Judge: Kenneth J. Medel, Case: 37-2021-00028563-CU-BT-CTL, Date: 2024-01-19 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - January 18, 2024

01/19/2024  09:30:00 AM  C-66 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Kenneth J Medel

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Civil - Unlimited  Business Tort Summary Judgment / Summary Adjudication (Civil) 37-2021-00028563-CU-BT-CTL DIAKON LOGISTICS DELAWARE INC VS ARAM LOGISTICS INC [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion for Summary Judgment and/or Adjudication, 07/07/2023

Significant portions of Plaintiff Diakon Logistics' papers filed with the Court were REDACTED Pursuant to CRC 2.551(b)(3)(A)(ii). Pursuant to the section Diakon provided notices to the defendant of the redacted filings and also lodged unredacted copies with the Court. Pursuant to that section, Defendants had 10 days from the notice of the filing to seek an order of the court to seal the records. The Court has received no motion or request from Defendants to Seal. Thus, the unredacted copies are to be transferred to the public file. Counsel for Diakon is to file all unredacted copies corresponding to anything redacted in the Court file.

The Court has received multiple evidentiary objections. All evidentiary objections are DENIED.

The Court has Summary Adjudication motions on behalf of Defendants, ARAM LOGISTICS, INC., SAMUEL RUBIO and ALVARO HERNANDEZ and Plaintiff Diakon Logistics (Delaware) Inc. The Court rules as follows as to both motions: Defendant's Motion for Summary Adjudication CUTSA 'occupies the field' of common law claims based on the misappropriation of a trade secret. (K.C.

Multimedia, Inc. v. Bank of America Tech. & Operations, Inc. (2009) 171 Cal.App.4th 939, 954.) CUTSA 'provides the exclusive civil remedy for conduct falling within its terms . . . ' (Silvaco Data Systems v. Intel Corporation (2010) 184 Cal.App.4th 210, 236, disapproved on other grounds by Kwikset Corp. v. Superior Court (2011) 51 Cal.App.4th 310.) CUTSA 'preempts,' displaces, and supersedes all 'claims based on the same nucleus of facts as trade secret misappropriation.' (Id. at p. 962.) A statutory unfair competition claim under California Business & Professions Code § 17200 et seq. likewise is superseded if it relies on the same facts as the misappropriation claim. (Id. at p. 961-962.) However, CUTSA does not supersede 'contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.' (Code Civ. Proc. § 3426.7(b).) A CUTSA preemption analysis asks whether, stripped of facts supporting trade secret misappropriation, the remaining factual allegations can be reassembled to independently support other causes of action.

Albert's Organics v. Holzman, 445 F.Supp.3d 463, 474 (N.D. Cal. 2020).

Both sides agree that Diakon's trade secret designation includes: 1. 'Diakon's confidential customer communications, documents and information that discuss, mention, reflect or refer to Diakon's contracts with customers Jerome's Furniture and Living Spaces . . . [and] confidential employee information . . . .' 2. 'Diakon's confidential bidding information . . . [and] confidential customer lists . . . .' 3. 'Diakon confidential business relationships and strategic planning . . . .' 4. 'Diakon's confidential business model and analyses . . . .' Calendar No.: Event ID:  TENTATIVE RULINGS

3018082  24 CASE NUMBER: CASE TITLE:  DIAKON LOGISTICS DELAWARE INC VS ARAM LOGISTICS INC  37-2021-00028563-CU-BT-CTL 5. 'Profitability of Diakon's business relationships and enterprise.' 6. 'Diakon's confidential independent contractor carrier and driver lists.' (SSUF 7). The definitions in the designation further expand its scope, including: e. 'Books and records mean all . . . correspondence . . . used by Diakon that contain information about Jerome's Furniture and Living Spaces.' g. 'Customer information includes specific current and prospective customer contact information such as points of contact . . . .' (SSUF 7).

(1) Breach of Duty of Loyalty and Breach of Fiduciary Duty Cases have held that competing with plaintiff on behalf of a competitor is a breach of fiduciary duty regarding of whether defendants used trade secrets to do so. See Arthur Gallagher & Co. v. Tarantino, 2022 WL 4092673 (N.D. Cal. 2022). Plaintiff Diakon alleges that defendants Rubio and Hernandez were both management-level employees of Diakon and owed fiduciary duties to place Diakon's interests before their own. Like all employees, they owned a duty of loyalty. Based on the allegations, Rubio and Hernandez violated their fiduciary duties and duty of loyalty by competing with Diakon, soliciting its customers and cherry-picking its employees while still employed. This conduct has been held to independently violate duties to the employer and is not displaced by CUTSA. See Angelica Textile Services v. Park (2013) 220 Cal.App.4th 495.

Likewise, the related claims for statutory unfair competition, interference with prospective economic advantage, usurpation of corporate opportunities and fraud are based on the same conduct as the breach of loyalty/breach of fiduciary duties, so the claims are not preempted. 2022 WL 4092673 at **12-13.

(2) Unfair Competition B&P 17200 prohibits unlawful, unfair or fraudulent business practices. Based on the allegations, defendants 'unlawfully solicited Daikon's customers....' (Complaint at paragraphs 41-44) Improper customer solicitation is sufficient to support unfair competition. Angelica Textile, supra, 220 Cal.App.4th at 506; Gallahger, supra, 2022 WL 4092673 at 12-13. Plaintiff also alleges that defendant picked Daikon's employees to work at defendants' company, Aram, both during and after employment with Daikon. Evidence has been presented that Diakon employee Erik Gonzales was solicited by Hernandez to work for Aram with simultaneously working for Diakon. (SSUMF Nos. 94; 103) Danielle Debillis gave her notice and then immediately was hired by Aram, creating an alias name in the process. (SSUMF 105; 106) Another prospect, Destini Hines, was offered a position. (SSUMF No. 107) (3) Intentional Interference with Prospective Economic Advantage Plaintiff has provided evidence that may lead a trier of fact to conclude that defendants diverted business away from Diakon to Aram, diverting Diakon orders. (SUMF 110, 11, 112) (4) Usurpation One who occupies a fiduciary relationship to a corporation is prohibited from acquiring, in opposition to the corporation, property in which the corporation has an interest or tangible expectation or which is essential to its existence. Diakon alleges that defendants improperly solicited customers. (Comp. 61-63) This is not preempted because it involves the solicitation of customers.

(5) Fraud The Complaint alleges that Rubio, while employed by Diakon, intentionally concealed his part-ownership and participating in Aram's competing activities. He concealed until he left Diakon. (SSUMF 86, 123) Such fraud is not preempted by CUTSA. Zoom Imaging Solutions v. Roe 2019 5862594 (E.D. Cal. 2019) at *9.

(6) Misappropriation To state a claim for trade secret misappropriation under the DTSA and the CUTSA, a plaintiff must allege that: '(1) the plaintiff owned a trade secret; (2) the defendant misappropriated the trade secret; and (3) the defendant's actions damaged the plaintiff.' ' Alta Devices, Inc. v. LG Elecs., Inc., 343 F.

Supp. 3d 868, 877 (N.D. Cal. 2018); Albert's Organics, Inc. v. Holzman, 445 F. Supp. 3d 463, 471 (N.D.

Cal. 2020) Defendant argues that plaintiff has not provided evidence to support a valid Trade Secrets Claim.

Specifically, defendants argue while members of management, each of them acquired all the documents and information that he received regarding Diakon because Diakon gave them to him as part of his job for Diakon or because Diakon had already allowed them to be made public or both. (SSUF 42, 52.) Calendar No.: Event ID:  TENTATIVE RULINGS

3018082  24 CASE NUMBER: CASE TITLE:  DIAKON LOGISTICS DELAWARE INC VS ARAM LOGISTICS INC  37-2021-00028563-CU-BT-CTL 'Thus, the Defendants acquired such documents and information as a result of an agreement with Diakon, by observing the information in public use or on public display, or both. It follows that Plaintiff cannot prove with admissible evidence that Defendants misappropriated Plaintiff's trade secrets by acquisition.' Defendants argue that while Rubio and Hernandez worked for Diakon as members of its management (SSUF 41, 51), each of them had Diakon's consent to disclose or use Diakon's confidential information and documents. (SSUF 43, 53.) Rubio states in his declaration that while defendant Rubio had his jobs as Operations Manager and Senior Client Manager of Diakon, he approved of any uses that he made of Diakon's confidential information and documents. (Declaration of Samuel Rubio, ¶ 8.) This self-serving declaration makes no sense – Rubio can approve a breach of fiduciary duty? Even so, President Robert Davis states: Rubio 'did not have the authority to approve of any use of Diakon's confidential information and documents' (Decl. at paragraph 26) Plaintiff's Motion for Summary Adjudication Plaintiff moves to summarily adjudicate in its favor the third cause of action for breach of loyalty and the fifth cause of action for intentional interference. In addition, plaintiff seeks to separately adjudicate each of the 27 affirmative defenses (including 'failure to state a cause of action').

(1) Affirmative Defenses When a plaintiff moves for summary adjudication on an affirmative defense, the court shall grant the motion 'only if it completely disposes' of the defense. (Code Civ. Proc., § 437c, subd. (f)(1), italics added.) The plaintiff bears the initial burden to show there is no triable issue of material fact as to the defense and that he or she is entitled to judgment on the defense as a matter of law. In so doing, the plaintiff must negate an essential element of the defense, or establish the defendant does not possess and cannot reasonably obtain evidence needed to support the defense. (See Securitas Security Services USA, Inc. v. Superior Court, supra, 197 Cal.App.4th at pp. 119–120, 127 Cal.Rptr.3d 883; Code Civ. Proc., § 437c, subd. (f); see also 699 Westlye v. Look Sports, Inc. (1993) 17 Cal.App.4th 1715, 1726–1727, 22 Cal.Rptr.2d 781.) If the plaintiff does not make this showing, ' 'it is unnecessary to examine the [defendant's] opposing evidence and the motion must be denied.' ' (Rehmani v. Superior Court (2012) 204 Cal.App.4th 945, 950, 139 Cal.Rptr.3d 464.) See's Candy Shops, Inc. v. Superior Ct., 210 Cal. App. 4th 889, 899–900, 148 Cal. Rptr. 3d 690, 698–99 (2012) As to all Affirmative Defenses, plaintiff relies on the failure of defendants to respond in discovery to form interrogatory 15.1: '[i]dentify...each special or affirmative defense in your pleadings and for each: (a) state all facts upon which you base the denial or special or affirmative defense; (b) state the names, addresses, and telephone numbers of all persons who have knowledge of those facts; and (c) identify all documents and other tangible things that support your denial or special or affirmative defense, and state the name, address and telephone number of the person who has each document.' According to plaintiff, defendants 'utterly failed in their response to the interrogatory. Defendants did not identify any of the affirmative defenses in their Form Interrogatory No.15.1 response, nor did they identify any witnesses, documents, or facts supporting their twenty-seven affirmative defenses.' Plaintiff has not met the burden in this case by merely showing an inadequate response to Form Interrogatory 15.1. Plaintiff has not shown as to each defense that an essential element of the defense cannot be established or that the defendant lacks evidence needed to support the particular defense.

The Reply goes into specific Affirmative Defenses in significant detail. However, these claims were not the basis for the original motion that plaintiff is making new argument in reply.

(2) Causes of Action The following are the issues to be summarily adjudicated in the Notice of Motion: ISSUE #1: As to the Third Cause of Action: No Genuine Issue of Material Fact Exists as to Whether Defendants Rubio and Hernandez Owed a Duty of Loyalty to Diakon.

CCP 437c(f)(1) allows for summary adjudication in favor of plaintiff that one or more defendants owed a duty to plaintiff. (Defendants' reliance on case of Regan Roofing Co. v. Sup. Ct. (1994) 24 Cal.App.4th 425, 435-436 that the plaintiff must dispose of the entire cause of action is no longer the prevalent view.

Cases have since held that the court can adjudicate the issue regardless of the dispositive effect. Linden Partners v. Wilshire Linden Associates (1998) 62 Cal.App.4th 508, 519-522.) On the merits of the claim for Breach of Duty of Loyalty, there are triable issues particularly with respect to the interpretation of the Employee Manual. Defendants the position that the Employee Manual Calendar No.: Event ID:  TENTATIVE RULINGS

3018082  24 CASE NUMBER: CASE TITLE:  DIAKON LOGISTICS DELAWARE INC VS ARAM LOGISTICS INC  37-2021-00028563-CU-BT-CTL expressly states that managers, such as Rubio and Hernandez, can approve of their uses of Diakon's confidential information, and that is what they did. Further, the Employee Manual authorizes and, indeed, encourages outside employment the employees' 'own business' as long as 'outside activity' does not 'interfere' with the employee's 'ability to properly perform your job duties at Diakon Logistics.' (Defendants' SSUF 65; Plaintiff's Exhibit 22 [DIAKON000023].) There are questions as to whether defendants' outside activity interfered. (No definition of 'interfere' is provided.) (Id.) ISSUE #2: As to the Third Cause of Action: No Genuine Issue of Material Fact Exists as to Whether Defendants Rubio and Hernandez Breached Their Duty of Loyalty to Diakon.

In addition to the triable issue of fact stated above, this 'issue' is improperly noticed. Where plaintiff seeks summary adjudication, the burden on the plaintiff is to produce admissible evidence on each element of the cause of action entitling him or her to judgmednt. CCP 437c(p)(1). In seeking summary adjudication of a cause of action, the plaintiff must prove each element. If plaintiff does so, defendant must demonstrate a material factual dispute. CCP §437c(p)(1).

As noticed, Plaintiff does not completely prove that plaintiff is entitled to a judgment of the entire cause of action. There is no basis under the code for a piecemeal issue motion as to elements of the causes of action. CCP 437c(f)(1) states that the motion can be granted only if it completely disposes of the cause of action.

ISSUE #3: As to the Third Cause of Action: No Genuine Issue of Material Fact Exists as to Whether Defendants Rubio and Hernandez Caused Damage to Diakon.

Again, this 'issue' does not dispose of the entire cause of action. The Reply 'withdraws' this issue.

(Footnote 6) ISSUE #4: No Genuine Issue of Material Fact Exists as to the Elements of Diakon's Fourth Cause of Action (Intentional Interference with Prospective Economic Advantage) as to all Defendants.

The Reply withdraws the issue. (Footnote 6) There are triable issues of fact as to both the Third and Fourth Causes of Action. Further, as noted above, summary adjudication may be granted 'only if it completely disposes of a cause of action.' CCP § 437c(f)(1). The elements of IIPEA include intentional acts on the part of defendant designed to disrupt the relationship; actual disruption of the relationship; and economic harm to plaintiff proximately caused by the acts of defendant. ZF Micro Solutions, supra, 82 Cal.App.5th at 1002, fn. 5. At a very minimum, there are issues as to harm caused and damages.

Note that plaintiff is seeking punitive damages in relate to Cause of Action No. 4. Civil Code section 3295(d) requires punitive damages to be determined by the same trier of fact that found liability together with compensatory damages. Haines v. Parra (1987) 193 Cal.App.3d 1553, 1555–1561 (error to award punitive damages on plaintiff's motion for summary judgment); Sumpter v. Matteson (2008) 158 Cal.App.4th 928, 935–936 (exclusive prerogative of jury to not award punitive damages).

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