Company being sued by New Orleans firm over distribution of confidential documents wins partial battle in court

By Charmaine Little | May 21, 2018

NEW ORLEANS – An Iowa-based bonding company that allegedly distributed confidential information during a training session had several counts against it in suit filed by a New Orleans-based company dismissed according to a May 7 opinion with the U.S. District Court for the Eastern District of Louisiana.

NEW ORLEANS – An Iowa-based bonding company that allegedly distributed confidential information during a training session had several counts against it in suit filed by a New Orleans-based company dismissed according to a May 7 opinion with the U.S. District Court for the Eastern District of Louisiana.

The court also denied other motions by Merchants Bonding Co. (Merchants) to dismiss several counts in a nine-count suit brought by New Orleans-based Frischhertz Electric Co. (Frischhertz).

The suit filed by Frischhertz alleged Merchants distributed Frischhertz’s confidential financial information during a training session that included 50 trainees and more than 25 surety organizations and outside lawyers.

Frischhertz's lawsuit against Merchant alleged “1)negligence/breach of privacy; 2) violation of Louisiana Unfair Trade Practices and Consumer Protection Law (LUPTA); 3) negligent misrepresentation; 4) negligent hiring; 5) breach of duty of reasonable care, diligence, and judgment under Iowa law; 6) misappropriation under the Iowa Uniform Trade Secrets Act; 7) misappropriation under the Texas Uniform Trade Secrets Act; 8) violation of the Texas Deceptive Trade practices Act; and 9) breach of contract.

Merchants asked the court to dismiss all but one of the claims. The court dismissed counts 3, 4 and 5, but denied Merchants' request to dismiss counts 2, 6, 7, 8, and 9.

Regarding Count 2, Frischhertz alleged Merchants acted fraudulently under LUTPA regulations. Merchants argued that because it is an insurance company under the Iowa and Louisiana commissioners of insurance, it is relieved of LUPTA policies. The court disagreed and pointed out Merchants and Frischhertz business relationship was not in the realm of insurance as it was concerning a surety application, and that Merchants consistently said Frischhertz was never its client. The court denied the motion to dismiss this count.

Considering Count 3 of negligent misrepresentation, the court granted Merchants' request as Frischhertz could not provide sufficient evidence to prove the defendant committed this act.

The court went on to dismiss Count 4, pointing out the injuries Frischhertz said it experienced are not related to negligent hiring.

The court also dismissed Count 5, the claim of Merchants’ “breach of duty of reasonable care, diligence and judgment.” The court reiterated Frischhertz and the defendant’s working relationship was not in the “business of insurance.”

The court denied Merchants' motion to dismiss Count 6, concerning claims the distribution of the documents was a violation of trade secrets under the IUTSA. Frischhertz claimed the documents were considered trade secrets and Merchants was provided with the information confidentially. While Merchants said it was not aware of the confidentiality of the documents, considering it received the information from a third party, the court agreed with Frischhertz on this count.

It also agreed with Frischhertz regarding Count 7, misappropriation under Texas Uniform Trade Secrets Act (TUTSA). Considering the court agreed the plaintiff’s documents were trade secrets, it also agreed Merchants misappropriated trade secrets as described by TUTSA and denied the Merchants' motion to dismiss.

The court also refused to dismiss Count 8, violation of Texas Deceptive Trade Practices Act (DTPA. Frischhertz claimed Merchants’ “concealment, suppression, or omission of material facts as alleged herein constitute unfair, deceptive, and fraudulent business practices within the meaning of the DTPA.” 

The court also ruled in favor of Frischhertz and did not dismiss Count 9, breach of contract. Frischhertz claimed it was a third-party under an agreement between Merchants and Eustis Insurance Inc., an insurance company that Frischhertz had contacted for a consultation. The court said Merchants violated that contract when it shared confidential documents provided by Eustis at the training. Though the court stated there was no confidentiality provision in the contract, the court denied the motion to dismiss this count.

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