PRATTER, District Judge.
VWR International LLC ("VWR") moves to dismiss (Docket No. 29) Alpha Pro Tech, Inc.'s ("APT") Second Amended Complaint ("SAC," Docket No. 28). For the reasons that follow, the Court will grant the motion in part and deny it in part.
As APT alleges in its Second Amended Complaint, "this action is about two things: VWR improperly obtained [APT's] trade secrets while in a position of trust and confidence with [APT]; and VWR falsely and misleadingly advertised its products to
Because APT's method was superior, its process gave it a competitive business advantage over competitors whose products had less effective coatings. Its products have been successful and consumers accordingly afford the CRITICAL COVER® "brand substantial goodwill." SAC ¶ 23. The value of a brand's goodwill is substantial in this market because many customers of such protective apparel require a qualification process in their clean environments that, for some larger customers, can be time — and resource-intensive. Further, to maintain the high quality of its CRITICAL COVER® line, APT guaranteed its products' performance on the products themselves and in their accompanying literature, and also maintained quality control teams at its production site.
APT's method and formula were not generally known to the public and APT took steps to protect the formula, which, it contends, is a trade secret. APT "required its employees and independent contractors working directly with the formula and method to maintain their secrecy pursuant to written and oral agreements," SAC ¶ 20; it also included confidentiality clauses in its contracts with distributors.
In 1996, APT and VWR entered into an agreement, created by two documents, a Distribution Contract and an Operations Document (SAC, Exs. B & C, respectively), pursuant to which VWR would serve as APT's exclusive distributor of APT's CRITICAL COVER® — branded products. Pursuant to this agreement, APT granted VWR an exclusive license to use the CRITICAL COVER® trademark and prepared promotion literature for VWR to use. The agreement also bound VWR to identify APT as the manufacturer and warrantor of the CRITICAL COVER® products in its product labeling and online and printed literature. Also pursuant to their agreement, APT referred CRITICAL COVER® purchase orders to VWR. And, as discussed in greater detail below, the parties' agreement bound the parties not to use, publish, or disclose information conferred, pursuant to the agreement, by one upon the other, or by a third party with a confidentiality agreement with one of the parties.
In 2000, APT decided to move its CRITICAL COVER® manufacturing from the state of Georgia overseas to China, where it entered into a relationship with Xiantao Xinfa Plastics Company, Ltd. ("XXPC"), which was to become APT's new CRITICAL COVER® manufacturer. At the outset of the APT-XXPC relationship, only APT possessed the information necessary to utilize APT's coated SBP method. Before teaching XXPC employees its method, APT extracted an oral confidentiality agreement with XXPC and its owner, Mr. Fu Lixin ("Mr. Fu"), to maintain the confidentiality of APT's formula and not use it for other customers. And although APT shared its method and formula with XXPC, APT remained CRITICAL COVER®'s manufacturer, albeit in XXPC's plant and with its personnel, by continuing to provide all the raw materials (including the necessary polymers embodying the clandestine method — at first, APT simply provided the polymers without giving XXPC their names) and monitoring the use of raw materials and polymers with a gravimetric blender (APT kept a supervisory and quality-control team on site). Pursuant to the APT-XXPC oral agreement, the relationship was at-will but the parties understood that the formula, raw materials, and certain equipment remained APT's property and that Mr. Fu and XXPC could not use APT's method outside of XXPC's manufacturing relationship with APT even after the parties' relationship might come to an end.
Sometime in 2009 or thereafter, VWR recognized that it could capture some of APT's profitability for itself if it could compete with APT. But instead of developing its own products or attempting to reverse engineer the CRITICAL COVER® coated SBP method — and then qualifying its new products with demanding customers already using CRITICAL COVER® products they had put through the paces — VWR "sought to obtain from [APT] the composition and identity of materials used in [APT's] Coated SBP and the identity of [APT's] Chinese manufacturing plant." SAC ¶ 50. After APT communicated to VWR that the majority of this information was confidential and proprietary, VWR unleashed its own efforts to locate APT's Chinese manufacturer, and it eventually found XXPC and met with Mr. Fu in or around August 2009 to discuss XXPC's possible manufacturing of the equivalent of APT's CRITICAL COVER® products for VWR. And despite knowing that XXPC and APT had an agreement respecting confidentiality, APT alleges, "VWR induced XXPC and Mr. Fu to violate those confidentiality restrictions by manufacturing Coated SBP and Coated SBP-containing apparel for VWR using [APT's] proprietary formulae and methods." SAC ¶ 55. At the same time, VWR kept APT in the dark by pretending to renegotiate its contract with APT while in actuality making preparations to release its competing products embodying APT's method and formula. VWR then notified APT that it would not continue the parties' relationship.
Then, APT alleges, VWR set out to market its new product lines as replacements
APT sued VWR on March 30, 2012. It brought claims of false designation of origin and false advertising under the Lanham Act, 15 U.S.C. § 1125(a); trade dress infringement in violation of section 43(a) the Lanham Act, § 1125(a); willful misappropriation of trade secrets in violation of the Pennsylvania Uniform Trade Secrets Act ("PUTSA"), 12 Pa. Cons.Stat. Ann. §§ 5301-5308; and tortious interference with APT's existing contractual relationship with XXPC. After VWR moved to dismiss, APT filed its first amended complaint, thereby mooting VWR's motion to dismiss. VWR then moved to dismiss APT's amended complaint, and following the parties' briefing, the Court heard oral argument. APT then sought leave to file its Second Amended Complaint, which is currently before the Court as the target of VWR's subsequent Motion to Dismiss.
In its Second Amended Complaint (Docket No. 28), APT brings claims under five counts: Count I, for VWR's alleged willful misappropriation of trade secrets under PUTSA for what APT avers was VWR's acquisition and use in manufacture of APT's coated SBP method and formula, which, APT contends, are trade secrets; Count II, for breach of the APT-VWR contract — in particular, its confidentiality provision; Count III, for VWR's unjust enrichment in retaining the benefit of APT's coated SBP method; Count IV, for VWR's tortious interference with APT's oral contract with XXPC; and Count V, for false designation of origin and false advertising under the Lanham Act for VWR's statements promoting its new line of products.
With its Motion to Dismiss (Docket No. 29), VWR tests the sufficiency of all five counts of the Second Amended Complaint. Regarding Count I, VWR disputes that APT's coated SBP method was a trade secret at the time of the alleged misappropriation. Second, VWR argues that it did not breach its contract with APT (Count II) because the confidentiality provision in the agreement applies only to information transmitted from one party or party's confidential promisee to the other party pursuant to the agreement, and the alleged theft of trade secrets at the root of this dispute occurred outside the canopy of the parties' agreement. Third, VWR disputes
For the reasons that follow, the Court will grant VWR's Motion to Dismiss with respect to Counts II and IV (breach of contract and tortious interference with contract) and deny it with respect to Counts I, III, and V (misappropriation of trade secrets; unjust enrichment; and Lanham Act false designation of origin and false advertising).
A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. Although Rule 8 of the Federal Rules of Civil Procedure requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed.R.Civ.P. 8(a)(2), "in order to `give the defendant fair notice of what the ... claim is and the grounds upon which it rests,'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citation omitted) (alteration in original), the plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do," id.
To survive a motion to dismiss, the plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Specifically, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. The question is not whether the claimant "will ultimately prevail ... but whether his complaint [is] sufficient to cross the federal court's threshold." Skinner v. Switzer, ___ U.S. ___, 131 S.Ct. 1289, 1296, 179 L.Ed.2d 233 (2011) (citation and internal quotation marks omitted). Thus, assessment of the sufficiency of a complaint is "a context-dependent exercise" because "[s]ome claims require more factual explication than others to state a plausible claim for relief." W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 98 (3d Cir.2010).
In evaluating the sufficiency of a complaint, the Court adheres to certain well-recognized
APT brings claims for misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act (Count I), breach of contract (Count II), unjust enrichment (Count III), tortious interference with an existing contractual relationship (Count IV), and Lanham Act false advertising and false designation of origin (Count V). VWR disputes each of these claims with a variety of arguments, and also argues that Counts I, III, and IV cannot proceed without XXPC, which, VWR avers, is a necessary party that must be joined pursuant to Federal Rule of Civil Procedure 19. XXPC is not presently a party in this case.
APT claims that VWR willfully misappropriated its coated SBP method and formula from XXPC and that because this method and formula constitute trade secrets, VWR is liable to it for willful misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act ("PUTSA"), 12 Pa. Cons.Stat. Ann. §§ 5301-5308. PUTSA permits a plaintiff to recover monetary "damages for misappropriation" of a trade secret, id. § 5304; see id. § 5302 (definitions). Under the statute, a trade secret consists of
Id. § 5302. To make this determination, Pennsylvania courts look to a variety of factors:
Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 109 (3d Cir.2010); see also Nova Chems., Inc. v. Sekisui Plastics Co., Ltd., 579 F.3d 319, 327 (3d Cir.2009).
PUTSA provides that misappropriation of a trade secret can occur through:
12 Pa. Cons.Stat. Ann. § 5302 (emphasis added). APT argues, first, that its coated SBP method and formula are trade secrets and, second, that VWR misappropriated them in such a way as to fall within the italicized language above. VWR disputes both contentions.
VWR begins by contending that this Court should dismiss Count I for its alleged misappropriation of APT's trade secrets because "no discovery could establish that the information at issue could achieve trade secret status." VWR Mot. Dismiss at 12. VWR has correctly summarized the standard to the extent that this statement recognizes that "[w]hether information rises to the level of a trade secret under PUTSA is a question of fact not appropriate for resolution on a motion to dismiss." Synthes, Inc. v. Emerge Med., Inc., No. 11-1566, 2012 WL 4205476, at *27 (E.D.Pa. Sept. 19, 2012) (citing
VWR's contentions pay lip service to the motion to dismiss standard — a theme all too prevalent throughout VWR's Motion to Dismiss. Like most other causes action, "a claim for misappropriation of trade secrets need not be pleaded with particularity." Ctr. Pointe Sleep Assocs., LLC v. Panian, No. 08-1168, 2009 WL 789979, at *3 (W.D.Pa. Mar. 18, 2009). What VWR really wants, it seems, is evidence. However, concrete evidence is not required until VWR moves for summary judgment or the case proceeds to trial. And in actuality, such a requirement, even if it existed, would make less sense here, where trade secrets are concerned because "such a requirement would result in public disclosure of the purported trade secret." Pennfield Precision, Inc. v. EF Precision, Inc., No. 00-280, 2000 WL 1201381, at *4 (E.D.Pa. Aug. 15, 2000) (quoting Leucadia, Inc. v. Applied Extrusion Techs., Inc., 755 F.Supp. 635, 636 (D.Del.1991)).
For now, APT has adequately pleaded that its SBP method was a trade secret:
But even if all those things are true, VWR continues, APT's coated SBP method cannot be a trade secret for the further reason that APT fails to satisfy the second prong of section 5302's requirement that the information be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." 12 Pa. Cons.Stat. Ann. § 5302. Indeed, two of the factors that courts look at are "(2) the extent to which the information is known by employees and others involved in the company's business" and, more to the point here, "(3) the extent of the measures taken by the company to guard the secrecy of the information," Bimbo Bakeries, 613 F.3d at 109. And all that APT allegedly did, says VWR, was enter into an oral confidentiality agreement with XXPC — about which, moreover, it has alleged insufficient facts — and this agreement, even if it existed, does "not qualify as `reasonable efforts' to maintain the secrecy of [APT's] propriety formulations and methods." VWR Mot. Dismiss at 15.
But whether that is the case remains to be seen. Whether APT's efforts were reasonable is, to a large extent, a question of fact that cannot be answered at this stage. The Court does not have the necessary factual array before it to determine whether VWR's contention is correct, and the determination of whether a plaintiff's efforts to maintain the secrecy of its alleged trade secrets were reasonable is not a question susceptible of black-or-white analysis. As the Pennsylvania courts have explained, "the determination of whether the information is a trade secret must be made on a case-by-case basis." O.D. Anderson, Inc. v. Cricks, 815 A.2d 1063, 1071 (Pa.Super.Ct.2003). For one, "what is required to maintain a trade secret action is not absolute secrecy" — but for the breach of which, one supposes, as a matter of logic, the circumstances would never give rise to actionable misappropriation of trade secrets — "but rather substantial secrecy." EXL Labs., LLC v. Egolf, No. 10-6282, 2010 WL 5000835, at *5 (E.D.Pa. Dec. 7, 2010) (citing O.D. Anderson, 815 A.2d at 1070). And ascertaining "whether a plaintiff took sufficient steps to maintain substantial secrecy of its proprietary information" requires consideration of, but not entire reliance on, confidentiality
VWR's citation to secondary material hardly helps to resolve this issue. First, to the extent that evaluation of a plaintiff's efforts to maintain the secrecy of its alleged trade secrets is a factbound inquiry that must be determined on a case-by-case basis, resort to secondary literature is appropriate only for the purpose of painting the background scenery rather than for stacking the building blocks of a holding. See generally, e.g., Richard A. Posner, Reflections on Judging 136-38 (2013). The issue here is not the rule for the determination of what constitutes reasonable efforts, but instead its application to a particular set of circumstances. Thus, legislative facts — such as those that might be provided in the secondary literature — are of little relevance; instead, the adjudicative facts must be determined by proof to the finder of fact and from them the issue of trade secret vel non decided.
And second, even if resort to the secondary literature cited were otherwise appropriate, those articles merely establish what Chinese, rather than Pennsylvania, law might require,
In sum, the Court cannot decide at this juncture whether APT's efforts, if they were sufficiently pled, were reasonable. VWR's cannot establish that APT's efforts were insufficient as a matter of law, for VWR has not cited a single case establishing that oral confidentiality agreements are per se unreasonable or unenforceable. This Court will not invent such a rule.
Instead, APT has alleged that it took efforts, which could be found to be reasonable, to protect its trade secret by pleading that:
Whether or not these efforts were reasonable, APT may well face significant evidentiary problems establishing preliminarily that any such oral agreement existed between it and XXPC. But these are two separate, albeit conceptually related, issues, and they, too, are questions for another day.
VWR argues next that the "Second Amended Complaint does not establish that any alleged trade secret was communicated to VWR while it was in a position of trust and confidence and under such circumstances giving rise to a duty to maintain its confidentiality" — primarily, VWR suggests, because the alleged communication of the coated SBP method information came from a third party, XXPC, rather than from APT. VWR Mot. Dismiss at 17-18.
PUTSA provides that the conduct considered misappropriation includes both (1) 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," 12 Pa. Cons.Stat. Ann. § 5302, as well as
12 Pa. Cons.Stat. Ann. § 5302. Under the latter option, a plaintiff can prevail on a misappropriation claim if it can show that the defendant used a trade secret without consent and, at the time of its use, knew or had reason to know that the trade secret was derived from a third party owing the plaintiff a duty of secrecy. Id. § 5302(2)(ii)(C).
Under this standard, APT has sufficiently pleaded a claim for misappropriation:
Still, VWR argues that APT has not sufficiently alleged that VWR acquired any alleged trade secrets by improper means or that it knew about XXPC's alleged duty of secrecy arising from the alleged oral confidentiality agreement between APT and XXPC. See VWR Reply at 5-6. Paragraph 54 of the SAC may be conclusory and simply alleging that VWR knew of the agreement may not be enough. But even without that allegation, APT has stated a claim because its other allegations permit the reasonable, and plausible, inference that VWR had reason to know, even if it did not in fact know, that XXPC might have a confidentiality agreement with APT. Indeed, the gravamen of the other allegations set out above is that VWR knew that the SBP method was proprietary and that it was secret because, notwithstanding APT and VWR's distribution relationship, APT would not disclose the composition or identity of the materials or even the identity of the XXPC plant. APT's confidentiality agreement with VWR, as well as its refusal to give VWR more information, would be enough to give VWR its reason to know. This may well be enough for present pleading purposes, subject to one last issue raised by VWR to challenge Count I.
In its final attempt to knock out Count I, VWR contends that APT relies only "on information and belief" for its bare allegation that VWR used APT's trade secrets by embodying them in VWR's products. See VWR Mot. Dismiss at 18. VWR argues that APT has pleaded "no facts to show that XXPC actually gave [any trade secrets] to VWR," as opposed to "using XXPC to manufacture [VWR's] own line of protective apparel." Id. Further, VWR argues, APT "specifically acknowledged in its Response that VWR may not have known that [APT's] formulations for making Coated SBP were `trade secrets per se.'" VWR Reply at 6 (quoting APT Resp. at 15).
As a preliminary matter, logically, following a method or formula to manufacture a product is "using" that method or formula, and all that PUTSA requires is "use," 12 Pa. Cons.Stat. Ann. § 5302. Second, even if APT's allegation that, "On information and belief, VWR's final products embodied [APT's] misappropriated trade secrets for Coated SBP," SAC ¶ 59, other of APT's allegations allow the plausible inference that XXPC was using APT's trade secret method to manufacture VWR's new line of products. See, e.g., ¶ 70 (reporting VWR's statement that "we have not changed ... the manufacturing process for 95% of the products in our new line"); SAC ¶¶ 53-56 (establishment of VWR's arrangement with XXPC); ¶ 71 (charts implying that the only change in products from APT's to VWR's was one of name).
APT may well face evidentiary difficulties proving that its efforts to protect its coated SBP method were reasonable or that VWR improperly acquired that information. But APT has pleaded sufficient facts to survive a motion to dismiss.
Count II is a claim for breach of contract. APT and VWR's relationship was founded on two contracts, their Distribution Contract and their Operations Document. See SAC Exs. B & C. The parties agree that Pennsylvania law requires a plaintiff alleging breach of contract to plead facts establishing the existence of a contract, a breach of that contract, and damages resulting from the breach. See, e.g., J.F. Walker Co., Inc. v. Excalibur Oil Grp., Inc., 792 A.2d 1269, 1272 (Pa.Super.Ct.2002); see also APT Resp. at 27; VWR Mot. Dismiss at 30. Further, the parties agree that they were bound by their two contracts. Their dispute focuses on the narrower question of whether VWR breached any duty of confidentiality pursuant to either or both of them. APT claims that two issues are relevant to this inquiry. First, APT contends that by misappropriating APT's trade secrets from XXPC and using them to produce its own product lines, VWR breached a specific contractual duty not to use APT's confidential information.
Before reaching the substance of these questions, the Court notes that, despite raising what seem to be two breach of contract claims in its SAC, viz., alleged breach of confidentiality and alleged breach of the duty of good faith and fair dealing, APT has pressed only the former in response to VWR's Motion to Dismiss. APT raised a breach of contract claim for the first time in its SAC, and VWR devotes much energy to arguing, first, that VWR did not breach any duty of confidentiality and second, therefore, that APT cannot state a separate claim for breach of duty of good faith and fair dealing because Pennsylvania courts do not "recognize[] an independent cause of action for breach of a duty of good faith and fair dealing." VWR Mot. Dismiss at 33. But it is not necessary to reach this question of law, namely, of whether an independent cause of action exists for breach of a contractual duty of good faith and fair dealing, because APT, in its Response, explains that it "has not attempted to set forth a separate and independent claim for breach of the duty of good faith and fair dealing." APT Resp. at 30. Thus, the Court need decide only whether VWR could have breached a duty of confidentiality by allegedly acquiring APT's trade secrets from XXPC and using them to manufacture its own line of products.
The essence of APT's breach of confidentiality claim is that the parties' Distribution Contract binds VWR not to use, publish, or disclose any of APT's confidential information. But, as VWR argues, this reading is not supported by the Distribution Contract's plain language. The relevant provision of the Distribution Contract provides, in full and with emphasis on the determinative wording:
Distribution Contract ¶ 9, SAC Ex. B (emphasis added).
VWR offers a handful of arguments as to why paragraph 9 of the Distribution Contract does not apply to the confidential information it allegedly acquired from XXPC despite XXPC's oral confidentiality agreement with APT. It argues that the title of the paragraph, "Marketing Information," "strictly defin[es] the type of information covered," and Alpha's trade secret is not marketing information. VWR Mot. Dismiss at 32. Further, it argues, even if the clause does cover such trade secrets, paragraph 9 "explicitly protects only `information supplied hereunder' — that is information supplied under the parties' agreement." Id. And, further, VWR argues that APT "has not pointed to any information supplied under the contracts that was later used improperly by VWR." Id. at 32-33. APT's brief response is simply that "[u]nder the parties' Distribution [Contract], VWR was prohibited from using, publishing or disclosing confidential information belonging to [APT] that it received either from [APT] or from a third party with confidentiality obligations owed to [APT]." APT Resp. at 29. APT also contends that VWR's argument regarding the "Marketing Information" title of the paragraph fails because the text of paragraph 9 states that the information in question "includes but is not limited to marketing, sales and new product development information." Id. at 30 n. 6 (emphasis in Response) (quoting Distribution Contract ¶ 9(a)). Thus, APT contends, "[b]y acquiring [APT's] confidential trade secrets from XXPC and using them to create its competing product line, VWR breached the Distribution [Contract]." Id. at 30.
The flaw in APT's argument is that it is not grounded in the explicit text of the contract, which provides that information "disclosed" by the parties "to each other" "pursuant to this Agreement" is protected. Distribution Contract ¶ 9(a) (emphasis added). The restrictions on use, publication, or disclosure are restrictions on "the transmittal of such information hereunder" — that is, disclosed "pursuant to this Agreement." Id. (emphasis added). The final sentence of paragraph 9(a), as VWR argues, see VWR Mot. Dismiss at 33 n. 9, does not categorically prohibit either party from obtaining confidential information from a third party who is "bound by a confidentiality agreement" with the other party. Rather, that sentence exempts from the contract's protection of information transmitted "hereunder" — i.e., "pursuant to this Agreement" — both information that the other party (a) already knows ("information which Supplier or Distributor can show by written evidence was known to it at the time of receipt thereof") and (b) "information ... which may subsequently be obtained from sources other than the other party who are not bound by a confidentiality agreement with such other party."
There is no reasonable argument, and APT does not attempt to advance one (other than simply by conclusory assertion) that this second exemption applies beyond information that was transmitted "pursuant to this Agreement." While it may frustrate APT that its confidentiality provision does not cover the alleged facts of this case, in which VWR allegedly clandestinely approached XXPC to solicit APT's trade secrets, logically, the plain language of the contract can only exempt information which would otherwise fall under the foregoing provisions, and the foregoing provisions apply only to information transmitted
This reading of the confidentiality provision does not undermine its probable purpose. The intent of the parties, one might infer, was to protect each other's disclosures under the agreement, for the purpose of facilitating their working together, without binding each other not to use information in the future if, although it may have been disclosed in confidence by the other party, or a promisee in confidentiality of the other party, that information "may subsequently be obtained from sources other than the other party," so long as those parties, too, "are not bound by a confidentiality agreement with such other party." In other words, the information may be transmitted in secret one day, but if the transmitting party were no longer to feel the need to keep it secret, such that the other party might therefore obtain it "from sources other than the other party," the information would no longer be subject to the confidentiality provision's strictures. That situation does not apply here, but it logically explains a reasonable construction of the Distribution Contract and, therefore, in turn, why paragraph 9 serves a logical purpose without applying to information that is not "supplied hereunder." Count II falls in response to the challenge.
To prevail on a claim for unjust enrichment under Pennsylvania law, a plaintiff must prove "(1) benefits conferred on defendant by plaintiff; (2) appreciation of such benefits by defendant; and (3) acceptance and retention of such benefits under such circumstances that it would be inequitable for defendant to retain the benefit without payment of value." Mitchell v. Moore, 129 A.2d 1200, 1203 (Pa.Super.Ct.1999). The question is not the intent of the parties, but rather "whether the defendant has been unjustly enriched." Id.
VWR raises three arguments as to why APT's unjust enrichment claim must fail. First, it argues, "Pennsylvania law is clear that the existence of a written or express contract between the parties bars an unjust enrichment claim." VWR Mot. Dismiss at 19. Second, it contends, APT has failed to allege VWR's use of APT's trade secret. And finally, APT has "failed to allege that VWR's acceptance and retention of the benefits, under the circumstances, would make it inequitable for [VWR] to retain the benefit without paying for the value of the benefit." Id. at 20.
The first two of these arguments are easily rejected. First, the failure of APT's breach of contract claim removes any impediment, if there were one, presented by a contract between APT and VWR. But more fundamentally, Federal Rule of Civil Procedure 8 explicitly states that "[a] party may state as many separate claims or defenses as it has, regardless of consistency." Fed.R.Civ.P. 8(d)(3); see Indep. Enters. Inc. v. Pitt. Water & Sewer Auth., 103 F.3d 1165, 1175 (3d Cir.1997) ("This Rule
Second, for the reasons stated above in subsection III.A.3, APT has adequately alleged VWR's use of APT's trade secrets.
Finally, VWR argues that "the mere fact that one party benefits from the act of another is not of itself sufficient to justify restitution"; rather, "[t]here must also be an unconscionable injustice in permitting the benefit to be retained without compensation." VWR Mot. Dismiss at 20-21 (quoting Global Ground Support, LLC v. Glazer Enters., Inc., 581 F.Supp.2d 669, 676 (E.D.Pa.2008)). VWR's reasoning, however, does not persuade the Court that APT's allegations fail to establish that allowing VWR to retain the benefit here would be unconscionable, because VWR's main argument — its reliance on Global Ground Support, LLC v. Glazer Enterprises, Inc., 581 F.Supp.2d 669-is misplaced.
In Global Ground Support, the court looked to section 110 of the Restatement (First) of Restitution for the rule that applies in the case in which a plaintiff-promisee seeks to recover, based on a contract, against a defendant who was a third party to that contract and upon whom, pursuant to that contract, the plaintiff-promisee conferred a benefit in exchange for a promise by the promisor, who is not the defendant in the later lawsuit. See Global Ground Support, 581 F.Supp.2d at 676; Restatement (First) of Restitution § 110 ("A person who has conferred a benefit upon another as the performance of a contract with a third person is not entitled to restitution from the other merely because of the failure of performance by the third person."); Restatement (First) of Restitution § 110 cmt. b ("The fact that performance has been given to the third person and not to the promisor does not prevent the promisee from obtaining from the promisor by way of restitution the value of what he gave."). The Court held that enrichment was not unjust "in the absence of misleading by the third party," because "the mere failure of performance by one contracting party does not give rise to a right of restitution against the third party." Global Ground Support, 581 F.Supp.2d at 676.
The rule and reasoning from Global Ground Support are inapplicable here. Global Ground Support, like the section of the Restatement (First) of Restitution upon which it relied, deals with the situation where two parties' contract provides, among other things, that a third party shall receive a certain benefit and, after the third party receives the benefit, the promisor fails to deliver and the promisee, who conferred the benefit on the third party, wants it back from the third party, whom the promisee sues and names as the defendant. VWR constructs its argument here on the alleged contractual relationship between APT and XXPC. For the relationships to be analogous to those in Global Ground Support or the Restatement, APT's allegations would have to be, in essence, that: APT and XXPC's contract provided that VWR would receive APT's coated SBP method and formula in exchange for some performance on the
Notwithstanding the survival of APT's unjust enrichment claim at this stage, the development of the factual record in this case will reveal whether the claim is ultimately viable. If and when APT establishes that the coated SBP information constituted a trade secret, the unjust enrichment claim will necessarily fail, because PUTSA preempts common law claims, including unjust enrichment, that are "based on the same conduct that is said to constitute a misappropriation of trade secrets." Youtie v. Macy's Retail Holding, Inc. (Youtie II), 653 F.Supp.2d 612, 620 (E.D.Pa.2009); see 12 Pa. Cons. Stat. Ann. § 5308 ("[T]his chapter displaces conflicting tort, restitutionary and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret." (emphasis added)); Youtie v. Macy's Retail Holding, Inc. (Youtie I), 626 F.Supp.2d 511, 521 (E.D.Pa.2009); see also VWR Prior Mot. Dismiss at 24 n. 9 (Docket No. 20) (raising this argument). And APT, attempting to avoid the bar on double recovery for breach of contract and unjust enrichment, claims unequivocally that its "claim of unjust enrichment does not arise from conduct governed by its contracts with VWR — the claim arises from VWR's tortious misappropriation of [APT's] trade secrets." APT Resp. at 18. Indeed, APT asserts that its "claim for unjust enrichment is and has always been premised on VWR's misappropriation of [its] trade secrets and confidential information." Id. at 18 n. 4. Hence, if and when APT makes this showing, its unjust enrichment claim will perish.
This claim does not yet succumb because, notwithstanding APT's assuredness that the information in question constitutes trade secrets, "the cases holding that [PUTSA] does not preempt common law tort claims when it has yet to be determined whether the information at issue constitutes a trade secret take the better approach." Cenveo Corp. v. Slater, No. 06-2632, 2007 WL 527720, at *3 (E.D.Pa. Feb. 12, 2007) (discussing cases). As the Cenveo Corp. v. Slater Court explained,
Id.
Similar reasoning applies here with regard to APT's claim for unjust enrichment. However unlikely the case may be, if APT fails to prove that its coated SBP method constituted a trade secret but nonetheless proves that it was a benefit conferred by XXPC upon VWR, which unjustly retained it, APT should be able to pursue an unjust enrichment claim. Such an outcome can make sense, given that while PUTSA technically preempts common law unjust enrichment, it in fact provides for that very remedy. See 12 Pa. Cons.Stat. Ann. § 5304 ("Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss." (emphasis added)).
VWR advances four reasons why APT's tortious interference claim (Count IV) should fail. It argues, first, that the claim is barred by the statute of limitations; second, that it is barred by the economic loss and gist of the action doctrines; third, that APT has failed to allege VWR's intent to interfere with APT's contract with XXPC; and finally, that APT has failed to allege facts satisfactorily that demonstrate that VWR's conduct is not privileged. See VWR Mot. Dismiss at 22-30. Because the Court finds merit in VWR's fourth contention, it will dismiss Count IV on that basis without addressing VWR's remaining arguments.
The Third Circuit Court of Appeals, interpreting Pennsylvania law, has explained that a plaintiff claiming tortious interference with an existing contractual relationship must prove:
Acumed LLC v. Advanced Surgical Servs., Inc., 561 F.3d 199, 212 (3d Cir.2009).
Here, APT's claim turns on the third requirement — "the absence of privilege or justification on the part of the defendant." While the Pennsylvania Supreme Court has not yet provided a definitive construction of this requirement, Pennsylvania courts look to section 768 of the Restatement (Second) of Torts and its definition of "wrongful means" for guidance as to whether the defendant has acted with privilege or justification, Acumed, 561 F.3d at 215 (citing Gilbert v. Otterson, 379 Pa.Super. 481, 550 A.2d 550, 554 (1988)), as both parties recognize, see VWR Mot. Dismiss at 28; APT Resp. at 26-27. Further, the Third Circuit Court of Appeals has held that under section 768, "if the parties are competitors, [the factfinder] must find that [the defendant] engaged in independently actionable conduct for it to find in favor of [the plaintiff] on the tortious interference claim." Acumed, 561 F.3d at 219 (emphasis added); accord Nat'l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 858 (3d Cir.2000) ("[W]e believe that Pennsylvania would follow the `independently actionable' approach
APT itself advances this "independently actionable" feature of section 768 of the Restatement (Second) of Torts and contends that "independently actionable" tortious conduct encompasses "the misappropriation of confidential, proprietary or trade secret information." APT Resp. at 26 (citing, inter alia, Reading Radio, Inc. v. Fink, 833 A.2d 199, 212 (Pa.Super.2003); Gilbert, 550 A.2d 550). For its part, VWR argues that "the alleged facts, if true, show VWR's actions fall well within the business competitor's privilege" because APT has not alleged facts "to plead the absence of VWR's privilege or justification to allegedly contract and work with XXPC." VWR Mot. Dismiss at 29.
Of course, the reality is more complicated, but it nonetheless confirms that the wrongful means/independently actionable standard is applicable here. APT's allegation regarding privilege or justification is conclusory. APT states, "VWR lacked a privilege or justification for such interference, particularly in light of its existing contractual obligations to [APT]." SAC ¶ 115. Under the wrongful means/independently actionable standard articulated above, and in light of APT's conclusory allegation, the only way APT can sufficiently plead tortious interference with APT's contractual relationship with XXPC is if the factual allegations elsewhere in the SAC suggest that VWR's conduct is independently actionable.
APT alleges that "[a]s a result of VWR's interference with [APT's] existing contractual relationship with XXPC, APT's trade secrets have been jeopardized, resulting in lost sales of over 15 million dollars." SAC ¶ 116. And in its briefing, it makes only two contentions for the sufficiency of its tortious interference claim: "As set forth at length in Sections B [regarding misappropriation of trade secrets] and C [regarding unjust enrichment] above, VWR's actions with respect to [APT's] relationship with XXPC and the production of Coated SBP ... products is independently actionable." APT Resp. at 27.
APT's problem, however, is that neither of these two causes of action can help it here. If, on the one hand, APT's tortious interference claim is to be based on misappropriation of trade secrets — APT's core contention — that claim must fail for one of two reasons. Either the coated SBP method is a trade secret — in which case the tortious interference claim is preempted by PUTSA, as discussed above, see supra section III.C; Youtie II, 653 F.Supp.2d at 620; Youtie I, 626 F.Supp.2d at 521 — or it is "something less," in which case it is not preempted, Youtie I, 626 F.Supp.2d at 521, but also not "independently actionable."
And on the other hand, APT cannot base its tortious interference claim on its unjust enrichment claim as an independently actionable basis. For one, unjust enrichment does not sound in tort; rather, it is a restitutionary cause of action based on an implied or constructive contract. See Sevast v. Kakouras, 591 Pa. 44, 915 A.2d 1147, 1153 n. 7 (2007) ("An action based on unjust enrichment is an action which sounds in quasi-contract or contract implied in law."); see also, e.g., Integrated Waste Solutions, Inc. v. Goverdhanam,
Second, even were this not the case — i.e., even if unjust enrichment sounded in tort or, alternatively, if the independently actionable conduct needed not be tortious — unjust enrichment is the wrong candidate because its concern is not the wrongful nature of the defendant's mental state, which is clearly the focus of the wrongful means/independently actionable inquiry. Instead, "[i]n determining if the doctrine applies, [a court's] focus is not on the intention of the parties, but rather on whether the defendant has been unjustly enriched," Mitchell, 729 A.2d at 1204, that is, upon the effect of the parties' conduct, rather than the reason for it. In fact, APT makes exactly that contention in support of its unjust enrichment claim. See APT Resp. at 17 ("In determining whether the doctrine [of unjust enrichment] applies, the focus is not on the intention of the parties, but on the result."). A doctrine not focused on the defendant's intent can hardly be the predicate for the "wrongful means" claim of a tortious interference of contract claim, which requires the plaintiff to prove "(2) purposeful action by the defendant, specifically intended to harm an existing relationship ...; [and] (3) the absence of privilege or justification on the part of the defendant." Acumed, 561 F.3d at 212 (emphasis added).
Because APT has only pleaded, and argued, trade secret and unjust enrichment bases for its tortious interference claim, and neither of these bases will suffice, Count IV must be dismissed.
APT brings claims under the Lanham Act, 15 U.S.C. § 1125(a), for (1) false advertising and (2) false designation of origin. VWR disputes that APT has properly pleaded either.
Section 43(a) of the Lanham Act, codified at 11 U.S.C. § 1125(a), provides, in pertinent part:
15 U.S.C. § 1125(a).
To prevail on a false advertising claim, a plaintiff must prove that (1) the defendant has made false or misleading statements about its own product or the plaintiff's; (2) "there is actual deception or at least a tendency to deceive a substantial portion of the intended audience"; (3) "the deception is material in that it is likely to influence purchasing decisions"; (4) "the advertised goods traveled in interstate commerce"; and (5) "there is a likelihood of injury to the plaintiff in terms of declining sales, loss of good will, etc." Pernod Ricard USA, LLC v. Bacardi U.S.A., Inc., 653 F.3d 241, 248 (3d Cir.2011) (citations omitted).
The deception required by the second prong does not require that the advertisement be "literally false." Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm. Co., 290 F.3d 578, 586 (3d Cir.2002). Rather, liability for false advertising "arises if the commercial message or statement is either (1) literally false or (2) literally true or ambiguous, but has the tendency to deceive consumers." Id. If the plaintiff can show the literal falsity of the message, he earns a presumption of actual deception; if, on the other hand, "the message conveyed by an advertisement is literally true or ambiguous, however, the plaintiff must prove actual deception or a tendency to deceive." Pernod Ricard, 653 F.3d at 248. Because the concern is "the message that is conveyed to consumers," to fall under the statute's coverage of deceptive statements, a message that is not literally false must be proved to have misled the public by reference to actual confusion on the part of consumers: "Public reaction is the measure of a commercial's impact." Johnson & Johnson-Merck Consumer Pharm. Co. v. Rhone-Poulenc Rorer Pharm., Inc., 19 F.3d 125, 129-30 (3d Cir.1994); accord Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 171 (3d Cir.2001) ("If a claim is literally true, a plaintiff cannot obtain relief by arguing how consumers could react; it must show how consumers actually do react." (citation and internal quotation marks omitted)). "If the advertisement is literally true, the plaintiff must persuade the court that the persons to whom the advertisement is addressed would find that the message received left a false impression about the product." U.S. Healthcare, Inc. v. Blue Cross of Greater Phila., 898 F.2d 914, 922 (3d Cir.1990) (citation and internal quotation marks omitted).
Here, APT claims that VWR made both literally false as well as true but misleading statements in its advertising. APT Resp. at 34. In essence, APT alleges two types of false or misleading statements. First, it alleges that APT's advertising "caused consumers to believe that VWR's products were the CRITICAL COVER® products under a different brand name" when in fact this message was "false because the products' manufacturer had changed (i.e., it was no longer [APT], the manufacturer of CRITICAL COVER® products), and because the process had changed (i.e., it was no longer subject to the quality control and warranties of [APT])." SAC ¶ 122. Second, APT alleges that "VWR's promotion, advertisement, distribution, sale, and/or offering for sale of its products" misrepresented (even if by implication), "that the CRITICAL COVER® products had been discontinued." SAC ¶ 123. In response, VWR argues that it has not made any false or misleading advertising statements because
VWR argues first that APT's claim must fail because APT cannot claim that APT itself was the manufacturer of the CRITICAL COVER® products — rather, it avers, XXPC was. See VWR Mot. Dismiss at 36-38. However, APT's partnership with XXPC to manufacture the CRITICAL COVER® products does not mean that APT, too, was not a manufacturer, and the Court declines to construe XXPC's role as manufacturer as mutually exclusive with APT's. Second, VWR's contention misses the point because APT's allegation, which must be construed favorably to APT at the motion to dismiss stage, states that VWR's advertising "caused consumers to believe that VWR's products were the CRITICAL COVER® products under a different brand name." SAC ¶ 122 (emphasis added). CRITICAL COVER® is one of APT's trademarks, so if VWR did not have a license to use it — and APT has pleaded that "VWR's license to do so expired," SAC ¶ 121 — then any statements, even if true, that led customers to believe that VWR's products were CRITICAL COVER® products would be actionable as false advertising. Unless VWR were to concede it was infringing APT's CRITICAL COVER® trademark — which, obviously, it does not do — the CRITICAL COVER® products are necessarily different from VWR's own product line.
Moreover, more than simply the identity of the manufacturer must be part of this analysis — and APT has alleged that the manufacturing "process had changed" because "it was no longer subject to the quality controls and warranties of [APT]" because APT was no longer involved in the process. SAC ¶ 122. Indeed, VWR seems to suggest, in opposing APT's misappropriation of trade secrets claim, that VWR's "Protection Line" did not use "the particular combination and quantity of polymers that help make up [APT's] alleged trade secret." VWR Mot. Dismiss at 18 (citation and internal quotation marks omitted). The point is not that APT's customers had to understand that APT was the CRITICAL COVER® manufacturer, as VWR contends, see VWR Mot. Dismiss at 38, but that, as APT alleged, VWR's misleading advertising "caused consumers to believe that VWR's products were the CRITICAL COVER® products under a different brand name." And in addition to simply asserting such actual confusion, APT's SAC further alleges that "VWR's representations convinced a substantial amount of the relevant customers that VWR's products were [APT's] CRITICAL COVER® products with a new name," SAC ¶ 75, as allegedly confirmed by APT sales representatives' conversations with purchasers, see SAC ¶ 76. Furthermore, the SAC contains a detailed table enumerating alleged false and/or misleading statements with references to one of VWR's marketing materials, attached as Exhibit F. See SAC ¶ 70, Ex. F.
That the allegations are sufficient to make out a claim at the motion to dismiss stage, however, does not mean that APT will not face other hurdles. In fact, a large and potentially dispositive issue of fact may be whether VWR's products were identical, or even superior, to APT's CRITICAL COVER® products. If they were, the false advertising claim likely cannot be sustained because the message, in addition to being misleading, if at all, in only a formal sense (i.e., if the VWR products were not technically the CRITICAL COVER® products because APT owned
A false designation of origin claim is similar to a false advertising claim; indeed, APT argues that "[h]ere, the [false advertising and false designation of origin] analyses ... collapse into one another because the heart of VWR's deceptive practices — promoting its products as a continuation of the CRITICAL COVER line under a new name — encompasses both false advertising and false designation of origin," APT Resp. at 31. Nonetheless, a false designation of origin claim has different elements. A plaintiff claiming false designation origin must allege:
Parker v. Google, Inc., 242 Fed.Appx. 833, 838 (3d Cir.2007) (citing AT & T Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1428 (3d Cir.1994)).
False designation of origin claims are also known as "passing off" or "palming off" claims because the defendant has allegedly used the plaintiff's trademark to brand its own products as the plaintiff's — i.e., as ones that may properly bear the mark. As described by a leading case, "`[p]alming off'" or "`passing off'" is the selling of a good or service of one's own creation under the name or mark of another," and it
Smith v. Montoro, 648 F.2d 602, 604 (9th Cir.1981). Like other courts, the Third Circuit Court of Appeals recognizes that such behavior violates section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) — even, for example, where the objectionable conduct is the defendant's passing off that lures potential customers away from the plaintiff but where the customers recognize
As these requirements indicate, the essence of a false designation of origin claim differs from that of a false advertising claim because while the latter "involve[s] allegations that the public was misled into purchasing a particular entity's product" at the expense of the plaintiff and its product, the former involves claims of "`false representations as to the source or origin of goods or services by a [trade]mark confusingly similar to one already in use.'" Winback, 42 F.3d at 1443-44 (citation omitted). The test for false designation of origin is not "actual confusion," but rather "likelihood of confusion." Id. at 1442-44. And the crucial point is that courts do not interpret section 43(a) of the Lanham Act to have rigid boundaries. Rather, as a leading treatise explains,
5 McCarthy, supra, § 25:1, at 25-7 (4th ed. Sept. 2012) (emphasis added) (citation omitted). The Third Circuit Court of Appeals appears to have embraced this view. As it explained in one section 43(a) case,
Winback, 42 F.3d at 1428 n. 9. In other words, the Winback Court indicated that the test is indeed flexible by adapting it to the circumstances at hand.
The usefulness of employing such flexible adjustment suggests itself here. Although VWR argues that "(1) there are no [APT] designations of origin; and (2) even if there were (reading the materials as broadly as possible), VWR has not used such designations falsely, but instead, has used them fairly and referentially to provide truthful and accurate information to consumers," VWR Mot. Dismiss at 42, there is in fact is a potential false designation of origin based on the CRITICAL COVER® trademark itself. Of course, as discussed above with regard to false advertising, if VWR's newer product line is the same as, or superior to, APT's CRITICAL COVER® line, this false designation/passing off claim may not stand. But, accepting the Winback Court's guidance to employ a flexible test "geared to the factual situation of this case," Winback, 42 F.3d at 1428 n. 9, the Court holds that APT's factual allegations, if proven true, would make out a claim for false designation of origin/implied passing off. VWR's marketing materials — attached to the SAC as Exhibits D and F — would, in that case, be likely to confuse consumers as to whether VWR's new products were simply CRITICAL COVER® products by another name, and thus products passed off as, but not in fact, CRITICAL COVER® products.
Specifically, this issue cannot be resolved at the motion to dismiss stage because APT's SAC pleads statements from VWR's marketing materials, see SAC Ex. F, that can be read as misleading because they were likely to confuse. Unlike a false advertising claim, a false designation of origin/passing off claim requires not proof of actual confusion, but rather proof of likely confusion. See, e.g., Fisons Horticulture, Inc. v. Vigoro Indus., Inc., 30 F.3d 466, 473 & n. 8 (3d Cir.1994). To determine the likelihood of confusion, the factfinder must consider, among other factors,
Checkpoint Sys., Inc., 269 F.3d at 280 (alteration in original) (citing Fisons, 30 F.3d at 473). As the Third Circuit Court of Appeals has further explained, in this "qualitative inquiry," "[n]ot all factors will be relevant in all cases," and their respective weights may differ in different factual settings. A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 215 (3d Cir.2000). "A district court should utilize the factors that seem appropriate to a given situation." Id.
Here and now, however, at the motion to dismiss stage, the time has not yet come to perform that inquiry. APT has pleaded likelihood of confusion, and although its allegations are far from a model of specificity, see SAC ¶ 123, the SAC contains a comparison of statements that could create such confusion:
APT alleges that these statements are false and/or misleading because, for instance, "VWR's statements ... were `not formerly known under' [APT's] trademark," and/or they "lead[] consumers to believe that the source of the VWR products is the same as that of [APT's] CRITICAL COVER® products." SAC ¶ 70. The legal basis for these claims is that without protection against such implied passing off, VWR "could use an established mark," such as CRITICAL COVER®, "to create confusion as to a product's source thereby receiving a `free ride on the goodwill' of the established mark." Checkpoint Sys., 269 F.3d at 294-95. But whether these statements are likely to confuse is not an issue that can currently be resolved.
Still, VWR argues that "[a] high level of buyer sophistication can be indicative of the absence of likelihood of confusion," and argues that APT's customers, who are "sophisticated purchasers, such as hospitals and medical facilities, purchase supplies only upon the most careful consideration." VWR Mot. Dismiss at 44-45. VWR also argues that the proximate cause of APT's harm has nothing to do with the trademark, but instead with its failure to retain any distributors other than VWR. Both of these contentions may yet have merit; as VWR points out, the Third Circuit Court of Appeals explained in Checkpoint Systems, Inc. v. Check Point Software Technologies, Inc., that "[w]here the relevant products are expensive, or the buyer class consists of sophisticated or professional purchasers, courts have generally not found Lanham Act violations." 269 F.3d at 284. But while the Checkpoint Court put considerable weight on this factor, see id. at 284-86, the case before it was an appeal from the district court's non-jury trial, see id. at 278; Checkpoint Sys., Inc. v. Check Point Software Techs., Inc., 104 F.Supp.2d 427, 468 (D.N.J.2000), aff'd, 269 F.3d 270. As the procedural posture of Checkpoint suggests, the motion to dismiss stage is not the appropriate juncture at which to resolve these factbound issues, even if APT allegations, as VWR points
VWR raises one final argument as to why APT's suit against it cannot proceed. Under Federal Rule of Civil Procedure 19, it argues, XXPC is a necessary party that must be joined, and, if XXPC cannot be joined, the case must be dismissed under Rule 12(b)(7). The Court disagrees that XXPC is a necessary party and therefore declines to dismiss any of APT's claims on this basis.
Rule 19 is broken into two main subparts. Rule 19(a) provides, in pertinent part:
Fed.R.Civ.P. 19(a). Rule 19(b), in turn, lays out the standard to be applied "[i]f a person who is required to be joined if feasible cannot be joined" — i.e., whether "the action should proceed among the existing parties or should be dismissed." Id. 19(b). As the Supreme Court has explained, if an absent third party is not necessary under Rule 19(a), that is the end of the inquiry, and Rule 19(b) is inapplicable. See Temple v. Synthes Corp., Ltd., 498 U.S. 5, 8, 111 S.Ct. 315, 112 L.Ed.2d 263 (1990) (per curiam) ("Here, no inquiry under Rule 19(b) is necessary, because the threshold requirements of Rule 19(a) have not been satisfied. As potential joint tortfeasors with Synthes, Dr. LaRocca and the hospital were merely permissive parties.....")
VWR argues that XXPC is a necessary party under Rule 19(a) because "XXPC has an undeniable interest in clearing its
But VWR's assertion of XXPC's purported interest is not enough to require XXPC to be joined as a necessary party without which this litigation cannot proceed. Although VWR vigorously disputes it, the fact of the matter is that APT's allegations, taken as true, simply identify XXPC as a joint tortfeasor with VWR.
As its language indicates, Rule 19(a) in fact prescribes several inquiries. Under Rule 19(a)(1)(A), the court asks whether, in the absence of the party that the movant seeks to join, it can "afford complete relief among existing parties." Fed. R.Civ.P. 19(a)(1)(A); see Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 405 (3d Cir.1993) ("[This] inquiry is limited to whether the district court can grant complete relief to the persons already parties to the action. The effect a decision may have on the absent party is not material."). And if the law prescribes joint and several liability between the moving defendant and the absent third party the defendant seeks to join, then the absent party "is not a necessary party under subsection (a)(1)" because "complete relief [can] be granted" without the absent party's presence. Janney, 11 F.3d at 406. "It has long been the rule that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit." Temple, 498 U.S. at 7, 111 S.Ct. 315.
Although VWR does not rely on Rule 19(a)(1)(A), the Court must conduct this preliminary analysis because it shows how VWR's argument under 19(a)(1)(B) is an attempted end-run on the general rule that the plaintiff gets to decide who among alleged joint and several tortfeasors to sue. There is no indication that joint and several liability does not apply to misappropriation of trade secrets. See Fishkin v. Susquehanna Partners, No. 03-3766, 2007 WL 853769, at *3 (E.D.Pa. Mar. 19, 2007) ("Other Pennsylvania misappropriation cases, although not expressly describing misappropriation liability as joint and several, suggest that it is, upholding liability determinations where several defendants are described as liable for a single award of money damages. Commentators on trade secret law also suggest that, in general, liability for misappropriation claims is joint and several." (citations omitted)); see also, e.g., Salton, Inc. v. Philips Domestic Appliances & Pers. Care B.V., 391 F.3d 871, 877 (7th Cir.2004) ("Under the principle of joint and several liability, which governs not only the common law tort of misappropriation of trade secrets but also the federal statutory tort of copyright infringement, the victim of a tort is entitled to sue any of the joint tortfeasors and recover his entire damages from that tortfeasor." (citations omitted)); CC Investors Corp. v. Raytheon Co., No. 03-114, 2005 WL 81591, at *3 (D.Del. Jan. 7, 2005) ("As joint-tortfeasors for the misappropriation of trade secrets, any liability between Mr. Carr and CCI would be joint and several, and therefore, complete relief can be granted in the absence of the joinder of Mr. Carr." (footnote omitted)). Indeed,
If the gravamen of APT's allegations is that XXPC and VWR are joint tortfeasors, there is no basis under Rule 19(a)(1)(A) for finding that XXPC is a necessary party. And the flipside is that if XXPC and VWR are not joint tortfeasors, then VWR "could only be held liable for [its] own [tortious conduct], not the [tortious conduct] of others. Thus, there would not be any need for a hypothetical second action for contribution or indemnification. Thus, without joint and several liability, there may be complete relief accorded between those already parties." Intercept Sec. Corp. v.Code-Alarm, Inc., 164 F.R.D. 215, 217 n. 1 (E.D.Mich.1995).
The import of this reasoning is more wide-ranging, however. As observed, VWR's primary argument is that XXPC is a necessary party under Rule 19(a)(1)(B)(i), which requires that the absent party sought to be joined "claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may: (i) as a practical matter impair or impede the person's ability to protect the interest," Fed.R.Civ.P. 19(a)(1)(B)(i). But just what is this interest? "[C]learing its own name and continuing its relationship with VWR" are the interests VWR offers. VWR Mot. Dismiss at 48.
Leaving to one side the issue of whether the Rule's plain text permits the moving defendant to invoke the absent party's interest in vindication or the like, see ConnTech Dev. Co. v. Univ. of Conn. Educ. Properties, Inc., 102 F.3d 677, 683 (2d Cir.1996) (holding that the absent party must claim the interest: "UCEPI's self-serving attempts to assert interests on behalf of Connecticut fall outside the language of [the Rule], and thus cannot be the basis for UCEPI's necessary party argument"), the Court observes that the bar set by the Third Circuit Court of Appeals is higher than VWR can clear. As the Court of Appeals has explained, an absent party cannot be the victim of later issue preclusion precisely because it is absent, and the speculative possibility that the Court's decision, in its absence, will create precedent unfavorable to the absent party does not "justify a holding that [the absent party] is a `necessary' party under" Rule 19(a)(1)(B)(i). Janney, 11 F.3d at 407. Applying the same reasoning here compels the conclusion that where the court is "unable to say with any assurance that a decision in [APT's] action against [VWR] will be likely to impair or impede [XXPC's] ability to defend itself in [another action] or to obtain indemnity or contribution from [VWR]." Id. Indeed, because APT cannot doubly recover, the only risk XXPC is exposed to by any of this litigation is that VWR will be found liable and will in turn sue XXPC as a joint tortfeasor. Such a risk is not enough for invocation of Rule 19. See Huber v. Taylor, 532 F.3d 237, 250 (3d Cir.2008) ("[T]he requirements of Rule 19(a) are not satisfied simply because a judgment against Defendants in this action might set a persuasive precedent in any potential future action against [the absent parties sought to be joined].").
VWR's argument boils down to the contention
Salton, 391 F.3d at 880 (citations omitted).
VWR's citations to district court cases that ignore and or/predate Janney and Huber are unavailing. The Third Circuit Court of Appeals has been explicit that the impairment or impediment of an absent party's interest is insufficient to render that absent party necessary under Rule 19(a)(1)(B)(i) if that interest is no more, as here, than preventing the creation of precedent that may be used against it because it is a joint tortfeasor. Of course, issues of claim preclusion and the like remain sufficient, but they are not at issue here.
Finally, to the extent that VWR's argument (which is otherwise undeveloped) is that XXPC has an interest in "continuing its relationship with VWR," that suggestion is unconvincing. For one, APT has not sought injunctive relief, as VWR has acknowledged. See VWR Reply at 13-14. Still, VWR continues to argue that XXPC's interest "would be the same regardless of the type of relief sought." Id. at 14. But again, "the Third Circuit, in Huber, has already determined that it is inappropriate for a court to look at privity, for issue preclusion purposes, and the collateral estoppel effect on, or of, a potential future action when making a determination of the necessity of a party that is based on the absent party's interest, under Rule 19(a)(1)(B)(i)." Graco, Inc. v. PMC Global, Inc., 73 Fed. R. Serv.3d 52, 2009 WL 904010 (D.N.J.2009). To allow a joint tortfeasor defendant to gain extra protection simply because it has a contract with an absent party providing for the alleged commission of a tort makes no sense. Second, it is merely speculative that XXPC's relationship with VWR will be jeopardized. Just as the Graco Court reasoned that an expired noncompete agreement did not serve as a bar to the absent party's employment with the defendant, "so long as [the absent party] works in a lawful manner, and does not disclose Graco trade secrets, if any," id. at 52 n. 4, here, VWR and XXPC could continue their manufacturing and distribution agreement without infringing on APT's alleged trade secrets — whether by using different methods, if APT ultimately prevails on that count, or by continuing as before, if APT's method is found not to be a trade secret.
For these reasons, XXPC is not a necessary party under Rule 19(a), and the joinder inquiry is at an end.
For the reasons discussed above, VWR's Motion to Dismiss will be granted in part and denied in part. Counts II and IV, for breach of contract and tortious interference with an existing contractual relationship, are dismissed. Counts I, III, and V, for misappropriation of trade secrets, unjust enrichment, and Lanham Act false advertising and false designation of origin,
An Order consistent with this Memorandum follows.
APT is an Oklahoma corporation with its principal place of business in Arizona. VWR is a Delaware corporation with its principal place of business in Pennsylvania. Thus, there are two bases for jurisdiction: federal question jurisdiction for APT's Lanham Act claims (15 U.S.C. § 1125(a)), with supplemental jurisdiction over APT's state law claims under 13 U.S.C. § 1367, as well as diversity jurisdiction.
In addition, VWR contests that APT was ever identified, at least prominently, in its promotional literature, but, for the reasons discussed below in section III. E, the issue is not determinative, at least at this stage.
By contrast, APT cites to some cases suggesting that an oral agreement may be enough. See, e.g., Flynn v. Health Advocate, Inc., No. 03-3764, 2004 WL 51929, at *11 (E.D.Pa. Jan. 13, 2004); EXL Labs. v. Egolf, 2011 WL 880453, at *6 (E.D.Pa. March 11, 2011) (discussing duty rather than reasonableness of efforts, but finding oral instructions to board members not to "divulge Plaintiff's proprietary information to third parties," even in the absence of "sign[ed] confidentiality agreements," sufficient (citing Swift Bros., 921 F.Supp. at 277 ("The defendants assert that the plaintiff had no confidentiality agreements with its employees to protect its customer information. Such agreements are not necessary in every case, however, if the other precautions taken by the plaintiff are sufficient."))).
