IP Law Daily, TRADE SECRETS—D. Neb.: Property management company’s trade secrets claims survive dismissal, (Sep 20, 2023)

By Ursula Furi-Perry, J.D., MBA

Client lists qualified as trade secrets, and the factual allegations in the complaint plausibly alleged that the trade-secrets claims were predicated on disclosure of the files.

A property management company sued its contractual partner under an asset purchase agreement, asserting that the partner had released information about its managed properties, contact information for the property owners, and fee structures to another real estate businessperson. The Nebraska federal district court declined to dismiss the claims, holding that the client lists at issue qualified as trade secrets. The factual allegations in the complaint plausibly alleged that the trade-secrets claims were predicated on the disclosure of the files, the court held, thereby giving sufficient notice that the information claiming to include trade secrets were those electronic files at issue. The defendants should have been adequately informed under the terms of the asset purchase agreement that there was a duty to maintain the secrecy of the data, and should have reasonably presumed that they were not to disclose it (Aksarben Property Management, LLC v. Vertical Focus, LLC, Rossiter, R., September 19, 2023).

Background. The plaintiff Aksarben Property Management, LLC (“Aksarben”) owns properties and manages others’ properties for leasing throughout Nebraska. In 2022, it executed an asset purchase agreement with the defendant, Vertical Focus, LLC, under which Aksarben agreed to purchase for $200,000 “all the rights and interests of” Vertical Focus’s property management service, which operated under the trade name “Kearney Rental Pros.” That purchase entitled Aksarben to Vertical Focus’s lease agreements, goodwill, books, records, lists, and files, including Vertical Focus’s Rent Manager database, which contained “Owner Contracts, Lease Agreements, its managed properties, contact information for the property owners, and fee structures.” The agreement bound Vertical Focus to maintain the value of the business and encourage customers to keep doing business with Aksarben, as well as to a covenant not to compete.

Two days before the closing date, one of the owners of Vertical Focus informed Aksarben that it would no longer have access to its Rent Manager database; the closing still occurred as planned. In March 2023, an Aksarben representative reportedly had a verbal altercation with a fellow real-estate businessperson who had owned or controlled some of the properties with which Vertical Focus did business, and who subsequently demanded that Vertical Focus provide him its client lists and electronic files. The owner of Vertical Focus complied, turning over the requested files, after which the businessperson emailed all of the owners and tenants listed, claiming that he was “taking over the management of his properties and instructed all tenants and owners, including non-tenants of his, to pay their rent to him.” The owner of Vertical Focus admitted to turning over the files.

Aksarben sued Vertical Focus and its owners in Nevada state court, claiming it suffered a breach of contract, violation of trade secrets under federal and Nebraska law, and damages in the form of “lost reputation and goodwill, lost competitive advantage, and lost business and profits” caused by the defendants’ alleged misconduct. The defendants removed the case to the U.S. District Court for the District of Nebraska based on Aksarban’s claim under the federal Defend Trade Secret act (DTSA) and then filed a motion to dismiss for failure to state a claim.

Analysis. First, the court denied the motion to dismiss the breach of contract claim, holding that one quick look at the contract between the parties included various duties between the parties which were breached by Vertical Focus’s conduct in releasing the information.

The court also declined to dismiss the claim for misappropriation of trade secrets, rejecting the defendants’ argument that the complaint gave no notice of what it “claims is a protectable trade secret,” “fails to allege any efforts it took to maintain the secrecy” of any trade secret, and did not adequately allege the defendants engaged in any type of misappropriation, calling those arguments overly reductive and unavailing. The factual allegations in the complaint plausibly alleged that Aksarben’s trade-secrets claims were predicated on the disclosure of the Rent Manager files, the court held, thereby giving sufficient notice that the information claiming to include trade secrets were those electronic files at issue. A more specific description of the alleged trade secret was not necessary at this early stage, the court held.

Moreover, the court found it plausible that some of the Rent Manager information qualified as “trade secrets,” and the motion did little to rebut Aksarben’s allegations to that effect. Customer lists have been held to be trade secrets, and the defendants failed to meaningfully address Aksarben’s allegations that the Rent Manager information was compiled using “significant time and money,” not “available to the general public,” and “gave Aksarben a competitive advantage over those” without access to the information.

Lastly, the court also rejected the defendants’ argument that the complaint did not adequately alleges any misappropriation of the information. The owners of Vertical Focus should have been adequately informed under the terms of the asset purchase agreement that there was a duty to maintain the secrecy of the data, and should have reasonably presumed that they were not to disclose it.

Conclusion. The court denied the defendants’ motion to dismiss.

The case is No. 7:23-cv-05000-RFR-MDN.

Attorneys: Daniel J. Epstein (Goosmann Law Firm) for Aksarben Property Management, LLC. James T. Schmidt, Jr. (Baird, Holm Law Firm) for Vertical Focus LLC.

Companies: Aksarben Property Management, LLC; Vertical Focus LLC

Cases: TradeSecrets NebraskaNews