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youtie v. Macy's Retail Holding

September 10, 2009

PHILIP YOUTIE
v.
MACY'S RETAIL HOLDING, INC., AND MACY'S, INC.



The opinion of the court was delivered by: O'neill, J.

MEMORANDUM

At issue here are defendants' Macy's Inc. (Macy's)*fn1 and Macy's Retail Holdings, Inc. (Macy's Retail)*fn2 remaining counterclaims and requests for damages and equitable relief with regard to plaintiff Philip Youtie's alleged acquisition and disclosure of the relevant first cost data. Defendants' counterclaims include misappropriation of trade secrets and/or confidential and proprietary information, breach of fiduciary duty and duty of loyalty, unjust enrichment, unfair competition, and violations of the Pennsylvania Uniform Trade Secrets Act (PUTSA), 12 Pa. Cons. Stat. Ann. § 5301, et seq. (2004). Presently before me are defendants' second motion for summary judgment on their counterclaims and requests for relief (D. No. 68) and plaintiff's response thereto, plaintiff's second motion for summary judgment on defendants' counterclaims and requests for relief (D. No. 74) and defendants' response thereto, and the supporting and supplemental briefing.

BACKGROUND

I. Procedural History

On August 3, 2007, plaintiff Philip Youtie filed a complaint against defendant Macy's alleging a breach of plaintiff's employment agreement and violations of the Pennsylvania Wage Payment and Collection Law (WPCL), 43 P.S. § 260.1, et seq. On December 17, 2007, Macy's filed an answer, affirmative defenses and counterclaims seeking damages and injunctive relief and alleging that plaintiff breached his employment agreement, misappropriated trade secrets and/or confidential and proprietary information, breached his fiduciary duty and duty of loyalty, engaged in tortious interference with business and employment relations, was unjustly enriched and engaged in unfair competition. On August 19, 2008, plaintiff filed an answer to Macy's counterclaims. On March 26, 2009, plaintiff filed an amended complaint against defendants alleging the same claims and adding Macy's Retail as an additional defendant. Defendants filed their answer to the amended complaint, affirmative defenses and identical counterclaims against plaintiff on April 15, 2009. On May 5, 2009, plaintiff filed his answer to defendants' counterclaims.

The parties filed their first cross-motions for summary judgment in the autumn of 2008. On June 5, 2009, I ruled on the motions as follows: (1) I granted defendants' and denied plaintiff's motion for summary judgment on plaintiff's breach of contract and WPCL claims and entered judgment for defendants and against plaintiff on that claim; (2) I granted plaintiff's and denied defendants' motion for summary judgment on defendants' counterclaims of breach of contract, breach of fiduciary duty and duty of loyalty and tortious interference with business and employment relations with respect to plaintiff's introduction of David's Bridal employee Linda Shaps-Shanin to Steven Erlbaum; (3) I granted defendants' and denied plaintiff's motion for summary judgment on defendants' counterclaim of breach of contract for plaintiff's request for and disclosure of the first cost data; (4) I denied without prejudice plaintiff's and defendants' motion for summary judgment on defendants' counterclaims of misappropriation of trade secrets and/or confidential and proprietary information, breach of fiduciary duty and duty of loyalty, unjust enrichment and unfair competition with regard to plaintiff's request for and disclosure of "first cost" data and allowed defendants to file an amended counterclaim complaint adding a claim under the PUTSA; (5) I allowed the parties to file motions for summary judgment thereafter; and (6) I denied without prejudice plaintiff's motion for summary judgment on defendants' request for injunctive relief.

On June 20, 2009, defendants filed an amended counterclaim complaint to also include a claim under the PUTSA. Defendants filed their second motion for summary judgment on their counterclaims on June 20, 2009 and plaintiff filed his second cross-motion for summary judgment on July 7, 2009. These cross-motions are currently pending before me. On June 23, 2009 I ordered the parties to file supplemental briefing to address specific issues related to defendants' counterclaims that were not fully briefed in the motions.*fn3 On July 14, 2009, plaintiff filed his answer to defendants' amended counterclaim. Plaintiff filed his supplemental briefing on July 13, 2009 and defendants filed their supplemental briefing on July 20, 2009. David's Bridal moved to intervene in defendants' counterclaims and I denied this request on August 31, 2009.

II. Factual History

Defendants, corporations based in New York and Delaware, argue that the conduct of plaintiff, a Florida citizen, during his employment gave rise to their causes of action against him.

On August 1, 2000, Macy's acquired all of the publicly-held shares of David's Bridal. David's Bridal is a corporation and a clothier specializing in bridal gowns and other formal wear and accessories. Plaintiff had purchased David's Bridal in 1972, expanded the operations, partnered with Steven Erlbaum beginning in 1989 or 1990 and with Erlbaum made a public offering of David's Bridal's stock in 1999. After Macy's acquired David's Bridal, on or about October 1, 2001, plaintiff entered into a contract of employment with a division of Macy's, Macy's Retail. In accordance with the terms of the agreement, plaintiff served as the Executive Vice-President, Product Development and Sourcing of the David's Bridal division of Macy's Retail. On November 17, 2006, an affiliate of Leonard Green & Partners signed an agreement with Macy's to acquire David's Bridal. The sale and transfer of stock of David's Bridal to the Leonard Green affiliate was consummated on January 31, 2007. As part of the transaction, Macy's subsidiary Macy's Retail assigned its employment agreement with plaintiff to David's Bridal. This assignment provided the basis for plaintiff's breach of contract and WPCL claims on which I entered judgment in favor of defendants in my June 5, 2009 Order.

David's Bridal sent plaintiff a letter terminating his employment as Executive Vice President "for cause" on February 27, 2007 based upon his allegedly competitive and disloyal conduct that is the basis of defendants' counterclaims.

Defendants claim that, in late 2006, plaintiff asked Linda Shaps-Shanin, Vice President and General Merchandising Manager of David's Bridal, for first cost data involving the costs incurred by the company to manufacture its bridal dresses and gowns. It is further alleged that, despite being denied access to this information, plaintiff renewed his request for such information to Shaps-Shanin and her assistant Sharon Zuk in January 2007 but was again denied. Plaintiff denies that he asked Shaps-Shanin or Zuk for the first cost data. However, plaintiff admits that he obtained the first cost data on the dresses in David's Bridal's Spring 2007 catalogue from Lydia Chow, an employee of Fillberg LTD, David's Bridal's Hong Kong marketing representation, during a business trip to Hong Kong in January 2007 with David's Bridal employees. Plaintiff admits that when he asked Chow for the first cost data that he told her he wanted the information to "make sure that the costs were in line at that time." Plaintiff does not dispute that the first cost data at issue is the cost the manufacturers charged David's Bridal to manufacture the designs David's Bridal provided the manufacturers for its Spring 2007 catalogue. Additionally, plaintiff admitted in his affidavit that he "asked for the [first] cost data because [] Erlbaum . . . was interested in what David's Bridal paid various manufacturers for the dresses they manufactured."

Plaintiff further admits that he gave a copy of the cost sheet to Erlbaum. However, whether plaintiff provided the first cost data to Erlbaum while still employed by Macy's Retail, after his agreement was assigned to David's Bridal or after he was terminated by David's Bridal is uncertain. Defendants claim that plaintiff provided conflicting testimony regarding the timing of the disclosure. He stated: (1) in his June 2008 deposition testimony that he did not know when he disclosed the first cost data to Erlbaum; (2) in his December 29, 2008 response to defendants' partial motion for summary judgment that, although he did not recall exactly when he provided the first cost data to Erlbaum, he recalls that he disclosed it after he recovered from his January 2007 surgical procedure which would have been some time in February 2007 when he was employed by David's Bridal; and (3) in his July 14, 2009 answer to defendants' counterclaim that he did not disclose the information "until after his employment with David's Bridal was terminated on February 27, 2007."

Plaintiff also admits that he and his former partner Erlbaum had general discussions about Erlbaum returning to the bridal clothier business. However, he states that no specifics were discussed and that neither had plans to enter into a business in competition with David's Bridal. In his deposition on June 4, 2008, plaintiff testified that, during the period in which he was still employed by David's Bridal, he and Erlbaum discussed starting a business in "direct competition" with David's Bridal but that no specifics were discussed. However, in his December 2008 affidavit, plaintiff claimed that the potential business discussed was "a wholesale dress manufacturing business in an off-shore location" that "would not compete in any way with David's Bridal."

Additionally, plaintiff admits that he introduced Shaps-Shanin to Erlbaum on January 29, 2007 but claims that he did so at her request. He also admits that, after this meeting, he asked Shaps-Shanin for a copy of her employment agreement but claims that she refused to give it to him. Although Shaps-Shanin asserted that Erlbaum "attempted to convince [her] to join [him] in a competing bridal business," plaintiff argues that it is uncontroverted that Erlbaum never established any type of business and that Shaps-Shanin never left David's Bridal's employ. Defendants dispute that Shaps-Shanin in any way instigated her introduction to Erlbaum.

Section 6(a) of the Employment Agreement prohibited plaintiff "at any time, directly or indirectly, [from] us[ing] or disclos[ing] any of May's [aka Macy's Retails'] Confidential Information except as authorized and within the scope of [his] employment with May [aka Macy's Retail.]" Section 6(d) defines Confidential Information as: any non-public information pertaining to May's business. Confidential Information includes information disclosed by May to you, and information developed or learned by you during the course of or as a result of your employment with May, which you also agree is May's property . . . . Confidential Information includes, without limitation, information and documents concerning May's processes, suppliers (including May's terms, conditions and other business arrangements with suppliers); supplier and customer lists; advertising and marketing plans and strategies; profit margins; seasonal plans, goals, objectives and projections; compilations, anaylses and projections regarding May's divisions, stores, product segments, product lines, suppliers, sales and expenses; files; trade secrets and patent applications (prior to their being public); salary, staffing and employment information (including information about performance of other executives); and "know-how," techniques or any technical information not of a published nature relating, for example, how May conducts its business.

The agreement also contained a non-compete clause for conflicts of interest constraining plaintiff with the following language:

5. Avoiding Conflict of Interest. (a) At all times while you are employed by May and for one year after your employment terminates, you will not directly or indirectly:

(i) own, manage, operate, finance, join, control, advise, consult, render services to, have an interest or future interest in or participate in the ownership, management, operation, financing or control of, or be employed by or connected in any manner with any Competing Business;

(ii) solicit for employment, hire or offer employment to, or otherwise aid or assist (by disclosing information about employees or otherwise) any person or entity other than David's Bridal, May or another May subsidiary in soliciting for employment, hiring or offering employment to, any employee of David's Bridal, May or another May subsidiary; or

(iii) take any action which is intended to harm David's Bridal or May or either of their reputations, or that David's Bridal or May reasonably concludes could harm David's Bridal or May or their reputations or lead to unwanted or unfavorable publicity for David's Bridal or May.

STANDARD OF REVIEW

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." An issue of material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment will be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party moving for summary judgment has the burden of demonstrating that there are no genuine issues of material fact. Id. at 322-23. If the moving party sustains the burden, the nonmoving party must set forth facts demonstrating the existence of a genuine issue for trial. See Anderson, 477 U.S. at 255.

When a properly supported motion for summary judgment is made, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The adverse party must raise "more than a mere scintilla of evidence in its favor" in order to overcome a summary judgment motion and cannot survive by relying on unsupported assertions, conclusory allegations, or mere suspicions. Williams v. Borough of W. Chester, 891 F.2d 458, 460 (3d Cir. 1989). However, the "existence of disputed issues of material fact should be ascertained by resolving all inferences, doubts and issues of credibility against [the moving party]." Ely v. Hall's Motor Transit Co., 590 F.2d 62, 66 (3d Cir. 1978), citations and quotation marks omitted.

DISCUSSION

Defendants seek summary judgment on their PUTSA counterclaims and their common law counterclaims of misappropriation of trade secrets and/or confidential and proprietary information, breach of fiduciary duty and duty of loyalty, tortious interference with business and employment relations, unjust enrichment and unfair competition with regard to plaintiff's alleged acquisition and disclosure of the relevant first cost data.*fn4 Plaintiff filed a cross-motion for summary judgment on defendants' counterclaims. Plaintiff argues that defendants' common law counterclaims are preempted by defendants' PUTSA counterclaims. Additionally, plaintiff argues that defendants' PUTSA counterclaims fail on the merits. The parties also dispute the type of relief available to defendants.

I. PUTSA Trade Secret and Preemption

As I found in my June 5, 2009 Memorandum if the first cost data is found to be a trade secret under the PUTSA defendants' common law counterclaims are preempted. Youtie, 626 F. Supp. 2d at 522-23 (E.D. Pa. 2009). Defendants concede that their common law counterclaims are preempted under the PUTSA if the first cost data is a trade secret. Plaintiff argues that defendants' common law claims (Counts 3-7) are preempted and defendants may proceed under the PUTSA (Count 8) only, but does not explicitly concede that the first cost data is a trade secret under the PUTSA.*fn5

The relevant section of the PUTSA provides as follows:

(a) General rule.--Except as provided in subsection (b), this chapter displaces conflicting tort, restitutionary and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.

(1) contractual remedies, whether or not based upon misappropriation of a trade secret;

(2) other civil remedies that are not based upon misappropriation of a trade secret; or

(3) criminal remedies, whether or not based upon misappropriation of a trade secret.

12 Pa. C.S.A. § 5308. The dominant view of courts in states that have also adopted the Uniform Trade Secrets Act of 1985 is that preemption exists to the extent that defendants' counterclaims are based on the same conduct that is said to constitute a misappropriation of trade secrets. See, e.g., Motorola, Inc. v. Lemko Corp., 2009 WL 383444, at *10 (N.D. Ill. Feb. 11, 2009); Hecny Trans., Inc. v. Chu, 430 F.3d 402, 404-05 (7th Cir. 2005); Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1296-98 (11th Cir. 2003); Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002). As discussed in my June 5, 2009 Memorandum, defendants' counterclaims for misappropriation of trade secrets and/or confidential and proprietary information, breach of ...


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