Case Name: Wintec Industries, Inc. v. Steve Monnier, et al.
Case No.: 1-14-CV-272109

After full consideration of the arguments, authorities, and papers submitted by each party, the Court makes the following rulings:

This is an action for breach of contract, misappropriation of trade secrets, and other business torts. Defendants Steve Monnier (“Mr. Monnier”) and Silvio Maggiotto (“Mr. Maggiotto”) (collectively “Defendants”) worked for plaintiff Wintec Industries, Inc. (“Plaintiff”), which manufactures flash and DRAM memory and other computer accessories and distributes those products through national distributors and retailers, as its Vice President of Retail Sales and Retail Customer Service Manager, respectively. (See First Amended Complaint (“FAC”), ¶¶ 1-3.) At the outset of their employment with Plaintiff, Defendants signed a written Confidentiality, Nondisclosure and Conflict of Interest Agreement (the “Confidentiality Agreement”), which prohibited the disclosure of Plaintiff’s confidential or proprietary business information during and after their employment with Plaintiff. (See FAC, ¶ 11.) Additionally, defendants Dirk Kettlewell, James Rosetta, and Mark Lee (collectively the “Wintec Consultants”) entered into a written Consultant Agreement with Plaintiff, providing that they would introduce Plaintiff to retail chains in order to help sell Plaintiff’s services and products to those retail chains. (See FAC, ¶¶ 4-6.) Subsequently, Defendants resigned from their employment with Plaintiff and Plaintiff discovered that Defendants were working with the Wintec Consultants to: buy products from its vendors at a low cost and distribute those products to its distributors; develop and establish IT systems for a business called USRA that copied its IT systems; and misappropriate its trade secrets for their personal benefit and the benefit of third-parties. (See FAC, ¶¶ 12-13, 19, 55-60.)

On October 24, 2014, Plaintiff filed the operative first amended complaint (“FAC”) against Defendants and the Wintec Consultants, alleging causes of action for: (1) breach of contract (against Defendants); (2) breach of fiduciary duty (against Mr. Monnier); (3) breach of duty of loyalty (against Defendants); (4) aiding and abetting breach of duty of loyalty or fiduciary duty (against Mr. Monnier and the Wintec Consultants); (5) intentional interference with contract (against Mr. Monnier and the Wintec Consultants); (6) breach of the covenant of good faith and fair dealing (against the Wintec Consultants); (7) misappropriation of trade secrets (against Defendants and the Wintec Consultants); and (8) unfair business practices (against Defendants and the Wintec Consultants).

Defendants demur to each and every cause of action of the FAC on the ground of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

Defendants’ demurrer to the first cause of action for breach of contract is OVERRULED. Defendants’ argument that the first cause of action for breach of contract is preempted by the California Uniform Trade Secrets Act (the “UTSA”) lacks merit because such a claim is expressly exempted from preemption under Civil Code section 3426.7, subdivision (b)(1). (See Civ. Code, § 3426.7, subd. (b)(1) [“This title does not affect … contractual remedies, whether or not based upon misappropriation of a trade secret . . . .”]; see also Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 508 [“breach of contract claims, even when they are based on misappropriation or misuse of a trade secret, are not displaced by UTSA.”].)

Additionally, Defendants’ argument that the claim for breach of contract fails because “the allegations of trade secrets are so general in nature” that they “have no reasonable notice of what exactly is the alleged breach” is without merit. (Mem. Ps & As., p. 3:18-20.) The cases cited by Defendants that require particularity—Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244 and Show Management v. Hearst Pub. Co. (1961) Cal.App.2d 606—are inapplicable because they do not discuss the pleading requirements for a breach of contract claim. Moreover, the allegations that Defendants breached the Confidentiality Agreement by using confidential and proprietary information for their own personal benefit and the benefit of third parties, working with third parties during their employment to take business opportunities that should have been provided to Plaintiff, and working with individuals and companies in competition with Plaintiff during their employment are sufficient to put Defendants on notice as to the nature of the alleged breaches. (FAC, ¶¶ 25-26.)

Furthermore, Defendants’ argument that contractual provisions upon which the breach of contract claim are based violate Business and Professions Code section 16600 is not well-taken because the subject provisions of the Confidentiality Agreement identified in the FAC do not prohibit Defendants from competing with Plaintiff or obtaining employment with Plaintiff’s competitors, but merely prohibiting Plaintiff from disclosing Plaintiff’s confidential information and trade secrets. (See FAC, ¶ 11; see also Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, 276 citing Gordon v. Landau (1958) 49 Cal.2d 690, 694 [“Section 16600 does not invalidate an employee’s agreement not to disclose his former employer’ confidential customer lists or other trade secrets or not to solicit those customers.”].)

Defendants’ demurrer to the second cause of action for breach of fiduciary duty, the third cause of action for breach of duty of loyalty, the fourth cause of action for aiding and abetting breaches of fiduciary duty and duty of loyalty, and the fifth cause of action for intentional interference with contract is SUSTAINED, with 10 days’ leave to amend. Common law claims—such as the ones asserted in the second, third, fourth, and fifth causes of action—are preempted by the UTSA if they are based on the same common “nucleus of facts” as a concurrently alleged claim for trade secret misappropriation. (See K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958-959; see also Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 236 [holding that claims for conversion, common count, common law unfair business practices, intentional and negligent misrepresentation were superseded by the UTSA].) The second, third, and fourth causes of action are based upon the same common nucleus of facts as Plaintiff’s claim for misappropriation of trade secrets, i.e. that Defendants used confidential business information and/or trade secrets during and after their employment with Plaintiff for the benefit of third parties in direct competition with Plaintiff and to conduct business with Plaintiff’s vendors and distributors for their own personal benefit and the benefit of third parties. (See FAC, ¶¶ 11-22, 25-26, 29, 33-34, 39, 41; see also Silvaco, supra, 184 Cal.App.4th at p. 239 n. 22 [“We emphatically reject the . . . suggestion that the [UTSA] was not intended to preempt ‘common law conversion claims based on the taking of information that, though not a trade secret, was nonetheless of value to the claimant.’”].)

Additionally, while it is unclear from the pleadings whether the fifth cause of action is based on the same common nucleus of facts as the claim for misappropriation of trade secrets, the fifth cause of action is deficient because it does not allege that Mr. Monnier’s actual interference with Mr. Maggioto’s contract with Plaintiff caused a disruption or breach of the subject contract. (See FAC, ¶¶ 44-49; see Pac. Gas & Elec. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126 [stating that the elements that a plaintiff must plead to state a cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party, (2) the defendant’s knowledge of the contract, (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship, (4) actual breach or disruption, and (5) resulting damages.].) Additionally, Plaintiff fails to identify the particular contract that was interfered with as the fifth cause of action merely alleges that Plaintiff and Mr. Maggioto had an employment relationship and Mr. Monnier intended to disrupt Mr. Maggiotto’s performance as an employee. (See FAC, 45-46; see also Westside Center Associates v. Safeway Stores 23, Inc. (1996) 42 Cal.App.4th 507, 522 [noting that to prove a claim for interference with contract, the plaintiff must identify the particular contract that was interfered with as well as the contracting parties.].)

Defendants’ demurrer to the sixth cause of action for breach of the covenant of good faith and fair dealing is OVERRULED. The sixth cause of action is only asserted against the Wintec Consultants and, therefore, Defendants lack standing to demur to that claim. (See Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1004; Code Civ. Proc., § 430.10 [a demurrer may be filed only by “[t]he party against whom a complaint … has been filed”].)

Defendants’ demurrer to the seventh cause of action for misappropriation of trade secrets is OVERRULED. Code of Civil Procedure section 2019.210 provides that, in an action for trade secret misappropriation, “before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity ….” Contrary to Defendants’ assertion, it does not require Plaintiff to identify its trade secrets with particularity in the FAC in order to state a claim for misappropriation of trade secrets. (See also Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 252 [“One who seeks to protect his trade secrets from wrongful use or disclosure does not have to spell out the details of the trade secret to avoid a demurrer to a complain. To so require would mean that the complainant would have to destroy the very thing for which he sought protection by making public the secret itself”].) Additionally, Plaintiff adequately pleads facts supporting the requisite elements for a claim for misappropriation of trade secrets. (See FAC, 56-61; see also Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665 [“a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper means, and (3) the defendant’s actions damaged the plaintiff.”].)

Moreover, Defendants’ contention that Plaintiff’s alleged trade secrets are generally known to others is a fact that is outside the pleadings and Plaintiff’s assertion that its alleged trade secrets are “not generally known to the public or others” (see FAC, ¶ 58) must be taken as true on demurrer. (See Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at pp. 213–214 [a demurrer “admits the truth of all material factual allegations in the complaint”]; see also Blank v. Kirwan, supra, 39 Cal.3d at p. 318 [noting that a demurrer only challenges defects on the face of the pleading or from judicially-noticeable matters].)

Defendants’ demurrer to the eighth cause of action for unfair business practices in violation of Business and Professions Code section 17200 is OVERRULED. Defendants argue that Plaintiff had not adequately pleaded unlawful, unfair, or fraudulent business practices because Plaintiff’s other causes of action lack merit. However, as articulated above, Defendants’ demurrer to the seventh cause of action is overruled and, thus, the eighth cause of action is properly based on that claim.