Removable Media Solutions, Inc. v. AAR Manufacturing, Inc.

Filing 33

ORDER signed by Senior Judge Lawrence K. Karlton on 7/28/2010 ORDERING that defendant AAR's 20 motion for summary judgment is GRANTED IN PART. The court GRANTS summary adjudication to defendant as to the first and third claims enumerated in pl aintiff's complaint, and as to plaintiff's second claim insofar as that claim is predicated on breach of the non-circumvent agreement. The court DENIES defendant's motion as to plaintiff's second claim insofar as that claim is predicated on breach of the non-disclosure agreement. (Duong, D)

Removable Media Solutions, Inc. v. AAR Manufacturing, Inc.

Doc. 33

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 FOR THE EASTERN DISTRICT OF CALIFORNIA 9 10 REMOVABLE MEDIA SOLUTIONS, INC., 11 12 13 v. ORDER 14 AAR MOBILITY SYSTEMS, INC., GREG SCHELLHASE, DOES 1-100 15 and CORPORATION A-Z, inclusive, 16 17 18 Defendants. / This case is before the court on diversity jurisdiction. Removable Media Solutions, Inc. ("RMSI") previously Plaintiff,

NO. CIV. S-08-3084 LKK/GGH

19 Plaintiff

20 sought to sell a telecommunications device to the California 21 National Guard. RMSI sought the assistance of defendant AAR The California

22 Manufacturing, Inc., ("AAR") in this endeavor.

23 National Guard eventually elected to retain the services of AAR but 24 not RMSI in producing the device, and AAR subsequently sold similar 25 devices to other states. 26 RMSI's surviving claims allege that AAR thereby breached "non1
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1 circumvent" and "non-disclosure" agreements. 2 judgment on both claims.1

AAR seeks summary

For the reasons stated below, the court

3 grants AAR's motion as to the non-circumvent agreement but denies 4 the motion as to the non-disclosure agreement. 5 6 In 2003, RMSI I. Background2 entered an agreement with the California

7 National Guard wherein RMSI would develop a device to provide 8 "wireless communications access for persons located at an incident 9 or emergency site to their appropriate command center." The

10 parties refer to this as a "RATT box," without explaining what RATT 11 stands for. 12 box and RMSI did not invent the concept underlying the RATT a device RMSI could be a built cheaper with other companies' than those

such

13 technology,

but

offered

solution

14 available from other providers. 15 After this initial agreement, it was decided that the RATT box be truck mounted. To assist in this endeavor, RMSI

16 should

17 contacted AAR as a potential provider of shelters into which the 18 RATT box could be built. 19 agreement. In connection The two companies entered into an therewith, AAR signed separate

20 "noncircumvent" and "nondisclosure" agreements in April of 2004. 21 22 23 24 25 26 RMSI's complaint also enumerates claims for misappropriation of trade secrets under Cal. Civ. Code § 3426.1(d) and for breach of other unspecified contracts. RMSI explicitly states its nonopposition to AAR's motion for summary judgment as to these claims. The facts provided in this section are undisputed, with one exception stated below. Unless another citation is given, quoted language is taken the parties' statements of undisputed facts and has been specifically affirmed by the other party. 2
2 1

1 Under the noncircumvent agreement, the parties agreed to: 2 3 4 5 6 7 8 9 Decl. of Hans. U. Stucki in Supp. of Def.'s Mot. Summ. J., Ex. D. 10 Under the nondisclosure agreement, AAR agreed, inter alia, "not to 11 use any Confidential Information disclosed to it by [RMSI] for 12 [AAR's] own use or for any purpose other than to carry out 13 discussions with [RMSI] concerning, and the undertaking of the 14 Relationship." Id. Ex. E. After these agreements were executed, refrain from either directly or indirectly soliciting business and contracts from sources not their own which have been made available to them through this agreement, without the express permission of the Party who made the original introduction. In addition, all Parties to this Agreement . . . will maintain complete confidentiality regarding business sources and will only disclose such business sources under mutual Agreement and only after written permission has been received from the originator of the source.

15 work on the project moved ahead with AAR as a "participant and 16 shelter provider." Throughout this time, the California National

17 Guard's primary contact regarding the project was RMSI. 18 On September 2, 2004, David Golden, the project manager for

19 the California National Guard, sent an email to the parties stating 20 that the California National Guard wished AAR to serve in the role 21 of "[s]helter config [sic] and project management." 22 directly or indirectly "solicited" this role. 23 agreed to so serve. "RMSI's role [was] AAR had not

Nonetheless, AAR diminished to the

24 surveillance function only.

RMSI had not agreed to, and was

25 unhappy about[,] its diminished role." 26 On September 20, 2004, Golden sent an email to RMSI inquiring 3

1 whether RMSI wished to remain associated with the project.

The

2 motives underlying this email are disputed, but neither party 3 argues that these motives are relevant to the present motion. 4 Finally, on September 29, 2004, Golden "directed AAR to

5 discontinue use of RMSI from any future projects," after which "AAR 6 continued with the project as [p]roject manager, working directly 7 with" the California National Guard. "While AAR did not have

8 knowledge of the basis for this decision, it agreed to discontinue 9 use of RMSI and carried out the direction from" the California 10 National Guard. 11 this, AAR AAR did not discuss with RMSI whether, in doing the non-disclosure and non-circumvent

breached

12 agreements.

Nonetheless, Tom Luisi, on behalf of RMSI, informed

13 AAR that he believed that AAR's actions breached the agreements. 14 AAR build and sold sixteen RATT box units. Eight of these

15 were sold to the California National Guard.

Of the remaining

16 eight, two were sold "to the Georgia National Guard through [the 17 California National Guard]," two to the Montana National Guard and 18 four to the Illinois National Guard. 19 20 II. Standard for Summary Judgment under Fed. R. Civ. P. 56 Summary judgment is appropriate when there exists no genuine

21 issue as to any material fact. Such circumstances entitle the 22 moving party to judgment as a matter of law. Fed. R. Civ. P. 56(c); 23 see also Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); 24 Secor Ltd. v. Cetus Corp., 51 F.3d 848, 853 (9th Cir. 1995). Under 25 summary judgment practice, the moving party 26 //// 4

1 2 3 4 5

always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.

6 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. 7 Civ. P. 56(c)). 8 If the moving party meets its initial responsibility, the

9 burden then shifts to the opposing party to establish the existence 10 of a genuine issue of material fact. Matsushita Elec. Indus. Co. v. 11 Zenith Radio Corp., 475 U.S. 574, 585-86 (1986); see also First 12 Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89 13 (1968); Secor Ltd., 51 F.3d at 853. In doing so, the opposing party 14 may not rely upon the denials of its pleadings, but must tender 15 evidence of specific facts in the form of affidavits and/or other 16 admissible materials in support of its contention that the dispute 17 exists. Fed. R. Civ. P. 56(e); see also First Nat'l Bank, 391 U.S. 18 at 289. In evaluating the evidence, the court draws all reasonable 19 inferences from the facts before it in favor of the opposing party. 20 Matsushita, 475 U.S. at 587-88 (citing United States v. Diebold, 21 Inc., 369 U.S. 654, 655 (1962) (per curiam)); County of Tuolumme v. 22 Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001).

23 Nevertheless, it is the opposing party's obligation to produce a 24 factual predicate as a basis for such inferences. See Richards v. 25 Nielsen Freight Lines, 810 F.2d 898, 902 (9th Cir. 1987). The 26 opposing party "must do more than simply show that there is some 5

1 metaphysical doubt as to the material facts . . . . Where the 2 record taken as a whole could not lead a rational trier of fact to 3 find for the nonmoving party, there is no `genuine issue for 4 trial.'" 5 6 A. 7 Matsushita, 475 U.S. at 586-87 (citations omitted). III. Analysis Breach of The Non-circumvent Agreement AAR argues that it is entitled to summary judgment on this

8 claim because RMSI has provided no facts in support thereof and 9 alternatively because this agreement is rendered unenforceable by 10 Cal. Bus. and Prof. Code § 16600. RMSI's opposition memorandum

11 challenges solely the latter ground, but the former provides an 12 adequate basis for granting summary judgment. 13 Under California law, a claim for breach of contract includes

14 four elements: that a contract exists between the parties, that the 15 plaintiff performed his contractual duties or was excused from 16 nonperformance, that the defendant breached those contractual

17 duties, and that plaintiff's damages were a result of the breach. 18 Reichert v. General Ins. Co., 68 Cal. 2d 822, 830 (1968); First 19 Commercial Mortgage Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001). 20 Here, RMSI has not provided evidence indicating that AAR It appears that two of the First, the

21 breached the non-circumvent agreement.

22 agreement's prohibitions are potentially applicable.

23 agreement prohibits the parties from "soliciting business and 24 contracts from sources not their own which have been made available 25 to them through this agreement, without the express permission of 26 the Party who made the original introduction." 6 At oral argument,

1 RMSI argued that AAR's acceptance of the California National 2 Guard's propositions constituted solicitation of business with the 3 National Guard. The court cannot agree. Under California law,

4 interpretation of a written contract's terms is a question of law 5 for the court, which the court may ordinarily decide on summary 6 judgment. Waller v. Truck Ins. Exchange, 11 Cal. 4th 1, 18 (1995), Courts normally

7 1 Witkin, Summary 10th Contracts § 741 (2005).

8 interpret terms in accordance with "plain meaning or the meaning a 9 layperson would ordinarily attach . . . ." Waller, 11 Ca. 4th at

10 18. The plain meaning of "solicit" requires proactive seeking out. 11 Merriam-Webster's Online Dictionary (2010) (retrieved July 26, 12 2010, from http://www.merriam-webster.com/dictionary/solicit), RMSI agrees that AAR

13 Black's Law Dictionary 1427 (8th Ed. 2004).

14 did not request or initiate its involvement with the California 15 National Guard directly or indirectly. 16 SUF #16. Pl.'s Response to Def.'s

As to other states' national guards, regardless of

17 whether AAR solicited the sales, RMSI has not argued that these 18 other entities were sources "made available to [AAR] through" the 19 parties' agreement, nor has RMSI offered any evidence on this 20 issue. Thus, there is no evidence that AAR breached this term of

21 the agreement. 22 Second, the agreement obliged AAR to "maintain complete

23 confidentiality regarding business sources."

Again, RMSI offers

24 neither argument nor evidence of a breach of this term. 25 Because RMSI would bear the burdens of proof and production on

26 the question of breach at trial, RMSI's failure to provide evidence 7

1 on this question entitles AAR to summary judgment on this claim. 2 B. 3 Breach of the Non-disclosure Agreement The other remaining claim is for breach of the non-disclosure AAR's sole argument for summary judgment on this claim

4 agreement.

5 is that it is preempted by the Uniform Trade Secrets Act, as 6 adopted by California, and in particular by Cal. Civ. Code § 7 3426.7.3 8 9 10 11 12 13 14 15 16 In pertinent part, this statute provides that: (a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets. (b) This title does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.

17 Undaunted by the statute's explicit statement that it does not 18 affect contractual remedies, AAR argues that the statute preempts 19 the claim for breach of the non-disclosure agreement. This

20 assault on the plain language of the statute fails. 21 22 23 24 25 26 At oral argument, AAR asserted in passing that summary judgment was also appropriate as to this claim because RMSI had failed to provide evidence in support thereof. This argument was not made in AAR's moving papers--AAR conspicuously argued only that the breach of non-circumvent agreement claim was without evidentiary support. Accordingly, the court does not consider this argument here. 8
3

Courts have held that except for the three exemptions noted in

1 subsection (b), the statute implicitly "preempts common law claims 2 that are based on misappropriation of a trade secret." Ali v.

3 Fasteners for Retail, Inc., 544 F. Supp. 2d 1064, 1070 (E.D. Cal. 4 2008) (internal quotation marks omitted); see also K.C. Multimedia, 5 Inc. v. Bank of America Technology & Operations, Inc., 171 Cal. 6 App. 4th 939, 954 (2009), Accuimage Diagnostics Corp. v. Terarecon, 7 Inc., 260 F. Supp. 2d 941, 954 (N.D. Cal. 2003) (holding that this 8 interpretation was implied by Cadence Design Systems, Inc. v. 9 Avant! Corp., 29 Cal.4th 215, 224 (2002)). 10 AAR's argument that this implicit preemption extends to AAR

11 contract claims invokes a gross misreading of the caselaw.

12 quotes the statement from Digital Envoy, Inc. v. Google, Inc., 370 13 F. Supp. 2d 1025 (N.D. Cal. 2005) that "all state law claims based 14 on the same nucleus of facts as the trade secrets claim are 15 preempted under California's UTSA." Id. at 1034.4 AAR argues that

16 notwithstanding the statute's explicit saving of contract claims, 17 courts have stated that "common law claims" arising out of the same 18 operative facts as a trade secret claims are preempted, and that 19 contract claims are common law claims, so contract claims must be 20 preempted. 21 To the extent that Digital Envoy held that "all claims" are it plainly referred to "all claims" argued to be

22 preempted,

23 preempted in that case, i.e., claims for unfair competition and 24 25 26 The court observes that this precise statement is not part of the holding in Digital Envoy, but instead a summary of Callaway Golf Co. v. Dunlop Slazenger Group Am., Inc., 318 F. Supp. 2d 216, 219 (D. Del. 2004). 9
4

1 unjust enrichment. 2 preempts Digital's

Id. at 1035 ("California's statute . . . claims for unfair competition and unjust

3 enrichment.").

Digital Envoy and other cases have explicitly Id. (§

4 recognized that § 3426.7 does not preempt contract claims.

5 3426.7 "explicitly states that claims based upon breach of contract 6 . . . are not preempted by the statute."); see also First Advantage 7 Background Servs. Corp. v. Private Eyes, Inc., 569 F. Supp. 2d 929, 8 936 (N.D. Cal. 2008), HiRel Connectors, Inc. v. United States, No. 9 CV 01-11069, 2006 U.S. Dist. LEXIS 93332 (C.D. Cal. July 18, 2006) 10 ("Plaintiff's claim for breach of contract is not preempted by 11 California's Uniform Trade Secrets Act."). While few California

12 courts have spoken to the scope of this statute, at least one state 13 court has allowed a claim for breach of a non-disclosure agreement 14 to proceed in parallel with a claim for misappropriation of trade 15 secrets. Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th Although Glue-Fold did not discuss possible

16 1018, 1021 (2000).

17 preemption of the contract claim, this may well be because the 18 issue was so clear as to require no discussion. 19 Although this conclusion should be obvious, the court has

20 exhaustively searched cases citing § 3426.7, finding no cases 21 providing even implicit support for AAR's theory. 22 therefore denied as to this claim. 23 24 IV. Conclusion For the reasons stated above, defendant AAR's motion for The court AAR's motion is

25 summary judgment (Dkt. No. 20) is GRANTED IN PART.

26 GRANTS summary adjudication to defendant as to the first and third 10

1 claims enumerated in plaintiff's complaint, and as to plaintiff's 2 second claim insofar as that claim is predicated on breach of the 3 non-circumvent agreement. The court DENIES defendant's motion as

4 to plaintiff's second claim insofar as that claim is predicated on 5 breach of the non-disclosure agreement. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 11 IT IS SO ORDERED. DATED: July 28, 2010.