United States District Court, N.D. California
November 23, 2005.
DIEGO MORCOTE, Plaintiff(s),
ORACLE CORPORATION, ET AL., Defendant(s).
The opinion of the court was delivered by: JOSEPH SPERO, Magistrate Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO
DISMISS [Docket No. 17]
On Friday, November 18, 2005, at 9:30 a.m., Defendants' Motion
to Dismiss (the "Motion") came on for hearing. For the reasons
stated below, the Motion is GRANTED in part and DENIED in part.
Defendant Oracle is a Delaware corporation with its principle
place of business in Redwood Shores, California. First Amended
Complaint("FAC"), ¶ 9. Defendant Juana Schurman is a resident of
San Francisco and at all relevant times was a Vice President and
Associate General Counsel to Oracle. FAC, ¶ 10. Morcote is a
Florida resident and was employed by Oracle for seven years as a
technical manager. FAC, ¶¶ 8, 11.
In 2003, Morcote began performing work for Oracle at the
Cincinnati Public Schools ("CPS"), under the supervision of
Oracle manager Frank Carchedi. FAC, ¶ 12. Morcote alleges that
Carchedi discriminated against him on the basis of race and that
on May 6, 2004, he was constructively discharged by Oracle. FAC,
¶¶ 13-20. Following his termination, Morcote continued to work at CPS on
behalf of another employer. FAC, ¶ 20. He alleges that during the
spring of 2004, various Oracle employees, including Carchedi,
threatened him that Oracle would initiate legal action against
him for his work at CPS following his departure from Oracle on
the basis that it violated the Proprietary Information Agreement
("PIA") Morcote had entered into with Oracle. FAC, ¶¶ 23. The PIA
is attached to the First Amended Complaint and contains the
following non-compete provisions:
I acknowledge that as a result of my Oracle
employment, I may develop, receive or otherwise have
access to confidential or proprietary information
which is of value to Oracle. I therefore agree, as a
condition of employment, to abide by the following
terms and conditions:
. . .
5. I will not during my Oracle employment and for a
period of six months after the termination of my
Oracle employment, directly or indirectly, whether
through a third party or otherwise, invite or
otherwise encourage any Oracle employee to accept an
employment or independent contractor or other
business relationship with an employer or entity or
person other than Oracle.
. . .
8. I will not, for a period of six months after the
termination of my Oracle employment, for my own
account, or for the account of any other person or
entity, solicit, call on or provide competing
services for any of Oracle's customers or clients or
prospective customers or clients if I have solicited,
called on or performed services for that Oracle
customer or client or prospective customer or client
during the twelve months preceding my termination
FAC, Ex. B. The PIA also contains a forum selection clause that
provides as follows:
I agree that any legal action or proceeding involving
Oracle which is in any way connected with this
agreement may be instituted in any state or federal
court located in San Francisco or San Mateo County,
California. I agree to submit to the jurisdiction of,
and agree that venue is proper in, the aforesaid
courts in any such legal action or proceeding.
On May 18, 2004, Oracle Vice President and General Counsel
Juana Schurman sent a letter to Morcote to "remind [him] of [his]
continuing obligations to Oracle" under the PIA. FAC, Ex. D. In
the letter, she states, in part, as follows: It has come to our attention that you will be
providing consulting services to Cincinnati Public
Schools on behalf of your new employer. This causes
us concern because you also provided consulting
services to Cincinnati Public Schools while you were
employed by Oracle. You are contractually obligated
not to engage in such employment. Oracle expects that
you will abide by your contractual obligations and
refrain from any further improper conduct in relation
to Oracle clients.
Violations of your agreement with Oracle may give
rise to legal claims being made against you for
causes of action including, but not limited to,
breach of contract, misappropriation of trade
secrets, unfair competition and interference with
prospective business advantage. Such legal claims, if
successful, could force you to disgorge any profits
that you may gain as a result of any improper action
you took and could result in the award of other
damages to Oracle.
Please also note that Paragraph 5 of your Proprietary
Information Agreement provides that for six months
following the termination of you Oracle employment
you are not allowed to recruit or hire any Oracle
employee without Oracle's written consent.
Additionally, you forever are prohibited from using
or disclosing Oracle confidential information to
Oracle's disadvantage. Confidential details of
internal employee structure and assignment, employee
compensation and employee capabilities, duties and
skills, all of which you had access to during your
employment at Oracle, are considered trade secrets
and may not be used by you. As Oracle's employees are
among its most important assets, we take this
covenant seriously and will enforce it to the extent
B. Procedural Background
On January 26, 2005, Morcote filed the complaint in this
action, asserting seven claims: 1) Unfair Competition; 2)
Intentional Interference with Prospective Economic Advantage; 3)
Negligent Interference with Prospective Economic Advantage; 4)
Intentional Interference with Contractual Relations; 5)
Intentional Infliction of Emotional Distress; 6) Negligent
Infliction of Emotional Distress; and 7) Declaratory Relief.
Morcote's seventh claim seeks a declaration that: 1) California
law governs the PIA; and 2) the non-compete clauses of the PIA
are therefore invalid. Morcote named as Defendants both Oracle
Corporation and Juana Schurman.
Morcote's First Amended Complaint includes six additional
claims: 8) Constructive Discharge in Violation of Public Policy
Under California Law; 9) Constructive Discharge in Violation of
Public Policy Under Florida Law; 10) Constructive Discharge Under
Federal Law (42 U.S.C. § 1981, et. seq. and 42 U.S.C. § 2000e,
et. seq.); 11) Discrimination in Employment in Violation of
42 U.S.C. § 1981, et. seq.; 12) Discrimination in Employment in
Violation of 42 U.S.C. § 2000e, et. seq.; and 13)
Discrimination in Employment in Violation of Florida Civil Rights Act of 1992
(F.S.A. § 760.01, et. seq.).
C. The Motion
In the Motion, Oracle asks the Court to dismiss all claims
against Juana Schurman and to dismiss the unfair competition and
declaratory relief claims, Claims One and Seven, respectively, in
their entirety. Oracle argues that Schurman cannot be
individually liable as to Morcote's unfair competition and
declaratory relief claims (Claims One and Seven), the tortious
interference claims (Claims Two, Three, and Four), or the
discrimination claims (Claims Eight through Thirteen) because the
only act she was alleged to have taken sending the May 18, 2004
letter to Morcote was taken by Schurman on behalf of and as an
agent of Oracle. In addition, Oracle argues that the claims for
negligent and intentional infliction of emotional distress
(Claims Five and Six) must be dismissed because no outrageous
conduct is alleged in the complaint.
Oracle asserts that Morcote's unfair competition claim (Claim
One) fails as to all Defendants because he has alleged no
damages. Oracle argues that Claim Seven (seeking a declaration
that California law applies and the non-compete provisions of the
PIA are invalid) fails for two reasons: 1) the claim is moot
because the non-compete provisions expired six months after
Morcote's termination and before he filed the complaint in this
action; and 2) the agreement is governed by Florida law, under
which such non-compete provisions are valid.
In his Opposition, Morcote concedes that Claim One fails to
state a claim as to any Defendant. Morcote also concedes that
Claims Eight through Thirteen (the discrimination claims) and
Claim Five (intentional infliction of emotional distress) fail to
state a claim against Juana Shurman. Morcote argues that the
remaining claims against Juana Schurman Claims Two, Three, Four
(the tortious interference claims), and Claim Six (negligent
infliction of emotional distress) state claims for relief
against Schurman. In particular, Morcote asserts that such claims
may be asserted against a managerial employee who has engaged in
wrongful conduct and further, that he has alleged wrongful
conduct, namely, a threat to enforce an invalid non-compete
agreement. Morcote also notes that as to Claim Six, for negligent
infliction of emotional distress, there is no requirement of
outrageous conduct and therefore, Oracle's motion fails as to
that claim because it fails to articulate any other basis for
dismissal. With respect to Claim Seven, for declaratory relief, Morcote
asserts that dismissal under Rule 12(b)(6) is improper for
several reasons. First, Morcote rejects the assertion that the
claim is moot, arguing that Oracle could still sue him under the
non-compete provision for his employment with CPS in the six
months following his termination. Morcote further asserts the
claim is not moot because the questions Morcote asks the Court to
determine the applicable law and whether the non-compete
agreement is valid will serve as a predicate for determining
liability as to Morcote's other claims. Second, Morcote asserts
that California law, not Florida law, governs the PIA and under
California law, it is undisputed the non-compete provisions are
invalid. Even if the Court does not conclude that California law
applies, Morcote asserts, there is, at minimum, a fact question
regarding choice of law that precludes dismissal of this claim.
In its Reply, Oracle reiterates its arguments that Schurman
cannot be sued for tortious interference. With respect to the
claim for negligent infliction of emotional distress, Oracle
asserts, for the first time, that this claim fails because the
alleged conduct was intentional rather than negligent. As to
Claim Seven, Oracle again asserts that the claim is moot and that
in any event, the non-compete agreement is valid because Florida
law must be applied.
A. Legal Standard
Dismissal is appropriate under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon which relief may be
granted. Fed.R.Civ.P. 12(b)(6). A plaintiff can fail to state
a claim by either failing to present a cognizable legal theory or
failing to plead sufficient facts to support such a theory.
Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th
Cir. 1984); Balistreri v. Pacifica Police Dep't, 901 F.2d 696,
699 (9th Cir. 1990). In deciding a Rule 12(b)(6) motion, a court
must construe the complaint in the light most favorable to the
plaintiff. Cahill v. Liberty Mut. Ins. Co. 80 F.3d 336, 337-38
(9th Cir. 1996). A court should not dismiss a claim "unless it
appears beyond doubt that the plaintiff can prove no set of facts
in support of his claim which would entitle him to relief."
Conley v. Gibson, 355 U.S. 41, 45-46 (1957). A court should
grant leave to amend, even if not requested, unless the defects
in the pleading cannot possibly be cured by allegation of other
facts. Lopez v. Smith, 203 F.3d 1222, 1130 (9th Cir. 2000)
(citing Doe v. United States, 58 F.3d 494, 497 (9th Cir.
1995)). B. Claim Seven (Declaratory Relief)
Defendants assert that Morcote's claim for declaratory relief
fails for two reasons. First, Defendants argue that the claim is
moot because the non-compete provision of the PIA expired six
months after Morcote's termination, in November 2004, and Morcote
did not bring this action until January 2005. Second, Defendants
assert that even if the claim is not moot, it fails because, as a
matter of law, Florida law rather than California law applies,
and under Florida law, the non-compete provision in the PIA is
valid.*fn1 The Court concludes the claim is moot and
therefore does not reach the second issue.
The Declaratory Judgment Act provides that:
In a case of actual controversy within its
jurisdiction . . . any court of the United States,
upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any
interested party seeking such declaration, whether or
not further relief is or could be sought.
28 U.S.C. § 2201. The purpose of the act is to "avoid accrual of
avoidable damages to one not certain of his rights and to afford
him an early adjudication, without waiting until an adversary
should see fit to begin suit, after damage had accrued."
Cunningham Bros., Inc. v. Bail, 407 F.2d 1165
, 1167 (7th Cir.),
cert. denied, 395 U.S. 959
(1969). An "actual controversy"
exists when there is a "substantial controversy, between parties
having adverse legal interests, of sufficient immediacy and
reality to warrant the issuance of a declaratory judgment."
Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273
(1941). "[T]he requisite case or controversy is absent where a
plaintiff no longer wishes or is no longer able to engage in
the activity concerning which it is seeking declaratory relief."
Gator.com Corp. v. L.L. Bean, Inc., 398 F.3d 1125
, 1129 (9th
Cir. 2005). Where there is no actual controversy, the court is
required to dismiss the action as moot. Allard v. DeLorean,
884 F.2d 464
, 466 (9th Cir. 1989).
Here, Oracle asserts that because the six month non-compete
provision in the PIA has already expired, there can be no case or
controversy. Morcote, on the other hand, argues that there is an
actual controversy because he could still be sued for his past
work at CPS, while the non-compete provision was still in effect.
Morcote is correct that Oracle could still assert a claim for
violation of the PIA, given that the applicable statutes of
limitations is either four years (under California law) or five
years (under Florida law). Nonetheless, the Court concludes the possibility that Oracle may
sue him under the PIA for past conduct is not sufficient to
create an actual controversy where there is no possibility that
any further damages can accrue under the PIA in light of the fact
that it has expired. As stated above, the purpose of the
Declaratory Judgment Act is to "avoid the accrual of avoidable
damages" by allowing a potential defendant to bring an action
clarifying the rights and obligations of the parties earlier
rather than later. Cunningham Bros., Inc., 407 F.2d at 1167.
The mere possibility that a declaratory judgment plaintiff might
be sued for damages that have already accrued has been deemed
insufficient to create an actual controversy. See Gladwell
Governmental Servs. v. County of Marin, 2005 WL 2656964 (N.D.
Cal.) (citing Calderon v. Ashmus, 523 U.S. 740, 746-747 (1998)
for proposition that "there is no case or controversy where an
action seeks declaratory relief as to the validity of defenses
that the defendant may or may not advance in future litigation
that may or may not take place").
Therefore, the Court dismisses Claim Seven on the basis that it
C. Claims Against Juana Scherman
Having determined that Claim Seven must be dismissed as to all
Defendants, the Court must now decide whether Morcote has stated
claims against Schurman for tortious interference with contract
and prospective economic relations (Claims Two, Three, and Four,
hereinafter, "the Interference Claims") and for negligent
infliction of emotional distress (Claim Six). The Court concludes
that he has.
As a general rule, "corporate directors and officers are liable
for corporate wrongs in which they actively participated."
Frances T. v. Village Green Owners' Ass'n, 42 Cal. 3d 490, 514
(1986) (concurrence). "Director status neither immunizes a person
from individual liability nor subjects him or her to vicarious
liability." Id. However, there are two lines of cases both of
which Oracle relies upon in which California courts have held
that a supervisor or director may be immune from tort liability:
1) cases addressing the so-called "manager's privilege," see,
e.g., Applied Equip. Corp. v. Litton Saudi Arabia Ltd.,
7 Cal. 4th 503 (1994); Shoemaker v. Myers, 52 Cal. 3d 1 (1990);
Kacludis v. GTE Sprint Commc'ns Corp., 806 F. Supp. 866 (N.D.
Cal. 1992); and 2) cases addressing the co-employee privilege set forth in Sheppard v. Freeman,
67 Cal. App. 4th 339 (1998). The Court concludes that the cases involving
manager's privilege do not apply. The Court further rejects
Sheppard on the basis that it purported to create a broad
privilege that is not consistent with established California
Supreme Court precedent.
1. Manager's Privilege
Oracle asserts that Schurman cannot be held individually liable
on the Interference Claims or her claim for Negligent Infliction
of Emotional Distress because Schurman was acting as an agent of
Oracle and therefore, is protected by the manager's privilege. In
support of this position, it relies primarily on Shoemaker,
Applied Equipment, and Kacludis.
In Shoemaker, the California Supreme Court addressed whether
an employee who had been terminated could sue his supervisor for
the tort of inducement of breach of contract on the theory that
his supervisor's role in bringing about his termination induced
his employer to breach its contract with him. 52 Cal. 3d at 24.
The court held that he could not, reasoning that the supervisor
was acting as an agent for the employer and thus, the claim, in
essence, alleged that the employer induced a breach of contract
with itself. Id. at 25. The court concluded that such a claim
was indistinguishable from a breach of contract claim against the
employer and on that basis dismissed the claim. Id.; see also
Kacludis, 806 F. Supp. at 873 (relying on Shoemaker in holding
that employee who sued former supervisor for interference with
prospective business advantage on basis that supervisor was
responsible for his termination failed to state a
In Applied Equip. Corp. v. Litton Saudi Arabia Ltd.,
7 Cal. 4th 503 (1994), the California Supreme Court applied the
principle articulated in Shoemaker, although no managers or
supervisors were individually sued. There, the plaintiff was a
subcontractor ("Applied") that had entered into a contract with
the defendant ("Litton") to procure certain equipment for it, for
which it was to receive a commission. Id. at 507. Instead, Litton, in order to avoid paying the commission,
entered into an agreement with a third party ("Varian") to obtain
the equipment directly. Id. Applied sued Litton and Varian,
asserting, inter alia, that Litton and Varian had conspired to
interfere with Litton's contract with Applied. The court held
that Applied's conspiracy claim failed because it amounted to a
claim of interference with its own contract, which could only be
brought as a breach of contract claim. Id. at 513. The court
explained its reasoning as follows:
California recognizes a cause of action against
noncontracting parties who interfere with the
performance of a contract. "It has long been held
that a stranger to a contract may be liable in tort
for intentionally interfering with the performance of
the contract." (Pacific Gas & Electric Co. v. Bear
Stearns & Co. (1990) 50 Cal.3d 1118, 1126
[270 Cal. Rptr. 1, 791 P.2d 587], italics added.) . . .
However, consistent with its underlying policy of
protecting the expectations of contracting parties
against frustration by outsiders who have no
legitimate social or economic interest in the
contractual relationship, the tort cause of action
for interference with a contract does not lie against
a party to the contract. (Shoemaker v. Myers,
supra, 52 Cal. 3d at pp. 24-25; Kelly v. General
Telephone Co. (1982) 136 Cal. App. 3d 278, 288
[186 Cal. Rptr. 1844]; Dryden v. Tri-Valley Growers
(1977) 65 Cal. App. 3d 990, 998
[135 Cal. Rptr. 7200].) Applied's conspiracy theory is fundamentally
irreconcilable with the law of conspiracy and the
tort of interference with contract as just discussed.
One contracting party owes no general tort duty to
another not to interfere with performance of the
contract; its duty is simply to perform the contract
according to its terms. The tort duty not to
interfere with the contract falls only on
strangers-interlopers who have no legitimate interest
in the scope or course of the contract's performance.
The facts here are obviously distinguishable from those in the
cases discussed above in that Morcote does not sue Schurman for
interference with his contractual relationship with Oracle (in
which case, he would be asserting a claim that Oracle interfered
with its own contract). Rather, he sues based on her alleged
interference with his contract with a third party, CPS. As the
California Supreme Court made clear in Applied, a claim for
interference against a stranger to the contract as to which
interference is alleged which Schurman is in this case does
not fall within the ambit of the principle articulated in
Shoemaker and Applied. Further, none of these cases stands
for the broad proposition that managers may not be sued in tort
for actions taken in the scope of their employment. Therefore,
this line of cases does not support dismissal of Morcote's Interference Claims or his claim
for Negligent Infliction of Emotional Distress.
2. Co-Employee's Privilege
Oracle also relies on Sheppard v. Freeman,
67 Cal. App. 4th 339 (1998) in support of its position that an employee cannot sue
another employee for any actions taken on behalf of the
employer even if the act was taken outside the scope of
employment and with an unlawful motive.
In Sheppard, a former airline pilot sued former coworkers
alleging that they had conspired to maliciously falsify data
concerning his performance, resulting in his termination.
67 Cal. App. 4th at 342-343. The court of appeal addressed what it
described as an issue of first impression: "[w]hether an employee
or former employee can sue other co-employees individually based
on their conduct relating to personnel actions." Id. at 343. It
concluded that an employee could not, setting forth a broad
privilege for the actions of co-workers taken in relation to
personnel actions. Id. at 347. In his dissent, however, Justice
Kremer argued at length that this "sweeping new immunity" was
unnecessary, ill-conceived and contrary to established law. Id.
at 352-354. Echoing these concerns, the court in Graw v. Los
Angeles County Metro. Transp. Auth., 52 F. Supp. 2d 1152 (C.D.
Cal. 1999) concluded that the California Supreme Court would not
endorse the privilege set forth in Sheppard and on that basis
declined to follow Sheppard. The Court finds the reasoning of
Graw persuasive. Thus, to the extent that Oracle relies on the
privilege articulated in Sheppard, its argument fails. Oracle
has failed to establish that Morcote can articulate no set of
facts in support of the remaining claims against Schurman, as
required to prevail on its motion.
For the reasons stated above, the Motion is GRANTED in part and
DENIED in part as follows: Claim One is dismissed as to all
Defendants, with prejudice, and Claim Seven is dismissed as to
all Defendants, without prejudice. Claim Five and Claims Eight
through Thirteen are dismissed with prejudice as to Defendant Schurman. The Motion is DENIED as to the
remaining claims asserted against Juana Schurman.
IT IS SO ORDERED.
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