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Cognate Bioservices, Inc. v. Smith

United States District Court, D. Maryland

March 10, 2016

COGNATE BIOSERVICES, INC.
v.
ALAN K. SMITH

MEMORANDUM

Catherine C. Blake United States District Judge

Cognate Bioservices, Inc. (“Cognate”), along with Healthbank, Inc., Oncocidex, Inc., Theradigm, Inc., and Vesta Therapeutics, Inc. (individually, “Healthbank, ” “Oncocidex, ” “Theradigm, ” and “Vesta”; collectively, “the non-Cognate plaintiffs”), have sued Alan K. Smith and Alan Smith Consulting, Inc. (individually, “Smith” and “Smith Consulting”; collectively, “the Smith defendants”), and MacroCure, Ltd. (“MacroCure”), alleging (1) violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (“CFAA”); (2) misappropriation of products; and (3) misappropriation of trade secrets in violation of the Maryland Uniform Trade Secrets Act, Md. Code Ann., Com. Law §§ 11-1201 to 11-1209 (“MUTSA”). Now pending before the court are the defendants’ motions to dismiss or, in the alternative, for summary judgment on res judicata grounds; MacroCure’s motions to dismiss for lack of personal jurisdiction and for failure to state a claim; and two motions related to discovery. No oral argument is necessary. See Local Rule 105.6 (D. Md. 2014). For the reasons that follow, the defendants’ motions to dismiss or, in the alternative, for summary judgment on res judicata grounds will be granted. The other pending motions to dismiss, and the discovery motions, will be denied as moot.[1]

BACKGROUND

Cognate is a contract service manufacturer and developer of human cell therapy products and services in the biomedical industry, and the non-Cognate plaintiffs are customers of Cognate. (Am. Compl. ¶¶ 11, 15, 16, ECF No. 148.) According to the amended complaint, the plaintiffs have invested substantial time and money in developing trade products and trade secrets, including some Cognate developed on behalf of the plaintiffs. (Id. ¶¶ 12-14, 17-20.) Cognate’s computer systems store confidential data and information owned by Cognate and its customers, including the plaintiffs’ trade products and trade secrets. (Id. ¶ 29.)

Smith was President and Chief Executive Officer of Cognate from December 2003 until May 2010. (Id. ¶ 21.) In May 2010, he resigned from his position at Cognate and began serving as “the head of U.S. operations” for MacroCure, an Israeli biotechnology company. (Id. ¶¶ 8, 21, 25.) In August 2010, Smith formed a wholly-owned company, Smith Consulting, to provide consulting services to the biotechnology industry, including but not limited to MacroCure. (Id. ¶ 26.) The plaintiffs allege that, upon his resignation, Smith failed to return his computer passwords and the laptop Cognate had provided him in connection with his employment (“the Cognate laptop”), as required by the Cognate employment handbook. (Id. ¶¶ 30, 31, 33.) Instead, the plaintiffs allege that, following his resignation, Smith accessed or attempted to access the Cognate network at least six times, copied many proprietary files from the Cognate servers and its virtual private network (“VPN”) to the Cognate laptop, transferred the plaintiffs’ proprietary information from the Cognate laptop to an external drive owned or controlled by MacroCure (the “MacroCure external drive”), and then accessed and used this information from a laptop MacroCure provided him (“the MacroCure laptop”). (Id. ¶¶ 37, 41, 45, 46.) The Cognate laptop was returned to Cognate on October 18, 2012, but the plaintiffs have not received access to the MacroCure external drive or laptop, which they allege is part of an effort by the defendants to shield these devices from discovery by the plaintiffs. (Id. ¶¶ 36, 42.) The plaintiffs allege that Smith’s intent was to make use of this proprietary information for the benefit of the defendants, and that MacroCure hired Smith with the intent that he would unlawfully access and use the plaintiffs’ proprietary information. (Id. ¶¶ 41, 44, 49, 52, 53.)

In 2012, Smith sued Cognate, [2] Toucan Capital Fund II LP, Linda Powers (“Powers”), and Robert Hemphill (“Hemphill”) in Circuit Court for Baltimore County. (Circuit Court Docket Sheet.) Smith alleged that Cognate violated Maryland wage laws by failing to pay him salary and accrued unused vacation that he was owed, and that he should be indemnified for money that was garnished from his bank account to pay a California tax liability. (Circuit Court Verdict Sheet, ECF No. 63-6.) In June 2013, Cognate filed its Second Amended Counterclaims against Smith, alleging that Smith was liable to Cognate for constructive fraud, trover and conversion, breach of contract, misappropriation of trade secrets, and misappropriation of products. (Second Amended Counterclaims, ECF No. 63-3.) A jury trial in the Circuit Court occurred in February and March of 2014. (Circuit Court Docket Sheet.) On March 6, 2014, the jury found in favor of Smith on all his claims, awarding him several hundreds of thousands of dollars in damages, and found against Cognate on all its counterclaims. (Circuit Court Verdict Sheet.)

In June 2013, while the state court case was pending, the plaintiffs in this case filed their complaint, which they amended on March 17, 2015. (Original Compl., ECF No. 1; Am. Compl.) On April 16, 2015, the Smith defendants filed a motion to dismiss or, in the alternative, for summary judgment on res judicata grounds, to which MacroCure has Dated:, arguing that the state court action precludes the plaintiffs from bringing this suit in federal court. (Smith Res Judicata Mot., ECF No. 164; MacroCure Res Judicata Mot. 173.) The plaintiffs responded, (Res Judicata Resp. Opp’n, ECF No. 180), and the defendants replied, (Smith Reply, ECF No. 189; MacroCure Reply, ECF No. 191). On April 27, 2015, MacroCure filed a motion to dismiss for lack of personal jurisdiction, (Personal Jurisdiction Mot., ECF No. 170), and a motion to dismiss for failure to state a claim under the CFAA, (CFAA Mot., ECF No. 174), to which the Smith defendants signed on in a motion styled as a “response, ” (Smith Resp., ECF No. 179). The plaintiffs have opposed both motions. (Personal Jurisdiction Resp. Opp’n, ECF No. 184; CFAA Resp. Opp’n, ECF No. 185). Also pending is MacroCure’s July 10, 2015, motion to stay discovery, (Mot. Stay Disc., ECF No. 200), on which Judge Sullivan has issued a report and recommendation, (R. & R., ECF No. 214), and the Smith defendants’ motion to set aside Judge Sullivan’s opinion on Smith’s alleged spoliation of evidence, (Mot. Set Aside, ECF No. 210).[3]

For the reasons that follow, the defendants’ motions to dismiss or, in the alternative, for summary judgment on res judicata grounds will be granted. The other motions to dismiss and the discovery motions, therefore, will be denied as moot.

ANALYSIS

I. Standard of Review

The defendants have moved to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6) or, in the alternative, for summary judgment under Fed.R.Civ.P. 56. A court considers only the pleadings when deciding a Rule 12(b)(6) motion. Where the parties present matters outside of the pleadings and the court considers those matters, as here, the motion is treated as one for summary judgment. See Fed. R. Civ. P. 12(d); Gadsby by Gadsby v. Grasmick, 109 F.3d 940, 949 (4th Cir. 1997); Paukstis v. Kenwood Golf & Country Club, Inc., 241 F.Supp.2d 551, 556 (D. Md. 2003). “There are two requirements for a proper Rule 12(d) conversion.” Greater Baltimore Ctr. for Pregnancy Concerns, Inc. v. Mayor and City Council of Baltimore, 721 F.3d 264, 281 (4th Cir. 2013). First, all parties must “be given some indication by the court that it is treating the 12(b)(6) motion as a motion for summary judgment, ” which can be satisfied when a party is “aware that material outside the pleadings is before the court.” Gay v. Wall, 761 F.2d 175, 177 (4th Cir. 1985); see also Laughlin v. Metro. Washington Airports Auth., 149 F.3d 253, 261 (4th Cir. 1998) (commenting that a court has no obligation “to notify parties of the obvious”). “[T]he second requirement for proper conversion of a Rule 12(b)(6) motion is that the parties first ‘be afforded a reasonable opportunity for discovery.’” Greater Baltimore, 721 F.3d at 281.

The plaintiffs had adequate notice that the defendants’ motions might be treated as ones for summary judgment. The motions’ alternative captions are in themselves sufficient indicia. See Laughlin, 149 F.3d at 260-61. Moreover, the plaintiffs referred to the motions in their opposition brief as ones for summary judgment, and both parties cited to previously-filed documentary exhibits to support their arguments. Therefore, the court will treat the defendants’ res judicata motions as ones for summary judgment.

Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The Supreme Court has clarified that this does not mean that any factual dispute will defeat the motion. “By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). Whether a fact is material depends upon the substantive law. See Id. “A party opposing a properly supported motion for summary judgment ‘may not rest upon the mere allegations or denials of [his] pleadings, ’ but rather must ‘set forth specific facts showing that there is a genuine issue for trial.’” Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). The court must “view the facts and draw reasonable inferences ‘in the light most favorable to the party opposing the [summary judgment] motion, ’” Scott v. Harris, 550 U.S. 372, 378 ...


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