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USM Judgment Vacated: Tucker Act Forces Move of Trade Secrets Case to Court of Federal Claims

Commentary Federal Circuit Comment First Amendment
United States Marine, Inc. v. United States By Jonathan Sapp – Edited by Elise Young United States Marine Inc. v. United States, No. 12-1678 (Fed. Cir. July 15, 2013) Slip opinion hosted at [caption id="attachment_3578" align="alignleft" width="150"] Photo By: Blatant World - CC BY 2.0[/caption] The U.S. Court of Appeals for the Federal Circuit affirmed the Fifth Circuit’s ruling, thus transferring the defense contractor’s trade secrets claim to the Court of Federal Claims. In affirming the Fifth Circuit ruling, the court determined that the plaintiff’s case was predicated on a breach of contract — not torts — claim and thus relied on the Tucker Act, which provides the Court of Federal Claims with “exclusive jurisdiction over a claim ‘founded . . . upon any express or implied contract with the United States . . . .’” United States Marine Inc. v. United States (hereinafter “USM”), No. 12-1678 at 11 (Fed. Cir. July 15, 2013) (quoting 28 U.S.C. § 1491(a)(1)). The Trade Secrets Vault provides an overview of the case. Bloomberg BNA provides a thorough analysis of the Federal Circuit’s rationale. PubKLaw criticized the Fifth Circuit decision and expressed concern over whether it would be affirmed, stating that it “runs counter to a long-standing body of law that allows even parties to a government contract to assert tort claims for misconduct that goes beyond their contractual relationship.” In the early 1990s, United States Marine, Inc. (“USM”) and VT Halter worked together to design a special-operations craft for the U.S. military. The craft, called the “Mark V”, was developed for possible contracts with the U.S. Navy. In 1994, the Navy selected the prototype for construction and granted VT Halter a production contract. VT Halter stamped their design drawings with a “Limited Rights Legend” that invoked Defense Federal Acquisition Regulations Supplement § 252.227-7013 “which states limitations on the government’s use and outside disclosure of certain information.” Id. at 3. However, from 2004 to 2006 the Navy provided detailed design drawings of the “Mark V” to other development firms to improve the handling of the craft. Upon discovery of the design disclosure by the Navy, USM followed steps under the Federal Tort Claims Act (“FTCA”) to file suit against the United States for “misappropriation of trade secrets.” Id. at 4–5. The Eastern District Court of Louisiana issued a judgment of $1.45 million in damages for USM. The court determined that “[b]oth the contractual provision and limited rights legends were sufficient notification to the government that disclosure of the [Mark V] design would violate a duty to its owners.” U.S. Marine, Inc. v. United States, No. 08-2571, 2010 WL 1403958 at *6 (E.D. La. April 1, 2010). The United States appealed the damages award and challenged the district court’s jurisdiction. The Fifth Circuit vacated the district court’s judgment and remanded the case for transfer to the Claims Court. United States Marine, Inc. v. United States, No. 11-301777 at 1 (5th Cir. 2012). The Fifth Circuit reasoned that the plaintiff’s claims actually stemmed from a breach of contract dispute, over which the Claims Court has exclusive jurisdiction because under the Tucker Act district courts may not interpret federal contracts. The Fifth Circuit’s reasoning was based in part on a line of cases that have found Claims Court jurisdiction where the plaintiff’s tort claim — like trade secret misappropriation — is inextricably entwined with a contract-breach claim. USM, No. 12-1678 at 15. Since the Fifth Circuit’s rationale was plausible and thus passed the standard of review, the Federal Circuit’s primary concern was whether USM would have a “meaningful remedy in the Claims Court . . . .” Id. at 23–25. The court concluded that USM would indeed have access to a remedy in Claims Court because (a) the argument for the Claim’s Court’s jurisdiction legally grants the parties the right to make contract claims and (b) the parties could also recover under the Fifth Amendment Takings Clause. Id. at 24–25. The Federal Circuit’s affirmation of the Fifth Circuit’s ruling is significant because it solidifies the categorization and exclusive jurisdiction of federal tort and breach of contract claims. The court stated that it is “the tribunal doing the construing, not the law governing the construction, that clearly distinguishes an FTCA action . . . from a Tucker Act action . . . .” Id. at 13. Further, the court’s affirmation increases the burden on parties bringing suit against the United States because they must carefully scrutinize the basis of their claim to determine the appropriate court of jurisdiction.