Navigation Holdings, LLC v. Molavi

Background

Primrose Alloys, Inc. and Navigation Holdings, LLC, doing business as Xi Dong Partners, sued Alex Molavi; U.S. Metal Imports, LLC; TSA Tung Shin Industrial Co., Ltd.; TSA Metals, Inc.; Sean Liu; Larry Liao; and unknown defendants. The complaint asserted five claims: misappropriation of trade secrets under the federal Defend Trade Secrets Act and California’s Uniform Trade Secrets Act, breach of a confidentiality agreement, breach of fiduciary duty, and breach of an exclusive supply agreement.

The defendants moved to dismiss the trade-secret claims against all defendants other than Molavi. They also moved to strike a new sentence in paragraph 81 of the Second Amended Complaint, which stated that Primrose was Xi Dong’s corporate parent and that Molavi understood the confidentiality agreement applied to his role as Xi Dong’s president.

Trade-secret claims against the corporate defendants

The court denied the motion to dismiss the federal and California trade-secret claims against U.S. Metal Imports, TSA Tung Shin Industrial, and TSA Metals. Plaintiffs relied on respondeat superior, a doctrine that can make an employer legally responsible for an employee’s conduct within the scope of employment. The court explained that the complaint alleged specific conduct suggesting that Molavi used Plaintiffs’ proprietary client, pricing, and product information to benefit each company.

The allegations included that Molavi formed U.S. Metal and used proprietary information to place tubing orders; became involved in Tung Shin’s United States operations and allegedly diverted a $3 million order; and formed TSA Metals as a Tung Shin subsidiary to pursue Plaintiffs’ United States customers using allegedly misappropriated trade secrets. The court concluded that these allegations adequately pleaded that the companies could be vicariously liable for Molavi’s alleged conduct. The court noted that the defendants had not moved to dismiss the trade-secret claims against Molavi and, for purposes of this motion, assumed that Molavi misappropriated trade secrets from Plaintiffs.

Trade-secret claims against Liu and Liao

The court granted with prejudice the motion to dismiss the federal and California trade-secret claims against Liu and Liao. Plaintiffs relied on indirect misappropriation, but the court had previously required Plaintiffs to provide facts supporting Liu and Liao’s knowledge of Molavi’s alleged wrongdoing.

The court found that the Second Amended Complaint did not cure that deficiency. Knowing that Molavi had been Xi Dong’s president showed, at most, that Liu and Liao knew he had access to trade secrets. The supply agreement and its reference to confidential information did not establish that they knew Molavi had misappropriated anything. The allegation that Liu and Liao knew Molavi routed orders through U.S. Metal was also conclusory, and the complaint improperly treated Liu and Liao as a single group despite their different positions. Because the defects remained and amendment would be futile, cause undue delay, and unfairly prejudice Defendants, the court dismissed these claims with prejudice.

The court did not decide Defendants’ separate argument that it lacked personal jurisdiction over Liu and Liao because it dismissed the claims against them on pleading grounds.

Motion to strike

The court granted the motion to strike the second sentence of paragraph 81. It concluded that the sentence exceeded the scope of the court’s earlier permission to amend because it appeared to revive Xi Dong’s confidentiality-agreement claim. The court had previously ruled that Xi Dong lacked standing to assert that claim because the agreement named Primrose and Molavi, not Xi Dong.

Disposition

The court denied the motion to dismiss the first and second claims against U.S. Metal Imports, TSA Tung Shin Industrial, and TSA Metals. It granted with prejudice the motion to dismiss those claims against Liu and Liao. It also granted the motion to strike the second sentence of paragraph 81. Judge Lucy Koh entered the order on August 25, 2020.