Judge: Margaret L. Oldendorf, Case: 23AHCV02981, Date: 2024-02-29 Tentative Ruling

Case Number: 23AHCV02981    Hearing Date: February 29, 2024    Dept: P

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

NORTHEAST DISTRICT

I.        INTRODUCTION

          This is a contractual dispute action. Plaintiff E1011 Labs LLC (E1011) alleges that its former employees, Kevin Wang (Wang) and Daniel Hwang (Hwang) are in violation of their Confidential Information and Inventions Agreements, having started a project with Defendant Salvatore Di Benedetto (Benedetto) to develop a competing product without Plaintiff. E1011 is in the business of creating, marketing and selling electronic vaporization products to smoke cannabis. Plaintiff alleges that Benedetto initially approached Plaintiff to create one such device, Plaintiff then assigned Wang and Hwang to the project and subsequently, Wang and Hwang allegedly diverted the project from Plaintiff for themselves. Defendant Shenzhen Vizi Technology Co. Ltd. is believed to be the corporation Defendants formed in order to make, manufacture and sell the product they allegedly misappropriated from Plaintiff.

          The complaint alleges six causes of action: (1) Breach of Contract (2) Breach of Contract, (3) Conversion, (4) Violation of Comprehensive Computer Data Access and Fraud Act, (5) Violation of BPC § 17200 and (6) Intentional interference with prospective economic advantage.

          Plaintiff filed an ex parte application for TRO and OSC re preliminary injunction on January 26, 2024. In ruling on the ex parte (TRO granted 1/31/24), the Court deemed the application to be Plaintiff’s moving papers on the motion for preliminary injunction. Defendants Salvatore Di Benedetto and Daniel Hwang filed declarations in response on February 8, 2024 and February 13, 2024, respectively. Kevin Wang also responded on February 13, 2023 but did not file his response with the Court. E1011 filed its reply on February 23, 2024. E1011 also filed an additional declaration of Timothey J. Daley in reply. The Court declines to consider evidence submitted for the first time on reply.

          E1011 seeks an injunction preventing Defendants from (1) using or disclosing, or authorizing others to do so, any property of E1011 including, but not limited to, any of the electronic files described as the “Dropbox Files”, (2) destroying or modifying any paper or electronic information, files that reference E1011’s actual or potential customers, business histories with such customers, and contact information for such customers.

E1011 also seeks a mandatory preliminary injunction requiring Defendants to deliver to E1011 all of the 16,492 files uploaded to Dropbox on or about October 2, 2023, together with all copies.

Having read and considered all papers, the motion is GRANTED.  

II.       LEGAL STANDARD

A. Law Governing Injunctions

Code Civ. Proc. §526 (a) provides grounds on which an injunction may issue:

(1) When it appears by the complaint that the plaintiff is entitled to the relief demanded, and the relief, or any part thereof, consists in restraining the commission or continuance of the act complained of, either for a limited period or perpetually.

(2) When it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action.

(3) When it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, or is procuring or suffering to be done, some act in violation of the rights of another party to the action respecting the subject of the action, and tending to render the judgment ineffectual.

(4) When pecuniary compensation would not afford adequate relief.

(5) Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief.

(6) Where the restraint is necessary to prevent a multiplicity of judicial proceedings.

(7) Where the obligation arises from a trust.

          III.     EVIDENCE

          In support of its motion, E1011 offers the following:

          A. Declaration of Bruce Pixley

          In support of its motion for preliminary injunction, E1011 offers the declaration of Bruce Pixley. (Pixley Declaration) He declares that he was retained by plaintiff’s counsel to analyze Kevin Wang’s work computer’s hard drive, which was obtained by Plaintiff on or about October 2, 2023. (Pixley Decl. ¶ 2.) Pixley is a computer forensics expert with over 20 years of experience. (Pixley Decl. ¶¶ 3-8, see Exh. 1: Curriculum Vitae.) He declares that he received the subject computer on October 30, 2023 and it has remained in his possession ever since and that he conducted a forensic analysis of the data on it. (Pixley Decl. ¶¶ 9-11.) He declares he found tens of thousands of texts between Wang, Sal and Hwang. (Pixley Decl. ¶14.) Pertinent messages included a request for a vizismoke email (Pixley Decl. ¶ 15), messages about business rollout (Pixley Decl. ¶ 16) and most importantly, a conversation implicating deletion of E1011 files. (Pixley Decl. ¶ 17.) Pixley declares that he found a message string from Wang to Hwang on September 26, 2023 at 8:50 PM (PST), that “Btw may need your help scraping all my shit from El0 tmrw and Thursday. Gotta leverage whatever time I have left with the database before its gone.” (Pixley Decl. ¶ 17.)

          Pixley also declares that he found messages of Wang sending a password to Daniel for “...can I grab your sIO login for hubspot though? I wanna try pulling something.” (Pixley Decl. ¶ 18.) This conversation implicates Wang sending a E1011 login and password for the purpose of “pulling something” aka taking something with that access. (Pixley Decl. ¶¶ 18, 19.)

          Lastly, Pixley declares that he found that Dropbox, an online cloud storage server application, was downloaded onto the computer hard drive on October 2, 2023. Subsequently, 16,492 files were moved into the encrypted Dropbox folder on the computer, which would be accessible to anyone from any other device who had the login and password to the Dropbox account. Pixley Decl. ¶ 21-23.)

          B. Declaration of Timothy J. Daley

          In support of its motion for preliminary injunction, E1011 offers the declaration of Timothy J. Daley. (Daley Declaration) Daley is counsel of record for E1011. He attaches the articles of incorporation for Defendant Shenzhen Vizi Corp., which he obtained through the Illinois Secretary of State’s website. (Daley Decl. ¶ 2, see Exh. 9.) The articles of incorporation reflect an incorporation date of March 29, 2023. (Daley Decl. ¶ 2.) The initial registered agent for the corporation was Defendant Di Benedetto. (Exh. 9.)

          C. Declaration of Mackenzie Whalen

In support of its motion for preliminary injunction, E1011 also offers the declaration of Mackenzie Whalen, an employee of E1011. (Whalen Declaration) Whalen declares that Defendant Kevin Wang was hired by E1011 on July 12, 2021 as a manager and signed a Confidential Information and Inventions Agreement. (Whalen Decl. ¶ 4, See Exh. 1: Copy of the Agreement.) Whalen declares that Defendant Daniel Hwang was hired by E1011 on June 12, 2020 as the director of new business development. (Whalen Decl. ¶4.) She declares he also signed a Confidential Information and Inventions Agreement. (Exh 2.) She declares the Defendant Benedetto was a customer of plaintiff who approached Plaintiff with a business opportunity, to which Defendant Wang was assigned to work on, in his capacity as an employee of E1011. (Whalen Decl. ¶¶ 6-8.)

Pertinently, she declares Wang was issued a company laptop, the one Pixley examined, in connection with his work for E1011. (Whalen Decl. ¶ 9.) She declares Wang was also given access to proprietary information of E1011, including access to HubSpot, E1011’s searchable customer database. (Whalen Decl. ¶ 10.) She attaches a screenshot of Wang’s HubSpot activity for the 2023 year, with additional more detailed screenshots of suspect dates. (Whalen Decl. ¶¶ 11-12, see Exh. 3, 4, 5.) This computer was then given to Pixley for forensic examination. (Whalen Decl. ¶ 13.)

She reviewed Pixley’s report and provides her take on the text messages, confirming that it is, in her opinion, the individual defendants involved, and that the text messages refer to relevant issues in this action. (Whalen Decl. ¶¶ 14-17, see Exhs. 6, 7.)

She also declares that the Dropbox files “consist largely of property of E1011, including financial records, payroll records, personal income tax information of E10ll employees (including my own) and contact information for E1011 customers which appears to have been downloaded from HubSpot.”(Whalen Decl. ¶ 18.) She also declares that she discovered a suspect google document (Whalen Decl. ¶¶ 19, 20, see Exh. 8.)

She declares the employees of E1011 all sign confidentiality agreements, Defendant-employees conduct is in violation of their agreements and that such violation is hurting E1011’s business. (Whalen Decl. ¶¶ 21, 22.)

          In response, Defendants proffer the following evidence:

          A. Response of Salvatore Di Benedetto

          Defendant Di Benedetto declares that he “regret[s] to inform you that I do not possess or have knowledge of the files being requested.” (Di Benedetto Resp. p. 1.) However, he declares that “any relevant files or information pertinent to this matter are in the possession of KEVIN WANG, and I have not been involved in or have access to the ‘Dropbox Files’ in question.” (Id.) He further declares that he “do[es] not have and never had in my possession any of the 16,492 files [in question in this motion]” (Id.) He indicates that he is willing to cooperate to the extent he can to resolve the lawsuit.

          In addition, Di Benedetto filed his own declaration, wherein he declares he will not contribute towards the attorney fees of the other named individual defendants. (Di Benedetto Decl. ¶¶ 1-3.)

          B. Response of Daniel Hwang

Defendant Hwang declares that he “regret[s] to inform you that I do not possess or have knowledge of the files being requested.” (Hwang Resp. p. 1.) However, he declares that “[i]t has come to my attention that the plaintiff’s specified files are in the possession of one of the defendants, KEVIN WANG.” (Id.) He further declares that he “do[es] not currently possess, nor have I ever possessed, any of the 16,492 files that are [in question in this motion]” (Id.) He indicates that he is willing to cooperate to the extent he can to resolve the lawsuit.

          C. Response of Kevin Wang

          Defendant Kevin Wang also responded, though his response was not properly filed with the Court. His response is an improperly noticed motion to compel arbitration and to dismiss for improper venue. (Wang Response p. 1.) To the extent that this is a motion to dismiss, the notice requirements and the standard for motions to dismiss are not met here. (CCP § 581.) To the extent that this is a motion to compel arbitration, the notice requirement and the motion to compel arbitration requirements are also not met by this document. (CCP § 1281.)

          The Court also notes that the motion to dismiss component is made with respect to Federal Rule of Civil Procedure 12(b)(3). This is a California state court, so the California Code of Civil Procedure governs motions to dismiss.

          On review of the document, the Court finds that it is unresponsive to the instant motion for preliminary injunction.

          IV.      DISCUSSION

          A. Prohibitory Injunction versus Mandatory Injunction

          A prohibitory injunction requests the Court intervene to maintain the status quo. Here, E1011 is asking for a prohibitory injunction preventing Defendants from using E1011’s proprietary information as well preventing Defendants from destroying such information.

          The burden is higher for a mandatory injunction because the moving party is asking the Court to disturb the status quo. (See Shoemaker v. County of Los Angeles (1995) 37 Cal.App.4th 618, 625.) Here, E1011 is also requesting a mandatory injunction ordering the handing over of the Dropbox files as well as any copies or duplicates in Defendants’ possession.

B.  Balancing the Equities

“ ‘[A] preliminary injunction is an order that is sought by a plaintiff prior to a full adjudication of the merits of its claim.’ (White v. Davis (2003) 30 Cal.4th 528, 554, 133 Cal.Rptr.2d 648, 68 P.3d 74, italics omitted.) ‘To obtain a preliminary injunction, a plaintiff ordinarily is required to present evidence of the irreparable injury or interim harm that it will suffer if an injunction is not issued pending an adjudication of the merits.’ (Ibid.)

“Trial courts ‘ “ ‘evaluate two interrelated factors when deciding whether or not to issue a preliminary injunction. The first is the likelihood that the plaintiff will prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued.’ ” ’ (ITV Gurney Holding Inc. v. Gurney (2017) 18 Cal.App.5th 22, 28–29.)” Amgen, Inc. v. Health Care Services (2020) 47 Cal.App.5th 716, 731.)

          1. Likelihood of Prevailing on the Merits

a. Breach of Contract as to Defendants Wang and Hwang

E1011 urges that it is likely to prevail on the merits as it has evidence that Defendant Wang and Hwang breached their confidentiality and intellectual property agreements and stole company information to create a new rival business, Vizi, with defendant Benedetto. (Motion Memorandum of Points and Authorities, p. 12: 19-20.) In support, E1011 cites CCP § 526 for the proposition that for a contractual obligation to be enforced by the court, it must be capable of specific performance. E1011 provides excerpts of the agreements Wang and Hwang signed, pertinently, that “I also understand that any breach of this Agreement will cause irreparable harm to Company for which damages would not be an adequate remedy, and, therefore, Company will be entitled to injunctive relief with respect thereto in addition to any other remedies and without any requirement to post bond.” (Exhs. 1 and 2 to Whalen Decl.)

In response, Defendants Hwang and Di Benedetto filed responses that they do not have access to the files at issue nor did they ever have access. (Di Benedetto Resp. p. 1; Hwang Resp. p. 1.) In fact, they urge that Defendant Kevin Wang took the Dropbox files, had sole control of the DropBox files and continues to have control. (Id.) These responses do not really debate the likelihood of Plaintiff prevailing on the merits on this cause of action. In fact, the responses bolster Plaintiff’s likelihood of prevailing, as both Hwang and Benedetto declared that Kevin Wang took the files in question. Defendant Kevin Wang’s response does not debate that he signed a confidentiality and intellectual property agreement or that his actions are in violation of said agreement, but rather that there is an arbitration agreement between E1011 and Hwang. It is not clear how this is responsive as to likelihood of prevailing on the merits.

On reply, E1011 argues that even if by assumption that there was an arbitration agreement between Wang and E1011, this would not prohibit the Court from granting a preliminary injunction. (See Reply p. 5: 23-28.) To the extent that the Court considers this argument, the Court notes it rests on a wholly unsupported assertion that there exists an identical arbitration agreement between Kevin Wang and E1011 as compared to the one attached, between Daniel Hwang and E1011. (Exh. 1 to Wang Resp.) As the Court has no evidence of such an agreement, the Court declines to evaluate the merits of an argument premised on such a hypothetical agreement.

On reply, E1011 urges that even if Hwang and Di Benedetto did not take the files themselves, the preliminary injunction should also apply to them to foreclose Wang acting through them to use or retain the files. (See Ross v. Superior Court (1977) 19 Cal.3d 899, 906, internal citations omitted.) This argument is well-taken.

Consequently, Plaintiff E1011 has demonstrated a likelihood of prevailing on the merits.

b. Violation of BPC § 17200

E1011 urges that it is likely to prevail on the merits of its BPC Section 17200 cause of action against all defendants, as it has demonstrated unfair or unlawful business practices on part of Defendants. (Motion Memorandum of Points and Authorities, p. 13: 13-15.) Citing Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. and  McKell v. Washington Mutual, Inc., E1011 urges that the standard of prohibited conduct under the statute is broad. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1474.) Additionally, E1011 cites Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 539-540 for the proposition that injunctive relief is available as a remedy under the code section. Further, E1011 cites a case where the taking of a business’s customer list, similar to the facts alleged here, was determined to be in violation of BPC § 17200 and a preliminary injunction was issued. (Courtesy Temporary Service, Inc. v. Camacho (1990) 222 Cal.App.3d 1278, 1291-1292.) This argument is well taken.

In response, Defendants Hwang and Di Benedetto filed responses that they do not have access to the files at issue nor did they ever have access. (Di Benedetto Resp. p. 1; Hwang Resp. p. 1.) In fact, they urge that Defendant Kevin Wang took the Dropbox files. Defendant Kevin Wang’s response does not debate that he took the files, but rather that there is an arbitration agreement between E1011 and Hwang. It is not clear how this is responsive as to likelihood of prevailing on the merits as to this cause of action.

Consequently, Plaintiff E1011 has demonstrated a likelihood of prevailing on the merits.

c. Conversion

E1011 urges that it is likely to prevail on the merits of its conversion cause of action against all defendants because it has demonstrated stealing of proprietary information. Citing Hernandez v. Lopez (2009) 180 Cal.App.4th 932, 939, E1011 urges that the elements of conversion are: (1) plaintiff’s ownership of the property at issue, (2) defendant’s conversion by wrongful act and (3) plaintiff was harmed as a result. E1011 also cites Labor Code 2860 for the proposition that “[e]verything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer.” (LC § 2860.) Citing relevant case law, E1011 urges that conversion has been pursued for the purloining of intangibles such as electronic lists. (See Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 213, internal citations omitted.) E1011 also cites case law to the effect that things taken need not be trade secret in order to prevail as an employer on a conversion claim against an employee. (Pillsbury, Madison & Sutro v. Schectman (1997) 55 Cal.App.4th 1279, 1288-1289.) Preliminary injunctions are possible remedies to conversion. (Gladstone v. Hillel (1988) 203 Cal.App.3d 977, 989-990.)

In response, Defendants Hwang and Di Benedetto filed responses that they do not have access to the files at issue nor did they ever have access. (Di Benedetto Resp. p. 1; Hwang Resp. p. 1.) In fact, they urge that Defendant Kevin Wang took the Dropbox files. Defendant Kevin Wang’s response does not debate that he took the files, but rather that there is an arbitration agreement between E1011 and Hwang. It is not clear how this is responsive.

In sum, E1011 has presented sufficient evidence of a likelihood of prevailing on the merits of its claims. E1011 has presented evidence that 16,492 Dropbox files were exported from a company laptop, that the Defendants wanted to take/considered taking certain company data, did take the data and schemed to build a competing vape shop and product.

          2. Interim Harm or Irreparable Injury

E1011 urges that irreparable harm will occur if the preliminary injunction does not issue, as the use of its customer list and the other information in the Dropbox files is not quantifiable in damages. (Motion Memorandum of Points and Authorities, p.18: 16.) E1011 would lose customers, potential revenue streams, potential projects and indeed has. (Whalen Decl. ¶ 22.)

          On response, Defendants Di Benedetto and Hwang do not refute that E1011 would suffer irreparable injury should a preliminary injunction not be issued. Neither does Defendant Kevin Wang debate that E1011 will suffer irreparable harm should it not be granted a preliminary injunction as requested.

          As such, E1011 has adequately demonstrated that it would suffer irreparable harm.

V.       ORDER

           E1011’s motion for a preliminary injunction is granted.

Defendants Kevin Wang, Daniel Hwang and Salvatore Di Benedetto are to remit the DropBox files to E1011, along with any copies thereof. Defendants are also ordered to cease their use of the DropBox files.

Counsel for E1011, Timothy Daley, is ordered to give notice of ruling.

Dated: ____________                            ___________________________________

                                                                        MARGARET L. OLDENDORF

                                                                  JUDGE OF THE SUPERIOR COURT