Sapir v. Rosen

Background

Alex Sapir, 260-261 Madison Avenue LLC, and SFM Realty Corporation sued Rotem Rosen, Omer Rosen, and unnamed defendants. Plaintiffs alleged that the Rosen brothers breached contractual obligations, committed fraud, and misappropriated trade secrets as part of an effort to obtain money and competitive advantages from the Sapir Organization.

Plaintiffs alleged that Omer, while serving as the Sapir Organization’s general counsel, sent more than 1,000 documents from SFM’s secure database to his personal email account during negotiations concerning Rotem’s departure. They also alleged that Omer later had an assistant send him an operating-agreement draft and related correspondence. Plaintiffs claimed that Rotem used some of the information in later real-estate transactions and other disputes.

The only federal claim was brought under the Defend Trade Secrets Act, which allows an owner of a trade secret to sue for misappropriation. Plaintiffs also brought state-law claims. Both defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint adequately states a legally recognized claim.

Trade-secret claim

The court dismissed the federal trade-secret claim because plaintiffs did not adequately allege that the information involved was protected trade-secret information. The court explained that plaintiffs needed to identify the information with enough specificity for the defendants and the court to understand what was allegedly taken, assess whether it could legally be protected, and determine whether its compilation was unique.

The court found several problems with the allegations. Plaintiffs gave a broad list of agreements, financial documents, contracts, negotiations, contact information, and other business materials, but did not identify which items were trade secrets rather than merely confidential or proprietary information. The court also found that much of the information appeared to concern plaintiffs’ own corporate structure, finances, past contracts, or negotiations, without allegations showing that these materials were uniquely developed or compiled.

In addition, many of the listed documents had necessarily been shared with lenders, investors, sellers, developers, or other parties. Plaintiffs generally did not allege that those recipients were bound by strict confidentiality obligations. The court also found that descriptions such as “pricing information,” “proprietary formulas and methods,” and “deal and investment structures and strategies” were too general to show the existence and protectability of a trade secret.

The court expressly set aside the question whether the defendants had misappropriated any information. Its ruling rested on plaintiffs’ failure to adequately plead the existence of protected trade secrets.

State-law claims and jurisdiction

Because the federal trade-secret claim was the only federal cause of action, the court declined to exercise supplemental jurisdiction over the remaining state-law claims. It dismissed those claims without prejudice.

Leave to amend and disposition

The court granted plaintiffs leave to amend their federal claim in good faith by October 28, 2021. The court stated that failure to file an amended complaint by that date would result in dismissal of the action with prejudice.

The court granted defendants’ motions to dismiss and directed the Clerk of Court to terminate docket entries 29 and 34. The opinion does not state whether plaintiffs filed an amended complaint after this order.