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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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LOOP AI LABS INC, Case No. 15-cv-00798-HSG Plaintiff, ORDER DENYING PLAINTIFF’S MOTION FOR TEMPORARY RESTRAINING ORDER 8 v. 9 10 ANNA GATTI, et al., Re: Dkt. No. 9 and 28 Defendants. United States District Court Northern District of California 11 12 On March 3, 2015, Plaintiff Loop AI Labs Inc. applied ex parte for the immediate entry of 13 a temporary restraining order (the “Application”) against the named Defendants in this case. See 14 Dkt. No. 9. Loop AI alleges that the Defendants participated in a scheme to misappropriate Loop 15 AI’s trade secrets and other valuable confidential information and that, absent immediate 16 injunctive relief, Loop AI “will suffer very real harm in the form of unquantifiable los[s] of 17 proprietary information and investment opportunity, which will essentially cause the ultimate 18 demise of the start-up company.” Id. at 14. 19 Loop AI’s Application sought an order: (1) freezing the assets of all the U.S. Defendants; 20 (2) directing the U.S. Defendants to repatriate all assets and documents located abroad; (3) 21 enjoining the U.S. Defendants from disposing of any assets or money for any purpose whatsoever 22 (with the narrow exception of a monthly “allowance” for Defendant Gatti’s living expenses); (4) 23 directing the U.S. Defendants to disclose to Loop AI the location and value of all assets owned, 24 including personal property over $2,500; (5) requiring the U.S. Defendants to provide Loop AI 25 their “consent” to access records and documents pertaining to their assets and property located 26 abroad; (6) prohibiting all Defendants from destroying documents; (7) directing expedited 27 discovery, including three depositions, 32 requests for production and nine interrogatories to occur 28 within ten business days; (8) directing Defendant Gatti to “consent” to Loop AI accessing her 1 email and social media accounts; (9) prohibiting Defendants from using or sharing Loop AI’s 2 trade secrets; (10) directing Defendants to cease representing that Defendant Gatti is an employee 3 of Loop AI; and (11) directing Defendant Gatti to return a laptop computer and any other 4 documents or property over which Loop AI claims possession, among other forms of relief. See 5 Dkt. No. 9-5. On March 4, 2015, the Court found that Loop AI had not met the substantial burden 6 7 required for issuance of a temporary restraining order without notice to the adverse party. See 8 Dkt. No. 12 (citing Fed. R. Civ. P. 5(b)(1)(A), which provides that a court may issue a temporary 9 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 11 United States District Court Northern District of California 10 to the movant before the adverse party can be heard in opposition.”). In the same order, the Court 12 directed Loop AI to serve the Defendants with the documents filed under Docket Numbers 9, 10, 13 and 11 in this case (the “TRO Papers”), as well as the Court’s March 4, 2015 Order (Dkt. No. 12) 14 by no later than 5:00 p.m. PST on Thursday, March 5, 2015. See id. The Court authorized service 15 on the Italian Defendants Almaviva S.p.A. and Almaware S.r.l. through the Italian Certified 16 Electronic Mail system known as the “Posta Elettronica Certificate” or “PEC” for the limited 17 purpose of transmitting the TRO Papers and the Court’s March 4th Order. Id. at 1. Defendants 18 were directed to submit any opposition to Loop AI’s Application by no later than Monday, March 19 9, 2015. Id. at 2. On March 9, 2015, Defendants submitted three oppositions to the Application. 20 See Dkt. Nos. 23, 24, and 25. Loop AI submitted a reply on March 10, 2015.1 See Dkt. No. 28. 21 The Court has carefully considered the parties’ briefs, supporting declarations, and 22 exhibits. The Court finds that this matter is appropriate for disposition without oral argument and 23 the matter is deemed submitted. See N.D. Civ. L.R. 7–1(b). For the reasons discussed below, 24 Loop AI’s Application is DENIED. 25 I. LEGAL STANDARD A temporary restraining order is intended to preserve the status quo and prevents 26 27 28 1 Loop AI’s request for leave to file a Reply is GRANTED. 2 1 irreparable harm until a hearing can be held on a preliminary injunction application. See Granny 2 Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers, 415 U.S. 423, 429 (1974). 3 However, a temporary restraining order is an “extraordinary remedy” that the court should award 4 only upon a clear showing that the plaintiff is entitled to such relief. See Winter v. Natural Res. 5 Def. Council, Inc., 555 U.S. 7, 20 (2008). Such an order may be issued only where the moving 6 party has established: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm 7 to plaintiff in the absence of preliminary relief; (3) the balance of equities tips in plaintiff's favor; 8 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 9 harm is likely. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011). 11 United States District Court Northern District of California 10 The mere possibility of irreparable harm is insufficient to support issuance of preliminary relief, 12 even where the other Winter factors weigh heavily in favor of the movant. Id. In Alliance, the 13 Ninth Circuit explained that “‘serious questions going to the merits’ and a balance of hardships 14 that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as 15 the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in 16 the public interest.” Id. at 1134. 17 II. DISCUSSION 18 A. 19 While the complaint filed in this action asserts fourteen causes of action, see Dkt. No. 1, 20 Loop AI limits its discussion of the likelihood of success on the merits to two claims: (1) Trade 21 Secret Misappropriation; and (2) Breach of Contract. 22 23 Likelihood of Success on the Merits i. Trade Secret Misappropriation Loop AI alleges that the Defendants misappropriated its confidential and trade secret 24 information in violation of the Uniform Trade Secret Act (“USTA”). “Under the UTSA, a prima 25 facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the 26 plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade 27 secret through improper means, and (3) the defendant’s actions damaged the plaintiff.” CytoDyn 28 of New Mexico, Inc. v. Amerimmune Pharms., Inc., 160 Cal. App. 4th 288, 297 (2008) (internal 3 1 quotations and citation omitted). On the record presented, Loop AI has not demonstrated that it is likely to meet this 3 standard. While Loop AI asserts that it undertakes reasonable efforts to maintain the secrecy of its 4 business information, it has not identified what business information was allegedly 5 misappropriated, or submitted evidence that particular business information taken constitutes a 6 trade secret under California law. See MAI Sys. Corp. v. Peak Computer, 991 F.2d 511, 522 (9th 7 Cir. 1993) (“[A] plaintiff who seeks relief for misappropriation of trade secrets must identify the 8 trade secrets and carry the burden of showing that they exist.”); see also Cal. Civ. Code § 9 3426.1(d) (defining a trade secret to include information that “[d]erives independent economic 10 value, actual or potential, from not being generally known to the public or to other persons who 11 United States District Court Northern District of California 2 can obtain economic value from its disclosure or use; and . . . [i]s the subject of efforts that are 12 reasonable under the circumstances to maintain its secrecy.”). 13 Instead, Loop AI’s Application is premised on general, very broad assertions unsupported 14 by specific evidence in the record. See Dkt. No. 9 at 9 (“The Company’s confidential information, 15 know-how, technology, business methods, strategies, business plans, funding plans, investments 16 plans, business partnerships and marketing plans, contacts and related materials which the 17 Company developed and used in connection with its business constitute trade secrets of the 18 Company.”); id. at 11 (“Defendant Gatti illegally forwarded and used substantial amounts of this 19 information in furtherance of her and the other Defendants’ gain, including by improperly 20 launching a competing company . . . .”). The sole specific allegation of misappropriation 21 discussed in Loop AI’s brief concerns an email from Defendant Gatti to Gianmauro Calafiore and 22 Bart Peintner at Loop AI, in which Defendant Gatti requested 700 files to which she said she did 23 not have access. Id.; Dkt No. 9-3 (Exhibit GMC-1). In other words, Loop AI’s evidence that the 24 Defendants improperly took the company’s trade secrets is an email where Defendant Gatti 25 complains of not having access to the information Loop AI alleges she took. And, perhaps 26 tellingly, nowhere do the Application and supporting materials claim that Loop AI actually 27 granted the access Gatti requested. Id. The email thus provides no basis for Loop AI’s assertion 28 that Defendant Gatti “continues to have possession of the 700 files that she improperly took from 4 1 the Company for the Defendants’ use.” Dkt. No. 9 at 11. In fact, it suggests the opposite. At this 2 stage, Loop AI has not demonstrated that (1) Defendant Gatti retains those 700 files; (2) 3 Defendant Gatti shared those files with any of the other Defendants; or that (3) the unspecified 4 contents of those files likely qualify as trade secrets under California law. Conclusory allegations 5 alone are not sufficient to demonstrate a likelihood of success on the merits. See, e.g., Sunbelt 6 Rentals, Inc. v. Victor, 2014 WL 492364, at *6 (N.D. Cal. Feb. 5, 2014). 7 The evidence offered by Loop AI in support of its trade secret allegations contrasts sharply 8 with the type of detailed and specific showing courts have found sufficient to support the issuance 9 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, 11 United States District Court Northern District of California 10 substantially undercuts its argument. In that case, Shutterfly moved ex parte to enjoin a former 12 employee from destroying electronic logs, metadata, code, and other electronic documents related 13 to Shutterfly. Id. at *1. In support of its application, Shutterfly provided the Court with “Source 14 Control Logs” demonstrating that the defendant had accessed its systems and downloaded 15 Shutterfly’s “back end code” from an offsite location. Id. Shutterfly then identified specific 16 examples of duplicate code between the defendant’s website and Shutterfly.com and directed the 17 Court to corporate filings and website comments that suggested that the defendant intended to 18 create a substantially similar photo publishing product. Id. at *2. The Court weighed this 19 evidence and granted Shutterfly’s requested relief, which was far less onerous then the 20 extraordinary list of actions Loop AI asks the Court to take in this case. Loop AI has made no 21 remotely comparable showing here. 22 Accordingly, while future discovery in this action may support Loop AI’s claims, the 23 evidence presented to this Court in conjunction with the request for a temporary restraining order 24 does not demonstrate that Loop AI is likely to prevail against any Defendant under USTA. 25 26 ii. Breach of Contract Loop AI argues that it is likely to prevail on its breach of contract claim against Defendant 27 Gatti because she (1) allegedly disclosed confidential and trade secret information without 28 authorization; and (2) engaged in other businesses without Loop AI’s express written consent. 5 1 2 Dkt. No. 9 at 12-13. Loop AI’s first argument fails for the same reasons as its trade secret misappropriation 3 claim under USTA. At this stage, for the reasons explained above, Loop AI has not shown that it 4 is likely to succeed on its claim that any of the Defendants misappropriated or used any trade 5 secrets owned by Loop AI. It follows that Loop AI also has not shown a likelihood of success on 6 its breach of contract claim premised on Defendant Gatti’s alleged misappropriation. 7 Loop AI’s second theory fares better. While Defendant Gatti challenges the manner in 8 which her employment agreement was presented to her and asserts that she informed Loop AI of 9 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 11 United States District Court Northern District of California 10 other business activities. See Dkt. 23 at 9. 12 Accordingly, at this early stage of the litigation, the Court believes that there is at least 13 some likelihood of Loop AI prevailing on a breach of contract claim against Defendant Gatti. 14 However, Loop AI has not shown that it is likely to prevail on any cause of action asserted against 15 the other Defendants. 16 B. 17 “A plaintiff who seeks preliminary injunctive relief must show ‘that irreparable injury is Likelihood of Irreparable Harm 18 likely in the absence of an injunction.’” M.R. v. Dreyfus, 697 F.3d 706, 728 (9th Cir. 2012) 19 (quoting Winter, 555 U.S. at 22); Alliance, 632 F.3d 1127, 1131 (9th Cir. 2011) (“plaintiffs must 20 establish that irreparable harm is likely, not just possible, in order to obtain a preliminary 21 injunction.”). “Speculative injury does not constitute irreparable injury.” Goldie’s Bookstore 22 v.Super. Ct., 739 F.2d 466, 472 (9th Cir. 1984). 23 Loop AI argues that it will suffer irreparable harm absent injunctive relief because: (1) 24 Defendant’s continued use of Loop AI’s trade secrets will “essentially cause the ultimate demise 25 of the start-up company;” (2) Defendant Gatti has demonstrated that she will not observe her 26 obligations to preserve evidence; and (3) absent an asset freeze, the Defendants will transfer their 27 assets outside the Court’s jurisdiction in an effort to frustrate Loop AI’s potential recovery in this 28 case. See Dkt. No. 9 at 14-15. These contentions are not supported by the record. 6 First, Loop AI’s contention that it will suffer irreparable harm from “Defendants’ 1 2 continued use of the Company’s confidential information and trade secrets,” id. at 14, is 3 unsupported. Setting aside the lack of a sufficient showing that Defendants misappropriated any 4 identified confidential or trade secret information, Loop AI has provided no specific evidence that 5 any of the information allegedly taken is so sensitive that the company’s continued existence 6 would be threatened if the Court does not grant the requested injunction. Instead, Loop AI’s 7 Application suggests the opposite. According to Loop AI, Defendant Gatti “has already been 8 working full time for the Almaviva Defendants and others for more than 1 year . . . .” Dkt. No. 9 9 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 11 United States District Court Northern District of California 10 survived Defendant Gatti’s alleged misconduct for more than a year. And while discovery 12 obviously will be needed to develop the facts, all Defendants flatly deny under penalty of perjury 13 that they have taken or used Loop AI’s confidential information or trade secrets. See Dkt. Nos. 14 23-1 at ¶ 9; 24-1 at ¶ 25; 25-1 at ¶¶ 31-32. The Almawave Defendants represent that they have 15 already searched their files for such information without finding any, and state that if they do find 16 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 17 18 equally unsupported. For example, Loop AI accuses Defendant Gatti of “initiating an attack on 19 her former corporate account” and deleting information from her calendar, even though she no 20 longer had the password to access Loop AI’s systems. See Dkt. No. 9 at 3. Loop AI’s sole 21 “evidence” of this serious allegation appears to be Mr. Calafiore’s speculation that “Gatti could 22 have been the only person interested in accessing and deleting the information that the Company 23 was analyzing in connection with this investigation.” See Dkt. No. 9-3 at ¶ 17. Mr. Calafiore’s 24 suspicions are not a proper ground for injunctive relief. All of the Defendants are represented by 25 26 27 28 2 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. 7 1 counsel admitted to practice before this Court and are expected to advise their clients of their duty 2 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. 3 Loop AI has provided the Court with evidence that Defendant Gatti (who appears to have spent 5 many years living in Europe) has bank accounts in both the United States and Europe, and that she 6 has spoken to or met with a handful of bankers over the last several months. Dkt. No. 9 at 6; Dkt. 7 No. 10 at ¶¶ 4-12. There is no evidence that these activities were designed to secrete assets to 8 frustrate any eventual recovery in this action. See Maui Land & Pineapple Co. v. Hamada, 2000 9 WL 1093085, at *2 (N.D. Cal. Aug. 2, 2000) (denying application for a temporary restraining 10 order prohibiting dissipation of defendant’s business where the “plaintiff makes no cognizable 11 United States District Court Northern District of California 4 allegations of dissipation.”). Nor has Loop AI provided evidence concerning the financial 12 activities of any of the other Defendants that could plausibly support such a finding. Freezing the 13 Defendants’ assets under these circumstances is unjustified. In sum, Loop AI has provided insufficient evidence to demonstrate that irreparable harm is 14 15 likely. For this reason alone, Loop AI’s Application must be denied. See Alliance, 632 F.3d at 16 1131. 17 C. 18 Before injunctive relief may be imposed, the movant must demonstrate that the balance of Balance of Equities 19 equities tips in its favor. Winter, 55 U.S. at 20. Here, the extraordinary injunctive relief requested 20 by Loop AI would impose a substantial burden on the Defendants, both in terms of the legal costs 21 of compliance and the ability to operate their businesses and pay for their personal expenses. 22 While Loop AI challenges the evidence presented to support the Defendants’ claims of hardship, 23 see Dkt. No. 28-1 at 3, there can be no reasonable argument that precluding an individual or 24 company from using any of its assets presents a tremendous burden, even if that limitation is 25 imposed for only a brief period. When weighed against the evidentiary showing offered by Loop 26 AI to support the extraordinary preliminary relief sought in its Application, there is no question 27 3 28 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. 8 1 that the balance of equities favors denial. 2 D. 3 “In exercising their sound discretion, courts of equity should pay particular regard for the 4 public consequences in employing the extraordinary remedy of injunction.” Winter, 555 U.S. at 5 24 (quoting Weinberger v. Romero–Barcelo, 456 U.S. 305, 312 (1982)). In this case, Loop AI’s 6 proposed relief would have significant consequences on individuals other than the Defendants. 7 For example, an asset freeze would necessarily affect the non-party employees of the Defendants 8 as well as their families and dependents. Because Loop AI has fallen well short of the required 9 showing, the final Winter factor weighs against granting injunctive relief. 10 United States District Court Northern District of California 11 III. Consideration of the Public Interest CONCLUSION Although Loop AI has demonstrated some likelihood of success on the merits of its breach 12 of contract claim against Defendant Gatti, all of the other factors weigh heavily against granting 13 any of the extraordinarily broad preliminary relief requested, whether that relief is couched as a 14 temporary restraining order or a preliminary injunction. Accordingly, Loop AI has failed to 15 satisfy the standard required for the issuance of any form of preliminary injunctive relief. The 16 Application is DENIED. 17 18 19 20 IT IS SO ORDERED. Dated: March 12, 2015 ______________________________________ HAYWOOD S. GILLIAM, JR. United States District Judge 21 22 23 24 25 26 27 28 9

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