JORGENSEN & COMPANY v. SUTHERLAND et al

Filing 53

OPINION re 13 MOTION to Dismiss filed by PLAZA INSURANCE COMPANY, Rockhill Insurance Company, ROCKHILL INSURANCE COMPANY, 22 MOTION to Dismiss filed by GARY SUTHERLAND. Signed by Judge Claire C. Cecchi on 6/30/2016. (ld, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

JORGENSEN & COMPANY,

Civil Action No.: 15-7373

Plaintiff,
OPINION
V.

GARY SUTHERLAND, NORTH AMERICAN
PROFESSIONAL LIABILITY INSURANCE
AGENCY, LLC, PLAZA INSURANCE
COMPANY, ROCKHILL INSURANCE
COMPANY,

Defendants.
INTRODUCTION

This matter comes before the Court on the Second Amended Verified Complaint’ filed by
Jorgensen & Company (“Plaintiff’ or “Jorgensen”). [ECF No. 6.] Pending before the Court are
two motions to dismiss. The first Motion to Dismiss was filed by Defendants Plaza Insurance
Company and Rockhill Insurance Company (collectively, “the Plaza Defendants”). [ECF No. 13.]
The second Motion to Dismiss was filed by Defendants Gary Sutherland (“Sutherland”) and North
American Professional Liability Insurance Agency, LLC (“NAP LIA”) (collectively, “the NAPLIA
Defendants”). [ECF No. 22.] Plaintiff opposes both motions. [ECF Nos. 24 and 25.] In the
interest of efficiency, the Court addresses both motions together. For the following reasons, the

‘Plaintiffs original Verified Complaint was filed on October 8, 2015 [ECF No. 1], the First
Amended Verified Complaint was filed the next day on October 9, 2015 [ECF No. 2], and the
Second Amended Verified Complaint was filed the next day on October 10, 2015 tECF No. 6].
The Court treats the Second Amended Verified Complaint as the relevant pleading and refers to it
as the “SAVC.”

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Court will grant in part and deny in part the Plaza Defendants’ Motion to Dismiss. The Court will
deny the NAPLIA Defendants’ Motion to Dismiss.
BACKGROUND

This litigation arises out of a dispute between competitors in the professional insurance
market, specifically insurance products for accountants.

[See generally SAVC.]

Since its

formation in 199$, Plaintiff Jorgensen has been the exclusive and sole manager of a risk purchasing
group insurance program called Professional Adviser’s Purchasing Group, Inc. with the brand
name CPAGoldTM. [Id.

¶

11.] The program is licensed for sale in all states except Alaska and

Jorgensen is the appointed agent and program manager in all state filings. [Id.]
Plaintiff had a longstanding business relationship with the NAPLIA Defendants, who
served as a “partner-producer” of Jorgensen. [See id.

¶ 18.]

Essentially, the NAPLIA Defendants

developed relationships and solicited customers for Jorgensen’s insurance products, including the
CPAG01dTM product at issue. [See generally id.]
The business relationship between Plaintiff and the NAPLIA Defendants allegedly began
to sour in or around 2013. [See id.

¶J 21-24.]

The relationship has now ended. The NAPLIA

Defendants, allegedly in conjunction with the Plaza Defendants, have launched a competing
insurance product called “CPA ProSecure.” [Id.

¶J 26-3 9.]

Based on the launch of the competing CPA ProSecure product, and Defendants’ alleged
activities in connection with that product, Plaintiff brought this lawsuit. The SAVC alleges causes
of action for copyright infringement, trade secret misappropriation (under the New Jersey Trade
Secrets Act (“NJTSA”)), tortious interference, and false advertising (under the Lanham Act). [Id.

¶J 40-73.]
With respect to the copyright infringement claim, Plaintiff alleges that it is the “owner of
all rights under [the] copyright for “CPA Gold Accountants’ Profession Liability Insurance
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Program,”

Registration Number TX 5-759-463 in the United States Copyright Office (the

“Protected Work”). [Id.

¶ 41.]

Plaintiff further alleges that “Defendants have advertised, offered

for sale and sold insurance policies based on an insurance program similar to the Protected Work
and in violation of Jorgensen’s exclusive rights.” [Id.

¶ 42.]

As an example, Plaintiff attaches as

Exhibit J to the SAVC Defendants’ rate sheet, which Plaintiff alleges is substantially similar to the
Protected Work. [Id.]
With respect to Plaintiffs NJTSA claim, the SAVC alleges that all Defendants have
engaged in improper activities with respect to Plaintiffs proprietary information, including
premium calculation rate sheets, relationships, program details, results and negotiations
concerning coverage enhancements, reinsurance, bulk loss run information, and details of a
confidential panel counsel list. [Id.

¶

33-39.] Plaintiff further alleges that Defendants have

utilized proprietary information about Plaintiffs customers, including customer lists, expiration
dates for policies, and loss histories. [Id.

¶ 38.]

With respect to Plaintiffs tortious interference claim, Plaintiff alleges that the NAPLIA
Defendants have made false and misleading disparaging statements to Jorgensen’s customers and
partner-producers about Plaintiffs product. [Id.

¶J 38,

52.] Plaintiff also alleges that “NAPLIA

is improperly trying to solicit other agents of Jorgensen by misrepresenting its ownership of
Jorgensen’s intellectual property and interfering with the relationship between Jorgensen and these
partner-producers.” [Id.

¶ 50.]

Finally, with respect to Plaintiffs false advertising claims, Plaintiff alleges that NAPLIA
has engaged in misleading advertising tactics to generate business for its product. The SAVC sets
forth specific examples of statements it alleges were misleading. [Id.

¶J 62-73.]

LEGAL STANDARDS
for a complaint to avoid dismissal pursuant to Rule 12(b)(6), it “must contain sufficient
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factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 67$ (2009) (quoting Belt AtL Corp.

V.

Twombly, 550 U.S. 544, 570 (2007)).

When evaluating the sufficiency of a complaint, Courts are required to accept all well-pleaded
allegations in the complaint as true and to draw all reasonable inferences in favor of the nonmoving party. Phillips v. Cnty. ofAllegheny, 515 F.3d 224, 231 (3d Cir. 2008). Furthermore, “[a]
pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of
action will not do. Nor does a complaint suffice if it tenders naked assertions devoid of further
factual enhancement.”

Iqbal, 556 U.S. at 678 (internal citations and quotations omitted).

Accordingly, “a complaint must do more than allege the plaintiffs entitlement to relief. A
complaint has to ‘show’ such entitlement with its facts.” fowler v. UPMC Shadyside, 578 F.3d
203, 211 (3d Cir. 2009).
DISCUSSION
1. Plaintiffs Claims Against Rockhill

The SAVC alleges that Rockhill is the parent company of Plaza. [SAVC

¶J 5-6.]

It

contains no other factual allegations regarding Rockhifl. Plaintiff appears to argue that Rockhill
should be liable because it “has the ability to supervise” Plaza. [ECF No. 25.] The Court, however,
finds that holding Rockhill accountable for the liability of a separate entity would be contrary to
principles of equity.
In analyzing a pleading, the Court begins with “the fundamental propositions that a
corporation is a separate entity from its shareholders,

.

.

.

and that a primary reason for

incorporation is the insulation of shareholders from the liabilities of the corporate enterprise.”
Ohai v. Verizon Communs., Inc., No. 05-729, 2005 U.S. Dist. LEXIS 25703, at *23, (D.N.J. Oct.
24, 2005) (quoting State Dep ‘t ofEnvtl. Prot. v. Ventron Corp., 94 N.J. 473, 500-01 (1983)). As
the Third Circuit has stated:
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A court may not depart from this principle and pierce the corporate
veil unless it finds that a subsidiary was a mere instrumentality of
the parent corporation. The requisite finding is that the parent so
dominated the subsidiary that it had no separate existence but was
merely a conduit for the parent.
Marzano v. Computer Science Corp., 91 F.3d 497, 513 (3d Cir. 1996) (internal quotations omitted).
“The requirements for corporate veil piercing

.

.

.

although rather imprecise in their various

formulations, are demanding ones.” Bootay v. KBR, Inc., 437 F. App’x 140, 143 (3d Cir. 2011)
(internal quotations omitted). To assert a cause of action for the equitable remedy of piercing the
corporate veil, the pleading must allege two elements. “first, there must be such unity of interest
and ownership that the separate personalities of the corporation and the individual no longer exist.
Second, the circumstances must indicate that adherence to the fiction of separate corporate
existence would sanction a fraud or promote injustice.” Hotzli v. Deluca Enters., No. 11-6148,
2012 U.S. Dist. LEXIS 38880, at *4 (D.N.J. Mar. 21, 2012) (internal citation omitted).

Here, Plaintiff has not pleaded any facts regarding Rockhill’s relationship with Plaza.
Accordingly, the Court does not find that Plaintiff has met its burden of pleading that the corporate
veil should be pierced to hold Rockhill accountable for Plaza’s actions. Accordingly, in order to
respect the separate corporate existence, Rockhill will be dismissed from this action.
2. Plaintiffs Copyright Claim Against All Remaining Defendants

To establish copyright infringement, a plaintiff must prove two elements: “(1) ownership
of a valid copyright, and (2) copying of constituent elements of the work that are original” by the
defendant.

Kepner-Tregnoe Inc. v. Executive Development, Inc., 79 F. Supp. 2d 474, 484

(D.N.J. 1999) (citing Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)).
In the SAVC, Plaintiff identifies the registration number of the copyright for the Protected Work,
[SAVC ¶ 41], attaches the Certificate of Registration for the copyright [SAVC Ex. H], asserts that
it is the owner of all rights under the copyright [Id], and attaches a rate sheet found in the Protected
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Work [see SAVC Ex. I]. The SAVC accuses Defendants of infringing the copyright and attaches
the allegedly infringing rate sheet used in Defendants’ CPA Pro$ecure product for comparison
with the rate sheet found in the Protected Work. [Compare SAVC Ex. J, with SAVC Ex. I.] The
Court finds that Plaintiff has sufficiently pleaded a cause of action for copyright infringement.
Defendants’ challenges to Plaintiffs copyright claim are based on factual disputes about
whether the Protected Work constitutes copyrightable subject matter, whether Plaintiff is the actual
owner of the copyright for the Protected Work, and whether the Protected Work was in the public
domain. [ECF No. 22-2 at 5-6.] These challenges, however, present questions of fact that the
Court cannot evaluate at this stage of the case. Additionally, the Plaza Defendants contend that
the SAVC does not allege any infringement by Plaza. However, the first page of the allegedly
infringing rate sheet contains the heading “PLAZA INSURANCE COMPANY.” [SAVC Ex. J
at 1.] Accordingly, as to Count I of the SAVC, both motions to dismiss will be denied.
3. Plaintiffs NJTSA Claim Against All Remaining Defendants

The NJT$A defines “misappropriation” as:
(1) Acquisition of a trade secret of another by a person who knows
or has reason to know that the trade secret was acquired by
improper means; or
(2) Disclosure or use of a trade secret of another without express or
implied consent of the trade secret owner by a person who:
(a) used improper means to acquire knowledge of the trade
secret; or
(b) at the time of disclosure or use, knew or had reason to know
that the knowledge of the trade secret was derived or
acquired through improper means; or
(c) before a material chance of position, knew or had reason to
know that it was a trade secret and that knowledge of it had
been acquired through improper means.
N.J. Stat. Ann.

§ 56:15-2. Under the NJT$A, “improper means” includes “breach or inducement
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of a breach of an express or implied duty to maintain the secrecy of, or to limit the use or disclosure
of, a trade secret.” Id. The NJTSA defines a “trade secret” as:
Information, held by one or more people,.

.

.

that:

(1) Derives independent economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from its deisclosure or use; and
(2) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Id.
a. The NAPLIA Defendants’ motion to dismiss the NJTSA claim is denied.
The NAPLIA Defendants appear to raise two challenges to Plaintiff’s NJT$A claim. first,
the NAPLIA Defendants dispute the existence of a contract obligating them to maintain the
confidentiality of Plaintiff’s proprietary information. [ECF No. 22-2 at 9.] However, at this point
in the proceedings, it is sufficient that Plaintiff alleges that “there was a contract in place that
mandated the confidentiality” of Plaintiff’s information. [$AVC

¶ 3 1-32,

46.] Moreover, the

SAVC describes the history and relationship between Plaintiff and the NAPLIA Defendants.
[SAVC ¶ 9-25.] Construing the facts and making reasonable inferences in a light most favorable
to Plaintiff, the pleaded facts demonstrate that the NAPLIA Defendants had at least an implied
duty to maintain the secrecy and confidentiality of Plaintiff’s trade secrets.
Second, the NAPLIA Defendants dispute whether certain categories of information
identified in the $AVC actually constitute trade secrets and whether they belong to Plaintiff. {ECF
No. 22-2 at 9-10.] At this stage of the case, however, the Court is not in a position to evaluate the
factual disputes raised by the NAPLIA Defendants. Plaintiff has sufficiently alleged categories of
information that it holds as trade secrets with respect to its products, its customers, and its
relationships. The NAPLIA Defendants’ challenges are more appropriate for a summary judgment
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motion or trial.
b. The Plaza Defendants’ motion to dismiss the NJTSA claim is granted.
The Plaza Defendants challenge the NJTSA claim based on the failure of the SAVC “to
include any cogent allegations of misappropriation by Rockhill or Plaza.” {ECF No. 13-1 at 8.]
As the Plaza Defendants point out, the SAVC contains allegations about information that NAPLJA
acquired and used. However, even making reasonable inferences in Plaintiffs favor, the SAVC
provides no basis to conclude that Plaza “lm[ew] or ha{d] reason to how” that any trade secrets
were acquired by improper means. See N.J. Stat. Ann.

§ 56:15-2. Plaintiffs conclusory recitation

“upon information and belief’ that certain information was provided to Plaza is insufficient to
satisfy the pleading standard under Twombly and Iqbal. See Montero v. Brickman Grp., Ltd., No.
12-2535, 2012 U.S. Dist. LEXIS 121679, at *3 (D.N.J. Aug. 28, 2012) (“[A]llegations offered on
the basis of ‘information and belief will not suffice if they merely and formulaically recite the
elements of a cause of action.”); see also McQueen v. BMWofN Am., LLC., No. 12-6674, 2014
U.S. Dist. LEXIS 21084, at *12..13 (D.N.J. Feb. 20, 2014). Thus Plaintiffs NJTSA claim against
the Plaza Defendants will be dismissed.
4. Plaintiffs Tortious Interference Claim Against the NAPLIA Defendants
The law protects a person’s interest in a contract already made and in the reasonable
expectations of economic advantage. Harris v. Pen, 41 N.J. 455, 462 (1964). To prove a claim
for tortious interference with contractual relations and prospective economic relations, a plaintiff
must show that it had a reasonable expectation of economic advantage that was lost as a direct
result of the defendant’s malicious interference, and that it suffered losses thereby. Baldasarre v.
Butler, 132 N.J. 278, 293 (1993). The relevant inquiry is whether the conduct crosses the line
from competition to tortious injury. See Ideal Daiiy Farms, Inc. v. Farmland Daity Farms, Inc.,
282 N.J. Super. 140, 199 (App. Div. 1995).
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Here, Plaintiff alleges numerous acts of improper solicitation taken by the NAPLJA
Defendants with respect to Plaintiffs customers.

The NAPLIA Defendants argue that the

customers at issue “have been and continue to be those ofNAPLIA, not Jorgensen.” [ECF No. 222 at 12.] However, NAPLIA does not contest that it was a partner-producer of Jorgensen’s for
nearly 20 years and that it developed relationships and solicited customers for Jorgensen’s
insurance products. Thus, in the context of this business relationship, the distinction between
customers ofNAPLIA and customers of Jorgensen is not clear to the Court. At the very least, this
issue presents a factual dispute that cannot be resolved at this point in the proceedings.
Furthermore, the NAPLIA Defendants fail to address the numerous allegations contained in the
SAVC regarding misleading statements and misrepresentations made in solicitation of customers
and partner-producers. Accordingly, Plaintiffhas sufficiently pleaded a cause of action for tortious
interference and the NAPLIA Defendants’ motion to dismiss will be denied as to that claim.
5. Plaintiffs Lanham Act Claim Against the NAPLIA Defendants
“[T]o prevail on a claim of unfair advertising under Section 43(a), a plaintiff must first
prove by a preponderance of the evidence that the claims it challenges are false or deceptive.”
Sandoz Pharmaceuticals Corp.

V.

Richardson-Vicks, Inc., 902 F.2d 222, 227, (3d Cir. 1990)

(internal quotation omitted). Here, Plaintiff alleges numerous false statements that have been made
by NAPLIA in advertising its CPA ProSecure Product.

[SAVC

¶J

61-72.]

The NAPLIA

Defendants move to dismiss on the basis that Plaintiff has not proven that these statements are
false. [ECF No. 22-2 at 14-15.] In doing so, the NAPLIA Defendants ask this Court to make the
factual determination that its advertising statements were true. [Id.] However, in evaluating a
motion to dismiss, this Court must accept as true all well-pleaded facts and is not in position to
evaluate the truth of the statements at issue. Accordingly, Plaintiff has sufficiently pleaded a cause
of action for false advertising under the Lanham Act.
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CONCLUSION

Having reviewed the parties’ submissions, the Court finds as follows:
1. The Plaza Defendants’ Motion to Dismiss is granted in part as to Defendant
Rockhill and Rockhill will be dismissed from this action.
2. The Plaza Defendants’ Motion to Dismiss is granted in part as it pertains to
Plaintiffs claim against Plaza under the NJTSA in Count II. Count II will be
dismissed as to Plaza.
3. The Plaza Defendants’ Motion to Dismiss is denied in part as it pertains to
Plaintiffs claim against Plaza for copyright infringement in Count I. Count I
asserting copyright infringement will not be dismissed against Plaza.
4. The NAPLIA Defendants’ Motion to Dismiss is denied.
An appropriate order accompanies this Opinion.
CLAIRE C. CECCHI, U.S.D.J.

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