Schwan's Company v. Cai
- John Tunheim
- 0:20-cv-02157
- U.S. District Court · District of Minnesota
- 17
In Schwan’s Company v. Cai, Judge Tunheim granted Schwan’s motion to dismiss Conagra’s counterclaim for attorney’s fees.
Conagra Brands’ counterclaim for attorney’s fees was dismissed; Schwan’s obtained the ruling on its motion, while the underlying trade-secret litigation continued according to the opinion.
What happened
Schwan’s Company and Schwan’s Shared Services sued Rongxuan Cai and Conagra Brands over alleged misuse of Schwan’s trade secrets. Conagra responded with a counterclaim seeking attorney’s fees under a Minnesota trade-secrets statute, alleging that Schwan’s brought its claims in bad faith.
The court ruled that the statute does not allow this fee request to be brought as a counterclaim while the case is still ongoing. The court also said that, even if the counterclaim were allowed, Conagra had not alleged enough facts to plausibly show that Schwan’s acted in bad faith.
Judge John R. Tunheim granted Schwan’s motion to dismiss Conagra’s counterclaim. The court said Conagra may seek fees later through a motion if it becomes the prevailing party.
The detailed version
- Schwan's Company v. Cai · No. 0:20-cv-02157
- John Tunheim
- Jan. 12, 2023
Background
Schwan’s brought an action alleging that Rongxuan Cai, a former Schwan’s research scientist, and Conagra Brands misappropriated Schwan’s confidential information and trade secrets. Conagra later filed a counterclaim against Schwan’s under Minn. Stat. § 325C.04. That statute permits a court to award reasonable attorney’s fees to the prevailing party if a trade-secret-misappropriation claim was made in bad faith. Conagra sought attorney’s fees, costs, and other appropriate relief.
Schwan’s moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a pleading does not state a legally sufficient claim. Schwan’s argued that section 325C.04 does not create a cause of action that can be asserted as a counterclaim and that Conagra had not pleaded facts sufficient to show bad faith.
Court’s Analysis
The court treated the issue as one of first impression under Minnesota law. It concluded that the statute’s reference to fees for the “prevailing party” indicates that the fee issue should be addressed after the litigation determines which party prevailed. The court also relied on the statute’s fee-shifting purpose and decisions handling similar fee requests, which supported seeking fees through a later motion rather than through a counterclaim during the ongoing case.
The court alternatively held that Conagra failed to state a plausible bad-faith claim. The court explained that bad faith requires both objective speciousness—an absence of evidence supporting the trade-secret claim—and subjective misconduct in bringing or maintaining the claim. The court found objective speciousness lacking because Schwan’s had a sworn admission from Cai that he used Schwan’s confidential information in the course of his work at Conagra. The court also found that Conagra identified no relevant litigation conduct by Schwan’s showing subjective bad faith, and that Conagra’s conclusory assertion that the action was meritless was insufficient.
Disposition
The court granted Schwan’s Motion to Dismiss [Docket No. 211]. The ruling dismissed Conagra’s counterclaim for attorney’s fees under Minn. Stat. § 325C.04. The court stated that Conagra may assert the fee request in a later motion at the appropriate time if Conagra is determined to be the prevailing party.
Read the full 17-page opinion on CourtListener, the free public archive maintained by the Free Law Project.