Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-00336/USCOURTS-casd-3_18-cv-00336-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 18:1836(a) Injunction against Misappropriation of Trade Secrets

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

JEHM, LLC,

Plaintiff,

Case No. 18-cv-0336-BAS-WVG

ORDER DENYING

DEFENDANT’S RULE 12(b)(1) 

MOTION TO DISMISS

[ECF No. 7]

v.

PALMTREE CLINICAL 

RESEARCH, INC.,

Defendant.

Pending before the Court is a Rule 12(b)(1) motion to dismiss the Complaint 

filed by Palmtree Clinical Research, Inc. (“PCR”). (ECF No. 7.) Plaintiff JEHM, 

LLC (“JEHM”) has opposed (ECF No. 8) and PCR has replied (ECF No. 13). For 

the reasons set forth herein, the Court denies PCR’s motion to dismiss. 

I. BACKGROUND

A. Factual Background

JEHM is a California-based clinical research consulting company that assists 

physicians and medical practices in conducting clinical research trials in San Diego, 

Inland Empire, and North Los Angeles areas. (Compl. ¶7.) PCR is also a Californiabased clinical research consulting company, which operates in the Palm Springs area. 

(Id. ¶8.) Clinical research companies like JEHM and PCR connect pharmaceutical 

companies with physicians for the purpose of conducting clinical trials. (Id. ¶9.)

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JEHM was formed in September 2017 by four members, two of whom—Erik 

Hernandez and Michael Gastauer—are minority shareholders, former directors and 

officers, and former employees of PCR. (Id. ¶¶11–13.) Prior to his termination as an 

employee of PCR by Gerard Bocian (the majority shareholder of PCR), Gastauer 

established a working relationship with Dr. Rayes, a physician who sought trials for

two companies, Merck and Exact. (Id. ¶19.) Although the Merck trial had been siteselected for PCR, Bocian allegedly decided PCR would not continue its involvement 

with Merck due to Gastauer’s termination. (Id ¶¶20–22.) Thereafter, JEHM agreed

to seek site-selection for the Merck and Exact trials. (Id ¶22.) After Bocian learned 

of JEHM’s existence and its intent to proceed with the trials, Bocian allegedly 

contacted Dr. Rayes and told him that he considered the Merck trial to be a PCR trade 

secret. (Id. ¶23.) Bocian threatened legal action against Dr. Rayes and JEHM if Dr. 

Rayes continued to work on the trial. (Id.) JEHM delayed the trial due to these 

threats. (Id. ¶25.) Further, Bocian allegedly claimed that Hernandez and Gastauer 

were stealing PCR trade secrets and again threatened legal action against JEHM. (Id. 

¶26.) Bocian has allegedly continued this course of conduct by telling current and 

prospective clients of JEHM that JEHM has misappropriated PCR’s trade secrets and

by threatening litigation. (Id. ¶¶30(a)–(b), 35.) 

B. Procedural Background

JEHM filed suit on February 12, 2018, alleging two claims for relief under the 

Declaratory Judgment Act, 28 U.S.C. §2201. (ECF No. 1) JEHM seeks a declaration 

that it did not misappropriate PCR’s trade secrets within the meaning of the Defend 

Trade Secrets Act, 18 U.S.C. §1836, and invokes federal question jurisdiction on this 

basis. (Compl. ¶¶1, 33–44, Prayer for Relief (A).) JEHM also seeks a declaration 

that it did not misappropriate PCR’s trade secrets within the meaning of the California 

Uniform Trade Secrets Act, CAL. CIV. CODE §§3426, et seq. (Id. ¶¶45–51, Prayer for 

Relief (B).) JEHM invokes this Court’s authority to exercise supplemental 

jurisdiction over state law claims as the basis for its second claim. (Id. ¶1.) JEHM 

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alleges that it has not misappropriated any trade secrets from PCR, including with 

respect to customer lists, confidential patient information, a trial list/database, and 

that PCR’s customer lists and trial list/database do not qualify as trade secrets. (Id.

¶¶36–43.) 

II. LEGAL STANDARD

Federal courts are courts of limited jurisdiction, possessing only that power 

authorized by Article III of the United States Constitution and statutes enacted by 

Congress pursuant thereto. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 

541 (1986). Thus, federal courts have no power to consider claims for which they 

lack subject-matter jurisdiction. Kokkonen v. Guardian Life Ins. Co. of America, 511 

U.S. 375, 377 (1994). The party asserting jurisdiction bears the burden of 

demonstrating that a cause lies within the limited jurisdiction of the federal courts. 

See id. at 376–78; see also Tosco Corp. v. Communities for a Better Env’t, 236 F.3d 

495, 499 (9th Cir. 2001).

A complaint must be dismissed under Federal Rule of Civil Procedure 12(b)(1) 

if it fails to allege facts sufficient to establish subject matter jurisdiction. Savage v. 

Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). Once a party 

has moved to dismiss for lack of subject matter jurisdiction, the opposing party bears 

the burden of establishing the Court’s jurisdiction. See Kokkonen, 511 U.S. at 377. 

A Rule 12(b)(1) challenge to jurisdiction may be facial or factual. Safe Air for 

Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial attack, the 

challenger asserts that the allegations contained in a complaint are insufficient on 

their face to invoke federal jurisdiction, whereas in a factual challenge, the challenger 

disputes the truth of the allegations that, by themselves, would otherwise invoke 

jurisdiction. Id. If in a facial attack to jurisdiction, a court assumes the truth of the 

allegations in the complaint. 

III. DISCUSSION

PCR moves to dismiss the Complaint under Rule 12(b)(1) on the ground that 

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JEHM lacks standing to assert its claims for declaratory relief concerning the Defend 

Trade Secrets Act (“DTSA”), 18 U.S.C. §1836, and the California Uniform Trade 

Secrets Act (“CUTSA”), CAL. CIV. CODE §§3426, et seq. (ECF No. 7-1 at 3.)1 PCR 

argues that there is no federal question jurisdiction in this case because JEHM cannot 

assert a DTSA claim and, consequently, the Court cannot exercise supplemental 

jurisdiction over the CUTSA claim. (Id. at 4, 6.) Because PCR facially challenges 

this Court’s jurisdiction solely on the basis of the allegations in the Complaint, the 

Court assumes the truth of JEHM’s allegations. After consideration of PCR’s 

arguments, the allegations in the Complaint, and applicable law, the Court finds that 

dismissal of the Complaint is not warranted.

A. The Court Possesses Federal Question Jurisdiction

The Declaratory Judgment Act authorizes courts to “declare the rights and 

other legal relations of any interested party seeking such declaration” so long as the 

declaration is sought “in a case of actual controversy within the Court’s jurisdiction.” 

28 U.S.C. §2201(a). The Declaratory Judgment Act creates a federal remedy, but 

does not provide an independent basis for federal jurisdiction. See Franchise Tax Bd. 

v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27–28 (1983); Nationwide Mut. Ins. 

Co. v. Liberatore, 408 F.3d 1158, 1162 (9th Cir. 2005). Before declaratory relief can 

be granted, federal subject matter jurisdiction requirements must be satisfied. Skelly 

Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). Thus, actions for 

declaratory relief either must be between parties of diverse citizenship, or must “arise 

under” federal law. 

Here, there is no diversity jurisdiction because JEHM and PCR are both 

California corporate entities with their principal places of business in California. 

(Compl. ¶¶5–6.) Accordingly, it is JEHM’s burden to establish that one of its 

 

1 PCR also purports to seek dismissal under Rule 12(b)(6). (ECF No. 7-1 at 

2.) However, dismissal for lack of subject matter jurisdiction is governed by Rule 

12(b)(1), not Rule 12(b)(6). See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

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declaratory judgment causes of action “arises under” federal law. The Complaint 

“expressly states that resolution of its claims” will require this Court to apply the 

Defend Trade Secrets Act (“DTSA”), 18 U.S.C. §1836, and thus presents a “clear 

indication” that it “present[s] a federal question giving rise to federal subject-matter 

jurisdiction.” Nationwide Mut. Ins. Co., 408 F.3d at 1161; (Compl ¶¶33–44.) 

PCR, however, argues that although JEHM asserts federal question jurisdiction 

on the basis of the DTSA, JEHM lacks Article III standing to assert such a claim. 

(ECF No. 7-1 at 4.) The basis of PCR’s argument is that the DTSA permits only an 

“owner of a trade secret” to sue for alleged misappropriation. (Id. (citing 18 U.S.C. 

§1836(b), §1839(f).) Because JEHM is not the “owner” of PCR’s allegedly 

misappropriated trade secrets, JEHM does not meet the statutory criteria for asserting 

a DTSA claim and falls outside the “zone of interest” protected by the DTSA. (Id. at 

4–5 (citing, inter alia, Allen v. Wright, 468 U.S. 737, 750–51 (1984).) 

This argument for dismissal is premised on a fundamental misunderstanding 

of the nature of declaratory relief actions. In declaratory relief actions, whether the 

claim “arises” under federal law is determined by the nature of the underlying 

coercive claim, i.e. the claim that the declaratory judgment defendant may assert 

against the declaratory judgment plaintiff. See Franchise Tax Bd., 463 U.S. at 19. If 

“the declaratory judgment defendant could have brought a coercive action in federal 

court to enforce its rights, then [the federal court] has jurisdiction notwithstanding 

the declaratory judgment plaintiff’s assertion of a federal defense.” Janakes v. U.S. 

Postal Serv., 768 F.2d 1091, 1093 (9th Cir 1985) (emphasis added); see also Standard 

Ins. Co. v. Saklad, 127 F.3d 1179, 1181 (9th Cir. 1997) (“A person may seek 

declaratory relief in federal court if the one against whom he brings his action could 

have asserted his own rights there.”); Atl. Richfield Co. v. Christian, CV 15-83-BUBMM-JCL, 2016 WL 8677253, at *3 (D. Mont. July 8, 2016) (same). It is this 

standard on which JEHM relies to oppose PCR’s motion to dismiss. (ECF No. 8 at 

5–6.) 

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PCR’s argument to the contrary repeats the misstatement of law regarding 

jurisdiction in a declaratory judgment action made by a defendant in an authority PCR 

claims requires dismissal here. See Transportation Compliance Assocs. Inc. v. 

Hammond, No. 2:11-cv-1602-AJS, 2012 WL 604426, at *4 (W.D. Pa. Feb. 24, 2012) 

(“Defendant misstates the law with respect to jurisdiction in declaratory judgment 

actions. Potential defendants can sue under the declaratory judgment act when a 

federal question is the underlying claim.”) (citing Beacon Theatres, Inc. v. Westover, 

359 U.S. 500, 504 (1959); Severe Records, LLC v. Rich, 658 F.3d 571 (6th Cir. 2011) 

(holding that a plaintiff suing for a declaration they were not infringing a copyright 

was a federal question for purposes of declaratory judgment jurisdiction)). The 

question this Court must ask then is whether PCR—the declaratory judgment 

defendant in this case—could have asserted its rights under the DTSA in federal 

court, based on the allegations in the Complaint. Assuming the truth of the 

Complaint’s allegations, it is clear that PCR could have brought a coercive action 

against JEHM in federal court under the DTSA for alleged misappropriation of its 

trade secrets. Accordingly, JEHM has properly invoked this Court’s federal question 

jurisdiction.

B. There Exists an “Actual Controversy”

Although JEHM has shown that there is federal question jurisdiction here, it 

must still satisfy the Declaratory Judgment Act’s requirement there be an “actual 

controversy” within the court’s jurisdiction. 28 U.S.C. §2201(a). An actual 

controversy exists within the meaning of the Declaratory Judgment Act when the 

dispute is “definite and concrete, touching the legal relations of parties having adverse 

legal interests.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). 

Further, the dispute must be “real and substantial and admit of specific relief through 

a decree of a conclusive character, as distinguished from an opinion advising what 

the law would be upon a hypothetical set of facts.” Id. The question is “whether the 

facts alleged, under all the circumstances, show that there is a substantial controversy, 

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between parties having adverse legal interests, of sufficient immediacy and reality to 

warrant the issuance of a declaratory judgment.” Id. 

The dispute alleged in the Complaint meets this standard. JEHM alleges that 

PCR repeatedly asserted that JEHM has misappropriated its trade secrets, in the form 

of customer lists, confidential patient information, and a trial list/database. (Compl. 

¶¶23, 34–35.) The Complaint also alleges that PCR threatened it would file a lawsuit 

against JEHM for alleged misappropriation related to that activity. (Id. ¶¶23, 25–26, 

29, 30(a)–(b).) JEHM further alleges that despite PCR’s alleged claim that the Merck 

trial is a PCR trade secret, JEHM has gone forward with the trial and finalized a 

contract with Merck. (Id. ¶28.) JEHM disputes that it has misappropriated PCR’s 

trade secrets and seeks a declaration by identifying specific items it claims not to have 

misappropriated, either through its conduct or because they do not constitute trade 

secrets.

2

 These allegations show that there is an actual, redressable, and immediate 

controversy between the parties. See, e.g., Amazon.com, Inc. v. Nat’l Ass’n of College 

Stores, Inc., 826 F. Supp. 2d 1242, (W.D. Wash. 2011) (finding that there was an 

actual dispute regarding whether advertisements were allegedly misleading in 

violation of the Lanham Act); Patent Trust v. Microsoft Corp., 525 F. Supp. 2d 1200, 

1219 (S.D. Cal. 2007) (denying motion to dismiss declaratory judgment claim 

seeking declaratory judgment of non-infringement of patents).

Of course, “an actual controversy must be extant at all stages of review, not 

merely at the time the complaint is filed.” Arizonans for Official English v. Arizona, 

520 U.S. 43, 67 (1997) ((internal quotation marks and citations omitted); see also

 

2 PCR argues that JEHM has failed to show that there is an actual dispute 

because of JEHM’s allegations that PCR has no trade secrets and that JEHM did not 

engage in any trade secret misappropriation. (ECF No. 13 at 1–2.) However, it is 

precisely these allegations which underlie JEHM’s claim for declaratory relief. A 

declaratory judgment plaintiff necessarily views its conduct as not violating the 

relevant law or statute on which a declaratory judgment defendant could have 

coercively brought suit. 

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MedImmune, Inc., 549 U.S. at 138. Thus, PCR may able to show at a later stage, by 

presenting facts, that there is no live controversy over alleged trade secret 

misappropriation or that it would seek to litigate that issue. See, e.g., Keith Mfg., Co. 

v. Butterfield, No. 3:15-cv-2008-SI, 2016 WL 4134555, at *48 (D. Ore. Aug. 2, 2016) 

(finding that declaratory judgment defendant’s covenant not to sue over alleged 

patent infringement mooted claim for declaratory judgment of non-infringement);

Crossbow Tech., Inc. v. YH Tech., 531 F. Supp. 2d 1117, 1124 (N.D. Cal. 2007)

(same). 

C. The Court May Exercise Supplemental Jurisdiction

With federal jurisdiction existing, the Court may properly exercise 

supplemental jurisdiction over JEHM’s CUTSA claim. See 28 U.S.C. §1367 (“[T]he 

district courts shall have supplemental jurisdiction over all other claims that are so 

related to claims in the action within such original jurisdiction that they form part of 

the same case or controversy under Article III of the United States Constitution . . .”). 

Indeed, PCR acknowledges that if this Court has federal question jurisdiction, it can 

exercise supplemental jurisdiction over JEHM’s declaratory relief claim concerning 

CUTSA. (ECF No. 7-1 at 6 (“JEHM’s second count also must be dismissed if its 

first count is dismissed by the Court.”).) Accordingly, the Court rejects PCR’s 

request for dismissal of the declaratory judgment claim concerning CUTSA. 

IV. CONCLUSION & ORDER

For the foregoing reasons, the Court DENIES PCR’s motion to dismiss. (ECF 

No. 7.) This dismissal is without prejudice to the ability of PCR to assert a factual 

challenge to subject matter jurisdiction under Rule 12(b)(1) at a later point in the 

litigation. PCR is ORDERED to file an Answer to the Complaint no later than May 

28, 2018.

IT IS SO ORDERED.

DATED: April 27, 2018

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