ADP, LLC v. ULTIMATE SOFTWARE GROUP, INC.
Filing
119
OPINION. Signed by Judge Kevin McNulty on 3/5/18. (DD, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
ADP, LLC,
Civ. No. 16-8664 (KM) (MAR)
Plaintiff,
OPINION
V.
ULTIMATE SOFTWARE GROUP, INC.,
Defendant.
KEVIN MCNULTY, U.S.D.J.:
Plaintiff, ADP, Inc. (“ADP”), is suing a competitor, defendant Ultimate
Software Group, Inc. (“USO”), which has allegedly hired ADP’s ex-employees in
violation of their non-compete, non-disclosure, and non-solicitation
agreements. USG has asserted counterclaims for tortious interference with its
prospective business relationships and unfair competition. It alleges, in part,
that ADP has sent pre-litigation letters warning these employees that violations
of the agreements could result in legal action, creating a “cloud of fear” among
prospective employees and clients.
ADP now moves under Fed. R. Civ. P. 12(b)(6) to dismiss USG’s
counterclaims for failure to state a claim. For the reasons stated herein, ADP’s
motion is denied.
1
I.
Summary’
On November 21, 2016, ADP filed a complaint against USG, alleging that
USG engaged in a systematic process of hiring former ADP sales
representatives. (Cplt. ¶171—4.) All of this was done, ADP says, with the goal of
obtaining ADP’s trade secrets and proprietary information and pirating ADP’s
current and prospective clients. (See id.) ADP’s complaint asserts claims under
the Defend Trade Secrets Act, 18 U.S.C.
1832, 1839, the Copyright Act, 17
106, the New Jersey Trade Secrets Act, N.J.S.A. 56:15-4, -6, and the
§
U.S.C.
§
Florida Deceptive and Unfair Trade Practices Act, Fla. Stat.
§
50 1.201 et seq.,
as well as other common law claims. f See Id.)
USG disputes these allegations and has filed counterclaims against ADP.
USG’s first counterclaim is for tortious interference with prospective economic
benefits. (Answer ¶17164—71.) Its second is for unfair competition. (Id. ¶17172—
80.) USG bases its counterclaims on ADP’s alleged intimidation of the
employees USG has hired and seeks to hire from ADP. (See Id. ¶17169, 173.)
This intimidation, USG alleges, has taken the form of
law suits
and letters that
threaten law suits (“pre-litigation letters”) against those former employees who
are now at USG. Such actions, according to USG, have created fear in its its
current employees and have reduced the pool of potential employees. (Id.
¶11
147—49.) As a result, USG has been impaired in its pursuit of lawful and
For the purposes of this 12(b)(6) motion to dismiss, I will assume the allegations
in the Answer (where the counterclaims are made) are true. See Section II, infra.
Record items will be cited as follows:
Complaint [ECF no. 1)
Cplt.
Answer
P1. Br.
=
=
Def. Opp.
P1. Reply
=
Seconded Amended Answer, Affirmative Defenses and
Counterclaims to Plaintiffs Complaint [ECF no. 72]
Brief in Support of Plaintiffs Motion to Dismiss Amended
Counterclaims [ECF no. 77]
Defendant’s Opposition to Plaintiffs Motion to Dismiss Amended
Counterclaims IECF no. 92J
Reply Brief in Support of Plaintiffs Motion to Dismiss Amended
Counterclaims [ECF no. 94]
2
permitted sales activities. (Id.) ADP has moved to dismiss these counterclaims
for failure to state a claim. (ECF no. 77.)
Standard of Review
II.
A motion to dismiss counterclaims is reviewed under the same standard
as a motion to dismiss a complaint under Fed. R. Civ. P. 12(b)(6). In re
Gabapentin Patent Litig., 648 F. Supp. 2d 340, 346 (D.N.J. 2009) (citing
Organon
ma
v. Mylan Pharm., 293 F. Supp. 2d 453, 456—57 (D.N.J. 2003)).
Under Rule 12(b)(6), a party may move for the dismissal of a claim, if it fails to
state a claim upon which relief can be granted. The moving party bears the
burden of showing that no claim has been stated. Animal Science Products, Inc.
u. China Minmetals Corp., 654 F.3d 462, 469 n. 9 (3d Cir. 2011). For the
purposes of a motion to dismiss, the facts alleged in the complaint are accepted
as true and all reasonable inferences are drawn in favor of the non-moving
party. New Jersey Carpenters & the Trustees Thereof v. Tishman Const. Corp. of
N.J., 760 F.3d 297, 302 (3d Cir. 2014).
A counterclthmant’s obligation to provide the grounds for entitlement to
relief requires more than labels and conclusions; a formulaic recitation of the
elements of a cause of action will not do. Bell Ati. Corp. v. Twombly, sso U.s.
544, 55 (2007). Thus, the counterclaimant’s factual allegations must be
sufficient to raise a counterclaimant’s right to relief above a speculative level,
so that a claim is “plausible on its face.” Id. at 570; see also West Run Student
Housing Assocs., LLC v. Huntington Nat. Bank, 712 F.3d 165, 169 (3d Cir.
2013). That facial-plausibility standard is met “when the [counterclaimantj
pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556
U.s. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). While “[tjhe plausibility
standard is not akin to a ‘probability requirement’.
.
.
it asks for more than a
sheer possibility.” Iqbal, 556 U.S. at 678.
In considering a motion under Rule 12(b)(6), I am confined to the
allegations contained within the counterclaims, with some narrow exceptions.
3
Courts may consider “documentlsJ integral to or explicitly relied upon in the
complaint,” or any “undisputedly authentic document.
.
.
attache[d] as an
exhibit to a motion to dismiss if the fcounterclaimant}’s claims are based on the
document.” In re Asbestos Products Liab. Litig. (No. VI), 822 F.3d 125, 134 n.7
(3d Cir. 2016) (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,
1426 (3d Cir. 1997)); Pension Ben. Guar. Corp. v. White Consol. Indus., 998 F.2d
1192, 1196 (3d Cir. 1993)); see also Schmidt v. Skolas, 770 F.3d 241, 249 (3d
Cir. 2014) (“However, an exception to the general rule is that a ‘document
integral to or explicitly relied upon in the complaint’ may be considered
‘without converting the motion to dismiss into one for summary judgment.tm)
(quoting In re Burlington Coat Factory, 114 F.3d at 1426); Pension Ben. Guar.
Corp., 998 F.2d at 1196). I may also take judicial notice of another court’s
opinion, “not for the truth of the facts recited therein, but for the existence of
the opinion, which is not subject to reasonable dispute over its authenticity.” S.
Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Grp. Ltd., 181 F.3d 410,
426—27 (3d Cir. 1999). See generally Fed. R. Evid. 201.
III.
Discussion
ADP lists four reasons why USG’s counterclaims should be dismissed.
(P1. Br. at 2—3.) First, it argues that claims premised on alleged litigationrelated conduct and communications are protected by the First Amendment
and thus exempt from anti-trust/unfair competition liability under the Noerr
Pennington. (Id. at 2.) Second, it argues that claims premised on litigationrelated communications and conduct are barred by the absolute litigation
privilege under New Jersey law. (Id.) Third, it argues that the New Jersey Rules
of Professional Responsibility do not provide a private cause of action. (Id. at 3.)
Fourth and finally, it argues that USG has failed to adequately allege that it
has been harmed by ADP’s conduct or that a causal link exists between ADP’s
conduct and any possible harm. (Id.)
a. Noerr-Pennington Bar
4
“Rooted in the First Amendment and fears about the threat of chilling
political speech,” the Noerr-Pennington2 doctrine provides immunity from
antitrust liability for parties who petition the government for redress. In re
LipitorAntitrust Litig., 868 F.3d 231, 264 (3d Cir. 2017) (quoting A.D. Bedell
Wholesale Co. v. Phillip Mon-is Inc., 263 F.3d 239, 250 (3d Cir. 2001)). The
doctrine extends to “actions which might otherwise violate the Sherman Act
because ‘[t]he federal antitrust laws do not regulate conduct of private
individuals in seeking anticompetitive action from the government.” Id. More
broadly, “[g]overnment advocacy is protected by Noerr-Pennington immunity;
seeking governmental approval of a private agreement is not.” Id. The scope of
Noerr-Pennington immunity depends on the source, context, and nature of the
competitive restraint at issue. Id. Noerr-Pennington has been extended to
provide immunity to private efforts to influence courts and agencies, whether
federal or state, Bristol-Myers Squibb Co. v. WAX Corp., 77 F. Supp. 2d 606,
611 (D.N.J. 2000), and has been held to shield plaintiffs from liability for
pursuing state common law claims such as tortious interference with contract
and tortious interference with prospective economic gain. Santana Products,
Inc. i.’. Bobrick Washroom Equipment, Inc., 401 F.3d 123, 140 (3d Cir. 2005)
(declining to decide whether a marketing campaign is petitioning activity that
could be immunized by the doctrine).
However, Noerr-Pennington is not an absolute shield that covers all
litigation and petitioning activity. Hanover 3201 Realty, LLC v. Village
Supermarkets, Inc., 806 F.3d 162, 178 (3d Cir. 2015). The immunity ends
where the litigation “is a mere sham to cover what is actually nothing more
than an attempt to interfere directly with the business relationships of a
competitor and the application of the Sherman Act would be justified.” Id.
(quoting E.R.R. Presidents Conference v. Noen Motor Freight, Inc., 365 U.S. 127,
144 (1961)). In analyzing litigation to determine if the actions are a sham, the
The titular cases are Eastern Railroad Presidents Conference ii. Noerr Motor
Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers of America u. Pennington,
381 U.S. 657 (1965).
2
5
Third Circuit has adopted the approach that governs in the Second, Fourth,
and Ninth Circuits when applying Cahfomia Motor Transportation Co. v.
Trucking Unlimited, 404 U.S. 508 (1972) and Professional Real Estate Investors,
Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993). Id. at 180. First,
the court must determine whether there has been a single filing or a series of
filings. Id. If there has been a single filing, there must be “a showing of
objective baselessness before looking into the subjective motivations” of the
party alleged to have engaged in anti-competitive behavior. Id. (noting that
Professional Real Estate’s “exacting two-step test” puts a heavy thumb on the
scale in the favor of the party who has had a claim made against it). On the
other hand, when faced with a “series or pattern of lawsuits,” a more flexible
approach is warranted. Id. Even if some of the petitions turn out to have
objective merit, the claimant is not automatically immunized from liability. Id.
The standard set out in Calfomia Motor governs in those cases; the court
should ask “whether a series of petitions were filed with or without regard to
merit and for the purpose of using governmental process (as opposed to the
outcome of that process) to harm a market rival and restrain trade.” Id. The
court is expected to perform a more holistic review that may include looking at
the filing success of the claimant, evidence of bad faith, and the magnitude and
nature of the collateral harm caused by the filings as circumstantial evidence of
the subjective motivations of the petitioner.3 Id. at 180—8 1. If more than an
insignificant number of filings have objective merit, then it is unlikely that they
were filed without regard to success. Id. at 181 (citing USS—POSCO Indus. v.
A court may decide the applicability of the Noerr-Pennington doctrine on a
motion to dismiss under Fed. I?. Civ. P. 12(b)(6) if no factual issues are present.
Trustees of Univ. of Pa. v. St. Jude Children’s Res. Hosp., 940 F. Supp. 2d 233, 242—43
(ED. Pa. 2013) (“To be sure, the question of whether litigation is a sham can be a fact
question for the jury. But as the Supreme Court explained in PRE, when There is no
dispute over the predicate facts of the underlying legal proceeding, a court may decide
probable cause [and thus Noen—Pennington applicability] as a matter of law.” (citations
omitted and emphasis added)); Asphalt Paving Sys. v. Asphalt Maint. Sols., LLC, No.
12-2370, 2013 WL 1292200, at *7_*8 (ED. Pa. Mar. 28, 2013) (deciding only that
Noerr-Pennington immunity applied in its grant of dismissal); Bristol-Myers Squibb Co.
v. WAX Corp., 77 F. Supp. 2d 606, 616 (D.N.J. 2000) (same).
6
Contra Costa Cnty. Bldg. & Constr. Trades Council, AFL—CIO, 31 F.3d 800, 810—
11(9th Cir. 1994)). On the other hand, a high percentage of meritless or
objectively baseless proceedings can support a finding that the filings were not
brought to redress any actual grievances. Id. (citing City of Columbia v. Omni
Outdoor Adver., 499 U.S. 365, 380 (199]j).
Here, USG alleges that ADP, despite knowing that the restrictive
covenants drafted in its non-compete agreements with its former employees are
unenforceable or overbroad, sent a series of letters to former employees who
now work at USG warning them of potential law suits for continued violations
of the agreements. (Answer
¶J
127, 138—39.) It also alleges that ADP
deliberately delays filing suit against former ADP employees until near the end
of the one-year term of the restrictive covenant to create a continuing “cloud”
over the heads of former employees at USO. (Id.
¶
156.)
ADP’s first contention is that California Motor does not apply because
USG is not the named defendant in any of the suits at issue. (P1. Br. at 14.)
However, courts have found that sham litigation need not name the targeted
competitor as a part; the focus is not on the parties but on whether the actions
were “brought for the purpose of injuring a market rival.” See, e.g., Inserra
Supermarkets, Inc. v. Stop & Shop Supermarket Co., LLC, No. 16-1697, 2017 WL
3189029, at *3 n.8 (D.N.J. July 27, 2017) (noting that the court had previously
disagreed with defendant’s argument that its OPRA litigation did not belong to
a series of sham litigation because plaintiff was not a party to the OPRA suit);
Total Renal Care, Inc. u W. Nephrology & Metabolic Bone Disease, P.C., No. 08513, 2009 WL 2596493, at *12 (D. Col. Aug. 21, 2009) (finding the sham
litigation exception applied despite only one of the “sham” law suits involved
the named party). Similarly, I am persuaded that the alleged actions instituted
against former ADP employees working at USG and potential employees for
USG sufficiently involves USG and such action is adequately alleged to have
been brought for the purpose of injuring a market rival.
7
ADP’s second contention is that the standard for “sham litigation” has
not been met by USG’s allegations, because the lawsuits actually litigated
against USG employees were not “objectively baseless” or brought “without
regard to the merits.” (P1. Br. at 13.) Describing a series of cases where the
non-compete agreements were litigated, ADP touts a won-lost4 record of 12-1.
(Id. at 18—2 1.) USO disputes the reading of these cases as victories for ADP,
while also pointing out that there is still a factual controversy as to whether the
first prong of Professional Real Estate ( “objectively baseless”) has been met.
(Def. Opp. at 20, 25.) At the motion-to-dismiss stage and without the benefit of
discovery’ definitively setting out the universe of cases between ADP, USG, and
its employees, it is too early to decide whether the series of litigations pursued
by ADP against USG and its employees constitute “sham litigation.” So far,
USG has sufficiently pled claims for tortious interference and unfair
competition by ADP that fall outside the immunity granted by the Noeu
Pennington doctrine, as it has alleged both that ADP had the subjective intent
and that the litigation, as a series of actions, was a sham.
b. Litigation Privilege
Under New Jersey law, “the litigation privilege shields persons from
liability arising from any communication (1) made in judicial or quasi-judicial
proceedings; (2) by litigants or other participants authorized by law; (3) to
achieve objects of the litigation; and (4) that have some connection or logical
relation to the action.” Williams v. BASF Catalysts LLC, 765 F.3d 306, 319 (3d
Cir. 2014) (quoting Loigman v. Twp. Comm. of Middletown, 185 N.J. 566, 585
(2006)); see also Baglini v. Lauletta, 338 N.J. Super. 262, 298 (App. Div. 2001)
(“The privilege is not limited to statements made at trial; it extends to all
statements or communications in connection with the judicial proceeding.”
(citation and quotation marks omitted)); Rickenbach v. Wells Fargo Bank, N.A.,
A win seems to mean, according to ADP’s briefing, a finding by the court that
ADP’s restrictive covenant with its former employee was, at least in part, valid and
enforceable.
8
635 F. Supp. 2d 389, 401, 402 (D.N.J. 2009) (noting that the privilege is
“expansive” and has been applied to pre-litigation “demand letters”). The
purpose of the doctrine is to allow parties “unfettered expression critical to
advancing the underlying government interest at stake.” Rickenbach, 635 F.
Supp. 2d at 401 (quoting Peterson u. Ballard, 292 N.J. Super. 575, 581 (App.
Div. 1996)). However, like the Noerr-Pennington doctrine, the litigation privilege
is not absolute. Dello Russo u. Nagel, 358 N.J. Super. 254, 266 (App. Div. 2003)
(noting that the privilege does not provide a shield from professional discipline
for an attorney’s unethical conduct or for malicious prosecution); Rickenbach,
635 F. Supp. 2d at 402 (noting that malicious prosecution claims are an
exception from the litigation privilege shield).
The litigation privilege also does not cover communications in
furtherance of a litigation that is pretextual. NVR, Inc. u. Davem, No. 15-5059,
2015 WL 7013459, at *4 (D.N.J. Nov. 30, 2016). In Davem, the employing
company alleged in its counterclaims that the litigation was meant to damage
its position in the market and to get the company to fire the plaintiffs ex’
[right?]employee. Id. The plaintiffs motion to dismiss the counterclaims was
denied.5
USG’s counterclaims here are based on similar allegations of pretext.
USG contends that the strategy behind ADP’s litigation is simply to hurt USG’s
position in the market and create a “cloud of fear” over its current and future
employees, as opposed to the vindication of its legitimate rights under the
5
The Court holds that the litigation privilege does not apply to bar
Davern’s counterclaims because all three counterclaims are premised on
the theory that this entire litigation is pretextual. According to Davem,
all of NVR’s actions were not designed to achieve the object of the
litigation—i.e., the retrieval of confidential information and money
damages—but rather, to get Davem fired from Horton, sabotage Davem’s
relationship with Horton’s competitive position in the market. In light of
such allegations, the litigation privilege cannot shield NVR from liability
for filing and pursuing alleged sham litigation, nor from making out-ofcourt statements to a non-party, which statements are alleged to have
been made for purposes unrelated to the litigation.
Davern, 2015 WL 7013459 at
*
[Cite]
9
restrictive covenants. Because the allegations by USO involve claims that is
pre-litigation letters are pretextual, the litigation privilege does not apply to
USG’s claims against ADP.
c. Cause of Action under New Jersey Rules of Professional
Conduct
Violations of the Rules of Professional Conduct do not as such form the
basis for a cause of action. Baxt v. Liloia, 155 N.J. 190, 202 (1998) (noting that
the Rules are “framed as precatory guidelines” and a cause of action based on a
violation of them is not necessary to ensure that attorneys conform their
conduct to the high standards of the rules); see also Stahl v. Twp. of Montclair,
No. 12-3244, 2013 WL 1867036 (D.N.J. May 2, 2013) (stating that Baxt should
not be read narrowly and that the Rules do not establish a duty relevant under
other law). ADP argues that USG’s allegations amount to a purported violation
of Rule 4.2 of the New Jersey RPC6 and that they therefore cannot amount to a
viable claim. (See, e.g., P1. Br. at 27.) In particular, ADP cites the Answer’s
reference to a May 24, 2017 cease-and-desist letter from ADP’s in-house
counsel to USG’s CEO, copying several sales and marketing employees.
(Answer ¶1J 158—63.)
ADP is correct that the RPC do not give rise to a private cause of action
(and if they did, presumably it would be a claim against the attorney, not the
attorney’s client). Baxt, 155 N.J. at 202. Neither, however, is conduct that is
tortious immunized merely because it would also be unethical. At any rate, no
6
Rule 4.2 states:
In representing a client, a lawyer shall not communicate about the subject of
the representation with a person the lawyer knows, or by the exercise of
reasonable members of an organization’s litigation control group as defined by
tRule of Professional Conductj 1.13, unless the lawyer has the consent of the
other lawyer, or is authorized by law or court order to do so, or unless the sole
purpose of the communication is to ascertain whether the person is in fact
represented. Reasonable diligence shall include, but not be limited to, a specific
inquiry of the person as to whether that person is represented by counsel.
Nothing in this rule shall, however, preclude a lawyer from counseling or
representing a member or former member of an organization’s litigation control
group who seeks independent legal advice. RPC 4.2
10
such RPC-based cause of action is asserted. The First Counterclaim is for
tonious interference; the second is for unfair competition. Nowhere in its
briefing or Answer does USG cite to the Rules of Professional Conduct or make
a claim denominated as one under the RPC. The evidentiary relevance of any
alleged RPC violation is a determination for another day. The motion to dismiss
the counterclaims on these grounds is denied.
d. Insufficiency of Allegations
Finally, ADP’s argues that USG has failed to state plausible claims for
damages, on the theory that USG has not sufficiently shown that it has been
harmed or that there exists a causal link between the actions alleged and the
damages sustained. (P1. Br. at 28.) Chiefly, it takes issue with USO’s allegations
that it has suffered a “diminished pool” of potential employees to hire, because
ADP’s ex-employees have been scared off by the prospect of litigation. (Id.) ADP
finds these claims to be “speculative” and argues that USG has failed to show
concretely how this alleged “cloud of fear” has hurt its business. (Id. at 29.)
Under New Jersey law, a claim for tortious interference with prospective
business advantage is actionable when there is “[a] luring away, by devious,
improper, and unrighteous means, of the customer of another.” Avaya Inc., RP
v. Telecom Labs, Inc., 838 F.3d 354, 382 (3d Cir. 2016) (quoting Printing MartMorristown v. Sharp Elecs. Corp., 116 N.J. 739 (1989)). Prospective relations
have includes those leading to potentially profitable contracts or where there
may be “a reasonable expectation of economic gain in as slight an interest as
prospective public sales.” Id. (citing Printing Mart, 116 N.J. at 754). As to loss
and causation for torUous interference, there must be proof at trial that “if
there had been no interference there was a reasonable probability that the
victim of the interference would have received the anticipated economic
benefits.” Id. at 383.
At this pleading stage, however, the burden is different. For purposes of
Twombly/Iqbal, USG has sufficiently proffered that the economic benefit it has
lost were more customers and sales. Likewise, USO has sufficiently alleged that
11
there is a reasonable probability that without the interference that it would
have received the anticipated economic benefit of more clients for its services.
Unfair competition, under New Jersey law, is of a more “amorphous
nature” but it nevertheless “seeks to espouse some baseline level of business
fairness.” Id. at 386 (quoting Coast Cities Truck Sales, Inc. v. Navistar Int’l
Transp. Co., 912 F. Supp. 747, 786 (D.N.J. 1995)) (noting that New Jersey
courts have deliberately kept the standard of liability somewhat adaptable).
Theories of damages under which plaintiff may collect include disgorgement of
profits related to any conduct a jury finds tortious and lost profits from
diversion of customers or sales. Id. at 387—88; Bracco Diagnostics, Inc. a
Amers ham Health, Inc., 627 F. Supp. 2d 384, 486 (D.N.J. 2009). Again, at this
stage, USG need only have a short and plain statement that it is entitled to
relief. Phillips, 515 F.3d at 231. Here, USG has sufficiently pled that ADP’s
conduct has caused it to lose potential customers because it cannot hire
former ADP sales representatives or because those it has hired are intimidated
from selling aggressively. (Answer
IV.
¶f
147—49.)
Conclusion
For the reasons outline above, ADP’s motion to dismiss USO’s
counterclaims is denied.
An appropriate order follows.
Dated; March 5, 2018
K yin McNulty
United States District Judge
12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?