Judge: Jon R. Takasugi, Case: 24STCV11209, Date: 2024-07-15 Tentative Ruling

Case Number: 24STCV11209    Hearing Date: July 15, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENATIVE RULING

Plaintiff’s motion for a preliminary injunction is GRANTED. The Court may set a bond amount at hearing based on the arguments presented.

            On 5/30/2024, Plaintiff Calex Engineering Co. filed suit against Wendell Beniga and Ironmark Earthworks, Inc. alleging: (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) breach of fiduciary duty; (3) aiding and abetting breach of fiduciary duty; (5) inducing breach of contract; (6) misappropriation of trade secrets; (7) violation of Business and Professions Code section 17200; (8) intentional interference with economic relations; (9) negligent interference with economic relations; and (10) violations of Comprehensive Computer Data access and Fraud At.

            Now, Plaintiff moves for a preliminary injunction.

Factual Background

Plaintiff Calex Engineering Company is a temporary shoring and earthwork specialty subcontractor in the Southern California area. (Seitz Decl., ¶ 3.) Plaintiff’s client list, as well as its project list, is comprised of premier clients and projects in Southern California. (Id.) Plaintiff alleges that Defendants embezzled confidential information and trade secrets— including bidding information and strategies it has developed and used for various customers and contractors it associates with—and gave them to one of Plaintiff’s competitors.

Discussion 

            Plaintiff argues that he is entitled to a preliminary injunction under the California Uniform Trade Secrets Act (CUTSA or the Act) and because it can show a likelihood of prevailing on the merits and will suffer interim harm if an injunction is not issued.

            Injunctions are specifically authorized under the CUTSA when there is “actual or threatened misappropriation” of a trade secret. (Civil Code § 3426.2(a).) Thus, the test is simple: an injunction is proper when (1) a trade secret (2) is misappropriated or there is a threat of misappropriation.

            The Act’s definition of a “trade secret” sets forth a two-prong test. The first prong provides that the trade secret must derive “independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.” (Civil Code § 3426.1(d)(1).)

            Here, to show that Plaintiff’s clients and related bidding information are trade secrets, Plaintiff submitted evidence that the confidential information at issue here consists of client names, addresses, telephone and fax numbers, key contacts, and bidding proposals and strategies. Courts have held that such client information is entitled to trade secret protection. (See Courtesy Temporary Service, Inc. v. Camacho (1990) 222 Cal. 3d 1278, 1288 [customer information generally, i.e., billing rates, key contacts, specialized requirements and mark up rates, satisfied first prong of the definition of “trade secret” under section 3426.1.].) The need for trade secret protection is particularly important in this case because the information would allow Defendants to target Plaintiff’s specific list of clients and customers who have specific project needs. (See American Credit Indemnity Co. v. Sacks (1989) 213 Cal. App. 3d 622, 630-631 [holding that customer list was a trade secret because it allowed competitor to target elite group of potential customers].)

            Plaintiff also submitted evidence that it took reasonable efforts to maintain secrecy. California courts have explained that protection of trade secret information is reasonably sufficient if the employer (1) has its employees sign confidentiality agreements, (2) reminds employees of the confidentiality policy in employee handbooks, and (3) employs passwords to restrict computer access to the documents. (See Morlife v. Perry (1997) 56 Cal.App.4th 1514; American Credit Indemnity Company, supra, 213 Cal.App.3d at p. 622; Mai Systems Corp. v. Peak Computer (9th Cir. 1993) 991 F.2d 511.)

            Here, Plaintiff submitted evidence that it takes all of the following security measures to safeguard its confidential information: (1) confidentiality and nondisclosure agreements with its employees; (2) employee handbooks that outline the confidential nature of Plaintiff’s business and customer information and material; (3) password protection on all computer terminals; (4) proprietary network software that restricts access to information based on the position and responsibilities of each employee; (5) user and group-level security; (6) confidentiality reminders and warnings; (7) password protected firewalls; and (8) unique administrator accounts with restricted passwords. (See Seitz Decl. at ¶ 6; Gallegos Decl. at ¶ 3.)

            Given that Plaintiff’s efforts to protect its valuable information exceed the standards outlined in Morlife, American Credit, and Mai System, the Court concludes that Plaintiff’s evidence supports a reasonable likelihood that its clients and related bidding information are protected trade secrets. The Court is unpersuaded by Defendants’ contention in opposition that Plaintiff has not identified its trade secrets with reasonable particularity. Plaintiff’s Complaint makes clear that they are seeking to protect their bidding strategies, customer lists and related customer information, the key contacts for each customer, and unique customer preferences. (See Complaint ¶¶ 16, 24, 75; see also, Mot. at 9-11.)

            The Act provides that there is a “misappropriation” when a trade secret is disclosed or used (1) without express or implied consent and (2) the trade secret was acquired “under circumstances giving rise to a duty to maintain its secrecy or limit its use.” (Civil Code § 3426.1(b).)

To support its allegations that Defendant downloaded and copied confidential information, including trade secrets, take-offs, estimates, proposals and other proprietary information from Plaintiff and that this conduct constituted misappropriation:

-          After Beniga resigned, Plaintiff directed Matthew Gallegos, Calex’s IT Admin Manager, to perform a forensic analysis on Beniga’s computer. The forensic analysis revealed Beniga typically worked on 8-14 different files during an average day. (Gallegos Decl. ¶ 5, Ex. A.) On Monday, May 22, 2023, two days before his departure, Beniga worked on over 35 files for several projects, including the Walnut Park project (Id. Ex. A. rows 23-26, 30), the Long Beach project (Id. at rows 21, 22), and various bid proposals (Id. at rows 19, 43). Beniga also connected 2-3 different USB drives (see Gallegos Decl. ¶ 6, Ex. B. rows 24-25, 27) to his computer in May, which was unusual for him as these devices were not provided or approved by Plaintiff. (Id.)

-          Calex also engaged MRD Services, Incorporated (MRD) to conduct a further forensic investigation on Beniga’s computer. MRD’s forensic analysis revealed that three unauthorized USB drives were attached to Beniga’s computer at various points in time leading up to the Defendant’s final day at Calex on May 24, 2023. (Braun Decl. ¶ 16.) Confidential business-related files were copied to and/or accessed from the USB devices. Of particular note, on May 18, 2023, less than a week before Beniga’s departure, two files containing confidential and proprietary information titled Calex Earthwork Budget Proposal.pdf and invoice_505196.pdf were copied on a USB drive. (Baun Decl. at ¶ 21.)

-          MRD’s forensic analysis also revealed Beniga’s access of confidential files through the use of unauthorized cloud-based hosting services such as Dropbox and Google Drive, including files related to the Walnut Park project and plans related to the Harvard, Kingsley, and Fedora projects. (Baun Decl. at ¶¶ 29-31.) Use of these cloud storage services to host and transfer confidential company documents was not sanctioned or authorized by Calex. (Gallegos Decl. ¶ 4.)

-          Since leaving Calex and joining Defendant Ironmark, Defendant Beniga has begun improperly soliciting bids to Calex customers and clients. At least two customers have informed Calex that Defendants have attempted to underbid Calex on certain projects. (Seitz Decl. ¶ 10.) As just one example, on July 10, 2023, Defendants Beniga and Ironmark submitted a bid proposal to Walton Construction for the “First Street North” project in which the substance and format are similar to Calex’s documents. (Compare Seitz Decl. ¶ 10, Ex. B with Ex. C.) Without exploiting Plaintiff’s trade secrets, Defendants could not have known of these customers nor their project specifications/needs.

The Court agrees that Plaintiff’s evidence shows a reasonable likelihood that Defendant misappropriated Plaintiff’s trade secrets, and that by virtue of Ironmark’s employment of Beniga and its use of his knowledge of Plaintiff’s proprietary and confidential information to solicit Plaintiff’s clients, Ironmark has acquired and misappropriated Plaintiff’s trade secrets. Accordingly, the Court finds a preliminary injunction under the UTSA to be appropriate.

In so concluding, the Court notes Defendants’ argument that Plaintiff’s remaining causes of action are preempted by the Uniform Trade Secrets Act (UTSA). The plain language of CUTSA itself makes it clear that, where customer lists and other confidential information are protected by contract, breaches of confidentiality provisions will not be preempted. (Civ. Code § 3426.7, subd. (b).) Here, Plaintiff’s claims concern: (1) Beniga’s breach of his contractual and fiduciary duties to Calex; (2) Ironmark’s inducements of Calex’ prior employee to breach those duties; (3) Defendants’ disruption of Calex’ economic relationship with its clients; (4) Defendants’ unfair competition and business practices; and (5) Beniga’s knowledge of Calex’ confidential trade secret information, and his access, unpermitted use, copying, and deletion of data from Beniga’s computer system in violation of Penal Code section 502, subdivision (c). As such, the Court is persuaded that Plaintiff has alleged multiple independent bases for liability, and these claims do not arise from the exact same nucleus of facts as the misappropriation of trade secrets claim. 

While the analysis need not go further, the Court notes that injunctive relief would also be appropriate through the traditional preliminary injunction analysis as well.

To obtain a preliminary injunction, a moving party must show that it is likely to succeed on the merits of its claims, that it will suffer irreparable harm if alleged conduct is not enjoined, and that its entitlement to an injunction outweighs any harm to the opposing parties. (Cal. Civ. Proc. § 526(a); Shoemaker v. County of Los Angeles (1995) 37 Cal. App.4th 618, 624; Robbins v. Superior Court (1985) 38 Cal.3d 199, 206.)  California courts have recognized that injunctive relief is extraordinary and should only be granted when the stringent requirements for such relief are met. “The power to issue preliminary injunctions is an extraordinary one and should be exercised with great caution and only where it appears that sufficient cause for hasty action exists.” (West v. Lind (1960) 186 Cal.App.2d 563, 565.)

To justify “the exercise of the rather extraordinary power to restrain defendant’s actions prior to a trial on the merits,” a plaintiff must show a real and imminent threat of “irreparable injury” if injunctive relief is not granted. (Tahoe Keys Prop. Owners’ Ass’n v. State Water Res. Control Bd. (1994) 23 Cal.App.4th 1459, 1471.) An irreparable injury is typically “one for which either (1) its pecuniary value is not susceptible to monetary valuation, or (2) the item is so unique its loss deprives the possessor of intrinsic values not replaceable by money or in kind.” (Jessen v. Keystone Sav. & Loan Ass’n (1983) 142 Cal.App.3d 454, 457.)  “If monetary damages afford adequate relief and are not extremely difficult to ascertain, an injunction cannot be granted.” (Thayer Plymouth Center, Inc. v. Chrysler Motors Corp. (1967) 255 Cal. App. 2d 300, 306; see also Doyka v. Superior Court (1991) 233 Cal. App. 3d 1134, 1136 (injunction will not issue where “only money is involved”).

Here, as set forth above, Plaintiff has demonstrated a reasonable likelihood of success on the merits, and thus has satisfied the first element.

As to the second element (i.e. irreparable harm), the CUTSA authorizes injunctive relief to prevent not only actual but also “threatened misappropriation.” (Cal. Civ. Code § 3426.2; see also Lillge v. Verity, (N.D. Cal. Oct. 1, 2007) No. C 07-2748, 2007 U.S. Dist. LEXIS 73543, *20 (“Although it is unclear whether plaintiff has already lost business as a result of defendants’ alleged misappropriation, the risk of losing established customers to defendants’ new business due to defendants’ improper use of plaintiff’s proprietary information would obviously create lasting, irreparable harm.”)

Here, Plaintiff’s evidence supports a reasonable likelihood of irreparable harm given Plaintiff’s evidence that Defendants have already stolen and used Plaintiff’s trade secrets in their bid proposal to Walton Construction for the “First Street North” project in which the substance and format are similar to Calex’ documents. (See Seitz Decl. ¶ 10, Exs. B and C.)  Accordingly, the Court finds an irreparable harm would result without injunctive relief.

Finally, as to the third element, the Court finds that a balance of hardship favors injunctive relief. Granting the injunction will restrain Defendants only from soliciting a small percentage of the potential customers available to Defendants, and will only prevent them from not soliciting Plaintiff’s customers or using Plaintiff’s confidential trade secret business information to develop their competing business. By contrast, if the requested injunction is not granted, Plaintiff would be greatly harmed as Plaintiff’s competitive position will be destroyed, and will face significant irreparable harm on a number of levels, including public disclosure of confidential trade secret information, loss of customers and business contacts, and incalculable damages to Plaintiff’s customer base, goodwill, and reputation.

Moreover, Plaintiff has no adequate legal remedy to be made whole as the independent economic value of its client profiles is incalculable.

In opposition, Defendants contend that the scope of the proposed order is impermissibly overbroad. However, Plaintiff’s injunction does not cover potential customers with whom they had no contact and as to whom they acquired no information while at Plaintiff. The Court agrees that misappropriation of Plaintiff trade secrets justifies application of the injunction to any Plaintiff customer about which Beniga acquired information while he was in Plaintiff’s employment.

In opposition, Defendants also request a “substantial bond” but identify no specific costs or damages that they would sustain as a result of an injunction. In reply, Plaintiff cited a case law to show that Courts have dispensed of any bond requirement under similar circumstances as those presented here. (See e.g. Extreme Reach, Inc. v. Spotgenie Partners, LLC (C.D. Cal. Nov. 22, 2013, No. CV1307563DMGJCGX, 2013 WL 12081182, at *9 [declining to order a bond where the “preliminary injunction merely enjoins [defendants] from using [plaintiff]’s confidential customer list information, which they have no right to use in any event”].)

While the Court declines to dispense the bond requirement altogether, the Court has no basis from either parties’ argument to determine an appropriate bond amount. The Court may set a bond amount at hearing based on the arguments presented.

Based on the foregoing, Plaintiff’s motion for a preliminary injunction is granted. The Court may set a bond amount at hearing based on the arguments presented.

It is so ordered.

Dated:  July    , 204

   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.