Deluxe Financial Services, LLC v. Shaw
Memorandum Opinion and Order denying Defendant, Harland Clarke Corp.'s 38 Motion to Dismiss; and denying Defendant, Shaw's 35 Motion to Dismiss(Written Opinion) Signed by Chief Judge John R. Tunheim on 08/03/2017. (JMK)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
DELUXE FINANCIAL SERVICES,
Civil No. 16-3065 (JRT/HB)
MEMORANDUM OPINION AND
ORDER DENYING DEFENDANTS’
MOTIONS TO DISMISS
BRIAN S. SHAW and
HARLAND CLARKE CORP.,
Charles F. Knapp, FAEGRE BAKER DANIELS LLP, 90 South Seventh
Street, Suite 2200, Minneapolis, MN 55402, for plaintiff.
Jillian M. Flower, JACKSON LEWIS PC, 150 South Fifth Street, Suite
3500, Minneapolis, MN 55402, for defendant Brian S. Shaw.
James Sottile, IV and Brett J. Broadwater, JONES DAY, 250 Vesey Street,
New York, NY 10281, Richard Q. Liu, JONES DAY, 90 South Seventh
Street, Suite 4950, Minneapolis, MN 55402, for defendant Harland Clarke
Plaintiff Deluxe Financial Services, LLC, (“Deluxe”) brings this action against
Defendants Brian S. Shaw and Harland Clarke Corp. (“Harland Clarke”) (collectively,
“Defendants”). Deluxe brought claims against Defendants for misappropriation of trade
secrets under the Federal Defend Trade Secrets Act (“DTSA”), 18 U.S.C. §§ 1836,
et seq.; misappropriation of trade secrets under the Ohio Uniform Trade Secrets Act
(“OUTSA”), Ohio Rev. Code §§ 1333.61, et seq.; tortious interference; and unjust
Defendants move to dismiss those claims under Fed. R. Civ. P. 12(b)(6)
contending that: (1) Deluxe fails to state a claim for trade secret misappropriation under
DTSA and OUTSA, and (2) OUTSA preempts Deluxe’s claims for tortious interference
and unjust enrichment.
Because the Amended Complaint contains a detailed factual statement to support a
trade secret misappropriation claim and Deluxe may plead alternative and inconsistent
legal theories against Defendants, the Court will deny Defendants’ motions to dismiss.
Deluxe and Harland Clarke “are the two largest [financial institution] check
printers in the United States. They are direct competitors.” (Am. Compl. ¶ 4, Nov. 7,
2016, Docket No. 14.) Deluxe employed Shaw as a business development executive for
25 years. (Id. ¶¶ 8, 15.) As part of his position, Shaw structured “sophisticated deal
structures and pricing strategies” to differentiate and enhance Deluxe’s market position.
(Id. ¶ 17.)
To fulfill these job duties, Shaw had access to Deluxe’s trade secret information
relating to “customer pricing data, production costs, check unit volumes, profitability,
sales analyses, sales strategies, deal structures, sales plans, ‘key account’ data, check
Information’).” (Id. ¶ 18.) “This Confidential Sales Information is not publicly known”
and Deluxe invests significant efforts to preserve its confidentiality. (Id. ¶¶ 20-21.)
The Confidentiality Agreement Between Shaw and Deluxe
In 2012, Shaw entered into a Non-Competition, Non-Solicitation, and
Confidentiality Agreement (the “Agreement”) with Deluxe. (Id. ¶ 23; Ex. A to Am.
Compl. (“Agreement”), Nov. 8, 2016, Docket No. 17.) In pertinent part, Shaw agreed
that during his employment and thereafter to “hold in the strictest confidence and . . . not
disclose, use, [or] publish any of [Deluxe’s] Confidential Information,” unless Deluxe
(Agreement at 2.)
The Agreement defined “Confidential
Information” as “information that was developed, created, or discovered by or on behalf
of [Deluxe] or any of its Affiliates, or which became or will become known by, or was or
is conveyed to [Deluxe], which has commercial value in [Deluxe’s] business and which
[Deluxe] regards as confidential.” (Id. at 2.) The parties intended the Agreement to
ensure Confidential Information remained at the workplace, as Shaw agreed that “all of
the Confidential Information is and shall be the sole property of [Deluxe] and its
successors and assigns.” (Id. at 2.)
Shaw Joins Harland Clarke
In May 2014, Deluxe eliminated Shaw’s position and advised him that he would
no longer have a position at the company. (Am. Compl. ¶ 39.) Prior to leaving Deluxe,
Shaw forwarded emails to his personal account regarding various proprietary details
about Deluxe’s relationship with a customer, (id. ¶ 40), and retained “at least nine USB
devices containing confidential, proprietary, and/or trade secret business files of Deluxe,”
(id. ¶ 41, see also id. ¶¶ 42-47).
After the expiration of his eighteen-month non-competition agreement, Shaw
joined Harland Clarke. (Id. ¶ 48.)
In the summer of 2016, Deluxe’s longstanding
customer circulated a request for proposal (“RFP”) for a new contract. (Id. ¶ 53.) While
at Deluxe, Shaw retained information regarding this customer’s pricing and analytics and
numerous files about the customer. (Id. ¶¶ 51-52.) Harland Clarke and Deluxe submitted
competing proposals to the customer, (id. ¶ 53), and Harland Clarke won the bid, (id.
¶¶ 9, 50).
After losing the customer, Deluxe investigated whether Shaw took Deluxe’s trade
secret information. (Id. ¶ 10.) As a result of that investigation, Deluxe allegedly learned
that Shaw retained over 740 Deluxe files on his USB devices relating to Deluxe’s
longstanding customer, (id. ¶ 52), during the RFP process Shaw and Harland Clarke
presented the longstanding customer “pricing, guarantees, and incentives that negated
some of Deluxe’s strengths, and that were not typical Harland Clarke offerings,” (id.
¶ 53), and that “Shaw used Deluxe Confidential Sales Information to secure this
customer,” (id.). Deluxe also allegedly learned that nine USB devices that Shaw turned
over to Deluxe contained over seven thousand Deluxe files improperly retained, many of
which were accessed during Shaw’s employment at Harland Clarke, and that at least two
of the USB devices have been plugged into Shaw’s Harland Clarke work computer, (id.
On September 14, 2016, Deluxe filed a complaint against Shaw asserting claims
for breach of contract (Count I), misappropriation of trade secrets under DTSA and
OUTSA (Count II and Count III), breach of duty of loyalty (Count IV), and tortious
interference (Count V).
(Compl. ¶¶ 53-91, Sept. 14, 2016, Docket No. 1.)
November 7, 2016, Deluxe filed the Amended Complaint, adding allegations against
Harland Clarke to its DTSA and OUTSA misappropriation of trade secret claims
(Count II and Count III) and tortious interference claim (Count V). (Am. Compl. ¶¶ 7498, 107-111.) Deluxe also added a claim for unjust enrichment against both Defendants
(Count VI). (Id. ¶¶ 112-16.) On December 5, 2016, both Defendants moved to dismiss
Count II, Count III, Count V, and Count VI in the Amended Complaint. (Def. Harland
Clarke’s Mot. to Dismiss, Dec. 5, 2016, Docket No. 35; Def. Shaw’s Mot. to Dismiss,
Dec. 5, 2016, Docket No. 38.)
STANDARD OF REVIEW
In reviewing a motion to dismiss brought under Rule 12(b)(6), the Court considers
all facts alleged in the complaint as true to determine if the complaint states a claim for
“relief that is plausible on its face.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594
(8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). To survive a
motion to dismiss, a complaint must provide more than “‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action.’” Iqbal, 556 U.S. at 678
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Although the Court
accepts the complaint’s factual allegations as true, it is “not bound to accept as true a
legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555. “A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678.
MISAPPROPRIATION OF TRADE SECRETS (Counts II & III)
Defendants first move to dismiss Deluxe’s misappropriation of trade secrets
claims under DTSA and OUTSA. 1 Both statutes provide a damages action for the
“misappropriation” of a “trade secret.” 18 U.S.C. §§ 1836(b)(1), 1839(5); Ohio Rev.
Code §§ 1333.61(B), 1333.63(A).
Plausible Claim for Relief
Defendants argue the Court should dismiss the misappropriation of trade secret
claims under DTSA and OUTSA for failure to allege specific facts supporting
“misappropriation” of a “trade secret.” The Court disagrees.
The Agreement also provides that it “shall be governed by the laws of the state
where [Shaw] resides.” (Agreement at 6.) The Amended Complaint alleges Shaw is an Ohio
resident. (Am. Compl. ¶ 7.) Harland Clarke – a Texas-based company (id. ¶ 4) – asserts that the
Agreement’s choice-of-law provision does not govern Deluxe’s claims against Harland Clarke
because Harland Clarke is not a party to the Agreement and “reserves the right to brief the
choice-of-law issue at a later stage.” (Def. Harland Clarke’s Mem. in Supp. of Mot. to Dismiss
at 7 n.4, 15 n.10, Dec. 5, 2016, Docket No. 36.) Solely for the purpose of the motion to dismiss,
the Court will assume Ohio law applies to the claims against Harland Clarke.
First, a “trade secret” is defined in both statutes as information that “derives
independent economic value, actual or potential, from not being generally known to, and
not being readily ascertainable through proper means by, another person who can obtain
economic value from the disclosure or use of the information” and subject to “reasonable
measures to keep such information secret.” 18 U.S.C. § 1839(3); see also Ohio Rev.
Code § 1333.61(D).
Deluxe has adequately alleged facts to support its claim that the Confidential Sales
Information is a “trade secret” under both statutes because Deluxe alleged (1) that it
undertook efforts to maintain secrecy of that information, and (2) that information would
have significant value to its competitors. Deluxe explained that Shaw “had access to”
Confidential Sales Information, which included “detailed customer pricing data” and
“sales analysis [and] . . . strategies.” (Am. Compl. ¶ 18.)
Deluxe also alleged the various efforts it took to protect the Confidential Sales
Information. (Id. ¶¶ 30-38.) For example, Deluxe held employee training sessions on
protecting trade secret information, (id. ¶¶ 31-32), maintained a “Code of Ethics and
Business Conduct” emphasizing the importance of preserving confidentiality, (id. ¶ 33),
established a “Protection of Company Property and Information Assets policy” which
directed employees not use confidential information for any use other than Deluxe
business, (id. ¶ 34), preserved an employee handbook requiring employees return all
Deluxe assets once employment ended, (id. ¶ 35), and established internal information
classification and control guidelines for confidential information, (id. ¶ 37).
Next, Deluxe unequivocally asserted that “[t]his Confidential Sales Information is
not publicly known,” that Deluxe “invested significant time, effort, and expense over
many years to develop and preserve the confidentiality of its Confidential Sales
Information,” and that such information “would be of significant value to Deluxe’s
competitors.” (Id. ¶¶ 20-21.)
Thus, Deluxe has alleged sufficient facts to plausibly show that the Confidential
Sales Information is a trade secret.
Moreover, Deluxe also pled sufficient facts to support “misappropriation” of a
trade secret. “Misappropriation” is defined as “acquisition,” “disclosure,” or “use” of a
trade secret obtained through “improper means.” 2 18 U.S.C. § 1839(5); see also Ohio
Rev. Code § 1333.61(B). Deluxe alleged that Shaw “had access” to Confidential Sales
Information, (id.¶ 18), and that Shaw used the Confidential Sales Information “to secure
[Deluxe’s longstanding] customer,” (id. ¶ 53). Thus, Deluxe alleged that Shaw acquired
its trade secret information by improper means, and then improperly used or disclosed
Both DTSA and OUTSA define “improper means” to include “theft, bribery,
misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage
through electronic or other means.” 18 U.S.C. § 1839(6)(A); Ohio Rev. Code § 1331.61(A).
But DTSA provides that the term “improper means . . . does not include reverse engineering,
independent derivation, or any other lawful means of acquisition.” 18 U.S.C. § 1839(6)(B).
that information while working at Harland Clarke. 3 Such an allegation suffices under
both statutes to state a claim of trade secret misappropriation against Shaw.
Harland Clarke also asserts that, even if sufficient facts are alleged against Shaw
to plead an OUTSA claim, the Court should dismiss the misappropriation of trade secret
claims against Harland Clark because vicarious liability does not exist under OUTSA. 4
Ohio recognizes that “[g]enerally, an employer or principal is vicariously liable for the
torts of its employees or agents under the doctrine of respondeat superior.” Nat’l Union
Fire Ins. Co. of Pittsburg v. Wuerth, 913 N.E. 2d 939, 943 (Ohio 2009) (quoting Clark v.
Southview Hosp. & Family Health Ctr., 628 N.E.2d 46, 48 (Ohio 1994)). But OUTSA
does not expressly address whether vicarious liability exists and Ohio courts have not yet
weighed in on the issue. Thus, in the absence of controlling law from the Ohio Supreme
Court, the Court must predict whether the Ohio Supreme Court would conclude an
Harland Clarke argues Deluxe does not identify what Confidential Sales Information
Harland Clarke allegedly used in the RFP process or explain how such information Shaw
acquired in 2014 retained independent economic value in 2016. However, Deluxe does not need
to identify trade secrets with specificity in the Amended Complaint pursuant to Fed. R. Civ. P. 8
because identifying trade secrets with specificity would paradoxically jeopardize protecting those
trade secrets. See SL Montevideo Tech., Inc. v. Eaton Aerospace, LLC, 292 F. Supp. 2d 1173,
1179 (D. Minn. 2003) (“Rule 8 does not require the specificity Defendants seek. The exact
nature of the trade secret is a matter for discovery.” (citations omitted)). Here, Deluxe pled more
than a “sheer possibility that [Shaw] acted unlawfully” to satisfy the Twombly and Iqbal standard
and Deluxe’s allegations are more than sufficient to state a claim under Rule 8. See Iqbal, 556
U.S. at 678. Moreover, it is more than plausible that the trade secret information Shaw acquired
in 2014 retained economic value in 2016, as Deluxe asserted that “[financial institution] accounts
tend to go up for renewal every three to five years.” (Am. Compl. ¶ 56.)
The parties have not discussed, and the Court is not aware of any decision on, whether
vicarious liability exists under DTSA.
employer can be held vicariously liable under the OUTSA. See First Colony Life Ins. Co.
v. Berube, 130 F.3d 827, 829 (8th Cir. 1997).
OUTSA – like other Uniform Trade Secrets Act (“UTSA”) jurisdictions –
provides that the chapter does not affect “[o]ther civil remedies that are not based on
misappropriation of a trade secret.” Ohio Rev. Code § 1333.67(B)(2). Nearly every
UTSA jurisdiction has held that similar provisions suggest vicarious liability, as a
“general civil liability principle,” is unaffected by the UTSA because vicarious liability
is a civil remedy not based on misappropriation of trade secret. See, e.g., Thola v.
Henschell, 164 P.3d 524, 528-29 (Wash. Ct. App. 2007).
Moreover, courts recognize that the preemption provision found also in UTSA and
OUTSA, which “displace[s] conflicting tort, restitutionary, and other laws of this state
providing civil remedies for misappropriation of a trade secret,” Ohio Rev. Code
§ 1333.67(A), is not a barrier for vicarious liability because vicarious liability does not fit
within any of those enumerated forms of conflicting types of law. See Newport News
Indus. v. Dynamic Testing, Inc., 130 F. Supp. 2d 745, 750-51 (E.D. Va. 2001) (holding
the Virginia UTSA does not preempt vicarious liability because “[r]espondeat superior is
not an independent conflicting tort, civil claim or remedy. Rather, it is a legal precept
that presupposes the existence of an underlying claim”).
The sole UTSA jurisdiction that does not allow for vicarious liability under its
trade secret statute is Indiana, which has different statutory language than OUTSA and
other UTSA jurisdictions. Infinity Prods., Inc. v. Quandt, 810 N.E.2d 1028, 1033-34
(Ind. 2004). Indiana’s statute provides that “[t]he chapter displaces all conflicting law of
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this state pertaining to the misappropriation of trade secrets, except contract law and
criminal law.” Ind. Code § 24-2-3-1(c). Thus, where Ohio and the majority UTSA
jurisdictions explicitly state that its trade secret statute will not preempt “other civil
remedies,” Indiana’s statute impliedly preempts “other civil remedies.”
Because OUTSA’s statutory provisions align with the majority of UTSA
jurisdictions, the Court believes the Ohio Supreme Court would follow the majority
approach. “[W]hen possible, we construe the UTSA to achieve uniformity among [the
47] jurisdictions that have enacted it.” Thola, 164 P.3d at 528.
Because OUTSA has
relevant language which other courts have relied upon to support their determination that
vicarious liability is compatible with a UTSA, the Court finds that Deluxe pled a
plausible claim for relief on the grounds of vicarious liability and will deny Defendants’
motions to dismiss on those grounds.
TORTIOUS INTERFERENCE AND UNJUST ENRICHMENT (Counts V
Defendants also move to dismiss Deluxe’s tortious interference and unjust
enrichment claims, arguing those claims are preempted under OUTSA.
maintain that these common-law claims are inconsistent with Deluxe’s OUTSA claim
because the common-law claims are based on the same operative facts. See Stolle Mach.
Co. v. RAM Precision Indus., 605 F. App’x 473, 484-85 (6th Cir. 2015).
Assuming Defendants are correct that OUTSA preempts Deluxe’s common law
claims, “[a]lternative pleading is permitted and is not a basis to dismiss either or both
well pled, inconsistent legal theories.” Lunkenheimer Co. v. Pentair Flow Control Pac.
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PTY Ltd., No. 11-824, 2014 WL 4450034, at *5 (S.D. Ohio Sept. 10, 2014) (discussing
Fed. R. Civ. P. 8(d)(2)). Rule 8(d)(2) provides that “[a] party may set out 2 or more
statements of a claim or defense alternatively or hypothetically, either in a single count or
defense or in separate ones. If a party makes alternative statements, the pleading is
sufficient if any one of them is sufficient.”
Here, Deluxe may alternatively plead an OUTSA claim and the common-law
claims. See Teknol, Inc. v. Buechel, No. C-3-98-416, 1999 WL 33117391, at *2-3
(S.D. Ohio 1999) (allowing under Rule 8(d)(2) a defendant to plead in the alternative an
unjust enrichment claim and breach of contract claim). Therefore, the Court will deny
the Defendants’ motions to dismiss the tortious interference and unjust enrichment
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
Defendant Shaw’s Motion to Dismiss [Docket No. 35] is DENIED.
Defendant Harland Clarke Corp.’s Motion to Dismiss [Docket No. 38] is
DATED: August 3, 2017
at Minneapolis, Minnesota.
_____s/John R. Tunheim______
JOHN R. TUNHEIM
United States District Court
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