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Zoom Imaging Solutions, Inc. v. Roe

United States District Court, E.D. California

November 8, 2019




         Plaintiff Zoom Imaging Solutions, Inc. (“Zoom”) brings this action against defendants Edward Roe, Maxwell Ramsay, Jon Crossen, Corinne Fuerest, Andrew Alsweet, Kevin Toon, Jason Peebler, Abigail Neal, Power Business Technology LLC (“Power”), and Does 1 through 100, alleging that defendants accessed and used Zoom's confidential information to build and develop competitor Power's business, in violation of defendants' employment agreements, as well as state and federal law. Before the court is defendants' Motion to Dismiss. (Docket No. 23.)

         I. Relevant Allegations

         Zoom provides printing and imaging services to commercial businesses. (Compl. at 3, ¶ 19.) Zoom's services include the sale, installation, and servicing of digital print and copy systems, print services, and software solutions. (Id.)

         Zoom develops, acquires, and maintains business information related to its customers, including pricing information, customer preferences and contract renewal information, as well as Zoom's business, sales, and marketing strategies (collectively the “Confidential Information”). (Compl. at 4, ¶ 23.) Zoom's success is attributable to its use of this information. Zoom therefore invests substantial time, money, and effort developing, acquiring, and maintaining this information. (Compl. at 4, ¶¶ 21, 22.)

         The Confidential Information is not generally known. (Compl. at 4, ¶ 25.) Because it gives Zoom a competitive advantage over persons not in possession of this information, Zoom uses reasonable and diligent efforts to maintain and protect the Confidential Information. (Compl. at 4, ¶¶ 24, 27.) Such protection includes multiple levels of restricted access. (Compl. at 11, ¶ 55.)

         Defendant Power is a competitor of Zoom founded by defendant Roe. (Compl. at 8, ¶ 48.) All other named defendants (collectively the “Individual Defendants”) worked for Zoom in various capacities: Roe worked for Zoom as President (Compl. at 4, ¶ 28); Peebler as Vice President of Sales (Compl. at 5, ¶ 34), Ramsay and Crossen as Regional Sales Managers (Compl. at 5, ¶¶ 29, 31); Toon and Neal as Account Executives (Compl. at 5, ¶¶ 33, 35); Alsweet as a Senior Account Manager (Compl. at 5, ¶ 32); and Fuerst as Zoom's Leasing Administrator. (Compl. at 5, ¶ 30.)

         In 2017, Roe signed an Executive Agreement (“2017 Executive Agreement”) where he promised to refrain from using Confidential Information to solicit Zoom's customers or employees for a period of two years after the termination of his employment. (Compl. at 5, ¶ 36.) Between 2005 and 2018, all Individual Defendants received and acknowledged receipt of Zoom's employee handbook (“Employee Handbook”). (Compl. at 6, ¶ 37-45). The handbook required employees to safeguard confidential information and prohibited employees from removing, using, or sending copies of any company records without prior approval of the President of Zoom. Id. In 2019, Roe signed an employment separation agreement and release (“2019 Separation Agreement”) which prohibited Roe from making disparaging comments about Zoom after his employment terminated. (Compl. at 7, ¶ 46.)

         Defendant Roe founded Power in 2019. (Compl. at 8, ¶ 48.) While still employed with Zoom, Roe solicited Zoom's employees with job offers to work at Power. (Compl. at 8, ¶ 49.) Before and after the Individual Defendants left Zoom for Power, defendants “accessed, downloaded, and emailed Zoom's confidential information and/or trade secrets” (Compl. at 8, ¶ 50), including customers' lease information (Compl. at 8, ¶ 50(a), (d)), pricing formulas (Compl. at 8, ¶ 50(b)), business plans (Compl. at 9, ¶ 50(c)), and files assigned to defendant Crossen. (Compl. at 9, ¶ 50(e).) Defendants accessed the information in a manner that exceeded Zoom's authorization. (Compl. 1, ¶ 54.) With Zoom's Confidential Information, defendants interfered with plaintiff's contracts with at least 74 customers. (Compl. at 10, ¶ 51.) Further, by transmitting and conveying Zoom's information, defendants have diminished Zoom's goodwill and standing among its customers. (Compl. at 10, ¶ 52.)

         Plaintiff alleges the following nine causes of action: (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) violation of the California Uniform Trade Secrets Act, (4) violation of the Defend Trade Secrets Act, (5) intentional interference with contractual relations, (6) violation of the Computer Fraud and Abuse Act, (7) breach of fiduciary duty, (8) breach of loyalty, and (9) unfair business practices.

         II. Legal Standard

         On a Rule 12(b)(6) motion, the inquiry before the court is whether, accepting the well-pleaded allegations in the complaint as true and drawing all reasonable inferences in the plaintiff's favor, the plaintiff has stated a claim to relief that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The court, however, is “not required to accept as true allegations . . . that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Seven Arts Filmed Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

         III. Discussion

         A. Breach of Contract Claim (Count One)

         Plaintiff's claim for breach of contract arises out of three documents: Defendant Roe's 2017 Executive Agreement, Defendant Roe's 2019 Separation Agreement signed at the end of his employment, and the Individual Defendants' Employee Handbooks received on dates ranging from 2005 to 2018. (Compl. at 12, ¶¶ 61, 62, 63.)

         In California, to allege a cause of action for breach of contract, plaintiff must plead “(1) the existence of a contract, (2) defendant's breach, (3) plaintiff's performance or excuse for nonperformance, and (4) the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal.4th 811, 821 (2011).

         Under Rule 10 of the Federal Rules of Civil Procedure, “each claim founded on a separate transaction or occurrence . . . must be stated in a separate count” if doing so “would promote clarity.” Fed.R.Civ.P. 10(b). “Courts have required separate counts where multiple claims are asserted, where they arise out of separate transactions or occurrences, and where separate statements will facilitate a clear presentation.” Bautista v. Los Angeles Cty., 216 F.3d 837, 840-41 (9th Cir. 2000). Defendants object to plaintiff's “lumping” of allegations related to three different contracts under a single claim. (Motion to Dismiss at 6). The court agrees the plaintiff must separate the claims.

         Plaintiff alleges the violation of three different contracts by eight named defendants, and up to 100 unnamed ones. Each of the contracts under this claim constitutes a separate transaction or occurrence. Most obviously, some of the Employee Handbook agreements were signed over a decade before Roe signed the Executive Agreement in 2017, and the Individual Defendants other than Roe are not parties to defendant Roe's 2017 and 2019 agreements. Further, plaintiff has not alleged that defendant Roe's 2019 Agreement, which prevents Roe from making disparaging comments about Zoom, modifies or is related to Roe's 2017 Executive Agreement, which governed his confidentiality obligations during his employment. The agreements at issue under this claim are therefore separate transactions.

         Stating the allegations for each contract in separate counts is necessary for clarity and reviewability. This court has previously dismissed complaints under Rule 10(b) where “the claims do not identify which of the many factual allegations apply to each specific claim.” Haney v. Bondoc, No. CV 1-07-1222-GMS, 2009 WL 926887, at *2 (E.D. Cal. Apr. 3, 2009). Such is the case here. Under the “Breach of Contract” heading in the Complaint, plaintiff indiscriminately incorporates paragraphs 1 through 59 of the Complaint, quotes each of the three agreements, and then asserts that “the Individual Defendants materially breached each and every one of the obligations described above by, among other things, acquiring, disclosing and using Zoom's sensitive, confidential, and proprietary information and trade secrets and failing to promptly return all of Zoom's proprietary information upon termination of each of their employment.” (Compl. at 14, ¶ 68.) The allegations do not identify which actions violated which contract. As it stands, the Complaint precludes “meaningful review [of] the complaint, ” Haney, 2009 WL 926887, at 2*, because the court cannot determine what the claims purport to be or whether they are well-pleaded. Separation of the allegations into separate counts is therefore necessary for clarity.

         B. Breach of Implied Covenant of Good Faith and Fair Dealing (Count Two)

         In California, there is “an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” Reinhardt v. Gemini Motor Transp., 879 F.Supp.2d 1138, 1144 (E.D. Cal. 2012) (citing Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal.4th 390, 400 (2000)). To plead a breach of the covenant of good faith and fair dealing plaintiff must allege that “(1) the parties entered into a contract; (2) the plaintiff fulfilled his obligations under the contract; (3) any conditions precedent to the defendant's performance occurred; (4) the defendant unfairly interfered with the plaintiff's rights to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant's conduct.” Id. “Importantly, to state a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff must identify the specific contractual provision that was frustrated.” Ahmadi v. United Cont'l Holdings, Inc., No. 1:14-CV-00264-LJO, 2014 WL 2565924, at *6 (E.D. Cal. June 6, 2014) (citing Plastino v. Wells Fargo Bank, 873 F.Supp.2d 1179, 1191 (N.D.Cal.2012).

         The court must dismiss plaintiff's claim because it fails to identify the specific contractual provision frustrated by defendants' conduct. See id.; Plastino, 873 F.Supp.2d 1191; Perez v. Wells Fargo Bank, N.A., No. C-11-02279 JCS, 2011 WL 3809808, at *18 (N.D. Cal. Aug. 29, 2011). Plaintiff merely incorporates by reference all previous paragraphs, including the three contracts. (Compl. at 15, ¶ 73.) Plaintiff then lists, in one paragraph, around eight different collective actions by defendants that allegedly breached the implied covenant of good faith and fair dealing. (Compl. at 15, ¶ 75.) The Complaint does not identify the contract or the provision the defendants' conduct frustrates. The court cannot evaluate, for example, what the “benefits of the contract” are without a reference to the contract. See Reinhardt, 879 F.Supp.2d at 1144; see also, e.g., Ahmadi, 2014 WL 2565924, at *6 (identifying the benefits of a contract to determine if plaintiff correctly alleges that defendant's conduct interfered with such benefits). The court must therefore dismiss this claim.

         C. Misappropriation of Trade Secrets in Violation of the California Uniform Trade Secrets Act (Count Three)

         To state a valid claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. Code §§ 3426 et seq., a plaintiff must allege that “(1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff's trade secret through improper means, and (3) the defendant's actions damaged the plaintiff.” E. & J. Gallo Winery v. Instituut Voor Landbouw-En Visserijonderzoek, No. 117CV00808DADEPG, 2018 WL 2463869, at *3 (E.D. Cal. June 1, 2018 (quoting Cytodyn, Inc. v. Amerimmune Pharm., Inc., 160 Cal.App.4th 288, 297 (2008)).

         Defendants do not contest that plaintiff has sufficiently pleaded improper acquisition or disclosure of alleged trade secrets, including, for example, disclosure of information to defendant Power beyond the authorization granted by the Employee Handbook. (Compl. at 17 ¶¶ 82, 86); cf. E. & J. Gallo Winery, 2018 WL 2463869, at *6 (“[B]ecause defendants were allegedly given access to plaintiffs' trade secrets pursuant to a non-disclosure agreement, plaintiffs must plead facts which, if proven to be true, would show that the defendant used the information in a manner not authorized by the parties' agreement.”). Defendants also do not contest that the allegations sufficiently plead damages. (See Compl. at ¶¶ 59, 88.) Defendants contest only whether plaintiff has sufficiently identified the trade secrets at issue.

         1. Identification of Trade Secrets -- Legal Standard

         A “trade secret” under the CUTSA is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process that: (1) [d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Cal. Civ. Code § 3426.1(d).

         At the pleading stage, “a plaintiff need not ‘spell out the details of the trade secret.'” Alta Devices, Inc. v. LG Elecs., Inc.,343 F.Supp.3d 868, 881 (N.D. Cal. 2018) (quoting Autodesk, Inc. v. ZWCAD Software Co., 2015 WL 2265479, at *5 (N.D. Cal. May 13, 2015)); see also E. & J. Gallo, 2018 WL 2463869, at *3. “To so require would mean that the complainant would have to destroy the very thing for which he sought protection by making public the secret itself.” TMX Funding, Inc. v. Impero Techs., Inc., No. C 10-00202 JF (PVT), 2010 WL 2509979, at *3 (N.D. Cal. June 17, 2010). However, “the complaint must do more than describe the subject matter of the trade secrets in a ‘vague and conclusory' manner.” E. & J. Gallo, 2018 WL 2463869, at *3 (quoting Bladeroom Grp. v. Facebook, Inc., No. 5:15-cv-01370-EJD, 2015 WL 8028294, at *3 (N.D. Cal. Dec. 7, 2015). The plaintiff must “describe the subject matter of the trade secret with sufficient ...

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