Commercial Division Blog

Posted: June 24, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz /

Plaintiff Adequately Pleads Misappropriation of Confidential Information

In a Decision and Order dated May 10, 2022, in Sure, Inc. v. Boost Ins. USA, Inc., 2022 NY Slip. Op. 31523(U), Justice Joel M. Cohen denied defendant’s motion to dismiss a claim for misappropriation of confidential information.  The Court explained: 

Here, affording the complaint a liberal construction (see Leon v Martinez, 84 NY2d 83, 87-88, 638 N.E.2d 511, 614 N.Y.S.2d 972 [1994]), Sure adequately alleges a cause of action for misappropriation of confidential information and/or trade secrets. First, Sure sufficiently alleges that, while Maffeo was on Sure's board, he was given Sure's proprietary backend system and software, in addition to its customer lists, partner lists, business model, and business plan (NYSCEF Doc No. 15, complaint ¶¶ 33-40, 42-43, 51-59). Sure also alleges that its novel backend system, software, customer lists, partner lists, and business strategy and model were developed through considerable effort and expense (id. ¶¶ 3-4, 16-22). Sure further alleges that it took steps to maintain confidentiality, including requiring third-parties to sign non-disclosure agreements, enacting employee policies and procedures, and using robust security and privacy measures on computer systems (NYSCEF Doc No. 15, complaint ¶ 23).

Second, Sure sufficiently alleges that Boost acquired the confidential information by improper means — namely, by Maffeo's use of information provided to him in his capacity as a Sure board member (see Bender Ins. Agency v Treiber Ins. Agency, 283 AD2d 448, 450, 729 N.Y.S.2d 142 [2d Dept 2001]; Taro Maintenance Corp. v Culkin, 267 A.D.2d 431, 433, 700 N.Y.S.2d 490 [2d Dept 1999]). Where a breach of fiduciary duty is established, "'third parties who have knowingly participated in the breach may be held accountable'" (Alpha Funding Group, Inc. v Aspen Funding LLC, 17 Misc 3d 1126[A], 2007 NY Slip Op 52160[U], *6 [Sup Ct, Kings County 2007], quoting Schneider Leasing Plus v Stallone, 172 AD2d 739, 741, 569 N.Y.S.2d 126 [2d Dept 1991], appeal dismissed 78 N.Y.2d 1043, 582 N.E.2d 594, 576 N.Y.S.2d 211 [1991], rearg denied 79 N.Y.2d 823, 588 N.E.2d 100, 580 N.Y.S.2d 202 [1991]).  According to Sure's allegations, Boost directly copied Sure's backend software system, products, and business model (id. ¶¶ 69-70, 71-75). Sure alleges that Boost's executive officers and the members of its board of directors — including Maffeo and Andy Lerner — were aware that Boost (via Maffeo) had wrongfully obtained Sure's confidential information (id. ¶¶ 48, 55, 83).

Third, Sure alleges that Boost used its confidential information and/or trade secrets. After reviewing Boost's website in August 2019, Slavin allegedly discovered that Boost had pivoted its business model to turn Boost into a "carbon copy" of Sure (cf. Meer Enters., LLC v Kocak, 173 AD3d 629, 630, 105 N.Y.S.3d 415 [1st Dept 2019]), and attempted to steal one of its longstanding business partners using this information (NYSCEF Doc No. 15, complaint ¶¶ 69-70, 71-75). Taking Sure's factual allegations to be true, Boost is not entitled to dismissal of the first claim.

The attorneys at Schlam Stone & Dolan frequently litigate claims concerning misappropriation of confidential information.  Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such disputes.