Calsoft Labs, Inc. v. Panchumarthi

Decision Date31 January 2020
Docket NumberCase No. 19-cv-04398-NC
PartiesCALSOFT LABS, INC., et al., Plaintiffs, v. VENKATA PANCHUMARTHI, et al., Defendants.
CourtU.S. District Court — Northern District of California
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS
Re: Dkt. No. 31

Defendants Venkata Panchumarthi and Truinfo Technologies, Inc. move to dismiss plaintiff Calsoft Labs, Inc. and PVR Technologies, Inc.'s second amended complaint. See Dkt. No. 31. For the following reasons, the Court GRANTS IN PART and DENIES IN PART Defendants' motion to dismiss. Because much of Plaintiffs' second amended complaint mirrors its first amended complaint, dismissal is largely without leave to amend.

I. Background
A. Factual Allegations in the Second Amended Complaint

In February 2016, Calsoft, a technology company, purchased PVR from Panchumarthi. See Dkt. No. 27 ("SAC") ¶ 14. At the same time, Panchumarthi agreed to serve as PVR's CEO until August 31, 2018. Id. ¶¶ 16, 18. Once Panchumarthi was no longer PVR's CEO, Calsoft and PVR hired Panchumarthi's new company, Truinfo Technologies, as an independent contractor. ¶ 19. Plaintiffs and Truinfo parted ways on December 31, 2018. See id. ¶ 24. According to Plaintiffs, Panchumarthi secretly compiled confidential information during their relationship to compete against Plaintiffs. See id. ¶¶ 15, 17, 20, 23.

On January 11, 2019, Plaintiffs terminated Panchumarthi's access to their email and data servers. Id. ¶ 25.

On February 11, 2019, Panchumarthi contacted GoDaddy, Inc. and pretended to still be affiliated with Plaintiffs. Id. ¶¶ 27-28. At Panchumarthi's request, GoDaddy reset the password to his former PVR-affiliated email account. Id. Panchumarthi accessed the account and deleted all emails and information stored within. Id. ¶ 29. Plaintiffs discovered Panchumarthi's actions two weeks later. Id. ¶ 30.

On February 20, 2019, Panchumarthi accessed PVR's Dropbox account, which contained customer lists, employee lists, and training programs. Id. ¶ 31. Panchumarthi copied the files in the account and changed his Dropbox ID. Id. In the following months, Panchumarthi used the information he acquired to poach employees and solicit Plaintiffs' customers. See id. ¶¶ 39-41, 64, 66-67.

B. Procedural History

Plaintiffs filed their second amended complaint on November 29, 2019. See id. In their complaint, they 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; (5) intentional interference with contractual relationships; (6) intentional interference with prospective economic relations; (7) trade secret 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; and (12) violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. §§ 1030 et seq. Id. ¶¶ 34-137.

Defendants now move to dismiss the second amended complaint in its entirety. See Dkt. No. 31. All parties have consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). 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. CUTSA Preemption

Before the Court addresses each individual claim, it will briefly discuss the preemptive scope of California's Uniform Trade Secret Act ("CUTSA"), Cal. Civ. Code §§ 3426, et seq.

CUTSA has "a comprehensive structure and breadth." K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939, 954 (2009) (quotation marks omitted). "That breadth suggests a legislative intent to preempt the common law" for trade secret misappropriation claims in California. Id. CUTSA contains a specific preemption provision, Cal. Civ. Code § 3426.7, which "preempts common law claims that are based on the same nucleus of facts as the misappropriation of trade secrets claim for relief." Id.at 958 (quotation marks omitted). Thus, "[a] claim cannot simply depend on a 'different theory of liability'" to avoid CUTSA preemption. Mattel, Inc. v. MGA Entm't, Inc., 782 F. Supp. 2d 911, 985 (C.D. Cal. 2010) (citing K.C. Multimedia, 171 Cal. App. 4th at 957). Common law tort claims are superseded by CUTSA when they fail to "genuinely allege alternative legal theories" and instead simply "restat[e] a trade secrets claim as something else." Zomm, LLC v. Apple, Inc., 391 F. Supp. 3d 946, 954 (N.D. Cal. 2017) (quoting Silvaco, 184 Cal. App. 4th at 240). At the same time, CUTSA does not preempt "(1) contractual remedies, whether or not based upon misappropriation of a trade secret, [and] (2) other civil remedies that are not based upon misappropriation of a trade secret." Cal. Civ. Code § 3426.7(b).

Following the California Court of Appeal's decision in Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210 (2010), disapproved on other grounds by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011), a majority of courts have concluded that CUTSA supersedes claims arising from the alleged misappropriation of confidential information even if that information does not satisfy the definition of trade secrets under CUTSA. See SunPower Corp. v. SolarCity Corp., No. 12-cv-00694-LHK, 2012 WL 6160472, at *6-7 (N.D. Cal. Dec. 11, 2012) (collecting cases). Thus, Plaintiffs' claims are superseded by CUTSA unless they arise from misconduct other than misappropriation of confidential information. See Zomm, 391 F. Supp. 3d at 954.

B. Breach of Fiduciary Duty

Plaintiffs' first claim is for breach of fiduciary duty. See SAC ¶¶ 34-44. Plaintiffs allege that Defendants breached their fiduciary duty by accessing confidential information without authorization and by poaching Plaintiffs' employees and clients. Id. ¶ 37.

"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 benefitof 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)). A fiduciary duty generally ends when the fiduciary resigns his office. See Gab Bus. Servs. v. Lindsey & Newsom Claim Servs., 83 Cal. App. 4th 409, 421 (2000), disapproved on other grounds by Reeves v. Hanlon, 33 Cal. 4th 1140, 1154 (2004).

First, as the Court explained in its order granting Defendants' previous motion to dismiss, it is not clear that Truinfo owed Plaintiffs any fiduciary duty. Plaintiffs assert that Truinfo owed a fiduciary duty simply because Panchumarthi was the sole owner and CEO of Truinfo. See Dkt. No. 33 at 7. Plaintiffs, however, cite no authority for this proposition and the Court can find none. The second amended complaint simply contains no facts suggesting that Truinfo knowingly undertook any obligation to primarily act on Plaintiffs' behalf and for their benefit. See City of Hope, 43 Cal. 4th at 386.

In any case, Plaintiffs fail to state a claim for breach of fiduciary duty because their claim is superseded by CUTSA. The second amended complaint alleges that:

[D]efendants breached their fiduciary duty to plaintiffs by accessing without authorization plaintiffs' confidential employee lists and data, customer lists and data and plaintiffs' proprietary and secret training data and programs valuable in the field of technology consulting and staffing.

SAC ¶ 37. The complaint then describes specific details regarding the employees and clients Defendants allegedly poached. See id. ¶¶ 38-41. These allegations, however, are precisely the allegations that would constitute a misappropriation of trade secrets claim. In fact, Plaintiffs base their misappropriation of trade secrets claim on nearly identical allegations. Specifically, Plaintiffs point to Defendants' alleged misappropriation of "confidential material, including intellectual property, customer and employee lists andcontact information that was of use and value in...

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