Case Name: Yahoo! Inc. v. Ross Avner, et al.
Case No.: 17-CV-305788

Currently before the Court are the following matters: (1) the special motion by defendant and cross-complainant LAS Technologies PTE LTD (“LAS Tech”) to strike the fifth through twelfth causes of action of the second amended complaint (“SAC”) of plaintiff and cross-defendant Yahoo! Inc. (“Yahoo”); and (2) the demurrer by LAS Tech to the fifth through twelfth causes of action of Yahoo’s SAC.

Factual and Procedural Background

This action arises out of Avner’s alleged disclosure of Yahoo’s confidential and proprietary information to LAS Tech. (SAC, ¶¶ 1-10.) Avner was a former Senior Director of Yahoo responsible for leading the business of Yahoo’s Games property. (Id. at ¶ 1.) In his position at Yahoo, Avner had access to highly confidential and proprietary Yahoo information, particularly with respect to Yahoo Games. (Id. at ¶ 3.) Avner worked closely with LAS Tech on behalf of Yahoo from 2007, until he left his employment with Yahoo in late 2012. (Id. at ¶ 2.) LAS Tech is a game-developer that licensed gaming content to Yahoo in exchange for a share of certain advertising revenue. (Id. at ¶¶ 2 and 38.) During his employment, Avner was given access to confidential Yahoo information that related to Yahoo’s business dealings with LAS Tech. (Id. at ¶ 39.)

Under the terms of confidentiality and separation agreements between Yahoo and Avner, Avner was bound not to disclose any confidential or proprietary information to third parties. (SAC, ¶¶ 1 and 3.) In addition, Avner agreed to cooperate with Yahoo in response to any investigations, claims, or potential litigation that related to his work with Yahoo and provide Yahoo with copies of all correspondence in connection with any legal proceedings involving or relating to Yahoo. (Id. at ¶ 3.) Avner further agreed that he would not work with or cooperate with any third party to develop any actual or threatened claim or cause of action against Yahoo. (Ibid.)

After leaving Yahoo, Avner started his own company, Point Publishing, which “offered consulting and promotion services to gaming companies, including LAS Tech, to assist with marketing the content to licensees, including Yahoo.” (SAC, ¶ 2.) “Avner[, through Point Publishing,] provided content acquisition and game promotions services to LAS Tech from 2013 through at least 2015.” (Id. at ¶ 42.) Point Publishing had a separate agreement with Yahoo, which contained a confidentiality provision prohibiting it from sharing Yahoo’s confidential or proprietary information with third parties, such as LAS Tech. (Id. at ¶ 4.) In addition, Point Publishing agreed to “pay Yahoo a percentage of in-game purchases with respect to games that [it] brought to Yahoo in exchange for Yahoo placing the games on Yahoo properties.” (Id. at ¶ 43.)

Avner allegedly breached his contractual and fiduciary obligations to Yahoo, and violated the confidentiality and severance agreements, by working as a “litigation consultant” for LAS Tech. (SAC, ¶ 1.) “In an apparent attempt to leverage Avner’s special knowledge of highly confidential and proprietary Yahoo information, LAS Tech has sought to pressure Yahoo into settling trumped up claims being asserted by LAS Tech against Yahoo.” (Ibid.) “In coordination with Avner/Point Publishing, LAS Tech sent Yahoo a demand letter on June 15, 2016, asserting that [it] was owed millions of dollars under its licensing agreement with Yahoo for alleged accounting errors dating back to 2007.” (Id. at ¶¶ 5 and 45-46.) “In violation of its duties of good faith and fair dealing, and an apparent attempt to intimidate Yahoo and give[its] claims an air of legitimacy, LAS Tech told Yahoo that it had a ‘source,’ and it peppered portions of its demand letter with references to information that did not appear to be public.” (Id. at ¶ 5.)

In response to the demand letter, Yahoo conducted a preliminary investigation and identified one accounting error, for which it transmitted payment to LAS Tech on January 30, 2017. (SAC, ¶ 47.)

In August 2016, Yahoo received an email from LAS Tech’s counsel about the dispute, which copied Avner. (SAC, ¶ 6.) One month later, Yahoo reached out to Avner to discuss the demand letter, Avner never responded to Yahoo at LAS Tech’s instruction. (Id. at ¶¶ 6 and 48.) Subsequently, LAS Tech admitted that “it had been working with Avner to develop its case against Yahoo” and “Avner had been retained by LAS Tech to help with the litigation against Yahoo in 2016, referring to Avner as an important ‘consulting expert’ for the litigation team working up claims against Yahoo.” (Id. at ¶¶ 7, 49-50, and 52.) LAS Tech also claimed that Avner had worked on its behalf since 2013, and “any direct communication with [Avner is] proscribed by the California Rules of Professional Conduct.” (Id. at ¶¶ 8 and 54.) LAS also stated that it “had directed Avner not to respond to Yahoo’s attempt to contact him in September 2016.” (Id. at ¶ 54.) “LAS Tech’s … attempts to cloak its communications with Avner in the attorney-client and work product privileges have limited Yahoo’s ability to know exactly what confidential Yahoo information was shared between Avner and LAS Tech.” (Id. at ¶ 9.)

Yahoo alleges that “LAS Tech has leveraged [its relationship with Avner] to peddle half-truths and misstatements about Yahoo in mounting an unwarranted attack against Yahoo that has already cost Yahoo substantial amounts of money and business disruption to investigate and defend.” (SAC, ¶ 58.)

Based on the foregoing, Yahoo filed the operative SAC against Avner, Point Publishing, and LAS Tech, alleging causes of action for: (1) breach of confidentiality agreement (against Avner); (2) breach of separation agreement (against Avner); (3) breach of Point Publishing agreement (against Point Publishing); (4) interference with contract (against Avner); (5) intentional interference with contractual relations (against LAS Tech); (6) intentional interference with contractual relations (against LAS Tech); (7) intentional interference with contractual relations (against LAS Tech); (8) inducing breach of confidentiality agreement (against LAS Tech); (9) inducing breach of separation agreement (against LAS Tech); (10) inducing breach of Point Publishing agreement (against LAS Tech) ; (11) injunctive relief (against all defendants); and (12) declaratory relief (against all defendants).
On August 9, 2017, LAS Tech filed the instant demurrer and special motion to strike. Yahoo filed papers in opposition to both matters on October 31, 2017. On November 6, 2017, LAS Tech filed reply papers. Most recently, on December 4, 2017, Yahoo filed a notice of lodging and request to file sur-replies in support of its opposition to both matters.

Discussion

I. LAS Tech’s Special Motion to Strike

LAS Tech brings this special motion to strike the fifth through twelfth causes of action of the SAC under Code of Civil Procedure section 425.16 on the grounds that Yahoo’s claims arise from protected activity and Yahoo cannot demonstrate a probability of prevailing on its claims.

A. Legal Standard

“Section 425.16 provides … that ‘A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.’ [Citation.] ‘As used in this section, “act in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue” includes:’ ” (1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law; (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest; or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest. (Navellier v. Sletten (2002) 29 Cal.4th 82, 87–88 (Navellier); Code Civ. Proc., § 425.16. subd. (e).)

The statute “posits … a two-step process for determining whether an action is a SLAPP. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. [Citation.] ‘A defendant meets this burden by demonstrating that the act underlying the plaintiff’s cause fits one of the categories spelled out in section 425.16, subdivision (e)’ [citation]. If the court finds that such a showing has been made, it must then determine whether the plaintiff has demonstrated a probability of prevailing on the claim. [Citations.]” (Navellier, supra, 29 Cal.4th at p. 88.) “ ‘ “To satisfy this prong, the plaintiff must ‘state [ ] and substantiate [ ] a legally sufficient claim.’ [Citation.] ‘Put another way, the plaintiff “must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited.” ’ ” ’ [Citation.]” (Freeman v. Schack (2007) 154 Cal.App.4th 719, 726–27.) “The second prong … is considered under a standard similar to that employed in determining nonsuit, directed verdict or summary judgment motions. … The plaintiff may not rely solely on its complaint, even if verified; instead, its proof must be made upon competent admissible evidence. [Citation.] In reviewing the plaintiff’s evidence, the court does not weigh it; rather, it simply determines whether the plaintiff has made a prima facie showing of facts necessary to establish its claim at trial. [Citation.]” (Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1017.)

B. Protected Activity

LAS Tech generally argues that Yahoo’s claims against it—the fifth through twelfth causes of action—“must fail because they are a broad-based attack on [its] constitutionally-protected right of petition.” (Mem. Ps. & As., p. 1:14-15.) LAS Tech contends that:

Litigation-related activities, including pre-lawsuit preparations, are in furtherance of a litigant’s right of petition. Claims based on these activities are subject to a special motion to strike under California’s anti-SLAPP statute. [¶] Each and every cause of action the SAC purports to state against [it] arises directly from [its] investigation and preparation of claims against Yahoo in anticipation of litigation. This alone satisfies [its] threshold burden on its anti-SLAPP motion ….

(Id. at pp. 1:16-22 and 3:10-14.) LAS Tech then cites to several allegations in the SAC as well as the case of Dove Audio, Inc. v. Rosenfeld, Meyer & Susman (1996) 47 Cal.App.4th 777 (Dove) to support its contentions. (Id. at pp. 3:14-4:18.) LAS Tech highlights the fact that the plaintiff in Dove, a music publisher, filed a claim for defamation, which arose out of letters the publisher received from an attorney threatening to file a complaint with the state attorney general’s office. (Mem. Ps. & As., p. 4:7-12.) LAS Tech quotes the Court of Appeal’s holding that the attorney communications raised a question of public interest and constituted protected activity as the communications were made in connection with an official proceeding authorized by law. (Dove, supra, 47 Cal.App.4th at p. 784.) LAS Tech concludes that the facts of Dove “are remarkably similar” to the present case because “[t]he SAC alleges that [it] took steps to investigate, including hiring counsel, hiring experts, sending a demand letter, and entering into settlement discussions with Yahoo” and “[t]hese tasks were all undertaken in anticipation of litigation and are therefore protected.” (Mem. Ps. & As., p. 4:19-23.)

The Court finds that LAS Tech’s arguments are not well-taken. As an initial matter, LAS Tech makes no attempt to identify which subpart of Code of Civil Procedure section 425.16, subdivision (e) it believes applies in this case.

Moreover, because Dove is distinguishable from the instant case, LAS Tech fails to establish that the subparts applied by the Court of Appeal in Dove are applicable here. In Dove, the Court of Appeal found that the attorney letters at issue constituted protected activity because they were communications made in connection with an official proceeding authorized by law. (Dove, supra, 47 Cal.App.4th at p. 784.) In other words, the letters constituted written statements or writings “made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law” under Code of Civil Procedure section 425.16, subdivision (e)(2). (Code Civ. Proc., § 425.16, subd. (e)(2).) Here, it is readily apparent that the fifth through twelfth causes of action primarily arise out of LAS Tech’s conduct—its receipt of confidential information from Avner and its retention (i.e., hiring) of Avner as an expert. (See SAC, ¶¶ 113, 119, 126, 132-32, 138-39, 145-46, 150, 158.) As the gravamen of claims is the conduct identified above, as opposed to communications, the allegedly wrongful and injury-producing conduct does not fall under Code of Civil Procedure section 425.16, subdivision (e)(2). (See Olive Properties v. Coolwaters Enterprises, Inc. (2015) 241 Cal.App.4th 1169, 1175 [The “principal thrust or gravamen” of [plaintiff’s] claim determines whether section 425.16 applies. [Citations.]”].)

The Court of Appeal in Dove also indicated that another basis for its holding was that the attorney communications raised an issue of public interest, which potentially implicates Code of Civil Procedure section 425.16, subdivision (e)(3) and (4). (Dove, supra, 47 Cal.App.4th at p. 784; see Code Civ. Proc., § 425.16, subd. (e)(3) and (4) [an “act in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue” includes: … (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest”], italics added.) Here, LAS Tech does not attempt to argue that the gravamen of the claims involves a public issue or an issue of public interest. Consequently, LAS Tech do not establish that Code of Civil Procedure section 425.16, subdivision (e)(3) or (4) apply.

In light of the foregoing, LAS fails to meet its initial burden to show that the claims arise out of protected activity.

C. Probability of Prevailing

As LAS Tech fails to satisfy the first prong and demonstrate that Yahoo’s claims arise from protected activity, the Court need not address the second prong, i.e., whether Yahoo can demonstrate a probability of prevailing on its claims. In addition, the Court need not address LAS Tech’s objections to evidence Yahoo submitted in support of its opposition. Finally, the Court also declines to consider Yahoo’s request to file sur-reply in support of its opposition to the instant motion as the arguments raised in the sur-reply only address the second prong.

D. Conclusion

Because LAS Tech does not meet its initial burden to show that Yahoo’s claims arise out of protected activity, the special motion to strike the fifth through twelfth causes of action is DENIED.

II. LAS Tech’s Demurrer

LAS Tech demurs to the fifth through twelfth causes of action of the SAC on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).) LAS Tech contends that these causes of action fail to state a claim because they are preempted by the California Uniform Trade Secrets Act (“CUTSA”) and barred by the litigation privilege under Civil Code section 47. LAS Tech also contends that “Yahoo’s Separation Agreement claims … fail because the Opposition fails to provide any evidence that [it] knew of the existence of the Separation Agreement or that the hiring of Avner and instruction that he not cooperate with Yahoo would result in a breach of the Agreement.” (Reply, p. 4:1-4.)

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.” (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, internal citations and quotations omitted; see also 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. [ ] Thus, [ ] the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.) However, while “[a] demurrer admits all facts properly pleaded, [it does] not [admit] contentions, deductions or conclusions of law or fact.” (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120.)

B. CUTSA

LAS Tech contends that each cause of action “sounds in misappropriation of trade secrets” and is, therefore, preempted by CUTSA. (Mem. Ps. & As., p. 1:14-17.) LAS Tech points out that the SAC contains the following allegations: Avner disclosed, and it received and used, Yahoo’s confidential information; the confidential information has inherent value that is directly tied to the information’s secrecy; and Yahoo has taken reasonable efforts under the circumstances to protect the confidential information from unauthorized use or disclosure. (Id. at pp. 2:24-3:7.) Based on these allegations, LAS Tech concludes that the SAC is based on the existence of a purported trade secret, i.e., Yahoo’s confidential information, because Civil Code section 3426.1, subdivision (d) defines a trade secret as information that derives independent economic value from not being generally known to the public and is the subject of reasonable efforts to maintain secrecy. (Ibid.) LAS Tech contends that the fifth through twelfth causes of action arise out of the same nucleus of facts that would give rise to a claim for misappropriation of trade secrets because the claims all arise out of allegations that Avner obtained and disclosed Yahoo’s confidential information to LAS Tech, and LAS Tech accepted used that information to pursue claims against Yahoo. (Id. at p. 3:8-20.)

In opposition, Yahoo argues that absent any express allegations of trade secret misappropriation, the claims are not preempted by CUTSA. Yahoo further contends that the causes of action are based on facts independent of any alleged trade secret misappropriation because the claims, in part, are based LAS Tech’s hiring of Avner.

To the extent the claims are based on LAS Tech’s receipt and/or use of Yahoo’s confidential information, they are preempted by CUTSA. “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies ‘based upon misappropriation of a trade secret.’ ” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal. App. 4th 210, 236, citing Civ. Code, § 3426.7; Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 505 (Angelica) [“a prime purpose of the [CUTSA] was to sweep away the adopting states’ bewildering web of rules and rationales and replace it with a uniform set of principles for determining when one is—and is not—liable for acquiring, disclosing, or using information … of value.”].) A cause of action is displaced where the cause of action is “based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.” (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 955, internal citations omitted.) Furthermore, CUTSA preempts claims based on the misappropriation of confidential and/or proprietary information, whether or not that information meets the statutory definition of trade secret. (See Mattel, Inc. v. MGA Entertainment, Inc. (2010) 782 F.Supp.2d 911, 987; see also Loop AI Labs Inc v. Gatti (N.D. Cal. 2015) 2015 WL 5158461, at *3 [“the Court agrees with the vast majority of courts that have addressed this issue, and finds that CUTSA supersedes claims based on the misappropriation of information that does not satisfy the definition of trade secret under CUTSA, absent a property interest conferred on that information by some other provision of law”].) Here, the fifth, sixth, eleventh, and twelfth causes of action are based, in part, on allegations that LAS Tech obtained and/or used (i.e., misappropriated) Yahoo’s confidential information. (See SAC, ¶¶ 113, 119, 150, 158.) To the extent these claims are based on such allegations, they are preempted by CUTSA.

However, CUTSA does not displace claims that are related to trade secret misappropriation, but are “independent and based on facts distinct from the facts that support the misappropriation claim.” (Angelica, supra, 220 Cal.App.4th at pp. 499, 506.) Here, the fifth through twelfth causes of action are also based on allegations that LAS Tech hired Avner and LAS Tech encouraged Avner not to assist Yahoo. (SAC, ¶¶113, 119, 126, 131-32, 138-39, 145-46, 150, 158.) Thus, the claims are based, in part, “on facts [independent] [and] distinct from the facts that support the misappropriation claim,” i.e., the alleged receipt and use of Yahoo’s confidential information. (Angelica, supra, 220 Cal.App.4th at p. 499.)

Thus, LAS Tech’s argument fails to dispose of the claims in their entirety.

C. Litigation Privilege

LAS Tech contends that the litigation privilege bars all of Yahoo’s claims because “the conduct underlying each and every cause of action in the SAC is LAS Tech’s investigation and preparation to file suit against Yahoo.” (Mem. Ps. & As., p. 7:3-4.) LAS Tech initially focuses on the allegation in the SAC that it sent Yahoo a demand letter in June 2016, and asserts that demand letters fall within the privilege. (Id. at p. 7:4-8.) LAS Tech then points out that Yahoo allegedly discovered that it was working with Avner “during negotiations relating to the claims made in LAS Tech’s demand letter ….” (Id. at p.7:11-13.) Next, LAS Tech asserts that any alleged communications between it and Avner are privileged and, therefore, and claims based on alleged disclosures of Yahoo confidential information are barred by the privilege. (Id. at p. 7:16-19.) Finally, LAS Tech contends that any non-communicative conduct is related to its “communicative, pre-litigation preparations” and, thus, is privileged. (Id. at p. 9:4-14.)

LAS Tech’s arguments are not well-taken. “[T]he [litigation] privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.” (Silberg v. Anderson (1990) 50 Cal.3d 205, 212; see Civ. Code, § 47.) The communications identified by LAS Tech are Yahoo’s demand letters, statements made by the parties during negotiations, and communications between LAS Tech and Avner. However, the claims as alleged against LAS Tech are not based on statements in Yahoo’s demand letter or on statements made by the parties during negotiations. The statements in Yahoo’s demand letter and the statements made during the parties’ negotiations are merely background information. Instead, Yahoo’s claims are primarily based on LAS Tech’s hiring of Avner and its acceptance and/or use of Yahoo’s confidential information. The gravamen of the claims, as alleged against LAS Tech, is not that Yahoo’s alleged injury was occasioned simply by Avner’s disclosure of confidential information (which is undeniably a communication), but rather that Yahoo has been injured by LAS Tech’s non-communicative conduct—its acceptance and use of Yahoo’s confidential information and its hiring of Avner. (See Kimmel v. Goland (1990) 51 Cal.3d 202, 211 [distinguishing between injury allegedly arising from communicative acts and injury resulting from noncommunicative conduct].)

Consequently, LAS Tech has not demonstrated that the litigation privilege bars the fifth through twelfth causes of action.

D. LAS Tech’s Knowledge of the Separation Agreement

Lastly, LAS Tech contends that “Yahoo’s Separation Agreement claims also fail because the Opposition fails to provide any evidence that [it] knew of the existence of the Separation Agreement or that the hiring of Avner and instruction that he not cooperate with Yahoo would result in a breach of the Agreement.” (Reply, p. 4:1-4.)

As Yahoo persuasively argues, LAS Tech fundamentally misunderstands the pleading requirements. Yahoo is not required to plead evidentiary facts supporting its allegation that LAS Tech was aware of the Separation Agreement. (See C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872 [in general, the pleading need only allege ultimate facts in stating a cause of action]; see also Ferrick v. Santa Clara University (2014) 231 Cal.App.4th 1337, 1341 [a plaintiff need not allege “‘each evidentiary fact that might eventually form part of the plaintiff’s proof’ ”].) Therefore, LAS Tech’s argument lacks merit.

E. Conclusion

For these reasons, LAS Tech’s demurrer to the fifth through twelfth causes of action is OVERRULED.