468-71 (S .D.N.Y. 1998). On one hand, the Thorpe and Bloom declarations do not cast such a

strong shadow of doubt upon the plausibility of Plaintiffs' claims because as Defendant or

representatives of Defendant KGK, Thorpe and Bloom respectively, had reason to submit self­

serving affidavits. On the other, Plaintiffs' decision to paraphrase the Declarations heavily was

entirely its own. This was not an instance where Plaintiffs ' complaint challenged the content of

Thorpe's declaration. See, e.g., National Western Life Ins. Co. v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 89 Fed. Appx. 287,289 (2d Cir. 2004).

In National Western, the Second Circuit reversed a district court 's dismissal of a claim

based on "the number of irreconcilable internal conflicts" in the plaintiffs theory, challenging a

property valuation as violating the Texas Securities Act. !d. at 289. The plaintiff alleged that it

did not receive an appraisal, and in the alternative, that the appraisal was misleading. The court

reasoned that attaching the appraisal did not make its claims self-contradictory because "nothing

in the Appraisal sections attached to the complaint . . . contradicts [Plaintiffs] assertion in the

alternative that it had not seen the Appraisal at the relevant time." ld.

These conditions do not apply here where Plaintiffs do not alternately plead claims some

ofwhich require the Thorpe and Bloom declarations and others of which do not. Plaintiffs'

decision to paraphrase the declarations was in full awareness of the fact that the declaration

contained allegations that directly contradicted some of their allegations against Thorpe.

Plaintiffs cannot cherry-pick or favorably summarize statements then avoid the consequences of

those that directly contradict the allegations of the complaint. Thus, the Court is satisfied that to

the extent there are contradictory allegations, such claims should be dismissed.

a. Misappropriation of Trade Secrets

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Accurate Grading Quality Assurance, Inc. et al v. Thorpe et al Doc. 59 Att. 1

Dockets.Justia.com

To establish a claim for the misappropriation of trade secrets, a plaintiff must prove that

(1) it possesses a trade secret, and (2) defendant is using that trade secret "in breach of an

agreement, confidence, or duty, or as a result of discovery by improper means." LinkCo, Inc. v.

Fujitsu Ltd , 230 F. Supp. 2d 492, 497-98 (S.D.N.Y. 2002). The cases cited by Defendant all

rely on the caveat that there was no wrongdoing alleged in the acquisition of trade secrets.

Here, Plaintiffs allege wrongdoing in that Thorpe alleged shared confidential information

and strategic business plans in contravention of the Employment Agreement. Of course, there is

the issue of the fatally contradictory statement from Thorpe's declaration that he never used

Plaintiffs' technology, but instead relied on KGK' s technology. ~~50-53. Plaintiffs even

incorporates Thorpe's allegation that "all of the raw data that was used in developing his

replacement program for the kiosks was provided by KGK," ostensibly in an effort to establish

KGK's involvement in the misappropriation (Am. Compl. 35(i)) and notes that it has been

executed under oath (Am. Compl. ~ 35). Plaintiffs cannot talk out of both sides of their mouth

and think their claims can survive. Moreover, the allegations it does set forth are vague as to

how Thorpe obtained any trade secrets other than just being there. Plaintiffs do allege

misappropriation of trade secrets in connection with the Newco venture but beyond alleging the

fact that Thorpe attended the meetings, the Newco allegations only implicate KGK. Thus, the

misappropriation of trade secrets claim is improper as to Thorpe, but not as to KGK.

Defendants ' motion to dismiss the misappropriation of trade secrets is granted as to Thorpe, but

denied as to KGK.

b. Unfair Competition

To state a claim for unfair competition, Plaintiffs must allege "that the defendants

misappropriated the plaintiffs ' labors, skills, expenditures, or good will and displayed some

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element of bad faith in doing so." See Abe 's Rooms, Inc. v. Space Hunters, Inc., 38 A.D. 3d 690,

833 N.Y.S. 2d 138, 140 (N.Y. App. Div. 2007). An unfair competition claim rises and falls with

a claim of misappropriation of trade secrets. Sci. Components Corp. v. Sirenza Microdevices,

Inc., No. 03-CV-1851 , 2006 WL 2524187, at *29 (E.D.N.Y. Aug. 30, 2006) (citations omitted).

Plaintiffs allege that KGK obtained the playbook for the express purpose of developing copycat

products. (Yeko Decl. ~ 114). Thus, as to any confidential information arising out ofthe

playbook, Plaintiffs state a claim for unjust competition against KGK but not against Thorpe.

c. Unjust Enrichment

"To prevail on a claim of unjust enrichment, [a] plaintiff must show that (I) defendant

was enriched (2) at plaintiffs expense, and (3) that ' it is against equity and good conscience to

permit ... defendant to retain what is sought to be recovered '" Clark v. Daby, 300 A.D.2d 732,

732 (N.Y. App. Div. 2002). Unjust enrichment is a claim based on quasi-contract theory,

therefore the validity of the underlying contract would have to be challenged or a formal contract

would have to be nonexistent. Here, Plaintiffs seek to enforce the Employment Agreement as to

Thorpe and Thorpe does not dispute its validity. Thus, where there is a contract whose validity

is undisputed, the unjust enrichment claim against Thorpe cannot survive a motion to dismiss.

Gunther v. Capital One, N.A. , 703 F. Supp. 2d 264,276 (E.D.N.Y. 2010); Price v. Cushman &

Wakefield, Inc., No. 08-cv- 8900, 2009 WL 3075599, at *6 (S.D.N.Y. Sept. 26, 2009).

As to KGK, Plaintiffs allege that Defendants acquired the "playbook," Yeko ' s

comprehensive plan for Accurate Grading and ESDN, during the Newco venture. If true, it is

clear that Defendants may have benefited from the playbook. It is Plaintiffs' burden to

"demonstrate that services were performed for the defendant resulting in [the latter' s] unjust

enrichment." Clark, 300 A.D.2d at 732-33 (citation omitted). While the mere fact that the

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plaintiffs activities bestowed a benefit on the defendant is insufficient to establish a cause of

action for unjust enrichment, Plaintiffs have alleged that the benefit still remains with KGK and

that KGK's conduct in obtaining the benefit was tortious or fraudulent. See id.; Yeko Decl. ~~

110-114. Thus, the unjust enrichment claim as to KGK remains.

d. Breach of Contract

The Employment Agreement is governed by Wisconsin law. Under Wisconsin law, to

state a claim for breach of contract, the plaintiff must allege ( 1) a valid contract exists; (2) a party

has violated its terms; and (3) any such violation has caused damages. See Steele v. Pacesetter

Motor Cars, Inc. , 267 Wis. 2d 873, 672 N.W. 2d 141, 144 (Wis. App. 2003). Here, the breach of

contract claim fails because of the allegations that Thorpe breached the terms of the Employment

Agreement are directly contradicted by the incorporated allegations that Thorpe did not breach

the contract in the creation of his kiosk system, but rather obtained the software and images used

from KGK. (Thorpe Decl. ~~ 50-53). However, beyond the fact that Thorpe attended the

meetings, the Newco allegations only implicate KGK in how the playbook was improperly

obtained. Thus, this cannot be a basis for breach of contract against Thorpe. The breach of

contract claim against Thorpe is dismissed.

e. Intentional Interference with Contract

The elements of a tortious interference with contract claim under New York law are: "(1)

that a valid contract exists, (2) that a 'third party' had knowledge of that contract, (3) that the

third party intentionally and improperly procured the breach ofthe contract, and (4) that the

breach resulted in damage to the plaintiff." See LinkCo, Inc. , 230 F. Supp. 2d at 495. Plaintiffs

do not adequately allege that KGK intentionally and improperly procured breach of the contract.

Plaintiffs do not allege that KGK knew the terms of Thorpe's contract with Plaintiffs, so they

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would not have been privy to the fact that it was subject to a restrictive covenant. Additionally,

KGK could not breach a contract that had already ended without the knowledge of an ongoing

duty. For these reasons, Plaintiffs' claim for intentional interference with contract is dismissed.

f. Breach of Fiduciary Duty

To prove a claim for breach of a fiduciary duty, AGQA must show that: (1) a fiduciary

duty existed between it and Thorpe; and (2) Thorpe breached that duty. See Thermal Imaging,

Inc. v. Sandgrain Sec., Inc., 158 F. Supp. 2d 335, 343 (S.D.N.Y. 2001). However, because

Plaintiffs' claim against Thorpe for fiduciary duty is coextensive with his alleged breach of

contract, these allegations cannot state a cause of action and is dismissed. Capital, SA. v.

Lexington Capital Funding III, Ltd. , No. 10 Civ. 25,2011 WL 3251554, at *11 (S.D.N.Y. July

28, 2011).

C. Motion to Strike

Determination of a motion to strike is within the Court's discretion. Although Plaintiffs

have not opposed the motion to strike, as discussed above, this Court does not believe the Newco

venture is immaterial to Plaintiffs' claims. Thus, the motion to strike is denied as to the Newco

venture. However, the allegations about Bloom's criminal history are inherently inflammatory,

prejudicial and irrelevant to the issues before this Court. Thus, the motion to strike allegations of

Bloom's criminal history contained in paragraphs 11-13 and 115-120 ofYeko's declaration (Dkt.

No. 15) is granted.

CONCLUSION

Thorpe's motion to dismiss the complaint for lack of personal jurisdiction (Dkt. No. 30) is

DENIED as moot, and his renewed motion to dismiss the complaint for lack of personal

jurisdiction (Dkt. No. 42) is DENIED. Defendants' motion to dismiss under Fed. R. Civ. P.

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12(b)(6) (Dkt. No. 52) is granted in part and denied in part consistent with this Opinion.

Defendants ' motion to strike is granted in part and denied in part. Paragraphs 11-13 and 115-120

ofYeko's declaration (Dkt. No. 15) shall be stricken.

SO ORDERED.

Dated: March 26, 2013 New York, New York

United States District Judge

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