United States District Court, D. Nevada
June 17, 2015
BRIAN DONOHO, Plaintiff(s),
SPACECRAFT COMPONENTS CORP., et al., Defendant(s)
JAMES C. MAHAN, District Judge.
Presently before the court is plaintiff/counter-defendant Brian Donoho's (hereinafter "plaintiff") motion to dismiss. (Doc. # 10). Defendant/counter-claimant Spacecraft Components Corp. (hereinafter "defendant") filed a response, (doc. # 18), and plaintiff filed a reply, (doc. # 19).
The instant case arises out of an employment dispute. Defendant designs, distributes, and manufactures environment connectors primarily for railway, military, and industrial use. (Doc. # 5). Plaintiff was employed as an at-will sales manager for defendant from approximately April 2010, through August 2013. (Doc. # 5). Plaintiff was terminated on or around July 19, 2013. (Doc. # 2).
Plaintiff alleges that throughout his term of employment he was subjected to a variety of discriminatory remarks and comments. (Doc. # 2). Plaintiff further asserts that he was terminated because he filed formal complaints about this discriminatory conduct. (Doc. # 2). In addition, plaintiff contends that defendant's proffered reason for dismissing him for "business needs" is mere pretext. (Doc. # 2).
Upon being hired, plaintiff agreed to defendant's technology policy, which included, among other provisions, that "company technology shall not be used to send (upload) or receive (download) copyrighted materials, trade secrets, proprietary financial information, or similar materials without prior authorization from Spacecraft Components management." (Doc. # 18).
On April 7, 2015, plaintiff filed a complaint alleging four causes of action: (1) national origin discrimination in violation of Title VII, 42 U.S.C. § 2000e-2 and NRS 613.330; (2) religious discrimination in violation of Title VII, 42 U.S.C. § 2000e-2 and NRS 613.330; (3) retaliation in violation of 42 U.S.C. § 2000e-3(a) and NRS 613.340; and (4) intentional infliction of emotional distress. (Doc. # 2). Defendant then filed a counterclaim against plaintiff for a violation of the Nevada Trade Secrets Act. (Doc. # 10).
Defendant's counterclaim alleges that, after plaintiff was terminated, plaintiff sent emails to his personal account containing confidential information including, but not limited to, pricing details, business plans, and client contact information. (Doc. #10). In particular, defendant alleges that plaintiff misappropriated this valuable corporate information by sending himself trade secrets from defendant's servers for the purpose of circumventing defendant's technology policy, security, and monitoring software. (Doc. #10).
Plaintiff now moves to dismiss defendant's counterclaim, arguing that the court lacks supplemental jurisdiction to rule on the counterclaim and that the counterclaim fails to state a claim upon which relief can be granted.
II. Legal standard
a. Supplemental jurisdiction
All counterclaims are either compulsory or permissive. Compulsory counterclaims are claims that "arise out of the transaction or occurrence that is the subject matter of the opposing party's claim" and "do not require adding another party over whom the court cannot acquire jurisdiction." Fed.R.Civ.P. 13(a). The Ninth Circuit has adopted the "logical relationship test" for determining whether a counterclaim is compulsory. In re Pegasus Gold Corp., 394 F.3d 1189, 1196 (9th Cir. 2005). The test provides:
A logical relationship exists when the counterclaim arises from the same aggregate set of operative facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant.
Id. (quoting In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992)); Sparrow v. Mazda Am. Credit, 385 F.Supp.2d 1063, 1066 (E.D. Cal. 2005) ("Under this test, the court analyzes whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all issues be resolved in one suit.") (internal citations, quotations, and alterations omitted).
All counterclaims that are not compulsory are permissive. Federal Rule of Civil Procedure 13(b) states that "[a] pleading may state as a counterclaim against an opposing party any claim that is not compulsory." Further, the advisory committee notes to the 2007 amendment of Rule 13 require "[b]oth as a matter of intended meaning and current practice, a party may state as a permissive counterclaim a claim that does grow out of the same transaction or occurrence as an opposing party's claim even though one of the exceptions in Rule 13(a) means the claim is not a compulsory counterclaim."
28 U.S.C. § 1367(a) permits a federal district court to exercise supplemental jurisdiction over state law claims when (1) the federal district court has original jurisdiction over the action and (2) the other claims are so related to claims in the action within original jurisdiction that they form part of the same case or controversy under Article III. Courts have abandoned "the analysis for determining whether supplemental jurisdiction exists based on whether a counterclaim is compulsory or permissive." Sparrow, 385 F.Supp.2d at 1067 (collecting cases).
"The issue whether supplemental jurisdiction exists over counterclaims is determined by the language of § 1367." Id. "Whether supplemental jurisdiction exists over a counterclaim depends on whether the state counterclaim and the federal claim [are] so related... that they form part of the same case or controversy under Article III of the United States Constitution.'" Id. (quoting 28 U.S.C. § 1367(a)).
b. Motion to dismiss
A court may dismiss a plaintiff's complaint for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). A properly pled complaint must provide "[a] short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While Rule 8 does not require detailed factual allegations, it demands "more than labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).
"Factual allegations must be enough to rise above the speculative level." Twombly, 550 U.S. at 555. Thus, to survive a motion to dismiss, a complaint must contain sufficient factual matter to "state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678 (citation omitted).
In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, the court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions are not entitled to the assumption of truth. Id. at 678-79. Mere recitals of the elements of a cause of action, supported only by conclusory statements, do not suffice. Id.
Second, the court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff's complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 678.
Where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has "alleged-but it has not shown-that the pleader is entitled to relief." Id. at 679 (internal quotations omitted). When the allegations in a complaint have not crossed the line from conceivable to plausible, plaintiff's claim must be dismissed. Twombly, 550 U.S. at 570.
The Ninth Circuit addressed post- Iqbal pleading standards in Starr v. Baca, 652 F.3d 1202 (9th Cir. 2011). The Starr court held,
First, to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively. Second, the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.
Id. at 1216.
a. Supplemental jurisdiction
This court has original, federal question jurisdiction over plaintiff's claims against defendant pursuant to 28 U.S.C. § 1331. However, this court lacks original subject matter jurisdiction over the state law counterclaim asserted by defendant. The issue is whether this court may exercise supplemental jurisdiction over the counterclaim pursuant to 28 U.S.C. § 1367.
"The traditional rule is that federal courts have supplemental jurisdiction over compulsory counterclaims, since a plaintiff would otherwise lose his opportunity to be heard on that claim." Sparrow, 385 F.Supp.2d at 1066. Federal Rule of Civil Procedure 13(a) provides that a compulsory counterclaim "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim."
In determining what constitutes a compulsory counterclaim, the Ninth Circuit applies a "logical relationship" test to determine whether a claim and counterclaim arise out of the same transaction or occurrence. Montana v. Goldin, 394 F.3d 1189, 1196 (9th Cir. 2005); see also in re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992).
The operative question is "whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987). Thus, courts must determine whether there is a substantial overlap between the facts necessary to the claim and counterclaim. Id. at 1251.
Plaintiff alleges that defendant's counterclaim is not compulsory and thus this court lacks subject matter jurisdiction over it. According to plaintiff, his retaliation and national origin/religious discrimination claims are wholly unrelated and factually dissimilar to defendant's trade secrets counterclaim. (Doc. # 10). Plaintiff further contends that allegations of improper use are inappropriate here as plaintiff now works in an unrelated field. (Doc. # 19).
Here, the counterclaim meets the logical relationship test and is compulsory. The allegations pertaining to plaintiff's initial employment discrimination claims and defendant's counterclaim stem from the same operative facts. Both parties' claims are logically connected to their employment relationship and judicial economy is best served by adjudicating these issues in a single proceeding. Thus, under the traditional rule, this court has supplemental jurisdiction because the counterclaim is compulsory. See Sparrow, 385 F.Supp.2d at 1066.
However, many courts have abandoned "the analysis for determining whether supplemental jurisdiction exists based on whether a counterclaim is compulsory or permissive." Sparrow, 385 F.Supp.2d at 1067 (collecting cases). Supplemental jurisdiction is now determined based on the language of § 1367. Id. The language of § 1367 states, "[w]hether supplemental jurisdiction exists over a counterclaim depends on whether the state counterclaim and the federal claim [are] so related... that they form part of the same case or controversy under Article III of the United States Constitution.'" 28 U.S.C. § 1367(a). The Ninth Circuit has not yet addressed this issue. Sparrow, 385 F.Supp.2d at 1067.
Based on the foregoing reasons, the court finds that supplemental jurisdiction also exists under the language of § 1367. The counterclaim is sufficiently related to initial claims to be part of the same case or controversy plaintiff alleges, and judicial economy is best served by adjudicating all of these issues in a single action.
Both the underlying claim and counterclaim derive from an employment relationship between plaintiff and defendant. This relationship, coupled with the fact that this counterclaim aids in defendant's after-evidence affirmative defense, creates a sufficient factual connection between the claims and makes the application of supplemental jurisdiction appropriate over defendant's counterclaim.
Notably, a district court may decline to exercise supplemental jurisdiction over a claim if: (1) the claim raises a novel or complex issue of state law; (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction; (3) the district court has dismissed all claims over which it has original jurisdiction; or, (4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction. 28 U.S.C. § 1367(c). The court finds that none of the § 1367(c) exceptions apply and that it would be inefficient to dismiss defendant's Nevada Trade Secrets Act counterclaim.
Accordingly, this court exercises its discretion under 28 U.S.C. § 1367(a) to provide supplemental jurisdiction over defendant's counterclaim. The court will now address plaintiff's motion to dismiss for failure to state a claim.
b. Motion to dismiss
To survive a motion to dismiss for a Nevada Trade Secrets Act claim, defendant must allege: (1) a valuable trade secret; (2) misappropriation of the trade secret through use, disclosure, or nondisclosure of use of the trade secret; and (3) the requirement that the misappropriation be wrongful because it was made in breach of an express or implied contract or by a party with a duty not to disclose. Frantz v. Johnson, 116 Nev. 455, 999 P.2d 351, 358 (Nev. 2000).
Defendant's counterclaim alleges that plaintiff violated the Nevada Trade Secrets Act by "acquiring trade secret information by improper means" and "misappropriat[ing] Spacecraft's trade secret information and materials for his own improper use to the detriment of Spacecraft." (Doc. # 5).
More specifically, defendant claims this violation occurred through plaintiff "send[ing] himself, to his personal email address, numerous emails containing confidential, propriety and trade secret information while he was employed with Spacecraft." (Doc. # 5). Such information included "customer lists and contact information, distributor information, customer invoices, sales and marketing plans/reports, and pricing data." (Doc. # 5). Defendant contends that plaintiff did so for "no legitimate reason, " but instead to circumvent defendant's technology policy as the company maintains a web mail login for all salespeople. (Doc. # 5).
Defendant further alleges that plaintiff read and agreed to defendant's technology policy, which provides, in relevant part, that company technology (including email) "shall not be used to send (upload) or receive (download) copyrighted materials, trade secrets, proprietary financial information, or similar materials without prior authorization from Spacecraft Components management" and that the "use of the company technology for personal purposes is prohibited." (Doc. # 5).
Plaintiff argues that defendant's counterclaim is solely a retaliatory reaction to plaintiff's initial claims. (Doc. # 10). To support this proposition, plaintiff points to the fact that that this counterclaim was filed only after plaintiff was terminated and commenced suit against the defendant. (Doc. # 10). Plaintiff maintains that the alleged factual allegations are insufficient to show a breach of the Nevada Trade Secrets Act and to survive a Rule 12(b)(6) motion to dismiss. (Doc. # 10).
Accepting defendant's allegations as true, the court finds that defendant has sufficiently alleged a violation of the Nevada Trade Secrets Act. Defendant's counterclaim alleges wrongdoing on the part of the plaintiff that goes beyond merely filing suit. Defendant sufficiently alleges that plaintiff improperly emailed himself confidential information, without permission, from the company servers. (Doc. # 5).
Moreover, the "determination of whether corporate information, such as customer and pricing information, is a trade secret is a question for the finder of fact." Frantz v. Johnson, 116 Nev. 455, 466, 999 P.2d 351, 358 (2000). The Ninth Circuit held in Imax Corp. v. Cinema Tech., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998), that trade secrets should be described with "sufficient particularity, " and this court finds that defendant has sufficiently alleged a trade secret for Rule 12(b)(6) purposes. (Doc. # 5). Accordingly, dismissal for failure to state a claim is not warranted.
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff/counter-defendant's motion to dismiss, (doc. # 10), be, and the same hereby is, DENIED.