Pascal Metrics, Inc. v. Health Catalyst, Inc.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
PASCAL METRICS, INC., )
)
Plaintiff, )
)
v. ) C.A. No. N22C-01-175 MMJ CCLD
)
HEALTH CATALYST, INC., )
)
Defendant. )
Submitted: March 29, 2023
Decided: April 19, 2023
On Defendant’s Motion for
Summary Judgment
DENIED
On Plaintiff’s Motion to Exclude
the Expert Opinions of Fran Griffin
DENIED
On Plaintiff’s Motion to Exclude
the Expert Opinions of Dr. Steven Handler
DENIED
On Plaintiff’s Motion to Exclude
the Expert Opinions of Kenneth Mathieu
DENIED
On Defendant’s Motion to Exclude
the Expert Opinions of Walter Bratic
DENIED
On Plaintiff’s Motion to Exclude
the Expert Opinions of Nick Ferrara
DENIED
On Defendant’s Motion to Exclude
the Expert Opinions of Dr. Amol Navathe
DENIED
On Plaintiff’s Motion to Strike Exhibit 73
to Health Catalyst’s Summary Judgment Brief
DENIED AS MOOT
On Plaintiff’s Motion to Strike
Defendant’s Reply Brief Evidence
DENIED AS MOOT
OPINION
Brian E. Farnan, Esq., Michael J. Farnan, Esq., Farnan, LLP, Wilmington, DE, Max
L. Tribble, Jr., Esq. (pro hac vice), Rocco F. Magni, Esq. (pro hac vice) (Argued),
Sylvanus Polky, Esq. (pro hac vice) (Argued), Scarlett Collings, Esq. (pro hac vice),
Susman Godfrey L.L.P., Houston, TX, Kalpana Srinivasan, Esq. (pro hac vice),
Susman Godfrey L.L.P., Los Angeles, CA, Komal Patel, Esq., (pro hac vice)
(Argued), Dinis Cheian, Esq. (pro hac vice), Susman Godfrey L.L.P., New York,
NY, Attorneys for Plaintiff
F. Troupe Mickler IV, Esq., Randall J. Teti, Esq., Ashby & Geddes, P.A.,
Wilmington, DE, Gregory M. Saylin, Esq. (pro hac vice), Tyson C. Horrocks, Esq.
(pro hac vice), Cory A. Talbot, Esq. (pro hac vice) (Argued), Eric G. Maxfield, Esq.
(pro hac vice) (Argued), Doyle Byers, Esq. (pro hac vice) (Argued), Holland & Hart
LLP, Salt Lake City, UT, Attorneys for Defendant
JOHNSTON, J.
FACTUAL AND PROCEDURAL CONTEXT
This is a trade secret case. Pascal Metrics, Inc. (“Pascal”) is a health
information technology company that developed its Risk Trigger Monitor
application (“RTM”). The RTM was released in 2014. Health Catalyst, Inc.
2
(“HCAT”) is also a health information technology company that released a
competing product known as the Patient Safety Monitor (“PSM”). The PSM was
released on July 17, 2018.
Stanley Pestotnik (“Pestotnik”) worked for Pascal as a Senior Advisor and
Chief Strategy Officer. In October 2016, Pestotnik accepted an offer to work at
HCAT as its Senior Vice President of Patient Safety Products. Pestotnik helped
develop RTM at Pascal, and PSM at HCAT. Two other Pascal employees also
joined HCAT from Pascal—Alejo Jumat (“Jumat”) and Velere Lemon (“Lemon”).
Pascal’s Chief Executive Officer, Drew Ladner (“Ladner”) had concerns that
Pascal’s previous employees were using Pascal’s proprietary information to build a
competing product for HCAT. In Spring and Summer of 2017, Pascal’s Chief of
Staff, Alejandra Alvarez (“Alvarez”), documented various items from HCAT’s
website, including screenshots and downloaded content. These screenshots and
downloads include a webinar titled “Using Data to Improve Patient Safety: Part 2—
Real Life Use Cases,” and a report by Pestotnik and Lemon titled “How to Use Data
to Improve Patient Safety.”
Pascal also questioned the relationship between its Chief Medical Informatics
Officer, David Classen (“Classen”), and Pestotnik. Classen had a consulting
agreement with HCAT and was close friends with Pestotnik. Towards the end of
3
2017, Ladner expressed concerns about Classen sharing confidential information
with Pestotnik.
Pascal filed suit against HCAT in the Court of Chancery on December 21,
2020. On January 25, 2022, the case was transferred to the Complex Commercial
Litigation Division of the Delaware Superior Court. Pascal’s Second Amended
Complaint alleges: (1) misappropriation of trade secrets under the Delaware
Uniform Trade Secrets Act (Count I); and (2) tortious interference with contractual
relations (Count II). On June 15, 2022, the Court dismissed Count II (tortious
interference).
HCAT filed the instant Motion for Summary Judgment on February 3, 2023.
The Court heard oral argument on March 29, 2023. Trial is scheduled to begin on
June 5, 2023.
ANALYSIS
Summary Judgment Standard
Summary judgment is granted only if the moving party establishes that there
are no genuine issues of material fact in dispute and judgment may be granted as a
matter of law.1 All facts are viewed in a light most favorable to the non-moving
party.2 Summary judgment may not be granted if the record indicates that a material
1
Super. Ct. Civ. R. 56(c).
2
Burkhart v. Davies, 602 A.2d 56, 58–59 (Del. 1991).
4
fact is in dispute, or if there is a need to clarify the application of law to the specific
circumstances.3 When the facts permit a reasonable person to draw only one
inference, the question becomes one for decision as a matter of law.4 If the non-
moving party bears the burden of proof at trial, yet “fails to make a showing
sufficient to establish the existence of an element essential to that party’s case,” then
summary judgment may be granted against that party.5
Statute of Limitations
The relevant statute of limitations, 6 Del. C. § 2006, provides: “An action for
misappropriation must be brought within 3 years after the misappropriation is
discovered or by the exercise of reasonable diligence should have been discovered.
For the purposes of this section, a continuing misappropriation constitutes a single
claim.”
On June 28, 2018, Ladner sent an email to Alvarez stating: “[I]t appears that
Pascal has a solid case not only with respect to the two employees[,] but with respect
to the damage caused by the use of proprietary information.” HCAT launched PSM
on July 17, 2018. Pascal filed its original complaint in the Court of Chancery on
December 21, 2020.
3
Super. Ct. Civ. R. 56(c).
4
Wooten v. Kiger, 226 A.2d 238, 239 (Del. 1967).
5
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
5
Pascal argues HCAT was on inquiry notice by July 14, 2017, when Alvarez
shared content from HCAT’s website with Ladner. By July 14, 2017, Pascal had
discovered Pestotnik, Lemon, and Jumat had joined HCAT, and Pascal was allegedly
suspicious HCAT may be working on a product to compete with RTM.
Where a question “turns on the issue of inquiry notice, “summary judgment
is appropriate if there is a ‘red flag’ that ‘clearly and unmistakably’ would lead a
prudent person to investigate and thereby discover the basis for the cause(s) of action
alleged.”6
A person is on inquiry notice when they objectively are
aware of facts “sufficient to put a person of ordinary
intelligence and prudence on inquiry which, if pursued,
would lead to the discovery” of facts constituting the basis
of the cause of action. Inquiry notice does not require that
a plaintiff be aware “of all of the aspects of the alleged
wrongful conduct.”7
To prove misappropriation of trade secrets, Pascal carries the burden of
proving four elements:
(1) that a trade secret exists; (2) that plaintiff
communicated the trade secret to defendant; (3) that the
communication occurred with the understanding that
defendant would protect the secrecy of the information;
and (4) that the defendant improperly used or disclosed the
trade secret.8
6
Ocimum Biosolutions (India) Ltd. v. AstraZeneca UK Ltd., 2019 WL 6726836, at *8 (Del.
Super.), aff’d, 247 A.3d 674 (Del. 2021) (citing Boerger v. Heiman, 965 A.2d 671, 675 (Del.
2009)).
7
Id. at *9 (internal citations removed).
8
ELENZA, Inc. v. Alcon Lab'ys Holding Corp., 2017 WL 2651716, at *2 (Del. Super.), aff’d,
183 A.3d 717 (Del. 2018) (internal citations removed).
6
To maintain a successful claim for misappropriation of trade secrets, a
plaintiff must show both the existence of a trade secret and its misappropriation.”9
“A party may obtain injunctive relief and damages against one who acquires,
uses or discloses a trade secret obtained through improper means.”10 HCAT argues
Pascal could have filed an action for injunctive relief before PSM’s product launch,
and before actual damages occurred. The Court finds that the statute of limitations
does not strictly apply to equitable relief.11 Instead, laches is the proper standard.12
“Unlike a statute of limitations, the equitable doctrine of laches does not prescribe a
specific time period as unreasonable.”13
In Estate of Valdez v. BNSF Railway Company,14 this Court applied the
discovery rule, which states that “the statute of limitations ‘begins to run when the
plaintiff knows or has reason to know of the existence and cause of the injury which
is the basis of his action.’”15 The discovery rule is applied when “the injury is
9
Beard Rsch., Inc. v. Kates, 8 A.3d 573, 589 (Del. Ch.), aff’d sub nom. ASDI, Inc. v. Beard
Rsch., Inc., 11 A.3d 749 (Del. 2010).
10
Savor, Inc. v. FMR Corp., 812 A.2d 894, 897 (Del. 2002).
11
Whittington v. Dragon Grp., L.L.C., 991 A.2d 1, 8 (Del. 2009) (“Although statutes of
limitations always operate as a time-bar to actions at law, they are not controlling in equity.”).
12
Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 1594085, at *12 (Del. Ch.) (“A statute of
limitations period at law does not automatically bar an action in equity because actions in equity
are time-barred only by the equitable doctrine of laches.”).
13
Whittington, 991 A.2d at 7.
14
2020 WL 7365800 (Del. Super.).
15
Id. at *3 (quoting Matson v. Burlington N. Santa Fe R.R., 240 F.3d 1233, 1235 (10th Cir.
2001)).
7
‘inherently unknowable and the claimant is blamelessly ignorant of the wrongful act
and the injury complained of.’”16 Applying the discovery rule requires a fact
intensive inquiry that may require factfinding by a jury.17
“It has long been held that courts should not ‘apply statute of limitations law
in a way that pressures litigants to file suits based merely on suspicions and fears.’”18
For Pascal to be on inquiry notice, it was not sufficient that Pascal had knowledge
of the development of a potentially competing product for future release.19
The Court finds that for inquiry notice to trigger the statute of limitations,
Pascal needed at least to have knowledge of the potential future for damages—even
if specific damages were not yet known or knowable. In this case, no alleged
damages were actually incurred until the PSM product launch on July 17, 2018.
Thus, the statute of limitations began to run with the PSM product launch, or at the
earliest, with the June 28, 2018 email acknowledging damages.
The Court considered the comparison between: (1) the single graphic that
Pestotnik and Lemon used in a 2017 presentation and article (the “2017 graphic”);
16
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del. 2004) (quoting Coleman v.
Pricewaterhousecoopers, LLC, 854 A.2d 838, 842 (Del. 2004)).
17
See Est. of Valdez, 2020 WL 7365800, at *4.
18
Accenture Glob. Servs. GmbH v. Guidewire Software Inc., 691 F. Supp. 2d 577, 594 (D. Del.
2010) (quoting Sokol Crystal Prod., Inc. v. DSC Commc’ns Corp., 15 F.3d 1427, 1430 (7th Cir.
1994)).
19
See id. at 593–94 (explaining that inquiry notice was not triggered until plaintiffs had reviewed
“comprehensive technical information” because before that time it was not clear that “plaintiffs
possessed (or could have possessed) more than concerns and suspicions”).
8
and (2) Pascal’s internal design document.20 While the comparison shows
similarities, the Court finds Pascal’s knowledge of the 2017 graphic insufficient to
constitute inquiry notice of misappropriation. Information set forth on the 2017
graphic would not “‘clearly and unmistakably’ [] lead a prudent person to investigate
and thereby discover” the alleged misappropriation. 21 Rather, the 2017 graphic
raised mere suspicion and fear of competition. Thus, Pascal’s knowledge of the
similarities between the 2017 graphic and its own internal design document did not
start the running the statute of limitations.
The Court need not address Pascal’s fraudulent concealment arguments
because there is no need for a factual inquiry.
HCAT’s Motion for Summary Judgment on the basis of the statute of
limitations is hereby DENIED. Pascal’s complaint for misappropriation of trade
secrets was timely filed.
Trade Secrets
A trade secret is defined pursuant to 6 Del. C. 2001(4) as:
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
20
See Ex. 25 to HCAT’s Mot. for Summ. J. The Court also notes the similarities between the
2017 version of the graphic and the 2019 version of the graphic, where the only noticeable
difference is the product’s name change in the upper-left corner. See HCAT’s Reply Br. 5–6.
21
See Ocimum Biosolutions (India) Ltd. v. AstraZeneca UK Ltd., 2019 WL 6726836, at *8 (Del.
Super.), aff’d, 247 A.3d 674 (Del. 2021) (citing Boerger v. Heiman, 965 A.2d 671, 675 (Del.
2009)).
9
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.
Pascal identified its Trigger Algorithms and Global Safety Risk Score
Algorithm as designated trade secrets with the Court of Chancery on September 8,
2021.22 “Whether the trade secrets were generally known or readily ascertainable
and whether [the plaintiff] took reasonable precautions to protect their secrecy” are
questions of fact.23 Even if “all of the components and techniques” of the designated
trade secret are readily ascertainable through public literature, it is possible for an
organization to still possess a unique combination of those components and
techniques that would constitute a trade secret.24 Ascertaining reasonable efforts to
protect the secrecy of a trade secret involves factual inquiry.25
The Court finds that genuine issues of material fact prevent summary
judgment on the issue of trade secrets. These include: (1) whether Pascal’s claimed
trade secrets were readily ascertainable in public literature; (2) whether reasonable
22
Ex. 34 to HCAT’s Op. Br. in Support of Its Mot. for Summ. J.
23
SmithKline Beecham Pharms. Co. v. Merck & Co., 766 A.2d 442, 448 (Del. 2000).
24
Agilent Techs., Inc. v. Kirkland, 2010 WL 610725, at *19 (Del. Ch.) (“[E]ven if all of the
components and techniques used to create and manufacture XDB–C18 were known in the
scientific community, the unique configuration of XDB–C18 is not known and could not easily
be reverse-engineered.”).
25
Data Gen. Corp. v. Digital Computer Controls, Inc., 297 A.2d 437, 439 (Del. 1972)
(concluding that determining the degree of dissemination of trade secrets and the sufficiency of
the efforts to protect the trade secrets is a question of fact not appropriate for resolution on
summary judgment).
10
or adequate measures were taken to protect Pascal’s claimed trade secrets; (3)
whether a “trigger” is a trade secret; (4) whether Pascal reasonably maintained the
secrecy of its claimed trade secrets; and (5) whether the claimed trade secret derives
independent economic value from not being generally known or not being readily
ascertainable.
Therefore, summary judgment on the issue of the existence secrets is hereby
DENIED.
The Motions to Strike Exhibits 73–76 to HCAT’s Motion for Summary
Judgment are hereby DENIED AS MOOT. The Court did not take Exhibits 73–76
into consideration in these rulings.
Motions to Exclude Expert Witnesses
The Delaware Supreme Court has adopted the Daubert standard to determine
the admissibility of expert testimony.26 Under this standard, the Court asks whether:
(i) the witness is “qualified as an expert by knowledge, skill, experience, training or
education;” (ii) the evidence is relevant and reliable; (iii) the expert’s opinion is
based upon information “reasonably relied upon by experts in the particular field;”
(iv) the expert testimony will “assist the trier of fact to understand the evidence or
26
See Eskin v. Carden, 842 A.2d 1222, 1231 (Del. 2004) (citing Daubert v. Merrell Dow, 509
U.S. 579 (1993)).
11
to determine a fact in issue;” and (v) the expert testimony will not create unfair
prejudice or confuse or mislead the jury.27
Delaware Rule of Evidence 702 provides that an expert witness may provide
opinion testimony if:
(a) the expert’s scientific, technical, or other
specialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles
and methods; and
(d) the expert has reliably applied the principles and
methods to the facts of the case.
Pascal seeks to exclude the expert testimony of Fran Griffin (“Griffin”), Dr.
Steven Handler (“Handler”), Kenneth Mathieu (“Mathieu”), and Nick Ferrara
(“Ferrara”).
HCAT designated Griffin as a rebuttal expert to provide opinion testimony
regarding whether Pascal’s designated trade secrets can be readily ascertained
through public sources. Griffin concluded Pascal’s designated trade secrets were
readily ascertainable through public sources.
HCAT designated Handler as a rebuttal expert to opine whether Pascal’s
triggers can be readily ascertained, and whether Pascal’s triggers have independent
economic value. Handler concluded that Pascal’s triggers were readily ascertainable
27
Id. at 1227 (quoting Cunningham v. McDonald, 689 A.2d 1190, 1193 (Del. 1997)).
12
through public sources, and that Pascal’s triggers do not have independent economic
value.
HCAT designated Mathieu as a rebuttal damages expert. Pascal seeks only to
exclude the portion of Mathieu’s expert testimony regarding the value of HCAT’s
alleged use of Pascal’s trade secrets. Assuming liability, Mathieu calculated
damages to be approximately $2.4 million.
HCAT designated Ferrara as a rebuttal expert to opine: “(1) whether Pascal
took reasonable measures to protect its trade secrets’ confidentiality[;] (2) whether
Pascal’s trade secrets have independent economic value[;] [] (3) whether Pascal’s
trade secrets are readily ascertainable;” and (4) “whether [HCAT] used Pascal’s
trade secrets.”28 Pascal seeks only to exclude Ferrara’s opinions related to whether
Pascal’s trade secrets are readily ascertainable, and whether HCAT used Pascal’s
trade secrets. Ferrara concluded that Pascal’s triggers were readily ascertainable,
and that HCAT did not use the designated trade secrets.
HCAT seeks to exclude the expert testimony of Walter Bratic (“Bratic”) and
Dr. Amol Navathe (“Navathe”).
Bratic is Pascal’s affirmative damages expert. Assuming liability, Bratic
calculated damages to be approximately $62.2 million. Bratic used HCAT’s ability
28
Pl.’s Mot. to Exclude Ops. of Nick Ferrara 2.
13
to raise investor funding when calculating damages related to HCAT’s alleged unjust
enrichment.
Navathe is Pascal’s expert to opine on whether various components of RTM,
designated as trade secrets, constitute trade secrets. Navathe concluded that each of
Pascal’s designated trade secrets is a trade secret.
The Court finds that each of the six experts in dispute is qualified. The parties’
objections go to the weight to be accorded the testimony, not to the admissibility of
the experts’ opinions. The testimony of each expert witness will be limited to the
scope of their pre-trial opinion. Rebuttal experts will be limited to their opposing
opponent’s opinions.
By way of clarification, and to provide guidance to the parties in preparation
for trial, the Court makes the following additional rulings.
The Court finds the definition of “use” is not disputed with respect to HCAT’s
alleged “use” of Pascal’s trade secrets. “When interpreted specifically in the context
of trade secret misappropriation, the term ‘use’ has been broadly defined as ‘any
exploitation of the trade secret that is likely to result in injury to the trade secret
owner or enrichment to the defendant[.]’”29
29
Oakwood Lab’ys LLC v. Thanoo, 999 F.3d 892, 909 (3d Cir. 2021) (quoting Gen. Universal
Sys., Inc. v. HAL, Inc., 500 F.3d 444, 450–51 (5th Cir. 2007)).
14
The Court finds that damages experts cannot opine on the basis of speculative
evidence with regard to investor funding. The Court will need to review evidence
of investor motivation, to determine whether it is inadmissible hearsay, before this
type of expert testimony will be permitted.
The Court finds that Pascal’s Trigger Algorithm includes trigger logic. The
triggers are a set of logical rules, which are a component of the RTM.
The Court cautions the parties against presenting duplicative testimony,
particularly where more than one expert is designated for the same or closely-related
subject matter.
Therefore, Pascal’s Motions to Exclude the Expert Testimony of Griffin,
Handler, Mathieu, and Ferrara are hereby DENIED. HCAT’s Motions to Exclude
the Expert Testimonies of Navathe and Bratic also are hereby DENIED.
Pascal’s Motion to Strike Exhibit I to HCAT’s Reply in Support of Motion to
Exclude Navathe is hereby DENIED AS MOOT. The Court did not take Exhibit I
into consideration in these rulings.
CONCLUSION
The Court finds that the statute of limitations does not strictly apply to
equitable relief. 30
30
Whittington v. Dragon Grp., L.L.C., 991 A.2d 1, 8 (Del. 2009) (“Although statutes of
limitations always operate as a time-bar to actions at law, they are not controlling in equity.”).
15
The Court finds that for inquiry notice to trigger the statute of limitations,
Pascal needed at least to have knowledge of potential future damages—even if
specific damages were not yet known or knowable. No alleged damages were
actually incurred until the PSM product launch on July 17, 2018. Thus, the statute
of limitations began to run with the PSM product launch, or at the earliest with the
June 28, 2018 email acknowledging damages. The Court finds Pascal’s knowledge
of the 2017 graphic insufficient to place Pascal on inquiry notice of
misappropriation. HCAT’s Motion for Summary Judgment on the basis of the
statute of limitations is hereby DENIED.
The Court finds that genuine issues of material fact prevent summary
judgment on the issue of trade secrets. Therefore, summary judgment on the basis
of trade secrets is hereby DENIED.
The Court finds that: (1) each of the six experts is qualified and objections go
to weight, not admissibility; (2) the definition of “use” is not disputed with respect
to HCAT’s alleged “use” of Pascal’s trade secrets; (3) damages experts cannot opine
on the basis of speculative evidence with regard to investor funding; and (4) Pascal’s
Trigger Algorithm includes the trigger logic. Therefore, Pascal’s Motions to
Exclude the Expert Testimonies of Griffin, Handler, Mathieu, and Ferrara are hereby
DENIED. HCAT’s Motions to Exclude the Expert Testimonies of Navathe and
Bratic also are hereby DENIED.
16
Pascal’s Motion to Strike Exhibits 73, and Pascal’s Motion to Strike
Defendant’s Reply Brief Evidence are hereby DENIED AS MOOT. The Court did
not take Exhibits 73–76 of HCAT’s Summary Judgment Motion into consideration
in these rulings. The Court did not take Exhibit I to HCAT’s Reply in Support of
Motion to Exclude Navathe into consideration in these rulings.
IT IS SO ORDERED.
/s/ Mary M. Johnston
The Honorable Mary M. Johnston
17