Case Name: Leadfactors, LLC v. Cisco Systems, Inc.

Case No.: 1-13-CV-247926 (consolidated with 1-13-CV-249261)

Demurrer by Defendant Cisco Systems, Inc. to the Third Amended Complaint of Plaintiff Leadfactors, LLC

This is a consolidated action. Following a series of demurrers, Plaintiff filed a third amended complaint (“TAC”), now the operative pleading, alleging claims for misappropriation of trade secrets and breach of contract.

On January 6, 2014, Cisco filed the motion presently before the court: a demurrer to Plaintiff’s second cause of action for breach of contract on the ground that it fails to state a cause of action. (Code Civ. Proc. § 430.10, subd. (e).)

The necessary elements of a breach of contract cause of action are (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.)

On demurrer, Cisco makes the following arguments: (1) the terms of the non-disclosure agreement (“NDA”) prohibit assignment of the “right” to sue for an alleged breach of the NDA; (2) even if the right to sue for breach of contract could be assigned, ConnectBeam did not assign that right to Square 1 Bank, and thus Square 1 could not assign it to Plaintiff; and (3) Plaintiff fails to allege damages to support its breach of contract claim.

1. Right to Sue for Breach of Contract under the NDA

Cisco argues that the express language of the NDA prohibits any assignment of the NDA along with any claims arising out of or related to the NDA. In support, Cisco relies on section 13.2 of the NDA which provides in pertinent part that: “Neither this Agreement nor any right granted hereunder shall be assignable or otherwise transferable.” (See Exhibit 4 to the TAC at p. 2.) Since the agreement prohibits any assignment, Cisco asserts that Plaintiff cannot establish any breach of contract claim pursuant to the NDA.

In opposition, Plaintiff argues that the NDA’s general prohibition of assignment of rights does not prevent it from alleging a breach of contract cause of action. In support, Plaintiff relies on Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335 (“Trubowitch”), where the California Supreme Court stated that, “in the absence of language to the contrary in the contract, a provision against assignment does not govern claims for money due or claims for money damages for nonperformance.” (Id. at p. 344; see also National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 54 [while it is true that the clause precludes assignment of all “rights” of the parties, such general assignment clauses have been held not to preclude assignment of certain causes of action].)

The prohibition against assignments in the NDA is different from, and broader than, the language in Trubowitch, extending not only to the contract but also to “any right granted hereunder”. What was purportedly assigned in this case was not a “claim for money due” or a “claim for money damages for nonperformance” within the meaning of Trubowitch, which turns on facts showing that the breach occurred before corporate dissolution of the assignor. (Trubowitch, 30 Cal.2d at 340-341.) According to the TAC, ConnectBeam was dissolved in January 2010, but the alleged breach occurred in June 2010. (TAC, para. 36 and 71.) Accordingly, the rights purportedly assigned are subject to the NDA’s prohibition on assignment.

In the alternative, Plaintiff argues that the NDA’s assignment clause is ambiguous and thus the court must accept Plaintiff’s interpretation of the clause on demurrer. “Where an ambiguous contract is the basis of an action, it is proper, if not essential, for a plaintiff to allege its own construction of the agreement. So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff’s allegations as to the meaning of the agreement. Whether a contract is ambiguous is a question of law.” (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239 [citation and quotation marks omitted].)

Plaintiff alleges that the NDA does not prohibit the assignment of the right to bring suit for any breach of the agreement nor does it reserve any right for breach. (See TAC at ¶¶ 51-52.) However, as the reply points out, the anti-assignment clause in the NDA is unambiguous. As stated above, the agreement provides that there be no assignment for rights granted under the NDA, which includes the right to bring suit for monetary damages or seek injunctive relief. Thus, the court is not bound to accept Plaintiff’s interpretation of the NDA on demurrer. (See In re Tobacco Cases I (2004) 124 Cal.App.4th 1095, 1106-1107 [courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists]; see also City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 473 [courts must interpret contractual language in a manner which gives force and effect to every provision, and not in a way which renders some clauses nugatory, inoperative or meaningless].)

Therefore, Cisco’s demurrer to the breach of contract cause of action is SUSTAINED for failure to state a claim. Having sustained the motion on this ground, the court declines to consider the remaining arguments on demurrer.

2. Leave to Amend

Plaintiff requests that, should the court sustain the demurrer, further leave to amend be granted. Although generally it is an abuse of discretion for the court to deny leave to amend where there is any reasonable possibility that plaintiff can state a good cause of action, it is not up to the judge to figure out how the complaint can be amended to state a cause of action. Rather, the burden is on the plaintiff to show in what manner he or she can amend the complaint, and how that amendment will change the legal effect of the pleading. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)

Here, Plaintiff has been given several chances to amend its pleading to state a valid breach of contract cause of action. Each time Plaintiff has failed to allege a valid claim that would overcome demurrer. Furthermore, the opposition filed to this most recent demurrer fails to provide any guidance on how Plaintiff intends to amend its pleading to state a valid claim. (See Buena Vista Mines, Inc. v. Industrial Indemnity Co. (2001) 87 Cal.App.4th 482, 487 [the burden is on the plaintiff to demonstrate the manner in which the complaint might be amended].)

Accordingly, leave to amend is DENIED. (See Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1097 [trial court did not abuse its discretion in sustaining demurrer without leave to amend after plaintiff had two previous opportunities to amend the complaint].)

3. Sanctions

For the first time in reply, Cisco requests an award for sanctions. (See Reply Brief at p. 2.) However, Cisco fails to cite any legal authority to support its request for sanctions, and raising the issue for the first time in reply denies Plaintiff due process. (See First City Properties, Inc. v. MacAdam (1996) 49 Cal.App.4th 507, 517 [appellate court held that due process is not satisfied if it cannot be determined on a full record the statute under which the sanctions are imposed].) Therefore, Cisco’s request for sanctions is DENIED.