By Kendall Camuti, Esq.

Holding

The Court granted the Defendants’ motion to dismiss with respect to Plaintiff’s claims for tortious interference with Plaintiff’s prospective economic advantage, unfair competition, and civil conspiracy, but denied the motion with respect to the Plaintiff’s remaining claims.

Memorandum Opinion and Order By: J. Griggsby

Facts

Plaintiff is a federal contractor. Three former employees of Plaintiff (the “Former Employees”) left Plaintiff’s employ and joined a direct competitor of Plaintiff (“Competitor”). Plaintiff filed suit against the Former Employees and Competitor, alleging that the Former Employees breached restrictive covenants by coordinating with Competitor to misappropriate trade secrets and other confidential information and to misuse that information to usurp business from Plaintiff, and that Competitor had engaged in unfair competition by soliciting and hiring the Former Employees, thereby tortiously interfering with the Former Employees’ post-employment obligations. Plaintiff asserted claims for (1) breach of contract against the Former Employees for violating their employment agreements; (2) tortious interference against Competitor for procuring the Former Employees’ breach of their employment agreements; (3) tortious interference with Plaintiff’s prospective economic advantage against all Defendants; (4) breach of fiduciary duty against one Former Employee; (5) misappropriation of trade secrets in violation of the Federal Defend Trade Secrets Act of 2016 against all Defendants; (6) misappropriation of trade secrets in violation of the Maryland Uniform Trade Secrets Act against all Defendants; (7) unfair competition against all Defendants; and (8) civil conspiracy against all Defendants. Defendants filed a motion to dismiss Plaintiff’s complaint for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6).

Analysis

As to Plaintiff’s breach of contract claim, the Former Employees argued that (i) there was not sufficient consideration to support a restrictive covenant in one Former Employee’s employment agreement because he was only employed by Plaintiff for 43 days; and (ii) the restrictive covenants in non-competition agreements between Plaintiff and the other two Former Employees were overly broad and unenforceable. The Court rejected both arguments, holding that, with respect to the first Former Employee, “there is no dispute that [Former Employee] signed an employment agreement in connection with the commencement of his employment that contains certain restrictive covenants…. [However,] there is no bright line rule under Maryland law that [Former Employee] must have been employed for a specific period of time thereafter to enforce these restrictive covenants ….” As to the other two Former Employees, the Court held that “the restrictive covenants … are narrowly tailored, because they are limited to one year … [and] prohibit only the pursuit of prospective customers during 1 year after ending employment…. Given this, the Court does not read these restrictive covenants to be either wider in scope and duration than is reasonably necessary to protect [Plaintiff’s] interest, or to impose an undue hardship on the Former Employees.” Accordingly, the Court denied Defendants’ motion to dismiss with respect to Plaintiff’s breach of contract claims.

As to Plaintiff’s claims for tortious interference with Plaintiff’s contracts with the Former Employees (i.e., the employment agreement and noncompetition agreements discussed above), the Defendants argued that no enforceable contracts existed and, therefore, Plaintiff could not have tortiously interfered with them. Because the Court rejected Defendants’ arguments that those agreements were not enforceable, the Court rejected the Defendants’ argument and denied Defendants’ motion to dismiss with respect to Plaintiff’s claims for tortious interference with contracts.

As to Plaintiff’s claim for breach of fiduciary duty, Defendants argued that Plaintiff failed to allege that the Former Employee diverted business away from the Plaintiff. The Court rejected Plaintiff’s argument, holding that “if [Plaintiff] ‘describes a fiduciary relationship, identifies a breach, and requests a remedy historically recognized by statute, contract, or common law applicable to the specific type of fiduciary relationship and the specific breach is alleged, the Court should permit the count to proceed.’” Accordingly, the Court denied Defendants’ motion to dismiss with respect to Plaintiff’s breach of fiduciary duty claim.

As to Plaintiff’s claims for misappropriation of trade secrets, Defendants argued that the claims should be dismissed based on the theory of “inevitable disclosure”. That theory holds that a plaintiff may prove a claim of trade secret misappropriation by demonstrating that the defendant’s new employment will inevitably lead the employee to rely on the plaintiff’s trade secrets. The Court agreed with the Defendants that Maryland courts have rejected the inevitable disclosure theory but rejected Defendants’ argument, finding that the Plaintiff did not rely on that theory but had instead alleged sufficient facts to support the misappropriation claims. Accordingly, the Court denied Defendants’ motion to dismiss with respect to Plaintiff’s claims for misappropriation of trade secrets.

The Court granted Defendants’ motion to dismiss as to Plaintiff’s tortious interference with prospective economic advantage claim, holding that Plaintiff failed to state a claim because Plaintiff had failed to allege wrongful acts by the Defendants independent of the alleged harm to Plaintiff’s business.

The Court granted Defendants’ motion to dismiss as to Plaintiff’s unfair competition claim, holding that Plaintiff failed to state a claim because Plaintiff had failed to allege damage to Plaintiff caused by fraud, deceit, trickery, or other unfair methods.

The Court granted Defendants’ motion to dismiss as to Plaintiff’s civil conspiracy claim, holding that Plaintiff failed to state a claim because Plaintiff failed to allege any facts showing an agreement among the Defendants to conspire against Plaintiff.

Full opinion HERE | MSBA Business Law Section Blog HERE

Kendall Camuti is a member of the McNees Real Estate and Construction Group, where he counsels clients on a wide range of issues, including real estate sales and development transactions, commercial leasing, mergers and acquisitions, and business planning, as well as general corporate matters.