Judge: Daniel S. Murphy, Case: 22STCV23458, Date: 2025-05-30 Tentative Ruling

Case Number: 22STCV23458    Hearing Date: May 30, 2025    Dept: 32

I. BACKGROUND

a. The Underlying Complaint

On July 20, 2022, Plaintiff Costtree Holding, LLC (Costtree) filed this action against Defendants eCivis, Inc. (eCivis), GTY Technology Holdings, Inc. (GTY), and James Ha (Ha). On March 15, 2024, Plaintiffs CostTree and CAP Accounting Partners, LLC (CAP) filed the operative Second Amended Complaint (SAC), alleging (1) breach of the covenant of good faith and fair dealing, (2) fraud, (3) negligent misrepresentation, (4) civil conspiracy, (5) breach of contract, and (6) intentional interference with contractual relations.   

            The SAC alleges that Costtree agreed to sell its assets to eCivis through an Asset Purchase Agreement (APA) with eCivis. One of these assets was a certain program developed by Costtree, called Allocate. In exchange for the sale, the APA provided that Costtree would make earn-out payments from Allocate until a certain date and that eCivis would assume certain liabilities of Costtree, including a License Agreement with CAP. eCivis has allegedly failed to adequately promote sales or renewals of Allocate and has not assumed any of Costtree’s liabilities.

eCivis allegedly acted to minimize Costtree’s earn-out payments from Allocate until Costtree’s right to earn-out payments expired under the APA. Meanwhile, Ha, the CEO of eCivis, sought to maximize his own earn-out payments from eCivis’s programs under an agreement with GTY, which acquired eCivis and its programs. Despite increased resources from the GTY acquisition to market eCivis’s programs, eCivis allegedly refused to market or sell Allocate until Costtree’s right to earn-out payments expired. This allegedly allowed eCivis to effectively acquire Costtree’s assets for little to no consideration. Defendants allegedly concocted this scheme to remove a competitor from the market and maximize their own profits.

Defendants also allegedly terminated the Licensing Agreement with CAP without following the procedures for termination outlined in the Licensing Agreement. Defendants allegedly cut off CAP’s access to Allocate, preventing CAP from servicing its clientele for nearly a month. Defendants allegedly did this as retaliation for Costtree filing this action, as Nicolie Lettini (Lettini) is the CEO of both Costtree and CAP.  

b. Lettini’s Related Action

            On October 6, 2023, Lettini filed the action Nicolie Wickwire v. eCivis, Inc., et al. (23CMCV01613), alleging (1) breach of the covenant of good faith and fair dealing, (2) constructive discharge in violation of public policy, (3) defamation, and (4) declaratory relief. The Lettini action has been consolidated with this action, with this action as the lead case.

            Lettini alleges that upon eCivis acquiring Costtree, she began working for eCivis to market Allocate and other services, bringing in substantial revenue. After Costtree sued eCivis, eCivis allegedly stopped supporting Lettini, resulting in Allocate’s poor performance. GTY allegedly demoted Lettini, reducing her authority but not her job duties. GTY allegedly did this as retaliation for the Costtree lawsuit. The conditions eventually forced Lettini to resign. GTY also allegedly falsely accused Lettini of accessing GTY’s customer data and used that as an excuse to cut off CAP’s access to the Allocate software.

c. The Cross-Complaint

            On April 29, 2024, eCivis and GTY (dba Euna Solutions) cross-complained against Costtree, CAP, Lettini, and Stephanie Ratajczak (Ratajczak). eCivis and GTY filed the operative First Amended Cross-Complaint (FACC) on August 1, 2024, alleging (1) conversion, (2) intentional interference with contractual relations, (3) breach of employment agreement, (4) breach of the APA, (5) breach of the covenant of good faith and fair dealing, (6) breach of the CAP Licensing Agreement, (7) fraudulent misrepresentation, (8) negligent misrepresentation, and (9) civil conspiracy. 

            The FACC alleges that Allocate underperformed as compared to Lettini’s promises, despite assistance from eCivis and GTY. Upon Lettini’s job title change, she allegedly refused to sign the new employment agreement and directed her subordinate, Ratajczak, to not sign her agreement either. Ratajczak was allegedly working for CAP at the same time as working for eCivis. Lettini, Ratajczak, and CAP allegedly sold Allocate services to third party customers who should have contracted with eCivis and GTY. Lettini, Ratajczak, and CAP allegedly allowed third parties to access and use Allocate without a proper license and without paying fees to eCivis and GTY. These actions allegedly violated the APA, Licensing Agreement, and employment agreements.    

When Lettini and Ratajczak simultaneously resigned, they allegedly left eCivis and GTY without any knowledgeable employees to manage Allocate. Lettini allegedly failed to train any other employees on Allocate as was her duty prior to resigning, leaving Allocate with little value and thereby damaging eCivis and GTY. Since their resignations, Lettini and Ratajczak have allegedly continued to impermissibly access or grant unpermitted access to Allocate beyond the limited access permitted for customers of CAP.

d. The Instant Motion

On May 6, 2025, Costtree, CAP, Lettini, and Ratajczak (collectively, Cross-Defendants) filed the instant motion for judgment on the pleadings against the FACC. eCivis and GTY (collectively, Cross-Complainants) filed their opposition on May 16, 2025. Cross-Defendants filed their reply on May 22, 2025.       

II. LEGAL STANDARD

A motion for judgment on the pleadings may be made on the same grounds as those supporting a general demurrer, i.e., that the pleading fails to state facts sufficient to constitute a legally cognizable claim or defense. (Stoops v. Abbassi (2002) 100 Cal.App.4th 644, 650.) A motion for judgment on the pleadings performs the same function as a general demurrer, and hence attacks only defects disclosed on the face of the pleadings or by matters that can be judicially noticed. (Cloud v. Northrop Grumman Corp. (1999) 67 Cal.App.4th 995, 999.) Judgment on the pleadings must be denied where there are material factual issues that require evidentiary resolution. (Schabarum v. Calif. Legislature (1998) 60 Cal.App.4th 1205, 1216.)

III. DISCUSSION

            a. Intentional and Negligent Misrepresentation

            Intentional fraud claims are subject to a three-year statute of limitations. (Code Civ. Proc., § 338(d).) Negligent misrepresentation is subject to a two-year statute of limitations. (Ventura County Nat. Bank v. Macker (1996) 49 Cal.App.4th 1528, 1531-32.) Under the discovery rule, “[t]he statute of limitations begins to run when the plaintiff has information which would put a reasonable person on inquiry.” (Kline v. Turner (2001) 87 Cal.App.4th 1369, 1374.) “In order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’” (Id. at p. 808, quoting McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160.)

            Here, the fraud claims are based on the allegation that “Lettini falsely represented to Cross-Complainant eCIVIS that Cross-Complainants' purchase of the Allocate Program and other assets of CostTree Holdings and Cost Tree would be very successful in generating for eCIVIS significant profits.” (FACC ¶¶ 81, 90.) However, the FACC alleges that Allocate underperformed from the outset, as early as 2018. (See FACC ¶ 24 [“Since acquiring the assets of CostTree . . . sales of the Allocate Program severely underperformed”].) In other words, Cross-Complainants should have known in 2018 that Lettini’s representations about Allocate’s performance were untrue.

            Despite this, the claim would not be time-barred if Cross-Complainants demonstrate delayed discovery by alleging facts showing “(1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (McKelvey, supra, 74 Cal.App.4th at p. 160.) However, the FACC does not contain such facts. Cross-Complainants argue in their opposition that the facts pertaining to fraud were not discovered until July 2022, when the underlying complaint was filed. (Opp. 8:1-8.) However, this theory is not pled in the FACC.  

Moreover, Cross-Complainants do not explain why the underperformance in 2018 was insufficient to put them on notice that Lettini’s representations were false. (See Genisman v. Carley (2018) 29 Cal.App.5th 45, 51 [“A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim; that is a process contemplated by pretrial discovery. Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue,” the statute begins running].) Nor do Cross-Complainants articulate what facts were discovered in July 2022 that finally put them on notice and why they could not have discovered those facts earlier. 

            Therefore, the fraud claims, as currently pled, are barred by the statute of limitations. The motion is GRANTED as to the seventh and eighth causes of action.   

            b. Conversion

                        1. The Allegations

The elements of conversion are: (1) the plaintiff’s ownership or right to possession of the personal property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages. (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 208.)

            Here, the conversion claim is based on the following charge: “Lettini, Ratajczak and CAP absconded with clients that originally were clients of eCIVIS, or clients who should have been customers of eCIVIS and GTY, and wrongfully accessed, used and converted the Allocate Program software.” (FACC ¶ 37.)

                        2. Customers

            Customers or clients are not personal property over which a party exercises ownership or a right to possession. Thus, the customers themselves are not subject to conversion. However, “[m]odern courts . . . have permitted conversion claims against intangible interests such as checks and customer lists.” (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 213.) The FACC plausibly asserts the conversion of customer lists.

Cross-Defendants argue that such a claim would be preempted by the California Uniform Trade Secrets Act (CUTSA). CUTSA “preempts alternative civil remedies based on trade secret misappropriation.” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 954.) “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies ‘based upon misappropriation of a trade secret.’” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 236.)     

            “‘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.)

            Customer lists are not necessarily trade secrets; it depends on the particular facts of a given case. (See Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1522 [“As a general principle, the more difficult information is to obtain, and the more time and resources expended by an employer in gathering it, the more likely a court will find such information constitutes a trade secret”].) “[C]ourts are reluctant to protect customer lists to the extent they embody information which is ‘readily ascertainable’ through public sources.” (Id. at p. 1521.) The Court in Morlife made a factual finding at trial that the customer list was a trade secret subject to CUTSA. (Id. at pp. 1521-23.) Here, it cannot be determined on the pleadings alone that the allegedly stolen customer lists were trade secrets.

Thus, the conversion claim is not preempted by CUTSA at this stage.

                        3. Allocate

            Cross-Defendants argue that mere use of or access to the Allocate software cannot constitute conversion. Cross-Defendants also argue that usage of Allocate is already covered by the CAP Licensing Agreement, rendering the claim barred under the economic loss rule.

However, the conversion claim is also based on the conversion of customer lists, which is a viable claim as discussed above. A demurrer must be overruled “when the plaintiff has stated a cause of action under any possible legal theory.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) Because there is some viable legal theory supporting conversion, the conversion claim survives.

The motion is DENIED as to the first cause of action.

c. Interference with Contractual Relations

The elements of intentional interference with contractual relations are: “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)

Here, the contractual interference claim is based on the following allegations:

Lettini is liable for intentionally interfering with eCIVIS and GTY's contractual relations with their Allocate customers by way of Lettini's and Ratajczak's actions of diverting their time and effort to CAP, including without limitation the selling of CAP service contracts to customers who were not preexisting CAP customers and who should have become customers of Cross-Complainants for Allocate Program subscriptions and services pursuant to the terms of the APA.

(FACC ¶ 41.)

Cross-Complainants are informed and believe and, based thereon, allege that attempts have been made by Lettini and Ratajczak, on behalf of CAP, to access the Allocate Program software to access accounts of GTY's customers which are not customers of CAP, when they sent out account invitations to access over 150 such "third party" clients through both of their individual CAP e-mail addresses, as well as granting direct access to third party CAP clients, which is prohibited by the CAP Licensing Agreement, thus denying what would be an economic benefit to Cross-Complainants, to Cross-Complainants' damage.

(FACC ¶ 42.)

            Granting unauthorized access to third party customers who should have been eCivis/GTY customers does not constitute an interference with contract because, by definition, eCivis/GTY did not have existing contracts with those customers. While the FACC alleges that Cross-Defendants interfered with Cross-Complainants’ contractual relations, that is a mere legal conclusion. There are no facts demonstrating an existing contract with a third party, nor facts demonstrating how the contract was interfered with.

            The motion is GRANTED as to the second cause of action.

            d. Civil Conspiracy

            Cross-Defendants argue that the conspiracy claim fails because there is no underlying tort to support it. (See Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-11.) However, as discussed above, the conspiracy claim survives. Therefore, there is at least one tort to support civil conspiracy.

            The motion is DENIED as to the ninth cause of action.

CONCLUSION

            Cross-Defendants’ motion for judgment on the pleading is GRANTED in part as set forth above with leave to amend.