Conversion Logic, Inc. v. Measured, Inc.

• Decision Date: 13 December 2019
• Docket Number: Case No: 2:19-cv-05546-ODW (FFMx)
• Court: U.S. District Court — Central District of California
• Parties: CONVERSION LOGIC, INC., Plaintiff, v. MEASURED, INC., et al., Defendants.

CONVERSION LOGIC, INC., Plaintiff, v. MEASURED, INC., et al., Defendants.

Case No: 2:19-cv-05546-ODW (FFMx)

United States District Court Central District of California

December 13, 2019

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS [21]

I. INTRODUCTION

Plaintiff Conversion Logic, Inc. ("Conversion") brings an action against Measured, Inc. ("Measured"), Trevor Testwuide ("Testwuide"), Madan Bharadwaj ("Bharadwaj"), and Antonio Magnaghi ("Magnaghi"), (collectively, "Defendants"). (See Compl., ECF No. 1.) Pending before the Court is Defendants' Motion to Dismiss for failure to state a claim. (Mot. to Dismiss ("Mot."), ECF No. 21.) For the reasons that follow, the Court GRANTS Defendants' Motion.¹

II. BACKGROUND

Plaintiff Conversion Logic offers software and services analyzing which marketing efforts generate a return on investment. (Compl. ¶ 1.) Testwuide was Conversion's CEO, and Bharadwaj and Magnaghi were Conversion's formal advisors. (Compl. ¶ 3.) While at Conversion, Testwuide, Bharadwaj, and Magnaghi had access to Conversion's scientific and technical trade secrets, including "confidential and proprietary information related to Conversion['s] machine-learning-based techniques, methodologies, and data-science models." (Compl. ¶ 4.) The three also had access to Conversion's sales-related trade secrets including "confidential customer and sales information such as current and prospective customer lists, contact information, pricing information, and contracts." (Compl. ¶ 4.) Between 2014 and 2017, Conversion had entered into several contracts, which included various convenants, with Testwuide, Bharadwaj, and Magnaghi.²

In 2017, Testwuide left Conversion. (Compl. ¶ 10.) Within weeks, Testwuide and Bharadwaj started Measured, allegedly to compete against Conversion. (Compl. ¶ 10.) Defendant Magnaghi joined them and allegedly used Conversion's trade secrets to help build Measured. (Compl. ¶ 10.) Testwuide and Bharadwaj also allegedly solicited Conversion's customers and former employees. (Compl. ¶ 11.)

Testwuide entered into a Confidentiality Agreement. (Compl. ¶ 290; Vu Decl. Ex. A ("Confidentiality Agreement"), ECF No. 21-2.) The agreement indicated that Testwuide's obligation to maintain the confidentiality of Conversion's trade secrets "will survive expiration or termination of [the Confidentiality Agreement]." (Compl. ¶ 293.) Conversion alleges that Testwuide breached the Confidentiality Agreement byobtaining and refusing to return technical and sales-related trade secrets, soliciting former employees and current advisors of Conversion to join Measured, soliciting clients of Conversion such as AARP, and failing to disclose and assign rights of discoveries and inventions. (Compl. ¶¶ 294-299.) In August 2017, Testwuide also entered into a Separation Agreement with Conversion. (Compl. ¶ 300; Vu Decl. Ex. B ("Separation Agreement"), ECF No. 21-2.) Conversion alleges that Testwuide breached the Separation Agreement by misappropriating technical and sales-related trade secrets, soliciting advisors and former employees of Conversion to work for Measured, and disparaging Conversion both publicly and privately. (Compl. ¶¶ 303-305.)

Regarding Bharadwaj, on June 15, 2015, he entered into an Advisor Agreement with Conversion. (Compl. ¶ 308; Vu Decl. Ex. C ("Advisor Agreement"), ECF No. 21-2.) He allegedly breached the Advisor Agreement by misappropriating Conversion's technical and sales-related trade secrets, soliciting employees and advisors of Conversion to become employees of Measured, developing and failing to disclose and assign inventions, and providing services to Measured. (Compl. ¶¶ 314-318.) Bharadwaj also entered into two subsequent consulting agreements: the First Consulting Agreement on September 24, 2015 and the Second Consulting Agreement on June 1, 2016. (Compl. ¶¶ 319, 326; Vu Decl. Ex. D ("First Consulting Agreement"), ECF No. 21-2; Vu Decl. Ex. E ("Second Consulting Agreement"), ECF No. 21-2.) Bharadwaj allegedly breached both the First and Second Consulting Agreement by misappropriating Conversion's technical and sales-related trade secrets and failing to disclose and assign "inventions, discoveries, improvements, and copyrightable works." (Compl. ¶¶ 324, 325, 330, 331.) Conversion alleges that Bharadwaj also breached the Second Consulting Agreement by co-founding Measured and offering his services to Conversion's competition, and by soliciting Conversion's former employees, advisors, and clients. (Compl. ¶¶ 332-335.)

Regarding Magnaghi, on August 26, 2014, he signed the Advisory Services Letter Agreement. (Compl. ¶ 338; Vu Decl. Ex. F ("Advisor Services Agreement"), ECF No. 21-2.) Magnaghi allegedly breached the Advisor Services Agreement by misappropriating technical and sales-related trade secrets, failing to disclose and assign inventions and other discoveries to Conversion, and providing services to Measured. (Compl. ¶¶ 346-348.)

Plaintiff Conversion brings suit against Defendants alleging thirteen causes of action.³ (See Compl. ¶¶ 265-424.) Defendants move to dismiss the breach of contract claims against Testwuide, Bharadwaj, and Magnaghi—the second, third and fourth claims respectively. (See Mot. 1.)

III. LEGAL STANDARD

A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable legal theory or insufficient facts pleaded to support an otherwise cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). To survive a dismissal motion, a complaint need only satisfy the minimal notice pleading requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual "allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, the complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).

The determination of whether a complaint satisfies the plausibility standard is a "context-specific task that requires the reviewing court to draw on its judicialexperience and common sense." Id. at 679. A court is generally limited to the pleadings and must construe all "factual allegations set forth in the complaint . . . as true and . . . in the light most favorable" to the plaintiff. Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). But a court need not blindly accept conclusory allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

Where a district court grants a motion to dismiss, it should generally provide leave to amend unless it is clear the complaint could not be saved by any amendment. See Fed. R. Civ. P. 15(a); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

IV. DISCUSSION

Defendants move to dismiss Conversion's second, third and fourth claims primarily because clauses in the six agreements at issue violate the California Business and Professions Code section 16600. (See Mot.9.) Conversion preliminarily argues that, even if those clauses were invalid, the motion should be denied as Conversion has adequately plead alternative unchallenged grounds for a breach of contract against Testwuide, Bharadwaj, and Magnaghi. (Opp'n 3-5.) Conversion alternatively asserts that the clauses are in fact valid under current California law. (Opp'n 6-20.) The Court addresses the arguments in turn.

A. Alternative Allegations of Breach

Conversion asserts that the Defendants' motion is procedurally unsound, because it challenges some but not all of Conversion's allegations of breach of contract. (Opp'n 3-5.) For instance, Conversion notes that Defendants do not challenge its allegations that Testwuide, Bharadwaj, and Magnaghi misappropriated its trade secrets or that Testwuide disparaged Conversion. (Opp'n 4.) Defendants reply that they "challenge [only] the legal sufficiency of Conversion's breach of contract claims to the extent that they are based on restrictive covenants" in contravention to the law. (Reply in Supp. of Mot. ("Reply") 3, ECF No. 31.)Defendants further contend that allegations based on the unlawful contract terms are separable from those allegations seeking to enforce valid contractual provisions. (Reply 4.)

Where a complaint "groups together multiple theories and operative facts which, if independently found to be valid, could each give rise to a right enforceable in the courts," each claim should be addressed separately. Doe v. Napa Valley Unified Sch. Dist., No. 17-CV-03753-SK, 2018 WL 4859978, at *3 (N.D. Cal. Apr. 24, 2018) (internal quotation marks omitted); Bautista v. Los Angeles Cty., 216 F.3d 837, 840 (9th Cir. 2000) (stating claims founded on a separate transaction or occurrence are properly stated in separate counts).

Here, Conversion alleges several theories of breach based on several different contracts for each Defendant. (See Compl. ¶¶ 289-349.) Each theory involves different transactions or occurrences. For instance, allegations showing Testwuide made disparaging remarks about Conversion would show a breach of the covenant not to make such comments but would fail to demonstrate breach of the employee or customer non-solicitation provisions. However, sufficient proof of either theory may adequately give rise to a breach of contract claim. Accordingly, the Court may consider each theory independently in determining whether Conversion has sufficiently alleged a claim and dismiss allegations and theories that are barred by the California Business and Professions Code section 16600. See Hill v. Opus Corp., 841 F. Supp. 2d 1070, 1082 (C.D. Cal. 2011) (dismissing a claim to the extent that the plan is covered and preempted by ERISA while permitting the claim based on non-ERISA plans to proceed). The Court now addresses...