Albert's Organics, Inc. v. Holzman

• Citation: 445 F.Supp.3d 463
• Decision Date: 23 March 2020
• Docket Number: Case No. 19-cv-07477-PJH
• Parties: ALBERT'S ORGANICS, INC., Plaintiff, v. Greg HOLZMAN, et al., Defendants.
• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California

445 F.Supp.3d 463

ALBERT'S ORGANICS, INC., Plaintiff,

v.Greg HOLZMAN, et al., Defendants.

Case No. 19-cv-07477-PJH

United States District Court, N.D. California.

Signed March 23, 2020

Dan Mark Forman, Erin Amy Owen, Carothers DiSante & Freudenberger LLP, Los Angeles, CA, for Plaintiff.

Jesse Berg, Attorney at Law, Walnut Creek, CA, Stephen F. Henry, Stephen F. Henry, Attorney at Law, Berkeley, CA, Crystal Mothershead Gaudette, Robert Glenn Simpson, Kennedy, Archer & Giffen, Monterey, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

Re: Dkt. No. 26

PHYLLIS J. HAMILTON, United States District Judge Defendants Greg Holzman, Steve Akagaki, and Jason Laffer, TerraFresh Organics, LLC's ("TFO") motion to dismiss came on for hearing before this court on March 4, 2020. Plaintiff Albert's Organics, Inc. ("Albert's") appeared through its counsel, Dan Forman. Defendants Holzman, Akagaki, and Laffer appeared through their counsel, Stephen Henry, and defendant TFO appeared through its counsel, Crystal Gaudette. Having read the papers filed by the parties and carefully considered their arguments and relevant authority, and good cause appearing, the court hereby rules as follows for the following reasons.

BACKGROUND

On November 13, 2019, plaintiff Albert's filed a complaint ("Compl.") against defendants asserting nine causes of action: (1) Violation of the Defend Trade Secrets Act against Holzman, Akagaki, and TFO; (2) Violation of the California Uniform Trade Secrets Act against Holzman, Akagaki, and TFO; (3) Breach of Contract against Holzman, Akagaki, and Laffer; (4) Tortious Inducement to Breach Contract against Holzman, Akagaki, and TFO; (5) Tortious Interference with Business Relations/Contract against Holzman, Akagaki, and TFO; (6) Breach of Duty of Loyalty against Akagaki and Laffer; (7)Tortious Inducement to Breach Duty of Loyalty against Holzman, Akagaki, and TFO; (8) Unfair Competition against Holzman, Akagaki, and TFO; and (9) Interference with Prospective Economic Advantage against all defendants. Dkt. 1. On November 27, 2019, this court heard plaintiff's motion for temporary restraining order and on the same day denied the TRO motion, denied plaintiff's motion for expedited discovery, and granted plaintiff's motion to preserve evidence. Dkt. 19. Then, on January 10, 2020, defendants filed the present motion to dismiss and move to dismiss all claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. 26.

Albert's is a California corporation that imports and distributes specialty produce throughout the United States. In May 2011, Albert's entered into negotiations to purchase Purity Organic Holdings, Inc. d/b/a Pacific Organic Produce ("PACO"), a California corporation, which was a broker and distributor of produce. PACO was owned by defendants Holzman and Akagaki, who are both California citizens. Compl. ¶¶ 3, 11–12. In August 2012, the parties executed an asset purchase agreement pursuant to which Albert's purchased substantially all of PACO's assets, including its intellectual property and trade secrets. Id. ¶ 4. As a condition of the purchase agreement, Albert's offered employment to Holzman and Akagaki.

Holzman and Akagaki entered into Employment Agreements with Albert's on or about August 16, 2012. Id. ¶¶ 19–20. Laffer, a California citizen and a PACO employee, signed an Employment Agreement with Albert's in September 2012. Id. ¶¶ 13, 22. The Employment Agreements required defendants to only use Albert's confidential and proprietary information and trade secrets for Albert's legitimate business purposes. Id. ¶ 23. Holzman, Akagaki, and Laffer also agreed that should they desire to work in a competing business while employed by Albert's, that they would seek Albert's permission to proceed. Id. They also agreed to return all of Albert's confidential, proprietary and trade secret information at the termination of their employment. Id. Holzman, Akagaki, and Laffer worked for Albert's for years and continued to develop and expand Albert's confidential, proprietary and trade secret information associated with the supply, distribution and marketing of organic produce.

In March 2018, Holzman was terminated from employment with Albert's. Id. ¶ 31. Within days, he corresponded with one or more competitors of Albert's, disclosing confidential, proprietary, and trade secret information in an effort to recruit Albert's customers, suppliers, and key employees and announcing that he intended to launch his own competing business. Id. ¶ 32. Holzman's correspondence included the names of Albert's customers and suppliers, employees, pricing and financing resources, potential venture partners, key confidential business relationships, and key business information such as Albert's plans to expand and develop certain markets, Albert's investment commitments, profitability, Albert's business model, product sources, and import volumes. Id. ¶ 33.

In addition, Holzman enlisted Akagaki in his efforts to establish a competing business while Akagaki was still employed by Albert's. Id. ¶ 34. The two attempted to enlist other highly experienced Albert's employees to compete against Albert's. Id. At some point, Holzman commenced competition with Albert's through solicitation of business partners and investors that he learned as an employee at Albert's. Id. ¶ 36. Holzman eventually formed a new competing company called TerraFresh Organics, LLC. Plaintiff alleges that Akagaki joined Holzman in and around March 2018. Id. ¶ 34. Akagaki remained employed at Albert's until on or about January 4, 2019, when Akagaki's employment with Albert's ended. Id. ¶ 37.

By spring 2019, TFO hired Laffer, while Laffer was still employed by Albert's, as TFO's Vice-President of Sales. Id. ¶ 38. Prior to June 17, 2019, while still employed by Albert's, Laffer registered to attend an industry summit as a TFO representative and TFO publicized that Laffer and Holzman would attend the summit as TFO representatives. Id. ¶¶ 39, 42. Laffer sent in his letter of resignation on June 20, 2019. Id. ¶ 43. Albert's alleges, on information and belief, that defendants utilized Albert's confidential, proprietary and trade secret information to solicit business relationship for the benefit of TFO. Id. ¶ 44.

DISCUSSION

A. Legal Standard

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199–1200 (9th Cir. 2003). Under Federal Rule of Civil Procedure 8, which requires that a complaint include a "short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), a complaint may be dismissed under Rule 12(b)(6) if the plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013).

While the court is to accept as true all the factual allegations in the complaint, legally conclusory statements, not supported by actual factual allegations, need not be accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The complaint must proffer sufficient facts to state a claim for relief that is plausible on its face.

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 558–59, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’ " Id. at 679, 129 S.Ct. 1937 (quoting Fed. R. Civ. P. 8(a)(2) ). Where dismissal is warranted, it is generally without prejudice, unless it is clear the complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 2005).

B. Analysis

1. First and Second Claims: Misappropriation of Trade Secrets

Plaintiff's first and second causes of action are brought against Holzman, Akagaki, and TFO for violations of the federal Defend Trade Secrets Act ("DTSA") and the California Uniform Trade Secrets Act ("CUTSA"), respectively. "To state a claim for trade secret misappropriation under the DTSA and the CUTSA, a plaintiff must allege that: ‘(1) the plaintiff owned a trade secret; (2) the defendant misappropriated the trade secret; and (3) the defendant's actions damaged the plaintiff.’ " Alta Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 877 (N.D. Cal. 2018).

a. Whether Albert's Owned a Trade Secret

The DTSA defines "trade secret" as:

all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

18 U.S.C. § 1839(3). The California UTSA defines a "[t]rade secret" as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are...