Broin & Associates, Inc. v. Genencor International, Inc.

Citations: 232 F.R.D. 335; 2005 U.S. Dist. LEXIS 26553; 2005 WL 1862676Docket: No. CIV 04-4202

Court: District Court, D. South Dakota; July 26, 2005; Federal District Court

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Defendant Genencor International, Inc. filed a Motion to Dismiss and a Motion for a More Definite Statement regarding Plaintiff Broin and Associates, Inc.'s claims. The court will decide these motions based on the written record, denying in part and granting in part the Motion to Dismiss concerning Counts III through VIII, while denying the Motion for a More Definite Statement.

Broin develops advanced ethanol production facilities and alleges that Genencor, which produces enzymes for ethanol production, improperly used confidential information disclosed under Non-Disclosure Agreements. This information included details on ethanol production yields and proprietary processes, which Genencor exploited to develop and market related products without authorization.

Broin applied for a U.S. Patent on the disclosed processes on March 10, 2003, and it was published in late 2004. Following this, a magazine article linked Genencor to improvements in the raw starch hydrolysis process, which Broin claims are based on its confidential information.

Broin's diversity action, filed on December 15, 2004, includes claims for misappropriation of trade secrets, breach of contract, and unjust enrichment. After filing an Amended Complaint, Broin added several claims, including breach of implied confidentiality, tortious interference, conversion, deceit, fraud, and unjust enrichment. Genencor argues that certain claims (Counts III, IV, V, VI, VII, VIII) are preempted by the South Dakota Uniform Trade Secrets Act and requests a more definitive statement for Counts II and III.

Plaintiff contends that determining the applicable state law is premature, arguing that discovery is necessary to assess which state has the most significant relationship to the case. Defendant argues that the court can resolve the conflict of laws issue during the motion to dismiss and claims that South Dakota law should apply. The court must assume all facts in the complaint are true and view them favorably towards the non-moving party when considering the motion to dismiss. Plaintiff asserts that Counts III through VIII of the Amended Complaint should not be dismissed as they may not be displaced by the South Dakota Uniform Trade Secrets Act, especially if New York law applies due to a choice of law provision in a Non-Disclosure Agreement, or California law due to Defendant’s activities there. The determination of applicable law is crucial as it influences whether the causes of action are displaced. For Defendant to succeed in the motion to dismiss under Rule 12(b)(6), the court must first establish that South Dakota law applies and then determine if the causes of action are indeed displaced under that law. In diversity cases, a federal district court applies the conflict of law rules of the forum state, which in South Dakota follows the Restatement (Second) of Conflict of Laws.

Section 187 of the Restatement applies due to the Non-Disclosure Agreement's choice of law provision designating New York law. This section allows the selected state’s law to govern contractual issues, provided that there is a substantial relationship between the parties or the transaction and the chosen state. The Defendant must demonstrate a lack of such a relationship or that applying New York law contravenes a fundamental policy of a state with a greater interest. The Defendant failed to present facts regarding relationships to New York, while the Plaintiff claims the Defendant has a principal office in Rochester and that some wrongful conduct occurred in New York. The Court must assume these allegations are true at the motion to dismiss stage, implying a reasonable relationship to New York exists.

Even if no substantial relationship is present, there could be reasonable grounds for choosing New York law, thus necessitating its application. The Defendant has not met the burden to prove that applying New York law is unjustified, preventing dismissal of the case based on the applicability of South Dakota law. The Court will not address whether causes of action are displaced under South Dakota law, as the Defendant has not shown that New York law does not govern them. Additionally, the Court cannot determine if the choice of law provision applies to all causes of action at this stage, as further factual inquiries are needed. If the choice of law provision's applicability is denied, there is insufficient information to apply the most significant relationship test to decide on the relevant state law.

Burhenn v. Dennis Supply Co. establishes that when no contract specifies a choice of law, the most significant relationship test is applied. The Defendant's motion to dismiss Counts III through VIII of the Amended Complaint is denied. 

Count III, which concerns breach of an implied agreement of confidentiality, faces dismissal for three reasons: (1) it is displaced under South Dakota law; (2) it is barred by the Statute of Frauds; and (3) an express Non-Disclosure Agreement governs the parties' conduct, negating any implied agreement. The Plaintiff contends that the Statute of Frauds is an affirmative defense that cannot dismiss the claim at this stage. The Plaintiff also asserts entitlement under Rule 8(a) to plead both breach of express contract and breach of implied warranty of confidentiality. 

The Defendant cites case law from Minnesota and various Federal Circuits supporting dismissal under the Statute of Frauds if the agreement is not to be performed within one year. However, the court determines it is premature to dismiss Count III, as the Statute of Frauds is an affirmative defense that may be clarified through discovery, which could reveal relevant facts about the implied agreement. The court reiterates that a complaint should only be dismissed if it is beyond doubt that no facts could support the claim for relief. The existence of express agreements does not preclude the Plaintiff from pleading breach of an implied agreement.

The Defendant's motion to dismiss Counts VI and VII, which allege deceit and fraud, is also addressed. The Defendant argues these counts should be dismissed for failing to meet the particularity requirement of Rule 9(b). While Rule 9(b) demands specific averments of fraud, it allows for general averments regarding malice and intent. The court emphasizes that a plaintiff does not need to fully plead fraud before discovery is complete and that the adequacy of a pleading should be assessed based on whether it provides sufficient notice to the opposing party to respond. However, Rule 9(b) does require greater specificity in fraud claims than in other actions.

In a fraud claim, a plaintiff must detail the time, place, and content of false representations, identify the misrepresenter, and specify what was obtained or relinquished. The dismissal of Counts VI (Deceit) and VII (Fraud) from the Amended Complaint occurred because the plaintiffs did not meet the specificity requirements of Rule 9(b) and Eighth Circuit standards. Genencor, in its dealings with Broin, allegedly misrepresented its intention not to use or disclose Broin’s confidential information with the intent to deceive and induce disclosure. 

Regarding Counts II (Breach of Express Contract) and III (Breach of Implied Agreement of Confidentiality), the defendant argued that the allegations lacked the necessary precision for a proper response. While motions for a more definite statement are allowed under Federal Rule of Civil Procedure 12(e), they are generally disfavored due to the liberal discovery provisions in federal rules. The plaintiff's pleadings provided sufficient notice of the alleged conduct, even though specific Non-Disclosure Agreements (NDAs) were not identified. It was assumed that the NDAs had similar provisions applicable to different time frames. Consequently, the defendant's motion for a more definite statement was denied.

The court's order concludes that the defendant’s Motion to Dismiss is denied for Counts III, IV, V, and VIII, granted without prejudice for Counts VI and VII, and the Motion for More Definite Statement is denied.