First-Citizens Bank and Trust Company v. HSBC Holdings plc

Background

Silicon Valley Bank collapsed on March 10, 2023, and the Federal Deposit Insurance Corporation became its receiver. The FDIC transferred assets to a bridge bank, and First Citizens acquired SVB’s deposits and loans through a purchase agreement dated March 27, 2023. SVB’s United Kingdom subsidiary, SVB UK, was sold to HSBC UK.

First Citizens alleged that David Sabow and other former SVB employees used confidential and trade-secret information in a plan called “Project Colony” to recruit SVB employees and move banking business to HSBC. The alleged information included employee names, positions, salaries, skills, client information, loan-portfolio data, market-share information, and business-performance data.

The complaint asserted claims involving employment contracts, agreements with First Citizens, duties of loyalty and fiduciary duty, aiding and abetting, interference with contracts and prospective economic advantage, federal and state trade-secret law, and civil conspiracy. First Citizens had voluntarily dismissed claims two and eleven before this order.

Motions and governing issues

The defendants moved to dismiss, arguing that First Citizens lacked standing to assert claims based on conduct before the purchase agreement, had not plausibly pleaded its claims, and had not established personal jurisdiction over the HSBC entities and three individual defendants. They also argued that the California Uniform Trade Secrets Act preempted several state-law claims. Separately, they moved to stay discovery while the dismissal motion was pending.

Standing

The court held that First Citizens had standing. First Citizens agreed that it could not assert claims arising from conduct before the purchase agreement, but the court found that the complaint plausibly alleged post-agreement conduct, including meetings and actions related to the employee departures and alleged use of confidential information.

The court also rejected the argument that First Citizens did not acquire the right to enforce SVB’s confidentiality agreements. Reading the transfer and purchase agreements as a whole, the court concluded that the provisions retained employment agreements concerning compensation, benefits, and similar employment terms, not confidentiality agreements protecting SVB’s assets. The court stated that First Citizens acquired rights to assert claims based on acts occurring after March 27, 2023.

Motion to dismiss

The court granted the motion to dismiss in part. It found plausible theories supporting contract and trade-secret misappropriation claims, especially against Sabow and the HSBC successor to SVB UK. It also found that the allegations of misuse of confidential information plausibly supported damages for the claims involving First Citizens’ new-hire agreements.

The court did not resolve the enforceability of the employee non-solicitation provision at the pleading stage. It concluded that the claims turned on the alleged misuse of confidential and trade-secret information, rather than solely on the solicitation provision, and stated that the issue was better addressed on summary judgment.

The court found that the complaint did not give the other defendants fair notice because it grouped defendants together and did not clearly identify which defendant allegedly took which action. The complaint also included substantial pre-March 27 conduct even though First Citizens limited its theory to later conduct. The court directed First Citizens to correct these problems through amendment.

Trade-secret allegations

The court held that the complaint plausibly identified confidential and trade-secret information and alleged post-March 27 use of that information. It rejected the argument, at this stage, that employee compensation information, the identified employee information, or the alleged information was necessarily stale. The court noted, however, that First Citizens had not adequately addressed whether information belonging to clients could qualify as trade secrets owned by First Citizens. It directed First Citizens to address that issue in an amended complaint.

Preemption and personal jurisdiction

The court held that the state-law claims for breach of duties, aiding and abetting, tortious interference, and civil conspiracy were preempted by the California Uniform Trade Secrets Act as pleaded because they were based on the same alleged misuse of confidential and trade-secret information. The court dismissed those claims with leave to amend.

The court also directed First Citizens to clarify its allegations concerning personal jurisdiction over the HSBC entities and the individual defendants identified in the jurisdiction section. First Citizens had said at the hearing that it could correct those allegations.

Discovery and required next steps

The court denied the motion to stay discovery because the case would proceed on viable misappropriation claims, at least against Sabow and the HSBC successor to SVB UK.

First Citizens was required to file an amended complaint within twenty-eight days and attach a blackline showing changes from the current complaint. The amended complaint had to clarify each defendant’s role, identify post-March 27 conduct attributable to each individual defendant, address the California trade-secret-law preemption issues, and address personal jurisdiction. The order states that it resolves ECF Nos. 46 and 48.