Case: 24-60155 Document: 89-1 Page: 1 Date Filed: 02/03/2025
United States Court of Appeals
for the Fifth Circuit
____________ United States Court of Appeals
Fifth Circuit
No. 24-60155
FILED
February 3, 2025
____________
Lyle W. Cayce
Pie Development, L.L.C., Clerk
Plaintiff—Appellant,
versus
Pie Carrier Holdings, Incorporated; Gallatin Point
Capital, L.L.C.; SiriusPoint, Limited; Pie Casualty
Insurance Company; Pie Insurance Holdings,
Incorporated; Pie Insurance Services, Incorporated;
Dax Craig; John Swigart,
Defendants—Appellees.
______________________________
Appeal from the United States District Court
for the Southern District of Mississippi
USDC No. 3:23-CV-34
______________________________
Before Higginbotham, Willett, and Ho, Circuit Judges.
Per Curiam:
This case concerns the application of res judicata to a lawsuit alleging
violations of federal and Mississippi trade secrets laws. We hold that res
judicata applies and AFFIRM.
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I
Pie Development, L.L.C. was formed to develop an application that
would streamline the process for purchasing workers compensation
insurance. Pie Development claims that Dax Craig, a consultant who worked
with Pie Development’s parent company, stole the idea for the app and
shared it with his colleague John Swigart. Craig and Swigart then used the
idea to create Pie Insurance Holdings, Inc. and various affiliate entities,
earning them millions of dollars.
Pie Development sued Craig, Swigart, Pie Insurance Holdings, and
affiliate Pie Insurance Services. The complaint alleged misappropriation of
trade secrets under the Mississippi Uniform Trade Secrets Act (MUTSA)
and the federal Defend Trade Secrets Act (DTSA), unlawful interference
with business relations, unjust enrichment, and civil conspiracy. Pie
Development, LLC v. Pie Insurance Holdings, Inc. (Pie I), 2021 WL 3206043, at
*3–12 (S.D. Miss. July 21, 2021). The defendants moved to dismiss, and the
district court granted the motion, finding that the complaint failed to set forth
sufficient detail on each of the claims. Id. at *12. The district court dismissed
the claims without prejudice and ordered that “PieDev shall file its Amended
Complaint, if any, within thirty (30) days of the entry of this order.” Id.
Pie Development declined the opportunity to amend its complaint and
instead appealed the district court decision. See Pie Development, L.L.C. v. Pie
Insurance Holdings, Inc. (Pie I), 2023 WL 2707184 (5th Cir. March 30, 2023).
We affirmed, holding that “Pie Development did not sufficiently plead that
it took reasonable measures to protect the secrecy of its business plan, and its
other claims hinge on the misappropriation.” Id. at *1. We also denied Pie
Development’s request in the alternative for leave to file an amended
complaint, stating:
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The district court gave Pie Development thirty days to amend
its complaint when granting the motion to dismiss. The district
court’s twenty-three-page opinion provided a roadmap for
curing the deficiencies in Pie Development’s complaint and
surviving a motion to dismiss. Pie Development declined to
amend, instead filing this appeal, and now asks us to grant leave
to amend. “A party who neglects to ask the district court for
leave to amend cannot expect to receive such a dispensation
from the court of appeals.” For this reason, we deny the
request to amend.
Id. at *3 (citation omitted).
While the Pie I appeal was pending, Pie Development filed a separate
action in the district court, this time against Pie Carrier Holdings,
Incorporated, Gallatin Point Capital, LLC, Sirius Point Ltd., and Pie
Casualty Insurance Company (Pie II). Ten days after we dismissed the claims
in Pie I on appeal, Pie Development amended the Pie II complaint to add
Craig, Swigart, Pie Insurance Holdings, and Pie Insurance Services—the
defendants in Pie I—as defendants in Pie II. The Pie II complaint alleged the
exact same claims as the Pie I complaint: misappropriation of trade secrets
under the MUTSA and DTSA, unlawful interference with business
relations, unjust enrichment, and civil conspiracy.
The Pie Defendants (Pie Insurance Holdings, Pie Insurance Services,
Craig, Swigart, Pie Carrier, and Pie Casualty), moved to dismiss on the
grounds that Pie Development’s claims were decided in Pie I and thus barred
by res judicata. Gallatin and Sirius separately moved to dismiss for failure to
state a claim. The district court granted both motions. Pie Development
timely appealed.
II
“We review de novo a dismissal under Rule 12(b)(6).” Moon v. City of
El Paso, 906 F.3d 352, 357 (5th Cir. 2018). “To survive a [12(b)(6)] motion
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to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544,
570 (2007)).
III
A
We first address whether the district court erred in dismissing the
claims against the Pie Defendants on the basis of res judicata.
As an initial matter, Pie Development argues, quoting Anderson v.
Wells Fargo Bank, N.A., that the district court erred in analyzing res judicata
at the motion to dismiss stage. See 953 F.3d 311, 314 (5th Cir. 2020).
However, “[a]lthough res judicata generally cannot be raised in a motion to
dismiss and should instead ‘be pleaded as an affirmative defense,’ dismissal
under Rule 12(b)(6) is appropriate if the res judicata bar is apparent from the
complaint and judicially noticed facts and the plaintiff fails to challenge the
defendant’s failure to plead it as an affirmative defense.”
Id. (citing Test
Masters Educ. Sevs., Inc. v. Singh,
428 F.3d 555, 570 n.2 (5th Cir. 2005)). So,
under Anderson, it was appropriate for the district court to take “judicial
notice of the previous judgments and opinion, matters of public record that
were attached to the motion to dismiss” and find that res judicata applied at
the motion to dismiss stage.
Id.
Pie Development argues that this case differs from Anderson because
it challenged the Pie Defendants’ failure to plead res judicata as an
affirmative defense. See id. However, while true that the plaintiffs in Anderson
and Test Masters both failed to challenge the defendant’s failure to plead res
judicata as an affirmative defense, we have never held that a plaintiff’s failure
to challenge is required for courts to apply res judicata at the motion to dismiss
stage. Rather, we have held that courts may sua sponte address res judicata
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at the motion to dismiss stage “where all of the relevant facts are contained
in the record . . . and all are uncontroverted.” McIntyre v. Ben E. Keith Co.,
754 Fed. App’x 262, 265 (5th Cir. 2018) (quoting Mowbray v. Cameron Cty.,
274 F.3d 269, 281 (5th Cir. 2001)); see also Larter & Sons v. Dinkler Hotels
Co.,
199 F.2d 854, 854 (5th Cir. 1952) (For “a specific affirmative defense
such as res judicata, the rule seems to be that if the facts are admitted or are
not controverted or are conclusively established so that nothing further can
be developed by a trial of the issue, the matter may be disposed of upon a
motion to dismiss whether the decision of the District Court be considered
as having been arrived at under the provisions of Rule 12(b)(6) or Rule
56(c).”); Dean v. Teeuwissen,
479 F. App’x 629, 631 (5th Cir. 2012) (affirming
12(b)(6) dismissal on res judicata grounds without reference to whether
plaintiff challenged defendant’s failure to plead it as affirmative defense); 5B
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357
n.103 (4th ed. 2024) (collecting cases where res judicata was decided at
motion to dismiss stage). And, in fact, if “all relevant data and legal records
are before the court,” “the demands of comity, continuity in the law, and
essential justice mandate judicial invocation of the principles of res judicata.”
Carbonell v. Louisiana Dep’t of Health & Hum. Res.,
772 F.2d 185, 189 (5th
Cir. 1985) (emphasis added).
Because all the relevant facts are before us and not in dispute, analysis
of res judicata at the Rule 12(b)(6) stage is appropriate here.
“Under res judicata, a final judgment on the merits of an action
precludes the parties or their privies from relitigating issues that were or
could have been raised in that action.” Allen v. McCurry, 449 U.S. 90, 94
(1980). Res judicata bars an action when four elements are met:
(1) the parties are identical or in privity; (2) the judgment in the
prior action was rendered by a court of competent jurisdiction;
(3) the prior action was concluded by a final judgment on the
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merits; and (4) the same claim or cause of action was involved
in both actions.
Houston Pro. Towing Ass’n v. City of Houston, 812 F.3d 443, 447 (5th Cir.
2016) (quotation omitted).
In this appeal, the parties dispute only the third element. The issue
before us is thus whether Pie I concluded with a final judgment on the merits.
We hold that it did, and res judicata applies to bar this action.
The judgment dismissing the claims in Pie I without prejudice was
indisputably final. Pie Development admitted as much when it appealed that
judgment, expressly invoking our appellate jurisdiction from “final decisions
of the district courts of the United States.” 28 U.S.C. § 1291 (emphasis
added). See Mitchell v. Goings,
37 F.4th 169, 172 (5th Cir. 2022) (“[T]he
dismissal of an action—whether with or without prejudice—is final and
appealable.” (quotation omitted)); Covey v. Ocwen Loan Servicing, Inc., 574
Fed. App’x 421, 422 n.1 (5th Cir. 2014) (holding that, even before the district
court issued a final judgment, its dismissal with leave to amend constituted a
“final decision” for purposes of
28 U.S.C. § 1291).
Notwithstanding the clear finality of Pie I, Pie Development argues
that Pie I cannot be a final judgment for res judicata purposes because, as a
dismissal without prejudice, it was not a final judgment on the merits. It is true
that dismissals without prejudice are not typically considered decisions on
the merits. See Semtek Intern. Inc. v. Lockheed Martin Corp., 531 U.S. 497, 505–
06 (2001) (“[A]n adjudication upon the merits is the opposite of a dismissal
without prejudice” and “does not bar the plaintiff from refiling the lawsuit.”
(quotations omitted)); Rolls-Royce Corp. v. Heros, Inc.,
576 F. Supp. 2d 765,
775–76 (N.D. Tex. 2008) (holding res judicata did not apply since prior court
“did not adjudicate the case on the merits because the dismissal was without
prejudice” and collecting cases from other circuits).
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But an important distinction exists here: After the district court
dismissed the Pie I claims without prejudice, Pie Development declined the
opportunity to amend its complaint in the district court and chose instead to
appeal. Although we have not directly addressed the application of res
judicata in these unique circumstances, our caselaw suggests that there is a
final judgment on the merits in such a case. When a prior action is dismissed
without prejudice and the plaintiff, declining the opportunity to amend the
complaint, appeals, the dismissal without prejudice converts to a dismissal
with prejudice and constitutes a final judgment on the merits for res judicata
purposes.
Res judicata applies when litigants have either “failed to persuade a
tribunal of the merit of their claims or . . . [have] slept on their rights.” Nilsen
v. City of Moss Point, 674 F.2d 379, 384–85 (5th Cir. 1982). Stated differently,
res judicata applies to “the litigant who has already asserted the arguments
he wishes to assert and has received an adverse judgment or the litigant who
failed to assert the arguments when he should have done so.”
Id. at 385 (emphasis
added).
This case falls squarely within that standard. Although Pie
Development never received a ruling from a tribunal on the merits of its
claims, it “slept on [its] rights” to receive one by choosing not to amend its
complaint at the district court level. See Pie I, 2023 WL 2707184 at *3 (on
appeal, denying leave to amend because Pie Development declined to amend
at the district court). Because Pie Development “failed to assert the
arguments when [it] should have done so”—that is, when the district court
provided the opportunity to amend—the dismissal without prejudice in Pie I
became a final judgment on the merits, and res judicata applies to bar the
present action. Nilsen,
674 F.2d at 385; see also Smith v. Sec. of Veterans
Affairs,
808 F. App’x 852, 854 (11th Cir. 2020) (holding there was a final
judgment on the merits for res judicata purposes “despite the fact that
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[plaintiff’s] prior case was dismissed without prejudice . . . because [plaintiff]
waived her right to further amend her complaint by seeking to appeal the
dismissal”), cert. denied sub nom., Smith v. Wilkie, 141 S. Ct. 875 (2020), reh’g
denied,
141 S. Ct. 1287 (2021); Duffner v. City of St. Peters,
930 F.3d 973, 976
(8th Cir. 2019) (failure to amend after dismissal without prejudice “amounts
to an adjudication on the merits and precludes relitigation of the claim that
was dismissed”); Save Bull Trout v. Williams,
51 F.4th 1101, 1104, 1108 (9th
Cir. 2022) (holding that when plaintiffs elect not to amend and instead
appeal, “they must live with the consequences of their choice”—that is, the
application of res judicata).
Accepting Pie Development’s argument here would undermine the
goal of res judicata to “relieve parties of the cost and vexation of multiple
lawsuits, conserve judicial resources, and, by preventing inconsistent
decisions, encourage reliance on adjudication.” Allen, 449 U.S. at 94. Costs
to both parties and the courts would increase because parties would get
multiple chances to amend and appeal. Plaintiffs, like Pie Development,
could (1) decline the opportunity to amend their complaint; (2) appeal; (3) if
appeal is lost, get another shot at amending the complaint because the district
court order was without prejudice; and (4) appeal yet again. Allowing parties
multiple attempts to amend and appeal in this manner would also undermine
the purpose of § 1291 to limit piecemeal appeals and promote efficient
judicial administration. Cunningham v. Hamilton County,
527 U.S. 198, 203–
04 (1999).
In sum, we agree with the district court that Pie Development’s
decision to forgo the opportunity to amend its complaint in favor of appeal
converted the dismissal without prejudice into a final judgment on the merits.
See Pie Development, LLC v. Pie Carrier Holdings, 2024 WL 1476206, at *3
(S.D. Miss. March 5, 2024) (Pie II). Res judicata applies and bars the claims
against the Pie Defendants.
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B
We next address whether the district court erred in dismissing the
claims against Gallatin and Sirius for failure to state a claim.
The DTSA and MUTSA provide similar causes of action for trade
secret misappropriation. See 18 U.S.C. § 1836(b)(1) (“An owner of a trade
secret that is misappropriated may bring a civil action”); Miss. Code § 75-
26-7(1) (“a complainant is entitled to recover damages for
misappropriation”). The statutes have essentially identical definitions of
“misappropriation,” so, to state a claim under either the DTSA or
MUTSA, plaintiffs must plead:
(A) acquisition of a trade secret of another by a person who
knows or has reason to know that the trade secret was acquired
by improper means; or
(B) disclosure or use of a trade secret of another without
express or implied consent by a person who—
(i) used improper means to acquire knowledge of the
trade secret;
(ii) at the time of disclosure or use, knew or had reason
to know that the knowledge of the trade secret was—
(I) derived from or through a person who had
used improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a
duty to maintain the secrecy of the trade secret
or limit the use of the trade secret; or
(III) derived from or through a person who owed
a duty to the person seeking relief to maintain the
secrecy of the trade secret or limit the use of the
trade secret; or
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(iii) before a material change of the position of the
person, knew or had reason to know that—
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been
acquired by accident or mistake.
18 U.S.C. § 1839(5)(A); see also Miss. Code § 75-26-3(b)(i).
Pie Development’s complaint does not adequately plead
misappropriation under this definition. It contains no facts to plausibly
support a claim that Gallatin or Sirius knew or had reason to know that the
alleged trade secret was, in fact, a trade secret, or that anyone had improperly
acquired it. The complaint makes only conclusory allegations that Gallatin
and Sirius held ownership interests in Pie Carrier, “work[ed] with Pie
Insurance and Pie Carrier,” and “knew the Pie Trade Secret had been
misappropriated by Pie Insurance, Pie Services, Dax Craig, and/or John
Swigart.”
Pie Development asks us to infer from the business relationships
among Gallatin, Sirius, and the Pie Defendants that Gallatin and Sirius were
aware of the ongoing litigation in Pie I and thus had reason to know that the
Pie Defendants misappropriated a trade secret. But, as the district court
explained:
It has been finally determined by a court of competent
jurisdiction that plaintiff’s complaint in the Pie I litigation did
not allege the existence of a protectible trade secret. Thus,
defendant’s knowledge of a plaintiff’s prior allegations of trade
secret misappropriation which have been found as a matter of
law to be insufficient to support a reasonable finding that
plaintiff had a protectible trade secret does not support an
inference that defendants knew that the Pie defendants
misappropriated any trade secret.
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See Pie II, 2024 WL 1476206 at *5 (emphasis in original).
Pie Development argues that the district court’s conclusion
contradicts our holding in Metallurgical Industries, Inc. v. Fourtek, Inc., 790
F.2d 1195, 1204 (5th Cir. 1986). There, we held that, because trade secret
litigation was ongoing, defendants who obtained the alleged trade secret from
another entity “should have inquired” into whether the trade secret had been
misappropriated.
Id. Because ongoing litigation “put [defendant] on inquiry
and an inquiry pursued with reasonable intelligence and diligence would
disclose the facts,” the defendant could be held liable for misappropriation.
Id. (quoting Restatement (First) of Torts § 757 cmt. b (Am. L.
Inst. 1939)). However, Pie Development’s case has a key distinction. Here,
unlike in Metallurgical Industries where the litigation was ongoing, litigation
of the Pie trade secret ended with our decision in Pie I. Gallatin and Sirius are
entitled to rely on our decision there that no protectible trade secret existed.
Pie Development points to nothing other than the Pie I litigation that
would have given Gallatin and Sirius reason to know that they were using a
misappropriated trade secret. Pie Development has thus failed to state a
claim for misappropriation of a trade secret against Gallatin and Sirius under
both the DTSA and MUTSA.
Because Pie Development’s trade secrets claims against Gallatin and
Sirius fail, its claims for unlawful interference, unjust enrichment, and civil
conspiracy also fail. See Pie I, 2023 WL 2707184 at *3. Without a viable
misappropriation of trade secrets claim, there are insufficient allegations to
plausibly infer that Gallatin or Sirius had an “unlawful purpose” required for
both the unlawful interference claim and the civil conspiracy claim. See MBF
Corp. v. Century Bus. Commc’ns, Inc.,
663 So. 2d 595, 598 (Miss. 1995) (listing
as an element of tortious interference that “[t]he acts were done with the
unlawful purpose of causing damage and loss, without right or justifiable
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cause on the part of the defendant” (quotation omitted)); Rex Distributing
Co., Inc. v. Anheuser-busch, LLC, 271 So.3d 445, 455 (Miss. 2019) (listing as
an element of civil conspiracy an agreement “to accomplish an unlawful
purpose or a lawful purpose unlawfully” (quotation omitted)). Likewise, the
unjust enrichment claim fails because, without any viable allegation of
wrongdoing, Gallatin and Sirius cannot be charged with “possession of
money or property which in good conscience and justice [they] should not
retain.” Thoden v. Hallford,
391 So.3d 1137, 1146 (Miss. 2024) (quotation
omitted).
IV
The district court did not err in dismissing Pie Development’s claims
against the Pie Defendants on the basis of res judicata. Nor did it err in
dismissing the claims against Gallatin and Sirius for failure to state a claim.
We AFFIRM.
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