Court: District Court, W.D. New York; December 9, 2018; Federal District Court
Mastercraft Decorators, Inc. is involved in litigation against former employee Randy Orlando and his new employer, Grandstand Glassware and Apparel. The complaint includes eight claims: (1) tortious interference with contract, (2) tortious interference with prospective economic advantage, (3) breach of a non-compete covenant, (4) breach of a non-solicitation covenant, (5) unfair competition, (6) misappropriation of trade secrets, (7) defamation, and (8) breach of fiduciary duty. Orlando has moved to dismiss the complaint for failure to state a claim, while Grandstand seeks dismissal for lack of jurisdiction, adopting Orlando's arguments. The court has ruled to dismiss Mastercraft's complaint without prejudice.
Mastercraft, a New York-based custom glassware distributor, employed Orlando as a salesperson for over five years. After relocating to Tennessee, Orlando resigned and was subsequently hired by Grandstand, a competitor based in Kansas. Mastercraft accuses Orlando of misappropriating confidential information, including customer lists, to solicit its clients for Grandstand. Additional allegations include breaches of non-compete and non-solicitation agreements, tortious interference with business relations, defamation, and a breach of fiduciary duty.
In evaluating the motions to dismiss, the court applies Federal Rule of Civil Procedure 12(b)(6), which requires accepting the complaint's factual allegations as true and inferring all reasonable inferences in favor of the plaintiff. The complaint must present sufficient factual matter to create a plausible claim for relief, as outlined by established legal standards.
Grandstand's Motion to Dismiss for Lack of Jurisdiction is upheld, as Mastercraft fails to establish personal jurisdiction over Grandstand, a Kansas corporation. Personal jurisdiction is categorized into specific and general types. Specific jurisdiction relies on the defendant's in-state activities related to the litigation, while general jurisdiction applies when a defendant's contacts with the state are so extensive that the defendant is considered "at home" there. The primary locations for general jurisdiction are the defendant's place of incorporation and principal place of business.
Specific jurisdiction in New York is governed by Section 302 of the C.P.L.R., which outlines three bases:
1. **Section 302(a)(1)** permits jurisdiction if the defendant transacts business or contracts to supply goods or services within New York. Mastercraft's complaint does not allege that Grandstand conducts such business in New York, thus this section is not met.
2. **Section 302(a)(2)** allows jurisdiction if the defendant commits a tortious act within the state, requiring physical presence in New York during the act. Mastercraft claims that tortious acts occurred in New York, causing damage there, but does not assert that any wrongful acts were performed while physically present in New York, failing to satisfy this section.
3. **Section 302(a)(3)** permits jurisdiction for tortious acts committed outside the state that cause direct injury within the state. The injury must be direct, not merely consequential or remote, which excludes mere financial consequences from the location of the plaintiff. This principle limits jurisdiction for claims like tortious interference when the injury is related to losing a customer outside of New York.
As a result, none of the bases for specific jurisdiction under New York law are established, leading to the dismissal of Mastercraft's claims against Grandstand.
Mastercraft's claim that Defendants caused damage in New York is insufficient because it does not specify any lost New York customers, failing to meet the "injury within New York" requirement under Section 302(a)(3). The court cannot establish specific jurisdiction over Grandstand as Mastercraft did not demonstrate that Grandstand has sufficient contacts in New York to be considered "at home" there, leading to the granting of Grandstand's motion to dismiss.
Regarding Orlando's motion to dismiss for failure to state a claim, the court agrees with Orlando that Mastercraft's eight claims are inadequately stated and grants the motion. Specifically, for the claim of tortious interference with contract, Mastercraft's allegations about longstanding customer relationships and intentional interference are insufficient. The court emphasizes that Mastercraft fails to identify specific customer contracts affected by Defendants, referencing prior cases where similar deficiencies led to dismissals. Consequently, the court grants the motions to dismiss related to the first claim of tortious interference with contract.
Claim 2 for tortious interference with prospective economic advantage under New York law requires plaintiffs to establish: 1) an existing business relationship with a third party, 2) the defendant's knowledge of this relationship and intentional interference, 3) that the defendant acted out of malice or used improper means, and 4) that such interference caused injury to the relationship. New York courts have dismissed claims lacking specificity about the business relationship involved. Post-Iqbal, mere conclusory allegations are insufficient to survive a motion to dismiss. In this case, Mastercraft only claims to have business relations with its customers but fails to specify any particular relationships or demonstrate that defendants were aware of them. Consequently, the court grants the defendants' motions to dismiss this claim.
For claims 3 and 4, alleging breach of covenant not to compete/solicit, New York law necessitates that a plaintiff demonstrate: 1) a valid contract, 2) adequate performance by the plaintiff, 3) a breach by the defendant, and 4) damages resulting from that breach. Mastercraft's claims rely on a provision from its Employee Handbook that restricts employee solicitation of customers during and for 24 months after employment. However, Mastercraft does not establish that the Handbook constitutes a valid contract, that it performed adequately under any contract, or that the defendants' actions led to damages beyond vague assertions. Therefore, Mastercraft fails to adequately state a claim for breach of covenant not to compete/solicit.
Defendants contend that Mastercraft's third and fourth claims are barred by disclaimers in the Employee Handbook, which state that the handbook does not constitute an express or implied employment contract. Citing Lobosco v. New York Tel. Co./NYNEX, the court notes that an employee handbook with a clear disclaimer of contractual rights prevents claims for breach of employment agreements. However, Mastercraft does not allege an employment agreement, indicating that the disclaimer does not outright preclude claims related to breach of covenant not to compete or solicit. Additionally, the handbook's disclaimer pertains only to employment contracts and does not negate contractual obligations concerning confidentiality. Despite this, Mastercraft's failure to adequately state a claim for breach of covenant results in the granting of Defendants' motions to dismiss regarding the third and fourth claims.
For claims five, six, and eight—unfair competition, misappropriation of trade secrets, and breach of fiduciary duty—New York law requires a party to show possession of a trade secret and that the defendants used it improperly. A trade secret is defined as any information that provides a competitive advantage. Misappropriation of confidential information requires evidence that the defendant used the plaintiff's confidential information to gain a competitive edge. An unfair competition claim necessitates allegations of misappropriation of the plaintiff's resources coupled with bad faith. Courts typically analyze misappropriation and unfair competition claims together. At the pleading stage, plaintiffs must generally identify the trade secrets but are not required to provide specific details. Conclusory claims of trade secret status are inadequate to withstand a motion to dismiss.
A plaintiff claiming trade secret protection must allege sufficient facts to demonstrate that the information is secret, which includes detailing the measures taken to protect its secrecy. New York courts assess trade secret status using six factors: (1) the information's public knowledge, (2) employee access, (3) protective measures implemented, (4) the information's value to the business and competitors, (5) the resources invested in developing the information, and (6) the difficulty of acquiring or replicating the information. These factors serve as guidelines rather than strict requirements, with the key focus being whether the information is genuinely secret. In the case of Mastercraft, the company asserts that its trade secrets include customer lists, pricing data, marketing strategies, order histories, and login information for websites. The defendants contend that Mastercraft's claims are too vague to substantiate that this information qualifies as trade secrets. While Mastercraft argues that it does not need to specify its trade secrets at this stage, the court aligns with the defendants, emphasizing the necessity of alleging facts that support the secrecy of the information. The court referenced a precedent indicating that demonstrating secrecy involves showing substantial exclusivity and precautionary measures, such as confidentiality agreements and limited access to information. In a prior case, the court found insufficient evidence of secrecy because the plaintiff's claims were conclusory and lacked specific details about protective measures.
Mastercraft's allegations regarding its trade secrets lack sufficient detail to support its claims. Specifically, while it asserts that the information is not publicly available and that its Employee Handbook designates certain information as confidential, these claims are vague and insufficient. The court references several precedents, including Hyo Jung v. Chorus Music Studio, Inc., which emphasized that mere assertions without factual content do not establish a trade secret. Mastercraft fails to address the six critical factors typically used to evaluate trade secrets:
1. The extent to which the information is known outside the business, which it claims is not "generally available" but does not elaborate further.
2. Knowledge of the information among employees and associates, which is not addressed.
3. Measures taken to protect the secrecy of the information, limited to the handbook's confidentiality notice.
4. The value of the information to the business, described only in broad terms without specifics.
5. Efforts or money spent to develop the information, which are not mentioned.
6. The ease or difficulty of acquiring or duplicating the information, which is also not addressed.
Although detailed allegations are not strictly required at the motion to dismiss stage, complaints that have succeeded typically provide more comprehensive information, as illustrated in General Security, Inc. v. Commercial Fire, Security, Inc., where the plaintiff specified its trade secrets and outlined measures taken for confidentiality. Overall, Mastercraft's complaint is deemed insufficient to establish liability for misappropriation of trade secrets.
In Medtech, the court found that despite the plaintiff's failure to precisely identify trade secrets, the allegations of significant investment in their development and sharing under confidentiality agreements were sufficient to establish a misappropriation claim. In Oneida Group Inc. v. Steelite International U.S.A. Inc., the court deemed the plaintiff's claims of trade secrets, including customer lists and pricing strategies, barely adequate due to the alleged measures taken to maintain confidentiality, such as requiring nondisclosure agreements and enforcing document retention policies. Conversely, Mastercraft failed to demonstrate any substantial efforts to protect its information beyond a vague confidentiality provision in its handbook and did not detail its development efforts. Merely listing general categories of trade secrets is insufficient; specific factual allegations are required to avoid dismissal per the standards set in Twombly and Iqbal. Additionally, while a plaintiff must allege the misuse of trade secrets, Mastercraft did not specify how its trade secrets were improperly used by the defendants, who argued this inadequacy. Mastercraft asserted that defendants misappropriated its customer lists to interfere with business relationships and gain an unfair advantage, but these claims were characterized as conclusory.
In Frydman v. Verschleiser, the court dismissed allegations against the plaintiff as they were deemed insufficiently detailed, constituting mere accusations without plausible factual support. Similarly, in Hyo Jung, defendants' counterclaims were found to lack specificity regarding how the plaintiff misused proprietary information, failing to identify specific customers affected. In contrast, the court in Gen. Sec. found a sufficient misappropriation claim because the plaintiff detailed specific customers contacted by defendants. Mastercraft's vague assertions regarding the nature and secrecy of its trade secrets did not adequately support claims for unfair competition, misappropriation, and breach of fiduciary duty, leading to the granting of defendants' motions to dismiss those claims.
Regarding defamation, a claim requires the plaintiff to show that a false statement was made about them, published to a third party, and caused harm. The plaintiff must specify the defamatory words and the context of the statement. General statements or opinions are not actionable. For corporate plaintiffs, establishing libel per se necessitates demonstrating harm to business reputation. Mastercraft did not satisfy these stringent requirements, leading to the dismissal of its defamation claim.
Mastercraft's complaint alleges that Orlando made defamatory statements about its business, including labeling it a "dysfunctional company." However, the complaint lacks specific details regarding the statements—such as the exact words used, the time and place of publication, and the audience. In contrast, another party, the Fund, successfully pled its defamation claim with the necessary specificity, detailing the statements, the speaker, the listeners, and the context. Mastercraft also did not provide non-conclusory allegations of business harm. Consequently, the court granted the defendants' motions to dismiss the defamation claim.
Mastercraft requested leave to amend its complaint in the event of dismissal, but this request was deemed procedurally defective under Local Rule 15, which requires a proposed amended pleading to be attached to the motion. The court cited previous cases to support its decision to deny this cursory request. Ultimately, the court dismissed Mastercraft's complaint without prejudice against both Randy Orlando and Grandstand Glassware and Apparel, allowing for a compliant motion to amend within 30 days, failing which the case will be closed. Additionally, since Mastercraft did not allege an injury within New York, the court did not need to evaluate whether the jurisdictional standards were met.
Mastercraft's allegations fail to meet the necessary legal standards for consideration, as it did not attach the Employee Handbook to its complaint. However, since Mastercraft referenced and quoted the Handbook, the court may consider its content. The Handbook's status as a valid contract remains uncertain; it lacks contractual language and presents itself more as a description of Mastercraft's policies rather than an enforceable agreement. Previous cases highlight that employee handbooks using non-compulsory language and disclaiming binding status are generally not viewed as contracts. The Handbook explicitly states that it is not comprehensive and allows Mastercraft to modify its policies at any time, which further weakens its contractual interpretation.
Mastercraft's claims of unfair competition and breach of fiduciary duty are rooted in misappropriation of trade secrets and are considered duplicative, potentially consolidating them into a single cause of action. Courts typically assert that the determination of trade secret status is a factual question, suggesting that analyzing relevant factors at the motion to dismiss stage is premature. Nonetheless, some courts may evaluate these factors to assess the sufficiency of trade secret allegations even at this early stage.
