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Calsoft Labs, Inc. v. Panchumarthi

United States District Court, N.D. California

November 7, 2019




         Before the Court is defendants Venkata Panchumarthi and Truinfo Technologies, Inc.'s motion to dismiss plaintiffs Calsoft Labs, Inc. and PVR Technologies, Inc.'s first amended complaint. See Dkt. No. 15. Because Plaintiffs' complaint fails to allege specific facts to support their allegations, the Court GRANTS Defendants' motion to dismiss with leave to amend.

         I. Background

         A. Factual Allegations in the Complaint

         Calsoft is a technology company. See Dkt. No. 14 (“FAC”) ¶ 11. In February 2016, Calsoft purchased PVR, a biostatistics and statistical programming services company, from Panchumarthi, the former owner and CEO of PVR. Id. ¶¶ 12, 14. To assist the acquisition transition, Calsoft hired Panchumarthi as the CEO of PVR pursuant to an Employment Agreement. Id. ¶ 16. In addition, as part of the acquisition, Panchumarthi was prohibited from disclosing confidential Calsoft information, soliciting Calsoft's customers and employees, and competing with Calsoft in certain business activities pursuant to the parties' Purchase Agreement. Id. ¶ 14. But Panchumarthi did not intend to honor those restrictions and instead intended to unfairly compete with Calsoft. Id. ¶¶ 15, 17, 23. Panchumarthi's employment with PVR was terminated on August 31, 2018. Id. ¶ 18.

         On September 4, 2018, Calsoft and PVR hired Truinfo-another company owned and operated by Panchumarthi-as an independent contractor. Id. ¶ 19. The parties' Contractor Agreement prohibited Panchumarthi and Truinfo from disclosing confidential information and soliciting Calsoft and PVR's customers and employees. Id. The Contractor Agreement also prohibited Panchumarthi from competing against Calsoft in certain business activities. Id. ¶ 21. Neither Panchumarthi nor Truinfo intended to honor those responsibilities. Id. ¶ 20.

         On December 31, 2018, the parties terminated the Contractor Agreement. Id. ¶ 24. Under that agreement, Truinfo was required to turn over to Plaintiffs “all documents, papers and other matters in its possession or under its control that relate to [Calsoft] or its end Clients.” Id. Plaintiffs also terminated Panchumarthi's access to their confidential information, email and data servers, electronic files, and intellectual property in January 2019. Id. ¶ 25.

         On February 11, 2019, Panchumarthi contacted GoDaddy Inc. and requested a password reset for his former email account, which was owned by PVR. Id. ¶ 27. Panchumarthi identified himself as an agent of Plaintiffs by using a confidential PIN for authorization. Id. ¶¶ 27, 29. GoDaddy then sent Panchumarthi a one-time password to access the email account. Id. ¶ 28. Panchumarthi then accessed Plaintiffs' email and data servers to copy and delete confidential information. Id. ¶¶ 31, 32.

         On February 26, 2019, Plaintiffs discovered that Panchumarthi had changed the password to his PVR email account because he had changed the password without their knowledge. Id. ¶ 29.

         B. Procedural History

         On June 10, 2019, Calsoft initiated this lawsuit in Santa Clara County Superior Court. See Dkt. No. 1 at 6. After Defendants removed the lawsuit to this Court on the basis of diversity jurisdiction (see Id. at 3), Calsoft filed a first amended complaint and added co-plaintiff PVR. See Dkt. No. 14.

         In their first amended complaint, Plaintiffs allege claims for: (1) breach of fiduciary duty; (2) conversion; (3) fraud; (4) violation of California's Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.; (5) intentional interference with contract; (6) intentional interference with prospective economic relations; (7) trade secrets misappropriation; (8) breach of the Purchase Agreement; (9) breach of the Employment Agreement; (10) breach of the Contractor Agreement; (11) breach of the covenant of good faith and fair dealing; (12) violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. §§ 1030 et seq.; and (13) conspiracy to violate CFAA. See id.

         Defendants moved to dismiss the majority of Plaintiffs' claims on September 11, 2019. See Dkt. No. 15. All parties have consented to the jurisdiction of a magistrate judge. See Dkt. Nos. 10, 11; see also Dkt. No. 23 at 5-6.

         II. Legal Standard

         A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Under Rule 8(a), a complaint must include a short and plain statement showing that the pleader is entitled to relief. See Fed. R. Civ. P. 8(a). Although a complaint need not allege detailed factual allegations, it must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Court need not accept as true “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). A claim is facially plausible when it “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The claim also “must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

         If a court grants a motion to dismiss, leave to amend should be granted unless the pleading could not possibly be cured by the allegation of other facts. Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).

         III. Discussion

         A. Breach of Fiduciary Duty

         In their first claim, Plaintiffs accuse Defendants of breaching their fiduciary duty. See FAC ¶¶ 33-38. “The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary duty, its breach, and damage proximately caused by that breach.” City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445, 483 (1998).

         “A fiduciary relationship is any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party.” Wolf v. Superior Court, 107 Cal.App.4th 25, 29 (2003) (quotations omitted). “[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” City of Hope Nat'l Med. Center v. Genetech, Inc., 43 Cal.4th 375, 386 (2008) (quoting Comm. on Children's Television, Inc. v. Gen. Foods Corp., 35 Cal.3d 197, 221 (1983)). “Traditional examples of fiduciary relationships in the commercial context include trustee/beneficiary, directors and majority shareholders of a corporation, business partners, joint adventurers, and agent/principal.” Wolf, 107 Cal App. 4th at 30.

         Here, Plaintiffs allege that “[a] fiduciary relationship existed between plaintiffs and defendants because defendants acted as agents [and] corporate officers . . . .” FAC ¶ 34. From February 2016 to August 2018, Panchumarthi was the CEO of PVR. See Id. ¶¶ 16- 18. “[O]fficers of corporations who participate in the management of the corporation are considered fiduciaries as a matter of law.” Los Angeles Mem'l Coliseum Comm. v. Insomniac, Inc., 233 Cal.App.4th 803, 834 (2015) (citing GAB Bus. Servs. v. Lindsey & Newsom Claim Servs., 83 Cal.App.4th 409, 421 (2000)). Although an officer's fiduciary duty to their employer generally ends upon their resignation (GAB, 83 Cal.App.4th at 421), officers are charged with a continuing duty to protect privileged and confidential information even after they leave the company. AlterG, ...

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