PHILADELPHIA – A New York fashion rental company’s lawsuit against Urban Outfitters, which alleged that the latter business ended merger talks and stole the plaintiff’s proprietary concept for a women’s clothing rental business for itself, has survived a motion to dismiss from the national clothier.
Le Tote, Inc. of New York City first filed suit in the U.S. District Court for the Eastern District of Pennsylvania on June 22, 2020 versus Urban Outfitters, Inc., of Philadelphia.
Founded in 2012, Le Tote, operates a clothing rental service for women through a subscription-based model. Subscribers are permitted to wear the clothing they order, return it and/or exchange it for other items. If a given subscriber would like to keep the article of clothing they ordered, they can do so by paying half of the standard retail price.
For its service, Le Tote provides its 330,000 members across 48 states a pair of monthly subscription plans: A “Classic” plan for $59 per month or the “Maternity” plan for $79 per month.
In March 2018, Urban approached Le Tote with interest in learning more about its business and, according to the lawsuit, “candidly acknowledged [its] inability to enter the rental subscription market on its own, precisely because Urban lacked the experience, systems, infrastructure, and technical knowledge involved in operating a fashion rental subscription service.”
That led to Urban evincing an interest in acquiring Le Tote and merger talks between the two companies soon began. As a condition of the discussions, Le Tote required Urban to sign a mutual non-disclosure agreement, guaranteeing that Urban would not appropriate or misuse Le Tote’s proprietary information.
Urban agreed.
After the non-disclosure agreement was signed, Le Tote says it extensively detailed the inner workings of its business to Urban, sharing confidential proprietary information which had taken years to acquire; namely, information pertaining to exactly how its business was built and operated, such as presentations on its products, technology, logistics and scaling of its subscription service.
At that point, Urban executives reiterated that it did not have the corporate infrastructure necessary to enter the clothing subscription service marketplace and expressed interest in acquiring Le Tote.
However, on May 4, 2018, Le Tote says Urban notified it that the proposed acquisition was off the table, due to the latter company’s board of directors not granting its approval to the deal.
The suit explains the surprise of that decision was seconded by Urban launching its own subscription service for women’s clothing, named Nuuly, one year later. As a direct competitor to Le Tote, Nuuly utilized Urban’s merchandise – along with Le Tote’s confidential proprietary information and trade secrets – to achieve the same objective and solicit the same customer base as Le Tote did with its own service.
“Based on the facts and circumstances surrounding Urban’s discussions with Le Tote and its subsequent launch of Nuuly, it is obvious that Urban has misappropriated and misused Le Tote’s Proprietary Information in launching and operating Nuuly,” the suit states.
“Having learned from Le Tote how to build and operate an efficient infrastructure and how to successfully incorporate customer feedback to maximize customer satisfaction and profitability, Urban’s executives did not ‘forget’ this Proprietary Information, nor could they have disregarded Le Tote’s Proprietary Information in launching Nuuly.”
Urban Outfitters filed a motion to dismiss Le Tote’s case on Aug. 7, alleging the latter had not provided evidence to back any of its claims.
“Each of Le Tote’s five claims is premised on the same alleged conduct, i.e., Urban’s purported misappropriation and misuse of some unspecified Le Tote trade secrets. But the complaint fails to identify a single piece of trade secret information Le Tote actually shared with Urban, much less any misuse of such information by Urban,” the dismissal motion read, in part.
“And rather than allege facts to support its theory, Le Tote simply concludes, again and again, that Urban must have used Le Tote’s ‘Proprietary Information’ to launch Nuuly because – in Le Tote’s estimation – Urban could not have done so on without Le Tote’s information. Le Tote’s hollow conclusions fail to state a claim.”
Urban feels Le Tote’s allegations “fail to put Urban on notice of what information it was given access to that purportedly rises to the level of a trade secret and that Urban allegedly misappropriated.”
Le Tote counters in an Aug. 21 memorandum that Urban’s response to its lawsuit showed that its focus was both “irrelevant” and “extraneous.”
“Urban’s motion pretends the allegations away, calling Le Tote’s voluminous descriptions of its trade secrets ‘vague,’ claiming that Urban is not alleged to have done anything other than launch a competing business, and ignoring the pages of allegations that demonstrate otherwise,” counsel for Le Tote said.
“Rather than address those allegations, Urban focuses instead on irrelevant news reports and other extraneous materials that it asks the Court to consider – even while citing authority that plainly precludes consideration of those materials at this stage.”
Le Tote adds its allegations are “more than sufficient to state claims under both the federal Defend Trade Secrets Act and the Pennsylvania Uniform Trade Secrets Act.
UPDATE
U.S. District Court for the Eastern District of Pennsylvania Judge Petrese B. Tucker agreed with Le Tote, in a June 24 memorandum.
“Plaintiff also makes a proper misappropriation claim under the DTSA. Defendant contends that the complaint did not allege it ‘disclosed’ a trade secret or that it had ‘used’ the alleged trade secret information. However, the complaint alleges a sequence of facts that could lead to an inference of misappropriation. Plaintiff claims (1) statements by defendant that it could not organically start a business of the kind that plaintiff ran; (2) a launch of the competing business by defendant a mere month after shutting down the proposed transaction; (3) using the precise kinds of ‘proprietary’ systems at issue in the suit, and; (4) attaining equivalent market success to plaintiff in a quarter of the time,” Tucker said.
“More pointedly, plaintiff also alleged that (5) information defendant requested in the evaluation process was inconsistent with standard acquisition behavior, and; (6) the executives involved in launching defendant’s competing project were the very same executives that evaluated plaintiff’s business for the supposed transaction.”
Tucker dismissed the unjust enrichment claim, but additionally ruled that the plaintiff properly alleged conduct constituting, if true, violations of the DTSA and PUTSA, as well as proper misappropriation of trade secrets, breach of contract, and unfair competition claims.
For counts of violating the Defend Trade Secrets Act, the Pennsylvania Uniform Trade Secrets Act, breach of contract, unfair competition and unjust enrichment, the plaintiff is seeking injunctive relief against Urban’s use of the proprietary information; compensatory, punitive, and statutory damages, including but not limited to restitution and/or disgorgement, in an amount to be determined at trial; attorney’s fees, pre-judgment and post-judgment interest; such other and further relief as the Court deems just and proper, plus a trial by jury.
The plaintiff is represented by David L. Braverman of Braverman Kaskey in Philadelphia, Danielle Nicole Dhir and David F. Lisner of Cohen & Gresser in New York City, plus Ronald Wick and Mark S. Cohen of Cozen O’Connor, in Washington, D.C.
The defendant is represented by Dana E. Becker, Neaha P. Raol, Lindsey Titus Levy and Douglas W. Baruch of Morgan Lewis & Bockius, in Philadelphia and Washington, D.C.
U.S. District Court for the Eastern District of Pennsylvania case 2:20-cv-03009
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com