United States District Court, W.D. Pennsylvania
STEPHEN M. PEEK, et al., Plaintiffs,
THOMAS WHITTAKER, et al., Defendants.
MARK R. HORNAK, District Judge.
This case is the latest skirmish in the on-going battle between two carpet-cleaning rivals, and is the federal court spill-over of their hotly-contested Pennsylvania state court lawsuit.
Plaintiffs Stephen Peek ("Mr. Peek"), Paul Offutt ("Mr. Offutt"), and Clear Floor Care, LLC ("Clear Floor Care"), a company organized and owned by the individual Plaintiffs, filed this suit against Defendants Thomas Whittaker ("Mr. Whittaker") and R.E. Whittaker Company ("Whittaker Co."), alleging violations of the Dragonetti Act, 42 Pa. Cons. Stat. § 8351 et seq., the Pennsylvania Uniform Trade Secrets Act, 12 Pa. Cons. Stat. § 5301 et seq. ("PUTSA"), and the Lanham Act, 15 U.S.C. § 1051 et seq., as well as claims for unfair competition, abuse of process, and fraud. Plaintiffs assert that Mr. Whittaker and his company improperly sued them in Pennsylvania state court without probable cause, obtained a preliminary injunction ("PT") against their business from that court on the basis of knowingly false testimony and affirmative misrepresentations in and to that court, and then publicized that injunction in the carpet-cleaning world in an effort to further stifle Plaintiffs' ability to compete.
Pending before the Court is Defendants Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6). ECF No, 8. The Court has had the benefit of two oral arguments on the Motion. See ECF Nos. 13, 25. Having considered those arguments, the Amended Complaint ("AC"), ECF No. 14, the parties' briefs, ECF Nos. 9, 11, Plaintiffs' response, ECF No. 12, the parties' supplemental briefs filed at the Court's request, ECF Nos. 16, 18, and Plaintiffs' reply, ECF No. 20, the Court will grant in part and deny in part the Motion to Dismiss.
This protracted litigation campaign has been waged by the parties over more than half a decade with heaping amounts of steadfast resolve. The Court will now briefly recount the tale of the various stages of this multi-jurisdictional clash For the purposes of the disposition of Defendants' Motion to Dismiss, the essential facts, viewed in the light most favorable to the Plaintiffs, are as follows.
Whittaker Co. sells commercial carpet-cleaning machines and fluids to individuals and businesses. AC ¶ 9. Mr. Whittaker is the chief operating officer and majority shareholder of Whittaker Co. Id. ¶ 7, Mr. Offutt was a Whittaker Co employee from June 21, 2007 to June 21, 2008, when he was terminated. Id. ¶¶ 11, 15. After his termination, Mr. Offutt began discussing the idea of starting a similar carpet-cleaning machine and fluid sales business with Mr. Peek, a Georgia businessman. Id. ¶¶ 8, 12. Unbeknownst to Mr. Peek, Mr. Offutt also discussed the prospect of such a business with Paul Stephenson ("Mr. Stephenson"), another former employee of Whittaker Co. who had been terminated. Id. ¶¶ 19, 10, 16. In furtherance of his discussions with Mr. Peek and Mr. Stephenson, Mr. Offutt contacted several carpet-cleaning machine manufacturers, including an Austrian company called RotoWash. Id. ¶ 20.
On October 22, 2008, Whittaker Co, filed suit against Peek, Stephenson, and Offutt on its home turf in the Court of Common Pleas of Lawrence County, Pennsylvania. Id. ¶ 21. That complaint set forth ten (10) causes of action against them. Id. ¶ 22. Just about all of the counts involved the central allegation that they were using trade secret information that belonged to Whittaker Co. to start a competing business, while the others stemmed from the alleged violation of restrictive covenants pertaining to Mr. Offutt's and Mr. Stephenson's terms of employment with Whittaker Co. Id. ¶ 24; ECF No. 14-4 at 5. Then, on January 13, 2009, Whittaker Co. filed a second Lawrence County lawsuit, this time against Clear Floor Care - an LLC organized and solely owned by Offutt and Peek - related to the same allegations of misappropriation of trade secrets and breach of contracts. Id. ¶ 25. Whittaker Co. then filed a petition for a PI seeking to prevent Clear Floor Care and the individual defendants in the original lawsuit from competing in the carpet-cleaning business. Id. ¶ 26. The state court held a multi-day hearing on the petition, during which Whittaker Co. presented testimony from a number of witnesses supporting its claim that the defendants there stole trade secret information from Whittaker Co. and were using it in competition against them. Id. ¶¶ 27-28.
One of the witnesses called by Whittaker Co. was a computer expert named John Sloane ("Mr. Sloane"), who represented that he had investigated the allegation that Mr. Stephenson used external data storage devices to copy a confidential customer list from Whittaker Co.'s computer network. Id. ¶¶ 29-32; ECF No. 9-1 at 21. Mr. Sloane testified that immediately after Mr. Stephenson was terminated, he (Mr. Stephenson) attached an external hard drive (known as a Passport) and a thumb drive - both of which Mr. Sloane said were capable of downloading from the network all of the information in Whittaker Co.'s customer databases - to his company laptop computer. Id. ¶ 30. Whittaker Co. also claimed that Mr. Stephenson stole trade secret information when he took with him a number of legal pads he had used to take notes during his employment with the company. Id. ¶ 38.
Whittaker Co. further argued at the hearing that the defendants were attempting to use the chemical formulas for its carpet-cleaning fluids - which Whittaker Co. maintained, along with the identity of the manufacturer of the fluids (Scott Labs), were trade secrets - for their own carpet-cleaning fluids. Id. ¶¶ 34-36. Whittaker Co. professed that the identity of its equipment manufacturer. RotoWash, was also a trade secret, and that it was the only authorized distributor of RotoWash machines in the United States, Canada, and Mexico. Id. ¶ 37.
In his PI opinion, Lawrence County Common Pleas Judge Dominick Motto concluded that the defendants "engaged in a conspiracy to unlawfully utilize confidential information and trade secrets obtained while Stephenson and Offutt were employed by [Whittaker Co.] and use this information to the advantage of all defendants by engaging in a business competing with [Whittaker Col." ECF No. 14-4 at 27. Judge Motto also decided that the defendants misappropriated trade secrets and other property of Whittaker Co. and unlawfully interfered with Whittaker Co.'s business and contractual relationships, and that Mr. Offutt breached the terms of his employment agreement with Whittaker Co. Id. at 27-28. As a result, he entered a PI prohibiting Clear Floor Care and Offutt, Peek, and Stephenson from (1) engaging in any activity that directly or indirectly competed with the business of Whittaker Co., (2) soliciting Whittaker Co.'s customers or employees in any way, and (3) using or disclosing Whittaker Co.'s trade secrets. Id at 2-3. The PT also enjoined Mr. Offutt from violating the non-competition provisions of his employment agreement with Whittaker Co. Id.; AC ¶ 39. Plaintiffs appealed the PT to the Pennsylvania Superior Court, which adopted the lower court's findings and affirmed the injunctive order. Id. ¶¶ 56-60; ECF No. 9-1.
When the case returned to the Lawrence County court for post-PI proceedings, the parties engaged in a substantial amount of discovery. Id. ¶ 61-62. The defendants in that court notably took the depositions of Mr. Whittaker, several other key Whittaker Co. employees, and the computer experts hired by Whittaker Co. Id, ¶ 62. On the strength of the record developed by that discovery, the defendants moved for summary judgment. Id. ¶ 63. Judge Motto granted the motion and dismissed both of Whittaker Co.'s complaints in their entirety. Id. ¶ 64; ECF No. 14-6 at 29.
In his summary judgment Opinion, Judge Motto concluded that there was "no evidence that any defendant obtained a compilation of [Whittaker Co.'s] customers and customer data." ECF No. 14-6 at 15. Judge Motto reached his decision due to an admission by Mr. Whittaker at his deposition (confirmed by Whittaker Co.'s corporate designee at his own deposition) that Mr. Stephenson's laptop did not have access to the databases that contained customer data and could not download or copy information from those databases. Id. at 15-16. Additionally, the Passport and thumb drive Mr. Stephenson attached to his laptop contained nothing that could be "considered to be trade secret or confidential." Id. at 16. Judge Motto also found no evidence to support Whittaker Co.'s assertion that Mr. Stephenson's note pads contained any customer lists or other protected information. Id. at 18.
As to Whittaker Co.'s other claims of trade secret misappropriation, Judge Motto decided that the identity of Scott Labs as Whittaker Co.'s chemical products manufacturer was not a trade secret and was in fact well known, that the formula for the cleaning fluid Whittaker Co. used in its machines belonged to Scott Labs, not Whittaker Co., and that Whittaker Co. did not even know the formula. Id. at 18-20. In conclusion, Judge Motto wrote, "[Whittaker Co.] has failed to show the existence of any trade secret misappropriated by any [d]efendant." Id. at 22. After it was established that there was no actionable breach of contract or breach of fiduciary duty by Offutt or Stephenson, Judge Motto held the remaining counts of the complaint "must fail once it is determined that there does not exist evidence that any of the [d]efendants misappropriated any trade secrets or confidential information and that there is no evidence of any damages suffered by [p]laintiff as the result of any conduct of the [d]efendants." Id. at 26. Judge Motto also observed that "the record presently before the [c]ourt is much different that [sic] the record upon which the [c]ourt relied in issuing its preliminary injunction." Id. at 28.
After the grant of summary judgment in their favor by Judge Motto, Clear Floor Care, Mr. Peek, and Mr. Offutt filed this action against Whittaker Co. and Mr. Whittaker in this Court. The AC contains the following allegations:
- Defendants filed both complaints and the PT petition "without probable cause and for an improper purpose, " knowing that their trade secret misappropriation claims were false. AC ¶¶ 73-74.
- Defendants "knew when they presented evidence at the preliminary injunction hearing of the existence or ownership of a trade secret, that such evidence was false." AC ¶ 65.
- Mr. Whittaker and other Whittaker Co. employees knew that Mr. Stephenson could not access customer databases from his laptop and that the formulas for their fluids and the identity of the manufacturer of those fluids were not their trade secrets when the company made contrary representations at the hearing. Id. ¶¶ 66, 68-69.
- Defendants knowingly and intentionally presented this false evidence and testimony to the Lawrence County court to obtain a PT preventing Plaintiffs from starting a business that would have competed with Whittaker Co. Id. ¶¶ 67, 73.
- Immediately following the grant of the PI, Defendants sent copies of the PI order which contained false information - to third-party carpet manufacturers and customers to persuade them not to do business with Plaintiffs. Id. ¶¶ 77-79.
On the basis of the PI, Mr. Whittaker successfully persuaded Scott Labs not to sell cleaning fluids to Clear Floor Care. Id. ¶ 80.
Plaintiffs contend that the Defendants' actions establish liability under the Dragonetti Act for initiating civil proceedings with an improper purpose and without probable cause, PUTSA for filing a trade secret misappropriation action in bad faith and for an improper purpose, the Lanham Act for false advertising, and for unfair competition, abuse of process, and fraud.
A. Standard of ...