USConnect, LLC v. Sprout Retail, Inc., 2017 NCBC 36.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION GUILFORD COUNTY 17 CVS 2554
USCONNECT, LLC,
Plaintiff,
v. ORDER AND OPINION ON DEFENDANT’S MOTION TO SPROUT RETAIL, INC., DISMISS OR FOR A MORE DEFINITE STATEMENT Defendant.
1. This case involves a dispute between Plaintiff USConnect, LLC, and
Defendant Sprout Retail, Inc. (“Sprout”) over a contract and technology related to a
cashless payment system for food services, vending machines, and unattended kiosks.
USConnect claims that Sprout has breached the parties’ service agreement and is
misappropriating USConnect’s trade secrets. In addition, USConnect seeks a
declaratory judgment that Sprout does not own intellectual property rights to certain
software used by USConnect.
2. Sprout moved to dismiss each cause of action for lack of personal jurisdiction
and failure to state a claim under Rules 12(b)(2) and 12(b)(6) of the North Carolina
Rules of Civil Procedure. Sprout also moved, in the alternative, for a more definite
statement under Rule 12(e).
3. Having considered the motion, the briefs supporting and opposing the
motion, and the parties’ arguments at the hearing on April 12, 2017, the Court
GRANTS in part and DENIES in part Sprout’s motion. Womble Carlyle Sandridge & Rice, LLP by Charles Burke and Stephen F. Shaw for Plaintiff.
Thomason Law Office by Charles L. Thomason, and Higgins Benjamin, PLLC by Gilbert J. Andia, Jr., for Defendant.
Conrad, Judge. I. BACKGROUND
4. The Court does not make findings of fact on a motion to dismiss under Rule
12(b)(6). The following factual summary is drawn from relevant allegations in the
complaint and the attached exhibits.
5. USConnect is a North Carolina company that offers “cashless payment
account services and other next-generation vending and food services solutions,
including micro market kiosks, vending machine, cafeteria and related food service
offerings through its network of affiliates, to customers throughout the United
States.” (Compl. ¶ 4.)
6. In April 2013, USConnect entered into the Sprout Service and License
Agreement (“Agreement”) with Sprout, a New Jersey corporation, to develop the
software to support communications between the network-connected vending
machines or kiosks, the network itself, and related hardware. (Compl. ¶¶ 5, 16, Ex.
A.) As part of the Agreement, USConnect and Sprout provided each other with access
to certain confidential information, and Sprout gave USConnect permission to “utilize
the Sprout System for Cashless Equipment, Markets and Foodservice outlets.”
(Compl. Ex. A p.5; see also Compl. ¶ 27.) To enable “affiliates and other developers to interface” with USConnect’s network, USConnect and Sprout “published aspects”
of the software “to publicly-accessible websites.” (Compl. ¶ 19.)
7. The Agreement includes provisions governing the use of confidential
information. (See Compl. Ex. A pp.5, 9–10.) It also provides that “Sprout shall not
form, participate in or provide services to a similar or competing organization to
[USConnect].” (Compl. Ex. A. p.4.)
8. This Agreement establishes a two-year term unless USConnect and Sprout
agreed otherwise. (Compl. Ex. A. p.2.) Thus, in the absence of an extension, the term
of the Agreement would have expired on April 1, 2015. According to the complaint,
USConnect and Sprout continued to conduct business with each other under the
terms of the Agreement after April 1, 2015. (Compl. ¶ 21.)
9. In early 2016, Sprout sent USConnect a proposal for a new contract. (Compl.
¶ 22.) As part of the negotiation process, the parties signed a letter, dated March 26,
2016, that stated their “mutual intention to complete a new contractual
arrangement.” (Compl. Ex. B; see also Compl. ¶ 23.) The parties aimed to complete
the new agreement by May 1, 2016. (Compl. Ex. B.) The letter further stated that
“[e]ffective with and as part of that New Agreement, the parties will end the terms of
service under the Old Agreement so that it is clear that . . . services [provided] by
Sprout after the transition period will be pursuant to the terms of the New
Agreement.” (Compl. Ex. B.)
10. Sprout and USConnect were unable to agree to terms for a new contract.
(Compl. ¶ 26.) Sprout has since threatened to terminate USConnect’s payment services, and as a result, USConnect “independently developed a temporary
replacement gateway payment system,” using “industry-accepted open standards,
publicly-available automated programming interfaces and other standard
terminology.” (Compl. ¶¶ 35–37.) Sprout has claimed that USConnect is
unauthorized to use this temporary system, including publicly available technology
that supports it. (Compl. ¶ 37.)
11. USConnect also alleges that Sprout has violated the Agreement “by
coordinating with a direct competitor of USConnect to offer” competing services.
(Compl. ¶ 28.) It further alleges that Sprout has used USConnect’s confidential
information and trade secrets to develop competing services and to solicit
USConnect’s customers. (See Compl. ¶¶ 29, 30.)
12. USConnect filed this suit on January 5, 2017. Sprout moved to dismiss the
complaint on February 7, 2017, and USConnect filed its response on March 2, 2017.
Sprout did not file a reply. The motion is ripe for determination.
II. ANALYSIS
A. Personal Jurisdiction
13. Sprout argues, without citing any legal authority, that the complaint should
be dismissed for lack of personal jurisdiction. (See Mem. of Law in Supp. Of Def.’s
Mot. to Dismiss and for More Definite Stmt. 16–17 [“Def.’s Mem.”].) Sprout argues
that it has no presence in North Carolina, that the Court cannot exercise jurisdiction
solely based on the Agreement, and that USConnect pleaded jurisdiction
“formulaically.” (Def.’s Mem. 17.) USConnect responds that Sprout made substantial and repeated contacts with North Carolina in the course of executing and performing
its obligations under the Agreement. (See Pl.’s Mem. of Law in Opp’n to Def.’s Mot.
to Dismiss or for More Definitive Stmt. 20–22 [“Pl.’s Opp’n.”].) USConnect also
submitted the Affidavit of Jeffrey S. Whitacre in support of its response. Having
reviewed the parties’ evidence and arguments, the Court concludes that it may
exercise personal jurisdiction over Sprout.
14. “A North Carolina court has jurisdiction over a nonresident defendant if
(1) statutory authority for the exercise of jurisdiction under the long-arm statute,
N.C. Gen. Stat. § 1-75.4, exists and (2) the exercise of jurisdiction comports with due
process under federal law.” Soma Tech., Inc. v. Dalamagas, 2017 NCBC LEXIS 26,
at *8 (N.C. Super. Ct. Mar. 24, 2017). As relevant here, North Carolina’s long-arm
statute confers personal jurisdiction when the action “[a]rises out of a promise, made
anywhere to the plaintiff . . ., by the defendant to perform services within this State
or to pay for services to be performed in this State by the plaintiff” or “[a]rises out of
services actually performed for the plaintiff by the defendant within the State, or
services actually performed for the defendant by the plaintiff within this State if such
performance within this State was authorized or ratified by the defendant.” N.C.
Gen. Stat. § 1-75.4(5)(a)–(b).
15. The North Carolina Supreme Court has construed the long-arm statute
liberally “to make available to the North Carolina courts the full jurisdictional powers
permissible under federal due process.” Dillon v. Numismatic Funding Corp., 291
N.C. 674, 676, 231 S.E.2d 629, 630 (1977). Accordingly, “the question of statutory authority collapses into one inquiry—whether defendant has the minimum contacts
necessary to meet the requirements of due process.” Cambridge Homes of N.C. L.P.
v. Hyundai Constr., Inc., 194 N.C. App. 407, 412, 670 S.E.2d 290, 295 (2008) (quoting
Filmar Racing, Inc. v. Stewart, 141 N.C. App. 668, 671, 541 S.E.2d 733, 736 (2001)).
16. Here, the relevant inquiry is whether the Court has specific jurisdiction,
which “exists when the cause of action arises from or is related to defendant’s contacts
with the forum.” Skinner v. Preferred Credit, 361 N.C. 114, 122, 638 S.E.2d 203, 210
(2006). The focus is “the relationship among the defendants, this State, and the
causes of action.” Tom Togs, Inc. v. Ben Elias Indus. Corp., 318 N.C. 361, 366, 348
S.E.2d 782, 786 (1986). The relationship with the State “must arise out of contacts
that the ‘defendant himself’ creates.” Walden v. Fiore, 134 S. Ct. 1115, 1122 (U.S.
2014) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)). A
defendant’s contacts with this State will satisfy minimum-contact requirements
when the defendant “purposely avail[s] [himself] of the privilege of conducting
activities within the forum State.” Cambridge Homes, 194 N.C. App. at 413, 670
S.E.2d at 296 (quoting Lulla v. Effective Minds, LLC, 184 N.C. App. 274, 279, 646
S.E.2d 129, 133 (2007)).
17. The relevant facts are undisputed. In April 2013, Sprout entered into the
Agreement with USConnect, a North Carolina company. (Aff. of Jeffery S. Whitacre
¶ 3 [“Whitacre Aff.”].) The Agreement states that its construction and application
shall be governed by “the laws of the State of North Carolina.” (Whitacre Aff. Ex. B
p.12.) As part of Sprout’s performance of the Agreement, Sprout representatives made dozens of visits to North Carolina, initiated communications with USConnect’s
North Carolina employees nearly every day, and mailed monthly bills to USConnect
in North Carolina for the services Sprout was performing under the Agreement. (See
Whitacre Aff. ¶ 6.) Sprout is also negotiating with one of USConnect’s North Carolina
competitors for a license to networked vending machine technology and soliciting
customers located in North Carolina to use Sprout’s services instead of USConnect’s.
(See Whitacre Aff. ¶ 5.)
18. Sprout has not rebutted this evidence, and it did not file a reply brief. In
addition, at the hearing, Sprout’s counsel conceded that Sprout does not dispute that
its representatives routinely initiated communications and made visits to North
Carolina in carrying out its obligations under the Agreement.
19. The Court concludes, based on the undisputed evidence, that Sprout has
sufficient minimum contacts with North Carolina to warrant the exercise of personal
jurisdiction. Sprout’s contacts with North Carolina are extensive and directly
connected to the causes of action recited in USConnect’s complaint. See B.F. Goodrich
Co. v. Tire King of Greensboro, Inc., 80 N.C. App. 129, 132, 341 S.E.2d 65, 67 (1986)
(personal jurisdiction factors include “(1) quantity of contacts, (2) nature and quality
of contacts, and (3) the source and connection of the cause of action with these
contacts”). By entering into a contract with a North Carolina corporation and
routinely sending representatives to North Carolina to perform contractual services,
Sprout purposefully availed itself of “the privilege of conducting activities” in North
Carolina. Cambridge Homes, 194 N.C. App. at 413, 670 S.E.2d at 296; see also Centura Bank v. Pee Dee Express, Inc., 119 N.C. App. 210, 213–14, 458 S.E.2d 15, 19
(1995). This conduct also falls squarely within the requirements of the long-arm
statute. See N.C. Gen. Stat. § 1-75.4(5)(a)–(b).
20. Other factors further support the exercise of personal jurisdiction. It is
relevant, for example, that the parties’ Agreement is governed by North Carolina law.
See, e.g., Inspirational Network, Inc. v. Combs, 131 N.C. App. 231, 241–42, 506 S.E.2d
754, 761–62 (1998). In addition, Sprout has not suggested in any way that it would
be “unfairly prejudiced” by litigating the pending claims in North Carolina. Id. at
241. The convenience of resolving these claims in North Carolina therefore outweighs
any inconvenience to Sprout that may stem from litigating in this forum. See Soma
Tech., 2017 NCBC LEXIS 26, at *21.
21. Having weighed all of the factors “in light of fundamental fairness and the
circumstances of the case,” the Court concludes that the exercise of personal
jurisdiction over Sprout comports with traditional notions of fair play and substantial
justice. B.F. Goodrich, 80 N.C. App. at 132, 341 S.E.2d at 67. The Court denies
Sprout’s Rule 12(b)(2) motion to dismiss.
B. Rule 12(b)(6) Motion to Dismiss and Rule 12(e) Motion for a More Definite Statement
22. The Court, in deciding a Rule 12(b)(6) motion, treats the well-pleaded
allegations of the complaint as true, Sutton v. Duke, 277 N.C. 94, 98, 176 S.E.2d 161,
163 (1970), and views the facts in a light most favorable to the non-moving party.
Ford v. Peaches Entm’t Corp., 83 N.C. App. 155, 156, 349 S.E.2d 82, 83 (1986). The
Court “may properly consider documents which are the subject of a plaintiff’s complaint and to which the complaint specifically refers.” Oberlin Capital, L.P. v.
Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840, 847 (2001). Accordingly, a Rule 12(b)(6)
motion should be granted only “(1) when the complaint on its face reveals that no law
supports plaintiff’s claim; (2) when the complaint on its face reveals the absence of
fact sufficient to make a good claim; and (3) when some fact disclosed in the complaint
necessarily defeats plaintiff’s claim.” Jackson v. Bumgardner, 318 N.C. 172, 175, 347
S.E.2d 743, 745 (1986).
23. The Court, when ruling on a Rule 12(e) motion for a more definite statement,
considers whether the complaint “is so vague or ambiguous that a party cannot
reasonably be required to frame a responsive pleading.” N.C. R. Civ. P. 12(e). Courts
exercise their discretion when deciding whether to grant a motion for a more definite
statement, but the motions are sparingly granted “because pleadings may be brief
and lacking in factual detail.” Ross v. Ross, 33 N.C. App. 447, 454, 235 S.E.2d 405,
410 (1977).
1. Declaratory Judgment
24. The purpose of the Declaratory Judgment Act is to “settle and afford relief
from uncertainty and insecurity, with respect to rights, status, and other legal
relations.” Nationwide Mut. Ins. Co. v. Roberts, 261 N.C. 285, 287, 134 S.E.2d 654,
657 (1964) (quoting Walker v. Phelps, 202 N.C. 344, 349, 162 S.E. 727, 729 (1932)).
“A motion to dismiss for failure to state a claim is seldom appropriate ‘in actions for
declaratory judgments, and will not be allowed simply because the plaintiff may not
be able to prevail.’” Morris v. Plyler Paper Stock Co., 89 N.C. App. 555, 557, 366 S.E.2d 556, 558 (1988) (quoting N.C. Consumers Power, Inc. v. Duke Power Co., 285
N.C. 434, 439, 206 S.E.2d 178, 182 (1974)). Accordingly, the Court must dismiss a
declaratory-judgment claim only “when the complaint does not allege an actual,
genuine existing controversy.” Legalzoom.com, Inc. v. N.C. State Bar, 2012 NCBC
LEXIS 49, at *9 (N.C. Super. Ct. Aug. 27, 2012) (quoting N.C. Consumers Power, 258
N.C. at 439, 206 S.E.2d at 182).
25. USConnect has alleged a genuine controversy. USConnect alleges that it
has “independently develop[ed] a temporary replacement gateway payment system,”
using “industry-accepted open standards, publicly-available automated programming
interfaces and other standard terminology.” (Compl. ¶¶ 36, 37.) Sprout, however,
claims that this software is Sprout’s proprietary technology, that USConnect’s
ongoing use of the software violates Sprout’s intellectual property rights, and that
USConnect is not entitled to use this system. (Compl. ¶¶ 9, 33, 37, 39.) According to
the complaint, Sprout has threatened to take action adverse to USConnect. (Compl.
¶¶ 3, 35.) USConnect therefore seeks a declaration “that Sprout has no exclusive
rights in and to the aspects of the Software used by USConnect in connection with
the temporary gateway payment system, and that Sprout has no lawful grounds
either based upon alleged intellectual property rights or otherwise to restrict or to
threaten to restrict USConnect’s use thereof.” (Compl. ¶ 42.)
26. Sprout’s argument in support of its motion to dismiss is difficult to
understand. Sprout does not appear to refer to USConnect’s temporary gateway
payment system at all, much less deny that it objects to USConnect’s use of the system. (See Def.’s Mem. 4–6.) Instead, as best the Court can understand, Sprout
contends that USConnect’s requested relief would strip Sprout of its intellectual
property rights—the implication being that Sprout owns rights to the technology
USConnect is using. (Def.’s Mem. 4–5.) This argument seems to confirm, rather than
dispel, the existence of a genuine dispute.
27. Sprout’s remaining argument—that a declaratory judgment is
impermissible because the parties’ Agreement expired in 2015—is equally confusing.
(Def.’s Mem. 5.) The issue raised by USConnect is whether it may use, now and in
the future, certain software that it alleges to be publicly available. The expiration of
the Agreement (which is contested) does not foreclose a declaration on that dispute.
28. USConnect has adequately alleged a genuine dispute. The Court denies
Sprout’s motion with respect to USConnect’s declaratory-judgment claim.
2. Misappropriation of Trade Secrets
29. An owner of a trade secret “shall have remedy by civil action for
misappropriation” of the trade secret. N.C. Gen. Stat. § 66-153. The North Carolina
Trade Secrets Protection Act defines a trade secret to include “business or technical
information,” including a “compilation of information,” that satisfies certain
conditions. N.C. Gen. Stat. § 66-152(3). The information must “[d]erive[]
independent actual or potential commercial value from not being generally known or
readily ascertainable through independent development or reverse engineering by
persons who can obtain economic value from its disclosure or use.” Id. In addition, the information must be “the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.” Id.
30. Sprout argues that USConnect’s trade-secret claim fails for two reasons:
(1) the claim is barred by the economic loss rule; and (2) the complaint fails to specify
the alleged trade secrets with sufficient particularity. (Def.’s Mem. 15–16.) Sprout
alternatively requests a more definite statement as to the alleged trade secrets.
31. The economic loss rule “denote[s] limitations on the recovery in tort when a
contract exists between the parties that defines the standard of conduct and which
the courts believe should set the measure of recovery.” Akzo Nobel Coatings, Inc. v.
Rogers, 2011 NCBC LEXIS 42, at *47–48 (N.C. Super. Ct. Nov. 3, 2011). This rule
exists because “the open-ended nature of tort damages should not distort bargained-
for contractual terms.” Artistic Southern Inc. v. Lund, 2015 NCBC LEXIS 113, at
*25 (N.C. Super. Ct. Dec. 9, 2015). The economic loss rule does not bar a claim when
there is a dispute over the validity of the contract, the existence of a contractual duty,
or the expiration of a contractual duty. See, e.g., id.; RCJJ, LLC v. RCWIL Enters.,
LLC, 2016 NCBC LEXIS 46, at *21 n.61 (N.C. Super. Ct. June 20, 2016).
32. Although Sprout contends that the parties’ “Agreement specified their
duties,” it has also raised factual disputes over the scope and validity of the
Agreement. (Def.’s Mem. 15.) Sprout contends, for example, that the Agreement
protects only Sprout’s trade secrets and may not be enforced because it expired in
2015. (See Def.’s Mem. 11.) Given these disputes regarding the application of the
contract to the alleged wrongdoing, the Court cannot conclude that the economic loss rule applies to the claim for trade secret misappropriation. See, e.g., Artistic
Southern, 2015 NCBC LEXIS 113, at *25, 33 (rejecting application of economic loss
rule where contractual duties did not exist or expired); RCJJ, 2016 NCBC LEXIS 46,
at *21 n.61 (rejecting application of economic loss rule where disputes of fact existed
over enforceability of contract).1
33. Whether USConnect has identified its alleged trade secrets with sufficient
particularity is a closer question. The North Carolina Court of Appeals has held that
“a plaintiff must identify a trade secret with sufficient particularity so as to enable a
defendant to delineate that which he is accused of misappropriating and a court to
determine whether misappropriation has or is threatened to occur.” VisionAIR, Inc.
v. James, 167 N.C. App. 504, 510–11, 606 S.E.2d 359, 364 (2004) (quoting Analog
Devices, Inc. v. Michalski, 157 N.C. App. 462, 468, 579 S.E.2d 449, 453 (2003)). A
complaint fails to state a claim if it “makes general allegations in sweeping and
conclusory statements, without specifically identifying the trade secrets allegedly
1 It is noteworthy that Sprout cites no case applying the economic loss rule to bar a claim for
misappropriation of trade secrets. (See Def.’s Mem. 15–16.) The Court is not aware of any North Carolina precedent on point, but a number of courts in other jurisdictions have held that statutory claims for trade-secret misappropriation are not barred by the economic loss rule. See Vizant Techs. LLC v. Whitchurch, No. 16-1178, 2017 U.S. App. LEXIS 688, at *13– 14 & n.11 (3d Cir. Jan. 13, 2017) (non-precedential) (applying Delaware law); Electrology Lab., Inc. v. Kunze, 169 F. Supp. 3d 1119, 1155 (D. Colo. 2016) (applying Colorado law); KDH Elec. Sys. v. Curtis Tech. Ltd., 826 F. Supp. 2d 782, 801–02 (E.D. Pa. 2011) (applying Pennsylvania law); Veritas Operating Corp. v. Microsoft Corp., No. C06-0703-JCC, 2008 U.S. Dist. LEXIS 8166, at *11–14 (W.D. Wa. Feb. 4, 2008) (applying Washington law); Wolfe Tory Med., Inc. v. C.R. Bard, Inc., No. 2:07-CV-378 TS, 2008 U.S. Dist. LEXIS 13867, at *9–10 (D. Utah Feb. 25, 2008) (applying Utah law); New Lenox Indus. v. Fenton, 510 F. Supp. 2d 893, 909 (M.D. Fla. 2007), adopted by 510 F. Supp, 2d 893 (M.D. Fla. 2007) (applying Florida law); Bell Helicopter Textron, Inc. v. Tridair Helicopters, Inc., 982 F. Supp. 318, 321–23 (D. Del. 1997) (applying Delaware law). misappropriated.” Washburn v. Yadkin Valley Bank & Trust Co., 190 N.C. App. 315,
327, 660 S.E.2d 577, 585–86 (2008).
34. USConnect’s complaint identifies the alleged trade secrets in two different
ways. In the section stating the claim for relief, USConnect alleges that its trade
secrets include “sales, pricing and customer information, customer contacts and
existing sales relationships,” and “information regarding current and anticipated
technology, pricing, sales and business strategy.” (Compl. ¶ 51.) In earlier sections
reciting factual background, USConnect alleges that the trade secrets include “the
underlying requirements of the full suite of technical services and other account
service products provided by USConnect, as well as USConnect’s service pricing
information, customer proposals, historical costs, sales data, customer lists, key
person relationships, and anticipated service upgrades and price increases.” (Compl.
¶ 30.) USConnect further alleges that this information satisfies the statutory
requirements for trade-secret protection, including being subject to reasonable efforts
to maintain the secrecy of the information. (See Compl. ¶ 53.)
35. Construing the complaint liberally, the Court concludes that these
allegations, though meager, survive scrutiny under Rule 12(b)(6). Most of the alleged
trade secrets—for example, “pricing information, customer proposals, historical costs,
sales data, customer lists, key person relationships, and anticipated service upgrades
and price increases”—are indistinguishable from allegations this Court has found
sufficient in prior cases. See, e.g., Bldg. Ctr., Inc. v. Carter Lumber, Inc., 2016 NCBC
LEXIS 79, at *11–13 (N.C. Super. Ct. Oct. 21, 2016) (collecting cases); S. Fastening Sys. v. Grabber Constr. Prods., 2015 NCBC LEXIS 42, at *11 (N.C. Super. Ct. Apr.
28, 2015) (“customer contact information and customer buying preferences and
history”; “confidential freight information, sales reports, prices and terms books, sales
memos, sales training manuals, commission reports, and information concerning
SFS’s relationship with its vendors”); Le Bleu Corp. v. B. Kelley Enters., 2014 NCBC
LEXIS 66, at *12–13 (N.C. Super. Ct. Dec. 9, 2014) (“customer lists, pricing
information, transaction histories, key contacts, and customer leads”); Koch
Measurement Devices, Inc. v. Armke, 2013 NCBC LEXIS 45, at *8 (N.C. Super. Ct.
Oct. 14, 2013) (“customer lists including names, contact persons, addresses and phone
number[s]”; “ordering habits, history and needs of . . . customers”; and “pricing and
inventory management strategies”). These allegations are not so generalized as to
fall below the standards for notice pleading.
36. Although USConnect’s allegations meet the bare minimum required by Rule
12(b)(6), the Court holds, in its discretion, that a more definite statement is
appropriate for three reasons.
37. First, although parties need not use identical phrasing to describe their
trade secrets throughout the complaint, the differing recitations of the alleged trade
secrets here do create some ambiguity. (Compare Compl. ¶ 30, with Compl. ¶ 51.)
For example, in reciting background facts, paragraph 30 of the complaint discusses
customer proposals and pricing data associated with anticipated service upgrades. It
is unclear if these categories are included in the anticipated technology, business
strategy, or customer information categories contained in paragraph 51, where USConnect asserts its claim for relief. Clarification is appropriate to enable Sprout
to frame its responsive pleading.
38. Second, although USConnect’s allegations as to business information mirror
allegations held to be sufficient in other cases, its allegations as to technical
information are far more vague. USConnect seeks protection for “information
regarding current and anticipated technology” and “the underlying requirements of
the full suite of technical services and other account service products.” (Compl. ¶¶ 30,
51.) Standing alone, these generalized allegations might not survive a motion to
dismiss. In light of the fact that USConnect has sufficiently identified some alleged
trade secrets, the Court exercises its discretion to permit USConnect to provide a
more definite statement as to these additional, technical trade secrets.
39. Third, whether business information (including pricing and customer
information) is subject to trade-secret protection depends on the content of the
information. A price list, for example, “may constitute a trade secret where it
contains pricing information, market forecasts, and feasibility studies, but may not if
it consists of raw information without any methodology.” Le Bleu, 2014 NCBC LEXIS
66, at *13. Similarly, customer lists and contact information may not constitute
protectable trade secrets if the information is easily accessible through public
information. These concerns are particularly relevant because the parties’
Agreement appears to give Sprout the right to use and disclose at least some of
USConnect’s confidential information to third parties. (See Def.’s Mem. 13; Compl.
Ex. A p.5.) In the circumstances of this case, a more definite statement is required, and a determination about whether the content of USConnect’s trade secrets is
entitled to protection is “better made when the claim is more definitely pleaded.” Le
Bleu, 2014 NCBC LEXIS 66, at *13–14.
40. Accordingly, USConnect shall file a more definite statement of its trade
secret claim. USConnect should clarify its allegations, describe the contents of the
allegedly confidential information, and explain why the information is subject to
trade-secret protection. To enable the parties to adhere to their agreed schedule for
discovery and briefing of USConnect’s pending motion for preliminary injunction, the
Court directs USConnect to file its more definite statement within seven days of this
Order.
3. Breach of Contract
41. A party states a breach-of-contract claim when (1) a valid contract exists,
and (2) a term of the contract is breached. See Poor v. Hill, 138 N.C. App. 19, 26, 530
S.E.2d 838, 843 (2000). USConnect alleges that the parties’ Agreement remains valid
and in force and that Sprout has breached its non-competition provision, its
confidentiality provisions, and several other service and reporting provisions. ( See
Compl. ¶¶ 44–46.)
42. Sprout first asserts that there is no valid contract because the Agreement
expired in 2015 or was otherwise terminated. (See Def.’s Mem. 6–8.) Sprout also
raises scattered challenges to some, but not all, of USConnect’s allegations that
Sprout breached various terms of the Agreement. (See, e.g., Def.’s Mem. 13–14.) 43. The Court concludes that USConnect has adequately alleged the existence
of a valid contract. The Agreement states that it “may be extended for additional
periods upon written consent by both parties under mutually agreeable terms”
(Compl. Ex. A p.2), and USConnect has alleged that the parties extended the terms
of the Agreement in a letter dated March 26, 2016. (Compl. ¶ 24, Ex. B.) The letter’s
language is somewhat imprecise, but it is signed by both parties and states that “the
parties will end the terms of service under the” Agreement only upon execution of a
new agreement, which has not occurred. (Compl. Ex. B.) Furthermore, the complaint
contains allegations that the parties continued to interact as if their relationship was
controlled by the Agreement after April 2015. (Compl. ¶ 21.) USConnect contends
that these allegations state alternative theories of express or implied contract. (Pl.’s
Opp’n. 6, 9.)
44. Sprout’s briefing does not address the existence of an implied contract,
contending only that the March 26 letter is an unenforceable letter of intent. The
Court concludes that the determination of whether the parties reached a valid
agreement, either expressly or by conduct, is a question of fact, not appropriate for
resolution on Rule 12(b)(6). See Blythe v. Bell, 2013 NCBC LEXIS 7, at *36 (N.C.
Super. Ct. Feb. 4, 2013) (“As a general proposition, where a party presents adequate
facts that an agreement was reached, whether an agreement was actually reached so
as to form a binding contract is a question of fact for the jury.”).
45. The Court therefore denies Sprout’s motion to dismiss the claim for breach
of contract. Sprout’s arguments regarding the Agreement’s confidentiality provisions substantially concern the identification of USConnect’s trade secrets, which the Court
has addressed above. The Court has considered Sprout’s remaining arguments and
finds them unpersuasive.
III. CONCLUSION
46. For all these reasons, the Court DENIES Sprout’s motion to dismiss for lack
of personal jurisdiction under Rule 12(b)(2) and its motion to dismiss for failure to
state a claim under Rule 12(b)(6).
47. The Court GRANTS Sprout’s alternative motion for a more definite
statement. USConnect shall file its amended complaint within seven days of the
entry of this order.
This the 21st day of April, 2017.
/s/ Adam M. Conrad Adam M. Conrad Special Superior Court Judge for Complex Business Cases