Judge: Salvatore Sirna, Case: 22PSCV01611, Date: 2023-04-06 Tentative Ruling

Case Number: 22PSCV01611    Hearing Date: April 6, 2023    Dept: G

Defendant George Liu’s Demurrer to Complaint

Respondent: Plaintiff Loa Int’l (USA) Transport Co. Inc.

Defendant George Liu’s Motion to Strike Portions of the Complaint

Respondent: Plaintiff Loa Int’l (USA) Transport Co. Inc.

TENTATIVE RULING

Defendant George Liu’s Demurrer to Complaint is SUSTAINED with twenty (20) days leave to amend.

Defendant George Liu’s Motion to Strike Portions of the Complaint is deemed MOOT.

BACKGROUND

This is a breach of contract action arising between an employer and a former employee. Plaintiff Loa Int’l (USA) Transport Co. Inc. is a transportation business that worked closely with RL Jones, a customs brokerage and international logistics company in Texas. Defendant George Liu was an employee of Plaintiff who worked closely with RL Jones, was aware of the business relationship between RL Jones and Plaintiff, and signed a confidentiality and non-disclosure agreement with Plaintiff. On July 6, 2022, Defendant resigned from employment with Plaintiff. On September 14, 2022, Defendant allegedly sent an email to RL Jones posing as a current employee of Plaintiff to obtain Plaintiff’s pricing and attempt to secure RL Jones as a customer for Defendant. Defendant also allegedly disclosed Plaintiff’s pricing to RL Jones.

On November 1, 2022, Plaintiff filed a complaint against Defendant and Does 1-20, alleging the following causes of action: (1) breach of contract, (2) intentional interference with contractual relations, (3) intentional interference with prospective economic relations, (4) violation of California Unfair Competition Law, (5) trade secret misappropriation, and (6) common law trademark infringement.

On March 7, 2023, Defendant filed the present demurrer. Prior to filing the demurer  on February 2, Defendant’s counsel met and conferred with Plaintiff’s counsel, but was unable to reach a resolution. (Feazell Decl., ¶ 4; Chen Decl., ¶ 3.)

A hearing on the demurrer and motion to strike is set for April 6, 2023, along with a case management conference.

ANALYSIS

Defendant demurs to Plaintiff’s first cause of action (­breach of contract), second cause of action (­intentional interference with contractual relations), third cause of action (­intentional interference with prospective economic relations), fourth cause of action (­violation of California Unfair Competition Law), fifth cause of action (­trade secret misappropriation), and sixth cause of action (­common law trademark infringement).

For the following reasons, the court SUSTAINS Defendant’s demurrer to Plaintiff’s first, second, third, fourth, and ­­fifth causes of action with leave to amend and OVERRULES Defendant’s demurrer to Plaintiff’s sixth cause of action.

Legal Standard

A party may demur to a complaint on the grounds that it “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) 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 pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, at p. 747.)

Breach of Contract (First Cause of Action)

Defendant argues Plaintiff’s first cause of action for breach of contract fails to plead sufficient facts to state a claim. The court agrees.

To state a cause of action for breach of contract, 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.) 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.)

In this case, Defendant argues Plaintiff failed to plead sufficient facts establishing the existence of a contract. The Complaint alleges “there exists an implied-in-fact contract between the parties formed at the inception of their employment relationship and continuing until [Defendant’s] breach.” (Complaint, ¶ 21.) The Complaint also alleges the existence of an express contract in the form of a Confidentiality and Non-Disclosure Agreement signed September 1, 2022. (Complaint, ¶ 20.) However, the Complaint fails to allege any facts establishing the terms and conditions of such agreements or their legal effect. Elsewhere, Plaintiff alleges Defendant resigned and signed a confidentiality agreement on July 6 in which “[Defendant] agrees to keep [Plaintiff’s] confidential information, confidential.” (Complaint, ¶ 13.) While Plaintiff provides a definition for confidential information, Plaintiff does not state if or where the agreement contains such language and if this agreement is different from the September 1 agreement. (Complaint, ¶ 14.) Thus, Plaintiff has not alleged sufficient facts to establish a cause of action for breach of contract.

Accordingly, Defendant’s demurrer to Plaintiff’s first cause of action is SUSTAINED with leave to amend.

Intentional Interference with Contractual Relations (Second Cause of Action)

Defendant contends Plaintiff’s second cause of action for intentional interference with contractual relations fails to plead sufficient facts to state a claim. The court agrees.

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.)

In this case, Defendant contends Plaintiff fails to establish valid contracts between Plaintiff and third parties. While Plaintiff alleges Plaintiff “worked closely with RL Jones” and that Defendant was “aware of the substantial business activities between [Plaintiff] and [RL Jones],” Plaintiff does not allege facts establishing the existence of valid contracts between Plaintiff and RL Jones. (Complaint, ¶ 10-11.) Furthermore, Plaintiff alleges Defendant’s conduct “led to the cessation of the contractual relationship between Gladden and the Factories” and made it “more difficult for [Defendant] to fulfill its contractual obligations to [RL Jones].” (Complaint, ¶ 26-27.) Plaintiff has not alleged any other facts establishing what was the contractual relationship between “Gladden and the Factories”. Plaintiff also does not allege how it was “more difficult” for Plaintiff to fulfill obligations to RL Jones and what those obligations were. Because these allegations and vague and conclusory, Plaintiff has not established intentional interference with contractual relations.

Accordingly, Defendant’s demurrer to Plaintiff’s second cause of action is SUSTAINED with leave to amend.

Intentional Interference with Prospective Economic Relations (Third Cause of Action)

Defendant maintains Plaintiff’s third cause of action for intentional interference with prospective economic relations fails to plead sufficient facts to state a claim. The court agrees.

To state a cause of action for intentional interference with prospective economic advantage or relations, a plaintiff must establish: “(1) a 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) a wrongful act, apart from the interference itself, by 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.”¿ (Salma v. Capon (2008) 161 Cal.App.4th 1275, 1290, quoting Arluk Medical Center Industrial Group, Inc. v. Dobler (2004) 116 Cal.App.4th 1324, 1340-1341.)

In addition to establishing the defendant interfered with a plaintiff’s prospective economic advantage, plaintiff must establish that defendant’s conduct “was wrongful by some legal measure other than the fact of interference itself.” (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393.)¿“To establish that the defendant's interfering conduct was¿independently¿wrongful, the plaintiff must instead prove that the conduct—whether directed at the plaintiff or someone else—was ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.’” (Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. (2021) 71 Cal.App.5th 528, 538, quoting Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1142.)

In this case, Defendant maintains Plaintiff fails to establish how Defendant interfered with the relationship and how that interference amounts to a wrongful act. Plaintiff alleged Defendant interfered in Plaintiff’s business relationship with RL Jones with wrongful conduct by breaching the confidentiality and non-disclosure agreement. (Complaint, ¶ 33.) But as noted previously, Plaintiff has failed to allege facts sufficient to establish a breach of contract and thus has also failed to establish a wrongful act. Plaintiff also vaguely alleges the business relation was disrupted and Plaintiff was harmed but fails to allege or point to additional facts to support these conclusory allegations. (Complaint, ¶ 34-36.)

Accordingly, Defendant’s demurrer to Plaintiff’s third cause of action is SUSTAINED with leave to amend.

Violation of Unfair Competition Law (Fourth Cause of Action)

Defendant argues Plaintiff’s fourth cause of action for violation of California’s Unfair Competition Law fails to plead sufficient facts to state a claim. The court agrees.

To state a cause of action for unfair business practices, a plaintiff must establish defendant engaged in “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. & Prof. Code, § 17200.) This section establishes three types of unfair competition, prohibiting “practices that are either ‘unfair,’ or ‘unlawful,’ or ‘fraudulent.’” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1496.) Thus, “An act or practice may be actionable as “unfair” under the unfair competition law even if it is not ‘unlawful.’” (Chavez v. Whirlpool Corp. (2001) 93 Cal.App.4th 363, 374.)

In this case, while Plaintiff alleges “Defendants’ acts of unfair competition constitute unlawful business practices,” Plaintiff fails to allege what specific conduct by Defendant constituted unfair competition and how it constituted unfair competition. (Complaint, ¶ 38.) Thus, Plaintiff has not alleged sufficient facts to establish a cause of action for violation of Unfair Competition Law.

Accordingly, Defendant’s demurrer to Plaintiff’s fourth cause of action is SUSTAINED with leave to amend.

Trade Secret Misappropriation (Fifth Cause of Action)

Defendant contends Plaintiff’s fifth cause of action for trade secret misappropriation fails to plead sufficient facts to state a claim. The court agrees.

“[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.’” (CytoDyn of New Mexico, Inc. v. Amerimmune Pharmaceuticals, Inc. (2008) 160 Cal.App.4th 288, 297, quoting Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665.) A “trade secret” is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) [d]erives 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) [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ. Code, § 3426.1, subd. (d).)

In this case, Plaintiff alleges Plaintiff “continues to operate a transportation business with several customers, which were and are trade secrets of [Plaintiff] at all times.” (Complaint, ¶ 44.) However, Plaintiff fails to allege any facts establishing how Plaintiff’s customers qualify as trade secrets pursuant to Civil Code section 3426.1, subdivision (d). To the extent it appears customers qualify as trade secrets because Plaintiff listed them as “confidential information” in paragraph 14, it is unclear where this designation comes from as it does not cite or reference any specific provision of the alleged confidentiality agreement. Because Plaintiff’s allegations do not specify what qualifies as trade secrets, Plaintiff’s claim for trade secret misappropriation fails.

Accordingly, Defendant’s demurrer to Plaintiff’s fifth cause of action is SUSTAINED with leave to amend.

Common Law Trademark Infringement (Sixth Cause of Action)

Defendant maintains Plaintiff’s sixth cause of action for common law trademark infringement fails to plead sufficient facts to state a claim. The court disagrees.

“A trademark may be protected under the common law . . . if it is either inherently distinctive or has acquired distinctiveness.” (Franklin Mint Co. v. Manatt, Phelps & Phillips, LLP (2010) 184 Cal.App.4th 313, 336-337.) “Inherently distinctive trademarks—such as fanciful, arbitrary, or suggestive words and symbols—are protected ‘because their intrinsic nature serves to identify a particular source of a product [or service].’” (Id., at p. 337, quoting Two Pesos, Inc. v. Taco Cabana, Inc. (1992) 505 U.S. 763, 769 (Two Pesos).) However, “trademarks that are not inherently distinctive—such as descriptive words or symbols—are protected only if they have acquired secondary meaning, i.e., they ‘h[ave] become distinctive of the [owners'] goods [or services] in commerce.’” (Ibid, quoting Two Pesos, supra, 505 U.S. at p. 769.)

To state a claim for common law infringement of a tradename in California, a plaintiff must allege: “existence of prior and continuous use of a tradename in such a way that a secondary meaning is acquired, subsequent use of a confusingly similar trade name by the defendant, and likelihood of confusion in the minds of the public of the defendant's business as that of, or as one affiliated with, the plaintiff.”  (Sunset House Distributing Corp. v. Coffee Dan's, Inc. (1966) 240 Cal.App.2d 748, 753.)

In this case, Defendant maintains it is unclear how Defendant used Plaintiff’s trademark to confuse the general public and cause injury to Plaintiff. The court disagrees as Plaintiff has specifically alleged Defendant used Plaintiff’s trademark in Defendant’s email signature after Defendant’s employment with Plaintiff had ended to “further entice and deceive” an employee of RL Jones. (Complaint, ¶ 15, 49-44.) Furthermore, Plaintiff alleges Defendant’s misuse of Plaintiff’s trademark damaged Plaintiff in the amount of no less than $1,000,000. (Complaint, ¶ 46.)

Accordingly, Defendant’s demurrer to Plaintiff’s sixth cause of action is OVERRULED.

CONCLUSION

Based on the foregoing, Defendant’s demurrer to Plaintiff’s Complaint is SUSTAINED with 30 days’ leave given to amend as to the first, second, third, fourth, and fifth causes of action. The demurrer is OVERRULED as to the sixth cause of action.

Based upon the recommendations made on the demurrer, Defendant’s motion to strike portions of Plaintiff’s Complaint is MOOT.