Opinion
21-CV-10729 (ALC) (RWL)
09-21-2022
DEANNA GARVEY, Plaintiff/Counterclaim-Defendant, v. FACE OF BEAUTY, LLC et al., Defendant/Counterclaim-Plaintiff.
REPORT AND RECOMMENDATION TO HON. ANDREW L CARTER: MOTION TO DISMISS COUNTERCLAIMS
ROBERT W. LEHRBURGER UNITED STATES MAGISTRATE JUDGE
On December 15, 2021, Plaintiff Deanna Garvey filed an action against her former employer Face of Beauty, LLC (“FOB”), supervisor and FOB owner Mohamed Samir Abouelmaty, and manager Tomiris Alpyssova, alleging employment discrimination, sexual harassment, and assault and battery in violation of New York and local law. Currently before the court is Garvey's motion to dismiss amended counterclaims filed by FOB and Abouelmaty (“Defendants”) pursuant to Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”). For the reasons set forth below, I recommend that Garvey's motion be GRANTED.
PROCEDURAL HISTORY
Garvey commenced this action on December 15, 2021. In her Complaint, Garvey claims she was harassed and discriminated against by Defendants on the basis of her sex and gender, and experienced quid pro quo sexual harassment, a hostile work environment, assault and battery, retaliation, and ultimately wrongful termination. (Compl. ¶ 1.)
“Compl.” refers to Plaintiff's Complaint at Dkt. 1.
On March 4, 2022, FOB answered the Complaint and asserted four counterclaims, including breach of an implied contract, breach of fiduciary duty, and violations of the “Trade Secrets” and Lanham Acts. (Dkt. 10.) On March 25, 2022, Garvey moved to dismiss the counterclaims under Rule 12(b)(6). (See Dkts. 18-20.) On March 30, 2022, this Court ordered FOB to indicate whether it will amend its counterclaims in light of Garvey's motion to dismiss. (Dkt. 22.) FOB opted to amend its counterclaims. (Dkt. 23.)
On April 19, 2022, Defendants FOB and Abouelmaty jointly filed amended counterclaims. (Dkt. 24.) On May 20, 2022, Garvey moved to dismiss the amended counterclaims, or in the alternative to amend her Complaint to address the counterclaims. (Dkt. 31-33.) Defendants filed their opposing brief on June 18, 2022. Garvey filed her reply on July 11, 2022, at which point the motion was fully briefed. (Dkt. 37.)
FACTUAL BACKGROUND
The facts are drawn from the Complaint and Defendants' Amended Counterclaims (Dkt. 24) (“Amended Counterclaims” or “AC”). For purposes of the motion to dismiss, the Court accepts as true all well-pled factual allegations of the Amended Counterclaims and draws all reasonable inferences in favor of Defendants as the nonmoving parties. Demirovic v. Ortega, 771 Fed.Appx. 111, 113 (2d Cir. 2019).
The Amended Counterclaim includes several duplicative paragraph numbers. The Court cites to them as numbered.
FOB is a “beauty salon and cosmetic procedures clinic” in New York. (Compl. ¶ 6.) Garvey alleges she was hired by Defendants in March 2021 as a part-time “Lead Nurse/Injector” responsible for performing cosmetic treatments such as lip filler injections, face lifts, and eye lifts. (Compl. ¶ 15.) Defendants allege that they and Garvey “had an agreement” under which “plaintiff [was] to perform certain services” for Defendant's customers. (AC ¶¶ 15-16.) Defendants claim generally that Garvey's conduct during her work for Defendants caused the Defendants economic harm (AC ¶ 4), and that she “mistreated patients” (AC ¶ 6) and “would say untrue and harmful information” about FOB. (AC ¶ 8.) Defendants contend that Garvey was “paid more than she alleges in the complaint” (AC ¶ 5) and paid “over and above what [she] was owed [a]s a result of the services she performed.” (AC ¶ 17.) Despite being paid for her services, Garvey “refused to perform her job,” causing Defendants “economic and reputational damages.” (AC ¶¶ 18, 20.) Additionally, Garvey scheduled and was paid for appointments with customers, but would cancel appointments to interfere with Defendants' business. (AC ¶¶ 11, 2527.)
Defendants also claim that Garvey was responsible for interacting with, soliciting, and retaining customers for Defendants, but instead sought to undermine Defendants' business for her own gain. (AC ¶¶ 19-20.) Garvey “would contact customers outside of work and encourage them to have sessions with her and to cut out ... ‘the middleman'” to receive Garvey's services for a lower price than FOB charged. (AC ¶ 9; see also AC ¶ 21.) This solicitation diverted business from Defendants to Garvey herself, “or another company in which she had an economic interest,” causing a “dramatic drop” in Defendants' business. (AC ¶¶ 22-23.)
In addition, as part of her employment, Garvey had access to client names, information about running a business, information about website advertising and promotion, and a “customer and supplier master list,” all of which Defendants had acquired through advertising and promotion, and through “great expense and labor.” (AC ¶¶ 7, 30-31.) Defendants claim that Garvey used this information and shared it with competitors. (AC ¶ 32.)
LEGAL STANDARD ON MOTION TO DISMISS
The same standard applies to a motion to dismiss a counterclaim that applies to a motion to dismiss a complaint. See, e.g., Ohr Somayach/Joseph Tanenbaum Educational Center v. Farleigh International Ltd., 483 F.Supp.3d 195, 202 (S.D.N.Y. 2020); Reeves v. American Broadcasting Companies, Inc., 580 F.Supp. 84, 89 (S.D.N.Y.1983), aff'd, 719 F.2d 602 (2d Cir.1983). Under Rule 12(b)(6), a pleading may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion, a counterclaim must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007). A claim is facially plausible when the factual content pleaded allows a court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009).
Where a counterclaim “pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. at 1966). In considering a motion to dismiss, a district court “accept[s] all factual claims in the complaint [or counterclaim] as true, and draw[s] all reasonable inferences in the plaintiff's favor.” Lotes Co. v. Hon Hai Precision Industry Co., 753 F.3d 395, 403 (2d Cir. 2014) (internal quotation marks omitted). However, this tenet is “inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949. “[R]ather, the complaint's factual allegations must be enough to raise a right to relief above the speculative level ... i.e., enough to make the claim plausible.” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (internal quotation marks and brackets omitted). A counterclaim is properly dismissed where, as a matter of law, “the allegations [within], however true, could not raise a claim of entitlement to relief.” Twombly, 550 U.S. at 558, 127 S.Ct at 1966.
For the purposes of considering a motion to dismiss under Rule 12(b)(6), a court is generally confined to the facts alleged in the pleading. See Cortec Industries v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). A court may, however, consider additional materials, including documents attached to the pleading, documents incorporated into the pleading by reference, public records, and documents that the party either possessed or knew about, and relied upon, in bringing the suit. See Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir. 2013) (quoting ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)). In that regard, if “a document relied on in the complaint contradicts allegations in the complaint, the document, not the allegations, control, and the court need not accept the allegations in the complaint as true.” Poindexter v. EMI Record Group Inc., No. 11-CV-559, 2012 WL 1027639, at *2 (S.D.N.Y. March 27, 2012) (quoting Barnum v. Millbrook Care Ltd. Partnership, 850 F.Supp. 1227, 1232-33 (S.D.N.Y.1994)).
DISCUSSION
Defendants assert four causes of action against Garvey: (1) breach of contract; (2) breach of fiduciary duty; (3) tortious interference with business; and (4) violation of the Defend Trade Secrets Act and Lanham Act by stealing and unlawfully using Defendants' trade secrets. In the following section, the Court analyzes each of these causes of action and concludes that they are not sufficiently pled to survive Garvey's motion to dismiss. Accordingly, the counterclaims should be dismissed but without prejudice to repleading.
A. Breach Of Contract
Defendants allege that Garvey and Defendants had an “agreement” for Garvey to perform “services” for payment. (AC ¶¶ 15-16.) They claim that she breached this agreement by “refus[ing] to perform her job” (AC ¶¶ 17-18), “mistreat[ing] patients” (AC ¶ 6), and “routinely cancel[ing] her appointments” (AC ¶ 11), which harmed Defendants' reputation and business. (See also FOB Mem. at 7.) Defendants' bare and conclusory allegations fail to plausibly allege Garvey's breach of contract, or even the existence of a contract in the first place.
“FOB Mem.” refers to Defendants' Memorandum Of Law In Opposition To Plaintiff's Motion To Dismiss Defendants' Counter-Claims at Dkt. 36.
“To prevail on a breach of contract claim under New York law, a plaintiff must prove (1) a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages.” Terwilliger v. Terwilliger, 206 F.3d 240, 245-46 (2d Cir. 2000) (internal quotation marks omitted). “Plaintiffs bear the burden of proof as to all elements of a breach of contract claim.” Choquette v. Motor Information Systems, Inc., No. 15-CV-9338, 2017 WL 3309730, at *3 (S.D.N.Y. Aug. 2, 2017). While “[a] party need not plead each element individually,” the party “must allege sufficient facts to show that a contract existed.” Grewal v. Cuneo, No. 13-CV-6836, 2016 WL 308803, at *6 (S.D.N.Y. Jan. 25, 2016).
Defendants do not contend that the parties had an express agreement, but rather that a contract for Garvey to perform “services” in return for payment was implied. (FOB Mem. at 7.) While “a contract may be implied where inferences may be drawn from the facts and circumstances of the case and the intention of the parties as indicated by their conduct,” a “party asserting the existence of an implied-in-fact contract must supply in nonconclusory language, the essential terms of the parties' contract, including those specific provisions of the contract upon which liability is predicated.” Roelcke v. Zip Aviation, LLC, 571 F.Supp.3d 214, 230 (S.D.N.Y. 2021) (internal quotation marks omitted). Defendants fail to do so.
Defendants do not identify what “services” Garvey agreed to perform, nor specify the amount they agreed to pay her. Defendants claim Garvey “mistreated patients” in breach of the agreement (FOB Mem. at 7; AC ¶ 6), but set forth no agreed terms governing treatment of patients, nor any facts that make the vague allegation of “mistreatment” plausible. Finally, while Defendants claim Garvey's cancelling appointments breached the agreement, they fail to allege any terms of the contract that govern cancellations. Because Defendants “failed to set forth the terms of the alleged agreement, [they] therefore cannot demonstrate that [Garvey] had breached any contractual term.” Meregildo v. Diaz, 154 A.D.3d 630, 631, 63 N.Y.S.3d 52, 52 (1st Dep't 2017) (citing Paz v Singer Co., 151 A.D.2d 234, 235, 542 N.Y.S.2d 10, 10 (1st Dep't 1989)); see also Khurana v. Wahed Invest, LLC, No. 18-CV-233, 2019 WL 1430433, at *9 (S.D.N.Y. Feb. 26, 2019) (dismissing breach of contract action where “Plaintiff has not alleged the essential terms of the purported contract with sufficient clarity to enforce them”), R. & R adopted, 2019 WL 1432589 (S.D.N.Y. March 29, 2019); Shtofmakher v. David, No. 14-CV-6934, 2015 WL 5148832, at *8 (S.D.N.Y. Aug. 17, 2015) (dismissing breach of contract claims because “the complaint lack[ed] key factual allegations related to the material terms of the agreement, including, most importantly, the particular terms ... that were allegedly breached”).
Defendants attempt to overcome this pleading deficiency by pointing to Garvey's own description of her duties as “performing beauty services such as lip fillers injections, face lifts, eye lifts, [and] other cosmetic treatments.” (FOB Mem. at 7, n.1 (quoting Compl. ¶ 15).) In their answers, however, Defendants deny this paragraph of the complaint. (Dkt. 10 ¶ 15; Dkt. 12 ¶ 15.)
Given the virtual absence of non-conclusory allegations of the formation and terms of the agreement and the conduct that allegedly breached such agreement, Defendants' breach of contract counterclaim should be dismissed.
B. Breach Of Fiduciary Duty
Defendants allege that Garvey contacted customers to encourage them to book with her directly at a lower price in order to cut Defendants out of the equation and enrich herself. (AC ¶¶ 9, 19-23.) While such conduct could potentially be a breach of fiduciary duty, Defendants' bare-bones pleading fails to plausibly allege Garvey's liability.
“A claim for ‘[b]reach of fiduciary duty requires (1) the existence of a fiduciary duty owed by the defendant; (2) a breach of that duty; and (3) resulting damages.'” Abouelmakarem v. MDNMA Inc., No. 21-CV-10625, 2022 WL 1620302, at *2 (S.D.N.Y. May 20, 2022) (quoting Jones v. Voskresenskaya, 125 A.D.3d 532, 533, 5 N.Y.S.3d 16, 17 (1st Dep't 2015)). “Under New York law, an employee owes a duty of good faith and loyalty to his employer.” Design Strategies, Inc. v. Davis, 384 F.Supp.2d 649, 659 (S.D.N.Y. 2005), aff'd sub nom. Design Strategy, Inc. v. Davis, 469 F.3d 284 (2d Cir. 2006). Breach of that duty of loyalty is actionable as a breach of fiduciary duty. Id.; see also Abouelmakarem, 2022 WL 1620302, at *2 (“Plaintiff's second counterclaim purports to assert a claim for breach of fiduciary duty, in particular a breach of the duty of loyalty”).
As a threshold matter, Garvey argues that because Defendants allege that “Plaintiff committed fraudulent acts by allegedly breaching her ‘fiduciary duty,'” the pleading standard of Federal Rule of Civil Procedure Rule 9(b) applies. (Garvey Mem.at 5-7; Garvey Reply at 3-4.) Rule 9(b) requires that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). Because “FOB fails to identify any fraudulent statements, or state what were the statements in question, and why the alleged statements or omissions are fraudulent” (Garvey Mem. at 7) and “does not provide any specific examples of Plaintiff's alleged attempts to ‘cut out the middleman,' that she was ‘promoting herself to be more cost-effective than her employer,' or that she accessed customer lists while being paid by FOB” (Garvey Reply at 4), Garvey argues that Defendants have failed to plead their breach of fiduciary duty claim with particularity. Garvey argues in the alternative that dismissal under Rule 12(b)(6) is warranted because Defendants' sparse pleading does not provide sufficient alleged facts to support their claims. (Garvey Mem. at 8.)
“Garvey Mem.” refers to Plaintiff's Memorandum Of Law In Support Of Her Motion To Dismiss Defendant Face Of Beauty, LLC's Amended Counterclaims at Dkt. 32.
“Garvey Reply” refers to Plaintiff's Reply Memorandum Of Law In Support Of Plaintiff's Motion To Dismiss Defendant Face Of Beauty's Amended Counterclaims at Dkt. 37.
While Garvey is incorrect that Rule 9 governs Defendants' counterclaims, she is correct that Defendants' breach of fiduciary duty counterclaim cannot survive a motion to dismiss under the Rule 12(b)(6) standard. “Typically, ‘[w]here a plaintiff alleges a breach of fiduciary duty by conduct not amounting to fraud, such as breach of a duty of care, disclosure, or loyalty, the general pleading standards set out by Rule 8(a) of the Federal Rules of Civil Procedure, not the heightened standards of Rule 9(b), apply.'” Schwartzco Enterprises LLC v. TMH Management., LLC, 60 F.Supp.3d 331, 355 (E.D.N.Y. 2014) (quoting Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, LLC, 446 F.Supp.2d 163, 196 (S.D.N.Y.2006)); see also Official Committee of Unsecured Creditors v. Donaldson, Lufkin & Jenrette Securities Corp., No. 00-CV-8688, 2002 WL 362794, at *8 (S.D.N.Y. March 6, 2002) (“Rule 9(b) does not extend to allegations of breach of duty, whether or not characterized as fiduciary, by conduct not amounting to fraud or mistake”) (internal quotation marks omitted). Here, Defendants allege that Garvey breached her duty of loyalty to FOB by soliciting customers to book with her directly for the services offered by FOB at a lower price. (AC ¶¶ 9, 19-23; FOB Mem. at 7-8.) Although Defendants additionally allege that Garvey made untrue statements about Defendants, they do not identify those statements as Garvey's breach. (See AC ¶ 8.) Therefore, Rule 9(b)'s particularity requirement does not apply.
Notwithstanding Rule 9(b)'s inapplicability, Defendants' breach of fiduciary duty counterclaim should be dismissed under Rule 12(b)(6). “The duty of loyalty [is violated in] cases where the employee, acting as the agent of the employer, unfairly competes with his employer, [or] diverts business opportunities to himself or others to the financial detriment of the employer.” Farricker v. Penson Development, Inc., No. 07-CV-11191, 2010 WL 845983, at *2 (S.D.N.Y. March 4, 2010). Defendants, however, fail to plead sufficient facts to plausibly allege such a breach by Garvey.
All Defendants allege in the Amended Counterclaims, albeit multiple times in slightly different language, is that Garvey solicited Defendants' customers to book with her (or an unnamed competitor for whom she may have worked) to receive the services she provided as an employee of FOB at a lower price: “Plaintiff would contact customers outside of work and encourage them to have sessions with her and to cut out defendant ‘the middleman' in order to save plaintiff and the customer funds” (AC ¶ 9); “Plaintiff stole clients from defendant's business and took them to another entity where she would find subsequent ‘gigs'” (AC ¶ 13); and “Plaintiff would solicit defendant's clients/customers and inform them that she could perform the services herself without having to pay the full price charged by the defendant.” (AC ¶ 21.)
Beyond those general, conclusory statements, Defendants provide no supporting factual allegations to “nudge[ ] their claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570, 127 S.Ct. at 1974. Merely asserting that Garvey solicited customers to book with her, with no underlying facts as to when, who, or how, falls short of the facts needed to plead a plausible breach of fiduciary duty claim. Compare Ebel v. G/O Media, Inc., No. 20-CV-7483, 2021 WL 2037867, at *5 (S.D.N.Y. May 21, 2021), reconsideration denied, 2021 WL 2827903 (S.D.N.Y. July 7, 2021) (dismissing claim for breach of duty of loyalty where allegations were “conclusory [and] speculative” and lacked additional factual support) with Altman Stage Lighting, Inc. v. Smith, No. 20-CV-2575, 2022 WL 374590, at *6 (S.D.N.Y. Feb. 8, 2022) (declining to dismiss breach of fiduciary claim against employee where the complaint “provide[d] factual information that create[d] an inference of plausibility”); cf. Torres v. Gristede's Operating Corp., 628 F.Supp.2d 447, 470 (S.D.N.Y. 2008) (“Poorly described and unsubstantiated incidents of alleged wrongdoing are insufficient as a matter of law to support application of the faithless servant doctrine”).
In an attempt to augment support for their claim for breach of fiduciary duty, Defendants state, without further elaboration, that “[a]n employee has a common law duty not to disclose trade secrets to a competitor even after his or her employment has terminated.” (FOB Mem. at 7.) As explained later in this Report and Recommendation, Defendants fail to allege the existence of a trade secret. They thus cannot premise a claim for breach of fiduciary duty on disclosure of trade secrets.
Defendants also suggest in their brief that “Garvey continu[ing] to use FOB's logo on her media page and promote her work” after her termination, as stated at paragraph 66 of the Complaint, may also constitute breach of her duty of loyalty owed to FOB as her employer. (FOB Mem. at 8 n.2.) That fact, however, is entirely absent from their Amended Counterclaims and so cannot support the sufficiency of Defendants' pleading, even assuming that that fact could form the basis for liability. See Louis v. New York City Housing Authority, 152 F.Supp.3d 143, 158 (S.D.N.Y. 2016) (noting that several claims raised for the first time in plaintiff's brief opposing the motion to dismiss would not be considered, and in any event were not sufficiently pled); Kiryas Joel Alliance v. Village of Kiryas Joel, No. 11-CV-3982, 2011 WL 5995075, at *10 (S.D.N.Y. Nov. 29, 2011), aff'd, 495 Fed.Appx. 183 (2d Cir. 2012) (same). Moreover, Defendants mischaracterize the Complaint. Paragraph 66 merely states that, three days after Garvey's termination, coDefendant Alpyssova “sent Plaintiff an email threatening her with ‘legal action' and/or a ‘temporary restraining order' if she used and/or continued to use Defendant FACE OF BEAUTY's logo on her social media page.” There is no assertion that Garvey had in fact used FOB's logo post-termination. (Compl. ¶ 66.) Finally, Defendants both denied the allegations in ¶ 66 of the Complaint in their respective answers, making their attempt to now rely on those allegations particularly baffling. (Dkt. 10 ¶ 66; Dkt. 12 ¶ 66.)
Defendants' counterclaim for breach of fiduciary duty should be dismissed.
C. Tortious Interference With Business
Defendants additionally claim that Garvey's solicitation of customers to book with her directly and her cancellation of booked appointments constitute tortious interference with business. To plead tortious interference with business under New York law, a litigant must plead: “(1) the plaintiff had business relations with a third party; (2) the defendant interfered with those business relations; (3) the defendant acted for a wrongful purpose or used dishonest, unfair, or improper means; and (4) the defendant's acts injured the relationship.” 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 261 (2d Cir. 2015). Defendants have not plead sufficient facts to make this claim plausible.
Tortious interference with business is also known as “tortious interference with prospective economic advantage.” Catskill Development, L.L.C. v. Park Place Entertainment Corp., 547 F.3d 115, 132 (2d Cir. 2008) (quoting Lombard v. Booz-Allen & Hamilton, Inc., 280 F.3d 209, 214 (2d Cir.2002).)
As explained by the Second Circuit, “New York courts have placed some limits on what constitutes ‘business relations' by rejecting, for example, a claim containing ‘only a general allegation of interference with customers without any sufficiently particular allegation of interference with a specific contract or business relationship.'” 16 Casa Duse, 791 F.3d at 262 (quoting McGill v. Parker, 179 A.D.2d 98, 105, 582 N.Y.S.2d 91, 95 (1st Dep't 1992)). Such general allegations of interference with customers are exactly what Defendants assert in their Amended Counterclaims. (See, e.g., AC ¶ 9 (“Plaintiff would contact customers outside of work” to encourage them to “cut out ... the middleman”); AC ¶ 11(“Plaintiff would routinely cancel her scheduled appointments, leaving scheduled customers without an injector”); AC ¶ 13 (“Plaintiff stole clients from defendant's business”); AC ¶¶ 25-27 (asserting generally that Plaintiff “would schedule appointments with customers” but cancel the appointments in order to interfere with Defendants' business).)
In the absence of any allegations of any specific business relationship that with which Garvey interfered and harmed, Defendants' claim for tortious interference with business should be dismissed. See, e.g., Cambridge Capital LLC v. Ruby Has LLC, 565 F.Supp.3d 420, 474 (S.D.N.Y. 2021) (dismissing tortious interference counterclaim that “allege[d] generally and vaguely that there were third parties [who would have done business with Defendant] without providing some identifying information to determine that there were in fact such third parties and to permit [Plaintiff] to challenge the allegation”); In re Interest Rate Swaps Antitrust Litigation, 351 F.Supp.3d 698, 709-10 (S.D.N.Y. 2018) (pleading that claimed “business relationship with numerous buy-side customers, including Buy Side Client 1 through 16” was “too vague to survive” motion to dismiss); Gianni Versace, S.p.A. v. Versace, No. 01-CV-9645, 2003 WL 470340, at *2 (S.D.N.Y. Feb. 25, 2003) (dismissing counterclaim because “[counterclaim-plaintiff] makes no attempt to allege a specific business relationship with which [counterclaim-defendant] interfered”); Commercial Data Servers, Inc. v. International Business Machines Corp., 166 F.Supp.2d 891, 898 (S.D.N.Y. 2001) (“The complaint refers only generally to [Plaintiff's] alleged relationships with [resellers] without identifying any particular [resellers] ... That allegation is far too vague to support a claim for tortious interference”); Gould v. ILKB, LLC, No. 22-CV-5154, 2022 WL 2079652, at *9 (E.D.N.Y. June 9, 2022) (dismissing tortious interference claim where plaintiff alleged only that defendant “interfered with would-be ... customers).
Defendants argue that “[o]nly discovery would show to what extent Garvey harmed FOB's business relationship with the third parties.” (FOB Mem. at 9.) But allowing the claim to survive Garvey's motion “would be to permit [Defendants] to get to discovery based on labels and conclusions and not facts.” Cambridge Capital, 565 F.Supp.3d at 474 (internal quotation marks omitted). Accordingly, the counterclaim for tortious interference with business should be dismissed.
D. Misappropriation Of Trade Secrets
Lastly, Defendants contend that Garvey obtained, used, and shared their trade secrets, including information about running a business, advertising and promotional strategies, a customer and supplier list, and pricing information that FOB had acquired through “great expense and labor.” (AC ¶¶ 31-32.) Defendants conclude that such conduct “violated the Trade Secrets and the Lanham Acts,” harming Defendants. (AC ¶ 33.)
Although Defendants assert the Lanham Act as a basis for Garvey's liability, neither their Amended Counterclaims or brief identify what provisions of the Lanham Act apply nor what conduct constitutes grounds for liability under the Lanham Act. To the extent Defendants assert any purported claim under the Lanham Act that is not addressed by the Court's discussion in this section, the Court recommends its dismissal as insufficiently pled.
Under the Defend Trade Secrets Act, 18 U.S.C. § 1836(b), “a party must show an unconsented disclosure or use of a trade secret by one who (i) used improper means to acquire the secret, or, (ii) at the time of disclosure, knew or had reason to know that the trade secret was acquired through improper means, under circumstances giving rise to a duty to maintain the secrecy of the trade secret, or derived from or through a person who owed such a duty.” Kraus USA, Inc. v. Magarik, No. 17-CV-6541, 2020 WL 2415670, at *4 (S.D.N.Y. May 12, 2020); accord Zirvi v. Flatley, 433 F.Supp.3d 448, 464 (S.D.N.Y. 2020), aff'd, 838 Fed.Appx. 582 (2d Cir. 2020) (reciting elements); Medidata Solutions, Inc., v. Veeva Systems Inc., No. 17-CV-589, 2018 WL 6173349, at *4 (S.D.N.Y. Nov. 26, 2018) (same).
A “trade secret” is defined as “‘all forms and types of financial, business, scientific, technical, economic, or engineering information, including ... methods, techniques, processes, procedures, [and] programs,' but only if ‘(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.'” Kairam v. West Side GI, LLC, 793 Fed.Appx. 23, 27-28 (2d Cir. 2019) (quoting 18 U.S.C. § 1839(3)). To determine if information is a trade secret, courts consider six factors:
(1) the extent to which the information is known outside of the business;
(2) the extent to which it is known by employees and others involved in the business;
(3) the extent of measures taken by the business to guard the secrecy of the information;
(4) the value of the information to the business and its competitors;
(5) the amount of effort or money expended by the business in developing the information; [and]
(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.Universal Processing LLC v. Weile Zhuang, No. 17-CV-10210, 2018 WL 4684115, at *3 (S.D.N.Y. Sept. 28, 2018) (quoting In re Document Technologies Litigation, 275 F.Supp.3d 454, 462 (S.D.N.Y. 2017)). While determination of whether particular information is a trade secret is typically a fact-intensive inquiry not amenable to resolution on a motion to dismiss, “courts dismiss claims involving trade secrets where they are not actually secret or there is no discernible economic value from them not being generally known.” Kraus USA, 2020 WL 2415670, at *5 (collecting cases).
Like Defendants' other counterclaims, Defendants provide scant factual information to describe the alleged trade secrets and acts of misappropriation. While “trade secrets need not be disclosed in detail in a complaint alleging misappropriation ... the pleading standard set forth in Twombly and Iqbal requires that the complaint allege facts sufficient to identify the information for which protection is claimed and sufficient information about its nature, value and measures taken to safeguard it to support an inference that the information qualifies as a trade secret.” Lawrence v. NYC Medical Practice, P.C., No. 18-CV-8649, 2019 WL 4194576, at *4 (S.D.N.Y. Sept. 3, 2019) (internal brackets, quotation marks and citations omitted). Defendants do not satisfy that standard.
Instead, Defendants rely on conclusory allegations that “Plaintiff stole defendant's trade secrets” only generally described as including, for example, “trade secrets about running a business such as [Defendants']” and “website advertising and promotional items.” (AC ¶¶ 30-31.) While allegations of specific categories of information may be sufficient at the pleading stage, Defendants' vague descriptions do not suffice. See, e.g., Lawrence, 2019 WL 4194576, at *5 (counterclaim describing trade secrets as related to “patient coordination and signing up patients” and “services used, sold, and ordered in, or intended to be used, sold and/or ordered in interstate and/or foreign commerce” did not adequately plead the existence of a trade secret); Elsevier Inc. v. Doctor Evidence, LLC, No. 17-CV-5540, 2018 WL 557906, at *6 (S.D.N.Y. Jan. 23, 2018) (general references to “clinical methods, process to assess the quality of evidence and how to execute it, and interpretation of data,” without explaining “how those methods processes, and interpretations function” did not plausibly allege existence of a trade secret) (internal quotation marks omitted); PaySys International Inc. v. Atos Se, No. 14-CV-10105, 2016 WL 7116132, at *10 (S.D.N.Y. Dec. 5, 2016) (identifying trade secrets as “the Products, all Enhancements to the Products and all proprietary information, data, documentation and derivative works related to the products” was insufficiently specific to survive a motion to dismiss); cf. Medidata Solutions, Inc., 2018 WL 6173349, at *3 (allegations of “numerous specific categories of information relating to its software, marketing and business plans” were sufficient); Kraus USA, 2020 WL 2415670, at *5 (pleading “several specific categories of information that were misappropriated, including technical product specifications, information on upcoming designs, sales data, e-commerce data, and other commercially sensitive information including customer lists, vendor relationships, the identity of contractual counterparties, internal cost structure and operating expenses, and e-commerce knowledge” was sufficient to survive dismissal).
Moreover, “except where the alleged secret conveys a competitive advantage and cannot be readily duplicated from generally available information, ‘marketing strategies,' or ‘mere knowledge of the intricacies of a business' do not rise to the level of a trade secret.” Accenture LLP v. Trautman, No. 21-CV-2409, 2021 WL 6619331, at *9 (S.D.N.Y. June 8, 2021). Customer lists may also be trade secrets in certain circumstances, but “whether a customer list constitutes a trade secret lies in whether ‘the customers are readily ascertainable outside the employer's business as prospective users or consumers of the employer's services or products,' or, by contrast, ‘the customers are not known in the trade or are discoverable only by extraordinary efforts [and the] customers' patronage had been secured by years of effort and advertising effected by the expenditure of substantial time and money.'” 24 Seven, LLC v. Martinez, No. 19-CV-7320, 2021 WL 276654, at *7 (S.D.N.Y. Jan. 26, 2021) (quoting Poller v. BioScrip, Inc., 974 F.Supp.2d 204, 216 (S.D.N.Y. 2013)). And while “pricing information may constitute a trade secret under certain circumstances, this is generally where a company uses some type of proprietary formula that gives it a unique advantage, such as a complex pricing or trading algorithm in a financial business.” 24 Seven, LLC, 2021 WL 276654, at *8 (internal quotation marks and citations omitted). Defendants' bare-bones pleading is bereft of non-conclusory allegations that could demonstrate that its customer lists, pricing, and other general business information are trade secrets.
Most fatal to Defendants' trade secret claim is the lack of any facts suggesting steps taken to keep the information secret. “A trade secret must first of all be secret.” Starlight Limousine Service, Inc. v. Cucinella, 275 A.D.2d 704, 705, 713 N.Y.S.2d 195, 195 (2d Dep't 2000). Without pleading efforts to maintain the secrecy of the information at issue, nor facts demonstrating the value derived from keeping such information secret, Defendants have not plausibly pled the existence of a trade secret, let alone misappropriation. See, e.g., 28 U.S.C. § 1839(3)(A) (defining a trade secret as information “the owner thereof has taken reasonable measures to keep ... secret”); Kairam, 793 F. App'x. at 28 (plaintiff “fail[ed] to plausibly allege that the [information] is a trade secret” because she did not allege “for example, how the [information] derives independent economic value from not being generally known to others or what steps she took to keep the [information] secret”); Investment Science, LLC v. Oath Holdings Inc., No. 20-CV-8159, 2021 WL 3541152, at *3 (S.D.N.Y. Aug. 11, 2021) (dismissing complaint because it “[did] not allege that [Plaintiff] employed reasonable measures to protect its claimed trade secrets”); Zirvi, 433 F.Supp.3d at 465 (“Courts dismiss trade secrets claims when the alleged trade secrets are not, in fact, secret”).
Because Defendants have not pled facts sufficient to allege the existence of a trade secret, their fourth amended counterclaim should be dismissed.
E. Dismissal Without Prejudice
When granting a motion to dismiss “leave to amend at least once should normally be granted as a matter of course.” Oliver Schools, Inc. v. Foley, 930 F.2d 248, 253 (2d Cir. 1991). Even so, and notwithstanding the general policy favoring leave to amend, “[a] district court has discretion to deny leave for good reason, including futility, bad faith, undue delay, or undue prejudice to the opposing party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230 (1962)); accord Sprague v. Salisbury Bank & Trust Co., 969 F.3d 95, 101 (2d Cir. 2020); Ruotolo v. City of New York, 514 F.3d 184, 191 (2d Cir. 2008).
Defendants have previously amended their counterclaims and failed to cure the pleading defects previously identified by Plaintiff. The Amended Counterclaims fail primarily based on the paucity of facts pled to demonstrate that it is not only theoretically possible, but plausible, that Garvey engaged in conduct that would entitle Defendants to relief. Though Defendants' Amended Counterclaims are currently far from clearing the Rule 12(b)(6) bar, the Court cannot conclude at this juncture that amending with further factual allegations would be futile. The Court therefore recommends dismissal without prejudice. See Keller Foundations, LLC v. Zurich American Insurance Co., 252 F.Supp.3d 319, 324 (S.D.N.Y. 2017) (dismissing breach of contract claim without prejudice because “[g]uided by this decision, plaintiffs conceivably may be able to allege more concretely a breach”); International Business Machines Corp. v. Jennifer-Ashley Co., 872 F.Supp. 1256, 1258 (S.D.N.Y. 1995) (dismissing without prejudice a counterclaim that “fail[ed] to provide sufficient information to allege a violation”). Of course, Defendants may only amend their counterclaims if they can do so in good faith.
CONCLUSION
For the forgoing reasons, I recommend that Garvey's motion to dismiss be GRANTED. All claims should be dismissed without prejudice. To the extent not discussed herein, the Court has considered Defendants' arguments and determined them to be without merit.
PROCEDURES FOR FILING OBJECTIONS AND PRESERVING APPEAL
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the Chambers of the Honorable Andrew L. Carter, United States Courthouse, 40 Foley Square, New York, New York 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will result in a waiver of objections and will preclude appellate review.
Respectfully submitted.