Case Name: Seagate Technology, LLC, et al. v. Goel, et al.
Case No.: 18CV328929

Plaintiffs/cross-defendants Seagate Technology LLC, Seagate Technology, Seagate Technology International and Seagate Singapore International Headquarters Pte. Ltd. (collectively, “Plaintiffs” or “Seagate”) demur to the First Amended Cross-Complaint (“FACC”) filed by defendant/cross-complainant Sys Information Technologies Pvt. Ltd. (“eSys India”) and moves to strike portions contained therein.

I. Background

A. Factual

The instant actions arise out of a purported failure to pay money owed pursuant to a settlement agreement. According to the allegations of the underlying complaint (“Complaint”), in or around June and July 2009, Plaintiffs and defendants Vikas Goel (“Goel”), eSys Technology Pte. Ltd. (“eSys Singapore”), eSys Distribution, Inc., eSys Technologies FZE, eSys Distribution FZE, eSys Distribution (Private) LTD., eSys Pakistan (Pvt.) Ltd, eSys India, eSys Global Holdings Limited and Rainforest Trading (“Rainforest”) (collectively, “Defendants”) entered into a written agreement entitled “Final Settlement Agreement and Mutual Release” (the “Settlement Agreement” or the “Agreement”) pursuant to which Defendants were required to make payments to Plaintiffs.1 (Complaint, ¶ 18, Exhibit A.)

On June 11, 2014, Plaintiffs demanded defendant eSys Singapore make its payments to Seagate Technology International pursuant to the Agreement. (Complaint, ¶ 19.) eSys Singapore failed to do so and, as a result, failed to perform its obligations under the contract. (Id.) On June 23 and July 14, 2014, Plaintiffs sent Certificates of Debt to Rainforest, the guarantor of the debt pursuant to the Agreement and the two corresponding Deeds of Guarantee. (Id., ¶ 20.) Plaintiffs also subsequently sent several demand letters to Rainforest for it to satisfy eSys Singapore’s debt, as well as to Goel to satisfy eSys Singapore and Rainforest’s debts as required by the Agreement and the five corresponding Deeds of Guarantees. (Id., ¶¶ 21-24.) These letters failed to compel Defendants to pay the sums owed. (Id.)

Consequently, Plaintiffs filed their Complaint on May 31, 2018 asserting a single claim for breach of contract. Approximately three months later, on August 20, 2018, eSys India filed a cross-complaint (“Cross-Complaint”) against Plaintiffs for (1) breach of contract and (2) declaratory judgment. The Cross-Complaint was predicated on allegations that the purpose of the Agreement was to settle and resolve all claims that the parties had made or could make against one another and, pursuant to the Agreement, Plaintiffs released eSys India from any and all claims, known or unknown, related to or arising out of the subject matter of the Agreement (the so-called “Seagate-eSys Cases”). The Cross-Complaint further alleged that Plaintiffs agreed that they would not institute any action of any kind against eSys India, including any claims “within the scope of, arises out of, or regarding the Released Claims,” and breached this Agreement by bringing the underlying action.

B. Procedural

In January 2019, Seagate filed a motion for judgment on the pleadings as to the Cross-Complaint in its entirety and both of the claims asserted therein. In April 2019, the Court granted the motion without leave to amend as to the first cause of action for breach of contract and granted the motion with leave to amend as to the second cause of action for declaratory relief. The Court concluded that eSys India had not and could not state a claim for breach of contract predicated on Seagate’s lawsuit because the express language of the Agreement, particularly that contained in paragraph 20, clearly established that there was no release relative to claims to enforce the Agreement’s terms. The Court further found that no claim for declaratory relief had been stated because portions of the claim were predicted on eSys India’s incorrect contention that the filing of the underlying complaint by Seagate breached the Agreement and the remaining item for which a declaration of rights was sought related to a past wrong rather than a present, ongoing controversy as required.

On May 10, 2019, eSys India filed the operative FACC, again asserting two causes of action, this time for (1) violation of unfair competition law (Bus. & Prof. Code, § 17200) (the “UCL”) and (2) declaratory relief. On June 10, 2019, Seagate filed the instant demurrer to the FACC and the claims asserted therein on the grounds of failure to state facts sufficient to constitute a cause of action and that the Court lacks jurisdiction over the subject matter. (Code Civ. Proc., § 430.10, subds. (a) and (e).) Seagate also filed the motion to strike portions of the FACC. eSys India opposes both motions.

II. Seagate’s Motion to Strike

With the instant motion, Seagate move to strike the first and second causes of action in their entirety, and all allegations in support thereof, on the grounds that they do not conform to the laws of the state and the Court’s order, and plead matters barred by the applicable statute of limitations. They also move to strike eSys India’s request for attorney’s fees.

A. Conformance to Prior Court Order

Seagate first maintain that the FACC fails to conform to a prior order issued by the Court, particularly its order on Seagate’s motion for judgment on the pleadings relative to first cause of action of the Cross-Complaint. Seagate argue that eSys India has impermissibly added a new cause of action to its pleading, the UCL claim, which directly contravenes the preceding order and the scope of permissible amendment.

As a general matter, when a demurrer or motion for judgment on the pleadings is sustained or granted with leave to amend, the leave must be construed as permission to the pleader to amend the causes of action to which the particular motion has been sustained, and not to add entirely new causes of action. (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015.) Seagate contend that the UCL claim asserted in the FACC is an entirely new cause of action and should therefore be stricken from the pleading. The UCL claim is predicated on allegations that Seagate engaged in the following unfair and/or unlawful business practices: evasion of Indian taxes, sales of goods to Iran, misappropriation of eSys India’s trade secrets, and leveraging Seagate’s size to prevent eSys India from securing financial support. (FACC, ¶ 52.)

However, the addition of a new cause of action may be proper when it “directly responds to the court’s reason for sustaining the earlier demurrer.” (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015.) In its prior order dated June 10, 2019 regarding written discovery between the parties, the Court rejected Seagate’s assertion that the FACC is not a viable pleading, explaining that the UCL claim “directly responds to the Court’s April 10 order, and thus is permitted.” As the Court has already rejected Seagate’s argument, it will not strike the first cause of action from the FACC.

B. Statute of Limitations

Seagate next take issue with portions of the FACC, arguing that they describe conduct that falls outside of the applicable statutes of limitation and should therefore be stricken. There are a few issues with Plaintiffs’ assertion. First, Plaintiffs do not specify the exact portions of the FACC that they wish to have stricken, instead generally stating that the Court should strike all allegations “pertaining to the years between 2006 and May 2015.” (Seagate Memo. at 9:25-26.) Importantly, “[a] notice of motion to strike a portion of a pleading must quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action ….” (Cal. Rules of Court, Rule 3.1322.) Seagate have not specified the portions they wish to strike, and the Court will not parse them out of the FACC for them.

Second, even if Seagate are correct that some of the conduct alleged is outside of the applicable statutes of limitations and therefore not actionable, allegations regarding that conduct may still be relevant to eSys India’s causes of action, particularly the claim for declaratory relief. Thus, the Court will not strike portions of the FACC based on Seagate’s contention that they address conduct outside the statute of limitations.

C. Attorney’s Fees

Finally, Seagate move to strike eSys India’s request for attorney’s fees, arguing that there is no basis which entitles eSys India to recover such damages.

Under California law, attorney’s fees are not recoverable unless authorized by contract, statute, or law. (Code Civ. Proc., § 1021; Trope v. Katz (1995) 11 Cal.4th 274, 279.) Here, eSys India requests attorney’s fees “pursuant to the Settlement Agreement, Code of Civil Procedure § 1021.5, or other authority ….” (FACC, Prayer at ¶ 5.) Seagate argues that no provision in the Settlement Agreement supports eSys India’s theory of entitlement to attorney’s fees, with the relevant portion of the Agreement providing as follows:

COSTS. Each of the Parties to this Final Settlement Agreement shall bear all of its own costs, expenses and legal fees incurred by it in connection with any Released Claims including, but not limited to, any costs, expenses and legal fees arising from the Seagate-eSys Cases and the drafting and execution of this Final Settlement Agreement. Notwithstanding this provision, the prevailing party in any action to enforce the Final Settlement Documents pursuant to paragraph 31 above will be entitled to recover its attorneys’ fees and costs.

(Settlement Agreement, p. 22, ¶ 36 [emphasis added].)

eSys India persuasively responds that it is permitted to request fees pursuant to Civil Code section 1717’s (“Section 1717”) mutuality requirement. “In the absence of a statute authorizing the recovery of attorney fees, the parties may agree on whether and how to allocate attorney fees. They may agree the prevailing party will be awarded all the attorney fees incurred in any litigation between them, limit the recovery of fees only to claims arising from certain transactions or events, or award them only on certain types of claims. [¶] To ensure mutuality of remedy, however, [S]ection 1717 makes an attorney fee provision reciprocal even if it would otherwise be unilateral by its terms or in its effect.” (Brown Bark III, L.P. v. Haver (2013) 219 Cal.App.4th 809, 818-819 [internal citations and quotations omitted][emphasis added].) In an action on a contract providing for an award of attorney fees, Section 1717 entitles the prevailing party to attorney fees, “even when the party prevails on the ground that the contract is inapplicable, invalid, unenforceable, or nonexistent, if the other party would have been entitled to attorney fees had it prevailed.” (Yuba Cypress Housing Partners, Ltd. v. Area Developers (2002) 98 Cal.App.4th 1077, 1081.)

Here, there is no question, based on the express language of the Settlement Agreement, that Seagate would be entitled to recover attorney’s fees if it prevails in the underlying action. In its cross-action, particularly the claim for declaratory relief, eSys India is indeed contending that portions of the Settlement Agreement are unenforceable or invalid. (See FACC, ¶ 62.) Thus, it follows, based on the authorities cited above and the language of Section 1717, that eSys India would also be able to recover attorney’s fees if it prevails on its own claims. Accordingly, there is no basis to strike eSys India’s request for attorney fees.

In accordance with the foregoing analysis, Seagate’s motion to strike is DENIED.

III. Seagate’s Demurrer

Plaintiffs demur to both of the claims asserted in the FACC, arguing that neither claim is sufficiently pleaded and eSys India should be denied leave to amend.

A. Violation of the UCL (First Cause of Action)

The UCL bans unfair business practices (Bus. & Prof. Code, § 17200) and authorizes injunctive and restitutionary relief against “[a]ny person who engages … in unfair competition.” (Bus. & Prof. Code, § 17203.) As set forth above in the discussion regarding Seagate’s motion to strike, the thrust of eSys India’s UCL claim is that Seagate engaged in the following unfair and/or unlawful business practices: evasion of Indian taxes, sales of goods to Iran, misappropriation of eSys India’s trade secrets, and leveraging Seagate’s size to prevent eSys India from securing financial support. (FACC, ¶ 52.)

Seagate maintain that this claim fails as a matter of law because it is predicated on conduct that occurred outside of the state of California and there is no extraterritorial application of the UCL, i.e., the statute does not apply to practices and conduct that occurred outside of the state’s borders. They further assert that the claim fails because eSys India has not pleaded that is suffered any actual harm or injury as a result of Seagate’s alleged misconduct.

1. Extraterritorial Application of the UCL

Generally, courts presume that the Legislature did not intend California statutes to “have force or operation beyond the boundaries of the state.” (Norwest Mortgage, Inc. v. Superior Court (1999) 72 Cal.App.4th 214, 222; see also People v. One 1953 Ford Victoria (1957) 48 Cal.2d 595, 598-599.) Thus, a court will not construe a statute as regulating occurrences outside of the state “unless a contrary intention is clearly expressed or reasonably can be inferred from the language or purpose of the statute.” (Norwest Mortgage, Inc., supra, 72 Cal.App.4th at 222.) The UCL itself “contains no express declaration that it was designed or intended to regulate claims of nonresidents arising from conduct occurring entirely outside of California” and the appellate court tasked with addressing this issue in Norwest Mortgage, Inc. v. Superior Court held, after undertaking a review of the language and legislative history of the statute, that the UCL was not intended to regulate conduct occurring outside of the state.

Seagate assert that applying the foregoing here means that the demurrer to the UCL cause of action must be sustained because “not a single act [alleged by eSys India] in support of its first cause of action is alleged to have occurred in California.” (Seagate Memo. at 11:3-4.) eSys India does not dispute that as a general matter the UCL has no extraterritorial application, but maintains that it applies here given its allegation that it is informed and believes, “based upon the location of Seagate’s headquarters in California, the location of Seagate’s top executives in California, and eSys India’s knowledge of Seagate’s past business practices, that Seagate’s decision to engage in each of these unfair or unlawful business practices was directed from and/or occurred in California.” (FACC, ¶ 53 [emphasis added].) As it has alleged that Seagate’s conduct originate in California, it explains, the UCL applies even though the harm occurred outside of the state.

In its reply, Seagate argue that eSys India has failed to allege that unlawful conduct occurred in California because (1) its conclusory allegations are insufficient to state a claim and (2) even if the allegations are sufficiently pled, the existence of decision-making at a headquarters in California does not constitute unlawful conduct in the state. In support of the first argument, Seagate direct the Court’s attention to Warner v. Tinder, Inc. (C.D. Cal. 2015) 105 F.Supp.3d 1083. Warner involved a putative class action against the cell phone dating application Tinder for violation of various federal and California statutes, including the UCL, based on Tinder’s pricing scheme for application subscriptions. While the court ultimately dismissed the UCL claim for other reasons, it observed that the claim also failed for the more “fundamental” reason that the statute did not apply to extraterritorial conduct, and the plaintiff had failed to adequately allege (i.e., with supporting facts) whether decisions concerning the defendant’s business practices and advertising emanated from California. The court noted that other courts had rejected the general allegation that decisions relating to the allegedly unlawful practices and policies were made in California as too conclusory and insufficient without more to support a UCL claim. (Warner, 105 F.Supp.3d at 1096-1097.) The court additionally observed that allegations by the plaintiff that Tinder was incorporated in California and had its principal place of business there, without supporting facts demonstrating that decisions concerning Tinder’s business practices were actually made in the state, were insufficient to state a UCL claim.

Here, the Court finds persuasive Plaintiffs’ contention that eSys India’s conclusory allegation that Seagate’s decision to engage in purportedly unfair or unlawful conduct within the meaning of the UCL occurred in California is insufficient to state a claim under that statute. eSys India has not pleaded actual facts demonstrating as much and this is fatal to the claim, especially as it is undisputed that the aforementioned acts and alleged resulting harm occurred outside of California. In order to assert a UCL claim, the connection between Seagate’s purported conduct and California must be more then tenuous.

The Court is not persuaded by Plaintiff’s second argument, however. The sole case cited by Seagate in support of its assertion that the existence of decision-making at a headquarters in California does not constitute unlawful conduct in the state, Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191, 1207, is distinguishable. Although that case also involved a UCL claim, the wrongful conduct at issue, the misclassification of an employee by an employer, was deemed “not unlawful in the abstract” by the court, with the actual unlawful and liability creating conduct occurring outside of the state when the employer failed to pay the overtime due. Here, in contract, the practices alleged to have been decided/determined in California in the FACC are not unlawful in the abstract in the vein of the labor misclassification in Sullivan.

Given the dearth of facts establishing that Seagate committed unlawful conduct within California, eSys India has not sufficiently stated a UCL claim against Plaintiffs and the first cause of action is demurrable on this basis.

2. Standing

Seagate’s remaining argument with respect to the UCL claim, that eSys India has not pleaded that is suffered actual harm as a result of the alleged unlawful or unfair business practices, is one that pertains to the issue of standing to assert such a cause of action. In order to be able to state a UCL claim, a plaintiff must plead facts demonstrating that he or she “has suffered injury in fact and has lost money or property as a result” of the purportedly wrongful conduct at issue. (In re Tobacco II Cases (2009) 46 Cal.4th298, 325, citing Bus. & Prof. § 17204 [emphasis added].) The “as a result” language of the statute means that there must be a causal connection between the economic injury and the alleged unfair conduct. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 326.) An “injury in fact is an actual or imminent invasion of a legally protected interest, in contract to an invasion that is conjectural or hypothetical.” (Hall v. Time (2008) 158 Cal.App.4th 847, 853 [internal quotations omitted].)

Here, eSys India alleges that it suffered from the conduct at issue in the following ways:

 As to Seagate’s alleged evasion of India taxes: it placed eSys India at a competitive disadvantage as Seagate reaped unlawful profits which provided it with financial resources that the company (and others) cannot access (FAC, ¶ 43);
 As to Seagate’s alleged sale of products into Iran: it placed eSys India at a competitive disadvantage in product sales (FACC, ¶ 48);
 As to Seagate’s alleged misappropriation or use of eSys India’s trade secrets: no specific injury is identified in connection with the alleged misappropriation- the use of eSys India’s customer list; and
 As to Seagate’s use of its size to prevent eSys India from securing financial support in India: eSys India is prevented from obtaining loans, lines of credit and other financial support to remain competitive (FACC, ¶ 45).

Seagate maintain that the foregoing allegations are insufficient to establish standing because its assertions regarding injuries suffered are based on conjecture and hypotheticals. The Court agrees. The causal connection between Seagate’s alleged conduct and the injury purportedly sustained by eSys India in the form of a “competitive disadvantage” is illusory and speculative absent any facts pleaded demonstrating an actual loss in money or property as a result of Seagate’s actions in India and Iran. In making these allegations, eSys India presumes that it would have been able to meet certain sales targets and reap financial rewards absent Seagate’s conduct. Without more detail than what is currently pleaded, this is speculative at best. Thus, the UCL claim is also demurrable based on eSys India’s failure to plead facts establishing that it has standing to maintain the claim.

In accordance with the foregoing, Seagate’s demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.
B. Declaratory Relief (Second Cause of Action)

In the second cause of action, eSys India alleges that an actual controversy exists between the parties concerning their contractual obligations relating to eSys India’s desire to disclose certain information. (FACC, ¶ 65.) Therefore, eSys India seeks a declaration from this Court that “Articles 23 and 25 of the Settlement Agreement are void and unenforceable to the extent they purport to prevent eSys India from disclosing to the public and/or appropriate government agencies evidence regarding illegal conduct of Seagate and its officers either in the form of the evidence existing as of the date of the Settlement Agreement and as discussed in the IFFC Report, or evidence of such conduct taking place after the Settlement Agreement.” (FACC, ¶ 66.)

Seagate argue that no claim for declaratory relief has been stated because the cause of action is “wholly derivative” of the non-viable UCL claim and there is no present, ongoing controversy as to the matter eSys India seeks a declaration in regards to. This is because, Seagate continue, eSys India fails to plead how Articles 23 and 25 of the Settlement Agreement (standard confidentiality provisions) should be rendered void and no provisions in the Agreement purport to exempt Seagate, or any other party, from responsibility for illegal conduct. Seagate maintain that Paragraph 31 of the Settlement Agreement prevents eSys India from attacking the agreement in the way it now seeks to in providing as follows:

ENFORCEABILITY: The Parties agree not to contest the legality and/or enforceability of the Settlement Documents and hereby acknowledge and intentionally waive all defenses to the legality and/or enforcement of the Settlement Documents to the extent fully permitted by law.

(Settlement Agreement, ¶ 31.)

Seagate’s second argument is well taken. No actual and present controversy has been alleged with eSys India failing to articulate why the Articles its seeks to have declared void in the Settlement Agreement that it negotiated and agreed to should in fact be. Critically, eSys India does not address the import of Paragraph 31 of the Settlement Agreement on its request for what amounts to a declaration of enforceability of certain provisions, despite agreeing to what amounts to a waiver of the right to make such a request. As eSys India has already had a prior opportunity to amend this claim and still failed to adequately state a cause of action, Seagate’s demurrer to the second cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

C. Jurisdiction

Seagate’s remaining argument, that this Court lacks jurisdiction over the claims of the FACC because they are predicated on conduct that occurred outside of California, and in fact, outside of the country, can easily be disposed of.

When a party demurs on this basis, the challenge is to the court’s power to grant relief, and the demurrer lies only where it appears from the face of the complaint that the court is not competent to act. (Buss v. J.O. Martin Co. (1966) 241 Cal.App.2d 123, 133.) There are very few cases in which a superior court lacks subject matter jurisdiction, and Plaintiffs fail to establish that this is one of them. To the extent that Plaintiffs maintain that this Court lacks jurisdiction because eSys India’s claims are predicated on extraterritorial conduct, this is really an argument regarding whether a viable claim has been stated under California law and not whether the Court has the power to make that determination in the first place. Consequently, Seagate’s demurrer to the FACC on this basis is OVERRULED.