Pneuma International, Inc. v. Cho ( 2019 )

Filed 6/24/19
CERTIFIED FOR PARTIAL PUBLICATION *
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
PNEUMA INTERNATIONAL, INC.,
Plaintiff and Appellant,
A151536
v.
YONG KWON CHO et al., (Alameda County
Super. Ct. No. HG15756006)
Defendants and Respondents.
Appellant Pneuma International, Inc. sued a former employee, a competitor the
employee went to work for, and a Pneuma investor, alleging several business torts. The
investor filed a cross-complaint against Pneuma and its owner alleging they breached
their investor agreement. Following a court trial, the court ruled against Pneuma on all
the causes of action it asserted, with the exception of a single cause of action for trespass
to chattel; and it ruled in favor of the investor on his cross-complaint. Pneuma challenges
the trial court’s rulings on some, but not all, causes of action. We affirm. In the
published portion of our opinion, we hold that a determination a party engaged in a
trespass to chattel in a business context does not, without more, establish that the party
engaged in an unlawful business practice under California’s Unfair Competition Law.
(Bus. & Prof. Code, § 17200, hereafter section 17200 or UCL.)
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of parts II.B, II.C, II.D.2.b, II.D.3, and II.E.
1
I.
FACTUAL AND PROCEDURAL
BACKGROUND
Pneuma is a supplier of paper goods to distributors and wholesalers. At least as
far back as 2012, the company (then known as Egpak) sold a 10-ounce “ripple soup cup”
and matching lid, which was supplied by a Chinese manufacturer and freight company.
One of the company’s customers for the cups was Heritage Paper, which in turn supplied
the soup cups to Kaiser Hospitals.
While respondent Yong Kwon Cho was an employee of Egpak, he set up the
website domain www.egpak.com using his personal Yahoo! email address, and became
the registered owner of the domain. The website domain was used as a repository of the
company’s business records, including its financial books, contact information for
vendors and customers, and purchase orders. Cho installed various programs on
company computers and created email addresses for company employees.
In October 2012, Cho signed a non-disclosure agreement with Mikahel Chang,
who was the owner and developer of certain food-container products and who was in the
process of purchasing Egpak. The agreement stated that Chang intended to disclose
confidential information about the products to Cho. Two days after the agreement was
signed, Chang entered into a purchase agreement to acquire Egpak, which then became
Pneuma. The purchase agreement included the sale of the www.egpak.com website
domain.
In March 2013, respondent Bruce Chalmers entered into an equity/shareholders
investment agreement with Pneuma. Under the agreement, Pneuma agreed to sell shares
of common stock to Chalmers for $50,000, and the company agreed pay Chalmers
periodically based on Chang’s monthly salary and the company’s profits. Chang
personally guaranteed the payment and performance of Pneuma’s indebtedness and
obligations, but his liability under the guaranty was limited to $50,000 plus interest.
Cho left Pneuma in mid-December 2013 to work for respondent Central United
Packaging, Inc. (CUP). He trained another Pneuma employee to take over his position,
2
but that training was not complete by the time he left the company. After he left Pneuma,
Cho remotely accessed the company’s computer several times in late December 2013.
According to Cho, he did so in response to calls for help from the employee who took
over his position.
CUP used the web domain igcpak.com. Heritage Paper switched from Pneuma to
CUP to supply its ripple cups. CUP continued to use the same Chinese manufacturer and
freight company to supply them with the same 10-ounce soup cup and lid previously
provided by Pneuma.
In January 2014 Pneuma demanded Cho’s email communications. Cho
downloaded all the email from one of his two epak.com email accounts (as opposed to his
personal Yahoo! account) onto a USB drive. He and his attorney went to Pneuma’s
offices to deliver the drive to Chang, but Chang refused to meet with either of them. The
USB drive was given to Cho’s successor at Pneuma, who gave it to Chang. Chang did
not open the drive because he was concerned it might be contaminated, and he instead
gave the drive to his attorney.
Chang also demanded that Cho transfer ownership of the egpak.com domain.
Pneuma was informed that in order to transfer ownership, Yahoo! required that Pneuma’s
system be shut down for a period of hours and possibly even an entire weekend. A
computer expert for Pneuma informed Chang that there were “certain other risks to
having the domain shut down[,] including potential loss of information or data.” Chang
was unwilling to allow the system to be shut down and also refused the option of backing
up Pneuma’s emails and other data on the domain in order to mitigate the risks involved
with the transfer. Cho was willing to have Pneuma substituted in his place as the
registered owner of the egpak.com domain but refused to allow complete access to all of
his personal email accounts associated with the domain.
Meanwhile, Chalmers claimed that Chang owed him money for commissions, loan
repayment, and investments. The two worked in 2014 to resolve their dispute. An
informal mediation led to a tentative agreement, which was memorialized in a
memorandum that Chalmers emailed to Chang on May 12. Chalmers wrote in the final
3
paragraph of the memorandum that he would have his attorney “write up the agreement.”
Chang tried to add or modify terms to the agreement, and Chang’s attorney emailed
Chalmers a written addendum. Chalmers was “incensed” about the changes.
After further negotiation, the parties reached what Chalmers believed was a new
agreement, and on June 25 emailed Chang another memorandum setting forth the terms
of the revised agreement. The email memorandum lists nine “terms we both agreed to,”
and it concludes, “The ball is in your court, no more excuses or delays—this starts Aug 1,
2014.” Chalmers printed the email and signed it, along with Barry Willis, a sales
manager with Heritage Paper. Chang did not sign the agreement, and Chalmers did not
hear a response from Chang. Chang nevertheless later argued, and Chalmers disputed,
that the June 24 memorandum represented a valid and enforceable oral settlement
agreement.
Pneuma initiated these proceedings in October 2014 against Cho, CUP, and
Chalmers. As amended, the complaint stated 15 causes of action, not all of which are
implicated in this appeal. We primarily address the following causes of action: violation
of California’s Comprehensive Computer Data Access and Fraud Act (Pen. Code, § 502)
against Cho and CUP (the second cause of action); recovery of personal property against
Cho and CUP, later construed by the trial court as trespass to chattel (the fourth cause of
action); conversion and misappropriation against Cho and CUP (the fifth cause of action);
common law unfair competition and trade name infringement against Cho and CUP (the
sixth cause of action); and unfair competition under section 17200 against all respondents
(the fifteenth cause of action). Chalmers filed a cross-complaint against Pneuma and
Chang for rescission, breach of contract, and other causes of action.
Pneuma’s computer expert was tasked with investigating Pneuma’s computers in
October 2015 after a suspected burglary on Pneuma’s premises. The expert discovered
that two of Cho’s egpak.com email accounts had been deleted from the system. The
expert was unable to determine who had deleted the email accounts or when the deletions
occurred.
4
A court trial began in April 2016. At the time of trial, Cho remained the registered
owner of the egpak.com domain. According to respondents’ information-technology
expert, the protocol for transferring the domain to Chang or Pneuma had changed and
would no longer require the website to shut down.
After Pneuma presented its case, respondents filed a motion for entry of judgment
or, in the alternative, adjudication in their favor on each cause of action. (Code Civ.
Proc., § 631.8.) The trial court granted the motion in part and denied it in part in a
statement of decision filed on July 5, 2016. As relevant to this appeal, the court granted
judgment in Chalmers’s favor on Pneuma’s claim based on the alleged settlement
agreement between the two. The court concluded that Pneuma had not established that
the June 24, 2014 memorandum Chalmers sent to Chang “represent[ed] anything more
than a counter-proposal.” The court therefore granted Chalmers’s motion for judgment
as to the twelfth cause of action, for breach of the implied covenant of good faith and fair
dealing. As we discuss below, it is unclear whether Pneuma challenges that ruling in this
appeal.
The trial court also ruled in favor of Cho and CUP on Pneuma’s sixth cause of
action, for unfair competition and trade name infringement. It did so after rejecting
Pneuma’s argument that the general public or the wholesale food packaging products
industry in the Bay Area would necessarily confuse Igcpak or IGCPAK.com (CUP’s web
domain) with Egpak, Inc. or EGPAK.com (Pneuma’s web domain).
The trial continued, and respondents presented their defense to Pneuma’s
remaining causes of action. In a second statement of decision filed on March 22, 2017,
the trial court ruled in favor of Chalmers and CUP on Pneuma’s remaining causes of
action against them and in favor of Cho on all but one cause of action against him. As
relevant to this appeal, and as discussed in more detail below, the trial court concluded
that Pneuma had not established all the elements of a claim under the Comprehensive
Computer Data Access and Fraud Act (Pen. Code, § 502, the second cause of action).
The court further concluded that Pneuma had not established a cause of action for
conversion (the fifth cause of action). As for Pneuma’s fourth cause of action against
5
Cho, for conversion/recovery of personal property (the egpak.com domain), the trial court
relabeled the cause of action as trespass to chattel and entered judgment in Pneuma’s
favor against Cho. The court directed Cho to transfer the contents of the domain to
Pneuma (or its designee), excluding Cho’s personal emails that did not constitute
Pneuma’s business records. Cho did not appeal from the judgment against him. The
court further concluded that Pneuma had not established that any of the respondents had
committed a violation of section 17200 (the fifteenth cause of action).
Finally, the trial court entered a separate statement of decision on March 22, 2017,
addressing Chalmers’s cross-complaint against Pneuma and Chang. The court concluded
that Pneuma and Chang had breached the terms of the parties’ equity/shareholders
investment agreement. The court ordered Pneuma to pay Chalmers $219,638.37 in
damages and Chang to pay any unsatisfied portion of the judgment, not to exceed
$50,000.
Judgment was entered in April 2017, and Pneuma timely appealed. An “amended
judgment” was entered in June 2017 awarding respondents attorney fees and costs, which
Pneuma does not challenge. Although Pneuma’s appellate counsel represented both
Chang and Pneuma below, an opening brief was filed on behalf of Pneuma only.
II.
DISCUSSION
A. Pneuma Established that Cho Committed Trespass to Chattel.
Before we turn to Pneuma’s arguments, we discuss the legal elements for the one
cause of action upon which the company prevailed, trespass to chattel, because many of
Pneuma’s arguments require an understanding of this tort.
“Dubbed by Prosser the ‘little brother of conversion,’ the tort of trespass to
chattels allows recovery for interferences with possession of personal property ‘not
sufficiently important to be classed as conversion, and so to compel the defendant to pay
the full value of the thing with which he has interfered.’ (Prosser & Keeton, Torts (5th
ed. 1984) § 14, pp. 85-86.)” (Intel Corp. v. Hamidi (2003) 30 Cal. 4th 1342, 1350.)
“Though not amounting to conversion, the defendant’s interference must, to be
6
actionable, have caused some injury to the chattel or to the plaintiff’s right in it. Under
California law, trespass to chattels ‘lies where an intentional interference with the
possession of personal property has proximately caused injury.’ [Citation.] In cases of
interference with possession of personal property not amounting to conversion, ‘the
owner has a cause of action for trespass . . . , and may recover only the actual damages
suffered by reason of the impairment of the property or the loss of its use.’ [Citations.]
In modern American law generally, ‘[t]respass remains as an occasional remedy for
minor interferences, resulting in some damage, but not sufficiently serious or sufficiently
important to amount to the greater tort’ of conversion. (Prosser & Keeton, Torts, supra,
§ 15, p. 90 . . . .)” (Id. at pp. 1350-1351, italics omitted.)
As we have mentioned, the trial court relabeled Pneuma’s fourth cause for
conversion/recovery of personal property as one for trespass to chattel and found in favor
of Pneuma against Cho (but not CUP). The court concluded that Pneuma had established
the necessary elements of the tort: (1) Pneuma owned, possessed, or had a right to
possess the egpak.com domain and its contents; (2) Cho intentionally interfered with
Pneuma’s use or possession of that property; (3) Pneuma did not consent; (4) Pneuma
was harmed; and (5) Cho’s conduct was a substantial factor in causing Pneuma’s harm.
(CACI No. 2101.) The court analogized the egpak.com domain to a storage locker: “The
personal property at issue here is not the storage locker, but the contents of the storage
locker. In other words, even though the storage locker (here, the egpak.com domain) is
arguably ‘owned’ by Cho, it is undisputed the contents of the storage locker– the business
records and email communications associated with the business– are personal property of
Pneuma. By holding the only key to the storage locker, Cho is exercising unauthorized
interference over the contents of that locker, to wit, Pneuma’s business records. Among
other things, because it is not the ‘registered owner’ of the domain insofar as Yahoo is
concerned, [Pneuma] is unable to prevent Cho (or anyone else) from accessing or
viewing its business records and it is even unable to pay the fees necessary to keep the
domain up and running. However, because the interference in this case has not been
‘substantial’– as [Pneuma] has generally been able to access its records, it continues to
7
conduct business and Cho has cooperated in keeping the site on line– the court concludes
the alleged unconsented interference here does not amount to conversion.” The court
further concluded that it was immaterial whether Pneuma had established that it suffered
monetary damages as a result of the trespass. Pneuma had established the necessary
element of “harm” by virtue of “its mere inability to control and protect its personal
records from being accessed by defendant, a local competitor in its business. [Pneuma]’s
request for equitable relief is therefore merited where, as here, monetary damages
(assuming any existed) would be insufficient to compensate for this type of on-going
harm.”
With these principles and rulings in mind, we turn to Pneuma’s specific attacks on
the judgment.
B. Pneuma Did Not Establish a Violation of Penal Code section 502.
Pneuma first argues that the trial court should have found that Cho violated
California’s Comprehensive Computer Data Access and Fraud Act (Pen. Code, § 502),
but we disagree. The Act bars computer-related activity done “[k]nowingly” and
“without permission.” (Pen. Code, § 502, subd. (c).) The statute lists 14 hacking-related
crimes, two of which are relevant here. One prohibits disrupting computer services or
causing the denial of computer services (§ 502, subd. (c)(5)), and one prohibits accessing
a computer network without permission (id., subd. (c)(7)). People who commit the
crimes listed in subdivision (c) are subject to civil liability where a violation causes
“damage or loss” (id., subd. (e)).
Pneuma’s second amended complaint alleged that Cho refused to “relinquish,
transfer and deliver the complete control over” the egpak.com domain. It further alleged
that Cho had “disrupted” Pneuma’s computer system or “denied” Pneuma’s computer
services, the conduct prohibited by subdivision (c)(5) of Penal Code section 502. In its
written closing statement submitted to the trial court, Pneuma cited that subdivision and
argued that the evidence showed that Cho had disrupted Pneuma’s computer system. The
trial court filed a proposed statement of decision concluding that Cho had not violated the
Act, but it focused on subdivision (c)(7), which prohibits the separate act of accessing a
8
computer network without permission. Pneuma filed a short objection to the proposed
statement of decision but did raise the trial court’s supposed failure to address
subdivision (c)(5). 1 The court’s final statement of decision again did not mention
subdivision (c)(5) and focused exclusively on subdivision (c)(7). The court concluded
that there was “no evidence that Cho circumvented technical or
code[-]based barriers to use TeamViewer [a program used to remotely access a computer
system] to gain access to Pneuma’s computer in late December 2013 and [that there was]
no evidence that Cho attempted to gain access to the Pneuma system at any other time
after he left Pneuma’s employment.” 2 The court further concluded that in any event,
Pneuma failed to establish damages, an “essential element to recovery.”
On appeal, Pneuma acknowledges that the company did not establish that Cho
violated Penal Code section 502, subdivision (c)(7), but argues that it proved a violation
of subdivision (c)(5), which was improperly ignored by the trial court. (See People v.
Childs (2013) 220 Cal. App. 4th 1079, 1101-1102 [access to computer systems is not an
element of violation of subd. (c)(5)].) Respondents counter that the trial court was not
required to address Pneuma’s arguments on subdivision (c)(5) because it is settled that a
trial court need not in its statement of decision address all legal and factual issues raised
by the parties. (Muzquiz v. City of Emeryville (2000) 79 Cal. App. 4th 1106, 1125
[statement of decision “required only to set out ultimate findings rather than evidentiary
ones”].) Pneuma acknowledges that a court need not address all evidentiary facts but
argues that the court here failed to address an ultimate finding. In making its argument,
however, Pneuma overlooks the role forfeiture plays in this context.
1
Neither the February 21, 2017 proposed statement of decision nor Pneuma’s
March 6, 2017 objection were included in the appellate record. On its own motion, the
court takes judicial notice of the documents, which are available on the trial court’s
website.
2
The court also concluded that Pneuma failed to establish a violation of the
federal Computer Fraud and Abuse Act (18 U.S.C. § 1030), a ruling that Pneuma does
not challenge on appeal.
9
When a party requests a statement of decision, the trial court shall explain “the
factual and legal basis for its decision as to each of the principal controverted issues at
trial.” (Code Civ. Proc., § 632.) “When a statement of decision does not resolve a
controverted issue, or if the statement is ambiguous and the record shows that the
omission or ambiguity was brought to the attention of the trial court . . . prior to entry of
judgment . . . , it shall not be inferred on appeal . . . that the trial court decided in favor of
the prevailing party as to those facts or on that issue.” (Code Civ. Proc., § 634, italics
added.) “It is axiomatic that a party may not complain on appeal of rulings to which it
acquiesced in the lower court. [Citation.] ‘ “[F]orfeiture” is the correct legal term to
describe the loss of the right to raise an issue on appeal due to the failure to pursue it in
the trial court.’ [Citation.] It is unfair to the trial judge and the adverse party to attempt
to take advantage of an alleged error or omission on appeal when the error or omission
could have been, but was not, brought to the attention of the trial court in the first
instance.” (Porterville Citizens for Responsible Hillside Development v. City of
Porterville (2007) 157 Cal. App. 4th 885, 912.) “It follows that when a trial court
announces a tentative decision, a party who failed to bring any deficiencies or omissions
therein to the trial court’s attention forfeits the right to raise such defects or omissions on
appeal.” (Ibid. [where cause of action not directly addressed in tentative statement of
decision but no objections raised, party forfeits claim].)
Here, Pneuma remained silent about the trial court’s lack of analysis of Penal
Code section 502, subdivision (c)(5). We may infer from this silence and the conclusions
reached by the court that the court decided in favor of respondents. (Code Civ. Proc.,
§ 634.) To show a violation of Penal Code section 502, subdivision (c)(5), Pneuma was
required to establish that Cho knowingly and without permission caused the denial or
disruption of Pneuma’s computer system or computer network. When the trial court
rejected this cause of action, it also concluded that Pneuma failed to establish a related
violation of the federal Computer Fraud and Abuse Act (18 U.S.C. § 1030, ante, fn. 2)
because it had not shown that data or information in Pneuma’s computer system “was
altered, damaged, destroyed or the integrity of the data in the system was otherwise
10
impaired.” Such a finding is incompatible with a finding that Cho disrupted Pneuma’s
computer service under Penal Code section 502, subdivision (c)(5).
In light of the inference that the trial court decided in favor of respondents and the
general rule that a judgment is presumed to be correct (Jameson v. Desta (2018) 5 Cal.5th
594, 608-609), we quickly dispose of Pneuma’s remaining arguments. The company
claims that Cho’s conduct in this case in comparable to the defendant in People v. Childs,
supra, 220 Cal. App. 4th 1079, but it is mistaken. In Childs, the defendant was a network
engineer for San Francisco’s Department of Telecommunications and Information
Services (DTIS) and had sole access to the city’s fiber-optic wide area computer network.
(Id. at pp. 1082-1083, 1088.) After the city notified the defendant that he was being
reassigned, the defendant at first refused to provide administrative access to the network
and also provided incorrect passwords. (Id. at p. 1091.) Because of the defendant’s
actions, DTIS was locked out of the computer network for nearly two weeks, and the city
paid outside consultants $646,000 to evaluate the network. (Id. at p. 1093.) A jury
convicted the defendant of disrupting the city’s computer network and found true an
enhancement that the defendant caused loss of property worth more than $200,000 (Pen.
Code, § 502, subd. (c)(5), former Pen. Code, § 12022.6, subd. (a)(2)). (Childs, at
pp. 1094, 1097.) Here, by contrast, the trial court specifically found that “the interference
in this case ha[d] not been ‘substantial’ ” because Pneuma had generally been able to
access its records, it continued to conduct business, and (unlike the defendant in Childs)
Cho had cooperated in keeping egpak.com online.
Since Pneuma has not shown show error regarding the trial court’s ruling under
Penal Code section 502, we need not address its arguments about whether it established
damages.
C. Pneuma Did Not Establish a Cause of Action for Conversion.
Pneuma next argues that the trial court erred in concluding Pneuma did not
establish its fifth cause of action, for conversion, but we again disagree.
“ ‘ “ ‘Conversion is the wrongful exercise of dominion over the property of
another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to
11
possession of the property; (2) the defendant’s conversion by a wrongful act or
disposition of property rights; and (3) damages.’ ” ’ ” (Lee v. Hanley (2015) 61 Cal. 4th
1225, 1240.) Pneuma’s complaint alleged that Cho and CUP converted the company’s
“intangible properties of vendor accounts and customer accounts . . . by withholding,
using, modifying, delivering, disclosing, transmitting, distributing and/or otherwise
interfering with Plaintiff’s rights in the customer and vendor lists and email addresses,
email contents, and email data.” The trial court relied on the traditional rule that
conversion does not apply to “ ‘the unauthorized taking of intangible interests that are not
merged with, or reflected in, something tangible.’ ” (Fremont Indemnity Co. v. Fremont
General Corp. (2007) 148 Cal. App. 4th 97, 119, italics added.) Because Pneuma
specifically alleged that respondents converted intangible properties, the trial court
reasoned, the company could not prevail on its conversion claim.
Pneuma argues on appeal, correctly, that courts have held that website domains are
subject to conversion law in California. (Kremen v. Cohen (9th Cir. 2003) 337 F.3d
1024, 1033 [domain name “easily” falls within class of property subject to conversion
law in California].) But the company nonetheless fails to establish that the judgment
should be set aside on this cause of action. It claims that the trial court committed “plain
legal error” by not concluding that the facts underlying the finding of trespass to chattel
also established conversion. Not so. The trial court found in connection with its ruling
on trespass to chattel that Cho’s interference with the website domain was not
“substantial.” We conclude that this finding is fatal to the cause of action for conversion,
because trespass to chattel occurs where, as here, there is only a “ ‘minor interference[]’ ”
that is “ ‘not sufficiently serious or sufficiently important to amount to the greater tort’ of
conversion.” (Intel Corp. v. Hamidi, supra, 30 Cal.4th at p. 1351, italics added.)
For the most part, Pneuma’s arguments to the contrary consist of unsupported
legal conclusions, such the company’s contention that Cho’s “refusal to transfer his
private email account was unreasonable.” Pneuma also argues that the trial court
committed a “grave error” when it failed to address the egpak.com domain name in
connection with this cause of action. But, again, because Pneuma failed to raise the issue
12
in its short objection to the trial court’s proposed statement of decision, it has forfeited
this issue.
The cases upon which Pneuma relies are easily distinguishable, because they
involved situations where the defendants wrongfully assumed complete legal control over
property. (Beverly Finance Co. v. American Casualty Co. (1969) 273 Cal. App. 2d 259,
264 [conversion took place when defendant took assignment of a conditional sales
contract with a claim of legal title to a vehicle that had been stolen]; Service v. Trombetta
(1963) 212 Cal. App. 2d 313, 314-315, 320-321 [defendants took possession of truck that
was not theirs and that was later sold in bankruptcy, depriving plaintiff of more than
$4,000]; Mears v. Crocker First Nat. Bank (1948) 84 Cal. App. 2d 637, 644-645
[defendants alleged to have limited plaintiff’s right to dispose of his stock when, where,
and how stock owner chose].) And Zaslow v. Kroenert (1946) 29 Cal. 2d 541, also cited
by Pneuma, actually supports affirming the judgment, because it noted that “every failure
to deliver is not such a serious interference with the owner’s dominion” that it amounts to
conversion. (Id. at p. 550.) That is the case here. There was no allegation that Cho did
anything wrong when he initially created the egpak.com web domain, and the trial court
found that Pneuma was still generally able to access its records and continued to conduct
business even while Cho remained as the official registered owner of the domain after he
left the company. Thus, we cannot agree with Pneuma’s contention that the company
prevailed on its conversion cause of action as a matter of law.
D. Pneuma Did Not Establish that Any Respondent Engaged in Unfair
Competition.
1. Summary of Law.
The UCL prohibits “unfair competition,” defined in section 17200 as “any
unlawful, unfair or fraudulent business act or practice.” Because the statute “is written in
the disjunctive, it establishes three varieties of unfair competition—acts or practices that
are unlawful, or unfair, or fraudulent.” (AICCO, Inc. v. Insurance Co. of North America
(2001) 90 Cal. App. 4th 579, 587.) Two of Pneuma’s causes of action alleged unfair
competition, which we address separately.
13
2. Pneuma Did Not Establish that Cho Violated the UCL.
a. A Trespass to Chattel, Without More, Does Not Satisfy the
UCL’s “Unlawful” Prong.
Pneuma’s fifteenth cause of action alleged that the three respondents “violate[d]
state statutes and regulations, and state common law, each of which constitute[d] an
independent and separate violation of” section 17200. Stated differently, the company
contended that this conduct implicated the “unlawful” prong of section 17200. The trial
court concluded that because Pneuma had not established any cause of action against
Chalmers or CUP, the company likewise had not established they committed an unlawful,
unfair, or fraudulent business act (the fifteenth cause of action).
As for Cho, the trial court concluded that although his failure to transfer ownership
of the egpak.com domain to Pneuma amounted to trespass to chattel, the conduct did not
amount to a fraudulent or unfair business practice within the meaning of section 17200.
On appeal, Pneuma contends that because it prevailed on a cause of action for trespass to
chattel, it necessarily follows that it also should have prevailed on its cause of action for
unfair competition under section 17200. We disagree.
“By proscribing ‘any unlawful’ business practice, ‘section 17200 “borrows”
violations of other laws and treats them as unlawful practices’ that the unfair competition
law makes independently actionable.” (Cel-Tech Communications, Inc. v. Los Angeles
Cellular Telephone Co. (1999) 20 Cal. 4th 163, 180.) “The ‘unlawful’ practices
prohibited by section 17200 are any practices forbidden by law, be it civil or criminal,
federal, state, or municipal, statutory, regulatory, or court made.” (Saunders v. Superior
Court (1994) 27 Cal. App. 4th 832, 838-839.)
Pneuma acknowledges that there appears to be no caselaw finding a violation of
the UCL based on trespass to chattel (which is not surprising given the dearth of modern
authority on the tort). It argues, however, that because California courts have historically
interpreted the unlawfulness prong of UCL broadly, there is no reason not to “borrow”
this common law tort to find a violation. True, the scope of the UCL is broad. (E.g.,
Kasky v. Nike, Inc. (2002) 27 Cal. 4th 939, 949.) “Since the addition of the word
14
‘unlawful’ to the predecessor statute in 1963, [section 17200] has been liberally
construed so as not to be limited to traditional anticompetitive practices.” (People v.
E.W.A.P., Inc. (1980) 106 Cal. App. 3d 315, 318-319.) The Legislature intended the
sweeping language of the statute to include anything that is properly characterized as a
business practice and that also is forbidden by law. (Bank of the West v. Superior Court
(1992) 2 Cal. 4th 1254, 1266.) The key principle for our purposes is that the practice
actually be forbidden by a specific law. “In drafting the [UCL], the Legislature
deliberately traded the attributes of tort law for speed and administrative simplicity.” (Id.
at pp. 1266-1267.) Here, however, Pneuma does no more than identify a non-criminal
tort upon which it prevailed and argue that this was also a basis for a UCL violation, as
opposed to “borrowing” a specific law.
The cases upon which Pneuma relies do not advance its argument. The plaintiffs
in Bondanza v. Peninsula Hospital & Medical Center (1979) 23 Cal. 3d 260, 265-266,
relied on former provisions of the Civil Code for the “unlawful” prong of section 17200,
and the plaintiffs in Espejo v. The Copley Press, Inc. (2017) 13 Cal.App.5th 329, 367,
based their section 17200 claim on Labor Code section 2802. Wilson v. Hynek (2012)
207 Cal. App. 4th 999, 1008, did not involve section 17200’s “unlawful” prong but instead
was based on the “unfair” prong. Because Pneuma does not address why its trespass to
chattel cause of action was actionable under the “unfair” or “fraudulent” prongs of the
UCL, we need not consider the issue.
Although not directly relevant to whether Pneuma may “borrow” a tort as a basis
for a UCL cause of action, respondents correctly observe that Pneuma may not recover
damages under a UCL cause of action because remedies under the act are purely
equitable in nature. (E.g., Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th
1134, 1150-1151 [remedies provided under UCL “are limited” and “it is well established
that individuals may not recover damages”].) Pneuma does not identify what additional
relief it would be entitled to if it prevailed on its UCL cause of action. The trial court
already ordered the equitable relief of transferring the egpak.com website to Pneuma after
it prevailed on a cause of action for trespass to chattel. We conclude that the trial court
15
did not err in declining to base a UCL cause of action on the common-law tort of trespass
to chattel under these circumstances.
b. Pneuma Did Not Otherwise Establish that Cho Engaged in Unfair
Competition.
In section titled “Unfair Competition by Former Employee,” Pneuma argues, “In
addition to satisfying itself with the unlawfulness-prong, the Trial Court had additional
findings to hold that CHO was also engaged in an unfair competition with PNEUMA.
The Trial Court found that CHO essentially ran the entire operations of PNEUMA while
employed there.” The company then quotes from two separate statements of decision:
first, an excerpt from the July 2016 statement of decision finding that Chalmers did not
aid and abet Cho and CUP; and second, an excerpt from a March 2017 statement of
decision regarding the trespass to chattel cause of action. Relying primarily on Whitted v.
Williams (1964) 226 Cal. App. 2d 52, regarding the wrongful disclosure of trade secrets,
Pneuma argues that it “met the ‘unfairness’ and ‘unlawfulness’ prong of its UCL Claim
against CHO” and that “the Trial Court’s holding against PNEUMA’s UCL Claim
against CHO must be reversed.” But Pneuma relies on Whitted to challenge the trial
court’s finding in connection with a separate cause of action—intentional interference
with prospective economic advantage—that “defendants Cho and CUP were free to
compete with Pneuma for the Kaiser cup business.” In so doing, Pneuma does not
address any of the evidence favorable to the judgment and instead recites a series of legal
conclusions that are untethered to the trial court’s actual findings. Pneuma again fails to
demonstrate error.
3. Pneuma Failed to Establish Tradename Infringement.
Pneuma next claims that it also established its cause of action for unfair
competition and trade name infringement (the sixth cause of action) against CUP as a
matter of law. We disagree.
The gravamen of Pneuma’s cause of action was that by using the trade name
“Igcpack” and providing substantially similar products, CUP was using a business name
that was likely to be confused with Pneuma’s trade name “Egpak,” which amounted to
16
unfair competition. To prevail on this cause of action, Pneuma was first required to show
that the Egpak tradename had acquired a “secondary meaning.” (Ball v. American Trial
Lawyers Assn. (1971) 14 Cal. App. 3d 289, 302.) The phrase “secondary meaning” means
“ ‘a subsequent significance added to the previous meaning of the designation and
becoming in the market place its usual and primary significance. . . . The issue . . . is
whether or not in fact a substantial number of present or prospective purchasers
understand the designation, when used in connection with goods, services or a business,
not in its primary lexicographical sense, but as referring to a particular person or
association.’ (Rest., Torts, § 716, com. b.)” (Ibid.) 3 To amount to unfair competition,
Pneuma had to show that members of the public were likely to be deceived but was not
required to prove that anyone was actually misled. (Bank of the West v. Superior Court,
supra, 2 Cal.4th at p. 1267; Brockey v. Moore, supra, 107 Cal.App.4th at p. 99.) “While
the scope of review in an ‘unfair competition’ case is governed by the normal rules on
appeal, including that which precludes reexamination of facts found by the trial court on
conflicting evidence, these rules do not preclude the appellate court from ascertaining
whether the proper rules were applied in reaching those findings of fact. [Citation.] Nor
do those rules bar the appellate court’s inquiry as to . . . whether findings are supported
by the evidence.” (Ball, at pp. 305-306.)
The trial court found in respondents’ favor after Pneuma rested (Code Civ. Proc.,
§ 631.8) because it concluded that there was no evidence that the trade name Egpak, Inc.
or Egpak.com had obtained a secondary meaning. The court further concluded that
“[t]here is no evidence that the general public or specifically, the wholesale food
packaging products industry in the Bay Area, would necessarily confuse Igcpak or
IGCPAK.COM with Egpak, Inc. or EGPAK.COM, despite the similar sounding names.
3
Ball was decided under former Civil Code section 3369, but “[t]here is no
indication the current version of the UCL was meant to depart from the[] rules” set forth
in the case. (Brockey v. Moore (2003) 107 Cal. App. 4th 86, 100.) And although
Pneuma’s sixth cause of action appears to have been for common law as opposed to
statutory unfair competition, we find section 17200 caselaw helpful in this context.
17
While it is true that both companies are in the same business of supplying disposable
food packaging items and are direct competitors, none of the industry witnesses called by
the parties have testified that they were confused or misled into thinking that Igcpak.com
was the same company as Egpak.com or that they believed Igcpak.com or CUP was
associated with Egpak.” On appeal, Pneuma claims that the trial court “misapplied the
law” because it found that Pneuma was required to show “actual proof of confusion,” but
this is a misreading of the trial court’s statement of decision. True enough, “proof of
actual deception or of confusion is not required; protection is afforded against just the
probability or likelihood of deception or confusion.” (Ball v. American Trial Lawyers
Assn., supra, 14 Cal.App.3d at p. 310.) But the trial court clearly understood this
principle, as demonstrated by its reliance on Sunset House Distributing Corp. v. Coffee
Dan’s, Inc. (1966) 240 Cal. App. 2d 748 (Sunset House). As set forth in Sunset House,
which held that the plaintiff had alleged insufficient facts to state a cause of action,
“[T]he basic fact on which relief is granted is the confusion in the minds of reasonable
members of the general public from which an attribution of affiliation results. [¶] Where
the parties engage in the same business in the same locality, the possibility of confusion
is so obvious that only these facts need be alleged.” (Id. at p. 753.) The trial court
quoted this passage, along with the passage stating that “a case of unfair competition rests
on a confusion, or likelihood of confusion, on the part of the public as a whole, acting as
reasonable persons; it cannot rest on the fact that isolated individuals, whose capacity for
discrimination is unknown, may have been momentarily confused. [Citations.] . . . We
are not told how many persons were so confused, or anything to indicate that they were,
in any way, representative of the public as a whole. More is needed.” (Id. at p. 756, fn.
omitted.) By quoting these passages, the trial court recognized that a plaintiff may
prevail where there is only a likelihood of confusion (ibid.), as opposed to actual
confusion.
What the trial court found, however, was that whereas Sunset House was in the
pleading stage and plaintiff was allowed to amend its complaint with additional
allegations about possible confusion (Sunset House, supra, 240 Cal.App.2d at p. 756),
18
here Pneuma had failed at trial to show either that EGPAK.COM had “obtained a
secondary meaning” or that the general public “would necessarily confuse” (as opposed
to had actually confused) the name with IGCPAK.COM. (Italics added.) And although
Pneuma was not required to show that anyone was actually confused, such evidence
would have been relevant, but was not provided. (E.g., Brockey v. Moore, supra,
107 Cal.App.4th at pp. 99-100; Ball v. American Trial Lawyers Assn., supra,
14 Cal.App.3d at p. 309.)
On appeal, Pneuma does not point to any evidence contradicting the trial court’s
conclusion. It simply argues that the court was compelled as a matter of law to find
tradename infringement after it noted that Egpak and Igcpak sound similar, that the two
business are in the same business, and that they were direct competitors. Not so. The
trial court would only have been compelled to do so if the comparison of the two relevant
names themselves was adequate to establish the likelihood of confusion. (Brockey v.
Moore, supra, 107 Cal.App.4th at p. 100; Ball v. American Trial Lawyers Assn., supra,
14 Cal.App.3d at pp. 308-309.) We agree with the trial court that they were not. We thus
need not address Pneuma’s brief arguments about the damages it allegedly suffered
because of trademark infringement. 4
E. Pneuma Fails to Demonstrate Error in the Trial Court’s Rulings on Causes of
Action Related to Chalmers.
Pneuma alleged five causes of action against Chalmers alone (in addition to the
cause of action for unfair competition in violation of the UCL, which we already have
rejected): for aiding and abetting, joint liability, breach of the implied covenant of good
faith and fair dealing, breach of fiduciary duties, and intentional interference with
prospective economic advantage. The only claim that survived after Pneuma presented
its case was the company’s cause of action for intentional interference with prospective
4
Pneuma also briefly argues that there was an unfair business practice under the
UCL based on its cause of action for unfair competition and tradename infringement.
Because we disagree that Pneuma established a cause of action for tradename
infringement, we reject this argument as well.
19
economic advantage (the fourteenth cause of action). The trial court later rejected that
cause of action at the close of trial. Finally, Chalmers prevailed on his cross-complaint
against Pneuma and Chang, finding that they had breached agreements with him. In
short, the trial court found in favor of Chalmers on five causes of action brought against
him and on the cause of action he brought against Pneuma and Chang.
On appeal, Pneuma argues generally that the trial court erred with respect to the
causes of action related to Chalmers. Specifically, the company argues that the court
“erred in refusing to hold the oral settlement agreement to be valid.” But although
Pneuma argues at length that there was no requirement that the parties’ oral settlement
agreement be in writing, the company fails to tie that argument to any specific cause of
action, either in its complaint or in Chalmers’s cross-complaint. So even if this court
were to agree with Pneuma that “[t]here is no requirement that an oral settlement
agreement be in writing per se” and that the trial court should have enforced the “valid
oral settlement agreement,” it is unclear from these arguments which causes of action
would be affected, and why.
Partway through Pneuma’s lengthy argument, it indicates specific challenges to
the trial court’s findings on Chalmers’s cause of action for breach of contract. It claims
that Chalmers sued for a breach of the parties’ equity/shareholders investment agreement
and that the trial court erred by rejecting the argument that the parties’ oral settlement
agreement “effectively modified and waived” Chalmers’s rights under the equity
agreement. But it argues only briefly that the “plain evidences” were that the parties
modified their original agreement under its terms, without explaining which terms of the
original agreement were affected by the purported settlement agreement. Pneuma later
argues, without citation to the record or legal authority, that the investment agreement
was “superseded by the oral settlement agreement, of if not [sic], at least was entirely
modified by the June 2014 memorandum signed by CHALMERS. Under either situation,
PNEUMA had no reason to be sued by CHALMERS. As June, 2014 [sic] CHALMERS’
memo made it explicit [sic], PNEUMA had until after the ‘30-month pay off period’ to
20
pay off any and all remaining debts owed to CHALMERS, which had not expired until
after the end of the trial.”
Compounding these deficient arguments is that long sections of the opening brief
regarding Chalmers contain only legal conclusions, without citations to the record.
Pneuma argues, for example, that “the Trial Court erroneously misses the point of the
June 24, 2014 memorandum. The memorandum is not in and of itself the settlement
agreement. The settlement agreement is the oral settlement agreement that the June 24,
2014 memorandum only subsequently chronicled. See for instance, the June 24, 2014
memorandum, where CHALMERS chronicled the oral settlement agreement in past
tense, ‘These are the terms we both agreed to’ (right before he listed bullet points 1
through 9. The June 24, 2014 memorandum was only a written memo that CHALMERS
wrote that ended up proving that there was an oral settlement agreement presumably
some days before the date of the June 24, 2014 memorandum. Thus, the Trial Court’s
comment on the character of the June 24, 2014 memorandum was irrelevant. The parties
had already entered into the oral settlement agreement.” We understand that Pneuma is
referring to the June 25, 2014 memorandum that the trial court summarized in its
statement of decision entering judgment in favor of Chalmers on four causes of action
after Pneuma rested. But Pneuma does not provide citations to any evidence that would
support the assertions Pneuma makes about its characterization of that agreement.
We thus agree with respondents that we may disregard Pneuma’s arguments
regarding Chalmers. (E.g., City of Santa Maria v. Adam (2012) 211 Cal. App. 4th 266,
286-287 [in order to demonstrate error, appellant must provide “some cogent argument
supported by legal analysis and citation to the record”]; Dills v. Redwoods Associates,
Ltd. (1994) 28 Cal. App. 4th 888, 890, fn. 1 [court may disregard conclusory arguments
that are unsupported by pertinent legal authority or fail to disclose reasoning by which
appellant reaches conclusions he or she wants us to adopt].) Pneuma fails to demonstrate
error.
21
III.
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
22
_________________________
Humes, P.J.
WE CONCUR:
_________________________
Margulies, J.
_________________________
Sanchez, J.
Pneuma International, Inc. v. Cho et al. A151536
23
Trial Court:
Superior Court of the County of Alameda
Trial Judge:
Hon. Jo-Lynne Q. Lee
Counsel for Plaintiff and Appellant:
Brian H. Song, Song &Lee LLP
Counsel for Defendant and Respondent:
Stephen M. Fuerch, Law Offices of Stephen M. Fuerch
Pneuma International, Inc. v. Cho et al. A151536
24