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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA CDI INTERNATIONAL, INC., Plaintiff, v. GARY MARCK, et al., Defendants. : : : : : : :

CIVIL ACTION

No. 04-4837

MEMORANDUM AND ORDER Schiller, J. January 21, 2005

Plaintiff CDI International, Inc. (CDI) seeks damages and injunctive relief for theft of trade secrets, violation of 1 of the Sherman Act, defamation, and conspiracy to obtain trade secrets. Presently before the Court is the motion of Gary Marck (Marck) to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction and the motion of Marck and G.G. Marck & Associates (Marck & Associates) to dismiss under Federal Rule of Civil Procedure 12(b)(6) for the failure to state a claim upon which relief can be granted. For the reasons below, I hold that Marck is subject to personal jurisdiction in Pennsylvania and deny the 12(b)(6) motion.

I.

BACKGROUND For purposes of the instant motions, the following allegations are taken from Plaintiffs

complaint and accepted as true. CDI imports beverageware from China and resells it within the United States to firms that decorate and then resell the beverageware. (Compl. 1.) Marck, who does business in Ohio, is the president and sole owner of Marck Associates, a competitor of CDI. (Id. 2.) Marck Associates hired Defendant David Richter (Richter), a private investigator who works for Defendant Cloud, Feehery, and Richter (Cloud) to gain access to CDIs garbage. (Id.

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6-7, 13.) With Richters help, Marck and Marck Associates stole CDIs trade secrets from that garbage, including customer lists, pricing information and development information related to a water bottle that CDI was developing. (Id. 17, 20, 22.) Through this treasure trove of trash, Marck Associates also learned of CDIs relationship with Shandong Huaguang Ceramics Group (Shandong), a supplier of CDI. (Id. 12.) Marck allegedly induced Shandong to end its relationship with CDI. (Id. 18.) Moreover, Defendants falsely communicated to CDIs customers that CDI would no longer be able to supply customers with products that it had supplied them with previously. (Id. 18-19, 29, 31.) Finally, using the trade secrets that it obtained pertaining to a water bottle that CDI was developing, Defendants were able to develop the same product without spending the time and money that CDI did. (Id. 22-23, 33-34.)

II.

PERSONAL JURISDICTION OVER GARY MARCK A. Standard of Review

Once a defendant challenges a courts personal jurisdiction over him, the burden rests with the plaintiff to establish, by a preponderance of the evidence, that jurisdiction is proper. Imo Indus., Inc. v. Kiekert AG, 155 F.3d 254, 257 (3d Cir. 1998). [I]n reviewing a motion to dismiss under Rule 12(b)(2), we must accept all of the plaintiffs allegations as true and construe disputed facts in favor of the plaintiff. Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir. 2002) (quoting Carteret Sav. Bank v. Shushan, 954 F.2d 141, 142 n.1) (3d Cir. 1992)). A plaintiff may not, however, rely solely on the pleadings to meet its burden. Id. at 146. A plaintiff must make out a prima facie case for the exercise of personal jurisdiction by establishing sufficient contacts between the defendant and the forum state. See Mellon Bank v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992). 2

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If the plaintiff makes out a prima facie case supporting personal jurisdiction, the burden then shifts to the defendant to establish that the presence of some other consideration would render jurisdiction unreasonable. Carteret Sav. Bank, 954 F.2d at 150. B. Discussion 1. Overview

A district court may assert personal jurisdiction over a nonresident to the extent allowed under the law of the state in which the district court sits. FED . R. CIV . P. 4(e). Therefore, for this Court to properly exercise personal jurisdiction over Marck, such jurisdiction must be conferred by Pennsylvanias long-arm statute. 42 PA . CONS. STAT . ANN . 5322. Under Pennsylvanias long-arm statute, causing harm or tortious injury in Pennsylvania by an act or omission either in or outside of Pennsylvania serves as a basis for asserting personal jurisdiction over a defendant. Id. 5322a (3) & (4). A court must then be satisfied that personal jurisdiction is appropriate under the Due Process clause of the Fourteenth Amendment. See Imo, 155 F.3d at 259. Under Pennsylvania law, this inquiry collapses into one step because Pennsylvanias long-arm statute authorizes courts to exercise personal jurisdiction to the full extent permitted by the Due Process clause of the United States Constitution. Remick v. Manfredy, 238 F.3d 248, 255 (3d Cir. 2001). 2. Specific Jurisdiction

Where plaintiffs claim relates to alleged injuries that arise out of or relate to defendants contacts with the forum, such as in this case, a court is said to exercise specific jurisdiction.1 See

A court exercises general jurisdiction over a defendant based upon continuous and systematic contacts with the forum and regardless of whether the suit arises from the defendants non-forum related activities. Remick, 238 F.3d at 255 (citing Vetrotex Certainteed Corp. v. Consol. Fiber Glass Prod. Co., 75 F.3d 147, 151 n.3 (3d Cir. 1996)). 3

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Imo, 155 F.3d at 259 (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984)). Due process requires that defendants activities be such that the defendant should reasonably anticipate being haled into court there. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) (citations omitted). To determine whether specific jurisdiction may be properly exercised over a defendant in accordance with due process, courts employ a two-part test. Imo, 155 F.3d at 259. First, the plaintiff must show that the defendant has sufficient minimum contacts with the forum; second, the court must determine whether the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Id. (citing Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quotations omitted)). Minimum contacts require plaintiff to show that the defendant purposefully availed himself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws. Asahi Metal Indus. Co., Ltd. v. Super. Ct. of Cal., 480 U.S. 102, 109 (1987) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)). Here, Plaintiff has not provided a single affidavit or other competent evidence to support its position that specific jurisdiction over Marck is appropriate, instead maintaining that personal jurisdiction is proper based solely on Pennsylvanias long-arm statute. The record therefore contains no evidence that Marck has any contacts with the forum. Plaintiffs allegations, moreover, also fail to point to any contacts Marck has with Pennsylvania. These allegations, standing alone, are insufficient to satisfy the plaintiffs burden. 3. The Calder Effects Test a. Overview

Because, however, CDI has alleged that Marck committed intentional torts, CDIs failure to 4

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establish that Marck has the requisite minimum contacts with Pennsylvania does not end the jurisdictional inquiry. See Calder v. Jones, 465 U.S. 783 (1984). In the realm of intentional torts, a plaintiff may make an alternative showing against defendant and thereby enhance otherwise insufficient contacts with the forum such that the minimum contacts prong of the Due Process test is satisfied. Imo, 155 F.3d at 260. The Calder effects test recognizes that the unique relations among the defendant, the forum, the intentional tort, and the plaintiff may under certain circumstances render the defendants contacts with the forum which would otherwise not satisfy the requirements of due process sufficient. Id. at 265. In Imo, the Third Circuit set forth a three-prong test, known as the Calder effects test, to determine whether plaintiff has satisfied the minimum contacts inquiry required before a federal court may assert personal jurisdiction over an out-of-state defendant accused of an intentional tort. Under Imo, the plaintiff must allege facts sufficient to show that: (1) the defendant committed an intentional tort; (2) the plaintiff felt the brunt of the harm in the forum, such that the forum can be said to be the focal point of the harm suffered by the plaintiff as a result of the tort; and (3) the defendant expressly aimed his tortious conduct at the forum such that the forum can be said to be the focal point of the tortious activity. Id. at 265-66. To meet the third prong, plaintiff must be able to point to specific activity indicating that the defendant expressly aimed its tortious conduct at the forum, i.e., that defendant manifested behavior intentionally targeted at and focused on the forum. Id. at 265. b. Application of the Calder Effects Test

CDI easily passes the first two prongs of the test. CDI has alleged defamation and misappropriation of trade secrets, which are both intentional torts. See Remick, 238 F.3d at 258 5

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(defamation); Advance Power Sys., Inc. v. Hi-Tech Sys., Inc., 801 F. Supp. 1450, 1458 (E.D. Pa. 1992) (misappropriation of trade secrets). Furthermore, CDI felt the brunt of the harm caused by Marcks torts in Pennsylvania such that the forum is the focal point of the harm CDI suffered. See Imo, 155 F.3d at 265. CDI is a Pennsylvania corporation; therefore it felt the brunt of Marcks torts in Pennsylvania. See Remick, 238 F.3d at 260 (The brunt of the harm caused by the alleged intentional tort must necessarily have been felt by [plaintiff] in Pennsylvania, as his business is based in [Pennsylvania].); see also Directory Dividends, Inc. v. SBC Communications, Inc., Civ. A. No. 01-1974, 2003 WL 22533708, at *3 (E.D. Pa. Oct. 23, 2003) (same). The third prong requires CDI to show that Marck expressly aimed his tortious conduct at the forum such that the forum can be said to be the focal point of the tortious activity. Imo, 155 F.3d at 266. The Calder effects test would foreclose personal jurisdiction over Marck had CDI merely alleged that CDIs presence in Pennsylvania was sufficient to establish jurisdiction over Marck. See Imo, 155 F.3d at 263 (the mere allegation that the plaintiff feels the effect of the defendants tortious conduct in the forum because the plaintiff is located there is insufficient to satisfy Calder.). But CDI goes beyond such an assertion and argues that because Marck was part of a conspiracy whose actors committed acts in Pennsylvania and caused harm in Pennsylvania, personal jurisdiction over Marck is appropriate. This Court agrees. Merely belonging to a civil conspiracy does not subject every member to the jurisdiction of every other members forum. In re Auto. Refinishing Paint Antitrust Litig., Civ. A. No. 02-1426, 2002 WL 31261330, at *12 (E.D. Pa. July 31, 2002). Nevertheless, personal jurisdiction over a non-Pennsylvania defendant may be asserted if substantial acts in furtherance of the conspiracy occurred in Pennsylvania and [] the nonforum co-conspirator was aware of or should have been aware of those acts. Santana Prods., Inc. 6

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v. Bobrick Washroom Equip., 14 F. Supp.2d 710, 718 (M.D. Pa. 1998); see also Murray v. Natl Football League, Civ. A. No. 94-5971, 1996 WL 363911, at *15 (E.D. Pa. June 28, 1996); Textex Prods., Inc. v. Kramer, 479 A.2d 500, 506 (Pa. Super. Ct. 1984). Here, CDI alleges that Marck conspired to steal CDIs trade secrets by directing Cloud, a Pennsylvania company, to rummage through CDIs garbage in Pennsylvania. CDI also alleges that Marck induced CDIs trash hauler to give him CDIs garbage. Finally, Marck is also alleged to have defamed CDI through discussions with CDIs customers. If those allegations are true, Marck directed his tortious activity at Pennsylvania and towards a Pennsylvania corporation. The fact that he might have done so outside the boundaries of Pennsylvania does not shield him from being haled into court in Pennsylvania. Pennsylvania served as the focal point for Marcks tortious activity and, at a minimum, he should have been aware of the substantial activities occurring in this forum in furtherance of the conspiracy. 4. Fair Play & Substantial Justice

Having determined that CDI has satisfied all three prongs of the Calder effects test, and therefore demonstrated the requisite minimum contacts, the Court must now decide whether exercising specific jurisdiction in this case offends traditional notions of fair play and substantial justice. See Burger King, 471 U.S. at 476. To make that determination, a court must consider the burden on the defendant, the interests of the forum State, and the plaintiffs interest in obtaining relief. Asahi, 480 U.S. at 113. It must also weigh in its determination the interstate judicial systems interest in obtaining the most efficient resolution of controversies; and the shared interest of the several States in furthering fundamental substantive social policies. Id. (citations omitted). To defeat jurisdiction based on fairness, a defendant must present a compelling case that the 7

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presence of some other considerations would render jurisdiction unreasonable. Burger King, 471 U.S. at 477; see also Schiller-Pfeiffer, Inc. v. Country Home Prods., Civ. A. No. 04-1444, 2004 WL 2755585, at *8 n.8 (E.D. Pa. Dec. 1, 2004) (A heavy burden rests with Defendants to show that the exercise of jurisdiction would be unreasonable.). Marck presents no reasons why it would offend traditional notions of fair play and substantial justice to litigate this case in Plaintiffs chosen forum. As Marck does business in Ohio, the burden on him to appear in this forum is minimal. See Pennzoil Prods. Co. v. Colelli & Assoc., Inc., 149 F.3d 197, 208 (3d Cir. 1998) (concluding that requiring an Ohio defendant to litigate in a Pennsylvania court would not be an unreasonable inconvenience). Furthermore, Pennsylvania has a valid interest in providing a convenient forum for its residents, CDI has a strong interest in obtaining relief in its home state, and there is no evidence that the interests of either Pennsylvania or Ohio (or any other state for that matter) would be better served if the case was litigated in a different forum. See Grand Entmt Group, Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 484 (3d Cir. 1993) (requiring evidence that another forum could better preserve the litigants rights or possessed an interest superior to Pennsylvania); Mesalic v. Fiberfloat Corp., 897 F.2d 696, 701-02 (noting that a state frequently has an interest in providing its residents an effective means of redress); Pa. Mach. Works, Inc. v. N. Coast Remfg. Corp., Civ. A. No. 04-1731, 2004 WL 2600117, at *5 (E.D. Pa. Nov. 16, 2004) (noting the interests of Pennsylvania in providing its residents a convenient forum and the interests of a corporation in obtaining relief in its home state). Exercising personal jurisdiction over Marck for his activities alleged in this suit therefore comports with traditional notions of fair play and substantial justice. Therefore, this Court holds that jurisdiction over Marck in this forum meets the standards of the Due Process clause of the Constitution and denies Marcks motion to dismiss 8

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for lack of personal jurisdiction.

III.

THE MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM A. Standard of Review

The standard of review for deciding a 12(b)(6) motion is well known; a court must accept as true all of the factual allegations in the complaint and all reasonable inferences that can be drawn from those allegations. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Moreover, a court must view all factual allegations in a light most favorable to the plaintiff. Id. Therefore, a motion to dismiss can be granted only if it is certain that plaintiff is not entitled to relief under any set of facts which plaintiff could prove. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Klein v. Gen. Nutrition Cos., 186 F.3d 338, 342 (3d Cir. 1999). Under this standard, a complaint will be deemed sufficient if it adequately puts the defendant on notice of the essential elements of a cause of action. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). The question is not whether the plaintiff will ultimately prevail; instead, it is whether the plaintiff can prove any set of facts consistent with the averments of the complaint which would show the plaintiff is entitled to relief. Jordan v. Fox, Rothschild, OBrien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). B. Discussion 1. Misappropriation of Trade Secrets

One mans trash is another mans defense to a claim of misappropriation of trade secrets. Defendants argue that CDI cannot maintain any cause of action involving trade secrets because, even assuming CDIs allegations are true, CDIs trade secrets were found in the trash and were therefore 9

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discarded. Thus according to Defendants argument, once the trash is in the bag, the cat is out of the bag and any trade secret is no longer protected under the law. Pennsylvania follows the Restatement (First) of Torts 757, which states, one who discloses or uses anothers trade secret, without a privilege to do so, is liable to the other if (a) he discovers the secret by improper means, or (b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him. See, e.g., Moore v. Kulicke & Soffa Indus., Inc., 318 F.3d 561, 566 (3d Cir. 2003). The elements of a claim of misappropriation of trade secrets are: (1) the existence of a trade secret; (2) disclosure of the trade secret to defendant in confidence, or the defendants acquisition of the trade secret by improper means; and (3) injury to the plaintiff resulting from the defendants use of the trade secret. Frank W. Winne & Son, Inc. v. Palmer, Civ. A. No. 912239, 1991 WL 155819, at *1 (E.D. Pa. Aug. 7, 1991) (citation omitted). Exactly what constitutes a trade secret is a difficult question to answer, although Pennsylvania courts have adopted the definition found in Comment b to the Restatement of Torts 757 (1939): A trade secret may consist of any formula, pattern, device or compilation of information which is used in ones business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. Smith v. Bic Corp., 869 F.2d 194, 199 (3d Cir. 1989). The issue of whether a particular item or process is a trade secret is an issue of fact, usually decided by the fact finder after all of the evidence has been presented. Pennfield Precision, Inc. v. EF Precision, Inc., Civ. A. No. 00-2801, 2000 WL 1201381, at *4 (E.D. Pa. Aug. 15, 2000); see also Winne, 1991 WL 155819, at *2. In making that determination, courts consider the following: (1) the extent to which the information is known 10

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outside of the claimants business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Id. (citing S.I. Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1256 (3d Cir. 1985)). Defendants contend that any alleged trade secrets of CDI have been stripped of that status because CDI threw them out. Clearly, secrecy is the cornerstone of a trade secret; without it, there can be no claim for misappropriation of a trade secret. 1 MELVIN F. JAGER , TRADE SECRETS LAW , 3:2 (2004). Pennsylvania courts require relative (as opposed to absolute) secrecy to establish a trade secret and examine the precautions taken to protect a trade secret to ensure those precautions are reasonable given the circumstances. Id. 56:2. Moreover, a trade secret discovered through improper means can serve as the basis for liability. See Westcode, Inc. v. Daimler Chrysler Rail Sys. (N. Am.) Inc., 123 F. Supp. 2d 819, 824 (E.D. Pa. 2000). Improper means refers to those means which fall below the generally accepted standards of commercial morality and reasonable conduct. RESTATEMENT (FIRST) OF TORTS 757, cmt. f. A non-exhaustive list of improper means includes fraudulent misrepresentations to induce disclosure, the use of physical force to acquire a trade secret, and breaking into an office to steal a trade secret. Id. CDIs allegations, accepted as true at this stage, coupled with all reasonable inferences drawn from those allegations, support a finding that Defendants used improper means to discover CDIs trade secrets. CDI claims that Marck Associates induced CDIs trash hauler to deliver its garbage to Marck Associates, in violation of CDIs contract with the trash hauler. (Compl. 12, 15.) CDI 11

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also claims that Marck Associates and Richter bribed CDIs trash hauler to deliver its trash to them, rather than dispose of that trash as CDI had instructed. (Id. 13, 16.) The record before the Court at this early stage of the litigation is not developed enough to warrant a conclusion that CDI failed to take reasonable steps to protect its trade secrets and thus forfeited those trade secrets. See Winne, 1991 WL 155819, at *4 (denying motion to dismiss misappropriation claim where record did not disclose steps plaintiff had taken to protect trade secrets). I therefore deny Defendants motion to dismiss CDIs trade secret claims. 2. Section 1 of the Sherman Antitrust Act

Defendants argue that CDI cannot maintain its Sherman Act claim because CDI lacks a reasonable expectation of privacy in discarded trash. This argument misses the mark. To state a claim under 1 of the Sherman Act, plaintiff must allege a contract, combination or conspiracy that unreasonably restrains trade and affects interstate commerce. Fuentes v. S. Hills Cardiology, 946 F.2d 196, 198 (3d Cir. 1991). The Third Circuit has stated that courts should be extremely liberal in construing antitrust complaints. Lum v. Bank of Am., 361 F.3d 216, 228 (3d Cir. 2004). Because proof of a conspiracy often rests in the hands of the alleged conspirators, dismissals of antitrust claims prior to providing plaintiffs ample opportunity for discovery are to be granted very sparingly. Hosp. Bld. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 746 (1976). CDIs claims that Defendants conspired to restrain trade and competition in the field of imported beverageware by inducing Shandong to end its relationship with CDI. (Id. 11, 18, 27.) As both CDI and Marck Associates import beverageware from China (id. 1, 3), interstate commerce is clearly at issue. Viewing CDIs allegations as true and drawing all reasonable

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inferences in favor of CDI, a fact finder could conclude that Defendants engaged in conduct that unreasonably restricted trade and affected interstate commerce. CDI may proceed with its Sherman Act claim. 3. Defamation

Count III is framed as a defamation claim and asserts that defendants have falsely advised CDIs customers that CDI is unable to supply those customers with beverageware product. (Id. 19, 29, 31.) To make out a claim for defamation under Pennsylvania law, CDI must prove: (1) a defamatory communication; (2) published by defendant; (3) applied to plaintiff; (4) understood by the recipient to be defamatory; (5) understood by the recipient to apply to plaintiff; (6) special harm to plaintiff resulting from the publication; and (7) abuse of a conditionally privileged occasion.2 42 PA . CONS. STAT . ANN . 8343 (2004); Franklin Prescriptions, Inc. v. New York Times Co., Civ. A. No. 01-0145, 2001 WL 936690, at *2 n.2 (E.D. Pa. Aug. 16, 2001). Whether a statement is capable of a defamatory meaning is question of law. MacElree v. Phila. Newspapers, Inc., 544 Pa. 117, 124 (1996). A statement is defamatory if it tends to harm the plaintiffs reputation, lower plaintiff in the eyes of the community, or deter others from associating or dealing with the plaintiff in professional or business relationships. Id. at 124-25 (citations omitted). The Court must look to the effect the statement is calculated to produce, and the impression it would naturally engender in the minds of average persons among whom it was intended to circulate. See Maier v. Maretti, 671 A.2d 701, 704 (Pa. Super. Ct. 1995).

Defendants brief in support of its motion cites to Pennsylvanias defamation law. Plaintiffs brief similarly tracks the Pennsylvania elements for defamation. Therefore, I will apply Pennsylvania law to CDIs defamation claim. 13

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I find that in the minds of CDIs customers, statements that it would not be able to supply its customers with products could deter others from dealing with CDI. See Pennfield Precision, 2000 WL 1201381, at *2-*3 (E.D. Pa. Aug. 15, 2000) (statement intended to discourage customers from using plaintiffs services capable of defamatory meaning). In fact, CDI alleges that such

communication did deter customers from dealing with it. I therefore conclude that CDI has stated a claim for defamation.

IV.

CONCLUSION For the reasons stated above, I deny Defendant Gary Marcks motion to dismiss under Rule

12(b)(2) and the motion of all Defendants to dismiss under Rule 12(b)(6). An appropriate order follows.

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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA CDI INTERNATIONAL, INC., Plaintiff, v. GARY MARCK, et al., Defendants. : : : : : : : ORDER AND NOW, this 21st day of January, 2005, upon consideration of Defendants Gary Marck and G.G. Marck & Associates, Inc.s Motion to Dismiss Pursuant to F.R.C.P. 12(b)(2) and (6) (Document No. 3), Plaintiffs response thereto (Document No. 4), and for the foregoing reasons, is hereby ORDERED that: 1. Defendant Gary Marcks Motion to Dismiss under Rule 12(b)(2) is DENIED. 2. Defendants Gary Marck and G.G. Marck & Associates, Inc.s Motion to Dismiss under Rule 12(b)(6) is DENIED. No. 04-4837 CIVIL ACTION

BY THE COURT:

/s/ Berle M. Schiller Berle M. Schiller, J.