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holding the "displacement" of section 2007 applies to claims "grounded in the same facts which purportedly support the misappropriation of trade secrets claim"
Summary of this case from France v. Bentley Pharmaceuticals, Inc.Opinion
CA. No. 00C-10-249-JRS
Submitted: March 13, 2001
Decided: April 24, 2001
Upon Defendants Motion to Dismiss. GRANTED. Upon Plaintiffs Motion to Amend Complaint. GRANTED.
Jeffrey K. Martin, Esquire, 1509 Gilpin Avenue, Wilmington, DE 19806. Attorney for Plaintiff.
Kevin G. Abrams, Esquire, RICHARDS, LAYTON FINGER, One Rodney Square, Wilmington, DE 19899. Attorney for Defendants, FMR Corp. of Delaware and FMR Corp. of Massachusetts.
Anthony W. Clark, Esquire, SKADDEN, ARPS, MEAGHER FLOM, LLP, One Rodney Square, Wilmington, DE 19899. Attorney for Defendant, UPromise, Inc.
MEMORANDUM OPINION I. INTRODUCTION
Plaintiff, Savor, Inc. ("Savor"), filed its initial complaint against defendants, Fidelity Investment Corporation ("Fidelity") and UPromise, Inc. ("UPromise"), on October 27, 2000. (D.I. 1) Savor alleged that the defendants had misappropriated trade secrets and engaged in unfair competition by misappropriating the idea for a rebate program pursuant to which consumers of certain products or services would receive rebate funds for investment in designated State Qualified Tuition Plans. Savor filed its Amended Complaint as of right on November 13, 2000. (D.I. 4) Although the Amended Complaint is not marked to show changes as required by the Court's rules, it appears that the only amendment to the initial complaint was the substitution of FMR Corp. ("FMR") for Fidelity as a party defendant. It is alleged that "Fidelity Investments" is a registered trademark of FMR. ( Id. at ¶ 3). Savor filed its Second Amended Complaint on January 17, 2001. (D.I. 7) This time, Savor violated two rules of the Court: Savor again neglected to designate its changes from the First Amended Complaint and it failed to seek leave of Court to file the amended pleading. Savor's Second Amended Complaint named a new defendant, FMR Corp. of Massachusetts ("FMR Mass"), and added a claim for Civil Conspiracy. ( Id. at ¶¶ 3, 27-29)
No responsive pleading had been filed by the defendants. See Del. Super. Ct. Civ. R. 15(a).
But see Del. Super. Ct. Civ. R. 15(aa).
Id.
But see Del. Super. Ct. Civ. R. 15(a)("A party may amend the party's pleading once as a matter of course before a responsive pleading is served. . . . Otherwise, a party may amend the party's pleading only by leave of court . . .") (emphasis supplied).
The defendants have each moved to dismiss the Second Amended Complaint for failure to state a claim upon which relief may be granted. They point to various factual pleading deficiencies with respect to each of Savor's three claims for relief, and also argue that the Unfair Competition and Civil Conspiracy claims are subsumed within the Misappropriation of Trade Secrets claim as a matter of law.
See Del. Super. Ct. Civ. R. 12(b)(6). The motions assume that the Second Amended Complaint is the operative pleading notwithstanding Savor's failure to seek leave of court or stipulation of the parties before it filed the document. The Court will read the defendants' submissions as a waiver of any objection to the improper filing of the pleading under Rule 15 and will accept the Second Amended Complaint as the operative pleading.
For the reasons that follow, the defendants' motions to dismiss are GRANTED. Savor's motion for leave to file a third amended complaint, made orally during the presentation of the motions to dismiss, is also GRANTED.
II. FACTS
Savor alleges that it developed a unique program whereby vendors could offer their customers cash rebates for investment in State Qualified Tuition Plans in exchange for the purchase of products or services. (D.I. 7 at ¶ 7) In September, 1998, Savor supplied information about its rebate program to a representative of Fidelity, Abram Claude ("Claude"), in the hopes that Fidelity would serve as a fund manager for the investments contemplated by the program. ( Id. at ¶¶ 8-12) Fidelity ultimately declined to participate. ( Id. at ¶ 10)
The Court will assume, as it must, that all well-pleaded allegations in the Second Amended Complaint are true. See Nix v. Sawyer, Del. Supr., 466 A.2d 407, 410 (1983).
The Second Amended Complaint does not describe the nature of the relationship Savor sought to pursue with Fidelity. The Court has assumed that Savor sought Fidelity's assistance as a fund manager based on the allegations that Fidelity has served in this capacity in connection with other State Qualified Tuition Plans. (D.I. 7 at ¶¶ 15-17)
UPromise was formed in February, 2000. ( Id. at ¶ 14) In July, 2000, published news reports described a rebate program initiated by UPromise which was identical to Savor's rebate program. ( Id. at ¶ 16) The financial press reported that Fidelity was to be the manager for some of the funds created by the UPromise program. ( Id.) A later newspaper article quoted Claude as he endorsed the UPromise program. ( Id. at ¶ 17)
Savor alleges that Fidelity shared the information it received from Savor with UPromise knowing that Savor intended that the information be kept confidential. Savor further alleges that UPromise, in turn, developed Savor's rebate idea with the information supplied by and with the assistance of Fidelity. ( Id. at ¶¶ 19-29)
According to Savor, this conduct constitutes a misappropriation of trade secrets, unfair competition, and civil conspiracy to commit these torts. ( Id.)
III. DISCUSSION
A. Standard of Review
On a motion to dismiss under Rule 12(b)(6), the Court accepts as true all well pleaded allegations in the complaint, and must view all inferences drawn from the facts plead in the light most favorable to the plaintiff. A complaint will not be dismissed unless the Court determines that the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof. And such determinations may be made as a matter of law or fact as alleged in the complaint.
In re Tri-Star Pictures, Inc. Litig., Del. Supr., 634 A.2d 319, 326 (1993).
Nix, 466 A.2d at 410 (citation omitted).
Ferguson v. Wesley College, Inc., Del. Super., C.A. No. 99C-07-109 WTQ, Quillen, J. (March 23. 2000) (Letter Op. at 3) (citation omitted).
A complaint is "well pleaded" if it puts the opposing party on notice of the claim being brought against it. "Complaints generally are short plain statements of the claim, each averment therein being simple, concise and direct with technical forms of pleading being unnecessary." Thus, it is generally understood with notice pleading that "the task of narrowing or clarifying the basic issues and ascertaining the relevant facts [will be] left to the deposition and discovery process." But the rules of this Court, even in the context of notice pleading, will not countenance a complaint which rests its claims for relief solely upon conclusory allegations of fact; such allegations will not be accepted as true.
Precision Air, Inc. v. Standard Chlorine of Delaware, Inc., Del. Supr., 654 A.2d 403, 406 (1995).
Ferguson, supra, Letter Op. at 3 (citation omitted).
Id. (citation omitted).
At oral argument, Savor suggested that the standard of review on a motion to dismiss is less rigorous in this Court than in the Court of Chancery. The distinction appreciated by Savor is not grounded in the jurisprudence of this or any other constitutional court of this State. See Ramunno v. Cawley, Del. Supr., 705 A.2d 1029, 1034 (1998)("[on a motion to dismiss] we ignore conclusory allegations that lack specific supporting factual allegations"); Nebenzahl v. Miller, Del. Ch., C.A. No. 13206, Steele, V.C. (Aug. 26, 1996 corrected Aug. 29, 1996) (Mem. Op. at 8)("Conclusory allegations alone cannot be the platform for launching an extensive, litigious fishing expedition for facts through discovery in the hope of finding something to support them"); Fahey-Hosey v. Capano, Del. Super., C.A. No. 98C-06-299 SCD, Del Pesco, J. (Aug. 31, 1999) (Mem. Op. at 3)("Conclusory allegations will not be accepted as true").
B. Count I, Misappropriation of Trade Secrets
The General Assembly has created a private right of action for persons or entities who allege that they have fallen victim to a "misappropriation" of "trade secrets." A "trade secret" is:
6 Del. C. § 2001 et. Seq.
[I]nformation, including a formula, pattern, compilation, program, device, method, technique or process, that:
a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by. other persons who can obtain economic value from its disclosure or use; and
b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
"Misappropriation" is defined as:
a. Acquisition of a trade secret of another by a person who knows or has reason to know that the secret was acquired by improper means; or
b. Disclosure or use of a trade secret of another without express or implied consent by a person who:
1. Used improper means to acquire knowledge of the trade secret; or
2. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade was:
A. Derived from or through a person who had utilized improper means to acquire it;
B. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
C. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use . . .
Chancellor Allen has succinctly enumerated the relevant inquiry when determining whether a plaintiff has set forth a prima facie misappropriation of trade secrets claim:
(1) Does a trade secret exist, i.e., have the statutory elements — commercial utility arising from secrecy and reasonable steps to maintain secrecy been shown; (2) Has the secret been communicated by plaintiff to the defendant; (3) Was such communication pursuant to an express or implied understanding that the secrecy of the matter would be respected; and (4) Has the secret information been improperly (e.g. in breach of the understanding) used or disclosed by the defendant to the injury of the plaintiff?
Wilmington Trust Co. v. Consistent Asset Mgt. Co., Del. Ch., C.A. No. 8867, Allen C., (Mar. 25, 1987) (Mem. Op. at 8).
These criteria guide the Court's analysis here.
After a careful review of the Second Amended Complaint, reading its allegations in the Light most favorable to Savor, it is clear that the Court need go no further than the fist element to conclude that Savor has not pled a viable claim for misappropriation of a trade secret. The Second Amended Complaint describes Savor's rebate program simply as a program by which "individuals who purchase products and services . . . would receive rebates and rewards that would be paid in cash for the account of a designated beneficiary under a State Qualified Tuition Program." (D.I. 7 at ¶ 7) Savor acknowledged at oral argument, however, that the idea of a rebate program, even Savor's program, is not in and of itself a "trade secret" under the statutory definition or any other notion of the word. The idea is not at all novel; it has been around since long before Savor came into existence. ( Id. at ¶ 23, Oct. 15, 2000 New York Times article referenced therein)
The processes by which the rebate program might be implemented, on the other hand, may qualify for trade secret protection. Unfortunately, the Second Amended Complaint is devoid of any reference to the means by which Savor intended that its rebate program should be implemented or any other details of the program itself. This pleading deficiency is fatal to Savor's claim on Count I.
Counsel for Savor explained at oral argument that the failure to plead sufficient facts to describe the trade secret(s) at issue derived from its concern that such pleading would publicize the same information for which it seeks trade secret protection. The explanation is unfounded. This Court has promulgated rules of procedure to address this very concern. See Del. Super. Ct. Civ. R. 5(g) (allowing for documents containing confidential or sensitive information to be filed under seal).
The Second Amended Complaint also fails to plead facts sufficient to satisfy the third element of its claim for Misappropriation of Trade Secrets, namely, that Savor communicated its trade secrets to Fidelity "pursuant to an express or implied understanding that the secrecy of the matter would be respected." It is alleged only that "[u]pon information and belief, FMR Corp. defendants [sic] knew or had reason to know that the information received concerning the Savor program was a trade secret acquired under a duty of confidence owed to the plaintiff." (D.I. 7 ¶ 19) This conclusory allegation fails to give notice to FMR of the bases for the so-called "duty of confidence" it allegedly owed to Savor. Moreover, the Second Amended Complaint does not even allege that UPromise was aware of the trade secret status of the information, much less how it would have acquired such knowledge.
Wilmington Trust Co., supra, Mem. Op. at 8.
See Ramunno, 705 A.2d at 1034; Fitzgerald v. Cantor, Del. Ch., C.A. No. 16297-NC, Steele, V.C. (Jan. 14, 1999) (Letter Op. at 4-5) (dismissing complaint where trade secret allegations were "merely conclusory").
Finally, the Second Amended Complaint fails to allege facts sufficient to support its conclusion that Fidelity used or disclosed the information it received from Savor. The references in newspaper articles to investment plans purportedly managed by Fidelity which appear to be similar in name to UPromise, e.g., Unique and Uloan, are not adequate to support the conclusory allegation that Fidelity communicated the alleged trade secrets to UPromise. Nor is reference to the article quoting Claude's description of UPromise's program an adequate factual predicate for a claim of Misappropriation of Trade Secrets. Something more is required to survive a Rule 12(b)(6) motion.
The motions to dismiss Count One of the Second Amended Complaint are GRANTED.
In view of the Court's conclusion that Count I should be dismissed for inadequate factual pleading, the Court need not address the defendants' arguments that Savor's public disclosure of its alleged trade secrets to the State of Delaware and others disables the Misappropriation of Trade Secrets claim as a matter of law. The Court recognizes, however, that its decision on plaintiffs motion to amend may prompt the need to visit this issue on another day.
C. Counts II (Unfair Competition) and III (Civil Conspiracy)
Counts II (Unfair Competition) and III (Civil Conspiracy) fail as a matter of law. Savor elected to seek relief under Delaware's trade secrets statute. This statutory scheme "displaces conflicting tort, restitutionary and other law of this State providing civil remedies for misappropriation of a trade secret." The "displacement" contemplated by Section 2007 extends to Savor's unfair competition and civil conspiracy claims, both of which are grounded in the same facts which purportedly support the Misappropriation of Trade Secrets claim. The motions to dismiss these claims, therefore, are GRANTED.
6 Del. C. § 2007(a)("Section 2007").
Leucadia, Inc. v. Applied Extrusion Techs., Inc., D. Del., 755 F. Supp. 635, 637 (1991)("[Section] 2007 was intended to preserve a single tort cause of action under state law for misappropriation . . ., and thus to eliminate other tort causes of action founded on allegations of trade secret misappropriation"); Total Care Physicians, P.A. v. O'Hara, Del. Super., C.A. No. 99C-11-201 IRS, Slights, J. (March 23, 2001) (Mem. Op. at 28-30) (holding that Section 2007 preempts claim for unfair competition or civil conspiracy).
D. Plaintiffs Motion for Leave to Amend its Complaint
Plaintiff has sought leave of Court to file a third amended complaint. Because the Court is concerned that plaintiffs' counsel did not appreciate the procedural devices available to his client to protect sensitive information filed with the Court, the Court will allow a final amendment to the complaint. Accordingly, plaintiffs motion for leave to file a third amended complaint is GRANTED, but only as to Count I. Counts II and III have been dismissed as a matter of law with prejudice. The third amended complaint shall be filed within thirty (30) days of this Opinion and Order. If no further amended complaint is filed within thirty (30) days, the dismissal of this action shall be final.
e.g. In re Freeport-McMoran Sulphur, Inc. Shareholders Litig., Del. Ch., C.A. 16729, Jacobs, V.C. (Jan. 11, 2001) (Mem. Op. at 15).
V. CONCLUSION
For the foregoing reasons, defendants' motions to dismiss are GRANTED. Plaintiffs motion for leave to file a third amended complaint is also GRANTED as to Count I only.IT IS SO ORDERED.