Judge: Frank M. Tavelman, Case: 23BBCV02356, Date: 2023-12-01 Tentative Ruling
Case Number: 23BBCV02356 Hearing Date: December 1, 2023 Dept: A
LOS
ANGELES SUPERIOR COURT
NORTH
CENTRAL DISTRICT - BURBANK
DEPARTMENT
A
TENTATIVE
RULING
DECEMBER 1,
2023
MOTION FOR
PRELIMINARY INJUNCTION
Los Angeles Superior Court
Case # 23BBCV02356
|
MP: |
Complete Gym Solutions,
LLC (Plaintiff) |
|
RP: |
Lance Zavela & Ryde
Enterprises, LLC (Defendant) |
The Court is not requesting oral argument on this
matter. Pursuant to California Rules of Court, Rule 3.1308(a)(1) notice
of intent to appear is required. Unless the Court directs argument in the
Tentative Ruling, no argument will be permitted unless a “party notifies all
other parties and the court by 4:00 p.m. on the court day before the hearing of
the party’s intention to appear and argue. The tentative ruling will
become the ruling of the court if no notice of intent to appear is received.”
Notice may be given either by email at BurDeptA@LACourt.org
or by telephone at (818) 260-8412.
ALLEGATIONS:
Complete
Gym Solutions, LLC (“Plaintiff”) brings this action against Lance Zavela (“Zavela”)
and Ryde Enterprises, LLC (“Ryde”) (collectively “Defendants”). Plaintiff
alleges Zavela, its former National Sales Manager, misappropriated trade
secrets. Specifically, Plaintiff alleges Zavela utilized Plaintiff’s
confidential customer database to convince Plaintiff’s customers to rent
equipment from Zavela’s new employer, Ryde.
Plaintiff’s
cause of action for Breach of Contract was dismissed on November 20, 2023. Accordingly,
the remaining causes of action in the operative Complaint are (1) Trade Secret
Misappropriation, (2) Intentional Interference with Contractual Relations, and
(3) Violation of California Business and Professions Code § 17200.
On October
19, 2023, the Court granted Plaintiff’s application for a Temporary Restraining
Order (“TRO”) enjoining the following:
1.
All parties shall
not destroy any document or other information used by Defendant Lance Zavela
during the course of his employment at Complete Gym Solutions, LLC.
2.
There shall be no
destruction by any party of any email or other electronic communication to or
from Zavela.
3.
No computer,
cellphone or other device, now or formerly in use by Zavela shall be altered in
any way.
4.
All parties may
commence expedited discovery.
5.
No use shall be
made of any customer list or other documents possessed by Zavela as the result
of his employment at Complete Gym Solutions, LLC.
6.
Zavela may not
directly or indirectly solicit or encourage present customers, employees,
partners, contractors, agents, affiliates, or consultants of Complete to end
their relationship with Plaintiff
The Court
now considers whether the contents of this TRO should be the subject of a
Preliminary Injunction.
EVIDENTIARY OBJECTIONS:
Plaintiff’s objections to the
declaration of Lace Zavela are SUSTAINED as to Nos. 9, 10, 14, 19, 20, and 21 and
OVERRULED as to Nos. 11, 15-18, and 21.
Plaintiff’s objections to the
declaration of Roman Dombrovsky are SUSTAINED as to Nos. 8, 12, and 14-16 and
OVERRULED as to Nos. 7, 9, 10, 13, and 17.
ANALYSIS:
I.
LEGAL
STANDARD
The purpose of a preliminary injunction
is to preserve the status quo pending final resolution upon a trial. (See Scaringe
v. J.C.C. Enterprises, Inc. (1988) 205 Cal.App.3d 1536.) Relief requires
the use of competent evidence to create a sufficient factual showing on the
grounds for relief. (See, e.g., ReadyLink Healthcare v. Cotton (2005)
126 Cal.App.4th 1006, 1016; Ancora-Citronelle Corp. v. Green (1974) 41
Cal.App.3d 146, 150.) The burden of proof is on the plaintiff as moving party.
(O'Connell v. Superior Court (2006) 141 Cal.App.4th 1452, 1481.) A
plaintiff seeking injunctive relief must show the absence of an adequate
damages remedy at law. (C.C.P. § 526(4); Thayer Plymouth Center, Inc. v.
Chrysler Motors (1967) 255 Cal.App.2d
The trial court considers two factors in
determining whether to issue a preliminary injunction: (1) the likelihood the
plaintiff will prevail on the merits of its case at trial, and (2) the interim
harm the plaintiff is likely to sustain if the injunction is denied as compared
to the harm the defendant is likely to suffer if the court grants a preliminary
injunction. (C.C.P. § 526(a); Husain v. McDonald's Corp. (2012) 205
Cal.App.4th 860, 866-67.) The moving party bears the burden of demonstrating
both a likelihood of success on the merits and the occurrence of irreparable
harm before a final judgment can be entered. (Savage v. Trammell Crow Co.
(1990) 223 Cal.App.3d 1562, 1571.)
II.
MERITS
Trade Secrets
Under the California Uniform Trade
Secrets Act, actual or threatened misappropriation may be enjoined, and in
appropriate circumstances, affirmative acts to protect a trade secret may be
compelled by court order. (Civil Code § 3426.2; Readylink Healthcare v.
Cotton (2005) 126 Cal.App.4th 1006, 1017.) A trade secret is information
that “(1) [d]erives independent economic value … from being not generally known
to the public or to other persons who can obtain economic value from its
disclosure or use; and (2) [i]s the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.” (Civil Code § 3426.1(d).)
Plaintiff identifies their
trade secrets as a customer database containing “email addresses, phone numbers, addresses, identity of contact persons,
pricing information, and knowledge of particular customer’s needs, as well as
the specific equipment, pricing, and terms of sales, renting and leasing and
maintenance agreements for existing customers of [Plaintiff], as well as [Plaintiff’s]
marketing and business plans and strategies.” (Disclosure Statement p. 2.)
Plaintiff further maintains that this database is maintained on a password
protected system known as Goldmine. (Id.) The system is also maintained on
a proprietary system covering inventory and sales management known as BMS and
on an Excel Spreadsheet. (Id.) Plaintiff states that its employees were
issued a username and password required to access this information. (Id.)
Plaintiff first alleges
that Zavela misappropriated trade secrets while still under Plaintiff’s employ.
Plaintiff alleges that in
April 2023, while Zavela was still with the company, Plaintiff’s CEO received a
call from a customer claiming to have been contacted by Zavela on behalf of
Ryde. (Hai Decl. ¶ 8.) Plaintiff also alleges that on April 6, 2023, Zavela,
still an employee of Plaintiff, sent a sales proposal to prospective customer Westin
San Diego on behalf of Ryde. (Haid Decl. ¶ 9.)
Plaintiff states that this proposal was identical in substance to the proposal Plaintiff
had sent to the Westin San Diego a few days earlier, albeit at a price that was
$275 lower. (Hai Decl. ¶ 9, Exhs. A&B.) After these incidents,
Plaintiff sent Zavela a cease and desist and requested the return of the
company computer equipment. (Hai Decl. ¶ 10.) Plaintiff states that in March of
2023, Zavela emailed a copy of Plaintiff’s sales proposal for potential
customer El Rancho Estates Mobile Home Community to his personal email. (Hai
Decl. ¶ 14.) Plaintiff states that Zavela later updated the customer
database to reflect that the potential customer has instead signed with Ryde. (Hai
Decl. ¶ 14.)
Plaintiff also alleges Zavela has
continued to utilize the customer database after leaving the company for Ryde.
Plaintiff states that in May of 2023, Zavela and Ryde solicited the business of
Plaintiff’s customer Bell Canyon Association. (Hai Decl. ¶ 11.) Plaintiff
states the solicitation undercut the pricing of Plaintiff and that in August
2023, Bell Canyon Association informed Plaintiff it was switching business to
Ryde. (Hai Decl. ¶ 12.)
“With respect to the general
availability of customer information, courts are reluctant to protect customer
lists to the extent they embody information which is ‘readily ascertainable’
through public sources, such as business directories.” (Morelife v. Perry (1997)
56 Cal. App. 4th 1514, 1521 citing American Paper & Packaging Products,
Inc. v. Kirgan (1986) 183 Cal. App. 3d 1318, 1326.)
“On the other hand, 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. Such lists are to be distinguished
from mere identities and locations of customers where anyone could easily
identify the entities as potential customers.” (Id. citing
Klamath-Orleans Lumber, Inc. v. Miller (1978) 87 Cal.App.3d 458, 461.)
“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.” (Id. citing Courtesy Temporary Service,
Inc. v. Camacho (1990) 222 Cal. App. 3d 1278, 1287.)
The Court finds Plaintiff’s customer
database, as identified in its declarations and trade secret statement,
qualifies as a trade secret. Plaintiff has stated the presence of information
which is not readily ascertainable to the general public and contains more than
just company names and phone numbers. Plaintiff’s customer database also
contains pricing information, the contents of leasing agreements, notes of
salespersons, and other information all of which would not be available to the
public. Plaintiff’s customer database was not built by simply inputting the
names and phone numbers of companies which might wish to rent fitness
equipment, it is clear that its scope extends beyond that. Plaintiff has expended time and effort in
creating and maintaining this system such that it is distinguishable from a
mere list of potential customers.
Zavela argues that Plaintiff expended no
money in providing the customer information. The Court finds this argument to
be unpersuasive. Plaintiff may not have directly paid for the customer
information, but it expended efforts and funds to employ salespersons to
identify and log potential customer information into the database. Plaintiff
thereafter maintained a system by which this information was retained,
organized, and editable by its staff. Further, Plaintiff established procedures
which limited the access to this information to individuals under its employ.
The customer information was maintained by Plaintiff behind password protection
and was not accessible via other means.
To the extent that Zavela argues there
is no economic value in the customer database because Plaintiff spent no money
to obtain customer information, the Court also finds this argument
unpersuasive. “The requirement that a customer list must have economic value to
qualify as a trade secret has been interpreted to mean that the secrecy of this
information provides a business with a ‘substantial business advantage’.” (Morelife
v. Perry supra 56 Cal. App. 4th at 1522.) “In this respect, a customer list
can be found to have economic value because its disclosure would allow a
competitor to direct its sales efforts to those customers who have already
shown a willingness to use a unique type of service or product as opposed to a
list of people who only might be interested.” (Id.) Here, there is clear
economic value in Plaintiff’s customer database because its disclosure would tend
to allow competitors to direct their efforts at potential gym equipment
customers, as has already been alleged.
Zavela further argues that customer
lists are not considered trade secrets within the meaning of the California
Uniform Trade Secret Act. Zavela primarily contends that the information in the
customer database is information which could be readily ascertained by the
public by function of a simple Google search. In making this argument Zavela
relies primarily on the California Eastern District Court case of Barney v.
Burrow.
In Barney, the Eastern District
Court was tasked with determining whether, under California law, the plaintiffs
customer list constituted a trade secret. The defendant in Barney was a
financial advisor working for plaintiff and was alleged to have misappropriated
trade secrets by using a customer list after his employment. (Barney v. Burrow
(E.D. Cal. 2008) 558 F.Supp.2d 1066, 1068.) The Barney court
ultimately found the customer list was not a trade secret under statute,
however its holding relied on a factual finding which is inapposite to those of
this case. The plaintiff in Barney had an explicit protocol which
allowed for departing financial advisors to take customer information with
them. (Id. at 1080.) The Barney court found this protocol stood at
odds with the plaintiff’s claim that the information was classified as
confidential pursuant to defendant’s employment contract. (Id.)
Here, there is no explicit protocol that
Zavela was entitled to take the customer information with him after his
employment with Plaintiff. Quite the opposite, Plaintiff’s Employee Handbook
makes it clear that the customer database is to be protected as confidential
information. Plaintiff’s Employee Handbook requires each employee to “[m]aintain
the confidentiality of trade secrets, intellectual property, and confidential
commercially sensitive information (i.e. financial or sales records/reports,
marketing or business strategies/plans, product development, customer lists,
patents, trademarks, etc.) related to the Company.” (Hai Decl. ¶ 24, Exh. H.)
Lastly, Zavela’s
argument that Plaintiff has not adequately identified its trade secrets is also
unpersuasive. C.C.P. §
2019.210 reads as follows:
In any action alleging the misappropriation of a
trade secret under the Uniform Trade Secrets Act (Title 5 (commencing with
section 3426) of Part 1 of Division 4 of the Civil Code), before commencing
discovery relating to the trade secret, the party alleging the misappropriation
shall identify the trade secret with reasonable particularity subject to any
orders that may be appropriate under Section 3426.5 of the Civil Code.
The two most notable cases
regarding identification of trade secrets are Advanced Modular Sputtering,
Inc. v. Superior Court (2005) 132 Cal.App.4th 826 (“Advanced
Modular”) and Brescia v. Angelin (2009) 172 Cal.App.4th 133 (“Brescia”).
In Advanced the
court held that the “reasonable particularity” required by C.C.P. §
2019.210 does not mean the party alleging misappropriation has to define
every minute detail of its claimed trade secret at
the outset of the litigation and does not require a trial court to conduct a
miniature trial on the merits of a misappropriation claim before discovery may
commence. (Advanced supra, 132 Cal.App.4th at 835.)
The plaintiff in Advanced
claimed a total of eight trade secrets were at issue. (Id. at 832.)
The discovery referee claimed that six of these trade secrets claims only amalgamated
features which plaintiffs suggested were unique to its equipment and process,
and that these descriptions lacked sufficient particularity. (Id.) The
court acknowledged that the definition of “reasonable particularity” under CCP
§ 2019.210 was malleable to allow for judicial interpretation. (Id. at
835.) The court found, “The degree of ‘particularity’ that is ‘reasonable’ will
differ, depending on the alleged trade secrets at issue in each case. Where, as
here, the alleged trade secrets consist of incremental variations on, or
advances in the state of the art in a highly specialized technical field, a
more exacting level of particularity may be required to distinguish the alleged
trade secrets from matters already known to persons skilled in that field.” (Id.
at 836.) Ultimately, the Advanced court found plaintiff has sufficiently
evidenced it showing of a trade secret by describing how its unique processes
combined to form a trade secret. (Id.)
In Brescia the
plaintiff claimed trade secrets in his pudding production process. (Brescia
supra, 172 Cal.App.4th 133, at 151.) The court found plaintiff had
sufficiently identified his trade secret by claiming his formula produced a
unique high-protein, low carbohydrate pudding unlike any other healthy
alternative pudding on the market. (Id.) Brescia cited Advanced
in holding “The nature of the identification required in any particular
case need only be reasonable under the circumstances. It cannot be divorced
from the statutory goals which it is intended to serve. The identification is
to be liberally construed, and reasonable doubts concerning its sufficiency are
to be resolved in favor of allowing discovery to commence.” (Id. at
152.)
Here, the trade secrets at
issue are far less technical. The Court finds that Plaintiff has adequately
identified its trade secrets within the meaning of the statute. Plaintiff has
described the customer database and its constituent parts, including the
contact information, salespersons notes, and Plaintiff’s sales strategies. If
Plaintiff were required to detail these components any further, it would likely
result in unintended disclosure of the trade secrets Plaintiff seeks to
protect. It is clear to the Court that disclosure of the customer database
would indeed expose information to which the general public and Plaintiff’s
competitors would not otherwise be privy.
In short, the Court finds
Plaintiff has shown it will likely succeed on its claim for trade secrets.
Plaintiff has demonstrated the independent economic value of its customer
database and that it undertook efforts to maintain secrecy. Plaintiff has also demonstrated
Zavela misappropriated the customer database in using it to solicit business
for Ryde, both while he was still an employee of Plaintiff and after.
Irreparable Harm
The balancing of harm between the
parties “involves consideration of such things as the inadequacy of other
remedies, the degree of irreparable harm, and the necessity of preserving the
status quo.” (Husain, supra, 205 Cal.App.4th at 867.) Thus, a
preliminary injunction may not issue without some showing of potential
entitlement to such relief. (Doe v. Wilson (1997) 57 Cal.App.4th 296,
304 [“The trial court abuses its discretion in granting such a preliminary
injunction when “there is no likelihood” that the movants will prevail on the
merits of their claims for relief.”].)
Plaintiff argues that it suffers
irreparable harm in the form of the immediate and ongoing diminution in value
of its business, loss of its trade secrets, and unlawful raiding of its clients.
Plaintiff argues the loss of leasing clientele has a substantially larger
impact than the loss of one-time sales, in that the losses will continue to
accrue over time. (Hai Decl. ¶ 25.)
Zavela argues in opposition that the
injunction would unreasonably hinder his and Ryde’s business. This argument
presumes two things: (1) that Zavela and Ryde are indeed using Plaintiff’s
customer database, and (2) that Plaintiff’s customer database is not
confidential. As established above, the Court finds the customer database is
indeed a trade secret which Plaintiff has established as confidential in
nature. As such, the Court finds there is no irreparable harm to Zavela and
Ryde in prohibiting the use of Plaintiff’s trade secrets for the duration of
this action.
The Court also finds Plaintiff has no alternative
remedy. Zavela suggests that monetary damages are an adequate remedy such as to
preclude an injunction. The Court finds this argument unpersuasive. Plaintiff should not have to suffer significant
loss of revenue which could affect the viability of its business, and then be
forced to chase the additional damages through amendments to the complaint or a
new lawsuit. Had the damage already
occurred without ongoing damage, perhaps Zavela and Ryde’s position would be
more applicable, but that is not the case.
Were the injunction not to be granted,
Zavela and Ryde would be free to continue soliciting business using the
customer database and causing further losses to Plaintiff throughout the
litigation. This would necessitate Plaintiff identify the extent of that damage
and incorporate it into their claims each time such a solicitation occurred. If
this system was an adequate remedy at law, the Court struggles to see a
situation in which a preliminary injunction would ever be granted.
Surety Bond
Pursuant to California Rules of Court,
Rule 3.1150, the Court finds that a surety bond in the amount of $50,000 will
be sufficient to offset any potential damages should the Plaintiff not prevail.
III.
CONCLUSION
The Court
finds Plaintiff met its burden to show likelihood of prevailing on the merits
with respect to its cause of action for misappropriation of trade secrets and
that alternative remedies are inadequate. Accordingly, the motion for preliminary
injunction is GRANTED.
---
RULING:
In the
event the parties submit on this tentative ruling, or a party requests a signed
order or the court in its discretion elects to sign a formal order, the
following form will be either electronically signed or signed in hard copy and
entered into the court’s records.
ORDER
Complete
Gym Solutions, LLC’s Motion for
Preliminary Injunction came on regularly for hearing
on December 1, 2023, with appearances/submissions as noted in the minute order
for said hearing, and the court, being fully advised in the premises, did then
and there rule as follow:
THE MOTION FOR PRELIMINARY INJUNCTION IS GRANTED.
PLAINTIFF IS TO POST A $100,000 PRELIMINARY
INJUNCTION SURETY BOND.
UNLESS ALL PARTIES WAIVE NOTICE, PLAINTIFF IS TO
GIVE NOTICE.
IT IS SO
ORDERED.
DATE: December
1 , 2023 _______________________________
F.M.
TAVELMAN, Judge
Superior Court of California
County of
Los Angeles