Judge: Holly J. Fujie, Case: 22STCV35055, Date: 2023-02-06 Tentative Ruling

Case Number: 22STCV35055    Hearing Date: February 6, 2023    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

MOVING PARTY: Defendants Edith Uribe (“Uribe”), Jessica Pineda (“Pineda”), Diana Moreno (“Moreno”), Melanie Bernaola (“Bernaola”), Matthew Blake (“Blake”), and OneCruit, LLC (“OneCruit”) (collectively, “Moving Defendants”)

RESPONDING PARTY: Plaintiff

The Court has considered the moving, opposition and reply papers. 

BACKGROUND

            This action arises out of the termination of several employment relationships.  On November 3, 2022, Plaintiff filed a complaint (the “Complaint”) alleging: (1) breach of duty of loyalty; (2) aiding and abetting breach of duty of loyalty; (3) breach of contract/covenant of good faith and fair dealing; (4) interference with prospective economic advantage; (5) misappropriation of trade secrets; and (6) unfair competition.

In relevant part, the Complaint alleges: Uribe, Pineda, Moreno, and Bernaola were employed by Plaintiff until October 24, 2022.  (See Complaint ¶¶ 8-11.)^[1]  At the onset of their employment, Plaintiff’s employees signed various documents, including a Trade Secret/Confidentiality Agreement (the “TSCA”).  (Complaint ¶ 14.)  The TSCA contains terms providing that Plaintiff’s employees agreed to protect confidential information, which includes, among other things, trade secrets, knowledge of inside operations/business practices, and identifying information or requirements of existing or prospective clients.  (See id.)  The TSCA also includes a non-solicitation provision that applies to fellow employees and clients, as well as provisions providing for a duty of loyalty and duty of ethical conduct.  (Complaint ¶ 15.) 

Late in the afternoon on October 24, 2022, Uribe wrote an email informing Plaintiff that she was resigning.  (Complaint ¶ 16.)  Uribe’s email explained that when she told her team that she was ending her employment with Plaintiff, her team expressed that they did not want to continue working for Plaintiff in her absence.  (See id.)  Uribe’s resignation email included a PDF attachment that included the signed resignations of thirteen other employees.  (Complaint ¶ 17.)  Minutes later, Plaintiff received another email that contained the resignations of three more employees.  (Id.)

Before the resignations were submitted, Pineda called two of Plaintiff’s employees to tell them that her old boss, Blake, had offered her a job opportunity and that she was “taking” Uribe and several other employees with her to work for Blake.  (See Complaint ¶¶ 18-19.)  During these conversations, Pineda shared information about her new employer, OneCruit, and flaunted the Mercedes-Benz that she received from OneCruit as part of her employment package.  (See id.) 

Several of the employees who resigned on October 24, 2022 behaved unusually in the days leading up to the mass resignation.  (See Complaint ¶ 20.)  Pineda, for example, began cleaning her office on or about October 18, 2022.  (Complaint ¶ 21.)  Plaintiff alleges that although Pineda stated that she was discarding materials she no longer needed, she was actually destroying and removing Plaintiff’s documents.  (See Complaint ¶ 21.)  On October 23, 2022, during a recruiting and coordination meeting, Uribe announced her forthcoming resignation.  During this meeting, Employee Defendants spoke to an employee to pitch OneCruit as an employer and gauge the employee’s interest in potentially leaving her job with Plaintiff to work for OneCruit.  (See Complaint ¶ 22.)  Moreno indicated that OneCruit had already provided her with a Mercedes-Benz which she was picking up that day; before she left, she removed files from a filing cabinet and placed them in a box.  (See Complaint ¶ 23.) 

Immediately after the resignations were tendered, Plaintiff noticed some of its newly-resigned employees taking documents to their cars as they left; Plaintiff thereafter noticed that documents were missing, including a document with a list of prospects.  (See Complaint ¶¶ 24-25.)

Moving Defendants filed a demurrer (the “Demurrer”) to the Complaint on the grounds that the Complaint does not state sufficient facts to constitute a cause of action and is uncertain.

DISCUSSION

Meet and Confer

The meet and confer requirement has been met.

Legal Standard

A demurrer tests the sufficiency of a complaint as a matter of law.  (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)  The court accepts as true all material factual allegations and affords them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts.  (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.)  With respect to a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded.  (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.)  A demurrer will be sustained without leave to amend if there exists no reasonable possibility that the defect can be cured by amendment.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 

Demurrers for uncertainty are disfavored.  (Chen v. Berenjian (2019) 33 Cal.App.5th 811, 822.)  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.  (Id.)  A demurrer for uncertainty should be overruled when the facts as to which the complaint is uncertain are presumptively within the defendant's knowledge.  (Id.)  Demurrers for uncertainty are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.  (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.) 

First Cause of Action: Breach of Duty of Loyalty

Under Labor Code section 2863, an employee who has any business to transact on his own account, similar to that entrusted to him by his employer, shall always give the preference to the business of the employer.  (Lab. Code § 2863.)  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.)  The duty of loyalty arises not from a contract but from a relationship-here, the relationship of principal and agent.  (Id.)  Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.  (Id. at 410-11.)  Where such a relationship arises, the agent assumes a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.  (Id. at 411.)

Moving Defendants argue that the Complaint fails to state a claim for the first cause of action because the claim is based on requirements imposed by a contract and is therefore not the proper subject of a tort claim.  Moving Defendants alternatively argue that the Complaint does not allege conduct that is prohibited by the duty of loyalty and is based on actions that are not legally prohibited.  To the extent that the claim is based on alleged violations of the terms of the TSCA, Moving Defendants argue that the alleged breaches are not based on actionable conduct.

The Court finds that Plaintiff has alleged sufficient facts to state a breach of loyalty claim.  The Complaint identifies the conduct that underlies the claim—the alleged violations of the duty occurred before Employer Defendants ended their employment relationship with Plaintiff.  While California law does not prohibit employees from planning to compete with their employer in the future, or from competing with a former employer once an employment relationship concludes, it does not permit employees to use their employer’s time or resources in anticipation of competing while they are still employed.  (See Techno Lite, Inc. v. Emcod, LLC (2020) 44 Cal.App.5th 462, 471-74.)  Here, Employers’ alleged misconduct, which includes the solicitation of Plaintiff’s employees and the removal of company documents, occurred before they resigned.  Moving Defendants’ characterization of their alleged conduct as legally permissible, routine preparation for future employment relies on a factual analysis inappropriate for resolution on demurrer.  The Court construes all reasonable inferences in Plaintiff’s favor and therefore OVERRULES the Demurrer to the first cause of action.

Second Cause of Action: Aiding and Abetting Breach of Duty of Loyalty

The elements of a claim for aiding and abetting a breach of fiduciary duty 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.) 

The Complaint alleges that Blake and OneCruit knew of Employer Defendants’ value to Plaintiff and lured them into employment with OneCruit and encouraged them to engage in the conduct underlying the breach of duty claims for their benefit.  (See Complaint ¶¶ 34-36.)  The Court finds that the Complaint alleges sufficient facts to support an aiding and abetting of duty claim against Blake and OneCruit and therefore OVERRULES the Demurrer to the second cause of action.

Third Cause of Action: Breach of Contract/Covenant of Good Faith and Fair Dealing

The elements of a breach of contract claim are: (1) the contract; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendant’s breach; and (4) damage to plaintiff therefrom.  (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

Business and Professions Code section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  (Bus. & Prof. Code § 16600.)  California courts have consistently declared Business and Professions Code section 16600 to be an expression of public policy which ensures that every citizen retains the right to pursue any lawful employment and enterprise of his or her choice.  (See, e.g., Kelton v. Stravinski (2006) 138 Cal.App.4th 941, 946; D’sa v. Playhut, Inc. (2000) 85 Cal.App.4th 927, 933.)  Business and Professions Code section 16600 has consistently been interpreted as invalidating any employment agreement that unreasonably interferes with an employee's ability to compete with an employer after his or her employment ends.  (Techno Lite, Inc. v. Emcod, LLC (2020) 44 Cal.App.5th 462, 471.)  However, the statute does not affect limitations on an employee's conduct or duties while employed.  (Id.)  While California law does permit an employee to seek other employment and even to make some “preparations to compete” before resigning, California law does not authorize an employee to transfer his loyalty to a competitor.  (Id.) 

The Complaint sufficiently alleges that Employer Defendants breached the TSCA.  First, Plaintiff’s failure to quote the TSCA verbatim or include it as an attachment is not fatal to its claim.  The California Supreme Court has held that a plaintiff may plead the legal effect of the contract rather than its precise language.  (Construction Protective Services, Inc. v. TIG Specialty Insurance Co. (2002) 29 Cal.4th 189, 198-99.)  The Complaint sets forth the legal effect of the terms of the TSCA.  (See Complaint ¶¶ 14-15.) 

Furthermore, as alleged, Employer Defendants’ breaches are not based on categorically unlawful contractual provisions because they are based on contractual restrictions imposed on employees during the course of their employment, and the alleged breaches do not involve conduct that occurred after Employer Defendants resigned.  The Court therefore OVERRULES the Demurrer to the third cause of action.

Fourth Cause of Action: Interference With Prospective Economic Advantage

The elements of intentional interference with prospective economic advantage are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.  (Marsh v. Anesthesis Services Medical Group, Inc. (2011) 200 Cal.App.4th 480, 504.)  The plaintiff must plead facts showing that the defendant’s “intentional acts” are independently wrongful.  (See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1158.)  An act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.  (Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1142.)

The Complaint sufficiently alleges facts to state a claim for interference with prospective economic advantage against Blake and OneCruit for the reasons discussed with respect to the second cause of action.  The Court therefore OVERRULES the Demurrer to the fourth cause of action.

Fifth Cause of Action: Misappropriation of Trade Secrets

The elements of a cause of action for misappropriation of trade secrets under the California Uniform Trade Secrets Act (“CUTSA”) are: (1) the plaintiff’s possession of a trade secret; (2) the defendant's misappropriation of the trade secret, meaning its wrongful acquisition, disclosure, or use; and (3) resulting or threatened injury to the plaintiff.  (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 220, disapproved of on other grounds by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310.)  Under CUTSA, a trade secret has four elements: (1) it must be comprised of “information”; (2) it must not be “generally known”; (3) it must derive “independent economic value” from the fact that it is a secret; and (4) it must be the subject of “reasonable” efforts to “maintain its secrecy.”  (Civ. Code § 3426.1, subd. (d); see Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249, 1263.)  A misappropriation includes disclosure or use of a trade secret of another without consent.  (See Civ. Code § 3426.1 subd. (b).)  

Moving Defendants argue that the Complaint fails to identify Plaintiff’s alleged trade secrets with sufficient particularity.  The Court disagrees.  The Complaint alleges categories of Plaintiff’s proprietary, confidential, and trade secret information that sufficiently define the contours of its allegedly misappropriated trade secrets.  (See Complaint ¶ 56.)  Further, in general, plaintiffs are not required to spell out the details of their trade secrets in its pleadings but must instead describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special persons who are skilled in the trade to permit the defendant to ascertain the boundaries of the alleged secret.  (See Albert’s Organics, Inc. v. Holzman (N.D. Cal. 2020) 445 F.Supp.3d 463, 472.)  Moreover, California Code of Civil Procedure (“CCP”) section 2019.210 provides that in an action alleging trade secret misappropriation under CUTSA, before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject.  (CCP § 2019.210 (emphasis added).)  The specificity requirement is therefore not imposed at the pleading stage. 

Moving Defendants’ argument that the Complaint does not allege the disclosure of a trade secret is also unpersuasive because CUTSA also prohibits the use or wrongful acquisition of a trade secret.  The Court therefore OVERRULES the Demurrer to the fifth cause of action.

Sixth Cause of Action: Unlawful Competition Law (“UCL”)

The UCL prohibits any unlawful, unfair or fraudulent business act or practice.  (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.)  To show a violation of the UCL, a plaintiff must establish: (1) a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury; and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.  (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.)  A business act or practice only needs to meet one of the requirements to be considered unfair competition under the UCL.  (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1093.)

            For the reasons discussed with respect to the other five causes of action, the Complaint sufficiently alleges conduct to form the basis for an unlawful business practice.  The Court therefore OVERRULES the Demurrer to the sixth cause of action.

Moving Defendants are ordered to file an answer within 20 court days of this order.

Moving party is ordered to give notice of this ruling. 

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar. 

  Dated this 6th day of February 2023