Case Name: Lam Research Corporation v. Belfor, et al.
Case No.: 1-14-CV-259921

Defendant Jeff Belfor (“Defendant”) demurs to plaintiff Lam Research Corporation’s (“Plaintiff”) First Amended Complaint (“FAC”). Defendant argues that the first, fifth, and sixth causes of action in the FAC fails to state facts sufficient to constitute a cause of action against Defendant.

Defendant requests that the Court take judicial notice of the following:

(1) The certified transcript of the preliminary injunction proceedings before Hon. James L. Stoelker on April 8, 2014;

(2) The certified transcript of the preliminary injunction proceedings before Hon. James L. Stoelker on April 9, 2014;

(3) Plaintiff’s closing argument demonstrative presentation, lodged with the Court during the proceedings on April 9, 2014, at Plaintiff’s request;

(4) The April 18, 2013 Order Granting Preliminary Injunction;

(5) Plaintiff’s Cal. Civ. Proc. Code § 2019.210 Amended and Supplemental Trade Secrets Disclosure filed under seal as Exhibit H to the Declaration of Elizabeth McBride dated April 4, 2014;

(6) Plaintiff’s original complaint filed January 31, 2014.

Defendant seeks judicial notice of the first four documents for purposes of showing that Plaintiff made certain arguments/admissions in Court. Defendant appears to contend that statements made by Plaintiff in Court should have the effect of modifying or limiting the allegations of the FAC. However, a hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of documents whose truthfulness or proper interpretation are disputable. (See Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal. App. 3d 369, 374.) Documents related to the proceedings on April 8 and 9, 2014 are not relevant to the instant demurrer and only relevant documents are subject to judicial notice. (Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal. 4th 1057, 1063, overruled on other grounds.) Accordingly, Defendant’s request for judicial notice is DENIED as to the first four documents. Defendant’s request for judicial notice is GRANTED as to the fifth and sixth documents. (Evid Code, § 452, subd. (d).)

According to the allegations of the FAC, Plaintiff is a global supplier of semiconductor wafer fabrication equipment and services to the semiconductor industry. (FAC, ¶ 6.) Defendant played a principal role in the creation and development of Plaintiff’s “Rapid Prototyping Materials” (“RPM”) program, and managed the Pilot Operations group responsible for administering the RMP program. (FAC, ¶ 3.) On June 24, 2013, Defendant resigned from employment with Plaintiff to take a position at Plaintiff’s competitor Applied Materials (“Applied”). (FAC, ¶ 4.) Defendant’s coworker, Nishit Pandya (“Pandya”), followed on September 3, 2013. (FAC, ¶ 4.) Since accepting employment at Applied, Defendant and Pandya have been aggressively developing a “rapid prototyping” program for Applied that is substantially identical to the confidential process developed and operated by Defendant and Pandya at Plaintiff. (FAC, ¶ 5.) Defendant and Pandya have been targeting and meeting with Plaintiff’s cultivated RPM suppliers to sign them up for Applied’s new rapid prototyping program. (FAC, ¶ 5.) Defendant and Pandya have used their knowledge of Plaintiff’s Pilot Operations group to assist in the solicitation and recruiting of Plaintiff’s employees, which has resulted in no fewer than ten other Pilot Operations employees leaving Plaintiff to join Applied since July 2013. (FAC, ¶ 5.) These facts demonstrate that Defendant and Pandya have used Plaintiff’s confidential and trade secret information and have participated in the soliciting of Plaintiff’s employees, in violation of their respective contractual obligations and duties to Plaintiff. (FAC, ¶ 5.)

Plaintiff’s first cause of action is for breach of contract. Plaintiff alleges that, in connection with Defendant’s employment at Plaintiff, Defendant entered into an employment agreement (the “Agreement”) on April 24, 1995. (FAC, ¶ 51.) As part of the Agreement, Defendant agreed that, after the conclusion of his employment with Plaintiff, he would not disclose or use Plaintiff’s confidential, proprietary, and trade secret information, and that he would return company documents upon leaving the employ of Plaintiff. (FAC, ¶ 51.) Defendant also agreed that, for one year following the term of his employment, he would not directly or indirectly solicit, induce, recruit, or encourage any of Plaintiff’s employees to leave their employment with Plaintiff. (FAC, ¶ 52.) Defendant breached the agreement by disclosing and using Plaintiff’s confidential and trade secret information to implement a virtually identical rapid prototyping program at Applied and to target Plaintiff’s RPM suppliers for participation in Applied’s rapid prototyping program. (FAC, ¶ 54.) Defendant further breached the Agreement by directly or indirectly soliciting, inducing, recruiting or encouraging multiple employees to leave their employment at Plaintiff and go to work for Applied. (FAC, ¶ 55.)

Defendant argues that the breach of contract cause of action is barred by Business and Professions Code section 16600. Section 16600 states generally that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Defendant contends that the breach of contract claim encompasses allegations that Defendant breached two contract provisions: (1) a sweeping “confidential information” provision that purports to prevent former employees of Plaintiff from using information that does not qualify as trade secrets; and (2) a broad “non-solicitation” provision that prohibits former employees from hiring former co-workers even absent misuse of trade secrets. Defendant argues that each of these provisions is void on its face.

Looking first at the non-solicitation provision, the portion of the Agreement states:

I agree that for a period of twelve (12) months immediately following the termination of my relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage or take away employees of the Company, either for myself or for any other person or entity.

(FAC, Exhibit A, § 7.)

“The basic rule in this state is that contracts precluding a former employee from obtaining new employment with a competitor are invalid under section 16600.” (Loral Corp. v. Moyes (1985) 174 Cal. App. 3d 268, 275-276.) However, “section 16600 does not invalidate an employee’s agreement not to disclose his former employer’s confidential customer lists or other trade secrets or not to solicit those customers.” (Id. at p. 276.) The question is “is whether a noninterference agreement not to solicit former coworkers to leave the employer is more like a noncompetition agreement which is invalid, or a nondisclosure or nonsolicitation agreement which may be valid.” (Ibid.)

The subject non-solicitation provision in this case does not prevent Defendant from finding different employment. Further, it does not preclude Defendant’s new employer from hiring any employee it wants to, including Defendant’s former co-workers. The cases cited by Defendant to show why the provision is void are distinguishable. For example, VL Systems, Inc. v. Unisen, Inc. (2007) 152 Cal. App. 4th 708 concerned a “no-hire” provision in which one party to a service contract agreed not to hire any of the other party’s employees. In contrast, the non-solicitation provision at issue here does not prohibit the hiring of any third party. Moreover, the provision does not prevent any employee of Plaintiff from seeking employment with Defendant’s new employer on his or her own.

In sum, Defendant has not demonstrated that the non-solicitation provision is invalid. Plaintiff has alleged a breach of the Agreement based on the non-solicitation provision. A demurrer must dispose of an entire cause of action to be sustained. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal. App. 4th 97, 119.) Since the FAC sufficiently states a claim for breach of contract based on the non-solicitation provision, it is unnecessary for the Court to reach the issue of whether the “confidential information” provision in the Agreement is void. Defendant’s demurrer to the first cause of action on the grounds that it fails to state facts sufficient to constitute a cause of action is OVERRULED.

Defendant argues that Plaintiff’s fifth cause of action (unfair competition) and sixth cause of action (tortious interference with contract) are superseded by California’s Uniform Trade Secrets Act (“CUTSA”). “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies ‘based upon misappropriation of a trade secret.’” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal. App. 4th 210, 236, overruled on other grounds.) However, CUTSA does not supersede other civil remedies that are not based upon misappropriation of a trade secret. (Civ. Code, § 3426.7, subd. (b).) In other words, 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.” (Angelica Textile Services, Inc. v. Park (2013) 220 Cal. App. 4th 495, 506.)

The fifth and sixth causes of action are based, at least in part, on the recruiting of Plaintiff’s employees in violation of the Agreement. (See FAC, ¶¶ 72, 82-83.) This is conduct unrelated to the misappropriation of any trade secret and, therefore, the allegations of the FAC do not show that these causes of action are preempted by CUTSA.

Defendant argues that the fifth cause of action does not state a claim based on unfair conduct because Plaintiff has not alleged conduct that threatens a violation of an antitrust law and does not state a claim based on unlawful conduct because Plaintiff has not alleged any unlawful conduct other than the CUTSA claim, which cannot serve as a predicate for a UCL claim. Among other allegations, Plaintiff alleges that Defendant recruited Plaintiff’s employees in violation of the Agreement. Interference with a competitor’s employment contracts may constitute an unlawful business practice sufficient to support a UCL claim. (Angelica Textile Services, Inc. v. Park, supra, 220 Cal. App. 4th at p. 510, citing CRST Van Expedited, Inc. v. Werner Enters. (9th Cir. 2007) 479 F.3d 1099, 1107.) Therefore, Plaintiff has sufficiently alleged an unlawful business practice.

Defendant also contends that Plaintiff has not properly alleged standing to sue under the UCL. An action for relief under the UCL can only be brought by one who has suffered injury in fact and has lost money or property as a result of the alleged unfair competition. (Bus. & Prof. Code, § 17204.) Plaintiff alleges that it has “suffered injury and harm in amounts according to proof” (FAC, ¶ 56), but this is just a legal conclusion, which is insufficient for pleading purposes. Plaintiff does not allege facts showing that it has lost money or property as a result of Defendant’s alleged actions. Accordingly, Defendant’s demurrer to the fifth cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

The sixth cause of action is one for tortious interference with contract. “[T]o recover for a defendant’s interference with an at-will employment relation, a plaintiff must plead and prove that the defendant engaged in an independently wrongful act—i.e., an act ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.’” (Reeves v. Hanlon (2004) 33 Cal. 4th 1140, 1152-1153.) Defendant argues that Plaintiff fails to allege that Defendant engaged in any conduct proscribed by California law related to employee solicitation. Plaintiff contends that Defendant’s actions were in breach of the Agreement and that a breach of contract is an independently actionable wrong that can support the claim for tortious interference. To the contrary, “California law does not recognize a breach of contract as a ‘wrongful act’ predicate required for [an intentional interference] claim.” (Block v. eBay, Inc. (N.D. Cal. 2012) 2012 U.S. Dist. LEXIS 63866, 15, citing JRS Products, Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal. App. 4th 168, 183.) Accordingly, Defendant’s demurrer to the sixth cause of action on the grounds that it fails to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

Defendant’s Motion to File Under Seal Portions of Request for Judicial Notice in Support of Demurrer to Plaintiff’s First Amended Complaint is unopposed and GRANTED. (Cal. Rules of Court, rules 2.550 and 2.551.)