Judge: Ronald F. Frank, Case: 23TRCV01402, Date: 2024-03-27 Tentative Ruling
Case Number: 23TRCV01402 Hearing Date: April 15, 2024 Dept: 8
23TRCV01402 O.R. BARKHORDAR D.D.S, INC.
vs CRISTINA RICALDY, et al.
Demurrer and Motion to Strike
TENTATIVE RULING: The demurrer is OVERRULED. The motion to strike is DENIED. Defendant shall file an answer to the First
Amended Complaint within 15 days.
Background
On May 3, 2023, Plaintiffs, O.R.
Barkhordar D.D.S., Inc., Omid Rabi Barkhordar D.D.S., Inc., and O.H. Barkhordar
Dental Group, Inc. (collectively, “Plaintiffs”) filed a Complaint against
Defendant, Cristina Ricalday, and DOES 1 through 100. On January 4, 2024,
Plaintiffs filed a First Amended Complaint (“FAC”) alleging causes of action
for: (1) Breach of Contract; (2) Misappropriation of Trade Secrets; (3)
Intentional Interference with Contractual Relations; (4) Intentional
Interference with Prospective Economic Advantage; (5) Negligent Interference
with Prospective Economic Advantage; and (6) Unfair Business Practices.
The FAC is based on the allegations
that Defendant, Cristina Ricalday entered into a certain Proprietary
Information Agreement (the “Agreement”), whereby Defendant Ricalday allegedly
agreed not to disclose any of the Proprietary Information and Trade Secrets, “directly
or indirectly” use said information in any manner, would maintain the
confidentiality of said information, and will not disclose, release, or in any
way divulge any and such information. (FAC, ¶ 17.) Plaintiffs further contend
that following the execution of the Agreement, Plaintiffs disclosed to
Defendant Ricalday a plethora of Proprietary Information and Trade Secrets,
including identity, staffing information, wages information, marketing
strategies, electric health record information, office procedures, vendor
lists, business plans. (FAC, ¶ 18.) However, despite this Agreement, Plaintiffs
allege that Defendant Ricalday has endeavored and operated and continues to
endeavor and operate (a) to cheat, siphon, mine and misappropriate Plaintiffs
business away from Plaintiffs; (b) to cheat Plaintiffs of their efforts; (c) to
circumvent Plaintiffs’ years of hard work, ingenuity and efforts to build the
business by siphoning, mining and misappropriating Plaintiff's secrets,
strategies, confidential information, customers, prospective customers,
customer lists, and employees; (d) to avoid putting in the work themselves that
Plaintiffs had to put in, in order to short-cut their way to a thriving
business, but based solely upon the years of hard work and efforts by
Plaintiffs. (FAC, ¶ 19.)
Plaintiffs further allege that Defendant
Ricalday intended to help and did help Plaintiffs’ competitors compete with
Plaintiffs by offering similar dental treatment to the surrounding community
and by using information derived from the Defendant’s knowledge of the contents
of the trade secrets. (FAC, ¶ 20.) Further, Plaintiffs assert that Defendant
engaged in contacting, recruiting, soliciting, and/or hiring Plaintiffs’
employees, contractors, consultants, clients, and patients in breach of written
agreements and done with malicious intent. (FAC, ¶ 21.)
Breach
of Contract
Defendant
Ricalday argues that Plaintiffs’ first cause of action for Breach of Contract
fails as a matter of law. To state a cause of action for breach of contract,
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.) In some circumstances, a plaintiff may also “plead
the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v.
TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)
Here,
the non-solicitation provision at issue does not function to prevent or
restrain Defendant’s ability to practice her profession. Instead, it only
prohibits Defendant from raiding, stealing, and soliciting Plaintiffs’
employees. Further, Plaintiffs note that Defendant is not in the business that
has hired Plaintiffs employees from Plaintiffs, but rather, Defendant is an
employee of Plaintiffs’ competitor for whom Defendant has solicited and raided
Plaintiffs’ employees. The Court agrees that this is an important distinction. The FAC alleges Defendant Ricalday agreed to:
(1) maintain the confidentiality of the Proprietary Information and Trade
Secrets; (2) Not disclose, release, ell, or in any way divulge any and all
proprietary information and trade secrets, either directly or indirectly; (3)
use said information in any manner except in manners permitted by the
Agreement; (4) protect against and take reasonable steps to prevent the
negligent or inadvertent disclosure of the proprietary information and trade
secrets; and (5) not encourage or solicit any employee or consultant of
Plaintiffs to leave Plaintiffs for any reason. (FAC, ¶ 29.)
First,
a defendant may not demur to only a portion of a cause of action. Here, as
noted above, the Agreement covers numerous duties in which Defendant Ricalday
agreed not to breach, including the alleged breach of disclosing proprietary
information and trade secrets. (FAC, ¶ 30.) As such, Defendant Ricalday’s
argument section as to this first cause of action is improper as she does not
seek to dispose of the entire cause of action.
Second,
the Court finds Plaintiffs have sufficiently alleged all elements required to
state a cause of action against Defendant Ricalday. Thus, the demurrer as to
the first cause of action is OVERRULED.
Misappropriation of Trade Secrets
“Under the [California Uniform Trade
Secrets Act], a prima facie claim for misappropriation of trade secrets
requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret,
(2) the defendant acquired, disclosed, or used the plaintiff’s trade secret
through improper means, and (3) the defendant’s actions damaged the plaintiff.”
(Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665;
see also Civ. Code, § 3426.1) “‘Trade secret’ means information, including a
formula, pattern, compilation, program, device, method, technique, or process,
that: [¶] (1) Derives independent economic value, actual or potential, from not
being generally known to the public or to other persons who can obtain economic
value from its disclosure or use; and [¶] (2) Is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy.” (Civ. Code, §
3426., subd. (d).) “‘Improper means’ includes theft, bribery,
misrepresentation, breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other means.” (Civ. Code, § 3426.1,
subd. (a).)
The FAC alleges Plaintiffs: (1) owned
trade secrets (FAC, ¶¶ 12, 14, 37, 38); (2) that the defendant acquired,
disclosed, or used the plaintiff’s trade secret through improper means (FAC, ¶¶
19-24, 31, 32); and (3) the defendant’s actions damaged the plaintiffs (FAC, ¶
7, 25, 35.) Thus, this Court OVERRULES demurrer as to the second cause of
action.
Causes
of Action Three, Four, Five, and Six and CUTSA Preemption
¿
Under CUTSA, a trade secret has four elements: (1) it must
be comprised of “information”; (2) it must not be “generally known”; (3) it
must derive “independent economic value” from the fact that it is a secret; and
(4) it must be the subject of “reasonable” efforts to “maintain its secrecy.”
(Cal. Civ. Code § 3426.1(d); see Gemini Aluminum Corp. v. California Custom
Shapes, Inc. (2002) 95 Cal.App.4th 1249, 1263.) A misappropriation includes
disclosure or use of a trade secret of another without consent. (See Civ. Code,
§ 3426.1, subdivision (b).)¿¿Here,
the second cause of action is a misappropriation of trade secrets cause of
action. Thus, whether the third through and sixth causes of action are
preempted by CUTSA, depends on whether they are based on the same nucleus of
facts as the first cause of action. (See K.C. Multimedia, Inc., supra,
171 Cal.App.4th at p. 961.) The nucleus-of-facts test for determining
whether a claim is superseded by CUTSA does not focus on whether a non-CUTSA
claim requires the pleading of different elements than the CUTSA claim, but
rather on whether there is a material distinction between the wrongdoing
alleged in a CUTSA claim and that alleged in the non-CUTSA claim. (Genasys
Inc. v. Vector Acoustics, LLC (2022) 638 F.Supp.3d 1135.)
Intentional
Interference with Contractual Relations
There are exceptions to the preemption from CUTSA. Civil
Code section 3426.7 concerns displacement and provides that CUTSA “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.” (Civ. Code, § 3426.7(b).) CUTSA
thus displaces claims based on the same nucleus of facts as trade secret
misappropriation. (See Silvaco Data Systems v. Intel Corp. (2010) 184
Cal.App.4th 210, 232; K.C. Multimedia, Inc., supra, 171 Cal.App.4th at
962.)
Defendant Ricalday argues that – specifically – in
Plaintiffs’ third cause of action, that Plaintiff directly makes reference to
the alleged misappropriation, and thus, that this is proof the cause of action is
derived from the same nucleus of facts as the cause of action for
misappropriation for trade secrets and is preempted by CUTSA. The Court does
not find this analysis to be particularly persuasive. Although the third cause
of action incorporates by reference the misappropriate of trade secrets facts
and also includes a paragraph in the cause of action alleging the
misappropriate of trade secrets, the raiding of employees and contractors has
nothing to do with the alleged trade secrets on their face – thereby bringing
this cause of action outside the preemption of Civil Code § 3426.7. (See Asahi
Kasei Pharma Corporation v. Actelion Ltd. (2013) 222 Cal.App.4th 945, 958.)
Thus, as far as the CUTSA preemption argument, this Court OVERRULES the
demurrer.
Defendant Ricalday also argues that Plaintiffs’
third cause of action fails as a matter of law. 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.)
The FAC alleges Plaintiffs entered
into valid at-will employment agreements with all of their employees as well as
entered into valid agreements with all of their contractors. (FAC, ¶ 52.) It further
alleges that Defendant Ricalday had notice of such at-will employment
agreements and contractor agreements. (FAC, ¶ 53.) Plaintiffs contend that Defendant
deliberately and maliciously induced, and continue to induce, Plaintiffs’
at-will employees, including key at-will employees, and contractors to breach
or disrupt their contractual relations and relationship with Plaintiffs for
Defendant’s own benefit and business. Moreover, specifically, Defendant
deliberately and maliciously engaged with Plaintiffs’ at-will employees and or
contractors to leave Plaintiffs’ employment.” (FAC, ¶ 54.) Plaintiffs further
assert that Defendant’s conduct actually intended to disrupt the performance of
Plaintiffs’ contractual relationships with other at-will employees and
contractors. (FAC, ¶ 56.)
Based on the above allegations, the
Court finds that said allegations are sufficient, at the pleading stage to meet
all elements of a cause of action for intentional interference with contractual
relations. As such, the demurrer is OVERRULED.
Intentional/
Negligent Interference with Prospective Economic Advantage
The fourth and fifth
causes of action are also not preempted by CUTSA because of the employees and
contractor allegations.
Defendant Ricalday argues
that the fourth and fifth causes of action fail as matters of law because
Plaintiffs fail to allege the necessary elements of each claim. 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, citations, brackets, and quotation marks omitted.) 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.,
citation, ellipsis, and quotation marks omitted.)
Plaintiffs’ FAC alleges that they had: (1) an economic
relationship between themselves and employees and contractors (FAC, ¶62); (2)
that defendant had knowledge of that relationship (Fac, ¶ 63); (3) that
defendant committed intentional acts by calling, emailing, recruiting, and
soliciting Plaintiffs’ employees and contractors (FAC, ¶ 64); (4) that there
was an actual disruption in Plaintiffs relationships with these third parties
(FAC, ¶¶ 57, 67); and that Plaintiffs have suffered actual damages. (FAC, ¶ 68.)
Based on this, the Court disagrees with Defendant Ricalday’s argument, and
notes that Plaintiffs have alleged sufficient facts to state a cause of action
for Intentional Interference with Prospective Economic Advantage.
As
for Negligent Interference with Prospective Economic Advantage, “The elements
of negligent interference with prospective economic advantage are (1) the
existence of an economic relationship between the plaintiff and a third party
containing the probability of future economic benefit to the plaintiff; (2) the
defendant’s knowledge of the relationship; (3) the defendant’s knowledge
(actual or construed) that the relationship would be disrupted if the defendant
failed to act with reasonable care; (4) the defendant’s failure to act with
reasonable care; (5) actual disruption of the relationship; and (6) economic
harm proximately caused by the defendant’s negligence.” (Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 1005.)
Here,
the FAC alleges: (1) the existence of an economic relationship between
themselves and their employees and contractors (FAC, ¶¶ 71-72); (2) that
defendant had knowledge of this relationship (FAC, ¶ 73); (3) that defendant
had actual or construed knowledge that the relationship would be disrupted if the
defendant failed to act with reasonable care (FAC, ¶ 74); (4) that defendant
failed to act with reasonable care (FAC, ¶ 74); (5) that there was an actual
disruption (FAC, ¶ 75); and (6) that Plaintiffs were economically harmed. As
such, this Court also finds the facts alleged sufficient to allege a cause of
action for to Negligent Interference with Prospective Economic Advantage.
Violation
of Business & Professions Code § 17200 – Unfair Business Practices
This cause of action
six is not preempted by CUTSA because of the employees and contractors
allegations.
Here, the FAC alleges that Defendant violated Business
& Professions Code § 17200 when they (i) misappropriating Plaintiffs’ trade
secrets; (ii) interfering with Plaintiffs’ prospective economic advantage;
(iii) using Plaintiff’s Proprietary Information and Trade Secrets to solicit,
recruit or entice away Plaintiffs’ employee; and (iv) contacting, recruiting,
soliciting, and/or hiring Plaintiffs’ employees, contractors, consultants,
clients, and patients in breach of written agreements. Moreover, in committing
these acts, Defendants and each of them, unlawfully and unfairly acquired
Plaintiffs’ Proprietary Information and Trade Secrets. (FAC, ¶ 80.) Because the
misappropriation of trade secrets and proprietary information would be
preempted by CUTSA, the Court again only focuses on the portions that are not. As
noted above, this Court found that Plaintiffs have sufficiently alleged their
third, fourth, and fifth causes of action, as such, the Court finds that such
actions would constitute the act of engaging in unfair business practices. Depending
on later fact finding, and weighing of the evidence, Defendant Ricalday’s
alleged actions of interference would constitute unfair business practices by
recruiting employees and contractors away from Plaintiffs. As such, the
demurrer is OVERRULED.
Motion
to Strike
Defendant’s Ricalday’s Motion to Strike is
based on the striking of all reference to exemplary and punitive damages. Civil
Code section 3294, subdivision (a) authorizes punitive damages in non-contract
cases “where the defendant has been guilty of oppression, fraud, or
malice.”
“Malice [is defined as] conduct which
is intended by the defendant to cause injury to the plaintiff or despicable
conduct which is carried on by the defendant with a willful and conscious
disregard for the rights and safety of others.” (Civ. Code, § 3294, subd.
(c)(1).) “Oppression” means “despicable conduct that subjects a person to cruel
and unjust hardship in conscious disregard of that person's rights.” (Civ.
Code, § 3294, subd. (c)(2).) “Fraud” is “an intentional misrepresentation,
deceit, or concealment of a material fact known to the defendant with the
intention on the part of the defendant of thereby depriving a person of
property or legal rights or otherwise causing injury.” (Civ. Code, § 3294,
subd. (c)(3).)
“In order to survive a motion to
strike an allegation of punitive damages, the ultimate facts showing an
entitlement to such relief must be pled by a plaintiff. In passing on the
correctness of a ruling on a motion to strike, judges read allegations of a
pleading subject to a motion to strike as a whole, all parts in their context,
and assume their truth. In ruling on a motion to strike, courts do not read
allegations in isolation.” (Clauson v. Superior Court (1998) 67
Cal.App.4th 1253, 1255.) “The mere allegation an intentional tort was committed
is not sufficient to warrant an award of punitive damages. Not only must there
be circumstances of oppression, fraud or malice, but facts must be alleged in
the pleading to support such a claim.” (Grieves v. Superior Court (1984)
157 Cal.App.3d 159, 166.) Something more than the mere commission of a tort is
always required for punitive damages. There must be circumstances of
aggravation or outrage, such as spite or ‘malice,’ or a fraudulent or evil
motive on the part of the defendant, or such a conscious and deliberate
disregard of the interests of others that his conduct may be called willful or
wanton.” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894.)
To plead a “willful and conscious
disregard of the rights of others,” a plaintiff need only allege, “that the
defendant was aware of the probable dangerous consequences of his conduct, and
that he willfully and deliberately failed to avoid those consequences.” (Lackner
v. North (2006) 135 Cal.App.4th 1188, 1211.) However, the definition of
malice also requires that the conduct be despicable. “'Despicable conduct' has
been described as conduct which is so vile, base, contemptible, miserable,
wretched or loathsome that it would be looked down upon and despised by
ordinary decent people. Such conduct has been described as '[having] the
character of outrage frequently associated with crime.”' (American Airlines,
Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017,
1050.) In cases involving conduct performed without intent to harm, a finding
of malice requires proof by clear and convincing evidence that defendant's
tortious wrong amounted to despicable conduct and that such despicable conduct
was carried on with a ‘willful and conscious disregard’ of the rights or safety
of others.” (See College Hospital, Inc. v. Superior Court (1994) 8
Cal.4th 704, 725.)
“A breach of a fiduciary duty alone
without malice, fraud or oppression does not permit an award of punitive
damages. The wrongdoer must act with the intent to vex, injure, or annoy, or
with a conscious disregard of the plaintiff's rights. Punitive damages are
appropriate if the defendant's acts are reprehensible, fraudulent or in blatant
violation of law or policy. The mere carelessness or ignorance of the defendant
does not justify the imposition of punitive damages. Punitive damages are
proper only when the tortious conduct rises to levels of extreme indifference
to the plaintiff's rights, a level which decent citizens should not have to
tolerate.” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th
1269, 1287.)
The prayer for exemplary and punitive
damages is connected to the second, third and fourth causes of action. Each
of these causes of action allege sufficient facts to state those causes of
action, so this Court’s inquiry is whether Plaintiffs have alleged that
Defendant Ricalday acted with the requisite malice, fraud, or oppression. The FAC sufficiently alleges malicious intent.
(FAC, ¶¶ 21, 30-31, 34, 41, 43-44, 46, 54, 55, 64-65, 66.)
As such, the Motion to Strike is
DENIED.