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Targetsmart Holdings, LLC v. GHP Advisors, LLC

United States District Court, District of Columbia

September 19, 2019

GHP ADVISORS, LLC, et al., Defendants.



         TargetSmart Holdings, LLC of the District of Columbia complains that Boston-based GHP Advisors, LLC, d/b/a Good Harbor Partners, and Catalist, LLC of D.C., misappropriated TargetSmart’s trade secrets under the guise of merger negotiations. TargetSmart alleges that Catalist obtained its trade secrets through GHP, which expressed interest in TargetSmart on behalf of anonymous donors to Democratic Party causes, when GHP actually represented Catalist. TargetSmart asserts that Catalist used the TargetSmart trade secrets to compete improperly and to defame TargetSmart. It seeks damages and injunctive relief.

         This lawsuit was initially filed in the district court of Massachusetts. It was transferred here after Judge Douglas P. Woodlock granted Catalist’s Motion to Dismiss for lack of personal jurisdiction. Judge Woodlock also transferred the case against GHP, over whom jurisdiction was proper in Massachusetts, to D.C. Catalist’s motion to dismiss from this Court is ripe.[1]

         Counts I, II, III, VI, VIII, and IX of the Second Amended Complaint are directed, in part, to Catalist. The Court will grant its Motion to Dismiss as to Counts II, III, VI, VIII, and IX and deny it as to Count I.

         I. BACKGROUND

         A. The Parties

         TargetSmart Holdings, LLC (TargetSmart) is a District of Columbia-based technology and consulting firm that specializes in providing Democratic and progressive campaigns, candidates, and organizations with data and software to help expand their audiences. Second Am. Compl. (SAC) [Dkt. 36] Introductory Statement, ¶¶ 1, 11.[2]

         Catalist, LLC, is a District of Columbia-based firm that, like TargetSmart, focuses on serving Democratic and progressive candidates. Id. Introductory Statement, ¶¶ 4, 35. Catalist is a competitor of TargetSmart. Id. ¶ 35.

         GHP Advisors, LLC, d/b/a Good Harbor Partners (GHP), is a Boston-based investment firm. Id. Introductory Statement.

         B. The Letter Agreement Between Catalist and GHP

         In early November 2017, Catalist and GHP entered into a letter agreement (Letter Agreement) for GHP to “‘serve as advisor [to Catalist] in connection with the potential acquisition of a specific, pre-identified target company.’” Id. ¶ 13; see Ex. 1, Catalist Mot., Letter Agreement [Dkt. 39-1] at 1, § 1. TargetSmart alleges that it was the “‘pre-identified target company.’” SAC ¶ 14. The Letter Agreement stated that GHP would provide Catalist “with financial advice and assistance,” including managing the due diligence process. Letter Agreement at 1, § 2. The Letter Agreement provided that GHP would keep Catalist “‘informed of the activities undertaken by GHP’” and of “‘all performance of Services required of GHP’” under the Agreement. SAC ¶ 19; Letter Agreement at 4, § 6. It further stated that GHP was not an employee or agent of Catalist and would perform services as an “independent contractor.” Letter Agreement at 4, § 6.

         C. GHP Contacts TargetSmart

         In December 2017, a third-party supplier emailed TargetSmart stating that it was aware of a potential new “‘business opportunity.’” SAC ¶ 21. The supplier offered to introduce TargetSmart to GHP to obtain further details. Id. ¶ 22. TargetSmart had an initial call with GHP on December 13, 2017. GHP told TargetSmart that it had been retained by individual political donors who wanted to combine TargetSmart with other companies in order to improve the data infrastructure in the Democratic and progressive markets. Id. ¶ 24. Thereafter, TargetSmart and GHP entered into a Mutual Nondisclosure Agreement (Mutual NDA). Id. ¶ 27. The Mutual NDA allowed the parties to exchange non-public, confidential, trade secret and proprietary information (Non-Public Information) but prevented both parties from using or disclosing such information without the other party’s prior written consent. Id. ¶¶ 28-29.[3]

         After the Mutual NDA was signed, GHP and TargetSmart scheduled an in-person meeting in Boston. Id. ¶ 31. In preparation for the meeting and at GHP’s request, TargetSmart sent GHP a memorandum on December 20, 2017, which included Non-Public Information about TargetSmart’s data, products, services, and clients, as well as information about its finances and possible growth opportunities. Id. ¶ 32. The memorandum specifically stated that the information was covered by the Mutual NDA. Id.

         TargetSmart met with GHP on December 21, 2017. GHP again stated that it represented wealthy donors who wanted to combine established companies in the Democratic and progressive markets. Id. ¶ 33. GHP indicated that its clients were most interested in combining TargetSmart with its competitor, Catalist. Id. ¶ 35. TargetSmart told GHP that it would only consider a merger of TargetSmart with Catalist if the donors or funders acquired both companies, if TargetSmart remained in control, and if the Catalist leadership team would not have a role in the combined entity. Id.

         Following the meeting, GHP notified TargetSmart that it would like to proceed with due diligence for a potential transaction. GHP asked for information about TargetSmart’s book of business, its third-party relationships and vendor agreements, and its costs and expenses. Id. ¶ 36. TargetSmart advised GHP that it was uncomfortable with the request, as TargetSmart believed it exceeded the information required to appraise TargetSmart’s business for purposes of a merger. Id. ¶ 37. TargetSmart asked GHP to provide a rough estimate of the proposed purchase price for TargetSmart’s “political business” in exchange for access to TargetSmart’s financials. Id. ¶¶ 37-39. GHP agreed to the proposal, “subject to further due diligence,” and TargetSmart provided financial information to GHP. Id. ¶¶ 38-39. In January 2018, the very next month, GHP informed TargetSmart that TargetSmart’s financials showed that it was “‘bigger than expected’” and that GHP would need some time to raise capital to acquire TargetSmart. Id. ¶ 40.

         D. TargetSmart Learns of Third-Party Disclosures

         On February 8, 2018, TargetSmart learned that a writer with ties to Laura Quinn, the Chief Executive Officer (CEO) of Catalist, “was contacting TargetSmart’s employees and asking a number of pointed questions about TargetSmart and its relationship with certain specified clients.” Id. ¶ 41. TargetSmart alleges that certain questions “were based upon [N]on-[P]ublic Information provided to GHP and covered by the Mutual NDA.” Id.

         TargetSmart asked GHP if the writer’s inquiries were part of GHP’s due diligence or if the writer were acting for Catalist. GHP stated that “the inquiries were not part of the due diligence process” and that “they would be ‘shocked’ if Catalist was [sic] behind the writer’s inquiries.” Id. ¶ 44. TargetSmart then contacted Mike Podhorzer, a member of Catalist’s Board of Directors, and repeated its concerns about the inquiries and potential disclosures by Ms. Quinn. Mr. Podhorzer stated that he would speak to Ms. Quinn. Id. ¶ 45. When he called back, Mr. Podhorzer “stated that he did not agree with Ms. Quinn’s actions, and promised that the inquiries would stop.” Id.

         On February 21, 2018, TargetSmart discovered that a third-party source had told a TargetSmart client that “Catalist was in the process of buying TargetSmart.” Id. ¶ 46.

         TargetSmart contacted GHP and again expressed its concerns about compliance with the Mutual NDA. GHP responded that it would “‘reinforce’” confidentiality with its clients. Id. ¶ 47.

         E. March 2018 Meeting Between TargetSmart, GHP and Catalist

         On March 14, 2018, TargetSmart met with GHP and Catalist in the District of Columbia to discuss the potential acquisition. Id. ¶¶ 49-50. Catalist was represented at the meeting by its Board Members Mark Steitz and Mr. Podhorzer. Id. ¶ 50. At the outset of the meeting, Mr. Podhorzer stated that he was not covered by an NDA and offered to leave the room during the discussion. Id. ¶ 51.[4] GHP then explained to TargetSmart that it could not raise enough capital for the acquisition because of TargetSmart’s size. Id. ¶ 53. Mr. Steitz thanked TargetSmart for participating in “‘the process’” and stated that Catalist was “‘respectful’ . . . of the NDA.” Id. However, Mr. Steitz further indicated that one of Catalist’s funders had “‘broke[n] the NDA.’” Id. TargetSmart asked who else at Catalist had received TargetSmart’s Non-Public Information. TargetSmart was told that Mr. Steitz had received all of the Non-Public Information and that Ms. Quinn had received some of it. Id. ¶ 55.

         F. TargetSmart Seeks Assurances From GHP and Catalist

         On April 10, 2018, TargetSmart sent GHP a letter in which it accused GHP of violating the Mutual NDA. TargetSmart demanded that GHP comply with certain requests including return of all Non-Public Information. Id. ¶ 59. In response, GHP denied that it had breached the Mutual NDA but at the same time admitted that it had shared the Non-Public Information with Mr. Steitz and Ms. Quinn. GHP stated that both Catalist individuals were bound by separate NDAs with TargetSmart and, further, that GHP had destroyed all of the Non-Public Information and had instructed Catalist to do the same. Id. ¶¶ 60, 62-63.

         With its response, GHP enclosed documents that indicated that Catalist had agreed to NDAs with TargetSmart. TargetSmart alleges that GHP had altered the Mutual NDA signed by TargetSmart by replacing GHP’s signature line with a signature line for Mr. Steitz and Ms. Quinn but retaining a signature line for TargetSmart.[5] Id. ¶ 61. TargetSmart asserts that “Catalist never received countersigned copies of the false NDAs (or any true NDAs) signed by a TargetSmart representative because TargetSmart was not in fact involved in the creation of the false NDAs and was unaware of their creation until receiving the letter from GHP.” Id. TargetSmart further argues that “[t]he supposed [NDAs] so blatantly misrepresent their true nature that Catalist knew or should have known that TargetSmart did not request that Catalist or any of its representatives sign an NDA with TargetSmart.” Id.

         On April 13, 2018, TargetSmart wrote to Catalist and asserted that Catalist was unlawfully using TargetSmart’s Non-Public Information to compete with TargetSmart. Id. ¶ 65. TargetSmart demanded that Catalist comply with several requests, including providing the identity of persons to whom TargetSmart’s business information had been disclosed. Catalist responded that both Ms. Quinn and Mr. Steitz had received Non-Public Information. Id. ¶¶ 67-68. Catalist clarified that Mr. Steitz had received Non-Public Information “in his role as ‘liaison’ with ‘Catalist Investors’ and ‘Representatives of TargetSmart.’” Id. ¶ 68. Catalist represented that Mr. Steitz had not distributed or shared any Non-Public Information. However, Catalist did not make the same representation about Ms. Quinn. Id. Catalist told TargetSmart that it had destroyed all TargetSmart materials. Id. ¶ 69.

         G. Procedural History

         On June 28, 2018, TargetSmart filed suit against GHP and Catalist in the U.S. District Court for the District of Massachusetts. Compl. [Dkt. 1]. TargetSmart brought claims against GHP and Catalist for misappropriation of trade secrets, in violation of the federal Defend Trade Secrets Act (occasionally, DTSA), 18 U.S.C. § 1831 et seq., the Massachusetts Trade Secrets Act,[6] the Massachusetts Unfair and Deceptive Practices Act,[7] and Massachusetts common law. Compl. ¶¶ 67-91, ¶¶ 128-33. TargetSmart raised additional claims for breach of contract, breach of the covenant of good faith and fair dealing, and fraudulent misrepresentation by GHP, id. ¶¶ 92-107, ¶¶ 122-27; tortious interference with contractual relations by Catalist, id. ¶¶ 108-14; and unjust enrichment by GHP and Catalist. Id. ¶¶ 115-21.

         On September 11, 2018, GHP filed its Answer and Catalist filed a motion to dismiss for lack of personal jurisdiction, on forum non conveniens grounds, and for failure to state a claim. TargetSmart filed a First Amended Complaint on October 2, 2018. The First Amended Complaint dropped the claim for tortious interference with contractual relations and added a defamation claim against Catalist. GHP answered and Catalist again filed a motion to dismiss for lack of personal jurisdiction and failure to state a claim in mid-October 2018. Shortly after, TargetSmart filed, and the court granted, a motion to amend the complaint further in nonmaterial ways.[8] TargetSmart filed its Second Amended Complaint on December 13, 2018.

         The Second Amended Complaint is the operative pleading before this Court. SAC [Dkt. 36]. Count I alleges misappropriation of trade secrets under the federal Defend Trade Secrets Act against both Defendants; Count II alleges misappropriation of trade secrets in violation of Massachusetts common law against both Defendants; Count III alleges misappropriation of trade secrets under the Massachusetts Trade Secrets Act against both Defendants; Count IV alleges breach of contract against GHP; Count V alleges breach of the covenant of good faith and fair dealing against GHP; Count VI alleges unjust enrichment against both Defendants; Count VII alleges fraudulent misrepresentation against GHP; Count VIII alleges violations of the Massachusetts Unfair and Deceptive Practices Act against both Defendants; and Count IX alleges defamation against Catalist. Only the immediate Catalist motion to dismiss [Dkts. 38 and 39] will be addressed here, involving that Defendant and Counts I, II, III, VI, VIII and IX.

         On December 20, 2018, Catalist filed a motion to dismiss in Massachusetts or, in the alternative, to transfer venue to the District of Columbia. It argued that the Massachusetts District Court lacked personal jurisdiction over Catalist and that all counts against Catalist were infirm. In the alternative, Catalist asked that the case against it be transferred to D.C. for the convenience of the parties. GHP filed an opposition to transfer on January 4, 2019, but took no position with regard to personal jurisdiction or failure to state a claim. TargetSmart opposed Catalist’s motion to dismiss on January 11, 2019.

         On January 23, 2019, Judge Woodlock held a hearing on Catalist’s motion, during which he indicated an inclination to transfer. See 1/23/2019 Docket Entry; see also TargetSmart Holdings, LLC v. GHP Advisors, LLC, 366 F.Supp. 3d 195');">366 F.Supp. 3d 195, 205 (D. Mass. 2019). TargetSmart responded that it would not oppose transfer to D.C. if Judge Woodlock found that personal jurisdiction over Catalist were unavailable in Massachusetts. TargetSmart, 366 F.Supp. 3d at 205. GHP objected that venue would not lie over GHP in D.C. if the case were transferred in its entirety. Id. GHP filed a supplemental opposition arguing that Massachusetts was a preferable venue to D.C. TargetSmart responded by asking Judge Woodlock to retain the case against GHP, even if he transferred the case against Catalist to D.C.

         Judge Woodlock issued a Memorandum and Order on February 6, 2019. See TargetSmart, 366 F.Supp. 3d 195');">366 F.Supp. 3d 195. The court found that Catalist lacked sufficient contacts with Massachusetts to establish personal jurisdiction in the Commonwealth. See Id. at 213 (“The three factors set forth in Foster-Miller, Inc. v. Babcock & Wilcox Canada, 46 F.3d 138 (1st Cir. 1995), all indicate that the exercise of personal jurisdiction as to Catalist by this court would be improper under the Due Process Clause.”). Therefore, Judge Woodlock transferred the case against Catalist to D.C. Id. at 214.[9] Additionally, while he recognized that personal jurisdiction existed over GHP, which is based in Boston, Judge Woodlock transferred all claims against GHP to D.C. Id. at 219.[10] Judge Woodlock found that the D.C. District Court would have personal jurisdiction over all parties. TargetSmart, 366 F.Supp. 3d at 216.

         While he did not directly rule on whether TargetSmart stated a claim against Catalist under Massachusetts law, Judge Woodlock opined that Massachusetts law did not apply. See Id. at 212 n.2. Judge Woodlock noted that the question “ha[d] three distinct dimensions . . . because TargetSmart has brought three kinds of state law claims against Catalist-claims under the common law of torts, claims under the common law of contracts, and claims under Massachusetts statutory law.” Id. He suggested that application of Massachusetts choice-of-law principles would favor applying D.C. law to the common-law claims, rather than Massachusetts law, because D.C. appeared to have a greater interest in adjudicating the dispute. Id. (citing Graham v. Malone Freight Lines, Inc., 948 F.Supp. 1124, 1131 (D. Mass. 1996)). In this regard, Judge Woodlock observed that “the wrong allegedly took place in the District of Columbia, where Catalist is headquartered,” and that “‘various choice-influencing considerations,’” such as the place of business of the parties, favored the application of D.C. law. Id.

         With respect to the Massachusetts statutory claims, Judge Woodlock noted that both the Massachusetts Trade Secrets Act and the Massachusetts Unfair and Deceptive Practices Act have narrow jurisdictional limits. See Id. (citing Mass. Gen. Laws ch. 93, § 3 (Massachusetts Trade Secrets Act) (applying to “any course of conduct, pattern of activity, or activities [that] occur and have their competitive impact primarily and predominantly within [Massachusetts]”); Mass. Gen. Laws ch. 93A, § 11 (Massachusetts Unfair and Deceptive Practices Act) (requiring that “the actions and transactions constituting the alleged unfair method of competition or the unfair or deceptive act or practice occurred primarily and substantially within [Massachusetts].”). He then stated that “[s]ince TargetSmart has not alleged that Catalist’s violations of the two statutes took place in Massachusetts, Massachusetts statutory law does not appear to apply.” Id.

         Following transfer to D.C., this Court held a status hearing on May 8, 2019. During the status hearing, TargetSmart requested leave to address the impact of Judge Woodlock’s transfer order on Catalist’s pending motion to dismiss, to which this Court agreed. TargetSmart’s Supplemental Reply argues that Count VIII, alleging that Catalist violated the Massachusetts Unfair and Deceptive Practices Act, should not be dismissed. It also contends that Judge Woodlock’s statements about the scope of Massachusetts law should not control this Court’s treatment of Count VIII because the record was incomplete and is now being developed in ...

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