Judge: Andrew E. Cooper, Case: 22CHCV00565, Date: 2023-05-19 Tentative Ruling

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Case Number: 22CHCV00565    Hearing Date: October 13, 2023    Dept: F51

DEMURRER

Demurrer filed: 7/11/23

MOVING PARTY: Defendant MAJCO LLC, dba Big Brand Tire & Service (erroneously sued as Big Brand Tire and Service Company, Inc.) (“Moving Defendant”)

RESPONDING PARTY: Plaintiff Datalink, Inc., a California corporation (“Plaintiff”)

NOTICE: OK

RELIEF REQUESTED: Moving Defendant demurs to Plaintiff’s entire second amended complaint (“SAC”).

TENTATIVE RULING: The demurrer is sustained without leave to amend.

BACKGROUND

This action arises out of the alleged breach of two contracts entered into between Plaintiff and Defendants, wherein Plaintiff was to provide computer networking services to Moving Defendant, with the assistance of non-moving defendant Cabling Solutions Group, LLC (“CSG”) as its subcontractor. (SAC ¶ 8.) Plaintiff alleges that Defendants thereafter directly contracted with one another in order to bypass their contractual obligations to Plaintiff as the middleman, in violation of contractual provisions prohibiting such conduct. (Id. at ¶ 14.)

On 7/27/22, Plaintiff filed its original complaint against Defendants. On 6/9/23, Plaintiff filed its SAC, after the Court sustained two demurrers to its previous complaints. In the SAC, Plaintiff alleges against Defendants the following causes of action: (1) Unfair Competition; (2) Interference with Prospective Business Advantage; (3) Breach of Covenant of Good Faith and Fair Dealing; and (4) Misappropriation of Trade Secrets.

On 7/11/23, Moving Defendant filed the instant demurrer to Plaintiff’s SAC. On 9/29/23, Plaintiff filed its opposition. On 10/5/23, Moving Defendant filed its reply.

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ANALYSIS

1.      Meet-and-Confer 

Moving Defendant’s counsel declares that on 7/6/23, he attempted to contact Plaintiff’s attorney by telephone, U.S. mail, and email to discuss the issues raised in the demurrer, but the parties were unable to come to a resolution. (Decl. of Willian D. Burger, Jr., ¶¶ 4–5.) Therefore, counsel has satisfied the preliminary meet and confer requirements of Code of Civil Procedure section 430.41, subdivision (a).

2.      Legal Standard 

As a general matter, a¿party may respond to a pleading against it by demurrer on the basis of any single or combination of eight enumerated grounds, including¿that¿“the pleading does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) In¿a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice.¿(Donabedian v. Mercury Ins. Co.¿(2004) 116 Cal.App.4th 968, 994.)¿“A demurrer tests the pleading alone, and not the evidence or facts alleged.” (E-Fab, Inc.¿v.¿Accountants, Inc. Servs.¿(2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Ibid.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn v. Mirda¿(2007) 147 Cal.App.4th 740, 747.)

Here,¿Moving Defendant¿demurs¿to each cause of action alleged in SAC under Code of Civil Procedure section 430.10, subdivision¿(e),¿arguing that¿Plaintiff fails¿to allege facts sufficient to¿state¿any of its causes of action against Moving Defendant.

3.      Unfair Competition

As a preliminary matter, the parties dispute whether Plaintiff may allege common law unfair competition or whether Plaintiff is limited to a cause of action for violation of Business and Professions Code section 17200 et seq. (the “UCL”). In its ruling on Moving Defendant’s demurrer to Plaintiff’s FAC, this Court granted Plaintiff leave to amend its complaint to add a cause of action for unfair competition. (5/23/23 Min. Order, p. 10.) As Moving Defendant observes, the Court’s ruling was based on Plaintiff’s representation that “it could plead more facts … to add additional causes of action ‘under Business and Professions Code section 17200 for unfair competition and for inducing a breach of contract against both Defendants for their conduct.’” (Ibid., quoting Pl.’s Opp. 13:14–16.) Accordingly, the Court agrees with Moving Defendant that Plaintiff’s added cause of action for Unfair Competition is limited to violations of the UCL, as set forth its own request for leave to amend.

To succeed on a claim for unfair business practices in violation of the UCL, a plaintiff must establish that the defendant was engaged in an “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” and certain specific acts. (Bus. & Prof. Code, § 17200.) “In essence, an action based on Business and Professions Code section 17200 to redress an unlawful business practice ‘borrows’ violations of other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable under section 17200 et seq. and subject to the distinct remedies provided thereunder.” (People ex rel. Bill Lockyer v. Fremont Life Ins. Co. (2002) 104 Cal.App.4th 508, 515.) A plaintiff alleging an “unfair” business practice under the UCL must show that the defendant's conduct is “tethered to an underlying constitutional, statutory or regulatory provision, or that it threatens an incipient violation of an antitrust law or violates the policy or spirit of an antitrust law.” (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 613.) “‘Fraudulent,’ as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public ‘are likely to be deceived.’” (Olsen v. Breeze, Inc. (1996) 48 Cal.App.4th 608, 618.)

Here, Plaintiff alleges that Defendants “engaged in unfair competition by engaging in acts including, but not limited to, CSG selling and BBT paying for their services below the contracted cost agreed to with Datalink in order to destroy or injure Datalink as a competitor, thus giving an unfair advantage over Datalink.” (SAC ¶ 24.) Plaintiff further alleges that “Defendants entered into a business conspiracy to defraud and circumvent Datalink and to tortuously interfere with Datalink’s contract with the respective Defendant.” (Id. at ¶ 26.)

Moving Defendant argues that Plaintiff “cannot simply restructure a failed breach of contract claim as an unfair competition claim.” (Dem. 6:24–7:4, citing Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544 “plaintiffs cannot bootstrap a claim for breach of contract—which, … they are not allowed to bring—onto a UCL claim.” Id. at 1555.) Here, Moving Defendant argues that Plaintiff’s UCL cause of action alleges the same conduct as in its failed breach of contract cause of action. The Court agrees.

The Court reiterates its previous finding that the no-hire and hiring fee provisions in the services agreement between the parties is void and unenforceable under Business and Professions Code section 16600 because they “effectively limit the employment opportunities of nonparties to the contract, including the ‘employees, agents, representatives, contractors, subcontractors, or vendors’ of each party.” (5/23/23 Min. Order, p. 4; 1/4/23 Min. Order, p. 6.)

In doing so, this Court discussed at length that VL Systems, Inc. v. Unisen, Inc. (2007) 152 Cal.App.4th 708, applied to the facts of the instant case, rather than Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, as urged by Plaintiff. (1/4/23 Min. Order, p. 6.) Here, as Moving Defendant notes, Plaintiff has once again renewed the same arguments it made in opposing the previous demurrers to Plaintiff’s breach of contract cause of action. (Pl.’s Opp. 4:20–7:2; Def.’s Reply 1:26–2:1.) The Court declines Plaintiff’s invitation to reconsider its prior analysis on this issue.

To the extent that Plaintiff alleges that Defendants acted to “tortuously interfere with Datalink’s contract with the respective Defendant,” the Court agrees with Moving Defendant that because this Court has already ruled that the subject contractual provisions are void and unenforceable, any alleged violations of those provisions cannot support a cause of action for violation of the UCL. (SAC ¶ 26; Def.’s Reply 3:11–15.)

Based on the foregoing, the Court finds that Plaintiff has failed to allege facts sufficient to support its first cause of action against Moving Defendant. Accordingly, the Court sustains Moving Defendant’s demurrer to Plaintiff’s first cause of action.

4.      Interference with Prospective Business Advantage

Plaintiff’s second cause of action alleges against all defendants Interference with Prospective Business Advantage. The elements of a claim for intentional interference with prospective economic advantage include “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional or negligent acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Crown Imports, LLC v. Superior Court (2014) 223 Cal.App.4th 1395, 1404.) Further, “the alleged interference must have been wrongful by some measure beyond the fact of the interference itself. For an act to be sufficiently independently wrongful, it must be unlawful, that is, it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Ibid.)

The Court previously found that Plaintiff failed to allege any “independently wrongful act” apart from the alleged interference itself. (5/23/23 Min. Order, p. 6; 1/4/23 Min. Order, p. 8.) Here, Plaintiff has amended its complaint to add the following language: “Defendants engaged in a conspiracy to defraud Plaintiff and engage in unfair competition as alleged hereinabove and in violation of Business and Professions Code Section 17200, et seq., and Civil Code Section 1770.” (SAC ¶ 33.)

Moving Defendant argues that these additional allegations are insufficient to constitute an “independently wrongful act,” as “Plaintiff cannot state a claim for violation of Business and Professions Code section 17200 (the UCL), and therefore it does not constitute a ‘wrongful act.’” (Dem. 8:25–26.)

In opposition, Plaintiff again argues that it “satisfied this pleading requirement by alleging the breaches of the two separate agreements and Defendants directly contracting with each other for the same services covered by the contract between Datalink and Big Brand Tires.” (Pl.’s Opp. 8:15–17.) The Court reiterates its previous finding that the subject no-hire and hiring fee provisions are void and unenforceable. (5/23/23 Min. Order, p. 4; 1/4/23 Min. Order, p. 6.) To the extent that Plaintiff’s second cause of action relies on an alleged violation of the UCL as the “independently wrongful act,” this argument fails as, the Court finds that Plaintiff has not sufficiently alleged facts to support a cause of action for Unfair Competition under the UCL.

Based on the foregoing, the Court finds that Plaintiff has not sufficiently cured the defects from its previous complaint, as the additional allegations are insufficient to constitute an “independently wrongful act.” Accordingly, the Court sustains Moving Defendant’s demurrer to Plaintiff’s second cause of action. 

5.      Breach of Implied Covenant of Good Faith and Fair Dealing

Plaintiff’s third cause of action alleges against Defendants a breach of the implied covenant of good faith and fair dealing with respect to the services agreement. Every contract contains an implied covenant of good faith and fair dealing that neither party will do anything to interfere with the other party's right to receive the benefits of the agreement. (Howard v. American Nat'l Fire Ins. Co. (2010) 187 Cal.App.4th 498, 528.) The precise nature and extent of the duty depends on the nature and purpose of the underlying contract and the parties' legitimate expectations arising from the contract. (Ibid.) “A breach of the implied covenant of good faith is a breach of the contract … and breach of a specific provision of the contract is not ... necessary to a claim for breach of the implied covenant of good faith and fair dealing.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

However, “if the allegations [of breach of implied covenant of good faith and fair dealing] do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.)

Here, Plaintiff alleges that “Defendants willfully breached their implied covenant of good faith and fair dealing and engaged in unfair business practices and unfair competition with Plaintiff when they violated the terms of their respective separate contracts with each other and directly contracted with each other.” (SAC ¶ 40.)

Moving Defendant argues that “this is essentially the failed breach of contact claim repackaged as a tort and, as a matter of law, fails to state a valid cause of action in tort against Big Brand.” (Dem. 9:20–22.) “The no-hire and hiring fee provisions that Big Brand allegedly violated when it contracted with CSG are void and unenforceable. Big Brand therefore did nothing wrong by hiring CSG—it constituted neither a breach of the contract, nor any wrongful refusal to discharge contractual responsibilities.” (Id. at 10:9–12.)

Plaintiff argues in opposition that it has sufficiently alleged that “Defendants engaged in conduct to intentionally frustrate Datalink’s rights and benefits under the respective contracts.” (Pl.’s Opp. 9:8–9.) As the Court has previously noted, the agreement between Plaintiff and Moving Defendant was fully performed by both parties. (5/23/23 Min. Order, p. 3.) Therefore, any remaining alleged “rights and benefits” under the agreement appear to derive from the no-hire and hiring fee provisions that this Court has already deemed void and unenforceable.

Based on the foregoing, the Court again finds the underlying factual allegations relied upon in Plaintiff’s third of action to be the same as those alleged in its failed cause of action for breach of contract. Accordingly, the Court sustains the demurrer to Plaintiff’s third cause of action.

6.      Misappropriation of Trade Secrets

Plaintiff’s fourth cause of action alleges against Defendants Misappropriation of Trade Secrets. “Under the [California Uniform Trade Secrets Act], a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper means, and (3) the defendant’s actions damaged the plaintiff.” (Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665; Civ. Code § 3426.1)

“‘Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ. Code § 3426.1, subd. (d).) “‘Improper means’ includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” (Id. at subd. (a).)

Here, Plaintiff has amended its complaint to allege that it considered each Defendant “as part of its customer list,” and that information about each Defendant was considered confidential. (SAC ¶ 47.) Plaintiff further realleges that “Defendants, have misappropriated, or worked in concert to misappropriate confidential client and subcontractor information by improperly directly breaching [the] confidentiality provisions [of the services agreements] and directly contracting with each other destroying the competitive advantages which Datalink otherwise enjoyed as a result thereof.” (SAC ¶ 48.)

Moving Defendant argues that Plaintiff “cannot plead that CSG is its confidential customer … As Datalink has repeatedly acknowledged, CSG was its ‘subcontractor’ that Datalink hired to perform some cabling work in Big Brand stores.” (Dem. 11:12–14, citing SAC ¶¶ 8, 9, 15.) This Court has previously found that “CSG’s identity is not a trade secret as a matter of law, particularly where its identity as a company that provides cabling services is not private within its statutory definition.” (5/23/23 Min. Order, p. 8, citing Civ. Code § 3426.1, subd. (d).) To the extent that Plaintiff reasserts its arguments and legal authorities made in opposition to the previous demurrer on this cause of action, this Court refers the parties to its previous ruling sustaining Moving Defendant’s demurrer thereto.

Based on the foregoing, the Court finds that Plaintiff has not sufficiently alleged facts to support a cause of action for Misappropriation of Trade Secrets. The Court notes that Plaintiff has failed to amend its complaint to cure the defects set forth in the previous demurrer. Accordingly, the Court sustains Moving Defendant’s demurrer to Plaintiff’s fourth cause of action without leave to amend.

7.      Leave to Amend

Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Id.; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245).

Here, Moving Defendant argues that since the Court ruled that the subject contractual provisions were void and unenforceable, “every other attempt by Plaintiff to state a claim, including in this SAC, has merely been a repackaging of the same barred breach of contract claims. This Court has granted Plaintiff repeated opportunities to state a cause of action, and Plaintiff has failed to meet its burden of articulating any specific way it can cure the defects in its complaints.” (Dem. 12:22–26.) Plaintiff argues in opposition that it has the ability to plead more facts pertaining to “reasonableness, unfair competition, or a wrongful act.” (Pl.’s Opp. 12:18.) However, as Moving Defendant observes, Plaintiff “fails to provide any explanation as to what allegations could possibly be added that could cure the deficiencies in that [UCL] cause of action.” (Def.’s Reply 6:12–13.)

The Court notes that this is the third demurrer brought against Plaintiff’s complaint in this action and finds that Plaintiff failed to successfully amend its complaint to cure the defects set forth in the Court’s prior rulings. Based on the foregoing, the Court denies Plaintiff’s request for leave to amend.

CONCLUSION

The demurrer is sustained without leave to amend.