subtracted from this revenue all “incremental expenses directly
related to the production of [their] revenue from [misappropriation].” 47 Following Fifth Circuit guidance on calculating
unjust enrichment, 48 Bersin excluded from his calculations

44

Damages, Miss. Code Ann. § 75-26-7.

45

Bersin Report at 22-23.

46

Day 1 Trial Transcript, Docket No. 208 at 81.

47

Bersin Report at 22-23.

48

See George P. Roach, Counting the Beans: Unjust Enrichment and the Defendant's Overhead, 16 TEX. INTELL. PROP. L.J. 483, 485 (2008) (citing Maltina Corp. v. Cawy Bottling Co., 613 F.2d 582, 585 (5th Cir. 1980)). Bersin
chose to follow Fifth Circuit guidance because, as he correctly notes, “[if]
you look at the [Trade Secrets Act] . . . [i]t doesn’t specifically tell you

17

what he identified as variable and semi-variable expenses,
and included what he identified as fixed costs. 49 Bersin’s
methodology was simple: Total Revenue – Incremental Expenses = Profit = Unjust Enrichment. 50
When calculating the unjust enrichment of Capital Preservation Services, Bersin examined the company’s financial statements and Todd Mardis’s deposition testimony. 51 Bersin
identified four categories of incremental expenses: commissions, which were “contractual amounts paid to advisors for
their client-related work”; marketing expenses, which were
“amounts expended to advertise . . . business services and
generate client work”; marketing and related fees, which were
“agreed upon amounts paid to medical associations in connection with . . . marketing efforts to its members”; and professional fees, which were “amounts paid to [lawyers] for tax
what expenses are deducted to get to profit.” Day 1 Trial Transcript,
Docket No. 208 at 46.
49

Bersin testified that variable expenses are “expenses that directly vary
with each sale,” like insurance placement fees. Day 1 Trial Transcript,
Docket No. 208 at 43. Semi-variable expenses are expenses incurred to
“produce the revenue, but . . . not necessarily [ ] incurred with each and
every sale,” such as “marketing expenses overall to generate revenue.”
Id. at 43-44. Fixed costs are “fixed expenses” like “office rent, property
taxes, life insurance, [and] computer rentals.” Id. Bersin found that Defendants’ fixed costs were “a very limited amount of expense overall.” Id.
at 50.
50

Id. at 42-43 (“BERSIN: . . . I understand under the Mississippi trade secrets statute as well as governing case law, I am to identify not accounting net income but . . . the specific expenses that are incremental or . . .
directly tied to the production of the revenue at issue.”).
51

Bersin Report at 22.

18

work performed for . . . clients.” 52 Subtracting these expenses
from Capital Preservation Services’ total revenues for the relevant time period, Bersin calculated the profits unjustly
earned by the firm as $2,482,221.57. 53
Bersin took a similar approach to calculating the unjust enrichment of Mardis Financial Services. Bersin identified two
categories of incremental expenses: commissions and marketing
expenses. 54 Subtracting these expenses from Mardis Financial
Services’ total revenues for the relevant time period, Bersin
calculated the profits unjustly earned by the firm as
$1,025,496.91. 55
Objections to Expert Report. Defendants made four objections to Bersin’s methodology. None are persuasive.
First, Defendants say Bersin was wrong to assume that all of
their revenue during the relevant time period stemmed from
the use of trade secrets. 56 Defendants argue that as much as
25% of the profits identified by Bersin were unrelated to stolen trade secrets, pointing to Todd Mardis’s testimony that
some of his business stemmed from an “audit defense plan”
not offered by TLS.57 If these audit defense services were un-

52

Id.

53

Id. at 22, Exhibit 1, Exhibit 3.

54

Id. at 23.

55

Id at 23, Exhibit 1, Exhibit 5.

56

Defendants’ Proposed Findings of Fact at 13.

57

Defendants’ Proposed Findings of Fact at 9, 20 (citing Day 2 Trial Transcript, Docket No. 208 at 66-67).

19

related to tax planning, Defendants’ argument might be persuasive. But Defendants’ audit defense “services” were
simply biannual meetings with tax planning clients to “review their documentation” and “make adjustments if there
[were] changes to the tax code.” 58 Thus, these services were a
part of the tax planning business built on stolen trade secrets.
Defendants’ second objection is that Bersin used Defendants’
profit and loss statements, rather than their allegedly more
accurate tax returns, to calculate the relevant revenue
streams. This argument is meritless. As Bersin testified, it
makes no difference if he “looked at the tax returns versus the
profit and loss statements,” as the latter statements “form the
basis for the tax returns.” 59 Defendants allude to “substantial
adjustments” made on the tax returns that render prior filings
inaccurate. 60 Bersin, however, testified that the tax returns reflect no such adjustments, and were instead “more or less the
same” as the profit and loss statements. 61 To dispute this
claim, Defendants have submitted their raw tax returns as evidence, hoping the Court will both conduct its own analysis
and weigh it against Bersin’s methodology. The Court must
decline this invitation to perform forensic financial accounting. The expert is far more capable. The profit and loss state-

58

Day 2 Trial Transcript, Docket No. 208 at 66-67.

59

Id. at 82.

60

Id. at 84-85.

61

Id. at 88.

20

ments are far more detailed assessments of Defendants’ business operations, and there is no reason to believe the tax returns better capture those operations. 62
Defendants’ third argument is that Bersin used a flawed
methodology for deducting business expenses. The only evidence to support this claim is the testimony of Todd Mardis,
who performed a different set of deductions when filing Defendants’ tax returns. 63 But Mardis admits that he has “no expertise” when it comes to forensic accounting. 64 His testimony is no basis for challenging Bersin’s methodological
choices regarding deductions.
Defendants’ final objection involves an alternative measure of
damages under the Trade Secrets Act. The Act says that “[i]n
lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.” 65 Defendants argue that, because a valuation report of TLS’s business showed that the firm paid $139,574 in royalties in 2010,
that royalty figure should serve as the measure of damages. 66

62

See also id. at 105-45 (testimony suggesting that Defendants underestimate their wealth on personal financial statements by using questionable
valuation methods and omitting assets).
63

Id. at 79-91.

64

See id. at 121-22.

65

Damages, Miss. Code Ann. § 75-26-7.

66

Defendants’ Proposed Findings of Fact at 21; 2013 Valuation Report of Tax
Law Solutions, LLC Consulting Division, Defendants’ Exhibit 7.

21

Defendants mischaracterize the evidence. The valuation report merely indicates that payment involved some intellectual
property. 67 Defendants have submitted no evidence proving
that the royalty figure involved any (let alone all) of the trade
secrets at issue here. It is also unclear if the 2010 royalty payment was for a month’s worth of use or for a year’s worth of
use. 68 Indeed, during the year prior, TLS paid $374,414 in royalties, suggesting that the royalty figures vary based on scope
of use. 69 There is simply not enough evidence to support Defendants’ royalties-as-damages theory.
In sum, the Court finds no reason to reject Bersin’s conclusions about an appropriate damages award under the Trade
Secrets Act. TLS is entitled to recover the damages described
therein.
2
Tort Claims
Tortious interference with business relations allows a plaintiff
to recover their actual losses stemming from such interference. 70 Actual loss must be measured using a “reasonable basis for computation” that results in a “fair approximate estimate of loss”—that is, a “methodology” that is more than

67

2013 Valuation Report of Tax Law Solutions, LLC Consulting Division, Defendants’ Exhibit 7 at 8, Exhibit 2.

68

Id.

69

Id.

70

Loring, 843 So. 2d at 688.

22

“mere speculation.” 71 TLS has submitted no methodology to
measure its actual losses, so it cannot recover under this
claim.
For the same reason, TLS cannot recover under its claim for
unfair competition, which also measures damages through
actual loss. 72
3
Federal Trademark Law
Federal trademark law allows a plaintiff to recover “defendant’s profits” and “any damages sustained by the plaintiff”
stemming from any deceptive advertising practices. 73 TLS has
offered no calculation to establish what fraction of Defendants’ profits are traceable to deceptive advertising practices.
Whatever the fraction is, those damages are co-extensive with
those under the Trade Secrets Act, which include all of Defendants’ profits. The co-extensive nature of these damages
means that TLS cannot have a separate recovery under federal
trademark law.

71

Par Indus., Inc.., 708 So. 2d at 50; see also Parker, supra at § 35:31 (“In the
context of tortious interference with business relations, the plaintiff must
provide hard proof of financial loss. Speculative loss will not suffice.”).
72

Memphis Steam Laundry-Cleaners v. Lindsey, 5 So. 2d 227, 230 (Miss.
1941).
73

Recovery for Violation of Rights, 15 U.S.C. § 1117; False Designations of
Origin, False Descriptions, and Dilution Forbidden, 15 U.S.C. § 1125.

23

4
Breach of Contract
Both the CPS Agreement and the MFS Agreement are governed by Illinois law. 74 In Illinois, “[d]amages recoverable under a breach of contract theory are . . . [the] amount that will
put [a plaintiff] in as good a position as [they] would have
been in had the contract been performed as agreed.” 75 Such
damages “may be liquidated in the agreement,” but only for
an amount that is “reasonable in the light of the anticipated
or actual loss caused by the breach and the difficulties of proof
of loss.” 76 However, liquidated damages that are “unreasonably large” are “unenforceable on grounds of public policy as
a penalty.” 77
TLS has not pursued expectancy damages for breach of contract. Instead, it has sought to recover through the liquidated
damages provisions within the CPS Agreement and the MFS
Agreement. The Bersin Report includes calculations for these
liquidated damages. 78

74

CPS Agreement, Plaintiff’s Exhibit 2 at 5; MFS Agreement, Plaintiff’s Exhibit 3 at 8; see also Plaintiff’s Memo in Opposition to Defendants’ Motion for
Judgment on the Pleadings, Docket No. 53 at 5-6 (admitting that the MFS
Agreement is governed by Illinois law, as that is where TLS is domiciled).

75

Collins v. Reynard, 607 N.E.2d 1185, 1186 (Ill. 1992).

76

H & M Commercial Driver Leasing, Inc. v. Fox Valley Containers, Inc., 805
N.E.2d 1177, 1188 (Ill. 2004).
77

Id.

78

Bersin Report at 24-28.

24

CPS Agreement. The CPS Agreement’s liquidated damages
provision allows TLS to recover “all consideration” that Capital Preservation Services received “in relation to [a] breach,”
or “any consideration to which TLS would otherwise have
been entitled to receive, whichever is greater.” 79 In other
words, the CPS Agreement offered TLS a choice between recovering for either actual loss or unjust enrichment. When offered the same choice through its Trade Secrets Act claim, TLS
chose unjust enrichment. Its damages under that claim overlap with those flowing from Defendants’ violation of the
Trade Secrets Act. The co-extensive nature of these damages
means that TLS cannot recover separately under the liquidated damages provision of the CPS Agreement.
MFS Agreement. The MFS Agreement allows TLS to recover
“150% of all fees collected” by Mardis Financial Services as a
result of “any breach . . . and any fees which TLS would have
otherwise been entitled to receive.” 80 In other words, in the
case of breach, the MFS Agreement allowed TLS to recover
for both actual loss and 150% of Mardis Financial Services’ unjust enrichment. Such damages extend beyond those recoverable under the Trade Secrets Act, and may be recovered separately by TLS.
Despite the fact that these sophisticated parties freely and voluntarily agreed to the MFS Agreement’s terms, the Court
finds that the contract’s liquidated damages are unreasonably
large. They are not reasonable approximations of the damages
TLS would suffer in the event of breach. As an unenforceable
79

CPS Agreement, Plaintiff’s Exhibit 2 at 3-4.

80

MFS Agreement, Plaintiff’s Exhibit 3 at 7.

25

penalty, the MFS Agreement’s liquidated damages provision
cannot serve as a basis for recovery.
TLS has offered no measure of expectancy damages it would
be entitled to under the MFS Agreement. The Court will assume that, whatever those damages are, they overlap with the
damages stemming from Defendants’ violation of the Trade
Secrets Act. Therefore, there will be no separate recovery for
breach of contract damages under the MFS Agreement.
C
Joint & Several Liability
Mississippi law imposes joint and several liability on all who
“consciously and deliberately pursue a common plan or design to commit a tortious act, or actively take part in it.” 81 Defendants’ actions fall under the broad category of wrongs
Mississippi has decided should be redressed through joint
and several liability.
It is true that the Trade Secrets Act does not expressly provide
for joint and several liability. The parties have not submitted
any Mississippi or federal caselaw discussing the question of
joint and several liability under the Act. Still, the Court believes that joint and several liability is appropriate. As the
Seventh Circuit has held, the general rule is that “the principle
of joint and several liability . . . governs . . . the common law
tort of misappropriation of trade secrets.” 82 There is no evi-

81

Joint Tort-feasors; Nature of Liability, Miss. Code Ann. § 85-5-7.

82

Salton, Inc. v. Philips Domestic Appliances & Pers. Care B.V., 391 F.3d 871,
877 (7th Cir. 2004).

26

dence that, in passing the Trade Secrets Act, Mississippi intended to abrogate this rule. Joint and several liability is appropriate here.
D
Punitive Damages
Under the Trade Secrets Act, an award for “exemplary damages” is appropriate when “willful and malicious misappropriation exists.” 83 Defendants’ conduct was, as noted above,
willful and malicious. However, the Court is unconvinced
that a substantial punitive damages award is necessary. The
purpose of punitive damages in Mississippi is “to punish.” 84
The default judgment and the size of the damages award are
punishment enough. The Court will impose a punitive damages award of $100.
E
Prejudgment Interest
In a diversity case like this one, “state law generally controls
the award of interest.” 85 In Mississippi, while “judgments or
decrees founded on any sale or contract shall bear interest at
the same rate as the contract evidencing the debt . . . [a]ll other
judgments or decrees shall bear interest at a per annum rate
set by the judge hearing the complaint from a date determined by such judge to be fair but in no event prior to the
83

Damages, Miss. Code Ann. § 75-26-7.

84

State Farm Mut. Auto. Ins. Co. v. Daughdrill, 474 So. 2d 1048, 1052 (Miss.
1985).
85

Plantation Key Developers, Inc. v. Colonial Mortg. Co. of Indiana, 589 F.2d
164, 170 (5th Cir. 1979).

27

filing of the complaint.” 86 Moreover, this interest can be
“compound[ed]” in order to “fully compensate a party for the
time value of the overdue money.” 87 Judgments awarded in
Mississippi trade secrets cases may include prejudgment interest.88 However, Mississippi “require[s] that a party assert a
demand for prejudgment interest in the appropriate pleading.” 89 The question is whether TLS has made such a demand.
In the Fifth Circuit, “while the substantive questions of entitlement to interest and the rate of interest are to be resolved
by the applicable state law, the adequacy of a plaintiff's pleadings must be resolved by reference to [federal law].” 90 Here,
although TLS’s complaint does not specifically request prejudgment interest, it does request “other and further relief as
the Court deems just and proper.” 91 “[T]his statement,” ac-

86

Rate of Interest on Judgments and Decrees, Miss. Code Ann. § 75-17-7.

87

In re Guardianship of Duckett, 991 So. 2d 1165, 1183 (Miss. 2008).

88

See, e.g., Fred's Stores of Miss., Inc. v. M & H Drugs, Inc., 725 So. 2d 902,
921 (Miss. 1998).

89

Upchurch Plumbing, Inc. v. Greenwood Utilities Comm'n, 964 So. 2d 1100,
1118 (Miss. 2007). This mirrors the Fifth Circuit rule that, in cases involving a default judgment, “a failure to request prejudgment interest . . . will
cut off [that] relief upon default.” Ditech Fin., L.L.C. v. Naumann, No. 1750616, 2018 WL 3492001, at *4 (5th Cir. July 19, 2018).
90

Hamman v. Sw. Gas Pipeline, Inc., 821 F.2d 299, 308 (5th Cir.).

91

Complaint, Docket No. 1 at 26.

28

cording to the Fifth Circuit, “suffices to plead a claim for prejudgment interest.” 92 Thus, to fully compensate TLS, prejudgment interest is appropriate.
In Mississippi, “a prejudgment interest rate of 8% per annum
compounded annually has been held appropriate.” 93 Defendants have not suggested an alternative rate of prejudgment
interest, and the Court concludes that 8% is an appropriate
rate. Prejudgment interest will begin with the date the suit
was first filed, less certain deductions discussed below. The
Court can and will take judicial notice of the calculations necessary for prejudgment interest. 94
In the absence of deductions, interest would have accrued
from the filing of this case on November 13, 2014 through today, August 3, 2018. Some of the time incurred in getting to
final resolution of this case, though, will be ascribed to the
Court. Specifically, Defendants will not be held responsible
for a total of 707 days that passed as this Court was considering a series of dispositive motions. 95 Equity requires no less.

92

Fed. Sav. & Loan Ins. Corp. v. Texas Real Estate Counselors, Inc., 955 F.2d
261, 270 (5th Cir. 1992); see also Perez v. Bruister, 54 F. Supp. 3d 629, 680
(S.D. Miss. 2014), aff’d as modified, 823 F.3d 250 (5th Cir. 2016).

93

Perez, 54 F. Supp. 3d at 680 (citing Legal Rate of Interest; Finance Charges,
Miss. Code Ann. § 75-17-1).

94

See id.

95

Defendants filed a Motion to Dismiss, or in the Alternative, to Stay
Proceedings on December 8, 2014. Docket No. 10. Briefing on that motion
was completed on January 16, 2015. Docket No. 16. The Court issued its
ruling on December 17, 2015. Given this period, 335 days will not be
used to calculate prejudgment interest.

29

The final prejudgment interest award is $516,945.54. 96
IV
Injunctive Relief
TLS has requested injunctive relief under the Trade Secrets
Act, which allows injunctions to protect trade secrets and prohibit use of those secrets. 97 To obtain such relief, the Supreme
Court has held that a plaintiff “must demonstrate: (1) that it
has suffered an irreparable injury; (2) that remedies available
at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity
Similarly, CPS filed a Motion for Judgment on the Pleadings on July 1,
2016. Docket No. 48. Briefing on that motion was complete on July 22,
2016, Docket No. 55, and the Court ruled on the motion on November 30,
2016, Docket No. 104. Accordingly, the Court will subtract 131 days from
the prejudgment interest period.
Finally, TLS’s Motion for Default Judgment was filed on June 2, 2017,
Docket No. 129, and briefing on that motion was completed on September 15, 2017, Docket No. 162. The Court issued its ruling on January 29,
2018, 241 days later. Docket No. 187.
96

The Court used a common formula for calculating the prejudgment interest award. That formula, based on that within Robert J. Sergesketter,
Interesting Inequities: Bringing Symmetry and Certainty to Prejudgment Interest Law in Texas, 32 HOUS. L. REV. 231, 270 n. 145 (1995), is: Principal
Amount × ((1 + Interest Rate)Number of Compounding Periods) - 1) = Prejudgment Interest Award. Applied here, that formula results in the following equation: $3,507,718.48 × ((1 + .08)((1359-707)/365)) – 1) = $516,945.54.
97

Injunctions; Protective Orders, Miss. Code Ann. § 75-26-5. The same
power lies within federal trademark law, see Injunctive Relief, 15 U.S.C. §
1116(a), and the Court’s equitable powers, see eBay Inc. v. MercExchange,
L.L.C., 547 U.S. 388, 391 (2006).

30

is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” 98
The first two requirements are met because Defendants’ misuse of TLS’s trade secrets and misrepresentations to clients
have caused “damage to the goodwill of [a plaintiff’s] customers,” which amounts to an irreparable injury in this circuit. 99
Furthermore, Defendants’ breach of their duties of confidentiality have “no cure” at law. 100 The third requirement is met
because the balance of hardships between TLS and Defendants weighs in favor of an equitable remedy. Defendants have
ample experience in tax planning services, and will be able to
profitably continue their business without utilizing TLS’s
trade secrets or misleading customers about the nature of
their services. Finally, an injunction will serve the public interest by promoting fair competition and discouraging theft
of trade secrets.101
While TLS is entitled to an injunction, its current request for
injunctive relief is overbroad. Given the nature of the default
judgment, the Court is concerned that a broad injunction
against the use of all TLS trade secrets will lead to satellite
litigation over the injunction’s applicability to specific busi-

98

Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 156–57 (2010).

99

Allied Mktg. Grp., Inc. v. CDL Mktg., Inc., 878 F.2d 806, 810 n.1 (5th Cir.
1989).

100

ITT Educ. Servs., Inc. v. Arce, 533 F.3d 342, 347 (5th Cir. 2008) (quotation marks omitted).
101

See Aspen Tech., Inc. v. M3 Tech., Inc., 569 F. App’x 259, 273 (5th Cir.
2014).

31

ness information. The Fifth Circuit has warned about overbroad injunctions in trade secrets cases, and has advised district courts to issue injunctions that “enumerat[e] the trade secrets [that a defendant is] enjoined from using.” 102 The irreparable injuries in this case stem from Defendants’ misrepresentation of their ties to TLS and their misappropriation of
TLS’s Tax Report. Injunctive relief will be narrowly tailored
to address these harms.
Therefore, pursuant to Federal Rule of Civil Procedure 65, the
Court PERMANENTLY ENJOINS Defendants, their agents,
their principals, and their affiliates from (1) using, disclosing,
transmitting, or possessing any versions or derivations of
TLS’s Tax Report and (2) linking their business activities to
TLS or otherwise misrepresenting their affiliation with TLS.
V
Attorney’s Fees
Under the Trade Secrets Act, an award for “reasonable attorney’s fees” is appropriate when “willful and malicious misappropriation exists.” 103 The Court finds that such an award
is appropriate here. However, the Court will defer entry of an
award until the completion of post-judgment fees briefing, as

102

Id.

103

Attorney’s Fees for Prevailing Party, Miss. Code Ann. § 75-26-9. Attorney’s fees are also available under: (1) Mississippi law, given the award
of punitive damages, see Fulton v. Mississippi Farm Bureau Cas. Ins. Co.,
105 So. 3d 284, 287 (Miss. 2012); (2) federal trademark law, see Recovery
for Violation of Rights, 15 U.S.C. § 1117; and (3) Illinois contract law, see
Douglas v. Dep't of Conservation of the State of Ill., 32 Ill. Ct. Cl. 113, 115
(1977).

32

“the pendency of a ruling on an award for fees and costs does
not prevent, as a general rule, the merits judgment from becoming final for purposes of appeal.” 104
VI
Conclusion
Defendants are jointly and severally liable to TLS for
$3,507,718.48 in compensatory damages, $100 in punitive
damages, and $516,945.54 in prejudgment interest, for a total
award of $4,024,764.02. Defendants, their agents, their principals, and their affiliates are enjoined as set forth above. A final
judgment in accordance with this decision will be entered this
day.
SO ORDERED, this the 3rd day of August, 2018.
s/ CARLTON W. REEVES
United States District Judge

104

Ray Haluch Gravel Co. v. Cent. Pension Fund of Int'l Union of Operating
Engineers & Participating Employers, 571 U.S. 177, 179 (2014).

33