Universal Processing LLC v. Zhuang et al

Filing 24

MEMORANDUM ORDER granting 17 Motion to Dismiss. For the foregoing reasons, Defendants' motion to dismiss the Complaint is granted. This dismissal is without prejudice to the filing of a motion pursuant to Federal Rule of Civil Procedure 15 (a) for leave to amend the Complaint. Any such motion must be filed by October 12, 2018 and must be accompanied by a memorandum of law and a copy of the proposed amended complaint that is blacklined to identify the proposed changes. Failure to ma ke a timely motion for leave to amend, or to demonstrate in such a motion that amendment would not be futile, will result in dismissal of this action with prejudice and without further advance notice. This Memorandum Order resolves Docket Entry No. 17. SO ORDERED. (Signed by Judge Laura Taylor Swain on 9/28/2018) (anc)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNIVERSAL PROCESSING LLC,
Plaintiff,
-v-

No. 17 CV 10210-LTS

WEILE ZHUANG a/k/a VERA ZHUANG, &
ARGUS MERCHANT SERVICES LLC,
Defendants.
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MEMORANDUM ORDER
Plaintiff Universal Processing LLC (“Plaintiff” or “Universal”) brings this action
against Weile Zhuang a/k/a Vera Zhuang (“Zhuang”) and Argus Merchant Services LLC
(“Argus”) (collectively, “Defendants”), asserting a claim for trade secret misappropriation under
the Defend Trade Secrets Act, 18 U.S.C. § 1831 et seq., as well as state law claims for
conversion, intentional interference with contractual relations, breach of contract, breach of the
implied covenant of good faith and fair dealing, and defamation. This Court has subject matter
jurisdiction of Plaintiff’s federal trade secret misappropriation claim pursuant to 28 U.S.C. §
1331, and supplemental jurisdiction of Plaintiff’s state law claims pursuant to 28 U.S.C. § 1367.
Defendants have moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the
Complaint. The Court has considered the parties’ submissions carefully and, for the following
reasons, Defendants’ motion to dismiss is granted.

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BACKGROUND
The following allegations are taken from the Complaint and are presumed true for
the purposes of this motion.
Plaintiff Universal is a credit card processing business incorporated in the State of
New York, with its principal place of business in New York, New York. (Compl. ¶¶ 1-2.)
Defendant Zhuang resides in New Jersey and is a former Universal employee. (Id. ¶¶ 1, 3.)
Defendant Argus is also a credit card processing business incorporated in the State of New York,
with its principal place of business in New York, New York. (Id. ¶¶ 1, 4.)
Zhuang began working at Universal as a Marketing Associate in July 2017. (Id. ¶
8, Ex. 1.) Zhuang signed a Memorandum of Employment on July 25, 2017, a few days after she
began working at Universal. (Id. ¶ 9, Ex. 1.) The Memorandum includes a Confidentiality
provision that states:
By signing this Memorandum you agree that you will retain in strictest confidence all
information and data belonging to or relating to the business of Universal Processing
including but not limited to: workflows, client information, vendor information, staff
information, directories & databases, company practices[, and] any additional
information that the company might deem confidential. It is hereby agreed that each party
will safeguard such information and data by using the same degree of care and discretion
that it uses with its own data that such party regards as confidential.
(Id., Ex. 1 at pg. 2.)
Universal alleges that, in her role as Marketing Associate, Zhuang had unlimited
access to confidential information, including “marketing information, financial information,
client lists, business models, pricing formulas, customer data and social media sites, and
applications with specific Universal usernames and passwords.” (Id. ¶ 15.) Zhuang also had
login and access rights to the CS Platform and administrator access to the WeChat client support
account. (Id. ¶ 55.) The CS Platform and WeChat are digital platforms that Universal employs

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to exchange confidential company information with existing credit card processing clients. (Id. ¶
58.) Universal alleges that the WeChat platform is company property created by Universal years
before Zhuang joined as an employee. (Id. ¶ 60.)
Zhuang complained to the Universal Human Resources Department in October
2017 about professional differences she was experiencing with her manager, Steven Ding
(“Ding”). (Id. ¶¶ 19-21.) A few days before announcing her formal resignation from Universal,
Zhuang allegedly forwarded emails containing what Universal describes as “trade secret
information, namely marketing financial models” and initiatives “intended for company use
only,” from her Universal email account to her personal email account. (Id. ¶¶ 28-31 (internal
quotation marks omitted).) The emails were unencrypted “because the recipients of the original
email were authorized company email addresses.” (Id. ¶ 32.) Universal also alleges that Zhuang
deleted the forwarded emails from the outbox of her Universal email account. (Id. ¶ 33.) On
November 4, 2017, Ding and Universal Chief Executive Officer Saint Hung (“Hung”) became
aware of Zhuang’s actions. (Id. ¶ 35.) Universal then placed Google Vault on Zhuang’s email
account to prevent her from deleting emails and documents and to retain previously deleted
emails. (Id. ¶ 41.)
On November 6, 2017, Zhuang announced her formal resignation from Universal
and met with Universal’s Human Resources manager. (Id. ¶¶ 27, 49.) Universal alleges that the
Human Resources manager walked through the Memorandum of Employment with Zhuang,
reminding her of the confidentiality and nondisclosure clauses in the Memorandum of
Employment she had previously signed. (Id. ¶ 50.) Zhuang also signed another document that
states, “I understand and have had explained to me that pursuant to my employment
Memorandum, I may not take any personnel, business information, business plans or models, or

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clients from Universal Processing, LLC.” (Id. ¶ 52, Ex. 3.) Universal alleges that Zhuang’s
login and access to “all confidential, work sensitive applications . . . with the exception of the
CS Platform and WeChat,” were revoked upon her resignation. (Id. ¶ 55.) Universal asserts that
Zhuang has refused to release her administrator access to WeChat following her departure,
despite Universal employees’ attempts to engage with her and requests that she relinquish her
access. (Id. ¶¶ 61, 63, 76-77.)
Zhuang took a new position at Argus following her resignation. (Id. ¶¶ 27.)
Universal alleges that, after Zhuang joined Argus, Argus began a “targeted and concerted effort
to usurp trade and business relationships cultivated by Universal.” (Id. ¶¶ 87-89.)
On December 29, 2017, Universal filed its Complaint alleging that: by forwarding
work emails containing Universal’s confidential information to her personal email account prior
to resigning, Zhuang breached contractual agreements and misappropriated trade secrets; by not
relinquishing her access and credentials to Universal’s applications, Zhuang committed
conversion; and by joining Argus, Universal’s direct competitor, and attempting to induce
Universal’s employees to join her and to poach Universal’s clients, Zhuang and Argus
intentionally interfered with contractual relations. Universal also asserts a cause of action for
defamation for an online posting that included negative statements about Zhuang’s employment
experience at Universal. Finally, Universal pleads a separate cause of action against Defendants
for declaratory relief.
DISCUSSION
To survive a Rule 12(b)(6) motion to dismiss, a complaint must plead “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 proper complaint cannot simply recite legal conclusions or bare elements of
a cause of action; there must be factual content pled that “allows the court to draw the reasonable

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inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). Under the Rule 12(b)(6) standard, the court accepts as true the non-conclusory
factual allegations in the complaint and draws all reasonable inferences in the plaintiff’s favor.
Roth v. Jennings, 489 F.3d 499, 501 (2d Cir. 2007).
Universal asserts a claim for trade secret misappropriation under the Defend
Trade Secrets Act (the “DTSA”), 18 U.S.C. § 1836. The DTSA defines a “trade secret” as, inter
alia, any business information that “(A) the owner thereof has taken reasonable measures to keep
such information secret; and (B) . . . derives independent economic value . . . from not being
generally known . . . [or] readily ascertainable . . . [to] another person who can obtain economic
value from the disclosure or use of the information[.]” 18 U.S.C.S. § 1839(3)(A)-(B)
(LexisNexis 2018).
Defendants argue that Universal has failed to identify a trade secret in its
Complaint. Universal contends that it has sufficiently pled its claim for trade secret
misappropriation by identifying the Marketing Program financial model as the trade secret that
has been misappropriated and alleging its value to Universal as the “guideline and core of
Universal’s ‘micromarketing’ and ‘advanced marketing initiatives.’” (Compl. ¶¶ 28-30; Pl.
Mem. in Opp’n, ECF No. 21, at 6.)
While it is not necessary to disclose every detail of an alleged trade secret in a
complaint, the pleading standard set forth in Twombly and Iqbal requires that the complaint
allege facts sufficient to identify the information for which protection is claimed and sufficient
information about its nature, value, and measures taken to safeguard it to support an inference
that the information qualifies as a trade secret:

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Although there is no one-size-fits all definition to a trade secret [under the DTSA and
New York trade secret misappropriation law] . . . courts generally consider the following
factors to determine its contours:
(1) the extent to which the information is known outside of the business;
(2) the extent to which it is known by employees and others involved in the
business;
(3) the extent of measures taken by the business to guard the secrecy of the
information;
(4) the value of the information to the business and its competitors;
(5) the amount of effort or money expended by the business in developing the
information; [and]
(6) the ease or difficulty with which the information could be properly acquired or
duplicated by others.
In re Document Techs. Litig., 275 F. Supp. 3d 454, 462 (S.D.N.Y. 2017) (quoting Bancorp
Servs., LLC v. Am. Gen. Life Ins. Co., No. 14-cv-9687 (VEC), 2016 WL 4916969, at *11
(S.D.N.Y. Feb. 11, 2016)); see also Elsevier Inc. v. Doctor Evidence, LLC, No. 17 CV 5540,
2018 WL 557906, at *6 (S.D.N.Y. Jan. 23, 2018) (also applying this analysis to the
determination of whether a trade secret exists under the DTSA and New York law).
Universal’s pleading does not include factual allegations from which the Court
can understand what the Marketing Program financial model is and the basis of Plaintiff’s
contention that it is a trade secret within the meaning of the DTSA. Universal alleges that it
“takes reasonable steps to protect the secrecy of its trade secret information . . . which includes,
but is not limited to, [the] use of passwords, security timeouts and confidentiality policies and
non-disclosure covenants in employment agreements.” (Compl. ¶ 100.) Universal concedes,
however, that the files containing the Marketing Program financial model that Zhuang forwarded
to her personal email were not encrypted. (Id. ¶ 32.) As Judge Forrest recently reasoned in

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Elsevier Inc. v. Doctor Evidence, LLC, because trade secrets represent a subset of confidential
information, taking steps to protect information through a confidentiality agreement alone does
not suggest the existence of a trade secret. 2018 WL 557906, at *6. Additionally, Universal has
not proffered facts concerning the value and competitive advantage that the Marketing Program
financial model could provide to others, only alleging vaguely that it is “the guideline and core
of Universal’s ‘micro-marketing’ and ‘advanced marketing initiatives.’” (Compl. ¶ 30.) 1 See
Elsevier, 2018 WL 557906, at *6 n.2 (noting that the plaintiff’s pleading “[did] not plausibly
support the existence of a trade secret” where it did not address the value or secrecy of the
alleged trade secret at any point.). Cf. Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto
Grp., Inc., No. 15-CV-211 (LGS) (RLE), 2016 WL 5338550, at *6 (Sept. 23, 2016) (concluding
that defendants sufficiently pled the existence of a trade secret when they alleged the value and
competitive advantage provided by the information and detailed the reasonable measures they
took to protect the alleged trade secrets, including making information accessible only through
strictly controlled servers and imposing confidentiality provisions and limitations). Therefore,
Universal has not sufficiently alleged the existence of a trade secret protectable by the Act.
Universal’s claim for trade secret misappropriation is accordingly dismissed.

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Universal’s Complaint also lists general categories of information it alleges constitute
trade secrets that Defendants have misappropriated. These include, “Universal’s
merchant and client contact applications; the CS Platform and WeChat client and
merchant lists and contacts; marketing plans, marketing models, bidding strategies, and
other unique customer information.” (Compl. ¶ 103.) However, even when all
inferences are drawn in Universal’s favor in the context of a Rule 12(b)(6) motion, listing
general categories of information is not sufficiently specific to plead the existence of a
trade secret. See Elsevier, 2018 WL 557906, at *5-6. (explaining that, regardless of the
plaintiff’s security measures, simply pleading broad categories of information without
reference to the other criteria of a trade secret is insufficient)

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Universal’s cause of action styled as one for declaratory relief does not provide a
basis for the exercise of federal subject matter jurisdiction. The Declaratory Judgment Act, 28
U.S.C. § 2201, provides a federal remedy, but does not provide any basis for a federal claim in
cases in which there is no independent basis for exercising federal subject matter jurisdiction.
Porat v. Lincoln Towers Community Ass’n, No. 4-CV-3199 (LAP), 2005 WL 646093, at *7
(S.D.N.Y. 2005). Because there is no other viable basis for federal jurisdiction or substantive
relief under federal law pled in the Complaint, Universal’s cause of action for declaratory relief
is dismissed.
Having dismissed Plaintiff’s federal trade secret misappropriation and declaratory
judgment causes of action, the Court declines to exercise supplemental jurisdiction of Plaintiff’s
state law causes of action. 28 U.S.C. § 1367(c); See Lerner v. Fleet Bank, N.A., 318 F.3d 113,
130 (2d Cir. 2003) (“In most circumstances, a district court should decline supplemental
jurisdiction if all federal claims have been dismissed at the pleading stage.”).
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss the Complaint is
granted. This dismissal is without prejudice to the filing of a motion pursuant to Federal Rule of
Civil Procedure 15(a) for leave to amend the Complaint.
Any such motion must be filed by October 12, 2018 and must be accompanied by
a memorandum of law and a copy of the proposed amended complaint that is blacklined to
identify the proposed changes. Failure to make a timely motion for leave to amend, or to

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demonstrate in such a motion that amendment would not be futile, will result in dismissal of this
action with prejudice and without further advance notice.
This Memorandum Order resolves Docket Entry No. 17.

SO ORDERED.
Dated: New York, New York
September 28, 2018
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
United States District Judge

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