Judge: Michael Shultz, Case: 21STCV42599, Date: 2025-04-15 Tentative Ruling
DEPARTMENT 40 - MICHAEL J. SHULTZ - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call.
Case Number: 21STCV42599 Hearing Date: April 15, 2025 Dept: 40
21STCV42599 Julie Park, et al. v. NMSI,
Inc., et al.
Tuesday,
April 15, 2025
TENTATIVE ORDER
I.
BACKGROUND
The First
Amended Complaint (“FAC”) alleges that Defendant NMSI, Inc. (“NMSI”), a residential
mortgage lender, failed to pay Plaintiffs Julie Park (“Park”), Danny Chung
(“Chung”), Mike Koh, and Ryan Kim, former employees and branch managers, amounts due under certain
contracts. The plaintiffs filed the FAC on January 7, 2022, against NMSI, Jae
Woong Chong (“Chong”), and Does 1 to 30, inclusive, asserting causes of action
for (1) breach of contract, (2) breach of contract, (3) failure to pay wages,
(4) breach of fiduciary duty, (5) accounting, and (6) violation of Unfair
Competition Law (Bus. & Prof. Code, § 17200 et seq.) (the “UCL”). On March
27, 2025, Ryan Kim and Mike Koh dismissed the FAC with prejudice. Therefore,
the remaining plaintiffs are Park and Chung.
On
February 7, 2022, NMSI filed its Cross-Complaint against Park, Chung, and Does
1 to 50, asserting causes of action for (1) breach of fiduciary duty, (2)
aiding and abetting breach of fiduciary duty, (3) breach of contract, and (4)
violation of the UCL.
II.
ARGUMENTS
A.
Motion filed January 27, 2025.
Park
and Chung (collectively, “Cross-Defendants”) are entitled to summary
adjudication of the Cross-Complaint’s first cause of action for breach of
fiduciary duty and second cause of action for aiding and abetting breach of
fiduciary duty because (1) NMSI’s allegations regarding the retention and use
of its confidential information are preempted and superseded by California
Uniform Trade Secrets Act (“CUTSA”); (2) Cross-Defendants did not owe any
fiduciary duties to NMSI after the termination of their employment, (3) NMSI
cannot establish a breach of fiduciary duty based on any of Cross-Defendants’
conduct alleged to have occurred after February 2021; and (4) NMSI cannot
establish that Cross-Defendants breached their fiduciary duty of loyalty
because there is no evidence that either Cross-Defendant solicited NMSI
employees or improperly deleted NMSI’s records prior to their employment
ending.
Cross-Defendants
are entitled to summary adjudication the third cause of action for breach of
contract because (1) the Employee Confidentiality Agreement attached as Exhibit
A to the Cross-Complaint was superseded by the Branch Manager/Sales Manager
Agreement (“BMAs”) prior to the date of the alleged conduct that NMSI contends
constituted a breach of the Employee Confidentiality Agreement; (2) NMSI cannot
establish that Cross-Defendants breached their respective BMAs (i.e., there is
no evidence that either Cross- Defendant failed to protect, return or delete
any “Confidential Information” after they departed from NMSI); and (3) NMSI
cannot establish that it suffered any damages as a result of Cross-Defendants’
alleged contractual breaches.
Finally,
Cross-Defendants are entitled to summary adjudication the fourth cause of action for violation of the
UCL on the grounds that: (1) NMSI lacks standing to assert a UCL
violation (NMSI cannot establish that it suffered an injury-in-fact and lost
money or property as a result of the alleged conduct); (2) NMSI’s allegations
regarding the retention and use of its confidential information are preempted
and superseded by CUTSA; (3) NMSI cannot establish that Cross-Defendants
falsely represented or caused another to falsely represent that
Cross-Defendants continued to be affiliated with NMSI after their departure;
(4) the conduct of nonparty employees does not constitute an “unfair” business
practice that harms competition or threatens an incipient violation of
antitrust law; (5) conduct of non-party employees does not constitute a
“fraudulent” business practice that deceived the public or harmed any public
interest; (6) the conduct of non-party employees does not constitute an
“unlawful” business practice because NMSI cannot establish any violation of
California’s False Advertising Law; and, finally, (7) under the UCL,
Cross-Defendants may not be held vicariously liable for the conduct of
individuals employed by a non-party corporation.
B.
Opposition filed March 26, 2025.
Cross-Defendants
focus on the purported lack of “substantive” response to special
interrogatories to argue that there is no evidence to support
Cross-Complainant’s claims. However, NMSI’s May 2023 responses were current and
correct as of that time. Moreover, NMSI stated that discovery was ongoing, and it
reserved the right to supplement this response at a later time as appropriate. NMSI
had no duty to supplement those initial responses after learning additional
relevant facts through further discovery and investigation.
NMSI’s
allegations are not preempted by CUTSA. Subsection (b) of Civil Code section
3426.7 specifically exempts all “contractual remedies, whether or not based
upon misappropriation of a trade secret” and “other civil remedies that are not
based upon misappropriation of a trade secret” from its scope. (Cal. Civ. Code,
§ 3426.7, subd. (b).) Here, the first, second, and third causes of action are
subject to CUTSA’s statutory exemption because each claim has an independent
basis that does not exclusively rely on the misappropriation of “trade
secrets.”
There
are multiple genuine disputes of fact as to whether Cross-Defendants breached
their fiduciary duties and aided and abetted in the breach of their respective
fiduciary duties. Therefore, Cross-Defendants are not entitled to summary
judgment or adjudication of the breach of fiduciary duty claims.
Cross-Defendants
are not entitled to summary judgment or adjudication on the third cause of
action or breach of contract because (1) both Cross-Defendants admitted during
their depositions that they breached their BMAs with NMSI, and in Chung’s case,
that he breached his separate Confidentiality Agreement, (2) the Employee
Confidentiality Agreement was not terminated or superseded by the BMA, and (3) by
taking and copying NMSI’s confidential policy and procedure documents,
Cross-Defendants inflicted direct harm on NMSI that entitles it to both
monetary damages and specific performance under Section 6 of the BMAs.
NMSI
has standing to bring a UCL because Cross-Defendants engaged in unlawful,
unfair, or fraudulent business practices which resulted in quantifiable harm to
NMSI. Although the extent of the harm may be disputed, it should be determined
by a finder of fact, not subject to judgment here.
Therefore, the motion should be
denied in its entirety.
C.
Reply filed April 4, 2025.
As an
initial matter, NMSI has engaged in manifest discovery abuse by willfully
withholding evidence that has been in its possession from the start, but which
NMSI only produced days before submitting its Opposition. Therefore, this court
should exercise its inherent power to disregard such evidence as a sanction for
NMSI’s blatant sandbagging.
In any
case, summary judgment is warranted because NMSI has completely failed to
present any evidence of damages that it suffered as a result of Park and
Chung’s alleged conduct. The only “evidence” of damages presented by NMSI are
just four conclusory paragraphs in a declaration that fall short of meeting
NMSI’s burden to establish a triable issue of fact as to damages. NMSI fails to
show that it suffered any cognizable losses or injury caused by any use of its
confidential information or the solicitation of its employees. For this reason
alone, the court can and should enter judgment on the entire Cross-Complaint.
NMSI
relies on a single unpublished case to argue that none of its allegations are
preempted by CUTSA: Officia Imaging, Inc. v. Langridge (C.D.Cal. Aug. 7,
2018) 2018 U.S. Dist. LEXIS 226887, at *24 (Carter, J.).) But Officia
Imaging merely stands for the unremarkable proposition that a fiduciary
duty claim should not be dismissed on CUTSA preemption grounds if the claim
also relies on allegations unrelated to any confidential information. The
confidential information allegations are preempted by CUTSA.
Finally,
NMSI’s evidence fails to establish any wrongdoing by either Park or Chung.
First, the documents that NMSI assumed to be its confidential information do
not contain any secret or proprietary information. Second, the email
communications with NMSI employees do not establish that Park or Chung engaged
in improper solicitation as opposed to merely informing their colleagues of
their decision to leave NMSI. Lastly, even if NMSI could prove any solicitation
occurred, its own evidence confirms that such conduct was not the proximate
cause of any losses or injury to NMSI.
III.
REQUEST FOR JUDICIAL NOTICE
No
requests for judicial notice were filed in connection with the instant motion.
IV.
EVIDENTIARY OBJECTIONS
On April
4, 2025, Cross-Defendants filed evidentiary objections to NMSI’s evidence. The court
rules on those objections as follows.
·
The request to exclude certain testimony and
documents is DENIED. If Cross-Defendants are seeking evidentiary sanctions
based on alleged misuse of the discovery process by NMSI, Cross-Defendants
should file the appropriate motion. (See Code
Civ. Proc., § 2023.030 [“To the extent authorized by the chapter
governing any particular discovery method or any other provision of this title,
the court, after notice to any affected party, person, or attorney, and after
opportunity for hearing, may impose the following sanctions against anyone
engaging in conduct that is a misuse of the discovery process: ¶ …. ¶ ….
¶ (c) The court may impose an evidence
sanction by an order prohibiting any party engaging in the misuse of the
discovery process from introducing designated matters in evidence”].) The
court is not prepared to impose evidentiary sanctions based on arguments raised
for the first time in a reply and without allowing the opposing party to be
heard.
·
Objections to the declaration of Jae Woong Chong,
Nos. 1-11: SUSTAINED.
·
Objections to the declaration of Tim Choi, Nos.
12, 13, 14, 15, 16, 17, and 18: OVERRULED. Nos. 19, 20, and 21: SUSTAINED.
The
court notes that NMSI did not file any objections to evidence submitted by
Cross-Defendants.
V.
LEGAL STANDARD
“A party may move for summary judgment in an action or proceeding if it
is contended that the action has no merit or that there is no defense to the
action or proceeding.” (Code Civ. Proc., § 437c, subd.
(a)(1).) “A party may move for summary adjudication as to one or more causes of
action within an action, one or more affirmative defenses, one or more claims
for damages, or one or more issues of duty, if the party contends that the
cause of action has no merit, that there is no affirmative defense to the cause
of action, that there is no merit to an affirmative defense as to any cause of
action, that there is no merit to a claim for damages, as specified in Section
3294 of the Civil Code, or that one or more defendants either owed or did not
owe a duty to the plaintiff or plaintiffs.” (Code Civ. Proc., § 437c, subd.
(f)(1).)
“On a
motion for summary judgment [or summary adjudication], the initial burden is
always on the moving party to make a prima
facia showing that there are no triable issues of material fact.” (Scalf v. D. B. Log Homes,
Inc.
(2005) 128 Cal.App.4th 1510, 1519.)
A cross-defendant moving for summary
judgment or adjudication “has met his or her burden of showing that a cause of
action has no merit if the party has shown that one or more elements of the
cause of action . . . cannot be established, or that there is a complete
defense to the cause of action.” (Code
Civ. Proc., § 437c, subd. (p)(2).) To meet
that burden, a defendant must show not only “that the plaintiff does not
possess needed evidence” but also that “the plaintiff cannot reasonably obtain
needed evidence.” (Aguilar v. Atlantic
Richfield Co. (2001) 25 Cal.4th 826, 854 [italics
removed].)
“Once the … cross-defendant has met that
burden, the burden shifts to the … cross-complainant to show that a triable
issue of one or more material facts exists as to the cause of action or a
defense thereto. The … cross-complainant shall not rely upon the allegations or
denials of its pleadings to show that a triable issue of material
fact exists but, instead, shall set forth the specific facts showing that a
triable issue of material fact exists as to the cause of action or a defense
thereto.” (Code Civ. Proc., § 437c, subd.
(p)(2).)
“Supporting
and opposing affidavits or declarations shall be made by a person on personal
knowledge, shall set forth admissible evidence, and shall show affirmatively
that the affiant is competent to testify to the matters stated in the
affidavits or declarations. An objection based on the failure to comply with
the requirements of this subdivision, if not made at the hearing, shall be
deemed waived.” (Code Civ. Proc., § 437c, subd.
(d).)
“The
motion for summary judgment shall be granted if all the papers submitted show
that there is no triable issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd.
(c).) “In determining if the papers show that there is no triable issue as to
any material fact, the court shall consider all of the evidence set forth in
the papers, except the evidence to which objections have been made and
sustained by the court, and all inferences reasonably deducible from the
evidence ….” (Ibid.)
“A
motion for summary adjudication shall be granted only if it completely disposes
of a cause of action, an affirmative defense, a claim for damages, or an issue
of duty.” (Code Civ. Proc., § 437c, subd.
(f)(1).)
VI.
DISCUSSION
The Cross-Complaint
alleges that Cross-Defendants engaged in the following wrongful conduct: (A) During
their employment with NMSI, the Cross-Defendants recruited and solicited NMSI
employees for employment at the Cross-Defendants’ company, EMET Mortgage
(“EMET”); (B) Cross-Defendants deleted emails and other documents from NMSI’s
servers; (C) Cross-Defendants failed to delete NMSI data from computer hardware
that was transferred from NMSI to Cross-Defendants and using that information
to compete with NMSI’s business; and (D) Cross-Defendants used NMSI’s name in
EMET’s marketing efforts to create a false impression that Cross-Defendants were
still operating under NMSI even after joining their competing company. (XC, ¶¶ 1, 22.)
Cross-Defendants
now move for summary judgment or, alternatively, summary adjudication of the
first cause of action for breach of fiduciary duty, second cause of action for
aiding and abetting breach of fiduciary duty, third cause of action for breach
of contract, and fourth cause of action for violation of the UCL.
A.
The First Cause of Action for Breach of
Fiduciary Duty and Second Cause of Action for Aiding and Abetting Breach of
Fiduciary Duty
“The elements of a cause of action for
breach of fiduciary duty are the existence of a fiduciary relationship, breach
of fiduciary duty, and damages.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)
“A defendant is liable for aiding and
abetting another in the commission of an intentional tort, including a breach
of fiduciary duty, if the defendant ‘“‘knows the other’s conduct constitutes a
breach of duty and gives substantial assistance or encouragement to the other
to so act.’”’ [Citation.] The elements of a claim for aiding and abetting a
breach of fiduciary duty are: (1) a third party’s breach of fiduciary duties
owed to plaintiff; (2) defendant’s actual knowledge of that breach of fiduciary
duties; (3) substantial assistance or encouragement by defendant to the third
party’s breach; and (4) defendant’s conduct was a substantial factor in causing
harm to plaintiff. [Citations.] Some cases suggest a complaint must allege a
fifth element--that the aider and abettor had the specific intent to facilitate
the wrongful conduct.” (Nasrawi
v. Buck Consultants LLC (2014)
231 Cal.App.4th 328, 343.)
1.
CUTSA’s Preemption
As an initial matter, Cross-Defendants
argue that “the California Uniform Trade Secrets Act (‘CUTSA’) preempts and
supersedes NMSI’s claims for breach of fiduciary duty and [Unfair Competition
Law (“UCL”)] violations to the extent they rely on allegations of improper
retention or use of NMSI’s information, documents or data.” (Motion, p.
5:7-10.)
“The California Uniform Trade Secrets Act
(CUTSA) is codified in sections 3426 through 3426.11 of the Civil Code.” (K.C. Multimedia, Inc. v. Bank of America
Technology & Operations, Inc.
(2009) 171 Cal.App.4th 939, 954 (“K.C. Multimedia”).) “CUTSA has been
characterized as having a ‘comprehensive structure and breadth....’ [Citation.]”
(Ibid.) The “provisions of the UTSA set forth [among other things] … the
definition of ‘misappropriation’ and ‘trade secret,’ [and] injunctive relief
for actual or threatened misappropriation ….” (Ibid.)
“CUTSA includes a specific provision
concerning preemption. That provision, [Civil Code] section 3426.7, reads in pertinent part as follows: ‘(a)
Except as otherwise expressly provided, this title does not supersede any
statute relating to misappropriation of a trade secret, or any statute
otherwise regulating trade secrets. [¶] (b) This title does not affect (1)
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.’” (K.C. Multimedia, supra, 171 Cal.App.4th at p. 954.)
“Section 3426.7 thus ‘expressly allows contractual and
criminal remedies, whether or not based on trade secret misappropriation.’ [Citation.]”
(K.C. Multimedia, supra, 171 Cal.App.4th at p. 954; see also Angelica Textile Services, Inc. v. Park (2013)
220 Cal.App.4th 495, 506 [“UTSA by its terms does not displace a contract
claim, even if it is based on the misappropriation of a trade secret. (Civ. Code,
§ 3426.7, subd. (b)(1).) Moreover, UTSA does not displace noncontract claims
that, although related to a trade secret misappropriation, are independent and
based on facts distinct from the facts that support the misappropriation claim”].)
“At the same time, § 3426.7 implicitly
preempts alternative civil remedies based on trade secret misappropriation.’
[Citation.]” (K.C. Multimedia, supra, 171 Cal.App.4th at p. 954.) Stated
differently, “section 3426.7, subdivision (b), preempts common law claims that
are ‘based on the same nucleus of facts as the misappropriation of trade
secrets claim for relief.’ [Citation.]” (Id. at p. 955.)
Here, as NSMI argues in its opposition, the
breach of fiduciary duty and UCL claims contain facts that are independent and
based on facts distinct from the allegations of improper retention or use of
NMSI’s information, documents or data. Specifically, the Cross-Complaint also
alleges that Cross-Defendants recruited and solicited NMSI employees for
employment during their employment with NMSI, deleted emails and other
documents from NMSI’s servers, and used NMSI’s name in EMET’s marketing efforts
to create a false impression that Cross-Defendants were still operating under
NMSI. In their reply, Cross-Defendants
do not address the exemption argument, or explain how those allegations are
based on the same nucleus of facts as the allegations of improper retention or
use of NMSI’s information, documents or data.
Further, Code of Civil Procedure section
437c, subdivision (f)(1) states that “a summary adjudication motion may be
granted ‘only if it completely disposes of a cause of action, an affirmative
defense, a claim for damages, or an issue of duty.’ [Citation.]” (Blue Mountain Enterprises, LLC. v. Owen (2022) 74 Cal.App.5th 537, 549.) Here, even
if the allegations of improper retention or use of NMSI’s information,
documents or data are preempted by CUTSA, summary adjudication of those
allegations would be improper because it will not dispose of the entire breach
of fiduciary duty and UCL claims. Granted, “a recognized exception to the
statutory language above holds that where two or more separate and distinct
wrongful acts are combined in the same cause of action in a complaint, a party
may present a summary adjudication motion that pertains to some, but not all,
of the separate and distinct wrongful acts.” (Blue Mountain Enterprises, LLC. v. Owen, supra, 74 Cal.App.5th at p. 549.) However,
Cross-Defendants have not made that argument (i.e., they have not moved for
separate summary adjudication of the allegations of improper retention or use
of NMSI’s information, documents or data).
Therefore, the court finds
Cross-Defendants’ CUTSA preemption argument unpersuasive.
2.
Solicitation of NMSI Employees; Deletion of Emails
and Other Documents from NMSI’s servers;
and Using NMSI’s Name in Marketing Efforts
To prove that NMSI’s solicitation
allegations lack merit, Cross-Defendants submit their declarations in which
they testify that before they departed from NMSI at the end of February 2021,
they never attempted to encourage, persuade, or otherwise solicit any employees
to leave NMSI and join EMET. (Cross-Defendants’ Compendium of Evidence, filed
on January 27, 2025 (“CCOE”), Declaration of Danny Chung (“Chung Decl.”), ¶ 9;
Declaration of Julie Park (“Park Decl.”), ¶ 8.) Cross-Defendants also submit as
evidence declarations of former NMSI employees who are currently employed by
EMET. Employees Alex Han, Arthur Yip, Christian Oh, Christina Granados, Inhye
Lim, Kris Youn, and Sitha Hel testify that, before their last day at NMSI,
Cross-Defendants did not discuss with them about leaving NMSI, offer them
future employment at EMET, or attempt to persuade them to leave NMSI or join
EMET. (CCOE, Han Decl., ¶ 5; Yip Decl., ¶ 5; Oh Decl., ¶ 6; Granados Decl., ¶
5; Lim Decl. ¶ 5; Yun Decl., ¶ 7; Hel Decl., ¶ 5.)
With regard to the allegations that
Cross-Defendants deleted emails and other documents from NMSI’s servers, Cross-Defendants argue that during
discovery, NMSI failed to produce any evidence to substantiate those
allegations. For example, one
of Cross-Defendants’ special interrogatories asked NMSI to “[s]tate all facts
that support the contention that ‘Park and Chung … wrongfully delet[ed] emails
and documents from NMSI’s servers.” (CCOE, Exhibit 2 – NMSI’s Responses to
Plaintiff Julie Park’s Special Interrogatories (Set One), p. 47:1-3.) NMSI
objected to that interrogatory on various grounds (each of which the court
overrules), and then made the following statement: “Upon information and
belief, Chung and/or Park deleted significant emails and other information from
NMSI’s systems before departing NMSI.” (Id. at p. 47:10-11; see Ganoe v. Metalclad Insulation Corp. (2014) 227 Cal.App.4th 1577, 1582 [“Circumstantial
evidence supporting a defendant’s summary judgment motion ‘can consist of “factually
devoid” discovery responses from which an absence of evidence can be inferred,’
but ‘the burden should not shift without stringent review of the direct,
circumstantial and inferential evidence.’ [Citation]”].) The court finds NMSI’s
response to the special interrogatory was factually devoid.
Cross-Defendants also argue that even if
it is true that Chung deleted emails during his employment at NMSI, NMSI cannot
establish damages. Indeed, the court notes that it is undisputed that even
though Chung’s version of an e-mail was deleted, there were other versions on
NMSI’s servers that NMSI could access. (NMSI’s separate statement in response
to Cross-Defendants’ separate statement of undisputed material facts, filed
March 26, 2025 (“UMF”), ¶ 32.)
Finally, with regard to the allegation
that NMSI breached their fiduciary duties by “us[ing], or condon[ing]. . . .
the improper use of NMSI’s trade name” to suggest their new company was
“affiliated with NMSI” (XC, ¶¶ 18, 22, 48), Cross-Defendants argue that
allegation cannot be the basis of a breach of fiduciary claim because it is
based on events that occurred after Cross-Defendants left NMSI and no longer
owed fiduciary duty to NMSI.
In light of the above, the court finds
that Cross-Defendants have met their initial burden of proving that NMSI’s
breach of fiduciary duty claims have no merit. (Code Civ. Proc., § 437c, subd.
(p)(2).)
Therefore, the burden shifts to NMSI to
show that one or more triable issues of material fact exist as to its breach of
fiduciary duty claims. (Code Civ. Proc., § 437c, subd.
(p)(2).)
In
opposition, NMSI argues that Cross-Defendants actively solicited Brea branch
employees and attempted to persuade them to leave NMSI and join EMET.
As
evidence, NMSI submits the declaration of John (Hyoy Yeon) Kim (“Kim”) who
testifies that in or around January 2021, he learned at work that
Cross-Defendants would be leaving NMSI and starting a new business. (NMSI’s
Compendium of Evidence (“NCOE”), filed March 26, 2025, Kim Decl., ¶ 4.) About 3 or 4 days after he learned
that Cross-Defendants were leaving NMSI, Chung called him into his office,
asked him to join EMET, and handed him a blank employment contract for that
company. (Kim Decl., ¶ 4.) Kim saw Chung calling employees into his office one
by one and having similar meetings with multiple NMSI employees that same day.
(Kim Decl., ¶ 5.) It appeared to Kim that many of his coworkers signed their
agreements and handed them back to Chung the same day. (Kim Decl., ¶ 5.) One or
two days after meeting with Chung, Kim told Chung that he would not be joining
EMET. (Kim Decl., ¶ 6.) On that same day, Kim had a meeting with Julie Park in
which she tried to persuade him to join EMET, saying he could do underwriting,
but Kim declined. (Kim Decl., ¶ 6.)
NMSI also submits the declaration of
Denis Lam (“Lam”), a former NMSI and former EMET employee, who testifies that
in or around February 2021, while he was working for NMSI, Park told him that
Cross-Defendants were leaving NMSI to start a new company and asked him to join
that new company, EMET. (NCOE, Lam Decl., ¶¶ 2, 4, 9.) Lam also testifies that
in or around January or February 2021, he participated in a group meeting
hosted by Park where Park asked Lam and other account executives to move to
EMET. (Lam Decl., ¶ 5.) Lam subsequently accepted Park’s offer to work at EMET
and signed the employment agreement because almost all employees at the NMSI
branch were going to resign and join EMET. (Lam Decl., ¶ 7.)
The court finds that through the above
evidence, NMSI has met its burden of showing that triable issues of material
fact exist as to its breach of fiduciary duty claims. Cross-Defendants’
argument in their reply that Lam’s and Kim’s declarations are insufficient to
overcome summary judgment because they do not show that Cross-Defendants’
actions caused any harm to NMSI is unpersuasive. (Reply, p. 11:1-9.) First,
Cross-Defendants only challenged the “damages” element of the breach of
fiduciary duty claims with regard to the allegation that Chung deleted NMSI
emails; they did not move for summary adjudication of the breach of fiduciary
duty claims, arguing that NMSI cannot prove damages with regard to the
allegation that they solicited employees. Second, and most importantly, Kim’s
and Lam’s testimony that they observed Cross-Defendants soliciting other
employees to join EMET or that a majority of the employees in the relevant NMSI
branch were going to resign and join EMET after talking with Cross-Defendants
is sufficient to raise a triable issue regarding whether Cross-Defendants
breached their fiduciary duties while working for NMSI.
For those reasons, summary adjudication
of the first cause of action for breach of fiduciary duty and second cause of
action for aiding and abetting breach of fiduciary duty is DENIED.
B.
The Third Cause of Action for Breach of Contract
“‘A cause of action for breach of
contract requires proof of the following elements: (1) existence of the contract;
(2) plaintiff’s performance or excuse for nonperformance; (3) defendant's
breach; and (4) damages to plaintiff as a result of the breach.’ [Citation.]” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 402.)
Here, the Cross-Complaint alleges the
following under the third cause of action for breach of contract. “The ‘Branch
Manager/Sales Manager Agreements’ (attached as Exhibits 1 and
2 of
Park and Chung’s Verified Amended Complaint against NMSI) place affirmative
duties on
Park
and Chung to maintain the confidentiality of NMSI’s ‘Confidential Information,’
as
defined
in those agreements. Section 6 of each respective agreement also requires, in
relevant
part,
that ‘[u]pon termination of the Agreement, Branch Manager/Sales Manager will
return to
the
Company’s office all documents, computer tapes, and other tangible embodiments
of any
Confidential
Information.’” (XC, ¶ 39.) “Additionally, Chung entered into a separate ‘Employee
Confidentiality Agreement’ (Exhibit A hereto). Among other obligations related
to the preservation of NMSI’s Confidential Information, Sections 5 (‘Protection
of Confidential Information’) and 6 (‘Return of Confidential Information’) of
this agreement specifically requires Chung to protect NMSI’s Confidential
Information at all times and to ‘return to NMSI all written and
digital/electronic (computer) materials containing the Confidential
Information” upon voluntary or involuntary separation from NMSI.” (XC, ¶ 40.) “NMSI
is informed and believes and thereon alleges that Park and Chung breached the
Branch Manager/Sales Manager Agreements and that Chung breached the Employee
Confidentiality Agreement by failing to protect NMSI’s Confidential Information
or return and/or delete all Confidential Information of NMSI in their
possession or control at the time of their separation from NMSI, including
information stored on the computer hardware (including without limitation the
computers used by Park, Chung, and other former employees of NMSI’s Brea branch
under Park’s and Chung’s supervision and management) that was transferred from
NMSI to Park and Chung at or around the time of their separation from NMSI.”
(XC, ¶ 41.)
Cross-Defendants now move for summary
adjudication of the breach of contract claim, arguing the following.
First, “NMSI’s breach of contract claim
based on its 2016 Employee Confidentiality Agreement with Chung is fatally
flawed because that agreement was superseded by the 2019 Branch Manager Agreement
prior to any alleged breach.” (Motion, p. 14:19-21.) “Section 24.5 of the
Branch Manager Agreement states that it ‘supersed[es] all prior and
contemporaneous agreements or understandings concerning the subject matter
hereof,’ which includes the handling of NMSI’s Confidential Information. [Citation.]
Accordingly, the 2016 Employee Confidentiality Agreement was no longer in
effect after January 2019 and hence could not have been breached by conduct
that allegedly occurred in 2021.” (Motion, p. 14:21-25.)
However, that argument is conclusory
because it fails to provide facts showing that the BMA concerned the same
subject matter as the 2016 Employee Confidentiality Agreement with Chung, and
that the former therefore superseded the latter with regard to that subject
matter. In addition, that material fact (i.e., the BMA superseded the 2016
Employee Confidentiality) was not included in Cross-Defendants’ separate statement.
(Parkview Villas Assn., Inc. v. State Farm
Fire & Casualty Co. (2005) 133
Cal.App.4th 1197, 1213-1214 [explaining that part of the “golden rule” of
summary judgment and adjudication is that an “undisputed material fact … must
appear in the separate statement or be disregarded …”].) Cross-Defendants only
cited Section 24.5 in their separate statement (UMF, ¶ 36, the left column),
but they did not state that section in fact superseded the 2016 Employee
Confidentiality Agreement.
Therefore, the court finds the “superseded”
argument unpersuasive.
Second, Cross-Defendants argue, that the
breach of contract claim also fails because there is no evidence that
Cross-Defendants retained or used any of NMSI’s “Confidential Information” in
breach of their contractual obligations.
As evidence, Cross-Defendants submit
their declarations in which they testify that immediately after leaving NMSI, NMSI’s
IT department removed their access to NMSI’s
internal
databases (as well as their NMSI email accounts) and that they did not retain
or use any of NMSI’s “Confidential Information” for any purpose without NMSI’s
authorization. (CCOE, Chung Decl. ¶ 11; Park Decl., ¶ 9.)
The court finds that Cross-Defendants
have met their initial burden of proving that NMSI’s breach of contract claim
has no merit. (Code Civ. Proc., § 437c, subd.
(p)(2).)
Therefore, the burden shifts to NMSI to
show that one or more triable issues of material fact exist as to its breach of
contract claim. (Code Civ. Proc., § 437c, subd.
(p)(2).)
In opposition, NMSI submits, among other
evidence, an email from Park’s NMSI email account to Chung’s EMET email
account, a copy of NMSI’s “National Mortgage Service Inc. Regulatory Compliance
Policies and Procedures (Nov. 10th, 2017)” and “National Mortgage
Service, Inc. Red Flag Information Security and Identity Theft Program
Regulatory Compliance Policies and Procedures.” (NCOE, Exhibit F, pp. 1-3.) In
a follow-up email in the same thread, on February 1, 2021, Park asked Chung for
a Word version of that document, stating: “Need this in Word also … It has NMSI
all over ….” (Ibid.)
The Court notes that the BMAs defined
“Confidential Information” broadly to “includ[e] but not [be] limited to
information concerning delivery and marketing of [the Cross-Defendants’]
services, customer lists, and other information relating to their present or
future operations.” (FAC, Exhibits 1 and 2 – copies of the BMAs, Section 6
titled “Confidentiality”.) The BMAs also stated: “[Cross-Defendants]
recognize[] that Confidential Information is proprietary to each such entity
and gives each of them significant competitive advantage. Accordingly,
[Cross-Defendants] shall not use or disclose any of the Confidential
Information during or after the Employment Period, except for the sole and
exclusive benefit of the Company [i.e., NMSI].” (Ibid.)
In reply, Cross-Defendants argue that the
court should not consider Exhibit F in the NCOE because it was not produced
earlier in discovery. The court has addressed that argument in the rulings on
the evidentiary objections above. In any event, Cross-Defendants have not
disputed that Exhibit F was an email from Park’s NMSI’s email account to
Chung’s EMET email account. Therefore, the Cross-Defendants presumably had
access to the contents of that exhibit and have not shown that they were
prejudiced by NMSI’s failure to produce the contents of that exhibit earlier in
discovery.
Cross-Defendants also argue that the
compliance policies were public information and, therefore, did not constitute
“Confidential Information” within the meaning of the BMAs. (Reply, p. 8:3-7
[discussing NMSI’s “National Mortgage Service Inc. Regulatory Compliance
Policies and Procedures (Nov. 10th, 2017)” and “National Mortgage
Service, Inc. Red Flag Information Security and Identity Theft Program
Regulatory Compliance Policies and Procedures”].)
“‘The
rules governing the role of the court in interpreting a written instrument are
well established. The interpretation of a contract is a judicial function.
[Citation.] In engaging in this function, the trial court “give[s] effect to
the mutual intention of the parties as it existed’ at the time the contract was
executed. [Citation.] Ordinarily, the objective intent of the contracting
parties is a legal question determined solely by reference to the contract’s
terms. [Citation.]’ [Citation.]” (Brown v. Goldstein (2019) 34 Cal.App.5th 418, 432.) “‘The
court generally may not consider extrinsic evidence of any prior agreement or
contemporaneous oral agreement to vary or contradict the clear and unambiguous
terms of a written, integrated contract. [Citations.] Extrinsic evidence is
admissible, however, to interpret an agreement when a material term is
ambiguous. [Citations.]’ [Citations.]” (Ibid.) “When there is no
material conflict in the extrinsic evidence, the trial court interprets the
contract as a matter of law. [Citations.] This is true even when conflicting
inferences may be drawn from the undisputed extrinsic evidence [citations] or
that extrinsic evidence renders the contract terms susceptible to more than one
reasonable interpretation. [Citations.] If, however, there is a conflict in the
extrinsic evidence, the factual conflict is to be resolved by the jury.
[Citations.]’ [Citation.]” (Id. at p. 433.)
Here, Cross-Defendants have not submitted
extrinsic evidence showing that at the time the parties entered into the BMAs,
the contracting parties intended to exclude “public information” from the
definition of Confidential Information.
Further, a reasonable juror could conclude
that Cross-Defendants were not sharing public information but were instead
sharing “Confidential Information” within the meaning of the BMAs because Park
asked Chung for a Word version of the shared documents, claiming that the
original documents had NMSI “all over.”
For those reasons, the court finds NMSI
has met its burden of showing triable issues of material fact exist as to its
breach of contract claim. (Code Civ. Proc., § 437c, subd.
(p)(2).)
C.
The Fourth Cause of Action for Violation of
the UCL
“California
Business and Professions Code Sections 17000, et seq….states…that unfair
competition shall mean and include unlawful, unfair or fraudulent business
practices.” (Khoury v. Maly’s of California, Inc. (1993) 14
Cal.App.4th 612, 618-619.)
“A
business practice is ‘unfair,’ ‘when it offends an established public policy or
when the practice is immoral, unethical, oppressive, unscrupulous or
substantially injurious to consumers.’ [Citations.]” (Community
Assisting Recovery, Inc. v. Aegis Security Ins. Co. (2001) 92
Cal.App.4th 886, 894.)
“A
business practice is fraudulent under the UCL if a plaintiff can show that
‘members of the public are likely to be deceived.’ [Citation.]” (Kaldenbach
v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 847.)
“An
unlawful business practice under the UCL is ‘“‘“anything that can properly be
called a business practice and that at the same time is forbidden by law.”’”’
[Citation.]” (Morgan
v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1254.)
In
their motion’s discussion of the fourth cause of action for violation of the
UCL, Cross-Defendants focus on the Cross-Complaint’s allegations that they engaged
in false advertising and improperly used NMSI’s name.
However,
as NMSI suggests in its opposition, the UCL claim is based on other allegations
as well, including the allegation that Cross-Defendants solicited NMSI
employees before their departure. (XC, ¶
46 [“Cross-Defendants’ conduct, as alleged above [i.e., including
the alleged solicitation of employees], is unlawful, unfair, or fraudulent
within the meaning of California Business & Professions Code section 17200”
(emphasis added)]; Opposition, p. 19:24-26 [arguing that Cross-Defendants
“unfairly solicited NMSI employees before their departure. All of these acts
are sufficient to support NMSI’s UCL claim”].)
As
stated above, there is a question of fact regarding whether Cross-Defendants
solicited NMSI employees before they left the company to work for EMET. In
addition, a reasonable juror could conclude that solicitation of employees
constitutes an “unfair” business practice within the meaning of UCL. Further, soliciting
employees during work time at NMSI could constitute an “injury in fact” within
the meaning of the UCL. (California
Medical Assn. v. Aetna Health of California Inc. (2023) 14 Cal.5th
1075, 1087 [“A private plaintiff has UCL standing only if that plaintiff ‘has
suffered injury in fact and has lost money or property.’ ([Bus. Prof. Code] §
17204.) Because loss of money or property is a subset of injury in fact, proof of
harm to money or property will generally satisfy the injury-in-fact
requirement”]; id. at p. 1089 [“[W]e conclude that diversion of salaried
staff time and other office resources can constitute the loss of ‘money or
property’ within the meaning of section 17204. Every organization, including
CMA, has finite resources to devote to its mission. If the organization uses
staff time for a particular project, for example, it must either pull those
hours from a different project or augment its staff. Even if, as here, the
personnel involved are paid on a salaried basis rather than by the hour, their
time clearly holds economic value to the organization. When staff are diverted
to a new project undertaken in response to an unfair business practice, the
organization loses the value of their time, which otherwise would have been
used to benefit the organization in other ways”].)
Therefore,
even if the court were to find that Cross-Defendants have met their initial
burden of showing that NMSI’s UCL claim has no merit, NMSI has met its burden
of showing that triable issues of material fact exist as to that claim.
Accordingly,
summary adjudication of the fourth cause of action for violation of the UCL is
DENIED.
VII.
CONCLUSION
Based on the foregoing, the motion for
summary judgment or, alternatively, for summary adjudication is DENIED in its
entirety.