Vfd Consulting, Inc. v. 21ST Services

• Decision Date: 15 March 2006
• Docket Number: No. C 04-2162 SBA.,No. C 04-2161 SBA.,C 04-2161 SBA.,C 04-2162 SBA.
• Citation: 425 F.Supp.2d 1037
• Court: U.S. District Court — Northern District of California
• Parties: VFD CONSULTING, INC., Plaintiff, v. 21ST SERVICES, et al., Defendants.

425 F.Supp.2d 1037

VFD CONSULTING, INC., Plaintiff, v. 21ST SERVICES, et al., Defendants.

No. C 04-2161 SBA.

No. C 04-2162 SBA.

United States District Court, N.D. California.

March 15, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Timothy R. Lord, Lewis Brisbois Bisgaard & Smith, LLP, San Francisco, CA, for Plaintiff.

Tyler G. Olpin, Rohit A. Sabnis, Robert M. Bodzin, Burnham Brown, Oakland, CA, Mary M.L. O'Brien, Jeffrey Michael Thompson, Meagher & Greer, PLLP, Minneapolis, MN, for Defendants.

ORDER

ARMSTRONG, District Judge.

This matter comes before the Court on Defendants 21st Services, 21st Holdings, and Paul Kirkman's (collectively, "Defendants") Motion for Summary Judgment [Docket No. 96]. Having read and considered the arguments presented by the parties in the papers submitted to the Court, the Court finds this matter appropriate for resolution without a hearing. The Court hereby GRANTS Defendants' Motion for Summary Judgment [Docket No. 96].

BACKGROUND

A. Factual Background

1. Parties

Plaintiff VFD Consulting, Inc. ("VFD") is a California corporation that conducts business in Mendocino County. Compl. at ¶2.¹ VFD is in the business of providing risk assessment research and product development to the life insurance and related industries. Id. at ¶7. Vera Dolan is the president and sole owner of VFD. Decl. of Vera Dolan ("Dolan Decl.") at ¶1.

Defendants 21st Services and 21st Holdings, LLC (collectively "21st Services") are businesses operating out of Minnesota. Id. ¶¶2-3. Paul Kirkman ("Kirkman") is the president of 21st Services. Id. ¶18; Decl. of Paul Kirkman ("Kirkman Decl.") at ¶1. 21st Services is in the life insurance settlement (or "viatical") business.² Compl. at ¶ 8. One of the services that 21st Services provides is life expectancy calculations through a product known as "Med-Diag." Id. ¶ 7, 8. 21st Services' direct competitors are EMSI, AVS, Fasano & Associates, and Amscot/Midwest. Kirkman Decl. at ¶ 4.

2. Allegations

In 1998, Kirkman joined with Bob Simon ("Simon") and Steve Walker ("Walker") to form 21st Services. Kirkman Decl. at ¶ 5. Kirkman created the company in order to carry out his plan of developing an objective system to create life expectancy evaluations. Id. The idea arose out of Kirkman's recognition of the fact that an objective system for life expectancy evaluations would be superior to the already existing method whereby a doctor or nurse would subjectively analyze a patient's medical records. Id. at ¶¶ 3, 5. The computerized system that 21st Services developed to achieve the company's plan is known as "MedDiag." Id. at ¶¶ 2, 3.

In total, 21st Services retained four consultants to help the company develop Med-Diag: Tillinghast Towers Perrin ("Tillinghast"), VFD, Minneapolis Consulting Group, and Hank George ("George"). Id. at ¶ 6. Tillinghast, an actuarial firm, was to provide 21st Services with mortality tables. Id. VFD was to provide 21st Services with underwriting expertise and to research publicly-available reference materials for data allowing 21st Services to calculate debits from expected mortalities based upon health conditions and other related matters. Id. The Minneapolis Consulting Group was to create the computer program used to run MedDiag. Id. George, who was hired through VFD, was to provide data relating to the impact of certain pharmaceuticals upon expected mortality. Id.

After 21st Services was formed, at some point in the spring of 1998, Kirkman contacted Dolan by telephone and asked Dolan whether VFD would be willing to be involved as a consultant in the creation of MedDiag. Kirkman Decl. at ¶ 8. Kirkman told Dolan that 21st Service was starting a business that would offer administration services as well as life expectancy services. Dolan Decl. at ¶ 3. Dolan recalls that Kirkman asked VFD to write a manual for evaluating the life expectancy of elders. Id.; Decl. of Robert Bodzin ("Bodzin Decl.") at Ex. A (Dolan Depo. at 44:25-45:25, 49:1-13). Dolan understood that VFD was expected to use proprietary mortality tables and actuarial data provided by Tillinghast. Bodzin Decl. at Ex. A (Dolan Depo. at 48:10-15, 49:14-20). At the time Kirkman approached Dolan, he had already retained the Minneapolis Consulting Group to do the computer work on the project. Kirkman Decl. at ¶ 7. However, with the exception of the mention of Tillinghast, during this initial telephone call, Dolan does not recall Kirkman mentioning that any other companies would be involved in the project. Bodzin Decl. at Ex. A (Dolan Depo. at 49:25-50:10). Also, Dolan does not recall Kirkman mentioning that 21st Services would be doing work involving computers or that it intended to create a computerized system. Dolan Decl. at ¶ 3. Instead, Dolan recalls that, in a subsequent telephone conversation with Kirkman, Dolan suggested that 21st Services create a computerized system. Id. at ¶ 4. Dolan also recalls that Kirkman liked the idea. Id. at ¶ 4.

On June 5, 1998, Dolan sent Kirkman a facsimile stating:

Thank you so much for inquiring about my assistance with your extremely interesting project! I look forward to working with you on it.

. . . . .

As discussed, you will look over my credentials and references. I will then fax you my contract, which will include immediate deliverables and deadlines. After that point, I will commit to deliver within two weeks a list of appropriate data resources not to exceed 40 hours at $100/hr. We should also at that time set up a phone conference with Randy O'Connor to determine his needs and preferences. Afterwards, we should have a better idea of time, budget, and specific requirements in interpreting this data that would be sufficient for Randy to do his actuarial magic.

Bodzin Decl. at Ex. B.

On or about June 9, 1998, Kirkman asked Dolan to sign a Confidentiality and Non-Disclosure Agreement ("21st Services NDA") to protect 21st Services' business plan and intended computer processes. Id. at ¶ 8, Ex. 1. The 21st Services NDA stated in pertinent part:

A. Company [defined as 21st Services] has invested substantial time, energy, and resources developing its business plan, including its processes, products, and marketing strategy; and

B. Potential Client [VFD] wishes to receive confidential and proprietary information about [21st Services'] business and business plan . . .; and

C. [21st Services] wishes to protect the confidential and proprietary nature of its business, including but not limited to its business plan, processes, products . . . while allowing [VFD] the opportunity to evaluate the possibility of entering into a service agreement .. .

. . . . .

1. "PROTECTED INFORMATION" DEFINED. [VFD] acknowledges that all information communicated to them . . . that relates to [21st Services'] business, including but not limited to its business products, procedures, processes, concepts, ideas, methodology, pricing, . . . and trade secrets shall be deemed confidential, proprietary information .. .

Bodzin Decl. at Ex. 1.

Also on June 9, 1998, Dolan signed the 21st Services NDA and returned it to Kirkman with a cover letter stating the following:

Here is a signed version of your confidentiality agreement that should basically work, although I understand that VFD Consulting is not a `potential client,' but a consultant. Also here is my proposed contract that you may share with your legal counsel. If you have suggestions, please let me know.

I look forward to working with you!

Kirkman Decl. at Ex. 3; Bodzin Decl. at Ex. A (Dolan Depo. at 51:16-53:10). At the time that Dolan entered into the 21st Services NDA, Dolan does not recall asking 21st Services to insert any language into the agreement that would refer to VFD's confidential information, proprietary information, or trade secrets. Bodzin Decl. at Ex. A (Dolan Depo. at 88:17-90:5).

As indicated in her June 9, 1998 letter, Dolan sent Kirkman a draft of a document entitled, "Agreement to Provide Consulting Services 21st Services/VFD Consulting, Inc." (referred to herein as the "1998 Agreement"), which was drafted by Dolan. Kirkman Decl. at Ex. 3; Bodzin Decl. at Ex. A (Dolan Depo. at 91:9-94:14).

On June 10, 1998, Kirkman sent Dolan a fully executed copy of the 21st Services NDA. Id. at ¶ 2. Kirkman also wrote to Dolan: "I will review your contract [the 1998 Agreement], share it with my two business partners and run it by our legal counsel for review. I would expect that I would have comments by next Wednesday." Id.

On or about June 22, 1998 or June 23, 1998, Dolan recalls that she and Kirkman spoke about the draft of the 1998 Agreement and what would happen when the contract expired at the end of three years. Dolan Decl. at ¶ 7. Dolan believes that she and Kirkman agreed that the "everything would continue as before." Id.

VFD and 21st Services entered into the 1998 Agreement on August 18, 1998. Bodzin Decl. at Ex. A (Dolan Depo. at 50:11-51:11, Ex. 4). The 1998 Agreement states in relevant part:

3. CONSULTING PURPOSE. Parties acknowledge that the purpose of this consulting engagement is to provide consulting services to [21st Services] as Itemized in Exhibit A `Statement of Work to Be Performed' and any subsequent written amendments to Exhibit A. [21st Services] and [VFD] specifically agree that services performed under this Agreement are not intended to obtain or convey proprietary information from any source outside the scope of this Agreement.

4. NONDISCLOSURE. [VFD] will not disclose, in any manner, the underwriting guidelines, processes and systems developed for [21st Services]. Proprietary and intellectual possessed by any of the parties shall not be affected in any way by this or any other agreement relating to this consulting engagement.

Id. at Ex. A (Dolan Depo. at Ex. 4). The 1998 Agreement also provided that it had a three-year term "with a willingness to renegotiate at the end of the term" and was terminable upon fifteen days written notice. Id. The 1998...