Judge Daniel M. Crowley, Case Number: 23STCV27922, Date: 2024-02-23 Tentative Ruling

Defendant Kwan Yoon’s demurrer to Plaintiff The Crème Shop, Inc.’s 1st, 2nd, 4th, 5th, 6th, 7th, and 8th causes of action in its complaint is overruled.

Defendant Kwan Yoon (“Yoon”) (“Defendant”) demurs to Plaintiff The Crème Shop, Inc.’s (“TCS”) (“Plaintiff”) Complaint (“Complaint”) as to each cause of action alleged against him. (Notice of Demurrer, pg. 1; C.C.P. §§430.10(e), (g).)

Plaintiff filed its operative Complaint on November 14, 2023 against Defendants Sunna “Olive” Kim (“Olive”), Insil “Christina” Kim (“Christina”), Helen Yang (“Yang”), Raysa Cerna (“Cerna”), Pauline Contreras (“Contreras”), Paul Kim (“Paul”), Rachaelle Villa (“Villa”), Deisy Larios (“Larios”), Angela Paik (“Paik”), Yoon, and Kimberly Hernandez (“Hernandez”) (collectively, “Defendants”) alleging nine causes of action: (1) breach of contract [against Olive, Cerna, Contreras, Paul, Larios, Villa, Yang, and Yoon]; (2) breach of the duty of loyalty [against all Defendants]; (3) breach of fiduciary duty [against Olive]; (4) aiding and abetting breach of the duty of loyalty [against all Defendants]; (5) aiding and abetting breach of fiduciary duty [against all Defendants]; (6) misappropriation of trade secrets [against all Defendants]; (7) computer crimes (Pen. Code §502(c)) [against all Defendants]; (8) receipt of stolen property (Pen. Code §496(a)) [against all Defendants]; and (9) conversion [against Olive].

Plaintiff alleges between October 6, 2023, and October 13, 2023, several employees of TCS suddenly resigned. (Complaint ¶2.) Plaintiff alleges this mass exodus was led by Olive, TCS’s co-founder, who was under an investigation, opened September 15, 2023, by TCS’s board of directors for misconduct, including suspected defalcation of $200,000 from TCS through false pretenses. (Complaint ¶2.) Plaintiff alleges Olive resigned on October 6th. (Complaint ¶2.) Plaintiff alleges on the same day, triggered by Olive’s resignation, the employment of Christina (Olive’s mother) and Lawrence Kim, Olive’s father and Christina’s husband) also ended. (Complaint ¶2.) Plaintiff alleges Christina was a co-founder of TCS and acted in a role substantially the equivalent of TCS’ Chief Operating Officer. (Complaint ¶2.) Plaintiff alleges then, on the ensuing Monday, October 9th, seven other employees loyal to Olive suddenly resigned without prior notice and left the company. (Complaint ¶2.)

Plaintiff alleges those who resigned on October 9th were Villa (Digital Marketing Manager), Larios (Design Manager), Yang (Sales/Marketing Manager), Paul (Head of Sales), Cerna (Senior Designer), Contreras (Senior Designer), and Paik (Christina’s sister, who, on information and belief, referred to her position as that of a Vice President). (Complaint ¶3.)

Plaintiff alleges on October 11, 2023, Yoon (Olive’s husband and the Head of Logistics), and Cathleen Kim (Financial Coordinator), resigned, which was followed by the resignation of Hernandez (Graphic Designer) on October 13, 2023. (Complaint ¶4.) Plaintiff alleges all these resignations were also without prior notice. (Complaint ¶4.)

Plaintiff alleges it was surprised by this coordinated departure, and conducted an initial investigation and was shocked to learn that these departing employees had, in the days (and in Olive’s case, weeks) leading up to their departure from TCS, worked to systematically steal TCS’s confidential and proprietary information, including trade secrets. (Complaint ¶6.) Plaintiff alleges Defendants took thousands of TCS’s files in the days leading up to their departures. (Complaint ¶6.) Plaintiff alleges they sabotaged TCS by locking it out of its information and systems and by deleting information from TCS’s systems. (Complaint ¶6.) Plaintiff alleges they changed passwords on key documents and failed to provide those passwords to TCS, changed the permissions on other documents to prevent TCS from accessing them, and mass-deleted information. (Complaint ¶6.)

Plaintiff alleges on information and belief that Defendants committed this misconduct in order to establish a competing business built on the back of TCS’s confidential and proprietary information, and in a particularly harsh, vindictive and unlawful manner aimed at crippling TCS’s ability to conduct its business. (Complaint ¶7.) Plaintiff alleges as a result of Defendants’ misconduct, TCS’s business has been irreparably harmed. (Complaint ¶7.) Plaintiff alleges TCS is unable to access its files from its own systems and was unable for weeks to access key social media platforms which are the cornerstone of its marketing. (Complaint ¶7.) Plaintiff alleges when pressed to provide this information, Defendants falsely denied they had changed the passwords or credentials. (Complaint ¶7.)

On January 27, 2024, Yoon filed the instant demurrer. On February 8, 2024, Plaintiff filed its opposition. On February 15, 2024, Yoon filed his reply.

Yoon demur to Plaintiff’s 1st, 2nd, 4th, 5th, 6th, 7th, and 8th causes of action on the basis they fail to state facts sufficient to constitute causes of action against Yoon. (Demurrer pgs. 1-2; C.C.P. §430.10(e).) Yoon also demurs to the 1st cause of action on the basis that it cannot be ascertained from the pleading whether the alleged contract is written, is oral, or is implied by conduct. (Demurrer pg. 1; C.C.P. §430.10(g).) Yoon further demurs to the 7th and 8th causes of action on the basis they are preempted and superseded by the California Uniform Trade Secrets Act (Civ. Code §2426.7). (Demurrer, pg. 2.)

Before filing a demurrer pursuant to this chapter, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer. (C.C.P. §430.41(a), emphasis added.) A declaration must be filed with a demurrer regarding the results of the meet and confer process. (C.C.P. §430.41(a)(3).)

“[A] demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (See Donabedian v. Mercury Insurance Co. (2004) 116 Cal.App.4th 968, 994 [in ruling on a demurrer, a court may not consider declarations, matters not subject to judicial notice, or documents not accepted for the truth of their contents].) For purposes of ruling on a demurrer, all facts pleaded in a complaint are assumed to be true, but the reviewing court does not assume the truth of conclusions of law. (Aubry v. Tri-City Hospital District (1992) 2 Cal.4th 962, 967.)

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) plaintiff’s performance of the contract or excuse for nonperformance, (3) defendant’s breach, and (4) resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

Although a written contract is usually pleaded by alleging its making and attaching a copy which is incorporated by reference, a written contract can also be pleaded by alleging the making and the substance of the relevant terms. (Construction Protective Services, Inc. v. TIG Specialty Insurance Co. (2002) 29 Cal.4th 189, 198-199; Perry v. Robertson (1988) 201 Cal.App.3d 333, 341.) “An oral contract may be pleaded generally as to its effect, because it is rarely possible to allege the exact words. [Citation.] A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. [Citations.]” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) That plaintiff could not allege with specificity the exact terms of the contract does not preclude statement of a cause of action. (Id.)

Plaintiff alleges Defendants each entered into contractual agreements with TCS which obligated them to protect the confidentiality of TCS’s information, not to misuse that information, and to return TCS’s information upon their separation from TCS. (Complaint ¶62.) Plaintiff alleges the agreements were valid and binding contracts. (Complaint ¶63.) Plaintiff alleges TCS performed all duties required of it under the agreements. (Complaint ¶64.) Plaintiff alleges Defendants breached the agreements by taking for their personal use and/or disclosing TCS confidential and proprietary information, and, separately, by failing to return such information to TCS after their separation. (Complaint ¶65.) Plaintiff alleges Defendants’ performance of these contractual duties was not excused. (Complaint ¶66.)

Plaintiff alleges as a direct and proximate result of Defendants’ breaches, TCS has suffered damage, in an amount to be proven at trial. (Complaint ¶67.) Plaintiff alleges further, TCS will continue to be directly and proximately damaged and irreparably harmed if Defendants are not enjoined from further violation of their contractual obligations to TCS. (Complaint ¶67.) Plaintiff alleges TCS does not have an adequate remedy at law and will not be fully compensated for Defendants’ breaches without injunctive relief. (Complaint ¶67.) Plaintiff alleges it seeks injunctive relief, including preliminary injunctive relief, requiring Defendants to not use, return, and restore access to TCS’s documents and information. (Complaint ¶68.) Plaintiff alleges TCS also seeks monetary damages in amount to be proven at trial, and reasonable attorney’s fees and costs pursuant to the contracts. (Complaint ¶68.)

Plaintiff sufficiently alleges the general terms of Yoon’s contract, which contains the material terms. (Complaint ¶62.) Plaintiff sufficiently alleges the alleged contract is written. (See Complaint ¶32 [“A critical feature of TCS’s security measures is TCS’s requirement that its employees who have access to confidential or proprietary information must sign agreements that require them to keep TCS’s information confidential and not to use or disclose it for their own benefit.”], emphasis added.)

“The elements of a cause of action for breach of a duty of loyalty, by analogy to a claim for breach of fiduciary duty, are as follows: (1) the existence of a relationship giving rise to a duty of loyalty; (2) one or more breaches of that duty; and (3) damage proximately caused by that breach.” (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 410.)

“It is settled that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. An officer or director may not seize for himself, to the detriment of his company, business opportunities in the company’s line of activities which his company has an interest and prior claim to obtain. In the event that he does seize such opportunities in violation of his fiduciary duty, the corporation may claim for itself all benefits so obtained.” (Xum Speegle, Inc. v. Fields (1963) 216 Cal.App.2d 546, 554, internal citations omitted.)

Plaintiff alleges as employees of TCS, Defendants each owed TCS an undivided duty of loyalty and as a result, Defendants were obligated to act with the utmost good faith and in the best interest of TCS. (Complaint ¶70.) Plaintiff alleges it was entitled to place its trust and confidence in Defendants and was entitled to expect Defendants to act with the utmost good faith toward it in carrying out TCS’s business. (Complaint ¶71.) Plaintiff alleges it did rely on Defendants’ loyalty and integrity and faithful performance of their job duties and responsibilities. (Complaint ¶72.)

Plaintiff alleges Defendants knowingly and willingly breached their common law duties of loyalty to TCS and violated California Labor Code Section 2863. (Complaint ¶74.) Plaintiff alleges for example, Defendants coordinated and timed their departures to inflict maximum harm on TCS. (Complaint ¶74.) Plaintiff alleges they also refused to disclose passwords and other vital information TCS needed to log-into accounts, including TCS’ Instagram and TikTok accounts, both of which were vital to TCS’ efforts to market and promote its products. (Complaint ¶74.) Plaintiff alleges Defendants also changed permissions on various files and deleted information from TCS’ systems all in a coordinated effort to harm TCS prior to their departures. (Complaint ¶74.)

Plaintiff alleges as a direct and proximate result of Defendants’ breach of their duties of loyalty, TCS has been and is being harmed and faces irreparable injury. (Complaint ¶76.) Plaintiff alleges TCS is entitled to and hereby seeks damages, in an amount to be determined at trial, as well as disgorgement by Defendants of the salary, benefits, and other forms of remuneration paid to them during the time that they were, in secret, being disloyal to TCS, and all profits they received or will receive as a result of this disloyalty, in an amount to be determined at trial. (Complaint ¶77.) Plaintiff alleges TCS is further entitled to injunctive relief against Defendants to remedy their past improper conduct and prevent further irreparable harm to TCS. (Complaint ¶77.)

Plaintiff sufficiently alleges Yoon coordinated his departure with the other Defendants in an effort to harm TCS. (Complaint ¶¶2-8.) Plaintiff alleges On October 6, 2023, Yoon deleted 33 documents from his TCS computer. (Complaint ¶50(d)(i).) Plaintiff sufficiently alleges Yoon’s taking and deletion of TCS information had no legitimate, TCS business reason. (Complaint ¶¶49, 52.) Plaintiff sufficiently alleges damages caused by Yoon. (Complaint ¶¶51, 53.) Plaintiff alleges the deleted documents are “extremely valuable,” and “TCS’s ability to conduct its business is impaired by the lack of these documents.” (Complaint ¶52.) These harms are directly linked to Yoon’s alleged actions and are sufficient to plead harm arising from Defendant’s breach of the duty of loyalty. (Complaint ¶¶47(j), 49, 50(d), 51-53, 75-78.)

Aiding and Abetting Breach of the Duty of Loyalty & Breach of Fiduciary Duty (4th and 5th COAs)

The elements of a claim for aiding and abetting a third party to commit an intentional tort are: “(1) a third party’s breach of fiduciary duties owed to plaintiff; (2) defendant’s actual knowledge of that breach of fiduciary duties; (3) substantial assistance or encouragement by defendant to the third party’s breach; and (4) defendant’s conduct was a substantial factor in causing harm to plaintiff.” (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343; CACI 3610.)

Plaintiff alleges Defendants each provided substantial assistance, support, and encouragement to the other Defendants in committing breaches of their duties of loyalty, as described above. (Complaint ¶87.) Plaintiff alleges Defendants engaged in this bad conduct with full knowledge that the other Defendants were still employed by TCS, and, therefore, owed duties of loyalty to TCS, and that the acts and omissions alleged hereinabove were unlawful and/or improper, and were in breach of such other Defendants’ duties to TCS. (Complaint ¶87.) Plaintiff alleges the conduct of Defendants was a substantial factor in causing the harm suffered by TCS as a result of the breaches described above. (Complaint ¶89.)

Plaintiff alleges Defendants each provided substantial assistance, support, and encouragement to Defendant Olive Kim in committing the breach of fiduciary duty described above. (Complaint ¶92.) Plaintiff alleges Defendants engaged in this bad conduct with full knowledge that Defendant Olive Kim was still employed by TCS as the Co-CEO of TCS, and, therefore, owed fiduciary duties to TCS, and that her acts and omissions alleged hereinabove were unlawful and/or improper, and were in breach of her duties to TCS. (Complaint ¶92.) Plaintiff alleges the conduct of Defendants was a substantial factor in causing the harm suffered by TCS as a result of the breaches described above. (Complaint ¶94.)

Plaintiff sufficiently alleges Yoon aided and abetted other employees’ breaches of the duty of loyalty by participating in the mass resignation between October 6 and 13 and working “systematically” with other employees to steal thousands of confidential and trade secret files. (Complaint ¶¶2, 6.)

Accordingly, Yoon’s demurrer to the 4th and 5th causes of action is overruled.

Trade Secret Misappropriation Under California’s Uniform Trade Secret Act (“CUTSA”) (6th COA)

To state a claim for trade secret misappropriation under California’s Uniform Trade Secret Act, a plaintiff must plead: “(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, citations omitted.)

A “trade secret” is “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.)

Plaintiff alleges its trade secrets include Marketing, Promotional, Sales, Financial and Operations Strategies: TCS has developed and maintains strategies, policies, processes, playbooks, research, pricing information, and analyses regarding its marketing, sales and operations. (Complaint ¶27a.) Plaintiff alleges its trade secrets include Design and Product Development: TCS invests heavily in developing new products, including licensing information, specifications, customer and market preferences, and opportunities. (Complaint ¶27b.) Plaintiff alleges its trade secrets include Long and Short Term Strategic Plans: TCS has developed and continually updates both short and long term plans to increase its revenue, expand or adjust its product line up, add or adjust licensed brands or artwork, and expand its operations. (Complaint ¶27c.) Plaintiff alleges its trade secrets include Financial Information: This information includes TCS’s cost of goods sold, license fees paid, margins and other financial information that is confidential. (Complaint ¶27d.)

Plaintiff alleges it owns and possesses trade secret information as set forth above. (Complaint ¶97.) Plaintiff alleges its trade secret information is highly valuable, and TCS will suffer irreparable harm from the use and disclosure of its information, including loss of business and loss of competitive advantage. (Complaint ¶99.) Plaintiff alleges computer forensics reveal that on October 6, 2023 (the date effective date of Olive’s resignation), Yoon used a USB device to create a number of sensitive TCS files and folders. (Complaint ¶47j.) Plaintiff alleges Yoon misappropriated TCS’s trade secrets in the improper and unlawful manner described above. (Complaint ¶101.) Plaintiff alleges Yoon had no legitimate, TCS business reason to take this information. (Complaint ¶101.)

Plaintiff alleges it had to spend “substantial amounts of time and money” to determine the extent of Defendant’s conduct and the number of files he deleted. (Complaint ¶51.) Plaintiff alleges it hired a third-party forensic investigator, which was necessary because of Defendant’s conduct. (Complaint ¶53.) Plaintiff alleges Defendant’s actions continue to cause harm. (Complaint ¶103.)

Accordingly, Yoon’s demurrer to Plaintiff’s 6th cause of action is overruled.

A cause of action under the Comprehensive Computer Data Access and Fraud Act (“CDAFA”) must allege the following elements: (1) that plaintiff is the owner/lessee of the computer, computer system, computer network, computer program, and/or data; (2) defendant knowingly and without permission accessed or caused to be accessed any computer, computer system, or computer network and knowingly accessed and without permission added, altered, damaged, deleted, or destroyed any data, computer software, or computer programs which reside or exist internal or external to a computer, computer system, or computer network; (3) that defendant’s conduct in violation of Pen. Code, § 502 was without plaintiff’s permission; (4) plaintiff was harmed; and (5) defendant’s conduct was a substantial factor in causing plaintiff’s harm. (CACI 1812.)

Plaintiff alleges Defendants violated California Penal Code section 502 by unlawfully accessing, downloading, and then deleting information from TCS’s secured systems and accounts. (Complaint ¶107.) Plaintiff alleges the actions taken by Defendants, as alleged above, were not authorized by TCS and do not fall within the so-called scope of employment exception set forth in Section 502(h). (Complaint ¶110.) Plaintiff alleges Defendants were acting solely for their personal benefit, and against the best interests of TCS, when they committed this misconduct. (Complaint ¶111.) Plaintiff alleges Defendants have been unjustly enriched, TCS has been harmed, and Defendants have sustained damages in an amount to be proven at trial. (Complaint ¶113.) Plaintiff alleges Defendants’ acts and conduct that constitute the commission of these computer crimes were carried out willfully, fraudulently, maliciously, and with a wanton disregard of TCS’s rights, thereby entitling TCS to punitive damages to be proven at trial. (Complaint ¶113.) Plaintiff alleges TCS also has suffered irreparable harm as a result of Defendants’ activities and will continue to suffer irreparable injury that cannot be adequately remedied at law unless Defendants are enjoined from engaging in any further such acts. (Complaint ¶114.)

Plaintiff sufficiently alleges a cause of action under CDAFA. Plaintiff sufficiently alleges damages in the form of spending considerable time and effort attempting to recovery the documents Defendant deleted, “including hiring a third part forensic investigator to try to recover the documents.” (Complaint ¶53.) Further, Yoon’s argument that CUTSA supersedes the CDAFA is unavailing, as Civil Code §3426.7 expressly provides that CUTSA does not supersede “any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets,” “other civil remedies that are not based upon misappropriation of a trade secret” nor “criminal remedies, whether or not based upon misappropriation of a trade secret.” Here, Plaintiff alleges its CDAFA claim is not predicated on the misappropriation or theft of any confidential, proprietary, and/or trade secret information belonging to TCS, but rather on the independently improper actions described above, including Defendants’ deletion of information off of TCS’s computer systems. (Complaint ¶112.)

Accordingly, Yoon’s demurrer to Plaintiff’s 7th cause of action is overruled.

To state a claim for receipt of stolen property under Penal Code §496, a party must allege, “(1) property was stolen or obtained in a manner constituting theft, (2) the defendant knew the property was so stolen or obtained, and (3) the defendant received or had possession of the stolen property.” (Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 354-355, citing Switzer v. Wood (2019) 35 Cal.App.5th 116, 126.)

Plaintiff alleges the actions taken by Defendants, as alleged above, which included the withholding of passwords and other critical information needed to log into various accounts, and refusing to return certain devices belonging to TCS, constitute a violation of Penal Code §496(a). (Complaint ¶118.) Plaintiff alleges this claim is not predicated on the misappropriation or theft of any confidential, proprietary, and/or trade secret information belonging to TCS, but rather on the independently improper actions described above. (Complaint ¶119.) Plaintiff alleges TCS has been injured/damaged in an amount to be proven at trial. (Complaint ¶120.) Plaintiff alleges TCS is also entitled to recover not only the actual damages suffered by TCS by three times that amount pursuant to Section 496(c) in addition to reasonable attorney’s fees and the costs of suit. (Complaint ¶120.)

Plaintiff alleges Yoon: (i) transferred sensitive TCS files and folders to a USB device and deleted files; (ii) this was done without a legitimate business purpose, especially in the days leading up to his separation; and (iii) Yoon has not returned any of the files, despite requests from TCS. (Complaint ¶¶47(j)-49.) Additionally, Plaintiff alleges Defendants worked together to steal TCS computers and phones. (Complaint ¶57.)

Plaintiff sufficiently alleges a cause of action under Penal Code §496. Further, Penal Code §496 is not preempted by CUTSA because Civil Code §3426.7 provides a carve out for criminal claims, whether or not based upon misappropriation of a trade secret. (Civ. Code §3426.7(b).)

Accordingly, Yoon’s demurrer to Plaintiff’s 8th cause of action is overruled.

Yoon’s demurrer to Plaintiff’s 1st, 2nd, 4th, 5th, 6th, 7th, and 8th causes of overruled.

Hon. Daniel M. Crowley

Judge of the Superior Court