Opinion
Civil Action 20-1549
12-06-2021
ELITE TRANSIT SOLUTIONS, LLC Plaintiff, v. ALPHONSO CUNNINGHAM, NAFISA MITRECIC, JILLAMY, INC., and MODE TRANSPORTATION LLC, Defendants.
REPORT AND RECOMMENDATION RE: ECF NO. 62
MAUREEN P. KELLY, UNITED STATES MAGISTRATE JUDGE
I. RECOMMENDATION
Plaintiff Elite Transit Solutions, LLC (“Elite”) brings this action against two former employees, Alphonso Cunningham (“Cunningham”) and Nafisa Mitrecic (“Mitrecic”), and Mitrecic's subsequent employers Jillamy, Inc. (“Jillamy”) and Mode Transportation LLC (“Mode”), for the alleged misappropriation of confidential proprietary trade information and the violation of the provisions of noncompete employment agreements. ECF No. 32. Jillamy moves to dismiss the Amended Complaint for failure to state a claim upon which relief may be granted. ECF No. 62. For the following reasons, it is respectfully recommended that the Motion to Dismiss be denied.
II. REPORT
A. FACTUAL AND PROCEDURAL BACKGROUND
At this stage of the litigation, the facts derived from the Amended Complaint are accepted as true. Odd v. Malone, 538 F.3d 202, 205 (3d Cir. 2008).
Elite is a decade-old logistics company that contracts with various manufacturers to provide for product delivery, typically through third-party motor carriers. ECF No. 39 ¶¶ 16-18. Elite competes against Jillamy, a Pennsylvania corporation, and Mode, a Texas corporation affiliated with Jillamy, in the nationwide freight management industry. Id. ¶¶ 10-12. Over the years, Elite has developed confidential and proprietary information that includes carrier lists with pricing, profit margin data, and shipping routes; client lists with contact information, referral sources, profit and market pricing data, and shipping routes; a Shipment Dashboard that is “an integral component of Elite's proprietary and innovative transportation management” program; and confidential and proprietary formulas, policies and procedures related to employee performance management. Id. ¶ 20.
Elite has devoted years and substantial resources to develop this confidential information, all of which is key to its ability to compete in the competitive freight management industry. Elite's proprietary data provides a competitive advantage over other logistics companies, and it expends considerable effort to protect the confidentiality of this proprietary information. To that end, all employees are required to agree to the terms of a confidentiality policy, set forth in Elite's Employee Handbook. The confidentiality policy acknowledges the responsibility of all employees to protect Elite's data assets and to share information only with other Elite employees with a legitimate need to know. No. information is to be disseminated outside of Elite without a supervisor's approval and, upon termination, all confidential information must be returned to Elite. An employee risks termination if he or she violates the terms of Elite's policies related to the protection of its confidential and proprietary assets. Id. ¶¶ 21-32.
Elite also enters into confidentiality agreements with employees, carriers, clients, and business partners, and uses various computer and password protection applications and systems to limit access to its confidential information. These measures include a closed computer network protected by a next generation firewall with secure VPN access, and restricted access to files based on employee status so that certain information is inaccessible to much of Elite's workforce. Id. ¶¶ 33-36. Elite worksites and computer servers are also protected by physical security barriers that require passkey access. Id. ¶¶ 37-38.
Elite hired Mitrecic as a Logistics Account Coordinator in March 2018. Id. ¶ 39. At the time she was hired, Elite provided Mitrecic with a copy of its Employee Handbook that set forth company confidentiality policies. Mitrecic signed an acknowledgement of her obligation to comply with each of these policies. In connection with a subsequent promotion and salary increase, Mitrecic executed Elite's Confidentiality, Non-Solicitation, Non-Competition, and Intellectual Property Agreement. Id. ¶ 42. This agreement provides that at “all times during and after the Employee's employment with the Company, the Employee will not use or cause to be used for the Employee's own benefit or for the benefit of any third party, or disclose to any third party in any manner, directly or indirectly, any information of a confidential or proprietary nature, trade secrets or any other knowledge or information, … without the Company's express prior written consent. Id. ¶ 43(c). Mitrecic further agreed that “for a period of one year after the termination of the Employee's employment, and at any location within the United States, Employee will not, directly or indirectly engage in, consult with, or have any interest in any business, firm, person, partnership or corporation, ” that competes with Elite. Id. ¶ 44.
Elite terminated Mitrecic on May 28, 2020. Id. ¶ 51. “[A]round the time of her employment separation, Mitrecic sent emails containing Elite's business information from her Elite work email address to her personal Gmail.” Id. ¶105.
At some point before leaving Elite, Mitrecic became involved in a personal relationship with co-employee Cunningham. Id. ¶ 9. Elite hired Cunningham in April 2018 as a Logistics Account Coordinator. At the time he was hired, Cunningham received a copy of Elite's Employee Handbook that set forth company confidentiality policies. Cunningham signed an acknowledgment of his obligation to comply with these policies and, in connection with a July 2018 promotion, executed Elite's Confidentiality, Non-Solicitation, Non-Competition, and Intellectual Property Agreement. Id. ¶¶ 52-56. Due to industry financial conditions, Elite laid off Cunningham in November 2019, but rehired him three weeks later in the same position that he held before his layoff. In February 2020, Elite promoted Cunningham to Logistics Account Specialist Supervisor. In this role, Cunningham had unrestricted access to much of Elite's Confidential information, including Elite's Master Carrier List and data. Id. ¶¶ 60-64.
In September 2020, Elite launched an investigation into possible improper disclosure and misappropriation of Elite's confidential information. The investigation revealed that Cunningham repeatedly sent emails from his work email account to outside email accounts, despite the lack of authorization or a legitimate business purpose. An email that he sent on June 2, 2020, included Elite's Master Carrier List, as did an email sent on August 5, 2020. Cunningham also forwarded a screenshot of Elite's Shipment Dashboard to his personal email account. Id. ¶¶ 65-70, 75-76. The August 5th email contained a variation of Elite's Master Carrier List that included information compiled by Elite to determine profitability by carrier so that Elite could strategically select the carrier that will generate the greatest profitability.
The Shipment Dashboard sent by Cunningham to his personal email address included summaries of loads shipped for a selected period. The data contained pick-up and delivery information; product information including weight, purchase order and delivery numbers; billing reference numbers; identification of the client with contact information, carrier name and contact information, as well as revenue derived from brokered loads; carrier payment information; and information related to Elite's profits. Id. ¶¶ 71-74. Cunningham also forwarded a copy of Elite's “LAS Balanced Scorecards, ” which set forth internal data and methods to evaluate employees on key performance indicators created and defined by Elite. Id. ¶¶ 82-87.
During Elite's investigation, Cunningham was interviewed and denied improper use or misappropriation of the information. Based on the unauthorized transmission of confidential data and proprietary information, Elite fired Cunningham effective October 2, 2020. Elite requested that Cunningham return company property including a laptop. Id. ¶ 97. Later that week, Elite asked Cunningham to produce all personal computers and personal devices to a third-party computer forensic company. Cunningham refused the request.
Elite initiated this action on October 13, 2020, with the filing of a Complaint that named only Cunningham as a defendant. ECF No. 1. The parties agreed to a Consent Order for the forensic examination of Cunningham's personal devices. ECF Nos. 20 and 21. The examination revealed that Cunningham forwarded Elite's confidential information to Mitrecic's personal email account, and that Cunningham had used Mitrecic's personal computer while employed with Elite. ECF No. 39 ¶¶ 100-106.
After a hearing with the parties and counsel for Mitrecic, this Court “determined that [Mitrecic's] laptop computer was covered by Paragraph 2 of the Consent Order and directed that it promptly be produced for forensic review.” Id. ¶108 (citing ECF No. 25). The review revealed that Elite's business information, including Elite's confidential information and trade secrets, were stored on Mitrecic's computer, and that there were many partially or unviewable files that were corrupted or password protected, including information related to training new hires to use Elite's proprietary business software. Id. ¶¶ 109-111. In addition, Elite's information was copied onto external storage devices from Mitrecic's computer. Disputes over the breadth of the Consent Order continued, and Elite believes the password protected files on Mitrecic's computer include its proprietary information. Id. ¶¶ 114-116.
Jillamy hired Metricic in late September 2020 as a Logistics Coordinator, a role much like her role at Elite. Elite alleges, on information and belief, that Mitrecic and Cunningham acted together to misappropriate Elite's confidential information so that Mitrecic could use it to her benefit and to the benefit of Jillamy or Mode to compete against Elite. Elite further alleges, also on information and belief, that Mitrecic disclosed the existence of her confidentiality agreement with Elite to Jillamy as required by the terms of the agreement, and provided them with a copy. Elite asserts that Jillamy hired Mitrecic despite the agreement, with the intent and purpose of harming Elite, and to acquire and use Elite's proprietary information for its own pecuniary benefit. Id. ¶¶ 213, 219. Mitrecic worked for Jillamy until November 4, 2020. Id. 118-126.
Based on this conduct, Elite asserts a state law claim against Jillamy for tortious interference with contract (Count IX), a claim under the Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq. (“DTSA”) (Count X), a claim for the violation of the Pennsylvania Uniform Trade Secrets Act, 12 Pa. C.S. § 5301 et seq. (misnumbered as Count X) (“PUTSA”); and a state law claim for unfair competition (Count XII).
Jillamy moves to dismiss all claims against it because Elite improperly relies on “information and belief” and bald, conclusory allegations, and therefore fails to state a claim upon which relief may be granted. ECF No. 62. Jillamy seeks dismissal of the tortious interference claim because Elite terminated Metricic, and thus rendered its noncompete agreement unenforceable. Jillamy and Elite have filed their briefs in support and in opposition to the pending motion. ECF Nos. 64 and 76. The Motion to Dismiss is now ripe for consideration.
B. STANDARD OF REVIEW
A complaint may be dismissed under Federal Rule of Civil Procedure 12(b)(6) for “failure to state a claim upon which relief can be granted.” “[D]etailed pleading is not generally required.” Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016). Rather, the rules require “‘only a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'” Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted)).
Thus, to survive a motion to dismiss, a complaint must “state a claim to relief that is plausible on its face” by providing facts which “permit the court to infer more than the mere possibility of misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
In assessing the sufficiency of a complaint, the Court must accept as true all material allegations in the complaint and all reasonable factual inferences must be viewed in the light most favorable to the plaintiff. The Court, however, need not accept bald assertions or inferences drawn by the plaintiff if they are unsupported by the facts set forth in the complaint. See Cal. Pub. Employees' Retirement Sys. v. The Chubb Corp., 394 F.3d 126, 143 (3d Cir. 2004) (citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997)). Nor must the Court accept legal conclusions set forth as factual allegations. Twombly, 550 U.S. at 555. Thus, the United States Supreme Court has held that a complaint is properly dismissed under Fed.R.Civ.P. 12(b)(6) where the factual content does not allow the court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678; see also Phillips v. Cty of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (finding that, under Twombly, “labels and conclusions, and a formulaic recitation of the elements of a cause of action” do not suffice. The complaint therefore “must allege facts suggestive of [the proscribed] conduct” and that are sufficient “to raise a reasonable expectation that discovery will reveal evidence of the necessary element[s] of his claim.”). Id. at 233, 234.
C. DISCUSSION
1. Tortious Interference Claim
Jillamy moves to dismiss Elites's tortious interference claim on the ground that Elite fails to allege facts that it wrongfully interfered the Mitrecic noncompete agreement. To state a claim for tortious interference, a plaintiff must plead:
(1) the existence of a contractual, or prospective contractual relation between the complainant and a third party; (2) purposeful action on the part of the defendant, specifically intended to harm the existing relation, or to prevent a prospective relation from occurring; (3) the absence of privilege or justification on the part of the defendant; and (4) the occasioning of actual legal damage as a result of the defendant's conduct.CGB Occupational Therapy, Inc., v. RHA Health Servs., Inc., 357 F.3d 375, 384 (3d Cir. 2004) (citation omitted).
As to the first element, Jillamy disputes the validity of the noncompete agreement because Elite terminated Mitrecic. ECF No. 64 at 10. Jillamy cites generally to Colorcon, Inc. v. Lewis, 792 F.Supp.2d 786, 801 (E.D. Pa. 2011), and Matthews Int'l Corp. v. Lombardi, No. 20-cv-89, 2021 WL 732722, at *12 (W.D. Pa. Feb. 25, 2021), for the proposition that under Pennsylvania law, a noncompete agreement is void upon termination. ECF No. 64 at 10, 12. In both cases, the plaintiff sought a preliminary injunction based on an evidentiary record that informed the court as to the grounds for termination and the relative ability of the employee to “trade on” the information he possessed. This evidence was sufficient to show that a restrictive covenant was “reasonably necessary for the protection of the employer.” Colorcon, 792 F.Supp.2d at 799; Matthews, 2021 WL 732722, at *11, *13. The court in each instance recognized that under Pennsylvania law, “the circumstance under which the employment relationship was terminated is but one important factor to consider in assessing both the employer's protective interests and the employee's ability to earn a living.” Matthews, at *12 (quoting Missett v. Hub Int'l Pennsylvania, LLC, 6 A.3d 530, 538-39 (Pa. Super. Ct. 2010)). Thus, in Matthews, the district court found the agreement invalid as to two terminated employees but granted preliminary injunctive relief as to a third employee based on evidence of his use of confidential information for the defendant-competitor's benefit and “meaningful customer contact.” Id., at *13.
At this early stage of the litigation and without an evidentiary record, the Court cannot assess the circumstances surrounding Mitrecic's employment and termination to determine the validity of the noncompete agreement, and thus declines to recommend that the tortious inference claim be dismissed on this basis.
Jillamy also contends that dismissal is appropriate because Elite improperly relies on two boilerplate and speculative allegations to show that Jillamy interfered with Mitrecic's noncompete agreement: (1) that, “upon information and belief[, ]” “Jillamy asks prospective employees whether they have agreements with current or former employers that impose post-employment restrictions; and (2) that “Mitrecic informed Jillamy of her Confidentiality Agreement with Plaintiff and provide[d] Jillamy a copy.” ECF No. 64 at 10. Jillamy cites McDermott v. Clondalkin Grp., Inc., 649 Fed.Appx. 263 (3d Cir. 2016) (nonprecedential), and argues that given these speculative allegations and despite “seven months to obtain factual support for the allegations in the Amended Complaint, ” dismissal is warranted. ECF No. 64 at 7.
The Amended Complaint also alleges that despite possessing information about the terms of Elite's noncompete agreement, Jillamy induced Mitrecic to breach the agreement by accepting employment. ECF No. 39 ¶¶ 211-212.
In McDermott, a panel of the United State Court of Appeals for the Third Circuit confirmed that “pleading upon information and belief is permissible ‘[w]here it can be shown that the requisite factual information is peculiarly within the defendant's knowledge or control' - so long as there are no ‘boilerplate and conclusory allegations' and [p]laintiffs … accompany their legal theory with factual allegations that make their theoretically viable claim plausible.'” Id. at 267-68 (italics in original) (quoting In re Rockefeller Ctr. Properties, Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002)).
Here, as in McDermott, it is not disputed that the circumstances of Mitrecic's employment with Jillamy are wholly within Jillamy and Mitrecic's control and not independently subject to verification. Elite buttresses its claim with allegations, also based on information and belief, that Jillamy hired Mitrecic to work in the same role and industry as her work for Elite, despite Jillamy's knowledge of her confidentiality and noncompete agreement, and because of the skills and access to information gained during her employment with Elite. ECF No. 39 ¶¶ 118, 122, 125, 126. These facts are also within Jillamy's sole control. That said, the Amended Complaint sets forth Mitrecic's employment history with Elite, her access and use of Elite's proprietary and confidential information in her former position, and the value of that information to maximize profitability, employee outcomes, and efficiency in a highly competitive industry. At this early stage of the litigation, it is plausible to conclude that despite knowing of the existence of a noncompete agreement, Jillamy hired Mitrecic to exploit her past employment with Elite to enhance Jillamy's market position and profitability in the freight management and delivery industry. Under these circumstances, the Amended Complaint sufficiently alleges that Jillamy took intentional and unjustified actions through its employment of Mitrecic, and the Motion to Dismiss Elite's tortious interference claim should be denied. See Acclaim Sys., Inc. v. Infosys, Ltd., No. 13-7336, 2015 WL 4257463, at *4 (E.D. Pa. Jul. 14, 2015) (allegations suggesting that defendant was aware of noncompete agreements but nonetheless caused employees to defect were sufficient to survive a motion to dismiss).
2. DTSA and PUTSA Claims
Jillamy moves to dismiss Elite's DTSA and PUTSA misappropriation of trade secret claims because Elite asserts, based on “information and belief, ” that Jillamy wrongfully acquired Elite's trade secret information from Mitrecic. ECF No. 64 at 11. Jillamy also argues that dismissal is warranted because Elite fails to identify “what confidential information was misappropriated, how or when Mitrecic disclosed Plaintiff's confidential information to Jillamy or how Jillamy used Plaintiff's secrets for its benefit.” Jillamy contends that given the passage of time since the commencement of this litigation (“[t]welve months after Mitrecic was fired by Plaintiff, seven months after Mitrecic left Jillamy, and seven months after Plaintiff originally initiated this action”), Elite “cannot point to a shred of evidence that Jillamy ever acquired any information belonging to Plaintiff from Mitrecic.” Id.
The parties agree that to state claims under DTSA and PUTSA, a plaintiff must allege the misappropriation of trade secrets, including 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.” ECF No. 64 at 11 (quoting Jazz Pharms., Inc. v. Synchrony Grp., LLC, 343 F.Supp.3d 434, 445 (E.D. Pa. 2018)); ECF No. 76 at 6 (quoting Alpha Pro Tech, Inc. v. VWR Int'l LLC, 984 F.Supp.2d 425 (E.D. Pa. 2013)). The Third Circuit has held that under the DTSA, “[b]y statutory definition, trade secret misappropriation is harm.” Oakwood Labs. LLC v. Thanoo, 999 F.3d 892, 913 (3d Cir. 2021). It is the loss of the “exclusive use of trade secret information, which is a real and redressable harm.” Id. at 914.
The Court again notes that discovery has not yet started as to Elite's claims against Jillamy, and any information related to Jillamy's possession or use of Elite's information is within Jillamy's control. However, in its Amended Complaint, Elite alleges that Mitrecic, alone and in coordination with Cunningham, converted Elite's confidential carrier and client information, profit margins, and shipping routes. Thus, the confidential information at issue is sufficiently identified. Oakwood, 999 F.3d at 907 (where trade secrets are identified in the complaint, it is reasonable to infer they are the basis of a misappropriation claim. A “demand for further precision in the pleading[s] … ignores the challenges a trade secret plaintiff commonly faces when only discovery will reveal exactly what the defendants are up to.”).
As to how Jillamy misappropriated Elite's trade secrets, “[t]here are three ways to establish misappropriation under the DTSA: improper acquisition, disclosure, or use of a trade secret without consent.” Id. at 907-08 (citing 18 U.S.C. § 1839(5)). Elite alleges that Jillamy knew that Mitrecic was most recently employed by Elite when Jillamy hired her, that Jillamy knew or should have known that Mitrecic was a party to a noncompete and confidentiality agreement, that she was in possession of Elite's confidential and proprietary information during her Jillamy employment, and that it knew or should have known that the information has been transferred to Jillamy's computers, email accounts and other electronic devices during and after Mitrecic's employment, and that Elite's information provided it with a competitive advantage. These allegations are sufficient, though barely so, at this stage of the litigation to permit a reasonable and plausible inference that Mitrecic wrongfully acquired Elite's information for Jillamy's benefit, that Jillamy was aware she had done so, and that Jillamy retained both the benefit of that information and the information itself for its own eventual use. See e.g., Fres-co Sys. USA, Inc. v. Hawkins, 690 Fed.Appx. 72, 76 (3d Cir. 2017) (district court did not abuse its discretion in determining that a preliminary injunction could issue against former employee and new employer under PUTSA and DTSA where the former employee was hired in the “same role, same industry, and same geographic region”; it was appropriate to conclude that former employee “would likely use his confidential knowledge to [former employer's] detriment”). Therefore, the Court recommends that the motion to dismiss the DTSA and PUTSA claims be denied.
3. Unfair Competition
Jillamy next moves to dismiss Elite's state law claim for unfair competition because Elite failed to allege any independently supporting facts. ECF No. 64 at 12. The Court disagrees because the necessary factual allegations appear throughout the Amended Complaint.
“Pennsylvania courts have recognized a cause of action for the common law tort of unfair competition where there is evidence of, among other things, trademark, trade name, and patent rights infringement, misrepresentation, tortious interference with contract, improper inducement of another's employees, and unlawful use of confidential information.” Synthes (U.S.A.) v. Globus Med., Inc., No. 04-cv-1235, 2005 WL 2233441, at *8 (E.D. Pa. Sept. 14, 2005) (citations omitted). Thus, in Reading Radio, Inc. v. Fink, 833 A.2d 199, 211-212 (Pa. Sup. Ct. 2003), the Pennsylvania Superior Court held that while offering employment to a competitor's at-will employee is not actionable by itself, a claim of unfair competition is stated when inducement of employment is offered for the purpose of having the employee violate the terms of a noncompete agreement to “commit wrongs, such as disclosing [a] former employer's trade secrets or enticing away his customers.” See also Advanced Fluid Sys., Inc. v. Huber, 28 F.Supp.3d 306, 324 (M.D. Pa. 2014), aff'd, 958 F.3d 168 (3d Cir. 2020) (“[u]nfair competition contemplates conduct beyond misappropriation of a competitor's goods, and includes, inter alia, misrepresentation, tortious interference with contract, improper inducement of another's employees, and unlawful use of confidential information.”) (internal quotation marks omitted)).
Here, Elite plausibly alleges that Jillamy offered Metricic employment in a similar role in the same industry despite Jillamy's knowledge of the noncompete agreement, and that Jillamy did so to gain financial advantage from any confidential information she possessed. At the motion to dismiss stage, Elite alleges, again barely, a claim for the common law tort of unfair competition.
In sum, Elite alleges facts that ever so slightly “nudge” state law claims of tortious interference and unfair competition, as well as DTSA and PUTSA claims, “across the line from conceivable to plausible.” Twombly, 550 U.S. at 570; see also Mallet & Co. Inc. v. Lacayo, 16 F.4th 364, 383 (3d Cir. 2021) (district courts “must … engage with the specific facts of the case and consider the degree of specificity necessary in light of the particular industry-based context and the stage of litigation - whether that be a motion to dismiss, a discovery dispute, a motion to preliminarily enjoin a defendant from competing with the trade secret plaintiff, or a summary judgment motion.”). Thus, it is recommended that the Motion to Dismiss be denied. However, Elite will bear a much higher burden at the summary judgment stage.
D. CONCLUSION
For the foregoing reasons, it is respectfully recommended that the Motion to Dismiss filed by Defendant Jillamy, Inc., ECF No. 62, be denied.
In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(1), and Local Rule 72.D.2, the parties may file written objections in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation. Failure to timely file objections will waive the right to appeal. Brightwell v. Lehman, 637 F.3d 187, 193 n. 7 (3d Cir. 2011). Any party opposing objections may file their response to the objections within fourteen (14) days thereafter in accordance with Local Civil Rule 72.D.2.
The Honorable Cathy Bissoon, United States District Judge