Duffy v. Charles Schwab & Co., Inc.

• Citation: 123 F.Supp.2d 802
• Decision Date: 21 December 2000
• Docket Number: No. CIV. A. 98-4595(MLC).,CIV. A. 98-4595(MLC).
• Court: U.S. District Court — District of New Jersey
• Parties: Howard R. DUFFY, III, and James P. Duffy, d/b/a Retirement Report Card, Plaintiffs, v. CHARLES SCHWAB & CO., INC., Defendant.

123 F.Supp.2d 802

Howard R. DUFFY, III, and James P. Duffy, d/b/a Retirement Report Card, Plaintiffs, v. CHARLES SCHWAB & CO., INC., Defendant.

No. CIV. A. 98-4595(MLC).

United States District Court, D. New Jersey.

December 21, 2000.

COPYRIGHT MATERIAL OMITTED

Gregory S. Gewirtz, argued, Charles P. Kennedy, Robert J. Scheffel, Lerner, David, Littenberg, Krupholz & Mentlik, LLP, Westfield, NJ, Attorney for Plaintiffs.

Ellis I. Medoway, Archer & Greiner, A Professional Corporation, Haddonfield, NJ, Attorney for Defendant.

David Henry Dolkas, argued, Gray Cary Ware & Freidenrich LLP, Palo Alto, CA, Attorney for Defendant, pro hoc vice.

MEMORANDUM OPINION

COOPER, District Judge.

This matter comes before the Court on a motion for partial summary judgment by defendant Charles Schwab & Co., Inc. ("Schwab") pursuant to Federal Rule of Civil Procedure 56 seeking dismissal of the first through fourth claims for relief of plaintiffs Howard R. Duffy, III ("H. Duffy") and James P. Duffy (collectively "Duffy"), which allege misappropriation, unjust enrichment, statutory and common law unfair competition, and breach of an implied contract, respectively. For the reasons expressed below, Duffy's misappropriation, unjust enrichment and unfair competition claims under New Jersey law must be dismissed because Duffy's ideas for the Mutual Fund Report Card and Mutual Fund Profile were not novel. However, Duffy's breach of an implied contract claim under New Jersey law survives summary judgment because genuine issues of material fact exist regarding whether Duffy's idea was novel to Schwab and whether Schwab used Duffy's idea to improve its own mutual fund report.

BACKGROUND

The background facts have been set forth in this Court's Memorandum Opinion dated May 4, 2000,¹ and in the interest of brevity are incorporated by reference herein. In approximately 1994, Duffy sought to form a strategic partnership with the American Association of Retired Persons ("AARP"), Morningstar (a leading supplier of mutual fund data), and Jane Bryant Quinn (a well-known financial writer) to offer an exclusive financial product called the Retirement Report Card ("RRC") to AARP's members. Duffy v. Charles Schwab & Co., 97 F.Supp.2d 592, 594 (2000). The RRC would depict asset allocation and risk and itemize the fees and performance of a particular mutual fund. Id. AARP stated that it would not consider Duffy's proposal because Duffy had not provided proof of his financial integrity and his ability to fund such an enterprise. Id. Jane Bryant Quinn also rejected Duffy's proposal because she did not want to be featured in a business she did not control and she had no interest in controlling Duffy's business. Id.

Following AARP's initial rejection, Duffy contacted start-up business divisions within two large accounting firms, Ernst & Young and, later, Arthur Anderson, about securing initial funding for his company. Id. Duffy was not successful in obtaining such funding. Id. In January 1997, after several attempts by Duffy to consummate a relationship with AARP, Duffy was told by AARP that it had no interest in an exclusive arrangement with Duffy. Id. Thereafter, Duffy abandoned his efforts to establish a relationship with AARP. Id.

On or about February 28, 1997, H. Duffy called Schwab and spoke to Emma Leybin ("Leybin"), the administrative assistant to John Philip Coghlin, seeking to license financial products called the Mutual Fund Profile and the Mutual Fund Report Card to Schwab. Id. at 594-95. Leybin suggested that Duffy prepare a formal presentation and submit it for consideration by David S. Pottruck ("Pottruck"), the President of Schwab. Id. at 595. Pursuant to this request, Duffy prepared a detailed business plan and a research report. Id.

In June 1997, Duffy sent a proposal (the "Proposal"), along with the business plan, research report and other materials, all marked "Proprietary and Confidential," to Pottruck. Id. In the Proposal, Duffy proposed a licensing arrangement by which Schwab would obtain licensing rights to the Mutual Fund Profile and the Mutual Fund Report Card. Id. These products would provide concise summaries of mutual funds in a user-friendly format, enabling investors to objectively evaluate the performance of one or more mutual funds and compare such funds to others in the same peer group. Id.

On July 11, 1997, H. Duffy called Pottruck's office to follow up on Schwab's interest in the Proposal. Id. Pottruck's secretary confirmed receipt of the Proposal and informed Mr. Duffy that it had been forwarded to Tim McCarthy ("McCarthy") of Schwab for further consideration. Id. H. Duffy followed up by calling McCarthy's office. Id. McCarthy's assistant, Gillian Peoples ("Peoples"), told H. Duffy that the Proposal had been lost and asked Duffy to resubmit the information to her. Id. Duffy resubmitted the Proposal to Peoples on July 14, 1997. Id.

On August 20, 1997, H. Duffy returned a call he received from Michelle Swenson ("Swenson"), Senior Vice President of Investment Products and Mutual Fund Research. Id. Swenson told H. Duffy that Schwab had decided not to use Duffy's submissions because it planned to develop its own paper-based product. Id. Swenson then stated that Schwab could use assistance in developing an on-line version of Schwab's paper-based product. Id. H. Duffy responded that he would prepare and submit additional confidential materials for an on-line version of Duffy's products. (See Decl. of Howard R. Duffy, III filed 7-6-00 ("Duffy Decl.") ¶ 14.) Swenson confirmed that Schwab would continue to maintain the confidential nature of Duffy's materials. (Id.) During the conversation, H. Duffy disclosed to Swenson two "proprietary" features of the proposed products and marketing plan that could be successfully used for an on-line version: (1) the concept of offering Schwab's customers the first three reports for free with a modest charge for additional reports, and (2) the concept of permitting a customer who used the comparison report to easily review and switch to better rated mutual funds from Schwab's SELECT LIST products (collectively the "Marketing Ideas").² (See id. ¶ 14; Decl. of James P. Duffy filed 7-6-00 ¶¶ 3-4.)

In response to Swenson's suggestion, Duffy adapted the Proposal for on-line versions of Duffy's products and submitted the materials to Swenson on September 10, 1997. Duffy, 97 F.Supp.2d at 594. H. Duffy spoke to Swenson again on November 11, 1997, at which time Swenson told H. Duffy that Schwab was no longer interested in on-line versions of the Mutual Fund Report Card and Mutual Fund Profile. Id.

On September 23, 1997, Schwab filed three applications for Federal Trademark Registration of the mark CHARLES SCHWAB MUTUAL FUND REPORT CARD. Id. Schwab began marketing the CHARLES SCHWAB MUTUAL FUND REPORT CARD on November 5, 1997. Id.

Duffy filed a Complaint in this Court on October 2, 1998 asserting five counts. Id. at 596. Counts One, Two, and Four primarily related to Schwab's alleged misappropriation of the ideas contained in the Proposal, which were alleged to have been submitted to Schwab in confidence. Id. Counts Three and Five primarily related to Schwab's alleged unlawful use of Duffy's mark, MUTUAL FUND REPORT CARD, in commerce. Id. On May 4, 2000, the Court entered a Memorandum Opinion, in which it held that Schwab was entitled to summary judgment dismissing Count Five of the Complaint and dismissing all claims alleged in Count Three of the Complaint that were based upon trademark infringement. See id. at 602. The Court refused to dismiss all claims alleged in count three, concluding that New Jersey's law of unfair competition recognizes claims for unfair competition that do not require a claimant to prove likelihood of confusion in the eyes of the consuming public, such as misappropriation of a trade secret or a confidential submission. See id. at 600-02.

On July 6, 2000, Schwab filed the present motion for summary judgment, seeking to dismiss the remaining counts of the Complaint. Schwab argues that these counts depend entirely upon whether Duffy can establish misappropriation by Schwab and that Duffy cannot establish a claim for misappropriation because Duffy's submission to Schwab was not novel, confidential, nor adopted and used by Schwab. (See Def.'s Br. in Supp. of Mot. for Summ. J. ("Def.'s Br.") at 1.) In response, Duffy argues that disputed issues of material fact preclude dismissal of the remaining counts and that its claims based on unfair competition, unjust enrichment, and breach of an implied contract are not entirely dependent on its misappropriation claim and should not be so limited. (Pls.' Mem. in Opp'n to Def.'s Mot. for Summ. J. ("Pls.' Br.") at 19-30).

DISCUSSION

Federal Rule of Civil Procedure 56(c) provides that summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment bears the initial burden of showing that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met its initial burden, the non-moving party must present evidence that establishes that a genuine issue of material fact exists, making it necessary to resolve the difference at trial. Id. at 324, 106 S.Ct. 2548; Jersey Cent. Power & Light Co. v. Lacey Township, 772 F.2d 1103, 1109 (3d Cir.1985). A non-moving party may not rely on mere allegations; it must present actual evidence that creates a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

In deciding a motion for summary judgment, the Court must view the evidence in the light most favorable to...