Symphony Risk Solutions Insurance Services, Inc. v. Perlite

Background

Symphony Risk Solutions Insurance Services, Inc. sued former employees Paul Perlite, Jeff Holman, and John Nicholas Dieter, along with Pinnacle Brokers Insurance Solutions, Pinnacle Brokers Insurance Solutions LLC, and/or Foundation Risk Partners, Corp. Symphony alleged breach of contract, interference with economic relations, breach of fiduciary and common-law duties of loyalty, aiding and abetting, unfair competition, and violations of the California Uniform Trade Secrets Act and the federal Defense of Trade Secrets Act. It sought injunctive and monetary relief.

According to the complaint, the individual defendants had signed employment agreements and other documents restricting their use and disclosure of Symphony’s confidential and proprietary information. Symphony alleged that, before and after leaving the company, the individual defendants used that information to solicit Symphony’s clients for Pinnacle. It also alleged that Pinnacle encouraged or supported this conduct.

Motion and legal standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legally viable claim. They argued that Causes of Action 4 through 8 were preempted by the California Uniform Trade Secrets Act, or CUTSA. CUTSA preemption means that state-law claims based on the same operative facts as a trade-secret-misappropriation claim may be displaced by CUTSA.

The court accepted the complaint’s factual allegations as true for purposes of the motion and drew reasonable inferences for Symphony. But it did not have to accept conclusory allegations or unreasonable inferences.

CUTSA preemption

The court held that Symphony’s intentional-interference claims concerning existing and prospective economic relations were preempted by CUTSA. As pleaded, the claims relied on alleged misuse of confidential information, alleged false statements to people whose identities were part of that confidential information, and alleged breaches of loyalty duties tied to that information. The court dismissed both claims with leave to amend.

The court reached the same conclusion for Symphony’s breach-of-fiduciary-duty and common-law duty-of-loyalty claim. Symphony did not allege facts showing how the individual defendants breached those duties apart from deleting, altering, or misusing information that Symphony described as not generally known to the public. The court dismissed the claim with leave to amend.

The court also held that Symphony’s aiding-and-abetting claim against Pinnacle was preempted. The complaint’s relevant allegations tied Pinnacle’s alleged assistance to the individual defendants’ misuse of Symphony’s confidential information and solicitation of clients. The allegations did not contain enough independent facts once the trade-secret-related facts were removed. The court noted that any amended complaint would also need well-pleaded facts to avoid a future dismissal with prejudice, but the order itself dismissed this claim with leave to amend.

Finally, the court held that Symphony’s claim under California Business and Professions Code section 17200 was preempted because it likewise relied on the alleged misuse of confidential information to solicit Symphony’s clients. The court dismissed that claim with leave to amend.

Other claim

Symphony conceded that dismissal was appropriate as to its unjust-enrichment claim against Pinnacle. The opinion’s conclusion states that the motion to dismiss was granted with leave to amend.

Disposition

Judge William H. Orrick granted the motion to dismiss with leave to amend. Any amended complaint was due within 30 days of the order. The court rejected the defendants’ argument that amendment would necessarily be futile because the affected claims could be pleaded in ways that rely on facts independent of trade-secret misappropriation.