Medcenter Holdings Inc v. Web MD Health Corp.

Background

The plaintiffs asserted claims under the federal Defend Trade Secrets Act and New York common law for alleged misappropriation of trade secrets. They also asserted a breach-of-contract claim against WebMD Health Corp. based on a March 3, 2014 nondisclosure agreement. According to the allegations described in the opinion, Medcenter operated databases containing detailed information about physicians, pharmaceutical marketing projects, client relationships, and project performance. The plaintiffs alleged that Mariel Aristu, a former Medcenter officer, obtained or provided confidential information to the defendants after joining them, and that the defendants used the information to recruit employees, pursue clients, and take over projects.

The defendants moved for summary judgment under Federal Rule of Civil Procedure 56. Summary judgment is a decision without a trial when the moving party shows that no genuine dispute exists about facts that could affect the outcome and that it is entitled to judgment under the law.

Trade-Secret Claims

The court granted summary judgment on the plaintiffs’ trade-secret claims, finding them barred by the applicable three-year statutes of limitations. For the federal claim, the limitations period began when the alleged misappropriation was discovered or should have been discovered through reasonable diligence. The court explained that actual knowledge was not required.

The defendants relied on September 2016 shareholder-meeting minutes and an October 2016 email referring to Aristu’s alleged use or disclosure of confidential information and information protected by commercial-secrecy laws. The plaintiffs argued that those documents concerned other confidentiality issues and did not show knowledge of the alleged theft of the Physicians Database or Salesforce Database. The court disagreed, finding that the September 2016 materials referred to trade secrets and that a reasonably diligent person would then have been put on notice of potential trade-secret claims against Aristu and WebMD.

The court also rejected the plaintiffs’ reliance on the continuing-tort doctrine. It concluded that the doctrine did not extend the limitations period where the plaintiffs knew or should have known that the information had been disclosed to competitors. The court therefore held that the federal Defend Trade Secrets Act claims were time-barred. The opinion states more broadly that the plaintiffs’ trade-secret claims were dismissed on summary judgment, although its limitations analysis specifically identifies the federal claims.

Breach-of-Contract Claim

The court denied summary judgment on the breach-of-contract claim. The parties did not dispute the existence of the nondisclosure agreement or the plaintiffs’ performance. The disputed issues were whether WebMD breached the agreement by using confidential information obtained during due diligence to recruit key employees or pursue Medcenter’s business, and whether the plaintiffs could prove damages.

The nondisclosure agreement limited WebMD’s use and disclosure of Medcenter’s confidential information to the potential acquisition. The defendants argued that they learned about the employees and business through an earlier collaboration or public sources such as LinkedIn, and that the nondisclosure agreement did not prohibit hiring the employees. The court explained that the plaintiffs were not claiming that the defendants were categorically barred from hiring Medcenter employees. Instead, they claimed that the defendants used confidential information learned during due diligence to target those employees and Medcenter’s business.

The court found a genuine factual dispute about the source and use of the information. It cited evidence that Medcenter allegedly disclosed information about pharmaceutical-client projects, projected revenues, and employee-related case studies during due diligence. A reasonable jury could conclude that the defendants used that information to pursue Medcenter’s customers and recruit employees.

The court also found that damages presented a jury issue. The plaintiffs sought consequential damages based on alleged lost enterprise value, while the defendants argued that the plaintiffs lacked an expert and admissible valuation evidence. The court held that expert testimony was not always required to prove contract damages and that the parties’ disputes about breach and the amount of damages prevented summary judgment.

Disposition

Judge Andrew L. Carter, Jr. ordered that the defendants’ motion for summary judgment was GRANTED in part and DENIED in part. The court granted the motion on the trade-secret claims and denied it on the breach-of-contract claim. The clerk was directed to terminate the defendants’ summary-judgment motion.