Compass Mktg. v. Flywheel Dig.

• Decision Date: 24 February 2023
• Docket Number: Civil Action GLR-22-379
• Parties: COMPASS MARKETING, INC., Plaintiff, v. FLYWHEEL DIGITAL, LLC, et al., Defendants.
• Court: U.S. District Court — District of Maryland

COMPASS MARKETING, INC., Plaintiff, v. FLYWHEEL DIGITAL, LLC, et al., Defendants.

Civil Action No. GLR-22-379

United States District Court, D. Maryland

February 24, 2023

MEMORANDUM OPINION

George L. Russell, III United States District Judge

THIS MATTER is before the Court on Defendants Flywheel Digital LLC (“Flywheel”), James Columbus DiPaula, Jr. Patrick Miller, and Ascential, PLC's (collectively “Flywheel Defendants”) Motion to Dismiss (ECF No 23), Defendants Michael White and George White's Motion to Dismiss (ECF No. 41), and Defendant Daniel White's Motion to Dismiss (ECF No. 42). The Motions are ripe for disposition, and no hearing is necessary. See Local Rule 105.6 (D.Md. 2021). For the reasons set forth below, the Court will grant the Motions.

I. BACKGROUND^[1]

A. Factual Background

Plaintiff Compass Marketing, Inc. (“Compass”) is a successful marketing company led by John White that helps large retail companies market consumer products online.

(Compl. ¶¶ 2, 18, 32, ECF No.1). Compass brings this sprawling lawsuit against Daniel and Michael White, John's brothers, George White, John's nephew, DiPaula and Miller, former Compass employees, and Flywheel and Ascential, PLC, Compass' competitors. (See generally id.). The eighty-page Complaint covers a host of claims, but primarily alleges that Flywheel Defendants stole Compass' trade secrets or otherwise benefitted from their use, and Daniel, Michael, and George engaged in widespread fraud. Specifically, Compass claims that Daniel and Michael engaged in fourteen years of “substantial mail and wire fraud, money laundering, embezzlement, and attempted extortion” so that they could “finance a life of luxury for themselves and their immediate family members.” (Id. ¶¶ 97-98). Further, Compass alleges that George locked its IT systems in an extortion attempt. (Id. ¶ 256).

1. Trade Secret Allegations against Flywheel Defendants

Since its formation in 1998, Compass has built a robust eCommerce department “that served the biggest [consumer product] manufacturers in the world,” such as Amazon, Staples, and Office Depot. (Id. ¶ 3). Compass has expended significant resources to create the proprietary business methods and strategies that have led it to success. (Id. ¶ 4). In 2010 and 2011, Compass hired DiPaula and Miller to run its eCommerce department. (Id. ¶ 5). DiPaula and Miller did not have prior eCommerce experience, so Compass trained them extensively on its proprietary methods. (Id. ¶¶ 5, 51). Eventually, DiPaula and Miller became “trusted senior executives” running “the fastest growing part of Compass.” (Id. ¶ 5).

But DiPaula and Miller sent John their resignations on September 4, 2014. (Id. ¶¶ 15, 75). In his message, Miller thanked John for the opportunity and told him, “Like you, I've long wanted to own my own company. To do so, I'm . . . resigning from Compass.” (Id. ¶ 75). DiPaula and Miller formed Flywheel, “a rival eCommerce company,” the day before they resigned. (Id. ¶¶ 76-77).

Compass alleges that in 2014, DiPaula, Miller, and Flywheel stole “virtually all of Compass's trade secrets.” (Id. ¶ 76). Further, Compass claims that its opportunities “changed drastically” when Flywheel was founded, as “Flywheel offered and continues to offer identical services as Compass.” (Id. ¶ 61). On October 1, 2014, less than a month after their resignations, DiPaula emailed John to ask whether he and Miller could buy Compass' eCommerce wing, stating, “Patrick and I remain interested in the spin-off concept, as we feel vested in our colleagues we recruited and trained, and the clients we have nurtured these past few years.” (Id. ¶ 78 (emphasis in original)). On October 8th, DiPaula emailed John again and emphasized “the urgency of completing an agreement quickly,” and repeating their interest in buying Compass' eCommerce business. (Id. ¶ 80). That sale does not appear to have taken place, and Compass alleges that “unbeknownst” to the Company or John, DiPaula and Miller had already stolen Compass' proprietary information. (Id.).

Daniel served as Compass' General Counsel at the time. (Id. ¶ 18). Compass alleges that John showed the DiPaula and Miller emails to Daniel “and sought legal advice regarding how [Compass] should proceed.” (Id. ¶ 81). According to Compass, Daniel advised against pursuing legal action against the Flywheel Defendants “and should instead compete with Flywheel in the marketplace.” (Id.). Compass claims that it had “no corresponding knowledge or suspicion that DiPaula and Miller had stolen Compass's trade secrets.” (Id.).

In October 2016, Compass alleges that DiPaula and Miller poached six prominent Compass eCommerce employees for Flywheel's benefit: Justin Liu, eCommerce Account Manager; Andrew Fox, another eCommerce Account Manager; Mike O'Donnell, eCommerce Strategist; Alex McCord, Vice President and Accounts Manager of eCommerce; Dayna Acevedo, Chief of Staff; and Mike Menefee, eCommerce Account Executive (the “eCommerce Team”). (Id. ¶ 83). When they left, the eCommerce Team took with them a decade of specialized training, and perhaps even more significantly, “electronic or hard copy files that memorialized Compass's trade secret, proprietary, and confidential information regarding maximizing sales on Amazon.” (Id. ¶ 85). The eCommerce Team continues to work at Flywheel. (Id. ¶ 83).

On January 20, 2020, a Compass employee discovered an August 25, 2015 Profitero article written by Miller titled, “The Future of Amazon Fresh?” (Id. at 42 n.1). The last line of the article stated, “Patrick Miller, Co-Founder, Flywheel Digital spent the last four years deconstructing eCommerce sites and helping American manufacturers figure out Amazon from a brand, search, social, customer service, supply chain, pricing and sales perspective.” (Id. ¶ 184). After discovering the article, Compass engaged in “further research” and found a Flywheel power point presentation online that Miller gave at a conference on November 5, 2015. (Id. ¶ 186). Compass learned that Miller had included a review of several Compass clients or former clients in his presentation. (Id.). In any event, Compass claims that it was not until January 2020 upon discovering the 2015 article that Compass “investigated whether any of the clients that left Compass since 2014 subsequently engaged Flywheel.” (Id. ¶ 192). Indeed, it learned belatedly, Flywheel poached “a long list of Compass eCommerce clients,” including Proctor & Gamble, Colgate, Johnson & Johnson, and McCormick. (Id. ¶ 193).

2. Claims of Widespread Fraud against the Whites

Compass alleges that Daniel, Michael, and George (collectively, the “Whites”) engaged in several fraud schemes to steal millions from Compass. As explained above, Daniel served as Compass' General Counsel from 1998 to November 23, 2018. (Id. ¶ 18). Michael, Daniel and John's brother, was Vice President of Operations and Comptroller of Compass from 2011 to November 23, 2018. (Id. ¶ 19). Finally, George, Michael's son, worked at Compass “managing Compass's IT systems” from 2004 until April 29, 2019. (Id. ¶ 20).

On November 1, 2018, Ascential, PLC bought Flywheel for $400 million. (Id. ¶ 21). Within a few days of the sale, “a storm began brewing inside [Compass] that involved Michael and Daniel White.” (Id. ¶ 91). Compass alleges that a few days before the sale, Michael sent out a company-wide email “disparaging” John. (Id. ¶ 94). Compass does not explain how exactly Michael disparaged John or what caused the “storm” to brew. (See generally id.). Regardless, Compass unceremoniously explains that John fired Daniel and Michael on November 23, 2018. (Id. ¶ 94). After the firing, Compass hired a criminal investigator to look into Daniel and Michael's conduct at the company and discovered extensive unlawful activity. (Id. ¶ 97).

Compass claims that the Whites engaged in sweeping fraudulent schemes, which the Court condenses below:

Regarding the “Secret Compass Bank Account Scheme”:

• On December 1, 2008, Michael and Daniel opened a checking account at the Community Bank of the Chesapeake and on June 15, 2009, Michael opened a separate savings account there, (id. ¶¶ 99-100);

• “From 2008 to 2020, Michael and Daniel White used these Secret Bank Accounts to financially benefit themselves” and their families, including by paying for their life insurance policies, an “unrelated gambling business,” and a $200,000 transfer to the Washington Commanders football team, (id. ¶¶ 104-05);

• “[D]isbursements from the Secret Bank Accounts show that more than $3.4 million was disbursed to Michael, and more than $632,000 was disbursed to Daniel,” (id. ¶ 106);

Regarding the “Ghost Employee Scheme”:

• In 1998, Daniel and Michael added Michael's wife to Compass' payroll and “[p]rior to April 1, 2010,” although Compass does not specify when exactly, Daniel and Michael added Daniel's wife to the payroll, (id. ¶¶ 109-10);

• In 2017, Daniel and Michael added Daniel's daughter to the Compass payroll, (id. ¶ 111);

• “In or around 2015,” Daniel and Michael added one of Daniel's “colleague[s]” to Compass' payroll, (id. ¶ 112); . ..

• Those individuals received payroll deposits from Compass, (id. ¶ 115);

• From 1998 to 2019, Michael covered up these “ghost employees” by creating false spreadsheets, (id. ¶ 118);

Regarding the “IRS Tax Check Scheme”:

• “Michael created a tax check scheme that allowed him and Daniel to have money embezzled from Compass be rebated back from and through the Internal Revenue Service,” (id. ¶ 119);

• Michael issued himself additional electronic payroll payments as 100% tax withholding, “and would go to the IRS and to the state of Maryland,” (id. ¶ 120);

• Michael “exclusively controlled” the payments and Michael and Daniel “embezzle[ed] millions of dollars

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