Adobe Sys. Inc. v. Gardiner

• Decision Date: 09 January 2018
• Docket Number: Case No.: GJH–17–648
• Citation: 300 F.Supp.3d 718
• Parties: ADOBE SYSTEMS INCORPORATED, et al., Plaintiffs, v. John P. GARDINER, et al., Defendants.
• Court: U.S. District Court — District of Maryland

300 F.Supp.3d 718

ADOBE SYSTEMS INCORPORATED, et al., Plaintiffs,

v.John P. GARDINER, et al., Defendants.

Case No.: GJH–17–648

United States District Court, D. Maryland, Southern Division.

Signed January 9, 2018

Kara L. Daniels, Arnold and Porter Kaye Scholer LLP, Washington, DC, Michael A. Berta, Sean M. Callagy, Pro Hac Vice; Arnold and Porter Kaye Scholer LLP, San Francisco, CA, for Plaintiffs.

Michael Loyola Rowan, Colleen Coffman Correal, Ethridge Quinn Kemp McAuliffe Rowan and Hartinger, Rockville, MD, Craig James Franco, Odin Feldman and Pittleman PC, Reston, VA, Alyse Lauren Prawde, Timothy Francis Maloney, Joseph M. Creed, Joseph Greenwald and Laake PA, Greenbelt, MD, for Defendants.

MEMORANDUM OPINION

GEORGE J. HAZEL, United States District Judge

Plaintiffs Adobe Systems Incorporated and Adobe Systems Federal LLC (collectively, "Adobe" or "Plaintiffs") bring this action against former employee John P. Gardiner, Open Market Energy LLC, Plurality Energy Solutions, LLC, and VAR Solutions LLC (collectively, "Defendants") alleging that Defendants engaged in a self-dealing scheme, improperly sharing confidential information and collecting payment for sales to which they were not entitled. Plaintiffs bring the following counts against some or all of the Defendants: Breach of Fiduciary Duty (Count I). Breach of Duty of Loyalty (Count II), Breach of Duty of Confidentiality (Count III); Aiding and Abetting Breach of Fiduciary Duties (Count IV); Breach of Employment Contract (Count V); Breach of Reseller Agreements and Partner Code of Conduct (Count VI); Breach of Covenant of Good Faith and Fair Dealing (Count VII): Fraud (Count VIII); and Civil Conspiracy to Defraud (Count IX). Defendants individually move to dismiss all but Count V and Count VI,¹ see ECF Nos. 12, 19, 22, 25, and a hearing was held on November 15, 2017. For the following reasons, Defendants' Motions to Dismiss are granted, in part, and denied, in part.

I. BACKGROUND²

A. Parties

Adobe Systems Incorporated ("Adobe Incorporated") is a Delaware corporation with its principal place of business in San Jose, California. ECF No. 1 ¶ 11. Adobe Incorporated is a large software company that markets and licenses its products to customers through its sales force and also distributes its products through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers and original equipment manufacturers. Id. Adobe Systems Federal LLC ("Adobe Federal") is a wholly-owned subsidiary of Adobe Incorporated and a Delaware corporation with its principal place of business in McLean, Virginia. Id. ¶ 12.

Defendant Gardiner was employed by Adobe Federal from 2005 to March 3, 2017, and served as a sales representative within Adobe's Public Sector team. Id. ¶ 14. The Public Sector team oversees the marketing of Adobe Connect, which is a software designed to facilitate web conferencing. Id. ¶¶ 14, 16. Adobe does not license Adobe Connect directly to the federal government; rather, Adobe typically licenses Adobe Connect to a distributor who then licenses it to the federal government directly or through an Adobe Connect authorized reseller. Id. ¶ 14. As an Adobe Connect sales representative. Gardiner was responsible for generating interest in Adobe Connect amongst resellers and the federal government and providing distributors or authorized resellers with bid requests from end users. Id. ¶ 15.

Defendant Gardiner is also alleged to be the sole owner and principal corporate officer of Open Market Energy LLC ("OME"). OME is an energy advisor that helps clients find deals on electricity and natural gas, with its principal place of business at 7625 Wisconsin Ave., Suite 300, Bethesda, Maryland, 20814. Defendant Plurality became an authorized reseller in September 2012. Id. ¶ 17. At that time, Defendant Gardiner was an officer of Plurality and held the title of Vice President. Id. ¶ 36. Plurality is a Mississippi company with its principal place of business in Bay St. Louis, Mississippi but also maintains an office at 7625 Wisconsin Avenue, Suite 300. Id. ¶ 17. VAR Solutions LLC ("VAR Solutions") is a Maryland corporation also with its principal place of business at 7625 Wisconsin Avenue, Suite 300. Id. ¶ 18. VAR Solutions is owned by Matthew Gardiner, Defendant Gardiner's brother. Id.³

B. Adobe Connect Program Agreements

To become an authorized Adobe Connect reseller, an interested company must be approved by Adobe and execute an Adobe Connect Value Added Reseller Agreement ("Reseller Agreement"). Id. ¶ 20. The Reseller Agreement contains restrictions on the reseller's use of confidential information provided by Adobe and allows Adobe to terminate the contract should the reseller misuse the confidential information. Id. Authorized resellers can also participate in the Adobe Connection Deal Registration Program, which offers incentives of up to 20% of the value of the deal to resellers that help facilitate licenses of Adobe Connect to end users. Id. ¶ 21. Resellers typically obtain credit for such deals by registering them in a Salesforce.com database. Id. Adobe maintains the database and relies on its sales representatives to confirm the reseller's involvement in the underlying deal registration. Id. Plurality was an authorized reseller and participated in the Adobe Connect Deal Registration Program. Id.

Authorized resellers must also comply with the authorized reseller Program Guide and complete the North America Vendor Questionnaire. Id. ¶¶ 22, 23. Per the Program Guide, "[resellers] agree to only enter valid information" when registering deals, and "deals which are already being managed by an Adobe Sales Rep, in which no partner involvement is required" do not qualify for deal registrations. Id. ¶ 22. Per the Vendor Questionnaire, resellers agree not to "pay, promise or offer to pay, directly or indirectly, any money or any other thing of value to any person for the purpose of improperly influencing any decision or action on behalf of Adobe" and must disclose if any of its "employees, owners, officers or directors" are "also current or former employees of Adobe or spouses or close family members of Adobe employees." Id. ¶ 23. The Vendor Questionnaire also requires authorized resellers to follow Adobe's Business Partner Code of Conduct ("Partner Code"), which provides that "Adobe employees and their family members may not hold any significant economic interest in any entity that does business with Adobe and business partners are required to avoid such relationships with Adobe employees." Id. ¶ 26.

Defendant Gardiner, as an employee of Adobe, was subject to the same Conflicts of Interest Policy contained in the Partner Code and was required to periodically execute Adobe's Conflicts Questionnaire, in which he was obligated to disclose any actual or potential conflicts of interest with his work for Adobe, "including whether he or a related party is employed by, or holds an investment in, any Adobe customer, channel partner, or supplier." Id. ¶ 29. Gardiner completed the Conflicts Questionnaire in 2014, 2015, and 2016 and answered each pertinent question pertaining to conflicts of interest in the negative. Id. Similar prohibitions on conflicts of interest are contained in Adobe's Business Conduct Code, Anti–Corruption Policy, and Public Sector Code to which Gardiner and Plurality were obligated to follow. Id. ¶¶ 32–34.

C. Alleged Kickback Scheme

Adobe alleges that Gardiner facilitated approval of Plurality as an Adobe Connect reseller in September of 2012. Id. ¶ 35. Specifically, on September 21, 2012, Gardiner organized via email a "Plurality Reseller Discussion" with the officers of Plurality and later represented to Adobe that Plurality was interested in becoming an authorized Adobe Connect reseller. Id. While Plurality did not meet the requirements to become a reseller, Gardiner was able to push through Plurality's approval even though Plurality had not yet completed the business plan and paperwork as required. Id. On October 5, 2012, Gardiner organized another meeting with Plurality officers, with the calendar invitation titled "Plurality Company Structure and meetings." Id. At this same time, Gardiner, through his wholly-owned company OME, wired $20,000 to Plurality as a loan and on October 24, 2012, sent an email to Plurality indicating that "OME would loan Plurality more money ‘so we can meet our numbers.’ " Id. ¶ 36. At no point did Gardiner or Plurality disclose Gardiner's role as Vice President of Plurality or any association with OME.

Once Plurality became an authorized reseller, Gardiner allegedly directed a scheme whereby he would provide Plurality with confidential information regarding deal registration opportunities, allowing Plurality to either match or beat potential bids from other resellers or obtain credit for deals generated by, or solely directed to, Gardiner even though Plurality had not contributed to the deal in a meaningful way. Id. ¶¶ 38, 40. Gardiner used his role at Adobe to approve the deal registrations whenever Plurality ran into problems. Id. ¶ 39. Cumulatively, Adobe has paid over $5 million to Plurality in deal registration payments. Id. ¶ 43.

In addition to Plurality, Adobe alleges that Gardiner shared confidential information with, and directed deals to, other resellers. Id. ¶ 41. These resellers did not compensate Gardiner directly; rather, VAR Solutions would obtain payment from these resellers through fabricated invoices for consulting services, "despite VAR Solutions having not contributed to the deal or provided bona fide consulting services." Id. ¶ 41. VAR Solutions then transferred payments relating to the deal registrations to Gardiner either through transfers to OME or investments made on Gardiner's behalf, including investing in the entity that owns the Bethesda building housing offices for OME, VAR Solutions, and Plurality. Id. Adobe alleges that Plurality coordinated a similar effort to...