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Phazr, Inc. v. Ramakrishna

United States District Court, N.D. Texas, Dallas Division

October 28, 2019

PHAZR, INC., Plaintiff,
v.
SUDHIR RAMAKRISHNA, BALA BALASEKAR, AN TUYEN BANH, and MAVENIR SYSTEMS, INC. Defendants.

          MEMORANDUM OPINION AND ORDER

          BRANTLEY STARR, UNITED STATES DISTRICT JUDGE.

         In this action for trade secret misappropriation and related claims, defendants Sudhir Ramakrishna and Mavenir Systems, Inc. move to dismiss, and defendants Bala Balasekar and An Tuyen Banh move to dismiss, plaintiff Phazr, Inc.'s amended complaint for failure to state a claim on which relief can be granted (collectively, “motions to dismiss”) [Docs. No. 22, 41]. After careful consideration, the Court concludes that Phazr fails to state a claim under the Defend Trade Secrets Act (hereinafter “Trade Secrets Act”).[1] In a case that is before this Court under federal question jurisdiction, Phazr's Trade Secrets Act claim is the only federal cause of action. Because the Court dismisses this sole federal claim, the Court may decline to exercise jurisdiction over the remaining state-law claims.[2] As a result, the Court dismisses the amended complaint. But the Court dismisses the amended complaint without prejudice, granting Phazr leave to replead in this Court if it so chooses.

         I.

         Let's begin with a brief factual and procedural history of this case. According to Phazr's amended complaint [Doc. No. 15], it is a producer and provider of millimeter wave (mmwave), virtualized Radio Access Network (vRAN), and Radio Frequency (RF) products and technology for the wireless communications industry.[3]Phazr is incorporated in Delaware, licensed to do business in Texas, and maintains its primary business address in Texas.[4] Founded in 2016, Phazr markets its products and technologies for use in the construction and operation of fifth generation (5G) wireless communication networks.[5]

         Enter the individuals and company who are now the defendants. Phazr hired Ramakrishna, Balasekar, and Banh (collectively, “individual defendants”) on or about July 12, 2016, June 23, 2017, and October 30, 2017, respectively.[6] At the commencement of each of their employments with Phazr, the individual defendants signed confidentiality and non-solicitation agreements.[7] In about January 2019, September 2018, and May 2019, respectively, Ramakrishna, Balasekar, and Banh left Phazr.[8] Soon after leaving, they became employees of Mavenir.[9] According to Phazr, Phazr directly competes for contracts and customers with Mavenir, which also creates products for use in the development of 5G wireless networks.[10] Phazr alleges Mavenir lacked the capacity to develop or produce these competing mmwave, vRAN, and RF technologies before it hired the individual defendants.[11]

         This case had a prequel, which concluded quickly.[12] On March 5, 2019, John Mezzalingua Associates, Inc. (JMA), which purchased Phazr in about December 2018, sued Ramakrishna and Mavenir in the United States District Court for the Eastern District of Texas.[13] On April 22, 2019, JMA voluntarily dismissed that case.

         Then this litigation began. On May 17, 2019, Phazr (which operates as a subsidiary of JMA) filed this case in Texas state court against Ramakrishna and Mavenir. That same day, Ramakrishna and Mavenir removed the case to this Court under 28 U.S.C. § 1441(a), alleging federal question jurisdiction under 28 U.S.C. § 1331. Defendants predicated removal on Phazr's Trade Secrets Act claim. On July 22, 2019, this Court granted Phazr leave to amend its complaint to add Balasekar and Banh as defendants. In addition to its state-law claims, Phazr again alleged under federal law that the individual defendants “misappropriated and used or disclosed, ” and that Mavenir “misappropriated, ” Phazr's trade secrets and proprietary information.[14] In response, the defendants moved to dismiss Phazr's claims under Federal Rule of Civil Procedure 12(b)(6). Both motions allege that Phazr has failed to state a claim upon which relief can be granted and are ripe for this Court's decision.

         II.

         With these facts and this procedural posture, the Court considers the motions to dismiss.

         A.

         Under Federal Rule of Civil Procedure 12(b)(6), the Court evaluates the pleadings by “accept[ing] ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'”[15] To survive a motion to dismiss, Phazr must allege enough facts “to state a claim to relief that is plausible on its face.”[16] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[17] “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.”[18]“[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'”[19]

         B.

         Under the Rule 8 standard, as clarified by Iqbal and Twombly, Phazr has failed to plausibly plead a Trade Secrets Act claim.

         i.

         The law is clear on what plaintiffs must establish to successfully argue a federal Trade Secrets Act claim. The Trade Secrets Act permits an “owner of a trade secret that is misappropriated” to “bring a civil action under this subsection if the trade secret is related to a product of service used in, or intended for use in, interstate or foreign commerce.”[20] So, to make a Trade Secrets Act claim, “a plaintiff must allege: (1) a trade secret; (2) misappropriation; and (3) use in interstate commerce.”[21]If a plaintiff proves such a claim, a court may grant an injunction and award damages.[22]

         Phazr's federal Trade Secrets Act claim alleges that the individual defendants “misappropriated and used or disclosed, ” and that Mavenir “misappropriated, ” Phazr's trade secrets and proprietary information.[23] It also argues that Mavenir “knew or had reason to know” that the individual defendants “acquired Plaintiff's trade secrets and proprietary information through their employment with Plaintiff and that such knowledge was obtained under circumstances giving rise to a duty for Ramakrishna, Balasekar and Banh to maintain the secrecy of such trade secrets and proprietary information.”[24]

         The motions to dismiss dispute the element of misappropriation. The defendants seek to dismiss the Trade Secrets Act claim because Phazr “fails to plead facts sufficient to allege actual or threatened misappropriation of Phazr's trade secrets.”[25] Under the Trade Secrets Act, misappropriation includes:

(A) 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
(B) disclosure or use of a trade secret of another without express or implied consent by a person who-
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was-
(I) derived from or through a person who had used improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
iii. before a material change of the position of the person, knew or had ...

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