United States District Court, N.D. California
April 18, 2003
ACCUIMAGE DIAGNOSTICS CORP., a Nevada corporation, Plaintiff,
TERARECON, INC., a Delaware corporation; Robert Taylor, an individual; Douglas Boyd, an individual; Motoaki Saito, an individual; and Does 1 to 100. inclusive, Defendants.
The opinion of the court was delivered by: MARILYN PATEL, Chief Judge District.
MEMORANDUM & ORDER RE MOTION TO DISMISS
Plaintiff AccuImage Diagnostics Corp. ("AccuImage") brought
this action against defendants TeraRecon, Inc. ("TeraRecon"),
Robert Taylor ("Taylor"), Douglas Boyd ("Boyd"), Motoaki Saito
[260 F. Supp.2d 945]
and others alleging false advertising and trade dress
infringement in violation of the Lanham Act, unfair competition,
common law and statutory misappropriation of trade secrets,
conspiracy, breach of fiduciary duty, breach of contract,
intentional and negligent interference with economic advantage,
and unjust enrichment. Defendants TeraRecon, Boyd and Saito filed
a joint motion to dismiss and defendant Boyd filed a separate
motion to dismiss all claims against him. Now before the court
are defendants' motions to dismiss.
Plaintiff AccuImage and defendant TeraRecon are corporations
engaged in the development of software for the medical imaging
In 1996, AccuImage began developing its AccuView Diagnostic
Imaging Workstation ("AccuView"), which is a computer software
system for the management and post-processing of medical imaging
data from various devices, including CT scans and other imaging
modalities. In 1999, AccuImage received FDA approval for the
Accuview Workstation. AccuView utilizes plug-in software modules
to expand its capabilities to provide advanced processing
functions. One such module developed by AccuImage, the AccuScore
program, enables physicians to analyze and generate reports
detailing the amount of calcium in patients' coronary arteries in
minutes. This capability and AccuScore's comprehensive,
user-configurable report generation and database package
pubportedly gives AccuImage a competitive advantage over other
companies in the medical imaging application business, such as
defendant TeraRecon. The source code for the AccuScore
application, patient database, and report generator is the
intellectual property of AccuImage.
Defendant Taylor worked on the AccuScore program as a
consultant and employee of AccuImage and later became AccuImage's
Chief Executive Officer. In these capacities with AccuImage,
Taylor executed an Employment Agreement, which contained a
"Non-Solicitation and Non-Competition" provision, in addition to
a "Confidentiality, Trade Secrets, and Assignment of Inventions"
provision. In late October 2000, Taylor began having
disagreements with the AccuImage Board of Directors. Although
Taylor resigned from his position as CEO in November 2000, he
asked to remain an AccuImage employee while he began circulating
his resume to other companies because of concerns about his
immigration status. AccuImage complied with Taylor's request and
appointed him Chief Technology Officer pursuant to the terms of a
two-month employment agreement. While still an AccuImage
employee, Taylor allegedly assisted TeraRecon at an industry
trade show in late November 2000.
Defendant Saito is the founder, President, Chief Executive
Officer and Chairman of the Board of TeraRecon. In this capacity,
Saito expressed an interest in hiring Taylor to defendant Boyd,
who plaintiff claims was then both an AccuImage board member and
a major TeraRecon shareholder. When AccuImage expressed concern
to Boyd about Saito's interest in hiring Taylor, Boyd allegedly
assured AccuImage there was no need for concern because TeraRecon
was not going to hire Taylor.
In early 2001, TeraRecon purchased the Real Time Visualization
division of Mitsubishi Electric, whose IiVS workstation performed
medical image processing. Plaintiff claims, however, that the
IiVS workstation had no calcium scoring capabilities whatsoever,
nor did TeraRecon
[260 F. Supp.2d 946]
have such capabilities as of the beginning of 2001.
In February 2001, Taylor resigned his position with AccuImage
and immediately started working for TeraRecon as its Chief
Operating Officer and Executive Vice-President. Plaintiff claims
that when Taylor resigned, Boyd allowed Taylor to keep his
AccuImage laptop computer, which contained highly confidential
and sensitive proprietary and trade secret information. At the
same time, TeraRecon hired away several other key AccuImage
employees who had knowledge and possession of AccuImage's source
code and proprietary information.
Plaintiff claims that less than two months after Taylor's
arrival, TeraRecon publicly demonstrated a new product called the
Aquarius Workstation, which was a renamed version of the IiVS
workstation with a calcium scoring capability. TeraRecon was
granted FDA approval for the Aquarius Workstation in May 2001.
AccuImage claims that TeraRecon's Aquarius workstation utilizes
the source code for the AccuScore software program.
Based on the above conduct, AccuImage alleges that TeraRecon,
Taylor, Saito and Boyd conspired to steal AccuImage's trade
secrets and proprietary information. Beginning in November 2000,
plaintiff claims that defendants created a plan to obtain a
calcium scoring capability because defendants realized that such
capability would improve TeraRecon's sales prospects. AccuImage
also claims that TeraRecon previously expressed an interest in
acquiring AccuImage, but that when this plan did not work out,
Taylor's departure from AccuImage provided defendants with the
opportunity it needed to obtain the calcium scoring capability.
In addition, plaintiff claims that defendants competed unfairly
against AccuImage by making false representations about
AccuImage's products to actual and potential AccuImage customers
around the country. Given TeraRecon's use of the look and feel of
the AccuScore program's reports in its Aquarius workstation,
plaintiff maintains that defendants are intentionally trying to
confuse and win over AccuImage's customers by persuading them to
buy TeraRecon's product instead. Specifically, plaintiff claims
that defendants have intentionally misled existing and potential
AccuImage customers by telling them that AccuImage's products are
not FDA approved.
On October 17, 2002, AccuImage filed a complaint alleging
twelve causes of action against TeraRecon, Taylor, Saito and Boyd
for: 1) false advertising in violation of the Lanham Act; 2)
trade dress infringement in violation of the Lanham Act; 3)
unfair competition; 4) violation of California Business and
Professions Code section 17500; 5) trade secret misappropriation
in violation of California Civil Code section 3426 et seq.; 6)
common law misappropriation; 7) conspiracy; 8) breach of
fiduciary duty; 9) breach of contract; 10) intentional
interference with economic advantage; 11) negligent interference
with economic advantage; and 12) unjust enrichment. Many of
plaintiff's claims are brought against both TeraRecon and against
Saito or Boyd in their capacity as directors, officers or
shareholders of AccuImage and TeraRecon. In the complaint,
AccuImage maintains that the conduct of TeraRecon, Taylor, Saito
and Boyd has and will cause injury to AccuImage in an amount to
be proven at trial, but in excess of $3,000,000.
On December 13, 2002, Boyd filed a motion to dismiss claims
five, six, seven, eight and twelve. On December 20, 2002,
TeraRecon, Taylor and Saito filed a joint motion to dismiss the
following claims: TeraRecon moved to dismiss claims one, two,
six, seven, ten and eleven; Taylor moved to dismiss claims one,
six, seven, ten and
[260 F. Supp.2d 947]
eleven; and Saito moved to dismiss claims four, five, six, seven
I. Motion to Dismiss
A motion to dismiss for failure to state a claim will be denied
unless it appears that the plaintiff can prove no set of facts
which would entitle him or her to relief. Conley v. Gibson,
355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Fidelity Fin.
Corp. v. Fed. Home Loan Bank of S.F., 792 F.2d 1432, 1435 (9th
Cir. 1986), cert. denied, 479 U.S. 1064, 107 S.Ct. 949,
93 L.Ed.2d 998 (1987). All material allegations in the complaint
will be taken as true and construed in the light most favorable
to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898
(9th Cir. 1986); Ascon Props., Inc. v. Mobil Oil Co.,
866 F.2d 1149, 1152 (9th Cir. 1989). Indeed, "[t]he issue is not whether
the plaintiff will ultimately prevail, but whether [the
plaintiff] is entitled to offer evidence to support [the
plaintiff's] claim." Usher v. City of Los Angeles, 828 F.2d 556,
561 (9th Cir. 1987).
Finally, while Rule 8(f) of the Federal Rules of Civil
Procedure requires a liberal reading of complaints, Yamaguchi v.
United States Dept. of the Air Force, 109 F.3d 1475, 1480-81 (9th
Cir. 1997), "conclusory allegations of law and unwarranted
inferences are insufficient to defeat a motion to dismiss for
failure to state a claim." Epstein v. Wash. Energy Co.,
83 F.3d 1136, 1140 (9th Cir. 1996).
Each ground for dismissal will be considered in turn.
I. Claim Seven Conspiracy
As a threshold matter, civil conspiracy is not a separate and
distinct cause of action under California law. Entm't Research
Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228
(9th Cir. 1997), cert. denied, 523 U.S. 1021, 118 S.Ct. 1302,
140 L.Ed.2d 468 (1998). Therefore. the court dismisses claim seven
against all defendants with prejudice because plaintiff cannot
plead conspiracy as an independent cause of action. See id.
While "[c]ivil conspiracy is not a cause of action," it is "a
legal doctrine that imposes liability on persons who, although
not actually committing a tort themselves, share with the
immediate tortfeasors a common plan or design in its
perpetration." Applied Equip. Corp. v. Litton Saudi Arabia Ltd.,
7 Cal.4th 503, 510-511, 28 Cal.Rptr.2d 475, 869 P.2d 454 (1994).
To properly plead a conspiracy cause of action, the plaintiff
must allege "the formation and operation of the conspiracy and
damage resulting to plaintiff from an act or acts done in
furtherance of the common design." Mox, Inc. v. Woods,
202 Cal. 675, 677, 262 P. 302 (1927). Yet "agents and employees of a
corporation cannot conspire with their corporate principal or
employer where they act in their official capacities on behalf of
the corporation and not as individuals for their individual
advantage." Black v. Bank of America, 30 Cal.App.4th 1, 4-5,
35 Cal.Rptr.2d 725 (1994) (internal quotations omitted); Wise v. S.
Pacific Co., 223 Cal.App.2d 50, 72-73, 35 Cal.Rptr. 652 (1963),
overruled on other grounds by Applied Equip., 7 Cal.4th 503,
28 Cal.Rptr.2d 475, 869 P.2d 454 (1994). Specifically, the "agent's
immunity rule" proscribes conspiracy claims between and against
agents and their principals. See Doctors' Co. v. Super. Ct.,
49 Cal.3d 39, 45, 260 Cal.Rptr. 183, 775 P.2d 508 (1989). But the
agent's immunity rule does not apply in cases where directors and
officers of a corporation "directly order[ ], authorize[ ], or
participate[ ] in the tortious conduct." Wyatt v. Union Mortgage
Co., 24 Cal.3d 773, 785, 157 Cal.Rptr. 392, 598 P.2d 45 (1979).
Here, the complaint does not properly put defendants on notice
of the conspiracy claims with which they are charged.
[260 F. Supp.2d 948]
While claim seven erroneously states a claim against all
defendants for civil conspiracy, plaintiff provides only vague
details about the type of conspiracies defendants allegedly
participated in. See Compl. ¶¶ 63-65. To successfully plead
this cause of action, plaintiff must more clearly allege specific
action on the part of each defendant that corresponds to the
elements of a conspiracy cause of action. See Mox, 202 Cal. at
677, 262 P. 302. Such amended allegations, however, must be made
within the sections of the complaint that contain plaintiff's
claims for the underlying torts.
However, plaintiff cannot indiscriminately allege that
conspiracies existed between and among all defendants. Given the
holdings of Black and Wise, plaintiff cannot state a claim
against Saito for conspiring with TeraRecon while he was acting
in his official capacity. See Black, 30 Cal.App.4th at 4-5,
35 Cal.Rptr.2d 725; Wise, 223 Cal.App.2d at 72-73,
35 Cal.Rptr. 652. Plaintiff may, however, amend the complaint to allege
conspiracies between, for example, Boyd and Taylor (after Taylor
left AccuImage) or Saito and Boyd if they acted beyond the scope
of their employment so long as such allegations do not run afoul
of Black and Wise. Plaintiff also cannot allege a conspiracy
involving Taylor to interfere with his AccuImage employment
contract because there is no tort liability against a party to a
contract who breaches or interferes with the contract. See
Applied Equip., 7 Cal.4th at 515, 28 Cal.Rptr.2d 475,
869 P.2d 454 (holding that a stranger to the contract may be liable in
tort for interfering with the contract, but not a party to the
II. Claim One Violation of the Lanham Act section 43(a)
Plaintiff alleges that TeraRecon and Taylor have engaged in
false advertising in violation of section 43(a) of the Lanham
Act. Compl. ¶¶ 36-41. Defendants move to dismiss this claim
because they argue plaintiff did not allege facts with sufficient
particularity to satisfy the elements of the claim.
To state a claim for false advertising under section 43(a) of
the Lanham Act, plaintiff must allege that: (1) defendant made a
false statement of fact in a commercial advertisement or
promotion about its own or another's product; (2) the statement
actually deceived or has the tendency to deceive a substantial
segment of its audience; (3) the deception is material, in that
it is likely to influence the purchasing decision; (4) the
defendant caused its false statement to enter interstate
commerce; and (5) the plaintiff has been or is likely to be
injured as a result of the false statement, either by direct
diversion of sales from itself to defendant or by a lessening of
the goodwill associated with its products. Lanham Act § 43(a)
(codified as amended at 15 U.S.C. § 1125(a)); see also
Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th
The court finds that Taylor is entitled to more specific
allegations of what conduct plaintiff claims is actionable as to
Taylor under section 43(a) of the Lanham Act. The complaint
alleges that defendants misrepresented AccuImage's product when
they "told current and potential AccuImage customers that, among
other things, AccuImage's products are not FDA approved when, in
fact, they are." Compl. ¶ 37. Plaintiff also alleges that
Taylor "made false and misleading representations . . . to actual
and potential AccuImage customers around the country to persuade
them to purchase TeraRecon's . . . products." Compl. ¶ 33.
The complaint does not, however, allege any facts regarding the
location, timing, or content of Taylor's allegedly false
[260 F. Supp.2d 949]
The rest of the false advertising allegations in the complaint
simply mimic the elements of the cause of action and do not plead
sufficient facts. Compl. ¶¶ 37-41. Therefore, the court grants
Taylor's motion to dismiss claim one with leave to amend.
The court also finds that TeraRecon does not have sufficient
notice of the corporation's allegedly actionable conduct under
this claim. Plaintiff uses the language of the statute to plead
this cause of action but does not provide sufficient factual
information about TeraRecon's actionable conduct aside from the
allegation that they misrepresented whether or not AccuImage's
product was FDA approved. See Compl. ¶ 37. As stated above,
plaintiff must make more detailed allegations to satisfy the
elements of the cause of action, such as: the circumstances under
which TeraRecon made false statements, how the statements entered
interstate commerce, and how plaintiff has been or is likely to
be damaged as a result of defendants' false statements.
Accordingly, the court grants TeraRecon's motion to dismiss claim
one with leave to amend.*fn2
III. Claim Two Violation of the Lanham Act section 43(a)
Plaintiff alleges that defendant TeraRecon engaged in trade
dress infringement in violation of section 43(a) of the Lanham
Act. Compl. ¶¶ 42-46. To state a claim for trade dress
infringement, plaintiff must allege: (1) that its claimed trade
dress is inherently distinctive; (2) that its claimed trade dress
is nonfunctional; and (3) that defendant's product creates a
likelihood of consumer confusion. See, e.g., Clicks Billiards,
Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1258 (9th Cir. 2001).
Plaintiff alleges that: 1) its AccuScore program "produces a
calcium scoring and diagnostic report that is that is
proprietary, unique and distinctive in the medical imaging
applications industry"; 2) that the "look and feel of the reports
generated by AccuScore are non-functional"; and 3) that
TeraRecon's report copied the "overall `look and feel' of the
AccuScore report such that the report generated by TeraRecon's
Aquarius workstation is virtually indistinguishable from the
AccuScore report," which "has caused or is likely to cause
customer confusion." Compl. ¶¶ 43-45.
Despite these allegations, the complaint does not sufficiently
put TeraRecon on notice of the trade dress claim alleged. As it
stands now, the complaint does little more than mimic the
language of the statute. To state a claim for trade dress
infringement, plaintiff must plead with specificity how the
AccuScore reports are unique and inherently distinctive.
Plaintiff also has not plead sufficient facts for the court to
determine whether the alleged trade dress is nonfunctional. Thus,
plaintiff must provide more detail about the layout and
appearance of the report to give the court sufficient information
to determine whether
[260 F. Supp.2d 950]
plaintiff's report is eligible for trade dress protection. The
court therefore dismisses claim two with leave to amend.
IV. Claim Five Misappropriation of Trade Secrets
Violation of Civil Code section 3426 et seq.
Plaintiff's fifth claim for relief alleges that all defendants
misappropriated AccuImage's trade secrets in violation of
California Civil Code section 3426 et seq. Compl. ¶¶ 54-57.
Only Boyd and Saito move to dismiss this claim.
To state a cause of action for misappropriation of trade
secrets under the Uniform Trade Secrets Act ("UTSA"), plaintiff
must plead two primary elements: (1) the existence of a trade
secret,*fn3 and (2) misappropriation of the trade secret. See Cal.
Civ. Code § 3426.1(b). Neither defendant challenges
plaintiff's claim that AccuImage's technology constitutes a
"trade secret." Instead, Boyd and Saito challenge plaintiff's
claim on the grounds that their alleged conduct does not
constitute "misappropriation" under the statute.
A. Saito's Motion to Dismiss Claim Five
Saito argues that plaintiff alleged no actionable conduct on
his part aside from expressing an interest in hiring a new
employee and acting in his position as a corporate executive for
A corporate director or officer's status "neither immunizes
[such] person from personal liability for tortious conduct nor
subjects him or her to vicarious liability for such acts."
Frances T. v. Village Green Owners Ass'n., 42 Cal.3d 490, 505,
229 Cal.Rptr. 456, 723 P.2d 573 (1986). However, "[a] corporate
officer or director is, in general, personally liable for all
torts which he authorizes or directs or in which he participates,
notwithstanding that he acted as an agent of the corporation and
not on his own behalf." Coastal Abstract Serv., Inc. v. First Am.
Title Ins. Co., 173 F.3d 725, 734 (9th Cir. 1999) (corporate
officers cannot "hide behind the corporation where [the officer
was] an actual participant in the tort"). But mere knowledge of
tortious conduct by the corporation is not enough to hold a
director or officer liable for the torts of the corporation
absent other "unreasonable participation" in the unlawful conduct
by the individual. See, e.g., PMC, Inc. v. Kadisha,
78 Cal.App.4th 1368, 1389, 93 Cal.Rptr.2d 663 (2000).
Despite plaintiff's allegations that Saito willfully conspired
to misappropriate AccuImage's trade secrets and that he expressed
an interest in hiring Taylor away from AccuImage, the court holds
that plaintiff fails to allege sufficient specific conduct by
Saito to state a claim for statutory trade secret
misappropriation. While plaintiff argues that Saito participated
directly in the tortious conduct, Compl. ¶¶ 21, 31, 33, 34,
nowhere does the complaint sufficiently allege that Saito acted
beyond his capacity as a corporate officer of TeraRecon. If
plaintiff can more clearly allege actionable conduct by Saito
outside the scope of his employment, the court could consider
whether such conduct forms a properly plead misappropriation of
trade secrets claim against him.
Saito also argues that plaintiff's conspiracy to misappropriate
trade secrets claim should be dismissed because of the operation
[260 F. Supp.2d 951]
of the "agent's immunity rule." See Doctors' Co., 49 Cal.3d at
45, 260 Cal.Rptr. 183, 775 P.2d 508 ("agent's immunity rule"
proscribes viability of conspiracy claims between and against
agents and their principals). As stated above, plaintiff cannot
allege that Saito conspired with TeraRecon to misappropriate
AccuImage's trade secrets in his capacity as the President, Chief
Executive Officer and Chairman of the Board of TeraRecon.
Therefore, the court dismisses plaintiff's misappropriation of
trade secrets claim against Saito with leave to amend.
B. Boyd's Motion to Dismiss Claim Five
Boyd presents two arguments in support of his position that
both misappropriation claims should be dismissed against him.
First, Boyd argues that plaintiff has not alleged that Boyd
misappropriated any confidential information. Next, Boyd argues
that the misappropriation claims must fail because plaintiff does
not "allege and prove that the use of disclosure of the trade
secret was unauthorized or nonconsensual."
Both plaintiff and Boyd misstate the elements needed to state a
claim for misappropriation under the UTSA. The UTSA defines
"misappropriation" to include two types of conduct: (1)
acquisition, or (2) disclosure or use.*fn4 See Cal. Civ. Code
§ 3426.1(b). Plaintiff fails to allege that Boyd directly
misappropriated trade secrets. Even if Boyd knew of TeraRecon's
misappropriation of AccuImage's trade secrets and intentionally
allowed Taylor to take his AccuImage laptop with him to his new
employment, Boyd still never acquired, possessed, disclosed or
used AccuImage's trade secrets without express or implied
consent.*fn5 See Cal. Civ. Code § 3426.1(b).
Furthermore, even if the court assumes that Boyd was "one of
TeraRecon's largest shareholders," his status as a shareholder
still does not satisfy either the possession or the disclosure or
use elements of the cause of action. Corporate shareholders are
ordinarily not liable for the torts of the corporation. Wyatt, 24
Cal.3d at 785, 157 Cal.Rptr. 392, 598 P.2d 45. Shareholders may
be held liable when they "specifically direct or authorize the
[260 F. Supp.2d 952]
wrongful acts." Id. While the PMC court held that liability can
be imposed upon "a corporate shareholder . . . who knows or has
reason to know about tortious misappropriation . . . and allows
it to occur," this narrow holding applies to the defendants under
the particular circumstances of the case in their capacity as
directors, officers and shareholders. 78 Cal.App.4th at 1389,
93 Cal.Rptr.2d 663. Therefore, PMC does not support a finding of
liability by Boyd as a corporate shareholder. See id.
While the court does not find that Boyd directly
misappropriated AccuImage's trade secrets, plaintiff alleges that
Boyd conspired to misappropriate trade secrets. Evidence of
involvement in a civil conspiracy does not always require overt
action. Mox, 202 Cal. at 677-678, 262 P. 302. "[T]he major
significance of the conspiracy lies in the fact that it renders
each participant in the wrongful act responsible as a joint
tortfeasor for all damages ensuing from the wrong, irrespective
of whether or not he was a direct actor and regardless of the
degree of his activity." Id. Rather, participation in a civil
conspiracy can be inferred from circumstantial evidence of
defendant's conduct. Dimidowich v. Bell & Howell,
803 F.2d 1473, 1479 (9th Cir. 1986). An alleged conspirator's "requisite
concurrence and knowledge may be inferred from the nature of the
acts done, the relation of the parties, the interests of the
alleged conspirators, and other circumstances." Wyatt, 24 Cal.3d
at 785, 157 Cal.Rptr. 392, 598 P.2d 45 (internal quotations
Boyd cannot persuasively argue that plaintiff's conspiracy
claim against him is groundless. First, the underlying tort of
statutory misappropriation is still alleged against TeraRecon and
Taylor. Second, plaintiff pleads facts that sufficiently
implicate Boyd in an agreement to misappropriate AccuImage's
intellectual property. Finally, even if Boyd did not overtly
commit the alleged wrongful acts, he can be liable as a
coconspirator for misappropriation if he entered the agreement
and he allowed Taylor to keep his laptop and begin new employment
with TeraRecon. From this circumstantial conduct, Boyd's
involvement in the conspiracy can be inferred. See Dimidowich,
803 F.2d at 1479. The court therefore denies Boyd's motion to
dismiss plaintiff's fifth claim for relief.
V. Claim Six Common Law Misappropriation
Plaintiff alleges a claim for common law misappropriation based
on an allegation that all defendants misappropriated AccuImage's
"proprietary information and trade secrets." Compl. ¶¶ 58-61.
The court will address TeraRecon and Taylor's argument that this
common law cause of action is preempted by California's enactment
of the UTSA in 1985.
First, the court examines whether California case law resolves
the preemption issue. Plaintiff states that no California case
has ever held that common law misappropriation of trade secret
causes of action are preempted by the UTSA. To support its
position that common law misappropriation claims are not
preempted, plaintiff cites one case where a lower court's
issuance of an injunction prohibiting disclosure of trade secrets
on both common law and UTSA misappropriation of trade secrets
claims was upheld. See Fleishman v.Super. Ct.,
102 Cal.App.4th 350, 358, 125 Cal.Rptr.2d 383 (2002) (malicious prosecution
case where preemption issue not raised). Defendants argue that this
case is irrelevant and cannot be relied on as precedent to find
that the UTSA does not preempt common law misappropriation
claims. The court finds no case where both common law and UTSA
misappropriation of trade secrets claims were upheld based on
conduct occurring after the 1985 enactment of
[260 F. Supp.2d 953]
the UTSA. Thus, it appears that whether the UTSA preempts common
law misappropriation of trade secrets claims is an open question
Second, the court turns to concepts of statutory interpretation
to determine whether the UTSA preempts common law
misappropriation of trade secrets claims. The parties argue that
the language of the UTSA resolves the issue. Section 3426.7 of
the UTSA provides: "[e]xcept as otherwise expressly provided,
this title does not supersede any statute relating to
misappropriation of a trade secret, or any statute otherwise
regulating trade secrets." Cal. Civ. Code § 3426.7. The
provision also states that contractual remedies, whether based on
misappropriation of a trade secret or not, are not affected by
the title nor are other civil remedies [e.g., common law] that
are not based upon misappropriation of a trade secret. Id.
Defendants argue that this language preempts plaintiff's
noncontractual and nonstatutory trade secret tort claims for
common law misappropriation. Plaintiff argues that section 3426.7
is ambiguous and that the word "preemption" appears nowhere in
the text of the statute.
Only if the legislature enacts a statute intending to "cover
the entire subject or . . . to occupy the field" does a statute
supersede the common law. I.E. Assocs. v. Safeco Title Ins. Co.,
39 Cal.3d 281, 285, 216 Cal.Rptr. 438, 702 P.2d 596 (1985)
(stating that the general rule is that statutes do not supersede
the common law). More specifically, the enactment of "general and
comprehensive legislation, where course of conduct, parties,
things affected, limitations and exceptions are minutely
described, indicates a legislative intent that the statute should
totally supersede and replace common law dealing with the subject
Here, the eleven provisions of the UTSA set forth: the
definition of "misappropriation" and "trade secret," injunctive
relief for actual or threatened misappropriation, damages,
attorney fees, methods for preserving the secrecy of trade
secrets, the limitations period, the effect of the title on other
statutes or remedies, statutory construction, severability, the
application of title to acts occurring prior to the statutory
date, and the application of official proceedings privilege to
disclosure of trade secret information. Cal. Civ. Code
§§ 3426.1-3426.11. The comprehensive structure and breadth of
the UTSA provides strong evidence of legislative intent to
supersede claims for common law misappropriation after the
enactment of the UTSA. See also 3 Matthew Bender, California
Torts § 40.50[a] (2002) ("With respect to trade secret
misappropriations occurring after January 1, 1985, it is clear
that the UTSA supercedes the common law in the areas where the
UTSA has specific provisions.").
Furthermore, in indicating what statutes and other remedies are
superseded, section 3426.7 of the California Civil Code provides
that the UTSA does not supersede . . . (2) other civil
[nonstatutory] remedies that are not based upon misappropriation
of a trade secret. . . . The implication is that common law
remedies based on misappropriation of trade secrets are
California courts, however, have been more opaque, even
equivocal at times. See, e.g., Fleishman v. Superior Court, 102
Cal.App.4th at 358, 125 Cal.Rptr.2d 383 (accepting trial court's
conclusion of probability of prevailing on the merits on the
statutory and common law misappropriation of trade secrets);
Vacco Industries, Inc. v. Van Den Berg, 5 Cal.App.4th 34, 51 n.
17, 6 Cal.Rptr.2d 602 (1992)(noting absence of conflict between
UTSA and common law but if there were the Act would control);
American Credit Indemnity Co.
[260 F. Supp.2d 954]
v. Sacks, 213 Cal.App.3d 622, 632, 262 Cal.Rptr. 92
(1989)(applying UTSA to post1985 conduct but offering that under
the UTSA or common law the customer list was a trade secret).
The California Supreme Court's most recent pronouncement on the
UTSA addressed the issue of continuing misappropriation spanning
the effective date of the Act. The Court noted, in keeping with
the language of section 3426.10, that if a misappropriation
occurred before the effective date of the Act, but occurred again
after the effective date "the claim must be divided in two . . .
one common law claim and one UTSA claim" respectively. Cadence
Design Systems, Inc. v. Avant! Corp., 29 Cal.4th 215, 224,
127 Cal.Rptr.2d 169, 57 P.3d 647 (2002). Certainly the strong
suggestion here is that a common law claim does not survive after
the UTSA. This is the most recent decision under the UTSA by
either the California Supreme Court or by any of its intermediate
courts of appeal.
The language of Cadence Design and the absence of other clear
California authority, taken together with persuasive decisions of
district courts from other states that have enacted similar
versions of the UTSA finding that common law misappropriation
claims are preempted in their jurisdictions,*fn6 persuades this
court that the UTSA occupies the field in California. Plaintiff's
common law misappropriation of trade secrets claim is therefore
deemed superseded because the conduct at issue occurred after the
enactment of the UTSA. Accordingly, plaintiff's sixth claim for
relief is dismissed as to all defendants with prejudice.
VI. Claim Four Unfair Competition
Plaintiff alleges that all defendants except Boyd have engaged
in unfair competition. Compl. ¶¶ 50-53. Only Saito moves to
dismiss on grounds that the complaint does not state a claim
against him for unfair competition.
California Business & Professions Code prohibits "any
unlawful, unfair or fraudulent business act or practice." Cal.
Bus. & Prof. Code § 17200; Cel-Tech Communications Inc. v.
Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 180,
83 Cal.Rptr.2d 548, 973 P.2d 527 (1999). Because section 17200 is
written in the disjunctive, it contemplates three distinct
categories of unfair competition. Cel-Tech, 20 Cal.4th at 180,
83 Cal.Rptr.2d 548, 973 P.2d 527 (conduct must be unlawful, unfair,
or fraudulent to be actionable under section 17200); AICCO, Inc.
v. Ins. Co. of N. Am., 90 Cal.App.4th 579, 587,
109 Cal.Rptr.2d 359 (2001). Although "the unfair competition law's scope is
sweeping, it is not unlimited." Cel-Tech, 20 Cal.4th at 182,
83 Cal.Rptr.2d 548, 973 P.2d 527.
The complaint alleges that the relevant actionable conduct by
defendants was unlawful. While section 17200 has broad
application, AICCO, 90 Cal.App.4th at 587, 109 Cal.Rptr.2d 359
("Virtually any federal, state, or local law can serve as a
predicate for a § 17200 claim"), its scope is restricted to
violations of law, not contract. Indeed, the unlawful practices
barred by the section include "any practices forbidden by law, be
it civil or criminal, federal, state, or municipal, statutory,
regulatory, or court-made." Saunders v. Super. Ct.,
27 Cal.App.4th 832, 838-39, 33 Cal.Rptr.2d 438 (2d Dist. 1994).
[260 F. Supp.2d 955]
makes one such allegation against Saito for violation of the
As stated above in section IV(A), plaintiff fails to allege any
specific unlawful conduct on the part of Saito. Plaintiff's
allegation that "defendants TeraRecon, Saito, Boyd and Taylor
have engaged in a combination, plan, conspiracy and concerted
course of action to steal AccuImage's trade secrets and
proprietary information" and that "Saito . . . knowingly and
willfully conspired and agreed with Taylor, and the other
employees it hired away from AccuImage to breach their agreements
with AccuImage," Compl. ¶¶ 25, 64, do not sufficiently plead
actionable conduct by Saito for unfair competition.
Saito also argues that plaintiff's conspiracy to engage in
unfair competition claim should be dismissed because of the
operation of the "agent's immunity rule." See Doctors' Co., 49
Cal.3d at 45, 260 Cal.Rptr. 183, 775 P.2d 508. It appears to be
an open question in California whether the agent's immunity rule
applies to Business & Professions Code section 17200 unfair
competition claims. Indeed, no California case has addressed this
issue directly. Assuming that the agent's immunity rule does
apply to section 17200 causes of action, plaintiff would have to
allege that Saito acted beyond the scope of his employment to
bring a claim for conspiring with his corporate principal. See
Black, 30 Cal.App.4th at 6, 35 Cal.Rptr.2d 725. Although the
complaint alleges that Saito is the founder, President, Chief
Executive Officer and Chairman of the Board of TeraRecon and that
he engaged in the conduct detailed above, plaintiff nowhere
alleges that Saito acted outside the scope of his authority as an
officer of TeraRecon.
Given the lack of specific unlawful conduct alleged against
Saito and without reaching the issue of whether the agent's
immunity rule definitively applies to section 17200, the court
dismisses claim four with leave to amend. The viability of a
claim against Saito for conspiracy to engage in unfair
competition will turn on what if any additional facts plaintiff
VII. Claim Eight Breach of Fiduciary Duty
Plaintiff alleges breach of fiduciary duty against Boyd and
Taylor. Compl. ¶¶ 67-71. Only Boyd moves to dismiss this
To state a claim for breach of fiduciary duty, plaintiff must
allege: 1) the existence of a fiduciary relationship; 2) its
breach; and 3) damage proximately caused by that breach. See,
e.g., Pierce v. Lyman, 1 Cal.App.4th 1093, 1101,
3 Cal.Rptr.2d 236 (1991), superseded by statute on other grounds by
Pavicich v. Santucci, 85 Cal.App.4th 382, 102 Cal.Rptr.2d 125 (2000).
"A fiduciary or confidential relationship can arise when confidence
is reposed by persons in the integrity of others, and if the
latter voluntarily accepts or assumes to accept the confidence,
he or she may not act so as to take advantage of the other's
interest without that person's knowledge or consent." Id. at
1101-02, 3 Cal.Rptr.2d 236.
Plaintiff alleges that until March 2001, Boyd was a member of
the Board of Directors of AccuImage. Compl. ¶ 5. As a board
member, Boyd clearly owed a fiduciary duty to plaintiff
AccuImage. See Cal. Corp. Code § 309; Frances T., 42 Cal.3d at
506 n. 13, 229 Cal.Rptr. 456, 723 P.2d 573. Plaintiff alleges
that during Boyd's time as an AccuImage board member, he knew of
a scheme to misappropriate AccuImage's intellectual property and
to allow Taylor to keep his AccuImage laptop when moving to his
new employment at TeraRecon. Given these facts, plaintiff
successfully states a claim for breach of fiduciary duty and
[260 F. Supp.2d 956]
damages against Boyd. Therefore, the court denies Boyd's motion
to dismiss claim eight.
VIII. Claim Ten Intentional Interference with Economic
TeraRecon and Taylor move to dismiss plaintiff's tenth cause of
action for intentional interference with economic advantage.
While the tenth claim for relief as set forth in the complaint is
labeled "Intentional Interference with Economic Advantage," the
body of the claim states causes of action for two separate torts:
intentional interference with contractual relations and
intentional interference with prospective economic advantage.
Compl. ¶¶ 76-81. In the interest of addressing all issues
raised by the parties' papers, the court will address both of
plaintiff's intentional interference claims.
A. Plaintiff's Intentional Interference with Contractual
To plead an interference with contractual relations claim,
plaintiff must allege: 1) the existence of a valid contract
between plaintiff and a third party; 2) the defendant's knowledge
of the contract; 3) the defendant's intentional acts designed to
induce a breach or disruption of the contractual relationship; 4)
actual breach or disruption of the contractual relationship; and
5) resulting damage. Quelimane Co. v. Stewart Title,
19 Cal.4th 26, 55, 77 Cal.Rptr.2d 709, 960 P.2d 513 (1998) (holding
"wrongfulness" is not an additional element in an interference
with contract claim).
Plaintiff makes conclusory allegations that valid "contracts"
exist between itself and an unspecified third party. See Compl.
¶ 77. Absent notice to the defendants of some facts
surrounding the type or nature of the "contracts" their conduct
allegedly interfered with, the court must dismiss this claim with
leave to amend.
B. Plaintiff's Intentional Interference with Economic Advantage
To state a claim for intentional interference with economic
advantage, plaintiff must allege: 1) an existing economic
relationship or one "containing the probability of future
economic benefit"; 2) knowledge by the defendant of the
relationship; 3) acts by defendant designed to disrupt the
relationship; 4) actual disruption of the relationship; 5)
damages proximately caused by the acts of the defendant. Della
Penna v. Toyota Motor Sales, U.S.A., 11 Cal.4th 376, 380 n. 1
& 392-93, 45 Cal.Rptr.2d 436, 902 P.2d 740 (1995).
Significantly, the act must be "wrongful by some legal measure
other than the fact of interference itself." Id. at 393,
45 Cal.Rptr.2d 436, 902 P.2d 740. Thus, it is "plaintiff['s] burden to
prove, as an element of the cause of action itself, that the
defendant['s] conduct was independently wrongful." Bed, Bath
& Beyond of La Jolla, Inc. v. La Jolla Vill. Square Venture
Partners, 52 Cal.App.4th 867, 881, 60 Cal.Rptr.2d 830 (1997).*fn7
Again, the court finds that plaintiff makes conclusory
allegations that economic relationships between plaintiff and
another exist that "contain[ ] a probable
[260 F. Supp.2d 957]
future economic benefit or advantage to the plaintiff." See id.
at 380 n. 1, 45 Cal.Rptr.2d 436, 902 P.2d 740. "[A]n essential
element of the tort of interference with prospective business
advantage is the existence of a business relationship with which
the tortfeasor interfered. Although this need not be a
contractual relationship, an existing relationship is required."
Roth v. Rhodes, 25 Cal.App.4th 530, 546, 30 Cal.Rptr.2d 706
(1994) (holding that motion for judgment on the pleadings was
properly granted because plaintiff alleged an existing
relationship only with speculative "future patients"). Similarly
here, the complaint alleges no specific existing or prospective
relationships and relies on conclusory language that merely
repeat the elements of the tort. Such vague allegations do not
satisfy federal pleading requirements because defendants are not
on notice of which relationships they allegedly disrupted. See
Conley, 355 U.S. at 45-46, 78 S.Ct. 99.
Furthermore, plaintiff fails to allege wrongful conduct on
behalf of defendants to satisfy the elements of the tort. Given
the court's dismissal of plaintiff's Lanham Act claim for false
advertising with leave to amend, plaintiff has not demonstrated
that defendants were engaging in wrongful conduct. To
successfully bring this claim, plaintiff must allege specific
wrongful acts that defendant committed that gave rise to the
interference with plaintiff's alleged economic relationships.
Therefore, the court grants defendants' motion to dismiss claim
ten with leave to amend.
IX. Claim Eleven Negligent Interference with Economic
Plaintiff brings a cause of action for negligent interference
with economic advantage against TeraRecon and Taylor. Both
defendants move to dismiss this claim. To state a claim for
negligent interference with economic advantage, plaintiff must
allege defendant owed plaintiff a duty of care in addition to the
elements required to state a cause of action for intentional
interference with economic advantage. J'Aire Corp. v. Gregory,
24 Cal.3d 799, 803-04, 157 Cal.Rptr. 407, 598 P.2d 60 (1979).
As stated above, plaintiff fails to satisfy the underlying
elements of an interference with economic advantage claim.
Plaintiff also fails to allege that either TeraRecon or Taylor
owed a duty to plaintiff that would invoke this kind of tort
claim. Plaintiff claims that TeraRecon has a duty to AccuImage
because the two companies compete against each other and
competitors generally have a duty not to engage in unfair
competition. See PMC, 78 Cal.App.4th at 1381, 93 Cal.Rptr.2d 663.
Defendants, on the other hand, argue that California law extends
a qualified privilege to compete in business dealings because the
law favors free competition. See A-Mark Coin Co. v. General
Mills, Inc., 148 Cal.App.3d 312, 323, 195 Cal.Rptr. 859 (1983).
The court does not find that a duty of care exists between
TeraRecon and AccuImage as competitors.
Plaintiff also alleges that Taylor owed a duty to plaintiff in
support of its negligent interference with economic advantage
claim. See J'Aire, 24 Cal.3d at 804, 157 Cal.Rptr. 407,
598 P.2d 60. The complaint alleges that Taylor entered into an employment
agreement with plaintiff and signed confidentiality provisions
that created contractual obligations between Taylor and
AccuImage. Compl. ¶¶ 17-19, 24. Thus, plaintiff's proper
remedy against Taylor is for breach of fiduciary duty and breach
of contract, both claims that Taylor does not move to dismiss.
See Compl. ¶¶ 67-71, 72-75. While a duty of care may be
created by statute or contract, allowing plaintiff to recover on
both tort and contract theories of liability because of Taylor's
alleged conduct before and after
[260 F. Supp.2d 958]
terminating his employment with plaintiff would be improper. See
J'Aire, 24 Cal.3d at 803, 157 Cal.Rptr. 407, 598 P.2d 60.
Finally, the court fails to understand what aspects of
defendants' alleged conduct was negligent. The complaint is rife
with allegations of intentional, not negligent, conduct. Thus,
the court believes that a jury could not find that defendants
negligently interfered with plaintiff's economic relationships.
For the reasons stated above and in the absence of allegations of
negligent conduct, the court dismisses claim eleven with leave to
X. Claim Twelve Unjust Enrichment
Plaintiff alleges that all defendants have "received revenues
and saved costs which they would not otherwise have received and
saved" but for the misuse of AccuImage's trade secrets or
proprietary information. Compl. ¶¶ 87-91. Only Saito and Boyd
move to dismiss this claim.
To state a claim for unjust enrichment, plaintiff must allege:
1) receipt of a benefit, and 2) unjust retention of the benefit
at the expense of another. Lectrodryer v. SeoulBank,
77 Cal.App.4th 723, 726, 91 Cal.Rptr.2d 881 (2000). California
courts interpret the term "benefit" to "denote any form of
advantage." See, e.g., Ghirardo v. Antonioli, 14 Cal.4th 39, 51,
57 Cal.Rptr.2d 687, 924 P.2d 996 (1996). But for a benefit to be
conferred, it is "not essential that money be paid directly to
the recipient by the party seeking restitution." Cal. Fed. Bank
v. Matreyek, 8 Cal.App.4th 125, 132, 10 Cal.Rptr.2d 58 (1992).
However, to state a claim upon which relief can be granted,
plaintiff must allege that Saito and Boyd actually received a
benefit at plaintiff's expense.
A. Saito's Motion to Dismiss Claimn Twelve
Plaintiff fails to allege sufficient facts to support an unjust
enrichment claim against Saito. The allegation that Saito
received a benefit because of his position either as an officer
or shareholder of TeraRecon does not satisfy pleading
requirements. Furthermore, the additional facts that plaintiff
includes in its opposition, such as the allegation that "[a]ny
benefit to TeraRecon's bottom line as a result of defendants'
tortious activity will surely inure to Saito's individual
benefit," do not state a valid claim because plaintiff fails to
allege any specific facts regarding the amount of benefit that
Saito received or any detail of the circumstances surrounding
Saito's actual receipt of the benefit.
Similarly, plaintiff's sweeping allegation that Saito as a
TeraRecon shareholder received a benefit because of his alleged
ownership interest in the corporation fails to state a claim for
unjust enrichment. Therefore, the court dismisses claim twelve as
to Saito with leave to amend.
B. Boyd's Motion to Dismiss Claim Twelve
Plaintiff's allegation that Boyd was unjustly enriched in his
position as a TeraRecon shareholder and as a member of
AccuImage's Board of Directors also fails to meet pleading
requirements. Even if the court assumes that Boyd was "one of
TeraRecon's largest shareholders," plaintiff fails to allege
facts establishing that Boyd received a benefit from the alleged
wrongful conduct. Indeed, plaintiff does not allege that Boyd
sold his stock holdings or personally received a benefit at
plaintiff's expense. Nor does plaintiff explain why the court
should hold both TeraRecon and its shareholders liable for the
benefit the defendant corporation allegedly received by
misappropriating plaintiff's trade secrets. If TeraRecon is
eventually forced to disgorge the unjust benefit the corporation
received, any benefit that
[260 F. Supp.2d 959]
Boyd as a shareholder received would also then return to
plaintiff. The court finds that plaintiff fails to demonstrate
Boyd was unjustly enriched at the expense of AccuImage. Boyd's
motion to dismiss claim twelve is granted with leave to amend.
The court would have been less rigorous in the disposition of
these claims had plaintiff been more selective in its pleadings.
Defendants simply do not have sufficient notice of the basis for
many of the claims against them. Contrary to plaintiff's view,
the court holds that discovery is not the appropriate time to
ascertain whether such fundamental facts indeed exist.
For the foregoing reasons, the court: 1) GRANTS with prejudice
defendants' motions to dismiss claim six and claim seven against
all defendants; 2) GRANTS with leave to amend defendants' motions
to dismiss claim one against TeraRecon and Taylor, claim two
against TeraRecon, claim four against Saito, claim five against
Saito, claim ten against TeraRecon and Taylor, claim eleven
against TeraRecon and Taylor, and claim twelve against Boyd and
Saito; and 3) DENIES defendants' motions to dismiss claim five
against Boyd, and claim eight against Boyd.
IT IS SO ORDERED.