Judge: Mark C. Kim, Case: NC061639, Date: 2023-01-12 Tentative Ruling
Case Number: NC061639 Hearing Date: January 12, 2023 Dept: S27
1. Background
Facts
Plaintiff, Eversoft, Inc. dba HD Chem filed this action against Defendants,
Gary Erlandson and Butler Chemicals, Inc. for damages arising out of Erlandson’s
alleged taking of trade secrets from Plaintiff and using them in his employment
with competing company, Butler. Erlandson
filed a cross-complaint against Eversoft for employment-based claims.
2. Motion
for Leave to Amend
a.
Relief Sought
Eversoft seeks leave to add a claim
for “breach of the duty of undivided loyalty” to its cross-complaint. The proposed cause of action alleges Erlandson
breached his duty of undivided loyalty to Eversoft when he solicited a
prospective client on behalf of Butler Chemicals while still employed with
Eversoft.
b.
Procedural Posture of Motion
Notably, Eversoft takes the
position that the duty of undivided loyalty was, at all times, implicated by
way of its breach of fiduciary duty cause of action. It is making this motion because, at the
12/02/22 hearing re: jury instructions, in light of the parties’ disagreement
concerning the scope of Erlandson’s duties to Eversoft, the Court ordered
Eversoft to make a motion for leave to add a claim for breach of the undivided
duty of loyalty so the issue of whether or not such duty is owed could be fully
briefed by the parties.
Because of the procedural posture
of this motion, the Court declines to consider Erlandson’s various arguments
about delay and prejudice. This is not a
typical motion for leave to amend, but rather a motion to determine the scope
of the duty owed by Erlandson to Eversoft in the interest of ensuring the trial
moves forward swiftly. The Court is ONLY
concerned with the scope of that duty in ruling on this motion.
c.
Parties’ Positions
Eversoft cites Labor Code §2863, Stokes
v. Dole Nut Company (1995) 41 Cal.App.4th 285, 295 and Hanger
Prosthetics & Orthotics, Inc. (E.D. Cal. 2008) 556 F.Supp.2d 1122, 1142 to
support its position that such duty is owed.
Erlandson cites Fowler v. Varian Assoc., Inc. (1987) 196 Cal.App.3d 34,
41 and Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 287 to
support his position that only managerial employees owe a duty of undivided
loyalty to their employees; he contends that he, as a non-managerial employee,
owed no such duty.
d.
Analysis
Labor Code §2863 provides, “An employee
who has any business to transact on his own account, similar to that intrusted
to him by his employer, shall always give the preference to the business of the
employer.”
Fowler held, in pertinent part:
Varian contends that Fowler's
actions constituted a breach of the duty of loyalty and, thus, good cause for
discharge. In opposition, Fowler contends that his involvement with Omega was
simply a permissible effort to seek other employment. While California law does
permit an employee to seek other employment and even to make some “preparations
to compete” before resigning (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d
327, 346 [49 Cal.Rptr. 825, 411 P.2d 921, 24 A.L.R.3d 795]), California law
does not authorize an employee to transfer his loyalty to a competitor. During
the term of employment, an employer is entitled to its employees' “undivided
loyalty.” (Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 287 [40
Cal.Rptr. 203].) Because Fowler preferred Omega's interests to Varian's, Varian
had good cause to discharge him.
Fowler does not help
Erlandson. Nothing in the Fowler opinion
purports to limit the duty at issue to managerial employees. While Fowler happened to involve a managerial
employee, the case uses the term “employees” broadly, and does not limit the
duties at issue to managerial employees.
Similarly, Sequoia happened to involve a managerial employee, but does
not purport to limit any duties to managerial employees only.
Erlandson failed to cite any case
authority holding that a non-managerial employee does not owe a duty of loyalty
to his or her employer. Labor Code §2863
is to the contrary, and is statutory law.
The motion or leave to amend is therefore granted.
3. Final
Status Conference
The parties are reminded that the
FSC is scheduled to go forward concurrently with the hearing on the above
motion.