Judge: Yolanda Orozco, Case: 21STCV18292, Date: 2022-09-12 Tentative Ruling
Case Number: 21STCV18292 Hearing Date: September 12, 2022 Dept: 31
DEMURRER TO PLAINTIFF’S FIRST AMENDED COMPLAINT IS OVERRULED
Background
On May 14, 2022, Plaintiff Systems Integrated, LLC (“SI”) filed a Complaint against Defendant Metropolitan Water District of Southern California, a public agency, and Does 1 to 50.
The operative First Amended Complaint (FAC) alleges,
1) Breach of Written Contract
2) Misappropriation of Trade Secrets under the California Uniform Trade Secrets Act (Cal. Civ. Code §§ 342603426.11.)
On April 18, 2022, Defendant Metropolitan Water District filed a demurrer to Plaintiff’s FAC.
On August 26, 2022, Plaintiff filed Opposition papers. Defendant filed a reply on September 01, 2022.
Meet and Confer
Before filing a demurrer, the demurring party is required to meet and confer with the party who filed the pleading demurred, in person or telephonically, to determine whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc. (CCP) § 430.41.)
Defendant asserts that the parties met and conferred regarding deficiencies in the FAC. (Kelley Decl. ¶ 2, Ex. A.) Thus, the meet and confer requirement is met.
Legal Standard
A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)
Request for Judicial Notice
The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).) However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.)
Defendant requests Judicial Notice of the Metropolitan Water District Contract No. 1396A for procurement of a computer-based control system under Specification 1207 or “System Contract” referenced in the Software License Agreement attached as Exhibit A of the FAC. (See Declaration of Bennet Kelley at Ex. C [“System Contract”].)
Defendant asserts that Judicial Notice of the Systems Contract is proper because it is a record of a public agency and is kept in the ordinary course of business. (Cal. Evid. Coe § 452(c); Cooke v. Superior Court, 213 Cal. App. 3d 401, 416 (1989), disapproved on other grounds by County of San Diego v. State of California, 15 Cal. 4th 68, 106 (1997) [county records are proper subject of judicial notice as official acts of a political subdivision of the state].) Moreover, documents referenced in a complaint may properly be the subject of judicial notice. (See Salvaty v. Falcon Cable Television (1985) 165 Cal.App.3d 798, 800, fn. 1; Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 956, fn. 6; Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, fn. 3.)
Defendant’s request for Judicial Notice is GRANTED.
Evidentiary Objections
Plaintiff objects to the Declaration of Bennet Kelley as follows:
Objection No 1: Paragraph 5, p. 2, lines 14-18:
o “Attached hereto as Exhibit C is the Metropolitan Water District Contract No. 1396A for procurement of a computer-based control system under Specifications No. 1207 or, as more commonly known, as the ¿System Contract which is referenced in the Software License Agreement.”
Objection No. 2: System Contract attached as Exhibit C to the Declaration of Bennet Kelley.
Objection No. 3: Defendants Request for Judicial Notice of the System Contract
Under California Evidence Code 702 subdivision (a), Kelley’s declaration under oath that he or she has personal knowledge of the System Contract is sufficient to lay the foundation for admission of Exhibit C. Plaintiff’s other objections to the Declaration of Bennet Kelly and request for Judicial Notice are not primarily evidentiary objections, rather are instead legal arguments. The Court addresses these legal arguments below.
Accordingly, Plaintiff’s objections are OVERRULED in their entirety.
Discussion
In 1995, via a public solicitation process, Plaintiff Systems Integrated was selected by Defendant Metropolitan Water District of Southern California to provide software for the operation of Defendant’s Supervisory Control and Data Acquisition (“SCADA”) system. (FAC ¶ 8-9.) Six years into the relationship, the parties executed a Software License Agreement, which Plaintiff asserts Defendant has breached and misappropriated in connection with current bid procedures. (FAC Ex. A.)
Defendant argues that under the “Metropolitan Water District Contract No. 1396A” or “Systems Contract” for the procurement of a computer-based control system, Defendant had non-exclusive irrevocable licenses or sub-licenses covering all software derived under the Systems Contract, including software created by Plaintiff. (Kelley Decl. Ex. C at p. 137.) Defendant asserts that the System Contract takes precedence because under the Software License Agreement, Plaintiff was required to provide software “on terms and conditions of the Systems Contract.” (FAC Ex. A at p. IC 117293.)
Defendant demurs to Plaintiff’s FAC on the basis that its two causes of action for breach of contract and misappropriation fail to state sufficient facts to constitute a cause of action. (CCP § 430.10(e).)
First Cause of Action: Breach of Contract
The elements of a claim for breach of contract are: “(1) the existence of the contract, (2) plaintiffs 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)
Defendant asserts that under the “Systems Contract”, Plaintiff gave Defendant unlimited rights under the Software License Agreement, including use and disclosure of software, thus barring Plaintiff’s breach of contract claim. Defendant does not state Plaintiff has failed to state facts to sustain a cause of action for breach of contract, only that no breach has occurred. Defendant asks the Court to not only take Judicial Notice of the existence of the Systems Contract, but to also interpret the Systems Contract and determine that it governs the disclosure of software data under the Software License Agreement. To do so would transform this demurrer to a summary judgment motion in that Defendant asks that the Court accept its interpretation of the contract as the controlling interpretation, in addition to taking judicial notice of the existence of the contract.
The Court notes that “‘[t]aking judicial notice of a document is not the same as accepting the truth of its contents or accepting the interpretation of its meaning.’ [Citation.] While courts take judicial notice of public records, they do not take judicial notice of the truth of matters stated therein. [Citation.] ‘When judicial notice is taken of a document,…the truthfulness and proper interpretation of the document are disputable.’ [Citation.].” (Herrera v. Deutsche National Trust Co. (2011) 196 Cal.App.4th 1366, 1375; see also People v. Castillo (2010) 49 Cal.4th 145, 157 [reiterating that “‘the taking of judicial notice of the official acts of a governmental entity does not in and of itself require acceptance of the truth of factual matters which might be deduced therefrom, since in many instances what is being noticed, and thereby established, is no more than the existence of such acts and not, without supporting evidence, what might factually be associated with or flow therefrom’”].)
Accordingly, Defendant has failed to show that any defects exist on the face of the FAC as to the first cause of action. The demurrer is OVERRULED as to the first cause of action.
Second Cause of Action: Misappropriation of Trade Secrets
A prima facie claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act (“CUTSA”), Civ. Code § 3426 et seq., “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.)
Under the CUTSA, a trade secret is information that derives independent economic value, actual, or potential, from being generally known and is the subject of efforts that are under the circumstances to maintain its secrecy. (Civ. Code, § 3426.1) Misappropriation under the CUTSA includes acquiring trade secrets through “improper means” or using trade secrets of another that were obtained “from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use[.]” (Civ. Code, § 3426.1 subd. (b).) Improper is defined to include “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).) Furthermore, as Plaintiff points out, actual or threatened misappropriation may also be enjoined under Civil Code section 3426.2 subdivision (a).
Plaintiff alleges that its trade secret material, a software program called “onsite” was incorporated into software that was developed by Defendant called “Automatic Process Control” (APC) software and is derivative work under the Software License Agreement. (FAC ¶¶ 10, 13) Plaintiff maintains that the software was protected from unauthorized disclosure in the Software License Agreement. (FAC ¶ 13.) Plaintiff alleges that Defendant facilitated the disclosure of its software by directing bidders to mimic the APC, which is based on Plaintiff’s software. (FAC ¶ 13.)
Defendant reiterates that under the Systems Contract it had a right to disclose its software. Secondly, Defendant alleges that Plaintiff does not have a trade secret because the general functionality of a software, is not a trade secret. (See Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 221 [finding that the features, functions, and characteristics of the design and operation of plaintiff’s software are not a trade secret because the end results of the software, such as its functionality or improved performance is “evident to anyone running the finished program.”], as modified on denial of reh'g (May 27, 2010) disapproved on other grounds by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310.) The Court notes that in Silvaco, the Appeal Court upheld the dismissal of Plaintiff’s CUTSA cause of action on a summary judgment motion, after assessing “22 pages of technical verbiage” in order to determine that plaintiff’s source code was not a trade secret. (Id. at 221.)
Here, Defendant asks the Court to do the same on a demurrer and interpret both the Systems Contract and the Software License Agreement to establish no violation of the CUTSA has occurred. The Court declines the invitation. As explained in Fremont Indemnity Co. v. Fremont General Corp.,
“On a demurrer a court's function is limited to testing the legal sufficiency of the complaint. [Citation.] ‘A demurrer is simply not the appropriate procedure for determining the truth of disputed facts.’ [Citation.] The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of documents whose truthfulness or proper interpretation are disputable. [Citation.]”
(Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-114)
Accordingly, even if judicial notice of the Systems Contract is granted “‘judicial notice of matters upon demurrer will be dispositive only in those instances where there is not or cannot be a factual dispute concerning that which is sought to be judicially noticed.’” (Fremont Indemnity Co., supra, 148 Cal.App.4th 97 at 114.) “A court ruling on a demurrer therefore cannot take judicial notice of the proper interpretation of a document submitted in support of the demurrer.” (Id. at 115.)
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. (CCP §§ 430.30, 430.70; see also E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315 [“A demurrer tests the pleading alone, and not on the evidence or facts alleged.”].)
Accordingly, taking as true Plaintiff’s factual assertions that its software is a trade secret for purposes of a demurrer, the demurrer is OVERRULED as to Plaintiff’s second cause of action. Defendant fails to allege that any defects exist on the face of the FAC or that Plaintiff fails to allege sufficient facts to sustain a cause of action for violations of the CUTSA.
Conclusion
Defendant Metropolitan Water District of Southern California’s demurrer to Plaintiff’s First Amended Complaint is OVERRULED.
Defendant to give notice.
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