InCompass IT, Inc. v. Dell Inc.

Filing 52

ORDER - Defendant's partial motion 35 to dismiss plaintiff's amended complaint 33 is GRANTED IN PART and DENIED IN PART. Defendant's motion is GRANTED to the following extent: Count I (breach of non-disclosure agreement) and Cou nt II (misappropriation of trade secrets) insofar as those claims pertain to plaintiffs energy-saving technology are DISMISSED WITHOUT PREJUDICE. Count V (Lanham Act) and Count VI (Minnesota Deceptive Trade Practices Act) are DISMISSED WITH PREJUDICE AND ON THE MERITS. Defendant's motion is DENIED in all other respects. No further amendments to plaintiff's complaint will be permitted. (Written Opinion). Signed by Judge Patrick J. Schiltz on 02/06/12. (bjs)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
INCOMPASS IT, INC.,

Case No. 11-CV-0629 (PJS/JJG)

Plaintiff,
MEMORANDUM OPINION
AND ORDER

v.
DELL, INC.,
Defendant.

Alfred M. Stanbury, STANBURY LAW FIRM P.A., for plaintiff.
Christopher A. Riley, Erica L. Fenby, and Michael P. Kenny, ALSTON & BIRD,
LLP, Arthur G. Boylan and Todd A. Noteboom, LEONARD STREET AND
DEINARD, PA, for defendant.
This matter is before the Court on the motion of defendant Dell, Inc. (“Dell”) to dismiss
certain claims brought by plaintiff InCompass IT, Inc. (“InCompass”) in its amended complaint.1
See Def. Part. Mot. to Dismiss [Docket No. 35]. Specifically, Dell seeks to dismiss the following
counts: Counts I (breach of non-disclosure agreement (“NDA”)) and II (misappropriation of
trade secrets) insofar as they relate to InCompass’s energy-saving technology; Count IV
(fraudulent misrepresentation); Count V (Lanham Act); and Count VI (Minnesota Deceptive
Trade Practices Act). See Am. Compl. [Docket No. 33].
For the reasons that follow, the Court denies Dell’s motion insofar as it pertains to the
fraudulent-misrepresentation claim (Count IV), but grants Dell’s motion in all other respects.

1

In an earlier order, the Court dismissed with prejudice InCompass’s claims for
conversion, unfair competition, and unjust enrichment. The Court also dismissed without
prejudice InCompass’s claims for breach of a non-disclosure agreement and misappropriation of
trade secrets insofar as those claims pertained to InCompass’s energy-saving technology. See
Aug. 24, 2011 Order [Docket No. 19].

A. Standard of Review
Under Fed. R. Civ. P. 12(b)(6), a court must accept as true a complaint’s factual
allegations and draw all reasonable inferences in the plaintiff’s favor. Aten v. Scottsdale Ins. Co.,
511 F.3d 818, 820 (8th Cir. 2008). Although the plaintiff’s factual allegations need not be
detailed, they must be sufficient to “raise a right to relief above the speculative level” and to
“state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555, 570 (2007). In assessing a claim’s plausibility, the Court may disregard any allegation that
is conclusory. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009) (holding that “conclusory”
allegations “are not entitled to the assumption of truth.”).
The parties are familiar with the facts, so they will not be repeated here.
B. Counts I and II
(Breach of the NDA and Misappropriation of Trade Secrets)
The Court previously dismissed without prejudice InCompass’s claims for breach of the
NDA and misappropriation of trade secrets insofar as those claims pertained to InCompass’s
energy-saving technology. The Court dismissed those claims because, as pleaded, they failed to
adequately describe the nature of InCompass’s technology or how Dell allegedly disclosed or
misappropriated that technology. See Aug. 24, 2011 Order [Docket No. 19]; see also Tr. from
Hearing on Dell’s Mot. to Dismiss Original Compl. on Aug. 24, 2011 at 37 [Docket No. 21].
The amended complaint provides some additional information about InCompass’s
energy-saving technology. Specifically, the amended complaint (and the attachments to that
complaint) disclose that InCompass’s invention is a software-based system that monitors servers
and automatically powers them on and off based upon usage. See Am. Compl. at ¶ 26. But the

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amended complaint describes this technology at such a high level of generality that it remains
difficult for the Court to determine whether the complaint states a plausible claim that Dell
misappropriated the technology. This problem is compounded by the fact that the amended
complaint does not provide a basis for believing that Dell might have disclosed or
misappropriated this technology. The only thing that InCompass points to is an online article
published by Dell in August 2008 in which Dell touts its own energy-saving technology. See
Am. Compl. at ¶ 27 and Ex. D [Docket No. 33-4]. As InCompass conceded at the hearing,
however, this article does not even describe a software-based energy-saving system such as
InCompass’s. Rather, this article describes a hardware-based technology that had been built into
Dell’s servers. Nowhere in its amended complaint or in its briefing does InCompass explain how
this article supports a plausible claim that Dell disclosed or misappropriated its energy-saving
technology.
What the amended complaint does make clear is that the industry is very concerned about
the high amounts of energy required to power modern servers, and that everyone in the industry
is looking for ways to save energy costs. Indeed, InCompass’s CEO, Tim Lambrecht, spoke on
that very subject at a summit in February 2008. See Am. Compl. at ¶ 19 (“Lambrecht traveled to
Texas in February 2008 to speak at the Channel Summit 2008 conference to educate others about
the waste of IT energy.”). There is nothing confidential about the fact that servers use a lot of
energy, and there is nothing confidential about the fact that one way to reduce the amount of
power used by an electrical device is to power it off when it is not needed and power it on when
it is needed. InCompass appears to have invented a software-based technique — and Dell a
hardware-based technique — to save energy costs in this manner.
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The amended complaint fails to plead sufficient facts to state a plausible claim that Dell
disclosed or misappropriated the energy-saving technology of InCompass. The Court therefore
dismisses Counts I and II insofar as they pertain to InCompass’s technology. The dismissal is
without prejudice, but InCompass will not be given leave to plead these claims again.
C. Count IV (Fraudulent Misrepresentation)
To plead a viable fraudulent-misrepresentation claim, InCompass must plausibly allege
that Dell knowingly or recklessly made a materially false representation with the intent to induce
InCompass to act, and that InCompass in fact acted and suffered damages in reliance on Dell’s
false representation. Florenzano v. Olson, 387 N.W.2d 168, 174 n.4 (Minn. 1986). The
allegedly false representation must be about a past or existing fact that is susceptible of
knowledge, or about a “‘misrepresentation of a present intention.’” Valspar Refinish, Inc. v.
Gaylord’s, Inc., 764 N.W.2d 359, 369 (Minn. 2009) (quoting Vandeputte v. Soderholm, 216
N.W.2d 144, 147 (Minn. 1974)) (explaining that it is fraud to make a promise that one has no
intention of keeping).
The Court agrees with Dell that, in its amended complaint, InCompass alleges only that
Dell lied by making promises that it did not intend to keep, and not that Dell lied about past or
existing facts. See, e.g., Am. Compl. at ¶ 91 (“Coulter represented to Lambrecht that InCompass
would not have to worry about poaching . . . .”) (emphasis added); Am. Compl. at ¶ 93 (“Carder
represented to Lambrecht that nobody from Dell’s direct sales team would obtain information
about InCompass’s client.”) (emphasis added).2 But the Court disagrees with Dell that
2

In its briefing, InCompass tries to turn these representations about future performance
into representations about present fact by arguing that, when the amended complaint alleges that
(continued...)
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InCompass’s allegations about false promises are inadequately pleaded. The Court finds that,
although the question is close, the amended complaint adequately pleads that Dell — through
employees Casey Coulter and Cody Carder — made promises to Lambrecht that Dell did not
intend to keep and that, by Dell’s own admission, Dell could not have kept. Specifically, the
amended complaint alleges that shortly after Lambrecht had shared InCompass’s confidential
client information with Dell, he was informed by a Dell employee that “ultimately [Dell’s] sales
force use[s] the registration data to poach the clients of channel resellers and that there was no
way to stop it,” Am. Compl. at ¶ 43 (emphasis added), and that “[Dell’s culture of direct sales],
which is next to impossible to change, is incompatible with a partner program.” Am. Compl. at
¶ 44 (emphasis added). In light of these specific allegations, the Court concludes that InCompass
has pleaded a plausible claim that Carder and Coulter fraudulently induced InCompass to
disclose its confidential information to Dell by making promises that they knew would not be
kept.
D. Count V (Lanham Act)
InCompass fails to state a claim for false-advertising under § 43(a) of the Lanham Act, 15
U.S.C. § 1125(a), for at least two reasons:
First, the amended complaint alleges that Dell advertised its PartnerDirect Program to
prospective channel partners such as InCompass, that Dell made false representations about the
2

(...continued)
Dell promised that it would do something in the future, the amended complaint implicitly alleges
that Dell represented that it had in place a system to accomplish what was being promised —
specifically, a system to prevent its direct-sales team from poaching confidential customer
information provided by channel partners such as InCompass. But the amended complaint does
not contain a single allegation that Dell represented to InCompass that it had such a system in
place.
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program in those advertisements, and that, in reliance on those false representations, InCompass
shared its confidential client information with Dell — information that Dell’s direct-sales team
then stole. See Am. Compl. at ¶ 61(a). What InCompass describes, however, is not a Lanham
Act claim. The conduct described by InCompass might give rise to claims under state law —
such as the claims for breach of contract, misappropriation of trade secrets, tortious interference
with contract, and fraudulent misrepresentation that InCompass has brought in this action. But
the Lanham Act is not the federal equivalent of such state-law claims. The Lanham Act was not
enacted to protect consumers from purchasing a faulty product or service based on a false
advertisement; it was instead enacted to protect sellers from being harmed by the false
advertisements of their competitors. See generally United Indus. Corp. v. Clorox Co., 140 F.3d
1175, 1179 (8th Cir. 1998).
Here, InCompass has not alleged that it suffered a competitive injury as a result of the
allegedly false advertisements that Dell directed at prospective channel partners. InCompass and
Dell are competitors in the sale of computers (as well as in the sale of computer-related hardware
and in the provision of information-technology services).3 But the allegedly false advertisements
were not promoting computers; instead, the advertisements were promoting a program by which
technology companies can partner with Dell. InCompass does not offer a similar program, and

3

The Court disagrees with Dell’s contention that InCompass and Dell are not competitors
because they both sell Dell products. The fact that Dell sells its products directly and InCompass
is a reseller does not mean that the two are not in competition to sell Dell computers to the same
customers. Many manufacturers sell their products directly to consumers over the Internet while
also distributing their products through resellers. Such manufacturers and resellers are obviously
in competition for the business of the end users of those products.
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thus the fact that other technology companies may be duped by the false advertisements into
partnering with Dell cannot cause any competitive harm to InCompass.
Second, InCompass has not identified any statement in Dell’s advertising that is literally
false or that is true but misleading or confusing. See Am. Italian Pasta Co. v. New World Pasta
Co., 371 F.3d 387, 390 (8th Cir. 2004). “To be actionable, the statement must be a specific and
measurable claim, capable of being proved false or of being reasonably interpreted as a statement
of objective fact.” Id. Here, InCompass attaches a Dell PartnerDirect brochure to its amended
complaint. See Am. Compl. Ex. E [Docket No. 33-5]. But the allegedly false statements in the
brochure to which InCompass points are not “specific and measurable” statements of “objective
fact.” See, e.g., Am Compl. at Ex. E (“We’ll support your sales opportunities so that you can
protect your business.” “We’re there when and where you need us.”).
For these reasons, InCompass has not stated a viable false-advertising claim under the
Lanham Act, and Count V of the amended complaint is therefore dismissed with prejudice.4
E. Count VI (Minnesota Deceptive Trade Practices Act)
The Minnesota Deceptive Trade Practices Act (“MDTPA”) permits a court to grant
injunctive relief to any person who is “likely to be damaged by a deceptive trade practice of
another.” Minn. Stat. § 325D.45, subd. 1 (emphasis added). Clearly, then, to have standing to
bring an MDTPA claim, a plaintiff must allege that it will suffer irreparable harm in the future.
See, e.g., Aviva Sports, Inc. v. Fingerhut Direct Mktg., Inc., No. 09-1091 (JNE/JSM), 2011 WL
4

InCompass also seeks injunctive relief. See Am. Compl. at ¶¶ 100-01. But because
InCompass has not alleged that it is likely to suffer irreparable harm in the future, it lacks
standing to seek an injunction. See Buetow v. A.L.S. Enter., Inc., 650 F.3d 1178, 1183 (8th Cir.
2011) (explaining that “irreparable harm absent the injunction” is “an essential and universal
predicate to the grant of equitable relief”).
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4457956, at *4 (D. Minn. Sept. 23, 2011) (“If a party cannot show that it is likely to be injured in
the future, it cannot obtain injunctive relief under the [MDTPA].”); Dennis Simmons, D.D.S.,
P.A. v. Modern Aero, Inc., 603 N.W.2d 336, 339 (Minn. Ct. App. 1999) (explaining that the
[MDTPA] provides only for injunctive relief).
Here, the amended complaint provides no reason to believe that Dell’s allegedly
deceptive trade practices are likely to harm InCompass in the future. To the contrary, if the
allegations in the amended complaint are to be believed, InCompass is aware of Dell’s deceptive
trade practices and will not be victimized again. Count VI of the amended complaint is therefore
dismissed with prejudice.
ORDER
Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED THAT:
1.

Defendant’s partial motion [Docket No. 35] to dismiss plaintiff’s amended
complaint [Docket No. 33] is GRANTED IN PART and DENIED IN PART.

2.

Defendant’s motion is GRANTED to the following extent:
a.

Count I (breach of non-disclosure agreement) and Count II
(misappropriation of trade secrets) — insofar as those claims pertain to
plaintiff’s energy-saving technology — are DISMISSED WITHOUT
PREJUDICE.

b.

Count V (Lanham Act) and Count VI (Minnesota Deceptive Trade
Practices Act) are DISMISSED WITH PREJUDICE AND ON THE
MERITS.
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3.

Defendant’s motion is DENIED in all other respects.

4.

No further amendments to plaintiff’s complaint will be permitted.

Dated: February 6 , 2012

s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge

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