CleanFish, LLC v. Sims

Background

CleanFish, LLC alleged that Island Sea Farms, Inc. (ISF), Buena Vista Seafood, LLC, and Dale Sims misappropriated trade secrets. The alleged information included customer lists, contact details, customer identities, purchasing patterns, prices, sales figures, and related customer information. CleanFish also alleged that Sims breached a contract and breached a fiduciary duty by encouraging ISF to fulfill CleanFish’s purchase orders. CleanFish added a fifth claim seeking preliminary and permanent injunctive relief.

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. The court had previously allowed CleanFish to amend its trade-secret and fiduciary-duty claims. CleanFish then filed a Second Amended Complaint.

Trade-secret claims

CleanFish asserted claims under the federal Defend Trade Secrets Act and the California Uniform Trade Secrets Act. The court explained that CleanFish had to identify an actual trade secret with enough detail to distinguish it from generally known information and to show the boundaries of what was allegedly secret.

The court found that CleanFish’s description was too broad and nonspecific. The description used “including but not limited to” language and generally covered customer-related and business information. The court said this did not allow the defendants or the court to determine what specific information was allegedly protected. The court also found that CleanFish had not plausibly pleaded that the mere identities of its customers constituted trade secrets. The only specifically identified customer list was a May 31 list of orders containing customer names and confirmation that the customers bought ISF’s mussels, and CleanFish had included an excerpt of that information in its publicly filed complaint.

The court separately held that CleanFish had not adequately pleaded acquisition through “improper means.” CleanFish relied on text messages, the timing of ISF’s decision to stop supplying CleanFish, Sims’s resignation, and an invoice showing that ISF fulfilled a customer’s order. The court found that these allegations did not plausibly show that ISF knew the information came from CleanFish, knew it was protectable, or knew Sims had obtained it improperly. The court concluded that the allegations were also consistent with an innocent explanation in which ISF began doing business with Sims, who had decades of seafood-industry experience.

The court therefore granted the defendants’ motions to dismiss the first and second causes of action without leave to amend.

Breach of fiduciary duty

CleanFish alleged that Sims owed it a duty of loyalty because he held a 5% ownership interest and that he breached that duty by encouraging ISF to fulfill CleanFish’s purchase orders. The court applied Delaware law under the internal-affairs doctrine, a choice-of-law rule concerning a business entity’s internal governance.

The court explained that, under Delaware law, a limited liability company’s fiduciary duties may be changed or eliminated by its governing agreement. It also stated that a non-managing, non-controlling member does not have default fiduciary duties without a contractual provision establishing them. The court found that CleanFish had not alleged that Sims was an owner or controlling member or that a contract created a fiduciary duty. It therefore dismissed the fourth cause of action without leave to amend, finding further amendment futile.

Injunctive-relief claim and disposition

The court held that CleanFish’s fifth cause of action was procedurally improper because an injunction is a remedy, not an independent cause of action. The opinion’s earlier disposition states that this claim was dismissed without leave to amend; the conclusion states that it was dismissed without repeating that qualifier.

The court granted without leave to amend the motions to dismiss the first and second causes of action and granted Sims’s motion to dismiss the fourth cause of action. It also dismissed the fifth cause of action. The court then scheduled a further case-management conference concerning the remainder of the case. The opinion did not rule on the breach-of-contract claim.