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AirFacts, Inc. v. De Amezaga

United States District Court, D. Maryland

August 21, 2017

AIRFACTS, INC.
v.
DIEGO DE AMEZAGA

          MEMORANDUM OPINION

          DEBORAH K. CHASANOW UNITED STATES DISTRICT JUDGE

         After Defendant Diego de Amezaga (“Defendant”) resigned his employment with Plaintiff AirFacts, Inc. (“Plaintiff” or “AirFacts”), Plaintiff commenced this action alleging breach of contract, misappropriation of trade secrets, and conversion. A five-day bench trial was held between January 25 and February 3, 2017. The following findings of fact and conclusions of law are issued pursuant to Fed.R.Civ.P. 52(a).[1]

         I. Factual Background

         Plaintiff is a Delaware corporation that develops and licenses revenue accounting software for airlines. Its headquarters are located in Bethesda, Maryland. April Pearson has been CEO since May 2001, and from the start of her tenure as CEO, auditing has been the company's exclusive focus. (ECF No. 61, at 28:8-11, 29:17-23). Plaintiff's primary product is TicketGuard, an airfare auditing software product.[2] TicketGuard is used by airlines, including one department within American Airlines, to audit ticket sales by comparing tickets issued to an airline's fares, taking into account commissions, taxes, and industry rules for sales. Plaintiff's auditing process involves both an automated ticket review and a manual review. TicketGuard can also be used to audit refunds issued through a process that is partially automated. When violations are identified for a ticket, TicketGuard invoices the automated pricing systems or travel agents which priced the tickets in error on behalf of the airlines.

         Plaintiff has also attempted to develop a proration software product to assist airlines in receiving revenue that accurately reflects industry standards and negotiated rates, which are recorded in special prorate agreements (“SPAs”), when two or more airlines share ticket revenues in a single transaction. Plaintiff first began working “intermittently” and “sporadically” on a proration product in 2012 (ECF No. 61, at 70:25-71:9, 71:18-23), and entered into a contract with Alaska Airlines to develop a proration product on June 1, 2015 (PTX 172).[3] Although Ms. Pearson testified that Plaintiff had “a complete and finished product” that Plaintiff's airline client was evaluating at the time of the January 2017 trial, Plaintiff did not yet have a proration product in use. (See ECF No. 66, at 128:5-15).

         Defendant was employed by Plaintiff from June 2008 until February 2015. He was hired as a product development analyst before being promoted to manager of product development and then director of product development. His primary responsibilities included working with programmers and coders to develop products and managing client relationships. In addition, he worked on the development and sales pitches for Plaintiff's proposed proration product. At the start of Defendant's employment with Plaintiff, the parties executed an “Employment Agreement.” (PTX 35). The Employment Agreement restricted Defendant's post-employment opportunities for a twelve-month period.

         Defendant first tendered his resignation to Plaintiff on October 10, 2014, but was convinced to continue his employment. In December, Defendant unsuccessfully applied for a position with Kayak, a metasearch engine that displays airline fares and is not Plaintiff's competitor or customer. He emailed static screenshots of TicketGuard to Kayak in connection with his application.

         On February 6, 2015, Defendant resigned a second time. He did not have a job offer at that time and gave four weeks' notice, but at Ms. Pearson's direction, his last day was February 13, 2015. Both Ms. Pearson and Randy Laser, who had recently been hired as Plaintiff's Vice President of Airline Strategy, told Defendant they would contact him after he left if they had questions about his work. In his last week of work, Defendant printed documents on which he had been working, and on his last day, he emailed a spreadsheet related to proration on which he had been working to his personal email account. On March 11, Defendant applied for a position with Fareportal, a travel agency. (PTX 8). Fareportal is not a competitor or customer of Plaintiff's, but TicketGuard is used to audit tickets sold by Fareportal. (ECF No. 72, at 18:2-9). Defendant emailed two flowcharts which he had created for Plaintiff to Fareportal in connection with his application. (PTX 6-7). He accessed the flowcharts by logging in to an AirFacts' LucidChart account on March 11. Defendant remained unemployed from February 13 until May 11, 2015, when he began working at American Airlines as a senior manager in the Refunds department.

         American Airlines is Plaintiff's largest customer. U.S. Airways had begun using TicketGuard in 2006, and after U.S. Airways merged with American Airlines, American Airlines began using TicketGuard in its Travel Agency Audit department to audit domestic travel agency ticket sales in 2014.[4] Prior to the airline merger, Plaintiff had discussed the development of a proration product for U.S. Airways in 2013, but the project did not come to fruition. American Airlines has a contract with Accelya Kale for proration work, and Plaintiff has never pitched a proration product to American Airlines.

         When Defendant began working for American Airlines, American Airlines assured Plaintiff that Defendant was not performing services that were in competition with, or similar to, services that were provided by Plaintiff. Defendant maintains that his work at American Airlines did not involve performing any services that were restricted by the Employment Agreement. Plaintiff alleges that Defendant's work for American Airlines constitutes a breach of the Employment Agreement, and further alleges that Defendant misappropriated trade secrets. Further facts will be discussed as relevant to the various legal issues.

         II. Procedural Background

         The three-count complaint, filed May 22, 2015, alleges breach of contract; misappropriation of trade secrets in violation of the Maryland Uniform Trade Secrets Act (“MUTSA”), Md.Code Ann., Com. Law I § 11-1201, et seq.; and conversion, and seeks money damages as well as injunctive relief. (ECF No. 1). Plaintiff filed a motion for a temporary restraining order and preliminary injunctive relief with the complaint. (ECF No. 2). Following a hearing, the court granted the temporary restraining order, temporarily restraining and enjoining Defendant from destroying, erasing, mutilating, concealing, altering, transferring, or otherwise disposing of, in any manner, directly or indirectly, any document that related to his employment with Plaintiff or any document or electronically stored information belonging to or received from Plaintiff. (ECF Nos. 2; 6). Defendant filed an answer (ECF No. 9), and responded in opposition to the motion for a preliminary injunction (ECF No. 14). Upon the consent of the parties, the court granted a preliminary injunction ordering Defendant to return and not retain originals or copies of any property, including confidential information, obtained from Plaintiff. (ECF No. 23). The order also required Defendant to provide Plaintiff access to all electronic devices for forensic evaluation. Discovery closed on September 30, 2016 (ECF No. 43), and the case proceeded to a bench trial.

         Although Plaintiff's breach of contract claim alleges violations of several provisions of the Employment Agreement, Plaintiff narrowed its claim during trial to a breach of paragraph 8, the non-solicitation of clients provision. Plaintiff also acknowledged at trial that it had recovered or deleted all AirFacts documents within Defendant's custody, possession, or control through forensic measures, and that it had not proven its conversion claim. The court took the matter under advisement after the trial concluded and reviewed the pleadings, trial transcripts, and admitted exhibits. For the reasons set forth below, the court concludes that Plaintiff has not met its burden to prove by a preponderance of the evidence that Defendant breached the Employment Agreement or committed a violation of the MUTSA.

         III. Findings of Fact and Conclusions of Law

         A. Count I, Breach of Contract Claim

         A federal court sitting in diversity must apply the law of the state in which the court is located, including the forum state's choice of law rules. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir. 2007). Maryland follows the rule of lex loci contractus for contract claims, applying the substantive law of the state where the contract was formed in the absence of a choice-of-law provision in the contract. Am. Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 573 (1995); Kronovet v. Lipchin, 288 Md. 30 (1980). The Employment Agreement includes a choice of law provision submitting to “the internal laws of the State of Maryland.” (PTX 35 ¶ 10.1). Accordingly, Maryland law governs the Plaintiff's breach of contract claim.

         The relevant paragraph of the Employment Agreement states:

8. NON-SOLICITATION OF CLIENTS
8.1 During employee's employment and for a period of 12 months thereafter or from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant (whichever is later), employee will not, without the prior written consent of the employer, either directly or indirectly, for the benefit of anyone other than the employer:
. . . .
(d) Perform services for, own, work for, consult, be employed by, or become financially interested in any [of] the employer's customers (as defined below) unless the services being performed [are] not in competition with, or similar to, either (i) the services or products provided by the employer during the term of the employee's employment or (ii) anticipated services or products of the employer of which the employee has material knowledge.
8.2 Customers . . . shall include any customer who within the twelve months prior to the date of employee's termination has been a customer of the employer; or to whom the employee has directly or indirectly made or had knowledge of, within the twelve months prior to the date of employee's termination, a proposal for becoming a customer of the employer.

(PTX 35 ¶ 8).

         Plaintiff contends that Defendant violated the non-solicitation provision of the Employment Agreement in working for American Airlines. American Airlines became a TicketGuard client in October 2014, and accordingly, was a “customer” as defined in paragraph 8.2. Defendant disputes that his employment at American Airlines violated the terms of the Employment Agreement.

         Paragraph 8.1(d) prohibited Defendant from competing with Plaintiff by providing services to a customer that were “in competition with, or similar to . . . the services or products provided by the employer during the term of the employee's employment” or to “anticipated services or products of the employer[.]” (PTX 35 PPP 8.1(d) (emphasis added)). Plaintiff has argued that this provision also prohibited Defendant from providing services to a customer that were similar to those he had provided to Plaintiff during his employment. It introduced evidence purporting to show that Defendant is “doing similar work and applying similar techniques that he learned at AirFacts” in his work for American Airlines, such as managing projects and directing coders, using industry and technical knowledge he gained through his employment with AirFacts. Under the plain language of the contract, the Employment Agreement prohibited Defendant only from providing services to a customer that were in competition with those services provided by Plaintiff, not services that were similar to the work he had performed for Plaintiff during his employment.[5] It is therefore irrelevant to Plaintiff's claim for breach of the non-solicitation provision whether Defendant, for example, managed other employees or served as a project manager, while working for both Plaintiff and American Airlines.

         1. Refunds

         At American Airlines, Defendant works as the senior manager of the Refunds department within the Revenue Accounting department. He reports to Brenda Fullmer, a director in the Revenue Accounting department who oversees five departments, including the Refunds department and the Proration department. Ms. Fullmer does not oversee the Travel Agency Audit department, which is the American Airlines department that uses TicketGuard. The Travel Agency Audit department is also within the Revenue Accounting department, but is overseen by Beth Monick and managed by Mary Ann Michulsky. The Refunds department is responsible for processing passenger ticket refund requests. It uses a proprietary automated process for passenger refunds, which was first used by America West Airlines, then by U.S. Airways after it merged with American West, and is now used by American Airlines following the U.S. Airways-American merger. Defendant oversees the Refunds department, managing approximately 100 employees. (PTX 90).

         TicketGuard provides auditing services. While TicketGuard may be used to audit refunds, it does not process refunds.[6] Ms. Pearson testified that “you cannot process a refund without auditing the original ticket, ” meaning that, in order to process a refund, an airline would first “have to go through the same process that you do when you're auditing. So you need to make sure that the ticket was refundable. You need to know if there are any penalties. If it is refundable, you need to calculate the refund amount.” (ECF No. 71, at 59:9-19). Plaintiff contends that processing a refund of a direct sale ticket for a customer, so that the fare can be refunded to the passenger, is “the same process” as auditing an agency sale ticket for the airline, so that the airline may bill the travel agency if the agency issued the fare in error. (Id. at 60:4-23). Plaintiff concedes that these processes are done for different business purposes, but argues that Defendant should not be permitted under the agreement to perform this similar process.

         Defendant did not develop the refund processing system at American Airlines, which was in use before he began his employment, and his responsibilities at American Airlines involve managing employees, not directly processing refunds himself. Even assuming that the services Defendant performed for American Airlines in managing the Refunds department included automating refund processing or manually processing refunds, Plaintiff has not proven that those services were in competition with or similar to its services. Auditing ticket sales or refunds and processing refunds may involve the application of some of the same industry or airline rules, but they are separate and distinct processes performed for different purposes. Plaintiff provides refund auditing services, but it does not provide refund processing products or services, and Defendant's work for American Airlines clearly did not involve performing services in competition with Plaintiff. As noted above, these functions are the responsibilities of separate departments led by different managers and directors at American Airlines. Moreover, Plaintiff has not shown that Defendant or American Airlines actually processes refunds in a way that is at all similar to the TicketGuard process for auditing refunds. Ms. Pearson testified that she would process a refund in the same way that she would audit a refund or ticket sale, but she cannot attest to American Airline's refund process. Ms. Fullmer testified that she considers “auditing a ticket and calculating just the refund based on resulting values . . . completely different processes.” (ECF No. 66, at 79:10-15). As she explained:

One is you are trying to determine whether a ticket was sold properly and if they met all of the rules of the ticket in order to purchase the price that they got for the ticket. The other process is, we have sold a ticket, the customer has the ticket, has decided not to use the full or partial part of the ticket, and we are just calculating whatever value was remaining and giving them their money back.

(Id. at 79:16-22; see also Id. at 81:8-82:7 (“[R]efunds isn't looking to see whether someone who processed it sold it properly or refunded it properly. . . . We are looking to . . . calculate[] the value and refund[] the value back to the customer.”)). Plaintiff has not shown that American Airline's preexisting proprietary system processes refunds using the same or similar processes as TicketGuard uses to audit ticket sales and refunds.

         Plaintiff has also argued that Defendant's work on refunds breached the agreement because he interacted with American Airlines employees in or formerly in the Travel Agency Audit department. The Refunds department at American Airlines primarily processes refunds of company sales, but Defendant did work with the Travel Agency Audit department on a backlog of international agency ticket refunds, which it was responsible for processing. (See PTX 197). Those refunds would not have been audited by TicketGuard under American Airline's contract with Plaintiff, but Plaintiff contends that such refunds could have been audited by TicketGuard.[7] This is immaterial. Even showing Defendant processed refunds for tickets that had ...


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