Case Name: Hercules Capital, Inc. v. Jaquez-Fissori, et al.
Case No.: 1-14-CV-273114

This is a trade secrets misappropriation case. Plaintiff Hercules Technology Growth Capital, Inc. (“Plaintiff”) alleges that it is a specialty finance company that provides growth capital loans in the form of venture debt financing to entrepreneurial, technology-related companies at all stages of development. (First Amended Complaint (“FAC”), ¶ 22.) Defendants Todd Jaquez-Fissori, Bradley Blair Pritchard, Keon A. Reed, Connor Lockhart, John K. Doyle (collectively, the “Individual Defendants”) were employed by Plaintiff and they each executed confidentiality agreements. (FAC, ¶¶ 37-41.) In April 2014, the Individual Defendants voluntarily terminated their employment with Plaintiff and took positions with Tennenbaum Capital Partners, LLC (“Tennenbaum”). (FAC, ¶¶ 46-52.) Plaintiff alleges that, in doing so, the Individual Defendants breached their confidentiality agreements and misappropriated trade secrets. (See, e.g., FAC, ¶¶ 115, 124.)

The following motions are currently before the Court: (1) Plaintiff/Cross-Defendant’s Demurrer to Defendants’ Cross-Complaint for Unfair Competition and Declaratory Relief; (2) Plaintiff’s Demurrer to Defendants’ Amended Answer; and (3) Plaintiff’s Motion to Strike Portions of Defendants’ Amended Answer.

I. Plaintiff/Cross-Defendant’s Demurrer to Defendants’ Cross-Complaint for Unfair Competition and Declaratory Relief

Plaintiff demurs to the Cross-Complaint of the Individual Defendants and Tennenbaum (collectively, “Defendants”). The Cross-Complaint, filed on July 29, 2015, sets forth the following causes of action: [1] Unfair Competition; and [2] Declaratory Relief. Defendants allege that Plaintiff required the Individual Defendants to sign certain non-compete agreements and that these agreements contain several unlawful and one-sided provisions. (Cross-Complaint, ¶¶ 23-26.)

a. Unfair Competition

Plaintiff argues, inter alia, that Defendants have not alleged a loss of money or property to establish standing. To have standing to bring an unfair competition cause of action, a person must allege that he or she “suffered injury in fact and . . . lost money or property as a result of the unfair competition.” (Bus. & Prof. Code, § 17204.) Defendants allege that the unlawful provisions in the non-compete agreements “caused Cross-Complainants to lose money and to suffer other actual and threatened damage and injury.” (Cross-Complaint, ¶ 42.) Defendants’ allegation in this regard is a legal conclusion, which is given no weight on demurrer. (See South Shore Land Co. v. Petersen (1964) 226 Cal. App. 2d 725, 732 [“[A] demurrer does not . . . admit contentions, deductions or conclusions of fact or law alleged in the pleading . . . .”].) Defendants must allege facts demonstrating the actual loss of money or property. (See also Capodiece v. Wells Fargo Bank (N.D. Cal. 2013) 2013 WL 1962310, *6 [plaintiffs must allege how they lost any money or property as a result of any Section 17200 violation and what money or property they lost].) Accordingly, Plaintiff’s demurrer to the first cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

b. Declaratory Relief

Plaintiff argues that the declaratory relief cause of action is not ripe. As explained in one case: “A two-pronged test is used to determine the ripeness of a controversy: (1) whether the dispute is sufficiently concrete so that declaratory relief is appropriate; and (2) whether the parties will suffer hardship if judicial consideration is withheld.” (City of Santa Monica v. Stewart (2005) 126 Cal.App.4th 43, 64.)

Defendants allege that the non-compete agreements are void and unenforceable because they are unconscionable and their various restrictions violate the prohibition against preventing employees from exercising their rights as stated in Sections 7 and 8 of the National Labor Relations Act, the Dodd-Frank Wall Street Reform and Consumer Protections Act, and California Labor Code section 1102.5. (Cross-Complaint, ¶ 51.) Defendants also allege that agreements violate the prohibition on covenants not to compete as stated in Business and Professions Code section 16600, constitute unfair competition under Business and Professions Code section 17200, et seq., and violate the fundamental public policies of the State of California. (Cross-Complaint, ¶ 51.) Defendants allege that Plaintiff has made clear that it believes the agreements are valid and enforceable. (Cross-Complaint, ¶ 50.) Therefore, Defendants seek a judicial declaration of their respective rights and duties under the agreements. (Cross-Complaint, ¶ 52.)

As an initial matter, Defendants contend that Plaintiff has not demurred to the entire declaratory relief cause of action. Defendants assert that Plaintiff’s demurrer only addresses three of four provisions in the non-compete agreements. Specifically, Defendants argue that Plaintiff does not address the “no-employment” provision. However, the no-employment provision is a non-competition provision and is titled “Agreement Not To Compete or Engage in Conflicts of Interest.” (Cross-Complaint, ¶ 28.) Plaintiff’s demurrer addresses the non-competition provisions in the agreements. (See Memorandum of Points and Authorities in Support of Plaintiff’s Demurrer to Defendants’ Cross-Complaint, p. 9:14-16.) Therefore, Defendants argument in this regard is without merit.

Defendants argue that there is a present controversy because Plaintiff alleges in the FAC that Defendants violated the non-compete agreements by, inter alia, disclosing confidential information. These allegations, however, are in the FAC and are not alleged in the Cross-Complaint, the pleading at issue. Defendants have not alleged any facts showing a dispute between the parties regarding the terms of the agreements other than a dispute of whether the terms of the agreements are valid in the abstract. Consequently, Defendants have not alleged facts demonstrating there is a dispute sufficiently concrete so that declaratory relief is appropriate. Accordingly, Plaintiff’s demurrer to the second cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

II. Plaintiff’s Demurrer to Defendants’ Amended Answer

Code of Civil Procedure section 430.20 states:

A party against whom an answer has been filed may object, by demurrer as provided in Section 430.30, to the answer upon any one or more of the following grounds:

(a) The answer does not state facts sufficient to constitute a defense.

(b) The answer is uncertain. As used in this subdivision, “uncertain” includes ambiguous and unintelligible.

(c) Where the answer pleads a contract, it cannot be ascertained from the answer whether the contract is written or oral.

Plaintiff demurs to each of Defendants’ 33 defenses in the Amended Answer filed on July 30, 2015. Plaintiff argues that each affirmative defense (1) fails to provide facts sufficient to constitute a defense or (2) is not new matter, but rather a denial of essential allegations in the FAC or (3) is a request for affirmative relief.

Generally, allegations supporting an affirmative defense are insufficient if they “are proffered in the form of terse legal conclusions, rather than as facts ‘averred as carefully and with as much detail as the facts which constitute the cause of action and are alleged in the complaint.’” (FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 384.)

The Amended Answer does not contain any facts whatsoever. After making a general denial, Defendants simply assert each affirmative defense with no supporting factual allegations. In fact, for most of the defenses, it appears that Defendants have no facts to support the defenses; Defendants state they “are informed and believe that a reasonable opportunity for investigation and discovery will reveal. . . .” (See Amended Answer, affirmative defenses nos. 2-6, 8-30.) None of the defenses are supported by factual allegations. Consequently, the affirmative defenses cannot be maintained as pleaded.

The Court notes additionally that several of the “defenses” are not defenses at all. For example, the first affirmative defense is “Failure to State a Cause of Action.” This is essentially the same as a denial and is a ground for demurrer, not an affirmative defense. Similarly, the seventh affirmative defense – “Failure to Identify Alleged Trade Secrets with Reasonable Particularity” – is a prerequisite for commencing discovery in a trade secrets case, not a defense to misappropriation of trade secrets.

Accordingly, Plaintiff’s demurrer is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

III. Plaintiff’s Motion to Strike Portions of Defendants’ Amended Answer

In light of the Court’s ruling on the demurrer to the Amended Answer, the motion to strike is MOOT.