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Healthcare Advocates v. Affordable Healthcare Options

November 18, 2010


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


Plaintiff HealthCare Advocates filed suit against defendants Affordable Healthcare Options and its subsidiaries for breach of contract, conversion, civil conspiracy and unjust enrichment and for violations of the Lanham Act, 15 U.S.C. § 1125, and the Pennsylvania Uniform Trade Secrets Act, 12 Pa. Cons. Stat. Ann. §§ 5301-5308. After defendants failed to appear or defend the suit, I entered default judgment against them pursuant to Fed. R. Civ. P. 55(a). I currently have before me plaintiff's motion for damages and attorneys' fees. On July 13, 2010, I held a damages hearing. On August 24, 2010, plaintiff supplemented the record with invoices that AHCO had allegedly never paid. For the following reasons, I will award plaintiff $107,350 and I will deny its request for attorneys' fees.


Plaintiff is an organization that provides advice regarding health care providers and networks to individuals in need of health care services. Plaintiff claims that it helps uninsured persons obtain health care and works with providers to obtain coverage for applicants the provider otherwise would not accept. Plaintiff also seeks alternative methods to reduce the costs of health care for its clients. Plaintiff alleges that through its expertise and informational advantages it has developed a method by which it can provide its services to individuals without requiring them to be in a health care network.

In 2006 and 2007, plaintiff contracted with AHCO to provide its services to AHCO and AHCO's clients. As part of its contractual relationship with plaintiff, AHCO requested and obtained from plaintiff proprietary information regarding plaintiff's business practices and methodologies. Plaintiff alleges that after AHCO had obtained plaintiff's trade secrets, it decided to move in-house some of the services it had previously paid plaintiff to provide. To accomplish this end, AHCO organized several new companies: Maternity Advantage, Reproductive Access Solutions, Maternity Health, NBSG, LLC and American Maternity Association. These newly formed companies improperly incorporated plaintiff's methodologies and trade secrets into their business models without plaintiff's permission and without compensating plaintiff. Plaintiff alleges that it continued to work on open cases in 2008 at AHCO's request but never received payment for its services.


As a consequence of default judgment, "the factual allegations in the complaint, except those pertaining to damages, will be taken as true." Comdyne I v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990). A court should not merely accept as true allegations pertaining to damages. Virgin Records Am., Inc. v. Bagan, No. 08-4694, 2009 WL 2170153, at *2 (D.N.J. July 21, 2009). Instead, it must "conduct its own inquiry in order to ascertain damages with a reasonable certainty." Id. (internal quotation marks omitted). "In considering the amount of damages or the truth of an averment of evidence, the Court may make its determination by conducting a hearing or by receiving detailed affidavits from the claimant." Eastern Elec. Corp. of New Jersey v. Shoemaker Const. Co., 657 F. Supp. 2d 545, 552 (E.D. Pa. 2009).


Plaintiff argues that it is entitled to damages for AHCO's wrongful conduct. It also seeks an award of attorneys' fees under the Lanham Act.

I. Value of the Trade Secrets

Pennsylvania law requires plaintiff to prove damages with reasonable certainty. ATACS Corp. v. Trans World Commc'n, Inc., 155 F.3d 659, 669 (3d Cir. 1998). Although reasonable certainty is an imprecise term, Pennsylvania courts have held that it equates to "a rough calculation that is not 'too speculative, vague or contingent' upon some unknown factor." See id. (quoting Spang & Co. v. United States Steel Corp., 545 A.2d 861, 866 (Pa. 1988)).

"There are two basic methods for assessing damages for misappropriation of trade secrets: one, the damages sustained by the victim (the traditional common law remedy), and the other, the profits earned by the wrongdoer by the use of the misappropriated material (an equitable remedy which treats the wrongdoer as trustee ex maleficio for the victim of the wrongdoer's gains from his wrongdoing)."*fn1 Greenberg v. Croydon Plastics Co., Inc., 378 F. Supp. 806, 816-17 (E.D. Pa. 1974). I must decide whether plaintiff has produced sufficient evidence, under either method, to establish its damages with reasonable certainty. Plaintiff argues that the damages it sustained can be calculated in two ways based on the evidence in the record.

A. The Cost of Developing the Trade Secrets Is Not an Adequate Measure of Plaintiff's Damages

First, plaintiff argues that the cost of developing the trade secrets is an adequate measure of the damages it incurred. At the damages hearing, plaintiff's president Kevin Flynn testified that it took him approximately six hundred hours to develop the proprietary information and methods that were allegedly misappropriated by AHCO. He further opined that his ...

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