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Covad Communications Co. v. Revonet

May 20, 2008

COVAD COMMUNICATIONS COMPANY, PLAINTIFF,
v.
REVONET, INC., DEFENDANT.



The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

MEMORANDUM OPINION

Currently pending before the Court is Defendant Revonet, Inc.'s ("Revonet") [15] Motion for Judgment on the Pleadings Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. Defendant, Covad Communications Company ("Covad") opposes Revonet's Motion. On April 28, 2008, having reviewed the parties' briefs in connection with Revonet's Motion, the Court issued an Order requesting that Covad provide the Court with answers to certain questions regarding apparent ambiguities between Covad's Complaint and its Opposition to Revonet's Motion. Covad has now filed a Notice in response to the Court's April 28, 2008 Order. The Court has thoroughly considered that Notice, as well as the parties' briefs in connection with Revonet's Motion and the exhibits attached thereto, and concludes that there are material facts in dispute in this case, which preclude the entry of judgment as a matter of law. The Court shall therefore DENY Revonet's [15] Motion for Judgment on the Pleadings. A Status Conference shall be held in this matter, one day earlier than scheduled, at 9:00 a.m. on Thursday, May 29, 2008, at which the Court shall discuss resetting the schedule for discovery in this matter, which was stayed in light of Revonet's Motion for Judgment on the Pleadings.

I. BACKGROUND

According to the Complaint in this case, Plaintiff, Covad Communications Company, was founded in 1996, and provides integrated voice and data communications for small and medium-sized businesses, including Digital Subscriber Line ("DSL") services as an alternative to local phone companies. Compl. ¶ 8. In 2004, Covad acquired GoBeam, Inc., a provider of Voice over Internet Protocol ("VoIP") solutions to small and medium-sized businesses, and embarked on a "marketing campaign designed to generate interest in Covad's VoIP services, and to identify likely customers for Covad's VoIP business." Id. ¶¶ 9-10. Covad's marketing campaign aimed at generating "contact information from prospective customers of VoIP services." Id. Covad's Opposition to Revonet's Motion for Judgment on the Pleadings terms this information "Customer Lead Information." Covad Opp'n at 1. According to Covad, its Customer Lead Information "was the direct result of Covad's extensive marketing campaign," and "was commercially valuable, particularly in view of the highly competitive nature of the VoIP market." Compl. ¶ 11.

In June 2004, Covad entered into a contract (the "June 2004 Contract") with Defendant, Revonet, Inc., pursuant to which Revonet agreed to provide Covad with both "inbound" and "outbound" customer lead generation services. Id. ¶ 12. "Inbound" lead generation services included assisting Covad in obtaining business from the customer leads developed through Covad's VoIP marketing campaign, for example by screening and following up with Covad's customer leads. Id. ¶ 13. "Outbound" lead generation services included providing Covad with additional customer leads using Revonet's "Federated Database," and following up to offer Covad's services to those additional outbound customer leads. Id. ¶ 14. According to Covad, Revonet "touted its Federated Database as a commercially valuable listing of credible customer leads in the telecommunications field," but Covad later learned that "many of the customer leads derived from Revonet's Federated Database were not legitimate." Id. ¶ 15.

As part of the June 2004 Contract, the parties executed a "Mutual Confidentiality and Data Use Agreement" (the "Confidentiality Agreement"). Id. ¶ 16; Revonet Mot., Ex. 1. In relevant part, the Confidentiality Agreement provides:

[Covad] is the sole and exclusive owner of all of its information delivered by [Covad] to Revonet, including without limitation its customer lists, target information and business, sales and marketing plans (the "Client Information"). Client Information is deemed "Confidential Information " under Section 2. [Covad] grants to Revonet a nonexclusive, limited nontransferable . . . right to use the Client Information that [Covad] provides to Revonet during the applicable term of the Services Agreement solely for (i) Revonet's business purposes as permitted in Section 2; and (ii) for the purpose of performing services to [Covad]. Revonet Mot., Ex. 1, ¶ 1.

The Confidentiality Agreement continues:

2. CONFIDENTIALITY

Each party may disclose confidential or proprietary information about its business or products ("Confidential Information") to the other party. Each party will maintain the other party's Confidential Information in strict confidence and treat the other party's Confidential Information with at least the same degree of care that it treats its own confidential information. Subject to this Section 2, neither party will disclose the other party's Confidential Information to any person, except its directors, officers, employees, contractors and agents (collectively, "Representatives") who need to know such Information and are bound by similar confidentiality obligations. . . Notwithstanding the above, [Covad] acknowledges that Revonet is in the business of developing and providing proprietary data products (such as market research reports and sales leads) for its clients. Therefore, [Covad] acknowledges that Client Information provided by [Covad] consisting solely of customer lists, transaction data and related information, may be incorporated and used in such data products as long as it is used only in an aggregate manner, does not contain personally identifiable information and [Covad] is not identified as the source of such data. Revonet agrees that the list of sales leads contained in the Work Product provided to [Covad] will not be given by Revonet to third parties, although the foregoing will not restrict Revonet from re-generating or identifying any such leads from Revonet's databases or third party sources in connection with services requested by such third parties (in which case the sales leads will be deemed part of a different list).

Id. ¶ 2.

From time to time, the June 2004 Contract was amended; however, none of the amendments altered the parties' obligations under the Confidentiality Agreement. Compl. ¶ 20. Over the course of the next two years, Covad and Revonet entered into two additional contracts (the "June 2005 Contract" and the "January 2006 Contract") for essentially the same inbound and outbound lead generation services. Id. ¶¶ 22-26. Each of those Contracts incorporated the Confidentiality Agreement. Id. 22, 26. In exchange for the lead generation services that Revonet agreed to provide in the various Contracts, Covad agreed to pay between $200,000 and $400,000 per month for outbound lead generation services, and between $4,800 and $6,000 per month per Revonet representative dedicated to provide inbound lead generation services. Id. ¶¶ 21, 23. In addition, in 2004, Covad paid $140,000 in set up fees and $125,000 for a survey of the marketplace; in 2005, Covad agreed to pay $100,000 per month for a fixed number of customer attended appointments to close on a deal for Covad services. Id.

Covad alleges that Revonet breached its duties to Covad by taking Covad's proprietary Customer Lead Information and integrating it into Revonet's Federated Database, in violation of the parties' Contracts. Id. ¶¶ 27-30. Covad further alleges that Revonet shared Covad's Customer Lead Information with third parties, including Covad's competitors, i.e., that "Revonet provided Covad's customer leads to Covad's competitors by taking those leads from its Federated Database." Id. ¶ 32. Covad alleges that Revonet is continuing to use Covad's Customer Lead Information without authorization and in violation of the parties' Contracts. Id. ¶ 34.*fn1 On May 15, 2006, Covad terminated its January 2006 Contract with Revonet by providing formal notice in accord with the terms of that Contract. Id. ¶ 35. Covad filed its Complaint in this action on November 6, 2006. That Complaint includes five Counts: Count I alleges Breach of Contract, id. ¶¶ 37-42; Count II alleges Misappropriation of Trade Secrets, id. ¶¶ 43-49; Count III alleges Breach of the Covenant of Good Faith and Fair Dealing, id. ¶¶ 50-54; Count IV alleges Breach of Fiduciary Duty, id. ¶ ¶ 55-61; and Count V alleges Conversion, id. ¶¶ 62-65.

The Court held an Initial Scheduling Conference in this matter on February 5, 2007, at which it set a schedule for discovery in this matter. Notwithstanding the Court's instructions that the parties refrain from filing dispositive motions prior to the completion of discovery, on October 11, 2007, Revonet filed its Motion for Judgment on the Pleadings. Briefing on that motion was completed on November 1, 2007, and on November 15, 2007, Revonet moved to stay discovery in this matter pending resolution of its Motion for Judgment on the Pleadings. On November 20, 2007, the Court noted that Revonet had ignored the Court's explicit instructions, but ...


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