UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
April 13, 2011
IKON OFFICE SOLUTIONS, INC., PLAINTIFF,
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.)
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 misappropriation of a trade secret" and contractual or criminal remedies are not preempted. Cal. Civ. Code § 3426.7(b).
The facts relevant to plaintiff's breach of duty of loyalty claim are distinct from those relevant to the misappropriation claim. Plaintiff alleges in its misappropriation of trade secrets claim that defendants took plaintiff's customer lists and other alleged trade secrets to DCSI and used the trade secret information to make sales on behalf of DCSI. (See SAC ¶¶ 90-125.) The loyalty claim is essentially based on allegations that during her employment, Friend sabotaged her work for plaintiff; the misappropriation claim is based on allegations that Friend took and used trade secrets in her new employment. Because these allegations are not based on the same nucleus of facts, plaintiff's loyalty claim is not preempted.
Accordingly, the court will deny Friend's motion to dismiss the breach of duty of loyalty claim against her.*fn2
B. Interference with Prospective Economic Relations Claim
The elements of a claim of intentional interference with prospective economic relations are: (1) an economic relationship between the plaintiff and a third party, with the probability of future economic benefit to the plaintiff; (2) knowledge by the defendant of the relationship; (3) intentional acts by the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the acts of the defendant. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003). As part of the third element, the plaintiff "must plead and prove as part of its case-in-chief that the defendant not only knowinglyinterfered with the plaintiff's expectancy, but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376, 393 (1995); Korea Supply Co., 29 Cal. 4th at 1154.
Plaintiff alleges that Friend interfered in several unidentified economic relationships as well as the relationship with the school district by sabotaging the completion of deals while working for plaintiff and then completing identical deals on behalf of DCSI soon after her resignation. Plaintiff has certainly alleged that Friend had knowledge of these relationships, that the relationships were actually disrupted, and that plaintiff was harmed by Friend's acts in that it lost business. However, the parties dispute whether plaintiff has sufficiently alleged that the relationships contained the probability of future economic benefit or that Friend committed any independently wrongful acts to disrupt the relationships.
With respect to the first element, the tort of interference with prospective economic relations applies to "interference with existing non-contractual relations which hold the promise of future economic advantage. In other words, it protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will eventually arise." Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 42 Cal. App. 4th 507, 524 (5th Dist. 1996); see id. at 527 ("Without an existing relationship with an identifiable buyer, [the plaintiff's] expectation of a future sale was 'at most a hope for an economic relationship and a desire for future benefit'" (quoting Blank v. Kirwan, 39 Cal. 3d 311, 331 (1985)); Roth v. Rhodes, 25 Cal. App. 4th 530, 546 (4th Dist. 1994) (holding that, in doctor's lawsuit based on defendants' refusal to lease office space to him, doctor failed to allege requisite "existing relationship" because future patients were merely "speculative").
Plaintiff has sufficiently alleged that its economic relationship with the school district contained the probability of future economic benefit. Before Friend resigned, she and Rezente blocked a transfer of the school district account so that she could remain on the account. Friend had been working with the school district for five months on a contract on behalf of plaintiff, and yet DCSI signed a contract with the school district within weeks of Friend's arrival. This is sufficient to survive a motion to dismiss by plausibly alleging that the school district would have signed the contract with plaintiff but for Friend's actions.
California regulations generally requiring school districts to allocate contracts based on a competitive bidding process, see Cal. Pub. Contract Code § 20111, do not alter the court's conclusion that plaintiff has sufficiently alleged the probability of future economic benefit. Several exceptions to the bidding requirement exist. See id. § 20118. The court cannot determine, based on the facts alleged, whether the school district contract would be subject to the competitive bidding requirement. Plaintiff is required on a motion to dismiss to allege sufficient facts, accepted as true, to state a plausible claim to relief, not to disprove every set of facts that could potentially keep it from succeeding on that claim. See Iqbal, 129 S. Ct. at 1949. Accordingly, plaintiff has sufficiently alleged the first element.
As to the third element, independently wrongful conduct designed to disrupt the relationship, the California Supreme Court has explained that "an act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." Korea Supply Co., 29 Cal.4th at 1159.
The wrongful conduct plaintiff alleges Friend engaged in includes the conduct the court found to be sufficiently alleged in the breach of duty of loyalty claim: preventing contracts from reaching completion while in plaintiff's employ. The alleged breach of the duty of loyalty is sufficient to show that Friend allegedly engaged in conduct that was wrongful in itself. Accordingly, plaintiff has sufficiently pled its interference with prospective economic relations claim and the court will deny Friend's motion to dismiss that claim.
IT IS THEREFORE ORDERED that Christy Friend's motion to dismiss the interference with prospective economic relations and breach of duty of loyalty claims against her in plaintiff's Second Amended Complaint be, and the same hereby is, DENIED.