Opinion
Case No. 3:18-cv-01825-AC
03-22-2021
CLIMAX PORTABLE MACHING TOOLS, INC., an Oregon corporation, Plaintiff, v. TRAWEMA GMBH, a foreign company, GUNTER CRAMER, an individual, SIMON HECK, an individual, and JOHN DOES 1 through 3, individuals, Defendants.
FINDINGS AND RECOMMENDATION :
Introduction
In the original and amended complaints filed in this action, plaintiff Climax Portable Machine Tools, Inc. ("Climax"), alleged defendants Gunter Cramer ("Cramer") and Simon Heck ("Heck"), two former employees of Climax's German subsidiary, Climax GmbH ("Climax GmbH"), and their new employer, defendant Trawema GmbH ("Trawema"), misappropriated Climax's confidential information and used it to the detriment of Climax. Cramer, Heck, and Trawema (collectively "Defendants") moved to dismiss the amended complaint filed January 23, 2019 ("Complaint"), based on lack of personal jurisdiction. The Honorable Michael H. Simon granted the motion to dismiss with respect to Trawema without prejudice and with leave to amend.
Currently before the court is Climax' motion to amend the Complaint to include allegations Trawema ratified the pre-incorporation conduct of Cramer and Heck acted as Trawema's agent in misappropriating Climax's confidential information ("Motion"). Defendants oppose the Motion and argue Climax was dilatory in seeking to amend, Defendants would be unfairly prejudiced by the filing of the Proposed Complaint, and the allegations in the proposed amended complaint ("Proposed Complaint") are both futile and made in bad faith.
The court finds Climax did not unduly delay the filing of the Motion, Defendants will not be prejudiced by the filing of the Proposed Complaint, the new allegations in the Proposed Complaint appear to be made in good faith, and Climax's attempt to assert a claim against Trawema is not futile. Accordingly, the Motion should be granted and Climax directed to file the Proposed Complaint.
ClimaxError! Main Document Only. requested oral argument in their reply brief. The court finds this motion appropriate for disposition without oral argument, pursuant to LR 7-1(d)(1) and denies the request.
Background
I. Complaint
Based on the allegations in the Complaint, Climax is an Oregon corporation with a principal place of business in Newburg, Oregon. (Am. Compl., ECF No. 10, ¶ 4.) Climax is in the business of designing and manufacturing complex industrial machine equipment. (Am. Compl. ¶ 1.) Cramer and Heck (collectively "Individual Defendants") are mechanical engineers, and citizens and residents of Germany. (Am. Compl. ¶¶ 7, 8.) Trawema is a German company with a principal place of business in Duren, Germany, currently manufacturing and marketing two products that are "nearly identical duplicates of Climax's most successful products." (Am. Compl. ¶ 6.)
In April 2000, Climax purchased a fifty percent interest in WESTEC Innovative Bearbeitungstechnick GmbH ("WESTEC"), a German company that had recently hired Cramer as Product Manager. (Am. Compl. ¶¶ 5, 7.) At that time, WESTEC became Climax GmbH, a German company engaged in the business of selling and distributing Climax's products in Europe. (Am. Compl. ¶ 5.) Cramer continued to work for Climax GmbH as Product Manager. (Am. Compl. ¶ 7.)
In January 2008, Climax purchased the entirety of Climax GmbH, making it a wholly owned subsidiary of Climax. (Am. Compl. ¶ 5.) Climax GmbH remained a German company with a principal place of business in Duren, Germany. (Am. Compl. ¶ 5.) In 2010, Climax GmbH hired Heck and promoted Cramer to Manager of Application Engineering. (Am. Compl. ¶¶ 7, 8.) The Individual Defendants executed employment agreements with Climax GmbH containing non-disclosure clauses and an obligation to return all company documents upon departure from Climax GmbH. (Am. Compl. ¶¶ 35, 36, 44-46.)
While employed by Climax GmbH, the Individual Defendants were regularly in contact with Climax personnel located in the State of Oregon via email, telephone, and videoconference meetings, and Cramer personally visited Climax headquarters in Newberg, Oregon, "several times." (Am. Compl. ¶¶ 37, 38, 47.) Additionally, during their employment with Climax GmbH, the Individual Defendants had access to, sought, and obtained Climax documents located in the State of Oregon, including design documents, drawings, plans, and specifications for two of Climax's most successful products which contained extensive trade secret information. (Am. Compl. ¶¶ 1, 39, 40, 48, 49.)
In April 2014, Cramer resigned from Climax GmbH and subsequently founded Trawema in 2015, "specifically for the purpose of competing with Climax by selling nearly exact copies of Climax products." (Am. Compl. ¶¶ 2, 34, 41.) Cramer is the Managing Director of Trawema, which is engaged in the business of designing, manufacturing, and selling portable machining tools and is, consequently, a direct competitor of Climax. (Am. Compl. ¶¶ 41, 56.) Trawema hired Heck as a mechanical engineer in May 2016, after he was laid off by Climax GmbH "on or about April 30, 2016." (Am. Compl. ¶ 8.)
Climax alleged Trawema used the design documents misappropriated by the Individual Defendants to build its copied, competing products with the knowledge the design documents had been acquired from Climax's Newberg headquarters without authorization. (Am. Compl. ¶ 15.) Additionally, Climax contended "Trawema could not have produced such nearly identical copies of Climax's products without using Climax's own proprietary design documents that the [I]ndividual Defendants stole, and Trawema knowingly used without authorization." (Am. Compl. ¶ 2.) Climax asserted claims for violation of the federal Economic Espionage Act and Oregon's Uniform Trade Secrets Act, and common-law claims of conversion and unjust enrichment, all based on Defendants' misappropriation of Climax's confidential information.
II. Motion to Dismiss
Defendants filed a motion to dismiss the Complaint for lack of personal jurisdiction in which they argued Climax failed to allege sufficient contacts with the State of Oregon. In a Findings and Recommendation dated November 13, 2019 (the "F&R"), this court recommended granting the motion to dismiss, finding "Defendants' intentional acts were not expressly aimed at the State of Oregon and did not create the necessary contacts with the State of Oregon to allow this court to exercise personal jurisdiction over Defendants in this lawsuit." Climax Portable Machine Tools, Inc. v. Trawema GmbH, Case No. 3:18-cv-01825-AC, 2019 WL 8953357, at *1 (D. Or. Nov. 13, 2019).
Judge Simon adopted the F&R with respect to Trawema but denied it with respect to the Individual Defendants. Climax Portable Machine Tools, Inc. v. Trawema GmbH, Case No. 3:18-cv-1825-AC, 2020 WL 1304487 (D. Or. March 19, 2020). Judge Simon considered the Individual Defendants' contacts with the State of Oregon under the "purposeful availment" analysis and found the Individual Defendants' knowledge that Climax stored its confidential information on a server located in Oregon, their alleged retrieval of such information from the server for an unauthorized purpose, and their contacts with Climax employees in Oregon for the purpose of requesting confidential files and access to other confidential information were sufficient to establish personal jurisdiction over them. Id. at *3-*6. Alternatively, Judge Simon found jurisdiction under the "purposeful direction" test because the Individual Defendants intentionally accessed Climax's servers and employees in the State of Oregon for the purpose of misappropriating trade secrets, to establish and aid a competitive entity with resulting harm in the forum state. Id. at *6-*7.
Judge Simon rejected Climax's argument the court has jurisdiction over Trawema based on "its ratification of the acts of its founder, Günter Cramer, and because Simon Heck acted as Trawema's agent in the final months of his employment" with Climax, expressly noting Climax failed to allege "Heck acted as an agent of Trawema in acquiring the trade secrets, or that Trawema ratified the allegedly wrongful conduct of the Individual Defendants." Id. at *3. Judge Simon explained:
Plaintiff has not, however, alleged or provided sufficient evidence to support personal jurisdiction with respect to Trawema. Plaintiff alleges that Trawema has knowledge that two of its machines were copied from Plaintiff's machines without permission. This, however, does not provide minimum contacts between Trawema and Oregon. Plaintiff does not allege that either Defendant Cramer or Defendant Heck were acting as Trawema's agent when they engaged in their allegedly wrongful conduct. Plaintiff does not allege when or how Trawema "ratified" either of the Individual Defendants' conduct. Indeed, the term "ratified" is nowhere in the Amended Complaint. The only allegation relating to Trawema is that it bought a tool from an Oregon company, and this allegation is an insufficient contact on which to support personal jurisdiction.(Order at 12.) Judge Simon dismissed Trawema without prejudice and granted Climax leave to amend its allegations against Trawema, provided such allegations could be made in good faith, and also granted leave to seek jurisdictional discovery. Id. at *6.
III. Jurisdictional Discovery
On April 3, 2020, Climax filed a motion to seek jurisdictional discovery from Trawema to establish the conduct and knowledge of the Individual Defendants could be imputed to Trawema ("Discovery Motion"). Climax specifically sought jurisdictional discovery to determine "whether Trawema ratified Cramer's misconduct by using Climax's design documents that Cramer obtained prior to Trawema's formation to design its copied products" and "whether Heck was either acting as Trawema's authorized agent when he misappropriated Climax's information, or that Trawema likewise ratified his thefts of Climax's design documents." (Pl.'s Mot. for Leave to Conduct Jurisdictional Discovery, ECF No. 48 ("Disc. Mot.") at 3.) Climax conceded some of their requested discovery "overlap[ped] with discovery on the merits." (Disc. Mot. at 7.)
Defendants opposed the Discovery Motion, arguing Climax's failure to amend the complaint to allege facts supporting Trawema's ratification of the Individual Defendants' misconduct or its agency relationship with Heck prevented Climax from seeking discovery to support these allegations from a non-party, jurisdictional discovery is not appropriate where it is based on speculation, and Climax's requests exceeded the limited scope of jurisdictional discovery. Defendants invited Climax to seek third-party discovery from a foreign corporation through legitimate channels, such as under the Hague Convention.
In an order dated May 14, 2020, this court granted the Discovery Motion with regard to documents establishing the application date for Trawema's incorporation, the incorporators listed in the application materials, communications between Heck and Trawema prior to Heck's employment with Trawema, employment agreements between Trawema and the Individual Defendants, and all documents created by Climax, including design documents and specifications for any of Climax's products in Trawema's possession. (Order dated May 14, 2020, ECF No. 58 ("Disc. Order").) The court also ordered Trawema to answer an interrogatory seeking the circumstances and details of Trawema's offer of employment to Heck. (Disc. Order.) The court directed Trawema to produce the required discovery on or before June 15, 2020. (Disc. Order.) The court denied all other requests for production or interrogatories finding they were merit based. (Disc. Order.)
IV. Motion to Amend
On November 25, 2020, Climax filed a motion to amend the Complaint "to add allegations that [Trawema] ratified the misappropriation of trade secrets by [Cramer and Heck], that Heck was acting as an agent of Trawema in misappropriating Climax's trade secrets, and to re-name Trawema as a defendant." (Pl.'s Mot. to Amend Compl., ECF No. 92 ("Mot."), at 2.) In the Proposed Complaint, Climax adds the following allegations: (1) Cramer is the owner of eighty-five percent of Trawema's outstanding shares; (2) at the time he founded Trawema, Cramer was the sole shareholder and sole executive officer of the new company; (3) Cramer was the sole engineer responsible for designing the two Trawema products in 2016 and 2017 that are essentially identical to Climax's products; (4) "Trawema, through Cramer in his capacity as sole or majority owner, Managing Director, and lead engineer, knew that Mr. Cramer used Climax's misappropriated design drawings and specifications in designing" Trawema's identical products; (5) Trawema ratified the pre-incorporation conduct of Cramer by knowingly using Climax's misappropriated trade secrets for its own gain; (6) Heck applied with Trawema on February 24, 2016, after he received his termination letter from Climax GmbH dated February 10, 2016, but before his last formal day at Climax GmbH, which was April 30, 2016; and (7) sometime after April 30, 2016, Heck, acting as an agent of Trawema, accessed a Climax GmbH computer and "downloaded Climax's confidential and proprietary information . . . with the intent to use these files and information to assist in the design of the competing Trawema products." (Mot. Ex. 1 ¶¶ 7, 8, 15, 50, 52, 53, 55, 56, 60-63, 68, 79.)
Defendants oppose the Motion. They argue the Proposed Complaint is dilatory and futile, and allowing Climax to file the Proposed Complaint would unfairly prejudice them. Defendants also argue "key allegations" in the Proposed Complaint are "highly misleading," and assert "Climax is making these allegations in bad faith. (Defs.' Opp'n to Pl.'s Mot. for Leave to File Second Amended Compl., ECF No. 95 ("Opp'n"), at 2.)
Legal Standard
Federal Rule of Civil Procedure ("Rule") 15 instructs that leave to amend "shall be freely given when justice so requires." Segal v. Rogue Pictures, 544 F. App'x 769, 770 (9th Cir. 2013) (citation omitted); FED. R. CIV. P. 15(a)(2) (2020) ("The court should freely give leave when justice so requires."). Rule 15 is to be applied with "extreme liberality," but a motion to amend is not automatically granted. Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990). The court may deny leave to amend upon consideration of several factors "such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
The enumerated factors are not of equal weight. Eminence, 316 F.3d at 1052 (citing Howey v. United States, 481 F.2d 1187 (9th Cir.1973)). Undue delay, without more, is insufficient to deny leave to amend. Bowles v. Reade, 198 F.3d 752, 758 (9th Cir. 1999) ("Undue delay by itself, however, is insufficient to justify denying a motion to amend.") On the other hand, futility alone can justify the denial of a motion to amend. Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir.1995). "Prejudice to the opposing party is the most important factor." Jackson, 902 F.2d at 1387. "Absent prejudice, or a strong showing of any of the remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting leave to amend." Eminence, 315 F.3d at 1052.
Discussion
I. Undue Delay
Defendants complain about the two-year delay between the filing of this lawsuit and the current motion to amend, assert Climax unreasonably delayed initiating discovery, discount the difficulties caused by the pandemic, and contend allowing the filing of the Proposed Complaint would "substantially complicate and delay this litigation." (Opp'n at 7-8.) Specifically, Defendants contend: "Climax unduly delayed serving discovery, it unduly delayed conducting its internal investigation, and it unduly delayed seeking the Court's leave to amend its complaint a second time. The motion should be denied on that basis." (Opp'n at 8.)
Under Ninth Circuit law, a substantial delay on the part of the moving party, while not dispositive, is relevant. Lockheed Martin Corp. v. Network Solutions Inc., 194 F.3d 980, 986 (9th Cir. 1999). "Relevant to evaluating the delay issue is whether the moving party knew or should have known the facts and theories raised by the amendment in the original pleading." Jackson, 902 F.2d at 1388.
First, it was not unreasonable for Climax to delay serving discovery requests until after Defendants' motion to dismiss was finally resolved, particularly in light of the F&R recommending dismissal of the Complaint entirely based on lack of jurisdiction. Parties commonly agree to stay or the court orders that discovery be stayed until a potentially dispositive motion to dismiss is decided.
Second, Climax included Trawema as a defendant initially and was not aware of a need to amend the Complaint, or even initiate discovery, until March 19, 2020, when Judge Simon granted Defendants' motion to dismiss with respect to Trawema without prejudice and with leave to file an amended complaint. Thereafter, Climax sought jurisdictional discovery, as Judge Simon recognized it could do. This court granted, in part, the motion for jurisdictional discovery and ordered production of such discovery by June 15, 2020. Defendants concede in their opposition brief that the Individual Defendants produced supplemental discovery responses in September 2020, well after the June 15, 2020, deadline set by the rules for a response, and Climax filed the Motion less than ten weeks later. (Opp'n at 5, 7.) This ten-week delay is not, as a matter of law, unreasonable.
Third, Defendants' assertion that filing the Proposed Complaint would complicate and delay this litigation is without merit. Defendants were aware of Climax's intent to assert claims against Trawema based on the filing of the Complaint and request for jurisdictional discovery. While Defendants correctly note the discovery deadline, January 29, 2021, at the time the Motion was filed, that deadline has since been extended and, based on Climax's pending motion to compel Cramer to produce documents responsive to Climax's first request for production and provide complete answers to Climax's first set of interrogatories, it appears the Individual Defendants would not have been able to meet the January deadline in any event. Moreover, most of the discovery produced to date will be relevant to the claims asserted against Trawema, which are based primarily, if not solely, on the conduct of the Individual Defendants.
Given the logistical difficulties caused by the diverse, international domiciles of the parties, Climax GmbH, and Trawema; the time necessary to complete forensic evaluation of the Individual Defendants' access to Climax's confidential information, as well as technology owned and used by Climax GmbH; and the inherent delays we all have experienced as a result of the pandemic, the court can not say Climax was dilatory or unduly delayed the filing of the Motion. Additionally, Climax acted reasonably in delaying extensive discovery until after Judge Simon ruled on the motion to dismiss and Defendants were aware of Climax's intent to include Trawema as a defendant in this action. The court finds the Motion was timely filed when considering case-specific realities and general limitations caused by the current pandemic.
II. Undue Prejudice
Defendants' claim of prejudice is, to some degree, duplicative of their undue delay argument. They note Climax failed to examine its own computers for two years after the case was filed; initiated an lawsuit against foreign individuals in a court thousands of miles from their home based on vague, purportedly utterly specious allegations; exacerbated motion practice which forced Defendants to incur costs, and now seek to file the Proposed Complaint "which would substantially expand the scope of this litigation, upend the schedule, and add months if not years to this stale litigation." (Opp'n at 14.)
Undue prejudice to the opposing party carries the greatest weight in determining a motion to amend. Eminence, 316 F.3d at 1052. A need to reopen discovery, a delay in the proceedings, or the addition of complaints or parties are indicators of prejudice. See, e.g., Zivkovic v. Southern California Edison Co., 302 F.3d 1080, 1087 (9th Cir.2002) (affirming district court's denial of motion to amend pleadings filed five days before close of discovery where additional causes of action would have required additional discovery, prejudicing defendant and delaying proceedings); Lockheed, 194 F.3d at 986 (addition of complaints was prejudicial); Solomon v. N. Am. Life and Cas. Ins. Co., 151 F.3d 1132, 1139 (9th Cir.1998) (court did not abuse its discretion in denying motion to amend on grounds of undue delay and prejudice where motion made on the "eve of the discovery deadline" would have required re-opening discovery, thus delaying proceedings).
The court has found it not unreasonable for Climax to delay discovery until after it learned Defendants' motion to dismiss was denied in part. While Defendants claim Climax's allegations were "vague" and "specious," curiously, Defendants did not move to dismiss the Complaint for failure to state a claim on these bases, thus implying they concluded the allegations are sufficient to survive such a challenge. A review of the court record reveals Climax filed a motion for leave to conduct jurisdictional discovery consistent with Judge Simon's observation, a stipulated protective order and motion to amend such order, a motion to compel, and the Motion, also with leave of the court. Defendants, for their part, filed the motion to dismiss and their own motion to compel. Climax's filing of two motions at the suggestion of the court, as well as a motion to amend a protective order and a motion to compel, over a two-year period does not equate to "exacerbated motion practice," particularly when Defendants filed a motion to dismiss and their own motion to compel.
Finally, the current discovery deadline is May 14, 2021, expert discovery is due August 2, 2021, and dispositive motions are due September 13, 2021 - all dates to which the parties stipulated. (ECF No. 106). Defendants offer no justification for asserting the filing of the Proposed Complaint would "upend" these deadlines or add months or years to this litigation. Defendants were aware early on Climax planned to state a claim against Trawema and Trawema's liability is based primarily on the conduct of the Individual Defendants, lessening the likelihood the addition of Trawema as a defendant at this juncture would prejudice Defendants to any substantial degree.
III. Bad Faith
In the context of a motion for leave to amend, bad faith exists "when the addition of new legal theories are baseless and presented for the purpose of prolonging the litigation . . . or when the adverse party offers evidence that shows wrongful motive on the part of the moving party." Axial Vector Engine Corp. v. Transporter, Inc., Civil No. 05-1469-AC, 2008 WL 4547795, at *4 (D. Or. Oct. 9, 2008) (citations omitted) (internal quotations omitted). Defendants assert paragraphs 50, 52, and 53 of the Proposed Complaint are "materially misleading," create a "false impression," and are made in 'bad faith." Defendants ask the court to deny the Motion, "order Climax to immediately produce the alleged forensic evidence and any other evidence related to the circumstances regarding Mr. Heck's receipt of the Notice of Termination and departure from Climax," and "hold an evidentiary hearing" at which the "person most knowledgeable at Climax [should] appear and be cross-examined." (Opp'n at 12.)
The paragraphs to which Defendants object state:
50. Heck's termination letter from Climax GmbH is dated February 10, 2016. Heck applied to Trawema on February 24, 2016. Heck's last formal day at Climax GmbH was April 30, 2016.
* * *
52. Heck accessed a computer at Climax GmbH after his last formal day as a Climax GmbH employee and downloaded Climax's confidential and proprietary information, including CAD files and design documents and specifications for the two copied Climax products at issue and/or earlier models of those machines to an external USB device.
53. Heck was acting as Trawema's agent in misappropriating these CAD files showing designs for the two Climax machines at issue and/or their prior models
after his employment with Climax GmbH ended, with the intent to use these files and information to assist in the design of the competing Trawema products.(Mot. Ex. 1 ¶¶ 50, 52, 53.)
Defendants' bad faith argument attacks Climax's allegation Heck accessed his computer at Climax GmbH between the time he received his termination letter and turned in his credentials on February 19, 2016, and his last official day on Climax's payroll, which was April 30, 2016. Defendants argue Climax creates the false impression Heck continued to work for Climax GmbH, and had access to Climax files, through April 30, 2016, and offer Heck's declaration to establish he never had returned, or even had access, to Climax GmbH's facility after February 19, 2016.
At a January 8, 2021 discovery hearing ("Hearing"), Climax represented it had evidence that someone, apparently Heck, downloaded Climax "documents to a USB drive a few months after he was terminated." (Official Ct. Tr. of Proceeding on January 8, 2021, ECF No. 101 ("Tr.") 7-20.) Climax specifically represented "we do actually have evidence now, right, that somebody logged in using Mr. Heck's user ID, his password a few months after he was terminated by the company, downloaded documents concerning these particular machines to a USB drive, and then used an eraser program to cover his tracks." (Tr. 33:12-16.) At the Hearing, Defendants acknowledged the alleged existence of a "supposed forensic exam that says [Heck] downloaded these files supposedly to a USB drive in June, four months after he never had access to their facility again" from a "Fujitsu notebook" provided to Heck by Climax GmbH using "his ID and password." (Tr. 30:1-20.) Defendants then posit someone else at Climax GmbH may have accessed Heck's laptop, decided to repurpose it using Heck's ID and password, and gave it to another employee, and assert Climax has an obligation to perform an internal review to assess what actually happened with Heck's laptop. (Tr. 30:20-31:3.)
The dates mentioned by Defendants were "between June 24th and June 27th." (Tr. 30:1-3.)
Given the new evidence discussed by the parties at the Hearing, the allegations found in paragraph 50 state good faith facts and are not misleading, contrary to Defendants' claim. Similarly, Climax's new evidence provides some support for the allegations of paragraph 52. Because this evidence shows that someone accessed Heck's computer using his ID and password, downloaded Climax's protected information and covered their tracks, Climax's allegation that Heck was somehow involved in this process is not unreasonable or materially misleading. Also, because Defendants' objection to paragraph 53 is based on the misleading nature of the timeline alleged in paragraph 50, the justification for rejecting Defendants' objections to paragraph 50 applies equally to paragraph 53. Accordingly, the objectionable paragraphs are supported by the new evidence, not materially misleading, and at this time cannot be said to be made in bad faith.
The court has ordered Climax to produce the evidence referenced at the Hearing and on which Climax relies to support the objectionable paragraphs, effectively granting Defendants' request for the immediate production of the alleged forensic evidence relating to Heck. (ECF No. 100, Order dated January 8, 2021.) Should Defendants wish to contest that evidence or provide alternative explanations, they may do so in the summary judgment context after the close of discovery, not in opposition to a motion to amend or in the requested evidentiary hearing. In the event the court should find based on evidence presented at summary judgment that Climax acted in bad faith by incorporating false or clearly unsubstantiated allegations in the Proposed Complaint, the court may consider proper sanctions against Climax at that time. \ \ \ \ \
IV. Futility
Finally, Defendants assert the new allegations of the Proposed Complaint are insufficient to allege claims against Trawema based on Cramer's alleged misappropriation of Climax's confidential information. Defendants specifically argue the new allegations - that Cramer is the majority owner of Trawema and personally designed the two Trawema machines at issue - are insufficient to allege a viable claim under either a ratification or agency theory.
Defendants do not argue futility and appear to concede the Proposed Complaint alleges a viable claim against Trawema based on Heck's conduct under an agency theory.
Futility alone justifies denial, but "'only if no set of facts can be proved under the amendment to the pleadings that would constitute a valid claim or defense.'" Barahona v. Union Pac. R.R. Co., 881 F.3d 1122, 1134 (9th Cir. 2018) (quoting Sweaney v. Ada Cty., 119 F.3d 1385, 1393 (9th Cir. 1997)); Bonin, 59 F.3d at 845. That is, futility is evaluated under the same standard used for a Rule 12(b)(6) motion to dismiss. Fulton v. Advantage Sales & Mktng., LLC, No. 3:11-cv-01050-MO, 2012 WL 5182805 at *2 (D. Or. Oct. 18, 2012). To survive a Rule 12(b)(6) motion to dismiss, the plaintiff is required to show that they have a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A plausible claim has "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
First, Climax does not allege Cramer acted as Trawema's agent when he allegedly misappropriated Climax's confidential information. Rather, Climax alleges Trawema "ratified Cramer's misappropriation of Climax's trade secrets by knowingly using Climax's misappropriated confidential information for its own financial gain." (Mot. Ex. 1 ¶ 63.) Consequently, Defendants' arguments with respect to Cramer's conduct and an agency theory are irrelevant.
With respect to Climax's claim based on Trawema's ratification of Cramer's pre-incorporation activities, the Ninth Circuit has recognized "it is generally held that if a corporation, with full knowledge of a contract that was formulated before the corporation came into existence, accepts the benefits thereof, it will be required to perform the contract obligations. Chartrand v. Barney's Club, Inc., 380 F.2d 97, 100 (9th Cir. 1967). Knowledge of a promoter's pre-incorporation conduct may be imputed if that promoter becomes a director, officer, or major stockholder of the corporation he helped form. Id. Other federal courts have applied this general holding to a promoter's pre-incorporation misappropriation of confidential information.
In Stolle Mach. Co., LLC v. RAM Precision Indus., No. 3:10-cv-155, 2011 WL 6293323, at *1 (S.D. Ohio Dec. 15, 2011), the corporate defendant's founder, chief executive officer, and majority shareholder, allegedly misappropriated trade secrets from plaintiff, his then employer, after learning he would likely be terminated. Once terminated by the plaintiff, the individual travelled to China and founded the corporate defendant that used the misappropriated trade secrets to manufacture copycat machining equipment and become a direct competitor of the plaintiff. Id. The court attributed the individual's actions to the corporate defendant, finding "[a]lthough SLAC did not yet exist when An worked in Ohio and allegedly misappropriated Plaintiff's intellectual property, SLAC has subsequently ratified An's conduct by knowingly using those trade secrets and other proprietary information for its own financial gain." Id. at *8.
Similarly, a Pennsylvania district court acknowledged "[a] corporation is liable for acts preceding formal incorporation if it later ratifies those activities" and noted "[r]atification need not be explicit: it can be established by 'passive acquiescence' of directors who had 'full knowledge of the facts.'" Advanced Fluid Sys., Inc., v. Huber, CIVIL ACTION NO. 1:13-CV-3087, 2017 WL 2445303, at *14 (M.D. Pa. June 6, 2017). The court found the corporate defendant clearly ratified the pre-incorporation activities of its sole director. The court explained the "record establishes that Integrated Systems knowingly used AFS's trade secrets for its own benefit. There is no genuine dispute that Huber, as Integrated Systems' sole director at the time of the misappropriation, knew that he obtained these secrets using improper means." Id. Consequently, the court granted summary judgment to the plaintiff on its misappropriation claim against the corporate defendant. Id.
Climax alleges Cramer misappropriated confidential information while employed by Climax GmbH. A year after Cramer resigned from Climax GmbH, he founded Trawema and, while serving as the majority shareholder, managing director, and lead engineer, allegedly used Climax's confidential information to develop and design two products virtually identical to Climax's products. Because Cramer was the founder, primary shareholder, and managing director of Trawema at the time Trawema allegedly used Climax's misappropriated confidential information, Cramer's knowledge of his alleged wrongful conduct can be imputed to Trawema. Climax also claims Trawema has benefitted financially from the use of its confidential information through the sale of its competing products. Consequently, viewing the allegations of the Proposed Complaint as true, Climax has adequately alleged Trawema ratified Cramer's pre-incorporation misappropriation of Climax's confidential information. Defendants' futility argument fails.
Conclusion
Climax's motion (ECF No. 92) to amend should be GRANTED.
Scheduling Order
The Findings and Recommendation will be referred to a district judge for review. Objections, if any, are due within seventeen (17) days. If no objections are filed, then the Findings and Recommendation will go under advisement on that date.
If objections are filed, then a response is due within fourteen (14) days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.
DATED this 22nd day of March, 2021.
/s/_________
JOHN V. ACOSTA
United States Magistrate Judge