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Leatt Corp. v. Kevin Heath Enterprises

August 24, 2009

LEATT CORPORATION, A NEVADA CORPORATION; EXCEED HOLDINGS (PTY) LTD, A SOUTH AFRICAN COMPANY, PLAINTIFFS,
v.
KEVIN HEATH ENTERPRISES, INC., KEVIN HEATH, AND E.V. TECHNOLOGY INNOVATIVE SAFETY TECNOLOGY, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; [DOC. NO. 6.] KEVIN HEATH ENTERPRISES, INC., A CALIFORNIA CORPORATION; KEVIN HEATH, AN INDIVIDUAL; E.V. TECHNOLOGY, A CHINESE BUSINESS ENTITY, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF DEFENDANTS

In this action for misappropriation of trade secrets, Defendants Kevin Heath Enterprises, Inc., Kevin Heath, and E.V. Technology (collectively "Heath defendants") filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. No. 6.) Plaintiffs filed an opposition and the Heath Defendants filed a reply. Having considered the parties' arguments, and for the reasons set forth below, the Court grants in part and denies in part the Heath Defendants' motion.

BACKGROUND

A. Factual Background

According to the Complaint, Dr. Christopher Leatt pioneered the development of a device to provide superior neck protection for the participants of motorsports.*fn1 From 2003 through 2005, Dr. Leatt developed various neck braces, and filed patent applications in South Africa and the United States. Two variants of Dr. Leatt's original design are known as the Moto-R and the Moto-GPX neck braces. Dr. Leatt ultimately assigned the patents on these neck braces to plaintiff Exceed Holdings (Pty) Ltd ("Exceed").

Exceed and Leatt Corporation were established in 2005 to develop and market safety devices for motorsports. Beginning in 2005, Leatt began to market the original Moto-R device as well as the Moto-GPX. In early fall of 2007, Plaintiffs began to prototype a new version of the Moto-R brace, known as the Moto-R2. Plaintiffs attempted to gain approval for the Moto-R2 prototype from the Federation Internationale de L'Automobile (FIA), the world's top motorsport authority. However, as a prerequisite to approval, the FIA required Plaintiffs to modify the prototype. Plaintiffs continue to develop and test the Moto-R2 prototype, however, they have not disclosed the design to the public.

Two of Leatt's former employees played critical roles in the alleged misappropriation of trade secrets. Beginning in February 2007, Karl Ebel became the head of marketing for Leatt. Meanwhile, Leatt hired Grant Nelson, as a consulting engineer to help design Leatt neck braces. Both Ebel and Nelson signed confidentiality agreements with Plaintiffs. In July 2007, Ebel and Nelson took the second prototype of Moto-R2 to the United States for testing.

Soon thereafter, certain events transpired that led to the resignation of both Ebel and Nelson. In 2007, Leatt discovered Nelson had filed a patent for a version of the Moto-R2 in his own name, using his own attorney. After Leatt confronted Nelson, Nelson assigned the patent to Leatt. In January 2008, Nelson resigned from Leatt ostensibly to spend more time with his family. A short time thereafter, Ebel also quit Leatt.

In March 2008, Nelson, Ebel, and Doug Williams (the owner of Williams Racing team), formed a partnership to develop a product called the DefNder. According to Plaintiffs, Neslon filed a patent for the DefNder that bears a strong resemblance to the Moto-R2 that is "unmistakable." (Compl. ¶ 41.) To promote the DefNder in the United States, Ebel, Nelson, and Williams formed defendant Innovative Safety Technology ("IST"), a California limited liability company.

In October 2008, IST entered into a distribution agreement with Kevin Heath, who arranged for the manufacture and distribution of the DefNder. Heath arranged for a Chinese company, EV Technology, to produce the DefNder product. Heath is the founder and owner of EVT. Additionally,

Plaintiffs allege Heath owned the websites defNder.com, defNderneckbrace.com, and evt-china.com.

B. South African Action

When Leatt discovered the DefNder, he noticed a similarity between the product and the MotoR2 prototype. Leatt commenced arbitration proceedings in South Africa for theft and improper disclosure of proprietary and confidential information. In December 2008, Leatt obtained the South African equivalent of a preliminary injunction, prohibiting Nelson and Ebel from exploiting Leatt's confidential information. Notwithstanding this order, Williams and IST continued to promote the DefNder in South Africa. Because IST's action in the United Sates are beyond the jurisdiction of the South African court, the Plaintiffs brought this suit against IST.

C. Procedural History

On June 16, 2009, Plaintiffs filed the instant action. Plaintiffs bring three causes of action: (1) misappropriation of trade secrets pursuant to California Civil Code §3426; (2) unfair competition under California Business and Professions Code § 17200, et seq.; and (3) tortious interference with prospective business relations. On July 8, 2009, the Heath Defendants brought this motion to dismiss.

LEGAL STANDARD

A complaint survives a motion to dismiss if it contains "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S.544 (2007). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).

Notwithstanding this deference, the reviewing court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949 (2009). Moreover, it is improper for a court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).

Accordingly, a reviewing court may begin "by identifying pleadings that, because they are no more than conclusions, are not entitled to the ...


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