In Dunster Live, LLC v. LoneStar Logos Mgmt. Co., LLC, 17-50873, 2018 WL 5916486 (5th Cir. Nov. 13, 2018), the United States Court of Appeals for the Fifth Circuit recently dealt a blow to parties seeking to recover attorneys’ fees under the fee shifting provision of the Defend Trade Secrets Act (“DTSA”). In the underlying case, plaintiff sued defendants, a competitor company and its owner who was formerly a member of the same LLC, for winning state contracts to construct and install road signs formerly held by the LLC after purportedly stealing proprietary software in violation of the DTSA. Defendant spent over $600,000 in out-of-pocket litigation costs defending against this “baseless” lawsuit and ultimately plaintiff agreed to voluntarily dismiss the case without prejudice. Defendant moved for attorneys’ fees under § 1836(b)(3)(D) of the DTSA which states “[a court may] award reasonable attorney’s fees to the prevailing party” where “a claim of… misappropriation is made in bad faith.” The District Court refused to award fees, and the Fifth Circuit agreed, finding where a party is free to refile a case, there is no material change in the “legal relationship of the parties,” and therefore no prevailing party. Id. at *1 (citing Buchananon Bd. and Care Home, Inc. v. W.V. Dept.of Health and Human Res. 532 U.S. 598, 604 (2001)). The Fifth Circuit reasoned “[any] dismissal without prejudice thus does not make any party a prevailing one.” Id.
LoneStar provides a few lessons for other DTSA defendants, namely that securing a voluntary dismissal without prejudice may not be enough to warrant fee shifting and encouraging them to pursue other independent bases for protection beyond the DTSA including Fed. R. Civ. P. 41 which permits a court to refuse to grant a motion to dismiss that was made in bad faith and Fed. R. Civ. P. 11 which permits sanctions for violations of pleading standards which would apply regardless of whether the defendant “prevail[ed].” Id.
It remains to be seen how other circuits will interpret this DTSA provision.