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Sunpower Corporation, A Delaware Corporation v. Solarcity Corporation

December 11, 2012

SUNPOWER CORPORATION, A DELAWARE CORPORATION, PLAINTIFF,
v.
SOLARCITY CORPORATION, A DELAWARE CORPORATION;
TOM LEYDEN, AN INDIVIDUAL;
MATT GIANNINI, AN INDIVIDUAL; DAN LEARY, AN INDIVIDUAL;
FELIX AGUAYO, AN 16 INDIVIDUAL;
ALICE CATHCART, AN INDIVIDUAL. DEFENDANTS.



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

ORDER GRANTING DEFENDANTS' PARTIAL MOTION TO DISMISS

United States District Court For the Northern District of California

Before the Court is Defendants SolarCity Corporation, Tom Leyden, Matt Giannini, Dan Leary, Felix Aguayo, and Alice Catchart's ("Defendants") Partial Motion to Dismiss. See ECF No. 21 47 ("Motion"). Having considered the parties' submissions and the relevant case law, and the 22 parties' arguments at the hearing held on November 8, 2012, the Court GRANTS Defendants' 23 Motion. 24

I.FACTUAL BACKGROUND

SunPower is a leading manufacturer and distributor of high-efficiency solar panels and 26 other related equipment. Complaint, ECF No. 1 ("Compl.") ¶ 12. SolarCity is a distributor of solar 27 panels and other related equipment. Id. ¶ 13. Defendants Tom Leyden, Matt Giannini, Dan Leary, 28

Felix Aguayo, and Alice Cathcart (the "Individual Defendants") were employed by SunPower in sales positions before being recruited by SolarCity. Id. ¶¶ 14-19, 38-39. Each of the Individual 2

Defendants signed agreements at SunPower agreeing not to disclose "confidential or proprietary 3 information" to third parties and to return such information to SunPower upon ending their 4 employment. Id. ¶ 25. 5 6 company email account after he was terminated. Id. ¶ 32. SunPower also discovered that Aguayo 7 had forwarded several emails containing customer information, price lists, and market reports to 8 his personal email address on or about November 18, 2011. Id. Based on the emails Aguayo 9 accessed and the proximity in time to Leyden, Giannini, Leary, Aguayo, and Catchart's departures, 10 On or about December 9, 2011, SunPower discovered that Aguayo had accessed his SunPower initiated an investigation, including conducting a computer forensic analysis of the Id. ¶ 33.

SunPower's investigation revealed that, shortly before leaving SunPower, each of the Individual Defendants had used various means, including USB devices and portable hard drives, to 14 store SunPower files containing "confidential. and non-confidential proprietary information." Id. 15 ¶¶ 34-48. This information consisted of, inter alia, contact information, sales histories, potential 16 new sales, status, market and business analysis, quotes, forecast analysis, cash flow analysis, and 17 project economics. Id. SunPower is informed and believes that this information has been 18 delivered to Defendant SolarCity and that Defendants "continue to use. [the] data. for their own 19 benefit." Id. ¶¶ 49-55. 20

As a result of Defendants' actions, on February 13, 2012, SunPower filed the instant action.

In this action, SunPower alleges that Defendants misappropriated SunPower's trade secrets in 23 violation of the California Uniform Trade Secrets Act, Cal. Civ. Code § 3426 et seq. ("Trade 24 Secrets Claim"). Id. ¶¶ 63-72. In addition to SunPower's Trade Secrets Claim, SunPower alleges 25 several causes of action based on Defendant's misappropriation of what SunPower terms "non-26 trade secret proprietary information." Id. ¶ 121. These causes of action include SunPower's: (1) 27 fourth cause of action for breach of confidence (see id. ¶¶ 118-124), (2) fifth cause of action for 28 conversion (see id. ¶¶ 125-130), (3) sixth cause of action for trespass to chattels (see id. ¶¶ 131-

computers used by the Individual Defendants. 12

II.PROCEDURAL BACKGROUND

137), (4) seventh cause of action for tortious interference with prospective economic advantage

(see id. ¶¶ 138-145); (5) eighth cause of action for common law unfair competition (see id. ¶¶ 146-3

Code section 17200 (id. ¶¶ 152-155) (collectively, "Non-Trade Secret Claims").*fn1 5

Trade Secrets Act supersedes SunPower's Non-Trade Secret Claims. Motion at 1. SunPower filed 8 its Opposition on October 11, 2012. ECF No. 51 ("Opposition"). Defendants filed their Reply on 9 151); and (6) ninth cause of action for unfair competition under California Business & Professions 4

On August 2, 2012, Defendants filed the instant Motion seeking dismissal of SunPower's Non-Trade Secret Claims. Defendants' primary basis for relief is that the California Uniform 7 October 18, 2012. ECF No. 52 ("Reply"). 10

A motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th 13

III.LEGAL STANDARDS

United States District Court For the Northern District of California

Cir.2001). Dismissal under Rule 12(b)(6) may be based on either (1) the "lack of a cognizable 14 legal theory," or (2) "the absence of sufficient facts alleged under a cognizable legal theory." 15 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)*fn2 . While "'detailed factual 16 allegations'" are not required, a complaint must include sufficient facts to "'state a claim to relief 17 that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. 18 v. Twombly, 550 U.S. 544, 555, 570 (2007) ). "A claim has facial plausibility when the plaintiff 19 pleads factual content that allows the court to draw the reasonable inference that the defendant is 20 liable for the misconduct alleged." Id. 21

22 allegations of material fact as true and construes the pleadings in the light most favorable to

Accordingly, the Court does not address them.

For purposes of ruling on a Rule 12(b)(6) motion to dismiss, the Court accepts all Reed, No. CV 10--5783, 2012 WL 1460588, at *2 n. 2 (C.D. Cal. Mar. 16, 2012) (internal quotations omitted).

SunPower. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 2

The Court need not, however, accept as true pleadings that are no more than legal conclusions or 3 the "formulaic recitation of the elements of a cause of action." Iqbal, 555 U.S. at 678 (quoting 4

Twombly, 550 U.S. at 555). Mere "conclusory allegations of law and unwarranted inferences are 5 insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 6 83 F.3d 1136, 1140 (9th Cir.1996); accord Iqbal,555 U.S. at 677-80. 7

In the instant Motion, Defendants move to dismiss the Non-Trade Secret Claims on the

9 grounds that: (1) California law has never recognized causes of action for conversion, trespass to 10 chattels, tortious interference with prospective economic advantage, common-law unfair competition, or statutory unfair competition based on the misappropriation of "non-trade secret proprietary information"; and (2) even if California law did previously allow such claims, such 13 claims are now superseded*fn3 by the California Uniform Trade Secrets Act ("CUTSA"). Motion at 14

2. Defendants also argue that SunPower's seventh cause of action for tortious interference with 15 prospective economic advantage should be dismissed because SunPower has failed to allege that 16

19. The Court addresses the supersession issue first and concludes that SunPower's Non-Trade 18

Secret Claims are superseded. 19

21 other injury caused by the misappropriation of trade secrets. Cal. Civ. Code § 3426.3. 22

Misappropriation means improper acquisition, or non-consensual disclosure or use of another's 23 trade secret. Id. § 3426.1(b). The statute defines a "trade secret" as information that derives 24 25

"[t]he [California] Supreme Court has criticized the use of 'preempt' to describe the supersession of one state law by another. The court therefore adopted the term 'displace.'" 184 Cal. App. 4th 27

210, 232 n. 14 (2010) (internal quotations and citations omitted), disapproved on other grounds by Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (2011). The Silvaco Court went on to state that 28

"[f]or present purposes we favor [the term] 'supersede[.]'" Id. The Court follows Silvaco and uses the term 'supersede' rather than 'preempt.'

Case No.: 12-CV-00694-LHK

ORDER GRANTING DEFENDANTS' PARTIAL MOTION TO DISMISS

IV.DISCUSSION

United States District Court For the Northern District of California

Defendants' conduct interfered with SunPower's relationship with a specific third party. Id. at 18-17

A.CUTSA Supersession

1.Background on CUTSA and CUTSA Supersession

California's Uniform Trade Secrets Act provides for the civil recovery of "actual loss" or

"independent economic value" from its confidentiality and "[i]s the subject of efforts that are 2 reasonable under the circumstances to maintain its secrecy." Id. § 3426.1(d). 3

4 same nucleus of facts as trade secret misappropriation." K.C. Multimedia, Inc. v. Bank of America 5

The savings clause does not affect "contractual remedies" and civil remedies "that are not based 7 upon misappropriation of a trade secret." Silvaco Data Systems v. Intel Corp., 184 Cal. App. 4th 8 (2011). "The preemption inquiry for those causes of action not specifically exempted by § 10

CUTSA includes a savings clause (Section 3426.7) that "preempt[s] claims based on the Tech. & Operations, Inc., 171 Cal. App. 4th 939, 962 (2009); see also Cal. Civ. Code § 3426.7*fn4 . 6 210, 233 (2010), disapproved on other grounds by Kwikset Corp. v. Superior Court, 51 Cal.4th 310 9 3426.7(b) focuses on whether other claims are not more than a restatement of the same operative facts supporting trade secret misappropriation. . . If there is no material distinction between the wrongdoing alleged in a [C]UTSA claim and that alleged in a different claim, the [C]UTSA claim 13 preempts the other claim." Convolve, Inc. v. Compaq Comp. Corp., No. 00 CV 5141 (GBD), 2006 14 WL 839022, at *6 (S.D.N.Y. Mar. 31, 2006) (internal quotations omitted) (applying California 15 law). 16

Following the nucleus of facts test, a number of Courts, including this Court, have held that

CUTSA may supersede various claims including, inter alia, claims for conversion, common count, 18 quantum meruit, unjust enrichment, breach of confidence, unfair competition, and intentional and 19

negligent misrepresentation where the wrongdoing alleged in connection with such claims is the 2 misappropriation of trade secrets. See e.g. Louis v. Nailtiques Cosmetic Corp., 423 F. App'x 711, 3 California's Uniform Trade Secrets Act, Cal. Civ.Code § 3426.7." (citing K.C. Multimedia, Inc., 5 2010 WL 5069832 (N.D. Cal. Dec. 7, 2010) ("SOAProjects' attempt to use unjust enrichment to 7 recover for SCM's alleged misappropriation of SOAProjects' trade secrets likewise fails because it 8 is preempted by the California Uniform Trade Secret Act." (citing Silvaco,184 Cal. App. 4th 9

713 (9th Cir. 2011) ("Louis's common count and quantum meruit claims are preempted by 4

171 Cal. App. 4th at 954-55)); SOAProjects, Inc. v. SCM Microsystems, Inc., 10-CV-01773-LHK, 6

236)); Silvaco, 184 Cal. App. 4th at 236 (holding that claims for conversion, common count, 10 common law unfair business practices, intentional and negligent misrepresentation were 11 superseded by CUTSA); K.C. Multimedia, Inc., 171 Cal. App. 4th at 960 (concluding that

plaintiff's breach of confidence claim was superseded because "the conduct at the heart of" both 13 the breach of confidence claim and the UTSA claim was "the asserted disclosure of trade secrets by 14

Tam to respondents"); id. at 962(holding that statutory unfair competition claim was superseded 15 because it "rest[ed] squarely on its factual allegations of trade secret misappropriation"). 16

18 the extent such claims "are based on the same nucleus of facts as the misappropriation of trade 19 secrets claim for relief." Opposition at 3 (quoting K.C. Multimedia, Inc., 171 Cal. App. 4th at 958 20

(emphasis added)). Rather, SunPower argues that its Non-Trade Secret Claims are not based on 21 the same nucleus of fact as its Trade Secret Claim because the Non-Trade Secret Claims relate to 22 the misappropriation of SunPower's non-trade secret proprietary information, as opposed to the 23 misappropriation of SunPower's trade secrets. Id. at 5; see also id. (arguing that "[t]his non-trade 24 secret information is separate and apart from the trade secrets that form the basis of SunPower's 25

[UTSA] claim"). Thus, the Court must determine whether a claim based on the misappropriation 26 of non-trade secret proprietary information is superseded by CUTSA. 27 28

2.CUTSA Can Supersede Claims Based on the Misappropriation of Non-Trade Secret Information

In this case, SunPower does not dispute that the UTSA supersedes common-law claims to

Only one California Court has explicitly considered this issue, specifically the California

Court of Appeal in Silvaco. The Silvaco Court held that the UTSA superseded claims for 3 conversion, common count, common law unfair business practices, and intentional and negligent 4 misrepresentation because those claims were based on the misappropriation of trade secrets 5 plaintiff claimed were "contained" in computer software it had developed. See 184 Cal. App. at 6

236. In a footnote addressing the Eastern District of Pennsylvania's decision in Cenveo Corp. v. 7

We emphatically reject the Cenveo court's suggestion that the uniform act was not intended to preempt "common law conversion claims based on the taking of

information that, though not a trade secret, was nonetheless of value to the

claimant." (Cenveo, supra, 2007 WL 527720 a p.4) On the contrary, a prime purpose of the law was to sweep away the adopting states' bewildering web of rules

and rationales and replace it with a uniform set of principles for determining when one is-and is not-liable for acquiring, disclosing, or using "information ... of

value." (See § 3426.8.) Central to the effort was the act's definition of a trade secret. (See § 3426.1, subd. (d).) Information that does not fit this definition, and is not

otherwise made property by some provision of positive law, belongs to no one, and

cannot be converted or stolen. By permitting the conversion claim to proceed on a contrary rationale, the Cenveo court impliedly created a new category of intellectual

property far beyond the contemplation of the Act, subsuming its definition of "trade secret" and effectively obliterating the uniform system it seeks to generate.

Slater, CIV A 06-CV-2632, 2007 WL 527720 (E.D. Pa. Feb. 12, 2007), the Silvaco Court stated: 8

Silvaco,184 Cal. App. 4th at 239 n. 22. 17

Defendants contend that the Silvaco footnote stands for the proposition that, under

California law, SunPower's claims based on the misappropriation of non-trade secret proprietary 19 information are superseded. Motion at 11. The Court agrees that this footnote supports 20

Defendants' argument. However, the Court notes that an argument could be made that the footnote 21 is dicta as, unlike in the instant case, in Silvaco, there does not actually appear to have been any 22 allegation by plaintiff that the information plaintiff was seeking to protect was not a trade secret 23 and therefore not subject to trade secret law. See 184 Cal. App. 4th at 239 ("All of [plaintiff's] 24 claims, except its UCL claim. depend on [defendant's] supposed use, in [plaintiff's] words of 25

'software. which embodies and uses. [plaintiff's] Trade Secrets'"); Opposition at 7 (arguing 26 that "Silvaco address[ed] [a] complaint[] in which the additional common law causes of action 27 were explicitly based on the use of trade secrets). 28

Supreme Court "would decide [this issue] differently," this Court believes it prudent to follow 4

Silvaco. Cf Ryman v. Sears, Roebuck & Co., 505 F.3d 993, 995 (9th Cir. 2007) ("[W]here there is 5 no convincing evidence that the state supreme court would decide differently, a federal court is 6 obligated to follow the decisions of the ...


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