Opinion
14-P-277
05-22-2015
NEW ENGLAND BIOLABS, INC. v. STEPHEN J. PICONE & others.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff appeals from a judgment dismissing its complaint on statutes of limitations grounds. At issue is whether the plaintiff failed as a matter of law to show that it did not know and reasonably should not have known that it had been harmed before July 1, 2007 for G. L. c. 93A claim, and before July 1, 2008 for the other claims. Additionally, at issue is whether the plaintiff failed to show that it did not know and reasonably should not have known that the defendants caused the harm prior to those dates.
Background. We briefly review the context for this action. The plaintiff filed suit against the defendants on July 1, 2011. The complaint alleged that the defendants misappropriated trade secrets and committed unfair and deceptive business practices, and asserted other related claims. Stephen Picone, Christopher Benoit, and Richard Whitaker are former employees of the plaintiff, New England Biolabs, Inc. (NEB). In October of 2006, all three individuals resigned and began working for Enzymatics, Inc. (Enzymatics), which was founded by Picone and Benoit.
This section contains undisputed facts as well as those facts alleged by the plaintiff that are supported by record evidence and background information contained in the plaintiff's complaint. See Lindsay v. Romano, 427 Mass. 771, 771 (1998) ("Because the case is before us on the defendant's motion for summary judgment, we assume the truth of all the facts alleged by the plaintiff, as well as give the plaintiff the benefit of any favorable inferences reasonably drawn from those facts").
NEB is a biotechnology company that is "a world leader in the production and supply of the most innovative and important reagents for the life sciences industry." One important component of its financial success is the "OEM" business. "OEM" is a loose term for "original equipment manufacturer" and is used to label a customized product for the customer. There are "a thousand or more enzymes in [NEB's] catalog product, 'which could be used at the OEM level.'" The most important part of NEB's OEM business are its nine "critical enzymes."
The trial court and the defendants equate OEM with NEB's critical enzymes. Since there is record support for the conclusion that "OEM" encompasses more than simply the critical enzyme sales and we must view the facts in the light most favorable to the plaintiff, we assume for the purposes of our decision that a reference to the OEM business does not mean that the plaintiff was referring only to its critical enzymes business.
While at NEB, Picone and Benoit "were either [p]roduct [m]anagers for, or regularly collaborated with other [p]roduct [m]anagers on all of the NEB [c]ritical [e]nzymes." Prior to leaving NEB, Whitaker was an applications development scientist, his responsibilities included improving existing products, which included NEB's critical enzymes, and "developing and optimizing clones used in production of NEB [c]ritical [e]nzymes."
The plaintiff's theory of the case was that Enzymatics could not have brought to market any of the nine critical enzymes, which were extremely complicated to produce, within a year of starting its business without using the plaintiff's trade secrets or confidential information. As a result, it is NEB's knowledge, or lack thereof, of facts that would have alerted it that the defendants were producing, or were capable of producing, critical enzymes from October, 2006, to 2007 that is relevant.
Discussion. We review an entry of summary judgment de novo. Premier Capital, LLC v. KMZ, Inc., 464 Mass. 467, 469 (2013).
"[W]here summary judgment is sought on the basis of a statute of limitations, 'once the defendant establishes that the time period between the plaintiff's injury and the plaintiff's complaint exceeds the limitations period set forth in the applicable statute, the plaintiff bears the burden of alleging facts which would take his or her claim outside the statute.' If the plaintiff responds to a defendant's motion by alleging facts that, if proved at trial, would bring the plaintiff's claims outside the
impact of the statute of limitations, then the defendant is not entitled to summary judgment."O'Connor v. Redstone, 452 Mass. 537, 551 (2008) (citations omitted).
According to the plaintiff's complaint, NEB was injured by the defendants prior to and immediately following the individual defendants' departure from NEB in October of 2006. The present action was filed more than four years from that time. The plaintiff argues that an application of the discovery rule takes its claims outside the statute of limitations and makes the filing of the complaint timely.
"Th[e discovery] rule prescribes as crucial the date when a plaintiff discovers, or any earlier date when she should reasonably have discovered, that she has been harmed or may have been harmed by the defendant's conduct." Bowen v. Eli Lilly & Co., 408 Mass. 204, 205-206 (1990). See also Hanson Hous. Authy. v. Dryvit Sys., Inc., 29 Mass. App. Ct. 440, 446 (1990) ("The controlling question is whether a plaintiff's knowledge, actual or attributed, of both harm to it and the likely cause of such harm, was sufficient to stimulate further inquiry which was likely to alert it to a cause of action against a defendant"). "Generally, an issue concerning what the plaintiff knew or should have known is a factual question that is appropriate for the trier of fact. However, in order for a plaintiff's claim to survive a summary judgment motion, he must demonstrate a reasonable expectation of proving that the claim was timely filed." Koe v. Mercer, 450 Mass. 97, 101 (2007) (citation omitted).
The plaintiff argued below that the statutes of limitations were also tolled by fraudulent concealment, which would require proof of actual knowledge. It does not appear that this theory was raised on appeal.
Here, in addition to the information concerning the individual defendants' departure, their access to trade secrets, and the importance of the critical enzyme business to NEB's success, it is undisputed that the plaintiff had the following information prior to July 1, 2007. In February of 2007, the plaintiff knew that the defendants had made a sales pitch to one of its clients. The plaintiff was also aware that the defendants had strong contacts in the industry by this time. After making those observations, at least one employee of NEB suggested that the defendants were going to be a new competitor for OEM customers and requested a meeting with many of NEB's top executives. Critical enzymes are a part, but not all, of NEB's OEM business. As a result, by February of 2007, NEB knew that the defendants' assurances that Enzymatics would do something "totally different" by operating "in a different space with a different focus" were not true.
An employee requested a meeting to "discuss th[e new competitor, Enzymatics] in the context of existing and future OEM customers."
Also in February, two high level employees of NEB knew that a customer who was either interested in one of the critical enzymes, or was already purchasing it from NEB, had an alternate supplier for that enzyme. Both employees remembered that the customer mentioned visiting other suppliers in the area and that the customer had been to the building where Enzymatics' office was located. In addition, in the following months there were indications from at least two other employees of NEB that they were either suspicious or nervous that they were competing with the defendants in selling critical enzymes to certain clients. However, there is no indication that there were facts, aside from the individual defendants' contact with the clients, or behavior of those defendants before they left NEB to support those suspicions. Finally, in March of 2007, Enzymatics published a public Web site, which included a statement that its business was "the development and sale of large-scale, high quality enzyme products." However, product lists were not available on the site.
We agree with the plaintiff that the contextual factors alone and that mere suspicion, without any factual support, would not be sufficient. However, the plaintiff's employees had started observing the defendants engage in the OEM market, which includes critical enzymes, and had some indication from customers' comments and from the defendants' behavior that it was possible the defendants were competing in the critical enzyme market within the first few months of being in business. This information, collectively, was sufficient to put the plaintiff on notice that it may have been harmed by the defendants' actions.
As noted, the plaintiff asserts that it was not possible for Enzymatics to bring to market any of the nine critical enzymes, which were extremely complicated to produce, within a year of starting the business unless the defendants used the plaintiff's trade secrets or confidential information.
We further note that prior to July 1, 2008, the plaintiff had even more information that should have resulted in knowledge that it may have been harmed by the defendants' actions. In September of 2007, a high level employee of NEB received an e-mail from a representative of GE Healthcare asking for samples of one of the plaintiff's critical enzymes. In the e-mail chain that was forwarded to the plaintiff was an internal GE Healthcare email that read: "Go for it with NEB. The Enzymatics guys and I will chat tomorrow. Thanks for getting this done quickly." Although this does not conclusively prove that Enzymatics was then supplying the critical enzyme, it certainly provided NEB with information that Enzymatics may have been selling critical enzymes. In October of 2007, the plaintiff circulated information that a speaker at a meeting described his latest project and noted that "one of the ways he is keeping costs down is to use Enzymatics who are cutting reagent costs," and at a conference the same speaker indicated he was working with Enzymatics to "bring down the cost of reagents 10-fold." Based on this information, the plaintiff was on notice that Enzymatics' prices were significantly lower.
Finally, in June of 2008, the plaintiff's executives were noticing a significant drop in sales to a large client of two critical enzymes. In a memorandum analyzing the issue, an executive suggested that it is likely the client found a qualified second supplier who could be the defendant or another firm, and one option was Enzymatics. Although the plaintiff contends that by June, 2008, the defendants could have produced critical enzymes through legitimate means, given the length of the sales process, as described by the plaintiff, this information should have at least prompted an inquiry to attempt to determine if Enzymatics was selling the critical enzyme and, if so, when it started making such sales.
Furthermore, the plaintiff failed to produce evidence to create a dispute of fact that a reasonable "inquiry . . . was [not] likely to alert it to a cause of action against a defendant." See Hanson Hous. Authy. v. Dryvit Sys., Inc., supra. See also Albrecht v. Clifford, 436 Mass. 706, 715 (2002) (summary judgment appropriate on statute of limitations grounds when plaintiffs "cannot meet their burden of demonstrating that 'in the exercise of reasonable diligence, they should not have known [of the defects]"). The defendants produced evidence at summary judgment that Enzymatics' product lists, which included critical enzymes, had been disseminated broadly to customers before July 1, 2007. Although the plaintiff did present evidence that the list included the caption "confidential" and that customers regarded product lists as trade secrets, it did not offer evidence that it made any attempts to obtain the product lists or made any other reasonable inquiries among its business contacts to attempt to obtain information concerning what Enzymatics was selling.
One customer did later provide NEB with information that it was using Enzymatics' critical enzymes in its preparation kit. However, the plaintiff does point to one customer's "cagey" response to questions about other suppliers that were undercutting NEB's price in June of 2008.
Judgment affirmed.
By the Court (Trainor, Agnes & Maldonado, JJ.),
The panelists are listed in order of seniority.
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Clerk Entered: May 22, 2015.