Judge: Maurice A. Leiter, Case: 22STCV14590, Date: 2023-04-13 Tentative Ruling

Case Number: 22STCV14590    Hearing Date: April 13, 2023    Dept: 54

Hearing Date: April 13, 2023

Department 54, Judge Maurice A. Leiter

Demurrer to First Amended Complaint

Moving Party: Defendant Hugo Sanchez

Responding Party: Plaintiff TruConnect Communications, Inc.

T/R:     DEFENDANT’S DEMURRER IS OVERRULED.

DEFENDANT TO FILE AND SERVE AN ANSWER TO THE FIRST AMENDED COMPLAINT WITHIN 30 DAYS OF NOTICE OF RULING.

DEFENDANT TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

            On November 28, 2022, Plaintiff TruConnect Communications, Inc. filed the operative first amended complaint against Defendant Hugo Sanchez for (1) breach of contract; and (2) trade secret misappropriation. Defendant is a former employee of Plaintiff. Plaintiff alleges Defendant disclosed confidential trade secret information to his new employer and Plaintiff’s direct competitor.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it.  (CCP § 430.50(a).)  A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations.  (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.)  The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law.  (Id. at 732-33.)  The complaint is to be construed liberally to determine whether a cause of action has been stated.  (Id. at 733.)

            Defendant demurs to the first cause of action for breach of contract.

Plaintiff alleges Defendant breached the confidentiality provision of the parties’ employment contract. Defendant previously demurred to the first cause of action on the ground that the confidentiality agreement is void because it operates as an improper non-compete clause in violation of Bus. & Prof. Code § 16600. Defendant relied on Brown v. TGS Mgmt. Co., LLC (2020) 57 Cal.App.5th 303. The Court of Appeal in Brown found that the following confidentiality provision violated section 16600:

[Confidential Information] “means information, in whatever form, used or usable in, or originated, developed or acquired for use in, or about or relating to, the Business[.]” “The Business,” in turn, is defined to include “without limitation analyzing, executing, trading and/or hedging in securities and financial instruments and derivatives thereon, securities-related research, and trade processing and related administration ....”

(Id. at 316.) The Brown court reasoned that this provision was so broad that it effectively precluded the plaintiff from working in the securities industry.

            The employment agreement in this case defines confidential information as “any information of any kind, nature, or description concerning any matters affecting or relating to Employee’s services for TruConnect, the business or operations of TruConnect, and/or the products, drawings, plans, processes, intellectual property or other data of TruConnect.” (Compl. Exh A.) In the earlier demurrer Defendant asserted that this provision effectively prevents Defendant from working in the telecommunication industry. The Court agreed, sustaining Defendant’s demurrer to the first cause of action with leave to amend.

            In the FAC, Plaintiff proposes to sever the language, “any information of any kind, nature, or description concerning any matters affecting or relating to Employee’s services for TruConnect, the business or operations of TruConnect, and/or . .. .” Plaintiff argues that the Court may enforce the remaining language, which prohibits disclosure of the “products, drawings, plans, processes, intellectual property or other data of TruConnect.”  Plaintiff cites the severability provision of the contract, which allows that any “illegal, invalid or unenforceable clause” may be severed.

The Court of Appeal has discussed the doctrine of severance as follows,

Because we have determined that portions of the settlement agreement are invalid, we must determine whether the agreement is void in part or in its entirety. Our goal in construing the agreement is to give effect to the parties' mutual intentions (Minkler v. Safeco Ins. Co. of America (2010) 49 Cal.4th 315, 321, 110 Cal.Rptr.3d 612, 232 P.3d 612), keeping in mind our responsibility to interpret the agreement to “make it lawful, operative, definite, reasonable, and capable of being carried into effect” (Civ. Code, § 1643).

Where an agreement has several objects, some of which are lawful and others of which are unlawful, it is “void as to the latter and valid as to the rest.” (Civ. Code, § 1599.) We look to the various purposes of the agreement to determine if it is severable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124, 99 Cal.Rptr.2d 745, 6 P.3d 669.) If the “central purpose of the [agreement] is tainted with illegality,” then the agreement as a whole cannot be enforced. (Ibid.) But if the illegality is “collateral to the main purpose of” the agreement, and “the illegal provision can be extirpated ... by means of severance or restriction,” then severance and restriction are appropriate. (Ibid.) Our overarching inquiry is whether the interests of justice would be furthered by severance. (Ibid.)

(County of Ventura v. City of Moorpark (2018) 24 Cal.App.5th 377, 393.)

            Plaintiff asserts that the illegal non-compete language may be easily severed from the rest of the confidentiality agreement because the agreement is not tainted with illegality. Plaintiff argues that the central purpose of the agreement is to protect Plaintiff’s confidential information rather than to prevent employees from competing with Plaintiff.

            Defendant argues that severance is not possible. Defendant contends that Plaintiff’s proposed reformation changes the definition of “confidential information,” the protection of which is the central purpose of the agreement.

The Court of Appeal in Kolani v. Gluska (1998) 64 Cal.App.4th 402 addressed a similar issue. In Kolani, the non-compete clause provided,

during the period of employment and for a period of One year following termination of employment, ... [Gluska] shall not within a radius of 40 miles of Van Nuys, California, for his ... own account or for or with any other person or entity whatsoever which [sic] engages in any business or activities competitive with [TOP], solicit, interfere with, compete with in any manner or endeavor to entice away from [TOP] any person or entity of any kind whatsoever which [sic] was or is a client or customer of [TOP] or any potential client or customer with which [TOP] was actively engaged in sales or promotional efforts.

“[Gluska] shall not approach any such client, customer or potential customer for such purposes or knowingly cooperate with the taking of any such action by any other person or entity…

(Id. at 405.) The Court of Appeal found that this section violated Bus. & Prof. Code § 16600. The employer requested that the Court “save” the provision by construing it as a prohibition of theft of confidential information. The Court declined to reform the contract, reasoning that there was no mistake justifying reformation and that the purpose of Bus. & Prof. Code § 16600 would be undermined by reformation.

            Defendant asserts the Court should follow Kolani and decline to reform the confidentiality agreement. Plaintiff argues that Kolani is distinguishable. Plaintiff contends it is not attempting to transform a non-compete clause into a confidentiality clause, but merely removes one phrase from a confidentiality clause deemed to be illegal. Plaintiff also points out that unlike the agreement in this action, the agreement in Kolani did not provide for severance of illegal provisions, only “unfair” provisions.

            Plaintiff’s reasoning is persuasive. The provision in Kolani was an express prohibition of competition in violation of Bus. & Prof. Code § 16600. The provision before the Court, however, is a confidentiality provision which, in part, is overbroad and violates Bus. & Prof. Code § 16600. The offending language easily may be severed: the clause after “and/or” is valid and may properly be enforced. Doing so does not undermine the purpose of Bus. & Prof. Code § 16600. Additionally, the parties specifically contracted to allow severance of illegal provisions.

            Defendant’s demurrer is OVERRULED.