Eli Research, Inc. v. United Communications Group, No. 1:02 CV 00787.

• Decision Date: 06 April 2004
• Docket Number: No. 1:02 CV 00787.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: ELI RESEARCH, INC., Idapat Corporation, Plaintiffs, v. UNITED COMMUNICATIONS GROUP, LLC, Henry Sporn, Alison Knopf, Elizabeth Heath, Elizabeth Glaser, Defendants.

312 F.Supp.2d 748

ELI RESEARCH, INC., Idapat Corporation, Plaintiffs, v. UNITED COMMUNICATIONS GROUP, LLC, Henry Sporn, Alison Knopf, Elizabeth Heath, Elizabeth Glaser, Defendants.

No. 1:02 CV 00787.

United States District Court, M.D. North Carolina.

April 6, 2004.

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Frank Marshall Wall, Cranfill, Sumner & Hartzog, Raleigh, NC, for plaintiff.

Amie Flowers Carmack, Kennedy Covington Lobdell & Hickman, L.L.P., Raleigh, NC, for defendant.

Ashley Lee Hogewood, III, Ann M. Anderson, Kennedy, Covington, Lobdell & Hickman, L.L.P., Raleigh, NC, Karen M. Lockwood, Christopher J. Dellicarpini, Howrey, Simon, Arnold & White, LLP, Washington, DC, for defendant/counter-claimant.

Gregory W. Brown, Cranfill, Sumner & Hartzog, Raleigh, NC, for plaintiff/counter-defendant.

MEMORANDUM OPINION and ORDER

OSTEEN, District Judge.

Plaintiffs Eli Research, Inc. ("Eli") and Idapat Corporation ("Idapat") filed this action against Defendants United Communications Group, L.P. ("UCG"), Henry Sporn, Alison Knopf, Elizabeth Heath, and Elizabeth Glaser (collectively, "the Editors"). Plaintiffs assert a wide variety of claims, including claims for violations of the Lanham Act, 15 U.S.C. § 1125 et seq., civil conspiracy, defamation, fraud, negligent misrepresentation, misappropriation of trade secrets, unfair and deceptive trade practices, conversion, negligence, breach of duty of good faith, breach of contract, and tortious interference with contractual relations. Plaintiffs seek compensatory and punitive damages, as well as an injunction. This matter is now before the court on Defendants' Motion to Dismiss. For the reasons stated herein, Defendants' motion will be granted in part and denied in part.

I. FACTUAL BACKGROUND

The following facts are presented in the light most favorable to Plaintiffs.¹

Plaintiff Eli is a Durham, North Carolina-based company engaged in, among other things, the production of newsletters for hospitals, physicians, and other health care providers. On March 29, 2002, Eli purchased the assets of Florida-based Global Success Corporation ("GSC").² Among the assets purchased was a line of 23 "specialty specific medical coding" newsletters³ published by GSC under the business name "The Coding Institute." Along with these newsletters, Eli purchased assorted publication methodologies, subscriber data, style guides, and other materials necessary for engaging in the specialty specific medical coding newsletter industry.

Defendants Henry Sporn, Alison Knopf, Elizabeth Heath, and Elizabeth Glaser were each employed as independent contract editors by GSC/The Coding Institute. Each had executed contracts that included provisions barring disclosure of GSC's secret materials and methodologies and non-competition clauses. After the sale of GSC's assets, the Editors began to work for Eli as contributing editors and writers for Eli's newsletters. Eli paid the Editors for work they performed for GSC before the asset sale and for work done for Eli afterwards. Sometime after the asset sale, Eli approached the Editors and proposed new contracts to govern their relationship with Eli. The Editors refused to sign the new contracts, and instead offered to work under the same terms that had governed their relationship with GSC. Eli accepted this offer.

In April 2002, the Editors approached Defendant UCG and discussed the possibility of launching specialty specific medical coding publications with UCG. UCG is engaged in a wide variety of publishing operations, with a subscriber base of over 2,000,000. In addition, UCG is a competitor of Eli's in the specialty specific medical coding field. While the Editors engaged in these discussions with UCG, they continued to work for Eli. In late May and early June 2002, each of the Editors resigned from Eli and soon thereafter began working for UCG. UCG then began publishing several specialty specific medical coding newsletters in fields in which it had never before published, including obstetrics, pediatrics, general surgery, ophthalmology, otolaryngology, urology, radiology, and gastroenterology. Plaintiffs allege that UCG could not get these new publications off the ground without the assistance of the Editors and the use of secret materials of either GSC or Eli that were the subject of the Editors' non-disclosure agreements.

On September 12 and 13, 2002, Eli filed separate lawsuits against UCG and each of the Editors in the Superior Court of Durham County, North Carolina. UCG removed its case to this court, while the state court entered a temporary restraining order against the Editors. The Editors then removed their cases to this court. On October 2, 2002, this court consolidated the cases⁴ and granted a preliminary injunction against Defendants that was later dissolved.

On April 7, 2003, this court permitted Eli to file a new complaint. On April 28, 2003, Eli filed its second amended complaint, adding Idapat as a plaintiff and adding several new claims. On May 28, 2003, Defendants moved to dismiss Idapat and all but one of Plaintiffs' claims for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6).

II. ANALYSIS

A. Standard of Review

A court should dismiss a case for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6) "only in very limited circumstances." Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir.1989). When considering a motion to dismiss, the court must evaluate the complaint in the light most favorable to the plaintiff, accepting as true all well-pleaded factual allegations. Randall v. United States, 30 F.3d 518, 522 (4th Cir.1994). Dismissal should not be granted "unless it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief." Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.1993). The Supreme Court has emphasized that all that is required at this stage is "a short and plain statement of the claim" sufficient to "give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 998, 152 L.Ed.2d 1 (2002) (quoting Conley v. Gibson, 355 U.S. 41, 47-48, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957)). The Court went on to note that this "simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Id.

B. Contract Claims

Plaintiffs assert four claims based on their contractual relations: two claims for breach of contract, one claim for tortious interference with contractual relations, and one claim for bad faith breach of contract.

In deciding non-federal questions, federal courts must apply the law of the state in which they sit. United States v. Little, 52 F.3d 495, 498 (4th Cir.1995); New England Leather Co. v. Feuer Leather Corp., 942 F.2d 253, 255 (4th Cir.1991). Under North Carolina law, rules affecting the substance of a claim are governed by lex loci, the law of the situs of the claim. Boudreau v. Baughman, 322 N.C. 331, 335, 368 S.E.2d 849, 853-54 (1988). For a contract claim, the governing law is determined by lex loci contractus, or the law of the place where the contract was formed. Fortune Ins. Co. v. Owens, 351 N.C. 424, 428, 526 S.E.2d 463, 466 (2000). The place where a contract is formed is determined by the "place at which the last act was done by either of the parties essential to a meeting of the minds." Key Motorsports, Inc. v. Speedvision Network, LLC, 40 F.Supp.2d 344, 347 (M.D.N.C.1999) (quoting Fast v. Gulley, 271 N.C. 208, 212, 155 S.E.2d 507, 510 (1967)).

Plaintiffs first allege breach of the contracts between the Editors and GSC. GSC was a Florida corporation with its principal offices in Naples, Florida. It is not clear where the last act by either of the parties essential to a meeting of the minds occurred, but Plaintiffs have sufficiently alleged a claim for breach of contract under either Florida or North Carolina law.

Defendants' central argument with regard to the GSC contracts is that under Florida law, personal service contracts are not assignable without consent of the parties. See Orlando Orange Groves Co. v. Hale, 119 Fla. 159, 161 So. 284, 290 (1935); see also Corporate Express Office Prods., Inc. v. Phillips, 847 So.2d 406, 413-14 (Fla.2003) (holding that personal service contracts may be enforced by the surviving corporation after a merger, but that the employee's consent is required when a personal service contract is purported to be assigned in a sale of assets). An employee's continued employment with the new corporation standing alone is not sufficient to constitute consent to the assignment of the contract. Johnston v. Dockside Fueling of N. Am., Inc., 658 So.2d 618, 619 (Fla.Dist.Ct.App.1995); Schweiger v. Hoch, 223 So.2d 557, 559 (Fla.Dist.Ct.App.1969).

Based on these cases, Defendants contend that Plaintiff Eli cannot state a claim upon which relief can be granted based on the GSC contracts, since Eli cannot enforce them without consent. Here, however, Plaintiffs have alleged that the Editors offered to work for Eli under terms identical to the GSC contracts, and that Eli accepted their offers. (Second Am. Compl. ¶¶ 110-11, 113.) These assertions are sufficient to allege consent to the assignment of the contracts because they indicate a knowing agreement to the terms of the contract with a new employer, rather than merely continuing to work for the employer without discussing terms as in Johnston and Schweiger. Plaintiffs subsequently allege breach of these contracts. (Id. ¶¶ 126-27, 420-21.) As such, Plaintiffs have stated a claim for breach of the GSC contracts, and Defendants' motion as to this claim will be denied.

Eli also asserts a...