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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND : PADCO ADVISORS, INC. : v. : Civil Action No. DKC 2000-2126 : JEFFREY M. OMDAHL : MEMORANDUM OPINION Plaintiff PADCO Advisors, Inc. filed this diversity action for breach of contract and violation of the Maryland Uniform Trade Secret Act ("MUTSA") against Defendant Jeffrey M. Omdahl after he was employed by ProFund Advisors. Presently pending

and ready for resolution are cross motions for summary judgment. Both parties have also filed unopposed motions to seal exhibits related to those motions and their replies. For the following

reasons, each of the motions will be GRANTED in part and DENIED in part. The parties' respective motions to seal their exhibits

will be GRANTED. I. Background Jeffrey M. Omdahl Regional was hired by PADCO in as Vice 1996.

President/Western

Sales

Manager

August,

Omdahl was responsible for marketing Rydex mutual funds to existing and potential customers in the western United States. In the Spring of 1997, former PADCO employees left PADCO and

formed two competing mutual fund companies on their own.

In

response to the formation of two directly competing firms, PADCO drafted a Confidential Information Agreement ("CIA") containing a covenant not to compete, a non-disclosure covenant, and a nonsolicitation covenant. The first draft of this agreement was

abandoned because employees, including Omdahl, complained that it was too restrictive. A second version was drafted which Paper No. 2, Ex. A. Omdahl

Omdahl signed in November 1997.

believed that if he refused to sign the CIA his employment would be terminated. As consideration for signing the CIA, Omdahl

received life insurance, accidental death and dismemberment insurance, and long term disability insurance. The words of the CIA are not in dispute. dispute, however, whether the covenant not The parties to compete

restricting future employment to companies that only directly compete with leveraged index funds and inverse-correlation funds also limits employment with their sector funds, such as the ones Omdahl works with at ProFund. In November 1997, only three

mutual fund families in the United States offered leveraged index funds and inverse-correlation funds: Rydex funds, which are marketed by PADCO, and ProFund Advisors and Potomac Funds, the two companies started by former PADCO employees. situation continues today. This

The parties agree that leveraged

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index funds and inverse-correlation funds are unique investment products that directly compete with each other and that only these three companies market these funds. Omdahl was notified of his termination from PADCO on

November 1, 1999 by Mark Bentley after a negative performance evaluation. On November 30, 1999 Omdahl's employment at PADCO

ended pursuant to a resignation agreement signed by Omdahl. During the month of November, a PADCO representative cleaned out Omdahl's office, removing PADCO files and shipping them back to company headquarters in Maryland. Dep. at pp. 130-32. Paper No. 69, Ex. 5, Viragh

Omdahl asserts that PADCO terminated him

and threatened to withhold certain commissions if Omdahl did not comply fully with PADCO's demands. Id., Ex. 4. PADCO replies

that Omdahl's Resignation Agreement was negotiated with the assistance of counsel. Nothing in the agreement, however,

indicates that it was negotiated and the counsel mentioned in the agreement is Mark Bentley, who was a PADCO employee, not Omdahl's counsel. Paper No. 67, Ex. W at p. 82-3. Neither

party disputes that Omdahl was reminded of his obligations under the CIA by Mark Bentley and in the text of the Resignation Agreement at the time of his termination with PADCO. After Omdahl learned that his employment would be

terminated, he contacted ProFund, a direct competitor in the

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field of leveraged index funds and inverse-correlation funds. He also contacted other mutual fund companies in order to seek employment. Shortly after his termination from PADCO, Omdahl

accepted a position with Sun America in March 2000, but was only employed for six days. him to move from According to Omdahl, Sun America wanted Barbara, California, which was not

Santa

possible due to his family obligations so, therefore, he was not able to continue his employment. In March 2000, following his brief employment with Sun America, Omdahl accepted the position of National Vice

President/Sectors with ProFund Advisors. this position, Omdahl had at least one

Prior to accepting conversation with

ProFund's CEO, Michael Sapir, about the CIA Omdahl signed with PADCO and the possibility that PADCO would sue to enforce it. Paper No. 67, Ex. W at p.125-28. Omdahl did not notify PADCO is in

that he was accepting employment with ProFund, which violation of Section 3(d) of the CIA.

Omdahl states that his

position at ProFund was created for him to assist in the ongoing development and launch of the UltraSector ProFund, ProFund's new sector funds. On April 17, 2000, ProFund issued a press release National Vice President/Sectors.

announcing Omdahl as its new

On June 13, 2000, PADCO filed a complaint in the Circuit Court for Montgomery County, Maryland alleging breach of the non-

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disclosure/non-solicitation

agreement

and

covenant

not

to

compete and misappropriation of trade secrets under MUTSA, by Omdahl's continuing use of the knowledge contained within

PADCO's customer database.

A Temporary Restraining Order was

entered against Omdahl contacting PADCO customers on June 21, 2000 and was set to expire on July 25, 2000. Omdahl was not Omdahl

restricted from working for ProFund during that time.

removed this action from the Circuit Court for Montgomery County to this court on July 14, 2000. On July 26, 2000, this court

extended the Temporary Restraining Order imposed by the Circuit Court until the conclusion of the preliminary injunction

hearing.

On December 1, 2000, this court entered a preliminary

injunction enjoining Omdahl from disclosing to any third party, including ProFund Advisors, the name, address, or any other information about customers of PADCO, from participating in any communication within ProFund concerning any particular customer of ProFund or PADCO, from having his name associated with

ProFund in any public way, but it did not preclude him from remaining employed by ProFund and from certain specified That

communications and business activities. injunction is still in effect today.

Paper No. 53.

As a Vice President with ProFund Advisors, Omdahl has met with twenty or more PADCO customers whom he knew during his

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employment with PADCO and has spoken at length with them about ProFund's mutual funds. While employed at PADCO, Omdahl used basis and

PADCO's protected customer database on a regular

became so familiar with the customers listed that he did not need to refer to the database to recall their information. PADCO's customer database was compiled through conversations between PADCO's sales representatives and individual registered investment advisors ("RIAs"). Each RIA's profile contains his

investment strategy, total assets he manages, where the assets are invested, and the type of portfolio management software used. secret. This database is considered by PADCO to be a trade Access to the database is limited to a need-only basis

among PADCO employees, so that fewer than 15% of PADCO employees can access this information and it is specifically designated as confidential information by the CIA, which prohibits Omdahl from using or disclosing information in the database without PADCO's consent. Additionally, Omdahl is prohibited from soliciting or

calling any customer who was in the database when his employment ended for a period of two years following the end of his employment, regardless of where he is employed. II. Standard of Review It is well established that a motion for summary judgment will be granted only if there exists no genuine issue as to any

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material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 250 (1986); Celotex Corp. v. Catrett , 477 U.S. 317, 322 (1986). In other words, if there clearly exist

factual issues "that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party," then summary judgment is inappropriate.

Anderson, 477 U.S. at 250; see also Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir. 1987); Morrison v. Nissan Motor Co., 601 F.2d 139, 141 (4th Cir. 1979); Stevens v. Howard D. Johnson Co., 181 F.2d 390, 394 (4th Cir. 1950). moving party bears the burden of showing that genuine issue as to any material fact. there is The no

FED. R. CIV. P. 56(c);

Pulliam Inv. Co., 810 F.2d at 128 (citing Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979)). When ruling on a motion for summary judgment, the court must construe the facts alleged in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369

U.S. 654, 655 (1962); Gill v. Rollins Protective Servs. Co., 773 F.2d 592, 595 (4th Cir. 1985). A party who bears the burden of

proof on a particular claim must factually support each element of his or her claim. "[A] complete failure of proof concerning

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an essential element . . . necessarily renders all other facts immaterial." Celotex Corp., 477 U.S. at 323. Thus, on those

issues on which the nonmoving party will have the burden of proof, it is his or her responsibility to confront the motion for summary judgment with an affidavit or other similar

evidence.

Anderson, 477 U.S. at 256.

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In Celotex Corp., the Supreme Court stated: In cases like the instant one, where the nonmoving party will bear the burden of proof at trial on a dispositive issue, a summary judgment motion may properly be made in reliance solely on the "pleadings, depositions, answers to interrogatories, and admissions on file." Such a motion, whether or not accompanied by affidavits, will be "made and supported as provided in this rule," and Rule 56(e) therefore requires the nonmoving party to go beyond the pleadings and by her own affidavits, or by the "depositions, answers to interrogatories, and admissions on file," designate "specific facts showing that there is a genuine issue for trial." Celotex Corp., 477 U.S. at 324. However, "'a mere scintilla of Barwick v.

evidence is not enough to create a fact issue.'"

Celotex Corp., 736 F.2d 946, 958-59 (4th Cir. 1984) (quoting Seago v. North Carolina Theaters, Inc. , 42 F.R.D. 627, 632 There

(E.D.N.C. 1966), aff'd, 388 F.2d 987 (4th Cir. 1967)).

must be "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is

merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50

(citations omitted). III. A. Analysis Choice of Law

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In diversity actions, the choice of law rules of the state in which the district court sits determine the applicable

substantive law.

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).

When deciding contract claims, Maryland applies the doctrine of lex loci contractus, Allstate Insurance Co. v. Hart, 611 A.2d

100, 101 (Md. 1992), meaning that the law of the place where the last act was performed to complete the contract applies. Sting

Security, Inc. v. First Mercury Syndicate, Inc ., 791 F. Supp. 555, 558 (D. Md. 1992). Maryland courts also apply the choice

of law standard in the Restatement (Second) of Conflict of Laws

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