Herley Indus., Inc. v. R Cubed Eng'g, LLC, 5:20-cv-02888
| Decision Date | 22 January 2021 |
| Docket Number | No. 5:20-cv-02888,5:20-cv-02888 |
| Parties | HERLEY INDUSTRIES, INC., d/b/a/ ULTRA ELECTRONICS HERLEY v. R CUBED ENGINEERING, LLC |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Partial Motion to Dismiss for Failure to State a Claim, ECF No. 18 - Granted in Part, Denied in Part
Plaintiff Herley Industries, Inc. ("Herley") filed suit against Defendant R Cubed Engineering ("R3E"), stemming from a contractual relationship between the two parties formed for the purpose of developing and selling avionics surveillance equipment. Herley alleged several claims including breach of contract, conversion, and the Defend Trade Secrets Act (DTSA)/Pennsylvania Uniform Trade Secrets Act (PUTSA). R3E filed the present partial Motion to Dismiss for Failure to State a Claim.
R3E's motion to dismiss is granted in part and denied in part. As to Herley's claim of breach of the Teaming Agreement, Count VI, R3E's motion to dismiss is denied. As to Herley's claims of (1) preliminary injunctive relief, Count I; (2) permanent injunctive relief, Count II; (3) violation of the DTSA, Count III; (4) violation of the PUTSA, Count IV; (5) conversion of intellectual property, Count V; and (6) conversion of monies under Purchase Order 5, Count VIII; R3E's motion to dismiss is granted. Counts I, II, and VIII are dismissed with prejudice as a matter of law. Counts III, IV, and V are dismissed without prejudice.
Herley, a developer of flight instrumentation products, and R3E, a developer of aviation surveillance products, entered into a Memorandum of Agreement ("the Memo Agreement") on January 16, 2015. See Compl. ¶¶ 7-8, 12, ECF No. 1. The Memo Agreement was formed for the purpose of producing a "Micro-Identification - 'Friend or Foe' transponder/receiver" ("Micro-IFF"). See id. at ¶¶ 9, 12. At that time, the U. S. Navy was seeking to purchase the Micro-IFF and had put together a multi-phase plan for procuring the Micro-IFF. See id. at ¶ 9. Procurement involved three discrete phases, and the bid for Phase I had already been awarded to R3E when R3E and Herley entered into the Memo Agreement. See id. at ¶¶ 10-11.
After the parties entered into the Memo Agreement, R3E submitted its proposal for Phase II of the project to the Navy, listing Herley as the subcontractor, and was awarded the contract on April 18, 2016. See id. at ¶¶ 13-14. Following the Phase II award, Herley and R3E entered into a "Teaming Agreement," which provided that Herley would do, among other things, the following:
Id. at ¶ 16, Ex. A 1 ("Teaming Agreement").
The Teaming Agreement includes several provisions that deal directly with the rights of both parties with respect to confidential information during the term of the agreement and after its termination. See id. at ¶¶ 20-23. Section 9 states that "HERLEY and R3E shall be co-owners of all inventions, designs, specifications, products and manufacturing processes and procedures and works excluding trademarks ('Intellectual Property Rights') developed jointly by the Parties specifically for the Micro-IFF and related products." Id. at Ex. A 4, ECF No. 1-4. Accordingly, joint ownership does not extend to technology that is developed independent of the Micro-IFF venture, otherwise known as "Background Technology." See id. Section 9 defines "Background Technology" as "any technology or related Intellectual Property Rights of either Party developed independent of the Micro-IFF and related products ('Background Technology')." Id. Finally, Section 9 provides that Herley has the exclusive right to "file and obtain any patents, copyrights, trademarks, or other legal protections" with respect to the Micro-IFF. See id.
Section 8 of the agreement provides further protections for sensitive information. It defines Confidential Information as "information concerning the designs, products, manufacturing and other processes and procedures, finances and business plans and other non-public information of the other [party] (collectively, 'Confidential Information')." Id. Section 8 provides that upon termination of the Teaming Agreement, each party upon request "shall deliver to the other Party all Confidential Information acquired from the disclosing Party . . . ." Id.
Reading Sections 8 and 9 together, the Teaming Agreement contemplates that, upon request, each party is owed return of (1) Confidential Information and Background Technology exchanged during the term of the agreement that (2) was not related to the joint development of the Micro-IFF. These provisions were drafted to survive termination of the agreement. See id.In addition, Section 14 provides that equitable remedies are available for a breach of Sections 8 and 9. See id. at Ex. A 6-7.
Beginning on January 23, 2015, R3E issued four purchase orders to Herley related to the Phase II award with the Navy. See id. at ¶ 30. These orders were dated January 23, 2015, May 12, 2016, September 6, 2017, and January 3, 2018. See id. Herley completed the work on each order and submitted invoices to R3E for each. See id. at ¶ 32. R3E paid all four invoices in full without complaint. See id.
Around September 28, 2018, the United States Army awarded a contract for a Modular Data Acquisition System to R3E. See id. at ¶ 33. That Data Acquisition System would require the Micro-IFF that the parties were developing. See id. at ¶ 34. On October 25, 2018, R3E issued a fifth Purchase Order (PO-5) to Herley, stating that Herley would, "on a best efforts basis," support R3E in its contract with the Army. See id. at ¶ 34. PO-5 provided for a total invoice price of $377,092.32, to be paid in seven monthly installments of $53,870.00.2 See id. at ¶ 35. Herley sent all seven invoices to R3E. See id. at ¶ 37.
On October 4, 2019, R3E sent Herley a "Notice of Non Performance and Breach" under the terms of the Teaming Agreement. See id. at ¶ 40. Thereafter, on January 3, 2020, R3E sent a letter to Herley stating that the Teaming Agreement had been terminated for the reasons specified in the October 4 Notice. See id. at ¶ 43.
Following the termination of the agreement, PO-5 remained partially unpaid to Herley. See id. at ¶ 52. Herley has only received payment for the first three invoices in the amount of $161,610.00 and is owed $215,480.00 for the outstanding four invoices. See id. at ¶ 53. In aletter dated March 2, 2020, R3E told Herley that the Army rejected one invoice for nonperformance and instructed R3E to not submit any additional invoices on account of the work being insufficient. See id. at Ex. D. R3E also stated in the letter that no portion of the remaining funds from PO-5, invoices four through seven, had been received by R3E. See id. Herley requested information from the Army Contracting Officer as to the disposition of the funds. See id. at ¶¶ 59-60. On June 5, 2020, the Contracting Officer responded, stating that R3E submitted five of the seven invoices to the Army for Payment. See id. at ¶ 60.
R3E remains in possession of Herley's IP. See id. at ¶ 64. On May 1, 2020, Herley sent a letter to R3E demanding return of all IP pursuant to those sections of the Teaming Agreement that were to remain in effect after termination. See id. at ¶ 70. Herley sent a second demand letter on May 6, 2020. See id. at ¶ 71. On May 10, 2020 R3E responded, stating that the IP was subject to "joint ownership" and was already in the "public domain." See id. at ¶ 62. Herley sent a final demand on May 18, 2020, which R3E acknowledged receipt of by email, but to which R3E did not respond substantively. See id. at ¶ 74. Due to R3E's refusals, Herley seeks the return of the following:
In its Complaint, Herley asserts nine separate counts against R3E:
In its motion, R3E seeks dismissal of all Counts except Counts 7 and 9.
In rendering a decision on a motion to dismiss, this Court must "accept all factual allegations as true [and] construe the...
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