Judge: Barbara M. Scheper, Case: 23STCV07566, Date: 2023-06-20 Tentative Ruling
Case Number: 23STCV07566 Hearing Date: June 20, 2023 Dept: 30
Calendar No.
USI, Inc., et.
al. vs. Newman, et. al., Case
No. 23STCV07566
Tentative Ruling
re: Defendants’ Demurrer to Complaint;
Motion to Strike
Defendants Christopher Newman,
Jessie Chung, Patricia Ondara, and Carmen Sylvia Neria (collectively,
Defendants) demur to the Complaint of Plaintiffs USI, Inc. and USI Insurance
Services LLC (collectively, Plaintiffs) and move to strike portions of the
Complaint. The demurrer is overruled and the motion to strike is denied. Defendants are ordered to answer within ten
(10) days of today’s date.
In reviewing the legal sufficiency of a complaint against a demurrer, a
court will treat the demurrer as admitting all material facts properly pleaded,
but not contentions, deductions, or conclusions of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank); C & H Foods Co.
v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062.) It is well settled
that a “demurrer lies only for defects appearing on the face of the
complaint[.]” (Stevens v. Superior Court
(1999) 75 Cal.App.4th 594, 601.) “The rules by which the sufficiency of a
complaint is tested against a general demurrer are well settled. We not only
treat the demurrer as admitting all material facts properly pleaded, but also
give the complaint a reasonable interpretation, reading it as a whole and its
parts in their context.” (Guclimane Co.
v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (internal quotes
omitted).) For purposes of ruling on a demurrer, the complaint must be
construed liberally by drawing reasonable inferences from the facts pleaded. (Wilner v. Sunset Life Ins. Co. (2000) 78
Cal.App.4th 952, 958.)
When ruling on a demurrer, the Court may only consider the complaint’s
allegations or matters which may be judicially noticed. (Blank, supra, 39 Cal.3d at 318.) The Court may not consider any
other extrinsic evidence or judge the credibility of the allegations plead or
the difficulty a plaintiff may have in proving his allegations. (Ion Equip. Corp. v. Nelson (1980) 110
Cal.App.3d 868, 881.) A demurrer is properly sustained only when the complaint,
liberally construed, fails to state facts sufficient to constitute any cause of
action. (Kramer v. Intuit Inc. (2004)
121 Cal.App.4th 574, 578.)
Plaintiffs are insurance brokerage
companies. (Comp. ¶ 15.) On November 30, 2017, Plaintiffs acquired the business
and assets of Wells Fargo Insurance Services, Inc. (WFIS), which had also been
in the insurance brokerage business. (Comp. ¶ 16.) Defendants Jessie Chung (Chung)
and Patricia Ondara (Ondara) were employees of WFIS who became employed by
Plaintiffs following the acquisition, and Defendants Christopher Newman
(Newman) and Carmen Sylvia Neria (Neria) became employees of Plaintiffs in 2019
and 2022, respectively. (Comp. ¶¶ 7-10.)
Plaintiffs allege that “Defendants
engaged in a coordinated plan to raid USI of both USI employees and clients in
an anticompetitive manner for the benefit of Defendants and to the detriment of
USI.” (Comp. ¶ 34.) On March 6, 2023, Newman resigned from Plaintiffs, and the
same day became an employee of HUB International Insurance Services, Inc.
(HUB), a competitor of USI in insurance brokerage services. (Comp. ¶ 36.)
Newman allegedly held discussions with HUB prior to his resignation that “involved
the disclosure of USI’s Confidential Information and the possibility of
soliciting other USI employees to resign from USI and join HUB.” (Comp. ¶ 37.)
Newman also solicited a number of Plaintiffs’ clients to move their business to
HUB. (Comp. ¶¶ 38, 41-45.) Like Newman, the remaining Defendants submitted
their resignations to Plaintiffs on March 6, 2023, joined HUB, and allegedly
solicited Plaintiffs’ clients to move their business to HUB. (Comp. ¶¶ 46-63.)
Plaintiffs assert claims against
Defendants for (1) Breach of Contract; (2) Breach of Duty of Loyalty; (3)
Tortious Interference with Prospective Economic Advantage; and (4) Unfair
Competition.
First Cause of Action for Breach of Contract
Defendants demur to the first cause
of action on the basis that the contracts at issue are insufficiently pled, and
that the Complaint is uncertain as to which contract has been violated by which
Defendant.
“A written
contract may be pleaded either by its terms—set out verbatim in the complaint
or a copy of the contract attached to the complaint and incorporated therein by
reference—or by its legal effect.’” (McKell v. Washington Mutual, Inc.
(2006) 142 Cal.App.4th 1457, 1489.)
Under the breach of contract claim,
Plaintiffs allege, “[e]ach Defendant entered into and executed written
agreements with USI or WFIS governing their duties and obligations both during
and after their employment.” (Comp. ¶ 25.) These agreements allegedly “contain
provisions prohibiting Defendants from soliciting any of USI’s clients to do business
with another insurance broker.” (Comp. ¶ 26.) Four referenced agreements are
attached to the Complaint, corresponding to each Defendant: an Employment
Agreement between Christopher Newman and Plaintiffs (Comp. Ex. A); a
“Confidentiality, Non-Solicitation & Non-Interference Agreement” between
Jessie Chung and WFIS (Ex. B); an identical confidentiality agreement between
Patricia Ondara and WFIS (Ex. D); and a “Confidentiality, Non-Solicitation
& Non-Interference Agreement” between Defendant Carmen Sylvia Neria and
Plaintiffs. (Ex. C).
As the agreements allegedly
breached by each Defendant are attached to the Complaint, the Court finds that Plaintiffs’
claims for breach of contract are sufficiently pled and not uncertain.
Economic Loss Rule
Defendants argue that Plaintiffs’
remaining causes of action for breach of duty of loyalty, tortious interference
with prospective economic advantage, and unfair competition are barred by the
economic loss rule. The Court disagrees.
“Economic loss consists of damages for inadequate value,
costs of repair and replacement of the defective product or consequent loss of
profits—without any claim of personal injury or damages to other property.
[Citation.] [T]he economic loss rule provides: ‘[W]here a purchaser's expectations in a sale are
frustrated because the product he bought is not working properly, his remedy is
said to be in contract alone, for he has suffered
only ‘economic’ losses.’ ” (Robinson Helicopter Co. v. Dana Corp. (2004)
34 Cal.4th 979, 988.) “The economic loss rule
requires a purchaser to recover in contract for purely economic loss due to
disappointed expectations, unless he can demonstrate harm above and beyond a
broken contractual promise.” (Ibid.)
The economic loss rule does not apply to the facts alleged.
The rule does not bar a claim for tort damages
when “the duty that gives rise to tort liability is either completely
independent of the contract or arises from conduct which is both intentional
and intended to harm.” (Erlich v. Menezes
(1999) 21 Cal.4th 543, 552.) Here, the duties
underlying Plaintiffs’ tort claims are independent of the agreements that were
allegedly breached. (See, e.g., Huong Que,
Inc. v. Luu (2007) 150 Cal.App.4th 400,
410 [“The duty of loyalty arises not from a contract but from a
relationship”]; Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141 [“Tortious interference
with prospective economic
advantage . . . does not depend on the
existence of a legally binding contract”].) Plaintiffs’
fourth cause of action for Unfair Business Practices is based in statute (Bus.
& Prof. Code §§ 17200, et seq.), and so is not subject to the
economic loss rule in any case. Defendants do not present any other arguments
regarding the second through fourth causes of action, and so the demurrer is
overruled as to those claims.
Motion to Strike
Finally, Defendants
move to strike Plaintiffs’ allegations related to recovery of punitive damages
under the second and third causes of action. (Comp. ¶¶ 72, 78, Prayer 4.). As
discussed above, Defendants’ argument that punitive damages are barred by the
economic loss rule is unavailing. Defendants also argue that Plaintiffs have
not pled facts showing oppression, fraud, or malice.
Punitive damages may be imposed
where it is proven by clear and convincing evidence that the defendant has been
guilty of oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a).)
“Malice” means conduct which is intended by the defendant to cause injury to
the plaintiff or despicable conduct which is carried on by the defendant with a
willful and conscious disregard of the rights or safety of others. (Civ. Code §
3294, subd. (c)(1).)
The
allegations that Defendants tortiously appropriated Plaintiffs’ confidential
information and solicited Plaintiffs’ clients are sufficient, for purposes of
pleading, to show Defendants’ “willful and conscious disregard of the
rights” of Plaintiffs. Accordingly, the motion to strike is denied.