Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—1st Cir.: Placement firm must disgorge profits obtained using misappropriated trade secrets of competitor, (Jul 31, 2024)

By Ronald Miller, J.D.

The appeals court concluded that imposing joint-and-several liability was inconsistent with traditional equitable principles.

The First Circuit denied a placement company’s request for a new trial, to remit an exemplary damages award, and to remit a jury’s lost profits award, in a suit alleging that it misappropriated the trade secrets and confidential information of a competitor and were unjustly enriched by its activities. The company was also found to have tortiously interfered with the competitor’s prospective business relationships and violated the prohibitions on unfair and deceptive trade practices in the Massachusetts Consumer Protection Law. However, the appeals court agreed with Catapult that “[t]he disgorged profits from the placement of Dr. Fratazzi” are “duplicative of BioPoint’s lost profits claim.” Judge Rikelman filed a separate opinion dissenting in part (Biopoint, Inc. v. Dickhaut, No. 23-1575 (1st Cir. July 30, 2024)).

BioPoint is a life sciences consulting firm based in Massachusetts, which scouts for highly skilled candidates to place in temporary positions at pharmaceutical, biopharmaceutical, and medical device companies. Those companies pay BioPoint a rate for the candidates’ services, and BioPoint remits a portion of that payment to the candidates, profiting from the difference. Catapult, based in Texas, is also a placement company that operated in other industries until it attempted to enter the same field as BioPoint. Catapult opened a Boston office in 2017 and hired Andrew Dickhaut as Managing Director. After a “disastrous” first year for the Boston office, Catapult began to target the life sciences industry.

Confidential business information. In December 2017, a talent acquisition consultant at Moderna contacted a BioPoint employee seeking to fill a life sciences placement at his company. The BioPoint employee was Dickhaut’s fiancée. Moderna had a candidate in mind and suggested that the candidate be placed through BioPoint. The BioPoint employee proposed that Moderna allow Dickhaut to handle the placement through Catapult, not through BioPoint.

In February 2018, the talent acquisition consultant moved to Vedanta, a biotechnology company. Dickhaut, through his fiancée who was still at BioPoint, was making inroads at Vedanta. In

December 2018, Catapult and Vedanta entered into a “managed services provider” (MSP) agreement, under which Catapult would manage all of Vedanta’s candidates’ labor contracts.

In January 2019, Vedanta has an opening for a “study team leader.” Dickhaut asked his fiancée to give him both BioPoint’s bill and pay rates for that role and also to give him names of suitable potential candidates from information she had at BioPoint. The fiancée was warned by BioPoint that she was not allowed to share any of BioPoint’s confidential information with Dickhaut. Nevertheless, she provided Dickhaut with information on BioPoint’s pay rate for a clinical operations director, and also discussed candidates for Vedanta positions obtained from BioPoint’s system.

In March 2019, Vedanta needed to hire a medical director. When Dickhaut was having trouble finding someone, he turned to his fiancée for help. The fiancée inquired of her supervisors whether BioPoint could partner with Catapult to help fill that role. They refused and reiterated that they had “no interest in partnering with a competitor.”

Nonetheless, using BioPoint’s database information provided by his fiancée, Dickhaut went on to place three candidates in the medical director role, including Dr. Fratazzi, each of whom had been or was being vetted by BioPoint.

BioPoint terminated the fiancée’s employment on December 4, 2019, after discovering that she had helped Dickhaut place a candidate at Vedanta. In May 2020, Vedanta terminated its MSP agreement with Catapult.

On January 21, 2020, BioPoint sued Catapult, Dickhaut, and his fiancée. BioPoint alleged: (1) misappropriation of trade secrets in violation of the Massachusetts Uniform Trade Secrets Act (MUTSA); (2) misappropriation of trade secrets in violation of the federal Defend Trade Secrets Act (DTSA); (3) tortious interference with prospective relationships in violation of Massachusetts common law; and (4) unfair and deceptive trade practices in violation of chapter 93A.

Jury findings. The jury found that Catapult had misappropriated trade secrets concerning the firms of Vedanta and Shire/Takeda, as well as individual candidates, and that it had tortiously interfered with BioPoint’s business relationship with a specified candidate. The jury awarded BioPoint $312,000 in damages “as reasonable compensation for the damages it incurred in the placement of a candidate because of Andrew Dickhaut’s and Catapult’s conduct[.]”

Equitable claims. The district court then held a bench trial on the issues of whether Catapult had been unjustly enriched by its misappropriation of BioPoint’s trade secrets, whether Catapult had engaged in unfair and deceptive trade practices, whether that conduct was knowing and willful, and what damages were warranted. After the trial, the court granted awards on the equitable claims. The court correctly stated that “the unjust enrichment ‘attributable’ to trade secret misappropriation is distinct from the issue of whether a defendant appropriated a trade secret.” “Catapult’s use of BioPoint’s trade secret ha[d] already been determined by the jury,” thus laying the basis for an unjust enrichment award by the court.

As to the Chapter 93A claims, the court found that the jury’s verdict amply supported a determination that Catapult violated Chapter 93A and that no further findings of fact on this issue were required. Accordingly, the court held that BioPoint was entitled to the entirety of Catapult’s profits arising from its relationship with Vedanta, because those profits “were made possible because of BioPoint’s trade secret information and therefore amount to unjust enrichment”; and that Catapult was liable under Chapter 93A and that its conduct was knowing and willful under the statute, which authorized an award of exemplary damages. The court also held Dickhaut’s conduct was imputable to Catapult as his employer under the long-established principles of vicarious liability. As to damages, the court awarded treble damages jointly against Dickhaut and Catapult, totaling $5,061,444.

After the district court denied Catapult’s request for judgment as a matter of law, a new trial, remittitur, and amendment of the judgment, Catapult appealed to First Circuit.

Unjust enrichment. Catapult first argued that the district court erred in awarding to BioPoint as unjust enrichment the entirety of the profits that it derived from its relationship with Vedanta. The appeals court noted that Catapult did not argue before the district court that the “head start rule” was inapplicable.

The jury had already determined that Catapult was liable with respect to the placement of Dr. Fratazzi, and the amount of gain (not including lost profits) that was attributable to, or which arose on account of, Catapult’s improper conduct was for the court to decide as an equitable matter. The district court did not err in finding that but for Catapult’s misappropriation of BioPoint’s trade secrets, it would not have had a business relationship with Vedanta, such that all of the Vedanta profits arose on account of Catapult’s misappropriation and thus were recoverable as unjust enrichment.

In the special verdict form, the jury found, too, that Catapult had misappropriated trade secrets concerning Vedanta, separately from its finding of misappropriation concerning Dr. Fratazzi and other candidates. The district court appropriately relied on this jury finding in disgorging the Vedanta profits.

However, the appeals court agreed with Catapult that “[t]he disgorged profits from the placement of Dr. Fratazzi” are “duplicative of BioPoint’s lost profits claim.” Under the governing law, BioPoint may not recover both the lost profits associated with Dr. Fratazzi and the unjust enrichment that accrued to Catapult as a result of her placement. The district court awarded $52,356 as disgorged profits for the placement of Dr. Fratazzi, and then trebled that sum, for a total of $157,068. Because this constituted clear error, the unjust enrichment award must be reduced by that amount.

Joint and several liability. Catapult further contended that the district court improperly disgorged Dickhaut of unreceived profits when it held him jointly and severally liable for the unjust enrichment award. The appeals court agreed that holding an individual like Dickhaut jointly and severally liable for the entirety of his employer’s unjust enrichment was erroneous. The district court denied Catapult’s request to “specify that the unjust enrichment award [was] against Catapult only.” The district court disagreed, maintaining Dickhaut’s joint-and-several liability because he “collaborated with and ranks high in the firm.

The appeals court read Liu v. SEC, 591 U.S. 71 (2020), differently than the district court. Liu explicitly recognized that—notwithstanding the general rule against joint-and-several liability for profits that have accrued to another—the common law permitted “some flexibility to impose collective liability” in equity, specifically on “partners engaged in concerted wrongdoing.”

Here, BioPoint did not dispute that the profits attributable to trade-secret misappropriation accrued to Catapult and not to Dickhaut. Thus, the district court should have analyzed whether joint-and-several liability would be consistent with traditional equitable principles at common law. The district court did not conduct this inquiry. Accordingly, the appeals court concluded that imposing joint-and-several liability on Dickhaut was inconsistent with traditional equitable principles.

Partial dissent. Dissenting in part from the majority opinion, Judge Rikelman argued that the district court’s unjust enrichment award went far beyond the jury’s verdict on the extent of Catapult’s liability for using BioPoint’s trade secrets. According to the dissent, because the trade secret statutes allow a plaintiff to recover only unjust enrichment “caused by’ a defendant’s misappropriation, the court erred as a matter of law in awarding the entirety of Catapult’s Vedanta profits to BioPoint. Thus, the dissent would vacate and remand for a recalculation of the unjust enrichment award before any trebling under chapter 93A.

The case is No. 23-1575.

Judge: Lynch, S.

Attorneys: Dana A. Zakarian (Smith Duggan Cornell & Gollub) for Catapult Staffing, LLC, dba Catapult Solutions Group. Allison L. Anderson (Foley Hoag) for Biopoint, Inc.

Companies: Biopoint, Inc.; Catapult Staffing, LLC dba Catapult Solutions Group

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