Onyx Renewable Partners L.P. v. Kao

Background

Onyx Renewable Partners L.P. develops commercial and industrial solar projects. It sued its former general counsel, Hilary Kao, alleging that he misappropriated trade secrets under the federal Defend Trade Secrets Act, breached fiduciary duties owed to Onyx, and breached his employment agreement.

According to the complaint, Kao had access to sensitive information because he negotiated contracts for financing and developing Onyx’s solar projects. His employment agreement limited his use of Onyx’s confidential information, required him to return that information when his employment ended, and prohibited disclosure to other people.

Onyx alleges that two days before Kao resigned on May 17, 2021, he connected a personal storage device to his company laptop and downloaded approximately 10,507 files from Onyx’s secure online data room. The alleged files included confidential information and trade secrets. Onyx further alleges that Kao later accessed and used the files, connected another personal storage device to his company laptop, and did not certify that he had deleted or returned the downloaded information.

Motion and Legal Standard

Kao moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that Onyx had not stated legally sufficient claims. At this stage, the court accepted the complaint’s factual allegations as true and asked whether they plausibly supported liability. The court emphasized that it was not deciding the ultimate merits of the claims.

Trade-Secret Claim

The court held that Onyx plausibly alleged a claim under the Defend Trade Secrets Act. To state such a claim, Onyx had to plausibly allege that it possessed trade secrets and that Kao misappropriated them.

Onyx identified alleged trade secrets including financial models used to evaluate solar projects, finance solar-asset portfolios, and structure portfolio purchases and sales; engineering and operational knowledge; contractor and supplier networks; and current and potential customer lists. The complaint also identified a spreadsheet by name and described the information it contained, including projected expenses, revenue, depreciation, and profit for solar-energy systems.

The court found that Onyx adequately alleged that the information had economic value, that Onyx had spent years developing it, and that Onyx used measures such as confidentiality agreements, password-protected devices and data rooms, restricted access, and need-to-know limitations to protect its secrecy. The court concluded that the allegations were specific enough to notify Kao of the general nature of the alleged trade secrets without requiring Onyx to disclose the secrets themselves.

The court also found that Onyx plausibly alleged misappropriation through both acquisition and use. The alleged download of more than 10,000 files to a personal device shortly before Kao’s resignation supported an acquisition theory. The allegations that Kao continued interacting with the files after leaving Onyx supported a use theory. The court also considered allegations that Kao cleared his browser history and used private browsing, as well as Onyx’s allegation that Kao’s wife later launched a competing solar business with access to the information. The court held that Onyx did not need to plead the full extent of any use before discovery.

Fiduciary-Duty Claim

The court held that Onyx plausibly alleged a breach of fiduciary duty under Delaware law. The claim required allegations that Kao owed Onyx a fiduciary duty and breached it.

The court determined that Onyx adequately alleged that Kao owed duties of loyalty, care, and good faith. His position as general counsel, his status as key managerial personnel, and his responsibility for important contracts and financing arrangements supported that conclusion. The court rejected Kao’s argument that provisions in the partnership agreement or employment agreement clearly eliminated those duties. It found no clear and unambiguous language displacing the default fiduciary duties.

The court further held that the alleged transfer and continued use of Onyx’s trade secrets plausibly constituted a breach. It also rejected the argument that the fiduciary-duty claim merely duplicated the contract claim, reasoning that the fiduciary-duty claim had an independent basis in Kao’s role and the partnership agreement.

Breach-of-Contract Claim

The court held that Onyx plausibly alleged breach of the employment agreement. The agreement prohibited Kao from disclosing confidential information, required him to return it when his employment ended, and limited his use of it to the ordinary performance of his duties.

Onyx alleged that Kao copied more than 10,000 documents to a personal device, failed to certify that he had deleted or returned the information after Onyx requested that he do so, and continued to access confidential information after his employment ended. The court found these allegations sufficient to plead the existence of contractual obligations and their breach.

Disposition

The court denied Kao’s motion to dismiss the complaint. The claims therefore may proceed to discovery, although the court expressly stated that it was not deciding the ultimate merits of the contract claim or any other claim. The parties were ordered to submit a joint letter proposing next steps within two weeks. The parties’ joint request to adjourn discovery while the motion was pending was denied as moot, and the Clerk was directed to terminate the pending motion.