Capstone Logistics Holdings, Inc. v. Navarrete

Background

Capstone Logistics Holdings, Inc., Capstone Logistics, LLC, and Pinnacle Workforce Logistics, L.L.C. sued Humano, LLC and Pedro Navarrete, David Poffenberger, Steven Willis, and Mario Rojas. The claims included breach of contract, misappropriation of trade secrets, breach of fiduciary duty, tortious interference, fraud, unjust enrichment, copyright infringement, and unfair competition. The opinion states that the individual defendants were former Capstone employees who moved their employment to Humano. It identifies Navarrete as Capstone’s former president, Poffenberger as its former senior vice president of operations, Willis as its former vice president, and Rojas as its former senior director of partnership, among other positions.

The court considered Capstone’s motion for summary judgment, motion to seal exhibits, motion for sanctions based on alleged destruction of evidence, and motion to strike the report and testimony of the defendants’ expert, Ward Classen. The defendants also moved to vacate or modify the preliminary injunction.

Summary Judgment

Summary judgment is a decision without a trial when the evidence shows no real dispute over facts that could affect the result and the moving party is entitled to judgment under the law. The court granted Capstone’s motion on its breach-of-contract, trade-secret, unfair-competition, fiduciary-duty, tortious-interference, and copyright-infringement claims.

For breach of contract, the court held that the relevant agreements restricted the individual defendants from competing with Capstone or soliciting its employees and customers for two years after leaving. The court found that the defendants nevertheless competed with Capstone and solicited important customers and employees. It rejected the defendants’ argument that California law should apply to the Restricted Stock Award agreements, stating that Delaware law applied and that the restrictions were reasonable and enforceable. The court also found the restriction in Rojas’s Roadlink agreement enforceable under Texas law.

The court found that the individual defendants retained and misused Capstone’s confidential information and trade secrets to benefit Humano. It also found that the defendants’ use of that information, along with their poaching of Capstone’s customers and employees, constituted unfair competition under New York law. The court rejected the argument that the information was not connected to interstate commerce, finding no reasonable dispute that Capstone operated nationally and intended to use the information in interstate commerce.

The court held that Poffenberger, Willis, and Rojas breached fiduciary duties owed to Capstone. It also held that Navarrete and Humano aided and abetted Rojas’s breach because they knew of and participated in his use of private information concerning Capstone customers. The court treated the aiding-and-abetting claims against Poffenberger and Willis as duplicative of the direct fiduciary-duty claims and therefore did not separately consider those claims.

The court found that the defendants intentionally interfered with Capstone’s business relationships, including relationships involving DPI, by using wrongful means such as breaching their contractual and fiduciary duties and misappropriating trade secrets. The court therefore granted summary judgment on the tortious-interference claim.

For copyright infringement, the court considered Capstone’s MobilTrak source code, documentation, overview, and training materials. It found evidence of ownership and copying, including virtually identical documentation, identical sample screenshots, verbatim code, and identical errors in the MobilTrak and Genesis programs. The court rejected the defendants’ argument that the idea and expression merged because there were alternative ways to create the same type of technology. It also found the defendants responsible for the copying and found that Humano used Genesis to help acquire and retain customers, including customers moved from Capstone.

Because Capstone prevailed on its breach-of-contract claim, the court dismissed the duplicative unjust-enrichment claim. It also dismissed the fraud claim, reasoning that the alleged failure to keep contractual promises was properly addressed as breach of contract rather than fraud. The opinion does not add a prejudice designation to either dismissal.

Other Motions and Injunctive Relief

The court granted Capstone’s motion to strike the report and testimony of Ward Classen. It found that the report included improper legal conclusions, including an opinion about whether Humano infringed copyright, and that portions concerning technology valuation were irrelevant to the stated scope of Classen’s opinion. The court concluded that the report and testimony did not satisfy the requirements for reliable and relevant expert evidence.

The court denied Capstone’s motion for sanctions based on alleged destruction of evidence. Although the court stated that Capstone appeared to have shown that some evidence was destroyed and that the defendants’ preservation efforts were inadequate, it found that prior and current orders already gave Capstone adequate protection. The court pointed to the availability of monetary damages, the existing injunction, and the permanent injunction issued in this decision.

The court granted Capstone’s motion to seal specified exhibits because the defendants did not oppose it. Those documents were to remain under seal subject to any later court order. The opinion does not expressly state that the defendants’ motion to vacate or modify the preliminary injunction was granted or denied. Instead, it states that the preliminary injunction no longer served its original purpose and replaced it with a permanent injunction.

Relief and Disposition

Capstone was declared entitled to monetary damages to the extent it could prove them. The court issued a permanent injunction barring the defendants, directly or indirectly, from accessing, using, disclosing, disseminating, or otherwise misappropriating Capstone’s confidential and proprietary information and trade secrets, and from infringing the MobilTrak intellectual property. The clerk was directed to close the listed motions, including the sanctions, sealing, expert-testimony, and preliminary-injunction motions.

Judge

Judge George B. Daniels signed the memorandum decision and order on June 23, 2020.