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Judge Karen A. Janisch, Andrew Bardwell

Trade secret theft case brings verdict totaling $1.9 million

A five-year conflict that started life as an ostensible report of fraudulent business practices against a magnetic resonance imaging company by a competitor resulted last month in a $1.9 million verdict in favor of the MRI provider for breach of confidentiality and a nondisclosure agreement, civil theft, theft of trade secrets, interference with contract and interference with prospective economic advantage.

Earlier, it had a role to play in having the state anti-SLAPP (Strategic Lawsuit Against Public Participation) statute declared unconstitutional because the law infringed on the right to a jury trial under the state and federal constitutions. That was a 2016 Court of Appeals decision, which was also the result from the Supreme Court in 2017 in Leiendecker v. Asian Women United of Minn. The law provides immunity for acts that constitute public participation and requires a court to make a pretrial factual determination that there is clear and convincing evidence to defeat the anti-SLAPP defense.

The theft of his records and ensuing events put plaintiff out of business, the company said, through its founder Michael Appleman.

Hennepin County District Court Judge Karen A. Janisch denied the defendants’ summary judgment motions, and the case proceeded. Dahl’s company, Stand-Up MidAmerica MRI had filed for bankruptcy and Dahl, also bankrupt, died in 2019, leaving Hooten on the hook.

“Michael Appleman and MDI had a prosperous MRI business that was destroyed overnight by a thieving employee, and false allegations of fraud propounded by its competitor, SUMA MRI. After a six-year legal battle, the verdict represents a complete vindication of Mr. Appleman and MDI’s business model. The jury’s award, including punitive damages, reflects just compensation for the loss of MDI’s business caused by the illegal acts of Racheal Hooten and SUMA,” said Appleman’s attorney, Andrew Bardwell, in an email to Minnesota Lawyer.

Hooten’s attorney could not be reached for comment.

Scans in vans

The facts leading to the lengthy litigation began when Racheal Hooten, the defendant, went to work for Mobile Diagnostic Imaging in 2011. The company provided MRI scans at various locations to which its vans would travel. If a chiropractor referred a patient to the plaintiff for an MRI, the plaintiff would pay a fee to the chiropractor to rent the chiropractor’s parking lot and other facilities.

Hooten determined that she was uncomfortable working for the plaintiff because she felt it was paying the chiropractors for referrals. She found another job but first she made copies of the plaintiff’s business records and turned them over to her new employer, Dr. Wayne Dahl. Dahl used them to make a series of complaints to the Board of Chiropractic Examiners.

In return for a $10,000 payment, he also provided the information to attorneys for Farmers Insurance Group and Allstate Insurance Co. Farmers sued the plaintiff in federal court and the case was dismissed under Rule 12. State Farm sued the plaintiff for violating the corporate practice of medicine doctrine, which was dismissed on summary judgment.

“Accordingly, despite having the allegations squarely before them, no Court has ever found any wrongdoing by MDI,” plaintiff said in its brief.

According to court documents, the evidence at trial was that MDI sought legal advice regarding its compliance with state and federal law. Evidence also showed that it obtained opinions regarding the fair market value of its rental payments to customer chiropractors. It also showed that the plaintiff took reasonable steps to maintain the confidentiality of its trade secrets, including its customer lists and schedule of payments.

The plaintiff also refuted the claims that its business was illegal and therefore not entitled to trade secret protections.

“Accordingly, despite having the allegations squarely before them, no Court has ever found any wrongdoing by MDI,” plaintiff said in its brief.

‘So-called’ trade secrets

Defendants did not file a trial brief but in summary judgment pleadings said that “so-called trade secrets constitute nothing more than a covert scam to engage in illegal activity, in violation of both federal and state prohibitions on doctors receiving kickbacks in exchange for referral of business,” as set forth in 42 U.S.C. sec. 1320a-7B and Minn. Stat. Sec. 62J.23.

Defendants also asserted that they had no duty to maintain secrecy about plaintiff’s “illegal scam,” and that Dahl had a duty to report to the chiropractic board.

Finally, they asserted that plaintiff did not receive required accreditation and that is why it went out of business. The plaintiff responded that the accreditation process was virtually complete when the insurance litigation was filed but that finalization of the process and payment of the fee would have been futile because defendants had already destroyed the business.

In her summary judgment order, Janisch said that “Whether MDI’s assertions [about the accreditation] are believable or whether it should have mitigated its damages by becoming accredited and pursuing its business without it making payments to chiropractors, are issues of fact that must be resolved by a jury.”

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