Glam & Glits Nail Design, Inc. v. #NotPolish, Inc.
| Decision Date | 04 June 2021 |
| Docket Number | Case No.: 21-cv-0052-GPC-DEB |
| Parties | GLAM AND GLITS NAIL DESIGN, INC., a California corporation, Plaintiff, v. #NOTPOLISH, INC., a California corporation; NHU XUAN LAI, an individual; and DOES 1 THROUGH 10, inclusive, Defendants. |
| Court | U.S. District Court — Southern District of California |
(1) GRANTING IN PART AND DENYING IN PART THE MOTIONS TO DISMISS; AND
Before this Court are two Motions to Dismiss and a Motion to Strike, filed by Defendants #Notpolish, Inc. ("NotPolish"), and Nhu Xuan Lai ("Ms. Lai"). ECF Nos. 26-28. Plaintiff Glam and Glits Nail Design, Inc. ("G&G") filed Oppositions to each, and the Defendants filed their corresponding Replies. See ECF Nos. 30, 31, 34-36. Upon reviewing the moving documents and the case record, the Court GRANTS in part and DENIES in part the two Motions to Dismiss, and DENIES the Motion to Strike. G&G may amend the complaint to address any issues raised by the Court in this Order.
G&G filed the original Complaint on January 12, 2021. ECF No. 1. While NotPolish and Ms. Lai moved to dismiss the Complaint on March 11, 2021, ECF Nos. 18, 19, G&G filed its First Amended Complaint ("FAC") on March 25, 2021, ECF No. 22, and the Court denied the two initial motions to dismiss as moot on March 31, 2021, ECF No. 25.
The FAC now alleges eleven causes of action: (1) misappropriation of trade secrets in violation of the federal Defend Trade Secrets Act; (2) misappropriation of trade secrets in violation of the California Uniform Trade Secrets Act; (3) defamation; (4) violation of the Computer Fraud and Abuse Act; (5) conversion; (6) trespass to chattels; (7) breach of the duty of loyalty; (8) tortious interference with actual economic relations; (9) tortious interference with prospective economic relations; (10) unfair competition; and (11) conspiracy. See ECF No. 22. Count Seven is directed only against Ms. Lai, whereas the other causes of action are against all Defendants.
On April 8, 2021, Ms. Lai filed a Motion to Dismiss and a Motion to Strike, ECF Nos. 26, 28, and NotPolish filed a Motion to Dismiss, ECF No. 27. Of note, whereas NotPolish moves to dismiss all causes of action alleged in the FAC, Ms. Lai's Motion to Dismiss does not address Counts Three (defamation) and Eleven (conspiracy). Instead, Ms. Lai seeks to dispose of certain (but not all) defamation allegations via her Motion to Strike. On April 22, 2021, G&G filed a consolidated Opposition to the two Motions to Dismiss, and an Opposition to the Motion to Strike. ECF Nos. 30, 31. The Defendants filed their corresponding Replies on April 29, 2021. ECF Nos. 34-36.
On June 3, 2021, G&G and NotPolish provided Notices of Supplemental Authority, see ECF Nos. 38, 39, in which the Supreme Court decided on an issue affecting G&G's allegations relating to the Computer Fraud and Abuse Act.
This lawsuit concerns a dispute between G&G, a nail care products manufacturer and vendor, versus NotPolish, a business competitor of G&G, and Ms. Lai, a former employee of G&G who later became an employee of NotPolish. The parties disagree on the motives behind G&G's lawsuit and the nature of the allegations. See, e.g., ECF No. 28-1 at 1.1 But at least for the purposes of adjudicating the Motions in front of this Court,2 the alleged facts are as follows.
G&G started its business in 2007. Over the past 13 years, it cultivated customer relationships with numerous nail supply stores across the United States, many of which are owned and operated by Vietnamese Americans. See ECF No. 22 at 5. As part of managing customer relationships, G&G has developed what it refers to as the "Glam and Glits Confidential Customer Information" ("Information"), which includes: "customer lists, the non-public personal mobile numbers of each of the owners and operators of [G&G's] customers and distributors, each customer's account purchasing history, the pricing for each account, and an understanding of unique, customer-specific product preferences." See id. ¶ 14. According to G&G, it would be nearly impossible to "reverse engineer" any of the Information, for the details are not generally known to the industry, nor has G&G disclosed the Information (or any part thereof) to the public. See id. at 6-8.
G&G has taken several measures to protect the secrecy of the Information. See id. ¶ 21. For example, G&G limits the disclosure of the Information to select employees.The employees who may access the Information must only use their company-issued iPhone that may only be synched to the company iCloud database. G&G also "requir[es] that all employees return all confidential and proprietary information and trade secrets upon termination of their employment; and requir[es] confidentiality from employees" on such confidential and proprietary information and trade secrets.
One of the employees who had access to the Information was Ms. Lai. She was employed from November 2016 to July 2020 as part of G&G's administrative team to maintain business relationships, sell products and process customer orders, expand the quantity and scope of products that customers purchased, and advise customers on the products offered by G&G. See id. ¶ 29. In spite of her lack of prior sales experience, Ms. Lai "was assigned a significant role in sales and customer relationship management," due to her fluency in Vietnamese for customers who preferred to conduct business in Vietnamese. See id. ¶ 33.
Accordingly, G&G provided Ms. Lai with a company-issued iPhone, synched to the company iCloud database. See id. ¶ 35. The first time G&G provided the company iPhone was around November 2016. At that time, Ms. Lai agreed to: (1) maintain the Information in confidence and use it only for purposes of her employment with G&G, (2) not conduct any G&G business on any personal cellphone, and (3) conduct all work-related communications only on the company iPhone, all per the instructions provided by G&G. See id. at 11-12.
Around October 2018, G&G provided Ms. Lai with a new company iPhone. See id. ¶ 42. According to the FAC, Ms. Lai copied what was in the former company iPhone and transferred it to the new company iPhone, thus still having access to the Information. See id. ¶ 44. However, she did not synch the new company iPhone to the company iCloud, and instead synched it to her personal iCloud account. See id. ¶ 45. This had twoeffects. First, all the Information was now also saved to Ms. Lai's personal iCloud storage. Second, new information Ms. Lai generated during her employment after October 2018 was not saved to the company iCloud, but to Ms. Lai's personal iCloud instead. See id. at 12-13.
G&G suspects that "as early as late-November or early December 2019," while still employed by G&G, Ms. Lai "conceived and executed a plan" to redirect business to NotPolish, to which NotPolish "was aware of, agreed to, and/or assisted in" Ms. Lai's plan. See id. ¶¶ 50, 51. In the FAC, G&G presents several supporting allegations. First, Ms. Lai and one of the co-owners of NotPolish knew each other since high school. See id. ¶¶ 54, 55. Second, while being angry about a "Secret Santa" game at the company gathering in December 2019, Ms. Lai allegedly said she could get a job at NotPolish "anytime," or words to that effect. See id. ¶ 58. Third, allegedly Ms. Lai's attitude during her employment changed around that time as well. Whereas in the past Ms. Lai generally sought to improve her performance upon a question or reprimand, starting around December 2019, on more than one occasion she did not apologize or try to fix her performance, simply asking "Am I fired?" See id. ¶ 59.
Ms. Lai's employment with G&G ended on July 22, 2020.3 According to G&G, Ms. Lai "tried to avoid" turning in the company iPhone when her employment ended, and a different employee secured the company iPhone instead. See id. at 15. And it was that day, upon receiving a text message from Ms. Lai, when G&G's CEO first learned that Ms. Lai had not been complying with the company policy (including the iPhone-iCloud synch). See id. at 16. Ms. Lai's text message demonstrated that she knew about thecompany's policy and her failure to comply with it, and that she was aware of such failure. See id. at 17. In sum, G&G alleges that Ms. Lai, by synching the company iPhone to her personal iCloud, took the Information with her upon leaving G&G.
According to G&G, NotPolish and Ms. Lai soon after contacted "each and every" Vietnamese-speaking customer who appeared in the Information, and attempted to redirect their purchases from G&G to NotPolish. As supporting allegations, G&G references certain customers who reached out to G&G about Ms. Lai's "constant" and "repeated" calls, in which Ms. Lai could only have known the customers' direct numbers because they were contained in the Information. See id. at 18-19.
G&G also alleges that NotPolish and Ms. Lai "orally published defaming lies about Glam and Glits' CEO, falsely accusing him of using illegal drugs." Id. ¶ 79. According to G&G, a customer relayed the false statements she had been told by Ms. Lai. Id. ¶ 81. In addition, the Defendants spread "false and deceptive statements about the Glam and Glits workplace on social media, threatening potential witnesses, and interfering with Glam and Glits' relationships with its employees." Id. ¶ 82. In general, the FAC provided social media posts by Ms. Lai, which included statements such as "Calling CVS 7th times to schedule Covid testing cus people at work are getting infected," "snitches get stitches" (allegedly directed against G&G employees), and "they used to put me in the back cus they said I'm too Asian and the American looking one can take the front...
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