Neutron Holdings, Inc. v. Hertz Corporation

Background

Neutron Holdings, Inc., which the opinion calls “Lime,” sued its former employee, Kai Cong, and Cong’s new employer, Hertz Corporation. Lime alleged that Cong downloaded more than 17,000 files before leaving, including alleged trade secrets, technical information, product plans, and employee performance and pay information. Lime further alleged that Cong worked for Hertz on systems involving pricing, fleet management, Internet-of-Things technology, and electric-vehicle charging, and that Hertz used Lime’s information to develop its technology and recruit Lime employees.

Lime asserted nine claims, including a federal claim under the Defend Trade Secrets Act, state-law claims against Cong, and claims against Hertz for inducing breach of contract, interference with contractual relations, interference with prospective economic relations, negligent interference with prospective economic relations, and unfair competition.

Claims Against Cong and Arbitration

The parties agreed that the claims against Cong had to be arbitrated. The court therefore granted Cong’s motion to compel arbitration and granted his motion to stay the claims against him pending arbitration. The court chose a stay rather than dismissal because, although all claims against Cong were subject to arbitration, not every claim in the case was subject to arbitration.

Hertz’s Motion to Dismiss

A motion to dismiss tests whether the complaint adequately alleges a legally viable claim, assuming the factual allegations are true for purposes of the motion.

The court denied Hertz’s motion as to Lime’s federal trade-secret claim. The court held that Lime identified specific alleged trade secrets, including its proprietary Two Layer Model algorithm, Protobuf technology, Internet-of-Things designs, product roadmaps, and engineering-organization information. The court found these descriptions sufficiently specific at the pleading stage. It also found that Lime plausibly alleged Hertz could be responsible for Cong’s use of the information while working for Hertz, including possible use in Hertz’s application and in recruiting Lime engineers. The court also noted that damages from the alleged misappropriation were pleaded.

The court denied dismissal of the intentional and negligent interference with prospective economic relations claims. For the intentional-interference claim, the court concluded that the alleged trade-secret misappropriation could qualify as an independently wrongful act supporting the claim. For the negligent-interference claim, the court allowed the claim to proceed based on the same allegations supporting Hertz’s potential responsibility for Cong’s conduct.

The court also denied dismissal of Lime’s unfair-competition claim because that claim was derivative of claims that survived Hertz’s motion.

The court granted Hertz’s motion as to Lime’s claims for inducing breach of contract and intentional interference with contractual relations. Those claims required allegations that Hertz knew about Cong’s contractual obligations. The court found that Lime alleged Hertz’s knowledge as a conclusion but supplied no supporting facts. The court granted 20 days’ leave to amend those claims.

Disposition

Hertz’s motion to dismiss was granted in part and denied in part. The court denied it as to the federal trade-secret claim, the intentional and negligent interference with prospective economic relations claims, and the unfair-competition claim. The court granted it, with 20 days’ leave to amend, as to the inducing-breach-of-contract and intentional-interference-with-contractual-relations claims. Cong’s motion to compel arbitration and stay the claims against him pending arbitration was granted. Judge Jacquelyn Corley signed the order on June 8, 2023.