PeopleFlo Manufacturing, Inc. v. Sundyne, LLC et al

Filing 216

MEMORANDUM Opinion and Order. Signed by the Honorable Young B. Kim on 5/9/2022. Mailed notice (ec)

Case: 1:20-cv-03642 Document #: 216 Filed: 05/09/22 Page 1 of 12 PageID #:7088

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PEOPLEFLO MANUFACTURING,
INC.,
Plaintiff,
v.
SUNDYNE, LLC, ACCUDYNE
INDUSTRIES LLC, DXP
ENTERPRISES, INC., and
PUMPWORKS, LLC,
Defendants.
---------------------------------------------------------PUMPWORKS, LLC,
Counter-Plaintiff,
v.
PEOPLEFLO MANUFACTURING,
INC.,
Counter-Defendant.

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No. 20 CV 3642

Magistrate Judge Young B. Kim

May 9, 2022

MEMORANDUM OPINION and ORDER
Before

the

court

are

Defendants Sundyne,

LLC’s (“Sundyne”) and

PumpWorks, LLC’s (“PumpWorks”) motions for sanctions against Plaintiff
PeopleFlo

Manufacturing,

Procedure 37(b)(2)(A).

Inc

(“PeopleFlo”)

under

Federal

Rule

of

Civil

(See R. 184, Sundyne’s Mot.; R. 188, PumpWorks’s Mot.)

Through its motion Sundyne seeks entry of an order dismissing PeopleFlo’s claims
for breach of a non-disclosure agreement and misappropriation of trade secrets
(Counts IV and V). In the alternative, Sundyne asks the court to appoint a Special

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Master to determine whether PeopleFlo’s allegedly protected information qualifies
as a trade secret and, if so, whether Sundyne misappropriated that information.
PumpWorks similarly asks the court to strike from the amended complaint
PeopleFlo’s allegations relating to misappropriation of trade secrets.
PeopleFlo

does

not

directly

charge

PumpWorks

with

a

Although

trade

secret

misappropriation claim, PumpWorks asserts that PeopleFlo “backdoors” trade
secret allegations against PumpWorks through its breach of contract claim.
PumpWorks also alleges that PeopleFlo seeks damages for PumpWorks’s supposed
conspiracy to cover up trade secret misappropriation. For the following reasons, the
motions are denied:
Procedural History
This diversity case stems from PeopleFlo’s efforts to find a large industry
partner that could help bring its novel sealless pump design to market. PeopleFlo
negotiated with Sundyne and its affiliate Accudyne, LLC (“Accudyne”), as well as
DXP Enterprises, Inc. (“DXP”) and its subsidiary PumpWorks, before finally
reaching a deal with PumpWorks. This business relationship did not go smoothly.
PeopleFlo alleges that PumpWorks failed to uphold its end of the bargain, that DXP
and Sundyne sabotaged the deal, and that Accudyne and Sundyne used PeopleFlo’s
trade secrets collected during negotiations to develop and market a competing
product. PeopleFlo brings a variety of claims against Defendants under Illinois law
stemming from these allegations.

In turn, PumpWorks countersues PeopleFlo,

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alleging that PeopleFlo breached their agreement by failing to timely deliver
working products and return advance payments made for those products.
Fact discovery in this case began in July 2020. (R. 125.) In September 2020,
Sundyne served its first set of interrogatories to PeopleFlo, asking it in part to:
9.
Identify all products manufactured or sold by Sundyne that
misappropriate any aspect of PeopleFlo’s technology, and for each such
product, identify: (a) the product name; (b) what aspect or feature of
the product that PeopleFlo contends that Sundyne misappropriated;
and (c) whether, to PeopleFlo’s knowledge, the design feature or
technology existed prior to the date that PeopleFlo first used it, and if
so, where said technology was used.
(R. 184, Sundyne’s Mot. Ex. 2 at 10.) PeopleFlo responded a month later, and
Sundyne challenged the lack of specificity in its response. (See id. at 2.) Thereafter,
PeopleFlo twice supplemented its answer to Interrogatory (“INT”) No. 9. However,
the first supplemental response did not address INT No. 9(b) or 9(c) and only
identified “categories” of information misappropriated, rather than the actual trade
secret information that Sundyne allegedly stole, and the second failed to address
INT No. 9(c). (See R. 170.) In December 2021 Sundyne moved to compel PeopleFlo
to provide more details to its answer. (R. 139, Sundyne’s Mot. to Compel.)
The court granted Sundyne’s motion to the extent Sundyne sought the
supplementation of PeopleFlo’s response to INT No. 9(c) and denied it to the extent
Sundyne sought information not requested in INT No. 9. (R. 170.) The court also
cautioned PeopleFlo that it would “be barred from using or relying on any
responsive technical information it fails to disclose” and that “[a]s such, a detailed
narrative answer, combined with the identification of documents reflecting such

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information, is crucial.”

(Id.)

In February 2022 PeopleFlo supplemented its

response to INT No. 9(c). (R. 184, Sundyne’s Mot. Ex. 4.) But Sundyne contends
that PeopleFlo failed “to conduct a good faith investigation to determine whether its
claimed ‘confidential information,’ was actually known to third persons” before
PeopleFlo used that technology. (Id. at 4-5.) Sundyne asks the court to sanction
PeopleFlo for failing to comply with the court’s order by dismissing certain claims.
(Id.)
For its part, PumpWorks served PeopleFlo with its first set of interrogatories
in June 2021, asking it in part to:
16.
Identify all trade secrets you claim have been misappropriated
by Sundyne or Accudyne with sufficient particularity to distinguish
such trade secret from public domain information and information
disclosed in one or more of the published patent applications filed by
you or on your behalf that were or could have been observed by Jim
Hook when he visited PeopleFlo or Sundyne.
(R. 189, PumpWorks’s Mem. at 2-3.) PumpWorks claims that PeopleFlo did not
identify any trade secrets in response to INT No. 16. (Id. at 3 (citing PeopleFlo’s
supplemental answer to INT No. 16).) As a result, in December 2021 PumpWorks
moved to compel PeopleFlo to supplement its response. (R. 144, Def. PumpWorks’s
Mot. to Compel.)
The court granted PumpWorks’s motion to compel as to INT No. 16, finding
that although PeopleFlo argued it could not answer the interrogatory, allegations in
its amended complaint suggested otherwise. (R. 168 at 6-7.) Specifically, while
PeopleFlo conceded it was not present during a June 2019 visit to Sundyne’s plant
by Jim Hook, a DXP regional vice president, PeopleFlo alleges in its amended

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complaint that PumpWorks observed PeopleFlo’s “concept, confidential information
and trade secrets” during that visit. (Id. (citing R. 77, Amend. Compl. at 16).) In
light of this allegation, the court ordered PeopleFlo to “provide a narrative answer
to No. 16 and detail the trade secrets PumpWorks was able to observe Sundyne
using as of June 2019, answer ‘unknown,’ or withdraw the allegation.” (Id. at 7.)
The court further ordered PeopleFlo to “explain whether any of the trade secrets
identified in answer to No. 16 have ever been disclosed in connection with any
patent prosecutions.” (Id.)
In response to the court’s order, PeopleFlo supplemented its answer to
INT No. 16 by stating that its knowledge of PumpWorks’s alleged conspiracy was
based on information DXP and PumpWorks representatives communicated to
PeopleFlo after Hook’s visit. (R. 189, PumpWorks’s Mem. at 3-4.) PumpWorks
asserts that PeopleFlo’s response violates the court’s order because it does not
provide a narrative answer and is “indecipherably vague” or “simply parrot[s]”
information that is publicly available. (Id. at 4.) PumpWorks further contends that
PeopleFlo “referenc[ed] 52 documents containing 481 pages without providing any
pinpoint citations to distinguish which of these materials” constitute its trade
secrets and which, “if any, disclose . . . material comprising unprotectable third
party content or public domain materials.” (Id. at 8.) PumpWorks thus asks the
court to sanction PeopleFlo by striking all trade secret claims and allegations
related to misappropriation of trade secrets by PumpWorks from the amended
complaint.

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Analysis
PeopleFlo brings its misappropriation of trade secrets claim pursuant to the
Illinois Trade Secrets Act (“ITSA”), 765 ILCS 1065/1.

(R. 77, Amended Compl.

¶¶ 182-88.) ITSA requires a plaintiff to establish that: “(1) the information at issue
was a trade secret; (2) . . . it was misappropriated; and (3) it was actually used in
the defendant’s business.” In re Adegoke, 632 B.R. 154, 165 & n.8 (Bankr. N.D. Ill.
2021). A trade secret is defined under ITSA as “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.” 765 ILCS 1065/2(d). To prevail on a
trade secret claim, a plaintiff must “identify specific trade secrets subject to
protection.” Vendavo, Inc. v. Long, 397 F. Supp. 3d 1115, 1130 (N.D. Ill. 2019). It is
not enough for a plaintiff to assert that “general categories of information are trade
secrets.” Id. (stating that “lack of specificity greatly reduces [a plaintiff’s] chances of
demonstrating that a defendant has misappropriated its trade secrets”).
Furthermore, a plaintiff must show that the information sought to be protected is
not “generally known or understood within an industry” or to the public and that
the plaintiff “has taken ‘affirmative measures’ to prevent others from using the
information.” Adegoke, 632 B.R. at 166 (citing Gen. Elec. Co. v. Uptake Techs., Inc.,
394 F. Supp. 3d 815, 831 (N.D. Ill. 2019)).
As explained, Sundyne and PumpWorks move for sanctions under Federal
Rule of Civil Procedure 37(b)(2)(A) based on PeopleFlo’s alleged failure to comply

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with discovery orders requiring it to identify its trade secrets and disclose whether
any part of the protected information is publicly available. Rule 37(b)(2)(A) allows a
court to enter “just orders” for failing to obey a discovery order, including
prohibiting that party from “supporting or opposing designated claims or defenses,”
striking or staying proceedings, dismissing the action, and entering a default
judgment. A court also has “inherent authority to manage judicial proceedings and
to regulate the conduct of those appearing before it, and pursuant to that authority
may impose appropriate sanctions to penalize and discourage misconduct.”
Ramirez v. T&H Lemont, Inc., 845 F.3d 772, 776 (7th Cir. 2016). Under the latter
authority, sanctions are justified only “if the offender willfully abuses the judicial
process or litigates in bad faith.” Donelson v. Hardy, 931 F.3d 565, 569 (7th Cir.
2019).

Where sanctions are appropriate, the court must ensure they are

proportional to the circumstances. Id.; see also Ebmeyer v. Brock, 11 F.4th 537, 547
(7th Cir. 2021).
Sundyne and PumpWorks contend that PeopleFlo has failed to comply with
discovery orders and impeded discovery regarding its asserted trade secrets,
thereby stymying their ability to defend against such allegations.
Sundyne’s Mot.; R. 189, PumpWorks’s Mem.)

(R. 184,

Sundyne and PumpWorks also

submit evidence in the public domain that they say precludes them from
understanding what “concrete secrets” PeopleFlo accuses them of misappropriating.
(R. 189, PumpWorks’s Mem. at 6, 9-18; see also R. 184, Sundyne’s Mot. at 6-12.)
Based on PeopleFlo’s alleged misconduct, Sundyne and PumpWorks ask the court to

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sanction PeopleFlo by dismissing or striking PeopleFlo’s claim for or allegations
relating to breach of a non-disclosure agreement and misappropriation of trade
secrets (Counts IV and V) or, in the alternative, the appointment of a Special
Master.
PeopleFlo responds that it has answered Sundyne’s INT No. 9(c) and
PumpWorks’s INT No. 16 as ordered by the court and, as such, the current motions
should be denied. (R. 202, Pl.’s Resp. at 1; R. 208, Pl.’s Resp. at 1-2.) PeopleFlo also
argues that Sundyne and PumpWorks are using their sanctions motion to dismiss
claims in lieu of filing a motion for summary judgment, which PeopleFlo says is a
non-starter because of genuine issues of material fact. 1 (R. 202, Pl.’s Resp. at 1;
R. 208, Pl.’s Resp. at 3-4.)
The court agrees with PeopleFlo that sanctions are not warranted here, at
least not at this juncture. In trade secret cases “parties often clash, and courts
disagree” about when and to what extent trade secrets must be identified. Joseph
Loy, Kirkland & Ellis, Trade Secret Rulings May Guide on Disclosure in Litigation,
May 14, 2020, https://www.kirkland.com/publications/article/2020/05/trade-secretrulings-guide-disclosure-litigation (last visited May 9, 2022).

A plaintiff may

attempt to delay articulating with particularity its trade secrets to avoid limiting
the scope of its claim, while a defendant may seek an early, detailed identification
to pinpoint the trade secret information being asserted. Id. Given the parties’
PeopleFlo further argues that PumpWorks lacks standing to bring the current
motion because PeopleFlo did not charge PumpWorks with misappropriating
PeopleFlo’s trade secrets. (R. 208, Pl.’s Resp. at 2.) Because the court denies the
current motions on other grounds, it declines to also address this argument.

1

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divergent interests, determining whether a plaintiff has satisfied its burden of
adequately disclosing its trade secrets can be “particularly fact-intensive.” Id.
The parties here are engaged in this clash, and through written discovery
and motions to compel, Sundyne and PumpWorks have sought, and pursuant to
court orders received, supplemental responses from PeopleFlo with more specificity
regarding the subject trade secrets. (See R. 168; R. 170; R. 184, Sundyne’s Mot.
Ex. 4; R. 189, PumpWorks’s Mem. Ex.3 at 3-5.) While Sundyne and PumpWorks
are not satisfied with the responses secured, they have not demonstrated that
PeopleFlo disobeyed any court orders in violation of Rule 37(b)(2)(A). Nor have they
established that the court’s admonition—that PeopleFlo would “be barred from
using or relying on any responsive technical information it fails to disclose,”
(R. 170)—is insufficient to protect Sundyne and PumpWorks from defending
themselves against what they perceive to be poorly identified trade secrets.
As PeopleFlo points out, Sundyne and PumpWorks do not deny that
PeopleFlo responded to written discovery as ordered by the court. (R. 202, Pl.’s
Resp. at 12.) They instead argue that the responses provided are unclear or can be
rejected based on information publicly available.

Through the current motions,

Sundyne and PumpWorks seek to prove that the trade secrets PeopleFlo identified
are not protectible, providing detailed analysis of public sources for support.
(R. 186, Sundyne’s Mot. at 6-12 (sealed); R. 192, PumpWorks’s Mem. at 9-18
(sealed).) PeopleFlo responds with its own detailed description of what it asserts
are its protectible trade secrets.

(R. 203, Pl.’s Resp. at 15-27 (sealed).)

9

But a

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sanctions motion is not the proper vehicle to resolve the substantive merits of the
case—including what information, if any, relating to PeopleFlo’s asserted trade
secrets is protectible. See M.H. Eby, Inc. v. Timpte Indus., Inc., No. 19-386, 2019
WL 6910153, at *8 (E.D. Pa. 2019) (declining to address whether alleged “knowhow” qualified as trade secret because to rule on such issues “at an early stage . . .
would require the court to wade into the substantive merits of the parties’ dispute”).
This case is still in the fact discovery stage, and key depositions on these issues
have not yet occurred. Thus, it would be premature—and inappropriate in response
to requests for sanctions—to wade into the merits as to the protectability of the
asserted trade secrets. See id.
Moreover, Sundyne and PumpWorks fail to establish that any sanction—let
alone the severe sanction of dismissal of the trade secrets claim and related
allegations—is warranted at this time. 2

In TNS Media Research, LLC v. Tivo

Research & Analytics, Inc., the Federal Circuit rejected a request for a similar
sanction where the plaintiff, in describing its trade secrets, “merely listed several
hundred documents, without explaining how these documents demonstrated the
existence of trade secrets.” 629 Fed. Appx. 916, 928 (Fed. Cir. 2015). The Federal
Circuit reasoned that it found “no indication that [the plaintiff] purposefully shirked
its discovery obligations” or violated any court order in waiting until after discovery

As PeopleFlo points out, Sundyne has not provided legal authority or other
support for its alternative sanction request for the appointment of a Special Master.
(R. 203, Pl.’s Resp. at 28.) Regardless, because Sundyne has not shown that
PeopleFlo violated a discovery order, the court denies the request to appoint a
Special Master.

2

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to narrow the description of its asserted trade secrets, and that even if it had, other
sanctions would have sufficed, such as “preclusion of omitted information” not
supplemented
Procedure 26(e).

in

a

timely

manner

pursuant

to

Federal

Rule

of

Civil

Id. at 929-30; see also Nationwide Sales & Servs., Inc. v.

Envirocare Techs. Int’l, Ltd., No. 16-6617, 2018 WL 2436969, at *7 (E.D.N.Y. May
30, 2018) (citing TNS and noting need to “exercise . . . caution before . . . impos[ing]
the extreme sanction of dismissal based on a failure to adequately identify trade
secrets”).
As in TNS, neither Sundyne nor PumpWorks has established that PeopleFlo
disobeyed a discovery order. See Lynchval Sys., Inc. v. Chi. Consulting Actuaries,
Inc., No. 95 CV 1490, 1996 WL 735586, at *7 (N.D. Ill. Dec. 19, 1996) (“Rule 37(b)(2)
only authorizes a court to impose a sanction if the party fails to comply with a
discovery order.”). Sundyne and PumpWorks may not like PeopleFlo’s answers, but
they did receive them.

They also have not shown that “preclusion of omitted

information” is an insufficient remedy for untimely supplementation of PeopleFlo’s
trade secrets. TNS, 629 Fed. Appx. at 929-30. Nonetheless, because PumpWorks
alleges in its motion that PeopleFlo has now produced so much information that it
cannot determine what actually constitutes PeopleFlo’s trade secrets, (R. 189,
PumpWorks’s Mem. at 8), the court expands its admonition to PeopleFlo to make
clear that it will be barred from using or relying on any responsive technical
information it fails to disclose or identify with reasonable particularity, as required

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by Rule 26(e). This will be especially true if “such failure results in prejudice to”
Sundyne or PumpWorks. TNS, 629 Fed. Appx. at 929-30.
Conclusion
For the foregoing reasons, the motions for sanctions are denied.
ENTER:
____________________________________
Young B. Kim
United States Magistrate Judge

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