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Facility Wizard Software, Inc. v. Southeastern Technical Services

July 9, 2009

FACILITY WIZARD SOFTWARE, INC., PLAINTIFF,
v.
SOUTHEASTERN TECHNICAL SERVICES, LLC D/B/A CAPITAL PROJECT SYSTEM SERVICES, LLC, DEFENDANT.
THE CHARLOTTE-MECKLENBERG HOSPITAL AUTHORITY, INTERVENING-PLAINTIFF,
v.
FACILITY WIZARD SOFTWARE, INC., DEFENDANT.



The opinion of the court was delivered by: Robert W. Gettleman United States District Judge

Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiff Facility Wizard Software, Inc. ("FWS") has brought a five count complaint against defendant Southeastern Technical Services, L.L.C. d/b/a Capital Project System Services, LLC ("CPSS") alleging breach of contract (Count I), violation of the Illinois Trade Secrets Act, 765 ILCS § 1065/1 et. seq. (Count II); violation of the North Carolina Trade Secrets Protection Act, N.C. Gen. Stat. § 66-152, et. seq. (Count III); deceptive and unfair trade practices, N.C. Gen. Stat. § 75-1.1 et. seq. (Count IV); and unfair competition under North Carolina Common Law (Count V). Defendant CPSS has moved to strike and dismiss FWS's North Carolina-based claims (Counts III-V) under Fed. R. Civ. P. 12(f) because FWS's claims arise from a contract that is governed by an Illinois choice of law provision, and for failure to state a claim under Rule 12(b)(6).

Defendant CPSS, in turn, has brought two counterclaims against plaintiff FWS for breach of contract (Count I) and rescission (Count II). FWS has moved to dismiss both counterclaims under Rule 12(b)(6) for failure to state a claim.

Intervening-plaintiff The Charlotte-Mecklenburg Hospital Authority ("CMHA") has brought a four-count intervening complaint against FWS alleging breach of contract (Count I); deceptive and unfair trade practices, N.C. Gen. Stat. § 75-1.1, (Count II); misappropriation of trade secrets, N.C. Gen. Stat. § 66-152 (Count III); and common law unfair competition (Count IV).*fn1

FWS has brought counterclaims against intervening-plaintiff CMHA for tortious interference with contract (Count I); breach of a master license agreement (Count II); violation of the North Carolina Trade Secrets Protection Act, N.C. Gen. Stat. § 66-152, et. seq. (Count III); deceptive and unfair trade practices, N.C. Gen. Stat. § 75-1.1 et. seq. (Count IV); and unfair competition under North Carolina common law (Count V). Intervening-plaintiff CMHA has moved to dismiss FWS's counterclaim for breach of contract (Count II) under Rule 12(b)(6) for failure to state a claim. The court's jurisdiction is invoked pursuant to 28 U.S.C. § 1332, on grounds of diversity.

For the following reasons: defendant CPSS's motion to dismiss plaintiff FWS's North Carolina-based counterclaims is granted; FWS's motion to dismiss CPSS's counterclaims for breach of contract and rescission is denied; and intervening-plaintiff CMHA's motion to dismiss FWS's breach of contract counterclaim is denied.

RELEVANT FACTS*fn2

This case arises from various business dealings that have failed to meet any of the parties' expectations and have caused their business relationship to turn acrimonious.

Plaintiff FWS designs and sells business software, including Projecto, a project management and tracking program. In May 2003, FWS and CMHA, the largest healthcare system in the Carolinas, entered into a "Master Hardware, Software License and Services Agreement" ("License Agreement"), through which FWS issued fifty "perpetual, non-exclusive, non-transferable" licenses to CMHA for CMHA's employees to "install and use" Projecto, among other programs. The License Agreement also permitted use of the licenses by CMHA's affiliated facilities. FWS also provided maintenance and support services and continued to do so over the next four years, during which time CMHA acquired at least an additional 100 licenses. CMHA used Projecto to manage construction and facilities projects at CMHA-owned, operated or affiliated hospitals. Eventually, CMHA expressed interest in expanding its capital project management services nationally, beyond CMHA and the health-care industry. Such expansion efforts became known as the "National Initiative."

In December 2006, FWS and CMHA-affiliate CPSS*fn3 signed a Dealer Agreement whereby CPSS would serve as a non-exclusive, independent dealer for FWS products (including Projecto), identify and register prospective customers, and solicit purchase orders for the products. The products at issue were identified in Exhibit A to the Dealer Agreement. According to the Agreement, FWS would provide software licenses for the products and bear exclusive responsibility for the design, development, supply, production, and performance of the products. FWS was free to modify, add, or delete products from Exhibit A at any time, by giving not less than thirty (30) days' prior written notice to CPSS. The Dealer Agreement also contained a confidentiality provision governing the disclosure of any confidential and proprietary information Facility Wizards shared with CPSS. Specifically, CPSS was prohibited from "caus[ing] its employees and independent contractors [to use] the Confidential Information for any purpose other than performing its duties pursuant to [the] Agreement." CPSS was also prohibited from "engag[ing] in other business activities" such as the "sale.of facility management software or other software competitive to the [products listed in Exhibit A] without Facility Wizards [sic] prior written approval." Plaintiff FWS alleges that, in anticipation of the Dealer Agreement and after the Agreement's execution, it disclosed confidential and trade secret information, including information about Projecto's source code, customer information, and FWS's business strategies to CPSS.

Defendant CPSS and intervening-plaintiff CMHA allege that, in connection with the Dealer Agreement, they disclosed confidential information such as product development and marketing strategies, including lists of prospective customers. They also allege that FWS breached the Agreement by, in part, failing to complete the design, development, supply, or production of successor Projecto software programs, such as Projecto 6.0.

About one month prior to the execution of the Dealer Agreement, the executive director of CMHA's Facilities Management Group informed FWS of plans to replace Projecto with a new program, dubbed "eCATS II," for its internal use only. Despite its intentions to develop a new program for internal use, CMHA re-confirmed that the National Initiative would involve Projecto, particularly Projecto 6.0.

The Dealer Agreement was terminated on March 18, 2008. In July 2008, FWS learned that CPSS was about to market and sell a product that would compete with Projecto. FWS has alleged that the competing product, eCATS II, is identical or substantially similar to Projecto in the functions that it performs and because it was based on and derived from Projecto. FWS contends that CMHA and CPSS had access to Projecto's source code, logic flow, and software structure and improperly used this information to develop eCATS II. These allegations are the basis for FWS's claims against CMHA and CPSS. CMHA and CPSS allege that FWS continued to develop successor Projecto software and incorporate CMHA and CPSS's confidential and proprietary information, even after the Dealer Agreement was expressly cancelled, which conduct is the basis for CMHA and CPSS's trade secret-based claims.

DISCUSSION

I. LEGAL STANDARDS

Rule 12(f) of the Federal Rules of Civil Procedure provides that a court "may order stricken from any pleading any insufficient defense or any redundant, immaterial, or scandalous matter." Cumis Ins. Soc. v. Peters, 983 F. Supp. 787, 798 (N.D.Ill. 1997). A movant must show that the allegations are devoid of merit, unworthy of any consideration, and unduly prejudicial. Id. A motion to strike is generally disfavored. Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989).

The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits. Gibson v. Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). Federal notice pleading requires only that the plaintiff "set out in her complaint a short and plain statement of the claim that will provide the defendant with fair notice of the claim." Scott v. City of Chicago, 195 F.3d 950, 951 (7th Cir. 1999). When ruling on a motion to dismiss, the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Szumny v. Am. Gen. Fin., Inc., 246 F.3d 1065, 1067 (7th Cir. 2001). Further, the court will not consider documents or other materials beyond those attached to or referred by the complaint itself. See FED. R. CIV. P. 12(d); see also Scibetta v. Rehtmeyer, Inc., No. 04C5246, 2005 WL 331559, at *1-*2 (N.D.Ill. Feb. 9, 2005) (considering contracts attached to the plaintiff's complaint, but not exhibits attached to a motion to dismiss) (citing Wright v. Assoc. Ins. Cos., 29 F.3d 1244, 1248 (7th Cir. 1994)). To survive a Rule 12(b)(6) motion, a plaintiff need not provide detailed factual allegations, but must provide "more than labels and conclusions, and a formulaic recitation of the elements of the cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level." Id. at 1965.

II. CPSS'S MOTION TO STRIKE AND DISMISS

Defendant CPSS moves to strike and dismiss Counts III (Violation of North Carolina Trade Secrets Protection Act), IV (Deceptive and Unfair Trade Practices under N.C. Gen. Stat. ยง 75-1.1 et. seq.), and V (North Carolina Common Law Unfair Competition) because it contends that Illinois law, not North Carolina ...


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