CleanFish, LLC v. Sims

Background

CleanFish, LLC, formerly known as Sig and Sour LLC, alleged that it purchased CleanFish, Inc. through an asset purchase agreement signed by Dale Sims, who had co-founded CleanFish, Inc. Sims continued working for CleanFish as a key employee and allegedly retained access to confidential data, including customer identities, purchasing patterns, product preferences, and pricing information.

CleanFish alleged that Sims formed Buena Vista Seafood, LLC, resigned from CleanFish, and then worked with Island Sea Farms, Inc. (ISF), Paul Simpson, and Nanci Dixon to misappropriate and use CleanFish’s confidential information. CleanFish asserted two trade-secret claims under the federal Defense of Trade Secrets Act and California’s Uniform Trade Secrets Act, a breach-of-contract claim against Sims, and a breach-of-fiduciary-duty claim against Sims.

Personal Jurisdiction

ISF, Simpson, and Dixon moved to dismiss for lack of personal jurisdiction, meaning they argued that the court lacked sufficient connection to exercise power over them. CleanFish conceded that the court lacked general jurisdiction over the ISF defendants, so the court considered specific jurisdiction based on the defendants’ forum-related conduct.

The court denied ISF’s motion. It found that CleanFish had sufficiently alleged that ISF intentionally directed conduct toward California by invoicing CleanFish there, supplying mussels to CleanFish there, and fulfilling orders to CleanFish’s California customers. The court also found that the claims arose from those contacts and that ISF had not shown that litigating in California would be unreasonable.

The court granted Simpson’s and Dixon’s motions to dismiss for lack of personal jurisdiction without leave to amend. It found that CleanFish’s allegations did not show that either individual expressly aimed conduct at California. The court noted that both individuals allegedly lived outside California, had never been employed there, did not maintain offices or conduct business there, owned no property there, and had not traveled there to conduct business with CleanFish. The court stated that CleanFish could seek permission to amend later if discovery revealed a more substantial basis for jurisdiction, but declined to delay the case for jurisdiction-only discovery.

Trade-Secret Claims

The court granted the ISF defendants’ and Buena Vista defendants’ motions to dismiss the First and Second Causes of Action for failure to state a claim, with leave to amend. A failure-to-state-a-claim dismissal means the complaint did not allege enough facts to support a legally viable claim at that stage.

The court held that CleanFish did not identify its alleged trade secrets with enough specificity. CleanFish described the information as detailed customer lists, customer purchasing data, sales figures, purchasing analysis, and trends. The court found these descriptions too broad and too similar to general information used in the seafood-distribution industry. The court also found that CleanFish’s allegations about its customer lists were too general to show the boundaries of a particular trade secret.

The court further held that CleanFish had not adequately alleged that the ISF defendants acquired the information through improper means. CleanFish’s allegations included a text message asking Sims for a customer list, communications involving Sims, the timing of ISF’s decision to stop supplying CleanFish, and an invoice showing that ISF fulfilled an order from one of CleanFish’s customers. The court found that these allegations did not establish that ISF knew the information was CleanFish’s protected trade secret or knew Sims had obtained it improperly or in violation of a confidentiality duty.

Breach of Contract

The court denied Sims’ motion to dismiss the Third Cause of Action for breach of contract. It rejected Sims’ argument that California’s trade-secret law preempted the claim because that law preserves contractual remedies. The court also found that the confidentiality agreement covered proprietary information, including financial information and customer lists, even if that information did not qualify as a trade secret under federal or state law.

Breach of Fiduciary Duty

The court granted Sims’ motion to dismiss the Fourth Cause of Action with leave to amend. CleanFish alleged that Sims breached a duty of loyalty by encouraging ISF to fulfill CleanFish’s purchase orders.

The court applied Delaware law under California’s internal-affairs doctrine because CleanFish is a limited liability company. It explained that Delaware law generally allows an LLC agreement to define, limit, or eliminate fiduciary duties and does not impose default fiduciary duties on non-managing, non-controlling members absent a contractual provision. The complaint did not allege that Sims was a member or owner of CleanFish, a controlling or managing member, or subject to fiduciary duties under the LLC agreement. The court therefore found that CleanFish had not pleaded a basis for imposing fiduciary duties on Sims.

Disposition

The court denied ISF’s motion to dismiss based on personal jurisdiction; granted Simpson’s and Dixon’s motions to dismiss based on personal jurisdiction without leave to amend; granted the ISF defendants’ and Buena Vista defendants’ motions to dismiss the First and Second Causes of Action for failure to state a claim, with leave to amend; granted Sims’ motion to dismiss the Fourth Cause of Action, with leave to amend; and denied Sims’ motion to dismiss the Third Cause of Action. The court directed CleanFish to file any amended complaint within 28 days and prohibited adding new claims or parties.