United States District Court, E.D. Texas, Sherman Division
QUINTEL TECHNOLOGY, LTD. Plaintiff,
HUAWEI TECHNOLOGIES USA, INC., ET AL. Defendants.
Magistrate Judge, Craven
ORDER ADOPTING REPORT AND RECOMMENDATION OF THE
UNITED STATES MAGISTRATE JUDGE
L. MAZZANT, UNITED STATES DISTRICT JUDGE
for consideration the report of the United States Magistrate
Judge in this action, this matter having been referred to the
United States Magistrate Judge pursuant to 28 U.S.C. §
636. On December 13, 2017, the Magistrate Judge issued a
Report and Recommendation, recommending Defendants'
Motion for Summary Judgment on Statute of Limitations,
Preemption, and Preclusion (Dkt. #141) be granted in part and
denied in part. Specifically, the Magistrate Judge
recommended Quintel's breach of contract claim based on
failure to destroy documents and unfair competition by
misappropriation claim be dismissed with prejudice.
Otherwise, the Magistrate Judge recommended Defendants'
motion be denied.
Technology Ltd. (“Quintel”) filed objections to
the parts of the Report and Recommendation which recommend
dismissal of Quintel's breach of contract claim against
Defendants Huawei Technologies USA, Inc., FutureWei
Technologies, Inc., and Huawei Technologies Co., Ltd.'s
(collectively, “Huawei”) based on Huawei's
failure to destroy documents and Quintel's unfair
competition by misappropriation claim. Defendants filed a
response to Quintel's objections.
also filed objections to parts of the Report and
Recommendation. According to Defendants, Quintel's claims
for misappropriation of trade secrets and unjust enrichment
are time-barred, and Quintel's claims for promissory
estoppel and unjust enrichment are precluded by the existence
of a valid contract. Quintel filed a response to
Court conducts a de novo review of the Magistrate
Judge's findings and conclusions.
15, 2015, Quintel filed the above case against Huawei and
Zhengxiang Ma (together with Huawei,
“Defendants”). In its First Amended Complaint
(“FAC”) filed December 1, 2015, Quintel asserted
the following claims against Defendants: (1) breach of
contract; (2) misappropriation of trade secrets; (3) unfair
competition by misappropriation; (4) common law fraud and
fraud in the inducement; (5) promissory estoppel; (6) unjust
enrichment; (7) accounting; and (8) correction of patent
inventorship-35 U.S.C. § 256.
moved for summary judgment dismissing Quintel's claims
for misappropriation of trade secrets (Count II), unfair
competition by misappropriation (Count III), promissory
estoppel (Count V), and unjust enrichment (Count VI) in their
entirety and one of the bases for Quintel's claim for
breach of contract (Count 1). Defendants' motion raises
the following issues: statute of limitations, preclusion, and
copyright preemption. Specifically, Defendants argue the
statute of limitations on Quintel's misappropriation of
trade secrets, unfair competition by misappropriation, and
unjust enrichment claims have expired, as well as
Quintel's breach of contract claim based on alleged
failure to destroy materials. Additionally, Defendants assert
Quintel's quasi-contractual promissory estoppel and
unjust enrichment claims are precluded by Quintel's
breach of contract claim. Finally, Defendants assert
Quintel's claim of unfair competition by misappropriation
is preempted by copyright law.
December 13, 2017, the Magistrate Judge issued a Report and
Recommendation, recommending Defendants' motion be
granted as to Quintel's breach of contract claim based on
failure to destroy documents and unfair competition by
misappropriation claim. Otherwise, the Magistrate Judge
recommended Defendants' motion be denied.
regard to whether Quintel's claims for misappropriation,
unfair competition by misappropriation, and unjust enrichment
are barred by limitations, the Magistrate Judge could not
conclude as a matter of law that the discovery rule should
not apply and Quintel's claims should be barred by the
statutes of limitations. The Magistrate Judge recognized
circumstances may exist where the issuance of a patent may
suffice to place a party on constructive notice of its
injury. However, relying on Versata Software, Inc. v.
Internet Brands, Inc., 2012 WL 588790, at *1 (E.D. Tex.
Feb. 22, 2012) (J. Bryson, sitting by designation), the
Magistrate Judge held there are “countervailing
circumstances” in this case to consider, such as the
parties' non-disclosure agreement (“NDA”) and
the summary judgment evidence that Defendants reaffirmed
their good-faith dealing with Quintel (Dkt. #187 at p. 29).
The Magistrate Judge agreed with Quintel that whether the
publication of the non-provisional patent application
provided constructive notice is a question of fact to be
decided by the jury, especially given that the parties were
operating under an NDA. (Dkt. #18 7 at p. 31) (citing
Raytheon Co. v. Indigo Sys. Corp., 688 F.3d 1311,
1317-18 (Fed. Cir.2012) (reversing grant of summary judgment
on statute of limitations grounds where the district court
resolved factual questions against the plaintiff in
concluding the plaintiff “should have acquired and
disassembled the [defendant's] camera before March
to the Magistrate Judge, the summary judgment evidence also
reveals a material fact issue regarding Quintel's
assertion of fraudulent concealment. Finding a fact issue as
to when Quintel could have discovered the alleged fraud
through the exercise of reasonable diligence, the Magistrate
Judge denied Defendants' motion for summary judgment
regarding limitations as to Quintel's claims for
misappropriation, unfair competition by misappropriation, and
unjust enrichment. However, the Magistrate Judge recommended
Quintel's breach of contract claim for failure to destroy
documents be dismissed as time-barred. The Magistrate Judge
specifically noted this recommendation does not affect the
other bases of Quintel's breach of contract claim,
including that Defendants breached the NDA confidentiality
obligations (Dkt. #187 at p. 36).
preclusion of Quintel's quasi-contractual claims of
promissory estoppel and unjust enrichment, the Magistrate
Judge recommended this part of Defendants' motion be
denied at that time, specifically leaving the decision to the
undersigned as to the proper timing of dismissal of
Quintel's quasi-contractual claims (Dkt. #187 at p. 40).
Finally, the Magistrate Judge found Quintel's unfair
competition by misappropriation claim preempted by federal
copyright law and recommended that part of Defendants'
motion for summary judgment be granted (Dkt. #187 at p. 46).
filed objections to the Report and Recommendation. Defendants
object to the Magistrate Judge's finding that Defendants
are not entitled to summary judgment on statute of
limitations grounds for the misappropriation, unfair
competition by misappropriation, and unjust enrichment
claims. Specifically, Defendants assert that neither the
discovery rule nor the doctrine of fraudulent concealment can
be applied to toll the running of the statute of limitations
after May 5, 2011, and these claims are time-barred.
Defendants also object to the Magistrate Judge's
recommendation that Quintel's claims for promissory
estoppel and unjust enrichment be denied at this time.
filed objections to the parts of the Report and
Recommendation which recommend dismissal of Quintel's
breach of contract claim based on Huawei's failure to
destroy documents and Quintel's unfair competition by
misappropriation claim. Regarding the first issue, Quintel
states Section 5 of the NDA required Huawei to destroy any
Quintel confidential documents upon written request.
According to Quintel, the 2011 email chain relied upon by the
Magistrate Judge is ambiguous as to whether Huawei would
comply with Quintel's written request, and Quintel should
have an opportunity to present its evidence to the jury as to
when it should have known that Huawei breached Section 5 of
the NDA. Regarding the second issue, Quintel asserts the
Magistrate Judge erred in recommending dismissal of its
unfair competition by misappropriation claim.
judgment is appropriate when the movant is able to
demonstrate that the pleadings, affidavits, and other
evidence available to the court establish there are no
genuine issues of material fact, and the moving party is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).
The movant bears the initial burden to demonstrate the
absence of any material fact. Celotex v. Catrett,
477 U.S. 317, 332 (1986). If the movant meets that burden,
the nonmovant must point to admissible evidence demonstrating
there is a genuine issue for trial. Fed.R.Civ.P. 56(e). In
assessing the proof, the court views the evidence in the
light most favorable to the nonmovant. Matshusita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).
Quintel's claims for misappropriation, unfair
competition, and unjust enrichment are barred by
Court first considers whether the Magistrate Judge erred in
finding Defendants are not entitled to summary judgment on
statute of limitations grounds regarding Quintel's claims
for misappropriation, unfair competition by misappropriation,
and unjust enrichment. In Texas, the statute of limitations
is three years for misappropriation of trade secrets and
unfair competition. Tex. Civ. Prac. & Rem. Code §
16.010. The statute of limitations for unjust enrichment
claims is two years. Target Strike, Inc. v. Marston &
Marston, Inc., 524 F. App'x 939, 944 n.7 (5th Cir.
patent applications were filed on May 5, 2011, and Quintel
filed this lawsuit on May 5, 2015, four years to the date of
filing. Defendants contend publication of the patent
application disclosed reliance on the provisional
application, which included a Quintel slide as part of the
submission, and put Quintel, a sophisticated patent
applicant, on constructive notice of its claims as of May 5,
2011. Quintel argues the discovery rule and fraudulent
concealment toll the statutes of limitations. As noted above,
Defendants assert that neither the discovery rule nor the
doctrine of fraudulent concealment can be applied to toll the
running of the statute of limitations after May 5, 2011, and
these claims are time-barred.
Texas law, “the party asserting a limitations defense
bears the burden of proof to not only establish the
applicability of the limitations statute, but also prove when
the opponent's cause of action accrued in order to
demonstrate the bar of limitations.” Hernandez v.
Frazier, No. CV SA-l1-CV-9-DAE, 2014 WL 1390887, at *3
(W.D. Tex. Apr. 9, 2014) (citing Intermedics v.
Grady, 683 S.W.2d 842, 845 (Tex. App. 1984)).
“‘Generally, a cause of action accrues, and the
statute of limitations begins to run, when facts come into
existence that authorize a claimant to seek a judicial
remedy.'” Dell Computer Corp. v.
Rodriguez, 390 F.3d 377, 389 (5th Cir. 2004) (quoting
Willis v. Donnelly, 118 S.W.3d 10, 28 (Tex.
App.-Hous. [14 Dist.] 2003, no pet.) (citing Johnson
& Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962
S.W.2d 507, 514 (Tex. 1998))). Stated differently, a claim
accrues and the limitations period begins to run “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, 3 (Tex.1996).
under the Texas discovery rule, the limitations period does
not begin to run “until the plaintiff knew or,
exercising reasonable diligence, should have known
of the facts giving rise to a cause of action.”
Target Strike, 524 F. App'x at 944 (emphasis in
original) (quoting HECI Exploration Co. v. Neel, 982
S.W.2d 881, 886 (Tex.1998)). “The Texas Supreme Court
has sought to limit the application of the discovery rule
and, to that end, has stated that it should only apply where
the nature of the injury is inherently undiscoverable and
where the injury itself is objectively
verifiable.” Target Strike, 524 F.
App'x at 944 (citing HECI, 982 S.W.2d at 886).
Texas law, fraudulent concealment is an equitable doctrine
that tolls the statute of limitations. Seatrax, Inc. v.
Sonbeck Int'l, Inc., 200 F.3d 358, 366 (5th Cir.
2000). “Where a defendant is under a duty to make
disclosure but fraudulently conceals the existence of a cause
of action from the party to whom it belongs, the defendant is
estopped from relying on the statute of limitations until the
party learns of the right of action or should have learned
thereof through the exercise of reasonable diligence.”
Id. (quoting Borderlon v. Peck, 661 S.W.2d
907, 908 (Tex. 1983)). Mere concealment is insufficient to
establish fraudulent concealment. See In the Matterof Placid Oil Co.,932 F.2d 394, 399 (5th Cir.
1991). Thus, there must have been a duty, on Defendants'
part, to disclose their alleged acts of misappropriation. The
party asserting the fraudulent concealment defense to the
statute of limitations bears the burden of showing that the