Judge: Randy Rhodes, Case: 22CHCV00565, Date: 2023-01-04 Tentative Ruling
Case Number: 22CHCV00565 Hearing Date: January 4, 2023 Dept: F51
Dept. F-51
Date: 1/4/23
Case #22CHCV00565
DEMURRER
Demurrer Filed: 9/6/22
MOVING PARTY: Defendant MAJCO LLC, dba Big Brand
Tire & Service (erroneously sued as Big Brand Tire and Service Company,
Inc.) (“Moving Defendant”)
RESPONDING PARTY: Plaintiff Datalink, Inc., a
California corporation (“Plaintiff”)
NOTICE: OK
RELIEF REQUESTED: Moving Defendant demurs to the
first, third, and fourth causes of action in Plaintiff’s complaint.
TENTATIVE RULING: The demurrer is sustained with
20 days leave to amend.
BACKGROUND
This action arises out of the alleged breach of
two contracts entered into between Plaintiff and Defendants, wherein Plaintiff
was to provide computer networking services to Moving Defendant, with the
assistance of non-moving defendant Cabling Solutions Group, LLC (“CSG”) as its
subcontractor. (Compl. ¶ 8.) Plaintiff alleges that Defendants thereafter
directly contracted with one another in order to bypass their contractual
obligations to Plaintiff as the middleman, in violation of contractual
provisions prohibiting such conduct. (Id., ¶ 9.)
On 7/27/22, Plaintiff filed its complaint against
Defendants, alleging the following causes of action: (1) Breach of Contract
[against Moving Defendant]; (2) Breach of Contract [against CSG]; (3)
Interference with Contractual Relations; and (4) Interference with Prospective
Business Advantage.
On 9/6/22, Moving Defendant filed the instant
demurrer. On 11/18/22, Plaintiff filed its opposition. On 12/8/22, Moving
Defendant filed its reply.
DEMURRER
Meet-and-Confer
Before filing its demurrer, “the demurring party
shall meet and confer in person or by telephone with the party who filed the
pleading that is subject to demurrer for the purpose of determining whether an
agreement can be reached that would resolve the objections to be raised in the
demurrer.” (Code Civ. Proc. § 430.41, subd. (a).) If the parties are unable to
meet and confer at least five days before the responsive pleading is due, that
deadline may be extended by 30 days if “a declaration stating under penalty of
perjury that a good faith attempt to meet and confer was made and explaining
the reasons why the parties could not meet and confer” is filed and served.
(Ibid.)
On 9/1/22, Moving Defendant’s counsel attempted
to contact Plaintiff’s attorney by telephone to discuss the issues raised in
the demurrer, but no contact was made. (Decl. of Willian D. Burger, Jr., ¶ 2.)
On the same date, counsel sent a meet and confer letter by e-mail and U.S.
mail, attaching a draft of the instant demurrer. (Ibid.) Plaintiff’s attorney
did not respond to
counsel’s meet and confer efforts. (Id., ¶ 3.) Therefore,
counsel has satisfied the preliminary meet and confer requirements of Code of
Civil Procedure section 430.41, subdivision (a).
Legal Standard
As a general matter, a party may respond to a
pleading against it by demurrer on the basis of any single or combination of
eight enumerated grounds, including that “the pleading does not state facts
sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd.
(e).)
In a demurrer proceeding, the defects must be
apparent on the face of the pleading or via proper judicial notice. (Donabedian
v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the
pleading alone, and not the evidence or facts alleged.” (E-Fab, Inc. v.
Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court
assumes the truth of the complaint’s properly pleaded or implied factual
allegations. (Ibid.) The only issue a demurrer is concerned with is whether the
complaint, as it stands, states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th
740, 747.)
Here, Moving Defendant demurs to the first,
third, and fourth causes of action alleged in Plaintiffs’ complaint, under Code
of Civil Procedure section 430.10, subdivision (e), arguing that Plaintiff
fails to allege facts sufficient to state any of its causes of action against
Moving Defendant.
Analysis
1. Breach of Contract
The first cause of action in Plaintiff’s
complaint alleges breach of contract against Moving Defendant. To state this
cause of action, a plaintiff must be able to establish “(1) the existence of
the contract, (2) plaintiff’s performance or excuse for nonperformance, (3)
defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis
West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) If a breach of contract
claim “is based on alleged breach of a written contract, the terms must be set
out verbatim in the body of the complaint or a copy of the written agreement
must be attached and incorporated by reference.” (Harris v. Rudin, Richman
& Appel (1999) 74 Cal.App.4th 299, 307.)
Here, the parties do not dispute that there
exists between them a valid, enforceable agreement for Plaintiff to provide
Moving Defendant with cabling, wi-fi, and computer setup services between
1/17/22 and 1/24/22. (Exhibit “A” to Compl.) Plaintiff alleges that it fully
performed its obligations under the contract, and Moving Defendant alleges that
it paid Plaintiff in full as required under the agreement. (Compl. ¶ 14.; Dem.
5:7–8.) Here, the breach alleged by Plaintiff pertains to paragraphs 5 and 12
of the agreement, which provide as follows:
“5. REPRESENTATIONS, WARRANTIES AND COVENANTS -
The parties and their respective agents, employees, representatives,
contractors, and subcontractors, if any, warrant, represent, and covenant that
during the pendency of this Agreement and for one year thereafter they shall
not either directly or indirectly use any proprietary, confidential, or trade
secret information of the other party. The parties and their respective agents,
employees, representatives, contractors, and subcontractors, if any, further
warrant, represent, and covenant that during the pendency of this Agreement and
for two years thereafter they shall not solicit, call upon, hire, retain or
otherwise induce any of the other party's employees, agents, representatives,
contractors, subcontractors, or vendors to cease their employment or other
relationship with the other party or become
employed or otherwise retained or hired by the
first party or anyone acting on its behalf. …
12. HIRING FEE - Should client desire to employ
or contract directly with Datalink Networks personnel (personnel defined as a
current or former employee, representative or independent contractor of
Datalink Networks, within the past 12 months), either during or at the
conclusion of this Agreement, client shall pay a hiring fee to Datalink
Networks equal to one hundred twenty-five percent (125%) of that person's
current annual compensation. This hiring fee shall remain in effect for two
years after termination or cancellation.” (Exhibit “A” to Compl. [emphasis
added].)
Moving Defendant argues that the above provisions
of the contract are void and unenforceable under Business and Professions Code
section 16600. This statute provides that “except as provided in this chapter,
every contract by which anyone is restrained from engaging in a lawful
profession, trade, or business of any kind is to that extent void.”1 (Bus.
& Prof. Code § 16600.) It is well-settled that non-competition and
non-solicitation employment agreements will only be upheld by California courts
to the extent that they protect trade secrets. (Thompson v. Impaxx, Inc. (2003)
113 Cal.App.4th 1425, 1429.)
Moving Defendant cites to VL Systems, Inc. v.
Unisen, Inc. (2007) 152 Cal.App.4th 708 to argue that paragraphs 5 and 12 of
the subject agreement are void and unenforceable. In VL Systems, the plaintiff
VLS performed approximately 16 hours of computer consulting services for
defendant Star Trac. (152 Cal.App.4th 708 at 710.) The agreement between the
parties included a no-hire provision which read:
“BUYER WILL NOT ATTEMPT TO HIRE SELLER'S
PERSONNEL. Any hiring, or offer of employment entitles, but does not require
VLSystems, Inc. to immediately cancel the performance period of this agreement.
If, during the term of, or within (12) months after the termination of the
performance period of this agreement, buyer hires directly, or indirectly
contracts with any of seller's personnel for the performance of systems
engineering and/or related services hereunder, BUYER AGREES TO PAY TO THE
SELLER SIXTY PERCENT (60%) OF EITHER THE NEW ANNUAL COMPENSATION PAYABLE TO
SUCH PERSONNEL or the fees paid to, or in favor of such personnel for one (1)
year after such personnel separates from service with seller, whichever is applicable,
as liquidated damages.” (Ibid. [emphasis in original].)
Some months after the project was completed, Star
Trac went on to hire a former employee of VLS without paying the hiring fee,
and VLS commenced the action against Star Trac for breach of contract. (Id. at
711.) The Court of Appeal held that the above no-hire provision was
unenforceable as violative of Business and Professions Code section 16600
because it was overbroad, “covering not only solicitation by Star Trac, but all
hiring, and it applies to all VLS employees, regardless of whether they worked
for Star Trac or were even employed at the time.” (Id. at 718.) As such, the
provision “unfairly limit[ed] the mobility of an employee who actively sought
an opportunity with Star Trac.” (Id. at 716.)
Here, as in VL Systems, the subject agreement
similarly limits Moving Defendant from soliciting or hiring any of Plaintiff’s
personnel without the payment of a hiring fee. (Exhibit “A” to Compl., ¶¶ 5,
12.) In fact, as Moving Defendant observes, the instant agreement is broader in
scope than that in VL Systems, prohibiting each
party, and its respective agents, employees, representatives, contractors, and
subcontractors, from hiring or soliciting any of the other’s employees, agents,
representatives, contractors, subcontractors, or vendors for two years
following the termination of the project. (Id. at ¶ 5.) Moreover, the hiring
fee in the instant agreement is far greater than the 60% fee in VL Systems,
requiring Moving Defendant to pay to Plaintiff 125% of that personnel’s
compensation. (Id. at ¶ 12.)
Plaintiff argues in opposition that VL Systems is
inapplicable because it relates only to employees, whereas the instant case
concerns business dealings between the parties. (Pl.’s Opp. 2:13–14, 6:17–19.)
In Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9
Cal.5th 1130, the Supreme Court noted two categories of case law interpreting
Business and Professions Code section 16600: “Agreements not to compete after
the termination of employment or the sale of interest in a business were
invalid without regard to their reasonableness. And agreements limiting
commercial dealings and business operations were generally invalid if they were
unreasonable.” (9 Cal.5th 1130 at 1152.)
In essence, Plaintiff argues that this case falls
within the second category described by the Ixchel court, and that the Court
should apply a rule of reason instead of invalidating the contract provisions.
(Pl.’s Opp. 4:26–27.) Plaintiff argues that “this case does not involve a
former employee suing a competitor for hiring away former employees,” but a
suit against Moving Defendant for violating the trade secret provision of the
agreement by contracting with CSG. (Id. at 2:21–26.) Therefore, Plaintiff
argues that “a rule of reason applies to determine the validity of a
contractual provision by which a business is restrained from engaging in a
lawful trade or business with another business” (Id. at 5:13–16, quoting
Ixchel, 9 Cal.5th 11 at 1162.)
Plaintiff’s argument that this case does not fall
within the employment context is unpersuasive. While paragraph 5 of the subject
agreement mentions trade secrets, the Court agrees with Moving Defendant that
the complaint “does not allege any theft of trade secrets by Big Brand. Big
Brand is not alleged to have hired an employee of Datalink with knowledge of
‘trade secrets.’” (Def.’s Reply, 4:5–7.) Plaintiff’s complaint alleges that
Moving Defendant violated the no-hire and hiring fee provisions of the
agreement “by entering into a contract for the same scope of services with
CSG.” (Compl. ¶ 13.)
As such, the Court finds that this case most
aptly falls within the first category of cases set forth in Ixchel, which
invalidated noncompetition agreements following the termination of employment.
(9 Cal.5th 1130 at 1152–1154; 1159.) Moving Defendant further argues that here,
as in VL Systems, the no-hire provision is void and unenforceable because it
“results in a situation where the opportunities of employees are restricted
without their knowledge and consent.” (Def.’s Reply, 3:13–14, quoting VL
Systems, 152 Cal.App.4th 708 at 718.) Moving Defendant further argues that this
case falls within the first category of cases set forth by the Ixchel court
because it concerns Plaintiff’s attempts to limit the employment opportunities
of its current and former “agents, representatives, contractors,
subcontractors, or vendors.” (Def.’s Reply, 5:3–15; Exhibit “A” to Compl., ¶
5.) In contrast, none of the cases cited by Plaintiff, which fall within the
second category pertaining to free trade and competition, involved no-hire
contractual provisions. (Id. at 6:11–12.)
The Court therefore finds that the facts of this
case closely reflect those in VL Systems, and finds that paragraphs 5 and 12 of
the subject agreement, as drawn, are unenforceable as a matter of law. The
parties agree that the VL Systems court dleft open the possibility that more
narrowly drawn provisions than the one at issue in that case may be
enforceable; however, as set
forth above, the instant no-hire and hiring fee
provisions are in fact more broadly drawn than those in the VL Systems
agreement. (152 Cal.App.4th 708 at 718.)
Therefore, as paragraphs 5 and 12 effectively
limit the employment opportunities of nonparties to the contract, including the
“employees, agents, representatives, contractors, subcontractors, or vendors”
of each party, the Court finds these contractual provisions to be void and
unenforceable under Business and Professions Code section 16600. Accordingly,
as Moving Defendant has shown that Plaintiff’s first cause of action is barred
as a matter of law.
2. Interference with Contractual Relations
Plaintiff’s third cause of action alleges against
all defendants Interference with Contractual Relations. The elements of a cause
of action for intentional interference with contractual relations are “(1) a
valid contract between plaintiff and a third party; (2) defendant’s knowledge
of this contract; (3) defendant's intentional acts designed to induce a breach
or disruption of the contractual relationship; (4) actual breach or disruption
of the contractual relationship; and (5) resulting damage.” (I-CA Enterprises,
Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257, 289.)
Here, Plaintiff alleges that “Defendants knew of
their respective contractual obligations with the Plaintiff and intended to
induce a breach thereof.” (Compl. ¶ 27.) As Moving Defendant observes,
Plaintiffs fail to allege that Defendants intended to interfere with
contractual relations between Plaintiff and a third party, as required to bring
this cause of action. (Dem. 10:12–13; Applied Equip. Corp. v. Litton Saudi
Arabia Ltd. (1994) 7 Cal.4th 503.) A cause of action for interference with
contractual relations lies only “against noncontracting parties who interfere
with the performance of a contract.” (Applied, 7 Cal.4th at 513.) As such, “the
tort cause of action … does not lie against a party to the contract.” (Id. at
514.)
Plaintiff argues in opposition that it “satisfied
this pleading requirement by alleging the breaches of the two separate
agreements and Defendants directly contracting with each other for the same
services covered by the contract between Datalink and Big Brand Tires.” (Pl.’s
Opp. 7:19–21.) However, this argument is insufficient to remedy the complaint’s
failure to allege this cause of action against a noncontracting party. As
Moving Defendant observes, “Plaintiff cannot state a claim in tort for
interference with contractual relations for Big Brand for breaching its own
contract. Big Brand only assumed to perform under the contract; it did not
assume an independent obligation not to interfere with performance of its own
contract.” (Dem. 11:6–9.)
The Court agrees with Moving Defendant that this
cause of action is more appropriately brought against Defendants, as parties to
agreements with Plaintiff, in the form of a breach of contract cause of action,
which Plaintiff has already alleged above. As such, Plaintiff has failed to
allege facts sufficient to support a cause of action for interference with
contractual relations, and the Court sustains Moving Defendant’s demurrer as to
Plaintiff’s third cause of action.
//
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3. Interference with Prospective Business
Advantage
Plaintiff’s third cause of action alleges against
all defendants Interference with Prospective Business Advantage. The elements
of a claim for intentional interference with prospective economic advantage
include “(1) an economic relationship between the plaintiff and some third
party, with the probability of future economic benefit to the plaintiff; (2)
the
defendant’s knowledge of the relationship; (3)
intentional or negligent acts on the part of the defendant designed to disrupt
the relationship; (4) actual disruption of the relationship; and (5) economic
harm to the plaintiff proximately caused by the acts of the defendant.” (Crown
Imports, LLC v. Superior Court (2014) 223 Cal.App.4th 1395, 1404.) Further,
“the alleged interference must have been wrongful by some measure beyond the
fact of the interference itself. For an act to be sufficiently independently
wrongful, it must be unlawful, that is, it is proscribed by some
constitutional, statutory, regulatory, common law, or other determinable legal
standard.” (Ibid.)
The parties do not dispute that the
“independently wrongful act” standard applies in a cause of action for
interference with prospective business advantage. Moving Defendant argues that
Plaintiff has failed to allege any independently wrongful act because, as
argued above, Moving Defendant did not act unlawfully where the contract
provisions it allegedly breached are void and unenforceable. (Dem. 13:2–4.)
In its opposition, Plaintiff combines its
argument for its third and fourth causes of action, and provides, as stated
above, that it “satisfied this pleading requirement by alleging the breaches of
the two separate agreements and Defendants directly contracting with each other
for the same services covered by the contract between Datalink and Big Brand
Tires.” (Pl.’s Opp. 7:19–21.) Plaintiff seems to argue that its factual
allegations against Defendants for breaches of two independent agreements
constitute the “independently wrongful acts” required to support a cause of
action for interference with prospective business advantage.
However, as Moving Defendant argues, Plaintiff
“fails to allege an independently wrongful act; it merely alleges the
interference as the wrongful act.” (Def.’s Reply, 8:4–5.) As discussed above,
Moving Defendant’s conduct in hiring CSG was not unlawful because the contract
provisions it allegedly breached are unenforceable. Therefore, its conduct
cannot constitute an “independently wrongful act” as required for a cause of
action for interference with prospective business advantage. Accordingly,
Plaintiff has failed to allege facts sufficient to support such a cause of
action, and the Court sustains Moving Defendant’s demurrer as to Plaintiff’s
fourth cause of action.
Leave to Amend
Where a demurrer is sustained, leave to amend
must be allowed where there is a reasonable possibility of successful
amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the
plaintiff to show the court that a pleading can be amended successfully. (Id.;
Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f there is
any reasonable possibility that the plaintiff can state a good cause of action,
it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada
Irrigation Dist. (1969) 70 Cal.2d 240, 245).
Here Moving Defendant argues that “the defects in
the Complaint cannot be cured by amendment, because the contract provisions
upon which Plaintiff relies are void and unenforceable as a matter of law.”
(Dem. 13:18–19.) Plaintiff argues in opposition that its claims are not barred
by law, but that it has the ability to plead more facts pertaining to a
wrongful act and to add additional causes of action. (Pl.’s Opp. 8:2–7.)
The Court notes that this is the first demurrer
brought in this action against Plaintiff’s original complaint. The Court finds
that there is a reasonable possibility that Plaintiff may state a viable cause
of action against Defendant. Accordingly, under the Court’s liberal policy of
granting leave to amend, the Court grants
Plaintiff 20 days leave to amend its complaint to cure the defects set forth
above.
CONCLUSION
The demurrer is sustained with 20 days leave to
amend.