Loop AI Labs, Inc. v. Gatti et al

Filing 32

ORDER by Judge Haywood S. Gilliam, Jr. DENYING PLAINTIFFS 9 MOTION FOR TEMPORARY RESTRAINING ORDER. (terminating 28 Motion for Leave to File) (ndr, COURT STAFF) (Filed on 3/12/2015)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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LOOP AI LABS INC,

Case No. 15-cv-00798-HSG

Plaintiff,
ORDER DENYING PLAINTIFF’S
MOTION FOR TEMPORARY
RESTRAINING ORDER

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v.
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ANNA GATTI, et al.,

Re: Dkt. No. 9 and 28

Defendants.

United States District Court
Northern District of California

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On March 3, 2015, Plaintiff Loop AI Labs Inc. applied ex parte for the immediate entry of

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a temporary restraining order (the “Application”) against the named Defendants in this case. See

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Dkt. No. 9. Loop AI alleges that the Defendants participated in a scheme to misappropriate Loop

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AI’s trade secrets and other valuable confidential information and that, absent immediate

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injunctive relief, Loop AI “will suffer very real harm in the form of unquantifiable los[s] of

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proprietary information and investment opportunity, which will essentially cause the ultimate

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demise of the start-up company.” Id. at 14.

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Loop AI’s Application sought an order: (1) freezing the assets of all the U.S. Defendants;

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(2) directing the U.S. Defendants to repatriate all assets and documents located abroad; (3)

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enjoining the U.S. Defendants from disposing of any assets or money for any purpose whatsoever

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(with the narrow exception of a monthly “allowance” for Defendant Gatti’s living expenses); (4)

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directing the U.S. Defendants to disclose to Loop AI the location and value of all assets owned,

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including personal property over $2,500; (5) requiring the U.S. Defendants to provide Loop AI

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their “consent” to access records and documents pertaining to their assets and property located

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abroad; (6) prohibiting all Defendants from destroying documents; (7) directing expedited

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discovery, including three depositions, 32 requests for production and nine interrogatories to occur

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within ten business days; (8) directing Defendant Gatti to “consent” to Loop AI accessing her

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email and social media accounts; (9) prohibiting Defendants from using or sharing Loop AI’s

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trade secrets; (10) directing Defendants to cease representing that Defendant Gatti is an employee

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of Loop AI; and (11) directing Defendant Gatti to return a laptop computer and any other

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documents or property over which Loop AI claims possession, among other forms of relief. See

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Dkt. No. 9-5.
On March 4, 2015, the Court found that Loop AI had not met the substantial burden

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required for issuance of a temporary restraining order without notice to the adverse party. See

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Dkt. No. 12 (citing Fed. R. Civ. P. 5(b)(1)(A), which provides that a court may issue a temporary

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restraining order without notice to the adverse party only if “specific facts in an affidavit or a
verified complaint clearly show that immediate and irreparable injury, loss, or damage will result

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United States District Court
Northern District of California

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to the movant before the adverse party can be heard in opposition.”). In the same order, the Court

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directed Loop AI to serve the Defendants with the documents filed under Docket Numbers 9, 10,

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and 11 in this case (the “TRO Papers”), as well as the Court’s March 4, 2015 Order (Dkt. No. 12)

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by no later than 5:00 p.m. PST on Thursday, March 5, 2015. See id. The Court authorized service

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on the Italian Defendants Almaviva S.p.A. and Almaware S.r.l. through the Italian Certified

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Electronic Mail system known as the “Posta Elettronica Certificate” or “PEC” for the limited

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purpose of transmitting the TRO Papers and the Court’s March 4th Order. Id. at 1. Defendants

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were directed to submit any opposition to Loop AI’s Application by no later than Monday, March

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9, 2015. Id. at 2. On March 9, 2015, Defendants submitted three oppositions to the Application.

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See Dkt. Nos. 23, 24, and 25. Loop AI submitted a reply on March 10, 2015.1 See Dkt. No. 28.

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The Court has carefully considered the parties’ briefs, supporting declarations, and

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exhibits. The Court finds that this matter is appropriate for disposition without oral argument and

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the matter is deemed submitted. See N.D. Civ. L.R. 7–1(b). For the reasons discussed below,

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Loop AI’s Application is DENIED.

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I.

LEGAL STANDARD
A temporary restraining order is intended to preserve the status quo and prevents

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Loop AI’s request for leave to file a Reply is GRANTED.
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irreparable harm until a hearing can be held on a preliminary injunction application. See Granny

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Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers, 415 U.S. 423, 429 (1974).

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However, a temporary restraining order is an “extraordinary remedy” that the court should award

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only upon a clear showing that the plaintiff is entitled to such relief. See Winter v. Natural Res.

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Def. Council, Inc., 555 U.S. 7, 20 (2008). Such an order may be issued only where the moving

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party has established: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm

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to plaintiff in the absence of preliminary relief; (3) the balance of equities tips in plaintiff's favor;

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and (4) that an injunction is in the public interest. See id. at 22.
Under Winter, a court may only grant preliminary relief upon a showing that irreparable

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harm is likely. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011).

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United States District Court
Northern District of California

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The mere possibility of irreparable harm is insufficient to support issuance of preliminary relief,

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even where the other Winter factors weigh heavily in favor of the movant. Id. In Alliance, the

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Ninth Circuit explained that “‘serious questions going to the merits’ and a balance of hardships

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that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as

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the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in

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the public interest.” Id. at 1134.

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II.

DISCUSSION

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A.

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While the complaint filed in this action asserts fourteen causes of action, see Dkt. No. 1,

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Loop AI limits its discussion of the likelihood of success on the merits to two claims: (1) Trade

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Secret Misappropriation; and (2) Breach of Contract.

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Likelihood of Success on the Merits

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Trade Secret Misappropriation

Loop AI alleges that the Defendants misappropriated its confidential and trade secret

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information in violation of the Uniform Trade Secret Act (“USTA”). “Under the UTSA, a prima

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facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the

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plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade

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secret through improper means, and (3) the defendant’s actions damaged the plaintiff.” CytoDyn

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of New Mexico, Inc. v. Amerimmune Pharms., Inc., 160 Cal. App. 4th 288, 297 (2008) (internal
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quotations and citation omitted).
On the record presented, Loop AI has not demonstrated that it is likely to meet this

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standard. While Loop AI asserts that it undertakes reasonable efforts to maintain the secrecy of its

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business information, it has not identified what business information was allegedly

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misappropriated, or submitted evidence that particular business information taken constitutes a

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trade secret under California law. See MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 522 (9th

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Cir. 1993) (“[A] plaintiff who seeks relief for misappropriation of trade secrets must identify the

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trade secrets and carry the burden of showing that they exist.”); see also Cal. Civ. Code §

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3426.1(d) (defining a trade secret to include information that “[d]erives independent economic

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value, actual or potential, from not being generally known to the public or to other persons who

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United States District Court
Northern District of California

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can obtain economic value from its disclosure or use; and . . . [i]s the subject of efforts that are

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reasonable under the circumstances to maintain its secrecy.”).

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Instead, Loop AI’s Application is premised on general, very broad assertions unsupported

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by specific evidence in the record. See Dkt. No. 9 at 9 (“The Company’s confidential information,

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know-how, technology, business methods, strategies, business plans, funding plans, investments

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plans, business partnerships and marketing plans, contacts and related materials which the

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Company developed and used in connection with its business constitute trade secrets of the

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Company.”); id. at 11 (“Defendant Gatti illegally forwarded and used substantial amounts of this

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information in furtherance of her and the other Defendants’ gain, including by improperly

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launching a competing company . . . .”). The sole specific allegation of misappropriation

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discussed in Loop AI’s brief concerns an email from Defendant Gatti to Gianmauro Calafiore and

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Bart Peintner at Loop AI, in which Defendant Gatti requested 700 files to which she said she did

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not have access. Id.; Dkt No. 9-3 (Exhibit GMC-1). In other words, Loop AI’s evidence that the

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Defendants improperly took the company’s trade secrets is an email where Defendant Gatti

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complains of not having access to the information Loop AI alleges she took. And, perhaps

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tellingly, nowhere do the Application and supporting materials claim that Loop AI actually

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granted the access Gatti requested. Id. The email thus provides no basis for Loop AI’s assertion

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that Defendant Gatti “continues to have possession of the 700 files that she improperly took from
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the Company for the Defendants’ use.” Dkt. No. 9 at 11. In fact, it suggests the opposite. At this

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stage, Loop AI has not demonstrated that (1) Defendant Gatti retains those 700 files; (2)

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Defendant Gatti shared those files with any of the other Defendants; or that (3) the unspecified

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contents of those files likely qualify as trade secrets under California law. Conclusory allegations

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alone are not sufficient to demonstrate a likelihood of success on the merits. See, e.g., Sunbelt

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Rentals, Inc. v. Victor, 2014 WL 492364, at *6 (N.D. Cal. Feb. 5, 2014).

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The evidence offered by Loop AI in support of its trade secret allegations contrasts sharply

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with the type of detailed and specific showing courts have found sufficient to support the issuance

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of a temporary restraining order under Rule 65. For example, Shutterfly, Inc. v. Foreverarts, Inc.,
2012 WL 2911887 (N.D. Cal. Jul. 13, 2012), cited by Loop AI in support of its Application,

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United States District Court
Northern District of California

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substantially undercuts its argument. In that case, Shutterfly moved ex parte to enjoin a former

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employee from destroying electronic logs, metadata, code, and other electronic documents related

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to Shutterfly. Id. at *1. In support of its application, Shutterfly provided the Court with “Source

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Control Logs” demonstrating that the defendant had accessed its systems and downloaded

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Shutterfly’s “back end code” from an offsite location. Id. Shutterfly then identified specific

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examples of duplicate code between the defendant’s website and Shutterfly.com and directed the

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Court to corporate filings and website comments that suggested that the defendant intended to

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create a substantially similar photo publishing product. Id. at *2. The Court weighed this

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evidence and granted Shutterfly’s requested relief, which was far less onerous then the

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extraordinary list of actions Loop AI asks the Court to take in this case. Loop AI has made no

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remotely comparable showing here.

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Accordingly, while future discovery in this action may support Loop AI’s claims, the

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evidence presented to this Court in conjunction with the request for a temporary restraining order

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does not demonstrate that Loop AI is likely to prevail against any Defendant under USTA.

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ii.

Breach of Contract

Loop AI argues that it is likely to prevail on its breach of contract claim against Defendant

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Gatti because she (1) allegedly disclosed confidential and trade secret information without

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authorization; and (2) engaged in other businesses without Loop AI’s express written consent.
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Dkt. No. 9 at 12-13.
Loop AI’s first argument fails for the same reasons as its trade secret misappropriation

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claim under USTA. At this stage, for the reasons explained above, Loop AI has not shown that it

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is likely to succeed on its claim that any of the Defendants misappropriated or used any trade

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secrets owned by Loop AI. It follows that Loop AI also has not shown a likelihood of success on

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its breach of contract claim premised on Defendant Gatti’s alleged misappropriation.

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Loop AI’s second theory fares better. While Defendant Gatti challenges the manner in

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which her employment agreement was presented to her and asserts that she informed Loop AI of

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her other business commitments, she does not appear to contest that her employment contract
requires Loop AI’s written consent and that she never received such consent prior to engaging in

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United States District Court
Northern District of California

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other business activities. See Dkt. 23 at 9.

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Accordingly, at this early stage of the litigation, the Court believes that there is at least

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some likelihood of Loop AI prevailing on a breach of contract claim against Defendant Gatti.

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However, Loop AI has not shown that it is likely to prevail on any cause of action asserted against

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the other Defendants.

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B.

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“A plaintiff who seeks preliminary injunctive relief must show ‘that irreparable injury is

Likelihood of Irreparable Harm

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likely in the absence of an injunction.’” M.R. v. Dreyfus, 697 F.3d 706, 728 (9th Cir. 2012)

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(quoting Winter, 555 U.S. at 22); Alliance, 632 F.3d 1127, 1131 (9th Cir. 2011) (“plaintiffs must

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establish that irreparable harm is likely, not just possible, in order to obtain a preliminary

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injunction.”). “Speculative injury does not constitute irreparable injury.” Goldie’s Bookstore

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v.Super. Ct., 739 F.2d 466, 472 (9th Cir. 1984).

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Loop AI argues that it will suffer irreparable harm absent injunctive relief because: (1)

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Defendant’s continued use of Loop AI’s trade secrets will “essentially cause the ultimate demise

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of the start-up company;” (2) Defendant Gatti has demonstrated that she will not observe her

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obligations to preserve evidence; and (3) absent an asset freeze, the Defendants will transfer their

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assets outside the Court’s jurisdiction in an effort to frustrate Loop AI’s potential recovery in this

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case. See Dkt. No. 9 at 14-15. These contentions are not supported by the record.
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First, Loop AI’s contention that it will suffer irreparable harm from “Defendants’

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continued use of the Company’s confidential information and trade secrets,” id. at 14, is

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unsupported. Setting aside the lack of a sufficient showing that Defendants misappropriated any

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identified confidential or trade secret information, Loop AI has provided no specific evidence that

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any of the information allegedly taken is so sensitive that the company’s continued existence

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would be threatened if the Court does not grant the requested injunction. Instead, Loop AI’s

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Application suggests the opposite. According to Loop AI, Defendant Gatti “has already been

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working full time for the Almaviva Defendants and others for more than 1 year . . . .” Dkt. No. 9

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at 11 (emphasis removed). Loop AI offers no explanation to square (1) its representation that the
company will perish absent immediate injunctive relief with (2) the fact that the company has

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Northern District of California

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survived Defendant Gatti’s alleged misconduct for more than a year. And while discovery

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obviously will be needed to develop the facts, all Defendants flatly deny under penalty of perjury

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that they have taken or used Loop AI’s confidential information or trade secrets. See Dkt. Nos.

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23-1 at ¶ 9; 24-1 at ¶ 25; 25-1 at ¶¶ 31-32. The Almawave Defendants represent that they have

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already searched their files for such information without finding any, and state that if they do find

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any they will destroy it or return it to Plaintiff.2 See Dkt. No. 25-1 at ¶¶ 31-32.
Second, Loop AI’s argument that Defendant Gatti is likely to destroy relevant evidence is

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equally unsupported. For example, Loop AI accuses Defendant Gatti of “initiating an attack on

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her former corporate account” and deleting information from her calendar, even though she no

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longer had the password to access Loop AI’s systems. See Dkt. No. 9 at 3. Loop AI’s sole

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“evidence” of this serious allegation appears to be Mr. Calafiore’s speculation that “Gatti could

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have been the only person interested in accessing and deleting the information that the Company

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was analyzing in connection with this investigation.” See Dkt. No. 9-3 at ¶ 17. Mr. Calafiore’s

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suspicions are not a proper ground for injunctive relief. All of the Defendants are represented by

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While the Court appreciates that the Defendants have taken proactive steps to locate potentially
relevant documents, the Court reminds all parties that they have a duty to preserve potentially
relevant evidence. In no circumstances should a party “destroy” documents or information in any
way related to the subject matter of this litigation, even if that information could constitute a trade
secret of Loop AI.
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counsel admitted to practice before this Court and are expected to advise their clients of their duty

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to preserve potentially relevant evidence and the serious consequences for failing to do so.3
Third, Loop AI has adduced no evidence that any Defendant is hiding or dissipating assets.

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Loop AI has provided the Court with evidence that Defendant Gatti (who appears to have spent

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many years living in Europe) has bank accounts in both the United States and Europe, and that she

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has spoken to or met with a handful of bankers over the last several months. Dkt. No. 9 at 6; Dkt.

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No. 10 at ¶¶ 4-12. There is no evidence that these activities were designed to secrete assets to

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frustrate any eventual recovery in this action. See Maui Land & Pineapple Co. v. Hamada, 2000

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WL 1093085, at *2 (N.D. Cal. Aug. 2, 2000) (denying application for a temporary restraining

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order prohibiting dissipation of defendant’s business where the “plaintiff makes no cognizable

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United States District Court
Northern District of California

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allegations of dissipation.”). Nor has Loop AI provided evidence concerning the financial

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activities of any of the other Defendants that could plausibly support such a finding. Freezing the

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Defendants’ assets under these circumstances is unjustified.
In sum, Loop AI has provided insufficient evidence to demonstrate that irreparable harm is

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likely. For this reason alone, Loop AI’s Application must be denied. See Alliance, 632 F.3d at

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1131.

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C.

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Before injunctive relief may be imposed, the movant must demonstrate that the balance of

Balance of Equities

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equities tips in its favor. Winter, 55 U.S. at 20. Here, the extraordinary injunctive relief requested

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by Loop AI would impose a substantial burden on the Defendants, both in terms of the legal costs

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of compliance and the ability to operate their businesses and pay for their personal expenses.

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While Loop AI challenges the evidence presented to support the Defendants’ claims of hardship,

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see Dkt. No. 28-1 at 3, there can be no reasonable argument that precluding an individual or

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company from using any of its assets presents a tremendous burden, even if that limitation is

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imposed for only a brief period. When weighed against the evidentiary showing offered by Loop

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AI to support the extraordinary preliminary relief sought in its Application, there is no question

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The Almawave Defendants have represented to the Court that they have already taken measures
to preserve and locate potentially relevant documents. See Dkt. No. 25 at 20.
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that the balance of equities favors denial.

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D.

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“In exercising their sound discretion, courts of equity should pay particular regard for the

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public consequences in employing the extraordinary remedy of injunction.” Winter, 555 U.S. at

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24 (quoting Weinberger v. Romero–Barcelo, 456 U.S. 305, 312 (1982)). In this case, Loop AI’s

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proposed relief would have significant consequences on individuals other than the Defendants.

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For example, an asset freeze would necessarily affect the non-party employees of the Defendants

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as well as their families and dependents. Because Loop AI has fallen well short of the required

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showing, the final Winter factor weighs against granting injunctive relief.

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United States District Court
Northern District of California

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III.

Consideration of the Public Interest

CONCLUSION
Although Loop AI has demonstrated some likelihood of success on the merits of its breach

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of contract claim against Defendant Gatti, all of the other factors weigh heavily against granting

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any of the extraordinarily broad preliminary relief requested, whether that relief is couched as a

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temporary restraining order or a preliminary injunction. Accordingly, Loop AI has failed to

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satisfy the standard required for the issuance of any form of preliminary injunctive relief. The

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Application is DENIED.

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IT IS SO ORDERED.
Dated: March 12, 2015
______________________________________
HAYWOOD S. GILLIAM, JR.
United States District Judge

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