Case Name: Cryplex, Inc. v. Bitmain Technologies Holding Company
Case No.: 18CV337836

I. Background

This is a trade-secrets dispute between competitors in the blockchain business. Plaintiff Cryplex, Inc. (“Cryplex”) is a defunct Delaware corporation that specialized in combining and optimizing hardware and hashing algorithms for mining cryptocurrency. In early 2014, Cryplex and defendant Bitmain Technologies Holding Company (“Bitmain”)—a Chinese company—contemplated a merger. Cryplex disclosed its proprietary information to Bitmain, subject to a nondisclosure agreement, during their negotiations. After they finally reached a deal in November 2014, set forth in a memorandum of understanding, Bitmain backed out and absconded with Cryplex’s trade secrets and several key employees. And so, Cryplex filed this lawsuit. It asserts causes of action against Bitmain for: (1) breach of contract (nondisclosure agreement); (2) misappropriation of trade secrets; (3) breach of contract (memorandum of understanding); and (4) violation of California’s unfair competition law (the “UCL”).

Currently before the Court is Bitmain’s demurrer to each cause of action on the grounds Cryplex lacks capacity and fails to state facts sufficient to constitute a cause of action. Both parties filed requests for judicial notice in connection with the demurrer.

II. Requests for Judicial Notice

Cryplex requests judicial notice of a printout from the Delaware Secretary of State’s website showing its dates of incorporation and dissolution, namely April 4, 2014, and February 24, 2016. (Cryplex RJN, Ex. A.) Bitmain requests judicial notice of articles of incorporation and a short-form certificate of dissolution filed with California’s Secretary of State for another entity known as Cryplex, Inc.; these documents were filed on April 4, 2014, and June 26, 2014, respectively. (Bitmain RJN, Exs. A–B.) These documents are not proper subjects of judicial notice.
The Court highlights at the outset that Evidence Code section 452, subdivision (c) only authorizes a court to take judicial notice of “[o]fficial acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” Under this subdivision, a court may take judicial notice of official correspondence and documents prepared by agencies and officials. (Field v. Bowen (2011) 199 Cal.App.4th 346, 370, fn. 5.) But documents prepared by private parties and on file with a state agency—such as articles of incorporation—are not subject to judicial notice as official acts. (People v. Thacker (1985) 175 Cal.App.3d 594, 596–99; accord Hughes v. Blue Cross of N. Cal. (1989) 215 Cal.App.3d 832, 856, fn. 2.)

The Court next turns to Evidence Code section 452, subdivision (h), which authorizes judicial notice of “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” “These include, for example, facts which are widely accepted as established by experts and specialists in the natural, physical, and social sciences which can be verified by reference to treatises, encyclopedias, almanacs and the like or by persons learned in the subject matter.” (Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145.) The parties’ documents and the facts apparent on their face do not fall within this subdivision as a general matter and under the particular circumstances presented here. The documents seemingly pertain to two distinct legal entities, one incorporated in Delaware and one incorporated in California. (See generally Dodd v. Louisville Bridge Co. (W.D.Ky. 1904) 130 F. 186, 195 [“Although corporations have the same name, yet, if they are incorporated under the laws of different states, they are separate and distinct corporations….”].) And, the dates of dissolution do not match. Thus, judicial notice is not proper under this subdivision.

For these reasons, both parties’ requests for judicial notice are DENIED.

III. Demurrer

A. Lack of Capacity

A defendant may demur on the ground “[t]he person who filed the pleading does not have the legal capacity to sue.” (Code Civ. Proc., § 430.10, subd. (b).) A demurrer is the proper vehicle for raising a lack of capacity if “the ground for objection appears on the face of the complaint or from any matter that is subject to judicial notice; otherwise, the objection may be raised by answer.” (The Rossdale Group, LLC v. Walton (2017) 12 Cal.App.5th 936, 943, citing Code Civ. Proc., § 430.30.)

Events such as suspension and dissolution impact a corporation’s legal capacity. (The Rossdale Group, LLC, supra, 12 Cal.App.5th at pp. 944–45.) But it is not true that dissolution immediately makes a corporation incapable of suing and being sued. (Greb v. Diamond Internat. Corp. (2013) 56 Cal.4th 243, 247–48.) As the California Supreme Court has explained, “the effect of dissolution is not so much a change in the corporation’s status as a change in its permitted scope of activity.” (Penasquitos, Inc. v. Super. Ct. (1991) 53 Cal.3d 1180, 1190.) Put differently, “a corporation’s dissolution is best understood not as its death, but merely as its retirement from active business.” (Ibid.) And, the rules for its retirement are ordinarily those of its state of incorporation. (Greb, supra, 56 Cal.4th at pp. 247–48, 266–67, 272–73 [California survival statute inapplicable to dissolved Delaware corporation], citing In re RegO Co. (Del.Ch. 1992) 623 A.2d 92, 96.)

Bitmain argues Cryplex is no longer a valid legal entity with capacity to sue in light of its dissolution. But it does not cite authority to support this broad contention, which is actually inconsistent with the law. Moreover, it fails to acknowledge and discuss the applicable survival statute. (See, e.g., Greb, supra, 56 Cal.4th at pp. 247–48.) And so, Bitmain fails to establish Cryplex lacks capacity to sue based on its dissolution.

Bitmain also argues Cryplex cannot maintain this action because it failed to comply with Corporations Code section 2105, which requires a foreign corporation to register with California’s Secretary of State and obtain a certificate of qualification to conduct intrastate business. “A corporation transacting intrastate business without a certificate risks a number of sanctions,” including the one set forth in Corporations Code section 2203, subdivision (c). (Neogard Corp. v. Malott & Peterson-Grundy (1980) 106 Cal.App.3d 213, 219–20.) That statute prohibits a noncompliant corporation from maintaining “any action or proceeding upon any intrastate business so transacted in any court of this state, commenced prior to compliance with Section 2105, until it has complied with the provisions thereof and has paid to the Secretary of State a penalty of two hundred fifty dollars ($250) in addition to the fees due for filing the statement and designation required by Section 2105 and has filed with the clerk of the court in which the action is pending receipts showing the payment of the fees and penalty and all franchise taxes and any other taxes on business or property in this state that should have been paid for the period during which it transacted intrastate business.” (Corp. Code, § 2203, subd. (c).)

“The defendant bears the burden of proving: (1) the action arises out of the transaction of intrastate business by a foreign corporation; and (2) the action was commenced by the foreign corporation prior to qualifying to transact intrastate business.” (United Medical Management Ltd. v. Gatto (1996) 49 Cal.App.4th 1732, 1740.) “If the defendant establishes the bar of the statute,…the matter should be stayed to permit the foreign corporation to comply.” (Ibid.) “If the foreign corporation plaintiff complies with section 2203, subdivision (c), by qualifying and paying fees, penalties and taxes, it may maintain the action.” (Ibid.) “If the foreign corporation fails to comply, the matter should be dismissed without prejudice.” (Ibid.)

First, Bitmain does not establish this action arises out of the transaction of intrastate business. It places heavy emphasis on the allegation that Cryplex had its principal place of business in San Jose. (Compl., ¶ 2.) This is insufficient. Transacting intrastate business is defined in Corporations Code section 191 as “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.” (Corp. Code, § 191, subd. (a).) Moreover, that statute includes a voluminous list of activities that are explicitly excluded from the definition. (Corp. Code, § 191, subd. (c).) The existence of a California office and the occurrence of some negotiations here do not meet the definition of transacting intrastate business. (See Corp. Code, § 191, subds. (c)(1)–(3), (c)(8).) Second, there is no basis in the record for concluding Cryplex failed to register as a foreign corporation. Contrary to what Bitmain seems to suggest, Cryplex’s dissolution does not establish it failed to comply. Thus, Bitmain does not establish Cryplex lacks capacity to sue due to a failure to register as a foreign corporation.
For these reasons, Bitmain’s demurrer to each cause of action on the ground Cryplex lacks legal capacity is OVERRULED.

B. Failure to State Sufficient Facts

1. Sufficiency of Allegations

In general, “a complaint must contain ‘[a] statement of the facts constituting the cause of action, in ordinary and concise language.’” (Davaloo v. State Farm Insurance Co. (2005) 135 Cal.App.4th 409, 415, quoting Code Civ. Proc., § 425.10, subd. (a)(1).) “This fact-pleading requirement obligates the plaintiff to allege ultimate facts that as a whole apprise[ ] the adversary of the factual basis of the claim.” (Davaloo, supra, 135 Cal.App.4th at p. 415 [internal quotation marks and citations omitted].) A demurrer tests whether the plaintiff alleges each ultimate fact essential to the cause of action asserted. (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 873.)

Bitmain argues Cryplex does not adequately allege the essential elements of its first cause of action for breach of contract and its fourth cause of action for violation of the UCL.

i. First Cause of Action

The first cause of action is for breach of the nondisclosure agreement. Bitmain argues Cryplex does not allege specific facts to support the element of breach. (See generally McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489 [elements of breach of contract claim].) This argument is not well-taken. First, a plaintiff is not ordinarily required to allege “‘each evidentiary fact that might eventually form part of the plaintiff’s proof….’ [Citation.]” (Ferrick v. Santa Clara University (2014) 231 Cal.App.4th 1337, 1341.) And so, specificity is not required. Second, as Bitmain acknowledges, Cryplex alleges it breached the nondisclosure agreement by misappropriating and improperly using its trade secrets. (Compl., ¶¶ 22–23, 31, 33.) This is sufficient for pleading purposes. Indeed, Bitmain does not cite authority or provide a reasoned explanation to support a contrary conclusion.

ii. Fourth Cause of Action

The UCL “prohibits ‘unfair competition,’ which it defines as ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [Section 17500].” (Hansen v. Newegg.com Americas, Inc. (2018) 25 Cal.App.5th 714, 722, quoting Bus. & Prof. Code, § 17200.) “‘The UCL’s purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’” (Hansen, supra, 25 Cal.App.5th at p. 722, quoting Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.)
Here, Cryplex’s claim is based solely on the unfair and unlawful prongs of the UCL. Bitmain argues Cryplex fails to allege it engaged in an unfair or unlawful business practice “with the required specificity.” (Mem. of Pts. & Auth. at p. 7:14–16.)

As a preliminary matter, specificity is not required. Courts historically applied the ordinary fact-pleading standard to UCL claims. (See Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 209–12, superseded by statute on another ground as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) And, although courts have stated “[a] plaintiff alleging unfair business practices under [Section 17200] must state with reasonable particularity the facts supporting the statutory elements of the violation” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619), reasonable particularity “is a more lenient pleading standard than is applied to common law fraud claims” (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1261). Thus, Bitmain seeks to impose a higher pleading standard than what is required by law.

With that clarification in mind, Cryplex’s UCL claim is based on Bitmain’s “tortious behavior, as described above….” (Compl., ¶ 53.) As a general matter, a plaintiff may incorporate preceding allegations in a cause of action in lieu of repeating them verbatim. (Kajima Engineering & Construction, Inc. v. City of Los Angeles (2002) 95 Cal.App.4th 921, 931–32.) Thus, Cryplex’s reference to preceding allegations is not, per se, impermissible. With that said, Cryplex does not adequately identify the conduct upon which its UCL claim is based. (See, e.g., Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1554 [allegations incorporated by reference still insufficient to state UCL claim].) In other words, although specificity is not required, the facts alleged here are insufficient.

To illustrate, “[u]nder its ‘unlawful’ prong, ‘the UCL borrows violations of other laws…and makes those unlawful practices actionable under the UCL.’ [Citation.]” (Berryman, supra, 152 Cal.App.4th at p. 1554.) “Thus, a violation of another law is a predicate for stating a cause of action under the UCL’s unlawful prong.” (Ibid.) But here, the statute Bitmain purportedly violated—California’s Uniform Trade Secrets Act (“CUTSA”)—is significant. “Under California law, CUTSA provides the exclusive civil remedy for conduct falling within its terms and supersedes other civil remedies based upon misappropriation of a trade secret.” (Waymo, LLC v. Uber Technologies, Inc. (N.D.Cal. 2017) 256 F.Supp.3d 1059, 1062, citing Civ. Code, § 3426.7 and Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 236, disapproved on other grounds by Kwikset Corp. v. Super. Ct. (2011) 51 Cal.4th 310; accord Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 504–08.) “It therefore supersedes claims—including Section 17200 claims—based on the same nucleus of facts as trade secret misappropriation.” (Waymo, supra, 256 F.Supp.3d at p. 1062, citing Silvaco, supra, 184 Cal.App.4th at p. 232.) Accordingly, while Cryplex broadly incorporates all of the preceding allegations, its claim cannot be based on misappropriation of trade secrets in violation of the CUTSA. In light of this conclusion, Cryplex has not alleged a statutory violation for the purpose of stating a claim under the unlawful prong. Similarly, given its focus on misappropriation of trade secrets in the complaint, it is not obvious—especially in the absence of an allegation in the fourth cause of action—what alleged conduct could otherwise support a claim under the unfair practices prong.

In conclusion, Cryplex fails to state a claim for violation of the UCL.

2. Statute of Limitations

While a party may raise the statute of limitations as a basis for challenging the sufficiency of a pleading, it must be shown that the statute clearly and affirmatively bars the action. (E-Fab, Inc., supra, 153 Cal.App.4th at pp. 1315–16.) If the allegations merely reflect that the action may be barred, a court cannot dismiss the action at the pleading stage. (Ibid.) The moving party must demonstrate (1) which statute of limitations applies and (2) when the claim accrued. (Id. at p. 1316.)

Here, the applicable statutes of limitations are as follows: (1) four years for breach of a written contract under Code of Civil Procedure section 337; (2) three years for misappropriation of trade secrets under Civil Code section 3426.6; and (3) four years for violation of the UCL under Business and Professions Code section 17208.

Turning to the issue of accrual, the Court first addresses the claim for breach of the memorandum of understanding before turning to the remaining claims arising from the acts of misappropriation.
Ordinarily, a cause of action for breach of contract accrues at the time of breach. (Professional Collection Consultants v. Lauron (2017) 8 Cal.App.5th 958, 966.) Here, Cryplex unequivocally alleges Bitmain breached the parties’ memorandum of understanding about the merger when it refused to proceed on November 8, 2014. (Compl., ¶ 24.) And so, Cryplex’s third cause of action for breach of contract accrued on that date.

Although Cryplex also alleges Bitmain “confirmed” it would not proceed on December 13, 2014, (Compl., ¶ 26), Cryplex does not persuasively argue the claim accrued on this later date. It is true that when a plaintiff disregards a defendant’s anticipatory repudiation of a contract, “the statute of limitations does not begin to run until the time set by the contract for performance.” (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 489.) Also, “whether the breach is anticipatory or not, when there are ongoing contractual obligations the plaintiff may elect to rely on the contract despite a breach, and the statute of limitations does not begin to run until the plaintiff has elected to treat the breach as terminating the contract.” (Ibid.) But here, Cryplex does not allege there was an anticipatory breach or that it disregarded the breach until December 2014. Rather, it explicitly identifies November 8, 2014, as the date “Bitmain breached the agreement….” (Compl., ¶ 24.) And so, Cryplex’s assertion that the third cause of action accrued in December is not well-taken.

As for the first cause of action for breach of the nondisclosure agreement, Cryplex does not allege the date the breach occurred. Although Cryplex seems to allege it learned about Bitmain’s misappropriation after Bitmain poached employees in March 2015, the occurrence of the breach is not apparent from the face of the pleading. The Court, thus, cannot determine when the first cause of action accrued at this juncture.

Next, “the CUTSA statute of limitations is contained in section 3426.6, which provides: ‘An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.’” (Cypress Semiconductor Corp. v. Super. Ct. (2008) 163 Cal.App.4th 575, 582.) The California “Supreme Court distinguished between a claim for misappropriation and the individual act or acts of misappropriation when it held that ‘a claim for misappropriation of a trade secret arises for a given plaintiff against a given defendant only once, at the time of the initial misappropriation, subject to the discovery rule provided in section 3426.6.’ [Citation.]” (Id. at pp. 583–84.) “‘Each new misuse or wrongful disclosure is viewed as augmenting a single claim of continuing misappropriation rather than as giving rise to a separate claim.’ [Citation.]” (Id. at p. 584.) For the same reasons stated above, the Court cannot determine when the second cause of action accrued because, although Cryplex seemingly learned of the misappropriation after March 2015, it does not allege precisely when the misappropriation was or reasonably should have been discovered.

Finally, a claim for violation of the UCL is subject to the traditional principles of accrual. (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1193.) Because Cryplex does not adequately allege the conduct giving rise to its UCL claim in the first instance, the Court cannot readily ascertain when the claim accrued.

To summarize, the complaint solely reflects the third cause of action for breach of contract accrued on November 8, 2014. The complaint, thus, does not reflect the remaining claims are clearly and affirmatively barred by the applicable statutes of limitations.

As for the third cause of action, Cryplex had four years to file its complaint. Bitmain states Cryplex had until November 7, 2018, to timely file its complaint. But Cryplex asserts Bitmain miscalculated the deadline; it argues it timely commenced the action on Thursday, November 8, 2018. “The time in which any act provided by law is to be done is computed by excluding the first day, and including the last, unless the last day is a holiday, and then it is also excluded.” (Code Civ. Proc., § 12a.) This computation principle applies when calculating the expiration of the statute of limitations and establishes an action brought on the four-year “anniversary date” of the injury is timely. (Wixted v. Fletcher (1961) 192 Cal.App.2d 706, 706–07; accord SCT, (U.S.A.), Inv. v. Mitsui Manufacturers Bank (1984) 155 Cal.App.3d 1059, 1064.) Consequently, Bitmain’s asserted deadline is erroneous. The statute of limitations for the third cause of action had not expired when Cryplex commenced this action on November 8, 2018. It filed its complaint just in time.

In conclusion, the demurrer is not sustainable as to any cause of action based on the expiration of the statute of limitations.

3. Conclusion

For the reasons set forth above, the demurrer to the first, second, and third causes of action is OVERRULED. The demurrer to the fourth cause of action is SUSTAINED with 10 days’ leave to amend.