Case Number: SC113407 Hearing Date: April 17, 2014 Dept: SEC

INNOVATION TOOLS S.A. v. TURBO ION, INC.
CASE NO.: SC113407
HEARING: 04/17/14

#3
TENTATIVE ORDER

Cross-defendant HEE JINA CHON’s motion for summary judgment or, in the alternative, summary adjudication is DENIED. C.C.P. § 437c.

As a preliminary matter, the Court notes that cross-complainants TURBO ION, INC. and TAE JONG PARK¿s voluntarily dismissed their cause of action for misappropriation of trade secrets (4th). Dismissal, 01/28/14. Cross-defendant seeks summary adjudication of the remaining causes of action (in the First Amended Cross-Complaint) for breach of contract, breach of implied covenant of good faith and fair dealing and breach of fiduciary duty.

The causes of action arise out of the allegations that Chon unlawfully disclosed confidential information and/or trade secrets to plaintiff INNOVATION TOOLS and/or defendant Blue Ceramic (manufacturer).

As indicated in the parties’ Separate Statements, the following facts are undisputed. Cross-complainant Turbo Ion is in the business of importing and selling styling products, including hair dryers and flatirons. Cross-complainant Park is president of the corporation and owns all of its stock.

Cross-defendant Chon was first employed by cross-complainant Turbo Ion in March or April 2008 for approximately a month and a half. She began working for Turbo Ion again in July 2008 and signed an employment agreement on August 1, 2008. Chon decl., Exh. 1. In May 2010, Chon informed Turbo she intended to resign and she officially left her position on July 15, 2010. According to Chon, she consulted with plaintiff Innovation Tools (Turbo’s sub-distributor in Mexico) from about August 2010 to December 2010. Chon decl., ¶12. Cross-complainants allege that she began consulting with Innovation prior to leaving her employment with Turbo and that throughout her relationship with Innovation, she revealed confidential information and/or trade secrets.

Breach of contract
In the FAXC, Turbo and Park allege that Chon breached her employment agreement by divulging confidential information to Innovation in order to assist its violation of its exclusive distribution agreement. ¶41.

Paragraph 8 of Chon’s employment contract contained a provision whereby she agreed not to reveal confidential information or trade secrets to anyone either during or after her employment term. Chon decl., Exh. 1, ¶8. The agreement also contained a non-compete provision, for the period of one year after the end of her employment. Id., ¶10.

Cross-defendant seeks summary adjudication on the grounds that (1) there is no evidence that she divulged any confidential information (falling into the nine classes of allegedly confidential information), and (2) paragraphs 8 and 10 of the contract are unenforceable.

Enforceability
Chon contends that the non-compete clause unduly restrains her freedom to practice her trade and is unenforceable under California law. See Bus. & Prof. Code §16600. Cross-defendant’s reliance on Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210 (overruled in part by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310) is somewhat misplaced insofar as that case concerned a cause of action for unfair business practices, rather than a contractual provision.

In Dowell v. Biosense Webster, Inc. (2009) 179 Cal.App.4th 564, the Court found that the non-competition clauses which effectively prevented the employees from competing for a period of 18-months were unenforceable. The clauses in that case were broad—purporting to prevent the employee not to render services to any “conflicting organization.” Id. at 568. The Court left open the issue of whether an exception to the statute (section 16600) existed for trade secrets. Even if the subject non-compete clause may be read narrowly, the statutory rule prohibiting restraints on competition is not subject to such an exception. See Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937. The Court finds paragraph 10 of the agreement unenforceable under the statute and the underlying public policy. The Court also agrees with cross-complainants’ argument that the provision can be severed from the remainder of the contract. See, e.g. Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268. The agreement not to divulge confidential information is separate from a non-competition clause related to future employment.

Chon argues that the terms “confidential” and “trade secret” as used in paragraph 8 are vague because they are not defined within the contract and that the confidentiality clause is thus unenforceable under Motorola, Inc. v. Fairchild Camera & Instrument Corp. (1973) 366 F.Supp. 1173. There, the court found such an agreement unenforceable because of the lack of evidence that the employee should have known what information was deemed by the employer to be confidential or a trade secret. Cross-defendant has not established that the nature of the business was such that she had no reason to know what information cross-complainants sought to protect, so as to render the contractual provision void as a matter of law.

Breach
Because cross-complainants dismissed the misappropriation cause of action, their contention that cross-defendant wrongfully disclosed certain proprietary information must be based on her contractual obligation not to do so. (As an aside, the Court notes that the now-operative Second Amended Cross-Complaint includes new causes of action under which cross-complainants may be able to assert wrongful disclosure).

Cross-defendant has not met her burden of establishing she is entitled to judgment as a matter of law on the breach of contract cause of action. In opposition to the motion, cross-complainants proffer evidence that after her employment, she assisted Innovation Tools in its alleged marketing of counterfeit Croc products and wrongfully obtaining trademarks on its products.

Cross-complainant Park’s declaration provides evidence that Chon was privy to confidential information regarding Turbo’s manufacturing processes, pricing structures, technology and design. ¶10. He declares that she worked directly with manufacturer Blue Ceramic and thus had knowledge of certain component parts which was information not readily known to the public. Opp., Exh. 19, 21. She was also aware of the formula used to manufacture the plastic housing. Id. That information was later used in the counterfeit Croc irons. Opp., Exh. 79, 85.

Turbo had an exclusive agreement with Blue Ceramic about which Chon was aware. Opp., Exh. 2. In October 2010, during a negotiation for a price reduction, Innovation indicated that it knew Turbo’s manufacturing costs and attempted to use such information to obtain a lower price. Park decl., ¶27. Pricing information is often confidential, and can be demed a trade secret. Whyte v. Schalege Lock Co. (2002) 101 Cal.App.4th 1443. Prior to that, in September 2010, Park learned that Chon, along with Innovation representatives, had traveled to South Korea to directly negotiate a contract with Blue Ceramic. ¶28; Opp., Exh. 65. Chon admitted in an “urgent” email to Mr. Seo (from Blue Ceramic) that her email to Raphael Manzo Rocha (of Innovation Tools) was accidently forwarded to Turbo Ion and that Park must have learned that she visited Korea regarding the project. Opp., Exh. 44. Therein, Chon also discussed the use of the “GreenIon” trademark, since it was not registered in Mexico. The GreenIon line of products was in the testing phase during the first half of 2010, and not yet available on the general market. Park decl., ¶¶31, 33.

Cross-complainants also proffered evidence that Chon wrongfully used Turbo’s product mold and artwork, labels and packaging, so that the counterfeit Croc products would replicate Turbo’s technology, functionality and design. See Decl. of Jim Pylant. Mr. Pylent is cross-complainants’ expert who compared the real CROC iron with the counterfeit, and attested to their similarities and the unlikelihood of reverse engineering. See also Opp., Exh. 63, 97.

The voluminous evidence submitted raises the factual issues as to whether Chon had unique knowledge of the information allegedly shared, and whether such information was confidential or a trade secret and whether her dissemination of such information constitutes a breach of her employment agreement. Those issues cannot be resolved as a matter of law. Accordingly, the motion for summary adjudication is denied.

Breach of implied covenant
Cross-defendant’s argument that the cause of action (as well as the breach of fiduciary claim) is preempted by the Uniform Trade Secrets Act (“CUTSA”) fails insofar as the misappropriation cause of action has since been dismissed.

Cross-complainants allege that Chon breached the implied covenant by “unfairly interfere[ing] with Turbo Ion’s right to receive the benefits under the [employment contract].” FAXC, ¶48. It is not clear whether the cause of action is directed at an obligation not expressly set forth in the contract. See e.g. Jenkins v. JP Morgan Chase Bank, NA (2013) 216 Cal.App.4th 497; Guz v. Bechtel Nat’l, Inc. (2000) 24 Cal.4th 317. However, insofar as cross-complainant argues that there exists an implied obligation not to reveal an employer’s confidential information gained in the course of employment, the Court finds the cause of action is not entirely duplicative. See By-Buk Co. v. Printed Cellophane Tape Co. (1958) 163 Cal.App.2d 157; Pasadena Ice Co. v. Reeder (1929) 206 Cal. 697.

For the same reasons the motion is denied as to the breach of contract claim, the request for summary adjudication of the breach of implied covenant cause of action is also denied.

Breach of fiduciary duty
Cross-defendant Chon acknowledges that her initial title was “Sales and Marketing Manager” and that she was later given the title of “Chief Operating Officer,” but argues that she did not actually possess managerial powers and thus owed no fiduciary duty to employer Turbo. See Stephenson v. Drever (1997) 16 Cal.4th 1167; O’Byrne v. Santa Monica-UCLA Medical Ctr. (2001) 94 Cal.App.4th 797. Chon seeks summary adjudication on the ground that she owed no duty.

To support her argument, cross-defendant argues that her duties as COO were essentially the same as those she had as a sales manager. Motion, Exh. 4 (Turbo’s responses to form interrogatories); Chon decl. ¶8. She also argues that her employment agreement was never modified to reflect the change, nor were Turbo’s corporate papers changed to reflect her purported status as a corporate officer. Motion, Exh. 6; Chon decl.

In opposition, cross-complainant TJ Park proffers his own declaration wherein he states that in January 2012, Chon was promoted to COO and that she was given access to Turbo’s confidential information. He contends that she had extensive management duties, including the authority to hire, fire and supervise employees. Park dec;., ¶11; Opp., Exh. 20. She was allowed to make important business decisions on behalf of Turbo and without Park’s input. ¶12. Turbo’s Director of Operations Stephanie Perez also attested to Chon’s managerial duties. That evidence is sufficient to create a triable issue as to whether she exercised managerial powers and thus whether she owed a fiduciary duty to Turbo Ion. The motion for summary adjudication is denied.

Evidentiary objections
Rulings on the evidentiary objections will be made available at the hearing. Neither party submitted a proposed order for the Court’s signature or an additional copy for its records. See C.R.C., Rule 3.1354.