Mission Measurement Corporation et al v. Blackbaud, INC et al
Filing
385
MEMORANDUM Opinion and Order Signed by the Honorable Ronald A. Guzman on 10/8/2019: For the reasons stated below, Defendants' motions for summary judgment 279 , 291 , 299 are granted. All other pending motions are stricken as moot. Within 7 days of the date of entry of this order, Plaintiff shall submit a statement as to whether any claims or defendants remain. [For further details see Statement]. Mailed notice(is, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Mission Measurement
Corporation,
Plaintiff,
)
)
)
)
)
)
)
)
)
v.
Blackbaud, Inc., et al.,
Defendants.
Case No: 16 C 6003
Judge Ronald A. Guzmán
MEMORANDUM OPINION AND ORDER
For the reasons stated below, Defendants’ motions for summary judgment [279, 291,
299] are granted. All other pending motions are stricken as moot. Within 7 days of the date of
entry of this order, Plaintiff shall submit a statement as to whether any claims or defendants
remain.
STATEMENT
Background
The instant lawsuit stems, as so many do, from a business relationship gone bad.
Mission Measurement (“MM”) is a consulting firm working in the philanthropic sector and has
described itself as a “global leader in measuring social impact” by using “data to help clients
increase their impact and solve social problems more efficiently.” (Pl.’s Ex. 12, Dkt. # 321-9, at
2.) In 2012, Jason Saul, Chief Executive Officer of MM, began talking to employees of
MicroEdge about the two companies working together to create a new software product for the
nonprofit sector that would assist philanthropic foundations and grant recipients in tracking the
value of their investments in social endeavors. (Pl.’s Resp. Blackbaud’s Stmt. Facts, Dkt. # 320,
at 1, ¶ 1.) MM had a database of information it called the Outcomes Taxonomy that could be
used to measure social impact. (Id. ¶ 2.) MM and MicroEdge entered into a Letter of Intent
(“LOI”) in January 2013 regarding the joint development of the aforementioned product, with
the intention to negotiate toward a final agreement by May 1, 2013.
The LOI provided in part, as follows:
1.
Services: MicroEdge and [MM] agree that the following services shall be
performed by both parties. The parties acknowledge that the precise
amount of resource input by each party for these services cannot be
determined exactly. The intent of the services is to create the proposed
outputs to determine the commercial viability of a product concept
combining MicroEdge and [MM] assets.
(a) Joint product development:
MicroEdge and [MM] will collaborate to create a product consisting of
software combining [MM]’s Outcomes Taxonomy and MicroEdge
accounting and grants management software (the “Software”), consulting
services to support use of the software and ongoing software and
taxonomy maintenance. The output of this collaboration will be a product
concept or set of product concepts that reasonably describe customer
benefit, software functionality, approximate price point(s) and user
experience such that reasonable market research can be conducted for
purposes of commercial concept evaluation (collectively, the “product
Concepts”).
(b) Joint technology development[:]
To evaluate the feasibility of combining the Outcomes Taxonomy and
MicroEdge software, [MM] will provide a copy and description of the
OutcomesTaxonomy to MicroEdge; MicroEdge will be subject to the
Restrictions outlined in section 11 regarding this software.
(c) Joint sales pitch meetings:
MicroEdge and [MM] will create work product to facilitate product
concept pitches and sales pitches to the philanthropy sector. The output of
this collaboration will be to meet with 8-12 very large foundations on the
product concept(s) for the purposes of concept evaluation and potential
early adopter recruiting.
(d) Market research:
As part of this product concept creation and evaluation, MicroEdge will
engage a third-party researcher to contact clients and conduct product
concept evaluation for purposes of commercial viability. This market
research will be funded solely by MicroEdge.
(LOI, Dkt. # 16, ¶ 1.)
No additional agreement was signed after May 1, 2013. MicroEdge subsequently
marketed itself for sale, and Blackbaud bought MicroEdge in October 2014 for $140 million. In
2016, Blackbaud launched “Blackbaud Outcomes,” which the parties agree does not incorporate
MM’s Outcomes Taxonomy. Additional facts are discussed as necessary in the text of the order.
MM filed the instant lawsuit in June 2016 against Blackbaud, MicroEdge, and Vista
2
Equity Partners,1 alleging various claims, including breach of contract, tortious interference,
federal and state-law trade secret violations, and unjust enrichment. The Defendants have filed
separate summary judgment motions, which are addressed in turn below.
Summary Judgment Standard
Summary judgment is proper where “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). A genuine factual dispute exists when there is enough evidence that a reasonable jury
could find in favor of the nonmoving party. Whiting v. Wexford Health Sources, Inc., 839 F.3d
658, 661 (7th Cir. 2016). In construing the evidence and facts supported by the record in favor
of the non-moving party, the Court gives the non-moving party “the benefit of reasonable
inferences from the evidence, but not speculative inferences in [its] favor.” White v. City of Chi.,
829 F.3d 837, 841 (7th Cir. 2016) (internal citations omitted).
Analysis
A.
Vista Equity Partners Management (“Vista”)
Vista Management provided management services to MicroEdge pursuant to a
management agreement dated October 1, 2009, as amended on December 27, 2012. Their
relationship terminated upon the close of the MicroEdge sale to Blackbaud on October 1, 2014.
Vista Management is affiliated with certain private equity funds, including VFF I AIV I, L.P.
and VFF I AIV I-A, L.P. (the “Vista Funds”), which held a majority of MicroEdge’s stock prior
to the sale of MicroEdge to Blackbaud.2 MM alleges claims of tortious interference with
contract and prospective economic advantage and unjust enrichment against Vista.
As noted above, MM and MicroEdge discussed “integrating [MM]’s Outcomes
Taxonomy into MicroEdge’s . . . existing products.” (Pl.’s Resp. Vista’s Stmt. Facts, Dkt. # 320,
at 54, ¶ 7.) MicroEdge and MM made a joint presentation containing a sample of MM’s
Outcomes Taxonomy at a MicroEdge user conference in October 2012. (Id. ¶ 8.) MM and
MicroEdge entered into the LOI in January 2013. (Id. ¶ 9.) The LOI provided that “[i]t is the
intention of the parties that they will negotiate in good faith and execute the final Agreement by
May 1, 2013. In the event that the parties are unable to conclude a final Agreement by that date,
this LOI and the intentions set forth herein expire.” (Id. ¶ 10.) The parties did not enter into any
other written agreement after the LOI. (Id. ¶ 11.)
In Illinois, tortious interference with a prospective business relationship has four
1
Previously-dismissed claims and defendants will not be discussed in this ruling.
2
Although originally named as defendants, the funds were dismissed as defendants in
the Court’s motion-to-dismiss ruling. (3/26/18 Mem. Op. & Order, Dkt. # 142, at 13.)
3
elements: “‘(1) [the plaintiff’s] reasonable expectation of entering into a valid business
relationship; (2) the defendant’s knowledge of the plaintiff’s expectancy; (3) purposeful
interference by the defendant that prevents the plaintiff’s legitimate expectancy from ripening
into a valid business relationship; and (4) damages to the plaintiff resulting from such
interference.’” ATC Healthcare Servs., Inc. v. RCM Techs., Inc., No. 15 C 8020, 2019 WL
3554009, at *3 (N.D. Ill. Aug. 5, 2019) (citation omitted). Tortious interference with a
contractual relationship is similar and requires a plaintiff to establish: “(1) the existence of a
valid and enforceable contract between it and another; (2) [the defendant’s] awareness of the
contract; (3) [the defendant’s] intentional and unjustified inducement of a breach of that contract;
(4) a subsequent breach of the contract by the other, caused by [the defendant]; and (5)
damages.” Grecian Delight Foods, Inc. v. Great Am. Ins. Co. of N.Y., 365 F. Supp. 3d 948, 954
(N.D. Ill. 2019).3
Both tortious interference claims fail because MM points to no evidence supporting its
claim for damages against Vista. Indeed, MM acknowledges that its damages expert, V. Walter
Bratic, failed to compute damages for either tortious interference claim. (Pl.’s Resp. Vista’s
Stmt. Facts, Dkt. # 320, at 76, ¶ 41 (responding “Undisputed” to Vista’s statement of fact that
“Mr. Bratic did not calculate damages for either of Plaintiff’s tortious interference claims.”).)
MM’s entire response regarding its failure to establish tortious interference damages is as
follows: “Defendants’ argument that [MM] cannot support the element of damages would . . .
require the Court to construe disputed issues of fact against [MM].” (Pl.’s Omnibus Resp., Dkt.
# 322, at 39.) MM cites to its response to Blackbaud’s statement of fact paragraph 69 in which it
argues that it has been damaged, but admits that it is “[u]ndisputed that [it] has not disclosed a
calculation of these damages.” (Pl.’s Resp. Blackbaud’s Stmt. Facts, Dkt. # 320, at 1, ¶ 69.)
MM’s assertion that it has damages but they simply have not been quantified is unavailing. “A
nonmovant’s failure to produce sufficient evidence of the damages element of its claim calls for
the entry of summary judgment against that party.” Dunkin’ Donuts Inc. v. N.A.S.T., Inc., 428 F.
Supp. 2d 761, 767 (N.D. Ill. 2005).
MM’s tortious interference claims also fail because any alleged damages would be
excluded under Federal Rule of Civil Procedure 37 given that MM failed to disclose any
damages calculations and does not justify its failure to disclose or attempt to demonstrate that
such failure is harmless. Indep. Tr. Corp. v. Fid. Nat. Title Ins. Co. of N.Y., 577 F. Supp. 2d
1023, 1048 (N.D. Ill. 2008) (“Failing to include a damage claim among initial or supplemented
disclosures, or to disclose it in response to an interrogatory, mandates exclusion as a sanction,
unless the party failing to make disclosures can show that its violation was justified or
harmless.”). For these reasons, Vista is entitled to judgment on MM’s tortious interference
claims.
MM also alleges unjust enrichment against Vista. “To recover under a theory of unjust
enrichment, a plaintiff ‘must show that defendant voluntarily accepted a benefit which would be
inequitable for [it] to retain without payment [to the plaintiff].’” Mandelstein v. Rukin, No. 17 C
3
Because the parties cite to Illinois law, the Court does as well.
4
9216, 2019 WL 3857886, at *10 (N.D. Ill. Aug. 16, 2019) (citation omitted). According to MM,
Vista was “unjustly enriched through the sale of MicroEdge to Blackbaud for an inflated price,
in which the price was inflated due to and as a result of MicroEdge’s relationship with Mission
Measurement and information learned through such relationship.” (3d Am. Comp., Dkt. # 119, ¶
120 .) But “wrongful conduct alone will not support an unjust enrichment claim . . . ; the
plaintiff must also have some interest in the property that a third party gave to the defendant.”
Indep. Tr. Corp., 577 F. Supp. 2d at 1050 (emphasis added). MM points to no evidence that it
had an interest in or some entitlement to the purported inflated payment Blackbaud made to
MicroEdge, which MM contends was owned, at least in part, by Vista.4 Accordingly, the motion
for summary judgment as to the unjust enrichment claim against Vista is granted.
B.
MicroEdge
MM alleges that MicroEdge breached the confidentiality and non-compete provisions of
the LOI, which contains a New York choice-of-law provision. Under New York law, “the initial
interpretation of a contract is a matter of law for the court to decide,” and where the contract is
unambiguous, a court is “required to give effect to the contract as written.” 360Heros, Inc. v.
Mainstreet Am. Assurance Co., No. 517CV549MADDEP, 2019 WL 3713665, at *4 (N.D.N.Y.
Aug. 7, 2019) (citation and internal quotation marks omitted). Further,
The fundamental, neutral precept of contract interpretation is that agreements are
construed in accord with the parties’ intent . . . . The best evidence of what parties
to a written agreement intend is what they say in their writing . . . . Thus, a written
agreement that is complete, clear and unambiguous on its face must be enforced
according to the plain meaning of its terms . . . . A contract is unambiguous if the
language it uses has a definite and precise meaning, unattended by danger of
misconception in the purport of the [agreement] itself, and concerning which
there is no reasonable basis for a difference of opinion . . . . Thus, if the
agreement on its face is reasonably susceptible of only one meaning, a court is not
free to alter the contract.
Buchovecky v. S & J Morrell, Inc., No. 18-02352, 2019 WL 3954656, at *1 (N.Y. App. Div.
Aug. 22, 2019). “An ambiguity exists where the terms of the contract ‘could suggest more than
one meaning when viewed objectively by a reasonably intelligent person who has examined the
context of the entire integrated agreement and who is cognizant of the customs, practices, usages
and terminology as generally understood in the particular trade or business.’” Law Debenture
Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 466 (2d Cir. 2010) (citation omitted).
4
MM contends that Vista received a benefit because it held an interest in MicroEdge and
“its distribution [from the sale] was sent to the Vista Funds for Vista’s benefit.” (Pl.’s Resp.,
Dkt. # 322, at 40.) The Court need not address this issue as MM has failed to establish a genuine
issue of fact as to whether it had any interest in the purported inflated sale price.
5
MicroEdge denies liability for breach of the LOI on the ground that the plain language of
the LOI indicates that it had expired by the time MicroEdge was sold to Blackbaud in October
2014, relying on the following language in paragraph 12 of the LOI:
It is the intention of the parties that they will negotiate in good faith and execute
the final Agreement by May 1, 2013. In the event that the parties are unable to
conclude a final Agreement by that date, this LOI and the intentions set forth
herein expire.
(LOI, Dkt. # 16, ¶ 12.)
As noted by MM, however, this language is preceded by language in paragraph 4,
entitled “Term; Termination,” which states that
[b]oth parties mutually agree that a Master Agreement will be executed by the
parties no later than May 1, 2013. Should [the] parties fail to enter into a Master
Agreement on or before May 1, 2013, either party may elect to terminate this LOI
and other agreements. In the event the parties fail to enter into a Master
Agreement and terminate this LOI, both parties agree not to directly or indirectly
provide, market or sell any product, device, services or instrument that is
substantially similar to the Software and/or Product Concepts for a period of
eighteen (18) [months] following the termination of the Agreement. Following
termination of the LOI or any other agreement (for whatever reason), both parties
shall certify that it has [sic] returned or destroyed all copies of the applicable
software, content, taxonomies and Confidential Information and acknowledges
that its rights to use the same are relinquished.
(Id. ¶ 4.)
According to MM, paragraph 4 is more specific than paragraph 12 and thus controls.
Because no Master Agreement was entered into by May 1, 2013, but neither party gave notice of
termination, MM contends that “MicroEdge’s contractual obligations endured.” (Pl.’s Omnibus
Resp., Dkt. # 322, at 12.) According to MM, paragraph 4 provides that the parties could “elect
to terminate” the LOI on or after May 1, 2013; thus, the LOI could not have automatically
expired on May 1, 2013 as stated in paragraph 12, “and instead[,] further action was required to
effect termination.” (Id.) MM’s additional position is that paragraph 12 contains only recitals,
which do not constitute the contract’s “operative promises.” (Id. at 13 (citing United States v.
Hamdi, 432 F.3d 115, 122 (2d Cir. 2005) (“[C]ontracts may, and frequently do, include recitals
of the purposes and motives of the contracting parties, which may shed light on, but are distinct
from, the contract’`s operative promises to perform.”).)
MicroEdge, on the other hand, argues that Paragraph 12 can be reconciled with paragraph
4 in that “either party could elect to ‘terminate’ the LOI if they failed to enter into a Master
Agreement by May 1, 2013[,]” but “if neither party terminated before May 1, 2013, the
6
agreement would expire” pursuant to paragraph 12. (MicroEdge’s Br. Supp. Mot. Summ. J.,
Dkt. # 378, at 4.)
While MicroEdge’s interpretation has some appeal, the LOI has too many inconsistencies
and examples of poor draftsmanship to definitively conclude that the parties intended the
construction that MicroEdge offers. Upon review of the entire LOI, many questions linger
regarding the parties’ intent. For example, why would the parties agree that if one or both of
them actively ”terminated” the LOI pursuant to paragraph 4, then they could not provide,
market, or sell the Software and/or Product Concepts for 18 months, but the same restriction did
not apply if the LOI expired on May 1, 2013 pursuant to paragraph 12?
In addition, paragraph 4 ends with the sentence stating that
[e]ach party will at all times, both during the Term and thereafter, keep and hold
all Confidential Information of the other Party in the strictest confidence, and will
not use such Confidential Information for any purpose, other than as may
reasonably be necessary for the performance of its duties pursuant to this
Agreement, without the other Party’s written consent.
(LOI, Dkt. # 16, ¶ 4.) How long is “thereafter” (is it an imprecise reference to the 18 months
noted in paragraph 4?), and did the parties intend this provision to mean that they had ongoing
obligations of confidentiality even after termination or expiration?
Further, as noted by MicroEdge, the LOI, which was executed on January 16, 2013,
stated it had a three-month term, to April 16, 2013, which could have been extended 30 days, to
May 16, 2013. But the purported self-executing expiration date was May 1, 2013. This makes
no sense. Further, while paragraph 12 ends with the statement that the “Confidentiality
Agreement is hereby ratified and confirmed as a separate agreement between the parties
thereto[,]” the second sentence of the next paragraph states that “[t]his letter constitutes the
entire understanding and agreement between the parties hereto and their affiliates with respect to
its subject matter and supersedes all prior or contemporaneous agreements, representation,
warranties and understandings of such parties (whether oral or written).”5 (LOI, Dkt. # 16, ¶¶
12, 13.) Why would the parties ratify and confirm an agreement that they, two sentences later,
agree is superseded by the LOI? Finally, paragraph 14 states that “[t]he following provisions
will survive any termination or expiration of these LOI sections 2, 4, 5, 6, 7, 8, 9, 10 and 12.”
(Id. ¶ 14.) It is entirely unclear what this paragraph means. Did the parties intend to provide that
the confidentiality provision in paragraph 4 would survive termination or expiration? Further,
5
The Confidentiality Agreement was executed on June 26, 2012. (Pl.’s Ex. 1, Dkt. #
321-2.) The judge who was previously assigned to this case concluded that the Confidentiality
Agreement was superseded by the merger clause in paragraph 13 of the LOI and thus dismissed
MM’s breach of contract claim based on the Confidentiality Agreement, which was much more
detailed than the confidentiality provisions contained in the LOI.
7
why specify a term for the rights and obligations set forth in the LOI if the parties intended the
majority of the provisions to survive termination or expiration?
After lengthy examination and attempts to reconcile the various provisions at issue in the
LOI, the Court concludes that the language of the LOI is ambiguous and the parties’ intent with
respect to confidentiality and the term of the LOI cannot be determined from its express
language. The Court is therefore unpersuaded by MicroEdge’s argument that the breach of the
LOI claim must fail because it was not in effect at the time of MicroEdge’s sale to Blackbaud.
Assuming arguendo that the LOI had not expired or terminated and the confidentiality
provisions remained intact, MicroEdge contends that there is no evidence that it disclosed MM’s
confidential information to Blackbaud. The Court disagrees. It is undisputed that in July 2012,
an employee of MM sent MicroEdge “‘a sample from [MM]’s database,’ consisting of a native
Excel sample from Mission Measurement’s Metrics Database consisting of at least 214 rows and
13 columns.” (Defs.’ Combined Resp. Pl.’s Stmt. Facts, Dkt. # 374, ¶ 20.) It is further
undisputed that “[b]etween July 17, 2012 and August 2, 2012, [a MM employee] exchanged
emails with [a MicroEdge employee] regarding ‘how a client would use [MM’s] taxonomy.”
(Id. ¶ 21.) Moreover, on June 28, 2013, in response to a request by Charles Vanek of
MicroEdge, who was “[i]n near desperate need” of a “a partial cut of the MM taxonomy for a
well known program area,” a MM employee sent Vanek “a cut of the Outcomes Taxonomy from
the Education area with a few different Education Sub Categories from our Outcomes Taxonomy
Web Application.” (Id. ¶ 29; Pl.’s Ex. 3, Dkt. # 321-4.) Further, Vanek forwarded excerpts of
the MM Outcomes Taxonomy that he had received to MicroEdge employees, stating it was
“[f]or discussion” and “[shows] [h]ow one taxonomy provider [i.e., MM] organizes their info[,]”
and that he “see[s] us converging to some structure where several categories and sub-categories
point at oft-used measurements. . . .” (Defs.’ Combined Resp. Pl.’s Stmt. Facts, Dkt. # 374, ¶
90.) Given MM’s position that MicroEdge improperly benefitted in some way from MM’s
knowledge and background in the relevant industry, these facts, viewed in a light most favorable
to MM, could allow a reasonable juror to conclude that MicroEdge somehow used confidential
information in a manner that was violative of the terms of the LOI.
The LOI also contains a non-compete provision that states that “in the event the parties
fail to enter into a Master Agreement and terminate this LOI, both parties agree not to directly or
indirectly provide, market or sell any product, device, services or instrument that is substantially
similar to the Software and/or Product Concept(s) for a period of 18 [months] following the
termination of the Agreement.” (LOI, Dkt. # 16, ¶¶ 39-40.) MM contends that MicroEdge
breached this provision in October 2015 when it marketed Blackbaud Outcomes to the public.
MicroEdge responds that no breach of the non-compete could have occurred at that time because
the LOI had already expired. Resolution of this issue would rest, as with the confidentiality
provision, on how the term of the LOI would be interpreted by a jury; presentation to a jury,
however, is ultimately unnecessary because, as the Court explains next, MM’s breach of contract
claim fails on the damages element.
MicroEdge argues that MM’s calculation of damages lacks any causal nexus to its claim
8
for breach of the LOI. To the extent that MicroEdge relies on the lack of evidence that
MicroEdge disclosed any Confidential Information to Blackbaud, this contention fails to provide
a basis on which to grant summary judgment because the Court concluded above that this was an
issue for the jury. MicroEdge also asserts that “because no calculation of damages is attributable
to MicroEdge’s alleged breach of the non-compete provision or other provisions in the [LOI], no
reasonable finder of fact could return a verdict or reasonably apportion damages for MM in its
claim for breach of the [LOI].” (Br. Supp. MicroEdge’s Mot. Summ. J., Dkt. # 378, at 10.)
In response, MM asserts that “MicroEdge . . . developed contemporaneous financial
analyses of . . . how much the outcomes product it was marketing [by using MM’s Outcomes
Taxonomy and benchmarking methodology] to potential purchasers (along with its feigned
expertise to bring such a product to market) increased [MicroEdge’s] value [to potential
purchasers].” (Pl.’s Omnibus Resp., Dkt. # 322, at 24.) According to MM, MicroEdge profited
by $34.1 million as a result of its breach, which represents the “increase in its enterprise value”
from having improperly used MM’s confidential information to market and sell itself to
Blackbaud. (Id. at 25.) MM “seeks damages as measured by the product (and feigned expertise)
MicroEdge improperly marketed and sold to Blackbaud during the acquisition process in
violation of the LOI – not damages measured by the value of Blackbaud Outcomes when it was
released, which was a different product [from MM’s Outcomes Taxonomy.]” (Id. at 26.) In
other words, MM contends that it was somehow injured when MicroEdge used information it
gained from MM to pretend it had expertise in the measurement of grants and charitable
investments and created a product it marketed to Blackbaud.
But MM’s characterization of the breach of contract damages to which it is entitled as
well as its calculation of the purported damages are insufficient to survive summary judgment.
First, MM’s damages argument refers on several occasions to MicroEdge’s purportedly being
unjustly enriched by virtue of breaching the LOI (i.e., the confidentiality and non-compete
provisions). To the extent that a contract exists, a party cannot recover for unjust enrichment.
As a New York court has stated:
“[W]here there is an express contract that clearly controls, the unjust enrichment
claim should be dismissed.” Here, the Engagement Agreement and Settlement
Agreement clearly control. In fact, plaintiffs rely on these contracts in their
attempt to plead unjust enrichment. See Am. Compl. ¶ 98 (“Defendants Habib and
FCM have been unjustly enriched by the FCM Consulting Agreement and
Settlement Agreement in which they received a benefit of tens of millions of
dollars at the expense of Ortho in return for providing almost no work, beyond
providing access to subcontractors.”). A party dissatisfied with the results of a
contract cannot use an unjust enrichment claim to reform it: “An unjust
enrichment claim is not available where it simply duplicates, or replaces, a
conventional contract or tort claim. . . .To the extent that these claims succeed, the
unjust enrichment claim is duplicative; if plaintiffs’ other claims are defective, an
unjust enrichment claim cannot remedy the defects.”
9
Ortho-Clinical Diagnostics Bermuda Co. v. FCM, LLC, No. 15 CIV. 5607 (NRB), 2017 WL
2984023, at *6 (S.D.N.Y. July 6, 2017) (certain internal citations omitted) (emphasis added).
See also Miszczyszyn v. JPMorgan Chase Bank, N.A., No. 18 C 3633, 2019 WL 1254912, at *4
(N.D. Ill. Mar. 19, 2019) (“‘A plaintiff may plead as follows: (1) there is an express contract, and
the defendant is liable for breach of it; and (2) if there is not an express contract, then the
defendant is liable for unjustly enriching himself at my expense.’ However, a plaintiff may not
acknowledge throughout [its] complaint that there is an express contract, but then allege that if
the defendant did not breach the contract, then it owes damages for unjustly enriching itself.”)
(internal citation omitted). Here, MM acknowledges and asserts that the parties’ relationship is
governed by an express contract. Therefore, to the extent that MM relies upon unjust enrichment
as a measure of damages it incurred as a result of the alleged breach of contract, the position is
misplaced.
MM then slightly repackages the argument by asserting that the proper measure of
damages is the disgorgement of MicroEdge’s “profits,” citing Pencom Sys., Inc. v. Shapiro, 598
N.Y.S.2d 212, 212 (N.Y. App. Ct. 1993). As noted by the Pencom court, in the unfair
competition context,
[t]he proper measure of damages is the net profit of which plaintiff was deprived
by reason of defendant’s improper competition with plaintiff. Disgorgement of
defendant’s profits would be the proper measure of damage if defendant had used
the trade secrets for his own benefit while still in plaintiff’s employ.
Id. (emphasis added). MM’s attempt to analogize the instant case to an employee who used
confidential information while in Plaintiff’s employ is unconvincing. As an initial matter, profits
represent what is left after expenses are subtracted from revenue. Yet, as MM asserts, the $34.1
million it seeks supposedly represents the “increase in MicroEdge’s enterprise value,” not profits
at MM’s expense. More importantly, the Second Circuit recently referred to the lack of “any
New York case allowing a plaintiff to recover a defendant’s ill-gotten profits as an alternative to
traditional remedies for breach of a contract.” Scienton Techs., Inc. v. Computer Assocs. Int’l,
Inc., 703 F. App’x 6, 10 (2d Cir. 2017) (“Scienton argues not that CA’s ill-gotten profits amount
to their losses for any breach of the MNDA, but instead that ill-gotten profits are an appropriate
alternative remedy. This argument is unavailing. Scienton fails to cite any New York case
allowing a plaintiff to recover a defendant’s ill-gotten profits as an alternative to traditional
remedies for breach of a contract.”). See also Franconero v. Universal Music Corp., No. 02
CIV.1963(BSJ), 2011 WL 566794, at *4 (S.D.N.Y. Feb. 11, 2011) (“Plaintiff’s damages expert .
. . argues the proper measurement of damages should be all of the revenue Defendant received
from coupled uses. This constitutes disgorgement. It is well-settled that ‘[d]isgorgement ... is
not an appropriate remedy for a breach of contract’ because ‘[d]isgorgement looks to the
defendant’s ill-gotten gains, rather than to the plaintiff’s losses.’”) (citations and footnotes
omitted). MM points to no loss it suffered based on MicroEdge’s sale to Blackbaud.6
6
Moreover, MM fails to demonstrate how MicroEdge’s use of confidential information
and its violation of the non-compete, assuming they occurred, support a finding of $34.1 million
10
Accordingly, MicroEdge’s summary judgment motion on the breach of contract claim is granted.
MM’s unjust enrichment claim against MicroEdge fails for the reasons discussed above.
Moreover, to the extent that the unjust enrichment claim is based on misappropriation of trade
secrets, it is preempted by Illinois Trade Secrets Act (“ITSA”). See Am. Ctr. for Excellence in
Surgical Assisting Inc. v. Cmty. Coll. Dist. 502, 190 F. Supp. 3d 812, 824 (N.D. Ill. 2016)
(“Because ‘unjust enrichment . . . claims, when based on misappropriation of a trade secret, have
been replaced under Illinois law by’ ITSA, ITSA preempts the unjust enrichment claim.”). For
these reasons, summary judgment is granted to MicroEdge on this claim.7
Finally, MM also brings an ITSA claim against MicroEdge.8 “To sustain a claim for
misappropriation of a trade secret, [a plaintiff] must show (1) there was a trade secret, (2) the
trade secret was misappropriated, and (3) the defendants used the trade secret in the course of
business.” IPOX Schuster, LLC v. Nikko Asset Mgmt. Co., 304 F. Supp. 3d 746, 757 (N.D. Ill.
2018) (citing Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir.
2003)). As noted by another court, under ITSA:
(d) “Trade secret” means information, including but not limited to,
technical or non-technical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process, financial data, or list of
actual or potential customers or suppliers, that:
(1) is sufficiently secret to derive economic value, actual or potential,
from not being generally known to other persons who can obtain
economic value from its disclosure or use; and
(2) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy or confidentiality.
in damages to MM. Because the parties do not engage in an in-depth analysis of Bratic’s
methodology in arriving at this number, the Court will not address the issue. Nevertheless, based
on its initial review of Bratic’s report, the Court notes that his methodology could present
concerns under the standard articulated in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509
U.S. 579 (1993).
7
Even assuming that unjust enrichment or disgorgement were the proper measure of
damages for breach of the non-compete, MM asserts that the purported $34.1 million benefit to
MicroEdge was “to [MM’s] detriment, where [MM] waited in the wings, ignorant of
MicroEdge’s plans to compete with it, and turning down other offers to partner in reliance on its
purported collaboration with MicroEdge.” (Pl.’s Omnibus Resp., Dkt. # 322, at 28.) But this
statement is unsupported by any record citation.
8
MicroEdge incorporates Blackbaud’s arguments in arguing that it is entitled to
summary judgment on the ITSA claim. Thus, references to arguments by MicroEdge may be
ones contained in Blackbaud’s motion.
11
765 ILCS 1065/2(d). “Both of the Act’s statutory requirements focus
fundamentally on the secrecy of the information sought to be protected.”
“However, the requirements emphasize different aspects of secrecy. The first
requirement, that the information be sufficiently secret to impart economic value
because of its relative secrecy, ‘precludes trade secret protection for information
generally known or understood within an industry even if not to the public at
large.’” “The second requirement, that the plaintiff take reasonable efforts to
maintain the secrecy of the information, prevents a plaintiff who takes no
affirmative measures to prevent others from using its proprietary information
from obtaining trade secret protection.”
Both requirements must be met for information to be a trade secret, so the failure
to satisfy even one defeats an ITSA claim.
Am. Ctr. for Excellence in Surgical Assisting Inc. v. Cmty. Coll. Dist. 502, 315 F. Supp. 3d 1044,
1056-57 (N.D. Ill. 2018) (internal citations omitted).
MM contends the following three items constitute trade secrets under the ITSA: (1) the
Outcomes Taxonomy; (2) excerpts of the Outcomes Taxonomy; (3) “ a method for using a
taxonomy to aggregate outcomes data and compare and benchmark heterogeneous grants.”
(Pl.’s Resp. Defs.’ Stmt. Facts, Dkt. # 321 , ¶ 25.) ITSA “defines ‘misappropriation’ to mean
‘acquisition of a trade secret by another person who knows or has reason to know that the trade
secret was acquired by improper means,’” which “include ‘theft, bribery, misrepresentation, [or]
breach or inducement of breach of a confidential relationship.’” Arjo, Inc. v. Handicare USA,
Inc., No. 18 C 2554, 2018 WL 5298527, at *6 (N.D. Ill. Oct. 25, 2018) (citation omitted).
As an initial matter, it is undisputed that the full Outcomes Taxonomy was never sent or
disclosed to MicroEdge, so the ITSA claim fails as to this alleged trade secret.9 With respect to
unspecified excerpts of the Outcomes Taxonomy, which presumably refer to those sent to
MicroEdge, they were not labeled confidential or designated as confidential material in the email
transmitting them to MicroEdge. (Pl.’s Resp. Defs.’ Stmt. Facts, Dkt. # 321, ¶ 39.) Moreover,
MM admits that certain parts of the Outcomes Taxonomy have been made public. (Id. ¶ 43.)
Therefore, MM fails to establish a genuine issue of material fact that excerpts of the Outcomes
Taxonomy constitute a trade secret under Illinois law. See Am. Ctr. for Excellence in Surgical
Assisting, 315 F. Supp. 3d at 1058 (“[Plaintiff] did not take the kinds of affirmative measures
courts have recognized as secrecy-preserving under Illinois law, such as ‘limit[ing] access to the
information to certain employees only, keep[ing] the information encrypted, password-protected,
or locked, prevent[ing] copying of the protected information, or requir[ing] employees to sign
confidentiality agreements.’ To the contrary, [Plaintiff] itself sent the [purported trade secret] to
9
The Court further notes as an aside that the Blackbaud Outcomes software does not
incorporate the sample or other excerpts of MM’s Outcomes Taxonomy, and it is undisputed that
the sample of the Outcomes Taxonomy could not be used to reconstruct the Outcomes
Taxonomy. (Pl.’s Resp. Defs.’ Stmt. Facts, Dkt. # 321, ¶ 41.)
12
[Defendant] without first ensuring that she (or anyone else) would maintain its confidentiality.”)
(internal citations omitted).
This leaves MM’s “method for using a taxonomy to aggregate outcomes data and
compare and benchmark heterogeneous grants,” which the parties refer to as the benchmarking
methodology.10 MM fails, however, to discuss in its response why the benchmarking
methodology is a trade secret under ITSA. In response to MicroEdge’s assertion that the concept
of benchmarking is well-known and is therefore not a trade secret, MM simply asserts that it “is
not claiming any protection in the general concept of measuring outcomes, but in the specific
tools and method it developed.” (Pl.’s Omnibus Resp., Dkt. # 322, at 30.) But its argument ends
there. MM fails to cite to the record or expand on its assertion that its benchmarking
methodology is a trade secret under Illinois law. Accordingly, MicroEdge’s motion for summary
judgment as to this and all aspects of the ITSA claim is granted.11
C.
Blackbaud
With respect to MM’s claims against Blackbaud based on unjust enrichment and the
Defend Trade Secrets Act of 2016 (“DTSA”), MM states that it does not oppose Blackbaud’s
motion for summary judgment. Therefore, summary judgment is granted in favor of Blackbaud
as to the unjust enrichment and DTSA claims.
MM also asserts an ITSA claim against Blackbaud, seeking unjust enrichment damages
for the purported ITSA violation. But, as just stated, MM abandons its unjust enrichment claim
against Blackbaud. Indeed, MM wholly fails to address how it could obtain any damages under
ITSA against Blackbaud. Accordingly, Blackbaud’s motion for summary judgment is granted as
to the ITSA claim.
10
In its statement of facts, MM describes benchmarking as “determin[ing] the average
cost per outcomes among numerous grantees working to achieve the same outcome, and
calculat[ing] a standard, or ‘benchmark’ cost per outcomes that can serve as the baseline for an
effective grantee.”
11
The Court also notes that MM’s evidence as to damages under ITSA is lacking. “‘In
terms of damages, the ITSA provides that ‘[i]f neither damages nor unjust enrichment caused by
the misappropriation are proved by a preponderance of the evidence, the court may award
damages . . . measured in terms of a reasonable royalty for a misappropriator’s unauthorized
disclosure or use of a trade secret.’” Teledyne Techs., Inc. v. Shekar, No. 15 C 1392, 2017 WL
5892251, at *12 (N.D. Ill. Apr. 27, 2017) (quoting 765 ILCS 1065/4(a)). As MicroEdge notes,
MM has chosen not to pursue a reasonable royalty and has no evidence of actual losses. MM
relies therefore on unjust enrichment caused by the misappropriation. However, as already
discussed, MM’s calculation of unjust enrichment damages faces significant hurdles, both in
terms of causation and the methodology used to establish the purported unjust enrichment
damages.
13
Finally, MM’s claim of tortious interference against Blackbaud fails for the reasons
previously discussed in the same claim against Vista.
Conclusion
For the reasons stated above, Vista’s, MicroEdge’s and Blackbaud’s motions for
summary judgment are granted.
Date: October 8, 2019
__________________________________
Ronald A. Guzmán
United States District Judge
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?