1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 VOX NETWORK SOLUTIONS, INC., Case No. 22-cv-09135-AMO Plaintiff, 8 ORDER GRANTING IN PART 9 v. AND DENYING IN PART MOTION TO DISMISS 10 GAGE TECHNOLOGIES, INC., et al., Re: Dkt. No. 16 Defendants. 11 12 13 This is a case about trade secret misappropriation. Before the Court is Defendants’ motion 14 to dismiss. The matter is fully briefed and suitable for decision without oral argument. See Civil 15 L.R. 7-6. Having read the parties’ papers and carefully considered their arguments and the 16 relevant legal authority, the Court hereby GRANTS IN PART AND DENIES IN PART the 17 motion to dismiss for the following reasons. 18 I. BACKGROUND1 19 Plaintiff Vox Network Solutions, Inc. (“Vox”) and Defendant Gage Technologies, Inc. 20 (“Gage”) are companies that provide consulting and network support services. Compl. ¶¶ 2, 5. In 21 late 2017, Vox hired Defendant Kristopher McGreevey as a Regional Sales Director for the 22 Pacific Northwest, and Defendant Kevin Frazier as a Senior Account Executive. Compl. ¶¶ 23-25. 23 In November of 2019, Gage and Vox became business partners. Compl. ¶ 6. Gage worked as a 24 subcontractor for Vox, providing mid-market phone system implementation services. Compl. ¶ 6. 25 As conditions of their employment, Frazier and McGreevey (collectively, “Individual 26 1 The Court accepts Vox’s allegations in the complaint as true and construes the pleadings in the 27 light most favorable to the Vox. See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1 Defendants”) signed Employee Confidentiality Agreements which obligated them to keep certain 2 information confidential and not to share confidential information with any competitor. 3 Compl. ¶ 26. The agreements also have a provision preventing the Individual Defendants from 4 soliciting or hiring Vox employees or contractors during employment or for a year after 5 terminating employment. Compl. ¶ 27. 6 Prior to joining Vox, the Individual Defendants developed a relationship with a cell phone 7 company, Consumer Cellular, Inc. (“Consumer Cellular”) and a software vendor, Avaya, Inc. 8 (“Avaya”). Compl. ¶ 36. Most of Avaya’s products are sold through business partners, whose 9 employees must obtain certifications to sell, install, and provide support for Avaya’s products. 10 Compl. ¶ 37. Consumer Cellular became an important client for Vox and purchased Avaya 11 products and support through Vox. Compl. ¶ 36. 12 In August and September of 2021, Frazier scheduled and attended a Vox-funded fishing 13 and golfing trip with Consumer Cellular, where he “proposition[ed]” Consumer Cellular to 14 transfer to Gage. Compl. ¶ 39. In October of the same year, McGreevey and Frazier “engaged 15 Avaya for a quote regarding the cost of transitioning Consumer Cellular to a subscription-based 16 licensing agreement[.] . . .” Compl. ¶ 40. The Individual Defendants did not follow Vox- 17 mandated procedures as they failed to open an engineering ticket or enter the sales opportunity on 18 Vox’s software system. Compl. ¶ 40. 19 Around the same time, McGreevey moved to Texas, where Gage is headquartered. 20 Compl. ¶ 41. Consumer Cellular and Frazier emailed about transitioning Consumer Cellular to a 21 subscription-based Avaya license and about obtaining a temporary product license while Frazier 22 worked out a quote, which he did not record in violation of Vox’s procedure. Compl. ¶¶ 42-45. In 23 October of 2021, McGreevey and Frazier resigned from Vox and joined Gage. Compl. ¶¶ 24-25. 24 McGreevey is currently Gage’s President and CEO and Frazier is Gage’s Executive Vice 25 President and CRO. Compl. ¶¶ 24-25. McGreevey left Vox on the same day Avaya approved the 26 temporary license for Consumer Cellular, and Frazier resigned thirty-three minutes before 27 delivering the temporary licenses to Consumer Cellular. Compl. ¶¶ 47, 49. In a November 2021 1 under the subscription-based license Frazier had generated. Compl. ¶ 53. 2 Two days after Frazier resigned, Vox learned for the first time that Consumer Cellular 3 intended to migrate to a subscription-based model with Avaya. Compl. ¶ 50. Vox conducted a 4 forensic review of Frazier’s Vox-registered email and discovered that Frazier had deleted many 5 communications regarding Consumer Cellular’s planned migration to a subscription-based model. 6 Compl. ¶ 51. In late November of 2021, Vox reassigned the Consumer Cellular account to 7 another Vox employee, Kevin Bryant. Compl. ¶ 53. In emails between Bryant and Consumer 8 Cellular, Consumer Cellular confirmed that it was migrating its account to Gage under the 9 subscription-based quote Frazier had generated. Compl. ¶ 53. In December of 2021, Bryant 10 delivered Consumer Cellular a quote from Vox to convert Consumer Cellular to a subscription- 11 based model and offered a $268,000 discount if it chose to continue with Vox. Compl. ¶ 54. 12 Consumer Cellular informed Vox that it planned to move its account to Gage beginning in January 13 2022. Compl. ¶ 55. 14 On December 28, 2022, Vox filed a complaint for damages against Gage, McGreevey, and 15 Frazier for (1) violation of the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code 16 § 3426 et seq.; (2) violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. and Prof. 17 Code § 17200; (3) breach of fiduciary duty (4) breach of duty of loyalty; (5) fraudulent 18 concealment; (6) aiding and abetting breach of fiduciary duty; (7) civil conspiracy; (8) tortious 19 interference with contract, and (9) tortious interference with prospective economic advantage. On 20 February 28, 2023, Defendants filed a motion to dismiss all of Vox’s claims for failure to state a 21 claim. Motion (ECF 16). Defendants allege that Vox failed to adequately plead trade secret 22 misappropriation under CUTSA, that the CUTSA claim preempts the remaining causes of action, 23 and alternatively that the remaining causes of action fail for failure to state a claim. 24 II. LEGAL STANDARD 25 Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint may be 26 dismissed for failure to state a claim for which relief may be granted. Fed. R. Civ. P. 12(b)(6). 27 Rule 12(b)(6) requires dismissal when a complaint lacks either a “cognizable legal theory” or 1 1208 (9th Cir. 2019) (citation omitted). Whether a complaint contains sufficient factual 2 allegations depends on whether it pleads enough facts to “state a claim to relief that is plausible on 3 its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 4 U.S. 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that allows 5 the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 6 Id. at 678. 7 When evaluating a motion to dismiss, the court “accept[s] factual allegations in the 8 complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving 9 party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 10 However, “allegations in a complaint . . . may not simply recite the elements of a cause of action 11 [and] must contain sufficient allegations of underlying facts to give fair notice and to enable the 12 opposing party to defend itself effectively.” Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 13 2014) (citations omitted). The Court may dismiss a claim “where there is either a lack of a 14 cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal claim.” 15 Hinds Invs., L.P. v. Angioli, 654 F.3d 846, 850 (9th Cir. 2011). 16 III. ANALYSIS 17 Defendants contend that Vox fails to adequately plead the trade secret misappropriation 18 claim, that the trade secret claim supersedes the remaining causes of action, and alternatively that 19 the remaining causes of action fail to state a claim. The Court first addresses the trade secret 20 misappropriation claim before considering supersession and the remaining causes of action. 21 A. Trade Secret Misappropriation (Count 1) 22 “A cause of action for misappropriation of trade secrets requires a plaintiff to show the 23 plaintiff owned the trade secret; at the time of misappropriation, the information was a trade 24 secret; the defendant improperly acquired, used, or disclosed the trade secret; the plaintiff was 25 harmed; and the defendant’s acquisition, use, or disclosure of the trade secret was a substantial 26 factor in causing the plaintiff harm.” AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal. 27 App. 5th 923, 942 (2018); see Alta Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 877 1 CUTSA, a plaintiff must allege that: ‘(1) the plaintiff owned a trade secret; (2) the defendant 2 misappropriated the trade secret; and (3) the defendant’s actions damaged the plaintiff.’”) (citation 3 omitted). 4 The California Uniform Trade Secrets Act (“CUTSA”) defines a trade secret as 5 information that (1) derives its economic value from not being generally known, and (2) is subject 6 to reasonable measures of secrecy by its owner. See Cal. Civ. Code § 3426.1(d). “‘Information’ 7 has a broad meaning under the [CUTSA].” Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 8 Cal. App. 4th 26, 53 (2014) (citation omitted). “A plaintiff seeking relief for misappropriation of 9 trade secrets must identify the trade secrets and carry the burden of showing that they exist,” and 10 “describe the subject matter of the trade secret with sufficient particularity to separate it from 11 matters of general knowledge in the trade or of special knowledge of those persons . . . skilled in 12 the trade.” Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998) (quotations 13 and citations omitted) (emphasis in original). 14 Vox alleges that it owns the following trade secrets:
15 [S]olutions for complex customer requirements; confidential client lists which 16 contain the identity of, and key contact information for, Vox’s clients and prospective clients; customer requirements; Vox’s proprietary strategy for each 17 client; detailed fee structures; Vox’s proprietary database of customers, business partners, and contacts; Vox’s valuable and confidential pricing, marketing, and 18 business strategies cultivated from investments in research and development; special practices, methods, and collateral built over years of experience; and other 19 proprietary information regarding services performed for actual and prospective 20 clients.
21 Compl. ¶ 58. The parties dispute whether Vox identifies the trade secrets at issue with sufficient 22 specificity. 23 Other courts have found that such broad descriptions fail to show that each category 24 constitutes a trade secret. See, e.g., Vendavo, Inc. v. Price f(x) AG, No. 17-cv-06930-RS, 2018 25 WL 1456697, at *3-4 (N.D. Cal. Mar. 23, 2018) (finding insufficient specificity where plaintiff 26 described “broad, categorical terms, more descriptive of the types of information that generally 27 may qualify as protectable trade secrets” rather than a particular trade secret it had a basis to 1 Cal. 2020) (concluding “supplier information, pricing, financing, personnel files and records, 2 proposed and contemplated investments, financial records, and other internally generated studies 3 and reports” “lack[ed] particularity to put defendants on notice”). This Court is similarly 4 unconvinced that Vox’s broad categories of purported trade secrets suffice to identify a trade 5 secret. 6 Even assuming some of these categories qualified as trade secrets, Vox has not alleged 7 facts showing that Defendants “improperly acquired, used, or disclosed [a] trade secret.” See 8 AMN Healthcare, Inc., 28 Cal. App. 5th at 942. Vox alleges that “Defendants misappropriated 9 VOX’s confidential, proprietary, and trade secret information . . . [and that] MCGREEVEY and 10 FRAZIER disclosed the trade secrets to GAGE, who acquired the trade secrets, knowing that 11 MCGREEVEY and FRAZIER had acquired them by improper means.” Compl. ¶ 63. However, 12 Vox does not allege which purported trade secrets were misappropriated or provide any factual 13 allegations to support these conclusory assertions. Vox suggests that the allegations here are 14 comparable to those in Arthur J. Gallagher & Co. v. Tarantino, 498 F. Supp. 3d 1155 (N.D. Cal. 15 2020) (“Arthur J.”). In Arthur J., the plaintiff identified nine documents with trade secrets that 16 defendants emailed to their personal email accounts in the months before resigning and used that 17 information to “woo” clients from the plaintiff to a different company. Id. at 1172. The court 18 found that the information in the emails “related to clients who did actually leave [plaintiff 19 company] shortly thereafter” and the suspicious timing supported a claim for misappropriation. 20 Id. 21 Distinctly, the Complaint here alleges that Individual Defendants emailed Consumer 22 Cellular about the Avaya subscription in the months before leaving, and Consumer Cellular 23 ultimately left Vox for Gage. Vox does not allege, however, what information the Individual 24 Defendants allegedly shared with Gage, or even point to any allegations that the Individual 25 Defendants accessed or downloaded any documents containing trade secrets. Indeed, nowhere in 26 the Complaint does Vox allege which, if any, trade secrets the defendants supposedly 27 misappropriated or disclosed from the broad category of trade secrets defined by Vox. Further, 1 conclusory assertion that Gage “conspired with McGreevey and Frazier to improperly acquire 2 Vox’s trade secrets.” Compl. ¶ 63. That is not enough. See, e.g., Arthur J., 498 F. Supp. 3d at 3 1173 (finding that even if the defendant company may have benefited from the individual 4 defendants’ acquisition and use of trade secrets, there were no allegations supporting the theory 5 that it directed them to acquire such information). 6 The conclusory assertions here do not satisfy the pleading requirements in Twombly and 7 Iqbal. See, e.g., Veronica Foods Co. v. Ecklin, No. 16-CV-07223-JCS, 2017 WL 2806706, at *14 8 (N.D. Cal. June 29, 2017) (dismissing “everything-but-the-kitchen-sink assertion that Defendants 9 ‘have made improper and unauthorized use of Veronica Foods’s Customer List, Supplier List, and 10 Confidential Business Information’ to solicit customers” as “naked assertions”). Accordingly, the 11 Court DISMISSES Vox’s trade secret misappropriation claim with leave to amend. 12 B. CUTSA Preemption or “Supersession” 13 The California Uniform Trade Secrets Act (“CUTSA”) was intended “to occupy the field 14 of trade secret liability to the exclusion of other civil remedies.” Five Star Gourmet Foods, Inc. v. 15 Fresh Express, Inc., No. 19-CV-05611-PJH, 2020 WL 513287, at *14 (N.D. Cal. Jan. 31, 2020) 16 (citing Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 234 (2010)). CUTSA therefore 17 “preempts common law claims that are ‘based on the same nucleus of facts as the 18 misappropriation of trade secrets claim for relief.’” K.C. Multimedia, Inc. v. Bank of Am. Tech. & 19 Operations, Inc., 171 Cal. App. 4th 939, 958 (2009) (citation omitted). “Common law claims 20 premised on the wrongful taking of information which does not qualify as a trade secret are also 21 superseded, unless the plaintiff identifies some law which confers the plaintiff with property rights 22 in the information.” Bus. Sols., LLC v. Ganatra, No. SACV181426DOCKESX, 2019 WL 23 926351, at *6 (C.D. Cal. Jan. 7, 2019) (citing Silvaco, 184 Cal. App. 4th at 236-40); see also 24 Angelica Textile Servs., Inc. v. Park, 220 Cal. App. 4th 495, 506 (2013) (“In general, the 25 acquisition, disclosure or transfer of information that does not fit UTSA’s definition of a trade 26 secret does not give rise to any liability, even when that liability is couched in terms of a separate 27 tort or statutory violation.”). 1 proof of additional elements not necessary to a trade-secret misappropriation claim.” EchoSpan, 2 Inc. v. Medallia, Inc., No. 22-CV-1732-NC, 2022 WL 18539352, at *2 (N.D. Cal. July 19, 2022) 3 (citing K.C. Multimedia, Inc., 171 Cal. App. 4th at 958). “If there is no material distinction 4 between the wrongdoing alleged in a [C]UTSA claim and that alleged in a different claim, the 5 [C]UTSA claim preempts the other claim.” Arthur J., 498 F.Supp.3d at 1174 (citation omitted). 6 The “determination of whether a claim is based on trade secret misappropriation is largely 7 factual.” K.C. Multimedia, 171 Cal. App. 4th at 954. In K.C. Multimedia, Inc., the California 8 Court of Appeal held that unfair competition law and tortious interference claims were superseded 9 where “the gravamen of the wrongful conduct asserted here is the misappropriation of trade 10 secrets.” Id. at 960-62. 11 Consistent with the recent decisions of courts in the district, the Court may decide the issue 12 of supersession at the pleading stage. See EchoSpan, 2022 WL 18539352, at *2; Acorn Bay v. 13 CamelBack Products, LLC, No. 20-cv-05214-WHA, 2020 WL 7664450, at *2 (N.D. Cal., Dec. 14 24, 2020); Five Star Gourmet Foods, 2020 WL 513287, at *14. “At the pleadings stage, the 15 supersession analysis asks whether, stripped of facts supporting trade secret misappropriation, the 16 remaining factual allegations can be reassembled to independently support other causes of action.” 17 Waymo LLC v. Uber Techs., Inc., 256 F. Supp. 3d 1059, 1062 (N.D. Cal. 2017). Put another way, 18 “[t]o survive preemption, [a plaintiff’s] claims must ‘allege wrongdoing that is materially distinct 19 from the wrongdoing alleged in a CUTSA claim.’” Prostar Wireless Grp., LLC v. Domino’s 20 Pizza, Inc., 360 F. Supp. 3d 994, 1006 (N.D. Cal. 2018) (citation omitted). 21 Defendants argue that CUTSA preempts the remaining claims (Counts 2-9). The Court 22 agrees that several of Vox’s claims are predicated in part on trade secret misappropriation, as 23 shown through the following excerpts from the pleading:
24 UCL claim allegations that Defendants engaged in unlawful, unfair, and fraudulent business acts which “include, but are not limited to, misappropriating Vox’s 25 confidential and proprietary information,” Compl. ¶ 68; 26 Breach of fiduciary duty and loyalty allegations that McGreevey and Frazier used 27 “Vox-registered email accounts to covertly transmit Vox’s confidential information 1 Fraudulent concealment claim allegation that Defendants intended to deceive Vox 2 when using “Confidential Information to cultivate and preserve Vox’s existing relationship with its client, Consumer,” Compl. ¶ 86; 3 Aiding and abetting breach of fiduciary claim allegation that that Gage “knew that 4 McGreevey and Frazier intended to . . . steal[] Vox’s Confidential Information in order to poach Vox’s client, Consumer,” Compl. ¶ 92; 5
6 Civil conspiracy claim allegation that Defendants conspired to steal Vox’s Confidential Information, Compl. ¶ 98; 7 Tortious interference claim allegation that Gage “exploited its intimate knowledge 8 of Vox’s trade secrets and clients to infiltrate and disrupt Vox’s client base by . . . hiring Vox employees . . .” Compl. ¶ 38(c). 9 To the extent those causes of action rely on allegations of trade secret misappropriation, they must 10 be dismissed. 11 Certain of Vox’s claims, however, are also based on conduct that does not implicate trade 12 secret misappropriation. For example, in the breach of fiduciary duty and loyalty claims, Vox 13 alleges that Defendants used Vox resources, such as the company-funded fishing trip and Vox- 14 registered email accounts to secretly “solicit, develop, and coordinate Consumer’s transition to a 15 subscription-based Avaya licensing agreement” to poach Consumer Cellular for Gage and 16 wrongfully competed with Vox by facilitating the hiring of Vox employees at Gage and Avaya. 17 Compl. ¶¶ 75, 80, 105. As this misconduct stands independent of any trade secrets, there is no 18 basis for CUTSA preemption. See, e.g., Arthur J., 409 F. Supp. 3d at 1175 (no CUTSA 19 preemption of claims based on conduct unrelated to trade secret misappropriation); Henry Schein, 20 Inc. v. Cook, No. 16-CV-03166-JST, 2017 WL 783617, at *3 (N.D. Cal. Mar. 1, 2017) (no 21 preemption where plaintiff “did not necessarily rely on HSI’s trade secrets when she solicited 22 customers to move their business to [another company]”). 23 Because not all the claims are fully superseded by CUTSA, the Court next analyzes the 24 sufficiency of the Complaint; specifically, whether Vox states a claim based on the allegations not 25 superseded. 26 C. Unfair Competition Law (Count 2) 27 1 practices that are (1) unlawful, (2) unfair, or (3) fraudulent.” Backhaut v. Apple, Inc., 74 F. Supp. 2 3d 1033, 1050 (N.D. Cal. 2014) (citing Cal. Bus. & Prof. Code § 17200); see Kwikset Corp. v. 3 Super. Ct., 51 Cal. 4th 310, 320 (2011). “The UCL’s coverage is ‘sweeping,’ and its standard for 4 wrongful business conduct ‘intentionally broad.’ ” Moore v. Apple, Inc., 73 F. Supp. 3d 1191, 5 1204 (N.D. Cal. 2014) (quoting In re First All. Mortg. Co., 471 F.3d 977, 995 (9th Cir. 2006)). 6 Defendants argue that the UCL claim fails because Vox has not adequately pleaded any 7 other violation of law. Motion at 16-17 n.1. Defendants thus appear to only challenge the UCL 8 claim under the “unlawful” prong. Under the unlawful prong, the claim is based entirely on the 9 misappropriation of confidential information. Compl. ¶¶ 68-69. The UCL “ ‘borrows’ violations 10 of other laws and treats these violations . . . as unlawful practices independently actionable . . . [.]” 11 Farmers Ins. Exch. v. Superior Ct., 2 Cal. 4th 377, 383 (1992) (citation omitted). “Where a 12 plaintiff cannot state a claim under the ‘borrowed’ law, he or she cannot state a UCL claim either.” 13 Sevier v. Real Time Resols., Inc., No. 22-CV-06693-JSW, 2024 WL 68555, at *6 (N.D. Cal. Jan. 14 5, 2024) (citation omitted). As Vox fails to state a CUTSA claim, the UCL claim, as premised on 15 the unlawful prong, fails. 16 However, Vox also brings claims under the fraudulent and unfair prongs of the UCL. 17 Under the fraudulent prong, Vox alleges that Defendants fraudulently developed a subscription 18 plan for Consumer Cellular and used Vox’s resources (e.g., the fishing trip) to convince Consumer 19 Cellular to move to Gage. Id. ¶ 70. Vox also alleges that Defendants’ business acts and practices 20 were unfair. Id. ¶ 71. Because neither party addresses the fraudulent or unfair prongs in the 21 briefing, the Court does not analyze them beyond finding that Defendants have not challenged 22 them, and thus these theories of liability remain. Thus, the Court GRANTS IN PART 23 Defendants’ motion to dismiss as Vox has not stated a CUTSA claim under the unlawful prong 24 and DENIES IN PART Defendants’ motion to dismiss the UCL claim because Vox’s allegations 25 under the fraudulent and unfair prongs remain. 26 D. Breach of Fiduciary Duty and Aiding and Abetting a Breach (Counts 3 and 6) 27 A breach of fiduciary duty requires showing “(1) the existence of a fiduciary duty; (2) the 1 22 Cal. App. 5th 630, 646 (2018) (quoting Mosier v. Southern Cal. Physicians Ins. Exchange, 63 2 Cal. App. 4th 1022, 1044 (1998)). “California courts have defined the elements of [breach of 3 loyalty and aiding and abetting] claims as analogous to a claim for breach of fiduciary duty.” In re 4 Brocade Commc’ns Sys., Inc. Derivative Litig., 615 F. Supp. 2d 1018, 1037 (N.D. Cal. 2009) 5 (citing Huong Que, Inc. v. Luu, 150 Cal. App. 4th 400, 410 (2007)). The Court addresses these 6 elements in turn. 7 1. Existence of Fiduciary Duty 8 Under California law, not every employee owes a fiduciary duty to their employer, but 9 corporate directors and officers typically owe fiduciary duties to a corporation. GAB Bus. Servs., 10 Inc. v. Lindsey & Newsom Claim Servs., Inc., 83 Cal. App. 4th 409, 417-20 (2000) (“GAB”), 11 overruled on other grounds by Reeves v. Hanlon, 33 Cal. 4th 1140 (2004). “[A]n officer who 12 participates in management of the corporation, exercising some discretionary authority, is a 13 fiduciary of the corporation as a matter of law. Conversely, a ‘nominal’ officer with no 14 management authority is not a fiduciary. Whether a particular officer participates in management 15 is a question of fact.” Id. at 420-21. “California law does not clearly state whether all employees 16 (including lower-level employees) owe a fiduciary duty to their employer.” Albert’s Organics, 17 445 F. Supp. 3d at 479 n.2. 18 Vox alleges that McGreevey and Frazier owed a fiduciary duty to Vox due to their 19 positions as Regional Sales Director and Senior Account Executive, respectively. Compl. ¶¶ 24- 20 25, 74. Vox’s sole allegation about Frazier is that his “assigned duties included generating new 21 sales and maintaining Vox’s current customer base.” Compl. ¶ 25. Vox has not alleged that 22 Frazier participated in management and “exercis[ed] discretionary authority.” See GAB, 83 Cal. 23 App. 4th at 420. Thus, Vox has failed to allege that Frazier owed it a fiduciary duty. 24 However, McGreevey, as Regional Sales Director, was responsible for building a team of 25 “Account Executives” and managing sales representatives in California and the Pacific Northwest 26 sales region. Compl. ¶ 24. McGreevey’s position as Regional Sales Director creates a reasonable 27 inference that he owes a fiduciary duty to Vox. See, e.g., Nat’l Union Fire Ins. Co. of Pittsburgh 1 report and recommendation adopted, No., 2020 WL 4227479 (E.D. Cal. July 23, 2020) (finding 2 that defendants’ position as district manager with control over a district’s finances and financial 3 reporting “creates a reasonable inference that she owed a fiduciary duty”). Thus, the analysis 4 continues as to McGreevey. 5 2. Breach 6 The fiduciary duty or duty of loyalty is breached “when the employee takes action which is 7 inimical to the best interests of the employer.” Stokes v. Dole Nut Co., 41 Cal. App. 4th 285, 295 8 (1995). Here, Vox alleges that the Individual Defendants breached their fiduciary duties in two 9 ways. First, Vox alleges that Defendants covertly transmitted confidential information to Gage. 10 Compl. ¶ 75. As discussed above, CUTSA supersedes the allegations about transmitting 11 confidential information. See Five Star Gourmet Foods, 2020 WL 513287, at *14 (“a claim 12 alleging a violation of a duty of loyalty is not displaced by CUTSA where the duty of loyalty 13 would be violated by undertaking competitive acts, regardless of whether any proprietary 14 information was implicated. . . . However, ‘where the allegation is that [a defendant] breached his 15 duty of loyalty by disclosing trade secrets, the claim for breach of fiduciary duty is based on the 16 same operative facts and is therefore preempted by CUTSA.’ ”) (citation omitted). Thus, to the 17 extent Vox’s allegations are based on the transmission of confidential information, CUTSA 18 supersedes the claim. 19 Second, Vox alleges that McGreevey breached his duty by soliciting and coordinating 20 Consumer Cellular’s transition to a subscription-based Avaya licensing agreement for Gage’s 21 benefit. Compl. ¶ 75. Defendants argue that Vox’s allegations regarding the Consumer Cellular 22 deal are conclusory and only show that they were making “basic preparations to leave Vox.” 23 Motion at 18. Generally, employees may prepare to compete before resigning, but they “may not 24 solicit customers or do other acts in direct competition to the current business prior to leaving that 25 business.” Albert’s Organics, Inc, 445 F. Supp. 3d at 480 (citing Bancroft-Whitney v. Glen, 64 26 Cal. 2d 327, 345-346 (1966)). Vox alleges that the Individual Defendants prepared a quote for a 27 subscription-based Avaya plan for Consumer Cellular with the intent to transfer Consumer 1 including failing to open an engineering ticket, notify Vox about migrating Consumer Cellular to 2 Avaya, or record the sale opportunity or quote. Compl. ¶¶ 40-45. In addition, McGreevey 3 terminated his employment with Vox and joined Gage on the same day Avaya approved the 4 temporary product licenses for Consumer. Compl. ¶¶ 47-48. Accepting these allegations as true, 5 McGreevey went beyond mere “preparation to leave,” and instead took actions to assist Consumer 6 Cellular in leaving Vox and becoming a client of Gage.2 In sum, Vox has sufficiently alleged that 7 McGreevey breached his fiduciary duty to Vox. See Albert’s Organics, Inc, 445 F. Supp. 3d at 8 480. 9 Accordingly, the Court DENIES the motion to dismiss the breach of fiduciary duty claim 10 as to McGreevey and GRANTS the motion to dismiss with leave to amend as to Frazier. 11 3. Aiding and Abetting Breach of Fiduciary Duty 12 Vox also brings the sixth cause of action against Gage for aiding and abetting the breach of 13 a fiduciary duty. Defendants argue that Vox’s allegations in support of this claim are “entirely 14 conclusory.” Motion at 18. The Court agrees. The extent of Vox’s allegations against Gage are 15 that it knew about McGreevey and Frazier’s actions and “encouraged, facilitated, and coordinated 16 Consumer Cellular’s migration from Vox to Gage . . . and compensated [McGreevey and Frazier] 17 with leadership roles and lucrative salaries.” Compl. ¶¶ 93-94. Vox has failed to provide any 18 factual allegations as to Gage’s actions beyond hiring the Individual Defendants. These 19 conclusory allegations cannot survive a motion to dismiss. The Court therefore DISMISSES the 20 aiding and abetting claim with leave to amend. 21 E. Duty of Loyalty (Count 4) 22 Breach of the duty of loyalty similarly requires duty, breach, and damages. See Huong 23 Que, Inc. v. Luu, 150 Cal. App. 4th 400, 410 (2007). Defendants argue that the Complaint does 24 not allege that Frazier or McGreevey owed any loyalty duties to Vox, and that there are only 25 conclusory allegations of breach. Motion at 17-18. 26
27 2 As Defendants do not challenge whether any alleged breach caused damage to Vox, the Court 1 In addition to the allegations in the breach of fiduciary duty section above, Vox alleges that 2 the Individual Defendants violated their Confidentiality Agreement by helping two Vox 3 employees get hired at Consumer Cellular and Avaya and developing a deal with Consumer 4 Cellular that Defendants intended to develop for Gage. The Confidentiality Agreement states that 5 Vox employees may not:
6 [D]irectly or indirectly (a) hire or recruit any employee or contractor of Company, 7 or solicit or in any manner encourage employees or consultants of Company to end their relationships with Company; or (b) other than on behalf of Company, call on, 8 solicit or take away the business of, or attempt to do any of the same, any customer of Company with whom Employee became acquainted during the course of 9 Employee’s employment with Company through use of Confidential Information.
10 Compl. ¶ 38(d). 11 Vox alleges that a Vox employee, Eric Runnels, sent his resume to Frazier, who offered to 12 help Runnels apply for a job at Avaya through his contacts. Compl. ¶ 38(a). Vox also points to a 13 fishing and golf trip Frazier took with a Consumer Cellular representative in August of 2021 and 14 the suspect timing of the Individual Defendants departure from Vox – McGreevey left Vox on the 15 same day Avaya approved the temporary license for Consumer Cellular, and Frazier resigned 16 thirty-three minutes before delivering the temporary licenses to Consumer Cellular. Compl. ¶¶ 39, 17 47, 49. Frazier scrubbed his emails related to the development of the Consumer subscription plan 18 quote. Compl. ¶ 51. Consumer Cellular became a client of Gage shortly after the Individual 19 Defendants joined Gage. Compl. ¶¶ 53, 55. Given that the actions Defendants took to transfer 20 Consumer Cellular to Gage while still employed at Vox and to help a Vox employee get a job at 21 Avaya in violation of the Confidentiality Agreement were “inimical to the best interests of the 22 employer,” Stokes, 41 Cal. App. 4th at 295, the Court DENIES the motion to dismiss the breach 23 of loyalty claim. 24 F. Fraudulent Concealment (Count 5) 25 “[T]he elements of a cause of action for fraud based on concealment are: ‘(1) the defendant 26 must have concealed or suppressed a material fact, (2) the defendant must have been under a duty 27 to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or 1 unaware of the fact and would not have acted as he did if he had known of the concealed or 2 suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must 3 have sustained damage.’” Jones v. ConocoPhillips Co., 198 Cal. App. 4th 1187, 1198 (2011) 4 (citation omitted). 5 Vox alleges that the Individual Defendants intentionally concealed the scheme to migrate 6 Consumer Cellular to a subscription-based Avaya licensing agreement using Gage as the deal 7 broker. Compl. ¶ 85. The material fact at issue was the sales opportunity with Consumer Cellular. 8 Under the terms of their employment and their positions within the firm, the Individual 9 Defendants were obligated to disclose the sales opportunity. Specifically, Vox alleges that the 10 Individual Defendants (1) failed to open an engineering ticket and enter this sales opportunity in 11 the Vox’s software; (2) intentionally deleted all communications and data related to the plan; and 12 (3) refused to surrender Vox-owned devices to conceal their conduct. Compl. ¶ 85. Vox also 13 argues that McGreevey moved to Texas, where Gage is located, without notifying Vox. 14 Compl. ¶ 85. Defendants contend that Vox failed to sufficiently plead the concealment of a 15 material fact and that Vox would have acted differently. Motion at 19. 16 Vox does not allege that McGreevey was under any duty to disclose that he moved to 17 Texas. However, Vox does allege that the Individual Defendants were required to disclose the 18 sales opportunity and quote that they prepared for Consumer Cellular, which they failed to do on 19 multiple occasions. See Compl. ¶¶ 40, 44, 45. Thus, Vox sufficiently alleges that Defendants 20 concealed a material fact – the existence of the sales opportunity with Consumer Cellular. 21 However, Vox does not allege how it would have acted differently if it had known of the 22 opportunity. Vox learned about the plan to migrate Consumer Cellular to a subscription-based 23 model with Avaya on October 27, 2021, twelve days after McGreevey terminated his employment 24 with Vox. Compl. ¶¶ 47, 50. Vox states only that it would have “pursued all reasonable remedies 25 available” had it learned of the concealment. Compl. ¶ 88. Vox does not explain what conduct it 26 would have taken, i.e., that it “would not have acted as [it] did if [it] had known of the concealed 27 or suppressed fact.” See Jones, 198 Cal. App. 4th at 1198. Accordingly, the Court DISMISSES 1 G. Civil Conspiracy (Count 7) 2 In California, there is no distinct tort for civil conspiracy. Applied Equip. Corp. v. Litton 3 Saudi Arabia Ltd., 7 Cal. 4th 503, 510-11 (1994). Instead, conspiracy imposes liability on 4 someone who “although not actually committing a tort themselves, share[s] with the immediate 5 tortfeasors a common play or design in its perpetration.” Id. “Liability for civil conspiracy 6 generally requires three elements: (1) formation of the conspiracy (an agreement to commit 7 wrongful acts); (2) operation of the conspiracy (commission of the wrongful acts); and (3) damage 8 resulting from operation of the conspiracy.” People ex rel. Kennedy v. Beaumont Inv., Ltd., 111 9 Cal. App. 4th 102, 137 (2003), as modified on denial of reh’g (Sept. 9, 2003). 10 Vox alleges that Defendants conspired to steal Vox’s confidential information, 11 misappropriate financial resources, and tortiously interfere with contractual relationships and 12 prospective economic advantage. Compl. ¶ 98. However, Vox has not alleged the formation of an 13 agreement to commit wrongful acts. Thus, it has failed to plead one of the three necessary 14 elements and the Court DISMISSES this claim with leave to amend. 15 H. Tortious Interference with Contract and Prospective Economic Advantage 16 (Counts 8 and 9) 17 To plead tortious interference with contractual relations, a plaintiff must show “(1) the 18 existence of a valid contract between plaintiff and a third party; (2) defendant’s knowledge of that 19 contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the 20 contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) 21 resulting damage.” Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1141 (2020) (citation 22 omitted); see Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990). 23 The elements of an intentional interference with prospective economic advantage are 24 similar, but do not require a legally binding contract, Ixchel, 9 Cal. 5th at 1141, and require 25 “intentionally wrongful acts designed to disrupt the [economic] relationship.” Roy Allan Slurry 26 Seal, Inc. v. American Asphalt South, Inc., 2 Cal. 5th 505, 512 (2017) (citation omitted). The 27 predicate “independently wrongful act” must be “unlawful,” that is, “proscribed by some 1 Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1159 (2003). 2 Where a contract is based on an at-will employee relationship, a plaintiff must also allege 3 an independently wrongful act “under the same California standard applicable to claims for 4 intentional interference with prospective economic advantage.” Reeves v. Hanlon, 33 Cal. 4th 5 1140, 1152 (2004); see Ixchel Pharma, LLC v. Biogen, Inc., 930 F.3d 1031, 1037 (9th Cir. 2019). 6 Vox alleges that Defendants tortiously interfered with the Consumer Cellular contract as 7 well as the at-will employee contracts. Vox further alleges that Defendants tortiously interfered 8 with the prospective economic advantage in the Consumer Cellular contract by misappropriating 9 Vox’s confidential information, using the confidential information on behalf of Gage, engaging in 10 “concealed and offline dealings,” and deleting evidence of their misconduct. Compl. ¶¶ 105, 110- 11 11. Defendants argue that Vox has not alleged an independently wrongful act and has not 12 indicated that there was an existing contract with respect to Consumer Cellular. Motion at 21. 13 To the extent Vox’s allegations are based on the misappropriation of trade secrets, CUTSA 14 supersedes the claims. See, e.g., Calsoft Labs, Inc. v. Panchumarthi, No. 19-CV-04398-NC, 2020 15 WL 512123, at *6 (N.D. Cal. Jan. 31, 2020) (intentional interference claims superseded by 16 CUTSA where complaint alleged that defendants “poach[ed] their employees and clients using the 17 information obtained through [defendant’s] unauthorized access of plaintiff’s email and Dropbox 18 accounts”). 19 Vox’s remaining allegations do not point to an independently wrongful act. Vox argues 20 that an email Frazier sent Runnels at Avaya describing the migration of Consumer to a 21 subscription-based Avaya licensing agreement supports an “inference . . . that an independently 22 wrongful act occurred when Frazier, by getting Runnels a job at a different company, effectively 23 purchased Runnels’s silence as to Defendants’ ongoing, tortious, and concealed scheme.” 24 Response at 20. However, the Complaint does not allege that Defendants “purchased Runnels’s 25 silence,” and does not allow for such an inferential leap without factual allegations to support it.3 26 3 Indeed, the Complaint indicates that Runnels was working at Avaya in October of 2021, and that 27 Frazier was attempting to migrate Consumer to a subscription-based Avaya agreement, per 1 Vox also fails to explain what “constitutional, statutory, regulatory, [or] common law standard” 2 proscribes the “concealed and offline dealings” and deletion of evidence. See Eco Elec. Sys., LLC 3 v. Reliaguard, Inc., No. C 20-00444 WHA, 2022 WL 1157481, at *9 (N.D. Cal. Apr. 19, 2022) 4 (“wining and dining” of third party was improper, but not unlawful as required for tortious 5 interference with a prospective economic advantage); cf. Korea Supply, 29 Cal. 4th at 1159 6 (finding sufficient allegations of independent wrongfulness where defendant allegedly engaged in 7 bribery and offered sexual favors to obtain a contract). 8 Finally, Vox alleges that David Snyder, Vox’s then Director of Sales, “cultivated 9 connections” with clients “with McGreevey and Frazier’s knowledge, awareness, aid, and/or 10 encouragement,” and that Snyder attempted to move a Vox client to Gage. Compl. ¶ 38(b). Vox 11 does not provide any factual allegations as to Defendants “knowledge, awareness, aid and/or 12 encouragement.” Thus, the Court cannot find an independently wrongful act based on these 13 conclusory assertions.4 14 As to Consumer Cellular, it is not clear whether there was an ongoing contractual relation 15 with which to interfere. The Complaint states at one point that there was an “existing contract” 16 between Consumer Cellular and Vox. Compl. ¶ 54. However, Vox also states that Defendants 17 “encourage[ed] Consumer Cellular not to re-engage with Vox,” Compl. ¶ 110, suggesting that 18 Vox’s claims focus on a potential future contract that Consumer Cellular had not yet reentered 19 with Vox. To the extent the contract with Consumer Cellular was also at-will, Vox must allege 20 “independent wrongfulness.” Ixcel Pharma, 9 Cal. 5th at 1148. Vox argues that Defendants 21 “misus[ed] Vox computers, servers, email accounts, expense accounts, and employee(s)’ time.” 22 Response at 19. However, such alleged misuse does not constitute independently wrongful 23 conduct. 24 The Court therefore DISMISSES the claims for tortious interference with a contract and 25
26 4 Plaintiffs argue that the wrongful act was Snyder attempting to move a different Vox client to Gage. Response at 20 (citing Compl. ¶ 38(b)). However, Plaintiffs provide no factual allegations 27 to support this conclusory assertion, do not explain how Defendants were responsible for Snyder’s 1 tortious interference with a prospective economic advantage with leave to amend. 2 || IV. CONCLUSION 3 For the foregoing reasons, the Court DENIES the motion to dismiss the breach of 4 || fiduciary duty claim as to McGreevey and the breach of loyalty claim. The Court GRANTS IN 5 || PART and DENIES IN PART the motion to dismiss the UCL claim. The Court GRANTS the 6 || motion to dismiss with leave to amend the trade secret misappropriation claim, the breach of 7 fiduciary duty claim as to Frazier, aiding and abetting the breach of fiduciary duty, fraudulent 8 concealment, conspiracy, tortious interference with a contract, and tortious interference with a 9 || prospective economic advantage. Any amended complaint must be filed by April 24, 2024. 10 || No additional parties or claims may be added without leave of Court or stipulation of 11 Defendants.
13 IT IS SO ORDERED. |! Dated: March 25, 2024 I) -
ARACELI MARTINEZ-OLGUIN = 16 United States District Judge 17
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