Sky Express World Courier, Inc. v. Jae Hueng Rye aka Joseph Ryu, et al.

DEMURRER TO FIRST AMENDED COMPLAINT

 

MOVING PARTY: Defendants Salt International Co., LTD; Jea Hung Lyoo; Gyumyeong Chae; Jihyun Seo; Daeyoung Kim; and One Road USA, Inc.

RESPONDING PARTY(S): Plaintiff Sky Express World Courier, Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff Sky Express World Courier, Inc., alleges Defendant Jae Hung Ryu aka Joseph Ryu, a former Sky employee, has misappropriated Sky’s trade secrets. Lyoo filed a Cross-Complaint against Sky and Hyoungtae Kim for (1) slander per se, (2) violation of Labor Code sections 1050-1054, (3) interference with prospective economic damages, and (4) interference with contractual relationship.

On April 17, 2023, Plaintiff filed various doe amendments adding Gyumyeong Chae, Salt International Co., LTD., Sooah Chae, Jihyun Seo, Daeyoung Kim, and One Road USA, Inc. as doe defendants. On November 1, 2023, this court sustained Defendants’ demurrer to the Complaint with leave to amend. Plaintiff filed a First Amended Complaint (“FAC”) on December 1, 2023.

Defendants now demurrer to the First, Fourth, and Fifth Causes of Action in the FAC. Plaintiff opposed.

TENTATIVE RULING:

Defendants’ Demurrer to First and Fourth Causes of Action is SUSTAINED, with leave to amend.

Defendants’ Demurrer to the Fifth Cause of Action is OVERRULED.

Plaintiff is ordered to file a Second Amended Complaint within 30 days, consistent with this ruling. 

Moving parties to give notice, unless waived.

DISCUSSION:

Demurrer to First Amended Complaint

I. Meet and Confer

The moving parties have not provided a declaration demonstrating that any meet and confer occurred. Assuming none occurred, this court exercises its discretion to consider the demurrer on its merits. The parties are admonished to comply with all meet and confer obligations going forward.

II. Analysis

Defendants Salt International Co., LTD, Jea Hung Lyoo, Gyumyeong Chae, Jihyun Seo, Daeyoung Kim, and One Road USA, Inc. demurrer to the First, Fourth, and Fifth Causes of Action in the First Amended Complaint. Each is addressed in turn.

A. First Cause of Action for Breach of Fiduciary Duty

First, Defendants argue that the First Cause of Action for Breach of Fiduciary Duty fails against Defendants Ryu, Jihyun Seo, and Daeyoung Kim because no fiduciary relationship existed between Plaintiff and Defendants. 

“The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its breach, and (3) damage proximately caused by that breach.” (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1405.) Both fiduciary and confidential relationships give rise to a fiduciary duty, that is, a duty “to act with the utmost good faith for the benefit of the other party.” (Persson v. Smart Inventions, Inc. (2005) 125 Cal. App. 4th 1141, 1160.) 

Generally, the mere existence of an employee relationship does not give rise to a fiduciary duty. (See O'Byrne v. Santa Monica-UCLA Medical Center (2001) 94 Cal.App.4th 797, 811.) “Under prevailing judicial opinion no presumption of a confidential relationship arises from the bare fact that parties to a contract are employer and employee; rather, additional ties must be brought out in order to create the presumption of a confidential relationship between the two.” (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 129.) On the other hand, officers of a corporation may owe fiduciary duties may owe a fiduciary duty to the company. (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 346–347.

Plaintiff alleges that Defendants Ryu, Jihyun Seo, and Daeyoung Kim were employees of Plaintiff’s who signed confidentiality agreements to protect Plaintiff’s “Customer Data.” (FAC ¶¶ 18, 19.) Plaintiff further alleges that Defendants “were induced to breach and did breach their confidentiality agreements with plaintiff by misappropriating plaintiff’s Customer Data and turning it over to defendants Salt and Gyumyeong Chae for use by defendant One Road and the other defendants to compete unfairly with plaintiff.” (Id. ¶¶ 15, 20.) 

However, there are no allegations that Defendants were corporate officers, directors, or that they otherwise managed the corporation. Thus, there are no allegations supporting the existence of a fiduciary relationship between Plaintiff and Defendants Ryu, Jihyun Seo, and Daeyoung Kim.

Plaintiffs apparently concede this issue in opposition. Instead, they contend they intended to label the cause of action as “breach of duty of loyalty.” (See Opp. 6: 25-28; 7: 1-10.) They urge the court to construe the cause of action as such. 

When characterizing a complaint or cross-complaint, it is policy to “emphasiz[e] substance over form” (Ameron Internat. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Cal.4th 1370, 1386), and to “construe [it] liberally.” (C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal. App. 3d 1055, 1062.) But even with these principles in mind, this court cannot construe the cause of action as one for breach of loyalty. The cause of action is plainly labeled “breach of fiduciary duty,” and based on the corresponding factual allegations, Defendants and this court had every reason to believe that is what Plaintiff intended to assert. Construing the cause of action otherwise would deprive the moving parties of the opportunity to challenge it by demurrer. 

Accordingly, Defendants’ Demurrer to the First Cause of Action is SUSTAINED. 

Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)

If given leave to amend, Plaintiff would presumably amend to assert the first cause of action as one for “breach of the duty of loyalty.” As already discussed, while a fiduciary duty is generally only owed by employees who are corporate officers or directors, a duty of loyalty may be owed by all employees. (See Huong Que, Inc. v. Luu (2007) 150 Cal. App. 4th 400, 414.) “While California law does permit an employee to seek other employment and even to make some ‘preparations to compete’ before resigning [citation], California law does not authorize an employee to transfer his loyalty to a competitor.” (Fowler v. Varian Associates, Inc. (1987) 196 Cal.App.3d 34, 41.) An employee’s acts “may give rise to a cause of action [for breach of the duty of loyalty] in the employer, when the employee takes action which is inimical to the best interests of the employer.” (Stokes v. Dole Nut Co. (1995) 41 Cal.App.4th 285, 295.) “The elements of a cause of action for breach of a duty of loyalty, by analogy to a claim for breach of fiduciary duty, are as follows: (1) the existence of a relationship giving rise to a duty of loyalty; (2) one or more breaches of that duty; and (3) damage proximately caused by that breach.” (Id. at 410.)

Based on this, there is a reasonable possibility that Plaintiff can amend to assert a viable cause of action for breach of loyalty against these Defendants. The court takes no position at this time as to whether that cause of action will ultimately prove viable, and this ruling does not preclude a later attack to that new cause of action. 

B. Fourth Cause of Action for Economic Interference

Next, Defendants demurrer to the fourth cause of action labeled “Economic Interference,” which the parties agree is one for intentional interference with prospective economic advantage. Defendants argue Plaintiffs have failed to identify any existing economic relationship with a third party. In opposition, Plaintiffs argue it is sufficient at the pleading stage to merely allege the existence of an economic relationship, without actually identifying the third parties.

In California, a complaint or cross-complaint must contain “[a] statement of the facts constituting the cause of action, in ordinary and concise language.” (Code Civ. Proc., § 425.10, subd. (a)(1).) Under this “fact-pleading” rule, allegations need only provide fair notice of the claim and must be liberally construed. (Medical Marijuana, Inc. v. ProjectCBD.com (2020) 46 Cal.App.5th 869, 886.) The plaintiff satisfies this burden by alleging ultimate, as opposed to evidentiary facts that “ ‘as a whole apprise[ ] the adversary of the factual basis of the claim. [Citations.]’ ” (Id.)

The essential elements to be pleaded “are determined by the substantive law that defines the cause of action.” (Foster v. Sexton (2021) 61 Cal. App. 5th 998, 1018.) A cause of action for intentional interference with prospective economic advantage has five elements: “(1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action.” (Roy Allan Slurry Seal, Inc. v. Am. Asphalt S., Inc. (2017) 2 Cal. 5th 505, 512.)

Here, Plaintiff has not alleged the ultimate facts to demonstrate the existence of any economic relationship with a third-party. The conclusory reference to “customers” and “vendors” is insufficient to meet that pleading burden. (FAC ¶ 15.) Therefore, Plaintiff has failed to state facts sufficient to constitute a cause of action.

Accordingly, Defendants’ Demurrer to the Fourth Cause of Action is SUSTAINED, with leave to amend. When amending, Plaintiff’s must specifically identify the economic relationship(s) with the specific third parties that Defendants allegedly interfered with. 

C. Fifth Cause of Action for Violation of Uniform Trade Secrets Act

Finally, Defendants demurrer to the Fifth Cause of Action, arguing the facts alleged to support the claim are conclusory. 

“To prove misappropriation under the UTSA, a plaintiff must establish that the defendant improperly acquired or used trade secret information.” (Hooked Media Grp., Inc. v. Apple Inc. (2020) 55 Cal. App. 5th 323, 331.)

Plaintiff alleges it maintained a data base of “customer data” which included customers’ “names, email addresses, physical addresses, phone numbers…and pricing information,” among other things. (FAC ¶ 12.) Defendants SALT and Gyumyeong Chae allegedly formed a new company, One Road USA., Inc., and poached Plaintiff’s employees Ryu, Jihyun Seo, and Daeyoung Kim in order to access Plaintiff’s customer data. (Id. ¶¶ 14, 15.) Using that customer data, Defendants “contacted plaintiff’s customers and…offer[ed] the customers the same or similar services previously provided by plaintiff but at lower prices.” (Id. ¶ 16.) 

Considering these allegations, and liberally construing them, Plaintiff has stated the ultimate facts necessary to maintain the claim. 

Accordingly, Defendants’ Demurrer to the Fifth Cause of Action is OVERRULED.

IT IS SO ORDERED.

Dated:   February 23, 2024 ___________________________________