Case Name: SunPower Corporation v. Martin DeBono, et al.

Case No.: 19-CV-349042

Before the Court is the demurrer by defendant Martin DeBono (“DeBono”) to the third and fifth causes of action of the FAC.

Factual and Procedural Background

This action arises out of DeBono’s alleged misappropriation of SunPower’s proprietary information and trade secrets. According to the allegations of the operative first amended complaint (“FAC”), DeBono was SunPower’s Executive Vice President of Global Channels and responsible for SunPower’s rooftop solar business. (FAC, ¶ 1.) When he started at SunPower, DeBono signed a non-disclosure agreement whereby he agreed to safeguard SunPower’s confidential information and work exclusively for SunPower during his employment. (Id. at ¶ 93.) DeBono later signed an employment agreement, in which he agreed not to actively engage in any other employment without his supervisor’s prior approval. (Id. at ¶ 94.)

While he was still employed with SunPower, DeBono began covertly working for Standard. (FAC, ¶ 3.) Specifically, DeBono drafted materials and a PowerPoint presentation related to how Standard could take over the integrated rooftop solar market, forwarded proprietary and confidential emails to a private email account, and uploaded over 1,700 SunPower files to a private OneDrive account. (Id. at ¶¶ 3-6, 47-54, & 58-60.) The emails contained confidential guidance to SunPower’s sales team “on how to explain in detail to prospective and existing customers why SunPower’s solar offerings are better than the competition,” “a roadmap on different ways to differentiate and distinguish the competition, often through use of technical and product testing data,” and “confidential and proprietary information about SunPower’s sales strategy approach and execution.” (Id. at ¶¶ 4 & 48.) The files uploaded to the OneDrive account contained “confidential technical information regarding SunPower’s research and development of products and technology,” “a confidential analysis of different ways to differentiate and distinguish the competition, often through use of technical and product testing data,” and “proprietary, confidential, and trade secret information about SunPower’s sales strategy approach and execution, product development, market analysis, dealer relationships, and strategic initiatives.” (Id. at ¶¶ 6 & 58-60.)

When DeBono left SunPower on April 6, 2018, he entered into a separation agreement whereby he agreed to return all SunPower files and documents, not use any confidential and/or proprietary information for the benefit of any third party, and not solicit SunPower employees for one year. (FAC, ¶¶ 2 & 95-98.)

However, DeBono allegedly left “with over 1,700 SunPower files providing a roadmap on how to build a successful solar business.” (FAC, ¶ 2.) “These files included hundreds of SunPower confidential and proprietary documents ….” (Ibid.)

DeBono is now president of defendant GAF Energy LLC (“GAF Energy”), Standard’s new rooftop solar division. (FAC, ¶ 1.) “DeBono immediately began using SunPower’s confidential information to solicit and target other SunPower employees for hiring by Standard to build its new rooftop solar division, GAF Energy.” (Id. at ¶¶ 2, 8-9, & 64.) DeBono allegedly stole SunPower’s proprietary information and trade secrets to help Standard and GAF Energy “leapfrog past years of work needed to develop and market an integrated rooftop solar product.” (Id. at ¶¶ 1, 10-11, 44, & 65.)

Based on the foregoing allegations, SunPower filed its FAC against DeBono, Standard, and GAF Energy (collectively, “Defendants”), alleging causes of action for: (1) trade secret misappropriation; (2) breach of written contract; (3) breach of duty of loyalty; (4) aiding and abetting breach of duty of loyalty; and (5) violation of Penal Code section 502.

Discussion

DeBono demurs to the third cause of action for breach of duty of loyalty and the fifth cause of action for violation of Penal Code section 502.

A. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) Consequently, “ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ [citation].” (Hilltop Properties, Inc. v. State (1965) 233 Cal.App.2d 349, 353; Code Civ. Proc., § 430.30, subd. (a).) “ ‘It is not the ordinary function of a demurrer to test the truth of the … allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. … .’ [Citation.] Thus, … ‘the facts alleged in the pleading are deemed to be true, however improbable they may be. [Citation.]’ [Citations.]” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958.)

B. Third Cause of Action

DeBono argues the third cause of action for breach of duty of loyalty fails to allege sufficient facts to state a claim because it is predicated on allegations that he “breached his duty of loyalty by merely interviewing for, receiving, and accepting a job offer to work with [Standard and GAF].” (Mem. Ps. & As., p. 5:2-5.) DeBono contends such conduct does not constitute a breach of duty of loyalty because employees are allowed to make some preparations to compete before resigning. DeBono further argues that the claim fails to the extent it is based on his alleged failure to disclose receipt of Standard’s offer of employment because he did not owe SunPower a duty to disclose his receipt and consideration of a new job opportunity.

In opposition, SunPower asserts that DeBono’s alleged conduct goes beyond mere preparations to compete because he used its time, equipment, and resources to build Standard’s business.

“While California law does permit an employee to seek other employment and even to make some ‘preparations to compete’ before resigning [citation], California law does not authorize an employee to transfer his loyalty to a competitor. During the term of employment, an employer is entitled to its employees’ ‘undivided loyalty.’ [Citation.]” (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 509.) Thus, employees may plan and prepare to create a competitive enterprise prior to their termination, so long as they do so on their own time and with their own resources. (Mamou v. Trendwest Resorts, Inc. (2008) 165 Cal.App.4th 686, 719 (Mamou).) Employees may not use the employer’s time, facilities, or proprietary information to build the competing business. (Ibid.)

In third cause of action, SunPower alleges, among other things, that DeBono breached his duty of loyalty “by drafting the PowerPoint presentation entitled ‘Solar Overview for Standard’ ….” (FAC, ¶ 175.) DeBono allegedly drafted the presentation using SunPower’s time and resources. (Id. at ¶¶ 5, 49, & 143.) Thus, the Court agrees with SunPower that DeBono’s alleged conduct—specifically his preparation of a PowerPoint presentation for Standard—does not constitute permissible preparations to compete as DeBono allegedly worked on the presentation using SunPower’s time and resources. (See Mamou, supra, 165 Cal.App.4th at p. 719.)

Given that DeBono’s preparation of the PowerPoint presentation may properly form the basis of the third cause of action, DeBono fails to dispose of the third cause of action in its entirety. (See PHII, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682 [a demurrer cannot be granted as to only a portion of a claim].)

Accordingly, DeBono’s demurrer to the third cause of action is OVERRULED.

C. Fifth Cause of Action

DeBono argues, among other things, that the fifth cause of action for violation of Penal Code section 502 fails to allege sufficient facts to state a claim because the allegations of wrongful conduct are “threadbare and conclusory” such that he cannot respond to or defend against the claim.

Here, DeBono’s initial argument is well-taken. The fifth cause of action, as alleged, is comprised of conclusory allegations and is devoid of any factual specificity. It is the general rule that statutory causes of action must be pleaded with particularity. (Covenant Care, Inc. v. Super. Ct. (2004) 32 Cal.4th 771, 790.) SunPower’s conclusory allegations in the fifth cause of action are insufficient to meet the specificity requirement for a statutory cause of action.

Notably, the fact that the cause of action incorporates all preceding allegations in the FAC does not save the claim. Although it is generally permissible to incorporate allegations by reference, the Court does not endorse chain-letter pleading “wherein each claim for relief incorporates by reference all preceding paragraphs.” (Internat. Billing Services v. Emigh (2000) 84 Cal.App.4th 1175, 1179, italics added; see also Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1041, fn. 14.) Because the fifth cause of action incorporates all preceding allegations, it is not reasonably possible for DeBono or the Court to identify the specific conduct that forms the basis of the claim.

Accordingly, DeBono’s demurrer to the fifth cause of action is SUSTAINED, with 10 days’ leave to amend.

Case Name: SunPower Corporation v. Martin DeBono, et al.

Case No.: 19-CV-349042

Before the Court is the motion by defendant Martin DeBono (“DeBono”) to strike portions of the second cause of action of the FAC.

Factual and Procedural Background

This action arises out of DeBono’s alleged misappropriation of SunPower’s proprietary information and trade secrets. According to the allegations of the operative first amended complaint (“FAC”), DeBono was SunPower’s Executive Vice President of Global Channels and responsible for SunPower’s rooftop solar business. (FAC, ¶ 1.) When he started at SunPower, DeBono signed a non-disclosure agreement whereby he agreed to safeguard SunPower’s confidential information and work exclusively for SunPower during his employment. (Id. at ¶ 93.) DeBono later signed an employment agreement, in which he agreed not to actively engage in any other employment without his supervisor’s prior approval. (Id. at ¶ 94.)

While he was still employed with SunPower, DeBono began covertly working for Standard. (FAC, ¶ 3.) Specifically, DeBono drafted materials and a PowerPoint presentation related to how Standard could take over the integrated rooftop solar market, forwarded proprietary and confidential emails to a private email account, and uploaded over 1,700 SunPower files to a private OneDrive account. (Id. at ¶¶ 3-6, 47-54, & 58-60.) The emails contained confidential guidance to SunPower’s sales team “on how to explain in detail to prospective and existing customers why SunPower’s solar offerings are better than the competition,” “a roadmap on different ways to differentiate and distinguish the competition, often through use of technical and product testing data,” and “confidential and proprietary information about SunPower’s sales strategy approach and execution.” (Id. at ¶¶ 4 & 48.) The files uploaded to the OneDrive account contained “confidential technical information regarding SunPower’s research and development of products and technology,” “a confidential analysis of different ways to differentiate and distinguish the competition, often through use of technical and product testing data,” and “proprietary, confidential, and trade secret information about SunPower’s sales strategy approach and execution, product development, market analysis, dealer relationships, and strategic initiatives.” (Id. at ¶¶ 6 & 58-60.)

When DeBono left SunPower on April 6, 2018, he entered into a separation agreement whereby he agreed to return all SunPower files and documents, not use any confidential and/or proprietary information for the benefit of any third party, and not solicit SunPower employees for one year. (FAC, ¶¶ 2 & 95-98.)

However, DeBono allegedly left “with over 1,700 SunPower files providing a roadmap on how to build a successful solar business.” (FAC, ¶ 2.) “These files included hundreds of SunPower confidential and proprietary documents ….” (Ibid.)

DeBono is now president of defendant GAF Energy LLC (“GAF Energy”), Standard’s new rooftop solar division. (FAC, ¶ 1.) “DeBono immediately began using SunPower’s confidential information to solicit and target other SunPower employees for hiring by Standard to build its new rooftop solar division, GAF Energy.” (Id. at ¶¶ 2, 8-9, & 64.) DeBono allegedly stole SunPower’s proprietary information and trade secrets to help Standard and GAF Energy “leapfrog past years of work needed to develop and market an integrated rooftop solar product.” (Id. at ¶¶ 1, 10-11, 44, & 65.)

Based on the foregoing allegations, SunPower filed its FAC against DeBono, Standard, and GAF Energy (collectively, “Defendants”), alleging causes of action for: (1) trade secret misappropriation; (2) breach of written contract; (3) breach of duty of loyalty; (4) aiding and abetting breach of duty of loyalty; and (5) violation of Penal Code section 502.

Discussion

A. Motion to Strike

DeBono moves to strike portions of the second cause of action for breach of written contract.

B. Request for Judicial Notice

In connection with his moving papers, DeBono asks the Court to take judicial notice of his employment agreement, separation agreement, and nondisclosure agreement.

These agreements are proper subjects of judicial notice because they are referenced in the FAC. (See StorMedia Inc. v. Super. Ct. (1999) 20 Cal.4th 449, 457, fn. 9 [indicating that a document referenced in a pleading under review is judicially noticeable, but the truthfulness and proper interpretation of the document are disputable]; see also Salvaty v. Falcon Cable TV (1985) 165 Cal.App.3d 798, 800, fn. 1; Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, fn. 3 [taking judicial notice of a letter and media release that formed the basis of the allegations in the complaint].)

Accordingly, DeBono’s request for judicial notice is GRANTED.

C. Legal Standard

Under Code of Civil Procedure section 436, a court may strike out any irrelevant, false, or improper matter inserted into any pleading or strike out all or part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., § 436.) The grounds for a motion to strike must appear on the face of the challenged pleading or from matters of which the court may take judicial notice. (Code Civ. Proc., § 437, subd. (a).) In ruling on a motion to strike, the court reads the pleading as a whole, all parts in their context, and assuming the truth of all well-pleaded allegations. (See Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63, citing Clauson v.

Super. Ct. (1998) 67 Cal.App.4th 1253, 1255.)

D. Merits of the Motion

DeBono argues the Court should strike portions of the second cause of action for breach of written contract “because the alleged theories of liability are either based on contractual provisions that violate California Business & Professions Code section 16600 and are thus void, or fail to state facts sufficient to constitute a cause of action for breach of contract.” (Ntc. Mtn., p. 2:20-23.) DeBono states the second cause of action is based, in part, on allegations that (1) he breach his separation agreement by soliciting SunPower employees after he resigned and (2) he breached his employment agreement by working for Standard while employed with SunPower. DeBono contends the nonsolicitation provision in his separation agreement violates Business and Professions Code section 16600 because it restricts the mobility of SunPower employees. DeBono also asserts that the conduct alleged to support the second theory of liability amounts to mere preparations to compete, which are permissible under the law.

Conversely, SunPower argues the nonsolicitation provision in DeBono’s separation agreement is permissible under Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268 (Loral). SunPower also asserts DeBono’s conduct—specifically his preparation of a PowerPoint presentation for Standard—does not constitute permissible preparations to compete as he worked on the presentation using its time and resources.

Business and Professions Code section 16600 provides, “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.” That statute has consistently been interpreted as invalidating any employment agreement that unreasonably interferes with an employee’s ability to compete with an employer after his or her employment ends. ((Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 509 (Angelica), citing Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242.) “[T]he statute does not affect limitations on an employee’s conduct or duties while employed.” (Angelica, supra, 220 Cal.App.4th at p. 509.)

With respect to nonsolicitation provisions, the California Supreme Court in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 948 (Edwards) addressed an agreement which prohibited the employee from soliciting any client of the firm for a year after termination. The court found the agreement invalid and took an expansive view of Business and Professions Code section 16600, ruling that the only exceptions to its bar on noncompetition agreements were those expressly stated by statute. The court expressly rejected the approach taken by some federal courts in applying the statute in such a way as to allow them to carve out enforceable contracts. (Id. at pp. 947-950 [rejecting Ninth Circuit’s “narrow-restraint” interpretation of the statute].)

Recently, in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923 (AMN), the Court of Appeal held that a nonsolicitation provision was invalid under Business and Professions Code section 16600. The reviewing court stated that the statute “precludes an employer from restraining an employee from engaging in his or her ‘profession, trade, or business,’ even if such an employee uses information that is confidential but not a trade secret.” (Id. at p. 940.) Citing The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, the court held that the statute barred the enforcement of

a contractual clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee’s new business, but a court may enjoin tortious conduct (as violative of either the [UTSA], Civ. Code, § 3426 et seq.) and/or the unfair competition law) by banning the former employee from using trade secret information to identify existing customers, to facilitate the solicitation of such customers, or to otherwise unfairly compete with the former employer.” [Citation.] This court in Galante thus concluded that when “[v]iewed in this light,” “conduct is enjoinable not because it falls within a judicially created ‘exception’ to section 16600’s ban on contractual nonsolicitation clauses, but is instead enjoinable because it is wrongful independent of any contractual undertaking.” [Citation.]

(AMN, supra, 28 Cal.App.5th at p. 940.)

As evidenced by this discussion, AMN addressed the use of confidential information in the context of solicitation by former employees. (See AMN, supra, 28 Cal.App.5th at p. 939 [“the court properly granted summary judgment on AMN’s first cause of action for breach of contract against individual defendants, which alleged that such defendants ‘breached and, if not stopped, will continue to breach[,] the [CNDA] by soliciting and inducing Traveler employees of [AMN] to become employees of Aya.’ ”].)

Subsequent federal court opinions have read AMN to broadly invalidate employee nonsolicitation provisions, as applied to former employees, under California law. (See Barker v. Insight Global, LLC (N.D. Cal., Jan. 11, 2019, No. 16-CV-07186-BLF) 2019 WL 176260, at *3 [“Having considered the AMN decision and reviewed Loral and Edwards, the Court is convinced by the reasoning in AMN that California law is properly interpreted post-Edwards to invalidate employee nonsolicitation provisions.”]; Weride Corp. v. Kun Huang (N.D. Cal., Apr. 1, 2019, No. 5:18-CV-07233-EJD) 2019 WL 1439394, at *10 (Weride) [finding likelihood of success on the merits as to breach of contract claim based on misappropriation and use of confidential information, but following Barker and AMN to hold nonsolicitation provision was invalid under section 16600].)

Regarding preparations to compete, “California law does not authorize an employee to transfer his loyalty to a competitor. During the term of employment, an employer is entitled to its employees’ ‘undivided loyalty.’ [Citation.]” (Angelica, supra, 220 Cal.App.4th at p. 509.) Thus, employees may plan and prepare to create a competitive enterprise prior to their termination, so long as they do so on their own time and with their own resources. . (Mamou v. Trendwest Resorts, Inc. (2008) 165 Cal.App.4th 686, 719 (Mamou).) Employees may not use the employer’s time, facilities, or proprietary information to build the competing business. (Ibid.)

As is relevant here, DeBono’s separation agreement states, “You acknowledge and agree as part of your responsibility to maintain the confidentiality of such information, for a period of twelve (12) months following your Separation Date, you shall not (i) solicit, induce, or influence, or attempt to solicit, induce or influence any person to terminate his or her employment or other contractual relationship with any of the Released Parties ….” (Martin Dec., Ex. 3.) DeBono’s employment agreement states, “For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation, or consulting activity for any direct or indirect remuneration without the prior approval of the Supervisor ….” (Martin Dec., Ex. 2.)

SunPower alleges DeBono breached his separation agreement by “using SunPower’s proprietary, confidential and trade secret information to solicit other SunPower employees causing them to terminate their employment with SunPower within twelve (12) months of April 6, 2018.” (FAC, ¶ 161.) SunPower also alleges DeBono breached his employment agreement by “working for Standard in preparing the ‘Solar Overview for Standard’ PowerPoint ….” (Id. at ¶ 143.) DeBono allegedly drafted the presentation using SunPower’s time and resources. (Id. at ¶¶ 5, 49, & 143.)

Regarding the issue of nonsolicitation, the Court agrees with the federal opinions that have considered the issue that AMN, read in connection with Edwards, stands for the proposition that employee nonsolicitation provisions are generally no longer valid under California law, at least insofar as they would prohibit former employees from solicitation after their employment has terminated. While AMN is factually distinguishable from this case in that recruiting was itself the profession at issue there, it expressly called into doubt the older case of Loral, upon which SunPower relies. Noting that Loral was decided several years before Edwards, AMN reasoned that

Edwards rejected the employer’s argument that the Legislature meant the word “ ‘restrain’ ” in section 16600 to mean “ ‘prohibit,’ ” such that a “mere limitation on an employee’s ability to practice his or her vocation would be permissible under section 16600, as long as it was reasonably based.” [Citation.] [Loral’s] use of a reasonableness standard in analyzing the nonsolicitation clause there at issue thus appears to conflict with Edwards’s interpretation of section 16600, which, under the plain language of the statute, prevents a former employer from restraining a former employee from engaging in his or her “ ‘lawful profession, trade, or business of any kind,’ ” absent statutory exceptions not applicable here. [Citation.]

(AMN, supra, 28 Cal.App.5th at p. 938.) As noted by the federal courts that have subsequently considered the issue, the AMN court cited factual differences with the circumstances in Loral as a secondary basis for its holding based on this reasoning. (See Weride, supra, 2019 WL 1439394, at *11; see also Varshock v. California Dept. of Forestry and Fire Protection (2011) 194 Cal.App.4th 635, 646, fn. 7 [“when a decision is based on two separate grounds, neither is dictum”].)

The Court accordingly follows AMN and finds that the nonsolicitation provision at issue here is invalid as applied to DeBono’s alleged post-resignation recruitment of SunPower employees.

With respect to DeBono’s work for Standard while he was employed with SunPower, the Court agrees with SunPower that DeBono’s conduct—specifically his preparation of a PowerPoint presentation for Standard—does not constitute permissible preparations to compete as DeBono allegedly worked on the presentation using SunPower’s time and resources. (See Mamou, supra, 165 Cal.App.4th at p. 719.)

Accordingly, DeBono’s motion to strike is DENIED IN PART and GRANTED IN PART. The motion is DENIED as to allegations in the FAC regarding DeBono’s work for Standard—specifically his creation of a PowerPoint presentation—while he was still employed with Sun Power. (See Ntc. Mtn., pp. 2:27-4:17.) The motion is GRANTED as to allegations in the FAC regarding DeBono’s solicitation of SunPower employees after his resignation from SunPower. (See ibid.)