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Vizant Technologies, LLC v. Whitchurch

United States District Court, E.D. Pennsylvania

April 29, 2015

VIZANT TECHNOLOGIES, LLC, et al.
v.
JULIE P. WHITCHURCH, et al.

MEMORANDUM

HARVEY BARTLE, III, District Judge.

Plaintiffs Vizant Technologies, LLC ("Vizant") and its chief executive officer ("CEO") Joseph Bizzarro ("Bizzarro") have filed this action against Julie P. Whitchurch ("Whitchurch") and Jamie Davis ("Davis"), both of whom are former Vizant employees. Plaintiffs' ten-count complaint alleges: two violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968; breach of contract; misappropriation of trade secrets in violation of the Delaware Uniform Trade Secrets Act ("DUTSA"), Del. Code Ann. tit. 6, §§ 2001 et seq.; defamation; tortious interference with existing and prospective contractual relationships; abuse of process; conversion; fraud; and civil conspiracy.[1]

We have subject matter jurisdiction over plaintiffs' RICO claims under 28 U.S.C. § 1331 and supplemental jurisdiction over their remaining claims under 28 U.S.C. § 1367. Before the court is the motion of Vizant for preliminary injunctive relief on its claims for breach of contract, violations of DUTSA, tortious interference with existing and prospective contractual relationships, and defamation. The court held an evidentiary hearing on the motion and now makes the following findings of fact and conclusions of law.

I.

Vizant, formerly PE Systems, LLC, is a financial consulting firm. The company is organized under the laws of Delaware and has its principal place of business in Chadds Ford, Pennsylvania. At all times relevant hereto, its CEO has been plaintiff Bizzarro and its chief financial officer has been David Jablonski ("Jablonski"). Its three-member board of directors includes its chair Frank Seidman ("Seidman") as well as Lane Wiggers ("Wiggers").

Vizant is owned in part by Capital Solutions, Inc. ("Capital Solutions"), an entity founded by Seidman which is engaged by investors to monitor various portfolio companies. Vizant is among those companies monitored by Capital Solutions. Wiggers is a former Capital Solutions employee. In its history, Vizant has served nearly 3, 500 clients, approximately 800 of them current. It works with clients in both the for-profit and nonprofit sectors and operates on a national level.

Among other things, Vizant's expertise lies in identifying strategies for its clients to reduce the costs and fees associated with inbound payments such as the percentages clients are charged by credit card companies. Vizant develops these strategies by conducting a highly detailed assessment of a client's finances and by utilizing its detailed knowledge of credit card companies' methods of operation. Upon entering into an agreement with a new client, Vizant first obtains data from that client about its finances spanning the course of approximately one year. This process can take several months for Vizant to complete.

Vizant then conducts a detailed analysis of the data obtained from the client and generates a document known as a cost reduction report. Each cost reduction report contains background information about the client, including its reported sales and reported volume of inbound credit card payments. The cost reduction report then provides comprehensive information about the relevant costs being incurred by the client at the time the report is generated and defines "cost reduction opportunities, " which are essentially Vizant's recommendations as to how the client can reduce the charges associated with processing incoming credit card payments. These recommendations are in part the result of Vizant's negotiations with credit card providers to lower the client's rates. The recommendations also stem from Vizant's analytical processes, for which the company holds several patents. Vizant is compensated for its services on a "results basis." It shares with its clients any savings obtained as a result of the implementation of the recommendations outlined in the cost reduction report.

Vizant and its clients consider the contents of cost reduction reports to be sensitive and highly confidential. Vizant's clients have an interest in ensuring that the financial information about them contained in the reports is not disclosed to their competitors. It is not uncommon for prospective clients to require that Vizant enter into a nondisclosure agreement before they engage Vizant's services. Similarly, Vizant has an interest in maintaining secrecy with respect to its compensation from its clients and with respect to the reduction in rates it is able to negotiate with credit card servicers on behalf of its clients.

For these reasons, Vizant goes to great lengths to maintain the confidentiality of its cost reduction reports and other client data. For example, the company maintains a robust network security infrastructure and does not permit clients to submit data via email. Vizant also limits the number of employees who are privy to each cost reduction report for a client. In addition, Vizant requires all of its employees, including its CEO, to sign confidentiality agreements. Finally, the standard professional services agreement into which Vizant enters with new clients contains a confidentiality provision. This provision defines "Confidential Information" as

any and all information created by VIZANT not otherwise in the public domain prior to the execution of this Agreement, as well as information that was derived from the public domain but was subsequently collected into a list or other document of any kind or has been fashioned, manipulated, sorted, organized, categorized, and/or filtered by VIZANT. This shall specifically include but not be limited to VIZANT [sic] report given to Client."

According to the professional services agreement, the parties thereto must "hold all Confidential Information exchanged in strictest confidence" and said information "shall not be used by either party nor revealed to any third party... for any purpose other than to facilitate the performance of the parties' respective obligations under this Agreement."

Vizant hired defendant Julie Whitchurch in August 2011 as a Business Development Manager, a sales position. Defendant Jamie Davis, who is the sister of Whitchurch, became a Vizant employee approximately nine months later, also in the role of Business Development Manager. Whitchurch was promoted in July 2013 to the supervisory role of National Director of Business Development. Both defendants resided then, and reside now, in Georgia.

Each defendant, upon commencing her employment with Vizant, signed a document styled "Confidentiality, Non-Competition and Assignment Agreement"[2] (the "confidentiality agreement"). Each of these confidentiality agreements was also signed by Shawna Kurimura ("Kurimura"), a human resources official at Vizant.[3] The agreements contained detailed provisions regarding the handling of material that Vizant considered confidential, defining "Confidential Information" as follows:

"Confidential Information" means any of the proprietary or confidential information, technical data, trade secrets or know-how of the Company, in any form or format, including but not limited to product information; financial information; internal procedures and operations; marketing information and strategy; information regarding existing and potential customers; information on suppliers and sources with which the Company does business, including affiliates of suppliers and sources; the Company's manner of operation, strategies and plans; software, including all source and object code, whether completed or in development; inventions, whether or not patented or patentable; discoveries; improvements; processes; and other proprietary and commercial information.

The confidentiality agreements further provided, in relevant part:

Employee... acknowledges that all Confidential Information is required to be maintained in confidence for the continued success of the Company and its business. Therefore, Employee covenants and agrees that Employee will not disclose any Confidential Information to anyone who is not employed by the Company or who does not have a reasonable need to know such Confidential Information, either directly or indirectly, during the Service Term, or at any time thereafter, nor will Employee, directly or indirectly, use or permit others to use Confidential Information for any purpose other than in discharging Employee's duties as an employee for the exclusive benefit of the Company.

In addition, the agreements set forth an employee's obligations upon separation from Vizant:

At the end of the Service Term, Employee shall deliver to the Company, and shall not keep in his or her possession nor deliver to anyone else, the originals or copies, whether hard copies or electronic copies, of any and all Confidential Information. Employee agrees to cooperate with Company in all procedures that Company may adopt to assure that no Confidential Information is retained on computers and storage media belonging to or used by Employee.

The confidentiality agreements included a section entitled "Non-competition and Non-solicitation." In relevant part, that section stated:

2.1.1 During the period beginning on the Effective Date and ending on the date that is two years following the termination of the Service Term, Employee shall not, directly or indirectly, anywhere in the United States or any other geographic area in which Company markets or has marketed its products or services during the one-year period preceding the end of the Service Term:
2.1.1.1 Encourage any employee to terminate his or her employment with the Company... or in any way interfere with the Company's relationship with its employees;
2.1.1.2 Encourage or induce any customers or suppliers of the Company to terminate business activities with the Company;
2.1.1.3 engage in any diversion of good-will regarding the business as conducted by the Company; [or]
2.1.1.4 otherwise engage in the Business or assist any person or entity that engages in the Business.

The term "Business" was defined as "the business of the Company as conducted by the Company (including any business for which the Company has devoted meaningful development activities) during the period from the Effective Date until the end of the Service Term."

A section of the confidentiality agreements made clear that they are to be "governed and construed in accordance with the internal laws of the State of Delaware without regard to its choice or conflicts of law provisions."

Both Whitchurch and Davis also signed acknowledgments that they had received a copy of Vizant's employee handbook. That handbook stipulated that "[a]fter separation from employment (voluntary or involuntary), employees are expected to return to [Vizant] all confidential information, materials, property and equipment in their possession."

Upon being promoted to the position of National Director of Business Development in July 2013, Whitchurch had responsibility for the supervision of a team of Vizant salespeople. She reported directly to Bizzarro, the CEO. Among the members of her team were Davis and an individual named Elizabeth Aeron Sharp ("Sharp"). Sharp, who now serves as Vizant's National Director of Business Development, recounted that during the time she was supervised by Whitchurch, the relationship between Whitchurch and Bizzarro was strained. In conversations with members of her sales team, Whitchurch referred to Bizzarro as an "asshole" and characterized him as a difficult person with whom to work. Whitchurch also restricted the ability of members of her team to communicate directly with Vizant's upper management. For example, when Sharp asked Whitchurch to help her "move up the ladder" and to assist her in making a connection with Bizzarro, Whitchurch declined to put the two in contact.

Over the course of the summer and early fall of 2013, Vizant experienced some cash flow issues at least in part because of nonpayment by a large client. Around this time, Bizzarro made a sizable non-interest-bearing loan to Vizant. He also personally guaranteed a loan at the request of a Vizant lender. On occasion during this period, Vizant's payroll and some commissions of its salespeople were slightly delayed. Whitchurch received complaints and pleas from some of her salespeople as a result.

In summer 2013, certain payments by Vizant to its employees' health insurance provider were also slightly delayed. At least some employees received a notice from the insurer indicating that their coverage had been cancelled. One or more employees faced temporary difficulty in obtaining coverage for prescriptions and medical appointments. Whitchurch, upon becoming aware of the issue, communicated the concerns of members of her team to Bizzarro and to Vizant's human resources department. The evidence demonstrates that ultimately there was no gap in any coverage, and there is nothing in the record to show that any employee was actually forced to pay any medical expenses due to the coverage problems.

In October 2013, Vizant's upper management made the decision to demote Whitchurch to Regional Sales and Business Development Manager. Accordingly, her salary was reduced by $10, 000 annually. Whitchurch testified that she was never made aware of this demotion, and that it was her belief that she remained Vizant's National Director of Business Development until the date of her termination. Whitchurch did continue to represent herself until her termination as National Director of Business Development, including on at least one email sent to Bizzarro.

In early December 2013, Whitchurch phoned Michael Mikulski ("Mikulski"), a former Vizant employee, and told him that members of Vizant upper management were committing fraud. Mikulski informed Seidman, the chair of Vizant's board, of the call, and Seidman in turn relayed the information to Wiggers, a board member. Wiggers contacted Mikulski, who recounted that Whitchurch had made accusations of fraud, failure to pay employees, and the existence of a Ponzi scheme. Within approximately one day of speaking to Mikulski, Wiggers contacted Whitchurch, who made similar accusations directly to him. After instructing Whitchurch that she should contact human resources about any payroll and benefits concerns, Wiggers spoke with Seidman. The two agreed that Wiggers should interview Bizzarro without informing him of what Whitchurch had said.

Wiggers then initiated a conversation with Bizzarro. He first asked Bizzarro whether Vizant was considering termination of any of the company's employees. Bizzarro immediately identified both Whitchurch and Davis. Wiggers then interviewed Bizzarro about the alleged malfeasance described by Whitchurch. Wiggers also conducted a similar interview with Jablonski, Vizant's chief financial officer, who identified Whitchurch as a likely candidate for termination. Ultimately, Wiggers found no evidence of fraud or of a Ponzi scheme and concluded that Whitchurch was simply a disgruntled employee. He reported his conclusions to Vizant's board of directors.

On December 4, 2013, within approximately one day of the conclusion of Wiggers' investigation, Whitchurch was discharged from her position at Vizant. Davis was fired the next day. The reasons for defendants' termination are not made entirely clear in the record. However, the court heard credible testimony that Whitchurch had, prior to her termination, clashed with her superiors over the proper use of her company-issued credit card. When Whitchurch's expenses exceeded the credit card limits imposed by Vizant, Davis apparently permitted Whitchurch to use her company-issued credit card.

Immediately after terminating Whitchurch, Vizant sent her a letter reminding her of her obligations under the confidentiality agreement which she had signed. In response, on December 5 Whitchurch sent an email from her Gmail account to Vizant's counsel as well as to Bizzarro, Wiggers, and Seidman in an apparent attempt to provide proof of her accusations of illegality. Attached to the email were: a marked-up copy of the letter Vizant had sent to Whitchurch immediately after her termination; a letter from Whitchurch re-hashing her accusations and challenging the statements in Vizant's letter; and PDF and Word files entitled "Promotion Announcement, " "Whitchurch National Director Offer, " "Grave concerns, " "16 payroll emails, " "Health insurance emails, " "5 more payroll emails, " "Inflated cost reduction reports, " and "Amazon gift cards."

Although none of the attachments to the email appeared to bolster the allegations levied by Whitchurch, Wiggers decided to enlist Vizant's outside counsel and Vizant's in-house counsel to conduct an independent review. The reports which resulted from these investigations left Wiggers and the rest of the board satisfied that no fraud or Ponzi scheme had taken place. Vizant's independent auditors have also given Vizant a clean audit report for the relevant year. In sum, there is no evidence in the record demonstrating the existence of any fraud, Ponzi scheme, or criminal activity by Bizzarro or anyone who is a part of Vizant's upper management as charged by defendants.

In addition to her assertions that members of Vizant's upper management were engaged in fraud and a Ponzi scheme, Whitchurch, following her termination, claimed that Vizant owed her money including money for accrued paid time off and for out-of-pocket expenses Whitchurch had paid. Whitchurch maintains that when Vizant did attempt to pay her for this accrued time, she was improperly paid at her reduced post-demotion salary rather than at her National Director salary. As of the ...


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