Inmar, Inc. et al v. Monica Murphy Vargas et al
Filing
40
OPINION and Order Signed by the Honorable Charles R. Norgle, Sr on 12/21/2018. Mailed notice. (sxb, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
INMAR, INC. and COLLECTIVE BIAS,
INC.,
)
)
Plaintiffs,
No. l8-cv-2306
V.
Hon. Charles R. Norgle
MONICA MURPHY VARGAS ANd MLW
SQUARED, INC., dlbla/ AHALOGY,
Defendants.
OPINION AND ORDER
Inmar, Inc. ("'lnmar") and Collective Bias, Inc. ("Collective Bias") (together "Plaintiffs") bring
this action against Monica Murphy ("Murphy") and MLW Squared, lnc. dlbla Ahalogy ("Ahalogy")
(collectively "Defendants") for matters arising from Murphy's employment with Ahalogy. The
Complaint alleges misappropriation of trade secrets under the Defend Trade Secrets Act (the "DTSA'"),
l8 U.S.C. $ 1836 et seq. (Count I), misappropriation of trade
secrets underthe Illinois Trade Secrets
Act (the "ITSA"),765 ILCS 1065 et seq. (Count II), violation of the Computer Fraud and Abuse Act
("CFAA"), l8 U.S.C $
1030 et seq. (Count
VIII), unjust enrichment (Count IX),
breach
and
V), conversion (Count VII),
trespass to chattels (Count
civil conspiracy (Count X) against both Murphy
and Ahalogy;
of contract (Count III), and breach of contract (Count IV) against Murphy; and tortious
interference with contract (Count
VI) against Ahalogy. Defendants now move under Federal Rule of
Civil Procedure l2(bX6) to dismiss the Complaint. For the reasons provided, the motion
is granted in
part and denied in part.
I.
BACKGROUND
Collective Bias is an influencer marketing company. Influencer marketing is a form of
marketing where a seller leverages the popularity and credibility of particular individuals to market
specific products in a testimonial manner. This model uses a broad array of individuals who wield
measurable influence on various platforms, e.g., Facebook, Twitter, Instagram. YouTube, various
blogs. and other social media platforms. Modern influencer marketing seeks to use persons that are
relatable to the
,urk.i
audience and have those individuals explain how and why they incorporate a
particular product in their everyday life.
Plaintiffs asseft that this marketing is more targeted than traditional methods of celebrity
endorsements and the resulting impact is uniquely quantifiable. To be effective, Plaintiffs are required
to understand the seller's business, product, or service, identify influencers who can be used as credible
marketers of the said product, and develop relationships with the influencers and use them to market
the product. Collective Bias states it has spent millions of dollars developing its knowledge of products
and influencers. as well as contacts at major brands in order to most effectively sells its influencer
marketing services. Collective Bias has also developed Social Fabric@, Shopper Social MediarM, and
Prescriptive IQrM. These services were built with proprietary research to connect influencer content
with key audiences using advanced analytics and behavior tracking.
On or about November 19,2015, Murphy was hired by Collective Bias to serve as its Senior
Director of Business Development. Murphy's duties included: knowing Collective Bias's product
offerings. pricing, and positioning; managing territory/account plans; and prospecting potential clients.
Upon being hired, Murphy signed an employment agreement-the Collective Bias Agreement
("CBA"). The CBA included
Covenant").
a
confidentiality covenant (Compl., Ex. A $$ l) ("CBA Confidentiality
a non-compete covenant (ld. at $ 5(a)) ("CBA Non-Compete Covenant"), a non-
solicitation covenant (ld. at 5(b)) ("CBA Non-Solicitation Covenant"). and an employer property
covenant (ld. at $ 4)) ("'CBA Employer Property Covenant"). Murphy was issued a keycard to access
Collective Bias's secure facilities, a laptop computer, and access to Collective Bias's interstate
computer network. ln her role, Murphy had access to Collective Bias's confidential and proprietary
information including: Collective Bias's product offering; position in the market; pricing; competitive
differentiators; territory and account plans; lead sources; client business objectives; rate cards; budget
templates; client lists; and research dossiers.
In or around December 2016, Inmar acquired Collective Bias. Despite the acquisition,
Collective Bias retained its name and continued to operate as its own entity. However, its employees
were required to sign another agreement with Inmar-the Confidential and Proprietary Rights
Assignment Agreement (the "CAPRAA"). The CAPRAA contained similar covenants to the CBA,
i.e., confidentiality covenants (Compl., Ex. B $$ l-2.2) ("CAPRAA Confidentiality Covenant"), a
"Covenant Not To Compete" (ld. at $ 7) C'CAPRAA Non-Compete Covenant"), and a "NonSolicitation Covenant" (ld. at $ 8) ("CAPRAA Non-Solicitation Covenant"). Plaintiffs allege that
Murphy agreed to sign the CAPRAA in exchange for employment with Inmar and additional benefits
associated therewith.
Defendant Ahalogy is also an influencer marketing company and engages in the same form
of
marketing as Collective Bias. Ahalogy offers products and services that compete with Plaintiffs'
products and services. Plaintiffs' aver that Murphy was aware that Ahalogy was a direct competitor
of
Plaintiffs. Nevertheless, on or about July 12, 2017, Murphy purportedly authorized a recruiter to
contact her regarding potential employment at Ahalogy. Plaintiffs allege thatthe job description and
qualifications for the position at Ahalogy, which Murphy was pursuing, were nearly identical to her
position with Collective Bias. Compare Compl., Ex. C, with Ex. D. Soon after speaking with the
recruiter, Ahalogy offered Murphy the role of Director of Sales and she accepted.
After accepting the offer from Ahalogy, but prior to notifying Plaintiffs of her intent to leave,
Murphy allegedly used her credentials to access Plaintiffs' computer systems and collected Plaintiffs'
confidential and proprietary information. Plaintiffs allege that Murphy accessed Plaintiffs' computer
systems using her work-issued computer and forwarded information to her personal email account
including: Collective Bias's product offering; position
in the market;
pricing; competitive
differentiators; territory and account plans; lead sources; client business objectives; rate cards; budget
templates; client lists; and research dossiers. Plaintiffs claim that Murphy began forwarding their
confidential information from August 4,2017, up until the afternoon on August 24,2017-hours
before she resigned. Additionally, shortly before submitting her resignation, Murphy purportedly
reached out to one of Plaintiffs' clients to inform the client that she was leaving. On August24,2017.
Murphy tendered Plaintiffs her resignation, effective immediately. Approximately one month after
joining Ahalogy. Murphy allegedly contacted the same client and requested a meeting to pitch
Ahalogy's services. Plaintiffs aver that Murphy and Ahalogy began using Plaintiffs' proprietary
information to benefit themselves.
Defendants now move to dismiss the entire complaint for failure to state a claim pursuant to
Fed. R. Civ. P. l2(bX6).
II.
A.
ANALYSIS
Standard of Review
A motion under Rule l2(bX6)
tests the sufficiency of the complaint under the plausibility
standard, Bell Atlantic Corporation v. Twombly, 550 U.S. 544,570 (2007), not the merits of the suit.
Gibson v. Citv of Chicago,
gl0 F.2d 1510, 1520 (7th Cir.
1990) (citation omitted).
"[A] plaintiffls
claim need not be probable, only plausible: 'a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof
of those facts is improbable, and that a recovery is very remote
and
unlikely.""lndep. Trust Corp. v. Stewart Info. Servs. Corp.,665 F.3d 930,935 (7th Cir. 2012) (quoting
Twombly, 550 U.S. at 556). "To meet this plausibility standard, the complaint must supply 'enough
fact to raise a reasonable expectation that discovery
will reveal evidence' supporting the plaintiffs
allegations." Id. at 935. (quoting Twombly,550 U.S. at 556). In deciding a Rule l2(bX6) motion, the
Court accepts as true all well-pleaded facts in a plaintiffs complaint and draws all reasonable
inferences in his favor. Burke, 714 F.3d at 504 (citations omitted). "[T]he complaint must describe the
claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds upon
which it rests."' EEOC v. Concentra Health Servs. , 496 F .3d 773,776 (7th Cir. 2007).
B. Misappropriation
II)
of Trade Secrets in Violation of the DTSA and the ITSA (Counts I and
Counts Iand II of Plaintiffs'complaint sets forth claims for violations of the ITSA and the
DTSA against Murphy and Ahalogy. "To prevail on a claim for misappropriation of a trade secret
under [the ITSA], the plaintiff must demonstrate that the information at issue was a trade secret, that it
was misappropriated and that
PlayWood To,vs. Inc. ,342
F
it was
used in the defendant's business." Learning Curve Toys. Inc. v.
.3d 714,721 (7th Cir. 2003). "Similarly, the DTSA creates a private cause
of action in favor of the owner of a trade secret that is misappropriated
'if
the trade secret is related to
a product or service used in, or intended for use in, interstate or foreign commerce."'Mickey's Linen
v. Fischer, No. l7 C2154.2017 WL3970593, at *8 (N.D. Ill. Sept.8,20l7) (quoting l8 U.S.C.
r
$
836(bX r )).
"To establish a protectable trade secret under either statute, the party seeking protection must
show that the information:
( I ) 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 underthe circumstances to maintain its secrecy or
confidentiality." PrimeSource Blde. Prod.. Inc. v. Huttig Bldg. Prod.. Inc., No. l6 CV 11390,2017
WL7795125,at *13 (N.D. Ill. Dec.9,2017) (citing 765 ILCS 106512(d) and l8 U.S.C. $ 1839(3)).
"The following additional common law factors are significant in determining whether a trade secret
exists:
(l)
the extent to which the information is known outside of [the employer's] business; (2)the
extent to which
it is known by employees and others involved in the business; (3) the extent of
measures taken
by the employer to guard the secrecy of the information; (4) the value of
the
information to the employer and to his or her competitors; (5) the amount of effort or money expended
by the employer in developing the information; and (6) the
ease
or difficulty with which
the
information could be properly acquired or duplicated by others." Delta Med. Sys. v. Mid-America
Med. Sys.. 772N.8 .2d 768, 780 (lll. App. 2002).
"The existence of a trade secret ordinarily is a question of fact." Learning Curve Toys. Inc. v.
PlayWood Toys. Inc..342 F.3d 714.722 (7th Cir.2003). The Seventh Circuit has noted that a trade
secret is one of the most elusive and difficult concepts in the law to define. ld. at 727 (quoting Lear
Siegler. inc. v. Ark-Ell Springs. Inc..569 F.2d 286.288 (5th Cir. 1978)). "Whether a plaintiff
adequately alleges the existence of a trade secret is a fact intensive analysis, but courts have found
allegations
to be adequate in
instances where the information and the efforts
to maintairr
its
confidentiality are described in general terms." Covenant Aviation Sec.. LLC v. Berry, l5 F. Supp. 3d
813, 818 (N.D. Ill. 2014). "[C]ourts only dismiss a claim for lack of specificity on the pleadings in the
most extreme cases." Mission Measurement Corp. v. Blackbaud. Inc. ,216 F . Supp. 3d 9l 5, 921 (N.D.
Ill. 2016) (citation omitted). Thus, "the question of whether certain information constitutes a trade
secret ordinarily is best resolved by a fact finder after
full
presentation
of evidence from each
side." Id. (citation omitted).
Plaintiffs have sufficiently alleged that the confidential information Murphy forwarded to her
private computer contained Plaintiffs' trade secrets. Plaintiffs allege that Murphy possessed, inter alia,
the following confidential and proprietary information: business development plans for existing clients,
Plaintiffs' pricing and marketing strategies, lead sources, client lists, position in the market, and
research dossiers. Collective Bias claims that
knowledge
of
it
spent years and millions
of dollars developing
its
products and influencers, developing client dossiers, and marketing strategies.
Additionally, Plaintiffs claim that the information is not readily ascertained or generally known. Other
courts in this district have found similar alleged confidential information to be sufficient to base trade
secret claims upon. See Labor Ready. Inc. v. Williams Staffing. L.L.C. ,149 F. Supp. 2d 398,412 (N.D.
Ill. 2001) (finding that marketing strategies, pricing
data, and confidential business practices satisfied
the notice pleading requirements); See also Covenant Aviation,
l5
F.Supp.3d at 819 (finding that
plaintiffs information which included profit and loss information, internal costs and
overhead,
operational information, and specific bid and proposal information were sufficiently confidential to be
the basis of a trade secret); Labor Read),. Inc. v. Williams Staffing. LLC, 149 F. Supp. 2d 398,412
(N.D. il1.2001).
Plaintiffs' also must allege that they took reasonable steps to safeguard their confidential
information. 765 ILCS 106512(d); l8 U.S.C. $ 1839(3). Here, Plaintiffs allege more than rote repetition
of statutory language. Plaintiffs claim that they have made efforts to keep the information secret by
using passwords, key cards, security personnel, terminating access to confidential information when
employment ends, and requiring employees to sign nondisclosure and noncompetition agreements.
Such allegations are sufficient at the pleading stage to demonstrate that Plaintiffs took reasonable steps
to safeguard their information. See Dick Corp. v. SNC-Lavalin Constructors. Inc., No. 04 C 1043,2004
WL 2967556, at * l0 (N.D. Ill. Nov. 24,2004) ("[W]hether the measures taken by a trade secret owner
satisfythe[TSA] reasonablenessstandardordinarilyisaquestionoffactforthejuryandnotoneto
be decided at the pleading stage.").
Having determined that Plaintiffs sufficiently allege trade secrets under the ITSA and the
DTSA, the Court turns to whether they have alleged Murphy misappropriated those trade secrets.
"Misappropriation can be shown one of three ways-by improper acquisition, unauthorized disclosure,
or unauthorized use." Covenant Aviation, I 5 F. Supp. 3d at 819. Plaintiffs allege that for several week
prior to resigning, Plaintiffs forwarded multiple emails from her Collective Bias issued computer to
her private email. These emails possessed Plaintiffs' confidential information. e.9., customer lists,
business development plans, pricing, and market strategies. Murphy's alleged conduct exceeded her
authorized use of Plaintiffs'confidential information. Plaintiffs claim that shortly after Murphy started
working for Inmar, she began to use Plaintiffs'confidential information to benefit herself and lnmar.
More specifically, Murphy used the information to solicit Plaintiffs' clients. These allegations are
sufficient plead misappropriation. See RKI. Inc. v. Grimes,l77 F- Supp.2d 859,875 (N.D.
Ill.200l)
(finding misappropriation. where the former employee downloaded or copied the plaintiffs
confidential data shortly before resigning and later used the data to help solicited business from the
plaintiff s); Liebert Corp. v. Mazur, 827 N.E.2d 909, 926 (lll. App. 2005) (finding misappropriation
where the employee downloaded several price books on his laptop computerjust hours before resigning
and agreeing to work for competitor).
Thus, viewing the well-pleaded facts and all reasonable inferences in Plaintiffs' favor, they
have sufficiently alleged Murphy and Inmar violated the ITSA and the DTSA.
C. CBA-Preemption
1. No preemption
and Breach of Contract (Count
III)
by CAPRAA
Plaintiffs allege that Murphy breached various covenants of the CBA. However, Defendants
argue that the CBA is unenforceable because it was superseded by the CAPRAA and that Plaintiffs
fail to allege a breach or resulting damages. The CBA contains a Michigan choice of law provision,
Compl., Ex A $ 16, and the CAPRAA contains a North Carolina choice of law provision, Compl., Ex
B $ 18,-neither party objects to the application of either of these provisions.r
First, Defendants argue that that the CBA is unenforceable because it was superseded by the
CAPRAA. Defendants point to the CAPRAA's o'Entire Agreement" covenant, which states that it "is
the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and
supersedes and merges
all prior discussions between us." Compl., Ex. B $ 21.4. From this
clause,
Defendants argue that the CBA is superseded and thus, no longer enforceable. The Court disagrees. It
is not clear from the plain language of the CAPRAA whether the parties intended for it to supersede
the CBA.
"The merger clauses were designed to effectuate the policies of the Parol Evidence Rule; i.e.,
barring the admission of prior and contemporaneous negotiations on terms inconsistent with the
terms of the writing." Zinn v. Walker, 87 N.C. App. 325, 333,361S.E.2d 314,318 (1987)
I Defendants object to the applicability of Michigan and North Carolina laws, but only to the extent they conflict
with Illinois policy requirements.
"North Carolina clearly recognizes the validity of merger clauses and the state courts have repeatedly
enforced such clauses." Smith v. Cent. Soya of Athens. |nc..604 F. Supp. 518,526 (E.D.N.C. 1985)
(collecting cases). Merger clauses "create a rebuttable presumption that the writing represents the final
agreement between the parties." White
v. Burton Farm Dev. Co. LLC, 750 S.E.2d 920 (N.C. App.
2013). However, there is an exception to this general rule which applies "when giving efTect to the
merger clause would frustrate the parties'true intentions." Hinshaw v.
Wright,4l2S.E.2d 138, l4l
(N.C. 1992). The Court can determine the intention of the parties from the words of the contract,
provided such language is clear. Walton v. City of Raleigh , 467 S.E.zd 410, 411 (N.C. 1996).
Here, the plain language of the CAPRAA is not clear as to the intent of the parties. The
CAPRAA's Entire Agreement Covenant, which Defendants point to in support of their argument,
states
it "supersedes and merges all prior discussions between us." Compl., Ex. B $ 21.4 (emphasis
added). Defendants argue that it "defies logic" to interpret "discussions" to not include prior written
agreements. Def.'s Reply [38], at 2. Defendants do not support this proclamation with citations to any
case law. Contrary
to Defendants'
unsupported argument, the Court does not, as a matter
of
law.
construe "discussion" to encompass prior written agreements. "Discussion" is "[t]he act of exchanging
views on something; a debate." Discussion, Black's Law Dictionary (lOth ed. 2014).lt is not clear
from the word "discussion" whether the parties intended the CAPRAA to supersede the CBA-a
written agreement. Plaintiffs allege that the terms of the CBA were not superseded and its terms
survived the termination of Murphy's employment. These allegations in addition to the ambiguity of
the word "discussions" provide a sufficient basis to reject Defendants' argurnent. See UAW-GM
Human Res. Ctr. v. KSL Recreation Corp..579 N.W.2d 4l1,414 (Mich. App. 1998) ("A contract is
ambiguous
if its words may reasonably
be understood in different ways."); Certified Restoration Dry
Cleaning Network. L.L.C. v. Tenke Corp., 5l
I F.3d 535,544 (6th Cir. 2007) (stating that
when contract
language is ambiguous its meaning becomes a question of fact and testimony may be taken to explain
the ambiguity).
2.
Breach of the CBA
Having determined that, forthe purposes of this motion, the CAPRAA did not supersede the
CBA, the Court turns to Defendants' next argument; that Plaintiffs fail to allege breach of the CBA or
resulting damages. "A plaintiff seeking to recover for breach of contract must prove that a contract
existed between the parties, the defendant breached the contract, and the breach damaged the plaintiff."
Appalachian Railcar Servs. v. Boatright Enters., 602 F. Supp. 2d 829,867 (W.D. Mich. 2008). Here,
Plaintiffs allege that Murphy breached four clauses of the CBA:
(I
) the CBA Confidentiality Covenant,
which restricts Murphy's disclosure of confidential information; (2) the CBA Employer Property
Covenant, which requires Murphy to return to Plaintiffs all property of Plaintiffs upon resignation; (3)
the CBA Non-Solicitation Covenant, which prevents Murphy from soliciting one of Plaintiffs' clients
for whom she was principally assigned or had contact with in the twelve months proceeding Murphy's
resignation; and (4) the CBA Non-Compete Covenant, restrictions upon rendering services for direct
competitor of Plaintiffs.
Defendants argue that the restrictive covenants, i.e., the CBA Non-Solicitation Covenant and
CBA Non-Compete Covenant, are facially unreasonable, and thus unenforceable. The Michigan
Antitrust Reform Act authorizes agreements not to compete as long as they are reasonable, it reads:
An employer may obtain from an employee an agreement or covenant which
protects an employer's reasonable competitive business interests and expressly
prohibits an employee from engaging in employment or a line of business after
termination of the employment if the agreement or covenant is reasonable as to
its duration, geographical area, and the type of employment or line of
business. To the extent any such agreement or covenant is found to be
unreasonable in any respect, a court may limit the agreement to render it
reasonable in light of the circumstances in which it was made and specifically
enforce the agreement as limited.
Mich. Comp. Laws $ 445.774a(l). Michigan appellate courts have determined that "$ 4a(l) represents
a codification of the common-law rule that the enforceability of noncompetition agreements depends
on theirreasonableness." St. Clair Med.. P.C. v. Borgiel, Tl5 N.W.zd914,918 (Mich. App.2006).
"Reasonableness is decided by examining several factors Iincluding] the consideration supporting the
l0
agreement, the economic hardship imposed on the employee, the public interest, and whether the
employer has a legitimate business interest for the protection of which a restriction is reasonable."
RAM Prods. Co. v. Chauncey,967 F. Supp. 1071,
"reasonableness inquiry
L.L.C. v. Tenke
l09l (N.D. Ind.
1997). Accordingly, the
is inherently fact specific." Certified Restoration Dry Cleaning Network.
Corp.,5ll F.3d 535,547 (6th Cir.
2007). Not one of the three cases cited above
determined the issue of reasonableness of a non-compete at the motion to dismiss stage. The Court
finds that this fact intensive inquiry in this matter is ill-suited for Defendants' present motion.
Moreover, even
if the Court determined that the CBA's restrictive
covenants were facially
unreasonable, Plaintiffs could still proceed on their breach of contract claim. Defendants argue that the
CBA Non-Compete Covenant is unenforceable because it prohibits Murphy from working in any
capacity or scope for any competitor of Plaintiffs', citing Mapal. Inc. v. Atarsia, 147 F . Supp. 3d 670,
679
(8.D. Mich. 2015) (stating that a limitation on working in any capacity for a competitor of a former
employer is too broad to be enforceable).
The CBA's Non-Compete Covenant reads:
Employee agrees that during the term of employment and for a period of one
(l) year, following the termination of Employee's employment, with orwithout
cause, with or without notice, by either party. Employee will not, directly or
indirectly, render services to any social media or shopper marketing company
or agency in the United States that is a direct competitor to any account to
which Employee was principally assigned at any point during the twelve (12)
month period preceding his/her separation with the Company.
Compl., Ex. A $ 5(a). Even if this language was determined to be unreasonable, the Michigan statute
allows courts to blue pencil or limit the restrictive agreement to make it reasonable. Mich. Comp. Laws
$ 445.774a(l) (providing that "a court may limit the agreement to render it reasonable in light of the
circumstances
in which it was made and specifically enforce the agreement as limited.");
see also
Bristol Window & Door v. Hoogenstyn, 650 N.W.2d 670,674 (Mich. App.2002); Calder Dev. Assocs.
v. Knuth,2004 WL 2102028, at *3 (Mich. Ct. App. Sept.2l,2004). Here, even if the non-compete
covenant could be further limited, Plaintiffs' allegations would be sufficient to allege that Murphy
ll
breached
it. Plaintiffs do not claim that Murphy was hired to be a custodian for Ahalogy.
Rather
Murphy was hired to perform effectively the same job she performed for Plaintiffs. Nevertheless, such
analysis is more academic at this time, since, for the purposes of this motion, the Court is not ruling on
the reasonableness of the CBA Non-Compete Covenant.
Alternatively, Defendants'argue that even if the CBA is enforceable, Plaintiffs fail to allege
Murphy breached its covenants. The Court disagrees. Plaintiffs have sufficiently alleged violations of
the four challenged covenants. As discussed above, Plaintiffs' claim that Murphy took Plaintiffs'
confidential and proprietary information and disclosed it to Ahalogy-a direct competitor of Collective
Bias. Murphy divulged this confidential information within a few months of her resignation from
Collective Bias. Upon her resignation, Murphy was required under the CBA to return all of Plaintiffs'
property, including: computer files; documents; customer lists; plans; and promotional materials.
Compl., Ex.
A
$ 4. ln contravention of the CBA's requirements, Murphy allegedly did not return
Plaintiffs' property at the time of her resignation. Rather, she purportedly forwarded Plaintiffs'
confidential information to her personal email. Also, within a month of beginning her employment
with Ahalogy, Murphy allegedly contacted at least one of Plaintiffs' clients-a client Murphy worked
with while she was employed by Plaintiffs-and requested an opportunity to pitch Ahalogy's services.
Finally, Plaintiffs claim that Defendants used the misappropriated trade secrets to gain a competitive
advantage. These allegations are sufficient
to put Defendants' on notice of which CBA covenants
Murphy purportedly breach, and the relevant conduct that is the basis for each respective breach.
For the reasons stated, the Court refrains from determining the reasonableness of the CBA's
restrictive covenants and determines that Plaintiffs' sufficiently allege breach of contract. Accordingly,
Defendants' motion to dismiss Plaintiffs' Count III is denied.
D. CAPRAA-Enforceability
and Breach of Contract (Count IV)
After Inmar's acquisition of Collective Bias's employees were required to sign the CAPRAA.
Plaintiffs allege that Murphy's conduct breached various covenants in the CAPRAA. The parties do
t2
a
not dispute that the CAPRAA is governed by North Carolina law, as instructed in its "Governing Law"
covenant. Compl., Ex. B $ 18. Initially, the Defendants challenge the enforceability of the restrictive
covenants contained in the CAPR AA, i.e., the CAPRAA Non-Compete Covenant and CAPRAA Non-
Solicitation Covenant. Id. at $$ 7, 8.
Under North Carolina law. both the CAPRAA's Non-Solicitation Covenant and the CAPRAA
Non-Compete Covenant are considered restrictive covenants because both clauses seek to prevent
Murphy from engaging in a similar business in competition with Plaintiffs. See Chemimetals
Processing v. McEneny,476 5.8.2d374,376
of trade
if it seeks to prevent a party from
O.C. App. 1996) (stating that
an agreement is a restraint
engaging in a similar business in competition with the
promise). Restrictive covenants are enforceable in North Carolina if "they are (l) in writing, (2) made
part of a contract of employment, (3) based on valuable consideration, (4) reasonable both as to time
and territory, and (5) not against public policy." Whittaker Gen. Med. Corp. v. Daniel ,379 S.E.Zd 824,
826 (N.C. 1989). Defendants argue that the CAPRAA's restrictive covenants were not based on
consideration and were unreasonable.
Plaintiffs contend that the restrictive covenants were supported by consideration in two
alternative respects:
(l) the covenants
were supported by Murphy's new employment relationship
when Collective Bias was acquired; and (2) they have sufficiently alleged that Murphy received
additional benefits in exchange for signing the CAPRAA. Pl.s Resp. at 5. The Court will address each
argument in turn.
Plaintiffs' first argument fails. "An employment contract signed at the time of a business
acquisition may only use employment with the acquiring company as consideration
if
the old
employment relationship is deemed terminaled as a result of the transaction. Amerigas Propane. L.P.
v. Coffev, No. l4 CVS 376. 2015 WL 6093207, at *5 (N.C. Super. Oct. I 5.2015) (emphasis added).
Here, Plaintiff alleges that her prior employment relationship with Collective Bias was not terminated.
Plaintiffs admit that after the acquisition "Collective Bias retained its name and continued to operate
l3
"ils employees were required to sign [the CAPRAA] with Inmar." Compl.,
as its own entity" and that
fl 37. Further, Plaintiffs claim Murphy was not required to renew or sign any new employment
agreements and that her employment was
use Murphy's employment
with Inmar
still governed by the CBA. Accordingly, Plaintiffs' cannot
as consideration for the
CAPRAA, since they fail to allege her
old employment relationship with Collective Bias was terminated.
Second, Plaintiffs
fail to allege Murphy's signature of the CAPRAA was supported by new
consideration. "When the employment relationship is established before the covenant not to compete
is executed, there must be separate consideration to support the covenant, such as a pay raise or other
employment benefits or advantages for the employee." Stevenson v. Parsons, 384 S.E.2d 291,292-93
(N.C.App. 1989);James C. Greene Co. v. Kelley,
134 S.E.2d 166,167
O.C. 1964); Estate of Graham
v. Morrison, 576 S.E.zd 355, 359 (N.C. App. 2003) ("Past consideration or moral obligation is not
adequate consideration
to support a contract."). "fNorth Carolina courts] have held the following
benefits all meet the 'new' or 'separate' consideration required for a non-compete agreement entered
into after a working relationship already exists: continued employment for a stipulated amount of time;
a raise, bonus, or other change in compensation; a
promotion; additional training; uncertificated shares;
or some other increase in responsibility or number of hours worked. Hejl v. Hood. Hargett & Assocs.,
674 S.E.zd 425, 428-29 O.C. App. 2009). Plaintiffs do not allege any of these examples of
consideration, rather they merely allege Murphy's signature was in exchange fbr "additional benefits."
Compl.. lf 37. This allegation is a threadbare recital of an element that Plaintiffs are required to allege
for this claim. Thus, it is insufficient, even at the Rule l2(bX6) stage. McReynolds v. Merrill Lynch &
Co,694 F.3d 873, 885 (7th Cir.20l2). Accordingly, Plaintiffs fail to sufficiently allege breach as to
the CAPRAA's restrictive covenants.
Next, Plaintiffs allege that Murphy breached the CAPRAA Confidentiality Covenant. lnitially,
the Court notes that unlike restrictive covenants, North Carolina law permits continued employment to
be sufficient consideration for a confidentiality agreement. See Amerigas Propane,20l5
t4
WL 6093207,
at x5 (citing Sirona Dental. Inc. v. Smithson, No. 3: l4-cv-7I4-RJC-DSC, 2015 U.S. Dist. LEXIS 6080,
at *4 (W.D.N.C. Jan. 20,2015). Defendants do not argue that the CAPRAA Confidentiality Covenant
is unsupported by consideration, rather they argue that it is unenforceable since it is not limited in time
or geographic scope, citing Illinois law in support. However, as stated above, the Court looks to North
Carolina law to determine this matter.
Under North Carolina law, the CAPRAA Confidentiality Covenant is enforceable. "[North
Carolina courts] have a long history of carefully scrutinizing covenants that preclude a seller of a
business from competing with the new owner and covenants that prevent an employee from competing
with his former employer." Chemimetals Processing v. McEneny,476 S.E.2d 374,376 (N.C. App.
1996). Yet, "[w]hen an agreement seeks to prevent the disclosure or use of confidential information
and does not seek to prevent a party from engaging in a similar business in competition with the
promise, it is not in restraint of trade. Creative Snacks. Co.. LLC v. Hello Delicious Brands LLC, No.
l:17 CV 50,2017 WL 4043564, at *4 (M.D.N.C. Sept. 12,2017). "Such agreements may, therefore,
be upheld even though the agreement is unlimited as to time and area
... upon
a showing that it protects
a legitimate business interest of the promisee." Chemimetals,4T6 S.E.zd at377.
Here, the CAPRAA Confidentiality Covenant is not a restraint on trade because it is limited to
nonpublic information, e.g., financial information, source code of proprietary software, research data,
internal cost and pricing data. Protecting such information is within the legitimate business interest of
Plaintiffs, and thus, the lack of restrictions on time and area do not render the clause unenforceable.
Accordingly, the Court tums to whether Murphy breached the confidentiality agreement.
Plaintiffs argue that Murphy breached the CAPRAA Confidentiality Covenant in part when
she forwarded emails that contained confidential
information-business development plans, research.
client pricing and marketing strategies, and other information that Plaintiffs allege is proprietary.
Compl.,
at 13,
14. Then, upon Murphy's arrival at Ahalogy, she began
to use the confidential
information to benefit herself and Ahalogy. Id. at 15. Plaintiffs aver that Murphy's conduct decreased
t5
the value of Plaintiffs' proprietary information and loss of business. These allegations sufficiently
plead that Murphy breached the CAPRAA's confidentiality agreement.
Accordingly, Defendants' motion to dismiss Count IV is: (l ) granted as it pertains to breach of
the CAPRAA's restrictive covenants; and (2) denied as to Murphy breaching the confidentially
agreement.
E.
Defendants'Alleged CFAA Violation (Count V)
Plaintiffs allege that Murphy and Ahalogy violated provision $ 1030(a)(2Xc), (aX5XC), and
(b) of the CFAA. The CFAA is primarily a criminal anti-hacking statute; however, it permits "[a]ny
person who suffers damage or loss by reason of a violation of this section may maintain a civil action
against the violator."
l8 U.S.C. $ 1030(g)."[A]
person suing under section 1030(g) must prove:
(l)
damage or loss (2) by reason of (3) a violation of some other provision of section 1030, and (4) conduct
involving one of the factors set forth in section 1030(a)(5)(B)(i)-(v)." Motorola. Inc. v. Lemko Corp.,
609 F. Supp. 2d760,765 (N.D. Ill. 2009). Here, Plaintiffs claim that Defendants violated the CFAA
when Murphy exceeded her authorized access to Plaintiffs' proprietary information by forwarding the
information to her personal email account. Defendants contend that these allegations do not sufficiently
plead damages or loss under the CFAA.
As an initial matter, Plaintiffs are not required to plead both loss and damages, rather it is
sufficient to allege either. Motorola. Inc., 609 F. Supp. 2d 767 (holding that to state a claim under
$
1030(g) for violation of $ 1030(a)(2) or (aX5), a plaintiff is not required to allege both loss and damage,
because such an interpretation would render the first sentence of $ 1030(9) meaningless and lead to an
"absurd" result). Plaintiffs argue that they have sufficiently pleaded loss under the CFAA. The term
"loss" means "any reasonable costs to any victim, including the cost of responding to an offense,
conducting a damage assessment, and restoring the data, program, system, or information to its
condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages
incurred because of interruption of service."
l8
U.S.C. $ 1030(e)(ll). "Courts in this district have
16
found that to adequately plead a loss under CFAA, it is the plaintiffls burden to allege that a defendant's
action caused losses over $5,000 in a one year period, relating to damages and security assessments."
Segerdahl Corp.
v. Ferruzza, No. l7 CV 3015,2018 WL 828062, at *4 (N.D. lll. Feb. 10,2018)
(collecting cases).
Plaintiffs claim that they suffered damages in excess of $5,000 from the cost of responding to
Defendants' unlawful actions and conducting a damage assessment. Defendants argue that loss
requires Plaintiffs to allege that the costs are associated with responding to an interruption of service
or that an impairment of data occurred. The parties' respective arguments reflect a split in this circuit
regarding what constitutes "loss'" under the
CFAA. However, the Court remains unpersuaded
Plaintiffs argument. See TriTeq Lock & Sec. LLC v. Innovativejeeured&b-
ILe, No. l0 CV
by
1304,
2012WL394229, at * I (N.D. Ill. Feb. 1,2012) (Norgle. J.). When enacting the FCAA. "Congress was
concerned with ... attacks by virus and worm writers, on the one hand, which come mainly from the
outside, and attacks by disgruntled employees who decide to trash the employer's data on the way out
(orthreaten to do so in orderto extort payments), on the other." Int'l Airport Ctrs.. L.L.C. v. Citrin,
440 F.3d 418, 420 (7th Cir. 2006).
As alleged, Murphy merely forwarded emails from her work computer to her personal email.
Plaintiffs do not claim that Murhpy's conduct caused any impairment to the system, disrupted
Plaintiffs' services, or rendered any of Plaintiffs' data even momentarily unavailable. Accordingly, "to
permit a plaintiff to state a CFAA claim by simply alleging costs incurred in responding to an alleged
offense or conducting a damage assessment without alleging that the offense caused damage would
impermissibly broaden the applicability of the CFAA to provide seemingly unfettered access to federal
courts to adjudicate state law issues incidentalto computer use." TriTeq Lock,2012WL394229,at
*7. Other courts have taken a similar approach in interpreting "loss". See Mintel Int'l Grp.. Ltd. v.
Neergheen, No.08-CV-3939,2010
WL
145786, at *10 (N.D.
Ill. Jan. 12,2010) ("The alleged
loss
must relate to the investigation or repair of a computer or computer system following a violation that
t7
a
caused impairment or unavailability of data or interruption of service."); SKF USA. Inc. v. Bjerkness,
636 F. Supp. 2d 696,721 (N.D. Ill. 2009) (holding that where the defendants transferred data to a
competitor without the plaintiffls authorization, the plaintiff s losses were better addressed under state
contract and trade secrets law than under the CFAA); Cassetica Software. Inc. v. Computer Sciences
Corp., No. 09 C 0003, 2009
WL 1703015, at *1 (N.D. Ill. June
18, 2009); Del Monte Fresh Produce.
N.A.. Inc. v. Chiquita Brands Int'l Inc.,No.07 C 5902,2009 WL 743215, at *l (N.D. Ill. Mar.
19,
200e).
Further, the Court rejects Plaintiffs' argument that Fidlar Techs. v. LPS Real Estate Data Sols.,
Inc., overturned the cases cited above.8l0 F.3d 1075 (7th Cir.20l6). Fidlar did not address what
constitutes loss under the CFAA nor how
damages under
it is defined. Id. Rather, the court in Fidlar only considered
$ 1030(a)(5)(A). Thus, the Court does not find that Fidlar affects its analysis here. Id.
at22-25. For the reasons stated, Plaintiffs fail to allege loss under the CFAA. Accordingly, Count V is
dismissed.
F.
Plaintiffs' Remaining Noncontractual Claims
1.
Preemption under the ITSA
Defendants argue that the ITSA preempts Plaintiffs' remaining claims: tortious interference
with contract, conversion, trespass to chattels, unjust enrichment, and civil conspiracy. The Court
agrees in part. "[The
ITSA] is intended to displace conflicting tort, restitutionary, unfair competition,
and other laws of this State providing
civil remedies for misappropriation of a trade secret." 765 ILCS
1065/8(a). "[T]here is no action for which [the
misappropriation
plaintiffs'] seek recovery that is separate from the
of its trade secret information." Packaging v. Hein, No. 14 C 09670,2015 WL
6164957, at *8 (N.D.
Ill. Oct. 20,2015);
see also Hecnv Transp.. Inc. v. Chu, 430 F.3d 402, 404
(7th
Cir. 2005) ("[The ITSA] abolishes claims other than those based on contract arising from
misappropriated trade secrets, replacing them with claims under the Act itself."); Nat'l Auto Parts. Inc.
v. Automart Nationwide. Inc., No. 14 C 8160, 2015 WL 5693594, at *4 (N.D. Ill. Sept. 24,2015)
18
("Where a claim is predicated on the misuse of confidential or secret information, that claim is
preempted by the ITSA."). Furthermore, "[e]ven
if
some of the information at issue does not rise to
the level of a trade secret, the ITSA preempts claims of misappropriation of confidential information
even if that information does not rise to the level of a trade secret." Mkt. Track. LLC v. Efficient
Collaborative Retail Mktg.. LLC, No. l4 C 4957 ,201 5 WL 3637740, at *17 (N.D. Ill. June I l, 201 5)
(citing Spitz v. Proven Winners North America. LLC, 759 F.3d 724,733 (7th Cir. 2014)); Learning
Curve Toys. L.P. v. PlayWood Toys. Inc., No.94 C 6884, 1999
1999) (stating that even if the
plaintiff
s ideas do
WL 529572, at *3 (N.D. Ill. July
19,
not meet the requirements of trade secrets, the plaintiff
is not entitled to pursue common law causes of action for the defendant's alleged theft of ideas).
2.
Ahalogy's tortious interference with the CBA and CAPRAA (Count VI)
Plaintiffs claims that Ahalogy tortiously interfered with their contractual relationship with
Murphy governed by the CBA and the CAPRAA. First, Plaintiffs' tortious interference claim
is
dismissed to the extent that it relies on Murphy's breach of the CBA Confidentially Covenant and the
CAPRAA Confidentiality Covenant or requirements to return Plaintiffs' confidential property back to
Plaintiffs upon Murphy's resignation from Collective Bias. These claims are preempted by the ITSA
because both arise directly
breach
from Plaintiffs' misappropriated trade secrets. Further, since Plaintiffs'
of contract claim regarding the CAPRAA was
violation
of the CAPRAA
dismissed----except
for Plaintiffs'
alleged
Confidentially Covenant-Plaintiffs' tortious interference claim is
dismissed to the extent it relies on Murphy's alleged breach of the CAPRAA.
Turning to the remaining alleged breaches of the CBA that are not based solely on the alleged
misappropriation of trade secrets. "To succeed in proving that the defendant committed tortious
interference with contract, the plaintiff must plead and prove:
(l)
the existence of a valid and
enforceable contract between the plaintiff and another; (2) the defendant's awareness of the contractual
relationship between the plaintiff and another; (3) the defendant's intentional and unjustifiable
inducement
ofa
breach
ofthe contract; (4) a breach ofcontract by the other caused by the defendant's
t9
wrongful acts; and (5) damage to the plaintiff." Cress v. Rec. Servs.. Inc.,795 N.E.2d 817, 842
(lll.
App. 2003).
Here, Plaintiffs fail
to allege that Ahalogy intended Murphy to
breach the CBA Non-
Solicitation Covenant. The CBA Non-Solicitation Covenant prevents Murphy from soliciting
Plaintiffs' customers who she had contact with or worked the account of during the twelve months
preceding Murphy's resignation. Compl., Ex.
A $ 5(b). Plaintiffs allege that Murphy reached out to
one of Plaintiffs' customers with whom she worked within the last twelve months of her employment
with Plaintiffs. However, Plaintiffs do not claim that Ahalogy directed Murphy's conduct or was even
aware of
it. Plaintiffs further fail to allege that Ahalogy induced Murphy to reach out to any of
Plaintiffs' customers that Murphy worked with while still employed by Plaintiffs.
Finally, the Court turns to Plaintiffs tortious interference claim regarding the CBA NonCompete Covenant. As discuss supra,
forthe
purposes of this motion, the Court has determined that
the restrictive covenants contained in the CBA are enforceable. Plaintiffs allege that Ahalogy was
aware of the CBA Non-Compete Covenant,
subsequent employment
it hired Murphy
despite the covenant, and Murphy's
with Ahalogy breached that covenant. These allegations are sufficient to
allege tortious interference of contract. See PrimeSource Bldg.,2017 WL7795125, at *12 (noting that
the defendant's alleged recruitment and employment of the plaintiffs employees, knowing that they
were subject to a non-competition clause, supported the plaintiff s tortious interference with contract
claim); Equis Corp. v. Staubauch Co., No. 99 C 7046,2000 WL 283982, at * I (N.D. Ill. Mar. 13, 2000)
(same). Thus, Plaintiffs have sufficiently alleged Ahalogy tortuously interfered with Plaintiffs' contract
with Murphy,
3.
as the
claim pertains specifically to the CBA Non-Compete Covenant.
Conversion and Trespass to Chattels (Counts VII and
VIII)
For their conversion claim, Plaintiffs argue that Murphy, without authorization, obtained and
denied return
trespass
of Plaintiffs' property and confidential or proprietary information. Similarly, for their
to chattels claim, Plaintiffs aver that Defendants failed to return Plaintiffs' property and
20
-
confidential or proprietary information, instead using it for their own enrichment. The alleged property
for both of these claims are the emails that Murphy forwarded to herself. These emails are the same
property that serves as the basis for Plaintiffs' misappropriation of trade secrets claims. Thus,
Plaintiffs' conversion and trespass to chattel claims are preempted by the ITSA. See Segerdahl Corp.,
201 8
WL 828062, at *6 (finding that where the plaintiff did not allege that the defendant took anything
except copied emails of confidential information, the conversion claim was preempted by the ITSA.);
AutoMed Techs.. Inc. v. Eller, 160 F. Supp. 2d 915,922 (N.D. Ill. 2001) (finding preemption where
the property in question was software and design plans, which were among the trade secrets allegedly
misappropriated); Am. Ctr. for Excellence in Surgical Assisting. Inc. v. Cmty. Coll. Dist. 502, 190 F.
Supp. 3d 812, 825 (N.D.
Ill.
2016) (finding preemption where the plaintiff alleges the defendant
converted proprietary information, but did not assert that any of the Proprietary Information's physical
manifestations (such as text books) were relevant to the claim). Accordingl/, Counts
VII
and
VIII
are
dismissed without prejudice.
4.
Defendants' Unjust Enrichment (Count IX)
As an initial matter, while Plaintiffs may seek relief under a theory of unjust enrichment as an
alternative to relief sought under the contract claim, see Fed. R. Civ. P. 8(aX3), they fail to do so here.
In Count IX, Plaintiffs incorporate allegations of valid contractual agreements between Murphy and
Plaintiffs. Complfl 128 (incorporating each of the foregoing paragraphs, which included allegations of
the CBA and CAPRAA). This alone provides a sufficient basis to dismiss Plaintiffs' unjust enrichment
claim. See Cross v. Batterson, No. l7 C 198,2017 WL2798398, at *8 (N.D. Ill. June 28,2017).
Nevertheless, the Court
will
also determine whether Count
IX is preempted under the ITSA.
"ln lllinois, to state a cause of action based on a theory of unjust enrichment,
allege that the defendant has unjustly retained a benefit to the
plaintiff s detriment,
a
plaintiffmust
and that defendant's
retention of the benefit violates the fundamental principles ofjustice, equity, and good conscience."
Cleary v. Philip Morris Inc.,656 F.3d 511,516 (7th
21
Cir.20ll)
(internal quotation marks omitted).
a
Plaintiffs allege that by virtue of Defendants collecting and utilizing Plaintiffs confidential property,
they unjustly retained a benefit to the detriment of Plaintiffs. Plaintiffs do not purport that Defendants
were unlawfully enriched through Murphy's knowledge or expertise. Rather, the claim is exclusively
predicated on possession
of Plaintiffs' confidential information. Accordingly, Plaintiffs' unjust
enrichment claim is dependent on trade secrets and is preempted. See Spitz v. Proven Winners N. Am..
LLC,759 F.3d 724,733 (7th Cir. 2014) (finding that the ITSA
preempted the
plaintiffs
unjust
enrichment claim, even where the district court determined that the plaintiff s idea was not a trade
secret); Segerdahl Corp.
v. Ferruzza, No. l7 CV 3015,2018 WL 828062, at *7 (N.D. Ill. Feb.
2018). Accordingly Count
5.
IX
10,
is dismissed without prejudice.
Defendant's Civil Conspiracy (Count X)
For its civil conspiracy claim, Plaintiffs allege that Defendants agreed to access Plaintiffs'
systems
to obtain Plaintiffs' property and confidential or proprietary information. Since these
allegations merely state that Defendants planned or engaged in unlawful acts in conjunction to take
Plaintiffs' confidential information through improper means, Plaintiffs' civil conspiracy claim
another reiteration of the ITSA allegations, and thus, is preempted. See Thomas
&
is
Betts Corp. v.
Panduit Corp., 108 F. Supp. 2d 968,975 (N.D. I11.2000) ("[D]ismissal of a conspiracy claim is
warranted where it merely duplicates an underlying tort claim that has already been pled."); Learning
Curve 1999 WL 529572, at *3 (N.D. Ill. July 19,1999) ("[T]he alleged theft of ideas cannot support
multiple claims under different theories of recovery.). Thus Count X is dismissed without prejudice.
III.
CONCLUSION
For the aforementioned reasons, Defendants' motion to dismiss Plaintiffs' complaint is granted
in part and denied in part. Defendants' motion to dismiss Counts l, II, and III is denied. Defendants'
motion to dismiss Count IV is:
(l)
granted as it pertains to breach of the CAPRAA Non-Solicitation
Covenant and the CAPRAA's Non-Compete Covenant; and (2) denied as to Murphy's alleged breach
of the CAPRAA Confidentially Covenant. Defendants' motion to dismiss Count VI is: granted to the
22
extent it pertains to Ahalogy's tortious interference with the CAPRAA and the CBA Confidentiality
Covenant, the CBA Non-solicitation Covenant, and the CBA Employer Property Covenant; and (2)
denied as to Ahalogy tortiously interfering with the CBA Non-Compete Covenant. Finally, the Court
grants Defendant's motion to dismiss Counts V,
VII, VIII, IX, X. The Court makes clear that to the
extent any claim was dismissed, it dismissed without prejudice.
IT IS SO ORDERED.
CHARLES RONALD
United States District
23
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