Schwan's Company v. Cai

Background

Schwan’s Company and its wholly owned subsidiary, Schwan’s Shared Services, LLC, sued former employee Rongxuan Cai. The amended complaint also named Conagra Brands, Inc. as a defendant. Schwan’s alleged that Cai accessed, copied, and retained confidential information, trade secrets, devices, and research materials before leaving Schwan’s for Conagra. Schwan’s also alleged that Cai filed patent applications concerning frozen dough and frozen breads shortly after his termination.

The amended complaint asserted four claims against Conagra: violation of the federal Defend Trade Secrets Act, violation of the Minnesota Uniform Trade Secrets Act, tortious interference with contractual relations, and unjust enrichment. Cai was separately subject to six claims, which were not affected by this order. Cai was representing himself; Conagra was represented by counsel.

Legal Standard

The court reviewed Conagra’s motion under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint alleges enough facts to make a claim plausible. At this stage, the court treated the complaint’s factual allegations as true and drew reasonable inferences in Schwan’s favor, but did not accept legal conclusions stated as facts.

Trade-Secret Claims

Conagra sought dismissal of the federal and Minnesota trade-secret claims based on the statutes of limitations. Both statutes generally provide a three-year period that begins when the alleged misappropriation is discovered, or reasonably should have been discovered. Because Schwan’s added Conagra to the case on April 20, 2021, the relevant question was whether the amended complaint itself established that Schwan’s knew or should have known of Conagra’s alleged misappropriation by April 20, 2018.

The court concluded that it did not. The complaint alleged that, by January 2018, Schwan’s knew Cai had lied about his future employment, was going to work for Conagra, had accessed Schwan’s files, had transferred files to external devices, and had not returned those devices. But those allegations primarily concerned Cai, not conduct by Conagra. Schwan’s had also warned Conagra about Cai’s access to confidential information, but the complaint did not establish when Schwan’s knew or should have known that Conagra had actually misappropriated the information.

The court also found that the complaint did not establish that reasonable diligence would have led Schwan’s to discover Conagra’s alleged misappropriation by April 20, 2018. The complaint alleged that Schwan’s notified Conagra, sought voluntary disclosure, investigated internally, and tried to recover information from Cai. Because the complaint did not show when Conagra allegedly misappropriated the information or when Schwan’s discovered or should have discovered that conduct, the court denied dismissal of both trade-secret claims.

Tortious Interference with Contractual Relations

Under Minnesota law, this claim requires a contract, the defendant’s knowledge of it, intentional procurement of its breach, lack of justification, and damages. The court found that the amended complaint plausibly alleged a valid employment agreement, Conagra’s procurement of Cai’s breach, and resulting harm.

Conagra argued that it did not know about the agreement when it offered Cai a job. The court explained that Schwan’s alleged interference based on Conagra’s later assignment of Cai to projects related to his work at Schwan’s. The complaint alleged that Cai told Conagra about the employment agreement and its noncompete clause, and that Schwan’s notified Conagra of the areas in which Cai had worked. Drawing inferences for Schwan’s, the court found it plausible that Conagra knew about the agreement when it assigned Cai to work that allegedly violated it.

Conagra also argued that the complaint did not allege independently wrongful conduct. The court did not decide whether independent wrongfulness is required for this claim. It held that, assuming such a requirement applied, the complaint adequately alleged that Conagra’s conduct allowed it to use Schwan’s information improperly and become unjustly enriched.

Finally, Conagra argued that Schwan’s waived its contractual-interference claim by waiting to act after learning that Cai would work for Conagra. The court held that the complaint did not establish waiver, which requires knowledge of a right and an intent to relinquish it. The noncompete clause did not bar Cai from all work for Conagra, and Schwan’s had sent letters during the noncompete period expressing an intent to take legal action if its rights were violated. The court therefore denied dismissal of this claim.

Unjust Enrichment

Conagra argued that Minnesota’s trade-secret statute displaced Schwan’s unjust-enrichment claim. The statute displaces conflicting remedies based on misappropriation of a trade secret, but it does not displace claims based on confidential information that is not a trade secret.

The court found that Schwan’s alleged more than the misuse of trade secrets. The unjust-enrichment allegations referred to recipes and methods that might not be protected by the federal or Minnesota trade-secret statutes. At the motion-to-dismiss stage, that made the claim plausible. The court noted that the claim could later be displaced if the developing facts showed it was only a trade-secret claim.

Disposition

The court concluded that the amended complaint adequately alleged all four claims against Conagra and did not establish either a limitations bar or waiver. The court ordered that Conagra’s motion to dismiss was DENIED. The order did not dismiss any claims against Conagra, and the claims against Cai were unaffected.