ATLANTIC MEDICAL SPECIALISTS, LLC, a Delaware Limited Liability Company, Plaintiff,
GASTROENTEROLOGY ASSOCIATES, P.A., MICHELE CAMPONELLI, THOMAS SPAHR, MARK CORSO, M.D., DAVID R. BESWICK, M.D, IRA F. LOBIS, M.D. and JOSEPH F. HACKER III, M.D., Defendants.
Submitted: February 13, 2017
Defendants' Motions for Summary Judgment. GRANTED in Part
and DENIED in Part.
Laurence V. Cronin, Esquire, SMITH KATZENSTEIN & JENKINS
LLP, Wilmington, Delaware. Attorney for Plaintiff.
Aranilla, Esquire, MARSHALL DENNEHEY WARNER COLEMAN &
GOGGIN, Wilmington, Delaware. Attorney for Defendant Michele
Scott Reese, Esquire and Christopher H. Lee, Esquire, COOCH
AND TAYLOR P.A., Wilmington, Delaware. Attorneys for
Defendants Gastroenterology Associates, P.A., Thomas Spahr,
Mark Corso, M.D., David R. Beswick, M.D., Ira F. Lobis, M.D.,
and Joseph F. Hacker, III, M.D.
Charles E. Butler, Judge
Endoscopy Center of Delaware ("ECD") is an
"ambulatory surgical center" ("ASC")
operated near the Christiana Hospital primarily for the
purpose of conducting endoscopic services. It has been in
operation for approximately 20 years.
was founded by a medical practice of gastroenterologists that
operates as a corporation called Gastroenterology Associates
2001, a company based in Kentucky called Amsurg purchased a
51% stake in the ECD from GA. Amsurg has a controlling interest
in approximately 260 ASCs nationwide. The remaining 49% interest
in ECD was retained by the physicians of GA.
Michael Katz ("Katz") is an anesthesiologist who
formed an anesthesiology practice called Outpatient
Anesthesia Services ("OAS") in 2002. OAS performed
anesthesiology services for a number of medical practice
groups, GA being one of them.
also be hearing about Atlantic Medical Specialists
("AMS"). When Katz was preparing to leave OAS, he
created AMS. At all times relevant to this case, Katz was the
sole shareholder of AMS.
other major player in this dispute is Diamond Medical
Management Services, LLC ("DMMS"). This group was
founded by doctors at ECD and includes most of the GA doctors
as members. The function of DMMS is to provide medical
billing, insurance, payment and related "back
office" services to medical practices - the primary one
Katz and 3 other anesthesiologists formed OAS. Katz wrote
the business plan. The purpose of the business was to
provide anesthesia services to ASCs. OAS was successful at
obtaining business from several ASCs, including the
made fee reimbursement arrangements with various insurance
companies with whom it had "participating"
relationships - these are called "par" in
the industry. These "par" arrangements set
the rates at which the insurance payer will compensate the
physician for his services. Services performed for insureds
with which the physician is "non-par" are paid at
the "usual and customary" rate as determined by the
insurance company, less any copay, with the patient left to
pay the physician any balance of the bill.
specific rate that a physician and insurance company work out
in a "par" arrangement is considered confidential
between the insurance company and the physician. Indeed,
disclosure of a physician's reimbursement rate is fraught
with legal peril.
outsiders might well imagine, medical practices are supported
by accountants, bookkeepers, billing clerks, insurance
liaisons, and various other "back office"
assistance. GA created DMMS to support its own back office
and, over time, offered its services to other medical
practices. The record indicates that today DMMS is
the largest support service to emergency service providers
OAS obtained its contract to provide services at the ECD, it
elected to contract with DMMS to provide back office support
to OAS. DMMS typically bills its clients a
percentage of the practice's billings. Indeed, DMMS
billed GA - the very physicians that founded it - 10% of
GA's monthly billings.
his work with OAS, Katz worked at the Endoscopy Center on a
daily basis and he became friendly with the
gastroenterologists working there, in particular with Dr.
Joseph Hacker, the president of GA.
early 2012, Katz approached Dr. Hacker - who was a member of
both GA and DMMS - and told him that he (Katz) believed that
his partners at OAS were going to remove him as a partner
with OAS. Katz asked Hacker if Hacker and GA would
consider keeping him at the ECD, where Katz had developed
relationships with most of the staff.
and Katz were personal friends and they discussed several
different employment scenarios, including simply hiring Katz
on to GA as a partner or employee. Those conversations
ultimately led to Hacker recommending - and ECD formally
terminating - the OAS/ECD service agreement and signing a new
agreement with AMS, which Katz had formed several months
AMS/ECD agreement worked in much the same way as the OAS/ECD
agreement did. Katz/AMS would draw no income directly from
ECD but would instead derive his/its income from insurance
payers that insured clients of the ECD.
OAS before him, Katz/AMS signed a separate agreement with
DMMS, the billing company, to provide the billing and
collection function for the arrangement between Katz/AMS and
ECD. It is to be noted here that while DMMS
performed billing and collection services for OAS, the
predecessor to AMS, as well as the doctors of GA, there is no
evidence that either DMMS or GA forced AMS to use DMMS for
its billing and collection services. The AMS/DMMS agreement
contained one provision that looms large in this litigation:
a provision that bound DMMS to keep financial information
about AMS confidential.
changeover from OAS to AMS was effective officially in May
2012. AMS negotiated its own reimbursement
"par" rates with some insurance companies and hired
staff to do the anesthesia work. From the record, it appears
that AMS was "par" with Medicare/Medicaid, Highmark
Blue Cross/Blue Shield and Aetna. Even months later at the
end of 2012, AMS was still "non par" with all of
the other insurers in the area.
number of years, GA doctors had been seeking ways to
consolidate services that were being subcontracted to other
services. For example, endoscopy and colonoscopy
specimens must be analyzed. GA arranged to stop utilizing an
outside lab to study the samples and brought the service in
house. Likewise, GA began delivering REMICADE,
a drug frequently prescribed for their patients, in
physicians had also learned of the growing trend in endoscopy
to bring anesthesia in house and that this approach was being
taken by endoscopy practices elsewhere. Indeed, this
was one of the options discussed when Katz was seeking
employment in early 2012 when faced with the prospect of his
ouster from OAS. While Katz says by affidavit that this
option was declined because GA was not convinced they could
provide anesthesia services profitably,  GA doctors
say the option was declined because they were still busy
standing up the laboratory practice they had recently taken
event, in August 2012 -just months after AMS had replaced OAS
as the anesthesia service provider, GA doctors Hacker and
Corso attended a national conference where once again the
subject of bringing anesthesia practices in house was
discussed. In addition, Amsurg, which owned any
number of ASC centers, counseled the GA doctors that this was
an approach a number of their other centers had
NOVEMBER 2012 INQUIRIES OF DMMS
November 2012, Katz/AMS had been operating at ECD for
approximately 6 months. According to Plaintiff, even though
the fledgling operation had to wait for insurance payments
for services previously rendered to come in, AMS was
beginning to find its profitability. But the AMS/ECD
relationship was not without its problems.
issue that some doctors from GA have testified about arose
when they heard complaints from their "non-par"
patients about insurance payments and anesthesia
services. The doctors testified that they were
concerned enough that they inquired of their billing arm -
DMMS - about how anesthesia services were being coded and
submitted to insurance companies. This inquiry, about which
Katz was never informed,  was quietly dismissed when
they were satisfied by legal advice that Katz' billing
practices were appropriate.
are several emails between the doctor directors of DMMS (who
are also partners of GA) and DMMS staff making inquiry into
how anesthesia is billed and responses from the staff
enclosing copies of AMS' financial information. Whether
these requests were benign or filled with tortuous intent is
very much at the center of this dispute. We can safely say,
however, that questions were asked of DMMS and answers were
aside from these emailed inquiries of DMMS staff, the record
demonstrates that the GA doctors also sought out consultants
and lawyers to advise them on the feasibility of bringing
anesthesia in house, including the preparation of pro
forma projections of a consolidated
to July, 2013
January 2013 - about 7 months after AMS began operating - GA
decided it would bring anesthesia in house. Dr. Hacker broke
the news to Katz, telling him that the agreement with AMS and
ECD was going to come to an end but that Katz would be given
a substantial employment contract with GA to continue
delivering anesthesia services at the ECD.
to Katz' affidavit, he was "stunned" by the
news, but took solace in Hacker's assurance that Katz
would become a partner at GA - an assurance that Hacker
denies ever making.
record is quiet as to what happened between January and March
of 2013, except for the arrival of Thomas Spahr as the new
"practice manager" at GA. According to Spahr, his
first assignment at GA was to develop the planning to bring
anesthesia - and Dr. Katz - in house.
April 2013, the ECD gave AMS "official" 90 day
notice of the termination of the AMS/ECD agreement to be
effective on August 1, 2013.
2013 - Katz Signs Employment Agreement with GA
10, 2013, Katz signed an employment agreement with GA
bringing him in house. That contract gave Katz the title of
"Medical Director" of the "Anesthesia
Division" of GA at a salary of $425, 000 with additional
compensation that began at $50, 000 and increased depending
on other factors. Although it was drafted to commence on
July 1, a subsequent amendment made the effective date
October 1, 2013.
this period, from the time Katz signed the employment
agreement in June until it actually went into effect on
October 1, 2013, there is other evidence supporting the
proposition that employees of DMMS, GA and Katz all shared
information concerning anesthesia insurance contacts and
reimbursement rates for anesthesia services.
directs us to one insurance contract with which AMS was
"par" as demonstrative of GA's improper use of
AMS' information. The record shows that Thomas Spahr was
the GA employee most concerned with arranging the
"par" agreements with the various insurance
companies. In his emailed correspondence with Aetna in July
2013, Spahr was unclear whether the rate being offered by
Aetna was consistent with the rate Aetna had been paying
AMS. Spahr made inquiry of both Katz and DMMS
whether Aetna's offer was a good one. Although an
email response from Katz is in the record,  Katz swears
that he told Spahr it was inappropriate to even ask the
question. Whether Spahr sought a specific rate
from Aetna or simply the same rate that Aetna was giving AMS
is one of those fact issues that is hotly contested but is
not "material" to the Court's ruling here.
Whatever happened, Katz points to this event as direct
evidence of GA exploiting AMS' "trade secret"
information for its own benefit.
Katz as employee was not nearly as comfortable as Katz as
contract worker for OAS or AMS. The one year employment
contract between Katz and ECD that began on October 1, 2013,
was terminated by ECD on October 1, 2014, effective January
filed this lawsuit on June 23, 2015 - about 6 months after
Katz was let go under his contract with the ECD. He filed
against GA, the "CEO" of DMMS Michele Camponelli,
and the "practice manager" of GA, Thomas Spahr.
noteworthy who is not in this lawsuit - DMMS.
Plaintiffs counsel candidly advised the Court that the
written contract between AMS/Katz and DMMS includes an
arbitration clause. Plaintiff says Ms. Camponelli is not
subject to the arbitration provision of the DMMS contract
because she is sued here in her "individual
capacity." Thomas Spahr, also named individually as a
defendant, began his employment with GA in March 2013 and
thus was not so employed at the time at least some of this
history was being developed. Again, Plaintiff avers Spahr is
also sued in his "individual capacity."
Complaint is brought in two counts. The claim in Count I is
that the Defendants misappropriated "trade secrets"
consisting of "confidential business information"
that included "financial information about its
operations that demonstrated its profitability." Count
II is denominated "tortious interference with
contractual relationships." Specifically, Plaintiff
claims that the named defendants, knowing that DMMS was
precluded by contract from sharing AMS' business
information, nonetheless induced DMMS to share its
information with GA. According to Plaintiff, that sharing of
tortuously obtained information caused GA to induce ECD to
terminate its contract with AMS.
complaint was duly answered and discovery commenced.
Noteworthy for these purposes is a motion to compel filed by
defendant GA as to certain interrogatory answers filed by
sought information from Plaintiff fleshing out its claim to a
misappropriation of "trade secrets" as well as
Katz' personal tax returns in support of the claim for
damages. Before those issues came up for argument, the
Defendants withdrew their claim for Katz' personal
financial information when Plaintiff assured Defendants that
Katz was not seeking any damages whatsoever, that Plaintiff
AMS was the only damaged party seeking recovery. Defendants
apparently accepted that argument but pressed the "trade
response to this latter issue, Plaintiff urged that its trade
secrets included: 1) the income it received, 2) the rates it
negotiated with payers/insurance companies, 3) the money it
actually received from payers and 4) its profit margin.
Because discovery was ongoing at that point, the Court was
unwilling to foreclose Plaintiff from making whatever case it
could that its "trade secrets" had been
misappropriated. But the Court made it clear that the issue
whether Plaintiffs case was indeed over a "trade
secret" was by no means certain and would be further
plumbed after discovery was completed.
September 2016, Plaintiff filed its amended its complaint
adding individual defendants Drs. Corso, Beswick, Lobis and
Hacker. According to the amended complaint, each of the newly
named individual defendants are/were owners of both GA and
DMMA. The only "new" allegation predicating this
claim of individual liability is this: "Defendants
Camponelli, Spahr, Beswick, Corso, Lobis and Hacker were
personally involved in causing the confidential business
information of AMS to be shared with GA without the consent
additional discovery, the Court has been presented with: 1) a
motion for judgment on the pleadings as to the newly named
defendants Corso, Beswick, Lobis and Hacker,  2) an
expansive motion for summary judgment filed by the GA
defendants, and 3) a separate motion for summary judgment
filed by Defendant Camponelli. Permission to file expanded
briefs was requested and granted. Each of these motions have
been duly answered by the Plaintiff and reply briefs have
been filed. In addition, the Court had the benefit of
extended oral argument on the motions on February 13, 2017.
follows is the Court's ruling on the motion for summary
judgment of the GA defendants and the separate motion of
defendant Michele Camponelli.
STANDARD OF REVIEW
to Superior Court Rule 56, summary judgment "shall be
rendered forthwith if... there is no genuine issue as to any
material fact, and that the moving party is entitled to a
judgment as a matter of law."
bears the burden of proving the existence and
misappropriation of a trade secret. When a motion for summary
judgment is supported by a showing that there are no material
issues of fact, the burden shifts to a non-moving party to
demonstrate that there exist genuine issues of material
fact. If Plaintiff fails to meet this burden,
this Court's inquiry ends and judgment must be entered
for defendants. "Specifically, under DUTSA, the
plaintiff affirmatively must prove the following: first, that
a trade secret exists, i.e., that the statutory elements-
commercial utility or value arising from secrecy and
reasonable steps to maintain secrecy-have been shown; second,
that the plaintiff communicated the trade secret; third, that
such communication was made pursuant to an express or implied
understanding that the secrecy of the matter would be
respected; and fourth, that the trade secret has been used or
disclosed improperly to the plaintiffs
A. BRIEF HISTORY OF DUTSA
of the Amended Complaint seeks damages for misappropriation
of a "trade secret" and so the first question
deserving our attention is whether the information in dispute
here is one.
first half of the 20th century, the business
community was concerned that business competition could be
hampered by exposing innovation and capital to harmful
lawsuits. At the same time, some businesses were being
victimized by predatory competitors that engaged in unfair
practices, including hiring away key personnel who brought
the former employer's confidential business information
with them. While our early history surely favored competition
and open markets over complaints of sharp practices, the law
needed to evolve to repudiate a class of competitive behavior
that crossed the line.
begin our review of the developing law of trade secrets with
the First Restatement of Torts. Like other Restatements, it
represented a broad overview of the state of the law as
practiced in state courts across the country at the time of
its publication (1939). Section § 757 of the Restatement
directed the practitioner to factors that might trigger
liability if one disclosed or used the trade secret of
another. But rather than defining a trade secret
specifically, the Restatement settled for a discussion of
what one might be, in comment (b):
It differs from other secret information in a business (see
§ 759) in that it is not simply information as to single
or ephemeral events in the conduct of the business... A trade
secret is a process or device for continuous use in the
operation of the business. Generally it relates to the
production of goods, as, for example, a machine or formula
for the production of an article. It may, however, relate to
the sale of goods or to other operations in the business,
such as a code for determining discounts, rebates or other
concessions in a price list or catalogue, or a list of
specialized customers, or a method of bookkeeping or other
somewhat amorphous "definition" was distinguished
from a different class of misappropriation of business
information. Restatement section 759 recognized liability for
"Procuring Information by Improper Means, " which
involved, as its name implies, procurement of
"information about another's business" by
improper means for the "purpose of advancing a rival
business interest." This was, in essence, a category of
confidential business information that was not a trade
secret. As we shall see, its absence in the codified law, or
in any subsequent Restatement, is sorely missed.
from the difficulties in defining exactly what a trade secret
is, federal law was evolving as well. States were
consolidating their courts of law and equity, broadening the
scope of available remedies. In addition, the Supreme
Court's Erie decision that "there is
no federal common law" with its direction to federal
courts in diversity cases to follow the common law of the
forum states left many in the bar concerned with how a common
law of "business torts" would develop.
states were beginning to pass their own trade secrets
protection and deceptive trade practice laws,  but there was
no effort to coordinate the statutes across state lines,
leaving business and employees with differing and potentially
conflicting duties and remedies among the states.
1964, the Supreme Court issued its
"Sears/Compco" decisions invalidating
Illinois' unfair competition laws because they conflicted
with federal patent law. So to the extent businesses were
hoping for a "federal common law" of unfair trade
practices, their hopes were dashed by Erie. To the
extent they were hoping for a developing state law barring
unfair competitive practices, their hopes were dashed by
Sears/Compco. It has been called the
"Erie/Sears/Compco Squeeze": "the
very entities that were charged with developing unfair
competition law - state courts and legislatures - were
prevented by principles of federal preemption from adopting
state laws that interfered with federal patent
it was the "squeeze" of Supreme Court
jurisprudence, the press of other business, or simply
difficult work by the American Bar Association's Patent,
Trademark and Copyright Committee, the effort to produce a
uniform trade secrets law that began in 1968 did not yield a
Uniform Trade Secrets Act ("UTSA") until
1979. While we must discuss its details
presently, two overall features are worth mentioning at the
UTSA regulates the misappropriation of "trade
secrets" and makes a strong effort to define what a
trade secret is. Unlike the Restatement of Torts (First),
there is no provision for business information that is
confidential but does not meet the definition of a
"trade secret." Second, in order to promote
the desired uniformity and predictability across the states,
UTSA contains an important "displacement" provision
that requires that all claims falling within its somewhat
amorphous terms be preempted in favor of disposition under
lest we get ahead of ourselves, an examination of the term
"trade secret" is clearly our first order of
IS THE SUBJECT MATTER OF THE LAWSUIT A TRADE SECRET?
Under DUTSA, a "trade secret" is defined as
"Trade secret" shall mean information, including a
formula, pattern, compilation, program, device, method,
technique or process, that:
a. Derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use; and
b. Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
Was The Information "Known or Readily Ascertainable by
dispute, Plaintiff claims misappropriation of its "trade
secrets" with respect to two categories of information:
1) its profitability, and 2) its reimbursement rates from
Was information concerning AMS' profitability known
or readily ascertainable?
claims that Defendants obtained information concerning its
profitability by ordering employees of DMMS, a company
controlled by Defendants, to deliver it up. For purposes of
this motion, we must assume this to be true. But while that
may describe how Defendants learned the information, it begs
the question whether the information they learned was also
"known or readily ascertainable through other
movement of anesthesia services "in house" at ASCs
generally is not news, or secret. There is testimony in
this record that GA doctors had been considering bringing
anesthesia services in house for some time before November
2012. There is further testimony that in
considering the question, they consulted practice
specialists, attorneys and accountants who created pro
forma financial information to project revenue and
profit from an in house anesthesia practice. There is no
evidence that any of this data was generated by using revenue
or expense data from the books of AMS.
Plaintiff urges that while bringing the service in house may
have been a topic of general conversation, Defendants had
hitherto not done so because they were not impressed that
doing so would be profitable. Whether that is a correct
history or not, it again begs the question: was the idea that
ambulatory surgery centers bringing anesthesia services in
house was profitable for the owners of the ASC information
that was self-evident or at least readily ascertainable? Even
if we accept the proposition that "cutting out the
middleman" and employing an anesthesiologist in house
would be profitable was not "self evident, " the
Court cannot agree that figuring this out was not a
conclusion "readily ascertainable" upon even the
most basic analysis.
example, information is not "misappropriated" when
it is "readily ascertainable" by "reverse
engineering." Here, there is record testimony that Dr.
Beswick did exactly that. Knowing that the ECD serviced
approximately 10, 000 patients per year and, using the
"explanation of benefits" from his own procedure
that included both the fee charged by the anesthesiology
service and what the insurance company paid, he was able to
determine a gross revenue number for the practice
annually. If a doctor can figure out the numbers
from his own colonoscopy on the back of a napkin, it cannot
rightly be considered a trade secret.
Was the reimbursement rate from insurance companies known
or readily ascertainable?
information concerning reimbursement rates stands on
substantially different footing from the issue of
profitability generally. We understand that individual
physicians and practices must negotiate their reimbursement
rates with insurance company payers separately from
other hand, the federal government maintains an open website
through which anyone can learn the reimbursement rates for
procedures covered by Medicare. We also understand that
doctors seeking a "par" relationship with an
insurer may use the published Medicare reimbursement rate as
one measure of the value of the service.
this helps us understand that while an outsider could obtain
some idea of a reimbursement rate by consulting readily
available and "trade" sources, the outsider could
not learn the specific reimbursement rate between a specific
insurer and a specific doctor.
Did the Information Have Independent Economic Value Because
it was Secret?
second requirement for a trade secret under the Code is that
the information concerning AMS' profitability and
reimbursement rates have "independent economic value,
actual or potential, from not being generally known to, and
not being readily ascertainable by proper means by, other
persons who can obtain economic value from its disclosure or
think of this requirement as one that the "secret"
- for example in this case, the profitability of the
anesthesia business at the ECD - have independent
economic value because it is a secret. It strikes us
that profitability in a publicly traded company is not only
not a secret, its profitability must be made known in public
filings available for all the world to see.
assume that an entrepreneur, say, a doctor starting an
anesthesia business, comes up with an idea to create an
enterprise from which he derives great profit. Does the fact
that he keeps the profitability a secret give the
profitability "independent economic value?" The
Court must answer this question in the negative. A business
is either profitable or it is not. The Trade Secrets Act
seeks to protect those ideas, information, processes, etc.
that gives the enterprise profitability, not the fact that it
is profitable. The fact that the enterprise is profitable has
no independent economic value. We have been directed to no
case that found profit or loss, standing alone, to qualify as
a "trade secret."
Plaintiffs most sinister view of the meddling into its
profitability, Plaintiff points to no evidence that GA used
any specific information about profitability in its
deliberations. After all, AMS had only been in business a few
months and GA's cost structure would have been
substantially different. About the most damaging thing
Plaintiff can say is that GA looked at AMS' numbers, saw
that it was profitable, and decided to move forward bringing
anesthesia in house. This accusation lacks all of the typical
hallmarks of a trade secret, i.e., new marketing plans,
chemical formulas, client lists, and other materials
developed by a business only after the extension of
considerable effort. The trade secret law seeks to protect
that investment in the business, the ideas, the effort and
time spent by the business in developing it.
profitability of AMS were coupled with other elements
belonging to AMS depicting new business plans, pro
formas, etc., Plaintiff might have a stronger argument.
Under the facts in this record, the Court is not satisfied
that mere profitability, standing alone, has
"independent economic value" because it is kept a