Advanced BioTech LLC v. BioWorld USA, Inc. ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 ADVANCED BIOTECH, LLC, et al., No. 1:19-cv-01215-NONE-SKO 12 Plaintiffs, 13 v. ORDER DENYING DEFENDANTS’ MOTION TO DISMISS 14 BIOWORLD USA, INC., et al., (Doc. No. 8) 15 Defendants. 16 17 Plaintiffs Advanced BioTech, LLC (“Advanced BioTech”) and Dale Barnes (“Mr. 18 Barnes”) filed this lawsuit against defendants BioWorld USA, Inc. (“BioWorld USA”), Donald 19 Damschen (“Damschen”), and Diane Barnes (“Ms. Barnes”) alleging trade secret 20 misappropriation under federal and state law. (Doc. No. 1 (“Complaint”).) Pending before the 21 court is defendants’ motion to dismiss the complaint for failure to state a claim. (Doc. No. 8.) 22 For the reasons discussed below, defendants’ motion will be denied. 23 BACKGROUND 24 In 1989, Mr. Barnes formed two business entities: Advanced BioTech and BioWorld 25 Products, LLC (“BioWorld Products”).1 (Compl. ¶ 13.) Advanced BioTech developed a 26 1 For purposes of this order, “Advanced BioTech” and “BioWorld Products” refer to the 27 companies themselves and any of their predecessors and/or successors. Defendants make much of the business reorganizations of both entities, but that is irrelevant to resolution of the pending 28 motion to dismiss for reasons discussed in detail below. 1 chemically formulated product, called “MultiFIX,” which “provides the proper compounds and 2 substrates required by soil microbes and plants to grow high quality crops with enhanced nutrient 3 value.” (Id.) Using and building on MultiFIX, BioWorld Products developed other formulations: 4 “BioWorld Waste & Odor Treatment, BioWorld Algae Treatment, BioWorld Bioremediation and 5 BioWorld Hydrocarbon Treatment, BioWorld Odor Neutralizer (BON), Bioremediation Odor 6 Control Technology and other formulations.” (Id. ¶ 14.) These latter products “assist[] microbes’ 7 ability to reproduce and thrive in [a] given environmental challenge,” and have “been 8 successfully used in agricultural and municipal wastewater biodegradation, industrial, and 9 commercial hydrocarbon bioremediation, algae cleanup in farm irrigation ponds, governmental 10 irrigation canals, private lakes, odor neutralization of industrial-type odors,” in addition to other 11 uses. (Id.) Plaintiffs also developed “The Pet Beverage” formulation. (Id.) Together, these 12 “product formulations” are “confidential, proprietary, and trade secret information belonging to 13 Advanced BioTech and/or Mr. Barnes.” (Id. ¶ 17.) 14 In addition to the product formulas, Advanced BioTech’s customer-related information, 15 containing strategic data necessary to navigate the competitive marketplace and which took years 16 to develop through business goodwill, also constitutes confidential, proprietary, and trade secret 17 information. (Id. ¶¶ 18, 20.) 18 Enter defendants Damschen and Ms. Barnes. From about 1994 to 2000, Damschen was 19 employed in leadership roles at Advanced BioTech. (Id. ¶ 28.) In those roles, he helped develop 20 business relationships and had access to Advanced BioTech’s product formulations. (Id. ¶ 29.) 21 In 2005, Damschen was named vice president of BioWorld Products. (Id. ¶ 31.) By 2013, Ms. 22 Barnes was as a bookkeeper for Advanced BioTech and owned a stake in BioWorld Products, 23 “which was [reorganized in 2013] so that Ms. Barnes could offer to sell . . . Advanced BioTech 24 products to federal government entities as a woman-owned small business.” (Id. ¶ 23.) In June 25 2013, and again in November 2013, Advanced BioTech entered into a “Partnership Agreement” 26 with BioWorld Products, whereby the former “was charged with generating sales, corresponding 27 with customers, and managing sales agents, among other things” and the latter “would manage 28 inventory and maintain an accounting of sales generated by Advanced BioTech.” (Id. ¶ 24.) As a 1 result, Ms. Barnes and BioWorld Products had access to Advanced BioTech’s confidential, 2 proprietary, and trade secret information. (Id. ¶¶ 22, 25.) In his role with BioWorld Products and 3 as a result of the Partnership Agreement, Damschen also had access to confidential, proprietary, 4 and trade secret information belonging Advanced BioTech. (Id. ¶ 32.) Damschen served in his 5 role at BioWorld Products until approximately August 31, 2016. (Id. ¶ 31.) 6 While still employed at BioWorld Products, around September 2014, Damschen created a 7 new company, defendant BioWorld USA, for “the express purpose of launching a competitor of 8 Advanced BioTech.” (Id. ¶ 33.) Damschen left BioWorld Products two years later, on about 9 September 1, 2016. (See id. ¶ 31.) At about the same time, BioWorld Products entered into an 10 “Asset Purchase Agreement” with BioWorld USA, the entity created by Damschen. (Id. ¶ 34.) 11 The “‘Asset Purchase Agreement’ and its attached ‘Bill of Sale’ purported to transfer” BioWorld 12 Products’ “book of business consisting of customer contacts and lists, goodwill, trademark rights, 13 patents, product formulations, and computer software and hardware, among others, to 14 BioWorld[.]” (Id. ¶ 35.) According to plaintiffs, BioWorld USA “succeeded in steering” away 15 “multiple Advanced BioTech clients,” which resulted in “Advanced BioTech losing substantial 16 sales and market goodwill in an amount according to proof at trial.” (Id. ¶ 47.) 17 Plaintiffs filed this action alleging that defendants violated the Defense of Trade Secrets 18 Act (“DTSA”), 18 U.S.C. §§ 1836 et seq., and the California Uniform Trade Secret Act 19 (“CUTSA”), California Civil Code §§ 3426 et seq. (Id. ¶¶ 48–56, 57–65.) In addition to 20 pursuing compensatory damages, plaintiffs seek the award of punitive damages against 21 defendants. (Id. at 13–14.) 22 LEGAL STANDARD 23 The purpose of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) 24 is to test the legal sufficiency of the complaint. N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 25 578, 581 (9th Cir. 1983). A dismissal may be warranted where there is “the lack of a cognizable 26 legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri 27 v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff must allege “enough facts 28 to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 1 570 (2007). A claim is plausible on its face “when the plaintiff pleads factual content that allows 2 the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 3 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The court accepts as true the allegations in the 4 complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. 5 King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 6 1989). However, the court will not assume the truth of legal conclusions cast in the form of 7 factual allegations. United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 8 1986). While Federal Rule of Civil Procedure 8(a) does not require detailed factual allegations, 9 “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory 10 statements, do not suffice” to survive dismissal under Rule 12(b)(6). Iqbal, 556 U.S. at 676. A 11 complaint must do more than allege mere “labels and conclusions” or “a formulaic recitation of 12 the elements of a cause of action.” Twombly, 550 U.S. at 555. 13 In ruling on a motion to dismiss brought under Rule 12(b)(6), the court is permitted to 14 consider material which is properly submitted as part of the complaint, documents that are not 15 physically attached to the complaint if their authenticity is not contested and the plaintiff’s 16 complaint necessarily relies on them, and matters of public record. Lee v. City of Los Angeles, 17 250 F.3d 668, 688–89 (9th Cir. 2001). 18 DISCUSSION 19 Defendants move to dismiss the complaint in its entirety and with prejudice on the 20 grounds that it fails to allege elements of the DTSA and CUTSA. (Doc. No. 8 at 2–3.) 21 Defendants also request that the court take judicial notice of various documents. (Doc. No. 8-1 at 22 10–13.) The court first discusses the various documents attached by the parties to their 23 submissions and then will turn to the merits of the pending motion to dismiss. 24 A. The Court Will Consider Some Documents, But Not Others 25 In support of their motion to dismiss, defendants have submitted various partnership 26 agreements that are referenced in the complaint. (Doc. Nos 8-1 at 10–11; see 8-3 at 5, 7.) 27 Plaintiffs concede that the partnership agreements are incorporated by reference in the complaint, 28 and therefore may be considered by the court. (Doc. No. 9 at 8–9.) Plaintiffs also ask the court to 1 incorporate and consider a separate agreement between some of the parties, titled “Dissolution of 2 Partnership,” because it is referenced in the complaint as well. (Id.; see Doc. No. 10-1 at 2.) 3 Defendants do not take issue with this document. (See passim Doc. No. 12.) Therefore, the court 4 will consider this material in deciding the pending motion to dismiss. See Lee, 250 F.3d at 688– 5 89. 6 Defendants request that the court take judicial notice of various documents filed with the 7 California Secretary of State, in addition to a bankruptcy docket allegedly involving Advanced 8 BioTech’s predecessor company. (Doc. Nos. 8-1 at 11–13; see 8-2 at 8, 10–12.) Rule 201 of the 9 Federal Rules of Evidence provides that a “court may judicially notice a fact that is not subject to 10 reasonable dispute because it: (1) is generally known within the trial court’s territorial 11 jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot 12 be reasonably be questioned.” The court will take judicial notice of the existence of these 13 documents because they satisfy the requirements of Rule 201. See Retired Emps. Ass’n of 14 Orange Cty., Inc. v. Cty. of Orange, 632 F. Supp. 2d 983, 985 (C.D. Cal. 2009) (taking judicial 15 notice of filings in a bankruptcy case); L’Garde, Inc. v. Raytheon Space and Airborne Sys., 805 F. 16 Supp. 2d 932, 938 (C.D. Cal. 2011) (taking judicial notice of documents filed with the California 17 Secretary of State). In doing so, the court recognizes the limitation that the judicially notice fact 18 in each instance is the existence of a document, “not . . . the truth of the matters asserted therein.” 19 Color Switch LLC v. Fortafy Games DMCC, 377 F. Supp.3d 1075, 1089, n.6 (E.D. Cal. 2019), 20 aff’d 818 Fed. Appx. 694 (9th Cir. June 26, 2020). 21 Finally, defendants attach two other documents in support of the pending motion to 22 dismiss: a trademark registration certificate issued to Ms. Barnes in 1992 and a fictitious business 23 name filing made with Tulare County in 1996. (Doc. No. 8-3 at 9, 11.) Defendants do not 24 explain the relevance of these documents or why they are helpful to the court in adjudicating the 25 pending motion to dismiss. (See passim Doc. No. 8-1 at 12–13.) Yet, “a party requesting judicial 26 notice bears the burden of persuading the trial judge that the fact is a proper matter for judicial 27 notice.” Newman v. San Joaquin Delta Cmty. Coll. Dist., 272 F.R.D. 505, at 516 (E.D. Cal. 28 2011). A court may decline to take judicial notice of irrelevant documents. See Santa Monica 1 Food Not Bombs v. City of Santa Monica, 450 F.3d 1022, 1025 n.2 (9th Cir. 2006); Flick v. 2 Liberty Mut. Fire Ins. Co., 205 F.3d 386, 392 n.7 (9th Cir. 200). Because defendants have failed 3 to carry their burden of demonstrating that the trademark registration and fictitious business name 4 documents satisfy the requirements of Rule 201, and also fail to explain their relevancy to the 5 court’s consideration of the pending motion, the court declines to take judicial notice of these 6 documents. 7 B. The Complaint States a Claim Under Federal and State Law 8 “To state a claim for trade secret misappropriation under the DTSA and the CUTSA, a 9 plaintiff must allege that: ‘(1) the plaintiff owned a trade secret; (2) the defendant 10 misappropriated the trade secret; and (3) the defendant’s actions damaged the plaintiff.” Alta 11 Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 877 (N.D. Cal. 2018). Defendants argue 12 that dismissal of the DTSA and CUTSA claims is appropriate here because plaintiffs’ complaint 13 fails to allege the elements of “trade secret” and “misappropriation.” For the reasons explained 14 below, the court concludes that neither of these arguments requires dismissal at this stage. 15 1. Trade Secrets: Product Formulas and Customer-Related Information 16 Defendants argue that the complaint fails to allege facts satisfying the statutory definition 17 of “trade secret.” (Doc. No. 8-1 at 14–16.) The definition of a “trade secret” under the DTSA 18 and CUTSA are nearly identical. Under the DTSA, a “trade secret” is 19 financial, business, scientific, technical, economic, or engineering information . . . if (A) the owner thereof has taken reasonable 20 measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not 21 being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic 22 value from the disclosure or use of the information. 23 18 U.S.C. § 1839(3). Under the CUTSA, a “trade secret” is 24 information, including a formula, pattern, compilation, program, device, method, technique, or process that: (1) [d]erives 25 independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain 26 economic value from its disclosure or use; and (2) [i]s the subject of efforts that are reasonable under the circumstances to maintain its 27 secrecy. 28 Cal. Civ. Code § 3426.1(d). In defining the trade secret, a plaintiff must “describe the subject 1 matter of the trade secret with sufficient particularity to separate it from matters of general 2 knowledge in the trade or of special persons who are skilled in the trade, and to permit the 3 defendant to ascertain at least the boundaries within which the secret lies.” Alta Devices, 343 F. 4 Supp. 3d at 881. 5 Here, plaintiffs plausibly allege that their product formulas and customer-related 6 information are “trade secrets” under the DTSA and CUTSA. (Compl. ¶¶ 16–20.) First, 7 plaintiffs plausibly allege a trade secret in the formulation of Advanced BioTech’s MultiFIX, 8 which is “a fertilizer formulation containing a mixture of plant nutrients combined with other 9 ingredients according to a formula.” (Id. ¶ 16 n.1.) Plaintiffs further allege a trade secret in the 10 formulation of “BioWorld Waste & Odor Treatment, BioWorld Algae Treatment, BioWorld 11 Bioremediation and BioWorld Hydrocarbon Treatment, BioWorld Odor Neutralizer (BON), 12 Bioremediation Odor Control Technology and other formulations,” including “The Pet Beverage” 13 formulation. (Id. ¶ 14.) In addition to product formulas, plaintiffs plausibly allege a trade secret 14 in customer-related information. More specifically, plaintiffs allege that Advanced BioTech “has 15 cultivated an extensive list of customers who use or have used its products, as well as information 16 specific to those customers’ business operations, including, but not limited to, customer activity 17 data, product preferences, pricing information, business and marketing plans, and strategies.” 18 (Id. ¶ 18.) The complaint alleges this customer-related information “accumulated by Advanced 19 BioTech over time enhances, and has enhanced, its ability to earn new and repeat business in a 20 competitive marketplace.” (Id. ¶ 19.) Courts have concluded that both product formulas and 21 customer-related information can be “trade secrets.” See Alta Devices, 343 F. Supp. 3d at 882 22 (recognizing “formulas[] and other technical information” as a category of trade secrets under the 23 DTSA and CUTSA); Brocade Commc’n Sys., Inc. v. A10 Networks, Inc., 873 F. Supp. 2d 1192, 24 1215 (N.D. Cal. 2012) (recognizing “customer-related information, including customer lists” as a 25 category of trade secrets under the CUTSA). 26 Second, plaintiffs’ complaint alleges that the trade secrets in question derive value “from 27 not being generally known to, and not being readily ascertainable through proper means by the 28 public,” supported by other allegations, such as the fact that Advanced BioTech operates in a 1 competitive marketplace where this information is presumably highly valuable to market 2 participants. (Compl. ¶¶ 50, 59.) In other words, the complaint plausibly alleges here that the 3 trade secrets “derive[] independent economic value . . . from not being generally known to [or] 4 readily ascertainable . . . by[] another person who can obtain economic value from the . . . 5 information.” See § 1839(3); § 3426.1(d). Contrary to defendants’ argument, the applicable 6 pleading standard does not require that a plaintiff plead that the trade secret is “not known to a 7 person who can profit” from it. (Doc. No. 8-1 at 16.) 8 Third, and relatedly, plaintiffs allege they took “reasonable measures” to ensure the 9 secrecy of their trade secrets. See § 1839(3); § 3426.1(d). In this regard, the complaint alleges 10 these measures included 11 storing that information on private, password-protected server locations that are set apart from the Internet by a firewall; storing 12 printed and hardcopy materials containing confidential, proprietary, and trade secret information in a locked file cabinet to which only 13 selected employees have keys; limiting employee access so that only those who have a work-related reason for using Advanced 14 BioTech’s confidential, proprietary, and trade secret information may do so; and placing a premium on the work ethic of its 15 employees and executives who are expected to maintain strict confidentiality over the company’s proprietary formulations, 16 customer lists, business practices, methods, insights, intellectual property, and other confidential information. 17 18 (Compl. ¶ 21.) This sufficiently alleges “reasonable measures to keep [the] information secret[.]” 19 § 1839(3); see Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 725 (7th Cir. 20 2003) (explaining that this factor is “ordinarily a question of fact for the jury” and “only in an 21 extreme case” may it be resolved as a matter of law) (citation omitted). 22 Last, defendants argue Advanced BioTech is not the “owner”2 of the alleged trade secrets. 23 (Doc. No. 8-1 at 14–15.) However, throughout the complaint the product formulas and customer- 24 related information at issue are referred to as the property of Advanced BioTech. (E.g., Compl. ¶ 25 20 (“The confidential, proprietary, and trade secret nature of Advanced BioTech’s product 26 27 2 Under the DTSA, “owner” is defined as “the person or entity in whom or in which rightful legal or equitable title, or license in, the trade secret is reposed.” 18 U.S.C. § 1839(4). The CUTSA 28 does not provide a statutory definition for “owner.” 1 formulations and customer information . . .”) (emphasis added).) Nevertheless, in support of their 2 argument that plaintiffs are not the owners of the trade secrets, defendants rely on a bankruptcy 3 case from 1999 involving Advanced BioTech. (See Doc. No. 8-2 at 5–6.) Defendants do not 4 attach to their motion any filings from that case in particular, but instead provide only a 5 screenshot of the electronic case filing docket. (Id.) On this basis, defendants argue that neither 6 Mr. Barnes nor Advanced BioTech own the trade secrets at issue because when Advanced 7 BioTech filed for bankruptcy in 1999, it allegedly relinquished any ownership interest in the trade 8 secrets to the trustee of the bankruptcy estate. (Doc. No. 8-1 at 14.) In other words, defendants 9 do not actually contest that the complaint fails to allege an ownership interest. Instead, 10 defendants go beyond the complaint and attempt to rebut the veracity of its allegations. As noted 11 above, the court will judicially notice the fact that a bankruptcy case was pending in 1999 but will 12 not judicially notice any other fact on this record—certainly nothing pertaining to the merits of an 13 ownership interest in trade secrets. See Jarreau-Griffin v. City of Vallejo, 531 B.R. 829, 830 14 (E.D. Cal. 2015) (holding courts notice the “existence of a document, not the truth of the matters 15 asserted in the documents”); see also Color Switch LLC, 377 F. Supp.3d at 1089 n.6. 16 Furthermore, despite defendants’ claims to the contrary, nothing in the judicially noticed 17 document is actually “inconsistent” with the allegations of plaintiffs’ complaint in this action. 18 (Doc. No. 8-1 at 15) (citing Ali v. Humana, Inc., No. 1:12–cv–00509–AWI, 2012 WL 4829313, at 19 *3 (E.D. Cal. Oct. 12, 2012) (applying “doctrine of truthful pleading” in a breach of contract 20 action where there were “clearly material differences” between the complaint and contract, and 21 the attached copy of the contract was “precisely the instrument upon which” the claim rested).) 22 Defendants’ argument is better suited for presentation by way of motion for summary judgment, 23 not through a Rule 12(b)(6) motion to dismiss. 24 For these reasons, the court concludes that plaintiffs’ complaint plausibly alleges that 25 plaintiffs owned “trade secrets” under the DTSA and CUTSA. 26 2. Misappropriation by Damschen, Ms. Barnes, and BioWorld USA 27 Next, defendants argue the complaint fails to allege that each of them “misappropriated” 28 trade secrets. (Doc. No. 8-1 at 16–17.) Under the DTSA and CUTSA, “misappropriation” means 1 either: the “(A) acquisition of a trade secret by another person who knows or has reason to know 2 that the trade secret was acquired by improper means; or” as applicable here, the 3 (B) disclosure or use of a trade secret of another without express or implied consent who . . . (ii) at the time of disclosure or use, knew 4 or had reason to know that the knowledge of the trade secret was . . . (II) acquired under circumstances giving rise to a duty to maintain 5 the secrecy of the trade secret or limit the use of the trade secret; or (III) derived from or through a person who owed a duty to the 6 person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret[.] 7 8 18 U.S.C. § 1839(5); see also Cal. Civ. Code § 3426.1(b) (using nearly identical language). The 9 main issue for purposes of resolving the pending motion to dismiss in this regard is whether 10 defendants had a duty to maintain the secrecy of Advanced BioTech’s trade secrets. 11 Generally, “the question of whether there is a duty to maintain secrecy in trade secret 12 misappropriation cases is a highly fact-specific inquiry.” Sleekez, LLC v. Horton, CV 16–09– 13 BLG–SPW–TJC, 2017 WL 1906957, *5 (D. Mont. Apr. 21, 2017) (analyzing the DTSA). While 14 a confidential relationship cannot be created unilaterally, “no particular form of notice is required; 15 the question raised is whether the recipient of the information knew or should have known that 16 the information was a trade secret and the disclosure was made in confidence.” Id. (quoting 17 Phillips v. Frey, 20 F.3d 623, 632 (5th Cir. 1994)). In the employee-employer context, a duty to 18 maintain information secret may arise from a confidentiality agreement. See, e.g., 1-800 19 Remodel, Inc. v. Bodor, No. CV 18-472-DMG, 2018 WL 6340759, *5 (C.D. Cal. Oct. 17, 2018). 20 But the absence of a confidentiality agreement is not dispositive on the question of whether a duty 21 to maintain secrecy existed. Sleekez, 2017 WL 1906957, at *5; see also Hilderman v. Enea 22 TekSci, Inc., 551 F. Supp. 2d 1183, 1201 (S.D. Cal. 2008) (denying a motion for summary 23 judgment and allowing the case to proceed to trial even though some employees failed to sign 24 confidentiality agreements). Instead, a company may undertake “other precautions to keep its 25 information secret, such as verbally telling its clients and employees that the information was 26 confidential or limiting access to information on a ‘need to know’ basis.” Sleekez, 2017 WL 27 1906957, at *5. Moreover, “a duty to maintain confidentiality can be based on a close personal 28 relationship.” Id. 1 Here, plaintiffs plausibly allege that defendants Damschen and Ms. Barnes had a duty to 2 maintain the secrecy of Advanced BioTech’s information. The complaint alleges that Damschen 3 and Ms. Barnes acquired trade secrets—specifically product formulas and customer-related 4 information—when they were employed by Advanced BioTech and BioWorld Products. (Compl. 5 ¶¶ 22, 23, 28–29, 31.) Damschen worked in leadership roles at these entities for over 16 years, 6 while Ms. Barnes owned a part of BioWorld Products. (Id. ¶¶ 23, 28, 31.) On this basis, it is 7 reasonable to infer from the allegations of the complaint that Damschen and Ms. Barnes knew of 8 the competitiveness of the market in which Advanced BioTech was operating within, and also 9 recognized the value in keeping the trade secret information confidential, given the measures that 10 Advanced BioTech had undertaken to ensure its secrecy. (See id. ¶¶ 19, 21.) Nonetheless, 11 BioWorld Products sold its assets—which included Advanced BioTech’s trade secrets—to 12 BioWorld USA, an entity which was created to compete in the marketplace against Advanced 13 BioTech. (Id. ¶¶ 33–36.) The complaint alleges that the “sale” took place the day after 14 Damschen ceased working at BioWorld Products and the same day BioWorld USA was 15 incorporated. (Id. ¶¶ 31, 34.) Based on these allegations, and construing all facts in a light most 16 favorable to plaintiffs, the court concludes that at the time Damschen and Ms. Barnes used 17 Advanced BioTech’s trade secrets, they “had reason to know that the knowledge of the trade 18 secret was . . . acquired under circumstances giving rise to a duty to maintain the secrecy of the 19 trade secret or limit the use of the trade secret[.]” See § 1839(5); Sleekez, 2017 WL 1906957, at 20 *5. 21 Furthermore, the complaint alleges misappropriation against defendant BioWorld USA. 22 Courts distinguish between “direct” and “indirect” misappropriation claims, the latter of which 23 occurs when a trade secret is obtained indirectly “from someone other than plaintiff.” Navigation 24 Holdings, LLC v. Molavi, 445 F. Supp. 3d 69, 78 (N.D. Cal. 2020). To state a claim for indirect 25 misappropriation, plaintiffs must allege that defendants, inter alia, “had reason to know that the 26 disclosing party . . . was breaching a duty of confidentiality by disclosing it.” Id. (citation 27 omitted). Given that plaintiffs’ complaint alleges that BioWorld USA was incorporated to 28 compete with Advanced BioTech, and it also appears to have been fully controlled by Damschen, 1 the complaint plausibly alleges that BioWorld USA “had reason to know that [Damschen] . . . 2 was breaching a duty of confidentiality by disclosing” the trade secrets. See id. 3 Once again, defendants essentially attempt to convert their motion to dismiss into a 4 motion for summary judgment by asking that the court find, in fact, that there was no duty of 5 secrecy on the part of Damschen or Ms. Barnes because the Partnership Agreements did not 6 include a confidentiality provision. (Doc. Nos. 8-1 at 17 (arguing as to Ms. Barnes); 12 at 9 7 (arguing as to Damschen).) It is true that the complaint does not allege—nor do the Partnership 8 Agreements appear to contain—the existence of a confidentiality agreement signed by Damschen 9 or Ms. Barnes. (See passim Doc. Nos. 1; 8-3 at 5, 7.) However, as noted above, the existence of 10 a confidentiality agreement is not dispositive, and the complaint alleges other circumstances 11 giving rise to a duty of secrecy on the part of both Damschen and Ms. Barnes. Sleekez, 2017 WL 12 1906957, at *5 (explaining a duty can rise from several circumstances, including a “close 13 personal relationship”). Indeed, the pending motion to dismiss goes a step further and alleges that 14 Damschen “signed no agreement regarding trade secrets[.]” (Doc. No. 8-1 at 16–17.) Not only is 15 this argument improper on a motion to dismiss because discovery will reveal whether defendant 16 Damschen did or did not sign a confidentiality agreement—it also misses the mark with respect to 17 the governing law. 18 Accordingly, the court concludes that plaintiffs’ complaint plausibly alleges that 19 defendants BioWorld USA, Damschen, and Ms. Barnes all “misappropriated” trade secrets. 20 3. Harm to Plaintiffs 21 Finally, the complaint alleges defendants, through their misappropriation, have “steer[ed]” 22 multiple clients away from Advanced BioTech, which has resulted in Advanced BioTech “losing 23 substantial sales and market goodwill.” (Compl. ¶ 47.) In addition to past harm, the complaint 24 alleges plaintiffs “continue to suffer[] damages” because BioWorld is still misappropriating the 25 trade secrets. (Id. ¶¶ 52–53, 61–62.) Defendants do not contest that plaintiffs’ allegations are 26 sufficient to satisfy the third and final element of trade secret misappropriation claim. 27 Therefore, the court also finds that plaintiffs have plausibly alleged claims under the 28 DTSA and CUTSA against defendants. COG 4. fF VEEL INYINE VINNY MVOC IR ee AY VI A 1 CONCLUSION 2 For all of the reasons explained above, defendants’ motion to dismiss (Doc. No. 8) is 3 | denied in its entirety. 4 | IT IS SO ORDERED. a " 5 /}/ fP A; Dated: _ September 28, 2020 See 1" S98 6 UNITED STATES DISTRICT JUDGE 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13