Judge Stephen P. Pfahler, Case 22CHCV00236 2022-10-13 Tentative Ruling

· 3^rd Cause of Action: Intentional Interference with Prospective Business Advantage

· 4^th Cause of Action: Negligent Interference with Prospective Economic Advantage

· 6^th Cause of Action: Violation of Business and Professions Code section 17200

Defendant Mina Kateb was “hired … as a managing director” with Plaintiff Monocent, Inc. on an unspecified date for an unspecified period of time. Monocent alleges Kateb improperly diverted customers, vendors, and business suppliers for “personal benefit,” diverting future business, and taking trade secrets.

On April 7, 2022, Monocent filed its complaint for Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, Violation of Business and Professions Code section 17200, Negligence, Fraud—Intentional Misrepresentation, Fraud—Negligent Misrepresentation, Misappropriation of Trade Secrets, and Declaratory Relief.

On May 10, 2022, Kateb filed a complaint (22CHCV00319) for Fraudulent Misrepresentation, Breach of Fiduciary Duty – Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care (twice), Negligence, Retaliation in Violation of Labor Code section 1102.5, Wrongful Constructive Termination, Unfair Competition in Violation of Business and Professions Code section 17200, Intentional Interference with Prospective Contractual Relations, Negligent Interference with Prospective Contractual Relations, Breach of Contract, and Declaratory Relief.

On June 27, 2022, the court entered the stipulation of the parties relating and consolidating the cases.

The court declines to take judicial notice of Exhibit B in that the item constitutes a submitted forms for filing by Monocent, and therefore fail to reflect an actual official act of the Secretary of State. [Declaration of Alexander Gura.] (Friends of Shingle Springs Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 1470, 1484.)[1] The court takes judicial notice of Exhibits C & D, which present a “Statement of Information” regarding the location of Monocent, the officers, agent for service, and description of the business. (Ibid.)

Defendant Kateb brings the subject demurrer to all causes of action in the Monocent complaint, except the seventh and eleventh causes of action for Negligence and Declaratory Relief. Kateb challenges the complaint on grounds of preemption under the California Uniform Trade Secrets Act (CUTSA), and insufficiently pled facts for the non-preempted claims. Monocent in opposition contends the trade secret claims are properly pled, and the first, third, fourth, fifth and sixth causes of action are not reliant on any misappropriated trade secret claims. The remaining chalenged causes of action are also well pled. Kateb in reply contends Monocent concedes preemption on the trade secret based claims. Kateb reiterates the deficiencies with the remaining causes of action.

The court acknowledges the lack of any meet and confer effort on the CUTSA claims. The statutory language bars the court from making a dispositive on the demurrer as a result of the meet and confer effort. The court, as a matter of policy, declines to continue the hearing a second time barring a showing by the parties that a meet and confer effort would lead to the demurer coming off-calendar and an amended pleading. (Code Civ. Proc., § 430.41, subd. (a).)

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616; Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139 [“[U]nder our liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend.]

Kateb provides extensive background regarding the parties’ interactions leading to the case. Monocent also provides an extensive history in opposition though said facts are not part of the operative complaint. As addressed in the standard for ruling on a demurrer, the court will not consider any and all extrinsic facts relied upon in support of the demurrer and only focuses on the claims as pled.

1^st Cause of Action, Breach of Fiduciary Duty–Duty of Loyalty: Sustained with Leave to Amend.

3^rd Cause of Action, Intentional Interference with Prospective Business Advantage: Sustained with Leave to Amend.

4^th Cause of Action, Negligent Interference with Prospective Economic Advantage: Sustained with Leave to Amend.

5^th Cause of Action, Intentional Interference with Contractual Relations: Sustained with Leave to Amend.

6^th Cause of Action, Violation of Business and Professions Code section 17200: Sustained with Leave to Amend.

On the Breach of Fiduciary Duty–Duty of Loyalty, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, and Violation of Business and Professions Code section 17200 causes of action, Kateb contends preemption under CUTSA precludes said causes of action.

“A cause of action for monetary relief under CUTSA may be said to consist of the following elements: (1) possession by the plaintiff of a trade secret; (2) the defendant's misappropriation of the trade secret, meaning its wrongful acquisition, disclosure, or use; and (3) resulting or threatened injury to the plaintiff. (3426.3; see id., §§ 3426.1, 3426.2.) The first of these elements is typically the most important, in the sense that until the content and nature of the claimed secret is ascertained, it will likely be impossible to intelligibly analyze the remaining issues.” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 220 disapproved of by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310 on unrelated grounds.) Civil Code “section 3426.7, subdivision (b), preempts common law claims that are ‘based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.’” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958.)

Contract based claims, however, remain exempt. “CUTSA includes a specific provision concerning preemption. That provision, section 3426.7, reads in pertinent part as follows: ‘(a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets. [¶] (b) This title 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.’ Section 3426.7 thus ‘expressly allows contractual and criminal remedies, whether or not based on trade secret misappropriation.’ (Citation.) ‘At the same time, § 3426.7 implicitly preempts alternative civil remedies based on trade secret misappropriation.’”

The existence of a trade secret itself remains a required element for determination of preemption. The complaint itself only provides conclusions regarding trade secrets throughout the first nine causes of action, with the subject secret finally defined in the tenth cause of action for misappropriation of trade secret based on a “proprietary list of vendors, suppliers, and customers. [¶] Monocent’s proprietary list of vendors, suppliers, and customers was (was and continued to be) a trade secret at the time of Defendant’s misappropriation.” [Comp., ¶¶ 86-87.] Said allegation constitutes a valid form of trade secret: “‘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, § 3426.1, subd. (d)(2); Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1155.)

Plaintiff in opposition and throughout the complaint allege Kateb took “trade secrets for personal benefit.” Said claims are repeated in the first, third, fourth, fifth[2] and sixth causes of action, but also incorporated into every other cause of action as well. [Comp., ¶¶ 13, 18, 25, 28, 35, 40, 45, 53, 54, 57, 64, 75, 85,[3] 87, 91.] Notwithstanding the trade secret conclusions until the tenth cause of action, the misappropriation of the defined trade secret itself, Monocent maintains a factual distinction prevents preemption. (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495 [“the determination of whether a claim is based on trade secret misappropriation is largely factual”].)

It’s not clear from the operative complaint or arguments in opposition how claims directly alleging misappropriation of trade secrets factually present separate and independently supported claims. (Id. at pp. 506-507.) Regardless of whether Plaintiff evades defining “trade secret” for the first nine causes of action or not, the tersely worded complaint imbues misappropriation at the core of the first, third, fourth, fifth, sixth, and tenth causes of action. Even accepting Plaintiff’s argument that said misappropriation is alleged as part of the underlying claims for conduct above and beyond the misappropriation itself, such an argument constitutes an unrecognized distinction. (Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th at p. 236 disapproved of by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310 on unrelated grounds.) The demurrer to the Breach of Fiduciary Duty–Duty of Loyalty, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, and Violation of Business and Professions Code section 17200 causes of action are sustained.

2^nd Cause of Action, Breach of Fiduciary Duty – Duty of Care: Sustained with Leave to Amend.

Kateb challenges the subject cause of action on grounds that the complaint lacks any allegation of an operative employment relationship, and therefore no fiduciary duty can exist. Monocent in opposition contends Kateb was hired as a corporate officer and granted access to confidential files, thereby imposing a fiduciary duty to the company.

A fiduciary duty is founded upon a special relationship imposed by law or under circumstances in which “confidence is reposed by persons in the integrity of others” who voluntarily accept the confidence. (Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1150.) “A fiduciary or confidential relationship can arise when confidence is reposed by persons in the integrity of others, and if the latter voluntarily accepts or assumes to accept the confidence, he or she may not act so as to take advantage of the other's interest without that person's knowledge or consent.” (Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101–02.) “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. (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 410.)

The argument challenging the foundation of any fiduciary duty seemingly disregards the plain language of paragraphs seven (7), eight (8), nine (9), ten (10) of the operative complaint, whereby Kateb is specifically identified as hired “Managing Director” of Monocent employed to set up distribution, manage regulatory requirements and employees, develop new products, and grow the business, which included access to proprietary information. The cause of action itself, however, only alleges a failure to ensure “strict compliance with FDA and ISO requirements, restrictions, and regulations.” While the parties continue to rely on extrinsic facts beyond the operative complaint, nothing in the complaint specifically articulates how the entrusted fiduciary duty was actually breached based on a failure to comply with FDA and ISO requirements. The demurrer is sustained.

8^th Cause of Action, Fraud—Intentional Misrepresentation: Sustained with Leave to Amend.

9^th Cause of Action, Fraud – Negligent Misrepresentation: Sustained with Leave to Amend.

Kateb challenges the factual basis of the fraud claim. Monocent contends fraud is well pled.

“‘The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) “‘Active concealment or suppression of facts by a nonfiduciary “is the equivalent of a false representation, i.e., actual fraud.” [Citation.] (Citation).)’ A fraud claim based upon the suppression or concealment of a material fact must involve a defendant who had a legal duty to disclose the fact. (Civ.Code, § 1710, subd. (3) [a deceit includes “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact”]; Citation.)” (Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1186.) “Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. ‘Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit.’” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.)

The complaint relies on a claim that Kateb misrepresented certain expertise in FDA and ISO compliance procedures when applying for the Managing Director position. Kateb contends such a theory relies on an improper opinion, rather than an actual factual representation. Misrepresentations must be made about past or existing fact. Opinions are not treated as representations of fact. (Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells (2000) 86 Cal.App.4th 303, 309–310; Agricultural Ins. Co. v. Superior Court (1999) 70 Cal.App.4th 385, 390.) The conveyance of an ability to manage operations and meet compliance requirements for government regulations lacks support for the finding of an objectively factual representation. Nothing in the complaint or opposition establishes how a personal belief in the ability to meet certain work requirements constitutes a factual representation. It’s not clear how Kateb was unable to meet the goals, and whether the alleged failure was the direct result of the statements presented during the interview. The demurrer is sustained.

Preemption is not at issue. Instead, Kateb challenges the sufficiency of the claim on grounds that the complaint insufficiently alleges conduct supporting misappropriation . Monocent maintains the complaint sufficiently alleges the claim.

“Under the UTSA, 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.) As addressed above, the court finds the complaint sufficiently alleges the existence of a trade secret for purposes of the subject demurrer. While the allegations are minimal, the complaint sufficiently articulates wrongful use of said information for the establishment of a “new and competing enterprise.” (Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc. (2015) 236 Cal.App.4th 243, 263.) The demurrer is overruled.

In summary, the court sustains the demurrer to the Breach of Fiduciary Duty–Duty of Loyalty, Breach of Fiduciary Duty – Duty of Care, Intentional Interference with Prospective Business Advantage, Negligent Interference with Prospective Economic Advantage, Intentional Interference with Contractual Relations, Violation of Business and Professions Code section 17200, Fraud—Intentional Misrepresentation, and Fraud – Negligent Misrepresentation causes of action, and overrules the demurrer to the Misappropriation of Trade Secrets cause of action. Plaintiff is granted 30 days leave to amend. Plaintiff may not add any new causes of action without leave of court, but may add facts. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) If Monocent fails to timely file an amended complaint, Kateb answer the remaining claims upon the lapse of the amendment deadline. If Monocent adds any new claims without leave of court, Kateb may bring a motion to strike on these items.

[1]The court in fact upheld the trial courts exclusion of the articles of incorporation. (Friends of Shingle Springs Interchange, Inc. v. County of El Dorado, supra, 200 Cal.App.4th 1483-1484.)

[2]The fifth cause of action lacks the specific trade secret language, and instead relies on allegations regarding customer, vendor and supplier information, which can also constitute a trade secret, and in fact serves as the defined trade secret in paragraphs 86 & 87. (Civ. Code, § 3426.1, subd. (d)(2).)

[3]The tenth cause of action itself is identified as “Misappropriation of Trade Secrets,” but not specifically referenced by Kateb as part of the CUTSA preemption argument.