Judge: David A. Hoffer, Case: 30-2022-1252604, Date: 2022-08-29 Tentative Ruling
Before the Court is an Order to Show Cause Re: Preliminary Injunction and Motion to Seal filed by Plaintiff, Koru Risk Management, LLC (“Plaintiff” or “Koru”). The Court GRANTS the Motion to Seal and GRANTS in part the Order to Show Cause.
OSC re: Preliminary Injunction
In deciding whether to issue a preliminary injunction, a court must consider two factors: (1) the likelihood the moving party ultimately will prevail on the merits, and (2) the balance of the interim harm that the moving party is likely to sustain if the injunction is denied and the harm the opposing party is likely to suffer if the injunction is granted. (White v. Davis (2003) 30 Cal.4th 528, 554; Teamster Local 856 v. Priceless, LLC (2003) 112 Cal.App.4th 1500, 1509.)
The moving party bears the burden of presenting facts establishing that it is reasonably probable that the moving party will prevail on the merits. (Fleishman v. Superior Court (2002) 102 Cal.App.4th 350, 356.) A trial court may not grant a preliminary injunction, regardless of the balance of interim harm, unless there is some possibility that the plaintiff would ultimately prevail on the merits of the claim. (Butt v. State of California (1992) 4 Cal.4th 668, 677–78.)
The Court has weighed the evidence in the record and has considered the likelihood Plaintiff ultimately will prevail on the merits and the interim harm to both parties. On balance, the Court finds that an injunction extending to Plaintiff’s client lists and client personnel contact information is not warranted.
As discussed below, the Court finds that Plaintiff has failed to demonstrate a likelihood that it will prevail on the merits of its misappropriation of trade secrets claim regarding its client lists and client personnel contact information.
Plaintiff’s alleged trade secret information consists of the following:
· Koru’s client lists and client personnel contact information;
· Client information (including current and anticipated insurance needs);
· Client proposals, contracts, and policy numbers;
· Pricing information;
· Koru’s clients’ financial statements; and
· Koru’s clients’ employee Census Data.
Defendants dispute the trade secret protection for only the first item, Koru’s client lists and client personnel contact information. Defendants state they have no interest in any of the balance of the information that Koru contends is a trade secret. (Response to OSC at 2:15-17.)
Courts have extended trade secret protection to customer lists in certain circumstances. “A customer list procured by substantial time, effort, and expense is a protectable trade secret.” (Courtesy Temporary Service, Inc. v. Camacho (1990) 222 Cal.App.3d 1278, 1287.) (Emphasis added.) In Courtesy, the court noted that the “compilation by Courtesy of its list of customers was the result of lengthy and expensive efforts, including advertising, promotional campaigns, canvassing, and client entertainment… ¶ A list of customers or subscribers ‘built up by ingenuity, time, labor and expense of the owner over a period of many years is property of the employer,’ and ‘ ‘[k]nowledge of such a list, acquired by an employee by reason of his employment, may not be used by the employee as his own property or to his employer's prejudice.’ ” (Id.)
Similarly, in ReadyLink Healthcare v. Cotton (2005) 126 Cal.App.4th 1006, the court found that ReadyLink’s database of nurses and healthcare providers, that was the result of extensive expenditures of time, effort and money, was a protectable trade secret. The court concluded that “[t]he supporting declarations sufficiently establish that this trade secret information has potential economic value because ReadyLink went to great expense to compile the data…” (Id. at 728.)
In Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, the Court explained that a roofing company’s customer list had “independent economic value” and was entitled to trade secret protection. The Court stated that “where the employer has expended time and effort identifying customers with particular needs or characteristics, courts will prohibit former employees from using this information to capture a share of the market.” (Id. at 1521.) (Emphasis added.) The Court held that the trial court’s conclusion that plaintiff's customer list satisfied the statutory definition of “trade secret” was proper based in part on the trial court’s finding that the list was a compilation, developed over the years, of names, addresses, and contact persons. The evidence had shown that “Morlife’s customers were not readily ascertainable, but only discoverable with great effort, and the patronage of such customers was secured through the expenditure of considerable time and money…Morlife developed its customer base by investment in telemarketing, sales visits, mailings, advertising, membership in trade associations, referrals and research.” (Id. at 1522.)
Here, by contrast, the Court finds the evidence insufficient to demonstrate that Plaintiff’s client list was procured by substantial time, effort, and expense. The evidence submitted on this point consists of the declarations of Plaintiff’s founder, Nick Gabriel. With its recent further briefing, Plaintiff provided a further declaration from Mr. Gabriel that purports to explain the ways in which Plaintiff has expended time and resources to develop its client base. (Suppl. Declaration of Nick Gabriel [ROA 110], ¶ 5-10.) However, Plaintiff does not meaningfully address how these expenditures translated to client development or client relationship-building efforts. Plaintiff also does not address the fact that the information sought to be protected was developed independently by the McDonalds before they joined Plaintiff’s company. (See e.g., Decl. of Andrew McDonald [ROA 63], ¶ 12-13, 16; Decl. of Michael McDonald [ROA 66], ¶ 11.)
Accordingly, the Court finds the evidence as presented to the Court is insufficient to demonstrate that Plaintiff’s client list is a protectable trade secret.
The Peerless case cited by Plaintiff in its first supplemental brief supports the same conclusion. In that matter, the court of appeal upheld the trial court’s judgment enjoining a former employee from soliciting Peerless’s customers. The trial court found that Peerless, a laundry and linen supply business that had been in business for decades, had established a valued and extensive trade, had acquired a large number of customers, and that the customers solicited by its former employee had “long been customers of Peerless, some for over 20 years.” (Peerless Oakland Laundry Co. v. Hickman (1962) 205 Cal.App.2d 556, 558.)
By contrast, here, Plaintiff is a new company founded in 2021. It has failed to offer evidence showing that it established any “valued and extensive trade” in its line of business. Further, the clients solicited were previously known to the McDonalds and had not “long been customers” of Plaintiff.
Based on the foregoing, the Court finds that Plaintiff failed to meet its burden of presenting facts showing a likelihood that the client lists and client personnel contact information at issue are trade secrets. Accordingly, the request for a preliminary injunction is denied as to client lists and client personnel contact information.
Given that Defendants have raised no argument in opposition to the Court granting a preliminary injunction as to (1) Koru’s client information (including current and anticipated insurance needs); (2) Koru’s client proposals, contracts, and policy numbers; (3) Koru’s pricing information; (4) Koru’s clients’ financial statements; and (5) Koru’s clients’ employee Census Data, the motion for a preliminary injunction as to that information is GRANTED with the following modification:
Defendants are restrained from:
a. Using or disclosing Koru’s Trade Secret Information, including Koru’s client information (including current and anticipated insurance needs); client proposals, contracts, and policy numbers; pricing information; Koru’s clients’ financial statements; and Koru’s clients’ employee census data (including Social Security numbers, names, addresses, dependent names, birthdates, and medical information);
b. Deleting or modifying the Koru Trade Secret Information listed above and any other Koru files and documents currently in Defendants’ possession, custody, and/or control.
Based on the Court’s ruling to deny the injunction as to client lists and client personnel contact information, the Court finds that a preliminary injunction restraining Defendants from “soliciting or otherwise attempting to do business with Koru’s clients” is not warranted in this instance. (See The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, 1237–(“Thus, it is not the solicitation of the former employer's customers, but is instead the misuse of trade secret information, that may be enjoined.”) (Emphasis in original.) The injunction ordered by the Court adequately protects Plaintiff’s trade secret interest in its Trade Secret Information listed above. (See Id.)
The Court must order Plaintiff to post an undertaking upon granting an injunction. (C.C.P. § 529(a).) Defendants made no evidentiary showing of their likely damages in the event the preliminary injunction is later determined to have been wrongfully issued. Thus, the Court will exercise its discretion and require Plaintiff to post an undertaking of $10,000.
Plaintiff’s evidentiary objection nos. 2, 3, 5 and 6 are overruled and evidentiary objection nos. 1 and 4 are sustained. (ROA 73.)
Plaintiff’s objection at ROA 97 is overruled.
Plaintiff is to file and serve a proposed Preliminary Injunction order in accord with the Court’s ruling.
Motion to Seal
Plaintiff seeks an order that Exhibit 18 to its ex parte application, which contains the actual identities of the clients referred to in the ex parte application by generic pseudonyms, be maintained under seal.
As the present action involves a claim for misappropriation of trade secrets under the UTSA, the mandatory confidentiality requirement of California Civil Code section 3426.5 applies, rather than the permissive provisions of Rules 2.550 and 2.551. (See In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292, 298 [noting that [former versions of Rules 2.550 and 2.551] do not apply “‘to records that courts must keep confidential by law,’” including alleged trade secrets that are subject to the “mandatory confidentiality requirement” contained in section 3426.5; see also C.R.C. Rule 2.550(a)(2) [“These rules do not apply to records that are required to be kept confidential by law.”].)
Accordingly, because this action involves an alleged trade secret under the UTSA, the Court will GRANT the unopposed motion pursuant to the mandatory provision of California Civil Code section 3426.5.
Plaintiff is ordered to give notice of these rulings.