Silver Fern Chemical Inc v. Lyons

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE 10 11 SILVER FERN CHEMICAL, INC., a CASE NO. 2:23-cv-00775-TL Washington corporation, 12 ORDER ON MOTION FOR Plaintiffs, 13 v. SUMMARY JUDGMENT AND MOTION TO SEAL 14 SCOTT LYONS, an individual; TROY KINTO, an individual; KING HOLMES, an 15 individual; ROWLAND MORGAN, an individual; and AMBYTH CHEMICAL 16 COMPANY, a Washington corporation, 17 Defendants. 18 SCOTT LYONS, an individual, and KING HOLMES, an individual, 19 Counterclaim Plaintiffs, 20 v. 21 SILVER FERN CHEMICAL, INC., a Washington corporation; SAM KING, an 22 individual; and LISA KING, an individual, 23 Counterclaim Defendants. 24 1 This is an action for damages and injunctive relief for the misappropriation of trade 2 secrets, breach of contract, and other related claims. This matter is before the Court on 3 Defendants’ Motion for Summary Judgment (Dkt. No. 118) and Plaintiff’s Motion to Seal (Dkt. 4 No. 128). Having reviewed the Parties’ briefing and the relevant record, the Court GRANTS IN 5 PART and DENIES IN PART the Motion for Summary Judgment and GRANTS the Motion to Seal. 6 I. BACKGROUND 7 A. Factual Background 8 1. The Sales Defendants’ Employment at Plaintiff 9 Sam and Lisa King founded Plaintiff Silver Fern Chemical, Inc., in 2004. Dkt. No. 9 10 (sealed) (King declaration) ¶ 5. Defendants Scott Lyons, Troy Kinto, and King Holmes 11 (collectively, the “Sales Defendants”) are former employees and salespeople of Plaintiff. Id. ¶ 3. 12 Defendants Lyons and Holmes joined Plaintiff in 2008 and had no experience in the chemical 13 distribution industry prior to working for Plaintiff. See Dkt. No. 132-1 (sealed) (Holmes 14 deposition) at 4 (11:20–24); Dkt. No. 132-2 (sealed) (Lyons deposition) at 4 (15:19–23); Dkt. 15 No. 9 ¶ 30. Defendant Kinto joined Plaintiff in 2014 with some prior experience and brought a 16 handful of customers to Plaintiff. Dkt. No. 9 ¶ 30. 17 When the Sales Defendants joined Plaintiff, they each signed Confidentiality Agreements 18 and acknowledgments of Plaintiff’s confidentiality policies. See Dkt. Nos. 1-2 (Lyons), 1-4 19 (Holmes), 1-6 (Kinto). Defendants Holmes and Lyons agreed to keep confidential information 20 including “the identity of our customers [and] the identity of our suppliers” as well as “details of 21 our transactions with customers and suppliers.” Dkt. No. 1-2 at 2; Dkt. No. 1-4 at 2. Defendant 22 Kinto agreed to keep confidential information including “the names, addresses, telephone 23 numbers, practices, preferences, or buying habits or plans of the Company’s customers or 24 suppliers.” Dkt. No. 1-6 at 2. 1 2 2. The Sales Defendants’ Departure from Plaintiff 3 Sometime in late 2022 to early 2023, the Sales Defendants began discussing with 4 Defendant Rowland Morgan the possibility of leaving Plaintiff to work at Defendant Ambyth 5 Chemical Company. See Dkt. No. 130-3 (Morgan deposition) at 5 (54:4–56:18). Around the 6 same time, Defendant Morgan had begun exploring the possibility of selling Defendant Ambyth, 7 which he owned. See id. (56:11–13). He was looking for sales representatives with a “book of 8 business,” as he was “not going to train someone in doing what I’m doing.” Id. at 4 (47:21– 9 48:10). Defendant Morgan talked to “all of [the Sales Defendants] together at the same time,” 10 and the idea of leaving Plaintiff “was essentially . . . the brain idea of this coalition.” Id. (54:4– 11 17). The Sales Defendants also discussed their plans to leave Plaintiff with each other. See Dkt. 12 Nos. 130-4, 130-5 (text messages). And in January and February 2023, Defendant Holmes 13 created spreadsheets with information about the customers he had serviced at Plaintiff, including 14 the types of products they bought and their points of contact. See Dkt. No. 132-1 at 8 (45:12– 15 47:14), 8–9 (48:24–52:20). 16 On March 24, 2023, Defendant Morgan offered jobs to the Sales Defendants—the same 17 day they all had dinner at a conference in Texas. See Dkt. No. 132-1 at 7 (33:19–35:1). At least 18 Defendant Holmes “had a pretty good feeling” in advance that the conference dinner would 19 include discussion of potential employment at Defendant Ambyth. See id. (34:20–35:1). When 20 Defendant Morgan offered the jobs, his “expectation” was that the Sales Defendants “would 21 bring a portion of their book of business with them to [Defendant] Ambyth.” Dkt. No. 130-3 at 6 22 (66:20–67:14). 23 Following the job offers, the Sales Defendants continued to discuss their departure with 24 each other. See Dkt. Nos. 130-6, 130-7, 130-8 (text messages); see also Dkt. No. 132-2 (sealed) 1 (Lyons deposition) at 6 (87:9–88:12). On April 6, 2023, Defendant Holmes modified a 2 spreadsheet (distinct from the ones created in 2023) that contained information related to one of 3 his customers. See Dkt. No. 132-1 at 11–12 (58:15–61:18). 4 Between April 14 and 15, 2023, the Sales Defendants accepted job offers with Defendant 5 Ambyth. See Dkt. No. 30 at 12–20 (offer letters). On April 17, 2023, the Sales Defendants sent 6 emails to Plaintiff’s leadership and their colleagues, announcing their resignations effective as of 7 April 14. Dkt. No. 9 ¶ 65. 8 Between January 17 and April 17, 2023, the Sales Defendants attempted to permanently 9 delete thousands of items from their Microsoft Outlook mailboxes. See Dkt. No. 11 (sealed) 10 (Polus declaration) ¶¶ 14, 25, 31; see also Dkt. No. 130-9 (Polus deposition) at 4 (“[F]or all three 11 users to have the same deletions, access, separate date would suggest a collaboration, you know, 12 in my experience doing these kinds of analyses.”). Counsel for Plaintiff asserts that Plaintiff 13 incurred costs from Consilio, a forensic specialist, for “investigation and remediation” related to 14 these deletions. Dkt. No. 132 (sealed) (Boyd declaration) ¶¶ 12–13, 23; Dkt. Nos. 130-11, 130- 15 12 (invoices). 16 3. The Sales Defendants’ Activities at Defendant Ambyth 17 After their departure from Plaintiff and in their new employment with Defendant 18 Ambyth, the Sales Defendants had communication with various customers they had serviced at 19 Plaintiff. Defendant Holmes solicited business from at least two prior customers, whose specific 20 chemical needs he learned from his time working at Plaintiff. See Dkt. No. 132-1 at 13–14 21 (71:3–72:10, 73:12–19), 19 (142:4–23). Similarly, Defendant Lyons contacted multiple prior 22 customers with references to products sold to them while he was at Plaintiff. See Dkt. No. 132-2 23 at 8 (117:1–119:10), 10 (148:2–14), 11–12 (156:15–158:2), 13 (161:4–163:8); see also Dkt. 24 No. 132-5 (sealed) at 2 (email from Defendant Lyons to customer dated April 19, 2023); Dkt. 1 No. 132-6 (sealed) at 3 (email from Defendant Lyons to customer dated April 18, 2023). 2 Defendant Lyons also initiated contact with other prior customers, though what specific 3 information was discussed is not in the record. See, e.g., Dkt. No. 132-2 at 14–15 (172:19– 4 173:1), 15 (175:11–22). 5 4. The Beaton Report 6 In response to an interrogatory regarding its claims for damages, Plaintiff identified an 7 expert report by Neil J. Beaton. See Dkt. No. 119-1 (supplemental response and objections) at 4; 8 Dkt. No. 119-2 (the “Beaton Report”). Mr. Beaton “calculated lost profits damages to [Plaintiff] 9 under the assumption that Defendants wrongfully used [Plaintiff’s] trade secrets and confidential 10 information to cause [Plaintiff’s] customers to leave [Plaintiff] and transact with [Defendant] 11 Ambyth.” Dkt. No. 119-2 ¶ 5; see also Dkt. No. 119-3 (Beaton deposition) at 5 (11:21–22) (“I’m 12 making the assumption that – that business was diverted by the defendants.”). 13 In his deposition, Mr. Beaton declined to make a conclusion about causation. Dkt. 14 No. 119-3 at 8 (14:24) (“I won’t be opining on causation, no.”). Mr. Beaton also clarified that he 15 did not investigate other reasons for lost customers, or whether Defendants had prior 16 relationships with the lost customers.1 See id. at 6 (12:16–18), 7 (13:16–25), 11 (17:5–19). He 17 did not account for whether Defendant Ambyth gained any business from the lost customers, and 18 he did not allocate responsibility for damages among the individual Defendants. See id. at 8–11 19 (14:2–15:8, 15:19–17:4). 20 21 22 23 1 Sam King, Plaintiff’s designee under Federal Rule of Civil Procedure 30(b)(6), testified that he did not have any personal knowledge of the reasons why lost customers moved their business from Plaintiff to Defendant Ambyth. 24 See Dkt. No. 119-4 at 8–9 (36:23–37:2). 1 B. Procedural History 2 On May 24, 2023, Plaintiff commenced this action and simultaneously moved for a 3 temporary restraining order (“TRO”). Dkt. Nos. 1, 3. On June 2, the motion for TRO was denied, 4 though a request to reconsider that decision remains pending. Dkt. No. 40; see also Dkt. No. 151 5 at 6–7 (reserving decision). On December 19, Defendant’s motion to dismiss the Complaint was 6 granted in part and denied in part, and on February 15, 2024, a Second Amended Complaint was 7 ultimately filed. Dkt. Nos. 70, 84 (sealed). Defendants now move for summary judgment on all 8 claims. Dkt. No. 118; see also Dkt. No. 140 (reply). Plaintiff opposes. Dkt. No. 131 (sealed). 9 II. MOTION FOR SUMMARY JUDGMENT 10 A. Legal Standard 11 Summary judgment is appropriate where “the movant shows that there is no genuine 12 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 13 Civ. P. 56(a). A genuine issue of material fact exists where “the evidence is such that a 14 reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 15 477 U.S. 242, 248 (1986). The inquiry turns on “whether the evidence presents a sufficient 16 disagreement to require submission to a jury or whether it is so one-sided that one party must 17 prevail as a matter of law.” Id. at 251–52. 18 The court must draw all justifiable inferences in favor of the non-movant. Id. at 255. The 19 court does not make credibility determinations or weigh evidence at this stage. Munden v. 20 Stewart Title Guar. Co., 8 F.4th 1040, 1044 (9th Cir. 2021); see also Lujan v. Nat’l Wildlife 21 Fed’n, 497 U.S. 871, 888 (1990) (“[W]here the facts specifically averred by [the non-moving] 22 party contradict facts specifically averred by the movant, the [summary judgment] motion must 23 be denied.”). 24 1 If the non-movant bears the burden of proof at trial, the movant only needs to show an 2 absence of evidence to support the non-movant’s case. In re Oracle Corp. Sec. Litig., 627 F.3d 3 376, 387 (9th Cir. 2010) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Once such a 4 showing is made, the burden shifts to the non-movant to show more than the mere existence of a 5 scintilla of evidence in support of its case—the party must show sufficient evidence that a jury 6 could reasonably find for the non-movant. Id. (citing Anderson, 477 U.S. at 252). Even if the 7 non-movant does not have the burden of proof at trial, it must nonetheless show that a genuine 8 issue of material fact exists by presenting evidence in its favor. F.T.C. v. Stefanchik, 559 F.3d 9 924, 929–30 (9th Cir. 2009) (affirming summary judgment for plaintiff where defendants failed 10 to show significantly probative evidence to dispute plaintiff’s evidence). 11 In short, the Federal Rules of Civil Procedure “mandate[] the entry of summary 12 judgment, after adequate time for discovery and upon motion, against a party who fails to make a 13 showing sufficient to establish the existence of an element essential to that party’s case, and on 14 which that party will bear the burden of proof at trial.” Celotex Corp., 477 U.S. at 322 (citing 15 Fed. R. Civ. P. 56(c)). 16 B. Discussion 17 Defendants move for summary judgment on all claims. Dkt. No. 118 at 11–24. 18 Defendants primarily argue that Plaintiff has not shown that any of the alleged conduct caused 19 damage to Plaintiff. Id. at 12–24. Defendants also argue that the individual Defendants should be 20 dismissed because Plaintiff does not show damages attributable to any individual Defendant. Id. 21 at 12. Plaintiff opposes. Dkt. No. 131 at 20–32. 22 23 24 1 1. Causation of Damages 2 a. Computer Fraud and Abuse Act (“CFAA”) 3 Plaintiff brings a CFAA claim against Defendants Lyons, Kinto, and Holmes. Dkt. 4 No. 84 ¶¶ 131–136. The Sales Defendants argue that Plaintiff has not produced evidence of 5 damages from alleged violations of the CFAA, as any deleted emails were recovered and there is 6 no evidence that the deletion of emails resulted in a reduction in business. See Dkt. No. 118 at 7 13. Plaintiff responds that it suffered damages in the form of “restoration and investigation 8 costs.” Dkt. No. 131 at 30; see id. at 29–30. 9 “Whoever knowingly causes the transmission of a program, information, code, or 10 command, and as a result of such conduct, intentionally causes damage without authorization, to 11 a protected computer” is liable under the CFAA. 18 U.S.C. § 1030(a)(5)(A). “Any person who 12 suffers damage or loss by a reason of a violation of [18 U.S.C. § 1030]” may bring a civil action 13 for “compensatory damages” and injunctive or other equitable relief. 18 U.S.C. § 1030(g). 14 “[T]he term ‘damage’ means any impairment to the integrity or availability of data, a 15 program, a system, or information.” 18 U.S.C. § 1030(e)(8). The material at issue need not be 16 permanently lost. See United States v. Keys, 703 F. App’x 472, 475 (9th Cir. 2017) (affirming 17 denial of jury instruction that “information altered by a defendant was not damaged under the 18 CFAA, if the original version was not permanently lost”). Finally, “the term ‘loss’ means any 19 reasonable cost to any victim, including the cost of responding to an offense, conducting a 20 damage assessment, and restoring the data, program, system, or information to its condition prior 21 to the offense, and any revenue lost, cost incurred, or other consequential damages incurred 22 because of interruption of service.” 18 U.S.C. § 1030(e)(11). “Thus, while ‘damage’ covers harm 23 to data and information, ‘loss’ refers to monetary harms sustained by the plaintiff.” NovelPoster 24 1 v. Javitch Canfield Grp., 140 F. Supp. 3d 954, 961 (N.D. Cal. 2014) (citing Phillips v. Ex’r of 2 Est. of Arnold, No. C13-444, 2013 WL 4458790, at *4 (W.D. Wash. Aug. 16, 2013)). 3 Here, the Court finds that Plaintiff has produced evidence that the Sales Defendants 4 “cause[d] damage” to its data by deleting emails without authorization. 18 U.S.C. 5 § 1030(a)(5)(A). Defendant Holmes deleted 10,908 items from his work email account with 6 Plaintiff, while Defendant Kinto deleted 2,544 items and Defendant Lyons deleted 2,281 items. 7 See Dkt. No. 11 ¶¶ 14, 25, 31. The Sales Defendants do not dispute that the emails were 8 temporarily (if not permanently) deleted. See Dkt. No. 119 at 13. 9 In addition, the Court finds that Plaintiff has produced evidence that it suffered a “loss” in 10 “conducting a damage assessment.” 18 U.S.C. § 1030(e)(11). Plaintiff provides “the invoices it 11 paid for investigation,” and the Sales Defendants do not dispute that Plaintiff provided those 12 invoices during discovery. Dkt. Nos. 130-11, 130-12 (listing services for “internal 13 investigation”); see also Dkt. No. 132 ¶ 23. Moreover, contrary to the Sales Defendants’ 14 assertion (see Dkt. No. 140 at 10–11), the emails were not discovered as part of “routine 15 services.” Plaintiff retained Consolio to provide services that it routinely offers to investigate 16 departed employees, but Plaintiff was not conducting a routine investigation. Rather, Plaintiff 17 hired Consolio specifically to investigate the departure of the three Sales Defendants. See Dkt. 18 No. 141-4 (Polus deposition) at 5 (14:2–14) (“We were told that some individuals had left 19 [Plaintiff] and that they wanted our . . . departed employee protocol or product . . . .”). 20 However, the Court finds that Plaintiff has not produced any evidence that it suffered a 21 “loss” for “restoring the data” deleted by the Sales Defendants. The same Consolio invoices do 22 not identify any restoration services. See Dkt. Nos. 130-11, 130-12. In a declaration, counsel for 23 Plaintiff asserts that the basis for the “investigation and remediation” loss are the invoices. Dkt. 24 1 No. 132 ¶ 23 (emphasis added). But the invoices list the engagement solely as “Internal 2 Investigation” with no mention of remediation. Dkt. Nos. 130-11, 130-12. 3 Finally, the Sales Defendants argue that Plaintiff fails to show that the deletion of emails 4 lead to a reduction in business. Dkt. No. 118 at 13 (citing Czech v. Wall St. on Demand, Inc., 674 5 F. Supp. 2d 1102, 1113 (D. Minn. 2009)). This argument is easily dispatched, as the plain text of 6 the CFAA authorizes “compensatory damages” for “any reasonable cost to any victim, including 7 the cost of . . . conducting a damage assessment.” 18 U.S.C. §§ 1030(e)(11), (g). Revenue lost 8 (assuming this is what Defendants consider a reduction in business) is just one example in a list 9 of types of loss (connected by the disjunctive term “or”) that are contemplated by the statute and 10 is, therefore, clearly not required to show loss. 18 U.S.C. § 1030(e)(11). Moreover, in Czech, the 11 plaintiff—who sued the defendant after receiving unwanted text messages—alleged “loss” based 12 on information alleged obtained from her cell phone (i.e., “that the wireless number is active, the 13 general geographic area where the user is located (via the [recipient’s area code]), and that future 14 text messages can be sent to that active wireless number”). 674 F. Supp. 2d at 1104, 1114. The 15 court held that plaintiff could not plausibly allege a cost from the discovery of such information, 16 assuming information was obtained at all. See id. at 1114. Here, in contrast, Plaintiff has alleged 17 costs in the form of an investigation. 18 Therefore, as to Plaintiff’s CFAA claim, Defendants’ motion is GRANTED IN PART as to 19 restoration costs and DENIED IN PART as to investigation costs. 20 b. Defend Trade Secrets Act (“DTSA”) and Washington Uniform Trade Secrets Act (“WUTSA”) 21 Plaintiff brings DTSA and WUTSA claims against all Defendants. Dkt. No. 84 ¶¶ 150– 22 63 (DTSA), 164–77 (WUTSA). Defendants argue that Plaintiff has not produced “any evidence 23 showing that misappropriation of [alleged trade secrets] caused the business losses identified in 24 1 Beaton’s report.” Dkt. No. 118 at 15; see id. at 14–17 (DTSA), 17–18 (WUTSA). In response, 2 Plaintiff argues that Defendants disclosed Plaintiff’s confidential customer list and used it to 3 solicit customers. See Dkt. No. 131 at 24–28. Notably, for purposes of this motion, Defendants 4 “do not dispute” that the categories of information identified by the Court in its Order on 5 Defendants’ Motion to Dismiss “could be DTSA-protected trade secrets.”2 Dkt. No. 118 at 15; 6 see Dkt. No. 70 (order) at 11–12. Given that Defendants do not move for summary judgment on 7 the grounds that Plaintiff’s alleged trade secrets are not actually trade secrets (despite significant 8 argument from both Parties on this point), the sole issue before the Court is whether there is 9 evidence that the alleged trade secrets have been misappropriated. 10 Under both the DTSA and WUTSA, trade secret “misappropriation” is defined as the 11 “acquisition” of a trade secret, 18 U.S.C. § 1839(5)(A), RCW 19.108.010(2)(a), or the 12 “disclosure or use” of a trade secret, 18 U.S.C. § 1839(5)(B), RCW 19.108.010(2)(b). A plaintiff 13 is entitled to certain damages “caused by” such misappropriation. 18 U.S.C. § 1836(b)(3)(B); 14 RCW 19.108.030(1). Under WUTSA, damages can be for either “actual loss” or “unjust 15 enrichment.” RCW 19.108.030(1). Misappropriation may be proven by “circumstantial as well 16 as direct evidence.” Brocade v. Commc’ns Sys., Inc. v. A10 Networks, Inc., 873 F. Supp. 2d 17 1192, 1215–1216 (N.D. Cal. 2012) (citing UniRAM Tech., Inc. v. Taiwan Semiconductor Mfg. 18 Co., 617 F. Supp. 2d 938, 944 (N.D. Cal. 2007)); see also Modumetal, Inc. v. Xtalic Corp., 4 Wn. 19 App. 2d 810, 824, 425 P.3d 871 (2018) (“Misappropriation of trade secrets can be notoriously 20 difficult to prove: . . . ‘In most cases plaintiffs must construct a web of perhaps ambiguous 21 circumstantial evidence from which the trier of fact may draw inferences which convince him 22 23 2 Still, Defendants argue that to the extent Plaintiff asserts that mere “relationships with customers and vendors” are trade secrets, the claim should fail. See Dkt. No. 118 at 15–17. In response, Plaintiff asserts that its alleged trade 24 secret is “its confidential customer list.” Dkt. No. 131 at 22; see id. at 21–24. 1 that it is more probable than not that what plaintiffs allege happened did in fact take place.’” 2 (quoting Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1231 (W.D.N.Y. 1994))). “A former 3 employee misappropriates an employer’s trade secrets by soliciting customers from a 4 confidential customer list that has independent value, because its contents are unknown and 5 subject to reasonable efforts to keep secret.” Guidance Res., LLC v. Mangrio, 1 Wn. App. 2d 6 1048, 2017 WL 6452421, at *7 (2017). 7 Here, the Court finds that Plaintiff has produced sufficient evidence to create a genuine 8 dispute of material fact as to whether Defendants misappropriated trade secrets. 9 Defendant Holmes testified that he expected to bring some of his prior customers to 10 Defendant Ambyth, and Defendant Morgan testified to the same expectation. See Dkt. No. 132-1 11 at 5–6 (28:16–29:12); 130-3 at 6 (66:20–67:14). While still working at Plaintiff, the Sales 12 Defendants communicated with each other about their pending departure. See, e.g., Dkt. 13 No. 130-8 at 2 (Defendant Holmes: “When we give notice we need to be hitting the phones big 14 time. . . . FYI, there is a chance our phones could be subpoena’d if this gets ugly.”); Dkt. 15 No. 130-6 at 2 (Defendant Holmes: “Having a huge day and it’s just pissing me off. Do you 16 think I can tell folks to push back their orders? Damnit!”); Dkt. No. 130-7 at 2 (Defendant Kinto: 17 “[O]ne thing we all need to be careful of is that we’ve been sharing all this info with each other. 18 That violates the agreements we signed.”). Defendant Holmes also created spreadsheets 19 containing information about customers and their specific needs—spreadsheets that were 20 modified or accessed after accepting a job at Defendant Ambyth or even after leaving Plaintiff. 21 See Dkt. No. 132-1 at 8 (45:12–47:14), 8–9 (48:24–52:20), 11–12 (58:15–61:18), 15 (93:7–18). 22 Defendants Holmes and Lyons also testified to conducting business with various prior 23 customers after leaving Plaintiff and joining Defendant Ambyth. See, e.g., Dkt. No. 132-1 at 15 24 (94:13–95:15), 16 (99:16–22), 20 (148:9–16); Dkt. No. 132-2 at 7–8 (116:24–119:10); see also 1 Dkt. No. 132-4 at 3 (email from Defendant Lyons to customer dated April 17, 2023). Defendant 2 Holmes testified that he solicited business from at least two of those customers while also 3 acknowledging that he knew their specific chemical needs from his time working at Plaintiff. See 4 Dkt. No. 132-1 at 13–14 (71:3–72:10, 73:12–19), 19 (142:4–23). Similarly, Defendant Lyons 5 contacted multiple prior customers with references to products sold to them while he was at 6 Plaintiff. See Dkt. No. 132-2 at 8 (117:1–119:10), 10 (148:2–14), 11–12 (156:15–158:2), 13 7 (161:4–163:8); see also Dkt. No. 132-5 (sealed) at 2 (email from Defendant Lyons to customer 8 dated April 19, 2023); Dkt. No. 132-6 (sealed) at 3 (email from Defendant Lyons to customer 9 dated April 18, 2023). 10 Finally, experts for both Plaintiff and Defendants have calculated some amount of 11 damage in lost profits.3 See Dkt. No. 119-2 at 10; Dkt. No. 130-18 at 4 (159:11–15). And 12 Plaintiff has identified numerous customers doing business with Defendant Ambyth that had not 13 done so prior to the departure of the Sales Defendants, see Dkt. No. 132-10 (sealed) (list of 14 customers), with Defendants’ own expert identifying 76 of Plaintiff’s customers doing business 15 with Defendant Ambyth that had never done business with it prior to the Sales Defendants 16 joining it. See Dkt. No. 132-10 (sealed) (Schedule 6 to Barrick Report). From those 76 new 17 customers, Defendant Ambyth realized approximately $7.8 million in total sales. See Dkt. 18 Nos. 132-8 (sealed) (Defendant Ambyth’s sales by customer, January–April 2024), 132-9 19 (sealed) (Defendant Ambyth’s sales by customer, January–December 2023), 132-10. 20 To be sure, it would not be enough for Plaintiff to point to the Sales Defendants’ mere 21 defection to Defendant Ambyth, or even the Sales Defendants’ announcement of their new 22 employer to their prior customers. See MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511, 521 23 3 Thus, the Court need not reach the Parties’ arguments regarding unjust enrichment as an alternative basis for 24 damages. 1 (9th Cir. 1993) (“Merely informing a former employer’s customers of a change of employment, 2 without more, is not solicitation.”); Ed Nowogroski Ins., Inc. v. Rucker, 137 Wn.2d 427, 437, 971 3 P.2d 936 (1999) (“As a general rule, an employee who has not signed an agreement not to 4 compete is free, upon leaving employment, to engage in competitive employment.”). Some of 5 the evidence produced by Plaintiff could be interpreted by a reasonable jury as customers simply 6 choosing to continue their relationship with the Sales Defendants upon learning of their new 7 employment. 8 But as detailed above, Plaintiff has gone beyond that, and the Sales Defendants still owed 9 Plaintiff a duty not to misappropriate trade secrets. See MAI Sys., 991 F.2d at 521 10 (“[M]isappropriation occurs if information from a customer database is used to solicit 11 customers.” (emphasis in original)); Nowogroski, 137 Wn.2d at 437 (“[T]he former employee, 12 even in the absence of an enforceable covenant not to compete, remains under a duty not to use 13 or disclose, to the detriment of the former employer, trade secrets acquired in the course of 14 previous employment.”). Here, a reasonable jury could also conclude that the Sales Defendants 15 used Plaintiff’s confidential customer list to solicit business from their prior customers for at 16 least the 76 customers with whom Defendant Ambyth had no relation prior to hiring the Sales 17 Defendants. Defendants may be able to challenge some, much, or all of that evidence at trial in 18 various ways. But on a motion for summary judgment, the Court must draw all justifiable 19 inferences in favor of the non-movant and cannot find that the evidence presented is so one-sided 20 that Defendants must prevail as a matter of law. 21 Therefore, as to Plaintiff’s DTSA and WUTSA claims, Defendants’ motion is DENIED. 22 c. Breach of Contract 23 Plaintiff brings a breach of contract claim against Defendants Lyons, Kinto, and Holmes. 24 Dkt. No. 84 ¶¶ 137–42. The Sales Defendants acknowledge that Plaintiff’s breach of contract 1 claim is based on the confidentiality agreements executed by Defendants Holmes, Lyons, and 2 Kinto. See Dkt. No. 118 at 19. The Sales Defendants argue that Plaintiff “has not produced any 3 evidence to show that the alleged reduced profits resulted from the improper use or disclosure of 4 any confidential information.” Id.; see also id. at 19–22. In response, Plaintiff argues that 5 Defendant Kinto admitted that the Sales Defendants breached their confidentiality agreements 6 and that a jury could find that those breaches led to lost profits and unjust enrichment. See Dkt. 7 No. 131 at 30–31. 8 A claim for breach of contract requires proof of three elements: (1) existence of a 9 contract; (2) breach of that contract; and (3) damages. See Univ. of Wash. v. Gov’t Emps. Ins. 10 Co., 200 Wn. App. 455, 467, 404 P.3d 559 (2017). 11 Here, for similar reasons discussed above, see supra Section III.B.1.b, the Court finds 12 that Plaintiff has produced sufficient evidence to create a genuine dispute of material fact that its 13 reduced profits resulted from the Sales Defendants’ breach of their confidentiality agreements. 14 There is evidence in the record that the Sales Defendants used, at least in some cases, information 15 about prior customers and their specific needs to solicit new business at Defendant Ambyth, which 16 may be in violation of their confidentiality agreements. See Dkt. Nos. 1-2, 1-4, 1-6. 17 Therefore, as to Plaintiff’s breach of contract claim, Defendants’ motion is DENIED. 18 d. Duty of Loyalty and Confidentiality 19 Plaintiff brings a claim for “breach of duties of loyalty and confidentiality” against 20 Defendants Lyons, Kinto, and Holmes. Dkt. No. 84 ¶¶ 143–49. The Sales Defendants argue that 21 even if there were evidence of use of confidential information in violation of the duty of 22 confidentiality, Plaintiff provides no evidence that any alleged use or disclosure caused reduction 23 in profits identified by Beaton. See Dkt. No. 118 at 22. Similarly, the Sales Defendants argue that 24 even if they solicited customers during their employment with Plaintiff (as required for a breach 1 of the duty of loyalty), Plaintiff provides no evidence of causation. See id. at 22–23. In response, 2 Plaintiff echoes its arguments in support of its claim for breach of contract. See Dkt. No. 131 at 3 31. Plaintiff also points to deposition testimony and text messages by Defendant Holmes. Id.; see 4 Dkt. No. 132-1 at 17–18 (103:5–107:8), 20 (148:9–14); Dkt. No. 130-6. 5 “Common law agency doctrine is relevant to all employment relationships as it defines, 6 among other things, the duties that the employer and employee owe to each other. In such a 7 relationship, the employee or ‘agent’ owes fiduciary duties to the employer or ‘principal.’” 8 Steven Cole Salon, LLC v. Salon Lotus, 148 Wn. App. 1036, 2009 WL 309196, at *5 (2009). 9 “One of these fiduciary duties is the ‘duty to act loyally for the principal's benefit in all matters 10 connected with the agency relationship.’” Id. (quoting Restatement (Third) of Agency § 8.01). 11 “This duty prevents a current employee from competing with the employer or assisting others to 12 compete with the employer.” Id. (citing Restatement (Third) of Agency § 8.04); see also 13 Kieburtz & Assocs., Inc. v. Rehn, 68 Wn. App. 260, 265, 842 P.2d 985 (1992) (“During the 14 period of his or her employment, an employee is not ‘entitled to solicit customers for [a] rival 15 business . . .’ or to act in direct competition with his or her employer’s business.” (quoting 16 Restatement (Second) of Agency § 393 cmt. e (1958))). This duty “also prevents an employee 17 from the using the employer’s property, including confidential information, for the employee’s 18 or another’s purposes.” Steven Cole Salon, 2009 WL 309196, at *5 (citing Restatement (Third) 19 of Agency § 8.05); accord USI Ins. Servs. Nat’l, Inc. v. Ogden, 371 F. Supp. 3d 886, 898–99 20 (W.D. Wash. 2019). 21 Here, the Court finds that Plaintiff has produced sufficient evidence to create a genuine 22 dispute of material fact that Defendants Holmes and Lyons either solicited customers or acted in 23 direct competition with Plaintiff’s business, or used confidential information for their own 24 purposes, while Plaintiff still employed them. Plaintiff cites deposition testimony from 1 Defendant Holmes that he was in contact with a customer on April 13, 2023, while still working 2 for Plaintiff (see Dkt. No. 132-1 at 17–18 (103:5–107:8)) and that he once said to Defendants 3 Lyons and Kinto, “Do you think I can tell folks to push back their orders?” (Dkt. No. 130-6 at 2). 4 See Dkt. No. 131 at 31. In his testimony, Defendant Holmes also refers to “one of the call-me- 5 back-on-Monday emails,” suggesting that he may have asked the same customer (in addition to 6 others) to wait for his new employment at Defendant Ambyth to continue discussions. Dkt. 7 No. 132-1 at 17 (104:10–11) (emphasis added). Finally, Plaintiff provides an email from 8 Defendant Lyons to a customer on April 17, 2023, in which he writes, “I appreciate the email” 9 (suggesting the customer had emailed him before then) as well as “[L]et me know if we need to 10 get refreshed numbers for import,” all of which could support a finding that an order was 11 delayed. Viewing this evidence in the light most favorable to Plaintiff, it can be read to show that 12 Defendants Holmes and Lyons delayed orders, causing Plaintiff to lose the revenue it would 13 have earned from them. 14 As to Defendant Kinto, his own text message suggests that the Sales Defendants breached 15 the confidentiality agreements they signed while still employed at Plaintiff. See Dkt. No. 130-7 16 at 2 (Defendant Kinto cautioning Defendants Holmes and Lyons that their sharing of “all this 17 info . . . violates the agreements we signed”). However, the Court also finds that Plaintiff has 18 produced no evidence that Defendant Kinto used confidential information while still employed 19 there, delayed orders, or otherwise solicited customers before leaving for Defendant Ambyth. 20 Therefore, as to Plaintiff’s claim for breach of duty of loyalty and confidentiality, 21 Defendants’ motion is DENIED IN PART as to Defendants Holmes and Lyons and GRANTED IN 22 PART as to Defendant Kinto. 23 24 1 e. Tortious Interference with Contract 2 Finally, Plaintiff brings one claim for tortious interference against all Defendants and one 3 claim for tortious interference against only Defendants Morgan and Ambyth. Dkt. No. 84 4 ¶¶ 178–83 (all Defendants), 184–89 (Morgan and Ambyth). As to the claim against all 5 Defendants, Defendants argue that it “suffers from the same deficit discussed at length above— 6 the complete absence of any evidence showing that any alleged unlawful use of [Plaintiff’s] 7 confidential or trade secret information caused the reductions in business from the customers in 8 question.” Dkt. No. 118 at 24; see id. at 23–24. As to the claim against Defendants Morgan and 9 Ambyth, Defendants argue similarly that there is no evidence that use of confidential and trade 10 secret information caused Plaintiff’s alleged damages. See Dkt. No. 118 at 24. In response, 11 Plaintiff argues that Defendants Morgan and Ambyth committed tortious interference, evidenced 12 by Defendant Morgan’s testimony that he hired the individual Defendants for their ability to 13 bring Plaintiff’s customer list with them. See Dkt. No. 131 at 31–32. 14 “Tortious interference has five elements: (1) business relationship/expectancy; 15 (2) defendant’s knowledge of relationship; (3) intentional interference resulting in termination of 16 relationship; (4) improper purpose/means; and (5) damages.” Woods View II, LLC v. Kitsap 17 Cnty., 188 Wn. App. 1, 29–30, 352 P.3d 807 (2015) (citing Pac. Nw. Shooting Park Ass’n v. City 18 of Sequim, 158 Wn.2d 342, 351, 144 P.3d 276 (2006)); accord United Fed’n of Churches, LLC v. 19 Johnson, 598 F. Supp. 3d 1084, 1098 (W.D. Wash. 2022). 20 Here, for the reasons discussed in the prior sections, the Court finds that Plaintiff has 21 produced sufficient evidence to create a genuine dispute of material fact that its reduced profits 22 resulted from Defendants’ tortious interference. As to the claim against all Defendants, Plaintiff 23 has produced evidence that Defendants misappropriated trade secrets, which caused damage in 24 the form of lost profits from customers who ended business with Plaintiff and began business 1 with Defendant Ambyth. See supra § III.B.1.b. Further, as to the claim against Defendants 2 Morgan and Ambyth, Plaintiff has produced evidence that Defendant Morgan approached 3 Defendants Lyons, Kinto, and Holmes about their hire while they were still employed at Plaintiff 4 and ultimately hired them with the expectation that they would bring a portion of their business 5 with them. See Dkt. No. 130-3 at 5 (54:4–56:22), 6 (66:20–67:14). 6 Therefore, as to Plaintiff’s claims of tortious interference, Defendants’ motion is DENIED. 7 2. Attribution to Individual Defendants 8 Finally, Defendants argue that Plaintiff “cannot prove the amount of damages caused by 9 any of the individual Defendants’ alleged conduct.” Dkt. No. 118 at 12. Defendants contend that 10 Plaintiff’s alleged damages “are not a single, indivisible harm” but rather “rooted in alleged 11 reductions in business from discrete customers” such that “[e]ach individual Defendant . . . can 12 be liable only for the loss in business from the specific customers that he is alleged to have 13 interacted with improperly.” Id. In response, Plaintiff points out that Defendants are joint 14 intentional tortfeasors, so it is not required to produce individual attribution of damages. See Dkt. 15 No. 131 at 28–29. 16 Here, the Court finds that Plaintiff is not required to calculate damages attributable to 17 each defendant. See Brocade, 873 F. Supp. 2d at 1218 (“Although the damages expert has not 18 apportioned damages to each individual defendant, this is not fatal to Plaintiffs’ claims and does 19 not compel granting summary judgment in favor of Defendants.”). After all, “[i]t does appear 20 that trade secret misappropriation is considered an intentional tort, and thus joint tortfeasors are 21 jointly and severally liable.” Id. at 1217 (citing Clark v. Bunker, 453 F.2d 1006, 1011 (9th Cir. 22 1972)); see also Compulife Software, Inc. v. Newman, 111 F.4th 1147, 1164 (11th Cir. 2024) 23 (concluding that under Florida law, defendants may be jointly and severally liable for trade 24 secret misappropriation); 4 Milgrim on Trade Secrets § 15.02(3)(h) (2024) (“Joint and several 1 liability appears reasonable where the degree of wrong is the same among the several 2 defendants.”). To that end, Plaintiff has produced evidence that the Sales Defendants coordinated 3 their departure from Plaintiff, met jointly with Defendant Morgan to discuss their potential 4 employment, continued to discuss their departure after receiving a job offer from Defendant 5 Ambyth, and ultimately started their new employment on the same day. See Dkt. Nos. 130-4, 6 130-5, 130-6, 130-7, 130-8; Dkt. No. 132-1 at 7 (33:19–35:1); Dkt. No. 132-2 at 6 (87:9–88:12). 7 And separately, Defendant Ambyth will be vicariously liable for any misappropriation 8 committed by the Sales Defendants as its employees should Plaintiff prove it UTSA claim. See 9 Thola v. Henschell, 140 Wn. App. 70, 78, 164 P.3d 524 (2007) (“[O]ne may violate the UTSA 10 vicariously and be held responsible for such violation.”). 11 Therefore, as to joint liability, Defendants’ motion is DENIED. 12 III. MOTION TO SEAL 13 A. Legal Standard 14 There is a strong presumption of public access to court-filed documents. Local Civil Rule 15 (“LCR”) 5(g); accord Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 16 2006). A party seeking to seal records related to motions that are dispositive or otherwise “more 17 than tangentially related to the merits of a case” must “meet the high threshold of showing that 18 ‘compelling reasons’ support secrecy.” See Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 19 1092, 1098–99 (9th Cir. 2016); Kamakana, 447 F.3d at 1180. However, if the motion is non- 20 dispositive and only tangentially related to the merits of a case, a party need only make a 21 showing of “good cause” under Federal Rule of Civil Procedure 26(c). Ctr. for Auto Safety, 809 22 F.3d at 1101. 23 24 1 B. Discussion 2 Plaintiff moves to seal its opposition to Defendants’ motion (Dkt. Nos. 131 (sealed), 129 3 (redacted)), as well as a supporting declaration and certain supporting exhibits (Dkt. Nos. 132 4 (sealed), 130 (redacted)). See Dkt. No. 128. Defendants join or do not oppose all of Plaintiff’s 5 requests while offering arguments specifically in support of sealing Exhibits 19 and 20. Dkt. 6 No. 146. 7 The Court finds that Plaintiff has demonstrated compelling reasons to maintain the above 8 materials under seal. All of Plaintiff’s redactions or sealed documents contain either specific 9 customer identities or confidential information, which this Court has already held to be material 10 that may be kept under seal. See Dkt. No. 52 at 4–5. Moreover, Plaintiff’s sealing requests are 11 narrowly tailored, as the redactions are minimal and the few documents sealed in their entirety 12 are comprised entirely of confidential customer lists and/or financial information. 13 Therefore, Plaintiff’s motion is GRANTED. 14 IV. CONCLUSION 15 Accordingly, it is hereby ORDERED: 16 (1) Defendants’ Motion for Summary Judgment (Dkt. No. 118) is GRANTED IN PART 17 and DENIED IN PART. 18 (a) Plaintiff’s claim for CFAA restoration damages is DISMISSED. 19 (b) Plaintiff’s claim for breach of the duty of loyalty and confidentiality 20 against Defendant Kinto is DISMISSED. 21 (c) In all other respects, the motion is DENIED. 22 (2) Plaintiff’s Motion to Seal (Dkt. No. 128) is GRANTED. 23 (3) The Parties SHALL meet and confer and file a joint status report within thirty (30) 24 days of this Order. The Parties SHALL include the trial-ready date, the number of 1 days needed for trial, availability for trial through 2026, and the prospects for 2 settlement. 3 Dated this 3rd day of October 2024. 4 A 5 Tana Lin United States District Judge 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24