Southern California Institute of Law v. TCS Education System et al

Filing 61

MEMORANDUM in Opposition Defendants' Motions To Dismiss filed by Plaintiff Southern California Institute of Law. (Shohet, George)

1
2
3
4
5
6
7
8
9
10
11
12

George A. Shohet SBN 112697
LAW OFFICES OF GEORGE A. SHOHET,
A PROFESSIONAL CORPORATION
245 Main Street, Suite 310
Venice, CA 90291-5216
Tel.: [phone]
Fax: [phone]
Gretchen M. Nelson SBN 112566
KREINDLER & KREINDLER LLP
707 Wilshire Blvd, Suite 4100
Los Angeles, CA 90017
Tel.: [phone]
Fax: [phone]
Attorneys for Plaintiff
Southern California Institute of Law

13
14

UNITED STATES DISTRICT COURT

15

CENTRAL DISTRICT OF CALIFORNIA

16
17
18
19
20

SOUTHERN CALIFORNIA
INSTITUTE OF LAW, a California
corporation,
Plaintiff,
vs.

21
22
23
24
25

TCS EDUCATION SYSTEM, an
Illinois corporation; DAVID J.
FIGULI, an individual; and GLOBAL
EQUITIES, LLC d/b/a HIGHER
EDUCATION GROUP, a Colorado
limited liability company,

26
27

CASE NO.: CV10-8026 JAK (AJWx)
[Assigned to Hon. John A. Kronstadt]
PLAINTIFF'S MEMORANDUM OF
POINTS AND AUTHORITIES IN
OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS
Action Filed: Oct. 25, 2010
Hearing Date: August 8, 2011
Time: 1:30 p.m.
Ctrm: 750

Defendants.

28
______________________________________________________________________________
PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS' MOTIONS
TO DISMISS

1

TABLE OF CONTENTS

2

TABLE OF AUTHORITIES…………………………………………........……………………...ii

3

I. INTRODUCTION........................................................................................................................1

4

II. FACTUAL ALLEGATIONS......................................................................................................2

5
III. ARGUMENT.............................................................................................................................8
6
7

A. Legal Standard Applicable To A Motion To Dismiss.............................................................12

8

B. Negligent Misrepresentation Is Properly Pled Against TCS......................................................8

9

1. The Elements of Negligent Misrepresentation..............................................................10

10
11

2. The FAC Alleges That TCS Made Express And Implied Misrepresentations And
Concealed Material Facts It Was Bound To Disclose...................................................11

12

C. The Claim for Trade Secret Misappropriation Is Properly Pled..............................................17

13
14

1. Plaintiff Alleges The Existence Of Trade Secrets Which Derive Independent Economic
Value By Remaining Confidential................................................................................18

15

2. Misappropriation Or The Threat of Misappropriation Is Well Pled..............................22

16

D. Tortious Interference With Contract Is Properly Alleged Against Figuli and HEG................26

17
18
19

1. Defendants' Intent To Disrupt Plaintiff's Contractual Rights Is Well Pled ...................26
2. The "Agent Immunity" Defense Is Inapplicable And, In Any Event, Cannot Be
Properly Adjudicated On A Motion To Dismiss ..........................................................29

20
21
22

E. Plaintiff Has Adequately Stated A Claim for Violations of the UCL......................................33
F. TCS Improperly Seeks To Have This Court Predetermine Plaintiff's Entitlement To Injunctive
Relief............…….....................................................................................................................34

23
24

IV. CONCLUSION.......................................................................................................................35

25
26
27
28
________________________________________________________________
i
PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS' MOTIONS
TO DISMISS

TABLE OF AUTHORITIES

1
2

CASES

3

ABBA Rubber Co. v. Seaquist, 235 Cal.App.3d 1 (1999)............................................................................20

4

American Paper & Packaging Products, Inc. v. Kirgan, 183 Cal.App.3d 1318 (1986).............................20

5

Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503(1994)..29, 32, 33

6

Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) .....................................................................................................8

7

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)..........................................................................................8

8

Brescia v. Angelin, 172 Cal.App.4th 133, 143 (2009).................................................................................19

9

Brocade Communications Sys., Inc. v. A10 Networks, Inc., No. 10-CV-03428-LHK, Slip Op., 2011 WL

10

1044899 (N.D. Cal. Mar. 23, 2011).............................................................................................................22

11

California Auto Court Assn. v. Cohn 98 Cal. App. 2d 145 (1950)………………………….....................26

12

Catch Curve, Inc. v. Venali, Inc., 519 F. Supp. 2d 1028 (C.D. Cal. 2007)...................................................8

13

Central Valley General Hospital v. Smith, 162 Cal.App.4th 501 (2008)...............................................23-24

14

Clark v. Bunker, 453 F.2d 1006 (9th Cir. 1972)..........................................................................................21

15

Conroy v. Regents of University of California, 45 Cal. 4th 1244 (2009)....................................................11

16

Conte v. Wyeth, Inc., 168 Cal.App.4th 89 (2008)........................................................................................11

17

Courtesy Temporary Service, Inc. v. Camacho, 222 Cal.App.3d 1278 (1990).......................................20,21

18

Doctors Med. Ctr. of Modesto v. Global Excel Mgmt., No. 1:08-cv-01231 OWW DLB, 2009 U.S. Dist.

19

LEXIS 71634 (E.D. Cal. Aug. 14, 2009)................................................................................................30, 31

20

DLC Dermacare LLC v. Castillo, No. CV-10-333-PHX-DGC, 2010 WL 5391458 (D. Ariz. Dec. 14,

21

2010)............................................................................................................................................................21

22

DVD Copy Control Ass’n, Inc. v. Bunner, 116 Cal..App.4th 241 (2004)..............................................19, 23

23

EarthWeb, Inc. v. Schlack, 71 F.Supp.2d 229, 311 (S.D. N.Y. 1999)..........................................................25

24

Eddy v. Sharp, 199 Cal. App. 3d 858 (1988).........................................................................................10, 17

25

Garlock Sealing Technologies, LLC v. NAK Sealing Technologies Corp., 148 Cal. App. 4th 937

26

(2007)...........................................................................................................................................................30

27

In re Lloyd's Am. Trust Fund Litig., 954 F. Supp. 656 (S.D.N.Y. 1997).....................................................34

28

In re Tsurukawa, 287 B.R. 515, 521 (9th Cir. 2002)...................................................................................30

________________________________________________________________
ii
PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS' MOTIONS
TO DISMISS

1

Leatt Corp v. Innovative Safety Tech., LLC, No. 09-CV-1301-IEG, 2010 WL 1526382 (S.D. Cal. April 15,

2

2010)............................................................................................................................................................20

3

Lee v. City of Los Angeles, 250 F.3d 668 (9th Cir. 2001).............................................................................2

4

Los Angeles Unified School District v. Great American Insurance Company/Hayward Construction

5

Company, 49 Cal.4th 739 (2010).....................................................................................................11, 15, 16

6

Malmen v. World Sav. Inc., CV 10-9009 AHM (JEMx), 2011 U.S. Dist. LEXIS 44076 (C.D. Cal. Apr. 18,

7

2011)............................................................................................................................................................10

8

Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.

9

2008)............................................................................................................................................................35

10

MB Financial Group, Inc. v. U.S. Postal Service, 545 F.3d 814 (9th Cir. 2008).......................................32

11

Michelson v. Hamada, 29 Cal. App. 4th 1566 (1994).................................................................................30

12

Mintz v. Blue Cross of California, 172 Cal.App.4th 1594 (2009).........................................................29, 32

13

Moore v. Kayport Packaging Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989)...............................................9

14

Morlife, Inc. v. Perry, 56 Cal.App.4th 1514 (1997)....................................................................................18

15

O-2 Micro Intern. Ltd. v. Monolithic Power Systems, Inc., 420 F.Supp.2d. 1070 (N.D. Cal. 2006).........20

16

Oculus Innovative Sciences, Inc. v. Prodinnv, S.A. De C.V., No. C-08-04707 MMC, Slip Op. 2010 WL

17

4774659 (N.D. Cal. Nov. 16, 2010).............................................................................................................34

18

Privacywear, Inc. v. QTS & CTFC, LLC, No. EDCV 07-1532-VAP (OPx), 2009 U.S. Dist. LEXIS 74496

19

(C.D. Cal. Aug. 20, 2009) ...........................................................................................................................16

20

Quelimane Co., Inc. v. Stewart Title Guar. Co. 19 Cal.4th 26 (1998)........................................................26

21

Religious Tech. Ctr. v. Netcom On-Line Commec’n Servs., Inc., 923 F.Supp.1231 (N.D. Cal. 1995).......21

22

Remillard-Dandini Co. v. Dandini , 46 Cal. App. 2d 678 (1941)...............................................................26

23

San Jose Construction, Inc. v. S.B.C.C., Inc., 155 Cal.App.4th 1528 (2007)…………………...18, 19, 21, 33

24

Savage v. Pacific Gas & Elec. Co., 21 Cal. App. 4th 434 (1993)................................................................27

25

SCEcorp. v. Superior Court, 3 Cal.App.4th 673 (1992)..............................................................................26

26

SEC v. Life Wealth Mgmt., No. CV 10-4769 RSWL (MANx), 2010 U.S. Dist. LEXIS 130521 (C.D. Cal.

27

Nov. 24, 2010)..............................................................................................................................................34

28

SEC v. Tiffany Industries, Inc., 535 F. Supp. 1160 (E.D. Mo. 1982)...........................................................34

________________________________________________________________
iii
PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS' MOTIONS
TO DISMISS

1

Seeger v. Odell, 18 Cal.2d 409, 415 (1941).................................................................................................15

2

Southern California Institute of Law v. TCS Educ. System, No. CV 10–8026 PSG (AJWx), 2011 WL

3

1296602 (C.D. Cal. Apr. 5, 2011)........................................................................................................2,25,28

4

Spring Design, Inc. v. Barnesandnoble.com, LLC, No. c-09-05185JW, 2010 WL 5422556 (N.D. Cal. Dec.

5

27, 2010) .........................................................................................................................................19, 23, 34

6

Tanglewood E. Homeowners v. Charles-Thomas, Inc., 849 F.2d 1568 (5th Cir. 1988)............................34

7

Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th 1559 (1996)...................................................................11, 14

8

Universal By-Products, Inc. v. City of Modesto, 43 Cal.App.3d 145 (1973) …………………………....11, 14

9

Verigy US, Inc. v. Mayder, No. C-07-04330 RMW, 2008 WL 564634 6 (N.D. Cal. Feb. 29, 2008).........20

10

Vess v. Ciba-Geigy Corp. USA, 317 F.3d at 1106........................................................................................9

11

W. Ref. Yorktown, Inc. v. BP Corp. N. Am., 618 F. Supp. 2d 513, 526-27 (E.D. Va. 2009).......................15

12

Whyte v. Schlage Lock Co., 101 Cal.App.4th 1443 (2002). ........................................................................25

13

William O. Gilley Enters., Inc. v. Atlantic Richfield Co., 588 F.3d 659 (9thCir. 2009)...............................8

14

Wilson v. Century 21 Great Western Realty, 15 Cal. App. 4th 298, 306 (1993).........................................14

15

Wise v. Southern Pacific Co. , 223 Cal.App.2d 50 (1963)..........................................................................33

16

Woods v. Fox Broadcasting Subsidiaries, 129 Cal. App.4th 344 (2005)....................................................33

17

Yield Dynamics, Inc. v. TEA Systems Corp., 154 Cal.App.4th 547 (2007).................................................22

18
19

STATUTES AND RULES

20

Cal. Bus. & Prof. Code §17200...............................................................................................................2, 33

21

Cal. Civ. Code, § 1710, subd. 3..................................................................................................................15

22

Cal. Civ. Code § 2295.................................................................................................................................30

23

Civ. Code §3426...........................................................................................................................................2

24

Cal. Civ. Code § 3426.1(a)..........................................................................................................................23

25

Cal. Civ. Code § 3426.1 (d).......................................................................................................................18

26

Fed. Rule Civ. Proc. 8(a) .............................................................................................................................8

27

Fed. Rule Civ. Proc. 8(d)(2)........................................................................................................................32

28

Fed. Rule Civ. Proc. 8(d)(3)........................................................................................................................32

________________________________________________________________
iv
PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS' MOTIONS
TO DISMISS

1

Fed. Rule Civ. Proc. 12(b)............................................................................................................................8

2
3
4

OTHER AUTHORITIES

5

Rest.2d Torts, § 766, com. j........................................................................................................................27

6

5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1221 (3d ed.2004)..............8

7

5 Witkin, Summary of California Law, Torts, § 740 (10th Ed. 2005).......................................................26

8

5 Witkin, Summary of Cal. Law, Torts, § 796(10th ed. 2005)....................................................................17

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
________________________________________________________________
v
PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS' MOTIONS
TO DISMISS

1

Plaintiff Southern California Institute of Law ("Law School" or "plaintiff")

2

respectfully submits this memorandum of points and authorities in opposition to the

3

motions filed by defendants TCS Education System ("TCS"), David J. Figuli

4

("Figuli") and Global Equities, LLC d/b/a Higher Education Group ("HEG") to

5

dismiss plaintiff's First Amended Complaint for Injunctive Relief and Damages,

6

filed on May 23, 2010 ("FAC").1

7

I.

INTRODUCTION

8

This action arises out of the blatant wrongdoing of TCS, a multi-million dollar

9

corporation engaged in the rapid acquisition of schools and colleges in California

10

and elsewhere. Plaintiff is a small, state-accredited, evening law school with a

11

twenty-five year history of serving working class adults in the tri-county area of San

12

Luis Obispo, Santa Barbara and Ventura Counties.

13

increasing its outreach to an underserved population of future law students, the

14

plaintiff provided defendants with unfettered access to its Deans, faculty and

15

confidential files in an effort to complete an acquisition transaction with TCS.

16

Instead, the defendants misappropriated plaintiff's most guarded secrets and

17

information in violation of a binding confidentiality agreement and secretly used the

18

information to affiliate with the plaintiff's sole competitor in the region. Armed with

19

the stolen information, the defendants recently announced their "deal" which is

20

calculated to kill off competition in the region, destroy the plaintiff's business and

21

increase tuition costs. Plaintiff seeks injunctive relief and damages.
Rather

22

than

address

the

FAC's

well-pled

Lured by the prospect of

allegations,

defendants

23

mischaracterize the case as one involving a jilted seller crying sour grapes over the

24

loss of a potential sale. A fair reading of the FAC establishes that defendants were

25

contractually and legally obligated to refrain from using the plaintiff's vital,

26
27
28

1

Page references to defendants' memoranda of points and authorities are: "TCS
Mem. at __" and "Figuli/HEG Mem. at __."
________________________________________________________________
1
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

confidential information to facilitate TCS's affiliation with plaintiff's competitor.

2

The Confidentiality and Non-Disclosure Agreement ("NDA") at the center of this

3

case was prepared by defendants and is anything but a plain vanilla NDA as

4

defendants would have the Court believe.2 Instead, it is broad in scope and intended

5

to prevent the very wrongdoing inflicted on the plaintiff. As the Court previously

6

ruled in upholding plaintiff's claim for breach of contract, plaintiff's "allegations that

7

TCS misused confidential information in pursuit of other business opportunities

8

defeats TCS's argument that there is no broadly worded non-compete provision that

9

could serve as the basis for a breach of contract claim."

Southern California

10

Institute of Law v. TCS Educ. System, No. CV 10–8026 PSG (AJWx), 2011 WL

11

1296602, at *3 (C.D. Cal. Apr. 5, 2011).

12

The Court's prior ruling granted in part and denied in part plaintiff's original

13

complaint and gave the plaintiff an opportunity to replead. Id. at *11. In amending

14

the complaint, plaintiff eliminated certain claims and added a new claim against

15

defendants Figuli and HEG for tortious interference with contract. FAC ¶¶67-72.

16

The FAC now pleads claims for breach of contract against TCS, negligent

17

misrepresentation against TCS, misappropriation of trade secrets against all

18

defendants, California Uniform Trade Secrets Act ("CUTSA"), Civ. Code §3426, et

19

seq., tortious interference with contract against Figuli and HEG and violation of

20

California's Unfair Competition Law, Bus. & Prof. Code §17200, et seq. Defendants

21

do not seek to dismiss the breach of contract claim, but seek dismissal of the other

22

claims pled against them. In addition, TCS erroneously contends that permanent

23

injunctive relief is improper. For the reasons discussed below, defendants' motions

24

should be denied.

25
26
27

2

A copy of the NDA is attached to the FAC as Exhibit 1 and may be considered by
the Court in ruling on the motions. Lee v. City of Los Angeles, 250 F.3d 668, 688-89
(9th Cir. 2001).

28
________________________________________________________________
2
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

II.

FACTUAL ALLEGATIONS

2

Prior to 1986, Santa Barbara & Ventura Colleges of Law ("COL") was the

3

only law school in the tri-county region spanning San Luis Obispo, Santa Barbara,

4

and Ventura Counties. FAC at ¶8. At that time, the only other State Bar accredited

5

schools were miles away in either Monterey or Malibu. Id. Neither of these options

6

made sense for working adults, many of whom were single parents. Id. Like the

7

Law School, COL offers a part-time evening curriculum leading to a J.D. and is

8

State Bar accredited. Id. Neither the Law School nor COL is ABA accredited. Id.

9

In addition, neither school has accreditation from the Western Association of
Id.3 Without these accreditations, neither the

10

Schools and Colleges ("WASC").

11

Law School nor COL can offer students federally funded loans. Id. The chief

12

reasons why these other accreditations cannot be sought and obtained is the lack of

13

financial and human resources that would allow the Law School or COL to meet

14

basic eligibility criteria. Id. at ¶¶ 8-11.

15

Over the past twenty-five years, the Law School and COL have competed for

16

students and faculty. Id. at ¶12. COL is much larger than the Law School and has

17

approximately 250 students, thirty-seven faculty members and an administrative

18

staff of nine. Id. By contrast, the Law School has approximately one hundred

19

students, thirty-one part-time faculty members and an administrative staff consisting

20

of a Dean, Vice-Dean and Registrar. Id. at ¶4. In spite of the fact that COL is larger

21

and has more resources, the Law School established a strong presence in the tri-

22

county region because of its willingness to keep tuition costs low while maintaining

23
24
25
26
27

3

Voluntary, non-governmental, institutional accreditation, as practiced by WASC
and other regional commissions, is a unique characteristic of American education.
Id. at ¶10.

28
________________________________________________________________
3
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

a strong faculty and academic program. Id. at ¶12.4 This commitment has allowed

2

many current and past students to afford to earn a law degree. Id. The Law School

3

has enrolled a number of students who transferred in good academic standing from

4

COL, citing the strong program and lower tuition costs as key factors. Id.

5

In mid-September 2009, Dean Stanislaus Pulle of the Law School was

6

approached by defendant Figuli and one George R. Haynes ("Haynes"), the former

7

Vice President of Academic Affairs for the Santa Barbara Graduate Institute of

8

Psychology (the "Institute"), regarding a potential acquisition by TCS. Id. at ¶13.

9

The Institute had just become affiliated with TCS. Id. Figuli, a Colorado-based

10

attorney, stated that he had extensive background in strategic acquisitions in the

11

education sector and that, through defendant HEG, Figuli's company, he was

12

identifying suitable acquisition candidates and structuring transactions for TCS. Id.

13

at ¶¶6, 7 and 13. Figuli and Haynes explained that TCS was interested in acquiring

14

the Law School. Id. at ¶13. The Law School was encouraged by the prospect of an

15

acquisition by TCS because it would facilitate WASC accreditation, increase

16

enrollment, establish new programs, extend educational opportunities to foreign

17

students and leverage existing resources, such as using one or both of the school's

18

campuses for daytime programs. Id. at ¶14.

19

On September 24, 2009, the Law School and TCS entered into the NDA. Id.

20

at ¶16. Throughout the parties' discussions, Figuli and TCS led the Law School to

21

believe that TCS would be its strong ally and enable the Law School to compete

22

more successfully against the larger, and better funded, COL. Id. at ¶19. The

23

manner in which an alliance with TCS would enable the Law School to grow and

24
25
26
27

4

The Law School maintains one of the lowest tuition rates among law schools in the
state. Id. at ¶3. Tuition rates are currently $350 per unit whereas many comparable
law schools charge in the range of $800 or more per unit. Id. COL charges $450
per unit. Id.

28
________________________________________________________________
4
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

better compete with COL was discussed in great detail during September, October

2

and November 2009. Id. The discussions focused on marketing strategies, addition

3

of new degree programs, initiation of Internet based instruction, WASC-

4

accreditation and the corresponding ability to offer federally funded tuition loans to

5

attract new students and other strategic plans. Id. In addition, issues of governance,

6

structures of control, methods of securing expanded accreditation, and curriculum

7

expansion were addressed. Id.

8

Confident that it was working toward an acquisition, in early October 2009,

9

the Law School released its most guarded Information to the defendants. Id. at ¶20.5

10

Many of the documents provided to defendants are ones that are treated as

11

confidential by the State Bar of California Committee of Bar Examiners ("CBE"),

12

including the Law School's financial records and personal information about

13

instructors. Accredited Law School Rules, Rules of the State Bar of California, Title

14

4, Div. 2 (January 1, 2009) ("Rules"), Rule 4.108. Although the confidential nature

15

of the documents released to the defendants is apparent, the importance of Dean

16

Pulle's imprimatur on the materials and his frank discussion of everything he, the

17

Board and faculty had considered -- past, present and future -- cannot be overstated.

18

Id. at ¶21.

19

On November 17, 2009, Dean Pulle met with Figuli, Haynes and Jeff Keith

20

("Keith"), TCS's CFO, who oversees TCS's acquisitions and affiliations. Id. at ¶¶16,

21

23-24.6 As part of meeting, the group toured the Law School's campuses, met with

22

the Vice Dean and even a local Santa Barbara realtor regarding the potential

23
24
5

25

The FAC sets forth in detail all of the confidential and trade secret documents
released to the defendants. Id. at ¶20.

26
6

27
28

Because many schools and colleges are non-profits they cannot be acquired like a
for profit entity. The comparable method for doing so is called an "affiliation."
FAC ¶5:8-9.
________________________________________________________________
5
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

purchase of the campus building. Id. at ¶23. During those discussions, the parties

2

addressed the reconfiguration of the Law School’s Board of Directors, the

3

establishment of Joint Advisory Boards, and the hiring of additional faculty and new

4

law deans, among other topics. Id. The gist of those discussions indicated that an

5

acquisition of the Law School by TCS was imminent. Id. At the conclusion of the

6

meeting, Keith stated that he expected TCS to make an offer no later than mid-

7

December 2009. Id.

8

The Law School did not receive any communication from TCS in December

9

2009. Id. at ¶25. On January 21, 2010, Dean Pulle sent an e-mail to Figuli, with

10

copies to Haynes and Keith, requesting a “status report” on the process toward an

11

acquisition. Id. A few hours later, on January 22, 2010, Figuli e-mailed Dean Pulle

12

stating that TCS believed that because it could not offer an acquisition price that it

13

thought would be acceptable to the Law School, it was not interested in an

14

acquisition "at this time.” Id. Prior to Figuli's e-mail, no one connected with TCS

15

suggested that the Law School's proposed price was too high and there was no

16

indication that the Law School was not prepared to negotiate on price. Id. at ¶26.

17

The last phrase in Figuli's e-mail that TCS would pass on the opportunity "at this

18

time" left open the possibility that it might still consider the acquisition in the future.

19

Id. Dean Pulle conveyed that impression to his Board and certain faculty who had

20

been involved in the negotiations. Id. This inference is further bolstered by the fact

21

that paragraph 5 of the NDA obligates TCS upon termination of the "Relationship"

22

to “promptly destroy" the documentary information provided to the defendants and

23

"certify" its destruction to the Law School. Id. As stated above, the Law School's

24

documentary information was neither destroyed nor returned and no certification of

25

its destruction has been provided.

26

The FAC alleges that defendants approached COL during the time they were

27

engaged in discussions with the Law School or soon thereafter, but concealed their

28

wrongful intent from the plaintiff. Id. at ¶¶28-29. The Law School first learned of
________________________________________________________________
6
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

defendants' wrongful conduct through news reports on or about September 22, 2010.

2

Id. at ¶30. The press release, dated September 21, 2010, jointly published by TCS

3

and COL and carried on their respective Websites and by various news services,

4

including Reuters and the Pacific Coast Business Times, confirmed that TCS and

5

COL had entered into an affiliation agreement. Id.

6

Over the years, the Law School successfully competed with rival COL by

7

keeping its tuition low and offering what many view as the superior legal education.

8

Id. at ¶31. With TCS's vast resources, including its marketing savvy, the Law

9

School has little hope of continuing to differentiate itself successfully, will suffer a

10

downturn in enrollment and could go out of business. Id. at ¶37.7 Not only is TCS-

11

COL wealthy and resource rich, they are armed with the Law School's

12

misappropriated information and the best strategic thinking of its Deans, faculty and

13

Board placing the Law School at a distinct competitive disadvantage. Id. at ¶34.

14

Haynes, who was privy to virtually all of the parties' discussions and reviewed the

15

Law School's confidential documents, serves on COL's Board of Trustees. Id. at

16

¶33. In addition, TCS and COL are marketing their affiliation publicly as a major

17

advantage citing much of the same strategies and innovations the Law School

18

previously discussed with the defendants. Id. at ¶¶31-32.8

19
20

7

24

Any actual or perceived inability of the Law School to financially support itself
would place the Law School out of compliance with CBE's financial requirements.
See Rule 4.160(K) and CBE Guidelines for Accredited law School Rules 10.1 and
10.2 (August 28, 2009). Among other things, the Rule and Guidelines mandate that
a law school maintain adequate present and anticipated financial resources to
support its programs and operations.

25

8

21
22
23

26
27

COL's rivalry with the Law School is both long-lived and often intense. Id. at ¶32.
At an Open House held on October 19, 2010, COL's Assistant Dean Barbara Doyle
emphatically discouraged prospective law students from attending the Law School
exclaiming, "Oh no, no, no, that's our competitor, don't go there!" Id.

28
________________________________________________________________
7
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

III.

ARGUMENT

2

A.

Legal Standard Applicable To A Motion To Dismiss

3

A complaint will survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6)

4

when it contains "'sufficient factual matter, accepted as true, to state a claim to relief

5

that is plausible on its face.' A claim has facial plausibility when the plaintiff pleads

6

factual content that allows the court to draw the reasonable inference that the

7

defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. 1937,

8

1949 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007). This does

9

not impose a probability requirement at the pleading stage, but instead simply calls

10

for enough facts to raise a reasonable expectation that discovery will reveal evidence

11

of the necessary element. Id. In ruling on a motion to dismiss, courts view all

12

allegations in the complaint in the light most favorable to the non-moving party and

13

accept all material allegations-as well as any reasonable inferences to be drawn from

14

them-as true. William O. Gilley Enters., Inc. v. Atlantic Richfield Co., 588 F.3d 659,

15

662 (9thCir. 2009) (per curiam); Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir.

16

2003).9 Overall, motions to dismiss for failure to state a claim are “disfavored” and

17

should only be granted in "extraordinary” cases. Catch Curve, Inc. v. Venali, Inc.,

18

519 F. Supp. 2d 1028, 1034 (C.D. Cal. 2007).

19

B.

Negligent Misrepresentation Is Properly Pled Against TCS

20

In arguing for dismissal of the negligent misrepresentation claim, TCS

21

contends that (i) there is no allegation of "an assertion of fact", but only "implied

22

representations" which it contends are not actionable (TCS Mem. at 6); (ii) that it is

23
24
25
26
27
28

9

In addition, Rule 12(b) motions must be considered in light of Federal Rule of
Civil Procedure 8(a) which only requires that a complaint contain a "short and plain
statement of the claim showing that the pleader is entitled to relief." Iqbal, 129 S.
Ct. at 1953; 5 Charles Alan Wright & Arthur R. Miller, Federal Practice &
Procedure § 1221 (3d ed. 2004) (noting that Rule 8's pleading standard applies with
the same degree of rigor "in every case, regardless of its size, complexity, or the
numbers of parties that may be involved).
________________________________________________________________
8
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

improper to infer "a representation from the parties' dealings" (Id.); (iii) plaintiff has

2

not alleged justifiable reliance because the "implied promise" that TCS would not

3

compete with the plaintiff is negated by the express terms of the NDA (Id. at 7); and

4

(iv) TCS did not owe the plaintiff a duty to disclose its intention to negotiate for and

5

affiliate with COL. Id. at 7-9. Each of these arguments should be rejected because

6

TCS overlooks allegations in the FAC that support the misrepresentation claim and

7

improperly seeks to have its construction of the NDA and parties' dealings accepted

8

as true.

9

Courts in the Ninth Circuit have debated the issue of whether or not negligent

10

misrepresentation claims must satisfy Fed. R. Civ. P. 9(b) which requires

11

particularity in pleading claims that sound in fraud.10 Although fraud claims are not

12

alleged in this case, the FAC contains sufficient allegations to establish the requisite

13

particularity called for by Rule 9(b) should the Court decide to apply the rule. Vess

14

v. Ciba-Geigy Corp. USA, 317 F.3d at 1106 (Under Rule 9(b) "a plaintiff must set

15

forth more than the neutral facts necessary to identify the transaction. The plaintiff

16

must set forth what is false or misleading about a statement, and why it is false."

17

(citation and quotations omitted)); Moore v. Kayport Packaging Exp., Inc., 885 F.2d

18
19
20
21
22
23
24
25
26
27

10

See e.g., Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1105 (9th Cir. 2003) ("In
a case where fraud is not an essential element of a claim, only allegations
('averments') of fraudulent conduct must satisfy the heightened pleading
requirements of Rule 9(b). Allegations of non-fraudulent conduct need satisfy only
the ordinary notice pleading standards of Rule 8(a)."); Compare Premium Capital
Funding, LLC v. AR Home Loans, Inc., No. Civ. S-07-1185 LKK/EFB, 2007 U.S.
Dist. LEXIS 76927 *4 (E.D. Cal. Oct. 2, 2007) ("Only allegations of fraud or
mistake must be pleaded with particularity, Fed. R. Civ. P. 9(b), not general
negligence or negligent misrepresentation claims.") with Verso Paper LLC v.
HireRight, Inc., No. SACV 10-1959 DOC (RNBx), 2011 U.S. Dist. LEXIS 55067
**12-13 (C.D. Cal. May 20, 2011) ("It is well-established in the Ninth Circuit that
both claims for fraud and negligent misrepresentation must meet Rule 9(b)'s
particularity requirements." (citation omitted)).

28
________________________________________________________________
9
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

531, 540 (9th Cir. 1989) (the particularity requirement is satisfied if the complaint

2

"identifies the circumstances constituting fraud so that a defendant can prepare an

3

adequate answer from the allegations."); Malmen v. World Sav. Inc., CV 10-9009

4

AHM (JEMx), 2011 U.S. Dist. LEXIS 44076 (C.D. Cal. Apr. 18, 2011) (holding

5

that once the basic requirements of Rule 9(b) are met, there is no requirement that

6

the plaintiff include additional particularized facts which may be revealed through

7

discovery).11

8

1.

The Elements of Negligent Misrepresentation

9

California courts acknowledge that various forms of misrepresentation can

10

and do occur in the business world and have shown great flexibility in developing

11

tort law to redress such wrongdoing. The court in Eddy v. Sharp, 199 Cal. App. 3d

12

858, 864 (1988) explained the parameters of the tort, stating:

13

"In this state, negligent misrepresentation is a form of deceit defined as: 'The
assertion, as a fact, of that which is not true, by one who has no reasonable
ground for believing it to be true.' (Civ. Code, § 1710, subd. 2.) To be
actionable as deceit, the representation must have made with the intent to
induce the recipient to alter his position to his injury or his risk. ( Gagne v.
Bertran (1954) 43 Cal.2d 481, 488 [275 P.2d 15].) The defendant's intent to
induce the plaintiff to alter his position can be inferred from the fact that
defendant knew the plaintiff would act in reliance upon the representation.

14
15
16
17
18
19

As is true of negligence, responsibility for negligent misrepresentation rests
upon the existence of a legal duty, imposed by contract, statute or otherwise,
owed by a defendant to the injured person. (Hale v. George A. Hormel & Co.
(1975) 48 Cal.App.3d 73, 86 [121 Cal.Rptr. 144].) The determination of
whether a duty exists is primarily a question of law. (Weirum v. RKO
General, Inc. (1975) 15 Cal.3d 40 [123 Cal.Rptr.468, 539 P.2d 36].

20
21
22
23

'One party to a business transaction is under a duty to exercise reasonable care
to disclose to the other before the transaction is consummated, . . . facts basic

24
25
26
11

27
28

TCS does not contend that plaintiff failed to particularize "the who, what, when,
where, and how" of the misrepresentations, but instead seeks dismissal on different
grounds as set forth above.
________________________________________________________________
10
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

to the transaction, if he knows that the other is about to enter into it under a
mistake as to them, and that the other, because of the relationship between
them, the customs of the trade or other objective circumstances, would
reasonably expect a disclosure of those facts.' (Rest.2d Torts, § 551, subd.
(2)(e); Wells v. John Hancock Mut. Life Ins. Co. (1978) 85 Cal.App.3d 66, 72,
fn. 8 [149 Cal.Rptr.171]; Westrick v. State Farm Insurance (1982) 137
Cal.App.3d 685, 691, fn. 3."

1
2
3
4
5
6

Among the fundamental elements of the tort of negligent misrepresentation is

7

that the defendant has made a “misrepresentation.” Conroy v. Regents of University

8

of California, 45 Cal. 4th 1244, 1255 (2009). The “misrepresentation” element may

9

be established by showing either a positive assertion of a past or existing fact or “the

10

suppression of fact by one bound to disclose it.” Los Angeles Unified School

11

District v. Great American Insurance Company/Hayward Construction Company,

12

49 Cal.4th 739, 750 (2010); Conte v. Wyeth, Inc., 168 Cal.App.4th 89, 101, fn. 7

13

(2008). In addition, a misrepresentation need not be written or oral, but may be

14

implied by conduct or circumstances. Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th

15

1559, 1567 (1996) (unauthorized use of computer access codes to hack into a

16

telephone carrier's system is an implied misrepresentation of another's identity);

17

Universal By-Products, Inc. v. City of Modesto, 43 Cal.App.3d 145, 151 (1973)

18

(city's solicitation of bids for refuse collection carried with it an implied

19

representation that the city " would consider the bids in good faith and not merely to

20

gain the benefit of [plaintiff's] research and expertise").

21

2.
23

The FAC Alleges That TCS Made Express And Implied
Misrepresentations And Concealed Material Facts It Was Bound To
Disclose

24

Prior to entering into the NDA and providing TCS with its confidential

25

documents and information, the parties held preliminary discussions in September

26

2009 where the Law School was informed by TCS's representatives Figuli and

27

Haynes that TCS was seriously interested in acquiring a California law school and

28

had identified the Law School for that purpose. FAC ¶13:10-11 and ¶14:26-2.

22

________________________________________________________________
11
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

Thereafter, on September 24, 2009, TCS and the Law School entered into the NDA

2

which made the following promises and representations, inter alia: (i) the

3

confidential information and trade secrets provided by the Law School to TCS, both

4

in documents and orally conveyed, would remain the property of the Law School

5

and used solely by TCS to facilitate a transaction between the two entities; (Id. at

6

¶17); (ii) TCS would not "use, reproduce, or directly or indirectly disclose or allow

7

access to" such information except as required to facilitate the transaction (Id.); (iii)

8

TCS would protect the confidentiality of the information "with at least the same

9

diligence and care as would be required of [TCS] if it were a fiduciary of the [Law

10

School], that is the utmost good faith and care for the interests of the [Law School]"

11

(Id.); and (iv) that TCS would not "pursu[e] business opportunities or other

12

arrangements or endeavors of any kind" in violation of the NDA. Id. at ¶ 18. The

13

NDA could be terminated only after the information conveyed by the Law School

14

was returned or certified as destroyed by TCS. Id.

15

In addition to the foregoing, TCS represented during meetings in September,

16

October and November 2009, that it intended to become the Law School's strong

17

ally and enable the Law School to compete against the larger, and better funded,

18

COL. Id. at ¶¶19, 23 and 24. The manner in which an alliance with TCS would

19

enable the Law School to grow and better compete with COL was discussed in great

20

detail during these meetings. Id. At no point during any of these discussions did

21

Figuli or TCS suggest that the price the Law School had proposed was unreasonable

22

or unacceptable. Id.

23

addition of new degree programs, initiation of Internet based instruction,WASC-

24

accreditation and the corresponding ability to offer federally funded tuition loans to

25

attract new students and other plans.

26

structures of control, methods of securing expanded accreditation, and curriculum

27

expansion were addressed. Id.

Instead, the discussions focused on marketing strategies,

Id.

In addition, issues of governance,

28
________________________________________________________________
12
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

Confident that it was working toward an acquisition, on October 8, 2009, the

2

Law School released its most guarded Information to the defendants under the terms

3

of the NDA. Id. at ¶20. The FAC alleges that the purpose of opening the Law

4

School's books and granting access to its Board of Directors, Deans and faculty was

5

to facilitate an acquisition of the Law School as the NDA expressly contemplates.

6

Id. at ¶22:2-8. The Law School had no reason to supply the information for the any

7

other purpose. Id. Had defendants even hinted at the possibility that TCS was

8

contemplating another California law school, particularly COL, the Law School

9

would not have supplied the information or candidly discussed its plans and strategy

10

with TCS's representatives. Id.

11

On November 17, 2009, following the parties' meeting which involved

12

touring both of the Law School's campuses, TCS's CFO Keith informed the Law

13

School that TCS would be making an offer to acquire the school. Id. at ¶23:15-20.

14

Thereafter, additional correspondence occurred with Figuli, but then the

15

communications suddenly ceased. Id. at ¶¶24-25. Within hours of Dean Pulle e-

16

mailing Figuli to inquire about why the school had not heard anything further, Figuli

17

wrote back announcing that TCS was "pass[ing]" on the "opportunity at this time."

18

Id. at ¶25. At no point prior to the September 2010 media reports announcing the

19

TCS-COL affiliation, did TCS alert the Law School that it was negotiating with

20

COL, seeking regulatory approval from the State Bar for the affiliation or in the

21

process of inking the deal. Id. at ¶¶28 and 30.

22
23

Based on the NDA and the course of dealings between the parties, the FAC
alleges:

24

"50. Once TCS gained access to the Law School's confidential Information,

25

TCS was under an affirmative duty to use and maintain the Information in a

26

fiduciary-like manner. The parties' discussions and TCS's contractual obligation

27

created an affirmative duty on TCS's part to disclose that it intended to negotiate

28

with COL toward an affiliation. In making the representation that it would not
________________________________________________________________
13
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

pursue a transaction in violation of the NDA, TCS acted without reasonable grounds

2

for believing the representation to be true.

3

51.

Plaintiff was unaware of the material misrepresentation and justifiably

4

relied on TCS's promise that it would not pursue a transaction in violation of the

5

NDA. Had plaintiff known the true facts, it would not have agreed to provide its

6

confidential Information to the defendants. TCS's non-disclosure amounts to a

7

failure to act in good faith and in accordance with reasonable standards of

8

fair dealing. Because TCS did not disclose its intention to affiliate with COL, the

9

Law School was unable to safeguard its rights by seeking injunctive and declaratory

10

relief to prevent the affiliation."

11

FAC ¶¶ 50-51.

12

TCS misrepresented that it would only use the Law School's information for

13

the purpose of facilitating a transaction with the Law School, but instead used that

14

information to compare the school to COL. Id. at ¶27. TCS misrepresented that it

15

would not pursue business opportunities or endeavors in violation of the NDA,

16

which implied that it would not affiliate with COL and thereby become the Law

17

School's competitor.

18

misrepresentations are actionable. Thrifty-Tel, Inc. v. Bezenek, 46 Cal. App. 4th at

19

1567; Universal By-Products, Inc. v. City of Modesto, 43 Cal.App.3d at 151.

Id. at ¶¶27, 29 and 51.

These express and implied

20

TCS relies on Wilson v. Century 21 Great Western Realty, 15 Cal. App. 4th

21

298, 306 (1993) in arguing that implied representations are insufficient to form the

22

basis of a negligent misrepresentation claim. But the case does not stand for such a

23

categorical rule. Rather, the court held that the defendant real estate brokers had not

24

made any positive assertions about the foundation of the plaintiffs' home which was

25
26
27
28
________________________________________________________________
14
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

sold in "as is" condition and lacked actual knowledge that the foundation had

2

problems. Id. at 301-302, 306.12

3

Defendant also cites Seeger v. Odell, 18 Cal.2d 409, 415 (1941) for the

4

proposition that "patently and obviously" false representations defeat a claim for

5

negligent misrepresentation due to the lack of justifiable reliance. Hoping to gain

6

traction for its interpretation of the NDA, TCS argues that there is no way to

7

interpret the agreement other than the way it would like it to be. TCS Mem. at 7. At

8

a minimum, there is a dispute over the meaning of the NDA which cannot be

9

resolved at the pleading stage. See, e.g. W. Ref. Yorktown, Inc. v. BP Corp. N. Am.,

10

618 F. Supp. 2d 513, 526-27 (E.D. Va. 2009) ("Although the parties attack the

11

opposing interpretations as leading to an 'ad absurdum' result, the reality is that both

12

constructions are commercially reasonable, one clearly favoring Defendant as it

13

severely restricts Plaintiff's ability to recover for environmental remediation, and the

14

other clearly favoring Plaintiff as it permits recovery for cleanup costs expended

15

many years after the Agreement was signed. Therefore, Defendants cannot prevail at

16

the 12(b)(6) stage because Defendants' construction of the agreement, while

17

reasonable, requires an inference in favor of Defendant and this Court must draw all

18
19
20
21
22
23
24
25
26
27

12

To the extent Wilson, supra, may be read to preclude negligent misrepresentation
based on nondisclosure, it does not comport with California statutory or Supreme
Court authority. Civ. Code, § 1710, subd. 3; Los Angeles Unified School District v.
Great American Insurance Company/Hayward Construction Company, 49 Cal.4th
at 750, n. 5; see also Schnelling v. Budd, 291 F. Supp. 2d 1186, 1191 and n.3 (D.
Nev. 2003) (holding that Nevada would endorse the negligent misrepresentation by
nondisclosure approach of Restatement (Second) of Torts § 551 and citing Wilson as
possible contrary authority).

28
________________________________________________________________
15
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

reasonable inferences in favor of Plaintiff for the purposes of this motion to

2

dismiss." (citations and quotations omitted)).13

3

TCS's argument that it had no duty to disclose the fact that it was

4

negotiating and intending to affiliate with COL plainly contradicts plaintiff's express

5

allegation that it had "an affirmative duty...to disclose that it intended to negotiate

6

with COL toward an affiliation." FAC ¶50:3-5.

7

allegations that it was negotiating contemporaneously with COL and the Law

8

School as "not reasonable" because the COL affiliation was announced eight months

9

after TCS ceased further negotiations with the plaintiff. TCS Mem. at 8. The FAC

10

alleges facts, including TCS's abrupt and unexpected cessation of communications

11

with the Law School, the failure to make the promised purchase offer, its improper

12

retention of the plaintiff's confidential documents, the timing of regulatory approval

13

for the affiliation, the fact that TCS approached COL, not the other way around, and

14

Haynes' membership on the COL Board of Trustees, which create an inference that

15

the negotiations occurred contemporaneously.

16

Twombly, 550 U.S. at 556 (mere "plausibility" not "probability" is all that is

17

required at the pleading stage).

TCS also challenges plaintiff's

FAC ¶¶23, 25-26, 28 and 33;

18

Contrary to TCS's argument, a fiduciary relationship is not the only means for

19

creating an expectation of disclosure. TCS Mem. at 9. As shown above, a contract,

20

course of dealing and the defendant's superior knowledge that it is in possession of

21

facts which are unknown to the plaintiff, can result, individually or collectively, in

22

such a duty. See Los Angeles Unified School District v. Great American Insurance

23

Company/Hayward Construction Company, 49 Cal.4th at 749-50 (owner's failure to

24

disclose deficient work performed by a previous contractor was a proper basis for

25
26
27

13

Privacywear, Inc. v. QTS & CTFC, LLC, No. EDCV 07-1532-VAP (OPx), 2009
U.S. Dist. LEXIS 74496, **20-21 (C.D. Cal. Aug. 20, 2009) (holding that reliance
allegations may be pled generally pursuant to Fed. R. Civ. P. 8).

28
________________________________________________________________
16
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

holding that the plaintiff was misled into entering into the construction contract);

2

Eddy v. Sharp, 199 Cal. App. 3d at 866 (insurance agent's duty to prospective

3

customers arose due to agent's preparation of a proposal which he knew the

4

plaintiffs would rely on in purchasing the insurance policy); Witkin, Summary of

5

Cal. Law (10th ed. 2005) Torts, § 796, pp. 1151-1152 (“And tort law also

6

recognizes that a party having exclusive knowledge of information materially

7

affecting the value of a transaction may have a duty to disclose that information to

8

the other party even in the absence of a fiduciary relationship.”)

9

Here, the FAC alleges that the NDA, which is still in effect, and the course of

10

the parties' dealings created an expectation that having received the Law School's

11

information, TCS would not thereafter affiliate with COL and become plaintiff's

12

rival. The FAC alleges that having induced the plaintiff to reveal all of its most

13

confidential and vital information, TCS could not turn around and affiliate with

14

COL without disclosing its intention. FAC ¶¶50-51.14

15

C.

The Claim for Trade Secret Misappropriation Is Properly Pled

16

Defendants attack the sufficiency of plaintiff's claim for misappropriation of

17

trade secrets on two grounds. First, they argue that the allegedly misappropriated

18

trade secrets are inadequately identified. TCS Mem. at 11-12; Figuli/HEG Mem.,

19

pp. 6-7. Second, they contend that the FAC fails to plead facts showing defendants’

20
21
22
23
24
25
26
27

14

TCS also incorrectly argues that the FAC fails to allege that the concealment of its
"intent to negotiate with COL was a material fact." TCS Mem. at 8-9. The FAC
expressly alleges that "Plaintiff was unaware of the material misrepresentation and
justifiably relied on TCS's promise that it would not pursue a transaction in violation
of the NDA." FAC ¶51:8-10 (emphasis added). Although materiality need not be
pled with particularity, the FAC emphasizes that plaintiff would never have turned
over its confidential information and trade secrets had it known or suspected TCS's
duplicity. See, e.g., id. at ¶22:2-8.

28
________________________________________________________________
17
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

misuse or threatened misuse. TCS Mem. at 12-13; Figuli/HEG Mem. at. 8-9.

2

Defendants are incorrect on both fronts.

3

1.

4

Plaintiff Alleges The Existence Of Trade Secrets Which Derive
Independent Economic Value By Remaining Confidential

5

Information found to be a trade secret is extremely broad and includes any

6

business data which, if kept secret, provides the holder with an economic advantage

7

over a competitor. Cal. Civ. Code § 3426.1, subd. (d); Morlife, Inc. v. Perry, 56

8

Cal.App.4th 1514, 1520-1522 (1997). Here, the NDA admits that the information

9

the plaintiff was to provide constitutes “proprietary, trade secret and confidential

10

information....” FAC ¶¶ 6, 16-17.15

11

The FAC specifically identifies the financial, strategic and regulatory

12

documents provided to TCS and the type of information revealed to TCS over the

13

course of discussions spanning a two month period. Id. at ¶¶20-23. The documents

14

and information provided under the terms of the NDA include details regarding the

15

Law School’s academic program, faculty, students, enrollment, operational strengths

16

and weaknesses, marketing plans which include pricing and a competition analysis,

17

recruitment strategies, plans for competing with COL, detailed financial

18

information, internal analyses of the Law School’s bar exam passage rates and a

19

detailed Acquisition Profile and Strategy for Regional Accreditation. Id. at ¶¶20-23,

20

55-58. The documents compare and contrast many facets of the Law School’s

21

academics, operations, regulatory competency and competitive strategies, including

22
23
24
25
26
27
28

15

Although labeling information as a trade secret is not conclusive, it is an
important factor in deciding whether information is a trade secret. Morlife v. Perry,
supra, 56 Cal.App.4th at 1522; San Jose Construction, Inc. v. S.B.C.C., Inc., 155
Cal.App.4th 1528, 1543 (2007) (defendant’s execution of an agreement that
documents and information including “processes, compilation of information,
records, specifications and customer information” and “bidding, estimating and
costing processes” were confidential trade secrets created triable issues of fact as to
the existence of trade secrets).
________________________________________________________________
18
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

new curriculum, teaching methods, ways of attracting high quality faculty,

2

advertising strategies and cost containment policies. Id. at ¶56.

3

After providing these sensitive and confidential documents, Dean Pulle, who

4

has a forty year history in law school education, discussed their content with Figuli,

5

and TCS representatives, providing further insight into the Law School’s strengths,

6

weaknesses, and strategic plans as well as strategies for structuring a partnership

7

with TCS that would increase the school’s competitive advantage and benefit TCS.

8

Id. at ¶4:4-7 and ¶22. Plaintiff further alleges that the documents and information

9

were carefully guarded by the Law School to avoid disclosure. Id. at ¶20. Although

10

certain entities, such as CBE inspectors, tax authorities and government regulators

11

may have had access to certain documents from time-to-time, only a very few

12

individuals, all of whom were associated with the Law School, had full access to all

13

of the information and documents, prior to plaintiff’s transmittal of the information

14

to the defendants. Id. at ¶54.

15

The designation of a trade secret is to be liberally construed with all

16

reasonable doubts regarding the adequacy of the designation resolved in plaintiff's

17

favor. Brescia v. Angelin, 172 Cal.App.4th 133, 143 (2009). The purpose of

18

requiring some level of specificity in identifying trade secrets is to permit the

19

“defendant to ascertain whether and in what way the information is distinguished

20

from matters already known, and to permit the court to fashion appropriate

21

discovery.” Id. Here, plaintiff has more than satisfied that obligation.

22

Defendants erroneously argue that “much of this information would appear to

23

be either available to the public or within the knowledge of people skilled in the

24

industry.” Figuli/HEG Mem. at 6. But that argument fails on a motion to dismiss

25

because, “whether information is publicly known is ‘relative’ and ‘requires a fact-

26

intensive analysis.’” Spring Design, Inc. v. Barnesandnoble.com, LLC, No. c-09-

27

05185JW, 2010 WL 5422556, **4-5 (N.D. Cal. Dec. 27, 2010), citing DVD Copy

28

Control Ass’n, Inc. v. Bunner, 116 Cal..App.4th 241, 252 (2004); San Jose
________________________________________________________________
19
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

Construction, Inc. v. S.B.C.C., Inc., 155 Cal.App.4th 1528, 1537 (2007) (“whether

2

information is a trade secret is ordinarily a question of fact”).

3

Moreover, “[i]n determining whether information is generally known, the

4

focus is on the information or product as a whole, not its individual components.”

5

Leatt Corp v. Innovative Safety Tech., LLC, No. 09-CV-1301-IEG, 2010 WL

6

1526382 * 6 (S.D. Cal. April 15, 2010); Verigy US, Inc. v. Mayder, No. C-07-04330

7

RMW, 2008 WL 564634, * 6 (N.D. Cal. Feb. 29, 2008) (“the combination of

8

publicly-known elements can be a trade secret provided the combination itself is not

9

generally known”); O-2 Micro Intern. Ltd. v. Monolithic Power Systems, Inc., 420

10

F.Supp.2d. 1070, 1089-1090 (N.D. Cal. 2006) (“combinations of public information

11

from a variety of different sources when combined in a novel way can be a trade

12

secret”); San Jose Constuction, Inc., supra, 155 Cal.App.4th at 1538-39 (reversing

13

summary judgment in defendant’s favor finding that there were triable issues of fact

14

as to whether a contractor’s project binders including correspondence between

15

plaintiff, architects and owners, project descriptions, building measurements, cost

16

estimates, budget proposals, drawings, were trade secrets). Here, the information

17

provided by the Law School to the defendants was the entirety of the school’s core

18

internal information -- operational information, analyses and projections, as well as

19

strategies for the present and the future. The information is the equivalent of the

20

Law School’s “crown jewels.”16

21
22
23
24
25
26
27
28

Defendants’ reliance on American Paper & Packaging Products, Inc. v. Kirgan,
183 Cal.App.3d 1318 (1986) is misplaced. In American Paper, the court held that
customer lists can be protectable trade secrets under CUTSA, but information
generally known in the trade and already used by good faith competitors “is not a
protectable trade secret.” Id. at 1326. Most of the plaintiff's information was not
generally known in the trade because it uniquely related to the Law School and was
kept out of the hands of COL and other third parties. American Paper which
arguably limits the scope of protection of trade secrets has been criticized by other
California courts. See, e.g., ABBA Rubber Co. v. Seaquist, 235 Cal.App.3d 1, 21
(1999); Courtesy Temporary Service, Inc. v. Camacho, 222 Cal.App.3d 1278, 1286

16

________________________________________________________________
20
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

The FAC identifies the trade secret information transmitted to defendants in a

2

manner that surpasses the detail required by most courts. See, e.g., Clark v. Bunker,

3

453 F.2d 1006, 1009 (9th Cir. 1972) (upholding as a trade secret a “detailed plan for

4

the creation, promotion, financing and sale of contracts for ‘prepaid’ or ‘pre-need’

5

funeral services”); DLC Dermacare LLC v. Castillo, No. CV-10-333-PHX-DGC,

6

2010 WL 5391458 (D. Ariz. Dec. 14, 2010) (trade secret misappropriation claim

7

adequately pled based on allegations that plaintiff’s “operation of DermaCare

8

facilities, including manuals, training materials, and marketing information” were

9

trade secrets and defendant used the manuals in operating competing facilities).

10

Defendants' argument that plaintiff's trade secrets have “no evident

11

independent economic value” should be given short shrift. Figuli/HEG Mem. at 6.

12

Information that is maintained as confidential and obtained as a result of a

13

significant expenditure of time and resources undoubtedly has “independent

14

economic value” to its owner. Religious Tech. Ctr. v. Netcom On-Line Commec’n

15

Servs., Inc., 923 F.Supp.1231, 1253 (N.D. Cal. 1995) (independent economic value

16

can be shown by “circumstantial evidence of the resources invested in producing the

17

information, the precautions taken to protect its secrecy, and the willingness of

18

others to pay for its access”); Courtesy Temp. Serv. Inc. v. Camacho, 222

19

Cal.App.3d 1278, 1287 (1990) (a protectable trade secret exists where information is

20

“procured by substantial time, effort, and expense”); San Jose Construction, Inc.,

21

supra, 155 Cal.App.4th at 1540-43 (“taken together, the parties’ evidence thus

22

suggests an issue of material fact concerning whether the project information

23

derived independent economic value from not being generally known to competitors

24

in the commercial construction business”).

25
26
27
28

(1990) (declining to follow American Paper, because it “misconstrued California’s
trade secret statute and its legislative intent”).
________________________________________________________________
21
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

The FAC alleges the time and effort the Law School expended in developing

2

the information which was provided to the defendants, including, inter alia, the

3

Acquisition Profile, the marketing, recruitment and competition strategies,

4

curriculum and teaching analysis. See, e.g., FAC ¶58 (“the Law School’s Board of

5

Directors has spent years planning and implementing strategies that have allowed

6

the Law School to become successful and gain stature.”) and ¶¶ 55-57 and 59.

7

Moreover, the information revealed to defendants is certainly of interest to COL –

8

the Law School’s primary competitor.17

9

Defendants’ argument that the trade secret information is nothing more than

10

ideas is also unfounded. Figuli/HEG Mem. at 7. The FAC identifies an array of

11

factual information, plans, projections and analyses that collectively form concrete,

12

valuable pieces of information that are far from mere ideas. Further, the fact that the

13

documents and information were expressly requested by TCS and Figuli/HEG (the

14

purported due diligence experts) for the purpose of negotiating an acquisition,

15

refutes any argument that the information is only comprised of ideas.

16

2.

Misappropriation Or The Threat of Misappropriation Is Well Pled

17

Defendants argue that there are no allegations that they disclosed plaintiff’s

18

trade secrets to another or that there is any threat that they will do so. TCS Mem.

19
20
21
22
23
24
25
26
27
28

Yield Dynamics, Inc. v. TEA Systems Corp., 154 Cal.App.4th 547 (2007) does not
support a contrary view. There, the appellate court affirmed a judgment in
defendants’ favor after a full trial on plaintiff’s claim that defendants’
misappropriated eight segments of a source code. The court stated that plaintiff
presented no evidence (i) that the segments were valuable to a competitor, (ii) the
functions were unknown in the industry; or (iii) of the length of time it would take to
create the functions. Id. at 561, n. 13. On a motion to dismiss prior to discovery, a
different standard applies. Brocade Communications Sys., Inc. v. A10 Networks,
Inc., No. 10-CV-03428-LHK, Slip Op., 2011 WL 1044899, *5 (N.D. Cal. Mar. 23,
2011) (court’s role on a motion to dismiss is to determine whether or not plaintiff
has “alleged facts sufficient to ‘provide the grounds of [its] entitlement to relief’”
citing Twombly, 550 U.S. at 555.

17

________________________________________________________________
22
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

at12-13; Figuli/HEG Mem. at 8-9. To the contrary, the central theory of the case is

2

that defendants misappropriated plaintiff’s confidential information and are using it

3

to unfairly compete with the Law School through TCS's affiliation with COL. FAC,

4

¶¶ 1, 8-12, 26-29, 31-34, 60-63.

5

“Misappropriation of a trade secret includes: ‘(1) Acquisition of a trade secret

6

of another by a person who knows or has reason to know that the trade secret was

7

acquired by improper means;’ . . . ‘Improper means’ in turn, is defined to include

8

‘theft, bribery, misrepresentation, breach or inducement of a breach of a duty to

9

maintain secrecy, or espionage through electronic or other means.’” SpringDesign,

10

Inc., supra, 2010 WL 542556 * 6, citing Cal. Civ. Code § 3426.1(b) and DVD Copy

11

Control Ass’n., supra, 116 Cal.App.4th at 251, n. 7.

12

Plaintiff alleges that it provided the confidential documents to defendants

13

pursuant to the terms of an NDA that expressly required that defendants return the

14

documents or provide a certification of destruction. FAC, ¶ 26. Defendants have

15

failed to return the information or provide the required certification. Id. That fact

16

alone is sufficient to show misappropriation which “can occur through improper

17

acquisition of a trade secret, not only through use.” San Jose Construction, Inc.,

18

supra, 155 Cal.App.4th at 1544 (emphasis in original).

19

information in breach of a duty to maintain secrecy constitutes “improper means”

20

under CUTSA. Cal. Civ. Code § 3426.1(a).

Disclosing or using

21

In addition, a claim for injunctive relief under CUTSA can be made based

22

solely on the threat of misappropriation. Central Valley General Hospital v. Smith,

23

162 Cal.App.4th 501, 523-525 (2008). Threatened misappropriation may be shown

24

(or inferred) in various ways, including facts demonstrating that the defendants

25

misused or disclosed trade secrets in the past; evidence that the defendants intend to

26
27
28
________________________________________________________________
23
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

improperly use or disclose the trade secrets; and possession of trade secrets by the

2

defendants who refuses to return the secrets following a demand. Id. at 527-528.18

3

Plaintiff alleges that defendants used or disclosed the confidential trade secret

4

information in conjunction with the affiliation with COL and have also stated facts

5

from which a strong inference can be drawn that the information is being used to

6

compete against the Law School. FAC ¶¶27-30 (allegations that defendants have

7

used plaintiff’s trade secret information in negotiating and affiliating with COL,

8

COL’s intended efforts to seek WASC accreditation, the development of a

9

“fiduciary council” that seemingly bears a striking resemblance to the “Joint

10

Advisory Boards" proposed by Dean Pulle (¶ 23)); ¶¶ 31-32 (describing the

11

advantages of the affiliation between COL and TCS which were the very ones

12

proposed by the Law School in the private meetings with Figuli, Haynes and TCS

13

CFO Keith); ¶¶ 55-62 (discussing the scope of the trade secrets and alleging that

14

defendants have “actually misappropriated or threaten to misappropriate” the

15

information and identifying facts from which it can be inferred that defendants have

16

improperly used the information); and ¶¶ 13-15, 22-24, 25, 27, 31-32, 33, 61

17

(describing Haynes active role in the negotiations and receipt of confidential trade

18

secret information and Haynes subsequent appointment to COL’s Board of Trustees.

19

The foregoing facts support plaintiff’s claim that defendants used and threaten to use

20

plaintiff’s confidential trade secret information.19

21
22
23
24

In Central Valley, although the court ultimately held that the facts failed to
support the issuance of an injunction based on threatened misappropriation it did so
not on the pleadings but after an 18-day trial on a full factual record. Id., at 510.
18

19

25
26
27
28

Figuli’s effort to distance himself from the NDA by proclaiming that he was not a
signatory to the document is unavailing. Figuli/HEG Mem., p. 9, n. 2. Figuli and
HEG received the Law School's confidential documents and information directly
from the Law School and actively participated in all facets of the parties'
discussions. See, e.g., FAC, ¶¶ 20, 21 and 23.
________________________________________________________________
24
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

Defendants fail to address the foregoing allegations and instead erroneously

2

argue that plaintiff is pleading nothing more than an inevitable disclosure claim.

3

TCS Mem. at 13; Figuli/HEG Mem. at 9. The “inevitable disclosure doctrine”

4

allows “a trade secret owner to prevent a former employee from working for a

5

competitor despite the owner’s failure to prove the employee has taken or threatens

6

to use trade secrets.

7

demonstrating the employee’s new job duties will inevitably cause the employee to

8

rely upon knowledge of the former employer’s trade secrets.” Whyte v. Schlage

9

Lock Co., 101 Cal.App.4th 1443, 1446 (2002). California courts have been reluctant

10

to adopt the inevitable disclosure doctrine on policy grounds since it can restrict

11

employment and “‘distort the terms of the employment relationship and upset the

12

balance which courts have attempted to achieve in construing non-compete

13

agreements.’” Id., pp. 1462, 1463 citing EarthWeb, Inc. v. Schlack, 71 F.Supp.2d

14

229, 311 (S.D. N.Y. 1999). Whyte acknowledged that narrowly drafted restrictive

15

covenants in employment contracts are permissible to the extent necessary to protect

16

an employer's trade secrets. 101 Cal.App.4th at 462-1463. Plainly, the doctrine

17

applies to the employer/employee relationship – a relationship that does not exist in

18

the present case. Rather, plaintiff seeks to enjoin an unrelated company, TCS, and

19

its agents from continuing to wrongfully use the Law School's confidential

20

information as means of competing against it. Cf. Southern California Institute of

21

Law v. TCS Educ. System, 2011 WL 1296602, at *3 n.2 (holding that the non-

22

competition covenant in the NDA is not barred by statute or applicable case law).

Under that doctrine the employee may be enjoined by

23
24
25
26
27
28
________________________________________________________________
25
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

D.

Tortious Interference With Contract Is Properly Alleged Against Figuli

2

and HEG

3

Defendants seek dismissal of the negligent misrepresentation claim based on

4

two erroneous arguments.20 First, they contend that the plaintiff has not alleged

5

what intentional acts Figuli and HEG committed that induced TCS's breach of the

6

NDA. Figuli/HEG Mem. at 10. Second, defendants theorize that because they were

7

working on behalf of TCS when TCS breached the NDA, they are excused from

8

liability under the so-called "agent immunity rule." Id. at 11. The Court should

9

reject these arguments.

10

1.

Defendants' Intent To Disrupt Plaintiff's Contractual Rights Is Well Pled

11

In Quelimane, supra, the California Supreme Court stated that the tort of

12

interference with contract does not require the plaintiff to plead or prove that the

13

defendant acted with specific intent to induce the breach or disruption. 19 Cal. 4th

14

at 56. In determining that intentional interference with contract does not contain a

15

specific intent requirement, the Court relied on the Restatement Second of Torts. Id.

16

The Restatement, section 766, comment j, makes clear that the tort of intentional

17

interference with contract applies not only when a defendant acts with the purpose

18

or desire to interfere but that “[i]t applies also to intentional interference ... in which

19
20
21
22
23
24
25
26
27

20

The elements of the claim are: (i) the plaintiff had an existing, enforceable
contract with a third party; (ii) the defendant knew of the contract; (iii) defendant
committed intentional acts designed to interfere with or disrupt the contract; (iii)
there was actual interference with or disruption of the contractual relationship
between the plaintiff and the third party; and (iv) there were resulting damages to
the plaintiff. Quelimane Co., Inc. v. Stewart Title Guar. Co. 19 Cal.4th 26, 55
(1998); SCEcorp. v. Superior Court, 3 Cal.App.4th 673, 677 (1992). Remedies
include damages and injunctive relief. Remillard-Dandini Co. v. Dandini , 46 Cal.
App. 2d 678, 680 (1941); California Auto Court Assn. v. Cohn 98 Cal. App. 2d 145,
149 (1950); 5 Witkin, Summary of California Law, Torts, § 740, p. 1068 (10th Ed.
2005).

28
________________________________________________________________
26
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

the actor does not act for the purpose of interfering with the contract or desire it but

2

knows that the interference is certain or substantially certain to occur as a result of

3

his action. The rule applies, in other words, to an interference that is incidental to the

4

actor's independent purpose and desire but known to him to be a necessary

5

consequence of his action.”

6

Moreover, intent to interfere may be inferred from a defendant's actions. Savage v.

7

Pacific Gas & Elec. Co., 21 Cal. App. 4th 434, 449 (1993).

Id. citing Rest.2d Torts, § 766, com. j, p. 12.21

8

Contrary to defendants' argument, the FAC alleges facts in support of the

9

allegation that defendants Figuli and HEG knew that their conduct in negotiating

10

TCS's affiliation with COL interfered with the Law School's contractual rights.

11

Figuli and HEG obtained the Law School's confidential information and trade

12

secrets pursuant to the NDA, which Figuli allegedly drafted. FAC ¶6:17-18; ¶¶13-

13

16; 19-20; 22-24 and 68.

14

discussions with the Law School where the plaintiff's confidences and trade secrets

15

were considered. Id. at ¶¶13-16; 19-20; and 22-24. Figuli and HEG still possess

16

copies of the Law School's confidential documents. Id. at ¶ 20: 26-27 (documents

17

were sent directly to Figuli and HEG); and ¶27: 21-23 (Haynes admits to Dean Pulle

18

that Figuli is still in possession of the Law School's confidential documents).

19

Defendants refuse to return the documents or certify their destruction. Id. at ¶45

20

(alleging continuing breach of NDA because of defendants' refusal to return the

21

confidential documents or certify their destruction).

Figuli actively participated in all of the strategic

The FAC alleges that Figuli concealed from the plaintiff that he was

22
23

negotiating with COL in violation of the NDA.

Id. at ¶26:11-15; ¶27:23-25; and

24

¶28. On January 22, 2010, Figuli wrote to Dean Pulle stating that TCS was passing

25

on the "opportunity" to acquire the Law School "at this time." Id. at ¶25. It may be

26
21

27
28

The California Supreme Court reaffirmed this holding in Korea Supply Co. v.
Lockheed Martin Corp., 29 Cal.4th 1134, 1155 (2003) (proof of specific intent is
also not required to establish interference with prospective economic advantage).
________________________________________________________________
27
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

inferred that the sudden cessation of the negotiations between TCS and the plaintiff

2

were brought about by Figuli's "analysis" that a better bargain could be struck with

3

COL. Id. at ¶25:21-22. It may also be inferred that defendants were negotiating

4

with COL contemporaneously with their negotiations with the Law School. Id. at

5

¶28. Using the information obtained from the Law School to compare and contrast

6

with COL is a breach as access to such information was strictly limited to use for the

7

purpose of facilitating a transaction between TCS and the Law School. Id. at ¶17;

8

¶26:13-15; ¶27:16-21.

9

The fact that TCS did not terminate the NDA and retained the Law School's

10

confidential documents misled the Law School into believing that TCS might pursue

11

an acquisition with them in the future. Id. at ¶26:3-15. Figuli's concealment of the

12

COL negotiations prevented the plaintiff from taking action to enforce its rights

13

under the NDA to enjoin the misuse of its confidential information and trade secrets

14

and seek to block the affiliation from occurring. Id. at ¶¶69-70.

15

In September 2010, after the Law School learned of the affiliation through

16

media reports (¶30), Haynes admitted to Dean Pulle that Figuli "actively

17

participated in negotiating TCS's affiliation with COL." Id. at ¶27: 23-25; see also

18

¶13:13-16 (Figuli and HEG are key negotiators on TCS affiliations and

19

acquisitions). Figuli and HEG knew that the NDA required the return or destruction

20

of the plaintiff's confidential documents and precluded TCS from competing with

21

the Law School after gaining access to the Law School's confidential information

22

and trade secrets. Id. at ¶27 and ¶29:12-20; Southern California Institute of Law v.

23

TCS Educ. System, 2011 WL 1296602, at *3 (plaintiff's "allegations that TCS

24

misused confidential information in pursuit of other business opportunities defeats

25

TCS's argument that there is no broadly worded non-compete provision that could

26

serve as the basis for a breach of contract claim.").

27

Figuli and HEG's conduct in wrongfully refusing to return the plaintiff's

28

confidential documents, using the Law School's confidential information and trade
________________________________________________________________
28
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

secrets to compare the Law School to COL, concealing their intention to assist TCS

2

in pursuing an affiliation with COL and negotiating that affiliation, are all

3

intentional acts that caused TCS to breach the NDA. As shown above, even if

4

Figuli and HEG contend that they did not specifically intend to cause TCS's breach

5

of the NDA, the foregoing acts demonstrate that these defendants knew that their

6

acts would interfere with plaintiff's contractual rights by placing TCS in a position

7

where it would be able to compete against the plaintiff while in wrongful possession

8

of plaintiff's confidential information and trade secrets.

9

2.

The "Agent Immunity" Defense Is Inapplicable And, In Any Event,

10

Cannot Be Properly Adjudicated On A Motion To Dismiss

11

Defendants rely on the general rule that corporate agents when acting in their

12

official capacities cannot be held liable for tortiously interfering with the

13

corporation's contract. Figuli/HEG Mem. at 11. They mischaracterize this theory,

14

however, as the "agent immunity rule." Id.22 Because the plaintiff is not contending

15

that Figuli and HEG conspired to induce the breach of the NDA, the rule has no

16

application in this case.

17

Figuli and HEG rely on two sentences in the FAC which they argue should be

18

interpreted by the Court to mean that plaintiff is alleging that these defendants were

19

acting as TCS's agents regardless of the extent of their own alleged wrongdoing.

20

Figuli/HEG Mem. at 10-11. When read in context, the first allegation merely states

21

that when Figuli and Haynes encountered Dean Pulle for the first time, they stated

22
23
24
25
26
27
28

22

The agent immunity rule provides that “duly acting agents and employees cannot
be held liable for conspiring with their own principals....” Applied Equipment Corp.
v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 512(1994). "While the agent's immunity
rule derives from the principle that ordinarily corporate agents and employees acting
for or on behalf of the corporation cannot be held liable for inducing a breach of the
corporation's contract, the rule, on its face, applies only to claims of conspiracy to
commit a tort or violate a statute." Mintz v. Blue Cross of California, 172
Cal.App.4th 1594, 1605 (2009) (italics, quotations and citations omitted).
________________________________________________________________
29
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

that they were approaching the Law School on TCS's behalf and that Figuli was

2

assisting TCS in identifying suitable acquisition candidates and structuring

3

transactions for it. FAC ¶13.

4

The second allegation relied on by the defendants is simply a one sentence

5

agency allegation that generally applies to all defendants. Id. at ¶38. Generic

6

agency allegations of this sort should not be read in isolation, but must be

7

considered in light of other allegations. See e.g., Doctors Med. Ctr. of Modesto v.

8

Global Excel Mgmt., No. 1:08-cv-01231 OWW DLB, 2009 U.S. Dist. LEXIS 71634

9

**9-11 (E.D. Cal. Aug. 14, 2009).

10

California Civil Code § 2295 defines agent as follows: "An agent is one who

11

represents another, called the principal, in dealings with third persons. Such

12

representation is called agency." Under California law, the primary characteristic of

13

an agency relationship is the principal's right to control the agent's conduct. In re

14

Tsurukawa, 287 B.R. 515, 521 (9th Cir. 2002). The essential characteristics of an

15

agency relationship are as follows: "(1) An agent or apparent agent holds a power to

16

alter the legal relations between the principal and third persons and between the

17

principal and himself; (2) an agent is a fiduciary with respect to matters within the

18

scope of the agency; and (3) a principal has the right to control the conduct of the

19

agent with respect to matters entrusted to him." Garlock Sealing Technologies, LLC

20

v. NAK Sealing Technologies Corp., 148 Cal. App. 4th 937, 964 (2007) (citation

21

omitted). Moreover, the existence of agency is a question of fact. Michelson v.

22

Hamada, 29 Cal. App. 4th 1566, 1576 (1994).

23

The relationship between Figuli and HEG, on the one hand, and TCS, on the

24

other, does not fit the definition of agency. Figuli and HEG could not bind TCS to

25

the NDA or any other agreement.

26

authorized officer of TCS. FAC ¶16:19-21. There is no allegation or evidence that

27

TCS had the power to control Figuli and HEG. Figuli and HEG are not employees

28

or officers of TCS, nor are they signatories to the NDA. Instead, these defendants

The NDA was executed by Keith, a duly

________________________________________________________________
30
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

are hired by TCS to find deals and then negotiate with the target toward a TCS

2

acquisition or affiliation. FAC ¶7:10-12. They hold themselves out as leading

3

experts in the "American higher education industry" and detail their expertise in

4

offering clients a wide array of transactional and regulatory advice, structuring

5

affiliations, acquisitions and reorganizations, raising capital, conducting due

6

diligence investigations and providing other specialized business and legal services.

7

Id. at ¶6. Thus, Figuli and HEG were not working solely to benefit TCS or under its

8

direction or control like subordinate employees. Rather, these defendants make a

9

business of selling their services to the education industry, including TCS, and hold

10

themselves out as experts. Further, TCS did not direct Figuli to keep copies of the

11

Law School's confidential documents and seek out a deal with COL. Figuli and

12

HEG engaged in such conduct voluntarily with knowledge that in doing so the Law

13

School's rights and business would be adversely affected.

14

In Doctors Med. Ctr. of Modesto v. Global Excel Mgmt., supra, the district

15

court denied a judgment on the pleadings and upheld a contract interference claim

16

under California law.

17

submitted by medical facilities for payment, had allegedly wrongfully reduced the

18

invoice submitted by the plaintiff hospital after it had rendered medical services to a

19

patient. 2009 U.S. Dist. LEXIS 71634 at **1-2. The claims reviewer contended that

20

it was merely acting as an agent and adviser for another defendant whom the

21

plaintiff alleged was a "health plan". Id. at *4. The complaint contained a generic

22

agency allegation applicable to all defendants which the defendant claims reviewer

23

relied on in arguing that it was the agent of the alleged health plan. Id. at **9-11.

24

The Court concluded that the agency allegation, in the face of contrary factual

25

allegations made by the plaintiff, could not serve as a basis for the granting the

One of the defendants, an entity that reviewed claims

26
27
28
________________________________________________________________
31
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

motion because plaintiff's contrary allegation had to be accepted as true. Id. at

2

**11-12.23

3

Even if one were to conclude that the cryptic allegations cited by defendants

4

are inconsistent with plaintiff's contention that Figuli and HEG are not TCS's agents,

5

dismissal of the tortious interference claim is unwarranted. A complaint may make

6

alternative or inconsistent claims and allegations. See Fed. R. Civ. P. 8(d)(2) and

7

(3); MB Financial Group, Inc. v. U.S. Postal Service, 545 F.3d 814, 818 (9th Cir.

8

2008) .

9

The cases cited in support of defendants' agency argument are readily

10

distinguishable. Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th

11

503(1994) overruled decisions which held that a party to a contract could be held

12

liable for conspiracy to interfere with the contract. Id. at 511, 513–514. The

13

starting point for the Court's analysis was the prohibition against imposing tort

14

liability for contractual interference on a party to the contract. Id. The Court noted

15

that conspiracy is not an independent tort. Id. Instead, such liability is premised on

16

the notion that the coconspirator is legally capable of committing some underlying

17

tort which will then serve as the basis for conspiracy liability. Id. Imposing

18

conspiracy liability for interference with a contract on a party to that contract is

19

therefore irreconcilable with the rule excluding contracting parties from liability for

20
21
23

22
23
24
25
26
27
28

The claims reviewer also contended that it was entitled to certain statutory and
common law privileges that precluded the plaintiff from suing it. The district court
rejected the defendant's argument that the common law adviser's privilege applied
based on the plaintiff's allegation that the reviewer was not an agent of the alleged
health plan defendant. Id. at **15-17. In doing so, the court distinguished Mintz v.
Blue Cross of California, 172 Cal.App.4th at 1603-1604 on the basis that, inter alia,
the contract of insurance attached to the complaint in that case expressly established
that the defendant claims administrator was the agent of the insurer and was
therefore standing in the shoes of the insurer when it determined claims. 2009 U.S.
Dist. LEXIS 71634 at *15.
________________________________________________________________
32
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

contractual interference. Id. The facts of Applied Equipment are likewise inapposite

2

because there was no claim that a third party had interfered with a contract.24

3

The other cases cited by defendants involve claims by employees who sought

4

to sue their fellow employees for causing their wrongful termination. Figuli/HEG

5

Mem. at 11 citing Shoemaker v. Myers, 52 Cal.3d 1, 10, 23-25 (1990); Wise v.

6

Southern Pacific Co. , 223 Cal.App.2d 50, 71–73 (1963).25 These cases provide no

7

support for dismissing the tortious interference claim because they reflect the simple

8

fact that entities cannot act except through their agents and employees.

9

E.

Plaintiff Has Adequately Stated A Claim for Violations of the UCL

10

Defendants challenge the adequacy of plaintiff’s claim for violation of

11

California’s Unfair Competition Law (“UCL”), Cal. Business & Professions Code, §

12

17200, based on the purported insufficiency of the claim for misappropriation of

13

trade secrets. TCS Mem. at 13-14; Figuli/HEG Mem. at 12. Inherent in defendants’

14

argument is their concession that a validly stated CUTSA claim will support a claim

15

for violations of the UCL – a concession that is amply supported by case law. See,

16

e.g., San Jose Construction, Inc., supra, 155 Cal.App.4th at 1546 (denying summary

17
18
19
20
21
22
23
24
25

24

Defendants quote from Applied Equipment, 7 Cal.4th at 514 wherein the Court
stated that the "tort duty not to interfere with the contract falls only on strangers –
interlopers who have no legitimate interest in the scope or course of the contract's
performance." Figuli/HEG Mem. at 10:4-6. In Woods v. Fox Broadcasting
Subsidiaries, 129 Cal. App.4th 344, 352 (2005), the court rejected an argument that
this quoted language meant that not only were contracting parties immune from
interference claims, so too were another class of defendants who, although not
parties to a contract, were not true “strangers” to the contract because they had some
general interest in the contractual relationship. Properly read, the quoted language
only refers to interference by a "third person" who is not a “party to the contract.”
Id. at 353.

26
25

27
28

Wise, 223 Cal.App.2d at 71–72, which held that one contracting party, by use of a
conspiracy theory, could impose liability on another for the tort of interference, was
overruled by Applied Equipment, 7 Cal.4th at 510.
________________________________________________________________
33
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

judgment on UCL claim where triable issues of fact were presented as to defendants'

2

misappropriation of trade secrets); Spring Design, Inc. v. Barnesandnoble.com,

3

LLC, supra, 2010 WL 5422556, *9 (“a claim for trade secret misappropriation can

4

also support a claim for violation of the UCL”); Oculus Innovative Sciences, Inc. v.

5

Prodinnv, S.A. De C.V., No. C-08-04707 MMC, Slip Op. 2010 WL 4774659 (N.D.

6

Cal. Nov. 16, 2010) (holding that injunctive relief under the UCL and CUTSA is an

7

available remedy). As demonstrated above, the FAC pleads a valid claim under

8

CUTSA and accordingly the validity of that claim compels a denial of defendants’

9

motion to dismiss the UCL claim.26

10

F.

TCS Improperly Seeks To Have This Court Predetermine Plaintiff's

11

Entitlement To Injunctive Relief

12

Allegations seeking permanent injunction should not be dismissed or stricken

13

at the pleading stage when the underlying claims are not dismissed. See SEC v. Life

14

Wealth Mgmt., No. CV 10-4769 RSWL (MANx), 2010 U.S. Dist. LEXIS 130521,

15

**3-4 (C.D. Cal. Nov. 24, 2010); In re Lloyd's Am. Trust Fund Litig., 954 F. Supp.

16

656, 682 (S.D.N.Y. 1997); Tanglewood E. Homeowners v. Charles-Thomas, Inc.,

17

849 F.2d 1568, 1576 (5th Cir. 1988). Plaintiff alleges a continuing breach of the

18

NDA, which TCS does not seek to dismiss, continuing violations of CUTSA and

19

other violations of statutory and common law by TCS. SEC v. Tiffany Industries,

20

Inc., 535 F. Supp. 1160, 1164-65 (E.D. Mo. 1982) (injunctive relief claim requires a

21

factual assessment improper on a motion to dismiss).

22
23
24
25
26
27
28

TCS also argues that the UCL claim is deficient as to it insofar as plaintiff seeks to
state a UCL claim based on the breach of contract claim. TCS Mem. at 14.
Plaintiff’s UCL claim is not solely based on the breach of the NDA but also the
misappropriation and misuse of plaintiff’s confidential information. Under these
circumstances dismissal of plaintiff’s UCL claim is not proper. Spring Design, Inc.,
supra, 2010 WL 5422556, *9 (refusing to grant summary judgment as to UCL claim
because plaintiff’s claim was based on more than just a breach of a non-disclosure
agreement).

26

________________________________________________________________
34
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1

IV.

CONCLUSION

2

For all of the foregoing reasons and authorities, plaintiff respectfully requests

3

that the Court deny defendants' motions in their entirety. Alternatively, plaintiff

4

requests leave to amend if any of its claims are found deficient.27

5
6

DATED: July 19, 2011

7

THE LAW OFFICES OF GEORGE A. SHOHET
KREINDLER & KREINDLER LLP

8
9

By:

10

George A. Shohet
Attorneys for Plaintiff

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
27

26
27

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

28
________________________________________________________________
35
PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS'
MOTIONS TO DISMISS

1
2

CERTIFICATE OF SERVICE
The undersigned hereby certifies that all counsel of record who have

3

consented to electronic service are being served with a copy of the foregoing

4

document via Central District of California CM/ECF system on July 19, 2011

5
6

____/s/ George A. Shohet_______________

7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
---------------------------------------------------------------------------------------------------------------------------CERTIFICATE OF SERVICE