TRIAGE CONSULTING GROUP, INC. v. NAZARETH et al

Filing 34

AMENDED MEMORANDUM RE: DEFENDANTS' MOTION TO PARTIALLY DISMISS PLAINTIFF'S SECOND AMENDED COMPLAINT. SIGNED BY HONORABLE MICHAEL M. BAYLSON ON 7/11/2013. 7/11/2013 ENTERED AND COPIES E-MAILED. (ems)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
TRIAGE CONSULTING GROUP, INC.,
Plaintiff,
v.
IMPLEMENTATION MANAGEMENT
ASSISTANCE, INC., et al..
Defendants.

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CIVIL CASE

NO. 12-4266

AMENDED MEMORANDUM RE: DEFENDANTS’ MOTION TO
PARTIALLY DISMISS PLAINTIFF’S SECOND AMENDED COMPLAINT
Baylson, J.
I.

July 11, 2013

Introduction
On July 26, 2012, Plaintiff Triage Consulting Group, Inc. (“Plaintiff”) filed an action

against Binoy Nazareth (“Nazareth”) and Mantis Software Solutions LLC (“Mantis”) for
replevin and claiming misappropriation of trade secrets. On November 16, 2012, Plaintiff filed
an Amended Complaint (ECF 6) adding as Defendants Implementation Management Assistance,
Inc. (“IMA”) and Sarah Lewis (“Lewis”). Plaintiff also dropped its replevin claim and added
claims for breach of contract, intentional interference with contractual relations, and unfair
competition. On February 12, 2013, Plaintiff filed a Second Amended Complaint (ECF 18),
dropping its claims against Nazareth and Mantis, as well as its claim for unfair competition. As
it now stands, Plaintiff brings claims for:
1. Misappropriation of trade secrets, in violation of the
Pennsylvania Uniform Trade Secrets Act (“PUTSA”), 12 Pa.
Cons. Stat. Ann. §§ 5301 et seq., against IMA and Lewis
(“Defendants”),
2. Breach of contract against Lewis, and
3. Intentional interference with contractual relations against IMA.

Currently before the Court is Defendants’ Motion to Dismiss Plaintiff’s claims against Lewis and
its intentional interference with contractual relations claim against IMA (the “Motion”). For the
reasons below, Defendants’ Motion is DENIED.
II.

Facts Pled by Plaintiff
Plaintiff is in the business of providing reimbursement and consulting services to

healthcare institutions. More specifically, Plaintiff assists healthcare institutions with
underpayment recovery, i.e., obtaining full payment for services when those payments are
supposed to come from third-party payers.
Plaintiff has invested well over one million hours developing what it calls a “proprietary
recovery and resolution process,” which includes propriety computer software, database
applications and files, payment modeling spreadsheets, as well as sundry strategies, knowledge,
and expertise. Of particular importance to this case is Plaintiff’s database known as Trakker,
which Plaintiff developed internally and is instrumental to its business operations. In order to
prevent competitors from learning about Trakker and the other aspects of its proprietary business
operations, Plaintiff maintains a culture of confidentiality, including limiting access to
information and requiring employees to sign confidentiality agreements.
IMA is a direct competitor of Plaintiff. In December 2011, IMA hired Liana Hans
(“Hans”), Plaintiff’s former employee of approximately fourteen years. While working for
Plaintiff, Hans had access to Plaintiff’s proprietary information and process, including the
Trakker database. Hans had signed a confidentiality agreement during her employment, and
another, similar agreement when she left Plaintiff’s employ.
In derogation of both of these agreements, Hans shared with IMA Plaintiff’s proprietary
information and processes, including the entire Trakker database. Hans also recruited Lewis,
another of Plaintiff’s former employees, for the purpose of assisting IMA to take advantage of
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Plaintiff’s proprietary information and processes and disclosed to her that IMA intended to steal
Plaintiff’s clients. Lewis had signed a confidentiality agreement while working for Plaintiff.
IMA then had Hans and Lewis assist in developing a new database based on Trakker.
IMA specifically wanted Lewis to work on this project because Lewis was familiar with
Plaintiff’s proprietary business operations. IMA tried to hide its misappropriation of Trakker by
removing from its new database any reference to Plaintiff or the name Trakker.
On April 20, 2012, Plaintiff notified IMA that it believed that IMA possessed its
proprietary information. IMA agreed to an investigation and, if any of Plaintiff’s information
was found on its systems, to remove it. IMA also agreed to pay for the investigation and the data
removal.
On April 30, 2012, before the agreed upon investigation, Lewis notified Hans that IMA’s
systems contained Plaintiff’s proprietary information. At Lewis’s suggestion, IMA tried to
delete the information. The subsequent, agreed upon investigation, however, revealed that
IMA’s systems contain significant amounts of Plaintiff’s proprietary information.
As a result of the investigation, IMA terminated Hans. IMA, however,
1. Refuses to delete all of Plaintiff’s proprietary information on
its systems, in particular the information contained in IMA’s
new database, which IMA developed using Plaintiff’s Trakker
database;
2. Refuses to pay for the investigation and data removal; and
3. Still employs Lewis, who continues to help IMA compete with
Plaintiff.
III.

Legal Standard
In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),

courts may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox,
Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). Courts must accept as true
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all well-pleaded allegations in the complaint and view them in the light most favorable to the
plaintiff. Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985).
A valid complaint requires only “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “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 v. Iqbal, 556 U.S. 662, 678 (2009). Iqbal clarified that the
Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which required a
heightened degree of fact pleading in an antitrust case, “expounded the pleading standard for ‘all
civil actions.’” 555 U.S. at 684.
Iqbal explained that although a court must accept as true all of the factual allegations
contained in a complaint, that requirement does not apply to legal conclusions; therefore,
pleadings must include factual allegations to support the legal claims asserted. Id. at 678, 685.
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. at 678 (citing Twombly, 550 U.S. at 555); see also Phillips v.
County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008) (“We caution that without some factual
allegation in the complaint, a claimant cannot satisfy the requirement that he or she provide not
only ‘fair notice,’ but also the ‘grounds’ on which the claim rests.” (citing Twombly, 550 U.S. at
556 n.3)). Accordingly, to survive a motion to dismiss, a plaintiff must plead “factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).
IV.

Discussion
Defendants contend that Plaintiff’s PUTSA claim against Lewis should be dismissed

because Plaintiff fails to allege facts that, even if true, could establish that Lewis engaged in
misappropriation as that term is defined in section 5302 of the PUTSA. Defendants also contend
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that Plaintiff’s claims for breach of contract against Lewis and intentional interference with
contractual relations claim against IMA should be dismissed because they are preempted by
PUTSA. The Court disagrees.
A.

Plaintiff Pled Facts Sufficient to Support a Reasonable Conclusion that
Lewis’s Conduct Amounts to Misappropriation under the PUTSA.

Under subsections (1)(ii)(A) and (C) of section 5302 of the PUTSA, misappropriation
includes:
1. “[U]se of a trade secret of another without express of implied
consent,”
2. “[B]y a person who . . . at the time of . . . use, knew or had
reason to know,”
3. “[T]hat [her] knowledge of the trade secret was:”
a. “[A]cquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use; or”
b. “[D]erived from or through a person who owed a duty to
the person seeking relief to maintain its secrecy or limit its
use.”
According to Defendants, Plaintiff alleges only that Lewis had knowledge of or
“acquiesced in Hans’[s] improper use of [Plaintiff’s] information,” neither of which amounts to
misappropriation under the PUTSA. Review of Plaintiff’s Second Amended Complaint,
however, reveals allegations sufficient to support the reasonable conclusion that Lewis knew, or
should have known, that she uses Plaintiff’s proprietary information in the regular course of her
employment with IMA.
Plaintiff alleges that Lewis:
1. Knew that
a. Plaintiff endeavors to maintain the secrecy of its
proprietary information,
b. IMA wanted her to help steal Plaintiff’s clients, and
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c. IMA possessed Plaintiff’s proprietary information, at least
as of April 30, 2012;
2. Assisted IMA in its creation of a new database that helps IMA
compete with Plaintiff; and
3. Currently works for IMA, helping IMA to compete with
Plaintiff.
These allegations, if true, would support the reasonable conclusions that:
1. Lewis knew or had reason to know that she was using
Plaintiff’s proprietary information to assist IMA in the creation
of its new database 1; and
2. At least as of April 30, 2012, Lewis knew, or had reason to
know, that, in the ordinary course of her duties at IMA, she
uses Plaintiff’s proprietary information, and that whoever
divulged that information had a duty of secrecy to Plaintiff.
This is sufficient to satisfy the definition of misappropriation under section 5302 of the PUTSA.
B.

Plaintiff’s Breach of Contract and Intentional Interference with Contractual
Relations Claims Are Not Preempted by the PUTSA.

The PUTSA generally preempts “tort, restitutionary[,] and other [Pennsylvania law]
providing civil remedies for misappropriation of a trade secret.” 12 Pa. Cons. Stat Ann.
§ 5308(a). However, the PUTSA does not preempt “contractual remedies, whether or not based
upon misappropriation of a trade secret,” and “other civil remedies that are not based upon
misappropriation of a trade secret.” Id. § 5308(b).
By its express terms then, the PUTSA does not preempt Plaintiff’s breach of contract
claim against Lewis, regardless of whether it is based on Lewis’s alleged misappropriation of
Plaintiff’s trade secrets. Youtie v. Macy’s Retail Holding, Inc., 626 F. Supp. 2d 511, 520-23

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While Plaintiff does not clearly allege that Lewis knew that IMA was developing its
new database using a copy of Trakker provided by Hans, given the alleged similarity of purpose
between the two databases and Lewis’s alleged knowledge that IMA wanted to steal Plaintiff’s
clients, it is perfectly reasonable to infer that Lewis knew or should have known that she was
using Plaintiff’s proprietary information to help create IMA’s new database.
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n.11 (E.D. Pa. 2009) (breach of contract claim explicitly excluded from PUTSA’s preemption,
though other claims based on the same conduct giving rise to the breach of contract claim, such
as unfair competition, could be preempted). 2
Regarding Plaintiff’s intentional interference with contractual relations claim against
IMA, tort claims and PUTSA claims are properly pled in the alternative, even though the tort
claims may ultimately be deemed preempted pursuant to a factual finding that the information
underlying the dispute is, in fact, a trade secret. Defendants have not conceded that Plaintiff’s
confidential information qualifies for trade secret status, and the Court will not force Plaintiff to
choose between pleading a PUTSA claim and a tort claim with this issue outstanding. See
Kimberton Healthcare Consulting, Inc. v. Primary PhysicianCare, Inc., Civil Action No. 114568, 2011 WL 6046923, at *5 (E.D. Pa. Dec. 6, 2011) (“The vast majority of courts to have
addressed whether PUTSA preempts common law tort claims on a motion to dismiss have
determined that such a determination is inappropriate . . . .”) (Baylson, J.); EXL Labs., 2011 WL
880453, at *8 (agreeing “with the cases holding that PUTSA does not preempt common law torts
before the court has determined whether the misappropriated information constitutes a trade
secret”); Council for Educ. Travel, USA v. Czopek, 2011 WL 3882474, at *7 n.4 (M.D. Pa. Sept.
2, 2011) (“PUTSA will only preempt Plaintiff's claim for tortious interference if the alleged

2

Defendant’s citation to the allegedly contrary case, On-Line Technologies v.
Bodenseewerk Perkin-Elmer, 386 F.3d 1133 (Fed. Cir. 2004) is incorrect. First, On-Line
Technologies addressed the Connecticut Uniform Trade Secrets Act (“CUTSA”), which contains
materially different preemption language than the PUTSA: under the CUTSA, “[c]ontractual . . .
relief” is only exempted from preemption to the extent “that [it] is not based upon
misappropriation of a trade secret.” Conn. Gen. Stat § 35-57 (emphasis added). Second, OnLine Technologies affirmed the district court’s ruling on the basis that the protection afforded the
plaintiff by the contract and the protection provided by CUTSA were coextensive, such that if
“no reasonable jury could find a CUTSA violation . . . there could be no breach of contract,
either.” Id. at 1145-46. Thus, On-Line Technologies does not support the proposition that
breach of contract claims are preempted by the PUTSA.
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confidential information at issue is determined by the court to be a trade secret. Such a
determination would require the court to resolve questions of fact, determinations which are not
appropriate for resolution at this stage of the proceedings”); see also Youtie, 626 F. Supp. 2d at
511 (it is inconsistent to argue both preemption and that PUTSA claims fail because the
information in question is not a trade secret (citing Cenveo Corp. v. Slater, Civil Action No. 06CV-2632, 2007 WL 527720, at *3 (E.D. Pa. Feb. 12, 2007) (Golden, J.) (“the cases holding that
the Trade Secrets Act does not preempt common law tort claims when it has yet to be determined
whether the information at issue constitutes a trade secret take the better approach”))).
V.

Conclusion
Defendants’ Motion is DENIED. An appropriate Order follows.

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