Zoom Imaging Solutions, Inc. v. Roe ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 ZOOM IMAGING SOLUTIONS, INC., No. 2:19-cv-01544 WBS KJN 13 Plaintiff, 14 v. ORDER RE: DEFENDANTS’ MOTION TO DISMISS 15 EDWARD ROE; MAXWELL RAMSAY; JON CROSSEN; CORINNE FUEREST; ANDREW 16 ALSWEET; KEVIN TOON; JASON PEEBLER; ABIGAIL NEAL; POWER 17 BUSINESS TECHNOLOGY, LLC; BRYAN DAVIS; MAURA LOPEZ; JEFFREY 18 ORLANDO; JESSICA HINTZ, and DOES 1 through 100, inclusive, 19 Defendant. 20 21 ----oo0oo---- 22 In its Order of November 8, 2019, this court dismissed, 23 and gave leave to amend, plaintiff’s claims for breach of 24 contract, breach of implied covenant of good faith and fair 25 dealing, misappropriation of trade secrets under state and 26 federal law, intentional interference with contractual relations, 27 violation of California’s Unfair Competition Law (“UCL”), and 28 1 violation of the Computer Fraud and Abuse Act. (Docket No. 23 at 2 27-28.) 3 Plaintiff subsequently filed a First Amended Complaint 4 (“FAC”) containing the following eleven causes of action: (1) 5 breach of contract against Roe pursuant to the 2017 Executive 6 Agreement; (2) breach of contract against all defendants pursuant 7 to the 2018 Employee Handbook; (3) breach of contract against 8 Roe, Crossen, and Lopez pursuant to the 2013 Employee Handbook; 9 (4) breach of the implied covenant of good faith and fair 10 dealing; (5) violation of the California Uniform Trade Secrets 11 Act (CUTSA), Cal. Civ. Code § 3426 et seq.; (6) violation of the 12 Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836; (7) 13 intentional interference with contractual relations; (8) 14 violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030; 15 (9) breach of fiduciary duty; (10) breach of the duty of loyalty; 16 and (11) unfair business practices under California’s Unfair 17 Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. (Docket 18 No. 61 (“FAC”).) 19 Defendants now move to dismiss all claims of the FAC, 20 except claims (8), (9), and (10).1 (Docket No. 68.) 21 22 1 In its previous order, the court found that plaintiff adequately pleaded causes of action for breach of fiduciary duty 23 and breach of the duty of loyalty against Roe. (Docket No. 53 at 20, 22.) The court, however, dismissed plaintiff’s Computer 24 Fraud and Abuse Act claim because plaintiff did not allege that defendants did not have authorized access to the information they 25 allegedly misappropriated. (Docket No. 53 at 25-26.) In its FAC, plaintiff now alleges that defendants accessed the systems 26 “without permission, in excess of their authorized scope.” (FAC 27 ¶ 256.) The allegations suffice to remedy the deficiencies in the original complaint and defendants do not contest that they 28 do. 1 I. Breach of Contract (Counts One, Two, and Three) 2 In the original complaint, plaintiff alleged one breach 3 of contract claim, wherein plaintiff included violations of three 4 distinct agreements by multiple defendants, none of whom were 5 parties to all three agreements. The court dismissed plaintiff’s 6 claim for failure to comply with Rule 10 of the Federal Rules of 7 Civil Procedure and instructed plaintiff to allege a separate 8 count for each breach of contract claim and to identify the 9 defendants and the provisions each defendant violated. (Docket 10 No. 53 at 5-7.) 11 The FAC now alleges three separate breach of contract 12 claims. The first claim alleges Roe’s violation of the non- 13 compete and non-solicitation provisions of the 2017 Executive 14 Agreement (Count One). (FAC ¶ 60.) The second claim alleges all 15 defendants’ violations of the 2018 Employee Handbook’s 16 “Confidentiality Obligation Policy” (Count Two). (FAC ¶ 74.) 17 Finally, the third claim alleges Roe, Crossen, and Lopez’s breach 18 of the 2013 Employee Handbook’s prohibitions on unauthorized 19 disclosure, use, and removal from company premises of Zoom’s 20 confidential information (Count Three). (FAC ¶ 159.) As 21 instructed by the court, plaintiff has separated each breach of 22 contract claim, and has identified the breaching defendants and 23 the specific provisions breached. Plaintiff has thus remedied 24 the defects in the original complaint. Accordingly, the court 25 will not dismiss Counts One, Two, and Three of the FAC. 26 II. Breach of Covenant of Good Faith and Fair Dealing (Count Four) 27 In its previous order, the court dismissed plaintiff’s 28 1 breach of covenant of good faith and fair dealing for failure to 2 identify the specific contractual provision that was frustrated 3 by the defendants’ actions. (Docket No. 53 at 7-8.) 4 Once again, the complaint does not identify the 5 specific provisions frustrated by defendants’ actions. Plaintiff 6 alleges that defendants failed “to make reasonable efforts to 7 perform his obligations under . . . the agreements in Paragraphs 8 59-72, 73-80, and 158-164.” (FAC ¶ 197.) Those paragraph ranges 9 do not refer to specific provisions. For example, from Paragraph 10 59 to Paragraph 72, only Paragraph 60 includes contractual 11 provisions. Paragraph 60 itself then includes two provisions. 12 Again, “[t]he court must dismiss plaintiff’s claim because it 13 fails to identify the specific contractual provision frustrated 14 by defendants’ conduct.” (Docket No. 53 at 7-8 (citing Ahmadi v. 15 United Cont'l Holdings, Inc., No. 1:14-CV-00264-LJO, 2014 WL 16 2565924, at *6 (E.D. Cal. June 6, 2014); Plastino v. Wells Fargo 17 Bank, 873 F. Supp. 2d 1179, 1191 (N.D. Cal.2012); Perez v. Wells 18 Fargo Bank, N.A., No. C-11-02279 JCS, 2011 WL 3809808, at *18 19 (N.D. Cal. Aug. 29, 2011)).) Accordingly, the court will dismiss 20 Count Four of the FAC. 21 III. Misappropriation of Trade Secrets in Violation of CUTSA and 22 DTSA (Counts Five and Six) 23 In its previous order, the court dismissed plaintiff’s 24 state and federal law claims for misappropriation of trade 25 secrets because the complaint did not sufficiently identify the 26 trade secrets at issue. (Docket No. 53 at 11-12.) 27 The FAC now specifically alleges that defendants 28 misappropriated “[1] Zoom’s customer list consisting of key 1 customer contact information and the amounts and frequency of 2 their purchases from Zoom’s business . . . ; [2] the underlying 3 costs, profit margins, and pricing information, for equipment and 4 services sold to Zoom’s customers by Zoom; [3] Zoom’s employee’s 5 costs, including the rates and amounts of insurance premiums, 6 salary history and information of Zoom’s employees . . . ; [4] 7 the duration and expiration dates of service contracts sold and 8 service by Zoom; and [5] the specific costs and prices of 9 maintenance services within the financed loan amounts for Zoom 10 equipment sold to customers.” (FAC ¶ 213.) 11 These new allegations sufficiently allege the existence 12 of trade secrets. Cf. Ikon Office Sols., Inc. v. Rezente, No. 13 2:10-1704 WBS KJM, 2010 WL 5129293, at *2 (E.D. Cal. Dec. 9, 14 2010) (finding allegations of misappropriated customer lists to 15 suffice at the motion to dismiss stage). The allegations 16 “describe the subject matter of the trade secret with sufficient 17 particularity . . . and permit[] the defendant to ascertain at 18 least the boundaries within which the secret lies.” Alta 19 Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 881 (N.D. 20 Cal. 2018); see also Imax Corp. v. Cinema Techs., Inc., 152 F.3d 21 1161, 1164 (9th Cir. 1998). Because plaintiff has thus remedied 22 the defect in the original complaint, the court will not dismiss 23 Counts Five and Six of the FAC. 24 IV. Intentional Interference with Contractual Relations (Count 7) 25 In evaluating plaintiff’s claim for intentional 26 interference with contractual relations, the court found that 27 “[p]laintiff’s allegations sufficiently plead wrongful conduct 28 distinct from the alleged misappropriation of trade secrets.” 1 (Docket No. 53 at 16.) The court thus concluded that plaintiff’s 2 claim was not preempted by the CUTSA. (Id.; see also Ikon, 2010 3 WL 5129293, at *4 (“Because this allegation arises from facts 4 different from the claim of misappropriation of trade secrets, 5 the claim is not preempted by CUTSA.”).) The court nonetheless 6 dismissed plaintiff’s claim because the complaint did not allege 7 actual breach or disruption of the contractual relationships at 8 issue. (Docket No. 53 at 17 (citing Walters v. Fid. Mortg. of 9 Cal., 730 F. Supp. 2d 1185, 1210 (E.D. Cal. 2010).) 10 The FAC now alleges that “at least 74 Zoom customers 11 have cancelled their agreements with Zoom.” (FAC ¶ 249.) The 12 FAC therefore now sufficiently pleads a claim for intentional 13 interference with contractual relations. (See Docket No. 53 at 14 16-17 (finding that the complaint satisfies all other elements of 15 the cause of action).) Accordingly, the court will not dismiss 16 Count 7 of the FAC. 17 V. Unfair Business Practices (Count 11) 18 This court previously dismissed plaintiff’s original 19 claim under the unlawful prong of the UCL because it explicitly 20 relied on defendant’s misappropriation of trade secrets and was 21 therefore preempted by the CUTSA. (Docket No. 53 at 23.) Just 22 as in the original complaint, plaintiff’s claim in the FAC that 23 defendants acted unlawfully is explicitly based on the same 24 nucleus of facts as trade secret misappropriation. (FAC ¶ 281 25 (Defendants “have violated the UCL’s prohibition against engaging 26 in any unlawful act . . . as a result of their violations of 27 [CUTSA].”).) This claim is therefore identical to the 28 misappropriation claim and “there is no material distinction 1 between the wrongdoing underlying” the two claims. See Ikon, 2 2010 WL 5129293, at *3. The CUTSA thus preempts plaintiff’s 3 claim for a violation of the unlawful prong of the UCL. 4 The court also dismissed plaintiff’s original claim 5 under the unfair prong of the UCL for the same reasons. In the 6 original complaint, plaintiff alleged that defendants acted 7 unfairly because plaintiff “use[d] Zoom’s confidential and 8 proprietary business information” to solicit employees and 9 customers. (Docket No. 53 at 23 (citing Complaint ¶ 149).) 10 Plaintiff has now amended its allegations to allege 11 that defendants “publicize[d] false business information about 12 Zoom to its customers . . . and . . . solicit[ed] Zoom’s 13 salespersons and technicians based on false information.” (FAC ¶ 14 282.) Specifically, plaintiff alleges that defendants Alsweet 15 and Roe made such allegedly false representations. (FAC ¶¶ 16 49(c)-(d); Ex. D.) To make false representations, Alsweet 17 “use[d] Zoom’s confidential information.” (FAC ¶ 49(d).) 18 Similarly, to reach out to Zoom’s customers and communicate 19 Zoom’s alleged closing, “Roe us[ed] Zoom’s confidential 20 information directly and indirectly” (FAC ¶ 65), including Zoom’s 21 customer lists (FAC ¶ 167). 22 Just as in the original complaint, the alleged unfair 23 conduct in the FAC relies on the misappropriation allegations, so 24 the CUTSA preempts this claim. Accordingly, the court will 25 dismiss Count 11 of the First Amended Complaint. 26 VI. Further Amendment 27 In its Order of November 8, 2019, the court made it 28 clear what plaintiff needed to do in order to cure the defects in 1 its complaint with respect to the dismissed claims. In the 2 Second Amended Complaint, plaintiff has cured the defects with 3 respect to the breach of contract, trade secrets, and 4 interference with contractual relations claims. However, 5 | plaintiff has failed to cure the defects with respect to its 6 | breach of implied covenant or UCL unfair conduct claims. Since 7 plaintiff has been given a full and fair opportunity to do so, 8 the court must infer that plaintiff is unable in good faith to 9 | allege facts sufficient to state either of those claims. 10 Under these circumstances, to give plaintiff yet 11 another opportunity to amend its complaint would serve only to 12 prolong this litigation, enhance the costs of the opposing party, 13 and unnecessarily consume additional judicial time and resources. 14 IT IS THEREFORE ORDERED that defendant’s Motion to 15 Dismiss (Docket No. 68) be, and the same hereby is, GRANTED IN 16 PART without leave to amend as to the following claims: (1) 17 breach of implied covenant of good faith (Count Four); and (2) 18 violation of the UCL for unlawful and unfair conduct (Count 11). 19 IT IS FURTHER ORDERED that defendant’s Motion to 20 Dismiss be, and the same hereby is, DENIED IN PART as to the 21 following claims: (1) breach of the 2017 Executive Agreement by 22 Roe (Count 1); (2) breach of 2018 Employee Handbook by all 23 defendants (Count 2); (3) breach of 2013 Employee Handbook by 24 Roe, Cross, and Lopez (Count 3); (4) violation of the CUTSA 25 (Count 5); (5) violation of the DTSA (Count 6); and (6) 26 intentional interference with contractual relations (Count 7). 27 | Dated: January 29, 2020 he ble 7H. De, bE 28 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE