Unreported / Non-Citable
Background
PMM Holdings, a Delaware LLC based in Sacramento, and its wholly-owned Oregon subsidiary Precision design and manufacture rotary airlock feeders and other material-handling components. Defendant DHG, Inc., an Ohio company, builds blower trucks through subsidiaries Finn Corporation and Express Blower. In 2015 and 2016, Precision discussed supplying feeders to Finn and Express Blower, producing a February 9, 2016 Memorandum of Understanding that required minimum lot purchases and provided that if the relationship ended Precision would stay out of the aftermarket and license its feeders to the DHG subsidiaries. The relationship ended after the subsidiaries failed to meet the lot commitments, and DHG did not license the feeders.
In 2024, DHG and Three Cities Research represented that DHG was interested in acquiring Precision, and the parties signed a Non-Disclosure Agreement requiring DHG to keep Precision's confidential information strictly confidential. Plaintiffs allege DHG falsely represented its acquisition interest to gain access to Precision's proprietary and trade-secret information, then misappropriated that information without compensation. Plaintiffs sued for breach of the NDA, tortious interference, trade-secret misappropriation under the DTSA and CUTSA, unlawful and fraudulent business practices under California's UCL, and intentional misrepresentation.
In a May 28, 2026 order, the court dismissed several claims with leave to amend. Plaintiffs filed a Second Amended Complaint on June 26, 2026, and DHG again moved on July 24, 2026 to dismiss the misappropriation claim as to engineering and technical trade secrets, both UCL claims, and the intentional-misrepresentation claim. After briefing, the court vacated the hearing and submitted the motion on the record.
The Court’s Holding
On the misappropriation claim, the court found plaintiffs sufficiently identified their engineering and technical trade secrets—drawings, STEP files, dimensions, tolerances, and design rationale—with enough particularity to let DHG ascertain the boundaries of the alleged secrets, and adequately pleaded independent economic value by alleging the information let the acquiring companies avoid design and development costs. But the court dismissed the claim as to those engineering and technical trade secrets because plaintiffs failed to plead agency liability: the SAC alleged only that Finn and Express Blower were under DHG's 'ultimate direction and control,' which does not show DHG took over the subsidiaries' day-to-day operations.
The court dismissed the unlawful business-practices UCL claim because plaintiffs conceded the allegations about misappropriation of non-trade-secret information were driven by the trade-secret claim, and because the new allegation that DHG's subsidiaries held themselves out as original-equipment manufacturers was conclusory, lacked factual support, and failed to name an underlying law violated. The fraudulent business-practices UCL claim failed because plaintiffs did not allege that the public at large, rather than plaintiffs themselves, was likely to be deceived, and the original-equipment-manufacturer allegations again lacked factual support.
The intentional-misrepresentation claim was dismissed as preempted by CUTSA because the alleged misrepresentations were intended to obtain plaintiffs' trade secrets, repeating the defect identified in the prior order. Because this was the third complaint and plaintiffs had two prior opportunities to cure pleading defects, the court dismissed all four claims without leave to amend as futile. The action proceeds on the breach-of-NDA claim, the tortious-interference claim, and the misappropriation claim for five remaining categories of information, and DHG must answer within fourteen days.
Key Takeaways
- A parent company's 'ultimate direction and control' over a subsidiary is insufficient to establish agency liability for trade-secret misappropriation; the plaintiff must allege facts showing the parent took over the subsidiary's day-to-day operations.
- CUTSA preempted the intentional-misrepresentation claim because the alleged misrepresentations were intended to obtain trade secrets, while the UCL claims were dismissed on separate grounds such as failure to identify an underlying law and failure to allege public deception.
- To state a fraudulent business-practices claim under California's UCL, a plaintiff must allege that members of the public are likely to be deceived, not only that the plaintiff was deceived.
- Courts may deny leave to amend when a plaintiff has already been given multiple opportunities to cure pleading defects and further amendment would be futile.
- Although the pleading standard for identifying trade secrets and alleging independent economic value is not high, conclusory allegations about agency relationships or public deception will not survive a motion to dismiss.
Why It Matters
This order illustrates the difficulty plaintiffs face in holding parent companies liable for subsidiaries' conduct under an agency theory in trade-secret cases: alleging 'ultimate direction and control' is not enough without specific facts showing involvement in day-to-day operations. It also reinforces CUTSA's preemptive reach over claims, like intentional misrepresentation, that are fundamentally about obtaining trade secrets.
The dismissal without leave to amend after two prior failed attempts to cure signals that plaintiffs must take prior orders' identified deficiencies seriously. The case now proceeds on a narrower docket—breach of the NDA, tortious interference, and misappropriation of the five non-engineering trade-secret categories.