CINDY K. JORGENSON, District Judge.
Plaintiffs Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and Joshua David Mellberg filed a First Amended Complaint asserting 11 counts against various Defendants. (Doc. 9, FAC) Four motions are now pending before the Court: (1) Partial Motion to Dismiss filed by Defendants Jovan Will and Tree Fine (Doc. 22); (2) Motion to Dismiss filed by Defendant the Impact Partnership (Doc. 27); (3) Partial Motion to Dismiss filed by Defendants Fernando & Geovanna Godinez (Doc. 30); and (4) Motion to Dismiss filed by Defendant Carly Uretz (Doc. 34). Following oral argument on November 13, 2014, Magistrate Judge Charles R. Pyle issued a Report and Recommendation (R & R) on February 9, 2015, (1) denying in part and granting in part Defendant Will and Fine's Partial Motion to Dismiss; (2) granting Defendant Impact Partnership's Motion to Dismiss; (3) granting Defendant Godinez' Partial Motion to Dismiss; and (4) granting Defendant Uretz' Motion to Dismiss. (Doc. 45.) With the exception of certain claims in the Third Claim (Unfair Competition), the Magistrate Judge recommended that all dismissed claims be dismissed with leave to amend. (Id. at 33.)
Plaintiffs files objections to the R & R to the extent that it recommends that certain unfair competition claims be dismissed as based on theories too novel to be permitted to go forward. (Doc. 46.) Defendant Jovan Will objects to the R & R on the ground that the FAC contains no plain statement that Will misappropriated trade secrets. (Doc. 47.) Defendant Tree Fine objects to the R & R on the ground that the Confidentiality Agreement is facially unenforceable. (Doc. 48.)
The Court overrules the objections and adopts the R & R.
Plaintiffs are Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and Joshua David Mellberg, an individual (collectively referred to as "JDM" or "Plaintiffs"). Joshua David Mellberg is the owner and President of JDM. (FAC ¶ 16.) He is a nationally known financial advisor based in Tucson, Arizona, and "is a pioneer and leader in marketing and selling annuities via the Internet." (Id. ¶¶ 17, 18.) JDM Mellberg Financial is a nationwide retail and wholesale insurance agency specializing "in capturing internet based leads and supplying them to a network of agents across the country. JDM began developing internet based marketing and sales funnels in 2009." (Id. ¶ 22; see also id. ¶ 23 (JDM has expended in excess of $30 million refining its sales funnels)) JDM advertises and promotes the services and products that it offers, including annuities. (Id. ¶¶ 21, 22.) A significant portion of JDM's advertising and promotional activities in the field of annuities is conducted on the internet. (Id. ¶ 21).
JDM alleges the following claims for relief: (1) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (First Claim) against all Defendants; (2) violation of the Arizona Uniform Trade Secrets Act ("AUTSA"), A.R.S. § 44-401 et. seq., against all Defendants (Second Claim); (3) unfair competition against all Defendants (Third Claim); (4) breach of contract against Defendants Fine, Arceo and Godinez (Fourth Claim); (5) unjust enrichment against all Defendants (Fifth Claim); (6) breach of fiduciary duty/duty of loyalty against Defendants Fine and Will (Sixth Claim); (7) breach of duties regarding Alpha Academy Advisors, LLC, against Defendant Will (Seventh Claim); (8) trespass to chattel against Defendant Fine (Eighth Claim); (9) theft/conversion against Defendant Fine (Ninth Claim); (10) civil conspiracy against all Defendants (Tenth Claim); and (11) aiding and abetting against all Defendants (Eleventh Claim).
Pursuant to Fed.R.Civ.P. 12(b)(6), Defendants Will, Fine, Godinez, Uretz, and The Impact Partnership seek dismissal of JDM's Second, Third, Fifth, Tenth, and Eleventh Claims for failure to state a claim. Additionally, Defendants Fine and Godinez seek dismissal of JDM's Fourth Claim for relief for failure to state a claim, and Defendants Fine and Will seek dismissal of JDM's Sixth Claim for relief for failure state a claim.
The Court reviews de novo the objected-to portions of the Report and Recommendation. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). The Court reviews for clear error the unobjected-to portions of the Report and Recommendation. Johnson v. Zema Systems Corp., 170 F.3d 734, 739 (7th Cir.1999); see also, Conley v. Crabtree, 14 F.Supp.2d 1203, 1204 (D.Or. 1998).
The standard for a motion to dismiss is correctly stated in the R & R and will not be repeated here. (Doc. 45 at 3-5.)
Plaintiffs' Third Claim is for unfair competition against all Defendants. The FAC alleges as unfair competition that, inter alia, "Defendants have engaged in unlawful business acts or practices by committing acts including computer fraud, trespass, conversion, and other illegal acts as practices as alleged above, all in an effort to gain unfair competitive advantage over JDM."
The Arizona Supreme Court has recently held that the AUTSA "creates an exclusive cause of action—and displaces conflicting causes of action—for claims based on the misappropriation of trade secrets." Orca Commc'ns Unlimited, LLC v. Noder, 236 Ariz. 180, 337 P.3d 545, 546 (2014) (Orca II). The Court also held that assuming the viability of a common law claim for misappropriation of confidential information, AUTSA "does not displace common-law claims based on alleged misappropriation of confidential information that is not a trade secret." Id. The Court, which was reviewing the lower courts' decision on a motion to dismiss, declined to "decide today what aspects, if any, of the confidential information alleged in [the plaintiff's] unfair competition claim might fall within AUTSA's broad definition of `trade secret' and therefore be displaced. . . . That determination will not hinge on the claim's label, but rather will depend on discovery and further litigation that has not yet occurred." Id. at 549 (citations omitted). Magistrate Judge Pyle ruled that in light of Orca II, it cannot be said at this point in the litigation that JDM's claim is preempted by AUTSA to the extent it may involve confidential information that does not constitute trade secrets. (Doc. 45 at 23.)
The Arizona Supreme Court also declined to decide whether Arizona recognizes a common-law claim for unfair competition as alleged in Orca's complaint.
Orca II, 337 P.3d at 549-550.
Plaintiffs argue that Arizona courts have stated that "[t]he common law doctrine of unfair competition is based on principles of equity," Fairway Constructors, Inc., 970 P.2d at 956, and because of the doctrine's equitable underpinning, the "tort of unfair competition is extremely flexible[.]" Golden Nugget, Inc. v. American Stock Exchange, Inc., 828 F.2d 586, 591 (9th Cir. 1987). Plaintiffs contend that the only requirements in Arizona for the tort of unfair competition are that the plaintiff show either "that it was engaged in competitive business with [the defendant] or that [the defendant's] actions were likely to produce public confusion[.]" Sutter Home Winery,
§ 1 (emphasis added). Plaintiffs further contend that Comment (g) to this section of the Restatement further elucidates the broad and flexible application of the doctrine:
Restatement (Third) of Unfair Competition § 1 (1995) (emphasis added).
Defendant The Impact Partnership files a response, which is joined by Defendants Will, Fine, Godinez, and Uretz. (Docs. 49, 50.) They assert that Sutter Home, on which Plaintiffs rely, contains no analysis of the issue and cites a single Arizona Supreme Court opinion, from 1945. See Sutter Home, 971 F.2d at 407 (citing Lininger v. Desert Lodge, 63 Ariz. 239, 160 P.2d 761 (1945)). They contend that since Desert Lodge, the Arizona Supreme Court has twice held that "the universal test [for unfair competition] is whether the public is likely to be confused." Boice v. Stevenson, 66 Ariz. 308, 187 P.2d 648, 653 (1947) (emphasis added); see also O'Hara v. Lance, 77 Ariz. 84, 267 P.2d 725, 728 (1954) (same). They also argue that Desert Lodge was a trade name dispute between the owners of "The Lodge on the Desert" and "Desert Lodge." The court expressly limited its analysis to disputes over trade names. They point out that this court refused to recognize a claim for unfair competition in the absence of public confusion on two occasions. (Doc. 49 at 2-3, citing Doe v. Arizona Hospital & Healthcare Association, 2009 WL 1423378 at *12 (D.Ariz. Mar. 19, 2009) and ACT Group,
First, the Court is not persuaded that the Magistrate Judge's ruling was based on the failure to allege public confusion. In addition, the unfair competition claims in Orca do not appear to involve public confusion. Nevertheless, the Court overrules Plaintiffs' objection. The reference to the Restatements in Orca II was solely in the context of a theory of unfair competition based on misappropriation. The Arizona courts have previously stated that "the doctrine [of unfair competition] encompasses several tort theories, such as trademark infringement, false advertising, `palming off,' and misappropriation." Fairway Constructors, Inc., 970 P.2d at 956 (emphasis added). Pursuant to Orca II, Plaintiffs will be permitted to amend the claim of unfair competition based on misappropriation of confidential information that is not a trade secret. But this Court does not read the language in Orca II as inviting additional expansion of the doctrine of unfair competition, and Plaintiffs cite no cases outside Arizona that recognize unfair competition as including theories of computer fraud, trespass, or conversion. Moreover, Plaintiffs have separately asserted claims for computer fraud, trespass, and conversion.
The R & R finds that Plaintiffs state a claim against Defendant Will for misappropriation of trade secrets. (Doc. 45 at 11-12.) Defendant Will objects, asserting that the FAC does not contain a plain statement of the claim that Will misappropriated trade secrets. (Doc. 47 at 1.)
According to Will, the R & R identifies six paragraphs that address the trade secrets claim against Will, two of which do not rise to the level of misappropriation—¶¶ 38, 39 alleging access to client lists. (Doc. 47 at 2; ref. Doc. 45 at 11.) The R & R summarizes the remaining four paragraphs against Will as follows:
(Doc. 45 at 11 (quoting FAC ¶¶ 47-48, 120-121).)
Will argues that allegations that he "hosted an unauthorized webinar" (FAC ¶¶ 47, 48) cannot support a claim for misappropriation of trade secrets because on their face, the allegations relate to actions Will took "in July of 2013 . . . through AAA" (FAC ¶ 47), which led to "an agreement to wind down AAA" (FAC ¶ 48.) The FAC alleges that AAA was at the time an LLC formed by Will and Plaintiff Josh Mellberg (FAC ¶ 40), "to provide sales and marketing training to agents outside of JDM" and "to market to and recruit agents to work with JDM." (FAC ¶ 42.) Will contends that his actions cannot be misappropriation because he owned the entity with Plaintiff.
Will asserts that the allegation that he hosted a webinar "using JDM proprietary materials" is conclusory. A "plaintiff seeking relief for misappropriation of trade secrets must describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons . . . skilled in the trade." HTS, Inc. v. Boley, 954 F.Supp.2d 927, 944 (D.Ariz.2013) (quoting Imax Corp. v. Cinema Tech., Inc., 152 F.3d 1161, 1164-65 (9th Cir.1998)). The FAC does not distinguish the "proprietary materials" from general knowledge in the
Will also argues that Plaintiffs' FAC allegations fail to plead sufficient facts to show that the information both
Ariz.Rev.Stat. § 44-401(4). Both are essential elements for information to rise to the level of a trade secret.
Will further contends that the allegations of downloaded "web content" are insufficient because the allegations suggest that the "web content" is not secret; rather, it is readily available to all of Plaintiffs' clients. The "hallmark of trade secrets is their secrecy." Householder Grp., LLLP v. Van Mason, 2012 WL 4513635 (D.Ariz. Sept. 30, 2012). Plaintiffs admit that the "web content," including the "training and educational videos," were "available on a password-protected basis to agents that register for and pay for JDM's services." (FAC ¶ 119.) Will argues that information accessible to anyone who pays for access is not secret. In addition, Plaintiffs have alleged no facts to plausibly support "trade secret" status for the content they make available on the internet. Furthermore, the FAC does not allege that Will ever "used" the allegedly illegal downloads of JDM's training videos. (See FAC ¶¶ 122-126, alleging that Will was told to stop using a client list, had launched websites, and was using JDM's third-party compliance consultant—not that Will was using the training videos.)
Plaintiffs respond that they allege sufficient facts to state a claim and that Will's objections are at odds with the applicable pleading standard. (Doc. 51 at 4.) The FAC's detailed identification and description of Plaintiffs' trade secrets satisfies the notice pleading standard because it plausibly appears that trade secrets are involved. Plaintiffs are not required to disclose the actual trade secrets in the Complaint. For example, in W.L. Gore & Assocs. v. GI Dynamics, Inc. (Gore I), No. CV-10-8088, 2010 WL 5184254, at *8 (D.Ariz. Dec. 15, 2010), the complaint alleged broad categories of confidential information including "market studies, financial information, manufacturing methods, and [counterclaimant's] future plans." Id. The court found that these categories were sufficient to state the existence of trade secrets in light of Iqbal. Id.
Here, Plaintiffs' allegations, like the categories of information alleged in Gore I, include misappropriation of their training materials, confidential client and marketing lists, advertising data, call center metrics, proprietary sales processes, metrics, and scripts, sales and marketing programs, advertising copy still in development, and password protected training and educational videos. (FAC ¶¶ 24, 27, 39, 48, 61, 85, 88, 96, 105, 115, 117, 119.)
Plaintiffs further argue that even if some aspects of the trade secrets are publically available, that would not warrant dismissal of the claim. As the Arizona Court of Appeals observed in the Enterprise Leasing v. Ehmke:
197 Ariz. 144, 3 P.3d 1064, 1069 (Ariz.App. 1999). Trade secrets "may consist of a compilation of information that is continuously used or has the potential to be used in one's business and that gives one an opportunity to obtain an advantage over competitors who do not know of or use it." Id. at 1068 (citations omitted). Thus, training videos, business plans, customer information, and marketing techniques can be trade secrets.
As to efforts to maintain secrecy, Plaintiffs argue that the owner of the secret information need only show that it made reasonable efforts to maintain its secrecy to ensure that it would be difficult for others to discover it without using improper means. Id. at 1070. The FAC alleges significant, reasonable and sufficient measures to protect the secrecy of the materials and information in issue. (FAC ¶¶ 28-30.)
Finally, The FAC alleges misappropriation of more than general knowledge; Defendants are charged with misappropriating and using J.D. Mellberg Financial's actual, physical proprietary information—the physical manifestations of Plaintiffs' trade secrets.
The Court overrules Will's objection. The R & R makes specific findings regarding trade secrets, economic advantage, and protection of trade secrets, including references to website materials. (Doc. 45 at 7-10.) As the Magistrate Judge noted, these issues are common to the motions filed by all Defendants. At this stage of the litigation, the Court need not decide whether the "web content" is, in fact, a trade secret. As the Magistrate Judge found, the allegations of trade secrets are plausible on their face. (Id. at 11.)
Moreover, in addition to the paragraphs cited by Will, the Magistrate Judge noted additional allegations in the FAC directed at Will. Specifically, the R & R states:
In other words, although the FAC does not specifically assert that Will used the training and educational videos, it asserts that he illegally downloaded them, and in the next paragraph asserts that Advisors
The R & R finds that Plaintiffs state a claim against Defendant Fine for misappropriation of the physical manifestations of JDM's trade secrets. (Doc. 45 at 12-13.) Defendant Fine argues that even if, as Magistrate Judge Pyle found, Fine misappropriated the physical manifestation of trade secrets—i.e. specifically, spreadsheets compiling internet advertising data—the Confidentiality Agreement constitutes an unenforceable noncompetition agreement. (Doc. 48 at 1-2.)
In Arizona, an overly broad confidentiality agreement amounts to a non-competition agreement. See Orca Commc'ns Unlimited, LLC v. Noder, 233 Ariz. 411, 314 P.3d 89, 95 (Ariz.App.2013) (Orca I), depublished in part on other grounds, Orca II, 337 P.3d at 550 (depublishing ¶¶ 28-31). In turn, a noncompetition agreement must be limited in time and in geography or it is unenforceable. Orca I, 314 P.3d at 95.
In the FAC, Plaintiffs allege that Defendant Fine entered into a confidentiality agreement precluding him from:
(Doc. 45 at 26 (quoting FAC ¶¶ 157, 158 & Ex. 1 §§ 5, 6).) According to Fine, the impermissibly broad definition of "Confidential Information" includes:
(Doc. 45 at 26 (quoting FAC Ex. 1 § 1) (emphasis added).)
In the Motion to Dismiss, the parties largely disputed the use of the term "know-how." The Magistrate Judge adopted the Third Circuit's definition of "know-how" that is sufficient to constitute a trade secret; it is not "ability" or "experience,"
Thus, the Magistrate Judge reasoned that "know-how" as used in the Agreement here means the compilation, i.e., physical manifestation of data or information, such as spread sheets, not mere knowledge. Furthermore, such a meaning is consistent with the allegations of trade secret violations that JDM has advanced. The Magistrate Judge also noted there no suggestion that the "discoveries, documentation, processes [and] knowhow" as used in the Agreement are matters of public knowledge. If they were, then they would not fall within the scope of the Agreement because it specifically excludes "information that the Company now or hereafter voluntarily disseminates to the public or that otherwise becomes part of the public domain through lawful means." (Doc. 45 at 27-28; FAC, Ex. 1, Sec. 8.)
In his objection, Fine reasserts that the Agreement is overly broad, and he cites to Orca I.
Orca I, 314 P.3d at 92. The Court of Appeals reasoned that the
Id. at 94-95.
Thus the court held that the definition of confidential information was overbroad because (1) it deemed public information confidential if the public had to do substantial searching or to combine information, and (2) it deemed confidential any information that the employee might have come across during her employment with Orca, regardless
As noted, according to the Agreement here, "Confidential information" encompasses "discoveries, documentation, processes, [and] know-how, marketing plans, and other financial and technical information." (Id.) In his objections, Fine argues that as the Confidentiality Agreement extends beyond the "truly confidential," and includes all information "designated" or "treated" by the company as confidential. (Doc. 48 at 3.) He contends that it is overbroad because it purports to prevent him from using most, if not all, of the information he learned from his employment, including any information the company unilaterally designates as confidential and any information related to his or the company's "documentation, processes, [or] knowhow" (among other things). This imposes an unlimited restriction against competing with JDM. (Doc. 48 at 3-4.) Even assuming the spreadsheets are confidential, the Confidentiality Agreement is, nevertheless, overly broad because, on its face, it includes much more than spreadsheets.
Plaintiffs respond that this Agreement is not like the one in Orca. This Agreement nowhere expressly defines as "Confidential" information that is available to the public; in fact, it expressly excludes such information. And the Agreement at issue here does not define as confidential "any information" acquired by Defendant Fine during his employment with JDM. As the Magistrate Judge held, "know-how" is a term of art typically used in confidentiality provisions to designate a subset of trade secrets or confidential information that is quite distinct from the general knowledge an employee may acquire during employment. See e.g., SI Handling Sys., Inc., 753 F.2d at 1262 (noting that while an employee's "know-how" with regard to specific methods and techniques may be protected under trade secret law, an employee may still be entitled to use his "experience, knowledge, memory, and skill, which he gained" from his previous employment) (quotations omitted).
The Court finds that the Confidentiality Agreement here is not like the Agreement in Orca I. The Agreement in Orca I was overly broad on its face largely because although it purported to exclude publically known information from what was deemed confidential, it also, in fact, included information available to the public. The Agreement here may include items or information that are not truly confidential but does not do so necessarily. As the Magistrate Judge noted, the Agreement specifically excludes "information that the Company now or hereafter voluntarily disseminates to the public or that otherwise becomes part of the public domain through lawful means." (FAC, Ex. 1, Sec. 8.) In other words, it does not contain an impermissible limitation on what constitutes public information. And, unlike Orca I, it does not define as confidential "any information" acquired by an employee while working for Plaintiffs.
The Court will overrule the objections to the R & R. In addition, the Court has reviewed and considered the Motions to Dismiss, the responses, the replies, the exhibits, and the R & R and, after an independent review, of the unobjected to portions of the R & R finds no clear error.
Accordingly,
(1) The Report and Recommendation (Doc. 45) is
(2) The pending motions (Docs. 22, 27, 30, and 34) are granted and denied as follows:
(a) Defendants Will and Fine's Partial Motion to Dismiss (Doc. 22) is granted to the extent that Plaintiffs' claims of unfair competition (Third Claim) and unjust enrichment (Fifth Claim) are dismissed. The motion is denied to the extent that they seek dismissal of claims under AUTSA (Second Claim); claims for breach of contract (Fourth Claim); claims for breach of fiduciary duty/duty of loyalty (Sixth Claim); claims for civil conspiracy (Tenth Claim); and claims for aiding and abetting (Eleventh Claim);
(b) Defendant Impact Partnership's Motion to Dismiss (Doc. 27) is granted;
(c) Defendant Godinez' Partial Motion to Dismiss (Doc. 30) is granted; and
(d) Defendant Carly Uretz' Motion to Dismiss (Doc. 34) is granted.
(3) Dismissed claims are dismissed with leave to amend, with the exception of certain claims for unfair competition (Third Claim). Claims for unfair competition regarding misappropriation of confidential information that do not rise to the level of a trade secret are dismissed with leave to amend; other claims for unfair competition are dismissed with prejudice.
(4) Plaintiffs may file a second amended complaint within 30 days of the date of this Order as set forth herein and in the Report and Recommendation.
CHARLES R. PYLE, United States Magistrate Judge.
The following motions are pending before the Court: (1) Partial Motion to Dismiss filed by Defendants Jovan Will and Tree Fine (Doc. 22); (2) Motion to Dismiss filed by Defendant the Impact Partnership (Doc. 27); (3) Partial Motion to Dismiss filed by Defendants Fernando & Geovanna Godinez (Doc. 30); and (4) Motion to Dismiss filed by Defendant Carly Uretz (Doc. 34). The Motions came on for oral argument on November 13, 2014. For the following reasons, the Magistrate Judge recommends that the District Court, after its independent review: (1) deny in part and grant in party Defendant Will and Fine's Partial Motion to Dismiss; (2) grant Defendant Impact Partnership's Motion to Dismiss; (3) grant Defendant Godinez' Partial Motion to Dismiss; and (4) grant Defendant Uretz' Motion to Dismiss.
This case was removed from State Court and a First Amended Complaint ("FAC") was subsequently filed as a matter of right pursuant to Fed.R.Civ.P. 15(a)(1). Plaintiffs are Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and Joshua David Mellberg, an individual (collectively referred to as "JDM" or "Plaintiffs"). Joshua David Mellberg is the owner and President of JDM. (FAC, ¶ 16). He is a nationally known financial advisor based in Tucson, Arizona, and "is a pioneer and leader in marketing and selling annuities via the Internet". (Id. at ¶¶ 17, 18). JDM Mellberg Financial is a nationwide retail and wholesale insurance agency specializing "in capturing internet based leads and supplying them to a network of agents across the country. JDM began developing internet based marketing and sales funnels in 2009." (FAC, ¶ 22; see also id. at ¶ 24 (JDM has expended in excess of $30 million refining its sales funnels)). JDM advertises and promotes the services and products that it offers, including annuities. (FAC, ¶¶ 20, 22). A significant portion of JDM's advertising and promotional activities in the field of annuities is conducted on the internet. (Id. at ¶ 21).
JDM alleges the following claims for relief: (1) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (First Claim) against all Defendants; (2) violation of the Arizona Uniform Trade Secrets Act ("AUTSA"), A.R.S. § 44-401, et. seq., against all Defendants (Second Claim); (3) unfair competition against all Defendants (Third Claim); (4) breach of contract against Defendants Fine, Arceo and Godinez (Fourth Claim); (5) unjust enrichment against all Defendants (Fifth Claim); (6) breach of fiduciary duty/duty of loyalty against Defendants Fine and Will (Sixth Claim); (7) breach of duties regarding Alpha Academy Advisors, LLC, against Defendant Will (Seventh Claim); (8) trespass to chattel against Defendant Fine (Eighth Claim); (9) theft/conversion against Defendant Fine (Ninth Claim); (10) civil conspiracy against all Defendants (Tenth Claim); and (11) aiding and abetting against all Defendants (Eleventh Claim).
Pursuant to Fed.R.Civ.P. 12(b)(6), Defendants Will
"Federal pleading rules call for `a short and plain statement of the claim showing that the pleader is entitled to relief[.]"' Johnson v. City of Shelby, Mississippi, ___ U.S. ___, 135 S.Ct. 346, 190 L.Ed.2d 309 (2014) (quoting Fed.R.Civ.P. 8(a)(2)). The complaint must contain a set of facts that serves to place the defendants on notice as to the nature and basis of the claims. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
"`To survive a motion to dismiss [under Fed.R.Civ.P. 12(b)(6) 1 a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face;' that is, plaintiff must `plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir.2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)); see also Moss v. United States Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (to defeat a motion to dismiss, the "non-conclusory `factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief."). Dismissal under Rule 12(b)(6) "can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1990), abrogated on other grounds by Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
"[T]he tenet that a court must accept as true all of the allegations contained in a complaint ..." does not apply to legal conclusions. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937; see also Telesaurus, 623 F.3d. at 1003 (pleadings that are no more than legal conclusions "`are not entitled to the assumption of truth.'" (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937).) Thus, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Moreover, the court "cannot assume any facts necessary to [the plaintiffs'] ... claim that they have not alleged." Jack Russell Terrier Network of Northern Calif v. American Kennel Club, Inc., 407 F.3d 1027, 1035 (9th Cir.2005).
However, the court will assume "`wellpleaded factual allegations,'... to be true, `and then determine whether they plausibly give rise to an entitlement to relief.'" Telesaurus, 623 F.3d. at 1003 (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937); see also Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ("A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."). "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Determining plausibility is a "context-specific task ..." that requires the court to "draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937. A complaint cannot survive dismissal where
All moving Defendants contend that JDM's AUTSA claim fails to satisfy the notice pleading requirement of Rule 8 of the Federal Rules of Civil Procedure. All moving Defendants also argue that JDM fails to state a claim under the AUTSA for the following reasons: (1) JDM has failed to allege facts showing their alleged trade secrets are actually trade secrets; (2) JDM merely alleges that the individual Defendants gained "general knowledge and skills" while working at JDM and are using those skills to compete; (3) JDM fails to allege facts showing that it made reasonable efforts to maintain the secrecy of the information to which the individual Defendants had access; and (4) JDM fails to allege facts showing Defendants misappropriated the trade secrets.
"To establish a claim for misappropriation of a trade secret, the [plaintiff] must first prove a legally protectable trade secret exists. Arizona has adopted the Uniform Trade Secrets Act ..., which codifies the basic principles of common law trade secret protection." Calisi v. Unified Financial Servs., LLC., 232 Ariz. 103, 106, 302 P.3d 628, 631 (App.2013). Further, the plaintiff must allege that the defendant misappropriated the trade secret through improper means. HTS, Inc. v. Boley, 954 F.Supp.2d 927, 943 (D.Ariz.2013).
A.R.S. § 44-401(4). "Whether a trade secret exists is a mixed question of law and fact." Calisi, 232 Ariz. at 106, 302 P.3d at 631.
AUTSA defines "misappropriation" as either:
A.R.S. § 44-401(2). Finally, AUTSA defines "improper means" as including:
A.R.S. § 44-401(1).
It is well-settled that "the policy supporting trade-secret law is to balance this public interest in competition in the
JDM's theory of the case is that the individual Defendants, who are JDM's former employees, "devised a scheme to steal JDM's trade secrets and confidential information, attempted to destroy evidence of their theft, and are now using that stolen information in a competing venture." (See e.g. JDM's Opposition to Defendant Godinez' Partial Motion to Dismiss (Doc. 38, p. 2)
At the outset, the Magistrate Judge addresses the issue of protection of trade secrets and economic advantage which is common to the motions filed by Defendants Will, Fine, Godinez, and Uretz.
In the FAC, JDM sets out "some of the security measures invoked ... to protect its confidential information and trade secrets...." (FAC, ¶ 30; see also ¶ 31). Contrary to Defendants' protestations, the measures are not mere formulaic recitations but are specific to JDM. Given that JDM has listed several measures to ensure secrecy, Defendants' arguments that not all employees were required to sign confidentiality agreements is an argument for summary judgment, not a motion to dismiss. JDM has sufficiently alleged that reasonable efforts have been made to keep the information secret.
Spring Design, Inc. v. Barnesandnoble.com, LLC, 2010 WL 5422556, *5 (N.D.Cal. Dec. 27, 2010).
JDM alleges that it began developing internet based marketing and sales funnels in 2009, has expended over $30 million refining its sales funnels, and its "business advantage is derived in part from confidential and proprietary information and practice, and from trade secrets that it has developed in its long history of business[ ]". (FAC, ¶¶ 22-24, 24(a)-24(k)). JDM also alleges that it derives significant economic value from the fact that its confidential information and trade secrets are not known to its competitors and cannot be readily ascertained from public sources. (FAC, ¶ 26). According, to JDM its business advantage is derived, in part, from its relationships with customers and potential customers, for its agent training materials, agent support and marketing services, and its reputation with those customers and potential customers. (FAC, ¶ 27). JDM persuasively points out that the allegations in the FAC, "combined with the . . . fact that the Plaintiffs are businesses .. plausibly suggest that the trade secrets [at issue] have economic value." (Doc. 38, p. 14). JDM's allegations satisfy sufficiently allege economic advantage in support of its misappropriation claim.
(FAC, ¶ 24(a));
(FAC, ¶ 24(b));
(FAC, ¶ 24(c));
(FAC, ¶ 24(d));
Website landing pages [of which] . . . [c]ritical components include specific words, phrases, titles, topics, and videos as well as almost innumerable combinations of them. Each component has been tested and tracked to determine what gets the best response from consumers taking into account variables such at [sic] what e-mails and pay per click ads they are used in conjunction with.
(FAC, 24(e));
(FAC, ¶ 24(f));
(FAC, ¶ 24(j); see also FAC, ¶¶ 24(g)-(h) and (k) (regarding sales processes and training techniques)).
Defendants Will, Fine, Godinez, and Uretz take issue with the fact that JDM combines reference to "confidential information and trade secrets" in the same allegation, asserting that that the FAC fails to put them on notice as to what the actual trade secrets are that they are alleged to have misappropriated. However, as discussed below, JDM does not rely on paragraph 24 and its sub-parts, alone, to identify the trade secrets that Defendants Will, Fine, Godinez and Uretz are alleged to have misappropriated. Instead, JDM asserts that Defendants Will, Fine, Godinez, and Uretz misappropriated the physical manifestations of trade secrets. Because the information that each of the individual moving defendants is alleged to have misappropriated is, for the most part, unique to the individual, the Magistrate Judge discusses each motion to dismiss the AUTSA claim separately with regard to the each of the moving Defendants.
JDM asserts in its Opposition to Defendant Will and Fine's Motion that the allegations are "not that Defendants have simply misappropriated the ideas or secrets behind Plaintiffs' various trade secrets, but that Defendants have systematically and wrongfully misappropriated the physical manifestations of Plaintiffs' trade secrets." (JDM's Opposition to Defendant Will and Fine's Motion (Doc. 29, p. 4) (citing FAC, ¶¶ 24-27, 39, 55-58, 61, 64, 69, 75, 96, 114, 115,117, 119, 121)).
As to Defendant Will, JDM alleges that he "had access to" confidential client and marketing lists and access to the confidential client/agent list of Advisor Excel, which is a product partner/vender to JDM (FAC, ¶ 39; see also FAC, ¶ 38), hosted an unauthorized webinar using JDM proprietary materials, (FAC, ¶¶ 47, 48), and post-employment with JDM, gained unauthorized access to "JDM web domains and, with that access secured, in November, 2013 ... illegally downloaded the content of those sites, including all of JDM's training and educational videos[]" (FAC, ¶¶ 121-120). JDM stresses, "at the pleading stage, what matters is that it is `plausible on its face' that these items constitute protectable trade secrets." (Doc. 29, p. 4). This Court agrees. "[A] trade secret may consist of a compilation of information that is continuously used or has the potential to be used in one's business and that gives one an opportunity to obtain an advantage over competitors who do not know of or use it." Ehmke, 197 Ariz. at 148, 151, 3 P.3d at 1068 (holding car rental company's worksheet, reflecting substantial market-research investment by plaintiff delineating factors helpful to managing a successful branch office, "as a whole is an original product containing an arrangement of factors that provides [plaintiff] a competitive advantage" unique to the plaintiff); see also Prudential Ins. Co. v. Pochiro, 153 Ariz. 368, 371, 736 P.2d 1180, 1183 (App.1987) ("`A list of customers, if their trade and patronage have been secured by years of business effort and advertising and the expenditure of time and money, constitutes an important part of a business and is in the nature of a trade secret.'") (quoting Town & Country House & Homes Service, Inc. v. Evans, 150 Conn. 314, 319, 189 A.2d 390, 393-394 (1963)); Amex Distributing Co., Inc. v. Mascari, 150 Ariz. 510, 516, 724 P.2d 596, 602 (1986) ("[i]f customer information is truly confidential, and to a substantial degree inaccessible, it may be given a measure of the protection accorded true trade secrets. . . ."). The allegations set out in the FAC place Defendant Will on notice of the claim asserted against him and sets forth sufficient facts to support JDM's claim that trade secrets are at issue.
At oral argument, counsel for JDM explained that the information destroyed by Defendant Fine's wipe of JDM's hard drives, and the information that JDM alleges Defendant Fine is using in his new venture is based on data collected over the years by JDM and that such data show which leads actually work and how they work and what has been most effective most of the time, and that this information constitute trade secrets. The FAC supports this assertion. See FAC, ¶¶ 22-23 (JDM began developing internet based marketing and sales funnels in 2009 and, to date, has expended in excess of $30 million refining its sales funnels); FAC, ¶ 24 (describing knowledge JDM has "developed in its long history of business."); FAC, ¶ 1 (JDM has operated since 2004 in its current area). JDM has sufficiently alleged facts that support a claim that the information Defendant Fine allegedly misappropriated constitutes trade secrets. See e.g. W.L. Gore & Assocs., Inc. v. GI Dynamics, Inc., 2010 WL 5184254, *8 (D.Ariz.2010) (declining to dismiss allegation that information plaintiff "disclosed about ... []approaches that were successful and approaches that were not successful... [ ]" in product development constituted trade secrets); Ehmke, 197 Ariz. at 150,3 P.3d at 1070 (trade secret protection can extend to "market research"). The allegations set out in the FAC place Defendant Fine on notice of the claim asserted against him and sets forth sufficient facts to support JDM's claim that trade secrets are at issue.
GENERAL KNOWLEDGE. Defendants Will and Fine argue that even if JDM's AUTSA claim satisfies Rule 8 pleading requirements, "that count must still be dismissed because the facts alleged show nothing more than that Moving Defendants gained skills and general knowledge from Plaintiffs concerning internet-based marketing and used that knowledge to subsequently compete with Plaintiffs." (Doc. 23, p. 5 (citing HTS Inc., 954 F.Supp.2d at 944) (the claim must describe the "subject matter of the trade secret with specific particularity to separate it from matters of general knowledge in the
"Under Arizona law, `matters of general knowledge cannot be appropriated as secret, [however,] a trade secret may consist of a combination of elements even though each individual component may be a matter of common knowledge.'" HTS, Inc., 954 F.Supp.2d at 944 (quoting Imax Corp., 152 F.3d at 1164-65). Further, "`[a] former agent may use skills and more general knowledge, although learned in the course of work done for the former principal,' in the course of competition." Taser Int'l, Inc. v. Ward, 224 Ariz. 389, 397, 231 P.3d 921, 929 (App.2010) (quoting Restatement 3d Agency § 804 cmt. c (2006)) (denying summary judgment because dispute of fact existed as to whether defendant used trade secret information); see also Mascari, 150 Ariz. at 516, 724 P.2d at 602 ("One who has worked in a particular field cannot be compelled to erase from his mind all of the general skills, knowledge and expertise acquired through his experience. These skills are valuable to such employee in the market place for his services.").
JDM asserts that the individual Defendants misappropriated "the physical manifestations of Plaintiffs' trade secrets[ ]". (Doc. 29, p. 11). JDM points to its allegations identifying specific information misappropriated by Defendants' Will and Fine which is discussed in detail above.
There is no question that information that "encompasses basic general principles for the aggressive pursuit of success in a highly competitive field of business.... The essentials of these (know the customer, be constantly aware of his concerns, keep in regular frequent contact, limit conversations to relevant business, etc.), are clearly in the public domain[ ]" and do not qualify as trade secrets. Mascari, 150 Ariz. at 516, 724 P.2d at 602. There is simply no basis to believe that the information that Defendants Will and Fine are alleged to have misappropriated, which includes client lists, training information, or data reflecting effectiveness of methods and strategies for internet advertising or calls, or other marketing all unique to JDM are general knowledge. To the contrary, JDM alleges that the information that Defendants Will and Fine misappropriated was arrived at after JDM's years of development of data related to sales and marketing funnels. The allegations in the FAC plausibly suggest that the information at issue is not mere general knowledge but was derived after analysis and compilation of data by JDM. See e.g. Ehmke, 197 Ariz. at 150, 3 P.3d at 1070 (trade secret protection can extend to "market research"); Prudential Ins. Co., 153 Ariz. at 371, 736 P.2d at 1183 (trade secret protection can extend to client lists) Mascari, 150 Ariz. at 516, 724 P.2d at 602 (same). Indeed, as JDM persuasively point out, "if Defendants [Will and Fine] were merely misappropriating general skills and knowledge then they presumably would not have needed to go to the lengths they did to steal the physical embodiments of Plaintiffs' trade secrets." (Doc. 29, p. 12). Dismissal on the issue of whether the information is mere general knowledge is not appropriate at this stage in the proceeding.
MISAPPROPRIATION. Defendants Will and Fine argue for the first time in their Reply that JDM's allegations fail to meet the statutory definition of misappropriation. (Defendant Will and Fine's Reply (Doc. 36, p. 4)). Defendants assert, and the Magistrate Judge agrees, that Defendant Will having "access" to client lists, or Defendant Fine taking internet advertising data so "he could use it" in a planned new competing venture, and even Defendant Fine's forensic wipe of JDM hard drives, may not necessarily constitute misappropriation. Id. at pp. 4-5 (citing Pellerin v.
Here, the FAC alleges that Defendant Fine, prior to deleting the information, misappropriated JDM's trade secrets, including but not limited to marketing data, so that he could use these trade secrets in conjunction with a competing business venture with Defendants Will and Impact Partnerhsip. (FAC, ¶ 61). Further, JDM learned in February 2014 "that Defendants Will and Fine had associated themselves with Defendant Impact and that Defendant Impact was in the process of launching an Internet marketing portal for insurance and annuity agents that would compete directly with JDM's Internet marketing portal." (FAC, ¶ 62). JDM also alleges that Defendant Will approached Defendant "Impact Partnership to launch a web-based lead program that mirrors the JDM program and that clients and agents of Advisors Excel have received marketing regarding the lead program. JDM's internal advisors also received this marketing." (FAC, ¶ 122). Further, "Defendant Will launched several websites very similar to JDM sites ...." (FAC, ¶ 124) and one of his websites "is purchasing AdWords and keywords identical in name, pattern, and volume to the purchases conducted by Defendant Fine in his former role as Marketing Director at JDM." (FAC, ¶ 126). The allegations plausibly suggest that Defendants Will and Fine not only had access to trade secret information, but that they have acquired that information and are using it as well. Consequently, JDM has sufficiently alleged misappropriation by Defendants Will and Fine.
CONCLUSION. Defendant Will and Fine's motion to dismiss the AUTSA claim should be denied.
To state a claim for misappropriation of trade secrets, courts have found sufficient allegations that a defendant misappropriated strategies and plans for advertising and marketing. See e.g. Lepton Labs, LLC v. Walker, 55 F.Supp.3d 1230, 1237-38 (C.D.Cal.2014); Fire `Em Up, Inc. v. Technocarb Equip. (2004) Ltd., 799 F.Supp.2d 846, 850 (N.D.Ill.2011) (citations omitted) (holding same but ultimately dismissing claim because, on the facts of that case, plaintiff failed to sufficiently allege that the secrecy of the information was adequately maintained). Such a conclusion is consistent with the Ehmke court's holding that trade secret protection extends to sensitive internal economic records. See Ehmke, 197 Ariz. at 149-150, 3 P.3d at 1070. Thus, the allegations set out in the FAC place Defendant Godinez on notice of the claim asserted against him and sets forth sufficient facts to support JDM's claim that trade secrets are at issue.
Defendant Godinez challenges the plausibility of the allegations against him by taking issue with JDM's assertions that he concealed and destroyed evidence of Defendant Will's wrongdoing and notified Defendant Will of JDM's investigation of Defendant Will's actions. Defendant Godinez points out that he resigned from JDM in July 2013 (FAC, ¶¶ 49-50) and Defendant Will's wrongdoing occurred after July 19, 2013 and, in some instances, was not discovered until January and February 2014. (Defendant Godinez' Reply (Doc. 40, p. 3)). The precise date in July 2013 Defendant Godinez resigned is not alleged in the FAC. Further, the date in July 2013 that Defendant Will hosted an unauthorized webinar is not alleged. Nonetheless, most germane to JDM's claim linking Defendants Godinez' and Will's post-JDM employment efforts together is, that while at JDM they worked together using JDM resources to create ventures that competed against JDM. (See FAC, ¶ 97). At bottom, the allegations at paragraph 97 nudge "across the line from conceivable to plausible", Iqbal, 556 U.S. at 680, 129 S.Ct. 1937, the allegation that the two continued to collaborate in competing with JDM after leaving JDM's employment.
MISAPPROPRIATION. JDM's claim is lacking, however, in establishing misappropriation by Defendant Godinez. Although JDM alleges that Defendant Will "had approached The Impact Partnership to launch a web-based lead program that mirrors the JDM program . . .", marketed same to clients and agents of Advisors Excel, launched his own websites similar to JDM, and purchased AdWords and keywords identical in name, pattern, and volume to the purchases made by Defendant Fine while at JDM (FAC, ¶¶ 122, 124, 126), JDM's allegations make no suggestion that any trade secret information obtained from Defendant Godinez after he left JDM's employment played a role in any of this. Instead, the allegations plausibly suggest that in his actions alleged at paragraphs 122, 124 and 126, Defendant Will relied on such information as client lists, to which JDM alleges he had access, and to information obtained from Defendant Fine. Because JDM fails to allege facts supporting the allegation in paragraph 96 that Defendant Godinez actually misappropriated any trade secrets, including sales and marketing programs, in collaboration with the individual Defendants, JDM's AUTSA claim against Defendant Godinez should be dismissed for failure to state a claim.
The allegations at paragraph 115 sufficiently place Defendant Uretz on notice as to what information she is alleged to have misappropriated. However, even assuming that all or some of the information Defendant Uretz emailed herself constitute trade secrets, there are no allegations to support the conclusion that Defendant Uretz has used or disclosed that information. The allegations that at some point during her two-year tenure at JDM that she emailed information to her personal account, and post-JDM employment, she has associated herself with Defendant Impact Partnership do not plausibly support the conclusion that she collaborated with others to copy JDM's sales and marketing programs. Furthermore, although JDM alleges that Defendant Uretz, in her association with Defendant Impact Partnership, has contacted JDM clients, there is no allegation that she misappropriated JDM's client lists. JDM's allegations that Defendant Uretz misappropriated trade secrets are insufficient to raise JDM's right to relief under AUTSA above the speculative level. Consequently, JDM's AUTSA claim against Defendant Uretz should be dismissed for failure to state a claim.
CONCLUSION. Defendant Uretz' motion to dismiss the AUTSA claim for failure to state a claim should be granted.
Many of the allegations involving Defendant Impact Partnership appear in the portion of the FAC captioned "Defendant
Defendant Impact Partnership persuasively points out that while, at best, JDM's allegations are that the individual defendants in the course of their work with Defendant Impact Partnership used trade secret information, there are no facts showing that Defendant Impact Partnership had any knowledge whatsoever regarding the information purportedly used. (See Doc. 37, p. 5 n. 5; see also id. at p. 5 ("Plaintiffs rely on their allegations that other defendants misappropriated trade secrets and are now working with The Impact Partnership . .")) (emphasis in original). JDM cites Morlife, Inc. v. Perry, 56 Cal.App.4th 1514, 66 Cal.Rptr.2d 731 (1997) for the premise that former employees and "corporate entity they joined to compete with former employer... `jointly misappropriated' [the plaintiffs] customer list by using their knowledge about [the plaintiffs] customers to actively `solicit' customers for [the corporate entity.]"' (Doc. 33, p. 10 (quoting Morlife, 56 Cal.App.4th at 1523-24, 66 Cal.Rptr.2d 731)). In Morlife, the defendant employees formed the competing business with another person and then used the former employer's customer list to solicit customers. Here, there are no similar allegations with regard to the individual Defendants and Defendant Impact Partnership.
While it is conceivable that Defendant Impact Partnership may know or have reason to know that the information that Defendants Arceo, Will and Fine allegedly have used to the benefit of Defendant Impact Partnership constitutes JDM trade secrets, the allegations of the FAC, without more, fail to nudge JDM's claim of AUTSA violation "`across the line from conceivable to plausible.'" Somers v. Apple, 729 F.3d 953, 966 (9th Cir.2013) (quoting Igbal, 556 U.S. at 680, 129 S.Ct. 1937); see e.g. Forest Labs., Inc. v. Pillsbury Co., 452 F.2d 621, 626 (7th Cir.1971) (the knowledge of trade secrets of former employees "cannot properly be imputed to
Conclusion. Defendant Impact Partnership's motion to dismiss the AUTSA claim for failure to state a claim should be granted.
JDM alleges, inter alia, that all Defendants "have engaged in unlawful business acts or practices by committing acts including computer fraud, trespass, conversion, and other illegal acts and practices as alleged above [i.e. AUTSA claim] ...", in effort to gain unfair competitive advantage over JDM. (FAC, ¶ 147). Defendants primarily raise two challenges to JDM's claim: first that the claim is pre-empted by AUTSA; and second, that JDM fails to allege public confusion.
As to pre-emption, AUTSA "creates an exclusive cause of action—and displaces conflicting causes of action—for claims based on the misappropriation of trade secrets." Orca Commc'ns Unlimited, LLC v. Noder, 236 Ariz. 180, 181, 337 P.3d 545, 546 (2014) (Orca II). After briefing and oral argument occurred on the pending motions, the Arizona Supreme Court held that AUTSA "does not displace common-law claims based on alleged misappropriation of confidential information that is not a trade secret." Id. The court, which was reviewing the lower courts' decision on a motion to dismiss, declined to "decide today what aspects, if any, of the confidential information alleged in [the plaintiff's] unfair-competition claim might fall within AUTSA's broad definition of `trade secret' and therefore be displaced.... That determination will not hinge on the claim's label, but rather will depend on discovery and further litigation that has not yet occurred." Id. at 184, 337 P.3d at 549 (citations omitted). The court also declined to decide whether Arizona recognizes a common-law claim for unfair competition as alleged in the complaint. Id. In light of Orca II, it cannot be said at this point in the litigation that JDM's claim is preempted by AUTSA to the extent it may involve confidential information that are not trade secrets.
The next question is whether JDM must allege public confusion to state an unfair competition claim. "In order to maintain an action for unfair competition under Arizona law, [the plaintiff] must either show that it was engaged in competitive business with [the defendant] Lininger v. Desert Lodge, 63 Ariz. 239, 160 P.2d 761, 764 (1945), or that [the defendant's] actions were likely to produce public confusion, Taylor v. Quebedeaux, 126 Ariz. 515, 617 P.2d 23, 24 (1980)." Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir.1992). The District Court for the District of Arizona has observed that:
Doe v. Arizona Hosp. and Healthcare Assoc., 2009 WL 1423378, *11 (D.Ariz. Mar. 19, 2009). The Doe court dismissed a claim of unfair competition where the plaintiff failed to allege that the defendant's actions were likely to cause public confusion because no Arizona case has ever held that the tort of unfair competition can exist in the absence of an allegation of public confusion. Id. The court went on to state that plaintiffs, whose main theory of unfair competition was based on alleged antitrust activity, did not "allege trademark infringement, false advertising, palming off, misappropriation, or any other actions that have been found to constitute unfair competition[in Arizona. Id. The court was "unwilling to find that Plaintiffs may maintain a theory of unfair competition that is entirely novel in Arizona." Id.; See also ACT Group, Inc. v. Hamlin, 2012 WL 2976724, *8 (D.Ariz. July 20, 2012) (declining to entertain a theory of unfair competition that is novel to Arizona) (citing Doe, 2009 WL 1423378).
At oral argument, JDM conceded that the fundamental nature of its unfair competition does not rest upon a theory of public confusion. Instead, JDM argues that the allegation that JDM is engaged in competitive business with the Defendants is enough to state a claim. (See Doc. 29, p. 14).
ACT Group, is particularly instructive. In that case, the court held that the plaintiff failed to establish unfair competition based on a theory of palming off because the plaintiff failed to allege public confusion. 2012 WL 2976724 at *7. However, despite the lacking allegations of public confusion, the court went on to hold that the plaintiff would have stated a claim of unfair competition based upon misappropriation but that the claim was pre-empted by federal copyright law. Id. at *7-*8. The ACT Group court's analysis is consistent with the conclusion that an unfair competition claim must either show that the plaintiff was engaged in competitive business with the defendant or that the defendant's actions were likely to produce public confusion. See Sutter Home Winery, Inc. 971 F.2d at 407.
Moreover, the Arizona Supreme Court recently declined to dismiss a claim of unfair competition based on AUTSA preemption where the plaintiff alleged that
Orca II, 236 Ariz. at 181, 337 P.3d at 546. However, the court emphasized that its decision was confined to the pre-emption issue and it declined to "decide whether Arizona recognizes a common-law claim for unfair competition as alleged in [the plaintiff's]
"The common law doctrine of `misappropriation' originated in International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918). Balboa [Ins. Co. v. Trans Global Equities, 218 Cal.App.3d 1327, 267 Cal.Rptr. 787, 795 (1990)]. `It is normally invoked in an effort to protect something of value that is not covered either by patent or copyright law . . . Id. (citations omitted). Misappropriation involves the unfair taking for profit, at little or no cost, of property acquired by another through investment of substantial time and money. Id." Fairway Constructors, Inc. v. Ahern, 193 Ariz. 122, 124, 970 P.2d 954, 956 (App. 1998) (holding that unfair competition claim based on misappropriation was preempted by federal copyright law).
The doctrine of "unfair competition is based on principles of equity.... The general purpose of the doctrine is to prevent business conduct that is contrary to honest practice in industrial or commercial matters." Id. (internal quotation marks and citations omitted). In the instant case, any claim of misappropriation of trade secrets is clearly pre-empted by AUTSA. See Orca II, 236 Ariz. at 180, 337 P.3d at 545. Otherwise, JDM's allegations in general are strikingly similar in concept to those alleged by the plaintiff in Orca II. However, JDM has not specifically alleged in stating its unfair competition claim that Defendants misappropriated information that falls outside AUTSA's coverage. As to JDM's claims of unfair competition based on conversion and trespass by Defendant Fine (see Eighth and Ninth Claims), and computer fraud by Defendants Will and Fine (see First Claim), this Court, like the courts in Doe and ACT Group, should be reluctant to allow theories of unfair competition that are novel to Arizona. Consequently, JDM's claim for unfair competition should be dismissed for failure to state a claim.
JDM alleges that Defendants Fine and Godinez, in exchange for adequate consideration, entered into respective Confidentiality Agreements ("Agreement") wherein they agreed not to:
or
(FAC, ¶¶ 157, 158; see also FAC, Exh. 1, §§ 5, 6 (Defendant Fine's Agreement) & Exh. 6, §§ 5, 6 (Defendant Godinez' agreement)). Under the Agreement, "Confidential Information" is defined to include:
(FAC, Exh. 1, § 1 & Exh. 6, § 1). Further, the Agreement specifically states that it shall not apply to any information
Defendants Fine and Godinez argue that the Agreement is unenforceable. (Doc. 23, pp. 9-10; Doc. 36, pp. 9-10; Doc. 32, pp. 11-13; Doc. 40, pp. 7-11). They also argue that JDM fails to allege facts to state a claim for breach of contract.
Defendants argue that the Agreement is over broad because it includes information that is not truly confidential such as "discoveries, documentation, processes and know-how." (See Doc. 36, pp. 9-10; see also Doc. 40, pp. 7-9). According to Defendants, the Agreement prevents them from using public information and information they learned from employment, thus the Agreement does not operate as a confidentiality agreement but as an unlimited restriction on competition.
The confidentiality agreement held unenforceable in Orca defined confidential information to include any information the employee learned of, possessed as a result of, or accessed through employment. Orca, 233 Ariz. at 417, 314 P.3d at 95. Although the definition "properly exclude[d] `publicly known' information ...", it included "within its ambit information that is available through `substantial searching of published literature' or that has to be `pieced together' from a number of publications or sources." Id. The court found both restrictions untenable. As to first, the court stated that the employer "cannot deem by fiat all information [the employee] acquired through her employment `confidential.' [The employer] has no protectable interest in public information." Id. As to the latter restriction, the court stated that "[i]nformation easily or readily available to the public remains public knowledge and not protectable as confidential information even if a member of the public may have to expend substantial time to gather it and comprehend its significance." Id. At bottom, in assessing the scope of a confidentiality agreement, the question is "whether the information [sought to be restricted] is truly confidential—not known to the public and `substantially inaccessible.'" Id.
The parties argue in detail about the use of the term "know-how" in the Agreement. JDM argues that "`know-how' is a term of art typically used in confidentiality provisions to designate a subset of trade secrets or confidential information that is quite distinct from the general knowledge an employee may acquire during employment." (Doc. 38, p. 8 (citing SI Handling Sys. Inc. v. Heisley, 753 F.2d 1244, 1262 (3d Cir.1985))). Although Heisley, a trade secrets case, did not involve a confidentiality agreement, it is nonetheless instructive. The Heisley court recognized that "`[t]he concept of Hknow-how ... is ... a very
That "know-how" as used in the Agreement means the compilation, i.e., physical manifestation of data or information, such as spread sheets, rather than mere knowledge, is consistent with the allegations of trade secret violations that JDM has advanced thus far. Nor is there any suggestion that the "discoveries, documentation, processes [and] know-how" as used in the Agreement are matters of public knowledge. If they were, then they would not fall within the scope of the Agreement. At this point in the proceeding, the breach of contract claim should not be dismissed as unenforceable.
Defendant Godinez argues that JDM fails to sufficiently allege a breach of contract claim because JDM has failed to identify "confidential information" that he allegedly used. (Doc. 32, p. 13). JDM argues that to show breach, the FAC alleges that Defendant Godinez collaborated with Defendants Will, Fine, Arceo, and Uretz to copy JDM's sales and marketing programs, and is now using JDM's confidential information in collaboration with Defendants Will and Fine. (Doc. 38, p. 8 (citing FAC, ¶¶ 96, 161)). Further Defendant Godinez deleted files to hide his misconduct and destroy evidence of Defendant Will's wrongdoing (Id. at pp. 9-10 (citing FAC ¶¶ 98, 100)). However, as discussed above in relation to the AUTSA claim, the allegations do not sufficiently state facts to support the conclusion that Defendant Godinez collaborated with the other individual Defendants to copy JDM's confidential information. Moreover, the allegation that Defendant Godinez deleted unspecified files from his JDM computer to hide his misconduct nowhere suggests that the deleted information fell within the definition of Confidential Information under the Agreement. Because JDM fails to allege facts to support a claim that Defendant Godinez breached the Agreement, Defendant Godinez' Motion to Dismiss should be granted as to the breach of contract claim.
Defendants argue that the unjust enrichment claim should be dismissed because JDM fails to identify a single allegation that JDM "conferred" a benefit on all moving Defendants. Defendants Will and Fine further point out that their alleged unauthorized destruction and theft of company property, which may support other claims, does not support a theory of unjust enrichment which requires that the plaintiff confer a benefit upon the defendant. Defendants also argue that, although plaintiffs are permitted to plead facts in the alternative, on a motion to dismiss,
Unjust enrichment provides a flexible "remedy when a party has received a benefit at another's expense and, in good conscience, the benefitted party should compensate the other." Wang Elec., Inc. v. Smoke Tree Resort, LLC, 230 Ariz. 314, 318, 283 P.3d 45, 49 (App.2012). "`Unjust enrichment occurs whenever a person has and retains money or benefits that in justice and equity belong to another.'" Doe, 2009 WL 1423378, at *12. (quoting City of Sierra Vista v. Cochise Enter., Inc., 144 Ariz. 375, 381, 697 P.2d 1125, 1131 (App.1984)). Defendants argue that the FAC contains no facts that could establish such a claim.
JDM argues that the FAC alleges that Defendants unjustly received benefits at JDM's expense through their wrongful conduct, including trespass, computer fraud, and conversion. (Doc. 29, p. 14). Recovery for unjust enrichment is available "when equity demands compensation for benefits received, `even though [the defendant] has committed no tort and is not contractually obligated to the [other].'" Wang, 230 Ariz. at 318, 283 P.3d at 50 (emphasis added). Here, JDM alleges that Defendants obtained "benefit" at JDM's expense by committing wrongful conduct including computer fraud, trespass, and conversion, which are alleged as independent claims elsewhere in the FAC against Defendants Will and/or Fine. While a plaintiff may plead alternative claims, see Isofoton, 2006 WL 1516026, *3 (plaintiff may make alternative claim of unjust enrichment), the allegations in the FAC do not support the theory that JDM conferred a single benefit on Defendants. Thus, JDM fails to state a claim for unjust enrichment.
In the introduction to their Partial Motion to Dismiss, Defendants Will and Fine state they seek dismissal of this claim. (Doc. 23, p. 2). Defendants do not specifically address this claim within their Motion or Reply. Because Defendants Will and Fine have provided no basis as to why this claim should be dismissed, their motion to dismiss JDM's Sixth Claim for relief should be denied.
"[L]iability for civil conspiracy requires that two or more individuals agree and thereupon accomplish `an underlying tort which the alleged conspirators agreed to commit.'" Wells Fargo Bank v. Arizona Laborers, Teamsters and Cement Masons, 201 Ariz. 474, 499, 38 P.3d 12, 37 (2002) (quoting Baker v. Stewart Title & Trust of Phoenix, 197 Ariz. 535, 542, 5 P.3d 249, 259 (App.2000)). JDM alleges that Defendants "conspired with each other to engage in the alleged wrongful conduct, including Defendants' misappropriation of trade secrets and other unfair business practices." (FAC, ¶ 89). Defendants argue that the FAC identifies only the torts of misappropriation and unfair competition in connection with civil conspiracy and JDM has failed to state a claim on those grounds. (Doc. 36, p. 10). Defendants also contend that because the majority of the allegations in support of JDM's civil conspiracy claim are based only on information and belief, they fail to state a claim because they are conclusory. (Id. (citing FAC, ¶¶ 189, 190, 194 195)).
Defendants are correct that because JDM has failed to state a claim for unfair competition, that claim cannot form the basis for a civil conspiracy claim. However, as discussed earlier, JDM has stated a claim against Defendants Will and Fine for misappropriation of trade secrets. Moreover, although based on information and belief, the allegations in the FAC, plausibly support the conclusion that the two conspired with each other to engage in such conduct in light of the fact that Defendant Will purchased AdWords "identical in name, pattern, and volume to the purchases conducted by Defendant Fine in his former role as Marketing Director at JDM." (FAC, ¶ 126).
Defendant Will and Fine's motion to dismiss the civil conspiracy claim should be denied. Because JDM has not sufficiently alleged facts of wrongdoing on behalf of the other moving Defendants that would link them to a conspiracy, the civil conspiracy claim should be dismissed as to Defendants Godinez, Uretz, and Impact Partnership.
"Claims of aiding and abetting tortious conduct require proof of three elements: (1) the primary tortfeasor must commit a tort that causes injury to the plaintiff; (2) the defendant must know that the primary tortfeasor's conduct constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach." Wells Fargo, 201 Ariz. at 485, 38 P.3d at 23. Defendants contend this claim, like the civil conspiracy claim, fails to sufficiently allege an underlying tort. JDM makes the same argument it made with regard to the civil conspiracy claim (Doc. 29, pp. 14-15).
For the same reasons supporting the recommendation on the civil conspiracy claim, the District Court should: (1) deny Defendant Will and Fine's motion to dismiss this claim; and (2) dismiss this claim as to Defendants Godinez, Uretz, and Impact Partnership.
For the reasons stated above, JDM has sufficiently alleged a claim under AUTSA and claims for civil conspiracy and aiding and abetting against Defendants Will and Fine. Additionally, JDM has sufficiently alleged that Defendant Fine breached the Confidentiality Agreement. Further, Defendants Will and Fine have failed to offer any reason why JDM's claim for breach of fiduciary duty/duty of loyalty should be dismissed. However, JDM has failed to state a claim against Defendants Will, Fine, Godinez, Uretz and Impact Partnership for unfair competition and unjust enrichment. Further, JDM's AUTSA claim and claims of civil conspiracy and aiding and abetting against Defendants Godinez,
For the foregoing reasons, the Magistrate Judge recommends that the District Court, after its independent review:
(1) grant in part and deny in part Defendant Will and Fine's Partial Motion to Dismiss (Doc. 22). Defendants' Motion should be granted to the extent that Plaintiffs' claims of unfair competition (Third Claim) and unjust enrichment (Fifth Claim) should be dismissed with leave to amend. Defendants' Motion should be denied to the extent Defendants seek dismissal of Plaintiffs' claims: under AUTSA (Second Claim); for breach of contract against Defendant Fine (Fourth Claim); for breach of fiduciary duty/duty of loyalty (Sixth Claim); civil conspiracy (Tenth Claim); and aiding and abetting (Eleventh Claim);
(2) grant Defendant Impact Partnership's Motion to Dismiss (Doc. 27) with leave to amend;
(3) grant Defendant Godinez' Partial Motion to Dismiss (Doc. 30) with leave to amend;
(4) grant Defendant Carly Uretz' Motion to Dismiss (Doc. 34) with leave to amend.
Pursuant to 28 U.S.C. § 636(b) and Rule 72(b)(2) of the Federal Rules of Civil Procedure and LRCiv 7.2(e), Rules of Practice of the U.S. District Court for the District of Arizona, any party may serve and file written objections within
Failure to file timely objections to any factual or legal determination of the Magistrate Judge may be deemed a waiver of the party's right to de novo review of the issues. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir.2003) (en banc).
DATED THIS 9TH DAY OF FEBRUARY, 2015.
