Micro Consulting, Inc. v. Zubeldia, CIV-88-1348-W.

• Decision Date: 19 September 1990
• Docket Number: No. CIV-88-1348-W.,CIV-88-1348-W.
• Citation: 813 F. Supp. 1514
• Parties: MICRO CONSULTING, INC., Plaintiff, v. Pedro ZUBELDIA and Medical Electronic Data Exchange, Inc., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

813 F. Supp. 1514

MICRO CONSULTING, INC., Plaintiff, v. Pedro ZUBELDIA and Medical Electronic Data Exchange, Inc., Defendants.

No. CIV-88-1348-W.

United States District Court, W.D. Oklahoma.

September 19, 1990.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Dr. George Hedrick—Special Master, Dept. Head, Computer Science Dept., Stillwater, OK, R. Lyle Clemens, Kandi Jepsen Pate, Clemens, Holshouser & Pate, Oklahoma City, OK, for plaintiff.

Thomas P. Goresen, Eric S. Gray, Roberts, Gray, Goresen & Moriarty, Oklahoma City, OK, for defendants.

LEE R. WEST, District Judge.*

This matter came on for trial¹ before the Court sitting without a jury on the claims of the plaintiff, Micro Consulting, Inc., against defendants Pedro Zubeldia and Medical Electronic Data Exchange, Inc., and on the counterclaim of defendant Zubeldia.² Having heard the testimony of the witnesses and the argument of counsel and having reviewed the parties' pre- and post-trial submissions and those exhibits admitted into evidence, the Court makes the following factual findings and draws the following legal conclusions therefrom. Rule 52, F.R.Civ.P.

Findings of Fact

1. Plaintiff Micro Consulting, Inc. (Micro Consulting), is an Oklahoma corporation with its principal place of business in Oklahoma City, Oklahoma. It was formed in 1982 by defendant Zubeldia together with Victor Schuelein and Bill Halpain, the principals of Schuelein and Halpain Engineering, Inc. (S & H), a company which supplies engineering services to the construction industry. The purpose of Micro Consulting was to market consulting services to architects and engineers in Oklahoma City. In connection with such services, it used a heating, ventilation and air conditioning computer program created by Zubeldia at S & H's request.

2. Zubeldia provided technical expertise necessary to perform the computer consulting services and Schuelein and Halpain, through S & H, provided and/or arranged for financing. Zubeldia was Micro Consulting's president, a member of its board of directors and its sole employee. He owned (and still has) forty percent (40%) of the company's stock. Schuelein and Halpain, then secretary/treasurer and vice president, respectively, each held (together with their wives) thirty percent (30%) of the stock.

3. Demand for these consulting services declined and Micro Consulting, at Zubeldia's suggestion, decided to develop a consulting service for health care providers. To this end, Zubeldia created "Claimnet." It is a set of approximately 400 computer programs which processes insurance claims electronically for health care providers for submission to government programs, Medicare and Medicaid, for payment. It was initially developed in late 1982 and early 1983 by Zubeldia during the course, and in the scope, of his employment with Micro Consulting. The set of programs, which includes original as well as licensed programs and those in the public domain, was constantly being improved throughout Zubeldia's employment to meet the needs of clients and to conform to government regulations and rules.

4. Micro Consulting had difficulty generating sufficient revenue. It ventured into other areas such as the sale of computer hardware to its customers in Spain. It licensed certain of its technology to third parties but required these parties to execute nondisclosure agreements.

5. The parties also contemplated the idea of additional investors. A financial analysis was conducted and a business plan was prepared by a consultant at Zubeldia's direction in October 1987. The business plan indicated that Micro Consulting had an established value of $4,600,000.00. Schuelein testified at trial that a more realistic value at that time was $400,000.00 and both Schuelein and Halpain testified that the present value of the company, the principal asset of which is Claimnet, is no greater than $50,000.00. The decline in value is attributed to competition from other companies, primarily defendant Medical Electronic Data Exchange, Inc. (Medex), and to problems with Claimnet.

6. No investors were found and the parties differed in their opinions regarding Micro Consulting's operations and growth. Zubeldia expressed an interest in expanding Claimnet's capabilities and in developing software to process commercial insurance claims through National Electronic Information Corporation. Schuelein and Halpain wanted Micro Consulting to stabilize and become sufficiently profitable to repay its debts to S & H and other creditors before any significant expansion occurred. Certain loans were repaid during this time by Micro Consulting to S & H over Zubeldia's protests and as a result, the parties' business relationship began to deteriorate more rapidly.

7. Discussions ensued regarding Zubeldia's separation from the company. He resigned as president of Micro Consulting on March 22, 1988, and in his letter of resignation, he wrote:

"Since I do not believe the direction in which you want to take Micro Consulting is a viable approach for the long term success of the company, and you have expressed your dissatisfaction with my attempts to steer the company in that direction, I believe that it is in the best interest of the company and its majority stockholders for me to step down as President.

....

As we discussed this morning, I would like to continue bringing my technical abilities to Micro Consulting, continuing the customer support and the new installations. I also want to train someone on the operation of the Claimnet System, and its internal workings, to insure the continuation of our efforts for the future.

....

My plans for the future include an Electronic Claims Clearinghouse. As you know there are several in existence today, and none of them are offering the services that I want to offer. Therefore I believe there is room for one that will offer what the market demands. I will be working, as my time allows it, towards that goal.

In order to avoid a conflict with the programs in the Claimnet System, which I designed, developed, and maintain, we need to make one point very clear. As you know, the protection of the software is controversial. I could develop completely new software for a new clearing-house without looking at the Claimnet source code, but since I designed the Claimnet algorithms, and wrote every single piece of code, it would be very likely that the result of the new effort would be almost identical to the Claimnet System. A better approach, I believe, is to have full access to the Claimnet source code so I can make sure that the new code does not use the same algorithms as Claimnet. This will be a more difficult approach, as the Claimnet algorithms are highly optimized, and I will have to resort to less than optimum algorithms, but at least it will guarantee that we do not get into a conflict over the ownership of the new system. If you do not like this approach, please let me know."

Plaintiff's Exhibit 17.

8. Zubeldia's employment ended on May 15, 1988. No documents were executed by the parties regarding the terms and conditions of his termination from employment. Zubeldia however was requested orally and in writing to return all Micro Consulting property including Claimnet software he possessed and a 1982 Honda vehicle. The automobile was returned approximately one year later and the software was returned on February 6, 1990. While it is undisputed that Zubeldia had a so-called "back-up" tape at his home, there is great debate over the contents of the tape and whether he read or had access to appropriate hardware to read the tape.

9. From 1982 to mid-1987, Zubeldia worked on an hourly basis and kept time sheets reflecting the number of hours worked. By mid-1987, the record keeping stopped and he began working on a 40-hour per week basis.

10. Zubeldia, during his employment had access to the names of Micro Consulting's customers and with Schuelein's consent, he sent a letter dated May 18, 1988, to these customers and advised them that he was no longer employed by Micro Consulting and that Andy Zook would be the person responsible for operating Claimnet and training customers to do the same.

11. Zubeldia set out to create his own electronic claims processing service. The result: Medex. The service was actually formed in April 1988 and incorporated prior to Zubeldia's departure from Micro Consulting. Zubeldia is Medex's president and owns 100% of its stock. Medex's primary purpose is to be a nationwide clearinghouse to process all kinds of insurance claims. Computer hardware was ordered in July 1988 after Zubeldia located an investor to provide financing and Zubeldia thereafter began creating the software for his new service. He entitled his set of programs, "Uniclaim." Uniclaim has over 1100 programs and again includes original as well as licensed programs and those in the public domain.

12. Medex was not functional until November 1988 and then only able to process "paper" claims. It was not until December 1988 that Medex was able to process insurance claims electronically.

13. Clearinghouses that process claims electronically are not unique and they exist nationwide. Some operate intrastate and others interstate. They maintain computer programs that process insurance claims on a claim form known as Form 1500 and thus enable subscribing health care providers to avoid manual preparation and submission of insurance claims. A physician electronically transmits to the clearinghouse all information necessary to complete the Form 1500. The clearinghouse processes the information and generates the insurance claim form. It then forwards the processed claim electronically (or on paper) to the appropriate insurance carrier.

14. Both Uniclaim and Claimnet use the Form 1500 because the very nature of insurance claim processing requires all clearinghouses to do things similarly. They likewise require the same data to process since all insurance companies require the same...