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

Case No.: 2014-1-CV-268149

Savi Technologies, Inc.’s Demurrer to WackPro, Inc.’s Second and Fourth Causes of Action in their Second Amended Cross-Complaint

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.

On January 12, 2018, Savi filed a motion for judgment on the pleadings as to the second and fourth causes of action of WackPro’s cross-complaint. On February 13, 2018, the court issued an order granting Savi’s motion for judgment on the pleadings as to the fourth cause of action of WackPro’s cross-complaint without leave to amend. The court granted Savi’s motion for judgment on the pleadings as to the second cause of action, with leave to amend.

On February 23, 2018, WackPro filed a first amended cross-complaint asserting causes of action for (1) breach of contract; (2) breach of contract; and (3) misappropriation of trade secrets.

On March 7, 2018, WackPro filed a motion for leave to file a second amended cross-complaint (“SAXC”). On June 14, 2018, the court issued an order granting WackPro’s motion for leave to file a SAXC.

On June 15, 2018, WackPro filed the operative SAXC which asserts causes of action for: (1) breach of contract; (2) breach of contract; (3) misappropriation of trade secrets; and (4) interference with contractual relations. 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, non-disclosure, and non-compete provisions of that agreement and used the information obtained to wrongfully interfere with WackPro’s client relationships. (SAXC, ¶¶4-13.)

On July 19, 2018, Savi filed the motion now before the court, a demurrer to the second and fourth causes of action of WackPro’s SAXC.

I. Savi’s request for judicial notice is GRANTED.

In support of its demurrer, Savi requests judicial notice of the court’s February 13, 2018 order granting, in part, Savi’s motion for judgment on the pleadings. Evidence Code section 452, subdivision (d) states that the court may take judicial notice of “[r]ecords of any court of this state.” This section of the statute has been interpreted to mean that the trial court may take judicial notice of the existence of the court’s own records. Evidence Code section 452 and 453 permit the trial court to “take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached—in the documents such as orders, statements of decision, and judgments—but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact.” (People v. Woodell (1998) 17 Cal.4th 448, 455.) Accordingly, Savi’s request for judicial notice is GRANTED.

II. Savi’s demurrer to the fourth cause of action [interference with contractual relations] is OVERRULED.

The fourth cause of action in WackPro’s cross-complaint asserts a claim for interference with contractual relations. WackPro alleges it entered into enforceable contractual relationships with Riverpoint and SBP whereby WackPro would provide services for Riverpoint and SBP end-clients, respectively. (SAXC, ¶¶57 – 58.) WackPro and Savi then entered into addenda to the ICA for the placement of consultants with Riverpoint’s end-client, ArcelorMittal, and SBP’s end-client, John Deere. (SAXC, ¶59.) Savi then communicated with Riverpoint and SBP and induced Riverpoint and SBP to pay Savi amounts owed to WackPro. (SAXC, ¶¶61 and 63.) Savi also induced Riverpoint and SBP to enter into new contracts with Savi for the same resource need for the same end-clients. (Id.)

Savi argues the fourth cause of action for intentional interference with contractual relations 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.)

If read in isolation, WackPro’s fourth cause of action might not appear to be based on the same nucleus of facts as the misappropriation of trade secrets claim. However, in the third cause of action for misappropriation of trade secrets, 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.” (SAXC, ¶52.)

The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55; Tuchscher Development Enterprises, Inc. v. San Diego Unified Port Dist. (2003) 106 Cal.App.4th 1219, 1239; see also CACI, No. 2201.)

Savi contends the allegations of interference with WackPro’s contracts could not occur unless Savi first misappropriated WackPro’s trade secrets, i.e., Riverpoint and SBP customer information. Savi would only have known to contact Riverpoint and SBP based on the customer information it obtained from WackPro. Thus, it is Savi’s contention that the fourth cause of action for interference with contract is preempted because it is based on the same nucleus of facts as the misappropriation claim.

In opposition, WackPro contends the fourth cause of action can exist independently. WackPro invites the court to adopt the reasoning employed by the court in Rovince Intern. Corp. v. Preston (C.D. Cal., Oct. 7, 2013, No. CV 13-3527 CAS PJWX) 2013 WL 5539430, at *5:

But while the FAC may allege that Preston used its trade secrets when inducing Laugfs breach of contract, Rovince’s claim does not “arise out of Preston’s purported misappropriation of trade secrets.” In particular, none of the elements of Rovince’s claim for inducing breach of contract will turn on Preston’s alleged misuse of confidential information. Accordingly, Rovince could prevail on its claim that Preston induced a breach of contract even if it fails to show that Preston misappropriated trade secrets.

Preston’s reliance on K.C. Multimedia thus misses the mark. In K.C. Multimedia, the defendants allegedly interfered with a contractual relationship by encouraging one of the parties to the contract to misappropriate trade secrets. As such, the K.C. Multimedia [plaintiffs] could only prevail on their claim for contractual interference if they proved that trade secrets were in fact misappropriated. Here, by contrast, the FAC alleges that Preston’s induced Laufgs to breach a supply contract with Rovince. To prevail on this claim, Rovince need not show that Preston misappropriated trade secrets—Preston could be liable for inducing Laufgs to breach even if he had only used publically available information. Accordingly, because Rovince’s claim for inducing breach of contract does not “arise out of Preston’s purported misappropriation of trade secrets,” Rovince’s claim is not superceded by the UTSA.

WackPro advances the same argument here. In other words, even if there is no misappropriation of trade secrets, WackPro contends Savi can still be found liable for inducing Riverpoint and SBP to breach their contracts with WackPro. The court finds this reasoning somewhat persuasive. As alleged, WackPro had contracts with Riverpoint and SBP. WackPro and Savi then agreed that Savi would provide consultants to Riverpoint and SBP. Thus, Savi necessarily had some basic information identifying Riverpoint and SBP as WackPro’s end clients. The court would agree with WackPro that Savi, armed with this basic information, could be liable for inducing Riverpoint and SBP to breach their agreement with WackPro without misappropriation. However, the line between interference with contract and misappropriation is blurred because WackPro alleges Savi not only induced Riverpoint and SBP to breach their agreement with WackPro, but alleges Savi induced Riverpoint and SBP to enter into new contracts directly with Savi which, essentially, replace the contracts Riverpoint and SBP had with WackPro. In that regard, the interference claim could very well implicate the same nucleus of facts as the misappropriation claim.

In sum, WackPro’s interference with contract claim may or may not be based on the same nucleus of facts as WackPro’s misappropriation of trade secret claim. This determination will turn on the evidentiary facts. For purposes of demurrer, however, the court cannot conclude one way or the other. Consequently, Savi’s demurrer to the fourth cause of action in WackPro’s SAXC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for interference with contractual relations is OVERRULED.

III. Savi’s demurrer to the second cause of action [breach of contract] is OVERRULED.

WackPro’s SAXC alleges two separate breach of contract causes of action. In the first breach of contract cause of action, WackPro alleges the ICA “required SAVI to hold in strictest confidence WackPro’s confidential or proprietary information and prohibited it from taking or using this information without authorization from WackPro, even after the termination of the Agreement.” (SAXC, ¶15.) Savi breached the ICA “by deliberately and unlawfully misappropriating WackPro’s confidential information and by using WackPro’s confidential information to solicit WackPro’s clients Riverpoint Solutions and SBP Consulting, Inc. (‘SBP Consulting’). Based on SAVI’s conduct with these two clients, WackPro reasonably believes there are additional clients SAVI has approached and solicited, using WackPro’s confidential information.” (SAXC, ¶17.)

In the second breach of contract cause of action, WackPro specifically alleges and references particular portions of the ICA. (SAXC, ¶¶20 and 22 – 24.) Namely, WackPro cites to paragraph 11 of the ICA which is entitled, “Non-Competition.” (See Exh. A to SAXC.) WackPro goes on to allege that, “On or before April 17, 2014, during the term of the ICA and the relevant Addendum, and prior to any termination of the contract, SAVI used its knowledge of WackPro’s customer and contact lists for its own benefit to directly communicate with Riverpoint [and with SBP], to induce Riverpoint [and SBP] to refuse to pay any amounts owed to WackPro on its outstanding invoices under Riverpoint’s [and SBP’s] contract with WackPro, to induce Riverpoint [and SBP] to direct its payments on amount due to WackPro to SAVI instead, and to induce Riverpoint [and SBP] to direct any future business for the same resource need for the same Riverpoint [and SBP] end-client to SAVI rather than WackPro.” (SAXC, ¶¶39 and 41; emphasis added.) “Each of these acts by SAVI towards Riverpoint and SBP during the term of the ICA was a material breach of the ICA and the relevant addenda.” (SAXC, ¶43; emphasis added.) “Further, after the ICA had been terminated, on or after April 26, 2014, SAVI used its knowledge of WackPro’s customer and contact lists to solicit business from Riverpoint and SBP. This is a distinct breach of the post-termination non-compete provisions.” (SAXC, ¶44.)

The apparent source of WackPro’s breach of contract causes of action is paragraph 11 of the ICA which WackPro has attached as an exhibit to the SAXC and incorporated by reference. Paragraph 11 of the ICA states, in relevant part:

If this Consulting Agreement with the Company terminates for any reason, the Consultant will not, for a period of one year from the date of termination, have any business 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 the Consultant has made contact in connection with his consulting activities for the Company; and the Consultant will keep in strictest confidence, both during the term of this Agreement and subsequent to termination of this Agreement, and will not during the term of this Agreement or thereafter disclose or divulge to any person, firm, or corporation, or use directly or indirectly, for its own benefit or the benefit of others, any information which in good faith and good conscience ought to be treated as confidential information including, without limitation, information relating to the software developed by the Company, information as to sources of, and arrangements for, hardware supplied to customers or clients of the Company, submission and proposal procedures of the Company, customer or contact lists or any other confidential information or trade secrets respecting the business or affairs of the Company which the Consultant may acquire or develop in connection with or as a result of the performance of its services hereunder.

(Emphasis added.)

To the extent WackPro again alleges a breach of post-termination non-compete provisions of the ICA, the court hereby adopts the ruling and analysis made in the court’s February 13, 2018 ruling in granting Savi’s motion for judgment on the pleadings to this second cause of action. The post-termination non-compete provision of the ICA is void under Business and Professions Code section 16600. In that ruling, the court granted WackPro leave to more specifically plead a breach of “contractual obligations which arise during the existence of the contract, not just post-termination, and which do not violate Business and Professions Code section 16600.”

WackPro focuses on the highlighted language from the ICA, above, in attempting to more specifically plead the contractual obligations which exist during the term of the ICA. (SAXC, ¶20.) However, to the extent WackPro is now alleging a breach of contractual obligations in existence during the term of the ICA and prior to termination of the ICA, the court does not find WackPro to have alleged anything separate and distinct from what has already been alleged in the first cause of action for breach of contract. WackPro’s first cause of action is alleged in more general terms, while the second cause of action is more specific, but both essentially allege Savi breached that provision of the ICA which prohibited Savi from using confidential or proprietary information [customer or contact lists] during the term of the ICA (and thereafter).

While paragraph 11 of the ICA is entitled, “Non-Competition,” it also includes language concerning confidentiality and non-disclosure. While the court considers the non-competition language of paragraph 11 to be void, WackPro may make out a breach of contract cause of action based on the remainder of the language found in paragraph 11. (See Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 778—“[A] defendant cannot demur generally to part of a cause of action;” see also PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682—“A demurrer does not lie to a portion of a cause of action;” Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274—“A demurrer challenges a cause of action and cannot be used to attack a portion of a cause of action.”) Accordingly, Savi’s demurrer to the second cause of action in WackPro’s SAXC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for breach of contract is OVERRULED.