Citcon USA, LLC v. MaplePay Inc.

Background

Citcon alleged that Hang Miao and Dino Lab, Inc. misappropriated Citcon’s source code. Citcon brought claims under the federal Defend Trade Secrets Act and the California Uniform Trade Secrets Act. The allegations concerned source code that Citcon also alleged had been involved in an earlier related lawsuit involving RiverPay and York Hua.

Citcon alleged that Dino Lab had provided contract coding services, that its workers had access to the source code subject to confidentiality obligations, and that Miao had worked on the code before leaving Citcon and later joining RiverPay. Citcon alleged that Miao and Hua copied the source code and that Miao used it to improve RiverPay’s code.

Legal Standard

The defendants moved to dismiss under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim. To proceed, a complaint must include enough factual detail to make liability plausible, rather than relying on conclusory statements. When dismissal is granted, the court generally allows amendment unless the pleading could not be corrected with additional facts.

To plead trade-secret misappropriation under both statutes, Citcon had to allege its ownership of the trade secret, that the defendants acquired it through improper means, and that the defendants’ conduct damaged Citcon.

Claims Against Dino Lab

The court held that Citcon’s allegations against Dino Lab remained vague and conclusory. Citcon did not adequately identify whether Hua, Miao, or both misappropriated the source code through Dino Lab, or explain how and when the alleged misappropriation occurred.

The court also said Citcon did not allege that Dino Lab itself took or used the trade secrets. To the extent Citcon relied on responsibility for an employee’s conduct, it did not plead the facts needed to support that theory. The court found additional problems with the timing of the allegations and with the inconsistent accounts of whether Hua or Miao was responsible for taking the source code to RiverPay.

Claims Against Miao

The court held that Citcon also failed to state a trade-secret misappropriation claim against Miao. Citcon’s allegations about an incident supposedly designed to help Miao leave Citcon did not explain how that incident related to his departure for RiverPay or to the alleged copying of the source code.

The court further found that Citcon did not plausibly allege that Miao used improper means. Citcon relied on a nondisclosure agreement and a contract with Dino Lab, but did not allege that those agreements prohibited copying the source code as part of Miao’s work. Citcon also did not allege that it had a policy against programmers downloading or copying the code, or that it had prohibited Miao from doing so during his work.

Finally, the court found that Citcon had not pleaded facts making Miao’s alleged conduct more than one possible explanation for the misappropriation. The earlier related proceeding provided an alternative explanation: that Hua had downloaded the source code in June 2017 and brought it to RiverPay. Citcon did not plead facts resolving the inconsistency between that account and its allegation that Miao took the same source code after leaving Citcon in October 2017.

Disposition

The court granted the motion to dismiss the third amended complaint with leave to amend for failure to state a claim. Citcon could file a fourth amended complaint without advance permission from the court. If Citcon did not timely file a corrective complaint, the court stated that it would enter judgment for the defendants. Judge Nathanael M. Cousins signed the order.