Calsoft Labs, Inc. v. Panchumarthi ( 2020 )

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 10 CALSOFT LABS, INC., et al., Case No. 19-cv-04398-NC 11 Plaintiffs, ORDER GRANTING IN PART 12 AND DENYING IN PART v. DEFENDANTS’ MOTION TO 13 DISMISS VENKATA PANCHUMARTHI, et al., 14 Re: Dkt. No. 31 Defendants. 15 16 17 Defendants Venkata Panchumarthi and Truinfo Technologies, Inc. move to dismiss 18 plaintiff Calsoft Labs, Inc. and PVR Technologies, Inc.’s second amended complaint. See 19 Dkt. No. 31. For the following reasons, the Court GRANTS IN PART and DENIES IN 20 PART Defendants’ motion to dismiss. Because much of Plaintiffs’ second amended 21 complaint mirrors its first amended complaint, dismissal is largely without leave to amend. 22 I. Background 23 A. Factual Allegations in the Second Amended Complaint 24 In February 2016, Calsoft, a technology company, purchased PVR from 25 Panchumarthi. See Dkt. No. 27 (“SAC”) ¶ 14. At the same time, Panchumarthi agreed to 26 serve as PVR’s CEO until August 31, 2018. Id. ¶¶ 16, 18. Once Panchumarthi was no 27 longer PVR’s CEO, Calsoft and PVR hired Panchumarthi’s new company, Truinfo 1 December 31, 2018. See id. ¶ 24. According to Plaintiffs, Panchumarthi secretly compiled 2 confidential information during their relationship to compete against Plaintiffs. See id. 3 ¶¶ 15, 17, 20, 23. 4 On January 11, 2019, Plaintiffs terminated Panchumarthi’s access to their email and 5 data servers. Id. ¶ 25. 6 On February 11, 2019, Panchumarthi contacted GoDaddy, Inc. and pretended to 7 still be affiliated with Plaintiffs. Id. ¶¶ 27–28. At Panchumarthi’s request, GoDaddy reset 8 the password to his former PVR-affiliated email account. Id. Panchumarthi accessed the 9 account and deleted all emails and information stored within. Id. ¶ 29. Plaintiffs 10 discovered Panchumarthi’s actions two weeks later. Id. ¶ 30. 11 On February 20, 2019, Panchumarthi accessed PVR’s Dropbox account, which 12 contained customer lists, employee lists, and training programs. Id. ¶ 31. Panchumarthi 13 copied the files in the account and changed his Dropbox ID. Id. In the following months, 14 Panchumarthi used the information he acquired to poach employees and solicit Plaintiffs’ 15 customers. See id. ¶¶ 39–41, 64, 66–67. 16 B. Procedural History 17 Plaintiffs filed their second amended complaint on November 29, 2019. See id. In 18 their complaint, they allege claims for: (1) breach of fiduciary duty; (2) conversion; (3) 19 fraud; (4) violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. 20 Code § 17200; (5) intentional interference with contractual relationships; (6) intentional 21 interference with prospective economic relations; (7) trade secret misappropriation; (8) 22 breach of the purchase agreement; (9) breach of the employment agreement; (10) breach of 23 the contractor agreement; (11) breach of the covenant of good faith and fair dealing; and 24 (12) violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. §§ 1030 et seq. 25 Id. ¶¶ 34–137. 26 Defendants now move to dismiss the second amended complaint in its entirety. See 27 Dkt. No. 31. All parties have consented to the jurisdiction of a magistrate judge under 28 1 II. Legal Standard 2 A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal 3 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Under 4 Rule 8(a), a complaint must include a short and plain statement showing that the pleader is 5 entitled to relief. See Fed. R. Civ. P. 8(a). Although a complaint need not allege detailed 6 factual allegations, it must contain sufficient factual matter, accepted as true, to “state a 7 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 8 (2007). The Court need not accept as true “allegations that are merely conclusory, 9 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. 10 Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). A claim is facially plausible when it “allows 11 the court to draw the reasonable inference that the defendant is liable for the misconduct 12 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim also “must contain 13 sufficient allegations of underlying facts to give fair notice and to enable the opposing 14 party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 15 If a court grants a motion to dismiss, leave to amend should be granted unless the 16 pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 17 F.3d 1122, 1127 (9th Cir. 2000). 18 III. Discussion 19 A. CUTSA Preemption 20 Before the Court addresses each individual claim, it will briefly discuss the 21 preemptive scope of California’s Uniform Trade Secret Act (“CUTSA”), Cal. Civ. Code 22 §§ 3426, et seq. 23 CUTSA has “a comprehensive structure and breadth.” K.C. Multimedia, Inc. v. 24 Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939, 954 (2009) (quotation marks 25 omitted). “That breadth suggests a legislative intent to preempt the common law” for trade 26 secret misappropriation claims in California. Id. CUTSA contains a specific preemption 27 provision, Cal. Civ. Code § 3426.7, which “preempts common law claims that are based 1 at 958 (quotation marks omitted). Thus, “[a] claim cannot simply depend on a ‘different 2 theory of liability’” to avoid CUTSA preemption. Mattel, Inc. v. MGA Entm’t, Inc., 782 F. 3 Supp. 2d 911, 985 (C.D. Cal. 2010) (citing K.C. Multimedia, 171 Cal. App. 4th at 957). 4 Common law tort claims are superseded by CUTSA when they fail to “genuinely allege 5 alternative legal theories” and instead simply “restat[e] a trade secrets claim as something 6 else.” Zomm, LLC v. Apple, Inc., 391 F. Supp. 3d 946, 954 (N.D. Cal. 2017) (quoting 7 Silvaco, 184 Cal. App. 4th at 240). At the same time, CUTSA does not preempt “(1) 8 contractual remedies, whether or not based upon misappropriation of a trade secret, [and] 9 (2) other civil remedies that are not based upon misappropriation of a trade secret.” Cal. 10 Civ. Code § 3426.7(b). 11 Following the California Court of Appeal’s decision in Silvaco Data Sys. v. Intel 12 Corp., 184 Cal. App. 4th 210 (2010), disapproved on other grounds by Kwikset Corp. v. 13 Superior Court, 51 Cal. 4th 310 (2011), a majority of courts have concluded that CUTSA 14 supersedes claims arising from the alleged misappropriation of confidential information 15 even if that information does not satisfy the definition of trade secrets under CUTSA. See 16 SunPower Corp. v. SolarCity Corp., No. 12-cv-00694-LHK, 2012 WL 6160472, at *6–7 17 (N.D. Cal. Dec. 11, 2012) (collecting cases). Thus, Plaintiffs’ claims are superseded by 18 CUTSA unless they arise from misconduct other than misappropriation of confidential 19 information. See Zomm, 391 F. Supp. 3d at 954. 20 B. Breach of Fiduciary Duty 21 Plaintiffs’ first claim is for breach of fiduciary duty. See SAC ¶¶ 34–44. Plaintiffs 22 allege that Defendants breached their fiduciary duty by accessing confidential information 23 without authorization and by poaching Plaintiffs’ employees and clients. Id. ¶ 37. 24 “The elements of a cause of action for breach of fiduciary duty are the existence of 25 a fiduciary duty, its breach, and damage proximately caused by that breach.” City of 26 Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445, 483 27 (1998). “A fiduciary relationship is any relation existing between parties to a transaction 1 of the other party.” Wolf v. Superior Court, 107 Cal. App. 4th 25, 29 (2003) (quotations 2 omitted). “[B]efore a person can be charged with a fiduciary obligation, he must either 3 knowingly undertake to act on behalf and for the benefit of another, or must enter into a 4 relationship which imposes that undertaking as a matter of law.” City of Hope Nat’l Med. 5 Center v. Genetech, Inc., 43 Cal. 4th 375, 386 (2008) (quoting Comm. on Children’s 6 Television, Inc. v. Gen. Foods Corp., 35 Cal. 3d 197, 221 (1983)). A fiduciary duty 7 generally ends when the fiduciary resigns his office. See Gab Bus. Servs. v. Lindsey & 8 Newsom Claim Servs., 83 Cal. App. 4th 409, 421 (2000), disapproved on other grounds by 9 Reeves v. Hanlon, 33 Cal. 4th 1140, 1154 (2004). 10 First, as the Court explained in its order granting Defendants’ previous motion to 11 dismiss, it is not clear that Truinfo owed Plaintiffs any fiduciary duty. Plaintiffs assert that 12 Truinfo owed a fiduciary duty simply because Panchumarthi was the sole owner and CEO 13 of Truinfo. See Dkt. No. 33 at 7. Plaintiffs, however, cite no authority for this proposition 14 and the Court can find none. The second amended complaint simply contains no facts 15 suggesting that Truinfo knowingly undertook any obligation to primarily act on Plaintiffs’ 16 behalf and for their benefit. See City of Hope, 43 Cal. 4th at 386. 17 In any case, Plaintiffs fail to state a claim for breach of fiduciary duty because their 18 claim is superseded by CUTSA. The second amended complaint alleges that: 19 [D]efendants breached their fiduciary duty to plaintiffs by accessing without 20 authorization plaintiffs’ confidential employee lists and data, customer lists 21 and data and plaintiffs’ proprietary and secret training data and programs 22 valuable in the field of technology consulting and staffing. 23 SAC ¶ 37. The complaint then describes specific details regarding the employees and 24 clients Defendants allegedly poached. See id. ¶¶ 38–41. These allegations, however, are 25 precisely the allegations that would constitute a misappropriation of trade secrets claim. In 26 fact, Plaintiffs base their misappropriation of trade secrets claim on nearly identical 27 allegations. Specifically, Plaintiffs point to Defendants’ alleged misappropriation of 1 contact information that was of use and value in their competing business . . .” as the basis 2 for their misappropriation claim. SAC ¶ 82 (emphasis added). 3 In passing, Plaintiffs allege that Defendants also breached their fiduciary duties by 4 “competing unfairly with plaintiffs, taking profitable business opportunities that belonged 5 to plaintiffs, and by making undisclosed profits in connection with defendant’s unlawful 6 transactions, in breach of the corporate opportunity doctrine.” SAC ¶ 42. The corporate 7 opportunity doctrine prohibits a fiduciary from acquiring, “in opposition to the 8 corporation, property in which the corporation has an interest or tangible expectancy.” 9 Kelegian v. Mgrdichian, 33 Cal. App. 4th 982, 988 (1995). But Plaintiffs’ factual 10 allegations all stem from Panchumarthi’s alleged misappropriation of confidential 11 information. 12 Plaintiffs’ reliance on Angelica Textile Services, Inc. v. Park, 220 Cal. App. 4th 495 13 (2013) is not persuasive. In Angelica, a linens and laundry service accused its former vice 14 president of violating his fiduciary duties. See id., 220 Cal. App. 4th at 500. According to 15 the laundry service, the vice president worked with two board members of one of its clients 16 to develop a business plan for a competing laundry business while still employed at the 17 laundry service. Id. at 501. Around the same time, the vice president also approached a 18 local bank to help the competing venture obtain financing. Id. And the vice president also 19 altered the laundry service’s contracts with its largest customers to allow those customers 20 to terminate the laundry service’s services early for no penalty. Id. at 501–02. Unlike 21 Plaintiffs here, the laundry service relied on conduct other than the misappropriation of 22 confidential client and business information to assert its breach of fiduciary duty claim. 23 Angelica is thus distinguishable. 24 Likewise, Plaintiffs’ reliance on Value Prop. Trust v. Zim Co. (in re Mortgage & 25 Realty Trust), 195 B.R. 740 (Bankr. C.D. Cal. 1996) misses the point. In re Mortgage is 26 inapposite; it did not discuss CUTSA as no party asserted trade secret claims in that case. 27 Because Plaintiffs’ claim for breach of fiduciary duty is superseded by CUTSA, the 1 because Plaintiffs have been unable to meaningfully amend their factual allegations and 2 further amendment would be futile. 3 C. Conversion 4 Plaintiffs’ second claim is for conversion. They allege that Defendants converted 5 their “confidential information, electronic files, information on their email and data 6 servers, Dropbox cloud folders, and intellectual property.” SAC ¶ 46. 7 “To establish a conversion, plaintiff must establish an actual interference with his 8 ownership or right of possession.” Moore v. Regents of Univ. of Cal., 51 Cal. 3d 120, 136 9 (1990) (quoting Del. E. Webb Corp. v. Structural Materials Co., 123 Cal. App. 3d 593, 10 610–11 (1981)). In particular, a plaintiff must show “(1) the plaintiff’s ownership or right 11 to possession of the property; (2) the defendant’s conversion by wrongful act inconsistent 12 with the property rights of the plaintiff; and (3) damages.” In re Emery, 317 F.3d 1064, 13 1069 (9th Cir. 2003) (citing Burlesci v. Petersen, 68 Cal. App. 4th 1062, 1065 (1998)). 14 Conversion “traditionally required a taking of tangible property, and thus was not available 15 to remedy the misappropriation of something like a trade secret.” Silvaco, 184 Cal. App. 16 4th at 239 n.21 (emphasis in original). 17 Under Silvaco, “if the only arguable property identified in the complaint is a trade 18 secret, and the only basis for any property right is trade secrets law, then a conversion 19 claim predicated on the theft of that property is unquestionably based upon 20 misappropriation of a trade secret and the conversion claim is preempted.” Id. at 238 21 (quotation marks and citation omitted). The only way to escape CUTSA preemption “is 22 the plaintiff’s assertion of some other basis in fact or law on which to predicate the 23 requisite property right.” Id. at 238–39 (emphasis in original). Silvaco also “emphatically 24 reject[ed] the . . . suggestion that [CUTSA] was not intended to preempt common law 25 conversion claims based on the taking of information that, though not a trade secret, was 26 nonetheless of value to the claimant.” Silvaco, 184 Cal. App. 4th at 239 n.22 (quotation 27 marks omitted). 1 revolves around the same intangible property implicated by their misappropriation of trade 2 secrets claim. Thus, under Silvaco, Plaintiffs’ conversion claim is superseded by CUTSA. 3 Accordingly, the Court GRANTS Defendants’ motion to dismiss Plaintiffs’ 4 conversion claim. As with their breach of fiduciary duty claim, dismissal is without leave 5 to amend. 6 D. Fraud 7 In their third claim, Plaintiffs allege that Defendants committed fraud on three 8 instances: (1) entering into the employment and purchase agreement regarding PVR (see 9 FAC ¶ 51); (2) entering into the contractor agreement (see id. ¶ 52); and (3) accessing and 10 concealing the fact that they accessed Plaintiffs’ confidential information (see id. ¶¶ 53– 11 57). 12 The elements of fraud are: “(a) misrepresentation (false representation, 13 concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to 14 defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Kearns 15 v. Ford Motor Co., 567 F.3d 1120, 1126 (9th Cir. 2009) (quoting Engalla v. Permanente 16 Med. Grp., Inc., 15 Cal. 4th 951, 974 (1997)). 17 Under Federal Rule of Civil Procedure 9(b), “the circumstances constituting fraud 18 or mistake” must be alleged with particularity. Thus, “[a]verments of fraud must be 19 accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” Vess 20 v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 21 137 F.3d 616, 627 (9th Cir. 1997)). Although intent and other mental conditions may be 22 alleged generally, conclusory allegations do not suffice. See Senah, Inc. v. Xi’an Forstar 23 S&T Co, Ltd, No. 13-cv-04254-BLF, 2014 WL 6065895, at *2 (N.D. Cal. Nov. 12, 2014). 24 Plaintiffs’ amendments fail to meaningfully address the deficiencies outlined in the 25 Court’s prior order. See Dkt. No. 25. First, in their second amended complaint and 26 opposition to the instant motion, Plaintiffs do not meaningfully explain how they relied on 27 Defendants’ alleged access of their confidential information and Defendants’ concealment 1 explaining how they would have “acted differently absent [Defendants’] concealment” of 2 their unauthorized access. SAC ¶ 57. 3 Next, Plaintiffs have not amended their complaint to add any facts that allow the 4 Court to reasonably infer that Defendants never intended to uphold their obligations under 5 the Agreements. See Senah, 2014 WL 6065895, at *2; see also Kowalsky v. Hewlett- 6 Packard Co., No. 10-cv-02176-LHK, 2011 WL 3501715, at *3 (N.D. Cal. Aug. 10, 2011) 7 (Pleading scienter generally “does not mean . . . that conclusory allegations of knowledge 8 or intent suffice.”). Indeed, Plaintiffs’ fraud allegations in their second amended complaint 9 are nearly identical to their allegations in their first amended complaint. 10 Plaintiffs merely point to Beckwith v. Dahl, 205 Cal. App. 4th 1039, 1060 (2012) to 11 support their position. Although the California Court of Appeal broadly stated the general 12 rule that states of mind can be alleged generally, Beckwith is readily distinguishable. In 13 Beckwith, the plaintiff accused his partner’s sister of promising that she would create a 14 trust for the partner’s million-dollar estate when she had no intention to do so. See id. at 15 1047. The plaintiff, however, also alleged significant facts giving context to the situation 16 that would allow a court to infer intent to defraud. In particular, the plaintiff alleged that 17 his partner and the sister were estranged. Id. at 1046. After the partner was hospitalized, 18 the plaintiff approached the sister to prepare a will according to the partner’s wishes, but 19 the sister persuaded the plaintiff to hold off on preparing the will and offered to create a 20 trust for the partner’s estate instead. Id. at 1047. Shortly after, the hospital informed the 21 sister, but not the plaintiff, that the partner had to undergo a risky surgery. Id. And when 22 the surgery went poorly, the sister followed the doctor’s recommendations to remove the 23 partner from life support. Id. At no point did the sister give the partner any trust 24 documents to sign. Id. 25 By contrast, here, Plaintiffs’ allegations of fraud revolve solely around Defendants’ 26 alleged misconduct after the contracts in question were performed. Plaintiffs provide 27 barely any factual context to the contracts’ formation. Plaintiffs simply assert that 1 development. SAC ¶¶ 15, 17, 20. Plaintiffs “have not nudged their claims across the line 2 from conceivable to plausible.” Twombly, 550 U.S. at 570; see also Richardson v. 3 Reliance Nat. Indem. Co., No. 99-cv-2952-CRB, 2000 WL 284211, at *5 (N.D. Cal. Mar. 4 9, 2000) (“Under plaintiff's theory, every breach of contract would support a claim of fraud 5 so long as the plaintiff adds to his complaint a general allegation that the defendant never 6 intended to keep her promise.”). 7 Accordingly, the Court GRANTS Defendants’ motion to dismiss Plaintiffs’ fraud 8 claim. Because Plaintiffs have failed to meaningfully amend their complaint, dismissal is 9 without leave to amend. 10 E. Intentional Interference with Contractual and Prospective Economic Relationships 11 Plaintiffs’ fifth and sixth claims are for intentional interference with contractual and 12 prospective economic relationships, respectively. SAC ¶¶ 63–80. 13 The elements of an intentional interference with contractual relations claim are: “(1) 14 a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this 15 contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the 16 contractual relationship; (4) actual breach or disruption of the contractual relationship; and 17 (5) resulting damage.” Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 18 1126 (1990). 19 The elements of an intentional interference with prospective economic relations 20 claim are similar. See PG&E, 50 Cal. 3d at 1126. The key difference is that an 21 interference with prospective economic relations claim only requires “an economic 22 relationship between the plaintiff and some third party, with the probability of future 23 economic benefit to the plaintiff.” Id. at 1126 n.2. 24 Both claims are superseded by CUTSA. Plaintiffs’ second amended complaint 25 alleges that Defendants interfered with their contractual and prospective economic 26 relationships by poaching their employees and clients using the information obtained 27 through Panchumarthi’s unauthorized access of Plaintiffs’ email and Dropbox accounts. 1 See SAC ¶¶ 66–67, 74–75. These allegations arise from the “same nucleus of facts as the 2 misappropriation of trade secrets claim for relief”: Defendants’ alleged and unauthorized 3 access to Plaintiffs’ confidential information. K.C. Multimedia, 171 Cal. App. 4th at 958. 4 As with their breach of fiduciary duty claim, Angelica does not help Plaintiffs. The 5 defendant in Angelica engaged in activity beyond mere misappropriation of information 6 including, for example, altering client contracts and preparing business plans for a 7 competitor. See Angelica, 220 Cal. App. 4th at 501–02. 8 Accordingly, the Court GRANTS Defendants’ motion to dismiss Plaintiffs’ 9 intentional interference with contractual and prospective economic relationships. Because 10 leave to amend would be futile, dismissal is without leave to amend. 11 F. Misappropriation of Trade Secrets 12 Plaintiffs’ seventh claim is for misappropriation of trade secrets. SAC ¶¶ 81–88. 13 Plaintiffs specifically identify “customer lists and data, employee lists and data and 14 proprietary training data and programs valuable in the field of technology consulting and 15 staffing” as the relevant trade secrets. Id. ¶ 83. 16 To state a claim for trade secret misappropriation, a plaintiff must allege that: “(1) 17 the plaintiff owned a trade secret; (2) the defendant misappropriated the trade secret; and 18 (3) the defendant’s actions damaged the plaintiff.” Alta Devices, Inc. v. LG Elecs., Inc., 19 343 F. Supp. 3d 868, 877 (N.D. Cal. 2018). “[A] plaintiff need not spell out the details of 20 the trade secret . . . but must describe the subject matter of the trade secret with sufficient 21 particularity to separate it from matters of general knowledge in the trade or of special 22 persons who are skilled in the trade, and to permit the defendant to ascertain at least the 23 boundaries within which the secret lies.” Alta Devices, 343 F. Supp. 3d at 881 (citation 24 and quotation marks omitted). 25 As to the “customer lists and data, employee lists and data,” Plaintiffs have again 26 failed to describe the secret with sufficient particularity. The second amended complaint 27 offers only one conclusory qualifier to describe the trade secret. See SAC ¶ 23 (“The 1 economic value . . . from not being generally known to the public . . . .”) (emphasis added). 2 That is not enough. 3 Comparing Plaintiffs’ allegations to those in the cases cited in their opposition brief 4 illustrates the difference. In American Credit Indemnity Co. v. Sacks, 213 Cal. App. 3d 5 662, 630 (1989), the plaintiff insurance company explained that their customer lists 6 included: “the names, addresses and telephone numbers of policyholders, the amounts and 7 types of insurance . . . , due dates of premiums and amounts thereof, . . . , and particularly 8 the renewal and expiration dates of policies in force.” In Hanger Prosthetics & Orthotics, 9 Inc. v. Capstone Orthopedic, Inc., 556 F. Supp. 2d 1122, 1135 (E.D. Cal. 2008), the 10 plaintiff orthotics care center’s “referral sources [were] only a part of the information 11 contained in [its] confidential . . . files.” The orthotics care center’s patient files also 12 included “prescriptions/referral source information, treatment records, addresses, etc. and 13 the electronic Orthotics Prosthetics System (OPS) contains patient information, and 14 referral source information.” Id. Here, Plaintiffs simply point to their customer and 15 employee lists with no factual enhancement that suggest why it was not a “matter[] of 16 general knowledge in the trade.” Alta Devices, 345 F. Supp. 3d at 881. 17 The second amended complaint adds new allegations regarding Plaintiffs’ 18 “proprietary training data and programs valuable in the field of technology consulting and 19 staffing.” SAC ¶ 83. This is also far too vague, especially in light of the fuzzily described 20 scope of Calsoft and PVR’s business. See, e.g., id. ¶ 11 (describing Calsoft as being “in 21 the business of internet technology, information technology, product engineering, 22 statistical programming and data management, and related services.”). In TMX Funding, 23 Inc. v. Impero Techs., Inc., No. 10-cv-00202-JF, 2010 WL 2509979, at *3 (N.D. Cal. June 24 17, 2010) for example, the plaintiff successfully and broadly claimed “its software, source 25 codes, data, formula, and other technical information developed as proprietary and 26 confidential products and services” were trade secrets. But there, the plaintiff also 27 explained that it “designe[d] and manufacture[d] hotel guest room telecommunication 1 products or services. Id. at *1. Here, Plaintiffs’ allegations provide no facts or context that 2 outline the boundaries of their purported secrets. 3 Accordingly, the Court GRANTS Defendants’ motion to dismiss Plaintiffs’ 4 misappropriation of trade secrets claim. Unlike the previous claims, however, the Court 5 will grant Plaintiffs one final bite at the apple because its allegations regarding its training 6 data and programs are new. 7 G. Breach of Contract 8 Plaintiffs’ eighth, ninth, and tenth claims are for breach of the purchase, 9 employment, and contractor agreements. See SAC ¶¶ 89–119. 10 Defendants attached to their motion to dismiss four exhibits purporting to be the 11 contracts in question. See Dkt. Nos. 31-1, 31-2, 31-3, 31-4. Exhibits 1 and 2 appear to be 12 an agreement between Calsoft and Panchumarthi to purchase PVR. See Dkt. No. 31-1, 31- 13 2 (collectively, “Purchase Agreement”). Exhibit 3 appears to be an agreement employing 14 Panchumarthi as the CEO of PVR. See Dkt. No. 31-3 (“Employment Agreement”). 15 Exhibit 4 appears to be an agreement between Calsoft and Truinfo to hire Truinfo as a sub- 16 contractor. See Dkt. No. 31-4 (“Contractor Agreement”). 17 “Generally, district courts may not consider material outside the pleadings when 18 assessing the sufficiency of a complaint under Rule 12(b)(6) of the Federal Rules of Civil 19 Procedure.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018) 20 (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). However, when a 21 “plaintiff refers extensively to the document or the document forms the basis of the 22 plaintiff’s claim,” the court may treat that document as part of the complaint itself. Id. at 23 1002 (citing United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003)); see also Lee, 250 24 F.3d at 688 (“If the documents are not physically attached to the complaint, they may be 25 considered if the documents’ authenticity . . . is not contested and the plaintiff's complaint 26 necessarily relies on them.”) (quotation marks omitted). “[A] court ‘may assume [an 27 incorporated document’s] contents are true for purposes of a motion to dismiss under Rule 1 2006)). And the court “need not . . . accept as true allegations that contradict matters 2 properly subject to judicial notice or by exhibit.” Sprewell v. Golden State Warriors, 266 3 F.3d 979, 988 (9th Cir. 2001). 4 Plaintiffs’ eighth, ninth, tenth, and eleventh claims all “necessarily rely” on the 5 exhibits submitted by Defendants. Because Plaintiffs do not contest the authenticity of any 6 exhibit, the Court will deem those documents incorporated by reference. 7 1. Breach of Purchase Agreement 8 Plaintiffs allege that Panchumarthi breached the Purchase Agreement by accessing 9 confidential information and using that information to mislead its clients and compete 10 against them. See SAC ¶¶ 96–100. 11 Section 8.2 of the Purchase Agreement prohibits Panchumarthi from competing and 12 soliciting Calsoft’s clients or employees for two years after the closing date of the 13 agreement. See Dkt. No. 31-1 § 8.2. Section 8.3 of the Purchase Agreement requires 14 Calsoft and Panchumarthi to “keep all Confidential Information of each other party and its 15 Affiliates confidential . . . for the purpose of the transactions contemplated hereby; and . . . 16 not to use the Confidential Information of the other party and its Affiliates for any purpose 17 other than . . . in connection with the consummation of the transactions contemplated 18 hereby . . . .” Id. § 8.3. That section further states that “[t]he obligations of [Calsoft] under 19 this Section 8.3 shall terminate . . . upon completion of the Closing.” The Purchase 20 Agreement was closed on February 16, 2016. See Dkt. No. 31-2; see also SAC ¶ 14. 21 First, Plaintiffs allege that Defendants violated the Purchase Agreement’s non- 22 compete clause. The Purchase Agreement unambiguously limits Panchumarthi’s 23 obligation to not compete with Calsoft until two years after the closing date, February 16, 24 2016. See Dkt. No. 31-1 § 8.2. Thus, by February 16, 2018, Defendants were no longer 25 prohibited from competing against Plaintiffs.1 Plaintiffs allege that Defendants began 26 1 In passing, Defendants point out that the non-compete and non-solicitation clauses in the 27 Purchase Agreement may be unenforceable. See Dkt. No. 31 at 20 n.9. The Court need 1 competing against them “on or about February 11, 2019,” over one year after Section 8.2 2 expired by its own terms. SAC ¶ 33. Thus, Plaintiffs’ eighth claim fails to the extent it is 3 based on Defendants’ alleged breach of Section 8.2. 4 Next, Plaintiffs allege that Defendants breached Sections 8.3 and 11.2 by using their 5 confidential information. The excerpts of the Purchase Agreement provided by 6 Defendants are not complete; they do not include the provision defining “Confidential 7 Information” or Section 11.2. Plaintiffs’ second amended complaint, however, defines 8 “Confidential Information” (see SAC ¶ 92) and alleges that Section 11.2 “provides that 9 Defendant Panchumarthi’s confidentiality obligations survive the termination of the 10 contract” (see id. ¶ 94). These allegations must be accepted as true because they are not 11 contradicted by any document incorporated by reference. Cf. Sprewell, 226 F.3d at 988 12 (“The court need not, however, accept as true allegations that contradict matters properly 13 subject to judicial notice or by exhibit.”). 14 According to the second amended complaint, “Confidential Information” under the 15 Purchase Agreement includes “all confidential and proprietary information, including 16 information, materials, documents, customer lists, financial reports, business plans and 17 marketing data that relate to the business, strategies or operations of [Calsoft and PVR].” 18 SAC ¶ 92. Plaintiffs allege that Defendants breached Section 8.3 by using its “customer 19 lists and data.” Id. ¶ 96. Because Defendants’ confidentiality obligations allegedly 20 survive the Purchase Agreement’s termination (see id. ¶ 94) and the Court must accept 21 Plaintiffs’ allegations as true, Plaintiffs have adequately alleged a breach of the Purchase 22 Agreement. 23 Accordingly, the Court GRANTS IN PART Defendants’ motion to dismiss 24 Plaintiffs’ eighth claim for breach of the Purchase Agreement. Plaintiffs’ claim is 25 dismissed without leave to amend to the extent it alleges a breach of Defendants’ 26 obligation not to compete. Defendants’ motion to dismiss Plaintiffs’ eighth claim is 27 otherwise DENIED. 1 2. Breach of Employment Agreement 2 Plaintiffs next allege that Panchumarthi breached the Employment Agreement for 3 the same reasons he breached the Purchase Agreement. See SAC ¶¶ 101–09. Unlike the 4 previous breach of contract claim, however, this claim entirely fails. 5 Section 8 of the Employment Agreement prohibits Panchumarthi from competing 6 against Plaintiffs during the term of his employment and one year after. See Employment 7 Agreement § 8. Section 9 of the agreement prohibits Panchumarthi from soliciting 8 Plaintiffs’ customers and employees for the same period. See id. § 9. Section 10 of the 9 agreement requires Panchumarthi to keep Plaintiffs’ confidential information confidential 10 indefinitely. See id. § 10. 11 However, two years after the parties signed the Employment Agreement, they 12 executed the Contractor Agreement, which explicitly terminated all provisions of the 13 Employment Agreement. See Contractor Agreement § 14.9. Specifically, Section 14.9 of 14 the Contractor Agreement states that: 15 [The parties] agree that upon the execution and delivery of this Agreement, 16 the Employment Agreement dated March 2, 2016 between PVR and Venkata 17 Panchumarthi shall automatically terminate, whereupon the provisions 18 thereof, including without limitation Sections 8 and 9 thereof, shall cease to 19 be binding upon them. 20 Id. Plaintiffs do not dispute that Section 14.9 terminates the Employment Agreement in its 21 entirety. Indeed, Plaintiffs completely fail to address the effect of Section 14.9 in their 22 opposition. See Dkt. No. 33 at 17–18. 23 Accordingly, the Court GRANTS Defendants’ motion to dismiss Plaintiffs’ ninth 24 claim for breach of the Employment Agreement. Because further amendment of this claim 25 is futile, dismissal is without leave to amend. 26 3. Breach of the Contractor Agreement 27 Plaintiffs allege that Defendants breached the Contractor Agreement by using their 1 Section 6 of the Contractor Agreement states that: 2 [E]xcept as directed by [Calsoft], [Defendants] will not at any time during or 3 after the term of this Agreement disclose any Confidential Information to any 4 person whatsoever, or permit any person whatsoever to examine and/or make 5 copies of any [such information] . . . . 6 See also SAC ¶ 111. The agreement broadly defines “Confidential Information” as “[a]ll 7 such information concerning Clients of [Calsoft] and services rendered by [Calsoft] to such 8 clients . . . .” See Contractor Agreement § 6. Put simply, the Contractor Agreement 9 prohibits Defendants from disclosing any confidential information. 10 The second amended complaint, however, contains no factual allegations 11 suggesting that Defendants disclosed any information about Calsoft’s clients or services 12 rendered to any third party.2 Rather, the crux of Plaintiffs’ complaint revolves around 13 Defendants’ purportedly unauthorized access and use of such information. See SAC 14 ¶¶ 114–17. 15 Accordingly, the Court GRANTS Defendants’ motion to dismiss Plaintiffs’ tenth 16 claim for breach of the Contractor Agreement. Because Plaintiffs have been unable to 17 meaningfully amend their allegations, dismissal is without leave to amend. 18 H. Breach of the Implied Covenant of Good Faith and Fair Dealing 19 Plaintiffs’ eleventh claim is for breach of the implied covenant of good faith and 20 fair dealing. See id. ¶¶ 120–129. 21 A claim for breach of the implied covenant of good faith and fair dealing is similar 22 to a breach of contract claim except the plaintiff must show “the defendant unfairly 23 2 Plaintiffs do not argue that Section 6 of the Contractor Agreement implicitly forbids use 24 of the “Confidential Information.” See Dkt. No. 33 at 18–19. Nor could they. Unlike the Purchase and Employment Agreement, the Contractor Agreement unambiguously 25 prohibits only disclosure, not use. Cf. Am. Alt. Ins. Corp. v. Superior Court, 135 Cal. App. 4th 1239, 1246 (2006) (“In determining whether an ambiguity exists, a court should 26 consider not only the face of the contract but also any extrinsic evidence that supports a reasonable interpretation.”). Comparing the three contracts at issue highlights the 27 difference in language. Compare, e.g., Purchase Agreement § 8.3 (agreement “not to 1 interfered with the plaintiff’s rights to receive the benefits of the contract.” Rosenfeld v. 2 JPMorgan Chase Bank, N.A., 732 F. Supp. 2d 952, 968 (N.D. Cal. 2010). The implied 3 covenant of good faith and fair dealing “cannot impose substantive duties or limits on the 4 contracting parties beyond those incorporated in the specific terms of their agreement.” 5 Agosta v. Astor, 120 Cal. App. 4th 596, 607 (2004) (citations omitted). 6 Here, Plaintiffs’ allegations relating to their claim for breach of the implied 7 covenant of good faith and fair dealing are largely identical to their allegations for breach 8 of the Purchase, Employment, and Contractor Agreements. See SAC ¶¶ 125–27. The 9 claim therefore rises and falls with their underlying contract claims. Accordingly, 10 Plaintiffs’ eleventh claim fails as to the Employment and Contractor Agreements, but not 11 as to the Purchase Agreement. 12 Plaintiffs briefly allege that Defendants breached the implied covenant in other 13 ways, such as “evad[ing] the spirit of the bargain, by falsification of facts, lack of 14 diligence, willful rendering of imperfect performance,” and so forth. SAC ¶ 124. These 15 allegations appear to be lifted from Comment “d” to the Restatement (Second) of 16 Contracts § 205. In any case, Plaintiffs provide no facts supporting those allegations. 17 Accordingly, the Court GRANTS IN PART Defendants’ motion to dismiss 18 Plaintiffs’ eleventh claim for breach of the implied covenant of good faith and fair dealing 19 to the extent the claim is based on Defendants’ breach of the Employment and Contractor 20 Agreements. Dismissal is without leave to amend. The Court otherwise DENIES 21 Defendants’ motion to dismiss Plaintiffs’ eleventh claim. 22 I. Computer Fraud and Abuse Act 23 Plaintiffs’ twelfth claim is for violation of the CFAA, 18 U.S.C. §§ 1030 et seq. 24 See SAC ¶¶ 130–37. 25 Under the CFAA, anyone who “intentionally accesses a computer without 26 authorization or exceeds authorized access, and thereby obtains . . . information from any 27 protected computer . . . shall be punished . . . .” 18 U.S.C. § 1030(a)(2)(C). A “protected 1 communication.” Id. § 1030(e)(2)(B). The CFAA allows “[a]ny person who suffers 2 damage or loss by reason of a violation of this section [to] maintain a civil action against 3 the violator to obtain compensatory damages and injunctive relief or other equitable 4 relief.” Id. § 1030(g). 5 Application of the CFAA here is straightforward. Plaintiffs allege that when the 6 Contractor Agreement was terminated on January 11, 2019, Panchumarthi was no longer 7 authorized to access their computers (i.e., Plaintiffs’ email and Dropbox accounts). See id. 8 ¶¶ 24–25, 131–32. They then allege that Panchumarthi intentionally accessed their 9 computers on February 11, 2019. See SAC ¶¶ 25–26, 31, 132–33. Panchumarthi allegedly 10 obtained information (i.e., employee lists, customer lists, and other intellectual property) 11 when he accessed Plaintiffs’ computers. See id. ¶¶ 26, 31, 132–33. And Plaintiffs allege 12 that they were harmed by Panchumarthi’s access because he destroyed information and 13 used that information to poach their employees and customers. See id. ¶¶ 29, 32–33, 135. 14 Defendants argue that Panchumarthi’s access could not have been unauthorized 15 because he used access credentials that were still valid. See Dkt. No. 31 at 25–26. 16 Therefore, Defendants reason, Panchumarthi’s conduct could not have risen to the level of 17 “breaking and entering” contemplated by the Ninth Circuit. Id. at 25 (citing hiQ Labs, Inc. 18 v. LinkedIn Corp., 928 F.3d 985, 1001 (9th Cir. 2019)). The Ninth Circuit’s analogy to 19 “breaking and entering” in hiQ Labs, however, was mere dicta, not a stringent legal 20 standard. 21 hiQ Labs is also distinguishable. In that case, a data analytics company scraped 22 publicly available information from a professional networking site in violation of the site’s 23 user agreement. See 928 F.3d at 989–91. The Ninth Circuit held that the data analytics 24 company did not violate the CFAA because it only accessed information that was 25 accessible by the general public. Id. at 1001–02. By contrast, Plaintiffs’ complaint makes 26 clear that its email servers and Dropbox accounts were private and not visible to the public. 27 Plaintiffs also allege that the information accessed by Panchumarthi was not publicly 1 United States v. Nosal (“Nosal II”), 884 F.3d 1024 (9th Cir. 2016) is particularly 2 apt. In Nosal II, the defendant accessed his former employer’s computer by using a 3 coworker’s password. Id. at 1030–31. Even though he used legitimate access credentials, 4 the defendant still violated the CFAA because his former employer already revoked his 5 permission to access the computer when he left the company. Id. at 1035. The panel 6 majority flatly rejected the dissent’s argument that the defendant’s behavior amounted to 7 nothing more than innocent password-sharing simply because the ex-coworker voluntarily 8 gave up his password. Id. at 1038; see also id. at 1051 (Reinhardt, J., dissenting). Rather, 9 “a former employee whose computer access has been revoked can[not] access his former 10 employer’s computer system and be deemed to act with authorization.” Id. at 1036–37; 11 see also Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058, 1067 (9th Cir. 2016) (“[A] 12 defendant can run afoul of the CFAA when he or she has no permission to access a 13 computer or when such permission has been revoked explicitly.”). 14 Accordingly, the Court DENIES Defendants’ motion to dismiss Plaintiffs’ twelfth 15 claim for violation of the CFAA. 16 J. Unfair Competition Law 17 Plaintiffs allege that Defendants violated the UCL in their fourth claim. See SAC 18 ¶¶ 60–62. The UCL prohibits any “unlawful, unfair, or fraudulent business act or 19 practice.” Cal. Bus. & Prof. Code § 17200; see also Cel-Tech Commc’ns, Inc. v. Los 20 Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). “Each prong of the UCL is a 21 separate and distinct theory of liability.” Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 22 (9th Cir. 2009). 23 As explained above, Plaintiffs have stated a claim under the CFAA. Therefore, 24 Plaintiffs have, at a minimum, stated a claim under the unlawful prong of the UCL. See 25 Cel-Tech, 20 Cal. 4th at 180 (“[S]ection 17200 ‘borrows’ violations of other laws and 26 treats them as unlawful practices that the unfair competition law makes independently 27 actionable.”). Accordingly, the Court DENIES Defendants’ motion to dismiss Plaintiffs’ 1 K. Alter Ego Liability 2 Plaintiffs seek to impose alter ego liability on Defendants. See SAC at 26. 3 As an initial matter, Plaintiffs’ invocation of the alter ego doctrine is not accurate. 4 The alter ego doctrine is generally used to pierce the “corporate veil” and “and deem the 5 corporation’s acts to be those of the persons or organizations actually controlling the 6 corporation.” Sonora Diamond Corp. v. Superior Court., 83 Cal. App. 4th 523, 538 7 (2000). Alter ego liability is properly imposed “where an abuse of the corporate privilege 8 justifies holding the equitable ownership of a corporation liable for the actions of the 9 corporation.” Id. (emphasis added). The doctrine aims to “prevent[] individuals or other 10 corporations from misusing the corporate laws by the device of a sham corporate entity 11 formed for the purpose of committing fraud or other misdeeds.” Id. 12 But here, Plaintiffs do not seek to hold Panchumarthi liable for Truinfo’s actions. 13 Instead, Plaintiffs wish to hold Truinfo liable for Panchumarthi’s actions. This is called 14 “reverse piercing.” See Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal. App. 4th 1510, 15 1518 (2008). With one exception, California courts have rejected reverse piercing actions. 16 See id. (rejecting reverse piercing of corporations); United States v. Kim, 797 F.3d 696, 17 703 (9th Cir. 2015) (“Indeed, California has rejected ‘reverse-piercing’ actions that hold an 18 alter ego corporation liable for the actions of its shareholders.”); but see Curci Investments, 19 LLC v. Baldwin, 14 Cal. App. 5th 214 (2017) (distinguishing Postal and permitting reverse 20 piercing of LLCs). 21 Even if reverse piercing was permitted in this case, Plaintiffs must establish that (1) 22 “there is such a unity of interest and ownership that the individuality, or separateness, of 23 the said person and corporation has ceased;” and (2) “adherence to the fiction of the 24 separate existence of the corporation would . . . sanction a fraud or promote injustice.” In 25 re Schwarzkopf, 626 F.3d 1032, 1038 (9th Cir. 2010) (quoting Wood v. Elling Corp., 20 26 Cal.3d 353, 364 n. 9 (1977)). Plaintiffs’ allegations on both prongs are conclusory. See 27 SAC ¶ 6. 1 || assertion of alter ego liability. To the extent they seek to impose alter ego or reverse 2 || piercing liability against Truinfo, claims one, two, three, four, five, six, seven, ten, eleven, 3 || and twelve are dismissed without leave to amend. 4 || IV. Conclusion 5 The Court GRANTS IN PART and DENIES IN PART Defendants’ motion to 6 || dismiss as follows: 7 e Claims One, Two, Three, Four, Five, Six, Nine, and Ten are dismissed 8 without leave to amend; 9 e Claim Seven is dismissed with leave to amend; 10 e Claim Eight is dismissed without leave to amend only to the extent it alleges 11 a breach of Defendants’ obligation not to compete; 12 e Claim Eleven is dismissed without leave to amend only to the extent it 13 alleges a breach of the Employment and Contractor Agreements; C 14 e Plaintiffs’ assertion of alter ego liability against Truinfo is dismissed; and 3 15 e The Court DENIES Defendants’ motion to dismiss Claims Four and Twelve. 16 || If they seek to amend, Plaintiffs must file their third amended complaint by February 14, 5 17 || 2020. Plaintiffs may not add additional claims or parties without further leave of the 5 18 |} Court. Defendants need not answer the second amended complaint unless Plaintiffs give 19 |} notice that they do not intend to file a third amended complaint. 20 IT IS SO ORDERED. 21 22 || Dated: January 31, 2020 he ———— _ NATHANAEL M. COUSINS 23 United States Magistrate Judge 24 25 26 27 28