Symphony Risk Solutions Insurance Services, Inc. v. Perlite

• Court: District Court, N.D. California
• Decided: December 13, 2024
• Docket: 3:24-cv-06437
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 SYMPHONY RISK SOLUTIONS Case No. 24-cv-06437-WHO INSURANCE SERVICES, INC, 8 Plaintiff, ORDER ON THE MOTION TO 9 DISMISS v. 10 Re: Dkt. No. 17 PAUL PERLITE, et al., 11 Defendants.

12 Plaintiff Symphony Risk Solutions Insurance Services, Inc. (“Symphony Risk” or 13 “Symphony”) is an insurance and consulting company. Symphony Risk filed this lawsuit against 14 individual defendants Paul Perlite (“Perlite”), Jeff Holman (“Holman”) and John Nicholas Dieter 15 (“Dieter”) (together, “the individual defendants”) and their current employers, Pinnacle Brokers 16 Insurance Solutions, Pinnacle Brokers Insurance Solutions LLC, and/or Foundation Risk Partners, 17 Corp. (together, “the Pinnacle defendants” or “Pinnacle”),1 alleging breach of contract and 18 fiduciary duties along with other state law violations and a violation of the Defense of Trade 19 Secrets Act. The individual and Pinnacle defendants moved to dismiss certain causes of action 20 because they are preempted by California’s Uniform Trade Secrets Act (“CUTSA”).2 Defendants 21 22 1 Defendants note in their motion that Symphony has inaccurately named the Pinnacle entity in its 23 case. See Motion to Dismiss at 1, n.1. In opposition, Symphony continued to name three separate Pinnacle entities. See Opposition at 1, n.1. Construing the facts favorably to the nonmoving party 24 as I must in a motion to dismiss, I refer to all three Pinnacle entities throughout this order. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (“All allegations of material 25 fact are taken as true and construed in the light most favorable to the nonmoving party.”).

26 2 Symphony additionally asserted an unjust enrichment claim against Pinnacle. See Compl. ¶¶ 224–28. Symphony conceded that dismissal was appropriate (both in its opposition and during the 27 hearing on this motion). Oppo. 2, n.2 (“Symphony does not oppose Defendants’ motion to 1 are correct. For the following reasons, the motion to dismiss is GRANTED. 2 BACKGROUND 3 Symphony Risk is a Delaware incorporated company that provides businesses throughout 4 the United States with insurance and consulting advice. Complaint (“Compl.”) [Dkt. No. 1-2] ¶ 5 23. It filed a Complaint against three of its former employees (the individual defendants), the 6 Pinnacle defendants, and 20 Doe defendants. Compl. As relevant, Symphony Risk alleges the 7 following. 8 In 2022, Symphony Risk merged with another insurance firm, Maroevich, O’Shea & 9 Coghlan Insurance Services, Inc. (“MOC”). Compl. ¶ 7. Prior to the merger, MOC hired Dieter, 10 Perlite, and Holman as Vice President of Group Health Insurance & Employee Benefits, Vice 11 President, and Account Executive respectively. Compl. ¶¶ 31, 35, 41. Each employee continued 12 on with Symphony Risk following the merger, engaging in client-facing work on behalf of the 13 company. As a condition of their employment, the individual defendants each signed 14 Employment Agreements that restricted their ability to use and disseminate MOC’s (and 15 subsequently, Symphony Risk’s) confidential and proprietary information, including information 16 concerning: MOC’s clients’ identity, contact information, specific coverages, premium and 17 commission rates, expiration dates, risk specifications and analysis, and claims loss 18 histories . . . and . . . MOC’s operations manuals, pricing and commission policies, business strategies and techniques, personnel identity, compensation, handbook, and 19 related files, market surveys and reports, sales plans, strategies and reports.

20 Compl. ¶ 33. The employees further agreed to work exclusively for MOC/Symphony Risk. ¶¶ 32, 21 36, 42, 44. 22 After the merger, the employees additionally signed an Employee Proprietary Information 23 and Inventions Assignment Agreement (“PIIAA”), which required that the individual defendants 24 “not engage in other employment or in any conduct that could either be in direct conflict with the 25 26 Company’s interests or that could cause a material and substantial disruption to the Company” and 27 that they use company-provided technology and devices only in authorized manners. Compl. ¶ 47. anyone outside the company, and they were to return any company-provided materials at the 1 2 conclusion of any employment. Compl. ¶¶ 48–52. The PIIAA noted that the contents of the 3 agreement extended beyond any employment term with Symphony Risk. Compl. ¶ 51. 4 Perlite, Holman, and Dieter also each executed a Handbook Acknowledgement, which 5 included a Confidential Information and Trade Secrets Policy—further prohibiting the individual 6 defendants from unauthorized use of “any proprietary or confidential information.” Compl. ¶¶ 7 56–60. This final policy prohibited employees from removing data from company-provided 8 devices and from “transmit[ting] any confidential information, proprietary information or trade 9 10 secrets of Symphony or any Symphony client out of the Symphony network . . . to any other 11 location.” Compl. ¶¶ 61–63. 12 Symphony Risk alleges that Dieter notified it of his immediate resignation on September 13 12, 2022. Compl. ¶ 64. During his preparations to leave the company, Symphony Risk alleges, 14 Dieter used confidential and proprietary information to contact a Symphony client and “solicit [the 15 client] to switch from Symphony to Pinnacle and Dieter as its insurance benefits broker.” Compl. 16 ¶ 67. Dieter again used Symphony Risk’s confidential and proprietary information to craft a 17 18 broker of record letter that he subsequently sent to the client, and to “dozens” of others, after 19 leaving Symphony Risk. Compl. ¶¶ 67–75. 20 Regarding Perlite and Holman, Symphony alleges that following encouragement from 21 Dieter, they resigned from Symphony Risk in similar fashion on June 17, 2024. Compl. ¶¶ 3, 82. 22 According to Symphony, Holman and Perlite (1) “deleted [a] significant amount of content on 23 their Symphony laptops;” (2) solicited seventeen of Symphony’s clients to transfer to Pinnacle’s 24 25 services using Symphony Risk’s confidential and proprietary information; and (3) communicated 26 with Pinnacle about Symphony’s clientele—all in violation of the employment agreements and 27 contracts they had signed during the course of their employment at Symphony Risk. Compl. ¶¶ Finally, Symphony Risk alleges that the Pinnacle defendants solicited Dieter to leave 1 2 Symphony and to use Symphony’s confidential and proprietary information in so doing. Compl. 3 ¶¶ 114–17. Following Dieter’s exit, Pinnacle and Dieter allegedly “conspired with, aided and 4 abetted, and/or otherwise supported and encouraged Perlite and Holman regarding their exit from 5 Symphony, their joining Pinnacle, and their access to, misappropriation of, and (mis)use of 6 Symphony’s confidential and proprietary information to solicit Symphony clients to move to 7 Pinnacle.” Compl. ¶ 119. Symphony alleges that despite Pinnacle’s awareness of the individual 8 defendants’ “contractual obligations and common law duties,” Pinnacle chose to “unlawfully and 9 10 tortiously interfere[] with Symphony’s existing business relationships with its clients.” Compl. ¶¶ 11 123, 125. 12 The complaint asserts eleven causes of action against the defendants: (1) breach of contract 13 against Dieter, Compl. ¶¶132–39; (2) breach of contract against Perlite, id. ¶¶ 140–48; (3) breach 14 of contract against Holman, id. ¶¶149–157; (4) intentional interference with existing economic 15 relations against all defendants, id. ¶¶158–168; (5) intentional interference with prospective 16 economic relations against all defendants, id. ¶¶169–177; (6) breach of fiduciary duty against the 17 18 individual defendants, id. ¶¶178–185; (7) aiding and abetting breach of fiduciary duty against the 19 Pinnacle defendants, id. ¶¶ 186–194; (8) violation of California state law prohibiting unfair 20 competition, Cal. Bus. & Prof. Code § 17200, Compl. ¶¶ 195–203; (9) violation of the California 21 Uniform Trade Secrets Act, Compl. ¶¶ 204–214; (10) violation of the Defense of Trade Secrets 22 Act 18 U.S.C. § 1836, Compl. ¶¶ 215–223; and (11) unjust enrichment, Compl. ¶¶ 224–28. 23 Symphony seeks injunctive and monetary relief. Id. 35–36. 24 25 Symphony Risk filed this lawsuit in September 2024. [Dkt. No. 1]. The defendants 26 moved to dismiss the complaint, alleging that Causes of Action 4–8 are, at minimum, preempted 27 by CUTSA. Motion to Dismiss (“MTD”) [Dkt. No. 17] 1. Following defendants’ opposition, the motion on December 4, 2024. 1 2 LEGAL STANDARD 3 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint 4 if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to 5 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its 6 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when 7 the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant 8 is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation 9 omitted). There must be “more than a sheer possibility that a defendant has acted unlawfully.” Id. 10 While courts do not require “heightened fact pleading of specifics,” a plaintiff must allege facts 11 sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570. 12 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 13 Court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the 14 plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court 15 is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of 16 fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 17 2008). 18 If the court dismisses the complaint, it “should grant leave to amend even if no request to 19 amend the pleading was made, unless it determines that the pleading could not possibly be cured 20 by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In making 21 this determination, the court should consider factors such as “the presence or absence of undue 22 delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, 23 undue prejudice to the opposing party and futility of the proposed amendment.” Moore v. Kayport 24 25 Package Express, 885 F.2d 531, 538 (9th Cir. 1989). 26 27 DISCUSSION 1 2 I. CUTSA Preemption 3 Pinnacle moves to dismiss five of Symphony Risks claims because each is based on “the 4 same nucleus of facts as Plaintiff’s CUTSA claim,” and is therefore preempted by CUTSA. MTD 5 5. “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to 6 supersede other civil remedies ‘based upon misappropriation of a trade secret.’” Silvaco Data 7 Systems v. Intel Corp., 185 Cal. App. 4th 210, 236 (2010) (citing CUTSA at Cal. Civ. Code § 8 3426.7(b)). Further, “state law claims based on the same operative facts as a trade secret claim are 9 10 preempted by [CUTSA].” Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1033–34 11 (N.D. Cal. 2005) (Seeborg, J.). As long as the confidential and proprietary information at issue is 12 “not . . . generally known to the public,” the claim will be preempted by CUTSA— 13 “notwithstanding the fact that the information fails to meet the definition of a trade secret.” Cal. 14 Civ. Code § 3426.1(d)(1); SunPower Corp. v. SolarCity Corp., No. 12-CV-00694-LHK, 2012 WL 15 6160472 (N.D. Cal. Dec. 11, 2012). 16 To survive CUTSA preemption, a claim must “retain sufficient independent facts” once 17 18 any facts related to trade secrets are removed. Gabriel Tech. Corp. v. Qualcomm Inc., No. 08-CV- 19 1992-MM, 2009 WL 3326631 (S.D. Cal. Sept. 3, 2009). With that in mind, I analyze each of the 20 claims that Pinnacle moves to dismiss. 21 A. Intentional Interference with Existing and Prospective Economic Relations 22 Claims

23 Symphony alleges two claims of intentional interference with economic relations, with the 24 Fourth Claim concerning existing economic relations and the Fifth Claim concerning prospective 25 economic relations. Compl. ¶¶158–177. The claims are substantially similar, and in pertinent part 26 allege: 27 intentionally disrupted and have continued to attempt3 to disrupt Symphony’s economic 1 relationships with one or more individuals or entities in the manner as alleged above, 2 including by not limited to through the following conduct: a. Defendants’ misappropriation and misuse of Symphony’s Confidential & 3 Proprietary Information for their benefit and against Symphony by soliciting individuals or entities with whom Symphony had an economic relationship to stop 4 working with Symphony and work with Pinnacle instead; b. Holman’s false statements to individuals or entities with whom Symphony had an 5 economic relationship, as described herein; and 6 c. the Individual Defendants’ breach of their duties owed to Symphony to act loyally and in Symphony’s best interests in their communications with and solicitation of 7 the Solicited Clients and other clients.

8 Compl. ¶¶ 161, 172. The complaint further alleges that “[a]s a direct and proximate result of 9 Defendants’ conduct as alleged above, Defendants are continuing to attempt to negatively disrupt 10 Symphonies [sic] relationships with one or more individuals or entities, including but not limited 11 to soliciting Symphony’s remaining clients through the misuse of its [sic] Symphony’s 12 Confidential & Proprietary Information.” Compl. ¶¶ 163, 173. 13 14 For reasons clear on its face, Symphony’s allegation concerning Pinnacle’s 15 “misappropriation and misuse of Symphony’s Confidential & Proprietary Information” is 16 preempted by CUTSA. Symphony Risk consistently and clearly throughout its complaint, 17 including within its claim for relief under CUTSA, Compl. ¶¶204–214, presents the confidential 18 and proprietary information at issue as “not . . . generally known to the public.” Cal. Civ. Code § 19 3426.1(d)(1). Likewise, because Holman’s alleged false statements were to “individuals or 20 entities with whom Symphony had an economic relationship,” i.e., individuals or entities whose 21 22 identities were within Symphony Risk’s express scope of confidential and proprietary information, 23 that portion of the claim, as currently pleaded, is likewise preempted by CUTSA. Finally, as 24 pleaded, Symphony’s assertion that the individual defendants’ breach of their duty of loyalty 25 amounted to intentional interference with existing and future economic relations is also subject to 26 27 CUTSA preemption. 1 2 In opposition, Symphony argues that when a claim shares a different factual nucleus from 3 a trade secret claim, that claim can independently survive. For example, Symphony cites to JEB 4 Group, Inc. v. San Jose III for the proposition that “[v]iewing the allegations in a light most 5 favorable to [Plaintiff], it is reasonable to infer that Defendants interfered with [Plaintiff’s] 6 business relationships without relying on trade secrets or other confidential information.” No. 19- 7 CV-04230-CJC, 2020 WL 2790012 *4 (C.D. Cal Mar. 31, 2020). And Symphony refers to Arthur 8 J. Gallagher & Co. v. Tarantino, where the court held that an intentional interference claim 9 10 brought against defendants was not preempted by CUTSA “to the extent that [Plaintiff] alleges 11 that Defendants breached their fiduciary duties while working for [Plaintiff].” No. 20-CV-05505- 12 EMC, 2022 WL 4092673 *12 (N.D. Cal. July 27, 2022). 13 Symphony’s assertions that the individual defendants interfered with its business 14 relationships solely rely on “trade secrets or other confidential information.” JEB Group, Inc., 15 2020 WL 2790012 at *4. Regarding Symphony’s reliance on Gallagher, the Hon. Edward M. 16 Chen concluded in that case that there was no CUTSA preemption because the plaintiff alleged 17 18 claims that were “separate and apart from the trade secret misappropriation claims.” Gallagher, 19 2022 WL 4092673 *12. That is not true of this case. 20 In Symphony Risk’s factual allegations, it contends that “Dieter breached his agreements 21 by unlawfully accessing and using Symphony’s Confidential & Proprietary Information leading up 22 to and following his departure to Pinnacle.” Compl. 14. (cleaned up). It alleges that Perlite and 23 Holman “plot[ted] their departure from Symphony, while improperly accessing and 24 25 misappropriating Symphony’s Confidential & Proprietary Information and soliciting Symphony’s 26 clients for their benefit.” Compl. 16. (cleaned up). Although it contends that its allegations 27 concerning breach of duty of loyalty are not “limited to Symphony’s trade secret allegations,” at intentional interference claims, as currently pleaded, are “based on the same operative facts as” 1 2 Symphony’s trade secret claim and “are preempted by [CUTSA].” Digital Envoy, 370 F. Supp. 2d 3 at 1033–34. The claims are dismissed with leave to amend. 4 B. Breach of Fiduciary Duty and Loyalty Claim 5 Symphony Risk’s breach of fiduciary duty and common-law duty of loyalty claim meets a 6 similar fate. In its Sixth Claim, Symphony alleges in relevant part that: 7 Holman, Perlite and Dieter knowingly and intentionally breached their fiduciary and 8 common-law duties owed to Symphony in the manner as alleged herein, including, but not limited to, by deleting and/or altering as well as misusing Symphony’s Confidential & 9 Proprietary Information during and after their employment and/or soliciting Symphony 10 clients while still employed by Symphony.

11 Compl. ¶ 181. Symphony does not, within its claim for relief or elsewhere throughout its 12 complaint, allege any facts that illuminate in what other way the individual defendants breached 13 their fiduciary and common-law duties besides those related to misuse of information “not . . . 14 generally known to the public.” Cal. Civ. Code § 3426.1(d)(1). It does not expand upon what it 15 means when it alleges that the individual defendant’s actions are “not limited to” deleting, altering, 16 or misusing that information. Compl. ¶ 181. 17 18 Symphony Risk contends that its claims “do not depend on Symphony’s trade secret 19 allegations and should not be dismissed.” Oppo. 8. It is correct in citing Five Star Gourmet 20 Foods, Inc. v. Fresh Express, Inc. for the proposition that “a claim alleging a violation of a duty of 21 loyalty is not displaced by CUTSA where the duty of loyalty would be violated by undertaking 22 competitive acts, regardless of whether any proprietary information was implicated.” 19-CV- 23 05611-PJH, 2020 WL 513287 *14 (N.D. Cal. Jan. 31, 2020). But “[w]here the allegation is that [a 24 25 defendant] breached his duty of loyalty by disclosing trade secrets, the claim for breach of 26 fiduciary duty is based on the same operative facts and is therefore preempted by CUTSA.” Id. 27 As I have already explained, Symphony only alleges that the individual defendants have that CUTSA does not supersede claims based on allegations and facts not involving 1 2 misappropriation of trade secrets. However, if a plaintiff does not clearly delineate which facts 3 would support a claim that would not be superseded by CUTSA, a court may dismiss that claim 4 with leave to amend.” Nelson Bros. Prof. Real Estate LLC v. Jaussi, No. SA-CV-17-0158-DOC, 5 2017 WL 8220703 *7 (C.D. Cal Mar. 23, 2017); see also Gallagher, 2022 WL 4092673 *12. I 6 choose to do so here. 7 C. Aiding and Abetting Claim 8 Along with its claim asserting a breach of fiduciary duty against the individual defendants, 9 10 Symphony also raises a claim against Pinnacle for aiding and abetting that breach. Symphony’s 11 complaint includes only two relevant allegations. First, it alleges that “Pinnacle knew that 12 Holman, Perlite, and Dieter were breaching their fiduciary and common law duties to Symphony 13 in their unlawful misappropriation of Symphony’s Confidential & Proprietary Information and 14 solicitation of its clients.” Compl. ¶ 190. Second, it asserts that “Pinnacle encouraged, supported, 15 assisted, and/or otherwise aided Holman, Perlite, and Dieter in breaching their fiduciary and 16 common law duties to Symphony by their unlawful misappropriation of Symphony’s Confidential 17 18 & Proprietary Information and/or solicitation of its clients.” Compl. ¶ 191. Both assertions 19 incorporate Symphony’s trade secrets as a part of the allegation. Neither “retain[s] sufficient 20 independent facts” once any facts related to trade secrets are removed. Gabriel Tech. Corp., 2009 21 WL 3326631. Symphony’s Seventh Claim is therefore preempted by CUTSA. 22 Pinnacle also contends that Symphony Risk “fails to allege any well-pleaded facts” to 23 support this claim, requiring that it be dismissed in any event. MTD 9–10. Symphony appears to 24 25 overlook this argument. See Oppo. 9 (“Defendants do not argue that . . . the allegations 26 Symphony makes would fail to state a claim in the absence of CUTSA preemption. . . . [T]he only 27 argument Defendants put forward is that Symphony’s aiding and abetting claim against Pinnacle Defendants] is preempted.’”). Although I have concluded that this claim is preempted under 1 2 CUTSA, I note that in any amended complaint, Symphony must allege well-pleaded facts to avoid 3 a future dismissal with prejudice. 4 D. California Business and Professions Code § 17200 Claim 5 Symphony Risk’s final claim at issue is its Eighth Claim against the defendants, a violation 6 of California Business and Profession’s Code section 17200. In that claim, Symphony alleges that 7 Defendants have engaged in an unlawful, unfair, or fraudulent business practice(s) or act(s) 8 in violation of California Business and Professions Code Section 172200, et seq, including but not limited to Pinnacle and the Individual Defendants’ conduct as described herein; the 9 Individual Defendants’ misappropriation and misuse of Symphony’s Confidential & 10 Proprietary Information, false statements to Symphony clients, and solicitation of Symphony’s clients in breach of their duties; and Pinnacle’s conspiracy, aiding and 11 abetting, encouragement, and/or knowledge of said acts by the Individual Defendants being taken for its/their benefit. 12 The Defendants unlawfully jumped-the-gun and took anti-competitive measures to gain an 13 unfair advantage to solicit Symphony’s clients by using its Confidential & Proprietary 14 Information.

15 The Defendants manipulated the market for the services Symphony’s clients require through their use of Symphony’s Confidential & Proprietary Information instead of 16 competing for those clients’ business on a level playing field.

17 Compl. ¶¶ 196–8. 18 Symphony again points to caselaw that is unhelpful to its assertion that its Business and 19 Professions Code violation claim is independent of its factual allegations asserting misuse of trade 20 secret. See Strategic Partners v. Figs, Inc., No. 2:19-CV-02286-JWH, 2021 WL 4813645 (C.D. 21 22 Cal. Aug. 10, 2021) (dismissing only one of two Section 17200 claims because a Section 17200 23 claim that “does not implicate the Confidential Information or CUTSA preemption principles” is 24 not preempted by CUTSA); see also Gallagher, 2022 WL 4092673 *12. Unlike in Strategic 25 Partners, here, Symphony Risk’s Section 17200 claim implicates confidential information in a 26 similar fashion as the intentional interference and duty of loyalty claims and is preempted by 27 1 CUTSA. I likewise dismiss this claim, with leave to amend.* 2 CONCLUSION 3 For those reasons, the motion to dismiss is GRANTED with leave to amend. Any 4 amended complaint should be filed within 30 days of this Order. 5 IT IS SO ORDERED. 6 Dated: December 13, 2024 \ g ® 9 William H. Orrick United States District Judge 10 11 12

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Z 18 19 20 21 22 23 24 25 26 * Because caselaw is clear that claims may be pleaded alleging intentional interference with 07 economic relations, breach of fiduciary duty/duty of loyalty, aiding and abetting, and violations of California Business Code Section 17200 in a way that are not preempted by CUTSA, I disagree 2g || with defendants’ contention that any amendment would be futile. Repl. 9.