UnitedHealth unit Optum sues over executive's departure to high-profile startup

Optum is alleging breach of contract and misappropriation of trade secrets in a lawsuit against a former company vice president who jumped to a high-profile startup launched by celebrity CEOs at Amazon, Berkshire Hathaway and JPMorgan Chase — a new venture that some think could significantly shake up health care.

Optum, which is the Eden Prairie-based health services division of UnitedHealth Group, is seeking a temporary restraining order that would block David William Smith from working for the startup, known as ABC, for some period of time and stop him from using or disclosing Optum trade secrets, according to the lawsuit filed last week in Massachusetts.

The lawsuit suggests a degree of concern at Minnetonka-based UnitedHealth Group about ABC, which the lawsuit says has added two others with Optum backgrounds to its ranks.

"While the full scope of ABC's ultimate activities is still unknown, the expectation is that the venture aims to disrupt the health care industry as it exists today," Optum says in its complaint. "Against this quickly evolving and highly competitive backdrop, Optum's continued success depends on largely preserving its intellectual property, including its trade secrets … and retaining and relying on its top-level talent."

In a filing this week, Smith denied misappropriating any Optum confidential information, breaching his employee contract or soliciting Optum employees to work at ABC.

Calling himself a "junior leader" at Optum, Smith said he never met Optum Chief Executive Andrew Witty or UnitedHealth Group CEO David Wichmann. His work at ABC, Smith said, is focused on improving the employee health plan for the roughly 1.2 million workers and dependents who rely on the three founding companies for insurance coverage.

"My old role at Optum was focused on profitably selling Optum products into multiple markets, whereas my new role at ABC has nothing to do with commercializing products or making a profit," Smith said in an affidavit filed with the court. The new job "is only focused on helping to improve the health and well-being of the employees and families of the founders and helping make health benefits more affordable for the founders' companies."

In January 2018, three of the nation's most influential CEOs pledged their companies' resources to attacking health care costs with a new company that they said wouldn't be focused on profits, but rather technology to create a high-quality and transparent system for quality health care. On the day it was announced, the vague proposal from Jeff Bezos of Amazon, Warren Buffett of Berkshire Hathaway and Jamie Dimon of JPMorgan Chase coincided with share prices dropping at several large health care firms including UnitedHealth Group, which runs both Optum and UnitedHealthcare, the nation's largest health insurer.

The startup, which is called Tcorp62018 LLC but known widely as ABC, subsequently hired the influential Harvard University physician and writer Atul Gawande as chief executive.

In the lawsuit filed in federal court, Optum says that JPMorgan Chase and certain subsidiaries of Berkshire Hathaway are among the company's clients. Optum's success, the company says, is directly tied to its trade secrets and other proprietary information — so much so, in fact, that the company assigns code names to highly confidential projects, according to the lawsuit.

Smith joined Optum in July 2016 as a vice president, the lawsuit says, adding that the executive spent most of his time performing work on corporate strategy and projects. Smith developed a deep understanding of Optum's product road map and proprietary business plans, according to the lawsuit. It asserts that he was one of fewer than 50 people at the company with access to Optum's consolidated set of profit-and-loss statements at a product-line level for the entire company.

"In recognition of Smith's position and his access to Optum's trade secrets and other confidential information, and in exchange for equity in shares of [UnitedHealth Group], Smith agreed to several nondisclosure, noncompete and nonsolicitation restrictive covenants," the lawsuit states. "Optum provided Smith a substantial base salary (starting at $200,000 annualized), a $25,000 sign-on bonus and other benefits."

While noting the hiring by ABC of two others who worked at Optum, the lawsuit states: "ABC's hiring of Smith is part of ABC's larger plan to lift Optum's model or, at the very least, to duplicate or develop similar products and services."

Smith filed with the court this week opposition to Optum's request for a temporary restraining order. In the filing, he says Optum didn't identify any trade secrets that the former employee allegedly misappropriated, nor did the company provide evidence that he retained Optum information or documents.

Smith argues that Optum's arbitration agreement with Smith precludes the company "from seeking any of the relief that it seeks here," the filing states. What's more, Optum's claim that Smith breached a noncompete agreement is "defective," according to the filing, because ABC is not a competitor.

"ABC has no products, does not compete for business with Optum, and to Smith's knowledge, has no plans to do so," the filing states. It asserts that one of Smith's superiors "remarked in front of a number of Optum employees, including Smith, that ABC was more likely to be a customer than a competitor to Optum."

In an affidavit filed with the court, Smith said he was not a member of Optum's executive team or a part of senior leadership, adding that as of 2018 he was one of seven individuals at a similar level on the corporate strategy/product teams.

"In my job at Optum, I had no involvement in providing any Optum products or services to Amazon, Berkshire Hathaway and JPMorgan Chase, and I had no confidential information about any Optum activity, product or services related to the [ABC] founders," Smith said in the affidavit. "My interest [in ABC] was not financially motivated, and, in fact, my total compensation at ABC is less than I received at Optum."

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck