The Plot Plot Thickens: Trade Secret, Tortious Interference, Fiduciary Duty Claims Survive Motion to Dismiss
A judge from the US Court of Appeals for the Third Circuit sitting by designation in the US District Court for the District of Delaware denied a motion to dismiss claims of misappropriation of trade secrets, tortious interference and breach of fiduciary duty, finding that the plaintiff plausibly pled facts supporting each claim. Park Lawn Corp. v. PlotBox Inc., Case No. 20-cv-01484-SB (D. Del. Oct. 29, 2021) (Bibas, J., sitting by designation).
Park Lawn and PlotBox are competitors in the cemetery business. In 2018, Park Lawn began developing software to automate various cemetery management tasks to cut costs. Park Lawn also hoped to generate revenue by licensing the software to competitors. Park Lawn’s CEO, however, had been leaking information to PlotBox about the software, its unique features and Park Lawn’s strategy for licensing. The CEO also helped PlotBox in its efforts to recruit Park Lawn’s chief technology officer, who had been overseeing the software project. The CEO acted despite having signed confidentiality, non-compete and non-solicitation agreements. Park Lawn ultimately discovered the CEO’s involvement with PlotBox and fired him. Soon after, the CEO became PlotBox’s chairman. Park Lawn sued PlotBox for stealing its trade secrets, interfering with the CEO’s employment agreements and helping the CEO breach his fiduciary duty to Park Lawn. PlotBox moved to dismiss.
The district court denied the motion. As to the trade secret claims, PlotBox argued that it did not misappropriate any trade secrets since the CEO never actually gave PlotBox any information. The court found that the complaint alleged otherwise. In particular, the court noted the complaint alleged:
The CEO and PlotBox exchanged compromising emails discussing the “status,” “developments in ‘death-tech,’” and the CEO’s interest in becoming PlotBox’s chairman.
The CEO invited PlotBox executives to his home to discuss a “Park Lawn Update” and “Technical Presentation.”
The court found that these allegations plausibly alleged that the CEO could have disclosed a trade secret.
PlotBox argued that even if it did learn something from the CEO, it never knew that the CEO obtained that information through improper means. The district court again disagreed, finding that PlotBox should have known something was amiss since the CEO broke a promise to keep quiet. While the court acknowledged that PlotBox may have never read the CEO’s confidentiality agreement, PlotBox should have reasonably inferred that it was improper for the CEO of a competitor to disclose his company’s innovations.
PlotBox also argued for dismissal because any information it received from the CEO did not count as a trade secret under the Defend Trade Secrets Act. Once again, the district court disagreed, explaining that Park Lawn alleged that the information provided was technical in nature (e.g., unique features of software and strategy of selling it to rivals), Park Lawn took adequate measures to protect the information by only allowing a few employees who signed confidentiality agreements to access the software and the information was valuable because it was secret. The court thus permitted the trade secret claim to proceed.
The district court found that while the tortious interference claim could not proceed based on the CEO’s non-compete agreement, it could proceed based on his other employment agreements. With respect to the non-compete agreement, the court found that the employment contract was governed by Canadian law, which states that non-compete agreements are valid only in “exceptional circumstances,” which were not present in this case. As to the non-solicitation agreement, the court found Park Lawn plausibly pled breach of the agreement by virtue of the CEO soliciting its chief technology officer despite the CEO’s promise he would not “solicit the employment . . . of any” Park Lawn employee with whom he dealt. As to the confidentiality agreement, the court found Park Lawn adequately pled that its CEO provided confidential information relating to projects and strategies to PlotBox.
Regarding the claim for aiding breach of fiduciary duties, PlotBox argued that it was not liable because the CEO never breached any fiduciary duty since PlotBox never knew the CEO owed any fiduciary duty and never recruited Park Lawn’s chief technology officer. The district court rejected these arguments, finding that a CEO has fiduciary duties, PlotBox knew it was dealing with a CEO and PlotBox also knew that the CEO did not act loyally since he tried to recruit the chief technology officer. The court thus found the fiduciary duty claim survived.