Marsh & McLennan Agency, LLC v. Teros Advisors, LLC

Background

MMA alleged that Teros Advisors, LLC and others misappropriated information concerning MMA’s clients. Elmer Ferguson joined MMA when MMA acquired his former employer, and he signed an agreement in 2014 that restricted his use of MMA’s confidential information and trade secrets and prohibited him, for 24 months after leaving, from using that information to solicit MMA’s clients or prospective clients.

The opinion states that Ferguson communicated with Nathan White, Teros’s president, about joining Teros. Before Ferguson resigned from MMA on February 15, 2019, he sent White a list identifying 46 clients and other information, sent a follow-up client list, and sent emails and attachments from MMA to his Teros email account. He also emailed clients that he had changed his back-office affiliation from MMA Securities to Teros Advisors. MMA alleged that approximately 14 clients left MMA as a result of Ferguson’s actions.

MMA brought claims under the federal Defend Trade Secrets Act and California’s Uniform Trade Secrets Act, along with other state-law claims. The parties filed cross-motions for summary judgment. MMA also filed administrative motions to seal portions of exhibits.

Judicial notice

The court granted MMA’s request to take judicial notice of the existence of an order from a related lawsuit involving Ferguson, but not for the truth of statements made in that order. The court denied most of Teros’s requests for judicial notice because they sought notice of laws, regulations, and disputed or non-adjudicative facts. The court granted Teros’s supplemental request to take notice of five Form 5500 filings, but only as to their existence.

Sealing and document-removal motions

Because the documents were submitted with dispositive motions, the court applied the “compelling reasons” standard for sealing judicial records. MMA sought to seal limited portions of exhibits containing client names, contact information, financial information, and other alleged trade-secret information. The court found that the identified materials contained confidential business and financial information and that MMA’s narrowly tailored requests established a sufficient reason to seal them. The court granted MMA’s administrative motions to seal.

The court also granted MMA’s administrative motion to remove incorrectly filed documents and directed the clerk to permanently remove Docket Nos. 71-1 and 71-2.

Summary-judgment standard

Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. A fact is material if it could affect the outcome, and a dispute is genuine if the evidence could allow a reasonable factfinder to decide for the nonmoving party. The court may not weigh evidence or decide witness credibility at this stage.

Trade-secret issues

The court explained that both federal and California law generally require a plaintiff alleging trade-secret misappropriation to show that it owned a trade secret, the defendant misappropriated it, and the defendant’s conduct caused damage. A trade secret must derive economic value from not being generally known and must be subject to reasonable secrecy measures.

The parties disagreed about the information at issue. Teros characterized it as client names and contact information that were publicly available through Form 5500 filings. MMA argued that the information also included client names, contact information, financial information, and relationship information identifying which clients were most receptive to solicitation.

The court found a genuine dispute about whether the client-related information was publicly available. The 46-client spreadsheet included client names, estimated revenue, and categories such as “Verbal Yes,” “Expected Yes,” and “Hopeful Yes.” The evidence also indicated that Ferguson may have transferred additional client information. Testimony from MMA’s director of retirement services supported an inference that client files could contain proprietary information about MMA’s relationships with clients and could give MMA a strategic advantage.

The court also found a factual dispute about the financial information in the spreadsheet. Although Ferguson appeared to suggest that the estimated revenue could have been calculated from Form 5500 filings, the parties had not adequately addressed whether he used non-public information, including information about clients’ assets or preferences, to target more lucrative clients.

The court said MMA’s case was not overwhelming, but concluded that Teros had not shown that even the contact information was publicly available as a matter of law. The court also noted that a jury could consider whether contact information, combined with other client-related information that was not generally known, constituted a protectable trade secret. Because factual disputes remained, neither party established an entitlement to summary judgment on the trade-secret issues.

Standing

Teros argued that MMA lacked standing because it could not establish harm. The court described standing as requiring an injury in fact, a connection between the injury and the challenged conduct, and a likelihood that a favorable decision would remedy the injury.

Teros relied on Financial Industry Regulatory Authority Rule 2040 and argued that MMA could not recover revenue from securities-related work because MMA was not licensed to receive that compensation. MMA did not dispute that it was not a registered investment adviser and could not directly receive compensation for securities-related work. MMA argued, however, that the revenue received by its retirement-services product line affected MMA’s profitability and that the alleged misappropriation therefore caused MMA a loss.

MMA also identified possible forms of relief including unjust enrichment and a reasonable royalty. The court found at least one genuine factual dispute about whether the alleged misappropriation caused an injury, including whether it adversely affected MMA’s profitability. That factual dispute prevented summary judgment on standing.

Disposition

Judge Haywood S. Gilliam, Jr. denied the parties’ cross-motions for summary judgment. The court granted MMA’s administrative motions to seal and granted MMA’s administrative motion to remove incorrectly filed documents. The order did not finally resolve the underlying trade-secret claims.