Stonyfield Farm v. Agro-Farma CV-08-488-JL 10/7/09 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE
Stonyfield Farm, Inc. Plaintiff and Counterclaim-Defendant
v. Civil N o . 08-cv-488-JL Opinion N o . 2009 DNH 150 Agro-Farma, Inc. Defendant and Counterclaim-Plaintiff
Schreiber Foods, Inc. Counterclaim-Defendant
OPINION AND ORDER
This case involves a dispute among yogurt manufacturers over
a relationship gone sour. The plaintiff, Stonyfield Farm, Inc.,
alleges that the defendant, Agro-Farma, Inc., which had been
manufacturing Greek yogurt for Stonyfield for more than a year,
delivered defective goods in violation of its warranties and then
intentionally terminated the relationship in violation of its
contractual obligations and consumer protection laws. Agro-
Farma, which blames Stonyfield for the breakdown of the
relationship, has brought various counterclaims against
Stonyfield and its current Greek yogurt manufacturer, Schreiber
Foods, Inc., alleging that they have been misappropriating Agro-
Farma’s trade secrets and other confidential information. Stonyfield and Schreiber have now moved, under Rule 12(c) of
the Federal Rules of Civil Procedure, for judgment on the
pleadings with respect to four of Agro-Farma’s counterclaims,1
which they contend are pre-empted by New Hampshire’s version of
the Uniform Trade Secret Act (“UTSA”). See N.H. Rev. Stat. §
350-B:7. Both sides agree that if New Hampshire law applies, it
pre-empts all four counterclaims. They disagree, however, about
the proper choice of law. Agro-Farma argues that New York law
applies and provides no basis for pre-emption because New York
has not adopted the UTSA.
This court has subject-matter jurisdiction under 28 U.S.C.
§ 1332(a)(1) (diversity). After holding oral argument, the court
grants the motion. Under both a contractual choice-of-law
provision and general choice-of-law principles, New Hampshire law
governs Agro-Farma’s counterclaims and pre-empts the ones
targeted in Stonyfield and Schreiber’s motion.
I. Applicable legal standard
A motion for judgment on the pleadings under Rule 12(c) is
evaluated under essentially the same standard as a Rule 12(b)(6)
1 The specific counterclaims at issue are Counts 4 (misappropriation of ideas), 5 (unfair competition), 6 (unjust enrichment), and 7 (constructive trust).
2 motion for failure to state a claim. Perez-Acevedo v . Rivero-
Cubano, 520 F.3d 2 6 , 29 (1st Cir. 2008); Pasdon v . City of
Peabody, 417 F.3d 225, 226 (1st Cir. 2005). To survive such a
motion, the party bringing the claims (here, Agro-Farma) must
make “factual allegations that ‘raise a right to relief above the
speculative level, on the assumption that all the allegations in
the complaint are true.’” Simmons v . Galvin, 575 F.3d 2 4 , 30
(1st Cir. 2009) (quoting Perez-Acevedo, 520 F.3d at 29 (quoting
Bell Atl. Corp. v . Twombly, 550 U.S. 5 4 4 , 555 (2007))). Because
a Rule 12(c) motion “calls for an assessment of the merits of the
case at an embryonic stage,” the facts must be construed in the
light most favorable to Agro-Farma, drawing all reasonable
inferences in its favor. Perez-Acevedo, 520 F.3d at 2 9 . The
court is not, however, confined to the complaint; it may consider
“the pleadings as a whole,” including “documents the authenticity
of which are not disputed by the parties; . . . documents central
to the plaintiff’s claim; [and] documents sufficiently referred
to in the complaint.” Curran v . Cousins, 509 F.3d 3 6 , 43-44 &
n.5 (1st Cir. 2007) (quotation omitted). With the facts so
construed, questions of law are ripe for resolution at the
pleadings stage. Simmons, 575 F.3d at 3 0 . The following
statement of facts conforms to those requirements.
3 II. Background
Two yogurt manufacturers, Stonyfield and Agro-Farma, entered
into a co-packing relationship in 2006, under which Agro-Farma
(located in New York) began to produce non-fat yogurt for
Stonyfield (located in New Hampshire) to market under
Stonyfield’s brand name. At the outset, both parties signed a
Confidentiality and Nondisclosure Agreement (“NDA”), prepared by
Stonyfield without input from Agro-Farma, that “set forth the
terms and conditions that apply when one party discloses
Confidential Information[2] to the other to ensure the protection
of such information.” NDA, Recital 3 . The NDA contained a
choice-of-law provision, which stated in full: “This Agreement
shall be construed in accordance with, and governed by, the laws
of the State of New Hampshire, without application of its choice
of law provisions.” Id. at § 9.1.
Shortly into the relationship, Stonyfield and Agro-Farma
began discussing the possibility of developing another type of
2 The NDA defines the term “Confidential Information” broadly to mean “the data, know-how, trade secrets, patents, engineering specifications, material formulations, product concepts, formulae, recipes, ingredients, devices, techniques, financial or budgetary information, costs, customer and supplier lists, marketing and sales information, and other information related to the business activities of the Disclosing Party, regardless of any restrictive markings, and which the Receiving Party learns or receives from the Disclosing Party.” NDA at § 1.1.
4 yogurt -- organic Greek yogurt -- also to be manufactured by
Agro-Farma in New York and marketed by Stonyfield. Unlike most
other types of yogurt sold in this country, Greek yogurt is
strained to remove the whey, resulting in a creamier product,
richer in protein and lower in lactose. Stonyfield had never
before produced or marketed Greek yogurt and did not have the
knowledge and expertise necessary to do s o . Agro-Farma, however,
did have such knowledge and expertise.
As these discussions continued, Stonyfield requested that
Agro-Farma share confidential information about the production
processes, equipment, and ingredients it would use to produce the
new Greek yogurt, including the names of specific yogurt
cultures. Agro-Farma agreed to do so on a confidential basis,
pursuant to the NDA and other oral assurances from Stonyfield.
During the next year-and-a-half, representatives from Stonyfield
made more than one hundred trips to Agro-Farma’s facility in New
York to observe yogurt production. A few business meetings were
also held in New Hampshire.
Agro-Farma began production of the new Greek yogurt, called
“Oikos,” in May 2007, about a year after the discussions began.
From time to time, Stonyfield sent purchase orders to Agro-Farma
for additional quantities of Oikos, which Agro-Farma produced and
delivered to Stonyfield in New York on the dates requested.
5 Agro-Farma then submitted invoices for the delivered product, and
Stonyfield regularly paid them. Other than the NDA mentioned
above, the parties never executed a written agreement concerning
the long-term production of Oikos.3 Stonyfield, though,
repeatedly told Agro-Farma that it intended a long-term endeavor
and announced in a press release that the two companies had
“partnered” together to create a new Greek yogurt.
The relationship between Stonyfield and Agro-Farma fell
apart in the latter half of 2008, in part because of a dispute
over pricing. Stonyfield also claimed that the pH levels on
substantial quantities of Oikos were too low, requiring
destruction of the product, and therefore refused to pay Agro-
Farma the outstanding balance due. Agro-Farma denied that the
yogurt was defective. As a result of these disagreements, Agro-
Farma stopped producing Oikos for Stonyfield in November 2008.
Stonyfield filed this suit against Agro-Farma in this court about
a week later, alleging breach of warranty, breach of contract,
and unfair competition under the New Hampshire consumer
protection laws.
3 The parties did reach a long-term agreement in July 2006 regarding the production of the original low-fat yogurt, which also contained a New Hampshire choice-of-law provision.
6 Stonyfield then resumed production of Oikos in January 2009
with Schreiber, a Wisconsin-based manufacturer that, according to
Agro-Farma, had never before manufactured Greek yogurt.
Stonyfield and Schreiber began discussing such an arrangement as
early as March 2008, even before the relationship between
Stonyfield and Agro-Farma deteriorated. Agro-Farma alleges that,
in order to resume production so quickly, Stonyfield must have
shared with Schreiber confidential information that it learned
from Agro-Farma about how to produce Oikos. Now that Oikos is
back on the market, it competes directly with Agro-Farma’s own
brand of Greek yogurt, called “Chobani.” Some stores have
refused to sell Chobani because they already carry Oikos.
Facing this federal suit in New Hampshire, Agro-Farma filed
its own parallel suit against Stonyfield and Schreiber in New
York state court, which Stonyfield removed to federal court in
the Northern District of New York.4 Agro-Farma then voluntarily
dismissed the New York suit and instead brought its claims in
this court as counterclaims against Stonyfield and Schreiber,
which consented to joinder as a counterclaim defendant under
Federal Rules of Civil Procedure 13(h), 1 9 , and 2 0 .
4 See Agro-Farma, Inc. v . Stonyfield Farm, Inc., et a l . , N o . 09-cv-00315-TJM-DEP (N.D.N.Y. 2009).
7 Specifically, Agro-Farma has brought the following eleven
counterclaims: (1) breach of contract against Stonyfield for
violating the NDA; (2) trade secret misappropriation against
Stonyfield; (3) trade secret misappropriation against Schreiber;
(4) misappropriation of ideas against Stonyfield; (5) unfair
competition against Stonyfield for willfully misusing Agro-
Farma’s confidential information; (6) unjust enrichment against
Stonyfield and Schreiber for profiting off Oikos through the use
of Agro-Farma’s confidential information; (7) constructive trust
against Stonyfield and Schreiber for all profits obtained from
Oikos; (8) permanent injunction against Stonyfield and Schreiber
to stop their use of Agro-Farma’s confidential information; (9)
cost of goods sold and delivered against Stonyfield; (10) account
stated against Stonyfield; and (11) a UCC claim for recovery of
the price of goods against Stonyfield. Stonyfield and Schreiber
have moved for judgment on the pleadings with respect to four
tort claims: counterclaims 4 through 7 .
III. Analysis
The only disputed issue raised by this motion is which
state’s law applies to Agro-Farma’s counterclaims: New Hampshire
or New York. Stonyfield and Schreiber argue that New Hampshire
law governs because of the choice-of-law provision in the NDA o r ,
8 alternatively, under general choice-of-law principles. If s o ,
both sides agree that New Hampshire’s version of the UTSA pre-
empts the four counterclaims at issue. See N.H. Rev. Stat. §
350-B:7. Agro-Farma argues, however, that New York law governs
and provides no basis for pre-emption because New York has not
adopted the UTSA. As explained below, the court agrees with
Stonyfield and Schreiber that New Hampshire law applies under
both the NDA’s choice-of-law provision and general choice-of-law
principles, each of which will be addressed in turn.
A. Contractual choice-of-law
First, Stonyfield and Schreiber argue that New Hampshire law
governs Agro-Farma’s counterclaims because of the choice-of-law
provision in the NDA, which states: “This Agreement shall be
construed in accordance with, and governed by, the laws of the
State of New Hampshire, without application of its choice of law
provisions.” NDA at § 9.1. Agro-Farma argues that this
provision applies, at most, to contract claims arising from the
NDA and is inapplicable to the four tort claims targeted in
Stonyfield and Schreiber’s motion. Because this court’s
jurisdiction is based on diversity, the relevant question is
“what a [New Hampshire] state court would do with the choice of
law provision.” New Eng. Surfaces v . E.I. du Pont de Nemours &
9 Co., 546 F.3d 1 , 9 (1st Cir. 2008) (citing Klaxon C o . v . Stentor
Elec. Mfg. Co., 313 U.S. 4 8 7 , 496 (1941)).
It is well established under New Hampshire law that “[w]here
parties to a contract select the law of a particular jurisdiction
to govern their affairs, that choice will be honored if the
contract bears any significant relationship to that
jurisdiction.” Hobin v . Coldwell Banker Residential Affils.,
Inc., 144 N.H. 626, 628 (2000) (quoting Ky. Fried Chicken Corp.
v . Collectramatic, Inc., 130 N.H. 6 8 0 , 684 (1988)). In this
case, the NDA certainly bears a significant relationship to New
Hampshire, where Stonyfield is located and where the parties held
at least some business meetings. See, e.g., Allied Adjustment
Svc. v . Heney, 125 N.H. 6 9 8 , 700 (1984) (holding that a state
bore a significant relationship “as the State of incorporation
and the place of business of [one of the parties]”). Thus, the
NDA’s choice-of-law provision is enforceable as written. The
more difficult question, though, is whether it extends to Agro-
Farma’s tort claims.
New Hampshire law provides no clear answer. Both the New
Hampshire Supreme Court and the First Circuit Court of Appeals
have applied contractual choice-of-law provisions to tort claims.
See Hobin, 144 N.H. at 628-33 (misrepresentation claim and good-
faith and fair dealing claim); N e . Data Sys., Inc. v . McDonnell
10 Douglas Computer Sys. Co., 986 F.2d 6 0 7 , 609-10 (1st Cir. 1993)
(unfair trade practices claim). In both cases, however, the
provisions were slightly broader than the NDA provision at issue
here. See Hobin, 144 N.H. at 628 (involving a provision that
purported “to govern the agreement and [the parties’] ‘legal
relationships’”); N e . Data Sys., 986 F.2d at 609 (involving a
provision that purported to govern “[t]his Agreement and the
rights and obligations of the parties hereto”). Here, the
provision addresses how the NDA should be “construed” and
“governed,” but contains no reference to the parties’ broader
“legal relationships” or “rights and obligations.”
The court of appeals seemed not to ascribe much significance
to this distinction, calling the two types of provisions
“similar” and even citing a case that involved the narrower type
of provision -- virtually identical to the one in this case -- to
support its application of the broader type to a tort claim. Ne.
Data Sys., 986 F.2d at 610 (citing Scheck v . Burger King Corp.,
756 F. Supp. 543, 545-46 (S.D. Fla. 1991)). Other courts,
though, have tended to view the distinction as significant and
have been less willing to apply the narrower type of provision to
tort claims. See, e.g., Krock v . Lipsay, 97 F.3d 6 4 0 , 645 (2d
Cir. 1996); Black Box Corp. v . Markham, 127 Fed. Appx. 2 2 , 25-26
(3d Cir. 2005); Benchmark Elecs., Inc. v . J.M. Huber Corp., 343
11 F.3d 719, 726 (5th Cir. 2003); Green Leaf Nursery v . E.I. DuPont
de Nemours & Co., 341 F.3d 1292, 1300-01 (11th Cir. 2003); but
see Nedlloyd Lines B.V. v . Super. Ct., 834 P.2d 1148, 1153-54
(Cal. 1992) (holding that even the narrower provisions generally
will apply to both contract and tort claims).
After surveying the case law, the Seventh Circuit Court of
Appeals has cautioned against giving it too doctrinaire or
mechanical an interpretation:
One can, it is true, find cases that say contractual choice of law provisions govern only contractual disputes and not torts. But what the cases actually hold is that such a provision will not be construed to govern torts as well as contract disputes unless it is clear that this is what the parties intended. When it is clear, the provision is enforced.
Kuehn v . Childrens Hosp., 119 F.3d 1296, 1302 (7th Cir. 1997)
(Posner, C . J . ) . This reading is confirmed by a leading treatise,
which explains that “most American courts tend to view it as a
matter of contractual intent, which in turn depends largely, but
not exclusively, on the phrasing of the choice-of-law clause.”
E . Scoles & P. Hay et a l . , Conflict of Laws 811 (4th ed. 2004)
(emphasis in original).
In addition to the language of the provision, the other
factor that attracts a great deal of attention in these cases is
the nature of the particular tort claims at issue -- and the
12 extent, if any, to which they hinge upon the contract. For
example, in Northeast Data Systems, where the court of appeals
applied a choice-of-law provision to an unfair trade practices
claim, it emphasized that the claim was essentially an
“embroidered” contract claim, with an added allegation of “bad
motive,” and that it “would undermine the parties’ choice of law
agreement” to “permit[] one of them, through artful pleading, to
bring what is little more than a breach of contract claim, under
law that both parties have agreed would not apply.” 986 F.2d at
609-10.5 Conversely, the court of appeals refused to apply the
choice-of-law provision to a fraud claim, because that claim
“concerne[d] the validity of the formation of the contract” and
thus could not be viewed as contract-dependent. Id. at 611; but
see Hobin, 144 N.H. at 632 (applying choice-of-law provision to a
misrepresentation claim).
5 The court of appeals has expressed similar sentiments with respect to forum selection clauses. See Lambert v . Kysar, 983 F.2d 1110, 1121-22 (1st Cir. 1993) (concluding that “[t]he better general rule . . . is that contract-related tort claims involving the same operative facts as a parallel claim for breach of contract should be heard in the forum selected by the contracting parties,” so as not to “reward attempts to evade enforcement of forum selection agreements through artful pleading of tort claims in the context of a contract dispute”) (quotation omitted). Courts have found Lambert’s reasoning to be equally valid in the choice-of-law context. See McAdams v . Mass. Mut. Life Ins. Co., N o . 99-30284, 2002 WL 1067449, at *12 (D. Mass. 2002).
13 Here, the contract in question, which is a non-disclosure
agreement, involves precisely the same subject matter as Agro-
Farma’s tort claims, all of which are based on the alleged
disclosure and misuse of confidential information covered by the
NDA. In fact, at oral argument, Agro-Farma could not identify
any allegedly tortious conduct that would not also constitute a
violation of the NDA. Agro-Farma protests that the tort claims
could have been brought even if the NDA did not exist. But the
fact of the matter is that the NDA does exist and purports to
“set forth the terms and conditions that apply when one party
discloses Confidential Information to the other to ensure the
protection of such information.” NDA, Recital 3 . While the NDA
might not be Agro-Farma’s only theoretical path to recovery for
the alleged misappropriation of its confidential information, it
is by far the simplest and most promising path. See, e.g.,
Sylmark Holdings Ltd. v . Silicone Zone Int’l Ltd., 783 N.Y.S.2d
758, 770-71 (N.Y. Sup. C t . 2004) (holding under New York law --
which Agro-Farma seeks to apply -- that to prove trade secret
misappropriation the plaintiff “must show (1) that it possesses a
trade secret, and (2) that defendant is using that trade secret
in breach of an agreement, confidence, or duty, or as a result of
discovery by improper means”) (emphasis added); Oasis Music, Inc.
v . 900 U.S.A., Inc., 614 N.Y.S.2d 8 7 8 , 881 (N.Y. Sup. C t . 1994)
14 (holding under New York law that to prove misappropriation of
ideas the plaintiff must show “[f]irst a requisite legal
relationship . . . between the parties,” either “based on an
express contract, an implied-in-fact contract, or a quasi-
contract,” and “second, the idea must be novel and concrete”)
(emphasis added). Proving an intentional breach of the NDA would
get Agro-Farma most of the way, if not all the way, to recovery
under its various tort claims. Thus, from a practical
perspective, Agro-Farma’s tort claims can fairly be described as
“embroidered” contract claims, requiring “little more than a
breach of contract” plus a “bad motive.” N e . Data Sys., 986 F.2d
at 609-10.
While perhaps not every choice-of-law provision in a non-
disclosure agreement will encompass tort claims relating to the
misappropriation of confidential information, the language of
this particular NDA strongly suggests that the parties intended
for New Hampshire law to govern such claims, at least as pled by
Agro-Farma in this case. The NDA expressly provides that “the
mutual objective of the parties hereto is to provide appropriate
protection for Confidential Information . . . that the parties
may learn or receive from each other in the course of their
dealings and/or business relationship.” NDA, Recital 1 .
Similarly, the NDA provides that “the parties wish to enter this
15 Agreement to set forth the terms and conditions that apply when
one party discloses Confidential Information to the other to
ensure the protection of such information.” Id. at Recital 3 .
Together with the choice-of-law provision, this language
constitutes the best evidence of the parties’ intent.6
This court therefore concludes that the NDA’s choice-of-law
provision requires the application of New Hampshire law to Agro-
Farma’s counterclaims. A number of other district courts have
reached similar conclusions in cases involving non-disclosure
agreements and trade secret misappropriation claims. See, e.g.,
Facility Wizard Software, Inc. v . S e . Tech. Svcs., LLC, N o . 08-C-
5382, 2009 WL 2059934, at *4 (N.D. Ill. 2009); VFD Consulting,
Inc. v . 21st Svcs., 425 F. Supp. 2d 1037, 1046 (N.D. Cal. 2006);
Convolve, Inc. v . Compaq Computer Corp., N o . 00-CV-5141, 2006 WL
839022, at *5 n.6 (S.D.N.Y. 2006); Dorazio v . Capitol Specialty
Plastics, Inc., N o . 01-6548, 2002 WL 31546171, at *4 (E.D. P a .
6 To the extent that Agro-Farma claims that it did not subjectively intend for the choice-of-law provision to govern tort claims, the New Hampshire Supreme Court follows the fundamental principle of contract law that contracts “are to be construed according to the intention of the parties as expressed in the language used therein and not according to an unexpressed intention which may have been in the mind of either of the parties.” D. Latchis, Inc. v . Borofsky Bros., Inc., 115 N.H. 401, 404 (1975) (citation omitted). Agro-Farma’s subjective intent cannot override the objective intent expressed in the NDA.
16 2002); but see Precision Screen Machs. Inc. v . Elexon, Inc., N o .
95-C-1730, 1996 WL 495564, at *3 (N.D. Ill. 1996).
This court’s conclusion is limited, however, in two
important respects. First, it applies only to the particular
counterclaims alleged here by Agro-Farma and should not be
construed to mean that the parties’ choice-of-law provision would
encompass other types of tort claims not tied so closely to the
subject matter of the NDA. Second, it applies only to Agro-
Farma’s claims against Stonyfield, not its claims against
Schreiber, which was neither a party to the NDA nor an express
third-party beneficiary.7 As explained below, to the extent that
the NDA does not independently resolve the choice-of-law
question, general choice-of-law principles nonetheless also favor
the application of New Hampshire law to Agro-Farma’s
counterclaims against both Stonyfield and Schreiber.
7 Compare Paracor Fin., Inc. v . Gen. Elec. Capital Corp., 96 F.3d 1151, 1165 (9th Cir. 1996) (holding that a “choice-of-law clause . . . is a contractual right and generally may not be invoked by one who is not a party to the contract”), with Hatfield v . Halifax PLC, 564 F.3d 1177, 1182 (9th Cir. 2009) (allowing an express third-party beneficiary to enforce a choice- of-law provision).
17 B. General choice-of-law principles
The New Hampshire Supreme Court has identified five “choice-
influencing considerations” that guide its choice-of-law analysis
with respect to tort claims, absent a controlling choice-of-law
provision.8 They are: (1) predictability of results; (2)
maintenance of reasonable orderliness and good relationship among
the states in our federal system; (3) simplification of the
judicial task; (4) advancement by the court of its own state’s
governmental interests rather than those of other states; and (5)
the court’s preference for what it regards as the sounder rule of
law. Ferren v . Gen. Motors Corp. Delco Battery Div., 137 N.H.
423, 425 (1993) (citing Clark v . Clark, 107 N.H. 3 5 1 , 354-55
(1966)). The relative importance of each factor varies depending
8 There is some uncertainty about whether these five factors must be considered when there is an applicable choice-of-law provision. The New Hampshire Supreme Court recently stated, in remanding a case, that the “court must consider” these five factors in determining “whether the parties’ choice of law clause is enforceable.” Fog Motorsports N o . 3 , Inc. v . Arctic Cat Sales Inc., N o . 2008-930, slip o p . at 2 (N.H. Aug. 2 1 , 2009). Historically, though, New Hampshire courts have enforced choice- of-law provisions without reference to the five factors. See Hobin, 144 N.H. at 628; KFC, 130 N.H. at 684; Allied Adjustment, 125 N.H. at 700. Whether or not the New Hampshire Supreme Court intended for Fog Motorsports to overrule, sub silentio, a long line of cases, c f . Collins v . City of Manchester, 147 N.H. 7 0 1 , 703 (2002) (rejecting a purported sub silentio ruling as a misinterpretation), the outcome here does not depend on this issue, because the court concludes that New Hampshire law applies under both the contractual choice-of-law provision and the five- factor analysis.
18 on the type of case. Id. As explained below, all five factors
support the application of New Hampshire law to Agro-Farma’s
counterclaims against Stonyfield and Schreiber, with the most
compelling factors here being predictability and simplification.
The first factor, predictability, “is usually implicated
only in suits involving contractual or similar consensual
transactions” and “emphasizes the importance of applying to the
parties’ bargain or other dealings the law on which they agreed
to rely at the outset.” Keeton v . Hustler Magazine, Inc., 131
N.H. 6, 17 (1988) (citing Clark, 107 N.H. at 3 5 4 ) . This is such
a lawsuit. At the outset of their relationship, Stonyfield and
Agro-Farma both signed an NDA with a New Hampshire choice-of-law
provision. Whether or not the NDA independently resolves the
choice-of-law question, see supra section III.A, it certainly
made New Hampshire law the most predictable choice in a case
involving Stonyfield’s allegedly unauthorized disclosure to a
third party of Agro-Farma’s confidential information. Cf.
Barrett v . Ambient Pressure Diving, Ltd., 2008 DNH 199, 3
(McAuliffe, C.J.) (concluding, under this factor, that product’s
owner’s manual established an expectation that English law would
apply to product liability claims, even though the plaintiff
never “agreed to be bound” by i t ) . The court therefore finds
19 that this factor weighs heavily in favor of applying New
Hampshire law.
The second factor, maintenance of reasonable orderliness and
good state relations, “requires only that ‘a court not apply the
law of a State which does not have a substantial connection with
the total facts and the particular issue being litigated.’”
Keeton, 131 N.H. at 18 (quoting LaBounty v . Am. Ins. Co., 122
N.H. 7 3 8 , 742-43 (1982)). Here, both New Hampshire and New York
have a substantial connection with the case. Even assuming that
New York has the more substantial connection, the New Hampshire
Supreme Court has expressly rejected the argument that this
factor favors the state of “greatest” significance. Keeton, 131
N.H. at 1 8 . Multiple states can be -- and in this case are --
“sufficiently connected . . . to warrant further scrutiny” under
the other factors. See LaBounty, 122 N.H. at 743 (finding that
three states met this hurdle).
The factor that weighs most heavily in favor of applying New
Hampshire law is the third one: simplification of the judicial
task. This case involves a variety of overlapping claims and
counterclaims, with closely related subject matter and legal
theories, asserted against parties located in three different
states. Both sides acknowledge that New Hampshire law will
govern their contract claims arising under the NDA. And the
20 NDA’s choice-of-law provision requires that New Hampshire law be
applied to Agro-Farma’s counterclaims against Stonyfield. See
infra section III.A. Applying a different state’s laws to the
claims against Schreiber, or even to some of the claims against
Stonyfield (setting aside, momentarily, the choice-of-law
provision), would make this case unnecessarily confusing and
could lead to seemingly inconsistent results. Conversely,
applying New Hampshire law will ensure a consistent approach to
all overlapping claims and all parties. In addition, by applying
New Hampshire law, the court will be able to consolidate a number
of Agro-Farma’s common-law claims into a single statutory trade
secret claim, because of the UTSA pre-emption discussed infra at
section III.C. All around, the case will become much simpler to
adjudicate. While simplicity “is not the whole end of law, and
opposing considerations may outweigh it,” Clark, 107 N.H. at 3 5 4 ,
the court sees no countervailing considerations that would
outweigh it in this case.
The fourth factor, advancement of governmental interests,
becomes important only when New Hampshire has a “particularly
strong policy in reference to local rules of law,” id., which the
other states’ laws under consideration would “fail[] to achieve.”
Lessard v . Clarke, 143 N.H. 555, 558 (1999). Otherwise, New
Hampshire’s interest “is limited to ‘the fair and efficient
21 administration of justice.’” Id. (quoting Clark, 107 N.H. at
355). Here, as in many other cases, this factor seems to be of
limited importance. See LaBounty, 122 N.H. at 743. To the
extent it carries any weight, however, this factor also favors
the application of New Hampshire law. The New Hampshire Supreme
Court has noted that the purpose behind the UTSA is to create
“more certain standards” for the protection of trade secrets and
other confidential information, in response to the “uneven” and
“uncertain[]” standards that applied at common law. Mortgage
Specialists, Inc. v . Davey, 153 N.H. 7 6 4 , 775-76 (2006)
(quotations omitted). Since New York has not adopted the UTSA,
its common-law framework would not achieve New Hampshire’s stated
-- and arguably strong -- policy objective.
The last factor is “the court’s preference for what it
regards as the sounder rule of law.” Clark, 107 N.H. at 355.
This factor tends to play a “tie-breaker” role in close cases.
Scoles & Hay, supra, at 56 & n.25 (citing Lessard, 143 N.H. at
555, and Ferren, 137 N.H. at 4 2 3 ) . All other things being equal,
if one state’s rule “lies in the backwater of the modern stream,”
LaBounty, 122 N.H. at 743 (quotation omitted), then the court may
choose to apply another state’s rule that it regards as “wiser,
sounder, and better calculated to serve the total ends of
justice.” Benoit v . Test Sys., Inc., 142 N.H. 4 7 , 53 (1997)
22 (citation omitted). In this case, no tiebreaker appears
necessary, as all of the other factors support application of New
Hampshire law. Were it needed, however, this factor would tip
the scales in favor of New Hampshire law. Over the past three
decades, at least 44 states (including New Hampshire) have
adopted the UTSA in some form. See Burbank Grease Svcs., LLC v .
Sokolowski, 717 N.W.2d 7 8 1 , 792 (Wis. 2006). New York is one of
a handful of states that have resisted this trend. Given that
the vast majority of states have deemed the UTSA to be a sounder
rule of law, the court sees no basis for concluding otherwise.
This reasoning applies not only to Agro-Farma’s
counterclaims against Stonyfield, but also to its counterclaims
against Schreiber. Of course, the predictability factor carries
less weight with respect to Schreiber, since it was not a party
to the NDA. But it still favors New Hampshire law, because
Schreiber allegedly obtained Agro-Farma’s confidential
information through a relationship with Stonyfield, a New
Hampshire company, making New Hampshire law the most predictable
choice for Schreiber as well. Moreover, the simplification
factor carries even more weight with respect to Schreiber,
because it would be especially confusing and needlessly complex
to apply different states’ laws to the same basic claims brought
jointly against Stonyfield and Schreiber. For all of these
23 reasons, the court concludes that general choice-of-law
principles require the application of New Hampshire law to all of
Agro-Farma’s counterclaims.
C. Pre-emption under UTSA
In light of this court’s conclusion that New Hampshire law
applies to Agro-Farma’s counterclaims, both sides agree9 that New
Hampshire’s version of the UTSA pre-empts the four counterclaims
targeted by Stonyfield and Schreiber’s motion –- i.e.,
misappropriation of ideas, unfair competition, unjust enrichment,
and constructive trust. See N.H. Rev. Stat. § 350-B:7. The New
Hampshire Supreme Court has interpreted the UTSA as pre-empting
common-law claims to the extent that they are “based upon the
misappropriation of trade secrets or other information.”
Mortgage Specialists, 153 N.H. at 780. Here, both sides agree
that all four counterclaims at issue fall within that category.
Having analyzed each of them, this court agrees with the parties
and therefore dismisses the four counterclaims as pre-empted.
Cf. Ethypharm S.A. France v . Bentley Pharms., Inc., 388 F. Supp.
2d 426, 434 (D. Del. 2005) (deeming an unjust enrichment claim
pre-empted by the UTSA); Digital Envoy, Inc. v . Google, Inc., 370
9 Agro-Farma did not brief the pre-emption issue and conceded pre-emption (if New Hampshire law applies) at oral argument.
24 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005) (deeming unfair
competition and unjust enrichment claims pre-empted by the UTSA);
Gray ex rel. Mid Atl. Lumber C o . v . Split Rock Hardwoods, Inc.,
N o . 01-C-0043-C, 2001 WL 34373159, *5 (W.D. Wis. 2001) (deeming
constructive trust claim pre-empted by UTSA).
Notwithstanding the pre-emption of those four counterclaims,
the court notes that Agro-Farma retains its other seven
counterclaims, including in particular its contract claim against
Stonyfield under the NDA (Count 1 ) , which is expressly exempted
from the UTSA’s preemption provision, see N.H. 350-B:7(II)(a),
and its trade secret misappropriation claims against both
Stonyfield and Schreiber (Counts 2 and 3 ) , which will be governed
by the UTSA. See N.H. Rev. Stat. §§ 350-B (setting forth the
elements of such a claim and authorizing various forms of relief,
including compensatory damages, unjust enrichment damages,
reasonable royalties, injunctive relief, exemplary damages, and
attorney’s fees).
IV. Conclusion
For the foregoing reasons, Stonyfield and Schreiber’s motion
for judgment on the pleadings10 with respect to Counts 4
(misappropriation of ideas), 5 (unfair competition), 6 (unjust
10 Document n o . 2 5 .
25 enrichment), and 7 (constructive trust) of Agro-Farma’s
counterclaims is GRANTED.
SO ORDERED.
United States District Judge
Dated: October 7 , 2009
cc: Peter S . Cowan, Esq. Robert J. Fluskey, Jr., Esq. Kevin M . Kearney, Esq. Thomas J. Donovan, Esq.a