CROSS FIRE & SECURITY CO. v. DOORLY

Background

Cross Fire and Altus alleged that former Cross Fire employees Alan Doorly and Chris Neil used Cross Fire’s confidential information and trade secrets to establish and operate Empire Fire, a competing business. The alleged conduct included collecting business information, soliciting customers and employees, submitting a competing bid, and distributing fabricated press releases that allegedly made false statements about Cross Fire.

Plaintiffs asserted nine claims under federal law, New York law, and common law, including trade-secret misappropriation under the Defend Trade Secrets Act, false advertising, defamation, faithless-servant and fiduciary-duty claims, unfair competition, tortious interference with business relations, and conversion. Defendants moved under Federal Rule of Civil Procedure 12 to dismiss some or all of the claims. They also asked the court to stay the case because of a related Delaware action and provisions in a limited partnership agreement that addressed arbitration and Delaware litigation.

Arbitration and Forum Provisions

The court denied Defendants’ request to dismiss the case based on the limited partnership agreement’s dispute-resolution provision. Empire Fire was not a party to that agreement and therefore could not be required to arbitrate under it. Doorly and Neil had been parties to the agreement when at least some of the alleged conduct occurred, but the court concluded that the provision did not cover Plaintiffs’ claims.

The court read the provision as applying to disputes internal to the partnership or directly based on the agreement’s terms. Plaintiffs’ claims instead arose from the Individual Defendants’ alleged obligations as employees and competitors. The claims did not require the court to interpret or enforce the partnership agreement or the incentive agreements, and the claims could exist even if those agreements did not exist.

Request for a Stay

The court denied Defendants’ request for a stay under the Colorado River doctrine and declined to issue a discretionary stay. The Delaware action involved North American LP’s contract claim against Doorly. This case was brought by Cross Fire and Altus against Doorly, Neil, and Empire Fire and involved statutory and tort claims. Because the parties and legal issues were not substantially the same, the proceedings were not parallel for Colorado River purposes.

The court also found that a discretionary stay would not promote judicial efficiency. The New York action was further along, discovery was ongoing, Delaware was a less convenient forum for the parties and likely witnesses, and the Delaware action could not provide adequate relief for the claims in this case.

Rule 12(b)(6) Rulings

A Rule 12(b)(6) motion asks whether the complaint alleges enough facts to plausibly support a legal claim. The court denied dismissal of the Defend Trade Secrets Act claim. Plaintiffs adequately alleged that Cross Fire took reasonable steps to protect its information, including requiring employees to sign confidentiality agreements. Plaintiffs also adequately alleged an interstate connection because Cross Fire and Empire Fire conducted business in multiple states. The court noted that later proceedings might limit liability for information generated before 2021, but the allegations concerning information generated or compiled in or after May 2021 were sufficient at the pleading stage.

The court denied dismissal of Plaintiffs’ New York General Business Law § 350 false-advertising claim. Plaintiffs alleged that Defendants distributed fabricated press releases to thousands of businesses and customers, potentially harming the public as well as Plaintiffs. Plaintiffs also adequately alleged injury, including lost customer confidence, goodwill, business, and future opportunities.

The court denied dismissal of the tortious-interference-with-business-relations claim. Plaintiffs adequately alleged wrongful means through their allegations of trade-secret misappropriation and unfair competition directed at customers and other businesses.

The court granted dismissal of the conversion claim. Under New York law, conversion requires unauthorized control over specific property that excludes the owner’s rights. The court held that allegations that Defendants accessed and shared electronic files did not show that Plaintiffs were deprived of access to or use of those files. The court dismissed this claim with prejudice because better pleading would not cure the problem.

Disposition

Judge Katherine Polk Failla granted in part and denied in part Defendants’ motion to dismiss or stay. The court denied the requests based on the partnership agreement, the Delaware action, and the challenged trade-secret, false-advertising, and tortious-interference claims. It dismissed Plaintiffs’ conversion claim with prejudice. The action remains active, and the parties were ordered to submit a proposed third amended case-management plan providing for discovery on the remaining claims.