McGraw Hill LLC v. SoapBox Labs Ltd.

2024 NY Slip Op 33810(U)

• Court: New York Supreme Court, New York County
• Decided: October 24, 2024
• Docket: Index No. 652495/2024
• Status: Unpublished

Opinion

McGraw Hill LLC v SoapBox Labs Ltd. 2024 NY Slip Op 33810(U) October 24, 2024 Supreme Court, New York County Docket Number: Index No. 652495/2024 Judge: Lyle E. Frank Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. INDEX NO. 652495/2024 NYSCEF DOC. NO. 20 RECEIVED NYSCEF: 10/24/2024

SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. LYLE E. FRANK PART 11M Justice ----------------------------------------------------------------- ----------------X INDEX NO. 652495/2024 MCGRAW HILL LLC, MOTION DATE 07/15/2024 Plaintiff, MOTION SEQ. NO. 001 - V -

SOAPBOX LABS LIMITED, CURRICULUM ASSOCIATES, AMENDED DECISION+ ORDER LLC ON MOTION Defendant. ------------------------------------------------------------------- --------------X

The following e-filed documents, listed by NYSCEF document number (Motion 001) 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 were read on this motion to/for DISMISS

Upon the foregoing documents, defendants' motion to dismiss is denied in part and

granted in part.

Relevant Facts and Issues

Plaintiff McGraw Hill LLC ("McGraw Hill") is a long-standing global educational

company that hired an Irish company, defendant SoapBox Labs Limited ("SoapBox"), to provide

voice recognition technology in support of McGraw Hill's reading products. Starting in 2020,

McGraw Hill and SoapBox had a series of written agreements regarding the services Soapbox

would provide. Two are key to this case: an initial agreement signed on December 23, 2020 (the

"2020 Agreement"), which expired and was replaced on December 23, 2022, with the agreement

at issue here (the "2022 Agreement"). In the 2020 Agreement, relevant language stated that "an

assignment to a competitor of the non-assigning Party [ ... ] shall require consent from the non-

assigning Party" (emphasis added). In November 2023, SoapBox was acquired by one of

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McGraw Hill's competitors, defendant Curriculum Associates LLC ("Curriculum Associates",

jointly with SoapBox "Defendants").

McGraw Hill argues in its complaint that this acquisition was in violation of the

agreement with SoapBox, who for their part maintains that the agreement on its face does not bar

the Curriculum Associates acquisition. As written, the relevant language in the 2022 Agreement

states that it "may not be assigned or transferred by either Party without the prior written consent

of the other Party; for the purposes of this Section, an 'assignment' shall not include a merger,

sale of all or substantially all of a Party's assets to which this Agreement applies, consolidation,

or change of control [ ... ] other than to a competitor of the assigning Party." McGraw Hill

contends that this is a scrivener's error and was actually meant to prohibit assignment to

competitors without the permission of the non-assigning party. McGraw Hill also claims that the

Defendants engaged in misappropriation of trade secrets and unfair competition.

Defendants bring the present motion to partially dismiss the First cause of action (breach

of contract against SoapBox) 1 and to dismiss in the entirety the Second, Third, and Fifth causes

of action (tortious interference against Curriculum Associates, misappropriation of trade secrets

and unfair competition against Defendants, and a claim for reformation of contract with

SoapBox). McGraw Hill opposes. For the reasons set forth below, the motion to dismiss is

granted as to the Third cause of action but is denied as to the others.

Standard of Review on a Motion to Dismiss

Defendants argue that the claims relating to the alleged scrivener's error and breach of

contract should be dismissed on the basis of documentary evidence. CPLR § 321 l(a)(l) allows

for a complaint to be dismissed if there is a "defense founded upon documentary evidence."

1 Part of the breach of contract claim against Soapbox involves allegations of failing to deliver the services required by contract. This is the part of the first cause of action that is not the subject of the present motion to dismiss. 652495/2024 MCGRAW HILL LLC vs. SOAPBOX LABS LIMITED ET AL Page 2 of 9 Motion No. 001

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Dismissal is only warranted under this provision if "the documentary evidence submitted

conclusively establishes a defense to the asserted claims as a matter of law." Leon v. Martinez,

84 N.Y.2d 83, 88 (1994). Such evidence must "utterly refute plaintiffs factual allegations."

Goshen v. Mut. Life Ins. Co., 98 N. Y.2d 314, 326 (2002).

Defendants argue that the claims relating to trade secrets and unfair competition should

be dismissed for failure to state a claim. A party may move for a judgment from the court

dismissing causes of action asserted against them based on the fact that the pleading fails to state

a cause of action. CPLR § 321 l(a)(7). For motions to dismiss under this provision, "[i]nitially,

the sole criterion is whether the pleading states a cause of action, and if from its four comers

factual allegations are discerned which taken together manifest any cause of action cognizable at

law." Guggenheimer v. Ginzburg, 43 N.Y. 2d 268,275 (1977).

It is well settled that when considering a motion to dismiss pursuant to CPLR § 3211,

"the pleading is to be liberally construed, accepting all the facts alleged in the pleading to be true

and according the plaintiff the benefit of every possible inference." Avgush v. Town of Yorktown,

303 A.D.2d 340 (2d Dept. 2003). Dismissal of the complaint is warranted "if the plaintiff fails to

assert facts in support of an element of the claim, or if the factual allegations and inferences to be

drawn from them do not allow for an enforceable right ofrecovery." Connaughton v. Chipotle

Mexican Grill, Inc, 29 N.Y.3d 137, 142 (2017).

McGraw Hill's Scrivener's Error Claims are Not Utterly Refuted by Documentary

Evidence nor Has McGraw Hill Failed to Sufficiently Plead a Claim, Therefore Dismissal is

Improper at This Stage

The first issue to be addressed in this motion to dismiss is whether or not the assignment

language in the 2022 Agreement was a scrivener's error, when accepting all facts alleged in the

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pleading to be true and according McGraw Hill the benefit of every possible inference. SoapBox

argues that the documentary evidence showing that McGraw Hill's own employees drafted the

2022 Agreement satisfies the CPLR § 321 l(a)(l) standard. McGraw Hill does not dispute that

their employees drafted the agreement, rather they contend that their employees erred in drafting

the agreement and that, as drafted, it did not reflect the intended agreement between the parties.

McGraw Hill is correct in contending that a contract with an alleged scrivener's error cannot in

and of itself constitute documentary evidence that utterly refutes a claim of scrivener's error

under CPLR § 321 l(a)(l). Such an argument would logically make any case of scrivener's error

void and is something of an ouroboros. None of the documents submitted by Defendants that

show McGraw Hill's employees drafted the relevant portions of the agreement go in any way to

show anyone's intent regarding the assignment language, simply that the agreement was drafted

by McGraw Hill. Therefore, it would be premature to dismiss the portions of McGraw Hill's

complaint relating to the alleged scrivener's error under CPLR § 321 l(a)(l).

Defendants have also moved to dismiss on the grounds that the complaint fails to

adequately plead a claim based on an alleged scrivener's error. A scrivener's error or a mutual

mistake is applied when "unknown to either party, their signed writing does not accurately

express an earlier agreement that they intended the writing to memorialize." 28 N.Y. Prac.,

Contract Law§ 6:9.

Generally, there is a "heavy presumption that a deliberately prepared and executed

written instrument manifested the true intention of the parties." George Backer Management

Corp. v. Acme Quilting Co., 46 N.Y.2d 211,219 (1978). When seeking to reform a written

agreement on the basis of a scrivener's error, "it must be shown that the parties came to an

understanding, but in reducing it to writing, through mutual mistake[ ... ] omitted some provision

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agreed upon, or inserted one not agreed upon." William P. Pahl Equip. Corp. v. Kassis, 182

A.D.2d 22, 29 (1st Dept. 1992). At the motion to dismiss stage, even if it is "unascertainable

whether plaintiffs can meet the stringent requirements ofreformation", a claim based on

scrivener's error should not be dismissed if (with every possible favorable inference) a cause of

action exists. Warberg Opportunistic Trading Fund, L.P. v. GeoResources, Inc. I 12 A.D.3d 78,

86 (1st Dept. 2013).

Here, it would be premature to dismiss portions of the complaint on the grounds that it

fails to state a claim based on scrivener's error. McGraw Hill alleges facts that they and SoapBox

had an agreement in 2020 that would require approval from the non-assigning party before

attempting to assign to a competitor of the non-assigning party, that the 2022 Agreement was

meant to continue the same basic understanding, that their employees erred in dealing the several

double negatives in the relevant provision, and that the true agreement was meant to follow

industry custom and course of dealing in this matter. It is certainly reasonable to infer that an

agreement was meant to require a party to get approval from the other party before selling to that

other party's competitor. It is certainly reasonable to infer that an employee then instead made a

small error that inadvertently completely changed the meaning of the assignment clause. While

this Court is sensitive to the importance of the freedom to contract, McGraw Hill has sufficiently

pled facts that under favorable inferences allege a valid claim of scrivener's error, and dismissal

of that claim at this stage would be premature. It therefore follows that to the extent the contested

causes of action rely on an alleged scrivener's error, dismissal should be denied.

McGraw Hill's Misappropriation of Trade Secrets Claim Fails to Plead Use of Trade

Secrets and Therefore Dismissal is Proper

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Defendants also move to dismiss the Third cause of action on the grounds that McGraw

Hill has failed to plead a claim for misappropriation of trade secrets. Specifically, Defendants

contend that McGraw Hill has "not adequately pleaded its supposed trade secrets" and that this

puts Defendants in a position where they are unable to respond to the trade secret and unfair

competition cause of action. In order to prevail on a misappropriation of trade secrets claim, "a

plaintiff must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used

that trade secret in breach of an agreement, confidential relationship or duty, or as a result of

discovery by improper means." Schroeder v. Pinterest Inc., 133 A.D.3d 12, 27 (1st Dept. 2015).

The Court of Appeals has adopted the Restatement of Torts' definition of a trade secret as

including "any formula, pattern, device or compilation of information which is used in one's

business, and which gives him an opportunity to obtain an advantage over competitors who do

not know or use it." Ashland Management v. Janien, 82 N.Y.2d 395,407 (1993). To have stated

a claim, McGraw Hill must have pled facts sufficient to allege that they possessed information

that consisted of a trade secret, and that the Defendants used that secret information either in

breach of an agreement or by a discovery by improper means.

The information or ideas that constitute an alleged trade secret must, at this stage, be pled

with specificity. Schroeder v. Cohen, 169 A.D.3d 412,413 (1st Dept. 2019). A trade secret

includes "any compilation of information which provides the company with an opportunity to

obtain an advantage over competitors who do not know or use it." Photonics Indus. Intl., Inc. v.

Xiajie Zhao, 185 A.D.3d 1064, 1067 (1st Dept. 2020). Foundational to a claim of

misappropriation of trade secrets is that the information is, unsurprisingly, secret - and there

must be allegations that the plaintiff "employed measures to keep [the information] confidential,

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or that this information was not generally known outside of its business." Tri-Star Light. Corp. v.

Goldstein, 151 A.D.3d 1102, 1106 (2nd Dept. 2017).

Here, McGraw Hill alleges that the trade secrets and confidential information at issue

included "efforts to integrate SoapBox Labs voice recognition technology into its reading

assessment product" and "confidential and sensitive competitive business information[ ... ]

regarding McGraw Hill's strategy, customer base, and reading assessment tools." They also refer

to confidential information constituting "research, development, business activities, technology,

and other sensitive matters." McGraw Hill made a public statement about the "innovative efforts

pursued jointly with SoapBox Labs" but added a confidentiality clause in their agreements with

SoapBox. Furthermore, McGraw Hill alleges that they gave SoapBox "substantial assistance

over the course of years, including in the form of working sessions with McGraw Hill's experts,

access to confidential trade secrets regarding McGraw Hill's existing reading assessment

products, and insight into McGraw Hill's business development plans for the integration of

speech recognition and evaluation in its future products."

Much of what McGraw Hill alleges as trade secrets is conclusory, but with the benefit of

every possible favorable inference they have managed to sufficiently plead the existence of trade

secrets that would give rise to a misappropriation claim. Specifically, the integration of voice

technology with reading assessment products, both currently with SoapBox and their plans for

future work in that area. Such information would be novel and not largely available in the

industry, given the pleading of a special trade announcement of the "innovative" approach.

Furthermore, the existence of a confidentiality clause in the 2022 Agreement provides further

inference that SoapBox had access to trade secrets.

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The issue then becomes whether McGraw Hill adequately pied the second element of a

misappropriation of trade secrets claim, that Defendants used said confidential information. For

this, McGraw Hill alleges that the acquisition of SoapBox by Curriculum Associates "improperly

made available McGraw Hill's trade secrets." They also allege that Curriculum Associates

"gained access to confidential and competitive information and materials that McGraw Hill had

shared with SoapBox Labs and caused competitive harm to McGraw Hill." Mere access to trade

secrets following a transfer is not enough on its own to support a claim of misappropriation.

Falconwood Corp v. In-Touch Techs., 227 A.D.2d 215,216 (1st Dept. 1996). When a complaint

does not allege that use was made of confidential information, it fails to state a claim. KIND

Operations Inc. v. AUA Private Equity Partners, LLC, 195 A.D.3d 446,447 (1st Dept. 2021).

Because here McGraw Hill fails to allege that Curriculum Associates used the trade secrets the

acquisition of SoapBox opened access to, it fails to state a claim and therefore dismissal of the

claim is proper. Because the unfair competition claim is entwined with the misappropriation of

trade secrets and is pied together with the misappropriation of trade secrets claim, the entirety of

the Third Cause of Action fails to state a claim. Accordingly, it is hereby

ADJUDGED that the motion to dismiss is denied as to the First, Second, and Fifth causes

of action of the complaint;

ORDERED that the motion to dismiss is granted in part and the Third cause of action of

the complaint is dismissed; and it is further

ORDERED that defendant is directed to serve an answer to the complaint within 20 days

after service of a copy of this order with notice of entry.

10/24/2024 DATE

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