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Airfacts, Inc. v. Amezaga

United States Court of Appeals, Fourth Circuit

November 20, 2018

AIRFACTS, INC., Plaintiff - Appellant,
v.
DIEGO DE AMEZAGA, Defendant-Appellee.

          Argued: September 27, 2018

          Appeal from the United States District Court for the District of Maryland, at Greenbelt. Deborah K. Chasanow, Senior District Judge. (8:15-cv-01489-DKC)

          Nicholas Hantzes, HANTZES & ASSOCIATES, McLean, Virginia, for Appellant.

          Jerry R. Goldstein, JERRY R. GOLDSTEIN, P.C., Silver Spring, Maryland, for Appellee.

          Before AGEE and FLOYD, Circuit Judges, and John A. GIBNEY, Jr., United States District Judge for the Eastern District of Virginia, sitting by designation.

          AGEE, Circuit Judge:

         AirFacts, Inc. ("AirFacts") appeals from the district court's judgment after a bench trial in favor of Diego de Amezaga on AirFacts' breach of contract and misappropriation of trade secrets claims. AirFacts, Inc. v. de Amezaga, No. DKC 15-1489, 2017 WL 3592440 (D. Md. Aug. 21, 2017). For the following reasons, we affirm the judgment in part, vacate it in part, and remand to the district court for further proceedings consistent with this opinion.

         I.

         A.

         Diego de Amezaga worked for AirFacts, a developer and licenser of revenue accounting software, from 2008 to 2015. AirFacts' primary product is TicketGuard, an auditing software that analyzes ticket fares for airlines and travel agencies to ensure tickets are sold for the appropriate price. TicketGuard's algorithms compare a ticket price to commissions, taxes, and airline industry rules like those collected by the Airline Tariff Publishing Company ("ATPCO").[1] An AirFacts employee conducts an automated audit by inputting ticket data into TicketGuard, running the software, and recording the ticket's proper price. If that price differs from the price for which the ticket sold, AirFacts issues a debit memo to the airline or travel agency that sold the ticket, and the airline or travel agency under audit handles the refund process. AirFacts also audits ticket refunds for airlines and travel agencies, but it does not process ticket refunds for them.

         At AirFacts, Mr. de Amezaga rose from a product development analyst to a director responsible for managing programmers and coders, developing analytical software, and managing client relationships. He worked under an Employment Agreement with AirFacts ("Agreement"), two paragraphs of which are at issue here. First, Paragraph 4.2 required Mr. de Amezaga to return all AirFacts property, including documents, upon leaving the company:

Upon termination of his engagement with AirFacts for any reason, the Employee shall promptly deliver to AirFacts all equipment, computer software, drawings, manuals, letters, notes, notebooks, reports, and all other material and records of any kind, and all copies thereof (including copies on written media, magnetic storage or other computer storage media), that may be in the possession of, or under the control of, the Employee, pertaining to Confidential Information acquired and Inventions developed by the Employee during the term of his engagement with AirFacts. The Employee further agrees to fully disclose and deliver any of the above described materials in his possession and, at AirFacts's request, execute, upon his own (or his counsel's) review, any and all documents reasonably necessary to ensure and verify compliance with the terms of the Agreement.

J.A. 1213. On February 6, 2015, Mr. de Amezaga gave AirFacts his notice of resignation. Before he departed the company, Mr. de Amezaga's supervisors informed him that they might contact him if they had questions about his work after he left. On February 13, Mr. de Amezaga's final day at AirFacts, he emailed a spreadsheet outlining a proration framework and a database model (collectively, "Proration Documents"), both relating to AirFacts' upcoming proration software product, to his personal email account.[2]

         Prior to the end of his employment with AirFacts, the company had allowed Mr. de Amezaga and "a few" other employees to set up Lucidchart accounts to store and access company documents. J.A. 830. Lucidchart is an online document storage provider.

         About a month after his AirFacts employment ended, Mr. de Amezaga used his AirFacts employee credentials to remotely log in to his AirFacts account on Lucidchart. From the Lucidchart account, Mr. de Amezaga downloaded two flowcharts displaying ticket price rules derived from the ATPCO and its Fare By Rule system ("Flowcharts"). Mr. de Amezaga had spent about four months at AirFacts creating the Flowcharts to display the rules, relevant processing information, and "things from [his] head" to make auditing tickets more systematic and easier for AirFacts employees. J.A. 827. After downloading the Flowcharts, he submitted them as a part of his job application to a travel agency. Except as noted, Mr. de Amezaga never accessed the Proration Documents or Flowcharts or disclosed them to anyone. AirFacts claims Mr. de Amezaga breached Paragraph 4.2 by retaining these documents after he resigned and misappropriated AirFacts' trade secrets by sending the Flowcharts to the travel agency.[3]

          The second paragraph of the Agreement at issue, Paragraph 8.1, imposed a non-compete restriction on Mr. de Amezaga's employment for a year after he left AirFacts. In Paragraph 8.1, Mr. de Amezaga agreed not to

(d) [p]erform services for, own, work for, consult, be employed by, or become financially interested in any the [sic] employer's customers (as defined below) unless the services being performed is [sic] not in competition with, or similar to, either (i) the services or products provided by the employer during the term of the employee's employment or (ii) anticipated services or products of the employer of which the employee has material knowledge.

J.A. 1213. In 2014, American Airlines ("American") obtained a license from AirFacts to use TicketGuard as part of American's in-house ticket auditing process. American's Travel Agency Audit department audits domestic flight tickets sold by travel agencies and is the only department at American that uses TicketGuard.

         Three months after leaving AirFacts, Mr. de Amezaga began working at American in the Refunds department, but only after he informed his future supervisors of the Agreement and its prohibitions on the types of work he could perform. American assured AirFacts that Mr. de Amezaga's work would not violate the Agreement and informed Mr. de Amezaga's new coworkers of his legal obligations to AirFacts.[4] At American, Mr. de Amezaga manages approximately 100 ticket refund employees whose task is to process ticket refunds directly to passengers. When passengers seek refunds directly from American, the airline uses proprietary software to analyze tickets under industry fare rules and then issues refunds to passengers when appropriate. On one occasion, Mr. de Amezaga helped American's Travel Agency Audit department process a backlog of international flight ticket refunds. AirFacts contends Mr. de Amezaga has breached the Agreement through his work at American.

         AirFacts also alleges Mr. de Amezaga breached the Agreement's restriction on providing services which are similar to AirFacts' anticipated products. Specifically, while at AirFacts, Mr. de Amezaga helped to develop customized proration software for airlines. Proration occurs when a passenger buys a multi-airline ticket for a trip and the ticket revenue must be prorated among each airline pursuant to negotiated airline agreements and industry standards. AirFacts developed its proration product to help an airline recoup the revenue due for its leg of the trip. Mr. de Amezaga helped to develop and market the proration software to American and Alaska Airlines ("Alaska"), but only Alaska purchased the customized product. Although the software was unfinished when Mr. de Amezaga left, he spent about fifty percent of his final months at AirFacts working on the proration product.

         Since joining American, Mr. de Amezaga has, among his duties, attended weekly staff meetings that included senior employees of American's Proration department, received intra-company emails addressed to him as well as Proration department employees, and coordinated between the Revenue Accounting department (the Refunds department's parent) and the Proration department on an accounting project. AirFacts claims Mr. de Amezaga's interaction with American's Proration department employees constitutes a breach of the Agreement in light of his intimate prior knowledge of the proration software AirFacts was developing when he resigned.

         B.

         AirFacts sued Mr. de Amezaga in the District of Maryland[5] for breach of contract under Paragraphs 4.2 and 8.1 of the Agreement (Count One); misappropriation of trade secrets under the Maryland Uniform Trade Secrets Act ("MUTSA") (Count Two); and conversion (Count Three). AirFacts also sought injunctive relief to protect the documents Mr. de Amezaga took, and the district court entered a temporary restraining order prohibiting Mr. de Amezaga from destroying any AirFacts documents. Later, the Parties consented to a preliminary injunction requiring Mr. de Amezaga to return all AirFacts documents and allowing AirFacts to forensically search his electronic devices. The forensic searches confirmed that Mr. de Amezaga did retain the documents integral to the claims on appeal after his termination of employment with AirFacts.

         The court held a five-day bench trial during which AirFacts abandoned its conversion claim, admitting that it "ha[d]n't been able to establish" that Mr. de Amezaga deprived AirFacts of any documents. J.A. 1010; see 2017 WL 3592440, at *3. In its memorandum opinion, the court concluded that AirFacts had also abandoned its Paragraph 4.2 breach of contract claim. The court thus analyzed Count One only as to Paragraph 8.1 of the Agreement and found that Mr. de Amezaga's work at American was neither similar to AirFacts' work nor in competition with AirFacts' proration product. On Count Two, the court found that the Flowcharts contained public information and were widely available to AirFacts' employees, and it concluded those documents were not trade secrets under the MUTSA. And while the court held the Proration Documents were MUTSA trade secrets, the court found that Mr. de Amezaga did not misappropriate those documents because he accessed them with authorization while he was an AirFacts employee. Consequently, the court entered judgment for Mr. de Amezaga on all counts. AirFacts timely appealed, and this Court has jurisdiction under 28 U.S.C. § 1291.

         II.

         "We review a judgment following a bench trial under a mixed standard of review-factual findings may be reversed only if clearly erroneous, while conclusions of law . . . are examined de novo." Roanoke Cement ...


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