No Counsel, No Lawsuit: Federal Court Tosses CBD Trade Secret Case

Seyfarth Shaw LLP

[co-author: Jonathan Huie]

As we previously reported, CBD company Healthcare Resources Management Group, LLC (Healthcare Resources) filed an action in the US District Court for the Southern District of Florida claiming trade secret misappropriation by Medterra CBD and EcoNatura, and alleging that Medterra CBD and EcoNatura worked together to manufacture and sell a CBD cream using Healthcare Resources’ proprietary formula. On February 18, 2020, the defendants moved to dismiss the case on the grounds that Healthcare Resource failed to allege that it had provided or that Medterra had otherwise acquired any proprietary information. Healthcare Resources responded arguing that its trade secret claim is legitimate so long as (1) there was improper use of proprietary information; and (2) that use was enabled by a party who had a duty to guard and limit the use of such proprietary information. The case has now been dismissed, but not for any of the reasons the parties briefed. Rather, in a May 21, 2020, order, Judge Donald Middlebrooks dismissed the suit without prejudice for failing to secure counsel to represent it in the case and denied Healthcare Resources’ pro se request for additional time to obtain new counsel.

Healthcare Resources’ recent woes began when its counsel withdrew in late April 2020. Given plaintiff’s status as an artificial entity (an LLC), Judge Middlebrooks provided it 21-days to secure replacement counsel. On the day of the deadline, Healthcare Resources, through its managing member, filed a motion seeking additional time to secure new counsel on a pro se basis, arguing that it could not find new counsel because of the disruptions caused by COVID-19.

Judge Middlebrooks denied the motion and dismissed the suit on multiple grounds. First, Healthcare Resources is an artificial entity, and as such it cannot proceed without counsel. Second, on procedural grounds, plaintiff had failed to meet and confer with defendants prior to filing its motion, thereby violating local rules. Third and most critically, Healthcare Resources failed to adhere to deadlines imposed by the court and to work diligently to secure new counsel. The court noted that plaintiff’s managing member had failed to establish, specifically, what measures he took to find new counsel. In reaching its decision, the court also cited defendant MedTerra’s argument that any extension would be prejudicial to defendants.

The upshot of this decision is that companies looking to protect their trade secrets should select counsel wisely and act diligently when ordered to do so by a court, or risk having their case dismissed. As noted, the case was dismissed without prejudice, so we will continue to monitor it and will report back if Healthcare Resources is able to secure new counsel and file a new complaint.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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