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Islands Hospice, Inc. v. Duick

United States District Court, D. Hawaii

September 23, 2019

ISLANDS HOSPICE, INC., Plaintiff,
v.
MICHAEL DUICK; MĀLAMA OLA HEALTH SERVICES, LLC; JOHN AND/OR JANE DOES 1 - 10; DOE ENTITIES 1 - 5, Defendants.

          ORDER GRANTING DEFENDANT DUICK’S MOTION TO DISMISS, AND DEFENDANT MĀLAMA OLA’S SUBSTANTIVE JOINDER, ECF NOS. 12 & 16

          J. MICHAEL SEABRIGHT, CHIEF UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         On April 19, 2019, Plaintiff Islands Hospice, Inc. (“Islands Hospice”) filed its Complaint against Defendants Michael Duick (“Duick”), Mālama Ola Health Services, LLC (“Mālama Ola”), and various Doe Defendants, alleging assorted violations of trade secrets misappropriation under the Defend Trade Secrets Act (“DTSA”) and state law, arguing that Defendants had misappropriated its proprietary information. Compl., ECF No. 2.

         Currently before the court is Duick’s Motion to Dismiss for lack of subject-matter jurisdiction. ECF No. 12. Generally, Duick argues that Islands Hospice has failed to meet the jurisdictional showing that its “trade secret is related to a product or service used in, or intended for use in, interstate . . . commerce” pursuant to 18 U.S.C. § 1836(b)(1). Mālama Ola filed a Substantive Joinder, joining Duick’s arguments in its entirety. ECF No. 16. For the reasons below, the court hereby GRANTS Duick’s motion to dismiss, with leave to amend, and GRANTS Mālama Ola’s Substantive Joinder.

         II. BACKGROUND

         A. Factual Background

         The relevant factual allegations[1] in the Complaint are as follows: Islands Hospice is a non-profit corporation that has provided hospice care to residents of Hawaii for nearly 10 years. Compl. ¶ 2. In 2008, Ministry Research Inc., an Oklahoma non-profit corporation, conducted research into Hawaii’s need for hospice care, concluded that there was a need for such care, and invested over $2 million dollars to start Islands Hospice on Oahu. Id. ¶¶ 16, 18. The services offered by Islands Hospice include, but are not limited to, “nursing care, grief counseling, spiritual care, in-patient and respite care, dietary counseling, and physical, occupational, and speech therapy.” Id. ¶ 15. In January 2009, Islands Hospice hired Duick as its Associate Medical Director. Id. ¶ 20. He later became Islands Hospice’s Chief Executive Officer. Id.

         In or around 2014, the Hawaii Medical Service Association (“HMSA”), an insurance company, initiated a pilot program called Supportive Care, a home-based palliative care service offered to eligible members. Id. ¶ 28. In this program, patients participating in the Supportive Care program received “clinical and psycho-social support while still undergoing curative treatment.” Id. ¶ 29. “The goal of [HMSA’s] Supportive Care [program] is to improve the quality of life and clinical outcomes of patients.” Id. ¶ 30. HMSA’s Supportive Care program “required interdisciplinary teams at Medicare-certified hospice agencies.” Id. ¶ 31. While Supportive Care is not a hospice service, it is “only covered by HMSA if it is provided by a Medicare-certified hospice such as Islands Hospice.” Id. ¶ 31, n.2.

         Islands Hospice participated in HMSA’s Supportive Care program, and tasked Duick with overseeing the development of Islands Hospice’s Supportive Care program. Id. ¶ 32. “Over the multi-year pilot program, Duick oversaw efforts by Islands Hospice’s clinical staff to develop and implement” its Supportive Care program. Id. ¶ 34. Islands Hospice developed “proprietary business methods, case management systems, processes, procedures, and practices tailored to meet the requirements of HMSA’s Supportive Care program.” Id. “Islands Hospice also invested significant resources in creating its own unique and proprietary business methods and systems, ” “tailored to the specific needs of the unique Supportive Care patient population” in Hawaii, “and developed, among other things, case management systems and staffing and response protocols.” Id. ¶ 35. Islands Hospice continued to fine-tune and develop its Supportive Care program based on feedback from clinical and administrative staff. Id. ¶ 36. Through this feedback and fine-tuning process, Islands Hospice (along with Duick) “learned what did and did not work” for Islands Hospice’s Supportive Care program. Id. ¶ 37. “Because Supportive Care was a new, never-before-offered benefit of HMSA, this knowledge was newly-developed and not available to others.” Id. And because such information was not known to Islands Hospice’s competitors, this information gave Islands Hospice a competitive advantage against its competitors. Id. Islands Hospice considers this knowledge its trade secrets. Id. ¶ 68. “[A] substantial portion of Islands Hospice revenues [are] derived from . . . its trade secrets.” Id. Islands Hospice and its employees are also subject to federal regulations. Id. In order to “provide the services that benefit from Islands Hospice trade secrets, the company must acquire medical supplies and other goods, ” most of which are purchased from out-of-state. Id.

         Aware of the growing opportunities for Supportive Care services in Hawaii, Duick “secretly schemed to create a new hospice care provider” while still employed by Islands Hospice. Id. ¶ 43. The scheme included “weakening Islands Hospice’s competitive standing” through various means. Id. ¶ 44. Specifically, of relevance to the motion here, Duick created Mālama Ola, a competing Supportive Care service provider. On April 20, 2017, Duick registered Mālama Ola as a Hawaii LLC. Id. ¶ 47. And on May 4, 2017, Duick applied for a Certificate of Need, seeking authorization to establish Mālama Ola as a Medicare-certified hospice agency. Id. ¶ 51. Duick resigned from his position as CEO of Islands Hospice on May 20, 2017. Id. ¶ 54.

         B. Procedural Background

         On April 19, 2019, Islands Hospice filed its Complaint, alleging a single federal claim of a violation of the DTSA for trade secret misappropriation, along with various state claims of trade secret misappropriation, unfair competition, and deceptive trade practices against Defendants Duick and Mālama Ola. Islands Hospice also appears to allege a state law claim of a breach of fiduciary duty against Duick.[2]

         On June 25, 2019, Defendant Duick filed his motion to dismiss Plaintiff’s Complaint pursuant to Rule 12(b)(1) for lack of subject-matter jurisdiction.[3] ECF No. 12. Defendant Mālama Ola filed its substantive joinder on June 28, 2019, ECF No. 16, and Islands Hospice filed its Opposition against both Defendants’ motions on August 26, 2019. ECF No. 19. On August 30, 2019, Duick filed his reply. ECF No. 20. The court held a hearing on September 16, 2019.

         III. STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(1) authorizes a court to dismiss claims over which it lacks proper subject matter jurisdiction. The court may determine jurisdiction under Rule 12(b)(1) so long as “the jurisdictional issue is [not] inextricable from the merits of a case.” Kingman Reef Atoll Invs., L.L.C. v. United States, 541 F.3d 1189, 1195 (9th Cir. 2008). The moving party “should prevail [on a motion to dismiss] only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Casumpang v. Int’l Longshoremen’s & Warehousemen’s Union, 269 F.3d 1042, 1060-61 (9th Cir. 2001) (citation and quotation marks omitted); Tosco Corp. v. Cmtys. for a Better Env ’t, 236 F.3d 495, 499 (9th Cir. 2001).

         IV. ...


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