First-Citizens Bank and Trust Company v. HSBC Holdings plc

Background

Silicon Valley Bank collapsed on March 10, 2023. The Federal Deposit Insurance Corporation took control of the bank and sold its assets to First-Citizens Bank and Trust Company on March 27, 2023. Silicon Valley Bank UK also collapsed, and the Bank of England sold its assets to HSBC UK Bank plc, referred to in the order as HBUK.

First Citizens alleged that David Sabow, a former Silicon Valley Bank senior executive, organized a plan called Project Colony to recruit more than forty former Silicon Valley Bank employees to HSBC Bank USA, N.A. First Citizens alleged that the plan also sought confidential, proprietary, and trade-secret information and the Silicon Valley Bank business model. First Citizens sued six former Silicon Valley Bank employees—Sunita Patel, Melissa Stepanis, Peter Kidder, Kevin Longo, Rebekah Hanlon, and Katherine Andersen—along with Sabow, SVB UK, HBUS, HBUK, HSBC Holdings, HUSI, and other HSBC entities.

The amended complaint asserted ten claims. They included breach of employment agreements with Silicon Valley Bank and First Citizens, breach of a duty of loyalty, aiding and abetting that breach, interference with contracts and prospective economic advantage, violation of North Carolina’s Unfair and Deceptive Practices Act, federal and state trade-secret claims, and civil conspiracy.

Personal Jurisdiction

The defendants argued that the court lacked personal jurisdiction over HSBC Holdings, HUSI, HBUK, and Stepanis, Longo, and Andersen. Personal jurisdiction is a court’s authority to decide claims against a particular defendant. First Citizens relied on alleged efforts to recruit employees and direct the alleged scheme toward California.

The court held that the declarations submitted by the defendants established that HSBC Holdings, HUSI, and HBUK had no offices or employees in California and did not recruit, offer employment to, or employ the former Silicon Valley Bank employees. The court also held that the allegations did not establish personal jurisdiction over Stepanis, Longo, and Andersen. The court therefore dismissed HSBC Holdings, HUSI, and HBUK without prejudice for lack of personal jurisdiction and allowed jurisdictional discovery concerning those entities. It dismissed Stepanis, Longo, and Andersen for lack of personal jurisdiction.

The court found that the jurisdictional allegations against HBUK presented a closer question because of HBUK’s acquisition of SVB UK and the involvement of HBUK executives in discussions about Project Colony. The court said the jurisdictional case against HSBC Holdings and HUSI appeared unlikely to succeed but allowed limited discovery because the issue involved more than a mere possibility and could be clarified through information about the corporate structure and the roles of the individuals involved.

Failure to State a Claim

The defendants also moved to dismiss under Rule 12(b)(6), which permits dismissal when a complaint does not plead enough facts to state a legally plausible claim. The court granted that motion on the asserted grounds except as to claim one, the breach-of-contract claim based on the SVB agreements.

For Patel and Kidder, the court granted dismissal of claims one through three and six through ten. For Hanlon, it granted dismissal of claims three, six, seven, and ten. The court concluded that the allegations against Patel and Kidder showed, at most, that they were recruited. As to Hanlon, the allegations plausibly supported trade-secret claims based on her access to confidential information, but did not plausibly plead breach of contract. The court also held that the related tort claims were preempted by the California Uniform Trade Secrets Act (CUTSA), which provides the exclusive remedy for conduct covered by its terms.

The court dismissed claims three through six as preempted by CUTSA to the extent they were based on the alleged appropriation of trade secrets. The court explained that claims based on independent conduct, such as competing while still employed, would not necessarily be preempted. But the court found that the allegations did not adequately support independent, non-trade-secret claims.

The court held that the duty-of-loyalty claims were not plausibly pleaded because the complaint did not identify the employees’ responsibilities or explain what they did to violate a duty of loyalty beyond taking new jobs. The related aiding-and-abetting claim therefore lacked a sufficient underlying violation. The court also found that the complaint did not plausibly allege that Sabow or the HSBC entities knew about the relevant duties or contractual obligations, defeating the tortious-interference-with-contract claim.

The prospective-economic-advantage claim also failed because First Citizens did not identify independently wrongful conduct apart from the alleged interference or explain how specific economic relationships were disrupted. The civil-conspiracy claim failed to the extent it depended on claims that were not adequately pleaded. The North Carolina unfair-practices claim failed because First Citizens did not allege an in-state, injurious effect on its North Carolina business operations, deceptive conduct from North Carolina or substantially affecting commerce there, or unfair acts occurring there.

Claims That Remain

The court denied the motion to dismiss claim one under Rule 12(b)(6). That claim, based on the SVB employment agreements, survives only against Sabow. The court relied on its earlier holding that First Citizens acquired the right to enforce those agreements and concluded that the contracts’ definition of the “Company” included SVB Financial Group’s affiliates, successors, or assigns. The court found the arguments concerning Sabow’s separate employment relationship with SVB UK insufficient to dismiss the claim at the pleading stage.

Claims eight and nine, involving theft of trade secrets under federal and state law, remain live against HBUS, SVB UK, Sabow, and Hanlon. The order states that claim one survives only against Sabow and that claims eight and nine remain against those four defendants.

Disposition and Next Steps

The court dismissed claims against HSBC Holdings, HUSI, and HBUK for lack of personal jurisdiction while allowing jurisdictional discovery about those entities. It dismissed Stepanis, Longo, and Andersen for lack of personal jurisdiction. It granted the motion to dismiss specified claims against Patel, Kidder, and Hanlon; dismissed claims three through six as preempted by CUTSA; dismissed claim two against Patel, Stepanis, Longo, Hanlon, and Andersen; dismissed claim three against Patel, Stepanis, Longo, Hanlon, and Andersen; dismissed claims four and five against the HSBC entities and Sabow; and dismissed claims six, seven, and ten against all defendants. It denied the motion to dismiss claim one under Rule 12(b)(6), leaving that claim only against Sabow.

The court deferred setting an amendment deadline until the case-management conference because jurisdictional discovery was needed. It directed the parties to propose a discovery plan and amendment date in their joint case-management statement. The order disposed of the defendants’ motion identified as ECF No. 81.