Judge Stephen I. Goorvitch, Case 22STCV21799 2022-12-06 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 22STCV21799, Date: 2022-12-06 Tentative Ruling

Case Number: 22STCV21799 Hearing Date: December 6, 2022 Dept: 39

3800 West Sixth Street, LLC, et al. v. Steven C. Kim, et al.

Case No. 22STCV21799

Demurrer

BACKGROUND

Plaintiff 3800 West Sixth Street, LLC and Leo Lee (collectively, “Plaintiffs”) filed this action against Steven C. Kim (“Defendant”), Susan Ahn (“Ahn”), and Serrano & Sixth, LLC (“Serrano”) asserting causes of action for misappropriation of trade secrets, breach of fiduciary duty, unfair competition, and interference with prospective economic advantage. Now, Defendant demurs to all causes of action, which Plaintiff opposes. The Court sustains the demurrer to the first cause of action with leave to amend and overrules the demurrer with respect to the remaining causes of action.

PLAINTIFF’S ALLEGATIONS

Defendant is an attorney, and Plaintiffs hired him to serve as counsel to advise them on assembling certain parcels of property in the Koreatown area of Los Angeles. (Complaint, ¶ 6.) With Kim’s assistance, Plaintiffs acquired numerous parcels for a total purchase price of approximately $34 million. (Complaint, ¶ 7.) Following acquisition of the last parcel, there was a dispute between Plaintiffs and a tenant of the property, and Defendant “continued to render assistance.” (Complaint, ¶ 8.) “[T]he settlement agreement for that dispute require[d] any notices under the settlement agreement to be sent to [Defendant].” (Ibid.)

Based upon his representation, Defendant became aware of Plaintiffs’ plans to develop the assembled parcel, including the permitting, structural upgrades, and utility upgrades. (Complaint, ¶ 9.) Further, Defendant learned that Plaintiffs would require the “undergrounding” of electrical wires that traversed a property owned by Ahn. (Complaint, ¶ 10.) Defendant represented Plaintiffs in initiating discussions with Ahn to obtain her consent and billed Plaintiffs 2.3 hours for these discussions with Ahn and her pastor. (Ibid.) The purpose of these communications was “to open a dialogue with Ahn on behalf of [Plaintiffs] to discuss undergrounding the cables that passed over her property.” (Ibid.)

Subsequently, Defendant stated that he would represent Ahn and Serrano in negotiations concerning the placement of the utility wires. (Complaint, ¶ 11.) Plaintiffs allege that Defendant violated the California Rules of Professional Conduct. (Complaint, ¶¶ 15-16.) Plaintiffs allege that Defendant violated rule 1.7 by simultaneously representing two clients with adverse interests. (Complaint, ¶ 15.) Plaintiffs allege that even if Defendant had terminated his representation of Plaintiffs before representing Ahn, he violated rule 1.9 by not obtaining Plaintiffs’ informed written consent. (Complaint, ¶ 16.)

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) “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, 147 Cal.App.4th at p. 747.) However, courts do not accept as true deductions, contentions, or conclusions of law or fact. (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.) The general rule is that the plaintiff need only allege ultimate facts, not evidentiary facts. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “[D]emurrers for uncertainty are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Fin. Indus. Regulatory Auth. (2012) 208 Cal.App.4th 1125, 1135.) In addition, even where a complaint is in some respects uncertain, courts strictly construe a demurrer for uncertainty “because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) Demurrers do not lie as to only parts of causes of action, where some valid claim is alleged but “must dispose of an entire cause of action to be sustained.” (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

DISCUSSION

A. First Cause of Action – Misappropriation of Trade Secrets

Plaintiffs’ first cause of action is for misappropriation of trade secrets. The elements are as follows: (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; Cal. Civ. Code § 3426.1; CACI 4401.) Civil Code section 3426.1(d) defines a “trade secret” as “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.”

Plaintiffs’ theory is that the trade secrets at issue “included all of their plans for the mixed-use development,” including “the permitting, structural upgrades and, … utility upgrades that needed to be routed through adjoining parcels in order to support the mixed-use project.” (Complaint ¶¶ 9, 10, 21.) Plaintiffs allege that the trade secrets included “the value of the project, the amounts already expended or committed to the assemblage of land, and the need for access to adjoining properties in order to run utility cables needed for the project.” (Complaint ¶¶ 21, 22.) Plaintiffs allege that Defendant obtained the trade secrets through improper means, viz., by violating his fiduciary duty as Plaintiffs’ counsel. Finally, Plaintiffs allege that they were damaged by Defendant’s actions because they “had no other viable alternatives to run utility cables if Ahn failed to cooperate.” (Complaint, ¶ 25.) Therefore, Defendant’s alleged disclosure of this information and subsequent representation of Ahn meant that Ahn could “extort” money from Plaintiffs. (Complaint, ¶ 27.)

Defendant argues that “plans for the mixed-use development” are not trade secrets because “[a]ll developers are required to make a full disclosure of their intended development plan, allow affected people to register their comments and complaint, and obtain the city’s approval of their detailed plans and specifications.” (Defendant’s Opposition, p. 3:6-9.) The mere fact that plans must be disclosed is not dispositive. While Plaintiffs may be required to disclose their plans, if the negotiations with Ahn occurred prior to that point, the plans may still have been secret when Defendant allegedly misappropriated them. Nevertheless, Plaintiffs must still allege facts suggesting that they undertook reasonable efforts to safeguard the alleged trade secrets, as required by Civil Code section 3426.1. This is lacking in the complaint. Therefore, the Court sustains the demurrer to the first cause of action with leave to amend.

B. Remaining Causes of Action

Defendant argues that the remaining causes of action are preempted by the Uniform Trade Secrets Act (the “Act”). The Act preempts common law claims that are based on the same nucleus of facts as the misappropriation of trade secrets claim. (See K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 955-959.) In other words, there is only preemption when the information is, in fact, a trade secret. Plaintiff is allowed to plead in the alternative and maintain claims for breach of fiduciary duty, unfair competition, and intentional interference with prospective economic advantage in the event that the information is not, in fact, a trade secret, as argued by Defendant. To hold otherwise would lead to an unjust result: Defendant would obtain dismissal of the common law claims based upon preemption; Defendant would then obtain dismissal of the remaining claim by arguing that the information is not a trade secret; and Plaintiffs would be left without a remedy against an attorney who allegedly used their information against them in representing an adverse party. That cannot be the law. The Court also finds that the allegations are sufficient to support the causes of action. Therefore, the Court permits Plaintiffs to assert the common law claims in the alternative and overrules the demurrer.

CONCLUSION AND ORDER

Based upon the foregoing, the Court orders as follows:

1. The Court sustains the demurrer to the first cause of action with leave to amend.

2. The Court overrules the demurrer to the remaining causes of action.

3. Plaintiffs shall file a first amended complaint within thirty (30) days. If they fail to do so, Defendant shall file an answer to the remaining causes of action within thirty (30) days of that date.

4. Defendant’s counsel shall provide notice and file proof of such with the Court.