Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 1 of 25 PageID #: 5494
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
`
`
`FINANCIALAPPS, LLC,
`
`
`
`
`
`)
`)
`)
`)
`) Civil Action No. 19-1337-CFC-CJB
`)
`ENVESTNET, INC. and YODLEE, INC., )
`)
`)
`
`Plaintiff,
`
`v.
`
`Defendants.
`
`
`
`
`
`
`
`
`
`
`
`
`
`REPORT AND RECOMMENDATION
`
`Plaintiff FinancialApps, LLC (“Plaintiff” or “FinApps”) filed this action against
`
`Defendants Envestnet, Inc. (“Envestnet”) and Yodlee, Inc. (“Yodlee” and collectively with
`
`Envestnet, “Defendants”) asserting 14 counts, including claims for misappropriation of trade
`
`secrets, fraud, tortious interference with prospective business opportunities, unfair competition,
`
`copyright infringement, violation of state deceptive trade practices statutes, breach of contract,
`
`breach of the implied covenant of good faith and fair dealing, and unjust enrichment. (D.I. 2)
`
`Presently pending before the Court is Defendants’ partial motion to dismiss Counts II-X and
`
`Count XIV of Plaintiff’s Complaint, filed pursuant to Federal Rule of Civil Procedure 12(b)(6)
`
`(the “Motion”). (D.I. 15) For the reasons set forth below, the Court recommends that the
`
`District Court GRANT-IN-PART and DENY-IN-PART the Motion.
`
`
`
`I.
`
`BACKGROUND
`
`
`
`
`
`A.
`
`Factual Background
`
`Plaintiff is a Florida limited liability company with its principal place of business in Fort
`
`Lauderdale, Florida. (D.I. 2 at ¶ 22) Founded in 2014, Plaintiff is a software development
`
`company in the financial technology (“FinTech”) space—a technological area in which
`
`consumers can access financial services digitally. (Id. at ¶¶ 1-2, 31) Defendant Envestnet is a
`
`
`
`1
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 2 of 25 PageID #: 5495
`
`Delaware corporation with its principal place of business in Chicago, Illinois. (Id. at ¶ 23)
`
`Envestnet provides wealth management software solutions to financial advisors and financial
`
`institutions. (Id. at ¶¶ 1, 69) Defendant Yodlee is a Delaware corporation with its principal
`
`place of business in Redwood City, California. (Id. at ¶ 24) Yodlee provides consumer financial
`
`data aggregation services. (Id. at ¶¶ 1, 70) Yodlee has been a wholly-owned subsidiary of
`
`Envestnet since 2015. (Id.)
`
`
`
`By early 2016, Plaintiff had created a software platform (referred to in the Complaint as
`
`the “Platform”) that was capable of analyzing vast amounts of consumer financial data in real
`
`time; the Platform was also able to generate credit risk reports for underwriters to use in making
`
`decisions on loan issuances and extensions of credit. (Id. at ¶¶ 4, 35) Beginning in 2015,
`
`Defendants sought to create similar consumer credit risk software that would use Yodlee’s large
`
`repository of aggregated data. (Id. at ¶¶ 5, 71) The parties began discussions in 2016 regarding
`
`the formation of a long-term strategic partnership, which would include Yodlee licensing
`
`Plaintiff’s software and technology for use in a new application called “Risk Insight.” (Id. at ¶¶
`
`6, 75-76) In exchange for Plaintiff’s supplying its software, technology and technical
`
`knowledge, Yodlee would: (1) supply its raw aggregated financial data and (2) provide a team
`
`of experienced, trained employees to market and sell Risk Insight. (Id. at ¶ 75)
`
`
`
`On January 31, 2017, Plaintiff and Yodlee executed a Software License and Master
`
`Services Agreement (“MSA”) and other related agreements. (Id. at ¶¶ 7, 83 & exs. 1-3) Plaintiff
`
`had put into place several specific measures to protect the secrecy of its proprietary technology
`
`and trade secrets, and therefore insisted that the MSA include confidentiality provisions,
`
`exclusivity obligations and other restrictive covenants related to the use of thereof. (Id. at ¶¶ 8-9,
`
`90)
`
`
`
`2
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 3 of 25 PageID #: 5496
`
`
`
`Plaintiff alleges, however, that Yodlee never had any intention of working with Plaintiff
`
`to grow Risk Insight. (Id. at ¶ 7) Instead, it alleges that Yodlee was solely interested in entering
`
`into a licensing agreement in order to gain access to, and misappropriate, Plaintiff’s
`
`technology—all so that Defendants could develop their own competing application. (Id. at ¶¶ 7,
`
`77, 82) In this way, Yodlee is alleged to have intentionally misled Plaintiff to convince it to
`
`enter the MSA. (Id.) According to Plaintiff, Yodlee’s misrepresentations caused Plaintiff to lose
`
`out on other lucrative business and licensing opportunities available to it at the time. (Id. at ¶¶
`
`83-84) Plaintiff further alleges that Yodlee: (1) misused access to critical components of the
`
`Risk Insight Platform, so that those components could be incorporated into a competing platform
`
`that Yodlee was secretly developing; and (2) sought to obscure Plaintiff’s involvement with Risk
`
`Insight from clients, in order to be able to later transition those clients to its new secret platform.
`
`(Id. at ¶¶ 10-13, 98-99, 120)
`
`
`
`As for Envestnet, Plaintiff alleges that it too is using Yodlee’s competing platform
`
`(including the proprietary information and trade secrets stolen from Plaintiff, i.e., the Platform)
`
`to develop credit risk software applications for its clients. (Id. at ¶ 156) Plaintiff alleges that
`
`Envestnet made multiple offers to purchase FinApps’ proprietary technology because it wanted
`
`to eliminate the possibility of future liability for Defendants’ misappropriation of that
`
`technology. (Id. at ¶¶ 18-19, 160-61) After Yodlee’s competing platform was nearly complete,
`
`Envestnet no longer attempted to purchase FinApps’ intellectual property; instead, it began to
`
`incorporate software from Yodlee’s platform into Envestnet’s Credit Exchange product. (Id. at
`
`¶¶ 19, 163)
`
`
`
`In early 2019, with over two years remaining in the term of the parties’ agreement,
`
`Plaintiff alleges that Defendants withdrew resources and employees from the Risk Insight
`
`
`
`3
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 4 of 25 PageID #: 5497
`
`product. (Id. at ¶¶ 20, 164-65) According to Plaintiff, by this point Defendants had successfully
`
`misappropriated Plaintiff’s proprietary information and trade secrets. (Id. at ¶¶ 20, 173) In
`
`addition to Yodlee’s misappropriation, Plaintiff alleges that Yodlee has also refused to pay
`
`Plaintiff millions of dollars owed to it pursuant to the parties’ contracts. (Id. at ¶ 174)
`
`Further relevant facts related to resolution of the Motion will be set out as needed in
`
`Section III.
`
`B.
`
`Procedural Background
`
`
`
`Plaintiff filed the Complaint on July 17, 2019. (D.I. 2) On September 17, 2019,
`
`Defendants filed the instant Motion, seeking dismissal of 10 of Plaintiff’s 14 claims. (D.I. 15)
`
`On October 7, 2019, United States District Judge Colm F. Connolly referred this case to the
`
`Court to conduct all proceedings and to hear and determine all motions, pursuant to 28 U.S.C. §
`
`636(b). (D.I. 18) Briefing on the Motion was completed thereafter on November 13, 2019.
`
`(D.I. 27)
`
`II.
`
`STANDARD OF REVIEW
`
`When presented with a Rule 12(b)(6) motion to dismiss for failure to state a claim, a
`
`court conducts a two-part analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.
`
`2009). First, the court separates the factual and legal elements of a claim, accepting all of the
`
`complaint’s well-pleaded facts as true, but disregarding any legal conclusions. Id. at 210-11.
`
`Second, the court determines whether the facts alleged in the complaint are sufficient to show
`
`that the plaintiff has a “‘plausible claim for relief.’” Id. at 211 (quoting Ashcroft v. Iqbal, 556
`
`U.S. 662, 679 (2009)). “A claim has facial plausibility when the plaintiff pleads factual content
`
`that allows the court to draw the reasonable inference that the defendant is liable for the
`
`misconduct alleged.” Iqbal, 556 U.S. at 678. In assessing the plausibility of a claim, the court
`
`
`
`4
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 5 of 25 PageID #: 5498
`
`must “‘accept all factual allegations as true, construe the complaint in the light most favorable to
`
`the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff
`
`may be entitled to relief.’” Fowler, 578 F.3d at 210 (quoting Phillips v. Cnty. of Allegheny, 515
`
`F.3d 224, 233 (3d Cir. 2008)).
`
`III. DISCUSSION
`
`
`
`Defendants make two primary arguments for dismissal of certain of Plaintiff’s claims.1
`
`First, Defendants assert that Plaintiff’s Delaware statutory claims for misappropriation of trade
`
`secrets against both Defendants (Count II) and for deceptive trade practices against Yodlee
`
`(Count VII) must be dismissed, because Plaintiff does not allege a sufficient nexus between the
`
`parties’ dispute and Delaware. (D.I. 16 at 2, 5-7) Second, Defendants argue that Plaintiff’s
`
`claims in Counts III-V, VII-X and XIV are preempted under the Federal Copyright Act, 17
`
`U.S.C. § 301 (the “Copyright Act”) and/or the Uniform Trade Secrets Act (“UTSA”). (Id. at 2,
`
`8-17)2 The Court will take up these arguments in turn.
`
`
`1
`In addition to these two arguments, in their opening brief Defendants further
`sought dismissal of Plaintiff’s claim for copyright infringement against both Defendants (Count
`VI of the Complaint) on the grounds that Plaintiff failed to allege that it had successfully
`registered its purported copyrights. (D.I. 16 at 2, 4-5) Plaintiff did not expressly respond to this
`argument, (see D.I. 22 at 3 n.2; D.I. 27 at 1), but did request that dismissal be without prejudice
`to Plaintiff’s right to amend and re-plead this count, (D.I. 22 at 3 n.2). Therefore, the Court
`recommends that Defendants’ Motion be GRANTED without prejudice with respect to Count
`VI.
`
`2
`Thus, certain of Defendants’ points regarding this second argument (i.e., the
`preemption argument) necessarily contemplate that there is a claim for copyright infringement in
`the case. As noted above, see supra n.1, the Court is recommending the dismissal of the
`copyright infringement claim in Count VI without prejudice. Despite this, the Court will below
`address Defendants’ arguments regarding copyright-related preemption issues. It does so partly
`for sake of completeness, as it is possible that there will be an objection to the Court’s
`recommendation of dismissal of Count VI. It also does so because, as a practical matter, it
`appears likely that Plaintiff will later amend its pleading to re-add a copyright claim in a similar
`form to the claim in Count VI, (D.I. 22 at 3 n.2); in that event, the Court’s decision would also
`provide helpful guidance for the parties in the future.
`5
`
`
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 6 of 25 PageID #: 5499
`
`
`
`
`
`A.
`
`Plaintiff’s Delaware Statutory Claims (Counts II and VII)
`
`The first dispute here, which relates to Count II (alleging a violation of the Delaware
`
`Uniform Trade Secrets Act, 6 Del. C. § 2001, et seq., or “DUTSA”) and Count VII (alleging a
`
`violation of the Delaware Deceptive Trade Practices Act, 6 Del. C. § 2531, et seq.), relates to a
`
`choice of law issue. In a case implicating diversity jurisdiction, like this one, this Court follows
`
`the choice of law rules of the state of Delaware. Carrick v. Zurich-Am. Ins. Grp., 14 F.3d 907,
`
`909 (3d Cir. 1994); Hurley v. Columbia Cas. Co., 976 F. Supp. 268, 271-72 (D. Del. 1997). If a
`
`contractually-designated choice of law provision exists, Delaware courts will generally honor
`
`that provision, so long as the jurisdiction selected bears some material relationship to the
`
`transaction.3 VSI Sales, LLC v. Int’l Fidelity Ins. Co., Civil Action No. 15-507-GMS, 2015 WL
`
`5568623, at *2 (D. Del. Sept. 22, 2015); J.S. Alberici Const. Co., Inc. v. Mid-West Conveyor Co.,
`
`Inc., 750 A.2d 518, 520 (Del. 2000). Otherwise, Delaware courts would apply the “most
`
`significant relationship” test to determine which state’s law should apply to tort claims like these.
`
`VSI Sales, 2015 WL 5568623 at *2 (citing cases); see also AgroFresh Inc. v. Essentiv LLC, Civil
`
`Action No. 16-662-MN-SRF, 2018 WL 6974947, at *7 (D. Del. Dec. 27, 2018).
`
`
`3
`Pursuant to Delaware statutory law, the parties to a contract (so long as they are
`subject to jurisdiction of the courts of Delaware and may be served with legal process) may agree
`in writing that the agreement “shall be governed by or construed under the laws of” Delaware,
`without regard to conflict of laws principles, or that Delaware law should govern, in whole or in
`part, their rights; this decision “shall conclusively be presumed to be a significant, material and
`reasonable relationship” with Delaware to be enforced, whether or not there are other
`relationships with Delaware. Del. Code tit. 6, § 2708(a) (“Section 2708”); see also Anschutz
`Corp. v. Brown Robin Capital, LLC, C.A. No. 2019-0710-JRS, 2020 WL 3096744, at *7 (Del.
`Ch. June 11, 2020) (Section 2708 “requires courts to presume that, where parties have chosen
`Delaware law in their contract, the transaction memorialized in the contract has a material
`relationship with” Delaware).
`
`
`
`
`6
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 7 of 25 PageID #: 5500
`
`Here, the MSA does have a choice of law provision, and it is that provision that gives rise
`
`to the parties’ dispute.4 Section 12(c) of the MSA provides that:
`
`This Agreement will be governed by and construed under the laws
`of the State of Delaware without regard to its rules concerning
`conflicts of laws. Jurisdiction and venue for any lawsuit or
`proceeding arising out of or related to this Agreement, its subject
`matter and/or any other dispute whatsoever between the parties
`shall lie exclusively within the federal and state courts located in
`Delaware.
`
`
`(D.I. 2, ex. 1 at 18 (emphasis added)) But this provision says only that “[t]his Agreement” will
`
`be governed by and construed under the laws of Delaware. Does that mean that Delaware law
`
`applies to claims like those in Count II and Count VII, which are not claims alleging a breach of
`
`the MSA, but are nevertheless claims that bear a relationship to the MSA (in that they relate to
`
`purported trade secrets that Defendants had access to due to the execution of the MSA, and
`
`because they relate to purportedly deceptive trade practices that Defendants engaged in leading
`
`up to, and as a consequence of, the execution of the MSA)? (D.I. 2 at ¶¶ 222-40, 275-79) As the
`
`parties’ arguments make clear, there are two lines of authority in Delaware state caselaw with
`
`respect to this issue. (D.I. 16 at 7-8; D.I. 22 at 17 & n.17; D.I. 27 at 2-3)
`
`On the one hand, there are those cases in which Delaware courts have held that choice of
`
`law provisions similar to this one encompass not only claims for a breach of the contract in
`
`which the provision is found, but also tort claims that have some connection to that contract. For
`
`example, in Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006),
`
`
`4
`Because one of the MSA’s signatories is a Delaware corporation (Yodlee), this
`choice of law provision would be enforceable, as Yodlee’s incorporation in Delaware would
`demonstrate that Delaware had some substantial relationship to the transaction. See Coface
`Collections N. Am. Inc. v. Newton, 430 F. App’x 162, 166-67 (3d Cir. 2011). The question here,
`however, as is further explained below, is whether the choice of law provision actually applies to
`the claims at issue.
`
`
`
`7
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 8 of 25 PageID #: 5501
`
`the parties to the contract were Delaware entities, and the agreement at issue stated that it “shall
`
`be governed by, and construed in accordance with the Laws of the State of Delaware, regardless
`
`of the Laws that might otherwise govern under applicable principles of conflicts of law.” Id. at
`
`1046. The Abry Court rejected the buyer’s assertion that another state’s law governed its claims,
`
`finding that Delaware bore a material relationship to the transaction where the entities “chose the
`
`law of the state each had looked to in choosing their juridical home and whose law they wished
`
`to have govern their entities.” Id. at 1046-47; see also id. at 1049-50. And the court also
`
`rejected the buyer’s contention that while the parties meant for Delaware law to govern any
`
`contract claims between them, they did not intend for Delaware law to apply to related tort
`
`claims alleging that false contractual representations were made. Id. at 1047-48; see also id. at
`
`1047 n.22 (quoting Weil v. Morgan Stanley DW Inc., 877 A.2d 1024, 1032-33 (Del. Ch. 2005)
`
`for the proposition that the “‘text [of an agreement] should not be interpreted in a crabbed way
`
`that creates a commercially senseless bifurcation between pure contract claims and other claims
`
`that arise solely because of the nature of the relations between the parties created by contract’”).
`
`The Abry Court found that to hold that the parties’ choice of Delaware law was “only effective as
`
`to the determination of contract claims, but not as to tort claims seeking to rescind the contract
`
`on grounds of misrepresentation, would create uncertainty of precisely the kind that the parties’
`
`choice of law provision sought to avoid.” Id. at 1048. Other Delaware courts have thereafter
`
`applied Abry’s reasoning in a similar manner. See Anschutz Corp. v. Brown Robin Capital, C.A.
`
`No. 2019-0710-JRS, 2020 WL 3096744, at *7-8 & nn.106, 113 (Del. Ch. June 11, 2020) (finding
`
`that a choice of law provision stating that the agreement “shall be exclusively construed and
`
`interpreted” according to Delaware law also applied to the plaintiff’s extra-contractual claims,
`
`including fraud claims, as such claims were “entangled” with the operative contract’s allocation
`
`
`
`8
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 9 of 25 PageID #: 5502
`
`of risk, and also noting that this approach “has been endorsed consistently” by Delaware state
`
`courts) (internal quotation marks and citations omitted); AT&T Wireless Servs., Inc. v. Fed. Ins.
`
`Co., C.A. No. 03C-12-232 WCC, 2007 WL 1849056, at *6 (Del. Super. Ct. June 25, 2007) (“The
`
`Delaware Courts have moved toward applying only one state law to contract and tort disputes
`
`that arise out of the same contractual relationship and that are controlled by the terms and
`
`conditions of that contract.”).
`
`But on the other hand, there is an alternate strain of Delaware state caselaw on this issue,
`
`as this Court recognized in VSI Sales, LLC v. International Fidelity Insurance Co., Civil Action
`
`No. 15-507-GMS, 2015 WL 5568623 (D. Del. Sept. 22, 2015). In VSI Sales, this Court
`
`described the Abry Court’s approach as one reasoning that “the law chosen to apply to contract
`
`claims should also apply to related tort claims” regardless of “whether the choice-of-law
`
`provision [at issue] was narrow or broad[.]” 2015 WL 5568623, at *3 n.5. The VSI Sales Court,
`
`however, noted that other Delaware state court decisions had instead examined (rightly, in its
`
`view) whether a contractual choice of law provision applied to particular claims by assessing
`
`“whether the contracting parties drafted the provision broadly or narrowly.” Id. at *3. It noted
`
`that these decisions held that choice of law provisions that explicitly apply to “any claim arising
`
`out of or relating to” a contract are “broad” enough to cover quasi-contract and tort claims
`
`arising from the contractual agreement—but that “narrow” choice of law provisions that do not
`
`include such expansive language apply only to claims arising directly from the contract itself.
`
`Id. (citing Huffington v. T.C. Grp., LLC, C.A. No. N11C-01-030 JRJ CCLD, 2012 WL 1415930,
`
`at *11 (Del. Super. Ct. Apr. 18, 2012); Eby v. Thompson, No. Civ.A. 03C-10-010THG, 2005 WL
`
`1653988, at *3 (Del. Super. Ct. Apr. 20, 2005); Gloucester Holding Corp. v. U.S. Tape & Sticky
`
`Prods., LLC, 832 A.2d 116, 124 (Del. Ch. 2003)); see also Lorem Vascular, Pty. Ltd. v. Cytori
`
`
`
`9
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 10 of 25 PageID #: 5503
`
`Therapeutics, Inc., Case No.: 18cv815 MMA (MDD), 2018 WL 3388096, at *8 (S.D. Cal. July
`
`11, 2018). Here, the choice of law provision in the MSA is surely a “narrow” one, in that on its
`
`face, it notes only that “[t]his Agreement” will be governed by and construed under the law of
`
`Delaware—not that any matters “arising out of or relating to the Agreement” will be governed
`
`by Delaware law.5
`
`In Underhill Investment Corp. v. Fixed Income Discount Advisory Co., 319 F. App’x 137
`
`(3d Cir. 2009), the United States Court of Appeals for the Third Circuit examined the effect of a
`
`similarly “narrow” choice of law provision pursuant to Delaware law. There, the provision in
`
`question stated that the agreement was “governed by and . . . construed in accordance with the
`
`laws of the State of Delaware.” Id. at 139 (citation omitted). The Underhill Court reached three
`
`conclusions. First, it concluded that “by its express terms, the [agreement] limit[ed] the choice-
`
`of-law provision to claims arising from ‘[t]his Agreement.’” Id. at 141 (certain alterations in
`
`original). Second, it reasoned that the Supreme Court of Delaware would conclude that this
`
`choice of law provision applied to a pure contract claim arising under the agreement, but that it
`
`would not apply to the “quasi-contract” claims that were at issue in the case (quantum meruit and
`
`promissory estoppel claims). Id. & n.3; see also id. at 138, 139-40. Third, the Underhill Court
`
`reasoned that the Supreme Court of Delaware would then “proceed directly to ‘the most
`
`significant relationship test’” to determine which state’s law would apply to those non-contract
`
`claims. Id. at 141 (citation omitted). Although Underhill is a non-precedential opinion, in light
`
`
`5
`This is only underscored by the fact that the choice of law provision is much
`narrower than the forum selection clause provision found in the next sentence of the MSA, as the
`latter states that jurisdiction or venue for any lawsuit or proceeding “arising out of or related to”
`the Agreement would be found in Delaware courts. (D.I. 2, ex. 1 at 18) The parties knew how
`to craft language that would broadly apply to any claims “arising out of or related to” the MSA,
`but did not do so with respect to the choice of law provision. (D.I. 16 at 7-8; D.I. 27 at 3)
`10
`
`
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 11 of 25 PageID #: 5504
`
`of the Third Circuit’s clear guidance on this issue provided therein, the Court concludes that it
`
`should follow the VSI Sales line of caselaw. See Naturalock Sols., LLC v. Baxter Healthcare
`
`Corp., No. 14-cv-10113, 2016 WL 5792377, at *4 (N.D. Ill. Oct. 4, 2016) (citing Underhill).
`
`Thus, the choice of law provision in the MSA would not apply to Plaintiff’s non-contract claims.
`
`
`
`That said, as was noted in Underhill, the next step would be to apply the “most
`
`significant relationship” test to determine which state’s law should apply to the claims in Count
`
`II and Count VII. VSI Sales, 2015 WL 5568623 at *2; see also AgroFresh Inc., 2018 WL
`
`6974947, at *7. As even Defendants acknowledge, application of this test involves a multi-
`
`factor analysis, which would consider: (1) the place where the injury occurred; (2) the place
`
`where the conduct causing the injury occurred; (3) the domicile, residence, nationality, place of
`
`incorporation and place of business of the parties, and (4) the place where the parties’
`
`relationship is centered. (D.I. 16 at 5 (citing Tumlinson v. Advanced Micro Devices, Inc., 106
`
`A.3d 983, 987 (Del. 2013))) Here, in light of Defendants’ status as Delaware corporations, that
`
`inquiry would not be entirely one-sided. Faced with such a scenario at the pleading stage, many
`
`courts choose to defer this “most significant relationship” test analysis until later in the case,
`
`when a more complete factual record has been developed. See, e.g., AgroFresh Inc., 2018 WL
`
`6974947, at *7 & n.6 (citing cases); Zazzali v. Hirschler Fleischer, P.C., 482 B.R. 495, 517 (D.
`
`Del. 2012). The Court concludes that this is the right path here, as the relevant inputs for this test
`
`are not fully flushed out in the parties’ briefing. It therefore recommends that Defendants’
`
`Motion be denied with respect to Counts II and VII on this ground, and that Defendants be
`
`permitted to re-raise this issue later in the proceeding.
`
`Preemption (Counts III-V, VII-X and XIV)
`
`B.
`
`
`
`
`11
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 12 of 25 PageID #: 5505
`
`Defendants next argue that Plaintiff’s claims for fraud (Count III), tortious interference
`
`with prospective business opportunities (Count IV), unfair competition (Count V), violations of
`
`Delaware, Florida, Illinois and California deceptive trade practices statutes (Counts VII-X), and
`
`unjust enrichment (Count XIV) should be dismissed because they are preempted by the
`
`Copyright Act and by the UTSA. (D.I. 16 at 8-17; D.I. 27 at 4-10)6 The Court will first set out
`
`the applicable legal standards with respect to the Copyright Act and the UTSA, and will then
`
`assess the claims at issue.
`
`
`
`
`
`1.
`
`
`
`Legal Standard with Respect to Preemption
`
`a.
`
`Copyright Act
`
`The Copyright Act grants a copyright owner the exclusive rights to reproduce, prepare
`
`derivative works based upon, distribute, perform and display the copyrighted material at issue.
`
`17 U.S.C. § 106 (“Section 106”). Section 301 of the Copyright Act provides that a state law
`
`claim is expressly preempted where the elements of the claim are the same as those required for
`
`a copyright infringement claim under Section 106. 17 U.S.C. § 301(a); see also CollegeSource,
`
`Inc. v. AcademyOne, Inc., 597 F. App’x 116, 128 (3d Cir. 2015). Courts apply a two-part test to
`
`determine whether Section 301 preempts a state law claim. First, a court must determine
`
`whether the work at issue is protected by the copyright laws; second, it must assess whether the
`
`right claimed is equivalent to one of the exclusive rights protected by Section 106. See Peirson
`
`v. Clemens, Inc., No. Civ.A.03-1145 JJF, 2005 WL 681309, at *2 (D. Del. Mar. 23, 2005); see
`
`
`6
`Preemption is an affirmative defense, see Big Squid, Inc. v. Domo, Inc., Case No.
`2:19-cv-193, 2019 WL 3555509, at *14 (D. Utah Aug. 5, 2019), and a Court may determine that
`a claim should be dismissed in light of an affirmative defense at the pleading stage when the
`well-pleaded factual allegations in a complaint, construed in the light most favorable to the
`plaintiff, suffice to establish the defense, see Juju, Inc v. Native Media, LLC, Civil Action No.
`19-402-CFC, 2020 WL 3208800, at *5 n.2 (D. Del. June 15, 2020) (citing cases).
`12
`
`
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 13 of 25 PageID #: 5506
`
`also, e.g., Bath Auth., LLC v. Anzzi LLC, CIVIL ACTION NO. 18-00834, 2018 WL 5112889, at
`
`*6 (E.D. Pa. Oct. 19, 2018).
`
`The parties focus on the second prong of the two-part test here. (See D.I. 16 at 9; D.I. 22
`
`at 7) With respect to this second prong, courts apply a “functional test” (known as the “extra
`
`element test”) to determine whether a state cause of action requires an extra element (beyond
`
`mere copying, preparation of derivative works, distribution, performance or display) that renders
`
`the state case of action qualitatively different from (and thus not preempted by) a copyright
`
`infringement claim. Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d
`
`197, 217-18 (3d Cir. 2002); Raucci v. Candy & Toy Factory, 145 F. Supp. 3d 440, 452 (E.D. Pa.
`
`2015).
`
`
`
`
`
`b.
`
`UTSA
`
`The UTSA, which is a model statute that has been adopted by the majority of states (such
`
`as Delaware, via the DUTSA, at issue in Count II) “provides civil remedies for the
`
`misappropriation of trade secrets.” See, e.g., Truinject Corp. v. Nestle Skin Health, S.A., C.A.
`
`No. 19-592-LPS-JLH, 2020 WL 70981, at *7 (D. Del. Jan. 7, 2020), report and recommendation
`
`adopted, 2020 WL 1270916 (D. Del. Mar. 17, 2020); see also Bruhn Newtech, Inc. v. United
`
`States, 129 Fed. Cl. 656, 671 (Fed. Cl. 2016). The UTSA/DUTSA preempts state law claims
`
`that are “grounded in the same facts which purportedly support” companion trade secret
`
`misappropriation claims. Accenture Global Servs. GMBH v. Guidewire Software Inc., 631 F.
`
`Supp. 2d 504, 508 (D. Del. 2009) (internal quotation marks and citations omitted); see also, e.g.,
`
`Digital Spectrum Sols. v. Eastman Kodak Co., Case No. SACV 07-00729-JVS (RNBx), 2008
`
`WL 11340373, at *3 (C.D. Cal. Feb. 14, 2008). “[I]f the success of the common law claim does
`
`not depend on the success of the trade secrets claim, that is, if a plaintiff need not prove all the
`
`
`
`13
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 14 of 25 PageID #: 5507
`
`facts underlying the trade secrets claim in order to prove the common law claim, then the
`
`common law claim is not grounded in the same facts and is not preempted.” Accenture, 631 F.
`
`Supp. 2d at 508 (internal quotation marks and citation omitted).
`
`
`
`
`
`
`
`
`
`
`
`2.
`
`
`
`Analysis
`
`a.
`
`Fraud (Count III)
`
`The gravamen of Plaintiff’s fraud claim is that Yodlee made a series of false
`
`representations to Plaintiff, wherein Yodlee stated that it wished to enter into a long-term
`
`strategic partnership with Plaintiff to grow the Risk Insight application into a multibillion dollar
`
`project7—and that Yodlee did so for the “sole purpose of gaining access to and stealing
`
`FinApp’s proprietary software and trade secrets.” (D.I. 2 at ¶¶ 241-45) Plaintiff further alleges
`
`that had it not been for these misrepresentations, it would have not entered into partnership with
`
`Yodlee and would have pursued other licensing and business opportunities. (Id. at ¶ 247)
`
`Defendants argue that Plaintiff’s fraud claim is preempted because “the alleged fraud has to do
`
`with entering a contract to exploit copyrighted material” (here, alleged to be the “overall
`
`Platform and each of its individual components”) and trade-secret protected material (here,
`
`alleged to be the “Platform and its individual components”). (D.I. 27 at 7 (emphasis and
`
`quotation omitted); D.I. 2 at ¶¶ 209, 270; see also D.I. 16 at 11)
`
`
`7
`More specifically, these alleged misrepresentations included Yodlee’s pre-MSA
`misrepresentations that: (1) it wanted to enter a long-term strategic partnership with Plaintiff; (2)
`it would actively market and sell Risk Insight; (3) it would dedicate an appropriate and
`experienced sales team to promote Risk Insight; and (4) it would invest in growing Risk Insight,
`and seek other growth opportunities in the marketplace. (D.I. 2 at ¶ 243) And they included
`Yodlee’s post-MSA representations that: (1) provided false future revenue projections to
`Plaintiff about Risk Insight; (2) falsely reiterated its commitment to a long-term partnership. (Id.
`at ¶¶ 250-51)
`
`
`
`14
`
`

`

`Case 1:19-cv-01337-CFC-CJB Document 109 Filed 07/06/20 Page 15 of 25 PageID #: 5508
`
`With regard to Copyright Act preemption, as a general matter, courts have explained that
`
`a fraud claim is typically not preempted by that Act. This is because in order to plead a fraud
`
`claim, a plaintiff necessarily must allege the element that the defendant made a misrepresentation
`
`that induced the plaintiff’s reliance and that caused damages not attributable to copyright
`
`infringement. See, e.g., Tanksley v. Daniels, 259 F. Supp. 3d 271, 300 n.11 (E.D. Pa. 2017).
`
`However, a fraud claim can be “disguised as a copyright infringement claim if the sole basis of
`
`the fraud claim is that a defendant represented materials as his own.” Id. (internal quotation
`
`marks and citation omitted); see also, e.g., Envoy Techs., Inc. v. Northrop Grumman Co., Civil
`
`Action No. 19-13976 (FLW), 2020 WL 2079376, at *8 (D.N.J. Apr. 30, 2020) (“Plaintiff’s fraud
`
`and [copyright] infringement claims are both based on Defendant’s alleged unauthorized
`
`continued use of a licensed product, and thus, the cause of action for fraud is preempted.”).
`
`Here, Plaintiff’s fraud claim is not merely a disguised copyright c