Pursuant to the “Gist of the Action” doctrine, tort claims may be dismissed if they are “intertwined with,” and not just “collateral to,” contract claims in the same complaint.
In a Pennsylvania federal court case, an ex-employee was accused by his former employer of breaches of confidentiality, non-solicitation and non-compete agreements, and related causes of action. The portion of the plaintiffs’ tortious interference with contract claim that was “intertwined” with the cause of action for breach of the non-solicitation agreement was dismissed pursuant to Federal Rule 12(b)(6) and the “Gist of the Action” doctrine, but the motion to dismiss those allegations that were “collateral” to the breach of contract claim was denied.The court also found that plaintiffs’ Computer Fraud and Abuse Act (CFAA) allegations, to the extent that the ex-employee, for his personal benefit, induced a current employee to access the plaintiffs’ computers, survived the motion to dismiss. Synthes, Inc. v. Emerge Medical, Inc., Civ. Ac. No. 11-1566 (E.D. Pa., Sept. 19, 2012).
Synthes makes and sells implant devices used for orthopedic surgery. Powell, a Synthes salesman, signed — and was accused of violating — the company’s confidentiality, non-solicitation and non-compete agreements. After a half-dozen years with Synthes, he resigned to join two other former Synthes employees at Emerge, a competitor company. Synthes’ 13-count complaint included, among other causes of action against him (and in some instances against one or more other defendants), claims for breach of contract, tortious interference, misappropriation of trade secrets, and violation of the CFAA. A total of six briefs were filed supporting or opposing Powell’s motion to dismiss. The decisions announced in the court’s 74-page slip opinion mostly were adverse to Powell.
The “Gist of the Action” doctrine serves to prevent an award of punitive or exemplary damages for what is basically a breach of contract. The doctrine also helps in some cases to avoid the potential confusion resulting from different statutes of limitation applicable to tort and contract claims alleged to have arisen out of the same incident.
Synthes’ non-solicitation agreement with Powell was intended to prohibit him from encouraging the company’s workers to accept employment elsewhere. His alleged violation of that agreement was “intertwined” with the claim that he thereby tortiously interfered with the company’s contracts with those workers. So, the court dismissed that tort claim. Synthes also charged him with tortiously interfering with the company’s vendor relationships, but since the non-solicitation agreement said nothing on this subject his motion to dismiss that claim was denied. His non-competition agreement was somewhat convoluted, and the court could not determine at the pleading stage whether the “Gist of the Action” doctrine required dismissal of Synthes’ tortious interference claim relating to Powell’s efforts to sell Emerge’s products to Synthes’ customers.
Powell’s motion to dismiss the CFAA cause of action asserted that (a) the allegations did not satisfy the statutory mandate that a claim against him must aver that he improperly accessed a protected computer and, even if the allegations did satisfy that mandate, (b) no compensable loss could be shown to have resulted from any such improper access. The court held that the CFAA mandate regarding improper access was adequately pleaded by allegations that, after leaving Synthes’ employ, he induced the company’s workers to provide him with confidential and proprietary computerized information. Regarding the requirement that “damage or loss by reason of a violation” must be shown, the court determined that Synthes’ pleading that it had incurred “the costs of responding to [Powell’s] wrongful actions, conducting damage assessments, and restoring data and programs” met the statutory test.
The Synthes opinion provides the reader with an exhaustive analysis of Pennsylvania law, mainly derived from unofficially reported rulings, relating to the “Gist of the Action” doctrine (in some cases from courts in that state and elsewhere, the principle that tort damages cannot be recovered for a breach of contract is referred to as the “Economic Loss” doctrine). In addition, the Synthes ruling contains an extensive discussion of what conduct does, and what conduct does not, violate the CFAA. Parties to disputes potentially involving those issues will want to study this opinion.