Joshua David Mellberg LLC et al v. Will et al

Filing 53

ORDER ADOPTING REPORT AND RECOMMENDATION. The Report and Recommendation 45 is ADOPTED; The pending motions (Docs. 22 , 27 , 30 , and 34 ) are granted and denied as set forth in this Order. Plaintiffs may file a second amended complaint within 30 days of the date of this Order as set forth herein and in the Report and Recommendation. Signed by Judge Cindy K Jorgenson on 3/27/2015. (See Order for details)(ALS)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Joshua David Mellberg LLC, et al.,
Plaintiffs,

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ORDER

v.

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No. CV-14-02025-TUC-CKJ

Jovan Will, et al.,

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Defendants.

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Plaintiffs Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and Joshua

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David Mellberg filed a First Amended Complaint asserting 11 counts against various

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Defendants. (Doc. 9, FAC) Four motions are now pending before the Court: (1) Partial

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Motion to Dismiss filed by Defendants Jovan Will and Tree Fine (Doc. 22); (2) Motion to

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Dismiss filed by Defendant the Impact Partnership (Doc. 27); (3) Partial Motion to

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Dismiss filed by Defendants Fernando & Geovanna Godinez (Doc. 30); and (4) Motion

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to Dismiss filed by Defendant Carly Uretz (Doc. 34). Following oral argument on

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November 13, 2014, Magistrate Judge Charles R. Pyle issued a Report and

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Recommendation (R & R) on February 9, 2015, (1) denying in part and granting in part

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Defendant Will and Fine’s Partial Motion to Dismiss; (2) granting Defendant Impact

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Partnership’s Motion to Dismiss; (3) granting Defendant Godinez’ Partial Motion to

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Dismiss; and (4) granting Defendant Uretz’ Motion to Dismiss.

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exception of certain claims in the Third Claim (Unfair Competition), the Magistrate

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(Doc. 45.) With the

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Judge recommended that all dismissed claims be dismissed with leave to amend. (Id. at

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33.)

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Plaintiffs files objections to the R & R to the extent that it recommends that certain

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unfair competition claims be dismissed as based on theories too novel to be permitted to

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go forward. (Doc. 46.) Defendant Jovan Will objects to the R & R on the ground that the

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FAC contains no plain statement that Will misappropriated trade secrets. (Doc. 47.)

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Defendant Tree Fine objects to the R & R on the ground that the Confidentiality

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Agreement is facially unenforceable. (Doc. 48.)

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The Court overrules the objections and adopts the R & R.
I.

Background

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Plaintiffs are Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and

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Joshua David Mellberg, an individual (collectively referred to as “JDM” or “Plaintiffs”).

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Joshua David Mellberg is the owner and President of JDM. (FAC ¶16.) He is a nationally

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known financial advisor based in Tucson, Arizona, and “is a pioneer and leader in

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marketing and selling annuities via the Internet.” (Id. ¶¶17, 18.) JDM Mellberg Financial

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is a nationwide retail and wholesale insurance agency specializing “in capturing internet

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based leads and supplying them to a network of agents across the country. JDM began

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developing internet based marketing and sales funnels in 2009.” (Id. ¶22; see also id. ¶23

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(JDM has expended in excess of $30 million refining its sales funnels)) JDM advertises

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and promotes the services and products that it offers, including annuities. (Id. ¶¶21, 22.)

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A significant portion of JDM’s advertising and promotional activities in the field of

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annuities is conducted on the internet. (Id. ¶21).

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The individual Defendants are former employees of JDM. Also named as a

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Defendant is The Impact Partnership, which is a business entity that some or all of the

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individual Defendants are alleged to have joined or otherwise furthered the interests

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thereof. (See e.g., id. ¶¶62, 75, 87-88, 118, 138.) As stated in the R & R, JDM’s theory

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of the case is that the individual Defendants “devised a scheme to steal JDM’s trade

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secrets and confidential information, attempted to destroy evidence of their theft, and are

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now using that stolen information in a competing venture.” (Doc. 45 at 6.)

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JDM alleges the following claims for relief: (1) violation of the Computer Fraud

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and Abuse Act, 18 U.S.C. § 1030 (First Claim) against all Defendants; (2) violation of

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the Arizona Uniform Trade Secrets Act (“AUTSA”), A.R.S. § 44-401, et. seq., against all

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Defendants (Second Claim); (3) unfair competition against all Defendants (Third Claim);

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(4) breach of contract against Defendants Fine, Arceo and Godinez (Fourth Claim);

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(5) unjust enrichment against all Defendants (Fifth Claim); (6) breach of fiduciary

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duty/duty of loyalty against Defendants Fine and Will (Sixth Claim); (7) breach of duties

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regarding Alpha Academy Advisors, LLC, against Defendant Will (Seventh Claim);

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(8) trespass to chattel against Defendant Fine (Eighth Claim); (9) theft/conversion against

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Defendant Fine (Ninth Claim); (10) civil conspiracy against all Defendants (Tenth

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Claim); and (11) aiding and abetting against all Defendants (Eleventh Claim).

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Pursuant to Fed.R.Civ.P. 12(b)(6), Defendants Will, Fine, Godinez, Uretz, and

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The Impact Partnership seek dismissal of JDM’s Second, Third, Fifth, Tenth, and

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Eleventh Claims for failure to state a claim. Additionally, Defendants Fine and Godinez

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seek dismissal of JDM’s Fourth Claim for relief for failure to state a claim, and

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Defendants Fine and Will seek dismissal of JDM’s Sixth Claim for relief for failure state

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a claim.

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II.

Standard of Review

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The Court reviews de novo the objected-to portions of the Report and

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Recommendation. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). The Court reviews for

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clear error the unobjected-to portions of the Report and Recommendation. Johnson v.

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Zema Systems Corp., 170 F.3d 734, 739 (7th Cir. 1999); see also, Conley v. Crabtree, 14

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F.Supp.2d 1203, 1204 (D. Or. 1998).

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The standard for a motion to dismiss is correctly stated in the R & R and will not
be repeated here. (Doc. 45 at 3-5.)

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III.

Findings and Conclusions of the Magistrate Judge and Parties’ Objections

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A.

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Plaintiffs’ Third Claim is for unfair competition against all Defendants. The FAC

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alleges as unfair competition that, inter alia, “Defendants have engaged in unlawful

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business acts or practices by committing acts including computer fraud, trespass,

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conversion, and other illegal acts as practices as alleged above, all in an effort to gain

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unfair competitive advantage over JDM.”1 (FAC ¶147.) The R & R recognizes a cause of

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action in Arizona for unfair competition based on the misappropriation of confidential

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information that does not rise to the level of a trade secret under the Arizona Uniform

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Trade Secrets Act (AUTSA).2 (Doc. 45 at 25.) But Magistrate Judge Pyle dismissed

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certain claims in the Third Claim; he recommended that the Court should be reluctant to

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allow Plaintiffs’ unfair competition claims based on specifically alleged unfair business

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practices—conversion, trespass, and computer fraud—that are novel to Arizona.

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45 at 25.) Plaintiffs object to the latter recommendation as reflective of an overly narrow

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view of unfair competition law that is inconsistent with Arizona authorities.

Plaintiffs’ Objection

(Doc.

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The Arizona Supreme Court has recently held that the AUTSA “creates an

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exclusive cause of action—and displaces conflicting causes of action—for claims based

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on the misappropriation of trade secrets.” Orca Commc’ns. Unlimited, LLC v. Noder, 337

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P.3d 545, 546 (Ariz. 2014) (Orca II). The Court also held that assuming the viability of a

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common law claim for misappropriation of confidential information, AUTSA “does not

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displace common-law claims based on alleged misappropriation of confidential

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information that is not a trade secret.” Id. The Court, which was reviewing the lower

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courts’ decision on a motion to dismiss, declined to “decide today what aspects, if any, of

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the confidential information alleged in [the plaintiff’s] unfair competition claim might

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Computer fraud is also separately asserted in the First Claim, Trespass is
separately alleged in the Eighth Claim, and Theft/Conversion is separately alleged in the
Ninth Claim.
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The claim was dismissed with leave to amend, and Plaintiffs’ objection is not
directed at that portion of the R & R. (Doc. 46 at 4, n.1.)
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fall within AUTSA’s broad definition of ‘trade secret’ and therefore be displaced….That

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determination will not hinge on the claim’s label, but rather will depend on discovery and

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further litigation that has not yet occurred.” Id. at 549 (citations omitted). Magistrate

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Judge Pyle ruled that in light of Orca II, it cannot be said at this point in the litigation that

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JDM’s claim is preempted by AUTSA to the extent it may involve confidential

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information that does not constitute trade secrets. (Doc. 45 at 23.)

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The Arizona Supreme Court also declined to decide whether Arizona recognizes a
common-law claim for unfair competition as alleged in Orca’s complaint.
Nor do we decide whether Arizona recognizes a common-law claim for
unfair competition as alleged in Orca’s complaint. Cf. Restatement (First)
of Torts §§ 757, 759 (1939) (enumerating several theories of liability,
including disclosure or use of another's trade secret, and improper
acquisition of information, whether or not it constitutes a trade secret, to
advance a rival business interest). Compare Fairway Constructors, Inc. v.
Ahern, 193 Ariz. 122, 124 ¶¶ 8–9, 970 P.2d 954, 956 (App.1998) (finding
plaintiff's unfair-competition claim preempted by federal copyright law,
and noting that such a claim is “based on principles of equity” and
“encompasses several tort theories,” including “misappropriation”), with
Restatement (Third) of Unfair Competition § 1 cmt. g (1995) (noting that
the “specific forms of unfair competition [described therein] do not fully
exhaust the scope of statutory or common law liability for unfair methods
of competition”), and Restatement (Second) of Agency §§ 395, 396 (1958)
(describing agent’s duty not to use or disclose confidential information
acquired during the course of his agency in competition with principal).
Orca II, 337 P.3d at 549-550.
Plaintiffs argue that Arizona courts have stated that “[t]he common law doctrine of
unfair competition is based on principles of equity,” Fairway Constructors, Inc., 970
P.2d at 956, and because of the doctrine’s equitable underpinning, the “tort of unfair
competition is extremely flexible[.]” Golden Nugget, Inc. v. American Stock Exchange,
Inc., 828 F.2d 586, 591 (9th Cir. 1987). Plaintiffs contend that the only requirements in
Arizona for the tort of unfair competition are that the plaintiff show either “that it was
engaged in competitive business with [the defendant] or that [the defendant’s] actions
were likely to produce public confusion[.]” Sutter Home Winery, Inc. v. Vintage
Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992) (emphasis added). In declining to
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decide whether Arizona recognizes a common-law claim for unfair competition, the

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Court pointed to Restatement (Third) of Unfair Competition, which suggests that lower

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Arizona courts may follow the Restatement: Restatement (Third) of Unfair Competition §

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1 cmt. g (1995) (noting that the “specific forms of unfair competition [described therein]

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do not fully exhaust the scope of statutory or common law liability for unfair methods of

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competition”). Orca II, 337 P.3d at 549. Plaintiffs argue that this is consistent with the

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rule in Arizona that in the absence of controlling Arizona authority, Arizona courts

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follow the Restatement of the Law. See Lerner v. DMB Realty, LLC, 322 P.3d 909, 916

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n.7 (Ariz. App. 2014). The Restatement Third of Unfair Competition acknowledges the

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flexible nature of the doctrine:
One who causes harm to the commercial relations of another by engaging
in a business or trade is not subject to liability to the other for such harm
unless: (a) the harm results from acts or practices of the actor actionable by
the other under the rules of this Restatement relating to: (1) deceptive
marketing, as specified in Chapter Two; (2) infringement of trademarks and
other indicia of identification, as specified in Chapter Three; (3)
appropriation of intangible trade values including trade secrets and the right
of publicity, as specified in Chapter Four; or from other acts or practices of
the actor determined to be actionable as an unfair method of competition,
taking into account the nature of the conduct and its likely effect on both
the person seeking relief and the public.

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§ 1 (emphasis added). Plaintiffs further contend that Comment (g) to this section of the
Restatement further elucidates the broad and flexible application of the doctrine:
A primary purpose of the law of unfair competition is the identification and
redress of business practices that hinder rather than promote the efficient
operation of the market. Certain recurring patterns of objectionable
practices form the basis of the traditional categories of liability specifically
enumerated in Subsection (a)(1)-(3). However, these specific forms of
unfair competition do not fully exhaust the scope of statutory or common
law liability for unfair methods of competition, and Subsection (a)
therefore includes a residual category encompassing other business
practices determined to be unfair.
Restatement (Third) of Unfair Competition § 1 (1995) (emphasis added).

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Defendant The Impact Partnership files a response, which is joined by Defendants

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Will, Fine, Godinez, and Uretz. (Docs. 49, 50.) They assert that Sutter Home, on which

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Plaintiffs rely, contains no analysis of the issue and cites a single Arizona Supreme Court

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opinion, from 1945. See Sutter Home, 971 F.2d at 407 (citing Lininger v. Desert Lodge,

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63 Ariz. 239, 160 P.2d 761 (1945)). They contend that since Desert Lodge, the Arizona

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Supreme Court has twice held that “the universal test [for unfair competition] is whether

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the public is likely to be confused.” Boice v. Stevenson, 187 P.2d 648, 653 (Ariz.

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1947)(emphasis added); see also O’Hara v. Lance, 7267 P.2d 725, 728 (Ariz.

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1954)(same). They also argue that Desert Lodge was a trade name dispute between the

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owners of “The Lodge on the Desert” and “Desert Lodge.” The court expressly limited its

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analysis to disputes over trade names. They point out that this court refused to recognize

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a claim for unfair competition in the absence of public confusion on two occasions.

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(Doc. 49 at 2-3, citing Doe v. Arizona Hospital & Healthcare Association, 2009 WL

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1423378 at *12 (D. Ariz. Mar. 19, 2009) and Act Group, Inc. v. Hamlin, 2012 WL

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2976724, at *8 (D. Ariz. July 20, 2012).)

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First, the Court is not persuaded that the Magistrate Judge’s ruling was based on

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the failure to allege public confusion. In addition, the unfair competition claims in Orca

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do not appear to involve public confusion. Nevertheless, the Court overrules Plaintiffs’

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objection. The reference to the Restatements in Orca II was solely in the context of a

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theory of unfair competition based on misappropriation.

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previously stated that “the doctrine [of unfair competition] encompasses several tort

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theories, such as trademark infringement, false advertising, ‘palming off,’ and

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misappropriation.”

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Pursuant to Orca II, Plaintiffs will be permitted to amend the claim of unfair competition

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based on misappropriation of confidential information that is not a trade secret. But this

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Court does not read the language in Orca II as inviting additional expansion of the

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doctrine of unfair competition, and Plaintiffs cite no cases outside Arizona that recognize

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unfair competition as including theories of computer fraud, trespass, or conversion.

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Moreover, Plaintiffs have separately asserted claims for computer fraud, trespass, and

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conversion.

The Arizona courts have

Fairway Constructors, Inc., 970 P.2d at 956 (emphasis added).

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B.

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The R & R finds that Plaintiffs state a claim against Defendant Will for

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misappropriation of trade secrets. (Doc. 45 at 11-12.) Defendant Will objects, asserting

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that the FAC does not contain a plain statement of the claim that Will misappropriated

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trade secrets. (Doc. 47 at 1.)

Defendant Will’s Objection

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According to Will, the R & R identifies six paragraphs that address the trade

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secrets claim against Will, two of which do not rise to the level of misappropriation—¶¶

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38, 39 alleging access to client lists. (Doc. 47 at 2; ref. Doc. 45 at 11.) The R & R

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summarizes the remaining four paragraphs against Will as follows:

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JDM alleges that he . . . hosted an unauthorized webinar using JDM
proprietary materials, (FAC, ¶¶ 47, 48), and postemployment with JDM,
gained unauthorized access to “JDM web domains and, with that access
secured, in November, 2013 . . . illegally downloaded the content of those
sites, including all of JDM’s training and educational videos[]” (FAC ¶¶
121-120).

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(Doc. 45 at 11 (quoting FAC ¶¶ 47-48, 120-121).)

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Will argues that allegations that he “hosted an unauthorized webinar” (FAC ¶¶ 47,

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48) cannot support a claim for misappropriation of trade secrets because on their face, the

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allegations relate to actions Will took “in July of 2013 . . . through AAA” (FAC ¶47),

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which led to “an agreement to wind down AAA” (FAC ¶48.) The FAC alleges that AAA

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was at the time an LLC formed by Will and Plaintiff Josh Mellberg (FAC ¶40), “to

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provide sales and marketing training to agents outside of JDM” and “to market to and

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recruit agents to work with JDM.” (FAC ¶42.) Will contends that his actions cannot be

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misappropriation because he owned the entity with Plaintiff.

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Will asserts that the allegation that he hosted a webinar “using JDM proprietary

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materials” is conclusory. A “plaintiff seeking relief for misappropriation of trade secrets

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must describe the subject matter of the trade secret with sufficient particularity to

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separate it from matters of general knowledge in the trade or of special knowledge of

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those persons . . . skilled in the trade.” HTS, Inc. v. Boley, 954 F. Supp. 2d 927, 944 (D.

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Ariz. 2013) (quoting Imax Corp v. Cinema Tech., Inc., 152 F.3d 1161, 1164-65 (9th Cir.

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1998)). The FAC does not distinguish the “proprietary materials” from general

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knowledge in the trade and fail to allege any facts whatsoever to identify what portion of

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the webinar constituted a trade secret.

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Will also argues that Plaintiffs’ FAC allegations fail to plead sufficient facts to
show that the information both
(a) Derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its disclosure or use;
and
(b) Is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
Ariz. Rev. Stat. § 44-401(4). Both are essential elements for information to rise to the
level of a trade secret.
Will further contends that the allegations of downloaded “web content” are
insufficient because the allegations suggest that the “web content” is not secret; rather, it
is readily available to all of Plaintiffs’ clients. The “hallmark of trade secrets is their
secrecy.” Householder Grp., LLLP v. Van Mason, 2012 WL 4513635 (D. Ariz. Sept. 30,
2012). Plaintiffs admit that the “web content,” including the “training and educational
videos,” were “available on a password-protected basis to agents that register for and pay
for JDM’s services.” (FAC ¶119.) Will argues that information accessible to anyone who
pays for access is not secret. In addition, Plaintiffs have alleged no facts to plausibly
support “trade secret” status for the content they make available on the internet.
Furthermore, the FAC does not allege that Will ever “used” the allegedly illegal
downloads of JDM’s training videos. (See FAC ¶¶ 122-126, alleging that Will was told to
stop using a client list, had launched websites, and was using JDM’s third-party
compliance consultant – not that Will was using the training videos.)
Plaintiffs respond that they allege sufficient facts to state a claim and that Will’s
objections are at odds with the applicable pleading standard. (Doc. 51 at 4.) The FAC’s
detailed identification and description of Plaintiffs’ trade secrets satisfies the notice
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pleading standard because it plausibly appears that trade secrets are involved. Plaintiffs

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are not required to disclose the actual trade secrets in the Complaint. For example, in

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W.L. Gore & Assocs. v. GI Dynamics, Inc. (Gore I), No. CV-10-8088, 2010 WL

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5184254, at *8 (D. Ariz. Dec. 15, 2010), the complaint alleged broad categories of

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confidential information including “market studies, financial information, manufacturing

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methods, and [counterclaimant’s] future plans.” Id. The court found that these categories

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were sufficient to state the existence of trade secrets in light of Iqbal. Id.

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Here, Plaintiffs’ allegations, like the categories of information alleged in Gore I,

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include misappropriation of their training materials, confidential client and marketing

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lists, advertising data, call center metrics, proprietary sales processes, metrics, and

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scripts, sales and marketing programs, advertising copy still in development, and

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password protected training and educational videos. (FAC ¶¶ 24, 27, 39, 48, 61, 85, 88,

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96, 105, 115, 117, 119.)3 Plaintiffs assert that the FAC also describes in detail the types

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of information that are secret (id., ¶ 24(a)-(k)), the effort, cost, and time it took JDM to

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develop the trade secrets (id., ¶¶ 22-24), and the efforts JDM takes to maintain the

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secrecy of its trade secrets (id. ¶¶ 28-31).

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Plaintiffs allege not only that Will misappropriated the ideas or secrets behind

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Plaintiffs’ trade secrets but also that he systematically and wrongfully misappropriated

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physical manifestations and embodiments of Plaintiffs’ trade secrets. (See e.g., id. ¶¶ 24-

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27, 39, 48, 55-58, 61, 64, 69, 75, 85, 88, 96, 105, 114, 115, 117, 119, 121.)

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Plaintiffs further argue that even if some aspects of the trade secrets are publically

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available, that would not warrant dismissal of the claim. As the Arizona Court of

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Appeals observed in the Enterprise Leasing v. Ehmke:

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Although matters of general knowledge cannot be appropriated as secret, a
trade secret may consist of a combination of elements even though each
individual component may be a matter of common knowledge.

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The Court notes that several of these paragraphs do not allege categories of
materials related to conduct by Will.
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3 P.3d 1064, 1079 (Ariz. App. 1999). Trade secrets “may consist of a compilation of

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information that is continuously used or has the potential to be used in one’s business and

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that gives one an opportunity to obtain an advantage over competitors who do not know

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of or use it.” Id. at 1068 (citations omitted).

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customer information, and marketing techniques can be trade secrets.

Thus, training videos, business plans,

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As to efforts to maintain secrecy, Plaintiffs argue that the owner of the secret

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information need only show that it made reasonable efforts to maintain its secrecy to

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ensure that it would be difficult for others to discover it without using improper means.

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Id. at 1070. The FAC alleges significant, reasonable and sufficient measures to protect

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the secrecy of the materials and information in issue. (FAC ¶¶ 28-30.)

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Finally, The FAC alleges misappropriation of more than general knowledge;

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Defendants are charged with misappropriating and using J.D. Mellberg Financial’s

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actual, physical proprietary information -- the physical manifestations of Plaintiffs’ trade

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secrets.

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The Court overrules Will’s objection. The R & R makes specific findings

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regarding trade secrets, economic advantage, and protection of trade secrets, including

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references to website materials. (Doc. 45 at 7-10.) As the Magistrate Judge noted, these

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issues are common to the motions filed by all Defendants. At this stage of the litigation,

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the Court need not decide whether the “web content” is, in fact, a trade secret. As the

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Magistrate Judge found, the allegations of trade secrets are plausible on their face. (Id. at

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11.)

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Moreover, in addition to the paragraphs cited by Will, the Magistrate Judge noted
additional allegations in the FAC directed at Will. Specifically, the R & R states:
JDM also alleges that Defendant Will approached Defendant “Impact
Partnership to launch a web-based lead program that mirrors the JDM
program and that clients and agents of Advisors Excel have received
marketing regarding the lead program. JDM’s internal advisors also
received this marketing.” (FAC, ¶122). Further, “Defendant Will launched
several websites very similar to JDM sites….” (FAC, ¶124) and one of his
websites “is purchasing AdWords and keywords identical in name, pattern,
and volume to the purchases conducted by Defendant Fine in his former
role as Marketing Director at JDM.” (FAC, ¶126). The allegations plausibly
suggest that Defendant . . . Will . . . not only had access to trade secret
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information, but that [he has] acquired that information and [is] using it as
well.

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In other words, although the FAC does not specifically assert that Will used the

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training and educational videos, it asserts that he illegally downloaded them, and in the

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next paragraph asserts that Advisors Excel notified Plaintiffs that Will had approached

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The Impact Partnership to launch a web-based lead program, that mirrors the JDM

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program and that clients and agents had received the marketing regarding the lead

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program. (FAC ¶¶121, 122.) The FAC also alleges that Will had launched websites very

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similar to JDM websites. (Id. ¶124.) This is sufficient factual content to allow the Court

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to draw the reasonable inference that Will may be liable for misappropriation. Viewed in

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its entirety, the Court finds the allegations in the FAC sufficient to state a claim against

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Will for misappropriation of trade secrets.4

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C.

Defendant Fine’s Objection

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The R & R finds that Plaintiffs state a claim against Defendant Fine for

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misappropriation of the physical manifestations of JDM’s trade secrets. (Doc. 45 at 12-

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13.)

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misappropriated the physical manifestation of trade secrets—i.e. specifically,

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spreadsheets compiling internet advertising data—the Confidentiality Agreement

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constitutes an unenforceable noncompetition agreement. (Doc. 48 at 1-2.)

Defendant Fine argues that even if, as Magistrate Judge Pyle found, Fine

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In Arizona, an overly broad confidentiality agreement amounts to a

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noncompetition agreement. See Orca Commc’ns. Unlimited, LLC v. Noder, 314 P.3d 89,

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95 (Ariz. App. 2013) (Orca I), depublished in part on other grounds, Orca II, 337 P.3d at

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550 (depublishing ¶¶ 28-31). In turn, a noncompetition agreement must be limited in time

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and in geography or it is unenforceable. Orca I, 314 P.3d at 95.

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Will is also a Defendant in the First Claim, Computer Fraud and Abuse; the Fifth
Claim, Unjust Enrichment; the Sixth Claim, Breach of Fiduciary Duty; the Seventh
Claim, Breach of Duties Re: Alpha Academy Advisors; the Tenth Claim, Civil
Conspiracy; and Eleventh Claim, Aiding and Abetting.
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In the FAC, Plaintiffs allege that Defendant Fine entered into a confidentiality
agreement precluding him from:
disclos[ing] Confidential Information, directly or indirectly, under any
circumstances, or by any means, to any third person without the express
written consent of the Company . . . [or] copy[ing], transmit[ting],
reproduc[ing], summariz[ing], quot[ing], or mak[ing] any commercial or
other use whatsoever of Confidential Information, except as may be
necessary to perform [his] duties for the Company.

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(Doc. 45 at 26 (quoting FAC ¶¶157, 158 & Ex. 1 §§ 5, 6).)

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impermissibly broad definition of “Confidential Information” includes:

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According to Fine, the

(a) proprietary information of the Company, (b) information marked or
designated by the Company as confidential, (c) information, whether or
not in written form and whether or not designated as confidential, that is
known to me as being treated by the Company as confidential; and (d)
information provided to the Company by third parties that the Company is
obligated to keep confidential. Confidential Information includes, but is not
limited to, client lists, financial information related to client accounts,
discoveries, documentation, processes, know-how, marketing plans and
other financial and technical information.
(Doc. 45 at 26 (quoting FAC Ex. 1 § 1) (emphasis added).)
In the Motion to Dismiss, the parties largely disputed the use of the term “knowhow.” The Magistrate Judge adopted the Third Circuit’s definition of “know-how” that is
sufficient to constitute a trade secret; it is not “ability” or “experience,” “but rather the
compiled products of that ability and experience that had been recorded for repetitive
use.” SI Handling Sys. Inc. v. Heisley, 753 F.2d 1244, 1262 (3d Cir. 1985) (such
compilations can be graphs, charts, drawings and other data). “The employee ability and
experience that led to these developments, and presumably will lead to still further
developments, does not belong to” the employer. Id. (“we do not think that, after
employees leave, [the employer] can assert proprietary rights over their problem-solving
ability or knowledge of mistakes to be avoided.”).
Thus, the Magistrate Judge reasoned that “know-how” as used in the Agreement
here means the compilation, i.e., physical manifestation of data or information, such as
spread sheets, not mere knowledge. Furthermore, such a meaning is consistent with the
allegations of trade secret violations that JDM has advanced. The Magistrate Judge also
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noted there no suggestion that the “discoveries, documentation, processes [and]

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knowhow” as used in the Agreement are matters of public knowledge. If they were, then

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they would not fall within the scope of the Agreement because it specifically excludes

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“information that the Company now or hereafter voluntarily disseminates to the public or

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that otherwise becomes part of the public domain through lawful means.” (Doc. 45 at 27-

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28; FAC, Ex. 1, Sec. 8.)

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In his objection, Fine reasserts that the Agreement is overly broad, and he cites to
Orca I.
In Orca I, the employee Noder signed a confidentiality covenant that
prohibited Noder from ‘directly or indirectly circumvent[ing] or
compet[ing] with The Company with regard to any Confidential
Information.’ The Agreement defined confidential information in section
2.2 as ‘knowledge or information not generally known to the public or in
the public relations industry’ that Noder learned from her employment with
Orca that related to Orca, its business partners, or the business of its
customers or potential customers. This included ‘any information [Noder]
learn[ed] of, possess[ed] as a result of, or access[ed] through’ Noder’s
employment. The definition excluded ‘publicly known’ information,
information ‘readily accessible to the public in a written publication,’ but
included information that was only available through ‘substantial searching
of published literature’ or that had to be ‘pieced together’ from a number of
publications or sources. In the event of a dispute, the covenant placed on
Noder the burden of proving that information was not confidential.
Orca I, 314 P.3d at 92. The Court of Appeals reasoned that the
the Agreement’s definition of ‘confidential information’ extends far beyond
the ‘truly confidential.’ The definition properly excludes ‘publicly known’
information, and further defines ‘publicly known’ as ‘readily accessible to
the public in a written publication,’ but then includes within its ambit
information that is available through ‘substantial searching of published
literature’ or that has to be ‘pieced together’ from a number of publications
or sources. The definition also includes as confidential, ‘any information’
Noder ‘learn[ed] of, possess [ed] as a result of, or access[ed] through
employment’ with Orca.
Id. at 94-95.
Thus the court held that the definition of confidential information was overbroad
because (1) it deemed public information confidential if the public had to do substantial
searching or to combine information, and (2) it deemed confidential any information that
the employee might have come across during her employment with Orca, regardless of
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whether the information was truly confidential. As to the first ground, the court stated

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that information available to the public remains public knowledge even if a member of

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the public has to expend substantial time to gather or comprehend it. As to the second

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ground, the court said that Orca cannot by fiat deem confidential all information Noder

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obtained through her employment with Orca. Id. at 95.

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As noted, according to the Agreement here, “Confidential information”

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encompasses “discoveries, documentation, processes, [and] know-how, marketing plans,

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and other financial and technical information.” (Id.) In his objections, Fine argues that as

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the Confidentiality Agreement extends beyond the “truly confidential,” and includes all

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information “designated” or “treated” by the company as confidential. (Doc. 48 at 3.) He

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contends that it is overbroad because it purports to prevent him from using most, if not

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all, of the information he learned from his employment, including any information the

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company unilaterally designates as confidential and any information related to his or the

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company’s “documentation, processes, [or] knowhow” (among other things). This

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imposes an unlimited restriction against competing with JDM. (Doc. 48 at 3-4.) Even

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assuming the spreadsheets are confidential, the Confidentiality Agreement is,

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nevertheless, overly broad because, on its face, it includes much more than spreadsheets.

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Plaintiffs respond that this Agreement is not like the one in Orca. This Agreement

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nowhere expressly defines as “Confidential” information that is available to the public; in

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fact, it expressly excludes such information. And the Agreement at issue here does not

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define as confidential “any information” acquired by Defendant Fine during his

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employment with JDM. As the Magistrate Judge held, “know-how” is a term of art

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typically used in confidentiality provisions to designate a subset of trade secrets or

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confidential information that is quite distinct from the general knowledge an employee

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may acquire during employment. See e.g., SI Handling Sys., Inc., 753 F.2d at 1262

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(noting that while an employee’s “know-how” with regard to specific methods and

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techniques may be protected under trade secret law, an employee may still be entitled to

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use his “experience, knowledge, memory, and skill, which he gained” from his previous

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employment) (quotations omitted).

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The Court finds that the Confidentiality Agreement here is not like the Agreement

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in Orca I. The Agreement in Orca I was overly broad on its face largely because

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although it purported to exclude publically known information from what was deemed

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confidential, it also, in fact, included information available to the public. The Agreement

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here may include items or information that are not truly confidential but does not do so

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necessarily.

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“information that the Company now or hereafter voluntarily disseminates to the public or

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that otherwise becomes part of the public domain through lawful means.” (FAC, Ex. 1,

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Sec. 8.) In other words, it does not contain an impermissible limitation on what

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constitutes public information. And, unlike Orca I, it does not define as confidential

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“any information” acquired by an employee while working for Plaintiffs.

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IV.

As the Magistrate Judge noted, the Agreement specifically excludes

Conclusion

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The Court will overrule the objections to the R & R. In addition, the Court has

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reviewed and considered the Motions to Dismiss, the responses, the replies, the exhibits,

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and the R & R and, after an independent review, of the unobjected to portions of the R &

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R finds no clear error.

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Accordingly,

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IT IS ORDERED:

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(1)

The Report and Recommendation (Doc. 45) is ADOPTED;

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(2)

The pending motions (Docs. 22, 27, 30, and 34) are granted and denied as

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follows:
(a)

Defendants Will and Fine’s Partial Motion to Dismiss (Doc. 22) is granted

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to the extent that Plaintiffs’ claims of unfair competition (Third Claim) and unjust

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enrichment (Fifth Claim) are dismissed. The motion is denied to the extent that they seek

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dismissal of claims under AUTSA (Second Claim); claims for breach of contract (Fourth

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Claim); claims for breach of fiduciary duty/duty of loyalty (Sixth Claim); claims for civil

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conspiracy (Tenth Claim); and claims for aiding and abetting (Eleventh Claim);

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(b)

Defendant Impact Partnership’s Motion to Dismiss (Doc. 27) is granted;

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(c)

Defendant Godinez’ Partial Motion to Dismiss (Doc. 30) is granted; and

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(d)

Defendant Carly Uretz’ Motion to Dismiss (Doc. 34) is granted.

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(3)

Dismissed claims are dismissed with leave to amend, with the exception of

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certain claims for unfair competition (Third Claim).

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regarding misappropriation of confidential information that do not rise to the level of a

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trade secret are dismissed with leave to amend; other claims for unfair competition are

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dismissed with prejudice.
(4)

Plaintiffs may file a second amended complaint within 30 days of the date

of this Order as set forth herein and in the Report and Recommendation.

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Claims for unfair competition

Dated this 27th day of March, 2015.

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