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Bay Fasteners & Components, Inc. v. Factory Direct Logistics, LLC

United States District Court, N.D. Illinois, Eastern Division

March 20, 2018

BAY FASTENERS & COMPONENTS, INC., a Florida Corporation, Plaintiff,
v.
FACTORY DIRECT LOGISTICS, LLC, dba FDL Fasteners, an Illinois Limited Liability Company; DANIEL LONG, an agent of FACTORY DIRECT LOGISTICS, LLC; and LAWRENCE PALMER, individually and as an agent of FACTORY DIRECT LOGISTICS, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          Joan B. Gottschall United States District Judge

         After the president of a corporation left to work at a competing business, the former employer, plaintiff here, brought four claims in its verified amended complaint (“AC”). (Verified Am. Compl., ECF No. 34.) In Count I of the AC, plaintiff alleges that defendants have misappropriated its trade secrets, thus violating the Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C.A. § 1836 (West 2018). In Count II, defendant Lawrence Palmer (“Palmer”) is alleged to have breached a fiduciary duty under Florida law, and plaintiff alleges in Count III that defendant Daniel Long (“Long”) has aided and abetted Palmer's breach of fiduciary duty. Plaintiff withdrew Count IV, which was an unfair competition claim. Defendants have filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the motion is granted in part because plaintiff has failed to state claims under state law, and denied in part because plaintiff has sufficiently alleged a DTSA claim.

         I. Facts

         For the purposes of a Rule 12(b)(6) motion, factual allegations in a complaint are taken as true. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). Plaintiff Bay Fasteners & Components, Inc. (“BFC”) is a Florida corporation with its principal place of business in Tampa, Florida. (AC ¶ 7, ECF No. 34.) Defendant Factory Direct Logistics, LLC (“FDL”) is an Illinois limited liability company with its principal place of business in Schaumburg, Illinois. (Id. ¶ 9.) Other defendants are Long, the current president and CEO of FDL, and Palmer, formerly the president of BFC and currently an employee of FDL. (Id. ¶¶ 13-14.) BFC is in the business of supplying fasteners to customers ranging in size from Fortune 500 companies to local manufacturing companies. (Id. ¶ 8.) FDL is in the business of importing and distributing fasteners and other c-class hardware throughout the United States, including within this judicial district. (Id. ¶ 10.) In the past, FDL supplied fasteners to BFC for sale to BFC's customers. (Id. ¶ 11.)

         Defendant Palmer worked for BFC for 25 years, and he served as its president for approximately 15 years until April 2017. (Id. ¶ 11.) In or about May 2017, FDL hired Palmer to open and run an FDL facility in Tampa, Florida and directly compete with BFC. (Id. ¶ 18.) On May 19, 2017, Defendant Long informed BFC by email of Palmer's employment with FDL and informed BFC that it would no longer supply BFC with fasteners due to a conflict of interest. (Id. ¶ 51.) Long and FDL have stated that they plan to solicit business, and have since solicited business, from BFC's customers through Palmer. (Id. ¶ 5.)

         With respect to the efforts made by BFC to protect its confidential information, BFC alleges that it “utilizes secured login procedures for employees, implements a shredding procedure for customer information, and limits employees' access of [sic] documents based on [an] employee's position within the company.” (Id. ¶ 26.) Moreover, BFC employees, including Palmer, receive an employee handbook “that specifically mentioned non-disclosure of confidential information” listing as confidential information “Computer Programs, Computer Programs and Codes, Customer Lists, Financial Information, New Materials Research, [and] Proprietary Production Processes.” (Id. ¶¶ 28-29.) In 2001, Palmer acknowledged receipt of the employee handbook, containing its non-disclosure policy. (Id. ¶ 30.) BFC also alleges that it restricts access to its offices, activates security systems after work hours, or both. (Id. ¶ 32.) BFC's trade secrets are alleged to allow it to “recover, receive, process, market, price, and distribute its products to other companies more efficiently, effectively, and safely” commensurate to the standards and needs of its customers. (Id. ¶ 33). BFC also alleged that it spent 20-years developing a “near-permanent relationship” with its customers. (Id. ¶ 35.) BFC derives economic value from keeping its confidential information confidential, and the resources it has devoted to developing its customers and customer contact lists, including its customers' preferences and needs, have allowed BFC to obtain a competitive advantage over other companies that supply fasteners. (Id. ¶¶ 27, 37.)

         BFC also alleges that before May 3, 2017, FDL and BFC discussed the possibility of FDL purchasing BFC. (Id. ¶ 40.) Pursuant to the companies' longstanding relationship, BFC disclosed certain, but not all, of its financial records and other confidential information to FDL. (Id. ¶ 41.)

         Because of his trusted, executive level position with BFC, Palmer had access to BFC's customer list and other alleged trade secrets, and was involved with all of BFC's suppliers and customers. (Id. ¶ 44.) Palmer was in charge of maintaining the accounts (id. ¶ 45), and had access to company sales and profit information, product specifications, pricing, customer product specifications and customer contact lists (id. ¶ 46). His position gave him insight into each customer's wants, needs, and dislikes, as well as critical pricing and profitability information. (Id. ¶ 47.)

         II. Legal Standard

         In considering a Rule 12(b)(6) motion to dismiss a complaint, the court accepts as true all well-pleaded allegations and draws all reasonable inferences in the plaintiff's favor. Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011). The complaint must provide the defendant with fair notice of the claim and must be facially plausible. Prominence Advisors, Inc. v. Dalton, No. 17 C 4369, 2017 WL 6988661, at *2 (N.D. Ill.Dec. 18, 2017) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). To state a claim that is facially plausible, plaintiffs must plead enough facts to establish that their right to relief is more than merely speculative. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). When the plaintiff pleads enough factual allegations allowing the court to draw the reasonable inference that the defendant is liable, then the complaint will survive a Rule 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 678 (2009) (citing Twombly, 550 U.S. at 556). Finally, there is no heightened pleading requirement in DTSA actions. Tesla Wall Sys., LLC v. Related Cos., L.P., No. 17-cv-5966 (JSR), 2017 WL 6507110, at *10 (S.D.N.Y. Dec. 18, 2017).

         III. Analysis

         Defendants move to dismiss plaintiff's DTSA claims, contending that plaintiff has failed to identify any alleged trade secrets; that plaintiff has failed to identify that it takes steps to preserve the confidentiality of its customers, wants or needs; and that plaintiff has failed to allege that anything was acquired through improper means. Additionally, defendants move to dismiss plaintiff's Florida state law claims, contending that defendant Palmer owed no fiduciary duty at the time of the challenged action, and that even if plaintiff properly alleged state law claims, they would nevertheless be preempted under the Florida Uniform Trade Secrets Act. Fla. Stat. § 688.008 (West 2018).

         A. Defend Trade Secrets Act Claim Against Defendants (Count I).

         The DTSA provides a private right of action for an owner of a trade secret that has been misappropriated. 18 U.S.C.A. § 1836(b) (West 2018). ...


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