Here at the blog, we love a well-crafted set of local rules as much as the next lawyer. (Yes, we hear you laughing; we’re the folks who recap decisions about business law instead of episodes of Watchmen  or The Marvelous Mrs. Maisel. We enjoy them a lot more than the next, more normal, lawyer.) Sometimes, though, it’s the informal guideposts to commercial litigation practice that serve you the best. One of the classics is the Mark Twain maxim of notice pleading:  “Get your facts first, and then you can distort them as much as you please.”

That second part is not in the Business Court’s rules, of course, but in Aym Technologies, LLC v. Gene Rodgers, et al.¸ 2019 NCBC 63, 2019 WL 5257950 (N.C. Super. Ct. October 16, 2019), the Court made clear the first part is pleading Job One. See Order and Opinion.   Aym contended that Rodgers had assisted the corporate defendants in beating Aym to acquisition targets it coveted, and did so in part by sharing a confidential plan (the Plan) designed to further a purchase and vertical integration strategy in North Carolina’s competitive Medicaid intellectual and development disability (IDD) industry. Id. ¶¶ 4, 8. Aym advanced a trade secret misappropriation claim centered on the Plan, and inched that claim past a motion to dismiss based on complaint allegations about the unattached Plan’s proprietary and confidential contents. Id. ¶ 32. But at summary judgment, with the Plan in the record, Judge Bledsoe applied the “Twain test” with resolute clarity:

“The written Plan has now been made part of the record at summary judgment, and it cannot be disputed that the Plan does not comport with Aym’s characterization of that document in its Complaint.

Id. ¶ 33.

Takeaways:

• The Business Court reacts about as you would expect when a complaint is later shown to have taken liberties with a document that the plaintiff declined to attach to the pleading. 

• “Reasonable efforts” to protect an alleged trade secret do not include its frequent dissemination without accompanying confidentiality restrictions. 

• They especially don’t include its unfettered transmission by a plaintiff to a defendant accused of misappropriation.

Aym’s characterization was, at a minimum, a bit cavalier.  The complaint averred that the Plan identified specific acquisition targets and outlined Aym’s confidential vertical integration strategy for the IDD industry. Id. ¶¶ 8, 32. Aym alleged that Rodgers, its non-exclusive contractor, was enlisted to help it acquire North Carolina IDD providers and had its strategic plan as part of that work. The relationship went off the rails when defendants Scopia Capital Management LP and Community Based Care, LLC (CBC) acquired three IDD targets that Aym had pursued without success. Aym believed that this was only possible because Rodgers had disclosed its confidential plan to Scopia.  Id. ¶¶ 12-13.

The Court found Aym’s trade secret misappropriation claim flawed in many respects under the North Carolina Trade Secret Protection Act, but particularly so because Aym over-promised and under-delivered on whether its Plan contained information that would merit protection under the Act. Upon inspection of the Plan, the Court found that it not only failed to identify any of the acquisition targets lost to Scopia, but “does not otherwise contain a list of proposed acquisition targets, or a formula for identifying them.” As well, the Court found that Aym’s Plan amounted to little more than an industry survey that recognized the value of roll up and integration strategies “not unique” to Aym. Id. ¶ 33-34. As confirmation, the Court noted discovery revealed that Aym’s CEO had even referred to the Plan as a “white paper” that was “high level rough.” Id. ¶ 33.

The Court also rejected Aym’s contention that its Plan deserved trade secret protection as a “compilation or manipulation” of public information that has a “particular value.” As the Court noted, “Aym admits that a strategy of rolling up IDD companies – the core concept of Aym’s Plan – is well known and not a trade secret.” Id. ¶¶ 35-36. Despite earlier allowing the misappropriation claim to survive Rule 12(b)(6) based on the Plan’s alleged contents, the Court also addressed a new argument—raised by Aym in its summary judgment briefing—that the Plan, when combined with Aym’s industry experience and enhanced analytical position, formed a greater whole that deserved trade secret protection. The Court wryly noted that Aym’s attempt to “salvage” its trade secret claim also fell well short of the statutory bar:

“Even as reinvented, however, Aym’s claim must still be dismissed because Aym has failed to describe this newly conceived trade secret with the specificity our Supreme Court requires.

Id. ¶ 42.

Reasonable Efforts to Maintain Secrecy

While unnecessary to the outcome, the Court also reviewed Aym’s required efforts “that are reasonable under the circumstances to maintain [the plan’s] secrecy.”  N.C. Gen. Stat. § 66-152(3). Even had the Court determined the Plan presented a protectable trade secret, the facts showed that the Plan had been passed around like a cold at a preschool. An Aym principal provided the report to an investment banker assisting its acquisition strategy, but did so without any nondisclosure protections. That banker then actually provided the Plan to an entity Aym twice tried and failed to acquire, and discussed Aym’s strategies with another of Aym’s unsuccessful acquisition targets. Id. ¶¶ 12, 48.

Aym, itself, treated the Plan as something well shy of a document whose confidentiality was a priority. Aym’s litigation position was that Scopia and CBC were only able to acquire targets that Aym wanted for itself because defendant Rodgers had disclosed the plan to Scopia. Id. ¶ 13. Yet, Aym’s CEO emailed the plan to a Scopia partner with no confidentiality protections when trying to sell his company to Scopia, and observed in the covering note that he didn’t think the plan contained “anything of a proprietary nature that isn’t already common knowledge.” Id. ¶¶ 14, 49.

Misappropriation

The Court made clear there was no trade secret to misappropriate, and that Aym did nearly the opposite of protecting that alleged secret. But, it nonetheless paused to also note Aym failed to show that Rodgers disclosed the Plan, that the other defendants got it from him, or that Rodgers disclosed Aym’s interest in particular acquisition targets or its vertical integration strategy. Id. ¶ 53. At root, the Court held the claim relied on little more than an “inferential leap” of misappropriation given this undisputed evidence, and discounted Aym’s theory as one of “inevitable disclosure” regularly rejected under North Carolina law. Id. ¶¶ 56-57.

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