Case Name: Kaeng Raeng Inc. v. Multivitamin Direct Inc., et al.
Case No.: 1-14-CV-265928

In the second amended complaint (“SAC”), plaintiff Kaeng Raeng Inc. (“Plaintiff”) alleges that defendants Paul Huang, Viola Lee, and Alisia Cheuk (“the Managers”) are the officers/directors/managers of defendant Multivitamin Direct Inc. (“MDI”) and its subsidiary, defendant Raw Green Organics (“RGO”), and that RGO, MDI, and the Managers (collectively, “Defendants”) acted as agents, alter egos, and co-conspirators of one another. Plaintiff asserts claims for: (1) breach of non-disclosure agreement against MDI; (2) breach of a modified manufacturing contact against MDI; (3) breach of fiduciary duty of loyalty against MDI and the Managers (collectively, “MDI Parties”); (4) intentional interference with prospective economic advantage against Defendants; (5) negligent interference with prospective economic advantage against Defendants; (6) fraud and deceit against Defendants; and (7) unfair competition in violation of Business and Professions Code section 17200 (“the UCL”) against Defendants. Defendants demur to the third through seventh causes of action for failure to state a claim. (See Code Civ. Proc., § 430.10, subd. (e).)

Defendants first argue that these claims are preempted by the California Uniform Trade Secrets Act (“CUTSA”). A demurrer should be sustained where it is “clear on the face of the complaint” that a claim depends on an alleged misappropriation of trade secrets, but CUTSA “does not displace noncontract claims that, although related to a trade secret misappropriation, are independent and based on facts distinct from the facts that support the misappropriation claim.” (Civ. Code, § 3426.7; Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 240; Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 499, 506.) In addition to alleging a misappropriation of proprietary information, Plaintiff alleges the following: (1) Defendants manufactured and sold a competing product while delaying the manufacture of Plaintiff’s product; (2) MDI Parties falsely misrepresented that MDI would not compete against Plaintiff and that RGO was merely its client; (3) Defendants concealed the fact that MDI Parties controlled RGO and that RGO made and sold competing products; and (4) Defendants prevented Plaintiff from fulfilling product orders for third parties. (SAC, ¶¶ 44-48, 52-58, 62-67, 70-76, 79-85, & 88-89.) While the claims at issue may in some respects be related to the alleged misappropriation, they are independent and based on distinct facts. CUTSA therefore does not preempt these claims.

Next, Defendants assert that Plaintiff has not stated a claim for breach of duty of loyalty because it has not adequately alleged a fiduciary relationship. This argument lacks merit. In the business context, a contract for services may give rise to a fiduciary relationship where the principal controls the agents’ actions and relies on the agent to perform. (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1579-1581.) Plaintiff sufficiently states facts supporting the existence of a fiduciary relationship by alleging that MDI Parties—as MDI’s agents and co-conspirators—voluntarily accepted/assumed a fiduciary duty of loyalty by agreeing to manufacture Plaintiff’s products. (SAC, ¶¶ 8-10 & 51-56.)

Defendants also contend that Plaintiff has not stated claims based on interference with economic relations because it has not alleged a separate wrongful act. This assertion is not well-taken. To state a claim for intentional or negligent interference with an economic advantage, the plaintiff must allege a wrongful act besides the interference itself. (Della Penna v. Toyota Motor Sales, U.S.A. (1995) 11 Cal.4th 376, 393.) Plaintiff alleges that Defendants engaged in wrongful conduct by secretly forming RGO to compete with Plaintiff and fraudulently representing that RGO was simply MDI’s client. (SAC, ¶¶ 65 & 74.) Thus, Plaintiff has alleged a separate wrongful act.

Turning to the fraud claim, Defendants cite Business and Professions Code section 16600 and insist that since the claim is based on their allegedly false statement that they did/would not compete against Plaintiff, the statements are unenforceable restrictions on trade that cannot support any cause of action. Defendants’ reliance on Business and Professions Code section 16600 is misplaced, as that provision states that contracts restraining trade are void, but does not suggest that fraud claims are unenforceable when based on one party’s allegedly false statement that it would not compete against another party. (See Bus. & Prof. Code, § 16600 [“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void”].) Furthermore, contrary to Defendants’ assertion, Plaintiff specifically alleges fraud based on the concealment/nondisclosure of material facts against each of the defendants. (SAC, ¶ 80; see also Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 645 [fraud includes concealment/nondisclosure and requires specific allegations].) Plaintiff has therefore sufficiently alleged a fraud claim.
Lastly, Defendants argue that Plaintiff has not sufficiently alleged facts in support of the UCL claim. A UCL claim will survive demurrer where the plaintiff states sufficient facts to support any other cause of action. (See Krantz v. BT Visual Images, LLC (2001) 89 Cal.App.4th 164, 178 [the viability of a UCL claim stands or falls with the antecedent substantive causes of action].) Therefore, by sufficiently alleging other causes of action, Plaintiff has adequately stated a UCL claim.
Accordingly, Defendants’ demurrer is OVERRULED.