Arnold's Office Furniture LLC v. Borden

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ARNOLD'S OFFICE FURNITURE, LLC et al, Plaintiffs, v. IAN BORDEN, et al, Defendants.

CIVIL No. 5:20-cv-05470-JMG

United States District Court, E.D. Pennsylvania

February 22, 2022

MEMORANDUM OPINION

JOHN M. GALLAGHER UNITED STATES DISTRICT COURT JUDGE

Plaintiff Arnold's Furniture, LLC employed Defendant Ian Borden as a salesperson. Plaintiff Sunline, LLC is a separate entity operated by the owners of Arnold's, LLC. During the COVID-19 pandemic, Plaintiffs began selling personal protective equipment (“PPE”). Defendant was one of Plaintiffs' top performing employees and sold large amounts of PPE to Plaintiffs' customers. During his employment, Defendant created the Ian M Borden Group (“IMBG”) to sell PPE and continued selling PPE after his termination. Plaintiffs bring trade secrets misappropriation claims under the Defend Trade Secrets Act (“DTSA”) and the Pennsylvania Uniform Trade Secrets Act (“PUTSA”), alleging misappropriation of customer lists, pricing information, and goodwill. Plaintiffs also assert claims of Breach of Contract and Breach of Fiduciary Duty. Defendant counterclaims for Breach of Contract and unpaid commissions in violation of the Pennsylvania Wage Payment and Collection Law (“WPCL”). The parties have moved for summary judgment on all counts. For the reasons that follow, the Court will deny the cross-motions for summary judgment.

I. FACTUAL BACKGROUND

1. Allegations

Plaintiff Arnold's Office Furniture, LLC, is a Pennsylvania company that sells office supplies and furniture. Pl.'s Statement of Facts (“PSOF”) ¶ 1; Def.'s Opp'n to Pl.'s Statement of Facts (“DOPSOF”) ¶ 1. Plaintiff Sunline, LLC, is a Pennsylvania company associated with Arnold's Office Furniture, LLC. POSF ¶¶ 11-12; DOPSOF ¶¶ 11-12. Plaintiffs allege that Arnold's uses Sunline as a marketing device to sell PPE. PSOF ¶ 12. Jordan Berkowitz is the President of Arnold's and Sunline. PSOF ¶ 24; DOPSOF ¶ 24.

Defendant Ian Borden worked as a salesperson for Arnold's from August 17, 2017 through October 19, 2020. PSOF ¶¶ 15-16; DOPSOF ¶¶ 15-16. When Defendant was hired, he executed an employment contract (the “Offer Letter”) which contained a non-solicitation clause. PSOF ¶¶ 34-35; DOPSOF ¶¶ 34-35.

Due to the COVID-19 pandemic, Plaintiffs began exploring options to obtain and sell FDA-certified PPE. PSOF ¶ 46; DOPSOF ¶ 46. Plaintiffs acquired a reliable source of PPE and instructed their entire sales staff, including Defendant, to begin selling PPE. PSOF ¶ 50-5; DOPSOF ¶ 50. Plaintiffs allege that the sales staff earned a 2% commission for all PPE sales, which were due only upon payments received from buyers. PSOF ¶ 58. Defendant claims the commission policy was silent as to when commissions were earned. DOPSOF ¶ 58.

To assist in PPE sales, Plaintiffs created sub-directories on an internal shared drive where salespersons could access customer lists, pricing information, vendor information, and marketing materials. PSOF ¶ 60, DOPSOF ¶ 60. Plaintiffs provided their sales force with full access to the confidential customer base. PSOF ¶ 61; DOPSOF ¶ 6.

Defendant officially formed IMBG on July 15, 2020. PSOF ¶ 18-19, 65; DOPSOF ¶ 18-19, 65. Plaintiffs allege that Defendant forwarded customer and pricing lists to his personal email and Dropbox accounts and sold PPE to prospective customers. PSOF ¶¶ 67, 72, 74; DOPSOF ¶¶ 72, 74.

Plaintiffs became aware of IMBG on August 1, 2020. PSOF ¶ 91; DOPSOF ¶ 91. Plaintiffs allege that they told Defendant to immediately stop conducting business through IMBG, but Defendant disputes this fact. PSOF ¶ 92. Plaintiffs also told Defendant that they would help him sell IMBG's remaining inventory. PSOF ¶ 93; DOPSOF ¶ 93. On August 5, 2020, Defendant met with Jordan Berkowitz, who informed him that IMBG posed a direct conflict of interest to Plaintiffs. PSOF ¶ 96; DOPSOF ¶ 96. Plaintiffs allege that Defendant continued selling PPE after this meeting.

Plaintiffs terminated Defendant on October 19, 2020. PSOF ¶ 111, DOPSOF ¶ 111. Plaintiffs allege that Defendant continued selling PPE to prospective and existing customers after termination, thus breaching the non-solicitation agreement contained in the Offer Letter. PSOF ¶¶ 118-119. Defendant asserts that the customers he sold PPE to were not prospective customers and the non-solicitation agreement did not preclude him from selling PPE to customers who initiated contact. DOPSOF ¶¶ 118-122.

Plaintiffs now allege that Defendant misappropriated trade secrets by taking customer and pricing lists, breached his non-solicitation agreement by selling PPE to actual and prospective customers, and breached his fiduciary duty of loyalty by creating IMBG and selling PPE during his employment. Defendant disputes these allegations and maintains that Plaintiffs breached the employment contract and violated the WPCL by failing to pay his earned commissions.

2. Procedural History

Plaintiffs filed this suit on November 2, 2020. (ECF No. 1). On August 9, 2021, both parties moved for summary judgment. (ECF Nos. 59 & 60). Both parties responded to the respective motions for summary judgment on August 30, 2021. (ECF Nos. 85 & 87). On September 10, 2021, Plaintiffs filed a response in support of their motion. (ECF No. 88). Defendant filed a reply brief to Plaintiffs' response on September 10, 2021. The cross-motions for summary judgment are now ripe for decision.

II. LEGAL STANDARD

“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A material fact is one that “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248.

In deciding a motion for summary judgment, a court must “view the facts and draw reasonable inferences in the light most favorable to the party opposing the summary judgment motion.” Scott v. Harris, 550 U.S. 372, 378 (2007). The party moving for summary judgment “always bears the initial responsibility of . . . identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotations omitted). In response, “the adverse party must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 250. “Notably, these summary judgment rules do not apply any differently where there are cross- motions pending.” Synthes, Inc. v. Emerge Med., Inc., 25 F.Supp.3d 617, 666 (E.D. Pa. 2014) (citing Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir. 2008).

III. DISCUSSION

The parties assert a variety of arguments in their cross-motions supporting summary judgement. Plaintiffs claim that Defendant misappropriated trade secrets in violation of the DTSA and PUTSA. Plaintiffs further claim that Defendant breached the Offer Letter and his fiduciary duty of loyalty. Finally, Defendant counterclaims asserting a breach of contract claim and a violation of the WPCL. The Court will address each argument in turn.

1. Trade Secret Misappropriation (Count I & Count II)

To assert a claim under the DTSA, a plaintiff must show (1) that they own a trade secret and (2) that the defendant misappropriated the trade secret. Ecosave Automation, Inc. v. Delaware Valley Automation, LLC, 540 F.Supp.3d 491, 500 (E.D. Pa. 2021).^[1] Under the DTSA and PUTSA, a trade secret is information that: “(1) the owner has taken reasonable means to keep secret; (2) derives independent economic value, actual or potential, from being kept secret; (3) is not readily ascertainable by proper means; and (4) others who cannot readily access it would obtain economic value from its disclosure or use.” Jazz Pharm., Inc. v. Synchrony Grp., LLC, 343 F.Supp.3d 434, 444 (E.D. Pa. 2018).

A customer list can be a trade secret if its owner invested time and resources in compiling the information, organizing it or making it searchable. Synthes, Inc., 25 F.Supp.3d at 706.

However, when an owner makes no such investment and instead obtains the list from a third-party, the list is not a protectable trade secret. Ozburn-Hessey Logistics, LLC v. 721 Logistics, LLC, 13 F.Supp.3d 465, 474-75 (E.D. Pa. 2014).

The parties first assert summary judgment is proper on the trade secret misappropriation claims. Plaintiffs seek summary judgment arguing that their existing and prospective customer lists, pricing information, and goodwill are protectable trade secrets. Defendant claims that Plaintiffs' customer and pricing lists are not protectable as trade secrets because they contain material acquired from a third party.

Defendant alleges that Plaintiffs obtained their lists from third party sources, including an online database. Defendant identified a March 29, 2020, email from Plaintiffs' Vice President of Sales, where he admits to utilizing a third-party database to acquire nationwide hospital contacts. See Def.'s Exhibit H. Plaintiffs admit that they used third party sources, such as Zoominfo and Quickbase, to obtain contact information contained in its customer compilations. PSOF ¶¶ 77-79; See Pl's Exhibit 3, Berkowitz Dep. at 112:17-113:13, 131:15-137:12. However, Berkowitz's deposition testimony indicates that the information on the databases was not publicly available and in order to gain access, Plaintiffs expended substantial capital. Id.

Here Plaintiffs' lists comprise the names and contact information of Plaintiffs'...