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American Messaging Services, LLC v. DocHalo, LLC

Court of Chancery of Delaware

April 9, 2015

American Messaging Services, LLC
DocHalo, LLC

Submitted: March 30, 2015

Dear Counsel:

Plaintiff American Messaging Services, LLC ("AMS") purchased a 25% ownership interest in Defendant DocHalo, LLC ("DocHalo") in September 2014. The companies provide separate but complementary products and services, which they agreed to cross-sell and bundle to their existing and new customers in the healthcare industry.[1] They entered into the Revenue Sharing Agreement, which established the economic terms of their business relationship.[2]

AMS and DocHalo developed and employed a strategic sales and marketing plan. They agreed that a contract addendum (the "Contract Addendum") would be offered to AMS's customers who decide to purchase DocHalo's services.[3] The Contract Addendum includes a pricing schedule and provides that fees are payable to AMS. As of March 14, 2015, four AMS customers had agreed to obtain DocHalo's services and had been presented with a Contract Addendum.[4]

Unfortunately, the parties' relationship quickly soured after DocHalo expressed concerns regarding the revenue share percentages and product pricing. The parties began to discuss unwinding their relationship in January 2015. On March 4 and 5, 2015, with the parties' future relationship uncertain, AMS learned that a DocHalo executive had contacted some of its sales personnel about joining DocHalo. DocHalo had also unilaterally reached out to some of AMS's customers, providing them with Statements of Work that purported to substitute for the billing and payment terms of the Contract Addendum.[5] The Statements of Work provided that although AMS would invoice customers directly for DocHalo services that were integrated with AMS's, DocHalo would bill for its stand-alone services.

On March 6, 2015, AMS filed its Complaint, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, misappropriation of trade secrets, and tortious interference with contractual relations. For now, at least, AMS's contract and trade secrets claims substantially overlap; AMS alleges that DocHalo has exploited two lists of AMS customers-the Secure Prospect List and the Medical Account List (together, the "Lists")-which AMS provided to DocHalo to implement the sales and marketing plan.[6]

The Secure Prospect List contains over 200 hospitals, which have been identified as those most likely interested in DocHalo's offerings.[7] The Medical Account List identifies over 1, 000 health care organizations that AMS currently services. It includes hospital names, and for each hospital, its geographic region, number of pager users, and the relevant AMS account manager. AMS alleges that DocHalo has improperly used the Lists to solicit and convert its customers.

On the same day it filed the Complaint, AMS sent to DocHalo a cease and desist letter, which demanded that it stop contacting AMS's customers and soliciting its employees. The parties negotiated a "stand down, " whereby DocHalo agreed to comply with the letter until March 16, 2015. During that time, the parties negotiated an unwinding of their business relationship. After that exercise proved fruitless, AMS filed its motion for a temporary restraining order seeking to prevent DocHalo from (i) contacting the customers on the Lists and (ii) contacting AMS's sales personnel. Although AMS initially requested relief for 60 days, it now seeks a 30-day order.

A temporary restraining order is intended "to protect the status quo and to prevent imminent and irreparable harm from occurring pending a preliminary injunction hearing or a final resolution of a matter."[8] Three factors guide the Court's consideration: "(i) the existence of a colorable claim, (ii) the irreparable harm that will be suffered if relief is not granted, and (iii) a balancing of hardships favoring the moving party."[9]

While these elements are similar to those considered on a preliminary injunction motion, the Court's analysis has a materially different emphasis.[10] The Court focuses less on the merits of the plaintiff's claims and "primarily upon the injury to plaintiff that is threatened and the possible injury to defendant if the remedy is improvidently granted."[11] Thus, while a colorable claim (accepting the alleged facts as true) is required, "[t]he essential predicate for issuance of the remedy is a threat of imminent, irreparable injury."[12]

Establishing a colorable claim is not necessarily a burdensome task and falls short of demonstrating a reasonable probability of success on the merits. Here, AMS has outlined colorable, though not necessarily compelling, claims.

AMS charges DocHalo with: (i) breach of the Revenue Sharing Agreement, (ii) breach of the implied covenant of good faith and fair dealing, and (iii) misappropriation of trade secrets.[13] Two sections of the Revenue Sharing Agreement underlie the breach of contract allegations: Section 7, which protects the confidentiality of information exchanged between the parties, and Section 8, which restricts the parties from soliciting each other's employees.

Section 7 of the Revenue Sharing Agreement provides:

Each party acknowledges that it will receive confidential information during the term of this Agreement including such things as trade secrets, know-how, discoveries, marketing information, business strategies, customer lists, customer information, and other information . . . which may be useful to the receiving party and its Affiliates, and which is not generally available to the public (all of this information is referred to in this Agreement as "Confidential Information" whether or not identified as such on applicable documentation). Each party agrees that all such Confidential Information will be the sole property of the disclosing party . .., and the receiving party agrees that it will not disclose any Confidential Information to any other Person . . . and that the receiving party will otherwise keep all Confidential ...

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