Opinion
Case No. CV 12-06736 DDP (SHx)
09-16-2014
CELLULAR ACCESSORIES FOR LESS, INC., a California corporation, Plaintiff, v. TRINITAS LLC, a Texas limited liability company; DAVID OAKS, an individual, Defendants.
ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
[Dkts. 52, 53]
Presently before the court are a motion for summary judgment by Plaintiff Cellular Accessories for Less, Inc. ("Cellular") and a motion for summary judgment by Defendants Trinitas LLC ("Trinitas") and David Oakes (collectively, "Defendants"). These motions address one claim in common, a breach of contract claim, but otherwise address distinct issues.
I. BACKGROUND
Cellular and Trinitas are both sellers of mobile phone accessories to businesses. David Oakes worked for Cellular as a "Sales Account Manager" from June 2, 2004 to December 27, 2010, when he was terminated. (Ex. A, Decl. David Oakes; Mot. Decl. Mitchell Langstein.) Oakes signed an "Employment Agreement" at the start of his employment in 2004. (Ex. A, Oakes Decl.) The Employment Agreement contained a clause reading: "CAFL [i.e., Cellular] requests that proprietary information remains the property of this organization and may not leave, either physically or electronically unless approved in writing by Mitch[ell Langstein]." Id. That clause also included Cellular's "customer base" within the sweep of "proprietary information." Id.
Oakes also signed a "Statement of Confidentiality" on January 7, 2008, which stated that he would not "knowingly disclose, use, or induce or assist in the use or disclosure of any Proprietary Information . . . or anything related to Proprietary Information . . . without the Company's prior express written consent." (Ex. D, Oakes Decl.) "Proprietary Information" was defined in the Statement as:
information (a) that is not known by actual or potential competitors of the company or is generally unavailable to the public, (b) that has been created, discovered, developed, or which has otherwise become known to the Company . . . and (c) that has material economic value or potential material economic value to the Company's present or future business.Id. The parties agree that Oakes signed the Statement; however, they disagree as to whether a valid contract was formed thereby. (Def.'s Mot. Summ. J., § III.B.3.a.)
In late 2010, shortly before being terminated, Oakes emailed himself a digital file created with the ACT computer program ("ACT file") containing the contact information for some 900+ business and personal contacts. (Ex. B, Oakes Decl.) He also maintained his LinkedIn contact information after his termination. (Ex. C, Oakes Decl.) Finally, Plaintiff alleges that he also emailed himself the direct contact information for the purchasing agents of certain clients, information on clients' billing preferences and procedures, clients' past pricing requests, and at least one internal strategy document regarding a client, Honeywell. (Exs. B-J, L, Decl. Obi Iloputaife.)
Plaintiff also alleges that Oakes emailed or otherwise contacted clients after his termination and accused Cellular of "major unethical and deceitful acts done deliberately by management towards its clients." (Ex. N, Iloputaife Decl; Ex. A, Decl. Melanie Cogburn, at transcript pages 182-183.)
After leaving Cellular, Oakes started his own company in Texas which eventually became the company known as Trinitas. Trinitas directly competes with Cellular for business in the corporate mobile phone accessory market.
Plaintiff brings an action for damages and injunctive relief on claims of "copyright infringement . . . breach of contract, unfair competition, common law unfair competition, trade secret misappropriation, unjust enrichment, intentional interference with prospective business advantage, and trade libel." (Compl. ¶ 4.)
In these motions for summary judgment, Plaintiff seeks summary judgment on the issues of breach of contract and unfair competition resulting from that breach. Defendant seeks summary judgment on all issues except copyright infringement, arguing that (1) there is no triable issue of fact on the trade secret claim under the California Uniform Trade Secrets Act ("CUTSA"); (2) Plaintiff's common-law torts are preempted by CUTSA; (3) there was no breach of contract because there was no contract, no breach, and/or no actual damages; and (4) that there is no triable issue of fact with regard to trade libel.
II. LEGAL STANDARD
A party may move for summary judgment with regard to any claim or defense or any part of any claim or defense. Fed.R.Civ.P. 56(a). The court must grant summary judgment if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Id. "[A] complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party bears the burden of identifying "those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact" regarding a particular claim or defense. Id. (internal quotation marks omitted).
III. DISCUSSION
A. CUTSA Trade Secret Misappropriation
California has adopted a statutory trade secrets scheme, the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civil Code § 3426 et seq. Under CUTSA, "[a]ctual or threatened misappropriation" of trade secrets may be enjoined, Cal. Civ. Code § 3426.2, and a plaintiff may also sue for damages equal to "the actual loss caused by misappropriation" as well as any "unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss." Cal. Civ. Code § 3426.3. Trade secrets are defined as any
information, including a . . . compilation . . . that:
(1) Derives 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; andCal. Civ. Code § 3426.1. Misappropriation is defined as, inter alia,
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
[d]isclosure or use of a trade secret of another without express or implied consent by a person who . . . [a]t the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was . . . [a]cquired under circumstances giving rise to a duty to maintain its secrecy or limit its use . . . .
Id.
Three different types of information might be subject to trade secret law in this case. First, the parties do not dispute that Oakes emailed himself the ACT file, as well as numerous additional items described above. Second, the parties also do not dispute that Oakes retained contacts in his LinkedIn social networking account that he created while employed at Cellular. Third, Cellular alleges, and provides exhibits to show, that Oakes emailed himself a number of other files and documents relating to customers, including the direct contact information for those with the power to do business, information about purchasing and billing preferences or requirements, and specific strategy information relating to one client, Honeywell. Defendants do not directly deny that Oakes took all the documents alleged in this third category of information, but neither do they precisely admit it. Defendants' Reply does admit that Oakes took certain documents relating to Honeywell and its "purchasing requirements." (Def.'s Reply, § I.)
The removal of the ACT file, containing customer information, is the primary point of contention. "It is well-established that a customer list may constitute a protectable trade secret." Gable Leigh, Inc. v. North Am. Miss, No. CV 01-01019 MMM(SHX); 2001 WL 521695 at *15 (C.D. Cal. Apr. 13, 2001) (citing cases). However, such lists are not automatically trade secrets, because many customer lists contain no information which is not "easily discoverable through public sources." Scott v. Snelling & Snelling, Inc., 732 F. Supp. 1034, 1044 (N.D. Cal. 1990). But where "the employer has expended time and effort identifying customers with particular needs or characteristics," the list can be a protectable trade secret. Mor-Life, Inc. v. Perry, 56 Cal. App. 4th 1514, 1521 (1997). Thus, the chief factual issue in determining whether a customer list is a trade secret is the amount of effort involved in compiling it. If the methods used to compile the information are "sophisticated," "difficult," or "particularly time consuming," that tends to show that it is a trade secret. Am. Paper & Packaging Products, Inc. v. Kirgan, 183 Cal. App. 3d 1318, 1326 (1986). The underlying rationale for requiring that customer lists be the product of some significant effort is that information which is easily and publicly available does not convey enough "independent economic value" to its holder to satisfy the first prong of the § 3426.1 definition. Scott, 732 F. Supp. at 1044.
Defendants argue that Plaintiff has failed to carry its burden of showing that the ACT file is the product of significant effort. Defendant contends that all the information in the ACT file is easily obtained through public sources. "Anyone can easily get extensive information about Fortune 1000 companies, through a standard internet search." (Def.'s Mot. Summ. J., § B.1.)
However, whether the information in Oakes' ACT file could be so easily obtained is in dispute. Cellular CEO Mitchell Langstein declares that "[t]o build a list of cellular accessories procurement officers requires the expenditure of a significant amount of time and money," that "Cellular hires and pays employees who are tasked with cold-calling companies and working their way past the 'gatekeepers' to reach the right procurement officer," that David Oakes was similarly required, during his employment with Cellular, to make such calls, that Oakes and other employees were encouraged to "network" with employees at prospect companies, that Oakes made such networking contacts in the course of his employment, and that, in short, "information found in [the] customer list is not available in public directories." (Reply Decl. Mitchell Langstein, ¶¶ 32-35, 39, 40-41, 49-52. See also Ex. M, Opp'n Decl. Rasheed McWilliams (deposition of Mitchell Langstein describing method by which sales agents attempt to identify "decision makers" at target companies).)
Indeed, Oakes' own declaration supports this narrative: "I was directed to generate business . . . . I was given no leads or customer lists, but was told to begin making cold calls to generate new business for the company . . . . Getting business usually depended on a number of factors, including the relationships I was able to form with the individuals . . . . As I began to make calls, I would put their information into my ACT file." (Oakes Decl., ¶¶ 2-3.)
On the other hand, Oakes also says that "All individuals I talked to-at any company-had already been contacted by other competitors," (Oakes Decl., ¶ 2), and that LinkedIn suggested contacts to him automatically-facts which, if true, tend to show that his information-gathering techniques were not especially "sophisticated" or "difficult." Kirgan, 183 Cal. App. 3d at 1326.
In short, there is a genuine issue of fact as to how difficult the information in the ACT file was to obtain.
Defendants also argue that David Oakes' LinkedIn contacts were not a trade secret, because Cellular encouraged its employees to create and use LinkedIn accounts, (Oakes Decl. ¶ 2), and Oakes' LinkedIn contacts would have been "viewable to any other contact he has on LinkedIn." (Def.'s Mot. Summ. J., § II.) Plaintiff argues, on the other hand, that LinkedIn information is only available to the degree that the user chooses to share it. (Reply Decl. Mitchell Langstein, ¶ 44; Pl.'s Opp'n, § III.B.5.) Therefore, according to Plaintiff's declarant, it is not automatically the case that contact information is "viewable to any other contact." Oakes' declaration does not say whether this characterization of the functionality of LinkedIn is accurate, or if it is, whether he had set his contacts to be viewable. Because the Court declines to take judicial notice of the functions of LinkedIn, and because the parties' declarants do not make sufficiently clear whether and to what degree Oakes' LinkedIn contacts were indeed made public (and whether this was done with Cellular's explicit or implicit permission), there remain issues of material fact as to the LinkedIn information.
As to the third type of information-the emails containing contact information, emails indicating customer preferences, and internal memo-Defendant does not address the matter separately, but asserts that Oakes retained the Honeywell documents "for posterity," and that information about clients' purchasing requirements or preferences cannot be a trade secret because the cellular accessories business is a "commodity business that shifts and changes all the time." (Def.'s Reply, § I.) But it seems clear that if a customer list (gathered with a sufficient amount of effort) can provide independent economic value to a business, documentation of the past behavior and preferences of those customers can be, too-even if market conditions change. As to the Honeywell memo, it appears to describe a successful method for meeting a customer's needs, which could likewise provide independent economic value. "Cellular uses its customer information, in conjunction with additional trade secret information, such as customer product, pricing and payment preferences, to win business from [and] maintain relationships with clients." (Reply Decl. Mitchell Langstein, ¶ 17.) Thus, there is a genuine issue of material fact with regard to the economic value of this information, too.
Finally, Defendants argue (presumably with regard to all three kinds of information) that Cellular fails to meet its burden as to the second § 3426.1 definition of trade secret: showing that it took reasonable steps to protect the information. But this, too, is a disputed issue of fact. Cellular claims that it "goes to great lengths to keep its proprietary information confidential and protected, using layers of passwords and SSL encryption," and describes in some detail which items are encrypted or password-protected. (Reply Decl. Mitchell Langstein, ¶ 23-24.) Oakes disputes this, admitting that his email was password-protected but asserting that employee computers were generally left on and unprotected. (Oakes Decl., ¶ 7.)
With regard to both prongs, then, Defendants ask the Court to make credibility determinations between competing statements by motivated parties on both sides, each putting forth some factual allegations which are not facially incredible. That, however, is not the Court's role at summary judgment, which may be granted only where "there is no genuine dispute as to any material fact" Fed.R.Civ.P. 56(a).
"That an affidavit is self-serving bears on its credibility, not on its cognizability for purposes of establishing a genuine issue of material fact." United States v. Shumway, 199 F.3d 1093, 1104 (9th Cir. 1999).
Defendant's motion for summary judgment as to trade secret misappropriation is denied.
B. Preemption
CUTSA "has, for the most part, superseded prior California common law on trade secret issues." Scott, 732 F. Supp. at 1044. Thus, CUTSA preempts other claims "based on the same nucleus of facts as trade secret misappropriation." K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939, 962 (2009).
Defendant contends that several of Plaintiff's tort claims-statutory and common law unfair competition, unjust enrichment, and interference with prospective business advantage-are based on the same nucleus of facts as its trade secret claim, and are therefore preempted. (Def.'s Mot. Summ. J., § III.B.2.) Plaintiff responds that Defendant has mischaracterized the factual foundations of its tort claims, insisting that "they arise from David Oakes' defamatory and libelous acts following his termination." (Pl.'s Mot. Summ. J., § II.C.)
Plaintiff's Third Cause of Action (statutory unfair competition) and Fourth Cause of Action (common law unfair competition) appear to be based primarily on the allegation of copyright infringement. (Compl. ¶¶ 50-60.) To the extent that these claims may also rely on trade secret misappropriation, see id. at ¶ 58, they are preempted.
Plaintiff's Sixth Cause of Action (unjust enrichment) is also preempted, to the extent that it is a common law claim based on the same nucleus of facts as the trade secret claim. However, a plaintiff may also recover for unjust enrichment by trade secret misappropriation under CUTSA itself. Cal. Civil Code § 3426.3. Such statutory recovery would obviously not be preempted.
Finally, Plaintiff's Seventh Cause of Action (interference with prospective business advantage) is based in part on the trade secret claim. (Compl. ¶ 79.) To that extent, it is preempted. However, to the extent that it is based on the trade libel claim, id. at ¶ 80, it is not preempted.
Thus, each of these tort claims is preempted, and summary judgment is granted, to the extent that it relies on the nucleus of facts of the trade secrets claim. However, because each is also based on some alternative set of facts as well, each claim survives preemption in part.
C. Trade Libel
In California, trade libel must be proved by showing, "at a minimum: (1) a publication [of a disparaging statement]; (2) which induces others not to deal with plaintiff; and (3) special damages." Nichols v. Great Am. Ins. Companies, 169 Cal. App. 3d 766, 773 (1985) (parentheses omitted).
Cellular alleges that Defendants "published one or more false statements which were intended to disparage CELLULAR ACCESSORIES's good and services." However, at the time motions for summary judgment were filed, the only evidence Cellular had produced of such statements were a declaration and deposition of its CEO Mitchell Langstein alleging he had heard from some customers that David Oakes had made certain potentially disparaging remarks to his customers via email. (E.g., Opp'n Decl. Mitchell Langstein, ¶¶ 79-86.)
This evidence suffers two defects. First, Langstein's allegation as to the contents of an email is not the best evidence of the contents of that email. "An original writing, recording, or photograph is required in order to prove its content . . . ." Fed. R. Evid. 1002; United States v. Bennett, 363 F.3d 947, 954 (9th Cir. 2004) (holding that "a printout or other representation" of electronically stored data is the best evidence of that data). Second, even if the contents of the email could be acceptably reconstructed through testimony or declarations, Langstein nowhere directly alleges that he personally saw the emails. At best, he alleges that some of his customers alerted him to the contents of the emails. (E.g., Ex. A, Decl. Melanie Cogburn, at transcript pages 79-83.) As there is no direct evidence from those customers (nor does there appear to be any forthcoming at trial), Langstein's statements, based on inadmissible hearsay, are not enough to prove the contents of the email. Fed. R. Evid. 801-802.
Cellular attempts to cure these defects by attaching to its reply an email purported to be from another of Cellular's customers, Gary Merritt. (Ex. N, Iloputaife Decl.) This email might meet the best evidence rule—although it is a third party's email quoting the Oakes email, not the Oakes email itself, which could raise hearsay issues.
In any event, Cellular has, without explanation, introduced this evidence only at the reply stage, thus denying Defendants the opportunity to respond to it. Given that the email, if authentic, would already have been in Cellular's possession at the time the company initiated this proceeding, the Court sees no reason for such a long delay in presenting this evidence. The Court has the discretion to ignore evidence introduced for the first time in a reply brief, In re McAllister, No. BAP CC-13-1578, 2014 WL 3955008 (B.A.P. 9th Cir. Aug. 13, 2014) ("[C]onsideration of new arguments or evidence in a reply falls within the discretion of the trial court."), and because considering the email at this stage would prejudice the Defendants for no good reason, the Court chooses not to do so.
Thus, Defendants have successfully pointed to an absence of any admissible evidence to show publication of a disparaging statement that induced others not to deal with Plaintiff, an essential element of the trade libel claim. Summary judgment is granted to the Defendants on this claim.
Because Cellular's interference with prospective business advantage survives only to the extent that it relies on the facts of the trade libel claim, § III.B. supra, and because those facts are not proven, Defendants are granted summary judgment on that claim as well.
D. Breach of Contract and Related Claims
Plaintiff and Defendants both move for summary judgment on the issue of breach of contract. Cellular argues that it is undisputed that David Oakes signed both the Employment Agreement and the Statement of Confidentiality; that those documents mandated that Oakes not disclose or remove proprietary information; and that it is also undisputed that Oakes took the ACT file and certain other information as well. Thus, Cellular contends, as a matter of law it is entitled to judgment as to breach of contract.
This claim is solely against Defendant Oakes.
Defendant Oakes counters that there was no valid contract as to the Statement of Confidentiality, because there was no new consideration; that even if there was a contract, there was no breach, because the information in question was not confidential or proprietary; and that there is no allegation of actual damages.
The Court finds that both the Employment Agreement and the Statement of Confidentiality could be found by a rational trier-of-fact to be valid agreements. As a starting point, the Employment Agreement does not appear to contain any provision specifying its length or end date, and so it is presumed to be an at-will agreement. Cal. Labor Code § 2922. Absent some sort of integration or anti-modification clause, an at-will employment agreement can generally be modified by an employer at any time; the modification essentially terminates the prior agreement and creates a new, unilateral contract, which the employee accepts by continuing to work for the employer under the modified terms. See DiGiacinto v. Ameriko-Omserv Corp., 59 Cal. App. 4th 629, 633 (1997) (holding that a modification to an at-will employment contract reducing the employee's salary did not breach, but rather terminated and replaced, the employment contract). The opportunity for continued employment is, itself, consideration for the new agreement. Id.
The Statement of Confidentiality being a modification of the Employment Agreement that created a new, valid contract, the question is whether Defendants violated that contract. The Statement of Confidentiality forbade employees to disclose or use proprietary information, which it defined on substantially the same terms as the CUTSA trade secret definition: namely, information that is not known to competitors or the public, obtained by the company, that confers an economic benefit. (Ex. D, Oakes Decl.) Because of this, resolution of the breach of contract claim would require resolution of essentially the same disputed facts discussed above in § III.A. Thus, it cannot be said as a matter of law that Defendant Oakes did not breach the contract.
Note that this does not render the contract claim preempted by CUTSA. Cal. Civ. Code § 3426.7(b).
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However, Defendants are correct that a breach of contract claim requires a showing of damages; those damages are in "the amount which will compensate the party aggrieved for all the detriment proximately caused [by the breach], or which, in the ordinary course of things, would be likely to result therefrom." Cal. Civ. Code § 3300. The causal element is critical. Damages must be "clearly ascertainable in both their nature and origin." Cal. Civ. Code § 3301. "Causation of damages in contract cases, as in tort cases, requires that the damages be proximately caused by the defendant's breach, and that their causal occurrence be at least reasonably certain." Vu v. California Commerce Club, Inc., 58 Cal. App. 4th 229, 233 (1997).
Thus, in order to defeat Defendants' motion for summary judgment, Cellular is required to put forth evidence from which a rational trier-of-fact could conclude that Oakes' breach of the proprietary information provisions in his contract in fact caused Cellular a loss of business. Here, Cellular has not carried that burden.
Cellular asserts that "[o]ver the course of three years, Cellular lost and Defendant gained a proportional increase in sales" to those customers. (Pl.'s Opp'n, § III.B.2.) Such a trend, if it could be shown, might well be enough to show damages circumstantially. But Cellular does not show a trend of proportional loss and gain by the parties. Its evidence does satisfactorily show that in the three years after Oakes was terminated from his employment with Cellular, Trinitas' sales volume increased-including sales to some past or current customers of Cellular. (Ex. N, Opp'n Decl. Rasheed McWilliams.) But its exhibits show nothing at all about Cellular's sales; so far as the Court can determine, Plaintiff's sole piece of evidence regarding its own sales figures is Mitchell Langstein's statement that "[i]n 2012, there was a large reduction in the volume of Cellular's sales to Atmos Energy." (Opp'n Decl. Mitchell Langstein, ¶ 87.) But that fact, alone, is not sufficient to allow direct comparison between Cellular's and Trinitas' sales. How large is "large"? Was the reduction in fact "proportional" to Trinitas' gain? Did Cellular lose sales in the other years? None of these questions can be answered on Plaintiff's evidence.
Plaintiff's proof of causation with regard to damages-and, indeed, the existence of any actual loss at all-is not sufficient to allow a rational trier-of-fact to find for Plaintiff on a breach of contract claim. Defendant's motion is granted on this claim. Any related claims, including unfair competition based specifically on breach of contract, therefore also fail.
IV. CONCLUSION
Defendants' motion for summary judgment is denied as to the CUTSA trade secret claim. It is granted as to the trade libel and interference with prospective business advantage claims. It is granted in part as to the statutory and common law unfair competition claims, inasmuch as they are based on trade secret misappropriation, but denied inasmuch as they may be based on the facts of other claims. The motion is granted in part as to the unjust enrichment claim, inasmuch as it is based on common law principles rather than recovery under CUTSA. Finally, Defendant's motion for summary judgment is granted, and Plaintiff's motion denied, as to the breach of contract claim and any unfair competition claims dependent on that claim. IT IS SO ORDERED. Dated: September 16, 2014
/s/
DEAN D. PREGERSON
United States District Judge