Case Name: Savi Technologies, Inc. v. WackPro, Inc., et al.

Case No.: 2014-1-CV-268149

Motion for Judgment on the Pleadings as to WackPro, Inc.’s Second, and Fourth Causes of Action

This action arises out of a commercial relationship between plaintiff/cross-defendant Savi Technologies, Inc. (“Savi”) and defendant/cross-complainant WackPro, Inc. (“WackPro”) that spans several years. On March 22, 2012, the parties entered into an Independent Contractor Agreement (“ICA”), under which Savi agreed to provide SAP consulting services to WackPro by assisting in software development for its clients at WackPro’s facilities or those belonging to the clients. (First Amended Complaint (“FAC”), ¶ 6 and Exhibit A.) Independent contractors were assigned to each WackPro client project and Savi would issue a series of invoices, by contractor and client, to WackPro for payment for work completed. (Id., ¶ 10 and Exhibit B.) Savi alleges that WackPro breached the ICA by failing to remit payment for the required invoices with a total outstanding balance of no less than $111,429.64. (Id., ¶ 11.) Savi further alleges that WackPro breached separate oral agreements for the payment of referral fees and management services by failing to completely pay outstanding amounts due. (Id., ¶¶ 12-13.)

In April 22, 2016, Savi filed the FAC asserting the following causes of action: (1) breach of written contract; (2) breach of oral contract for referral fees; (3) breach of oral contract for management fees; (4) common count- open account; (5) common count- account stated; (6) common count- services rendered; (7) unjust enrichment; and (8) quantum meruit. Savi filed its initial complaint on July 18, 2014.

WackPro filed its Cross-Complaint on August 10, 2015, asserting claims against Savi for: (1) breach of contract; (2) breach of contract; (3) misappropriation of trade secrets; and (4) intentional interference with prospective economic advantage. The thrust of this pleading is that WackPro shared confidential information with Savi pursuant to the written agreement between the parties and Savi then breached the confidentiality and non-disclosure provisions of that agreement and used the information obtained to wrongfully interfere with WackPro’s client relationships. (Cross-Complaint, ¶¶4-11.) WackPro further alleges that Savi breached a non-compete provision of the written contract by “deliberately and unlawfully circumventing WackPro to solicit WackPro’s clients Riverpoint Solutions (“Riverpoint”) and SBP Consulting (“SBP”).” (Id., ¶ 20.)

On January 12, 2018, Savi filed the motion now before the court, a motion for judgment on the pleadings as to the second and fourth causes of action of WackPro’s cross-complaint.

I. Savi’s motion for judgment on the pleadings as to the fourth cause of action [intentional interference with prospective economic advantage] is GRANTED.

The fourth cause of action in WackPro’s cross-complaint asserts a claim for intentional interference with prospective economic advantage and is based, in significant part, on the allegation that, “SAVI used confidential information to interfere with WackPro’s business relationship with Riverpoint Solutions” and “SBP Consulting.” (Cross-Complaint, ¶¶35 and 38.) “Using this confidential information, SAVI requested and solicited Riverpoint Solutions/SBP Consulting, and Riverpoint Solutions/SBP Consulting entered into a direct business relationship with SAVI.” (Ibid.) In the third cause of action, WackPro alleges, in relevant part, “SAVI acquired knowledge and custody of several WackPro’s trade secrets, including its customer lists, customer contact information, information about customer preferences, goals and needs, customer profiles. … WackPro is informed and believes that SAVI has misappropriated WackPro’s trade secrets by using them to solicit WackPro’s clients and using them on behalf of SAVI.” (Cross-Complaint, ¶28.)

Savi argues the fourth cause of action for intentional interference with prospective economic advantage is preempted by the California Uniform Trade Secrets Act (“CUTSA”). CUTSA, and more specifically, “section 3426.7, subdivision (b), preempts common law claims that are ‘based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.’ [Citation.] Depending on the particular facts pleaded, the statute can operate to preempt the specific common claims asserted [including] … interference with contract.” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958-59.) On its face, it would appear that the fourth cause of action is based on the same nucleus of facts as the third cause of action.

In opposition, WackPro contends the factual basis for the fourth cause of action is distinct from the trade secret misappropriation. WackPro directs the court to allegations from paragraph 34 where it is alleged, “On April 17, 2014, Riverpoint Solutions terminated its relationship with WackPro and refused to pay WackPro’s March 2014 and April 2014 invoices. Riverpoint Solutions advised WackPro that SAVI had requested direct payment of these invoices and that Riverpoint Solutions had paid these amounts to SAVI.” In the court’s opinion, this does not constitute independent tortious conduct. This is, in substance, identical to the allegation at the very next paragraph where WackPro alleges, “Using this confidential information, SAVI requested and solicited Riverpoint Solutions, and Riverpoint Solutions entered into a direct business relationship with SAVI.”

Accordingly, Savi’s motion for judgment on the pleadings as to WackPro’s fourth cause of action is GRANTED.

II. Savi’s motion for judgment on the pleadings as to the second cause of action [breach of contract] is GRANTED.

In the second cause of action, WackPro alleges that as a party to the ICA, “SAVI’s conduct was governed by a non-compete provision which prohibited SAVI from engaging in any ‘dealings whatsoever, either directly or indirectly through associates with any customer or client of the Company or its subsidiaries or any person or firm with whom Consultant has made contact in connection with his consulting activities for the Company … both during the term of this Agreement and subsequent termination of this Agreement.” (Cross-Complaint, ¶18.) “While SAVI’s obligations were in full force and effect, SAVI’s [sic] breached the [ICA] by deliberately and unlawfully circumventing WackPro to solicit WackPro’s clients Riverpoint Solutions and SBP Consulting.” (Cross-Complaint, ¶20.)

In moving for judgment on the pleadings as to the second cause of action, Savi argues the alleged non-compete provision of the ICA is void under Business & Professions Code section 16600. That section sets forth the general rule that, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” There are various exceptions, but Savi contends none of the exceptions are applicable here. Business and Professions Code section 16600 “protects ‘the important legal right of persons to engage in businesses and occupations of their choosing’ [citation], and under section 16600’s plain meaning ‘an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions.” (The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, 1235.)

In opposition, WackPro begins by arguing that section 16600 was intended to protect employee mobility and employee mobility is not restrained here because SAVI and WackPro are merely intermediaries who bring together clients (from WackPro) with skilled programmers (from Savi). According to WackPro, there is no violation of the ICA’s non-compete provision if a skilled programmer goes on to become an employee of one of WackPro’s clients. The provision only prohibits Savi, not the skilled programmer, from facilitating that subsequent employment.

However, the plain language of section 16600 is not limited to employees only. “[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” (Emphasis added.) WackPro’s argument is the same one made and rejected by the court in VL Systems, Inc. v. Unisen, Inc. (2007) 152 Cal.App.4th 708 (Unisen) where the court voided a contract provision between two corporations, VLS and Star Trac, which “provided that Star Trac would not hire any VLS employee for 12 months after the contract’s termination, subject to a liquidated damages provision.” (Unisen, supra, 152 Cal.App.4th at pp. 709–710.)

According to VLS, “this case has absolutely nothing to do with an [e]mployee’s freedom of movement or covenants not to compete between employer and employee. Nor does this case involve any issues involving employer/employee relations…. [¶] The subject contract did not ‘preclude’ Star Trac from hiring David Rohnow…. Rather, the contract simply called for the payment of a fixed sum to VLSystems should they choose to do so.”

We disagree with VLS and hold that paragraph 6 is not enforceable. [Footnote.]

(Id. at pp. 712–713.)

WackPro argues next that the non-compete provision is necessary here to protect its trade secrets. “[S]ection 16600 invalidates provisions in employment contracts and retirement pension plans that prohibit ‘an employee from working for a competitor after completion of his employment or imposing a penalty if he does so [citations] unless they are necessary to protect the employer’s trade secrets [citation].’” (Edwards v Arthur Andersen LLP (2008) 44 Cal.4th 937, 946 (Edwards).) WackPro contends the non-compete provision in the ICA necessarily protects trade secrets. Indeed, the Agreement includes an entire article (Article 4) on the issue of confidential information.

However, based on the ruling in Edwards, it is unclear whether such a common law trade secret exception still exists. This was the same argument raised in Dowell v Biosense Webster, Inc. (2009) 179 Cal.App.4th 564 (Dowell). In Dowell, the defendant made the same argument that WackPro makes here.

Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the so-called trade secret exception, citing cases such as Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1429–1430 [7 Cal. Rptr. 3d 427]; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462 [125 Cal. Rptr. 2d 277]; Metro Traffic, supra, 22 Cal.App.4th at page 860; and American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1322 [228 Cal. Rptr. 713]. Plaintiffs counter that in light of our Supreme Court’s recent decision of Edwards, supra, 44 Cal.4th 937, a common law trade secret exception no longer exists.”

(Dowell, supra, 179 Cal.App.4th at pp. 575 – 576.)

“Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition.” (Id. at p. 577.) “Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are ‘tethered’ to the use of confidential information, and are triggered only when the former employee’s services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. ‘Confidential information’ is broadly defined as information disclosed to or known by the employee, including such information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in D’Sa, supra, 85 Cal.App.4th at page 930. There, the employment agreement prohibited the departing employee from ‘render[ing] services, directly or indirectly, for a period of one year … to any person or entity in connection with any Competing Product,’ which was defined as ‘any products, processes or services … which are substantially the same …’ as those on which the employee worked or ‘about which’ the employee worked or ‘about which [the employee] acquire[d] Confidential Information.’ [Citation.]”

(Id. at p. 578.)

The non-compete provision here is just as broad as the one in Dowell in that it prohibits Savi from having “any business dealings whatsoever, either directly or indirectly,” with WackPro’s client(s).

Finally, WackPro argues section 16600 prohibits a non-compete provision only to the extent it restricts Savi’s right to compete after its contractual relationship with WackPro ends, but does not prohibit a non-compete provision which restricts Savi’s right to compete while a contractual relationship Savi and WackPro exists. This argument is purely hypothetical because the non-compete provision here applies only after the contractual relationship between Savi and WackPro has ended as the provision states, “If this Consulting Agreement with [WackPro] terminates for any reason, [Savi] will not, for a period of one year from the date of termination, have any business dealings whatsoever…” (Emphasis added.)

Accordingly, Savi’s motion for judgment on the pleadings as to WackPro’s second cause of action is GRANTED.