Case Name: Guidetech, LLC v. Brilliant Instruments, Inc., et al.
Case No.: 1-10-CV-187147

Cross-Defendants Ilan Sigura, Mordechai Ben-Zeev, and Albert Waissman (collectively, “Cross-Defendants”) demur to the Second Amended Cross-Complaint (“SACC”) of Cross-Complainant Brilliant Instruments, Inc. (“Brilliant”).

Cross-Defendants’ demurrers on the grounds of uncertainty are OVERRULED. The SACC is not so unclear that Cross-Defendants cannot respond.

As an initial matter, Cross-Defendants contend that the SACC does not contain allegations about them individually. As an example, Cross-Defendants argue that paragraph 27 of the SACC only refers to Ronen Sigura. This argument is not well-taken. Paragraph 27 of the SACC states that all of the cross-defendants made certain statements (SACC, ¶ 27) and allegations in the SACC must be accepted as true on demurrer. (Evans v. City of Berkeley (2006) 38 Cal. 4th 1, 6.)

A. First Cause of Action (Intentional Interference with Prospective Economic Relations) and Third Cause of Action (Negligent Interference with Prospective Economic Relations)

The elements for the tort of intentional interference with prospective economic advantage include the following:

(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.)

Similarly,

[t]he tort of negligent interference with prospective economic advantage is established where a plaintiff demonstrates that (1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.

(North American Chemical Co. v. Superior Court (1997) 59 Cal. App. 4th 764, 786.)

Cross-Defendants argue that Brilliant does not specify any third parties with whom Brilliant had a prospective economic relationship. Although Brilliant does not need to provide specific names of third parties, an essential element of a cause of action for interference with prospective business advantage is the existence of a business relationship with which the tortfeasor interfered. (Roth v. Rhodes (1994) 25 Cal. App. 4th 530, 546.) Brilliant does not allege facts showing the existence of any such relationship. Accordingly, Cross-Defendants’ demurrers to the first and third causes of action are SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

B. Second Cause of Action (Intentional Interference with Contractual Relations)

The elements of a cause of action for intentional interference with contractual relations are: (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. Similarly to the first and third causes of action, Brilliant has not alleged facts showing the existence of a valid contract between Brilliant and a third party. Accordingly, Cross-Defendants’ demurrers to the second cause of action are SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

C. Fourth Cause of Action (Unfair Competition)

Brilliant does not allege any facts supporting this cause of action. Brilliant simply alleges the legal conclusion that Cross-Defendants’ conduct constitutes unlawful, unfair or fraudulent business acts or practices within the meaning of California’s unfair competition law. Brilliant asserts in its opposition papers that this cause of action is based on the conduct alleged in the interference causes of action; however, as discussed above, those causes of action are deficient. Accordingly, Cross-Defendants’ demurrers to the fourth cause of action are SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

D. Fifth Cause of Action (Libel) and Sixth Cause of Action (Slander)

The libel and slander causes of action are based on statements alleged in paragraph 27 of the SACC. Cross-Defendants argue that these causes of action fail because the alleged statements were all made by Ronen Sigura, not by Cross-Defendants. This argument is not well-taken. Brilliant alleges that the allegedly defamatory statements were made by “Cross-Defendants,” not solely by Ronen Sigura. (See SACC, ¶ 27.) Cross-Defendants also argue that the statements are covered by the litigation privilege because they were allegedly made after Brilliant filed certain claims in federal court; however, there are no dates alleged showing when the statements were made. Cross-Defendants contend that Brilliant has not alleged what the actual slanderous statements were, but instead provides conclusions about their content. While it is not clear whether the statements are alleged verbatim, Brilliant does allege essentially what the statements were; for example, “Brilliant is willfully infringing GuideTech’s patents.” (See SACC, ¶ 27(k).) Lastly, Cross-Defendants argue that Brilliant has not alleged any damage. Brilliant alleges that some of its customers have returned previously-purchased Brilliant products or cancelled orders for Brilliant Products and/or refused to make new purchased of Brilliant’s products. This is sufficient for pleading purposes to show damage. In sum, for the reasons discussed above, Cross-Defendants’ demurrers to the fifth sixth causes of action are OVERRULED.

E. Seventh Cause of Action (Misappropriation of Trade Secrets)

Among other arguments, Cross-Defendants contend that Brilliant has failed to specify what information constitutes the subject trade secret, what steps Brilliant takes to maintain its secrecy, or how the information derives economic value. As a general matter, “[o]ne who seeks to protect his trade secrets from wrongful use or disclosure does not have to spell out the details of the trade secret to avoid a demurrer to a complaint. To so require would mean that the complainant would have to destroy the very thing for which he sought protection by making public the secret itself.” (Diodes, Inc. v. Franzen (1968) 260 Cal. App. 2d 244, 252.) Nevertheless, a plaintiff must “allege the ultimate facts showing the existence of a trade secret or other confidential data to state such a cause of action. An averment simply that the plaintiff has a ‘secret process’ is a bare legal conclusion.” (Ibid.) Brilliant’s cause of action for misappropriation of trade secrets is based on legal conclusions and does not sufficiently set forth factual allegations. Accordingly, Cross-Defendants’ demurrers to the seventh cause of action are SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

F. Eighth Cause of Action (Conspiracy)

Brilliant dismissed this claim on May 6, 2014. Accordingly, Cross-Defendants’ demurrers to this cause of action are MOOT.

G. Ninth Cause of Action (Alter Ego Liability)

“A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief.” (Hennessey’s Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal. App. 3d 1351, 1359.) In other words, it is not a cause of action. Rather, the alter ego theory is used as a procedural device to impose liability on individuals for “the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice.” (Ibid.) Since alter ego allegations are not a cause of action, they cannot be reached by demurrer, but rather would be subject to a motion to strike. (See Code Civ. Proc., § 436.) Accordingly, Cross-Defendants’ demurrers to the alter ego “cause of action” are OVERRULED.

H. Tenth Cause of Action (Avoidance of Fraudulent Transfer)

Cross-Defendants’ arguments in connection with the demurrers to the tenth cause of action rely entirely on evidence outside the face of the SACC – specifically, deposition testimony and other factual assertions made in the demurrer papers. For purposes of a demurrer, all allegations in the SACC are accepted as true. “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214, internal citation and punctuation omitted).) Consequently, Cross-Defendants’ reliance on extrinsic evidence is misplaced. Cross-Defendants’ demurrers to the tenth cause of action are OVERRULED.