Deerpoint Grp., Inc. v. Agrigenix, LLC

• Decision Date: 17 June 2019
• Docket Number: Case No. 1:18-CV-0536 AWI BAM
• Citation: 393 F.Supp.3d 968
• Parties: DEERPOINT GROUP, INC., Plaintiff v. AGRIGENIX, LLC and Sean Mahoney, Defendants
• Court: U.S. District Court — Eastern District of California

393 F.Supp.3d 968

DEERPOINT GROUP, INC., Plaintiff

v.AGRIGENIX, LLC and Sean Mahoney, Defendants

Case No. 1:18-CV-0536 AWI BAM

United States District Court, E.D. California.

Signed June 17, 2019

Filed June 18, 2019

Shane Garrett Smith, Vanessa M. Cohn, David R. McNamara, McCormick Barstow Sheppard Wayte & Carruth LLP, Fresno, CA, for Plaintiff.

Charles Doerksen, Jesse Banuelos, Doerksen Taylor, Fresno, CA, Charles Kendall Manock, Manock Law, Fresno, CA, for Defendants.

ORDER ON DEFENDANTS' MOTION TO DISMISS

Anthony W. Ishii, SENIOR DISTRICT JUDGE

This is a business dispute involving intellectual property and trade secrets between Plaintiff Deerpoint Group, Inc. ("Deerpoint") and Defendants Agrigenix, LLC ("Agrigenix") and Sean Mahoney ("Mahoney"). Deerpoint brings federal claims for violations of 15 U.S.C. § 1125 (False Advertising) and 18 U.S.C. § 1836 (Defend Trade Secrets Act ("DTSA")), state law statutory claims for violations of Cal. Civ. Code § 3426.1 (California Uniform Trade Secrets Act ("CUTSA")), Cal. Bus. & Prof. Code § 17200 (Unfair Competition ("UCL")), two claims for breach of contract (two different contracts) and two related claims for breach of the implied covenant of good faith and fair dealing, and an intentional interference with prospective economic advantage ("IIPEA") claim. Currently before the Court is Defendants' second Rule 12(b)(6) motion to dismiss. For the reasons that follow, Defendants' motion will be granted in part and denied in part.

RULE 12(b)(6) FRAMEWORK

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. See Mollett v. Netflix, Inc., 795 F.3d 1062, 1065 (9th Cir. 2015). In reviewing a complaint under Rule 12(b)(6), all well-pleaded allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Kwan v. SanMedica, Int'l, 854 F.3d 1088, 1096 (9th Cir. 2017). However, complaints that offer no more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Johnson v. Federal Home Loan Mortg. Corp., 793 F.3d 1005, 1008 (9th Cir. 2015). The Court is "not required to accept as true allegations that contradict exhibits attached to the Complaint or matters properly subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Seven Arts Filmed Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013). To avoid a Rule 12(b)(6) dismissal, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Mollett, 795 F.3d at 1065. "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 ; Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). "Plausibility" means "more than a sheer possibility," but less than a probability, and facts that are "merely consistent" with liability fall short of "plausibility." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Somers, 729 F.3d at 960. The Ninth Circuit has distilled the following principles for Rule 12(b)(6) motions: (1) to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively; (2) the factual allegations that are taken as true must plausibly suggest entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation. Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014). In assessing a motion to dismiss, courts may consider documents attached to the complaint, documents incorporated by reference in the complaint, or matters subject to judicial notice. In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1051 (9th Cir. 2014). If a motion to dismiss is granted, "[the] district court should grant leave to amend even if no request to amend the pleading was made...." Ebner v. Fresh, Inc., 838 F.3d 958, 962 (9th Cir. 2016). However, leave to amend need not be granted if amendment would be futile or the plaintiff has failed to cure deficiencies despite repeated opportunities. Garmon v. County of L.A., 828 F.3d 837, 842 (9th Cir. 2016).

BACKGROUND FACTS

From the First Amended Complaint ("FAC"), Deerpoint is in the business of chemical water treatment solutions for agriculture irrigation. Over the past decade, Deerpoint has enjoyed explosive demand for its precision-fed patented fertilizers at custom irrigation sites. Deerpoint utilizes integrated systems of fertilizers, which are custom-blended through proprietary methods, and applied to crops through data-controlled mechanical delivery systems. Deerpoint's fertilizers are tailored to a variety of crops and conditions. Further, at the heart of Deerpoint's fertigation¹ program is patented precision feeding equipment, which has been nicknamed the "White Box" by Deerpoint's customers. Deerpoint has invested millions of dollars customizing its fertilizers, foliar products, and equipment to a wide range of crops and environments, and archives its products and services for the growers that use its services.

Deerpoint puts a premium on its employees to maintain strict confidentiality over its proprietary formulations, practices, methods, insights, intellectual property, and other information. Since Deerpoint's founding in 1993, it has required its employees and executives to execute a detailed confidentiality agreement, the Employees Invention and Secrecy Agreement (the "EIS"). Deerpoint steadfastly enforces the EIS. Since at least 2000, every employee has signed the EIS. Deerpoint's employee handbook also contains policies relating to confidentiality, and in 2016, Deerpoint implemented a new-hire training program that highlighted its policies, including the confidentiality policies. Deerpoint also regulates the access and exchange of information within the company, restricts access to certain information, and ensures that its confidential information is confined to company-owned computers. Deerpoint also requires its vendors and suppliers to sign a secrecy agreement that protects Deerpoint's confidential, proprietary, and trade secret information before a business relationship is created.

Until October 4, 2017, Mahoney was the Chief Executive Officer of Deerpoint. Mahoney signed the EIS and an updated EIS in 2016. Despite the EIS, Mahoney acted to gain access to, and download from, a central computer Deerpoint's confidential, proprietary, and trade secret information. Further, prior to his departure, Mahoney was seen removing files and documents relating to formulation manufacturers, vendors, and suppliers. Mahoney and Deerpoint mutually agreed to terminate his employment on October 4, 2017.

On October 3, 2017, Mahoney filed a lawsuit in the Fresno County Superior Court against Deerpoint ("the Lawsuit"). On October 7, 2017, Mahoney filed an administrative complaint with the California Department of Fair Housing and Employment against Deerpoint. These matters were stayed pending settlement negotiations.

Sometime in October 2017, Mahoney launched a direct competitor to Deerpoint, Agrigenix. Mahoney is the president and chief executive officer of Agrigenix. Agrigenix promotes itself as an alternative to Deerpoint by feeding crops the precise nutrients needed, in exactly the right amounts, at the right time for optimum growth. Agrigenix states that it provides a full line of nutrients and fertilizer blends formulated with proprietary chemistries. However, the blends are pirated from Deerpoint. Agrigenix also has foliar blends that mimic Deerpoint. Mahoney and Agrigenix possessed Deerpoint's confidential, proprietary, and trade secret information, and Mahoney founded Agrigenix on trade secrets misappropriated from Deerpoint. It also appears that Agrigenix/Mahoney have taken steps to steal and copy Deerpoint's White Box technology. Agrigenix has told Deerpoint's customers that it is "the same as Deerpoint with a twist," but in reality, Agrigenix is blatantly copying Deerpoint's products. Mahoney has told Deerpoint clients that he has no secrecy obligations to Deerpoint. Four large clients of Deerpoint, representing $2.4 million in revenues, have switched to Agrigenix.

On January 8, 2018, Mahoney and Deerpoint signed a Settlement Agreement ("the Settlement"). The Settlement resolved the Lawsuit and all other claims that the Mahoney and Deerpoint had against each other. The Settlement included a provision that Paragraph 3 of the EIS remained in full force, a provision in which Mahoney acknowledged the confidential and proprietary nature of Deerpoint's trade secret information, a provision in which Mahoney agreed not to divulge or use Deerpoint's trade secrets and to take steps to protect such information from disclosure, and a provision to return Deerpoint's property that was in Mahoney's possession.

Around March 2018, Agrigenix installed at least four devices that approximate Deerpoint's White Boxes.

DEFENDANTS' MOTION TO DISMISS

1. First Cause of Action – CUTSA ² Defendants' Argument

Agrigenix argues that in order for it to be liable for trade secret misappropriation under CUTSA, it must have acquired the trade secrets from someone other than Deerpoint. However, the FAC alleges that Mahoney...