Honorable Thomas M. Durkin, United States District Judge.
Plaintiffs General Electric Company and General Electric International (GE) seek injunctive relief and damages against Uptake Technologies and six former highlevel GE employees who left GE to work for Uptake. GE alleges claims for breach of contract, trade secret misappropriation, tortious interference, unfair competition, and breach of fiduciary duty. The defendants filed a motion to dismiss for failure to state a claim. For the following reasons, the defendants' motion is granted in part and denied in part.
A Rule 12(b)(6) motion challenges the "sufficiency of the complaint." Berger v. Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), sufficient to provide defendant with "fair notice" of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This standard "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. The complaint must "contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). "`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.'" Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937). In applying
In 2011, GE launched a campaign to connect heavy industrial equipment to cloud-based software and analytics. R. 19 ¶ 1. The purpose was to provide customers with a better way to track production efficiency and monitor the health and life of their machinery. Id. After finding initial success, GE formed GE Digital, a GE subsidiary dedicated to providing software for industrial equipment to other GE businesses and outside companies. Id. GE Digital works closely with GE Power, another GE subsidiary, to design software for companies in the power industry. Id. ¶ 40.
Individual defendants Ganesh Bell, Scott Bolick, Jay Allardyce, Ravi Marwaha, Kelly McGinnis, and Alex Paulsen all held high-level positions with either GE Digital or GE Power. Id. ¶¶ 45-50.
Id. ¶ 72, Exs. 1-6 at 2. Bell's, Bolick's Allardyce's, and McGinnis's Confidentiality Agreements did not include choice-of-law provisions. See id. Exs. 1-3, 5. Marwaha's and Paulsen's Agreements provided for New York law. See id. Exs. 4, 6.
The individual defendants also each signed an Employee Non-Solicitation Agreement (NSA). Id. ¶ 73. Under the terms of the NSA, they agreed that during their employment and for 12 months afterwards, they would not "directly or indirectly,
In 2014, Uptake Technologies, a Chicago-based startup, joined the data analytics market for industrial equipment. Id. ¶¶ 3, 17. Uptake does not manufacture its own industrial equipment, but instead competes with GE to develop software. Id. ¶ 4.
The relevant events all occurred between January and December 2018, when GE filed its first complaint in this case. First, Bell left GE on February 2 and was named president of Uptake just over two weeks later. Id. ¶ 60. Almost immediately, Bell began soliciting Bolick, Allardyce, and Marwaha, all of whom resigned from GE on April 9 to join Uptake. Id. ¶ 85. After their resignations, GE forensically examined their company computers. Id. ¶ 89. The examination revealed that Bell emailed Bolick at least twice after becoming Uptake's president, including sending a link to an article on Uptake's private investments. Id. In addition, the examination showed Marwaha opened a series of articles about Uptake minutes after reading a LinkedIn message, which GE alleges was sent from someone at Uptake at the behest of Bell. Id. ¶ 90. The examination also revealed that all three possessed GE trade secrets. Id. ¶ 98. Further, Bolick, Allardyce, and/or Marwaha performed the following acts prior to their resignations:
GE alleges Bolick, Allardyce, and Marwaha coordinated wiping their devices to conceal their misappropriation of GE information and Bell's solicitation. Id. ¶ 97.
In late April 2018, GE sent letters to Bolick, Allardyce, and Marwaha to remind them of their ongoing obligations to GE and to demand that they return GE's confidential and trade secret information. Id. ¶ 99. Following these letters, Uptake's counsel admitted that Marwaha had a significant number of GE files stored on a cloud-based repository, and that Bolick and Allardyce had photographs of GE whiteboards that contained confidential and trade secret information. Id. ¶ 101. GE and Uptake agreed on a forensic protocol through which these items were allegedly
At around the same time, Uptake hired Kelly McGinnis. Id. ¶ 105. Prior to leaving GE, McGinnis solicited another GE employee to join her at Uptake, which the employee eventually did. Id. ¶ 106. McGinnis also erased the contents of her GE-issued phone, which GE believes was done to hide misappropriation of information and solicitations by Bell, Allardyce, Bolick, and Marwaha. Id. ¶ 107.
Throughout the same period, Uptake repeatedly approached GE about a joint venture or acquisition. Id. ¶¶ 78, 81, 108. On one such occasion, GE and Uptake executed a confidentiality agreement. Id. ¶ 108. Within days of their discussions falling through, the Wall Street Journal published an article indicating that GE had hired bankers to consider the sale of its digital assets. Id. ¶ 110. Further, Uptake began directly targeting GE customers, citing the recent news of GE selling its digital business. Id. ¶ 111. GE alleges that Uptake leaked their discussions to the press to harm GE's standing in the marketplace and to target GE customers. Id. ¶ 112.
In late August, Alex Paulsen also left GE for Uptake. Id. ¶ 114. GE examined one of his company-issued devices, which revealed a June email with the subject line, "Uptake Availability — Got your Info from Kelly McGinnis — Sr. Director, Commercial Finance." Id. ¶ 116. After Paulsen's departure, Uptake again inquired about a deal with GE and GE again declined. Id. ¶ 117.
In mid-November, Uptake scheduled a joint interview for five GE employees, at which time they met with three Uptake employees, including Paulsen. Id. ¶ 123. Two days later they all received offer letters from Uptake, which four of the five accepted. Id. ¶¶ 125-26. At least one of the letters offered a salary five percent higher than the individual's GE salary, despite that individual not sharing his salary information during the interview. Id. ¶ 125. Later that week, Uptake's CEO again contacted GE about entering into a transaction. Id. ¶ 127.
GE contends that Uptake's repeated hiring of its employees followed by attempts to acquire GE Digital demonstrate Uptake's desire to supplant GE by acquiring its employees, confidential information, and customers. Id. ¶ 128. Further, GE asserts that Uptake's hiring of Bell, Allardyce, Bolick, Marwaha, McGinnis, and Paulsen put GE Power's and GE Digital's confidential information and trade secrets at risk. Id. ¶¶ 67, 133. Specifically, Bell is a software engineer who is deeply aware of GE Digital's software applications; Allardyce, Bolick, and Marwaha are uniquely positioned to replicate GE's Digital's software; and McGinnis and Paulsen know GE's financial and sales information and clients who Uptake should target. Id. ¶¶ 45-50, 131-135.
GE brings this action against Uptake and the individual defendants, seeking injunctive relief and damages, for Breach of Contract (Count I), violations of the Illinois Trade Secrets Act (Count II) and Defend Trade Secrets Act (Count III), Tortious Interference with Contract (Count IV), Tortious Interference with Prospective Economic Advantage (Count V), Unfair Competition (Count VI), and Breach of Fiduciary Duty (Count VII).
In Count I, GE alleges Bell, Bolick, Allardyce, Marwaha, McGinnis, and Paulsen breached their NSAs and Confidentiality Agreements. The agreements are addressed in turn.
GE and the defendants dispute whether California or New York law applies to the NSAs signed by Bell, Bolick, Allardyce, and Marwaha.
A federal court exercising supplemental jurisdiction over state-law claims applies the choice-of-law rules of the forum state. McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014). In Illinois, a contract's choice-of-law provision governs unless: (1) the chosen state has no substantial relationship to the parties or the transaction; or (2) application of the chosen law would be contrary to a fundamental public policy of a state with a materially greater interest in the issue in dispute. Old Republic Ins. Co. v. Ace Prop. & Cas. Ins. Co., 389 Ill.App.3d 356, 329 Ill.Dec. 432, 906 N.E.2d 630, 636 (2009) (quoting Restatement (Second) of Conflict of Laws, § 187 (1971)); see also Hendricks v. Novae Corporate Underwriting, Ltd., 868 F.3d 542, 545 (7th Cir. 2017). The defendants argue that despite the New York law provision, California has a materially greater interest in the dispute and the NSAs violate California's fundamental public policy against restrictive covenants. Before undertaking a choice-of-law analysis, the party seeking the determination "bears the burden of demonstrating a conflict, i.e., that there exists a difference in the law that will make a difference in the outcome." Bridgeview Health Care Ctr., Ltd. v. State Farm Fire & Cas. Co., 381 Ill.Dec. 493, 10 N.E.3d 902, 906 (Ill. 2014) (citations omitted). Because the defendants argue a conflict exists, this Court must first determine the enforceability of the NSAs under New York and California law.
The parties agree that New York permits employee non-solicitation agreements so long as the terms are reasonable. In re Document Techs. Litig., 275 F.Supp.3d 454, 466 (S.D.N.Y. 2017). A restraint is reasonable if it: "(1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public." Mastercard Int'l Inc. v. Nike, Inc., 164 F.Supp.3d 592, 601 (S.D.N.Y. 2016) (emphasis in original) (quoting BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220, 1223 (1999)). Courts also typically examine whether the restriction is limited in time and geographic scope. Id. The defendants argue the NSAs are unenforceable because they have no temporal or geographic limits, they do not protect one of GE's legally cognizable interests, and they are unreasonably overbroad and vague. This Court disagrees. In Mastercard, Mastercard sued two of its former employees for conspiring to build their new employer's information security department by using Mastercard's confidential information and soliciting its employees. Like the NSA here, the agreement in Mastercard prohibited employees from "directly or indirectly, solicit[ing], induc[ing], recruit[ing], or encourag[ing] any other employee, agent, consultant or representative to leave the service of [plaintiff] for any reason" for 12 months (one defendant) or 24 months (second defendant). Id. at 599. The court held the agreement was enforceable because
The same considerations apply in this case. GE is a global company, the NSAs restrict the defendants from solicitating Lead (or Senior) Professional Band or higher employees for one year, and GE alleges the NSAs are necessary, in part, to protect its confidential and trade secret information.
Turning to the enforceability of the NSAs in California, the pertinent statute provides that "[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Cal. Bus. & Prof. Code § 16600.
The defendants argue the Supreme Court of California's decision in Edwards v. Arthur Andersen, LLC, 44 Cal.4th 937, 81 Cal.Rptr.3d 282, 189 P.3d 285 (2008) overruled Loral. In Edwards, an employee challenged a non-compete agreement after he resigned from his job. The court held the agreement was invalid because section 16600 prohibits even narrow or limited restraints on one's ability to practice his or her chosen business, profession, or trade. Id., 81 Cal.Rptr.3d 282, 189 P.3d at 292-93.
California courts disagree whether employee non-solicitation agreements are prohibited post-Edwards. Compare Sonic Auto., Inc. v. Younis, 2015 WL 13344624, at *2 (C.D. Cal. May 6, 2015) ("[A] contract may prohibit employees, upon termination of their employment, from soliciting other employees to join them at their new employment.") (citing Loral), and Thomas Weisel Partners LLC v. BNP Paribas, 2010 WL 546497, at *5-6 (N.D. Cal. Feb. 10, 2010) (holding that a no-hire/no-solicitation clause was unenforceable only to the extent that it restricted hiring) (citing Loral), with AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal.App.5th 923, 239 Cal.Rptr.3d 577, 590 (2018) ("We thus doubt the continuing viability of [Loral]
This Court finds AMN, Barker, and WeRide persuasive. Although the court decided Edwards in the context of a non-compete, non-solicitation agreements are also subject to section 16600. Latona v. Aetna U.S. Healthcare Inc., 82 F.Supp.2d 1089, 1095 (C.D. Cal. 1999). Loral upheld the employer's restrictive covenant because it only "slightly affect[ed]" the plaintiff's employees and limited the defendant's business "in a small way." 174 Cal. App. 3d at 279-80, 219 Cal.Rptr. 836. This rationale conflicts with Edwards's holding that section 16600 prohibits restraints of any kind. AMN, 28 Cal. App. 5th at 938, 239 Cal.Rptr.3d 577 (quoting Edwards, 44 Cal. 4th at 945, 81 Cal.Rptr.3d 282, 189 P.3d 285); Edwards, 44 Cal. 4th at 950, 81 Cal.Rptr.3d 282, 189 P.3d 285 ("Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject [defendant's] contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600."). Thus, this Court finds the NSAs are void under California law.
Nevertheless, overriding the parties' choice-of-law provision would still require New York law to violate fundamental California public policy. See Vencor, Inc. v. Webb, 33 F.3d 840, 844-45 (7th Cir. 1994) ("[Defendant] argues that this non-competition agreement is contrary to the fundamental public policy of the state of Illinois, and thus Illinois law must govern this dispute. We disagree. . . . This choice of law provision only matters (from [Defendant's] perspective) if a Kentucky court would enforce the covenant not to compete and an Illinois court would not. But even if this is the case, there is a long way between, on the one hand, finding a covenant unenforceable and, on the other, declaring that its enforcement is so odious that a court will not respect the parties' election to be governed by the law of a state that would."). Given that California courts disagree whether employee non-solicitation provisions are prohibited post-Edwards, this Court cannot conclude that applying New York law is clearly contrary to fundamental California public policy. See Great Frame Up Sys., Inc. v. Jazayeri Enters., Inc., 789 F.Supp. 253, 256 (N.D. Ill. 1992) ("Because California courts have not clearly declared whether or not `restraints' like this one are enforceable under § 16600, we think it prudent to hesitate before finding the application of Illinois law contrary to a fundamental California public policy."); see generally Mohanty v. St. John Heart Clinic, S.C., 225 Ill.2d 52, 310 Ill.Dec. 274, 866 N.E.2d 85, 92 (2006) (declining to void a contractual provision as contrary to the public policy of Illinois) ("[O]ur decisions have held that a private contract, or provision therein, will not be declared void as contrary to public policy unless it is `clearly contrary to what the constitution, the statutes, or the decisions of the courts have declared to be the public policy.'") (quoting Vine Street Clinic v. Healthlink, Inc., 222 Ill.2d 276, 305 Ill.Dec. 617,856 N.E.2d 422,
Defendants argue GE failed to state a claim for breach of the NSA against Allardyce, McGinnis, or Marwaha. GE's sole allegation against these three defendants for breach of the NSA is that McGinnis erased her company phone to hide their solicitations. Standing alone, this would not survive a motion to dismiss. However, drawing all reasonable inferences in GE's favor, that allegation coupled with McGinnis then leaving GE to join the defendants at Uptake creates a plausible claim for breach of the NSA.
As such, the defendants' motion to dismiss GE's claim from breach of the NSA is denied as to Bell, Bolick, Allardyce, Marwaha, and Paulsen. McGinnis's motion is granted because her NSA is governed by California law, under which the provision is void.
The Court next turns to the Confidentiality Agreements. Marwaha's and Paulsen's Agreements call for New York law and Bell's, Bolick's, Allardyce's, and McGinnis's Agreements do not contain a choice-of-law provision. The defendants argue Paulsen's Agreement is governed by New York law; Bell's, Bolick's, Allardyce's, and Marwaha's Agreements are governed by California law; and McGinnis's Agreement is governed by Georgia law.
Turning first to Marwaha, no choice-of-law analysis is necessary because both California and New York permit confidentiality agreements. See, e.g., E.D.C. Technologies, Inc. v. Seidel, 216 F.Supp.3d 1012, 1015 (N.D. Cal. 2016) (denying motion to dismiss claim for breach of a confidentiality agreement and rejecting the argument that the confidentiality agreement operated as a de facto non-compete); Reed, Roberts Assocs., Inc. v. Strauman, 40 N.Y.2d 303, 386 N.Y.S.2d 677, 353 N.E.2d 590 (1976) ("[R]estrictive covenants will be enforceable to the extent necessary to prevent the disclosure or use of trade secrets or confidential customer information."). The defendants argue E.D.C.'s holding is not supported by California law, but the cases they cite do not lead to that conclusion. See Dowell v. Biosense Webster, Inc., 179 Cal.App.4th 564, 102 Cal.Rptr.3d 1, 11 (2009) (dealing with a non-compete covenant) ("Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here."); The Ret. Grp. v. Galante, 176 Cal.App.4th 1226,
The defendants next argue the Confidentiality Agreements are unreasonably overbroad and thus unenforceable under New York (Paulsen) and Georgia (McGinnis) law. The law is essentially the same. The reasonableness test for restrictive covenants "focuses on the particular facts and circumstances giving context to the agreement." BDO Seidman, 690 N.Y.S.2d 854, 712 N.E.2d at 1224 (citing Karpinski v. Ingrasci, 28 N.Y.2d 751, 752 (1971)); see also Carson v. Obor Holding Co., LLC, 318 Ga.App. 645, 734 S.E.2d 477, 481 (2012) ("Whether a restrictive covenant violates Georgia law depends upon whether the covenant can be considered a `reasonable' restraint on competition, given the circumstances of a particular case."). To support their position, the defendants cite L.I. City Ventures v. Urban Compass, Inc., 2019 WL 234030, *14 (S.D.N.Y. Jan. 16, 2019). But in that case, the court held the Confidentiality Agreement was unreasonably overbroad because it included "any information to which [the Defendant] ha[s] access at [the company]," including information that was available to the entire world. Id. at *13. Here, the Confidentiality Agreement defines as confidential "information or data that is not generally known," which may include "any information and data in electronic form." See R. 19, Ex. 4 at 2. Because the Agreement purports to protect only information that is not generally known, the Court cannot conclude it is categorically unreasonable as a matter of law.
The defendants also argue the amended complaint fails to state a claim for breach of the Confidentiality Agreement because it merely insinuates that a breach may occur. This ignores the allegations that: 1) Bolick, Marwaha, and Allardyce maintained GE files and photographs of confidential information after they resigned; 2) Bell purchased a company as president of Uptake that he had investigated as part of a GE acquisition team and is now targeting a longstanding GE customer; and 3) McGinnis and Paulsen disclosed GE employee information to Uptake to lure them away from GE. The defendants contend that GE does not allege these actions violated the Confidentiality Agreement. But drawing all reasonable inferences in GE's favor, the allegations are sufficient to support a plausible claim that the defendants improperly used information covered by their Agreements. 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.").
As an initial matter, the defendants argue ITSA does not apply to Bell, Allardyce, Marwaha, McGinnis, or Paulsen because they are not domiciled in Illinois and their alleged misappropriations occurred outside of Illinois. The Illinois choice-of-law rule for misappropriation selects the place where the misappropriation occurred or where the defendant obtained the benefit of the misappropriation. Salton, Inc. v. Philips Domestic Appliances & Pers. Care B.V., 391 F.3d 871, 879 (7th Cir. 2004). Generally, this is the defendant's principal place of business. Abbott Labs. v. Chiron Corp., 1997 WL 208369, at *2 (N.D. Ill. Apr. 23, 1997); see also Mergenthaler Linotype Co. v. Leonard Storch Enters., Inc., 66 Ill.App.3d 789, 23 Ill.Dec. 352, 383 N.E.2d 1379, 1389 (1978) ("Generally, where a plaintiff sues because of the appropriation of proprietary information or trade secrets, the court will apply the law of the state where the alleged wrong was committed, that is where the information was used or the benefit of the use by the defendant was enjoyed that is the principal place of the defendant's business."); Wilson v. Electro Marine Sys., Inc., 915 F.2d 1110, 1115 (7th Cir. 1990) (applying New York law to trade secret misappropriation claim because defendant's principal place of business was in New York); Fleming Sales Co., Inc. v. Bailey, 611 F.Supp. 507, 510 (N.D. Ill. 1985) (applying Indiana law to trade secret misappropriation claim because defendant's principal place of business was in Indiana). Here, Uptake's principal place of business is in Illinois and the individual defendants allegedly misappropriated GE's trade secrets to benefit Uptake. Thus, Illinois law controls.
The defendants also contend that Illinois law does not apply to the misappropriation claims against Marwaha or Paulsen because of the New York choice-of-law provisions in their Confidentiality Agreements. Illinois courts apply a two-part analysis to decide if a contract's choice-of-law provision applies to related tort claims. First, courts examine the breadth and language of the choice-of-law provision. See Medline Indus. Inc. v. Maersk Med. Ltd., 230 F.Supp.2d 857, 863 (N.D. Ill. 2002). Second, they determine whether the claims are dependent on the agreement and thus subject to the choice-of-law clause. Id. Marwaha's and Paulsen's Confidentiality Agreements contain a narrow choice-of-law provision and GE's misappropriation claims could exist absent the contract. See Precision Screen Machines Inc. v. Elexon, Inc., 1996 WL 495564, at *3 (N.D. Ill. Aug. 28, 1996) (Confidentiality Agreement's New Jersey choice-of-law provision did not apply to related tort claims because they were not dependent on the contract). To support their position, the defendants rely on Facility Wizard Software, Inc. v. Southeastern Technical Services, LLC, 647 F.Supp.2d 938 (N.D. Ill. 2009). But the provision in Facility Wizard encompassed "[a]ll claims arising out of or relating to [the] Agreement." Id. at 943-44. The court addressed the relatedness of the plaintiff's tort claims to the contract only after determining that the provision clearly governed related claims. In contrast, the Confidentiality Agreement's choice-of-law provision governs only the Agreement. Thus, Illinois law applies to the misappropriation claims against Marwaha and Paulsen.
Having addressed choice-of-law, the Court now turns to GE's claims under ITSA and DTSA. To state a claim for misappropriation under ITSA, GE must assert "the information at issue was a trade secret, that it was misappropriated and that it was used in the defendant's business." Mission Measurement Corp. v. Blackbaud, Inc., 216 F.Supp.3d 915, 920 (N.D. Ill. 2016) (quoting Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003)). Similarly, DTSA provides a private cause-of-action for the "owner of a trade secret that is misappropriated . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. § 1836(b)(1). DTSA defines misappropriation as "an unconsented disclosure or use of a trade secret by one who (i) used improper means to acquire the secret, or, (ii) at the time of disclosure, knew or had reason to know that the trade secret was acquired through improper means, under circumstances giving rise to a duty to maintain the secrecy of the trade secret, or derived from or through a person who owed such a duty." Mission Measurement, 216 F. Supp. 3d at 920 (citations omitted).
GE has sufficiently alleged the trade secrets at issue. At the pleadings stage, plaintiffs can describe trade secret information in general terms. See Covenant Aviation Security, LLC v. Berry, 15 F.Supp.3d 813, 818 (N.D. Ill. 2014) (collecting cases); see also AutoMed Techs., Inc. v. Eller, 160 F.Supp.2d 915, 920-21 (N.D. Ill. 2001) ("Courts are in general agreement that trade secrets need not be disclosed in detail in a complaint alleging misappropriation for the simple reason that such a requirement would result in the public disclosure of purported traded secrets."). GE alleges the trade secrets to which the individual defendants had access include: (a) customer needs and preferences; (b) pricing and margin information; (c) product, marketing, and long-term strategies; (d) information about its confidential bids to customers; (e) confidential acquisition strategies and targets; (f) technology and software; and (g) other non-public information. Other courts in this district have found similar descriptions of confidential information to be specific enough to survive a motion to dismiss. See, e.g., Inmar, Inc. v. Vargas, 2018 WL 6716701, at *3-4 (N.D. Ill. Dec. 21, 2018) (finding business development plans for existing clients, pricing and marketing strategies, lead sources, and research dossiers sufficiently specific to survive dismissal); Labor Ready, Inc. v. Williams Staffing, LLC, 149 F.Supp.2d 398, 412 (N.D. Ill. 2001) (finding trade secret description of marketing strategies, pricing data, and confidential business practices satisfied the notice pleading requirements). Additionally, GE describes the steps it took to safeguard this information, including
Next, the defendants argue that even if GE has sufficiently alleged the trade secrets at issue, the amended complaint fails to allege which defendants misappropriated which trade secrets. GE contends that it has alleged both actual and threatened misappropriation, and that the individual defendants cannot perform their jobs at Uptake without inevitably disclosing GE's trade secrets and confidential information.
In Illinois, the "inevitable disclosure doctrine" allows a plaintiff to "prove a claim of trade secret misappropriation by demonstrating that the defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets." Molon Motor & Coil Corp. v. Nidec Motor Corp., 2017 WL 1954531, at *5 (N.D. Ill. May 11, 2017) (quoting PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995)); see also Strata Marketing, Inc. v. Murphy, 317 Ill.App.3d 1054, 251 Ill.Dec. 595, 740 N.E.2d 1166, 1178 (2000) ("We believe PepsiCo correctly interprets Illinois law and agree that inevitable disclosure is a theory upon which a plaintiff in Illinois can proceed under [ITSA]."). PepsiCo, as well as Teradyne, Inc. v. Clear Communications Corp, 707 F.Supp. 353 (N.D. Ill. 1989), provide guidance for assessing a claim based on inevitable disclosure.
In Teradyne, the plaintiff alleged that the defendant lured away its employees and intended to employ them in the same field. The court held that Teradyne's complaint failed to state a claim for threatened misappropriation of trade secrets, explaining that:
707 F. Supp. at 357.
Whereas Teradyne illustrates what falls short at the pleading stage, PepsiCo describes what allegations are sufficient. In PepsiCo, Pepsi sought to enjoin one of its former general managers from working for a competitor and disclosing trade secrets. 54 F. 3d at 1265. Given the defendant's intimate knowledge of Pepsi's trade secrets, Pepsi argued that he could not help but rely on this information as he plotted his new employer's course, and that those secrets would give the company a substantial advantage because it would know how Pepsi would price, distribute, and market its products. Id. at 1270. The Seventh Circuit affirmed the district court's decision to grant an injunction, holding that this "type of trade secret problem . . . falls within the realm of trade secret protection under the present circumstances." Id. The court reasoned that:
Id. at 1269 (quoting AMP Inc. v. Fleischhacker, 823 F.2d 1199, 1202 (7th Cir. 1987)). The court noted approvingly the district court's conclusion that "unless [the defendant] possessed an uncanny ability to compartmentalize information, he would necessarily be making decisions about [his new company's products] Gatorade and Snapple by relying on his knowledge of [Pepsi's] trade secrets." Id. Thus, the question is whether GE clears the hurdle from mere fear that its trade secrets will be disclosed to plausibly alleging that they inevitably will be disclosed.
In evaluating whether the disclosure of trade secrets is inevitable under PepsiCo, courts consider: "(1) the level of competition between the former employer and the new employer; (2) whether the employee's position with the new employer is comparable to the position he held with the former employer; and (3) the actions the new employer has taken to prevent the former employee from using or disclosing trade secrets of the former employer." Molon Motor, 2017 WL 1954531, at *5 (quoting Saban v. Caremark Rx, L.L.C., 780 F.Supp.2d 700, 734-35 (N.D. Ill. 2011)). Applying these factors, the amended complaint asserts that GE and Uptake are direct competitors in the relatively new data analytics market for industrial equipment, and that the individual defendants assumed the same (or substantially similar) positions at Uptake as they held at GE. Moreover, at this stage, the record is (unsurprisingly) silent as to what steps Uptake has taken to prevent the disclosure of GE trade secrets. Rather, the amended complaint indicates that Uptake is targeting (and has hired at least ten) GE employees for the very purpose of gaining access to GE's confidential and trade secret information. In short, the amended complaint alleges an ITSA claim under the inevitable disclosure doctrine.
Further informing this Court's conclusion, GE has alleged the "more" against each defendant that was missing in Teradyne. Specifically, GE alleges: 1) Allardyce and Marwaha scheduled meetings outside the scope of their duties to acquire GE confidential information before they resigned; 2) Bolick accessed a series of documents that, while dated for GE, would provide a tremendous advantage to Uptake; 3) Marwaha maintained significant GE files on a cloud-based repository after he resigned; 4) Bolick and Allardyce possessed photographs of GE whiteboards that contained trade secrets and confidential information after they left GE; 5) Uptake purchased a company within two months of Bell becoming president that he had investigated as part of an acquisition team while at GE; 6) McGinnis and Paulsen provided GE employee compensation information to Uptake so that it could lure away GE employees; and 7) McGinnis, Bolick, Marwaha, and Allardyce rendered their GE devices unreadable before they returned them in order to hide their misappropriations. While these actions may prove to be innocuous, at the pleading stage, at the very least, they contribute to a plausible allegation that the defendants cannot "compartmentalize" GE information as the court was concerned with in PepsiCo.
The defendants argue the category of information GE alleges they will inevitably disclose is so broad that it would subject any senior employee who changes jobs within the same industry to injunctive relief under ITSA. But the defendants mistake what is at issue. This Court is not issuing an injunction or addressing the merits of this case. Rather, the Court merely concludes that GE has stated an ITSA claim under an inevitable disclosure
The defendants also argue that DTSA does not recognize the inevitable disclosure doctrine. Consistent with other courts in this district, this Court finds that a DTSA claim based on inevitable disclosure may survive a motion to dismiss. See Molon, 2017 WL 1954531, at *7 (denying motion to dismiss a DTSA claim based on inevitable disclosure doctrine); Indus. Packaging Supplies, Inc. v. Channell, 2018 WL 2560993, at *3 (N.D. Ill. June 4, 2018) (dismissing DTSA claim but analyzing it under inevitable disclosure doctrine). Similarly, this Court is ruling on a motion to dismiss, not entering an injunction. As such, the Court declines to consider the defendants' argument that entering an injunction based on the inevitable disclosure doctrine would violate California and/or New York law. The defendants' motion to dismiss Counts II and III is denied.
In Count IV, GE essentially alleges two claims: one for Uptake's tortious interference with the NSAs and the other for Uptake's tortious interference with the Confidentiality Agreements. To state a claim for tortious interference with contract, GE must allege enough facts to establish: "(1) a valid contract, (2) defendant's knowledge of the contract, (3) defendant's intentional and unjustified inducement of a breach of contract, (4) a subsequent breach of contract caused by defendant's wrongful conduct, and (5) damages." Webb v. Frawley, 906 F.3d 569, 577 (7th Cir. 2018) (citations omitted).
Uptake argues that this claim fails because the NSAs and Confidentiality Agreements are invalid and unenforceable, and because GE failed to allege a breach of the Confidentiality Agreement against any defendant. For the reasons stated in Part I of this opinion, the Court disagrees.
Uptake also argues ITSA preempts Count IV to the extent it relies on the misuse of trade secret information. "Where a claim is predicated on the misuse of confidential or secret information, that claim is preempted by ITSA. Where a claim would survive regardless of whether the information at issue was non-confidential, however, that claim is not preempted." XPO Logistics, Inc. v. Best Dedicated Sols., LLC, 2017 WL 4150779, at *2 (N.D. Ill. Sep. 18, 2017) (internal citations omitted).
The question then is whether GE's claim for tortious interference with the Confidentiality Agreements would stand regardless of whether trade secrets were at issue. As an initial matter, to the extent the Confidentiality Agreements cover information that does not rise to the level of a trade secret, "Illinois courts have read the preemptive language in the ITSA to cover claims that are essentially claims of trade secret misappropriation, even when the alleged `trade secret' does not fall within the Act's definition." Spitz v. Proven Winners North America, LLC, 759 F.3d 724, 733 (7th Cir. 2014). Here, the Confidentiality Agreements track ITSA's language in covering information that is not generally known. The individual defendants could not have breached their Confidentiality Agreements — and therefore Uptake could not have tortiously interfered with those Agreements — unless the information they misused was confidential or a trade secret. Thus, the claim is predicated on the misuse of such information. As such, ITSA preempts GE's claim for tortious interference with the Confidentiality
Similarly, Uptake argues ITSA preempts the trade secret portions of Count VI. When considering whether ITSA preempts a claim, courts "must determine whether that separate claim seek[s] recovery for wrongs beyond mere misappropriation." Id.
GE alleges Uptake unfairly competed by targeting its employees, engaging in acquisition discussions so that it could release information to the media about GE selling GE Digital, targeting GE customers based on the improper release of information, attempting to improperly acquire GE trade secrets, and hiring GE employees en masse. While these allegations go beyond misappropriation, Uptake seeks to dismiss the portions of the claim that are based on misusing GE's trade secrets. Other courts have followed a similar approach. See, e.g., XPO Logistics, 2017 WL 4150779, at *3 (dismissing only the parts of the tortious interference and unfair competition claims that relied on misappropriating confidential information); Traffic Tech, Inc. v. Kreiter, 2015 WL 9259544, at *15 (N.D. Ill. Dec. 18, 2015) (dismissing unjust enrichment claim only to the extent it was preempted by ITSA). However, it is unclear what parts of GE's unfair competition claim rely on trade secret information. For example, Uptake may have unfairly competed by leaking information to the media in violation of an agreement, even if that information would not otherwise qualify as a trade secret. This makes GE's unfair competition claim different than its claim for tortious interference with the Confidentiality Agreements, which could not exist had the defendants not breached an agreement specifically designed to protect the type of information covered by ITSA. ITSA does not preempt common law claims "not based upon misappropriation of a trade secret." Lumenate, 2013 WL 5974731, at *7 (citing 765 ILCS 1065/8(b)(1)-(2)). Because the Court cannot yet determine which (if any) aspect of GE's unfair competition claim necessarily depends on the misappropriation of trade secrets, the Court denies Uptake's motion to dismiss Count VI at this stage.
In Count V, GE alleges tortious interference with its prospective economic advantage (TIPEA). The defendants argue the law of the state where the alleged tortious interference occurred should apply. However, under Illinois choice-of-law rules, "the law of the place of injury controls unless Illinois has a more significant relationship with the occurrence and with the parties." Tanner v. Jupiter Realty Corp., 433 F.3d 913, 916 (7th Cir. 2006). Uptake's principal place of business is in Illinois and the individual defendants allegedly interfered on Uptake's behalf. Thus, Illinois has a more significant relationship with the occurrence and parties than states where the interference occurred.
To state a claim for TIPEA under Illinois law, GE must allege: "(1) the plaintiff's reasonable expectation of a future business relationship; (2) the defendant's knowledge of that expectation; (3) purposeful interference by the defendant
The defendants also argue that GE has not alleged intentional, unjustified, or purposeful interference. As to Uptake, the defendants contend that a competitor is free to compete over employees. However, as GE correctly points out, competitor's privilege is an affirmative defense that a complaint need not plead around or anticipate. Maximum Indep. Brokerage, 218 F. Supp. 3d at 642. While in some cases a complaint may "so clearly reveal[] the existence of the defense that judgment on the pleadings is possible," a competitor is ineligible for the competition defense if its conduct is motivated solely by spite or ill will. Int'l Mktg., Ltd. v. Archer-Daniels-Midland Co., Inc., 192 F.3d 724, 731 (7th Cir. 1999). GE has alleged enough facts about Uptake's possible ulterior motives to survive this affirmative defense on the pleadings.
The individual defendants argue they were free to solicit other GE employees after they resigned because the NSAs are void and they did not owe GE any other duties. But the case they cite, Pampered Chef v. Alexanian, 804 F.Supp.2d 765 (N.D. Ill. 2011), deals with a plaintiff who directly tied its tortious interference claim to the defendants' non-solicitation agreements in its complaint. Id. at 807. In fact, Pampered Chef explicitly states that a tortious interference claim "does not require that there be a subsisting contract." Id.; see also Dames & Moore v. Baxter & Woodman, Inc., 21 F.Supp.2d 817, 825-26 (N.D. Ill. 1998) (denying former employee's motion to dismiss claim for tortious interference even though no contractual duty existed). Here, GE did not tie its tortious interference claim directly to the NSAs and it has alleged enough other facts to state a plausible claim. See Dames & Moore, 21 F. Supp. 2d at 826 ("Plaintiff has alleged several wrongful acts, including [defendant's] solicitation of plaintiff's clients and employees while he was employed, [defendant's] misappropriation of confidential information about the clients and employees, defendants' conspiratorial agreement to have [the defendant] perform these acts, and [defendant's] use of misappropriated confidential information. Plaintiff, therefore, has sufficiently alleged that defendants' actions were unjustified.").
GE brings Count VII against McGinnis for breach of fiduciary duty. McGinnis argues that California law preempts common law claims based on the misappropriation of confidential information. However, for the reasons stated in Part II of this opinion, Illinois, not California, law applies. Under Illinois law, preemption "does not apply to duties imposed by law that are not dependent on the existence of competitively significant information." Hecny Transp., Inc. v. Chu, 430 F.3d 402, 405 (7th Cir. 2005). Numerous courts in this district held that ITSA does not preempt breach of fiduciary duty claims when they are based on more than the misappropriation of confidential information. See Christopher Glass & Aluminum, Inc. v. O'Keefe, 2017 WL 2834536, at *3 (N.D. Ill. June 30, 2017) (collecting cases). The thrust of GE's claim against McGinnis is that, in addition to misusing GE information, she solicited other GE employees and did not devote her best efforts to the company. Because GE alleges more than just the taking of trade secrets, ITSA does not preempt this claim. Uptake's motion to dismiss Count VII is denied.
For the reasons stated above, the Court grants McGinnis's motion to dismiss Count I only as to breach of the NSA, and Uptake's motion to dismiss Count IV to the extent it relies on tortious interference with the Confidentiality Agreements. In all other respects, the defendants' motion is denied.
