KCG Americas LLC et al v. Zhang

Filing 10

ORDER denying #4 Ex Parte Application for Temporary Restraining Order and Order to Show Cause for Preliminary Injunction. Signed by Judge Edward J. Davila on 4/10/2017. (ejdlc1S, COURT STAFF) (Filed on 4/10/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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KCG AMERICAS LLC, et al.,

Case No. 5:17-cv-01953-EJD

Plaintiffs,
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v.
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ZHENGQUAN ZHANG,

United States District Court
Northern District of California

Defendant.

Re: Dkt. No. 4

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ORDER DENYING EX PARTE
APPLICATION FOR TEMPORARY
RESTRAINING ORDER AND ORDER
TO SHOW CAUSE FOR
PRELIMINARY INJUNCTION

Plaintiffs KCG Americas LLC and its indirect parent company, KCG Holdings, Inc.

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(collectively, “Plaintiffs”), are “in the business of trading securities” and constitute one of the

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world’s largest independent “market makers.” Compl., Dkt. No. 1, at ¶ 6. They “write and deploy

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computer code and algorithmic models” as part of that business, which are maintained in a

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computer operating system as confidential trade secrets. Id. at ¶¶ 7, 8. Plaintiffs allege in this

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action that one of its former employees, Defendant Zhenquan Zhang (“Defendant”), violated the

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Federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq., and related state authorities by

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improperly accessing and copying its confidential information before he was terminated.

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Federal jurisdiction arises pursuant to 28 U.S.C. § 1331. Presently before the court is

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Plaintiffs’ ex parte application for a temporary restraining order (“TRO”) through which Plaintiffs

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seek to enjoin Defendant from, inter alia, retaining, disclosing or destroying Plaintiffs’

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confidential information. Dkt. No. 4.

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This matter is suitable for decision without oral argument. Civ. L. R. 7-1(b). Having
reviewed the relevant pleadings, the court finds, concludes and orders as follows:
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Case No.: 5:17-cv-01953-EJD
ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER
AND ORDER TO SHOW CAUSE FOR PRELIMINARY INJUNCTION

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1.

The standard for issuing a TRO is the same as that for the issuance of preliminary

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injunction. See New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., 434 U.S. 1345, 1347 n.2

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(1977). Thus, much like a preliminary injunction, a TRO is “an extraordinary remedy that may

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only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v.

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NRDC, Inc., 555 U.S. 7, 22 (2008). “To obtain a preliminary injunction, the moving party ‘must

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establish that: (1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in

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the absence of preliminary relief; (3) the balance of equities tips in its favor; and (4) an injunction

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is in the public interest.’” Idaho v. Coeur D’Alene Tribe, 794 F.3d 1039, 1046 (9th Cir. 2015)

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(quoting Pom Wonderful LLC v. Hubbard, 775 F.3d 1118, 1124 (9th Cir. 2014)).

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2.

Alternatively, “‘serious questions going to the merits’ and a hardship balance that

United States District Court
Northern District of California

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

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

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public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011).

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This articulation represents “one alternative on a continuum” under the “‘sliding scale’ approach

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to preliminary injunctions employed” by the Ninth Circuit. Id. at 1131-32. But “[t]he critical

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element in determining the test to be applied is the relative hardship to the parties.” Benda v.

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Grand Lodge of the Int’l Ass’n of Machinists & Aerospace Workers, 584 F.2d 308, 315 (9th Cir.

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1978). “If the balance of harm tips decidedly toward the plaintiff, then the plaintiff need not show

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as robust a likelihood of success on the merits as when the balance tips less decidedly.” Id.

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3.

Whether to grant or deny a TRO or preliminary injunction is a matter within the

court’s discretion. See Miss Universe, Inc. v. Flesher, 605 F.2d 1130, 1132-33 (9th Cir. 1979).
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As an initial matter, an ex parte TRO application must satisfy Federal Rule of Civil

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Procedure 65(b)(1), which excuses notice to the opposing party only if “specific facts in an

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affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or

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damage will result to the movant before the adverse party can be heard in opposition,” and the

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“movant’s attorney certifies in writing any efforts made to give notice and the reasons why it

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Case No.: 5:17-cv-01953-EJD
ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER
AND ORDER TO SHOW CAUSE FOR PRELIMINARY INJUNCTION

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should not be required.” In addition, Civil Local Rule 65-1(b) requires that notice of an ex parte

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TRO application be delivered to the opposing party “[u]nless relieved by order of a Judge for good

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cause shown.”

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Plaintiffs attempt to comply with Rule 65(b)(1) and Civil Local Rule 65-1(b) is

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deficient. The declaration of Plaintiff’s counsel provided with the TRO application is perfunctory;

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it merely concludes without reference to specific facts why notice to Defendant would “jeopardize

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the objective” of the application or cause Plaintiffs to suffer irreparable harm. And none of the

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other submitted documents assist Plaintiffs in satisfying the notice rules since, as will be

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explained, the manner in which the application is arranged renders it too speculative and

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United States District Court
Northern District of California

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conclusory to justify extraordinary relief on a true ex parte basis.
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Turning to the application’s substance, the second Winter factor - which is arguably

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the “single most important prerequisite for the issuance of a preliminary injunction” (Freedom

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Holdings, Inc. v. Spitzer, 408 F.3d 112, 114 (2d Cir. 2005) - requires the moving plaintiff “to

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demonstrate that irreparable injury is likely in the absence of an injunction.” Winter, 555 U.S. at

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22 (emphasis preserved). An injunction ordered on any lesser showing is “inconsistent” with the

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“characterization of injunctive relief as an extraordinary remedy.” Id.

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7.

In assessing whether Plaintiffs have demonstrated that they are likely to suffer

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irreparable harm in the absence of a TRO, the court is mindful they must make a “clear showing of

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irreparable harm.” Garcia v. Google, 786 F.3d 733, 746 (9th Cir. 2015). “Speculative injury does

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not constitute irreparable injury sufficient to warrant granting a preliminary injunction.”

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Caribbean Marine Servs. Co. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988). Indeed, “[a] plaintiff

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must do more than merely allege imminent harm sufficient to establish standing; a plaintiff must

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demonstrate immediate threatened injury as a prerequisite to preliminary injunctive relief.” Id.

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“Subjective apprehensions and unsupported predictions of revenue loss are not sufficient to satisfy

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a plaintiff’s burden of demonstrating an immediate threat of irreparable harm.” Id. at 675-76.

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8.

Here, Plaintiffs’ articulation rests on the contentions that: (1) Defendant could

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Case No.: 5:17-cv-01953-EJD
ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER
AND ORDER TO SHOW CAUSE FOR PRELIMINARY INJUNCTION

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disclose confidential information to competitors, thereby decreasing the value of Plaintiffs’ trade

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secrets, and (2) Defendant may destroy evidence “in an attempt to cover his tracks” and impair

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Plaintiffs’ ability to prove their claims, since Defendant allegedly “wiped” his work computer.

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These contentions, however, are not adequately supported by evidence sufficient to satisfy

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Plaintiffs’ burden upon close inspection. For example, Plaintiffs’ Head of Technology for U.S.

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Market-Making, Philip Chung, does not explain how he “became aware that Defendant had

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deleted history files and some of his directories,” particularly since Defendant was allegedly

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logged-in to the system under other employees’ accounts at the time. Moreover, Chung’s

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statement that Defendant deleted files on March 26, 2017, is reduced to speculation since it is

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United States District Court
Northern District of California

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based only on “information and belief.”
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Chung’s explanation of how Defendant allegedly copied Plaintiff’s confidential

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files is similarly insubstantial in the manner presented. Chung states he learned that Defendant

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copied and transmitted confidential information to third-party websites through a backed-up

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directory, which somehow “demonstrated” to Chung that Defendant was involved in certain

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activity. What is missing from this description is how a backed-up directory can reveal such

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information, what Chung reviewed to learn it, and what it specifically showed.

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10.

In light of these shortcomings, Plaintiffs have not demonstrated that irreparable

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harm is likely, rather than just possible. Indeed, Chung’s statements are not material enough to

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assure the court that Defendant is likely in possession of or continues to have access to its

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confidential information, and do not provide the specificity necessary for the court to understand

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how Chung learned the details of Defendant’s conduct. Nor have Plaintiffs provided enough

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information to excuse the notice requirements mandated by Rule 65 and Civil Local Rule 65-1.

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Since the court finds that Plaintiffs’ description of potential ensuing harm is not the

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type of “immediate threatened injury” required for a TRO, it need not address the other Winter

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factors. See Leiva-Perez v. Holder, 640 F.3d 962, 965 (9th Cir. 2011) (holding that injunctive

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relief may not issue absent a “threshold showing regarding irreparable harm . . . regardless of the

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Case No.: 5:17-cv-01953-EJD
ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER
AND ORDER TO SHOW CAUSE FOR PRELIMINARY INJUNCTION

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petitioner’s proof regarding the other [] factors”); see also Blackburn v. State Dep’t of Soc. &

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Health Servs., 472 Fed. Appx. 569, 570-71 (9th Cir. 2012).

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The ex parte application for a TRO and order to show cause re: preliminary injunction
(Dkt. No. 4) is DENIED.

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IT IS SO ORDERED.
Dated: April 10, 2017
______________________________________
EDWARD J. DAVILA
United States District Judge

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United States District Court
Northern District of California

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Case No.: 5:17-cv-01953-EJD
ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER
AND ORDER TO SHOW CAUSE FOR PRELIMINARY INJUNCTION