Case Number: SC113407 Hearing Date: June 10, 2014 Dept: SEC

INNOVATION TOOLS S.A. de C.V. v. TURBO ION, INC.
CASE NO.: SC113407
HEARING: 06/10/14

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TENTATIVE ORDER

Cross-defendant INNOVATION TOOLS S.A.’s demurrer to the Second Amended Cross-Complaint (“SAXC”) is SUSTAINED WITH 20 DAYS LEAVE TO AMEND as to the 1st (breach of contract), 6th (intentional interference with contract), 7th and 8th (intentional and negligent interference with economic relations) causes of action; and OVERRULED as to the 2nd (breach of implied covenant) cause of action.

Cross-defendant HEE JINA CHON’s demurrer is OVERRULED as to the 3rd (breach of contract), 4th (breach of implied covenant) and 5th (breach of fiduciary duty) causes of action; and SUSTAINED WITH 20 DAYS LEAVE TO AMEND as to the 6th (intentional interference with contract) cause of action.

C.C.P. § 430.10(e), (f).

It appears that the 9th and 10th causes of action (unfair business practices) were intended to be dismissed by cross-complainant, as noted below.

In the opening remarks of the demurrers, cross-defendants argue the impropriety of the SAXC’s reference to alleged trademark rights. They also submit documents, of which they request judicial notice, regarding certain trademarks of the CROC and Green Ion names and applications for such protection. That evidence is superfluous to the issues presented by the demurrers, which is whether the pleading states a cause of action. The Court also declines to take judicial notice of deposition transcripts and the like. None of the claims are dependent on the existence of a trademark (although such issue is likely relevant to damages and other issues which will be litigated). Moreover, to the extent such references are objected to by cross-defendants, their remedy would have been a motion to strike those portions of the pleading.

The Court has reviewed the SAXC, and the arguments presented with respect to each cause of action alleged therein.

1st–breach of contract (against Innovation)
As alleged, cross-complainant entered into an exclusive distribution agreement with Innovation. SAXC, ¶7, Exh. C. Its claim for breached arises from several provisions of the agreement. ¶¶24-28.

Cross-defendant argues that the alleged breaches are inconsistent with the terms of the written contract. With respect to the alleged breach of section 3.1, it appears that the contract required Turbo Ion to supply product for distribution in Mexico only to Innovation, but does not state that Innovation is precluded from purchasing product from parties other than Turbo Ion. If cross-complainant is relying on something other than the plain language of the contract to support its claim related to section 3.1, that should be alleged. Leave to amend is granted.

With respect to the other alleged breached, cross-defendant argues that the SAXC does not contain sufficient facts. Cross-complainant failed to include details regarding Innovation’s alleged sale of products outside Mexico (¶25), failure to provide adequate lead time with respect to its orders (¶26), failure to timely pay (¶27) and divulging information to counterfeiters (¶28). While California is a “fact pleading” state, the Court finds the allegations–without reference to date or amount of damages—are insufficient to apprise cross-defendants of the factual basis for the alleged breaches. See e.g. McKell v. Washington Mut. Inc. (2006) 142 Cal.App.4th 1457.

2nd–breach of implied covenant (against Innovation)
Cross-complainant alleges that cross-defendant breached the implied covenant of good faith and fair dealing by negotiating a reduced pricing structure after former employee Chon disclosed confidential information related to the pricing and after the alleged interference with its customers occurred. SAXC, ¶24. Cross-defendant’s argument in demurrer relies solely on the purported failure of the breach of contract claim. The 2nd cause of action is based on a distinct theory which is not challenged in the moving papers. The demurrer to the breach of implied covenant cause of action is overruled.

3rd–breach of contract (against Chon)
Cross-defendant Chon entered into an employment agreement with cross-complainant Turbo Ion. SAXC, ¶10. It alleges that she breached the confidentiality provision. Exh. D., ¶8. Specifically, cross-complainant alleges that Chon assisted Innovation violate its exclusive distribution agreement and also divulged confidential information. ¶40.

Cross-defendant’s argument regarding the unenforceability of the non-compete provision of the agreement is not particularly relevant to the alleged breach. The Court has already determined the clause may likely be severed from the agreement. See Order, 04/17/14. Whether or not Innovation was entitled to purchase CROC-branded product from other sources, cross-complainant’s contention that Chon wrongfully assisted Innovation is actionable. The demurrer is overruled.

4th–breach of implied covenant (against Chon)
Cross-defendant alleges that Chon breached the implied covenant of good faith by interfering with its “right to receive the benefits” of the agreement. SACX, ¶47.
Cross-defendant proffered no viable argument as to the deficiency of the SAXC with respect to the 4th cause of action and the demurrer thereto is thus overruled.

5th–breach of fiduciary duty (against Chon)
The cause of action for breach of her fiduciary duty is based on Chon’s alleged role in assisting Innovation in violating the distribution agreement, as well as violating the confidentiality clause. SAXC, ¶51.

Cross-defendant argues that the facts regarding breach are insufficiently pled. It is unlikely that cross-complainant has in its possession specific facts regarding when certain disclosures were made. Moreover, the Court finds cross-defendant’s argument disingenuous insofar as the parties have engaged in extensive discovery on that issue, which was submitted as evidence with Chon’s prior motion for summary judgment. The demurrer is overruled.

6th–intentional interference with contractual relations (against Innovation and Chon)
This claim is based on cross-defendants’ alleged interference with the exclusive manufacturing agreements between cross-complainant Turbo Ion and Blue Ceramic. SAXC, ¶6, Exh. A (April 2006), B (October 2009). Turbo Ion contends that their interference forced it to purchase “CROC” branded products from other sources. ¶57.

Turbo Ion also alleges that Chon interfered with its distribution agreement with Innovation, by convincing Innovation to purchase product from other sources. ¶58.

Cross-defendants argue that the SAXC does not contain sufficient facts to support the elements of the claim. See Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26. While some of the facts may be inferred from the other allegations, as argued by cross-complainant, the Court finds that additional facts should be alleged to make clear the alleged wrongdoing and damages resulting therefrom. Leave to amend is granted.

7th–intentional interference with prospective economic advantage (against Innovation)
8th–negligent interference with prospective economic advantage (against Innovation)
In support these causes of action, cross-complainant alleges that Innovation directly interfered with certain vendors, causing it to lose an economic benefit. SAXC, ¶¶64, 70.

To properly assert an interference cause of action a plaintiff must allege an act which is independently wrongful. See Venhaus v. Shultz (2007) 155 Cal.App.4th 1072; Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134 (alleged conduct must be “wrongful by some legal measure other than the fact of interference itself.”). Although cross-complainant identified certain third party vendors, it did not set forth facts constituting disruption relied upon to support this claim. While there is some reference to supporting facts in other portions of the pleading, the claims are not entirely clear. The demurrer is sustained with leave to amend.

9th–unfair business practices (against Innovation)
10th–unfair competition (against Innovation and Chon)
The 9th cause of action references Business and Professions Code section 17200, but the 10th cause of action does not. Cross-defendants challenge both.

On May 15, 2014, cross-complainant filed a partial dismissal directed at the “12th cause of action for unfair business practices.” It is unclear whether cross-complainant intended to dismiss both the 9th and 10th causes of action. The point can be raised at the hearing (or an amended request for dismissal directed at the proper causes of action can be filed).