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ADVANCED POWER SYS. v. HI-TECH SYS.

August 5, 1992

ADVANCED POWER SYSTEMS, INC.
v.
HI-TECH SYSTEMS, INC., et al.


POLLAK


The opinion of the court was delivered by: POLLAK

MEMORANDUM

This action presents competing claims between two vendors of battery power systems for telecommunications, computers, and machinery. Plaintiff Advanced Power Systems, Inc. ("APS") was formed in 1989 by two former employees of defendant Hi-Tech Systems, Inc. ("Hi-Tech"), Gregory Presson and James McDevitt. These companies are now direct competitors. APS filed suit against Hi-Tech and its principals, claiming that they engaged in a series of activities designed to undermine APS's operations and competitiveness. The complaint included various state law causes of action, among these misappropriation of trade secrets and civil conspiracy, and a RICO claim. Thereafter, in a flurry of counterclaims and amended counterclaims, Hi-Tech made similar allegations against APS, Presson, and McDevitt. At issue today is the motion of plaintiff APS to dismiss all eight counts of the amended counterclaim for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). *fn1"

 I. Factual and Procedural History

 Hi-Tech's amended counterclaim-- which is actually its third amendmended counterclaim-- tells the following story, the content of which is taken as true for purposes of this motion. Hi-Tech was founded by defendant Robert Smith in August, 1982 to sell battery power systems. Gregory Presson, now the president of APS, worked for Hi-Tech from March, 1984 until April, 1989, at which time he resigned as Standby Power Sales Manager. James McDevitt, the other principal of APS, worked for Hi-Tech for approximately three years until he was discharged on September 13, 1988 from his job as service manager. Although they left Hi-Tech, Presson and McDevitt took with them a valuable computer program developed by Hi-Tech containing a variety of information about Hi-Tech's customers and put it to use at APS. Additionally, APS convinced seven Hi-Tech employees to come to work for APS.

 Hi-Tech's third amended counterclaim has a rather storied history. Hi-Tech initially filed a counterclaim against APS on December 22, 1990, three days after removing the action from state court. After amending the counterclaim one month later, Hi-Tech filed a second amended counterclaim on February 19, 1991, adding Gregory Presson and James McDevitt as additional counterclaim defendants. Plaintiff moved to strike the second amended counterclaim on the ground that it was filed without the leave of court. On April 15, 1991, I dismissed defendant's first and second amended counterclaims, without disturbing defendant's right to petition for leave to file a third amended counterclaim. One month later, Hi-Tech petitioned for leave to file a third amended counterclaim that was substantially identical to its second amended counterclaim. Subsequently, APS was given leave to amend its complaint; therefore, Hi-Tech no longer needed permission to amend its counterclaim-- amendment becoming a matter of right in light of plaintiff's revised complaint-- and, on January 30, 1992, I dismissed Hi-Tech's motion for leave to file a third amended counterclaim as moot. Hi-Tech's third amended counterclaim having superseded its second amended counterclaim, plaintiff's motion to dismiss the second amended counterclaim, filed on November 19, 1991, was essentially turned into a motion to dismiss the third amended counterclaim. This motion to dismiss the third amended counterclaim is presently under consideration.

 The third amended counterclaim ("the counterclaim") contains various allegations of appropriation of trade secrets, conversion, conspiracy, and tortious interference with business relations, as well as violations of Section on of the Sherman Act, I will examine these eight counts in turn.

 II. The Motion to Dismiss

 A. Misappropriation of Trade Secrets

 The counterclaim alleges that Presson and McDevitt appropriated trade secrets both by taking a computer program and data containing information about defendant's customers and by inducing Hi-Tech employees to leave that company and join APS. Plaintiff argues that the count is deficient in two ways. First, it contends that the counterclaim fails to state how this property wrongfully came into APS's possession. Second, it claims that, as against Presson and McDevitt, the claim is barred by the statute of limitations.

 Insofar as plaintiff objects to Count I's failure to document the circumstances under which the information ended up in the possession of APS, plaintiff demands a degree of specificity in pleading that Federal Rule of Civil Procedure 8 abjures when it calls only for a "short and plain statement of the claim." See 5A C. Wright & A. Miller, Federal Practice and Procedure § 1357, at 321-22 (1990) ("Rule 8 indicates that a complaint need only set out a generalized statement of facts from which defendant will be able to frame a responsive pleading.")

 To state a claim under the tort of misappropriation of trade secrets in Pennsylvania, the complaint must allege (1) disclosure or use of a trade secret that was "discovered by improper means" or (2) disclosure or use that "constitutes a breach of confidence". Den-Tal-Ez, Inc. v. Siemens Capital Corp., 389 Pa. Super. 219, 566 A.2d 1214, 1228-29 (Pa. Super. 1989). APS contends that Presson and McDevitt had legitimate access to the computer program and data by virtue of their employment with Hi-Tech and therefore, presumably, did not improperly discover it. Regardless, that access would not entitle them to take the program or data with them when they left to form APS. An employee in whom confidence is reposed has an obligation to maintain the confidentiality of his employer's trade secrets and may not appropriate them for his own benefit. See Wexler v. Greenberg, 399 Pa. 569, 160 A.2d 430 (Pa. 1960); Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838, 842 (Pa. 1957). By the same token, defendant sufficiently pleads APS's wrongful use of a trade secret by alleging that APS accepted and used information that it knew had been taken from Hi-Tech in violation of confidence. See Rohm and Haas Co. v. Adco Chemical Co., 689 F.2d 424, 429-30 (3d Cir. 1982).

 Also unpersuasive is APS's contention that the claim of misappropriation of trade secrets is barred by the applicable two-year statute of limitations with respect to Presson and McDevitt . See Pa.Cons.Stat.Ann. §§ 5524 (1987). The parties apparently agree that the alleged misappropriation occurred in April, 1989. Presson and McDevitt were named in an amended counterclaim filed February 19, 1991, within the statutory period. However, that amended counterclaim was dismissed, and a motion for leave to amend the counterclaim and the proper amended counterclaim were not filed until May 16, 1991, approximately one month after the close of the statutory period. *fn2" The question, then, is whether the May 16th motion "relates back" to the timely, original counterclaim and thereby falls within the statute of limitations. *fn3"

 The amended counterclaim seeks to join additional parties as counterclaim defendants; therefore, the appropriate starting point is Fed. R. Civ. P. 15(c), *fn4" which sets out the conditions for "relating back" with respect to "changing a party". *fn5" In Schiavone v. Fortune, 477 U.S. 21, 91 L. Ed. 2d 18, 106 S. Ct. 2379 (1986), the Supreme Court spelled out the relevant requirements for changing a party under Rule 15(c) as follows:

 (1) The basic claim must have arisen out of the conduct set forth in the original pleading;

 (2) the party to be brought in must have received such notice that it will not be prejudiced in maintaining its defense; (3) that party must or should have known that but for a mistake concerning identity, the action would not have been brought against it; and (4) the second and third requirements must have been fulfilled within the prescribed limitations period.

 477 U.S. at 29.

 Because the amended counterclaim recounts the same events described in the original pleading, and, indeed, essentially differs from the original counterclaim only in its caption, there can be no serious dispute that the first condition is satisfied. Therefore, I turn to the notice requirement, which is the "critical element" in deciding whether an amendment relates back, Avila v. Immigration and Naturalization Serv. 731 F.2d 616, 620 (9th Cir. 1984), *fn6" even in the context of additional parties. See E.E.O.C. v. Westinghouse Elec. Corp, 632 F. Supp. 343, 364 (E.D. Pa. 1986), aff'd in part, vacated in part, 869 F.2d 696 (3d Cir. 1989).

 Notice, to be effective under 15(c), need not be formal. Fed R. Civ. P. 15(c) advisory committee's note (1966); see Varlack v. SWC Caribbean, Inc., 550 F.2d 171 (3d Cir. 1977) (restaurant manager received sufficient notice when he admitted that he saw a complaint filed against the restaurant and an "unknown employee"). It may come in a variety of informal forms, any one of which, if effective in removing prejudice to defendant from inclusion of the untimely claim, suffices.

 First, notice may be imputed to parties added after the limitations period expired "when the original and added parties are so closely related in business or other activities that it is fair to presume the added parties learned of the institution of the action shortly after it was commenced." Hernandez Jimenez v. Calero Toledo, 604 F.2d 99, 101-02 (1st Cir. 1979). When a corporate entity is named in a complaint, those who own it or run its day-to-day business are typically deemed to have received constructive notice of the action. See, e.g., Seber v. Daniels Transfer Co.., 618 F. Supp. 1311 (W.D.Pa. 1985) (sufficient identity of interest between corporation and both its major stock owner and its chief executive officer); Itel Corp v. Cups Coal Co., 707 F.2d 1253 (11th Cir. 1983) (97% stock owner on constructive notice of action against defendant corporation). As principals and founders of APS, Presson and McDevitt have sufficient "identity of interest" with APS to have received constructive notice of the action when suit was brought against it.

 Secondly, courts in this Circuit have found notice sufficient "where a party who has some reason to expect his potential involvement as a defendant hears of the commencement of litigation through some informal means." Kinnally v. Bell of Pennsylvania, 748 F. Supp. 1136, 1141 (E.D.Pa. 1990). The initiation of a suit against APS in which Presson and McDevitt were repeatedly mentioned by name and charged with responsibility for misappropriating trade secrets from their former employer clearly gave them reason to be aware of their potential involvement as defendants. Given their close relation to APS, it is implausible that they did not hear about the commencement of the action against it. Moreover, the timely second amended complaint, naming them as additional counterclaim defendants, gave them explicit notice of Hi-Tech's intention to join them, as evidenced by the filing of a motion to strike the amended pleading one month later. The subsequent dismissal of the second amended counterclaim does not affect the quality of the notice that it conferred upon the principals.

 These various forms of notice-- taken together or looked at separately-- ensure that the principals will not now be prejudiced in maintaining their defense, especially where the motion for leave to amend was filed only a month after the end of the statutory period. Indeed, Presson and McDevitt have ...


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