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Michael L. Deegan v. Strategic Azimuth LLC

March 7, 2011

MICHAEL L. DEEGAN, PLAINTIFF,
v.
STRATEGIC AZIMUTH LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Signed by Royce C. Lamberth, Chief Judge,

MEMORANDUM OPINION

Before the Court are defendants' Motion to Dismiss Plaintiff's Complaint, Nov. 11, 2009, ECF No. 2, and plaintiff's Motion for Ancillary Relief Under Fed. R. Civ. P. 64 (Replevin and Attachment of Reality Mobile Software and License), Jan. 12, 2010, ECF No. 7. Upon consideration of defendant's Motion to Dismiss Plaintiff's Complaint, the opposition thereto, Nov. 20, 2009, ECF No. 4, the reply brief, Dec. 9, 2009, ECF No. 5, applicable law, and the record in this case, the Court will grant in part and deny in part the motion. Upon consideration of plaintiff's Motion for Ancillary Relief, the lack of opposition thereto, applicable law, and the record in this case, the Court will deny the motion.

I.BACKGROUND

In his complaint, plaintiff alleges the following facts. In January 2009, defendants Timothy Anthony and Sean McKenna and others formed a limited liability company called Strategic Azimuth, LLC. Compl. ¶ 2, Aug. 28, 2009, ECF No. 1. Strategic Azimuth's goal would be to "pursu[e] a government contracting business focused on medical training for the military in Afghanistan or elsewhere for the federal government." Id. In February 2009, plaintiff and defendants Anthony and McKenna discussed a Teaming Agreement between Strategic Azimuth and Cougar Consulting, LLC-a company of which plaintiff is 49% owner. Id. ¶ 4. Defendants Anthony and McKenna "agreed to act in accordance with its terms," but never signed the Teaming Agreement. Id. ¶ 5.

In April 2009, plaintiff told defendants Anthony and McKenna that he had investigated and begun the development of a system "designed by plaintiff, which would give the United States military or private contractors the capability to see in real time, and to track, from any location outside of Afghanistan, the movements of trucks and other vehicles inside Afghanistan which were deployed there by the U.S. military and its allies to move equipment, supplies and personnel through that country." Id. ¶¶ 7, 10. "Plaintiff put together that system, in confidence, from pre-existing commercial, off-the-shelf, components and software, which he refashioned to create a new IT system that could compete successfully with existing systems designed for similar purposes." Id. ¶ 10. The system came to be known as "SAVAT," an acronym for "Situational Awareness Video Asset Tracker." Id. ¶ 11. Plaintiff designed a promotional brochure for SAVAT, the cover of which bore the words: "Strictly Confidential and Proprietary." Id.

Plaintiff obtained a license from a company called Reality Mobile to use their software as part of the SAVAT system, thus giving plaintiff and Strategic Azimuth the right to use the software. Id. ¶ 12. Plaintiff invested approximately $9,500 of his own funds to pay for the license. Id.

On June 26, 2009, plaintiff and defendants Anthony and McKenna entered into a Joint Venture Agreement, in which they agreed to form a company called Astro Azimuth, LLC. Id. ¶ 6. Plaintiff and defendants Anthony and McKenna each owned 16.6% of the joint venture, and Astro Systems, Inc.-an expert in the business of systems integration-owned the remaining 50% of the joint venture. Id. ¶ 6, 13. The purpose of the joint venture was to develop and sell the SAVAT system. Id. ¶ 7. Plaintiff introduced the SAVAT system to principals of a company called The Sandi Group, and through that company made plans to sell and distribute the SAVAT system in Saudi Arabia. Id. ¶ 14.

On July 28, 2009, the wives of defendants Anthony and McKenna formed a company called Symmetry Group, LLC. Id. ¶ 3. Plaintiff was not a member of this company. Id. ¶ 15. Plaintiff's license from Reality Mobile was placed in the name of the Symmetry Group. Id. "Defendants advised principals of Astro Systems and the Sandi Group that they did not intend to proceed with the plaintiff as a part of the joint venture and that they would market the SAVAT system themselves through their own company." Id.

Plaintiff alleges that defendants' actions were "a breach of the fiduciary duties owed to the plaintiff by the defendants arising not only from the Joint Venture Agreement executed by the parties on June 26, 2009; but also from their relationship as joint venturers throughout their dealings with each other." Id. ¶ 16. Plaintiff also alleges that defendants "have misappropriated the SAVAT system and the SAVAT product developed by the plaintiff and belonging to him as confidential and proprietary," in violation of North Carolina law, N.C. Gen. Stat. §§ 66-152, et seq., District of Columbia law, D.C. Code §§ 36-401, et seq., and Maryland law, Md. Code Ann., Com. Law, §§ 11-1201, et seq. Id. ¶ 17.

II.LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides that a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." It must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

In a motion to dismiss, the court "must take all of the factual allegations in the complaint as true." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). But "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. 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. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.

III.DISCUSSION

A.THE COURT WILL GRANT IN PART AND DENY IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S COMPLAINT.

1.The Court Will Grant Defendants' Motion to Dismiss Plaintiff's Misappropriation Claim Arising Under North Carolina Law.

a.Legal Standard

Under North Carolina law, the "owner of a trade secret" has a "remedy by civil action for misappropriation of his trade secret." N.C. Gen. Stat. § 66-153. "Misappropriation" is defined as "acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent, unless such trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose the trade secret." N.C. Gen. Stat. § 66-152(1). To establish a prima facie case of misappropriation, plaintiff must introduce "substantial evidence" that defendants: "(1) Know[] or should have known of the trade secret; and (2) Ha[ve] had a specific opportunity to acquire it for disclosure or use or ha[ve] acquired, disclosed, or used it without the express or implied consent or authority of the owner." N.C. Gen. Stat. § 66-155. "The threshold question in any misappropriation of trade secrets case is whether the information obtained constitutes a trade secret." Combs & Assoc. v. Kennedy, 555 S.E.2d 634, 639 (N.C. Ct. App. 2001).

A "trade secret" is defined as business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that:

a. Derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and

b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

N.C. Gen. Stat. § 66-152(3). North Carolina courts consider six factors when determining whether information constitutes a trade secret:

(1) the extent to which the information is known outside the business; (2) the extent to which it is known to employees and others involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of information to business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could properly be acquired or duplicated by others.

Combs, 555 S.E.2d at 640. "The existence of a trade secret shall not be negated merely because the information comprising the trade secret has also been developed, used, or owned independently by more than one person, or licensed to other persons." N.C. Gen. Stat. § 66-152.

To maintain an action for misappropriation of a trade secret, a plaintiff must identify a trade secret with sufficient particularity so as to enable a defendant to delineate that which he is accused of misappropriating and a court to determine whether misappropriation has or is threatened to occur. Thus, a complaint that makes general allegations in sweeping and conclusory statements, without specifically identifying the trade secrets allegedly misappropriated, is insufficient to state a claim for misappropriation of trade secrets.

Stephenson v. Langdon, 699 S.E.2d 140, at * 5 (N.C. Ct. App. 2010) (citations and internal quotations omitted).

b.Analysis

The Court cannot reasonably infer that this information constitutes a trade secret under North Carolina law. First, the Court finds that, based on the pleadings, it is plausible that the SAVAT system "[d]erives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use." N.C. Gen. Stat. § 66-152(3)(a). Defendants claim that they deny plaintiff's assertion that the information at issue was not generally known or readily ascertainable. Defs.' Mot. 7. But in support of their claim, defendants only state that plaintiff "has not sufficiently defined or identified his alleged trade secrets." Id. at 8. Defendants do not provide any support for their denial of plaintiff's assertion. Plaintiff has alleged that he put together the SAVAT system "in confidence, from pre-existing commercial, off-the-shelf, components and software, which he refashioned to create a new IT system that could compete successfully with existing systems designed for similar purposes." Compl. ¶ 10. He has further alleged that The Sandi Group planned to purchase and distribute the SAVAT system in Saudi Arabia. Id. ¶ 14. It is plausible that these allegations show that the SAVAT system had commercial value to companies such as The Sandi Group, and that the SAVAT system had such commercial value because it was an IT system, developed in confidence, that was not generally known or readily ascertainable. Further, the Court disagrees with defendants' claim that plaintiff did not sufficiently define his alleged trade secret. He defined his trade secret as the SAVAT system.

Second, the Court finds that, based on the pleadings, it is not plausible that the SAVAT system was "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." N.C. Gen. Stat. § 66-152(3)(b). Plaintiff's only allegation of attempting to maintain the secrecy of the SAVAT system is that an "early brochure" to promote SAVAT bears on its cover the words "Strictly Confidential and Proprietary." Compl. ¶ 11. The Court questions whether a simple notation of "strictly confidential" on a document is enough to reasonably maintain the secrecy of the contents of that document. Further, plaintiff has only produced evidence showing that he affixed the "strictly confidential" label to SAVAT information sent out to third parties in early marketing efforts; he has not shown that he affixed any such label to SAVAT information sent to defendants or to later prospective clients. Plaintiff alleges that he put together the SAVAT system "in confidence," id. ¶ 10, but he apparently shared that confidential system with defendants without requiring any kind of confidentiality agreement first. Thus, plaintiff does not allege that he took any reasonable steps to maintain the secrecy of the system with respect to defendants or even to a prospective client such as The Sandi Group.

In his opposition to the motion to dismiss, plaintiff also alerted the Court to several Non-Disclosure Agreements governing the dissemination of information concerning the SAVAT system. Pl.'s Opp'n 2 & Exs. 1--2. But the Court may not consider that information for purposes of a Rule 12(b)(6) motion to dismiss. Under Federal Rule of Civil Procedure 12(d), the Court must treat a Rule 12(b)(6) motion to dismiss as a Rule 56 motion for summary judgment if (1) "matters outside the pleadings are presented to and not excluded by the court" and (2) all parties have been "given a reasonable opportunity to present all the material that is pertinent to the motion." The Court finds that the parties have not been given a reasonable opportunity to present all of the material that would be pertinent to a summary judgment motion. Indeed, defendants have not submitted any exhibits to the Court. Thus, the Court cannot consider any matters other than the pleadings. An opposition to a motion for summary judgment is not a pleading. See Fed. R. Civ. P. 7(a). For purposes of this motion, therefore, the Court will not consider the Non-Disclosure Agreements.

The Court notes, however, that even if it were to consider these Non-Disclosure Agreements, the Court would likely still dismiss this claim. Although these Non-Disclosure Agreements may be sufficient for plaintiff to allege that the SAVAT system is "the subject of efforts that are reasonable under the circumstances to maintain its secrecy," N.C. Gen. Stat. § 66-152(3), these Agreements create a serious issue over who owns the trade secret. Under North Carolina law, only the "owner of a trade secret" may bring an action for misappropriation of that trade secret. N.C. Gen. Stat. § 66-153. These Agreements may indicate that Strategic Azimuth LLC is actually the owner of the trade secret, not plaintiff. The Court need not accept as true plaintiff's legal conclusion that the system is ...


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