IP Law Daily, TRADE SECRETS—E.D. Cal.: Real estate financing company’s trade secrets suit against individual partially dismissed, (Jun 12, 2024)

By Saurabh Kashyap, B.A., LL.B., LL.M.

Court dismisses some claims due to CUTSA preemption while allowing others to proceed based on sufficient allegations of the individual’s involvement.

A federal district court in California partially granted and denied an individual defendant’s motion to dismiss a real estate financing company’s trade secrets misappropriation lawsuit. The court dismissed, with leave to amend, the plaintiff’s claims of tortious interference with contractual relations, civil conspiracy, violation of the California Unfair Competition Law (UCL), and the California Comprehensive Computer Data Access and Fraud Act (Computer Fraud Act) on the grounds of preemption by the California Uniform Trade Secrets Act (CUTSA). However, the court allowed the claims under the Defend Trade Secrets Act (DTSA) and CUTSA to proceed, finding sufficient allegations that the individual orchestrated and directed the alleged misappropriation of the plaintiff’s trade secrets (Movement Mortgage, LLC v. Scrima, No. 2:23-cv-02904-DJC-CSK (E.D. Cal. June 10, 2024)).

Background. The plaintiff, Movement Mortgage, LLC, is a real estate financing company specializing in home loans and mortgage services, including conventional, FHA, VA, and USDA loans. The defendant, Todd Scrima, is the owner and President of Summit Funding, Inc., a direct competitor to Movement.

Movement initiated the lawsuit against Scrima, alleging he orchestrated a scheme to misappropriate Movement's trade secrets, including its business model, customer data, and employee data. Movement claimed that Scrima recruited high-level employees from Movement, who stole confidential information and diverted business to Summit. The complaint detailed instances where employees downloaded significant amounts of sensitive information before leaving Movement to join Summit. Movement's lawsuit cited violations of the Defend Trade Secrets Act (DTSA), CUTSA, California Unfair Competition Law (UCL), California Comprehensive Computer Data Access and Fraud Act (Computer Fraud Act), and claims of tortious interference and civil conspiracy. Scrima moved to dismiss the case, arguing preemption under CUTSA for several claims and asserting that Movement failed to sufficiently allege personal liability.

CUTSA preemption. In addressing CUTSA preemption, the court cited K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal. App. 4th 939 (2009), to establish the broad preemptive sweep of CUTSA. The court agreed with Scrima that Counts Three through Six, which included claims under the UCL, the Computer Fraud Act, and tortious interference, were preempted by CUTSA. CUTSA preempts alternative civil remedies based on trade secret misappropriation. The court emphasized that if the claims were based on the same nucleus of facts as the misappropriation of trade secrets, they were preempted.

The tortious interference claim was found to be based on the same facts as the trade secret misappropriation, namely that Movement employees violated confidentiality agreements by stealing trade secrets. Similarly, the civil conspiracy claim was preempted because it relied on the same core facts of misappropriation. The UCL and Computer Fraud Act claims were also preempted as they were rooted in the misappropriation of trade secrets despite being statutory claims.

Claims against Scrima personally. However, the court found that Movement had sufficiently alleged claims against Scrima in his individual capacity for the remaining counts under DTSA and CUTSA. The court noted that Scrima, as the owner and President of Summit, was alleged to have personally directed the scheme to steal Movement’s trade secrets and solicit its employees. The court referenced several pieces of evidence, including text messages and emails, indicating Scrima's direct involvement in orchestrating the theft and misuse of Movement’s confidential information.

In one instance, Scrima was alleged to have directed an officer to request Movement's profit and loss statements and suggested using a WhatsApp account to receive them, thereby demonstrating his orchestration of the scheme. Additionally, the court found that Movement provided sufficient allegations that Scrima directed using misappropriated trade secrets to solicit Movement's employees and customers.

The Case is No. 2:23-cv-02904-DJC-CSK.

Judge: Calabretta, D.

Attorneys: Gareth Dewalt (Bunsow De Mory LLP) for Movement Mortgage, LLC. John T. Cu (Hanson Bridgett LLP) for Todd Scrima.

Companies: Movement Mortgage, LLC

Cases: TradeSecrets CaliforniaNews