Surefox North America Inc v. Huls

Background

Surefox North America Inc, Surefox Consulting LLC, and Xenture Inc (collectively "Surefox") are security services companies co-founded in 2016 by Joshua Szott and Brian Sweigart. Defendant Wyatt Huls was hired in 2018 and eventually became Senior Director for Operations and Intelligence at Surefox NA, one of its ten most senior employees. During his employment, Huls signed three agreements: an Employment Agreement with Surefox NA, a Confidential Information and Non-Disclosure Agreement (NDA) with Surefox Consulting, and a Conflict of Interest Disclosure Form with Surefox NA.

In 2022, Surefox developed a confidential mergers-and-acquisitions strategy. Huls was privy to a confidential "Strategic Pathways Timeline" that included estimated purchase prices, acquisition targets (including Kellington Protection Service and REDCON Solutions Group), and strategies involving private equity firm Cold Bore Capital. Letters of intent for acquiring Kellington were signed in summer 2023.

Surefox alleges that Huls and departing General Counsel David Hugh Murray conspired to steal Surefox's acquisition strategy. On his last day at Xenture, Murray filed incorporation documents for what became Sciath Security, LLC. Huls founded Vigilant North, LLC — a competing security services company — in November 2023, while still employed by Surefox, without disclosing this to Surefox. Huls resigned effective December 7, 2023. By September–October 2024, Sciath had acquired Kellington, REDCON, and Vigilant North — the very targets on Surefox's confidential timeline. Surefox also claims Huls interfered with its acquisition of StaffWizard, LLC, causing delays and economic losses.

Huls's counterclaims tell a different story. He alleges that after Surefox lost a major Google contract worth approximately $20,000,000, co-founder Szott directed him to engage in fraudulent billing — billing clients for a full eight hours even when workers were staffed for far less, and using a "round robin" method to create the false appearance that all security posts were manned. Huls says he raised these concerns with upper management, Szott denied them, and Surefox retaliated against him, ultimately forcing him to resign.

Claims at Issue

Both sides moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows a court to dismiss a complaint for failure to state a claim upon which relief can be granted. The standard requires the complaint to contain sufficient factual matter to make the claim "plausible on its face" (the standard from Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly).

Rulings on Surefox's Claims

Breach of Contract

The Employment Agreement is governed by California law. California Business and Professions Code § 16600 generally voids contracts that restrain someone from engaging in a lawful profession or trade. However, courts have recognized an exception where the restriction is necessary to protect trade secrets or confidential information, and § 16600 does not prohibit restrictions on employee conduct during employment. Huls argued the Employment Agreement was facially void as an overbroad de facto noncompete. The court declined to resolve the Agreement's validity at the pleading stage, citing precedent that parsing contractual provisions is premature at this point. The motion was denied as to this claim.

As to the Confidential Information and NDA (the parties agreed Minnesota and California law reach the same result here), Surefox alleged Huls negligently handled and disclosed confidential information including acquisition targets, negotiation status, investor opportunities, and evaluations of StaffWizard. The court accepted these allegations as true and denied the motion as to this claim.

Breach of Fiduciary Duty

The parties agreed Minnesota law applies. Minnesota recognizes that agents owe fiduciary duties to their principals, and breach of fiduciary duty has four elements: duty, breach, causation, and damages. There was no dispute that Huls owed Surefox a fiduciary duty.

On the duty-of-loyalty aspect, Huls argued that forming Vigilant North while employed was merely permissible "preparation" to compete. The court found that whether his conduct was preparation or an actual breach is a fact-specific question inappropriate for resolution at the motion to dismiss stage. The motion was denied on this aspect.

On the duty of confidentiality, the court noted that confidentiality duties continue after employment ends and accepted Surefox's allegations as true. The motion was denied on this aspect.

Misappropriation of Confidential Information

Under Minnesota law, a plaintiff must show the information was not generally known, provided a competitive advantage, and was subject to reasonable secrecy efforts. The court found Surefox adequately alleged that its acquisition targets, business strategies, financial information, and negotiation status were developed through due diligence, shared only with senior employees, and protected by nondisclosure agreements. The motion was denied as to this claim.

Aiding and Abetting Breach of Fiduciary Duty

Under Minnesota law, this claim requires: (1) a third party breached a fiduciary duty injuring the plaintiff, (2) the defendant knew about the breach, and (3) the defendant substantially assisted or encouraged it.

As to Vigilant North allegedly aiding Huls's breach: the court found Surefox's allegations sufficient and denied the motion.

As to Huls and Vigilant North allegedly aiding Murray's breach: the court noted Murray is not a party to this lawsuit. Because another court must first determine whether Murray breached his own fiduciary duty, this aspect of the motion was denied — meaning the claim proceeds, but with the caveat that Murray's breach must be established elsewhere.

Tortious Interference with Contract

This claim requires showing: existence of a contract, the wrongdoer's knowledge of it, intentional procurement of its breach, lack of justification, and damages. Surefox alleged Huls interfered with Murray's contracts. Because Murray is not a party and another court must first determine whether Murray breached his contracts, the motion was denied without prejudice — meaning Surefox may refile this claim once that predicate issue is resolved elsewhere.

Rulings on Huls's Counterclaims

California Constructive Discharge (Cal. Lab. Code § 1102.5)

This provision prohibits retaliation against employees who refuse to participate in activities that would violate a law or regulation. The elements are: protected activity, adverse employment action, and a causal link between them.

Surefox raised three challenges. First, it argued California law cannot apply extraterritorially because Huls moved to Minnesota in 2022. The court rejected this, finding Huls sufficiently alleged a California connection: Surefox NA is a California company with its principal place of business there, Google is a California company, and Huls performed work in California during the relevant period. Second, Surefox argued Huls failed to identify a law Surefox violated. The court rejected this, finding Huls's allegation of fraud is sufficient because fraud violates California Civil Code §§ 1709 and 1710. Third, Surefox argued no reasonable person would have felt forced to resign. The court, required to accept allegations as true at this stage, denied the motion.

Minnesota Whistleblower Act (Minn. Stat. § 181.932)

The Minnesota Whistleblower Act (MWA) protects employees who in good faith report violations of law and prohibits retaliation against employees who refuse to follow orders to violate the law. Surefox argued Huls was merely reporting irregularities within his job responsibilities. The court rejected this, finding Huls alleged he reported what he believed were the co-founder's violations of law — not mere internal policy disputes. The motion was denied.

California Unfair Competition Law (Cal. Bus. & Prof. Code § 17200)

The UCL prohibits unlawful, unfair, or fraudulent business acts or practices. Huls alleged the confidentiality clauses in his agreements were so overbroad they constituted de facto noncompetes, void under California Business and Professions Code § 16600.1, and that Surefox failed to notify him by the required deadline that such clauses were void.

Surefox raised three challenges. First, extraterritorial application: the court found Huls's claim is that including overbroad clauses in the agreements was the UCL violation — conduct the court found was alleged to have occurred in California — not merely the subsequent enforcement in Minnesota. Second, litigation privilege: because the claim targets the contracts themselves (not enforcement actions), the court found this argument unpersuasive. Third, standing/economic injury: Huls alleged attorney's fees as damages, and the court cited California authorities finding that plausibly alleging attorney's fees can establish damages under the UCL. The court declined to resolve whether others would benefit from the litigation at this stage. The motion was denied.

Procedural Note

Huls also argued that Surefox's motion to dismiss his counterclaims was an improper second Rule 12 motion. The court rejected this argument because Surefox's first motion to dismiss Huls's counterclaims was denied as moot after Huls filed amended counterclaims — meaning the court never adjudicated the first motion.

Disposition

Both motions to dismiss were denied. All of Surefox's claims and all of Huls's counterclaims proceed to further litigation.