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Brand Energy & Infrastructure Services, Inc. v. Irex Contracting Group

United States District Court, E.D. Pennsylvania

March 24, 2017

BRAND ENERGY & INFRASTRUCTURE SERVICES, INC., et al., Plaintiffs,
v.
IREX CONTRACTING GROUP, et al., Defendants.

          MEMORANDUM

          STENGEL, J.

         Brand Energy & Infrastructure Services, Inc., a construction company, contends that some of its former employees stole its trade secrets and equipment, and misappropriated its proprietary business information. These former employees have since left Brand and joined one of Brand's competitors: Irex Corporation. Brand claims these individuals have been using Brand's stolen equipment and trade secrets to benefit Irex and poach business from Brand.

         Brand's federal claims are under the recently enacted Defend Trade Secrets Act of 2016, 18 U.S.C. § 1832, et seq. (DTSA), the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (RICO), and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. (CFAA). Brand also brings eleven claims under Pennsylvania law.

         Irex filed a motion to dismiss Brand's amended complaint. I will deny the motion to dismiss.

         I. BACKGROUND [1]

         Brand Energy & Infrastructure Services, Inc., is a company that provides scaffolding, industrial coatings, industrial insulation, fireproofing, asbestos remediation, and other construction-related services. Brand has a strong presence throughout the country, including in Pennsylvania and New Jersey. Irex Corporation is a Pennsylvania corporation with various subsidiaries in Pennsylvania that compete with Brand.[2]

         The individual defendants in this case formerly worked in high-level positions at Brand. In 2011, Irex and another company, Harsco Infrastructure, entered into an agreement to attempt to compete with Brand in the construction industry. However, two years later, Brand acquired Harsco. From 2014 to 2015, all of the individual defendants left Brand and joined Irex.

         According to the plaintiff, while some of the individual defendants were moving to Irex, other individual defendants (who were still employed at Brand) were siphoning them Brand's protected business information. This conspiracy allegedly began in early 2014. It involved the individual defendants accessing Brand's revenues, customers, drawings, and business opportunities. According to Brand, the defendants planned all along to steal Brand's business information, leave Brand, join Irex, and then run Brand out of business.

         One specific item Brand alleges the defendants stole is Brand's “Market Playbook.” The Market Playbook is a database that is only accessible on Brand-network computers.[3] It contains billions of dollars in proprietary information, including Brand's future business plans and targets. Brand alleges that after the individual defendants left and went to Irex, Cathy Walls (a Brand employee) began accessing Brand information from the Market Playbook and giving it to the individual defendants. Brand claims, to this day, the individual defendants continue to use information they illegally obtained from the Market Playbook.

         Brand further claims that defendants have fraudulently transformed the business information they stole from Brand into their own. For example, Brand alleges that many documents Irex now uses are really Brand documents that were modified to remove the Brand logo and add the Irex logo. Brand maintains it discovered much of this information through forensic analysis of the computers that the individual defendants used while employees at Brand.

         Brand claims it has lost business opportunities as a result of the defendants' conduct. For years, Brand held a contract to provide scaffolding to the Westvaco Paper Mill in Maryland. While at Brand, one of the individual defendants, John Kwiatkoski, handled the Brand-Westvaco contract. Brand avers that, after Kwiatkoski left Brand, in conjunction with the other defendants, he used Brand's stolen equipment and business information to win over the Westvaco contract for Irex. In the process of doing so, Kwiatkoski transported stolen Brand scaffolding equipment from West Virginia to Maryland. According to Brand, the Westvaco contract yielded Brand about $600, 000 in yearly revenue. In addition, Brand alleges the defendants used Brand's stolen property to steal away and out-bid Brand on various other scaffolding projects that had previously been performed by Brand for years.

         Although this alleged conspiracy began in 2014, Brand alleges the defendants' theft and misappropriation continued consistently through 2015 and 2016, and continues to this day. Brand claims it has suffered millions of dollars in losses as a result of the defendants' alleged theft and misappropriation.

         II. LEGAL STANDARD

         A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted examines the legal sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The factual allegations must be sufficient to make the claim for relief more than just speculative. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In determining whether to grant a motion to dismiss, a federal court must construe the complaint liberally, accept all factual allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. Id.; see also D.P. Enters. v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir. 1984).

         The Federal Rules of Civil Procedure do not require a plaintiff to plead in detail all of the facts upon which she bases her claim. Conley, 355 U.S. at 47. Rather, the Rules require a “short and plain statement” of the claim that will give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. Id. The “complaint must allege facts suggestive of [the proscribed] conduct.” Twombly, 550 U.S. at 564. Neither “bald assertions” nor “vague and conclusory allegations” are accepted as true. See Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir. 1997); Sterling v. Southeastern Pennsylvania Transp. Auth., 897 F.Supp. 893 (E.D. Pa. 1995). The claim must contain enough factual matters to suggest the required elements of the claim or to “raise a reasonable expectation that discovery will reveal evidence of” those elements. Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556).

         In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court defined a two-pronged approach to a court's review of a motion to dismiss. “First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678. Thus, while “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era . . . it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79.

         A court “may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Brown v. Card Service Center, 464 F.3d 450, 456 (3d Cir. 2006) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)).

         III. DISCUSSION

         Irex moves to dismiss Brand's claims under the DTSA, RICO, and CFAA. I will deny Irex's motion to dismiss in its entirety.

         A. Defend Trade Secrets Act (DTSA) Claim

         Irex argues that the DTSA does not apply to this action because the DTSA was enacted after the allegedly unlawful acts took place.[4] Irex also contends that application of the DTSA here would be unconstitutionally retroactive. The DTSA's statutory language and history, emerging DTSA case law, and constitutional principles on retroactivity refute Irex's position.

         1. The DTSA's Statutory Framework

         The DTSA is the first federal law to create a private right of action for the misappropriation of trade secrets.[5] The DTSA was formally enacted on May 11, 2016. See Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, § 2, 130 Stat. 376 (2016) (codified as amended at 18 U.S.C. § 1831 et seq.). Now, the owner of a trade secret can bring a private cause of action in federal court for trade secret misappropriation. 18 U.S.C. § 1836(b)(1).

         Under the DTSA, “misappropriation” is defined in several different ways. The “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means” constitutes a misappropriation. Id. § 1839(5)(A). A misappropriation also occurs when one “disclos[es]” or “use[s]” another's trade secret without the consent of the trade-secret owner. Id. § 1839(5)(B). The DTSA applies to the “misappropriation of a trade secret . . . for which any act occurs on or after the date of the enactment of [the DTSA].” Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, § 2(e), 130 Stat. 376 (2016).[6]

         There are key differences between the DTSA's language and the language of other trade secrets statutes. One useful comparison comes from the Uniform Trade Secrets Act (UTSA). A large majority of states used the UTSA as a model while drafting their own trade secrets statutes. The UTSA contains a provision stating that it “does not apply to misappropriation occurring prior to the effective date.” Unif. Trade Secrets Act § 11(Nat'l Conference Comm'rs on Unif. State Laws 1985) [hereinafter UTSA]. The UTSA also does not apply to a “continuing misappropriation that occurs after the effective date.” Id. Pennsylvania's Uniform Trade Secrets Act (PUTSA) contains a nearly identical provision that has the same effect. Pennsylvania Uniform Trade Secrets Act, Pub. L. No. 143, § 4 (2004). Unlike the UTSA and the PUTSA, the DTSA does not contain such a provision.

         2. Emerging DTSA Case Law

         Other district courts have analyzed the applicability of the DTSA to misappropriations that occurred before the DTSA was enacted.[7] These courts have all held that the DTSA applies to misappropriations that began prior to the DTSA's enactment if the misappropriation continues to occur after the enactment date. See Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto Grp., Inc., 15-cv-211, 2016 WL 5338550, at *6 (S.D.N.Y. Sept. 23, 2016) (finding viable a continuing misappropriation claim that began pre-enactment because the DTSA defines misappropriation as the “disclosure or use of a trade secret” and the complaint alleged that the defendants “continue[d] to use” the trade secrets after the DTSA was enacted) (emphasis in original) (quoting 18 U.S.C. § 1839(5)(B)); Adams Arms, LLC v. Unified Weapon Sys., Inc., 16-cv-1503, 2016 WL 5391394, at *5-7 (M.D. Fla. Sept. 27, 2016) (same). One of these courts rested its decision, in part, on the fact that the DTSA-unlike the UTSA-does not preclude application to continuing misappropriations that continue to occur after the enactment date. Adams Arms, 2016 WL 5391394, at *6.

         Other cases have, without question, applied the DTSA to misappropriations that occurred before and continued after the statute's enactment. See Allstate Ins. Co. v. Rote, 16-cv-1432, 2016 WL 4191015, at *1-5 (D. Or. Aug. 7, 2016) (granting preliminary injunction in DTSA case where the defendant left her job before the DTSA was enacted but remained in possession of alleged trade secrets after the DTSA's enactment); Henry Schein, Inc. v. Cook, 191 F.Supp.3d 1072, 1076-78 (N.D. Cal. 2016) (same with temporary restraining order).

         3. Brand Adequately Pleads a Continuing Misappropriation

         Brand's amended complaint alleges various times, after the enactment of the DTSA, that the defendants “used” Brand's alleged trade secrets.

         Brand alleges that, to this day, the defendants continue to “obtain access to Brand's confidential and proprietary business information.” (Doc. No. 61 ¶ 189). Brand also alleges “many documents currently in use in [defendants'] business are Brand documents that [defendants] . . . modified only to remove the Brand logo, insert the [defendants'] logos, and adjust pricing.” (Id. ¶ 201). Brand's amended complaint contains various other allegations that defendants continued to use Brand's trade secrets after the DTSA's effective date. (Id. ¶¶ 214, 363).[8]

         The “use” of another's trade secret explicitly qualifies as an act of misappropriation under the DTSA. 18 U.S.C. § 1839(5)(B); Syntel Sterling Best Shores, 2016 WL 5338550, at *7. Brand's amended complaint alleges multiple uses of its trade secrets that continued to occur after the date the DTSA was enacted. Accordingly, Brand may pursue its claim under the DTSA.[9]

         4. Constitutional Analysis

         Defendants next raise constitutional concerns with an application of the DTSA to this case. They argue that application of the DTSA here would render the statute an unconstitutional ex post facto law. After careful consideration, I find that applying the DTSA to the claim in this case does not violate the Ex Post Facto Clause of the United States Constitution. Thus, the DTSA, as applied here, is not impermissibly retroactive.

         a. Ex Post Facto Analytical Framework

         The United States Constitution proclaims that no “ex post facto Law shall be passed.” U.S. Const. art. I § 9, cl. 3. An ex post facto inquiry is really a question of whether it is permissible for a statute to apply retroactively. Fernandez-Vargas v. Gonzalez, 548 U.S. 30, 37 (2006).

         A retroactive statute is one that takes away or impairs vested rights, creates new obligations, imposes a new duty, or attaches a new disability with respect to transactions or events that have already passed. Id. (citing Soc'y for the Propagation of the Gospel v. Wheeler, 22 F. Cas. 756, 767 (C.C.N.H. 1814) (No. 13, 156) (Story, J.)). Such retroactive statutes are disfavored “when their application would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed.” Fernandez-Vargas, 548 U.S. at 37 (quoting Landgraf v. USI Film Prods., 511 U.S. 244, 280 (1994)). Nevertheless, a statute is not impermissibly retroactive simply because it is applied in a case arising from conduct that pre-dates the statute's enactment. Landgraf, 511 U.S. at 269. “Rather, the court must ask whether the new provision attaches new legal consequences to events completed before its enactment.” Id. at 269-70.

         The United States Supreme Court has set forth a framework for courts to apply in determining whether a statute may or may not apply retroactively. This test is applicable when, as here, the “case implicates a federal statute enacted after the events in suit.” Landgraf, 511 U.S. at 280.[10] First, courts must look to “whether Congress has expressly prescribed the statute's proper reach.” Fernandez-Vargas, 548 U.S. at 37 (quoting Landgraf, 511 U.S. at 280). If it has, the inquiry ends there. Id. In the absence of an express congressional command, however, courts “try to draw a comparably firm conclusion about the temporal reach specifically intended by applying our normal rules of construction.” Id.

         If applying normal rules of statutory construction proves unavailing, courts finally ask “whether applying the statute to the person objecting would have a retroactive consequence in the disfavored sense of affecting substantive rights, liabilities, or duties [on the basis of] conduct arising before [its] enactment.” Id. (quoting Landgraf, 548 U.S. at 37) (alterations in original)). “If the answer is yes, we then apply the presumption against retroactivity by construing the statute as inapplicable to the event or act in question owing to the absen[ce of] a clear indication from Congress that it intended such a result.” Id. (alterations in original).[11]

         b. Express ...


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