Donoho v. Spacecraft Components Corp. et al

Filing 22

ORDER that 10 Motion to Dismiss is DENIED. Signed by Judge James C. Mahan on 6/17/15. (Copies have been distributed pursuant to the NEF - TR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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BRIAN DONOHO,

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Plaintiff(s),

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Case No. 2:15-CV-640 JCM (NJK)
ORDER

v.
SPACECRAFT COMPONENTS CORP., et al.,

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Defendant(s).

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Presently before the court is plaintiff/counter-defendant Brian Donoho’s (hereinafter

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“plaintiff”) motion to dismiss. (Doc. # 10). Defendant/counter-claimant Spacecraft Components

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Corp. (hereinafter “defendant”) filed a response, (doc. # 18), and plaintiff filed a reply, (doc. # 19).

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James C. Mahan
U.S. District Judge

I.

Background
The instant case arises out of an employment dispute. Defendant designs, distributes, and

manufactures environment connectors primarily for railway, military, and industrial use. (Doc. #
5). Plaintiff was employed as an at-will sales manager for defendant from approximately April
2010, through August 2013. (Doc. # 5). Plaintiff was terminated on or around July 19, 2013.
(Doc. # 2).
Plaintiff alleges that throughout his term of employment he was subjected to a variety of
discriminatory remarks and comments. (Doc. # 2). Plaintiff further asserts that he was terminated
because he filed formal complaints about this discriminatory conduct. (Doc. # 2). In addition,
plaintiff contends that defendant’s proffered reason for dismissing him for “business needs” is
mere pretext. (Doc. # 2).

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Upon being hired, plaintiff agreed to defendant’s technology policy, which included,

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among other provisions, that “company technology shall not be used to send (upload) or receive

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(download) copyrighted materials, trade secrets, proprietary financial information, or similar

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materials without prior authorization from Spacecraft Components management.” (Doc. # 18).

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On April 7, 2015, plaintiff filed a complaint alleging four causes of action: (1) national

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origin discrimination in violation of Title VII, 42 U.S.C. § 2000e-2 and NRS 613.330; (2) religious

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discrimination in violation of Title VII, 42 U.S.C. § 2000e-2 and NRS 613.330; (3) retaliation in

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violation of 42 U.S.C. § 2000e-3(a) and NRS 613.340; and (4) intentional infliction of emotional

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distress. (Doc. # 2). Defendant then filed a counterclaim against plaintiff for a violation of the

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Nevada Trade Secrets Act. (Doc. # 10).

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Defendant’s counterclaim alleges that, after plaintiff was terminated, plaintiff sent emails

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to his personal account containing confidential information including, but not limited to, pricing

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details, business plans, and client contact information. (Doc. #10). In particular, defendant alleges

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that plaintiff misappropriated this valuable corporate information by sending himself trade secrets

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from defendant’s servers for the purpose of circumventing defendant’s technology policy, security,

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and monitoring software. (Doc. #10).

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Plaintiff now moves to dismiss defendant’s counterclaim, arguing that the court lacks

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supplemental jurisdiction to rule on the counterclaim and that the counterclaim fails to state a claim

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upon which relief can be granted.

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II.

Legal standard

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a. Supplemental jurisdiction
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All counterclaims are either compulsory or permissive. Compulsory counterclaims are
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claims that “arise[] out of the transaction or occurrence that is the subject matter of the opposing
party’s claim” and “do[] not require adding another party over whom the court cannot acquire
jurisdiction.” Fed. R. Civ. P. 13(a). The Ninth Circuit has adopted the “logical relationship test”

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for determining whether a counterclaim is compulsory. In re Pegasus Gold Corp., 394 F.3d 1189,
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1196 (9th Cir. 2005). The test provides:
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James C. Mahan
U.S. District Judge

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A logical relationship exists when the counterclaim arises from the same aggregate
set of operative facts as the initial claim, in that the same operative facts serve as
the basis of both claims or the aggregate core of facts upon which the claim rests
activates additional legal rights otherwise dormant in the defendant.

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Id. (quoting In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992)); Sparrow v. Mazda Am. Credit, 385
F. Supp. 2d 1063, 1066 (E.D. Cal. 2005) (“Under this test, the court analyzes whether the essential
facts of the various claims are so logically connected that considerations of judicial economy and
fairness dictate that all issues be resolved in one suit.”) (internal citations, quotations, and
alterations omitted).

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All counterclaims that are not compulsory are permissive. Federal Rule of Civil Procedure

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13(b) states that “[a] pleading may state as a counterclaim against an opposing party any claim that

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is not compulsory.” Further, the advisory committee notes to the 2007 amendment of Rule 13

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require “[b]oth as a matter of intended meaning and current practice, a party may state as a
permissive counterclaim a claim that does grow out of the same transaction or occurrence as an
opposing party’s claim even though one of the exceptions in Rule 13(a) means the claim is not a
compulsory counterclaim.”

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28 U.S.C. § 1367(a) permits a federal district court to exercise supplemental jurisdiction
over state law claims when (1) the federal district court has original jurisdiction over the action
and (2) the other claims are so related to claims in the action within original jurisdiction that they
form part of the same case or controversy under Article III. Courts have abandoned “the analysis
for determining whether supplemental jurisdiction exists based on whether a counterclaim is
compulsory or permissive.” Sparrow, 385 F. Supp. 2d at 1067 (collecting cases).

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“The issue whether supplemental jurisdiction exists over counterclaims is determined by

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the language of § 1367.” Id. “Whether supplemental jurisdiction exists over a counterclaim

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depends on whether the state counterclaim and the federal claim [are] ‘so related . . . that they form
part of the same case or controversy under Article III of the United States Constitution.’ ” Id.
(quoting 28 U.S.C. § 1367(a)).
...
...

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James C. Mahan
U.S. District Judge

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b. Motion to dismiss

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A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which relief

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can be granted.” Fed. R. Civ. P. 12(b)(6). A properly pled complaint must provide “[a] short and

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plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2);

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Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed

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factual allegations, it demands “more than labels and conclusions” or a “formulaic recitation of the

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elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).

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“Factual allegations must be enough to rise above the speculative level.” Twombly, 550

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U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual

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matter to “state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (citation

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omitted).

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In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply

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when considering motions to dismiss. First, the court must accept as true all well-pled factual

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allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth.

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Id. at 678-79. Mere recitals of the elements of a cause of action, supported only by conclusory

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statements, do not suffice. Id.

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Second, the court must consider whether the factual allegations in the complaint allege a

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plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff’s complaint

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alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the

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alleged misconduct. Id. at 678.

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Where the complaint does not permit the court to infer more than the mere possibility of

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misconduct, the complaint has “alleged–but it has not shown–that the pleader is entitled to relief.”

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Id. at 679 (internal quotations omitted). When the allegations in a complaint have not crossed the

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line from conceivable to plausible, plaintiff's claim must be dismissed. Twombly, 550 U.S. at 570.

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The Ninth Circuit addressed post-Iqbal pleading standards in Starr v. Baca, 652 F.3d 1202

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(9th Cir. 2011). The Starr court held,

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James C. Mahan
U.S. District Judge

First, to be entitled to the presumption of truth, allegations in a complaint or
counterclaim may not simply recite the elements of a cause of action, but must
contain sufficient allegations of underlying facts to give fair notice and to enable
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the opposing party to defend itself effectively. Second, the factual allegations that
are taken as true must plausibly suggest an entitlement to relief, such that it is not
unfair to require the opposing party to be subjected to the expense of discovery and
continued litigation.

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Id. at 1216.

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III.

Discussion

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a.

Supplemental jurisdiction

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This court has original, federal question jurisdiction over

plaintiff’s

claims

against

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defendant pursuant to 28 U.S.C. § 1331. However, this court lacks original subject matter

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jurisdiction over the state law counterclaim asserted by defendant. The issue is whether this court

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may exercise supplemental jurisdiction over the counterclaim pursuant to 28 U.S.C. § 1367.

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“The traditional rule is that federal courts have supplemental jurisdiction over compulsory

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counterclaims, since a plaintiff would otherwise lose his opportunity to be heard on that claim.”

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Sparrow, 385 F. Supp. 2d at 1066. Federal Rule of Civil Procedure 13(a) provides that a

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compulsory counterclaim “arises out of the transaction or occurrence that is the subject matter of

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the opposing party’s claim.”

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In determining what constitutes a compulsory counterclaim, the Ninth Circuit applies a

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“logical relationship” test to determine whether a claim and counterclaim arise out of the same

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transaction or occurrence. Montana v. Goldin, 394 F.3d 1189, 1196 (9th Cir. 2005); see also in re

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Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992).

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The operative question is “whether the essential facts of the various claims are so logically

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connected that considerations of judicial economy and fairness dictate that all the issues be

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resolved in one lawsuit.” Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir.

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1987). Thus, courts must determine whether there is a substantial overlap between the facts

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necessary to the claim and counterclaim. Id. at 1251.

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Plaintiff alleges that defendant’s counterclaim is not compulsory and thus this court lacks

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subject matter jurisdiction over it.

According to plaintiff, his retaliation and national

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origin/religious discrimination claims are wholly unrelated and factually dissimilar to defendant’s

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U.S. District Judge

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trade secrets counterclaim. (Doc. # 10). Plaintiff further contends that allegations of improper use

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are inappropriate here as plaintiff now works in an unrelated field. (Doc. # 19).

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Here, the counterclaim meets the logical relationship test and is compulsory.

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allegations pertaining to plaintiff’s initial employment discrimination claims and defendant’s

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counterclaim stem from the same operative facts. Both parties’ claims are logically connected to

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their employment relationship and judicial economy is best served by adjudicating these issues in

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a single proceeding. Thus, under the traditional rule, this court has supplemental jurisdiction

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because the counterclaim is compulsory. See Sparrow, 385 F. Supp. 2d at 1066.

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However, many courts have abandoned “the analysis for determining whether

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supplemental jurisdiction exists based on whether a counterclaim is compulsory or permissive.”

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Sparrow, 385 F. Supp. 2d at 1067 (collecting cases). Supplemental jurisdiction is now determined

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based on the language of § 1367. Id. The language of § 1367 states, “[w]hether supplemental

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jurisdiction exists over a counterclaim depends on whether the state counterclaim and the federal

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claim [are] ‘so related . . . that they form part of the same case or controversy under Article III of

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the United States Constitution.’ ” 28 U.S.C. § 1367(a). The Ninth Circuit has not yet addressed

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this issue. Sparrow, 385 F. Supp. 2d at 1067.

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Based on the foregoing reasons, the court finds that supplemental jurisdiction also exists

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under the language of § 1367. The counterclaim is sufficiently related to initial claims to be part

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of the same case or controversy plaintiff alleges, and judicial economy is best served by

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adjudicating all of these issues in a single action.

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Both the underlying claim and counterclaim derive from an employment relationship

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between plaintiff and defendant. This relationship, coupled with the fact that this counterclaim

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aids in defendant’s after-evidence affirmative defense, creates a sufficient factual connection

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between the claims and makes the application of supplemental jurisdiction appropriate over

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defendant’s counterclaim.

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Notably, a district court may decline to exercise supplemental jurisdiction over a claim if:

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(1) the claim raises a novel or complex issue of state law; (2) the claim substantially predominates

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over the claim or claims over which the district court has original jurisdiction; (3) the district court

James C. Mahan
U.S. District Judge

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has dismissed all claims over which it has original jurisdiction; or, (4) in exceptional

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circumstances, there are other compelling reasons for declining jurisdiction. 28 U.S.C. § 1367(c).

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The court finds that none of the § 1367(c) exceptions apply and that it would be inefficient to

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dismiss defendant’s Nevada Trade Secrets Act counterclaim.

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Accordingly, this court exercises its discretion under 28 U.S.C. § 1367(a) to provide

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supplemental jurisdiction over defendant’s counterclaim. The court will now address plaintiff’s

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motion to dismiss for failure to state a claim.

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b.

Motion to dismiss

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To survive a motion to dismiss for a Nevada Trade Secrets Act claim, defendant must
allege: (1) a valuable trade secret; (2) misappropriation of the trade secret through use, disclosure,
or nondisclosure of use of the trade secret; and (3) the requirement that the misappropriation be
wrongful because it was made in breach of an express or implied contract or by a party with a duty
not to disclose. Frantz v. Johnson, 116 Nev. 455, 999 P.2d 351, 358 (Nev. 2000).
Defendant’s counterclaim alleges that plaintiff violated the Nevada Trade Secrets Act by
“acquiring trade secret information by improper means” and “misappropriat[ing] Spacecraft’s
trade secret information and materials for his own improper use to the detriment of Spacecraft.”
(Doc. # 5).
More specifically, defendant claims this violation occurred through plaintiff “send[ing]
himself, to his personal email address, numerous emails containing confidential, propriety and
trade secret information while he was employed with Spacecraft.” (Doc. # 5). Such information
included “customer lists and contact information, distributor information, customer invoices, sales
and marketing plans/reports, and pricing data.” (Doc. # 5). Defendant contends that plaintiff did
so for “no legitimate reason,” but instead to circumvent defendant’s technology policy as the
company maintains a web mail login for all salespeople. (Doc. # 5).
Defendant further alleges that plaintiff read and agreed to defendant’s technology policy,
which provides, in relevant part, that company technology (including email) “shall not be used to
send (upload) or receive (download) copyrighted materials, trade secrets, proprietary financial
information, or similar materials without prior authorization from Spacecraft Components

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U.S. District Judge

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management” and that the “use of the company technology for personal purposes is prohibited.”

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(Doc. # 5).

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Plaintiff argues that defendant’s counterclaim is solely a retaliatory reaction to plaintiff’s

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initial claims. (Doc. # 10). To support this proposition, plaintiff points to the fact that that this

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counterclaim was filed only after plaintiff was terminated and commenced suit against the

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defendant. (Doc. # 10). Plaintiff maintains that the alleged factual allegations are insufficient to

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show a breach of the Nevada Trade Secrets Act and to survive a Rule 12(b)(6) motion to dismiss.

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(Doc. # 10).
Accepting defendant’s allegations as true, the court finds that defendant has sufficiently

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alleged a violation of the Nevada Trade Secrets Act.

Defendant’s counterclaim alleges

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wrongdoing on the part of the plaintiff that goes beyond merely filing suit. Defendant sufficiently

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alleges that plaintiff improperly emailed himself confidential information, without permission,

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from the company servers. (Doc. # 5).

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Moreover, the “determination of whether corporate information, such as customer and

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pricing information, is a trade secret is a question for the finder of fact.” Frantz v. Johnson, 116

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Nev. 455, 466, 999 P.2d 351, 358 (2000). The Ninth Circuit held in Imax Corp. v. Cinema Tech.,

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Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998), that trade secrets should be described with “sufficient

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particularity,” and this court finds that defendant has sufficiently alleged a trade secret for Rule

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12(b)(6) purposes. (Doc. # 5). Accordingly, dismissal for failure to state a claim is not warranted.

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IV.

Conclusion

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Accordingly,

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IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff/counter-

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defendant’s motion to dismiss, (doc. # 10), be, and the same hereby is, DENIED.
DATED June 17, 2015.
__________________________________________
UNITED STATES DISTRICT JUDGE

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James C. Mahan
U.S. District Judge

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