Arthur J. Gallagher & Co. v. Tarantino ( 2020 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ARTHUR J. GALLAGHER & CO., Case No. 20-cv-05505-EMC 8 Plaintiff, ORDER GRANTING IN PART AND 9 v. DENYING IN PART DEFENDANTS’ MOTION TO DISMISS 10 DON TARANTINO, et al., Docket No. 23 11 Defendants. 12 13 14 Plaintiff Arthur J. Gallagher & Co. (“Gallagher”) has filed suit against four former 15 employees and a competitor, Alliant Insurance Services (“Alliant”), who hired those former 16 employees. Gallagher brings claims for, inter alia, breach of employment contract and trade 17 secret misappropriation. Currently pending before the Court is Defendants’ motion to dismiss. 18 Having considered the parties’ briefs and accompanying submissions, as well as the oral argument 19 of counsel, the Court hereby GRANTS in part and DENIES in part Defendants’ motion. 20 I. FACTUAL & PROCEDURAL BACKGROUND 21 Gallagher alleges as follows in its complaint. 22 Gallagher is “a global insurance brokerage and risk management services firm.” Compl. ¶ 23 9. Alliant offers the same services and is a direct competitor of Gallagher. See Compl. ¶ 50. The 24 four individual defendants who left Gallagher and began working for Alliant are: Don Tarantino, 25 Bernadette Heater, Michael Machette, and Spencer Brush. 26 A. Mr. Tarantino 27 Before working for Gallagher, Mr. Tarantino was a stockholder, officer, and director of 1 both risk management and commercial insurance.” Compl. ¶ 10. In July 2006, Gallagher 2 acquired Tarantino Insurance Brokerage, and Gallagher hired Mr. Tarantino. Compl. ¶ 11. 3 Mr. Tarantino entered into an employment contract with Gallagher, dated July 11, 2006. 4 See Compl. ¶ 11 & Ex. A (Tarantino Agmt.). Under the contract, Mr. Tarantino agreed to protect 5 Gallagher’s confidential information even after the termination of his employment. In addition, 6 Mr. Tarantino agreed that, for two years after the termination of his employment, he would not 7 solicit either Gallagher’s customers or its employees. See Compl. ¶ 12. 8 While working at Gallagher, Mr. Tarantino “managed/oversaw the book of business that 9 Tarantino Brokerage [had] sold [to] Gallagher in 2006.” Compl. ¶ 15. In 2009, Mr. Tarantino 10 was “promoted to Chairman of Gallagher’s Bay Area operations.” Compl. ¶ 16. “In this role, 11 [Mr.] Tarantino was responsible for assisting regional and branch management in various areas[,] 12 including but not limited to providing advice and guidance in managing Gallagher’s San Francisco 13 operations, identifying acquisition opportunities, and providing oversight over employees working 14 on his accounts.” Compl. ¶ 16. 15 B. Mr. Machette 16 Before working for Gallagher, Mr. Machette was a principal stockholder, officer, director, 17 and/or key employee of Crist Elliott Machette Insurance Services, Inc., “a retail insurance 18 brokerage offering risk management, commercial property/casualty, and personal lines of 19 insurance products and services.” Compl. ¶ 13. In January 2008, Gallagher acquired Machette 20 Insurance Services, and Mr. Machette went to work for Gallagher. See Compl. ¶¶ 13-14. 21 Mr. Machette entered into an employment contract dated January 30, 2008. See Compl. ¶ 22 14 & Ex. B (Machette Agmt.). The agreement imposed confidentiality obligations and precluded 23 solicitation of both Gallagher customers and Gallagher employees for two years after the 24 termination of the employment relationship. See Compl. ¶ 14. 25 While working at Gallagher, Mr. Machette “managed/oversaw the book of business that 26 [Machette Insurance Services] sold [to Gallagher] in 2008.” Compl. ¶ 18. Mr. Machette’s title 27 was Area President for the San Francisco area (based in Lafayette). See Compl. ¶ 18. “In that 1 [Gallagher’s] operations in the Lafayette, California office.” Compl. ¶ 18. 2 C. Alliant 3 In 2019, Alliant – which is a direct competitor of Gallagher – began to plan the defection 4 of Gallagher employees from the San Francisco and Lafayette offices. Alliant focused first on the 5 recruitment of Mr. Tarantino and Mr. Machette. See Compl. ¶ 19. Alliant targeted the two 6 individuals because they were “key high-level Gallagher employees with substantial books of 7 businesses.” Compl. ¶ 38. 8 1. Mr. Tarantino and Ms. Heater 9 After Alliant successfully recruited Mr. Tarantino, Alliant and/or Mr. Tarantino recruited 10 Ms. Heater. Ms. Heater had previously worked with Mr. Tarantino at Tarantino Insurance 11 Brokerage, had joined Gallagher when Mr. Tarantino joined, and worked closely with Mr. 12 Tarantino at Gallagher. (Like Mr. Tarantino, Ms. Heater had an employment contract with 13 Gallagher. See Compl. ¶ 25 & Ex. C (Heater Agmt.)). After she was recruited, Alliant and/or Mr. 14 Tarantino directed Ms. Heater to steal Gallagher’s confidential information and/or trade secrets. 15 Alliant and/or Mr. Tarantino had Ms. Heater do the “dirty work” since she was a lower-level 16 employee compared to Mr. Tarantino and this would conceal Mr. Tarantino’s involvement. See 17 Compl. ¶ 21. 18 In accordance with the directive she received, Ms. Heater began to “mass-email[]” 19 Gallagher’s confidential information and/or trade secrets to her personal email account. See 20 Compl. ¶ 21. In the months leading up to the resignation of Mr. Tarantino and Ms. Heater in July 21 2020, see Compl. ¶ 29, Ms. Heater 22 sent hundreds of documents to her personal email account, including (1) current Gallagher client lists, which include information on the 23 value of the clients’ claims over the years, client contacts, internal notes regarding particular clients’ expectations and preferences; (2) 24 internal Gallagher documents and strategies regarding client policy structuring, client premium reports, and extensive budget and other 25 financial information regarding Gallagher’s business; and (3) client retention and renewal strategies and information, among other 26 confidential and/or trade secret information. 27 Compl. ¶ 22 (identifying, in particular, specific documents sent in the April-June 2020 time 1 In addition to the above, Mr. Tarantino took direct action in violation of Gallagher’s rights. 2 Most notably, in late June 2020, Mr. Tarantino took two Gallagher clients out to golf and dinner, 3 purportedly on behalf of Gallagher but with the true goal of moving their business to Alliant. See 4 Compl. ¶¶ 27-28. At around this same time, Ms. Heater sent to her personal email account key 5 information about these two clients. See Compl. ¶ 28. Less than a month later, both Mr. 6 Tarantino and Ms. Heater resigned from Gallagher – as well as Mr. Tarantino’s two sons who also 7 worked there – and within days thereafter, the clients that Mr. Tarantino had “wined and dined on 8 Gallagher’s dime . . . terminated their business relationship with Gallagher in favor of [Mr.] 9 Tarantino at Alliant.” Compl. ¶¶ 29-30. 10 2. Mr. Machette and Mr. Brush 11 A similar pattern played out with Mr. Machette and Mr. Brush. After Alliant successfully 12 recruited Mr. Machette, Alliant and/or Mr. Machette recruited Mr. Brush. Mr. Brush was Mr. 13 Machette’s son-in-law, had joined Gallagher in 2012 (several years after Mr. Machette had 14 joined), and serviced many of the same Gallagher accounts as did Mr. Machette. Alliant directed 15 Mr. Machette and Mr. Brush to steal confidential information and/or trade secrets from Gallagher, 16 and they did so – e.g., sending client contact information and client policy information to Mr. 17 Brush’s personal email account between April and July 2020, which was shortly before they 18 resigned in July 2020. See Compl. ¶¶ 24, 34. Through his actions, Mr. Brush also violated the 19 employment contract he had with Gallagher. See Compl. ¶ 25 & Ex. D (Brush Agmt.). 20 3. Pattern/Practice by Alliant 21 Defendants have solicited both Gallagher customers and Gallagher employees to leave 22 Gallagher in favor of Alliant – at times using information stolen from Gallagher in support of the 23 solicitation. See, e.g., Compl. ¶ 28 (alleging that Ms. Heater stole information about the two 24 clients that Mr. Tarantino wined and dined in June 2020); Compl. ¶ 34 (alleging that one 25 Gallagher client who left in favor of Alliant was “one of the clients whose information [Mr.] 26 Brush misappropriated in May and June of 2020”); Compl. ¶ 35 (alleging that “Defendants knew 27 which employees to target at Gallagher and how much to offer based on misappropriated 1 As a result, “[a]s of August 5, 2020, . . . Defendants have successfully caused close to fifty 2 (50) clients and 15 Gallagher employees to transfer to Alliant.” Compl. ¶ 44. 3 Gallagher is not the only company to suffer harm from Alliant’s actions. Alliant has 4 engaged in a pattern or practice of poaching customers and/or employees. Alliant has been sued in 5 at least two other lawsuits (in Illinois federal court and Delaware state court); in both cases, 6 temporary injunctive relief was issued against Alliant. See Compl. ¶ 42. See, e.g., Aon Risk Servs. 7 Cos. v. Alliant Ins. Servs., 415 F. Supp. 3d 843, 852-53 (N.D. Ill. 2019) (in granting in part 8 plaintiff’s motion for a temporary restraining order, ordering Alliant to return plaintiff’s 9 confidential information and barring Alliant from soliciting former clients – but not merely 10 accepting or servicing them); Mt. W. Series of Lockton Cos., LLC v. Alliant Ins. Servs., No. 2019- 11 0226-JTL, 2019 Del. Ch. LEXIS 231, at *68 (Ch. June 20, 2019) (in granting plaintiff’s motion 12 for a preliminary injunction, prohibiting Alliant from, e.g., soliciting customers or employees). It 13 appears that both of these cases settled. 14 D. Causes of Action 15 Based on, inter alia, the above allegations, Gallagher asserts the following claims for 16 relief: 17 (1) Breach of employment contract (all four individual defendants). 18 (2) Federal trade secret misappropriation (all Defendants). See 18 U.S.C. § 1832 et 19 seq. 20 (3) Trade secret misappropriation in violation of California Civil Code § 3426 et 21 seq. (all Defendants). 22 (4) Breach of fiduciary duty (Mr. Tarantino and Mr. Machette only). 23 (5) Aiding and abetting of unlawful client and employee solicitation, breach of 24 fiduciary duty, and trade secret and confidential information misappropriation 25 (Alliant only). 26 (6) Intentional interference with prospective economic advantage (all Defendants). 27 (7) Intentional interference with contractual relations (Alliant only). 1 (9) Unjust enrichment (all Defendants). 2 (10) Conspiracy (all Defendants). 3 (11) Temporary and permanent injunctive relief (all Defendants). 4 II. DISCUSSION 5 A. Legal Standard 6 Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include “a short and plain 7 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 8 complaint that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil 9 Procedure 12(b)(6). See Fed. R. Civ. P. 12(b)(6). To overcome a Rule 12(b)(6) motion to dismiss 10 after the Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic 11 Corp. v. Twombly, 550 U.S. 544 (2007), a plaintiff’s “factual allegations [in the complaint] ‘must 12 . . . suggest that the claim has at least a plausible chance of success.’” Levitt v. Yelp! Inc., 765 13 F.3d 1123, 1135 (9th Cir. 2014). The court “accept[s] factual allegations in the complaint as true 14 and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. 15 Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But “allegations in a 16 complaint . . . may not simply recite the elements of a cause of action [and] must contain sufficient 17 allegations of underlying facts to give fair notice and to enable the opposing party to defend itself 18 effectively.” Levitt, 765 F.3d at 1135 (internal quotation marks omitted). “A claim has facial 19 plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable 20 inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “The 21 plausibility standard is not akin to a probability requirement, but it asks for more than a sheer 22 possibility that a defendant has acted unlawfully.” Id. (internal quotation marks omitted). 23 B. Breach of Contract 24 Gallagher has asserted a breach-of-contract claim against each of the individual defendants 25 – i.e., Mr. Tarantino, Mr. Machette, Ms. Heater, and Mr. Brush. According to Gallagher, Mr. 26 Tarantino and Mr. Machette each breached his employment agreement by (1) soliciting Gallagher 27 clients and Gallagher employees to leave Gallagher for Alliant and (2) taking Gallagher’s 1 Heater and Mr. Brush, Gallagher asserts a breach of the employment agreement based on their 2 taking of Gallagher confidential information and trade secrets to Alliant. See Compl. ¶ 57(c). 3 Defendants move for dismissal of the breach-of-contract claim in its entirety, asserting the 4 following arguments: 5 (1) As to Mr. Tarantino and Mr. Machette, the employment contracts have “expired” 6 and therefore cannot be enforced. 7 (2) As to Mr. Tarantino and Mr. Machette, the noncompete provisions the employment 8 contracts are unenforceable based on California Business & Professions Code § 9 16600, which prohibits restrictions on employee mobility. 10 (3) As to all four individual defendants, Gallagher has failed to allege a plausible claim 11 for breach of contract. 12 1. Mr. Tarantino and Mr. Machette: “Expiration” of Employment Agreements 13 As noted above, Defendants argue first that the contract claims against Mr. Tarantino and 14 Mr. Machette should be dismissed because their employment agreements have “expired” and 15 therefore are unenforceable. 16 Section 1 of each individual’s contract addresses the term of employment. 17 • Mr. Tarantino: “The Corporation employs the Executive and the Executive 18 agrees to serve as an employee of the Corporation . . . for a term (the ‘Term of 19 Employment’) beginning on July 1, 2006 and ending on June 30, 2011, unless 20 earlier terminated under Section 4 or 5. . . . Employment of the Executive shall 21 not necessarily cease as of the expiration of the Term of Employment; however, 22 employment thereafter shall be on an at will basis.” Tarantino Agmt. § 1. 23 • Mr. Machette: “The Corporation employs the Executive and the Executive 24 agrees to serve as an employee of the Corporation . . . for a term (the ‘Term of 25 Employment’) beginning on January 30, 2008 and ending on January 30, 2013 26 unless earlier terminated under Section 5. . . . Employment of the Executive 27 shall not necessarily cease as of the expiration of the Term of Employment; 1 however, employment thereafter shall be on an at will basis.” Machette Agmt. 2 § 1. 3 Defendants argue that, based on § 1 of each agreement, when the “Term of Employment” 4 ended (in June 2011 for Mr. Tarantino and January 2013 for Mr. Machette), the written terms of 5 the contract – including, e.g., the no solicitation provisions – also ended, notwithstanding the fact 6 that each individual continued to work for Gallagher as an at-will employee. According to 7 Defendants, “[w]hatever restrictions may apply to Mr. Tarantino and Mr. Machette after the 8 termination of their ‘Term of Employment’ are determined by the terms of their subsequent at-will 9 employment with Gallagher, and not the terms of their expired written agreements.” Mot. at 6. 10 Defendants’ argument lacks merit. The restrictive terms of the employment agreements 11 (which are in § 8) do not make reference to the “Term of Employment”; rather, they refer to the 12 “termination of . . . employment,” and “employment” is a broad enough term to cover not just the 13 “Term of Employment” set forth in the agreements but also at-will employment which continued 14 thereafter. For example: 15 For a period equal to the longer of (i) five (5) years after the Closing Date, or (ii) two (2) years following the termination of the 16 Executive’s employment with the Corporation or any of its affiliates (as applicable) for any reason whatsoever, the Executive will not, 17 directly or indirectly, solicit . . . the renewal, discontinuance or replacement of any insurance . . . for: (x) any account of the 18 Corporation or any of its affiliates; or (y) any Prospective Account of the Corporation or any of its affiliates, it being understood and 19 agreed that this Section 8(c) does not restrict or limit Section 8(b) or any other provision of Section 8. For purposes of Sections 7 and 8 20 hereof, all references to “the Corporation” shall be deemed to include the Acquired Business. 21 22 Tarantino Agmt. § 8(c) (emphasis added). Mr. Tarantino and Mr. Machette remained in 23 Gallagher’s “employment” after the term of their Term of Employment in their agreements had 24 expired. 25 Furthermore, as Gallagher points out, 26 limiting the Section 8 restrictive covenants to only the initial Term of Employment would lead to an absurd result; that is, [Mr.] 27 Tarantino and [Mr.] Machette could not solicit or divert the business 1 Opp’n at 4. 2 Finally, Judge Wilken’s decision in Arthur J. Gallagher & Co. v. Lang, No. C 14-0909 3 CW, 2014 U.S. Dist. LEXIS 71286 (N.D. Cal. May 23, 2014), supports this Court’s conclusion. 4 In Lang, Gallagher sued a former employee for, inter alia, breach of an employment contract after 5 he resigned from the company and formed a new insurance brokerage firm, and several clients left 6 Gallagher in favor of the defendant’s new firm. See id. at *3. Section 1 of the defendant’s 7 employment contract covered the term of employment and provided as follows: 8 The Corporation [Gallagher] employs the Executive [Lang] and the Executive agrees to serve as an employee of the Corporation with 9 the duties set forth in Section 2 for a term (the “Contract Term”) beginning on September 10, 2008 and ending on August 31, 2011 10 unless earlier terminated under Section 5. Employment of the Executive shall not necessarily cease as of the expiration of the 11 Contract Term; however, employment thereafter shall be on an at will basis but shall be subject to the requirements of Section 5(b) 12 and Section 5(c) hereof. 13 Id. at *2. “Section 8 [of the employment contract] contained various non-competition and non- 14 solicitation provisions governing [the defendant’s] relationships with [Gallagher’s] clients and 15 employees for up to two years after he ceased working for the firm.” Id. 16 In a motion to dismiss, the defendant challenged Gallagher’s claim for breach of contract. 17 According to the defendant, other than §§ 5(b) and 5(c), “all of the provisions of the employment 18 agreement that Gallagher seeks to enforce [i.e., the noncompetition and nonsolicitation provisions] 19 lapsed in August 2011, more than two years before he allegedly breached them.” Id. at *5. Judge 20 Wilken rejected the argument: 21 Although [§ 1 which provides for at-will employment after the “Contract Term”] set forth the terms by which each party could 22 terminate the employment relationship after August 2011, it was not intended to render every other provision of the agreement 23 unenforceable after that date. Several provisions of the agreement, including the non-competition and non-solicitation provisions at 24 issue here, expressly state that they will apply for a period following the conclusion of the employment relationship. See, e.g., id. at 16 25 (providing that Lang’s non-competition and non-solicitation obligations would remain in effect “for a period equal to two (2) 26 years following the termination of [Lang’s] employment”). Other provisions of the agreement expressly state that they will only apply 27 “during the Contract Term” and “prior to the end of the Contract provisions – other than Sections 5(b) and 5(c) – which apply after 1 that date. Because the Court must give effect to these distinctions, it must reject Lang’s construction of the employment agreement as a 2 matter of law. 3 Id. at *6-7 (emphasis added). 4 As indicated by the above, Judge Wilken’s interpretation of § 1 in the employment 5 agreement accords with the Court’s interpretation of § 1 in the employment agreements here. 6 Furthermore, the Court notes that Mr. Tarantino and Mr. Machette’s employment agreements – 7 like the Lang defendant’s employment agreement – also included provisions that were clearly 8 limited in application to “during the Term of Employment” and “prior to the end of the Term of 9 Agreement.” See, e.g., Tarantino Agmt. § 2(a) (“The Executive agrees during the Term of 10 Employment to solicit, handle business for, sell insurance or render services related to insurance 11 on behalf of the Corporation and its subsidiaries and to perform such other duties and assignments 12 relating to the business of the Corporation and its subsidiaries as the management of the 13 Corporation reasonably directs.”); Tarantino Agmt. § 3(c) (“During the Term of Employment, the 14 Executive shall enjoy the customary benefits afforded to employees of the Corporation.”); 15 Tarantino Agmt. § 5(a) (“Corporation shall have the right to terminate the employment of 16 Executive prior to the end of the Term of Employment and with no liability on the part of the 17 Corporation [under certain circumstances.]”). 18 Accordingly, the Court rejects Defendants’ contention that the Tarantino and Machette 19 employment agreements are not enforceable because they “expired.” 20 2. Mr. Tarantino and Mr. Machette: Noncompete Provisions 21 Defendants argue that, even if the Tarantino and Machette agreements can be enforced, the 22 contract claims based on alleged breach of the noncompete provisions should be dismissed. Both 23 Mr. Tarantino and Mr. Machette’s employment contracts with Gallagher contained noncompete 24 provisions, including but not limited to the following1: 25 • “For a period equal to the longer of (i) five (5) years after the Closing Date, or (ii) 26 two (2) years following the termination of the Executive’s employment with the 27 1 Corporation or any of its affiliates (as applicable) for any reason whatsoever, the 2 Executive will not, directly or indirectly, solicit . . . the renewal, discontinuance or 3 replacement of any insurance . . . for: (x) any account of the Corporation or any of 4 its affiliates; or (y) any Prospective Account of the Corporation or any of its 5 affiliates, it being understood and agreed that this Section 8(c) does not restrict or 6 limit Section 8(b) or any other provision of Section 8. For purposes of Sections 7 7 and 8 hereof, all references to ‘the Corporation’ shall be deemed to include the 8 Acquired Business.” Tarantino Agmt. § 8(c); Machette Agmt. § 8(c). 9 • “[F]or a period equal to the longer of (i) five (5) years after the Closing Date, or (ii) 10 two (2) years following the termination of the employment of the Executive with 11 the Corporation or its affiliates (as applicable) for any reason whatsoever, the 12 Executive will not, directly or indirectly, solicit . . . any employee of the 13 Corporation or its affiliates to leave the employ of the Corporation or its affiliates.” 14 Tarantino Agmt. § 8(d); Machette Agmt. § 8(d). 15 Defendants argue that these noncompete provisions are unenforceable based on California 16 Business & Professions Code § 16600. Section 16600 provides: “Except as provided in this 17 chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, 18 or business of any kind is to that extent void.” Cal. Bus. &. Prof. Code § 16600. As noted by the 19 California Supreme Court, “section 16600 evinces a settled legislative policy in favor of open 20 competition and employee mobility.” Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 946 21 (2008). 22 In response, Gallagher invokes an exception to 16600. That exception – found in § 16601 23 – states in relevant part as follows: 24 Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her 25 ownership interest in the business entity . . . , may agree with the buyer to refrain from carrying on a similar business within a 26 specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so 27 long as the buyer . . . carries on a like business therein. 1 businesses to Gallagher, Gallagher can fairly restrict their ability to compete under § 16601. 2 Covenants not to compete typically “have their genesis in either an employer-employee 3 relationship, or in the sale of the ‘goodwill’ of a business.” Monogram Indus., Inc. v. Sar Indus., 4 Inc., 64 Cal. App. 3d 692, 697 (1976). The latter kind of covenant is more likely to be enforced – 5 consistent with § 16601 – and is designed to prevent unfair competition. 6 In the case of the sale of the goodwill of a business it is “unfair” for the seller to engage in competition which diminishes the value of the 7 asset he sold. In order to protect the buyer from that type of “unfair” competition, a covenant not to compete will be enforced to the 8 extent that it is reasonable and necessary in terms of time, activity and territory to protect the buyer’s interest. 9 10 Id. at 698. “One of the primary goals of section 16601 is to protect the buyer’s interest in 11 preserving the goodwill of the acquired corporation.” Hilb, Rogal & Hamilton Ins. Servs. v. Robb, 12 33 Cal. App. 4th 1812, 1825 (1995). 13 Defendants argue that the noncompete provisions in Mr. Tarantino and Mr. Machette’s 14 employment agreements are not reasonable and necessary. For example, Defendants attack the 15 time restriction in each noncompete provision. Defendants point out that the time restriction is not 16 simply tied to the date Mr. Tarantino or Mr. Machette sold his businesses to Gallagher; rather, the 17 restriction extends to two years after the employment relationship is terminated. As a result, even 18 though Mr. Tarantino and Mr. Machette sold their companies back in 2006 and 2008, Gallagher is 19 seeking to restrict their ability to compete until 2022 – 14 to 16 years later – which goes well 20 beyond the need to protect Gallagher’s interest in preserving the goodwill of the acquired 21 companies. As another example, Defendants attack the activity restriction in each noncompete 22 provision. Defendants point out that the activity restriction “bar[s] Mr. Tarantino and Mr. 23 Machette from servicing, receiving or otherwise handling business of any [Gallagher] customers 24 and prospective customers, which goes far beyond protecting the goodwill of just the customers of 25 the acquired businesses.” Mot. at 10 (emphasis in original). 26 The Court agrees with Defendants that the time restriction is problematic. As Defendants 27 note, the time restriction is tied not just to the date of acquisition of Tarantino Insurance Brokerage 1 termination from employment – which means that the restriction could continue for years. A 2 restriction tied to a date of employment rather than time of sale bears no demonstrative 3 relationship to goodwill. The provision could remain in force for decades after the sale. See 4 Fillpoint, LLC v. Maas, 208 Cal. App. 4th 1170, 1182-83 (2012) (indicating that there was no 5 problem with a covenant not to compete limited to the three-year period after one company 6 acquired the other; but finding problematic a covenant not to compete that prevented the 7 individual, “for one year after the termination of his employment, from [e.g.] making sales 8 contacts or making actual sales to anyone who was [the acquired company’s] customer or potential 9 customer during the two years preceding the termination of [his] employment”). Gallagher points 10 out that there was a similar time restriction in Alliant Insurance Services, Inc. v. Gaddy, 159 Cal. 11 App. 4th 1292 (2008), where the court affirmed a preliminary injunction that enforced a covenant 12 not to compete containing the following temporal restriction: “‘the later of (i) five years after the 13 Economic Effective Date or (ii) three (3) years after the effective date on which such Seller’s 14 employment, if any, with the Company . . . terminates.’” Id. at 1296. However, Gaddy did not 15 address the temporal restriction on the merits. As a practical matter, there was not much 16 difference in Gaddy between the five years after the Economic Effective Date (March 2009) and 17 the three years after the defendant’s employment with the company terminated (October 2009). 18 Furthermore, here, the Court is presented with not just a restriction on time but also one on 19 activity. In Strategix, Ltd. v. Infocrossing West., Inc., 142 Cal. App. 4th 1068 (2006), the court 20 addressed an activity restriction, distinguishing between a nonsolicitation provision that is limited 21 to the acquired business’s customers/employees and one that also extends to the acquiring 22 business’s customers/employees, particularly because § 16601 refers to “the business so sold.” 23 Cal. Bus. & Prof. Code § 16601. 24 [W]e conclude courts may enforce nonsolicitation covenants barring the seller from soliciting the sold business’s employees and 25 customers. These covenants prevent the seller from unfairly depriving the buyer of the full value of its acquisition, including its 26 goodwill. The sold business’s goodwill is the “‘expectation of … that patronage which has become an asset of the business.’” A 27 covenant not to solicit the sold business’s employees and customers whatever employees and customers it can attract. 1 On the other hand, nonsolicitation covenants barring the seller from 2 soliciting all employees and customers of the buyer, even those who were not former employees or customers of the sold business, 3 extend their anticompetitive reach beyond “the business so sold.” They do more than ensure the buyer receives the full value of the 4 business it bought, whose goodwill does not include “‘the patronage of the general public.’” The covenants would give the buyer broad 5 protection against competition wherever it happens to have employees or customers, at the expense of the seller’s fundamental 6 right to compete for employees and customers in the marketplace. 7 Strategix, 142 Cal. App. 4th at 1073. 8 The court went on to note that 9 practical concerns [also] militate against barring the seller from soliciting the buyer’s employees and customers, rather than the sold 10 business’s employees and customers. The seller presumably is familiar with the sold business’s employees and customers as of the 11 date of sale. Thus, the seller has some basis for determining who it may and may not solicit pursuant to the nonsolicitation covenants. 12 But the seller is far less likely to be familiar with the buyer’s employees and customers, especially as time passes. “An injunction 13 must be narrowly drawn to give the party enjoined reasonable notice of what conduct is prohibited.” Sellers would lack that reasonable 14 notice if courts enforced nonsolicitation covenants directed at the buyer’s employees and customers. 15 16 Id. at 1074. 17 Here, the nonsolicitation provisions apply not only to Mr. Tarantino’s and Mr. Machette’s 18 old businesses, but also to all of Gallagher’s accounts. For example, as indicated above, § 8(c) of 19 each individual’s employment agreement provides that the individual “will not, directly or 20 indirectly, solicit . . . the renewal, discontinuance or replacement of any insurance . . . for: (x) any 21 account of the Corporation or any of its affiliates . . . . For purposes of Sections 7 and 8 hereof, 22 all references to ‘the Corporation’ shall be deemed to include the Acquired Business.” Tarantino 23 Agmt. § 8(c); Machette Agmt. § 8(c) (emphasis added). Thus, § 8(c) goes beyond the “Acquired 24 Business” and applies broadly to the entire “Corporation.” This exceeds the scope of any 25 exemption under § 16601. 26 Gallagher acknowledges the principle articulated in Strategix but contends that Gaddy, 159 27 Cal. App. 4th at 1292, creates an exception that rule – i.e., where the seller of the acquired 1 such a circumstance, it is appropriate to have a nonsolicitation provision that applies more broadly 2 to customers/employees of the purchasing company, and not just those of the acquired company. 3 Gallagher’s argument, however, is not convincing. In Gaddy, the court justified a nonsolicitation 4 provision that applied to customers/employees of the purchasing company because “[a] covenant 5 for an employee not to solicit the employer’s clients upon termination of the employment may be 6 valid if necessary to protect the employer’s trade secrets.” Id. at 1306 (emphasis added; noting 7 that confidential client information was used to solicit). This reasoning has nothing to do with the 8 seller of the acquired company having some kind of special status or a need to preserve the 9 goodwill of the acquired company. 10 Furthermore, Gaddy was issued prior to the California Supreme Court’s decision in 11 Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008). There, the court declined to “address 12 the applicability of the so-called trade secret exception to section 16600.” Id. at 946 n.4. Post- 13 Edwards, there is not a clear consensus as to whether there is such an exception to § 16600, 14 although courts still have the ability “to enjoin the misuse of trade secrets as an independent 15 wrong, either as a tort or a violation of the Unfair Competition Law.”2 Richmond Techs., Inc. v. 16 Aumtech Bus. Sols., No. 11-CV-02460-LHK, 2011 U.S. Dist. LEXIS 71269, at *60 (N.D. Cal. 17 July 1, 2011). 18 Accordingly, in light of both the timing restriction and the activity restriction, the Court 19 concludes that the noncompete provisions in Mr. Tarantino and Mr. Machette’s employment 20 agreements are not enforceable; the provisions do not fall within the protection afforded by § 21 16601 exception. In so holding, the Court notes that Gallagher did not contend that any illegality 22 in the noncompete provisions is capable of being severed, which would allow for enforcement of 23 more narrowly tailored noncompete provisions. Even if it had, the Court would reject the 24 argument. In Strategix, the court noted that 25 2 Another possibility is that the contract between the parties will have a confidentiality provision 26 that independently provides for protection for trade secrets. See Artec Grp., Inc. v. Klimov, No. 15-cv-03449-EMC, 2016 U.S. Dist. LEXIS 170194, at *9 (N.D. Cal. Dec. 8, 2016) (citing a case 27 where the so-called trade secret exception to § 16600 was deemed not necessary because the 1 [c]ourts have “blue penciled” noncompetition covenants with overbroad or omitted geographic and time restrictions to include 2 reasonable limitations. But courts will not strike a new bargain for the parties “for the purpose of saving an illegal contract.” In 3 Kolani, the court declined to “rewrite the broad covenant not to compete into a narrow bar on theft of confidential information.” 4 We decline to rewrite overbroad covenants not to solicit [the purchasing company] Infocrossing’s employees and customers into 5 narrow bars against soliciting [the acquired company] Strategix’s former employees and customers. Had the parties intended to reach 6 such limited – and enforceable – covenants, they could have negotiated for them. We will not do so for the parties now. 7 Strategix, 142 Cal. App. 4th at 1074; cf. Armendariz v. Found. Health Psychcare Servs., Inc., 24 8 Cal. 4th 83, 124 (2000) (in discussing an agreement to arbitrate, noting that “multiple defects 9 indicate a systematic effort to impose arbitration on an employee not simply as an alternative to 10 litigation, but as an inferior forum that works to the employer’s advantage”). The Strategix 11 rationale is equally applicable to the instant case.3 12 13 14 3 The Court acknowledges that there are some noncompete provisions in Mr. Tarantino and Mr. 15 Machette’s employment contracts that include only the time restriction above and not the activity restriction (i.e., the activity restriction in these noncompete provisions is only with respect to the 16 acquired business and does not extend more broadly to the acquiring business). See, e.g., Tarantino Agmt. § 8(b); Machette Agmt. § 8(b). An argument could be made that these 17 noncompete provisions (such as § 8(b)) should be upheld as reasonable because they are less restrictive than the noncompete provisions described above (such as § 8(c)). 18 To be sure, the employment agreements each contain a severance clause. Section 11(e) of 19 the Tarantino Agreement provides: 20 To the extent that any of the terms set forth in this Agreement or any word, phrase, clause or sentence is found to be illegal or 21 unenforceable for any reason, such word, phrase, clause or sentence shall be modified or deleted in such manner so as to afford the 22 Corporation and its affiliates the fullest protection commensurate with making this Agreement, as modified, legal and enforceable 23 under applicable laws, and the balance of this Agreement shall not be affected thereby, the balance being construed as severable and 24 independent. 25 Tarantino Agmt. § 11(e). The Machette Agreement has the same provision. See Machette Agmt. § 11(e). However, severance is not easy here. Even though the scope of activity barred by § 8(b) 26 is not as problematic as § 8(d), its time limit is. To sever, the Court would have to blue-line the terms of the agreements. Furthermore, the Court is reluctant to consider the less restrictive 27 noncompete provision in isolation. In the spirit of Strategix, the noncompete provisions of both §§ 1 3. All Individual Defendants: Failure to State a Claim for Relief 2 Finally, Defendants argue that the breach-of-contract claim should be dismissed for failure 3 to state a claim for relief. Because the Court has found the noncompete provisions contained in 4 Mr. Tarantino and Mr. Machette’s agreements unenforceable (and there are no noncompete 5 provisions in Ms. Heater and Mr. Brush’s agreements), the only question here is whether the four 6 individual defendants plausibly breached their employment contracts by violating the 7 confidentiality provisions contained therein. See, e.g., Tarantino Agmt. § 7(b) (providing that 8 employee “has had and will be granted otherwise prohibited access to confidential and proprietary 9 data of the Corporation and its affiliates . . . which is not known either to their competitors or 10 within the insurance agency, consulting and brokerage business generally”; further providing that 11 employee “will not, at any time during his employment by the Corporation or thereafter, directly 12 or indirectly, divulge such Confidential Information or make use of it for his own purposes or the 13 purposes of another”); Machette Agmt. § 7(b) (providing the same); Heater Agmt. ¶ 5 (containing 14 a similar provision); Brush Decl. ¶ 2(B) (containing a similar provision). This analysis is largely 15 the same as that below – i.e., has Gallagher plausibly alleged a claim for trade secret 16 misappropriation? See infra. As discussed below, the Court concludes that Gallagher has 17 plausibly alleged a claim for trade secret misappropriation against the four individual defendants. 18 Therefore, it has also plausibly alleged a breach of the confidentiality provisions in the 19 employment contracts as well. 20 C. Trade Secret Misappropriation (Federal and State) 21 Gallagher’s trade secret misappropriation claim – brought pursuant to federal and state law 22 – has been asserted against all Defendants. In their motion to dismiss, Defendants primarily make 23 two arguments in favor of dismissal of the misappropriation claims: (1) Gallagher has failed to 24 identify the trade secrets at issue with sufficient specificity; and (2) Gallagher has failed to state a 25 claim for relief that any defendant acquired, disclosed, or used a trade secret. 26 1. Identification of Trade Secrets 27 As noted above, Defendants first contend that the trade secret misappropriation claim 1 Courts have held that the DTSA and the CUTSA share the same pleading requirements for the identification of trade secrets. “[A] 2 plaintiff need not ‘spell out the details of the trade secret.’” However, the plaintiff must “describe the subject matter of the trade 3 secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special persons who are skilled 4 in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.” 5 6 Alta Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 880-81 (N.D. Cal. 2018). 7 With respect to Mr. Tarantino and Ms. Heater (and thereby Alliant as well), Gallagher 8 alleges the theft of the following: 9 (1) current Gallagher client lists, which include information on the value of the clients’ claims over the years, client contacts, internal 10 notes regarding particular clients’ expectations and preferences; (2) internal Gallagher documents and strategies regarding client policy 11 structuring, client premium reports, and extensive budget and other financial information regarding Gallagher’s business; and (3) client 12 retention and renewal strategies and information, among other confidential and/or trade secret information. 13 14 Compl. ¶ 22. Gallagher goes on in, in ¶ 22 of the complaint, to give examples of specific 15 documents (which Ms. Heater emailed to her personal email account). 16 For Mr. Machette and Mr. Brush (and thereby Alliant again), Gallagher alleges the 17 misappropriated information was “clients’ contact information and policy information” (which 18 Mr. Brush emailed to his personal email account). Compl. ¶ 24. 19 The trade secrets have been sufficiently pled. As indicated above, the basic test is (1) 20 whether something beyond general knowledge is being claimed and (2) whether there is enough 21 specificity to put the defendant on notice of what the theft is about. Clearly, that test has been met 22 to the extent Gallagher claims misappropriation by Mr. Tarantino and Ms. Heater. Based on the 23 description provided in ¶ 22 of the complaint, it is plausible that something other than general 24 knowledge is at issue (e.g., client preferences, business strategies on client policy structuring and 25 client retention and renewal, internal budgets). Furthermore, Gallagher identified in ¶ 22 nine 26 specific documents that it claimed contained its trade secrets; thus, here, there is little doubt here 27 that Defendants have been put on adequate notice. Compare Vendavo, Inc. v. Price f(x) AG, No. 1 alleged as trade secrets “‘information not expressly covered by its patents [such as] source code, 2 customers lists and customer related information, pricing information, vendor lists and related 3 information, marketing plans and strategic business development initiatives,’” etc., holding that 4 description was set out in too “broad, categorical terms” and therefore was insufficient). 5 As for the description of the trade secrets allegedly misappropriated by Mr. Machette and 6 Mr. Brush, it is admittedly a closer call. However, the Court still concludes that the trade secrets 7 have been adequately identified, particularly because of the specific circumstances involved in this 8 case (i.e., a misappropriation in the insurance industry context) and because of Gallagher’s 9 clarification at the hearing that the trade secrets at issue were client contact information and client 10 policy information (i.e., not just general policy information). 11 2. Failure to State a Claim for Relief 12 Defendants argue next that, even if Gallagher has adequately identified the trade secrets at 13 issue, it has still failed to state a claim for relief because it has not adequately pled that any 14 defendant engaged in an act of misappropriation. 15 “Under both the DTSA [Defend Trade Secrets Act] and the CUTSA [California Uniform Trade Secrets Act], “misappropriation” means 16 either (1) the “[a]cquisition of a trade secret by another person who knows or has reason to know that the trade secret was acquired by 17 improper means;” or (2) the “[d]isclosure or use of a trade secret of another without express or implied consent.” 18 U.S.C. § 1839(5); 18 Cal. Civ. Code § 3426.1(b). 19 Alta Devices, 343 F. Supp. 3d at 877. 20 a. Ms. Heater and Mr. Brush 21 As a starting point, the Court considers the alleged misconduct of Ms. Heater and Mr. 22 Brush (who worked with Mr. Tarantino and Mr. Machette, respectively). According to Gallagher, 23 both Ms. Heater and Mr. Brush emailed trade secrets to their personal email accounts in the two- 24 to three-month period before they resigned; they then used that information to woo Gallagher 25 clients to Alliant and at least some clients did, in fact, leave for Alliant. These allegations are 26 sufficient to support a claim for misappropriation against Ms. Heater and Mr. Machette. What is 27 important is the timing of the emails and the fact that the emailed information related to clients 1 preclude an innocent explanation – e.g., Ms. Heater and Mr. Brush could well have been emailing 2 information to their personal email accounts simply as part of their work for Gallagher, 3 particularly given that the time period is when quarantine started. 4 The problem for Defendants is that (1) all reasonable inferences at this juncture are to be 5 made in Gallagher’s favor and (2) “[i]f there are two alternative explanations, one advanced by 6 defendant and the other advanced by plaintiff, both of which are plausible, plaintiff’s complaint 7 survives a motion to dismiss under Rule 12(b)(6). Plaintiff’s complaint may be dismissed only 8 when defendant’s plausible alternative explanation is so convincing that plaintiff’s explanation is 9 implausible.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). Compare Eclectic Props. E., 10 Ltd. Liab. Co. v. Marcus & Millichap Co., 751 F.3d 990, 996-97 (9th Cir. 2014) (stating that, 11 “‘[w]hen faced with two possible explanations, only one of which can be true and only one of 12 which results in liability, plaintiffs cannot offer allegations that are merely consistent with their 13 favored explanation but are also consistent with the alternative explanation[;] [s]omething more is 14 needed, such as facts tending to exclude the possibility that the alternative explanation is true, in 15 order to render plaintiffs’ allegations plausible’”). 16 b. Mr. Tarantino and Mr. Machette 17 The Court next evaluates the alleged misappropriation by Mr. Tarantino and Mr. Machette. 18 According to Gallagher, Mr. Tarantino directed Ms. Heater to steal the trade secrets, and Mr. 19 Machette did the same with Mr. Brush. The main question here is whether there are sufficiently 20 specific facts to support the conclusory allegations that Mr. Tarantino and Mr. Machette gave such 21 a directive. 22 The Court concludes there are. For example, it is plausible that Mr. Tarantino directed Ms. 23 Heater because they had previously worked together at Tarantino Insurance Brokerage, they both 24 left that firm at the same time to work for Gallagher, they continued to work closely together at 25 Gallagher, and they both left Gallagher at the same time. In addition, just weeks before he 26 resigned, Mr. Gallagher essentially wined and dined a client; that client was one of the clients 27 whose information Ms. Heater emailed herself, and that client was one of the clients that left 1 As for Mr. Machette, it is arguably a closer call. There are fewer allegations to support a 2 directive from him to Mr. Brush. Nevertheless, the Court holds that the allegations are still 3 adequate to support a claim for trade secret misappropriation. Gallagher has alleged that Mr. 4 Brush is Mr. Machette’s son and law and that the two worked closely at Gallagher, and even left 5 Gallagher at the same time. 6 c. Alliant 7 Finally, the Court considers the alleged misappropriation by Alliant. Similar to above, 8 Gallagher charges Alliant with giving the directive to take the trade secrets. But here there are no 9 specific facts to support Alliant giving such a directive. Mr. Tarantino, Ms. Heater, Mr. Machette, 10 and Mr. Brush could well have taken the trade secrets from Gallagher without Alliant’s knowledge 11 – even if Alliant ultimately benefitted from their acquisition and use of the trade secrets. In its 12 papers, Gallagher has suggested that one can reasonably infer Alliant’s directive because the 13 company has a pattern or practice of stealing trade secrets from their competitors and using the 14 trade secrets to solicit customers/employees of the competitors. However, the pattern/practice 15 evidence cited by Gallagher is simply the fact that Alliant has been sued twice and temporary 16 injunctive relief was issued against it. Ultimately, those cases settled.4 17 Accordingly, the Court dismisses the trade secret misappropriation claim against Alliant 18 but not the individual defendants. This dismissal is without prejudice; Gallagher can later move 19 for leave to amend if it uncovers evidence in discovery. 20 D. State Law Claims – Common Law and § 17200 21 The remaining claims in Gallagher’s complaint are state law claims based on the common 22 law or § 17200.5 As to these claims, Defendants assert that dismissal is warranted because all 23 4 At the hearing, Gallagher also argued that Alliant gives individuals it hires an incentive to take 24 trade secrets and clients with them when they leave their employers for Alliant – i.e., because Alliant structures employee compensation based on the volume of business the individuals bring 25 with them to Alliant. An incentive, however, particularly one that appears facially rational, is not the same thing as a directive to violate the law. 26 5 The causes of action are: 27 1 claims are preempted by the California Uniform Trade Secrets Act (“CUTSA”). Defendants 2 further argue that Gallagher fails to state a claim for relief for the remaining claims. 3 1. Preemption 4 CUTSA includes a savings clause (Section 3426.7[6]) that 5 “preempt[s] claims based on the same nucleus of facts as trade secret misappropriation.” The savings clause does not affect 6 “contractual remedies” and civil remedies “that are not based upon misappropriation of a trade secret.” “The preemption inquiry for 7 those causes of action not specifically exempted by § 3426.7(b) focuses on whether other claims are not more than a restatement of 8 the same operative facts supporting trade secret misappropriation. . . If there is no material distinction between the wrongdoing alleged in 9 a [C]UTSA claim and that alleged in a different claim, the [C]UTSA claim preempts the other claim.” 10 Following the nucleus of facts test, a number of Courts . . . have 11 held that CUTSA may supersede various claims including, inter alia, claims for conversion, common count, quantum meruit, unjust 12 enrichment, breach of confidence, unfair competition, and intentional and negligent misrepresentation where the wrongdoing 13 alleged in connection with such claims is the misappropriation of trade secrets. 14 15 fiduciary duty, and trade secret and confidential information misappropriation (Alliant only). 16 (6) Intentional interference with prospective economic advantage (all Defendants). (7) Intentional interference with contractual relations (Alliant only). 17 (8) Violation of California Business & Professions Code § 17200 (all Defendants). (9) Unjust enrichment (all Defendants). 18 (10) Conspiracy (all Defendants). (11) Temporary and permanent injunctive relief (all Defendants). 19 6 Section 3426.7 does not contain a clear preemption provision. However, California cases have 20 construed the statute as implicitly having a preemption provision: 21 [S]ection 3426.7[] reads in pertinent part as follows: “(a) Except as otherwise expressly provided, this title does not supersede any 22 statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets. [¶] (b) This title does not affect 23 (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are 24 not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade 25 secret.” Section 3426.7 thus “expressly allows contractual and criminal remedies, whether or not based on trade secret 26 misappropriation.” “At the same time, §3426.7 implicitly preempts alternative civil remedies based on trade secret misappropriation.” 27 1 SunPower Corp. v. SolarCity Corp., No. 12-CV-00694-LHK, 2012 U.S. Dist. LEXIS 176284, at 2 *9-11 (N.D. Cal. Dec. 11, 2012). 3 In the instant case, Defendants argue that the remaining claims – which include claims for 4 breach of fiduciary duty, tortious interference, and unfair competition – are preempted because 5 they are based on the same nucleus of facts as the CUTSA claim. The Court agrees but only in 6 part. 7 As the complaint is currently pled, Gallagher’s claims are predicated in part on trade secret 8 misappropriation. See Compl. ¶ 95 (in aiding and abetting claim, alleging that “[t]he acts of 9 unlawful client solicitation, employee solicitation, fiduciary duty breaches, and trade secret and 10 confidential information misappropriation detailed above were done at the behest of, and with 11 substantial assistance from[] Alliant”); Compl. ¶ 102 (in claim for intentional interference with 12 prospective economic advantage, alleging that “Defendants engaged in wrongful conduct . . . by . . 13 . breaching their written and enforceable contractual obligations . . . , misappropriating Gallagher’s 14 trade secrets and confidential information . . . , and breaching or encouraging the breach of [Mr.] 15 Tarantino’s and [Mr.] Machette’s fiduciary duties . . . .”); Compl. ¶ 107 (making a similar 16 allegation for claim for intentional interference with contract); Compl. ¶¶ 111, 114 (in § 17200 and 17 unjust enrichment claims, referring to, inter alia, use of Gallagher’s trade secrets and confidential 18 information). To that extent, there is preemption. 19 However, as indicated above, the claims are also based on conduct that does not implicate 20 trade secret misappropriation. For example, for the claim for breach of fiduciary duty, Gallagher 21 has alleged misconduct on the part of Mr. Tarantino and Mr. Machette independent of any trade 22 secrets. See, e.g., Opp’n at 19 (“Competing with Gallagher on behalf of a competitor while still 23 employed with Gallagher is a clear-cut breach of fiduciary duty, regardless of whether Defendants 24 used any trade secrets to do so.”). To that extent, there can be no basis for CUTSA preemption. 25 See Henry Schein, Inc. v. Cook, No. 16-cv-03166-JST, 2017 U.S. Dist. LEXIS 29183, at *7 (N.D. 26 Cal. Mar. 1, 2017) (concluding that claim for breach of fiduciary duty was not preempted because 27 “[the defendant] did not necessarily rely on [the plaintiff’s] trade secrets when she solicited 1 2. Failure to State a Claim for Relief 2 Because the claims are not entirely preempted by the CUTSA, the Court turns to 3 Defendants’ alternative argument that the claims should be dismissed for failure to state a claim 4 for relief. 5 a. Breach of Fiduciary Duty (Mr. Tarantino and Mr. Machette Only) 6 In support of the claim for breach of fiduciary duty, Gallagher alleges as follows: (1) Mr. 7 Tarantino and Mr. Machette both held positions of trust and authority at Gallagher based on their 8 jobs as “high level[] supervisors and managers of Gallagher,” Compl. ¶ 88; (2) they thus owed 9 Gallagher a fiduciary duty; and (3) they breached that duty by soliciting customers and employees 10 “while they were still employed at Gallagher.” Compl. ¶ 90. Consistent with the analysis in the 11 trade secret misappropriation section, Gallagher has made sufficient allegations that Mr. Tarantino 12 and Mr. Machette breached their fiduciary duty. 13 b. Aiding and Abetting (Alliant Only) 14 Gallagher brings an aiding and abetting claim against Alliant because it “provided 15 substantial assistance to the Individual Defendants in their unlawful client solicitation, employee 16 solicitations, [and] fiduciary duty breaches.” Compl. ¶ 97. Consistent with the analysis in the 17 trade secret misappropriation section, there are insufficient allegations in the complaint that 18 Alliant directed the individual defendants to engage in illegal conduct. The Court therefore 19 dismisses the claim, but leaves open the possibility of amendment later. 20 c. Intentional Interference with Prospective Economic Advantage (All 21 Defendants) 22 The elements of an interference with prospective economic 23 advantage claim are "(1) an economic relationship between the plaintiff and some third party, with the probability of future 24 economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant 25 designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately 26 caused by the acts of the defendant." CRST Van Expedited, Inc. v. Werner Enters., Inc., 479 F.3d 1099, 1108 (9th Cir. 2007) (quoting 27 Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, itself." Id. (citing Della Penna v. Toyota Motor Sales, U.S.A., Inc., 1 11 Cal 4th 376, 392-93, 45 Cal. Rptr. 2d 436, 902 P.2d 740 (1995)). "[A]n act is independently wrongful if it is unlawful, that is, if it is 2 proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." Korea Supply, 29 Cal. 3 4th at 1159. 4 Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-cv-05847-WHO, 2013 U.S. Dist. 5 LEXIS 151128, at *69 (N.D. Cal. Oct. 18, 2013). 6 In the claim for intentional interference with prospective economic advantage, Gallagher 7 alleges that Defendants interfered with the relationships that Gallagher had with its customers by 8 soliciting the customers. See Compl. ¶ 102. Consistent with the analysis in the trade secret 9 misappropriation section, Gallagher would appear to have – at first blush – a claim against the four 10 individual defendants, but not Alliant. Defendants, however, have raised an argument as to why 11 the intentional interference claim is not viable as to Ms. Heater and Mr. Brush: they, unlike their 12 superiors, did not have a no solicitation provision in their employment contracts, and they, unlike 13 their superiors, did not owe a fiduciary duty to Gallagher. No special relationship which might 14 give rise to an independent fiduciary duty is alleged. In other words, there is nothing that would 15 appear to make Ms. Heater and Mr. Brush’s conduct here independently wrongful. (As noted 16 above, trade secret misappropriation could not be considered here because of CUTSA 17 preemption.) 18 Accordingly, the Court concludes that Gallagher has a viable intentional interference claim 19 only as to Mr. Tarantino and Mr. Machette, but not Alliant, Ms. Heater, or Mr. Brush, but leaves 20 open the possibility of amendment later. 21 d. Intentional Interference with Contract (Alliant Only) 22 The elements of intentional interference with contractual relations 23 are often listed as follows: "(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) 24 defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the 25 contractual relationship; and (5) resulting damage." Quelimane Co., Inc. v. Stewart Title Guaranty Co., 19 Cal. 4th 26, 55 (1998) 26 (quoting Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990)). 27 1 In its claim for intentional interference with contract, Gallagher alleges that Alliant knew 2 the individual defendants had enforceable employment contracts with Gallagher and induced them 3 to breach those contracts by soliciting customers and employees. This claim is problematic for 4 two reasons: (1) To the extent Gallagher focuses on breach of contract by Mr. Tarantino and Mr. 5 Machette, as discussed above, the no solicitation provisions of their contracts are not enforceable; 6 (2) to the extent Gallagher focuses on breach of contract by Ms. Heater and Mr. Brush, neither one 7 was subject to a nonsolicitation provision. 8 The Court therefore dismisses this intentional interference claim with prejudice. 9 e. Unfair Competition (§ 17200) and Unjust Enrichment (All Defendants) 10 These claims are derivative claims, and the parties agree the claims should rise or fall with 11 the other claims. 12 f. Conspiracy and Injunctive Relief (All Defendants) 13 Defendants argue that conspiracy and injunctive relief are not independent causes of action 14 but rather are (1) a theory of liability (conspiracy) or (2) a remedy for a cause of action (injunctive 15 relief). Gallagher does not dispute such but offers to amend to make clear that it is asserting 16 conspiracy liability and injunctive relief. The Court shall allow this amendment. 17 III. CONCLUSION 18 For the foregoing reasons, the Court grants in part and denies in part Defendants’ motion 19 to dismiss. More specifically, the Court rules as follows. 20 • Breach of contract (individual defendants only). The noncompete provisions in Mr. 21 Tarantino and Mr. Machette’s contracts are not enforceable. The Court therefore 22 dismisses with prejudice the contract claim to the extent it is based on an alleged 23 breach of the noncompete provisions by Mr. Tarantino and Mr. Machette. The 24 only remaining contract theory is that the individual defendants breached the 25 confidentiality provisions in their employment contracts. Here, Gallagher has 26 adequately pled a claim for relief. 27 • Trade secret misappropriation (federal and state) (all Defendants). Gallagher has 1 but not Alliant. The dismissal of Alliant is without prejudice should Gallagher later 2 uncover a basis to assert a misappropriation claim. 3 • Remaining state claims. 4 o There is partial CUTSA preemption – i.e., to the extent the claims are 5 predicated on trade secret misappropriation, but not otherwise. 6 o Breach of fiduciary duty (Mr. Tarantino and Mr. Machette only). 7 Consistent with the misappropriation claim, there is enough support a claim 8 against Mr. Tarantino and Mr. Machette. 9 o Aiding and abetting (Alliant only). Consistent with the misappropriation 10 claim, Gallagher has not pled a viable claim against Alliant. As above, the 11 dismissal is without prejudice. 12 o Intentional interference with prospective economic advantage (all 13 Defendants). Gallagher has adequately pled a claim against Mr. Tarantino 14 and Mr. Machette, but not Alliant, Ms. Heater, or Mr. Brush. As above, the 15 dismissal is without prejudice. 16 o Intentional interference with contractual relations (Alliant only). The claim 17 is dismissed with prejudice. 18 o Violation of § 17200 and unjust enrichment (all Defendants). These are 19 derivative claims that rise or fall with the above claims. 20 o Conspiracy and injunctive relief (all Defendants). The Court gives 21 Gallagher leave to amend so that it can assert a theory of liability 22 (conspiracy) and a remedy (injunctive relief). 23 /// 24 /// 25 /// 26 /// 27 /// 1 Gallagher has four weeks to file an amended complaint. Gallagher may amend only where 2 the Court has expressly permitted amendment at this time. 3 This order disposes of Docket No. 23. 4 5 IT IS SO ORDERED. 6 7 Dated: November 2, 2020 8 9 ______________________________________ EDWARD M. CHEN 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27