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declining to dismiss fraudulent inducement claim under gist of the action doctrine, as courts have distinguished between fraud in the inducement and fraud in the performance claims, and doctrine has "less applicability" to the former
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CIVIL ACTION NO. 03-3764
January 13, 2004
MEMORANDUM
I. INTRODUCTION
On June 23, 2003, Plaintiffs Kevin Flynn ("Flynn") and Healthcare Advocates, Inc. ("HAS, Inc.") (collectively the "Plaintiffs") filed suit against Health Advocate, Inc. ("HA"). Plaintiffs also brought suit against Michael J. Cardillo ("Cardillo"), Arthur Liebowitz ("Liebowitz"), Thomas A. Masci, Jr. ("Masci"), Martin B. Rosen ("Rosen"), David Rocchino ("Rocchino") and John Peppelman ("Peppelman") (collectively the "HA Individual Defendants"). Finally, Plaintiffs brought suit against Gordon Conwell Associates, Inc. ("GCA") and Nancy Conwell ("Conwell"). HAS, Inc. provides assistance to people who are dealing with healthcare insurance companies and the healthcare industry. Significantly, HA provides similar services to its clients, and is a rival company to HAS, Inc. In their Complaint, Plaintiffs allege that HA is liable to Plaintiffs for unfair competition, trademark/service mark infringement, violations of the Lanham Act ( 15 U.S.C. § 1125(a)), breach of contract, unjust enrichment, tortious interference with existing and prospective contractual relations, conspiracy, fraud, misappropriation of trade secrets and copyright infringement. While Plaintiffs include Defendant Peppelman in their breach of contract claim, none of the other HA Individual Defendants is included in this claim. As for Plaintiffs' claims against GCA and Conwell, they include misappropriation of trade secrets, fraud, unjust enrichment and conspiracy, as well as a claim against GCA for breach of contract.
In their Complaint, Plaintiffs state that Rocchino's first name is Davis and spell his last name Rochino. However, in their supplemental briefs to the Court, Plaintiffs, as well as the Defendants call him David Rocchino. Therefore, the Court will use David Rocchino.
Presently before this Court are the following motions: 1) GCA and Conwell's Motion to Dismiss all of Plaintiffs' claims against them and 2) HA and the HA Individual Defendants' Motion to Dismiss all of Plaintiffs' claims against them except for the breach of contract claim against HA. For the following reasons, the Court will grant in part and deny in part GCA and Conwell's Motion to Dismiss. Additionally, the Court will grant in part and deny in part HA and the HA Individual Defendants' Motion to Dismiss the claims against them.
Since the two Motions currently before the Court are Motions to Dismiss, all factual allegations of the Complaint must be accepted as true. See Rocks v. City of Phila., 868 F.2d 644, 645 (3d Cir. 1989) (citations omitted).
According to Plaintiffs' Complaint, Flynn formed HAS, Inc. in 1996 to provide advice and consultation services to patients and employers in their dealings with the healthcare industry. According to Plaintiffs, HAS, Inc. and Flynn developed business strategies and methodologies which would help HAS, Inc. succeed in assisting patients with the healthcare system. Plaintiffs assert that these business strategies and methodologies are novel and have been set forth in a patent application that is currently pending in front of the United States Patent and Trademark Office. The Plaintiffs consider the methodologies and strategies as trade secrets.
According to Plaintiffs, Defendant Peppelman contacted Flynn during the summer of 2001. Peppelman stated to Flynn that he worked for GCA and that some of GCA's clients and employees were interested in HAS, Inc.'s services. Peppelman thereafter requested that Flynn forward HAS, Inc.'s materials to Conwell at GCA who would then transfer the materials to Peppelman. Plaintiffs later learned that Conwell was Peppelman's wife and that she was an office manager with GCA. Through subsequent conversations between Flynn and Peppelman, Plaintiffs state that Peppelman and Flynn formed an oral non-disclosure agreement (hereinafter the "oral non-disclosure agreement"). Thereafter, on August 1, 2001, Flynn forwarded the materials to Peppelman by sending the confidential materials to Conwell at GCA. Plaintiffs allege that the true reason Peppelman requested materials from HAS, Inc. and Flynn was not to benefit GCA, its employees or clients, but rather, to help establish HA so as to compete with HAS, Inc.
Having not heard from Peppelman for over a month, Flynn tried to contact Peppelman at GCA. Instead, Flynn was put in touch with Conwell, who stated that she passed the materials along to her husband. Furthermore, Conwell stated that GCA had no interest in the materials Flynn had sent.
Subsequently, in November, 2001, Flynn received promotional materials being distributed by HA. Peppelman was listed as Vice-President of Sales on these promotional materials. Plaintiffs state that the promotional materials Flynn came into possession of in November, 2001, were substantially similar to the materials Peppelman agreed to keep confidential in their discussions over the summer.
Flynn thereafter contacted HA to congratulate them on their new business and to find out whether Peppelman had ever actually worked for GCA. Upon making this inquiry, discussions began between HA, the HA Individual Defendants and Flynn about a possible merger and/or co-marketing agreement between HAS, Inc. and HA. These negotiations cumulated on March 8, 2002, where HAS, Inc. and HA agreed to a written non-disclosure agreement (hereinafter, the "written non-disclosure agreement"). HAS, Inc. then forwarded its marketing position, marketing strategies, business strategies, sales and marketing opportunities, business plans and numerous other pieces of information to HA. Plaintiffs state these items were trade secrets. According to Plaintiffs, HA and the HA Individual Defendants never had any intention of merging HAS, Inc. into HA. Plaintiffs allege that the real reason for the merger talks and written non-disclosure agreement was to allow HA to examine and use HAS, Inc.'s trade secrets to compete with HAS, Inc. Plaintiffs allege that HA has changed its marketing strategies and implemented HAS Inc.'s methodologies and business plans. As previously stated, Plaintiffs assert that the methodologies, strategies and plans are confidential trade secrets. Thereafter, on June 23, 2003, Plaintiffs brought suit against the Defendants asserting various federal and state law claims.
III. STANDARD
A motion to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), tests the legal sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). A court must determine whether the party making the claim would be entitled to relief under any set of facts that could be established in support of his or her claim.Hishon v. King Spalding, 467 U.S. 69, 73 (1984) (citingConley, 355 U.S. at 45-46); see also Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273 (3d Cir. 1985). In considering a motion to dismiss, all allegations in the complaint must be accepted as true and viewed in the light most favorable to the non-moving party. Rocks, 868 F.2d at 645(citations omitted). However, the United States Court of Appeals for the Third Circuit ("Third Circuit") has stated that "while our standard of review requires us to accept as true all factual allegations in the complaint, we need not accept as true unsupported conclusions and unwarranted inferences." Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183-84 (3d Cir. 2000) (internal quotation and citations omitted). Furthermore, the Third Circuit has stated that "[c]ourts have an obligation in matters before them to view the complaint as a whole and to base rulings not upon the presence of mere words but, rather, upon the presence of a factual situation which is or is not justiciable." Id. at 184 (internal quotation and citation omitted). With this as a background, the Court will now turn its attention to the two Motions to Dismiss filed by the Defendants.
IV. DISCUSSION
A. GCA AND CONWELL'S MOTION TO DISMISS
The Court will first examine GCA and Conwell's Motion to Dismiss. Plaintiffs have brought four claims against both GCA and Conwell. The claims being brought against these Defendants are misappropriation of trade secrets, fraud, unjust enrichment and conspiracy. Additionally, Plaintiffs have brought a breach of contract claim against GCA. The Court will analyze each of these claims as they pertain to Conwell and GCA to decide whether they can survive a motion to dismiss.
1. Misappropriation of Trade Secrets
The parties are in agreement that Pennsylvania law controls in this case as to the state law claims.
Under Pennsylvania law, the prima facie elements of the tort of misappropriation of a trade secret are derived from the Restatement (First) of Torts § 757. Van Products Co. v. General Welding Fabricating Co., 419 Pa. 248, 258, 213 A.2d 769, 774 (1965). Those elements are as follows: (1) the existence of a trade secret; (2) communication of the trade secret pursuant to a confidential relationship; (3) use of the trade secret, in violation of that confidence; and (4) harm to the plaintiff.Moore v. Kulicke Soffa Industs., Inc., 318 F.3d 561, 567 (3d Cir. 2003) (footnotes omitted). The main argument made by Conwell and GCA is that the Plaintiffs have failed to allege that Conwell and GCA used the trade secrets to the detriment of Plaintiffs. The alleged trade secrets at issue in this case are the business strategies and methodologies HAS, Inc. has developed over the past several years.
Defendant Conwell's alleged role in this case was limited to passing the information onto her husband Peppelman. While Plaintiffs allege that the true motivation behind Peppelman's request was purposefully hidden from Flynn, the only allegation in the Complaint regarding Conwell is that she passed the information to Peppelman, as she was supposed to do pursuant to the oral non-disclosure agreement. Plaintiffs' Complaint is lacking as to any allegation that Conwell herself is using or used the business methodologies and strategies. Rather, as will be discussed in infra Part IV.B.7, Plaintiffs allege that the trade secrets were used by HA to directly compete with HAS, Inc.
Additionally, it is not alleged that GCA is "using" these trade secrets to further their business enterprise. See Homenexus, Inc. v. Directweb, Inc., No. 99-CV-2316, 1999 WL 959823, at *3-4 (E.D. Pa. Oct. 14, 1999) (denying motion to dismiss misappropriation claim where plaintiff has alleged Defendant used trade secrets acquired "to further its own business enterprise"). Unlike Homenexus, at no time in Plaintiffs' Complaint do they allege GCA or Conwell ever used Plaintiffs' trade secrets to further their own business enterprise. Rather, it is alleged that such trade secrets were used by HA and the HA Individual Defendants to further their own business enterprise. Therefore, the Court will grant GCA and Conwell's Motion to Dismiss the misappropriation claim against them.
2. Fraud
To recover for a fraud claim in Pennsylvania, five elements are required. Specifically, Plaintiffs must show "'1) a misrepresentation; 2) a fraudulent utterance of it; 3) the maker's intent that the recipient be induced to thereby act; 4) the recipient's justifiable reliance on the misrepresentation; and 5) damage to the recipient proximately caused.'"Trans Penns Wax Corp. v. McCandless, 50 F.3d 217, 232 (3d Cir. 1995) (quoting Sevin v. Kelshaw, 417 Pa. Super. 1, 9, 611 A.2d 1232, 1236 (1992)). Additionally, a claim for fraud must be pleaded with particularity pursuant to Rule 9 of the Federal Rules of Civil Procedure.
However, in applying rule 9(b), focusing exclusively on its particularity language is too narrow an approach and fails to take account of the general simplicity and flexibility contemplated by the rules. The rule's purpose is to give notice to the defendant of the precise misconduct with which she is charged, and to protect her from any spurious charges of fraudulent or immoral behavior. As long as there is some precision and some measure of substantiation in the pleadings, the rule will be satisfied.Bristol Township v. Independence Blue Cross, No. 01-4323, 2001 WL 1231708, at *5 (E.D. Pa. Oct. 11, 2001) (internal quotations and citations omitted). Plaintiffs assert the fraud committed by Conwell and GCA was their concealment of the true purpose for requesting the confidential trade secrets from Flynn. (Pls.' Ans. to GCA and Conwell Defs' Mot. to Dismiss, 10). Further, Plaintiffs claim that GCA and Conwell were seeking to obtain the trade secrets to form their own competing business. (Id.).
The Court will first examine whether Plaintiffs have stated a claim of fraud against Conwell. According to the Complaint, her role in this action was extremely limited. First, she received the materials Flynn sent to Peppelman and subsequently transferred them to Peppelman. Second, she had a telephone conversation with Flynn in which she stated that GCA had no interest in the materials for its internal needs. In this case, Plaintiffs allege that the true reason Peppelman (Conwell's husband) asked for materials from the Plaintiffs was to help form a rival company. Plaintiffs argue that Peppelman used GCA as a "front" to obtain the materials. According to the Complaint, the Court can find no affirmative misrepresentation made to Plaintiffs by Conwell.
The Court must also consider whether Conwell's alleged failure to state the true reason behind Peppleman's request might constitute an omission or failure to disclose a material fact (the alleged true reason behind Peppleman's request). As the Third Circuit has stated, "[u]nder Pennsylvania law, a fraud claim requires plaintiff to prove either a knowing misrepresentation or nonprivileged failure to disclose some existing fact. If, however, the misrepresentation is innocently made, then it is actionable only if it relates to a matter material to the transaction involved." Hughes v. Consol-Pa. Coal Co., 945 F.2d 594, 613-14 (3d Cir. 1991) (citations and internal quotations omitted). Therefore, the alleged omission by Conwell in her conversation with Flynn might constitute a material omission so as to constitute actionable fraud. Additionally, the Court finds that Plaintiffs have satisfied the other elements of a fraud to at least allow this claim against Conwell to move forward into discovery.
Next, the Court will examine whether Plaintiffs have properly stated a claim of fraud against GCA. Plaintiffs attempt to state a claim for fraud against GCA based on agency principals. Plaintiffs argue that a fraud claim against GCA is proper because Peppelman was acting as an agent of GCA in requesting the materials. However, this argument is completely contrary to what is alleged in the Complaint. Plaintiffs argue that the real reason Peppelman requested the materials was to help establish a company to compete with HAS, Inc. Pursuant to the Complaint and Plaintiffs' averments, Peppelman would not have been acting as an agent of GCA, but rather in his individual or capacity as a representative of HA. Therefore, the Court will not allow a claim of fraud against GCA to go forward.
While Peppelman might have asserted he was representing GCA, the Court must view the case in the way Plaintiffs present it at the Motion to Dismiss stage. As such, since Plaintiffs assert that GCA had no interest in the materials, and since it is alleged that Peppelman was seeking to help establish a company to compete with HAS, Inc., the Court will dismiss the fraud claim against GCA.
3. Breach of Contract
Next, Plaintiffs bring a breach a contract claim against GCA. "To plead breach of contract, a plaintiff must allege: (1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by the contract and (3) resultant damages." Bristol Township, 2001 WL 1231708, at *2 (citing Williams v. Nationwide Mut. Ins. Co., 750 A.2d 881, 884 (Pa.Super. 2000)). After reviewing Plaintiffs' Complaint, the Court finds that Plaintiffs have failed to allege the existence of a contract between GCA and Plaintiffs. Plaintiffs again try to use agency principles to attach liability to the oral agreement between Peppelman and Plaintiffs. However, as the Court explained in the previous section, such agency arguments would only attach HA to this oral agreement and not GCA. Therefore, the Court will dismiss Plaintiffs' breach of contract claim against GCA.
4. Unjust Enrichment
Plaintiffs additionally bring an unjust enrichment claim against both Conwell and GCA. Pleading an unjust enrichment claim requires three elements. Specifically, it is necessary for plaintiff to show that: "(1) a benefit was conferred; (2) there was appreciation of such benefit; and (3) acceptance and retention of such benefit under circumstances making it inequitable for the retaining party to retain the benefit without restitution." Mill Run Assocs. v. Locke Prop. Co., Inc., 282 F. Supp.2d 278, 293 (E.D. Pa. 2003). The Court can find no allegation in the Complaint stating that GCA retained the benefits of the trade secrets. Specifically, the Complaint alleges it is HA rather than GCA that is unjustifiably retaining the benefits of the purported trade secrets. Therefore, the Court will dismiss the unjust enrichment claim against GCA.
Plaintiffs also set forth an unjust enrichment claim against Conwell. Plaintiffs state that the trade secrets were at one time in Conwell's possession (because Peppelman requested and Flynn agreed to send the materials to Conwell at GCA). However, there is no allegation that Conwell retained these trade secrets. Plaintiffs do not dispute Conwell's statement to Flynn that she passed all the materials onto Peppelman. Additionally, there is no allegation that Conwell has retained the purported trade secrets such that it would make it inequitable for her to retain the benefit. Again, the unjust enrichment claim is against those Defendants who have used the business methodologies and strategies to Plaintiffs detriment. The only parties alleged by the Plaintiffs that have done so are HA and the HA Individual Defendants. Therefore, the Court will dismiss the unjust enrichment claim against Conwell.
5. Conspiracy
The last claim Plaintiffs have brought against Conwell and GCA is a civil conspiracy claim.
To prove a civil conspiracy under Pennsylvania law, a plaintiff must show the following elements: (1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage.Doltz v. Harris Assocs., 280 F. Supp.2d 377, 389 (E.D. Pa. 2003) (citation omitted). Additionally, the parties are in agreement that GCA cannot conspire with its own employees or agents under Pennsylvania law. Mill Run Assocs., 282 F. Supp.2d at 294 (citations omitted). Thus, to allege a claim for conspiracy against both GCA and Conwell, Plaintiffs have to allege that Conwell and GCA conspired with either HA or the HA Individual Defendants.
The Court will first examine whether Plaintiffs have stated a claim of conspiracy against Conwell. Plaintiffs theory of the case is that HA and the HA Individual Defendants used GCA as a "front" to capture HAS, Inc.'s trade secrets for the purpose of forming a rival company. Conwell was used as a conduit to receive and subsequently pass information onto Peppelman. Therefore, the Court finds that Plaintiffs have successfully alleged a conspiracy claim against Conwell.
The Court finds that discovery is warranted before the Court will grant Conwell's Motion to Dismiss the conspiracy claim against her. As to the written non-disclosure agreement and Integration Clause signed by HA and the Plaintiffs in March, 2002, the Court is not prepared to use such an agreement to alleviate Conwell from liability at this stage of the litigation. Specifically, Plaintiffs allege that they agreed to a oral non-disclosure agreement with Peppelman with the understanding that GCA would review Plaintiffs' materials to see if their clients and employees would be interested in HAS, Inc.'s services. The Court cannot necessarily state that the oral non-disclosure agreement was subsumed in the March, 2002, Integration Clause signed between HA and Plaintiffs since the oral non-disclosure agreement, according to Plaintiffs, was made by Peppelman for GCA and not for HA. While the Court recognizes that Plaintiffs subsequently learned that Peppelman was an employee of HA in November, 2002, this does not necessarily mean that the oral non-disclosure agreement falls under the auspices of the Integration Clause.
Regarding Plaintiffs' conspiracy claim against GCA, the Court finds that Plaintiffs have not stated a claim. The reasons the Court dismissed the other claims against GCA also hold true for the conspiracy claim. Peppelman, through Conwell, allegedly used GCA as a "front" to help form a company to rival HAS, Inc. Such actions do not implicate GCA in anyway, but instead allege a conspiracy between Peppelman, acting on behalf of HA, and Conwell. Therefore, the Court will dismiss the conspiracy claim against GCA.
B. HA AND THE HA INDIVIDUAL DEFENDANTS' MOTION TO DISMISS
Next, the Court will examine the numerous claims brought against HA and the HA Individual Defendants. The claims being brought against these Defendants are unfair competition, trademark/service mark infringement, violations of the Lanham Act, unjust enrichment, tortious interference with existing and prospective contractual relations, conspiracy, fraud, misappropriation of trade secrets and copyright infringement. Additionally, Plaintiffs have brought a breach of contract claim against both HA and Peppelman.
1. Unfair Competition, Trademark/Service Mark Infringement, Lanham Act
The parties are in agreement that the elements for these three claims are similar. See Mateson Chem. Corp. v. Vernon, No. 96-7914, 2000 WL 680020, at *5 n. 7 (E.D. Pa. May 9, 2000) (citing Nugget Distribs. Co-Op v. Mr. Nugget, Inc., 776 F. Supp. 1012, 1024 (E.D. Pa. 1991)) (stating "[u]nder Pennsylvania law a common law trademark infringement action is governed by the same standards as an action brought under the Lanham Act"). To successfully state a claim of unfair competition, trademark/service mark infringement or a violation of the Lanham Act, three elements must be satisfied. Plaintiffs must allege (1) a protectable mark; (2) owned by the Plaintiff; and (3) use by the defendants of a similar mark which is likely to cause confusion concerning the source and origin of the goods. See Opticians Assoc. of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir. 1990). In this case, the Court finds that Plaintiffs have successfully pled all the requisite elements of these three similar claims. The Court finds it is inappropriate at this stage in the litigation for the Court to classify the mark, since such an issue involves factual considerations that should not be considered in a motion to dismiss. See Capital Bonding Corp. v. ABC Bail Bonds, Inc., 69 F. Supp.2d 691, 699 (E.D. Pa. 1999) (denying Defendant's motion to dismiss trademark infringement claim because at motion to dismiss stage, all allegations of complaint are read as true). Therefore, the Court will deny the Motion to Dismiss these claims.
2. Breach of Contract
As mentioned earlier, Plaintiffs have brought a breach of contract claim against HA and Peppelman. Plaintiffs' claim against HA is for breach of the written non-disclosure agreement. HA has not moved to dismiss this claim against it, therefore this claim will remain. However, Defendant Peppleman has moved to dismiss the breach of the oral non-disclosure agreement. Peppelman argues that the oral non-disclosure agreement was merged into or was superceded by the written non-disclosure agreement between HA and the Plaintiffs. See McGuire v. Schneider, Inc., 368 Pa. Super. 344, 349, 534 A.2d 115, 117 (1987), aff'd, 519 Pa. 439, 548 A.2d 1223 (1998) (citing Bardwell v. Willis Co., 375 Pa. 503, 507, 100 A.2d 102, 104 (1953)). The written non-disclosure agreement between HA and the Plaintiffs contained an Integration Clause which stated that, "[t]his Agreement contains the entire agreement and understanding of the parties relating to the subject matter hereof and merges and supercedes all prior discussions, agreements and understandings of every nature between them." (Pls.' Comp., Ex. A, ¶ 10).
Plaintiffs allege that they agreed to the oral non-disclosure agreement with the understanding that the transfer of information to Peppelman through Conwell would be used by, and for, GCA's employees and its clients. While Plaintiffs might have learned in November, 2001, that Peppelman actually worked for HA, the Court is not prepared, at the motion to dismiss stage, to integrate the oral non-disclosure agreement into the written non-disclosure agreement because the two agreements were formed for allegedly different purposes and for different parties.See Quorum Health Res., Inc. v. Carbon-Schuylkill Cmty. Hosp., Inc., 49 F. Supp.2d 430, 433 (E.D. Pa. 1999) (stating before applying parol evidence rule to written agreement, court must determine first whether there is an integrated agreement, whether it is partially or completely integrated and whether the asserted prior agreements are within the scope of the integrated agreements). Here, the Court finds that Plaintiffs have successfully pled that the oral non-disclosure agreement was outside the scope of the written non-disclosure agreement because it was allegedly for completely different parties and reasons.
Peppelman has also moved to dismiss the breach of the written non-disclosure agreement against him. However, as Plaintiffs set forth in their Response, they have not asserted a claim against Peppelman for breaching the written non-disclosure agreement since he was not a party to this written agreement. (Pls.' Ans. to Mot. to Dismiss of Defs. HA, Cardillo, Liebowitz, Masci, Rosen, Rocchino and Peppelman, 19).
3. Unjust Enrichment
HA and the HA Individual Defendants argue that the unjust enrichment claim against them should also be dismissed because they do not contest the validity of the written non-disclosure agreement, only whether it has been breached. Specifically, HA and the HA Individual Defendants argue that "under Pennsylvania law, unjust enrichment is inapplicable where the parties' relationship is based on a written agreement." Benigno v. Flatley, No. 01-2158, 2001 WL 1132211, at *1 (E.D. Pa. Sept. 13, 2001). While Defendants have asserted a correct statement of law, the Court finds that dismissing the unjust enrichment claim is premature. Specifically, the Court finds that "[a] Plaintiff may sue on alternative theories of recovery, including, breach of contract and unjust enrichment." Id. (citing Gonzales v. Old Kent Mortgage Co., No. 99-5959, 2000 WL 1469313, at *5 (E.D. Pa. Sept. 21, 2000)). Therefore, the Court will deny HA and the HA Individual Defendants Motion to Dismiss the unjust enrichment claim against them.
4. Tortious Interference with Existing and Prospective Contractual Relations
Plaintiffs have brought both a tortious interference with existing contractual relations as well as a tortious interference with prospective contracts claim against HA and the HA Individual Defendants. The Defendants argue that the Plaintiffs have failed to pled the requisite elements of the two tortious interference claims. Additionally, HA and the HA Individual Defendants argue that such tortious interference claims are barred by the economic loss doctrine.
The Court will first examine whether Plaintiffs have successfully pled a claim for tortious interference of existing and prospective contractual relations before it turns to the economic loss argument.
Under Pennsylvania law, the elements of a claim for tortious interference with existing or prospective contractual relations are: "(1) the existence of a contractual, or prospective contractual relation between the complainant and a third party, (2) purposeful action on the part of the defendant, specifically intended to harm the existing relation, or to prevent a prospective relation from occurring, (3) the absence of privilege or justification on the part of the defendant, and (4) the occasioning of actual legal damage as a result of the defendant's conduct."County of Del. v. Gov't Sys., Inc., 230 F. Supp.2d 592, 600 (E.D. Pa. 2002) (quoting Strickland v. Univ. of Scranton, 700 A.2d 979, 985 (Pa.Super. 1997)). The Court finds that the Plaintiffs have sufficiently alleged the requisite elements of these two tort claims to defeat HA and the HA Individual Defendants' Motion to Dismiss.
HA and the HA Individual Defendants additionally argue that Plaintiffs' tortious interference claims are barred by the economic loss doctrine. "The economic loss doctrine precludes recovery in tort for economic losses arising from a breach of contract." Valley Forge Convention Visitors Bureau v. Visitor's Servs., Inc., 28 F. Supp.2d 947, 951 (W.D. Pa. 1998) (citing Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995); Gen. Pub. Utils. v. Glass Kitchens of Lancaster, Inc., 374 Pa. Super. 203, 208-09, 542 A.2d 567, 570 (1988)). "Economic losses include damages due to loss of customers, sales and profits." Valley Forge Convention Visitors Bureau, 28 F. Supp.2d at 951(citations omitted). However, the Court finds that Plaintiffs have not merely alleged that HA and the HA Individual Defendants tortiously interfered with existing and prospective contractual relations merely by breaching the written non-disclosure agreement. Rather, Plaintiffs have alleged items outside of a mere breach of the written non-disclosure agreement that could give rise to a tortious interference claim. Therefore, at this stage in the litigation, the Court finds that the economic loss doctrine will not prevent this claim from moving forward into discovery.
5. Conspiracy
HA and the HA Individual Defendants argue that the Court should dismiss the conspiracy claim against them because Plaintiffs have failed to pled the requisite elements of a conspiracy and because a corporation cannot conspire with its own employees. As stated in Part IV.A.5, the Court and the parties recognize that under Pennsylvania law, a corporation cannot conspire with itself or with its officers or employees. See Mill Run Assocs., 282 F. Supp.2d at 294. However, the Court finds that Plaintiffs have successfully alleged a conspiracy between HA and the HA Individual Defendants and Conwell. Plaintiffs allege that Conwell acted as a conduit due to her position with GCA to receive and subsequently transfer information to her husband, Peppelman. This was done for the alleged unlawful purpose of misappropriating HAS, Inc.'s trade secrets to help form a rival company. Therefore, the Court will deny HA and the HA Individual Defendants Motion to Dismiss the conspiracy claim against them.
6. Fraud
HA and the HA Individual Defendants argue that the fraud claim against them should be dismissed under either one of two theories. First, HA and the HA Individual Defendants argue that Plaintiffs have failed to state their claim of fraud with particularity pursuant to Federal Rule of Civil Procedure 9(b). The court finds that Plaintiffs have sufficiently pled their fraud claim against HA and the HA Individual Defendants with the requisite particularity. "Although Rule 9(b) ordinarily mandates the pleading of the 'who, what, when, and where' of the alleged fraud, specifics may also be averred by other means; but what is crucial is that the complaint 'inject precision and some measure of substantiation into the allegations fraud.'" Benigno, 2001 WL 1132211, at *1 (quoting Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984)). Here, Plaintiffs allege the misrepresentations made to Flynn in requesting the trade secrets constituted a fraud. Plaintiffs allege that such request was not made for the purpose of GCA's employees or its clients, or for the purpose of a possible merger, but rather, to help establish HA as a rival to compete with HAS, Inc. As such, the Court finds that Plaintiffs have sufficiently pled their fraud claim with the requisite particularity.
HA and the HA Individual Defendants additionally argue that even if the Court finds that Plaintiffs have pled fraud with particularity, a fraud claim should not be allowed to go forward because it is barred by the "gist of the action" doctrine. While the "gist of the action" doctrine has not been recognized by the Pennsylvania Supreme Court, "the Pennsylvania Superior Court and a number of United States District Courts have predicted it would." Air Prods. Chems., Inc. v. Eaton Metal Prods. Co., 256 F. Supp.2d 329, 340 (E.D. Pa. 2003) (citingEtoll, Inc. v. Elias/Savion Advers., Inc., 811 A.2d 10, 14 ( Pa. Super. 2002); Bash v. Bell Tel. Co. of Pa., 411 Pa. Super. 347, 356, 601 A.2d 825, 829 (1992); Asbury Auto. Group, LLC v. Chrysler Ins. Co., No. 01-3319, 2002 WL 15925, at *3 n. 3 (E.D. Pa. Jan. 7, 2002); Caudill Seed Warehouse Co., Inc. v. Prophet 21, Inc., 123 F. Supp.2d 826, 833 n. 11 (E.D. Pa. 2000)). This District has described the "gist of the action" doctrine as follows:
[t]he gist of the action doctrine's purpose is to maintain the distinction between the theories of breach of contract and tort, and it precludes plaintiff from recasting ordinary breach of contract claims into tort claims. Bash, 601 A.2d at 829. "When a plaintiff alleges that the defendant committed a tort in the course of carrying out a contractual agreement, Pennsylvania courts examine the claim and determine whether the 'gist' or gravamen of it sounds in contract or tort; a tort is maintainable only if the contract is 'collateral' to conduct that is primarily tortious." Sunquest Info. Sys. v. Dean Witter Reynolds, 40 F. Supp.2d 644, 651 (W.D. Pa. 1999).Air Prods. Chems., 256 F. Supp.2d at 340. However, the courts have appeared to distinguish the doctrine where a plaintiff brings a fraudulent inducement claim. Specifically, the courts have recognized that "[f]raud in the inducement of a contract would not necessarily be covered by [the 'gist of the action'] doctrine because fraud to induce a person to enter a contract is generally collateral to (i.e. not 'interwoven' with) the terms of the contract itself."Id. at 341 (quoting Etoll, 811 A.2d at 17 (discussingFoster v. Northwestern Mut. Life, No. 02-2211, 2002 WL 31991114, at *2-3 (E.D. Pa. July 29, 2002))). Furthermore,
[t]he distinction between fraud in the inducement and fraud in the performance claims with regard to the gist of the action doctrine is crucial. This is because fraud in the inducement claims are much more likely to present cases in which a social policy against the fraud, external to the contractual obligations of the parties, exists.Air Prods. Chems., 256 F. Supp.2d at 341 (citingFoster, 2002 WL 31991114, at *2-4). In this case, "the fraud that the Plaintiffs are complaining about is the true purpose of [the Defendants] requests for the information from the Plaintiffs which originated with . . . Peppelman." (Pls.' Ans. to Mot. to Dismiss of Defs. HA, Cardillo, Liebowitz, Masci, Rosen, Rocchino Peppelman, 17). Under Plaintiffs' theory of the case, Peppelman used GCA as a "front" to initially capture Plaintiffs trade secrets and, thereafter, HA and the HA Individual Defendants engaged in merger negotiations to capture additional trade secrets. Thus, the fraud alleged is the misrepresentations that were made to induce Plaintiffs to agree to both an oral non-disclosure agreement with Peppelman and a written non-disclosure agreement with HA. As the Court has already noted, the "gist of the action" doctrine has less applicability where a plaintiff alleges a fraud in the inducement. Therefore, the Court will not apply the "gist of the action" doctrine to the fraud claim against HA and the HA Individual Defendants. HA and the HA Individual Defendants' Motion to Dismiss the fraud claim is denied.
7. Misappropriation of Trade Secrets
HA and the HA Individual Defendants also raise the "gist of the action" doctrine in their attempt to dismiss the misappropriation of trade secrets claim levied against them. The Third Circuit has applied the "gist of the action" doctrine to misappropriation of trade secrets claims. See generally, Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79, 106-07 (3d Cir. 2001). InBohler-Uddeholm, the District Court allowed a misappropriation of trade secret claim to go to the jury. Id. However, the parties had an agreement which contractually covered plaintiffs "know-how." Id. In applying the "gist of the action" doctrine to this misappropriation claim, the Third Circuit stated, "if the jury's verdict for Uddeholm on the misappropriation of trade secrets and confidential information claim was based on Ellwood's misappropriation of Uddeholm's know-how, the verdict cannot stand."Id.
While the "gist of the action" doctrine might block any purported misappropriation of Plaintiffs' trade secrets claim arising from the written non-disclosure agreement between HA and the Plaintiffs, this is not the only misappropriation that Plaintiffs allege in their Complaint. Plaintiffs allege that "the contract [the written non-disclosure agreement] that HA claims is integral to the claims asserted by Plaintiffs was drafted some 7 months after the tort [misappropriation of trade secrets] occurred." (Pls.' Ans. to Mot. Dismiss of Defs. HA, Cardillo, Liebowitz, Masci, Rosen, Rocchino and Peppleman, 11). Specifically, Plaintiffs argue that the misappropriation of trade secrets occurred immediately after the receipt of materials by Peppelman pursuant to the oral non-disclosure agreement, but before the written non-disclosure agreement.
HA and the HA Individual Defendants argue, however, that the oral non-disclosure agreement should be merged into the written non-disclosure agreement because of the Integration Clause. Hence, these Defendants argue that the "gist of the action" doctrine becomes applicable to this tort because the receipt of trade secrets by Peppelman would fall under the auspices of the written non-disclosure agreement. At this stage of the litigation, however, the Court is not prepared to merge the two agreements. The Court finds that Plaintiffs have alleged that Peppelman purported to be working for GCA when the oral non-disclosure agreement was made in the summer of 2001. Plaintiffs state Peppelman requested information from Flynn because GCA's clients and its employees were possibly interested in HAS, Inc.'s services when, in actuality, the alleged true reason for the request was to help form a company to rival HAS, Inc. As of November 16, 2001, Plaintiffs learned that Peppelman was an employee of HA. However, without any discovery, the Court is not prepared to merge the oral non-disclosure agreement into the written non-disclosure agreement. Both contracts were for purportedly different parties and different reasons. Thus, at this time, the Court finds that the "gist of the action" doctrine is inapplicable to the misappropriation of trade secrets claim that allegedly occurred prior to the written non-disclosure agreement and which arose from the trade secrets given to Peppelman pursuant to the oral non-disclosure agreement. The Court finds that Plaintiffs have successfully pled a misappropriation of trade secret claim against HA and the HA Individual Defendants so as to defeat their Motion to Dismiss.
8. Copyright Infringement
Finally, HA and the HA Individual Defendants move to dismiss the copyright infringement claim against them. To state a claim for copyright infringement under Federal Rule of Civil Procedure Rule 8, the Complaint must state "which specific original work is the subject of the copyright claim, that plaintiff owns the copyright, that the work in question has been registered in compliance with the statute and by what acts and during what time defendant has infringed the copyright."Gee v. CBS, Inc., 471 F. Supp. 600, 643 (E.D. Pa. 1979),aff'd, 612 F.2d 572 (3d Cir. 1979) (emphasis added); see also Pytka v. Van Alen, No. 92-1610, 1992 WL 129632, at *3 (E.D. Pa. June 8, 1992) (stating same requirements as set out in Gee for properly pleading copyright infringement claim under Federal Rule of Civil Procedure Rule 8). Additionally, "[p]laintiffs must also allege that each work is suitably registered, provide registration numbers and state by what act or acts and on what dates defendants infringed the copyrights."Id. at 644. In this case, the Court finds that Plaintiffs have failed to plead in their Complaint what specific original works are the subject of the copyright claim. The Court finds that merely alleging that Plaintiffs own certain copyrights and that Defendants have infringed on such copyrights in their written materials is insufficient to meet the Rule 8 requirement of pleading in the Complaint the "specific" original work that is the subject of the copyright claim. See id. at 643-44. Therefore, the Court will dismiss Plaintiffs copyright claim without prejudice. V. CONCLUSION
Plaintiffs' Complaint states the following with respect to their copyright claim:
81. [HAS, Inc.] is the owner of a federal copyright in a collection of works created by [HAS, Inc.] (the "Copyrighted Material").
82. Plaintiff Kevin Flynn was the original owner of these copyrighta [sic]. On or about March, 17, 2003, all rights, title, and interest in and to said copyrights were transferred to [HAS, Inc.].
83. The Copyrighted Materials contain a large amount of material wholly original and drafted by Plaintiffs and is copyrighted under the law of the United States.
84. Plaintiffs have complied in all respects with all laws governing copyright, and secured the exclusive rights and privileges in and to the copyright of said collection of works created by Plaintiffs.
85. HA and the HA [Individual] Defendants have infringed Plaintiffs' copyrights by distributing to the public promotional and other written material which were copied from the Copyrighted Materials.
The Court finds that such allegations, while satisfying many of the elements needed to sufficiently state a copyright claim, lack what specific original work or works are the subject of Plaintiffs' copyright claim.
Plaintiffs state that they will forward to Defendants "copies of the applications for copyright protection which are the subject of this Count of Plaintiffs' Complaint." (Pls.' Ans. to Mot. to Dismiss of Defs. HA, Cardillo, Leibowitz, Masci, Rosen, Rocchino Peppelman, 23). However, such action by the Plaintiffs does not satisfy the Rule 8 requirement of pleading the specific original work that is the subject of the copyright claim in the actual Complaint. Often times, this element is satisfied by attaching the Copyright Registration to the Complaint.See CRA Mktg., Inc. v. Brandow's Fairway Chrysler-Plymouth-Jeep-Eagle, Inc., No. 98-6485, 1999 WL 562755, at * 1 (E.D. Pa. July 27, 1999); Johnson v. Katz, No. 94-6693, 1996 WL 107402, at *2 (E.D. Pa. March 7, 1996) (stating plaintiffs attached copyright registrations to their complaint).
If they choose, Plaintiffs can file a properly alleged copyright claim in an Amended Complaint pursuant to Federal Rule of Civil Procedure 15.
The Court has properly examined the two Motions to Dismiss submitted by the Defendants. The Court will dismiss all claims against GCA pursuant to Federal Rule of Civil Procedure 12(b)(6). Additionally, the Court finds that Plaintiffs have failed to allege a misappropriation of trade secret claim and unjust enrichment claim against Conwell. Thus, these two claims against Conwell are also dismissed pursuant to Rule 12(b)(6). Finally, the Court finds that Plaintiffs have failed to allege what specific original work or works are the subject of their copyright claim against HA and the HA Individual Defendants. Therefore, the Court will dismiss this claim without prejudice.
An appropriate Order follows.
ORDER
AND NOW, this 13th day of January, 2004, upon consideration of Defendants Gordon Conwell Associates, Inc. and Nancy Conwell's Motion to Dismiss (Doc. No. 5) and Health Advocate, Inc, Michael J. Cardillo, Arthur Liebowitz, Thomas A. Mascri, Jr., Martin B. Rosen, David Rocchino and John Peppelman's Motion to Dismiss (Doc. No. 8), together with the Memoranda, Responses and Replies thereto, it is hereby ORDERED that:
1. Counts I (Misappropriation of Trade Secrets), IV (Fraud), V (Breach of Contract), VI (Unjust Enrichment) and VII (Conspiracy) against Gordon Conwell Associates, Inc. are DISMISSED;
2. Counts I (Misappropriation of Trade Secrets) and VI (Unjust Enrichment) against Nancy Conwell are DISMISSED;
3. Count VIII [sic] (Copyright Infringement) against Healthcare Advocate, Inc., Michael J. Cardillo, Arthur Liebowitz, Thomas A. Mascri, Jr., Martin B. Rosen, David Rocchino and John Peppelman is DISMISSED without prejudice.