Edifecs Inc. v. Tibco Software Inc.

• Decision Date: 17 December 2010
• Docket Number: Case No. C10–330 RSM.
• Citation: 756 F.Supp.2d 1313
• Parties: EDIFECS INC., a Washington corporation, Plaintiff,v.TIBCO SOFTWARE INC., a Delaware corporation, Defendant.
• Court: U.S. District Court — Western District of Washington

756 F.Supp.2d 1313

EDIFECS INC., a Washington corporation, Plaintiff,

v.TIBCO SOFTWARE INC., a Delaware corporation, Defendant.

Case No. C10–330 RSM.

United States District Court, W.D. Washington,at Seattle.

Dec. 17, 2010.

Thomas Lerner, Aneelah Afzali, Scott A.W. Johnson, Shelley Hall, Stokes Lawrence, Seattle, WA, for Plaintiff.Charles T. Graves, James A. DiBoise, Jimmy A. Nguyen, Wilson Sonsini Goodrich & Rosati, San Francisco, CA, Britton F. Davis, Wilson Sonsini Goodrich & Rosati, Seattle, WA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS AND GRANTING PLAINTIFF LEAVE TO AMEND COMPLAINT

RICARDO S. MARTINEZ, District Judge.

I. INTRODUCTION

This matter is before the Court upon defendant's Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6). Dkt. # 21. Defendant asks the Court to dismiss plaintiff's claims for trade secret misappropriation, breach of contract, and injunctive relief. After hearing oral argument on December 3, 2010 and having reviewed the parties' memoranda, the Court GRANTS defendant's motion to dismiss plaintiff's complaint with leave to amend.

II. BACKGROUND

This case arises from defendant's acquisition of plaintiff's chief competitor in the healthcare software solutions industry. Dkt. # 1, ¶ 2. Plaintiff alleges that the acquisition significantly threatened the confidentiality of its proprietary software technology held by the defendant under various licensing agreements. Plaintiff Edifecs Inc. (“Edifecs”), a Washington corporation, brought this diversity suit for breach of contract and trade secret misappropriation against defendant TIBCO Software, Inc. (“TIBCO”), a Delaware corporation with principal place of business in Palo Alto, California. The complaint was filed March 22, 2010. Dkt. # 1.

Edifecs, a software development and consulting company, entered into various licensing agreements with TIBCO, a business software company, beginning in 2001. Under the terms of the parties' license agreement, TIBCO was granted a license to “use, copy, manufacture and distribute object code for several of Edifecs's software products.” Dkt. # 1, ¶ 11. The license also granted to TIBCO the right to bundle Edifecs object code with TIBCO products. Id. Due to the confidential and proprietary nature of the information shared between parties, the license agreement expressly prohibited the “use, or disclosure to any person, either during the term or after the termination of [the License Agreement], any Confidential Information except for purposes consistent with the administration and performance of a party's rights or obligations hereunder, or required by law.” Id. at ¶ 13. Furthermore, the parties expressly agreed that each would “use a commercially reasonable degree of care ... to avoid disclosure of any Confidential Information of the other party.” Id. at ¶ 15.

On January 8, 2010, TIBCO publicly announced the acquisition of the Foresight Corporation as a separate subsidiary. Id. at ¶ 19. Because Foresight is Edifecs's chief competitor, Edifecs directed a letter to TIBCO listing Edifecs's proprietary and confidential information and reminding TIBCO of its duty to prevent disclosure as per the license agreement. Id. at ¶ 20. Edifecs proposed several “reasonable steps” for TIBCO to implement to ensure that no proprietary information fell into Foresight employee hands. See id. at ¶ 21–22. Edifecs alleges that TIBCO's refusal to implement these reasonable steps constituted a breach of its contractual duty to protect Edifecs's trade secrets. More specifically, Edifecs alleges that by failing to segregate Foresight employees from TIBCO employees that have had some level of involvement with Edifecs's proprietary material, TIBCO (1) breached its express obligation to use a commercially reasonable degree of care to protect the material from disclosure, (2) breached its implied duty of good faith and fair dealing, and (3) violated the Washington Uniform Trade Secrets Act (WUTSA), RCW 19.108.010 et seq. , for trade secret misappropriation. Id. at ¶¶ 23–46. Thus, Edifecs requests preliminary and permanent injunctive relief to prevent TIBCO employees having knowledge of Edifecs's trade secrets from commingling with Foresight employees.

TIBCO brought this 12(b)(6) motion to dismiss all four of plaintiff's causes of action.¹ It argues that under each cause of action Edifecs fails to make anything but speculative claims of future misuse of proprietary information.

III. DISCUSSION

A. Motion to Dismiss Standard

In reviewing a Rule 12(b)(6) motion to dismiss, the court must determine whether a plaintiff alleges sufficient facts to support a claim for relief. Broam v. Bogan, 320 F.3d 1023, 1033 (9th Cir.2003). Construing facts in the light most favorable to the plaintiff, the court should “accept as true all material allegations in the complaint [and] any reasonable inferences to be drawn from them.” Broam, 320 F.3d at 1028 (internal citations omitted). A complaint need not include detailed allegations, but it must have “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Furthermore, “where 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.’ ” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1951, 173 L.Ed.2d 868 (2009).

B. Choice of Law

Neither party disputes that Edifecs's contract claims should be evaluated under California law pursuant to a choice of law clause in the licensing agreement. However, the parties disagree about whether California law applies to Edifecs's tort-based trade secret misappropriation claim.

For diversity actions arising under 28 U.S.C. § 1332, federal courts apply “the forum state's choice of law rules to determine the controlling substantive law.” Patton v. Cox, 276 F.3d 493, 495 (9th Cir.2002). In Washington, courts must first determine whether an actual conflict of law exists before engaging in the choice of law analysis. Seizer v. Sessions, 132 Wash.2d 642, 648, 940 P.2d 261 (1997). If no actual conflict of law exists, the presumptive local law applies. Id. at 649, 940 P.2d 261. An actual conflict arises in cases where “the result of the issues is different under the laws of the two states.” Id. at 648, 940 P.2d 261. In the event that an actual conflict exists, Washington courts apply the “most significant relationship” test of the Restatement (Second) of Conflict of Laws § 145 (1971). Brewer v. Dodson Aviation, 447 F.Supp.2d 1166, 1175 (W.D.Wash.2006). This test requires courts to weigh the parties' state contacts by evaluating (1) where the injury occurred, (2) where the injurious conduct occurred, (3) the parties' place of incorporation, place of business, domicile, or place of residence, and (4) the place where the parties' relationship was centered. Id. at 1176. If contacts are evenly balanced between the parties, courts then “consider ‘the interests and public policies' of the concerned states.” Id. (internal citation omitted).

Here, TIBCO alleges that Edifecs's trade secret claim involves a theory of liability called “inevitable disclosure.” ² California does not recognize claims for inevitable disclosure. Whyte v. Schlage Lock Company, 101 Cal.App.4th 1443, 1463, 125 Cal.Rptr.2d 277 (Div. 3 Cal.2002) (“Lest there be any doubt about our holding, our rejection of the inevitable disclosure doctrine is complete.”). Washington, on the other hand, has yet to decide whether it rejects or adopts the inevitable disclosure doctrine. Compare Temco Metal Prod. v. GT Dev. Corp., 2000 WL 556607, at *3 (D.Or. May 5, 2000) (interpreting Washington law as providing limited endorsement of the doctrine), with Desert Sun Net LLC v. Kepler, 2006 WL 3091170, *8 (W.D.Wash. Oct. 27, 2006) (rejecting an inevitable disclosure-like claim as speculative). Edifecs argues that its trade secret misappropriation claim is actually a claim for “threatened misappropriation,” a theory of misappropriation that is either conceptually distinct from, or a derivative of, the theory of inevitable disclosure. Both Washington and California recognize threatened misappropriation. See, e.g., Central Valley General Hosp. v. Smith, 162 Cal.App.4th 501, 524, 75 Cal.Rptr.3d 771 (2008) (“that threatened misappropriation of trade secrets may be enjoined is the law of California despite the rejection of the inevitable disclosure doctrine by California courts.”).

Washington has a paucity of law concerning both inevitable disclosure and threatened misappropriation. Therefore, it is impossible for the Court to determine whether an actual conflict exists between the laws of California and Washington with respect to Plaintiff's trade secret claim, regardless of how that claim is characterized. Erring on the side of caution, the Court presumes that an actual conflict of law exists and applies the significant relationship test to determine the appropriate law to be applied.³

Plaintiff argues that the defendant fails to rebut the presumption favoring Washington law because the suit was brought by a Washington company that will be injured in Washington. The Court disagrees that this fact alone satisfies the significant relationship test. Applying the test's factors, neither party's contacts tip the scale in favor of one or the other. First, the injury occurred in Washington as Edifecs will feel the effects of trade secret misappropriation there. Second, the conduct that caused injury probably occurred in California. Although plaintiff notes that defendant has offices in Washington, it does not allege that the twelve individuals it seeks to restrain work outside of California. Therefore, this factor favors TIBCO. Third, the location of the parties favors neither side as Edifecs, although having some presence in Washington,...