eShares, Inc. v. Talton, III

Background

Carta, the name used by eShares, Inc., sued Jerry O. Talton, III. The complaint asserted breach of contract, breach of fiduciary duty, violation of the federal Defend Trade Secrets Act, New York common-law trade-secret misappropriation, conversion, and faithless servant. Talton moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss certain claims for failure to state a legally sufficient claim. He also moved under Rule 12(f) to strike certain allegations or requests for relief from the complaint.

Carta alleged that Talton served as its chief technology officer before being placed on paid administrative leave and later terminated for cause. Carta claimed that, shortly before the leave began, Talton downloaded more than 100 confidential documents and transferred them to a non-Carta device. The alleged materials included information about information-security systems, product planning, finances, business strategy, personnel, research and development, and engineering. Carta also alleged that Talton wiped three company laptops, recorded conversations involving Carta personnel, refused to return recordings and other information, and violated company policies.

Carta relied on an employee confidentiality and proprietary-rights agreement, a data policy, and a device policy. The court treated the complaint’s factual allegations as true for purposes of the dismissal motion.

Federal Trade-Secret Claim

The court held that Carta adequately described its alleged trade secrets. The complaint identified categories of information, listed specific file names, and alleged the approximate number and timing of the downloads. This gave Talton sufficient notice of what he allegedly misappropriated without requiring Carta to disclose the secrets themselves.

The court also held that Carta plausibly alleged acquisition by improper means under the Defend Trade Secrets Act. Merely accessing or downloading confidential information onto a personal device is not necessarily enough. But the court identified two relevant considerations: whether the employee had been directed not to transfer the information outside employer-issued devices, and whether the transfer was for an improper or illegitimate purpose. Carta’s data policy prohibited transferring restricted data outside Carta. Although the complaint did not specifically identify Talton’s purpose, the timing of the alleged download—shortly after he received a meeting invitation concerning his workplace complaint and shortly before he was placed on leave—along with his alleged refusal to return the information, was enough at the pleading stage. The court therefore denied dismissal of Count III, the Defend Trade Secrets Act claim.

New York Trade-Secret Claim

The court granted dismissal of Count IV, the New York common-law trade-secret claim. Unlike the federal claim, the New York claim required allegations that Talton used or disseminated the trade secrets, not merely that he acquired them. Carta alleged acquisition but did not allege use, so the claim was inadequately pleaded.

Conversion Claim

The court granted dismissal of Count V, the conversion claim. Carta plausibly alleged an ownership interest in the recordings and trade secrets and alleged that Talton refused to return the recordings. But the conversion theory concerning the trade secrets failed because copying alone was insufficient and Carta did not allege that the files were altered or that Carta was prevented from using them. The court also concluded that the conversion allegations substantially duplicated Carta’s breach-of-contract claim. The one allegation unique to conversion—that Talton created confidential information—was not enough to make the claim independent of the contract claim.

Faithless-Servant Claim

The court granted dismissal of Count VI, the faithless-servant claim. It applied Delaware law because the parties did not dispute that Delaware law governed this claim. The court stated that Delaware law does not recognize a cause of action under the faithless-servant doctrine and found no applicable Delaware authority supporting Carta’s theory.

Motion to Strike

The court denied Talton’s motion to strike. His request concerning allegations that he violated Carta’s policies was moot because those allegations had been removed from the operative Second Amended Complaint. The court denied his request to strike Carta’s claim for monetary damages for breach of contract because California law allows damages for breach of contract and Talton had not shown that such damages were unavailable as a matter of law.

The court also denied Talton’s request to strike damages under the Defend Trade Secrets Act because that statute provides damages remedies. It denied as moot the request concerning disgorgement under the faithless-servant doctrine because the underlying faithless-servant claim was dismissed, while clarifying that disgorgement was not stricken as a possible remedy for the breach-of-fiduciary-duty claim. Finally, the court denied the request to strike attorneys’ fees because doing so at the pleading stage would be premature.

Disposition

Judge Jessica G. L. Clarke ordered that Talton’s motion to dismiss was granted in part and denied in part, and that Talton’s motion to strike was denied. The court directed the Clerk of Court to terminate the dismissal motion on the docket.