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Swarmify, Inc. v. Cloudflare, Inc.

United States District Court, N.D. California

April 3, 2018

SWARMIFY, INC., Plaintiff,
v.
CLOUDFLARE, INC., Defendant.

          ORDER ON MOTION TO DISMISS

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         In this action for trade secret misappropriation, defendant moves to dismiss various related state law claims. The motion is Granted in part and Denied in part.

         STATEMENT

         This is an action by plaintiff Swarmify, Inc., against defendant Cloudflare, Inc., for trade secret misappropriation and related state law claims. The allegations of the complaint have been described and discussed in detail in a prior order denying Swarmify's motion for a preliminary injunction (Dkt. No. 88). The gravamen of Swarmify's grievances is that Cloudflare allegedly induced Swarmify to divulge its trade secrets by feigning interest in an acquisition deal and signing a non-disclosure agreement for purposes of deal negotiations, but then used those trade secrets to develop a competing product without ever acquiring or dealing with Swarmify (see Id. at 1-7).

         Cloudflare now moves to dismiss Swarmify's claims for breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud in the inducement, accounting, and unfair competition in violation of Section 17200 of the California Business and Professions Code. The instant motion does not challenge Swarmify's claims for trade secret misappropriation (under both federal and state law) and breach of written contract (Dkt. No. 56). This order follows full briefing and oral argument.

         ANALYSIS

         1. Legal Standard.

         To survive a motion to dismiss, a complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility when it pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “When ruling on a motion to dismiss, [courts] may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030-31 (9th Cir. 2008) (quotation and citations omitted). Courts accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party. Ibid. Conclusory allegations or “formulaic recitation of the elements” of a claim, however, are not entitled to the presumption of truth. Iqbal, 556 U.S. at 681.

         Cloudflare advances three grounds for dismissal here. First, Cloudflare contends all five challenged claims for relief must be dismissed as superseded by the California Uniform Trade Secrets Act (Dkt. No. 56 at 3-10). Second, Cloudflare contends the claims for breach of the implied covenant of good faith and fair dealing, unjust enrichment, and fraudulent inducement must be dismissed as precluded by the parties' non-disclosure agreement (id. at 11-14). Third, Cloudflare contends the claim for fraudulent inducement must be dismissed for failing to satisfy Federal Rule of Civil Procedure 9(b) (id. at 14-16). The applicable legal standards are discussed further in the context of the parties' arguments below.

         2. Breach of the Implied Covenant of Good Faith and Fair Dealing.

         With respect to Swarmify's claim for breach of the implied covenant of good faith and fair dealing, the complaint alleges (Dkt. No. 1 ¶¶ 41, 70):

Upon information and belief, Cloudflare never intended to acquire or license Swarmify's Technology, nor to acquire Swarmify; rather, it initiated discussions, and induced Swarmify to enter the NDA and disclose the Technology to Cloudflare, in an ...

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