Physiotherapy Assocs., Inc. v. Ati Holdings, LLC

592 F.Supp.3d 1032

PHYSIOTHERAPY ASSOCIATES, INC., Plaintiff,

v.ATI HOLDINGS, LLC, et al., Defendants.

CIVIL ACTION NO. 2:17-cv-1226-KOB

United States District Court, N.D. Alabama, Southern Division.

Signed March 18, 2022

Hillary Chinigo Campbell, John E. Goodman, Stanley Edward Blackmon, Bradley Arant Boult Cummings LLP, Birmingham, AL, for Plaintiff.

Alan D. Mathis, Matthew A. Barley, Butler Snow LLP, Birmingham, AL, for Defendants.

MEMORANDUM OPINION

KARON OWEN BOWDRE, UNITED STATES DISTRICT JUDGE

"Keep it secret; keep it safe." The wizard Gandalf's brief command leaves little doubt as to the importance of the ring that he entrusts to the hobbit Frodo.¹ Only determination and serious effort will keep an item of value secret. And over Frodo's hazardous journey, readers observe the bravery that he musters, the challenges he endures, and the feats that he achieves to keep the ring secret and keep it safe.

This lawsuit involves secrets of a corporate nature—client lists, financial data, and business expansion plans. But Alabama trade secrets law, like Gandalf's command, requires the holder of such information to keep it secret. Because Plaintiff Physiotherapy Associates did not safeguard its secrets, its trade secrets case now comes to its end.

Physiotherapy claims that Defendant ATI Holdings misappropriated Physiotherapy's trade secrets when one of Physiotherapy's former employees, Doug DeLoach, provided insider information to ATI. Physiotherapy's trade secrets claim arises under the Alabama Trade Secrets Act. (Doc. 46 at 24, Count I); see Ala. Code § 8–27–1 et seq.² Physiotherapy also claims that ATI used the information to intentionally interfere with Physiotherapy's business relations with customers (Count II) and with employees (Count III). Finally, Physiotherapy alleges that ATI's actions in concert with DeLoach constitute a civil conspiracy (Count IV).

This matter comes before the court on ATI's motion for summary judgment, (Docs. 84, 85), and motion to exclude the testimony of Ralph Summerford (Docs. 87, 88). Physiotherapy responded (Docs. 96, 97), and ATI replied (Docs. 99, 100). The motions are ripe for review.

As explained below, the court will grant ATI's motion for summary judgment in its entirety because Physiotherapy failed to exercise reasonable efforts to keep secret the alleged trade secrets, and because the Alabama Trade Secrets Act preempts all other tort claims relying on the same factual bases as trade secrets claims. To reach this conclusion, the court need not address ATI's motion to exclude Summerford's testimony, so the court will find that motion to be moot.

FACTUAL BACKGROUND

Unless otherwise indicated, the parties agree to the following facts.

I. Physiotherapy and ATI in Alabama's Physical Therapy Market

Both Physiotherapy and ATI provide physical therapy services. Physiotherapy has long maintained a significant physical therapy practice in Alabama, receiving referrals from numerous medical practices throughout the state. One of Physiotherapy's key referring practices was Andrews Sports Medicine and Orthopaedic Center, based in Birmingham, Alabama. Andrews did not make referrals exclusively to Physiotherapy, but Andrews was a "significant" referral source for Physiotherapy's business. (Doc. 86 at 6; doc. 96 at 5). Until late 2016, ATI had no presence in Alabama.

Physiotherapy suffered from internal challenges that led it to declare bankruptcy in 2013. Select Medical Corporation, a nationwide physical therapy provider, purchased Physiotherapy out of bankruptcy in March 2016. Physiotherapy continued to operate under the same name, but the ownership transfer to Select Medical harmed Physiotherapy's relationship with the Andrews referring group. (Doc. 86 at 7; doc. 96 at 5). As explained below, the parties disagree as to the precise reasons for and scope of the rift between Andrews and Physiotherapy. (Id. ).

In August 2016, ATI began considering expanding into new physical therapy markets in the South, including Alabama. ATI claims to be the "largest PT provider in the U.S. under one brand." (Doc. 86 at 9). In September 2016, ATI's CEO met with Andrews's CEO to discuss the possibility of ATI opening clinics in Alabama and of Andrews referring patients to ATI.

Around the time of that meeting, Andrews offered ATI key information about the Alabama physical therapy market. This information included potential referral sources from Jacksonville State University and other "high schools and colleges, potential recruiting targets, and potential clinic locations." (Doc. 96 at 8). But the parties dispute the timing and effect of these disclosures in relation to an important memorandum that Doug DeLoach presented to ATI.

By March 2017, ATI had opened its first Alabama clinic in Lincoln, and Andrews was making referrals to ATI.

II. DeLoach and the Memo

Doug DeLoach is a licensed occupational therapist who was employed by Physiotherapy for about three years, until October 2016. His last title at Physiotherapy was Regional Director of the North Alabama Market. As ATI considered expanding into the South in 2016, it reached out to DeLoach and invited him to interview for a position. As part of the interview process, ATI's CEO asked DeLoach to provide a memorandum regarding potential business plans. DeLoach provided this memo on August 25, 2016.

DeLoach's memo contains recommendations for ATI's efforts to expand into the Alabama physical therapy market. (Doc. 85-1). DeLoach captured his recommendations in a list, including names of towns that might be ripe for ATI to expand its business and a brief explanation of why ATI should do so. For example, the memo states:

Cullman, AL has experienced significant community growth over the last 5 years. Very strong ortho. presence, as well as significant referral presence by the Andrews group. Andrews group has plans to open their own facility by end of 2017 and is presently recruiting physicians for this area. [Physiotherapy ] is planning on opening a facility in this area by end of the year, but no lease signed as of yet. Cullman is 25 plus miles from closest [Physiotherapy ] location.

(Doc. 85-1 at 2).

The memo also identifies specific doctors and referral sources with whom DeLoach had a working relationship. For example, the memo states that "Dr. Emblom with the Andrews Group has discussed with me on many occasions around [sic] [Physiotherapy ] opening up a clinic in this area." (Doc. 85-1 at 3). And the memo identifies several schools and communities that ATI could target as long term goals. For example, the memo states that "the gem is the [physical therapy] contract with Hoover and Spain Park School system." (Doc. 85-1 at 4).

At times, the memo ranks the volume of certain referral sources to Physiotherapy ; it reveals that "Dr. Dugas is our top referring MD in the Group ... Dr. Cain is 2nd highest referring MD." (Doc. 85-1 at 4). In all, the memo identifies DeLoach's three highest referring doctors, three highest referring school systems, and "probably one of my strongest EBITDA margin clinics." (Doc. 85-1 at 5).

ATI claims that it "commonly ask[ed] management-level recruits" to produce memoranda of this type, "to see if they were a cultural fit and to gauge their interest and analytical ability." (Doc. 86 at 13). But according to Physiotherapy, the memo constitutes a "full-blown business plan, containing large amounts of confidential Physio information." (Doc. 96 at 10).

Physiotherapy also argues that DeLoach provided other internal information to ATI beyond the memo. For example, Physiotherapy presents evidence that DeLoach shared with ATI the total number of referrals from Andrews to Physiotherapy and the fact that some referring physicians were not satisfied with Physiotherapy under Select's ownership. (Doc. 96 at 15).

After DeLoach gave ATI the memo, ATI offered DeLoach a position as regional director over ATI's practices in Alabama, excluding the region of his prior Physiotherapy market. DeLoach resigned from Physiotherapy, and his first day at ATI was October 31, 2016.

The parties dispute the effect of the information in the memo on ATI's growth in Alabama. ATI presented evidence that it based its expansion into Alabama on conversations with Andrews and a "data-driven intensive process," rather than on the memo. (Doc. 86 at 9). And ATI presents evidence that the memo had nothing to do with Andrews's decision to reduce referrals to Physiotherapy and increase referrals to ATI; rather, Andrews's switch occurred because of Physiotherapy's internal management struggles after the Select takeover and an alienating meeting between the CEOs of Andrews and Physiotherapy. (Doc. 86 at 14). ATI also shows that Physiotherapy experienced declines in referrals long before ATI had a presence in Alabama. (Doc. 86 at 15).

On the other hand, Physiotherapy provides evidence that ATI had little interest in expanding into Alabama until DeLoach presented the memo to ATI. (Doc. 96 at 13). Physiotherapy has shown that the memo precipitated a flurry of activity at ATI, including emails between ATI officers exchanging the memo and incorporating it into a new "blitz" growth plan for Alabama. (Id. at 13–14). Physiotherapy also presents evidence that ATI relied on DeLoach to recruit new referring doctors based on his prior market relationships. (Id. at 15).

The parties also dispute the secrecy of the sources on which DeLoach's memo relies. ATI presents evidence that DeLoach could learn at least some of the memo's information from external sources, including market research, use of client-reporting software programs, and the Andrews group itself. (Doc. 86 at 13).

But Physiotherapy presents evidence that DeLoach derived the memo's information from Physiotherapy's proprietary documents, including internal "referral reports." (Doc. 96 at 16). Physiotherapy states that it housed all the allegedly secret information in its "password protected computer network." (Doc. 96 at 16; doc. 85-16 at 372–73). And...