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Integrated Direct Marketing, LLC v. Drew May & Merkle, Inc.

United States District Court, E.D. Virginia, Alexandria Division

November 3, 2015

DREW MAY and MERKLE, INC., Defendant

          For Integrated Direct Marketing, LLC, Plaintiff: Zachary Stevens Stinson, LEAD ATTORNEY, Joleen Roslyn Okun, Ogletree Deakins Nash Smoak & Stewart PC (DC), Washington, DC.

         For Drew May, Defendant: Rebecca Bricken Segal, LEAD ATTORNEY, Brian Francis Chandler, James Bennett Kinsel, Jennifer Angella Lucey, Protorae Law PLLC, Tysons, VA; John Hawley Hawthorne, John H. Hawthorne, Attorney at Law, Fairfax, VA.

         For Merkle, Inc., Defendant: Declan C. Leonard, LEAD ATTORNEY, Frank Regis Gulino, Nicholas Ryan Johnson, Ryen Christopher Rasmus, Berenzweig Leonard LLP, McLean, VA.

         For Laura Donahoe, Interested Party: Patrick Kevin Burns, LEAD ATTORNEY, Bancroft McGavin Horvath & Judkins PC, Fairfax, VA.

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         Leonie M. Brinkema, United States District Judge.

         Before the Court is Defendant Drew May's Motion for Judgment on the Pleadings, which seeks a ruling that Plaintiff Integrated Direct Marketing, LLC's conversion claim fails on the basis that Arkansas law does not provide a cause of action for conversion of non-trade secret electronic data. For the reasons that follow, the Court will move the Arkansas Supreme Court to answer one question of law because the remaining claim in this litigation presents an unresolved question of Arkansas law that may be determinative of this pending civil action.

         I. BACKGROUND

         Plaintiff Integrated Direct Marketing, LLC (" IDM" ) commenced this suit against former employee Drew May (" May" ) and his new employer Merkle, Inc. (" Merkle" ), alleging that May misappropriated IDM's confidential and proprietary information as well as its trade secrets and then used that information for his benefit and that of Merkle. Mem. Op. [Dkt. No. 295] at 2. IDM and Merkle compete to provide data-integrated customer relationship management (" CRM" ) services to high-tech companies involved in (he data-driven marketing business. Id. at 5. May, an Arkansas resident, was hired to open IDM's Little Rock, Arkansas office and served as its Executive Vice President for Data Integration from January 2012 until March 11, 2014, when IDM terminated his employment. Id. at 6. May did not attempt to hide his displeasure about this separation. Id. May began working for Merkle on May 5, 2015 as Vice President and Client Partner in the " High Technology/B2B Vertical Markets Group." Id. During discovery, a digital forensic examination revealed that May retained many IDM files on his personal external hard drive after he was fired by IDM and during his employment with Merkle and the initial stages of the instant litigation. Id. at 7. By retaining these electronic files, May violated Paragraph 9 of the Confidentiality Agreement he signed upon beginning employment with IDM, which required that he return or destroy all company property upon termination. Id.

         IDM filed suit against both May and Merkle, alleging in part that May wrongfully took IDM's confidential and proprietary information. Am. Compl. [Dkt. No. 57] ¶ ¶ 18-28, 76-81. The information allegedly converted by May consisted exclusively of electronic data that he downloaded, " backed up," or otherwise copied to his personal external hard drive. See id. Specifically, IDM alleged that May " copied more than 300 files to his external hard drive," including almost all of his IDM e-mails and their attachments, contracts and statements of work containing confidential pricing information, a business plan for IDM's Shopper Recognition Project, a project proposal for IDM's Dell Consumer File Install. Dell's requirements for IDM's customer-data integration project, and " numerous" other files containing " IDM's budgets, upcoming projects that IDM was bidding on, and IDM proprietary solution data." Id. 22-27. IDM claimed that these files " would let [May] directly compete with IDM going forward." Id. ¶ 25.

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Based on this alleged activity, IDM asserted that May " wrongfully appropriated and exercised authority over IDM's confidential and proprietary information" and that his actions " constitute[d] a conversion of IDM's property." Id. ¶ ¶ 77, 79.

         After an extensive period of discovery, both defendants moved for summary judgment on all counts. In a Memorandum Opinion and accompanying Order issued on September 8, 2015, the Court granted Merkle's Motion for Summary Judgment in total and granted May's Motion for Summary Judgment on all counts except for the conversion claim in Count III, which is now the sole remaining claim to be decided at the trial currently scheduled for November 16, 2015. Mem. Op. at 60-61. The Court ruled that Count III would " go forward for now," despite its reservations about whether a taking of electronic data could support a conversion claim under Arkansas law, because May did not raise that argument on summary judgment and neither party had briefed the issue. Id. at 47 n.25 (citing Infinity Headwear & Apparel, LLC v. Coughlin, 2014 Ark.App. 609, 447 S.W.3d 139, 143 (Ark. Ct.App. 2014)). In allowing the conversion claim to go forward, the Court struck any evidence of actual damages and ruled that IDM would only be entitled to nominal damages and injunctive relief should it prevail on Count III. Id. at 47. The Court now has before it May's Motion for Judgment on the Pleadings, in which he seeks to resolve Count III in his favor.


         May's Motion for Judgment on the Pleadings seizes upon the Court's stated reservations regarding whether the Arkansas tort of conversion encompasses the taking of non-trade secret electronic data. May argues that Arkansas " has not recognized a cause of action for the conversion of intangible electronic data" and that IDM's claim consequently fails as a matter of law. Def. Drew May's Mem, of P& A in Supp. of His Mot. for J. on the Pleadings [Dkt. No. 299] (" Def.'s Br." ) at 3. In the alternative, May requests that the Court certify the question of whether electronic data can be converted to the Arkansas Supreme Court so that he will not be bound by a judgment based on a misreading of Arkansas law. Def. Drew May's Reply in Supp. of His Mot, for J. on the Pleadings [Dkt. No. 307] (" Def.'s Reply" ) at 6. IDM argues in response that Arkansas law does support a claim for conversion of electronic data and that May's argument to the contrary is based on " stray dicta...taken out of context." Pl., Integrated Direct Marketing, LLC's Mem. in Opp'n to Def. Drew May's Mot. for J. on the Pleadings [Dkt. No. 305] (" Pl.'s Opp'n" ) at 1. IDM has not explicitly contested May's request for certification but has argued in an unrelated motion that it would be prejudiced by a delayed trial date. Pl. Integrated Direct Marketing, LLC's Opp'n to Counsel's Mot. for Leave to Withdraw [Dkt. No. 317] at 5.

         A. Standard of Review

         A party may move for judgment on the pleadings " [a]fter the pleadings are closed--but early enough not to delay trial," and may raise the defense of failure to state a claim upon which relief can he granted in that motion. See Fed.R.Civ.P. 12(c), (h)(2)(B); see also Newport News Indus. v. Dynamic Testing, Inc., 130 F.Supp.2d 745, 749 (E.D. Va. 2001). Such a motion is governed by the standard for a Rule 12(b)(6) motion. See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). Therefore, the deciding court must presume that the complaint's factual allegations are true and must " draw all reasonable factual inferences in [the non-movant's] favor." Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir. 2002). The court should enter

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judgment for the movant " when the pleadings, construing the facts in the light most favorable to the non-moving party, fail to state any cognizable claim for relief, and the matter can, therefore, be decided as a matter of law." O'Ryan v. Dehler Mfg. Co., 99 F.Supp.2d 714, 718 (E.D. Va. 2000).

         " In adjudicating non-federal questions, a federal court must apply the law of the state." United States v. Little, 52 F.3d 495, 498 (4th Cir. 1995) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). If a federal court's decision is governed by state law and there is no " state statute or a controlling decision directly in [sic] point," the court should not ignore " [c]onsidered dicta in the opinions of the highest state court; " rather, it must follow such dicta if it is " a clear exposition of the law" and not in conflict with other decisions of the highest state court. Sherby v. Weather Bros. Transfer Co., 421 F.2d 1243, 1244 (4th Cir. 1970). Additionally, if only a state intermediate appellate court has ruled on the issue, that decision must be followed absent " other persuasive data that the highest court of the state would decide otherwise." Little, 52 F.3d at 498 (quoting West v. Am. Tel. & Tel. Co., 311 U.S. 223, 237, 61 S.Ct. 179, 85 L.Ed. 139 (1940)) (ruling that a federal court could not independently interpret a state statute where there was " an opinion of the second highest court in the state directly on point" ).

         B. Analysis

         The parties' arguments hinge on the interpretation of a handful of Arkansas cases. May relies primarily on the Arkansas Court of Appeals' decision in Infinity Headwear for the proposition that Arkansas law does not allow a claim for conversion of purely electronic data, while IDM points to the Arkansas Supreme Court's ruling in Godwin v. Churchman, 305 Ark. 520, 810 S.W.2d 34 (Ark. 1991) for the contrary proposition.

         The plaintiffs in Godwin alleged that the defendants " removed the [client] files...copied the computer diskettes which were the property of Plaintiffs, took the furniture which was the property of Plaintiffs and took over the Plaintiffs' accounting practice." Godwin, 810 S.W.2d at 38. The court found that the plaintiffs had stated a claim for conversion because they had sufficiently alleged that the ...

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