IP Law Daily, TRADE SECRETS—N.D. Ohio: Court tosses DTSA claims against medical group co-founder, (Jun 6, 2023)

By Jonathan Anderson

Plaintiffs did not provide sufficient evidence showing the asserted secrets would derive any independent economic value or that the information was kept confidential.

A federal district court in Cleveland, Ohio, has held that the co-founder of a group of medical practices did not misappropriate trade secrets when he sought to sell his shares to a competitor. The court found that the purported trade secret information did not qualify as a trade secret on multiple grounds, including because plaintiffs failed to demonstrate the asserted secrets would derive any independent economic value or that certain information was kept confidential, among other reasons. The court declined to exercise jurisdiction over the remaining claims, which the court dismissed without prejudice (Health Care Facilities Partners, LLC v. Diamond, June 5, 2023, Brennan, B.).

Plaintiffs, 23 affiliated medical companies, sued one of their co-founders, an attorney, alleging that he shared protected information to a competitor to advance his own interests in violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836, et seq. After the defendant began representing the competitor, he proposed selling his shares in plaintiffs to the competing firm. Amid discussions about that proposal, defendant sent the competing firm various records from plaintiffs, including operating agreements, corporate activity information, and financial statements.

Independent economic value. The court found that plaintiffs failed to demonstrate certain purported trade secrets derived any independent economic value. Plaintiffs’ arguments amounted to legal conclusions and lacked discrete, particularized facts to substantiate the conclusions. “The Court must look for facts and evidence in the record which contain some objective indicia of (or rationale for) independent economic value derived from secrecy. Plaintiffs did not come forward with specific facts and evidence that would substantiate a finding of independent economic value for any of the documents identified as the putative trade secrets,” the court wrote. As such, the court found that plaintiffs proffered no evidence from which a reasonable jury could conclude that the materials constituted a trade secret.

Additional reasons for DTSA holding. The court went on to identified additional reasons why the defendant was entitled to judgment, which included:

• Plaintiffs failed to submit evidence of measures to keep certain records confidential.

• Certain information was available publicly on plaintiffs’ website.

• Asserted secret information was not included in materials disclosed by defendant.

• Certain plaintiffs lacked claims because they were not owners or licensees under the DTSA.

Declaratory judgment claim. The court declined to resolve the complaint’s declaratory judgment claim and dismissed it without prejudice, concluding that it would be best addressed in Ohio state court. The claim may be an issue of first impression: “whether unanimity was required among the members of an LLC organized under Ohio law – prior to the April 12, 2021 effective date of Ohio Rev. Code § 1706.082(A) – to amend an operating agreement that is silent on the issue.”

Supplemental jurisdiction. Finally, the court declined to exercise supplemental jurisdiction over the remaining state law claims and counterclaims, all of which the court dismissed without prejudice. The court wrote that the remaining state law claims “raise novel and complex issues of Ohio law” for which state courts are best suited.

The Case is No. 5:21-cv-01070-BMB.

Attorneys: Barton W. Cox (Norton Rose Fulbright) for Health Care Facilities Partners, LLC. Christopher A. Tipping (Stark & Knoll Co. L.P.A.) for Jack Diamond.

Companies: Health Care Facilities Partners, LLC

Cases: TradeSecrets OhioNews