Adobe Systems Incorporated et al v. Gardiner et al

Filing 40

MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 1/9/2018. (aos, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
2018 JAN —9 P 3: 38

ADOBE SYSTEMS INCORPORATED,
eta!
Plaintiffs,

Case No.: GJH-I 7-648

V.

JOHN P. GARDINER, et. al
Defendants.

MEMORANDUM OPINION
Plaintiffs Adobe Systems Incorporated and Adobe Systems Federal LLC (collectively.
"Adobe- or "Plaintiffs-) bring this action against former employee John P. Gardiner, Open
Market Energy LLC, Plurality Energy Solutions, LLC, and VAR Solutions LLC (collectively.

-Defendants-) alleging that Defendants engaged in a self-dealing scheme, improperly sharing
confidential information and collecting payment for sales to which they were not entitled.
Plaintiffs bring the following counts against some or all of the Defendants: Breach of Fiduciary
Duty (Count I). Breach of Duty of Loyalty (Count II), Breach of Duty of Confidentiality (Count
III): Aiding and Abetting Breach of Fiduciary Duties (Count IV): Breach of Employment
Contract (Count V); Breach of Reseller Agreements and Partner Code of Conduct (Count VI);
Breach of Covenant of Good Faith and Fair Dealing (Count VII): Fraud (Count VIII); and Civil
Conspiracy to Defraud (Count IX). Defendants individually move to dismiss all but Count V and

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Count VI,' see ECF Nos. 12, 19, 22, 25, and a hearing was held on November 15. 2017. For the
following reasons. Defendants Motions to Dismiss are granted, in part. and denied, in part.
I.

BACKGROUND2
A. Parties
Adobe Systems Incorporated ("Adobe Incorporated") is a Delaware corporation with its

principal place of business in San Jose, California. ECF No. 1 1111. Adobe Incorporated is a
large software company that markets and licenses its products to customers through its sales
force and also distributes its products through a network of distributors, value-added resellers,
systems integrators. independent software vendors, retailers and original equipment
manufacturers. Id. Adobe Systems Federal LLC ("Adobe Federal-) is a wholly-owned subsidiary
of Adobe Incorporated and a Delaware corporation with its principal place of business in
McLean, Virginia. Id. ¶ 12.
Defendant Gardiner was employed by Adobe Federal from 2005 to March 3, 2017, and
served as a sales representative within Adobe's Public Sector team. Id. 1114. The Public Sector
team oversees the marketing of Adobe Connect, which is a software designed to facilitate web
conferencing. Id. 111114. 16. Adobe does not license Adobe Connect directly to the federal
government; rather. Adobe typically licenses Adobe Connect to a distributor who then licenses it
to the federal government directly or through an Adobe Connect authorized reseller. It/. ¶ 14. As
an Adobe Connect sales representative. Gardiner was responsible for generating interest in

I Adobe contends that VAR Solutions' Motion to Dismiss is untimely filed. Adobe states that it properly served
VAR Solutions on April 3,2017 under Maryland Rule 3-124(0)011), which permits substituted service on the State
Department of Assessments and Taxation after two good-faith attempts to serve a resident agent. ECF No. 15.
Therefore, VAR Solutions' motion to dismiss, filed on June 6.2017, was not timely pursuant to Fed. R. Civ. P.
12(a)(1)(A)(i). VAR Solutions response to Adobe on this point is not persuasive. See ECF No. 36 at n. I. However,
Adobe did not move to strike VAR Solution's motion to dismiss, and it is most efficient for the Court to consider
VAR Solution's motion alongside those from the other defendants.
2 Unless stated otherwise, the facts are taken from the Complaint and assumed to be true.

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Adobe Connect amongst resellers and the federal government and providing distributors or
authorized resellers with bid requests from end users. Id. ¶ 15.
Defendant Gardiner is also alleged to be the sole owner and principal corporate officer of
Open Market Energy LLC (-0ME"). OME is an energy advisor that helps clients find deals on
electricity and natural gas, with its principal place of business at 7625 Wisconsin Ave.. Suite
300, Bethesda, Maryland, 20814. Defendant Plurality became an authorized reseller in
September 2012. Id. lj 17. At that time, Defendant Gardiner was an officer of Plurality and held
the title of Vice President. Id If 36. Plurality is a Mississippi company with its principal place of
business in Bay St. Louis, Mississippi but also maintains an office at 7625 Wisconsin Avenue,
Suite 300. Id. If 17. VAR Solutions LLC ("VAR Solutions") is a Maryland corporation also with
its principal place of business at 7625 Wisconsin Avenue, Suite 300. Id ¶ 18. VAR Solutions is
owned by Matthew Gardiner, Defendant Gardiner's brother. ki.3
B. Adobe Connect Program Agreements
To become an authorized Adobe Connect reseller, an interested company must be
approved by Adobe and execute an Adobe Connect Value Added Reseller Agreement ("Reseller
Agreement-). Id ¶ 20. The Reseller Agreement contains restrictions on the reseller's use of
confidential information provided by Adobe and allows Adobe to terminate the contract should
the reseller misuse the confidential information. Id Authorized resellers can also participate in
the Adobe Connection Deal Registration Program, which offers incentives of up to 20% of the
value of the deal to resellers that help facilitate licenses of Adobe Connect to end users. Id. ¶ 21.
Resellers typically obtain credit for such deals by registering them in a Salesforce.com database.

3 Defendant Gardiner denies that he is an owner of Open Market Energy LLC, was an officer of Plurality, or had any
financial stake in the companies. See ECF No. 1 ¶45; ECF No. 2111116, 36. However, for purposes of Defendants'
motions to dismiss, the Court accepts these facts as true. See El. du Pont de Nemours & Co. v. Kolon Indus.. Inc..
637 F.3d 435, 440 (4th Cir. 2011).

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Id. Adobe maintains the database and relies on its sales representatives to confirm the reseller's
involvement in the underlying deal registration. Id. Plurality was an authorized reseller and
participated in the Adobe Connect Deal Registration Program. Id.
Authorized resellers must also comply with the authorized reseller Program Guide and
complete the North America Vendor Questionnaire. Id.

22, 23. Per the Program Guide,

"[resellers] agree to only enter valid information" when registering deals, and -deals which are
already being managed by an Adobe Sales Rep, in which no partner involvement is required" do
not qualify for deal registrations. Id. If 22. Per the Vendor Questionnaire, resellers agree not to
"pay, promise or offer to pay, directly or indirectly, any money or any other thing of value to any
person for the purpose of improperly influencing any decision or action on behalf of Adobe" and
must disclose if any of its -employees, owners, officers or directors" are -also current or former
employees of Adobe or spouses or close family members of Adobe employees." Id ¶ 23. The
Vendor Questionnaire also requires authorized resellers to follow Adobe's Business Partner
Code of Conduct ("Partner Code"), which provides that "Adobe employees and their family
members may not hold any significant economic interest in any entity that does business with
Adobe and business partners are required to avoid such relationships with Adobe employees." Id
1 26.
Defendant Gardiner, as an employee of Adobe, was subject to the same Conflicts of
Interest Policy contained in the Partner Code and was required to periodically execute Adobe's
Conflicts Questionnaire, in which he was obligated to disclose any actual or potential conflicts of
interest with his work for Adobe, "including whether he or a related party is employed by. or
holds an investment in, any Adobe customer, channel partner, or supplier." Id. ¶ 29. Gardiner
completed the Conflicts Questionnaire in 2014, 2015, and 2016 and answered each pertinent

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question pertaining to conflicts of interest in the negative. Id. Similar prohibitions on conflicts of
interest are contained in Adobe's Business Conduct Code, Anti-Corruption Policy, and Public
Sector Code to which Gardiner and Plurality were obligated to follow. Id. ¶¶ 32-34.
C. Alleged Kickback Scheme
Adobe alleges that Gardiner facilitated approval of Plurality as an Adobe Connect reseller
in September of 2012. Id. ¶ 35. Specifically, on September 21. 2012. Gardiner organized via
email a "Plurality Reseller Discussion- with the officers of Plurality and later represented to
Adobe that Plurality was interested in becoming an authorized Adobe Connect reseller. Id While
Plurality did not meet the requirements to become a reseller. Gardiner was able to push through
Plurality's approval even though Plurality had not yet completed the business plan and
paperwork as required. Id. On October 5.2012, Gardiner organized another meeting with
Plurality officers, with the calendar invitation titled "Plurality Company Structure and meetings.Id At this same time. Gardiner, through his wholly-owned company OME, wired $20,000 to
Plurality as a loan and on October 24, 2012, sent an email to Plurality indicating that "OME
would loan Plurality more money 'so we can meet our numbers.— Id ¶ 36. At no point did
Gardiner or Plurality disclose Gardiner's role as Vice President of Plurality or any association
with OME.
Once Plurality became an authorized reseller, Gardiner allegedly directed a scheme
whereby he would provide Plurality with confidential information regarding deal registration
opportunities, allowing Plurality to either match or beat potential bids from other resellers or
obtain credit for deals generated by, or solely directed to, Gardiner even though Plurality had not
contributed to the deal in a meaningful way. Id I 38. 40. Gardiner used his role at Adobe to

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approve the deal registrations whenever Plurality ran into problems. Id. ¶ 39. Cumulatively,
Adobe has paid over $5 million to Plurality in deal registration payments. Id.1 43.
In addition to Plurality, Adobe alleges that Gardiner shared confidential information with,
and directed deals to, other resellers. Id. II 41. These resellers did not compensate Gardiner
directly; rather, VAR Solutions would obtain payment from these resellers through fabricated
invoices for consulting services, -despite VAR Solutions having not contributed to the deal or
provided bona fide consulting services.- Id. ¶ 41. VAR Solutions then transferred payments
relating to the deal registrations to Gardiner either through transfers to OME or investments
made on Gardiner's behalf, including investing in the entity that owns the Bethesda building
housing offices for OME, VAR Solutions. and Plurality. Id. Adobe alleges that Plurality
coordinated a similar effort to compensate Gardiner for his role in securing their deal
registrations. Id.
STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 12(6)(6), the Court may dismiss a complaint
for failure to state a claim upon which relief can be granted. To survive a motion to dismiss. -a
complaint must contain sufficient factual matter, accepted as true, 'to state a claim to relief that is
plausible on its face." Ashcroft t Iqbal, 556 U.S. 662, 678 (2009) (citing Bell AIL Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible when "the plaintiff pleads factual
content that allows the Court to draw the reasonable inference that the defendant is liable for the
misconduct alleged." Id.
In evaluating the sufficiency of the Plaintiffs claims, the Court -must accept as true all of
the factual allegations contained in the complaint." and "draw all reasonable inferences [from
those facts] in favor of the plaintiff." E.I du Pont de Nemourv & Co. v. Kolon Indus., Inc., 637

6

F.3d 435. 440 (4th Cir. 2011) (citations and internal quotation marks omitted). However, the
complaint must contain more than -legal conclusions, elements of a cause of action, and bare
assertions devoid of further factual enhancement.- Nemet Chevrolet. Ltd v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). The court should not grant a
motion to dismiss for failure to state a claim for relief unless -it is clear that no relief could be
granted under any set of facts that could be proved consistent with the allegations." GE Inv.
Private Placement Partners II v. Parker, 247 F.3d 543, 548 (4th Cir. 2001) (citing H.J Inc. v.
Northwestern Bell TeL Co., 492 U.S. 229, 249-50 (1989)).
Furthermore, "[i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). To satisfy this standard,
plaintiffs "must, at a minimum, describe the time, place, and contents of the false
representations, as well as the identity of the person making the misrepresentation and what he
obtained thereby." United States ex reL Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370,
379 (4th Cir. 2008) (citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784
(4th Cir. 1999)) (internal quotation marks omitted). -These facts are often referred to as the
'who, what, when, where, and how' of the alleged fraud.- Id. (quoting United States ex reL
Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375, 384 (5th Cir. 2003)) (internal
quotation marks omitted).

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III. DISCUSSION/
A. Breach of Fiduciary Duties (Counts I-IV)
Adobe alleges that Gardiner breached his fiduciary duty, duty of loyalty, and duty of
confidentiality owed to Adobe by failing to disclose his involvement with Plurality and VAR
Solutions, providing confidential information to Plurality, and allowing Plurality to obtain credit
for deals it was not permitted to register for. Adobe also alleges that OME. Plurality, and VAR
Solutions aided and abetted Gardiner's breach of these fiduciary duties. All Defendants move to
dismiss these counts, arguing that Maryland does not recognize breach of a fiduciary duty as an
individual tort. As this is a question of state law, the Court will look to the highest court in
Maryland for guidance, see Tog/ill! v. Clarke, 877 F.3d 547, 557-58 (4th Cir. 2017) (when
construing state law, federal courts are bound by the construction given to it by the state's
highest court), but cases interpreting the leading case from the Maryland Court of Appeals leave
this issue far from clear.
In Kann v. Kann, 244 Md. 689, 713 (1997), the Maryland Court of Appeals held that
"there is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all
fiduciaries." However, the court clarified, stating that "[Otis does not mean that there is no claim
or cause of action available for breach of fiduciary duty. Our holding only means that identifying
a breach of fiduciary duty will be the beginning of the analysis, and not its conclusion." Id. The
court instructed that plaintiffs bringing such claims must "identify the particular fiduciary

4 Separate from the count-specific arguments made in support of its motion to dismiss, Plurality argues that Adobe's
Complaint, brought on behalf of both Adobe Incorporated and Adobe Federal, does not make any allegations as to
the relationship between Adobe Federal and Plurality and "[w]hen the Court cannot make that determination as to
which Plaintiff relates to which claim, the Complaint should be dismissed under Rule 8(a)(2)." ECF No 12-I at 6.
The Court understands that Adobe Federal's claims relate to its employment of Gardiner, and Adobe Incorporated's
claims relate to its contractual relationship with Plurality as a reseller and will not dismiss any counts on these
grounds.

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relationship involved, identify how it was breached, consider the remedies available, and select
those remedies appropriate.- Id.
Following Kann, courts applying Maryland law have differed in recognizing when a
plaintiff may bring this cause of action. In BEP. Inc. v. Atkinson, a judge in this Court concluded
that a "plaintiff has, pursuant to Kann, properly asserted under Maryland law a claim of breach
of fiduciary duty- when plaintiff established that a high-level management employee diverted
plaintiff's business to himself 174 F. Supp. 2d 400,405-06 (D. Md. 2001); see also Giddens v.
CorePartners. Inc., No. JKB- (0-3357, 2011 WL 2934855. at *5 (D. Md. July 18. 2011)
(dismissing claim but noting that, pursuant to Kann, Maryland recognizes a tort for breach of
fiduciary duty when "a plaintiff identifies the appropriate fiduciary relationship ... identifies
how the relationship was breached, considers the available remedies, and selects the remedies
appropriate to the plaintiff's problem"); In re LandAmerica Financial Group. Inc., 470 B.R. 759.
794-95 (Bankr. E.D. Va. 2012) (recognizing independent claim for breach of fiduciary duty
because Kann only bars the claim when a plaintiff seeks damages without having incurred an
actual economic loss). Other courts have not recognized a breach of a fiduciary duty as an
independent claim, especially where plaintiffs also bring a claim for breach of contract, or have
limited such a claim to equitable relief See Dynacorp v. Aramiel, 208 Md. App. 403, 493-94
(2012) (citing George Wasserman & Janice Wasserman Goldsten Family LLC v. Kay, 197 Md.
App. 586, 631-32 (2011) Can alleged breach of fiduciary duty may give rise to a cause of action
[such as breach of contract], but it does not, standing alone, constitute a cause of action-)); see
also Allstate Ins. Co. v. Warns. No. CCB-11-1846, 2012 WL 681792, at *7 (D. Md. Feb. 29,
2012) ("In the aftermath of Kann, Maryland courts have limited independent causes of action for

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breach of fiduciary duty to those seeking equitable relief.., and any claim for compensatory
damages will have to be supported by a successful breach of contract action.-)
The only case identified from the Maryland Court of Appeals addressing this issue since
Kann is International Brotherhood of Teamsters v Willis Corroon Corp. of Maryland. which
addressed the issue in a footnote. There, the court stated that in Kann "we pointed out that,
although the breach of a fiduciary duty may give rise to one or more causes of action, in tort or in
contract, Maryland does not recognize a separate tort action for breach of fiduciary duty.- 369
Md. 724, 727 n.1 (2002). But even this language, found in a footnote, does not eliminate the
possibility of claims specifying claims for breaches of loyalty or confidentiality.
With persuasive authority pointing in different directions, the Court returns to the
language in Kann. The court there forbade an omnibus claim for breach of fiduciary duty that
could be applied to any fiduciary duty and for any breach. Coupled with the footnote in
International Brotherhood, the Court finds that Count I, which addresses -Breach of Fiduciary
Duty" in broad terms, cannot survive. But Kann just as clearly stated that such a claim could be
asserted if it involved an identified fiduciary relationship and an identified breach.
Here, Counts II and III do not assert an -omnibus tort for the redress of breach of
fiduciary duty" that Kann clearly bars; rather, Adobe sets forth specific breaches of specific
fiduciary duties that have allegedly resulted in economic losses not otherwise redressable
through separate causes of action. Kann, 244 Md. at 713. As the In re Land America court noted,
Kann declined to recognize a general tort that would provide relief to plaintiffs incurring only
non-economic damages or damages following an inadvertent breach by the agent. See In re
LandAmerica, 470 B.R. at 794-95 (citing Kann, 244 Md. at 520). Here, Adobe has pled that
Gardiner, as an employee, owed Adobe specific fiduciary duties of loyalty and confidentiality.

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See Quality Systems, Inc. v. Warman, 132 F. Supp. 2d 349, 354(D. Md. 2001) (citing Maryland
Metals v. Metzner, 282 Md. 31(1978) ("In every employment contract, there is an implied duty
[of loyalty] that an employee must act solely for the benefit of his employer in all matters within
the scope of his employment.")): Allstate, 2012 WL 681792. at *6 (describing duty of
confidentiality as "a common law fiduciary duty of agents not to disclose confidential
information of the principal"). Gardiner then allegedly breached those duties by providing
confidential Adobe Connect deal information to Plurality, allowing Plurality to gain financial
incentives at Adobe's expense. ECF No. 1 ¶ 53. Moreover, as Adobe acknowledges, Gardiner's
employment contract may not prohibit all of the misconduct associated with his alleged kickback
scheme. ECF No. 30 at 8, and its claims for breaches of the duty of loyalty and confidentiality
are therefore appropriate remedies at this time. See Wasserman, 197 Md. App. At 631-32
(allegations supporting breach of fiduciary duty -do not constitute a stand alone nonduplicative
cause of action-) (emphasis added).
While the Court finds that Adobe may not proceed with its claim for -Breach of
Fiduciary Duty,- the Court reads Count IV. "Aiding and Abetting Breach of Fiduciary Duties,"
to include Gardiner's alleged breach of a broad fiduciary duty. as well as breach of the specific
fiduciary duties of loyalty and confidentiality. Because Adobe may proceed with its claims of
breach of the fiduciary duties of loyalty and confidentiality, the Court must now determine
whether the remaining Defendants may be liable for aiding and abetting the breach. See Alleco
Inc. v. Harry & Jeanette Weinberg Foundation, Inc., 340 Md. 176, 201(1995) ("tort liability of
aiding and abetting can only exist where someone has committed the actual tort"). In addition to
proving the underlying tort, to bring a claim of aiding and abetting. Adobe must establish that the
remaining defendants engaged in -acts of encouragement or assistance to the person actually

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committing the wrongful act.- See Saadeh v. Saadeh, Inc., 150 Md. App. 305. 328 (2003). Here,
Adobe has pleaded sufficient facts to support an aiding and abetting claim against Plurality and
VAR Solutions, but not OME.
Plurality and VAR Solutions allegedly engaged in a cycle whereby they would provide
kickbacks to Gardiner for knowingly sharing Adobe's confidential information and causing
Adobe to over-compensate its vendors, encouraging Gardiner to continue to breach his fiduciary
duties. Adobe alleges that Plurality not only received confidential information from Gardiner. but
also acted on, and profited from, the exchange. ECF No. 1 ¶ 38. Moreover, Plurality allegedly
shared its ill-gotten proceeds with Gardiner. Id. ¶ 44. Similarly, VAR Solutions allegedly
assisted in Gardiner's spread of confidential information, issuing false invoices in order to
provide cover for the funneling of proceeds back to Gardiner. Id. If 41. While VAR Solution's
alleged role is not as clearly established as Plurality's, its encouragement of Gardiner's alleged
breach is nonetheless plausible?
However, the same cannot be said for OME. OME's alleged participation in the kickback
scheme is limited to providing loans to Plurality prior to Plurality becoming an Adobe Connect
authorized reseller. Simply put. the Complaint does not provide a clear link between this alleged
loan and Gardiner's alleged breaches. As such, OME cannot be held liable for Gardiner's breach
of fiduciary duties based on the allegations in the Complaint.

While much of Adobe's Complaint rests on facts pleaded upon "information and belief," see. e.g.. ECF No I If 41
("kiln information and belief, VAR Solution [sic] subsequently transferred payments relating to the deal
registrations to Mr. Gardiner"), a plaintiff is generally permitted to plead facts in this way if the necessary evidence
is controlled by the defendant. See Ridenour v. Multi-Color Corp., 147 F. Supp. 3d 452. 456 (ED. Va. 2015). Here,
Adobe would not be privy to transactions between VAR Solutions and Gardiner, acting in his personal capacity, and

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need not have actual proof of these transactions to survive a motion to dismiss.

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B. Breach of Covenant of Good Faith and Fair Dealing (Count VII)
Adobe alleges that Gardiner and Plurality breached the covenant of good faith and fair
dealing implicit in Gardiner's Employment Agreement and Plurality's Reseller Agreement by
failing to disclose their conflicts of interest and causing Adobe to expend fees for improper deal
registrations. ECF No. 1 'll 81. Gardiner and Plurality move to dismiss this count, arguing that
such a breach is not an independent cause of action in Maryland. See ECF No. 12-1 at 6; ECF
No. 22 at 10.6 However, breach of the implied covenant is part of a breach of contract claim
under Maryland law. See Swedish Civil Aviation Admin. v. Project Mgml. Enters.. Inc., 190 F.
Supp. 2d 785, 794 (D. Md. 2002). While Adobe does not dispute that Maryland does not
recognize this claim, Adobe contends that Gardiner's Employment Agreement and Plurality's
Reseller Agreement are subject to California law. See ECF No. 16 at 6; ECF No. 30 at 12. In
reply to Plaintiffs' opposition brief, ECF Nos. 16, 30, neither defendant disputes that such a
claim is valid under California law.
"[A] federal court exercising diversity jurisdiction must follow the choice-of-law rules of
the state where the action is filed to determine which state's substantive law to apply." See
RaceRedi Motorsports, LLC v. Dart Mach., Ltd., 640 F. Supp. 2d 660, 665 (D. Md. 2009) (citing
Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941)) (-[A] federal court exercising
diversity jurisdiction must follow the choice-of-law rules of the state where the action is filed to
determine which state's substantive law to apply."). -Under Maryland law, this Court should
presume that a [party's] choice of law is enforceable.- Ameritox, Ltd. v. Savelich, 92 F. Supp. 3d
389, 396 (D. Md. 2015) (citing Ground Zero Museum Workshop v. Wilson, 813 F. Supp. 2d 678,
696(D. Md. 2011)).

Pin cites to documents filed on the Court's electronic filing system (CM/ECF) refer to the page numbers generated
by that system.

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Adobe's Complaint states that Adobe and Plurality were parties to Adobe Connect's
Value Added Reseller Agreement ("Reseller Agreement-), ECF No. 1 178, and Adobe has
provided the Court with a copy of the Agreement showing that the laws of the State of California
apply.7 See ECF No. 16-1 at 18. Regarding Gardiner, Adobe's Complaint states that Adobe and
Gardiner were parties to an Employment Agreement. ECF No. I ill 28. Adobe has provided the
Court with a copy of an Employee Inventions and Proprietary Rights Assignment Agreement
("Assignment Agreement") that, similar to the Value Added Reseller Agreement, is subject to
California law. ECF No. 30-1 at 11. However, the Complaint makes no mention of the
Assignment Agreement nor suggests how the Assignment Agreement relates to the Employment
Agreement that Gardiner allegedly violated. During the hearing. Adobe indicated that the
"Employment Agreement" referenced in the Complaint was likely a collection of documents
signed by Gardiner, but Adobe was unable to state whether this collection included the
Assignment Agreement itself Therefore, the Court has no basis to find that California law
applies to Gardiner's alleged breach of the Employment Agreement, and the Court will dismiss
the Breach of Covenant of Good Faith and Fair Dealing claim against Gardiner. However,
because California law does apply to the Reseller Agreement, the Court will not dismiss this
claim against Plurality.
C. Fraud (Count VIII)
Adobe alleges that Gardiner, OME, and Plurality knowingly and intentional mislead
Adobe by engaging in the alleged kickback scheme and concealing their relationship from
Adobe. ECF No. 1 1191. "In order to recover damages in an action for fraud or deceit, a plaintiff
must prove (1) that the defendant made a false representation to the plaintiff (2) that its falsity
'The Court may take judicial notice of a document "attached or incorporated into the complaint- EL du Pont de
Nemours & Co. v. Kolon Indus. Inc., 637 F.3d 435, 448 (4th Cir. 2011). The choice of law provision is readily
apparent and not subject to reasonable dispute. See Fed. R. Evid. 201(b)(2).

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was either known to the defendant or that the representation was made with reckless indifference
as to its truth, (3) that the misrepresentation was made for the purpose of defrauding the plaintiff,
(4) that the plaintiff relied on the misrepresentation and had the right to rely on it, and (5) that the
plaintiff suffered compensable injury resulting from the misrepresentation." OME and Plurality
move to dismiss this count, arguing that Adobe's Complaint fails to adequately plead the
elements of fraud with "particularity" as required by Rule 9(b). See ECF No. 19-1 at 7: ECF No.
12-1 at 7.
I. OME
OME argues that the Complaint fails to state that OME made any false representations to
Adobe. While OME, as an entity, did not make any representations (false or otherwise) to
Adobe, Adobe contends that OME is liable for the fraudulent actions of Gardiner, its agent and
purported owner. ECF No. 31 at 11. As a general matter, an agency relationship "arises from the
manifestation of the principal to the agent that the agent will act on the principal's behalf" See
Jackson v. 2109 Brandywine. LLC, 180 Md. App. 535, 565 (2008) (citing Anderson v. General
Gas. Ins. Co., 402 Md. 326. 247 (2007)). An agency relationship can be actual, whereby the
principal holds out the agent as possessing its authority, or implied, whereby the words or
conduct of the principal suggest that the principal has authorized the conduct of the agent. See id.
(citing Homa v. Friendly Mobile Manor, 93 Md. App. 337, 360(1992) and Johns Hopkins
University v. Ritter, 113 Md. App. 77, 96 (1996)). Moreover, the principal may only be liable for
the conduct of its agent when the agent is acting within the scope of his authority. See
Progressive Gas. Ins. Co. v. Ehrhardt. 69 Md. App. 431, 439 (1986) (citing Colonial Building &
Loan Co. v. Boden, 169 Md. 493 (1936) ("Authorized agents may subject the principal ... to

15

personal liability and create rights in its favor. This ability to bind the principal, however, is
limited to the extent in which the agent is authorized to act.")).

-When an agency relationship is allegedly part of the fraud, the circumstances
constituting fraud on the part of the purported principal, which must be pled with particularity
under Rule 9(b). include both the facts constituting the underlying fraud and the facts
establishing the agency relationship.- Adams v. NVR Homes. Inc., 193 F.R.D. 243, 250 (D. Md.
2000) (citing Kolbeck v. LIT America, Inc., 923 F. Supp. 557, 569 (S.D.N.Y. 1996)). Here,
Adobe has not suggested that Gardiner was defrauding Adobe on OME's behalf or how any of
his actions that form the basis of this litigation were taken in his role as an agent for OME. See
ECF No. 1 ¶ 44 (alleging that the proceeds of the kick-back scheme were coming back to
Gardiner himself). Cf: In re Hoang. 449 B.R. 850, 857-58 (Bankr. D. Md. 2011) (citing Official
Comm. of Unsecured Creditors v. R.F. Lafferty & Ca. 267 F.3d 340, 359 (3d Cir. 2001) ("Under
the law of imputation, an agent's fraud or applicable misconduct will be imputed to the
[principal] if the agent commits the fraud (1) in the course of employment and (2) for the benefit
of the principal.-)). Without more, the mere fact that Gardiner allegedly misrepresented his
interest in OME as part of his effort to enrich himself, while also being an agent of OME, is
insufficient to impute his liability for fraud onto OME through their agency relationship.
2. Plurality
Plurality argues that Adobe fails to "state with particularity the circumstances
constituting fraud.- ECF No. 18 at 6.-However, Adobe's complaint adequately pleads fraud on
the part of Plurality. Adobe alleges that Plurality knowingly registered for deals generated
without its involvement, causing Adobe to pay commissions to Plurality that it did not earn. ECF
No. 1¶ 38. While Plurality argues that -there is nothing pled that implies that Plurality should

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have known that it should not act on leads provided by [Gardiner] or that it was fraudulent to
then register sales,- Adobe does not allege that Plurality merely acted on improper leads to then
effectuate product sales. Rather. Adobe alleges that Plurality registered for deals, and accepted
commissions, without doing any actual work. By registering sales in Adobe's database, Plurality
effectively represented to Adobe that it was entitled to receive compensation for sales
attributable to other resellers. Such allegations state a claim for fraud.
D. Conspiracy to Defraud (Count IX)
Finally, Adobe alleges that all Defendants engaged in a conspiracy to defraud by
coordinating a scheme to submit fraudulent deal registrations to Adobe and remit portions of the
proceeds to Gardiner through Plurality. OME, and VAR Solutions. ECF No. 1 1198. Because
Adobe has adequately pleaded a claim for fraud against Gardiner and Plurality, the Court may
consider whether any of the Defendants conspired to commit such fraud. See Atka), Inc. 340
Md. at 199 (courts "should not entertain a claim for civil conspiracy to commit fraud unless the
plaintiff has sufficiently alleged an underlying fraud-). To state a claim for civil conspiracy, a
plaintiff must allege "(1) [a] confederation of two or more persons by agreement or
understanding; (2) some unlawful or tortious act done in furtherance of the conspiracy or use of
unlawful or tortious means to accomplish an act not in itself illegal; and (3) actual legal damage
resulting to the plaintiff.- See Zos v. Wells Fargo Bank NA., 2017 U.S. Dist. LEXIS 7247, at
*10 (D. Md. Jan. 18, 2017) (quoting Windesheim v. Larocca, 443 Md. 312, 347 (2015)). A
plaintiff must "specifically allege the agreement itself, including its time, place, and the identity
of the co-conspirators. A plaintiff must also allege what [the Defendant] specifically did to carry
the conspiracy into effect.- Hill v. Brush Engineered Materials. Inc., 383 F. Supp. 2d 814, 825
(D. Md. 2005). Similar to claims for fraud, -conspiracy to commit fraud must abide by Rule

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9(b)'s particularity requirement.- Hill, 383 F. Supp. 2d at 823; see also Harrison, 176 F.3d at
783 n. 5 (citing United States ex rel. Thompson v. Columbia 11( *A Healthcare Corp., 125 F.3d
899, 901 (5th Cir. 1997) (-lack of compliance with Rule 9(b)'s pleading requirement is treated as
a failure to state a claim under Rule 12(b)(6)")).
I. Plurality

Plurality argues that Adobe has only set forth conclusory allegations of an agreement
without providing the facts as to when and how the defendants brokered an agreement to engage
in the alleged kickback scheme. ECF No. 12-1 at 8-9. However, Adobe's Complaint sets forth
sufficient details to suggest that Gardiner and Plurality engaged in an agreement to conspire.
Gardiner organized a meeting with Plurality officers at Plurality's headquarters on October 5,
2012, around the time in which Gardiner was trying to add Plurality as an Adobe Connect
reseller. ECF No. 1 9 35-36. In addition, Gardiner allegedly provided Plurality with
confidential deal registration information so that Plurality could fraudulently register these deals
and, when Plurality ran into problems, it requested the assistance of Gardiner in order to obtain
approval. ECF No. 1 ¶J 38, 39. Beyond conclusory allegations, Adobe alleges the exact dates
this correspondence occurred and the language Gardiner used. See id. ¶ 38 ("For instance, on
October 19, 2012, Mr. Gardiner shared with Plurality via email a confidential internal quote for
an Adobe Connect licensing opportunity to the U.S. Department of State. In sharing this
confidential information with Plurality, Mr. Gardiner stated: 'here is a lay up for 8k.'"). These
communications between Gardiner and Plurality are sufficient to establish their mutual
agreement; Adobe need not allege that Gardiner and Plurality brokered a specific, formal
arrangement. See Windesheim v. Larocca, 443 Md. 312, 348 (2015) ("Civil conspiracy may be
proved by circumstantial evidence because in most cases it would be practically impossible to

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prove a conspiracy by means of direct evidence alone.-) (internal citation and quotation marks
omitted). While Plurality suggests that -[t]hese allegations do not appear in the least bit
conspiratorial, but rather they appear to be the typical interactions one would expect to find
between Adobe and one of its resellers," ECF No. 18 at 8, Adobe has pled with particularity that
Plurality, by understanding or agreement, conspired to defraud Adobe.
2. VAR Solutions and OME
Unlike its claim against Plurality. Adobe has not set forth sufficient details necessary to
establish that VAR Solution or OME took specific action in planning or executing the underlying
fraudulent kickback scheme. Adobe's Complaint alleges that VAR Solutions and OME were
owned and operated by either Gardiner or an immediate family member and likewise operated
within Gardiner's corporate office space, facts highly suggestive of their shared interests, close
coordination, and position to profit from the alleged kickback scheme. See Hoffman v. Stamper,
385 Md. 1, 25-26 (2005) (citing Western Md. Dairy v. Chenowith, 180 Md. 236, 243 (1942) ("a
conspiracy may be established by inference from the nature of the acts complained of, the
individual and collective interest of the alleged conspirators, the situation and relation of the
parties at the time of the commission of the acts, the motives which produced them, and all the
surrounding circumstances

However, without specifying "what a defendant or defendants

did to carry the conspiracy into effect.- Adobe cannot maintain its claim for conspiracy. Hill, 383
F. Supp. 2d at 824 (quoting Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85
F. Supp. 2d 282. 297 (S.D.N.Y. 2000)).
Adobe sets forth VAR Solutions' possible role in the fraud—issuing fake invoices to
enable resellers to remit payment back to Gardiner in exchange for his confidential
information—but Adobe fails to allege when VAR Solutions issued the invoices, how many

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were issued, and to whom they were issued. See ECF No. 1 ¶ 41. Thus, while the Complaint
alleges VAR Solutions' role in aiding and abetting Gardiner's breach of his fiduciary duties.
Rule 9(b) requires more for a claim of conspiracy to commit fraud
Adobe's allegations against OME are even more speculative. OME's only overt act was
wiring $20,000 to Plurality in September of 2012 ECF No. 1 ¶ 36. But Adobe fails to connect the
act to the alleged fraud. The Court would have to assume that the funds were somehow used to
enable Plurality to become an authorized reseller and, if so, further assume that OME knowingly
provided the funds for this purpose. Similar to Count V. Adobe has not established that Gardiner
was acting on behalf of OME as its agent such that it is liable for Gardiner's conduct. Without
more, Adobe's conclusory allegations as to OME's role in the alleged conspiracy are
insufficient.
IV. CONCLUSION
For the foregoing reasons. Defendants' Motions to Dismiss, ECF Nos. 12, 19, 22, and 25,
shall be granted, in part, and denied, in part. A separate Order follows.

Dated: January

42018
GEORGE J. HAZEL
United States District Judge

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