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Wihc LLC v. Nextgen Laboratories, Inc.

United States District Court, D. Hawaii

June 28, 2019





         On February 28, 2019, Plaintiff WHIC LLC dba Aloha Toxicology (“Plaintiff” or “Aloha Toxicology”) filed an eight-count Second Amended Verified Complaint (“SAC”) alleging claims against Defendants NextGen Laboratories, Inc. (“NextGen”), Ohana Genetics, Inc. (“Ohana Genetics”), [1] Heidi Maki (“Maki”), and Stephanie Simbulan (“Simbulan”) (collectively, “Defendants”). SAC, ECF No. 110.

         Currently before the court is Defendants' Motion to Dismiss the SAC. ECF No. 113. Defendants move to dismiss with prejudice Count V (unfair competition, Count VI (tortious interference with business relations), and Count VII (conversion) for failure to state a claim upon which relief can be granted. Id. at PageID #1767. Defendants also move to dismiss the SAC for lack of subject matter jurisdiction. Id.

         Based on the following, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion to Dismiss the SAC, ECF No. 113, and Counts V and VI are dismissed with prejudice. Plaintiff's request to amend the SAC is DENIED.


         A. Factual Background

         The factual allegations[2] in the SAC are as follows: Aloha Toxicology is a drug testing lab formed in 2006. SAC ¶ 11, ECF No. 110. Aloha Toxicology's clients include physicians, clinics, substance abuse treatment programs, rehabilitation facilities, and individuals across Hawaii. Id. ¶ 19. To obtain and serve those clients, Aloha Toxicology has invested “time, skill, and resources” into “gathering, developing, and compiling [client] information, ” such as services requested, financial data, and history of client accounts. Id. ¶ 21, 22. Aloha Toxicology's client lists are only accessible on Aloha Toxicology computers after logging in with a password. Id. ¶ 24. Under Aloha Toxicology's Employee Handbook, trade secrets are to remain confidential, trade secrets are expressly defined, and client lists are included in the definition. Id. ¶¶ 26-28. Maki and Simbulan were aware of this provision of the employee handbook. Id. ¶¶ 29-30. Maki was paid a full-time salary to work as the sales and operations manager of Aloha Toxicology from April 2014 until June 2018. Id. ¶¶ 31, 33. Simbulan was paid a full-time salary to work as a clinical laboratory specialist at Aloha Toxicology from October 2017 to June 2018. Id. ¶¶ 32-33. While being paid to work full-time at Aloha Toxicology, Maki and Simbulan began working for a competitor, Ohana Genetics. Id. ¶ 34. Neither Maki nor Simbulan informed Aloha Toxicology's owners that they were working for a competitor. Id. ¶¶ 36-37. While setting up a new lab at Ohana Genetics, Maki and Simbulan came to work as little as one day per week at Aloha Toxicology and lied to its employees by saying that they were working on a research project at a partner (not a competitor) lab. Id. ¶¶ 38-39.

         In June 2018, Maki told Aloha Toxicology employees that Aloha Toxicology could be shut down by an accreditation agency for up to six months, employees would be laid off during that shutdown, and the owners did not want to continue the business because of the issues with the accreditation agency. Id. ¶¶ 47, 48. Maki told Simbulan and Ronald Li, an Aloha Toxicology employee, to resign to protect their licenses and future job prospects from the stigma of a “bad lab” being attached to them. Id. ¶ 49. Maki told another employee, Andee Okamura, who was not yet certified, that she could state that she was laid off by Aloha Toxicology in order to obtain unemployment benefits. Id. Maki told Aloha Toxicology employees that she had found another company, Ohana Genetics, to take on Aloha Toxicology's clients and directed employees to send samples for testing to Ohana Genetics. Id. ¶ 50. In actuality, the owners had no intention to shut down the lab or to send samples to a competitor lab. Id. ¶ 51. Shortly thereafter, Maki resigned from Aloha Toxicology, telling the owners that the lab was no longer a 'viable business” because of the failure of a proficiency test, loss of key personnel, and the inability to test samples. Id. ¶ 53. After resigning, Maki never returned several computers, printers, a hotspot, and related equipment that she had purchased with Aloha Toxicology funds. Id. ¶¶ 54-55.

         As a result of Maki's actions, the lab at Aloha Toxicology was temporarily shut down and “all or a substantial number” of its clients were now doing business with Ohana Genetics. Id. ¶¶ 57-58.

         B. Procedural History

         On July 5, 2018, Plaintiff filed a nine-count Verified Complaint, seeking damages and injunctive relief. ECF No. 1. On July 23, 2018, Plaintiff filed a Motion for Preliminary Injunction, ECF No. 10, and hearings were held on that motion on August 22 and September 4, 11, 12, 2018. See WHIC LLC v. NextGen Labs., Inc., 341 F.Supp.3d 1147, 1157 (D. Haw. 2018). “The court heard testimony from eight witnesses, reviewed the declarations of three witnesses, and admitted numerous exhibits into evidence.” Id. On September 17, 2018, the court granted the preliminary injunction. Id. at 1168.

         Meanwhile, Plaintiff filed the First Amended Complaint (“FAC”) on September 12, 2018, solely to clarify and allege that conduct occurred in interstate commerce. ECF No. 54. The FAC contained the following claims: Violation of Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836 (Count I); Violation of Hawaii Uniform Trade Secrets Act (“HUTSA”), HRS chapter 482B (Count II); Violation of Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962 (Count III); Breach of the Duty of Loyalty (Count IV); Unfair Competition, HRS chapter 480 (Count V); Tortious Interference with Existing Contractual Relations (Count VI); Conversion (Count VII); Unjust Enrichment (Count VIII); and Spoliation of Evidence (Count IX). ECF No. 54.

         On September 26, 2018, Defendants filed a Motion to Dismiss the FAC. ECF No. 63. On January 31, 2019, the court granted in part and denied in part the Motion to Dismiss the FAC, with leave to amend (“January 31 Order”). ECF No. 102. The January 31 Order ruled that:

Counts V, VI, and IX are dismissed without prejudice in their entirety. Count VIII is dismissed without prejudice as to NextGen and Ohana Genetics. Accordingly, Counts I, II, and III remain as to all Defendants, Counts IV and VIII remain as to Maki and Simbulan, and Count VII remains as to Maki.

Id. at PageID #1688.

         On February 28, 2019, Plaintiff filed the SAC. ECF No. 110. The SAC contains the following claims: Violation of DTSA, 18 U.S.C. § 1836 (Count I-brought against all Defendants); Violation of HUTSA, HRS chapter 482B (Count II-brought against all Defendants); Violation of RICO, 18 U.S.C. § 1962 (Count III-brought against all Defendants); Breach of the Duty of Loyalty (Count IV-brought against Maki and Simbulan); Unfair Competition, HRS chapter 480 (Count V-brought against all Defendants); Tortious Interference with Existing Business Relations (Count VI-brought ...

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