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Inc. v. Lee

United States District Court, N.D. California

July 17, 2019

SUNNY LEE, et al., Defendants.


          Susan Illston United States District Judge.

         Defendants' motion for summary judgment came on for hearing on July 12, 2019. Having carefully considered the papers filed and the arguments made, the Court hereby rules as follows.


         On May 17, 2018, plaintiff C2 Educational Systems, Inc. (“C2”) filed this action based on diversity jurisdiction against defendants Sunny Lee, Kyung Hye Debbie Hong, and So Yeon Jang. Dkt. No. 1. Plaintiff is a company that provides academic tutoring, standardized test preparation, and college admissions counseling at over 180 centers nationwide. Pl.'s Ex. 11, Lobo Decl. ¶ 6. By this lawsuit, plaintiff alleges that defendants, who are former employees of plaintiff, began developing a competing business (called Core Academics, LLC) while they were still employed by plaintiff. Because the parties dispute many of the facts at issue in this case, the Court recites the relevant facts in further detail in the Discussion section below.

         On April 19, 2019, with the Court's leave, plaintiff filed its first amended complaint. Dkt. Nos. 65, 66. In it, plaintiff adds Core Academics, LLC (“Core”) as a defendant and brings the following claims for relief: (1) breach of duty of loyalty; (2) violation of the California Computer Data and Access Fraud Act; (3) misappropriation and conversion of property; and (4) tortious interference with customer contracts. A jury trial in this case is set to begin on October 7, 2019.


         Summary judgment is proper if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however, has no burden to produce evidence showing the absence of a genuine issue of material fact. Id. at 325. Rather, the burden on the moving party may be discharged by pointing out to the district court that there is an absence of evidence to support the non-moving party's case. Id.

         Once the moving party has met its burden, the burden shifts to the non-moving party to “designate ‘specific facts showing that there is a genuine issue for trial.'” Id. at 324 (quoting then Fed.R.Civ.P. 56(e)). To carry this burden, the non-moving party must “do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). “The mere existence of a scintilla of evidence . . . will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

         In deciding a summary judgment motion, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor. Id. at 255. “Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for summary judgment . . . .” Id. However, conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Publ'g Co., Inc. v. Gen. Tel. & Elec. Corp., 594 F.2d 730, 738 (9th Cir. 1979). The evidence the parties present must be admissible. Fed.R.Civ.P. 56(c)(4).

         The parties agree that in this action based on diversity jurisdiction, the substantive law of the state of California applies. See Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).


         Defendants move for summary judgment on all four of plaintiff's claims. If the claims survive summary judgment, defendants ask that the Court “grant summary adjudication as to punitive damages because Plaintiff has no evidence that the Defendants acted willfully or maliciously.” Mot. at 1.

         Both parties agree there are numerous facts in dispute. At the hearing, defendants asserted that those facts are not material, but they forwarded no argument showing this to be the case, whether at the hearing or in their papers. Plaintiff has argued in response that the disputed facts are material to resolution of its claims. Because the Court agrees with plaintiff, the Court will DENY the majority of defendants' motion for summary judgment, with the exception of GRANTING summary judgment on the claim for breach of the duty of loyalty as to defendant Core Academics LLC only.

         I. Breach of Duty of Loyalty

         “The elements of a cause of action for breach of a duty of loyalty . . . are as follows: (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 (2007) (citation omitted). California courts have held that “[a]n employee does not breach his duty of loyalty by preparing to compete with his employer.” Mamou v. Trendwest Resorts, Inc., 165 Cal.App.4th 686, 719 (2008) (citations omitted). Nevertheless, “while an employee may secretly incorporate a competing business prior to departing, the employee may not use his or her ...

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