Judge Lee W. Tsao, Case Number: 21NWCV00865, Date: 2023-10-03 Tentative Ruling

Judge: Lee W. Tsao, Case: 21NWCV00865, Date: 2023-10-03 Tentative Ruling

Case Number: 21NWCV00865 Hearing Date: October 3, 2023 Dept: C

SK ENTERPRISES TAX, LLC v. MANAN K PATEL, et al.

CASE NO.: 21NWCV00865

HEARING: 10/3/23

TENTATIVE RULING

I. Defendants M. Patel, Gavini, R. Patel, Lee, and PGP Consulting, LLC’s demurrer to the 5^th – 6^th, and 9^th – 10^th causes of action is OVERRULED. Defendant Lee’s demurrer to the 7^th – 8^th causes of action is SUSTAINED without leave to amend. Defendants M. Patel, Gavini, R. Patel, and PGP Consulting, LLC’s demurrer to the 7^th – 8^th causes of action is OVERRULED.

II. Defendants M. Patel, Gavini, R. Patel, Lee, and PGP Consulting, LLC’s motion to strike is GRANTED as to general, special damages, punitive damages, and treble damages in the 6^th cause of action. The Clerk is ORDERED to insert the word “restitutionary” before the word “disgorgement” at ¶ 128. As amended, the motion to strike disgorgement allegations is DENIED.

Opposing Parties to give NOTICE.

I. Demurrer

Defendants M. Patel, Gavini, R. Patel, Lee, and PGP Consulting, LLC demur to the 5^th – 10^th causes of action on the grounds that they fail to state facts sufficient to constitute a cause of action.

Plaintiff SK Enterprises Tax, LLC’s operative Second Amended Complaint (“SAC”) alleges that Defendants conspired to take proprietary, confidential and trade secret information while they were employed by SK Enterprises for the purposes of gaining a business advantage for their newly created competing business enterprise PGP Consulting. (SAC, ¶ 10-57). The SAC asserts causes of action for:

1. Threatened Misappropriation of Trade Secrets (CC § 3426)

2. Misappropriation of Trade Secrets

3. Unauthorized Use Of Computers, Computer Systems And Data (Pen. Code § 502)

4. Breach of Fiduciary Duty

5. Breach of the Implied Covenant of Good Faith And Fair Dealing

6. Unfair Business Practices (Cal. Bus & Prof § 17200)

7. Intentional Interference with Contractual Relations

8. Intentional Interference with Prospective Economic Relations

9. Fraud (Concealment)

10. Fraud (Misrepresentation)

11. Violation of Pen. Code § 496

5^th CAUSE OF ACTION

BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING: The elements are: 1) existence of contractual relationship; 2) implied duty; 3) breach; and 4) causation of damages. (E.g., Smith v. San Francisco (1990) 225 Cal.App.3d 38, 49; 1 Witkin Sum. Cal. Law (10^th ed. 2005) Contracts § 800.)

¶ 100 alleges an employment contract implied by law. ¶ 99 alleges Defendants’ implied duty. ¶¶ 104 and 108 alleges that Defendants M. Patel and Gavini breached their implied duty by reducing his work output while taking full pay. ¶ 110 alleges that Defendant Lee breached her duty by deleting numerous text messages from her cell phone. ¶ 55 alleges resulting damages.

Demurrer is OVERRULED.

7^th – 8^th CAUSES OF ACTION

INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONSHIP: The elements are: Plaintiff had a valid and existing contract with a third party; defendant had knowledge of the contract; defendant committed intentional and unjustified acts designed to interfere with or disrupt the contract; actual interference with or disruption of the relationship; and resulting damages. (Shamblin v. Berge (1985) 166 Cal. App. 3d 118, 123.)

INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE: To prevail on a cause of action for intentional interference with prospective economic advantage in California, a plaintiff must plead and prove (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) the defendant's intentional acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the defendant's acts. (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1152 n. 6.) A plaintiff that chooses to bring a claim for interference with prospective economic advantage has a more rigorous pleading burden since it must show that the defendant's conduct was independently wrongful other than the fact of interference itself. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4^th 1134; Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393.)

¶ 132 alleges that Plaintiff’s existing contractual relationships with third parties - “[f]ollowing the creation of Defendant PGP Consulting, various clients of SKE state that they had been approached by the Defendants, including PGP Consulting, via their private personal information, information that would only be available to PGP Consulting via SKE’s master customer list. PGP Consulting knows that the information is trade secret information that belongs to SKE and that it came from Defendants’ theft of the Stolen Confidential information from SKE. With the information stolen from SKE, Defendants contacted SKE customers and sought to acquire their business.” ¶ 133 alleges actual disruption – “at least one of these clients informed SK that it was moving its business over to PGP Consulting after it was contacted by Defendants.” ¶ 134 alleges actual harm.

¶ 136 alleges that Defendant Manan Patel attempted to resign and continue to work for another two weeks but was caught and immediately terminated instead. Defendant Gavini was caught and terminated before he could offer his resignation. Defendant Lee gave excuses and refuse to come into work before she ultimately did resign.” These are not acts constituting an interference with third party contracts.

¶¶ 137-138 also allege that Defendants Manan Patel and Gavini were intentionally delaying and deliberately performing inferior work on behalf of SKE’s customers so as to weaken SKE’s relationships with those customers. These facts support disruption of the third party contracts.

Accordingly, Defendant Lee’s demurrer to the 7^th – 8^th causes of action is SUSTAINED. The court has given prior leave to amend, but Plaintiff failed to allege a proper interference claim against Lee. Therefore, further leave to amend is denied.

Defendants M. Patel and Gavini’s demurrer to the 7^th – 8^th causes of action is OVERRULED.

9^th CAUSE OF ACTION

FRAUD (CONCEALMENT)

The elements are: 1) misrepresentation (false representation, concealment, or nondisclosure); 2) knowledge of falsity (scienter); 3) intent to defraud or induce reliance; 4) justifiable reliance; and 5) damages. (See CC § 1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.)

¶¶ 159-160 allege that Defendants M. Patel and Gavini concealed and used SKE’s computers, computer systems, and software to prepare and edit documents to benefit Defendants’ planned new business. ¶¶ 161, 173 alleges that had SKE known, SKE would have terminated Defendants sooner, and SKE would not have been induced to delay its investigation. ¶ 157 alleges a conspiracy, which for which Lee may be held liable for M. Patel and Gavini’s actions.

Demurrer is OVERRULED.

10^th CAUSE OF ACTION

FRAUD (MISREPRESENTATION):

The 10^th cause of action is directed against Defendant Lee only. ¶ 167 alleges that “Defendant Lee promised to make her electronic devices available to SKE so that IT professionals could retrieve the text messages exchanged with Defendants Manan Patel and Gavini that Defendant Lee had deleted.” ¶ 168 alleges that “the following day, Defendant Lee provided an excuse for not coming in with the electronic devices and then broke her promise, refusing to bring in the electronic devices. Defendant Lee then quit her job.” ¶ 174 alleges that Defendant Lee’s delay prevented SKE from obtaining all of the electronic communications,” and ¶ 175 alleges that SKE was forced “to undertake, at significant expense in work hours, a review of its documents to determine what had been compromised.” The damages against Lee is the cost for the additional investigation, which is sufficient at this pleading stage.

As alleged, the demurrer is OVERRULED.

6^th CAUSE OF ACTION

UNFAIR BUSINESS PRACTICES: “Unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice.” (Cal. Bus. & Prof. § 17200).

The SAC has sufficiently alleged fraud claims, which support a B&P Code § 17200 claim. Accordingly, the demurrer to the 6^th cause of action is OVERRULED.

II. Motion to Strike

Defendants’ accompanying motion to strike is GRANTED as to general, special damages, punitive damages and treble damages in the 6^th cause of action. Plaintiff has agreed to withdraw punitive damages and treble damages, and general and special damages are not recoverable under the UCL. Further, Plaintiff is not entitled to nonrestitutionary disgorgement. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4^th 1134, 1152.)

In opposition, Plaintiff contends that it is seeking only restitutionary disgorgement. However, the SAC seeks unlimited disgorgement. (SAC, ¶ 128.) Accordingly, the Clerk is ORDERED to insert the word “restitutionary” before the word “disgorgement” at ¶ 128. As amended, the motion to strike disgorgement allegations is DENIED.

The request to strike the duplicative fraud allegations against Lee at ¶ 170 is GRANTED. This allegation does not add to the Fraud claim against Lee, which is premised on the promise to make her laptop available.