17‐2659‐cv Doc. Techs., Inc., et al. v. LDiscovery, LLC, et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 24th day of April, two thousand eighteen.

PRESENT: RICHARD C. WESLEY, DENNY CHIN, SUSAN L. CARNEY, Circuit Judges.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

DOCUMENT TECHNOLOGIES, INC., EPIQ SYSTEMS, INC., EPIQ EDISCOVERY SOLUTIONS, INC., Plaintiffs‐Appellants,

v. 17‐2659‐cv

LDISCOVERY, LLC, CHRISTOPHER WEILER, Defendants‐Appellees,

STEVE WEST, JOHN PARKER, SETH KREGER, MARK HOSFORD, Defendants.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

FOR PLAINTIFFS‐APPELLANTS: ELLIOT H. SCHERKER (David W. Long‐ Daniels, James M. Vant, on the brief), Greenberg Traurig, LLP, Miami, Florida, Atlanta, Georgia, Boston, Massachusetts.

FOR DEFENDANTS‐APPELLEES: C. BRYAN WILSON (Joseph G. Petrosinelli, Kenneth J. Brown, Joshua D. Tully, on the brief), Williams & Connolly LLP, Washington, DC.

Appeal from the United States District Court for the Southern District of

New York (Rakoff, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.

Plaintiffs‐appellants Document Technologies, Inc., Epiq Systems, Inc., and

Epiq eDiscovery Solutions, Inc. (collectively, ʺDTIʺ) appeal from a July 27, 2017,

judgment dismissing with prejudice DTIʹs action against defendants‐appellees

LDiscovery, LLC, and its Chief Executive Officer, Christopher Weiler (together,

ʺLDiscoveryʺ). We assume the partiesʹ familiarity with the underlying facts, procedural

history, and issues on appeal.

In April 2017, DTI filed three separate lawsuits that were later

consolidated in the Southern District of New York. In its complaints, DTI alleged,

among other things, that its former employees (the ʺIndividual Defendantsʺ) conspired

with its direct competitor, LDiscovery, to misappropriate DTIʹs trade secrets and solicit

DTIʹs clients in violation of the employeesʹ employment agreements and state and

‐ 2 ‐

federal law. DTI alleged that LDiscovery (1) communicated extensively with the former

employees before their resignations from DTI, (2) agreed to indemnify the former

employees against lawsuits by DTI, and (3) agreed to compensate the employees with

significant sums of money. LDiscovery moved to dismiss the complaint.

On June 26, 2017, the district court granted LDiscoveryʹs motion to dismiss

the complaint without prejudice (the ʺJune 26 Orderʺ). While the motion was pending,

however, DTI filed an amended complaint, which added two new factual allegations:

(1) the former employees accessed DTIʹs confidential customer relationship

management software (ʺCRMʺ) ʺjust prior to or around the timeʺ of their meeting with

LDiscoveryʹs CEO, App. 145 ¶ 122, and did so for the purpose of receiving a ʺfull

[commission] creditʺ from LDiscovery for DTI customers brought to LDiscovery, App.

152 ¶ 158, and (2) the former employees emailed LDiscovery ʺconfidential information

detailing [the employeesʹ] historical sales revenue and performance with DTI,ʺ App. 144

¶ 112, and LDiscovery thus misappropriated DTIʹs trade secret information.

Because the parties had yet to brief the motion to dismiss in light of DTIʹs

amended complaint, the court dismissed the original complaint ʺwithout prejudice to

DTIʹs possibly amending the pleadings in timely fashion.ʺ App. 243. LDiscovery then

moved to dismiss the amended complaint with prejudice on July 12, 2017, and DTI filed

its opposition on July 19, 2017.

‐ 3 ‐

On July 22, 2017, the district court granted LDiscoveryʹs motion to dismiss

the amended complaint with prejudice. The court concluded that DTIʹs amended

complaint ʺlargely repeats the same factual allegations that the Court found insufficient

in its June 26 Order,ʺ and all of DTIʹs claims were premised on the same set of

inadequate allegations. Sp. App. 4. It further determined that the ʺtwo additional

allegations [added in the amended complaint] . . . fail[ed] to move DTIʹs theories from

the conclusory into the realm of plausible liability.ʺ Sp. App. 5 (internal quotation

marks omitted). Additionally, ʺbecause DTI ha[d] stated that it intend[ed] to ʹstand on

[its] amended complaint,ʹ and ha[d] ʹno immediate plans to seek leave to amend it,ʹʺ the

district court granted the motion to dismiss with prejudice. Sp. App. 8‐9 (quoting D. Ct.

ECF No. 79 ¶ 2).

We review de novo the dismissal of a complaint for failure to state a claim

under Rule 12(b)(6), accepting all allegations in the complaint as true and drawing all

reasonable inferences in favor of the plaintiff. Allco Fin. Ltd. v. Klee,

(2d

Cir. 2017). To survive a motion to dismiss, ʺthe claim asserted must be one that, in light

of the factual allegations, is at least ʹplausible.ʹʺ Anderson News, LLC v. Am. Media, Inc.,

(2d Cir. 2012) (quoting Bell Atl. Corp. v. Twombly,

(2007)). A claim has facial plausibility where ʺthe plaintiff pleads factual content that

allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.ʺ Ashcroft v. Iqbal,

(2009). Dismissal may be with

‐ 4 ‐

prejudice when there is an ʺabsence of any indication that [a plaintiff] could ‐‐ or would

‐‐ provide additional allegationsʺ to support a plausible claim. Gallop v. Cheney,

(2d Cir. 2011); see also Abu Dhabi Commercial Bank v. Morgan Stanley & Co.,

No. 08‐cv‐7508,

, at *2 (S.D.N.Y. Oct. 15, 2009) (dismissal may be with

prejudice when ʺa court puts a plaintiff on notice of a complaintʹs deficiencies and the

plaintiff fails to correct those deficiencies after amendmentʺ).

We conclude that the district court properly dismissed the amended

complaint with prejudice. First, we agree with the district court that DTI failed to plead

facts that give rise to a plausible inference that LDiscovery engaged in any wrongdoing.

Second, we agree with the district court that dismissal with prejudice was proper here.

1. Plausibility of DTIʹs Allegations

First, there appears no basis in the amended complaint from which we can

plausibly infer that LDiscovery is liable for the misconduct alleged. See Iqbal,

. The amended complaint did not identify a single customer who was actually

brought to LDiscovery. Nor does there appear any support for DTIʹs contention that

the Individual Defendants had not fully complied with their one‐year non‐competition

covenants. Indeed, the amended complaint alleges only that while the Individual

Defendants did enter into agreements with LDiscovery while still employed with DTI,

they agreed not to work for a year ‐‐ to ʺSit Outʺ for a year ‐‐ to comply with the one‐

year non‐compete period. App. 147 ¶ 133.

‐ 5 ‐

The plain language of LDiscoveryʹs Proposed Final Term Sheet and the

executed agreements between the former employees and LDiscovery ‐‐ which are

incorporated by reference into DTIʹs amended complaint ‐‐ further belies DTIʹs

conclusory allegation that LDiscovery incentivized the employees to breach their non‐

competition and employment agreements with DTI. See Allco Fin., 861 F.3d at 97‐98

n.13 (ʺFor the purpose of a motion to dismiss . . . the complaint is deemed to include

any written instrument attached to it as an exhibit or any statements or documents

incorporated by reference.ʺ (internal quotation marks omitted)); accord Subaru Distribs.

Corp. v. Subaru of Am., Inc.,

, 122 (2d Cir. 2005). The employment agreement

expressly provides that the former employees would not receive commissions until ʺafter

the end of the Sabbatical Yearʺ for any clients brought to LDiscovery. D. Ct. ECF No.

79, Ex. 2 (emphasis added). Additionally, the proposed indemnification terms

expressly state that LDiscoveryʹs offer of indemnity would end if the former employees

engaged in any ʺmaterial misconduct . . . relating directly to the issues of [the

employeesʹ] contemplated transitions.ʺ D. Ct. ECF No. 79, Ex. 1 ¶ 11.

We agree with the district court that DTIʹs other allegations also fail to

plausibly support DTIʹs theory of liability because (1) the fact that LDiscovery engaged

in communications with the former employees prior to their employment offers says

ʺnothing about the content of these communications,ʺ Sp. App. 3; and (2) the fact that

the former employees received ʺextraordinaryʺ compensation packages does not by

‐ 6 ‐

itself plausibly give rise to the inference that LDiscovery engaged in wrongdoing, App.

148 ¶ 137. The amended complaint did not compare salaries and bonuses with what the

employees were earning at DTI, nor did it provide any factual support to suggest that

the employeesʹ compensation was contingent on or reward for the misappropriation of

DTIʹs trade secrets or solicitation of DTIʹs clients in violation of their employment

agreements.

Furthermore, we agree with the district court that the two factual

allegations added in DTIʹs amended complaint fail to move DTIʹs theories into the

ʺrealm of plausible liability,ʺ Twombly,

n.5, because: (1) LDiscoveryʹs

commission offer could not have incentivized the former employees to inappropriately

access the CRM system, as the former employees ʺwould not receive credit for any work

generated during the period of their non‐competition covenant and would forfeit their

right of indemnification . . . should a court find that they violated the terms of their

employment agreements with DTI,ʺ Sp. App. 7; and (2) DTI failed to plead that

LDiscovery misappropriated its trade secrets because it only alleged that the Individual

Defendants revealed their own historical sales revenue and performance, without

identifying names of clients, and because DTI failed to plead that LDiscovery or Weiler

ever used that information, see Faively Transport Malmo AB v. Wabtec Corp.,

(2d Cir. 2009) (ʺTo succeed on a claim for the misappropriation of trade secrets

under New York law, a party must demonstrate: (1) that it possessed a trade secret, and

‐ 7 ‐

(2) that the defendants used that trade secret in breach of an agreement, confidential

relationship or duty, or as a result of discovery by improper means.ʺ) (quoting N. Atl.

Instruments, Inc. v. Haber,

, 43‐44 (2d Cir. 1999)).

2. Dismissal with Prejudice

As to the second issue ‐‐ whether dismissal with prejudice is proper ‐‐ we

conclude that it was. DTI was given adequate notice and opportunity to amend the

deficiencies in its complaint and failed to do so. The district court granted the motion to

dismiss the amended complaint for substantially the same reasons it set forth in its June

26 Order dismissing DTIʹs original complaint. Moreover, LDiscovery raised DTIʹs

pleading deficiencies in its motion to dismiss the amended complaint. DTI had ample

opportunity to respond or seek leave to amend, taking into account the courtʹs ruling on

the initial complaint and the arguments set forth in LDiscoveryʹs motion. See Horoshko

v. Citibank, N.A.,

(2d Cir. 2004) (per curiam) (rejecting argument that

the district court had erred ʺin not permitting an amendment that was never requestedʺ

as ʺfrivolousʺ). Nevertheless, DTI represented to the district court that it intended to

ʺstand on [its] amended complaint,ʺ and had ʺno immediate plans to seek leave to

amend.ʺ App. 314‐15. ʺWhile leave to amend under the Federal Rules of Civil

Procedure is ʹfreely granted,ʹ see Fed. R. Civ. P. 15(a), no court can be said to have erred

in failing to grant a request that was not made.ʺ Gallop,

.

‐ 8 ‐

Therefore, ʺin the absence of any indication that [DTI] could ‐‐ or would ‐‐

provide additional allegations that might lead to a different result, the District Court

did not err in dismissing [its] claim[s] with prejudice.ʺ Id.; see also Tannerite Sports, LLC

v. NBCUniversal News Grp.,

(2d Cir. 2017) (stating that the district court

properly denied plaintiffʹs motion for leave to amend because the plaintiff ʺidentified no

particular facts that would be introduced into an amended complaintʺ to cure the

deficiencies).

We have considered DTIʹs remaining arguments and find them to be

without merit. Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT: Catherine OʹHagan Wolfe, Clerk

‐ 9 ‐