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Soaprojects, Inc v. Microsystems


December 7, 2010



Even though SOAProjects did not plead facts showing that a writing existed sufficient to SOAProjects' breach of contract claim.

The opinion of the court was delivered by: Lucy H. Koh United States District Judge

1 2 3 4 5 6 7 8

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United States District Court For the Northern District of California



14 15 16 13 17 18

On August 27, 2010, Defendant SCM Microsystems, Inc. moved to dismiss four of Plaintiff SOAProjects, Inc.'s claims. Dkt. No. 27 ("Mot. to Dismiss"); see also Dkt. No. 33 ("Reply Br."). 20 SOAProjects opposes the motion. Dkt. No. 31 ("Opp'n"). After hearing oral argument and 21 considering the parties' submissions, this Court GRANTS in part and DENIES in part SCM's 22 motion. 23




SOAProjects claims that SCM improperly hired one of its consultants in breach of contract 25 and further alleges that SCM acted in concert with this consultant to illegally obtain SOAProjects' 26 confidential information and trade secrets. SOAProjects supports these claims with the following 27 allegations from its First Amended Complaint ("FAC," Dkt. No. 22). 28


A. Master Agreement

SOAProjects, a California corporation, provides consulting services. FAC ¶ 2, 10. In August 2008, SOAProjects entered into a written Master Agreement with SCM, a provider of 4 solutions for secure access, secure identity, and secure exchange. Id. ¶¶ 3, 11. This Master

Master Agreement provided that SOAProjects would supply SCM with "financial and accounting 7 compliance projects." Id. ¶ 12. Second, pursuant to the Master Agreement, an Addendum for 8 Agreement, signed by representatives of both parties, provided the following. Id. ¶ 12. First, the 6 Services would be created for each project. Id. ¶ 13. This Addendum would be signed by 9 representatives from both parties and would specify in writing the rate and date for each respective 10 project. Id. Third, the Master Agreement provided that California law would govern. Id. ¶ 14.

Fourth, the Master Agreement contained a provision restricting SCM from soliciting SOAProjects consultants. *fn1 Id. ¶ 15. This provision included a monetary penalty if breached. Id. ¶ 16. 13 14 services to SCM in connection with stock administration work. Id. ¶ 17.

15 16 17

Agreement, Gupta agreed not to disclose SOAProjects' confidential information, as defined by the 19 agreement, or use such information except for the benefit of SOAProjects. Id. ¶¶ 21-22. 20


United States District Court For the Northern District of California



Pursuant to a September 1, 2008 Addendum, SOAProjects agreed to provide consulting

B. Confidentiality Agreement

On September 17, 2008, SOAProjects and Defendant Kamal Kant Gupta entered into an Employment Agreement and a Confidentiality Agreement. Id. ¶ 18. Under the Confidentiality 18 To protect access to its confidential and proprietary information, SOAProjects maintains a Virtual Private Network ("VPN"). Id. ¶ 24. Access to the VPN is restricted to SOAProjects 22 employees only and is password-protected. Id. Not all with access to the VPN, however, can 23 access SOAProjects trade secrets. Such access is limited to high level employees. Id. 24

SOAProjects also subscribes to licensed research tools that require passwords and login 25 26 information to access. Id. ¶ 25. Gupta had access to both trade secrets through the VPN and 2 SOAProjects' licensed research tools. Id. ¶ 31. 3


5 services to SCM and worked on a proposal for SOAProjects to assist SCM with other services. Id. 6 ¶ 32-35. On or before October 2009, SCM began soliciting Gupta for employment. Id. ¶ 36. SCM 7 and Gupta then initiated negotiations with SOAProjects to allow Gupta to join SCM. Id. ¶ 37. 8 Transition Agreement. Id. ¶ 38. Under the Employment Transition Agreement, SOAProjects 10 agreed not to enforce the non-solicitation clause in the Master Agreement. Id. In exchange, SCM agreed to pay SOAProjects a fee of 25% of Gupta's annual base compensation and to continue to engage SOAProjects for all technical accounting projects as required for at least the fiscal years 13 2010 and 2011. Id. Furthermore, SCM agreed that Gupta would not perform for SCM "in-house" 14 the same services that SOAProjects performed for SCM. Id. SOAProjects claims that SCM's 15 Chief Financial Officer Martin Wimmer confirmed these conditions during a November 26, 2009 16 conference call. Id. ¶ 41.



Gupta confirmed that SOAProjects would be paid 25% of his salary upfront. Id. In addition, 20 Gupta confirmed that his new job at SCM would mainly involve operations responsibility, and 21 therefore, SCM would still need SOAProjects to assist on technical accounting work. Id. ¶ 40. On 22

SOAProjects in the future. Id. ¶ 42. 2425 26 created files on his computer containing copies of confidential and proprietary information. Id. ¶ 27 SOAProjects on December 24, 2009 and returned his computer to a SOAProjects Human

C. Employment Transition Agreement

During his time at SOAProjects, Gupta provided financial consulting and compliance Following these negotiations, SOAProjects and SCM allegedly entered into an Employment 9



On November 22, 2009, Gupta sent an e-mail to Manav Singh, a senior executive at SOAProjects, confirming in writing certain conditions of Gupta's transition to SCM. Id. ¶ 39. 19 December 3, 2009, Wimmer also sent Singh a letter documenting SCM's intent to continue to use 23

D. Misappropriation of Trade Secrets

According to SOAProjects, between November 10, 2009 and December 3, 2009, Gupta

51. SOAProjects claims there was no business justification for this activity. Id. Gupta left 28

Resources Director. Id. ¶ 49. According to SOAProjects, Gupta later returned and, through 2 allegedly deceptive means, persuaded the HR Director to give him access to his old computer and 3 to the VPN password. Id. ¶¶ 57-61. Using his computer, Gupta accessed SOAProjects' trade 4 secrets and confidential information and sent himself an e-mail containing this information. Id. ¶ 5

SOAProjects claims that Gupta is now working at SCM and is using SOAProjects' trade 7 secrets and confidential information to perform services for SCM that SOAProjects previously 8 provided. Id. ¶¶ 73-75. It alleges that SCM acted in concert with Gupta and is kowingly enjoying 9 the benefits of his theft. Id. ¶ 141. Since hiring Gupta, SCM has not used SOAProjects' services 10 for any new projects. Id. ¶ 76. In addition, SOAProjects claims that Gupta has contacted current

and potential clients and has convinced some of them not to hire SOAProjects. Id. ¶¶ 83-84.

Although SCM disputes that Gupta is using SOAProjects' trade secrets and confidential 13 information, SCM's counsel conceded at the hearing that Gupta is in Germany working for SCM as 14 SCM's Vice President of Finance and Corporate Controller. 1516 17 against SCM and Gupta. Dkt. No. 1. After SCM moved to dismiss SOAProjects' claims against it, 18 Dkt. No. 11, the parties stipulated to, and the court approved of, SOAProjects filing an amended 19 complaint, Dkt. Nos. 18, 19. In its FAC, SOAProjects alleges thirteen causes of action. It makes 20 claims for relief against Gupta based on the following: Violations of Federal Computer Fraud and 21 CODE § 502), Trespass to Chattels, Breach of Contract, Misappropriation of Trade Secrets, 23 Fraud, Trade Libel, and Unfair Business Practices (CAL. BUS.& PROF.CODE § 17200 et seq.).

At issue in this motion to dismiss are SOAProjects' claims against SCM: Breach of Contract, Promissory Estoppel, Unjust Enrichment, and Misappropriation of Trade Secrets. SCM 27 moves this Court under FED. R.CIV. P. 12(b)(6) to dismiss all four claims as against SCM. 28 63. Gupta then returned the computer. Id. ¶ 70. 6

E. Current Action and Motion

On April 23, 2010, SOAProjects filed its original complaint alleging nine causes of action Abuse Act (18 U.S.C. § 1030), Violations of Computer Data Access and Fraud Act (CAL. PENAL22 Tortious Interference with Contract, Tortious Interference with Prospective Economic Advantage, 2425263 granted." FED. R. CIV. P. 12(b)(6). Motions to dismiss under Rule 12(b)(6) test "the legal 4 sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be 5 based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a 6 cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990) 7


A district court may dismiss a pleading that "fail[s] to state a claim upon which relief can be (citation omitted). Although the pleading need not contain detailed factual allegations to survive a 8 motion to dismiss, it must contain "enough facts to state a claim to relief that is plausible on its 9 face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 10 reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. , 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). In making this determination, "[a]ll 13 allegations of material fact are taken as true and construed in the light most favorable to the 14 nonmoving party." Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). This does 15 not, however, apply to legal conclusions. See Iqbal, 129 S. Ct. at 1949. If a district court dismisses 16 a claim, it "should grant leave to amend even if no request to amend the pleading was made, unless 17 it determines that the pleading could not possibly be cured by the allegation of other facts." Doe v. 18 United States, 58 F.3d 494, 497 (9th Cir. 1995) (quotation and quotation marks omitted). 19 SCM moves this Court to dismiss SOAProjects' fourth claim (breach of contract), fifth 21 claim (promissory estoppel), sixth claim (unjust enrichment), and eighth claim (misappropriation 22 of trade secrets) against SCM. The Court will consider each claim in turn. 23 SOAProjects' breach of contract claim is based on SCM's alleged breach of the Employment Transition Agreement. Opp'n 3. SCM argues that the claim must fail because 26 Dismiss 6. SOAProjects' complaint does not contain allegations that the Employment Transition 28 929 (2007). This occurs "when the plaintiff pleads factual content that allows the court to draw the



A. Breach of Contract



SOAProjects has not pled facts showing the existence of a valid and enforceable contract. Mot. to 27 Agreement was ever reduced, in its complete form, to writing. Under California's statute of frauds, "[a]n agreement that by its terms is not to be performed within a year from the making thereof" is 2 invalid unless it, "or some note or memorandum thereof, [is] in writing and subscribed by the party 3 to be charged or by the party's agent." CAL.

CIV. CODE § 1624(a)(1). Neither party appears to 4 dispute that the Employment Transition Agreement was not to be performed within a year. As 5 alleged, SCM promised "to continue to engage SOAProjects for all technical accounting projects as 6 required for at least the fiscal years 2010 and 2011." FAC ¶ 38, 41. 7

Although two of these arguments fail, one does permit SOAProjects' breach of contract claim to 9 survive SCM's motion to dismiss. 10

First, SOAProjects argues that then SCM Chief Financial Officer Martin Wimmer's December 3, 2009 letter to then SOAProjects CEO Manav Singh constitutes a memorandum 13 sufficient to satisfy the writing requirement of California's statute of frauds.*fn2 Opp'n 5. "A 14 memorandum satisfies the statute of frauds if it identifies the subject of the parties' agreement, 15 shows that they made a contract, and states the essential contract terms with reasonable certainty." 16

"What is essential depends on the agreement and its context and also on the subsequent conduct of 18 the parties." Id. (quotation omitted). According to SOAProjects' complaint, Wimmer's letter stated 19 the following: 20

21 22 23 24 25

SOAProjects, however, makes three arguments defending the validity of its contract.8

1. Memorandum that Satisfies the Statute of Frauds

Sterling v. Taylor, 40 Cal. 4th 757, 766, 55 Cal. Rptr. 3d 116, 123, 152 P.3d 420, 425, (2007). 17

I would like to hereby confirm our agreement that SCM intends to continue to use SOAProjects for all technical accounting projects as and when required and all

[financial consulting and compliance services] projects in Santa Ana and Germany, to the extent possible, at least for fiscal year 2010 and 2011. As discussed, the

hiring of Mr. Kamal Kant [Gupta] does not mean that SCM intend [sic] not to use

SOAProjects services in the future; on the contrary, we intend to continue to engage your team for projects as appropriate. We appreciate you making this exception for

us and your support in the hiring of Mr. Kamal Kant to SCM.

FAC ¶ 43 (alterations in original). 26 27

2 states that it is confirming a previous agreement between SCM and SOAProjects. The letter 3 proceeds to set out a basic requirements contract that is set to last for more than one year. For at 4 least 2010 and 2011, SCM will use SOAProjects to perform certain services. The letter even goes 5 so far as to identify two specific geographic areas where SOAProjects will provide other services. 6

SCM correctly points out, however, that the language of the letter is too general and 7 indeterminate to satisfy the statute of frauds. Reply Br. 3-4. The letter uses words such as 8 The letter contains some evidence of the existence of a contract. In the first line, the letter "intends," "to the extent possible," "as and when required," and "as appropriate." Id. at 4. Such 9 words fail to provide reasonable certainty as to what the contract requires of the parties during the 10 period of time allegedly covered by the contract.

Gupta "in-house." Reply Br. 4. Although "[i]t is well established that a note or memorandum 14 under the statute of frauds need not contain all of the details of an agreement between the parties," 15

(quoting Gibson v. De La Salle Inst., 66 Cal. App. 2d 609, 627, 152 P.2d 774 (1944)) (quotation 17 marks omitted), it still must contain the "'essential' or 'meaningful' terms," In re Marriage of 18

Benson, 36 Cal. 4th 1096, 1108, 32 Cal. Rptr. 3d 471, 479, 116 P.3d 1152, 1159 (2005) (citations 19 omitted). Given that SOAProjects' main concern was protecting clients from hiring away 20

"in-house" restriction terms are essential in the context of the agreement. By not including them 22 and failing to outline any other terms with reasonable certainty, the Wimmer letter fails to qualify 23 as a memorandum under the statute of frauds. 24

At the hearing, SOAProjects' counsel argued that the Court should also consider Gupta's e-25 mail on November 22, 2009 as another writing that, in connection with the Wimmer letter, satisfies 26 the statute of frauds. SOAProjects is correct that "several papers, only one of which is signed by 27 the party to be charged, may be considered together to constitute an adequate memorandum of the 28 contract." Karl v. Jebien, 231 Cal. App. 2d 769, 772, 42 Cal. Rptr. 461 (1965) (citing Searles v.

Moreover, the letter leaves out several of the other alleged terms of the Employment

Transition Agreement, including the 25% of Gupta's salary fee and the restriction on SCM's use of 13

Gold Seal Prods. v. R. K. O. Radio Pictures, 134 Cal. App. 2d 843, 864, 286 P.2d 954 (1955) 16

SOAProjects consultants and then discontinuing use of SOAProjects services, the salary fee and 21 Gonzalez, 191 Cal. 426, 431, 216 P. 1003 (1923)); see also Straus v. De Young, 155 F. Supp. 215, 2

218 (S.D. Cal. 1957) (holding that it is well-settled in California that "it is not necessary that the 3 party to be charged sign all of the documents comprising the contract, if one of the documents in 4 the series, or all of the documents taken together set forth clearly and completely all of the essential 5 elements of the contract, except those which may be reasonably implied as being present and 6 inherent in the deal") (citations omitted). Gupta's e-mail, however, fails to cure the Wimmer 7 letter's defects. SOAProjects claims that Gupta's e-mail contained the following statements. 8

9 10 11 12 13 14 15

SOAProjects will make 25% of my salary upfront which will be $53,250 which is equivalent of 444 hours. So if there is a 20-35% reduction of work due to the fact that I am there now, that will be covered through this upfront payment.

In addition, I will make sure SOAProjects continue to do the [financial consulting and compliance services] work in Southern California. Also, I will try to have SOAProjects do the [financial consulting and compliance services] work for SCM

in Germany . . . .

My job at SCM will be mainly involved with operations responsibility and not necessarily writing the actual technical memos, etc. I will be mainly involved in managing and reviewing the work and therefore SCM will still need assistance from SOAProjects for quite a lot technical accounting work.

FAC ¶¶ 39-40. Although the first paragraph does provide a definitive statement that SOAProjects 16 will be paid the 25% fee alleged to be part of the agreement, the rest of the e-mail suffers from the 17 same infirmities as the Wimmer letter; it fails to state any essential terms of a contract between 18 SCM and SOAProjects with reasonable certainty. Gupta states that he, not SCM, will make sure 19 that SOAProjects continues to perform work for SCM. Moreover, he "will try" and have 20 SOAProjects perform work for SCM in Germany. Finally, the language of the last paragraph reads 21 as a personal communication between Gupta and SOAProjects, not a contract term. 22

Because the Employment Transition Agreement cannot, by its terms, be performed in one 23 year and because no note or memorandum exists spelling out its essential terms with reasonable 24 certainty, the statute of frauds renders the alleged contract unenforceable. However, SOAProjects 25 can overcome this if SOAProjects can adequately allege equitable estoppel. 26

28 defense. Opp'n 6. "In California, . . . the doctrine of equitable estoppel can, in appropriate

2. Equitable Estoppel

SOAProjects' second argument is that SCM is estopped from asserting the statute of frauds circumstances, prevent a party from asserting the Statute of Frauds." In re Eastview Estates II, 713 2 F.2d 443 (9th Cir. 1983) (citation omitted). According to the authority cited by SOAProjects, 3 Opp'n 6, "a substantial change of position in reliance on an oral agreement will estop reliance on 4 the statute [of frauds]." Estate of Housley, 56 Cal. App. 4th 342, 357, 65 Cal. Rptr. 2d 628 (1997) 5 (quoting Hall v. Hall, 222 Cal. App. 3d 578, 585-86, 271 Cal. Rptr. 773 (1990)). SOAProjects 6 claims that its conduct meets this standard. According to SOAProjects, it changed its position in 7 reliance on the alleged promises made during the November 26, 2009 conference call. Opp'n 6-7. 8

9 standard. In Byrne v. Laura, 52 Cal. App. 4th 1054, 1068, 60 Cal. Rptr. 2d 908 (1997), the court 10 identified the leading case on equitable estoppel as Monarco v. Lo Greco, 35 Cal. 2d 621, 623, 220 P.2d 737 (1950). In that case, Justice Traynor stated that the doctrine of estoppel is meant "to prevent fraud that would result from refusal to enforce oral contracts in certain circumstances." 13

Monarco, 35 Cal. 2d at 623. Justice Traynor went on to say that "[s]uch fraud may inhere in the 14 unconscionable injury that would result from denying enforcement of the contract after one party 15 has been induced by the other seriously to change his position in reliance on the contract." Id. 16

(citing cases). According to the court in Byrne, "[t]he equitable principles set forth in Monarco 17 have been echoed in many subsequent cases and are well settled." 52 Cal. App. 4th at 1068 (citing 18 cases). This standard appears to be the prevailing one. 19


Reply Br. 6. SOAProjects has, however, pled enough facts to state a plausible claim that equitable 22 estoppel applies in this case. First, "[i]n order to raise [equitable] estoppel, fraud in some form is 23 essential, but it is not required that an actual intent to defraud or mislead exist; all that is required is 24 that there exist a fraud inhering in the consequence of thus setting up the statute." Notten v. 25 Another California Court of Appeal outlines a slightly more rigorous equitable estoppel Under this standard,*fn3 SCM argues that SOAProjects failed to allege facts showing that SCM engaged in any fraudulent conduct or that SOAProjects suffered any unconscionable injury. 21


Mensing, 3 Cal. 2d 469, 476, 45 P.2d 198, 202 (1935) (quoting Seymour v. Oelrichs, 156 Cal. 782, 2 796, 106 P. 88, 94 (1909)); see also Mintz v. Rowitz, 13 Cal. App. 3d 216, 223-24, 91 Cal. Rptr. 3 435 (1970) (applying Notten). Moreover, the party invoking the statute of frauds as a defense need 4 not have represented that the contract would be put in writing in order to be estopped. See 5 Monarco, 35 Cal. 2d at 626. Rather, the important promise is the promise that the oral contract 6 will be performed. Id. 7 8 occurred. According to SOAProjects, it agreed not to enforce any potential causes of action under 9 the Master Agreement in exchange for SCM's promises that SCM would pay the 25% fee, continue 10 to use SOAProjects' services in 2010 and 2011, and not employ Gupta to perform "in-house" theSOAProjects alleges enough facts to state a plausible claim that this type of fraud has same services that Gupta performed for SCM as an employee of SOAProjects. FAC ¶ 41.

SOAProjects claims that Gupta and SCM confirmed these promises on multiple occasions 13 following the initial agreement. After Gupta left SOAProjects and began work at SCM, 14 SOAProjects alleges that SCM failed to pay any fee, discontinued engaging SOAProjects for any 15 consulting services, and is using SOAProjects' trade secrets for SCM's benefit. 16 Second, "[t]o cause an estoppel there must be unusual circumstances which give the injury 17 an unjust and unconscionable character." Goldstein v. McNeil, 122 Cal. App. 2d 608, 611, 265 18 P.2d 113 (1954) (citation omitted). A simple allegation that a party has not lived up to its end of 19 the bargain is not enough. See Carlson v. Richardson, 267 Cal. App. 2d 204, 208, 72 Cal. Rptr. 20 [party] from relying upon the Statutes of Frauds.") (citation omitted). Here, however, 22 SOAProjects' FAC alleges an injury above and beyond SCM's unwillingness to fulfill its 23 obligations under the alleged agreement. SOAProjects alleges that SCM acted in concert with 24 SCM and Gupta succeeded in obtaining these trade secrets, Gupta can perform for SCM the same 26 services that he performed for SCM while employed at SOAProjects. According to SOAProjects, 27 SCM's alleged scheme only succeeded because SOAProjects substantially relied on SCM's alleged 28 promises. These allegations are enough to survive a motion to dismiss. This finding is supported 769, 772 (1968) ("[L]oss of bargain, and damage resulting therefrom, do not of themselves estop a 21 Gupta to misappropriate SOAProjects' trade secrets. SOAProjects further alleges that because 25 by the fact that "[w]hether the doctrine of equitable estoppel should be applied in a given case is 2 generally a question of fact." Byrne, 52 Cal. App. 4th at 1068 (citation omitted). 3

Because SOAProjects could still prevent SCM from asserting the statute of frauds to 4 invalidate the Employment Transition Agreement by adequately alleging equitable estoppel, the 5 Court will not dismiss SOAProjects' breach of contract claim. 67 8 the extent that it was to be performed within one year. Opp'n 7. In support, SOAProjects cites to 9 the rule announced in White Lighting Co. v. Wolfson: "If a claimant alleges two or more promises 10 of performance 'that can easily be distinguished and separated by the court by reference to the 11

3. Severability

Finally, SOAProjects argues that the Employment Transition Agreement is enforceable to For the Northern District of California agreement itself', only that promise of performance which falls clearly within the statute of frauds 12 cannot be enforced." 68 Cal. 2d 336, 345, 66 Cal. Rptr. 697 (1968) (quotation omitted). 13

SCM cites to a more recent Ninth Circuit opinion that applied White Lightning more 14 narrowly. Reply Br. 5. In Texaco, Inc. v. Ponsoldt, the court "identified two scenarios which 15 warrant application of the divisibility rule." 939 F.2d 794, 801 (9th Cir. 1991). "First, promises 16 not falling under the statute of frauds may be excised and enforced where the promises would 17 otherwise be severable under standard rules of divisibility." Ponsoldt, 939 F.2d at 801. "Generally 18 speaking, the test of whether a contract is divisible is that if the consideration is single, the contract 19 is entire, but if the consideration is apportioned, the contract may be regarded as severable." 20

P.2d 581, 587-88 (1949)) (quotation marks omitted). The court noted that the White Lightning 22 court employed this rule. Id. "Second, a promise coming within the statute of frauds may be 23 excised-and the remainder of the contract enforced-where the promise is clearly ancillary to the 24 contract as a whole." Id. 2526

United States District Court Ponsoldt, 939 F.2d at 801 (quoting Simmons v. California Inst. of Tech., 34 Cal. 2d 264, 275, 209 21 This Court agrees with SCM, see Reply Br. 5-6, and the Ponsoldt court. The facts of White Lightning are distinguishable from this case and do not warrant an overly broad application of its 27 holding. The facts pleaded in the FAC do not show a divisible agreement under either of the 28 Ponsoldt scenarios. As a result, SOAProjects can only succeed in enforcing the alleged contract if 2 SCM is equitably estopped from relying on the statute of frauds. 34 5 satisfy the statute of frauds or that the contract was divisible, SOAProjects did plead enough facts 6 showing that it may be able to use equitable estoppel to prevent SCM from asserting the statute of 7 frauds defense. Because it is plausible that SOAProjects will be able to prevent SCM from 8 invalidating the Employment Transition Agreement, the Court denies SCM's motion to dismiss 9

4. Summary

10 11 12

B. Promissory Estoppel

SCM next argues that SOAProjects' promissory estoppel claim fails because SOAProjects' breach of contract claim is based on the same promises. Mot. to Dismiss 7. Generally, a plaintiff 13 cannot rely on promissory estoppel when it also seeks to enforce a contract that it argues is 14 supported by valid consideration. See Horne v. Harley-Davidson, Inc., 660 F. Supp. 2d 1152, 15 1163 (C.D. Cal. 2009) ("Plaintiffs cannot state a cause of action for promissory estoppel because a 16 valid contract, supported by consideration, governs the same subject matter as the alleged 17 promise."). Promissory estoppel is meant as a "substitute for consideration." Id. at 1162. The 18 California Supreme Court has stated that the doctrine of promissory estoppel is meant "to make a 19 promise binding, under certain circumstances, without consideration in the usual sense of 20 something bargained for and given in exchange." Youngman v. Nevada Irrigation Dist., 70 Cal. 2d 21 SOAProjects' central theory is that SCM made promises to SOAProjects and that SOAProjects reasonably relied on those promises to its detriment. By claiming both breach of 24 contract and promissory estoppel, SOAProjects is simultaneously alleging that those promises were 25 part of a valid contract and that they were unsupported by consideration. Even though 26 SOAProjects' breach of contract and promissory estoppel claims are mutually exclusive, see 27 Walker v. KFC Corp., 728 F.2d 1215, 1220 (9th Cir. 1984) (holding that as a matter of law, 28 promises supported by adequate consideration cannot also form the basis of a promissory estoppel 240, 249, 74 Cal. Rptr. 398, 449 P.2d 462 (1969). 22 23 claim), the federal rules allow plaintiffs to plead inconsistent claims and theories, see Molsbergen 2 v. United States, 757 F.2d 1016, 1019 (9th Cir. 1985) (holding that the federal rules give freedom 3 to plead inconsistent claims) (citing FED. R.CIV. P. 8(e)(2)); see also Instituto De Prevision Militar 4 v. Merrill Lynch, 546 F.3d 1340, 1352 (11th Cir. 2008) ("The Federal Rules of Civil Procedure . . . 5 allow plaintiffs to plead inconsistent theories . . . .") (citing FED. R. CIV. P.8(d)(3)).

6 7 8 9

Therefore, SCM's motion to dismiss SOAProjects' promissory estoppel claim is denied.

C. Unjust Enrichment

SCM initially argued that no cause of action for unjust enrichment exists in California.

Mot. to Dismiss 10. Although this is technically true, see Melchior v. New Line Prods., Inc., 106 10 equivalent to restitution, see Dinosaur Dev., Inc. v. White, 216 Cal. App. 3d 1310, 265 Cal. Rptr.

525 (1989), and have allowed litigants to seek restitution using an unjust enrichment claim, see 13 "[R]estitution may be awarded in lieu of breach of contract damages when the parties had an 15 express contract, but it was procured by fraud or is unenforceable or ineffective for some reason." 16 McBride v. Boughton, 123 Cal. App. 4th 379, 388, 20 Cal. Rptr. 3d 115, 121 (2004) (citations 17 omitted). At least part of SOAProjects' unjust enrichment claim is based on SCM's unwillingness 18 to comply with the provisions of the Employment Transition Agreement. FAC ¶ 119. Those 19 provisions may prove unenforceable due to the statute of frauds, and thus could be enforced 20 through unjust enrichment. 21 22 Cal. App. 4th 779, 793, 131 Cal. Rptr. 2d 347 (2003), courts have held that unjust enrichment is Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1370, 108 Cal. Rptr. 3d 682, 699 (2010). 14

Nevertheless, SOAProjects' attempt to use unjust enrichment to enforce the Employment

Transition Agreement fails. To make out a claim for unjust enrichment SOAProjects must show 23 that SCM received a benefit and that SCM unjustly retained the benefit at SOAProjects' expense. 24

See Lectrodryer v. SeoulBank, 77 Cal. App. 4th 723, 726, 91 Cal. Rptr. 2d 881 (2000) (citing First 25 Nationwide Savings v. Perry, 11 Cal. App. 4th 1657, 1662-63, 15 Cal. Rptr. 2d 173 (1992)); see 26 also AccuImage Diagnostics Corp v. Terarecon, Inc., 260 F. Supp. 2d 941, 958 (N.D. Cal. 2003). 27

SOAProjects appears to claim that SCM's retention of Gupta constitutes a benefit. Even accepting 28 this, SOAProjects' complaint contains no facts showing that such retention is unjust. Indeed, SOAProjects' counsel conceded as much at oral argument. California has a strong public policy in 2 favor of allowing employees to freely obtain new employment. Cal Francisco Inv. Corp. v. 3 Vrionis, 14 Cal. App. 3d 318, 323, 92 Cal. Rptr. 201 (1971) ("Public policy favors the right of an 4 individual to pursue any calling, business or profession."); see CAL. BUS. & PROF. CODE § 16600

("Except as provided in this chapter, every contract by which anyone is restrained from engaging in 6 a lawful profession, trade, or business of any kind is to that extent void."); see also Latona v. Aetna 7 U.S. Healthcare Inc., 82 F. Supp. 2d 1089, 1093-94 (C.D. Cal. 1999) (Section 16600's "protection 8 against restraint of employment qualifies as a strong public policy in California."). Allowing 95 SOAProjects' claim that SCM's unwillingness to comply with its alleged agreement while still 10 employing Gupta constitutes unjust enrichment would contravene this well-established public policy.

11 12

13 misappropriation of SOAProjects' trade secrets likewise fails because it is preempted by the 14

236, 109 Cal. Rptr. 3d 27, 50-51 (2010) ("We thus reaffirm that CUTSA provides the exclusive 16 civil remedy for conduct falling within its terms, so as to supersede other civil remedies based upon 17 misappropriation of a trade secret.") (citation omitted). SOAProjects' counsel conceded this at the 18 hearing and represented that SOAProjects could not, at this time, allege any facts that SCM 19 misappropriated any information not falling under the Trade Secret Act. 20



23 misappropriation of trade secrets claim. Mot. to Dismiss 10-11. "To state a cause of action for 24 misappropriation of trade secrets under the Uniform Trade Secrets Act ('UTSA'), plaintiff must 25 plead two primary elements: (1) the existence of a trade secret, and (2) misappropriation of the 26 trade secret." AccuImage Diagnostics, 260 F. Supp. 2d at 950 (citing CAL. CIV. CODE § 3426.1(b))

SOAProjects' attempt to use unjust enrichment to recover for SCM's alleged California Uniform Trade Secret Act. See Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 15 As a result, SOAProjects' claim for unjust enrichment is dismissed without leave to amend.

D. Misappropriation of Trade Secrets

SCM claims that SOAProjects' complaint fails to plead enough facts to state a facts showing any 28 specific trade secrets that Gupta or SCM misappropriated, its claim must be dismissed. Reply Br.

10. SOAProjects has, however, identified a number of categories of trade secrets that Gupta 2 downloaded onto his computer and e-mailed to himself. These include SOAProjects' proprietary 3 technical documents, copies of SOAProjects' white papers, confidential information related to at 4 least four clients, and SOAProjects' strategies, pricing information, current and prospective 5 customer lists, customer information, and products and designs. SOAProjects has alleged enough 6 facts to state a plausible claim that it had trade secrets and Gupta took those into his possession. 7

Thus, the question becomes whether SOAProjects has pled enough facts raising a plausible 8 claim that SCM misappropriated those trade secrets. "The UTSA defines 'misappropriation' to 9 include two types of conduct: (1) acquisition, or (2) disclosure or use." Id. at 951 (citing CAL. CIV.that "no California court has adopted the inevitable disclosure doctrine." Bourns, Inc. v. Raychem 13 1464, 125 Cal. Rptr. 2d 277, 294 (2002) ("[T]he inevitable disclosure doctrine cannot be used as a 15 substitute for proving actual or threatened misappropriation of trade secrets."). Thus, the fact that16 Gupta allegedly took trade secrets and is now performing the same work for SCM "in-house" does 17 not state a claim against SCM. 18

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the facts alleged in SOAProjects' FAC

rely on a theory of inevitable disclosure to implicate SCM. Mot. to Dismiss 12. SCM is correct12 Corp., 331 F.3d 704, 708 (9th Cir. 2003); see Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 14 SOAProjects, however, has alleged more than inevitable disclosure. According to SOAProjects' FAC, SCM acted in concert with Gupta in misappropriating SOAProjects' trade 20 secrets and is knowingly enjoying the fruits of his theft. FAC ¶ 141. This allegation, in the context 21 of the other circumstantial allegations, is sufficient to state a plausible claim that SCM acquired or 22 is using SOAProjects' trade secrets. 23


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Therefore, SCM's motion to dismiss SOAProjects' misappropriation claim is denied.

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For the foregoing reasons, SCM's motion to dismiss SOAProjects' claim for unjust

3 enrichment is GRANTED without leave to amend. SCM's motion to dismiss SOAProjects' claims 4 for breach of contract, promissory estoppel, and misappropriation of trade secrets is DENIED. 5



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United States District Court For the Northern District of California

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