1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 SKYLINE ADVANCED TECHNOLOGY Case No. 18-cv-06641-CRB SERVICES, 9 Plaintiff, ORDER GRANTING IN PART 10 MOTION FOR PARTIAL SUMMARY v. 11 JUDGMENT, SETTING STATUS
SABRINA SHAFER, 12 Defendant. 13
14 Plaintiff Skyline Advanced Technology Services parted ways with Defendant Sabrina 15 Shafer, its former Director of Training and Services Sales, and then brought suit against her, 16 accusing her of a wide variety of misconduct. Shafer spoliated evidence, resulting in severe 17 sanctions. Skyline now moves for partial summary judgment on its claims of breach of contract 18 and breach of the duty of loyalty. See Mot. (dkt. 84); Reply (dkt. 95). Shafer argues that 19 numerous factual disputes preclude summary judgment, and challenges Skyline’s damages expert. 20 See Opp’n (dkt. 92). As discussed below, the Court GRANTS the motion as to the breach of 21 contract and breach of the duty of loyalty claims, and will postpone the award of damages. 22 I. BACKGROUND 23 A. Factual Background 24 1. Parties and Terms of Employment 25 Skyline is a “leading provider of training, professional services, and hardware sales.” 26 Zanotto Decl. (dkt. 84-2) ¶ 2. One of its biggest customers is Cisco Systems. Id. Skyline is a 27 “Cisco Certified Gold Partner,” which allows it to more easily do deals with Cisco, including deals 1 with other companies that want to provide services to Cisco. Id. ¶ 3. Xentaurs is another 2 company1 that sometimes entered into contracts with Skyline to provide services to Cisco. Id. In 3 February 2016, Skyline hired Shafer as its Director of Training and Services Sales. Lipanovich 4 Decl. (dkt. 84-1) Ex. 1 (offer letter). Shafer was responsible for training and services sales on the 5 West Coast, and, as an attorney, was also responsible for providing 120 hours a year of legal 6 counsel to Skyline. Id. 7 Skyline contends that, as part of her hiring process, Shafer signed an Employee Proprietary 8 Information and Inventions Agreement. Lipanovich Decl. (dkt. 84-1) Ex. 2 (signed agreement). 9 Skyline attaches to its motion such an agreement, which has the initials “SMS” and the date 10 “3/1/16” handwritten in each bottom right corner, and the signature “Sabrina Shafer” on the last 11 page. Id. Skyline also submitted, in connection with its reply brief, a copy of an email from 12 Shafer to Marla Wall, Skyline’s HR Administrator, attaching the signed agreement. Wall Decl. 13 (dkt. 95-2) ¶ 2, 6, Ex. 1 (3/2/16 email from Shafer to Wall). 14 The agreement states that the employee “will not, without the Company’s express written 15 consent, engage in any employment or business activity which is competitive with, or would 16 otherwise conflict with, [her] employment at the Company.” Lipanovich Decl. Ex. 2 (signed 17 agreement) ¶ 4. It further states that the employee “[has] not entered into, and . . . will not enter 18 into, any agreement either written or oral in conflict herewith.” Id. ¶ 5. And it provides that the 19 employee “will hold in strictest confidence and will not disclose” any of the Company’s 20 Proprietary Information, which it defines expansively to include “all confidential and/or 21 proprietary knowledge, data or information of the Company,” including (among many other 22 things) “marketing and selling, business plan, budgets and unpublished financial statements, 23 licenses, prices and costs . . . information regarding the skills and compensation of other 24 employees of the Company.” Id. ¶¶ 1.1, 1.2. 25 Shafer initially claimed that she never signed this agreement. She testified in her 26
27 1 Skyline characterizes Xentaurs as a competitor. Id. Shafer disputes that Xentaurs is a 1 deposition, with the signed agreement in front of her, that she did not recall signing it, did not 2 think she wrote the initials, and that the signature “doesn’t look like my writing.” Odim Decl. 3 (dkt. 92-1) Ex. 4 (Shafer Depo.) at 196:4–15. She testified that “Skyline didn’t have a policy,” id. 4 at 196:16–17, and that she did not sign that document, id. at 197:8–9. In a declaration submitted 5 along with her opposition, Shafer declared:
6 I did not sign the Skyline Advanced Technology Services Employee Proprietary Information and Inventions Agreement. . . . I did not 7 initial any of the pages of Skyline Exhibit 2. No one at Skyline ever showed me or gave me Exhibit 2. I saw it for the first time in this 8 litigation. 9 Shafer Decl. (dkt. 92-2) ¶ 4. At the motion hearing, however, Shafer changed her position. In 10 response to inquiries by the Court, Shafer stated that while she did not recall signing the 11 agreement, she was no longer asserting that she did not sign it. 12 Skyline paid Shafer a six-figure salary augmented by commissions. Lipanovich Decl. Ex. 13 3 (Kawamoto Report) at 7–8, Ex. A (spreadsheet re “Summary of Compensation Paid” between 14 7/1/16 and 10/8/18). 15 Skyline fired Shafer on September 18, 2018. Shafer Decl. ¶ 14; Lipanovich Supp. Decl. 16 Ex. 16 (Shafer depo.) at 206:5–8. 17 2. Dispute Between the Parties 18 a. Sharing Internal Information 19 At some point during Shafer’s employment, Skyline learned that Shafer had exchanged 20 “internal company information” with both Xentaurs and individuals at Cisco. Mot. at 2. Skyline 21 points to four emails. The first is from Shafer to Juan Guevara, the President of Xentaurs, in 22 which Shafer disclosed details of Skyline’s bid. Lipanovich Decl. Ex. 4 (9/10/18 email from 23 Shafer to Gurvara). The second is from Shafer to Rich Wonders at Cisco, seeking his input on a 24 draft email to a Skyline employee. Lipanovich Decl. Ex. 5 (2/19/2017 email from Shafer to 25 Wonders). The third is from Wonders to Shafer, responding to an email Shafer forwarded to him 26 from another employee at Skyline, discussing strategy about yet another Skyline employee’s 27 performance. Lipanovich Decl. Ex. 6 (1/3/18 email from Wonders to Shafer). The fourth is from 1 look” and “keep it between us for now.” Lipanovich Decl. Ex. 7 (5/3/18 email from Onisick to 2 Shafer). Skyline contends that Shafer had “undisclosed romantic relationships” with both 3 Wonders and Onisick. See Mot. at 2.2 4 Shafer does not agree that she shared any confidential information. See Opp’n at 12; 5 Shafer Decl. ¶ 16 (“I did not disclose any confidential or proprietary information of Skyline.”). 6 b. Independent Contractor Agreement with Xentaurs 7 During Shafer’s employment with Skyline, both she and Onisick entered into undisclosed 8 agreements with Xentaurs.3 Onisick signed an Independent Sales Agent Agreement with Xentaurs 9 on May 1, 2018. Lipanovich Decl. Ex. 8 (5/1/18 Onisick agreement).4 And Shafer signed an 10 “Independent Contractor Agreement” with Xentaurs on August 23, 2018. Lipanovich Decl. Ex. 9 11 (8/23/18 Shafer agreement).5 That agreement provided, among other things, that Shafer would 12 begin work for Xentaurs on September 1, 2018, and be paid $175 per hour. Id. at 5 (“Contractor 13 Summary”). 14 2 These relationships are supposedly relevant because they help Skyline define the periods of time 15 when they contend that Shafer was disloyal to Skyline. See Kawamoto Report at 2–4 (“Shafer did not disclose her relationship with Wonders to Skyline. During their relationship, Shafer shared 16 internal Skyline communications” . . . “Shafer also disclosed internal and/or confidential information to Onisick during her employment with Skyline and worked with Onisick for the 17 benefit of themselves and others. This overlapped with the time period when Shafer and Onisick were in an undisclosed romantic relationship.”). Skyline includes an email from Wonders to 18 Shafer about an upcoming trip that includes language like “I wish I was there with you” and “Please be careful honey!!” and “I love you very much, and pray for you always!” Lipanovich 19 Decl. Ex. 15 (2/26/18 email from Wonders to Shafer). See also Lipanovich Supp. Decl. Ex. 16 (Shafer depo.) at 294: 9–13 (Shafer answering “I don’t understand” to question of whether she had 20 a romantic relationship with Wonders); id. at 325:19–21 (Shafer answering “I don’t understand the question” of whether she had a romantic relationship with Onisick); see also id. at 325:22–326:20 21 (Shafer agreeing that she had spent the night at Onisick’s house “a handful” of times but maintaining that she was networking). 22 3 Skyline characterizes Shafer’s agreement as an “undisclosed consulting agreement.” Mot. at 7, 9. Skyline does not cite to any evidence that the agreement was undisclosed, but Shafer does not 23 dispute that assertion. In her deposition, Shafer testified that she did not recall ever disclosing to Skyline that she entered into an independent contractor agreement with Xentaurs while still a 24 Skyline employee (and did not acknowledge having entered into such an agreement at all). Lipanovich Supp. Decl. Ex. 16 (Shafer depo.) at 333:15–19. 25 4 Shafer argues that Exhibits 8, 10, and 12 should be stricken as hearsay. Opp’n at 8. “At the summary judgment stage, we do not focus on the admissibility of the evidence’s form.” See 26 Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003). 5 The Motion states: “Shafer began negotiating her own deal with Xentaurs in July 2018,” but cites 27 to no support for that statement. See Mot. at 3. Shafer’s own declaration states that she “began 1 Shafer was not forthcoming about her agreement with Xentaurs during her deposition. She 2 testified repeatedly that she did not understand the question of whether she entered into any 3 agreements with any other company, or Xentaurs specifically, while employed by Skyline. See 4 Lipanovich Supp. Decl. Ex. 16 (Shafer depo.) at 202:13–204:9; see also id. at 332:5–333:14 5 (answering “I don’t recall” to question of whether she entered into independent contractor 6 agreement with Xentaurs). In her declaration, Shafer acknowledges the independent contractor 7 agreement but states that “[p]rior to [her] termination, [she] did not work for Xentaurs.” Shafer 8 Decl. ¶ 14. She explains:
9 I did not become an employee for Xentaurs until October 1, 2018. I signed a consulting agreement with Xentaurs on August 23, 2018, 10 prior to my termination from Skyline. Guevera and I agreed that the agreement was not meant to be acted upon by me or Xentaurs, The 11 agreement was intended to be a placeholder so Xentaurs and I could explore an employment relationship. 12 Id. Guevara also testified that he understood that Shafer would leave Skyline before she started 13 providing any services to Xentaurs. Odim Decl. Ex. 1 (Guevara depo.) at 233:15–20. Prior to 14 Shafer’s termination from Skyline, Xentaurs paid her “no salary, wages, commissions, fees, or 15 other money.” Shafer Decl. ¶ 15. 16 c. Zero-Markup Deals 17 During Shafer’s tenure at Skyline, Skyline entered into two contracts involving Xentaurs 18 and Cisco. Zanotto Decl. ¶ 3. Shafer negotiated the deals on behalf of Skyline. Id. Skyline 19 contends that “while Skyline, Xentaurs, and Cisco were negotiating the Statements of Work” on 20 the contracts, Onisick and Shafer were already working for Xentaurs and against Skyline. Mot. at 21 3. Skyline asserts that Shafer and Onisick structured the two deals “for their personal benefit and 22 for the benefit of their future employer, Xentaurs.” Mot. at 3. 23 Details of these deals are somewhat scarce, including the dates when various deal-related 24 events occurred (particularly in relation to Shafer’s independent contractor agreement with 25 Xentaurs6). Skyline relies in part on the expert declaration of Kawamoto, see Mot. at 3 (citing 26 27 1 Kawamoto Report at 5–7 for details of deals), which is problematic as Kawamoto is a forensic 2 accountant whose expertise does not involve the Skyline-Xentaurs-Cisco deals. In any case, it is 3 undisputed that in both deals, Shafer negotiated for Skyline to receive no money from Cisco for its 4 “pass through” role between Cisco and Xentaurs. Zanotto Decl. ¶ 4 (“Shafer negotiated for 5 Skyline to have no mark up—and thus receive nothing—for the pass through work such that 6 Xentaurs would receive the entire sum.”). “A typical mark up on pass through contracts such as 7 the Statements of Work with Xentaurs and Cisco is at least 10%.” Id. Guevara testified that he 8 found out later that there had been no markup for Skyline; he said that he “never learned why” and 9 that it was “not typical.” Lipanovich Decl. Ex. 11 (Guevara Depo.) at 143:20–144:7. 10 Importantly, while Shafer agrees that Skyline “received no percentage of the payments 11 Xentaurs expected from Cisco,” see Opp’n at 4–5, Shafer blames Skyline CEO Mike Zanotto. 12 She asserts that “Zanotto initiated the idea” of doing the Skyline-Xentaurs-Cisco deals “[w]ith full 13 knowledge that the revenue of the subcontracted work . . . would go to Xentaurs.” Shafer Decl. ¶ 14 8. She asserts that “Zanotto told [her] that giving up revenue now . . . was part of business and 15 ‘bait to catch bigger fish.’” Id. She argues that it was “[p]er the instructions of Zanotto” that 16 “Skyline received no percentage of the payments Xentaurs expected from Cisco.” Opp’n at 4 17 (citing Shafer Decl. ¶¶ 6–8). Shafer also asserts that after she told Xentaurs “about the pricing per 18 Zanotto’s instructions and Gurvera accepted,” it was “other Skyline employees” who “handled the 19 negotiation,” finalized the terms, and signed the agreements. Shafer Decl. ¶ 10. She asserts: “I 20 did not have the authority to approve and did not approve [the two deals] on behalf of Skyline.” 21 Id. She adds that Roger G. Robert, Skyline’s Senior Director of Services and her superior, 22 approved all Skyline contracts. Id. 23 d. Poaching Employees 24 Toward the end of Shafer’s tenure at Skyline, she introduced Xentaurs to current Skyline 25 employees so that he could consider hiring them. See Odim Decl. Ex. 1 (Guevara depo.) at 26 233:22–235:24 (Shafer introduced him to two employees she might bring over from Skyline to 27 join Xentaurs). On August 23, 2018, Shafer emailed Guevara and Skyline employee Greg 1 and leadership on my team.” Lipanovich Decl. Ex. 13 (8/23/18 email from Shafer to Guevara, 2 Daugherty). She gave Daugherty’s background in flattering terms and talked up the “top talent, 3 vision, execution, and team growth culture Xentaurs has.” Id. On September 10, 2018, she 4 emailed Guevara, saying, among other things, “Edwin knows the content. He’s also geared up to 5 teach the SD-WAN Wednesday. . . . I have 2 other contractors that know the topic very well and 6 I’ve worked with/vetted if we need to pull in some outside EN resources.” Lipanovich Decl. Ex. 4 7 (9/10/18 email from Shafer to Guevara). 8 Shafer argues that “[w]hen Shafer’s co-workers, Edwin Owen and Greg Daugherty, 9 learned that Shafer was looking for new employment, they approached Shafer.” Opp’n at 6. 10 Shafer asserts that Owen and Daugherty “were fed-up with Skyline, but could not leave until they 11 had a replacement job.” Id.; Shafer Decl. ¶ 12. She concedes: “After they asked, I referred them 12 to Xentaurs.” Shafer Decl. ¶ 12. 13 e. Reviewing Xentaurs-Cisco Deal 14 Shafer notes that on August 27, 2018, Onisick—who had left Cisco to work for 15 Xentaurs—sent her an email attaching a draft Statement of Work for a Xentaurs-Cisco deal, with 16 the message “Another one for you to take a look through.” Opp’n at 6 (citing Odim Decl. Ex. 3A 17 (Onisick depo.) at 72:21–73:15 (Onisick testifying that he does not recall if he sent this email to 18 Shafer), Ex. 7 (8/27/18 email from Onisick to Shafer forwarding email from Onisick to Guevara re 19 a Xentaurs bid, attached Statement of Work).7 Shafer states in her declaration that she “looked at 20 the draft SOW with an eye for opportunities to write Skyline into the deal, by changing its terms 21 or making it a bigger deal, before it was pitched to Cisco.” Shafer Decl. ¶ 13. 22 B. Procedural History 23 Skyline brought suit against Shafer on October 31, 2018. See Compl. (dkt. 1). The 24 Complaint includes claims for (1) breach of contract, (2) breach of fiduciary duty, (3) breach of 25 the duty of loyalty, (4) fraudulent concealment, (5) fraudulent misrepresentation, (6) negligent 26
27 7 This email is very similar to the May 3, 2018 email from Onisick to Shafer attaching a “2019 1 misrepresentation, and (7) conversion. Id. Shafer then filed suit against Skyline, and both cases 2 were consolidated before this Court. Mot at 4. 3 Upon learning that Shafer had spoliated evidence, Skyline sought sanctions in both cases. 4 See Motion for Sanctions (dkt. 48). In a 24-page Report and Recommendation, Magistrate Judge 5 Robert Illman found that Shafer had willfully and intentionally destroyed evidence. See R&R 6 (dkt. 62). Judge Illman detailed Shafer’s conduct, which included delaying the return of two 7 Skyline laptops for over a month and then returning them with all of the data wiped, id. at 6, 8 forwarding favorable email to her personal email address and deleting and destroying all other 9 evidence, id., being “less than cooperative” in her deposition, and claiming to know nothing about 10 her suspicious document productions, id. at 7. Judge Illman found that “because of Shafer’s 11 destruction of documentary and electronic evidence, combined with her supposed inability to 12 recall information or understand simple questions during her deposition, Skyline has been forced 13 to rely to a great extent on third-party discovery to prepare its case-in-chief in the Skyline case and 14 to prepare its defense in the Shafer case.” Id. at 8. Judge Illman observed that Onisick had 15 testified that “every single communication with Ms. Shafer has been destroyed” and, like Shafer, 16 that he did not know, recall, or understand many questions. Id. Judge Illman noted that
17 a number of factors such as Shafer’s status as a licensed attorney, combined with her unconscionable and uncooperative behavior at 18 her deposition (seemingly doing everything in her power to frustrate Skyline’s effort to conduct its examination, such as repeatedly 19 feigning an inability to understand even the most simply phrased questions), the less-than-plausible explanations in her affidavit, and 20 the overt and glaring inconsistencies between her deposition testimony and the statements in her sworn affidavit, lead the 21 undersigned to find that Shafer’s testimony is filled with half-truths and outright fabrications. 22 Id. at 17. Judge Illman found that “both Shafer and Onisick deleted their text message and email 23 communications with one another specifically to frustrate Skyline’s efforts to conduct discovery 24 and as part of a concerted effort to cover their evidentiary tracks.” Id. at 18. Judge Illman further 25 found that Shafer’s claims about the laptops was not credible. Id.at 18–19. Judge Illman 26 concluded that “the prejudice suffered by Skyline as a result of Shafer’s willful destruction of 27 evidence by replacing the hard drive on Skyline’s laptop and by deleting all of the relevant but 1 unfavorable emails and text messages in her possession was seriously [exacerbated] by what 2 appears to be the concerted effort by Shafer and Onisick to stonewall Skyline’s efforts to gather 3 relevant facts and evidence through their depositions.” Id. at 20. Judge Illman therefore 4 recommended a terminating sanction for Shafer’s case, and an adverse instruction (that the lost 5 information was unfavorable to the party that lost it) for Skyline’s case. Id. at 21–24. This Court 6 adopted the Report and Recommendation. See Order on R&R (dkt. 67). 7 In the related Shafer v. Skyline case, Shafer moved to set aside the judgment, “arguing that 8 Skyline was not forthcoming in its Motion for Sanctions with regard to its ability to back up the 9 data on Shafer’s Skyline-issued laptop.” See Order Denying Motion to Set Aside Judgment (dkt. 10 128 in Case No. 19-cv-787-CRB) at 1. This Court rejected Shafer’s arguments, explaining:
11 Even if the Court were to assume that Skyline could have restored or replaced the information on Shafer’s Skyline laptop—which is 12 wholly inconsistent with Skyline’s actions, such as providing a hard drive for Shafer to back up the information on her computer and 13 requesting that she preserve all evidence on her computer in anticipation of litigation—Shafer still willfully deceived the Court 14 and willfully spoliated evidence—from her laptop and other sources. . . . Shafer, a lawyer, not only wiped the laptop of data after Skyline 15 asked her to preserve all evidence, but also deleted all of her text message and email communications with Onisick and Xentaurs, 16 offered conflicting testimony regarding the fate of the Skyline laptop and hard drive, and stonewalled Skyline in her deposition. . . . These 17 actions are sufficient under the circumstances to support a dismissal of the case. 18 Id. at 12.8 19 Skyline then filed the pending motion for partial summary judgment, solely as to the 20 breach of contract and breach of the duty of loyalty claims. See generally Mot. Shafer opposes 21 the motion and challenges Skyline’s damages expert, Kawamoto. See Opp’n. 22 II. LEGAL STANDARD 23 A. Summary Judgment 24 Summary judgment is proper where the pleadings, discovery, and affidavits show that 25 there is “no genuine dispute as to any material fact and the [moving] party is entitled to judgment 26 27 1 as a matter of law.” Fed. R. Civ. P. 56(a). Material facts are those which may affect the outcome 2 of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a 3 material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for 4 the nonmoving party. Id. 5 The moving party for summary judgment bears the initial burden of identifying those 6 portions of the pleadings, discovery, and affidavits which demonstrate the absence of a genuine 7 issue of material fact. Celotex Corp. v. Cattrett, 477 U.S. 317, 323 (1986). Where the moving 8 party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no 9 reasonable trier of fact could find other than for the moving party. Id. But on an issue for which 10 the opposing party will have the burden of proof at trial, the moving party need only point out 11 “that there is an absence of evidence to support the nonmoving party’s case.” Id. 12 Once the moving party meets its initial burden, the nonmoving party must go beyond the 13 pleadings to demonstrate the existence of a genuine dispute of material fact by “citing to specific 14 parts of material in the record” or “showing that the materials cited do not establish the absence or 15 presence of a genuine dispute.” Fed. R. Civ. P. 56(c). A triable dispute of fact exists only if there 16 is sufficient evidence favoring the nonmoving party to allow a jury to return a verdict for that 17 party. Anderson, 477 U.S. at 249. If the nonmoving party fails to make this showing, “the 18 moving party is entitled to judgment as a matter of law.” Celotex, 477 U.S. at 323. 19 B. Daubert 20 Expert testimony is admissible if it is relevant and reliable. Daubert v. Merrill Dow 21 Pharms., Inc., 509 U.S. 579, 589 (1993). Rule 702 of the Federal Rules of Evidence provides that 22 experts may give opinions based on “scientific, technical, or other specialized knowledge” if such testimony would “help the trier of fact to understand the evidence or to determine a fact in issue.” 23 The testimony must be “based on sufficient facts or data” and “the product of reliable principles 24 and methods,” and “the expert [must have] reliably applied the principles and methods to the facts 25 of the case.” F.R.E. 702. Trial courts are to act as gatekeepers, making certain “that an expert . . . 26 employs in the courtroom the same level of intellectual rigor that characterizes the practice of an 27 expert in the relevant field.” See Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147, 152 expert testimony. Id. at 147. The admissibility of expert opinion is a flexible inquiry: “whether 1 Daubert’s specific factors are, or are not, reasonable measures of reliability in a particular case is a 2 matter that he law grants the trial judge broad latitude to determine.” Id. at 153. The general rule 3 is that “[s]haky but admissible evidence is to be attacked by cross examination, contrary evidence, 4 and attention to the burden of proof, not exclusion.” Primiano v. Cook, 598 F.3d 558, 564 (9th 5 Cir. 2010) (citing Daubert, 509 U.S. at 596). “The test under Daubert is not the correctness of the 6 expert’s conclusions but the soundness of his methodology.” Id. (quoting Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1318 (9th Cir. 1995)). 7 8 III. DISCUSSION 9 This order will discuss Skyline’s breach of contract claim, its breach of the duty of loyalty 10 claim, and the issue of damages. 11 A. Breach of Contract Claim 12 To establish breach of contract in California, Skyline must demonstrate (1) the existence of 13 a contract, (2) performance by Skyline or excuse for nonperformance, (3) breach by Shafer, and 14 (4) damages. See First Commercial Mortg. Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001). 15 1. Last Three Elements 16 Skyline meets the last three elements of the claim here. Skyline performed its end of the 17 contract by paying Shafer. Lipanovich Decl. Ex. 3 (Kawamoto Report) Ex. A (“Summary of 18 Compensation Paid”). And Skyline was damaged by compensating an employee who was 19 undermining it. 20 Shafer also breached the contract. Her most egregious breach was that she entered into a 21 signed Independent Contractor Agreement with Xentaurs while still working for Skyline. See 22 Lipanovich Decl. Ex. 2 (signed agreement) ¶ 5 (employee “will not enter into, any agreement 23 either written or oral in conflict herewith”); see also Shafer Decl. ¶ 14 (“I signed a consulting 24 agreement with Xentaurs on August 23, 2018, prior to my termination from Skyline.”). That 25 agreement does not say anything about how it “was not meant to be acted upon by [Shafer] or 26 Xentaurs.” See Shafer Decl. ¶ 4. Though Shafer argues that the Court should reject Skyline’s 27 invitation to conclude that “the mere existence of the Independent Contractor Agreement between 1 concludes just that. What the contract forbids is entering into an agreement in conflict with her 2 Skyline contract—not performing work9 or being compensated. See Lipanovich Decl. Ex. 2 3 (signed agreement) ¶ 5. Shafer breached her contract when she entered into the agreement with 4 Xentaurs on August 23, 2018. 5 Shafer also breached her contract by disclosing Skyline’s bid information to Guevara, 6 Lipanovich Decl. Ex. 4 (9/10/18 email from Shafer to Guevara), by disclosing her view of a 7 Skyline employee to Wonders, Lipanovich Decl. Ex. 5 (2/19/2017 email from Shafer to Wonders), 8 and by disclosing her view of another Skyline employee to Wonders, Lipanovich Decl. Ex. 6 9 (1/3/18 email from Wonders to Shafer). Shafer baldly asserts that she “did not disclose any 10 confidential or proprietary information of Skyline.” Shafer Decl. ¶ 16. And she complains that 11 “Skyline has failed to produce evidence to support its claim that the content of any of The Emails 12 contains confidential or proprietary information,” see Opp’n at 12, arguing that her interpretations 13 of the emails should control, see id. at 11 (citing Shafer Decl. ¶ ¶ 4–20); Shafer Decl. ¶ 18 (“While 14 I was employed at Skyline, I did not send Richard Wonders, Joseph Onisick, or any other person 15 an email disclosing any Skyline confidential or proprietary information unless it was necessary 16 and a required action as part of my employment duties to Skyline.”). 17 But again, the language of the contract is plain. It requires employees to “hold in strictest 18 confidence and . . . not disclose” any of the Company’s Proprietary Information, and it defines that 19 term to include “budgets and unpublished financial statements, . . . prices and costs” as well as 20 “information regarding the skills and compensation of other employees of the Company.” 21 Lipanovich Decl. Ex. 2 (signed agreement) ¶¶ 1.1, 1.2. Shafer points to no exception for 22 proprietary information that “was necessary and a required action as part of [her] employment 23 duties to Skyline.” See Shafer Decl. ¶ 18. Nor does she explain how these disclosures would even 24 9 Skyline argues that Shafer “negotiated Statements of Work while having an undisclosed conflict 25 of interest, in a deal for which her partner, Mr. Onisick, received thousands of dollars in commissions and for which Skyline received nothing.” Reply at 6–7. But Skyline has not 26 established the chronology of Shafer’s negotiating/entering into her Independent Contractor Agreement and the two deals. In addition, Shafer states that Skyline receiving zero commission 27 on the deals was Zanotto’s (her boss’s) idea, and that she did not have final sign-off on the deals. 1 fit that description.10 2 2. Existence of a Contract 3 The only question was whether Skyline had demonstrated the first element of a breach of 4 contract claim, the existence of a contract, given Shafer’s insistence that she did not sign the 5 Employee Proprietary Information and Inventions Agreement. See Lipanovich Decl Ex. 2 (signed 6 agreement); Odim Decl. Ex. 4 (Shafer Depo.) at 196:4–15, 197:8–9; Shafer Decl. ¶ 4. Now that 7 Shafer has changed her position, from not having signed the agreement to not remembering 8 whether she signed the agreement, this question is answered. Shafer’s professed lack of memory 9 does not create a genuine dispute of fact. Skyline’s submission of the documents itself, see Wall 10 Decl. ¶ 2, 6, Ex. 1 (3/2/16 email from Shafer to Wall), controls. See Manning v. Uber Techs., 11 Inc., 358 F. Supp. 3d 962, (N.D. Cal. 2019) (noting that, in cases where “the defendant produced 12 an arbitration agreement signed by the plaintiff[,] the courts held that the plaintiff’s testimony that 13 he or she did not recall signing the agreement was not sufficient to create a dispute warranting 14 discovery.”); see also Sundquish v. Ubiquity, Inc., No. 16-cv-2472-H-DHB, 2017 WL 3721475, 15 *2, *4 (S.D. Cal. Jan. 17, 2017) (plaintiff asserted that he did not recall signing the arbitration 16 agreement and that the first time he saw the arbitration provision was in connection with litigation, 17 but did not dispute having signed the larger document that contained arbitration agreement). 18 There is no genuine dispute of a material fact as to whether there was a contract in place. 19 Accordingly, the Court GRANTS the motion as to the breach of contract claim. 20 B. Breach of the Duty of Loyalty Claim 21 To establish a breach of the duty of loyalty in California, Skyline must demonstrate “(1) 22 the existence of a relationship giving rise to a duty of loyalty; (2) one or more breaches of that 23 10 Shafer argues that Skyline cannot cure its failure to establish a breach of contract with an 24 adverse inference. See Opp’n at 14–15. The Court need not reach this question, because the Independent Contractor Agreement breached Shafer’s contract. But Shafer’s argument that 25 “When there is no corroborating evidence to support the fact under inquiry, no negative inference is permitted,” see id. at 14 (citing Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258, 1264 (9th 26 Cir. 2000), is unpersuasive where Skyline has submitted some corroborating evidence of Shafer’s breaches. Moreover, the Glanzer case is about a party choosing not to testify, not spoliating 27 evidence. Here the Court has already ruled that there is an adverse inference from Shafer’s 1 duty; and (3) damage proximately caused by that breach.” Huong Que, Inc. v. Luu, 150 Cal. App. 2 4th 400, 410 (2007). In California, all employees owe a duty of loyalty to their employers. 3 E.D.C. Techs., Inc. v. Seidel, 216 F. Supp. 3d 1012, 1016 (N.D. Cal. 2016). Shafer concedes this 4 point. See Opp’n at 15 (“Shafer does not dispute that she owed a duty of loyalty to Skyline.”). 5 The only elements at issue, therefore, are whether Shafer breached the duty, and whether Skyline 6 was damaged. Skyline meets both elements. 7 1. Breach 8 The duty of loyalty to an employer is breached “when the employee takes action which is 9 inimical to the best interests of the employer.” Huong Que, 150 Cal. App. 4th at 414. “California 10 law does not authorize an employee to transfer his loyalty to a competitor.” Id. Skyline argues 11 that Shafer breached the duty of loyalty that she owed Skyline by “working with Onisick to 12 negotiate deals that were favorable to Skyline’s competitor (Xentaurs) and unfavorable to Skyline, 13 performing work (including giving legal advice) for Xentaurs, entering into an undisclosed 14 consulting agreement with Xentaurs, sharing confidential Skyline information with Xentaurs, and 15 attempting to recruit Skyline employees to join Xentaurs.” Mot. at 9. Shafer responds that this 16 claim “suffer[s] from the same infirmities as does the breach of contract claim.” Opp’n at 15. 17 There is a dispute of fact about the two Skyline-Xentaurs-Cisco deals and whose idea it 18 was for Skyline to receive no commissions. There is also a dispute of fact about for whose benefit 19 Shafer reviewed the Xentaurs bids. But Skyline’s other examples hold up. 20 Shafer’s entering into the Independent Contractor Agreement with Xentaurs while she still 21 worked for Skyline breached her duty of loyalty to Skyline. “[A] person cannot serve two masters 22 simultaneously,” and therefore “an employer’s right to undivided loyalty is compromised when an 23 employee’s outside activities give rise to a possibility of personal influences.” Stokes v. Dole Nut 24 Co., 41 Cal. App. 4th 285, 296 (1995) (internal quotation marks omitted). When Shafer signed an 25 agreement to work for Xentaurs while still working for Skyline and negotiating a deal on 26 Skyline’s behalf with Xentaurs and Cisco, Shafer’s activities gave rise to a possibility of personal 27 influences. Shafer’s email to Guevara in which Shafer disclosed details of Skyline’s bid also 1 Lipanovich Decl. Ex. 4 (9/10/18 email from Shafer to Gurvara). 2 Poaching Skyline employees for Xentaurs also breached Shafer’s duty of loyalty to 3 Skyline. Shafer admits that she recruited Skyline employees to join Xentaurs while she still 4 worked for Skyline. See Shafer Decl. ¶ 12 (“After they asked, I referred them to Xentaurs.”). It is 5 irrelevant that the Skyline employees initiated the conversation with Shafer or that she also 6 referred them to other employers. See id. Recruiting current employees to leave a company while 7 still employed by that company is a breach. See Am. Republic Ins. Co. v. Union Fidelity Life Ins. 8 Co., 470 F.2d 820, 824–25 (9th Cir. 1972). 9 Shafer repeatedly took “action which [was] inimical to the best interests of [her] 10 employer.” See Huong Que, 150 Cal. App. 4th at 414. Even without the benefit of the spoliated 11 evidence—which the Court must assume further supports a breach of the duty of loyalty—this 12 element is met. 13 2. Damage Caused by Breach 14 Skyline has also established that Shafer’s breach caused it damage. An employer is 15 damaged by paying wages to an unfaithful employee. See J.C. Peacock, Inc. v. Hako, 196 Cal. 16 App. 2d 353, 359 (1961) (“an employee’s disloyalty will work a forfeiture of his right to recover 17 the stipulated compensation”); ChromaDex, Inc. v. Elysium Health, Inc., No. SACV 16-2277-CJC 18 (DFMx), 2020 WL 1279236, at *18 (C.D. Cal. Jan. 16, 2020) (quoting J.C. Peacock, 196 Cal. 19 App. 2d at 358) (“[A]n employee who violates the[] fundamental duties of loyalty cannot recover 20 even for the services he has rendered.”). 21 Skyline has met each of the elements and established that Shafer violated the duty of 22 loyalty. Accordingly, the Court GRANTS the motion as to the breach of the duty of loyalty claim. 23 C. Damages 24 Skyline moves for summary judgment on damages, and Shafer challenges Skyline’s 25 damages expert. The Court will not award damages at this time. 26 1. Skyline Proposed Damages 27 For a breach of contract claim, a party is entitled to “the amount which will compensate the 1 of things, would be likely to result therefrom.” Cal. Civ. Code § 3330. For a tort claim, a party is 2 entitled to “the amount which will compensate for all the detriment proximately caused thereby, 3 whether it could have been anticipated or not.” Cal. Civ. Code § 3333. 4 Skyline thus argues that for its breach of contract claim, it is entitled to all of Shafer’s 5 compensation for the periods “when she was not rendering the employment services she 6 promised,” see Mot. at 10 (citing Applied Equipment Corp. v. Litton Saudi Arabia, Ltd., 7 Cal. 4th 7 503, 515 (1994) (“‘[I]n the law of contracts the theory is that the party injured by breach should 8 receive as nearly as possible the equivalent of the benefits of performance.’”) (citing Witkin, 9 Summary of Cal. Law (9th ed. 1987) Contracts § 813 at 732). Skyline argues that for its tort 10 claim, it is also entitled to the compensation it paid Shafer during her breaches. See id. at 11 11 (citing J.C. Peacock, 196 Cal. App. 2d at 359–60 (employee who violates duty of loyalty cannot 12 recover for services rendered); Service Employees Int’l Union, Loc. 250 v. Colcord, 160 Cal. App. 13 4th 362, 371 (2008) (upholding disgorgement of salary and benefits based on breach of duty of 14 loyalty)). Skyline reasons that “the amount of compensation paid by Skyline to Shafer is not in 15 dispute,” as its expert, Kawamoto, detailed Shafer’s wages, commissions, and benefits, and Shafer 16 does not have an expert of her own. Mot. at 11 (citing Lipanovich Decl. Ex. 3 (Kawamoto 17 Report). Skyline seeks the $745,061.53 that it contends it paid to Shafer while she was breaching 18 her duties. Id. at 11–13. 19 Skyline also seeks an additional $70,000 in damages, representing “the amount that would 20 have been negotiated [on the two Skyline-Xentaurs-Cisco deals] were it not for Shafer’s 21 breaches.” Id. at 13–14. 22 Skyline therefore seeks a total of $815,061.53. 23 2. Problems With Skyline’s Proposed Damages 24 There are a couple of problems with Skyline’s request. 25 First, given the dispute of fact about whether the no-commission deals Shafer negotiated 26 for Skyline were, on the one hand, an example of her disloyalty to Skyline and her allegiance to 27 Xentaurs, or, on the other hand, a product of the Skyline CEO’s own directives, Skyline cannot 1 Second, and most significantly, while the amount of Shafer’s compensation throughout her 2 employment at Skyline is no mystery, it is less certain when Shafer was acting disloyally toward 3 Skyline. Skyline breezes over this point, arguing that “The time periods for which Shafer 4 breached her duty of loyalty and fiduciary duty11 are also clear from the evidence.” Mot. at 11. 5 The Court disagrees, for now. Kawamoto’s analysis of damages is based on the compensation 6 Skyline paid Shafer during “three time periods that correspond to different breaches by Shafer 7 related to Wonders, Onisick, and Xentaurs.” Id. Skyline groups them into two periods. Id. They 8 are (1) the First Time Period: June 2016 to November 2016 and February 2017 to February 2018; 9 and (2) the Second Time Period: March 2018 to September 18, 2018. Id. at 11–13. 10 a. First Time Period: 6/16 to 11/16 and 2/17 to 2/18 11 The First Time Period represents when Shafer was sharing Skyline’s confidential 12 information with Wonders (a Cisco employee); it mirrors Wonders’ testimony that he and Shafer 13 were in a romantic relationship from mid-2016 through the end of 2016, and then again from early 14 2017 through early 2018. Id. at 11–12 (citing Lipanovich Decl. Ex. 14 (Wonders Depo.) at 47:24– 15 49:24; Lipanovich Decl. Ex. 3 (Kawamoto Report) at 2–3. 16 Kawamoto lists a variety of documents that he relied on in concluding that “During their 17 relationship, Shafer shared internal Skyline communications through email correspondence, 18 including information about Cisco related projects.” Lipanovich Decl. Ex. 3 (Kawamoto Report) 19 at 2–3. One problem with this statement is that Kawamoto is a forensic accountant and not, as 20 Shafer points out, a relationship expert. See Opp’n at 20 (collecting Kawamoto deposition 21 testimony about the basis for his opinion that Shafer had relationships with Wonders and Onisick). 22 Kawamoto’s opinions about any relationships and their connection to breaches are not the proper 23 subject of his expert report. Skyline essentially concedes this in is reply brief, arguing that 24 “Skyline is not establishing liability through Mr. Kawamoto’s testimony” and that he is only 25 “offering a damages opinion.” Reply at 12–13. But Skyline cites to Kawamoto’s report as 26 support for numerous underlying factual assertions that go beyond damages. See, e.g., Mot. at 3–4 27 1 (re Skyline-Xentaurs-Cisco deals); 4 (re Shafer’s work for Xentaurs); 9, 12 (re Shafer breaches 2 and disclosures related to Wonders); 12 (re Onisick relationship and breaches). It is especially 3 problematic to cite to Kawamoto for these points as Kawamoto asserts in his report that he was 4 “asked to assume that Shafer breached her duties to Skyline during these time periods.” 5 Lipanovich Decl. Ex. 3 (Kawamoto Report) at 10. So Skyline needs to establish the time periods 6 for the damages calculations by means other than Kawamoto. 7 In addition, Kawamoto attaches to his report none of the documents he lists in his Report 8 as to the First Time Period. Skyline provided some but not all of them to the Court as part of this 9 motion—see Lipanovich Decl. Ex. 5 (2/19/17 email from Shafer to Wonders); Lipanovich Decl. 10 Ex. 6 (1/3/18 email from Wonders to Shafer); Lipanovich Decl. Ex. 15 (2/26/18 email from 11 Wonders to Shafer)—but they only cover the period of February 19, 2017 to February 26, 2018. 12 Those emails do suggest the exchange of proprietary/confidential information. See id. But it is 13 not obvious that Shafer breached her duty of loyalty for that entire year based on three emails. 14 (The Court recognizes that there was probably more evidence from that time period that Shafer 15 destroyed.) The only evidence of the June 2016 to November 2016 time period is emails not 16 provided to the Court that purportedly support the idea that Shafer and Wonders were in a 17 romantic relationship. Lipanovich Decl. Ex. 3 (Kawamoto Report) at 2 (listing three emails about 18 hotel rooms, travel plans, and missing each other). But evidence of an undisclosed relationship is 19 not enough to assume that Shafer breached her duty of loyalty for that time period. 20 At best there is evidence for just the February 19, 2017 to February 26, 2018 portion of the 21 First Time Period. 22 b. Second Time Period: 3/18 to 9/18/18 23 The Second Time Period represents the period between March of 2018 and Shafer’s 24 termination in September of 2018, when Shafer “shared confidential information with Onisick, 25 another Cisco employee. while the two were engaged in an undisclosed romantic relationship,” 26 and between May of 2018 and her termination in September of 2018, while “Shafer was also 27 working for the benefit of Skyline’s competitor, Xentaurs.” Mot. at 12. Skyline relies on the 1 attach any. See id. at 12–13 (citing Lipanovich Decl. Ex. 3 (Kawamoto Report) at 3–4). 2 The same problems the Court noted with the First Time Period are present here: 3 Kawamoto is not an expert in anything other than forensic accounting, he was “asked to assume 4 that Shafer breached her duties to Skyline during this period,” see Lipanovich Decl. Ex. 3 5 (Kawamoto Report) at 11, and the documents are not as helpful as Skyline asserts. 6 The only evidence from March 2018 is Onisick emailing Shafer about booking a hotel 7 room for them in advance of a work-related event. See Lipanovich Decl. Ex. 3 (Kawamoto 8 Report) at 3. That email does not demonstrate that Shafer was sharing confidential information at 9 that time. Kawamoto cites to Onisick’s 5/3/18 and 8/27/18 emails to Shafer asking her to review 10 Statements of Work not involving Skyline, id. at 4—but Shafer claims that she looked at those to 11 see how she could benefit Skyline, see Shafer Decl. ¶ 13. Kawamoto also points to the zero-mark 12 up deals, Lipanovich Decl. Ex. 3 (Kawamoto Report) at 4, but Shafer says that they were the 13 Skyline CEO’s idea, Shafer Decl. ¶ 8. There is therefore no basis to conclude, given the disputes 14 of material fact, that the Second Time Period should cover March of 2018 to August 23, 2018.12 15 Kawamoto also cites to a variety of documents from August 23, 2018 to September 10, 16 2018 (some provided to the Court elsewhere, some not), including the 8/23/18 email introducing 17 Daugherty to Guevara and the 9/10/18 Shafer email to Guevara sharing details of Skyline’s bid. 18 See Lipanovich Decl. Ex. 3 (Kawamoto Report) at 4. Those emails, discussed elsewhere in this 19 order, do demonstrate Shafer’s disloyalty to Skyline. But they represent less than a month of her 20 employment. 21 Given the problems with calculating Skyline’s damages at this point, the Court will 22 postpone that undertaking. 23 3. Daubert Challenge 24 The Court need not reach Shafer’s Daubert challenge to the Kawamoto Report, as the 25 Court does not reach the damages issue just yet. Notably, however, Shafer does not really 26
27 12 Again, this is not all Skyline’s fault—Shafer’s spoliation limited the available evidence, and the 1 challenge Kawamoto’s ability to calculate how much compensation Skyline paid Shafer during 2 || particular periods of ttme. Kawamoto is a forensic accountant, forensic accountants routinely give 3 this kind of testimony, and Kawamoto did his calculations using information provided by 4 Skyline.’ Shafer does not have her own expert, and does not actually assert than any of 5 Kawamoto’s underlying numbers or calculations are wrong. What Shafer objects to is 6 || Kawamoto’s opinions and conclusions about internal and confidential information, and about 7 Shafer’s romantic relationships. See Opp’n at 18-22. The Court agrees that a forensic accountant 8 || has no special abilities to interpret such non-financial matters. 9 || Iv. CONCLUSION 10 For the foregoing reasons, the Court GRANTS summary judgment on the breach of 11 contract and breach of the duty of loyalty claims, and postpones the determination of damages. 12 The Court hereby SETS a status conference in this case for Thursday, January 20, at 10:00
2 13 a.m., at which time the parties can discuss the best path forward for determining damages now that
14 || liability has been established. The parties are advised of the following information:
. 15 1. Webinar Access: All counsel, members of the public, and media may access the webinar 16 information at https://www.cand.uscourts.gov/crb = 2. General Order 58. Persons granted access to court proceedings held by telephone or 17 videoconference are reminded that photographing, recording, and rebroadcasting of court proceedings, including screenshots or other visual copying of a hearing, is absolutely = 18 prohibited. 19 3. Zoom Guidance and Setup: https://www.cand.uscourts.gov/zoom/. 20 IT IS SO ORDERED. cK 21 Dated: December 14, 2022 2 CHARLES R. BREYER United States District Judge 23 24 25 26 27 28 3 Shafer objects to Kawamoto merely compiling and reporting data given to him by Skyline, see Opp’n at 17-18, but that is what experts do.