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Mission Measurement Corp. v. Blackbaud, Inc.

United States District Court, N.D. Illinois, Eastern Division

December 13, 2017

MISSION MEASUREMENT CORPORATION, Plaintiff,
v.
BLACKBAUD, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, DISTRICT COURT JUDGE

         On July 25, 2017, Plaintiff Mission Measurement Corporation (“Mission Measurement”) brought the present twelve-count Second Amended Complaint against Defendants Blackbaud, Inc. (“Blackbaud”), MicroEdge, LLC (“MicroEdge”), Vista Equity Partners Management, LLC (“Vista Management”), VFF I AIV I, L.P. (“Vista I Fund”), VFF I AIV I-A, L.P. (“Vista I-A Fund”), Bregal Sagemount I, L.P. (“Sagemount”), and individual Defendants Scott Adkins, Rachel Arnold, Todd Laddusaw, Joel Martins, Preston McKenzie, Benny Melumad, Phil Montgomery, Kristin Nimsger, and Charles Vanek (“Individual Defendants”) alleging violations of the Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C. § 1831, et seq., as well as state law claims, including an Illinois Trade Secrets Act (“ITSA”) claim, 765 ILCS 1-65/1, et seq.

         Before the Court are Defendants' motions to dismiss under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6) in which they challenge all of Mission Measurement's claims except for its DTSA and ITSA claims against Blackbaud and MicroEdge as alleged in Counts III and IV of the Second Amended Complaint. For the following reasons, the Court grants in part with prejudice, grants in part without prejudice, and denies in part Defendants' motions to dismiss. Specifically, the Court dismisses, without prejudice, Individual Defendants Todd Laddusaw, Benny Melumad, Scott Adkins, Joel Martin, and Rachel Arnold, as well as Vista I Fund and Vista I-A Fund, for lack of personal jurisdiction pursuant to Rule 12(b)(2). Further, the Court grants MicroEdge's Rule 12(b)(6) motion to dismiss Plaintiff's breach of the Confidentiality Agreement as alleged in Count I with prejudice. The Court grants Defendants' Rule 12(b)(6) motions to dismiss Plaintiff's fraudulent inducement claim as alleged in Count X without prejudice and Plaintiff's Illinois civil conspiracy claim alleged in Count XII without prejudice. The Court also grants Plaintiff leave to file a Third Amended Complaint as to its fraudulent inducement and civil conspiracy claims, keeping in mind counsel's Rule 11 obligations. Plaintiff's Third Amended Complaint is due on or before January 8, 2018.

         The following claims remain in this lawsuit: (1) breach of MicroEdge's and Plaintiff's Letter of Intent (Count II); (2) breach of MicroEdge's and Plaintiff's oral contract (Count VI); (3) the DTSA claim against Blackbaud and MicroEdge (Count III); (4) the ITSA claim against Blackbaud and MicroEdge (Count IV); (5) the promissory estoppel claim against MicroEdge (Count V); (6) the unjust enrichment claim against all remaining Defendants (Count VII); (7) the Illinois tortious interference with contract claim and tortious interference with prospective economic advantage claim against Blackbaud, Vista Management, Sagemount, and the remaining Individual Defendants (Counts VIII and IX); and (8) the conversion claim against Blackbaud and MicroEdge (Count XI).

         LEGAL STANDARDS

         I. Federal Rule of Civil Procedure 12(b)(2)

         A motion to dismiss under Rule 12(b)(2) tests whether a federal court has personal jurisdiction over a defendant. See Fed. R. Civ. P. 12(b)(2); Wells Fargo Bank, N.A. v. Younan Prop., Inc., 737 F.3d 465, 467 (7th Cir. 2013). Although the “plaintiff bears the burden of establishing personal jurisdiction, ” Brook v. McCormley, 873 F.3d 549, 552 (7th Cir. 2017), when ruling on a Rule 12(b)(2) motion to dismiss based on the submission of written materials, a plaintiff need only make a prima facie case of personal jurisdiction. Northern Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014). In analyzing a Rule 12(b)(2) motion without conducting an evidentiary hearing, courts accept the well-pleaded facts in the complaint as true. Felland v. Clifton, 682 F.3d 665, 672 (7th Cir. 2012).

         II. Federal Rule of Civil Procedure 12(b)(6)

         “A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014); see also Hill v. Serv. Emp. Int'l Union, 850 F.3d 861, 863 (7th Cir. 2017). Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Pursuant to the federal pleading standards, a plaintiff's “factual allegations must be enough to raise a right to relief above the speculative level.” Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Put differently, a “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570).

         When determining the sufficiency of a complaint under the plausibility standard, courts must “accept all well-pleaded facts as true and draw reasonable inferences in the plaintiffs' favor.” Roberts v. City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016). Also, although a plaintiff's ability to state allegations based on “information and belief” is restricted in the context of fraud allegations pursuant to Rule 9(b), under Rule 8(a), “[w]here pleadings concern matters peculiarly within the knowledge of the defendants, conclusory pleading on ‘information and belief' should be liberally viewed.” Brown v. Budz, 398 F.3d 904, 914 (7th Cir. 2005) (citation omitted); see also 5 Wright & Miller, Federal Practice & Procedure § 1224, at 300 & n. 7 (3d ed. 2004) (“Pleading on information and belief is a desirable and essential expedient when matters that are necessary to complete the statement of a claim are not within the knowledge of the plaintiff.”); see, e.g., Huon v. Denton, 841 F.3d 733, 743 (7th Cir. 2016).

         III. Federal Rule of Civil Procedure 9(b)

         With respect to claims of fraud, Rule 9(b) applies and imposes a higher pleading standard than that required under Rule 8(a). See Camasta, 761 F.3d at 736; Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 446-47 (7th Cir. 2011). Specifically, “plaintiffs must plead the ‘who, what, when, where, and how: the first paragraph of any newspaper story' of the alleged fraud.” Rocha v. Rudd, 826 F.3d 905, 911 (7th Cir. 2016) (quotation omitted). In other words, “[t]he requirement of pleading fraud with particularity includes pleading facts that make the allegation of fraud plausible”; therefore, “[t]he complaint must state ‘the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.'” United States ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014) (citation omitted); see also United States ex. rel. Hanna v. City of Chicago, 834 F.3d 775, 779 (7th Cir. 2016). Allegations based on information and belief will not suffice under Rule 9(b) unless “(1) the facts constituting the fraud are not accessible to the plaintiff and (2) the plaintiff provides ‘the grounds for his suspicions.'” Id., 772 F.3d at 1108 (quotation omitted).

         BACKGROUND

         In its Second Amended Complaint, Mission Measurement alleges that it is the market leader in social sector data and insights relating to social change programs aimed at addressing issues such as poverty, hunger, access to healthcare, and climate change. (R. 75, Second Am. Compl. ¶ 30.) One of Mission Measurement's goals is to change the way non-profits, corporations, governments, and foundations invest in philanthropic causes by using data to measure and forecast social impact program outcomes. (Id.) Using data collected from social program evaluations, Mission Measurement has compiled a database of over 75, 000 different data points, which it has categorized into approximately 130 social outcome types. (Id. ¶ 31.) Mission Measurement maintains that these data are used to grade whether a particular program will achieve its objectives, the average expected cost to do so, and the total number of people the program will serve. (Id.)

         Over the last eleven years, Mission Measurement has developed its proprietary database - the Outcome TaxonomyTM - that implements its vision for database and software products and methods to gauge social impact. (Id. ¶ 32.) Certain aspects of Mission Measurement's system are detailed in the pending U.S. Patent Application Ser. No. 14/137, 580 entitled “System and Method for Analyzing and Predicting the Impact of Social Programs, ” filed on December 20, 2013. (Id.) The application, which published on September 18, 2014 as U.S. Pub. No. 2014/0278756, claims priority to an earlier provisional application No. 61/793, 908 filed on March 15, 2013. (Id.) The application is pending at the U.S. Patent and Trademark Office. (Id.)

         Defendant MicroEdge, a limited liability company organized under the laws of New York, is a provider of software solutions that automate the charitable giving process. (Id. ¶¶ 4, 33.) Vista Management is a limited liability company and investment firm that operates the private equity funds Vista I Fund and Vista I-A Fund. (Id. ¶¶ 5, 33.) Vista Management acquired MicroEdge in 2009 and Vista Management, Sagemount, and the Individual Defendants held investments in MicroEdge during the relevant time period. (Id. ¶ 33.) Likewise, Plaintiff alleges that Sagemount operates private equity funds and became a minority investor in MicroEdge during 2013. (Id. ¶¶ 6, 33.) The Individual Defendants hold equity interests in MicroEdge or held such interests during the relevant time period. (Id. ¶¶ 7-15, 33.)

         On February 29, 2012, Alan Cline (“Cline”), Principal at Vista Management, contacted Mission Measurement's CEO Jason Saul (“Saul”) to assist MicroEdge in developing a way to measure outcomes. (Id. ¶ 34.) According to Plaintiff, Vista Management was actively involved in management decisions at MicroEdge and facilitated a relationship between Vista Management's portfolio company, MicroEdge, and Mission Measurement. (Id.) Vista Management remained involved in the relationship between MicroEdge and Mission Measurement until MicroEdge secured a contract with Mission Measurement. (Id.) Thereafter, Vista Management participated in various negotiations and conversations between MicroEdge and Mission Measurement. (Id.)

         Furthermore, Mission Measurement alleges, upon information and belief, that Vista Management and MicroEdge knew that MicroEdge had little or no knowledge or experience in measuring outcomes from philanthropic programs and that they needed Mission Measurement's expertise. (Id. ¶ 35.) Mission Measurement contends that Cline's initial contact led to a series of communications between Mission Measurement and MicroEdge with the goal of jointly developing and owning a new software application based on Mission Measurement's trade secrets, the Outcome TaxonomyTM, and other intellectual property. (Id.) MicroEdge engaged in conversations with Mission Measurement through certain Individual Defendants employed by MicroEdge, such as Preston McKenzie (“McKenzie”) and Charles Vanek (“Vanek”). (Id.) Mission Measurement alleges, on information and belief, that Vista Management had significant concerns about obtaining a return on its investment in MicroEdge and wanted MicroEdge to innovate. (Id. ¶ 36.) Unable to effectively do so on its own, MicroEdge, through Vista Management, sought out Mission Measurement because MicroEdge would soon be put up for sale and Vista Management and MicroEdge needed new products to increase the enterprise value for the sale. (Id.)

         With Vista Management's approval, on March 16, 2012, MicroEdge's CEO McKenzie communicated with Mission Measurement's CEO Saul that MicroEdge desired to engage Mission Measurement to help it develop a software product to measure outcomes. (Id. ¶ 37.) Plaintiff alleges that Saul made it clear that Mission Measurement had intended to develop a software application for its own commercialization and would not be interested in helping MicroEdge develop a product unless Mission Measurement received equity in MicroEdge or royalties based on sales of the software product. (Id.) Plaintiff states Vista Management's Cline and MicroEdge's Vanek and McKenzie knew that a relationship with Mission Measurement would increase MicroEdge's value in the long-term. (Id.) Moreover, an increased value in MicroEdge would provide investors with a financial benefit. (Id.) According to Mission Measurement, Vista Management and the Individual Defendants were financially motivated to develop and maintain a relationship between MicroEdge and Mission Measurement. (Id.)

         In April and May 2012, Saul and McKenzie began discussing the terms of the parties' agreement. (Id. ¶ 38.) To protect the confidential and proprietary nature of such discussions, Mission Measurement and MicroEdge executed a Mutual Nondisclosure Agreement (“NDA”) on May 14, 2012, which defined “confidential information” as all information disclosed or provided to “Recipient or Recipient's affiliates, directors, officers, employees, agents, or representatives, ” including, but not limited to various confidential and proprietary information such as business information, technical information, and know-how. (Id. ¶ 39.) The NDA limited access to “Confidential Information” to those personnel engaging in a permissible use, namely, for the purpose of collaborating on products and services. (Id.) Plaintiff alleges that at no time did MicroEdge seek consent from Mission Measurement to disclose its proprietary information with any non-parties, such as Defendant Blackbaud, or to use its proprietary information for any non-specified uses. (Id.)

         In May 2012, Individual Defendants, including former MicroEdge employee Benny Melumad, traveled to Chicago, Illinois to meet with Mission Measurement to discuss the partnership. (Id. ¶ 40.) Plaintiff asserts that at various points throughout contract negotiations the Individual Defendants intended to induce Mission Measurement to engage in various contractual agreements with MicroEdge to eliminate competition for an outcomes product - despite knowing that MicroEdge would not share any ownership or royalties of this product with Mission Measurement because that would drive down the sale price of MicroEdge and the Individual Defendants' resulting profits. (Id.) Notwithstanding these intentions, the Individual Defendants repeatedly assured Mission Measurement that the parties were moving forward together to develop a joint software product. (Id.)

         Shortly thereafter, Mission Measurement and MicroEdge executed a Confidentiality and Non-Disclosure Agreement dated June 26, 2012. (Id. ¶ 41.) According to Mission Measurement, this agreement included, among other terms, provisions that prohibited the use and disclosure of confidential information to any third-party. (Id.) Two months later, Mission Measurement sent MicroEdge an email with attachments that described the joint project and included confidential information, such as a taxonomy sample and screenshots of an outcomes prototype, as well as aspects of its system that are not described in the patent applications. (Id. ¶ 42.) Mission Measurement also provided MicroEdge with confidential information and product design specifications on other occasions during 2012. (Id.)

         In the fall of 2012, Mission Measurement and MicroEdge conducted focus groups to determine market demand and to test potential client responses to their jointly-developed product. (Id. ¶ 43.) During that time, Mission Measurement and MicroEdge negotiated a Joint Development Agreement (“JDA”), which specified that the software was jointly-owned by the parties, that Mission Measurement exclusively owns the Outcomes TaxonomyTM, and that MicroEdge would pay royalties and a development fee to Mission Measurement upon commercialization. (Id.) The parties never executed the JDA. (Id.) Meanwhile, around October 16, 2012, Mission Measurement and MicroEdge jointly presented their product prototype before a focus group of their clients and potential clients, who were bound by confidentiality. (Id. ¶ 44.) At that time, the Outcomes TaxonomyTM was specifically identified as Mission Measurement's intellectual property. (Id.) Indeed, before and during the focus group presentations, MicroEdge explicitly acknowledged that the Outcomes TaxonomyTM and other intellectual property originated solely from Mission Measurement. (Id.)

         According to Plaintiff, throughout the course of their dealings, MicroEdge repeatedly recognized the significant value of Mission Measurement's intellectual property and its importance to the joint software product. (Id. ¶ 45.) In 2012 and early 2013, Mission Measurement and MicroEdge began discussing the terms of a definitive agreement to memorialize their understanding that the software product they were developing was and is jointly-owned and that they would share the revenues based on the sales of the product. (Id.) As of January 2013, Mission Measurement and MicroEdge had reached an agreement on the essential terms, but had yet to finalize other terms and conditions. (Id. ¶ 46.) The parties wanted to finalize the product and launch it as soon as possible, and to that end, on January 16, 2013, Mission Measurement and MicroEdge executed a Letter of Intent (“LOI”) as an interim agreement prior to the execution of a definitive agreement. (Id.)

         Mission Measurement and MicroEdge agreed that the terms and conditions of the LOI were confidential. (Id. ¶ 47.) Among other provisions, the LOI requires that Mission Measurement and MicroEdge: (1) collaborate on joint software product development combining Mission Measurement's trade secrets and intellectual property and MicroEdge's existing software; (2) keep confidential the proprietary information provided to the other; and (3) negotiate in good faith to finalize the definitive agreement. (Id.) Mission Measurement alleges that the LOI explicitly acknowledged the joint nature of the product in terms of joint product development, joint technology development, and joint sales pitch meetings, although the Outcomes TaxonomyTM is stated as Mission Measurement's sole property. (Id. ¶ 48.)

         Further, Mission Measurement asserts that the parties continued performing the LOI and continued advancing development efforts while negotiating the final details of the written agreement. (Id. ¶ 49.) Despite being unable to complete a written agreement covering the joint product, the parties entered into an oral agreement for continued joint development efforts with the understanding they would be sharing royalties and ownership. (Id.) According to Plaintiff, by their course of performance and oral affirmations, the parties mutually agreed to be bound by the LOI and to be bound by an oral agreement which supplemented the terms of the LOI. (Id. ¶ 50.) Plaintiff alleges that the parties' oral agreement included the following terms: (1) continued good faith efforts to jointly develop a software product which embodied Mission Measurement's Outcomes TaxonomyTM; (2) the software product would be jointly owned by the parties; (3) Mission Measurement would retain ownership of the Outcomes TaxonomyTM; and (4) the parties would share royalties related to the sale of the software product. (Id.) The parties further agreed that neither party would misuse any confidential information learned from the other party. (Id.)

         Additionally, Mission Measurement alleges that it relied, to its detriment, on MicroEdge's promises to continue development efforts in good faith and to share royalties on the sales of the joint product. (Id. ¶ 51.) Mission Measurement specifically maintains that it refrained from engaging in any development efforts with any other partner besides MicroEdge, and, as a result, Mission Measurement was kept out of the market. (Id.) Furthermore, Mission Measurement asserts that MicroEdge and the Individual Defendants knew that they were effectively sidelining Mission Measurement, namely, they knew that Mission Measurement was persistent about developing a product together and that it continued to seek assurances that the parties were collaborating. (Id.) Nevertheless, MicroEdge and the Individual Defendants - with support and guidance from Vista Management and Sagemount - continued to make misrepresentations to Mission Measurement. (Id.)

         After the execution of the LOI on January 16, 2013, Mission Measurement continued to share its intellectual property with MicroEdge to develop a project plan. (Id. ¶ 54.) On February 19, 2013, MicroEdge's development team visited Mission Measurement in Chicago where Mission Measurement shared additional confidential information, after which multiple meetings and telephone calls occurred to develop and finalize the jointly-owned software product. (Id. ¶¶ 54, 55.) On information and belief, Plaintiff alleges that MicroEdge held its quarterly board meeting in Chicago in December 2013 that Individual Defendants Kristin Nimsger, Todd Laddusaw, Scott Adkins, Benny Melumad, Phil Montgomery, and Charles Vanek attended. (Id. ¶ 56.) The board meeting was intended to relay information about MicroEdge's product development efforts. (Id.) Mission Measurement alleges that thereafter, the Individual Defendants continued to induce Mission Measurement to engage in development efforts and to continue sharing proprietary information, and in reliance on these representations, Mission Measurement failed to enter the marketplace with its own product and failed to enter into other prospective business relationships to develop a product. (Id.) According to Mission Measurement, the Individual Defendants knew that it intended to share any ownership of the product and royalties with MicroEdge. (Id.)

         Meanwhile, Mission Measurement and MicroEdge worked in close collaboration for over two years, from June 2012 through May 2014, to educate MicroEdge's software engineers and executives on Mission Measurement's intellectual property that would be integrated into the jointly-owned software product. (Id. ¶ 57.) During this collaboration period, Vista Management was involved in developing the relationship between Mission Measurement and MicroEdge to advance a longer-term initiative at MicroEdge to improve outcomes measurement. (Id.) Among other confidential and proprietary information shared with MicroEdge from 2012 to 2014, Mission Measurement disclosed: (1) a specialized Outcomes TaxonomyTM; (2) a method for collecting standardized data; (3) a method for calculating grantee impact; (4) software design specifications; (5) impact reports and analytics; and (6) business models for selling access to metrics databases. (Id. ¶ 58.) Mission Measurement disclosed other confidential information to MicroEdge from 2012 to 2014 that included drawings, sketches, designs, screen mock-ups, measurement concepts and calculations, business plans, and product development plans. (Id. ¶ 59.) On the other hand, Mission Measurement did not disclose certain aspects of its intellectual property in the patent application filings, but kept them as trade secrets. (Id.) During the relevant time period, Mission Measurement maintained in secret the proprietary and confidential information disclosed to MicroEdge and continues to derive significant value from the secrecy of its trade secrets. (Id. ¶ 60.)

         Mission Measurement contends that despite MicroEdge's representations and conduct, the LOI was a setup. (Id. ¶ 62.) Instead of acting in good faith, MicroEdge, the Individual Defendants, Sagemount, and Vista Management embarked on an intentional and consistent strategy of delay and obfuscation in their communications with Mission Measurement. (Id.) According to Plaintiff, MicroEdge and the Individual Defendants continued to engage with Mission Measurement for the purpose of keeping Mission Measurement out of the market as a competitor for outcomes-related products and services. (Id.)

         On September 3, 2014, Vanek, who was MicroEdge's Vice President of Business Development at that time, forwarded a news report to Mission Measurement's Saul stating Blackbaud bought MicroEdge for $160 million. (Id. ¶ 70.) In that correspondence, Vanek told Saul to call him because they “should talk rather than write” and that the “radio silence over the last several months was due to this deal.” (Id.) During a follow-up telephone conversation on September 5, 2014, Vanek told Saul that the acquisition was a “good thing” for Mission Measurement and that Vanek expected that their joint product would be brought to market even more successfully with Blackbaud's large user base and support. (Id.) At no time during the call, or on any of their prior calls, had Vanek terminated the LOI nor did Vanek state that Defendants would not honor their promise to share in the revenue of their joint product. (Id. ¶ 71.) Following the acquisition by Blackbaud, MicroEdge employees, including but not limited to Vanek and Nimsger, communicated Mission Measurement's proprietary information to Blackbaud and informed Blackbaud employees of a contractual relationship with Mission Measurement. (Id.) At this time, if not earlier, Blackbaud learned of the NDA, the Confidentiality Agreement, the LOI, and the oral agreement executed between Mission Measurement and MicroEdge. (Id.)

         According to Mission Measurement, Blackbaud's acquisition of MicroEdge - announced in September 2014 - resulted in Blackbaud paying an inflated price of $160 million for MicroEdge. (Id. ¶ 75.) Mission Measurement alleges that Vista Management, Sagemount, and the Individual Defendants manipulated the sale price of MicroEdge - using the relationship with Mission Measurement, its confidential information, and its market position - to advance their own personal economic benefit. (Id.) According to Plaintiff, due to the sale of MicroEdge to Blackbaud, the Individual Defendants, the Vista Defendants, and Sagemount received direct financial benefits, including that the Individual Defendants earned at least one percent of the total purchase price of $160 million. (Id. ¶ 75.)

         On October 26, 2015, Mission Measurement first learned that Defendants MicroEdge and Blackbaud went to market with an outcomes product without Mission Measurement. (Id. ¶ 77.) In particular, MicroEdge and Blackbaud issued a press release that “unveiled its transformational outcomes solution” featuring “a first-of-its-kind outcomes measurement taxonomy.” (Id.) Also, in the fall of 2015, MicroEdge began marketing ...


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