The US Court of Appeals for the Fifth Circuit found that a defendant is not eligible for an award of attorneys’ fees under the Defend Trade Secrets Act when the case is dismissed without prejudice. Dunster Live, LLC v. Lonestar Logos Mgmt. Co., Case No. 17-50873 (5th Cir. Nov. 13, 2018) (Costa, J).

Dunster and Lonestar used to be part of the same limited liability company that had a contract with the State of Texas to construct and install highway signs advertising food and lodging at approaching exits. Lonestar subsequently formed a new company without Dunster. The new company won the signage contract after the old contract expired. Dunster filed a trade secrets action, claiming that Lonestar stole proprietary software and a database in violation of the Defend Trade Secrets Act. After the district court rejected Dunster’s request for a preliminary injunction, Dunster requested permission to dismiss the case without prejudice, which the district court allowed. After the dismissal, Lonestar filed a motion seeking attorneys’ fees. The district court denied the motion, finding that a dismissal without prejudice does not make a defendant a prevailing party, since the plaintiff is free to resurrect its claims at a later date. Lonestar appealed.

The Fifth Circuit affirmed the district court’s ruling. The Court rejected Lonestar’s argument that the district court’s rule could allow a plaintiff to evade paying fees to prevailing defendants by strategically seeking dismissal without prejudice, which requires court approval. The Court also noted that Rule 11 provides a check on parties litigating in bad faith. Finally, the Court found that the language of the Defend Trade Secrets Act attorneys’ fee provision limits fee awards, and allowing a defendant to obtain fees based on a plaintiff’s bad faith would read the words “prevailing party” out of the statute.