Imaging Business MacHines, LLC. v. Banctec, Inc.

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 05-10835 ELEVENTH CIRCUIT
AUGUST 10, 2006
________________________
THOMAS K. KAHN
CLERK
D. C. Docket No. 04-01104-CV-J-S

IMAGING BUSINESS MACHINES, LLC.,
Plaintiff-Appellant,

versus

BANCTEC, INC.,

Defendant-Appellee.

________________________

Appeal from the United States District Court
for the Northern District of Alabama
_________________________

(August 10, 2006)

Before TJOFLAT and PRYOR, Circuit Judges, and GEORGE*, District Judge.

GEORGE, District Judge:

Imaging Business Machines, LLC, produces high-speed document scanners.

It alleges that Banctec, Inc. developed a competitive high-speed document scanner

*
Honorable Lloyd D. George, United States District Judge for the District of Nevada,
sitting by designation.
by copying trade secrets and confidential features of an Imaging Business

Machines’ scanner.

The district court orally denied Imaging Business Machine’s motion for a

preliminary injunction, finding a lack of evidence of damages. In so finding, the

district court expressly discounted evidence that two customers purchased the

infringing BancTec scanner rather than a newer model of Imaging Business

Machines’ scanner. In a written amendment, the district court further reasoned

that Imaging Business Machines failed to show BancTec copied features that were

trade secrets. Subsequently, the district court specifically limited discovery of

damages to the scanner model that BancTec copied. The district court then

granted BancTec’s motion for summary judgment for essentially the same reasons

that it denied the preliminary injunction. Imaging Business Machines appeals the

grant of summary judgment.1 We have jurisdiction pursuant to 28 U.S.C. §1291

and reverse the grant of summary judgment.

1
Imaging Business Machines also appeals the denial of its motion for a preliminary
injunction and the district court’s order limiting discovery. Though the issue is close, we
summarily find that the district court did not abuse its discretion in denying the preliminary
injunction. By contrast, the district court plainly abused its discretion in limiting discovery.

2
 I

In 1994, Imaging Business Machines began marketing the ImageTrac I, a

high-speed, high-volume color document scanner.2 Several years later, the

company introduced the ImageTrac II to market, which model was both quicker

and had a better camera. During this time, BancTec began marketing its own

high-speed scanners, the S-Series. In general, however, the two product lines did

not compete with each other. Indeed, BancTec’s foreign subsidiaries purchased

ImageTrac scanners for resale, which Imaging Business Machines re-labeled as

BancTec scanners for the foreign subsidiaries.

On March 15, 2000, Imaging Business Machines and BancTec entered into

a two-year Reseller Agreement. The agreement required BancTec to refrain from

copying or reverse engineering Imaging Business Machines’ products. The

reseller relationship between the two companies continued after March 2002.

During 2002 and 2003, BancTec began development of a scanner that would

directly compete with the ImageTrac scanners. BancTec developed its scanner by

copying mechanical features of the ImageTrac II.

2
Given the posture in which this matter comes before this panel, the facts we set
forth are those most favorable to Imaging Business Machines.

3
 When Imaging Business Machines asked BancTec whether it was

developing a scanner to compete with the ImageTrac scanners, BancTec falsely

stated that it was not developing such a scanner. BancTec introduced its scanner

to the market as the DocuScan 9000 in March 2004.

During the same time that BancTec developed the DocuScan 9000, Imaging

Business Machines developed and introduced two updated versions of its

ImageTrac scanners: the ImageTrac III and IV. The primary difference between

the ImageTrac II and IV is that the latter has a higher speed camera that allows the

scanner to run faster. Otherwise, the ImageTrac IV generally uses the same

mechanical components of the ImageTrac II that BancTec copied and used to

develop the DocuScan 9000.

BancTec has sold at least eleven DocuScan 9000s since its introduction. As

to at least two of those sales, the customer purchased the DocuScan 9000 rather

than an ImageTrac IV. Imaging Business Machines, however, did not offer

evidence that the DocuScan 9000 specifically competed against an ImageTrac II

for any particular sale, or that any customer purchased a DocuScan 9000 rather

than an ImageTrac II.

II

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 “We review the district court's grant of summary judgment de novo,

applying the same legal standards that bound the district court, and viewing all

facts and reasonable inferences in the light most favorable to the nonmoving

party.” Cruz v. Publix Super Mkts., Inc., 428 F.3d 1379, 1382 (11th Cir.2005)

(internal quotes and emphasis omitted). A grant of summary judgment is

appropriate where “the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to

judgment as a matter of law.” Fed.R.Civ.P. 56(c).

III

We begin by examining whether summary judgment was appropriately

granted as to Imaging Business Machines’ claim for fraud because it failed to offer

evidence supporting the element of injury.3 In its motion for summary judgment,

3
The element of injury is also often referenced as the element of damage. The
district court, however, granted summary judgment based solely on its finding that Imaging
Business Machines’ failed to show damages rather than damage. As noted by the Alabama
Supreme Court: “damage” (in the singular) refers to the loss or injury sustained by a plaintiff
while “damages” (in the plural) refers to “‘a pecuniary compensation’ for an injury or loss.”
Boswell v. Liberty Nat. Life Ins. Co., 643 So.2d 580, 584 (Ala. 1994).
We recognize that the failure to offer evidence of damages may, in some circumstances,
amount to a failure to offer evidence of an injury. See, Mobile Building and Loan Ass’n v.
Odom, 232 Ala. 19, 166 So. 698 (Ala. 1936). This, however, is not necessarily always true. For
example, in Maring-Crawford Motor Co. v. Smith, 285 Ala. 477, 233 So.2d 484 (Ala. 1970), the
plaintiff sued the defendant for fraudulently selling her a used vehicle as if it was new. At trial,
the plaintiff failed to establish her damages because she did not offer evidence of the value of the
car if it had been new. Nevertheless, she had established that she suffered an injury since a jury

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BancTec attacked Imaging Business Machines’ claim for fraud solely on the basis

that the plaintiff was not injured. We conclude that BancTec never met its initial

burden on summary judgment.

In Alabama, a party who commits a wrongful act is responsible for the

injuries that the wrongful act causes to another. “It is well established by many

decisions in [Alabama] that persons who perpetrate torts are, as a rule, responsible

for the consequences of the wrongs they commit. That is, unless the tort be the

proximate cause of the injury complained of, there is no legal accountability.”

Louisville & N.R. Co. v. Maddox, 236 Ala. 594, 183 So. 849, 852 (Ala. 1938).

Proximate cause is an act or omission that in a natural and continuous
sequence, unbroken by any new independent causes, produces the
injury and without which the injury would not have occurred. The
requirement of foreseeability is imposed to preclude a finding of
liability when the defendant's conduct was part of the causal chain of
events leading to the injury but the resulting injury could not have
been reasonably anticipated by the defendant. Foreseeability does not
require that the particular consequence should have been anticipated,
but rather that some general harm or consequence could have been
anticipated.

could reasonably infer that a used car is less valuable than a new car. Id., at 492. The plaintiff’s
failure to show damages (ie, the pecuniary difference in value between the new and used vehicle)
merely precluded an award of compensatory damages for her injury. Id. She could however,
recover nominal damages for that injury as Alabama permits an award of nominal damages for a
claim of fraud where the plaintiff has established a breach of legal duty but has either not
suffered damages or failed to prove damages. Id. Accordingly, a finding that a plaintiff failed to
offer evidence of damages does not, standing alone, permit the grant of summary judgment for
failure to offer evidence of an injury.

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Thetford v. City of Clanton, 605 So.2d 835, 840 (Ala. 1992). In the context of a

motion for summary judgment arguing a lack of injury, the defendant’s initial

burden is to show that a plaintiff lacks evidence regarding each injury alleged to

be proximately caused by its wrong.

In this case, Imaging Business Machines alleged in its complaint that it

continued to sell scanners to BancTec in reliance on the fraudulent representation

that the latter was not developing a competing scanner. This allegation--that

Imaging Business Machines lost the economic opportunity of altering its

relationship with BancTec from reseller to future competitor--was plainly a

sufficient allegation of an injury. Although BancTec correctly recited this

allegation of injury in its motion, it nevertheless relied upon the district court’s

finding (first stated in the oral ruling denying the motion for a preliminary

injunction) that Imaging Business Machines failed to show a loss of customers.

The district court’s finding regarding lost customers, however, was irrelevant to

whether Imaging Business Machines lost the economic opportunity of altering its

business relationship with BancTec. Further, BancTec did not offer any other

argument suggesting that Imaging Business Machines could not offer evidence of

the injury alleged in the complaint. Accordingly, BancTec did not meet its initial

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burden on summary judgment and the burden never shifted to Imaging Business

Machines to offer evidence of its injury resulting from the alleged fraud.

Although the burden never shifted to Imaging Business Machines to offer

evidence that it suffered an injury, we note that it nevertheless offered sufficient

evidence of several injuries proximately caused by the fraud to preclude a grant of

summary judgment. First, Imaging Business Machines submitted the affidavit of

its president, Gary Murphy, that the corporation would have ceased selling

scanners to BancTec, thus limiting the latter’s access to the market, if the latter

had truthfully stated that it was developing a competing scanner. A fact-finder

could readily infer that a manufacturer is injured when it loses an opportunity to

timely react to a reseller’s plans to become a competitor. Thus, Murphy’s affidavit

was sufficient evidence to create a triable issue of fact whether Imaging Business

Machines’ suffered the injury specifically alleged in the complaint.

Second, as recognized by the district court, Imaging Business Machines

offered evidence that it lost two sales to BancTec’s DocuScan 9000. Plainly the

loss of a sale is an injury. The district court, however, summarily discounted this

evidence (in its order denying the preliminary injunction) solely because the sales

involved the ImageTrac IV rather than the ImageTrac II. The injured party,

however, is not the ImageTrac II but is Imaging Business Machines. Thus, the

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relevant query is not limited to whether BancTec’s conduct proximately caused

injury to sales of the ImageTrac II, but whether that conduct proximately caused

injury to Imaging Business Machines. In light of the record established below,

whether BancTec’s fraudulent representation proximately caused the loss of the

two sales of the ImageTrac IV is an issue to be resolved by the fact-finder.

Accordingly, the district court’s grant of summary judgment as to Imaging

Business Machines’ claim for fraud was in error.

IV

In moving for summary judgment, BancTec attacked the element of injury

only as to Imaging Business Machines’ claim for fraud. Thus, the district court’s

grant of summary judgment for failure to show injury as to the remaining claims

was sua sponte. In so granting summary judgment, however, the district court

procedurally erred by failing to give proper notice to Imaging Business Machines.

“[A] district court may enter summary judgment sua sponte if the parties are given

adequate notice that they must present all of their evidence.” Flood v. Young

Woman's Christian Ass'n of Brunswick, Georgia, Inc., 398 F.3d 1261, 1267 (11th

Cir. 2005) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548,

2554, 91 L.Ed.2d 265 (1986). “Consistent with the importance of the procedural

protection afforded by Rule 56(c), courts have strictly enforced the requirement

9
that a party threatened by summary judgment must receive notice and an

opportunity to respond.” Massey v. Congress Life Ins. Co. 116 F.3d 1414, 1417

(11th Cir. 1997). The mandatory character of this notice also applies to a district

court’s sua sponte consideration of summary judgment. Id.

BancTec’s motion for summary judgment only raised the issue of injury as

to Imaging Business Machine’s claim for fraud. Imaging Business Machines

responded on the issue of damage only as it pertained to its claim of fraud. Thus,

the district court’s consideration of the element of damage as to the remaining

claims was sua sponte. As the district court did not comply with Rule 56(c),

failing to notify Imaging Business Machines that it would be considering the issue

of injury as to each of the remaining claims, the grant of summary judgment on the

issue of injury as to these claims was procedurally improper and must be vacated.

V

Finally, we consider the district court’s grant of summary judgment as to

whether the information that BancTec appropriated from the ImageTrac II

constituted a trade secret or confidence. In granting summary judgment, the

district court ruled that it “has already found that the misappropriation of trade

secret claim must fail as a matter of law . . . .” The district court then referenced

10
its written amendment to the oral order denying Imaging Business Machines’

motion for a preliminary injunction.

“[A] district court may grant preliminary injunctive relief when the moving

party shows that: (1) it has a substantial likelihood of success on the merits of the

underlying case when the case is ultimately tried; (2) irreparable injury during the

pendency of the suit will be suffered unless the injunction issues immediately; (3)

the threatened injury to the movant outweighs whatever damage the proposed

injunction may cause the opposing party; and (4) if issued, the injunction would

not be adverse to the public interest.” Alabama v. U.S. Army Corps of Eng’rs, 424

F.3d 1117, 1128 (11th Cir. 2005). The district court applied the first of these

factors--that the moving party show a substantial likelihood of success on the

merits--to assess the evidence whether Imaging Business Machines had a trade

secret in the components of its ImageTrac II scanner.

In contrast to the four-factor test applied on a motion for preliminary

injunction, a motion for summary judgment requires the moving party to show the

absence of any genuine issues of fact. Fed. R. Civ. Pro. 56(c); Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986). Once the moving party meets its initial burden

on summary judgment, the non-moving party must submit facts showing a genuine

issue of material fact. Fed. R. Civ. Pro. 56(e). As summary judgment allows a

11
court "to isolate and dispose of factually unsupported claims or defenses," Celotex,

477 U.S. at 323-24, the court resolves any dispute in the evidence "in the light

most favorable to the opposing party." Adickes v. S. H. Kress & Co., 398 U.S.

144, 157 (1970).

Plainly, Imaging Business Machines bore a significantly different burden in

moving for preliminary injunction than it bore in opposing BancTec’s motion for

summary judgment. Further, and significantly, in resolving each of these motions,

the district court was required to apply a substantially different standard in

reviewing the evidence and resolving contested issues. In considering the motion

for preliminary injunction, the district court could assess the likelihood that

Imaging Business Machines’ evidence would be persuasive to a fact-finder in light

of BancTec’s evidence. In resolving whether Imaging Business Machines would

likely succeed on the merits, the district court could consider the credibility of

witnesses and was not limited to resolving any disputed issues of fact in the light

most favorable to Imaging Business Machines. The written amendment to the oral

order denying a preliminary injunction indicates that the district court resolved the

issue of whether Imaging Business Machines had a trade secret based on the

strength and persuasiveness of BancTec’s evidence, apparently discounting the

contrary evidence presented by Imaging Business Machines.

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 In considering the motion for summary judgment, however, the district court

had a duty to construe the evidence presented to it in the light most favorable to

Imaging Business Machines, resolving any contested issue of fact in favor of

Imaging Business Machines. The written amendment to the order denying the

preliminary injunction, however, lacks any language suggesting that the district

court applied this summary judgment standard to the evidence underlying

BancTec’s motion for summary judgment. Rather, the language of the written

amendment to the order denying the preliminary injunction establishes the

contrary; the district court discounted Imaging Business Machines’ evidence,

weighed it against evidence submitted by BancTec, and largely adopted BancTec’s

evidence in finding that Imaging Business was unlikely to succeed on the merits of

whether it had trade secrets. The district court’s order granting summary judgment

lacks any indication that the district court reconsidered the evidence pursuant to

the appropriate summary judgment standard. Rather, the record before this court

establishes that, in granting summary judgment, the district court relied solely

upon its prior finding that Imaging Business Machines lacked a trade secret, which

finding was not the result of resolving all disputes and drawing all inferences in

the light most favorable to Imaging Business Machines. Accordingly, the grant of

13
summary judgment must be reversed on the issue of whether the information

appropriated by BancTec was a trade secret or otherwise confidential.

We would also note that, in light of the record before us, application of the

appropriate summary judgment standard would require the denial of BancTec’s

motion for summary judgment on the issue of whether Imaging Business

Machines had a protectible trade secret or otherwise confidential information.

Construing disputed issues of fact in the light most favorable to Imaging Business

Machines, the record raises genuine issues of material fact whether the

information was generally known and whether the information was readily

ascertained from publicly available information. A particularly acute issue of fact

remains as to whether Imaging Business Machines’ integration of the various

individual mechanical elements into a single device constituted a trade secret. A

genuine issue of fact also remains as to whether Imaging Business Machines made

reasonable efforts to maintain the secrecy of its information.

VI

Accordingly, we conclude that the district court erred in granting the motion

for summary judgment.

REVERSED in part, AFFIRMED in part, and REMANDED.

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