Medcenter Holdings Inc v. Web MD Health Corp.

Background

Medcenter Holdings Inc., Medcenter Solutions SA, Med Solutions México, S. de R.L. de C.V., and Medcenter Solutions do Brasil SA sued WebMD Health Corp., Medscape, LLC, and WebMD Global LLC. The plaintiffs alleged that the defendants misappropriated trade secrets and confidential information, harming Medcenter’s business.

According to the First Amended Complaint, Medcenter used a Physician Database containing information about physicians in Latin America and a Salesforce customer-relationship database containing information about pharmaceutical clients, contracts, contacts, employees, and marketing projects. Medcenter and WebMD had previously collaborated, and WebMD Health Corp. later considered acquiring Medcenter’s Latin American subsidiaries. The parties conducted diligence under a March 3, 2014 mutual nondisclosure agreement covering business information, relationships, trade secrets, intellectual property, and other confidential material.

The acquisition discussions ended without an approved transaction. Medcenter alleged that Mariel Aristu, a Medcenter sales director and vice president, obtained access to the Salesforce database, later left Medcenter, and began working for a WebMD entity. Medcenter further alleged that Aristu took confidential information and that the WebMD defendants used information obtained under the nondisclosure agreement to target employees and use Medcenter’s business information. These allegations are described as allegations, not findings that the conduct occurred.

Claims and motion

The First Amended Complaint asserted three claims: (1) trade-secret misappropriation under the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 and related provisions; (2) trade-secret misappropriation under New York common law; and (3) breach of contract against WebMD Health Corp. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

The defendants argued that the trade-secret claims were untimely, that the federal and New York claims could not apply because the alleged misappropriation occurred in Argentina, that the complaint did not adequately allege acquisition or use of trade secrets, and that the contract claim did not adequately allege breach or damages.

Court’s analysis

Timeliness. The court explained that federal and New York trade-secret claims generally have three-year limitations periods. The defendants argued that Medcenter should have discovered the alleged misappropriation when Aristu left in 2016 or when a dispute about her departure arose. Medcenter argued that it did not have enough information to discover the alleged theft until October 2017. The court held that the complaint did not clearly show that Medcenter should have discovered the alleged misappropriation more than three years before filing suit, so dismissal on limitations grounds was not appropriate.

Federal trade-secret law and conduct outside the United States. The defendants argued that the federal Defend Trade Secrets Act did not apply to civil claims involving events in Argentina. The court concluded that the Act can apply to both criminal and civil matters when the statutory conditions for conduct outside the United States are met, including when an act furthering the alleged misappropriation occurred in the United States. The court found the allegations about a meeting in Miami, negotiation of the nondisclosure agreement in New York, and Aristu’s consulting work sufficiently alleged acts in the United States that furthered the alleged misappropriation.

New York trade-secret law. The defendants argued that no relevant act occurred in New York. The court disagreed with the premise that Medcenter alleged only conduct in Argentina and held that Medcenter sufficiently alleged misappropriation from the WebMD defendants’ New York headquarters. The court therefore declined to dismiss the New York trade-secret claim on that ground.

Sufficiency of the trade-secret allegations. The court rejected the argument that Medcenter relied only on speculation. It found that the complaint identified the alleged proprietary materials, described how the WebMD defendants allegedly obtained them through Aristu, and connected the alleged use of the information to the loss of specific accounts and the decline of Medcenter’s business. The court therefore denied dismissal of the federal and New York trade-secret claims on this basis.

Breach of contract. The court treated the alleged contract breach as involving the use of information obtained under the nondisclosure agreement to target Medcenter employees, rather than merely the disclosure of employee identities. Whether the employees were targeted using confidential information or were found through LinkedIn or prior collaboration was a factual question that could not be resolved on a motion to dismiss. The court also found that Medcenter’s allegation that the employee departures contributed to the company’s demise sufficiently alleged damages at this stage.

Disposition

Judge Andrew L. Carter, Jr. denied the WebMD defendants’ motion to dismiss. The order did not determine whether the defendants misappropriated trade secrets, breached the nondisclosure agreement, or caused Medcenter’s alleged losses. It held that Medcenter’s First Amended Complaint stated claims sufficient to avoid dismissal under Rule 12(b)(6).