Zabit v. Brandometry, LLC

Background

William Zabit and BrandTransact Worldwide, Inc. (BTWW) alleged that the defendants conspired to take the BrandTransact 50 Index Powered by Wilshire (BTW50 Index), its underlying algorithm, and Zabit’s ownership interest in a company formed to market financial products based on the index. The plaintiffs brought a claim under the federal Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836(b), a federal law protecting qualifying business information from misappropriation, along with state-law claims and a request for declaratory relief.

The plaintiffs alleged that Zabit developed the index concept, that BTWW developed the index and algorithm, and that BTWW licensed the index to BTI, formerly BrandTransact Investments, LLC and later Brandometry, LLC. They alleged that defendants later forced Zabit’s ownership interest in BTI down from 54 percent to 13 percent, terminated licensing and data agreements, and replaced the BTW50 Index in the BVAL exchange-traded fund with the EQM Brand Value Index using intellectual property allegedly taken from BTWW.

DTSA Claim

The Brandometry Defendants, the Tenet Defendants, and Frank Zarabi moved to dismiss the DTSA claim. The court held that Zabit lacked standing, meaning he did not have the legal right to bring that claim. The complaint identified BTWW—not Zabit—as the developer and exclusive owner of the intellectual property. The court rejected the plaintiffs’ argument that Zabit had “equitable title,” explaining that the complaint did not allege facts showing that he had the type of beneficial or expectant interest that could qualify as equitable title under the DTSA. The court also denied the plaintiffs’ request to amend the complaint to clarify Zabit’s alleged equitable interest because the proposed amendment would be futile.

The court held that BTWW did have standing. It rejected the Tenet Defendants’ argument that BTWW’s exclusive license to BTI eliminated BTWW’s ownership, noting that a license generally does not transfer away the trade-secret owner’s ownership and that the plaintiffs alleged the license had later been dissolved.

The court then considered whether the plaintiffs adequately alleged the existence of a trade secret. It held that the plaintiffs described the alleged secret—the algorithm and related methodology underlying the BTW50 Index—with enough detail to give defendants notice. The allegations also plausibly showed potential economic value. But the court held that the plaintiffs failed to allege reasonable measures to protect secrecy, which is a required element of a DTSA trade secret.

In particular, the complaint did not allege that BTI’s license required it to keep the index or algorithm confidential. It also alleged that numerous other people and entities knew the algorithm’s details without confidentiality agreements, instructions to maintain secrecy, or other protective measures. The court held that these allegations showed insufficient secrecy, even though they might support claims involving confidential information. Because the plaintiffs’ own allegations showed that the information was not a trade secret under the DTSA, the court dismissed the DTSA claim with prejudice and concluded that further amendment would be futile.

Other Claims and Dispositions

The court dismissed the declaratory-judgment claim because the Declaratory Judgment Act supplies a federal remedy but does not independently create federal subject-matter jurisdiction, and the DTSA claim—the plaintiffs’ asserted federal basis—was dismissed.

After dismissing the only federal-law claim, the court declined to exercise supplemental jurisdiction, meaning authority to hear related state-law claims, over the remaining state-law claims. The court dismissed those claims without prejudice to refiling in state court because the case was at an early stage and discovery had not begun.

The court also dismissed Corebrand Analytics, LLC without prejudice because the Tenet Defendants said they were unaware of any such entity and the plaintiffs did not show that it was a separate entity. The court dismissed without prejudice the claims against Avarde, Wenzel, Toroso Investments, Venuto, Edmonson, Bak, ACSI Funds, and Exponential ETFs under Federal Rule of Civil Procedure 41(a)(2), after determining that the attempted stipulation did not satisfy the rule’s requirements for dismissal by stipulation. The court granted the Brandometry Defendants’, Tenet Defendants’, and Zarabi’s motions to dismiss the DTSA claim, terminated all pending motions, and closed the case.