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Universal Electric Corp. v. Baldwin

United States District Court, W.D. Pennsylvania

August 3, 2018

MARK H. BALDWIN, et al., Defendants


          KANE, JUDGE

         Before the Court are two motions to dismiss Plaintiff Universal Electric Corporation's amended complaint. (Doc. Nos. 35, 37.) For the reasons that follow, the Court will grant in part and deny in part the motions to dismiss.

         I. BACKGROUND

         A. Procedural Background

         On June 26, 2017, Plaintiff Universal Electric Corporation (“UEC”), initiated the above-captioned action by filing a complaint against Defendants Mark H. Baldwin (“Baldwin”), Baldwin Technologies, Inc. (“BTI”), Busway Solutions, LLC (“Busway Solutions”), Direct Power Technologies, Inc. (“Direct Power”), and Engineered Products Company doing business as PDU Cables (“PDU Cables”), in the United States District Court for the Western District of Pennsylvania. (Doc. No. 1.) PDU Cables filed a motion to dismiss UEC's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and a brief in support of its motion to dismiss on August 30, and August 31, 2017, respectively. (Doc. Nos. 18, 20). On September 8, 2017, Baldwin, BTI, and Direct Power, and Busway Solutions filed a motion to dismiss the complaint (Doc. No. 25), together with a supporting brief (Doc. No. 26). On September 25, 2017, UEC filed a seven-count amended complaint, to which it appended approximately 171 pages of corresponding exhibits.[1] (Doc. No. 33.) The above-captioned action was then assigned to the undersigned pursuant to 28 U.S.C. § 292(b) for all further proceedings.

         On October 9, 2017, PDU Cables filed a motion to dismiss the amended complaint pursuant to Rule 12(b)(6), and a brief in support of its motion. (Doc. Nos. 35, 36.) The next day, Defendants Baldwin, BTI, Direct Power, and Busway Solutions[2] collectively filed a motion to dismiss the amended complaint under Rule 12(b)(6), or alternatively, for a more definite statement pursuant to Federal Rule of Civil Procedure 12(e), and a supporting brief. (Doc. Nos. 37, 38.) UEC submitted briefs in opposition to Defendants' motions to dismiss on October 30, and 31, 2017. (Doc. Nos. 39, 40.) Having been fully briefed, Defendants' motions to dismiss the amended complaint are now ripe for disposition.


         UEC is a family-owned company that “designs and manufactures products for the electrical power distribution industry” (Doc. No. 33 ¶ 1), and “services the data center, retail, health care, higher education, and industrial markets across the United States” (id. ¶ 16). UEC carries two different power distribution product lines: the STARLINE Track Busway and the STARLINE Plug-In Raceway. (Id. ¶¶ 16-17.) The STARLINE Track Busway includes a line of products known as the ‘T5 Series'” (“STARLINE T5 Series Track Busway”). (Id. ¶ 17.) The STARLINE Track Busway also offers several plug-in unit options, such as the STARLINE Tap-Off Box, which “connects to UEC's STARLINE T5 Series Track Busway.” (Id. ¶ 18.) To sell its products, UEC maintains a network of sales representatives assigned to certain geographical territories. (Id. ¶ 21) UEC's sales representatives have access to “information related to the design, safety, efficacy, pricing, and marketing of UEC products, as well as UEC's special business techniques, market analysis forms, software programs, customer lists, and manufacturing process[es]” so that they can market UEC's products effectively. (Id. ¶ 22.) Due to the confidential nature of this information, UEC requires its sales representatives to sign a sales agreement that, inter alia, restricts the use and disclosure of that confidential information. (Id. ¶ 23.)

         On or about March 1, 1999, UEC and BTI[4] entered into a Sales Agreement, whereby UEC designated BTI as the authorized and exclusive sales representative for the State of Maryland, the Commonwealth of Virginia, and the District of Columbia. (Id. ¶ 24; Doc. No. 33-1.) “Pursuant to the 1999 Agreement, BTI agreed to ‘hold in the strictest confidence during the term of the Agreement, and at all times thereafter, any and all information of confidential nature obtained regarding [UEC] business or affairs . . . .'” (Doc. No. 33 at ¶ 25.) On or about March 1, 2013, UEC and BTI entered into a second Sales Agreement (the “2013 Agreement”), that “supersede[d] all previous contracts” between UEC and BTI. (Id. ¶ 30; Doc. No. 33-2 at 1.) The 2013 Agreement, signed by Baldwin in his capacity as president of BTI, memorialized BTI's intent to continue serving as a UEC sales representative in the territory consisting of the State of Maryland, the Commonwealth of Virginia, and the District of Columbia with respect to “products contained within the following product families: STARLINE Track Busway [and] STARLINE Plug-in Raceway.” (Doc. No. 33-2 at 3-11.) Significantly, the 2013 Agreement contained the following provisions:

         4. Trade Secrets; Competitive Merchandise; Restrictive Covenant

A. With respect to [UEC's] special business techniques, market analysis, forms, software programs, customer list[s], and all other information regarding manufacture or distribution of [UEC's] products, [BTI] acknowledges that all such information: (i) belongs to [UEC]; (ii) constitutes specialized and highly confidential information not generally known in the industry; [and] (iii) constitutes trade secrets of [UEC]. Accordingly, [BTI] recognizes and acknowledges that it is essential to [UEC] to protect the confidentiality of this trade information.
B. [BTI] agrees to act as a [t]rustee of [UEC's] confidential trade information and will hold such information in trust and confidence for [UEC's] sole and exclusive use and benefit.
C. During the term hereof and for thirty-six (36) months thereafter, [BTI] shall not disclose such confidential trade information to any person, firm, association, or other entity for any reason or purpose whatsoever, unless such information has already become common knowledge or unless [BTI] is required to disclose the information by judicial process.
D. During the term of this Agreement, [BTI] shall not, directly or indirectly, enter into, or in any manner take part in, any business, profession, or other endeavor which competes with [UEC] in the sale of its merchandise (including any products that [UEC] may add to its product line during the term of this Agreement). [BTI] shall not so compete either as an employee, agent, independent contractor, owner, or otherwise.

(Id. at 7-8.)

         On March 30, 2014, UEC terminated the 2013 Agreement. (Doc. No. 33 ¶ 31; Doc. No. 33-3.) Consequently, the parties entered into a Settlement Agreement and General Release on or about July 8, 2014 (the “Settlement Agreement”), which resolved to “settle any disputed amounts due to BTI . . . including without limitation, certain commissions to be paid by UEC to BTI on orders which were taken, but not shipped[, ] during the 30 day notice period prior to termination” of the 2013 Agreement. (Doc. No. 33 ¶ 33; Doc. No. 33-4.) As a condition of settlement, the parties were prohibited from making “disparaging or negative comments regarding the other party . . . to any person or entity.” (Doc. No. 33 ¶ 34; Doc. No. 33-4 at 3.)

         According to UEC, Defendants' conduct leading up to the termination of the 2013 Agreement and thereafter violated the 2013 Agreement and the Settlement Agreement in myriad respects, giving rise to several of the claims brought in this action. In the 36-month period following the effective termination date of the 2013 Agreement, Baldwin, acting on behalf of BTI, and in concert with other Defendants, disclosed certain confidential trade information regarding the “design, safety, and efficacy of UEC's STARLINE products” in applying for and obtaining a patent. (Doc. No. 33 ¶¶ 36, 43.) On April 2, 2014, merely three days after the termination of the 2013 Agreement went into effect on March 30, 2014, without UEC's knowledge or consent, Baldwin filed a provisional patent application, entitled “BUSWAY OUTPUT BOX GUIDE/INHIBITOR SYSTEM FOR INSERTION AND REMOVAL OF A BUSWAY OUTPUT BOX, ” with the United States Patent and Trademark Office (“USPTO”). (Id. ¶¶ 37, 38.) On March 10, 2015, Baldwin filed a non-provisional patent application identifying himself as the “inventor, ” and Busway Solutions as the “owner” or “assignee” that was based on, and claimed priority to, his earlier provisional patent application. (Doc. No. 33-5.) On July 5, 2016, Busway Solutions, as assignee, was issued United States Patent No. 9, 385, 517 (the “‘517 Patent”), based on the provisional and non-provisional patent applications. (Id. ¶ 41; Doc. No. 33-6.) The ‘517 Patent asserted fourteen claims involving various components of a guide/inhibitor system for insertion and removal of rotational style output boxes for busway bars aimed at “enhancing safety in busway bar power distribution systems.” (Doc. No. 33 ¶ 42.) UEC insists that the safety concerns referenced by the ‘517 Patent relating to certain UEC products that Baldwin sold through BTI for fifteen years, namely, “power distribution power heads, mast heads, plug-in units, [and] electrical power outlet units, ” were “untrue and unsubstantiated.” (Id. ¶¶ 42, 43.) UEC further believes that BTI, through Baldwin and for the benefit of Busway Solutions, “must have started working on inventions covered by the ‘517 Patent during the term of the 2013 Agreement, ” in violation of several provisions contained therein. (Id. ¶ 46.)

         On December 22, 2016, Busway Solutions filed another non-provisional patent application that asserted twenty claims (Application No. 15/185, 816, herein referred to as the “‘816 Application”), and claimed priority to a provisional application filed on June 17, 2015 entitled, “SYSTEMS, METHODS, AND APPARATUS USEFUL FOR BUSWAY POWER DISTRIBUTION.” (Id. ¶¶ 48, 49; Doc. No. 33-7.) The ‘816 Application again referenced safety issues with UEC's STARLINE products and cited as a basis for patentability the need “for improved power distribution power heads, mast heads, plug-in units, or electrical power outlet units”- the same products designed and manufactured by UEC that Baldwin sold for fifteen years. (Id. ¶¶ 51, 54.)[5] UEC alleges that, “in filing . . . the non-provisional ‘816 [A]pplication, BTI, through Baldwin and for the benefit of Busway Solutions, disclosed UEC's confidential trade information, including information regarding the safety and efficacy of UEC's STARLINE products.” (Id. ¶ 52.)

         UEC also asserts that, in conjunction with the patent application process, Baldwin “created and implemented a campaign to undermine the confidence of actual and prospective UEC customers in the safety and security of UEC's STARLINE products by advertising, ” through BTI, Busway, and DPTI, and in concert with PDU Cables, “that UEC's products are not safe for the customers' employees or equipment.” (Id. ¶ 62.) For example, on March 15, 2017, PDU Cables, a manufacturer and supplier of power-distribution cable assemblies, announced that it would be the exclusive distributor of Busway Solutions tap-off boxes, a “safer and superior tap-off box to the standard OEM[6] plug-in's offered for ‘U' shaped open channel track busway, like S[TARLINE]'s T5 Series Busway Track System” (herein referred to as the “March 15 Announcement”). (Id. ¶ 64; Doc. No. 33-11.) The March 15 Announcement also provided the following:

Featuring a re-engineered plug mast with larger paddle surface area, Busway Solutions tap[-] off boxes are designed for increased safety, superior performance, and easier installation. The internal conductors have been upgraded to #8AWG wires on all boxes, with a 6#AWG wiring option for high density and multicircuit applications.
Each Busway Solutions tap-off box comes standard with two mounting taps for securer attachment along with the patent inhibitor (mounting alignment bracket) to assure proper installation and de-installation.
Application's claims, however, were rejected under 35 U.S.C. § 103, which provides that a patent “may not be obtained . . . if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.” (Id.)

(Doc. No. 33-11.) UEC reasons that because “Busway Solutions is the only manufacturer - other than UEC itself - that makes a tap-off box with the unique geometry required to be electromechanically compatible with UEC's STARLINE T5 Series Track Busway, ” the March 15 Announcement communicated to actual and prospective customers that Busway Solution's tap-off box is a safer alternative to the UEC's STARLINE Tap-Off Box. (Id. ¶ 74.)

         In addition to the March 15 Announcement, UEC asserts that Defendants produced a “steady drumbeat” of false and disparaging representations on “PDU Cables' website, a subsequent February 27, 2017 press release, . . . a brochure published by PDU Cables and Busway Solutions, ” and through e-mail advertisements that UEC contends were directed at UEC's STARLINE products and communicated to “customers in the industry . . . that UEC's STARLINE Tap-Off Box has numerous safety concerns and that the Busway Solutions tap-off box is safer than UEC's STARLINE Tap-Off Box” (Id. ¶¶ 80-85; Doc. Nos. 33-12, 33-13, 33-14.) UEC alleges that “[u]pon information and belief, Baldwin, on his own behalf and working in concert with BTI, Direct Power, and Busway Solutions, was involved in crafting at least some, if not all, of this content on the PDU Cables website and press release.” (Id. ¶ 90.) UEC asserts that “the false, misleading, and disparaging statements made by Defendants regarding the safety of UEC's STARLINE Tap-Off Boxes have created uncertainty and confusion in the marketplace.” (Id. ¶ 104.)

         Finally, UEC alleges that Baldwin, acting through or on behalf of one or more Defendants, made “false and misleading statements to at least one end-user in an attempt to divert business from UEC” (id. ¶ 97; Doc. No. 33-17), and used UEC confidential trade information . . . to misappropriate UEC's business opportunities with existing UEC customers” (id. ¶ 126).


         Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes a defendant to move to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). The legal standards governing pleading practice in federal court have shifted to a “more heightened form of pleading, requiring a plaintiff to plead more than the possibility of relief to survive a motion to dismiss.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). To avoid dismissal, all civil complaints must set out “sufficient factual matter” to show that the claim is facially plausible. Id. The plausibility standard requires more than a mere possibility that the defendant is liable for the alleged misconduct. Indeed, “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (citing Fed.R.Civ.P. 8(a)(2)). Factual allegations must be enough to “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         The United States Court of Appeals for the Third Circuit has identified the following steps a district court must take when evaluating the sufficiency of a complaint's allegations as tested against a Rule 12(b)(6) motion: (1) identify the elements a plaintiff must plead to state a claim; (2) discard any conclusory allegations contained in the complaint “not entitled” to the assumption of truth; and (3) determine whether any “well-pleaded factual allegations” contained in the complaint “plausibly give rise to an entitlement to relief.” See Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (citation and quotation marks omitted).

         In evaluating whether a complaint fails to state a claim upon which relief may be granted, the court must accept as true all factual allegations in the complaint and construe all reasonable inferences to be drawn therefrom in the light most favorable to the plaintiff. See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010). A court “need not credit a complaint's ‘bald assertions' or ‘legal conclusions' when deciding a motion to dismiss, ” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997), and must disregard any “formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555. Additionally, a court may not assume that a plaintiff can prove facts that the plaintiff has not alleged. Associated Gen. Contractors of Cal. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). In deciding a Rule 12(b)(6) motion, the court may consider, in addition to the facts alleged on the face of the complaint, any exhibits attached to the complaint, “any ‘matters incorporated by reference or integral to the claim, items subject to judicial notice, [and] matters of public record.'” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (quoting 5B Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure, § 1357 (3d ed. 2004)).


         UEC's amended complaint sets forth the following seven counts against Defendants: false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), against all Defendants (Count I); breach of the 2013 Agreement against BTI (Count II); breach of the Settlement Agreement against BTI (Count III); breach of fiduciary duty and equitable assignment against Baldwin and Busway Solutions (Count IV); common law unfair competition against all Defendants (Count V); trade disparagement against all Defendants (Count VI); and false designation of origin against Busway Solutions and PDU Cables (Count VII). (Doc. No. 33 at 26, 27, 29, 30, 31, 33.)

         Defendants Baldwin, BTI, Direct Power, and Busway Solutions move to dismiss all Counts of the amended complaint[7] (Doc. No. 37), and Defendant PDU Cables moves to dismiss Counts I, V, VI, and VII of the amended complaint, the only Counts asserted against it (Doc. No. 35).

         A. False advertising in violation of Section 43(a) of the Lanham Act (Count I)&Unfair Competition (Count V) [8]

         Count I of the amended complaint asserts a claim of false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Section 43(a) of the Lanham Act “prohibits false advertising in interstate commerce.” Novartis Consumer Health, Inc. v. Johnson 6 Johnson-Merck Consumer Pharm. Co., 290 F.3d 578, 586 (3d Cir. 2002). It provides, in pertinent part:

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which-
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125(a). To prevail on a claim of false advertising, a plaintiff must plead and eventually prove the following:

1) that the defendant . . . made false or misleading statements as to his own product [or the plaintiff's product]; 2) that there is actual deception or at least a tendency to deceive a substantial portion of the intended audience; 3) that the deception is material in that it is likely to influence purchasing decisions; 4) that the advertised goods traveled in interstate commerce; and 5) that ...

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