BBBB Bonding Corporation v. Ashley Pilling-Miller, et al. CASE NO. 17CV318613
DATE: 5 March 2020 TIME: 9:00 am LINE NUMBER: 1

This matter will be heard by the Honorable Judge Socrates Peter Manoukian in Department 20 in the Old Courthouse, 2nd Floor, 161 North First Street, San Jose. Any party opposing the tentative ruling must call Department 20 at 408.808.6856 and the opposing party no later than 4:00 PM on 4 March 2020. Please specify the issue to be contested when calling the Court and Counsel.

ORDER ON DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT OR, ALTERNATIVELY, SUMMARY ADJUDICATION

I. Statement of Facts.

Plaintiff BBBB Bonding Corporation (“Bad Boys”) is a leading company in the provision of bail bonds in Northern and Southern California. (First Amended Complaint (“FAC”), ¶8.) Bad Boys experienced a constant surge of growth due to its innovative marketing techniques which include the creation and use of a confidential list of attorneys who refer clients to Bad Boys based on Bad Boys’ high level of service and professionalism. (Id.)

Bad Boys employed defendant Ashley Pilling-Miller (“Miller”) from 12 November 2013 until her resignation on or about 26 June 2017. (FAC, ¶9.) Bad Boys employed defendant Ryan Leary (“Leary”) from at least 2010 until his resignation on or about 26 June 2017. (Id.) While employed at Bad Boys, defendants Miller and Leary had access to Bad Boys’ proprietary information and trade secrets including, but not limited to, the confidential list of referring attorneys (“Confidential Information”). (FAC, ¶¶9 – 11.) In recognition of this fact, defendants Miller and Leary each signed a confidentiality agreement. (FAC, ¶12.)

On or about 16 June 2017, defendants Miller and Leary, while still employed with Bad Boys, signed employment agreements to work as bail agents with defendant Premiere Bail Bonds, Inc. (“Premiere”). (FAC, ¶13.) At the time defendants Miller and Leary signed employment agreements with Premiere, Premiere had no business presence and had not sold any bail bonds in Northern California. (FAC, ¶14.) Premiere sought and hired defendants Miller and Leary to exploit their knowledge of Bad Boys’ trade secrets to start a bail bond business in Northern California. (Id.)

Defendant Miller, with defendants Leary and Premiere’s knowledge, consent, and aid, misappropriated Bad Boys’ trade secrets by, among other things, taking and sharing Bad Boys’ Confidential Information/ trade secrets. (FAC, ¶¶16 – 19.) As a result of defendants’ acts, Bad Boys has suffered damages and lost revenue. (FAC, ¶¶21, 26, 27.)

On 3 November 2017 , plaintiff Bad Boys filed a complaint against defendant Miller asserting causes of action for:

(1) Violation of the Uniform Trade Secrets Act
(2)
(3) Conversion
(4)
(5) Intentional Interference with Prospective Business Advantage
(6)
(7) Violation of Labor Code §2860
(8)
(9) Violation of Labor Code §§2854, 2865
(10)
(11) Unlawful, Unfair, and Fraudulent Competition Under California Business & Professions Code §17200, et seq.
(12)
(13) Breach of Contract
(14)
(15) Breach of Fiduciary Duty
(16)
(17) Violation of Federal Computer Fraud and Abuse Act (18 U.S.C. §§1030(a)(2)(C) & (a)(4) & (a)(5))
(18)
(19) Violation of Computer Data Access and Fraud Act (Cal. Penal Code §502)
(20)
On 21 December 2017, defendant Miller filed a demurrer to the first, fifth, and ninth causes of action in plaintiff Bad Boys’ complaint.

On 1 March 2018, the court issued an order overruling defendant Miller’s demurrer to the first cause of action, but sustaining, with leave to amend, defendant Miller’s demurrer to the fifth and ninth causes of action.

Plaintiff Bad Boys did not amend its complaint and on 2 April 2018, defendant Miller filed an answer to plaintiff Bad Boys’ complaint.

On 28 June 2019, Bad Boys filed amendments substituting defendants Leary and Premiere for Doe defendants.

On 10 September 2019, the court granted plaintiff Bad Boys’ motion for leave to file an amended complaint.

On 10 September 2019, plaintiff Bad Boys filed the operative FAC which asserts causes of action for:

(1) Violation of the Uniform Trade Secrets Act
(2)
(3) Conversion
(4)
(5) Intentional Interference with Prospective Business Advantage
(6)
(7) Violation of Labor Code §2860
(8)
(9) Violation of Business & Professions Code §17200, et seq.
(10)
(11) Breach of Contract
(12)
(13) Breach of Fiduciary Duty
(14)
(15) Violation of Computer Data Access and Fraud Act (Cal. Penal Code §502)
(16)
On 16 December 2019, defendants Miller, Leary, and Premiere (collectively, “Defendants”) filed the motion now before the court, a motion for summary judgment/ adjudication of plaintiff Bad Boys’ claims.

II. Analysis.

A. Defendants’ motion for summary judgment/ adjudication of the first cause of action for violation of the Uniform Trade Secrets Act is DENIED.
B.
Civil Code section 3426.1, subdivision (b) defines misappropriation of trade secret as follows:

“Misappropriation” means:

(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(A) Used improper means to acquire knowledge of the trade secret; or

(B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was:

(i) Derived from or through a person who had utilized improper means to acquire it;

(ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

“A trade secret is misappropriated if a person (1) acquires a trade secret knowing or having reason to know that the trade secret has been acquired by ‘improper means,’ (2) discloses or uses a trade secret the person has acquired by ‘improper means’ or in violation of a nondisclosure obligation, (3) discloses or uses a trade secret the person knew or should have known was derived from another who had acquired it by improper means or who had a nondisclosure obligation or (4) discloses or uses a trade secret after learning that it is a trade secret but before a material change of position.” (Ajaxo Inc. v. E*Trade Group Inc. (2005) 135 Cal.App.4th 21, 66; see also CACI, No. 4401.)

“A cause of action for monetary relief under CUTSA may be said to consist of the following elements: (1) possession by the plaintiff of a trade secret; (2) the defendant’s misappropriation of the trade secret, meaning its wrongful acquisition, disclosure, or use; and (3) resulting or threatened injury to the plaintiff. The first of these elements is typically the most important, in the sense that until the content and nature of the claimed secret is ascertained, it will likely be impossible to intelligibly analyze the remaining issues.” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 220 (Silvaco), internal citations omitted.)

1. Identification of trade secret with reasonable particularity.
2.
Code of Civil Procedure section 2019.210 states, “In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act …, before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code.” Code of Civil Procedure section 2019.210 creates a preliminary hurdle in the discovery process for a party alleging trade secret misappropriation. The legislature intended Code of Civil Procedure section 2019.210 to codify the rule stated in Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244 (Diodes).

In Diodes, the court held that a plaintiff alleging misappropriation of a trade secret “should describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.” (Diodes, supra, 260 Cal.App.2d at p. 253.) The main purpose of the rule is “to give both the court and the defendant reasonable notice of the issues which must be met at the time of trial and to provide reasonable guidance in ascertaining the scope of appropriate discovery.” (Id.) Although Code of Civil Procedure section 2019.210 does not require plaintiff to “spell out the details of the trade secret,” it does require that plaintiff do more than allege in conclusory fashion that he has a trade secret. (Id. at p. 252.)

Defendants contend plaintiff Bad Boys has not identified its trade secret with reasonable particularity. Here, plaintiff Bad Boys identified its trade secret pursuant to Code of Civil Procedure section 2019.210 as follows:

1) Plaintiff’s non-public, confidential and proprietary compilation of information developed over a period of years, of names, addresses, records, and other contact information of referring attorneys and vendors who refer clients to Plaintiff and conduct business with Plaintiff, together with details about the amount and types of business generated by referring attorneys, their business preferences, and the promotional efforts and expenditures involved in maintaining relationships with referring attorneys.
2)
3) Plaintiff’s non-public, confidential and proprietary information containing bail bond rates and other confidential financial and pricing information for Plaintiff’s business, which is unique to Plaintiff’s business and clientele and is generally not known to the industry.
4)
5) Plaintiff’s non-public, confidential and proprietary forms, document templates, plans, email lists, instructions, policies, and strategies.
6)
Defendants contend this identification is too generic and, consequently, plaintiff Bad Boys’ first cause of action (and entire FAC) is subject to summary judgment/ adjudication. Defendants’ reliance on Imax Corp. v. Cinema Technologies, Inc. (9th Cir. 1998) 152 F.3d 1161 (Imax) is somewhat misplaced. Imax did not involve customer lists and instead involved technology relating to large format motion picture projectors. Indeed, the Imax court upheld a federal trial court decision granting summary judgment of a trade secret misappropriation claim, but did so because the plaintiff’s failure to identify the trade secret with reasonable particularity in response to the defendant’s interrogatory served as the basis for an evidentiary sanction against plaintiff.

We further note that because Imax’s trade secrets claim involves a sophisticated and highly complex projector system, it is unlikely that the district court or any trier of fact would have expertise in discerning exactly which of the projector system’s many “dimensions and tolerances” were trade secrets. Moreover, CTI could not be expected to prepare its rebuttal to Imax’s trade secrets claim without some concrete identification of exactly which “dimensions and tolerances” Imax alleged were incorporated into CTI’s own projector system.

We therefore hold that Imax’s Fourth Supplemental Responses failed to indicate precisely which dimensions and tolerances were trade secrets. Under these facts, reasonable specificity could only be achieved by identifying the precise numerical dimensions and tolerances as trade secrets.

…

Although Imax submitted the precise numerical dimensions and tolerances in its Fifth Supplemental Responses, the district court found those responses to be a “violation of the discovery orders of Magistrate Judge Infante.”

(Imax, supra, 152 F.3d at pp. 1167 – 1168.)

Here, on the other hand, we are dealing with, among other things, customer lists. Additionally, unlike Imax, there is no evidence that this court has issued an evidentiary sanction which would preclude plaintiff Bad Boys from properly identifying its trade secret.

Numerous courts have concluded customer lists can qualify for trade secret protection. (See Gordon v. Landau (1958) 49 Cal.2d 690, 321 P.2d 456; Gordon v. Schwartz (1956) 147 Cal.App.2d 213, 305 P.2d 117; Gordon v. Wasserman (1957) 153 Cal.App.2d 328, 314 P.2d 759.) Although “courts are reluctant to protect customer lists to the extent they embody information … ‘readily ascertainable’ through public sources, such as business directories … where the employer has expended time and effort identifying customers with particular needs or characteristics, courts will prohibit former employees from using this information to capture a share of the market. Such lists are to be distinguished from mere identities and locations of customers where anyone could easily identify the entities as potential customers.” (Morlife Inc. v. Perry, supra, 56 Cal.App.4th at pp. 1521–1522, 66 Cal.Rptr.2d 731.)

(The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, 1238.)

Here, Bad Boys’ identification of its trade secret goes beyond the mere identification and location of customers but also includes “details about the amount and types of business generated by referring attorneys, their business preferences, and the promotional efforts and expenditures involved in maintaining relationships with referring attorneys.” Since Bad Boys’ identification includes the “particular needs or characteristics” of its customers, Bad Boys has provided more than just a generic identification of its trade secret(s).

3. Trade secret.
4.
Defendants argue next that the allegedly trade secret information does not actually constitute trade secret. Civil Code section 3426.1, subdivision (d) defines “Trade secret” to mean “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Emphasis added.)

Defendants rely, in part, upon American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1326 (American Paper) for the proposition that information is not trade secret if it is known or readily ascertainable from trade directories, telephone books, and other sources which list the names of potential customers. However, the reasoning in American Paper was rejected by the court in Abba Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 21 (Abba Rubber), which explained, “our Legislature chose to exclude from the definition only that information which the industry already knows, as opposed to that which the industry could easily discover. Therefore, under California law, information can be a trade secret even though it is readily ascertainable, so long as it has not yet been ascertained by others in the industry. Accordingly, we decline to follow American Paper & Packaging Products, Inc. v. Kirgan, supra, to the extent that it suggests that information is not protectable as a trade secret if it is ‘known or readily ascertainable’ [Citation. Footnote.].”

The Abba Rubber court did acknowledge:

While ease of ascertainability is irrelevant to the definition of a trade secret, “the assertion that a matter is readily ascertainable by proper means remains available as a defense to a claim of misappropriation.” (Legis. committee com., West’s Ann.Civ.Code, § 3426.1 (1991 pocket supp.) p. 111.) Therefore, if the defendants can convince the finder of fact at trial (1) that “it is a virtual certainty that anyone who manufactures” certain types of products uses rubber rollers, (2) that the manufacturers of those products are easily identifiable, and (3) that the defendants’ knowledge of the plaintiff’s customers resulted from that identification process and not from the plaintiff’s records, then the defendants may establish a defense to the misappropriation claim. That defense, however, will be based upon an absence of misappropriation, rather than the absence of a trade secret.

(Abba Rubber, supra, 235 Cal.App.3d 1, 21, fn. 9.)

Defendants proffer evidence that the purported trade secret information is readily ascertainable by proper means. Specifically, Defendants proffer evidence that there is nothing secret or proprietary about the fact that bail bond companies target the same market—i.e., people who need bail and criminal defense lawyers who occasionally refer bail. The identities and contact information for local criminal defense attorneys is readily accessible through basic internet and public directory searches. By running easy searches through internet and public directories, defendants Leary and Miller and others worked to create an original attorney contact list shortly after joining defendant Premiere. Defendant Premiere’s third-party business partner—which provides car insurance to individuals with DUI/DWI convictions—also provided an extensive list of Northern California attorney contact information from its own database to defendant Premiere before defendants Leary and Miller were even hired by defendant Premiere.

In opposition, plaintiff Bad Boys contends trade secret protection extends to customer lists despite the fact that the names of criminal defense attorneys can be found in public directories particularly where efforts are made to identify which of those criminal defense attorneys are more likely to refer clients to plaintiff Bad Boys. Plaintiff Bad Boys cites Courtesy Temporary Service, Inc. v. Camacho (1990) 222 Cal.App.3d 1278, 1287–1288 where the court explained:

A list of customers or subscribers “built up by ingenuity, time, labor and expense of the owner over a period of many years is property of the employer,” and “ ‘[k]nowledge of such a list, acquired by an employee by reason of his employment, may not be used by the employee as his own property or to his employer’s prejudice.’ ” (Greenly v. Cooper (1978) 77 Cal.App.3d 382, 392 [143 Cal.Rptr. 514].) Employees, by appropriating only those customers who, after Courtesy’s efforts, chose to patronize Courtesy and saving themselves comparable efforts in screening those entities who declined Courtesy’s patronage, have acquired commercially invaluable information.

This concept of “negative” research was emphasized in the case of Hollingsworth Solderless Terminal Co. v. Turley (9th Cir. 1980) 622 F.2d 1324. If a customer list is acquired by lengthy and expensive efforts which, from a negative viewpoint, indicate those entities that have not subscribed to plaintiff’s services, it deserves protection as a “trade secret” under the act. According to Hollingsworth, even if the customers’ names could be found in telephone or trade directories, such public sources “ ‘would not disclose the persons who ultimately made up the list of plaintiff’s customers.’ ” (Id. at p. 1333.) It is the list of persons who actually purchase Courtesy’s services that constitute confidential information.

Plaintiff Bad Boys submits evidence contradicting Defendants’ assertion that the purported customer list is readily ascertainable. Specifically, Bad Boys earns a substantial amount of its revenue from criminal defense attorney referrals, who refer their clients to obtain bail from Bad Boys. The information that Bad Boys has collected regarding its referring attorneys has taken Bad Boys over 20 years to compile and is incredibly valuable because of the time and expense it has taken to gather this information and the fact that the attorney list does not exist in a publicly available form. George Wallace was the initial creator of Bad Boys’ attorney list and has spent many, many hours working on and maintaining it. To generate its attorney list, Bad Boys devised and implemented a creative marketing technique to identify a list of the most profitable referring attorneys, which was implemented over a period of 20 years. Specifically, Bad Boys obtains attorney business cards and places them on a physical board in each of its offices. A client who needs bail is invited to take any business card from that board. Bad Boys meticulously monitors and tracks each and every card that it taken as well as the identity of the client who takes the card. Bad Boys’ marketing executive follows up with the attorneys listed on those retrieved cards and attempts to develop and maintain Bad Boys’ relationship with each attorney. Bad Boys keeps primarily those attorneys on their list if the attorney refers clients who are profitable to Bad Boys or demonstrates a willingness to refer clients to Bad Boys in the future. The attorney list is continually updated based on criteria that Bad Boys looks at such as an assessment of Bad Boys’ relationship with each particular attorney and Bad Boys’ understanding of the attorney’s needs. The list of attorneys reflects attorneys with whom Bad Boys has built a relationship with and/or who have referred clients to Bad Boys who have generated revenue for Bad Boys. The list reflects those attorneys who have already showed a willingness and are more inclined to refer their clients to Bad Boys. Although there may be a public directory of criminal attorneys, not all attorneys will refer clients that will generate revenue for Bad Boys. Knowing which referring attorneys, out of the thousands of criminal defense attorneys in the area, have historically generated higher revenue from client referrals is very valuable because it helps Bad Boys focus its marketing efforts on those attorneys.

Thus, there is conflicting evidence with regard to whether the purported trade secret attorney list consists of information that is not generally known to the public or readily ascertainable. Consequently, a triable issue of material fact exists which would preclude summary adjudication. In light of this finding, the court need not address whether Bad Boys’ bail bond rates/ pricing, forms, document templates, plans, email lists, instructions, policies, and strategies constitute trade secret.

5. Misappropriation.
6.
Defendants’ next argument in support of summary adjudication of the first cause of action is that defendants did not engage in misappropriation as defined by Civil Code section 3426.1. Defendants contends they did not (1) acquire the purported trade secrets through improper means and (2) did not disclose or use the purported trade secrets without consent and having acquired knowledge of the trade secret under circumstances giving rise to a duty to maintain its secrecy or limit its use.

Civil Code section 3426.1, subdivision (a) defines “improper means” to “include[] theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Reverse engineering or independent derivation alone shall not be considered improper means.”

a. Acquired.
b.
Defendants contend they did not take, share, or use Bad Boys’ information in connection with their work at Premiere. To support this assertion, Defendants proffer the following evidence: Defendants have never shared or used Bad Boys’ alleged “confidential” information or “trade secrets” in connection with their employment with Premiere. Premiere never told or encouraged Leary or Miller to take or use any of Bad Boys’ information (confidential or otherwise) in connection with their work at Premiere. Premiere instructed both Leary and Miller specifically not to take or use Bad Boys’ information in connection with their work at Premiere. Bad Boys has no knowledge that any of its alleged “confidential” information was taken or given to Premiere.

In opposition, Bad Boys proffers evidence which it contends places into dispute the veracity of Defendants’ assertion that they did not acquire the trade secrets through improper means. For instance, Bad Boys proffers evidence which conflicts with Defendants’ assertion that Premiere never told or encouraged Leary or Miller to take or use any of Bad Boys’ information in connection with their work at Premiere. Bad Boys proffers evidence that in early May 2017, using his personal email address, Leary emailed several confidential documents belonging to Bad Boys to Premiere, including revenue projections belonging to Bad Boys and screenshots from his Bad Boys computer, identifying confidential client data, bond amounts, attorney sources, and bond rates, so that Premiere could reference this information to establish its new northern California office. On or about 22 May 2017, using his personal email address, Leary emailed Premiere a copy of a follow up letter that he typically sends attorney referrals at Bad Boys, along with a summary of his marketing tactics at Bad Boys, so that Premiere could use this information to establish its new office.

More significantly, Bad Boys proffers evidence which would create a triable issue with regard to whether Defendants acquired the alleged trade secret information through improper means. In the weeks leading up to her resignation with Bad Boys on 26 June 2017, Miller accessed, copied, and/or saved onto a USB drive Bad Boys’ confidential information (including Bad Boys’ attorney referral list), after she accepted employment with Premiere, for the purpose of sharing that information with Premiere. On 15 June 2017, Miller emailed herself confidential Bad Boys templates and forms. Leary and Miller both signed confidentiality agreements with Bad Boys, in which they agreed not to use or disclose Bad Boys’ confidential information except in the performance of their duties.

c. Used.
d.
Separately, Defendants argue they did not misappropriate any alleged trade secrets because they did not use the trade secrets. As noted above, misappropriation can occur from both acquisition by improper means and also improper use or disclosure. Since the court has already found a triable issue of material fact with regard to acquisition by improper means, the court need not decide whether Defendants may be liable for improper use or disclosure.

7. Harm.
8.
Finally, Defendants contend there is no evidence that Bad Boys suffered any harm. In support of this assertion, Defendants proffer the following evidence: The bail industry, in general, is “kind of stale right now” such that Bad Boys cannot confirm whether it has experienced a growth in business since Leary and Miller left Bad Boys. There is a natural “ebb and flow” of business in the bail bonds industry and it is “hard to say that one person can control the … entire production.” Bad Boys consistently posts far more bail bonds per month on average than Premiere.

In this court’s opinion, the evidence presented does not meet Defendants’ initial burden of affirmatively showing that the element of resulting injury to Bad Boys cannot be established. (Code Civ. Proc., §437c, subd. (p)(2)—“A defendant or cross-defendant has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action.”)

For the above reasons, Defendants’ motion for summary judgment is DENIED. Defendants’ alternative motion for summary adjudication of the first cause of action in plaintiff Bad Boys’ FAC is DENIED.

C. Defendants’ motion for summary adjudication of the second through eighth causes of action based on preemption is DENIED.
D.
Defendants, in very summary fashion, contend all of plaintiff Bad Boys’ remaining causes of action are preempted by the California Uniform Trade Secrets Act (“CUTSA”). “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies ‘based upon misappropriation of a trade secret.’” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal. App. 4th 210, 236.) Further, Civil Code “section 3426.7, subdivision (b), preempts common law claims that are ‘based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.’” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal. App. 4th 939, 958.) However, CUTSA does not preempt claims that are related to a trade secret misappropriation, but are “independent and based on facts distinct from the facts that support the misappropriation claim.” (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 499, 506.)

With nary any analysis or citation to any evidence, Defendants assert each cause of action is based on the same nucleus of facts as the trade secret misappropriation cause of action. In this court’s opinion, Defendants’ conclusory statement is insufficient to meet Defendants’ initial burden. Moreover, the court is aware of legal authority to support some of the other claims asserted by plaintiff Bad Boys. (See Mattel, Inc. v. MGA Entertainment, Inc. (C.D. Cal. 2011) 782 F.Supp.2d 911, 994–CUTSA “does not supersede the intentional interference with contractual relations counter-claim to the extent it arises out of conduct unrelated to the misappropriation of [trade secret].” See also Civ. Code, §3426.7, subd. (b)(1)–CUTSA does not preempt or displace breach of contract claims that are based on misappropriation of trade secrets.)

Accordingly, Defendants’ alternative motion for summary adjudication of the second through eighth causes of action in plaintiff Bad Boys’ FAC based on preemption is DENIED.

E. Defendants’ motion for summary adjudication of the second cause of action for conversion is DENIED.
F.
“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff’s ownership or right to possession of the property at the time of the conversion; the defendant’s conversion by a wrongful act or disposition of property rights; and damages.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451; see also CACI, No. 2100.)

Defendants seek summary adjudication of the second cause of action by arguing, as it did earlier, that Defendants did not take, share, or use Bad Boys’ alleged trade secret information. For the same reasons discussed above, the court finds a triable issue of material fact exists.

Accordingly, Defendants’ alternative motion for summary adjudication of the second cause of action in plaintiff Bad Boys’ FAC is DENIED.

G. Defendants’ motion for summary adjudication of the third cause of action for intentional interference with prospective business advantage is DENIED.
H.
The elements for the tort of intentional interference with prospective economic advantage “are usually stated as follows: (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 (Korea).) However, “[t]o establish a claim for interference with prospective economic advantage, therefore, a plaintiff must plead that the defendant engaged in an independently wrongful act. … an act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Korea, supra, 29 Cal.4th 1134, 1158.)

Defendants seek summary adjudication by asserting that there is no evidence of an unlawful act. In light of this court’s finding above that a triable issue of material fact exist with regard to trade secret misappropriation, Defendants’ alternative motion for summary adjudication of the third cause of action in plaintiff Bad Boys’ FAC is DENIED.

I. Defendants’ motion for summary adjudication of the fourth cause of action for violation of Labor Code §2860 is DENIED.
J.
Labor Code section 2860 states, “Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” Defendants cite Fortna v. Martin (1958) 158 Cal.App.2d 634, 639 where the court wrote, “Whether or not equity will enjoin a former employee from using information acquired while in such employ to the disadvantage of the former employer depends on whether or not in a given case the information gained is secret and confidential. If it is, a former employee may not use it, but, if it is not, a former employee may do so.” Based on this principle, Defendants argue again that the alleged trade secret attorney list is not actually a trade secret and so Defendants ought not to be enjoined from using such information.

As discussed above, the court finds the existence of a triable issue of material fact with regard to whether the purported trade secret attorney list consists of information that is not generally known to the public or readily ascertainable. In light of this court’s finding, Defendants’ alternative motion for summary adjudication of the fourth cause of action in plaintiff Bad Boys’ FAC is DENIED.

K. Defendants’ motion for summary adjudication of the fifth cause of action for violation of Business and Professions Code §17200 is DENIED.
L.
Defendants seek summary adjudication of the fifth cause of action for violation of Business and Professions Code section 17200 which prohibits any “unlawful, unfair or fraudulent business practices.” This statute “covers a wide range of conduct. It embraces anything that can properly be called a business practice and that at the same time is forbidden by law.” (Korea, supra, 29 Cal. 4th 1134, 1143.) “Section 17200 ‘borrows’ violations from other laws by making them independently actionable as unfair competitive practices. In addition, under section 17200, a practice may be deemed unfair even if not specifically proscribed by some other law.” (Ibid.) “By proscribing unlawful business practices, the UCL borrows violations of other laws and treats them as independently actionable. In addition, practices may be deemed unfair or deceptive even if not proscribed by some other law. Thus, there are three varieties of unfair competition: practices which are unlawful, or unfair, or fraudulent.” (Blakemore v. Superior Court (2005) 129 Cal.App.4th 36, 48.)

Defendants argue essentially that because the underlying claim for trade secret misappropriation fails, so too must the unlawful business practices claim fail. (See People ex rel. Renne v. Servantes (2001) 86 Cal.App.4th 1081, 1087—“A defense to the underlying offense is a defense under California’s unfair competition law.”) In light of this court’s finding above that a triable issue of material fact exist with regard to trade secret misappropriation, Defendants’ alternative motion for summary adjudication of the fifth cause of action in plaintiff Bad Boys’ FAC is DENIED.

M. Defendants’ motion for summary adjudication of the sixth cause of action for breach of contract is GRANTED.
N.
Defendants move for summary adjudication of the sixth cause of action for breach of contract by arguing that the confidentiality agreement that defendants Leary and Miller signed unlawfully restrains their ability to engage in their profession and is, therefore, void. Defendants cite to Business and Professions Code section 16600 which states, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Business and Professions Code section 16600 “protects ‘the important legal right of persons to engage in businesses and occupations of their choosing’ [citation], and under section 16600’s plain meaning ‘an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions.” (The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, 1235.)

In opposition, Bad Boys argues the non-compete provision is necessary here to protect its trade secrets. “[S]ection 16600 invalidates provisions in employment contracts and retirement pension plans that prohibit ‘an employee from working for a competitor after completion of his employment or imposing a penalty if he does so [citations] unless they are necessary to protect the employer’s trade secrets [citation].’” (Edwards v Arthur Andersen LLP (2008) 44 Cal.4th 937, 946 (Edwards).)

However, based on the ruling in Edwards, it is unclear whether such a common law trade secret exception still exists. This was the same argument raised in Dowell v Biosense Webster, Inc. (2009) 179 Cal.App.4th 564 (Dowell). In Dowell, the defendant made the same argument that Bad Boys apparently makes here.

Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the so-called trade secret exception, citing cases such as Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1429–1430 [7 Cal. Rptr. 3d 427]; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462 [125 Cal. Rptr. 2d 277]; Metro Traffic, supra, 22 Cal.App.4th at page 860; and American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1322 [228 Cal. Rptr. 713]. Plaintiffs counter that in light of our Supreme Court’s recent decision of Edwards, supra, 44 Cal.4th 937, a common law trade secret exception no longer exists.”

(Dowell, supra, 179 Cal.App.4th at pp. 575 – 576.)

“Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition.” (Id. at p. 577.) “Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are ‘tethered’ to the use of confidential information, and are triggered only when the former employee’s services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. ‘Confidential information’ is broadly defined as information disclosed to or known by the employee, including such information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in D’Sa, supra, 85 Cal.App.4th at page 930. There, the employment agreement prohibited the departing employee from ‘render[ing] services, directly or indirectly, for a period of one year … to any person or entity in connection with any Competing Product,’ which was defined as ‘any products, processes or services … which are substantially the same …’ as those on which the employee worked or ‘about which’ the employee worked or ‘about which [the employee] acquire[d] Confidential Information.’ [Citation.]”

(Id. at p. 578.)

The alleged confidentiality provision here does not, on its face, restrain defendants Leary or Mitchell from rendering service to a competitor. However, the confidentiality provision here defines trade secret information to include, but not be limited to, “processes, compilations of information, records, specifications and information concerning customers and/or vendors” and prohibits Leary and Miller from “disclos[ing] any of the above mentioned trade secrets, directly or indirectly, or use them in any way, either during the term of my employment or at any time thereafter.” (FAC, ¶¶12 and 59.) Just as in Dowell, it seems nearly impossible that employees like Leary and Miller, who worked directly with customers, would not have possession of such information.

In their opposition, Bad Boys contends there is no restriction on defendants Leary and Miller’s ability to lawfully compete, i.e., defendants Leary and Miller can compete unless doing so involves the use or disclosure of trade secret information. In essence, Bad Boys is asserting that its confidentiality provision is very narrowly drawn. However, the court in Edwards specifically rejected the notion of a “narrow-restraint” exception to Business & Professions Code section 16600. “We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.” (Edwards, supra, 44 Cal.4th at p. 950.) So even though Bad Boys’ contract provision is more narrowly drawn than the one in Dowell in that it does not, on its face, prohibit competition, the prohibition against disclosure or use of any information concerning Bad Boys customers and/or vendors makes it seemingly impossible for defendants Leary and Miller to compete without violating the contract provision.

Accordingly, Defendants’ alternative motion for summary adjudication of the sixth cause of action in plaintiff Bad Boys’ FAC is GRANTED. Just as the court in Dowell, supra, 179 Cal.App.4th at p. 577 stated, this court “doubt[s] the continued viability of the common law trade secret exception to covenants not to compete. … Even assuming the exception exists … the noncompete … clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition.”

O. Defendants’ motion for summary adjudication of the seventh cause of action for breach of fiduciary duty is DENIED.
P.
“The elements of a cause of action for breach of fiduciary duty are: (1) existence of fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach.” (Mosier v. Southern California Physicians Insurance Exchange (1998) 63 Cal.App.4th 1022, 1044; see also Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1509—“To establish a cause of action for breach of fiduciary duty, a plaintiff must demonstrate the existence of a fiduciary relationship, breach of that duty and damages.”)

In moving for summary adjudication of the seventh cause of action for breach of fiduciary duty, defendants Leary and Miller ask this court to decide, as a matter of law, that they do not owe a fiduciary duty to Bad Boys. “Whether a fiduciary duty exists is generally a question of law.” (Marzec v. California Public Employees Retirement System (2015) 236 Cal.App.4th 889, 915.) “‘[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.’ [Citation.]” (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 386.) “[F]iduciary obligations are not necessarily created when one party entrusts valuable intellectual property to another for commercial development in exchange for the payment of compensation contingent on commercial success.” (Id. at p. 391.) Defendants Leary and Miller contend they did not owe any fiduciary duty to Bad Boys based on the fact that they were just at-will employees.

Officers, directors, or managerial employees may owe their employer a fiduciary duty. (See, e.g., Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 347; Daniel Orifice Fitting Co. v. Whalen (1962) 198 Cal.App.2d 791, 801; Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 287; Fowler v. Varian Assocs. (1987) 196 Cal.App.3d 34.) “An officer who participates in management of the corporation, exercising some discretionary authority, is a fiduciary of the corporation as a matter of law. Conversely, a ‘nominal’ officer with no management authority is not a fiduciary. Whether a particular officer participates in management is a question of fact.” (GAB Bus. Servs. v. Lindsey & Newsom Claim Servs. (2000) 83 Cal.App.4th 409, 420–421, overruled on another point in Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1154.)

In the FAC, plaintiff Bad Boys specifically alleges, “In her [sic] capacity as a managing employees of [Bad Boys], Defendants MILLER and LEARY owed a fiduciary duty to [Bad Boys].” (FAC, ¶68.) In this court’s opinion, the sole fact that defendants Leary and Miller were at-will employees with Bad Boys is insufficient for Defendants to meet their initial burden. Defendants do not proffer any evidence relevant to their participation or lack of participation in Bad Boys’ management.

Accordingly, Defendants’ alternative motion for summary adjudication of the seventh cause of action in plaintiff Bad Boys’ FAC is DENIED.

Q. Defendants’ motion for summary adjudication of the eighth cause of action for violation of Computer Data Access and Fraud Act (Penal Code §502) is DENIED.
R.
It is the intent of the Legislature in enacting this section to expand the degree of protection afforded to individuals, businesses, and governmental agencies from tampering, interference, damage, and unauthorized access to lawfully created computer data and computer systems. The Legislature finds and declares that the proliferation of computer technology has resulted in a concomitant proliferation of computer crime and other forms of unauthorized access to computers, computer systems, and computer data.

The Legislature further finds and declares that protection of the integrity of all types and forms of lawfully created computers, computer systems, and computer data is vital to the protection of the privacy of individuals as well as to the well-being of financial institutions, business concerns, governmental agencies, and others within this state that lawfully utilize those computers, computer systems, and data.

(Pen. Code, §502, subd. (a).)

Except as provided in subdivision (h), any person who commits any of the following acts is guilty of a public offense:

…

(2) Knowingly accesses and without permission takes, copies, or makes use of any data from a computer, computer system, or computer network, or takes or copies any supporting documentation, whether existing or residing internal or external to a computer, computer system, or computer network.

(3) Knowingly and without permission uses or causes to be used computer services.

…

(6) Knowingly and without permission provides or assists in providing a means of accessing a computer, computer system, or computer network in violation of this section.

(7) Knowingly and without permission accesses or causes to be accessed any computer, computer system, or computer network.

(Pen. Code, §502, subd. (c).)

In addition to any other civil remedy available, the owner or lessee of the computer, computer system, computer network, computer program, or data who suffers damage or loss by reason of a violation of any of the provisions of subdivision (c) may bring a civil action against the violator for compensatory damages and injunctive relief or other equitable relief. Compensatory damages shall include any expenditure reasonably and necessarily incurred by the owner or lessee to verify that a computer system, computer network, computer program, or data was or was not altered, damaged, or deleted by the access.

(Pen. Code, §502, subd. (e)(1).)

In the eighth cause of action, Bad Boys alleges defendants Leary and Miller violated subdivisions (c)(2), (c)(3), (c)(6), and (c)(7) of Penal Code section 502. In moving for summary adjudication, defendants Leary and Miller proffer the following evidence: During Miller’s employment with Bad Boys, she was authorized to access all the information that she would email to her personal email and/or download onto flash drives. Neither Leary nor Miller have unlawfully accessed Bad Boys’ computer systems.

In opposition, Bad Boys proffers evidence contradicting Defendants’ factual assertions. Bad Boys stores its attorney referral list and other confidential documents in an electronic database, from which authorized employees can view or update in furtherance of their job duties. Leary and Miller were provided access to the confidential attorney referral list solely for the purpose of performing their job duties with Bad Boys. In the weeks leading up to her resignation with Bad Boys on 26 June 2017, Miller accessed, copied, and/or saved onto a USB drive Bad Boys’ confidential information, after she accepted employment with Premiere, for the purpose of sharing that information with Premiere. On 15 June 2017, Miller emailed herself confidential Bad Boys templates and forms. On 21 June 2017, Miller loaded Bad Boys’ confidential attorney list onto a USB flash drive. While Miller admits she has used USB devices while employed with Bad Boys, she has not produced any USB to Bad Boys and has represented that the USB has been lost or is no longer in her possession.

Leary admitted to maintaining a physical copy of Bad Boys’ confidential attorney referral list while he was employed with Bad Boys. On 26 June 2017, before Leary left, he admits returning to Bad Boys a number of documents, but a hard copy of Bad Boys’ attorney referral list was not within the batch of documents Leary returned to Bad Boys at the time of his resignation. The Vice-President and co-founder of Bad Boys, George Wallace, declares neither he nor anyone at Bad Boys gave Miller or Leary consent or permission to (i) email copies of Bad Boys’ attorney referral list or other confidential documents to themselves; (ii) download copies of Bad Boys’ attorney referral list or other confidential documents onto a USB or other hard drive, or (iii) print and carry physical copies of Bad Boys’ attorney referral list or other confidential documents out of Bad Boys’ office.

The evidence is in conflict and a triable issue of material fact exists with regard to whether defendants Leary and Miller knowingly accessed and without permission took, copied, or made use of any data from a computer, computer system, or computer network, or takes or copies any supporting documentation, whether existing or residing internal or external to a computer, computer system, or computer network.

Accordingly, Defendants’ alternative motion for summary adjudication of the eighth cause of action in plaintiff Bad Boys’ FAC is DENIED.

III. Conclusion and Order.

Defendants’ Motion for Summary Judgment is DENIED. Defendants’ alternative motion for summary adjudication of the first, second, third, fourth, fifth, seventh, and eighth causes of action in plaintiff Bad Boys’ FAC is DENIED. Defendants’ alternative motion for summary adjudication of the sixth cause of action in plaintiff Bad Boys’ FAC is GRANTED.

_______________¬¬¬____________

DATED: ______________________¬¬¬________________________

HON. SOCRATES PETER MANOUKIAN

Judge of the Superior Court

County of Santa Clara