Smart Team Global LLC v. Humbletech LLC

Background

Smart Team Global, LLC (STG), described as a software consulting firm, sued Lin Li, a former employee, and HumbleTech LLC. STG asserted claims for unfair competition, breach of the common-law duty of loyalty, tortious interference with prospective economic advantage, violation of the Virginia Uniform Trade Secrets Act, common-law misappropriation of confidential information and trade secrets, misappropriation under the federal Defend Trade Secrets Act, unjust enrichment, and forfeiture of salary and benefits.

According to the amended complaint, Li worked for STG beginning in 2012 and obtained information about STG’s products, services, business plans, technology, clients, marketing, and sales strategies. STG alleged that this information included trade secrets and confidential business information. STG also alleged that Li had access to its password-protected computer system, formed HumbleTech before leaving STG, prepared to pursue two former STG clients while still employed, and began providing services to those clients after his resignation. STG further alleged that Li and HumbleTech misappropriated software source code and misled potential business partners, clients, and employees into believing that HumbleTech was STG’s successor.

HumbleTech filed a partial motion to dismiss Counts 1, 2, 3, 5, 6, 7, and 8 of the amended complaint under Rule 12(b)(6), which tests whether a complaint states a legally plausible claim. The court considered the complaint’s factual allegations as true for purposes of the motion.

Virginia Trade-Secret Law and the Common-Law Claims

HumbleTech argued that Virginia’s Uniform Trade Secrets Act displaced, or preempted, STG’s six common-law claims because they were based on the alleged misappropriation of trade secrets. The court explained that the Virginia statute displaces common-law remedies only when they are based entirely on trade-secret misappropriation.

The court concluded that the challenged common-law claims were not based entirely on trade-secret misappropriation. The unfair-competition claim involved allegations that Li and HumbleTech misled STG’s business contacts and appropriated STG’s name and goodwill. The duty-of-loyalty and tortious-interference claims involved alleged efforts to compete with STG, divert its business, and arrange for HumbleTech to take over client services. The unjust-enrichment claim involved alleged usurpation of STG’s corporate opportunities and business relationships. The forfeiture claim involved alleged disloyal conduct and compensation paid during the relevant period. The court also noted that STG said its common-law misappropriation claim was pleaded only in the alternative if the law of a state other than Virginia applied.

The court therefore denied HumbleTech’s request to dismiss the common-law claims on Virginia preemption grounds.

Federal Trade-Secret Claim

HumbleTech separately argued that STG failed to state a claim under the Defend Trade Secrets Act, 18 U.S.C. § 1836. The court stated that a plaintiff must plausibly allege ownership or possession of a trade secret and its misappropriation.

The court found STG’s allegations sufficient at the motion-to-dismiss stage. STG alleged that HumbleTech misappropriated proprietary software source code; that the code was stored in a password-protected Bitbucket system; that access was limited to employees with a need to use it; and that STG obtained substantial value from keeping the code confidential because competitors could not easily replicate it. STG also alleged that Li and HumbleTech wrongfully acquired and used the code to provide services to their clients and identified the alleged improper means. The court therefore denied HumbleTech’s request to dismiss the federal trade-secret claim.

Disposition

The court denied HumbleTech’s partial motion to dismiss Counts 1, 2, 3, 5, 6, 7, and 8 of STG’s amended complaint. The court also denied HumbleTech’s request for oral argument because it resolved the motion based on the written submissions. The opinion states that Lin Li had not yet been served and that STG’s request to serve him by alternate means remained pending. The parties were ordered to appear by telephone for an initial pretrial conference unless the court determined that the conference could be omitted.