Yeiser Research & Dev. LLC v. Teknor Apex Co.

• Decision Date: 29 November 2017
• Docket Number: Case No. 17–cv–1290–BAS–RBB
• Citation: 281 F.Supp.3d 1021
• Court: U.S. District Court — Southern District of California
• Parties: YEISER RESEARCH & DEVELOPMENT LLC, Plaintiff, v. TEKNOR APEX COMPANY, Defendant.

281 F.Supp.3d 1021

YEISER RESEARCH & DEVELOPMENT LLC, Plaintiff,
v.
TEKNOR APEX COMPANY, Defendant.

Case No. 17–cv–1290–BAS–RBB

United States District Court, S.D. California.

Signed November 29, 2017

281 F.Supp.3d 1032

Charles T. Hoge, Hoge Law Firm, La Jolla, CA, for Plaintiff.

Caroline Koo Simons, Grant Thomas Rice, Sheryl K. Garko, Fish & Richardson P.C., Boston, MA, Juanita R. Brooks, Megan Alexandra Chacon, Fish and Richardson, San Diego, CA, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S RULE 12(b)(6) MOTION TO DISMISS THE COMPLAINT

[ECF No. 16]

Hon. Cynthia Bashant, United States District Judge

281 F.Supp.3d 1033

The dispute before the Court concerns Plaintiff Yeiser Research & Development LLC's ("YRD") allegations that Defendant Teknor Apex Company ("Teknor") unlawfully used YRD's confidential information to develop and market Teknor's Zero–G Hose. In late 2013, YRD, an experienced developer of compact garden hoses, began sharing its information with Teknor, a manufacturer which allegedly had no prior experience in building or marketing such hoses. The parties subsequently entered into a Confidentiality Disclosure Agreement ("CDA") to protect the confidentiality of information YRD shared with Teknor. The CDA stated that any future joint projects would be governed by a Joint Development Agreement ("JDA"). Although the parties allegedly discussed a potential joint project, they never carried out the project, nor entered into a JDA. YRD subsequently brought suit against Teknor. Presently before the Court is Teknor's Rule 12(b)(6) motion to dismiss all seven claims YRD raises. (ECF No. 16.) YRD has opposed (ECF No. 22)¹ and Teknor has replied (ECF No. 21). For the reasons stated below, the Court grants in part and denies in part Teknor's Rule 12(b)(6) motion.

I. BACKGROUND

A. Factual Background

Plaintiff YRD, a family business, is a California company, which created a new retail market for compact garden hoses in the 2000s. (ECF No. 1–2 Ex. A (hereinafter "Compl.") ¶ 2.) Defendant Teknor is a privately-held Delaware corporation that sells rubber products and has an international presence with extensive retail distribution channels. (Id. ¶¶ 3, 7.)

In 2013, Teknor approached YRD through a common customer regarding development of a better compact hose than existed on the market. (Id. ¶ 7.) Although Teknor touted its position in the industry as a major hose manufacturer, Teknor indicated that it had no prior experience building or manufacturing compact hoses, and wanted either to purchase such a hose from YRD or jointly develop one for Walmart and other customers. (Id. ¶¶ 7–8.) YRD educated Teknor on the industry standard approach to flat or collapsible hoses and YRD's methods for building hoses, the strengths and weaknesses of the hoses on the market, and YRD's current and recommended marketing methods for building and marketing a new collapsible compact hose. (Id. ¶ 8.) YRD had recently solved technical issues with existing compact hoses on the market, and had effective marketing ideas. (Id. ¶ 11.) John Yeiser (YRD) noted to Michael Melo (Teknor) that Teknor would be an ideal business partner to commercialize what YRD had already discovered. (Id. ¶ 9.) Yeiser shared his expectation that the parties would establish a JDA for any future joint commercialization, with a royalty term for YRD of either $1.50 per product sold or 10% of all Teknor sales. (Id. ) Teknor acknowledged this expectation. (Id. )

The parties negotiated a CDA over the course of several months, which was finally executed on January 28, 2014. (Id. ¶ 11;

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Ex. 1 (hereinafter "CDA").) The CDA's purpose was to permit disclosure of confidential information between the parties in order to collaborate and share ideas pertaining to product development. (CDA § 1.) The CDA's confidentiality provisions excluded information that was already in the public domain, a party's possession at the time of disclosure, disclosed by a third party, or independently developed. (Id. ¶ 12; CDA §§ 2, 3(a)–(d).) However, the CDA's five-year non-competition clause, Section 4(g), required certain excluded information to be treated as confidential under certain circumstances. Except for information independently developed, if a party receiving information designated as confidential failed to "immediately notify" the disclosing party in writing that the information was subject to an exclusion, the information could not be used to compete for a term of five years, including from the date of the CDA's termination. (Id. ¶ 12; CDA §§ 4(g), 8.)

With the CDA in place, YRD provided prototype images, information about product performance, commercialization evaluation, and marketing ideas. (Compl. ¶ 13.) Between February 2014 and March 2014, Yeiser confirmed with Melo that Teknor considered this information to be new ideas under Sections 3(a)–(c) and Section 4(g) of the CDA. (Id. ¶¶ 13–14.) In mid–March 2014, YRD relied on Teknor's confirmation and provided more information, including detailed sales sheets and sales data, test results for confidential sleeve concepts, designs with multiple variations, prototypes and samples, and marketing ideas. (Id. ¶¶ 15, 17, 18.) YRD disclosed the sales advantages of its new concept hose, which existed nowhere on the market. (Id. ¶ 18.) Teknor acknowledged that the majority of this information was subject to the CDA's confidentiality provisions and Section 4(g). (Id. ¶¶ 15, 17, 19.) YRD's disclosures reflected its "revolutionary approach" for a new compact hose and a "breakthrough" consisting of a confidential new interior design and use of a heavy duty outer casing to yield a higher quality, more reliable hose than the existing hoses comprised of cheap materials and thin fabrics. (Id. ¶¶ 16, 17, 22.) The design provided added protection from punctures and reduced fatigue from clamping—features that were key to overcoming the stigma associated with the industry standard expandable flat hose. (Id. ¶¶ 17, 22–23.) YRD advised Teknor that it was developing for sale a new changed, interior hose design based on its disclosures to Teknor and sent Teknor prototypes. (Id. ¶ 18.)

Teknor subsequently decided to commercialize part of YRD's new hose design. (Id. ¶ 19.) Between March and April 2014, the parties had discussions about expanding their relationship, covering marketing, manufacturing, and costs. (Id. ¶¶ 20–21.) Teknor would mass produce the new hose under discussion, YRD would market through its longstanding relationship with QVC, and Teknor would market to its retail channels, starting with YRD's existing product. (Id. ¶ 20.) Thereafter, Melo solicited information on various production scenarios, which YRD provided subject to the CDA and which Teknor did not dispute was confidential. (Id. ¶ 21.) In July 2015, over a year after the parties' discussions, Yeiser asked Melo about whether Teknor was interested in another hose concept. (Id. ¶ 24.) But Melo was not, nor was Teknor working on anything new or outside of its core business. (Id. ) Teknor subsequently cancelled YRD's planned introduction and presentation to QVC. (Id. ) The CDA remained in place as did the alleged plans for a JDA. (Id. )

Enter Teknor's Zero–G Hose: a hose that includes an elastic inner layer, a slip coating layer with lubricating properties that increase the life of the hose, and an

281 F.Supp.3d 1035

outer sheath that covers the inner tube and slip coating layer. (Id. ¶ 25.) The Zero–G Hose's promotional information touted product attributes based on the confidential information YRD provided, including the hose's puncture resistance, kink-reducing design, pliable inner core, and durability. (Id. ¶¶ 23, 27.) YRD alleges that the majority of the hose's features pirated YRD's new compact hose concept. (Id. ¶¶ 25, 27.) While soliciting and receiving confidential information from YRD, Teknor, through Melo, was allegedly actively concealing its plan from the outset to pirate YRD's confidential information to develop and sell its own competing compact hose to retailers. (Id. ¶¶ 25–28.) By fall 2015, Teknor allegedly had begun secret discussions with Lowes and other retailers to sell its own compact hose. (Id. ¶ 26.) YRD now faces competition from Teknor and the Zero–G Hose. (Id. ¶ 40.)

B. Procedural Background

On May 23, 2017, YRD brought suit against Teknor in California Superior Court, alleging that Teknor breached multiple provisions of the CDA (Count 1), misappropriated YRD's trade secrets (Count 2), was unjustly enriched by failing to negotiate the JDA (Count 3), converted YRD's confidential and proprietary information (Count 4), interfered with YRD's prospective economic advantage (Count 5), engaged in unfair competition by using YRD's confidential and proprietary information (Count 6), and breached the implied covenant of good faith and fair dealing by failing to negotiate the JDA (Count 7). (Compl. ¶¶ 29-88.) YRD seeks damages, restitution, and injunctive relief against Teknor. (Id. Prayer for Relief.) Teknor subsequently removed the complaint to this District Court...