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Octaform Systems Inc. v. Johnston

United States District Court, D. Nevada

June 12, 2017

OCTAFORM SYSTEMS INC. and OCTAFORM INC., Plaintiffs,
v.
BRUCE JOHNSTON, ALBA LUCIA LOZANO HERNANDEZ JOHNSTON, JUN YU, CAROLINA DIAZ, and H-PAC PLASTICS, LLC, Defendants.

          ORDERGRANTINGINPARTAND DENYINGINPARTDEFENDANTS' MOTIONTO DISMISSAND GRANTINGPLAINTIFFLEAVETO AMEND (ECF NO. 16).

          ANDREW P. GORDON UNITED STATES DISTRICT JUDGE

         Plaintiff Octaform Systems Inc. (“Octaform”)[1] designs PVC forms for pouring concrete. It alleges that several of its former employees conspired with Octaform's Chinese manufacturer to steal its designs. Octaform sues these former employees for stealing trade secrets and for several torts related to this alleged theft.

         The defendant employees move to dismiss on two grounds. First, they argue that the whole case should be thrown out because Octaform did not join the manufacturer with whom they allegedly conspired. The defendants argue that this manufacturer is a necessary party under Federal Rule of Civil Procedure 19, without whom the case cannot proceed. But Rule 19 requires the defendants to establish either (1) that I will be unable to afford relief without the absent party, or (2) that the absent party's interests might be legally impacted by this case if I fail to join them. They have shown neither. Whether this manufacturer is joined has no impact on whether Octaform will succeed on its claim or what relief it will be given, and there is no evidence that the manufacturer will be bound by any determinations in this case.

         Second, the defendants argue that if I don't dismiss the entire case under Rule 19, I should dismiss Octaform's various tort claims because they are precluded by Nevada's trade secret statute. On this point, I agree. Octaform has alleged several tort claims that are dependent on its trade secret claim, and Nevada law makes clear that as a result these tort claims are barred. I therefore dismiss Octaform's claims for conversion, interference with business relations, conspiracy, and unjust enrichment, but I otherwise deny the defendants' motion.

         I. BACKGROUND

         Octaform designs and makes PVC forms for pouring concrete.[2] Starting in 2011, Octaform used a Chinese company, Huajun, [3] to manufacture those forms.[4] From 2011 to 2016, the individual defendants were high-level Octaform employees.[5] In 2016, these employees allegedly quit their jobs at Octaform, created a new company, and then formed an alliance with Huajun to manufacture PVC forms that competed with Octaform's products.[6] Octaform alleges that the defendants and Huajun used their knowledge of Octaform's designs to create these competing products-and thereby misappropriated Octaform's trade secrets.[7] Octaform also alleges that the defendants, along with Huajun, took Octaform's design plans and refused to give back Octaform's die tools. The defendants then allegedly contacted Octaform's customers to sell the defendants' replica products to them.[8]

         II. ANALYSIS

         A. Motions to Dismiss

         A properly pleaded complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.”[9] 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.”[10] “Factual allegations must be enough to rise above the speculative level.”[11] 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.”[12]

         B. Defendants have not established that this case is missing necessary parties.

         The defendants' primary argument is that Octaform has failed to sue Huajun, and this manufacturer is a necessary party under Federal Rule of Civil Procedure 19. Rule 19 works in two steps. First, I decide if there are missing parties who are necessary to resolving this case. If so, I then try to join them; if I can't, I must decide whether they are so crucial that they are indispensable and their absence warrants outright dismissal of the action. Here, the defendants' argument fails at the first step because they have not established that Huajun's joinder is necessary, much less indispensable.

         A party is necessary under Rule 19 in two scenarios. First, an absent party is necessary if I am unable to “accord” “complete relief” to the current parties without it.[13] Second, an absent party is necessary if it claims an interest in the subject matter of the action and, as “a practical matter, ” the disposition of this action will “impair or impede the [party's] ability to protect that interest.”[14] Whether a party is necessary under either of these two theories is a matter within my discretion.[15] The defendants bear the burden of establishing dismissal is warranted.[16]

         1. Whether I can afford the parties complete relief without joining the manufacturers.

         The defendants argue that they will be liable for selling Huajun's products only if Octaform can first prove that Huajun illicitly made the products using Octaform's trade secrets. Thus, the defendants conclude that it will be impossible for Octaform to succeed on its claims without Huajun in this case.

         But entities are not necessary parties merely because they were involved in the tort being sued over, and the defendants have not established that joining Huajun is otherwise needed for this case to proceed. This step of Rule 19 “asks whether the absence of the party would preclude [me] from fashioning meaningful relief as between the parties.”[17] If Octaform proves that the defendants are selling or using trade secrets that they or Huajun misappropriated, I can enter monetary and injunctive relief against the defendants to redress those wrongs. The parties can conduct discovery (including from Huajun) and argue to the jury whether Huajun's products are infringing-without it being a party to this case.

         The defendants also argue that Huajun should be joined because it was an “active participant” in the alleged trade secret misappropriation. While some district courts have held that being an active participant with a defendant is enough to make that party necessary, the Ninth Circuit has never adopted that test.[18] Much the opposite: the Ninth Circuit follows the standard given by the Supreme Court-and indeed, the standard offered by Rule 19's text-that being a joint tortfeasor with a defendant is not enough to require joinder unless that tortfeasor's absence will prevent the court from affording relief to the parties.[19]

         2. Whether the manufacturer's interests will be impaired if I fail to join it.

         Finally, the defendants contend that Rule 19's second situation is present: that the manufacturer's interests will be impaired if it is not joined. The thrust of the defendants' argument on this point is that “it is possible that any findings in this action could impair or impede [the manufacturer's] interests in any current or future litigation.” But the defendants have not established that any rulings in this case will bind the manufacturers so that their interests might be in peril. If Octaform establishes that the defendants knowingly participated in trade secret misappropriation that, would not mean that the manufacturers would be liable.[20] Nor have the defendants offered authority or explanation ...


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