Catalyst Advisors, L.P. v. Catalyst Advisors Investors Global Inc.

• Decision Date: 10 May 2022
• Docket Number: 21 Civ. 4855 (KPF)
• Citation: 602 F.Supp.3d 663
• Parties: CATALYST ADVISORS, L.P., Plaintiff, v. CATALYST ADVISORS INVESTORS GLOBAL INC. ("CAIG") and Christos Richards, Defendants.
• Court: U.S. District Court — Southern District of New York

602 F.Supp.3d 663

CATALYST ADVISORS, L.P., Plaintiff,

v.CATALYST ADVISORS INVESTORS GLOBAL INC. ("CAIG") and Christos Richards, Defendants.

21 Civ. 4855 (KPF)

United States District Court, S.D. New York.

Signed May 10, 2022

Alex Umansky, OlenderFeldman, LLP, Summit, NJ, for Plaintiff.

Robert Anthony Giacovas, Lainie Elissa Cohen, Jacob Ari Englander, Lazare Potter Giacovas & Moyle LLP, New York, NY, for Defendants.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:

Plaintiff Catalyst Advisors, L.P. ("Catalyst," or the "Company"), an international executive recruitment firm, filed suit against two of its former partners, Catalyst Advisors Investors Global Inc. ("CAIG") and Christos Richards (together, "Defendants"), for allegedly appropriating Plaintiff's proprietary information and then exploiting it to unfairly compete with Plaintiff. For this conduct, Plaintiff asserts claims for violation of the Defend Trade Secrets Act ("DTSA"), 18 U.S.C. §§ 1831 - 1839, common-law misappropriation of trade secrets, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Defendants have moved to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that Plaintiff has failed to establish the elements of its only federal claim under the DTSA and that the Court should decline to exercise supplemental jurisdiction over the remaining state-law claims. For the reasons outlined in the remainder of this Opinion, the Court grants in part and denies in part Defendants’ motion to dismiss.

BACKGROUND¹

A. Factual Background

1. Plaintiff's Business and Trade Secrets

Plaintiff is a Delaware limited partnership with its principal place of business in New York. (Am. Compl. ¶ 13). Plaintiff operates as an international executive recruitment firm that specializes in the placement of board members, CEOs, and other "C-suite" level positions in the biopharmaceutical and life sciences industry. (Id. at ¶ 14). Plaintiff explains that in the ordinary course of its business, it creates and maintains "confidential and proprietary" information, which includes: "resumes, curricul[a] vitae, proposal letters, contracts, progress reports, firm brochures, notes from client update calls and discussions with candidates, marketing materials, references, and other Catalyst internal documents" (together, "Catalyst IP"). (Id. at ¶ 38). Within the broad category of Catalyst IP is personalized information and analytics specific to each executive candidate that Plaintiff was hired to assess and recruit on behalf of its clients. (Id. at ¶ 39). Plaintiff expended hundreds of hours developing Catalyst IP, which included interviewing candidates and assessing their fit and eligibility for various roles that their clients sought to fill. (Id. at ¶¶ 40, 90). These information-gathering efforts allowed Plaintiff to garner institutional knowledge that endowed Plaintiff with a competitive advantage in the recruiting industry. (Id. at ¶ 40).

One specific component of Catalyst IP identified by Plaintiff in the Amended Complaint is its list of candidates, which list includes the names, current employers, titles, and contact information of more than 1,100 Chief Medical Officers and physician executives in the pharmaceutical industry around the world (the "Candidate List"). (Am. Compl. ¶ 89). In developing the Candidate List, Plaintiff spent hundreds of hours and thousands of dollars in data subscription fees. (Id. at ¶ 90). The Candidate List contains information that is not publicly available and that is valuable to anyone conducting executive searches in the field of biopharmaceuticals. (Id. at ¶ 93). This compilation of detailed information on specialized professionals attracts clients to Plaintiff's services. (Id. at ¶¶ 90, 94).

Plaintiff took several measures to protect Catalyst IP. (Am. Compl. ¶ 41). First , Plaintiff stored Catalyst IP in the Company's internal database (Invenias) and its file system (Sharepoint), which are accessible only to employees with an authorized username and password. (Id. at ¶ 41(a)). These databases are controlled internally and are not readily ascertainable or disclosed outside of the Company. (Id. at ¶ 42). Second , Plaintiff required all partners to execute the LPA, which contains confidentiality, non-compete, and non-solicitation provisions that cabin a partner's dissemination and use of confidential and proprietary information. (Id. at ¶¶ 28-29, 41(b)). Third , Plaintiff restricted access to Catalyst IP to partners and employees with reason to access such information, provided such individuals first executed the LPA. (Id. at ¶ 41(c)).

2. Defendants’ Partnership Roles with Plaintiff and the Amended Limited Partnership Agreement

Defendants are erstwhile partners of Catalyst. CAIG is a Delaware corporation, controlled and operated by its indirect controlling shareholder, Simon Bartholomew. (Am. Compl. ¶¶ 15-18, 22).² Christos Richards is a resident of Hermosa Beach, California. (Id. at ¶ 19).

In or around November 2013, Defendants approached Plaintiff's founder and managing partner about joining the Company as partners. (Am. Compl. ¶¶ 23-24). Defendants jointly negotiated the terms of their partnership roles with Plaintiff and secured equal voting rights under the LPA. (Id. at ¶ 24). CAIG, acting at all relevant times through Bartholomew, served as a partner at the Company from February 2014 through October 21, 2019. (Id. at ¶¶ 21-22). Richards served as a partner at the Company from January 2014 through October 4, 2019. (Id. at ¶ 20).

Prior to assuming their roles as partners in 2014, Defendants executed a limited partnership agreement, which was subsequently amended in 2018. (Am. Compl. ¶¶ 25-26). As relevant to this case, the LPA contains a confidentiality provision, a non-compete provision, and a non-solicitation provision.

First , the LPA's confidentiality provision calls for each partner to acknowledge that he or she may "receive confidential and proprietary information relating to the Company, including information relating to the Company's financial condition, prospects, business plans, and intellectual property and that the disclosure of such confidential information to a third party would cause irreparable injury to the Company." (LPA § 5.9(a)).³ The confidentiality provision goes on to provide that "[e]xcept with the prior written consent of the [Operating] Committee, a Partner shall not disclose any such information to a third party (other than on a ‘need to know’ basis to a Partner's Affiliate or Representative (each of whom must have agreed, before such disclosure, to maintain the confidentiality of such information))." (Id. ). A partner who discloses confidential information "will be liable to the Company for damages arising out of any such disclosure to or by such third parties." (Id. ). Lastly, the confidentiality provision obligates each partner to "use reasonable efforts to preserve the confidentiality of such information." (Id. ). A partner's restrictions pursuant to the confidentiality provision "survive until the third anniversary of the date the Partner is no longer a Partner." (Id. ).

Second , the LPA's non-compete provision restricts active partners of the Company from directly or indirectly (i) "interfer[ing] with, divert[ing], or otherwise seek[ing] to terminate or cause to be terminated, the relationship of the Company with any Company Customer"; or (ii) "provid[ing] services to any person that provides services in competition with the services provided by the Company." (LPA § 5.6).

The third and final provision of the LPA bearing on this dispute is the non-solicitation provision, which is statedly geared toward "protect[ing] [the] Company's legitimate trade secrets." (LPA § 5.7). Under this provision, at all times during a partner's tenure and for one year following:

a Partner shall not, ...: [i] hire, solicit, or encourage to leave, any Partner, employee, independent contractor or vendor of the Company; [ii] provide the name of any Partner, employee, independent contractor or vendor of the Company to any recruiting agency, contract consulting firm, or any other person for the purpose of enabling or assisting said person to obtain employment or provide services for a third person for any reason; [iii] hire, retain, or contract for the services of any Partner, employee, independent contractor or vendor of the Company except under a written agreement with the Company; or [iv] use any information provided by the Company pertaining to the Company's Partners, employees, independent contractors or vendors for any purpose other than for the purpose for which it was disclosed.

(Id. ).

3. Defendants’ Departures from Catalyst and Use of Plaintiff's Information

According to Plaintiff, the events giving rise to this suit stem from CAIG's and Richards's plans to unfairly compete against Plaintiff both during and following their time as partners at the Company. (Am. Compl. ¶¶ 31, 110-112). Plaintiff alleges that prior to leaving the Company, Defendants improperly obtained copies of Plaintiff's internal documents and used them to further their competing business interests. (See id. at ¶¶ 44, 88). Plaintiff asserts distinct allegations regarding each Defendant's conduct and the Court accordingly will discuss the allegations seriatim.

a. Richards's Departure

Richards began contemplating his departure from the Company in or around the beginning of 2019. (Am. Compl. ¶ 43). Unbeknownst to Plaintiff at the time, in preparation for his departure, Richards accessed, copied, and transferred Catalyst IP to his personal devices. (Id. at ¶ 44). Hoping to cover his tracks, Richards attended a mandatory partner meeting in New York on or around August 8, 2019, at which time he sought to exchange his work-issued laptop by fabricating a claim that it was not functional. (Id. at ¶¶ 45-49). Richards expected that Plaintiff would respond to his request by...