Southern California Institute of Law v. TCS Education System et al

Filing 1

COMPLAINT against Defendants David J. Figuli, Global Equities, Ltd., TCS Education System. Case assigned to Judge Philip S. Gutierrez for all further proceedings. Discovery referred to Magistrate Judge Andrew J Wistrich.(Filing fee $ 350 PAID) Jury Demanded, filed by plaintiff Southern California Institute of Law.(car) (Additional attachment(s) added on 10/26/2010: # 1 Notice of Assignment, # 2 Summons, # 3 Civil Cover Sheet) (ds).

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Southern California Institute of Law v. TCS Education System et al Doc. 1 5 LAlry OFF'ICES OF GEORGE A..$HOI{ET, A PROFE$SIONAL CORPORATIOIY George A" Shohet (SBN t 1?697) 245 Main Street, Suite 310 Vcnicc, CA9O29L-52I6 Telephone: (3 I 0) 45?-3176 Facsimilc; (310) 452'2270 6 7 I(REINDLER & I(RfiIITDLER LtF Crretchen M. Nelssn {SBN t 1?566) Jacob Mensch {SBN 268006) 707'Wilshire Blvd, Suite 4100 Los Angeles, CA 9tt{t1? t0 Tel.: (213) 622-tr69 Fax: (213) 62?-6019 11 tz Attorneys for Plaintiff $outhern California Instinrte of Law 13 14 t 16 UNITED STATES DISTRICT COTJRT SEFITRAI I}ISTRTCT OF CALIf'OR.I1TIA SOUTHERN CALIFORNIA INSTITUTE OF LAtrI/, a California corporation, t7 1f 19 cASE"l.f,V10*S02 6 d#t: COIVIPT.ATNT FOR INJT]NCTTVE 20 21 .,^, RELIEF A}[D DA1VIAGES vs. .IURY TRIAL DEIqANDEI} TCS EDUCATION SYSTEM, an 'r7. 24 25 26 27 28 Illinois corporation; DAYID J. FIGULI, an individual; GLOBAL EQI JITIES, LTD. ilb/aHIGHER EDUCATION GROIJP, a Colorado limited liability comllany, Defendants. COMPLAINT FORINJI,INCTIVE RELIEF AHD DAMAGES 1 2 3 4 Plaintiff, by and through its attorneys, based on its experiences, the investigation of counsel, and its information and belief, alleges as follows: NATURE OF THE CASE 1. This action arises out of the blatantly anticompetitive conduct of TCS 5 Education System, a multi-million dollar corporation engaged in the rapid 6 acquisition of schools and colleges in California and elsewhere. Plaintiff is a 7 small, State-Bar accredited, evening law school with a twenty-five year history of 8 serving working class adults in the tri-county area of San Luis Obispo, Santa 9 Barbara and Ventura Counties. Lured by the prospect of increasing its outreach to 10 an underserved population of future law students, the plaintiff provided defendants 11 with unfettered access to its Dean, faculty and confidential files in an effort to 12 complete an acquisition transaction with the defendants. Instead, the defendants 13 misappropriated plaintiff's most guarded secrets and information in violation of a 14 15 16 17 18 19 20 21 binding confidentiality agreement and secretly used the information to affiliate with the plaintiff's sole competitor in the region. Armed with the stolen information, the defendants recently announced their "deal" which is calculated to kill off competition in the region, destroy the plaintiff's business and increase the cost of tuition. Plaintiff seeks as its primary remedy preliminary and permanent injunctive relief prohibiting defendants from taking further steps to complete their unlawful scheme. JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction over these claims pursuant 22 to 15 U.S.C. 4 and 28 U.S.C. 1331. In addition to the claims alleged herein 23 that arise under federal law, the Court has jurisdiction over plaintiff's state law 24 claims under 28 U.S.C. 1332(a) (because the parties are diverse and the amount 25 in controversy exceeds $75,000, exclusive of interest and costs) and/or 28 U.S.C. 26 1367(a) (because those claims are so related to the federal claims that they form 27 part of the same case or controversy). Venue is proper in this District under 28 28 U.S.C. 1391 because defendants conduct business in this district and transacted 2 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 4 5 with plaintiff in this District. In addition, wrongful conduct by defendants took place in this District, and that conduct was intended to and did cause injury to plaintiff. THE PARTIES 3. Southern California Institute of Law (the "Law School") is a 6 California corporation founded in 1986 with campuses in Santa Barbara and 7 Ventura Counties. The Law School operates evening programs for the benefit of 8 working adults who seek a rigorous academic environment that is affordable, 9 flexible and offers small class sizes. Because of its dedicated administration and 10 faculty, who receive very modest compensation, perhaps the lowest of any State 11 Bar accredited school in California, the Law School maintains one of the lowest 12 tuition rates among law schools in the state. Tuition rates are currently $350 per 13 unit whereas many comparable law schools charge in the range of $800 or more 14 15 16 17 18 19 20 21 per unit. Santa Barbara & Ventura Colleges of Law ("COL"), the only other law school in the tri-county area of San Luis Obispo, Santa Barbara and Ventura Counties, charges $450 per unit. In 1996, after a decade of tremendous effort, the Law School was accredited by the Committee of Bar Examiners for the State of California. To put this accomplishment into perspective, there has been only one other California law school that received State Bar accreditation in the past 25 years. That school was founded in 1927 and only received its accreditation this year. Currently, students may earn Juris Doctor ("J.D.") and Bachelor of Science in Laws degrees. The Law School is also accredited by the California Bureau of 22 Private Postsecondary Education ("Bureau") and was approved by the Bureau to 23 commence a paralegal program and Bachelor of Arts programs in Law 24 Enforcement and Criminal Justice. In evening law schools, nearly all of the 25 academic experience takes place in the classroom. Recognizing this fact, the Law 26 School continuously re-evaluates and tests its teaching methodologies. 27 4. There are approximately one hundred students between the two 28 campuses, thirty-one distinguished faculty members and an administrative staff 3 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 consisting of a Dean, Vice-Dean and Registrar. The Law School's seven-person Board of Directors has four members with Ph.D.s, three with J.D.s, two with M.B.A.s and five members hold multiple post-graduate degrees. Dean Stanislaus 4 Pulle has a Ph.D. from King's College, University of London and was a post5 doctoral Visiting Scholar at Yale Law School. He has taught for over forty years, 6 including serving on the faculty of San Fernando Valley College of Law, COL, 7 where he also served as Academic Dean, and at the Law School where he still 8 teaches Constitutional Law. Dean Pulle founded the Law School with Dr. Carroll 9 Gambrell, Board Chair, a former Dean of the School of Engineering at Mercer 10 University, and Desmond O'Neill, Vice Dean, who holds an M.A. from the 11 University of California, Santa Barbara, a J.D. from Boalt Hall School of Law and 12 was twice president of the Santa Barbara County Bar Association. Members of the 13 Law School's faculty have been rated as "superior" to "excellent" by State Bar 14 15 16 17 18 19 20 21 Accreditation Consultants. Its faculty is drawn from top drawer law schools accredited by the American Bar Association ("ABA") who themselves excelled while in law school and from valedictorian law graduates of California accredited law schools. Over the past twenty-five years, the Law School has fostered a community among current students, alumni, faculty and staff. Leaders in the field of law have taken note of the high quality academics provided, the educational opportunities created for the working class and the overall positive community impact the Law School makes. Past keynote speakers at the Law School's commencement ceremonies include California Supreme Court Justice Ming Chin, 22 presiding Justices of various divisions of the California Court of Appeal, including 23 Justice Norman L. Epstein and Justice Paul Turner, former State Attorney General 24 Bill Lockyer , Kenneth A. Starr, former United States Solicitor General, past 25 Pepperdine University Law School Dean and current President of Baylor 26 University, the governing president of the International Criminal Court, presiding 27 judges of the local Superior Courts in Santa Barbara and Ventura, a President of 28 the State Bar of California and members of the California legislature. The Law 4 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 School is honored to have as its keynote speaker at the June 2011 graduation ceremony California Supreme Court Chief Justice designee Tani Cantil-Sakauye. 5. Defendant TCS Education System ("TCS") is a private, not-for-profit, 4 corporation organized under the laws of the State of Illinois with its corporate 5 headquarters in Chicago. Rather than being a comprehensive university, TCS 6 acquires or affiliates with specialized colleges with discrete professional 7 disciplines. For non-profit schools and colleges, TCS creates affiliations because 8 these institutions do not have an ownership structure like proprietary entities. 9 Prior to its affiliation with COL, the TCS "system" included schools with 10 disciplines in psychology, health and human services, and education; a foundation 11 that provides support for the schools and colleges; an online services affiliate that 12 assists the schools with developing and offering online coursework; and two 13 preschool through eighth grade laboratory schools. According to its 2010 Annual 14 15 16 17 18 19 20 21 Report, TCS affiliates had revenues of approximately $71.8 million and net assets in excess of $30 million. It has a corporate staff of approximately 175 people and hundreds more faculty and staff at its various schools and colleges. One of its institutions, The Chicago School of Professional Psychology, has 500 employees alone. There are over 4,000 students at TCS-affiliated campuses in Chicago, Washington, D.C., Los Angeles, Irvine, Pasadena, Santa Barbara and elsewhere. Although TCS is a non-profit, it prides itself on its innovative business structure and financial success. In many respects it operates more like a "for profit" business with a focus on market-oriented activity and sees itself as well poised to 22 fill the void created by the cutbacks and lower enrollment in public higher 23 education. TCS's "business model" is "built on the premise that business success 24 and social impact need not be mutually exclusive" and it seeks to "[o]perat[e] as an 25 effective, financially-sound, and fast-growing business," with a goal of 26 "deliver[ing] truly significant returns for donors, investors, students, communities, 27 and the world at large." The 2010 TCS Annual Report proclaims: "A rapidly 28 changing and increasingly complex external environment--fueled by economic 5 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 uncertainties, changing student demographics, and mounting competition--has created new challenges for traditional higher education. Institutions have met with varying success in confronting these obstacles, some closing their doors, reducing 4 services, or trimming programs and faculty ranks. Meanwhile, TCS Education 5 System has crafted a business model that is intrinsically adaptive and that responds 6 to today's realities, relying for growth and viability on a formula based on size, 7 focus, diversification, and impact." TCS woos the colleges and schools it targets 8 with the promise of business acumen, financial support and other tempting 9 resources. Its dual "bottom-line" is "social impact" and "sophisticated business 10 practices." TCS CEO Michael Horowitz recently elaborated on TCS's business 11 strategy, stating in an interview: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES Smaller institutions cannot get the technology, or fundraising, or administrative infrastructure that's required to be effective today. They may have to affiliate with a system like ours, or they are going to be acquired, bought by for-profits, or even go out of business.... [B]ecause the model is small, focused institutions, we can share resources more effectively. So even with respect to traditional fundraising, we have a foundation for grants, and philanthropy. We are sharing that among a number of colleges and schools because it is more efficient than duplicating that for each small college. So part of the model is to think creatively about resources and deploy them more effectively across institutions, so that we can direct more resources toward the core educational activity. Similarly, we've set up structures that in the future will allow investors to invest in projects that we couldn't do on our own, but require capital to expand and make the educational experience more excellent. That should allow us to take on new projects, and also not just to rely on tuition dollars. So between philanthropy, the potential for investor dollars, and 1 2 3 4 5 6 7 8 9 10 11 12 13 tuition, we create a much more energetic and dynamic base for funding. (For the complete interview: 6. Defendant David J. Figuli ("Figuli") is a Colorado-based attorney with his principal place of residence in Evergreen, Colorado, a part of Jefferson County. On his law firm's Website, Figuli portrays himself as a leading lawyer in the "American higher education industry." See He claims to have worked with hundreds of colleges, universities, educational associations, and education investment and management companies in his 33-year career. He previously served as General Counsel for the South Dakota Board of Regents and Chief Legal Counsel for the Montana University System. He also served as general counsel to several major universities and as a trustee for three colleges. He claims to be an expert in accreditation, licensing and regulatory matters, including 14 those relating to federal financial aid programs, and a recognized writer and 15 lecturer on higher education management and faculty employment matters. In his 16 biography, he states that he has conducted seminars and keynote addresses for 17 most of the major associations in American higher education including the 18 American Council on Education, the American Association of State Colleges and 19 Universities, the National Association of College and University Business Officers 20 and the National Association of Student Financial Aid Administrators. Like TCS, 21 Figuli sees himself as an innovator in the development of new business models for 22 higher education, including strategic alliances, sponsorship arrangements, 23 24 25 26 27 28 public/private and nonprofit/for profit ventures, international partnerships, mergers and acquisitions and investment relations. He offers his clients the following array of services, among others: (i) transactional services that include assistance in negotiating and drafting conceptual documents, facilitating changes in corporate structure to achieve growth, raising capital, selling assets, divisions or equity, compliance with 7 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 regulatory requirements, formation of systems, conversions of a legal entity from one type to another, and redistribution of assets among various entities; (ii) preparation and presenting applications for substantive change to 4 institutional accrediting agencies and presenting changes of control to state 5 licensing bodies and the U.S Department of Education ("DOE"); 6 (iii) conceptualizing, forming and executing affiliations between tax-exempt 7 entities, public and -private entities and non-profit and for profit enterprises with 8 the goal of ensuring that tax-exempt status is not compromised and the appropriate 9 level of control is created to satisfy institutional accrediting agencies; 10 (iv) providing legal and business advice to educational institutions and 11 investors desirous of forming domestic and international ventures that combine 12 core competencies, educational assets, investment capital, expertise and/or 13 specialized services to achieve common goals with an emphasis on deal 14 15 16 17 18 19 20 21 structuring, regulatory compliance and risk management; and (v) conducting due diligence investigations in a wide range of transaction settings, ranging from the simple to complex and involving for-profit and nonprofit institutions and organizations engaged in all aspects of the post-secondary sector. Such services include "comprehensive investigation of corporate structures, litigation, contractual relationships, Title IV compliance [i.e., federally funded student financial aid programs], accreditation compliance, employment practices, faculty related issues, intellectual property, and owned and leased property. We investigate all potentially relevant and material aspects of a transacting party's 22 business, compel all necessary disclosure, and recommend third-party 23 investigations and reports as well as further action based upon our findings." 24 7. Defendant Global Equities, Ltd. ("Global Equities") is a Colorado 25 limited liability company with its principal place of business in Evergreen, 26 Colorado, which is part of Jefferson County. It also maintains a mailing address in 27 Conifer, Colorado. Global Equities is owned and controlled by Figuli and 28 transacts business under the trade name "Higher Education Group". For 8 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 convenience, Global Equities is referred to herein as "HEG." Figuli identifies himself as "CEO" of HEG. According to its Certificate of Assumed or Trade Name filed with Secretary of State for Colorado, HEG provides: "Consulting 4 services to post-secondary educational institutions and associations; sale of 5 products or services to the post-secondary educational market; training programs 6 and materials for the post-secondary educational market". TCS retains Figuli and 7 HEG to assist it in targeting potential acquisitions or affiliations with schools and 8 colleges and structuring its deals. 9 10 FACTUAL BACKGROUND 8. Prior to 1986, COL was the only law school in the tri-county region 11 spanning San Luis Obispo, Santa Barbara, and Ventura Counties. At that time, the 12 only other State Bar accredited schools were miles away in either Monterey or 13 Malibu. Neither of these options made sense for working adults, many of whom 14 15 16 17 18 19 20 21 were single parents. Like the Law School, COL offers a part-time evening curriculum leading to a J.D. and is State Bar accredited. Neither the Law School nor COL is ABA accredited. In addition, neither school has accreditation from the Western Association of Schools and Colleges ("WASC"). Without these accreditations, neither the Law School nor COL can offer students federally funded loans. The chief reasons why these other accreditations cannot be sought and obtained is the lack of financial and human resources that would allow the Law School or COL to meet basic eligibility criteria. 9. For smaller institutions like the Law School and COL, obtaining ABA 22 accreditation is too arduous and expensive a process to even consider. Obtaining 23 WASC accreditation, while more feasible in theory, is still out of reach because the 24 process consumes too many scarce resources. That is why no non-ABA accredited 25 law school has WASC accreditation in Southern California. 26 10. WASC's Accrediting Commission for Senior Colleges and 27 Universities (the "Commission") is responsible for the evaluation of the quality and 28 effectiveness of colleges and universities offering the baccalaureate degree and 9 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 above in California, Hawaii, Guam and the Pacific Basin. Voluntary, nongovernmental, institutional accreditation, as practiced by WASC and other regional commissions, is a unique characteristic of American education. Accreditation is 4 granted at the completion of a peer review process, and assures the educational 5 community, the general public, and other organizations that an accredited 6 institution has met high standards of quality and effectiveness. While no 7 institution in the United States is required to seek accreditation, it is highly coveted 8 both in terms of institutional stature and the ability to qualify students for federally 9 funded student loans under Title IV of the Higher Education Act. WASC is 10 reviewed periodically by the DOE and the Commission is also periodically 11 reviewed by the Council for Higher Education Accreditation. 12 11. Achieving WASC accreditation requires an applicant to endure a 13 three-phase process costing tens of thousands of dollars or more and spanning as 14 15 16 17 18 19 20 21 much as four years. WASC requires that any institution that it considers meet twenty-three eligibility criteria to achieve preliminary consideration for accreditation. The applicant must satisfy requirements such as showing that it has core faculty whose primary responsibility is to the institution, an adequate funding base and financial resources to ensure sustainability, and annual audits by a certified public accounting firm with two years of audited financial statements readily available. The next phase of WASC accreditation requires the institution to pay fees to cover WASC's site inspections, including travel, hotel and meal expenses of its visiting team members, any legal fees WASC incurs, and other 22 expenses during this evaluative process. This second phase could cost a school the 23 size of the Law School $20,000 or more. The last phase occurs when the 24 institution is granted the status of being a candidate and seeks initial accreditation. 25 This phase can take two or three years according to WASC's Procedures Manual 26 and the cost could easily exceed another $20,000 for a school like the Law School. 27 The applicant must demonstrate compliance with WASC's formal Standards of 28 Accreditation ("Standards"). The Standards cover all financial, organizational, and 10 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 operational aspects of an institution and require the institution to show that it has or will meet numerous criteria and guidelines. Prior to initial accreditation, a multilevel review process ensues with the candidate institution preparing detailed 4 written reports, receiving feedback from WASC committees and team members, 5 responding to any evaluative concerns, undergoing several more site visits, and 6 demonstrating that it meets both capacity and educational effectiveness standards. 7 Like other aspiring institutions, the Law School contemplated a day when it might 8 marshal sufficient resources to seek accreditation from WASC. 9 12. Over the past twenty-five years, the Law School and COL have 10 competed for students and faculty. COL is much larger than the Law School and 11 has approximately 250 students, thirty-seven faculty members and an 12 administrative staff of nine. In spite of the fact that COL is larger and has more 13 resources, the Law School established a strong presence in the tri-county region 14 15 16 17 18 19 20 21 because of its willingness to keep tuition costs low while maintaining a strong faculty and academic program. This commitment has allowed many current and past students to afford to earn a law degree. The Law School has had a number of students who transferred in good academic standing from COL, citing the lower cost of tuition as a key factor. In the past three years, the few commercial banks like Wells Fargo and Bank of America that were willing to provide loans to students have ceased doing so. As a result, the Law School's commitment to maintaining low tuition costs is more important than ever. With a population of over five million people in the tri-county region, the loss of the Law School as a 13. In mid-September 2009, Dean Pulle was approached by Figuli and 22 community resource would be tragic. 23 24 George R. Haynes ("Haynes"), the former Vice President of Academic Affairs for 25 the Santa Barbara Graduate Institute of Psychology (the "Institute"), regarding a 26 potential acquisition by TCS. The Institute had just become affiliated with TCS on 27 or about July 15, 2009, and Haynes, as a local educator and school administrator, 28 made the introduction. The Institute was motivated in part to engage in the 11 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 affiliation due to the prospect of achieving WASC accreditation and gaining access to federal student loans. Figuli and Haynes explained that TCS was interested in acquiring a California law school. Dean Pulle and his colleagues at the Law 4 School were told by Figuli and Haynes that they and HEG were authorized to act 5 on behalf of TCS as its agents and advisors. Figuli stated that he had extensive 6 background in strategic acquisitions in the education sector and that, through 7 defendant HEG, he had been assisting TCS with identifying suitable acquisition 8 candidates and structuring transactions. Figuli represented to Dean Pulle that he 9 had facilitated the recent TCS affiliation with the Institute. 10 14. Dean Pulle shared with Figuli and Haynes that the Law School was 11 approached in 2007 by a large university about a potential acquisition, but during 12 the course of those discussions, the university experienced certain financial 13 challenges and the discussions ended. Dean Pulle told Figuli and Haynes that he 14 15 16 17 18 19 20 21 was encouraged by the prospect of an acquisition with TCS because it would allow the Law School to seek regional WASC accreditation, increase enrollment, establish new programs, extend educational opportunities to foreign students and leverage existing resources, such as using one or both of the school's campuses for daytime programs. From the outset, Figuli, Haynes and TCS knew that there were two State-Bar accredited law schools in the tri-county area, but Figuli stated that TCS was very interested in pursuing an acquisition of the Law School. 15. Dean Pulle represented to Figuli and Haynes that an integral part of the school's mission was to serve low and moderate income working adults and 22 keep the total cost of the J.D. program in the range of $30,000.00 over the course 23 of the typical four year term. Further, Dean Pulle emphasized the commitment by 24 his Board and faculty to reduce law school earnings if necessary to ensure that the 25 program would remain affordable and accessible. Dean Pulle made it clear to 26 Figuli and Haynes that the Law School was not interested in an affiliation if that 27 would change the school's core mission or values, which included a focus on 28 rigorous academic standards. As proof of the success of its approach, Dean Pulle 12 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 emphasized the Law School's increasing profile in the community as a high quality law degree program, its outstanding faculty and Board members and the many notable keynote speakers at its graduation ceremonies. Figuli agreed to the 16. On September 24, 2009, the Law School and TCS entered into a 4 parameters set by the Law School. 5 6 Confidentiality and Non-Disclosure Agreement ("NDA"). The NDA was prepared 7 by TCS. Dean Pulle executed the NDA on behalf of the Law School. Jeff Keith 8 ("Keith"), Senior Vice President of Finance and Administration and Chief 9 Financial Officer for TCS, executed the NDA on behalf of TCS. Keith previously 10 served as the vice president of finance and the chief financial officer for The 11 Chicago School of Professional Psychology, which with more than 3,000 students 12 is TCS's largest higher education affiliate. At TCS, Keith is responsible for finance 13 and accounting, technology, human resources, real estate, online operations, 14 15 16 17 18 19 20 21 mergers and acquisitions, legal affairs, and strategy. A copy of the NDA is attached hereto as Exhibit 1. 17. The preamble to the NDA states that the Law School was to provide "access to proprietary, trade secret and confidential information..., which may include, without limiting the generality of the foregoing, strategies and strategic plans, business opportunities, business plans, financial reports, statements and projections, trade names and marks, documents, programs, techniques, know-how, and specifications...." The NDA referred to the collective of the confidential and proprietary information, both orally conveyed and in documentary form, as 22 "Information". The Information was to remain the property of the Law School 23 and used solely for the purpose of "facilitating a transaction" between TCS and the 24 Law School which the NDA referred to as "the 'Relationship'". NDA, preamble 25 and 1. TCS, its employees and agents were commanded "not to use, reproduce, or 26 directly or indirectly disclose or allow access to the [I]nformation except as 27 required to facilitate the Relationship." Id. (emphasis added). To alleviate any 28 13 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 4 5 6 7 8 lingering concerns the Law School might have regarding the release of its Information to TCS, the NDA took the extraordinary step of mandating that: "[TCS] shall protect the confidentiality of the Information from the date of its receipt hereunder with at least the same diligence and care as would be required of [TCS] if it were a fiduciary of the [Law School], that is the utmost good faith and care for the interests of the [Law School]." Id. 2 (emphasis added). 18. TCS faithfully promised that it would not use the Information the Law 9 School provided to "pursu[e] business opportunities or other arrangements or 10 endeavors of any kind" in violation of the NDA. Id. 10. This non-competition 11 covenant is proper because, inter alia, it is intended to prevent TCS from 12 competing with the Law School after receiving the school's confidential 13 Information. The NDA is governed by California law and "continue[s] until such 14 15 16 17 18 19 20 21 time as any Information received by [TCS] hereunder is returned to the [Law School] or destroyed." Id. 7. 19. Figuli and TCS led the Law School to believe that TCS would be its strong ally and enable the Law School to compete against the larger, and better funded, COL. The manner in which an alliance with TCS would enable the Law School to grow and successfully compete with COL was discussed in great detail during September, October and November 2009. At no point during any of these discussions did Figuli or TCS suggest that the price the Law School had proposed was unreasonable or unacceptable. Instead, the discussions focused on marketing 22 strategies, addition of new degree programs, initiation of internet based instruction, 23 the use of TCS's WASC-accreditation and the corresponding ability to offer 24 federally funded tuition loans to attract new students and other plans. In addition, 25 issues of governance, structures of control, methods of securing expanded 26 accreditation, and curriculum expansion were addressed. 27 20. Confident that it was working toward an acquisition, in early October 28 2009, the Law School released its most guarded Information to Figuli, HEG and 14 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 TCS. Among the documents that Dean Pulle and the Law School's Board of Directors prepared and released was a document entitled "Acquisition Profile and Initial Strategy For Regional Accreditation" dated October 1, 2009 ("Acquisition 4 Profile"). The Acquisition Profile set forth intimate details about the Law School's 5 plans and strategy, competitive challenges, financial affairs, cash flows, debts, 6 faculty matters, contractual obligations, capital stock structure and its proposed 7 terms for the sale of the Law School, including what the Dean and the Law 8 School's Board of Directors perceived as a fair price for the shares of common 9 stock held by the Law School's shareholders. Pursuant to TCS's due diligence 10 requests, the Law School provided the following: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (a) The Law School's By-Laws; (b) Stockholder ledgers; (c) Minutes of the Law School's Board of Director meetings; (d) The Dean's Annual Report to the Law School's Board of Directors with detailed enrollment data for three years; (e) An analysis of the Law School's financial condition with reference to the school's rent payments, cash on hand, ownership interests, and structure of administrative and faculty compensation (including actual dollar amounts); (f) The Law School's Balance Sheet, including beginning and ending balances for the past three years, and the taxes paid on the school's revenues; (g) Budgets and Profit & Loss Statements for 2009; (h) Independent CPA Compilation Reports for fiscal years 2005, 2006, 2007 and 2008; (i) U.S. corporate tax returns for three years for 2007, 2008, and 2009; (j) A report of cash balances as of August 31, 2010; (k) A marketing plan, including a pricing and competition analysis; (l) A detailed description of the Dean's Compensation Package, including his retirement plan; (m) Wage and salary information for staff and faculty; 15 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (n) Employee contracts, including sample faculty contracts; (o) Personnel files and personal academic biographies on faculty and administrative staff; (p) Faculty and Student Policy Manuals; (q) The Law School's real estate leases; (r) State Bar Inspection Reports, including the Law School's responses to the comments made by the inspectors and follow-up correspondence with the State Bar; and (s) Comprehensive State Bar annual registration filings that covered academic standing of all students, a report on drop-out rates, a budget for a library acquisition, faculty grading charts, a self-study completed by the Law School. 21. Although the confidential nature of the foregoing documents is apparent, the importance of Dean Pulle's imprimatur on the materials and his frank discussion of everything he, the Board and faculty had considered -- past, present and future -- cannot be overstated. For example, the documents related to the school's most recent State Bar inspection report are perhaps a law school's most sensitive and guarded Information. While somewhat less detailed, the Law School's annual registration filing with the State Bar also covers many of the same topics. These documents lay out, line by line, in elaborate detail, all the strengths and weaknesses (both real and perceived) of the Law School's operation, and give insight into an accrediting body's opinion on all facets of the school from basic 22 curriculum to the governing Board's discharge of its solemn duties to the school's 23 various constituencies. The materials include the Law School's responses to those 24 inquiries, addressing all of the State Bar's compliments, criticisms and 25 recommendations. 26 22. Dean Pulle candidly discussed with Figuli, Haynes and Keith, the Law 27 School's strengths, weaknesses and strategic plans with an emphasis on how its 28 partnership with TCS could be used to increase the Law School's competitive 16 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 advantage in the tri-county area. As the NDA demands, TCS and Figuli were charged with maintaining and using all of the foregoing Information with "at least" the same care as the Law School's most trusted fiduciary. The purpose of opening 4 the Law School's books and granting unlimited access to TCS was to facilitate an 5 acquisition of the Law School as the NDA expressly states. The Law School had 6 no reason to supply the Information for the purpose of facilitating TCS's affiliation 7 with the Law School's sole competitor. Had defendants even hinted at that 8 possibility, the Law School would not have supplied the Information or candidly 9 discussed its plans and strategy with TCS's representatives. 10 23. On November 17, 2009, Dean Pulle met with Figuli, Haynes and 11 Keith at the Law School's Ventura campus. As part of meeting, the group toured 12 the Santa Barbara campus, met with Vice Dean O'Neill and even a local Santa 13 Barbara realtor regarding the potential purchase of the campus building. During 14 15 16 17 18 19 20 21 those discussions, the parties addressed the reconfiguration of the Law School's Board of Directors, the establishment of Joint Advisory Boards, and the hiring of additional faculty and new law deans, among other topics. The gist of those discussions indicated that an acquisition of the Law School by TCS was imminent. Near the conclusion of the meeting, Haynes asked Keith, "What next..?" Keith replied, "We make an offer." Dean Pulle then asked Keith when he thought TCS would make an offer. Keith and Figuli responded that it would be sent to the Law School no later than mid-December 2009. Dean Pulle reported the results of the meeting, including the anticipated offer, to Vice Dean O'Neill and the Law 24. Later in the evening on November 17, 2009, Dean Pulle e-mailed 22 School's Board of Directors. 23 24 Figuli and Haynes suggesting that TCS and the Law School engage in a follow-up 25 discussion to address a few specific topics related to the acquisition, including such 26 issues as changing the Law School's name, the composition of the new board of 27 directors, the role of the current Board, and whether or not Figuli should serve on 28 the newly reconstituted board. On November 18, 2009, Figuli e-mailed Dean Pulle 17 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 thanking him for his thoughts and confirmed these suggestions would be taken into account. 25. The Law School did not receive any communication from TCS or 4 Figuli in December 2009. On January 21, 2010, Dean Pulle sent an e-mail to 5 Figuli, with copies to Haynes and Keith, requesting a "status report" on the process 6 toward an acquisition. On January 22, 2010, Figuli e-mailed Dean Pulle, with 7 copies to Haynes and Keith, stating as follows: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 "Stan, we appreciate you keeping us in mind. We were truly impressed with the remarkable accomplishments that you and your board have achieved in a very competitive environment. We believe that the reality of the situation at SCIL is that the achievements have been largely fueled by some rather extraordinary sacrifices on your part. That has, in our opinion, and based on a very limited review, created a financial model that would be difficult to perpetuate. If we were to recast the financial results of SCIL to reflect a sustainable administrative and operational model, the results would not provide a basis for the type of 'ask' that your board has made. Accordingly, it is our perception that an arrangement that would be acceptable to us would be very disappointing to your board. As a result of that analysis, we think it would be best for TCS to take a pass on the SCIL opportunity at this time." (italics omitted; emphasis added). 26. TCS made no counter offer even though it received not only the price 24 proposed by the Law School on or about October 1, 2009, but a written indication 25 from Dean Pulle in that same communication and subsequently in the parties' 26 discussions, that his Board would consider a lower amount and negotiate. Prior to 27 Figuli's January 22, 2010 e-mail, no one from TCS, including Figuli, Haynes or 28 Keith, suggested that the Law School's proposed price was unacceptable or 18 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 unreasonable. The last phrase in Figuli's e-mail that TCS would "pass on the SCIL opportunity at this time" left open the possibility that it was still considering a pending offer. Dean Pulle conveyed that impression to his Board and certain 4 faculty who had been involved in the negotiations. This inference is further 5 bolstered by the fact that paragraph 5 of the NDA obligates TCS upon termination 6 of the "Relationship" to "promptly destroy" the Information and "certify" its 7 destruction to the Law School. Paragraph 7 of the NDA, further provides that: 8 "Unless otherwise agreed, the Agreement shall continue until such time as any 9 Information received by TCS hereunder is returned to the [Law School] or 10 destroyed." The Law School's documentary Information was neither destroyed nor 11 returned and no certification of its destruction has been provided. The Law School 12 made no request for the return of the documentary Information given its belief (and 13 hope) that further discussions with TCS might ensue. Most fundamentally, it had 14 15 16 17 18 19 20 21 no idea of defendants' intentions to misuse the Information and abuse the "Relationship" of trust and confidence created by the NDA and the parties' course of dealing. 27. In violation of the NDA, their fiduciary duties owed to the Law School and applicable federal and state law, the defendants made a calculated decision to misuse the Law School's Information, conveyed both in documents and orally by Dean Pulle and Vice Dean O'Neill, as a means for acquiring the Law School's longtime rival, COL. TCS, through its affiliation with COL, has now become the Law School's sole competitor with full knowledge of the Law School's 22 most intimate and confidential information and trade secrets. Haynes recently 23 confirmed to Dean Pulle in a telephone conversation in late September 2010, that 24 Figuli is still in possession of the Law School's documentary Information and that 25 Figuli was involved in facilitating TCS's acquisition of COL. 26 28. It may reasonably be inferred that defendants approached COL during 27 the time they were engaged in discussions with the Law School or soon thereafter, 28 but concealed their wrongful intent from the plaintiff. This inference is supported 19 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 by the large gap in time between the November 17, 2009 meeting and Figuli's January 22, 2010 e-mail sent only hours after Dean Pulle inquired about why he had not heard anything further from TCS. COL's Website confirms that TCS 4 approached COL regarding the possible affiliation. The defendants further admit 5 in documents on their Websites that COL and TCS obtained approval from the 6 State Bar's Committee of Bar Examiners for their affiliation in July 2010. It takes 7 a month or more to obtain such approval. When one considers the time needed to 8 conduct due diligence and negotiate their affiliation, it is reasonable to infer that 9 defendants' initial contact with COL occurred contemporaneously with or soon 10 after their discussions with the Law School. The misuse of the Law School's 11 Information is likewise apparent from these facts because defendants were bound 12 to act with the highest of fiduciary standards toward the Plaintiff. NDA 2. 13 Having gained access to plaintiff's Information, the NDA restricted the defendants 14 15 16 17 18 19 20 21 from using the Information other than to "facilitat[e] a transaction" with the plaintiff and effectively barred defendants from becoming the Law School's competitor because to do so would violate their contractual and fiduciary obligations. See NDA 10 (TCS shall not "pursu[e] business opportunities or other arrangements or endeavors of any kind" in violation of the NDA). 29. In other words, defendants' misconduct is worse than a case involving the misappropriation of a plaintiff's trade secrets. The misconduct here is qualitatively different than using a stolen process or technology in another product, even a directly competing product or service. Instead, defendants' theft is 22 incidental; the harm is really TCS's misuse of the information to eliminate the Law 23 School's ability to compete and put it out of business. TCS effectively gave up the 24 right to acquire COL once it obtained plaintiff's information in a fiduciary context. 25 The NDA was drafted by TCS and it assumed the fiduciary role entirely on its own 26 volition. The sine qua non of the Law School's release of its Information was 27 TCS's fiduciary promise. The essence of fiduciary responsibility is candor, loyalty 28 and safeguarding trust. Otherwise, deception and self-interest are likely outcomes 20 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 -- the antithesis of fiduciary law. In the legendary words of the Honorable Benjamin N. Cardozo: "Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A 4 trustee is held to something stricter than the morals of the market place. Not 5 honesty alone, but the punctilio of an honor the most sensitive, is then the standard 6 of behavior." Meinhard v. Salmon, 249 N.Y. 458, 464 (1928). 7 30. The Law School first learned of defendants' wrongful conduct through 8 news reports on or about September 22, 2010. The press release, dated September 9 21, 2010, jointly published by TCS and COL and carried on their respective 10 Websites and by various news services, including Reuters and the Pacific Coast 11 Business Times, confirmed that TCS and COL entered into an affiliation agreement 12 effective October 1, 2010. Referring to COL as "the Central Coast's preeminent 13 law school," the press release confirms that under its new leadership, COL, using 14 15 16 17 18 19 20 21 TCS's expertise in regulatory affairs, plans to seek WASC accreditation which will bring access to federal student financial aid programs. In the September 21, 2010, press release, COL Dean Heather Georgakis, is quoted as saying, "This affiliation will strengthen the law school and its long-term growth potential by adding new resources, generating economies of scale and creating new opportunities for lawrelated education." Among the "new opportunities" planned by TCS and COL are adding online courses, additional law programs (as may be allowed by the State Bar), multi-disciplinary and joint programs in other disciplines within the expertise of TCS's affiliates, and access to advanced educational technology and academic 22 support. As part of the agreement, TCS will also provide administrative and 23 student support services, marketing assistance, accounting and human resources. 24 COL will continue to be governed by a board of trustees, but as COL's supporting 25 entity, TCS will join with the trustees to create a "fiduciary council" that will meet 26 annually to decide on major budget and strategic issues, including plans for COL's 27 expansion. 28 21 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 31. In spite of defendants' betrayal and the harm inflicted on the Law School, plaintiff is primarily seeking injunctive relief to prevent TCS from taking any further steps to pursue the affiliation with COL rather than monetary damages. 4 The plaintiff's greatest concern is preserving the opportunity for an underserved 5 population of current and future students to attend the Law School. Nearly twenty6 five years of tireless efforts and sacrifice, as defendants themselves acknowledge, 7 have yielded a wonderful community resource with an outstanding faculty, grateful 8 and accomplished alumni, and a reputation of integrity and scholarship. All of this 9 is now placed in jeopardy by making it unlikely that the Law School will survive 10 due to the defendants' misuse of the confidential Information, unlawful competition 11 and other wrongdoing. Until now, the Law School has successfully competed with 12 rival COL by keeping its tuition low and offering what many view as the superior 13 legal education. With TCS's vast resources, including its marketing savvy, the 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Law School has no chance of continuing to differentiate itself successfully. The defendants and COL have already begun marketing the affiliation as major advantage on their Websites and at Open Houses being held at COL's campuses during October and November of 2010. On COL's Website under a heading entitled, "Frequently Asked Questions About Affiliation Between the Colleges of Law and TCS ES," COL states: "What will TCS ES bring to the Law School and its students? TCS ES will provide administrative support and services that are otherwise cost-prohibitive to a stand-alone institution the size of the Colleges. The Colleges will be able to update and streamline operations in a variety of areas, including student services, academic support, marketing, accounting and human resources. Students will benefit from the kind of improvements in campus technology that will allow them to mix onsite and online courses, learn in "smart" classrooms, use robust online course support software, and interact more easily with the Administration Office. TCS ES will also provide 22 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 4 5 6 7 dedicated expertise in regulatory affairs, regional accreditation, and Title IV Federal financial aid. And, through this affiliation the Colleges of Law will be better positioned to take our mission, expertise, and access to the study of law to new students as we expand our horizons and chart a course of growth and continued development." 32. COL's rivalry with the Law School is both long-lived and often 8 intense. Only a few days ago, at an Open House held on October 19, 2010, COL's 9 Assistant Dean Barbara Doyle emphatically discouraged prospective law students 10 from attending the Law School exclaiming, "Oh no, no, no, that's our competitor, 11 don't go there!" Assistant Dean Doyle's presentation focused on the "advantages" 12 of attending COL from the perspective of cost and the relative value of the 13 anticipated education, based in part on TCS's affiliation, and argued that COL 14 15 16 17 18 19 20 21 compared favorably to several other California law schools. Notably absent from her presentation was any comparison to the Law School. 33. With the combined resources of COL and TCS, however, it will be much more difficult, if not impossible, for the small Law School to compete. With its present resources, the Law School cannot possibly offer the services promised by COL to current and prospective students or match TCS's likely administrative and technological innovations. In addition, TCS's affiliation with COL has reduced the likelihood to nil that the Law School might be perceived as an attractive acquisition candidate to another large education organization. This is so 22 because competition in the tri-county area will be much more expensive and 23 challenging. 24 34. Not only is TCS-COL wealthy and resource rich, they are armed with 25 the Law School's misappropriated Information and best strategic thinking of its 26 deans, faculty and Board placing the Law School at a distinct competitive 27 disadvantage. To the extent the Law School's confidences reveal strengths, TCS 28 and COL can now use the information to emulate the Law School's strengths. To 23 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 the extent the misappropriated Information reveals the Law School's weaknesses, they can direct their efforts at exploiting those weaknesses. Additionally, by unlawfully using its market power, TCS is in a position to poach on current and 4 future students of the Law School through the promise of federally funded tuition 5 loans. This is even more of a threat in light of the current tight credit market. 6 35. By contrast, had TCS sought to compete fairly, even with its wealth 7 and resources, it would be a relatively weak competitor if it were to try and start a 8 law school on its own. The barriers to entry in California for new law schools are 9 considerable, including the likelihood of a decade or more of effort to achieve 10 State Bar accreditation. In addition to the lesser status accorded unaccredited 11 schools, first year students are required to take and pass the "Baby Bar" (formally, 12 the "First Year Law Students' Examination-FYLSX") before they can move ahead 13 in school. The pass rate on this exam is usually only 10 to 15 percent which can be 14 15 16 17 18 19 20 21 devastating financially to a new law school given the high attrition rate. This is the main reason why TCS sought to acquire an existing school -- a key point Figuli and other TCS representatives discussed with Dean Pulle. 36. The Law School has competed successfully with COL for many years and welcomes increased opportunities for all students, particularly those who might benefit from access to student loans and improvements in the educational process. These are all good things in the abstract. But the law should not condone wrongdoing even if the wrongdoing may create social good for some. To do otherwise is Machiavellian. Without injunctive relief, the Law School will lose the 22 ability to compete, suffer a downturn in its enrollment and may go out of business. 23 Working class students and the Law School's dedicated faculty and administrative 24 staff will all fall victim to defendants' wrongdoing masquerading as "social impact" 25 and progress. Injunctive relief levels the playing field allowing TCS and COL to 26 continue to do business as they did before TCS misappropriated all of the plaintiff's 27 most closely guarded secrets to gain an unfair competitive advantage. 28 24 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 AGENCY ALLEGATIONS 37. Each of the defendants was the agent of the other defendants in regard to all events and actions described herein and acted within the course and scope of CONSPIRACY ALLEGATIONS 38. 39. Defendants, and each of them, agreed and knowingly and willfully In order to further and effectuate this conspiracy, defendants, and each 4 such agency at all relevant times. 5 6 7 conspired to facilitate and enter into the COL affiliation. 8 9 of them, misused and misappropriated plaintiff's Information and trade secrets, 10 breached their fiduciary duties to the plaintiff, as further alleged below, concealed 11 and misrepresented material facts, engaged in unfair competition and committed 12 other unlawful acts. Defendants' wrongdoing is continuing as they move forward 13 with the COL affiliation. 14 15 16 17 18 19 20 21 40. Defendants' acts were done with the full knowledge and consent of each of them and caused injury to the plaintiff, including, the imminent threat of irreparable harm. FIRST CLAIM FOR RELIEF (Breach Of Contract Against TCS) 41. Plaintiff hereby repeats, realleges and incorporates by reference the allegations which are contained in paragraphs 1 through 40, above. This first claim for relief is alleged against defendant TCS. 42. The NDA is a valid and enforceable contract. The fiduciary 22 obligations, confidentiality covenants and other provisions contained therein were 23 and are reasonably necessary to protect plaintiff's legitimate interests in 24 safeguarding its trade secrets, confidential information, financial data, faculty and 25 employee relationships and competitive standing. 26 43. Plaintiff fully performed all of its obligations under the NDA except 27 for those that have been discharged or excused by defendant's prior breaches or 28 other wrongful acts. 25 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 44. TCS is breaching or threatens to breach the NDA in at least the (a) Keeping the Information, as defined in the NDA, in its possession; (b) Misusing the Information, documentary and otherwise, to compare the Law School to COL, facilitate its affiliation transaction with COL and obtain an unfair competitive advantage over the plaintiff; (c) Refusing to certify the destruction of the Information; (d) Failing to protect the confidentiality of the Information in at least the same manner as a fiduciary of the Law School would do; (e) Violating its covenant not to compete against the Law School by using the Information it obtained pursuant to the NDA to pursue an affiliation with COL. following ways: 45. As a direct and proximate result of any one or all of these breaches, plaintiff has been injured and faces irreparable harm. Plaintiff is threatened with losing students, its competitive advantage, trade secrets and goodwill in amounts which may be impossible to determine, unless TCS is enjoined and restrained by order of this Court. 46. Alternatively, plaintiff has suffered actual damages in an amount that exceeds $75,000, which plaintiff will prove at the time of trial. In addition, defendants have been unjustly enriched to the extent that they are profiting unfairly from their use of plaintiff's confidential Information and trade secrets and their violation of the non-competition covenant. SECOND CLAIM FOR RELIEF 47. Plaintiff hereby repeats, realleges and incorporates by reference the 23 (Breach Of Implied Covenant Of Good Faith And Fair Dealing Against TCS) 24 25 allegations which are contained in paragraphs 1 through 46, above. This second 26 claim for relief is alleged against defendant TCS. 27 48. By its express terms the NDA is governed under California law. As 28 such, the NDA contains an implied covenant of good faith and fair dealing that 26 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 4 required TCS to do nothing to deprive the plaintiff of the benefits of the NDA. The implied covenant of good faith and fair dealing also obligated defendant to do everything that the NDA presupposes that it had to do to accomplish its purpose. 49. TCS breached the implied covenant of good faith and fair dealing 5 when it failed to return or certify the destruction of the plaintiff's documentary 6 Information and used such Information and the other confidential data and trade 7 secrets plaintiff orally conveyed to it for the purpose of facilitating its affiliation 8 transaction with TCS. In addition, TCS promised directly or indirectly that it 9 would not pursue a transaction with plaintiff's competitor and in doing so breached 10 the implied covenant. 11 50. Plaintiff fully performed all of its obligations under the NDA except 12 for those that have been discharged or excused by defendant's prior breaches or 13 other wrongful acts. 14 15 16 17 18 19 20 21 51. As a direct and proximate result of TCS's acts and breaches of the Plaintiff is threatened with losing implied covenant of good faith and fair dealing implied in the NDA, plaintiff has been injured and faces irreparable harm. students, its competitive advantage, trade secrets and goodwill in amounts which may be impossible to determine, unless TCS is enjoined and restrained by order of this Court. 52. Alternatively, plaintiff has suffered actual damages in an amount that THIRD CLAIM FOR RELIEF 53. Plaintiff hereby repeats, realleges and incorporates by reference the exceeds $75,000, which plaintiff will prove at the time of trial. 22 (Breach Of Fiduciary Duty and Aiding And Abetting Against All Defendants) 23 24 allegations which are contained in paragraphs 1 through 52, above. This third 25 claim for relief is alleged against all defendants. 26 54. By reason of TCS's obligations under the NDA to act in a fiduciary 27 capacity and the course of dealing between the parties whereby the plaintiff was 28 encouraged to repose trust and confidence in the defendants, defendants owed 27 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 plaintiff fiduciary obligations of due care, candor, compliance, fidelity, trust, loyalty, obedience and good faith. Defendants, and each of them, occupied a special relationship to the plaintiff by virtue of the parties' contractual agreement 4 and course of dealing. Defendants were privy to confidential and proprietary 5 Information concerning the plaintiff, its operations, material contracts, future 6 prospects and financial condition. Defendants were allowed access to plaintiff's 7 confidential Information and secrets based on their solemn promise that they would 8 exercise the utmost good faith and care in their dealings with the plaintiff. 9 55. In discharging their fiduciary duties, defendants were required to treat 10 plaintiff in a fair, equitable and just manner and refrain from doing anything 11 detrimental to the plaintiff's interests. In addition, having obtained the plaintiff's 12 Information and secrets and committed to only using same for the purpose of 13 acquiring plaintiff, defendants could not use the Information and secrets in a 14 15 16 17 18 19 20 21 manner that would benefit themselves at plaintiff's expense. By virtue of the fiduciary duties owed to the plaintiff, defendants were precluded from competing with the plaintiff and/or affiliating with COL, plaintiff's longtime competitor. 56. Defendants breached these duties by misusing plaintiff's Information and secrets, engaging in unfair competition with the plaintiff and/or affiliating with plaintiff's rival. 57. In discharging their fiduciary duty of candor, the defendants were required to ensure that they were accurate and truthful and did not conceal or misstate material facts. Defendants breached their fiduciary duties of candor by 22 concealing their dealings with COL and failing to negotiate with the plaintiff in 23 good faith. 24 58. The defendants aided and abetted and rendered substantial assistance 25 in the wrongs complained of herein. In taking such actions, each defendant acted 26 with knowledge of the primary wrongdoing, substantially assisted the 27 accomplishment of that wrongdoing and was aware of his or its overall 28 contribution to and in furtherance of the wrongdoing. 28 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 59. As a direct and proximate result of defendants' breaches of their fiduciary duties of loyalty, good faith, due care and candor, and aiding and abetting those breaches, and other misconduct, plaintiffs has been injured and faces 4 irreparable harm. Alternatively, plaintiff sustained and continues to sustain 5 significant damages in an amount to be proven at trial. 6 60. In failing to properly discharge their fiduciary duties, the defendants, 7 singly and in concert, engaged in the aforesaid misconduct in intentional breach 8 and/or reckless disregard of their duties to the plaintiff. 9 61. Further, defendants pursued such course of conduct intentionally and 10 maliciously with the intention of furthering their own economic interest at the 11 expense of plaintiff. By reason of these wrongful acts, plaintiff is entitled to an 12 award of punitive and exemplary damages against the defendants. 13 14 15 16 17 18 19 20 21 FOURTH CLAIM FOR RELIEF (Negligent Misrepresentation Against All Defendants) 62. Plaintiff hereby repeats, realleges and incorporates by reference the allegations which are contained in paragraphs 1 through 61, above. This fourth claim for relief is alleged against all defendants. 63. From the moment they first made contact with the plaintiff, defendants knew that there were only two law schools in the tri-county region. From the outset of the parties' discussions, defendants represented to the plaintiff that they intended to become plaintiff's ally and compete with COL. The collaboration between TCS and the Law School was explored in depth with the 22 specific goal of creating a strong competitive alliance against COL. Throughout 23 the course of the parties' discussions, defendants represented that they intended to 24 acquire the Law School. These affirmative representations carried an implied 25 promise and representation that defendants would not pursue an affiliation with 26 COL. In reliance on the defendants' expressed and implied representations, the 27 Law School agreed to the NDA and provided defendants with complete access to 28 its confidential Information and trade secrets, including, but not limited to, its 29 COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES 1 2 3 monthly bank statements, cash on hand, Profit and Loss statements, State Bar inspection reports, prior self-studies, Board of Directors Minutes, administrative and faculty compensation structures, strategies for new degree programs and 4 curriculum development, student profiles, recruitment strategies, budgets and 5 strategic plans. 6 64. Prior to obtaining plaintiff's confidential Information and secrets, 7 defendants had a duty to disclose to the Law School that they might explore an 8 acquisition of plaintiff's rival and would consider competing with plaintiff if an 9 agreement to acquire the Law School was not reached. Defendants had a further 10 duty to inform the plaintiff that they intended to open discussions with COL so that 11 plaintiff could act to safeguard its rights and seek to prevent the affiliation. 12 Instead, defendants concealed their true intentions and the foregoing material 13 information from the plaintiff causing the plaintiff to suffer injury. 14 15 16 17 18 19 20 21 65. 66. Defendants made the foregoing materially misleading statements and Defendants intended to induce and did induce the plaintiff to rely on omissions without reasonable grounds for believing them to be true. their misrepresentations in agreeing to provide the confidential Information and secrets and refrain from taking action to protect its rights and business interests. 67. Plaintiff was unaware of the falsity of the foregoing misstatements and omissions and justifiably relied on them. Had plaintiff known the true facts, it would not have agreed to provide its confidential Information and secrets to defendants and would have brought suit to enforce its rights, including seeking 68. As a direct and proximate result of defendants' misrepresentations and 22 appropriate injunctive and declaratory relief. 23 24 omissions, plaintiff suffered injury and subst

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