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Veronica Foods Co. v. Ecklin

United States District Court, N.D. California

June 29, 2017

VERONICA FOODS COMPANY, Plaintiff,
v.
KURT ECKLIN, et al., Defendants.

          ORDER GRANTING MOTION TO DISMISS FIRST AMENDED COMPLAINT RE: DKT. NO. 29

          JOSEPH C. SPERO, CHIEF MAGISTRATE JUDGE

         I. INTRODUCTION

         Plaintiff Veronica Foods Company ("Veronica Foods") brings this action against Defendants Kurt Ecklin and Millpress Imports LLC ("Millpress") alleging that Defendants misappropriated Veronica Foods‘ trade secrets in violation of both the federal Defend Trade Secrets Act ("DTSA, " 18 U.S.C. § 1836), and the California Uniform Trade Secrets Act ("CUTSA, " Cal. Civ. Code §§ 3426-3426.11, California‘s implementation of the Uniform Trade Secrets Act ("UTSA") adopted in many states), by improperly "using Ecklin‘s knowledge of [Veronica Foods‘] trade secrets - knowledge that Ecklin acquired solely through the course of his employment by Veronica Foods." 1st Am. Compl. ("FAC, " dkt. 28) ¶ 6. Veronica Foods has amended its complaint once after Defendants moved to dismiss. See generally Id. Defendants now move to dismiss once again, arguing that Veronica Foods fails to state a valid trade secrets claim under either the DTSA or the CUTSA, and that Veronica Foods improperly initiated this lawsuit as a means to exploit its monopoly power in the market. See generally Mot. (dkts. 29, 30). The Court held a hearing on May 26, 2017. For the reasons detailed below, the Court GRANTS Defendants‘ motion and DISMISSES Veronica Foods‘ first amended complaint with leave to further amend no later than July 31, 2017.[1]

         II. BACKGROUND

         A. Allegations and Claims of the First Amended Complaint

         1. Factual Allegations

         Veronica Foods has been in business since the 1920s and has operated in Oakland, California since the 1930s. FAC ¶ 15. "Currently, the heart of [Veronica Foods‘] business is the bulk importation and sale of fresh, estate-produced, extra virgin olive oils and Specialty Products" such as balsamic vinegar. Id. ¶ 16. Veronica Foods claims that it has "pioneered" a "unique" business model "in which retail stores purchase bulk quantities of extra virgin olive and other Specialty Products; and only dispense the Products into bottles after a consumer has decided to make a purchase, " unlike other business models in the olive oil industry in which retailers "still sell products pre-packed in glass bottles or other containers." Id. ¶¶ 17, 18. In 2006, Veronica Foods began assisting with the opening of stand-alone olive oil stores, and has since assisted with the opening of over 800 stores in the United States and Canada. Id. ¶ 19. Veronica Foods has provided these stores with "guidance and advice on matters such as location; lease terms; store design, layout, and construction; and product selection, " as well as training sessions for owners and employees. Id. ¶ 20.

         During the course of its work with its suppliers and customer stores, Veronica Foods contends it has created and compiled three distinct groups of trade secret information, all of which are at issue for this litigation. First, Veronica Foods states it has created a "Customer List" or "list of the stores to which it sells Specialty Products, " which it contends is "unique" because it "reflects] all of the work that Veronica Foods put into assisting with the creation of its customer stores, " and "represents a compilation of hundreds of stores that have adopted the Veronica Foods business model." Id. ¶¶ 20, 21, 24.

         Second, Veronica Foods also contends that what it refers to as its "Confidential Business Information, " or "extensive, confidential, information relating to its business and customers, " is a trade secret developed "only through years of working with its customer stores and its suppliers, " and that Veronica Foods spent "considerable time and resources in gathering and compiling the Confidential Business Information." Id. ¶¶ 25-26. According to Veronica Foods, this Confidential Business Information includes:

(a) the name and contact information for the person(s) at each Veronica Foods customer store responsible for purchasing bulk olive oils and balsamic vinegars; (b) the ordering history of each customer store, including records of the types and quantities of Specialty Products purchased; (c) other information regarding the particular needs, characteristics, and preferences of each customer; (d) billing and payment information for each customer; (e) product information for Specialty Products; and (f) cost and pricing information for the Specialty Products, including information on profit margins.

Id. ¶ 25.

         Third, Veronica Food contends its confidential "Supplier List, " detailing information regarding its suppliers, qualifies as a trade secret. Id. ¶ 30-36. This Supplier List includes:

the suppliers and printers of the Specialty Glass Bottles; a complete list of the Specialty Products that Veronica Foods sells to its customer stores; the identities of the companies from which Veronica Foods obtains those Specialty Products; contact information for the person(s) at each supplier with whom Veronica Foods works; and information concerning the prices the suppliers charge to Veronica Foods for the Specialty Products they provide.

Id. ¶ 30.

         In forming these lists and compiling this information, Veronica Foods alleges it invested substantial time and effort to create these business relationships, such that these lists would be valuable to business competitors because they uniquely reflect the rewards of Veronica Foods‘ investment. See Id. ¶¶ 24, 26-27, 33. Veronica Foods additionally contends this information is private and alleges that it has taken reasonable steps to maintain the secrecy of these trade secrets by imposing password protection of files, preventing remote access, and requiring its employees to sign confidentiality agreements. Id. ¶¶ 28-29, 35-36.

         While Veronica Foods contends that its "trade secrets are not public information, " it acknowledges that there were periodic public disclosures of supplier or customer information. See Id. ¶¶ 40-43. For example, Veronica Foods acknowledges that "certain websites, including the 'Truth in Olive Oil‘ website, purport to identify stores selling Veronica Foods olive oil, " but alleges that "any purported list of Veronica Foods‘s customer stores available on line is inaccurate, incomplete, and/or outdated, " such that "[t]he full Customer List is not available from any public source." Id. ¶ 41. Veronica Foods further alleges that the "public sources do not reveal any of the extensive, additional confidential information relating to the Customer List, " such as "names and contact information for the persons at customer stores responsible for purchasing bulk olive oils and balsamics; stores‘ ordering histories; other information regarding stores‘ needs, characteristics, and preferences; or stores‘ billing and payment information." Id. ¶ 42. Similarly, while Veronica Foods acknowledges past public disclosures of supplier information in the form of "announcements relating to Veronica Foods‘s relationships with individual suppliers" that "may periodically be published on line, " it alleges that its "complete Supplier List is not publically [sic] available." Id. ¶ 43. Veronica Foods also alleges that no public source has yet revealed further confidential information related to suppliers such as "a complete list of the names and contact information for the persons with whom Veronica Foods works in obtaining Specialty Products; the prices that suppliers charge to Veronica Foods for the Specialty Products; complete information on blends, formulations, recipes, and chemical analysis for the Specialty Products; or Veronica Foods‘s profit margins with respect to various Specialty Products." Id. ¶ 43.

         Defendant Ecklin worked for Veronica Foods in a customer service and sales capacity from February 11, 2004 to October 25, 2015. Id. ¶¶ 44, 46, 53. Prior to his employment with Veronica Foods, Ecklin was required to sign a confidentiality agreement that explicitly precludes misappropriation of trade secrets, and which, according to Veronica Foods, remains in full force per its original terms. Id. ¶ 47. During his time working for Veronica Foods, "Ecklin had regular contact with [its] customers; learned extensive details about them; and acquired detailed knowledge of the information included [sic] the Customer List, the Supplier List and the compilation of Confidential Business Information." Id. ¶ 46. Ecklin eventually resigned from his position with Veronica Foods in October 2015, allegedly informing Veronica Foods he had "no direct interest in remaining in the food oils arena." Id. ¶ 53. Despite this, Ecklin began working with a direct competitor, Defendant MillPress, in January 2016. Id. ¶¶ 53-54.

         At the time of MillPress‘s incorporation, its president and founder Tim Balshi was the proprietor of four retail stores that purchased Specialty Products from Veronica Foods. Id. ¶¶ 49- 50. MillPress subsequently began supplying Balshi‘s retail stores as well as persuading other stores to purchase from MillPress instead of Veronica Foods. Id. ¶ 51.

         Veronica Foods alleges that after Ecklin began work with MillPress, Defendants "have been deliberately soliciting business from stores they know to be customers of Veronica Foods- taking advantage of Ecklin‘s knowledge of Veronica Foods‘s Customer List, Confidential Business Information, Supplier List, and the relationships that Ecklin established with [Veronica Foods‘] customers while working for Veronica Foods." Id. ¶ 54. Veronica Foods further alleges that Defendants began using these trade secrets "sometime before August of 2016" and that since late August 2016, "approximately 20 customer stores, which are continuing to sell olive oil and balsamic products to consumers, have terminated their relationships with Veronica Foods, " instead purchasing similar products from MillPress. Id. ¶ 56. According to Veronica Foods, Defendants have also used the Supplier List to attempt to "get [Veronica Foods‘] suppliers, including but not necessarily limited to the supplier who prints Specialty Glass Bottles for Veronica Foods, to supply MillPress." Id. ¶ 60. Veronica Foods contends that "Defendants are continuing to improperly use Veronica Food‘s trade secrets in soliciting [Veronica Foods‘] customer stores, " such that "Veronica Foods is continuing to lose customers and to incur damages." Id. ¶ 62.

         2. Claims

         As detailed above, Veronica Foods contends that it developed three unique groups of trade secrets that Defendants misappropriated: (1) the Customer List, (2) Confidential Business Information, and (3) the Supplier List. See Id. ¶¶ 15-43. Veronica Foods asserts that Defendants‘ misappropriation of these trade secrets gives rise to two causes of action-"misappropriation of trade secrets in violation of California Civil Code § 3426 et seq., " (the CUTSA), and "misappropriation of trade secrets in violation of 18 U.S. Code § 1836 et. seq." (the DTSA). FAC ¶¶ 64-82 (capitalization altered throughout). As a result of this misappropriation, Veronica Foods claims that it is entitled to damages and injunctive relief to prevent the continued use of trade secrets. Id. ¶ 63.

         With respect to its CUTSA claim, Veronica Foods alleges that Defendants violated the CUTSA through "their improper use and disclosure of [Veronica Foods‘] trade secrets and confidential business information." Id. ¶ 65. Veronica Foods further alleges that Ecklin obtained access to these secrets while working for Veronica Foods, that Ecklin was aware of his duty to maintain the secrecy of these trade secrets obtained in the course of employment with Veronica Foods, and that Defendants have improperly used and disclosed-and continue to use and disclose-Veronica Foods‘ trade secrets. Id. ¶¶ 67-71. Veronica Foods contends that it "has suffered, and will continue to suffer, great harm and damage, " such that it "is entitled to recover damages for its actual losses; and/or is entitled to recover for the unjust enrichment caused by Defendants‘ misappropriation of [Veronica Foods‘] trade secrets." Id. ¶ 72. Finally, Veronica Foods contends that because "Defendants‘ conduct in misappropriating [Veronica Foods‘] trade secrets was and continues to be willful and malicious, " exemplary damages and an award of attorneys‘ fees are warranted. Id. ¶ 74.

         With respect to the DTSA, Veronica Foods similarly alleges that Defendants‘ "improper use and disclosure of [Veronica Foods‘] trade secrets and confidential information; including, but not necessarily limited to, [Veronica Foods‘] Customer List, Confidential Business Information, and Supplier List, " give rise to liability. Id. ¶ 76. Veronica Foods contends that while "Defendants began improperly using Veronica Foods‘s trade secrets for their own benefit sometime before August of 2016, " Defendants also "were using trade secrets misappropriated from Veronica Foods when they convinced Veronica Foods customer stores to switch their business to MillPress in August of 2016, September of 2016, November of 2016, January of 2017, and February of 2017." Id. ¶ 79. Once more, Veronica Foods contends that its past and ongoing harms warrant damages and injunctive relief, and that Defendants‘ actions were "willful and malicious, " to justify exemplary damages and a recovery of attorneys‘ fees. Id. ¶¶ 80-82.

         B. The Parties' Arguments

         1. Defendants' Motion to Dismiss and Request for Judicial Notice

         On March 17, 2017, Defendants filed their present motion to dismiss, arguing that the first amended complaint fails to state claims for relief under both the DTSA and the CUTSA, and that Veronica Foods "launched this baseless lawsuit in an attempt to strangle its competitor in the cradle" and "protect its monopoly power." See Mot. at 1, 3. Defendants contend that Veronica Foods‘ allegations do not support a claim for misappropriation of trade secrets where, as here, a plaintiff "has publicly disclosed, year after year, for more than a half-decade, the very information it now claims to be 'secret‘, and where the FAC utterly fails to allege any improper conduct by Defendants." Id. at 3.

         Defendants argue that past disclosures of allegedly secret information destroy any trade secret protection they might have had. As examples of these public disclosures, Defendants point to "a public list of more than 200 of [Veronica Foods‘] customer stores" that Veronica Foods itself maintains online, Veronica Foods‘ intentional directing of traffic to customer lists via its blogs and Facebook pages, Veronica Foods‘ periodic disclosure of supplier identities via online announcements, further disclosures regarding supplier and customer identities via Facebook, and Veronica Foods‘ customers‘ public disclosures regarding their relationship. Id. at 6-9.

         a. Defendants‘ Request for Judicial Notice

         In support of their argument that Veronica Foods disclosed purportedly confidential business information, Defendants request judicial notice of thirty-six exhibits, including pages from Veronica Foods‘ website, Veronica Foods‘ social media posts, media reports, and pages from retailers‘ and other third parties‘ websites, on the basis that the information contained in such materials "'can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.‘" See Defs.‘ Req. for Judicial Notice ("Defs.‘ RJN, " dkt. 31) ¶ 37 (quoting Fed.R.Evid. 201(b)). The Court takes judicial notice of exhibits showing Veronica Foods‘ own disclosures through its websites and social media accounts, because the Court can readily determine what Veronica Foods has disclosed by accessing those publicly available online sources. Id. Exs. 1, 2, 7, 10-27, 32; see, e.g., W. Marine, Inc. v. Watercraft Superstore, Inc., No. C11-04459 HRL, 2012 WL 479677, at *10 (N.D. Cal. Feb. 14, 2012) (collecting cases taking judicial notice of a party‘s own website). Those materials show that Veronica Foods from time to time disclosed certain of its olive oil and vinegar suppliers, retailers, and testing standards. See Defs.‘ RJN Exs. 1, 2, 7, 10-27, 32.

         The Court declines to take judicial notice of a purported Veronica Foods newsletter because it is not clear how the veracity of that exhibit "can be accurately and readily determined" at the pleading stage. See Id. Ex. 9; Fed.R.Evid. 201(b). The Court also declines to take judicial notice of media reports and third party websites. See Defs.‘ RJN Exs. 3-6, 28-31, 33-36. Courts may in some circumstances take judicial notice of news reports solely "to 'indicate what was in the public realm at the time, not whether the contents of those articles were in fact true, ‘" Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 960 (9th Cir. 2009) (citation omitted), but without any independent basis to determine the truth of the media reports at issue here, they have no value in resolving the present motion. The same principle applies to other third party websites-with the exception of Exhibit 8, a list of Veronica Foods retailers from the third party website truthinoliveoil.com, of which the Court takes notice because Veronica Foods itself referred the public to that site. See Defs.‘ RJN Exhibit 10 (social media post by Veronica Foods linking to the truthinoliveoil.com list and quoting that website‘s statement that "all of these locations are supplied by Veronica Foods"). Regardless, the materials that the Court declines to consider are largely cumulative to the relevant information provided by Veronica Foods‘ own internet posts-i.e., that at least some of Veronica Foods‘ retailers, suppliers, and standards had been publicly disclosed-or have little if any relevance to the present motion. See, e.g., id. Exs. 4, 5 (media reports regarding MillPress owner Balshi‘s business experience).

         b. Arguments Regarding Veronica ...


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