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Alifax Holding SPA v. Alcor Scientific Inc.

United States District Court, D. Rhode Island

January 8, 2019

ALIFAX HOLDING SPA, Plaintiff,
v.
ALCOR SCIENTIFIC INC.; and FRANCESCO A. FRAPPA, Defendants.

          MEMORANDUM AND ORDER

          William E. Smith Chief Judge

         This is the latest chapter of a transatlantic saga pitting an Italian producer of diagnostic medical instruments, Alifax Holding SpA, against its Rhode Island-based competitor, Alcor Scientific, Inc., and its itinerant former employee, Francesco Frappa. In this motion for partial summary judgment, Alifax has asked the Court to answer the following question: which jurisdiction's law should define the alleged duty of confidentiality owed by Frappa to his Italian ex-employer? The answer: Italy's.

         Frappa's contractual employment relationship with Sire Analytical S.r.l., an Italian company acquired by Alifax, is the only conceivable source of his alleged duty of secrecy. His decade-long employment relationship was negotiated, consummated, performed, and terminated in Italy. Neither Frappa nor his work for Sire were connected in any way to Rhode Island. Alifax's claim for trade secret misappropriation under a Rhode Island statute based on acts that occurred within the state does not alter the source of his alleged duty. Accordingly, Italian law governs the substance of Frappa's alleged duty of confidentiality to Alifax in this action.

         I. Background

         The stage was set for the current strife between Alifax and Alcor during Francesco Frappa's time as a student in Udine, Italy. In 2000, Frappa interned as a trainee at Sire, a local company. (Pl.'s Statement of Undisputed Facts (“PSUF”) ¶ 2, ECF No. 165.) After two years, he discussed taking a permanent role with Sire's CEO and was promoted to the position of mechanical fitter appren-tice.[1] (Id. ¶¶ 3-4)

         Frappa and Sire executed a hiring letter formalizing the apprenticeship in Udine on October 7, 2002.[2] (Id. ¶ 5; see also SUF Ex. A at 2, ECF No. 155-1). The letter states that it was a communication pursuant to cited sections of Italian law and that, “[f]or other provisions not expressly provided for . . . see the laws in effect and the National Collective Bargaining Agreement applied to the MECHANICAL ENGINEERING INDUSTRY.” (PSUF Ex. A at 2 (emphasis added).) The “[a]pprenticeship length” was three-and-a-half years, and Sire agreed to pay Frappa “per [the] Collective Bargaining Agreement used by the company.” (Id.)

         Alifax, an Italian corporation headquartered in Padova, Italy, acquired Sire two years later.[3] (SUF ¶ 11; see also Pl.'s Statement of Disputed Facts (“PSDF”) ¶ 3, ECF No. 161-1.) Frappa nevertheless became a permanent mechanical fitter for Sire in October 2004. (PSUF ¶ 12.) He was promoted over seven years to different roles with more responsibility. (Id. ¶ 13-14.) His duties included hardware and software development as well as work with Alifax's erythrocyte sedimentation rate (“ESR”) analyzers, clinical devices used to test blood samples for indicia of nonspecific inflammation. (Id. ¶¶ 20-22.) At least some of his ESR-related duties were supervisory. (Id. ¶¶ 22-23.) Frappa worked exclusively at Sire facilities in Udine and nearby Nimis or at Alifax's Padova headquarters. (Id. ¶ 27.) He answered to supervisors in Italy and collected his pay and benefits in Italy. (Id. ¶¶ 28-29.)

         Frappa gave notice of his intent to resign from Sire at the end of August 2011, citing a “change of position” as the motive for his departure. (Id. ¶ 30; PSUF Ex. B at 2.) His notice was effective September 1, 2011, but he explained that he intended “to remain at the company for the entire two-month notice period as set forth in the Contract.” (PSUF Ex. B at 2.) Prior to leaving, Frappa forwarded certain information concerning an “anemia factor” and myeloma from his Sire email account to a personal email account. (See PSDF ¶ 106.)

         Frappa's resignation followed a week-long trip to Rhode Island as the guest of Alcor's founder, Carlo Ruggieri. (PSUF ¶ 52.) Alcor is a Rhode Island corporation that also produces diagnostic devices. (See Pl.'s Statement of Additional Undisputed Facts (“PSAUF”) ¶ 1, ECF No. 173-1.) Ruggieri invited Frappa to Rhode Island based on a lead from an industry professional to assess whether Frappa might leave Alifax and whether they might work together. (See PSUF ¶ 52; PSUF Ex. F at 4.) At the end of Frappa's two-month notice period, Ruggieri told Alcor's staff Frappa would “immediately take over full responsibility for Al-cor[‘s] most advanced diagnostic product development projects” as a vice president of research and development. (SUF ¶ 33; SUF Ex. E at 2.)

         Frappa moved to Rhode Island around May 2012 and began working on Alcor's iSED ESR analyzer. (SUF ¶ 33; PSAUF Ex. 1 at ¶ 8, ECF No. 169-6.) The iSED competes with Alifax's analyzers by delivering blood test results for ESR in just twenty seconds.[4] (See Second Am. & Suppl. Compl. ¶ 8, ECF No. 68; Defs.' Answer to Pl.'s Second Am. & Suppl. Compl. & First Am. Countercl. ¶ 8, ECF No. 71.) Alcor developed the iSED in Rhode Island where it is headquartered. (PSAUF ¶¶ 1, 3.) Frappa remains employed by Alcor, but now resides in Europe. (PSUF ¶ 34; PSDF ¶ 2; Defs.' Answer to Second Am. & Suppl. Compl. ¶ 2). He remains an Italian citizen. (PSUF ¶ 34.)

         When Alifax discovered the iSED had rapid analytical capabilities comparable to its devices, it cried foul. It accused Alcor and Frappa of misappropriating its trade secrets and using its proprietary information to develop the iSED, thereby violating the Rhode Island Uniform Trade Secrets Act (Count II) and breaching the confidential relationship between Frappa and Alifax (Count III).[5] (See generally Second Am. & Suppl. Compl.)

         II. Legal Standard

         A party is entitled to summary judgment if “the record, construed in the light most flattering to the nonmovant, ‘presents no genuine issue as to any material fact and reflects the movant's entitlement to judgment as a matter of law.'” Lawless v. Steward Health Care Sys., LLC, 894 F.3d 9, 20-21 (1st Cir. 2018) (quoting McKenney v. Mangino, 873 F.3d 75, 80 (1st Cir. 2017), cert. denied, 138 S.Ct. 1311 (2018)); see also Fed.R.Civ.P. 56(a).

         Alcor argues Alifax's request for a choice-of-law ruling under Rule 56 is improper because it will not determine any disputed claim. This is incorrect. Rule 56(a) expressly authorizes a party to seek partial summary judgment on “part of each claim or defense.” Fed.R.Civ.P. 56(a) (emphasis added). The term “judgment” in this context is often a misnomer. See Minority Police Officers Ass'n of South Bend v. City of South Bend, 721 F.2d 197, 200 (7th Cir. 1983). “A partial summary judgment is merely an order deciding one or more issues in advance of trial; it may not be a judgment at all, let alone a final judgment on a separate claim.” Id. The 2010 amendments to Rule 56(a) comport with this understanding. See Fed.R.Civ.P. 56, advisory committee notes to 2010 amendments (“The first sentence is added to make clear . . . that summary judgment may be requested . . . as to a claim, defense, or part of a claim or defense.” (emphasis added)).

         An order declaring which law will govern a discrete issue in Count II and all of Count III is a ruling on “part of a claim or defense.” Id. It is procedurally consistent with the routine rulings of many courts resolving choice-of-law issues through partial summary judgment. See, e.g., Kase v. Seaview Resort & Spa, 599 F.Supp.2d 547, 549 (D.N.J. 2009); Deep Marine Tech., Inc. v. Conmaco/Rector, L.P., 515 F.Supp.2d 760, 768 (S.D. Tex. 2007). Here, the facts bearing on the choice-of-law analysis are undisputed. The issue is therefore ripe for resolution. See Reisch v. McGuigan, 745 F.Supp. 56, 58 (D. Mass. 1990) (“Because there are no material facts in dispute . . . the choice of law issue can be decided on defendants' summary judgment motion, as can any questions of [foreign] law presented under Fed.R.Civ.P. 44.1.”).

         III. Discussion

         A federal court sitting in diversity applies the forum state's choice of law rules. See Baker v. St. Paul Travelers Ins. Co., 595 F.3d 391, 392 (1st Cir. 2010); Lexington Ins. Co. v. Gen. Accident Ins. Co. of Am., 338 F.3d 42, 46 (1st Cir. 2003). For tort-based claims, Rhode Island follows an interest-weighing approach to determine what jurisdiction “bears the most significant relationship to the events and the parties.” Harodite Indus., Inc. v. Warren Elec. Corp., 24 A.3d 514, 534 (R.I. 2011) (emphasis and quotation marks omitted). The Rhode Island Supreme Court has not adopted a definitive analysis for contract-based claims.[6] It has applied both the lex loci contractus doctrine and an interest-weighing test. Compare DeCesare v. Lincoln Benefit Life Co., 852 A.2d 474, 484 (R.I. 2004) (noting that for contract-based claims, “the law of the state where the contract was executed governs”), with Gordon v. Clifford Metal Sales Co., 602 A.2d 535, 539 (R.I. 1992) (applying interest-weighing analysis).

         Alifax has made this inquiry trickier by pleading claims that may draw upon the law of up to three different sovereigns. But this challenge is not insurmountable. As the Court has already held, multiple jurisdictions' laws may be applied under the principle of depecage. See Alifax Holding SpA v. Alcor Sci., Inc., No. CA 14-440 S, 2015 WL 5714727, at *2 (D.R.I. Sept. 29, 2015). Depecage permits “different issues in a single case, arising out of a common nucleus of operative facts, [to] be decided according to the substantive law of different states.” Id. (citing Putnam Res. v. Pateman, 958 F.2d 448, 464-65 (1st Cir. 1991); see also Oyola v. Burgos, 864 A.2d 624, 628 (R.I. 2005) (explaining that conflict-of-laws “questions are issue-specific”).

         Alifax seeks a choice of law ruling with respect to one element of Count II (breach of a duty of secrecy) and Count III (breach of a confidential relationship). Pursuant to the depecage principle, the Court considers these counts separately, but in reverse order.

         A. Count III: Breach of a Confidential Relationship

         1. Does Count III Sound in Tort or Contract?

         Count III alleges that Frappa breached a fiduciary duty created by the terms of his employment with Sire by disclosing Sire's confidential information to Alcor. (See Second Am. & Suppl. Compl. ¶ 73; see also Pl.'s Mot. for Partial Summ. J. 12 (“Pl.'s Mot.”), ECF No. 155.) Alifax argues that because Frappa's duty arose out of his contractual employment with Sire, Count III “sounds in contract” and triggers Rhode Island's related choice-of-law principles, favoring Italy. (Pl.'s Mot. 12-13.) Alcor stresses that Count III does not plead breach of contract; it pleads breach of fiduciary duty, which is a tort. (Defs.' Opp'n to Pl.'s Mot. for Partial Summ. J. (“Defs.' Opp'n”) 7, ECF No. 169-2.) Alcor's balancing of jurisdictional interest factors favors Rhode Island.

         Alifax's characterization of Count III as contract-based relies foremost on the Rhode Island Supreme Court's holding in Matarese v. Calise, 305 A.2d 112 (R.I. 1973). Matarese is a curious case. The plaintiff engaged the defendant, through an oral agreement made in Italy, to secure title to certain property in Italy from its owner in the United States. See Matarese, 305 A.2d at 115. Rather than purchasing the land for plaintiff, defendant bought it for himself, and was found liable for breaching a fiduciary duty to plaintiff. Id. at 116.

         The defendant appealed, arguing the trial court erroneously applied Rhode Island law rather than Italian law. The Court disagreed, stating the agreement “created a personal relationship between plaintiff and defendant of principal and agent whereby in return for a valid consideration, defendant would act in a fiduciary capacity to obtain the property in question for plaintiff.” Id. at 118. It further ruled that “[t]his agreement and the relationship created by it are governed by the usual rules of contract, ” and applied the corresponding choice-of-law principles. Id. Because the agreement creating the relationship was made “with a view to performance in [the United States], ” id., it fell within an exception to the general rule that “contracts are governed by the laws of the state or country in which they are made . . . ., ” Id. at n.4 (quotation marks omitted).

         Matarese conflicts with the orthodox understanding that a claim for breach of fiduciary duty sounds in tort. See, e.g., Wampanoag Grp., LLC v. Iacoi, 68 A.3d 519, 523 (R.I. 2013); Zuba v. Pawtucket Credit Union, 941 A.2d 167, 173 (R.I. 2008); see also Restatement (Second) of Torts § 874 (Am. Law Inst. 1979). This dissonance may make for an intriguing academic discussion.[7] The Matarese holding is nevertheless reasonably clear: if a fiduciary duty arises from an express agreement's terms, contract-based rules govern any choice-of-law question. Here, Frappa's duty to Alifax is premised on the terms of an express agreement as construed in light of Italian law: the national collective bargaining agreement for the mechanical engineering industry (“NCBA”).[8] Pursuant to Matarese, such a claim sounds in contract, thus the principles for contract-based claims must determine any choice of law.[9]

         2. Substantive Choice-of-Law Analysis

         Italy is the favored jurisdiction under all applicable tests for a contract-based claim. The Court agrees with Alifax that Frappa's hiring letter convincingly demonstrates the parties' intent to apply Italian law to his employment relationship, even in the absence of an express governing law clause. See Restatement (Second) of Conflict of Laws § 187 cmt. a (Am. Law Inst. 1971).[10]The letter states that it was issued pursuant to identified sections of Italian law and expressly incorporates “the laws in effect” in addition to the NCBA. (PSUF Ex. A at 2.) Frappa admits he “understood that Italian law applied to the contract.” (Frappa Decl. ¶ 4, ECF No. 169-6.) Thus, the Court must respect the parties' choice of Italian law. See DeFontes v. Dell, Inc., 984 A.2d 1061, 1067 (R.I. 2009) (following Restatement (Second) of Conflict of Laws § 187 (Am. Law Inst. 1971)). But if the parties' choice was not enough, they executed Frappa's hiring letter and formed the employment relationship under the NCBA in Italy.[11] The lex loci contractus doctrine therefore would require the Court to apply Italian law. See, e.g., DeCesare, 852 A.2d at 484; Union Sav. Bank v. DeMarco, 254 A.2d 81, 83 (R.I. 1969).

         An interest-weighing analysis yields the same result. See Gordon v. Clifford Metal Sales Co., 602 A.2d 535, 538 (R.I. 1992) (considering Restatement factors); see also Restatement (Second) of Conflict of Laws §§ 6, 188 (Am. Law Inst. 1971). The relevant factors include:

(a) the place of contracting,
(b) the place of negotiation,
(c) the place of performance,
(d) where the contract's subject matter is located, and
(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

See Restatement (Second) of Conflict of Laws § 188 (Am. Law Inst. 1971). The Court may also consider policy factors such as:

(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination ...

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