Purchasing Power, LLC v. Bluestem Brands, Inc.

Filing 158

OPINION AND ORDER that Counts VI and VII of Plaintiff's Amended Complaint are DISMISSED for failure to comply with Rule 15(a)(2) of the Federal Rules of Civil Procedure. IT IS FURTHER ORDERED that Defendant's Motion for Summary Judgment 127 is GRANTED IN PART and DENIED AS MOOT IN PART. It is DENIED AS MOOT with respect to Counts VI and VII of Plaintiff's Amended Complaint. It is GRANTED with respect to all remaining claims. IT IS FURTHER ORDERED that Plaintiff's Motion for Trial by Jury 155 is DENIED AS MOOT. Signed by Judge William S. Duffey, Jr on 5/9/2014. (anc)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
PURCHASING POWER, LLC,
Plaintiff,
v.

1:12-cv-258-WSD

BLUESTEM BRANDS, INC.,
Defendant.

OPINION AND ORDER
This matter is before the Court on Defendant’s Motion for Summary
Judgment [127] and Plaintiff’s Motion for Trial by Jury [155].
I.

BACKGROUND
This is a commercial dispute between companies that compete in the

business of “payroll deduction” sales. Plaintiff Purchasing Power, LLC
(“Plaintiff”) alleges that Defendant Bluestem Brands, Inc. (“Defendant”)
misappropriated Plaintiff’s trade secrets, violated provisions of a confidentiality
agreement between the parties, and engaged in fraud against Plaintiff.

A.

Factual Background1

Defendant is a national retailer whose business largely consists of selling
consumer products to low-income and “credit-constrained” customers by allowing
purchases to be completed with payments “over time.” (SUMF ¶¶ 3–5.) Purchases
are made through mail order catalogs and over the internet. (Id.) At least as early
as March 2010, Defendant began exploring methods to sell more “big ticket”
items, priced between $500 and $2,000. (Id. ¶ 19; Resp. SUMF ¶ 19.)
Plaintiff is a retailer that sells “big ticket” consumer products through a
“voluntary payroll deduction” program called Purchasing Power. (See SAMF
¶¶ 1–6.) Plaintiff markets Purchasing Power to employers as a benefit to offer to
their employees. (See id.) Under the program, employees may purchase products
from Plaintiff and pay for them by having installment payments deducted from

1

These facts are taken from Defendant’s Statement of Undisputed Material Facts
[127-2] (“SUMF”) and Plaintiff’s Statement of Additional Material Facts [146]
(“SAMF”), submitted in accordance with Local Civil Rule 56.1. Where a party
disputed a factual assertion contained in a statement of facts, the Court also
considered the specific exhibits cited in support of the assertion. See LR
56.1(B)(3), NDGa (providing that the court deems a party’s SUMF citation as
supportive of the asserted fact “unless the respondent specifically informs the court
to the contrary in the response”). In numerous instances, the parties asserted, in
their responses to the statements of facts, additional facts not relevant to admitting
or disputing a fact. These factual assertions are not permitted under Local Civil
Rule 56.1 and are improper because they deny the opposing party the opportunity
to respond. The Court does not consider these extraneous argumentative facts.

2

their paychecks. (See id.)
In June 2010, one of Defendant’s investors informed Defendant’s CEO that
Plaintiff’s business might be for sale and could represent a business opportunity for
Defendant. (SUMF ¶¶ 74–77.) Defendant’s executives, who were not previously
aware of Plaintiff or its Purchasing Power business model, conducted preliminary
research on Plaintiff and determined that its “payroll deduction” model could be a
way for Defendant to expand into the “big ticket” product purchase market. (Id.
¶ 78.) Defendant’s executives expressed their interest in meeting with Plaintiff,
and Defendant’s investor arranged a telephone meeting between the parties’
principals to be conducted July 27, 2010. (Id. ¶¶ 84–85.) During the July 27,
2010, telephone call, the parties exchanged general information about their
respective businesses. (Id. ¶ 85.)
The next day, on July 28, 2010, Defendant commenced an internal effort,
named “Project Cortes,” to evaluate developing its own “payroll deduction” model
for “big ticket” sales. (Id. ¶¶ 108–109.) The Project Cortes team, which included
employees with consumer credit experience, began researching a “go-to-market”
strategy for a payroll deduction sales program. (Id. ¶¶ 112–113, 115–117.)
In August 2010, Plaintiff and Defendant indicated their mutual interest in
pursuing a merger of their businesses, or an acquisition of Plaintiff by Defendant.

3

(Id. ¶ 90.) The parties agreed to enter into a Non-Disclosure Agreement (“NDA”)
to govern the exchange of business information during the parties’ business
combination negotiations. (Id.) Defendant’s in-house counsel drafted the NDA,
which the parties entered into on September 1, 2010. (Id. ¶¶ 91, 97.)
The NDA stated that the parties were “engaged in competitive businesses.”
(SAMF ¶ 68.) The NDA also provided that Plaintiff would provide “confidential
information,” as defined in the NDA, to Defendant to allow Defendant to conduct
due diligence in connection with its evaluation of whether to purchase or otherwise
invest in Plaintiff. (SAMF ¶¶ 67, 70.) Section 4 of the NDA prohibited Defendant
from using any “confidential information” for any purpose other than due
diligence. (SAMF ¶ 67.) Section 6 of the NDA required Defendant to allow
Plaintiff access to review Defendant’s “operations and procedures to ensure
compliance” with the NDA’s requirements. (SUMF ¶ 100.)
From mid-September to early December 2010, Defendant conducted its
evaluation of Plaintiff’s business in a project Defendant named “Project Braves.”
(Id. ¶ 130.) In September 2010, after the NDA was executed, Defendant separated
the Project Braves and Project Cortes teams. (Id. ¶ 123.) The separation was to
avoid the communication of information shared with Defendant during business

4

combination negotiations to members of the Project Cortes team. (Id.)2 The
Project Cortes team continued to develop a payroll deduction product, including by
meeting with Defendant’s payroll department to understand payroll deduction,
researching the applicability of sales taxes, and meeting with benefits brokers to
determine an effective broker commission. (Id. ¶¶ 245, 253.)
While Defendant’s Project Cortes work was ongoing, Plaintiff’s and
Defendant’s executives met at each other’s headquarters on different occasions in
connection with their business combination discussions. (Id. ¶¶ 131, 134.) During
one of these meetings, an executive of Defendant told Plaintiff’s executives that he
had never before considered a payroll deduction product like Purchasing Power.
(Id. ¶ 133.) Over the course of Defendant’s due diligence to consider merger with
or acquisition of Plaintiff, Plaintiff disclosed information to Defendant that
Plaintiff characterizes as “confidential” under the NDA and a “trade secret” under
state law. (See, e.g., SAMF ¶¶ 121–125.)
On December 17, 2010, Defendant made its formal offer to purchase
Plaintiff’s business. (SUMF ¶ 150.) Plaintiff rejected the offer, and did not make
a counteroffer. (Id. ¶ 152.) On January 5, 2011, Plaintiff informed Defendant that
2

The parties dispute whether the separation of the teams was maintained after the
end of Project Braves in January 2011.

5

it was formally terminating its negotiations with Defendant, and requested
Defendant to return or destroy Plaintiff’s confidential information as provided by
the NDA. (SAMF ¶ 140.) On February 23, 2011, Defendant’s in-house counsel
advised Plaintiff that Defendant had returned or destroyed Plaintiff’s confidential
information that was provided. (Id. ¶¶ 141–142.)
During the parties’ negotiations, Defendant did not disclose to Plaintiff the
Project Cortes work Defendant had commenced to evaluate offering its own
payroll deduction product purchase system. (Id. ¶ 219.)
In July 2011, the payroll deduction product Defendant developed was
branded by Defendant as “PayCheck Direct.” (SUMF ¶ 259.) In November 2011,
Defendant launched a “beta” version of its PayCheck Direct by offering it to
Defendant’s employees. (Id. ¶ 270.) In May 2012, Defendant, having refined its
program during its beta test, began marketing its PayCheck Direct program to
outside clients. (Id. ¶¶ 272–273.) The final version of PayCheck Direct was in
some respects similar to, and in other respects different from, the Purchasing
Power program. (See id. ¶ 274; SAMF ¶ 215.) For example, differences between
the programs’ features included the following:

6

Feature
SKUs
Assumed participation rate
Assumed loss ratio
Average order size
Spending limit as a
percentage of income

PayCheck Direct
1200 “offers”
5% to 10%
8% to 10%
$1,000
3% to 3.5%

Purchasing Power
775 “offers”
5%
5% to 6%
$1,300
6.5% to 7.5%

(SAMF ¶ 215.)3
In November 2011, Plaintiff learned that Defendant’s PayCheck Direct
product was being offered and responded by demanding to review Defendant’s
compliance with the NDA, as provided by Section 6 of the NDA. (Id. ¶ 216.)
Defendant responded by advising Plaintiff that it had returned or destroyed all of
Plaintiff’s confidential information. (Id. ¶ 217; SUMF ¶ 276.) It was later
discovered that Defendant was, after November 2011, in possession of some of
Plaintiff’s confidential documents. (SAMF ¶ 223.) 4
B.

Procedural History
1.

Pleadings and Motion to Dismiss

On December 21, 2011, Plaintiff filed this action against Defendant in the
3

These differences are shown on a chart, prepared by Plaintiff, comparing the two
products. (See SAMF ¶ 223.) Defendant submitted a separate chart detailing
numerous additional differences between the products. (See SUMF ¶ 274.)
4

There is not any evidence that these documents were withheld from destruction
for use by the Project Cortes team. Defendant claims they were maintained
inadvertently. (SAMF ¶ 225.)

7

Superior Court of Fulton County, Georgia. In its Complaint [1-1] (the “Original
Complaint”), Plaintiff essentially asserts four (4) claims: (i) violation of the
Georgia Trade Secrets Act (Count I); (ii) breach of contract (Count II); (iii) fraud,
including both fraudulent misrepresentations and fraudulent omissions (Count IV);
(iv) and negligent misrepresentation (Count V).5
On January 25, 2012, Defendant removed the action to this Court on the
basis of diversity jurisdiction.
On February 2, 2012, Defendant filed a Motion to Dismiss [12] seeking
dismissal of Plaintiff’s fraud and negligent misrepresentation claims on multiple
grounds, including because the claims were not pleaded “with particularity” as
required under Rule 9(b) of the Federal Rules of Civil Procedure. In its opposition
to the Motion to Dismiss, Plaintiff requested leave to re-plead its fraud and
negligent misrepresentation claims “if the Court finds that Plaintiff’s
allegations . . . are insufficient to state a claim for fraud and/or negligent
misrepresentation.”6 (Pl.’s Opp’n Mot. Dismiss [26] at 22–23.7) On July 27, 2012,
5

The Original Complaint also asserts as separate “counts” claims for “Preliminary
and Permanent Injunction” (Count III), “Punitive Damages” (Count VI), and
“Attorney’s Fees” (Count VII).
6

Plaintiff did not request leave to assert any additional claims.

7

Citations are to ECF page numbers.
8

the Court entered an Order [35] granting Defendant’s Motion to Dismiss on the
ground that the fraud and negligent misrepresentation claims failed to satisfy Rule
9(b). In its Order, the Court granted Plaintiff’s request to re-plead, allowing
Plaintiff “to file an amended complaint within twenty (20) days . . . to address the
pleading shortcomings identified.” (Order [35] at 18.) The Court did not grant
Plaintiff leave to assert any additional claims.
On August 16, 2012, Plaintiff filed its Amended Complaint [39] re-pleading
the Original Complaint’s fraud and negligent misrepresentation claims. Plaintiff
also included in the Amended Complaint, as Counts VI and VII, new claims for
tortious interference with contractual relations and tortious interference with
business relations. Plaintiff did not seek, and the Court did not grant, leave to
assert these tortious interference claims.
2.

Discovery

Discovery began when the Court issued its July 27, 2012, Order on
Defendant’s Motion to Dismiss. Several discovery disputes arose shortly after
discovery started. Principal among them was Plaintiff’s claim that Defendant
failed to produce numerous documents pertaining to the alleged misappropriation
of the claimed trade secrets, and Defendant’s claim that Plaintiff had failed to
specifically identify the trade secrets it alleged were misappropriated. On

9

August 29, 2013, the Court conducted a telephone conference with the parties to
resolve this dispute. As a prerequisite to Defendant’s document production, the
Court ordered that Plaintiff answer Defendant’s interrogatory requiring Plaintiff to
“[i]dentify with particularity” its alleged trade secrets. (See Hr’g Tr. [41] at 9–10;
see also Def.’s Tab 302 [136-35] at 4.)
On September 4, 2012, Plaintiff responded to Defendant’s interrogatory,
requiring Plaintiff to specifically identify its alleged trade secrets. Plaintiff’s
response identified twelve (12) broad categories of information stating that
Defendant “was provided with detailed information” in these categories. These
categories were described as: (i) “confidential financial data,” (ii) “credit
facilities,” (iii) “credit underwriting matrices,” (iv) “portfolio
performance/analysis,” (v) “customer profiles,” (vi) “sales and marketing
information,” (vii) “shipped revenues,” (viii) “repeat buyers,” (ix) “industry
concentrations,” (x) “merchandising trends,” (xi) “product development
information,” and (xii) “operations and IT.” (SUMF ¶ 302; Def.’s Tab 302 [13635] at 4–5.)
On November 21, 2012, following a protracted dispute between the parties
over the specificity of Plaintiff’s identification of its alleged trade secrets,
Plaintiff’s counsel sent to Defendant’s counsel a letter identifying, by Bates

10

number, fifteen (15) documents it claimed contained Plaintiff’s alleged trade
secrets. (See SUMF ¶ 304; Def.’s Tab 304 [137-1] at 16–17.) The letter did not
identify the specific information in the documents that Plaintiff alleges are its trade
secrets.
3.

Pending Motions

On May 17, 2013, Plaintiff filed its Motion for Trial by Jury seeking leave to
untimely request a jury trial in this matter.
On July 1, 2013, Defendant filed its Motion for Summary Judgment seeking
judgment in its favor on all of Plaintiff’s claims.
In connection with the Motion for Trial by Jury and the Motion for
Summary Judgment, the parties submitted to the Court redacted briefs and
numerous exhibits with redactions. The parties, however, failed to file, under seal
or otherwise, unredacted versions of their submissions. At the Court’s direction,
the parties re-filed their respective Motions, along with unredacted submissions, on
March 17 and 18, 2014.8

8

In this Order, the Court refers to, and relies on, the unredacted submissions.

11

II.

DISCUSSION
A.

Legal Standard

A court “shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). Parties “asserting that a fact cannot be or is
genuinely disputed must support that assertion by . . . citing to particular parts of
materials in the record, including depositions, documents, electronically stored
information, affidavits or declarations, stipulations (including those made for
purposes of the motion only), admissions, interrogatory answers, or other
materials.” Fed. R. Civ. P. 56(c)(1).
The party seeking summary judgment bears the burden of demonstrating the
absence of a genuine dispute as to any material fact. Herzog v. Castle Rock
Entm’t, 193 F.3d 1241, 1246 (11th Cir. 1999). Once the moving party has met this
burden, the non-movant must demonstrate that summary judgment is inappropriate
by designating specific facts showing a genuine issue for trial. Graham v. State
Farm Mut. Ins. Co., 193 F.3d 1274, 1282 (11th Cir. 1999). Non-moving parties
“need not present evidence in a form necessary for admission at trial; however,
[they] may not merely rest on [their] pleadings.” Id.
The Court must view all evidence in the light most favorable to the party

12

opposing the motion and must draw all inferences in favor of the non-movant, but
only “to the extent supportable by the record.” Garczynski v. Bradshaw, 573 F.3d
1158, 1165 (11th Cir. 2009) (quoting Scott v. Harris, 550 U.S. 372, 381 n.8
(2007)). “[C]redibility determinations, the weighing of evidence, and the drawing
of inferences from the facts are the function of the jury . . . .” Graham, 193 F.3d at
1282. “If the record presents factual issues, the court must not decide them; it must
deny the motion and proceed to trial.” Herzog, 193 F.3d at 1246. But, “[w]here
the record taken as a whole could not lead a rational trier of fact to find for the
non-moving party,” summary judgment for the moving party is proper. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
B.

Analysis

Defendant seeks summary judgment on all of the substantive claims asserted
in the Amended Complaint, including misappropriation of trade secrets, breach of
contract, fraud, negligent misrepresentation, and tortious interference.
1.

Misappropriation of Trade Secrets

In its trade secrets claim, Plaintiff alleges that Defendant misappropriated
various of Plaintiff’s trade secrets. Plaintiff alleges these trade secrets were shared
with Defendant to perform due diligence for a potential combination with
Defendant’s business. Plaintiff claims Defendant used the trade secrets it shared to

13

develop Defendant’s PayCheck Direct business.
“A claim for misappropriation of trade secrets under the Georgia Trade
Secrets Act requires a plaintiff to prove that ‘(1) it had a trade secret and (2) the
opposing party misappropriated the trade secret.’” Capital Asset Research Corp. v.
Finnegan, 160 F.3d 683, 685 (11th Cir. 1998) (quoting Camp Creek Hospitality
Inns, Inc. v. Sheraton Franchise Corp., 139 F.3d 1396, 1410 (11th Cir. 1998)).
i.

Whether Trade Secrets Exist

Defendant first argues that the record does not contain evidence that
Defendant received any “trade secrets” from Plaintiff. “Trade secret” is defined as:
[I]nformation, without regard to form, including, but not limited to,
technical or nontechnical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans, or a list of actual or
potential customers or suppliers which is not commonly known by or
available to the public and which information:
(A) Derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and
(B) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
O.C.G.A. § 10-1-761(4). “Whether a particular type of information constitutes a
trade secret is a question of fact.” Camp Creek, 139 F.3d at 1410–11.
The plaintiff has “the burden of establishing each of these statutory elements
14

as to each claimed trade secret.” Peat, Inc. v. Vanguard Research, Inc., 378 F.3d
1154, 1158 (11th Cir. 2004). This means that “a plaintiff who seeks relief for
misappropriation of trade secrets must identify the trade secrets and carry the
burden of showing that they exist.” Rent Info. Tech., Inc. v. Home Depot U.S.A.,
Inc., 268 F. App’x 555, 557 (9th Cir. 2008) (applying Georgia law).
In this case, Plaintiff has identified, only vaguely at best, its alleged trade
secrets. In its discovery responses, Plaintiff identified 12 general categories of
information that it contends constitute trade secrets. Plaintiff did not identify any
specific information it claims is a trade secret. In its brief in opposition to
Defendant’s Motion for Summary Judgment, Plaintiff cited five paragraphs of its
Statement of Additional Material Facts to identify “the individual trade secrets” it
claims were misappropriated. (See Pl.’s Br. [141] at 22 (citing SAMF ¶¶ 104,
111–112, 115, 123).)9 These five paragraphs, like Plaintiff’s discovery responses,
describe only general categories of information, and do not contain any specific
articulation of the specific trade secrets it alleges were misappropriated:
 Plaintiff’s “unique underwriting process, financing, marketing, industry
concentrations to targeted clients, product development, approach to
9

Plaintiff also cites paragraphs 105, 113, 114, 122, 124, and 125 of its SAMF.
These paragraphs discuss Plaintiff’s disclosure to Defendant of alleged trade
secrets, and they do not identify any additional categories of alleged trade secrets.

15

recruiting and supporting brokers, varying margins with respect to specific
products, default rate and bad debt expense” (SAMF ¶ 104);
 “[A]dditional, focused due diligence requests” (id. ¶ 111);
 “[I]nformation about [Plaintiff’s] recruitment of brokers, underwriting, and
other areas of its business utilizing unique approaches and processes” (id.
¶ 112);
 “[A]spects” of Plainitff’s business, including “marketing, merchandising,
operations, finance, credit and tax” (id. ¶ 115); and
 “[I]ntricate details of [Plaintiff’s] business model, including, but not limited
to, its go-to-market strategies; ways to go through voluntary benefit brokers
to reach the heads of human resources departments with a retail product that
would allow employees to purchase items; pricing; product offerings;
underwriting; and ways to gain acceptance from human resources
departments” (id. ¶ 123).
These broad information categories are not sufficient to meet Plaintiff’s
legal obligation to allege and prove it has a trade secret. The identification of a
“trade secret” is a necessary predicate to alleging and proving that a trade secret
was misappropriated. See Capital Asset Research, 160 F.3d at 685–86. Plaintiff’s
failure to meet its duty to identify what it claims is a trade secret that was

16

misappropriated precludes Defendant and the Court from evaluating whether a
“trade secret” exists and, if so, whether it was misappropriated. See Luigino’s, Inc.
v. Peterson, 317 F.3d 909, 912 (8th Cir. 2003) (explaining that, under the Uniform
Trade Secrets Act, “general categories of information” cannot constitute trade
secrets); Sarkissian Mason, Inc. v. Enter. Holdings, Inc., 955 F. Supp. 2d 247, 255
(S.D.N.Y. 2013) (“General categories of information are insufficiently specific to
qualify as trade secrets.”); Sun Media Sys., Inc. v. KDSM, LLC, 564 F. Supp. 2d
946, 965 (S.D. Iowa 2008) (explaining that, to satisfy its burden under the Uniform
Trade Secrets Act, a plaintiff “cannot rely on generic categories or assertions, but
rather must assert specific allegations that it possessed information that meets the
definition of trade secret”).
A critical review of the definition of “trade secret” in O.C.G.A.
§ 10-1-761(4) underscores why a plaintiff is required to specifically identify the
information it alleges is a trade secret under the statute. Section 10-1-761(4)
describes broad categories and types of information that may qualify as a trade
secret. But category kind and type is not enough. A plaintiff also must allege and
show that the claimed information “[d]erives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or use”

17

and “[i]s the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.” O.C.G.A. § 10-1-761(4). This evaluation is not possible
where, as here, Plaintiff has failed over the course of this litigation and in response
to the Motion for Summary Judgment, to specifically identify what specific
information in the general information categories offered are “trade secrets” under
O.C.G.A. § 10-1-761(4). Plaintiff, following months of discovery and after being
ordered to do so, has failed to identify the specific trade secrets it claims were
misappropriated. Its scattershot of general categories of “trade secrets” is not
enough. Defendant is entitled to summary judgment on Plaintiff’s trade secret
claims for this failure to specify. See Luigino’s, 317 F.3d at 912; Sarkissian
Mason, 955 F. Supp. 2d at 255; Sun Media, 564 F. Supp. 2d at 965.10
10

To support that Plaintiff, on the facts here, cannot show that the claimed “trade
secrets” were misappropriated, Defendant has shown that a significant amount of
information, falling under the broad categories identified by Plaintiff, was either
publicly available or shared by Plaintiff with third-parties. For example, Plaintiff
authorized the distribution to potential purchasers of a “teaser” document
containing historical and projected sales revenues, profits, and EBITDA and
describing Plaintiff’s underwriting guidelines based on “salary, tenure and
financial stability of [the] employer,” “regardless of individual FICO scores.”
(SUMF ¶ 339; Def.’s Tab 205 [134-7].) Plaintiff does not dispute that this
information is not “trade secret” but argues that only “isolated pieces of
information” were disclosed in the “teaser” and in other formats, and that more
specific information was not disclosed publicly. (See Pl.’s Br. [141] at 19.)
Plaintiff, however, does not identify any additional specific information that
constitutes its alleged trade secrets. Plaintiff further argues that its alleged trade
secrets include the “unique integration” of information that, in individual form,
18

ii.

Whether Trade Secrets Were “Misappropriated”

Defendant next argues that, even if it acquired information that Plaintiff has
shown constitutes Plaintiff’s “trade secrets,” the undisputed facts here show that no
trade secrets were “misappropriated.” A defendant “misappropriates” a trade
secret when, among other things, it discloses or uses “a trade secret of another
without express or implied consent” knowing at the time of the disclosure or use
that the trade secret was “[a]cquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use.” O.C.G.A. § 10-1-761(2)(B); see Kuehn v.
Selton & Assocs., 530 S.E.2d 787, 791 (Ga. Ct. App. 2000). A non-disclosure
agreement can be the basis for imposing a duty not to disclose a trade secret. See
Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1292 (11th Cir. 2003).

may have been publicly disclosed. A “unique integration” may qualify as a trade
secret if evidence supports there is an integration. See, e.g., Essex Grp., Inc. v.
Southwire Co., 501 S.E.2d 501, 503 (Ga. 1998) (quoting Restatement (Third) of
Unfair Competition § 39(f) (1995)) (“The fact that some or all of the components
of the trade secret are well-known does not preclude protection for a secret
combination, compilation, or integration of the individual elements.”). In this case,
however, Plaintiff never identified a “unique integration” as a trade secret at issue.
As discussed above, in responses to discovery requests, Plaintiff identified only
broad categories of data as its trade secrets and did not identify any integration or
combination of information. Plaintiff may not assert a previously undisclosed
trade secret as a basis to deny Defendant’s Motion for Summary Judgment. See
Fed. R. Civ. P. 37(c)(1) (“If a party fails to provide information . . . as required by
Rule 26(a) or (e), the party is not allowed to use that information . . . to supply
evidence on a motion . . . .”).

19

As a general matter, any exploitation of the trade secret that is likely
to result in injury to the trade secret owner or enrichment to the
defendant is a “use” . . . . Thus, marketing goods that embody the
trade secret, employing the trade secret in manufacturing or
production, [and] relying on the trade secret to assist or accelerate
research or development . . . all constitute “use.”
The unauthorized use need not extend to every aspect or feature
of the trade secret; use of any substantial portion of the secret is
sufficient to subject the actor to liability. . . . [A]n actor is liable for
using the trade secret with independently created improvements or
modifications if the result is substantially derived from the trade
secret. . . . However, if the contribution made by the trade secret is so
slight that the actor’s product or process can be said to derive from
other sources of information or from independent creation, the trade
secret has not been “used” for purposes of imposing liability under the
rules.
Id. at 1292–93 (first, second, and fourth omissions and first alteration in original)
(quoting Restatement (Third) of Unfair Competition § 40 cmt. c (1995)). It is
well-established that, for a plaintiff to prove that a defendant “misappropriated the
trade secret,” the plaintiff must “show that the defendant (1) disclosed information
that enabled a third party to learn the trade secret or (2) used a ‘substantial portion’
of the plaintiff’s trade secret to create an improvement or modification that is
‘substantially derived’ from the plaintiff’s trade secret.” Id. at 1293.
In this case, Plaintiff alleges that Defendant misappropriated its trade secrets
by using the trade secrets obtained during the Project Braves due diligence to

20

develop PayCheck Direct.11 Defendant argues that there is not any evidence in the
record to show that Defendant used any portion, and certainly not “a substantial
portion,” of Plaintiff’s trade secrets to improve or modify PayCheck Direct.
Plaintiff argues that the record contains “circumstantial evidence” of
misappropriation and that this “circumstantial evidence” is sufficient at least to
show a genuine dispute on the issue of misappropriation to require a trial.
Defendant argues that the undisputed direct testimony of its employees, that they
did not use any of Plaintiff’s trade secrets in developing PayCheck Direct,
conclusively demonstrates that misappropriation did not occur.
Circumstantial evidence may satisfy the plaintiff’s burden to prove trade
secret misappropriation. See Tronitec, Inc. v. Shealy, 547 S.E.2d 749, 758 (Ga. Ct.
App. 2001), overruled on other grounds by Williams Gen. Corp. v. Stone, 614
S.E.2d 758 (Ga. 2005). “In ruling on a motion for summary judgment, a finding of
fact that may be inferred from, but is not demanded by, circumstantial evidence has
no probative value against positive and uncontradicted evidence that no such fact
exists, provided that the circumstantial evidence may be construed consistently
with the direct evidence.” White v. Shamrock Bldg. Sys., Inc., 669 S.E.2d 168,
11

Plaintiff does not assert, and the record does not show, that Defendant “disclosed
information that enabled a third party to learn” Plaintiff’s alleged trade secrets.

21

173 (Ga. Ct. App. 2008) (quoting First Citizens Bank of Clayton Cnty. v. All-Lift
of Ga., Inc., 555 S.E.2d 1, 3 (2001)); see also Contract Furniture Refinishing &
Maint. Corp. of Ga. v. Remfg. & Design Grp., LLC, 730 S.E.2d 708, 714 (Ga. Ct.
App. 2012) (“[W]hile [the plaintiff] has produced strong circumstantial evidence
that [the defendant] may have used or disclosed its alleged trade secrets, this
evidence is also consistent with the direct evidence that [the defendant] did not in
fact do so.”). Our circuit adopts this same analytical approach. Where there is
direct evidence that a defendant did not use or disclose a plaintiff’s trade secret,
and the plaintiff argues only that there exists circumstantial evidence of
misappropriation based on the claimed similarity of the defendant’s product to the
trade secret, this circumstantial evidence, if consistent with the defendant’s direct
evidence, is not sufficient to defeat a summary judgment motion. See Penalty
Kick, 318 F.3d at 1296. Allowing circumstantial evidence based on the similarity
of the defendant’s product to defeat direct evidence of non-use offered by the
defendant would operate to shift to the defendant the burden to prove non-use of
the trade secrets. See id. Such a burden shift is improper. It always is the
plaintiff’s burden to prove its claims, and if the circumstantial evidence is
consistent with the defendant’s direct evidence, there is no dispute of fact sufficient

22

to deny the defendant a grant of summary judgment. See id.12
In this case, Plaintiff relies exclusively on “circumstantial evidence” that
Defendant misappropriated Plaintiff’s trade secrets to develop Defendant’s
PayCheck Direct product. Plaintiff does not specifically identify the
“circumstantial evidence” upon which it relies, content with its characterization
that PayCheck Direct is an “exact replica” of Purchasing Power. This
generalization about the similarity in the parties’ programs, Plaintiff argues, is
circumstantial evidence that Defendant used Plaintiff’s claimed trade secrets.13
12

The analytical framework required to be applied here underscores why Plaintiff
is required to identify and specify the trade secrets it claims were misappropriated.
In the absence of a specification of the information Plaintiff claims as a “trade
secret” under O.C.G.A. § 10-1-764(4), this “circumstantial evidence versus direct
evidence” evaluation is difficult to apply. What is undisputed here is that the direct
evidence consists of unequivocal testimony that Plaintiff’s information was not
used to develop the PayCheck Direct Program.
13

Plaintiff’s brief contains a single hyperbolic sentence describing the alleged
circumstantial evidence of misappropriation: “[A]s demonstrated above and in
PPL’s [SAMF] filed herewith, the circumstantial evidence that Bluestem
misappropriated PPL’s trade secrets and confidential information is
overwhelming . . . .” (Pl.’s Opp’n [141] at 26.) The brief does not cross-reference
any other section or cite to any SAMF paragraph to direct the Court to what
Plaintiff contends constitutes the “circumstantial evidence.” The Court will not
scour through the record to find Plaintiff’s evidence. See, e.g., Magnum Towing &
Recovery v. City of Toledo, 287 F. App’x 442, 449 (6th Cir. 2008) (“[I]t is not the
district court’s . . . duty to search through the record to develop a party’s claims;
the litigant must direct the court to evidence in support of its arguments before the
court.”). In the background section of Plaintiff’s brief, Plaintiff asserts that
PayCheck Direct is an “exact replica” of Purchasing Power and cites to a chart in
23

The circumstantial evidence Plaintiff asserts here is not enough to support a
dispute of facts and is not enough to avoid summary judgment on Plaintiff’s trade
secret claims.
Defendant offers, as direct evidence, testimony of its employees that
Defendant did not incorporate, or otherwise use, claimed confidential information
or trade secrets about Purchasing Power in developing PayCheck Direct. (See,
e.g., SUMF ¶ 125.) Defendant also submitted direct evidence detailing its
development of PayCheck Direct. This evidence shows that, in late July 2010,
Defendant launched its Project Cortes to develop a payroll deduction program for
the sale of “big ticket” items. Defendant staffed Project Cortes with employees
with diverse business backgrounds, including experience in the extension of credit,
underwriting, marketing, and merchandising. Over the course of many months, the
Project Cortes team researched various aspects of the payroll deduction sales
model.14 Fifteen months later, in November 2011, Defendant launched a “beta”

the SAMF comparing the two products. (Pl.’s Opp’n [141] at 12 (citing
SAMF[146] ¶ 215).) The chart shows both similarities and differences between
the products. The Court infers that Plaintiff’s purported “circumstantial evidence”
includes the similarities described in this chart.
14

For example, Project Cortes’s manager met with employee benefits brokers to
determine that a 7% broker commission would make PayCheck Direct
“competitive.” (SUMF ¶ 253.)

24

version of its PayCheck Direct among its employees. In May 2012, Defendant
launched its final version of the program, and then began marketing it to outside
clients.
The final version of PayCheck Direct had both several similarities to and
differences from Plaintiff’s Purchasing Power. For example, while both products
offer broker commissions of “7% (up to 9%),” PayCheck Direct’s and Purchasing
Power’s respective “spending limits as a percentage of income” were different—
specifically, PayCheck Direct’s “spending limit as a percentage of income” was
3% to 3.5%, whereas Purchasing Power’s was 6.5% to 7.5%. (SAMF ¶ 215.)15
The evidence of Defendant’s development of PayCheck Direct is consistent with
the ultimate launch of a product with these similarities to and differences from the
Purchasing Power product, and the evidence directly shows that Plaintiff’s trade
secrets were not used.16 Circumstantial evidence, consisting of the product
similarities suggested by Plaintiff, is not sufficient to support that there exists a
15

Additional differences, as shown in Plaintiff’s chart, included the number of
SKUs, the assumed participation rate, the assumed loss ratio, the average order
size, and the spending limit as a percentage of income. (SAMF ¶ 215.)
16

Plaintiff has not submitted any evidence showing any particular similarity in the
products that could only have resulted from misappropriation of trade secrets.
Plaintiff simply asserts that PayCheck Direct is an “exact replica” of Purchasing
Power based on a chart showing both similarities and differences between the
products.
25

genuine dispute of material facts over whether Defendant misappropriated
Plaintiff’s trade secrets. For this additional reason, Defendant is entitled to
summary judgment on Plaintiff’s trade secret misappropriation claims.
2.

Breach of Contract
i.

Section 4 of the NDA: Use of Confidential Information

Plaintiff alleges that Defendant breached Section 4 of the NDA by using
Plaintiff’s confidential information in developing Defendant’s PayCheck Direct
product. Defendant argues that Plaintiff has failed to present record evidence that
Defendant used Plaintiff’s confidential information. Plaintiff asserts that the same
generalized, unidentified “circumstantial evidence” to support its argument for its
trade secret claim also supports its NDA Section 4 claim. As explained above, the
circumstantial evidence upon which Plaintiff relies is not sufficient to show that
Defendant “used” any of Plaintiff’s trade secrets, or other confidential information,
and Defendant is entitled to summary judgment on the NDA Section 4 claim. See
Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d 1316, 1327 (5th Cir. 1994).
ii.

Section 6 of NDA: Failure to Allow Inspection

Plaintiff next alleges that Defendant breached Section 6 of the NDA by
failing to permit Plaintiff to review Defendant’s operations to ensure compliance
with the NDA. Defendant argues that it also is entitled to summary judgment on

26

this claim because the record does not contain evidence that Plaintiff suffered any
damage as a result of this alleged breach. The parties agree that Minnesota law
governs the NDA, and under Minnesota law a claim for breach of contract requires
proof of actual damages. See, e.g., Reuter v. Jax Ltd., Inc., 711 F.3d 918, 920 (8th
Cir. 2013) (“[U]nder Minnesota law, ‘[a] breach of contract claim fails as a matter
of law if the plaintiff cannot establish that he or she has been damaged by the
alleged breach.’” (quoting Jensen v. Duluth Area YMCA, 688 N.W.2d 574, 578–
79 (Minn. Ct. App. 2004))).
The only damage Plaintiff addresses in its submissions to the Court is “in the
nature of attorneys’ fees and costs.” (Pl.’s Br. [141] at 31.) Plaintiff has not
presented any record evidence to support that it incurred any attorneys’ fees and
costs or, if so, in what amount. For this reason alone, Plaintiff has failed to show
evidence to support the existence of damages, and there being no disputed fact on
this damage issue, Defendant is entitled to summary judgment on Plaintiff’s NDA
Section 6 claim. See Owen v. Wille, 117 F.3d 1235 (11th Cir. 1997) (explaining
that, in opposing a summary judgment motion, Rule 56 “requires the nonmoving
party to go beyond the pleadings and by her own affidavits, or by the depositions,
answers to interrogatories, and admissions on file, designate specific facts showing
that there is a genuine issue for trial.” (quoting Celotex Corp. v. Catrett, 477 U.S.

27

317, 324 (1986))); see also Travaglio v. Am. Express Co., 735 F.3d 1266, 1269
(11th Cir. 2013) (“[A] sentence in an unsworn brief is not evidence.”). Even if the
Court considered Plaintiff’s “attorneys’ fees and costs” damage claim, Minnesota
law does not allow the recovery of litigation expenses in contract cases unless the
contract expressly provides for such recovery. See Barr/Nelson, Inc. v. Tonto’s,
Inc., 336 N.W.2d 46, 53 (Minn. 1983) (“We have long held that attorney fees are
not recoverable in litigation unless there is a specific contract permitting or a
statute authorizing such recovery.”). It is undisputed that the NDA does not
provide for the recovery of litigation expenses, and for this further reason
Defendant is entitled to summary judgment on the NDA Section 6 claim.
3.

Affirmative Fraud and Negligent Misrepresentation

The torts of affirmative fraud and negligent misrepresentation require, under
Georgia law, the communication by a defendant of a false representation to a
plaintiff. Optimum Techs., Inc. v. Henkel Consumer Adhesives, Inc., 496 F.3d
1231, 1250 (11th Cir. 2007); Home Depot U.S.A., Inc. v. Wabash Nat’l Corp., 724
S.E.2d 53, 60 (Ga. Ct. App. 2012). Plaintiff alleges that Defendant is liable for
fraud and negligent misrepresentation because Defendant’s executives told
Plaintiff’s executives, before and during the course of the Project Braves due
diligence, that they were unfamiliar with Plaintiff’s business model, that they did

28

not have a program similar to Purchasing Power, and that they had never before
considered such a program. Defendant does not dispute that its executives made
the alleged statements but asserts that the statements are not false. Defendant
specifically asserts that the statements made pertain to the executives’ beliefs
before they first learned of Plaintiff’s Purchasing Power product.
Plaintiff has not cited to any evidence in the record that the statements were
factually and actually false. Plaintiff now claims that its executives understood
Defendant’s executives’ statements to mean that Defendant did not consider a
program like Purchasing Power “other than in the context of a potential acquisition
of” Plaintiff. (See Pl.’s Br. at 32 (citing Resp. SUMF ¶ 133).) This new
articulation of the claim is not properly before the Court (i) because it was asserted
only in Plaintiff’s Response to Defendant’s Statement of Undisputed Facts, and it
was not asserted in Plaintiff’s Statement of Additional Material Facts, and
(ii) because the deposition excerpt cited in Plaintiff’s Response to Defendant’s
Statement of Undisputed Facts does not support Plaintiff’s now asserted
understanding of Defendant’s executives’ statements. This newly claimed
interpretation also does not support that Defendant’s executives’ statements were
factually false. In Optimum Technologies, a product distributor intended to stop
distributing a manufacturer’s product and to distribute, instead, its own competing

29

product. 496 F.3d at 1250. The distributor told the manufacturer that it was
planning to change the “packaging” of the product. Id. This statement was
literally true because the new packaging would reflect the new product. Id. The
Eleventh Circuit held that the distributor’s statement did not support a claim for
fraud or negligent misrepresentation, even if the manufacturer misunderstood the
significance of the packaging change, because the statement was literally true. Id.
In this case, despite Plaintiff’s alleged misunderstanding of Defendant’s
statements, Plaintiff did not produce any evidence to show that the statements are
not literally true. Defendant is entitled to summary judgment on Plaintiff’s
affirmative fraud and negligent misrepresentation claims. See id.
4.

Fraudulent Omission

Plaintiff alleges that Defendant is liable for fraudulently failing to disclose to
Plaintiff during the Project Braves due diligence that Defendant was conducting
Project Cortes. The omission of a fact may form the basis of a fraud if the omitting
party is under an obligation to communicate the fact. O.C.G.A. § 23-2-53.
Defendant argues that it was not obligated to disclose Project Cortes to Plaintiff.
“The obligation to communicate may arise from the confidential relations of
the parties or from the particular circumstances of the case.” Id. This generally
requires the parties to have a confidential or fiduciary relationship. See Optimum

30

Techs., 496 F.3d at 1249.17 The Eleventh Circuit has explained that
Generally speaking, “business relationships are not confidential
relationships,” nor is “[t]he mere fact that one [party] reposes trust and
confidence in another’s integrity.” Rather, in order for a business
arrangement between two parties to rise to the level of a confidential
relationship, it must be shown either that the parties have a long
history with each other, or that the arrangement was not at “arm’s
length,” but was in the nature of a legal partnership or a joint venture.
A confidential relationship does not arise, however, where the
business transaction is merely an arrangement in which each party is
“attempting to further [its] own separate business objectives,” rather
than entering into some sort of joint venture.
Id. (alterations in original) (citations omitted) (quoting Williams v. Dresser Indus.,
Inc., 120 F.3d 1163, 1168 (11th Cir.1997)).
The record in this case supports that the parties did not have “a long history
with each other” and were not engaged in a “legal partnership or a joint venture.”
See id. The Project Braves due diligence was the parties’ first interaction and a
predicate to a possible relationship. The purpose of the due diligence was to assist

17

Georgia courts have recognized that, in the absence of a confidential
relationship, a duty to disclose may arise under the “particular circumstances of the
case” when the defendant is shown to have (1) intentionally concealed a
fact (2) for “the purpose of obtaining an advantage or a benefit.” See Ga. Real
Estate Comm’n v. Brown, 262 S.E.2d 596, 597 (Ga. Ct. App. 1979) (citing Reeves
v. B.T. Williams & Co., 127 S.E. 293, 295 (Ga. 1925)). Plaintiff has not argued
that this situation applies here, and the record, which does not support that
Defendant used any of Plaintiff’s trade secrets or confidential information, does
not otherwise contain evidence that Defendant concealed Project Cortes “for the
purpose of obtaining an advantage or a benefit.” See id.

31

Defendant in determining whether to make an offer to purchase Plaintiff’s
business, not to decide if Defendant would enter into a joint business venture with
Plaintiff. “Parties negotiating the sale of a business ‘are not, by virtue of their
status as such, placed in a confidential relationship to each other but are presumed
to be dealing at arm’s length.” Infrasource, Inc. v. Hahn Yalena Corp., 613 S.E.2d
144, 147 (Ga. Ct. App. 2005) (quoting William Goldberg & Co., v. Cohen, 466
S.E.2d 872, 881 (Ga. Ct. App. 1995). The NDA does not impose any disclosure
obligation on Defendant. In it, “the parties specifically acknowledge and agree
that both [Defendant] and [Plaintiff] are engaged in competitive businesses.”
(SUMF ¶ 98.)18 The record does not support that Defendant was obliged to
disclose Project Cortes to Plaintiff, and Defendant is entitled to summary judgment
on Plaintiff’s fraudulent omission claims.
5.

Tortious Interference

In Counts VI and VII of the Amended Complaint, Plaintiff asserts, for the
first time, claims for tortious interference with contractual relations and tortious

18

Plaintiff argues that it would not have shared its confidential information with
Defendant if it had been aware of Project Cortes. This unilateral position does not
convert the parties’ relationship into a confidential one or a joint venture. See
Optimum Techs., 496 F.3d at 1249 (explaining that “[t]he mere fact that one
[party] reposes trust and confidence in another’s integrity” is not sufficient to
create a confidential relationship).

32

interference with business relations. These claims were not asserted in the Original
Complaint, and they are distinct from Plaintiff’s fraud and negligent
misrepresentation claims.
Rule 15(a) of the Federal Rules of Civil Procedure allows a plaintiff to file
one amended complaint as a matter of course, if the amended complaint is filed
either within 21 days of service of the original complaint or within 21 days of the
defendant’s filing of a responsive pleading or Rule 12 motion to dismiss. See Fed.
R. Civ. P. 15(a)(1). Amended complaints outside of these time limits may be filed
only “with the opposing party’s written consent or the court’s leave.” See Fed. R.
Civ. P. 15(a)(2). There is no dispute that the filing of the Amended Complaint
here required Defendant’s consent or leave of the Court. The Court, in its July 27,
2012, Order of dismissal, granted Plaintiff leave to file the Amended Complaint
“to address the pleading shortcomings identified” in the Original Complaint—
specifically, the failure to plead fraud and negligent misrepresentation “with
particularity” as required by Rule 9(b). Plaintiff did not seek, and the Court did not
grant, leave to assert any other claims, including claims for tortious interference.19
19

The addition of these claims also violates the Preliminary Report and Discovery
Plan (the “Plan”) filed by the parties on March 2, 2012, and approved by the Court
on March 5, 2012. The Plan required any amendments to the pleadings to be filed
not “LATER THAN THIRTY (30) DAYS after the [Plan] [was] filed.” (Plan [19]
¶ 6(b), at 17.) Plaintiff further stated in the Plan that it did “not anticipate any
33

Defendants did not consent to allow Plaintiff to assert Counts VI and VII in this
case. Counts VI and VII of the Amended Complaint thus are required to be
dismissed.20 As a result, Defendant’s Motion for Summary Judgment on these
Counts is denied as moot.21
III.

CONCLUSION
Accordingly, for the foregoing reasons,
IT IS HEREBY ORDERED that Counts VI and VII of Plaintiff’s

Amended Complaint are DISMISSED for failure to comply with Rule 15(a)(2) of
the Federal Rules of Civil Procedure.
IT IS FURTHER ORDERED that Defendant’s Motion for Summary
amendments to the Complaint at this time, absent instruction from the Court in
connection with Defendant’s pending motions to dismiss.” (Id. ¶ 6(a), at 17.) The
leave to amend granted here did not include leave to assert the claims in Counts VI
and VII of the Amended Complaint.
20

In its opposition, Plaintiff asserts that the Court “likely would have” granted
leave to assert the tortious interference claims if Plaintiff had actually moved for
leave. Rule 15, however, requires Plaintiff to have actually sought leave to amend.
Plaintiff did not, and Defendant was never afforded the opportunity to respond to
such a request. The Court further notes that, in its April 17, 2013, Order [87], the
Court specifically noted the impropriety of Counts VI and VII of the Amended
Complaint. Plaintiff nevertheless chose not to then, or subsequently, seek leave to
properly assert Counts VI and VII.
21

Because the Court has concluded that Defendant is entitled to summary
judgment on all the remaining claims, Plaintiff’s Motion for Trial by Jury is moot
and is denied on that basis.

34

Judgment [127] is GRANTED IN PART and DENIED AS MOOT IN PART. It
is DENIED AS MOOT with respect to Counts VI and VII of Plaintiff’s Amended
Complaint. It is GRANTED with respect to all remaining claims.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Trial by Jury
[155] is DENIED AS MOOT.

SO ORDERED this 9th day of May, 2014.

s
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35