Michael Dichard v. Robert Morgan, et al.

2017 DNH 243

• Court: District Court, D. New Hampshire
• Decided: November 21, 2017
• Docket: 17-CV-00338-AJ
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Michael Dichard

v. Civil No. 17-CV-00338-AJ Opinion No. 2017 DNH 243 Robert Morgan, et al.

MEMORANDUM AND ORDER

Plaintiff Michael Dichard brought this action in state court

against defendants Robert Morgan, Laureen Morgan, James Morgan, and

Jay-Mor Enterprises, Inc. (“Jay-Mor”), alleging counts stemming

from the termination of Dichard’s employment with Jay-Mor. Doc.

no. 1-2. The defendants removed the matter here, and Jay-Mor

asserted a counterclaim against Dichard alleging, among other

things, that Dichard misappropriated Jay-Mor’s trade secrets in

violation of the Defend Trade Secrets Act of 2016, 18 U.S.C. §

1836, et seq. See doc. no. 3 at 6. Dichard moves for judgment on

the pleadings on this trade secrets claim. Doc. no. 8. Jay-Mor

objects. Doc. no. 10. For the reasons that follow, Dichard’s

motion is granted, albeit without prejudice to Jay-Mor filing an

amended counterclaim within fourteen days of the issuance of this

Order.

Standard of Review

“The standard of review of a motion for judgment on the

pleadings under Federal Rule of Civil Procedure 12(c) is the same as that for a motion to dismiss under Rule 12(b)(6).” Marrero-

Gutierrez v. Molina, 491 F.3d 1, 5 (1st Cir. 2007). The court must

accept the factual allegations in the complaint as true, construe

reasonable inferences in the plaintiff’s favor, and “determine

whether the factual allegations in the plaintiff’s complaint set

forth a plausible claim upon which relief may be granted.” Foley

v. Wells Fargo Bank, N.A., 772 F.3d 63, 71 (1st Cir. 2014)

(citation and quotation marks omitted). A claim is facially

plausible “when the plaintiff pleads factual content that allows

the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009). Analyzing plausibility is “a context-specific

task” in which the court relies on its “judicial experience and

common sense.” Id. at 679.

Background

Accepting the factual allegations set forth in Jay-Mor’s

counterclaim as true, the relevant facts are as follows.

Jay-Mor is a family-owned demolition contracting business

located in Hudson, New Hampshire. See doc. no. 3, ¶ 6. Jay-Mor’s

services include demolition, site work, asbestos/hazardous

materials removal, surveys, and equipment and truck rental. Id. ¶

7. Jay-Mor offers its services in New Hampshire, Massachusetts,

and Maine. See id. ¶ 8.

Dichard is a former employee of Jay-Mor who represented Jay-

2 Mor in a senior-level business development role. Id. ¶ 9. In

exchange for his services, Jay-Mor provided Dichard with an

“unusually generous compensation package,” which was memorialized

in a contract dated September 9, 2014. Id. ¶ 10. Dichard was

responsible for identifying and developing new business

opportunities on behalf of Jay-Mor. Id. ¶ 12. As such, Dichard

served Jay-Mor in a position of trust and confidence and had

“unfettered” access to Jay-Mor’s confidential business information.

Id. ¶¶ 12-13.

Like other businesses in Jay-Mor’s industry, Jay-Mor relied on

a variety of confidential business information. Id. ¶ 14. During

Dichard’s employment, much of Jay-Mor’s confidential information

was stored in files pertaining to jobs on which Jay-Mor was

bidding. Id. These files included information on how Jay-Mor

calculated its bids, cost data, overhead, and pricing-margin

information, as well as “bid worksheets” containing Jay-Mor’s

method of bidding. Id. Jay-Mor asserts that all of this

information was non-public and would be of tremendous value to

competitors, prospective subcontractors, vendors, and suppliers.

See id. ¶ 14.

When he was employed with Jay-Mor, Dichard and other employees

developed two large demolition project opportunities for Jay-Mor.

Id. ¶ 16. One was located in Ayer, Massachusetts for the Pan Am

Railway (“Pan Am project”). Id. The other was located in Nashua,

New Hampshire for the Sacred Heart School (“Sacred Heart project”). 3 Id. The estimated potential revenue for both projects exceeded $1

million. Id.

On or about March 2, 2017, Dichard tendered his resignation to

Jay-Mor. Id. ¶ 20. In his resignation letter, Dichard specifically

threatened to divert the revenue from the Pan Am and Sacred Heart

projects to other demolition contractors to secure monies that he

contended were owed to him by Jay-Mor. Id. ¶ 21.

After Dichard resigned, Jay-Mor conducted an investigation and

discovered that Dichard had absconded with the confidential project

files for the Pan Am and Sacred Heart projects. Id. ¶ 22. Jay-Mor

alleges, upon information and belief, that Dichard stole or

improperly retained additional Jay-Mor confidential information and

trade secrets when he departed. Id. ¶ 23. Jay-Mor later learned

that Dichard offered the Pan Am project to other demolition

contractors. Id. ¶ 24. Jay-Mor believes that Dichard is shopping

the Pan Am and Sacred Heart projects to additional demolition

contractors, and is seeking to tie his new employer into the deal

in order to ensure that he is paid commission. See id. ¶ 25.

Jay-Mor filed its trade secrets claim on the basis of these

allegations. Jay-Mor specifically contends that Dichard absconded

and willfully misappropriated Jay-Mor’s trade secrets and

confidential information, resulting in damages in an amount “yet to

be determined.” Id. ¶¶ 44, 46, 47.

4 Discussion

Dichard moves for judgment on the pleadings on the trade

secrets claim. Dichard specifically asserts that Jay-Mor has

failed to sufficiently allege: (1) that Dichard has disclosed any

confidential information to a third party; (2) that Jay-Mor took

reasonable steps to protect its information; and (3) that the

information in question constitutes a trade secret. See doc. no.

8.

The Defend Trade Secrets Act (“DTSA”) creates a private cause

of action in favor of 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). Under the DTSA, the definition

of “trade secret” includes, inter alia, “all forms and types of

financial, business, scientific, technical, economic, or

engineering information,” provided that the owner “has taken

reasonable measures to keep such information secret” and the

information “derives independent economic value . . . from not

being generally known to, and not being readily ascertainable

through proper means by, another person who can obtain economic

value from the disclosure or use of the information.” 18 U.S.C. §

1839(3).

Only enacted in 2016, there is a relative paucity of case law

5 analyzing the elements of a claim under the DTSA.1 There does,

however, appear to be a general consensus among courts that a party

asserting a DTSA claim must sufficiently allege in its complaint

that it has taking reasonable measures or steps to keep secret the

information it believes was misappropriated.2 See, e.g., Xoran

Holdings LLC v. Luick, No. 16-13703, 2017 WL 4039178, at *6 (E.D.

Mich. Sept. 13, 2017); Deluxe Fin. Servs., LLC v. Shaw, No. CV 16-

3065 (JRT/HB), 2017 WL 3327570, at *3 (D. Minn. Aug. 3, 2017); Wang

v. Golf Tailor, LLC, No. 17-cv-898-LB, 2017 WL 2861111, at *6 (N.D.

Cal. July 5, 2017); Singer v. Stuerke, No. 2:16-cv-2526-KJD-GWF,

2017 WL 2603305, at *3 (D. Nev. June 14, 2017); Gov’t Employees

Ins. Co. v. Nealey, __ F. Supp. 3d __, 2017 WL 2572519, at *8 (E.D.

Pa. June 13, 2017); Raben Tire Co., LLC v. McFarland, No. 5:16-cv-

141-TBR, 2017 WL 741569, at *2 (W.D. Ky. Feb. 24, 2017); Mission

1 There are no decisions from the First Circuit or this district analyzing the FTCA. As best the court can tell, there are only five federal appellate decisions that reference this statute, none of which is particularly helpful in the present context. See generally First W. Capital Mgmt. Co. v. Malamed, __ F.3d __, 2017 WL 4872570 (10th Cir. Oct. 30, 2017); Waymo LLC v. Uber Techs., Inc., 870 F.3d 1342 (Fed. Cir. 2017); Fres-co Sys. USA, Inc. v. Hawkins, 690 F. App'x 72 (3d Cir. 2017); United States v. Liew, 856 F.3d 585 (9th Cir. 2017); United States v. Nosal, 844 F.3d 1024 (9th Cir. 2016), cert. denied, No. 16-1344, 2017 WL 1807382 (U.S. Oct. 10, 2017). The court accordingly relies on persuasive authority from other district courts, as well state-court cases analyzing misappropriation of trade secrets claims under state law. See infra p. 8 n. 4.

2 This is unsurprising, as the statutory definition of “trade secret” under the DTSA includes this requirement. See 18 U.S.C. § 1839(3). 6 Measurement Corp. v. Blackbaud, Inc., 216 F. Supp. 3d 915, 921

(N.D. Ill. 2016); Syntel Sterling Best Shores Mauritius Ltd. v.

Trizetto Grp., Inc., No. 15-cv-211 (LGS) (RLE), 2016 WL 5338550, at

*6 (S.D.N.Y. Sept. 23, 2016); M.C. Dean, Inc. v. City of Miami

Beach, Fla., 199 F. Supp. 3d 1349, 1357 (S.D. Fla. 2016). These

cases reveal the follow basic pleading requirement: while “at the

pleading stage, plaintiffs need only describe the . . . efforts to

maintain the confidentiality of the information in general terms,”

Mission Measurement Corp., 216 F. Supp. 3d at 921 (brackets and

citations omitted), this requires some affirmative step beyond

merely “[i]ntending to keep the information secret . . . .”

Singer, 2017 WL 2603305, at *3.

Here, Jay-Mor has failed to adequately plead that it took

reasonable measures to preserve the secrecy of the information it

alleges Dichard misappropriated. Jay-Mor’s counterclaim does not,

for example, allege that Jay-Mor’s computer system or the documents

in question had any particular security, such a restricted server,

password protection, or encryption. See, e.g., Grow Fin. Fed.

Credit Union v. GTE Fed. Credit Union, No. 8:17-cv-1239-T-30JSS,

2017 WL 3492707, at *3 (M.D. Fla. Aug. 15, 2017); Heralds of Gospel

Found., Inc. v. Varela, No. 17-22281-CIV, 2017 WL 3868421, at *5

(S.D. Fla. June 23, 2017); Sleekez, LLC v. Horton, No. CV 16-09-

BLG-SPW-TJC, 2017 WL 1906957, at *4 (D. Mont. Apr. 21, 2017),

report and recommendation adopted, No. CV 16-09-BLG-SPW, 2017 WL

1929473 (D. Mont. May 9, 2017); Prot. Techs., Inc. v. Ribler, No. 7 3:17-cv-144-LRH-WGC, 2017 WL 923912, at *2 (D. Nev. Mar. 8, 2017).

Jay-Mor has similarly not asserted that its employees were trained

regarding the sensitive nature of this information or that it

otherwise made those who used the information subject to

confidentiality provisions and limitations, such as nondisclosure

agreements. See, e.g., Grow Fin. Fed. Credit Union, 2017 WL

3492707, at *3; Syntel Sterling Best Shores Mauritius Ltd., 2016 WL

5338550, at *6; see also Heralds of Gospel Found., Inc., 2017 WL

3868421, at *5. Nor, too, does Jay-Mor allege that it implemented

any policies or procedures regarding the preservation of the

information at issue. See, e.g., Deluxe Fin. Servs., LLC, 2017 WL

3327570, at *3.3 Indeed, the only allegation Jay-Mor makes that can

be construed as an affirmative act with respect to the information

at issue is that it “was stored in files.” See doc. no. 3 ¶ 14.

Even when viewed in the light most favorable to Jay-Mor, this act —

which, without further context, could seemingly apply to

confidential and non-confidential information alike — does not

support a plausible inference that Jay-Mor took some particular

measure to preserve the secrecy of that information.4

3 These are merely examples of the types of allegations courts have found to be sufficient under the DTSA and accordingly should not be construed as an exhaustive list.

4 As the DTSA’s definition of “misappropriation” is modeled on the Uniform Trade Secrets Act, which has been adopted in 48 states, see H.R. Rep. No. 114-529, at 5, cases analyzing trade secrets claims brought under state law are also instructive. These cases do not alter the court’s determination, however; indeed, a review 8 Jay-Mor appears to rely on its small size and relative lack of

sophistication to contend that it has adequately alleged

misappropriation of trade secrets in its counterclaim. The court

is unpersuaded by this argument. Without foreclosing the

possibility that a company’s size and sophistication might have

some bearing on whether the measures a company took were reasonable

under the circumstances, the fact remains that Jay-Mor has not

alleged that it did anything beyond storing its information in

files to preserve the secrecy of that information. As discussed

above, the case law establishes that a party must allege that it

took some affirmative step to protect the secrecy of its

information in order to state a claim for misappropriation of trade

secrets. As Jay-Mor has not done so here, its trade secrets claim

fails regardless of Jay-Mor’s size and sophistication.

of federal decisions from courts in the First Circuit only further supports the conclusion that Jay-Mor has inadequately alleged its trade secrets claim here. Compare Karter v. Pleasant View Gardens, Inc., 248 F.Supp.3d 299, 312 (D. Mass. 2017)(holding that plaintiff “failed to plead that she took reasonable steps to maintain [the trade secrets] safety,” where her complaint merely alleged that “she ‘had in her possession certain confidential trade secrets,’ that she ‘took reasonable measures to maintain the confidentiality of the trade secrets.’”) with Bruno International Ltd. V. Vicor Corp., No. 14-10037-DPW, 2015 WL 5447652, at *12 (D. Mass Sept. 16, 2015) (reasoning that plaintiff’s specific request that defendant keep the information confidential was sufficient, on the pleadings, to allege that plaintiff took “reasonable, affirmative steps to protect its trade secrets.”); cf. Incase Inc. v. Timex Corp., 488 F.3d 46, 53 (1st Cir. 2007) (concluding that a there was no evidence in the record to support a conclusion that the party bringing the trade secrets claim “took reasonable steps to preserve the secrecy” of its purported trade secrets).

9 In sum, Jay-Mor has not adequately alleged a necessary element

of a misappropriations of trade secrets claim under the DTSA.

Dichard’s motion for judgment on the pleadings must accordingly be

granted. This determination is without prejudice, however, to Jay-

Mor amending its counterclaim to allege additional facts with

respect to its DTSA claim. Any amendment must be filed no later

than fourteen days from the date this Order is issued.

Conclusion

For the reasons set forth above, Dichard’s motion for judgment

on the pleadings (doc. no. 8) is granted as to Jay-Mor’s trade

secrets claim without prejudice to Jay-Mor amending its

counterclaim within fourteen days of the issuance of this Order.

SO ORDERED.

__________________________ Andrea K. Johnstone United States Magistrate Judge

November 21, 2017

cc: J. Daniel Marr, Esq. Mark M. Whitney, Esq.