Ever.Ag, LLC v. Milk Moovement, Inc.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 DAIRY, LLC, a Delaware Limited No. 2:21-cv-02233 WBS AC Liability Company, 13 Plaintiff, 14 MEMORANDUM AND ORDER RE: v. DEFENDANTS’ MOTION TO DISMISS 15 MILK MOOVEMENT, INC., a foreign 16 Corporation, and MILK MOOVEMENT LLC, a Delaware Limited 17 Liability Company, 18 Defendants. 19 20 ----oo0oo---- 21 Plaintiff Dairy, LLC filed this action against 22 defendants Milk Moovement, Inc. and Milk Moovement, LLC alleging 23 trade secret misappropriation under the Defend Trade Secrets Act 24 (“DTSA”), 18 U.S.C. § 1836, and the California Uniform Trade 25 Secrets Act (“CUTSA”), California Civil Code § 3426.1, and 26 intentional interference with contractual relations. (First Am. 27 Compl. (“FAC”) (Docket No. 48).) Defendants move to dismiss all 28 claims of the FAC. (Docket No. 55.) 1 I. Factual and Procedural Background 2 Plaintiff provides software to clients, including milk 3 processors and dairy cooperatives, in the United States dairy 4 industry. (FAC ¶¶ 2, 16.) Part of plaintiff’s software, called 5 the “producer payroll application,” allows users to comply with 6 Federal Milk Marketing Orders that regulate minimum milk prices 7 paid to dairy producers. (Id. ¶¶ 3-4.) Plaintiff’s software 8 also generates reports to enable clients to determine whether to 9 participate in the federal “pool” which sets a minimum price for 10 different classes of milk. (Id. ¶¶ 18-22.) 11 California Dairies Inc. (“CDI”) was one of plaintiff’s 12 customers commencing in 2014 and used plaintiff’s producer 13 payroll application. (Id. ¶¶ 32-33, 36.) Defendants provide 14 cloud-based software to the dairy industry. (Id. ¶ 5.) 15 Plaintiff alleges that in April 2021, defendants and CDI engaged 16 in discussions, resulting in CDI entering into a software and 17 services agreement with defendants in September 2021. (Id. ¶¶ 18 37, 40-41.) CDI then gave notice to plaintiff that it was 19 terminating all software subscriptions with plaintiff as of 20 February 1, 2022. (Id. ¶ 41.) 21 Plaintiff alleges that shortly thereafter, CDI and 22 defendants had a call in which they discussed “confidential and 23 trade secret information regarding [plaintiff’s] producer payroll 24 application and reporting capabilities.” (Id. ¶ 42.) After the 25 call, employees at CDI allegedly shared with defendants fifteen 26 reports that were generated from plaintiff’s software. (Id.) 27 Plaintiff alleges that the user agreement it had with CDI 28 restricted CDI from sharing such information. (Id. ¶¶ 57, 66.) 1 The court previously denied plaintiff’s requests for a 2 temporary restraining order and preliminary injunction. (Docket 3 Nos. 17, 59.)1 The court now considers defendants’ motion to 4 dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). 5 II. Legal Standard 6 On a Rule 12(b)(6) motion, the inquiry before the court 7 is whether, accepting the allegations in the complaint as true 8 and drawing all reasonable inferences in the plaintiff’s favor, 9 the plaintiff has stated a claim to relief that is plausible on 10 its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The 11 plausibility standard is not akin to a ‘probability requirement,’ 12 but it asks for more than a sheer possibility that a defendant 13 has acted unlawfully.” Id. “A claim has facial plausibility 14 when the plaintiff pleads factual content that allows the court 15 to draw the reasonable inference that the defendant is liable for 16 the misconduct alleged.” Id. 17 III. Misappropriation of Trade Secrets 18 The court will analyze the DTSA and CUTSA claims 19 together as the “elements are substantially similar.” See 20 InteliClear, LLC v. ETC Global Holdings, Inc., 978 F. 3d 653, 657 21 (9th Cir. 2020). Defendants argue that the FAC fails to: (1) 22 identify plaintiff’s trade secrets with sufficient particularity; 23 (2) allege facts establishing reasonable measures to maintain 24 1 The temporary restraining order and preliminary 25 injunction were denied because plaintiff did not show a likelihood of success on the merits. Specifically, plaintiff’s 26 evidence at the preliminary injunction phase did not sufficiently 27 show that it took reasonable measures to keep the information secret and that defendant misappropriated the alleged trade 28 secret. 1 secrecy; and (3) allege facts establishing misappropriation. 2 (Def.’s Mot. at 2.) The court analyzes each argument below. 3 A. Particularity 4 Plaintiff is required to “describe the subject matter 5 of the trade secret with sufficient particularity to separate it 6 from matters of general knowledge in the trade or of special 7 knowledge of those persons . . . skilled in the trade.” Imax 8 Corp. v. Cinema Tech., Inc., 152 F. 3d 1161, 1164–65 (9th Cir. 9 1998) (quotations and citation omitted). 10 The FAC includes a section titled “Description of 11 Dairy’s Trade Secret.” (See FAC at 5.) Within this section, the 12 FAC first outlines the federal regulations that plaintiff’s 13 software attempts to comply with through its “producer payroll 14 application.” (See id. ¶¶ 15-22.) Next, the FAC lists the 15 features of the “producer payroll application” that help clients 16 comply with the federal regulations and make decisions about 17 whether to “pool” their milk purchases. (See id. ¶ 22.) Then, 18 the FAC explicitly states the alleged trade secret that is within 19 the “producer payroll application.” The FAC states: “Dairy’s 20 software includes and implements a methodology for handling FMMO 21 pooling that is unique in the industry and is Dairy’s trade 22 secret.” (Id. ¶ 23.) 23 Further, the FAC summarizes the “Nature of the Action” 24 at the beginning of the FAC and identifies as the alleged trade 25 secret “[t]he elements of Dairy’s producer payroll application 26 that enable Dairy’s clients to easily and efficiently make 27 decisions about what milk to pool, designate milk for pooling, 28 and generate accurate reports and invoices to comply with 1 [federal regulations].” (Id. ¶ 4.) The FAC repeats the 2 identification of this alleged trade secret when describing 3 “count one” and “count two.” (See id. ¶¶ 55, 65.) 4 These repeated descriptions of the alleged trade secret 5 all sufficiently “identify at least one trade secret with 6 particularity” and “permit[] the defendant[s] to ascertain at 7 least the boundaries within which the secret lies.” InteliClear, 8 978 F. 3d at 659; Alta Devices, Inc. v. LG Elecs., Inc., 343 F. 9 Supp. 3d 868, 881 (N.D. Cal. 2018). 10 The FAC does more than describe the trade secret in 11 “broad, categorial terms.” See Albert’s Organics, Inc. v. 12 Holzman, 445 F. Supp. 3d 463, 472 (N.D. Cal. 2020) (holding that 13 trade secrets were not pled with sufficient particularity because 14 categories such as “supplier information, pricing, [and] 15 financing” were too broad). The FAC does not broadly state that 16 plaintiff’s software is its trade secret, but rather the 17 “description pertains to a single, distinct system and the 18 components therein,” specifically the pooling methodology within 19 the “producer payroll application.” See Inteliclear LLC v. ETC 20 Global Holdings, No. 2:18-v-10342, 2019 WL 3000648, at *2 (C.D. 21 Cal. Apr. 5, 2019) (trade secret was defined with sufficient 22 particularity as the “unique design and concepts and the unique 23 software, formulas, processes, programs . . . by which the system 24 components interrelate and process data”); (FAC ¶¶ 23, 55, 65.) 25 Defendants argue the alleged trade secret “lacks 26 boundaries” because the FAC states that the trade secret 27 information is “including, but not limited to” the pooling 28 methodology and the pooling methodology is “amongst Dairy’s trade 1 secrets.” (See FAC ¶¶ 4, 55, 65.) However, that language is 2 used differently here than the hedging language was used in the 3 complaint in Cutera, Inc. v. Lutronic Aesthetics, Inc., No. 2:20- 4 cv-00235-KJM-DB, 2020 WL 4937129, at *5 (E.D. Cal. Aug. 24, 5 2020). In Cutera, the complaint included “a non-exhaustive list 6 of trade secrets” and alleged the defendant had misappropriated 7 “any number of undefined trade secrets.” Id. at *5. Here, the 8 FAC specifically identifies the pooling methodology as a trade 9 secret and does not include a “non-exhaustive list.” Further, at 10 the pleading stage, “it is not fatal” that plaintiff’s “hedging 11 language left open the possibility of expanding its 12 identifications later.” See InteliClear, 978 F. 3d at 659.2 13 Zoom Imaging Solutions, Inc. v. Roe, No. 2:19-cv-01544- 14 WBS-KJN, 2019 WL 658 WL 5862594 (E.D. Cal. Nov. 8, 2019), cited 15 by defendants, is distinguishable, in that this court in that 16 case granted the motion to dismiss because the complaint did not 17 “distinguish between the [c]onfidential [i]nformation and the 18 trade secrets.” See id. at * 5. Specifically, the complaint 19 there simply alleged that the trade secrets were part of the 20 confidential information categories the complaint listed. See 21 id. at *4. In contrast, the FAC here identifies the pooling 22 methodology as the alleged trade secret, and therefore, 23 distinguishes between the confidential information and the trade 24 2 Though InteliClear examined whether a trade secret was 25 defined with sufficient particularity at the motion for summary judgment phase and examined the “hedging language” in a 26 declaration, its proposition is instructive here because even 27 less particularity is necessary at the pleading stage where no discovery has occurred. 28 1 secret. 2 For these reasons, the court concludes that the FAC 3 sufficiently identifies the trade secret with particularity 4 without spelling “out the details of the trade secret” as doing 5 so “would mean that the complainant would have to destroy the 6 very thing for which [it seeks] protection.” See TMX Funding, 7 Inc. v. Impero Techs. Inc., No. C 10-00202 JF (PVT), 2010 WL 8 2509979, at *3 (N.D. Cal. June 17, 2010). Defendants can 9 ascertain that the trade secret is the pooling methodology used 10 in the “producer payroll application” within plaintiff’s 11 software. 12 B. Reasonable Measures to Maintain Secrecy 13 The FAC spends three pages discussing numerous ways in 14 which plaintiff attempts to protect its trade secrets, including 15 the producer payroll application containing the pooling 16 methodology. (FAC ¶¶ 26-31 (“requires clients . . . to agree to 17 confidentially terms,” “restrictions on access to and use of its 18 producer payroll application,” and “engages a nationally 19 recognized third-party security auditor”).) These allegations, 20 accepted as true, are sufficient to meet the plausibility 21 standard required at the pleading stage. See Ashcroft, 556 U.S. 22 at 678. Defendants’ arguments on this element, including their 23 interpretation of plaintiff’s user agreement, are better suited 24 for a later stage of this action, as they pertain to disputed 25 facts which will determine the “reasonableness” of the alleged 26 secrecy measures. 27 C. Misappropriation 28 The FAC must allege facts demonstrating that 1 plaintiff’s trade secrets were misappropriated, meaning 2 defendants improperly acquired, disclosed or used plaintiff’s 3 trade secrets. See Cal. Civ. Code § 3426.1(b); 18 U.S.C § 4 1839(5). Plaintiff’s theory of misappropriation rests on 5 defendants improperly acquiring the trade secrets and then using 6 them. (FAC ¶¶ 47-50, 59, 68.) Specifically, the FAC alleges 7 that defendants received the trade secret information from CDI 8 via emailed reports from plaintiff’s software and conversations 9 with CDI, and then defendants used plaintiff’s pooling 10 methodology in their own software. (FAC ¶¶ 42, 49.) 11 Defendants argue that the FAC’s allegations regarding 12 an email from CDI sending reports to defendants are insufficient 13 because the email does not clearly indicate that any of 14 plaintiff’s trade secrets were discussed. (Defs.’ Mot. at 25.) 15 Whether the email exchange indicates that conversations were had 16 between CDI and defendants regarding the alleged trade secrets is 17 a dispute not to be resolved at the pleading stage. At this 18 stage of the proceedings, the court must “accept as true” the 19 allegations contained in the FAC. See Ashcroft, 556 U.S. at 678. 20 The FAC alleges that the user agreement restricts CDI 21 from sharing the reports freely, and contains sufficient factual 22 allegations from which it is plausible to conclude that 23 defendants “knew or had reason to know” about the confidentiality 24 agreement between CDI and plaintiff and that the information 25 being shared was a trade secret. (FAC ¶¶ 31, 43.) Specifically, 26 the FAC alleges that restricting access to the software and its 27 outputs is common in the dairy supply chain industry, and 28 therefore, defendants would know that plaintiff’s alleged trade 1 secrets are not publicly available. (Id. ¶ 43.) 2 Defendants note that the FAC pleads facts regarding 3 misappropriation, including how defendants implemented the 4 alleged trade secrets into their software, “on information and 5 belief” and argues that these allegations should be ignored. 6 (See Defs.’ Mot. at 9; FAC ¶¶ 47, 49-50.) However, “the Twombly 7 plausibility standard . . . does not prevent a plaintiff from 8 pleading facts alleged upon information and belief where the 9 facts are peculiarly within the possession and control of the 10 defendant or where the belief is based on factual information 11 that makes the inference of culpability plausible.” Soo Park v. 12 Thompson, 851 F. 3d 910, 928 (9th Cir. 2017) (citations and 13 quotations omitted); see also Autodesk, Inc. v. ZWCAD Software 14 Co., Ltd., No. 5:14-cv-01409-EJD, 2015 WL 2265479, at *6 (N.D. 15 Cal. May 13, 2015) (“[I]t it would be unreasonable to require a 16 plaintiff to demonstrate the precise ways in which Defendants may 17 have used their trade secrets given that Defendants are the only 18 ones who possess such information”) (quotations omitted). 19 Here, the FAC provides more than “naked assertions made 20 upon information and belief” and includes “further factual 21 enhancement” about defendants’ need for the trade secret 22 information given their recent launch in the United States. See 23 Ashcroft, 556 U.S. at 678; (FAC ¶¶ 39, 47-48, 50.) The FAC 24 sufficiently alleges misappropriation at the pleading stage. 25 For the foregoing reasons, defendants’ motion to 26 dismiss the DTSA and CUTSA claims will be denied. 27 IV. Intentional Interference with Contractual Relations 28 The elements “for the tort of intentional interference 1 with contractual relations are (1) a valid contract between 2 plaintiff and a third party; (2) defendant’s knowledge of this 3 contract; (3) defendant’s intentional acts designed to induce a 4 breach or disruption of the contractual relationship; (4) actual 5 breach or disruption of the contractual relationship; and (5) 6 resulting damage.” United Nat. Maint., Inc. v. San Diego 7 Convention Center, Inc., 766 F. 3d 1002, 1006 (9th Cir. 2014) 8 (citations and quotations omitted). 9 The FAC plausibly alleges each of the elements of an 10 intentional interference with contractual relationship claim. 11 First, plaintiff alleges plaintiff and CDI “entered into a user 12 agreement in 2014” for CDI to access plaintiff’s software and 13 other services. (See FAC ¶ 33.) Second, plaintiff alleges that 14 defendants knew of the contract between CDI and plaintiff as 15 defendants discussed CDI’s use of plaintiff’s software and CDI 16 shared reports from plaintiff’s software with defendants. (See 17 id. ¶¶ 40, 42, 74.) Third, plaintiff alleges in multiple 18 paragraphs that defendants intentionally requested non-trade 19 secret information about plaintiff’s software which CDI was not 20 allowed to share per its contract with plaintiff and used that 21 information to create their own software for CDI in place of 22 plaintiff’s software. (See id. ¶¶ 42-43, 49-50, 53, 75-76.) 23 Fourth, plaintiff alleges that CDI did share confidential 24 information, in breach of the agreement between plaintiff and 25 CDI, with defendants via email and verbal conversations and 26 terminated its contract with plaintiff. (See id. ¶¶ 31, 42.) 27 Fifth, plaintiff alleges that plaintiff “has suffered and will 28 continue to suffer substantial damages in an amount to be proven 1 at trial” resulting from defendants’ interference. (Id. ¶ 78.) 2 Accepting these allegations as true and drawing reasonable 3 inferences, the FAC states a plausible claim to relief for 4 intentional interference with contractual relations. 5 See Ashcroft, 556 U.S. at 678. 6 Though plaintiff has plausibly alleged its claim for 7 intentional interference with contractual relations, the court 8 must determine if CUTSA supersedes the claim. CUTSA provides the 9 exclusive civil remedy for trade secret misappropriation under 10 California law. Cal. Civ. Code § 3426.7. “[O]ther civil 11 remedies that are not based upon misappropriation of a trade 12 secret” and contractual or criminal remedies are not superseded.3 13 Cal. Civ. Code § 3426.7(b). CUTSA supersedes claims that are 14 based on the same “nucleus of facts as trade secret 15 misappropriation.” See Waymo LLC v. Uber Techs., Inc., 256 F. 16 Supp. 3d 1059, 1062 (N.D. Cal. 2017) (citing K.C. Multimedia, 17 Inc. v. Bank of America Tech. & Operations, 171 Cal. App. 4th 18 939, 958 (6d. Dist. 2009)). 19 Here, the FAC’s intentional interference with 20 contractual relations claim alleges defendants induced CDI to 21 breach its confidentiality obligations and terminate its 22

23 3 Courts use both the terms “preempt” and “supersede” to describe the displacement of causes of action by CUTSA. The 24 California Supreme Court has noted that “the doctrine of preemption concerns whether a federal law has superseded a state 25 law or a state law has superseded a local law,” and therefore, “preempt” is not the proper term to use where “one provision of 26 state law has displaced other provisions of state law.” See 27 Zengen, Inc. v, Comercia Bank, 41 Cal. 4th 239, 244 n.5 (2007). Hence, the court will use the term “supersede.” 28 1 agreement with plaintiff “by requesting that CDI provide 2 confidential, non-trade secret, information about the structure, 3 functionality, and operation of [plaintiff’s] software.” (FAC ¶ 4 75.) Plaintiff’s intentional interference with contractual 5 relations claim focuses on “non-trade secret” information which 6 is different than the “trade secret” upon which plaintiff’s CUTSA 7 claim relies. Whether CUTSA supersedes a claim when “non-trade 8 secret” information is received by the defendants is a question 9 that has yet to be determined in any court decision that is 10 binding upon this court. Therefore, this court relies on 11 decisions by the California Court of Appeal and an unpublished 12 Ninth Circuit decision to determine this issue.4 13 Like the non-CUTSA claim in Silvaco Data Systems v. 14 Intel Corporation, 184 Cal. App. 4th 210, 241-42 (6th Dist. 15 2010), the intentional interference with contractual relations 16 claim “does not depend on the existence of a trade secret, but 17 on” defendants intentionally inducing a breach or disruption of 18 the contract between CDI and plaintiff. Id. “[T]he legal 19 consequences of that act are not affected by the status of the 20 information as a trade secret. Indeed, it may not, and need not, 21 be a trade secret.” Id. at 242 (emphasis in original). 22 The California Court of Appeal in Angelica Textile 23

24 4 “A federal court applying California law must apply the law as it believes the California Supreme Court would apply it . 25 . . . In the absence of a controlling California Supreme Court decision, the panel must predict how the California Supreme Court 26 would decide the issue, using intermediate appellate court 27 decisions, statutes, and decisions from other jurisdictions as interpretive aids.” Gravquick A/S v. Trimble Navigation Intern. 28 Ltd., 323 F. 3d 1219, 1222 (9th Cir. 2003). ene nee en een I IEE IE SN ED eee eee

1 Services, Inc. v. Park, 220 Cal. App. 4th 495, 506-07 (4th Dist. 2 2013), adopted Silvaco’s reasoning, and the Ninth Circuit cited 3 | Angelica in an unpublished opinion when determining that a breach 4 of fiduciary duty claim based on an employee “sharing 5 confidential information with a competitor . . . does not require 6 that the confidential information qualify as a ‘trade secret.’” 7 See Integral Dev. Corp. v. Tolat, 675 F. App’x 700, 704 (9th Cir. 8 2017) (determining supersession did not apply). 9 Interpreting the California Court of Appeal and Ninth 10 Circuit decisions, this court determines it is plausible for 11 defendants to have interfered with the contract between CDI and 12 plaintiff without it involving the “misappropriation of trade 13 secrets” as the claim is focused on “non-trade secret” 14 information. See Cal. Civ. Code § 3426.7(b); (FAC 75.) 15 Therefore, CUTSA does not supersede plaintiff’s intentional 16 interference with contractual relations claim and will not be 17 dismissed. 18 IT IS THEREFORE ORDERED that defendants’ motion to 19 dismiss (Docket No. 55) be, and the same hereby is, DENIED. 20 | Dated: April 13, 2022 tleom ah. A. be—~ WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 22 23 24 25 26 27 28 13