Philips Med. Sys. Puerto Rico, Inc. v. Gis Partners Corp.

PHILIPS MEDICAL SYSTEMS PUERTO RICO, INC., Plaintiff v. GIS PARTNERS CORP. et al., Defendants.

Civil No. 15-2702 (BJM)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

October 25, 2017

OPINION AND ORDER

Philips Medical Systems Puerto Rico, Inc. ("Philips-PR") brought this action against GIS Partners Corp. ("GIS"), Hernan Toro, David Sumpter, and Radames Bracero, alleging a breach of contract, unfair competition, violation of four sections of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. §§ 1030(a)(2), (4), (5)(C), (6), and violation of Puerto Rico's Industrial and Trade Secret Protection Act ("ITSPA"), P.R. Laws Ann. tit. 10, §§ 4131-4141. Docket No. 38. GIS, Toro, and Sumpter (collectively "Defendants") filed a counterclaim alleging a violation of Title VII of the Civil Rights Act of 1964 ("Title VII"), 42 U.S.C. § 2000e-3(a), Act 115 of Dcember 20, 1991, 29 P.R. Laws Ann. § 194 et seq. ("Act 115"), and Articles 1802 and 1803 of the Puerto Rico Civil Code, 32 P.R. Laws Ann. § 5141 and 5142 ("Articles 1802 and 1803"). Philips-PR moved to dismiss the counterclaim under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), Docket No. 150, and Defendants opposed. Docket No. 156. The parties consented to proceed before a magistrate judge. Docket No. 21.

For the reasons set out below, the motion to dismiss is GRANTED.

MOTION TO DISMISS STANDARD

Federal Rule of Civil Procedure 12(b)(1) governs motions to dismiss for lack of subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). As courts of limited jurisdiction, federal courts are bound to construe jurisdictional grounds narrowly. See, e.g., Hawes v. Club Ecuestre El Comandante, 598 F.2d 698, 701 (1st Cir. 1979). When deciding a motion to dismiss under Rule 12, a court must accept as true all well-pleaded factual claims, and indulge all reasonable inferences in the non-movant's favor. McCloskey v. Mueller, 446 F.3d 262, 266 (1st Cir. 2006); Deniz v. Municipality of Guaynabo, 285 F.3d 142, 144 (1st Cir. 2002). The party asserting federal jurisdiction has the burden of proving its existence by the preponderance of the evidence. Murphy v. United States, 45 F.3d 520, 522 (1st Cir. 1995); Bank One, Texas v. Montle, 964 F.2d 48, 50 (1st Cir. 1992).

When deciding whether subject-matter jurisdiction exists, the court follows two general rubrics: (1) when a defendant challenges the legal sufficiency of the facts alleged, the court credits plaintiffs' factual allegations and draws reasonable inferences in his or her favor; and (2) when the defendant challenges the truth of facts alleged by the plaintiff and offers contrary evidence, the court weighs the evidence. Valentín v. Hosp. Bella Vista, 254 F.3d 358, 363 (1st Cir. 2001).

Although 12(b)(1) is "usually employed in the instance in which the moving party believes there is no federal question jurisdiction under 28 U.S.C. § 1331 or diversity of citizenship jurisdiction under 28 U.S.C. § 1332," 12(b)(1) is also an appropriate "procedural vehicle" to challenge a "[f]ailure to exhaust administrative remedies." United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 8 n.6 (1st Cir. 2005).

To survive a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), on the other hand, "an adequate complaint must provide fair notice to the defendants and state a facially plausible legal claim." Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011). The plaintiff must set forth "factual allegations, either direct or inferential, regarding each material element necessary" for the action. Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988). In evaluating a motion to dismiss, the court first discards any "'legal conclusions couched as fact' or 'threadbare recitals of the elements of a cause of action.'" Ocasio-Hernández, 640 F.3d at 12 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The remaining "[n]on-conclusory factual allegations" are fully credited, "even if seemingly incredible." Id. The court engages in no fact-finding and does not "forecast a plaintiff's likelihood of success on the merits." Id. at 13. Rather, it presumes that the facts are as properly alleged by the plaintiff and draws all reasonable inferences in the plaintiff's favor. Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). Taken together, the facts pleaded must "state a plausible, not a merely conceivable, case for relief." Ocasio-Hernández, 640 F.3d at 12.

BACKGROUND

Philips-PR, a subsidiary of Royal Philips Electronics, is a Puerto Rico corporation that sells and services medical equipment in Puerto Rico, such as magnetic resonance imaging ("MRI") machines. Docket No. 91 ¶¶ 1, 3. GIS is a Puerto Rico corporation founded by Toro and Sumpter, who are both residents of Puerto Rico. Docket No. 92 ¶ A(ii); Docket No. 91 ¶ 6-7.

Toro, Sumpter, and Bracero are former employees of Philips-PR. Toro served as a field service engineer of CT scan products for 15 years and left the company in 2009. Docket No. 92 ¶ B. Sumpter worked as an equipment salesperson for 20 years and also left the company in 2009. Id. at ¶ C. Bracero was a field service engineer of MRI machines and left the company in February 2012. Docket No. 38 at 3. In November 2010, Sumpter and Toro filed a complaint against Philips-PR alleging wrongful termination under Puerto Rico law and seeking $317,896.44 in damages. Docket No. 131 at 4. At the filing of this counterclaim, trial for their wrongful termination claim was set for February 2017, and the case is still active. Id.

In November 2015, Philips-PR filed a complaint against GIS, Toro and Sumpter, alleging breach of contract, unfair competition, violation of four sections of the CFAA, and violation of the ITSPA. Docket No. 38 at 1. In its complaint, Philips-PR alleged that after his employment with Philips-PR terminated, Bracero used his former employee login information to hack into Philips-PR's software to gain access to the restricted access portions of Philips-PR's MRI machine and ultimately to its proprietary information. Id. at 17. Philips-PR further alleges that Bracero provided this information and access to GIS, Toro, and Sumpter, all of whom then accessed Philips-PR's proprietary information. Id. at 17-18; 31-32. According to Philips-PR, this was a breach of Toro and Sumpter's employment contracts and constitutes unfair competition by all defendants as they used Philips-PR's proprietary information to conduct GIS's business. Id. at 38.

Although Philips-PR initially brought its complaint against GIS, Toro, Sumpter, and Bracero, Philips-PR dismissed its complaint against Bracero in July 2016 after the two parties reached a settlement agreement. Docket No. 89.

DISCUSSION

Philips-PR seeks a dismissal of Defendants' counterclaim for lack of subject-matter jurisdiction under 12(b)(1) and failure to state a claim upon which relief can be granted under 12(b)(6). Docket No. 150 at 1. A court must have subject-matter jurisdiction over each claim and can "proceed no further if such jurisdiction is wanting." Godin v. Schencks, 629 F.3d 79, 83 (1st Cir. 2010) (quoting In re Recticel Foam Corp., 859 F.2d 1000, 1002 (1st Cir. 1988)); Grail Semiconductor, Inc. v. Stern, No. 13-03687, 2014 WL 12594162, at *3 (C.D. Cal. Mar. 3, 2014) (dismissing one of the defendant's causes of action in the counterclaim because it did not stem from the same case and controversy as the complaint but finding that there was subject-matter jurisdiction over the remaining causes of action in the counterclaim because they were compulsory). Consequently, "[w]e are bound to consider the 12(b)(1) motion first, since the Rule 12(b)(6) challenge becomes moot if this court lacks subject-matter jurisdiction." Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990).

"A plaintiff must exhaust his administrative remedies, including [Equal Employment Opportunity Commission] procedures, before proceeding under Title VII in federal court." Frederique-Alexandre v. Dep't of Nat. & Envtl. Res. Puerto Rico, 478 F.3d 433, 440 (1st Cir. 2007) (citing Lebrón-Ríos v. U.S. Marshal Serv., 341 F.3d 7, 13 (1st Cir. 2003)). Before a person can bring a complaint alleging a violation of Title VII in federal court, he must first file an administrative charge with the Equal Employment Opportunity Commission (EEOC) within "a specified and relatively short time period, usually 180 or 300 days" of the "alleged unlawful employment practice." Cintron-Garcia v. Supermercados Econo, Inc., 818 F. Supp. 2d 500, 506-07 (D.P.R. 2011) (explaining that in Puerto Rico, an "aggrieved employee has 300 days" to file a charge as opposed to the typical 180 days "in instances where the local Department of Labor is empowered to provide relief, i.e., in instances of deferral jurisdiction" (internal quotations omitted)); 42 U.S.C. § 2000e-5(f). Once the aggrieved employee files a charge, the EEOC will investigate the charge and then issue a right-to-sue letter. Legnani v. Alitalia Linee Aeree Italiane, S.P.A, 274 F.3d 683, 686 (2d Cir. 2001). The right-to-sue letter serves as the plaintiff's key to begin federal court proceedings for a Title VII claim. See Bonilla v. Muebles J.J. Alvarez, Inc., 194 F.3d 275, 278 (1st Cir. 1999) (a failure to file a claim with the EEOC or an authorized State or local agency "bars the courthouse door, as courts long have recognized that Title VII's charge-filing requirement is a prerequisite to the commencement of suit").

Here, Defendants' first claim is for retaliation as prohibited under Title VII. Docket No. 131 at 5. Nevertheless, Defendants do not have a right-to-sue letter from the EEOC and in fact have not alleged that they have even begun the administrative process. See Docket No. 156 at 2 (Defendants state in their opposition to the motion that they do not need to "exhaust administrative remedies because they did not file their 'retaliation charge' with...