Applied Predictive Techs., Inc. v. MarketDial, Inc.

598 F.Supp.3d 1264

APPLIED PREDICTIVE TECHNOLOGIES, INC., Plaintiff,

v.MARKETDIAL, INC., John M. Stoddard, and Morgan Davis, Defendants.

Case No. 2:19-cv-00496-JNP-CMR

United States District Court, D. Utah.

Signed March 17, 2022

Filed April 8, 2022

Adam Kenji Richards, Samuel C. Straight, Ray Quinney & Nebeker PC, Salt Lake City, UT, Blake L. Osborn, Pro Hac Vice, Dentons US LLP, Los Angeles, CA, Katherine Ramlose McMorrow, Pro Hac Vice, Knobbe Martens Olson & Bear LLP, Los Angeles, CA, Eric L. Sophir, Pro Hac Vice, Foley & Lardner, Washington, DC, Kerisha A. Bowen, Pro Hac Vice, Elissa C. Jeffers, Pro Hac Vice, Kirk Robert Ruthenberg, Nicholas Hunt Jackson, Dentons US LLP, Washington, DC, Megan M. Carroll, Pro Hac Vice, Dentons US LLP, Kansas City, MO, Spencer D. Hamilton, Pro Hac Vice, Dentons US LLP, Dallas, TX, Jennifer D. Bennett, Dentons US LLP, San Francisco, CA, for Plaintiff.

Gregory S. Osborne, Marketdial Inc., Salt Lake City, UT, Keith A. Call, Korey D. Rasmussen, LaShel Shaw, Snow Christensen & Martineau, Salt Lake City, UT, Jeff Leung, Pro Hac Vice, Arent Fox LLP, San Francisco, CA, Allan E. Anderson, Arentfox Schiff LLP, Los Angeles, CA, Andrew Ong, I. Neel Chatterjee, Pro Hac Vice, Goodwin Procter LLP, Redwood City, CA, Dana J. Finberg, Pro Hac Vice, O'Hagan Meyer LLP, Sausalito, CA, Samuel Sherry, Goodwin Procter LLP, Boston, MA, for Defendants MarketDial, Inc., John M. Stoddard.

Keith A. Call, LaShel Shaw, Snow Christensen & Martineau, Salt Lake City, UT, for Defendant Morgan Davis.

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION FOR PARTIAL DISMISSAL

Jill N. Parrish, United States District Court Judge

Plaintiff Applied Predictive Technologies, Inc. ("APT") sued Defendants MarketDial, Inc. ("MarketDial"), John M. Stoddard, and Morgan Davis (collectively, "Defendants") for various claims, including misappropriation of trade secrets, breach of contract, fraud, civil conspiracy, and tortious interference with contract. ECF Nos. 1, 188. Before the court is Defendants’ Motion for Partial Dismissal of APT's Third Amended Complaint (ECF No. 195 ). Oral argument on the motion was held on March 10, 2022. For the reasons set forth herein, the court GRANTS IN PART and DENIES IN PART Defendants’ motion. Specifically, the court dismisses APT's claims for breach of contract against Stoddard (count IV) and breach of contract against Davis (count V) WITH PREJUDICE. The court similarly dismisses APT's claims for fraudulent misrepresentation and fraudulent nondisclosure against Stoddard (count VI), civil conspiracy against Stoddard, Davis, and MarketDial (count VII), and tortious interference with contract against Davis and MarketDial (count VIII) WITHOUT PREJUDICE. The court declines to dismiss APT's claims for misappropriation of trade secrets against Davis (counts I and II).

BACKGROUND¹

Stoddard and Davis are the co-founders of MarketDial, a predictive business analytics company that competes directly with APT. Before founding MarketDial, Stoddard and Davis worked at McKinsey & Company, Inc. ("McKinsey") and Boston Consulting Group ("BCG"), respectively. While employed at McKinsey and BCG, Stoddard and Davis were required to comply with employee agreements, which governed the confidentiality of their firm's clients’ information. Specifically, Stoddard's Employee Agreement with McKinsey contained the following provisions:

Confidential Information includes information of the Firm, such as the Firm's frameworks, approaches and industry and other proprietary knowledge (including Properties), and information relating to personnel and compensation processes, structure and approaches. Confidential Information also includes information of the Firm's clients, such as clients’ names, business plans and trade secrets. I agree, during my employment at the Firm and thereafter, to hold all such Confidential Information in strict confidence and not to disclose such information, in whole or in part ... to persons outside the Firm, except as I am explicitly authorized to do so.

...

Should I leave the Firm, I will not take any actions that would give the appearance of disclosure. Therefore, I agree that, during my employment at the Firm and thereafter, I will not use or disclose any Confidential Information even if I happen to receive the same information from another source outside the Firm, and I will not act in any manner that might create the appearance that I am using Confidential Information in ways likely to damage the interests of the Firm or its clients.

ECF No. 196-1 at 1–2. Davis's Employee Agreement with BCG contained similar provisions, under which Davis agreed that he would "not identify any client of BCG to anyone outside BCG without the permission of that client or an officer of BCG" and would not, "[d]uring and after [his] employment by BCG, unless otherwise specifically approved by BCG, ... use Confidential Information for the benefit of anyone other than BCG or a client of BCG to whom the Confidential Information relates." ECF No. 196-2 at 1–2.

On November 7, 2013, "[a] few months after Stoddard began at McKinsey," McKinsey and APT entered into a confidentiality agreement "under which APT provided access to its confidential information in connection with McKinsey's client development and client services, and for each party's consideration of potential transactions with other parties." ECF No. 210 at 8. The confidentiality agreement required McKinsey "(i) not to use (or allow any of its employees to use) any of [APT's] Confidential Information for any other purpose and (ii) to keep confidential and not disclose [APT's] Confidential Information other than to those of [McKinsey's] employees who have a need to know such information and who are bound by nondisclosure obligations consistent with the terms of [the confidentiality agreement]." Id. (emphasis omitted). Similarly, "[d]uring Davis's employment with BCG, BCG and APT entered into a Third Party Access Agreement dated January 26, 2012 regarding BCG's use of APT's proprietary software in the course of providing professional services to a mutual client." Id. at 10. The Third Party Access Agreement required BCG and its employees to "maintain the highest standards of confidentiality with regard to the Software" and prohibited disclosure to others, including "other BCG employees who are not providing the Services." Id. at 10–11 (emphasis omitted). The Access Agreement further required that "[n]o BCG representative provided access to the Software ... be involved in developing a service which competes, directly or indirectly, with the Software." Id. at 11.

In spite of these confidentiality agreements, "[i]n January 2015, Stoddard and Davis began actively discussing their idea to launch a predictive business analytics company that would compete directly with APT." ECF No. 189 ¶ 5. In February 2015, Stoddard and Davis incorporated such a business, MarketDial. Id. Even though Stoddard was still employed by McKinsey and bound by his Employee Agreement at this time, he "requested and received substantial APT confidential and trade secret information"—including PowerPoint presentations and case studies—"for at least a five-month period in 2015." Id. ¶ 101. Although Stoddard represented to APT that he was requesting the "information for the benefit of McKinsey's and APT's client development work," he was actually sending "the APT confidential and trade secret information he accessed" to Davis for MarketDial's use. See id. ¶¶ 101–02. In one email to Davis that contained APT's confidential information, Stoddard wrote, "You didn't get this from me." Id. ¶ 102.

In addition, "[d]espite knowing of Stoddard's confidentiality obligations [to APT], and despite Davis's own confidentiality obligations to APT," Davis and MarketDial "requested that Stoddard obtain APT confidential and trade secret information." Id. ¶ 140. Stoddard and Davis subsequently used APT's confidential information to develop the MarketDial system, which is similar to products and services offered by APT; "to develop [MarketDial's] business, technical[,] and marketing strategy"; and to compete with APT. Id. ¶ 141.

Based on the foregoing, on June 28, 2018, APT sued MarketDial and Stoddard for patent infringement and misappropriation of trade secrets. APT subsequently amended its complaint multiple times, filing its Third Amended Complaint ("TAC") on July 27, 2021. ECF No. 188. The TAC added Davis as a defendant in the case, as well as contract claims against Stoddard and Davis and various tort claims against all Defendants. Defendants moved for partial dismissal of the TAC under Federal Rule of Civil Procedure 12(b)(6). Specifically, Defendants moved to dismiss APT's claims for misappropriation of trade secrets against Davis (counts I and II); breach of contract against Stoddard (count IV); breach of contract against Davis (count V); fraudulent misrepresentation and fraudulent nondisclosure against Stoddard (count VI); civil conspiracy against Stoddard, Davis, and MarketDial (count VII); and tortious interference with contract against Davis and MarketDial (count VIII).

LEGAL STANDARD

Dismissal of a claim under Federal Rule of Civil Procedure 12(b)(6) is appropriate where the plaintiff fails to "state a claim upon which relief can be granted." "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc. , 336 F.3d 1194, 1201 (10th Cir. 2003) (citation omitted). Thus, when considering a motion to dismiss for failure to state a claim, a court "accept[s] as true all well-pleaded factual allegations in the complaint and view[s] them in the light most favorable to the plaintiff." Burnett v. Mortg. Elec. Registration Sys., Inc. , 706 F.3d 1231, 1235 (10th Cir. 2013).

A complaint...