U.S. invokes states secrets privilege in non-solicit dispute

Where a company sued its former employees for violating a non-solicitation promise, and sued their new company for tortious interference, the United States was permitted to intervene in the suit to invoke the “state secrets” privilege because the companies performed classified work for government agencies.

Background

On June 21, 2022, GRID Networks LLC filed a complaint in Fairfax County circuit court, asserting three claims: (1) breach of contract against former employee Brian McCarthy for breaching a non-solicitation provision; (2) breach of contract against Quantum Leap Research, or QLR, James Miller, John Yescavage and James McPherson for breaching the terms of a settlement agreement and (3) tortious interference with contract against QLR by interfering with McCarthy and Yescavage’s obligations to GRID.

Defendants removed the suit to this court, alleging that the claims asserted in the state court action “arise and relate to classified work performed by GRID and/or QLR for certain United States Government agencies” and that, therefore, adjudicating the claims requires resolution of substantial embedded issues of federal law. GRID filed a motion to remand.

The United States then filed a motion to intervene, indicating it had an interest in protecting classified national security information at risk of disclosure, but declining to invoke the state secrets privilege at that time, and opposing remand. The United States then invoked the state secrets privilege.

Intervention

Intervention shall be permitted when a movant timely requests intervention and demonstrates “‘(1) an interest in the subject matter of the action; (2) that the protection of this interest would be impaired because of the action; and (3) that the applicant’s interest is not adequately represented by existing parties to the litigation.”

The court finds that each of the three factors governing Rule 24(a) weighs in favor of intervention. First, the invocation of the state secrets privilege reflects the United States’ significant interest in protecting national security and in “withholding national security information from unauthorized persons.” Second, the disclosure of classified information in this litigation threatens that interest, and the United States’ interest will be impaired unless it is permitted to intervene. Third, no existing party could adequately represent the interests of the United States in this litigation.

Remand

The well-pleaded complaint rule provides that “removal [to federal court] is appropriate if the face of the complaint raises a federal question.” On the face of the complaint, the well-pleaded complaint rule does not appear to be satisfied, as GRID has raised only state law claims.

Defendants contend that an exception to the well-pleaded complaint rule — embedded federal question jurisdiction — applies here. An embedded federal question exists when a federal question is (1) “necessarily raise[d],” (2) “actually disputed,” (3) “substantial” and (4) capable of resolution in federal court “without disturbing any congressionally approved balance of federal and state judicial responsibility.”

This court finds that an embedded federal question exists here in light of the United States’ formal invocation of the state secrets privilege. First, a federal question will necessarily be raised in this litigation. The United States has formally invoked the state secrets privilege and litigating this action will undoubtedly implicate substantial questions of federal law, including whether the state secrets privilege is needed to protect national security and whether dismissal is the appropriate remedy.

Second, assertion of the privilege may require dismissal of the action, which will likely be disputed by GRID. Moreover, the parties vigorously dispute, in the event the case proceeds to discovery, the scope and application of the privilege.

Third, the federal question is substantial. The state secrets privilege “performs a function of constitutional significance, because it allows the executive branch to protect information whose secrecy is necessary to its military and foreign-affair responsibilities.” Finally, the assertion of the state secrets privilege implicates the separation of powers, which is not merely capable of being resolved in federal court but is also most appropriately resolved in a federal forum. No federal-state balance will be disrupted by litigating this action in this forum.

United States’ motion to intervene granted. Plaintiff’s motion to remand denied.

Grid Networks LLC v. Quantum Leap Resources LLC, Case No. 1:22-cv-00805, March 31, 2023. EDVA at Alexandria (Nachmanoff). VLW 023-3-183. 9 pp.