NOEL L. HILLMAN, District Judge.
This matter concerns non-disclosure agreements (NDAs) between FastShip, Inc. and Defendants Lockheed Martin Corporation ("Lockheed") and Gibbs & Cox, Inc. ("G&C") concerning the design of a semi-planing monohull ("SPMH"). The design is used in large ships to maintain higher speeds in heavy seas. Plaintiffs FastShip, LLC and the Liquidating Trust of FastShip, Inc. ("Liquidating Trust") purport to be the assignees of FastShip, Inc. pursuant to a confirmed plan of reorganization ("Confirmed Plan").
Before the Court are Lockheed's Motion to Dismiss and G&C's Motion to Dismiss. For the reasons that follow, the Court will deny both Motions to Dismiss. This matter will proceed through a limited period of discovery on the issue of the statute of limitations defense, and, if warranted, dispositive motions on that isolated issue.
The Court takes its facts from Plaintiffs' September 6, 2017 Second Amended Complaint. For both commercial and military purposes, the faster a large ship can go in heavy seas the better. Conventional wisdom says large ships should use displacement hulls, which are limited in their capacity to reach speeds over forty knots. David Giles, FastShip, Inc.'s
After the navies of Great Britain and the United States rejected his idea, Giles established Thornycroft, Giles & Company Inc. in March 1988. Giles and this company continued developing the SPMH design and filed for patent protection in the United Kingdom on October 11, 1989. This eventually resulted in the issuance of U.S. patents 5,080,032 and 5,231,946 covering the SPMH design for large vessels. FastShip, Inc. was the sole owner of these patents.
Due to continued skepticism in the field, FastShip, Inc. paid experts for analysis and testing to prove the viability of the design. FastShip, Inc. also prepared extensive drawings to enable the construction of an SPMH vessel. FastShip, Inc. engaged entities to run simulations of the design and to conduct elaborate tank testing to prove the design's viability. FastShip, Inc. paid approximately $40 million for these tests and data. Plaintiffs refer to this testing and data cumulatively as the "Trade Secrets."
In 2001, in contemplation of a commercial collaboration, FastShip, Inc. and Lockheed entered into an NDA. In February 2003, FastShip, Inc. and Lockheed entered into another NDA in connection with possibly collaborating on the U.S. Navy's Littoral Combat Ship (LCS) Program ("LCS Program"). Also in February 2003, FastShip, Inc. and G&C entered into a separate NDA. These NDAs were "for the purpose of sharing information regarding potential collaboration on the LCS Program" and "did not authorize or allow Defendants to use FastShip's Trade Secrets on the LCS Program without further written approval from FastShip." Under the February 2003 NDAs, and other confidentiality agreements entered into, FastShip, Inc. shared its Trade Secrets with Defendants.
Prior to the 2003 NDAs, Lockheed had pursued the LCS Program independently using a different hull design. In October 2002, Lockheed withdrew that proposal and joined with G&C, which was competing with another distinct design.
On February 26, 2003, following a U.S. Navy announcement greatly increasing its operational requirements for the LCS Program, Lockheed invited FastShip, Inc. to give a detailed presentation on its SPMH technology. FastShip, Inc. provided the full details of its research and development. Following this presentation, Lockheed verbally invited FastShip, Inc. to participate in the LCS Program. The request was repeated in writing on March 10, 2003. On March 20, 2003, FastShip, Inc. agreed to be included in the Lockheed team for the LCS Program, which also included G&C and later another entity. A March 2003 announcement stated:
The parties agreed Lockheed was permitted to include FastShip, Inc. as a participant on its team for the purpose of responding to the LCS Program request for proposals. It was also agreed that FastShip, Inc. would provide Lockheed and G&C with information to help define FastShip, Inc.'s involvement. It was agreed that all information was exchanged subject to the 2003 NDAs.
In Lockheed's submission to the U.S. Navy for the preliminary design contract for the LCS Program, Lockheed specifically noted the contributions of FastShip, Inc. On May 27, 2004, the U.S. Navy selected Lockheed to conduct the preliminary design work for the LCS Program. However, Lockheed did not include FastShip, Inc. on its team nor was FastShip, Inc. included in the subsequent design and build work Lockheed was awarded on the LCS Program.
Plaintiffs allege Defendants "used FastShip's Trade Secrets to perform the preliminary design contract and to win and perform the subsequent aspects of the LCS Program" and that such use "was without FastShip's permission and thus was a breach of the February 2003 NDAs with those parties as well as a misappropriation of FastShip's Trade Secrets."
Plaintiffs allege Defendants conducted extremely limited tank testing on its vessels. Plaintiffs allege that the testing Defendants did conduct was largely to fill a "gap" in FastShip, Inc.'s testing. Plaintiffs plead:
Plaintiffs allege Defendants concealed their use of the Trade Secrets, in one instance stating that the LCS ship design was a multi-chined hull and not based on FastShip, Inc.'s hull design.
On November 8, 2008, the U.S. Navy commissioned the USS Freedom (LCS-1), a ship publicly claimed by the U.S. Navy and Lockheed to incorporate a revolutionary semi-planing monohull. On September 22, 2012, the Navy commissioned the USS Fort Worth (LCS-3). Eleven other Lockheed vessels are under construction or on order.
FastShip, LLC
Plaintiffs' Second Amended Complaint asserts two counts:
(1) breach of contract (Count I) and (2) misappropriation of trade secrets (Count II). On September 27, 2017, Defendants separately filed Motions to Dismiss Plaintiffs' Second Amended Complaint.
"[A] federal court generally may not rule on the merits of a case without first determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction) and the parties (personal jurisdiction)."
As part of its inquiry into subject matter jurisdiction, the Court must determine whether Plaintiffs have standing to pursue this action.
This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1332. FastShip, LLC is a limited liability company whose sole member is the Liquidating Trust.
Lockheed is incorporated in Maryland and has its principal place of business there. G&C is incorporated in New York and has its principal place of business in Virginia. Accordingly, the citizenship of Plaintiffs is diverse from the citizenship of Defendants. Plaintiffs plead an amount in controversy in excess of $75,000, exclusive of interest and costs, giving this Court diversity jurisdiction under 28 U.S.C. § 1332.
"A motion to dismiss for want of standing is . . . properly brought pursuant to Rule 12(b)(1), because standing is a jurisdictional matter."
"A Rule 12(b)(1) standing challenge may attack the complaint facially or may attack the factual basis for standing."
"[R]ecent Third Circuit cases suggest that only facial attacks, and not factual attacks, can be brought in a motion to dismiss before an answer is filed."
This Court finds that, in light of recent case law from this Circuit, it must consider Defendants' standing argument to be a facial attack, as Defendants have not yet filed an answer. Nonetheless, as in considering any Rule 12(b)(6) motion, the Court will consider matters of public record and undisputed documents that form the basis of Plaintiffs' Second Amended Complaint.
The Constitution confines the power of federal courts as extending only to "Cases" and "Controversies." Art. III, § 2. "No principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies."
Defendants' standing argument focuses on proceedings before the Bankruptcy Court in the District of Delaware, namely the interpretation of the Confirmed Plan, a Motion to Reopen, and the Bankruptcy Court's Order on that motion. The Court must first determine whether it can interpret these documents on these motions to dismiss, or whether Defendants' standing arguments are more appropriate for summary judgment.
It is clear to this Court that it can take judicial notice of the Confirmed Plan and Motion to Reopen in the Bankruptcy Court, as well as the subsequent Bankruptcy Court Order, in considering the pending motions to dismiss. The Third Circuit has held that "a prior judicial opinion constitutes a public record of which a court may take judicial notice."
Defendants' standing arguments ask this Court to interpret these documents, which is a separate inquiry. "Taking judicial notice of the existence of other proceedings does not convert a motion to dismiss into a motion for summary judgment as long as the court does not take judicial notice of those proceedings to find facts."
Plaintiffs argue Defendants' "argument is premature, as it rests not simply on the existence of Bankruptcy Court's Order, a public record, but on a contested interpretation of its meaning. To the extent that there is a dispute regarding the significance of the order, judicial notice and dismissal are not proper." Plaintiffs cite
The Court finds it can interpret the Bankruptcy Court's Confirmed Plan and Order on these pending motions to dismiss. In
Prior to this lawsuit in the District of New Jersey, Plaintiffs were formed out of a Chapter 11 proceeding in the District of Delaware Bankruptcy Court. The entity was used in part to enable patent litigation by FastShip, LLC against the United States. After the bankruptcy case was closed, Plaintiffs moved to reopen the case on December 19, 2016 to, in part, transfer "Additional Litigation" to Plaintiffs. The Bankruptcy Court granted the requested transfer. The standing issue in this case concerns what was encompassed within the Chapter 11 proceeding and the subsequent transfer.
The scope of the Bankruptcy Court's Confirmed Plan and Order is clear to this Court. The Confirmed Plan provides in Article IV(C):
The Liquidating Trust assets are defined as synonymous with the "Transferred Assets," Article I(B)(57), which are defined in Article I(B)(79) as:
The Court finds this alone transferred the breach of contract and misappropriation of trade secrets claims to the Liquidating Trust.
In the Motion to Reopen before the Bankruptcy Court, it was stated that "during the course of the IP Litigation, the Trustee was informed that certain information came to light which may form the basis of additional litigation actions (the `Additional Litigation') which, if successful, would provide additional proceeds for distribution to the Beneficiaries of the Liquidating Trust." It later stated: "The Additional Litigation which has been identified as possibly existing relates to the breach of certain confidentiality and non-disclosure agreements executed in favor of the Debtors relating to the patents and the resultant infringement alleged against the U.S. Government." In granting the Motion to Reopen, the Bankruptcy Court "ORDERED that the Additional Litigation, if same was not transferred to FastShip LLC on the Effective Date of the Confirmed Plan[,] is hereby transferred to FastShip LLC." The Bankruptcy Court itself did not define "Additional Litigation"; it is presumed the Court adopted the definition set forth in the Motion to Reopen.
Defendants focus on the definition of "Additional Litigation." For instance, Lockheed argues "only those claims that relate to FastShip, Inc.'s patents or any resulting infringement can be asserted" and that "[a]nything `related to' the patents and the `resulting infringement' is likewise public and cannot serve as the basis for a trade secret claim, or a breach of contract claim where the breach is based on the disclosure of confidential information."
Plaintiffs argue the underlying motion clearly states "that the new allegations relate to the breach of non-disclosure agreements." Plaintiffs continue:
The Court must view the Bankruptcy Court's Order in the light most favorable to Plaintiffs. The Court considers the causes of action in this matter to be encompassed within the definition of "Additional Litigation," as the definition advanced in the Motion to Reopen specifically referenced the NDAs, and the Court finds a sufficient relationship between these claims and the patent litigation. The Court finds the Bankruptcy Court's January 5, 2017 Order transferred the causes of action in this case to FastShip, LLC, in addition to the earlier transfer to the Liquidating Trust. The Court finds both Plaintiffs have standing upon consideration of this facial attack: the Liquidating Trust through the Confirmed Plan and FastShip, LLC through the Order on the Motion to Reopen.
Defendants further argue Plaintiffs lack standing because they were not parties to the 2003 NDAs and the 2003 NDAs could not be assigned to them. Defendants further argue the 2003 NDAs were not in fact assigned to Plaintiffs by the Bankruptcy Court. This issue appears to require the Court to determine whether the 2003 NDAs were executory or non-executory and whether they were encompassed in the Bankruptcy Court's Order. It is similarly argued that Plaintiffs do not own the alleged Trade Secrets and that they were never transferred to Plaintiffs.
The Court at this juncture need not resolve whether or not it was required that the underlying NDAs and Trade Secrets themselves were assigned to Plaintiffs, in addition to the causes of action, as Defendants' assignment arguments are inappropriate on a motion to dismiss. Plaintiffs' Second Amended Complaint pleads that FastShip, LLC is "the assignee of the claims at issue in this suit." It further pleads that the Liquidating Trust "is also the assignee of certain assets and rights of FastShip, Inc. . . . pursuant to the terms of a confirmed plan of reorganization." At this motion to dismiss stage, the Court must assume this to be true. The Court finds any further inquiry into the assignability of these claims must be argued on motion for summary judgment.
The Court finds standing here under this facial attack. Out of an abundance of caution, however, this Court will allow any party to submit a letter request for a stay of this case to file a motion to reopen with the Delaware Bankruptcy Court to seek an order interpreting its January 2017 Order with reference to the issues that will continue before the Court in this case, as well as for G&C to advance its arguments that the Bankruptcy Court lacked the authority to enter its decision, G&C's arguments that the Bankruptcy Court's Order is invalid, and Lockheed's argument that the Liquidating Trust did not perform its obligations under the Confirmed Plan. The Court proceeds in its analysis finding, on the record now before it, that Plaintiffs have standing to pursue their causes of action in this matter.
G&C argues this Court does not have personal jurisdiction over it and asks for dismissal pursuant to Rule 12(b)(2). The Court finds Plaintiffs have advanced a prima facie case of personal jurisdiction over G&C.
"To survive a motion to dismiss for lack of personal jurisdiction, a plaintiff bears the burden of establishing the court's jurisdiction over the moving defendants."
While a plaintiff need only establish a prima facie case of personal jurisdiction, "a plaintiff may not `rely on the bare pleadings alone' in order to withstand a motion to dismiss for lack of personal jurisdiction."
A defendant is subject to the jurisdiction of a United States District Court if the defendant "is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located." Fed. R. Civ. P. 4(k)(1)(A). "A federal court sitting in New Jersey has jurisdiction over parties to the extent provided under New Jersey state law."
A defendant establishes minimum contacts by "purposefully avail[ing] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws."
In determining whether a defendant's contacts with a forum state are sufficient to allow for personal jurisdiction over that party, a court must consider whether such contacts are related to or arise out of the cause of action at issue in the particular case. A court may exercise specific personal jurisdiction over a defendant where the cause of action is related to or arises out of activities by the defendant that took place within the forum state.
"Once it has been decided that a defendant purposefully established minimum contacts within the forum State, these contacts may be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with `fair play and substantial justice.'"
Plaintiffs and G&C appear to agree that general personal jurisdiction does not exist here. The Court agrees. Accordingly, the Court considers whether specific personal jurisdiction exists. As identified by Plaintiffs, the following meetings took place with G&C in New Jersey:
G&C argues these meetings are irrelevant. G&C argues Plaintiffs have not alleged that G&C ever met with FastShip, Inc. in New Jersey, that G&C ever received FastShip, Inc.'s Trade Secrets in New Jersey, or that G&C ever disclosed FastShip, Inc.'s Trade Secrets in New Jersey. G&C argues the meetings identified by Plaintiffs do not "mention FastShip Inc. or reference any discussion or use of the alleged trade secret SSPA tank testing or any other purported trade secrets or `bad facts' as alleged by Plaintiffs." G&C thus argues "Plaintiffs' causes of action d[o] not arise out of G&C's meetings in New Jersey."
The gravamen of Plaintiffs' Second Amended Complaint is that "Lockheed and Gibbs & Cox used FastShip's Trade Secrets to perform the preliminary design contract and to win and perform the subsequent aspects of the LCS Program." It is clear to this Court that the New Jersey meetings between Lockheed and G&C were related to performing the preliminary design contract and other aspects of the LCS Program. Taking Plaintiffs' allegations as true, as this Court must at this stage, the Court finds that if the performance in the LCS Program involved breaches of the NDAs between Defendants and Plaintiffs or resulted in a misappropriation of trade secrets, meetings between Defendants in furtherance of the LCS Program performance are relevant contacts and G&C should reasonably expect to be haled into court in New Jersey. The Court hardly finds these contacts to be "random," "fortuitous," or "attenuated."
The Court further finds that exercising personal jurisdiction over G&C comports with fair play and substantial justice. The Court finds no compelling reason why exercising personal jurisdiction over G&C would be unfair or unjust. Further, as this case will be heard against Lockheed in the District of New Jersey,
G&C also argues venue is improper, which is grounds for dismissal under Rule 12(b)(3). Venue is governed by 28 U.S.C. § 1391(b), which provides that venue is proper in:
Defendants are both corporations. "[A]n entity with the capacity to sue and be sued in its common name under applicable law, whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court's personal jurisdiction with respect to the civil action in question. . . ."
Defendants advance several bases for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
When considering a motion to dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff.
"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. . . ."
A district court, in weighing a motion to dismiss, asks "not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claim."
The breach of contract and trade misappropriation claims against Lockheed are governed by the applicable statute of limitations under New Jersey law. New Jersey applies a six-year statute of limitations to breach of contract claims. N.J.S.A. 2A:14-1 ("Every action at law . . . for recovery upon a contractual claim or liability . . . shall be commenced within 6 years next after the cause of any such action shall have accrued."). A six-year statute of limitations also applies to the misappropriation of trade secrets claim.
G&C and Plaintiffs dispute the law that applies to the breach of contract and misappropriation of trade secrets claims against G&C. Plaintiffs argue they are governed by New Jersey law, whereas G&C argues they are governed by Delaware law. Under Delaware law, the statute of limitations for contract actions is three years. Del. Code Ann. tit. 10, § 8106;
Plaintiffs plead they did not know of their current claims until "discovery was completed and reviewed in the patent case . . . which was not completed until less than three years prior to the filing of the complaint in this suit." Plaintiffs make the following allegations in their Second Amended Complaint:
The Court finds it cannot resolve this issue on a motion to dismiss. Under either the Delaware or the New Jersey statute of limitations, Plaintiffs rely on the discovery rule, which implicates factual matters outside the pleadings and beyond the scope of this motion to dismiss and requires the Court to draw conclusions outside the scope of the Court's inquiry on a 12(b)(6) motion.
As to both causes of action, Lockheed argues Plaintiffs' claims are "implausible": "Plaintiffs expressly admit that they have no idea whether or not Lockheed Martin actually used FastShip, Inc.'s information. Instead, they can only argue that the facts `suggest' a violation, but this suggestion comes from an alleged `lack' of information. . . . [S]uch speculation and guess work is insufficient to state a claim for relief." (citation omitted). Lockheed argues:
It is improper at this juncture to determine the "more plausible" account of what occurred. Rather, the only question before this Court at the motion to dismiss stage is whether Plaintiffs have proffered sufficient factual allegations such that the Court is convinced a plausible claim for relief exists.
To prevail on a breach of contract claim under New Jersey law, a plaintiff must establish three elements: (1) the existence of a valid contract between the parties; (2) failure of the defendant to perform its obligations under the contract; and (3) causal relationship between the breach and the plaintiff's alleged damages.
Defendants argue there is not a valid contract between the parties, as FastShip, LLC and the Liquidating Trust were not parties to the 2003 NDAs. As discussed with reference to standing, this issue cannot be adjudicated at the motion to dismiss stage in this case. As to breach and damages, Lockheed argues the use of Plaintiffs' information "is explicitly permitted by the contracts Lockheed Martin allegedly breached." Lockheed argues the 2003 NDA permitted it to use Plaintiffs' information to win the LCS contract and to perform on the LCS contract and thus there was no breach. G&C makes this same argument.
Section 2 of the 2003 NDA with Lockheed states:
Section 5(b) of the 2003 NDA with Lockheed later states: "Any protected information provided by one party to the other shall be used only in furtherance of the purposes described in Section 2 of this Agreement." Section 5(c) states: "Proprietary information may not be disclosed to any third party without the express written consent of the disclosing party notwithstanding the provisions of Article 2 herein."
Section 3 of the G&C NDA provides:
The Court rejects Defendants' arguments that the Court should dismiss this case because the NDAs provide them with an unencumbered ability to disclose Plaintiffs' information. Reading Plaintiffs' Second Amended Complaint and the 2003 NDAs in the light most favorable to Plaintiffs, the Court finds sufficient evidence that such disclosures, if made, would have been in violation of the 2003 NDAs. Plaintiffs have sufficiently pleaded a breach and resultant damages.
Lockheed argues "Plaintiffs have not identified the trade secrets allegedly misappropriated with enough specificity and particularity so as to allow Lockheed Martin (and the Court) to determine what exactly Plaintiffs claim is a trade secret." However, "[a] misappropriation of trade secrets claim is not subject to a heightened pleading requirement."
Plaintiffs' Second Amended Complaint identifies the Trade Secrets as the "testing and data in the 1980's and 1990's," specifically focusing on tank testing. The Court finds this sufficiently pleaded. The Court finds the other elements of this cause of action to be sufficiently pleaded under both New Jersey or Delaware law, largely for the same reasons as discussed with reference to the breach of contract claim.
The Court finds Plaintiffs pleaded that FastShip, Inc. took reasonable steps to protect the Trade Secrets in pleading that the 2003 NDAs and confidentiality agreements were executed. The Second Amended Complaint also clearly pleads that such Trade Secrets were communicated to G&C and Lockheed pursuant to the 2003 NDAs, and thus under an understanding that the secrecy would be respected. As Plaintiffs plead FastShip, Inc. was left out from the LCS Program, despite its Trade Secrets being used, Plaintiffs sufficiently plead injury. The Court finds a plausible misappropriation of trade secrets claim.
In arguing that some of Plaintiffs' information cannot constitute trade secrets, G&C relies on documents outside the pleadings and which the Court determines it cannot consider in deciding this motion to dismiss. The argument that potential Trade Secrets were previously published in these documents must be brought pursuant to a motion for summary judgment. The same goes for G&C's argument that FastShip, Inc. failed to mark certain materials as confidential, thus destroying a trade secret.
The Court will deny both Motions to Dismiss. Plaintiffs request an initial summary judgment phase limited to the statute of limitations question. The Court finds this the most prudent way to proceed. The Court will direct the parties to confer and contact Magistrate Judge Williams's chambers to set a discovery schedule and a dispositive motion deadline on the limited statute of limitations issue. Initial discovery and any resulting summary judgment motions will be confined to the statute of limitations issue.
An appropriate Order will be entered.
Lockheed, in its reply, also appears to argue "Plaintiffs must explain how or why they continue to maintain any FastShip, Inc. assets" since the Liquidating Trust "was obligated `to reduce to cash or otherwise liquidate' all of FastShip, Inc.'s assets." The Court sees no obligation for Plaintiffs to so explain this before this Court. Plaintiffs plead ownership of all FastShip, Inc. assets, and that is sufficient for these motions to dismiss.
