Payward, Inc. v. Runyon

• Court: District Court, N.D. California
• Decided: September 22, 2020
• Docket: 3:20-cv-02130
• Status: Unknown

Opinion

1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 PAYWARD, INC., Case No. 20-cv-02130-MMC

8 Plaintiff, ORDER GRANTING DEFENDANT'S MOTION TO DISMISS; DISMISSING 9 v. COMPLAINT WITH LEAVE TO AMEND; CONTINUING CASE 10 NATHAN PETER RUNYON, MANAGEMENT CONFERENCE 11 Defendant.

12 13 Before the Court is defendant Nathan Peter Runyon's ("Runyon") Motion, filed May 14 29, 2020, "to Dismiss or Stay Plaintiff's Complaint," whereby Runyon seeks an order 15 dismissing each of the four Claims for Relief asserted in the complaint, or, if the Court 16 declines to do so, stay the instant action in light of an action Runyon has filed in state 17 court. Plaintiff Payward, Inc. ("Payward") has filed opposition, to which Runyon has 18 replied. Having read and considered the papers filed in support of and in opposition to 19 the motion, the Court rules as follows.1 20 BACKGROUND 21 In the above-titled action, Payward, a company that operates "a global 22 cryptocurrency exchange" (see Compl. ¶ 1), asserts claims against Runyon, a former 23 employee, two of which claims, specifically, the First and Third Claims for Relief, arise 24 under federal law. 25 In the First Claim for Relief, Payward asserts that Runyon, who, during the course 26 of his employment, had access to Payward's "confidential" and "trade-secret information" 27 1 (see Compl. ¶¶ 5, 7), violated the Defend Trade Secrets Act of 2016 ("DTSA"), 18 U.S.C. 2 § 1831-39. In support thereof, Payward alleges that Runyon, after his employment had 3 been terminated, (1) disclosed Payward's "physical address" in a complaint he filed in the 4 public record in a state court action (see Compl. ¶¶ 12-13, 53),2 and (2) "produced" to 5 Payward a "copy of Payward's November 2017 board minutes" when he presented to 6 Payward a "demand letter" prior to filing the above-referenced state court action (see 7 Compl. ¶ 43). 8 In the Third Cause of Action, Payward asserts that Runyon, after his employment 9 had terminated, "accessed" a "Company-issued laptop" (see Compl. ¶¶ 5, 75-80), in 10 violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030. In support 11 thereof, Payward alleges that Runyon did not return his laptop (see Compl. ¶¶ 5, 8-10) 12 and "continued to access the trade secrets and confidential business information" on the 13 laptop (see Compl. ¶ 11), specifically, the "board minutes" referenced above. (See id.).3 14 In addition, Payward asserts two claims arising under state law, specifically, the 15 Second Claim for Relief, by which Payward alleges that Runyon, in violation of state law, 16 misappropriated Payward's trade secrets, and the Fourth Claim for Relief, by which 17 Payward alleges that Runyon breached the terms of an employment agreement when he 18 misappropriated Payward's trade secrets and publicly disclosed Payward's physical 19 address. 20 LEGAL STANDARD 21 Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure "can be 22 based on the lack of a cognizable legal theory or the absence of sufficient facts alleged 23

24 2 In the state court action, Runyon alleges he was wrongfully terminated by Payward on account of his status as a veteran and as an assertedly disabled person, as 25 well as in retaliation for his having reported to Payward that certain of its employees had engaged in fraudulent conduct. (See Def.'s Req. for Judicial Notice Ex. 1.) 26 3 Payward alleges that Runyon "[e]ventually" agreed to return the laptop, but, that, 27 on the date he promised to do so, he reported to Payward that it had been "stolen from 1 under a cognizable legal theory." See Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 2 699 (9th Cir. 1990). Rule 8(a)(2), however, "requires only 'a short and plain statement of 3 the claim showing that the pleader is entitled to relief.'" See Bell Atlantic Corp. v. 4 Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). Consequently, "a 5 complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual 6 allegations." See id. Nonetheless, "a plaintiff's obligation to provide the grounds of his 7 entitlement to relief requires more than labels and conclusions, and a formulaic recitation 8 of the elements of a cause of action will not do." See id. (internal quotation, citation, and 9 alteration omitted). 10 In analyzing a motion to dismiss, a district court must accept as true all material 11 allegations in the complaint and construe them in the light most favorable to the 12 nonmoving party. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). "To 13 survive a motion to dismiss, a complaint must contain sufficient factual material, accepted 14 as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 15 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). "Factual allegations must be 16 enough to raise a right to relief above the speculative level[.]" Twombly, 550 U.S. at 555. 17 Courts "are not bound to accept as true a legal conclusion couched as a factual 18 allegation." See Iqbal, 556 U.S. at 678 (internal quotation and citation omitted). 19 DISCUSSION 20 In his motion, Runyon argues that Payward's two federal claims are subject to 21 dismissal under Rule 12(b)(6), and that the Court should decline to exercise 22 supplemental jurisdiction over Payward's two state law claim. The Court first considers 23 Payward's federal claims. 24 A. First Claim for Relief: DTSA 25 Under the DTSA, "[a]n owner of a trade secret that is misappropriated may bring a 26 civil action . . . if the trade secret is related to a product or service used in, or intended for 27 use in, interstate or foreign commerce." See 18 U.S.C. § 1836(b)(1). 1 finding that Runyon misappropriated any of Payward's trade secrets. 2 A "trade secret," for purposes of the DTSA, is defined as "all forms and types" of 3 "information," if "the owner thereof has taken reasonable measures to keep such 4 information secret" and "the information derives independent economic value, actual or 5 potential, from not being generally known to, and not being readily ascertainable through 6 proper means by, another person who can obtain economic value from the disclosure or 7 use of the information." See 18 U.S.C. § 1839(3). "[T]he focus of the inquiry regarding 8 the independent economic value element is on whether the information is generally 9 known to or readily ascertainable by business competitors or others to whom the 10 information would have some economic value." Altavion, Inc. v. Konica Minolta Systems 11 Laboratory, Inc., 226 Cal. App. 4th 26, 62 (2014) (internal quotation and citation 12 omitted);4 see also United States v. Chung, 659 F.3d 815, 826 (9th Cir. 2011) (noting 13 courts, in determining whether independent economic value element is established, 14 "most often consider the degree to which the secret information confers a competitive 15 advantage on its owner"); Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1522 (1997) 16 (noting independent economic value "has been interpreted to mean that the secrecy of 17 [the] information provides a business with a substantial business advantage") (internal 18 quotation and citation omitted). 19 Here, Payward alleges that keeping its physical address secret serves to protect it 20 from "physical security threats," providing as an example of such threats "a recent spate 21 of kidnappings" of persons who work for cryptocurrency exchanges. (See Compl. ¶ 28.) 22 Payward not allege, however, how its competitors would gain an economic advantage by 23 learning Payward's physical address. See Cisco Systems v. Chung, 2020 WL 4505509, 24 4 The DTSA is "largely modeled after the Uniform Trade Secrets Act," as is the 25 California Uniform Trade Secrets Act ("CUTSA"), see Deerpoint Group, Inc. v. Agrigenix, LLC, 345 F. Supp. 3d 1207, 1227 (E.D. Cal. 2018), and the definitions of "trade secret" 26 and "misappropriation" in the DTSA and the CUTSA are "substantially identical," see Veronica Foods Co. v. Ecklin, 2017 WL 2806706, at *12 (N.D. Cal. June 29, 2017). For 27 this reason, in analyzing DTSA claims, federal courts have often looked to state law. 1 at *5 (N.D. Cal. August 5, 2020) (holding "secrecy itself does not establish value) 2 (emphasis in original). 3 Further, "[t]o sustain a trade secrets action under the 'use' prong of the statutory 4 definition of 'misappropriation,' a plaintiff must necessarily demonstrate that the 5 defendant received some sort of unfair trade advantage." See JustMed, Inc. v. Byce, 600 6 F.3d 1118, 1130 (9th Cir. 2010). Here, Payward, in its complaint, has not alleged 7 Runyon used Payward's board minutes and address to gain a competitive advantage. 8 See id. (holding plaintiff must "actually put the trade secret to some commercial use"; 9 noting "[t]he law governing protection of trade secrets essentially is designed to regulate 10 unfair competition, and is not a substitute for . . . civil remedies for conversion"). 11 Accordingly, the First Claim for Relief is subject to dismissal. 12 B. Third Claim for Relief: CFAA 13 The CFAA provides that certain conduct involving unauthorized access to a 14 computer is unlawful. In its complaint, Payward asserts Runyon violated four subsections 15 of the CFAA, specifically, §§ 1030(a)(2)(A), 1030(a)(2)(C), 1030(a)(4), and 1030(5)(c), 16 which subsections provide as follows:

17 (a) Whoever – . . . 18 (2) intentionally accesses a computer without authorization or 19 exceeds authorized access, and thereby obtains --

20 (A) information contained in a financial record of a financial institution; [or] 21 . . .

22 (C) information from any protected computer;5 . . . 23 (4) knowingly and with intent to defraud, accesses a protected 24 computer without authorization, or exceeds authorized access, 25 5 A "protected computer" is a computer (a) "exclusively for the use of a financial 26 institution . . ., or, in the case of a computer not exclusively for such use, used by or for a financial institution . . . and the conduct constituting the offense affects that use by or for 27 the financial institution" or (b) "used in or affecting interstate or foreign commerce or and by means of such conduct furthers the intended fraud and 1 obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the 2 value of such use is not more than $5,000 in any 1-year period; [or] 3 (5) . . . (C) intentionally accesses a protected computer without 4 authorization, and as a result of such conduct, causes damage and loss[;] 5 . . .

6 shall be punished . . . . [by] a fine . . . or imprisonment . . . . 7 See 18 U.S.C. §§ 1030(a), (c). Additionally, "[a]ny person who suffers damage or loss by 8 reason of a violation of [§ 1030] may maintain a civil action against the violator," see 18 9 U.S.C. § 1030(g), where the conduct causes "loss to 1 or more persons during any 1- 10 year period . . . aggregating at least $5,000 in value," see 18 U.S.C. § 1030(c)(4)(A)(i)(I).6 11 Runyon argues Payward has failed to allege facts sufficient to state a claim under 12 the CFAA. As set forth below, the Court agrees. 13 Payward's CFAA claim is based on Runyon's use of his company-issued laptop 14 after his employment had been terminated. The only such use identified in the complaint 15 is Runyon's allegedly accessing his laptop to obtain the board minutes he later provided 16 to Payward with his demand letter. (See Compl. ¶ 11.) Payward fails, however, to allege 17 facts to support a finding that Runyon, by obtaining the board minutes, caused a loss to 18 Payward of at least $5000, and, consequently, Payward fails to state a claim under any 19 subsection of the CFAA. 20 Moreover, as to three of the above-quoted subsections, Payward fails to include 21 other necessary allegations. In particular, Payward fails to state a violation of 22 § 1030(a)(2)(A), as the complaint includes no facts to support a finding that the board 23 minutes constituted "information derived from any record . . . pertaining to a customer's 24 relationship" with Payward, see 18 U.S.C. § 1030(e)(5) (defining "financial record"), fails 25 to state a violation of § 1030(a)(4), as the complaint includes no facts to support a finding 26 6 Although a private cause of action may be brought under other circumstances, 27 see 18 U.S.C. § 1030(g), the only circumstance on which Payward relies is that set forth 1 that Runyon, when accessing the board minutes, acted with an intent to defraud Payward 2 || and that such access furthered any intended fraud, and fails to state a violation of 3 || § 1030(a)(5)(C), as the complaint includes no facts to support a finding that Runyon's 4 || accessing the laptop caused damage or loss, in any amount, to Payward. 5 Accordingly, the Third Claim for Relief is subject to dismissal. 6 || C. State Law Claims 7 The Court has original jurisdiction over the above-titled action in light of the federal 8 || claims Payward has asserted (See Compl. | 19); the Court's jurisdiction over the state Q || law claims is supplemental in nature. See 28 U.S.C. § 1367(a). Where, as here, a court 10 || has dismissed all claims over which it has original jurisdiction, it may decline to exercise 11 supplemental jurisdiction. See 28 U.S.C. § 1367(c)(3). Here, given the early stage of the g 12 proceedings, the Court declines to exercise supplemental jurisdiction over the state law 13 || claims. 14 Accordingly, the Second and Fourth Causes of Action will be dismissed without 2 15 || prejudice. a 16 CONCLUSION g 17 For the reasons stated above, Runyon's motion is hereby GRANTED, and the S 18 || complaint is DISMISSED. Should Payward wish to file a First Amended Complaint, 19 || Payward shall do so no later than October 9, 2020. 20 In light of the above, the Case Management Conference is hereby CONTINUED 21 from October 2, 2020, to January 15, 2021, at 10:30 a.m. A Joint Case Management 22 || Statement shall be filed no later than January 8, 2021. 23 IT IS SO ORDERED. 24 25 || Dated: September 22, 2020 (feel, Chat XINE M. CHESNEY 26 United States District Judge 27 28