2013-00138061-CU-CL

Marmi Bruno Zanet vs. Medimer Marble & Granite

Nature of Proceeding: Motion for Judgment on the Pleadings (Joinder by Zanet)

Filed By: Valenti, Anthony P.J.

Cross-Defendant Tamara Petrick’s Motion for Judgment on the Pleadings as to Cross-Complainant Medimer’s First Amended Cross-Complaint is DENIED.

The Joinders of Cross-defendants Marmi Bruno Zanet SRL (“Zanet”) and Marmi Bruno Zanet USA, Inc. (“Zanet USA”) are DENIED.

This motion was continued by the Court from Feb. 5, 2018, for compliance by counsel with C.C.P., sec. 439, requiring meet and confer in person or by telephone. The Court has now received declarations reflecting compliance with that section.

On August 18, 2014, a prior demurrer by Zanet and Zanet USA to certain causes of action of the FACC: the 2nd for Aiding and Abetting Breach of Fiduciary Duty, the 8th for Fraud and Deceit; the 9th for Intentional Interference with Prospective Economic Advantage; and the 12th for Unfair Competition – California Business and Professions Code, sec. 17200, were overruled. The Court will not reconsider the joinder in the Judgment on the Pleadings as to those causes of action. C.C.P., sec. 438(g)(1). The demurrer to the 10th for Conversion; the 11th for Trespass to Chattels were sustained, with leave to amend. No further amended cross-complaint was filed, thus these causes of action do not apply to Zanet. None of the remaining causes of action are alleged against Zanet.

Moving party Petrick moves both for statutory (C.C.P., sec. 438) and for common law judgment on the pleadings.

Code Civ. Proc., § 438 (enacted 1994) created a statutory Judgment on the Pleadings. ) Subsection (e) provides: “No motion may be made pursuant to this section if a pretrial conference order has been entered pursuant to Section 575, or within 30 days of the date the action is initially set for trial, whichever is later, unless the court otherwise permits.”

Here, trial was initially set for April 13, 2015, although that date was subsequently vacated in response to the parties’ notice of conditional settlement. The case was returned to the civil active list on the ground that the settlement had fallen through. A Stipulation of Counsel filed June 8, 2017, extended the five year statute to June 4, 2018. Trial is currently set for April 9, 2018.

As C.C.P., sec. 438(e) requires the motion to be filed within 30 days of the initial trial date, April 13, 2015; the statutory motion is not timely made.

In the alternative, moving party has requested a common law motion for judgment on the pleadings. The common law motion was not abrogated by the enactment of CCP §438 in 1994.

A motion for judgment on the pleadings is a nonstatutory, but well-established, procedure with the purpose and effect of a general demurrer. Because the motion is, in effect, a general demurrer, the same rules apply. Thus, to prevail on a motion for judgment on the pleadings, a defendant must show a complaint fails to state a cause of action. (Sofias v. Bank of America (1985) 172 Cal.App.3d 583, 586.) A motion for judgment on the pleadings may be made at any time before trial or at the trial itself. ( Stoops v. Abbassi (2002) 100 Cal.App.4th 644, 650.)

The Court will only proceed on the common law basis.

This action was filed on Jan 7, 2013, and was initially set for trial on April 13, 2015. On June 8, 2017, counsel for the parties filed a Stipulation to Extend Time for Bringing Action to Trial to June 4, 2018. The action is currently set for trial on April 9, 2018.

Opposing party Medimer’s Request for Judicial Notice is GRANTED, except as to the contents of Exhibit 3. A court may take judicial notice of the existence of each document in a court file, but can only take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments. ( Bach v. McNelis (1989) 207 Cal. App. 3d 852, 865.)

First Amended Cross-complaint

On March 4, 2014, Cross-complainant Medimer filed its First Amended Cross-Complaint setting forth 12 causes of action: the 1st for Breach of Fiduciary Duty; the 2nd for Aiding and Abetting Breach of Fiduciary Duty, the 3rd for Breach of Common Law Duty of Loyalty; the 4th for Breach of Contract; the 5th for Breach of Labor Code section 2863; the 6th for Breach of Labor Code section 2854; the 7th for Breach of Labor Code section 2856; the 8th for Fraud and Deceit; the 9th for Intentional Interference with Prospective Economic Advantage; the 10th for Conversion; the 11th for Trespass to Chattels; and the 12th for Unfair Competition – California Business and Professions Code, sec. 17200. All causes of action except the 2nd for Aiding and Abetting Breach of Fiduciary Duty are alleged against plaintiff and cross-defendant Petrick.

In its FACC, Medimer alleges that it “coordinates the sale and distribution of stone” from various suppliers worldwide, including Zanet. (FACC ¶ 7.) Medimer alleges that its onetime General Manager, Tamara Petrick (“Petrick”), was the “point of contact” between Medimer and its suppliers, including Zanet. (Id. ¶ 8.) Petrick was allegedly also a member of Medimer’s board of directors and Medimer’s Vice President between January 2008 and November 2010. (Id.)

The FACC alleges that Petrick and Zanet “formed a business relationship” in 2008 or 2009, while Petrick was still working for Medimer. (Id. at 10.) Petrick and Zanet allegedly secretly formed an unnamed “joint venture” that took advantage of Petrick’s position at Medimer, including her ability to “access and use confidential and trade secret information belonging to Medimer” for the benefit of the secret joint venture.(Id.) Petrick and Zanet allegedly exchanged emails indicating their plan to “harm Medimer’s business standing and then form a competing company,” potentially to be called Zanet USA. (Id.)

The FACC also alleges that in 2010, Petrick “began ordering large amounts of Zanet material and decreasing orders from Medimer’s regular suppliers,” even though many of the Zanet orders “were not responsive to the needs of Medimer and were instead . .
. ordered in response to Zanet’s needs for clearing its own inventory.” (Id. ¶ 11.)

The FACC also alleges that, in 2010, Petrick “began depositing Medimer money into a dormant, out of state, bank account held in the name of Medimer, but which Petrick had access to and control over by virtue of her fiduciary positions with Medimer.” (Id. ¶ 12.) Petrick then allegedly used funds from that account to pay Zanet “on payment terms that were contrary to Medimer’s best interests and that harmed Medimer,” such as by making payments before they were due, and also making payments to Zanet instead of other vendors in effort to damage Medimer’s ability to continue doing business after Petrick’s “planned departure.” (Id.) The FACC also alleges that, at Zanet’s request, Petrick instructed Medimer staff to “exclude those payments and invoices from reports created for Medimer’s president” and to hide her use of the out-of -state bank account. (Id. ¶ 12.)

The FACC alleges that Petrick “began brokering sales directly between Medimer’s client base and Zanet,” and that Zanet encouraged her to do so and provided her “financial support.” (Id. ¶ 13.) 2010, Petrick allegedly “caused Medimer to hire additional administrative staff” so as to “prepare Petrick’s departure” from Medimer and to organize Medimer’s business papers and trade secrets (“such as client, purchasing, pricing, supplier, customer, and project information”) for Petrick to take with her Zanet. (Id. ¶ 14.) Petrick allegedly directed Medimer staff to “destroy” trade secret documents that she did not take with her to Zanet. (Id.)

The FACC also alleges that Petrick purposefully harmed Medimer’s interests “with Zanet’s approval and ratification,” such as extending credit to high-risk customers who had previously defaulted, sold Zanet products at “very low profit margins,” “stopped tracking inventory,” allowed an employee who had been caught stealing to remain employed, made disparaging remarks about Medimer to Medimer’s suppliers, shippers, and customers, and “began trading Medimer inventory for work done at her personal home,” among other things. (Id. ¶ 15.)

By November 17, 2010, Petrick and Zanet allegedly “committed in writing to their final plans regarding the start of Zanet USA,” which would “be in direct competition with

Medimer.” (Id. ¶ 16.) Petrick allegedly transferred Medimer’s phone numbers, which were recognized by Medimer’s customers, to different account under her husband’s control, so as to interfere with Medimer’s business communications and to divert Medimer’s business toward her joint venture with Zanet. (Id. ¶ 18.)

Petrick also allegedly “attempted to divert a large shipment of materials to a new location, for the use and benefit of the joint venture” and at Zanet’s instruction. (Id. ¶ 19.) Zanet allegedly sent “written instructions to the shipper to divert Medimer’s shipment,” which Petrick allegedly confirmed and approved in her role as Medimer’s fiduciary, but actually secretly intended damage Medimer and benefit Zanet by doing so. (Id.) Petrick allegedly concealed these actions from Medimer by erasing call history and laptop and phone evidence thereof. (Id. ¶ 20.) Petrick’s employment with Medimer allegedly “ceased” on November 27, 2010. (Id. ¶ 21.)

Judgment on the Pleadings

Moving party Petrick asserts that the FACC rests on three main premises: (1) Petrick engaged in fraudulent conduct; (2) the fraudulent conduct relates to the misappropriation of trade secrets, which damaged Medimer’s economic relationships and made it harder for Medimer to compete; and (3) the harm stems from the alleged creation of a joint venture between Petrick and Zanet. Petrick asserts that it is on these three grounds where the FACC fails to meet the required pleading standards, thereby depriving Petrick of proper notice of the charges against her and a meaningful opportunity to respond to those allegations.

Fraud and Deceit Allegations

Claims based on allegations of fraud and claims for punitive damages are subject to strict pleading requirements. The purpose of having a stricter pleading requirement is to give notice and definite charges so the defendant may adequately respond. (Gil v. Bank of America, National Association (2006) 138 Cal.App.4th 1371, 1381 (citing Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216). Pleading a legal conclusion of fraud is insufficient and “every element of the cause of action for fraud must be alleged in the proper manner (i.e. factually and specifically), and the policy of liberal construction of pleadings … will not ordinarily be invoked to sustain a leading defective in any material respect.” (Committee on Children’s Television, Inc., supra, 35 Cal.3d at 216.) Instead, a plaintiff must use greater specificity, explaining “how, when, where, to whom, and by what means” fraudulent representations were made. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) Allegations of fraud are strictly construed and fraud must be specifically pled. ( Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331; Scafidi v. Western Loan and Building Company (1946) 72 Cal.App.2d 550, 558.)

Here, moving party asserts that insufficient facts have been alleged to support the explaining the “how, when, where, to whom, and by what means” fraudulent representations were made, and to provide the bases for punitive damages.

However, this Court has previously found to the contrary in the Zanet Demurrer.

In paragraph 15 of the FACC, Medimer specifically alleges that during the course of Petrick’s conduct she represented to Medimer (both verbally to Medimer’s President and other personnel, and through her continued occupation of her position as

Medimer’s General Manager, Vice President and board member positions), that she was pursuing and serving Medimer’s best interests consistent with her duties and would continue to do so throughout her time in those positions. Petrick also, throughout this same period of time, failed to disclose (and in fact actually concealed) the true and material facts regarding her actual purposes and motivations of serving the Cross-Defendants’ joint venture, and regarding the true facts concerning the acts, omissions and conduct in which she and the other Cross- Defendants had engaged in furtherance of that joint venture. …(FACC at ¶ 15.) The FACC also alleges that Petrick owed Medimer fiduciary duties as an officer, director and general manager throughout this time period. The FACC also alleges countless other occurrences of secretive, fraudulent behavior which Petrick engaged in – with Zanet’s encouragement and assistance – in the face of her duty to disclose, and her joint efforts with Zanet to actively conceal this behavior and cover their tracks.

These occurrences include instructing Medimer employees to hide her secret payments to Zanet using the dormant, out of state bank account (FACC at ¶ 12), brokering sales directly between Zanet and Medimer’s customer base (FACC at ¶ 13), destroying and/or taking – not simply organizing as Petrick argues – Medimer business records (FACC at ¶ 14); using her role and title with Medimer, and outright lies about the reasons for using her personal e-mail address, to attempt to divert shipments of material purchased by Medimer for her and the new joint venture’s use (FACC at ¶ l9 and Exhibits B, C and D), and directing Medimer employees to destroy e-mails evidencing her conduct. These allegations, all of which (especially in light of the exhibits incorporated into the FACC) put Petrick and Zanet on notice of the claims asserted against them, and which they are charged with answering. These allegations, including the concerted effort to hide material information from Medimer’s president, properly allege with as much detail as can be expected at a pleading stage, the concealment, knowledge and intent elements of fraud and deceit. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Medimer also alleges in the FACC facts regarding Petrick’s fiduciary role and duties that readily support the elements of justifiable reliance.

Throughout the course of Petrick’s conduct as alleged herein, Petrick represented to Medimer (both verbally to Medimer’s President and other personnel, and through Case No. 34-2013-00138061position as an officer, director and general manager of Medimer; see FACC at 118), and of resulting harm (such as her granting of credit were unwarranted and for improper purposes, sale of products at low profit margins, and theft of materials to use in trade for construction at her personal residence; FACC ¶ 15).

The Court finds these allegations sufficient to satisfy the pleading requirements for fraud/deceit and malice, oppression and fraud.

The Court denies the Motion with respect to all of the fraud, deceit and punitive damage aspects of the FACC.

Joint Venture Allegations

“A joint venture . . . is an undertaking by two or more persons jointly to carry out a single business enterprise for profit. The elements necessary for its creation are: (1) joint interest in a common business; (2) with an understanding to share profits and losses; and (3) a right to joint control. Such a venture or undertaking may be formed by

parol agreement [citations], or it may be assumed as a reasonable deduction from the acts and declarations of the parties [citations]. Whether a joint venture actually exists depends on the intention of the parties.” (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 819 (internal quotation marks and citations omitted).)

Petrick contends that the FACC fails to state facts sufficient to support the existence of a “joint venture.” In this Court’s August 18, 2014 Order on the Demurrer by cross-defendants Zanet and Zanet USA, the Court found that sufficient facts had been alleged to establish a joint venture between Zanet and Petrick.

As the pleading has not been further amended, the Court declines to change its conclusion.

Trade Secret Allegations

Moving party asserts that any common law cause of action whose nucleus of operative facts relies on the misappropriation of trade secrets is superseded by the California Uniform Trade Secrets Act (“UTSA”), and every cause of action alleged by Medimer rests on the allegation that Petrick misappropriated trade secrets. (See, e.g., Civ. Code

§ 3426.7; K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958-959; Civil Code, sec. 3426.7; Mattel. Inc. v. MGA Entertainment, Inc. (N.D. Cal. 2011) 782 F.Supp.2d 911, 987.)

The UTSA supersedes any claim “based on the same nucleus of facts as the misappropriation of trade secrets claim,” even if the other claim requires proving an additional element. (Civ. Code § 3426.7(b); K.C. Multimedia, Inc., supra, 171 Cal.App.4th at 958.) The UTSA also “supersedes claims based on the misappropriation of confidential information, whether or not that information meets the statutory definition of a trade secret.” (Mattel, Inc., supra, 782 F.Supp.2d at 987.)

In this case, no cause of action for misappropriation of trade secrets has been alleged. The determination of whether a claim is based on trade secret misappropriation is largely factual. (See, e.g., Callaway Golf v. Dunlop Slazenger Group Americas (D.Del. 2004) 318 F.Supp.2d 216, 220 [applying California law]; Digital Envoy, Inc. v. Google, Inc. (N.D.Cal. 2005) 370 F.Supp.2d 1025, 1035; K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 954.)

Moving party characterizes the FACC as alleging the taking and use of trade secrets to support every cause of action. (MPA, 8:6-20)

In opposition, Medimer asserts that it has alleged sufficient facts to support each cause of action against Medimer by Petrick. (Haigler v. Donnelly (1941) 18 Cal.2d 674, 681). In the alternative, Petrick requests leave to amend to add a cause of action for misappropriation of trade secrets. As trial is imminent, leave to amend is denied, without prejudice to such a motion being made to the trial judge.

Motion as to the 1st for Breach of Fiduciary Duty is DENIED.

The FACC alleges that Petrick owed Medimer fiduciary duties as an officer, director and general manager at all relevant times. The factual allegations that Petrick acted only for her own interests, and did contrary to the best interests of Medimer and its shareholders constitute breaches of her fiduciary duties.

The Court finds that sufficient facts have been alleged to state a cause of action for breach of fiduciary duty.

Motion as to the 2nd for Aiding and Abetting Breach of Fiduciary Duty is DENIED.

The cause of action is not alleged against moving party Petrick. Zanet’s demurrer to this cause of action was previously overruled and will not be reconsidered.

Motion as to the 3rd for Breach of Common Law Duty of Loyalty is DENIED.

The allegations of the FACC are sufficient to state facts against Petrick to constitute a cause of action.

Motion as to the 4th for Breach of Contract is DENIED

The FACC alleges that about October 1, 2000, Medimer entered into a contract with Petrick to act as General Manager of the Medimer Sacramento office (the “Agreement”). The Agreement was based on and evidenced by the writings reflecting Petrick’s conduct of her duties as an employee of Medimer and Medimer’s reciprocal conduct and obligations, and by the conduct and course of dealing of the parties over the duration of their employment relationship. In her role as general manager. Medimer has performed in accordance with the contract, but Petrick has breached the Agreement, ceasing to perform her duties and abusing her discretion. Medimer has alleged damages resulting therefrom. (FACC, ¶ ¶ 41-45.)

Although Petrick moves on the grounds that Medimer has not sufficiently alleged whether the contract between Petrick and Medimer was written, oral or implied. The Court finds that the allegations are sufficient to allege a contract implied in fact, based on the writings and conduct of the parties over the course of their relationship as employer and employee/ officer/ manager. Medimer has alleged with the requisite clarity that the contract was established by the parties’ course of dealing and writings reflecting their performance under through that course of dealing. (Miles v. Deutsche Bank National Trust Company (2015) 236 Cal.App.4th 394.)

Motion as to the 5th for Breach of Labor Code section 2863 is DENIED.

Labor Code section 2863 requires employees to give preference to transacting business for their employer during the employment relationship.

Medimer has alleged that during the course of her employment, Petrick took action adverse to Medimer, including diverting business to her joint venture partners, negatively affecting Medimer’s relationship with its existing suppliers, harming Medimer and its relationships with other suppliers (by, as discussed above, wrongfully giving Zanet benefits to which it was not entitled such as early payments instead of making timely payments to Medimer’s other suppliers) to diminish Medimer’s ability to compete in the marketplace and with Cross-Defendants’ joint venture, hiding deposits and payments from Medimer and its owners, causing bad debts to be incurred by Medimer, and transferring telephone lines and numbers from Medimer’s business account at AT&T to different AT&T account not under Medimer’s ownership or control but under the control of Petrick and her husband, and erasing the call history and other information from the phones and laptop computer that were in her possession before

returning them to Medimer. (FACC, ¶ 49)

Sufficient facts have been alleged to state a cause of action, not pre-empted by the UTSA.

Motion as to the 6th for Breach of Labor Code section 2854 is DENIED

Labor Code section 2854 provides that “[o]ne who, for good consideration, agrees to serve another, shall perform the service, and shall use ordinary care and diligence therein, so long as he is thus employed.”

Again, the FACC states sufficient facts to constitute a cause of action, without preemption by the UTSA.

Motion as to the 7th for Breach of Labor Code section 2856 is DENIED

Labor Code section 2856 provides that “[a]n employee shall substantially comply with all the directions of the employer concerning the service on which he is engaged, except where such obedience is impossible or unlawful, or would impose new and unreasonable burdens upon the employee.”

Again, the FACC states sufficient facts to constitute a cause of action, without preemption by the UTSA.

Motion as to the 8th for Fraud and Deceit – DENIED

See Fraud and Deceit analysis above.

Motion as to the 9th for Intentional Interference with Prospective Economic Advantage – DENIED

The elements which must be plead to state a cause of action for intentional interference with prospective economic advantage are (1) an economic 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) intentional acts on the part of 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. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th 1134, 1153.)

Moving party Petrick asserts that this cause of action is based only on her theft of trade secrets and is therefore preempted by the Uniform Trade Secrets Act. (K.C. Multimedia, Inc. (2009) 171 Cal.App.4th 939, 958.)

In opposition, Medimer points to the FACC alleges that Petrick (with Zanet’s support and assistance) interfered with Medimer’s relationships with its suppliers other than Zanet by withholding payments from those other suppliers and instead paying Zanet early (from the secret, dormant, out-of-state bank account), for the specific purpose of harming Medimer’s relationships with those suppliers and interfering with Medimer’s ability to do business with them going forward. (FACC ¶ 12.) The FACC also alleges that Ms. Petrick began brokering deals with Medimer’s customers and Zanet directly, thereby harming Medimer’s business relationships with those customers and

interfering with Medimer’s opportunity to sell to those customers. (FACC ¶ 13)

These allegations specify independently wrongful acts of intentional interference, identify that those acts occurred with both suppliers and customers, and do not involve trade secrets.

The Court finds the facts alleged support the cause of action.

Motion as to the 10th for Conversion & as to the 11th for Trespass to Chattels – DENIED

A conversion claim requires a plaintiff to allege a right to possession of property by plaintiff, defendant’s wrongful disposition that interferes with plaintiff’s possession, and damage. (PCO, Inc. v. Christensen, Miller, Fink Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.)

Trespass to chattel is “an occasional remedy for minor interferences, resulting in some damage, but not serious or sufficiently important to amount to the greater tort of conversion.” (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1351.)

Moving party Petrick asserts that both of these causes of action are based only on her theft of trade secrets and are therefore preempted by the Uniform Trade Secrets Act. ( K.C. Multimedia, Inc. (2009) 171 Cal.App.4th 939, 958)

However, the FACC alleges that Petrick stopped tracking inventory and even allowed an employee who had been caught stealing to remain employed. Furthermore, Petrick began trading Medimer inventory for work done at her personal home. (FACC ¶ 15)

These allegations regarding non-trade-secret assets taken from Medimer by Petrick are sufficient to support the tenth and eleventh causes of action. (Haigler v. Donnelly (1941) 18 Cal.2d 674, 681.)

The Court finds that sufficient non trade secret allegations have been alleged to support these causes of action.

Motion as to the 12th for Unfair Competition – California Business and Professions Code, sec. 17200 is DENIED.

As the Judgment on the Pleadings has been denied as to the underlying causes of action, this cause of action also states sufficient facts to constitute a cause of action.