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Joshua David Mellberg LLC v. Will

United States District Court, D. Arizona

March 11, 2016

Joshua David Mellberg LLC, et al., Plaintiffs,
Jovan Will, et al., Defendants.


Cindy K. Jorgenson United States District Judge

This case arises out of the alleged theft by former employees and associates of Plaintiff Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, of trade secrets and confidential information, including client lists, internet-based marketing data, and training materials, related to the sale and marketing of annuities. The Court previously adopted the findings of a Report and Recommendation that the allegations did not state claims against Impact and dismissed claims against Impact Partnership (Impact) raised in the First Amended Complaint (FAC) and. (Docs. 45, 53.) The dismissal was with leave to amend. Plaintiffs Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and Joshua David Mellberg filed a Second Amended Complaint (SAC) asserting multiple counts against various Defendants, including Defendant Impact.[1] (Doc. 54, SAC.)

Defendant Impact has filed a Motion to Dismiss the SAC, and Plaintiff opposes it. (Docs. 55, 60.) On January 22, 2016, Magistrate Judge Charles R. Pyle issued a Report and Recommendation (R & R) recommending that the Motion to Dismiss be denied. (Doc. 82.) Defendant Impact has filed Objections to the R & R, and Plaintiffs have filed a response. (Docs. 83, 84.)

The Court will overrule the objections, adopt the R & R, and deny the Motion to Dismiss.

I. Background

Plaintiffs are Joshua David Mellberg, LLC, dba J.D. Mellberg Financial, and Joshua David Mellberg, an individual (collectively referred to as “JDM” or “Plaintiffs”). Individual Plaintiff Joshua David Mellberg is a nationally known financial advisor and advocate of retirement plans that include annuity components; he is JDM’s owner and President. (SAC ¶¶ 18-20.) “Annuities are among the financial services products that JDM offers to its clients.” (Id. ¶ 22.) The SAC describes JDM as a “nationwide retail and wholesale insurance agency that specializes in capturing internet based leads and supplying them to a network of agents across the country.” (Id. ¶24.) JDM asserts that its “business advantage is derived in part from confidential and proprietary business information and practice, and from trade secrets that it has developed in its long history of business.” (Id. ¶ 26.)

The individual Defendants are former employees of JDM or were associated with JDM at different times from 2009 through much of 2013. Fine, Arceo, and Godnitz signed confidentiality agreements. (Id. ¶¶ 76, 121, 140.) Defendant Impact is alleged to be a Georgia limited liability company with its principal place of business in Kennesaw, Georgia, and “a marketing organization in the insurance and annuity industry.” (Id. ¶ 3). JDM has asserted claims against Impact based on Misappropriation of Trade Secrets Information under the Arizona Uniform Trade Secret Act, A.R.S. § 44-401, et seq. (Second Claim for Relief); Unfair Competition[2] (Third Claim for Relief); Civil Conspiracy (Ninth Claim for Relief); and Aiding and Abetting (Tenth Claim for Relief). (Doc. 54, SAC at ¶¶ 185-206, 236-45). Defendant Impact moves to dismiss all claims raised against it, asserting that the allegations do not state claims as required by Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. 55.)

In its objections to the R & R, Impact argues that the Magistrate Judge incorrectly determined not to dismiss the SAC. Specifically, it contends that as to misappropriation of trade secrets (1) the R & R improperly relies on legal conclusions, (2) Impact is not liable for the actions of non-party JFI, [3] (3) the R & R relies on allegations from the FAC that were found insufficient to state a claim, and (4) the R & R fails to specify trade secrets that Impact allegedly misappropriated. As to the claims of conspiracy and aiding and abetting, Impact asserts that (1) Plaintiffs fail to allege sufficient facts to state a claim and (2) the R & R does not address Impact’s pre-emption argument. Finally, as to unfair competition, Impact argues that the SAC does not allege specific confidential information that does not rise to the level of a trade secret allegedly stolen by Impact.

Plaintiffs respond, inter alia, that the Court has previously ruled that the items or information misappropriated state a claim for trade-secret status, the SAC alleges Impact’s active involvement in a conspiracy to steal JDM’s trade secrets and confidential information or, at the very least, its acquisition and use of JDM’s trade secrets under circumstances where it knew or should have known they were improperly acquired, and that there are sufficient allegations from which a jury could infer both.

II. Standard of Review

The Court reviews de novo the objected-to portions of the R & R. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). The Court reviews for clear error the unobjected-to portions of the Report and Recommendation. Johnson v. Zema Systems Corp., 170 F.3d 734, 739 (7th Cir. 1999); see also, Conley v. Crabtree, 14 F.Supp.2d 1203, 1204 (D. Or. 1998).

The standard for a motion to dismiss is correctly stated in the R & R and will not be repeated here. (Doc. 82 at 2-4.)

III. Findings and Conclusions of the Magistrate Judge and Parties’ Objections

A. Motion to Dismiss

In its Motion to Dismiss, Impact contends that JDM’s claim for misappropriation of trade secrets should be dismissed because JDM has not alleged in the SAC any trade secrets or misappropriation by Impact. Impact argues that (1) the SAC does not sufficiently allege facts showing that the information allegedly misappropriated by Impact constitutes a “trade secret;” and (2) JDM has not alleged in the SAC facts showing that Impact “‘knew or had reason to know that [its] knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it’” (A.R.S, § 44-401(2)(b)(ii)), in part because JFI is a separate legal entity from Impact. (Doc. 55 at 5-13). Impact also argues that the remaining claims asserted against it should be dismissed because JDM failed to allege facts in the SAC showing any wrongful conduct by Impact. (Id. at 11-15).

JDM responds that the SAC sufficiently alleges that Impact is using JDM’s trade secrets and confidential information and that Impact knew or should have known that this protected information was improperly acquired. (Doc.60 at 8-12). JDM further argues that Impact cannot avoid liability on the ground that JFI is a separate legal entity. (Id. at 12-13).

The R & R sets out in detail the SAC allegations as to each Defendant. (Doc. 82 at 4-11.)

1. Objections to the R & R related to Trade Secrets

Arizona has adopted the Uniform Trade Secret Act (“AUTSA”). A trade secret is defined as “information, including a formula, pattern, compilation, program, device method, technique or process that both:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use.
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

A.R.S. § 44-401(4). In an action for misappropriation, the plaintiff “must identify the trade secrets and carry the burden of showing that they exist.” MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993); Calisi v. Unified Fin. Servs., LLC, 302 P.3d 628, 631 para. 14 (Ariz. App. 2013). The plaintiff is further required to “describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or special knowledge of those persons ... skilled in the trade.” Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998).

In Arizona, “misappropriation” is defined as either:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret ...

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