Trading Secrets : Trade Secrets Lawyers & Attorneys : Seyfarth Shaw Law Firm : Computer Fraud, Confidentiality Agreements, Corporate Espionage

By Rebecca Woods

In the most recent ruling in long-running litigation styled AMG National Trust Bank v. Ries, NO. 06-CV4337, 09-cv-3061 (E.D. Pa.) (decided Dec. 29, 2011), the Eastern District of Pennsylvania partially granted the defendant Stephen Ries’s motion for summary judgment, jettisoning the plaintiff’s breach of fiduciary duty claims and plaintiff’s request for liquidated damages, but permitting the case to proceed for alleged breach of a restrictive covenant in his employment agreement.

Ries sought to have the court declare that the liquidated damages clause in the AMG non-compete agreement was unenforceable. The liquidated damages clause provided for payment of ten times the most recent annual gross fee income of the AMG client with whom defendant violated the non-compete. The court held that, as a matter of law, ten years worth of projected client fees per violation was an "unreasonably large and incredibly disproportionate estimate of the presumed actual damages caused by breaching a two-year restrictive covenant." The court noted in a footnote that other courts had held that even limiting the liquidated damages multiplier to the number of restricted years constituted an unreasonable penalty. The court also held, however, that notwithstanding the unenforceable liquidated damages clause, AMG had provided sufficient evidence that it had suffered actual damage such that summary judgment on the claim was not warranted.

The court also granted the summary judgment motion as to AMG’s breach of fiduciary duty claim. Declining to resolve a choice of law issue because there was no conflict, the court concluded that the fiduciary duty claim was a mere duplicate of the breach of contract claim and thus was barred by either Colorado’s economic loss rule or Pennsylvania’s "gist of the action" rule. AMG had failed to identify any duty owed by defendant that was not grounded in his contractual obligations.

Finally, the court rejected summary judgment as to AMG’s customer lists claim. Conceding that customer lists are "at the very periphery of the law of unfair competition" (quotation omitted), the court ruled in AMG’s favor, invoking prior Pennsylvania case law noting that customer data may qualify as a trade secret if it is not basic, widely available information, albeit collected as a result of the employee’s efforts. Instead, the employer seeking to protect such information must demonstrate that the data was collected by the employee only by virtue of the employee’s position, with the help of the employer (time, expense, and efforts), while the employee was subject to a confidentiality agreement. A factor in the court's conclusion also appeared to be that AMG limited its claim to customers with whom Ries did not allege a close relationship. Ries's use of customer list data for customers with whom he had not worked at AMG appeared to make it easier for the court to conclude that this was information the jury could hold was properly subject to protection.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By Justin Beyer

In a matter of first impression, Judge William Standish of the Western District of Pennsylvania ruled in Best Medical Int’l, Inc. v. Spellman, 07-cv-01709-WLS, 2011 U.S. Dist. LEXIS 147853 (W.D. Pa. Dec. 22, 2011), that, pursuant to the Pennsylvania Uniform Trade Secrets Act (“PUTSA”), a defendant may recover attorneys' fees against a plaintiff where the plaintiff filed an objectively specious misappropriation of trade secrets claim and subsequently engaged in subjective misconduct during the course of discovery. 

At issue in this case was Best Medical’s claims that four of its former employees (Hill, Spellman, Scherch, and Bittman) misappropriated Best Medical’s trade secrets and provided those trade secrets to Accuray, Inc. Accuray and Best Medical are competitors in the radiation treatment planning and image guided therapy systems industry. 

In December 2007, Robert Hill filed suit against Best Medical claiming Best Medical denied him severance benefits after his job responsibilities were reduced due to corporate downsizing. Following what Hill claimed was his constructive discharge, Hill went to work for Accuray, Inc.

Best Medical counterclaimed, alleging, among other claims, that Hill misappropriated Best Medical’s confidential and trade secret information.   In March 2008, Hill and Best Medical agreed to a stipulated motion for permanent injunction. Included amongst the terms of the permanent injunction, Hill agreed to return all Best Medical documents in hard copy form and submit his electronic storage devices to forensic examination, permit an image of his computer to be taken, and permit the alleged trade secrets and confidential information to be deleted from his computer. At no point during the remainder of the litigation did Best Medical claim that Hill violated the stipulated permanent injunction in any way. 

In October 2008, Best Medical filed suit against Spellman, Scherch, and Bittman (the “Spellman Defendants”), all former Best Medical employees, and Accuray, alleging breaches of contract, tortious interference, and violations of PUTSA. Like Hill, the Spellman Defendants and Best Medical entered into a stipulated permanent injunction, also requiring the Spellman Defendants to turn over their electronic devices for review, imaging, and deletion of Best Medical’s documents found on the computers.  

The parties then engaged in nearly a year of settlement negotiations, which eventually culminated in Best Medical filing another complaint against Hill, the Spellman Defendants, and Accuray. In May 2010, Accuray filed a series of motions to compel seeking a definitive answer from Best Medical as to the trade secrets Best Medical claimed had been misappropriated and which Best Medical further claimed Accuray was using to Best Medical’s detriment. 

Over the course of another year, Best Medical stonewalled on answering that question, until two 30(b)(6) deponents, presented by Best Medical, conceded that Best Medical: (a) could not identify the trade secrets that Accuray allegedly misappropriated; (b) had not investigated its misappropriation claim prior to filing suit; and (c) did not have any evidence of Accuray misappropriating and improperly using Best Medical’s trade secrets.

Following the court’s grant of summary judgment in October 2011, Accuray and the Spellman Defendants sought recovery of attorneys’ fees spent defending the misappropriation claims based on three theories:

(1)        Best Medical violated PUTSA, 12 Pa. C.S. § 5305(1), which requires that “attorneys fees, expenses and costs [may be recovered by] the prevailing party: (1) if a claim of misappropriation is made in bad faith;”

(2)        Best Medical violated 28 U.S.C. § 1927, which requires that: “Any attorney or other person admitted to conduct cases in any court of the United States … who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct;” and

(3)        that the court possessed the inherent power to sanction Best Medical and award attorneys fees to Accuray and the Spellman Defendants due to Best Medical’s litigation conduct.

Finding no Pennsylvania case interpreting 12 Pa. C.S. § 5305(1), the court relied heavily on other states’ interpretation of their own versions of the Uniform Trade Secrets Act. The court decided to follow and apply a two-part test rendered by the California Court of Appeal in Gemini Aluminum Corp. v. Cal. Custom Shapes, Inc., 95 Cal. App. 4th 1249, 1262 (Ct. App. 2002). In Gemini, the California Court of Appeals ruled that, to merit an attorneys fee sanction against the plaintiff, the defendant must prove: (1) the “objective speciousness of the plaintiff’s claim;” and (2) “subjective bad faith in brining or maintaining the claim.” 2011 U.S. Dist. 147853, at * 10, citing Gemini, 95 Cal. App. 4th at 1262. 

Defining “objective speciousness,” the Best Medical court cited to decisions from the District of Maryland and the Southern District of California, in which those courts held that “objective speciousness exists where there is a complete lack of evidence supporting plaintiff’s claims.” 

The Best Medical court also defined what constituted “subjective misconduct” finding it “exists where a plaintiff knows or is reckless in not knowing that its claim for trade secret misappropriation has no merit.” 2011 U.S. Dist. LEXIS 147853, at *12.

After also considering a defendant’s burden of proof to show that attorneys’ fees should be awarded under 28 U.S.C. § 1927 or the court’s inherent power, the court analyzed why an award was appropriate pursuant to PUTSA. The court found that Best Medical acted in bad faith, and relied heavily on three salient facts; namely:

(1)        that Best Medical possessed images of the Spellman Defendants’ computers since November 2008, but failed to analyze those computers;

(2)        that an affidavit from Best Medical’s president, which indicated that Best Medical was: (a) always ready, willing and able to assist counsel in the prosecution of this matter; (b) monitored its counsel’s activities throughout the litigation; and (c) identified to counsel at the outset of the litigation the trade secrets at issue; was essentially unreliable and not supported by the facts of the case; and

(3)        that Best Medical’s 30(b)(6) witness admitted in May 2011 that Best Medical did not investigate its misappropriation claims thoroughly before it filed its complaint against Accuray and the Spellman Defendants.

The court concluded that Accuray and the Spellman Defendants were entitled to all of their attorneys’ fees incurred as a result of defending the PUTSA claims. The court did not reach the other arguments based on 28 U.S.C. § 1927 or the inherent powers of the court.

While the reach of this decision is not yet apparent, it is important to note that Pennsylvania now joins other states, including, California, Maryland, Minnesota, and Michigan, in finding that a defendant may recover attorneys' fees where a plaintiff brings or maintains a misappropriation claim in bad faith. See 2011 U.S. Dist. LEXIS 147853, at * 10-12. As seen from the above factual recitation, however, it also appears that a plaintiff must act quite egregiously and lack any evidence of misappropriation before a Pennsylvania court will award attorneys' fees.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By Scott Schaefers

In the age of social media and networking, where employees undoubtedly use their company-issued computers to network with customers, vendors, colleagues, and friends, a legal question presents itself: can employers claim an interest in their employees’ LinkedIn accounts, or other social networking accounts, which the employees use in part to grow and maintain their relationships for the benefit of their employers? 

A.        Can An Employer Claim Ownership Of Its Executive’s LinkedIn Profile?

A federal court in Philadelphia recently said “Yes,” though not definitively. In Eagle v. Morgan, No. 11-4303, 2011 WL 6739448 (E.D. Pa. Dec. 22, 2011), the court held that an employer may claim ownership of its former executive’s LinkedIn connections where the employer required the executive to open and maintain an account, the executive advertised her and her employer’s credentials and services on the account, and where the employer had significant involvement in the creation, maintenance, operation, and monitoring of the account. More specifically, the court refused to dismiss employer Edcomm’s counterclaims for “misappropriation of an idea” and unfair competition against its former chief executive, Dr. Linda Eagle, who allegedly accessed and used her Edcomm-generated LinkedIn account three weeks after she was terminated. Edcomm had an established policy requiring its executives to create LinkedIn accounts using an Edcomm-prepared template, and requiring them to respond to LinkedIn client and colleague inquiries using an Edcomm template. This policy and participation regarding the executive’s LinkedIn account and activities was enough to state a valid claim for misappropriation of Edcomm’s alleged ownership of the account. Notably, the court did not cite any social-networking-related precedent in its decision.

And interestingly, the court dismissed Edcomm’s claims of statutory trade secret misappropriation and common law conversion to the extent they were premised on Eagle’s alleged misuse of the connections and content in her Edcomm LinkedIn account. The court held that such connections could not be trade secret if they were posted on the internet.

There is another active case in the Northern District of California that we previously blogged on that addressed similar issues. 

The lesson here is that employers and their lawyers should consider getting more involved in their employees’ social-networking activities, particularly to the extent that such activities are used for company business and where employees are required or expected to promote themselves on behalf of the company using these networking sites. The day may come where the employer wished it would have kept a closer eye on departing employees’ online profiling.

B.        The Eagle Court Sides With The Pro-Employee Line Of Cases Which Hold That
            Employers Cannot Use The Federal Computer Fraud And Abuse Act To Sue Employees
            Who Misuse Their Employers’ Computers

The Eagle decision is noteworthy for another reason: it agreed with other federal courts which held that employers may not sue unfaithful employees under the federal Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. (CFAA) for stealing or misusing company computer files, so long as the employees had authorized access to the computers for company business. 

The court noted the existing divide between federal courts – some which hold that employers may sue employees under CFAA (e.g. EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577 (1st Cir. 2007), Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006), see also U.S. Rodriguez, 628 F.3d 1258 (11th Cir. 2010)), and some which hold they may not (e.g. Int'l Ass'n of Machinists & Aerospace Workers v. Werner–Masuda, 390 F.Supp.2d 479, 498 (D. Md. 2005) and similar Pennsylvania federal cases).  Congress and the Supreme Court have yet to resolve this conflict among lower federal courts. Until then, whether employers may sue their employees under the CFAA may depend largely on the federal circuit court of appeals in which the employer or employee is located.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

            Once triggered by a debtor's bankruptcy petition, the automatic stay suspends a parties' right to commence or continue an action against property of the debtor’s estate. In general, a party can seek relief from the automatic stay for a variety of reasons, including for cause, lack of adequate protection or that the debtor has no equity in the property and the property is not necessary for reorganization. In a case of first impression, a district court in Pennsylvania has found that an injunction enforcing a non-compete provision in a franchise agreement was not a "claim" against the bankruptcy estate, under 11 U.S.C.S. § 101(12), since the injunction was a form of equitable relief for which an award of damages was not a viable alternative, and, thus, the injunction was not subject to the automatic stay.

            In In Re Stone Resources, Inc., __ B.R. __, 2011 U.S. Dist. LEXIS 4017925 (E.D. Pa. Bankr. September 11, 2011) (unpublished) the debtor entered into a franchise agreement in 2000 which allowed it to use the franchiser's trademarks and proprietary processes in its stone restoration and maintenance business. The agreement contained a covenant that prohibited the debtor from competing with the franchiser or its affiliates for two years after the agreement ended, and the franchiser sued the debtor in federal district court in May 2010, seeking an order enforcing that covenant. The U.S. District Court for the Eastern District of Pennsylvania issued a preliminary injunction in December 2010, which required the debtor to cease its business operations and turn over assets to the franchiser.

            The franchisee declared Chapter 11 bankruptcy in February 2011, and the franchiser asked the bankruptcy court to dismiss the debtor's bankruptcy case pursuant to 11 U.S.C.S. § 1112(b) or, in the alternative, to grant the franchiser relief from the automatic stay under 11 U.S.C.S. § 362(d) (1) so it could enforce the preliminary injunction. The bankruptcy court denied the franchiser's motion holding that there was no evidence that the debtor declared bankruptcy in bad faith, and lifting the stay so the franchiser could enforce the district court's injunction would have made it impossible for the debtor to reorganize its business and pay its creditors.

            The franchisor then appealed to the District Court. The District Court held that the bankruptcy court abused its discretion in denying franchisor’s motion for stay relief in order to enforce preliminary injunction ordering a debtor to, inter alia, cease and desist in the operation of a business in accordance with the terms of a covenant not to compete. The District Court found that where the only remedy available for a cause of action is an equitable remedy that claim is not dischargeable in bankruptcy and not subject to the automatic stay. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A federal court recently entered a TRO to prevent disclosure of trade secrets justifiably shared, in confidence, with business associates. When two of those associates made plans, clandestinely, to form a competing company, they were enjoined from disclosing the trade secrets even though they had not signed a confidentiality agreement. Exl Labs., LLC v. Egolf, 2010 U.S. Dist. LEXIS 131105 (E.D. Pa., Dec. 7, 2010). 

Plaintiff Exl manufactures dairy hygiene products. Non-party Lancaster is the exclusive dealer for Exl products in Pennsylvania. Non-party Beers is VP and GM of Exl and also is a member of the Board of Directors of Lancaster. On several occasions, Beers discussed Exl's confidential information at Lancaster's Board meetings, but Beers cautioned the directors not to disclose any of it to third parties. 

Defendants Egolf and Dry, members of the Board and employees of Lancaster, used some of the confidential information in the course of making plans to compete with Lancaster. They also provided some of the information to a business consultant who was assisting them in their illicit venture. When Exl learned what Egolf and Dry were up to, Exl sued them in a Pennsylvania federal court, alleging trade secret misappropriation and requesting a TRO. 

Arguing that Exl's disclosure of the trade secrets at Lancaster Board meetings defeated Exl's lawsuit and request for a TRO, the defendants moved to dismiss. The court disagreed, holding that Exl had endeavored to achieve "substantial secrecy" which, rather than "absolute secrecy," is all that is required. The court also decided, apparently, that the limited disclosure had a business justification. The defendants maintained that Exl’s lawsuit failed because of the absence of any written confidentiality agreement between Exl on the one hand, and Lancaster or the defendants on the other. The court ruled that Exl had taken sufficient steps to maintain confidentiality and that, under these circumstances, a written agreement was not essential.

The defendants claimed that Lancaster was an indispensable party in federal court (its addition would destroy diversity jurisdiction). The court rejected the claim because Exl was suing solely for misappropriation of its own trade secrets.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

             On July 27, the United States Court of Appeals for the Third Circuit affirmed a district court’s order enjoining a senior executive from Bimbo Bakeries USA, Inc., from working for one of Bimbo’s competitors, Hostess, until after the district court resolved the merits of Bimbo’s misappropriation of trade secrets claim against the executive. Among other trade secrets at issue in the lawsuit is the recipe for Thomas’ English Muffins, which were estimated to account for approximately $500 million in Bimbo’s annual sales income. Defendant Chris Botticella is alleged to be one of only seven people who possess all of the knowledge necessary to replicate independently the muffins.

            The Circuit Court affirmed the district court’s finding that Bimbo was likely to prevail on the merits of its misappropriation of trade secrets claim under Pennsylvania’s Uniform Trade Secrets Act (“PUTSA”). Specifically, the Circuit Court left undisturbed the district court’s determination that Bimbo likely would be able to prove at trial that Botticella would misappropriate Bimbo’s trade secrets if allowed to work at Hostess.

            The Circuit Court focused on PUTSA section 5303 and related case law, which allows courts to enjoin actual or threatened misappropriation of trade secrets. The district court’s finding that there was “[a] substantial likelihood, if not an inevitability, that [Botticella] will disclose or use Bimbo’s trade secrets in the course of his employment with Hostess,” was proper, held the Circuit Court. In so holding, the Circuit Court rejected Botticella’s argument that the district court could only issue an injunction where it is shown that it would be “virtually impossible” for Botticella to perform his new job at Hostess without disclosing trade secrets.

            In reaching this holding, however, the Circuit Court took exception with the district court’s analysis of Pennsylvania’s law concerning the “inevitable disclosure” doctrine. Specifically, the Circuit Court noted that “[w]hile we agree…that Pennsylvania law empowers a court to enjoin the threatened disclosure of trade secrets without requiring a plaintiff to show that disclosure is inevitable, we do not consider that an injunction granted absent such a showing was issued pursuant to the ‘inevitable disclosure doctrine’.” Rather, said the Court, an injunction enjoining one from assuming particular employment may issue where the facts of the case demonstrate a substantial threat of trade secret misappropriation.

            Citing the district court’s findings of fact, the Circuit Court held that the district court had, and properly exercised, discretion to enjoin Botticella from working at Hostess to the extent his proposed employment there threatened to lead to the misappropriation of Bimbo’s trade secrets. The Circuit Court noted that, among other things, the district court found that (1) Botticella had accessed via his laptop computer in his final days at Bimbo highly sensitive information belonging to Bimbo which information would have been damaging to Bimbo if obtained by a competitor; (2) Botticella’s explanation at deposition regarding his suspicious use of the laptop was “confusing at best” and “not credible”; and (3) Botticella’s conduct following his acceptance of the Hostess job offer demonstrated his intention to use Bimbo’s trade secrets during his employment with Hostess. As to this latter point, the district court found that Botticella (a) did not disclose to Bimbo his acceptance of a job offer from a direct competitor and remained in his position to receive Bimbo’s confidential information, (b) received Bimbo’s confidential information after his acceptance of the Hostess job offer, and (c) copied trade secret information from his work laptop onto external storage devices.

The Third Circuit’s decision provides guidance to employers as to the showing required to enjoin former employees from assuming new employment where the facts show that there is a substantial threat of trade secret misappropriation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

When explaining to lay people what we do, trade secret practitioners often use the classic examples of the formula for Coca-Cola or KFC’s secret recipe of eleven herbs and spices. Now, we can add as an illustration the nooks and crannies of Thomas’ English Muffins, as demonstrated by a case filed by Bimbo Bakeries (“BBakeries”) in the Eastern District of Pennsylvania. BBakeries, which sells a variety of different breads and baked goods, brought an action against Chris Botticella, a high-level BBakeries executive, on January 15, 2010. In the action, BBakeries is seeking, among other things, a preliminary injunction forbidding Botticella from commencing employment as an executive with Hostess Brands, a BBakeries competitor. The Honorable R. Barclay Surrick of the Eastern District of Pennsylvania held a hearing on BBakeries’ motion on January 25, 2010. At present, he has not ruled on the motion.

Not unlike other major companies that have pursued an executive going to competitors, BBakeries is proceeding against Botticella on an inevitable disclosure theory. BBakeries’ claim is that Botticella’s knowledge of its trade secrets and confidential information is so thorough that he would inevitably use that information in his work for Hostess, thus violating a non-disclosure agreement with BBakeries and the Pennsylvania Uniform Trade Secrets Act. In its motion and accompanying declarations, BBakeries alleges that Botticella is one of “less than ten people in the world with full knowledge of how to produce Thomas’ English Muffins, famous for their distinctive ‘nooks and crannies’ characteristics.” BBakeries also claims that Botticella knows the cost structure and strategies for most of its products, such as its “super premium breads.” All of this information would, according to BBakeries, give Hostess an improper competitive advantage. Finally, BBakeries asserts that Botticella concealed his intentions to move to Hostess, and then instructed his secretary to delete information from his hard drive.

As evidenced by the proposed findings of fact and conclusions of law filed by Botticella on January 29, 2010, Botticella is making several counter-arguments, which include the following: (1) there is no evidence as to Botticella’s responsibilities for Hostess, including whether he will be working on its English muffins, so BBakeries cannot show that he would inevitably disclose confidential information; (2) Botticella did not look at confidential materials sent to him by BBakeries after signing an “Acknowledgment and Representation Form” with Hostess on December 7, 2009; (3) the materials that Botticella deleted from his hard drive were of a personal nature, although he did accidentally delete work files; and (4) Botticella used an external storage device to practice his computer skills. 

Botticella also argues that the inevitable disclosure doctrine should not apply because BBakeries set forth his post-employment obligations in its agreement with him. That agreement included a non-disclosure covenant, but not a non-compete provision. Thus, Botticella posits, the agreement provides a contractual framework governing his post-BBakeries employment and that framework should trump the inevitable disclosure doctrine.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Because the laws of various states regarding non-compete clauses differ significantly, cases involving these provisions often entail fights at the outset as to the proper venue. The Eastern District of Pennsylvania recently faced just such an issue in CertainTeed Corp. v. Nichiha USA, Inc., Civil Case No. 09-CV-3932-LS, 2009 WL 3540796 (E.D. Pa. Oct. 29, 2009). In that matter, CertainTeed contested with Bruno Demey, its former Director of Manufacturing and Technology, and Nichiha, Demey’s new employer, over whether litigation between the parties should go forward in Pennsylvania or Georgia.

CertainTeed’s headquarters are located in Valley Forge, Pennsylvania, and it has manufacturing plants in Indiana, North Carolina, and Oregon. Its confidential information, trade secrets, and computer servers are located in Valley Forge. CertainTeed hired Demey in March 2003. Demey executed a non-compete agreement with CertainTeed in September 2004. During his employment with CertainTeed, Demey resided in South Carolina and made numerous trips to Valley Forge for meetings.

The timeline of events relevant to the litigation are as follows: 

1.         Demey resigned from CertainTeed on August 20, 2009.

2.         Demey filed a complaint and motion for a preliminary injunction in the Superior Court of Fulton County, Georgia on August 24, 2009. Demey stated that he intended to move to Georgia to work for Nichiha and therefore sought injunctive relief against CertainTeed setting forth: (a) that the non-compete and non-disclosure terms of the non-compete agreement are unenforceable under Georgia law; and (b) that CertainTeed could not take action to enforce the covenants against Demey or otherwise preclude Demey from working for Nichiha.

3.         On August 26, 2009, CertainTeed removed the state court action to the United States District Court for the Northern District of Georgia. 

4.         CertainTeed filed an action against Demey and Nichiha in the Eastern District of Pennsylvania on August 28, 2009. CertainTeed alleged a breach of contract claim and breach of fiduciary duty claim against Demey, a tortious interference with contractual relations claim and an unfair competition claim against Nichiha, and violations of the Pennsylvania, South Carolina, North Carolina, Indiana, and Oregon trade secrets acts, as well as a civil conspiracy claim, against Demey and Nichiha.

5.         On August 31, 2009, CertainTeed requested a preliminary injunction and temporary restraining order.

6.         On September 2, 2009, the Georgia district court granted Demey’s motion for a temporary restraining order and enjoined CertainTeed from enforcing the non-competition covenant in Georgia. On that same date, Nichiha filed a motion to dismiss, transfer or stay the Pennsylvania action.

7.         On September 3, 2009, CertainTeed filed a first amended complaint in the Pennsylvania action, removing any claim to enforce the non-compete covenant in Georgia.

The Pennsylvania district court ultimately decided to deny Nichiha’s motion to dismiss, stay, or transfer and therefore let CertainTeed proceed with its claims in Pennsylvania. In its order, the Pennsylvania court addressed three issues. First, it rejected Nichiha’s claim that the first-filed rule required that the matter progress exclusively in Georgia. The court found that the Pennsylvania action was not “truly duplicative” of the Georgia action because the former included a number of claims that were not present in the latter. The court rejected Nichiha’s assertion that the claims asserted by CertainTeed were mandatory counterclaims in the Georgia action, instead finding that the trade secret claims were not so related to the non-compete claims that separate trials would lead to “substantial duplication of efforts.”

The district court next addressed the issue of venue. It decided that a substantial portion of the events at issue took place in Pennsylvania. Specifically, it cited CertainTeed’s allegations that: (a) Demey and Nichiha would be sharing and utilizing confidential information and trade secrets that originated, and are stored, in Valley Forge, Pennsylvania; and (b) Nichiha and Demey conducted negotiations while Demey was in Pennsylvania.

Finally, the district court answered the question of whether it should transfer the case to Georgia in the negative. After recognizing that a plaintiff’s choice of forum is a “paramount consideration,” the court remarked that CertainTeed’s key witnesses and documents are maintained on servers located in Valley Forge. The court also decided that the Eastern District of Pennsylvania is as convenient as the Northern District of Georgia for non-party witnesses. Thus, for the time being, the case between CertainTeed, Demey, and Nichiha will proceed on two fronts.

• Email This
• Print
• Comments
• Trackbacks
• Share Link