Citcon USA, LLC v. MaplePay Inc. et al, No. 5:2019cv02112 - Document 100 (N.D. Cal. 2021)
Court Description: ORDER GRANTING Motion to Dismiss Fourth Amended Complaint. Re: ECF 90 . Signed by Judge Nathanael M. Cousins. (lmh, COURT STAFF) (Filed on 11/3/2021)
Download PDF
<![CDATA[
Citcon USA, LLC v. MaplePay Inc. et al Doc. 100 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 10 CITCON USA, LLC, United States District Court Northern District of California 11 Plaintiff, 12 v. 13 HANG “HANK” MIAO, and others, 14 Case No.19-cv-02112-NC ORDER GRANTING MOTION TO DISMISS FOURTH AMENDED COMPLAINT Re: ECF 90 Defendants. 15 16 Defendants Hang “Hank” Miao and Dino Lab, Inc. move to dismiss Plaintiff Citcon 17 18 USA, LLC’s Fourth Amended Complaint, ECF 90 (“MTD”). As before, Citcon alleges 19 that Defendants engaged in trade secret misappropriation of Citcon’s Source Code. See 20 ECF 89, Fourth Amended Complaint (“FAC”). Again, however, Citcon fails to allege 21 sufficient facts to support its claims against Miao and Dino Lab. The Court finds that 22 Citcon’s FAC continues to allege vague and conclusory claims that are implausible. 23 Accordingly, the Court GRANTS the motion to dismiss. Because the Court finds that 24 further amendment would be futile, leave to amend the complaint is DENIED. 25 I. 26 27 28 BACKGROUND The Court previously discussed the formation of MaplePay and RiverPay and summarized the history of the prior lawsuit in its April 2, 2021, order. See ECF 60. Additionally, the Court previously granted judicial notice of the Judgment in the Dockets.Justia.com 1 prior case, Citcon USA, LLC v. RiverPay Inc. et al., No. 5:18-cv-02585-NC (N.D. Cal.) 2 (“RiverPay”). See ECF 60; see also RiverPay ECF 552 (“Judgment”). Here, both parties 3 acknowledge that the general disputes in the RiverPay case are the proper subject of 4 judicial notice. See MTD at 1 (noting that the Court has previously taken judicial notice of 5 Citcon’s prior allegations of misappropriation); see also ECF 91 (“Opp’n”) at 7 n.1 6 (acknowledging the relevancy of the RiverPay judgment to the Court’s analysis as well as 7 the fact that it was attached as an exhibit to the FAC). Thus, the Court will take judicial 8 notice of facts in the RiverPay Judgment, Verdict, and prior court opinions and briefs 9 regarding York Hua’s departure from Citcon and acquisition of Citcon’s Source Code in United States District Court Northern District of California 10 June 2017 prior to joining RiverPay. 11 A. Procedural History 12 On April 18, 2019, Citcon filed the instant case against MaplePay and Miao for 13 14 misappropriation of trade secrets under federal and state law. See ECF 1. Citcon later amended its complaint twice to add Zheng, Han, Wang, and Dino Lab, 15 Inc. as defendants. See ECF Nos. 12, 16. Defendants MaplePay, Miao, Zheng, Han, 16 Wang, and Dino Lab, Inc. filed a motion to dismiss arguing: (1) that this Court lacks 17 personal jurisdiction over MaplePay, Zheng, Han, and Wang, (2) that res judicata bars the 18 complaint, and (3) that Citcon’s complaint fails to state a claim. ECF 44. This Court 19 granted the motion in part and dismissed MaplePay, Zheng, Han, and Wang for lack of 20 personal jurisdiction. ECF 60. The Court denied the motion in part declining to dismiss 21 the claims against Defendants Miao and Dino Lab for res judicata, claim-splitting, and 22 collateral estoppel. Id. The Court granted the motion with leave to amend, as to Miao and 23 Dino Lab, for failure to state a claim under FRCP 12(b)(6). Id. 24 On June 7, 2021, Citcon amended the complaint for the third time. Defendants 25 Miao and Dino Lab again moved to dismiss arguing that the Third Amended Complaint 26 failed to state a claim under 12(b)(6). ECF 78. The Court granted the motion with leave to 27 amend, for failure to state a claim. ECF 85. 28 On August 18, 2021, Citcon amended the complaint for the fourth time, alleging 2 United States District Court Northern District of California 1 misappropriation of trade secrets under the Defend Trade Secrets Act, 18 U.S.C. § 1836, 2 and under the California Uniform Trade Secrets Act, Cal. Civ. Code § 3426.3 against Miao 3 and Dino Lab. See FAC. Defendants again move to dismiss under Rule 12(b)(6) for 4 failure to state a claim. The motion is fully briefed, and the Court vacated the hearing set 5 for October 6, 2021. See ECF 90, 91, 92, 94. All parties have consented to the jurisdiction 6 of a magistrate judge under 28 U.S.C. § 636(c). ECF 6, 43. 7 B. Allegations in the Fourth Amended Complaint 8 As before, Citcon alleges that Dino Lab “approached Citcon in early 2016” to 9 provide contract coding services for Citcon. Id. “A nondisclosure agreement (the ‘NDA’) 10 was signed between Citcon and Dino Lab of which Hua signed on Dino Lab’s behalf.” Id. 11 Dino Lab also drafted an independent contractor agreement (the “Dino Lab Contract”) 12 which Dino Lab and Citcon signed in 2016 but was later terminated in late 2017. Id. “The 13 Dino Lab contract contains the standard confidentiality and intellectual property (“IP”) 14 assignment provisions in independent contract agreements.” Under the Dino Lab contract, 15 Dino Lab’s employees worked on various coding projects for the Source Code and had 16 access to the Source Code. Id. ¶ 12. Dino Lab employees who worked on Citcon’s 17 projects were allowed direct access to the Source Code, subject to their confidentiality 18 obligations.” Id. “The Source Code, which is substantially similar to Citcon’s, was then 19 taken through Dino Lab to RiverPay,” a competitor company. Id. ¶ 13 20 “Miao started to work for Dino Lab in 2015 and started to work for Citcon under 21 the Dino Lab Contract in 2016. He “had direct access to the Source Code until October 22 2017 when Miao quit Citcon and joined RiverPay.” Id. ¶ 15. “At some point during 23 Miao’s contract period with Citcon, Miao and Hua made copies of Citcon’s trade secret 24 source code and took them from Citcon’s facilities and servers.” Id. ¶ 24. After he started 25 working for RiverPay, Miao used the Source Code in his possession to continue improving 26 RiverPay’s source code.” Id. ¶ 25. 27 28 With respect to its new allegations in the FAC, Citcon alleges that “[a]t all relevant times, Hua was a co-owner of Dino Lab, together with Ryan Zheng and Simon Han. Hua 3 United States District Court Northern District of California 1 was also an employee or agent of Dino Lab at all relevant times.” FAC ¶ 34. “From 2015 2 until at least until October 2017 if not later, Miao was an employee of Dino Lab. Miao 3 became a contractor coder for RiverPay in October 2017, either through Dino Lab or 4 under his own personal corporation.” Id. ¶ 35. “Dino Lab was Citcon’s coding contractor 5 from April 2016 to October 2017 under a duty of confidentiality pursuant to the NDA and 6 the Dino Lab Contract.” Id. ¶ 36. Dino Lab initially supplied two contract coders to 7 Citcon: Hua and Miao, both starting to code for Citcon under the Dino Lab Contract in 8 April 2016. Both Hua and Miao gained access to the Source Code under the NDA and the 9 Dino Lab Contract [,] and thus both were under duty of confidentiality to Citcon to not use 10 or disclose the Source Code, unless for Citcon’s work as provided by the Dino Lab 11 Contract.” Id. ¶ 37. 12 “Hua became an employee of Citcon in July 2017; however, Hua maintained a 13 hybrid position with Citcon by receiving a part of his compensation in the amount of 14 $5,000 per month from Citcon as Dino Lab’s consulting fees.” Id. ¶ 38. “These were paid 15 to him through Dino Lab, in addition to his monthly salary as a Citcon employee paid 16 directly to him through Citcon’s payroll. This hybrid status of Hua was maintained until 17 he left Citcon in June 2017.” Id. 18 Citcon also alleges that Hua “misappropriated the Source Code as an owner, 19 employee, and agent of Dino Lab for the benefit of Dino Lab. The three owners of Dino 20 Lab—Hua, Ryan Zheng, and Simon Han—intended that Dino Lab use its access to the 21 Source Code to misappropriate the code for the benefit of their other enterprise — 22 RiverPay. Dino Lab accomplished such misappropriation partly through Hua as an owner, 23 employee and agent of Dino Lab who acted within the scope of his employment or 24 agency.” Id. ¶ 40. “While Hua also acted on behalf of RiverPay and for the benefit of 25 RiverPay in misappropriating the Source Code, the goals of RiverPay and Dino Lab were 26 coterminous in misappropriating the Source Code, both for the purpose of allowing 27 RiverPay to use the code as a head start to compete with Citcon.” Id. ¶ 41. Citcon alleges 28 that “Dino Lab is thus vicariously liable for Hua’s misappropriation.” Id. 4 Furthermore, Citcon alleges that “Miao also misappropriated the Source Code as United States District Court Northern District of California 1 2 employee and agent of Dino Lab and acted within the scope of his employment or agency. 3 Miao was an employee of Dino Lab and was under the direction and management of Hua.” 4 Id. ¶ 42. Through the hiring of Tony Zhang, Citcon alleges, the three owners were able “to 5 put up a façade separating Hua from Dino Lab’s daily work. . .” Id. In fact, Hua controlled 6 Dino Lab’s coding, including Miao’s work for Citcon. Id. The result was that “Miao 7 copied the Source Code and disclosed the code to RiverPay. Hua directed Miao to acquire 8 the earlier version of the Source Code in September 2016 and a later version in February 9 2017. Hua further directed Miao to transfer the stolen versions of the Source Code to 10 RiverPay in or about February 2017. . .” Id. ¶ 43. This continued after Hua resigned from 11 Citcon in May 2017. Id. ¶ 44. Finally, Citcon alleges that Miao acquired and disclosed the 12 Source Code through improper means. Id. ¶ 45-46, and that he did so in the scope of his 13 employment, rendering Dino Lab vicariously liable for the misappropriation. Id. ¶ 47. As 14 a result of this misappropriation, Citcon alleges damages in an amount to be determined at 15 trial. Id. ¶ 48. 16 II. 17 LEGAL STANDARD A motion to dismiss for failure to state a claim under Rule 12(b)(6) “tests the legal 18 sufficiency of a complaint.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “To 19 survive a motion to dismiss, a complaint must contain sufficient factual matter, a ccepted as 20 true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 21 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When 22 reviewing a 12(b)(6) motion, a court “must accept as true all factual allegations in the 23 complaint and draw all reasonable inferences in favor of the non -moving party.” Retail 24 Prop. Trust v. United Bd. of Carpenters & Joiners of Am., 768 F.3d 938, 945 (9th Cir. 25 2014). A court, however, need not accept as true “allegations that are merely conclusory, 26 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. 27 Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal citations omitted). A claim is facially 28 plausible when it “allows the court to draw the reasonable inference that the defendant is 5 1 2 If a court grants a motion to dismiss, leave to amend should be granted unless the 3 pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 4 F.3d 1122, 1127 (9th Cir. 2000). 5 III. 6 DISCUSSION Citcon alleges that Defendants misappropriated trade secrets under both 18 U.S.C. § 7 1836 (the Defend Trade Secrets Act, or DTSA) and California Civil Code § 3426 (the 8 California Uniform Trade Secrets Act, or CUTSA). 9 United States District Court Northern District of California liable for the misconduct alleged.” Id. Defendants move to dismiss the misappropriation claims against Miao on the 10 grounds that they are too vague and conclusory to state a plausible claim under Federal 11 Rule of Civil Procedure 12(b)(c) and that they contradict Citcon’s pr ior misappropriation 12 allegations both in the RiverPay case and in earlier amended complaints in the instant case. 13 Defendants move to dismiss the misappropriation claims against Dino Lab on the grounds 14 that they fail to state a claim under FRCP 12(b)(6), or in the alternative, are barred by res 15 judicata. What’s more, Defendants argue that a vicarious liability claim against Dino Lab 16 based on either Miao’s or Hua’s conduct fails because Citcon has not stated a plausible 17 claim against for any tort which could give rise to vicarious liability for Dino Lab through 18 either Miao or Hua. See MTD at 9-10. 19 “Disclosure or use of a trade secret of another without express or implied consent 20 by a person who . . . knew or had reason to know that his or her knowledge of t he trade 21 secret was . . . acquired under circumstances giving rise to a duty to maintain its secrecy or 22 limit its use” constitutes trade secret misappropriation. Cal. Civ. Code 23 § 3426.1(b)(2)(B)(ii). To plead trade secret misappropriation under both the DTSA and 24 the CUTSA, a plaintiff must plead (1) its ownership of the trade secret, (2) that the 25 defendant acquired it through improper means, and (3) that the defendants’ actions 26 damaged the plaintiff. See Rockwell Collins Inc. v. Wallace, 17-cv-1369-AG, 2017 WL 27 5502775, at *2 (C.D. Cal. Nov. 10, 2017) (internal citations omitted). 28 A. Claims Against Hang “Hank” Miao 6 1 2 conclusory to state a claim. Additionally, the Court agrees with Defendants that Citcon 3 has failed to adequately identify which version of Source Code Miao allegedly 4 misappropriated. 5 Citcon alleges that Miao misappropriated the code “via Hua.” FAC ¶ 44. 6 Defendants urge that the allegation is vague as to the exact meaning of “via Hua.” Even 7 taking the phrase to mean that Hua directed Miao to misappropriate the code, Defendants 8 argue that it is still not clear when, where or how this happened. Defendants urge that it is 9 further not clear from Citcon’s new allegations whether Miao followed those instructions. 10 11 United States District Court Northern District of California The Court concludes that the claims against Hank Miao remain too vague and MTD at 4. Similarly ambiguous, Defendants argue, is the meaning of “taken through Dino Lab 12 to RiverPay.” FAC ¶ 13. Citcon’s allegation is still vague about who provided what to 13 whom, as well as how it was provided. See ECF 81 at 6 (noting that “Citcon fails to 14 adequately allege facts about who misappropriated the source code at Dino Lab (e.g., Hua, 15 Miao, or both), how those actors participated in the misappropriation, and where and when 16 such misappropriation occurred.”). The Court agrees that the allegations about Miao’s 17 involvement in the misappropriation remain vague and conclusory. 18 Additionally, as was the case in previous complaints, it remains difficult to 19 reconcile allegations of Miao’s involvement contained therein with the premise on which 20 Citcon litigated the RiverPay case—that Hua was the one to deliver the same Source Code 21 to RiverPay. ECF 81 at 10 (“It is unclear how Citcon plans to assign liability to Miao for 22 taking the source code from Citcon to RiverPay in October 2017 after litigating the entire 23 RiverPay case on the premise that Hua was the actor who took that same source code to 24 RiverPay in June 2017.”). While the FAC provides more details about Miao’s alleged 25 involvement than the Third Amended Complaint, it remains impossible to exclude the 26 alternative explanation that Hua was the one to take the code from Citcon, as the jury in 27 the RiverPay case found. See RiverPay, WL 2327885 at *2; see RiverPay Verdict; see 28 also RiverPay ECF 136 ¶ 59. 7 United States District Court Northern District of California 1 “If there are two alternative explanations . . . both of which are plausible, plaintiff’s 2 complaint survives a motion to dismiss under Rule 12(b)(6).” In re Century Aluminum Co. 3 Securities Litig., 729 F.3d 1104, 1108 (9th Cir. 2013). But “[w]hen faced with two 4 possible explanations, only one of which can be true and only one of which results in 5 liability, plaintiffs cannot offer allegations that are ‘merely consistent with’ their favored 6 explanation but are also consistent with the alternative explanation.” Id. (citing Iqbal, 556 7 U.S. at 678). “Something more is needed, such as facts tending to exclude the possibility 8 that the alternative explanation is true . . . in order to render plaintiffs’ allegations plausible 9 within the meaning of Iqbal and Twombly.” Id. Here, accepting the allegations as true, 10 Citcon’s Source Code could have been misappropriated by Miao when he took it from 11 Citcon’s facilities and servers and made copies with Hua, see FAC ¶ 24, but the “obvious 12 alternative explanation” is that the Source Code was instead misappropriated by Hua in 13 June 2017 when he downloaded it from Citcon’s computers. See RiverPay, WL 2327885 14 at *2; see RiverPay Verdict; see also RiverPay ECF 136 ¶ 59. For those reasons, the 15 Court again concludes that Citcon has failed to state a plausible claim upon which relief 16 can be granted against Miao for trade secret misappropriation under DTSA and CUTSA. 17 A second problem with Citcon’s claims against Miao is that the FAC fails to 18 identify the version of code which Miao allegedly misappropriated. Citcon alleges, in 19 relevant part, “Hua directed Miao to acquire the early version of the Source Code in 20 September 2016 and a later version in February, 2017. . . These two stolen versions 21 constituted the starting version of RiverPay.” FAC ¶ 43. “After Hua resigned from Citcon 22 in May 2017, Miao continued to copy [sic] later versions of the source code under Hua’s 23 instructions and provided the later version of the source code to river pay “via Hua.” FAC 24 ¶ 44. It is difficult to tell whether the “later versions” is the same as the later versi on 25 produced in February 2017 or whether Citcon alleges for the first time Miao copied a 26 different “later version,” or multiple “later versions” after Hua resigned from Citcon. The 27 Court has already found that the idea that Miao copied a later version is i mplausible. It 28 would also seem to contradict Citcon’s own expert testimony in the RiverPay case. 8 1 United States District Court Northern District of California 2 Accordingly, the Court concludes that Citcon has failed to state a claim with respect to Miao. 3 B. Claims Against Dino Lab 4 Citcon argues that Dino Lab is vicariously liable for misappropriation which Hua 5 and Miao, under the direction of Hua, performed in the scope of their respective 6 employments with Dino Lab. “At all relevant times, Hua was a co-owner of Dino Lab, 7 together with Ryan Zheng and Simon Han. Hua was also an employee or agent of Dino 8 Lab at all relevant times.” FAC ¶ 34. “From 2015 until at least until October 2017 if not 9 later, Miao was an employee of Dino Lab. Miao became a contractor coder for RiverPay 10 in October 2017, either through Dino Lab or under his own personal corporation.” Id. ¶ 35. 11 “Hua became an employee of Citcon in July 2017; however, Hua maintained a hybrid 12 position with Citcon by receiving a part of his compensation in the amount of $5,000 per 13 month from Citcon as Dino Lab’s consulting fees which were paid to him through Dino 14 Lab, in addition to his monthly salary as a Citcon employee paid directly to him through 15 Citcon’s payroll. This hybrid status of Hua was maintained until he left Citcon in June 16 2017.” Id. ¶ 38. 17 Citcon also alleges that Hua “misappropriated the Source Code as an owner, 18 employee, and agent of Dino Lab for the benefit of Dino Lab. The three owners of Dino 19 Lab—Hua, Ryan Zheng, and Simon Han—intended that Dino Lab use its access to the 20 Source Code to misappropriate the code for the benefit of their other enterprise— 21 RiverPay. Dino Lab accomplished such misappropriation partly through Hua as an owner, 22 employee and agent of Dino Lab who acted within the scope of his employment or 23 agency.” Id. ¶ 40. Furthermore, “Miao also misappropriated the Source Code as employee 24 and agent of Dino Lab and acted within the scope of his employment or agency. Miao was 25 an employee of Dino Lab and was under the direction and management of Hua.” Id. ¶ 42. 26 Citcon alleges that, through the hiring of Tony Zhang, the three owners were able to 27 put up a façade separating Hua from Dino Lab’s daily work. In fact, Hua controlled Dino 28 Lab’s coding, including Miao’s work for Citcon. Id. The result was that “Miao copied the 9 1 Source Code and disclosed the code to RiverPay. Hua directed Miao to acquire the earlier 2 version of the Source Code in September 2016 and a later version in February , 2017. Hua 3 further directed Miao to transfer the stolen versions of the Source Code to RiverPay in or 4 about February 2017. Id. ¶ 43. This continued after Hua resigned from Citcon in May 5 2017. Id. ¶ 44. Finally, Citcon alleges that Miao acquired and disclosed the Source Code 6 through improper means, id. ¶ 45-46, and that he did so in the scope of his employment, 7 rendering Dino Lab vicariously liable for the misappropriation. Id. ¶ 47. United States District Court Northern District of California 8 Preliminarily, because the Court has concluded that the FAC fails to state a claim 9 against Miao, Citcon’s theory of vicarious liability against Dino Lab for Miao’s actions 10 must fail as well. All that remains is whether Citcon can state a claim against Dino Lab 11 based on Hua’s actions in the scope of his employment there. Defendants argue that that 12 Plaintiff either fails to state a claim, or if it does state a claim based on the notion that Hua 13 was acting on behalf of Dino Lab, that claim would be barred by res judicata. 14 The Court concludes that the claims against Dino Lab are not barred by res judicata 15 because there are insufficient facts to establish that Hua and Dino Lab were in privity at 16 the time of the alleged misappropriation. Further, Citcon has failed to state a claim against 17 Dino Lab for trade secret appropriation because the allegation that Hua was an employee 18 of Dino Lab at the time of the alleged misappropriation is implausible and contradicted by 19 Citcon’s own pleadings. Further, even accepting that Hua was employed by Dino Lab, 20 there is insufficient evidence that Hua acted in the scope of his employment while 21 committing any tort for which Dino Lab could be vicariously liable. 22 23 1. Res Judicata Res judicata, also known as claim preclusion, bars litigation in a subsequent action 24 of any claims that were raised or could have been raised in the prior action. W. Radio 25 Servs. Co. v. Glickman, 123 F.3d 1189, 1192 (9th Cir. 1997). “Res judicata prevents 26 litigation of all grounds for, or defenses to, recovery that were previously available to the 27 parties, regardless of whether they were asserted or determined in the prior proceeding.” 28 Brown v. Felsen, 442 U.S. 127, 131 (1979). Res judicata “has the dual purpose of 10 1 protecting litigants from the burden of relitigating an identical issue with the same party or 2 has privy and of promoting judicial economy by preventing needless litigation.” Parklane 3 Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979). United States District Court Northern District of California 4 In order for res judicata to apply there must be: (1) an identity of claims, (2) a final 5 judgment on the merits, and (3) identity or privity between parties. W. Radio Servs. Co., 6 123 F.3d at 1192. Here, the prior case resulted in a jury trial, and the Court entered final 7 judgment on Citcon’s trade secret misappropriation claims (a) in favor of Citcon and 8 against RiverPay in the amount of $1.5 million, and (b) against Citcon and in favor of Hua 9 and Shi. MTD at 5; see also RiverPay ECF 552. Thus, the final judgment on the merits 10 element is satisfied so the Court’s analysis focuses on the identity or privity between 11 parties. 12 In a January 2020 order, granting in part Defendants’ Motion to Dismiss the Second 13 Amended Complaint, this Court previously held that, as they were pled in the Second 14 Amended Complaint, res judicata did not bar misappropriation claims against Miao and 15 Dino Lab. ECF 60 at 19. Specifically, with respect to Dino Lab, the Court held that there 16 was an identity an identity of claims in the RiverPay case and the instant case in that both 17 involved trade secret misappropriation. By contrast it held that the two cases did not 18 involve the same parties or their privies because Dino Lab was not in privity with the 19 RiverPay defendants under the Supreme Court’s decision in Taylor v. Sturgell, 553 U.S. 20 880, 884 (2008). Id. at 20. This Court found that, as pled in the Second Amended 21 Complaint, there was no “substantive legal relationship” between Dino Lab and Miao or 22 Hua. See Taylor, 553 U.S. at 894 (explaining the substantive legal relationship exception 23 to claim preclusion). ECF 60 at 22. The Court concluded that, as pled in the Second 24 Amended Complaint “[t]he defendants’ reliance on an employer-employee relationship is 25 unsupported and insufficient to establish the required privity. . .” Id. at 23. Additionally, 26 the court held that none of the remaining Taylor categories adequately established privity 27 there either. Id. at 23-24. 28 Defendants here acknowledge that conclusion but argue that the FAC is different 11 1 than the Second Amended Complaint because “those claims were not premised on Hua 2 being an agent or employee of Hua being an agent or employee of Dino Lab . Citcon’s 3 claims in its FAC, however, are barred by res judicata because they are explicitly premised 4 on Hua allegedly having a principle and agent relationship with Dino Lab.” ECF 90 at 15, 5 n. 4. They note that the Taylor court acknowledged a principle-agent relationship as being 6 the type of substantive legal relationship that can give rise to privity. United States District Court Northern District of California 7 The Court disagrees because Plaintiff has pled insufficient facts to show privity. 8 The allegation that Hua maintained a “hybrid status” working at Dino Lab but consulting 9 for Citcon is inadequate to show that he was an agent for Dino Lab, especially when, as 10 discussed, Plaintiff has previously alleged that Hua was a full-time Citcon employee. 11 Outside of the res judicata context, the Ninth Circuit has noted that mere allegations of 12 privity could not be dispositive in stating a claim, while those claims are not plausible 13 given the record. Prometheus Development Co., Inc. v. Everest Properties, 289 F. App’x 14 211, 213 (9th Cir. 2008) (noting that “Plaintiffs’ bare allegation of privity in their 15 complaint is insufficient to state a claim: whether parties are in “privity” is a legal 16 conclusion and courts are not bound to accept as true a legal conclusion couched as a 17 factual allegation.”) (internal citations and quotation marks omitted). For the same 18 reasons, the Court declines to hold that the unsupported possibility of privity between Hua 19 and Dino lab are adequate to bar the claim based on res judicata . 20 The analysis of the other res judicata factors is identical to the analysis in the 21 Court’s order dismissing the Second Amended Complaint. ECF 60 at 22. Accordingly, 22 the claims are not barred by res judicata. 23 24 2. Failure To State a Claim Defendants argue that Citcon’s new allegation that Dino Lab is vicariously liable 25 for misappropriation based on Hua’s actions should be rejected as implausible for two 26 reasons. First, Citcon has previously pled and argued that Hua was Citcon’s Head of 27 Operations and Products and its full-time employee. RiverPay, ECF 136 ¶ 16; MTD at 5 28 n. 2 (Citcon’s Second Amended Complaint alleging that Hua was a “[f]ormer Dino Lab.”); 12 1 id. ¶ 28 (alleging that Hua received full-time employment at Citcon, giving him access to 2 the Source Code and facilitating the misappropriation.) Second, the jury in the RiverPay 3 case previously found that Hua was not liable for misappropriation . Accordingly, there is 4 no tort for Dino Lab to be vicariously responsible for, even assuming that Hua was acting 5 on behalf of Dino Lab. ECF 90 at 9; Riverpay ECF 136 ¶ 16. See, e.g., Jones v. Royal 6 Admin Servs., Inc., 887 F.3d 443, 450 (9th Cir 2018) (“An employer is subject to vicarious 7 liability for a tort committed by its employee acting within the scope of his employment.”). United States District Court Northern District of California 8 Citcon responds that “Miao misappropriated the Source Code as a Dino Lab 9 employee and under the Dino Lab contract, but per Hua’s instructions.” Opp’n at 6. 10 According to Citcon, “The [FAC] also makes it clear that the reason why Hua could 11 command Miao was because Hua was one of three owners of Dino Lab” and the 12 misappropriation was for the benefit of RiverPay. Id.at 7. 13 The Court agrees with Defendants that Hua’s alleged actions cannot give rise to a 14 plausible claim of vicarious liability against Dino Lab. These claims directly contradict 15 previous allegations of the timing and substance of Hua’s role at Dino Lab. Citcon has 16 previously alleged both that he was a “full time employee of Citcon” and “Former Dino 17 Lab employee” at the time of the alleged misappropriation. ECF 16 ¶ 24 (Citcon’s Second 18 Amended Complaint alleging that Hua was a “[f]ormer Dino Lab.”); id. ¶ 28 (alleging that 19 Hua received full-time employment at Citcon, giving him access to the Source Code and 20 facilitating the misappropriation.) Further, in dismissing the Third Amended Complaint, 21 this court observed that Hua was employed by Citcon, not Dino Lab prior t o joining 22 RiverPay in June 2017. ECF 85 at 7. Therefore, the court concluded that “[i]f Citcon’s 23 allegations against Dino Lab hinge entirely on Hua’s actions, then the Court cannot draw a 24 reasonable inference that Dino Lab is liable for the misconduct alleged.” Id. 25 Unlike the Third Amended Complaint, the FAC alleges that Hua maintained a 26 “hybrid position” in which Citcon paid Hua a $5,000 monthly consulting fee “through 27 Dino Lab” as part of his compensation. FAC ¶ 38. Citcon also alleges that “Dino Lab 28 accomplished such misappropriation partly through Hua as an owner, employer and agent 13 United States District Court Northern District of California 1 of Dino Lab who acted within the scope of his employment or agency. Id. ¶ 40. The 2 Court finds these new allegations implausible for two reasons. First, Citcon has alleged in 3 both the RiverPay litigation and throughout the instant case that Hua was a full-time 4 Citcon employee, and a former Dino Lab employee, at the time of the alleged 5 misappropriation. See, e.g., Daniels-Hall v. National Educ. Ass’n, 629 F.3d 992, 998 (9th 6 Cir. 2010) (“a court is not required to accept as true allegations that contradict . . . matters 7 properly subject to judicial notice or allegations that are merely conclusory, unwarranted 8 deductions of fact, or unreasonable inferences.”). What’s more, the FAC offers few details 9 about this alleged payment scheme in which Citcon paid Hua a consulting fee through 10 Dino Lab, making it difficult to know which entity Hua was an employee of at the time of 11 the misappropriation, or whether the misappropriation was, in fact, within the scope of his 12 employment at Dino Lab. Additionally, the complaint does not specify the exact 13 timeframe of the consulting agreement or what precisely he was paid to do. 14 Even assuming the Court accepts as plausible new allegations that Hua maintained a 15 “hybrid position,” the vagueness of information about the consulting agreement makes it 16 impossible to evaluate whether Hua was an employee of Dino Lab and whether he was 17 acting in the scope of his employment when the alleged misappropriation occurred. 18 Without that determination, the court cannot conclude or infer that Dino Lab was 19 vicariously liable for trade secret misappropriation. In that way, this case is like Varlitsky 20 v. City of Riverside, No. EDCV192099GBSPX, 2020 WL 4187767, at *5 (C.D. Cal. June 21 11, 2020). There, plaintiff brought claims against his county related to destruction of 22 property and misrepresentation stemming from the execution of a search warrant on his 23 property. The court noted that the plaintiff alleged “insufficient detail of where, when and 24 how” a deputy made false statements to permit a determination of whether he was acting in 25 the scope of his employment. The same is true here. 26 Because Citcon failed to plead facts sufficient to show that Hua either committed a 27 tort or did so in the scope of his employment, Dino Lab is not vicariously liable for trade 28 secret misappropriation under DTSA or CUTSA. 14 1 Accordingly, Defendants’ motion to dismiss is GRANTED. 2 3. United States District Court Northern District of California 3 Leave to Amend If a court grants a motion to dismiss, leave to amend should be granted unless the 4 pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 5 F.3d 1122, 1127 (9th Cir. 2000). Dismissal without leave to amend is improper unless it is 6 clear, upon de novo review, that complaint could not be saved by any amendment. 7 Mueller v. Auker, 700 F.3d 1180, 1192 (9th Cir. 2012). Here, the Court finds that further 8 amendment would be futile, particularly in light of the opportunities Citcon has had to 9 adequately plead its claim. See Ismail v. Cty. of Orange, 917 F. Supp. 2d 1060, 1066 (C.D. 10 Cal. 2012) (“[A] district court's discretion over amendments is especially broad ‘where the 11 court has already given a plaintiff one or more opportunities to amend his complaint.’”) 12 (quoting DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 n.3 (9th Cir. 1987)). 13 IV. 14 CONCLUSION Plaintiff Citcon’s claims against Miao remain implausible and vague, in several 15 cases contradicting its own earlier pleadings and contentions at trial. With respect to Dino 16 Lab, Plaintiff has not established a plausible claim of vicarious liability based on the 17 actions of either Hua or Miao. Accordingly, Defendants’ Motion to Dismiss is 18 GRANTED. Because the Court finds that future amendment would be futile, leave to 19 amend is denied. 20 IT IS SO ORDERED. 21 22 23 Dated: November 2, 2021 _____________________________________ NATHANAEL M. COUSINS United States Magistrate Judge 24 25 26 27 28 15
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
