AutoTrakk, LLC v. Automotive Leasing Specialists et al
Filing
38
MEMORANDUM (Order to follow as separate docket entry) re 18 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM. Signed by Honorable Matthew W. Brann on 7/10/2017. (jn)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
AUTOTRAKK, LLC
:
:
Plaintiff,
:
:
v.
:
:
AUTOMOTIVE LEASING
:
SPECIALISTS, INC. t/a
:
AMBASSADOR DEALER FUNDING, :
MICHAEL C. CAFFREY, and
:
GEORGE STAUFFER,
:
:
Defendants.
:
No. 4:16-CV-01981
(Judge Brann)
MEMORANDUM OPINION
JULY 10, 2017
This case presents nuanced legal questions about the extent to which process
patents and trade secrets may coexist. It too requires the Court to consider which of
an employer’s reactions might be warranted and which might be overreach, when
he believes that former employees have betrayed him. Those inquiries must also be
cast in the light of procedural rules that demand fact pleading and judicial
involvement in case management decisions. With that in mind, the pending motion
to dismiss is granted in part and denied in part, so that inapplicable claims may be
peeled back and others may garner the judicial focus they may merit.
I.
BACKGROUND
Plaintiff AutoTrakk, LLC, is an automotive leasing company based in
Montoursville, Lycoming County, Pennsylvania. AutoTrakk finances automobile
purchases for customers with suboptimal credit.1
Defendants Michael C. Caffrey and George Stauffer are former AutoTrakk
employees.2 Mr. Caffrey served as President of AutoTrakk from September 1,
2010 until around December 2014.3 Mr. Stauffer began working with AutoTrakk
on May 30, 2003 and served as Vice President of Sales until April 15, 2016.4 The
pair allegedly misappropriated certain of AutoTrakk proprietary information for
the benefit of one of its Lafayette, Louisiana based competitors, Ambassador
Dealer Funding, both during and after their employment with AutoTrakk.5
While AutoTrakk employees, Mr. Caffrey and Mr. Stauffer signed forms
acknowledging their receipt of AutoTrakk’s Policy Manual, which notified
employees of a duty not to disclose proprietary trade secrets or confidential
information obtained during the course of employment.6 Additionally, Mr. Stauffer
signed a confidentiality agreement on September 10, 2015 in which he agreed not
1
Am. Compl., ¶¶ 1, 5; ECF No. 18, Ex. D.
2
Am. Compl. ¶¶ 6, 8.
3
Id. ¶¶ 15, 19.
4
Id. ¶¶ 14, 26.
5
Id. ¶¶ 18, 20.
6
Id. ¶¶ 13, 17.
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to disclose any “information, knowledge, or data” obtained through his
employment with AutoTrakk.7
Following his departure from AutoTrakk in December 2014, Mr. Caffrey
began working as President and CEO of Ambassador by May 2015.8 After joining
Ambassador, Mr. Caffrey allegedly began sending emails to Mr. Stauffer that
sought certain of AutoTrakk’s information.9 In one such correspondence, Mr.
Caffrey apparently asked Mr. Stauffer to run a certain vehicle through AutoTrakk’s
computer systems so that he might verify the analyses he performed in connection
with Ambassador’s “growing automotive finance” business.10 AutoTrakk contends
that Mr. Stauffer provided Mr. Caffrey with a worksheet generated by AutoTrakk’s
program and sent AutoTrakk’s 2016 “Program Overview” to Mr. Caffrey via
email.11
In return for sharing that information, Mr. Caffrey is alleged to have
“rewarded” Mr. Stauffer with a March 2016 offer of employment to join
Ambassador.12 Mr. Stauffer purportedly accepted that offer to serve as a Dealer
Account Manager with Ambassador before tendering his resignation to AutoTrakk
7
Id. ¶ 18.
8
Id. ¶¶ 6, 15, 19-20.
9
Id. ¶ 22.
10
Id. ¶¶ 22-24.
11
Id. ¶ 24.
12
Id. ¶¶ 25.
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on April 15, 2016.13 Based on the content of the emails, AutoTrakk believes that
both Mr. Caffrey and Mr. Stauffer retained proprietary information, including an
underwriting manual, upon their respective departures from AutoTrakk.14
As to the particular misappropriation allegations, AutoTrakk suggests that its
business utilizes a collection of trade secrets and confidential information, such as
marketing strategies, operations processes, computer programs, valuation tables,
and calculations, to maintain a competitive edge in the industry.15 It also alleges
that both Mr. Stauffer and Mr. Caffrey had access to these trade secrets and
confidential information during their employment with AutoTrakk and later
misappropriated them as part of the scheme recounted above.16
An interesting wrinkle in this case bears mentioning upfront: the extent to
which the alleged misappropriated information was already publicly available. In
fact, AutoTrakk’s own website displayed customer lists and programming material,
while an AutoTrakk patent, U.S. Patent No. 7,860,746 (the “746 Patent”) largely
revealed significant snapshots of AutoTrakk’ business model.17
Shortly after Ambassador allegedly began soliciting business from
AutoTrakk’s customers, the Montoursville business initiated this lawsuit. The
13
Id. ¶¶ 25-26.
14
Id. ¶¶ 27-28.
15
Id. ¶ 12.
16
Id. ¶ 16.
17
ECF No. 18, Exs. A, C, D, E.
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amended complaint contains the following causes of action: misappropriation of
trade secrets, violation of the Computer Fraud and Abuse Act, breach of the
fiduciary duty of loyalty, tortious interference with current and prospective
business relationships, conversion, unfair competition, unjust enrichment, and civil
conspiracy.18 In response, Defendants brought this motion to dismiss all counts for
failure to state a claim upon which relief can be granted.19 That motion to dismiss
is now granted in part and denied in part, consistent with the following discussion.
II.
LAW
Under Federal Rule of Civil Procedure 12(b)(6), a defendant may file a
motion to dismiss for “failure to state a claim upon which relief can be granted.”
Such a motion “tests the legal sufficiency of a pleading,” and “streamlines
litigation by dispensing with needless discovery and factfinding.”20 “Rule 12(b)(6)
authorizes a court to dismiss a claim on the basis of a dispositive issue of law.”21
This is true of any claim, “without regard to whether it is based on an outlandish
legal theory or on a close but ultimately unavailing one.”22
18
Id. at 6-18.
19
ECF No. 18 at 1.
20
In re Hydrogen Peroxide Litigation, 552 F.3d 305, 316 n.15 (3d Cir. 2008) (Scirica, C.J.)
(quoting Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675 (7th Cir. 2001) (Easterbrook,
J.)); Neitzke v. Williams, 490 U.S. 319, 326–27 (1989).
21
Neitzke, 490 U.S. at 326 (citing Hishon v. King & Spalding, 467 U. S. 69, 73 (1984)).
22
Neitzke, 490 U.S. at 327.
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Beginning in 2007, the Supreme Court of the United States initiated what
some scholars have termed the Roberts Court’s “civil procedure revival” by
significantly tightening the standard that district courts must apply to 12(b)(6)
motions.23 In two landmark decisions, Bell Atlantic Corporation v. Twombly and
Ashcroft v. Iqbal the Roberts Court “changed . . . the pleading landscape” by
“signal[ing] to lower-court judges that the stricter approach some had been taking
was appropriate under the Federal Rules.”24 More specifically, the Court in these
two decisions “retired” the lenient “no-set-of-facts test” set forth in Conley v.
Gibson and replaced it with a more exacting “plausibility” standard.25
Accordingly, after Twombly and Iqbal, “[t]o 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.’”26 “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”27 “Although the
plausibility standard does not impose a probability requirement, it does require a
pleading to show more than a sheer possibility that a defendant has acted
23
See Howard M. Wasserman, The Roberts Court and the Civil Procedure Revival, 31 Rev.
Litig. 313 (2012).
24
550 U.S. 544 (2007); 556 U.S. 662, 678 (2009); Wasserman, supra, at 319–20.
25
Iqbal, 556 U.S. at 670 (citing Conley v. Gibson, 355 U.S. 41 (1957)) (“[a]cknowledging that
Twombly retired the Conley no-set-of-facts test”).
26
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).
27
Iqbal, 556 U.S. at 678.
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unlawfully.”28 Moreover, “[a]sking for plausible grounds . . . calls for enough facts
to raise a reasonable expectation that discovery will reveal evidence of
[wrongdoing].”29
The plausibility determination is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.”30 No matter
the context, however, “[w]here a complaint pleads facts that are ‘merely consistent
with’ a defendant’s liability, it ‘stops short of the line between possibility and
plausibility of entitlement to relief.’”31
When disposing of a motion to dismiss, a court must “accept as true all
factual allegations in the complaint and draw all inferences from the facts alleged
in the light most favorable to [the plaintiff].”32 However, “the tenet that a court
must accept as true all of the allegations contained in the complaint is inapplicable
to legal conclusions.”33 “After Iqbal, it is clear that conclusory or ‘bare-bones’
allegations will no longer survive a motion to dismiss.”34 “Threadbare recitals of
28
Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (Jordan, J.) (internal
quotations and citations omitted).
29
Twombly, 550 U.S. at 556.
30
Iqbal, 556 U.S. at 679.
31
Id. at 678 (quoting Twombly, 550 U.S. at 557 (internal quotations omitted)).
32
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008) (Nygaard, J.).
33
Iqbal, 556 U.S. at 678 (internal citations omitted).
34
Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (Nygaard, J.).
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the elements of a cause of action, supported by mere conclusory statements, do not
suffice.”35
As a matter of procedure, the United States Court of Appeals for the Third
Circuit has instructed that:
Under the pleading regime established by Twombly and Iqbal, a court
reviewing the sufficiency of a complaint must take three steps. First, it
must tak[e] note of the elements [the] plaintiff must plead to state a
claim. Second, it should identify allegations that, because they are no
more than conclusions, are not entitled to the assumption of truth.
Finally, [w]hen there are well-pleaded factual allegations, [the] court
should assume their veracity and then determine whether they
plausibly give rise to an entitlement to relief.36
III.
ANALYSIS
A.
AutoTrakk’s Misappropriation Of Trade Secrets Counts
(I and III) Are Dismissed Without Prejudice, Because Although
Trade Secrets May Exist Beyond Associated Process Patents,
AutoTrakk Has Failed To Plead Sufficient Facts Supporting
Their Existence Here.
Plaintiff alleges in Counts I and III of its amended complaint that
Defendants’ conduct violated federal and state trade secret laws. Count I is
premised upon 18 U.S.C. § 1836, while Count III is brought pursuant to 12 Pa.
C.S. § 5301. Both claims are brought against all three named Defendants.
Federal and Pennsylvania law both define a trade secret as information
(1) that “derives independent economic value, actual or potential, from not being
35
Iqbal, 556 U.S. at 678.
36
Connelly, 809 F.3d at 787 (internal quotations and citations omitted).
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generally known to, and not being readily ascertainable by proper means by, other
persons who can obtain economic value from its disclosure or use”; and (2) that
“the owner thereof has taken reasonable measures to keep such information
secret.” 37
Plaintiff avers that the Defendants misappropriated various trade secrets
including the AutoTrakk Program. Defendants contend that there can be no
misappropriation of trade secrets because the information Ambassador allegedly
took from AutoTrakk to create its own program was both publicly available and
well-known in the industry.
i.
AutoTrakk’s trade secret misappropriation claims may be
defeated by publicly available information or general trade
practices.
There is little doubt that the Defendants have presented ample evidence that
a substantial portion of AutoTrakk’s customer lists, business model, and program
information are publicly disclosed on AutoTrakk’s website.38 They also provide
convincing citation to AutoTrakk’s ‘764 patent and its lengthy prosecution
history.39 To top it off, counsel for Plaintiff conceded as much at oral argument:
37
18 U.S.C. § 1839(3); 12 Pa.C.S. § 5302.
38
ECF No. 31 at 6.
39
Id. (“[T]he PTO told Plaintiff that the above parameters were so well-known Official Notice
was taken”); ECF No 22, at 8-9 (“[T]he ‘764 Patent describes… a leasing system… eligible
models and vehicles… capitalized cost… how a reviewer would review a lease… how to
calculate the residual value… the checklist used”).
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MR. PIERMATTEI:
Defense counsel has argued in this case hey,
you have a patent, AutoTrakk. Because you
have a patent, you cannot have a trade secret
. . . . Of course, we agree with the concept,
Your Honor, that if it’s disclosed in the
patent, or if it’s disclosed otherwise, it can’t
seek trade secret protection. We don’t
disagree with that concept. 40
This concession accords with the law. Trade secrets “must be an employer’s
actual secret and not comprise mere ‘general trade practices.’”41 Thus, any
information disclosed on AutoTrakk’s website with regards to customer lists,
marketing strategies, and its business model cannot be trade secrets. “[I]deas in [a]
published patent application therefore [are] not subject to reasonable efforts to
maintain confidentiality.”42 Additionally, any aspect of the business model that can
be identified or ascertained from the patent prosecution history in Exhibit B is
within the public domain. Accordingly, as a general matter, the information
publicly disclosed by AutoTrakk throughout its website and its patent, as well as
the information commonly known and put to use in the industry, cannot constitute
trade secrets.
The prosecution history strongly suggests that portions of AutoTrakk’s
business model are tried and true practices in the automotive financing industry. In
40
Tr. of May 31, 2017 Oral Arg., ECF No. 37, at 4:17–5:03.
41
Iron Age Corp. v. Dvorak, 880 A.2d 657, 664 (Pa. Super. Ct. 2005).
42
Foster v. Pitney Bowes Corp., 549 F. App’x 982, 989 (Fed. Cir. 2013).
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fact, the examiners listed “Official Notices” that clarified which claims in the
patent were disqualified because they were well established in the industry. They
also made comparisons to past patents to show that similar patented technologies
already existed.43 Further, the patent examiners cited to a New York Times article
(denoted as the “Robyn” article in the patent history and referred to as the “Mel
Farr” article by the parties at oral argument), which described a business model
involving the leasing of cars on a weekly basis.44 The Robyn article shows that
“general trade practices” do exist among automotive leasing companies.
To the extent that AutoTrakk retains a pool of confidential information
beyond what is available or ascertainable on its own website, it is not clearly
presented in the amended complaint. This stark reality is one that AutoTrakk’s
pleading has not fully been able to overcome. AutoTrakk avers that it uses trade
secrets in “marketing strategies, financial information, customer lists, operations
processes, computer programs, program information, data sets, and various
43
See ECF No. 18, Ex. B, at 42 (“The Examiner took Official Notice that ‘lease has a cost not
greater than certain percentage of retail value is old and well established in the automobile
leasing industry to assist the leasing company to select vehicle for its customer [sic].’”); See
also id. at 249 (“Therefore, it would be prima facie obvious to one of ordinary skill in the art
at the time the invention was made to add the value of the line of credit is substantially equal
to an amount of business anticipated during a predetermined period feature to the method of
Simon et al.”).
44
Robyn Meredith, Auto Dealer Has an Offer for Drivers With Bad Credit, but There’s a
Catch, New York Times (Jun. 15, 2017, 10:30AM),
http://www.nytimes.com/1999/08/30/us/auto-dealer-has-an-offer-for-drivers-with-bad-creditbut-there-s-a-catch.html.
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valuation tables and calculations.”45 However, its open-ended style of pleading
leaves the questions of which material was misappropriated—and how precisely
that misappropriation was implemented—entirely up to the reader’s imagination.
Put another way, it is unclear from the amended complaint where the universe of
trade secrets begins beyond general business practices or public information and
how exactly they bestow independent economic value by virtue of their secrecy.
ii.
AutoTrakk’s patent does not preclude it from advancing
trade secret claims as a matter of law, so long as the alleged
material entailed secret advancements or refinements.
Even in light of these publicly available documents and general trade
practices, a central dispute between the parties is the extent to which trade secrets
may nevertheless exist so long as they constitute post-patent or otherwise secret
refinements. I now hold that such claims are cognizable.
“After a patent has issued, the information contained within it is ordinarily
regarded as public and not subject to protection as a trade secret.”46 Specifications
of a patent do not have to be disclosed but merely ascertainable from the asserted
patent to become public knowledge.47 Defense counsel points to equations for
credit, checklists, and calculations for residual value present in the original patent
45
Am. Compl. ¶ 12.
46
On-Line Tech., Inc. v. Bodenseewerk Perkin–Elmer, 386 F.3d 1133, 1141 (Fed.Cir.2004).
47
See Accent Packaging, Inc. v. Leggett & Platt, Inc., 707 F.3d 1318, 1329 (Fed. Cir. 2013)
(“As a matter of law, any specifications and tolerances disclosed in or ascertainable from the
asserted patents became publicly available in October 2005’)
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to support its clients’ contentions that AutoTrakk’s trade secrets are publicly
disclosed and, as a matter of law, not entitled to legal protection. While the precise
information provided within or directly ascertainable from a patent cannot
constitute a trade secret, patent holders are not necessarily precluded from
cultivating trade secrets that go beyond the corpus of the patent or that refine the
patent’s process in some proprietary way.
While AutoTrakk’s counsel justifies “post-patent refinement” in its briefs by
citing cases from the Middle District of Tennessee and the Western District of
Michigan, far more useful for this Court today is a body of federal cases from
Pennsylvania and the Third Circuit that have seemed to evade both parties’
research.48 As the Third Circuit has explained, “[a] trade secret may be no more
than a slight mechanical advance over common knowledge and practice in the
art.”49 In addition, “[a] trade secret may be based on publicly available information
. . . if it combines publicly available information in a new and secret way.”50
Thus, the simple fact that AutoTrakk possesses a patent for its business does
not mean it cannot use its experiences to develop refinements to, or alternative
methods of, performing its services. Adoption of the contrary rule would be
illogical: penalizing inventors for safeguarding their property rights and
48
ECF No. 30 at 3.
49
SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1255 (3d Cir. 1985).
50
Fishkin v. Susquehanna Partners, G.P., 563 F. Supp. 2d 547, 582 (E.D. Pa. 2008).
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discouraging further advancements beyond what processes have already been
protected.
Moreover, AutoTrakk may be on to something in contending that some trade
secrets they possess are not within the realm of the ‘764 patent or its prosecution
history. “In construing the claims of a patent, a court should consider the claim
language, the specification, and, if offered, the prosecution history.”51 A careful
reading of the various appeals of the patent’s original rejections reveals that the
patent’s approval was granted by continuously narrowing its original scope to
create a series of claims that all depend upon attaching a device to a motor
vehicle.52 In its decision affirming a rejection in part and reversing in part, the
Board of Patent Appeals stated that “Claims 19 and 21 are directed to an
apparatus, not a method.”53 By emphasizing the “device capable upon activation of
rendering the vehicle operable” in Claim 19 and “including a microprocessor” in
Claim 21, it appears that the apparatus itself permitted the patent claims to
survive.54 The Patent Office later approved Claim 19 (now Claim 1) as the only
51
Katz v. AT & T Corp., 63 F. Supp. 2d 583, 589 (E.D. Pa. 1999) (citing Markman v. Westview
Instruments, Inc., 52 F.3d 967, 979 (Fed.Cir.1995)).
52
See ECF No. 18, Ex. B at 46-52.
53
See id. at 50 (emphasis added).
54
See id. at 50, 303.
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independent claim of the patent, seeming to base that approval upon the
apparatus—the device attached to the vehicle.55
In light of the process for approval, the ‘764 patent itself appears to be a
patent on the use of a device, not an all-encompassing patent covering every aspect
of AutoTrakk’s business. Neither does it appear that the patent prosecutor intended
for the patent to cover all aspects of financing in particular. When presented with
the line in Robyn that a customer “pays $75.96 a week to lease a light blue Ford
Escort,” the patent prosecutor stated that “the repayment terms, such as the weekly
payments owed by the lessor” were not covered in the patent and therefore were
not even subject to scrutiny under Robyn.56 Therefore, AutoTrakk’s specific
repayment terms, among other facets, could feasibly constitute a trade secret if
held confidential for the purposes of economic gain.
Unfortunately, the pleadings contained within AutoTrakk’s amended
complaint are wholly unclear as to what proprietary information beyond the corpus
of the ‘764 Patent and generalized business practices it alleges were
misappropriated. While counsel at oral argument seemed to emphasize the specific
repayment terms “on a weekly basis, biweekly, monthly basis,”57 the amended
complaint vaguely describes “a program that is built on the foundation of
55
See id. 37.
56
See id. 63.
57
Tr. of May 31, 2017 Oral Arg., ECF No. 37, at 6:02.
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AutoTrakk’s proprietary trade secrets.”58 Discerning what that program is and if it
expands upon or reaches beyond the corpus of the patent remains unanswered.
iii.
The AutoTrakk “Program,” as pled, does not plausibly
state a trade secrets claim.
Although I agree with AutoTrakk’s legal contention that trade secrets may
exist beyond the corpus of the patent, I also hold that the Plaintiff’s amended
complaint pleads insufficient factual material to determine whether such a trade
secret plausibly existed here. It is not clear from the pleadings what the AutoTrakk
“program” is, if it is a trade secret, and how Ambassador misappropriated it
through the exchange of a single email.
The bulk of AutoTrakk’s amended complaint focuses on the alleged
similarities between the two companies’ programs. In particular, Mr. Stauffer is
alleged to have “sent Mr. Caffrey a copy of AutoTrakk’s 2016 Program
Overview.”59 AutoTrakk further contends that “Ambassador is . . . using a program
that is built on a foundation of AutoTrakk’s proprietary trade secrets and
confidential information.”60
Defense counsel shrewdly compares this same “program” from Exhibit C of
Plaintiff’s amended complaint with the disclosures in the ‘764 patent that pertain to
58
Am. Compl. ¶ 29.
59
Id. ¶ 24.
60
Id. ¶ 29.
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the methods of funding leases for credit challenged consumers.61 Defense counsel
notes that many broad features AutoTrakk’s program, such as references
requirements, pay stubs, proof of residence, and a valid driver’s license, can easily
be found in the public patent document.
In addition to that shortcoming, upon further inspection of the more discrete
items, it appears many factors actually differ between AutoTrakk and
Ambassador’s programs including: maximum lease terms, acquisition fees,
maximum PTI, as well as funding limits for various terms.62 While there are
striking formatting similarities between the AutoTrakk and Ambassador programs
in Exhibit C, the differences between the components of the two programs does not
bring this claim to a sufficient level of plausibility.
AutoTrakk has also perhaps made a troubling equivocation responsible for
further complicating this matter. The term “program” may, in certain contexts, take
many different meanings. One might attend a daughter’s middle school band
performance and receive a written program of the event. Alternatively, one may
particularly enjoy watching a certain television program on CBS. A business might
commemorate its key selling points to its customers in a physical or web-based
program. And, a computer program may, for example, run a 2014 Chevy Malibu
61
ECF No. 22 at 8-9.
62
Am. Compl., Ex. C.
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with 65,000 miles for a customer with a credit score of 550 and generate a
worksheet with approvals and payment plans.63 Such a computer program could
take into account numerous variables, factors, and algorithms generated through
years of business experience that may or may not as a whole constitute a trade
secret.
However, whether such a proprietary program exists at AutoTrakk, and in
what form, it is not at all clear from the complaint. Indeed, whether Ambassador
employs some technological “program” beyond its paper “program” remains
unclear. To that end, it would also appear that Plaintiff did itself no favors by
publicizing as Exhibit C to its amended complaint what its counsel later termed
“true and correct copies of AutoTrakk’s program.”64
Returning to the key issue, Plaintiff’s counsel challenged defense counsel at
oral argument to show how the ‘764 patent answers the Chevy Malibu question
posed above. A more fitting question for the motion to dismiss stage might be:
where, beyond the patent, in Exhibit C, or elsewhere in the amended complaint has
AutoTrakk plausibly pointed to a secret, proprietary method it would employ to
answer the Chevy Malibu question? Plaintiff has not sufficiently met its burden
through its pleadings. These factual shortcomings, when considered in light of
63
Tr. of May 31, 2017 Oral Arg., ECF No. 37, at 5:22-6:02.
64
Am. Compl. ¶ 29.
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what the Court hopes is illuminating legal guidance, warrant an attempt at repleading. If nothing else, I believe that such a measure will properly narrow the
scope of discovery going forward.
iv.
AutoTrakk may re-plead in an attempt to plausibly state a
trade secrets claim.
Federal Rule of Civil Procedure 15 sets forth the mechanisms for amending
a pleading prior to trial. Section 15(a)(1) applies to amendments as a matter of
course. Section 15(a)(2), entitled “Other Amendments,” explains that “[i]n all other
cases, a party may amend its pleading only with the opposing party’s written
consent or the court’s leave. The court should freely give leave when justice so
requires.”
The Third Circuit has “previously discussed when a court may deny leave to
amend under Rule 15(a)(2).”65 In Shane v. Faver, for example, then Circuit Judge
Samuel A. Alito, Jr. stated that “[a]mong the grounds that could justify a denial of
leave to amend are undue delay, bad faith, dilatory motive, prejudice, and
futility.”66 “‘Futility’ means that the complaint, as amended, would fail to state a
claim upon which relief could be granted.”67 “In assessing futility, the District
65
Holst v. Oxman, 290 F. App’x 508, 510 (3d Cir. 2008).
66
213 F.3d 113, 115 (3d Cir. 2000) (quoting In re Burlington Coat Factory Sec. Litig., 114
F.3d 1410, 1434 (3d Cir.1997) (Alito, J.).
67
Shane, 213 F.3d at 115.
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Court applies the same standard of legal sufficiency as applies under Rule
12(b)(6).”68
“Moreover, substantial or undue prejudice to the non-moving party is a
sufficient ground for denial of leave to amend.”69 “The issue of prejudice requires
that we focus on the hardship to the defendants if the amendment were
permitted.”70 “Specifically, we have considered whether allowing an amendment
would result in additional discovery, cost, and preparation to defend against new
facts or new theories.”71
“The decision to grant or deny leave to amend a complaint is committed to
the sound discretion of the district court.”72 “Factors the trial court may
appropriately consider in denying a motion to amend include undue delay, undue
prejudice to the opposing party, and futility of amendment.”73 For instance, “if the
proposed change clearly is frivolous or advances a claim or defense that is legally
insufficient on its face, the court may deny leave to amend.”74
68
Id.
69
Cureton v. Nat’l Collegiate Athletic Ass’n, 252 F.3d 267, 273 (3d Cir. 2001).
70
Id.
71
Id.
72
Coventry v. U.S. Steel Corp., 856 F.2d 514, 518 (3d Cir. 1988).
73
Averbach v. Rival Mfg. Co., 879 F.2d 1196, 1203 (3d Cir. 1989) (quoting Foman, 371 U.S. at
182).
74
Ross v. Jolly, 151 F.R.D. 562, 565 (E.D. Pa. 1993) (citing 6 Wright, Miller, & Kane, Federal
Practice & Procedure: Civil 2d § 1487). See also Vosgerichian v. Commodore Int’l Ltd., Civil
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Because I have determined that subsequent amendment would not be futile
and would clarify this litigation’s scope, I will grant leave to amend as to certain of
Plaintiff’s claims. This is particularly true of Plaintiff’s trade secrets claims as
detailed herein, though it applies to certain of AutoTrakk’s claims detailed more
fully below. However, in my judgment, continuation of certain other claims also
discussed below, including Plaintiff’s Computer Fraud and abuse Act claim, would
be futile and therefore do not warrant subsequent amendment.
If AutoTrakk has a formula that has been refined through business
experiences with a secret advance over common knowledge, and if Mr. Stauffer
sent it to Mr. Caffrey in this case, the trade secret claim might reach the requisite
level of plausibility. Perhaps that secrecy is so important that Plaintiff’s counsel
strategically decided to omit from the record any potential computer program
containing algorithms and variables AutoTrakk may use to calculate payment
plans. In view of that concern, the Court is more than willing to allow repleading
of the facts supporting this claim under seal.
Because Plaintiff’s amended complaint fails to allege sufficient facts to state
a plausible claim for misappropriation of trade secrets, Defendants’ motion to
dismiss is granted without prejudice as to Counts I and III. I also note that the
survival or dismissal of Plaintiff’s trade secret claims may impact the remaining
Action No. 92-CV-4867, 1998 WL 966026, at * 3 (E.D. Pa. Nov 6, 1998), aff’d sub nom
Vosgerichian v. Commodore Int’l, 191 F.3d 446 (3d Cir. 1999).
- 21 -
state law claims by means of preemption. That matter will be addressed at a more
appropriate juncture.
B.
AutoTrakk’s Violation Of The Computer Fraud And Abuse Act
Count (II) Is Dismissed With Prejudice, Because It Fails As A
Matter Of Law.
Plaintiff seeks relief from certain of Mr. Stauffer’s computer access in which
he allegedly exceeded his authorization under the Computer Fraud and Abuse Act,
18 U.S.C. § 1030(g) (“CFAA”).75 CFAA provides that “[a]ny person who suffers
damage or loss by reason of a violation of this section may maintain a civil action
against the violator.”76
Of importance here, “loss” as defined by CFAA is “any reasonable cost to
any victim, including the cost of responding to an offense…and any revenue lost,
cost incurred… because of interruption of service.”77 AutoTrakk instead requests
compensatory damages for lost profits and a permanent injunction prohibiting Mr.
Stauffer and Ambassador from using the alleged information. While Plaintiff
alleges losses in excess of $5,000 within a one-year period of time, they overlook
the law governing losses and the CFAA.
Courts have held that lost revenue or expenses incurred due to the
inoperability of a computer system is the kind of a “loss” redressable by the
75
Am. Compl. ¶ 11.
76
18 U.S.C. § 1030(g).
77
18 U.S.C. § 1030(e)(11).
- 22 -
CFAA.78 To the contrary, however, “the dissemination of trade secrets does not
qualify as a ‘loss’ under the CFAA.”79 For instance, in Clinton Plumbing &
Heating of Trenton, Inc. v. Ciaccio, the United States District Court for the Eastern
District of Pennsylvania noted that a claim for “future lost revenue because of the
dissemination of trade secrets was not [a] ‘loss’ under the CFAA.”80
The statute covers revenue losses only to the extent that such losses result
from an interruption of service—without an attendant interruption of service, there
can be no cognizable losses for the Plaintiff here.81 The amended complaint only
speaks to Ambassador “continuing to use the improperly accessed information”
and sought an injunction as well as “lost profits, as a consequence of Stauffer
causing a loss to AutoTrakk.”82 Plaintiff has alleged no systems losses nor any
form of service interruption to its customers based on the alleged actions of the
Defendants. Accordingly, Ambassador’s motion to dismiss Count II of the
Plaintiff’s amended complaint is granted with prejudice.
78
Synthes, Inc. v. Emerge Med., Inc., 25 F. Supp. 3d 617, 719 (E.D. Pa. 2014).
79
Id.
80
Clinton Plumbing & Heating of Trenton, Inc. v. Ciaccio, No. CIV. 09-2751, 2010 WL
4224473, at *6 (E.D. Pa. Oct. 22, 2010). See also P.C. Yonkers, Inc. v. Celebrations the
Party & Seasonal Superstore, LLC., 428 F.3d 504, 509 (3d Cir. 2005) (affirming rejection of
CFAA claim premised upon “a one-line e-mail,” because “under CFAA . . . more is
required” than “mere access” plus “suspicion,” and “without a showing of some taking, or
use, of information, it is difficult to prove intent to defraud”).
81
See Nexans Wires S.A. v. Sark-USA, Inc., 166 F. App’x 559, 562 (2d Cir. 2006) (holding
expected profits of $10 million not losses under the CFAA with no interruption of service)
82
Am. Compl. ¶¶ 52-53.
- 23 -
C.
Defendants’ Motion Is Denied As To AutoTrakk’s Breach Of
Fiduciary Duty Of Loyalty Count (IV), Because Plaintiff Has
Alleged Facts Plausibly Suggesting That Both Mr. Caffrey And
Mr. Stauffer Acted Against The Interests Of Their Previous
Employer.
Pennsylvania recognizes both a duty of loyalty and a duty of care, which
consist of “conducting the employer’s business in the employer’s best interest
instead of one’s own” and “conducting the employer’s business attentively and
responsibly.”83 An employee’s duties require them to not directly compete with
their employer and prohibit them from “taking action on behalf of, or otherwise
assisting, the employer's competitors.”84 Of particular relevance to this case, these
prohibitions include the duty not to “use property or confidential information of the
employer for the employee’s own purpose or those of a third party.”85
Plaintiff advances a breach of loyalty claim against both Mr. Caffrey and
Mr. Stauffer. The Restatement (Third) of Agency has been adopted in
Pennsylvania, and while an employee “is entitled to make arrangements to
compete,” he “cannot properly use confidential information peculiar to his
employer’s business.”86 This established duty essentially prevents employees from
aiding a competitor of their employer “throughout the duration of the agency
83
Colgate-Palmolive Co. v. Tandem Indus., 485 F. App’x 516, 518 (3d Cir. 2012).
84
Certainteed Ceilings Corp. v. Aiken, No. CIV.A. 14-3925, 2015 WL 410029, at *10 (E.D.
Pa. Jan. 29, 2015).
85
Id.
86
PTSI, Inc. v. Haley, 2013 PA Super 130, 71 A.3d 304, 308 (2013) (citing Restatement (2d) of
Agency, § 393 comment e.).
- 24 -
relationship.”87 While Defendants contend Mr. Caffrey’s duties to AutoTrakk
ceased with his resignation, it is alleged that his actions before he resigned, such as
retaining any confidential information for nefarious purposes, benefited himself at
AutoTrakk’s expense. Following that reasoning and based upon the allegations,
Plaintiff has alleged sufficient facts plausibly suggesting that Mr. Caffrey could
have breached his fiduciary duty of loyalty to AutoTrakk.
Plaintiff avers that a confidentiality agreement existed between AutoTrakk
and Mr. Stauffer, but Mr. Stauffer disagrees.88 This dispute seems tangential to the
underlying tort alleged, as the existence of an agreement would support a contract
claim, where its absence would give credence to a claim sounding in tort. For
support, I cite Pennsylvania’s “gist of the action” doctrine, which bars tort claims
where a contract exists and the alleged breach was not “outside of the parties'
contractual agreements.”89
As such, the more that it seems a contractual relationship did not exist with
Mr. Stauffer, the more that a tort claim seems to be the appropriate procedural
vehicle here. “Continuation of the employment relationship is not sufficient
87
Certainteed Ceilings Corp. v. Aiken, No. CIV.A. 14-3925, 2015 WL 410029, at *10 (E.D.
Pa. Jan. 29, 2015) (internal quotations omitted) (citing PNC Mortg. v. Superior Mortg. Corp.,
No. CIV.A. 09-5084, 2012 WL 628000, at *26 (E.D. Pa. Feb. 27, 2012)).
88
See ECF No. 27 at 15; ECF No. 22 at 25; ECF No. 25 at 10.
89
Certainteed Ceilings Corp. v. Aiken, No. CIV.A. 14-3925, 2015 WL 410029, at *10 (E.D.
Pa. Jan. 29, 2015). See also Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79,
104 (3d Cir. 2001).
- 25 -
consideration to support a restrictive covenant, even if the relationship had
previously been terminable at the will of either party.”90 Mr. Stauffer’s
confidentiality agreement went far beyond a traditional memorialization and
included an extension to Mr. Stauffer’s “successors, heirs, assigns, and personal
representatives;” as well as “consent to [an] order of an immediate injunction,
without bond, from any court of competent jurisdiction…”91 Such a sweeping
agreement, unsupported by adequate consideration, is unlikely to be valid.
However, the justifications behind the confidentiality agreement certainly
put Mr. Stauffer on notice of the confidential nature of his work. “[N]o duty of
confidence will be inferred unless a recipient has notice of the confidential nature
of the disclosure. Although no specific form of notice is required, the
circumstances must indicate that the recipient knew or had reason to know that the
disclosure was intended as confidential.”92
Thus, Plaintiff’s allegations of Mr. Stauffer sending information and
assisting a competitor, Ambassador, are sufficient to plausibly suggest a breach of
fiduciary duty to AutoTrakk. Based on the allegations in the amended complaint
90
Ozburn-Hessey Logistics, LLC v. 721 Logistics, LLC, 40 F. Supp. 3d 437, 455 (E.D. Pa.
2014).
91
Am. Compl., Ex. B.
92
Restatement (Third) of Unfair Competition § 41 (1995).
- 26 -
and the reasoning set forth above, Defendants’ motion to dismiss Count IV of the
amended complaint is denied.
D.
AutoTrakk’s Tortious Interference With Current And
Prospective Business Relationships Count (V) Is Dismissed
Without Prejudice, Because It Has Not Pled The Elements
Necessary For A Plausible Case, But Has Indicated At Oral
Argument That Customer Relationships May Have Been
Impacted.
As Defendants note in their briefs, under Pennsylvania law, there are five
elements to a claim of tortious interference with current or prospective business
relationships.93 In order to prevail on such a claim, a plaintiff must prove “(1) the
existence of a contractual, or prospective contractual relation between itself and a
third party; (2) purposeful action on the part of the defendant, specifically intended
to harm the existing relation, or to prevent the prospective relation from occurring;
(3) The absence of a privilege or justification on the part of the defendant; (4) the
occasioning of actual legal damage as a result of the defendants' conduct; and
(5) for prospective contracts, a reasonable likelihood that the relationship would
have occurred but for the interference of the defendant.”94
Plaintiff fails to plead sufficient facts supporting the existence of these
elements here. Although the amended complaint contains allegations that
Ambassador has solicited business from AutoTrakk customers in general, no third93
ECF No. 22 at 19.
94
Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 530 (3d Cir. 1998).
- 27 -
party dealerships have been identified in the complaint, nor has there been any
clarification on the relationships harmed or the continued nature of such
interference.95 Plaintiff’s counsel mentioned at oral arguments that, while “it’s not
in the complaint, customers called” about Ambassador soliciting business from
AutoTrakk dealerships, suggesting that this lack of factual matter may have been
an oversight.96
Following the Supreme Court’s ruling in Iqbal, “[w]here a complaint pleads
facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the
line between possibility and plausibility of entitlement to relief.’”97 Although
information satisfying the Iqbal plausibility standard may exist, such averments are
conspicuously absent from Plaintiff’s amended complaint.
Plaintiff’s advancement of tortious interference with current and prospective
business relationships against all Defendants therefore does not plausibly state a
claim as pled. Defendants’ motion to dismiss Count V of the amended complaint is
therefore granted without prejudice.
E.
Defendants’ Motion Is Denied As To AutoTrakk’s Conversion
Count (VI), Because AutoTrakk Has Alleged Facts Plausibly
Suggesting That The Defendants Interfered With AutoTrakk’s
Property.
95
Am. Compl. ¶ 29.
96
Tr. of May 31, 2017 Oral Arg., ECF No. 37, at 29:11-29:16.
97
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557 (internal quotations omitted)).
- 28 -
Under Pennsylvania law, “a conversion is the deprivation of another’s right
of property in, or use and possession of, a chattel, or other interference therewith,
without the owner’s consent and without lawful justification.”98 Current
Pennsylvania jurisprudence follows that sketched out by the Superior Court of
Pennsylvania in Northcraft, which established that the law of conversion’s
“expansion has stopped with the kind of intangible rights which are customarily
merged in, or identified with some document.”99
The spirit of the law of conversion appears to be based on an interference
with physical property, thereby preventing the true owner from effectively exerting
his or her dominion over it. Regardless of whether trade secrets exist here, it
appears clear from the complaint that Plaintiff alleges interference with physical
property, and information that is commonly merged into a document. Plaintiff
alleges a stolen underwriting manual, as well as an email containing a worksheet
and a “Program Overview.”100 Inferences due in their favor support their
allegations, including the claimed similarities between Ambassador and
98
Cenna v. United States, 402 F.2d 168, 170 (3d Cir. 1968) (citing Gottesfeld v. Mechanics and
Traders Insurance Co., 196 Pa.Super. 109, 115, 173 A.2d 763, 766 (1961).
99
Northcraft v. Edward C. Michener Assocs., Inc., 319 Pa. Super. 432, 441, 466 A.2d 620, 625
(1983)
100
Am. Compl. ¶¶ 24, 27.
- 29 -
AutoTrakk’s Program Overviews in Exhibit C—an item that has, of course, been
merged into a document and printed for this Court.101
Defendants cite to American Hearing Aid Associates v. GN Resound North
America in support of dismissal, contending that since the items of interest, the
underwriting manual, worksheet, and Program Overview, are not trade secrets
here, they cannot be converted.102 While these items may, with sufficient future
discovery, rise to the level of trade secrets, the reasoning in American Hearing Aid
Associates, which disposed of a case on summary judgement, is largely
inapplicable here. In particular, the conversion claim in that case relied solely on
customer lists that were easily obtained by visiting the plaintiff’s website.103 That
court reasoned that there could not be a case of conversion since the website was
readily available to the public, and specifically, competitors.104
Unlike in American Hearing Aid Associates, and based on the allegations
made by AutoTrakk, it appears that the only way for Ambassador to obtain the
computer program information allegedly misappropriated was through Mr.
Stauffer. That is a troubling allegation in this case that is difficult to overlook. As
101
Am. Compl., Ex. C.
102
ECF No. 27 at 18; Am. Hearing Aid Assocs., Inc. v. GN Resound N. Am., 309 F. Supp. 2d
694, 706 (E.D. Pa. 2004).
103
See Am. Hearing Aid Assocs., Inc. v. GN Resound N. Am., 309 F. Supp. 2d 694, 706 (E.D. Pa.
2004).
104
See id.
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Defense counsel conceded at oral arguments, even if the trade secret claims were
to fall, it does not imply that the state claims must fall as well.105
At the motion to dismiss stage, taking these inferences in the light most
favorable to the Plaintiff, this Court finds the claim for conversion against Mr.
Caffrey and Mr. Stauffer are sufficiently pled. Accordingly, Defendants’ motion to
dismiss Count VI of the Amended complaint is denied.
F.
AutoTrakk’s Unfair Competition Count (VII) Is Dismissed
Without Prejudice, As AutoTrakk’s Pleadings Do Not Plausibly
Suggest That The Defendants Conduct Significantly Interfered
With Its Business Operations Or Customer Relations In A Way
That Had A Tangible Market Impact.
AutoTrakk advances a claim of unfair competition against all Defendants
based on the allegations previously mentioned. While Plaintiff’s counsel implores
this Court to generously apply comment g to §1(a) of the Restatement (Third) of
Unfair Competition to the facts of this case, I hold that the amended complaint has
not pled facts sufficient to advance a claim of unfair competition. Although recent
jurisprudence as to the Pennsylvania state unfair competition claim has
seemingly—and in my view, inadvisably—broadened this cause of action,
allegations suggesting illicit forms of competition still are necessary to plead a
plausible claim.
105
Tr. of May 31, 2017 Oral Arg., ECF No. 37, at 49:04-49:09.
- 31 -
In 1922, the Pennsylvania Supreme Court defined unfair competition as
“anything done by a rival in the same business by imitation or otherwise designed
or calculated to mislead the public in the belief that, in buying the product offered
by him for sale, they were buying the product of another manufacturer.”106 The
spirit of the law could originally be expressed as “the deception practiced in
‘passing off’ the goods of one for that of another.”107 Historical use of the tort
therefore coincided with trademarks and action taken under the Lanham Act, as
businesses with similar marks would allege unfair competition resulting from
customer confusion over products.108
As the world of business continued to advance throughout the twentieth
century, “[t]he development of more complex business relationships” brought rise
to a complementary “broadening of the scope of unfair competition.”109 This
broadened scope can be seen in Pennsylvania cases like Pennsylvania State
University v. University Orthopedics, Ltd. where unfair competition was read to
“encompass[] trademark infringement, but also include[] a broader range of unfair
practices,” thereby opening the door to the “misappropriation of the skill,
106
B.V.D. Co. v. Kaufmann & Baer Co., 272 Pa. 240, 116 A. 508, 508-09 (Pa.1922).
107
Volunteer Firemen’s Ins. Servs., Inc. v. Fuller, No. 1:12-CV-2016, 2012 WL 6681802, at *11
(M.D. Pa. Dec. 21, 2012) (citing Pa. State Univ. v. Univ. Orthopedics, Ltd., 706 A.2d 863,
870 (Pa.Super.Ct.1998)).
108
A.J. Canfield Co. v. Honickman, 808 F.2d 291, 296 (3d Cir. 1986) (“Federal courts have long
held that § 43(a) of the Lanham Act extends protection to unregistered trademarks…”).
109
4 McCarthy on Trademarks and Unfair Competition § 25:1 (4th ed.).
- 32 -
expenditures, and labor of another.”110 In University Orthopedics, the court
entertained an unfair competition case in which it found the generic term
“university,” when used in a business context by the defendants, to evidence the
improper “passing off” of the plaintiff’s products and services.111 While the
Superior Court added some breadth to the original unfair competition claim, the
law nevertheless continued to hinge upon one party taking advantage of customer
confusion through its business practices.
In Synthes (U.S.A) v. Globus Medical, Inc—a case which has since been
widely-cited by federal courts in Pennsylvania since 2005—the Eastern District of
Pennsylvania adopted a quite sweeping interpretation of the Restatement (Third) of
Unfair Competition.112 Synthes states, in pertinent part, that “Pennsylvania courts
have recognized a cause of action for the common law tort of unfair competition
where there is evidence of, among other things, trademark, trade name, and patent
rights infringement, misrepresentation, tortious interference with contract,
improper inducement of another’s employees, and unlawful use of confidential
information.”113 That statement of the law is much too broad and cursory.
110
Pennsylvania State Univ. v. Univ. Orthopedics, Ltd., 706 A.2d 863, 867 (Pa. Super. Ct.
1998).
111
Id.
112
See generally Synthes (U.S.A.) v. Globus Med., Inc., No. CIV.A. 04-CV-1235, 2005 WL
2233441, at *8 (E.D. Pa. Sept. 14, 2005).
113
Id.
- 33 -
To support this liberal definition, Synthes string cites to following
authorities:
ID Security Systems Canada, Inc. v. Checkpoint Systems, Inc., a 2003
Eastern District of Pennsylvania opinion that questionably states
“[a]lthough no Pennsylvania appellate court has formally recognized
the common law tort of unfair competition;”114
A 1965 Supreme Court of Pennsylvania case, Albee Homes, Inc. v.
Caddie Homes, Inc, which rules—not explicitly under unfair
competition—that inducing a competitor’s employees to terminate
and violate employment contracts was wrongful115;
A Supreme Court of Pennsylvania decision from 1957 that relies on
the traditional approach: “[i]f the particular use in question is
reasonably likely to produce confusion in the public mind;”116 and
Goebel Brewing Co. v. Esslingers, Inc. which also focused on whether
“the plaintiff’s trade name… create[d] confusion and thus facilitate[d]
deception.”117
114
ID Sec. Sys. Canada, Inc. v. Checkpoint Sys., Inc., 249 F. Supp. 2d 622, 688 (E.D. Pa. 2003).
115
Albee Homes, Inc. v. Caddie Homes, Inc., 207 A.2d 768, 773 (1965).
116
Morgan’s Home Equip. Corp. v. Martucci, 136 A.2d 838, 848 (1957).
117
Goebel Brewing Co. v. Esslingers, Inc., 95 A.2d 523, 526 (1953).
- 34 -
Synthes uses these cases to support its adoption of Restatement (Third) of Unfair
Competition § 1. Comment g (1995). However, this Court is not convinced that the
cases put forth by Synthes justify such vast broadening of Pennsylvania’s unfair
competition doctrine.
In its generous expansion of unfair competition, Synthes states—without
direct citation—that Pennsylvania courts have recognized unfair competition
claims for patent rights infringement.118 However, ten years prior to Synthes, the
Eastern District of Pennsylvania held the exact opposite in Atlantic Mutual
Insurance Co. v. Brotech Corporation, stating that “Pennsylvania law has also long
recognized unfair competition as an action separate and independent from patent
infringement.”119 It is highly compelling to this Court that the Third Circuit
affirmed the ruling in Atlantic Mutual.120 In light of such prior precedent, this
Court remains highly suspicious of the post-Synthes unfair competition
jurisprudence.
Eastern District of Pennsylvania cases following Synthes have further
expanded upon its generous wording. In a 2012 case with the same plaintiff,
Synthes Inc. v. Emerge Medical Inc., that court held that tortious interference
claims and conversion claims “can serve as a legal basis for the unfair competition
118
Id.
119
Atl. Mut. Ins. Co. v. Brotech Corp., 857 F. Supp. 423, 428 (E.D. Pa. 1994).
120
Atl. Mut. Ins. Corp. v. Brotech Corp., 60 F.3d 813 (3d Cir. 1995).
- 35 -
claim” and that all that was required to maintain the unfair competition claim was
evidence of any conduct outlined in Synthes.121 I am not compelled to adopt such a
broad interpretation that would find unfair competition where there is evidence of
any form of tortious wrongdoing in a business sense. Certainly, that would render
unfair competition claims duplicative and entirely redundant.
While the Third Circuit in Granite State Insurance Co. v. Aamco
Transmissions, Inc. stated “it is not so easy to conclude that there is one narrow
and clear category” that defines unfair competition, that appellate case nevertheless
cites a source that goes to great lengths to describe what kind of activity might so
qualify.122 Granite State relies upon Pennsylvania’s Unfair Trade Practices and
Consumer Protection Law (UTPCPL), which lists twenty-one possible definitions
of “unfair methods of competition.”123 The listed definitions range from “(i)
Passing off goods or services as those of another” to “(xxi) Engaging in any other
fraudulent or deceptive conduct which creates a likelihood of confusion or
misunderstanding.”124 While the UTPCPL is not the common law tort of unfair
competition, Granite State contemplated that the UTPCPL “by its very title
121
Synthes, Inc. v. Emerge Med., Inc., No. CIV.A. 11-1566, 2012 WL 4205476, at *14 (E.D. Pa.
Sept. 19, 2012).
122
Granite State Ins. Co. v. Aamco Transmissions, Inc., 57 F.3d 316, 319 (3d Cir. 1995).
123
73 P.S. § 201-2(4).
124
Id.
- 36 -
demonstrates it encompasses more than acts of unfair competition.”125 Such a
result as followed by our Court of Appeals would be rendered illogical and
unattainable if the common law tort of unfair competition encompassed all tortious
conduct related to business activity as suggested by Synthes.
Early decisions in Pennsylvania did contemplate forms of misappropriation
falling under the umbrella of unfair competition claims. In International News
Service v. Associated Press, for example, the Supreme Court found unfair
competition when, “instead of selling its own goods as those of complainant, [the
defendant] substitutes misappropriation in the place of misrepresentation, and sells
complainant's goods as its own.”126 Although the 1918 decision in International
News Service appeared to direct the law away from the “passing off” of goods,
later decisions interpreted this concept as misrepresentation as well. The Supreme
Court of Pennsylvania in Dastar Corporation. v. Twentieth Century Fox Film
Corporation defined such actions as “reverse passing off” when a company
“misrepresents someone else’s goods or services as his own.”127 Nevertheless,
while it is clear the Supreme Court of Pennsylvania has contemplated broader
125
Granite State Ins. Co. v. Aamco Transmissions, Inc., 57 F.3d 316, 319 (3d Cir. 1995).
126
Int’l News Serv. v. Associated Press, 248 U.S. 215, 242 (1918).
127
Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28 (2003).
- 37 -
definitions of unfair competition, “the outer limits have yet to be identified by that
court.”128
The principle that seems apt to apply here was stated well by the Honorable
Gustave Diamond in USX Corporation v. Adriatic Insurance Company: Unfair
competition may not be construed as “a virtual catch-all for any form of wrongful
business conduct.”129 In fact, comment g itself to § 1 of the Third Restatement of
Unfair Competition itself explains that a “primary purpose” of that section is “the
identification and redress of business practices that hinder rather than promote the
efficient operation of the market.” That same comment appeals at several junctures
to the notion of “substantial inference” with another’s business. Taken together, it
is difficult to fathom the imposition of liability for alleged unfair competition
where it cannot be discerned from the complaint that the offending company
mobilized misappropriated information in a way that had a tangible market impact.
128
USX Corp. v. Adriatic Ins. Co., 99 F. Supp. 2d 593, 620 (W.D. Pa. 2000).
129
USX Corp. v. Adriatic Ins. Co., 99 F. Supp. 2d 593, 619–20 (W.D. Pa. 2000) (explaining that
unfair competition “contextually is limited to claims designed to protect a business from
another’s misappropriation of its business organization or its expenditure of labor, skill or
money, i.e., injury to reputation, product, manner of doing business, identification and so
forth”), aff’d, 345 F.3d 190 (3d Cir. 2003). Indeed, our Court of Appeals, albeit in the context
of interpreting commercial insurance policies, has reemphasized that unfair competition may
require something more than suggested by the post-Synthes jurisprudence. For example, in
Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 748 (3d Cir. 1999), the court
anchored its reasoning as to the potency of an unfair competition on whether the offending
company “misappropriated methods of gaining customers” or “misappropriated information
about the manufacture of . . . the resulting product”—the former iteration being the more
clearly actionable one.
- 38 -
In my view, AutoTrakk has not pled a case that compels this Court to
conclude that there is a plausible reason to believe there was evidence of unfair
competition. As noted earlier, Plaintiff’s counsel has referred to conversations with
customers that are not present in the amended complaint that may help plausibly
state an unfair competition claim in light of the foregoing discussion. Until that
time, the Plaintiff’s pleading for unfair competition against all Defendants is
insufficient and Defendants’ motion to dismiss Count VII of the amended
complaint is granted without prejudice.
G.
Defendants’ Motion Is Denied As To AutoTrakk’s Unjust
Enrichment Count (VIII), Because AutoTrakk Has Advanced
Underlying Claims That Have Not Fallen.
Pennsylvania law supports two species of unjust enrichment claims: “(1) a
quasi-contract theory of liability, in which case the unjust enrichment claim is
brought as an alternative to a breach of contract claim; or (2) a theory based on
unlawful or improper conduct established by an underlying claim, such as fraud, in
which case the unjust enrichment claim is a companion to the underlying claim.”130
This case appears to be one of the latter, hinging upon other claims in the
Plaintiff’s amended complaint.
130
Whitaker v. Herr Foods, Inc., 198 F. Supp. 3d 476, 492 (E.D. Pa. 2016).
- 39 -
Pennsylvania has adopted the Restatement of Restitution for determining
whether there is unjust enrichment.131 The Restatement provides guidance that
unjust enrichment can occur through conversion (§40), interference with a trade
secret (§42), or through a fiduciary or confidential relation (§43).132 Further, “an
unjust enrichment claim may be pled as a companion… to a claim of unlawful or
improper conduct as defined by law—e.g., a tort claim.”133 When based on an
underlying claim, an unjust enrichment claim shall fall where the underlying
claims are dismissed.134
Thus, it seems appropriate that where there are claims that survive this
motion to dismiss, Count VIII should also survive. Defendants’ motion to dismiss
Count VIII of the Amended complaint is denied.
H.
AutoTrakk’s Civil Conspiracy Count (IX) Is Dismissed With
Prejudice Upon The Consent Of Both Parties, Because the
Allegations Do Not Plausibly Suggest Malicious Motivation.
In order to prove a civil conspiracy, “it must be shown that two or more
persons combined or agreed with intent to do an unlawful act or to do an otherwise
lawful act by unlawful means.”135 Any alleged civil conspiracy must be shown to
131
D.A. Hill Co. v. Clevetrust Realty Inv’rs, 524 Pa. 425, 432, 573 A.2d 1005, 1009 (1990).
132
Restatement (Third) of Restitution and Unjust Enrichment § 40, 42-43 (2011).
133
Whitaker v. Herr Foods, Inc., 198 F. Supp. 3d 476, 493 (E.D. Pa. 2016).
134
Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912, 937 (3d
Cir. 1999).
135
Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 412 A.2d 466, 472 (1979).
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have been motivated solely by malice—an intent to injure the plaintiff.136 As noted
in their Brief in Opposition to Dismiss, the Plaintiff concedes that the allegations
include motivation for personal or business benefit and would not meet the
pleading requirements for civil conspiracy.137
With the consent of both parties, Defendants’ motion to dismiss is granted as
to Count IX against all defendants with prejudice.
IV.
CONCLUSION
Defendants’ motion to dismiss is granted in part and denied in part in
accordance with the foregoing reasoning.
An appropriate Order that memorializes these holdings and sets forth the
procedure for amendment follows.
BY THE COURT:
s/ Matthew W. Brann
Matthew W. Brann
United States District Judge
136
Bro-Tech Corp. v. Thermax, Inc., 651 F. Supp. 2d 378, 419 (E.D. Pa. 2009).
137
ECF No. 25 at 13.
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