Gordon Grado M.D. Incorporated v. Phoenix Cancer and Blood Disorder Treatment Institute PLLC

1 WO — 2 — — 3 — — 4 — — 5 — 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA — 8 — 9 Gordon Grado M.D., Inc. d/b/a Southwest No. CV-21-02052-PHX-DGC Oncology Centers, 10 ORDER Plaintiff, — 11 — v. — 12 — Phoenix Cancer and Blood Disorder 13 Treatment Institute PLLC; and Steven L. Rosinski, — 14 — 15 Defendants. — 16 — Defendants Phoenix Cancer and Blood Disorder Treatment Institute, PLLC (“PCI”) — 17 — and Steven L. Rosinksi, M.D. have moved to dismiss Plaintiff Gordon Grado, M.D., Inc., — 18 — d/b/a Southwest Oncology Centers’ second amended complaint. Doc. 18. The motion is — 19 — fully briefed (Docs. 18, 20, 21), and oral argument will not aid the Court’s decision. See — 20 — LRCiv 7.2(f). For reasons stated below, the Court will deny the motion in part. — 21 — I. Background. — 22 — Dr. Gordon Grado is a physician specializing in radiation oncology and the founder, — 23 — director, and president of Plaintiff Southwest Oncology Centers, which provides radiation — 24 — and medical oncology services to cancer patients in Scottsdale, Bullhead City, and Yuma, — 25 — Arizona. Doc. 14 ¶¶ 3-5. Defendant Dr. Steven Rosinski is a physician specializing in — 26 — internal medicine, hematology, and oncology and founder of Defendant PCI, which — 27 — provides radiation and medical oncology services to cancer patients in Bullhead City, — 28 — Arizona. Id. ¶¶ 7-10. 1 Plaintiff alleges that in 2017, Defendant Rosinski was practicing medicine in 2 Spokane, Washington, and planning to move to Arizona. Id. ¶¶ 34-35. In November 2017, 3 Plaintiff and Defendant Rosinski began communications and employment negotiations. Id. 4 ¶ 37. In March 2018, Plaintiff and Defendant Rosinski entered into a locum tenens 5 agreement (the “Agreement”) under which Defendant Rosinski would work part time as 6 an independent contractor for Plaintiff in its Bullhead City location. See id. ¶¶ 44-46. After 7 approximately ten months, Defendant Rosinski gave notice of his intent to terminate the 8 Agreement, stopped providing services for Plaintiff, and opened Defendant PCI, where he 9 continued to provide cancer treatment services to patients in Bullhead City. Id. ¶¶ 46, 63. 10 Plaintiff alleges that prior to entering into the Agreement, Defendant Rosinski had 11 a plan to establish his own partnership and medical practice in Arizona. Id. ¶ 35. Plaintiff 12 alleges that, unbeknownst to it, Defendant Rosinski sought employment with it in order to 13 learn about the medical oncology care market in Arizona, establish a name presence in 14 Arizona, identify and hire away experienced employees, and identify and persuade away 15 patients, all in furtherance of his desire to open his own medical practice in the area. Id. 16 ¶ 36. Despite this, Plaintiff alleges that Defendant Rosinski, personally and through a letter 17 of recommendation, represented that he wanted to join Plaintiff’s practice for the “long 18 term.” Id. ¶¶ 42-43. Plaintiff asserts that Defendant Rosinski’s purported interest in 19 joining its practice for the “long term” was material and induced it to employ Defendant 20 Rosinski under the Agreement. Id. ¶ 44. Plaintiff alleges that Defendant Rosinksi 21 continued to represent to Plaintiff that he wanted a “long term” employment relationship 22 after entering into the Agreement, and that these representations were material to Plaintiff’s 23 decision to maintain Defendant Rosinski’s employment under the Agreement. Id. ¶¶ 47, 24 51-53, 59-60, 74. 25 While continuing to represent that he wanted to join Plaintiff’s practice for the “long 26 term,” Plaintiff alleges that Defendant Rosinksi: registered the Internet domain name 27 “phoenixcancer.com” (id. ¶ 39); filed articles of incorporation for “Phoenix Cancer and 28 Blood Disorder Treatment Institute, PLLC” (id. ¶ 48); registered a national provider 1 identification number for the Phoenix Cancer and Blood Disorder Treatment Institute with 2 the Centers for Medicare and Medicaid Services (id. ¶ 50); recruited three of Plaintiff’s 3 employees to work for Defendant PCI (id. ¶¶ 54-55); directed Plaintiff’s former employees, 4 after they had left Plaintiff’s employ, to access and download patient information and 5 medical records in order to persuade patients to cease treatment with Plaintiff (id. 6 ¶¶ 56-57); directed one of Plaintiff’s former employees, while she was still employed by 7 Plaintiff, to tell patients that Plaintiff might close and that they should obtain their medical 8 records in order to convince them to seek treatment with Defendant PCI (id. ¶ 58); and 9 filed applications with the U.S. Patent and Trademark Office to trademark the phrase 10 “Phoenix Cancer Institute” and a design logo bearing the same phrase (id. ¶ 62). 11 Plaintiff alleges that Defendant Rosinski gave a 30-day notice of termination as 12 required under the Agreement on January 4, 2019, but that his last day of employment was 13 on January 18, 2019. Id. ¶¶ 61, 69. Plaintiff alleges that in communications regarding the 14 termination of Defendant Rosinski’s employment, he continued to conceal his plans to 15 open a competing oncology practice in Bullhead City, asserting instead that he was unsure 16 of his future employment plans. Id. ¶¶ 63, 64, 69. In the time between giving his notice 17 and the end of his employment, Plaintiff alleges that Defendant Rosinski asked for and 18 received a print-out of his next two weeks of appointments, which included patient phone 19 numbers and insurance information, and used the list to solicit Plaintiff’s patients to 20 continue care with Defendant PCI. Id. ¶¶ 64-67. Ultimately, Plaintiff alleges, Defendant 21 Rosinski used misappropriated confidential information to successfully solicit 41 of 22 Plaintiff’s patients to transfer their care to Defendant PCI. Id. ¶ 68. 23 Plaintiff sues Defendants Rosinski and PCI for fraudulent inducement under 24 Arizona common law (Count I), misappropriation of trade secrets under A.R.S. § 44-401 25 (Count II) and 18 U.S.C. § 1832 (Count III), and tortious interference with business 26 relationships under Arizona common law (Count V). Plaintiff also brings claims against 27 Defendant Rosinski for breach of contract (Count IV) and breach of the implied covenant 28 of good faith and fair dealing (Count VI) under Arizona common law. 1 II. Legal Standard. 2 When analyzing a complaint for failure to state a claim for relief under 3 Rule 12(b)(6), the well-pled factual allegations are taken as true and construed in the light 4 most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 5 2009). A successful motion to dismiss under Rule 12(b)(6) must show either that the 6 complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its 7 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A complaint 8 that sets forth a cognizable legal theory will survive a motion to dismiss as long as it 9 contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is 10 plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. 11 v. Twombly, 550 U.S. 544, 570 (2007)). 12 III. Defendants’ Motion to Dismiss. 13 Defendants argue that the Court lacks jurisdiction over the only federal claim 14 asserted in Plaintiff’s complaint (Count III alleging misappropriation of trade secrets under 15 federal law) and the Court therefore lacks jurisdiction over the entire lawsuit. Defendants 16 also argue that the statute of limitations has run on Plaintiff’s tortious interference claim 17 (Count V). Finally, Defendants argue that the rest of Plaintiff’s claims fail to state plausible 18 claims for relief. 19 A. Misappropriation of Trade Secrets. 20 1. Under Federal Law (Count III). 21 The Court will first consider Defendants’ arguments regarding Plaintiff’s claim for 22 federal misappropriation of trade secrets because it is the only claim upon which to base 23 supplemental jurisdiction. 24 a. Jurisdiction. 25 Defendants argue that there is no basis for original federal jurisdiction over 26 Plaintiff’s federal misappropriation claim because the trade secrets involved are not 27 sufficiently related to interstate commerce as required by 18 U.S.C. § 1836 (b)(1). Doc. 18 — 28 — 1 at 4.1 Citing no authority, Defendants argue that this jurisdictional requirement is “highly 2 restrictive” and that it would be “impossible” for Plaintiff to demonstrate that the 3 information at issue in this case “in any way involved interstate commerce.” Id. 4 Defendants assert that “[m]edical care for patients located in a small Arizona town most 5 definitely does not implicate interstate commerce” because physicians must be licensed by 6 each state in which they practice, rendering medical care “affirmatively prohibited from 7 being ‘interstate commerce.’” Id. Defendants go on to characterize Plaintiff’s allegations 8 that patient billing and payment is done across state lines, thereby implicating interstate 9 commerce, as “exceptionally weak” and a “misrepresent[ation of] the kind of confidential 10 information actually at issue.” Id. Defendants assert that only patient names and contact 11 information are at issue in this case, arguing that Plaintiff has not sufficiently supported its 12 allegations that billing and insurance information was also improperly obtained by 13 Defendants. Id. Defendants argue that they would have had “no use whatsoever” for 14 billing or insurance records because they would have received that information directly 15 from patients that switched their care to Defendant PCI. Id. at 5 . Defendants finally argue 16 that Plaintiff’s allegations that it receives payments for the services it renders from out-of17 state entities has “too tenuous and distended” a connection with interstate commerce to 18 support federal jurisdiction. Id. 19 Plaintiff responds that the allegations in its complaint adequately allege a connection 20 to interstate commerce because it alleges that the records taken by Defendants included 21 financial and insurance records used to bill out-of-state entities for services and that some 22 of the patients whose records were taken were Nevada residents. Doc. 20 at 6. Plaintiff 23 also argues that the jurisdictional statute does not require that the trade secrets themselves 24 be transmitted in interstate commerce, but only that they are related to a product or service 25 used in interstate commerce. Id. at 6-7 . The records at issue, Plaintiff argues, were related 26 to both medical services provided in interstate commerce and financial services – that is, 27 1 Defendants also argue that Plaintiff cites an inapplicable statute as the basis for federal jurisdiction. Doc. 18 at 3. Plaintiff’s second amended complaint, however, 28 properly cites § 1836(b) and (c) as the basis for federal jurisdiction. See Doc. 14 ¶ 1. 1 insurance billing – provided in interstate commerce. Id. at 7. Finally, Plaintiff argues that 2 many of Defendants’ arguments are factual disputes inappropriate for resolution on a 3 12(b)(6) motion but that, even if Defendants had no need to take financial records 4 specifically, the information was still valuable to Defendants because it indicated who 5 Defendants should solicit. Id. at 7-8. 6 Defendants respond by acknowledging case law stating that the product or service, 7 not necessarily the trade secret itself, must be related to interstate commerce, but argue that 8 no financial services are rendered by Plaintiff, only medical services, “which must be 9 limited to a single state.” Doc. 21 at 3 (emphasis in original), id. at 4. Defendants also 10 argue that any records obtained from Plaintiff were not used for billing purposes because 11 such information was provided by patients at the time of treatment. Id. at 4. Defendants 12 assert that the records would not have provided leads on which patients to solicit because 13 Defendant Rosinski was already aware of the identities of patients he was treating when he 14 left Plaintiff’s employ and Plaintiff’s employee voluntarily provided him with his patient 15 schedule which included patient phone numbers. Id. 16 Under the Defend Trade Secrets Act (“DTSA”),2 “[a]n owner of a trade secret that 17 is misappropriated may bring a civil action . . . if the trade secret is related to a product or 18 service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. 19 § 1836(b)(1). The statute confers original jurisdiction on U.S. district courts. Id. § 1836(c). 20 There is some dispute among courts about whether the interstate-commerce requirement is 21 jurisdictional or merely an element of a misappropriation claim brought under DTSA. See, 22 e.g., Providence Title Co. v. Truly Title, Inc., 547 F. Supp. 3d 585 , 598 (E.D. Tex. 2021) 23 (concluding that the interstate-commerce requirement is not jurisdictional but 24 acknowledging contrary findings among other district courts and collecting cases). This 25 issue has not been resolved by the Ninth Circuit or, to the Court’s knowledge, any other — 26 — 2 In briefing, the parties primarily refer to this provision as the Economic Espionage 27 Act (“EEA”). The EEA creates federal criminal liability for the misappropriation of trade secrets and § 1836 is its civil analogue. While § 1836 is codified within the EEA, it is more 28 commonly referred to as the DTSA. 1 circuit.3 District courts in this circuit have tended to treat the interstate-commerce 2 requirement as jurisdictional. See, e.g., Islands Hospice, Inc. v. Duick, No. 19-00202-JMS3 WRP, 2019 WL 4620369 , at *3 (D. Haw. Sept. 23, 2019) (citing Agrawal); ReBath LLC 4 v. HD Sols. LLC, No. CV-19-04873-PHX-JJT, 2020 WL 7000071 , at *2 (D. Ariz. Sept. 5 18, 2020). Defendants assert that the interstate-commerce requirement of the DTSA is 6 jurisdictional. Doc. 18 at 3-4. Plaintiff does not dispute that assertion. Doc. 20 at 6. The 7 Court therefore will assume for purposes of this order that the requirement is jurisdictional. 8 Plaintiff has sufficiently pled a nexus between its federal misappropriation claim 9 and interstate commerce. Plaintiff alleges that some of its patients – and indeed three of 10 the patients it alleges were solicited by Defendants using misappropriated information – 11 were Nevada residents. Doc. 14 ¶¶ 33(a), 68. “At least some of [Plaintiff’s] patients travel 12 from [Nevada] into [Arizona] to use [its] services and therefore those services are used in 13 interstate commerce.” Yager v. Vignieri, No. 16cv9367(DLC), 2017 WL 4574487 , at *2 14 (C.D. Cal. Aug. 7, 2018); see also Officia Imaging, Inc. v. Langridge, No. SA CV 17-222815 DOC (DFMx), 2018 WL 6137183 , at *7 (C.D. Cal. Aug. 7, 2018) (holding allegation that 16 services were coordinated and processed in Nevada for California customers “alone 17 sufficiently satisfies the interstate commerce nexus requirement”). Defendant neither 18 acknowledges this allegation nor explains why interstate commerce is not involved when 19 citizens of Nevada travel across state lines to receive medical services in Arizona. 20 Defendants argue that because physicians must be “separately licensed in any state 21 in which they wish to practice medicine,” the provision of medical care is “affirmatively 22 prohibited from being ‘interstate.’” and “must be limited to a single state.” Docs. 18 at 4, 23 21 at 3 (emphasis in original). But these conclusory assertions are belied by caselaw, some 24 of which is cited below, acknowledging that the provision of medical services can be and 25 often is in interstate commerce. Defendants proffer nothing – be it caselaw or information — 26 — 3 The Second Circuit in United States v. Agrawal, 726 F.3d 235 (2d Cir. 2013), 27 found that the interstate-commerce requirement of a prior version of the EEA was jurisdictional, but the court had “no occasion to construe the revised [statute].” Id. at 244 28 n.7. 1 that the Court could take judicial notice of – to show that medical licensing schemes 2 remove physicians from interstate commerce. Plaintiff, on the other hand, pleads with 3 specificity that it treats out-of-state patients in its Arizona facility and that Defendants 4 successfully solicited several of its out-of-state patients. This is sufficient to satisfy the 5 interstate-commerce requirement of the DTSA. 6 Further, courts routinely hold in other contexts that “accepting payment from 7 Medicare constitutes an act in interstate commerce.” Wound Care Concepts, Inc. v. Vohra 8 Health Servs., P.A., No. 19-62078-CIV-SMITH, 2022 WL 320952 , at *12 (S.D. Fla. Jan. 9 28, 2022) (considering interstate commerce in Lanham Act context); see also Summit 10 Health, Ltd. v. Pinhas, 500 U.S. 322, 327 (1991) (holding that “[t]he provision of 11 ophthalmological services affects interstate commerce because both physicians and 12 hospitals serve nonresident patients and receive reimbursement through Medicare 13 payments” in Sherman Act context); GGNSC Louisville Hillcreek, LLC v. Warner, No. 14 3:13-CV-752-H, 2013 WL 6796421 , at *8 (W.D. Ky. Dec. 19, 2013) (holding that plaintiff 15 nursing home “has a nexus with interstate commerce through their and their patients’ 16 participation in Medicare and Medicaid” in Federal Arbitration Act context). Plaintiff here 17 has also alleged that it received payments through Medicare and Medicaid and, of the 18 patients it alleges were successfully solicited by Defendants using misappropriated 19 information, 20 were Medicare beneficiaries, four were enrolled in Medicare Advantage 20 plans, and nine were Medicaid recipients. Doc. 10 ¶¶ 33(c)-(e), 68. 21 Defendants argue that Plaintiff’s reliance on Medicare and Medicaid billing is 22 unavailing because it “misrepresents the kind of confidential information actually at issue.” 23 Doc. 18 at 4. Defendants assert that the information at issue is only patient names and 24 contact information and that Plaintiff “hasn’t alleged even the tiniest shred of support for 25 its naked and conclusory allegations that any Defendant at any time misappropriated billing 26 or insurance records.” Id. Plaintiff specifically alleges, however, that Defendants 27 misappropriated patients’ billing and insurance records. Doc. 10 ¶¶ 30, 56-58, 65. 28 Defendants’ assertions that those records were not misappropriated is a factual issue 1 inappropriate for resolution on a motion to dismiss. Such issues should be resolved on 2 summary judgment or at trial when both parties can submit evidence to support their 3 allegations. On this motion, the Court must take Plaintiff’s well-pled factual allegations as 4 true. Cousins, 568 F.3d at 1067 . 5 b. Failure to State a Claim. 6 To state a claim under the DTSA, Plaintiff must allege (1) that it owns a trade secret, 7 (2) that was misappropriated by Defendants, (3) causing damages. ReBath LLC, 2020 WL 8 7000071, at *2. Defendants’ motion to dismiss does not argue that Plaintiff failed to allege 9 that it owns a trade secret or suffered damages, focusing instead on whether Plaintiff has 10 adequately alleged misappropriation. Docs. 18 at 7, 21 at 6.4 11 Misappropriation under the DTSA is defined as: 12 (A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or — 13 — (B) disclosure or use of a trade secret of another without express or implied 14 consent by a person who-- 15 (i) used improper means to acquire knowledge of the trade secret; 16 (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was-- — 17 — (I) derived from or through a person who had used improper 18 means to acquire the trade secret; 19 (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade 20 secret; or — 21 — 4 Defendants hint that the information at issue does not constitute a trade secret, but 22 do not develop that argument as a ground for dismissal, focusing entirely on the argument that Plaintiff did not assert any act of misappropriation. See Docs. 18 at 7-11; 21 at 7. 23 Defendants also state briefly that Plaintiff did not “me[e]t its obligation to maintain the secrecy of this information in order to qualify it as a trade secret under A.R.S. § 44-401.4” 24 because Plaintiff did not keep passwords sufficiently secure. Doc. 18 at 10. This argument is premised on a factual issue inappropriate for resolution on summary judgment. See 25 Wound Care Concepts, 2022 WL 320952 , at *10 (“However, the question of whether information constitutes a trade secret is a question of fact normally resolved by a jury after 26 full presentation of evidence.”) (citing Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1290, 1291 (11th Cir. 2003)); Leoni Fiber Optics, Inc. v. Kaus, No. CV-13-562-PHX27 SMM, 2013 WL 12106942 , at *4 (D. Ariz. June 14, 2013) (considering misappropriation under Arizona state law and finding that arguments as to secrecy of alleged trade secret 28 was “a question of fact” and therefore “without merit on this motion to dismiss”). 1 (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit 2 the use of the trade secret; or 3 (iii) before a material change of the position of the person, knew or had reason to know that-- — 4 — (I) the trade secret was a trade secret; and — 5 — (II) knowledge of the trade secret had been acquired by 6 accident or mistake[.] — 7 — 18 U.S.C. § 1839 (5)(A)-(B). “Improper means” include theft, bribery, misrepresentation, 8 breach or inducement of a breach of a duty to maintain secrecy, or espionage through 9 electronic or other means, but not reverse engineering, independent derivation, or other 10 lawful means of acquisition. § 1839(6)(A)-(B). 11 Defendants argue that Plaintiff has failed to allege any wrongful conduct that could 12 constitute misappropriation. Doc. 18 at 7. Defendants emphasize that paragraphs 56-58 13 of Plaintiff’s complaint,5 while containing “allegations that one could arguably assert relate 14 in some way to some form of misappropriation,” describe conduct “done entirely and 15 exclusively by third parties, and not by any Defendant.” Id. at 8 (emphasis omitted). 16 Defendants assert that “[i]t should be obvious that Defendants cannot be held accountable 17 for the conduct of third parties.” Id. Defendants also assert that Plaintiff’s allegations that 18 Defendant Rosinski directed the conduct are “wildly unsupported and conclusory.” Id. 19 at 9. Defendants go on to dispute whether or when certain of Plaintiff’s prior employees 20 came to work for Defendant PCI and question whether the employees would have had any 21 motive to misappropriate information on Defendants’ behalf. Id. Defendants also heavily 22 rely on Plaintiff’s allegations that some patients solicited by Defendants also requested 23 their own medical records from Plaintiff, arguing that this fact “demonstrates conclusively 24 that the transfer of their records and care was handled in the appropriate and proper 25 manner.” Id. at 9-10. Defendants also emphasize that one of Plaintiff’s employees 26 5 These paragraphs contain allegations that, at Defendant Rosinski’s direction, two of Plaintiff’s former employees accessed proprietary data systems after leaving Plaintiff’s 27 employ and downloaded patient records, and that another employee, while still employed by Plaintiff, falsely told patients that Plaintiff might be closing and encouraged patients to 28 obtain copies of their medical records. Doc. 14 ¶¶ 56-58. 1 voluntarily provided Defendant Rosinski with a list of patients for him to call and inform 2 that he was leaving Plaintiff’s employ. Id. at 10. Finally, Defendants argue that Plaintiff’s 3 allegation that Defendant Rosinski contacted one of Plaintiff’s patients about lab results 4 does not show that he misappropriated the patient’s records, but rather that Plaintiff failed 5 to remove Defendant Rosinski from the paperwork generated for lab orders. Id. 6 Plaintiff has plausibly pled acts of misappropriation by Defendant Rosinski. The 7 second amended complaint alleges that Defendant Rosinski instructed Plaintiff’s former 8 employees to access proprietary systems and download patient information that Plaintiff 9 alleges are trade secrets. Doc. 14 ¶¶ 56-57. Plaintiff also alleges that Defendant Rosinski 10 instructed another of Plaintiff’s employees to mislead patients into thinking Plaintiff may 11 stop providing medical services in order to induce them to give him access to their 12 confidential information. Id. ¶ 58. Defendants cite no authority to suggest that these 13 actions could not fall within the statutory definition of misappropriation. And, despite the 14 unsupported assertion that it is “obvious” that they could not be liable for actions of third 15 parties, the factual allegations of the complaint must be taken as true at this stage and the 16 definition of misappropriation set out above clearly contemplates the involvement of third 17 parties in acts of misappropriation. 18 Defendants assert that Plaintiff’s allegations that its former employees took these 19 actions at Defendant Rosinski’s direction are “wildly unsupported and conclusory” 20 (Doc. 18 at 9), but Plaintiff made these allegations “upon information and belief” (Doc. 14 21 ¶ 57), which is sufficient at the pleadings stage, especially where other factual allegations 22 support an inference of direction. See NW Monitoring LLC v. Hollander, 534 F. Supp. 3d 23 1329, 1338 (W.D. Wash. 2021) (information and belief allegations can support 24 misappropriation where additional facts support adequate inferences). Defendants make 25 many factual arguments against the inference of direction by Defendant Rosinski, 26 including contesting whether and when Plaintiff’s former employees came to work for 27 Defendant PCI, whether the employees had motives to misappropriate information on 28 Defendant Rosinski’s behalf, and whether the medical records were obtained solely 1 through the patients themselves. But these factual arguments cannot be resolved on a 2 motion to dismiss where the Court is confined to the pleadings, must accept them as true, 3 and must draw inferences in favor of the non-moving party. 4 c. Defendant PCI. 5 Defendants argue that Defendant PCI is not an appropriate defendant for two 6 reasons: first, because it was not formed until July 13, 2018, after “the vast majority of the 7 affirmative conduct alleged by Plaintiff” and was still “yet-to-be opened” in December of 8 2018, when the alleged acts of misappropriation happened; and second, because the 9 complaint does not allege any affirmative conduct on the part of Defendant PCI, but only 10 by Defendant Rosinski and other third parties. Doc. 18 at 14.6 11 Plaintiff responds that Defendant PCI is liable for the acts of Defendant Rosinski 12 taking place after its formation because he acted not only on his own behalf but on behalf 13 of Defendant PCI, of which he was one of two members. Doc. 20 at 13-14. Plaintiff asserts 14 that Defendant PCI is liable under a vicarious liability theory. Id. 15 “It is well established that traditional vicarious liability rules ordinarily make 16 principals or employers vicariously liable for the acts of their agents or employees in the 17 scope of their authority or employment.” Meyer v. Holley, 537 U.S. 280, 285 (2003). A 18 business entity may be liable for intentional torts committed by an agent or employee, such 19 as misappropriation of trade secrets, even if the business has not authorized the activity, so 20 long as the activity falls within the scope of the agency or employment. Brain Injury Ass’n 21 of Cal. v. Yari, No. CV 19-5912-MWF (JCx), 2020 WL 3643482 , at *6 (C.D. Cal. Apr. 30, 22 2020). Conduct is considered within the scope of employment when it is performed, at 23 least in part, to benefit the employer. Id. at *5 . 24 Plaintiff has plausibly pled misappropriation liability of Defendant PCI. It is 25 undisputed that Defendant PCI came into existence on July 13, 2018. See Docs. 18 at 14, 26 14 ¶ 48, 14-2 at 2 (articles of incorporation). The alleged acts of misappropriation took 27 6 Defendants make these arguments once in their brief, but apply them to each count Plaintiff brings against Defendant PCI. Doc. 18 at 14-15. The Court therefore addresses 28 these arguments separately for each claim brought against Defendant PCI. 1 place in November and December of 2018, months after it was formed. Doc. 14 ¶¶ 56-58.7 2 Plaintiff alleges that Defendant Rosinski directed the acts of misappropriation for the 3 purpose of convincing Plaintiff’s patients to transfer their treatment to Defendant PCI. 4 Doc. 14 ¶¶ 57-58. Plaintiff also alleges that Defendant Rosinski acted on behalf of 5 Defendant PCI. See id. ¶¶ 72, 83 . Plaintiff accordingly has plausibly pled Defendant PCI’s 6 vicarious liability for Defendant Rosinski’s alleged misappropriation. See, e.g., Brain 7 Injury Ass’n of Cal., 2020 WL 3643482 , at *6 (“Because BIACAL has alleged that Yari 8 used information from BIACAL’s Master List at least in part for the benefit of BSC, BSC 9 may be vicariously liable for Yari’s alleged misappropriation.”); Cisco Sys., Inc. v. Chung, — 10 — 462 F. Supp. 3d 1024 , 1057 (N.D. Cal. May 26, 2020) (“Given that Plantronics and Plaintiff 11 operate in the same industry, the court may reasonably infer that Puorro acquired the 12 information purportedly taken by Williams to benefit Plantronics. As a result, plaintiff 13 adequately alleged that Plantronics misappropriated the information purportedly taken by 14 Williams under a theory of vicarious liability.”). 15 2. Under Arizona Law (Count II). 16 Defendants make the same arguments regarding Plaintiff’s claim under the Arizona 17 Uniform Trade Secrets Act (“AUTSA”) – that it fails to allege any acts of misappropriation 18 by Defendants. See Doc. 18 at 7-12. The definition of “misappropriation” under the 19 AUTSA is the same as under the DTSA. See A.R.S. § 44-401(2). For the reasons stated 20 above, Plaintiff has sufficiently stated its claim under the AUTSA against Defendants 21 Rosinski and PCI. SinglePoint Direct Solar LLC v. Curiel, No. CV-21-1076-PHX-JAT, — 22 — 2022 WL 331157 , at *14 (D. Ariz. Feb. 3, 2022). 23 Defendants also argue that Plaintiff’s claim under the AUTSA should be dismissed 24 as a matter of policy. Doc. 18 at 10-12. Defendants argue that Arizona law “fully supports 25 the right of those patients to continue their treatment with their physician of choice,” and — 26 — 7 While paragraph 58 of Plaintiff’s second amended complaint acknowledges that 27 Defendant PCI had “yet-to-be opened,” Defendants cite no authority from which the Court can conclude that an entity that is legally formed but not yet providing services to the public 28 cannot be liable for the actions of its members. 1 that policy is incompatible with treating patient contact information as trade secrets and 2 prohibiting doctors from informing patients they have moved offices. Id. at 11 . 3 This policy argument does not show that Plaintiff’s pleadings are deficient. It rests 4 on Defendants’ characterization of Plaintiff’s misappropriation claim being based solely 5 on Defendant “Rosinski’s phone calls to his own patients” to inform them that he had 6 moved offices. Doc. 18 at 11-12. But as discussed above, Plaintiff supports its 7 misappropriation claim with plausible allegations that Defendants improperly obtained 8 trade secret information concerning patients. Patients remain free to be treated by their 9 physician of choice even when physicians must abide by misappropriation laws. 10 B. Fraudulent Inducement (Count I). 11 Under Arizona law, there are “three distinct classes of fraud: misrepresentation, 12 concealment, and non-disclosure.” Wells Fargo Bank v. Ariz. Laborers, 38 P.3d 12 , 34 13 n.22 (Ariz. 2002). “Liability for fraudulent misrepresentation . . . lies against one who 14 fraudulently makes a misrepresentation of fact for the purpose of inducing another to act 15 or to refrain from action.” Id. (internal quotations and alterations omitted). A claim of 16 fraudulent inducement under Arizona law requires proof of the nine elements of actionable 17 fraud. Meritage Homes Corp. v. Hancock, 522 F. Supp. 2d 1203, 1218 (D. Ariz. July 3, 18 2007) (quoting Lundy v. Airtouch Comm., Inc., 81 F. Supp. 2d 962, 968 (D. Ariz. 1999)).8 19 The nine elements are: (1) a representation; (2) its falsity; (3) its materiality; (4) the 20 speaker’s knowledge of its falsity or ignorance of its truth; (5) the speaker’s intent that it 21 be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer’s 22 ignorance of its falsity; (7) the listener’s reliance on its truth; (8) the right to rely on it; and — 23 — — 24 — 25 8 Fraudulent inducement under Arizona law is a type of fraudulent misrepresentation and is sometimes referred to as “fraudulent misrepresentation in the inducement.” See, 26 e.g., Gerard v. Kiewit Corp., No. 1 CA-CV 19-0479, 2020 WL 3422844 , at *3 (Ariz. Ct. App. June 23, 2020). The elements of fraudulent misrepresentation and fraudulent 27 inducement are the same. Compare Meritage Homes Corp., 522 F. Supp. 2d at 1218 (listing nine elements of “fraudulent inducement”), with Wells Fargo Credit Corp., 803 28 P.2d at 905 (listing nine elements for “fraudulent misrepresentation”). 1 (9) the listener’s consequent and proximate injury. Id. (quoting Wells Fargo Credit Corp. 2 v. Smith, 803 P.2d 900, 905 (Ariz. 1990)).9 3 1. Defendant Rosinski. 4 Defendants argue that Plaintiff’s fraudulent inducement claim involves conduct that 5 occurred after Defendant Rosinski’s employment Agreement was formed. Doc. 19 at 15.10 6 Given this timing, Defendants argue that Plaintiff could not have justifiably relied on 7 Defendants’ conduct in entering into the Agreement. Id. (citing Comerica Bank v. 8 Mahmoodi, 229 P.3d 1031, 1033-34 (Ariz. Ct. App. 2010)). The only allegation that 9 predated the Agreement, Defendants argue, is that Defendant Rosinski misled Plaintiff as 10 to his intentions to open a competing practice, and “intent to open a competing business is 11 not wrongful or improper in any way.” Id. at 15-16. Defendants also argue that Defendant 12 Rosinski’s intent could not have been material to Plaintiff because Plaintiff could have 13 included a non-compete clause in the Agreement, but chose not to do so. Id. at 16. 14 Defendants also argue that Defendant Rosinski’s representations that he intended to work 15 for Plaintiff for the “long term” cannot support its claim because “a claim for fraud cannot 16 be proven merely by unfulfilled promises or expressions concerning future events” unless 17 “supported by evidence that Rosinski intended to deceive Plaintiff at the time that these 18 representations were allegedly made.” Id. (emphasis omitted) (citing McAlister v. 19 Citibank, 829 P.2d 1253 (Ariz. Ct. App. 1992)). Defendants assert that Plaintiff does not 20 make “any allegation of any conduct . . . that would in any way support a claim that 21 Defendants intended to deceive Plaintiff prior to the entry of the Agreement.” Id. 22 Defendants acknowledge that Plaintiff alleges that Defendant Rosinski registered the 23 domain name “phoenixcancer.com” in 2017, prior to the Agreement, but assert that this 24 9 Claims grounded in fraud are subject to a heightened pleading standard requiring a plaintiff to “state with particularity the circumstances constituting fraud.” Fed. R. Civ. 25 P. 9 (b). Defendants do not argue that Plaintiff has not met this standard. The Court notes that Plaintiff does allege throughout its complaint particular statements made by Defendant 26 Rosinski on particular dates giving rise to its fraud claim. See, e.g., Doc. 14 ¶¶ 42-43, 47, 49, 52-53, 63-64. — 27 — 10 Plaintiff’s complaint and exhibits allege that Plaintiff and Defendant Rosinski 28 entered into the Agreement in March 2018. See Docs. 14 ¶ 45, 14-1 at 2-3. Defendant alleges that they entered into the Agreement on March 4, 2018. Doc. 18 at 15. 1 allegation is “simply false” and that registration “did not happen until the end of October 2 of 2018, long after Plaintiff’s reliance had already occurred.” Id. at 18 n.16. 3 Plaintiff responds that, on the basis of Defendant Rosinski’s representations that he 4 wanted to add his practice to Plaintiff’s for the “long term,” it hired him in March 2018 5 and kept him employed, with access to its patients, records, and employees, for ten months 6 and paid him approximately $200,000 during that period. Doc. 20 at 15. Plaintiff argues 7 that it was induced to hire Defendant Rosinski on the basis of these representations, which 8 were material to it, but that it was never Defendant Rosinski’s intention to work with 9 Plaintiff long term, as shown in part by the registration of the phoenixcancer.com domain 10 in December 2017. Id. at 16 . Plaintiff also alleges that, following formation of the 11 Agreement, Defendant Rosinski fraudulently induced it to maintain his employment by 12 continuously making Plaintiff believe in his long-term commitment despite secretly 13 pursuing plans to open Defendant PCI by filing articles of organization, registering for a 14 national provider number, hiring Plaintiff’s employees away, directing those employees to 15 misappropriate patient information, and applying for trademark protection for marks of 16 Defendant PCI. Id. Plaintiff also argues that the absence of a non-compete clause in the 17 Agreement does not mean that Defendant Rosinski’s long term intentions were not material 18 to it because it is not suing for breach of such a clause but rather inducement of employment 19 and continued employment based on Defendant Rosinski’s “deliberately false and 20 misleading” statements of his intentions. Id. at 17 . 21 Defendants respond by reiterating their two “fundamental argument[s]”: that 22 Plaintiff only relies on acts that occurred after Plaintiff hired Defendant Rosinski and 23 Plaintiff may not rely exclusively on unfulfilled promises or expressions concerning future 24 events to prove fraud. Doc. 21 at 11. Defendants assert that the only act that Plaintiffs 25 allege prior to entry of the Agreement is the registration of the phoenixcancer.com domain 26 name, an allegation that Defendants continue to assert is “flatly false.” Id. Defendants 27 attach to their reply brief an exhibit, which appears to be a receipt sent from GoDaddy.com, 28 LLC to Kellie Rosinski, Defendant Rosinski’s wife, memorializing payment of domain 1 registration fees for phoenixcancerinstitute.com and phoenixcancer.com on September 24, 2 2018. See id. at 15 . Defendants argue that this receipt is a source whose accuracy cannot 3 reasonably be questioned, and the domain registration date can be accurately and readily 4 determined from it and therefore the Court must take judicial notice of the document as 5 disproving Plaintiff’s allegation that the domain was registered before the Agreement date. 6 Id. at 2. Defendants argue that, with this date established, Plaintiff has no evidence 7 “establishing any conduct of any sort by Defendants that predate the relevant events in this 8 case.” Id. at 3. 9 The Court declines to take judicial notice of the receipt offered by Defendants. First, 10 Defendants made this request only in their reply brief and thereby deprived Plaintiff of an 11 opportunity to be heard on its propriety. See Fed. R. Civ. P. 201(e); id., note to subdivision 12 (e) (“Basic considerations of procedural fairness demand an opportunity to be heard on the 13 propriety of judicial notice and the tenor of the matter noticed.”); Reynolds v. Hedgpeth, 14 472 Fed. App’x 595, 599 (9th Cir. 2012) (finding abuse of discretion where court failed to 15 give party opportunity to respond to request for judicial notice). Second, the earliest date 16 that Defendants registered the domain phoenixcancer.com does not appear readily 17 determinable from the receipt because it is not clear whether this purchase could have been, 18 for example, a renewal of the domain name or a purchase of it from another person or entity 19 affiliated with Defendant PCI. See Wright & Miller, Federal Prac. & Proc. § 5106.1 (2d 20 ed. 2011) (“If the source can only be used through an intermediary such as an expert 21 witness or an interpreter, the court does not really rely on the source but on the 22 intermediary.”). Moreover, even if the Court were to take judicial notice of the receipt and 23 consider it conclusive as to the date of domain registration, dismissal of Plaintiff’s claim 24 for fraud would not be required because the date of domain registration does not 25 conclusively disprove any element of the claim, but appears merely to be one way that 26 Plaintiff intends to prove that Defendant Rosinski never intended to work for it “long term.” 27 Defendants cite Comerica Bank v. Mahmoodi for their assertion that allegedly 28 inducing behavior must predate conduct in reliance on that behavior. See Docs. 18 at 15, 1 21 at 11. It is true that the Comerica court relied in part on this temporal issue in reversing 2 the trial court’s grant of summary judgment to the plaintiff. See 229 P.3d at 1036 (“It is 3 undisputed that by the time Hadi [submitted the allegedly false representation,] Xeba had 4 already borrowed $7,480,850.12, and Comerica’s decision to lend that amount cannot 5 therefore have been a result of reliance on the [representation.]”). This case does not 6 compel dismissal of Plaintiff’s complaint, however, which pleads multiple instances of 7 allegedly false representations prior to the effective date of the Agreement. The complaint 8 alleges that in 2017 Defendant Rosinski and his wife planned to move to Arizona and 9 establish their own medical practice and that Defendant Rosinski reached out to Plaintiff 10 seeking employment in order to solicit away its employees and patients. Doc. 14 ¶¶ 35-37. 11 Plaintiff also alleges that Defendant Rosinski registered the phoenixcancer.com domain 12 name on December 12, 2017. Id. ¶ 39. Plaintiff alleges that, with these intentions, 13 Defendant nonetheless represented to Plaintiff during a meeting in January 2018 that he 14 wanted to add his practice to Plaintiffs for the “long term” and arranged to have a letter of 15 recommendation sent to Plaintiff that month recommending Defendant Rosinski as a “long 16 term” partner. Id. ¶¶ 42-43. Based on these representations of long term intent, Plaintiff 17 alleges that it agreed to employ Defendant Rosinski under the Agreement. Id. ¶ 44. All of 18 this allegedly happened before the effective date of the Agreement, and Plaintiff 19 specifically incorporated these acts into its pleading of the fraudulent inducement claim. 20 See id. ¶ 74 (referencing paragraphs 35-43 and alleging materiality). This is therefore not 21 a case where no conduct that could have induced reliance took place before the date of 22 reliance. 23 Nor does McAlister v. Citicorp compel a different result. In McAlister, the court 24 affirmed a grant of summary judgment for the defendant where the plaintiff’s testimony 25 established only that “an unknown someone in the bank intended to deceive him.” 829 26 P.2d at 1260. The court stated that “[f]raud can be based upon unfulfilled promises or 27 expressions concerning future events only if statements regarding those events ‘were made 28 with the present intent not to perform.’” Id. This is exactly what Plaintiff’s complaint 1 alleges — that Defendant Rosinski had a plan to open his own practice and, prior to 2 initiating contact with Plaintiff, decided to seek employment with an established facility in 3 order to learn about the market, establish a name presence, identify experienced employees 4 to hire away, and identify patients to persuade to leave the established facility. Doc. 14 5 ¶¶ 35-36. These factual allegations plausibly show that Defendant Rosinski’s assurances 6 to Plaintiff were made with the present intent not to perform.11 7 2. Defendant PCI. 8 Defendants argue that the claim for fraudulent inducement cannot be brought 9 against PCI because the actions on which the claim is based predate its formation on 10 July 13, 2018, and because the complaint does not allege any affirmative action by it. 11 Doc. 18 at 14. 12 Plaintiff does not dispute that Defendant PCI is liable only for actions taken after its 13 formation. See Doc. 20 at 14 (“[Defendant PCI] is liable for the conduct of Dr. Steven 14 Rosinski that occurred after the date of its formation.”), at 17 (“[Defendant PCI] is liable 15 for each payment made . . . to Dr. Steven Rosinski after it was established . . .”). The Court 16 therefore need not decide whether Defendant PCI could plausibly be liable for the alleged 17 torts of its incorporator prior to its creation. To the extent that Plaintiff’s complaint asserts 18 liability of Defendant PCI prior to its formation, it will be dismissed. 19 Plaintiff’s claim against Defendant PCI for Defendant Rosinski’s statements 20 allegedly inducing Plaintiff to continue his employment will not be dismissed. Defendants 21 provide no authority upon which the Court can conclude this is not a viable theory of fraud. 22 And contrary to Defendant’s argument that it cannot be liable for any acts of another, 23 vicarious liability is available if the actor acts within the scope of employment. Baker ex 24 rel. Hall Brake Supply, Inc. v. Stewart Title and Trust of Phoenix, Inc., 5 P.3d 249 , 256 — 25 — — 26 — 11 Defendants do not respond to Plaintiff’s argument that Defendant Rosinski’s 27 representations of his long term commitment after his hiring induced it to keep the Agreement in effect, instead focusing solely on whether Plaintiff was fraudulently induced 28 to enter into the Agreement in the first place. 1 (Ariz. Ct. App. 2000) (vicarious liability of employer available where fraudulent conduct 2 furthered its business). 3 C. Tortious Interference (Count V). 4 Defendants do not contend that Plaintiff has failed to adequately plead the elements 5 of a tortious interference claim, arguing instead that the claim is barred by a two-year 6 statute of limitations. Doc. 18 at 6. They argue that even the latest conduct alleged by 7 Plaintiff took place on March 19, 2019, two years and nine months before Plaintiff filed 8 this lawsuit on December 4, 2021. Id.; see also Doc. 1. Defendants also argue that Plaintiff 9 knew of the conduct more than two years before filing suit because Plaintiff retained an 10 attorney and sent a demand letter to Defendants on February 1, 2019, which made the same 11 allegations as the complaint. Doc. 18 at 6-7. 12 Plaintiff responds that the tortious interference did not occur only at the time when 13 Defendants allegedly misappropriated patient records but continued each time Defendants 14 treated and billed its former patients. Doc. 20 at 8. It is the “repeated treating and billing,” 15 Plaintiff argues, that causes its harm and “comprises the tortious inference alleged[.]” Id. 16 Plaintiff asserts that the doctrine of continued violations should apply. Id. Plaintiff argues 17 that Arizona law disfavors statute of limitations defenses, preferring to resolve cases on 18 their merits, and when an injury is continuing in nature, the applicable statute of limitations 19 begins to run only when the injury ends. Id. at 9. 20 In reply, Defendants argue that application of the continuing violation doctrine is 21 inappropriate because, although Plaintiff may suffer an ongoing injury, once a patient 22 terminated their care with Plaintiff there is no longer any relationship with which 23 Defendants could interfere. Doc. 21 at 5. Because Plaintiff merely suffers ongoing 24 damages as a result of discrete acts, Defendants argue, application of the continuing 25 violations doctrine is not warranted. Id. (citing Nat’l R.R. Passenger Corp. v. Morgan, 536 26 U.S. 101 , 114 (2002)). 27 Claims for tortious interference must be “commenced and prosecuted within two 28 years after the cause of action accrues[.]” A.R.S. § 12-542; Clark v. Airesearch Mfg. Co. 1 of Ariz., Inc., 673 P.2d 984, 987 (Ariz. Ct. App. 1983). “[A] cause of action for tortious 2 interference accrues when the plaintiff knew or reasonably should have known of the 3 intentional interference with the plaintiff’s business expectancy, resulting in its 4 termination; and the plaintiff realized he or she was damaged by that termination.” 5 Vazirani & Assocs. Fin., LLC v. Advisors Excel, LLC, No. 1 CA–CV 12–0449, 2013 WL 6 3009363, at *3 (Ariz. Ct. App. June 13, 2013) (quoting Dube v. Likins, 167 P.3d 93 , 98 7 (Ariz. Ct. App. 2007)). A statute of limitations defense may be raised by a motion to 8 dismiss if the running of the statute is apparent on the face of the complaint. Jablon v. 9 Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). But the complaint cannot be 10 dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts that 11 would establish the timeliness of the claim. Hernandez v. City of El Monte, 138 F.3d 393 , 12 402 (9th Cir. 1998). Because a statute of limitations defense is an affirmative defense, the 13 defendant bears the burden of proof in establishing its applicability. Est. of Page v. 14 Litzenburg, 865 P.2d 128, 135 (Ariz. Ct. App. 1993). 15 Plaintiff’s complaint does appear to allege that Defendants interfered with its 16 relationships with its patients primarily between November 2018 and March 2019. But for 17 statute of limitations purposes, the relevant inquiry is not simply when the interfering 18 conduct took place, but “when Plaintiff knew or should have known that Defendants’ 19 alleged conduct had caused [its patients] to terminate [their] business relationships with 20 Plaintiff.” See Vazirani & Assocs. Fin., LLC, 2013 WL 3009363 , at *3. The statute of 21 limitations on Plaintiff’s claim did not start running until Plaintiff’s patients terminated 22 care with Plaintiff and Plaintiff knew or should have known that Defendants’ interference 23 caused the termination. While the demand letter Defendants argue they received from 24 Plaintiff in February 2019 could bear on this question, the letter itself is not before the 25 Court. “And ‘[w]hen discovery occurs and a cause of action accrues are usually and 26 necessarily questions of fact for the jury.’” Dube, 167 P.3d at 99 (quoting Doe v. Roe, 955 27 P.2d 951 , 961 (Ariz. 1998)). The Court will not dismiss the claim at this juncture. — 28 — 1 The Court cannot, however, accept Plaintiff’s argument that tortious interference is 2 a continuing tort that persists as long as Defendants continue to treat its former patients. 3 An element of a claim for tortious interference with business relationships is that the 4 relationship was breached or terminated. Id. at 98 . Plaintiff alleges that its relationship 5 with the patients in fact ended. Doc. 14 ¶ 68 (alleging that Defendants “successfully 6 solicited” at least 41 of Plaintiff’s patients to “transfer their oncology care”). These facts 7 do not support a continuing violation theory. See, e.g., McManus v. Am. Exp. Tax & Bus. 8 Servs., Inc., 67 F. Supp. 2d 1083, 1089 (D. Ariz. Sept. 8, 1999) (considering claim for 9 tortious interference and holding “no continuing tort arises from these facts”); see also 10 McNair v. Maxwell & Morgan PC, 142 F. Supp. 2d 859, 867 (D. Ariz. Nov. 4, 2015) 11 (observing that “discrete acts such as termination . . . do not implicate the continuing12 violation doctrine”) (internal alterations and quotations omitted). To the extent that 13 Plaintiff’s complaint alleges tortious interference by Defendants after its patients 14 transferred their care, it will be dismissed. Defendants can reassert their statute of 15 limitations argument on a more complete record at the summary judgment stage of this 16 case. 17 1. Defendant PCI. 18 As with the other counts against Defendant PCI, Defendants argue that PCI is not a 19 proper defendant because, first, it was not formed until July 13, 2018, and was “yet-to-be 20 opened” in December 2018, and second, the complaint alleges affirmative conduct only by 21 Defendant Rosinski and third parties, not by PCI. Doc. 18 at 14. 22 Defendant PCI is appropriately named as a defendant for Plaintiff’s tortious 23 interference claim. The allegedly interfering conduct underlying the claim took place after 24 PCI was legally formed, and entities can be vicariously liable for the tortious acts of their 25 employees or officers. Meyer, 537 U.S. at 285 ; Carey v. Maricopa Cnty., No. cv-05-250026 PHX-ROS, 2009 WL 750225 , at *10-11 (D. Ariz. Mar. 10, 2009) (holding that plaintiff 27 raised genuine issue of material fact as to vicarious liability of entity for tortious — 28 — 1 interference). As discussed in more detail above, Plaintiff has adequately pled that 2 Defendant Rosinski was acting on behalf of Defendant PCI. 3 D. Breach of Contract (Count IV). 4 Under Arizona law, a claim for breach of contract has three elements: (1) the 5 existence of a contract between the plaintiff and defendant; (2) breach of the contract by 6 defendant; and (3) resulting damage to the plaintiff. Frank Lloyd Wright Found. V. 7 Kroeter, 697 F. Supp. 2d 1118, 1125 (D. Ariz. Mar. 15, 2010). 8 Defendant Rosinski does not argue that Plaintiff has not shown the existence of a 9 contract or damages, and instead focuses only on whether Plaintiff has shown breach. See 10 Doc. 18 at 12-14. Defendant Rosinski argues that because the Agreement did not contain 11 a non-compete or non-solicitation clause, his actions in establishing a competing business 12 and allegedly soliciting employees and patients could not have breached the Agreement. 13 Id. at 12. Defendant Rosinski also argues that the confidentiality clause of the Agreement 14 is “grammatically nonsensical” and does not support a breach of contract claim because it 15 only required him to “abide[] by the applicable privacy laws, rules and regulations, during 16 the time he was working for Plaintiff” and that Plaintiff has not alleged any such failures. 17 Id. at 12-13.12 Defendant Rosinski again emphasizes that Plaintiff does not allege that he 18 personally took medical records, only that third parties did. Id. at 13. Defendant argues 19 that Plaintiff only describes one federal privacy law, HIPAA, in its complaint and that his 20 actions in calling his patients to inform them that he was leaving Plaintiff’s employ did not 21 violate HIPPA. Id. — 22 — 23 12 The complaint alleges breach of the confidentiality clause of the Agreement, which states as follows: — 24 — While providing services to Employer, physician shall abide 25 by all state and federal privacy laws, rules and regulation confidential information regarding the records of Employer, 26 patients, plans, or any other aspect of Employer which it considers to be confidential or secret including compensation 27 rates. 28 Docs. 14 ¶ 90, 14-1 at 2-3. 1 Plaintiff responds that Defendant Rosinski’s reliance on the absence of a non2 compete clause is irrelevant because the breach of contract it alleges is that he, with the 3 help of co-conspirators, “unlawfully spirit[ed] away . . . confidential patient files” in 4 violation of the confidentiality clause of the Agreement. Doc. 20 at 11. “By taking records 5 protected by HIPAA and other medical and financial records that [it] maintained as 6 confidential,” Plaintiff argues, Defendant Rosinski breached the confidentiality clause. Id. 7 In reply, Defendant Rosinski argues that because Plaintiff’s misappropriation claims 8 address his alleged misappropriation of patient records, it cannot also allege that conduct 9 as a breach of the confidentiality clause. Doc. 21 at 7. Defendant reasserts his prior 10 argument that Plaintiff asserted no act of misappropriation by Defendant himself, only by 11 third parties. Id. at 8. Defendant also argues that “Plaintiff completely ignores the fact that 12 the confidentiality clause terminates with the termination of employment” and bases its 13 contract claims on conduct that took place after he left Plaintiff’s employment. Id. 14 Plaintiff has plausibly pled a breach of contract by Defendant Rosinski. Plaintiff’s 15 complaint alleges that the Agreement was in effect between it and Defendant Rosinski. 16 Doc. 14 ¶ 89. Plaintiff alleges that the confidentiality clause was part of the Agreement 17 and that patient records fell within its scope and were protected by HIPAA. Id. ¶¶ 90-92. 18 Plaintiff also alleges that, by misappropriating the patient records, Defendant Rosinski 19 breached the confidentiality clause of the Agreement. Id. ¶ 93. Finally, Plaintiff alleges 20 damages. Id. ¶ 94. 21 Defendant Rosinski’s argument that Plaintiff cannot assert a breach of contract on 22 these facts absent a non-compete or non-solicitation clause misunderstands the conduct 23 Plaintiff alleges breached the Agreement. Plaintiff does not allege in Count IV that 24 Defendant Rosinski’s opening of his own practice or solicitation of its employees and 25 patients itself breached the terms of the contract. Rather, Plaintiff argues that Defendant 26 Rosinski breached the confidentiality clause by improperly obtaining and misappropriating 27 patient records. To the extent that the confidentiality clause only prohibits failing to abide 28 by state and federal privacy laws, Plaintiff alleges that the patient records were protected 1 by HIPAA and that Defendants’ use of the records violated the DTSA and AUTSA. 2 Defendant makes no effort to explain why actions that allegedly violate these federal and 3 state laws would not constitute a breach of the confidentiality clause. Additionally, to the 4 extent that Defendant repeats his unsupported position that he cannot possibly be liable for 5 the acts of third parties which Plaintiff plausibly alleges were done at his direction, the 6 Court again rejects it. 7 The Court is not persuaded by Defendants’ argument that Plaintiff has not stated a 8 breach of contract because the confidentiality clause only applied while he was employed 9 by Plaintiff. The acts of misappropriation that form the basis of the claim all appear to 10 have happened before Defendant left Plaintiff’s employ. Plaintiff alleges that its former 11 employees improperly obtained patient records at Defendant’s direction in November and 12 December of 2018. Doc. 14 ¶¶ 56-58. Defendant did not give his notice of termination of 13 the Agreement until January 4, 2019, and his last day providing services under the 14 Agreement was January 18, 2019. Id. ¶¶ 61, 69. 15 The Court also rejects Defendants’ argument that acts of misappropriation cannot 16 also support a breach of contract claim. It is not clear to the Court, and Defendant cites 17 nothing to explain, why a plaintiff could assert only one cause of action when a defendant’s 18 conduct is prohibited by both a contract and independent statutory law. Indeed, claims for 19 misappropriation and breach of contract based on the same facts are routinely asserted. 20 See, e.g., Modular Mining Sys., Inc. v. Jigsaw Tech., Inc., 212 P.3d 853, 860-61 (Ariz. Ct. 21 App. 2009 ) (affirming fee award based on “interwoven” claims for breach of a 22 confidentiality clause of an employment agreement and misappropriation of trade secrets 23 and observing that “these claims were based on the same set of facts”); EMP Forwarding 24 LLC v. Prieto, No. 1 CA-CV 19-0392, 2020 WL 1684024 , at *5 (Ariz. Ct. App. Apr. 7, 25 2020) (similar); Firetrace USA, LLC v. Jesclard, 800 F. Supp. 2d 1042, 1054 (D. Ariz. 26 July 30, 2010) (recounting bench trial where the defendant was found liable for 27 misappropriation of trade secrets and breach of a confidentiality agreement based on the 28 same facts). 1 Moreover, Defendant’s repeated assertion that the confidentiality clause is 2 “grammatically nonsensical” does not support its motion to dismiss. Contractual language 3 that is susceptible to more than one interpretation is ambiguous, and giving effect to the 4 intention of the parties in that context may require consideration of extrinsic evidence and 5 fact finding. See In re Est. of Lamparella, 109 P.3d 959, 963 (Ariz. Ct. App. 2005). This 6 type of fact finding is inappropriate on a motion to dismiss. Because the Court has already 7 found that Plaintiff has plausibly pled a claim for breach of contract, however, it makes no 8 findings regarding the ambiguity of the confidentiality clause of the Agreement at this stage 9 of the litigation. 10 E. Breach of the Duty of Good Faith and Fair Dealing (Count VI). 11 Defendant Rosinski argues that Plaintiff cannot bring a claim for breach of the 12 implied covenant of good faith and fair dealing because “[s]uch a claim depends entirely 13 upon a breach of the underlying contract, and . . . there was no breach of contract.” Doc. 18 14 at 14. 15 Plaintiff responds that the implied covenant arises by virtue of a contractual 16 relationship and that the implied covenant can be breached even in the absence of a breach 17 of an express provision of the contract if a party is denied the reasonably expected benefits 18 of the agreement. Doc. 20 at 12 (citing IOW, LLC v. Breus, 425 F. Supp. 3d 1175 , 118719 88 (D. Ariz. 2019). Plaintiff alleges that the implied covenant imposed on Defendant 20 Rosinski a duty to exert his best efforts for the services described in the Agreements for 21 the benefit of Plaintiff, to act honestly in all dealings with Plaintiff in all matters material 22 to the Agreement, and to not engage in any conduct that would harm the financial or 23 reputational interests of Plaintiff. Id. at 11-12 . Plaintiff also alleges Defendant Rosinski 24 breached the implied covenant by failing to exert his best efforts on its behalf and instead 25 opening a competing facility and by misleading Plaintiff as to his intentions to do so and 26 to poach its employees and patients. Id. at 12 . 27 In reply, Defendant argues that the duties Plaintiff alleges are imposed on it by the 28 implied covenant of good faith and fair dealing are “pure fancy, with no basis of any sort 1 in any law.” Doc. 21 at 8. Defendant asserts that “Plaintiff is not permitted to define for 2 itself whatever it believes should have been included under any implied covenant” and that 3 the duties it asserts are “naked legal conclusions that cannot be relied upon in addressing” 4 its motion to dismiss. Id. In order to demonstrate a breach, Defendant argues, Plaintiff 5 would have to demonstrate that he did not actually perform the work required by the 6 Agreement, but that Plaintiff alleges no improper treatment of patients by Defendant. Id. 7 at 9. Defendant also argues that his alleged misleading of Plaintiff is addressed by other 8 claims and therefore should not be the subject of contract claims. Id. 9 It is “firmly established” that in Arizona “[t]he law implies a covenant of good faith 10 and fair dealing in every contract.” Rawlings v. Apodaca, 726 P.2d 565, 569-70 (Ariz. 11 1986). “Such implied terms are as much a part of a contract as are the express terms.” 12 Wells Fargo Bank, 38 P.3d at 28 . “The duty arises by operation of law but exists by virtue 13 of a contractual relationship.” Id. The implied covenant is breached when a party denies 14 the other party the “reasonably expected benefits of the agreement.” Nolan v. Starlight 15 Pines Homeowner’s Ass’n, 167 P.3d 1277, 1284 (Ariz. Ct. App. 2007); see also Rawlings, — 16 — 726 P.2d at 569 (“The essence of that duty is that neither party will act to impair the right 17 of the other to receive the benefits which flow from their agreement or contractual 18 relationship.”); Mastro Grp. LLC v. Am. Rest. Enters., Inc., Nos. 1 CA-CV 06-0456, 1 CA19 CV 06-0717, 2008 WL 4017948 , at *5 (Ariz. Ct. App. Mar. 6, 2008) (“The implied 20 covenant prevents a party to a contract from doing ‘anything that will injure the rights or 21 interests’ of the other party.”) (quoting Diagnostic Lab., Inc. v. PBL Consultants, 666 P.2d 22 515, 519 (Ariz. Ct. App. 1983)). 23 Defendant’s assertion that a claim for breach of the implied covenant “depends 24 entirely upon a breach of the underlying contract” is mistaken. See Doc. 18 at 14. “A party 25 may breach the implied covenant even in the absence of a breach of an express provision 26 of the contract by denying the other party the reasonably expected benefits of the 27 agreement.” Nolan, 167 P.3d at 1284 ; see also Wells Fargo Bank, 38 P.3d at 29 (“The 28 duty of good faith extends beyond the written words of the contract. . . . [A] party may 1 nevertheless breach its duty of good faith without actually breaching an express covenant 2 in the contract.”). 3 Whether Defendant Rosinski breached the implied covenant depends on what 4 Plaintiff’s “justified expectations” and “reasonably expected benefits” of the Agreement 5 were. Mastro Grp., LLC, 2008 WL 4017948 , at *5; Elec. Payment Providers, Inc. v. 6 Kennedy, No. 1 CA-CV 20-0382, 2021 WL 6087642 , at *7 (Ariz. Ct. App. Dec. 23, 2021). 7 Plaintiff has pled specific duties it considers to have been reasonably expected under the 8 Agreement, including that Defendant Rosinski would exert his best efforts for its benefit, 9 act honestly in dealings with it, and not engage in conduct that would harm its financial or 10 reputational interests. Doc. 14 ¶ 100. Contrary to Defendant’s assertion that Plaintiff 11 created these duties “out of whole cloth,” duties of loyalty and honesty have been implied 12 in similar circumstances. See, e.g., Orca Commc’ns Unlimited LLC v. Noder, 314 P.3d 89 , 13 97 (Ariz. Ct. App. 2013) (finding plausible claim for breach of covenant of good faith and 14 fair dealing on basis of duty of loyalty where employee opened a competing business and 15 solicited co-workers to join it while working for employer); Diagnostic Lab., Inc., 666 P.2d 16 at 519 (“Subterfuges and evasions violate the obligation of good faith in performance even 17 if the actor believes his conduct to be justified.”) (citing Restatement of Contracts 2d, 18 § 205, comment (d)). Whether these duties are implied here “is a question of fact for the 19 jury.” Elec. Payment Providers, Inc., 2021 WL 6087642 , at *7. 20 Finally, the Court rejects Defendant’s argument that because some of Plaintiff’s 21 other claims also rest on his allegedly misleading actions, Plaintiff cannot assert another 22 claim on the same factual basis. See Doc. 21 at 9. This is simply an incorrect assertion of 23 pleading requirements. Plaintiff has plausibly pled a claim for breach of the implied 24 covenant of good faith and fair dealing against Defendant Rosinski. 25 / / / 26 / / / 27 / / / 28 / / / 1 IT IS ORDERED that Defendants’ motion to dismiss (Doc. 18) is granted insofar 2|| as Plaintiff's complaint asserts Count I against Defendant PCI for actions taken prior to its || formation and Count V against Defendants for actions taken after the relevant business 4|| relationships were terminated. In all other respects the motion is denied. 5 Dated this 16th day of May, 2022. — 6 — D ail 6 an Came 9 David G. Campbell 10 Senior United States District Judge — 11 — — 12 — — 13 — — 14 — — 15 — — 16 — — 17 — — 18 — — 19 — — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 — — 28 — -29 -