Purchasing Power, LLC v. Bluestem Brands, Inc.

22 F.Supp.3d 1305

PURCHASING POWER, LLC, Plaintiff

v.BLUESTEM BRANDS, INC., Defendant.

No. 1:12–cv–258–WSD.

United States District Court, N.D. Georgia, Atlanta Division.

Signed May 9, 2014.

Elizabeth Bosquet Shirley, Joseph W. Letzer, Burr & Forman LLP, Birmingham, AL, Ashby K. Fox, Burr & Forman, LLP, Atlanta, GA, for Plaintiff.

Amanda J. Rome, Jeffrey P. Justman, Kerry L. Bundy, Randall E. Kahnke, Faegre Baker Daniels LLP, Minneapolis, MN, Katrina M. Gossett, Baker & Daniels, Indianapolis, IN, Audra Ann Dial, Hillary D. Rightler, Kilpatrick Townsend & Stockton, LLP, Atlanta, GA, for Defendant.

OPINION AND ORDER

WILLIAM S. DUFFEY, JR., District Judge.

This matter is before the Court on Defendant's Motion for Summary Judgment [127] and Plaintiff's Motion for Trial by Jury [155].

I. BACKGROUND

This is a commercial dispute between companies that compete in the business of “payroll deduction” sales. Plaintiff Purchasing Power, LLC (“Plaintiff”) alleges that Defendant Bluestem Brands, Inc. (“Defendant”) misappropriated Plaintiff's trade secrets, violated provisions of a confidentiality agreement between the parties, and engaged in fraud against Plaintiff.

A. Factual Background¹

Defendant is a national retailer whose business largely consists of selling consumer products to low-income and “credit-constrained” customers by allowing purchases to be completed with payments “over time.” (SUMF ¶¶ 3–5.) Purchases are made through mail order catalogs and over the internet. (Id. ) At least as early as March 2010, Defendant began exploring methods to sell more “big ticket” items, priced between $500 and $2,000. (Id. ¶ 19; Resp. SUMF ¶ 19.)

Plaintiff is a retailer that sells “big ticket” consumer products through a “voluntary payroll deduction” program called Purchasing Power. (See SAMF ¶¶ 1–6.) Plaintiff markets Purchasing Power to employers as a benefit to offer to their employees. (See id. ) Under the program, employees may purchase products from Plaintiff and pay for them by having installment payments deducted from their paychecks. (See id. )

In June 2010, one of Defendant's investors informed Defendant's CEO that Plaintiff's business might be for sale and could represent a business opportunity for Defendant. (SUMF ¶¶ 74–77.) Defendant's executives, who were not previously aware of Plaintiff or its Purchasing Power business model, conducted preliminary research on Plaintiff and determined that its “payroll deduction” model could be a way for Defendant to expand into the “big ticket” product purchase market. (Id. ¶ 78.) Defendant's executives expressed their interest in meeting with Plaintiff, and Defendant's investor arranged a telephone meeting between the parties' principals to be conducted July 27, 2010. (Id. ¶¶ 84–85.) During the July 27, 2010, telephone call, the parties exchanged general information about their respective businesses. (Id. ¶ 85.)

The next day, on July 28, 2010, Defendant commenced an internal effort, named “Project Cortes,” to evaluate developing its own “payroll deduction” model for “big ticket” sales. (Id. ¶¶ 108–109.) The Project Cortes team, which included employees with consumer credit experience, began researching a “go-to-market” strategy for a payroll deduction sales program. (Id. ¶¶ 112–113, 115–117.)

In August 2010, Plaintiff and Defendant indicated their mutual interest in pursuing a merger of their businesses, or an acquisition of Plaintiff by Defendant. (Id. ¶ 90.) The parties agreed to enter into a Non–Disclosure Agreement (“NDA”) to govern the exchange of business information during the parties' business combination negotiations. (Id. ) Defendant's in-house counsel drafted the NDA, which the parties entered into on September 1, 2010. (Id. ¶¶ 91, 97.)

The NDA stated that the parties were “engaged in competitive businesses.” (SAMF ¶ 68.) The NDA also provided that Plaintiff would provide “confidential information,” as defined in the NDA, to Defendant to allow Defendant to conduct due diligence in connection with its evaluation of whether to purchase or otherwise invest in Plaintiff. (SAMF ¶¶ 67, 70.) Section 4 of the NDA prohibited Defendant from using any “confidential information” for any purpose other than due diligence. (SAMF ¶ 67.) Section 6 of the NDA required Defendant to allow Plaintiff access to review Defendant's “operations and procedures to ensure compliance” with the NDA's requirements. (SUMF ¶ 100.)

From mid-September to early December 2010, Defendant conducted its evaluation of Plaintiff's business in a project Defendant named “Project Braves.” (Id. ¶ 130.) In September 2010, after the NDA was executed, Defendant separated the Project Braves and Project Cortes teams. (Id. ¶ 123.) The separation was to avoid the communication of information shared with Defendant during business combination negotiations to members of the Project Cortes team. (Id. )² The Project Cortes team continued to develop a payroll deduction product, including by meeting with Defendant's payroll department to understand payroll deduction, researching the applicability of sales taxes, and meeting with benefits brokers to determine an effective broker commission. (Id. ¶¶ 245, 253.)

While Defendant's Project Cortes work was ongoing, Plaintiff's and Defendant's executives met at each other's headquarters on different occasions in connection with their business combination discussions. (Id. ¶¶ 131, 134.) During one of these meetings, an executive of Defendant told Plaintiff's executives that he had never before considered a payroll deduction product like Purchasing Power. (Id. ¶ 133.) Over the course of Defendant's due diligence to consider merger with or acquisition of Plaintiff, Plaintiff disclosed information to Defendant that Plaintiff characterizes as “confidential” under the NDA and a “trade secret” under state law. (See, e.g., SAMF ¶¶ 121–125.)

On December 17, 2010, Defendant made its formal offer to purchase Plaintiff's business. (SUMF ¶ 150.) Plaintiff rejected the offer, and did not make a counteroffer. (Id. ¶ 152.) On January 5, 2011, Plaintiff informed Defendant that it was formally terminating its negotiations with Defendant, and requested Defendant to return or destroy Plaintiff's confidential information as provided by the NDA. (SAMF ¶ 140.) On February 23, 2011, Defendant's in-house counsel advised Plaintiff that Defendant had returned or destroyed Plaintiff's confidential information that was provided. (Id. ¶¶ 141–142.)

During the parties' negotiations, Defendant did not disclose to Plaintiff the Project Cortes work Defendant had commenced to evaluate offering its own payroll deduction product purchase system. (Id. ¶ 219.)

In July 2011, the payroll deduction product Defendant developed was branded by Defendant as “PayCheck Direct.” (SUMF ¶ 259.) In November 2011, Defendant launched a “beta” version of its PayCheck Direct by offering it to Defendant's employees. (Id. ¶ 270.) In May 2012, Defendant, having refined its program during its beta test, began marketing its PayCheck Direct program to outside clients. (Id.¶¶ 272–273.) The final version of PayCheck Direct was in some respects similar to, and in other respects different from, the Purchasing Power program. (See id. ¶ 274; SAMF ¶ 215.) For example, differences between the programs' features included the following:

Feature	PayCheck Direct	Purchasing Power
SKUs	1200 “offers”	775 “offers”
Assumed participation rate	5% to 10%	5%
Assumed loss ratio	8% to 10%	5% to 6%
Average order size	$1,000	$1,300
Spending limit as a percentage of income	3% to 3.5%	6.5% to 7.5%

(SAMF ¶ 215.)³

In November 2011, Plaintiff learned that Defendant's PayCheck Direct product was being offered and responded by demanding to review Defendant's compliance with the NDA, as provided by Section 6 of the NDA. (Id. ¶ 216.) Defendant responded by advising Plaintiff that it had returned or destroyed all of Plaintiff's confidential information. (Id. ¶ 217; SUMF ¶ 276.) It was later discovered that Defendant was, after November 2011, in possession of some of Plaintiff's confidential documents. (SAMF ¶ 223.)⁴

B. Procedural History

1. Pleadings and Motion to Dismiss

On December 21, 2011, Plaintiff filed this action against Defendant in the Superior Court of Fulton County, Georgia. In its Complaint [1–1] (the “Original Complaint”), Plaintiff essentially asserts four (4) claims: (i) violation of the Georgia Trade Secrets Act (Count I); (ii) breach of contract (Count II); (iii) fraud, including both fraudulent misrepresentations and fraudulent omissions (Count IV); (iv) and negligent misrepresentation (Count V).⁵

On January 25, 2012, Defendant removed the action to this Court on the basis of diversity jurisdiction.

On February 2, 2012, Defendant filed a Motion to Dismiss [12] seeking dismissal of Plaintiff's fraud and negligent misrepresentation claims on multiple grounds, including because the claims were not pleaded “with particularity” as required under Rule 9(b) of the Federal Rules of Civil Procedure. In its opposition to the Motion to Dismiss, Plaintiff requested leave to re-plead its fraud and negligent misrepresentation claims “if the Court finds that Plaintiff's allegations ... are insufficient to state a claim for fraud and/or negligent misrepresentation.”⁶ (Pl.'s Opp'n Mot. Dismiss [26] at 22–23.⁷ ) On July 27, 2012, the Court entered an Order [35], 2012 WL 3065419, granting Defendant's Motion to Dismiss on the ground that the fraud and negligent misrepresentation claims failed to satisfy Rule 9(b). In its Order, the Court granted Plaintiff's request to re-plead, allowing Plaintiff “to file an amended complaint within twenty (20) days ... to address the pleading shortcomings identified.” (Order [35] at 18.) The Court did not grant Plaintiff leave to assert any additional claims.

On August 16, 2012, Plaintiff filed its Amended Complaint [39] re-pleading the Original Complaint's fraud and negligent misrepresentation claims. Plaintiff also included in the Amended Complaint, as Counts VI and VII, new claims for...