Cole Asia Business Center Inc v. Robert D Manning et al

Filing 105


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1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 COLE ASIA BUSINESS CENTER, INC., a Philippines corporation, 13 14 15 16 Plaintiff, v. ROBERT D. MANNING, an individual; DEBTORWISE FOUNDATION, a Delaware corporation, 17 Defendants. 18 ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 12-00956 DDP (CWx) ORDER GRANTING IN PART AND DENYING IN PART ACCESS’S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING JOINDER [Dkt. Nos. 78, 80] 19 20 Presently before the court is Counterdefendant and Third Party 21 Counterdefendant Access Counseling, Inc. (“Access”)’s Motion for 22 Partial Summary Judgment on Third Party Complaint of 23 Counterclaimants Robert Manning and DebtorWise Foundation 24 (“Counterclaimants”). 25 Inc., Cole Group, Inc., and Sevan Aslanyan filed a Notice of 26 Joinder in the Motion. 27 I. Background 28 Counterdefendants Cole Asia Business Center, The following facts are not disputed. 1 Counterdefendant and moving party Access is a Delaware non- 2 profit corporation that was formed in November 2010 and provides 3 on-line and telephone courses that are required for individuals who 4 are filing for bankruptcy protection. (Jemelian Decl. ¶¶ 2-3.) 5 Counterclaimant Robert Manning is the founder of DebtorWise, a non- 6 profit corporation that is licenced to provide bankruptcy education 7 courses. 8 Cole Asia Business Center, Inc. (“Cole Asia”), which alleged that 9 DebtorWise failed to pay the amount due for services rendered. 10 (Id. at ¶¶ 6-8.) Manning and DebtorWise were sued by (Compl. ¶¶ 5-11.) 11 Manning and DebtorWise filed a Counterclaim and Third Party 12 Complaint against Cole Asia, Access, Cole Group, Inc., and Sevan 13 Aslanyan (“Counterdefendants”). 14 other things, that they had entered into an agreement with Aslanyan 15 whereby Aslanyan’s company Access would use Manning’s bankruptcy 16 courses but would not contact, solicit, or market to clients on 17 Manning’s Client List (the “Client List”).1 18 23.) 19 Access, including some fictitious names, and discovered that Access 20 had violated its agreement by conducting a mass mailing to all 21 names on the list. 22 allege that Cole Asia jammed DebtorWise’s phone lines and sent 23 Access’s advertising materials to DebtorWise customers when they 24 called for information. 25 /// 26 /// Counterclaimants alleged, among (Third Party Compl. ¶ Counterclaimants allege that they provided the Client List to (Manning Decl. ¶ 31.) Counterclaimants also (Manning Decl. ¶ 29.) 27 28 1 The parties refer to this list as the “no fly” list. 2 1 2 II. Legal Standard Summary judgment is appropriate where the pleadings, 3 depositions, answers to interrogatories, and admissions on file, 4 together with the affidavits, if any, show “that there is no 5 genuine dispute as to any material fact and the movant is entitled 6 to judgment as a matter of law.” 7 seeking summary judgment bears the initial burden of informing the 8 court of the basis for its motion and of identifying those portions 9 of the pleadings and discovery responses that demonstrate the Fed. R. Civ. P. 56(a). A party 10 absence of a genuine dispute of material fact. 11 Catrett, 477 U.S. 317, 323 (1986). 12 the evidence must be drawn in favor of the nonmoving party. 13 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 242 (1986). 14 If the moving party does not bear the burden of proof at trial, it 15 is entitled to summary judgment if it can demonstrate that “there 16 is an absence of evidence to support the nonmoving party’s case.” 17 Celotex, 477 U.S. at 325. 18 Celotex Corp. v. All reasonable inferences from See Once the moving party meets its burden, the burden shifts to 19 the nonmoving party opposing the motion, who must “set forth 20 specific facts showing that there is a genuine issue for trial.” 21 Anderson, 477 U.S. at 256. 22 party “fails to make a showing sufficient to establish the 23 existence of an element essential to that party’s case, and on 24 which that party will bear the burden of proof at trial.” 25 477 U.S. at 322. 26 that a reasonable jury could return a verdict for the nonmoving 27 party,” and material facts are those “that might affect the outcome 28 of the suit under the governing law.” Summary judgment is warranted if a Celotex, A genuine issue exists if “the evidence is such 3 Anderson, 477 U.S. at 248. 1 There is no genuine issue of fact “[w]here the record taken as a 2 whole could not lead a rational trier of fact to find for the non- 3 moving party.” 4 475 U.S. 574, 587 (1986). 5 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., It is not the court’s task “to scour the record in search of a 6 genuine issue of triable fact.” 7 1279 (9th Cir. 1996). 8 support clearly. 9 1026, 1031 (9th Cir. 2001). Keenan v. Allan, 91 F.3d 1275, Counsel has an obligation to lay out their Carmen v. San Francisco Sch. Dist., 237 F.3d The court “need not examine the entire 10 file for evidence establishing a genuine issue of fact, where the 11 evidence is not set forth in the opposing papers with adequate 12 references so that it could conveniently be found." 13 III. Discussion 14 15 16 17 18 Id. Access moves for summary judgment against Counterclaimants on Counts 3 through 10 of the Third Party Complaint. A. Breach of Contract (Count 3) and Misappropriation of Trade Secrets (Count 8) In their Third Claim for Relief Counterclaimants allege that 19 Access breached an oral and written agreement that Access would not 20 solicit DebtorWise’s clients. 21 Access argues that the alleged contract is an illegal restraint of 22 trade under California Business and Professions Code § 16600 and is 23 therefore not enforceable. 24 (Third Party Compl. ¶¶45-46.) In Counterclaimants’ Eighth Claim for Relief, they allege that 25 Access misappropriated trade secrets. 26 Client List was not a trade secret because it was compiled from 27 publicly available sources and DebtorWise did not make reasonable 28 efforts to maintain its secrecy. 4 Access argues that the 1 California Business and Professions Code § 16600 states: 2 “Except as provided in this chapter, every contract by which anyone 3 is restrained from engaging in a lawful profession, trade, or 4 business of any kind is to that extent void.” 5 include customer nonsolicitation agreements. 6 Anderson LLP, 44 Cal.4th 937, 948 (2008). 7 Biosense Webster, Inc., 179 Cal. App. 4th 564, 574 (2009). 8 There are some exceptions to these restrictions. 9 Such restraints See Edwards v. Arthur See also Dowell v. “Under CBPC § 16600, it is well established that broad covenants not to compete 10 are void unless they involve a situation where a person sells the 11 goodwill of a business or where a partner agrees not to compete in 12 anticipation of dissolution of a partnership, or they are necessary 13 to protect trade secrets.” 14 553 F.3d 1277, 1290 (9th Cir. 2009)(internal citations, quotation 15 marks, and alterations omitted). 16 secret. 17 because it [is] confidential, proprietary, and/or a trade secret . 18 . . [T]he list of customers, not ordinarily entitled to judicial 19 protection, may become a trade secret, if there is confidential 20 information concerning the value of these customers.” 21 Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1429 (2003) 22 (internal citations and quotation marks omitted). 23 Comedy Club, Inc. v. Improv W. Assocs., A client list can be a trade “[I]nformation about . . . customers [can be] protected The issue here is whether the agreement by Access not to 24 solicit clients identified on the Client List falls within the 25 prohibition of § 16600 or is permissible as protecting a trade 26 secret. 27 pattern, compilation, program, device, method, technique, or 28 process, that: (1) Derives independent economic value, actual or A trade secret is “information, including a formula, 5 1 potential, from not being generally known to the public or to other 2 persons who can obtain economic value from its disclosure or use; 3 and (2) Is the subject of efforts that are reasonable under the 4 circumstances to maintain its secrecy.” 5 Cal. Civ. Code § 3426.1. There may well be an issue of fact as to whether the Client 6 List meets the first criterion for a trade secret. 7 that the Client List was compiled from publicly available sources, 8 but this in itself does not prevent it from being a trade secret. 9 If Counterclaimants put significant effort into the Client List Access asserts 10 creating something more valuable from the publicly available 11 records, it may well be protectable as a trade secret. 12 Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1521-22 (1997) 13 (internal citations and quotation marks omitted)(“[W]here the 14 employer has expended time and effort identifying customers with 15 particular needs or characteristics, courts will prohibit former 16 employees from using this information to capture a share of the 17 market. 18 and locations of customers where anyone could easily identify the 19 entities as potential customers. 20 difficult information is to obtain, and the more time and resources 21 expended by an employer in gathering it, the more likely a court 22 will find such information constitutes a trade secret.”); MAI Sys. 23 Corp. v. Peak Computer, Inc., 991 F.2d 511, 521 (9th Cir. 1993) 24 (“The Customer Database has potential economic value because it 25 allows a competitor . . . to direct its sales efforts to those 26 potential customers that are already using the [plaintiff’s] 27 computer system.”); and Barney v. Burrow, 558 F. Supp. 2d 1066, See, e.g., Such lists are to be distinguished from mere identities As a general principle, the more 28 6 1 1079 (E.D. Cal. 2008) (“A customer list acquired by lengthy and 2 expensive efforts deserves protection as a trade secret.”). 3 Counterclaimants point to the various efforts expended on 4 assembling the Client List. 5 “multi-prong acquisition and retention strategy” used to develop 6 and maintain the list. 7 efforts appear to have been directed at developing personal 8 relationships with attorneys on the list, by sending promotional 9 “Welcome Packages” to new members of the National Association of Manning’s declaration describes the (Manning Decl. ¶ 24.) Some of these 10 Consumer Bankruptcy Attorneys (“NACBA”), attending NACBA 11 conferences, golf outings with bankruptcy attorneys, and lotteries 12 for free courses and gifts. 13 these actions modified the content of the list; instead, they 14 appear to be directed toward retaining current clients. 15 efforts do appear directed at establishing the list itself, 16 including reviewing lists from bankruptcy sources to purge 17 creditors and corporate bankruptcy attorneys who were not potential 18 clients and hiring a paid consultant to assist in compiling the 19 original list. (Id.) It is not clear to what extent Other (Id.) 20 Assuming arguendo that Counterclaimants have established a 21 question of fact as to the amount of effort put into the Client 22 List and therefore to its potential protectability as a trade 23 secret, Counterclaimants must still show reasonable efforts to 24 maintain secrecy. 25 terminated by public disclosure. 26 absence of secrecy, is fatal to the existence of a trade secret. 27 ‘If an individual discloses his trade secret to others who are 28 under no obligation to protect the confidentiality of the Trade secret protection may be lost or “Public disclosure, that is the 7 1 information, or otherwise publicly discloses the secret, his 2 property right is extinguished.’” 3 Cases, 96 Cal. App. 4th 292, 304 (2002), citing Ruckelshaus v. 4 Monsanto Co., 467 U.S. 986, 1002 (1984). 5 In re Providian Credit Card Access asserts that DebtorWise in effect sent a Client List to 6 a competitor - Access - without seeking to protect the list. 7 Counterclaimants respond that Access was not a competitor of 8 DebtorWise at the time it provided Access the Client List. 9 (Manning Decl. ¶ 13.) Manning states that DebtorWise and Access 10 agreed that the two companies would not be competing for the same 11 clients. 12 (Id. ¶ 22.) Counterclaimants’ argument that Access was not a competitor 13 boils down to their alleged agreement that Access would not contact 14 the parties named on the Client List. 15 Access and DebtorWise were not competitors. 16 essentially arguing that by providing the purported trade secret - 17 the Client List - to a potential competitor, that potential 18 competitor was no longer a competitor. 19 DebtorWise appear to have been competitors who purportedly agreed 20 not to contact the same clients, as identified in the Client List. 21 The nature of the purported agreement belies the claim that the two 22 companies were not competitors; if Counterclaimants felt compelled 23 to provide a list of names that Access should not contact, it would 24 appear to be because contact from Access might have resulted in 25 Access taking clients from DebtorWise. 26 But this does not mean that Counterclaimants are In other words, Access and In short, the court finds that even if the Client List is not 27 publicly available, Counterclaimants shared that list with a 28 competitor, Access, and thus the Client List is not protectable as 8 1 a trade secret. 2 names on the Client List violates § 16600. 3 As a result, the agreement not to contact the “Antisolicitation covenants are void as unlawful business 4 restraints except where their enforcement is necessary to protect 5 trade secrets.” 6 1429, 7 Cal. Rptr. 3d 427, 429 (2003). 7 agreement was not formed to protect the trade secret; instead, the 8 trade secret was used to determine which clients could not be 9 solicited by Access. Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, Here, the antisolicitation Under such circumstances, the policy of 10 exempting trade secrets from the prohibition on business restraints 11 is not served by protecting Counterclaimaints’ Client List. 12 court GRANTS summary judgment in favor of Access on Counts 3 and 8. The 13 B. Fraud (Count 4) 14 Access argues that the fraud claim is devoid of any 15 allegations against Access; that Access was not formed until 16 November 2010 but that the agreement was dated September 1, 2010, 17 so it cannot be liable; and that to the extent that the allegations 18 of fraud against Access are based on the alleged use of the Client 19 List, any agreement not to use the List was unenforceable. 20 Counterclaimants respond that the Call Center Agreement was 21 negotiated and signed in January 2011 but backdated to September 22 2010, and that Access therefore should be liable for 23 representations in the contract negotiation. 24 Manning Depo. 205:24-209:13.) 25 (Manning Decl. ¶ 18; The Countercomplaint makes several allegations that exceed the 26 use of the Client List. 27 DebtorWise to lose several hundreds of clients per month due to 28 their actions, including by misappropriating DebtorWise account It alleges that “Counterdefendants caused 9 1 files and transferring them to Access as well as soliciting 2 DebtorWise clients and those requesting information from 3 DebtorWise.” 4 DebtorWise’s clients cannot be part of the fraud claim because any 5 agreement not to solicit clients is unenforceable, as discussed 6 above, allegations of misappropriating account files and sending 7 Access materials to clients who requested DebtorWise materials do 8 fall within a fraud claim. 9 from a legal assistant who states that she requested DebtorWise (Countercompl. ¶ 34.) Although solicitation of DebtorWise has produced an email trail 10 information cards by phone but received Access cards.2 11 Decl., Exh. E (Dkt. No. 88-1 at 29).) 12 (Manning Because Counterclaimants have established an issue of fact as 13 to whether the contract was backdated and have stated a claim for 14 fraud that exceeds their claims regarding the Client List, the 15 court GRANTS IN PART AND DENIES IN PART summary judgment on this 16 count. 17 depend on allegations regarding the nonsolicitation agreement. The fraud claim survives to the extent that it does not 18 C. Conspiracy to Commit Fraud (Count 5) 19 “In order to maintain an action for conspiracy, a plaintiff 20 must allege that the defendant had knowledge of and agreed to both 21 the objective and the course of action that resulted in the injury, 22 that there was a wrongful act committed pursuant to that agreement, 23 and that there was resulting damage.” 24 v. Sherwood Partners, Inc., 131 Cal. App. 4th 802, 823 (2005). Berg & Berg Enterprises, LLC 25 2 26 27 28 Access objects to this evidence as lacking in foundation, lacking basis for personal knowledge of declarant, improper hearsay, argumentative, and irrelevant. But Counterclaimants are not required to “produce evidence in a form that would be admissible at trial in order to avoid summary judgment.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). 10 1 “Civil conspiracy is not an independent tort. 2 legal doctrine that imposes liability on persons who, although not 3 actually committing a tort themselves, share with the immediate 4 tortfeasors a common plan or design in its perpetration.” 5 (internal citations and quotation marks omitted). 6 Rather, it is a Id. Counterclaimants allege that “Counterdefendants acted in 7 concert to deprive counterclaimants of the benefits of the 8 agreements alleged hereinabove and conspired together [to] engage 9 in unfair and deceptive billing practices, and acted together in 10 attempt to defraud DebtorWise and to destroy DebtorWise’s business 11 operations . . . .” 12 (Third Party Compl. ¶ 58.) Access argues that Counterclaimants have failed to allege that 13 Access was aware of any fraud against Counterclaimants or intended 14 for any fraud to be committed, and that therefore Access is 15 entitled to summary judgment on this claim. 16 Counterclaimants have alleged that Access was involved in 17 misdirecting materials and appropriating DebtorWise account files, 18 in connection with the other Counterdefendants. This is sufficient 19 to make Access potentially liable for the torts of the other 20 Counterdefendants, and vice versa. 21 As discussed above, The court therefore GRANTS IN PART AND DENIES IN PART summary 22 judgment on the conspiracy claim. 23 that it does not depend on the nonsolicitation allegations. The claim survives to the extent 24 D. Preemption of Counts 6, 7, and 10 25 Access argues that Counterclaimants’ claims for interference 26 with contractual relations, interference with prospective business 27 advantage, and unfair business practices fail because they are 28 preempted by the California Uniform Trade Secrets Act (“UTSA”). 11 1 Cal. Civ. Code § 3426 et seq. 2 that are ‘based on the same nucleus of facts as the 3 misappropriation of trade secrets claim for relief.’” 4 Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. 5 App. 4th 939, 958 (2009) (quoting Digital Envoy, Inc. v. Google, 6 Inc., 370 F.Supp.2d 1025, 1035). 7 other civil remedies that are not based upon misappropriation of a 8 trade secret.” 9 The UTSA “preempts common law claims K.C. The UTSA “does not affect . . . Cal. Civ. Code § 3426.7. Here, Counterclaimants do make allegations against all 10 Counterdefendants going beyond their trade secret claims. 11 Additionally, as discussed above, they allege that Access in 12 particular not only breached the unenforceable nonsolicitation 13 agreement, but also participated in a scheme to take business from 14 DebtorWise and transfer it to Access by transferring account files 15 and sending Access materials to clients who requested DebtorWise 16 materials. 17 18 19 20 21 For these reasons, the court finds that Counts 6, 7, and 10 are not per se preempted by the UTSA. E. Interference with Contractual Relations (Count 6) and Prospective Business Advantage (Count 7) To prevail on a cause of action for interference with 22 contractual relations and for intentional interference with 23 prospective business advantage, a party must prove, among other 24 things, actual breach or disruption of a particular contractual 25 relationship. 26 Cal. 3d 1118, 1126 (1990)(regarding inference with contractual 27 relations) and Youst v. Longo, 43 Cal. 3d 64, 71 (1987)(regarding 28 intentional interference with prospective business advantage). See Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 12 1 Access argues that DebtorWise cannot establish that element of 2 the tort because it has failed to identify a single contract with 3 which Access interfered. 4 Koziol, who said he did not know of any written agreements with 5 attorneys who agreed that they would only and exclusively refer 6 their clients to DebtorWise. 7 Koziol did indicate that he knew of one such oral agreement. 8 70:25-71:19). 9 where he could not recall the names of any attorneys or law firms Access points to the depositions of (Exh. D, Koziol Depo., 70: 12-15.) (Id., Access also cites Manning’s deposition testimony, 10 with whom DebtorWise had an exclusive agreement. 11 Depo., 24: 21-25:13.) 12 that Manning also indicated that he “presented that information in 13 prior discovery.” (Exh. B, Manning Counterclaimants respond by pointing out (Id. 30:5-11.) 14 Counterclaimants are not required to “produce evidence in a 15 form that would be admissible at trial in order to avoid summary 16 judgment.” 17 However, they must produce evidence sufficient to create a genuine 18 dispute of material fact. 19 provide names of specific clients to Access prior to the deposition 20 testimony of Dr. Manning, but they do not identify any of those 21 contracts for the court in their opposition papers. 22 of any evidence or identifying information regarding a contract 23 that Access interfered with, the court can find no genuine dispute 24 of material fact as to either of these causes of action. Celotex Crop. v. Catrett, 477 U.S. 317, 324 (1986). Counterclaimants indicate that they did In the absence 25 The court GRANTS summary judgment on these counts. 26 F. Copyright Infringement (Count 9) 27 Access moves to dismiss Counterclaimants’ claim of copyright 28 infringement (copying sections of DebtorWise’s website) on the 13 1 ground that DebtorWise does not have a federally registered 2 copyright. 3 infringement action can be brought. 4 “[R]eceipt by the Copyright Office of a complete application 5 satisfies the registration requirement of § 411(a).” 6 Ideas, Inc. v. IAC/Interactivecorp., 606 F.3d 612, 621 (9th Cir. 7 2010). 8 9 A copyrighted work must be registered before an 17 U.S.C. § 411(a).3 Cosmetic It is undisputed that Counterclaimants have not produced a registration certificate. They have, however, produced an email 10 receipt confirming that an “application and fee for the work 11 DebtorWise website was received on 03/12/12.” 12 23, Exh. C.) 13 foundation, lacking basis for personal knowledge, violating the 14 best evidence rule, improper hearsay, and irrelevant. 15 objection is overruled. 16 sufficient to create an issue of material fact as to whether 17 DebtorWise had a registered copyright. 18 notice of the fact that the only receipt the Copyright Office 19 provides for online applications is the email receipt. 20 (“If you (Upchurch Decl. ¶ Access objects to this evidence as lacking This The court finds that the email receipt is The court takes judicial See 21 3 22 23 24 25 26 27 Refusal of a copyright registration by the Copyright Office does not bar an infringement suit. “[W]here the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement if notice thereof, with a copy of the complaint, is served on the Register of Copyrights. The Register may, at his or her option, become a party to the action with respect to the issue of registrability of the copyright claim by entering an appearance within sixty days after such service, but the Register's failure to become a party shall not deprive the court of jurisdiction to determine that issue.” 17 U.S.C.A. § 411. 28 14 1 apply for online, you will receive an email stating that your 2 application has been received. Otherwise, the Copyright Office does 3 not provide a confirmation of receipt.”). 4 The court therefore DENIES summary judgment on this issue. 5 G. Unfair Business Practices(Count 10) 6 Access argues that to the extent that this claim is based on 7 the alleged breach of the covenant not to compete, it is barred 8 because such an agreement is an illegal restraint on trade as 9 discussed above. The court has already determined that the claims 10 against Access are not limited to the nonsolicitation agreement. 11 Therefore, summary judgment is GRANTED IN PART AND DENIED IN PART. 12 The claim survives to the extent that it is based on those alleged 13 actions of Access not dependent on the nonsolicitation agreement. 14 H. Joinder by Counterdefendants 15 Cole Asia Business Center, Inc., Cole Group, Inc., and Sevan 16 Aslanyan filed a joinder in the Motion. 17 allegations against Access are different than the allegations 18 against the other Counterdefendants, and Access offers some 19 evidence applicable only to Access and not to the other 20 Counterdefendants. 21 Access’s arguments and pieces of evidence might apply to the other 22 Counterdefendants and DENIES joinder. 23 // 24 // 25 // 26 // 27 // 28 // However, the factual The court declines to speculate on which of 15 1 2 3 IV. Conclusion For the reasons stated above, the court GRANTS summary 4 judgment in favor of Access on Counterclaims 3, 6, 7, and 8; GRANTS 5 IN PART AND DENIES IN PART summary judgment on Counterclaims 4, 5, 6 and 10; and DENIES summary judgment on Counterclaim 9. 7 is DENIED. 8 IT IS SO ORDERED. The joinder 9 10 Dated: June 18, 2013 DEAN D. PREGERSON United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16

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