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FLYNN v. HEALTH ADVOCATE

January 13, 2004.

KEVIN FLYNN and HEALTHCARE ADVOCATES, INC., Plaintiffs,
v.
HEALTH ADVOCATE, INC.; MICHAEL J. CARDILLO; ARTHUR LIEBOWITZ; THOMAS A. MASCRI, JR.; MARTIN B. ROSEN; DAVID ROCCHINO; JOHN PEPPELMAN; GORDON CONWELL & ASSOCIATES, INC.; and NANCY CONWELL, Defendants



The opinion of the court was delivered by: ROBERT KELLY, Senior District Judge

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*fn1 ("Rocchino") and John Peppelman ("Peppelman") (collectively the "HA Individual Defendants"). Finally, Plaintiffs brought suit against Page 2 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.

  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.

 II. FACTUAL BACKGROUND*fn2 Page 3

  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. Page 4

  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 Page 5 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)(citing Conley, 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 Page 6

  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 Page 7 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 ...


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