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MatrixCare Inc. v. Netsmart Technologies, Inc.

United States District Court, D. Minnesota

July 12, 2019

MatrixCare Inc., Plaintiff,
Netsmart Technologies, Inc., Defendant.

          Joseph Dubis, Esq., Paige S. Stradley, Esq., and William D. Schultz, Esq, Merchant & Gould PC, counsel for Plaintiff.

          Kevin D. Conneely, Esq., and Ruth A. Rivard, Esq., Stinson LLP, counsel for Defendant.



         This matter comes before the undersigned on Plaintiff MatrixCare Inc.'s (“MatrixCare”) Motion for Temporary Restraining Order Pursuant to Fed.R.Civ.P. 65(b) (“Motion for TRO”). (Doc. No. 9.) MatrixCare's Motion for TRO was referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(A) and District of Minnesota Local Rule 72.1. (Doc. No. 19.)

         The Motion for TRO was filed prior to any discovery. In support of the motion, each party submitted evidence through declarations, affidavits, court records, and exhibits. Based on that very limited record, oral argument was held on July 3, 2019. The Court emphasizes that the facts and preliminary conclusions recited herein are not final determinations of disputed matters binding in later stages of litigation. It is a “general rule that ‘the findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits.'” Henderson v. Bodine Aluminum, Inc., 70 F.3d 958, 962 (8th Cir. 1995) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981)).

         Based on the record, files, and proceedings herein, this Court recommends that the relief requested by MatrixCare be denied.

         I. Background

         A. MatrixCare and its Customer Plum Healthcare Group, LLC

         MatrixCare is a Delaware corporation with a place of business in Bloomington, Minnesota. (Doc. No. 1, Compl. ¶ 13.) MatrixCare designs software for Accountable Care Organizations, skilled nursing, senior living providers, life plan communities, and home health organizations. (Id. ¶ 27.) One of MatrixCare's customers is Plum Healthcare Group, LLC (“Plum”). (Id. ¶ 40.) Plum is not a party to this litigation. Plum provides support and consulting services, including access to reliable and efficient medical records to numerous skilled nursing facilities throughout the state of California. (Doc. No. 28, Decl. of Kevin D. Conneely (“Conneely Decl.”) ¶ 11, Ex. 7 at 7.)

         MatrixCare began working with Plum in approximately 2006 to provide Plum with electronic health records (“EHR”) services. (Doc. No. 14, Affidavit of Joseph Weber (“Weber Aff.”) ¶ 13.) An Applications and Services Agreement (“Agreement”) was signed in 2006. (Id. at Ex. A.) The Agreement includes a confidentiality provision. (Id. at 7.) The Agreement also provides restrictions on system security. (Id. at 13.) MatrixCare contends that the Agreement provisions restricted third-party access to MatrixCare's proprietary information. (Doc. No. 11, Pl.'s Br. at 7.)[1]

         Beginning in about 2011, Plum invested approximately $1 million to develop an application to “draw real-time patient data directly from the EHR.” (Conneely Decl., Ex. 7 at 6.) The technology developed by Plum included an interfacing software application that could retrieve and analyze Plum data stored on the MatrixCare database to produce real-time trends and patient data analysis. (Id. Ex. 9 at 2-3.) According to Plum, Plum developed its own technology because the MatrixCare system was incapable of using Plum's skilled nursing facilities' data to identify trends. (Id. Ex. 7 at 8.) Plum wished to “move past the limitations of single patient records, and gain the ability to process the aggregate facility data electronically.” (Id.)

         At some point in 2011, MatrixCare allowed Plum (including Plum employees working on the application) direct access to MatrixCare's technology, including the aspects of the database that MatrixCare claims is proprietary and subject to trade secret protection. (Id. Ex. 7 at 9.) MatrixCare acknowledges that “Plum used the Bridge to access the production database locate [sic] on MatrixCare's servers” and concedes that Plum “had access to download a replicated database on Plum's own servers and laptops.” (Weber Aff. ¶ 18.) The “replicated database contains all of the data associated with MatrixCare's production database.” (Id.)

         B. Plum Begins Work with MatrixCare's Direct Competitor, Defendant Netsmart

         On April 25, 2019, MatrixCare learned, via a public press release, that MatrixCare's long-time customer, Plum, had entered into a 10-year “strategic partnership” with MatrixCare's chief competitor, Defendant Netsmart. (Weber Aff. ¶ 30, Ex. B.) MatrixCare also learned that the companies were in the process of merging. (Weber Aff. ¶ 31.)[2] It also learned that former Plum employees had become employees of Netsmart. (Id.)

         This news prompted MatrixCare to disable Plum's access to the Bridge. (Id. ¶ 33.) According to MatrixCare, disabling the Bridge cut Plum's direct access to the confidential and proprietary aspects of “MatrixCare's database and platform via the Bridge while still allowing Plum to use MatrixCare's data base and platform to care for its patients in a manner that did not give Plum-and Plum employees transitioning to Netsmart-access to MatrixCare's Proprietary Information.” (Id.) In follow-up discussions with Plum, MatrixCare offered Plum an alternative tool, called MyData, [3] to provide the majority of the functionality requested. (Id.) Plum took the position that the MyData tool was not feasible, because it did not provide the real-time analysis crucial to the care of patients. (Conneely Decl., Ex. 9 at 6.)

         C. The California Action Between Plum and MatrixCare

         Plum sued MatrixCare in California State Court on a breach of contract claim on May 30, 2019 (the “California Action”). (Conneely Decl., Ex. 7.) Netsmart is not a party to the California Action. Plum immediately sought a temporary restraining order to obtain access to the Bridge and Plum's patient information data. (Id.) A hearing was held on June 6, 2019. (Doc. No. 12, Decl. of Lawrence Green (“Green Decl.”) ¶ 6, Ex. 3.) MatrixCare participated in the California hearing. (Id.) The California Court issued a TRO the same day. (Id.; Weber Aff., Ex. C.) The TRO ordered MatrixCare to “immediately restore Plum's direct extranet access to the Electronic Health Record (EHR) production database, via the use of the parties' previously set-up Virtual Private Network (VPN) (i.e. the Bridge).” (Weber Aff., Ex. C ¶ 1.) MatrixCare was also ordered to “permit the following user accounts to log into the VPN, and to have all of the same access they did prior to the cut-off: Plumbatchrunner, PlumPrimeview.” (Id. ¶ 2.) Three other proposed accounts were stricken from the proposed order by the presiding judge. (Id.) According to the California TRO, MatrixCare was to deactivate specific user accounts. (Id. ¶ 3.) Plum was also directed to cause certain individuals to sign NonDisclosure agreements (“NDA”) with MatrixCare. (Id. ¶ 5.) A handwritten provision was added: “Ethical wall will be established at Netsmart to wall off former Plum employees.” (Id. ¶ 6.)

         A form NDA, attached to the TRO, described the “Purpose” of the NDA as follows:

Individual and MatrixCare wish to exchange information of a proprietary and confidential nature for the sole and exclusive purpose of maintaining the direct extranet connection used by Plum Healthcare Group L.L.C. (“Plum”) to access patient and other realtime data stored in the MatrixCare EHR pursuant to the 2006 Agreement” with Achieve Matrix Applications and Services (“2006 Agreement”) between MatrixCare and Plum (hereinafter, the “Purpose”).

(Id.) The NDA also provided that “Each party is willing to disclose Confidential information on conditions which assure that the Confidential Information will be protected from improper use or public disclosure.” (Id.) The Recipients of Confidential Information agreed to non-disclosure for a period of three years. (Id.)

         A motion for a Preliminary Injunction in the California Action is set for August 23, 2019. (Green Decl., Ex. 3 at 32.)

         D. Alleged Wrongdoing by Netsmart Before and After California TRO Issued

         MatrixCare commenced this lawsuit on June 26, 2019, after learning of “back door” access to the confidential and proprietary aspects of MatrixCare's database and platform via the Bridge by Netsmart employees. Specifically, MatrixCare determined that the computer account, Plumbatchrunner, was used to humanly access the MatrixCare system. (Doc. No. 15, Affidavit of Mark Lanterman (“Lanterman Aff.”) ¶ 16.) According to MatrixCare, this computer account was not intended to provide manual human access and the California TRO was intended to prohibit human access. (Green Decl., Ex. 3 at 20, 32.) After human access was achieved, the individual ran queries against the data using the Bridge access, which allegedly resulted in the downloading of MatrixCare's “proprietary schema.” (Weber Aff. ¶¶ 50-51.)

         After learning of this access, counsel for MatrixCare contacted Plum's attorneys. (Id. ¶ 52.) Plum investigated and quickly conceded that between June 7 and June 12, Chris San Nicolas and Kyle Hansen, “former Plum employees, did in fact manually access the Bridge.” (Id.) San Nicolas has confirmed that he is a Netsmart employee as of May 1, 2019. (Doc. No. 26, Decl. of Christopher San Nicolas (“San Nicolas Decl.”) ¶ 2.) He signed the form NDA on June 7, 2019. (Id. ¶ 18, Ex. A.) San Nicolas explained his access of the Bridge as follows:

• He manually logged into the MatrixCare system to see if it was working after he heard that access ...

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