ABB Turbo Systems AG v. TurboUSA: Fed. Cir. Reverses District Court’s Dismissal of Trade Secret Claim

Category: Civil Procedure  
By: Roy Rabindranath, Contributor
TitleABB Turbo Systems AG v. TurboUSA (Fed. Circ., Dec. 17, 2014).
Issue[…] the only issue we need to address is whether the district court erred in dismissing the trade-secret claim against TurboUSA and Willem Franken.
ABB Turbo, at * 6 (text added).
HoldingWe reverse [the district court’s ruling dismissing the trade-secret claim against the defendants], concluding that the district court relied on judgments about the merits that go beyond what is authorized at the complaint stage. We remand for further proceedings.
Id. at *2 (text added).
Procedural HistoryABB designs, produces, and sells exhaust-gas turbochargers and turbocharger parts, primarily for use in large, ocean-going vessels and in power plants. In 2012, ABB filed a complaint in the Middle District of Florida accusing TurboUSA, Inc, and TurboNed Services B.V. of infringing two of ABB’s turbocharger-related patents. Turboned […] and TurboUSA manufacture, sell, and service parts for turbochargers, including ABB turbochargers. As one basis for its allegation that the infringement was willful, ABB alleged that one of its former employees had improperly obtained and transferred to TurboUSA confidential information relating to ABB parts embodying its patented inventions. The Middle District court transferred the case to the Southern District of Florida. After filing its original complaint, ABB received information that, it alleges, suggested that Johan (“Hans”) Franken, who is TurboNed’s former owner and TurboUSA’s current indirect owner, and Willem Franken, who is TurboUSA’s current president (and son of Hans), had collaborated in the covert misappropriation of ABB’s trade secrets concerning the design, manufacture, servicing, and pricing of ABB’s turbochargers and parts. ABB sought and was granted leave to amend its complaint to add claims of misappropriation of trade secrets under Fla. Stat. §§ 688.001-688.009 and of civil conspiracy to misappropriate trade secrets, and to join Hans and Willem Franken as defendants for those claims. ABB’s amended complaint makes allegations of various deceptive and improper transactions – allegations that, at this stage of the case, we simply assume to be true. [….] After ABB filed its amended complaint, and after ABB stipulated to the bankrupt TurboNed’s dismissal without prejudice, the three remaining defendants filed motions to dismiss the entire amended complaint under Rule 12 (b)(6) for insufficient pleading. The defendants also argued that the trade-secret and conspiracy claims should be dismissed because they were time-barred by Fla. Stat. § 688.007, and Hans argued for dismissal for lack of personal jurisdiction. The motions made no specific arguments about the patent claims in the amended complaint. The district court granted the motions as to ABB’s trade-secret and conspiracy claims. It held that ABB’s trade-secret claim is “not well-formulated” with regard to two requirements of Florida trade-secret law: (1) a trade secret claim must be brought “within 3 years after misappropriation is discovered or by the reasonable exercise of diligence should have been discovered,” and (2) the allegedly misappropriated information must have been “the subject of efforts that are reasonable under the circumstances to maintain its secrecy” [….] The district court saw two ways to view the factual allegations in light of those requirements. In one view, ABB’s claims were filed too late, because ABB claimed misappropriation of its secrets over a period of nearly thirty years, with involvement of high-level ABB employees. Had ABB exercised reasonable diligence, the court reasoned it “should have at least had an inkling that something was amiss” at some point before 2012, when ABB claimed it first knew of the misappropriations. In the alternative view, given “the enormity of the scope of the misappropriations, in terms of geographic area and number of individuals involved,” and “perhaps also assuming no detection by ABB, “it would seem highly unlikely that the Trade Secrets were the subject of reasonable efforts to protect their secrecy.” For those reasons, the district court dismissed the trade-secret claim [….] The parties subsequently agreed to settle the patent infringement claims. […] We have jurisdiction under 28 U.S.C. § 1295(a)(1).
ABB Turbo, at *2-6 (text added, internal citations omitted).
Legal Reasoning (Prost, Newman and TARANTO)
Standard of ReviewFollowing the law of the regional circuit in which the case arose, we review the dismissal under Rue 12(b)(6) de novo, accepting the complaint’s allegations as true and construing them in light most favorable to the plaintiff.
ABB Turbo, at *7 (text added).
District Court’s First Ground for DismissalFederal Rules of Civil Procedure 8(a)(2) and 12(b)(6) together establish a notice pleading standard that is applied, in a context-specific manner, with the recognition that the imposition of litigation costs must be justified at the threshold by the presence of factual allegations making relief under the governing law plausible, not merely speculative. Thus, Rule 8(a)(2) requires that a plaintiff provide a “short and plain statement of the claim showing that the pleader is entitled to relief,” which requires that the complaint “ ‘give the defendant fair notice of what the…claim is and the grounds upon which it rests.’ “ To avoid dismissal under Rule 12(b)(6), the complaint must contain sufficient factual allegations “to raise a right to relief above the speculative level.” Rule 8’s pleading standard “does not require ‘detailed factual allegations.’ “ But it requires more than “barren recitals of the statutory elements, shorn of factual specificity” [….] Applying those standards to the trade-secret claim here, we conclude that the district court erred in its dismissal of the amended complaint. Neither of the reasons the district court gave supports the conclusion that ABB’s amended complaint is insufficient. The district court’s first ground for dismissal concerns the timeliness of the complaint. But “a statute of limitations bar is ‘an affirmative defense, and …plaintiffs are not required to negative an affirmative defense in their complaint.” Dismissal at the pleading stage on statute-of-limitations grounds ordinarily is improper unless it is “apparent from the face of the complaint that the claim is time-barred.” Here, to approve dismissal on timeliness grounds, we would have to conclude that ABB’s complaint alleges facts making it apparent that ABB discovered, or “by the exercise of reasonable diligence should have …discovered,” the alleged misappropriations at least three years before it sued in June 2012. We cannot so conclude. The amended complaint says nothing to identify an actual or constructive discovery before June 2009. It does not allege when or how ABB discovered the misappropriations. ABB’s only factual allegations regarding when it learned of the alleged misappropriations appear in its motion to amend its original complaint, which state that it did not know of the misconduct until after filing its initial complaint in 2012. Even if those allegations were considered, they would not support the district court’s conclusion: they controvert rather than indicate actual or constructive discovery before June 2009. The district court rested its untimeliness conclusion on the amended complaint’s allegations that misconduct occurred over a long period and through geographically dispersed meetings. The court reasoned that ABB “should have at least had an inkling that something was amiss.” We need not explore the relationship between that formulation and the governing “should have discovered” standard to conclude that the district court’s rationale is inadequate to support dismissal. The court’s rationale exceeds the limits on factual assessments appropriate when ruling on a motion to dismiss. The amended complaint alleges distinct acts of misappropriation of distinct trade secrets through clandestine communications and cash payments, with further concealment efforts undertaken after acquisition of the secrets; and nothing in the amended complaint makes clear that the trade secrets were the kind that would readily reveal themselves in the marketplace conduct of the users of the information. This seems enough to go beyond the “conclusory” and “factually neutral” to make affirmatively plausible the lack of actual or constructive discovery, but ABB did not need to meet even the standard in order to avoid a timeliness dismissal. It is enough that ABB’s amended complaint certainly does not state facts making apparent that ABB actually or constructively discovered the alleged misappropriations by June 2009.
Id. at * 7-10 (text added, internal citations omitted).
District Court’s Second Ground for DismissalThe district court’s second alternative ground for dismissal is also insufficient to support the judgment. The district court held that ABB did not sufficiently allege facts showing that it reasonably protected its trade-secret information. The court’s analysis was too demanding of specificity and too intrusive in making factual assessments. ABB has alleged “enough facts to state a claim to relief that is plausible on its face”; it has “nudged its claims across the line from conceivable to plausible.” ABB alleged that its secrecy-maintenance efforts “included imposing confidentiality and nondisclosure obligations on ABB employees that have access to ABB’s Turbocharger Trade Secrets, marking documents constituting ABB’s Turbocharger Trade Secrets with confidentiality designations and/or other indicia prohibiting the reproduction or dissemination of such documents or information to third parties, and restricting physical and electronic access by third parties to ABB’s Turbocharger Trade Secrets.” The district court cited no authority suggesting that such measures are not reasonable precautions to protect trade secrets under the governing law, and other courts have held allegations of similar protective measures sufficient at the pleading stage. [….] We follow those authorities [that note] that Florida law requires only “reasonable” protections and that the complaint stage is not well-suited to determining what precautions are reasonable in a given context. We see no basis in this case to deem ABB’s direct factual allegations insufficient to nudge the claim into the real of a plausible inference that ABB adequately protected its trade secrets. The district court reasoned that the scope of the alleged misappropriations, perhaps together with the lack of detection by ABB, made it “highly unlikely” that ABB was “actually restricting physical and electronic access to the information and taking other protective measures.” But it is simply not implausible that adequate protections were in place and yet a series of misappropriations occurred without ABB’s detection. [….] ABB’s specific factual allegations of protective measures are enough to survive a motion to dismiss.
Id. at *11-13 (text added, internal citations omitted).
We reverse the district court’s judgment and remand for further proceedings consistent with this opinion.
ABB Turbo, at *13.
Image Attribution Statement: Quentin Schwinn (NASA), “Turbocharger,” available as a public domain image created by USG (NASA), http://commons.wikimedia.org/wiki/File:Turbocharger.jpg (last visited March 22, 2015) (image edited).  
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