United States District Court, E.D. Pennsylvania
January 13, 2004.
KEVIN FLYNN and HEALTHCARE ADVOCATES, INC., Plaintiffs,
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
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
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
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.
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
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
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
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
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
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
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.
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
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
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
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
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,
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
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, ¶
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.*fn5
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
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
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.
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.
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
Prods. Co., 256 F. Supp.2d 329, 340 (E.D. Pa. 2003) (citing
Etoll, 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.
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 (discussing
Foster 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,
Air Prods. & Chems., 256 F. Supp.2d at 341 (citing
Foster, 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). In
Bohler-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."
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
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
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.*fn6 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.*fn7 See id.
Therefore, the Court will dismiss Plaintiffs copyright claim without
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.