Stemcell Technologies Canada Inc. v. StemExpress, LLC

Background

The plaintiffs moved to dismiss claims brought by StemExpress. The claims concerned alleged breaches of a confidentiality agreement and its implied promise of good faith and fair dealing, alleged misappropriation of trade secrets, an alleged breach of a meet-and-confer requirement in the parties’ Supply Agreement, and unfair competition.

Confidentiality and Trade-Secret Claims

The court held that StemExpress had not adequately alleged that the plaintiffs breached the confidentiality agreement or the implied covenant of good faith and fair dealing. StemExpress described broad categories of information, including donor-sampling processes, screening procedures, staff training, freezing and thawing procedures, sample preparation, testing, and packaging. The court found that this over-inclusive description included information that could not plausibly all be confidential. It required greater detail about the specific confidential information that the plaintiffs allegedly misused.

The court also held that the trade-secret-misappropriation claim was insufficiently pleaded. A trade-secret claim requires allegations that the plaintiff owned a trade secret, the defendant misappropriated it, and the defendant’s conduct caused damage. The court found StemExpress’s descriptions too broad to distinguish alleged trade secrets from commonplace practices.

Pre-Litigation Requirement

StemExpress alleged that the plaintiffs breached the Supply Agreement’s meet-and-confer requirement by filing the lawsuit. The court rejected that theory, noting that it had previously concluded the meet-and-confer process was not a barrier to litigation because most of the plaintiffs’ claims did not arise under the Supply Agreement.

The court further held that StemExpress could not allege an injury from the alleged breach. In the court’s view, StemExpress would have incurred litigation expenses even if the parties had resolved the plaintiffs’ contract claims before the lawsuit was filed. The court also noted that StemExpress filed a state-court action against Stemcell Technologies shortly after this case began and that the claims would have been litigated in one action or the other. Because the claim could not be cured by alleging additional facts, the court granted the motion to dismiss this claim without leave to amend. The court also granted the plaintiffs’ request for judicial notice of the state-court complaint.

Unfair Competition Claims

The court explained that California’s Uniform Trade Secrets Act can preclude unfair-competition claims based on trade-secret misappropriation, although a plaintiff may sometimes plead an unfair-competition claim in the alternative or based on different facts. Here, the court found the unfair-competition claims insufficient because they relied on the inadequate allegations supporting the breach-of-contract and trade-secret claims.

Disposition

The court granted the plaintiffs’ motion to dismiss in full. It granted leave to amend all claims except the second cause of action alleging breach of contract based on the plaintiffs’ alleged failure to comply with pre-litigation requirements. Any amended counterclaims were due within 21 days of the order. Judge Chhabria entered the order on November 17, 2021.