Judge: Douglas W. Stern, Case: 22STCV22678, Date: 2023-02-07 Tentative Ruling

Case Number: 22STCV22678    Hearing Date: February 7, 2023    Dept: 68

David Thomson vs. Verses Technologies USA, Inc., Case. NO. 22STCV22678

MOVING PARTY:                     Plaintiff/Cross-Defendant David Thomson (Cross-Defendant)

RESPONDING PARTY:              Defendant/Cross-Complainant Verses Technologies USA, Inc. (Cross-Complainant)

MOTION:                                 Demurrer to Cross-Complaint

I. BACKGROUND

Cross-Defendant filed a complaint on July 13, 2022, alleging several causes of action related to his employment with Cross-Complainant Verses Technologies USA, Inc. On September 1, 2022, Cross-Complainant filed a Cross-Complaint (CC) alleging several causes of action related to Cross-Defendant’s alleged misappropriation of trade secrets related to his employment with Cross-Complainant.

            Cross-Defendant filed this Demurrer to the CC on December 22, 2022. Cross-Complainant filed an opposition on January 25, 2023. Cross-Defendant filed his reply on January 30, 2023.

II. ANALYSIS 

A. The Demurrer

As a general matter, 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. (Id.) 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.)

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).

1. First Cause of Action for Misappropriation of Trade Secrets and Fifth Cause of Action for Violation of Economic Espionage Act

            Cross-Defendant demurs to the First and Fifth Causes of Action on the basis that they fail to state a claim against Cross-Defendant.

A plaintiff may seek relief for misappropriation of trade secrets under federal law pursuant to 18 U.S.C. § 1836 and under California state law pursuant to California Civil Code § 3426. The elements of a claim for trade secret misappropriation are substantially similar under both laws and, therefore, the claims can be analyzed together. (InteliClear, LLC v. Etc Global Holdings, Inc. (9th Cir. 2020) 978 F.3d 653; Wisk Aero LLC v. Archer Aviation Inc. (N.D. Cal. Aug. 24, 2021) 2021 WL 8820180, at *8 [noting the elements of 18 U.S.C. § 1836 et seq. and Cal. Civ. Code § 3426 et seq. “are materially identical; courts frequently analyze them together”].)

Under both statutes, to state a legally cognizable cause of action for misappropriation of trade secrets, a plaintiff must plead three elements: “(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.” (Cytodyn, Inc. v. Amerimmune Pharms., Inc. (2008) 160 Cal.App.4th 288, 297).

            First, California law requires that a plaintiff asserting a claim under CUTSA identify the proprietary information at issue with “reasonable particularity” prior to commencement of discovery. (See Cal. Code Civ. Proc. § 2019 .210.) This statute serves several purposes, including promoting well-investigated claims, and preventing plaintiffs from using the discovery process as a means to obtain a competitor’s proprietary information. (See Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826, 833-834.)

            Secondly, “misappropriation” can take two forms. First, it is “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means.” (Cal. Civ. Code § 3426.1(b)(1).) Second, it is “disclosure or use” of a trade secret. (Id. at subsection (b)(2).) It is not misappropriation to simply have files or to transfer files somewhere if those files are not being used or disclosed. (See Central Valley Gen. Hosp. v. Smith (2008) 162 Cal.App.4th 501, 528–29 [mere possession of a trade secret does not constitute misappropriation].)

            Cross-Complainant does not allege what trade secrets were allegedly taken with reasonable particularity. Cross-Complainant merely uses vague, non-specific terms to refer to what was taken. (CC, ¶ 20.) Nor does Cross-Complainant allege in its CC if the files that Cross-Defendant allegedly took were used or disclosed. Cross-Complainant cannot maintain causes of action for misappropriation of trade secrets if there was no disclosure or use of the secrets.

            Cross-Complainant argues that since it intended to file a motion to compel arbitration the action should be stayed and this demurrer not heard.  The Motion to Compel appears to have been filed on Feb. 3, 2022.

“If an application has been made to a court of competent jurisdiction, whether in this State or not, for an order to arbitrate a controversy which is an issue involved in an action or proceeding pending before a court of this State and such application is undetermined, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until the application for an order to arbitrate is determined and, if arbitration of such controversy is ordered, until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.”  Code Civ. Proc., § 1281.4

The mere filing of a motion to compel arbitration does not create an automatic stay of these proceeding.

“The filing of a petition to compel arbitration does not automatically stay ongoing proceedings; the party seeking arbitration must request one. (Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790, 1796, 13 Cal.Rptr.2d 678.)”. OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 140 [251 Cal.Rptr.3d 714, 738, 447 P.3d 680, 700].

            Accordingly, Cross-Defendant’s Demurrer as to Cross-Complainant’s First and Fifth Causes of Action should be SUSTAINED with 20 days leave to amend.