Judge: Jon R. Takasugi, Case: 24STCV04219, Date: 2024-06-07 Tentative Ruling

Case Number: 24STCV04219    Hearing Date: June 7, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendant’s demurrer is OVERRULED as to the third cause of action, but SUSTAINED, WITH 15 DAYS LEAVE TO AMEND, as to the sixth cause of action.

            On 2/20/2024, Plaintiff Valsoft Corporation, Inc. (Plaintiff) filed suit against Fleet Logic LLC dba Velocity Truck Rental and Leasing (Defendant), alleging: (1) misappropriation of trade secrets; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; (4) conversion; (5) unjust enrichment; (6) unauthorized computer access and fraud; (7) violation of computer fraud and abuse; and (8) unfair competition.

            On 6/7/2024, Defendant demurred to the third and sixth causes of action.

Factual Background

            Plaintiff alleges that Defendant stole unspecified trade secrets within database software Valsoft owns.

Discussion

            Defendant argues that Plaintiff cannot state a claim for the breach of implied covenant because it is superfluous to the breach of contract claim, and is preempted by Plaintiff’s claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act (CUTSA). Defendant argues that Plaintiff cannot state a claim under California’s Comprehensive Computer Data and Fraud Act (CDAFA) because the allegations in the Complaint are not truly directed to unauthorized access of Valsoft’s software (Fleet was an authorized licensee) but to alleged unauthorized use of items that were accessed with admitted authorization. Moreover, the Complaint does not allege the requisite damages or that any alleged unauthorized access took place in California, as required under the statute.

            After review, the Court agrees in part.

            As to the third cause of action for breach of implied covenant, a plaintiff may bring both a breach of contract claim and breach of the implied covenant of good faith and fair dealing claim. (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 327, 377.) However, in order to maintain both, a claim alleging breach of the implied covenant of good faith and fair dealing must be based on a different breach than the breach of contract claim. (Id.; Careau & Co. v. Sec. Pac. Bus. Credit, Inc. (1990) 222 Cal.App.3d 1371, 1392 [observing that the plaintiff’s breach of implied covenant claim is “simply duplicative [of her breach of contract cause of action], and thus may be disregarded.”])

Here, Plaintiff alleges that Fleet Logic breached the operative agreements by “conspiring, engaging in, or facilitating theft of Valsoft’s intellectual property and trade secrets; using confidential and proprietary information without Valsoft’s knowledge or consent for its own benefit; using Valsoft’s trade secrets and confidential information in a manner that was inconsistent with the terms of the RAA and Addendum #2; and developing competing software based on Valsoft’s proprietary assets and confidential information.” (Complaint, ¶ 46.) Plaintiff’s breach of implied covenant claim recites nearly identical factual allegations. (Cf. Complaint, ¶¶ 46, 53.)

However, as noted by Plaintiff in opposition, the claim is not duplicative where the plaintiff alleges that the defendant acted in bad faith to frustrate the contract’s benefits. (Guz, supra, 24 Cal. 4th 312, 353 n.18; See Beaulieu Grp., LLC v. Bates (C.D. Cal. 2015) 2015 WL 13950821, at *7) ) (“[E]ven though they are based on the same factual allegations, the breach of contract claim and the breach of the implied covenant of good faith and fair dealing claim are not duplicative because Plaintiff may be successful on one but not the other.”)

Here, Plaintiff alleges that Defendant breached the implied covenant of fair dealing and abused its discretion by using ODBC in bad faith and conspiring with offshore agents to circumvent the terms of the parties’ contracts and misappropriate Fleet Logic trade secrets and proprietary assets. (See e.g. Compl. ¶ 18 (“[Fleet Logic’s access to ODBC was granted as a discretionary privilege to facilitate [Fleet Logic’s] business reporting.”).] As such, Plaintiff’s allegations are distinct from and go beyond Defendant’s alleged improper use of DMB, which is explicitly covered by Addendum #2. (See Compl. ¶¶ 19, 20, 24, 26, 44.)

The Court also finds that Plaintiff’s claims are not preempted on their face by CUTSA. CUTSA expressly carves out claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Cal. Civ. Code § 3426.7(b)(1) (“This title does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, . . . .”); see also Thrifty Payless, Inc. v. The Americana at Brand (2013) LLC, 218 Cal. App. 4th 1230, 1244 (“A breach of the implied covenant of good faith and fair dealing is a breach of the contract . . .”). The cases relied upon by Defendant, K.C. Multimedia and Silvaco, are distinguishable because those decisions did not concern an implied covenant claims. (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal. App. 4th 939; Silvaco Data Sys. v. Intel Corp. (2010) 184 Cal. App. 4th 210.)

As for the sixth cause of action for unauthorized computer access and fraud, the CDAFA prohibits “tampering, interference, damage, and unauthorized access to lawfully created computer data and computer systems.” (Cal. Penal Code § 502(a).) Section 502 permits civil suit only where a computer system is accessed “without permission” by an outsider who thereby causes the victim some damage or loss. (See Chrisman v. City of Los Angeles (2007) 155 Cal.App.4th 29, 34 [“Section 502 defines ‘access’ in terms redolent of ‘hacking’ or breaking into a computer.”])

Here, contrary to Defendant’s contention, Plaintiff does allege that Defendant accessed the Software without permission: “Valsoft is informed and believes Velocity knowingly and without permission altered, deleted, destroyed, or otherwise used Valsoft’s data, computer, computer system, or computer network in order to devise or execute a scheme to wrongfully control or obtain Valsoft’s money, property, or data.” Complaint, ¶ 67.)

However, the Court agrees that such a generic allegation is conclusory and does not allege facts which could show on what basis Plaintiff believes Defendant accessed Plaintiff’s software. (Pridonoff v. Balokovich (1951) 36 Cal.2d 788, 792.) (“Plaintiff may allege on information and belief any matters that are not within his personal knowledge, if he has information leading him to believe that the allegations are true.”) As such, Plaintiff must allege some facts which could show that it has a basis for believing this to be true.

The Court also finds Plaintiff’s allegations of damage to be insufficient. While Plaintiff alleges that Defendant “strained Valsoft’s servers” and “caused operational stress to the Software,” Plaintiff alleges only that it is “entitled to compensation for any expenditure reasonably and necessarily incurred to verify that a computer system, computer network, computer program, or data was or was not altered, damaged, or deleted by Velocity’s actions.” (Complaint ¶ 71.) This creates uncertainty as to whether or not such expenses were, in fact, incurred.

However, the Court declines to conclude that Plaintiff cannot state a CDAFA claim under Section 502 claim based on extraterritorial activity. Defendant’s argument is based on a single citation Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191, wherein the California Supreme Court wrote: : “[h]owever far the Legislature’s power may theoretically extend, we presume the Legislature did not intend a statute to be ‘operative, with respect to occurrences outside the state, ... unless such intention is clearly expressed or reasonably to be inferred from the language of the act or from its purpose, subject matter or history.” (Id. at p. 1207.) However, this case involved alleged labor violations, and did not involve conduct that took place over the internet or through web servers. There is strong reason to believe that the same physical boundary rules that apply to physical conduct do not apply in the same way to internet-based conduct. Accordingly, the Court cannot conclude as a matter of law based on this case that Plaintiff cannot assert a CDAFA based on allegations that actions were undertaken through various internet service providers “from multiple offshore locations” and different places across India. (Complaint. at ¶ 24.)

The Court also declines to find that the CDAFA claim is preempted by CUTSA at this time.

Plaintiff will be afforded leave to amend to address the identified deficiencies.

Based on the foregoing, Defendant’s demurrer is overruled as to the third cause of action, but sustained, with 15 days leave to amend, as to the sixth cause of action.

It is so ordered.

Dated:  June    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.