Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—6th Cir.: Sixth Circuit affirms refusal to award fees in trade secrets dispute, (May 20, 2025)

By Donielle Tigay Stutland, J.D.

The trade secrets dispute arose after an employee of a terminated exclusive dealer found new employment with the manufacturer’s competition.

The Sixth Circuit affirmed a judgment of a district court to deny an award of attorney fees in a trade secrets misappropriation suit. The Sixth Circuit concluded that it was not an abuse of discretion for the district court to refuse to award fees under the federal and Ohio trade secrets statutes. A federal district court in Cleveland, Ohio had previously granted summary judgment to a third-party defendant, Tube-Mac Industries, Inc. (Tube-Mac), on trade secret misappropriation and other claims brought against it by hydraulic pipe fittings manufacturer Lokring Technology, LLC (Lokring). The third-party claims at issue arose in litigation between Lokring and an industrial parts distributor, Shepard and Associates Inc. (Shepard), which had previously been engaged as an exclusive territorial dealer for Lokring parts. In granting summary judgement to Tube-Mac, the district court also awarded almost $33,000 in costs, but the court denied Tube-Mac’s motion for nearly $1 million in attorney fees. Despite the litigation’s complexity and Lokring’s imperfect conduct during litigation, the Sixth Circuit determined that Tube-Mac did not meet the high burden of showing that Lokring’s claims were so obviously meritless and pursued with improper motive that the district court’s decision was erroneous (Shepard and Associates, Inc. v. Lokring Technology, LLC, No. 24-3348 (6th Cir. May. 16, 2025)).

Background. Lokring is an Ohio company that manufactures and sells pipe fittings and tools through a network of independent, exclusive distributors. Joe Shepard became one of these distributors in 2003 for a territory in the southwestern United States and founded Shepard and Associates, Inc. to operate the distributorship. The relationship between Lokring and Shepard was governed by an Exclusive Distributor Agreement that included a Confidentiality and Non-Competition Agreement. Shepard employees had email accounts on Lokring's Internet domain.

In June 2020, one Shepard employee sent a copy of a Lokring customer contact list from his lokring.com email account to two other Shepard employees' lokring.com email account (one of the recipients being Shepard's eponymous owner). Lokring terminated plaintiff Shepard’s distributorship in 2020. Lokring alleged that a Shepard employee, who was also a plaintiff in the Shepard action, may have violated three Lokring non-disclosure agreements in connection with his new employment with third-party defendant Tube-Mac, a Lokring competitor. Shortly following his termination from Shepard, a former salesperson who had received that June 2020 email found employment with Tube-Mac, a competitor of Lokring. This salesperson sent out various e-mails from his Tube-Mac account touting products of a Lokring competitor to potential customers who had purchased Lokring products from Shepard.

Shepard then sued Lokring for breach of contract, and Lokring counterclaimed for trade secrets violations, later adding Tube-Mac as a third-party defendant. The district court granted summary judgment in Tube-Mac’s favor on the third party claims relevant to this appeal. Lokring’s third party claims include the misappropriation claims, under the federal Defend Trade Secrets Act (“DTSA”). and the Ohio Uniform Trade Secrets Act (“OUTSA”). As a prevailing party, Tube-Mac moved for costs from Lokring, as well as attorney fees under trade secrets provisions of federal and Ohio law. The district court awarded almost $33,000 in costs but denied Tube-Mac’s motion for nearly $1 million in fees. Tube-Mac appealed the district court’s refusal to award fees on the third-party trade secrets claims. On appeal, Tube-Mac challenged only the district court’s refusal to award attorney fees under the federal and Ohio trade secrets laws.

Abuse of Discretion. The Sixth Circuit began its analysis noting that “it reviews an order granting or denying attorney fees for abuse of discretion.” Further, the district court’s underlying factual findings are reviewed for clear error. Tube-Mac argued that the district court made errors of law to which de novo review should apply, as it argued that the district court interpreted the bad faith standard “as only applying to the filing of the complaint.” The court rejected this line of argument, finding that “there was no hint that the district court erroneously thought itself barred from considering post-filing conduct.” The lower court’s overall analysis is framed in terms of Lokring’s “pursuit” of the claims and discovery to support them, not its original filing of the claims considered in isolation. The Sixth Circuit found that the district court’s analysis considered Lokring’s pursuit of the claims and discovery, not just the initial filing.

Bad faith. The Sixth Circuit next addressed the provisions in the two trade secrets laws that allow a court to award reasonable attorney fees if a misappropriation claim is made in bad faith. Both the DTSA and the OUTSA allow attorney fees for prevailing parties if a misappropriation claim is made in bad faith, which requires: (1) the claim was meritless, (2) the plaintiff knew or should have known it was meritless, and (3) the claim was pursued for an improper purpose (e.g., harassment). The court indicated that, “No matter how the standard is articulated, a district court must find that a party’s claim was meritless, that the party knew at a certain point that it was meritless and nonetheless maintained it, and that the party brought or maintained the claim for some improper purpose.”

Tube-Mac argued that Lokring’s trade secrets claims against Tube-Mac were obviously meritless from the start and only became more so as discovery and litigation progressed. Tube-Mac also argued that instances of litigation and discovery conduct were egregious and unacceptable enough to support a bad faith determination.

The district court reasoned that Lokring did not bring its claims against Tube-Mac in bad faith, because until summary judgment Lokring had some evidence and at least a potentially plausible case against Tube-Mac. The Sixth Circuit stressed that on appeal, for Tube-Mac to prevail, Lokring’s claims would have to be so obviously meritless, the evidence of an improper motive so clear, and its conduct so egregious that the district court abused its discretion by refusing to find bad faith and award attorney fees—all under statutes providing that a district court may award fees for bad faith. The Sixth Circuit agreed that “Lokring had colorable arguments supporting its claims through summary judgment. And even if arguments are thinly supported and prove to be wrong, loss on summary judgment does not necessarily mean they are so meritless as to have been brought in bad faith.”

The Sixth Circuit also found that even if the claims were meritless, Tube-Mac failed to show Lokring pursued them with an improper motive, such as harassment. The district court’s refusal to find bad faith was supported by evidence that Lokring had some basis for its claims, including Guidry’s emails originating from a Tube-Mac server challenging Lokring’s product quality. Despite the litigation’s complexity and Lokring’s imperfect conduct during litigation, the Sixth Circuit determined that Tube-Mac did not meet the high burden of showing that Lokring’s claims were so obviously meritless and pursued with improper motive that the district court’s decision was erroneous.

The Case is No. 24-3348.

Judge: Gibbons, J.

Attorneys: Christine M. Snyder (Tucker Ellis LLP) for Lokring Technology, LLC.

Companies: Shepard & Associates, Inc.; Lokring Technology, LLC

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