Crossb Sols. v. Macias, Gini & O'Connell, LLP

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CROSSBORDER SOLUTIONS, INC. and CROSS BORDER TRANSACTIONS, LLC d/b/a CrossBorder Solutions, Plaintiffs, v. MACIAS, GINI, & O'CONNELL, LLP, Defendant.

No. 20 Civ. 4877 (NSR)

United States District Court, S.D. New York

February 23, 2022

OPINION & ORDER

NELSON S. ROMAN, UNITED STATES DISTRICT JUDGE

This case involves the alleged theft of trade secrets and confidential and proprietary information, including a highly confidential customer list and related information, from Plaintiffs CrossBorder Solutions, Inc. and CrossBorder Transactions, LLC. d/b/a/ CrossBorder Solutions (collectively “CrossBorder” or “Plaintiffs”)^[1] by its direct competitor Defendant Macias, Gini, & O'Connell, LLP (“MGO”) and other individual defendants.^[2]

Presently pending before the Court is CrossBorder's motion for leave to amend its complaint, by which CrossBorder proffers a Proposed Second Amended Complaint (“PSAC, ” ECF No. 88-1) that (1) supplements its factual allegations based on new information recently learned from a settling individual defendant, (2) adds Sanjay Agarwal-a partner with MGO-as an party defendant, and (3) asserts an additional claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C §§ 11961, et seq., against MGO and Agarwal (collectively, “Defendants”). (ECF No. 85.) MGO opposes the motion arguing that the Court lacks personal jurisdiction over Agarwal and that the amendments in the PSAC are futile. (ECF No. 87.) For the following reasons, the Court GRANTS IN PART, DENIES IN PART CrossBorder's motion.

BACKGROUND

The following facts are taken from CrossBorder's PSAC and are accepted as true and construed in the light most favorable to CrossBorder for purposes of the instant motion.^[3]

I. Factual Background

CrossBorder is a company that provides technology-driven tax solutions to companies through transfer pricing software. (PSAC ¶ 3.) It has successfully created a niche market for such transfer pricing services, and MGO is a direct competitor in this space. (Id.)

Former individual defendants who were employed by CrossBorder, Liga Hoy, Jiaxin “Claire” Song, and Lijun “Maggie” Tian (collectively, the “Former Employees”) had access to its highly confidential customer-related information-including CrossBorder's master customer list; client work product; client proposals signed engagements, detailed information about client current and future needs; client internal corporate structures; and prospect lists (collectively, the “Confidential Information”). (Id. ¶¶ 4, 55.) The master customer list, in particular, details for each of CrossBorder's clients: the term and date of CrossBorder's contract with the client; the estimated expiration date of the contract; primary and secondary contacts at the client with phone numbers and email addresses for each; notes about the client's satisfaction with CrossBorder, the potential for upsell opportunities, and the first install date of CrossBorder's work. (Id. ¶ 5.) The master customer list also contains the dollar values of CrossBorder's relationship with each of its clients, as well as information from which the pricing of CrossBorder's contract with each client could be derived. (Id.)

Months prior to the termination of her employment at CrossBorder Hoy solicited other CrossBorder employees to leave CrossBorder with her on multiple occasions. (Id. ¶¶ 6, 60, 64, 71, 73-74.) When CrossBorder discovered Hoy's activities, it terminated her employment. (Id. ¶¶ 7, 65-66.) Within minutes of her termination, Hoy quickly downloaded the CrossBorder Confidential Information to a personal drive, and asked Song and Tian to collect even more. (Id. ¶¶ 7, 67.) Hoy also unlawfully solicited Song and Tian to breach the non-compete clauses in their Employment Agreements with CrossBorder and join her at her new employer, MGO. (Id. ¶ 8.) Knowing that those solicitation actions violated Hoy's own CrossBorder Employment Agreement, Hoy instructed Song and Tian to apply to MGO through a generic online application. (Id. ¶¶ 9, 75.) Song and Tian then did just that, ultimately resigning from CrossBorder to join MGO at Hoy's urging. (Id. ¶ 9.)

MGO and Agarwal hired the Former Employees with the intention to build a transfer pricing practice around them and their CrossBorder clients. (Id. ¶ 78.) During Tian's interview, Agarwal expressly told Tian that she should bring her clients from CrossBorder to MGO. (Id. ¶ 79.) When Tian expressed concern about the non-competition obligation in her Employment Agreement with CrossBorder, Agarwal told Tian not to worry, that MGO's team of lawyers would “have her back.” (Id.) He urged her to do everything she could to help develop business for MGO. (Id. ¶ 10.) At that time, upon information and belief, Agarwal was fully aware of the non-compete restrictions in Tian's Employment Agreement with CrossBorder because he had already seen Hoy's essentially identical Employment Agreement with CrossBorder. (Id. ¶ 80.)

Before officially becoming MGO employees, Tian and Song both effectively acted as “undercover agent[s]” for Agarwal and MGO. (Id. ¶¶ 11, 14.) They conveyed the CrossBorder Confidential Information to MGO through Hoy and stole it for use by Hoy, Agarwal, and MGO. (Id. ¶¶ 11, 14, 68-70, 76, 87.)

During Tian's second day of employment at MGO, Hoy asked Tian for the stolen CrossBorder master customer list to use it the next day at an MGO business development meeting with Agarwal and senior management. Tian responded by emailing Hoy the CrossBorder master customer list using the MGO email system. (Id. ¶¶ 12, 83, 90-91.)

After Hoy relayed that information from the master customer list to Agarwal and MGO's business development team, MGO aggressively used that stolen information to target companies whose contracts with CrossBorder were soon expiring-i.e., the companies most readily susceptible to being converted into MGO clients. (Id. ¶ 13.) Armed with a detailed knowledge of CrossBorder's client base, as provided by the master customer list, Hoy, Song, Agarwal, and MGO solicited CrossBorder clients, seeking to have them switch to MGO. This included sending a mass invitation to an MGO transfer pricing client seminar. (Id. ¶¶ 15, 93-95.) MGO, acting through Hoy and Agarwal, held follow up calls with numerous CrossBorder clients and sent formal work proposals as well. (Id. ¶ 100.)

In June 2020, a CrossBorder client informed CrossBorder that Hoy and Tian, while working for MGO, had repeatedly contacted that client to solicit its business. The client also informed CrossBorder that it had received a communication from MGO announcing Hoy and Song's arrival at MGO. (Id. ¶ 103.) After learning Defendants had solicited that confidential client's business, CrossBorder sent cease and desist letters to the Former Employees and MGO, on or about June 19, 2020. But those letters yielded no substantive responses, nor any of the assurances the letters requested. (Id. ¶ 104.)

II. Procedural Background

On June 25, 2020, CrossBorder commenced the instant action against the Former Employees, asserting claims for breach of contract, tortious interference with contract, misappropriation of trade secrets and confidential and proprietary information, violations of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. §§ 1836, et seq., breach of common law duty of loyalty, conversion, and injunctive relief. (Compl., ECF No. 1.) On June 26, 2020, the Court entered Plaintiffs' requested temporary restraining order (ECF No. 16), which the Court converted into a preliminary injunction on July 30, 2020, (ECF No. 56). On July 16, 2020, CrossBorder filed an amended complaint adding MGO as an additional defendant and asserting claims for tortious interference with contracts and business relationships, misappropriation of trade secrets and confidential and proprietary information, violations of the DTSA, and injunctive relief against all defendants. (Am. Compl., ECF No. 34.) On August 24, 2020, MGO filed its answer to the amended complaint. (ECF No. 66.) On August 24, 2020, CrossBorder voluntarily dismissed, with prejudice, all of its claims against Tian after reaching settlement. (ECF No. 67.) Tian was terminated from the instant action two days later. (ECF No. 69.)

On September 4, 2020, CrossBorder filed a letter requesting a pre-motion conference to obtain leave to file its SAC, based on its interview with Tian. (See ECF No. 71). After the Court granted CrossBorder leave to file its motion and issued a briefing schedule, (ECF No. 82), the parties filed their respective briefing on December 16, 2020: CrossBorder its notice of motion (ECF No. 85), memorandum of law in support (“Motion, ” ECF No. 86), a declaration with accompanying exhibits-including the PSAC-some of which are redacted (Taber Decl., ECF No. 88), and its reply (“Reply, ” ECF No. 90); and MGO its response in opposition (“Response in Opposition, ” ECF No. 87).

While the instant motion remained pending, on November 10, 2021, CrossBorder voluntarily dismissed, with prejudice, all of its claims against Hoy and Song after concluding arbitration. (ECF No. 150.) Hoy and Song were terminated on February 23, 2022. (ECF No. 153.)

LEGAL STANDARD

If a party seeks leave to amend a pleading, “[t]he court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a)(2). Although the standard is lenient “[r]easons for a proper denial of leave to amend include undue delay, bad faith, futility of the amendment and perhaps most important, the resulting prejudice to the opposing party.” State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981) (citing Forman v. Davis, 371 U.S. 178, 182 (1963)). Leave to amend may also be denied “on grounds of futility if the proposed amendment fails to state a...