Carr v. AutoNation, Inc. et al

Filing 34

ORDER signed by District Judge John A. Mendez on 1/3/2018 GRANTING LKQ's 23 motion to dismiss Plaintiff's trade secret misappropriation claim with leave to amend. Should Plaintiff elect to file a First Amended Complaint against LKQ for trade secret misappropriation, he must do so within twenty (20) days of this order. Defendant's responsive pleading to a First Amended Complaint is due twenty (20) days thereafter. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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JAMES CARR,

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No.

2:17-cv-01539-JAM-AC

Plaintiff,
v.

ORDER GRANTING LKQ’S MOTION TO
DISMISS

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AUTONATION INC., et. al.

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Defendants.

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More than twenty years ago, Plaintiff James Carr

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(“Plaintiff” or “Carr”) formulated a business plan (the “Business

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Plan”) to “revolutionize” the automobile-wrecking industry into a

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profitable system.

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defendant AutoNation, Inc. (“AutoNation”) and others wrongfully

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stole his ideas from the Business Plan to open a new highly

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profitable company called LKQ Corporation (“LKQ”).

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out about LKQ in October 2015, Plaintiff investigated and

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researched LKQ and, in June 2017, initiated this lawsuit,

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alleging Misappropriation of Trade Secrets against all defendants

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and Breach of Contract Implied in Fact against AutoNation and

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defendant Wayne Huizenga (“Huizenga”).

Compl. ¶¶ 2-3, ECF No. 1-2.

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Compl.

He alleges that

After finding

LKQ moves to

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dismiss the sole claim against it for trade secret

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misappropriation.

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ECF No. 30.

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LKQ’s motion to dismiss without prejudice. 1

Mem., ECF No. 23.

Plaintiff opposes.

Opp’n,

For the reasons explained below, the Court grants

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I.

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FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff owned and operated an automobile-wrecking business

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in Placerville, California between 1985 and 1995.

Compl. ¶ 2.

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Based on his experience and background as a college-educated

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certified public accountant, Plaintiff created the Business Plan

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to transform the automobile-wrecking industry into an efficient,

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interconnected, and highly profitable national system capable of

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synchronizing the supply of wrecked cars with the demand of

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recycled auto parts.

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Plaintiff sent letters to approximately 10 companies and

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individuals to gauge their interest in being a business partner

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and capital source.

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Compl. ¶¶ 2-3.

Around November 1995,

Compl. ¶ 4.

One of two respondents asked for the Business Plan and then,

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upon Plaintiff’s request, returned the Business Plan after

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indicating they were not interested.

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owned by well-known businessman Huizenga, was the other company

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that responded.

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and January 1996, Jeff Davis (“Davis”) of AutoNation called

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Plaintiff to ask some follow-up questions and asked for the

Compl. ¶ 4.

Compl. ¶ 5.

AutoNation,

Specifically, between November 1995

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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for November 21, 2017. In deciding this motion, the
Court takes as true all well-pleaded facts in the operative
complaint.
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Business Plan.

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Business Plan, but without any confidentiality agreement or non-

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disclosure agreement.

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California to meet with Plaintiff in person and tour

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approximately five automobile wrecking yards throughout Northern

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California.

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visit, he made clear to Davis that he “contemplated being

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compensated or otherwise involved should Huizenga, AutoNation, or

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any affiliates choose to move forward with the idea.”

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Compl. ¶¶ 6, 8.

Plaintiff sent Davis the

Compl. ¶¶ 8, 42.

Compl. ¶ 9.

Davis then traveled to

Plaintiff claims that, during that

Id.

After their visit, Davis called Plaintiff and told him that

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Huizenga and AutoNation were not interested in pursuing the

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Business Plan.

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Business Plan and he did.

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automobile-wrecking industry and moved on to other ventures.

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He also did not follow developments in the automobile-wrecking

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industry and did not keep in touch with people in the industry.

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Id.

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Compl. ¶ 10.
Id.

Plaintiff asked Davis to return the
Then Plaintiff left the
Id.

At a barbeque almost twenty years later, Plaintiff told a

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new acquaintance who owned a Northern California auto parts

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recycler that Plaintiff once had a billion dollar business idea.

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Compl. ¶ 11.

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Huizenga and AutoNation.

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shock and told Plaintiff that a successful company called LKQ

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Corporation (“LKQ”) had been formed with Huizenga’s involvement

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and that it was tremendously successful.

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He added that he pitched it to the well-known
Id.

The new acquaintance expressed

Id.

Plaintiff did further research on the internet to learn that

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Donald Flynn (“Flynn”), a former executive of Waste Management

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who had no auto-wrecking industry experience, founded LKQ.
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Compl. ¶¶ 12, 45.

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Compl. ¶ 5.

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Buntrock (“Buntrock”), Huizenga and AutoNation were founding

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backers of LKQ.

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Management executives also went to work for LKQ.

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Further, one key employee has worked for both LKQ and AutoNation.

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Compl. ¶ 14.

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significant shares of LKQ until 2003.

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Waste Management was founded by Huizenga.

Another former Waste Management executive, Dean

Compl. ¶ 12.

A number of other former Waste
Compl. ¶ 13.

And Plaintiff discovered that AutoNation owned
Compl. ¶ 17.

After completing his initial research, Plaintiff filed suit

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against Defendants AutoNation, Huizenga, Davis, and LKQ in El

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Dorado County Superior Court, alleging misappropriation of trade

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secrets against all Defendants and breach of contract implied in

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fact against AutoNation and Huizenga.

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collectively removed the case to this Court under 28 U.S.C.

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§ 1441.

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Court approved the parties’ stipulation to dismiss Defendants

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Huizenga and Davis without prejudice.

Not. of Removal, ECF No. 1.

Compl. ¶ 53.

Defendants

On September 19, 2017, the

Order, ECF No. 22.

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II.

OPINION

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A.

Misappropriation of Trade Secrets

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To state a claim for misappropriation of trade secrets

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under the California Uniform Trade Secrets Act (“CUTSA”),

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Plaintiff must plead two primary elements: (1) the existence of

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a trade secret, and (2) misappropriation of the trade secret.

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Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d

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941, 950 (N.D. Cal. 2003) (citing Cal. Civ. Code § 3426.1(b)).

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Misappropriation under the CUTSA includes the acquisition of a

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trade secret from another person.
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Cal. Civ. Code § 3426.1(b).

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But “[a]n ‘acquirer’ is not liable under the [CUTSA] unless

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he knew or had reason to know that the trade secret was

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improperly disclosed.”

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App. 4th 21, 66 (2005) (citing Cal. Civ. Code § 3426.1(b)); see

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also MedioStream, Inc. v. Microsoft Corp., 869 F.Supp.2d 1095,

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1114 (N.D. Cal. 2012) (granting motion to dismiss

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misappropriation claim because plaintiff failed to plead “facts

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demonstrating that [defendant] knew or had reason to know that

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any information it acquired from Sonic was improperly acquired

Ajaxo v. E*Trade Grp., Inc., 135 Cal.

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or disclosed”).

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impute an agent’s knowledge of a secret to the principal.”

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Droeger v. Welsh Sporting Goods, 541 F.2d 790, 792 (9th Cir.

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1976) (holding it was reversible error for the trial court to

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instruct the jury that it was no defense for the defendant that

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an agent of the defendant did not inform other employees of

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plaintiff’s concept).

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“misappropriation by circumstantial as well as direct evidence.”

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UniRAM Tech., Inc. v. Taiwan Semiconductor Mfg. Co., 617 F.

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Supp. 2d 938, 944 (N. D. Cal. 2007) (internal citations

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omitted).

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And it is not “appropriate to direct a jury to

Trade secret plaintiffs may prove

In this case, Plaintiff must adequately plead that

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AutoNation wrongfully obtained the Business Plan and that LKQ

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knew or had reason to know this.

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Ajaxo, 135 Cal. App. 4th at

He does not.
Plaintiff conclusively pleads that “LKQ acquired

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Plaintiff’s trade secrets—either the Business Plan itself or its

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contents—knowing or with reason to know that they were acquired

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through improper means” because LKQ founding officials lacked
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auto-wrecking industry experience and Huizenga and AutoNation

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were founding backers.

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conclusive allegations do not explain how LKQ got the Business

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Plan (or its contents) from AutoNation, and what specifically

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would have caused LKQ to know or have reason to know that

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AutoNation’s possession of the Business Plan was wrongful.

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Charging LKQ with knowledge of the confidentiality of the

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Business Plan is especially difficult when it has no markings of

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confidentiality and no non-disclosure agreement was in place.

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Compl. ¶¶ 44, 45, 47.

But these

Compl. ¶ 42.

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Plaintiff argues that knowledge of AutoNation’s allegedly

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wrongful trade secret acquisition should be imputed to LKQ.

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Opp’n at 10-11.

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number of cases and treatises to argue that the knowledge to be

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imputed to a corporation is the sum total of the knowledge

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possessed by the corporation’s agents, employees, and officials.

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Opp’n at 10.

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justify imputing knowledge to LKQ.

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provided does not permit imputing knowledge from investors or

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customers (Huizenga and AutoNation) to the company in which

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they invest or from which they buy products (LKQ). 2

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noted above, it is not appropriate to impute an agent’s

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knowledge of a trade secret to the principal.

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F.2d at 792.

To support this argument, Plaintiff cites a

Even if this authority is valid, it does not
The law that Plaintiff has

Further, as

See Droeger, 541

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Plaintiff argues in the Opposition that “AutoNation remained
involved, had a seat on LKQ’s board, and was LKQ’s major
customer.” Opp’n at 11. The Complaint does not allege that
AutoNation had a seat on LKQ’s board and the Court may not
consider this allegation. See generally Compl.
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Finally, to support his argument that he has adequately

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pleaded LKQ’s liability, Plaintiff also relies on two out-of-

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circuit cases that lack precedential value in this Court.

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at 5-6.

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distinguishable facts and application of laws not at issue in

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this case.

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Inc., 581 F.Supp. 2d 654 (D. Del. 2008) dealt with Delaware’s

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trade practices statute and patent infringement; and Down

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Corning Corp. v. RSI Silicon Prods. LLC, No. 10-11226-BC, 2010

Opp’n

Those cases also are inapposite because of their

(Accenture Global Servs. GMBH v. Guideware Software,

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WL 4723428, at *4 (E.D. Mich. Nov. 15, 2010) applies Michigan’s

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misappropriation law.)

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While the in-circuit cases that Plaintiff cites are

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authoritative, they also are of little help given that the facts

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are distinguishable.

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Cal. App. 4th at 66 (1) involved trial records showing direct

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communications between those plaintiffs and defendants relating

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to the relevant trade secrets and (2) the plaintiffs took

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explicit written measures to protect the confidentiality of the

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alleged trade secrets.

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from LKQ and does not allege he took any written measures to

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protect the confidentiality of the Business Plan.

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Compl.

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Droeger, 541 F.2d at 792 and Ajaxo, 135

Here, Plaintiff never spoke to anyone

See generally

Plaintiff has failed to adequately plead that LKQ knew or

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had reason to know that the Business Plan was improperly

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disclosed.

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dismiss Plaintiff’s trade secret misappropriation claim.

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///

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Accordingly, the Court grants LKQ’s motion to

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B.

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Courts dismissing under Federal Rule of Civil Procedure

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12(b)(6) have discretion to permit amendment, and there is a

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strong presumption in favor of leave to amend.

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LLC v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003).

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“Dismissal with prejudice and without leave to amend is not

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appropriate unless it is clear... that the complaint could not

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be saved by amendment.”

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Leave to Amend

Eminence Cap.,

Id. at 1052.

The Court is not completely convinced that further

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amendment would be futile and will give Plaintiff one more

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opportunity to plead a legally sufficient trade secret

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misappropriation claim against LKQ.

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Plaintiff to avoid adding conclusory allegations or new theories

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of liability unsupported by sufficient facts.

The Court cautions

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III.

ORDER

For the reasons set forth above, the Court GRANTS LKQ’s

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motion to dismiss Plaintiff’s trade secret misappropriation

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claim with leave to amend.

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First Amended Complaint against LKQ for trade secret

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misappropriation, he must do so within twenty (20) days of this

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order.

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Complaint is due twenty (20) days thereafter.

Should Plaintiff elect to file a

Defendant’s responsive pleading to a First Amended

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IT IS SO ORDERED.

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Dated: January 3, 2018

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