TGG Mgmt. Co. v. Petraglia

TGG MANAGEMENT COMPANY INC. (dba TGG ACCOUNTING), Plaintiff, v. JOHN PETRAGLIA, et al., Defendants.

Case No. 19-cv-2007-BAS-KSC

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

May 28, 2020

ORDER:

(1)GRANTING BUBBLY BRANDS' MOTION TO DISMISS; AND

(2)GRANTING SASH GROUP'S MOTION TO DISMISS

[ECF Nos. 65, 69]

Plaintiff TGG Management Company, Inc. ("TGG") filed a complaint against eight Defendants: John Petraglia; Megan Zerba; Garrett Tapken; Erik Rhoades; Sayva Solutions, Inc.; Bubbly Brands, LLC; Sash Group, Inc.; and Holiday Foliage, Inc. ("Compl.," ECF No. 1.) TGG alleges, inter alia, trade secret misappropriation and violations of the Unfair Competition Law. Soon after filing its complaint, TGG filed a motion for preliminary injunction, requesting the Court enjoin Defendants from accessing or using TGG's trade secret information. ("PI Mot.," ECF No. 23.) The Court permitted TGG to engage in limited, expedited discovery for the purposes of its motion. (ECF No. 48.) The Court granted the preliminary injunction motion in part. But as relevant here, the Court denied the motion as it relates to BubblyBrands and Sash Group, finding that TGG had not sufficiently established that these Defendants misappropriated any trade secrets. (ECF No. 89, at 13.)

Now, Bubbly Brands and Sash Group move to dismiss TGG's claims against them, and in the alternative, move to compel arbitration. ("BB Mot.," ECF No. 65; "Sash Mot.," ECF No. 69.) TGG filed an opposition to the Motions, ("Opp'n," ECF No. 90), and both Defendants filed replies in support of their Motions, (ECF No. 91, ECF No. 92). The Court finds resolution of these Motions is suitable without the need for oral argument. See Civ. L.R. 7.1(d)(1). For the reasons discussed below, the Court GRANTS the Motions to Dismiss and DENIES the alternative Motions to Compel Arbitration.

I. FACTUAL BACKGROUND

The following background information is taken from the Court's order on TGG's motion for preliminary injunction. (ECF No. 89.)

Plaintiff TGG provides management accounting and business advisory services for business clients. (PI Mot. at 1.) TGG was founded in 2006 by its current CEO Matt Garrett. Over time, TGG alleges Mr. Garrett and others developed what they call "The TGG Way"— "a proven set of accounting and finance best practices, processes and procedures, specially designed electronic tools, and other trade secrets, coupled with financial guidance, to ensure the financial health and success of TGG's clients." ("Garrett Decl.," ECF No. 23-1, ¶ 9.) The TGG Way "uses an objective and measurable system for implementing accounting best practices, quality control, and client and team communications. It is at the center of TGG's brand, and is what differentiates TGG from its competition." (PI Mot. at 4.) The TGG Way and TGG's trade secrets give TGG a competitive advantage. (Id.)

Defendant John Petraglia began working for TGG in January 2016. (Garrett Decl. ¶ 41.) By virtue of his role, Petraglia had access to some of TGG's confidential trade secret information. Petraglia left TGG in April 2019 and began working for Defendant Sayva Solutions, Inc. (Id. ¶¶ 43, 45.) Similarly, Defendant Megan Zerbabegan working for TGG in June 2013, had access to trade secret information while at TGG, and now also works for Sayva. Upon their departure, both Petraglia and Zerba refused to sign TGG's Reminder of Confidentiality and Nonsolicitation form. (Id. ¶¶ 44, 48.) On Sayva's website, Petraglia is listed as the CFO of Sayva's Accounting Services and Zerba is listed as the Controller. (Id. ¶ 8.) TGG alleges "Sayva provides outsourced professional services such as accounting, specialized project consulting, and full-time recruiting services." (PI Mot. at 3.) TGG alleges that as a result of Petraglia and Zerba's actions, Sayva has built an accounting division that directly competes with TGG. (Id.)

After Petraglia and Zerba left, TGG hired the Berkeley Research Group to conduct a forensic analysis of Petraglia's and Zerba's TGG-issued laptops. (Garrett Decl. ¶ 62.) David Jiminez of Berkeley concluded that before Petraglia left TGG, he connected a personal external USB storage device to his TGG laptop and accessed various files. ("Jiminez Decl.," ECF No. 23-24 ¶ 12.) TGG analyzed the list of files Petraglia accessed and concludes, "[t]he files . . . are sweeping and include many of TGG's most valuable assets and proprietary trade secrets." (PI Mot. at 10.) Petraglia also emailed himself various TGG materials. (Id.) Zerba similarly copied TGG files onto a personal USB storage device before leaving TGG. (Jiminez Decl. ¶ 14.)

Defendants Bubbly Brands and Sash Group are former clients of TGG. After Petraglia and Zerba left TGG, these former clients began disengagement from TGG. TGG believes the entities are working with Sayva (through Petraglia and Zerba), who is likely using TGG's trade secrets to perform accounting services for the clients. Sayva agrees only that it has provided Bubbly Brands and Sash Group "periodic accounting documents that reflect the actual financial state of their respective companies" but asserts that neither it nor its employees have used TGG's proprietary material. ("Buell Decl.," ECF No. 53-4, ¶¶ 22, 25- 32.) Sash Group was working with Sayva, and it states the only documents it "received from Sayva are typical accounting documents reflecting the financial status of Sash Group." (ECF No. 52,at 4-5.) Sash Group no longer works with Sayva or any other accounting firm. (Id. at 4.) Bubbly Brands also previously used TGG (specifically, Petraglia) for its bookkeeping and accounting services. ("Urbani Decl.," ECF No. 51-1, ¶ 11.) Bubbly Brands now receives that same service from Sayva. (Id. ¶ 13.)

II. LEGAL STANDARDS

A. Motion to Dismiss

A complaint must plead sufficient factual allegations to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citations omitted). "A claim has facial plausibility when the Omega pleads factual content that allows the court to draw the reasonable inference that the Monte Vista is liable for the misconduct alleged." Id.

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pleaded in the complaint as true and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, the court is not obligated to "accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986). Nor must the court accept allegations in the complaint that are contradicted by documents the complaint references. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (citing Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).

To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A Rule 12(b)(6) dismissal may be based on either a 'lack of a cognizable legal theory' or 'the absence of sufficient facts alleged under a cognizable legal theory.'" Johnson v.Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)).

B. Motion to Compel Arbitration

The Federal Arbitration Act ("FAA") makes agreements to arbitrate "valid, irrevocable, and enforceable." 9 U.S.C. § 2. The FAA permits a "party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States District Court . . . for an order directing that . . . arbitration proceed in the manner provided for in [the arbitration] agreement." 9 U.S.C. § 4. Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. Id. "A party seeking to compel arbitration has the burden under the FAA to show (1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the agreement to arbitrate encompasses the dispute at issue." Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015)

III. ANALYSIS

Bubbly Brands and Sash Group make similar arguments in their Motions, so the Court analyzes the Motions together.

A. Motion to Dismiss

Defendants first move to dismiss TGG's misappropriation claims and UCL claim under Rule 12(b)(6).

1. Misappropriation

The Court has already found that TGG has plausibly pled it owns trade secrets. (ECF No. 89, at 9-10.) As to the alleged misappropriation of those trade secrets, under the California Uniform Trade Secrets Act ("CUTSA"), misappropriation is defined as:

(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(A) Used improper means to acquire knowledge of the trade secret; or

(B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was:

(i) Derived from or through a person who had utilized improper means to acquire it;

(ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use;

(iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his or her position knew or had reason to know that it was a trade secret and that knowledge of it had been acquired

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