Frontrunner HC, Inc. v. Waveland RCM, LLC

FRONTRUNNER HC, INC., Plaintiff, v. WAVELAND RCM, LLC, WAVELAND TECHNOLOGIES, LLC, DEAN PALUCH,JORDAN LEVITT and TONY ALTIERI, Defendants.

Civil Action No. 20-10230-DJC

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

December 11, 2020

MEMORANDUM AND ORDER

CASPER, J.

I. Introduction

Plaintiff FrontRunner HC, Inc. ("FrontRunner") filed this lawsuit against Defendants Waveland RCM, LLC, Waveland Technologies, LLC (together, "Waveland"); Dean Paluch ("Paluch"), Jordan Levitt ("Levitt") and Tony Altieri ("Altieri") (collectively, the "Individual Defendants") alleging that while the Individual Defendants were FrontRunner employees, they misappropriated trade secrets and confidential information from FrontRunner, solicited FrontRunner clients on behalf of their new employer, Waveland, and continued this conduct after the termination of their employment with FrontRunner. D. 1. FrontRunner has moved for a preliminary injunction against both Waveland (now dismissed) and the Individual Defendants to enjoin their use or disclosure of its trade secrets and confidential information, preserve hard devices and devices on which same might be stored and comply with the non-compete and non- solicitation provisions of the Individual Defendants' NDAs. D. 49-1. For the reasons stated below, FrontRunner's motion for preliminary injunction, D. 49, as to the Individual Defendants is ALLOWED IN PART to the extent that it seeks to enjoin the use and disclosure of trade secrets and confidential information and is otherwise DENIED.

II. Procedural History

FrontRunner instituted this action on February 6, 2020. D. 1. A few days later, FrontRunner moved for a Temporary Restraining Order ("TRO") against all Defendants to prohibit the use or disclosure of FrontRunner's confidential information and requested the return of FrontRunner's property and preservation of electronic evidence. D. 4. On February 21, 2020, the parties entered a stipulated order to maintain the status quo and preserve the evidence as requested in the TRO. D. 11. The Court then denied the TRO as moot given the parties' stipulation. D. 14. In March 2020, Waveland and the Individual Defendants moved to dismiss the claims against them for lack of personal jurisdiction. D. 23; D. 26. The Court denied the motion to dismiss against the Individual Defendants but allowed it as to Waveland. D. 61. Prior to the Court's ruling on the motions to dismiss, FrontRunner had moved for a preliminary injunction against all Defendants. D. 49. After briefing and a hearing, the Court took this matter under advisement. D. 82.

III. Factual Background

As to background, the Court references and incorporates its recitation of same in its statement of reasons regarding the motions to dismiss. D. 64. The Court addresses the facts relevant to the pending motion for preliminary injunction.

A. FrontRunner's Alleged Proprietary Documents and Information

1. FrontRunner's Software

FrontRunner is a technology company that provides healthcare clients with a technology suite to maximize billable revenue collections. D. 1 ¶ 12. FrontRunner's "signature product" is a software technology suite called "Patient Remedi," which "gives its customers access to a portfolio of several software programs all designed to focus on accurate patient information during a healthcare encounter." D. 51 ¶¶ 2-3 (John Donnelly Affidavit). This software technology includes a number of products including but not limited to "Insurance Discovery," "Eligibility," "Demographics," "Patient Financial Credit," and "Web Service" integration, which have features to "obtain better results for its clients in the form of greater data matching and updating, which in turn results in greater recovery for the client." Id. ¶¶ 4, 5.

In its work, FrontRunner has also created and uses certain technical documents to develop these "software products with specific customizations and commands based on and tailored to its clients' needs and billing software." Id. ¶ 6. FrontRunner develops and maintains these "highly confidential technical documents," include its Web Service Guides and Business Rules, on its secure server. Id. ¶ 7. Each document contains technical code and data that a person could use to replicate FrontRunner's software. Id. ¶ 8.

FrontRunner generates business by marketing and selling its products directly to its clients. Id. ¶ 11. To do so, FrontRunner has created and uses marketing PowerPoint slides that it presents to its potential clients to explain its services. Id. ¶ 9; see, e.g., D. 52-1 at 1. FrontRunner also generates business by selling its products to clients through third parties that offer revenue cycle billing platforms. Id. ¶¶ 11-12. The two largest businesses that FrontRunner contracts with are Quadax and Xifin. Id. ¶ 12. Through its relationships with these two businesses, FrontRunner hasobtained over a hundred clients. Id. To maintain its relationship with these businesses, FrontRunner uses its "proprietary integration software" that integrates its products directly with those of Quadax and Xifin. Id. ¶ 14. FrontRunner maintains the technical information for creating this integration software in the Business Rules documents. Id. FrontRunner contends that if a competitor were to obtain these documents, they would be able to reverse engineer FrontRunner's software to integrate their own products. Id. FrontRunner, additionally, developed, over several years, documents with "mapping logic" that it is confidential and proprietary, which "ensures that when the information is posted back to Xifin and Quadax, the correct insurance information is selected." Id. ¶ 15.

2. Other Proprietary Information

In addition to its software and technical documents, FrontRunner alleges that its customer lists with pricing and other metrics, proposals/bid documents and customer contracts are proprietary. D. 50 at 4 (citing D. 1 ¶ 16). FrontRunner's customer list contains details about its pricing, past volume of business, past business needs and contact information. D. 50 at 23. Its contracts and bid proposals contain key terms and provisions and detail their clients' business needs. Id.

B. The Individual Defendants' Employment and Contractual Agreements

FrontRunner hired Paluch in January 2014 as Executive Vice President of Sales, D. 1 ¶ 20, Altieri in April 2016 as Senior Sales Executive and later promoted him to Regional Vice President of Sales, id. ¶ 51, and Levitt in April 2016 as Executive Vice President for Business Development, id. ¶ 72.

FrontRunner states that, consistent with its general practice, it instructed Paluch to sign an NDA at the time of hiring, as a condition of his employment and in consideration for his salary,compensation plan, incentives, and commission structure. D. 50 at 6 (citing D. 1 ¶ 24); D. 1 ¶ 31. FrontRunner, however, does not have a signed NDA for Paluch in his personnel file and instead has presented to the Court a blank unsigned NDA for Paluch. See D. 1-1. Paluch disputes receiving the NDA and attests that he never agreed to its provisions nor signed it. D. 70-2 (Paluch Affidavit) ¶ 2; D. 87 at 5. Altieri signed an NDA when he joined FrontRunner on April 11, 2016. D. 1-2. Levitt did not sign an NDA when he joined FrontRunner, but he signed one on April 25, 2019 in consideration for his 2019 Compensation Plan "with additional salary, benefits and advantageous commission structure, and in further consideration for one year of continued salary should FrontRunner terminate Levitt's employment without cause." D. 1 ¶ 78; see D. 1-3.

The Paluch and Altieri NDAs are identical while the Levitt NDA is different in some respects. All three NDAs contain a nondisclosure obligation clause that prohibits an employee whether during or after the termination of employment, from "reveal[ing] to any person or entity. . . any of the trade secrets or confidential business information concerning the Company" for any reason whatsoever D. 1-1 at 1; D. 1-2 at 2; D. 1-3 at 1. Confidential information includes, "customer and strategic partners names, lists and profiles, including resellers and distributors of the Company's software and services; marketing, sales and business development strategies, and other Company strategies, initiatives, tactics and plans; all software development activities; product and service designs . . . marketing plans and strategies; pricing, commission fees, custom contracts and costing polices . . . and other Company information or other nonpublic information so far as they have come or may come to the Officer's knowledge." D. 1-3 at 1 (Levitt NDA); see D. 1-1 and D. 1-2 (containing similar language defining confidential information).

All three NDAs also limit an employees' ability to work for a competitor. Specifically, the Paluch NDA and the Altieri NDA non-compete clauses state that each agreed, during theiremployment and for twelve months immediately following termination (whether they are terminated or resign voluntarily), to refrain from serving as a "partner, principal, . . . employee, consultant, officer, director, manager, agent, affiliate, representative, advisor, promoter, associate, investor . . . or otherwise join, participate in or affiliate himself with, any business whose business products or operations are in any respect competitive with or otherwise similar to the Company's." D. 1-1 at 1; D. 1-2 at 1.

The Levitt NDA states that he agrees that during his employment and for twelve months following termination, he will not serve as a "principal, employee, consultant, officer, manager[], or advisor for a Competitive Business." D. 1-3 at 1. Competitive Business is defined as a commercial enterprise "whose products and services which are being promoted or marketed by the Officer are competitive with the Company's products and services, including products under development or for anticipated release during the Officer's tenure." Id. Competitive Business however is "limited to those geographic...