Yeiser Research & Development LLC v. Teknor Apex Company et al

Filing 23

ORDER granting in part and denying in part Defendant Teknor Apex Company's 16 Motion to Dismiss. Court dismisses without prejudice Plaintiff's claims for breach of contract as to alleged breaches of Sections 4(c), 4(d), and 4(f); conver sion; interference with prospective economic advantage; and unfair competition. Pla's claim of trade secrets misappropriation is dismissed to the extent it concerns Plaintiff's alleged marketing ideas, sales information, and business strate gy. Court dismisses with prejudice Pla's breach of claim as to an alleged breach of Section 9, and Pla's claim of breach of the implied covenant of good faith and fair dealing. Court denies Teknor's Motion to Dismiss Pla's claim r egarding alleged breaches of Sections 4(a), 4(b), and 4(g); trade secrets misappropriation claim insofar as it concerns alleged new compact hose concept and designs; and unjust enrichment. Court grants Plaintiff leave to amend the Complaint to add a claim under the Defend Trade Secrets Act (DTSA) and cure any pleadings dismissed without prejudice. Plaintiff may file an amended complaint by 12/22/2017. Teknor must answer or file a motion to dismiss those new portions of an amended complaint by 1/22/2018. Signed by Judge Cynthia Bashant on 11/29/2017. (jah)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 YEISER RESEARCH & DEVELOPMENT LLC, 12 13 Case No. 17-cv-1290-BAS-RBB ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S RULE 12(b)(6) MOTION TO DISMISS THE COMPLAINT Plaintiff, v. 14 15 16 17 [ECF No. 16] TEKNOR APEX COMPANY, Defendant. 18 19 The dispute before the Court concerns Plaintiff Yeiser Research & 20 Development LLC’s (“YRD”) allegations that Defendant Teknor Apex Company 21 (“Teknor”) unlawfully used YRD’s confidential information to develop and market 22 Teknor’s Zero-G Hose. In late 2013, YRD, an experienced developer of compact 23 garden hoses, began sharing its information with Teknor, a manufacturer which 24 allegedly had no prior experience in building or marketing such hoses. The parties 25 subsequently entered into a Confidentiality Disclosure Agreement (“CDA”) to 26 protect the confidentiality of information YRD shared with Teknor. The CDA stated 27 that any future joint projects would be governed by a Joint Development Agreement 28 (“JDA”). Although the parties allegedly discussed a potential joint project, they –1– 17cv1290 1 never carried out the project, nor entered into a JDA. YRD subsequently brought suit 2 against Teknor. Presently before the Court is Teknor’s Rule 12(b)(6) motion to 3 dismiss all seven claims YRD raises. (ECF No. 16.) YRD has opposed (ECF No. 4 22)1 and Teknor has replied (ECF No. 21). For the reasons stated below, the Court 5 grants in part and denies in part Teknor’s Rule 12(b)(6) motion. 6 I. BACKGROUND 7 A. Factual Background 8 Plaintiff YRD, a family business, is a California company, which created a 9 new retail market for compact garden hoses in the 2000s. (ECF No. 1-2 Ex. A 10 (hereinafter “Compl.”) ¶2.) 11 corporation that sells rubber products and has an international presence with 12 extensive retail distribution channels. (Id. ¶¶3, 7.) Defendant Teknor is a privately-held Delaware 13 In 2013, Teknor approached YRD through a common customer regarding 14 development of a better compact hose than existed on the market. (Id. ¶7.) Although 15 Teknor touted its position in the industry as a major hose manufacturer, Teknor 16 indicated that it had no prior experience building or manufacturing compact hoses, 17 and wanted either to purchase such a hose from YRD or jointly develop one for 18 Walmart and other customers. (Id. ¶¶7–8.) YRD educated Teknor on the industry 19 standard approach to flat or collapsible hoses and YRD’s methods for building hoses, 20 the strengths and weaknesses of the hoses on the market, and YRD’s current and 21 recommended marketing methods for building and marketing a new collapsible 22 compact hose. (Id. ¶8.) YRD had recently solved technical issues with existing 23 compact hoses on the market, and had effective marketing ideas. (Id. ¶11.) John 24 Yeiser (YRD) noted to Michael Melo (Teknor) that Teknor would be an ideal 25 business partner to commercialize what YRD had already discovered. (Id. ¶9.) 26 Yeiser shared his expectation that the parties would establish a JDA for any future 27 28 The Court relies on YRD’s corrected opposition to Teknor’s motion to dismiss, which the Court permitted YRD to file. (ECF No. 20.) 1 –2– 17cv1290 1 joint commercialization, with a royalty term for YRD of either $1.50 per product sold 2 or 10% of all Teknor sales. (Id.) Teknor acknowledged this expectation. (Id.) 3 The parties negotiated a CDA over the course of several months, which was 4 finally executed on January 28, 2014. (Id. ¶11; Ex. 1 (hereinafter “CDA”).) The 5 CDA’s purpose was to permit disclosure of confidential information between the 6 parties in order to collaborate and share ideas pertaining to product development. 7 (CDA §1.) The CDA’s confidentiality provisions excluded information that was 8 already in the public domain, a party’s possession at the time of disclosure, disclosed 9 by a third party, or independently developed. (Id. ¶12; CDA §§2, 3(a)–(d).) 10 However, the CDA’s five-year non-competition clause, Section 4(g), required certain 11 excluded information to be treated as confidential under certain circumstances. 12 Except for information independently developed, if a party receiving information 13 designated as confidential failed to “immediately notify” the disclosing party in 14 writing that the information was subject to an exclusion, the information could not 15 be used to compete for a term of five years, including from the date of the CDA’s 16 termination. (Id. ¶12; CDA §§4(g), 8.) 17 With the CDA in place, YRD provided prototype images, information about 18 product performance, commercialization evaluation, and marketing ideas. (Compl. 19 ¶13.) Between February 2014 and March 2014, Yeiser confirmed with Melo that 20 Teknor considered this information to be new ideas under Sections 3(a)–(c) and 21 Section 4(g) of the CDA. (Id. ¶¶13–14.) In mid-March 2014, YRD relied on 22 Teknor’s confirmation and provided more information, including detailed sales 23 sheets and sales data, test results for confidential sleeve concepts, designs with 24 multiple variations, prototypes and samples, and marketing ideas. (Id. ¶¶15, 17, 18.) 25 YRD disclosed the sales advantages of its new concept hose, which existed nowhere 26 on the market. (Id. ¶18.) Teknor acknowledged that the majority of this information 27 was subject to the CDA’s confidentiality provisions and Section 4(g). (Id. ¶¶15, 17, 28 19.) YRD’s disclosures reflected its “revolutionary approach” for a new compact –3– 17cv1290 1 hose and a “breakthrough” consisting of a confidential new interior design and use 2 of a heavy duty outer casing to yield a higher quality, more reliable hose than the 3 existing hoses comprised of cheap materials and thin fabrics. (Id. ¶¶16, 17, 22.) The 4 design provided added protection from punctures and reduced fatigue from 5 clamping—features that were key to overcoming the stigma associated with the 6 industry standard expandable flat hose. (Id. ¶¶17, 22–23.) YRD advised Teknor that 7 it was developing for sale a new changed, interior hose design based on its disclosures 8 to Teknor and sent Teknor prototypes. (Id. ¶18.) 9 Teknor subsequently decided to commercialize part of YRD’s new hose 10 design. (Id. ¶19.) Between March and April 2014, the parties had discussions about 11 expanding their relationship, covering marketing, manufacturing, and costs. (Id. 12 ¶¶20–21.) Teknor would mass produce the new hose under discussion, YRD would 13 market through its longstanding relationship with QVC, and Teknor would market to 14 its retail channels, starting with YRD’s existing product. (Id. ¶20.) Thereafter, Melo 15 solicited information on various production scenarios, which YRD provided subject 16 to the CDA and which Teknor did not dispute was confidential. (Id. ¶21.) In July 17 2015, over a year after the parties’ discussions, Yeiser asked Melo about whether 18 Teknor was interested in another hose concept. (Id. ¶24.) But Melo was not, nor was 19 Teknor working on anything new or outside of its core business. (Id.) Teknor 20 subsequently cancelled YRD’s planned introduction and presentation to QVC. (Id.) 21 The CDA remained in place as did the alleged plans for a JDA. (Id.) 22 Enter Teknor’s Zero-G Hose: a hose that includes an elastic inner layer, a slip 23 coating layer with lubricating properties that increase the life of the hose, and an outer 24 sheath that covers the inner tube and slip coating layer. (Id. ¶25.) The Zero-G Hose’s 25 promotional information touted product attributes based on the confidential 26 information YRD provided, including the hose’s puncture resistance, kink-reducing 27 design, pliable inner core, and durability. (Id. ¶¶23, 27.) YRD alleges that the 28 majority of the hose’s features pirated YRD’s new compact hose concept. (Id. ¶¶25, –4– 17cv1290 1 27.) While soliciting and receiving confidential information from YRD, Teknor, 2 through Melo, was allegedly actively concealing its plan from the outset to pirate 3 YRD’s confidential information to develop and sell its own competing compact hose 4 to retailers. (Id. ¶¶25–28.) By fall 2015, Teknor allegedly had begun secret 5 discussions with Lowes and other retailers to sell its own compact hose. (Id. ¶26.) 6 YRD now faces competition from Teknor and the Zero-G Hose. (Id. ¶40.) 7 B. 8 On May 23, 2017, YRD brought suit against Teknor in California Superior 9 Court, alleging that Teknor breached multiple provisions of the CDA (Count 1), 10 misappropriated YRD’s trade secrets (Count 2), was unjustly enriched by failing to 11 negotiate the JDA (Count 3), converted YRD’s confidential and proprietary 12 information (Count 4), interfered with YRD’s prospective economic advantage 13 (Count 5), engaged in unfair competition by using YRD’s confidential and 14 proprietary information (Count 6), and breached the implied covenant of good faith 15 and fair dealing by failing to negotiate the JDA (Count 7). (Compl. ¶¶29−88.) YRD 16 seeks damages, restitution, and injunctive relief against Teknor. (Id. Prayer for 17 Relief.) Teknor subsequently removed the complaint to this District Court (ECF No. 18 1) and now seeks dismissal of the Complaint in its entirety (ECF No. 16-1). 19 II. Procedural Background LEGAL STANDARD 20 Federal Rule of Civil Procedure 8(a)(2) requires that a complaint set forth “a 21 short and plain statement of the claim showing that the pleader is entitled to relief, in 22 order to give the defendant fair notice of what the . . . claim is and the grounds upon 23 which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting 24 Conley v. Gibson, 355 U.S. 41, 47 (1957)) (internal quotations omitted). A Rule 25 12(b)(6) motion to dismiss tests the legal sufficiency of the complaint. N. Star Int’l 26 v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). For the purposes of such 27 a motion, the court accepts as true the allegations in the complaint and construes 28 those allegations in the light most favorable to the plaintiff. Hishon v. King & –5– 17cv1290 1 Spalding, 467 U.S. 69, 73 (1984). To survive a Rule 12(b)(6) motion, a plaintiff is 2 required to set forth “enough facts to state a claim for relief that is plausible on its 3 face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff 4 pleads factual content that allows the court to draw reasonable inferences that the 5 defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 6 (2009). Factual allegations must be enough to raise a right to relief above the 7 speculative level. Twombly, 550 U.S. at 555. The court need not accept as true legal 8 conclusions pleaded in the guise of factual allegations if those conclusions cannot 9 reasonably be drawn from the facts alleged. Clegg v. Cult Awareness Network, 18 10 F.3d 752, 754–55 (9th Cir. 1994). Relatedly, a pleading is insufficient if it offers 11 only “labels and conclusion” or “a formulaic recitation of the elements of a cause of 12 action.” Twombly, 550 U.S. at 555; Iqbal, 556 U.S. at 676. In ruling on a 12(b)(6) 13 motion to dismiss, a court may consider materials properly submitted as part of the 14 complaint. Lee v. City of L.A., 250 F.3d 668, 688–89 (9th Cir. 2001). 15 III. DISCUSSION 16 A. Delaware Law Governs the Claims in this Case 17 Teknor argues that Delaware laws governs all of the claims in this action 18 because the CDA contains a valid choice-of-law provision that is enforceable under 19 California law. (ECF No. 16-1 at 7.) Teknor contends that Delaware law also applies 20 to YRD’s tort claims because they relate to the common nucleus of facts centering 21 on Teknor’s alleged misuse of confidential information exchanged under the CDA. 22 (Id. at 8.) 23 A federal court sitting in diversity must apply the forum state’s choice-of-law 24 rules to determine the controlling substantive law. Fields v. Legacy Health Sys., 413 25 F.3d 943, 950 (9th Cir. 2005). Federal courts sitting in diversity in California follow 26 California choice-of-law rules. Hatfield v. Halifax PLC, 564 F.3d 1177, 1182 (9th 27 Cir. 2009). Like federal courts in the Ninth Circuit, California state courts look to 28 the Restatement (Second) of Conflicts of Law (1971) for the choice of law rules. See –6– 17cv1290 1 In re Zukerkon, 484 B.R. 182, 188 (9th Cir. 2012); Nedlloyd Lines B.V. v. Superior 2 Court, 834 P.2d 1148, 1151 (Cal. 1992). Section 187 of the Restatement applies if 3 parties have entered into an agreement, negotiated at arm’s-length, which selects a 4 particular state’s law to govern their contractual relationship. See Nedlloyd, 834 P.2d 5 at 1151. To determine whether the choice-of-law provision is enforceable, a court 6 must engage in a two-step analysis. First, the court must determine whether: (1) the 7 chosen state has a substantial relationship to the parties or their transaction, or (2) 8 there is any other reasonable basis for the parties’ choice of law. Id. at 1152. Second, 9 if either is shown, the court must next determine whether the chosen state’s law is 10 contrary to a fundamental policy of California. Id. Because Teknor has advocated 11 application of Delaware law pursuant to the CDA’s choice-of-law provision, it has 12 the burden of establishing either a substantial relationship or reasonable basis. See 13 Pulte Home Corp. v. Am. Safety Indem. Co., No. 16-cv-02567-H-AGS, 2017 WL 14 3007215, at *3 (S.D. Cal. July 14, 2017); see also Wash. Mut. Bank v. Superior Court, 15 15 P.3d 1071, 1078 (Cal. 2001). 16 Teknor has easily met this burden. The CDA contains a choice-of-law 17 provision which selects Delaware law as the governing substantive law of the CDA. 18 (CDA §12(b).) The parties to a contract have a substantial relationship with the 19 chosen state if at least one of them is incorporated there. See Nedlloyd, 834 P.2d at 20 1153; Hambrecht & Quist Venture Partners v. Am Med. Int’l, Inc., 46 Cal. Rptr. 2d 21 33, 41–42 (Cal. Ct. App. 1995). Because Teknor is a company incorporated in 22 Delaware (Compl. ¶3), there is a substantial relationship between Delaware and the 23 parties. Teknor’s incorporation in Delaware also provides a reasonable basis for the 24 parties’ selection of Delaware law. Nedlloyd, 834 P.2d at 1153; Hambrecht, 46 Cal. 25 Rptr. 2d at 42. Once the party advocating application of a choice-of-law provision 26 has met its burden, the burden shifts to the opposing party to show that application 27 would violate a fundamental policy of California. Pulte Home Corp., 2017 WL 28 3007215, at *3. YRD concedes in opposition that Delaware law is not contrary to a –7– 17cv1290 1 fundamental policy of California (ECF No. 22 at 11), nor can this Court conclude 2 that application of Delaware law to YRD’s contract claims would violate California 3 public policy. See Hatfield, 564 F.3d at 1183 (there was “no basis in the record to 4 conclude” that applying English law would violate California public policy). 5 Accordingly, the Court will apply Delaware law to YRD’s breach of contract claims. 6 Delaware law applies to YRD’s remaining claims as well. (ECF Nos. 16-1 at 7 8–9; 22 at 10–11.) California courts will apply an enforceable contractual choice-of- 8 law provision to claims “arising from or related to” the contract, Nedlloyd, 834 P.2d 9 at 1153; see also VFD Consulting, Inc. v. 21st Servs., 425 F. Supp. 2d 1037, 1047 10 (N.D. Cal. 2006) (Nedlloyd “supports Defendants’ position that this Court should 11 apply Minnesota law to the trade secret claim” where choice of law provision selected 12 Minnesota law). This is especially true when “the legal relationship between the[] 13 parties emanates from th[e] Agreement and the interpretation of the Agreement will 14 be a central issue” in the case. Olinick v. BMG Ent., 42 Cal. Rptr. 3d 268, 278–79 15 (Cal. Ct. App. 2006) (concluding that New York law applied to FEHA and wrongful 16 discharge claims pursuant to a choice-of-law clause in the agreement which 17 established the parties’ legal relationship). In this case, the legal relationship between 18 YRD and Teknor emanates from the CDA and all of YRD’s claims are “inextricably 19 intertwined with the construction and enforcement of th[at] Agreement.” Id. at 279. 20 Accordingly, Delaware law applies to YRD’s remaining claims. 21 In anticipation of this result, Teknor contends that Counts 2 through 7 should 22 be dismissed because they are not pleaded under Delaware law. (ECF No. 16-1 at 23 9.) This argument is unavailing. As YRD correctly observes (ECF No. 22 at 9–10), 24 the focus of the Federal Rules is on whether the factual allegations of the 25 Complaint—not the precise pleading of a specific statute or law—provide Teknor 26 with fair notice of the claims asserted against it. Twombly, 550 U.S. at 555; see also 27 Johnson v. City of Shelby, 135 S. Ct. 346, 346 (2014) (Rule 8(a)(2) “indicates that a 28 basic objection of the rules is to avoid civil cases turning on technicalities.”); Albert –8– 17cv1290 1 v. Carovano, 851 F.2d 561, 571 n.3 (2d Cir. 1988) (“The failure in a complaint to 2 cite a statute, or to cite the correct one, in no way affects the merits of a claim. Factual 3 allegations alone are what matters.”) YRD’s failure to plead its claims under 4 Delaware law did not deprive Teknor of fair notice of potential claims that might 5 arise from YRD’s factual allegations. It is those allegations which may or may not 6 state a claim under Delaware law. Count 1: Teknor’s Alleged Breaches of the CDA 7 B. 8 In Count 1, YRD alleges Teknor breached Sections 4(a)–(d), 4(f), 4(g) and 9 9 of the CDA, resulting in damages. (Compl. ¶¶32–38, 40.) To state a claim for breach 10 of contract under Delaware law, a plaintiff must plead: “(1) the existence of the 11 contract, whether express or implied; (2) the breach of an obligation imposed by that 12 contract; and (3) the resultant damage to the plaintiff.” Avaya Inc., RP v. Telecom 13 Labs, Inc., 838 F.3d 354, 390 (3d Cir. 2016) (quoting VLIW Tech., LLC v. Hewlett- 14 Packard Co., 840 A.2d 606, 612 (Del. 2003)). “Recovery is limited to those damages 15 that arise naturally from the breach or that were reasonably foreseeable at the time 16 the contract was made.” Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254, 17 265 (Del. 1995). Teknor does not dispute the existence of a contract, but rather 18 contends that YRD has failed to plead the second element as to all purported breaches 19 of the CDA. (ECF No. 16-1 at 21.) 20 1. Breaches of Sections 4(a) and (b) Are Adequately Pleaded 21 Teknor argues that YRD’s breach of contract claim premised on breaches of 22 Sections 4(a) and 4(b) fails because YRD does not plead that the information 23 disclosed was “Confidential Information,” as defined in Section 2 of the CDA. (ECF 24 No. 16-1 at 24–25.) Section 2 of the CDA defines “Confidential Information” as “all 25 non-public business and/or technical information disclosed by a Party” who 26 “considers it to be confidential and proprietary.” (CDA §2.) The CDA provides non- 27 exhaustive examples of confidential information, including “information regarding 28 composition, formulation, raw materials, samples, manufacturing/processing –9– 17cv1290 1 information, packaging, sales and marketing information, and business plans and/or 2 activities.” (Id. §2(a).) Section 3 excludes certain information from Section 2, 3 including information that is public, in the receiving party’s possession, received 4 from a third party, or developed independently. (Id. §§3(a)–(d).) 5 Teknor argues that YRD does not allege that the information used in violation 6 of Section 4(a) was confidential information under Section 2. (ECF No. 16-1 at 25.) 7 Section 4(a) provides that “[e]ach party agrees only to use the Confidential 8 Information in service of the Purpose.” 9 incorporates the CDA’s general definition of confidential information under Section 10 2 subject to the exclusions in Section 3. YRD generally alleges that its disclosures 11 were confidential under the “provisions of the CDA” or “under the CDA protocol,” 12 without differentiation. (Compl. ¶¶15, 18–19, 21, 26.) These factual allegations 13 encompass Sections 2 and 3 of the CDA. Assuming the truth of YRD’s allegations, 14 the Court can reasonably infer that the information was confidential pursuant to these 15 provisions. Accordingly, YRD has sufficiently pleaded that Teknor breached Section 16 4(a) by using confidential information in violation of the provision. (CDA §4(a).) The provision solely 17 Similarly, the Court finds that YRD has sufficiently pleaded a breach of 18 Section 4(b). Teknor argues that YRD’s general allegation that Teknor’s disclosure 19 of YRD information to third parties fails on its face to plead that the information 20 disclosed was confidential under Section 2. (ECF No. 16-1 at 24.) Section 4(b) 21 generally prohibits a party from disclosing “Confidential Information” to a third party 22 unless that party takes certain actions, such as, in relevant part, by requesting 23 permission from the party who initially disclosed the information. (CDA §4(b).) 24 Like Section 4(a), the provision solely relies on Section 2’s definition of 25 “Confidential Information.” Contrary to Teknor’s argument, YRD alleges that 26 Teknor “transmitt[ed] information provided to [Teknor] by YRD under the CDA, to 27 third parties including retailers Lowes, Walmart, Target, and Home Depot without 28 permission to do so from YRD” and “without even alerting those third parties that it – 10 – 17cv1290 1 was transmitted YRD Confidential Information.” (Compl. ¶36.) The Court can 2 reasonably infer that the information referenced in this allegation is confidential 3 under Section 2 of the CDA. Teknor’s argument that the purported breach of Section 4 4(b) is otherwise unsupported by any other allegations in the Complaint is also 5 unavailing. (ECF No. 16-1 at 24–25.) YRD alleges that Teknor began discussions 6 with Lowes and other retailers to sell the compact hose concept learned from YRD’s 7 confidential information under the CDA, while actively concealing those efforts from 8 YRD. (Compl. ¶¶26– 27.) The Court must assume the truth of these allegations, 9 which identify Teknor’s conduct that allegedly breached Section 4(b). Accordingly, 10 the Court denies Teknor’s motion to dismiss YRD’s breach of contract claim 11 premised on breaches of Section 4(a) and 4(b). 12 13 2. Alleged Breaches of Sections 4(c), 4(d) and 4(f) are Insufficiently Pleaded 14 Teknor argues that YRD provides no factual allegations supporting alleged 15 breaches of Sections 4(c), (d), and (f). (ECF No. 16-1 at 24.) The Court agrees. The 16 Complaint contains no factual allegations that Teknor: (1) “chemically analyze[d]” 17 or “reverse engineer[ed] samples received from” YRD, (CDA §4(c)); (2) failed “to 18 exercise the same degree of care as it employs for protection of its own proprietary 19 information” or failed “to restrict disclosure of Confidential Information to only those 20 employees who have a need to know such information to carry out the Purpose,” (id. 21 §4(d)); or (3) “fil[ed] a patent application incorporating any of” YRD’s allegedly 22 “Confidential Information disclosed pursuant to th[e CDA],” 23 opposition, YRD contends that its allegations are sufficient to show breaches of 24 Sections 4(c) because of Teknor’s alleged pitch to retailers of Teknor’s hose and 4(f) 25 because Teknor allegedly published confidential information learned from YRD. 26 (ECF No. 22 at 28.) These contentions bear no relation to the CDA provisions at 27 issue, nor the factual allegations in the Complaint. Federal Rule of Civil Procedure 28 8 requires YRD to offer more than conclusory allegations regarding alleged breaches – 11 – (id. §4(f)). In 17cv1290 1 of Sections 4(c), (d), and (f) to provide fair notice to Teknor. See Twombly, 550 U.S. 2 at 555. Accordingly, the breach of contract claim is dismissed as to these alleged 3 breaches. 4 3. Section 4(g) is a Partially Unenforceable Restrictive Covenant 5 Teknor argues that Section 4(g) of the CDA is an unenforceable non- 6 competition restrictive covenant because it facially prohibits competition based on 7 information that may not be YRD’s confidential information. (ECF No. 16-1 at 21– 8 23.) Teknor contends that YRD’s breach of contract claim pertaining to Section 4(g) 9 therefore must be dismissed. The Court agrees that this provision is in part 10 unenforceable as written, but YRD has pleaded sufficient facts to sustain a claim 11 against Teknor premised on the portion that is enforceable. 12 Under Delaware law, a restrictive covenant, such as a non-competition 13 provision, is enforceable if: (1) it meets general contract law requirements, (2) is 14 reasonable in scope and duration, (3) advances a legitimate economic interest of the 15 party enforcing the covenant, and (4) survives a balance of the equities. Kan-Di-Ki, 16 LLC v. Suer, No. 7937-VCP, 2015 WL 4503210, at *19 (Del. Ch. July 22, 2015). 17 Section 4(g) prohibits a party from using “Confidential Information” received from 18 a party to compete with the disclosing party for a period of five years from the date 19 of a given disclosure. (CDA §4(g).) The remainder of Section 4(g) dictates that, for 20 the purposes of non-competition, “Confidential Information” may include 21 information that is public, was already in the receiving party’s possession at the time 22 of the disclosure, or was disclosed to the receiving party by a third party. (Id. §§3(a)– 23 (c), 4(g).) The non-competition covenant treats such information as confidential if 24 the receiving party fails to provide an immediate notification that the information it 25 received was already disclosed to the party through any of those means. (Id. §4(g).) 26 Thus, Section 4(g) expands the scope of the CDA’s general confidentiality provisions 27 to include information that may not in fact be YRD’s own confidential information. 28 Teknor argues that Section 4(g) is facially unenforceable and advances no – 12 – 17cv1290 1 legitimate economic interest because of the expansive reach of its terms. (EF No. 2 16-1 at 22.) Delaware law recognizes that a business has a legitimate economic 3 interest in protecting the confidentiality of its confidential proprietary information. 4 See Kan-Di-Ki, LLC, 2015 WL 4503210 at *20; Tristate Courier & Carriage, Inc. v. 5 Berryman, No. 20574-NC, 2004 WL 835886, at *10 (Del. Ch. Apr. 15, 2004); 6 Research & Trading Corp. v. Pfuhl, No. 12527, 1992 WL 345465, at *12 (Del. Ch. 7 Nov. 18, 1992). The first sentence of Section 4(g), like other provisions of the CDA, 8 tracks this legitimate interest by prohibiting Teknor from competing with YRD based 9 on YRD’s own confidential information, and vice versa. But the remainder of 10 Section 4(g) steps beyond YRD’s legitimate purpose in protecting its confidential 11 information by prohibiting Teknor from competing based even on information that 12 is not in fact YRD’s confidential information. Thus, the remainder of Section 4(g) 13 can “serve[] no purpose, save stifling fair competition” and “crippling” Teknor’s 14 legitimate interest to compete with information that is not in fact YRD’s. See 15 Unisource Worldwide v. Swope, 964 F. Supp. 2d 1050, 1065 (D. Ariz. 2013). 16 However, the Court cannot say that the duration and scope of the non- 17 competition clause would otherwise be unreasonable if solely limited to YRD’s own 18 confidential information. Delaware law has found non-competition covenants with 19 similar or even longer duration reasonable. See, e.g., Tull v. Turek, 147 A.2d 658, 20 663–64 (Del. 1958); Kan-Di-Ki, LLC, 2015 WL 4503210, at *19 (five-year term and 21 geographic scope of 23 states in a stock sale agreement reasonable); O’Leary v. 22 Telecom Res. Serv., LLC, No. 10C-03-108-JOH, 2011 WL 379300, at *5 (Del. Super. 23 Ct. Jan. 14, 2011) (finding reasonable four-year non-compete covering the entire 24 United States). 25 geographical term, Delaware law treats restriction of activities that are “in 26 competition with” a business as “inherently establish[ing] a geographic limit” that 27 can protect legitimate economic interests. See Del. Express Shuttle, Inc. v. Older, 28 No. 19596, 2002 WL 31458243, at *13 (Del. Ch. Oct. 23, 2002); Tristate, 2004 WL Although the non-competition covenant contains no express – 13 – 17cv1290 1 835886, at *11. Section 4(g)’s prohibition on Teknor from competing with YRD 2 similarly contains an implicit geographic scope as to those areas in which YRD 3 conducts business. 4 As Teknor acknowledges (ECF No. 16-1 at 22), Delaware law will enforce a 5 restrictive covenant to the extent it is reasonable to do so. See Knowles-Zeswitz 6 Music, Inc. v. Cara, 260 A.2d 171, 175 (Del. Ch. 1969); see also RHIS, Inc. v Boyce, 7 No. 18924, 2001 WL 1192203, at *6 (Del. Ch. Sept. 26, 2001) (Under Delaware law, 8 a restriction will not be enforced “that is more restrictive than . . . legitimate interests 9 justify.”). YRD suggests that this Court can “blue pencil” Section 4(g) to reform it 10 in an equitable manner that makes it enforceable. (ECF No. 22 at 27.) At least one 11 federal district court has found that Delaware law permits blue penciling of restrictive 12 covenants. See WebMD Health Corp. v. Dale, No. 11-5827, 2012 U.S. Dist. LEXIS 13 112842, at *9 (E.D. Pa. Aug. 10, 2012) ( “Delaware courts themselves ‘blue pencil’ 14 restrictive covenant agreements that may be otherwise unenforceable, if the equities 15 so dictate.”) (citing RHIS, Inc., 2001 WL 1192203, at *7). Without expressly 16 referencing the “blue pencil” test, Delaware courts have modified non-compete 17 provisions to make them reasonable, or recognize that such modification is 18 permissible. See Knowles-Zeswitz Music, 260 A.2d at 176 (plaintiff could seek 19 enforcement of narrower geographic area than specified in covenant); Hammermill 20 Paper Co. v. Palese, No. 7128, 1983 WL 19786, at *6 (Del. Ch. June 14, 1983) 21 (modification of non-compete provision “is permissible under this State’s laws 22 concerning the review of such contracts.”); see also FBK Partners, Inc. v. Thomas, 23 Civil No. 09-292-GFVT, 2010 U.S. Dist. LEXIS 124579, at *16–17 (E.D. Ky. Nov. 24 23, 2010) (“Delaware courts occasionally modify non-competes that impose broader 25 restrictions than necessary.”). In considering the equities, Delaware courts have 26 found that the equities are less favorable to reforming an overly broad restrictive 27 covenant an employer includes in an employment agreement, particularly with low- 28 level employees, given “disparities in resources, bargaining power, and access to – 14 – 17cv1290 1 information.” See Del. Elev., Inc. v. Williams, No. 5596-VCL, 2011 WL 1005181, 2 at *10 (Del. Ch. Mar. 16, 2011) (“The threat of losing all protection gives employers 3 an incentive to restrict themselves to reasonable clauses.”). The equities are different 4 where two sophisticated business parties with relatively equal bargaining power, like 5 YRD and Teknor, have agreed to a restrictive covenant. See Kan-Di-Ki, LLC, 2015 6 WL 4503120, at *20 (upholding restrictive covenant because “there was nothing 7 inequitable about allowing [the party] to enforce the Restrictive Covenants for which 8 [the parties] bargained.”). Considering the equities between the parties, the Court 9 finds that Section 4(g) may be equitably reformed to make its enforcement reasonable 10 by limiting its scope to “Confidential Information” as defined in Section 2 subject to 11 the exclusions in Section 3.2 In this way, YRD’s legitimate economic interest in 12 protecting its own confidential information is advanced while Teknor is not subjected 13 to an unreasonable restraint on its ability to fairly compete with YRD. 14 YRD has pleaded sufficient facts to support its claim that Teknor violated the 15 non-competition covenant in its enforceable form. The Court has already found that 16 YRD has pleaded sufficient facts showing that it provided confidential information 17 to Teknor under the CDA. YRD further alleges that Teknor is now competing with 18 YRD based on information it received under the CDA. (Compl. ¶¶1, 24–28, 35.) 19 The Court is mindful of Teknor’s concern that some information it received was not 20 in fact YRD confidential information and that YRD’s claim may fail on the merits to 21 the extent this proves to be true. At this stage of the proceedings, however, the Court 22 is required to take as true YRD’s allegations. Accordingly, the Court denies Teknor’s 23 24 2 25 26 27 28 Moreover, the CDA contains a severability clause which provides that if any provision is found to be unenforceable, in whole or in part, the remaining provisions are not in any way affected or impaired. (CDA §12(f).) The Court’s modification of Section 4(g) is consistent with the express intention of the parties to permit and accept judicial modification of the contract’s terms. See Hammermill Paper Co., 1983 WL 19786, at *6 (judicial modification of non-compete clause was consistent with parties’ agreement). – 15 – 17cv1290 1 2 motion to dismiss the breach of contract claim premised on Section 4(g). 4. Section 9 is an Unenforceable Agreement to Agree 3 Teknor argues that YRD’s claim for a breach of Section 9 should be dismissed 4 because (1) the provision did not require Teknor to negotiate a JDA and (2) it is an 5 unenforceable agreement to agree. (ECF No. 16-1 at 16, 25.) “It is a well-settled 6 principle of Delaware law that an agreement to agree in the future without any 7 reasonably objective controlling standards is unenforceable.” Heritage Homes of De 8 La Warr, Inc. v. Alexander, No. 1399-K, 2005 WL 2173992, at *3 (Del. Ch. Sept. 1, 9 2005), aff’d, 900 A.2d 100 (Del. 2006) (internal quotations omitted). Delaware law, 10 like most jurisdictions, requires that, “to be enforceable, a contract to enter into a 11 future contract must specify all its material and essential terms, and leave none to be 12 agreed upon as the result of future negotiations.” Id.; see also Ramone v. Lang, No. 13 1592-N, 2006 WL 905347, at *13 n.56 (Del. Ch. Apr. 3, 2006). Section 9 does not 14 satisfy this standard. Section 9 provides that “[b]oth parties agree that any future 15 projects done together will be covered by a specific Joint Development Agreement 16 which will cover all Intellectual Property issues.” (CDA §9.) Although the plain 17 terms of the provision purport to require the parties to enter into a future JDA, Section 18 9 contains no material terms of the JDA, but rather leaves them to the whims of future 19 negotiations which may never materialize and, as YRD alleges in the Complaint 20 (Compl. ¶¶1, 33), did not. 21 The Complaint repeatedly alleges that Teknor knew at least one material term 22 of the JDA—that YRD expected a royalty of $1.50 per product sold or 10% of 23 Teknor’s sales. (Id. ¶¶1, 9, 20, 54, 86.) Delaware law requires the Court to examine 24 the words found in the CDA as the most objective indicia of the parties’ shared intent. 25 See Sassano v. CIBC World Markets Corp., 948 A.2d 453, 462 (Del. Ch. 2008) 26 (footnotes omitted); see also Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. 27 Co., 616 A.2d 1192, 1195 (Del. 1992) (under Delaware law, interpretation of a 28 contract is a question of law). The Court may also consider all deeds given the – 16 – 17cv1290 1 attendant circumstances and objectives the parties attempted to attain. See Black 2 Horse Capital, LP v. Xstelos Holdings, Inc., No. 8642-VCP, 2014 WL 5025926, at 3 *12 (Del. Ch. Sept. 30, 2014). Even accepting the truth of YRD’s allegations, 4 Section 9’s express terms do not use the term “royalty,” nor otherwise refer to YRD’s 5 expected royalty. YRD’s allegations that Teknor “acknowledged” or was “aware” 6 of YRD’s expected royalty after the execution of the CDA, (Compl. ¶¶9, 54, 86), 7 cannot plausibly show that the parties intended the royalty term to be an enforceable 8 obligation under the CDA. Under Delaware law, it is overt manifestation of assent 9 at the time an agreement is made that controls the formation of a contract, not “after- 10 the-fact professed subjective intent.” See Black Horse Capital, LP, 2014 WL 11 5025926, at *12 (quoting Debbs v. Berman, 1986 WL 1243, at *7 (Del. Ch. Jan. 29, 12 1986)). Although YRD alleges that it communicated its expected royalty term before 13 the CDA was executed (Compl. ¶9), the CDA expressly “supersedes all prior 14 agreements between the parties with respect to its subject matter.” (CDA §12(g).) 15 The Complaint and Section 9 fail to plausibly show that any material terms of the 16 JDA were ever agreed upon. 17 YRD’s arguments to the contrary (ECF No. 22 at 21–22) are misplaced. First, 18 while it is true that Delaware law may enforce an express contractual promise to 19 negotiate in good faith even where the rest of the contract is unenforceable, YRD 20 points to no express contractual promise by Teknor to negotiate a JDA in good faith, 21 nor does the CDA contain one. See Transocean Group Holdings Pty Ltd. v. South 22 Dakota Soybean Processors, LLC, 663 F. Supp. 2d 731, 741 (D. Minn. 2009) 23 (provision specified that the “parties agree to negotiate in good faith the terms and 24 conditions of a formal Stockholders Agreement”); see also SIGA Techs., Inc. v. 25 Pharmathene, Inc., 67 A.3d 330, 337 (Del. 2013) (similar); Gillenardo v. Connor 26 Broad. Del. Co., No. 98C-06-015 WLW, 2002 WL 991110, at *5, 6 (Del. Super. Ct. 27 Apr. 30, 2002) (express contractual obligation to “attempt in good faith to finalize 28 the Sale Agreement”). Second, YRD’s reliance on Echols v. Pelullo, 377 F.3d 272 – 17 – 17cv1290 1 (3d Cir. 2004), is unavailing. Unlike in Echols, Teknor does not challenge the 2 validity of the entire CDA as an unenforceable agreement to agree based on Section 3 9, see id. at 275–76, but rather specifically challenges Section 9. It is that provision 4 which purports to require the parties to agree to a JDA for any future projects without 5 specifying all material terms of the JDA. Accordingly, the Court dismisses YRD’s 6 breach of contract claim premised on Section 9.3 7 C. Count 2: Teknor’s Alleged Misappropriation of YRD’s Trade Secrets 8 9 Teknor argues that Count 2 should be dismissed because it fails to plausibly 10 plead misappropriation of trade secrets. (ECF No. 16-1 at 17–21.) To plead a claim 11 under the Delaware Uniform Trade Secrets Act (“DUTSA”), a plaintiff must allege 12 that: (1) a trade secret existed; (2) the trade secret was communicated by the plaintiff 13 to the defendant; (3) such communication occurred pursuant to an express or implied 14 understanding that the secrecy of the matter would be respected; and (4) the trade 15 secret was improperly used or disclosed by the defendant to the injury of the plaintiff. 16 See Accenture Glob. Servs. GMBH v. Guidewire Software Inc., 581 F. Supp. 2d 654, 17 662 (D. Del. 2008); Savor, Inc. v. FMR Corp., No. 00C-10-249-JRS, 2001 WL 18 541484, at *8–9 (Del. Super. Ct. Apr. 24, 2001). Teknor argues that YRD has failed 19 to plead sufficient factual allegations supporting the existence of any trade secrets 20 which Teknor misappropriated. The Court agrees with Teknor in part as to certain 21 alleged trade secrets. YRD, however, has sufficiently pleaded the existence of some 22 trade secrets that were misappropriated by Teknor. 23 24 3 25 26 27 28 Other district courts have dismissed breach of contract claims that are premised on unenforceable agreements to agree under other states’ laws. See, e.g., Senter v. JPMorgan Chase Bank, N.A., 810 F.Supp.2d 1339, 1351–52 (S.D. Fla. 2011) (alleged agreement was an unenforceable agreement to agree under Florida law because plaintiffs failed to adequately plead essential terms of the agreement); Beazer Homes Corp. v. VMIF/Anden Southbridge Venture, LP, 235 F. Supp. 2d 485, 490–93 (E.D. Va. 2002) (unenforceable agreement to agree under Virginia law). – 18 – 17cv1290 1 1. YRD Has Pleaded the Existence of Some Trade Secrets, But Not Others 2 3 The Court first considers Teknor’s argument that YRD has failed to plead the 4 existence of a trade secret. (ECF No. 16-1 at 17–19.) Under the DUTSA, a “trade 5 secret” is “information, including a formula, pattern, compilation, program, device, 6 method, technique or process, that (a) derives independent economic value, actual or 7 potential, from not being generally known to, and not being readily ascertainable by 8 proper means by, other persons who can obtain economic value from its disclosure 9 or use; and (b) is the subject of efforts that are reasonable under the circumstances to 10 maintain its secrecy.” 6 Del. C. §2001(4). 11 A plaintiff faces a quandary in pleading trade secrets under the DUTSA. On 12 the one hand, “[c]ourts are in general agreement that trade secrets need not be 13 disclosed in detail in a complaint alleging misappropriation for the simple reason that 14 such a requirement would result in public disclosure of the purported trade secrets.” 15 Leucadia, Inc. v. Applied Extrusion Techs., Inc., 755 F. Supp. 635, 636 (D. Del. 16 1991); see also Orthovita, Inc. v. Erbe, No. 07-2395, 2008 WL 423446, at *9 (E.D. 17 Pa. Feb. 14, 2008); AutoMed Technologies, Inc. v. Eller, 160 F. Supp. 2d 915, 921 18 (N.D. Ill. 2001). 19 misappropriated, a plaintiff should not be required to plead with specificity all of its 20 possible trade secrets in order to proceed to discovery. See T-Mobile USA, Inc. v. 21 Huawei Device USA, Inc., 115 F. Supp. 3d 1184, 1193 (W.D. Wash. 2015). On the 22 other hand, “courts generally require sufficient pleading such that the other party is 23 on notice of what it is alleged to have misappropriated.” BlueEarth BioFuels, LLC 24 v. Hawaiian Elec. Co., Inc., 780 F. Supp. 2d 1061, 1078 (D. Haw. 2011); see also 25 MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993) (“[A] 26 plaintiff who seeks relief for misappropriation of trade secrets must identify the trade 27 secrets and carry the burden of showing that they exist.”). This pleading requirement 28 also prevents a plaintiff from “tak[ing] unfair advantage of the UTSA,” and Moreover, because it is the defendant who knows what it – 19 – 17cv1290 1 “proceed[ing] on a flimsy basis” at the outset of a litigation only to “tailor[] its 2 identification of trade secrets to the discovery it receives.” T-Mobile USA, Inc., 115 3 F. Supp. 3d at 1193. 4 YRD makes multiple allegations that may support its trade secret 5 misappropriation claim, which can be grouped into three categories: (a) YRD’s new 6 compact hose concept and designs, (b) YRD’s business strategy for selling its 7 products, and (c) YRD’s marketing ideas and sales information. In considering 8 whether YRD’s allegations regarding this information are sufficient to plead the 9 existence of trade secrets, the Court views judicial interpretation of the UTSA more 10 generally as relevant and persuasive guidance. See 6 Del. C. §2008 (“This chapter 11 shall be applied and construed to effectuate its general purpose to make uniform the 12 law with respect to the subject of this chapter among states enacting it.”); Accenture 13 Global Servs. GMBH v. Guidewire Software Inc., 581 F. Supp. 2d 654, 662 n.6 (D. 14 Del. 2008). 15 a. YRD’s Concept and Designs for a New Compact Hose 16 First, YRD alleges that it developed a “new concept” and a “revolutionary 17 approach to build[ing] a compact hose.” (Compl. ¶¶16, 18, 23.) Teknor asserts that 18 YRD’s alleged concept for a new compact hose fails to “rise to the level of a trade 19 secret” based on the allegations. (ECF No. 21 at 8.) The Court does not agree. 20 YRD provides factual allegations describing how its concept “improved” on 21 existing hoses in the market and identifies various attributes of its concept, including 22 the use of protective sleeves at the connectors, a change in the design of the inner 23 hose liner, and use of abrasion resistant outer casings. (Compl. ¶¶17–18.) Teknor’s 24 argument that YRD does not allege it knew how to manufacture or otherwise achieve 25 its alleged concept for a new compact hose is unavailing. (ECF No. 16-1 at 18.) 26 Concepts have value independent of the product they eventually inspire. See Mattel, 27 Inc. v. MGA Ent., Inc., 782 F. Supp. 2d 911, 962 (C.D. Cal. 2011) (citing Learning 28 Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 726 (7th Cir. 2003)). For – 20 – 17cv1290 1 that reason, “trade secrets may reside in confidential disclosures of concepts, or as 2 yet-untested, ideas for a new product or new process.” Id. YRD’s factual allegations 3 identifying an alleged new concept for a compact garden hose sufficiently plead a 4 trade secret. 5 Second, and contrary to Teknor’s argument that the Complaint does not allege 6 YRD knew how to achieve its concept for a new compact hose, the Complaint 7 plausibly alleges the existence of trade secrets pertaining to the design of the new 8 compact hose. YRD alleges that it provided Teknor with “the new hose design with 9 multiple variations” including through “videos of new prototypes and samples”, 10 various types of testing results, design techniques, and “new means to manufacture” 11 the hose. (Compl. ¶¶13–14, 16–17, 22–23.) YRD alleges that it provided Teknor 12 with information on production scenarios for variations of the new hose at Teknor’s 13 request. (Id. ¶21.) These allegations sufficiently allege the existence of trade secrets. 14 See, e.g., BioD, LLC v. Amnio Tech., LLC, No. 2:13-cv-1670-HRH, 2014 WL 15 268644, at *7–8 (D. Ariz. Jan. 24, 2014) (plaintiff pleaded manufacturing methods, 16 prototypes, and product design); W.L. Gore & Associates, Inc. v. GI Dynamics, Inc., 17 No. CV-10-8088-PHX-GMS, 2010 WL 5184254, at *8 (D. Ariz. Dec. 15, 2010) 18 (same); SOAProjects, Inc. v. SCM Microsys., Inc., No. 10-CV-01773-LHK, 2010 WL 19 5069832, at *10 (N.D. Cal. Dec. 7, 2010) (plaintiff pleaded products and designs). 20 The Complaint also contains allegations bearing on whether the alleged trade 21 secrets had economic value from not being generally known. YRD alleges that its 22 concept for a new compact hose “was not currently being marketed and was not 23 known in the industry outside of YRD.” (Compl. ¶18.) YRD alleges that its new 24 concept hose “would have a huge competitive advantage over expanding hoses” 25 which had manufacturing defects and poor reputations among retailers and 26 consumers. (Id. ¶¶10, 16, 18.) Thus, YRD has plausibly alleged trade secrets that 27 derived actual or potential economic value from not being generally known. See, e.g. 28 Joshua David Mellberg LLC v. Will, 96 F. Supp. 3d 953, 974 (D. Ariz. 2015). – 21 – 17cv1290 1 Further, YRD alleges efforts to protect these alleged trade secrets by requiring 2 Teknor to enter into the CDA and sharing its alleged trade secrets pursuant to its 3 confidentiality provisions. (Compl. ¶¶1, 11–12, 15, 18–19, 21, 26.) Although the 4 existence of a confidentiality agreement does not make information shared pursuant 5 to it a trade secret, the existence of such an agreement is relevant to whether a party 6 took reasonable steps to ensure secrecy of its alleged trade secrets. See MAI Sys. 7 Corp., 991 F.2d at 521; Vesta Corp. v. Amdocs Mgmt., Ltd., 80 F. Supp. 3d 1152, 8 1166 (D. Or. 2015). As even Teknor recognizes, the CDA itself imposed stringent 9 requirements on use and disclosure of confidential information received pursuant to 10 its provisions. Accordingly, YRD has sufficiently pleaded the existence of trade 11 secrets based on its concept for a new hose and designs.4 Whether they in fact rise 12 to the level of a trade secret is a question of fact for determination by a jury, not this 13 Court on a motion to dismiss. See Savor, Inc. v. FMR Corp., No. 00C-10-149JRS, 14 2004 WL 1965869, at *7 (Del. Super. Ct. July 15, 2004). b. 15 YRD’s Alleged Business Strategy 16 In addition to identifying its concept for a new hose and designs as potential 17 trade secrets, YRD claims that its “business strategy” pertaining to how YRD sells 18 its products was also a trade secret. (See Compl. ¶42; ECF No. 18 at 25–26.) 19 Although YRD alleges that its business strategy was shared under the provisions of 20 the CDA and was not generally known to the public (Compl. ¶43), the plausibility of 21 this allegation is undermined by YRD’s single factual allegation about the strategy. 22 YRD alleges that its “business strategy” consisted of selling its hose products quickly 23 through QVC online followed by sales through brick and mortar retailers, and that it 24 25 26 27 28 4 Teknor relies heavily on Accenture Global Servs. GMBH v. Guidewire Software Inc., 581 F. Supp. 2d 654 (D. Del. 2008), to argue that YRD has failed to plead the existence of trade secrets. That case turned on whether the allegations showed misappropriation, not whether the allegations showed the existence of trade secrets. Id. at 663–64. Indeed, the court found sufficient the plaintiff’s “basic description” of its trade secrets. Id. 663 n.9. – 22 – 17cv1290 1 experienced great success in selling its earlier products with this strategy. (Id. ¶46.) 2 Assuming the truth of this allegation, the Court is hard pressed to see how this 3 strategy, as pleaded, could plausibly constitute a trade secret even if it was shared 4 with Teknor under the provisions of the CDA. “[D]isclosure to the public through 5 marketing and sales . . . is fatal to the existence of a trade secret.” See Kavanagh v. 6 Tuller, No. 16-cv-01937-H (BGS), 2017 WL 1496436, at *4 (S.D. Cal. Apr. 26, 7 2017). Without further factual allegations describing efforts to maintain the secrecy 8 of this strategy, it appears that a zealous competitor could easily ascertain or reverse 9 engineer through public information the core of YRD’s alleged business strategy 10 regarding when and where YRD sold its prior products. Such an ability defeats the 11 existence of a trade secret. See id.; see also Atlantic Medical Specialists, LLC v. 12 Gastroenterology Associates, No. N15C-06-245 CEB, 2017 WL 1842899, at *9 (Del. 13 Super. Ct. Apr. 20, 2017) (“information is not misappropriated when it is readily 14 ascertainable by reverse engineering”) (internal quotations omitted); Savor, Inc., 15 2004 WL 1965869, at *6 (information “clearly in . . . the public domain” at time of 16 alleged misappropriation is not a trade secret). The Complaint otherwise lacks 17 plausible factual allegations that Teknor misappropriated the alleged strategy. YRD 18 merely alleges that Teknor knew the strategy (Compl. ¶46), but fails to provide 19 further factual allegations showing misappropriation. Mere knowledge, without 20 more, is not sufficient to raise an inference of trade secret misappropriation under 21 Delaware law. See 6 Del. C. §2001(2). YRD does not allege that Teknor’s business 22 model for the Zero-G Hose utilized YRD’s business strategy in any way. The Court 23 finds that YRD’s trade secrets misappropriation claim must be dismissed to the extent 24 it is premised on YRD’s “business strategy.” 25 c. YRD’s Marketing Ideas and Sales Information 26 Finally, YRD alleges it provided Teknor with (1) “marketing ideas” and (2) 27 “sales sheets” and “sales data.” (Compl. ¶¶15, 17). YRD has failed to plead factual 28 allegations about this information that would support a trade secrets misappropriation – 23 – 17cv1290 1 claim. 2 First, courts recognize that sales data may constitute a trade if it is not readily 3 ascertainable from a public source but instead developed with a substantial amount 4 of time, effort, and money. See SBS Worldwide, Inc. v. Potts, No. 13 C 6557, 2014 5 WL 499001, at *4 (N.D. Ill. Feb. 7, 2014); Mintel Int’l Grp., Ltd. v. Neergheen, No. 6 08-cv-3939, 2010 WL 145786, at *11 (N.D. Ill. Jan. 12, 2010). The Complaint 7 contains no factual allegations showing that the sales sheets and data YRD allegedly 8 shared with Teknor were not readily ascertainable from public sources or developed 9 through substantial efforts by YRD. Furthermore, the Complaint lacks factual 10 allegations connecting Teknor’s allegedly unlawful commercialization of the Zero- 11 G Hose to YRD’s sales sheets and data. 12 Second, YRD has failed to plead that its “marketing ideas” are trade secrets. 13 Courts recognize that various types of marketing-related information, such as 14 marketing plans, market analysis, and marketing activities, may constitute a trade 15 secret. See PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1268 (7th Cir. 1995) (marketing 16 plan); Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112, 1117 (Fed. Cir. 1996) 17 (market analysis information); Mintel Int’l Grp., Ltd., 2010 WL 145786, at *11 18 (marketing activities). However, the Complaint references only the attributes of 19 YRD’s compact hose concept and not any marketing ideas. (Compl. ¶¶17, 27.) To 20 the extent YRD’s “marketing ideas” mean its “business strategy” regarding 21 marketing to QVC, the Court has already rejected this theory. Furthermore, YRD 22 has not alleged that Teknor used or disclosed its marketing ideas in its 23 commercialization of the Zero-G Hose. 24 promotional information related to the Zero-G Hose (id. ¶27), the focus of the 25 allegation is on Teknor’s alleged use of certain attributes of YRD’s concept and 26 design for a compact hose, not Teknor’s use of YRD’s alleged marketing ideas to 27 market the Zero-G Hose. Accordingly, YRD’s trade secrets misappropriation claim 28 is dismissed to the extent it relies on nebulous allegations of “marketing ideas,” or – 24 – Although YRD refers to Teknor’s 17cv1290 1 alleged misappropriation of sales sheets and data. 2. 2 YRD Has Pleaded Misappropriation of its Compact Hose Concept and Design by Teknor 3 4 The Court next considers Teknor’s argument that YRD has failed to plead 5 misappropriation of the compact hose concept and design. Teknor argues that YRD 6 must affirmatively show how the Zero-G Hose incorporates this concept and design. 7 (ECF No. 16-1 at 20.) The Court does not agree and finds sufficient YRD’s 8 allegations. 9 To support its misappropriation claim, YRD must plead that Teknor acquired 10 its trade secrets through improper means, or unlawfully used or disclosed its trade 11 secrets. 6 Del. C. §2001(2)(a)–(b); see also Savor, Inc., 2004 WL 1965869, at *8. 12 “Improper means” includes “theft, bribery, misrepresentation, breach or inducement 13 of a breach of a duty to maintain secrecy, or espionage through electronic or other 14 means.” 6 Del. C. §2001(1). The scope of what might constitute misappropriation 15 is broad. “Misappropriation includes not only wholesale pirating of an ideas, but also 16 the unauthorized utilization of an idea as a starting point or guide in developing a 17 process or as a means to understand what pitfalls to avoid.” See Savor, Inc., 2004 18 WL 1965869, at *8 (internal quotations omitted); see also Mangren Research & Dev. 19 Corp. v. Nat’l Chem. Co., 87 F.3d 937, 944 (7th Cir. 1996) (“[I]f trade secret law 20 were not flexible enough to encompass modified or even new products that are 21 substantially derived from the trade secret of another, the protections that law 22 provides would be hollow indeed.”). YRD alleges two types of misappropriation by 23 Teknor. 24 information that Teknor did not know before its relationship with YRD and could not 25 have known given its alleged lack of prior relevant experience. (Compl. ¶¶2, 7–8, 26 25–26, 34, 46.) Second, YRD alleges that Teknor disclosed its trade secrets, as 27 incorporated into its Zero-G Hose, to specifically named third party retailers without 28 YRD’s consent. (Id. ¶¶36, 46.) Allegations of such conduct fall squarely within the First, YRD alleges that the Zero-G Hose utilizes YRD confidential – 25 – 17cv1290 1 DUTSA’s ambit. Teknor’s challenge turns on whether YRD has supported this 2 alleged misappropriation with factual allegations. 3 Teknor’s argument that YRD must affirmatively show in its pleadings how the 4 Zero-G Hose’s development, distribution, or marketing incorporated each of YRD’s 5 alleged trade secrets is premised on a standard that is simply not required at the 6 pleading stage given the realities of trade secrets misappropriation.5 A plaintiff is in 7 a precarious position when it seeks to hold another party accountable for trade secrets 8 misappropriation. On the one hand, it is not common for a plaintiff to know, prior to 9 discovery, the details surrounding an alleged theft of trade secrets. Accenture, 581 10 F. Supp. 2d at 661. Indeed, a plaintiff “may have minimal facts available to it at the 11 pleading stage.” Id. at 662. Courts recognize that a plaintiff oftentimes will not have 12 direct evidence of misappropriation, but rather only circumstantial evidence—even 13 after discovery is completed. See Savor, Inc., 2004 WL 1965869, at *8 (“[I]t is now 14 well-settled that the plaintiff may prove misappropriation of trade secrets with 15 circumstantial evidence.”); see also Computer Sciences Corp. v. Computer 16 Associates, Int’l, Inc., Nos. CV 98–1374–WMB SHX, CV 98–1440–WMB SHX, 17 1999 WL 675446, at *12 (C.D. Cal. Aug. 12, 1999) (“[D]irect evidence of trade 18 secret misappropriation is often hard to come by, and . . . misappropriation may 19 therefore be inferred from ambiguous circumstantial evidence . . .”). It follows that 20 a complaint may similarly rely on circumstantial allegations of a defendant’s 21 misappropriation. On the other hand, a court must strike a balance between that 22 reality and the fair notice Rule 8 requires. Accenture, 581 F. Supp. 2d at 662. A 23 court will not permit a plaintiff “to conduct a fishing expedition based upon . . . bare 24 allegations” of misappropriation. Id. at 663; see also T-Mobile USA, Inc., 115 F. 25 26 Teknor’s reliance on XpertUniverse, Inc. v. Cisco Sys., Inc., No. 09-157RGA, (D. Del. Mar. 8, 2013), is misplaced. The court was considering a motion for summary judgment and expressly applying Rule 56’s evidentiary standard, which does not apply at the motion to dismiss stage. 5 27 28 – 26 – 17cv1290 1 Supp. 3d at 1193. Thus, if a plaintiff seeks to plead trade secrets misappropriation 2 based on circumstantial allegations, the allegations must still “be enough to raise a 3 right to relief above the speculative level.” Twombly, 550 U.S. at 555; see also 4 SOAProjects, 2010 WL 5069832, at *11 (finding trade secrets misappropriation 5 claim plausible based on “circumstantial allegations” of misappropriation). 6 The Complaint contains more than “bare allegations” of Teknor’s alleged 7 misappropriation. YRD alleges that Teknor did not know how to build a compact 8 hose and was not in the business of compact hoses when it approached YRD in 2014. 9 (Compl. ¶¶7–8, 27.) YRD shared with Teknor, and Melo specifically, its concept for 10 a new compact hose and designs, pursuant to a CDA requiring Teknor to protect 11 confidential information it received and limiting its use by Teknor. (Id. ¶¶13–17, 12 21.) YRD also informed Teknor that it intended to commercialize a hose with 13 changed interior design based on the confidential information it was providing to 14 Teknor. (Id. ¶18.) Teknor indicated it wanted to commercialize such a concept too, 15 requesting additional information from YRD. (Id. ¶¶19, 21.) Teknor subsequently 16 went silent with YRD and disavowed any new product development outside of its 17 core business. (Id. ¶24.) Meanwhile, through 2015, Teknor allegedly developed its 18 Zero-G Hose based on confidential information YRD provided and established sales 19 channels with retailers for the hose. (Id. ¶¶1, 26–27, 32, 40, 46.) The promotional 20 information for the Zero-G Hose incorporates attributes of YRD’s concept. (Id. ¶27.) 21 YRD further alleges that Teknor has gained a “huge competitive advantage” by 22 rolling out the Zero-G Hose based on YRD’s confidential information. (Id. ¶¶ 28, 23 40.) 24 misappropriation and are substantial enough to justify opening the door to discovery. 25 See, e.g., Spears Pharm., Inc. v. William Blair & Co., LLC, 610 F. Supp. 2d 278, 283 26 (D. Del. 2009). Accordingly, the Court denies Teknor’s motion to dismiss Count 2 27 insofar as it concerns alleged misappropriation of YRD’s compact hose concept and 28 designs. These allegations sufficiently identify the contours of Teknor’s alleged – 27 – 17cv1290 1 D. DUTSA Preemption of Certain Claims 2 Teknor argues that the Court should dismiss YRD’s claims for unjust 3 enrichment (Count 3), conversion (Count 4), and unfair competition (Count 6) as 4 statutorily preempted by the DUTSA and the California Uniform Trade Secret Act 5 (“CUTSA”). (ECF No. 16-1 at 9.) In response, YRD argues that preemption under 6 the DUTSA or CUTSA cannot be assessed at the pleading stage, but even if it can, 7 the claims are not preempted because they seek to vindicate contractual rights under 8 the CDA. (ECF No. 22 at 12.) Because the Court has determined that Delaware law 9 governs YRD’s tort law claims, the Court only considers whether the DUTSA 10 preempts Counts 3, 4, and 6. 11 1. The Scope of the Preemption Inquiry 12 The DUTSA “displaces conflicting tort, restitutionary and other law of this 13 State providing civil remedies for misappropriation of a trade secret.” 6 Del. C. 14 §2007(a). Section 2007 was intended to “make uniform the law with respect to” trade 15 secrets and to “preserve a single tort cause of action under state law for 16 misappropriation” and “thus to eliminate other tort causes of action founded on 17 allegations of trade secret misappropriation.” Osco v. Motors Co., LLC v. Marine 18 Acquisition Corp., No. 13-868-RGA/MPT, 2014 WL 2875374, at *13 (D. Del. June 19 24, 2014); Leucadia, Inc., 755 F. Supp. at 637. Section 2007’s displacement 20 provision, in relevant part, “does not affect (1) [c]ontractual remedies, whether or not 21 based upon misappropriation of a trade secret,” or “(2) [o]ther civil remedies that are 22 not based upon misappropriation of a trade secret.” 6 Del. C. §2007(b). The relevant 23 inquiry for determining whether a civil claim is subject to preemption under the 24 DUTSA is whether the claim is “grounded in the same facts which purportedly 25 support the misappropriation of trade secrets claim.” Savor, Inc., 2001 WL 541484, 26 at *4. The Court should inquire whether the failure of the misappropriation claim 27 “would doom the common law claim.” Ethypharm S.A. France v. Bentley Pharms., 28 Inc, 388 F. Supp. 2d 426, 433 (D. Del. 2005) (citing Smithfield Ham & Prods. Co. v. – 28 – 17cv1290 1 Portion Pac, Inc., 905 F. Supp. 346, 350 (E.D. Va. 1995)). Where a civil claim is 2 based on the same facts as a trade secrets misappropriation claim, it is preempted 3 under the DUTSA. Savor, Inc., 2001 WL 541484, at *4. 4 Relying on Amron International Diving Supply, Inc. v. Hydrolinx Diving 5 Communication, Inc., No. 11-cv-1890-H (JMA), 2011 WL 5025178 (S.D. Cal. Oct. 6 21, 2011), YRD argues that the Court cannot undertake the preemption inquiry at the 7 motion to dismiss stage. (ECF No. 22 at 12.) In Amron, the court intimated that the 8 defendants’ preemption argument “cannot be addressed until it is determined whether 9 the allegedly misappropriated information constitutes a trade secret” because at the 10 pleading stage “the status of information is merely a matter of allegation.” Id. at 11 *10.6 The authorities on which the Amron court relied similarly contend that 12 preemption on the pleadings is generally not proper because the ultimate status of the 13 information is unknown. See Genzyme Corp. v. Bishop, 463 F. Supp. 2d 946, 949 14 (W.D. Wis. 2006) (court lacked “sufficient factual information” based on pleadings 15 “to conclude as a matter of law” that the allegedly received and retained information 16 constituted a trade secret); Callaway Golf Co. v. Dunlop Slazenger Grp. Am., Inc., 17 295 F. Supp. 2d 430, 437 (D. Del. 2003) (“[I]t has not been established that the 18 information at issue may be classified as trade secrets. At this point, the status of the 19 information is merely a matter of allegation.”); Stone Castle Fin. v. Friedman, 20 Billings, Ramsey & Co., 191 F. Supp. 2d 652, 658–659 (E.D. Va. 2002) (“[W]here 21 courts have found preemption on a motion to dismiss, they repeatedly establish that 22 the information in issue–as alleged–constitutes trade secrets before reaching the 23 preemption question.”); Combined Metals of Chicago Ltd. P’ship v. Airtek, Inc., 985 24 F. Supp. 827, 830 (N.D. Ill. 1997) (permitting breach of fiduciary duty claim because 25 26 27 28 The court, however, had already rejected the defendants’ argument that the CUTSA displaced several common law claims because those claims “do not allege claims for relief that were based on identical facts as those claimed in [the plaintiff’s] misappropriation of trade secrets.” Amron, 2011 WL 5025178, at *10. Thus, the court’s preemption discussion appears to be dicta. 6 – 29 – 17cv1290 1 it was not clear based on allegations whether die and design specifications would 2 qualify as a trade secret). 3 In contrast, Teknor argues that the potential status of the allegedly 4 misappropriated information is irrelevant because preemption extends to common 5 law claims premised on information that falls short of a trade secret. (ECF No. 21 at 6 3.) Case law supports this position. For example, in Ethypharm S.A., the court 7 determined that “[b]ecause all claims stemming from the same acts as the alleged 8 misappropriation are intended to be displaced, a claim can be displaced even if the 9 information at issue is not a trade secret.” 388 F. Supp. 2d at 433. As such, “a 10 determination of whether the information at issue constitutes a trade secret under the 11 DUTSA need not be addressed prior to making a determination of displacement.” Id. 12 Courts have reasoned that in enacting the DUTSA, the Delaware Legislature decided 13 to make unlawful only misappropriation of statutory trade secrets. See id.; Leucadia, 14 Inc., 755 F. Supp. at 637; see also Bliss Clearing Niagara, Inc. v. Midwest Brake 15 Bond Co., 270 F. Supp. 2d 943, 949 (W.D. Mich. 2003). The Court finds persuasive 16 this broader approach to preemption. The DUTSA is Delaware’s enactment of the 17 Uniform Trade Secrets Act (“UTSA”), which contains identical preemption 18 provisions. 19 Delaware’s version is in pari materia with the provision promulgated in the UTSA, 20 at least as to this [preemption] dispute, they may be referenced interchangeably. . .”) 21 The UTSA preemption provision has generally been interpreted to abolish all free- 22 standing alternative causes of action for theft or misuse of confidential, proprietary, 23 or otherwise secret information falling short of trade secret status. See Composite 24 Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992) 25 (“[UTSA] has abolished all common law theories of misuse of [secret] information. 26 Unless defendants misappropriated a (statutory) trade secret, they did no legal 27 wrong.”); Hauck Mfg. v. Astec Indus., 375 F. Supp. 2d 649, 654–55 (E.D. Tenn. 28 2004). Permitting otherwise displaced tort claims to proceed simply because the See Atl. Med. Specialists, 2017 WL 1842899, at *15 (“Because – 30 – 17cv1290 1 information may not rise to the level of a trade secret would defeat the purpose of the 2 UTSA. See Atl. Med. Specialists, 2017 WL 1842899, at *14. Delaware courts apply 3 this approach when determining whether claims are displaced under the DUTSA. Id. 4 at *15 (“Delaware has joined the ‘majority view’ that section 7 of UTSA precludes 5 claims based on misappropriation of business information even in cases in which the 6 claim does not meet the statutory definition of ‘trade secret’. . .); see also Savor, Inc. 7 v. FMR Corp., 812 A.2d 894, 898 (Del. 2002) (rejecting argument that trial court’s 8 dismissal of common law claims was premature because the “common law claims 9 seek civil remedies based solely on the alleged misappropriation of a trade secret.”). 10 Accordingly, YRD’s common law claims will be preempted under the DUTSA if 11 they are grounded in the same facts that support YRD’s trade secrets 12 misappropriation claim regardless of whether the information would ultimately rise 13 to the level of a trade secret. 14 2. Counts 4 and 6 Are Preempted, but Count 3 is Not 15 As a preliminary matter, relying on Atlantic Medical Specialists, 2017 WL 16 1842899, YRD argues that none of its claims are preempted because they seek to 17 vindicate contractual rights under the CDA. In Atlantic Medical Specialists, the court 18 permitted a tortious interference with contract claim, premised on an alleged 19 inducement to violate a contractual confidentiality provision, to proceed despite 20 DUTSA’s civil remedies displacement provision. Id. at *12, 16. However, unlike 21 the tortious interference with contract claim at issue in Atlantic Medical Specialists, 22 a claim which expressly required the existence of contract, claims for unjust 23 enrichment, conversion, and unfair competition generally do not require the existence 24 of a contract, nor have courts considered them to provide “contractual remedies” 25 within the scope of UTSA’s exemption of such remedies from displacement. See, 26 e.g., New South Equip. Mats, LLC v. Keener, 989 F. Supp. 2d 522, 533 n.6 (S.D. 27 Miss. 2013) (collecting cases showing that a majority of courts have found 28 conversion claims preempted under displacement provisions of the UTSA); Office – 31 – 17cv1290 1 Home Depot, Inc. v. Impact Office Products., LLC, 821 F. Supp. 2d 912, 922 (N.D. 2 Ohio 2011) (“UTSA expressly preempts this time of ‘restitutionary’ remedy” of 3 unjust enrichment); Savor, Inc., 812 A.2d at 898 (unfair competition claim preempted 4 under DUTSA displacement provisions). A party cannot save a common law claim 5 from preemption by merely asserting that the claim seeks to vindicate a contractual 6 right although the common law claim itself does not require the existence of a 7 contract. Interpreting Section 2007(b)(1)’s exemption of contractual remedies so 8 broadly would eclipse the DUTSA’s otherwise broad displacement of conflicting tort 9 and restitutionary law providing civil remedies for trade secret misappropriation. 10 The Court, therefore, rejects YRD’s argument. 7 11 The Court finds that Counts 4 and 6 are preempted by the DUTSA because 12 they are grounded in the same facts underlying YRD’s trade secrets misappropriation 13 claim. Count 4, YRD’s conversion claim, is specifically premised on Teknor’s 14 alleged misuse of information shared under the CDA and resulting detriment to YRD, 15 (Compl. ¶¶58–61), and is therefore “clearly preempted” under the DUTSA. See UD 16 Tech. Corp. v. Phenomenex, Inc., No. 05-842-GMA, 2007 WL 28295, at *9 (D. Del. 17 Jan. 4, 2007). Likewise Count 6 is premised on YRD’s use of information shared 18 under the CDA and Teknor’s alleged gain of an “unfair competitive advantage over 19 YRD” as a result of its conduct (Compl. ¶75)—an allegation identical to YRD’s 20 allegation in its trade secrets misappropriation claim (id. ¶47). Notably, YRD’s 21 unfair competition claim expressly turns on its trade secrets misappropriation claim. 22 23 24 25 26 27 28 The Court also finds YRD’s argument unpersuasive for another reason as to Counts 3 and 4. YRD cannot avoid DUTSA preemption of these claims by arguing that they seek to vindicate contractual rights when these claims may themselves be displaced by the existence of a contractual remedy. See, e.g., Khushaim v. Tullow, Inc., No. N15C-11-212-PRW, 2016 WL 3594752, at *7–8 (Del. Super. Ct. June 27, 2016) (under Delaware law, conversion claims are displaced where a valid contract provides a remedy); MetCap Secs. LLC v. Pearl Senior Care, Inc., No. Civ. A. 2129VCN, 2007 WL 1498989, at *5 (Del. Ch. May 16, 2007) (unjust enrichment claims are displaced where a valid contract provides a remedy). 7 – 32 – 17cv1290 1 YRD expressly alleges that “[YRD] will suffer irreparable harm at the hand of 2 [Teknor] unless [Teknor is] enjoined from utilizing YRD trade secrets or distributing 3 products developed from YRD trade secrets.” (Id. ¶79 (emphasis added).) Courts 4 have dismissed unfair competition claims on preemption grounds where such claims 5 are “grounded in the same facts which purportedly support the Misappropriation of 6 Trade Secrets claim” under the DUTSA. Savor, Inc., 2001 WL 541484, at *4; see 7 also Leucadia, Inc., 755 F. Supp. at 636–37. If the Court disregarded the alleged 8 misuse of confidential information to assess the sufficiency of YRD’s conversion and 9 unfair competition claims, the claims would otherwise lack sufficient factual matter 10 to state a claim that is plausible on its face. See BlueEarth BioFuels, 780 F. Supp. 11 2d at 1074 (“If this cause of action does not relate to the unlawful retention of trade 12 secrets or confidential information, as Plaintiff represents, there are simply 13 insufficient facts to state a claim for relief that is plausible on its face. . .”). The 14 Complaint is devoid of other allegations, independent of Teknor’s alleged misuse of 15 confidential information, which could support these claims. Accordingly, the Court 16 grants Teknor’s motion to dismiss Counts 4 and 6 as preempted. 17 However, the Court finds that YRD’s unjust enrichment claim (Count 3) is in 18 part not preempted under the DUTSA. Count 3 in part concerns confidential 19 information shared under the CDA with Teknor (Compl. ¶52). To the extent the 20 claim rests on Teknor’s alleged misappropriation of such information, the claim is 21 grounded in the same facts as YRD’s trade secrets misappropriation claim and is 22 preempted by the DUTSA. See Office Home Depot, Inc., 821 F. Supp. 2d at 922 23 (finding partial preemption of unjust enrichment claim). However, YRD alleges 24 other facts in support of the claim, specifically that Teknor was unjustly enriched by 25 failing to enter into the JDA with YRD. (Compl. ¶¶53–54.) YRD’s misappropriation 26 claim otherwise neither makes an express reference to the JDA, nor Teknor’s failure 27 to enter into it. (See generally id. ¶¶41–50.) The failure of YRD’s misappropriation 28 claim will not doom its claim that Teknor was unjustly enriched by failing to enter – 33 – 17cv1290 1 into the JDA. Accordingly, the Court denies Teknor’s motion to dismiss Count 3 on 2 this basis. 3 E. 4 Teknor argues that YRD’s breach of contract claim “independently displaces” 5 Counts 3 and 4 because the claims arise from Teknor’s alleged breach of the CDA. 6 (ECF No. 16-1 at 9.) Although the Court has found that YRD’s conversion claim is 7 subject to preemption under the DUTSA, the Court will also address Teknor’s 8 argument that the claim is independently displaced by YRD’s breach of contract 9 claim. The Court finds that although the unjust enrichment claim is not displaced by 10 YRD’s breach of contract claim, the conversion claim is independently displaced by 11 it. 12 Displacement of Counts 3 and 4 by Alleged Breaches of the CDA 1. YRD’s Unjust Enrichment Claim is Not Displaced 13 In Count 3, YRD alleges that Teknor was unjustly enriched by failing to enter 14 into a JDA with YRD while retaining the benefit and profits of highly valuable 15 confidential information it received from YRD through its solo commercialization of 16 the Zero-G Hose. (Compl. ¶¶52–56.) Although Teknor has argued that the CDA did 17 not obligate Teknor to negotiate a JDA, Teknor asserts that the YRD’s corresponding 18 breach of contract claim under the CDA displaces the unjust enrichment claim. (ECF 19 No. 16-1 at 11.) In response, YRD argues both that the CDA obligated Teknor to 20 negotiate a JDA and, if that obligation is not an enforceable contractual provision, it 21 can alternatively sue Teknor for unjust enrichment based on a failure to enter a JDA. 22 (ECF No. 22 at 16.) 23 Under Delaware law, “[u]njust enrichment is defined as the unjust retention of 24 a benefit to loss of another, or the retention of money or property of another against 25 fundamental principles of justice or equity and good conscience.” Shock v. Nash, 26 732 A.2d 217, 232 (Del. 1999). 27 impoverishment, (3) a relation between the enrichment and impoverishment, (4) the 28 absence of justification and (5) the absence of a remedy provided by law. U.S. Bank It requires: (1) an enrichment, (2) an – 34 – 17cv1290 1 Nat’l Ass’n v. Gunn, Civ. No. 11-CV-1155-RGA, 2015 WL 4641611, at *5 (D. Del. 2 Aug. 5, 2015). Before reaching the elements of an unjust enrichment claim, a court 3 must satisfy itself that no contract already governs the relevant relationship between 4 the parties. Where the complaining party has a legal remedy by virtue of a contract 5 with the party alleged to have been enriched, “the contract remains ‘the measure of 6 [the] plaintiff’s right.’” MetCap Secs. LLC v. Pearl Senior Care, Inc., No. Civ. A. 7 2129-VCN, 2007 WL 1498989, at *5 (Del. Ch. May 16, 2007); Res. Veterans, Inc. 8 v. Res. Mgmt. Int’l, Inc., 42 F. Supp. 2d 423, 439 (D. Del. 1999). In some situations, 9 an unjust enrichment claim may survive a motion to dismiss when pleaded as an 10 alternative theory, but that “does not obviate the need for the plaintiff to provide 11 sufficient factual allegations” to support the claim. See BAE Sys. Info. & Elec. Sys. 12 Integration, Inc. v. Lockheed Martin Corp., No. 3009-VCN, 2009 WL 264088, at 13 *7–8 (Del. Ch. Feb. 3, 2009). 14 Neither party disputes that the CDA was a valid contract that established a 15 relationship between them concerning the sharing, disclosure, and use of confidential 16 information. Notably, in support of its unjust enrichment claim, YRD alleges that 17 Teknor was obligated to negotiate a JDA, (Compl. ¶53), but—unlike its breach of 18 contract claim (id. ¶¶33, 37)—does not allege that such an obligation arose from the 19 CDA. Thus, the unjust enrichment claim is an alternative to YRD’s breach of 20 contract claim. “Unjust enrichment is a quasi-contract theory of recovery to remedy 21 the absence of a formal contract.” Res. Veterans, Inc., 42 F. Supp. 2d at 439 (citing 22 Kirkwood Kin Corp. v. Dunkin’ Donuts, Inc., No. 94C-03-189-WTQ, 1997 WL 23 529587, at *17 (Del. Super. Ct. Jan. 29, 1997)). YRD’s alternative pleading is 24 particularly fortuitous in light of this Court’s determination that the JDA was nothing 25 more than an unenforceable agreement to agree. The CDA does not otherwise 26 address the precise relationship underlying YRD’s unjust enrichment claim: Teknor’s 27 compensation to YRD for use of YRD’s confidential information in the event the 28 parties did not enter into a JDA, or jointly develop a product. Therefore, the CDA – 35 – 17cv1290 1 cannot be the measure of YRD’s remedy. See Narrowstep, Inc. v. Onstream Media 2 Corp., No. 5114-VCP, 2010 WL 5422405, at *16 (Del. Ch. Dec. 22, 2010) (finding 3 that unjust enrichment claim was a “viable, alternative remedial theory” where it was 4 in part unclear that the agreement “comprehensively governs . . . ownership rights to, 5 and proceeds from” confidential information). 6 contract claim does not displace Plaintiff’s unjust enrichment claim. The Court 7 denies Teknor’s motion to dismiss this claim. 8 2. Accordingly, YRD’s breach of YRD’s Conversion Claim is Displaced 9 In Count 4, YRD alleges that Teknor converted confidential information 10 shared under the CDA, resulting in harm to YRD. (Compl. ¶¶58–61.) Although the 11 Court has found that this claim is preempted under the DUTSA, Teknor argues that 12 this claim is independently subject to dismissal in light of YRD’s breach of contract 13 claim. The Court agrees. Under Delaware law, “any distinct act of dominion 14 wrongfully exerted over the property of another, in denial of his right, or inconsistent 15 with it, is a conversion . . .” Drug, Inc. v. Hunt, 168 A. 87, 93 (Del. 1933). To state 16 a claim for conversion, a plaintiff must establish a property interest in the converted 17 goods, the right to possess the goods, and damages. J.C. Trading Ltd. v. Wal-Mart 18 Stores, Inc., 947 F. Supp. 2d 449, 459 (D. Del. 2013); Hurst v. City of Dover, No. 04- 19 083 GMS, 2008 WL 2421468, at *4 (D. Del. June 16, 2008). “[W]here a claim for 20 conversion arises solely from a breach of contract, a plaintiff must allege that a 21 defendant violated a legal duty independent from his contractually-imposed duties.” 22 Moon Express, Inc. v. Intuitive Machs., LLC, No. 16-344-LPS-CJB, 2017 U.S. Dist. 23 LEXIS 155487, at *35 (D. Del. Sept. 22, 2017). The Complaint alleges that the 24 property Teknor converted was confidential information YRD shared under the 25 CDA. (Compl. ¶¶58–60.) In opposition, YRD itself emphasizes that the claim is 26 grounded in the CDA. (ECF No. 22 at 24.) In order to sustain its claim for 27 conversion, YRD must allege that Teknor violated a legal duty independent of 28 Teknor’s duties under the CDA. The Complaint, however, fails to identify any legal – 36 – 17cv1290 1 duty independent of Teknor’s obligations under the CDA pertaining to use of that 2 information. Accordingly, the Court grants Teknor’s motion to dismiss YRD’s 3 conversion claim as independently displaced by YRD’s breach of contract claim. 4 F. Count 5: YRD Has Not Plausibly Pleaded Interference with Prospective Economic Advantage 5 6 In Count 5, YRD alleges that Teknor intentionally usurped YRD’s opportunity 7 to roll out its own new compact hose products, and seized the initiative for a 8 substantial market share of new compact hose sales. (Compl. ¶68.) “YRD was left 9 to compete with a product it had designed[].” (Id.) YRD allegedly suffered damages 10 as a result. (Id. ¶70.) Teknor challenges this claim on the ground that YRD has failed 11 to plausibly allege it had a prospective economic advantage with which Teknor 12 interfered. (ECF No. 16-1 at 14–15.) The Court agrees. 13 In order to state a claim for tortious interference with prospective economic 14 advantage, Delaware law requires a plaintiff to allege facts establishing: (1) a 15 reasonable probability of a business opportunity, (2) intentional interference with that 16 opportunity, (3) proximate causation, and (4) damages. See eCommerce Indus., Inc. 17 v. MWA Intelligence, Inc., No. 7471-VCP, 2013 WL 5621678, at *40 (Del. Ch. Oct. 18 4, 2013).). 19 expectancies, including the prospect of . . . [any] relations leading to potentially 20 profitable contracts,” but the “mere hope” or “mere perception of a prospective 21 relationship or contract will not suffice.” World Energy Ventures, LLC v. Northwind 22 Gulf Coast LLC, No. N15C-03-241 WCC, 2015 WL 6772638, at *7 (Del. Super. Ct. 23 Nov. 2, 2015) (internal quotations omitted). The factual allegations must identify a 24 party who was prepared to enter into a business relationship with the plaintiff, but 25 was dissuaded from doing so by the defendant. Agilent Techs., Inc. v. Kirkland, No. 26 3512-VCS, 2009 WL 119865, at *7 (Del. Ch. Jan. 20, 2009). Delaware courts “permit a broad range of legitimate business 27 YRD’s intentional interference claim does not contain factual allegations 28 identifying opportunities with any entity, but rather refers only to “retailer sales – 37 – 17cv1290 1 channels” and “market share” that YRD did not receive. (See generally Compl. 2 ¶¶66–72.) Although it is true that a plaintiff need not provide the specific name of 3 the entity with which it had a reasonable probability of a business opportunity, see 4 Agilent Techs., Inc., 2009 WL 119865, at *7, YRD’s undifferentiated and generalized 5 allegations are insufficient to survive a motion to dismiss. See Organovo Holdings, 6 Inc. v. Dimitrov, 162 A.3d 102, 123 (Del. Ch. Ct. 2017); cf. Kimbleton v. White, No. 7 12-974-GMS, 2014 WL 4386760, at *8 (D. Del. 2014) (allegations of interference 8 with “all prospective home buyers” insufficient to establish a reasonable probability 9 of business opportunity). YRD argues in opposition that it had a reasonable 10 probability of business opportunities with Lowes, Home Depot, and other customers 11 who purchased Teknor’s Zero-G Hose, rather than YRD’s product. (ECF No. 22 at 12 20.) The Complaint, however, contains no factual details showing or supporting an 13 inference that YRD had a reasonable probability of a business opportunity with these 14 entities for its own hose. The Court has also considered whether YRD’s factual 15 allegations regarding its relationship with QVC support its intentional interference 16 claim. The Court concludes they do not. As YRD underscores in opposition, its 17 claim concerns Teknor’s alleged interference with YRD’s own “competing” hose. 18 (Id.) The allegations pertaining to QVC do not concern that product, but rather the 19 hose YRD alleges it would have developed with Teknor which would have been 20 marketed through QVC. (Id.; Compl. ¶¶10, 20, 24.) Thus, allegations concerning 21 QVC do not support YRD’s international interference claim as pleaded. 22 Accordingly, the Court grants Teknor’s motion to dismiss this claim. 23 24 G. Count 7: YRD Cannot Plausibly Claim that Teknor Breached the Implied Covenant of Good Faith and Fair Dealing 25 In Count 7, YRD alleges that Section 9 of the CDA and the implied covenant 26 of good faith and fair dealing obligated Teknor to negotiate a JDA with YRD by fall 27 2016. (Compl. ¶¶84–85.) At that point, YRD alleges that Teknor began to develop, 28 manufacture, and plan distribution of its Zero-G Hose based on confidential – 38 – 17cv1290 1 information imparted by YRD. (Id. ¶84.) YRD alleges that under a JDA it would 2 have received a royalty of $1.50 per product sold or on 10% of Teknor’s sales. (Id. 3 ¶¶86–87.) Teknor argues that the implied covenant claim should be dismissed 4 because YRD fails to plead the existence of an implied obligation arising outside of 5 the explicit terms of the CDA. (ECF No. 16-1 at 15–16.) The Court agrees that this 6 claim must be dismissed. 7 “Under Delaware law, an implied duty of good faith and fair dealing is 8 interwoven into every contract.” Anderson v. Wachovia Mortg. Corp., 497 F. Supp. 9 2d 572, 581 (D. Del. 2007). In general, the implied covenant requires “a party in a 10 contractual relationship to refrain from arbitrary or unreasonable conduct which has 11 the effect of preventing the other party to the contract from receiving the fruits of the 12 bargain.” Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del. 2005) 13 (citations omitted). In order to plead successfully a breach of the implied covenant, 14 the plaintiff must allege a specific implied contractual obligation, a breach of that 15 obligation by the defendant, and resulting damage to the plaintiff. Fitzgerald v. 16 Cantor, Civ. No. 16297-NC, 1998 WL 842316, at *1 (Del. Ch. Nov. 10, 1998). As 17 noted by the Delaware Supreme Court, “[a]pplying the implied covenant is a cautious 18 enterprise and we will only infer contractual terms to handle developments or 19 contractual gaps that the asserting party pleads neither party anticipated.” Gerber v. 20 Enter. Products Holdings, LLC, 67 A.3d 400, 421 (Del. 2013), overruled on other 21 grounds by, Winshall v. Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013). Where the 22 express terms of a contract speak directly to the issue in dispute, those terms will 23 always “supersede” the implied covenant. See Gerber, 67 A.3d at 419; Fortis 24 Advisors, LLC v. Dialog Semiconductor PLC, No. 9522-CB, 2015 WL 401371, at *3 25 (Del. Ch. Jan. 30, 2015) (“[I]mplied good faith cannot be used to circumvent the 26 parties’ bargain when the contract speaks directly to the issue.”). 27 This Court has already determined that Section 9 constitutes an unenforceable 28 agreement to agree and contains no express provision requiring Teknor to negotiate – 39 – 17cv1290 1 a JDA in good faith. The express terms of the CDA otherwise “do[] not require . . . 2 either Party to proceed with any proposed transaction or relationship,” (CDA §7(a)), 3 and do not establish any “business relationship between the Parties, other than as 4 expressly provided for,” (id. §7(c)). In light of these terms, YRD’s “claim must fail 5 because the express terms of the contract . . . control [the] claim.” Kuroda v. SPJS 6 Holdings, L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009). 7 Also fatal to YRD’s implied covenant claim is its allegation regarding 8 Teknor’s intentions “from the outset” of its discussions with YRD, (Compl. ¶27), 9 which do not plausibly show Teknor would have agreed to the term YRD seeks to 10 imply. “To supply an implicit term, the court looks to the past and asks what the 11 parties would have agreed to themselves had they considered the issue in their 12 original bargaining positions at the time of contracting.” Allen v. El Paso Pipeline 13 GP Co., L.L.C., 113 A.3d 167, 184 (Del. Ch. 2014) (internal quotations omitted). 14 The implied covenant only applies where “it is clear from the writing that the 15 contracting parties ‘would have agreed to proscribe the act later complained of . . . 16 had they thought to negotiate with respect to that matter.’” Cont’l Advisors S.A. v. 17 GSV Asset Mgmt., LLC, No. 14-cv-05609-YGR, 2015 WL 7720752, at *6 (N.D. Cal. 18 Nov. 30, 2015) (quoting Dunlap, 878 A.2d at 442). Although YRD alleges that the 19 parties discussed expanding their business relationship, YRD also alleges that Teknor 20 “planned from the outset to pirate YRD’s confidential information for its own use in 21 order to develop a competing compact hose” and “secretly schemed” to develop the 22 Zero-G Hose alone. (Compare Compl. ¶20 with ¶1, 27.) Assuming the truth of 23 YRD’s allegations regarding Teknor’s true intentions, an implied term under the 24 CDA requiring Teknor to negotiate the JDA could not plausibly have made its way 25 into the CDA. See Cont’l Advisors S.A., 2015 WL 7720752, at *6 (“Under plaintiffs’ 26 theory, defendants never intended for the contemplated transactions to occur. 27 Therefore, a full negotiation regarding the proposed implied term . . . would certainly 28 not have made its way as a negotiated term into the agreements in question.”). – 40 – 17cv1290 1 Accordingly, the Court dismisses with prejudice YRD’s claim based on a breach of 2 the implied covenant of good faith and fair dealing. 3 H. Applicability of the DTSA to this Case 4 Lastly, the Court addresses YRD’s assertion that the Defend Trade Secrets Act 5 (“DTSA”), 18 U.S.C. §1831 et seq., supplies an additional federal cause of action for 6 Teknor’s alleged misappropriation of its trade secrets. The DTSA is the federal 7 analogue to state laws like the DUTSA. Formally enacted on May 11, 2016, the 8 DTSA enables the owner of a trade secret to bring a private cause of action in federal 9 court for trade secret misappropriation. See 18 U.S.C. §1836(b)(1). The DTSA 10 defines misappropriation in several ways, including the “acquisition of a trade secret 11 of another by a person who knows or has reason to know that the trade secret was 12 acquired by improper means” or when one “disclos[es]” or “use[s]” another’s trade 13 secret without the consent of the trade secret owner. Id. §1839(5)(B); Brand Energy 14 & Infrastructure Servs. v. Irex Contracting Grp., No. 16-2499, 2017 WL 1105648, 15 at *3 (E.D. Pa. Mar. 24, 2017). Unlike state trade secret laws, the DTSA has been 16 interpreted to apply to misappropriation of trade secrets that occurred before the 17 DTSA was enacted as long as the misappropriation continues to occur after the 18 enactment date. Id. at *4. Importantly, the DTSA generally does not “preempt or 19 displace any other remedies, whether civil or criminal, provided by . . . State . . . law 20 for the misappropriation of a trade secret. . .” 18 U.S.C. §1838. Therefore, YRD 21 may bring both a claim under the DUTSA and the DTSA. 22 YRD has not specifically requested leave to amend the Complaint to allege 23 such a claim, but the Court believes that the prudent course is to treat YRD’s 24 argument as such a request. The Court cannot say that amendment would be futile 25 at this time. See Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 26 986 (9th Cir. 1999). Because the Court has found that YRD sufficiently pleaded a 27 claim under the DUTSA for its compact hose concept and designs, the Court will 28 permit YRD to amend the Complaint to allege a cause of action under the DTSA. – 41 – 17cv1290 1 IV. CONCLUSION & ORDER 2 For the foregoing reasons, the Court GRANTS IN PART AND DENIES IN 3 PART Defendant Teknor’s Rule 12(b)(6) motion to dismiss the Complaint as 4 follows: 5 1. The Court DISMISSES WITHOUT PREJUDICE YRD’s claims for 6 breach of contract (Count 1) as to alleged breaches of Sections 4(c), 7 4(d), and 4(f); conversion (Count 4); interference with prospective 8 economic advantage (Count 5); and unfair competition (Count 6). 9 YRD’s claim of trade secrets misappropriation (Count 2) is dismissed 10 to the extent it concerns YRD’s alleged marketing ideas, sales 11 information, and business strategy. 12 2. The Court DISMISSES WITH PREJUDICE YRD’s breach of 13 contract claim (Count 1) as to an alleged breach of Section 9, and YRD’s 14 claim for breach of the implied covenant of good faith and fair dealing 15 (Count 7). 16 3. The Court DENIES Teknor’s Motion to dismiss YRD’s claim (Count 17 1) regarding alleged breaches of Sections 4(a), 4(b), and 4(g); trade 18 secrets misappropriation claim (Count 2) insofar as it concerns alleged 19 new compact hose concept and designs; and unjust enrichment (Count 20 3). 21 4. The Court GRANTS YRD leave to amend the Complaint to add a claim 22 under the DTSA and cure any pleadings dismissed without prejudice. 23 YRD may file an amended complaint no later than December 22, 24 2017. Teknor must answer or file a motion to dismiss those new 25 portions of an amended complaint no later than January 22, 2018. 26 DATED: November 29, 2017 27 28 – 42 – 17cv1290

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