Judge William A. Crowfoot, Case Number: 23AHCV01973, Date: 2024-05-16 Tentative Ruling

Judge: William A. Crowfoot, Case: 23AHCV01973, Date: 2024-05-16 Tentative Ruling

On August 28, 2023, plaintiff Oke Poke, Inc. (“Plaintiff”) filed this action against defendants Fortune Empire Group, Inc. (“Fortune Empire”) and Henry Tang (“Tang”) (collectively, “Defendants”) asserting causes of action for conversion, intentional and negligent interference with prospective economic relations, violation of Business & Professions Code section 17200 (“UCL”), intentional and negligent misrepresentation, misappropriation of trade secrets, and common law trademark infringement. Plaintiff alleges it is the owner of the “Oke Poke” brand, which has stores throughout California and sells poke bowls, and owns other trademarks, service marks, copyrights, and intellectual property related to the Oke Poke brand, including menu items, their recipes, and preparation processes (collectively referred to as its “Intellectual Property”). (Compl., ¶ 6.) Plaintiff alleges that Defendants are illegally operating a restaurant using the Oke Poke trademarks to sell poke bowls in a manner which is damaging to Plaintiff’s name, brand, and reputation. (Compl. ¶ 7.) Although Defendants originally opened their store as a licensee of the Oke Poke brand through Plaintiff’s former owner, Plaintiff’s new owners have since revoked their permission to use its brand and intellectual property. (Compl., ¶ 8.)

On November 13, 2023, Defendants filed this demurrer to Plaintiff’s complaint.

A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).) A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) In construing the allegations, the court is to give effect to specific factual allegations that may modify or limit inconsistent general or conclusory allegations. (Financial Corporation of America v. Wilburn (1987) 189 Cal.App.3rd 764, 769.)

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

Plaintiff alleges that Defendants have “knowingly and intentionally interfered with [its] Intellectual Property by taking possession of it for Defendants’ own uses and continuing to use and profit from it without permission.” (Compl., ¶ 10.) Defendants argue that Plaintiff’s definition of Intellectual Property includes trade secrets. The California Uniform Trade Secrets Act (“CUTSA”) thus displaces its conversion claim.

CUTSA is codified in Civil Code sections 3426 through 3426.11 and occupies common law trade secret misappropriation claims. (See K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 954.) 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 noncontract 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 (“Silvaco”); K.C. Multimedia, Inc., supra, 171 Cal.App.4th at 962.)

Plaintiff opposes the demurrer on the grounds that its conversion claim is premised on the use of “non-trade secrets which are still proprietary and confidential.” (Opp., p. 4.) But “‘information’ cannot be ‘stolen’ unless it constitutes property. And information is not property unless some law makes it so.” (Silvaco, supra, 184 Cal.App.4th at p. 239.) Therefore, because Plaintiff identifies no property right outside of trade secrets law, its conversion claim is superseded by CUTSA.

Additionally, Defendants demur to Plaintiff’s conversion claims on the ground that intangible items cannot be converted. Plaintiff argues that its conversion claim is sufficiently stated because Defendants allegedly stole tangible property such as “menu items embodied in Plaintiff’ recipes, [in order] to continue to run a franchise for which its license had been revoked.” (Opp., p. 4.) Plaintiff also cites to Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 103, in which the court of appeal held that intangible property may be the subject of a conversion claim. However, the court of appeal in Fremont Indemnity Co. only held that a conversion claim could be stated for a net operating loss recorded in tax and accounting records because it was “sufficiently definite and certain” as to be comparable to the misappropriation of tangible personal property or shares of stock. In contrast, Plaintiff’s references to recipes are ideas or information (as opposed to physical documents) and Plaintiff does not cite to any law which transforms the ideas into property.

B. Second and Third Causes of Action: Intentional and Negligent Interference with Prospective Economic Relations

Next, Defendants demur to Plaintiff’s claims for intentional and negligent interference with prospective economic relations on the grounds that they are displaced by CUTSA. Plaintiff alleges that Defendants “engaged in wrongful conduct by misrepresenting to Plaintiff’s customers that they have the right to use the Oke Poke name, sell Oke Poke products, and use the Intellectual Property for their own personal profit” and that Defendants disrupted “the relationship between Plaintiff and its customers.” (Compl., ¶¶ 14-15, 19-20.) The alleged wrongful conduct includes misrepresentations about the right to use Plaintiff’s name and brand, which are not trade secrets. Therefore, the tortious interference claims are not displaced by CUTSA insofar as they are based on Defendants’ unauthorized use of Plaintiff’s name and brand. (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 506 [CUTSA “does not displace noncontract claims that, although related to a trade secret misappropriation, are independent and based on facts distinct from the facts that support the misappropriation claim.”])

Nevertheless, Defendants’ demurrer has merit because Plaintiff fails to identify any specific customer, third party, or economic relationship with which Defendants allegedly interfered. Although Plaintiff does not need to identify a particular customer by name, the claim for tortious business interference must be directed to Plaintiff’s prospective economic expectation from a specific person. (See Ramona Manor Convalescent Hospital v. Care Enterprises (1986) 177 Cal.App.3d 1120, 1133.) Accordingly, the demurrer to the Second and Third Causes of Action is sustained.

The UCL permits claims for “unlawful, unfair or fraudulent” business practices. (Bus. & Prof.Code, § 17200.) UCL claims may be displaced by CUTSA if they are premised on factual allegations of trade secret misappropriation. Here, Plaintiff alleges that Defendants’ “unlawful use of the Intellectual Property to sell Plaintiff’s products, without permission, constitutes an unfair business practice.” (Compl., ¶ 23.)

Defendants argue that Plaintiff’s UCL claim is preempted by CUSTSA. In opposition, Plaintiff argues that its UCL claim is based on its conversion and tortious interference claims. However, Plaintiff’s conversion claim is preempted by CUTSA; therefore, to the extent that the UCL claim is based on conversion, the claim is displaced. Also, Plaintiff fails to allege sufficient facts to state a cause of action for tortious interference. Therefore, the tortious interference claims cannot serve as a predicate for an unfair competition claim.

D. Fifth and Sixth Causes of Action: Intentional and Negligent Misrepresentation

The elements of fraud 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.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud, including negligent misrepresentation, must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)

Defendants demur to Plaintiff’s misrepresentation claims on the grounds that they are not pleaded with specificity and are preempted by CUTSA. However, the Court notes (and Defendants belatedly argue in their reply brief) that Plaintiff’s misrepresentation claims fail because Plaintiff does not allege that it relied on Defendants’ misrepresentations in any way. Instead, Plaintiff alleges that Defendants have made misrepresentations to the public. Therefore, the demurrer to the Fifth and Sixth Causes of Action is SUSTAINED.

In light of the foregoing, Defendants’ demurrer to the First, Second, Third, Fourth, Fifth, and Sixth Causes of Action is SUSTAINED. Plaintiff requests leave to amend the complaint by specifically labelling intellectual property which are not trade secrets. Therefore, the demurrer is sustained with 20 days’ leave to amend.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.