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Manufacturing Automation and Software Systems, Inc. v. Hughes

United States District Court, C.D. California

May 8, 2017

MANUFACTURING AUTOMATION AND SOFTWARE SYSTEMS, INC.
v.
KRISTOPHER HUGHES ET AL.

          Present: The Honorable Christina A. Snyder

          CIVIL MINUTES - GENERAL

         Proceedings: DEFENDANTS PCVUE, INC. AND EDWARD NUGENT'S MOTION TO DISMISS (Dkt. 46, filed March 10, 2017)

         I. INTRODUCTION

         On December 2, 2016, plaintiff Manufacturing Automation & Software Systems, Inc. (“plaintiff” or “MASS Group”) filed this action against defendants Kristopher Hughes, James Huysentruyt, InformaTrac, Inc., PcVue, Inc., Edward Nugent, and Does 1-10, inclusive. Dkt. 1. Plaintiff filed a first amended complaint on January 31, 2017. Dkt. 27 (“FAC”). Plaintiff alleges the following claims: (1)-(8) copyright infringement of eight copyrighted works against all defendants; (9) violation of the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030 et seq. against Hughes and Huysentruyt; (10) violation of California's Computer Data Access and Fraud Act, Cal. Penal Code § 502 against Hughes and Huysentruyt; (11) misappropriation of trade secrets in violation of California's Uniform Trade Secrets Act, Cal. Civ. Code §§ 3426 et seq. against all defendants; (12) breach of contract against Hughes and Huysentruyt; (13) interference with prospective economic advantage against Hughes, Huysentruyt, and InformaTrac; (14) fraud and deceit against Hughes and Huysentruyt; (15) conversion against Hughes, Huysentruyt, and Does 1-10; (16) diversion of corporate opportunities against Hughes and Huysentruyt; and (17) accounting against all defendants. The gravamen of plaintiff's complaint is that defendants wrongfully copied plaintiff's software to produce, market, and sell a counterfeit version to plaintiff's customers or potential customers.

         On March 28, 2017, PcVue and Nugent (the “moving defendants”) filed the instant motion to dismiss plaintiff's complaint for lack of personal jurisdiction and for failure to state a claim against them on which relief may be granted. Dkt. 50 (“MTD”).[1] Plaintiff filed its opposition on April 17, 2017, dkt. 51 (“Opp'n”), and the moving defendants filed their reply on April 24, 2017, dkt. 52 (“Reply”).

         Having carefully considered the parties' arguments, the Court finds and concludes as follows.

         II. BACKGROUND

         Plaintiff alleges the following facts.

         Plaintiff and its founder and CEO, Gamal Balady, have developed, produced, marketed, and licensed a series of internet-based software programs that allow customers to track or trace quantities and precise locations of inventories, equipment, materials, documents, or people. FAC ¶ 1. These programs are protected by copyright. Id. Eight of those copyrighted works, referred to as the “MASS Software, ” are at issue in this matter. Id. Plaintiff is a California corporation with is principal place of business in California. Id. ¶ 20 Huysentruyt is a California resident. Id. ¶ 22. Huysentruyt began working at MASS Group in 1998 and continued working there until his resignation on March 3, 2016. Id. ¶ 31. At the time of his resignation, Huysentruyt was the vice president of sales. Id. Among his responsibilities was the cultivation of partnerships and alliances. Id.

         Hughes is a California resident. Id. ¶ 21. Hughes was hired to work at MASS Group in 1999 and continued working there until his resignation on March 4, 2016. Id. ¶ 30. Hughes served as a software developer and, more recently, as a senior manager. Id. Among his responsibilities as senior manager was assuring compliance with state and federal laws and regulations. Id.

         InformaTrac is a California corporation-controlled and owned by Hughes and Huysentruyt-with its principal place of business in California. Id. ¶ 23.

         Nugent began working at MASS Group in 2004 and was terminated in 2007. Id. ¶¶ 25, 32. Nugent served as the sales lead for the western United States in marketing, promotion, and sales. Id. In 2005, Nugent signed a nondisclosure agreement with plaintiff, promising not to disclose or use any of plaintiff's confidential information, including the MASS Software or the source or object codes. Id. Nugent previously resided in California, and now resides and works in Massachusetts, where he is an officer and director of PcVue, a corporation headquartered in Massachusetts. Id. ¶ 25.

         Up until 2015, Nugent maintained regular contact with Huysentruyt and Hughes in California to discuss various joint business opportunities for PcVue and MASS Group. Id. ¶ 32.

         When Hughes and Huysentruyt were still officers of MASS Group, they agreed with Nugent and PcVue to jointly develop a software solution for the Miami Dade Airport-a PcVue customer. Id. ¶ 8. Under Nugent and PcVue's supervision and control, Hughes and Huysentruyt applied MASS Software, along with PcVue's integrated software, to provide the Miami Dade Airport with the ability to collect data and receive reports on the status and condition of the airport's new passenger trains. Id. ¶ 9. Such a project is within the core competency of MASS Group and the MASS Software is well suited to such a project. Id. In addition, before and after Hughes' and Huysentruyt's resignations from MASS Group, Nugent and PcVue brought to Hughes and Huysentruyt new orders for Informa Trac's software and services. Id. ¶ 10.

         On February 18 and 22, 2016, Hughes and Huysentruyt respectively informed Balady that they were resigning as employees of MASS Group, effective March 3 and 4, 2016. Id. ¶ 34. Hughes and Huysentruyt stated that they were resigning for personal reasons, had not begun to look for work elsewhere, and did not know where they would work next. Id. However, plaintiff alleges that Hughes and Huysentruyt had already launched their plan to copy the MASS Software and sell it as their own through their new company, InformaTrac. Id. ¶ 35. Hughes and Huysentruyt registered the domain name for InformaTrac on February 12, 2016-before giving notice of their resignations. Id. They incorporated InformaTrac just a few weeks later. Id. As employees of MASS Group, Hughes and Huysentruyt were involved in the development of the MASS Software and had full access to that software and its underlying source and object codes. Id. ¶ 37. In the year prior to their resignations, Hughes and Huysentruyt were responsible for promoting, licensing, and servicing the MASS Software and, next to Balady, had the most contact with plaintiff's current and potential customers. Id. ¶ 41. In the six months before their resignations, Hughes and Huysentruyt brought in virtually no new customers for plaintiff as part of defendants' plan to copy the MASS Software and eliminate plaintiff as an effective competitor to InformaTrac. Id. ¶ 42. Upon their resignation, Hughes and Huysentruyt were instructed to return all company phone records, proprietary or trade secret information, MASS Software, source and object codes, and any servers or storage disks containing such intellectual property. Id. ¶ 48. Hughes and Huysentruyt were also directed (and agreed) to delete all MASS Software source and object code information from any computers, servers, or disks in their possession. Id.

         In April 2016, Hughes, Huysentruyt, PcVue, and Nugent issued a joint press release through PcVue's public relations firm, announcing the formation of a “business partnership” between InformaTrac and PcVue. Id. ¶ 11. The press release provided:

PcVue, Inc., a global HMI/SCADA software provider, is pleased to announce that it has partnered with InformaTrac, Inc., to offer enhanced traceability for asset management. . . . InformaTrac Pro software combined with PcVue's Supervisory Control and Data Acquisition (SCADA) platform yields a flexible and powerful traceability solution… “Traceability, whether acquired from equipment or technologies such as RFID and barcodes, can be now delivered in real-time and via multi-media reports, ” according to PcVue's COO, Edward Nugent. Kris Hughes, President of InformaTrac added, “The partnership bridges the gap between the Auto-ID and SCADA software strategies and enables complete traceability solutions. By working together our companies have achieved a new level of asset monitoring and tracking software for informed decision making . . . .” Jim Huysentruyt, VP of Business Development added, “Ed Nugent and I have been working together on these kinds of solutions since the early 90s.”

Id. Since March 2016, defendants have (a) prepared joint marketing materials; (b) jointly marketed products through PcVue's booths at multiple industry trade shows, including in San Diego California on January 31, 2017; and (c) advertised their business alliance and product offerings on their websites. Id. ¶ 12. PcVue finances Informa Trac's marketing efforts and serves as an “integral part of Defendants' joint effort to sell Informa Trac's infringing software along with PcVue's complementary software, in California and elsewhere.” Id. ¶ 13.

         On information and belief, plaintiff alleges that Hughes and Huysentruyt are selling counterfeit copies of the MASS Software to customers and potential customers of MASS Group under the new corporate identify InformaTrac. Id. ¶ 36. Hughes and Huysentruyt are jointly marketing, selling, and/or assisting in selling the counterfeit software with Nugent and PcVue. Id. ¶ 38. On information and belief, plaintiff alleges that defendants are selling the counterfeit software using false and misleading statements, including assertions that defendants acquired legal ownership of the MASS Software and all rights therein and are authorized to sell or license the MASS Software as their own. Id. ¶ 39. On information and belief, plaintiff alleges that some its actual or potential new customers were dissuaded from acquiring or renewing licenses for and discontinued their use of the MASS Software because of defendants' copyright infringement. Id. ¶¶ 43-44. On information and belief, Hughes and Huysentruyt contacted numerous current and prospective customers and offered to replace the MASS Software with the infringing InformaTrac Software. Id. ¶ 45. Defendants accessed and exploited-and, on information and belief, continue to access and exploit-plaintiff's confidential customer contact information. Id. ¶ 47.

         Plaintiff alleges that defendants engaged in a conspiracy to: (a) misappropriate the source and object codes for the Mass. Software, along with other proprietary items and related information; (b) copy and convert to themselves plaintiff's intellectual property, including plaintiff's business and marketing plans, marketing materials, trade secrets, customer contact information, financial information, and personnel documents (“MASS Assets”); (c) utilize the MASS Assets to launch and operate InformaTrac; (d) misrepresent and conceal material facts from plaintiff and Balady; (e) market InformaTrac Software in combination with PcVue's products; and (f) represent to potential InformaTrac Software licensees that defendants are the lawful owner of that software. Id. ¶ 49. Nugent and PcVue partially financed, supervised, and controlled this conspiracy by: (a) wrongfully allowing defendants to exploit the MASS Assets; (b) defrauding plaintiff; and (c) interfering with plaintiff's contractual and business relations. Id. ¶ 50.

         Plaintiff asserts eight claims of copyright infringement against defendants, including PcVue and Nugent, for infringing on the following copyrighted works: U.S. Copyright No. TX 8-233-219 (“Work 1”); U.S. Copyright App. No. 1-4192462946 (“Work 2”); U.S. Copyright App. No. 1-4192462853 (“Work 3”); U.S. Copyright App. No. 1-4192462795 (“Work 4”); U.S. Copyright App. No. 1-4192462747 (“Work 5”); U.S. App. Copyright No. 1-4192462679 (“Work 6”); U.S. Copyright App. No. 1-4192462581 (“Work 7”); and U.S. Copyright App. No. 2-4189662157 (“Work 8”) (collectively, “Works”). See generally FAC. With respect to each copyrighted work, plaintiff alleges:

Defendants' infringing works “copy, ” i.e. are identical or virtually identical, and substantially similar to, the quantitatively and qualitatively distinct, important, and recognizable, nonfunctional and protectable portions of Plaintiff's Copyrighted Work[s 1-8], including the literal elements of Plaintiff's Work[s 1-8], i.e. the source and object codes, as well as the nonliteral and nonfunctional elements of Plaintiff's Work[s 1-8], including but not limited to the structure, sequence and organization, appearance of the user interface, screens, fields, arrangement and sequencing of fields.

Id. ¶¶ 54, 72, 90, 108, 126, 144, 162, 180. Plaintiff specifies that the “protectable elements” of its Works “do not include any procedures, processes, systems, or methods of operation for Plaintiff's software products, such matters only alleged as Plaintiff's Trade Secrets, defined and alleged hereinbelow.” See, e.g., id. ¶ 55. Defendants did not seek or receive permission or consent to copy any portion of plaintiff's Works and copied them willfully and maliciously. See, e.g., id. ¶ 56. Plaintiff alleges that defendants acted jointly and that “each” defendant induced, caused, or materially contributed to the infringing conduct of one another such that they should be found contributorily liable for the acts of the others. See, e.g., id. ¶¶ 61-62. In addition, each defendant had the right and ability to control the other infringers and derived a direct benefit from that infringement such that each defendant should be found vicariously liable. See, e.g., id. ¶ 63.

         Plaintiff asserts a claim of misappropriation of trade secrets as against PcVue and Nugent, along with the other defendants. Id. ¶¶ 212-37. Plaintiff defines “Trade Secrets” to mean “the procedures, processes, systems, methods of operation for Plaintiff's software products, customer identifications, private phone numbers and email addresses, individual customer product needs and specifications, market studies, special business practices and private bank account information.” Id. ¶ 213. Plaintiff enjoys an advantage over its existing and potential competitors because of the Trade Secrets that it has acquired through years of research and investigation. Id. ¶ 214. Plaintiff has made and continues to make reasonable efforts to preserve the confidentiality of its Trade Secrets and requires its employees-including Hughes, Huysentruyt, and Nugent-to sign nondisclosure agreements. Id. ¶ 216. Plaintiff alleges that, without its consent, defendants misappropriated plaintiff's Trade Secrets when Hughes and Huysentruyt downloaded and copied digital files containing Trade Secrets in the final months of their employment. Id. ¶¶ 219-20. On information and belief, plaintiff avers that Nugent and PcVue urged Hughes and Huysentruyt to share those files with Nugent and PcVue for defendants' mutual use. Id. ¶ 219. On information and belief, plaintiff alleges that Hughes and Huysentruyt disclosed the Trade Secrets to Nugent and PcVue, which then exploited those Trade Secrets in the process of selling PcVue's products and services along with the integrated products and services of InformaTrac. Id. ¶ 229. Defendants knew or had reason to know that the Trade Secrets they acquired constituted protectable trade secrets that had independent economic value, were not generally known to the public, and were the subject of plaintiff's reasonable efforts to ensure the secure the secrecy of such information. Id. ¶ 231.

         Finally, plaintiff asserts a claim for accounting against PcVue and Nugent, along with the other defendants. Id. ¶¶ 300-303.

         III. PERSONAL JURISDICTION

         A. LEGAL STANDARD

         When a defendant moves to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden of demonstrating that the court may properly exercise personal jurisdiction over the defendant. Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). Where, as here, a court decides such a motion without an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts to withstand the motion to dismiss. Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995); Doe v. Unocal Corp., 27 F.Supp.2d 1174, 1181 (C.D. Cal. 1998), aff'd, 248 F.3d 915 (9th Cir. 2001). The plaintiff's alleged version of the facts is taken as true for purposes of the motion if not directly controverted. AT & T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996); Unocal, 27 F.Supp.2d at 1181. If the defendant adduces evidence controverting the allegations, however, the plaintiff may not rely on his pleadings, but must “come forward with facts, by affidavit or otherwise, supporting personal jurisdiction.” Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986) (quoting Amba Mktg. Servs., Inc. v. Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)). Any “conflicts between the facts contained in the parties' affidavits must be resolved in [plaintiff's] favor for purposes of deciding whether a prima facie case for personal jurisdiction exists.” AT & T, 94 F.3d at 588-89 (quotation marks omitted).

         Generally, personal jurisdiction exists if (1) it is permitted by the forum state's long-arm statute and (2) the “exercise of that jurisdiction does not violate federal due process.” Pebble Beach, 453 F.3d at 1154-55 (citing Fireman's Fund Ins. Co. v. Nat'l Bank of Coops., 103 F.3d 888, 893 (9th Cir. 1996)).

         California's long-arm jurisdictional statute is coextensive with federal due process requirements, so that the jurisdictional analysis under state law and federal due process are the same. Cal. Civ. Proc. Code § 410.10; Roth v. Garcia Marquez, 942 F.2d 617, 620 (9th Cir. 1991). In order for a court to exercise personal jurisdiction over a nonresident defendant, that defendant must have “minimum contacts” with the forum state so that the exercise of jurisdiction “does not offend traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Depending on the nature of the contacts between the defendant and the forum state, personal jurisdiction is characterized as either general or specific.

         1. General Jurisdiction

         “A court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic' as to render them essentially at home in the forum State.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). Whether a defendant's contacts are sufficiently substantial, continuous, and systematic for an exercise of general jurisdiction depends upon a defendant's “[l]ongevity, continuity, volume, economic impact, physical presence, and integration into the state's regulatory or economic markets.” Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1224 (9th Cir. 2011) (quoting Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1172 (9th Cir. 2006)); see also Bancroft & Masters, Inc. v. Augusta Nat. Inc., 223 F.3d 1082, 1086 (9th Cir. 2000) (“Factors to be taken into consideration are whether the defendant makes sales, solicits or engages in business in the state, serves the state's markets, designates an agent for service of process, holds a license, or is incorporated there.”). Occasional sales to residents of the forum state are insufficient to create general jurisdiction. See Brand v. Menlove Dodge, 796 F.2d 1070, 1073 (9th Cir. 1986). This standard is exacting, “because a finding of general jurisdiction permits a defendant to be haled into court in the forum state to answer for any of its activities anywhere in the world.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 801 (9th Cir. 2004).

         2. ...


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