IP Law Daily, TRADE SECRETS NEWS: Silicon Valley Bank purchaser accuses HSBC of plundering trade secrets, employees, (May 24, 2023)

By Jonathan Anderson

The lawsuit seeks more than $1 billion in damages and advances 12 causes of action against HSBC affiliates and former SVB executives.

On May 22, 2023, First-Citizens Bank & Trust Company filed a lawsuit against former executives and competitor HSBC for encouraging and convincing 42 employees to resign en masse and take jobs with HSBC. The move came shortly after First Citizens acquired the failed Silicon Valley Bank (SVB). In so doing, the complaint alleges that the defendants stole First Citizens’ confidential, proprietary, and trade secret information when they allegedly breached contractual, loyalty, and fiduciary duties; tortiously interfered with employment and accountholder relationships; violated the Defend Trade Secrets Act, state trade secrets laws, and the Computer Fraud and Abuse Act; and participated in a civil conspiracy to injure First Citizens.

Background. SVB collapsed on March 10, 2023. Within 48-hours, the Federal Deposit Insurance Corporation (“FDIC”) assumed control of SVB and began looking for a stable buyer. On March 10, 2023, the FDIC created the Deposit Insurance National Bank of Santa Clara (“DINB”) to protect SVB’s insured depositors. On March 13, 2023, the FDIC transferred all deposits—both insured and uninsured—and substantially all assets of DINB (i.e., the former Silicon Valley Bank of Santa Clara, California) to a newly created, full-service FDIC-operated “bridge bank” called Silicon Valley Bridge Bank, N.A. (the “Bridge Bank”), with the stated intent of protecting all depositors of SVB. The FDIC then solicited bids from financial institutions to purchase the Bridge Bank. North-Carolina-based First-Citizens Bank & Trust Company (“First Citizens”) won the bid and on March 23, entered into a purchase and assumption agreement with the FDIC for all deposits and loans of the Bridge Bank.

A similar process took place across the Atlantic, according to the complaint. On March 13, HSBC acquired SVB’s UK affiliate and within days, HSBC allegedly began conspiring with the defendant executives to obtain and misappropriate SVB’s confidential, proprietary, and trade secret information, the complaint states. This information included data about how SVB compared to its competitors; data and analysis supporting SVB’s market share; internal client information; and loan portfolio and revenue information. The executives allegedly worked together to hire 42 employees away from First Citizens to HSBC, including some employees who also allegedly took with them confidential and proprietary information.

First Citizens subsequently filed suit in U.S. District Court for the Northern District of California, naming as defendants HSBC Holdings PLC a/k/a The HSBC Group a/k/a Hongkong and Shanghai Banking Corporation, HSBC USA Inc., HSBC Bank USA, N.A., HSBC UK Bank PLC, Silicon Valley Bank UK Limited, and six individuals (David Sabow, Sunita Patel, Melissa Stepanis, Peter Kidder, Kevin Longo, Rebekah Hanlon, and Katherine Andersen) who are former employees of SVC. The complaint alleges that the defendants participated in a scheme (referred to as “Project Colony”), which was orchestrated by defendant Sabow to plunder the “core of [SVB’s] profitability engine.” “Defendants’ theft and misuse of confidential, proprietary and trade secret information, disruption of First Citizens’ business operations, unfair competition, and unlawful conduct are reprehensible and demand a substantial award of compensatory and punitive damages in an amount to be proved at trial in excess of $1 billion,” the complaint states.

Breach of contract. The first three causes of action allege breach of contract against five former SVB executives. The complaint details various non-disclosure agreements covering the executives’ employment at SVB. The complaint further alleges that certain executives breached obligations to provide advance notice of terminating employment. The complaint also alleges that the executives breached agreements with First Citizens upon their hiring following the SVB collapse, including rules governing confidentiality, conflicts of interest, and use of company devices, data, and technology.

Breach of duty of loyalty. The fourth cause of action alleges breach of loyalty against six executives. The complaint alleges that the individuals owed First Citizens “an undivided duty of loyalty and care to act in the utmost good faith with undivided interests and with faithful service, and to place First Citizens’ interests ahead of their own and not to act for persons or entities whose interests would conflict with those of First Citizens.”

Breach of fiduciary duty. The fifth cause of action alleges seven executives breached their fiduciary duty “through which they were bound to act with the utmost good faith for the benefit of the Company.” The complaint alleges that the executives had a duty to act in the best interest of the bank, warn it of threats, and refrain from assisting competitors.

Aiding and abetting. The sixth cause of action alleges that HSBC and one of the former executives aided and encouraged the other First Citizens’ executives to breach their duty of loyalty and/or fiduciary duty. The complaint alleges that certain executives were instructed to target various employees, coordinate interviews and offers, and were awarded financial incentives to engage in such acts.

Tortious interference. The seventh and eighth causes of action allege that HSBC and one of the former executives willfully and maliciously aided and encouraged the other former executives to breach their contracts and disrupt First Citizens’ relationships with employees and customers, all with intent to injure First Citizens.

DTSA violation. The ninth cause of action alleges that in misappropriating trade secrets, all defendants violated the Defend Trade Secrets Act, 18 U.S.C. § 183.

State trade secrets violations. The tenth cause of action alleges that all defendants violated the California Uniform Trade Secrets Act, Cal. Civ. Code § 3426, and/or the North Carolina Trade Secrets Protection Act, § 66-152 et seq.

CFAA violation. The eleventh cause of action alleges that HSBC and one of the former executives violated the Computer Fraud and Abuse Act, 18 U.S.C. § 1030. The complaint details how the defendant executives used company computer equipment and technology to communicate and share protected information.

Civil conspiracy. The twelfth cause of action alleges that all defendants participated in a civil conspiracy to injure First Citizens.

Relief sought. The complaint seeks actual damages upwards of $1 billion, damages for unjust enrichment, reasonable royalties, punitive and/or exemplary damages, attorney fees, and prejudgment interest.

The Case is No. 3:23-cv-02483-LB.

Attorneys: Andrew C. Crane (Fisher & Phillips LLP) for First-Citizens Bank & Trust Company.

Companies: First-Citizens Bank & Trust Company; HSBC Holdings PLC a/k/a The HSBC Group a/k/a Hongkong and Shanghai Banking Corporation; HSBC USA Inc.; HSBC Bank USA, N.A.; HSBC UK Bank PLC; Silicon Valley Bank UK Limited

News: TradeSecrets TechnologyInternet CaliforniaNews