TE Connectivity Networks, Inc. v. All Systems Broadband, Inc.
Filing
28
MEMORANDUM OPINION AND ORDER denying 12 Defendant's Motion to Dismiss (Written Opinion). Signed by Judge Ann D. Montgomery on 12/26/2013. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
TE Connectivity Networks, Inc.,
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER
Civil No. 13-1356 ADM/FLN
All Systems Broadband, Inc.,
Defendant.
______________________________________________________________________________
Randall E. Kahnke, Esq., and Matthew B. Kilby, Esq., Faegre Baker Daniels, LLP, Minneapolis,
MN, on behalf of Plaintiff.
Lewis A. Remele, Jr., Esq., Frederick E. Finch, Esq., Jan M. Gunderson, Esq., Jonathan C.
Marquet, Esq., and Pamela D. Steinle, Esq., Bassford Remele, PA, Minneapolis, MN, on behalf
of Defendant.
______________________________________________________________________________
I. INTRODUCTION
This matter is before the undersigned United States District Judge for consideration of
Defendant All Systems Broadband, Inc.’s (“ASB”) Motion to Dismiss [Docket No. 12]. Plaintiff
TE Connectivity Networks, Inc. (“TE”) opposes the motion. For the reasons stated herein,
ASB’s motion is denied.
II. BACKGROUND
TE, a Shakopee, Minnesota, based company, develops and sells “fiber connectivity
products” used in the telecommunications industry. Compl. [Docket No. 1] ¶¶ 1, 3. TE
distributed some of its products through TriNet Communications (“TriNet”). Id. ¶ 8. In 2005,
several executives from TriNet formed ASB, a company based in Livermore, California. Id. ¶¶
4, 9.1 At first, ASB did not compete with TE. However, starting in 2009, TE alleges ASB hired
several former TE and TriNet employees who possessed trade secrets and confidential or
proprietary information about TE’s products and sales.2 Id. ¶¶ 14-25. Several of these
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Alleged TriNet/ABS executives:
Individual
TriNet employment title
(dates employed)
ABS employment title
(dates employed)
Jon Fernandez
President and CEO
(before 2005 - Feb. 2012)
Chairman
(founded 2005 - )
Sean Fernandez
Vice President of Operations
(before 2005 - Mar. 2012)
COO
(2005 - )
Jason Skeoch
Vice President of Sales and
Marketing
(Jan. 1995 - Apr. 2012)
CEO
(Jan. 2007 - )
Everett Hirsh
Vice President of Sales
(currently employed)
Regional Vice President
(currently employed)
Compl. ¶¶ 9-13.
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Alleged former TE employees, now working for ABS:
Individual
Michael Grice
Craig Ray
Joel (“J.D.”) Smith
Donald Gross
TE employment title
(dates employed)
ABS employment title
(dates employed)
Regional Sales Manager and
Product Management
Director for Research and
Development
(Aug. 1988 - Oct. 2008)
Vice President of Product
Development
(Jul. 2009 - )
Product Manager and
Applications Engineer
Manager
(Dec. 1987 - May 2009)
Engineering Product
Manager
(Aug. 2009 - )
Regional and National Sales
Manager
(Apr. 1994 - Oct. 2009)
Vice President of Sales
(Oct. 2009 - )
Applications Engineer
(Jun. 2005 - Dec. 2010)
Applications Engineer
(Feb. 2011 - )
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employees were bound by confidentiality agreements with TE. Id. ¶¶ 26-28. From these
employees, TE alleges ASB misappropriated trade secrets and used proprietary or confidential
information to develop and market competing products.
More specifically, TE alleges ASB “quickly developed and began to market competing
products that are functionally similar to TE products” including an EPON (ethernet passive
optical network) device, CWDM (coarse wavelength division multiplexing) device, and a Fiber
Demarc(ation) Box. Id. at ¶ 26. TE claims ASB did not market any of these products prior to
hiring former TE employees and that these former employees “had access to TE confidential or
proprietary information and trade secrets reflected in TE’s versions of these three products, and
were involved in the development of one or more of these products while at TE.” Id. ¶¶ 27, 29-
Heidi Slocum
Salesperson
(Mar. 2011 - Apr. 2011)
Salesperson
(Apr. 2011 - )
Manufacturing Engineer and
Product/Quality Engineer
(Aug. 1990 - Jun. 2011)
Product Engineering
Manager
(Jul. 2011 - )
David Braga
Product Manager and
Marketing Manager
(Jun. 2004 - Dec. 2011)
Director of Business
Development
(Jan. 2012 - )
Bob Manzak
Senior Engineer (in R&D)
(Mar. 1989 - May 2012)
Senior Systems Engineer
(Jun. 2012 - )
Larry Fowler
Salesperson
(Jan. 1980 - Aug. 2012)
Telecommunications
consultant
(Dec. 2012 - )
Thomas Belmont
Salesperson
(Feb. 1999 - Sept. 2012)
Salesperson
(2012 - )
Regional Sales Manager for
the Northeast
(Jun. 2009 - Mar. 2013)
salesperson
(Mar. 2013 - )
Eric Vann
James Kane
Compl. ¶¶ 14-24.
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31 (naming Donald Gross and David Braga as former employees who TE believes developed
ASB’s competing products using trade secrets and confidential information). TE claims ASB
used TE’s “technical specifications, design parameters, performance criteria, testing data,
confidential customer specifications, pricing, cost, margin, distribution, and supply chain
information” to unfairly compete against it. Id. at ¶ 58. In three cases, TE alleges ASB used
information and specifications acquired from TE to sell products to unnamed former and
prospective clients. Id. ¶¶ 29-31. TE alleges the TriNet/ASB executives had access to TE’s
“customer-specific pricing, and the design of certain TE products” through its Non-Exclusive
Domestic Distributor Agreement. Id. ¶¶ 28, 48. TE identifies former TE employees and the
contractual obligations each employee had (and have) to maintain the confidentiality of TE
information. Id. ¶¶ 34-52. TE specifically cites contract language from numerous agreements it
had with TE and TriNet employees who are now at ASB. Id.
With this factual predicate, TE claims ASB misappropriated its trade secrets (Count I),
tortiously interfered with TE’s existing contracts and with its prospective advantage (Count II
and III), and was unjustly enriched (Count IV) through use of TE’s confidential information.
III. DISCUSSION
A. Motion to Dismiss Standard
Rule 12 of the Federal Rules of Civil Procedure provides that a party may move to
dismiss a complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P.
12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light most
favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true.
Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994); Ossman v. Diana Corp., 825 F. Supp. 870,
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879-80 (D. Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be
resolved in favor of the nonmoving party. Ossman, 825 F. Supp. at 880.
Under Rule 8(a) of the Federal Rules of Civil Procedure, pleadings “shall contain a short
and plain statement of the claim showing that the pleader is entitled to relief.” A pleading must
allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw a reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Determining
whether a complaint states a plausible claim for relief is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id.; see also Braden v.
Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (holding “the complaint should be read
as a whole, not parsed piece by piece”). “But where the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has alleged—but not
‘shown’—‘that the pleader is entitled to relief.’” Iqbal, 129 S. Ct. at 1949 (quoting Fed. R. Civ.
P. 8(a)(2)).
B. Misappropriation of Trade Secrets
Under the Minnesota Uniform Trade Secrets Act (“MUTSA”), companies are prohibited
from the improper acquisition, disclosure, or use of a trade secret. See Minn. Stat. § 325C.01,
subd. 3; Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897 (Minn. 1983). A
trade secret is information which both: (1) derives independent economic value from not being
generally known or readily ascertainable through proper means by other persons who could
obtain economic value from its disclosure or use; and (2) is the subject of reasonable efforts to
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maintain its secrecy. Minn. Stat. § 325C.01, subd. 5(i)-(ii). Misappropriation of a trade secret is
defined as disclosure or use of a trade secret without express or implied consent by a person
who, at the time of disclosure or use, knew that the utilization of the trade secret was acquired
under circumstances giving rise to a duty to maintain its secrecy or limit its use. Minn. Stat. §
325C.01, subd. 3(ii).
MUTSA provides that “this [Act] displace[s] conflicting tort, restitutionary, and other
laws of this State providing civil remedies for misappropriation of a trade secret.” Minn. Stat. §
325C.07(a). MUTSA does not, however, affect contractual remedies, other civil remedies not
based upon misappropriation of a trade secret, or criminal remedies. Id. § 325C.07(b). Under
MUTSA’s displacement provision, a plaintiff may maintain separate causes of action only “to
the extent that the causes of action have ‘more’ to their factual allegations than the mere misuse
or misappropriation of trade secrets.” Micro Display Sys., Inc. v. Axtel, Inc., 699 F. Supp. 202,
205 (D. Minn. 1988).
C. Sufficiency of MUTSA Allegations
ASB argues TE has pled no facts to support a plausible claim of trade secret
misappropriation. ASB argues TE’s Complaint “offers nothing more than ‘the well-pleaded fact
of parallel conduct,’ and under Iqbal, such claims must be dismissed.” Reply Mem. Supp. Mot.
Dismiss [Docket No. 24] at 4. ASB also argues TE’s pleadings are at least as deficient as those
found lacking in Hot Stuff Foods, LLC v. Dornbach, 726 F. Supp. 2d 1038 (D. Minn. 2010).
ASB argues cases like Hot Stuff Foods require TE “to assert facts including (1) the name of any
particular person who (2) on a particular occasion (3) actually used a particular item of
confidential information to develop an element of a particular product.” Mem. Supp. Mot.
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Dismiss [Docket No. 13] at 10.
In essence, ASB is attempting to require TE to prove its case before discovery. Iqbal and
Twombly do not require particularity to such an extent; they only require plaintiff to allege facts
which make a claim plausible on its face. Assuming the facts alleged in the Complaint are true
and reading the Complaint as a whole, the Court finds TE’s Complaint states plausible
allegations sufficient to defeat ASB’s motion to dismiss.
In the context of pleading a claim for the misappropriation of trade secrets, a plaintiff is
understandably hesitant to reveal the exact parameters of the trade secrets it believes have been
misappropriated because a trade secret made public is not a secret. See Superior Edge, Inc. v.
Monsanto Co., No. 12-2872, 2013 U.S. Dist. LEXIS 112483, at *52-54 (D. Minn. Aug. 9, 2013)
(holding “the exact nature of the trade secret is a matter for discovery”); see also SL Montevideo
Tech., Inc. v. Eaton Aero., LLC, 292 F. Supp. 2d 1173, 1179 (D. Minn. 2003); FDIC v. Binetti,
No. 10-5083, 2011 U.S. Dist. LEXIS 7320, at *8 (N.D. Ill. Jan. 26, 2011) (“[T]rade secrets need
not be disclosed in detail in a complaint alleging misappropriation for the simple reason that
such a requirement would result in public disclosure of the purported trade secrets.”) (quotation
omitted); Fire ’Em Up, Inc. v. Technocarb Equip. (2004) Ltd., 799 F. Supp. 2d 846, 850 (N.D.
Ill. 2011) (“[T]he alleged trade secrets need not be disclosed in detail in a complaint to survive a
motion to dismiss.”). However, a plaintiff cannot rely on conclusory statements that simply
repeat the elements of its claim; the plaintiff must disclose sufficient information to infer more
than a mere possibility of misconduct. In Hot Stuff Foods the court found the plaintiff alleged
that an executive had “access to and knowledge of [plaintiff’s] trade secrets and confidential
information.” 726 F. Supp. 2d at 1044. The court found it could not “reasonably infer the
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existence of trade secrets” because the plaintiff did not “set forth facts showing that the
information had independent economic value due to its secrecy, was not readily ascertainable by
others and that [the plaintiff] took efforts to maintain its secrecy.” Id. The court thus found the
pleadings conclusory as to the MUTSA claim. Id.
While TE is somewhat vague about what trade secrets and confidential information was
taken by ASB, when the allegations are viewed as a whole, the Court finds more than a mere
possibility of misconduct. TE’s allegations are not generalized or conclusory. TE is specific
about which of its products have trade secrets, naming the EPON, CWDM, and Fiber Demarc
Box products. As to those products, TE identifies its trade secrets as “technical specifications,
design parameters, performance criteria, testing data, . . .” and so forth. Compl. ¶ 58; see Matson
Logistics, LLC v. Smiens, No. 12-400, 2012 U.S. Dist. LEXIS 77454, at *29 (D. Minn. June 5,
2012). TE alleges it designed these products to particular specifications for clients, and that
ASB did not sell these products until after it had hired TE and TriNet employees. ASB’s new
hires had worked on the development of these products at TE, were hired in positions at ASB
with the same or similar job titles, and ASB soon after began selling EPON, CWDM, and Fiber
Demarc Box products to TE customers. For example, ASB marketed an EPON product to at
least one current TE customer, who TE alleges decided to buy that product from ASB. Further,
ASB marketed a CWDM device to at least one TE customer to meet particular specifications.
Although the clients and specifications are not named, the allegations are far from the conclusory
allegations found in Hot Stuff Foods and similar cases.
ASB argues that EPON, CWDM, and Fiber Demarc Box products are generic and
involve no trade secrets, but two factual allegations suggest at this stage that trade secrets exist.
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First, ASB did not develop these products until after they hired employees from TE who had
expertise in their development. And second, clients ordered products to meet certain
specifications, suggesting the products are not generic and interchangeable. Compl. ¶¶ 30-31.
In addition, TE has identified confidentiality agreements, which in addition to the other allleged
facts, suggest TE had trade secrets and made reasonable efforts to maintain those secrets.
Reading the Complaint as a whole, the Court can reasonably infer TE has stated a MUTSA
claim.
D. Minnesota Tortious Interference and Unjust Enrichment
TE claims ASB interferred with TE and TriNet employee contracts and was unjustly
enriched by the use of confidential information to copy and sell TE products to TE customers.
TE alleges that when ASB was formed by TriNet executives, those executives ignored their
contractual obligations to maintain confidentiality and protect trade secrets by developing,
marketing, and selling copies of TE’s EPON, CWDM, and Fiber Demarc Box products.
Minnesota law recognizes two separate torts relating to interference with economic
relations: (1) interference with an existing contract; and (2) interference with a prospective
business relation. See Superior Edge, 2013 U.S. Dist. LEXIS 112483, at *54 (citing Hern v.
Bankers Life Cas. Co., 133 F. Supp. 2d 1130, 1137 (D. Minn. 2001). A plaintiff claiming
tortious interference with an existing contractual relationship (Count II) must show: (1) a valid
contract; (2) that the defendant knew of the contract; (3) that defendant intentionally procured a
breach of the contract without justification; and (4) that plaintiff suffered injuries as a direct
result of the breach. Kjesbo v. Ricks, 517 N.W.2d 585, 588 (Minn. 1994). “[M]erely entering
into an agreement . . . is not tortious interference if [defendant] did nothing to induce” a breach
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of the agreement. Salon 2000, Inc. v. Dauwalter, No. A06-1227, 2007 Minn. App. Unpub.
LEXIS 531, at *5 (Minn. Ct. App. June 5, 2007).
Tortious interference with prospective advantage (Count III) requires a plaintiff show the
following elements: (1) the defendant intentionally and improperly interfered with the
prospective contractual relationship; (2) causing pecuniary harm from the loss of the
relationship's benefits; and (3) the interference either (a) induced or caused a third person not to
enter into or continue the prospective relationship or (b) prevented the continuance of the
prospective relationship. United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 633 (Minn. 1982).
Liability for this type of unfair competition claim only occurs where the actor’s conduct is
improper. Fox Sports Net N., L.L.C. v. Minn. Twins P’ship, 319 F.3d 329, 337 (8th Cir. 2003).
“For purposes of this tort, improper means are those that are independently wrongful such as
threats, violence, trespass, defamation, misrepresentation of fact, restraint of trade or any other
wrongful act recognized by statute or the common law.” Harman v. Heartland Food Co., 614
N.W.2d 236, 241 (Minn. Ct. App. 2000) (quotation omitted).
Minnesota law also recognizes a claim for unjust enrichment (Count IV) and requires a
showing that “another party knowingly received something of value to which he was not
entitled, and that the circumstances are such that it would be unjust for that person to retain the
benefit.” Schumacher v. Schumacher, 627 N.W.2d 725, 729 (Minn. Ct. App. 2001).
E. Sufficiency of the Common Law Claims
ASB argues that MUTSA displaces these claims because they are rooted in TE’s trade
secrets misappropriation allegations and nothing else. ASB’s focus on trade secrets is narrower
than what TE’s Complaint alleges. TE alleges more than mere misuse or misappropriation of
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trade secrets. See Micro Display Sys., 699 F. Supp. at 205. Beyond misappropriation, TE
alleges ASB interfered with its employees’ confidentiality agreements, which though they
admittedly included coverage of trade secrets, also included confidential information, such as
customer specific pricing lists, that does not reach the level of being a trade secret. MUTSA
does not displace TE’s claims to the extent that they are based on confidential information that
does not reach the level of trade secrets. Cardiac Pacemakers, Inc. v. Aspen II Holding Co., 413
F. Supp. 2d 1016, 1023-24 (D. Minn. 2006). But even if it ultimately is determined that all of
TE’s claims are trade secret claims, at this stage of the proceedings, TE need not plead with the
specificity ASB demands. See Dow Corning Corp. v. Jie Xiao, No. 11-10008-BC, 2011 U.S.
Dist. LEXIS 54619, at *41 (E.D. Mich. May 20, 2011); Callaway Golf Co. v. Dunlop Slazenger
Grp. Ams., Inc., 295 F. Supp. 2d 430 (D. Del. 2003) (holding that even if a defendant’s
misappropriation claims are ultimately preempted, at the motion to dismiss stage, plaintiff “may
plead in the alternative, or assert alternative recoveries”).3
Since TE’s common law claims are not displaced at this stage of the proceedings, the
next question is whether TE has satisfied the pleading requirements. As with its MUTSA claim,
taking the Complaint as a whole, TE has sufficiently pled the elements of these common law
claims, allowing the Court to infer more than the mere possibility of misconduct and view the
plausibility of the claims from the face of the Complaint. For example, TE alleges ASB/TriNet
employees used TE’s customer-specific pricing, which the employees had access to through
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If ASB is ultimately correct that TE’s alleged trade secrets are not trade secrets, then
granting ASB’s motion to dismiss for TE’s common law claims on the basis that the allegations
are only rooted in trade secret claims would be counterintuitive. The Court’s focus now is
whether TE’s Complaint survives ASB’s motion to dismiss.
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TriNet executives, to undercut TE’s prices and entice a longstanding TE customer to ASB.
Compl. ¶ 31. ASB executives also actively pursued hiring former TE employees, whom they
should have known had similar confidentiality agreements. Id. ¶ 65. The TriNet/ASB
executives’ dual employment, their confidentiality agreements, their hiring of TE employees into
jobs with similar and identical titles, the TE employees’ confidentiality agreements, the
appearance of at least three ASB products similar to TE’s products that ASB had never sold
before hiring former TE employees, and the pursuit of and sale to current and prospective TE
customers are all indicia that suggest at this early stage that ASB tortiously interfered with TE’s
existing contracts and prospective clients and may have profited unjustly as a result.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS
HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 12] is DENIED.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: December 26, 2013.
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