“Customer information such as sales history and customer needs 14 and preferences constitute trade secrets”
How later courts described this case
- “Customer information such as sales history and customer needs 14 and preferences constitute trade secrets”
Written by the judges who cited it.
The opinion
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
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11 ALPHA CAPITAL, LLC, Case No.: 3:23-cv-1265-JES-DEB
12 Plaintiff,
ORDER GRANTING EX PARTE
13 v. MOTION FOR TEMPORARY
RESTRAINING ORDER AND
14 DMITRY KHANUKOV et al.,
ORDER TO SHOW CAUSE RE:
15 Defendants. PRELIMINARY INJUNCTION
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ECF No. 3
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Presently before the Court is Plaintiff Alpha Capital, LLC’s (“Alpha”) Ex Parte
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application for a Temporary Restraining Order and Order to Show Cause Re:
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Preliminary Injunction. (“Ex Parte App,” ECF No. 3.) The Court held a hearing on July
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21, 2023, where counsel for Defendant Dmitry Khanukov (“Khanukov”), Lana Rishina,
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appeared on his behalf. For the reasons stated below, the Court GRANTS Plaintiff’s
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Motion for Temporary Restraining Order (“TRO”) and temporarily ENJOINS Dimitry
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Khanukov, from (1) improperly withholding Alpha’s Assets, (2) using Alpha’s
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confidential and proprietary information, and (3) accessing Alpha’s protected computers,
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computer databases, and accounts with electronic service providers. Defendant is further
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ORDERED to immediately return Alpha’s assets to Alpha by no later than July 31,
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1 2023.
2 I. BACKGROUND
3 Alpha is a full-service technology and business development consulting service
4 with a specialization in blockchain and related technologies. (Ex Parte App at 5.) On June
5 1, 2022, Alpha engaged Khanukov as a consultant to be Alpha’s Director of Technology.
6 (Ex Parte App at 5.)1 Khanukov executed a Consulting Agreement (“CA”) and a
7 Confidential Information and Invention Assignment Agreement (“CIIA”). (Ex Parte App
8 at 5; Declaration of Colin Breeze (“Dec of Breeze”) at Exhibits 1 and 2.) The CA spelled
9 out Khanukov’s duties and compensation while the CIIA spelled out specific duties
10 Khanukov owed to Alpha, specifically duties to keep Alpha’s proprietary information
11 confidential, to assign any and all new inventions or developments to Alpha, and a duty
12 of loyalty to Alpha (refraining from pursuing competing projects without Alpha’s written
13 approval). (Dec of Breeze, Section 4 of Exhibit 2.) Khanukov further agreed that upon his
14 separation from Alpha, he would return to Alpha all of its confidential information and
15 proprietary information that he was privy to, including access to all of the assets. (Id. at
16 Sections 2.3, 2.5 and 2.7 of Exhibit 2.) Finally, Khanukov agreed that he would not
17 engage in any engagement or business activity that directly or indirectly competed with
18 Alpha or conflicted with his employment with Alpha without Alpha’s express written
19 approval during the pendency of his employment with Alpha. (Id. at Section 4 of Exhibit
20 2.)
21 In January 2023, Khanukov wrote to Alpha that he intended to open a new
22 business for startups and investors called Go Global. (Ex Parte App at 6.) Alpha declined
23 to approve Khanukov’s pursuit of this new business effort, but later learned that in
24 October 2022, Khanukov had indeed started Go Global which appears to be a web-based
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27 1 The Employment Agreement is attached to the Declaration of Colin Breeze. Plaintiff in its application
for a TRO lists the CIA and CIIA as Exhibits A and B respectively. That is erroneous. Exhibit 1 is the
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1 service by which investors and project sponsors can interact, ultimately for project
2 sponsors to find investment capital. (Id.) Go Global’s business overlaps nearly
3 completely with that of Alpha’s subsidiary, GoToCrowd, LLC. (Id.) Like Go Global,
4 GoToCrowd is also a web-based service by which investors and project sponsors can
5 interact so that sponsors may secure investment capital and GoToCrowd has been in
6 operation since mid-2019. (Id.) During his employment with Alpha, Khanukov was
7 directly responsible for GoToCrowd software development and was the key Alpha team
8 member with control over the GoToCrowd software repository and access. (Id. at 6-7.)
9 On June 11, 2023, Khanukov communicated to Alpha that he was terminating his
10 consulting relationship with Alpha. (Id. at 9.) Alpha reminded Khanukov of his
11 obligations under the CIIA and CA and asked Khanukov to return to Alpha all access and
12 passwords for Alpha’s accounts with the electronic service providers and to return all of
13 Alpha’s property and assets. (Id. at 4, 9.) Alpha defined its assets as passwords, work
14 product, billing contact information for Alpha’s service providers, code repositories for
15 Alpha’s projects, website files, and all other information and work product that had been
16 under Khanukov’s control through his employment with Alpha. (Id. at 4.) Khanukov
17 refused to communicate with Alpha personnel and withheld Alpha’s assets. (Id.) Since
18 June 15, 2023, GoToCrowd has been entirely offline. (Id. at 7.) Alpha no longer controls
19 or even has access to the course code for GoToCrowd, which is being retained by
20 Khanukov. (Id.) During the period leading up to Khanukov’s departure, Alpha had been
21 engaged in a substantial online marketing push to generate new registrations at
22 GoToCrowd. (Id.) Since the GoToCrowd site has been offline, Alpha has had no new
23 registrations and likely has suffered substantial losses of potential users of the
24 GoToCrowd web service. (Id.)
25 In addition, since the start of his consulting relationship with Alpha, Khanukov
26 controlled Alpha’s relationship with the website hosting services for Alpha’s websites:
27 alphacapital.io; usdd.finance; and gotocrowd.com, among others. (Id.) Each of these
28 websites have been unavailable since late June 2023, and each remains under
1 Khanukov’s control. (Id.) Since approximately June 18, 2023, Alpha lost all access to its
2 website hosting services and all of its websites. (Id.) Alpha has only been able to regain
3 access to one of its websites, alphacapital.io, but all other sites remain dark. (Id.) Alpha’s
4 business has been substantially impeded as without access to its websites and domain
5 names, Alpha cannot communicate via its company email accounts attached to each such
6 website, all of which are necessary for it to properly operate. (Id.) Further, Khanukov has
7 access to dozens of Alpha’s electronic service providers, including:
8 • Google Suite
• Linode
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• Sum & Substance
10 • Hotjar
11 • Mailchimp
• SendGrid
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• Digital Ocean
13 • Google Voice
• Notion Labs
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• Mailgun
15 • Twilio
16 • LucidChart
• Figma
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• GoDaddy
18 • KoreConX
• Mail Servers for Alphacapital.io; and gotocrowd.com
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• Notion Project Management for each domain/website in the Alpha network
20 • GoToCrowd code repository
21 • Ecovery / Woodland code repository
• GetAirDrop code repository
22 • Seedcoin code repository
23 • Servers with live versions of GoToCrowd, USDD, Deepskyresort,
GetAirDrop, Woodcoin.org, SeedCoin, Virtu, EcoToken, Ecovery
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Foundation, WoodlandEco, Hermesus, and Alphacapital.io.
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26 which allows Alpha to operate and maintain its network of websites, email, spreadsheets,
27 documents, secure data rooms, management of customer engagement and communication
28 with clients. (Id. at 8-9.)
1 To date, Alpha still does not have access to or control over its own websites or
2 email systems and cannot manage its communications accounts and is thereby prevented
3 from operating its business, causing it substantial harm in the form of lost profits and
4 investment capital. (Id. at 9.)
5 Alpha filed a complaint for misappropriation of trade secrets under federal and
6 California law, as well as breach of contract. Alpha now moves for a temporary
7 restraining order which orders Khanukov to abide by trade laws and the Employment
8 Agreement.
9 II. LEGAL STANDARD
10 The standard for issuing a TRO is similar to the standard for issuing a preliminary
11 injunction and requires that the party seeking relief show either “(1) a combination of
12 likelihood of success on the merits and the possibility of irreparable harm, or (2) that
13 serious questions going to the merits are raised and the balance of hardships tips sharply
14 in favor of the moving party.” Homeowners Against the Unfair Initiative v. Cal. Building
15 Industry Ass'n., 2006 WL 5003362, *2 (S.D. Cal. Jan.26, 2006) (citing Immigrant
16 Assistance Project of the L.A. County of Fed'n of Labor v. INS, 306 F.3d 842, 873 (9th
17 Cir.2002)). “These two formulations represent two points on a sliding scale in which the
18 required degree of irreparable harm increases as the probability of success decreases.” Id.
19 (citations omitted). The underlying purpose of a TRO is to preserve the status quo and
20 prevent irreparable harm before a preliminary injunction hearing may be held. Granny
21 Goose Foods Inc. v. Bhd. of Teamsters & Auto Truck Drivers, 415 U.S. 423, 439 (1974).
22 Federal Rule of Civil Procedure 65(b) provides that a court may issue a TRO
23 without notice to the adverse party in limited circumstances where “specific facts in an
24 affidavit or a verified complaint clearly show that immediate and irreparable injury, loss,
25 or damage will result to the movant .... “Fed. R. Civ. P. 65(b) (1)(A). The movant must
26 also certify in writing any efforts made to give notice and the reasons why it should not
27 be required. Fed. R. Civ. P. 65(b)(1)(B). Although the restrictions imposed are stringent,
28 they “reflect the fact that our entire jurisprudence runs counter to the notion of court
1 action taken before reasonable notice and an opportunity to be heard has been granted
2 both sides of a dispute.” Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck
3 Drivers, 415 U.S. 423, 438–39 (1974).
4 III. DISCUSSION
5 A. Likelihood of Success on the Merits
6 Plaintiff must demonstrate a likelihood of success on the merits of its claims,
7 which are (1) misappropriation of trade secrets in violation of the Defend Trade Secrets
8 Act (“DTSA”) and California’s Uniform Trade Secret Act (“CUTSA”), (2) violation of
9 California’s Comprehensive Computer Data and Fraud Access Act, (3) Computer Fraud
10 and Abuse Act, (4) breach of contract, (5) intentional misrepresentation and fraudulent
11 concealment, (6) conversion, (7) negligence, and (8) unlawful and fraudulent business
12 practices in violation of California Business and Profession Code §§ 17200 and 17203.
13 For this order, the Court will only address the first claim.
14 1. Trade Secrets Misappropriation
15 To state a claim for misappropriation of trade secrets under CUTSA, a plaintiff
16 must allege: (1) the existence and ownership of a trade secret, and (2) misappropriation of
17 the trade secret. Pellerin v. Honeywell Int’l, Inc., 877 F. Supp. 2d 983, 988 (S.D. Cal.
18 2012) (citation omitted). A claim for misappropriation under the Defend Trade Secrets
19 Act (“DTSA”) has substantially similar elements. See 18 U.S.C. § 1836.
20 a. Trade Secrets
21 In establishing the existence of a trade secret, “[a] plaintiff need not ‘spell out the
22 details of the trade secret,’” Autodesk, Inc. v. ZWCAD Software Co., No. 5:14-cv-1409-
23 EJD, 2015 WL 2265479, at *5 (N.D. Cal. May 13, 2015) (citation omitted), but must
24 “describe the subject matter of the trade secret with sufficient particularity to separate it
25 from matters of general knowledge in the trade or of special persons who are skilled in
26 the trade, and to permit the defendant to ascertain at least the boundaries within which the
27 secret lies.” Pellerin, 877 F. Supp. 2d at 988 (quoting Diodes, Inc. v. Franzen, 260 Cal.
28 App. 2d 244, 253 (1968)). Both the DTSA and CUTSA define a “trade secret” as:
1 all forms and types of financial, business, scientific, technical, economic, or
engineering information, including patterns, plans, compilations, program devices,
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formulas, designs, prototypes, methods, techniques, processes, procedures, programs,
3 or codes, whether tangible or intangible, and whether or how stored, compiled, or
memorialized physically, electronically, graphically, photographically, or in writing
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if-
5 (A) the owner thereof has taken reasonable measures to keep such
information secret; and
6 (B) the information derives independent economic value, actual or potential,
7 from not being generally known to, and not being readily ascertainable through
proper means by, another person who can obtain economic value from the
8 disclosure or use of the information.
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18 U.S.C. § 1839(3); see also Cal. Civ. Code § 3426.1(d). Plaintiff lists the trade secrets
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at issue in this case as:
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confidential employee data, customer data, customer lists, strategy, business and
12 product development plans, software repositories, contract and pricing terms,
13 marketing materials, product information, designs, formulas, method,
developmental or experimental work, improvements, discoveries, inventions,
14 ideas, plans for research and development, customer preferences, internal business
15 operations software and information, social media accounts and passwords and
access information, and other information concerning its actual or anticipated
16 business activity.
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(Ex Parte App at 11; Compl. ¶ 54.)
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Plaintiff argues that all of its trade secrets possessed great independent economic
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and commercial value to Alpha and secured its ability to run its business. (Ex Parte App
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at 11.) In particular, the names, contact information, billing information, and service
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providers were trade secrets because those identities (a) held independent economic value
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by not being known to competitors and (2) were the subject of reasonable means to keep
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them secret, by keeping it password protected and limiting access to only those with a
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business need to have access, and by virtue of being stored on Alpha’s secure computer
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databases. (Id.) Further Alpha argues that its software code repository is a trade secret
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because it was developed over a significant period of time, including before Khanukov’s
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employment with Alpha. (Id., Dec of Breeze at ¶ 15.) Alpha argues that this information
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1 would have a significant economic value to any competitors, as they could rebuild
2 Alpha’s business or use the information to redirect business away from Alpha and to a
3 competing project. (Ex Parte App at 11.) Once that occurs, Alpha argues it would be
4 unable to re-establish those relationships, especially here where Alpha argues that
5 Khanukov has taken the entirety of Alpha’s computer database, preventing Alpha from
6 being able to manage its business entirely. (Id. at 11-12.)
7 Alpha has demonstrated that its service providers, customer information and
8 software code repository are not generally known or readily ascertainable through proper
9 means. See MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511, 521 (9th Cir. 1993)
10 (finding a customer database qualifies as a trade secret because the database has
11 “potential economic value because it allows a competitor . . . to direct its sales efforts to
12 those potential customers”); see also Henry Schein, Inc. v. Cook, 191 F. Supp. 3d 1072,
13 1077 (N.D. Cal. 2016) (“Customer information such as sales history and customer needs
14 and preferences constitute trade secrets”); Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514,
15 1522 (1997) (“[A] customer list can be found to have economic value because its
16 disclosure would allow a competitor to direct its sales efforts to those customers who
17 have already shown a willingness to use a unique type of service or product as opposed to
18 a list of people who only might be interested.” (citation omitted)). Alpha has established
19 that it has protectable trade secrets.
20 b. Misappropriation
21 Misappropriation is defined as:
22 (1) Acquisition of a trade secret of another by a person who knows or has
reason to know that the trade secret was acquired by improper means; or
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(2) Disclosure or use of a trade secret of another without express or implied
24 consent by a person who:
(A) Used improper means to acquire knowledge of the trade secret; or
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(B) At the time of disclosure or use, knew or had reason to know that
26 his or her knowledge of the trade secret was:
(i) Derived from or through a person who had utilized improper
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means to acquire it;
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1 (ii) Acquired under circumstances giving rise to a duty to
maintain its secrecy or limit its use;
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(iii) Derived from or through a person who owed a duty to the
3 person seeking relief to maintain its secrecy or limit its use; or
(C) Before a material change of his or her position knew or had reason
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to know that it was a trade secret and that knowledge of it had been
5 acquired by accident or by mistake.
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Cal. Civ. Code § 3426.1(b).2 Misappropriation under the DTSA is nearly identical. See
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18 U.S.C § 1839(5).
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Alpha argues it has established misappropriation through both the “acquisition”
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and “use” method as Khanukov has refused to turn over control of Alpha’s computer
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systems, software repositories, passwords, work product, billing contact information for
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Alpha’s service providers, code repositories for Alpha’s projects, website files, and all
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other information and work product that had been under Khanukov’s control during his
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work with Alpha. (Ex Parte App at 12.) Alpha argues that Khanukov effectively took all
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of Alpha’s confidential and proprietary information and trade secrets for himself by
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denying Alpha access to the information and the ability to use it to conduct business. (Id.)
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Further, Alpha argues that Khanukov’s refusal to turn over Alpha’s trade secrets is a
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“breach of duty to maintain secrecy” under the DTSA. (Id.) Khanukov has also launched
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Go Global, which competes with GoToCrowd, using Alpha’s trade secrets, taking
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business away from Alpha. (Id.)
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Khanukov acquired knowledge of trade secret information through improper
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means. “Improper means” is defined as “theft, bribery, misrepresentation, breach or
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2 The plaintiff “must plead facts showing that [defendant] had a duty not to use the information in the
25 way alleged.” Space Data Corp. v. X, No. 16-CV-03260-BLF, 2017 WL 5013363, at *2 (N.D. Cal. Feb.
16, 2017). Plaintiff has done this by producing the Employment Agreement. See Blindlight, LLC v.
26 Cubbison, No. CV17-3497 JAK (PLAx), 2017 WL 4769460, at *11 (C.D. Cal. July 3, 2017) (finding
that confidential agreement signed by the defendant is sufficient to show the defendant “should have
27 known that the information he acquired while an employee of [plaintiff] was ‘acquired under
circumstances giving rise to a duty to maintain its secrecy or limit its use,’ as required to show
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1 inducement of a breach of a duty to maintain secrecy, or espionage through electronic or
2 other means.” 18 U.S.C. § 1839(6); Cal. Civ. Code § 3426.1(a). This requirement is met
3 as Khanukov had a duty to maintain the secrecy of the information even after he left the
4 company.
5 The Court finds Alpha has sufficiently alleged a likelihood of success on the merits
6 for its trade secret misappropriation claim.
7 B. Imminent Irreparable Harm
8 Alpha asserts it “is suffering the irreparable and immediate harm of losing all
9 control over its Assets, its electronic service provider accounts and the information stored
10 on them, … [its] trade secrets and all economic value derived from having those secrets
11 … particularly true here, where Khanukov has taken the entirety of Alpha’s computer
12 database, thereby preventing Alpha from being able to manage its business entirely.” (Ex
13 Parte App at 19.) Further, “without the logins and passwords and software code that
14 Khanukov refuses to return to Alpha, Alpha is unable to effectively conduct its business
15 as it cannot communicate via its websites at all.” (Id.) Alpha asserts Khanukov’s actions
16 has caused Alpha “a substantial loss of business, loss of goodwill, damage to its
17 reputation, and loss of business opportunities.” (Id.)
18 “[E]conomic injury alone does not support a finding of irreparable harm, because
19 such injury can be remedied by a damage award.” Rent-A-Ctr., Inc. v. Canyon Television
20 & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991) (citing L.A. Mem’l Coliseum
21 Comm’n v. Nat’l Football League, 634 F.2d 1197, 1202 (9th Cir. 1980)). However, “an
22 intention to make imminent or continued use of a trade secret or to disclose it to a
23 competitor will almost always certainly show irreparable harm.” Pac. Aerospace & Elec.,
24 Inc. v. Taylor, 295 F. Supp. 2d 1188, 1198 (E.D. Wash. 2003) (quoting Campbell Soup
25 Co. v. ConAgra, Inc., 977 F.2d 86, 92–93 (3rd Cir. 1992)). “Evidence of threatened loss
26 of prospective customers or goodwill certainly supports a finding of the possibility of
27 irreparable harm.” Stuhlbarg Int’l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 841
28 (9th Cir. 2001).
1 Here, Alpha has established it is unable to operate its business at all and will lose
2 customers and goodwill through Khanukov’s actions, which shows there is a likelihood
3 of irreparable injury if Khanukov is not enjoined. This is true despite the fact that Alpha
4 has been communicating with Khanukov and his counsel for nearly 30 days to regain
5 access to its trade secrets. This satisfies the burden with respect to this factor.
6 C. Balance of Equities
7 “To qualify for injunctive relief, Plaintiff must establish that ‘the balance of the
8 equities tips in [its] favor.’” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138 (9th Cir.
9 2009) (quoting Winter, 555 U.S. at 20). A court has the “duty . . . to balance the interests
10 of all parties and weigh the damage to each.” L.A. Mem’l Coliseum Comm’n v. Nat’l
11 Football League, 634 F.2d 1197, 1203 (9th Cir. 1980). The damage to Alpha, as noted
12 above, is the loss of its entire business, customers and goodwill. There does not appear to
13 be any harmful effect on Khanukov. This TRO does not preclude him from working in
14 his desired industry, he is only precluded from using Alpha’s trade secrets in doing so.
15 This is only a small harm, compared to Plaintiff’s irreparable harm of loss of business
16 and goodwill. The balance of equities tip in Plaintiff’s favor.
17 D. Public Interest
18 “The public interest is served when [a] defendant is asked to do no more than abide
19 by trade laws and the obligations of contractual agreements signed with [his] employer.
20 Public interest is also served by enabling the protection of trade secrets.” Henry Schein,
21 191 F. Supp. 3d at 1078 (citing Bank of Am., N.A. v. Lee, No. CV 08–5546 CAS (JWJX),
22 2008 WL 4351348, at *7 (C.D. Cal. Sept. 22, 2008).) Accordingly, the public interest is
23 served in ordering Khanukov here to abide by trade laws and protect Alpha’s trade
24 secrets.
25 / / /
26 / / /
27 IV. CONCLUSION
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1 Therefore, the Court finds Alpha has met its burden in establishing it is entitled to
2 injunctive relief. The Court GRANTS Alpha’s motion for a TRO.
3 Accordingly, the Court ENJOINS Khanukov from (1) improperly withholding
4 || Alpha’s Assets, (2) using Alpha’s confidential and proprietary information, and (3)
5 || accessing Alpha’s protected computers, computer databases, and accounts with electronic
6 || service providers.
7 IT IS FURTHER ORDERED that Khanukov must immediately return Alpha’s
8 || Assets to Alpha by no later than July 31, 2023.
9 The Court ORDERS Khanukov to show cause as to why the Court should not
10 || grant Alpha’s motion for a preliminary injunction. The Court ORDERS the Parties to
11 appear on August 4, 2023, at 9:00 a.m. in Courtroom 4B for oral argument. Alpha’s
12 || moving papers shall be due on July 28, 2023. Khanukov’s opposition papers shall be due
13 August 1, 2023. Alpha’s reply papers shall be due on August 3, 2023.
14 IT IS SO ORDERED.
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6 Dated: July 21, 2023 4\u—~ Sin 4,
V7 Honorable James E. Simmons, Ir
18 Unites States District Judge
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