Atlantic Medical Specialists, LLC v. Gastroenterology Associates, P.A.

IN TI-[E SUPERIOR COURT OF THE STATE OF DELAWARE

ATLANTIC MEDICAL
SPECIALISTS, LLC, a DelaWare
Limited Liability Cornpany,

Plaintiff,

V. C.A. N0. N15C-06-245 CEB
GASTROENTEROLOGY
ASSOCIATES, P.A., MICHELE
CAMPONELLI, THOMAS SPAHR,
MARK CORSO, M.D., DAVID R.
BESWICK, M.D., IRA F. LOBIS,
M.D. and JOSEPH F. HACKER III,
M.D.,

Defendants.

\_/\_/\_/V\_/V\/\/\/\./\./\./\_/VV\_/V

Submitted: February 13, 2017
Decided: April 20, 2017

MEMORANDUM OPINION
Upon Defendants ’ Motz'ons for Summarjy Judgmenz‘.
GRANTED in Part and DENIED in Part.

Laurence V. Cronin, Esquire, SMITH KATZENSTEIN & JENKINS LLP,
Wilmington, Delaware. Attorney for Plaintiff.

Art C. Aranilla, Esquire, MARSHALL DENNEHEY WARNER COLEMAN &
GOGGIN, Wilmington, Delaware. Attorney for Defendant Michele Camponelli.

C. Scott Reese, Esquire and Christopher H. Lee, Esquire, COOCH AND TAYLOR
P.A., Wilrnington, Delaware. Attorneys for Defendants Gastroenterology
Associates, P.A., Thomas Spahr, Mark Corso, M.D., David R. BeSWick, M.D., Ira
F. Lobis, M.D., and Joseph F. Hacker, III, M.D.

BUTLER, J.

THE PARTIES

The Endoscopy Center of DelaWare (“ECD”) is an “ambulatory surgical
center” (“ASC”) operated near the Christiana Hospital primarily for the purpose of
conducting endoscopic services.1 lt has been in operation for approximately 20
years.2

The ECD Was founded by a medical practice of gastroenterologists that
operates as a corporation called Gastroenterology Associates (GA).3

In 2001, a company based in Kentucky called Amsurg purchased a 51%
stake in the ECD from GA.4 Amsurg has a controlling interest in approximately
260 ASCs nationwide5 The remaining 49% interest in ECD Was retained by the

physicians of GA.6

Dr. Michael Katz (“Katz”) is an anesthesiologist Who formed an

anesthesiology practice called Outpatient Anesthesia Services (“OAS”) in 2002.7

1P1.EX.17at1.
21>1.E><.66@1t9.

3lot at9.

41¢1. at 11.

5P1.EX.2at16.

614 at6-13;P1.EX. 66 at 11.

71>1. EX. 1 at 13.

OAS performed anesthesiology services for a number of medical practice groups,
GA being one of them.8

We Will also be hearing about Atlantic Medical Specialists (“AMS”). When
Katz Was preparing to leave OAS, he created AMS. At all times relevant to this
case, KatZ Was the sole shareholder of AMS. 9

The other major player in this dispute is Diamond Medical Management
Services, LLC (“DMMS”). This group Was founded by doctors at ECD and
includes most of the GA doctors as members The function of DMMS is to
provide medical billing, insurance, payment and related “back office” services to
medical practices -the primary one being GA.10

FACTUAL BACKGROUND
2002 - 2011
Dr. Katz and 3 other anesthesiologists formed OAS.ll Katz Wrote the

business plan.12 The purpose of the business Was to provide anesthesia services to

814 at17-18.

9161. ar 29, 33-34.

10 Pi. EX. 67 at 20; Pi. EX. 10;P1. EX. 68 at13-16.
11P1.EX.1at13.

12 ld. at 15.

ASCs.13 OAS Was successful at obtaining business from several ASCs, including
the ECD.1‘1

OAS made fee reimbursement arrangements With various insurance
companies With Whom it had “participating” relationships15 _ these are called “par”
in the industry.16 These “par” arrangements set the rates at Which the insurance
payer Will compensate the physician for his services. Services performed for
insureds With Which the physician is “non-par” are paid at the “usual and
customary” rate as determined by the insurance company, less any copay, With the
patient left to pay the physician any balance of the bill.17

The specific rate that a physician and insurance company Work out in a “par”

arrangement is considered confidential between the insurance company and the

13 ld. at 14.

14 Id. at 18.

15 1a at 53.

16 Healthcare lnformation Guide, Participating Provl`der Versus Non~Participatz`l/zg (Out-of~
Nel“work) Provider, WWW.healthcare-information-guide.com/participating-nonparticipating.htm
(last visited Feb. 27, 2017).

17 Id. See also Joy Hicks, Par vs. Non-Par Providers.' The Differences Bel‘ween Partl`cl`pal‘ing and

Non-Particlpating Medical Provl`ders, Very Well (Nov. 20, 2016), WWW.veryWell.com/par-vs-
non-par-providers-23 l 71 77.

physician. lndeed, disclosure of a physician’s reimbursement rate is fraught with
legal peril.18

As outsiders might well imagine, medical practices are supported by
accountants, bookkeepers, billing clerks, insurance liaisons, and various other
“bacl< office” assistance. GA created DMMS to support its own back office and,
over time, offered its services to other medical practices.19 The record indicates
that today DMMS is the largest support service to emergency service providers
state wide.20

When OAS obtained its contract to provide services at the ECD, it elected to
contract with Dl\/ll\/IS to provide back office support to OAS.21 DMMS typically
bills its clients a percentage of the practice’s billings.22 Indeed, DMMS billed GA

-the very physicians that founded it - 10% of GA’s monthly billings.23

18 This issue is worthy of its own discussion, but exceeds the scope of this opinion. Terms like
“price fixing” and “collusions in restraint of trade” are enough to intimidate any doctor tempted
to share reimbursement rate information In addition, “par” contracts with insurance companies
typically contain their own confidentiality provisions. For a fuller discussion, see generally
Cristina Olson, Note, Desperate Doctors and Antitrust Laws, 10 Nevada L.J. 811, 813-14 (2010).
See also Frank T. Herdman, Comment, Doctors, Insurers and the Antitrast Laws, 37 Buff. L.
Rev. 789 (1989).

19 Pi. EX. 69 at 19-20.
20 P1. EX. 3 ar 28.

21 Pi. EX. 1 ar 24-25.
22 Id_ atzs.

21 Pi. EX. 3 at 162.

Through his work with OAS, Katz worked at the Endoscopy Center on a
daily basis and he became friendly with the gastroenterologists working there, in

particular with Dr. Joseph Hacker, the president of GA.24

2011-2013

In early 2012, Katz approached Dr. Hacker - who was a member of both GA
and DMMS - and told him that he (Katz) believed that his partners at OAS were
going to remove him as a partner with OAS.25 Katz asked Hacker if Hacker and
GA would consider keeping him at the ECD, where KatZ had developed
relationships with most of the staff.26

Hacker and Katz were personal friends and they discussed several different
employment scenarios, including simply hiring Katz on to GA as a partner or
employee.27 Those conversations ultimately led to Hacker recommending - and
ECD formally terminating - the OAS/ECD service agreement and signing a new

agreement with AMS, which Katz had formed several months earlier.28

24 Pl. EX. 66 at 12, 24, 43, 50.

25 Pl. EX. 1 at 30-33.

26 Pl. EX. 66 at 14;1>1. EX. 68 at 23-24.
21 Katz Aff. 11 2.

28 Pl. EX. 1 ar 29, 37-38;1>1. EX. 70.

The AMS/ECD agreement worked in much the same way as the OAS/ECD
agreement did. KatZ/AMS would draw no income directly from ECD but would
instead derive his/its income from insurance payers that insured clients of the
ECD.29

As had OAS before him, Katz/AMS signed a separate agreement with
DMMS, the billing company, to provide the billing and collection function for the
arrangement between KatZ/AMS and ECD.30 lt is to be noted here that while
DMMS performed billing and collection services for OAS, the predecessor to
AMS, as well as the doctors of GA, there is no evidence that either DMMS or GA
forced AMS to use DMMS for its billing and collection services.31 The
AMS/DMMS agreement contained one provision that looms large in this litigation:
a provision that bound DMMS to keep financial information about AMS
confidential32

The changeover from OAS to AMS was effective officially in May 2012.33

AMS negotiated its own reimbursement “par” rates with some insurance

29 Karz Aff. 11 3; P1. EX. 70 3111 4.
30 P1. EX. 4; Katz Aff. 11 5.
31 Katz Aff. 11 5; P1. EX. 1 3139-41.
32

Pl. Ex. 4 at 11 7(c).

33 Katz Aff. 11 7;1>1. EX. 1 6138.

companies and hired staff to do the anesthesia work. From the record, it appears
that AMS was “par” with Medicare/Medicaid, Highmark Blue Cross/Blue Shield
and Aetna.34 Even months later at the end of 2012, AMS was still “non par” with
all of the other insurers in the area.35

For a number of years, GA doctors had been seeking ways to consolidate
services that were being subcontracted to other services.36 For example,
endoscopy and colonoscopy specimens must be analyzed GA arranged to stop
utilizing an outside lab to study the samples and brought the service in house.37
Likewise, GA began delivering REMICADE, a drug frequently prescribed for their
patients, in house.38

GA physicians had also learned of the growing trend in endoscopy to bring
anesthesia in house and that this approach was being taken by endoscopy practices
elsewhere.39 Indeed, this was one of the options discussed when Katz was seeking

employment in early 2012 when faced with the prospect of his ouster from OAS.40

34 P1. EX. 1 6152.

33 P1. EX. 1 6153; P1. Ex. 3 6145;1>1. EX. 65 6192.

36 P1. EX. 3 6138-39, 43, 52-56, 58-60;1>1. EX. 66 3129; P1. EX. 68 6124.
31 P1. EX. 3 6140;1>1. Ex. 66 6138-40.

31 P1. EX. 68 at 51-53.

39 P1. EX. 2 6167-68; P1. EX. 3 6153-54.

40 Katz Aff. 11 6.

While Katz says by affidavit that this option was declined because GA was not
convinced they could provide anesthesia services profitably,41 GA doctors say the
option was declined because they were still busy standing up the laboratory
practice they had recently taken in house.42

In any event, in August 2012 _ just months after AMS had replaced OAS as
the anesthesia service provider, GA doctors Hacker and Corso attended a national
conference where once again the subject of bringing anesthesia practices in house
was discussed43 In addition, Amsurg, which owned any number of ASC centers,
counseled the GA doctors that this was an approach a number of their other centers
had taken.44

THE NOVEMBER 2012 INQUIRIES OF DMMS

By November 2012, KatZ/AMS had been operating at ECD for

approximately 6 months. According to Plaintiff, even though the fledgling

operation had to wait for insurance payments for services previously rendered to

41 181
42 P1. EX. 66 6138.
43 181 6139.

44 P1. EX. 3 3167.

come in, AMS was beginning to find its profitability.45 But the AMS/ECD
relationship was not without its problems.

One issue that some doctors from GA have testified about arose when they
heard complaints from their “non-par” patients about insurance payments and
anesthesia services.46 The doctors testified that they were concerned enough that
they inquired of their billing arm - DMMS - about how anesthesia services were
being coded and submitted to insurance companies.47 This inquiry, about which
Katz was never informed,48 was quietly dismissed when they were satisfied by
legal advice that Katz’ billing practices were appropriate.49

There are several emails between the doctor directors of Dl\/H\/IS (who are
also partners of GA) and Dl\/ll\/IS staff making inquiry into how anesthesia is billed
and responses from the staff enclosing copies of AMS’ financial information
Whether these requests were benign or filled with tortuous intent is very much at
the center of this dispute. We can safely say, however, that questions were asked

of DMMS and answers were given.

43 Katz Aff. 11 7; Am. Compl. 11 17.

44 P1. EX. 3 6145;1>1. EX. 67 at 49; P1. EX. 68 6164.
41 P1. EX. 3 6147;1>1.13><. 68 at 47-48.

43 Katz Aff. 11 9.

43 P1. EX. 5.

Quite aside from these emailed inquiries of DMMS staff, the record
demonstrates that the GA doctors also sought out consultants and lawyers to advise
them on the feasibility of bringing anesthesia in house, including the preparation of
proforma projections of a consolidated operation.50

January to July, 2013

By January 2013 - about 7 months after AMS began operating - GA
decided it would bring anesthesia in house. Dr. Hacker broke the news to Katz,
telling him that the agreement with AMS and ECD was going to come to an end
but that Katz would be given a substantial employment contract with GA to
continue delivering anesthesia services at the ECD.51

According to Katz’ affidavit, he was “stunned” by the news, but took solace
in Hacker’s assurance that Katz would become a partner at GA52 - an assurance
that Hacker denies ever making.53

The record is quiet as to what happened between January and March of

2013, except for the arrival of Thomas Spahr as the new “practice manager” at GA.

311 P1. EX. 3 at 56-57, 64, 81;1>1. EX. 65 ar 101; P1. EX. 66 3140.
31 Katz Aff. j 8; P1. EX. 66 6148, 50.
52 Katz Aff. il 8.

33 P1. EX. 66 6149.

10

According to Spahr, his first assignment at GA was to develop the planning to
bring anesthesia - and Dr. Katz - in house.54
ln April 2013, the ECD gave AMS “official” 90 day notice of the
termination of the AMS/ECD agreement to be effective on August l, 2013.55
June 2013 - Katz Signs Employment Agreement With GA
Gn June 10, 2013, Katz signed an employment agreement with GA bringing

. . 56
him 1n house.

That contract gave Katz the title of “Medical Director” of the
“Anesthesia Division” of GA at a salary of $425,000 with additional compensation
that began at $50,000 and increased depending on other factors.57 Although it was
drafted to commence on July l, a subsequent amendment made the effective date
October l, 2013.58

During this period, from the time Katz signed the employment agreement in

June until it actually went into effect on October 1, 2013, there is other evidence

supporting the proposition that employees of DMMS, GA and Katz all shared

34 P1. Ex. 69 6121.
33 P1. Ex. 2 6147.
33 P1. Ex. 45.

571d

SSId

ll

information concerning anesthesia insurance contacts and reimbursement rates for
anesthesia services.

Plaintiff directs us to one insurance contract with which AMS was “par” as
demonstrative of GA’s improper use of AMS’ information The record shows that
Thomas Spahr was the GA employee most concerned with arranging the “par”
agreements with the various insurance companies. In his emailed correspondence
with Aetna in July 2013, Spahr was unclear whether the rate being offered by
Aetna was consistent with the rate Aetna had been paying AMS.59 Spahr made
inquiry of both Katz and DMMS whether Aetna’s offer was a good one.60
Although an email response from Katz is in the record,61 KatZ swears that he told
Spahr it was inappropriate to even ask the question.62 Whether Spahr sought a
specific rate from Aetna or simply the same rate that Aetna was giving AMS is one
of those fact issues that is hotly contested but is not “material” to the Court’s ruling
here. Whatever happened, Katz points to this event as direct evidence of GA
exploiting AMS’ “trade secret” information for its own benefit.

Apparently Katz as employee was not nearly as comfortable as Katz as

contract worker for OAS or AMS. The one year employment contract between

33 P1. EX. 30-35.
33 P1. EX. 35; P1. EX. 69 6127-28.
31 P1. EX. 28.

32 Katz Aff. 11 10.
12

Katz and ECD that began on October l, 2013, was terminated by ECD on October
l, 2014, effective January 3l, 2015.
I. PR()CEDURAL HISTORY

AMS filed this lawsuit on June 23, 2015 - about 6 months after Katz was let
go under his contract with the ECD. He filed against GA, the “CEO” of DMMS
Michele Camponelli, and the “practice manager” of GA, Thomas Spahr.

lt is noteworthy who is not in this lawsuit - DMMS. Plaintiffs counsel
candidly advised the Court that the written contract between AMS/Katz and
DMMS includes an arbitration clause. Plaintiff says Ms. Camponelli is not subject
to the arbitration provision of the Dl\/ll\/IS contract because she is sued here in her
“individual capacity.” Thomas Spahr, also named individually as a defendant,
began his employment with GA in March 2013 and thus was not so employed at
the time at least some of this history was being developed. Again, Plaintiff avers
Spahr is also sued in his “individual capacity.”

The Complaint is brought in two counts. The claim in Count l is that the
Defendants misappropriated “trade secrets” consisting of “confidential business
information” that included “financial information about its operations that
demonstrated its profitability.” Count ll is denominated “tortious interference with
contractual relationships.” Specifically, Plaintiff claims that the named defendants,

knowing that DMMS was precluded by contract from sharing AMS’ business

13

information, nonetheless induced DMMS to share its information with GA.
According to Plaintiff, that sharing of tortuously obtained information caused GA
to induce ECD to terminate its contract with AMS.

The complaint was duly answered and discovery commenced. Noteworthy
for these purposes is a motion to compel filed by defendant GA as to certain
interrogatory answers filed by Plaintiff.

Defendants sought information from Plaintiff fleshing out its claim to a
misappropriation of “trade secrets” as well as Katz’ personal tax returns in support
of the claim for damages. Before those issues came up for argument, the
Defendants withdrew their claim for Katz’ personal financial information when
Plaintiff assured Defendants that Katz was not seeking any damages whatsoever,
that Plaintiff AMS was the only damaged party seeking recovery. Defendants
apparently accepted that argument but pressed the “trade secrets” question

ln response to this latter issue, Plaintiff urged that its trade secrets included:
l) the income it received, 2) the rates it negotiated with payers/insurance
companies, 3) the money it actually received from payers and 4) its profit margin
Because discovery was ongoing at that point, the Court was unwilling to foreclose
Plaintiff from making whatever case it could that its “trade secrets” had been

misappropriated But the Court made it clear that the issue whether Plaintiff’ s case

14

was indeed over a “trade secret” was by no means certain and would be further
plumbed after discovery was completed.

ln September 2016, Plaintiff filed its amended its complaint adding
individual defendants Drs. Corso, Beswick, Lobis and Hacker. According to the
amended complaint, each of the newly named individual defendants are/were
owners of both GA and Dl\/ll\/IA. The only “new” allegation predicating this claim
of individual liability is this: “Defendants Camponelli, Spahr, Beswick, Corso,
Lobis and Hacker were personally involved in causing the confidential business
information of AMS to be shared with GA without the consent of AMS.”

After additional discovery, the Court has been presented with: 1) a motion
for judgment on the pleadings as to the newly named defendants Corso, Beswick,
Lobis and Hacker,63 2) an expansive motion for summary judgment filed by the
GA defendants, and 3) a separate motion for summary judgment filed by
Defendant Camponelli. Permission to file expanded briefs was requested and
granted. Each of these motions have been duly answered by the Plaintiff and reply
briefs have been filed. ln addition, the Court had the benefit of extended oral

argument on the motions on February 13, 2017.

63 This motion for judgment on the pleadings will be addressed by a separate opinion being
issued today.

15

What follows is the Court’s ruling on the motion for summary judgment of

the GA defendants and the separate motion of defendant Michele Camponelli.
II. STANDARD OF REVIEW

Pursuant to Superior Court Rule 56, summary judgment “shall be rendered
forthwith if. .. there is no genuine issue as to any material fact, and that the moving
party is entitled to a judgment as a matter of law.”

Plaintiff bears the burden of proving the existence and misappropriation of a
trade secret.64 When a motion for summary judgment is supported by a showing
that there are no material issues of fact, the burden shifts to a non-moving party to
demonstrate that there exist genuine issues of material fact.65 If Plaintiff fails to
meet this burden, this Court's inquiry ends and judgment must be entered for
defendants66 “Specifically, under DUTSA, the plaintiff affirmatively must prove
the following: first, that a trade secret exists, i.e., that the statutory elements_
commercial utility or value arising from secrecy and reasonable steps to maintain
secrecy_have been shown; second, that the plaintiff communicated the trade
secret; third, that such communication was made pursuant to an express or implied

understanding that the secrecy of the matter would be respected; and fourth, that

64 Wayman Fl`re Prot., Inc. v. Prernium Fire & Sec., LLC, 2014 WL 897223, at *18 (Del. Ch.
Mar. 5, 2014).

65 Moore v. Sizemore, 405 A.2d 679 (Del. 1979).

33 Miles 1116 v. Cookson Amenca, lnc., 1994 WL 676761 (Del. Ch. Nov. 15, 1994).

16

the trade secret has been used or disclosed improperly to the plaintiffs

- 67
detriment.”

III. ANALYSIS

A. BRIEF HISTORY OF DUTSA

Count l of the Amended Complaint seeks damages for misappropriation of a
“trade secret” and so the first question deserving our attention is whether the
information in dispute here is one.

ln the first half of the 20th century, the business community was concerned
that business competition could be hampered by exposing innovation and capital to
harmful lawsuits. At the same time, some businesses were being victimized by
predatory competitors that engaged in unfair practices, including hiring away key
personnel who brought the former employer’s confidential business information
with them. While our early history surely favored competition and open markets
over complaints of sharp practices, the law needed to evolve to repudiate a class of
competitive behavior that crossed the line.

We will begin our review of the developing law of trade secrets with the
First Restatement of Torts. Like other Restatements, it represented a broad
overview of the state of the law as practiced in state courts across the country at the

time of its publication (1939). Section § 757 of the Restatement directed the

31 Wayman, 2014 WL 897223 61*13 (Del. Ch. Mar. 5, 2014).

17

practitioner to factors that might trigger liability if one disclosed or used the trade
secret of another. But rather than defining a trade secret specifically, the

Restatement settled for a discussion of what one might be, in comment (b):

lt differs from other secret information in a business (see § 759) in
that it is not simply information as to single or ephemeral events in the
conduct of the business... A trade secret is a process or device for
continuous use in the operation of the business. Generally it relates to
the production of goods, as, for example, a machine or formula for the
production of an article. lt may, however, relate to the sale of goods or
to other operations in the business, such as a code for determining
discounts, rebates or other concessions in a price list or catalogue, or a
list of Specialized customers, or a method of bookkeeping or other
office management68

This somewhat amorphous “definition” was distinguished from a different
class of misappropriation of business information Restatement section 759
recognized liability for “Procuring lnformation by lmproper l\/leans,” which
involved, as its name implies, procurement of “information about another’s
business” by improper means for the “purpose of advancing a rival business
interest.”69 This was, in essence, a category of confidential business information
that was not a trade secret. As we shall see, its absence in the codified law, or in

any subsequent Restatement, is sorely missed.

68 Restatement (First) of Torts § 757.

39 Id. § 759.

18

Aside from the difficulties in defining exactly what a trade secret is, federal
law was evolving as well. States were consolidating their courts of law and equity,
broadening the scope of available remedies ln addition, the Supreme Court’s
Erie70 decision that “there is no federal common law” with its direction to federal
courts in diversity cases to follow the common law of the forum states left many in
the bar concerned with how a common law of “business torts” would develop.

Meanwhile, states were beginning to pass their own trade secrets protection
and deceptive trade practice laws,71 but there was no effort to coordinate the
statutes across state lines, leaving business and employees with differing and
potentially conflicting duties and remedies among the states.

ln 1964, the Supreme Court issued its “Sears/Compco” decisions72
invalidating lllinois’ unfair competition laws because they conflicted with federal
patent law. So to the extent businesses were hoping for a “federal common law” of
unfair trade practices, their hopes were dashed by Erie. To the extent they were

hoping for a developing state law barring unfair competitive practices, their hopes

19 Ene R. Co. v. Tompkms, 304 U.s. 64 (1938).

71 See generally Jack E. Karns, State Regulation of Deceptive Trade Pracn'ces Under “Little FTC
Acts”.' Should Federal Standards Control?, 94 Dick. L. Rev. 373, 373 (1990); Sharon K.
Sandeen, The Evolutz`on of T rade Secret Law and Why Courts Commit Error When They D0 Not
Follow the Uniform Trade Secrets Act, 33 Hamline L. Rev. 493, 507 (2010).

72 Sears Roebuck & Co. v. Stijj‘el Co., 376 U.S. 225 (1964); Compco Corp v. Day-Bright
Lighting, Inc., 376 U.S. 234 (1964).

19

were dashed by Sears/Compco. lt has been called the “Erie/Sears/Compco
Squeeze”: “the very entities that were charged with developing unfair competition
law - state courts and legislatures - were prevented by principles of federal
preemption from adopting state laws that interfered with federal patent policies.”73

Whether it was the “squeeze” of Supreme Court jurisprudence, the press of
other business, or simply difficult work by the American Bar Association’s Patent,
Trademark and Copyright Committee, the effort to produce a uniform trade secrets
law that began in 1968 did not yield a Uniform Trade Secrets Act (“UTSA”) until
1979.74 While we must discuss its details presently, two overall features are worth
mentioning at the outset.

First, UTSA regulates the misappropriation of “trade secrets” and makes a
strong effort to define what a trade secret is. Unlike the Restatement of Torts
(First), there is no provision for business information that is confidential but does

>>75

not meet the definition of a “trade secret. Second, in order to promote the

desired uniformity and predictability across the states, UTSA contains an important

73 Sandeen, supra note 71, at 507.

74 The Uniform Trade Secrets Act has now been passed in 47 states. See Uniform Law
Commission, www.uniformlaws.org (Last visited March 10, 2017). Delaware passed its version
in 1982. 63 Del. Laws, c. 218. Because Delaware’s version is in pari materia with the
provisions promulgated in the UTSA, at least as to this dispute, they may be referenced
interchangeably as “UTSA” or “DUTSA.”

75 See Restatement (First) of Torts § 759.

20

“displacement” provision that requires that all claims falling within its somewhat
amorphous terms be preempted in favor of disposition under the Act.76

But lest we get ahead of ourselves, an examination of the term “trade secret”
is clearly our first order of business.

B. IS THE SUBJECT MATTER OF THE LAWSUIT A TRADE
SECRET?

Under DUTSA, a “trade secret” is defined as follows:

“Trade secret” shall mean information, including a formula, pattern,
compilation, program, device, method, technique or process, that:

a. Derives independent economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and

b. ls the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.77

1. Was The Information “Known or Readily Ascertainable by
Proper Means?”

ln this dispute, Plaintiff claims misappropriation of its “trade secrets” with
respect to two categories of information: 1) its profitability, and 2) its

. . . 73
I`€ll'l'lbul'S€l'I]€Il'[ I`at€S fI`OI'l'l IHSUI`aI'lC€ COmpaI'll€S.

13 6 Del. C. § 2007.
77
6 Del. C. § 2001.
78 We recognize that this is a somewhat truncated version of Plaintiff’ s alleged trade secrets, see
supra pp. 13-15. But Plaintiff` s complaints as to the income it received, the money it actually

received from payers and its profit margin are but different versions of the same issue: its
profitability.

21

a. Was information concerning AMS’ profitability known or
readily ascertainable?

Plaintiff claims that Defendants obtained information concerning its
profitability by ordering employees of DMMS, a company controlled by
Defendants, to deliver it up. For purposes of this motion, we must assume this to
be true. But while that may describe how Defendants learned the information, it
begs the question whether the information they learned was also “known or readily
ascertainable through other means.”

The movement of anesthesia services “in house” at ASCs generally is not
news, or secret.79 There is testimony in this record that GA doctors had been
considering bringing anesthesia services in house for some time before November
2012.80 There is further testimony that in considering the question, they consulted
practice specialists, attorneys and accountants who created pro forma financial
information to project revenue and profit from an in house anesthesia practice.81
There is no evidence that any of this data was generated by using revenue or

expense data from the books of AMS.

79 See, e.g., Pl. Ex. 67 at 54 (“there’s articles in the New York Times, JAMA, Journal of the
American Medical Association, regarding anesthesia costs for Gl endoscopy”).

39 E,g., P1. Ex. 2 6167-68; P1. Ex. 3 3153-54.

31P1.Ex. 3 3156-57,64, 81;1>1. Ex. 65 61101;1>1.13><.66 6140.

22

Plaintiff urges that while bringing the service in house may have been a
topic of general conversation, Defendants had hitherto not done so because they
were not impressed that doing so would be profitable.82 Whether that is a correct
history or not, it again begs the question: was the idea that ambulatory surgery
centers bringing anesthesia services in house was profitable for the owners of the
ASC information that was self-evident or at least readily ascertainable? Even if we
accept the proposition that “cutting out the middleman” and employing an
anesthesiologist in house would be profitable was not “self evident,” the Court
cannot agree that figuring this out was not a conclusion “readily ascertainable”
upon even the most basic analysis.

For example, information is not “misappropriated” when it is “readily

”83 Here, there is record testimony that Dr.

ascertainable” by “reverse engineering
Beswick did exactly that. Knowing that the ECD serviced approximately 10,000
patients per year and, using the “explanation of benefits” from his own procedure

that included both the fee charged by the anesthesiology service and what the

insurance company paid, he was able to determine a gross revenue number for the

32 Katz Aff. 11 6.

83 Uniform Trade Secrets Act, § 1, Comments (1979)(“Proper means include: (1) discovery by
independent invention; (2) discovery by reverse engineering; (3) discovery pursuant to a license
from the owner of the trade secret; (4) observation of the item in public use or on public display;
and (5) obtaining the alleged trade secret from the published literature”)(emphasis added).

23

practice annually.84 lf a doctor can figure out the numbers from his own
colonoscopy on the back of a napkin, it cannot rightly be considered a trade secret.

b. Was the reimbursement rate from insurance companies
known or readily ascertainable?

The information concerning reimbursement rates stands on substantially
different footing from the issue of profitability generally. We understand that
individual physicians and practices must negotiate their reimbursement rates with
insurance company payers separately from others.85

On the other hand, the federal government maintains an open website
through which anyone can learn the reimbursement rates for procedures covered by
l\/ledicare.86 We also understand that doctors seeking a “par” relationship with an
insurer may use the published Medicare reimbursement rate as one measure of the
value of the service.87

All of this helps us understand that while an outsider could obtain some idea

of a reimbursement rate by consulting readily available and “trade” sources, the

34 P1. Ex. 67 6161-63, 102-04; P1. Ex. 50.

85 See Olson, supra note 18, at 813-14. See also Herdman, supra note 18, at 790.

86 Centers for Medicare & Medicaid Services, Physician Fee Schedule,
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/index.

html (Last visited March 20, 2017).

31 See P1. Ex. 69 6130, 66.

24

outsider could not learn the specific reimbursement rate between a specific insurer
and a specific doctor.

2. Did the Information Have Independent Economic Value
Because it Was Secret?

a. Profitability

The second requirement for a trade secret under the Code is that the
information concerning AMS’ profitability and reimbursement rates have
“independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use.”88

We can think of this requirement as one that the “secret” - for example in
this case, the profitability of the anesthesia business at the ECD _ have
independent economic value because it is a secret. lt strikes us that profitability in
a publicly traded company is not only not a secret, its profitability must be made
known in public filings available for all the world to see.

Let us assume that an entrepreneur, say, a doctor starting an anesthesia
business, comes up with an idea to create an enterprise from which he derives great
profit. Does the fact that he keeps the profitability a secret give the profitability

“independent economic value?” The Court must answer this question in the

negative. A business is either profitable or it is not. The Trade Secrets Act seeks

33 6 Del. C. § 2001 (4)6.
25

to protect those ideas, information, processes, etc. that gives the enterprise
profitability, not the fact that it is profitable. The fact that the enterprise is
profitable has no independent economic value. We have been directed to no case
that found profit or loss, standing alone, to qualify as a “trade secret.”

Even in Plaintiff s most sinister view of the meddling into its profitability,
Plaintiff points to no evidence that GA used any specific information about
profitability in its deliberations After all, AMS had only been in business a few
months and GA’s cost structure would have been substantially different. About the
most damaging thing Plaintiff can say is that GA looked at AMS’ numbers, saw
that it was profitable, and decided to move forward bringing anesthesia in house.
This accusation lacks all of the typical hallmarks of a trade secret, i.e., new
marketing plans, chemical formulas, client lists, and other materials developed by a
business only after the extension of considerable effort. The trade secret law seeks
to protect that investment in the business, the ideas, the effort and time spent by the
business in developing it.

lf the profitability of AMS were coupled with other elements belonging to
AMS depicting new business plans, pro formas, etc., Plaintiff might have a
stronger argument. Under the facts in this record, the Court is not satisfied that
mere profitability, standing alone, has “independent economic value” because it is

kept a secret.

26

b. Reimbursement rate

Plaintiff returns us to its argument that GA attempted to leverage AMS’
reimbursement rate with Aetna in its negotiations with Aetna over GA’s
reimbursement rate with the nature in house anesthesia practice. The difficulty
with this position is that assuming it happened just that way, Plaintiff does not
advance his argument that the rate had independent economic value because it was
a secret.

Despite the legal peril of attempting to leverage one doctor’s reimbursement
rate in order to obtain that rate for oneself, Plaintiff has at least attempted to argue
that Defendants did just that. But the record testimony is not quite there.
Defendant Spahr testified that in negotiating with Aetna, he asked Aetna to
reimburse GA at the same rate they had reimbursed AMS _ without identifying a
specific rate.89

We can readily suppose that Plaintiff would argue that seeking AMS’ rate
must presuppose knowing AMS’ rate, otherwise why ask for it, and therefore GA
was in fact leveraging AMS’ rate, albeit not in so many words The Court,
however, sees a fundamental difference in the two approaches Asking for the

same rate your predecessor had only “leverages” that rate in the abstract, like the

89 Pl. Ex. 69 at 64; Pl. Ex. 32 (email chain in which Spahr asks Aetna to give GA the same rates
it extended to AMS); Pl. Ex. 35 (Aetna agreeing to pay “the current rates from” AMS).

27

idea of “profitability.” lt is AMS’ specific reimbursement rate that even arguably
qualifies for trade secret protection, not the fact that it got some rate generally.

Finally, and by no means essential to our holding, it is difficult to sustain the
position that one party to a bilateral contract (AMS) winds up with a “trade secret”
(the reimbursement rate) when the other party (the insurance company) is fully
aware of the reimbursement rate and has no constraint on broadcasting it to the
World ifit chose 16 do 56.93

The Court raised this question with counsel during oral argument. We were
directed to Ea’ix Media Group, Inc. v. Mahani,91 for the proposition that even a
bilateral contract could contain trade secrets This case is instructive and worth
considering

Edix involved malicious conduct by a disgruntled former employee of an
automotive magazine who, inter alia, revealed to all of a magazine’s advertisers
the rates that all of the other advertisers actually paid the magazine (as opposed to
the “rate card” the magazine quoted to potential advertisers). The Chancery Court

held that the employee had misappropriated “trade secrets” and assessed damages

90 See generally Conn. Podiatric Medical Ass ’n v. Health Net of Conn., Inc., 2006 WL 437548 at
*2 (Conn Super. Feb. 1, 2006)(in refusing to grant trade secret status to reimbursement rates,
court notes they are bilateral contracts between providers and insurance companies).

91 2006 WL 3742595 (Dei. Ch. Dec. 12, 2006).

28

There are important distinctions here. The “secret” with independent
economic value in Edix was the magazine’s deviations from its published rate,
which “helps them to enforce the rate card with respect to other firms.”92 That
secret belonged to Edix. lt was the product of Edix’s efforts The discounted rate
paid by the discounted advertiser had no “independent economic value” to the
discounted advertiser, whose rate was whatever discount it was able to negotiate
individually. So while the magazine, as the holder of the trade secret, had rights
against its former employee, the case says nothing whatever as to the advertiser’s
right to claim trade secret protection for the secret rate negotiated between the
magazine and the advertiser. The rate the advertiser paid was simply the result of a
negotiation with the magazine, it had no independent economic value to the
advertiser derived by reason of any secrecy.

Plaintiff here is the advertiser, not the magazine in the Edix example The
insurance company may have a protectable trade secret interest in the
reimbursement rates it pays physicians, but it does not follow that the physician
likewise has one. While Edix may suggest that the rate in a bilateral contract may
be accorded trade secret protection, we think that is too broad a reading: trade

secret protection belongs to the party that meets all of the criteria of the trade secret

92 Id. at *6.
29

definition; there is no “derivative” trade secret protection Plaintiff' s reliance on
Edix is not well taken.

This discussion demonstrates that Plaintist claim to trade secret protection
for business profitability and specific reimbursement rates from insurance
companies fail an important test.

3. Did Plaintiff Undertake Reasonable Efforts to Keep His
Information Secret?

The third area of inquiry in a “trade secret” claim is whether the holder of
the secrets undertook “efforts that are reasonable under the circumstances to
maintain its secrecy.”93

ln order to meet its burden with respect to this element, Plaintiff points to the
AMS/DMMS contract that contains a “Confidentiality of Records” provision94
The provision calls upon DMMS to hold the financial records developed as part of
its billing service for AMS in confidence and for the benefit of AMS. lt calls upon
DMMS to undertake “reasonable commercial safeguards” to preserve the financial
information it gathers concerning Al\/lS.95

But the Dl\/H\/IS confidentiality provision is the singular piece of evidence of

“reasonable effort” to which Plaintiff points Arrayed against it is any number of

93 6 Del C. § 2001(4)15.
94 P1. Ex. 4 11 7(6).
95 ld-

30

efforts NOT undertaken and indeed, quite a few that can only be called risky and
dangerous

F or example, Plaintiff affirmatively alleges that Katz was acutely aware that
GA was considering bringing anesthesia services in house in early 2012 when
AMS was created by Katz to perform contract services for GA.96 And Plaintiff
concedes that Katz was fully aware that DMMS was controlled by officers of GA -
the very group that considered hiring Katz directly.97 As noted previously, AMS
could easily have selected a different bookkeeping service in order to avoid any
possibility of GA inspecting its revenue. lnstead, it signed up with an organization
that was privileged to inspect its books, and now seeks confirmation that the
decision was commercially reasonable.

The AMS/DMMS contract called upon AMS to pay 12.2% of its revenues as
service fee for Dl\/ll\/IS’ bookkeeping function98 Plaintiff knew that DMMS would
be keeping track of its revenues and profits, and also knew that the management of
Dl\/H\/IS was entitled to review its revenues to ensure that DMMS was getting its
proper fees So not only did Plaintiff hire a bookkeeping company that was in a

conflicted position - a position he now faults defendants for - Plaintiff also knew

%szAnj6.
91szAnjw;m;Ba1m4445

93P1.E><.4115(a).

31

when it signed the agreement that DMMS would be looking at the very
information Plaintiff now wants to call a trade secret.

Katz knew that DMMS employees were moving in and out of the
organization He had an office in the Dl\/H\/lS offices99 He did nothing to remind
new DMMS employees of the confidentiality provision Katz issued no memos,
emails or reminders. No defendant deposed in this case could even testify to any
specific recollection of the confidentiality provision100 lf the DMMS/AMS
contract was signed and stuffed into a drawer somewhere, it would not have drawn
any less attention

All of this gives Katz reason enough to complain about DMMS. But
Plaintiff’ s burden here is not to show a breach of contract by DMMS ~ a claim not
before the Court - but rather to show that Plaintiff undertook commercially
reasonable efforts to protect secrecy. ln the Court’s view, it is simply insufficient
to say “it wasn’t my job, l asked DMMS to do it.”lOl

Finally, it was in July 2013 that more detailed information concerning AMS’

77

reimbursements with “par insurance companies was shared with GA

99 P1. Ex. 1 6160.
133 see P1. Ex. 3 at 85-88; P1. Ex. 66 6152-53;1>1. Ex. 67 6143-45; P1. Ex. 68 6139-40
101 See generally Wayman, 2014 WL at *15 (finding insufficient efforts where former employer

merely password protected a contact list; employer’s reference to employee handbook was to no
avail where no evidence employee ever read it).

32

management ln the Court’s view, Katz’ employment agreement, signed in June
2013 and his cooperation with GA in its efforts to get “par” agreements with
insurance companies demonstrated his abandonment of AMS in favor of the
employment agreement with GA. lf he said nothing in November 2012 when
DMMS directors inquired about AMS’ revenues, perhaps he can be forgiven
because he did not know it happened. But in July 2013, after he had signed a
lucrative employment contract with GA, he was quite aware that GA staff was

2 He continued to remain quiet. Katz

inquiring about AMS’ revenue figures10
clearly had stopped undertaking any reasonable efforts to maintain the secrecy of
financial data of AMS within the meaning of the trade secrets law.

Because the Court finds that Plaintiff’s claims of trade secret protection fall
short of the mandatory definitions on multiple fronts, the Court cannot permit
Count l to proceed to a jury as the Court finds that Plaintiff’s claims are not over
trade secrets Count l must fail as a matter of law.

IV. PREEMPTION UNDER DUTSA

The second count of Plaintiff” s complaint alleges tortuous interference with

contract. The substance of the allegation is that because GA “tortuously

interfered” with the AMS/DMMS contract (by inducing Dl\/IMS employees to

divulge confidential business information), that caused the ECD to terminate

132 see P1. Ex. 65 6177, 78, 81; P1. Ex. 69 6127-28, 41-43, 55-56.
33

(lawfully) its contract with AMS. Before Count ll can proceed to trial, we must
consider the effect of section 7 of DUTSA.

A. DUTSA DISPLACEMENT

Section 7 of UTSA, found in our Code at 6 Del. C. 2007, provides that:

(a) Except as provided in subsection (b) of this section, this chapter
displaces conflicting tort, restitutionary and other law of this State
providing civil remedies for misappropriation of a trade secret.

(b) This chapter does not affect:

(1) Contractual remedies, whether or not based upon
misappropriation of a trade secret;

(2) Other civil remedies that are not based upon misappropriation
of a trade secret; or

(3) Criminal remedies, whether or not based upon
misappropriation of a trade secret.103

This “displacement” provision is remarkable in many respects and has

generated more than a little controversy in states that have adopted it.104 Our
holding that Plaintiff’ s claim is not a “trade secret” puts this dispute in the center of
the debate.

We pause momentarily to recall that Restatement (First) of Torts did protect

non-trade secret information and the drafters of UTSA were well aware that UTSA

fails to do so. The issue appeared many times in the 10 years UTSA was under

133 6 Del. C. § 2007.

104 See, e.g., Warrington S. Parker, lll & Daniel D. Justice, The Differing Approaches to
Preemption under the Uniform Trade Secrets Act, 49 Tort Trial & lns. Prac. L.J. 645 (2014).

34

consideration by the NCCUSL, “like a bad penny.”105 And yet, the final draft
simply left non-trade secret confidential information out of the statute. Neither
DUTSA nor UTSA make an effort to protect non-trade secret confidential business
information While some believe this to be a failing of the trade secrets law,106 it is
difficult to argue that the drafters simply forgot about it. A more compelling
argument can be made that the drafters concluded that non-trade secret confidential
business information should not receive legal protection

The debate over the scope of the displacement/preemption provision of
section 7 has given rise to differing “forms of analysis” and a split among the
courts as to its meaning.107

The so called “minority view” holds that suits concerning confidential
business information that are found not to be trade secrets are free to proceed on
whatever state tort law claim the plaintiff can make out. The argument goes that

the Code only “displaces...civil remedies for misappropriation of a trade secret”

and, since the Court has ruled that the information was not a trade secret, the

105 Sandeen, supra note 71, at 528.

106 Indeed, some have argued that the “fundamental ambiguity” of section 7 can only be
remedied by amendment to the statute. See generally John T. Cross, UTSA Displacement of
Uther State Law Claims, 33 Hamline L. Rev. 445, 481 (2010).

107 See also Parker, Justice, supra note 104, at 648.

35

UTSA displaces nothing.108 lndeed, Plaintiff in this case argues that since
“tortuous interference with contract” contains a different “element” from
misappropriation of trade secrets, it is not simply a rephrased trade secrets claim.109

Critics of the minority view point out that “[u]nder this logic, the UTSA is
more or less superfluous, because the plaintiff can still pursue a state law
intellectual property tort claim over the same information regardless of whether the
information is a trade secret.”110 Clearly the displacement/preemption provision in
section 7 of UTSA was put there for a reason Our duty is to give effect to the
laws as passed by our legislature.

The “majority view” of section 7 displacement holds that non-trade secret
information is not a protectable class of information and therefore common law

1

claims that seek to protect it are preempted11 Under this line of reasoning, any

claim of misappropriation of business information must be preempted by UTSA,

108 E.g., Burbank Grease Services, LLC v. Sokolowski, 717 N.W. 2d 781 (Wisc. 2006); Custom
Teleconnect v. Int’l Tele-Services, 254 F.Supp. 2d 1173 (D. Nev. 2003); Powell Prods, lnc. v.
Mawrks, 948 F.Supp. 1468, 1474 (D. Colo. 1996).

109 The so called “elements test” is indeed employed by some courts See discussion and
citiations in BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 235 P.2d 310, 320-21 (2010).

110 See Charles Tait Graves, Elizabeth Tippett, UTSA Preemption and the Public Domain.' How
Courts Have Overlooked Patent Preemption of State Law Claims Alleging Employee
Wrongdoing, 65 Rutgers L. Rev. 59, 83 (2012).

111 See Richard F. Dole, Jr., Preemption of Other State Law by the Uniform Trade Secrets Act, 17
SMU Sci & Tech. L. Rev. 95 (2014)(describing the “majority view”); See also Hauck Mfg. v.
Astec Indus., 375 F. Supp. 2d 649, 656 (E.D. Tenn. 2004); Bliss Cleaning Niagara, Inc. v.
Midwest Brake Bond Co., 270 F. Supp. 2d 943, 948 (W.D. l\/lich. 2003).

36

otherwise the purposes of UTSA (to create uniformity, predictability and clarity
among the states) would be subverted112 lt must be conceded that the majority
view may produce results that appear harsh, but as we will discuss, the effects may
be softened considerably by careful management of the information

B. DELAWARE DECISIONS ON DISPLACEMENT

The Delaware Supreme Court has spoken on the subj ect. Savor, lnc. v. FMR
Corp. was a case brought by an “idea submitter” who pitched a concept to a
manager at Fidelity lnvestment Corp. to create interest in a program where
consumers would spin off rebates through which they could fund their State

113 When Savor learned that a manager at Fidelity had left

Qualified Tuition Plans.
the company and founded UPromise, a company that offered a product identical to
the one Savor had pitched to Fidelity, and that Fidelity would manage the program,
Savor sued both UPromise and Fidelity. The claims were 1) misappropriation of a
trade secret, 2) civil conspiracy, and 3) unfair competition

On a motion to dismiss the complaint, the trial court held that Savor’s

business idea did not meet the statutory definition of “trade secret” and therefore

the trade secret claim was dismissed lt further held that the unfair competition and

112 see Ftrermce USA, LLC v. Jesclard, 800 F.supp. 2d 1042, 1048 (D. Ariz. 2010) citing Mong.
Specialists, Inc. v. Davey, 904 A.2d 652, 683 (N.H. 2006). See also Parker, Justice, supra note
104, 61648.

113 812 A.2d 894 (Del. 2002).

37

civil conspiracy claims must be dismissed due to the displacement provision of
section 7 of UTSA.114

When the Savor case went to the Delaware Supreme Court, the Court
reversed the trial judge’s dismissal because it found that “the Complaint adequately

73115

states a misappropriation of trade secrets claim. But as to Savor’s argument

that its common law tort claims should be revived because they had been dismissed

116 the Supreme Court, relying on Section 7 of DUTSA,

so early in the litigation,
said, “Savor’s common law claims seek civil remedies based solely on the alleged
misappropriation of a trade secret. Thus, the Superior Court correctly ruled that
Savor’s common law claims are precluded.”117

Plaintiff in this case asks us to ignore Savor, urging, in essence, that the

Supreme Court has done so. This argument is predicated on the Supreme Court’s

114 6 Del. C. § 2007. The trial court cited the U.S. District Court’s opinion in Leucadia, Inc. v.
Applied Extrusion Technologies, Inc., 755 F.Supp. 635 (D. Del. 1991), in support of its dismissal
of the collateral tort claims ln Leucadia, the District Court precluded common law unfair
competition claims that were “based on the same factual allegations” that supported the
misappropriation of trade secrets claim.

113 savor, 812 A.2d at 897.

116 For a discussion of whether preemption issues can be decided on a motion to dismiss or
should await summary judgment, see Parker, Justice, supra note 104.

111 savor, 812 A.2d 61898.

38

treatment of the issue in ASDI, Inc. v. Beard Research, 1nc.118 The Court believes
Plaintiff’ s argument is overstated

ASDI, Inc. v. Beard Research, Inc. rested on a Chancery Court case that
went to trial.119 ln its post-trial opinion, the Court of Chancery dealt with a host of
issues. One part of that opinion decided that the plaintiffs breach of fiduciary
duties claim was not preempted by a DUTSA claim because a breach of fiduciary
case may be made out even if the business information is not a trade secret.120 That
decision was affirmed on appeal, but without discussion of the Chancery Court’s
1

holding with respect to section 7’s preemption provision 12

C. HARMONIZING DELAWARE’S RESPONSE
TO DISPLACEMENT

The Court is not convinced that ASDI Research overruled Savor. lf we look
at the two cases from the perspective of the duties owed by the defendants, the
defendant in ASDI was a fiduciary. ln Savor, it was a mere business contact.
Moreover, the nature of the claims was different. Savor’s claims were common

law unfair competition and civil conspiracy, based upon the same allegations as the

113 11 A.3d 749(1)61.2010).

119 8 A.3d 573 (Del. Ch. 2010)

129 161 at 602.

121 The Supreme Court’s holding is impactful here only in that it held that a tortuous interference

claim may be made out even where a contract is lawfully terminated a claim made here. See
infra note 122.

39

trade secrets claim. ASDI was a fiduciary claim that could be pressed regardless
whether the information was a trade secret or merely confidential business
information 122

The Court concludes that Delaware has joined the “majority view” that
section 7 of DUTSA precludes common law claims based on misappropriation of
business information even in cases in which the claim does not meet the statutory
definition of “trade secret” under the Code. This was the specific holding of Savor
and it has not been overruled We must conclude also that where the duties owed
do not arise from the fact that one is holding confidential business information, a
contract, tort or fiduciary claim may be pressed without running afoul of the
displacement provision of DUTSA.

The Court thus concludes that but for the confidentiality clause in the
AMS/DMMS contract, Plaintist Count ll would be displaced by the Court’s

ruling on Plaintiff’ s trade secret claim.

122 lt should be noted here that the tortuous interference claim in ADSI was dismissed by the
Chancery Court because the contract was lawfully terminated following the decision in
Luscavage v. Dominion Dental, USA, lnc., 2007 WL 901641 (Del. Super. Mar. 20, 2007) that a
contract must be breached in order for a tortuous interference to lie. That holding was
specifically overruled in the ASDI opinion on appeal. ASDI, Inc., 11 A.3d at 750.

40

D. SURVIVAL OF THE TORTUOUS INTERFERENCE CLAIM IS
CONSISTENT WITH THE EXCEPTIONS TO
DISPLACEMENT UNDER DUSTSA

Further support for this conclusion may be found in the “exceptions” to the
displacement provision Specifically, section 7 does not preclude “contractual
remedies, whether or not based upon misappropriation of a trade secret.’1123 The
complaint here is that Defendants obtained information from DMMS that DMMS
was contractually obligated to keep confidential. The claim is indifferent to
whether the information was a trade secret but rather that its disclosure was
controlled by contract.

ln the Court’s view, a party seeking to avoid the downside risk of a court
ruling that a given piece of confidential business information is not protectable
under the Trade Secrets Act is commended to the liberal use of non-disclosure
agreements, employment contracts, non-competition agreements and the like.
Because section 7 carves out actions in contract from its preemption provision, an
idea can retain its protection in contract - or as here, in tort arising from a contract
- regardless whether the information is ultimately held to be a trade secret by a

COU.I‘t.

123 6 Del. C. § 2007(6).

41

The Court believes that Plaintiff’ s claim of tortuous interference survives
section 7 of UTSA, notwithstanding that it is not brought in contract.124 The goals
sought to be achieved by uniformity in sections 7 and 8 of UTSA presuppose the
absence of a contract that governs the rights of the parties As section 7 makes
clear, where a contract is present, the contract provides the remedies and delineates
the rights and duties The Court agrees with courts that have held that a contract
cannot “create” a trade secret and even calling information a “trade secret” by
contract cannot make it so.125 On the other hand, it cannot be that contracts and
other undertakings seeking to protect non-trade secret confidential business
information are to be ignored in favor of the uniformity sought by section 7 of
UTSA.

The fact that this claim is brought as tortuous interference does not change
the analysis Tortuous interference is simply a secondary means to vindicate
contract rights against those not in privity on the contract. lt makes no sense to
permit actions on the contract and deny them in tort based upon the same contract.

Subsection (b)(2) specifically permits civil actions that are not based upon trade

124 Tortuous interference has been found elsewhere to withstand the displacement analysis of
section 7. See e.g., Hauck Manufacturing v. Astec Industries, Inc., 375 F. Supp. 2d 649, 659
(E.D. Tenn. 2004); Mattel, Inc. v. MGA Ent., Inc., 782 F.Supp. 2d 911, 993-94 (C.D. Cal. 2011);
Cross, supra note 106, at 465 (a “significant majority” of courts find no preemption in claims of
tortuous interference with contract).

125 See, e.g., Sun Media Systems, lnc. v. KSDM, LLC, 564 F. Supp. 2d 946, 965 (S.D. lowa
2008).

42

secrets The Court must conclude that Plaintiff’s tortuous interference claim is not
preempted by section 7 of DUTSA.

V. TORTUOUS INTERFERENCE CLAIMS

Defendant Michele Camponelli was the “CEO” of DMMS, the bookkeeping
company during the relevant time. Defendant Thomas Spahr was the “practice
manager” at GA beginning in March 2013. They each move for summary
judgment as individuals (hereinafter “lndividual Defendants”).

The tortuous interference claims that persist in this Amended Complaint
require the following proof: 1) a contract 2) about which defendant knew126 and 3)
an intentional act that is a significant factor in causing the breach of such contract
4) without justification 5) which causes injury.127

ln this case, the record shows that lndividual Defendant Michelle
Camponelli joined DMMS in 2011 and was named its CEO in November 2012. At

some point that she was unable to identify any more precisely, Camponelli was

told by the director/physicians at DMMS that Katz would be joining the GA

126 Tortuous interference is an intentional tort. The requirement that the contract be one “about
which the defendant knew” is not satisfied by constructive or imputed knowledge. There must
be proof that the defendant knew about the specific clause in the contract with which it is alleged
he interfered See Anesthesia Services, P.A. v. Anesthesia Advantage, P.C., 2013 WL 3352672
(Del. Super. June 27, 2013)(defendant not liable for interference with contract provision
regarding geographic restriction in employment agreement absent proof of knowledge of the
provision).

127 Ethypharm S.A. France v. Bentley Pharm., lnc., 388 F. Supp. 2d 426, 434-35 (D. Del.
2005)(citing Lipson v. Anesthesia Servs., P.A., 790 A.2d 1261, 1284 (Del. Super. 2001).

43

payroll and the contract with AMS would be terminated While she was aware of a
contract between Al\/IS and Dl\/IMS, it meant little or nothing to her once she was
so advised because Katz was a willing participant in any information sharing, as it
was necessary to the transition from AMS to GA. There is nothing in this record
supporting the proposition that Camponelli stood to gain personally from a breach
of the confidentiality provision
As to Defendant Spahr, he joined GA in March 2013. By that time, bringing
Katz in to GA had been decided months earlier. lndeed, by the time Spahr
arrived there was nothing in the works that would have given him any reason to
believe anything he did was wrong, improper, or in breach of any contract.
The Restatement directs us to consider whether an “interference” is

“improper” by considering:

(a) the nature of the actor's conduct;

(b) the actor's motive;

(c) the interests of the other with which the actor's conduct

interferes;
(d) the interests sought to be advanced by the actor;
(e) the social interests in protecting the freedom of action of the
actor and the contractual interests of the other;
(f) the proximity or remoteness of the actor's conduct to the

interference; and

(g) the relations between the parties128

123 Restatement (second) 61 rods § 767 (1979).

44

When we consider these two Defendants in the context of these

considerations, Plaintiff cannot demonstrate to any rational fact finder that the

lndividual Defendants’ conduct was tortuous Camponelli acknowledged an

awareness of the AMS/DMMS contract at her deposition As to the confidentiality

provision, Camponelli testified:

A:

?.>@?.>@?.>@

l have read it.
Okay, and when did you read it?

l don’t recall.
For what purpose did you read it?
l don’t recall.

What is your understanding of the provision?

Confidentiality of records129

While this awareness of a confidentiality provision might put Camponelli on

the wrong side of the impropriety analysis, it must be tempered by her testimony,

repeated several times, that she understood that Katz had agreed to sign an

employment agreement with GA and any confidentiality provision with respect to

AMS was effectively abrogated in light of his agreement.

Q:

Yes, okay. Would you agree that once GA began providing
anesthesia services, it became a competitor of AMS?

129 P1. Ex. 65, 6173.

45

A: No, l did not view it as that. Again, as l mentioned before, in
my mind it was a collaboration130 . . . But l knew they were
working on it as a team, together, that Dr. Katz was working
with the other physicians to come on board131

Q: So at that point, with that understanding, you thought there was
no confidentiality that needed to be observed between those two
companies?

A. l thought that they had an arrangement that it was okay to
share.132

This was not an unreasonable conclusion, particularly in light of the fact that
Katz was (or at least became) a willing participant in the exchange of AMS’
confidential business information as GA began making “par” arrangements with
various insurance companies

As to Defendant Spahr, there is even less evidence that he acted with a
tortuous intent. Spahr testified when he arrived at GA in March 2013:

lt had already been done. ln fact, when l joined GA one of my first

major projects assigned was to implement the anesthesia group,

integrate them into GA. That is what l was told The agreements

were done, the decision was made. lmplement it pretty much. So, l
didn’t get involved in any of that.133

As to the specific question whether Spahr knew about any financial

confidentiality with respect to the AMS/DMMS agreement, Spahr testified “No,

139181 6177.
1311a1_
132 P1.EX.65,61 78. See also P1. Ex. 65,81 81, 96, 116.

133 P1. Ex. 69,31 21.

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l’m sorry, l didn’t see the agreement. l know there was an agreement. That was
not part of GA’s responsibility other than there was an agreement and they were to
do our billing and l knew the parameters of what they were going to charge us for
billing.” Spahr never saw the AMS/DMMS agreement.134

lt is abundantly clear from the record that Camponelli and Spahr were each
following directions from the Defendant physicians and neither were motivated by
anything more than a desire to please their superiors While Katz surely did have
an interest in enforcing the confidentiality of the AMS agreement with DMMS, he
did precious little to police it even as he secured a generous employment
agreement with GA. Employees Camponelli and Spahr, on the other hand had an
understandable interest in remaining employed by doing as directed by their
bosses While the termination of the AMS/ECD contract is complained of as the
final act in a chain of events perpetrated by the defendants, it is at best theoretical
that these employees were turning the gears in that enterprise. These were the
firemen, stoking the engine; they had little reason to know, or care, where the train
was headed As to the relationship between the parties, neither Spahr nor

Camponelli expressed any animus or ill will toward Katz, indeed they both

thought they were complying with the wishes of all concerned by helping to

134 P1. Ex. 69, 6124.
47

integrate AMS and Katz with GA and completed the transition with some pride
they had done so successfully.

Because the Court concludes that the conduct of these two lndividual
Defendants was not “improper” under Restatement §767, it necessarily follows that
they are entitled to summary judgment.

ln light of the foregoing analysis, summary judgment is Granted in Part,

Denied in Part as to defendant GA and granted as to lndividual Defendants

Camponelli and Spahr.
W/f$€?

Judge Charles E. Butler

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