Judge: Joseph Lipner, Case: 22STCV34709, Date: 2024-11-21 Tentative Ruling
Case Number: 22STCV34709 Hearing Date: November 21, 2024 Dept: 72
SUPERIOR COURT OF CALIFORNIA
COUNTY OF LOS ANGELES
DEPARTMENT 72
TENTATIVE
RULING
|
GET MAX TAX, LLC, Plaintiff, v. JAMAR HARTEN, et al., Defendants. |
Case No:
22STCV34709 Hearing Date: November 21, 2024 Calendar Number: 9 |
Defendants Jamar Harten (“Harten”) and First Class Tax &
Consulting (“First Class”) (collectively, “Moving Defendants”) demur to the
Third Amended Complaint (“TAC”) filed by Plaintiff Get Max Tax, LLC
(“Plaintiff”).
The Court OVERRULES the demurrer as to the second and third
claims.
The Court SUSTAINS the demurrer WITHOUT LEAVE TO AMEND as to
the fourth claim.
The Court SUSTAINS the demurrer with leave to amend as to
the remaining claims.
This is a trade secret and trademark case between Plaintiff
and Defendants Harten; First Class; Baldeep Chawla (“Chawla”); and Service
Bureau Accelerator (collectively, “Defendants”). The following facts are taken
from the allegations of the TAC, which the Court accepts as true for the
purposes of the demurrer.
Plaintiff owns various intellectual property and licenses
its use to individuals and companies who want to operate a tax preparation
service. The intellectual property consists of trademarks, logos, trade names,
and internet domain names in the name of “GET MAX TAX” or similar sounding
names and styles. Plaintiff has a U.S. Trademark with Serial No. 87221680.
Harten owns and operates First Class, which provides tax
preparation services for filers of tax returns.
On May 1, 2019, Plaintiff and Harten entered into a license
agreement (the “May 2019 Agreement”) whereby Harten would use Plaintiff’s
materials in the preparation of tax returns.
On August 24, 2021, Plaintiff and Harten entered into a
second licensing agreement (the “August 2021 Agreement”). The August 2021
Agreement ran for a term commencing on January 1, 2020 and expiring on December
31, 2025 unless renewed.
Plaintiff alleges that, on September 15, 2022, Harten
breached the August 2021 Agreement in a number of ways. Plaintiff alleges that
First Class engaged in a number of unlawful business practices on the same
date.
Plaintiff filed this action on October 31, 2022. The
operative complaint is now the TAC, which raises claims for (1) breach of
contract (against Harten); (2) breach of the implied covenant of good faith and
fair dealing (against Harten); (3) unlawful business practices (against both
Harten and First Class); (4) breach of fiduciary duty; (5) tortious
interference with contract (against First Class only); (7) intentional
interference with prospective economic relations (against al Defendants) [the
TAC no longer contains a ‘sixth’ cause of action]; (8) misappropriation of
trade secrets (apparently against all Defendants); (9) trademark infringement
(against all Defendants); (10) trademark dilution (against all Defendants); and
(11) declaratory and injunctive relief (against Harten and First Class).
On August 23, 2024, Moving Defendants demurred to the TAC.
Plaintiff filed an opposition. Moving Defendants did not file a reply.
“The party against whom a complaint or cross-complaint has
been filed may object, by demurrer or answer as provided in Section 430.30, to
the pleading on any one or more of the following grounds:
(a) The court has
no jurisdiction of the subject of the cause of action alleged in the pleading.
(b) The person who filed the pleading does not have the
legal capacity to sue.
(c) There is
another action pending between the same parties on the same cause of action.
(d) There is a defect or misjoinder of parties.
(e) The pleading does not state facts sufficient to
constitute a cause of action.
(f) The pleading is
uncertain. As used in this subdivision, “uncertain” includes ambiguous and
unintelligible.
(g) In an action
founded upon a contract, it cannot be ascertained from the pleading whether the
contract is written, is oral, or is implied by conduct.
(h) No certificate was filed as required by Section 411.35.”
(Code Civ. Proc., § 430.10.)
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.) The court assumes the truth
of the complaint’s properly pleaded or implied factual allegations. (Ibid.) 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. (Ibid.;
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).
To state a cause of action for breach of
contract, a plaintiff must be able to establish “(1) the existence of the
contract, (2) plaintiff’s performance or excuse for nonperformance, (3)
defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011)
51 Cal.4th 811, 821.)
If a breach of
contract claim “is based on alleged breach of a written contract, the terms
must be set out verbatim in the body of the complaint or a copy of the written
agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999)
74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead
the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v.
TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)
In prior iterations
of the Complaint, Plaintiff alleged that the August 2021 Agreement superseded
the May 2019 Agreement. The Court thus reads that allegation into the TAC as
well.
Plaintiff does not
allege its own performance or excuse for nonperformance.
The Court also notes
that some of the alleged conduct – namely, Plaintiff’s alleged use of the
licensed intellectual property – does not appear to constitute a breach of the
August 2021 Agreement. The agreement appears to permit the use of the licensed
intellectual property by Harten. If Plaintiff claims the material was used in a
manner that violated the agreement, it should make such an allegation clearly.
Similarly, the allegations that Harten falsely stated that he was Plaintiff’s
new president and that First Class was a successor to Plaintiff do not appear
to breach any express terms of the August 2021 Agreement.
Plaintiff’s
allegation that Harten violated a non-compete provision in the August 2021
Agreement may also be insufficient absent further explanation. Business and
Professions Code, section 16600 provides that contractual provisions
restraining anyone from engaging in a lawful business are generally void unless
a particular exception applies. (Bus. & Prof. Code, § 16600.)
Finally, Plaintiff
alleges that Harten stated that he would no longer comply with the August 2021
Agreement or pay fees – but does not actually allege that he stopped paying
fees. Nor does it allege other acts amounting to a breach.
The Court therefore
sustains the demurrer with leave to amend.
“A breach of the implied covenant of good faith and fair
dealing involves something beyond breach of the contractual duty itself and it
has been held that bad faith implies unfair dealing rather than mistaken
judgment.” (Careau & Co. v. Security
Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.) “If the
allegations do not go beyond the statement of a mere contract breach and,
relying on the same alleged acts, simply seek the same damages or other relief
already claimed in a companion contract cause of action, they may be
disregarded as superfluous as no additional claim is actually stated … [T]he
only justification for asserting a separate cause of action for breach of the
implied covenant is to obtain a tort recovery.” (Id. at pp. 1394-1395.) To recover in tort for breach of the implied
covenant, the defendant must “have acted unreasonably or without proper cause.”
(Id. at p. 1395 [citations and
italics omitted].)
Most of the alleged breaches are also alleged as breaches of
contract, and therefore do not constitute a second claim. Plaintiff alleges
that Harten breached the implied covenant by violating Plaintiff’s intellectual
property rights. Plaintiff alleges that Harten told his customers that First
Class was a successor of Plaintiff. Plaintiff alleges that Harten falsely
claimed to be Plaintiff’s president. Plaintiff alleges that Harten conspired
with others to discourage individuals and companies from licensing from
Plaintiff. All of this conduct is also alleged as a breach of contract.
Plaintiff alleges that Harten breached the implied covenant
by telling his employees who wanted to license from Plaintiff that Plaintiff
had cheated Harten and would cheat them too. This allegation is not raised as a
breach of contract. It thus separately states a claim for breach of the duty of
good faith and fair dealing.
The Court overrules the demurrer to this claim.
Moving Defendants argue that Plaintiff has improperly
omitted its former allegations that some of the alleged unlawful conduct
violated the California Uniform Trade Secrets Act (“CUTSA”) in order to avoid
CUTSA preemption. However, that conduct involved disclosure of trade secret
material – whereas now, Plaintiff alleges that Harten made false statements and
conspired with others to discourage potential customers from licensing from
Plaintiff. This is different conduct – not simply a different legal characterization.
Moving Defendants argue that these alleged false statements constitute fraud,
which must be specifically pleaded. However, Plaintiff does not only allege
that it was defrauded – it also alleges that it was defamed. Moving Defendants
do not indicate any authority showing that the heightened pleading standard for
fraud applies to defamation-type claims.
The Court overrules the demurrer to this claim.
Plaintiff has not alleged the existence of a fiduciary duty
– it has merely alleged a garden-variety licensing contract. “Equally without
merit is [the] contention that a fiduciary relationship exists because [a
plaintiff] necessarily reposed ‘trust and confidence’ in [a defendant] to
perform its contractual obligation …. Every contract requires one party to
repose an element of trust and confidence in the other to perform. For this
reason, every contract contains an implied covenant of good faith and fair dealing[.]”
(Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 31.)
Further, there is nothing to suggest that Plaintiff could
cure this defect by alleging an alternate basis for a fiduciary relationship.
The Court therefore sustains the demurrer to this claim
without leave to amend.
This claim contains only sparce factual allegations.
Plaintiff alleges that First Class persuaded Harten that it would be to “its”
advantage to breach Harten’s contract with Plaintiff. (TAC ¶ 40.) While
Plaintiff need not plead evidentiary facts, it must at least plead ultimate
facts showing what acts First Class took that were designed to induce a breach.
Further, as discussed above, Plaintiff has not alleged a breach of the August
2021 Agreement. It must do so in order to state a claim.
The Court sustains the demurrer to this claim with leave to
amend.
Moving Defendants
argue that Plaintiff has not alleged specific third parties, wrongful conduct,
or prospective future advantage.
A plaintiff must
identify “a specific third party with whom plaintiff had an existing economic
relationship, let alone a relationship that had the probability of future
economic benefit.” (Muddy Waters, LLC v. Superior Court (2021) 62
Cal.App.5th 905, 926.)
Plaintiff alleges that Harten induced potential unnamed new
licensees to decide not to license from Plaintiff or to cancel their existing
licenses. Elsewhere in the TAC, but incorporated into this claim, Plaintiff
alleges that Harten told his employees that Plaintiff had cheated Harten and
would cheat them as well. Although Plaintiff argues that the subject conduct of
the claim is preempted trade secret disclosure, this conduct falls outside of
trade secret issues.
The problem remains that Plaintiff does not identify any
specific third parties. Plaintiff must do so in order to state a claim.
The Court sustains the demurrer to this claim with leave to
amend.
“Under the [California Uniform Trade Secrets Act], a prima
facie claim for misappropriation of trade secrets requires the plaintiff to
demonstrate: (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.” (Sargent
Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665; see also
Civ. Code, § 3426.1) “ ‘Trade secret’ means information, including a formula,
pattern, compilation, program, device, method, technique, or process, that: [¶]
(1) Derives 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; and [¶] (2) Is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.” (Civ. Code, §
3426., subd. (d).) “ ‘Improper means’ includes theft, bribery,
misrepresentation, breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other means.” (Civ. Code, § 3426.1,
subd. (a).)
Plaintiff states that it brings this claim under both common
law and CUTSA. There is no common law claim for misappropriation of trade
secrets in California. “At least as to common law trade secret misappropriation
claims, ‘UTSA occupies the field in California.’ ” (K.C. Multimedia, Inc. v.
Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th
939, 954.)
“One who seeks to protect his trade secrets from wrongful
use or disclosure does not have to spell out the details of the trade secret to
avoid a demurrer to a complaint. To so require would mean that the complainant
would have to destroy the very thing for which he sought protection by making
public the secret itself.” (Diodes, Inc. v. Franzen (1968) 260
Cal.App.2d 244, 252.) “The plaintiff must nevertheless allege the ultimate
facts showing the existence of a trade secret or other confidential data to state
such a cause of action. An averment simply that the plaintiff has a ‘secret
process’ is a bare legal conclusion.” (Ibid.) “Before a defendant is
compelled to respond to a complaint based upon claimed misappropriation or
misuse of a trade secret and to embark on discovery which may be both prolonged
and expensive, the complainant should 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 knowledge of those persons who are skilled
in the trade, and to permit the defendant to ascertain at least the boundaries
within which the secret lies.” (Id. at p. 253.)
Here, Plaintiff has only alleged the mere existence and
disclosure of trade secrets, without stating the general subject matter of the
trade secret.
Plaintiff also fails to allege any facts showing that
Defendants disclosed a trade secret.
The Court sustains the demurrer to this claim with leave to
amend.
“[Courts] measure federal trademark infringement, 15 U.S.C.
§ 1114, and federal unfair competition, 15 U.S.C. § 1125(a)(1)(A), by identical
standards. [Citation.] To prove either form of Lanham Act violation, a
plaintiff must demonstrate that (1) it has a valid and legally protectable
mark; (2) it owns the mark; and (3) the defendant's use of the mark to identify
goods or services causes a likelihood of confusion.” (A & H Sportswear,
Inc. v. Victoria's Secret Stores, Inc. (3d Cir. 2000) 237 F.3d 198, 210) For
the Lanham Act to apply, the infringing conduct must occur in interstate
commerce. (15 U.S.C. §§ 1114, 1127.)
Plaintiff must allege that Defendants’ infringing conduct “
‘substantially affects’ interstate commerce.” (U.S. v. Lopez (1995) 514
U.S. 549, 559.)
Plaintiff has alleged that Defendants used Plaintiff’s marks
in connection with services to help prepare federal tax returns. Plaintiff has
thus alleged a substantial effect on interstate commerce.
Plaintiff has not clearly alleged infringing conduct. The
August 2021 Agreement demonstrates that Harten had a license to use Plaintiff’s
marks. Plaintiff must allege facts showing how Harten’s use of Plaintiff’s
marks was nevertheless improper.
The Court sustains the demurrer to this claim with leave to
amend.
“Subject to the principles of equity, the owner of [1] a
famous mark that [2] is distinctive, inherently or through acquired
distinctiveness, shall be entitled to an injunction against another person who,
[3] at any time after the owner’s mark has become famous, [4] commences use of
a mark or trade name in commerce that is likely to cause dilution by blurring
or dilution by tarnishment of the famous mark, regardless of the presence or
absence of actual or likely confusion, of competition, or of actual economic
injury.” (15 U.S.C. § 1125(c)(1).)
Plaintiff does not allege that its marks are famous or
distinctive. Furthermore, as discussed above, the August 2021 Agreement appears
to reflect that Harten lawfully licensed the marks from Plaintiff. Plaintiff
must allege facts showing how Harten’s use was illegal in spite of the license
agreement.
The Court sustains the demurrer to this claim with leave to
amend.
Here, Plaintiff combines two causes of action. The Court
analyzes each separately.
Plaintiff contends that there is a controversy over the
legal rights and duties of the parties under the August 2021 Agreement.
However, Plaintiff does not adequately explain what that controversy is. The
TAC does not explain which controversies Plaintiff wishes to obtain declaratory
relief on. It may be that Plaintiff only seeks to resolve its breach of
contract allegations. However, based on the opposition, Plaintiff appears to
also seek resolution of issues relating to Defendants’ use of Plaintiff’s intellectual
property. Defendants cannot reasonably determine from the TAC the allegations
to which they must respond. This cause of action is therefore uncertain.
The Court sustains the demurrer to this claim with leave to
amend.
“The elements of a
cause of action for injunctive relief are (1) a tort or other wrongful act
constituting a cause of action; and (2) irreparable injury, i.e., a factual
showing that the wrongful act constitutes an actual or threatened injury to
property or personal rights which cannot be compensated by an ordinary damage
award.” (Brownfield v. Daniel Freeman
Marina Hospital (1989) 208 Cal.App.3d 405, 410, citation omitted.) Notably,
“injunctive relief is a remedy and not, in itself, a cause of action, and a
cause of action must exist before injunctive relief can be granted.” (Camp v. Board of Supervisors (1981) 123
Cal.App.3d 334, 356.)
Plaintiff seeks injunctive relief to (1) prevent Harten from
doing business with or as First Class due to the non-compete terms in the
August 2021 Agreement; (2) prevent Harten from using Plaintiff’s intellectual
property without Plaintiff’s signed consent; and (3) prevent Harten from
converting Plaintiff’s licensee clients.
As discussed above, the first item may be disallowed by the
general rule against noncompete agreements and in favor of economic
competition. The second item lacks clarity for the same reasons as Plaintiff’s
trademark claims – it is unclear how Defendants unlawfully used Plaintiff’s
intellectually property, given that Harten signed a licensing agreement that
appears to permit the intellectual property’s use. The third item hinges on
Plaintiff’s seventh, and possibly fifth, claims for interference with economic
relations – neither of which have been properly pled.
The Court therefore sustains the demurrer with to this claim
with leave to amend.