Paylocity Corporation v. Cangrade, Inc.

Background

Paylocity brought this trade-secret and breach-of-contract case against Synopsys. The original complaint asserted five causes of action: a declaration that Synopsys had a duty to defend and indemnify Paylocity; professional negligence; declarations that Paylocity had not violated the federal Defend Trade Secrets Act or the Massachusetts Trade Secrets Act; and a declaration that Paylocity had not committed negligence or gross negligence against Cangrade, Inc.

The original complaint asserted federal-question jurisdiction based on the federal trade-secrets claim. It also alleged diversity jurisdiction, but stated that Paylocity, Cangrade, and Synopsys were all incorporated in Delaware. Because diversity jurisdiction requires every plaintiff to have citizenship different from every defendant, the allegations on the face of the complaint did not establish diversity jurisdiction.

Cangrade and Synopsys moved to dismiss. Before the hearing, a prior related proceeding in the District of Massachusetts resulted in an order granting in part and denying in part Paylocity’s motion to dismiss Cangrade’s case and denying Paylocity’s motion to transfer that case to the Northern District of California. Paylocity later abandoned its federal trade-secrets claim, and the court dismissed that claim and two claims against Cangrade from the bench.

Motion to dismiss

Synopsys moved under Rule 12(b)(1), which concerns subject-matter jurisdiction, and Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim. The court granted the motion under Rule 12(b)(1) because Paylocity had not established jurisdiction over the original complaint. Paylocity did not dispute Synopsys’s challenge to diversity jurisdiction and offered no argument or evidence contradicting the complaint’s allegations that all parties were Delaware corporations.

The court explained that Paylocity’s actual state of incorporation was Illinois, despite the defective allegations in the complaint. However, the court held that this did not allow Paylocity to amend its pleading in the manner proposed. The problem was not merely a lack of detail about Synopsys’s citizenship; Paylocity had repeatedly alleged that Paylocity itself was incorporated in Delaware and then sought to change that allegation to Illinois to establish diversity jurisdiction.

Motion for leave to amend

Paylocity asked for permission under Rule 15(a) to file an amended complaint. The proposed pleading dropped the claims against Cangrade and the federal and Massachusetts trade-secrets claims, leaving only breach of contract and professional negligence claims against Synopsys. It relied on diversity jurisdiction and stated both that Paylocity was a Delaware corporation and that it was an Illinois corporation.

The court held that the proposed amendment would be futile because it directly contradicted Paylocity’s earlier allegations in the same case. Although amendments are generally permitted freely, the court concluded that Paylocity could not reverse course on its own previously stated place of incorporation to cure the jurisdictional defect. The court also distinguished cases allowing amendments to add missing jurisdictional facts, including a case involving a self-represented plaintiff, because Paylocity was represented by counsel and sought to allege facts inconsistent with its original complaint.

Disposition

The court granted Synopsys’s motion to dismiss and denied Paylocity’s motion for leave to file its proposed amended complaint. It dismissed the action without leave to amend in this forum and directed the Clerk to close the case. The court did not reach Synopsys’s service-related argument because it was unnecessary after resolving the jurisdictional issue and amendment request.