Valvetech, Inc. v. Aerojet Rocketdyne, Inc.

Filing 71

DECISION AND ORDER: Aerojet's 51 Motion to Dismiss is GRANTED IN PART and DENIED IN PART and its 49 Motion to Seal is GRANTED. The Clerk of Court will file the unredacted version of Aerojet's memorandum of law in support of its Motion to Dismiss and ValveTech's Trade Secret Disclosure statement under seal.The following claims remain in this case: (1) trade secret misappropriation under federal law; (2) trade secret misappropriation under California law; and (3) replevin. All other claims are DISMISSED.SO ORDERED. Signed by Hon. Frank P. Geraci, Jr. on 9/26/2019. (AFM)-CLERK TO FOLLOW UP-

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
VALVETECH, INC.,
Plaintiff,

Case # 17-CV-6788-FPG

v.
DECISION AND ORDER
AEROJET ROCKETDYNE, INC.,
Defendant.

INTRODUCTION
On September 28, 2018, the Court entered a Decision and Order dismissing several claims
from Plaintiff ValveTech, Inc.’s Complaint against Defendant Aerojet Rocketdyne, Inc. ECF No.
25. By Stipulation and Order, the parties later agreed that ValveTech would file an Amended
Complaint, which it did on January 4, 2019. ECF Nos. 46-48.
The Amended Complaint contains six claims: one for breach of contract, two for trade
secret misappropriation (one under federal law and one under California law), two for unfair
competition (one under California common law and one under California statutory law), and
replevin. 1 ECF No. 48.
Aerojet now moves to dismiss the first through fifth claims of the Amended Complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6) and to seal its memorandum of law in support
of the motion. 2 ECF Nos. 49, 51.

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In its prior Decision and Order, the Court determined that California law applies to all of ValveTech’s claims except
its replevin claim, to which New York law applies, and that its replevin claim was properly pled and not subject to
dismissal. ECF No. 25 at 4-8, 13.

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ValveTech does not oppose the motion to seal; many documents have been sealed in this case because they relate to
ValveTech’s proprietary information.

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For the reasons that follow, the Motion to Dismiss is GRANTED IN PART and DENIED
IN PART and the Motion to Seal is GRANTED.
BACKGROUND
ValveTech engineers, designs, develops, and manufactures valves for use in aerospace
manufacturing. ECF No. 48 ¶ 20. In 2013, ValveTech contracted with Aerojet to test, integrate,
analyze, and manufacture valves for Aerojet’s use in an Orbital Maneuver and Control Program.
Id. ¶ 21.
As part of their business relationship, the parties executed two non-disclosure agreements
(NDAs)—one on August 31, 2011 and one on May 17, 2017—in which they agreed that all
proprietary information ValveTech provided to Aerojet would remain ValveTech’s property and
would be returned to it or destroyed at its request. Id. ¶ 23-24. Aerojet also agreed not to use
ValveTech’s proprietary information for any other business purpose and that it would not steal the
internal valve design. Id. ¶ 25. The NDAs were created to facilitate discussion between the parties
regarding ValveTech’s valve development process. See id. ¶ 23.
Under a purchase order executed in 2013, ValveTech was to provide the valves to Aerojet;
but Aerojet did not purchase ValveTech’s proprietary information or a license to use that
information. See id. ¶ 29-35. ValveTech eventually gave Aerojet the valves and related testing
results. See id. ¶ 36. In response, Aerojet informed ValveTech on July 17, 2017, that it was
terminating their business relationship and would develop the requisite valves internally. See id.
¶ 40.
ValveTech thus asked Aerojet to return its proprietary information. See id. ¶ 44. Aerojet
refused, used ValveTech’s proprietary information to develop its own valves, and shared the
information with third parties. See id. ¶ 44-50. This lawsuit followed.

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LEGAL STANDARD
A complaint survives a motion to dismiss under Rule 12(b)(6) when it states a plausible
claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555-56 (2007)). A claim for relief is plausible when the plaintiff pleads sufficient
facts that allow a court to draw reasonable inferences that the defendant is liable for the alleged
conduct. Iqbal, 556 U.S. at 678.
In considering the plausibility of a claim, the court accepts factual allegations as true and
draws all reasonable inferences in the plaintiff’s favor. Faber v. Metro. Life Ins. Co., 648 F.3d 98,
104 (2d Cir. 2011). At the same time, the court does not have to accord “[l]egal conclusions,
deductions, or opinions couched as factual allegations . . . a presumption of truthfulness.” In re
NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007) (quotation marks omitted).
When deciding a Rule 12(b)(6) motion, a court ordinarily may not rely on matters outside
the complaint unless it treats the motion as one for summary judgment under Rule 56 and gives
the parties a reasonable opportunity to present relevant evidence. 3 Fed. R. Civ. P. 12(d). However,
“the complaint is deemed to include any written instrument attached to it as an exhibit or any
statements or documents incorporated in it by reference.

Even where a document is not

incorporated by reference, the court may nevertheless consider it where the complaint relies
heavily upon its terms and effect, which renders the document ‘integral’ to the complaint.”
Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (quotation marks and
citations omitted).

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ValveTech attached numerous exhibits to its Amended Complaint, including the purchase order and NDAs that
Aerojet allegedly breached.

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DISCUSSION
I.

First Claim: Breach of Contract
ValveTech alleges that Aerojet breached three agreements: the 2013 purchase order and

the 2011 and 2017 NDAs. To state a breach of contract claim under California law, “a plaintiff
must plead the contract, plaintiffs’ performance (or excuse for nonperformance), defendant’s
breach, and damage to plaintiff therefrom.” Low v. LinkedIn Corp., 900 F. Supp. 2d 1010, 1028
(N.D. Cal. 2012) (citation omitted). As to damages, a plaintiff “must establish appreciable and
actual damage. Nominal damages, speculative harm, or threat of future harm do not suffice to
show legally cognizable injury.” Id. (quotation marks and citations omitted).
The parties expend an inordinate amount of effort briefing this claim and delving into
issues that go beyond the motion to dismiss standard. ValveTech’s breach of contract claim fails
for a simple reason: it has not pled actual damages resulting from Aerojet’s alleged breach of any
of the three agreements. Instead, it generally alleges that it “has been damaged, and continues to
be damaged in an amount to be determined at trial.” ECF No. 48 ¶ 82. As discussed above,
California law requires a plaintiff to plead appreciable and actual damage to show a legally
cognizable injury—ValveTech has not done so here.
In an attempt to save this claim, ValveTech points to the following allegations of the
Amended Complaint:
•

that Aerojet’s actions jeopardize the viability of its family business and the
livelihood of its employees, id. ¶ 18;

•

that it “bore the cost and risks associated with the valves” and developed
them “using solely ValveTech funds,” id. ¶¶ 21-22;

•

that Aerojet did not pay to purchase or license ValveTech’s proprietary
information, id. ¶¶ 45, 49; and

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•

that its trade secrets and proprietary information “derive independent
economic value from not being generally known, and not being readily
ascertainable through proper means,” id. ¶ 53.

But these allegations are merely speculative or contemplate a threat of future harm; moreover,
ValveTech does not allege how they stem from Aerojet’s alleged breach of any of the three
agreements.
ValveTech also argues that, because the Amended Complaint includes the purchase order
it “would have been paid under” but for Aerojet’s breach, the Amended Complaint identifies
money that ValveTech did not receive. ECF No. 56 at 11. In making this assertion, ValveTech
does not point to any specific portion of the purchase order or cite a monetary figure. But, even if
it had, ValveTech still has not alleged actual damage as a result of Aerojet’s actions.
ValveTech also points to the conclusion of its Amended Complaint, which seeks an
accounting for all profits Aerojet obtained due to its breach of the agreements and a return of that
money to ValveTech. ECF No. 56 at 11; ECF No. 48 at 25. But any such figures are entirely
speculative and do not amount to an allegation of actual damages.
Accordingly, because ValveTech has not pled actual damage resulting from Aerojet’s
alleged breach of any contract, Aerojet’s motion to dismiss as to ValveTech’s breach of contract
claim is GRANTED and that claim is DISMISSED.
II.

Second and Third Claims: Trade Secret Misappropriation
ValveTech’s second and third claims are for trade secret misappropriation: it brings one

claim under the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1839, et seq., and one under the
California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code § 3426.1, et seq.
The elements of a misappropriation of trade secrets claim under [DTSA] and
[CUTSA] are essentially the same. Under either statute, the owner of “information”
that the owner has made “reasonable” efforts to keep secret and which derives

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independent economic value from not being generally known to other persons, must
show the defendant’s wrongful acquisition, disclosure, or use thereof.
Becton, Dickinson & Co. v. Cytek Biosciences Inc., No. 18-CV-00933-MMC, 2018 WL 2298500,
at *2 (N.D. Cal. May 21, 2018) (quotation marks, alterations, and citations omitted).
To plead such a claim, “a plaintiff need not spell out the details of the trade secret on which
its claim is based,” but the plaintiff nonetheless has to “describe the subject matter of the trade
secret with sufficient particularity to separate it from matters of general knowledge in the trade or
of special knowledge of those persons skilled in the trade.” Id. at *3 (quotation marks and citations
omitted).
The Court finds that ValveTech has sufficiently pled the requisite facts to state a claim for
trade secret misappropriation under federal and California law. Specifically, ValveTech alleges
that its trade secrets “consist of its unique and innovative concepts and designs of specialty valves
for use in rocket engines” and that it derives independent economic value from those secrets not
being generally known. ECF No. 48 ¶¶ 53, 88, 98, 113, 123.
ValveTech describes its alleged trade secrets in greater detail in a separate Trade Secret
Disclosure statement that it filed under seal and incorporated into its Amended Complaint by
reference. 4 As an exhibit to that statement, ValveTech attached a list of numerous documents in
Aerojet’s possession that allegedly contain ValveTech’s trade secret information.
Among other things, the four-page Trade Secret Disclosure statement specifically
describes the valve and refers to its design and configuration process, unique poppet valve
configuration, and unique sealing technique. 5 In the attached exhibit, ValveTech provides a 33-

4

Although ValveTech submitted the Trade Secret Disclosure statement for sealed filing, it appears that it was never
entered on the docket. Accordingly, the Court will direct the Clerk of Court to file this document under seal.

5

The Court does not quote or otherwise describe the items set forth in the Trade Secret Disclosure statement so as to
maintain the confidentiality of that information.

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page list of documents that Aerojet has with ValveTech’s trade secret information and describes
each file by providing its name, a description of its contents, and the date and time it was last
modified.
Aerojet vigorously contends that ValveTech has not sufficiently identified its purported
trade secrets; however, based on all of the above, the Court finds that ValveTech has alleged its
trade secrets with sufficient particularity such that Aerojet can “ascertain at least the boundaries
within which the secret lies.” Alta Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 881 (N.D.
Cal. 2018) (citation omitted).
ValveTech also alleges that it made reasonable efforts to keep the above information secret.
It asserts that its NDA with Aerojet prohibited the release of ValveTech’s designs and other
proprietary information, required Aerojet to return such information to ValveTech upon
termination of their relationship, and enabled ValveTech to share information with Aerojet related
to its valve design, development, engineering, and analysis. ECF No. 48 ¶¶ 28, 30, 35, 97, 99,
122, 124.

ValveTech also alleges that it “repeatedly insisted” that Aerojet maintain the

confidentiality of the information it learned through their business relationship. Id. ¶¶ 100, 125.
Moreover, to maintain the secrecy of its valve design, ValveTech welded the outer cover of the
valves before giving them to Aerojet to hide the internal design and marked related records with
confidential and/or proprietary stamps. Id. ¶¶ 33-34.
Based on all of the steps taken, the Court finds that ValveTech made reasonable efforts to
maintain the secrecy of its trade secrets. See, e.g., Bal Seal Eng’g, Inc. v. Nelson Prod., Inc., No.
813CV01880JLSKESX, 2018 WL 4697255, at *6 (C.D. Cal. Aug. 3, 2018) (noting that “the
combination of the proprietary stamp, the terms of conditions of sale, and the use of NDAs in most
cases could lead a reasonable factfinder to conclude that [the plaintiff] took reasonable efforts to

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maintain the secrecy of the documents”); Gatan, Inc. v. Nion Co., No. 15-CV-01862-PJH, 2017
WL 1196819, at *6 (N.D. Cal. Mar. 31, 2017) (finding misappropriation allegations sufficient
where the plaintiff alleged that it had an NDA with the defendant who had a duty to maintain
confidentiality of the trade secrets, yet the defendant “built upon or modified” the trade secrets to
develop its own technology).
Finally, ValveTech adequately pled Aerojet’s wrongful acquisition, disclosure, or use of
its trade secrets. ValveTech alleges that, after Aerojet terminated the relationship and told
ValveTech it would design the valve internally, ValveTech asked Aerojet to return its proprietary
information in accordance with the terms of the purchase order and NDAs. ECF No. 48 ¶¶ 40, 44.
Among other things, ValveTech asked Aerojet to return “schematics, research and development
information, sketches, prototypes, data, exemplars, designs, drawings, and any other information
that was treated or designated as proprietary in accordance with the NDA.” Id. ¶ 44. But Aerojet
refused to return that information.
ValveTech alleges that, as a result, at least one Aerojet employee had access to
ValveTech’s trade secrets to work on the independent valve design; Aerojet maintained and used
ValveTech’s trade secrets at least five months beyond the termination of their contract; Aerojet
continues to use the trade secrets to develop its own valve; and Aerojet has shared and continues
to share its trade secrets with third parties. Id. ¶¶ 47-50.
Aerojet asserts that ValveTech has not properly alleged its wrongful acquisition,
disclosure, or use of any trade secrets, but ValveTech is not required to “plead exactly” how
Aerojet improperly obtained or used the alleged trade secrets. Autodesk, Inc. v. ZWCAD Software
Co., No. 5:14-CV-01409-EJD, 2015 WL 2265479, at *6 (N.D. Cal. May 13, 2015) (quotation
marks, alterations, and citation omitted). Because there has been no discovery yet, “it would be

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unreasonable to require” ValveTech to demonstrate “the precise ways” that Aerojet may have used
its trade secrets since Aerojet is the only one who has that information at this time. Id. (citation
omitted).
Accordingly, for all the reasons stated, the Court DENIES Aerojet’s motion to dismiss as
to ValveTech’s trade secret misappropriation claims.
III.

Fourth and Fifth Claims: Unfair Competition
ValveTech’s fourth and fifth claims are for unfair competition: it brings one claim under

California common law and one under statutory law, Cal. Bus. & Prof. Code § 17200. The Court
previously dismissed these claims because it found them to be based on the same nucleus of facts
as ValveTech’s trade secret misappropriation claims and therefore preempted by CUTSA. The
Court makes the same finding with respect to the claims set forth in the Amended Complaint.
“CUTSA occupies the field of common law claims based on the misappropriation of a trade
secret and preempts alternative civil remedies based on trade secret misappropriation.” Jun-En
Enter. v. Lin, No. CV 12-2734 PSG (SSX), 2012 WL 12886499, at *4 (C.D. Cal. Oct. 17, 2012)
(quotation marks and citation omitted). “To overcome CUTSA’s supersessive effect, a claim must
be based on more than the same nucleus of facts as the misappropriation of trade secrets claim for
relief. However, a claim based on the same nucleus of facts as the trade secret claim cannot escape
preemption merely because it alleges new facts, different damages, or a different theory of
liability.” Id. (quotation marks, alterations, and citations omitted).
Here, ValveTech attempts to save these claims by arguing that Aerojet deceived customers
by “passing off” ValveTech’s design as its own independent design. ECF No. 56 at 22-24. But
these new facts and different theory of liability do not change the core basis of ValveTech’s
allegations: that Aerojet is harming ValveTech by using and refusing to return or destroy

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ValveTech’s proprietary information. Specifically, in support of its unfair competition claims,
ValveTech alleges that Aerojet unlawfully used its proprietary information to create a variant or
derivative of ValveTech’s valve. ECF No. 48 ¶¶ 135, 137, 143. Similarly, in support of its trade
secret misappropriation claims, ValveTech alleges that Aerojet had “no rights to derive any
technology using ValveTech’s confidential information” and that it has used those trade secrets to
damage ValveTech and gain a competitive advantage. Id. ¶¶ 101, 103, 105, 126, 128, 130.
ValveTech also alleges that one of Aerojet’s employees had access to ValveTech’s trade
secrets and worked on Aerojet’s independent design. Id. ¶ 47. It further contends that Aerojet
continues to use its proprietary information to develop its independent design. Id. ¶ 49. Thus, the
allegation that Aerojet copied and then passed off ValveTech’s design as its own necessarily
depends on Aerojet’s misuse of ValveTech’s trade secrets, and therefore CUTSA preempts its
unfair competition claims. Jun-En Enter., 2012 WL 12886499, at *4 (“To the extent Defendants
used proprietary information that Plaintiffs have identified as trade secrets to divert customers
away from Plaintiffs, Plaintiffs’ common law claims[, including unfair competition,] are based on
the same nucleus of facts as Plaintiffs’ trade secret misappropriation claim and are, thus,
superseded by CUTSA.”).
Accordingly, for the reasons stated, Aerojet’s motion to dismiss as to ValveTech’s unfair
competition claims is GRANTED and those claims are DISMISSED.
CONCLUSION
Aerojet’s Motion to Dismiss (ECF No. 51) is GRANTED IN PART and DENIED IN
PART and its Motion to Seal (ECF No. 49) is GRANTED. The Clerk of Court will file the
unredacted version of Aerojet’s memorandum of law in support of its Motion to Dismiss and
ValveTech’s Trade Secret Disclosure statement under seal.

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The following claims remain in this case: (1) trade secret misappropriation under federal
law; (2) trade secret misappropriation under California law; and (3) replevin. All other claims are
DISMISSED.
IT IS SO ORDERED.
Dated: September 26, 2019
Rochester, New York

______________________________________
HON. FRANK P. GERACI, JR.
Chief Judge
United States District Court

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