Case Name:   Hooked Media Group, Inc. v. Apple, Inc., et al.

Case No.:       1-14-CV-265819

After full consideration of the arguments and authorities submitted by each party, the court makes the following rulings:

Plaintiff Hooked Media Group, Inc. (“Plaintiff”) alleges the following:

Plaintiff—a developer of groundbreaking proprietary machine learning technology—was thriving and had increasing monthly revenues until its former chief technology officer (“CTO”) defendant Chandrasekar Venkataraman (“Venkataraman”) and defendant Apple, Inc. (“Apple”) (collectively, “Defendants”) conspired to steal its trade secrets, raid its engineering team, and sabotage its business.  (Compl., ¶¶ 1-4 & 11-12.)  In June 2013, Apple and Plaintiff began discussing a possible acquisition, and Apple promised to keep Plaintiff’s proprietary/intellectual property information confidential.  (Id., ¶¶ 15-27.)  Venkataraman, who had close connections with an Apple executive, secretly disclosed Plaintiff’s trade secrets to Apple and intentionally impeded Plaintiff’s acquisition discussions with other companies.  (Id., ¶¶ 25 & 28.)  Thereafter, Apple lost interest in acquiring Plaintiff, and instead wanted to “acqui-hire” Venkataraman and Plaintiff’s engineers.  (Id., ¶ 29.)  Venkataraman and those engineers then disclosed more of Plaintiff’s trade secrets to Apple, and Apple’s “acqui-hire” offers decreased.  (Id., ¶¶ 33-38.)  After advising it would only negotiate with Plaintiff’s CEO, Apple went around Plaintiff’s CEO and hired the engineers in November 2013.  (Id., ¶ 35.)  In December 2013, Venkataraman left Plaintiff to work for Apple, and before he left, he removed Plaintiff’s essential computer files, took its code set and the documentation for all technologies it developed, copied and made changes to its code base, changed the login credentials on its computers and cloud storage, and made a “backdoor” by creating new login credentials.  (Id., ¶ 48.)  As a result, Plaintiff could not access its proprietary information or continue operations, and Apple “acqui-hired” Plaintiff’s engineers for free and eliminated Plaintiff as a competitor.  (Id., ¶¶ 50-51.)

Plaintiff asserts causes of action for (1) misappropriation of trade secrets in violation of the California Uniform Trade Secrets Act (“CUTSA”) (against Defendants), (2)  interference with contract (against Defendants), (3)  interference with prospective economic advantage (against Defendants), (4) fraud (against Defendants), (5) negligent misrepresentation (against Defendants), (6) violations of the California Computer Data Access and Fraud Act (Pen. Code, § 502) (“Section 502”) (against Venkataraman), (7) breach of fiduciary duty (against Venkataraman), (8) aiding and abetting breach of fiduciary duty (against Apple), (9) breach of contract (against Venkataraman), (10) unjust enrichment/restitution (against Defendants), and (11) violation of the unfair competition law (“UCL”) (against Defendants).  Defendants demur to the second through fifth, eighth, tenth, and eleventh causes of action on the grounds of preemption and failure to allege sufficient facts.  (See Code Civ. Proc. [“CCP”], § 430.10, subd. (e).)  Venkataraman also demurs to the sixth and seventh causes of action for failure to allege sufficient facts, and to the seventh cause of action for preemption.  (Id.)

Plaintiff’s request for judicial notice is DENIED.  (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [only relevant court records are subject to judicial notice].)

Since CCP section 430.10 does not authorize a demurrer for “preemption,” Defendants’ arguments regarding preemption by CUTSA are considered in support of their demurrer for failure to state a claim.  CUTSA preempts civil claims (other than breach of contract claims) based on alleged misappropriation of trade secrets, and a demurrer should be sustained where it is “clear on the face of the complaint” that a cause of action depends on an alleged misappropriation of trade secrets.  (Civ. Code, § 3426.7; Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 240.)  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 respect to the second through fifth causes of action, in addition to alleging a misappropriation of trade secrets, Plaintiff alleges that Defendants interfered with its contracts and prospective economic advantage by usurping its engineers, sabotaging acquisition negotiations with other companies, and damaging its files; Apple fraudulently/negligently misrepresented that it would only negotiate the “acqui-hire” deal through Plaintiff’s CEO; and Venkataraman fraudulently and/or negligently misrepresented that he would continue working for Plaintiff.  (Compl., ¶¶ 25, 32-44, 46-49, & 73-74.)  In support of the seventh and eighth causes of action, Plaintiff alleges that Venkataraman breached his duty of loyalty—and Apple aided and abetted him—not only by misappropriating trade secrets, but also by: (1) disclosing confidential information about its employees to Apple; (2) hatching a plan with Apple “to structure a departure of all of [Plaintiff]’s engineering team . . . so as to destroy [Plaintiff] and its ability to fulfill its contractual obligations”; (3) deleting and removing Plaintiff’s critical electronic files; and (4) sabotaging its electronic files.  (Id., ¶¶ 92-95 & 99.)  The tenth and eleventh causes of action are based on facts alleged in support of the other claims.  The allegations supporting each claim are independent of the alleged misappropriation of trade secrets.  Therefore, Plaintiff’s claims are not preempted by CUTSA.

Defendants’ demurrer for failure to state a claim as to the second and third causes of action (interference with contract and interference with prospective economic advantage) is OVERRULED.  Plaintiff sufficiently pleads Defendants’ knowledge of its third party contracts and economic relationships.  (See Compl., ¶¶ 12, 25, 31, 34, 50-51, 64, & 68-69; see also Quelimane v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 56 [allegations implying knowledge are sufficient].)  Next, Defendants insist acquisition discussions are too speculative to support the interference with prospective economic relations claim; however, Plaintiff also alleges it was in the final stages of securing a contract to sell its products.  From Plaintiff’s allegations, it can be inferred that this contract would have been realized but for Defendants’ interference, and thus, whether Plaintiff may also allege that Defendants’ knowingly interfered with speculative acquisition discussions is of no consequence.  (See Youst v. Longo (1987) 43 Cal.3d 64, 71 [it “must be reasonably probable that the prospective economic advantage would have been realized but for defendant’s interference”]; see also Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [demurrer cannot be sustained to part of a claim].)  Lastly, the fact that Venkataraman worked for Plaintiff does not preclude liability against him.  (See Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344, 356-357 [owners/directors are not immune from liability for interfering with the entity’s contracts and economic relationships].)

Venkataraman’s demurrer for failure to state a claim as to the fourth and fifth causes of action (fraud and negligent misrepresentation) is OVERRULED.  Plaintiff alleges specific facts in support of these claims against Venkataraman.

Apple’s demurrer for failure to state a claim as to the fourth and fifth causes of action (fraud and negligent misrepresentation) is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.  To state a claim for fraud and/or negligent misrepresentation, a Plaintiff must specifically allege facts that show how, when, where, to whom, and by what means the representations were tendered, and where the defendant is a corporation, the plaintiff must also allege the names of the persons who made the alleged representations and their authority to make such statements.  (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 185, fn. 14; Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157 [discussing requirements for claims against a corporation].)  Plaintiff alleges that Apple misrepresented that it would only discuss the “acqui-hire” matter with Plaintiff’s CEO.  (Compl., ¶¶ 32 & 73.)  Plaintiff does not allege who allegedly made that statement, the speaker’s authority, and when, where, and by what means those statements were made.  Also, the complaint does not include specific allegations about Plaintiff’s justifiable reliance.  (See Lazar v. Super. Ct. (Rykoff-Sexton, Inc.) (1996) 12 Cal.4th 631, 642 [justifiable reliance must be pleaded].)

Venkataraman’s demurrer for failure to state a claim as to the sixth cause of action (violation of Section 502) is OVERRULED.  Plaintiff adequately alleges that Venkataraman’s access to its computer systems exceeded the scope of any authorization and disrupted/denied Plaintiff’s access to its computer systems.  (Compl., ¶¶ 46-51 & 86-87; see also People v. Childs (2013) 220 Cal.App.4th 1079, 1103-1104 [Section 502 “may properly be applied to an employee who uses his or her authorized access to a computer system to disrupt or deny computer services to another lawful user”].)

Venkataraman’s demurrer for failure to state a claim as to the seventh cause of action (breach of fiduciary duty) is OVERRULED.  Plaintiff adequately alleges that Venkataraman breached fiduciary duty by acting against its interests in acquisition negotiations and by sabotaging its business.  Similarly, Apple’s demurrer for failure to state a claim as to the eighth cause of action (aiding and abetting breach of fiduciary duty) is OVERRULED.  Contrary to Apple’s assertion, there is no “independent duty” requirement for a claim for aiding and abetting breach of fiduciary duty.  (Casey v. U.S. Bank National Ass’n (2005) 127 Cal.App.4th 1138, 1145, fn.2 [“Casey”].)  Plaintiff alleges that Apple knowingly and intentionally aided and abetted Venkataraman to breach his fiduciary duties by encouraging him to do so, i.e. by offering him employment and other consideration in exchange.  (Compl., ¶ 99.)  These facts are sufficient to state a claim for aiding and abetting.  (See Casey, supra, at pp. 1146 [aiding and abetting requires actual knowledge of facts relative to the scheme and knowingly providing substantial assistance].)

Defendants’ demurrer for failure to state a claim as to the tenth cause of action (unjust enrichment/restitution) is OVERRULED.  A claim for unjust enrichment is typically characterized as a claim for restitution, and on demurrer, the court must disregard the label and instead determine whether “the complaint pleads facts which would entitle the plaintiff to relief.”  (McBride v. Houghton (2004) 123 Cal.App.4th 379, 387-388.)  Restitution may be awarded when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason” (id., at p. 388); where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or “similar conduct” and the plaintiff elects to sue on a quasi-contractual theory (id.); or where the plaintiff provided services to the defendant at the defendant’s request and failed to receive compensation.  (See, e.g., Earhart v. Low Co. (1979) 25 Cal.3d 158.)  Plaintiff alleges that Defendants obtained a benefit from it by fraud and similar conduct, and therefore, it adequately states a claim for restitution.

Defendants’ demurrer for failure to state a claim as to the eleventh cause of action (violation of the UCL) is OVERRULED.  (See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143 [the UCL “‘borrows’ violations from other laws”].)