CHARLES RONALD NORGLE, District Judge.
Inmar, Inc. ("Inmar") and Collective Bias. Inc. ("Collective Bias") (together "Plaintiffs") bring this action against Monica Murphy ("Murphy") and MLW Squared. Inc. d/b/a Ahalogy ("Ahalogy") (collectively "Defendants") for matters arising from Murphy's employment with Ahalogy. The Complaint alleges misappropriation of trade secrets under the Defend Trade Secrets Act (the "DTSA"), 18 U.S.C. § 1836 et seq. (Count I), misappropriation of trade secrets under the Illinois Trade Secrets Act (the "ITSA"), 765 ILCS 1065 et seq. (Count II), violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.0 § 1030 et seq. (Count V). conversion (Count VII), trespass to chattels (Count VIII). unjust enrichment (Count IX), and civil conspiracy (Count X) against both Murphy and Ahalogy; breach of contract (Count III), and breach of contract (Count IV) against Murphy; and tortious interference with contract (Count VI) against Ahalogy. Defendants now move under Federal Rule of Civil Procedure 12(b)(6) to dismiss the Complaint. For the reasons provided, the motion is granted in part and denied in part.
Collective Bias is an influencer marketing company. Influencer marketing is a form of marketing where a seller leverages the popularity and credibility of particular individuals to market specific products in a testimonial manner. This model uses a broad array of individuals who wield measurable influence on various platforms, e.g., Facebook. Twitter, Instagram, YouTube, various blogs, and other social media platforms. Modern influencer marketing seeks to use persons that are relatable to the market audience and have those individuals explain how and why they incorporate a particular product in their everyday life.
Plaintiffs assert that this marketing is more targeted than traditional methods of celebrity endorsements and the resulting impact is uniquely quantifiable. To be effective, Plaintiffs are required to understand the seller's business, product, or service, identify influencers who can be used as credible marketers of the said product, and develop relationships with the influencers and use them to market the product. Collective Bias states it has spent millions of dollars developing its knowledge of products and influencers, as well as contacts at major brands in order to most effectively sells its influencer marketing services. Collective Bias has also developed Social Fabric®, Shopper Social Mediar™, and Prescriptive IQ™. These services were built with proprietary research to connect influencer content with key audiences using advanced analytics and behavior tracking.
On or about November 19. 2015, Murphy was hired by Collective Bias to serve as its Senior Director of Business Development. Murphy's duties included: knowing Collective Bias's product offerings, pricing, and positioning; managing territory/account plans: and prospecting potential clients. Upon being hired, Murphy signed an employment agreement—the Collective Bias Agreement ("CBA"). The CBA included a confidentiality covenant (Compl., Ex. A §§ 1) ("CBA Confidentiality Covenant"), a non-compete covenant (
In or around December 2016, Inmar acquired Collective Bias. Despite the acquisition, Collective Bias retained its name and continued to operate as its own entity. However, its employees were required to sign another agreement with Inmar—the Confidential and Proprietary Rights Assignment Agreement (the "CAPRAA"). The CAPRAA contained similar covenants to the CBA, i.e., confidentiality covenants (Compl., Ex. B §§ 1-2.2) ("CAPRAA Confidentiality Covenant"), a "Covenant Not To Compete" (
Defendant Ahalogy is also an influencer marketing company and engages in the same form of marketing as Collective Bias. Ahalogy offers products and services that compete with Plaintiffs' products and services. Plaintiffs' aver that Murphy was aware that Ahalogy was a direct competitor of Plaintiffs. Nevertheless, on or about July 12, 2017. Murphy purportedly authorized a recruiter to contact her regarding potential employment at Ahalogy. Plaintiffs allege that the job description and qualifications for the position at Ahalogy, which Murphy was pursuing, were nearly identical to her position with Collective Bias.
After accepting the offer from Ahalogy, but prior to notifying Plaintiffs of her intent to leave, Murphy allegedly used her credentials to access Plaintiffs' computer systems and collected Plaintiffs' confidential and proprietary information. Plaintiffs allege that Murphy accessed Plaintiffs' computer systems using her work-issued computer and forwarded information to her personal email account including: Collective Bias's product offering; position in the market; pricing; competitive differentiators; territory and account plans; lead sources; client business objectives; rate cards; budget templates; client lists; and research dossiers. Plaintiffs claim that Murphy began forwarding their confidential information from August 4, 2017, up until the afternoon on August 24. 2017—hours before she resigned. Additionally, shortly before submitting her resignation, Murphy purportedly reached out to one of Plaintiffs' clients to inform the client that she was leaving. On August 24, 2017. Murphy tendered Plaintiffs her resignation, effective immediately. Approximately one month after joining Ahalogy. Murphy allegedly contacted the same client and requested a meeting to pitch Ahalogy's services. Plaintiffs aver that Murphy and Ahalogy began using Plaintiffs' proprietary information to benefit themselves.
Defendants now move to dismiss the entire complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6).
A motion under Rule 12(b)(6) tests the sufficiency of the complaint under the plausibility standard.
Counts I and II of Plaintiffs' complaint sets forth claims for violations of the ITSA and the DTSA against Murphy and Ahalogy. "To prevail on a claim for misappropriation of a trade secret under [the ITSA], the plaintiff must demonstrate that the information at issue was a trade secret, that it was misappropriated and that it was used in the defendant's business."
"To establish a protectable trade secret under either statute, the party seeking protection must show that the information: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality."
"The existence of a trade secret ordinarily is a question of fact."
Plaintiffs have sufficiently alleged that the confidential information Murphy forwarded to her private computer contained Plaintiffs' trade secrets. Plaintiffs allege that Murphy possessed, inter alia, the following confidential and proprietary information: business development plans for existing clients, Plaintiffs' pricing and marketing strategies, lead sources, client lists, position in the market, and research dossiers. Collective Bias claims that it spent years and millions of dollars developing its knowledge of products and influencers, developing client dossiers, and marketing strategies. Additionally, Plaintiffs claim that the information is not readily ascertained or generally known. Other courts in this district have found similar alleged confidential information to be sufficient to base trade secret claims upon.
Plaintiffs' also must allege that they took reasonable steps to safeguard their confidential information. 765 ILCS 1065/2(d); 18 U.S.C. § 1839(3). Here, Plaintiffs allege more than rote repetition of statutory language. Plaintiffs claim that they have made efforts to keep the information secret by using passwords, key cards, security personnel, terminating access to confidential information when employment ends, and requiring employees to sign nondisclosure and noncompetition agreements. Such allegations are sufficient at the pleading stage to demonstrate that Plaintiffs took reasonable steps to safeguard their information.
Having determined that Plaintiffs sufficiently allege trade secrets under the ITSA and the DTSA, the Court turns to whether they have alleged Murphy misappropriated those trade secrets. "Misappropriation can be shown one of three ways—by improper acquisition, unauthorized disclosure, or unauthorized use."
Thus, viewing the well-pleaded facts and all reasonable inferences in Plaintiffs' favor, they have sufficiently alleged Murphy and Inmar violated the ITSA and the DTSA.
Plaintiffs allege that Murphy breached various covenants of the CBA. However. Defendants argue that the CBA is unenforceable because it was superseded by the CAPRAA and that Plaintiffs fail to allege a breach or resulting damages. The CBA contains a Michigan choice of law provision, Compl., Ex A § 16, and the CAPRAA contains a North Carolina choice of law provision, Compl., Ex B § 18, neither party objects to the application of either of these provisions.
First, Defendants argue that that the CBA is unenforceable because it was superseded by the CAPRAA. Defendants point to the CAPRAA's "Entire Agreement" covenant, which states that it "is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us." Compl., Ex. B § 21.4. From this clause. Defendants argue that the CBA is superseded and thus, no longer enforceable. The Court disagrees. It is not clear from the plain language of the CAPRAA whether the parties intended for it to supersede the CBA.
"The merger clauses were designed to effectuate the policies of the Parol Evidence Rule; i.e., barring the admission of prior and contemporaneous negotiations on terms inconsistent with the terms of the writing."
Here, the plain language of the CAPRAA is not clear as to the intent of the parties. The CAPRAA's Entire Agreement Covenant, which Defendants point to in support of their argument, states it "supersedes and merges all prior discussions between us." Compl., Ex. B § 21.4 (emphasis added). Defendants argue that it "defies logic" to interpret "discussions" to not include prior written agreements. Def.'s Reply [38], at 2. Defendants do not support this proclamation with citations to any case law. Contrary to Defendants' unsupported argument, the Court does not, as a matter of law, construe "discussion" to encompass prior written agreements. "Discussion" is "[t]he act of exchanging views on something; a debate." Discussion. Black's Law Dictionary (10th ed. 2014). It is not clear from the word "discussion whether the parties intended the CAPRAA to supersede the CBA—a written agreement. Plaintiffs allege that the terms of the CBA were not superseded and its terms survived the termination of Murphy's employment. These allegations in addition to the ambiguity of the word "discussions" provide a sufficient basis to reject Defendants' argument.
Having determined that, for the purposes of this motion, the CAPRAA did not supersede the CBA, the Court turns to Defendants' next argument; that Plaintiffs fail to allege breach of the CBA or resulting damages. "A plaintiff seeking to recover for breach of contract must prove that a contract existed between the parties, the defendant breached the contract, and the breach damaged the plaintiff."
Defendants argue that the restrictive covenants, i.e., the CBA Non-Solicitation Covenant and CBA Non-Compete Covenant, are facially unreasonable, and thus unenforceable. The Michigan Antitrust Reform Act authorizes agreements not to compete as long as they are reasonable, it reads:
Mich. Comp. Laws § 445.774a(1). Michigan appellate courts have determined that "§ 4a(1) represents a codification of the common-law rule that the enforceability of noncompetition agreements depends on their reasonableness."
Moreover, even if the Court determined that the CBA"s restrictive covenants were facially unreasonable, Plaintiffs could still proceed on their breach of contract claim. Defendants argue that the CBA Non-Compete Covenant is unenforceable because it prohibits Murphy from working in any capacity or scope for any competitor of Plaintiffs', citing
The CBA's Non-Compete Covenant reads:
Compl., Ex. A § 5(a). Even if this language was determined to be unreasonable, the Michigan statute allows courts to blue pencil or limit the restrictive agreement to make it reasonable. Mich. Comp. Laws § 445.774a(1) (providing that "a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited."); see
Alternatively, Defendants' argue that even if the CBA is enforceable, Plaintiffs fail to allege Murphy breached its covenants. The Court disagrees. Plaintiffs have sufficiently alleged violations of the four challenged covenants. As discussed above, Plaintiffs' claim that Murphy took Plaintiffs' confidential and proprietary information and disclosed it to Ahalogy—a direct competitor of Collective Bias. Murphy divulged this confidential information within a few months of her resignation from Collective Bias. Upon her resignation, Murphy was required under the CBA to return all of Plaintiffs' property, including: computer files; documents; customer lists; plans; and promotional materials. Compl., Ex. A § 4. In contravention of the CBA's requirements, Murphy allegedly did not return Plaintiffs' property at the time of her resignation. Rather, she purportedly forwarded Plaintiffs' confidential information to her personal email. Also, within a month of beginning her employment with Ahalogy, Murphy allegedly contacted at least one of Plaintiffs' clients a client Murphy worked with while she was employed by Plaintiffs—and requested an opportunity to pitch Ahalogy's services. Finally, Plaintiffs claim that Defendants used the misappropriated trade secrets to gain a competitive advantage. These allegations are sufficient to put Defendants' on notice of which CBA covenants Murphy purportedly breach, and the relevant conduct that is the basis for each respective breach.
For the reasons stated, the Court refrains from determining the reasonableness of the CBA's restrictive covenants and determines that Plaintiffs' sufficiently allege breach of contract. Accordingly, Defendants' motion to dismiss Plaintiffs' Count III is denied.
After Inmar's acquisition of Collective Bias's employees were required to sign the CAPRAA. Plaintiffs allege that Murphy's conduct breached various covenants in the CAPRAA. The parties do not dispute that the CAPRAA is governed by North Carolina law, as instructed in its "Governing Law" covenant. Compl., Ex. B § 18. Initially, the Defendants challenge the enforceability of the restrictive covenants contained in the CAPRAA, i.e., the CAPRAA Non-Compete Covenant and CAPRAA Non-Solicitation Covenant.(
Under North Carolina law, both the CAPRAA's Non-Solicitation Covenant and the CAPRAA Non-Compete Covenant are considered restrictive covenants because both clauses seek to prevent Murphy from engaging in a similar business in competition with Plaintiffs.
Plaintiffs contend that the restrictive covenants were supported by consideration in two alternative respects: (1) the covenants were supported by Murphy's new employment relationship when Collective Bias was acquired; and (2) they have sufficiently alleged that Murphy received additional benefits in exchange for signing the CAPRAA. Pl.s Resp. at 5. The Court will address each argument in turn.
Plaintiffs' first argument fails. "An employment contract signed at the time of a business acquisition may only use employment with the acquiring company as consideration if the old employment relationship is deemed terminated as a result of the transaction.
Second, Plaintiffs fail to allege Murphy's signature of the CAPRAA was supported by new consideration. "When the employment relationship is established before the covenant not to compete is executed, there must be separate consideration to support the covenant, such as a pay raise or other employment benefits or advantages for the employee."
Next. Plaintiffs allege that Murphy breached the CAPRAA Confidentiality Covenant. Initially, the Court notes that unlike restrictive covenants, North Carolina law permits continued employment to be sufficient consideration for a confidentiality agreement.
Under North Carolina law, the CAPRAA Confidentiality Covenant is enforceable. "[North Carolina courts] have a long history of carefully scrutinizing covenants that preclude a seller of a business from competing with the new owner and covenants that prevent an employee from competing with his former employer."
Here, the CAPRAA Confidentiality Covenant is not a restraint on trade because it is limited to nonpublic information, e.g., financial information, source code of proprietary software, research data, internal cost and pricing data. Protecting such information is within the legitimate business interest of Plaintiffs, and thus, the lack of restrictions on time and area do not render the clause unenforceable. Accordingly, the Court turns to whether Murphy breached the confidentiality agreement.
Plaintiffs argue that Murphy breached the CAPRAA Confidentiality Covenant in part when she forwarded emails that contained confidential information—business development plans, research, client pricing and marketing strategies, and other information that Plaintiffs allege is proprietary. Compl., at 13, 14. Then, upon Murphy's arrival at Ahalogy, she began to use the confidential information to benefit herself and Ahalogy.(
Accordingly, Defendants' motion to dismiss Count IV is: (1) granted as it pertains to breach of the CAPRAA's restrictive covenants; and (2) denied as to Murphy breaching the confidentially agreement.
Plaintiffs allege that Murphy and Ahalogy violated provision § I 030(a)(2)(c), (a)(5)(C), and (b) of the CFAA. The CFAA is primarily a criminal anti-hacking statute; however, it permits "[a]ny person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator." 18 U.S.C. § 1030(g). "[A] person suing under section 1030(g) must prove: (1) damage or loss (2) by reason of (3) a violation of some other provision of section 1030, and (4) conduct involving one of the factors set forth in section 1030(a)(5)(13)(i)-(v)."
As an initial matter, Plaintiffs are not required to plead both loss and damages, rather it is sufficient to allege either.
Plaintiffs claim that they suffered damages in excess of $5,000 from the cost of responding to Defendants' unlawful actions and conducting a damage assessment. Defendants argue that loss requires Plaintiffs to allege that the costs are associated with responding to an interruption of service or that an impairment of data occurred. The parties' respective arguments reflect a split in this circuit regarding what constitutes "loss" under the CFAA. However, the Court remains unpersuaded by Plaintiffs argument.
As alleged, Murphy merely forwarded emails from her work computer to her personal email. Plaintiffs do not claim that Murhpy's conduct caused any impairment to the system, disrupted Plaintiffs' services, or rendered any of Plaintiffs' data even momentarily unavailable. Accordingly, "to permit a plaintiff to state a CFAA claim by simply alleging costs incurred in responding to an alleged offense or conducting a damage assessment without alleging that the offense caused damage would impermissibly broaden the applicability of the CFAA to provide seemingly unfettered access to federal courts to adjudicate state law issues incidental to computer use."
Further, the Court rejects Plaintiffs' argument that
Defendants argue that the ITSA preempts Plaintiffs' remaining claims: tortious interference with contract, conversion, trespass to chattels, unjust enrichment, and civil conspiracy. The Court agrees in part. "[The ITSA] is intended to displace conflicting tort, restitutionary, unfair competition, and other laws of this State providing civil remedies for misappropriation of a trade secret." 765 ILCS 1065/8(a). "[T]here is no action for which [the plaintiffs'] seek recovery that is separate from the misappropriation of its trade secret information."
Plaintiffs claims that Ahalogy tortiously interfered with their contractual relationship with Murphy governed by the CBA and the CAPRAA. First, Plaintiffs' tortious interference claim is dismissed to the extent that it relies on Murphy's breach of the CBA Confidentially Covenant and the CAPRAA Confidentiality Covenant or requirements to return Plaintiffs' confidential property back to Plaintiffs upon Murphy's resignation from Collective Bias. These claims are preempted by the ITSA because both arise directly from Plaintiffs' misappropriated trade secrets. Further, since Plaintiffs' breach of contract claim regarding the CAPRAA was dismissed—except for Plaintiffs' alleged violation of the CAPRAA Confidentially Covenant—Plaintiffs' tortious interference claim is dismissed to the extent it relies on Murphy's alleged breach of the CAPRAA.
Turning to the remaining alleged breaches of the CBA that are not based solely on the alleged misappropriation of trade secrets. "To succeed in proving that the defendant committed tortious interference with contract, the plaintiff must plead and prove: (1) the existence of a valid and enforceable contract between the plaintiff and another; (2) the defendant's awareness of the contractual relationship between the plaintiff and another; (3) the defendant's intentional and unjustifiable inducement of a breach of the contract; (4) a breach of contract by the other caused by the defendant's wrongful acts; and (5) damage to the plaintiff."
Here, Plaintiffs fail to allege that Ahalogy intended Murphy to breach the CBA Non-Solicitation Covenant. The CBA Non-Solicitation Covenant prevents Murphy from soliciting Plaintiffs' customers who she had contact with or worked the account of during the twelve months preceding Murphy's resignation. Compl., Ex. A § 5(b). Plaintiffs allege that Murphy reached out to one of Plaintiffs' customers with whom she worked within the last twelve months of her employment with Plaintiffs. However, Plaintiffs do not claim that Ahalogy directed Murphy's conduct or was even aware of it. Plaintiffs further fail to allege that Ahalogy induced Murphy to reach out to any of Plaintiffs' customers that Murphy worked with while still employed by Plaintiffs.
Finally, the Court turns to Plaintiffs tortious interference claim regarding the CBA Non-Compete Covenant. As discuss supra, for the purposes of this motion, the Court has determined that the restrictive covenants contained in the CBA are enforceable. Plaintiffs allege that Ahalogy was aware of the CBA Non-Compete Covenant, it hired Murphy despite the covenant, and Murphy's subsequent employment with Ahalogy breached that covenant. These allegations are sufficient to allege tortious interference of contract.
For their conversion claim, Plaintiffs argue that Murphy, without authorization, obtained and denied return of Plaintiffs' property and confidential or proprietary information. Similarly, for their trespass to chattels claim. Plaintiffs aver that Defendants failed to return Plaintiffs' property and confidential or proprietary information, instead using it for their own enrichment. The alleged property for both of these claims are the emails that Murphy forwarded to herself. These emails are the same property that serves as the basis for Plaintiffs' misappropriation of trade secrets claims. Thus, Plaintiffs' conversion and trespass to chattel claims are preempted by the ITSA.
As an initial matter, while Plaintiffs may seek relief under a theory of unjust enrichment as an alternative to relief sought under the contract claim,
For its civil conspiracy claim, Plaintiffs allege that Defendants agreed to access Plaintiffs' systems to obtain Plaintiffs' property and confidential or proprietary information. Since these allegations merely state that Defendants planned or engaged in unlawful acts in conjunction to take Plaintiffs' confidential information through improper means. Plaintiffs' civil conspiracy claim is another reiteration of the ITSA allegations, and thus, is preempted. See
For the aforementioned reasons, Defendants' motion to dismiss Plaintiffs' complaint is granted in part and denied in part. Defendants' motion to dismiss Counts I. 11, and III is denied. Defendants' motion to dismiss Count IV is: (1) granted as it pertains to breach of the CAPRAA Non-Solicitation Covenant and the CAPRAA's Non-Compete Covenant; and (2) denied as to Murphy's alleged breach of the CAPRAA Confidentially Covenant. Defendants' motion to dismiss Count VI is: granted to the extent it pertains to Ahalogy's tortious interference with the CAPRAA and the CBA Confidentiality Covenant, the CBA Non-Solicitation Covenant, and the CBA Employer Property Covenant; and (2) denied as to Ahalogy tortiously interfering with the CBA Non-Compete Covenant. Finally, the Court grants Defendant's motion to dismiss Counts V, VII. VIII. IX, X. The Court makes clear that to the extent any claim was dismissed, it dismissed without prejudice.
IT IS SO ORDERED.