Iacovacci v. Brevet Holdings, LLC

Background

Paul Iacovacci moved under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) to dismiss amended counterclaims asserted by Brevet Holdings, LLC; Brevet Capital Management, LLC; Brevet Short Duration Partners, LLC; Brevet Short Duration Holdings, LLC; Douglas Monticciolo; and Mark Callahan. Johnny Lan had not asserted counterclaims and was not implicated by the motion.

The dispute involved two proceedings. In a New York state case, Iacovacci asserted state-law claims arising from his termination by Brevet, including allegations that Brevet improperly accessed his computer, external hard drives, and Yahoo! email account. The state-case defendants asserted twelve remaining counterclaims, including breach of contract, breach of confidentiality, breach of fiduciary duty, breach of loyalty, unfair competition, interference with business relationships, misappropriation of trade secrets, conversion, trespass to chattels, and unjust enrichment.

In the federal case, Iacovacci asserted claims under the Computer Fraud and Abuse Act, the Federal Wiretap Act, and the Stored Communications Act, along with New York claims for conversion and trespass to chattels. The federal defendants asserted ten counterclaims, including state-law claims and a claim under the federal Defend Trade Secrets Act. Nine of those ten counterclaims were also asserted in the state case, although some were brought by different parties.

Colorado River Abstention

Iacovacci argued that the federal court should abstain under the Colorado River doctrine, which permits a federal court to decline to proceed in exceptional circumstances when a parallel state case could resolve the dispute more comprehensively and conserve judicial resources.

The court first found that the federal and state proceedings were parallel. Five federal defendants were also defendants in the state case. Although Brevet Capital Management, LLC was not a state-case defendant, the court noted that it was wholly owned by Brevet Holdings, LLC. The court also found substantial overlap in the issues because both sets of counterclaims were based on Iacovacci’s alleged disloyal conduct as a Brevet employee and alleged misappropriation of Brevet’s trade secrets.

The court then considered six factors. The absence of property controlled by either court was neutral. The convenience of the federal and state forums favored keeping the case in federal court. The risk of duplicative litigation favored abstention. The state case had progressed further, with extensive discovery, more than twenty motions, and at least six depositions, while no discovery had occurred in the federal case; this factor only slightly favored abstention. The fact that most of the counterclaims arose under state law also favored abstention, but only slightly because the issues were not particularly novel or complex. Finally, the court was somewhat skeptical that the state case could adequately protect Brevet Capital Management’s rights, particularly because that entity was not a state-case party and the parties disputed whether the federal trade-secret claim could be brought in state court.

Because the factors favoring abstention did not outweigh the strong presumption in favor of exercising federal jurisdiction, the court denied Iacovacci’s Rule 12(b)(1) motion.

Trade-Secret Counterclaims

Iacovacci separately argued under Rule 12(b)(6), which tests whether a pleading states a legally sufficient claim, that the New York and federal trade-secret counterclaims failed as a matter of law.

The court held that the counterclaims adequately identified alleged trade secrets, including nonpublic sourcing information for more than 2,000 clients, business-specific nondisclosure agreements, and specifically identified Brevet documents. The allegations also stated that the information was protected through measures including a firewall and login and password protections, that Brevet had spent financial and personnel resources developing it, and that it had economic value because it was not public.

The court also found that the counterclaims plausibly alleged misappropriation. They alleged that Iacovacci stole sourcing-network information, sent Brevet documents to his personal email, disseminated documents, modified other documents for his own use, and attempted to conduct business using Brevet’s trade secrets.

The federal trade-secret statute applies to misappropriation occurring on or after May 11, 2016. Although Iacovacci argued that the counterclaims did not identify sufficient post-enactment conduct, the court found adequate the allegation that his unlawful activity continued until his termination on October 14, 2016.

Disposition

Judge William H. Pauley III denied Iacovacci’s motion to dismiss. The court denied both the request for abstention under Rule 12(b)(1) and the request to dismiss the trade-secret counterclaims under Rule 12(b)(6). The clerk was directed to terminate the motion at ECF No. 115.