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Ikon Office Solutions, Inc v. Michael Rezente and Christy Friend

April 13, 2011

IKON OFFICE SOLUTIONS, INC., PLAINTIFF,
v.
MICHAEL REZENTE AND CHRISTY FRIEND, DEFENDANTS.



MEMORANDUM AND ORDER RE: MOTION TO DISMISS

Plaintiff Ikon Office Solutions, Inc. ("Ikon") brought this action against defendants Michael Rezente and Christy Friend arising out of defendants' former employment with plaintiff. Plaintiff's Second Amended Complaint ("SAC") alleges claims for misappropriation of trade secrets under the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code §§ 3426-3426.11, interference with prospective economic relations, and breach of duty of loyalty.*fn1 (Docket No. 90.) Presently before the court is Christy Friend's motion to dismiss the claims against her for interference with prospective economic relations and breach of duty of loyalty for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

I. Factual and Procedural Background

Plaintiff sells, leases, and services office equipment and systems including copiers and printers, and provides services including technical support, document outsourcing, equipment maintenance, and network facilities management. (SAC ¶ 2.) Friend began working for plaintiff on October 22, 2008, in its Sacramento, California, "Marketplace" as an Account Executive. (Id. ¶ 6.) Friend was responsible for the sale and lease of plaintiff's equipment, systems, and services, and the general management of customer relationships and account services for approximately 275 customers. (Id. ¶¶ 23-24.)

Friend resigned from employment with plaintiff on July 13, 2009. (Id. ¶ 6.) Plaintiff alleges that Friend now works for Delta Copy Systems, Inc. ("DCSI"), a direct competitor of plaintiff. (Id. ¶¶ 5, 8.) Plaintiff alleges that in the months before her resignation, Friend deliberately delayed and failed to conclude deals that she had "been working on for quite some time" for plaintiff so that she could finalize them after her resignation on behalf of DCSI. (Id. ¶ 79, 82-83.) Friend allegedly failed to conclude any transactions for plaintiff in the twelve weeks prior to her resignation. (Id. ¶ 46.) Within a few weeks of her employment with DCSI, though, Friend allegedly stated that she had closed six deals for DCSI since joining the company and had already transacted $100,000.00 in revenue. (Id. ¶ 83.) One of those transactions was a new contract with a school district that she had been working on for five months on behalf of plaintiff. (Id. ¶¶ 49, 77.) When the school district account was going to be transferred to another sales representative weeks before Friend's resignation as part of a territory realignment, Rezente blocked the transfer, allegedly in an attempt to delay the closing of the transaction. (Id. ¶ 78.) The school district eventually signed a contract with DCSI. (Id. ¶ 84.)

II. Discussion

On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, --- U.S. ----, ----, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 556-57) (internal quotation mark omitted).

In general, a court may not consider items outside the pleadings upon deciding a motion to dismiss, but may consider items of which it can take judicial notice. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Judicial notice may properly be taken of matters of public record outside the pleadings. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (taking judicial notice of a motion to dismiss in a separate suit). Plaintiff has asked the court to take judicial notice of several items on this docket; as these are matters of public record, the court will take judicial notice of them.

A. Breach of Duty of Loyalty Claim

Plaintiff alleges that Friend breached her duty of loyalty by recruiting others to leave Ikon, failing to inform Ikon of her conflict of interest, deliberately stalling and preventing the transaction of business and the closing of potential deals in order to steer and close the deals on behalf of DCSI, and encouraging potential Ikon customers to delay or reject concluding any deal with Ikon. (SAC ¶ 134.)

The elements of a cause of action for breach of a duty of loyalty are: "(1) the existence of a relationship giving rise to a duty of loyalty; (2) one or more breaches of that duty; and (3) damage proximately caused by that breach." Huong Que, Inc.v. Luu, 150 Cal. App. 4th 400, 410 (6th Dist. 2007). The duty of loyalty requires an agent "to act loyally for the principal's benefit in all matters connected with the agency relationship." Id. at 411.

Employees owe a duty of loyalty to their employers. See Stokes v. Dole Nut Co., 41 Cal. App. 4th 285, 295 (3d Dist. 1995) ("[D]uring the term of employment, an employer is entitled to its employees' undivided loyalty. . . . The duty of loyalty is breached . . . when the employee takes action which is inimical to the best interests of the employer.") (citations and internal quotation marks omitted).

Plaintiff's allegations regarding Friend's recruitment of other employees are insufficient to constitute breach of loyalty, as the recruitment allegedly took place after Friend's employment, and thus her duty of loyalty, ended. (See SAC ¶¶ 47, 67.) However, the allegations regarding her obstruction of deals while employed for plaintiff are sufficient to state a claim. During her employment, a relationship between Friend and plaintiff existed giving rise to a duty of loyalty, and she allegedly breached that duty by not only failing to do her job but actively preventing deals that it was job to make. Plaintiff alleges that these breaches resulted in damages of lost business. (Id. ¶ 135.)

Friend argues that the allegations concerning the delay and prevention of deals during her employment are preempted by CUTSA, which provides the exclusive remedy for trade secretmisappropriation under California law. See Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 236 (6th Dist. 2010) ("We thus reaffirm that CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies 'based upon misappropriation of a trade secret.'") (quoting Cal. Civ. Code § 3426.7), disapproved of on other grounds by Kwikset Corp. v. Sup. Ct., 51 Cal. 4th 310 (2011); see also Gabriel Techs. Corp. v. Qualcomm Inc., No. 08cv1992, 2009 WL 3326631, at *11 (S.D. Cal. Sept. 3, 2009). CUTSA preempts all common law claims that are "based on the same nucleus of facts as the misappropriation of trade secrets claim for relief." K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939, 958 (6th Dist. 2009) (quoting Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005)) (internal quotation marks omitted).

In other words, preemption generally applies where "there is no material distinction" between the wrongdoing underlying the CUTSA claim and the non-CUTSA claim. See Phoenix Techs. Ltd. v. DeviceVM, No. C 09-04697, 2009 WL 4723400, at *4 (N.D. Cal. Dec. 8, 2009) (quoting Convolve, Inc. v. Compaq Computer Corp., No. 00 CV 5141, 2006 WL 839022, at *6 (S.D.N.Y. Mar. 31, 2006) (applying California law)). "[O]ther civil remedies that are not based upon ...


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