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Leatt Corp. v. Innovative Safety Technology

July 15, 2010

LEATT CORPORATION, A NEVADA CORPORATION; AND EXCEED HOLDINGS (PTY) LTD., A SOUTH AFRICAN COMPANY, PLAINTIFFS,
v.
INNOVATIVE SAFETY TECHNOLOGY, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; KEVIN HEATH ENTERPRISES, INC., A CALIFORNIA CORPORATION; KEVIN HEATH, AN INDIVIDUAL; AND 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 MOTION TO DISMISS [Doc. No. 67]

This is a case about alleged trade secret misappropriation. Currently before the Court is Defendants Kevin Heath, Kevin Heath Enterprises, Inc., and E.V. Technology's (collectively, "Heath Defendants") Motion to Dismiss Plaintiffs' claims for enforcement of foreign arbitration award, unfair competition, and tortious interference. Having considered the parties' arguments, and for the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss.

BACKGROUND

I. Factual background

The factual and procedural background in this case is set forth in great detail in the Court's previous order. See Leatt Corp. v. Innovative Safety Tech., LLC, No. 09-CV-1301-IEG (POR), 2010 WL 1526382, at **1-5 (S.D. Cal. Apr. 15, 2010). As relevant to this motion, Plaintiffs Leatt Corporation ("Leatt") and Exceed Holdings (Pty) Ltd. ("Xceed") allege to have spent many years of independent research and development to create neck safety braces for use in motorsports. By 2006, these efforts culminated in the development of the Moto-R brace for use with cars and the Moto-GPX brace for use with motorcycles. A new version of the Moto-R was allegedly prototyped in or around the late summer and/or early fall of 2006 ("Prototype 1"). Leatt then designed and built a second prototype around the summer of 2007 ("Prototype 2").

According to Plaintiffs, starting from January 2008, two of their employees--Grant Nelson and Karl Ebel--stole and improperly disclosed and commercialized Plaintiffs' proprietary and confidential information concerning Prototype 2. Subsequently, Plaintiffs allege Nelson and Ebel, working together with an investor by the name of Doug Williams, developed and began production of a neck brace with a raised stabilizer bar similar to Prototype 2 ("the DefNder"). In or around June 2008, Nelson, Ebel, and Williams formed Defendant Innovative Safety Technology, LLC ("IST"), which listed all three as managers or members.

In summer or fall of 2008, IST entered into a distribution agreement with Defendant Kevin Heath, who arranged for the DefNder to be manufactured in China and to be imported and sold in the United States through two of his companies: E.V. Technology ("EVT"), a Chinese business entity, and Kevin Heath Enterprises, Inc. ("KHE"), a California corporation.Plaintiffs allege Mr. Heath personally, and through his companies, directed, authorized, and participated in the wrongful acts committed by the other Defendants, and that he assisted and worked in concert with IST to manufacture, import, market, sell, and offer for sale the DefNder.

II. The South African action

To protect their proprietary and confidential information, Plaintiffs first filed suit in South Africa against Nelson and Ebel, and subsequently Williams, for misappropriating Plaintiffs' trade secrets and for copyright infringement. On December 5, 2008, Plaintiffs received an interdict (similar to a preliminary injunction) against Nelson and Ebel that prohibited them from disclosing, copying, selling, or distributing certain specific features of Prototype 2, including any sale or distribution of the DefNder product. On June 11, 2009, Plaintiffs received a similar interdict against Williams.

Subsequently, the South African action was referred to arbitration. The Arbitrator eventually determined that the overall shapes of Prototype 1 and 2 did not form part of the state of the art as of January 25, 2008. (SFAC, Ex. G, ¶ 98 [hereinafter, "Arbitration Award"].) The Arbitrator also concluded that even though elements of Prototype 2 were present on the Moto-R device and in other devices available in the marketplace, "there were significant design differences as between Prototype 2 and the prior art," and therefore "the overall design of Prototype 2 constituted confidential information." (Id. ¶ 113.) In the end, although there were some differences, the Arbitrator found that the DefNder conceptually resembled Prototype 2, particularly in relation to the stabilizer bar. (Id. ¶¶ 257, 350.) The Arbitrator found that Nelson used his knowledge of the design of Prototype 2 in designing the DefNder, and that such knowledge constituted confidential information proprietary to Plaintiffs. (Id. ¶¶ 348-53.) According to the Arbitrator, the following confidential information was misused by Nelson: (1) the harness channels and their strategic placement, (2) the elevated frontal support bars (the stabilizer bars), and (3) the overall shape of the brace. (Id. ¶ 355.) The Arbitrator also found that Ebel and Williams were liable for aiding and abetting Nelson. (Id. ¶ 362.) Finally, having concluded that the misappropriation provided Nelson with a "springboard" of between 18 and 24 months, the Arbitrator found that justice would be served if Nelson, Ebel, and Williams were enjoined until July 31, 2010 from using or disclosing the above confidential information. (Id. ¶¶ 377, 386.)

III. Procedural history

Plaintiffs commenced the present action in this Court on June 16, 2009. [Doc. No. 1]. After the Court ruled on Defendants' Motion to Dismiss, Plaintiffs filed a First Amended Complaint ("FAC") on September 14, 2009. [See Doc. Nos. 16, 17]. Plaintiffs thereafter moved for a preliminary injunction, which the Court granted in part and denied in part on April 15, 2010. [Doc. No. 64]. Subsequently, Plaintiffs filed a Supplemental First Amended Complaint ("SFAC"), alleging causes of action for: (1) misappropriation of trade secrets; (2) unfair competition; (3) tortious interference; and (4) enforcement of foreign arbitration award. [Doc. No. 66].

Currently before the Court is Heath Defendants' motion to dismiss, filed on May 7, 2010. Plaintiffs filed an opposition, and the Heath Defendants replied. The Court subsequently took the motion ...


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