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Soaprojects, Inc v. Microsystems

December 7, 2010



Even though SOAProjects did not plead facts showing that a writing existed sufficient to SOAProjects' breach of contract claim.

The opinion of the court was delivered by: Lucy H. Koh United States District Judge

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United States District Court For the Northern District of California



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On August 27, 2010, Defendant SCM Microsystems, Inc. moved to dismiss four of Plaintiff SOAProjects, Inc.'s claims. Dkt. No. 27 ("Mot. to Dismiss"); see also Dkt. No. 33 ("Reply Br."). 20 SOAProjects opposes the motion. Dkt. No. 31 ("Opp'n"). After hearing oral argument and 21 considering the parties' submissions, this Court GRANTS in part and DENIES in part SCM's 22 motion. 23




SOAProjects claims that SCM improperly hired one of its consultants in breach of contract 25 and further alleges that SCM acted in concert with this consultant to illegally obtain SOAProjects' 26 confidential information and trade secrets. SOAProjects supports these claims with the following 27 allegations from its First Amended Complaint ("FAC," Dkt. No. 22). 28


A. Master Agreement

SOAProjects, a California corporation, provides consulting services. FAC ¶ 2, 10. In August 2008, SOAProjects entered into a written Master Agreement with SCM, a provider of 4 solutions for secure access, secure identity, and secure exchange. Id. ¶¶ 3, 11. This Master

Master Agreement provided that SOAProjects would supply SCM with "financial and accounting 7 compliance projects." Id. ¶ 12. Second, pursuant to the Master Agreement, an Addendum for 8 Agreement, signed by representatives of both parties, provided the following. Id. ¶ 12. First, the 6 Services would be created for each project. Id. ¶ 13. This Addendum would be signed by 9 representatives from both parties and would specify in writing the rate and date for each respective 10 project. Id. Third, the Master Agreement provided that California law would govern. Id. ¶ 14.

Fourth, the Master Agreement contained a provision restricting SCM from soliciting SOAProjects consultants. *fn1 Id. ¶ 15. This provision included a monetary penalty if breached. Id. ¶ 16. 13 14 services to SCM in connection with stock administration work. Id. ¶ 17.

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Agreement, Gupta agreed not to disclose SOAProjects' confidential information, as defined by the 19 agreement, or use such information except for the benefit of SOAProjects. Id. ¶¶ 21-22. 20


United States District Court For the Northern District of California



Pursuant to a September 1, 2008 Addendum, SOAProjects agreed to provide consulting

B. Confidentiality Agreement

On September 17, 2008, SOAProjects and Defendant Kamal Kant Gupta entered into an Employment Agreement and a Confidentiality Agreement. Id. ¶ 18. Under the Confidentiality 18 To protect access to its confidential and proprietary information, SOAProjects maintains a Virtual Private Network ("VPN"). Id. ¶ 24. Access to the VPN is restricted to SOAProjects 22 employees only and is password-protected. Id. Not all with access to the VPN, however, can 23 access SOAProjects trade secrets. Such access is limited to high level employees. Id. 24

SOAProjects also subscribes to licensed research tools that require passwords and login 25 26 information to access. Id. ¶ 25. Gupta had access to both trade secrets through the VPN and 2 SOAProjects' licensed research tools. Id. ¶ 31. 3


5 services to SCM and worked on a proposal for SOAProjects to assist SCM with other services. Id. 6 ¶ 32-35. On or before October 2009, SCM began soliciting Gupta for employment. Id. ¶ 36. SCM 7 and Gupta then initiated negotiations with SOAProjects to allow Gupta to join SCM. Id. ¶ 37. 8 Transition Agreement. Id. ¶ 38. Under the Employment Transition Agreement, SOAProjects 10 agreed not to enforce the non-solicitation clause in the Master Agreement. Id. In exchange, SCM agreed to pay SOAProjects a fee of 25% of Gupta's annual base compensation and to continue to engage SOAProjects for all technical accounting projects as required for at least the fiscal years 13 2010 and 2011. Id. Furthermore, SCM agreed that Gupta would not perform for SCM "in-house" 14 the same services that SOAProjects performed for SCM. Id. SOAProjects claims that SCM's 15 Chief Financial Officer Martin Wimmer confirmed these conditions during a November 26, 2009 16 conference call. Id. ¶ 41.



Gupta confirmed that SOAProjects would be paid 25% of his salary upfront. Id. In addition, 20 Gupta confirmed that his new job at SCM would mainly involve operations responsibility, and 21 therefore, SCM would still need SOAProjects to assist on technical accounting work. Id. ¶ 40. On 22

SOAProjects in the future. Id. ¶ 42. 2425 26 created files on his computer containing copies of confidential and proprietary information. Id. ¶ 27 SOAProjects on December 24, 2009 and returned his computer to a SOAProjects Human

C. Employment Transition Agreement

During his time at SOAProjects, Gupta provided financial consulting and compliance Following these negotiations, SOAProjects and SCM allegedly entered into an Employment 9



On November 22, 2009, Gupta sent an e-mail to Manav Singh, a senior executive at SOAProjects, confirming in writing certain conditions of Gupta's transition to SCM. Id. ¶ 39. 19 December 3, 2009, Wimmer also sent Singh a letter documenting SCM's intent to continue to use 23

D. Misappropriation of Trade Secrets

According to SOAProjects, between November 10, 2009 and December 3, 2009, Gupta

51. SOAProjects claims there was no business justification for this activity. Id. Gupta left 28

Resources Director. Id. ¶ 49. According to SOAProjects, Gupta later returned and, through 2 allegedly deceptive means, persuaded the HR Director to give him access to his old computer and 3 to the VPN password. Id. ¶¶ 57-61. Using his computer, Gupta accessed SOAProjects' trade 4 secrets and confidential information and sent himself an e-mail containing this information. Id. ¶ 5

SOAProjects claims that Gupta is now working at SCM and is using SOAProjects' trade 7 secrets and confidential information to perform services for SCM that SOAProjects previously 8 provided. Id. ¶¶ 73-75. It alleges that SCM acted in concert with Gupta and is kowingly enjoying 9 the benefits of his theft. Id. ¶ 141. Since hiring Gupta, SCM has not used SOAProjects' services 10 ...

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