IP Law Daily, TRADE SECRETS—D.D.C.: Former cofounder of software firm can pursue derivative misappropriation claim, (Sep 27, 2022)

By Deborah J. Challener, J.D.

Plaintiff’s derivative claim for conversion and her direct claims for breach of the covenant of good faith and breach of an amended operating agreement were dismissed for failure to state a claim, but defendants’ motions to dismiss plaintiff’s other claims, or, in the alternative, for summary judgment were denied.

The federal district court for the District of Columbia has determined that an individual who co-founded a technology company can pursue derivative claims on behalf of the company for trade secret misappropriation civil conspiracy, and unjust enrichment against a former partner and other individuals involved in the operation of the company. The court also held that the plaintiff could assert a separate claim directly against one defendant for breach of an amended operating agreement and violation of District of Columbia law. The individual, however, failed to state a derivative conversion claim or direct claims for breach of the covenant of good faith and breach of an amended operating agreement because the alleged facts, taken as true, did not plausibly give rise to these claims. Finally, the court denied the defendants’ alternative motions for summary judgment without prejudice because they were premature (Howard v. Goodman, September 26, 2022, Friedrich, D.).

Plaintiff Nga Thi Howard and defendant Peter J. Goodman co-founded Kazoo LLC, a technology company organized in the District of Columbia and dedicated to developing a cutting-edge application that provides on-scene live video streaming to allow emergency contacts and first responders to locate people in need. According to Howard, Goodman impeded the development of Kazoo’s technology, unlawfully shared its trade secrets, and blocked Howard’s access to company information. Howard sued, bringing 10 claims against Goodman and others. Seven of the claims were derivative actions brought on behalf of Kazoo and three were direct claims against Goodman. The defendants then moved to dismiss eight of Howard’s claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, or in the alternative, for summary judgment on all counts.

Failure to state a claim. The court determined that Howard failed to state claims for conversion, breach of the covenant of good faith, and breach of the operating agreement because she did not adequately plead facts that supported each element of these claims. With regard to her claims for misappropriation of trade secrets, civil conspiracy, and unjust enrichment, however, the court held that Howard adequately alleged misuse of Kazoo’s source code, a prima facie claim for conspiracy to misappropriate trade secrets, and unjust retention of Kazoo’s source code.

Summary judgment. Howard argued that summary judgment was premature because the parties had not had a full opportunity for discovery. She submitted a declaration outlining a number of documents that she sought to obtain and that Goodman allegedly had refused to provide and identified several key witnesses who she intended to depose. The court concluded that summary judgment was premature because the information Howard sought could create a dispute of material fact. The court thus denied the defendants’ summary judgment motions without prejudice.

The court granted the defendants’ motions to dismiss three of Howard’s claims for failure to state a claim, but denied the defendants’ motion to dismiss several of her other claims and denied without prejudice the defendants’ motions in the alternative for summary judgment.

The Case is No. 1:20-cv-02187-DLF.

Attorneys: Barry Coburn (Coburn & Greenbaum, PLLC) for Nga Thi Howard. Glenn C. Etelson (Shulman, Rogers, Gandal, Pordy & Ecker. P.A.) for Peter J. Goodman.

Cases: TradeSecrets DistrictofColumbiaNews