Smile Finders v. Chrystal Medina CA2/7 ( 2021 )

Filed 10/19/21 Smile Finders v. Chrystal Medina CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
B298590
SMILE FINDERS et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No. BC492238)
v.
CHRYSTAL MEDINA et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of
Los Angeles County, William A. MacLaughlin, Judge. Affirmed
in part, reversed in part and remanded with directions.
Lewis Brisbois Bisgaard & Smith, Jeffry A. Miller,
Wendy S. Dowse, Craig Holden and Robert M. Collins for
Plaintiffs and Appellants Smile Finders, Soleimani Dental
Corporation, Soheil Soleimani DMD Corporation, S. Alexander
Soleimani Dental Corporation, S.A. Soleimani Dental
Corporation and Dental Management Services, LP.
Atabek & Associates and Jon A. Atabek for Defendants and
Respondents Chrystal Medina and Genwell, Inc.
Baranov & Wittenberg and Michael M. Baranov for
Defendants and Respondents Houman Baratian, Baratian Dental
Corporation, and Shallen Price.
___________________
Six affiliated dental companies— Smile Finders, a licensed
dental referral company; Soheil Soleimani DMD Corporation,
Soheil Soleimani Dental Corporation, S. Alexander Soleimani
Dental Corporation and S.A. Soleimani Dental Corporation
(collectively Soleimani Dental Corporations); and Dental
Management Services, LP (DMS)—appeal the judgment entered
in their trade secret and breach of contract lawsuit against
Dr. Houman Baratian, a dentist who had worked at one of the
dental offices owned by the Soleimani Dental Corporations and
then opened a competing professional office, and several related
individuals and entities. Smile Finders contends the trial court
erred in granting a motion for nonsuit precluding its claim for
lost profits for misappropriation of its trade secrets, and all six
affiliated dental companies—Smile Finders, DMS and the
Soleimani Dental Corporations (collectively the Soleimani
parties)—contend the court erred in granting the nonsuit motion
as to their breach of contract claims against Baratian and two
former employees of Smile Finders and DMS. We affirm in part
and reverse in part with instructions to conduct a new trial as to
certain of the Soleimani parties’ breach of contract claims.
2
FACTUAL AND PROCEDURAL BACKGROUND
1. The Parties to the Lawsuit and Appeal
The Soleimani Dental Corporations, owned by Dr. Soheil
Alexander Soleimani, operate a total of eight dental offices.
Smile Finders functions as the marketing arm of the affiliated
companies generating and providing referrals exclusively to the
Soleimani Corporations. DMS provides management services to
the Soleimani Dental Corporations.
On September 14, 2012 the Soleimani parties filed an
unverified complaint, on February 5, 2013 a first amended
complaint, and on September 6, 2013 the operative second
amended complaint for injunctive relief and damages alleging
causes of action for misappropriation of trade secrets, breach of
contract and several related torts. The second amended
complaint named as defendants in the misappropriation cause of
action Baratian, Baratian Dental Corporation, Chrystal Medina,
the former marketing director of Smile Finders who left Smile
Finders to work for Baratian, and Genwell, Inc., a company
founded by Medina. Baratian, Medina and Shallen Price, a
former employee of Smile Finders and DMS, were named as
defendants in the breach of contract cause of action. (Baratian,
Baratian Dental Corporation, Medina, Genwell and Price, the
only defendants involved with this appeal, are referred to
1
collectively as the Baratian parties.) Each of the causes of action
was brought on behalf of all six of the Soleimani parties.
1
The Soleimani parties do not challenge the trial court’s
order granting nonsuit as to the additional defendants named in
the second amended complaint or the causes of action alleged
other than misappropriation and breach of contract. For her
part, Medina has not appealed the trial court’s entry of judgment
3
Baratian, who started working as an independent
2
contractor with Soleimani in 2007, signed a new contract for
services with DMS in April 2011. Article 6 of the contract, titled
Proprietary Rights of DMS and All DMS and Affiliated Entities,
expressly applied “with equal force and effect to DMS and any
related organizations, including but not limited to DMS LP,
S. Alexander Soleimani Dental Corp., Soheil Soleimani DMD
Corp., Soleimani Dental Corp., S.A. Soleimani Dental Corp, or
Smile Finders.” The contract protected DMS and its affiliated
entities’ confidential and proprietary information, including
“customer lists, customer information, names, addresses and
information relating to leads, lists of leads, names, addresses and
telephone numbers of referral sources, . . . marketing
information, methods of operation, . . . and all other information
of independent economic value to DMS.” Baratian agreed he
would not “directly or indirectly, either during the term of this
contractual relationship with DMS or thereafter, disclose or use
the Confidential Information other than in the business of or as
directed by DMS, without the prior written consent of DMS.” He
also agreed not to use the confidential information for a period of
three years following termination of his relationship with DMS
against her on her cross-complaint against Smile Finders for
unfair business practices, and Baratian and Medina have not
appealed the entry of a permanent injunction in favor of Smile
Finders prohibiting any use of the trade secrets at issue in the
litigation.
2
Baratian’s original contract for services, effective March 18,
2007, was with Soleimani Dental Corporation. He signed a
second contract with Soleimani Dental Corporation effective
December 1, 2009.
4
“to either directly or indirectly solicit, or take away, or attempt to
solicit, or take away any of the patients of DMS, either for
Dentist or for any other person, firm or corporation.”
Medina and Price also signed confidentiality agreements as
a term of their employment. Medina’s agreement, signed in 2003,
was between her and all six affiliated dental entities. Price’s
agreement was with Smile Finders, her employer until she
3
transferred to DMS in 2011. The agreements, in substantially
similar language, protected any “trade secrets, as that term is
defined by the law,” and “any and all information concerning any
database or contact names [and] any resources which employer
uses to promote the business,” and specifically identified as
confidential information “[t]he names and addresses of
Employer’s contact and referral sources, and clients and
prospective clients from whom Employee has solicited business
while in the employ of the Employer, and all other confidential
information relating to those contact and referral sources and
clients.”
2. Misappropriation of Smile Finders’s Company List
Smile Finders generates referrals to the individual dental
offices owned by the Soleimani Dental Corporations primarily
through employer-sponsored corporate health fairs (nonexclusive
events that other health care providers attend) and dental
wellness (exclusive) events. Smile Finders employees (bookers)
attempt to arrange both types of marketing opportunities at
3
The confidentiality agreement signed by Price is undated,
and the handwritten insert on the line to identify her employer is
illegible on the copy of the document included in the record on
appeal.
5
medium- and large-size companies, while other Smile Finders
employees (field representatives) actually conduct the events.
Contact information (the business’s name and address and the
contact person’s email and telephone number) for individuals at
companies that might be interested in hosting such events are
entered into a confidential company or client list, which
Soleimani described as “our secret sauce that gets us in and gets
us patients.” By 2012 the company list had approximately 12,000
entries. Soleimani estimated it took approximately 100,000
hours to develop, maintain and update the list. The jury found in
response to special verdict questions—and it is undisputed on
appeal—that the company list is a trade secret, owned by Smile
Finders, with actual or potential independent economic value.
In March 2012, while Baratian was still working at one of
the Soleimani Dental Corporations offices, he asked Medina to
leave Smile Finders and come to work with him at a new dental
practice. In their discussions about creating a new team,
Baratian asked Medina to bring with her the contact information
she had access to as Smile Finders’s marketing director. After
initially declining Baratian’s offers, Medina agreed to work with
him; and the two entered into a contract on April 12, 2012
(effective June 1, 2012) for Medina to “set up and supervise a
marketing campaign/team to market and sell dental work.”
Their agreement compensated Medina with a fixed monthly
salary and an escalating share of the revenues generated at the
new practice. Medina left Smile Finders on April 30, 2012.
In anticipation of her new position in marketing for
Baratian’s dental practice, and at Baratian’s request, Medina
accessed Smile Finders’s confidential database (that is, the
company list) and downloaded the names of companies and
6
contact individuals, emails and phone numbers and the number
of employees at each business. Medina described the information
she took as “publicly available” and claimed not to have removed
“internal notes.” The information was then uploaded into
Baratian’s computer system at his new practice.
Baratian also recruited several other employees in the
affiliated Soleimani entities for positions in his new practice,
including Sayda Lopez, the office manager at the dental office
where Baratian practiced. Baratian asked Lopez to bring patient
information available to her at her current job to his new
practice. Baratian also asked Price several months before
starting his competing enterprise to explain Trojan, DMS’s on-
line insurance tracking service. Price did so and printed and
delivered to Baratian several pages of Trojan reports in
4
connection with her explanation.
Baratian’s independent contractor relationship with DMS
was terminated in April 2012 after Soleimani learned Baratian
was taking confidential information in anticipation of creating a
competing dental practice. Throughout the summer and into the
fall of 2012, as Baratian started and then grew his new practice,
Medina performed marketing services for him, using, in part, the
information she had downloaded from Smile Finders. She also
used Smile Finders’s training materials while working for
Baratian.
4
Price continued working at DMS until June 2012 and did
not go to work for any of the Baratian-related entities.
7
3. Causation and Damages
The Soleimani parties’ general theory of the case was that
the Baratian parties, through use of the information on the
company list misappropriated by Medina, were able to access
companies and host wellness events that otherwise would have
been staffed by Smile Finders representatives and diluted Smile
Finders’s presence at nonexclusive health fairs, all leading to a
reduction in patients at the dental offices owned by the Soleimani
Dental Corporations. Ariel Weiner, DMS’s vice-president of
operations, testified Smile Finders’s attendance at wellness
events and health fairs decreased by 28 percent from 2011 to
2012 and, using 2011 as a baseline, by 31.4 percent in 2013.
Weiner also testified the Soleimani dental offices treated 5,630
new patients referred by Smile Finders in 2011, an average of
469 patients per month. In 2012, after Baratian and Medina left,
the number of patients referred by Smile Finders dropped to an
average of 260 patients per month. The average number of new
patient referrals continued to drop in each of the following three
years (through 2015).
Alfred Joyal, the Soleimani parties’ dental marketing
5
expert, testified concerning the economic value of a marketing
list and the worth of a patient referral. Based on information
provided to him by the Soleimani parties, Joyal described Smile
Finders’s company list as “a very refined list of very specific
companies that had PPO insurance, which is the most valuable
type of insurance . . . . I saw that this list had been enriched to
5
Joyal, the cofounder of 1-800-DENTIST, a dentist referral
service, testified he had more than 30 years of dental marketing
experience.
8
the point where it was very specific businesses that could be
approached to attract patients.” He then opined the list was
“very valuable” and its loss “would be very detrimental to the
business and in some ways hard to remedy.” After explaining his
methodology, which involved valuing a referral and a capture
rate (how many referrals become actual patients in the door),
Joyal opined the licensing value of Smile Finders’s company list
(that is, what Smile Finders could have expected to receive if it
had granted exclusive permission for its use by another
marketing entity) was approximately $2.25 million in 2011. That
value would be diminished, Joyal continued, if someone outside
the organization were to obtain the list for its use (that is, if it
was no longer exclusive).
Leonard Lyons, the Soleimani parties’ damages expert,
testified concerning lost profits, as well as the overall economic
effect on the Soleimani parties’ businesses of the
misappropriation of the company list and, to a limited extent,
causation. Lyons explained his assignment: “I was asked to look
at whether the theft of the trade secrets—based on that being
causation, whether there is any effect on the revenues or the
expenses creating a lost profits calculation that can be attributed
to the loss of that—those trade secrets. In addition to that, I was
asked to look at whether there were any other alternative
causations that would reduce the likelihood that this was the
cause of the damages I was calculating. That was for both Smile
Finders, the marketing company, as well as the, as I classify
them, the offices or the dental practice groups. In addition to
those damages, I was also asked to look at, besides losing the
cash every year from lost profits, what is that effect on the
9
business itself; were there any damages to the business in terms
of total value of the business.”
After explaining his methodology, and based on financial
documents he reviewed from 2007 through 2017, Lyons testified
the Soleimani Dental Corporations experienced sustained,
substantial growth from 2007 until 2011 and then suffered a
precipitous decline in business in 2012, which continued into
2013 and 2014, when the volume of patients stabilized at this
lower level. In order to determine damages, Lyons explained, he
needed to determine the damages for the loss of new patients,
“what Smile Finders had the responsibility for,” and the overall
loss of patients (what he referred to as “patient count”), which
would affect the dental offices. Both aspects “flows up into the
management company.” The following exchange then took place
between Lyons and the Soleimani parties’ counsel:
“Q. So the profits, if I’m understanding your testimony
correctly, all run to the Dental Management Services
management company?
“A. That is correct.
“Q. So in terms of—to the extent there were any damages
caused to the affiliated dental offices, that would have run to
Dental Management Services as the company that receives the
profits from the entities, correct?
“A. Yes.”
Considering the decline in patients at the Soleimani Dental
Corporations’ offices starting in 2012 and various other factors
including estimated revenue growth without the
misappropriation, Lyons opined Smile Finders had suffered a
present-value loss of $3.654 million as a result of the
misappropriation of the company list. Lyons conducted a
10
separate analysis for lost profits at the dental offices, on an office-
by-office and year-by-year basis. His opinion was that the offices
in the aggregate lost $25.868 million. Lyons also calculated the
overall diminution in value of Smile Finders as a result of its
lower annual revenue ($5,792,015) and separately the diminution
6
in value of the dental offices ($43,447,580).
Lyons also examined other factors apart from
misappropriation of the trade secrets that might explain the
decline in patients and revenue experienced by the Soleimani
parties, including the national economy; what was happening to
dentistry at the national, state and local level; the Soleimani
Dental Corporations’ transition from being out-of-network to in-
network at Delta Dental; and complaints about patient care and
the quality of work at the offices. The only material factor,
according to Lyons, was the change in status with Delta Dental,
which was “a business decision that ideally would have brought
you more patients rather than less patients. But because of the
nature of what transpired, you could see that, if you were going to
lose patients, that would have a substantial additional effect
caused by the loss and the ability to gain new patients, not that
was causing the loss in patients. . . . So it’s an after effect of the
initial causation.”
6
Lyons explained the actual damage suffered by Smile
Finders was somewhere between $3.654 million in lost profits
and the $5.792 million loss in value, not the sum of the two
figures. Similarly, damage to the dental offices was somewhere
between $25.868 million and $43.447 million.
11
4. The Baratian Parties’ Motion for Nonsuit
At the conclusion of the Soleimani parties’ case-in-chief, the
Baratian parties moved for nonsuit pursuant to Code of Civil
Procedure section 581c. As pertinent to the issues on appeal, in
their written motion the Baratian parties argued the Soleimani
parties had failed to prove misappropriation of the company list
caused any of the damages claimed; only Smile Finders and none
of the other Soleimani parties owned the company list and had
standing to assert a cause of action for misappropriation of trade
secrets; the company list was not a trade secret; the information
taken by Medina was not a trade secret; the contracts with
former employees, which contain competitive restraints, violated
Business and Professions Code section 16600 and were, therefore,
void; and there was no substantial evidence that Price did
anything that violated her obligations to DMS. The Soleimani
parties filed a written opposition.
After hearing argument from both sides, the court granted
the motion in part. Specifically, the court granted nonsuit on the
first cause of action for misappropriation of trade secrets as to
DMS and the Soleimani Dental Corporations on the ground that
none of them had any ownership of, or legal right to, the
customer list. The court denied the motion on the first cause of
action as to Smile Finders, finding there was sufficient evidence
presented that the customer list was a trade secret and that
Baratian, Baratian Dental Corporation, Medina and Genwell
acquired and used the trade secret, but ruled the evidence was
insufficient to prove Smile Finders, as opposed to other parties,
suffered a loss of profits as a result of the misappropriation.
“[E]vidence of other damages to Smile Finders which have not
12
been addressed in the motion,” the court continued, “will be
submitted to the jury.”
Turning to the second cause of action for breach of contract,
the court granted the motion as to the four Soleimani Dental
Corporations because none of them had a contract with any of the
individual defendants named in the cause of action. The motion
of Medina and Price was granted as to Smile Finders’s contract
cause of action to the extent it was based on misappropriation of
a trade secret on the ground that claim was preempted by the
California Uniform Trade Secrets Act (Civ. Code, § 3426 et seq.)
(CUTSA) and for disclosure of any other confidential information,
such as patient identities, on the ground no evidence had been
introduced that such disclosures had caused any injury to Smile
Finders. The motion of Baratian on DMS’s breach of contract
claim was granted because there was no evidence of DMS’s
ownership of any trade secret and no evidence of any taking of
any other confidential information.
5. Closing Argument, the Special Verdict and a
Permanent Injunction
Following the ruling on the nonsuit motion, trial continued
on Smile Finders’s misappropriation claim against Baratian, the
Baratian Dental Corporation, Medina and Genwell to the extent
Smile Finders sought damages other than for lost profits. During
his closing argument Smile Finders’s counsel told the jury, “You
heard the judge read the instruction on damages.[ ] It just needs
7
7
By agreement of counsel the court reporter did not record
the reading of the jury instructions, and a copy of the instructions
was not included in the record on appeal. From the transcript of
the court’s final conference with counsel regarding instructions, it
13
to be a substantial factor in causing the harm. This is a company
that is going up and starts going down. And substantial factor
just means that it’s not a trivial factor. It had some significance.”
Counsel continued, “And diminution of Smile Finders has
occurred. Diminution merely means loss. The value after the
theft is not the same. . . . The data is diluted. It’s in the public
domain. . . . So what’s the damage? The diminution in the value
to the business is 5.7—$5,792,015. . . . There are two forms of
damages that Smile Finders is seeking. In the verdict form,
you’ll be asked to fill out, relate to the loss of the value of the
business and the loss of the value of the company list. The [loss]
of the value of the company list—Dr. Joyal testified to it. It’s a
licensing value. And that diminution of the value of the company
list is 2.25—$2,251,200.”
In his closing argument Baratian’s and Medina’s counsel
also questioned the validity of the valuations by Joyal and Lyons,
focusing on their sole reliance on Soleimani employees for an
understanding of the company list, rather than conducting
independent analyses. In addition, Medina’s counsel discussed
the evidence of the various reasons, unrelated to Medina taking
the customer list, that the Soleimani Dental Corporations’
business began to decline in 2011 and continued their decline in
the years thereafter, including an increase in the number of
8
complaints about the quality of care. He also emphasized that
appears the court gave a special instruction on damages and not
CACI No. 4409, Remedies for Misappropriation of Trade Secret.
8
Counsel summarized the evidence, for example, that
established Baratian and Medina had gone to 122 events in 2012.
Smile Finders, which had sent representatives to more than
1,600 in 2011, went to fewer than 1,200 in 2012, leaving several
14
Medina stopped working with Baratian in February 2013, and
the evidence indicated Baratian’s marketing efforts from that
point on did not utilize information from the company list, yet the
Soleimani Dental Corporations’ patient numbers continued to
decline.
In a special verdict (in which “Baratian” was deemed to
include the Baratian Dental Corporation and “Medina” deemed to
include Genwell) the jury found Smile Finders was the owner of
the company list; the company list was secret at the time of the
alleged appropriation; the company list had actual or potential
independent economic value because it was secret; Smile Finders
made reasonable efforts to keep the company list secret; both
Baratian and Medina acquired or used the company list by
improper means; but neither Baratian’s nor Medina’s improper
acquisition or use of the company list was a substantial factor in
causing Smile Finders damages.
After the jury returned its verdict, the court continued with
a scheduled second phase of the trial at which it denied Smile
Finders’s request for a reasonable royalty for misappropriation of
the company list but granted its request for entry of a permanent
injunction against Baratian, the Baratian Dental Corporation,
Medina and Genwell, prohibiting them from accessing,
possessing, transferring or making any use of the company list
and from accessing, possessing, transferring or making any use of
materials created by copying or reproducing the contents of the
company list. The injunction expressly provided it did not
prohibit attending health fairs, wellness events or engaging in
hundred events unattended by Smile Finders that could not
reasonably be explained only by Baratian and Medina usurping
its position at health fairs and wellness events.
15
any other marketing activities based on contact information that
was publicly available and obtained by lawful efforts.
The court entered judgment in accordance with the jury
verdict and rulings at the second phase of the trial on April 16,
2019. The Soleimani parties filed a timely notice of appeal.
DISCUSSION
1. Nonsuits: Governing Law and Standard of Review
Code of Civil Procedure section 581c, subdivision (a),
provides, “Only after, and not before, the plaintiff has completed
his or her opening statement, or after the presentation of his or
her evidence in a trial by jury, the defendant, without waiving his
or her right to offer evidence in the event the motion is not
granted, may move for a judgment of nonsuit.” “A motion for a
nonsuit is in effect a demurrer to the evidence and the court must
assume that all the evidence received in favor of the plaintiff
relevant to the issues is true. All presumptions, inferences and
doubtful questions must be construed most favorably to the
plaintiff’s case. The rule is so well settled that it is not necessary
to enlarge upon it.” (Richardes v. Richardes (1931) 211 Cal. 392,
394; accord, Hawley v. Orange County Flood Control Dist. (1963)
211 Cal.App.2d 708, 712-713.)
We review an order granting nonsuit de novo, using the
same standard as the trial court. (Nally v. Grace Community
Church (1988) 47 Cal.3d 278, 291.) “A defendant is entitled to a
nonsuit if the trial court determines that, as a matter of law, the
evidence presented by plaintiff is insufficient to permit a jury to
find in [the plaintiff's] favor.” (Ibid.) The court must not weigh
the evidence or consider witness credibility, must accept as true
the evidence most favorable to the plaintiff, must disregard
conflicting evidence, and must draw every reasonable inference—
16
and resolve all presumptions, conflicts, and doubts—in the
plaintiff’s favor. (O’Neil v. Crane Co. (2012) 53 Cal.4th 335, 347;
Castaneda v. Olsher (2007) 41 Cal.4th 1205, 1214-1215.)
“Although a judgment of nonsuit must not be reversed if
plaintiff’s proof raises nothing more than speculation, suspicion,
or conjecture, reversal is warranted if there is ‘some substance to
plaintiff's evidence upon which reasonable minds could differ.’”
(Carson v. Facilities Development Co. (1984) 36 Cal.3d 830, 839;
accord, McNair v. City and County of San Francisco (2016)
5 Cal.App.5th 1154, 1168-1169; Wolf v. Walt Disney Pictures &
Television (2008) 162 Cal.App.4th 1107, 1124.)
There is a split of authority on whether our review of a
nonsuit motion is limited to the reasons given by the trial court
or whether we may examine grounds raised by a defendant but
not ruled on by the trial court in order to affirm the ruling. (See
Holistic Supplements, LLC v. Stark (2021) 61 Cal.App.5th 530,
541 [noting split of authority]; compare Alpert v. Villa Romano
Homeowners Assn. (2000) 81 Cal.App.4th 1320, 1328 [“[w]e
consider grounds which were both advanced by the moving party
and ruled on by the trial court”] with Saunders v. Taylor (1996)
42 Cal.App.4th 1538, 1542, fn. 2 [rejecting narrow scope of review
and finding no bar to the “consideration on appeal of alternative
grounds which were stated by the moving party but which were
not among those relied upon by the trial court in granting the
motion”].)
Both sides of this debate, however, agree an order granting
a nonsuit generally may not be affirmed on a ground not asserted
by the defendant in the motion because that deprives the plaintiff
of the opportunity to seek to reopen the evidence to cure the
deficiency. (Consolidated World Investments, Inc. v. Lido
17
Preferred Ltd. (1992) 9 Cal.App.4th 373, 378 [“defects not
specifically pointed out by the moving party cannot be considered
by the trial court, or by us, in determining the merits of the
motion”]; see Wilson v. Century 21 Great Western Realty (1993)
15 Cal.App.4th 298, 305-306 [“‘[g]rounds not specified in a motion
for nonsuit will be considered by an appellate court only if it is
clear that the defect is one which could not have been remedied
had it been called to the attention of plaintiff by the motion,’”
quoting Lawless v. Calaway (1944) 24 Cal.2d 81, 94]; see also
Alpert v. Villa Romano Homeowners Assn., supra, 81 Cal.App.4th
at p. 1328, fn. 8 [“[O]n a motion for nonsuit, the plaintiff is to be
given the opportunity to cure the defect in its case. To this end,
the court is to hear offers of proof and grant a motion to reopen if
timely”], citing Eatwell v. Beck (1953) 41 Cal.2d 128, 133 [one of
the chief objects of a nonsuit motion is to point out to plaintiff the
defects in its case so that they may be remedied and the case
decided on its merits].)
2. The Trial Court Erred in Granting Nonsuit on Smile
Finders’s Claim for Lost Profits Due to Misappropriation
of Its Trade Secrets
Lyons, the Soleimani parties’ damages expert, testified
Smile Finders lost profits of approximately $3.654 million
following misappropriation of the company list. He developed a
separate lost profits figure for the Soleimani Dental Corporations
($25.868 million). Lyons initially assumed, consistent with the
Soleimani parties’ theory of the case, that the decline in revenue
for Smile Finders and the dental offices was attributable to the
misappropriation and then did an economic (reverse regression)
analysis that excluded other causes (patient dissatisfaction and
increased competition, for example) as responsible for the loss.
18
The nonsuit motion challenged in the aggregate the
evidence that misappropriation of the company list (even if it was
found to be a protectible trade secret) was a substantial cause of
any injury to the Soleimani parties and, in particular, the
proximate cause of lost profits in any part of the Soleimani
enterprise. That is, although arguing only Smile Finders had
standing to pursue a cause of action for misappropriation of a
trade secret, the motion addressed causation in general, not as it
related to Smile Finders rather than the other Soleimani parties.
(DMS and the Soleimani Dental Corporations sought their lost
profits as a damage remedy for causes of action in addition to
misappropriation, including for Baratian’s and Medina’s breach
of their confidentiality agreements; and Lyons testified to those
damage figures.) Yet that was the basis for the order: Although
rejecting the Baratian parties’ argument there was an overall
failure of proof, the court ruled there was no evidence Smile
Finders had suffered a loss of profits as a result of the
misappropriation.
This was error for two reasons. First, the court issued its
ruling on a ground not raised by the Baratian parties in their
motion. Second, even if the motion were properly before it, the
court failed to consider the reasonable inference from the
evidence that misappropriation of the company list caused Smile
Finders’s reduced profitability in 2012 and thereafter.
To be sure, there was a gap in Lyons’s testimony: Although
there was evidence Smile Finders’s success in marketing and
generating referrals to the Soleimani Dental Corporations
declined after the misappropriation of the company lists, Lyons
never described how Smile Finders generated revenue or
explained why a decline in the number of patients seen at the
19
office level, which resulted in lower profits for DMS and the
corporations that owned those offices, negatively impacted the
profitability of Smile Finders, the marketing company. But it
was a reasonable inference from Lyons’s testimony, as well as
that of other witnesses who explained the nature of Smile
Finders’s business and its relationship to the other Soleimani
entities, that the loss in referral business was responsible for the
9
deterioration in Smile Finders’s financial condition. Nothing
9
After Weiner testified to a total drop in production by the
dental offices of approximately $225 million following the
misappropriation of the company list, as depicted on an exhibit
displayed to the jury, Baratian’s counsel asked in cross-
examination, “And then this plaintiff here, Smile Finders, which
is not a dental corporation, it’s a marketing thing—do you know
how much they received as part of this whole scheme?” Weiner
responded, “Yes, I can tell you, if you want me to go into more
detail, how things are—” Counsel interrupted the answer and
said, “I’m not asking you for that. I’m just trying to clarify that
these numbers do not allocate the amount of revenue received by
Smile Finders. It’s just a cumulative production of the medical
stuff or the dental stuff, correct?” Weiner answered, “The
numbers I showed you are an accumulation, or I should say a
summation, of the dental corporations’ revenue. I have not
discussed how that revenue is apportioned to other entities, no.”
Although Weiner was not thereafter asked on redirect by
counsel for the Soleimani parties to complete the answer and
explain how revenue generated by the dental offices was
apportioned to Smile Finders, Weiner’s answer, as brief as it was,
established that Smile Finders in some fashion received a portion
of the revenue generated by the dental offices. A further
inference from his testimony that Smile Finders suffered a loss in
revenue (and profits) due to fewer patients being seen at the
dental offices was certainly a reasonable one.
20
more was required to survive a motion for nonsuit. (See
Bierbower v. FHP, Inc. (1999) 70 Cal.App.4th 1, 6 [plaintiff
opposing a motion for nonsuit “is entitled to the benefit of any
conflict in the evidence and any reasonable inference that might
be drawn from it”].)
3. The Trial Court Erred in Granting Nonsuit as to the
Soleimani Parties’ Breach of Contract Claims Against
Baratian and Medina
a. The trial court improperly limited its analysis of the
contract claims to the contracting parties
As discussed, Baratian’s contract as an independent
contractor was with DMS; Medina’s employment agreement was
directly with Smile Finders. The trial court granted the motion
for nonsuit with respect to the breach of contract claims by the
Soleimani Dental Corporations (the four corporate entities
operating dental offices) on the ground they did not have a
contract with any of the defendants named in the cause of action.
This was error for two reasons.
First, the moving parties did not assert the absence of a
contractual relationship as a basis for their motion, as required.
(See, e.g., Wilson v. Century 21 Great Western Realty, supra,
15 Cal.App.4th at pp. 305-306; Consolidated World Investments,
Inc. v. Lido Preferred Ltd., supra, 9 Cal.App.4th at p. 378.)
Second, Baratian’s and Medina’s confidentiality
agreements were made for the benefit of not only the contracting
corporate entity but also “any related entities” in the case of
Baratian, and DMS and “other Professional Corporations of
Alexander Soleimani” in the case of Medina. As intended third
party beneficiaries, these other entities were entitled to pursue a
breach of contract action for Baratian’s and Medina’s violation of
21
their obligations with regard to confidential and proprietary
information. (Civ. Code, § 1559 [“[a] contract, made expressly for
the benefit of a third person, may be enforced by him at any time
before the parties thereto rescind it”]; see Goonewardene v. ADP,
LLC (2019) 6 Cal.5th 817, 826-827 [“[i]n California, as in other
jurisdictions, it is well established that under some
circumstances a third party may bring an action for breach of
contract based upon an alleged breach of a contract entered into
by other parties”]; Harper v. Wausau Ins. Corp. (1997)
56 Cal.App.4th 1079, 1087 [“[a] third party may qualify as a
beneficiary under a contract where the contracting parties must
have intended to benefit that individual and such intent appears
on the terms of the agreement”].)
“[T]he principles [of contract interpretation] do not become
inoperative merely because the contract is invoked by someone
who was not a party to it. The question in such a case is whether
the parties intended to confer enforceable rights on the party now
asserting them. The governing substantive principle is that a
nonparty who claims benefits under the contract is entitled to do
so as long as the claimed benefit does not flow to him as a mere
incident of the agreement, but is one the contracting parties
intended to confer. [Citations.] [¶] The rights of a third party
beneficiary thus depend upon the intent of the contracting
parties. [Citation.] ‘Ascertaining this intent is a question of
ordinary contract interpretation.’ [Citation.] It follows that if the
requisite intent appears unambiguous from the face of the
contract, the third party makes a prima facie showing of
entitlement merely by proving the contract.” (Rodriguez v. Oto
(2013) 212 Cal.App.4th 1020, 1028.)
22
The Soleimani parties proved the contracts and, therefore,
established a prima facie case for their standing as third party
beneficiaries to enforce the confidentiality agreements against
Baratian and Medina. Baratian and Medina’s only response
(other than their general harmless error analysis, discussed in
section 4) is that we should not consider the third party
beneficiary argument because it was not mentioned in the
written opposition to the motion for nonsuit or during oral
argument at the hearing on the motion. As discussed, however, it
was the defendants’ failure to raise the issue of standing to assert
a breach of contract claim in their moving papers, not the
Soleimani parties’ lack of response, that is significant. A nonsuit
on the contract claims on this ground was improper.
b. CUTSA does not preempt breach of contract claims
Citing CUTSA preemption, the Baratian parties moved for
nonsuit as to all causes of action in the second amended
complaint other than misappropriation and breach of contract
(for example, conversion). The trial court properly granted that
aspect of the motion but erred in ruling preemption precluded in
part the Soleimani parties’ breach of contract claims, a ground
not advanced in the motion, because CUTSA does not preempt
10
contract claims based on misappropriation of trade secrets.
“CUTSA includes a specific provision concerning
preemption. That provision, [Civil Code] section 3426.7, reads in
pertinent part as follows: ‘(a) Except as otherwise expressly
provided, this title does not supersede any statute relating to
10
The Baratian parties acknowledge the trial court erred in
ruling CUTSA preempted the contract claims based on
misappropriation.
23
misappropriation of a trade secret, or any statute otherwise
regulating trade secrets. [¶] (b) This title does not affect
(1) contractual remedies, whether or not based upon
misappropriation of a trade secret, (2) other civil remedies that
are not based upon misappropriation of a trade secret, or
(3) criminal remedies, whether or not based upon
misappropriation of a trade secret.’ Section 3426.7 thus
‘expressly allows contractual and criminal remedies, whether or
not based on trade secret misappropriation.’ [Citation.] ‘At the
same time, § 3426.7 implicitly preempts alternative civil
remedies based on trade secret misappropriation.’” (K.C.
Multimedia, Inc. v. Bank of America Technology & Operations,
Inc. (2009) 171 Cal.App.4th 939, 954; accord, 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 [C]UTSA”].)
In sum, the motion for nonsuit directed to the breach of
contract cause of action asserted by all six of the Soleimani
parties should have been denied as to both Baratian and Medina
based on their misappropriation of the company list. As to Price,
however, her agreement was limited to Smile Finders; there was
no evidence she was involved in the theft of the company list;
and, although there was some evidence (including her partial
admission) she had provided patient information to Baratian that
he intended to use for marketing purposes, Smile Finders
presented no evidence of any injury caused by that breach, as the
24
trial court found. Accordingly, the motion was properly granted
11
as to her.
4. The Jury’s Special Verdict Finding on Causation Means
Some, but Not All, of the Trial Court’s Errors Were
Harmless
The Baratian parties make only a modest effort to defend
the trial court’s nonsuit order, primarily arguing the judgment
should be affirmed because the jury’s finding that
misappropriation of the company list was not a substantial factor
in causing any damage to Smile Finders necessarily means any
error committed by the trial court was harmless. The Baratian
parties are, of course, correct that, to secure a reversal, the
Soleimani parties must show it is reasonably probable they would
have received a more favorable result at trial had the errors not
occurred. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 800
11
Smile Finders contends it is at least entitled to seek an
award of nominal damages for Price’s breach of the
confidentiality agreement. (Genisman v. Carley (2018)
29 Cal.App.5th 45, 53 [nominal damages are properly awarded
when there is no loss or injury to be compensated but where the
law still recognizes a technical invasion of a plaintiff’s rights or a
breach of a defendant’s duty]; see Civ. Code, § 3360.) However,
we agree with Price this argument has been forfeited because it
was not raised in the trial court in response to the motion for
nonsuit, which asserted Smile Finders had failed to present
substantial evidence of her liability or any resulting injury. (See
Johnson v. Greenelsh (2009) 47 Cal.4th 598, 603 [issues not
raised in the trial court cannot be raised for the first time
on appeal]; cf. Aleksick v. 7-Eleven, Inc. (2012) 205 Cal.App.4th
1176, 1185-1187 [plaintiff forfeited argument not made in
opposition to defendant’s motion for summary judgment and
raised for first time on appeal].)
25
[error justifies reversal in a civil action only if it is reasonably
probable a different result would have been reached absent the
error]; see Cal. Const., art. VI, § 13 [“[n]o judgment shall be set
aside, or new trial granted, in any cause . . . for any error as to
any matter of procedure, unless, after an examination of the
entire cause, including the evidence, the court shall be of the
opinion that the error complained of has resulted in a
miscarriage of justice”]; Code Civ. Proc., § 475 [“[n]o judgment,
decision, or decree shall be reversed or affected by reason of any
error, ruling, instruction, or defect, unless it shall appear from
the record that such error, ruling, instruction, or defect was
prejudicial . . . and that a different result would have been
probable if such error, ruling, instruction, or defect had not
occurred or existed”].)
Following the order partially granting the motion for
nonsuit, the jury found Baratian and Medina had
misappropriated the company list, a trade secret with actual or
potential economic value, but their acquisition and use of the list
did not damage Smile Finders. In finding no injury to Smile
Finders, the jury had before it Lyons’s expert testimony
regarding the company’s loss in value following the
misappropriation and Joyal’s expert opinion as to the
misappropriation’s damage to the licensing value of the list itself.
Having rejected both of those theories, the Baratian parties
argue, there is no reason to conclude the jury would have found
the misappropriation (or Baratian’s and Medina’s breach of their
confidentiality agreements) caused Smile Finders’s loss of profits.
We agree the error in granting the nonsuit motion with
respect to Smile Finders’s loss of profits was harmless. It is
perhaps true the special verdict “does not mean the jury
26
necessarily would have found Baratian, Baratian Dental
Corporation, Medina, and Genwell’s misconduct did not cause the
damages that were not submitted to the jury,” as Smile Finders
contends. But Smile Finders’s burden is to demonstrate it was
reasonably probable the jury would have found in its favor if
instructed on lost profits. It has not even attempted to do so.
Indeed, given Lyons’s opinion that Smile Finders’s $5.792 million
decline in the value was largely due to the company’s reduced
earnings following the misappropriation, a theory that went to
the jury notwithstanding the order granting nonsuit on lost
profits, the jury’s rejection of that damage claim makes it highly
unlikely it would have viewed Lyons’s lost profit theory any more
favorably.
The argument the special verdict finding on causation with
respect to Smile Finders renders harmless the trial court’s errors
as to the breach of contract claims by DMS and the Soleimani
Dental Corporations, in contrast, fails. As the Baratian parties
have emphasized, “[E]ach Appellant occupies a somewhat
different legal position.” The trial court found (albeit in
connection with a legally erroneous ruling) that Lyons’s
testimony adequately established damages (lost profits) to the
Soleimani entities other than Smile Finders. The gaps in Lyons’s
testimony regarding Smile Finders’s lost profits, although not
sufficient to justify nonsuit, could well explain, at least in part,
the jury’s ultimate finding that Baratian’s and Medina’s
mistreatment of confidential information did not injure that
company. But it is reasonably probable a different outcome could
result from a trial in which a jury is asked whether that same
misconduct—theft of the company list and use of the information
in marketing a competing dental practice—was at least partially
27
responsible for the decline in referrals to, and patients treated at,
the Soleimani Dental Corporations. DMS and the Soleimani
Dental Corporations, as parties to, or third party beneficiaries of,
the confidentiality agreements signed by Baratian and Medina,
are entitled to have a jury evaluate that claim.
DISPOSITION
The order granting the motion for nonsuit in favor of
Baratian and Medina on the second cause of action for breach of
contract as asserted by DMS and the Soleimani Dental
Corporations and the judgment as to those parties are reversed
with instructions that the trial court conduct a new trial on that
cause of action. In all other respects the judgment is affirmed.
The parties are to bear their own costs on appeal.
PERLUSS, P. J.
We concur:
FEUER, J.
*
IBARRA, J.
*
Judge of the Santa Clara Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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