Sparta Consulting, Inc. v. Copart, Inc.

Filing 264

ORDER signed by District Judge Kimberly J. Mueller on 9/25/17, GRANTING IN PART, AND DENYING IN PART each Motion for Summary Judgment (ECF No. 184 , 185 , 186 and 187 ). (Kastilahn, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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COPART, INC.,

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No. 2:14-cv-00046-KJM-CKD
Plaintiff,

v.

ORDER

SPARTA CONSULTING, INC., KPIT
INFOSYSTEMS, INC., and KPIT
TECHNOLOGIES, LTD.,

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Defendants.

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An online vehicle auction company hired a software development company to

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design and build its new online system, but when the project did not go as planned the auction

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company terminated the contract and the parties sued each other. The auction company, plaintiff

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Copart, Inc. (“Copart”), moves for summary judgment on counter-claims brought by the software

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development company, defendant Sparta Consulting, Inc. (“Sparta”), and for partial summary

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judgment on elements of its own claims. Copart Mot., ECF No. 197. Sparta, along with its

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parent companies, defendants KPIT Infosystems, Inc. (“KPIT Infosystems”) and India-based

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KPIT Technologies, Ltd. (“KPIT India”), move for summary judgment on Copart’s claims.

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Sparta Mot., ECF No. 184; KPIT India Mot., ECF No. 185; KPIT Infosystems Mot., ECF No.

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186. For the reasons explained below, the court GRANTS IN PART and DENIES IN PART each

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motion.
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I. 
A. 
B. 
C. 
D. 
II. 
A. 
B. 
III. 
IV. 
A. 
B. 
C. 
D. 
V. 
A. 
B. 
C. 
D. 
VI. 
A. 
B. 
C. 
D. 
E. 
VII. 
A. 
B. 
C. 
D. 
E. 
F. 
VIII. 
A. 
B. 
IX. 
A. 
B. 

Table of Contents
Factual Background .......................................................................................................... 4 
The Parties and the Project................................................................................................ 4 
The Contract and Design Statement.................................................................................. 4 
The Build Statement and Contract Amendment ............................................................... 5 
Termination and the Lawsuits ........................................................................................... 5 
Procedural Background ..................................................................................................... 6 
Procedural History ............................................................................................................ 6 
Copart’s and Sparta’s Claims ............................................................................................ 6 
Summary Judgment........................................................................................................... 7 
Contract-Related Claims ................................................................................................... 9 
The Implementation Services Agreement ......................................................................... 9 
Sparta’s Motion ................................................................................................................. 9 
Copart’s Motion on Copart’s Claims .............................................................................. 13 
Copart’s Motion on Sparta’s Claims ............................................................................... 14 
Fraud-Related Claims...................................................................................................... 19 
Fraud under California Law ............................................................................................ 19 
Sparta’s Motion ............................................................................................................... 21 
Copart’s Motion .............................................................................................................. 26 
Derivative Claims ........................................................................................................... 26 
Trade Secrets ................................................................................................................... 27 
Factual Background ........................................................................................................ 27 
Trade Secrets Generally .................................................................................................. 27 
Copart’s Trade Secrets .................................................................................................... 28 
Copart’s Ownership of the Trade Secrets ....................................................................... 30 
Copart’s Damages ........................................................................................................... 31 
Preemption ...................................................................................................................... 32 
CUTSA Preemption ........................................................................................................ 32 
Common Law Misappropriation ..................................................................................... 34 
Conversion ...................................................................................................................... 35 
Unfair Competition and Unjust Enrichment ................................................................... 37 
Professional Negligence .................................................................................................. 38 
Conclusion ...................................................................................................................... 38 
Computer Hacking Claims .............................................................................................. 38 
CFAA and CDAFA Generally ........................................................................................ 39 
Copart’s Evidence of Computer Hacking ....................................................................... 40 
Professional Negligence .................................................................................................. 41 
Relation Back Generally ................................................................................................. 42 
Initial Matters .................................................................................................................. 42 
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C. 
X. 
XI. 

Relation Back Here ......................................................................................................... 43 
KPIT Entities................................................................................................................... 46 
Conclusion ...................................................................................................................... 47 

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I.

FACTUAL BACKGROUND

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The following facts are not disputed unless otherwise noted. See A.G. v. Paradise
Valley Unified Sch. Dist. No. 69, 815 F.3d 1195, 1202 (9th Cir. 2016).
A.

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The Parties and the Project
Copart is a publicly traded company that sells more than two million vehicles per

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year. Sparta’s Statement of Undisputed Facts (“SSUF”) 2, ECF No. 187. To auction vehicles

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online, Copart uses its self-developed Enterprise Resource Planning (“ERP”) system called

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Copart Auction System (or “CAS”). SSUF 3. Copart began using CAS in 1997. SSUF 4;

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Takenouchi Decl. Ex. 173 at 19:3–21, ECF No. 222-8.

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In 2011, Copart sought a software development company to help replace Copart

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Auction System with a different software language made by SAP.1 SSUF 5. The new system

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was to be called “AIMOS,” for Auction Inventory Management and Operating System. After

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initially hiring Accenture, LLP (“Accenture”) to design and build AIMOS, Copart fired

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Accenture and split the contract into two phases, a design phase and a build phase, with a bidding

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process for each phase. SSUF 6, 9.

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B.

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The Contract and Design Statement
After considering bids from three firms, Copart selected Sparta, a California

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corporation that designs and implements SAP-based ERP software solutions, to design AIMOS.

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SSUF 1, 10. On October 6, 2011, Copart and Sparta signed the Implementation Services

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Agreement (“the Contract” or “ISA”). SSUF 13; see also Takenouchi Decl. Ex. 2 (ISA), ECF

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No. 198-2. Under the Contract, Sparta promised to complete work laid out in the Design Project

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Statement of Work (“Design Statement”), which the parties also signed on October 6. SSUF 26.

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The Design Statement outlines a twenty-week project and details three milestones for Sparta’s

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design of AIMOS during that time. Takenouchi Decl. Ex. 3 (Design Statement), ECF No. 198-3;

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SSUF 27. Each milestone in the Design Statement includes technical requirements, a completion

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SAP is an enterprise application software company. See About SAP SE,
https://www.sap.com/corporate/en.html (last visited July 10, 2017). SAP Software is written in
ABAP, which is short for Advanced Business Application Programming. Kumar Decl. ¶ 9, ECF
No. 193.
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schedule, and a fixed fee conditioned on Copart’s review and acceptance. SSUF 29. Copart

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agreed to pay $3,250,000 for the first three milestones and an additional $1,400,000 for a fourth

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milestone the parties later added. Design Statement at 26; ISA § 9.1; SSUF 28; Llewellyn Decl.

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Ex. I (Change Request Form), ECF No. 196-9.

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Between December 2011 and March 2012, Copart accepted in writing and paid for

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the first four milestones (Milestones 1 through 4), all related to AIMOS’s design. SSUF 31–41.

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Copart contends Sparta fraudulently induced Copart’s acceptance of these milestones. See Opp’n

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to Sparta at 15–16, ECF No. 209 (alleging six instances of Sparta’s fraud).

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C.

The Build Statement and Contract Amendment

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On March 28, 2012, after considering bids from several firms to actually build

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AIMOS, Copart again selected Sparta. SSUF 42. Copart and Sparta signed the Statement of

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Work for the AIMOS SAP Implementation at Copart Realization Project (“Build Statement”).

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SSUF 45; Takenouchi Decl. Ex. 18 (Build Statement), ECF No. 198-18. The Statement includes

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eleven milestones (Milestones 5 through 15) for an agreed amount of $18,800,000. SSUF 48;

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Build Statement at 8–34.

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In mid-2012, Copart accepted in writing and paid for the first three build phase

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milestones (Milestones 5 through 7). SSUF 49–57. As with the design phase milestones, Copart

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contends Sparta fraudulently induced its acceptance.

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In August 2013, Copart and Sparta amended the Implementation Services

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Agreement (“the Contract Amendment” or “ISA Amendment”). SSUF 59; Takenouchi Decl. Ex.

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69 (ISA Amendment), ECF No. 198-69. The Amendment sets forth requirements for Milestones

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8 and 9 and revised the schedule for the remaining milestones (i.e., Milestones 10 through 15).

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See ISA Amendment §§ 1–2; id. Ex. B. Copart neither accepted nor paid for the remaining eight

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milestones, including the two the Amendment covered. SSUF 58.

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D.

Termination and Litigation
On September 17, 2013, Copart terminated its agreements with Sparta “for

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convenience” and asked Sparta to submit a request for payment for work completed to date.

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SSUF 60; Nadgauda Decl. Ex. L (Termination Letter), ECF No. 190-12. Sparta replied, detailing
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the work performed and requesting payment for approximately $12 million, a substantial

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remainder of the unpaid fees. SSUF 62; Llewellyn Decl. Ex. M (Request for Payment), ECF No.

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196-13. Copart rejected Sparta’s request and sued Sparta in Texas state court for its

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“unreasonable” position. Llewellyn Decl. Ex. M (Copart’s Rejection Letter), ECF No. 196-14;

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SSUF 63 (complaint filed November 1, 2013). Sparta sued Copart in this court. Compl., ECF

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No. 1 (filed January 8, 2014). Copart’s state action was removed to federal court and transferred

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here; the two actions are now consolidated. See Order Consolidating Cases at 1–2, ECF No. 30.

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II.

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PROCEDURAL BACKGROUND
A.

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Procedural History
In this consolidated case, Copart is the plaintiff/counter-defendant and Sparta is

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the defendant/counter-claimant. Scheduling Order at 2, ECF No. 33 (realigning the parties in this

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way). On June 8, 2016, Copart filed the operative Third Amended Complaint, which added

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Sparta’s parent entities, KPIT Infosystems and KPIT India, as defendants. For simplicity, this

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order uses “plaintiff” to refer to Copart and “defendants” to refer to Sparta and its parent entities,

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collectively.

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Sparta counterclaimed against Copart. Countercl., ECF No. 134. As discussed
below, the parties move for summary judgment on both Copart’s and Sparta’s claims.
B.

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Copart’s and Sparta’s Claims
Copart brings the following claims against Sparta only: (1) Fraudulent

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Inducement; (2) Fraud; (3) Negligent Misrepresentation; (4) Breach of Contract; (5) Breach of the

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Implied Covenant of Good Faith and Fair Dealing; and (6) Request for Declaratory Relief. TAC

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¶¶ 121–159. Copart brings the following claims against Sparta, KPIT Infosystems, and KPIT

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India: (7) Trade Secret Misappropriation; (8) Common Law Misappropriation; (9) Conversion;

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(10) Professional Negligence; (11) Violation of Computer Fraud and Abuse Act, 18 U.S.C.

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§ 1030 (“CFAA”); (12) Violation of Comprehensive Computer Data Access And Fraud Act, Cal.

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Penal Code § 502 (“CDAFA”); (13) Unfair Competition; and (14) Unjust Enrichment. TAC

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¶¶ 160–220.

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Sparta counter-claims against Copart for: (1) Breach of Contract; (2) Promissory

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Estoppel; (3) Breach of the Implied Covenant of Good Faith and Fair Dealing; (4) Quantum

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Meruit; (5) Unjust Enrichment; and (6) Declaratory Relief. Countercl. ¶¶ 101–41.

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Copart moves for summary judgment on Sparta’s counter-claims and for partial

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summary judgment on elements of some of its own claims. See Copart Mot. Defendants jointly

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oppose. Opp’n to Copart, ECF No. 204. Copart has filed a reply. Copart Reply, ECF No. 224.

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Defendants move for summary judgment on Copart’s claims. Sparta Mot.; KPIT

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India Mot.; KPIT Infosystems Mot. Copart opposes. Opp’n to Sparta; Opp’n to KPIT India, ECF

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No. 210; Opp’n to KPIT Infosystems, ECF No. 212. Defendants have replied. KPIT India

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Reply, ECF No. 232; Sparta Reply, ECF No. 233; KPIT Infosystems Reply, ECF No. 234.

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III.

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SUMMARY JUDGMENT
A court will grant summary judgment “if . . . there is no genuine dispute as to any

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material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

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The “threshold inquiry” is whether “there are any genuine factual issues that properly can be

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resolved only by a finder of fact because they may reasonably be resolved in favor of either

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party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

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In determining summary judgment, a court uses a burden-shifting scheme. The

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moving party must first satisfy its initial burden. “When the party moving for summary judgment

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would bear the burden of proof at trial, it must come forward with evidence which would entitle it

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to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co.

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v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citation and internal quotation marks

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omitted). In contrast, when the nonmoving party bears the burden of proving the claim or

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defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate

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an essential element of the nonmoving party’s case; or (2) by demonstrating that the nonmoving

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party failed to make a showing sufficient to establish an element essential to that party’s case on

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which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317,

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323–25 (1986).

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If the moving party fails to meet its initial burden, summary judgment must be

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denied and the court need not consider the nonmoving party’s evidence. See Adickes v. S.H.

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Kress & Co., 398 U.S. 144 (1970). If the moving party meets its initial burden, however, the

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burden then shifts to the nonmoving party, which “must establish that there is a genuine issue of

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material fact.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585 (1986). In

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carrying their burdens, both parties must “cit[e] to particular parts of materials in the record . . .;

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or show [] that the materials cited do not establish the absence or presence of a genuine dispute,

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or that an adverse party cannot produce admissible evidence to support the fact.” Fed. R. Civ. P.

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56(c)(1); see also Matsushita, 475 U.S. at 586 (“[The nonmoving party] must do more than

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simply show that there is some metaphysical doubt as to the material facts.”). Moreover, “the

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requirement is that there be no genuine issue of material fact . . . . Only disputes over facts that

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might affect the outcome of the suit under the governing law will properly preclude the entry of

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summary judgment.” Anderson, 477 U.S. at 247–48 (emphasis in original).

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In deciding summary judgment, the court draws all inferences and views all

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evidence in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587–88;

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Whitman v. Mineta, 541 F.3d 929, 931 (9th Cir. 2008). “Where the record taken as a whole could

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not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for

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trial.’” Matsushita, 475 U.S. at 587 (quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391

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U.S. 253, 289 (1968)).

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A court may consider evidence as long as it is “admissible at trial.” Fraser v.

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Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003). “Admissibility at trial” depends not on the

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evidence’s form, but on its content. Block v. City of L.A., 253 F.3d 410, 418–19 (9th Cir. 2001)

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(citing Celotex, 477 U.S. at 324). The party seeking admission of evidence “bears the burden of

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proof of admissibility.” Pfingston v. Ronan Eng’g Co., 284 F.3d 999, 1004 (9th Cir. 2002). If the

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opposing party objects to the proposed evidence, the party seeking admission must direct the

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district court to “authenticating documents, deposition testimony bearing on attribution, hearsay

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exceptions and exemptions, or other evidentiary principles under which the evidence in question

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could be deemed admissible.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 385–86 (9th Cir.
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2010). However, courts are sometimes “much more lenient” with the affidavits and documents of

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the party opposing summary judgment. Scharf v. U.S. Att’y Gen., 597 F.2d 1240, 1243 (9th Cir.

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1979).

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The Supreme Court has taken care to note that district courts should act “with

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caution in granting summary judgment,” and have authority to “deny summary judgment in a case

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where there is reason to believe the better course would be to proceed to a full trial.” Anderson,

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477 U.S. at 255. A trial may be necessary “if the judge has doubt as to the wisdom of terminating

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the case before trial.” Gen. Signal Corp. v. MCI Telecomms. Corp., 66 F.3d 1500, 1507 (9th Cir.

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1995) (quoting Black v. J.I. Case Co., 22 F.3d 568, 572 (5th Cir. 1994)). This may be the case

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“even in the absence of a factual dispute.” Rheumatology Diagnostics Lab., Inc v. Aetna, Inc.,

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No. 12-05847, 2015 WL 3826713, at *4 (N.D. Cal. June 19, 2015) (quoting Black, 22 F.3d at

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572); accord Lind v. United Parcel Serv., Inc., 254 F.3d 1281, 1285 (11th Cir. 2001).

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IV.

CONTRACT-RELATED CLAIMS

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To assess Copart’s and Sparta’s summary judgment motions as to their contractrelated claims, the court first reviews the material terms of their agreements.
A.

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The Implementation Services Agreement
The dispute here derives from differing interpretations of the Contract, or ISA.

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Under the Contract, Sparta promises to complete the work the Statements ascribe to each

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milestone. ISA § 2.1; see also Design Statement; Build Statement. Once Copart accepts the

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work, Copart agrees to pay for certain associated fees as described in the Statements. Id. §§ 3.1,

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1.16, 1.23, 9.1, 9.3. The Contract specifies a method of delivery, review and acceptance for all

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milestone-related work. See id. § 4. Copart may terminate the Contract “for convenience,” “for

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specified events” or “for cause.” See id. §§ 15.2–15.4. If Copart terminates for convenience, it

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must pay Sparta for a portion of the services completed as of the termination date, subject to

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several limitations. Id. § 15.2.

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B.

Sparta’s Motion
Sparta moves for summary judgment on Copart’s breach of contract claim,

contending (1) Copart’s decision to terminate “for convenience” rather than “for cause”
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forecloses Copart’s claim; (2) Copart waived its claims for the first seven milestones by accepting

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them; and (3) Copart cannot show any damages for the remaining milestones. See Sparta Mot. at

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24–26.

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1.

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Copart may terminate the contract “for convenience” under section 15.2, “for

Termination for Convenience

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specified events” under section 15.3 or “for cause” under section 15.4. See ISA §§ 15.2–15.4. A

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“for cause” termination requires Copart to give notice of Sparta’s alleged material failure to

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perform under the Agreement and a thirty-day opportunity to cure. Id. § 15.4. A “for

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convenience” termination requires no advance notice or cure period, but it entitles Sparta to

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payment for “the portion of the Services that have been performed and completed as of the

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termination date.” Id. § 15.2.

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Sparta argues Copart’s termination “for convenience” precludes Copart from later

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suing for breach of contract, Sparta Mot. at 24, but the Contract does not foreclose Copart’s right

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to do so. If the parties intended to foreclose Copart’s suing after termination “for convenience,”

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they could have done so but did not. See, e.g., ISA §§ 9.7 (payment of fees not a waiver of

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Copart’s right), 19.8 (either party’s delay in exercising rights under agreement not a waiver of

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such right), 19.11 (waiver of any right valid only if written and signed by both parties). As a

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matter of law, “for convenience” termination does not necessarily foreclose suit. See, e.g., United

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States ex rel. EPC Corp. v. Travelers Cas. & Sur. Co. of Am., 423 F. Supp. 2d 1016, 1018, 1027–

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28 (D. Ariz. 2006) (after contractor terminated subcontract for convenience, denying

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subcontractor’s motion for summary judgment on contractor’s breach of contract claims); Lisbon

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Contractors, Inc. v. United States, 828 F.2d. 759, 769 (Fed. Cir. 1987) (rejecting contractor’s

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argument that United States could not recover for corrective work after it terminated contract for

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convenience). No contract language forecloses Copart’s ability to sue and there is no basis for

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such a restriction. Copart may assert breach of contract claims even after terminating for

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convenience.

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2.

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The Contract establishes a clear process for delivery, review and acceptance of

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milestones and deliverables. See ISA § 4.1–4.4. After a milestone is delivered in accordance

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with the applicable Statement of Work, id. § 4.1, Copart has ten days to review the milestone, id.

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§ 4.2, using the Statement of Work’s acceptance criteria, id.§ 4.3. “If in Copart’s sole discretion a

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Deliverable or Milestone satisfies all the applicable Acceptance Criteria, Copart will provide

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written confirmation of acceptance to [Sparta].” Id. § 4.4(a). But if “Copart determines that a

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Milestone or Deliverable fails to satisfy the Acceptance Criteria, Copart shall provide a notice of

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non-acceptance to [Sparta], and [Sparta] shall promptly correct any non-conformity with the

Acceptance of Milestones

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applicable Acceptance Criteria.” Id. A milestone is completed and accepted only when Sparta

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receives Copart’s acceptance of all deliverables related to that milestone. Id. § 4.4(b). The

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milestone-based fees are due upon Copart’s acceptance of each milestone. Id. § 9.1.

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Copart followed this process for the first seven milestones. SSUF 31–41, 49–57.

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For each milestone, Copart’s Chief Technology Officer, Vincent Phillips, signed the form titled

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“Milestone Sign Off,” which acknowledged acceptance of the milestone, expressly stating Sparta

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had “no further obligations with respect to” the milestone-related deliverables. Id. Copart also

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paid Sparta for the milestone-related deliverables. Id. Copart acknowledges it knew some of

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these deliverables were incomplete before accepting them. Copart’s Statement of Undisputed

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Facts (“CSUF”) at 37–42, ECF No. 200. Indeed, Copart partially bases its fraud claims on

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Sparta’s alleged reassurances that these deficiencies would be corrected later. Id. Yet, Copart

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never exercised its contractual right of “non-acceptance” for any milestone, which would have

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obligated Sparta to “promptly correct any non-conformity.” ISA § 4.4(a).

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Copart’s acceptance of the first seven milestones waived Copart’s right to sue for

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defects within the deliverables associated with these milestones. “California courts will find

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waiver when a party intentionally relinquishes a right or when that party’s acts are so inconsistent

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with an intent to enforce the right as to induce a reasonable belief that such right has been

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relinquished.” Farhang v. Indian Inst. of Tech., Kharagpur, No. C–08–02658 RMW, 2010 WL

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3504897, at *2 (N.D. Cal. Sept. 7, 2010); see also BNSF Ry. Co. v. San Joaquin Valley R.R. Co.,
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No. CV F 08-1086 AWI SMS, 2012 WL 1355662, at *12–13 (E.D. Cal. Apr. 18, 2012) (plaintiff

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estopped from claiming damages arising from contract after repeatedly accepting performance

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with notice of potential breach). Copart, quoting the Contract, argues “[p]ayment of an invoice

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will not constitute . . . a waiver by Copart of any rights.” ISA § 9.7. But the Contract does not

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provide similar language for Copart’s acceptance, id. § 4.1–4.4, which Copart expressly and

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repeatedly provided here, SSUF 31–41, 49–57.

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Copart may still proceed on the first seven milestones under a fraudulent

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inducement theory. Copart argues that, among Sparta’s misrepresentations and omissions

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discussed below, Sparta fraudulently induced acceptance of the milestones as well as the rehiring

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of Sparta for the build phase of the contract by providing false reassurances about Sparta’s intent

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to provide “100% CAS functionality.” Opp’n to Sparta at 23–24; see also CSUF at 37–42. If

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Copart can show Sparta behaved fraudulently, which a reasonable juror could find for reasons

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explained below, then Sparta cannot prove Copart’s waiver by acceptance. Thus, Copart may

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continue to seek a remedy for the first seven milestones, but only under its fraudulent inducement

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theory.

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3.

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Sparta moves for summary judgment on the eight milestones for which Copart

Damages

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never paid (Milestones 8 through 15), arguing Copart cannot show damages. Sparta Mot. at 26.

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Copart never responds to this argument, Opp’n to Sparta at 24–25, and the record does not show

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Copart’s damages related to these eight milestones. “Under California law, a breach of contract

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claim requires a showing of appreciable and actual damage.” Aguilera v. Pirelli Armstrong Tire

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Corp., 223 F.3d 1010, 1015 (9th Cir. 2000) (citing Patent Scaffolding Co. v. William Simpson

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Const. Co., 256 Cal. App. 2d 506, 511 (1967)). Moreover, “[w]here discovery has been

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completed, summary judgment is appropriate when a party challenged by motion fails to offer

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evidence supporting an element of a claim on which that party bears the burden of proof at trial.”

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Celotex, 477 U.S. at 322–24. Because Copart has shown no basis for such damages, the court

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finds summary judgment in favor of Sparta appropriate as to these milestones. See Weinberg v.

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Whatcom County, 241 F.3d 746, 751 (9th Cir. 2001) (where party “failed to offer competent

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evidence of damages, dismissal on summary judgment was appropriate”).2

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4.

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The court GRANTS IN PART Sparta’s motion on these claims. Not only is

Conclusion

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Copart limited to its fraud theory to recover on the first seven milestones (Milestones 1 through

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7), but it is also precluded from pursuing damages related to the remaining eight milestones for

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which it never paid (Milestones 8 through 15). The court next moves to Copart’s motion

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regarding its contract claim, which is accordingly limited to the first seven milestones.

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C.

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Copart’s Motion on Copart’s Claims
A claim for breach of contract has four elements: a valid contract, plaintiff’s

11

performance, defendant’s breach and damages. Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th

12

811, 821 (2011). Copart moves for partial summary judgment as to the breach element of its

13

claim. See Copart Mot. at 23–24.

14

Copart asserts three theories for summary adjudication, but includes no supporting

15

analysis; instead, it cites several exhibits and ten pages of proffered facts, none of which support

16

summary adjudication. Id. (citing Takenouchi Decl. Exs. 52, 33, 8, 57, 56, 37, 21; CSUF at 15–

17

24). Copart’s first two theories, that Sparta did not use “qualified individuals” and that it did not

18

act with “promptness, diligence, and in a professional manner,” are heavily fact intensive. Even

19

assuming Copart satisfied its initial burden of production, C.A.R., 213 F.3d at 480, Sparta cites

20
2

21
22
23
24
25
26
27
28

In an unsolicited letter to the court filed after hearing, Copart requests leave to file
additional briefing under Federal Rule of Civil Procedure 56(e) regarding its damages tied to
Milestones 8 through 15. ECF No. 251. Even if the court were to consider the letter’s cited
evidence, the court’s conclusion would not change. Id. (citing an amended initial disclosure at
ECF No. 225-21). Given Copart’s full opportunity to oppose summary judgment already, see
Opp’n to Sparta; Opp’n to KPIT India; Opp’n to KPIT Infosystems, the court exercises it
discretion and declines to permit additional briefing on this issue. See Fed. R. Civ. P. 56(e)(2)–
(3); Heinemann v. Satterberg, 731 F.3d 914, 917 (9th Cir. 2013) (explaining that, while a court
may not grant summary judgment for mere failure to oppose, the 2010 amendments creating Rule
56(e) were intended to reflect the “deemed admitted” provisions in many local rules); see also
Archdiocese of Milwaukee v. Doe, 743 F.3d 1101, 1109 (7th Cir. 2014) (citing Rule 56(e),
explaining trial courts have “considerable discretion” in managing course of litigation at summary
judgment).
13

1

numerous genuine factual disputes, Matsushita, 475 U.S. at 585. See Defendants’ Statement of

2

Disputed Facts (“DSDF”) 1–2, 9–10, ECF No. 206; Defs.’ Response to CSUF at 63–108. For

3

example, in signing off on the first milestone, Copart’s AIMOS project manager, Terry Ash

4

wrote: “I am very pleased with the performance of the Sparta team on this engagement. Some

5

sound bytes [sic]: Strong work ethic; Good expertise in team; Strong commitment to schedule;

6

Excellent team work – the Sparta and Copart team are blending into one.” Nadgauda Suppl.

7

Decl. Ex. B at 2, ECF No. 208-2; see also id. Ex. C, ECF No. 208-3 (Copart’s Chief Technology

8

Officer’s e-mail to Sparta employees, explaining “It was truly a joint effort – great teamwork and

9

effort from all. My appreciation goes out to the Sparta team.”). There is thus a genuine dispute as

10

to Sparta employees’ qualifications and professionalism. Similarly, Copart’s third theory, that

11

Sparta stole its intellectual property, largely relies on Sparta’s employees’ alleged unauthorized

12

copying of material; but as the court finds below, whether Sparta stole Copart’s intellectual

13

property is also genuinely disputed. See infra Part VIII.B.1. The court DENIES Copart’s motion

14

for partial summary judgment as to breach element of its contract claim.

15
16

D.

Copart’s Motion on Sparta’s Claims
Copart moves for summary judgment on Sparta’s contract-related claims. See

17

Copart Mot. at 19–22. Copart argues (1) section 15.2 bars Sparta’s breach of contract and

18

implied covenant of good faith claims because Sparta did not maintain a “project management

19

software system” and Copart never “agreed” the work was complete; (2) Sparta may not proceed

20

on contract-related claims because it did not produce damages calculations; and (3) the Contract

21

itself bars Sparta’s quasi-contract claims. Id.

22

1.

23

If Copart terminates the Contract “for convenience,” it must pay Sparta “for the

The Contract’s Requirements for Payment

24

portion of the Services that have been performed and completed as of the termination date, as

25

such portion agreed by Copart and calculated and documented by Service Provider’s project

26

management software system.” ISA § 15.2.

27
28

Copart first argues Sparta cannot show it maintained a “project management
software system” that would provide a basis for the damages Sparta seeks. Copart Mot. at 20.
14

1

But the court finds a reasonable juror could disagree. The parties essentially dispute whether

2

SharePoint, the program on which Sparta relies, or MS Project, the program that Copart says is

3

required, is a “project management software system.” Compare Opp’n to Copart at 8–10, with

4

Copart Reply at 5–6. Both parties present evidence in their favor. Sparta explains SharePoint is

5

an online collaborative repository both Sparta and Copart used throughout the project, SharePoint

6

maintained all AIMOS-related documents, and several Copart-approved documents expressly

7

referenced SharePoint. Nadgauda Suppl. Decl. ¶¶ 6–10, ECF No. 208. But Copart contends the

8

parties agreed to use MS Project, a program specially designed for program management, to

9

present project plans and track progress on the development of AIMOS. See, e.g., Design

10

Statement at 6. However, neither party cites any agreement that would limit “project

11

management software system” to only one program: a reasonable juror could find that in fact both

12

systems meet this requirement.

13

Copart next argues it never “agreed” any portion of the services for which Sparta

14

seeks recovery had “been performed and completed as of the termination date.” Copart Mot. at

15

20. To the extent Copart suggests it must have reviewed and accepted the incomplete work for

16

Copart to have agreed to it, Copart’s argument conflates “accepted” and “agreed.” See Copart

17

Reply at 6–7. As discussed above, Sparta is already entitled to payment for work Copart

18

“accepted,” ISA §§ 4.1–4.4, so Sparta’s right to be paid upon termination to work Copart

19

“agreed” to must entitle it to something more, id. § 15.2. Whereas the Contract carefully

20

delineates a process for Copart’s acceptance of complete work, id. §§ 4.1–4.4, it prescribes no

21

process by which Copart would agree to the “portion of Services” Sparta completed, id. § 15.2.

22

To the extent Copart instead argues it has unfettered discretion whether to “agree” to Sparta’s

23

evaluation of work completed, the court disagrees. Sparta’s contractual entitlement to be paid for

24

its “performed and completed” services would mean nothing if Sparta could simply not “agree”

25

because it did not want to pay. Indeed, Sparta’s accusation is that Copart filed suit after it

26

solicited then rejected Sparta’s accounting of the additional completed work. See Termination

27

Letter; Request for Payment; Copart’s Rejection Letter (explaining “Copart does not agree to

28

Sparta’s assessment . . . . [and so] nothing is due under section 15.2”).
15

1

Whether Copart “agreed” to Sparta’s work thus becomes a fact-intensive inquiry

2

not susceptible to resolution on summary judgment. Sparta may be entitled to payment for the

3

“portion of the Services that have been performed,” ISA § 15.2, as referenced in the Statements of

4

Work, id. §§ 1.32, 2.1. Whether Copart “agreed” to work may be gleaned from the Contract and

5

Statements. But a reasonable juror could also glean such agreement from the project documents

6

Copart reviewed and the weekly and monthly meetings Sparta cites. See, e.g., Nadgauda Suppl.

7

Decl. ¶¶ 8, 10, 14. Because Copart offers no viable interpretation of the Contract that would

8

preclude a juror from so discerning, a genuine dispute stands in the way of granting summary

9

judgment.

10

2.

11

Copart argues Sparta’s contract-related claims fail because Sparta has not shown

Sparta’s Damages

12

damages. Copart Mot. at 21–22. But, unlike Copart, Sparta provides competent evidence and

13

calculations supporting its request for damages. After Copart terminated the Contract, Sparta sent

14

a payment request letter explaining two calculation methods: first, it said it had completed nearly

15

eighty-five percent of the “technical objects” identified in the Statements of Work; second, that it

16

had passed approximately eighty-four percent of the “test cases” Copart executed across the

17

project’s three geographic areas. See Request for Payment at 6. Sparta cites evidence in the

18

record supporting the “test cases” calculation. Nadgauda Suppl. Decl. Ex. A at 9–11, ECF No.

19

208-1. Thus, Sparta provides competent evidence of calculating damages and summary judgment

20

to Copart is not appropriate on this basis. See Weinberg, 241 F.3d at 751. The court need not

21

address Sparta’s third and alternative method based on hours spent on the AIMOS project.

22

3.

23

Copart argues the Contract itself precludes Sparta’s claims for promissory

The Quasi-Contract Claims

24

estoppel, quantum meruit and unjust enrichment. Copart Mot. at 15. Copart cites three bases for

25

its claims: the Contract precludes recovery for “indirect, incidental, special or consequential

26

damages” beyond what the Contract expressly permits, id. (citing sections 9.3, 15.5, 18); Sparta

27

presents no evidence of “gross negligence or willful misconduct” to trigger an exception to the

28
16

1

Contract’s liability limitation, id.; and Sparta cannot show Sparta’s claims are outside the

2

Contract’s scope, id. n.5. Copart has met its initial burden in this respect.

3

A party may allege inconsistent theories through alternative pleading, and the

4

court previously permitted Sparta to “seek both an equitable remedy of estoppel and a legal

5

remedy for breach of contract.” Sept. 14, 2015 Order at 6, ECF No. 65 (citing Fed. R. Civ. P.

6

8(d)(2)–(3); Arnold & Assocs., Inc. v. Misys Healthcare Sys., 275 F. Supp. 2d 1013, 1030 n.11

7

(D. Ariz. 2003)). At the time, the court specifically warned “the equitable claims will not lie if

8

Sparta ultimately seeks the same remedy as for the breach of contract claims.” Id. at 8. This is

9

because “an action based on an implied-in-fact or quasi-contract cannot lie where there exists

10

between the parties a valid express contract covering the same subject matter.” June 9, 2015

11

Order at 8–10, ECF No. 55 (quoting Lance Camper Mfg. Corp. v. Republic Indem. Co., 44 Cal.

12

App. 4th 194, 203 (1996)). “When parties have an actual contract covering a subject, a court

13

cannot - not even under the guise of equity jurisprudence - substitute the court’s own concepts of

14

fairness regarding that subject in place of the parties’ own contract.” Id. (quoting Hedging

15

Concepts, Inc. v. First Alliance Mortg. Co., 41 Cal. App. 4th 1410, 1420 (1996)). Based on this

16

reasoning, the court concluded “Sparta may assert quasi-contract principles only if the work

17

giving rise to the equitable claims is different from the work covered by the written agreement.”

18

Id. (citing Shum v. Intel Corp., 630 F. Supp. 2d 1063, 1077 (N.D. Cal. 2009), aff’d, 633 F.3d

19

1067 (Fed. Cir. 2010) (holding unjust enrichment claim not precluded by parties’ written

20

agreement where agreement covered conduct different from that underlying unjust enrichment

21

claim)).

22

Here, Sparta raises no genuine dispute as to whether the work underlying the

23

equitable and contract claims is different. The court already has found Sparta may be entitled

24

under the Contract to work Copart “agreed to” even if Copart never “accepted” it, and Sparta cites

25

no work it completed that the Contract would not cover. Instead, Sparta’s equitable claims seek

26

compensation for the reasonable value of, or benefit conferred by, Sparta’s work under the

27

Contract. See Countercl. ¶¶ 107, 123, 132. But although Sparta generally alleges it completed

28
17

1

“work outside the scope of the contract,” id. ¶ 107, it has not backed up these allegations by any

2

reference to the record. See Sparta Opp’n at 15.

3

The Contract plainly limits Copart’s liability to Sparta for its work completed

4

under the Contract and the Statements of Work. Specifically, the Contract provides “the Fees

5

described in Section 9 shall fully compensate [Sparta] for all of the Services” and “Copart shall

6

not be responsible for the payment of . . . any charges, fees or other amounts other than the Fees.”

7

ISA § 9.3. Copart is thus required to pay only Milestone-Based Fees for Services in the

8

Statements or separately agreed to by the parties. Because the Milestone-Based Fees are

9

performed on a “fixed-fee basis,” Sparta is contractually precluded from receiving fees for any

10

other “services.” ISA § 9.1. In its language regarding termination, the Contract also limits Sparta

11

to fees under the agreement. See ISA § 15.2 (“Termination for Convenience” requires Copart to

12

pay “only for the portion of the Services that have been performed and completed as of the

13

termination date[.]”); id. § 15.5 (explaining “Copart shall not be obligated to pay any costs, fees,

14

charges or other amounts in connection with any termination of this Agreement” other than the

15

fees permitted under section 15.2). The Contract also restricts how “New Services” may be

16

added to the agreement. See id. § 2.2 (unless the parties agree in writing to additional services,

17

“[a]ny new services performed by [Sparta] . . . shall be deemed part of the Services without

18

incremental charge”). Finally, section 18 of the Contract, entitled “Limitations on Liability,”

19

provides in relevant part “neither [party] shall be liable for any indirect, incidental, special, or

20

consequential damages arising out of or relating to its performance or failure to perform under

21

this Agreement[.]” Id. § 18. In sum, the Contract’s provisions limit Copart to services payment

22

obligations only, narrowly limit how additional compensable services may be added to the

23

Contract, and preclude Sparta from recovering any “indirect, incidental, special, or consequential

24

damages” for services under the agreement.

25

Instead of attempting to establish a genuine issue of material fact regarding work

26

completed outside the Contract, Sparta misconstrues Copart’s motion as a “pleadings challenge”

27

this court has already rejected and asks the court, “[i]n the absence of any new evidence,” to once

28

again reject those arguments. Opp’n to Copart at 15. Sparta misconstrues its burden on summary
18

1

judgment. The court limited its prior rulings to the pleadings stage and specifically warned

2

Sparta of its burden to show “the work giving rise to the equitable claims is different from the

3

work covered by the written agreement.” June 8, 2015 Order at 9. Although Sparta alleges

4

Copart made additional demands for “numerous software functionalities and enhancements” that

5

fall outside the scope of the Contract and the Statements, see TAC ¶¶ 128, 134, Sparta does not

6

raise a genuine dispute about these allegations, see Opp’n to Copart at 15–16. Sparta has not

7

satisfied its burden, and summary judgment is appropriate on Sparta’s quasi-contract claims.

8

4.

9

A reasonable juror could dispute what work Copart “agreed to,” and Sparta may

Conclusion

10

therefore be contractually entitled to compensation for some or all of that work, for which Sparta

11

has produced competent evidence to show damages. The court therefore DENIES Copart’s

12

motion as to Sparta’s claims of breach of contract and implied covenant of good faith. But

13

whether Copart “agreed to” that work is a separate question from whether the Contract covers the

14

“same subject matter” as that supporting the equitable claims. Because Sparta has not met its

15

burden to establish a genuine issue as to any work beyond the Contract’s scope, the court

16

GRANTS Copart’s motion on Sparta’s claims of promissory estoppel, quantum meruit and unjust

17

enrichment.

18

V.

FRAUD-RELATED CLAIMS

19

Sparta moves for summary judgment on Copart’s claims of fraudulent inducement,

20

fraud and negligent misrepresentation. Sparta Mot. at 17–24. Copart separately moves for partial

21

summary judgment on the misrepresentation element common to those claims. Copart’s Mot. at

22

23.

23

A.

Fraud under California Law

24

Sparta argues Copart’s fraud-related claims cannot succeed under any of several

25

state fraud doctrines. In California, the elements of fraud and deceit are (1) “misrepresentation

26

(false representation, concealment, or nondisclosure)”; (2) “knowledge of falsity (or ‘scienter’)”;

27

(3) “intent to defraud, i.e., to induce reliance”; (4) “justifiable reliance”; and (5) “resulting

28

damage.” Engalla v. Permanente Med. Group, Inc., 15 Cal. 4th 951, 973–74 (1997); Lazar v.
19

1

Super. Ct., 12 Cal. 4th 631, 638 (1996); see also Cal. Civ. Code § 1709 (“One who willfully

2

deceives another with intent to induce him to alter his position to his injury or risk, is liable for

3

any damage which he thereby suffers.”). Promissory fraud or fraud in the inducement, a

4

subspecies of fraud and deceit, has the same elements but also requires that the “defendant

5

fraudulently induce[d] the plaintiff to enter into a contract.” Engalla, 15 Cal. 4th at 973–74

6

(quoting Lazar, 12 Cal. 4th at 638).

7

Negligent misrepresentation, another form of deceit, occurs “[w]here the defendant

8

makes false statements, honestly believing that they are true, but without reasonable ground for

9

such belief[.]” Bily v. Arthur Young & Co., 3 Cal. 4th 370, 407 (1992). The elements of

10

negligent misrepresentation include “(1) the misrepresentation of a past or existing material fact,

11

(2) without reasonable ground for believing it to be true, (3) with intent to induce another’s

12

reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5)

13

resulting damage.” Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th

14

226, 243 (2007) (quoting Shamsian v. Atl. Richfield Co., 107 Cal. App. 4th 967, 983 (2003)).

15

Negligent misrepresentation differs from fraud in two core respects: it is narrower than fraud in

16

that it requires a positive assertion, not merely an omission or implied assertion; it is broader than

17

fraud in that it requires only an unreasonable belief in the truth of the statement, not knowledge of

18

falsity. Apollo Capital, 158 Cal. App. 4th at 243 (citing Bily, 3 Cal. 4th at 407); see also

19

Shamsian, 107 Cal. App. 4th at 984.

20

Deceit based on concealment, not misrepresentation, additionally requires that the

21

defendant was under a duty to disclose the fact to the plaintiff. Mktg. West, Inc. v. Sanyo Fisher

22

(USA) Corp., 6 Cal. App. 4th 603, 612–13 (1992)). Such a duty may exist “when one party to a

23

transaction has sole knowledge or access to material facts and knows that such facts are not

24

known to or reasonably discoverable by the other party.” Goodman v. Kennedy, 18 Cal. 3d 335,

25

347 (1976). Alternatively, even where a person has no duty to speak, “if he undertakes to do so,

26

either voluntarily or in response to inquiries, he is bound not only to state truly what he tells but

27

also not to suppress or conceal any facts within his knowledge which materially qualify those

28

stated.” Mktg. W., 6 Cal. App. 4th at 613 (quoting Rogers v. Warden, 20 Cal. 2d 286, 289
20

1

(1942)). “If he speaks at all he must make a full and fair disclosure.” Id. Whether a duty exists

2

can be a fact-intensive question best left for a trier of fact. See id. at 614.

3

B.

Sparta’s Motion

4

Sparta moves for summary judgment on the fraud-related claims on the grounds

5

that (1) the allegedly fraudulent representations are non-actionable opinions; (2) Copart cannot

6

show it justifiably relied on these representations; (3) Copart has no evidence of Sparta’s intent to

7

defraud; and (4) the claims are barred by the economic loss rule. Sparta Mot. at 17–24.

8

1.

9

Under any theory of deceit, a misrepresentation is actionable only if it is a

Actionable Representations

10

representation of fact rather than opinion. Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells, 86

11

Cal. App. 4th 303, 308 (2000); Cohen v. S & S Constr. Co., 151 Cal. App. 3d 941, 946 (1983);

12

see also Smith v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1154 (S.D. Cal. 2001) (“Representations

13

of opinion are ordinarily not actionable for fraud because they contain judgments of quality,

14

value, authenticity, or other matters of judgment.”). Consistent with this general rule, a

15

fraudulent concealment claim requires that “the defendant must have concealed or suppressed a

16

material fact.” Mktg. W., 6 Cal. App. 4th at 612–13. Likewise, a promissory fraud claim

17

theorizes that the ostensible fact is the defendant’s intent, which she misrepresents to induce the

18

plaintiff’s reliance. Lazar, 12 Cal. 4th at 638 (“A promise to do something necessarily implies

19

the intention to perform; hence, where a promise is made without such intention, there is an

20

implied misrepresentation of fact that may be actionable fraud.”).

21

Here, in opposing Sparta’s motion, Copart does not discuss each alleged fraudulent

22

act, but instead cites ten pages of documents and seventy proffered undisputed facts, almost all of

23

which are disjointed excerpts from Sparta’s and the KPIT entities’ internal e-mails that do not on

24

their face clarify Copart’s position. Opp’n to Sparta at 15–16 (citing CSUF 21–91). A district

25

court is “not required to comb the record to find some reason to deny a motion for summary

26

judgment.” Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir. 2001) (internal

27

quotations omitted); Greenwood v. F.A.A., 28 F.3d 971, 977 (9th Cir. 1994) (courts do not

28

“manufacture” arguments for a litigant, and “[j]udges are not like pigs, hunting for truffles buried
21

1

in briefs”) (citation omitted). Thus, the court focuses only on the six instances Copart addresses

2

substantively in opposition:

3

(1) Sparta asserted in the Contract it had “ALL the information to
identify 100% CAS functionality,” although internal drafts reflect
that may not have been true;

4
5

(2) Sparta removed its assessments of risk and “scope creep” from a
presentation delivered to Copart;

6

(3) During the Design Phase, Sparta reassured Copart it would
ensure 100% Copart Auction System functionality, despite
evidence that it intended to complete only that which was in the
design documents;

7
8
9

(4) Sparta copied materials from AIMOS into Sparta’s own
AutoEdge system, but never told Copart;

10

(5) While negotiating the Contract Amendment, Sparta did not
disclose a single AIMOS module was not functioning and might
cause “severe” problems; and

11
12

(6) Sparta did not disclose ongoing failures regarding its project
team.

13
14

Opp’n to Sparta at 15–16.

15

The court begins its analysis with negligent misrepresentation, which is “narrower

16

than fraud” as to the misrepresentation element. Shamsian, 107 Cal. App. 4th at 984. Only two

17

of the six representations Copart cites contain affirmative statements, as required for a negligent

18

misrepresentation claim. Apollo Capital, 158 Cal. App. 4th at 243. In addition, one of those two

19

statements, of Sparta’s intent to provide 100 percent Copart Auction System functionality in the

20

future, cannot support a negligent misrepresentation claim because it is not an affirmative

21

representation of a “past or existing material fact.” Id.; see also Moncada v. W. Coast Quartz

22

Corp., 2 Cal. App. 4th 153, 159 (1991) (“The specific intent requirement for fraud [] precludes

23

pleading a false promise claim as a negligent misrepresentation.” (citation omitted)). The court

24

thus limits Copart’s negligent misrepresentation claim to the only affirmative representation

25

Copart cites about a past or existing material fact: statement (1) containing Sparta’s assurance that

26

it possessed all information necessary to provide 100 percent Copart Auction System

27

functionality.

28
22

1

Copart’s fraudulent inducement claim requires a misrepresentation about a party’s

2

intent to perform on a promise for this element. Lazar, 12 Cal. 4th at 638. Only one of the six

3

statements qualifies: Sparta’s reassurances that it would ensure “100% CAS functionality.” Thus,

4

the court limits Copart’s fraudulent inducement claim to this statement, statement (3).

5

Finally, as to fraud, the broadest of Copart’s three claims, each of the six

6

statements is actionable. Statements (1) and (3) are actionable for the reasons explained above.

7

The remaining four omissions are actionable if Sparta concealed or suppressed a material fact.

8

Mktg. W., 6 Cal. App. 4th at 612–13. This determination depends on whether Sparta had a duty

9

to disclose additional information, an intensely fact-specific inquiry for which a trier of fact is

10

required. Id. at 614. Thus, Copart may proceed on all six statements to support its general fraud

11

claim.

12

In sum, the court limits Copart’s case as to first element of its fraud-related claims

13

as follows: Copart may proceed only on statement (1) for its negligent misrepresentation claim,

14

on statement (3) for its fraudulent inducement claim, and on all six statements for its fraud claim.

15

Because each claim is supported by at least one actionable statement, summary judgment is not

16

appropriate on this basis. The negligent misrepresentation claims fail though on the element of

17

justifiable reliance discussed next.

18

2.

19

Sparta next argues summary judgment is appropriate on Copart’s fraud-related

Justifiable Reliance

20

claims because Copart could not justifiably rely on any of the six statements set out above, as its

21

claims require. Sparta points out that Copart is a sophisticated business with experience with

22

enterprise software implementations, it employed hundreds of Information Technology staff,

23

including SAP specialists, and it developed its own legacy Copart Auction System that preceded

24

the system it hired Sparta to replace. SSUF 2, 5, 73–74, 44, 75. Copart had counsel during its

25

contract discussions and negotiations with Sparta. And Copart had prior experience with

26

problems when attempting to deploy the AIMOS project: months before hiring Sparta, Copart

27

hired Accenture to design AIMOS, but terminated the contract because of Accenture’s “inability

28

to achieve the very purpose” of the project and alleged “misrepresentations.” SSUF 6, 8.
23

1

Nonetheless, because justifiable reliance is a context-specific and fact-intensive

2

inquiry, a trier of fact should hear all but one of the six representations. Dias v. Nationwide Life

3

Ins. Co., 700 F. Supp. 2d 1204, 1218 (E.D. Cal. 2010) (“Justifiable reliance is normally a

4

question of fact for a jury” except in “rare cases.”). The court will preclude a jury only from

5

hearing statement (1), the Contract’s representation that Sparta had “all information and

6

documents [Sparta] has deemed necessary for [Sparta] to determine the requirements to achieve

7

the replacement of 100% of CAS Functionalities.” ISA § 9.4. Section 9.4, entitled “Diligence,”

8

also recognizes “Copart has delivered or made available” the information necessary for Sparta to

9

perform on its promise, and clarifies “[Sparta] shall not be relieved of any of its obligations under

10

this Agreement . . . as a result of its failure to review the foregoing information . . . or its failure

11

to request any information[.]” Id. This section, read in context, represents a past fact regarding

12

Copart’s conduct, not Sparta’s; it recognizes Copart’s steps to provide Sparta with information,

13

and precludes Sparta from using lack of information as an excuse later. Id. But it does not make

14

any representation on which Copart could justifiably rely. The Contract expressly addresses what

15

would happen if Sparta did not have the information it needed. Id. Taken together, no reasonable

16

juror could believe Copart justifiably relied on section 9.4’s first sentence. Thus, Copart may not

17

rely on that sentence, statement (1), to support any of its fraud-related claims.

18

Because Copart’s negligent misrepresentation claim depends exclusively on

19

statement (1), as discussed above, that claim ultimately fails as a matter of law based on the

20

element of justifiable reliance. The court GRANTS summary judgment for Sparta on Copart’s

21

negligent misrepresentation claim, while continuing to assess Copart’s remaining claims of fraud

22

and fraudulent inducement.

23

3.

24

Copart’s two remaining fraud claims both require proof of intent to defraud. A

Intent to Defraud

25

plaintiff need only show the defendant intended to induce reliance. Lovejoy v. AT&T Corp., 92

26

Cal. App. 4th 85, 93 (2001). Intent is “always a question of fact” under California law. Walter E.

27

Heller Western, Inc. v. Tecrim Corp., 196 Cal. App. 3d 149, 160–61 (1987); see also Diamond

28

Woodworks, Inc. v. Argonaut Ins. Co., 109 Cal. App. 4th 1020, 1046 (2003) (“Fraudulent intent is
24

1

an issue for the trier of fact to decide.”); Cal. Civ. Code § 1574 (“Actual fraud is always a

2

question of fact.”). Thus, a fact finder must determine whether Sparta intended to defraud Copart

3

when Sparta made the five remaining representations, statements (2) to (6). Summary judgment

4

is not warranted on Copart’s two remaining claims.

5

4.

6

Sparta next argues the economic loss rule bars Copart’s claims. The court’s prior

Economic Loss Rule

7

order largely precludes this argument. See June 9, 2015 Order at 18–19. The court previously

8

explained although “purely economic losses are not recoverable in tort,” id. (citing S.M. Wilson &

9

Co. v. Smith Int’l, Inc., 587 F.2d 1363, 1376 (9th Cir. 1978)), the economic loss rule does not

10

apply “when a defendant breaches a legal duty independent of the contract,” id. (citing Robinson

11

Helicopter Co. v. Dana Corp., 34 Cal. 4th 979 (2004)). In Robinson, for example, the California

12

Supreme Court held the economic loss rule did not bar a helicopter manufacturer’s fraud and

13

negligent misrepresentation claims against a parts supplier. Robinson, 34 Cal. 4th at 991. The

14

state Court explained, but for the defendant’s misrepresentations, the plaintiff “would not have

15

accepted delivery and used the nonconforming [parts] . . . nor would it have incurred the cost of

16

investigating the cause of the faulty [parts].” Id. at 990–91. “Accordingly, [defendant’s] tortious

17

conduct was separate from the breach itself, which involved [defendant’s] provision of the

18

nonconforming [parts].” Id.; see also BNSF Ry. Co., 2011 WL 3328398, at *6 (E.D. Cal. Aug. 2,

19

2011) (California courts permit tort damages only in contract cases in which the tort liability is

20

“either completely independent of the contract . . . or when the plaintiff was fraudulently induced

21

to enter the contract”).

22

Here, Copart can base its fraudulent representation claim on statement (3), Sparta’s

23

assurance of “100% CAS functionality.” Because Sparta made that representation during the

24

project design phase, Copart could show it was fraudulently induced to accept the deliverables

25

and to agree to hire Sparta to build AIMOS. Sparta made the representation prior to and separate

26

from the parties’ agreement and it thus involves a “legal duty independent of the contract.”

27

Robinson, 34 Cal. 4th at 990. The economic loss rule does not preclude Copart’s fraud-related

28

claims.
25

1

5.

2

In sum, the court limits Copart’s fraudulent inducement and fraud claims to

Conclusion

3

reliance on specific statements as explained above, but DENIES Sparta’s motion for summary

4

judgment on these two claims. The court GRANTS summary judgment on Copart’s negligent

5

misrepresentation claim.

6

C.

7

Copart’s Motion
Copart moves offensively for partial summary judgment on the misrepresentation

8

element of its own fraud and fraudulent inducement claims, arguing Sparta concealed known

9

project risks and did not disclose its theft of Copart’s intellectual property before the parties

10

amended the Contract. Copart Mot. at 23. Copart contends either of Sparta’s omissions supports

11

the misrepresentation element as a matter of law.

12

But Sparta successfully raises a genuine issue of disputed fact as to both omissions

13

Copart asserts. First, Sparta cites evidence that it repeatedly revealed project risks to Copart, both

14

within project management documents the parties shared and in their weekly and monthly

15

meetings. See DSDF 3. Second, Sparta’s supposed non-disclosure of its theft relies on an

16

assumed fact, that Sparta stole Copart’s intellectual property, which Copart has not established as

17

a matter of law. See infra Part VIII. Thus, a reasonable juror could find for Sparta on this

18

element. The court DENIES Copart’s request for summary judgment on this element of both

19

claims.

20
21

D.

Derivative Claims
Sparta also moves for summary judgment on Copart’s claims that derive from

22

Copart’s fraud and breach of contract claims, namely unfair competition, unjust enrichment,

23

breach of implied covenant of good faith and fair dealing as well as declaratory relief. Sparta

24

Mot. at 26–28. Sparta argues, because the underlying claims fail the derivative claims must fail

25

too. Id. As discussed above, except for its negligent misrepresentation claim, Copart’s fraud and

26

breach of contract claims all survive at this stage. Thus, the derivative claims also survive here.

27

The court DENIES Sparta’s motion on these claims.

28
26

1

Having addressed Copart’s and Sparta’s competing motions on the contract-related

2

and fraud-related claims, the court next turns to Copart’s claims against all three defendants.

3

VI.

4

TRADE SECRETS
A.

5
6

Factual Background
With its third amended complaint, Copart added new claims and named the KPIT

entities as defendants. The remaining claims derive from the following new allegations.

7

Copart alleges Sparta and the KPIT entities stole its proprietary software in late

8

2012 to enhance Sparta’s own “AutoEdge” SAP product. TAC ¶ 94. Copart cites two October

9

2012 e-mail threads in which Sparta employee Shivraj Sinha instructed other Sparta and KPIT

10

employees to copy material to the “AutoEdge system.” Id. ¶ 99(a)–(b); Opp’n to KPIT India at

11

11–13; Takenouchi Decl. Exs. 34–36, ECF Nos. 198-34–36. Defendants respond, first, that they

12

developed the software for another project, and it did not belong to Copart. KPIT India Mot. at

13

13; Kumar Decl. ¶ 4, ECF No. 193. Second, even assuming Copart owned the material,

14

defendants contend they copied it not to their AutoEdge product but to their AutoEdge

15

“sandbox,” a development environment they used to test code for their work on AIMOS for

16

Copart. KPIT India Mot. at 14–15; Kumar Decl. ¶ 14–15.

17

B.

Trade Secrets Generally

18

Defendants contend Copart’s trade secrets claim fails as a matter of law because

19

the cited information is not a trade secret, Copart does not own the information and Copart has

20

not established any damages. KPIT India Mot. at 17–23.

21

To succeed on its trade secrets claim, Copart must satisfy the elements of

22

California’s Uniform Trade Secrets Act (“the Uniform Act” or “CUTSA”). MAI Sys. Corp. v.

23

Peak Computer, Inc., 991 F.2d 511, 520 (9th Cir. 1993) (citing Cal. Civ. Code §§ 3426–3426.10).

24

Copart must show: (1) it owned a trade secret, (2) defendants acquired, disclosed or used its trade

25

secret through improper means, and (3) defendants’ actions damaged Copart. Sargent Fletcher,

26

Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1665 (2003).

27
28
27

1
2

C.

Copart’s Trade Secrets
To prove a “trade secret,” Copart must show its cited information “(1) [d]erives

3

independent economic value, actual or potential, from not being generally known to the public or

4

to other persons who can obtain economic value from its disclosure or use, and (2) [i]s the subject

5

of efforts that are reasonable under the circumstances to maintain its secrecy.” Cal. Civ. Code

6

§ 3426.1(d). In other words, the information “is valuable because it is unknown to others.” DVD

7

Copy Control Assn. v. Bunner, 116 Cal. App. 4th 241, 251 (2004). The economic advantage

8

“need not be great, but must be more than trivial.” Yield Dynamics, Inc. v. TEA Sys. Corp., 154

9

Cal. App. 4th 547, 564 (2007) (internal quotations omitted) (quoting Restatement (Third) of

10
11

Unfair Competition § 39 (1995)).
Copart defines its alleged trade secret as “a compilation of source code, SAP

12

objects, and other materials that were included in the ‘class ZCL_IMAGING’ that Sparta created

13

as part of its deliverables for Copart. This ‘class’ includes a combination of custom and standard

14

SAP source code, and data tables that replicated the imaging functionality in Copart’s CAS

15

system.” Opp’n to KPIT India at 17–18. For simplicity, the court refers to Copart’s alleged trade

16

secret as “the SAP Code.” Defendants argue Copart has not established a genuine dispute

17

sufficient to survive summary judgment on the claim that the SAP Code is a trade secret. KPIT

18

India Mot. at 17–19.

19

Defendants rely on Michael Shamos’s expert report to argue the SAP Code is

20

“generally known to the public” and does not “derive[] independent economic value.” Id.; see

21

also Shamos Decl., ECF No. 188; Shamos Decl. Ex. A (Shamos Report), ECF No. 189.

22

Defendants are correct that Shamos’s report undermines Copart’s claim that the SAP Code is a

23

trade secret. Shamos analyzes the SAP Code using two methods: first, Shamos evaluates how it

24

functions, Shamos Report ¶¶ 22–92; second, he examines how it is made, id. ¶¶ 95–137. The first

25

method suggests the SAP Code performs much like an array of publicly available sources and

26

preexisting patents. Id. ¶¶ 22–92. The second method shows how, according to Shamos, the

27

underlying code consists primarily of standard SAP language that is neither unique nor secret. Id.

28
28

1

¶¶ 95–137. Without its own expert, Copart may struggle at trial to show the SAP Code “derives

2

independent economic value” and constitutes a trade secret.

3

The court nonetheless concludes the “better course would be to proceed to a full

4

trial.” Anderson, 477 U.S. at 255. Whether information constitutes a trade secret is a fact-

5

intensive determination. In re Providian Credit Card Cases, 96 Cal. App. 4th 292, 300–01

6

(2002). Here, Copart can show economic value using circumstantial evidence of its investment of

7

resources in producing the information. See Mattel, Inc. v. MGA Entm’t., Inc., 782 F. Supp. 2d

8

911, 972 (C.D. Cal. 2011); Restatement (Third) of Unfair Competition § 39 (1995). Copart hired

9

Sparta for approximately two years to design and build its new online system and paid Sparta

10

over $10 million for the first seven associated milestones. See SSUF 33–41, 50–57; Design

11

Statement; Build Statement. Although the record does not show precisely how much of this work

12

went towards developing the relevant SAP Code, a reasonable juror could infer it was a non-

13

trivial amount. See Yield Dynamics, 154 Cal. App. 4th at 564 (trade secret’s economic advantage

14

“need not be great” but only “more than trivial”). Given Copart’s investment in the SAP Code,

15

defendants also cannot prevail at this stage on the ground that Copart never used it. See

16

Restatement (Third) of Unfair Competition § 39 (1995) (explaining how the Uniform Act

17

“reject[s] any requirement of use by the trade secret owner”). Nor can defendants succeed by

18

asserting the SAP Code was inoperable and never incorporated into any product. See Altavion,

19

Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal. App. 4th 26, 65 (2014) (“[T]he fact that [trade

20

secret information] is not incorporated into a product on the market does not preclude a finding of

21

independent economic value . . . . even if further refinement and development is required[.]”). It

22

also is not enough that parts of the SAP Code were publicly available, id. at 47 (“[E]even if some

23

or all of the elements of Altavion’s design were in the public domain and thus unprotectable, the

24

combination was a protectable trade secret if it was secret and had independent economic value.”

25

(emphasis in original)). Because the inquiry here is complex and fact-intensive, the court has

26

“doubts as to the wisdom of terminating the case before trial.” Gen. Signal Corp., 66 F.3d at

27

1507. The court DENIES summary judgment on the basis of the SAP Code’s trade secret status.

28
29

1
2
3

D.

Copart’s Ownership of the Trade Secrets
Defendants argue Sparta, and not Copart, owns the SAP Code, and so Copart’s

misappropriation claim is doomed. KPIT India Mot. at 22–23.

4

The Contract expressly addresses who owns the project deliverables: Copart owns

5

the project deliverables, but Sparta owns its “Background Intellectual Property.” See ISA § 11.4.

6

Although the Contract does not define “Background Intellectual Property,” it defines

7

“Background Technology” to include “[a]ny software, tools, database, data or methodologies and

8

other intellectual property that are . . . (ii) developed or acquired by [Sparta] independent of the

9

Services or this Agreement after the Effective Date.” Id. § 11.2. Because “intellectual property”

10

is listed as a “Background Technology,” the court construes “Background Intellectual Property”

11

to similarly include intellectual property “developed or acquired by [Sparta] independent of the

12

Services or this Agreement after the Effective Date.” Defendants’ assertion of ownership thus

13

turns on whether they independently developed or acquired the SAP Code, an issue that is

14

genuinely disputed.

15

Defendants argue Sparta first developed the SAP Code while working on a

16

different project, and it is thus Sparta’s “Background” property. KPIT India Mot. at 22–23 (citing

17

SSUF 123–25). Defendants rely on a declaration from Sparta’s principal consultant, Manish

18

Kumar, who began work on AIMOS in April 2012; yet Kumar neither explains how he learned

19

another team developed the product nor asserts firsthand knowledge of that fact. Kumar Decl.

20

¶¶ 10–13, ECF No. 193. In response, Copart cites deposition testimony of Sparta Executive Vice

21

President, Vaibhav Nadgauda, who explains the SAP Code “was created as a requirement for the

22

AIMOS project” and that Sparta needed to “test if [the SAP Code] works or not, because it was a

23

brand-new functionality.” Takenouchi Decl. Ex. 171 at 119:17–25, ECF No. 222-79; Nadgauda

24

Decl. ¶ 1, ECF No. 190. In other words, defendants say Sparta developed the SAP Code for

25

another project, Copart says it was for AIMOS, and neither side’s evidence supersedes the

26

other’s. A genuine factual dispute exists and the court DENIES summary judgment.

27
28
30

1

E.

Copart’s Damages

2

Under the Uniform Act, a party must show its entitlement to damages. Sargent

3

Fletcher, 110 Cal. App. 4th at 1665; Integral Dev. Corp. v. Tolat, C 12-06575 JSW, 2015 WL

4

674425, at *6 (N.D. Cal. Feb. 12, 2015). A party may recover “damages for the actual loss

5

caused by misappropriation” or the “unjust enrichment caused by misappropriation.” Cal. Civ.

6

Code § 3426.3(a). However, if these are not provable, a party may instead recover a “reasonable

7

royalty for no longer than the period of time the use could have been prohibited.” Cal. Civ. Code

8

§ 3426.3(b). The Uniform Act’s reasonable royalty provision “track[s] the common law practice

9

of allowing for reasonable royalties when the plaintiff could not prove any loss and the defendant

10

‘made no actual profits.’” Ajaxo Inc. v. E*Trade Fin. Corp., 187 Cal. App. 4th 1295, 1311

11

(2010); see also A. Inertial Sys., Inc. v. Condor P. Indus. of Cal. Inc., 545 Fed. App’x 600, 601

12

(9th Cir. 2013) (trial court erred in ruling jury’s finding of no damages precluded a reasonable

13

royalty).

14

Here, Copart cites no evidence to support its argument that the alleged

15

misappropriation caused damages. See Opp’n to KPIT India at 22–23. Indeed, the undisputed

16

facts undermine such a claim because Sparta never sold or licensed the AutoEdge product. SSUF

17

141–42. Although Copart cites evidence purportedly showing Sparta used the SAP Code to

18

market itself to new clients, the exhibits are difficult to follow. Takenouchi Decl. Ex. 65, ECF

19

No. 198-65; Takenouchi Decl. Ex. 139, ECF No. 222-47. Copart alternately requests the

20

reasonable royalty rate, which the project development cost evidence discussed above supports.

21

Opp’n to KPIT India at 22; see SSUF 33–41, 50–57; Design Statement; Build Statement. To

22

determine a reasonable royalty rate, the court imagines a “‘suppositious meeting’ between the

23

parties . . . [and] calculates what the parties would have agreed to as a fair licensing price at the

24

time that the misappropriation occurred.” Ajaxo Inc., 187 Cal. App. 4th at 1308 (quoting

25

Vermont Microsystems, Inc. v. Autodesk, Inc., 138 F.3d 449, 451 (2d Cir. 1998)). For now, it

26

suffices to conclude the SAP Code, which Sparta itself argues was developed for another client,

27

would have some value to support a royalty rate. See id. at 1314 (evidence of negotiations related

28
31

1

to licensing of software could support court-imposed royalty rate). The court DENIES summary

2

judgment as to Copart’s damages.

3

In sum, the court DENIES summary judgment on Copart’s CUTSA claims. The

4

court next turns to Copart’s related claims that CUTSA may preempt.

5

VII.

PREEMPTION

6

Defendants argue CUTSA preempts Copart’s common law misappropriation,

7

conversion, professional negligence, unfair competition and unjust enrichment claims. KPIT

8

Infosystems Mot. at 14–19.

9

A.

10

CUTSA Preemption
“The general rule is that statutes do not supplant the common law unless it appears

11

that the Legislature intended to cover the entire subject or, in other words, to ‘occupy the field.’”

12

K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939, 953

13

(2009) (quoting I.E. Assocs. v. Safeco Title Ins. Co., 39 Cal. 3d 281, 285 (1985)). Because

14

CUTSA has a “comprehensive structure and breadth,” AccuImage Diagnostics Corp. v.

15

Terarecon, Inc., 260 F. Supp. 2d 941, 953 (N.D. Cal. 2003), courts have found “that breadth

16

suggests a legislative intent to preempt3 the common law,” I.E. Assoc., 39 Cal. 3d at 285; see also

17

SilvacocData Sys. v. Intel Corp., 184 Cal. App. 4th 210, 239 n.22 (2010) disapproved of on other

18

grounds by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 337 (2011) (“[A] prime purpose of

19

[CUTSA] law was to sweep away the adopting states’ bewildering web of rules and rationales

20

and replace it with a uniform set of principles for determining when one is—and is not—liable for

21

acquiring, disclosing, or using ‘information . . . of value.’”).4

22
23
24
25
26
27
28

3

The California Supreme Court disfavors the use of the word “preempt” to describe the
supersession of one state law by another, and instead suggests the word “displace.” See Zengen,
Inc. v. Comerica Bank, 41 Cal. 4th 239, 247 n.5 (2007). Courts also regularly use the statutory
term “supersede.” Silvaco, at 184 Cal. App. 4th at 232 n.14. Here, the court follows the parties’
use of the word “preempt,” which California courts have also continued to use after Zengen. See,
e.g., K.C. Multimedia, 171 Cal. App. 4th at 954.
4

Section 3426.8 provides: “This title shall be applied and construed to effectuate its
general purpose to make uniform the law with respect to the subject of this title among states
enacting it.” Cal. Civ. Code § 3426.8. To help interpret CUTSA, California courts cite case law
from other jurisdictions that have also adopted the Uniform Trade Secrets Act. See, e.g., K.C.
32

1

CUTSA’s express preemption provision provides in pertinent part:

2

(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.

3
4
5
6

(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.

7

Cal. Civ. Code § 3426.7. CUTSA thus “expressly allows contractual and criminal remedies,

8

whether or not based on trade secret misappropriation.” K.C. Multimedia, 171 Cal. App. 4th at

9

954. “At the same time, § 3426.7 implicitly preempts alternative civil remedies based on trade

10
11

secret misappropriation.” Id.
CUTSA preempts a claim that is based on the “same nucleus of facts as the

12

misappropriation of trade secrets claim.” Id. at 958 (adopting rule applied in Digital Envoy, Inc.

13

v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005)). Applying this test, a number of

14

courts have held that CUTSA may preempt various claims, including claims for conversion,

15

common count, quantum meruit, unjust enrichment, breach of confidence, unfair competition as

16

well as intentional and negligent misrepresentation, where the wrongdoing alleged in connection

17

with such claims is the misappropriation of trade secrets. Id. at 958 (holding claims for breach of

18

confidence, interference with contract and statutory unfair competition preempted because they

19

were based on same nucleus of facts as trade secrets claim); see SunPower Corp. v. SolarCity

20

Corp., No. 12-CV-00694-LHK, 2012 WL 6160472, *3 (N.D. Cal. Dec. 11, 2012) (collecting

21

cases); see also 2KDirect, LLC v. Azoogleads US, Inc., 2010 WL 11455972, at *7 (C.D. Cal. Apr.

22

19, 2010) (“[C]laims for common law misappropriation are plainly based on the same nucleus of

23

facts underlying the CUTSA claims . . . .”); Digital Envoy, 370 F. Supp. 2d at 1035 (claims for

24

unjust enrichment and unfair competition based on same nucleus of facts); Callaway Golf Co. v.

25
26
27
28

Multimedia, 171 Cal. App. 4th at 955 (“California courts ordinarily adopt the construction given
a uniform code section by other jurisdictions, unless the construction is manifestly erroneous.”).
This is true even though CUTSA’s preemption language, which lists those areas not preempted, is
distinct from the text of the Uniform Act, which affirmatively lists the areas the act preempts. Id.
at 955 n.6.
33

1

Dunlop Slazenger Grp. Americas, Inc., 318 F. Supp. 2d 216, 220 (D. Del. 2004) (finding CUTSA

2

preempted claims for conversion and unjust enrichment “based entirely on the same factual

3

allegations” as the trade secrets claim); cf. Leatt Corp. v. Innovative Safety Tech., LLC, 09-CV-

4

1301-IEG (POR), 2010 WL 2803947, at *6 (S.D. Cal. July 15, 2010) (CUTSA does not preempt

5

claims of unfair competition and tortious interference “based on more than just the

6

misappropriation of Plaintiff’s trade secrets”).

7

Here, Copart’s CUTSA claim alleges Sparta stole Copart’s SAP Code and

8

incorporated it into Sparta’s AutoEdge software product. See TAC ¶¶ 164–171. To the extent

9

any other claim relies on this “same nucleus of facts,” CUTSA preempts it. The court next

10
11
12

applies this test to determine which of Copart’s claims, if any, CUTSA preempts.
B.

Common Law Misappropriation
Two conclusions, taken together, foreclose Copart’s common law

13

misappropriation claim. First, CUTSA may preempt a claim for misappropriation of confidential

14

information even if the information does not ultimately meet the statutory definition of a trade

15

secret. See SunPower, 2012 WL 6160472, at *5 (“If the basis of the alleged property right is in

16

essence that the information is that it is ‘not . . . generally known to the public,’ then the claim is

17

sufficiently close to a trade secret claim that it should be superseded notwithstanding the fact that

18

the information fails to meet the definition of a trade secret.” (citations omitted)); Mattel, 782 F.

19

Supp. 2d at 987 (citing Silvaco, 184 Cal. App. 4th at 239; K.C. Multimedia, 171 Cal. App. 4th at

20

954) (“[C]UTSA supersedes claims based on the misappropriation of confidential information,

21

whether or not that information meets the statutory definition of a trade secret.”). In other words,

22

while Copart’s CUTSA claim survives summary judgment due to a genuine dispute regarding

23

Copart’s claim to trade secrets, that claim may preempt others at this stage. See Mattel, 782 F.

24

Supp. 2d at 963, 985 (although genuine disputes precluded summary judgment on trade secret

25

misappropriation claims, concluding CUTSA nonetheless preempted various tort claims at

26

summary judgment).

27
28

Second, CUTSA fully “occupies the field” and preempts all claims of common law
misappropriation. AccuImage, 260 F. Supp. 2d at 954 (discussing Cadence Design Systems, Inc.
34

1

v. Avant! Corp., 29 Cal. 4th 215, 224 (2002)); K.C. Multimedia, 171 Cal. App. 4th at 954

2

(adopting AccuImage). Given CUTSA’s purpose of “sweep[ing] away the [] bewildering web of

3

rules and rationales and replac[ing] it with a uniform set of principles for determining when one

4

is—and is not—liable for acquiring, disclosing, or using ‘information . . . of value,’ Silvaco, 184

5

Cal. App. 4th at 239 n.22, CUTSA fully preempts Copart’s common law misappropriation claim.

6
7

C.

Conversion
Copart concedes its conversion claim and CUTSA claim rely on the same alleged

8

intellectual property theft, see TAC ¶ 187, but argues CUTSA does not preempt its conversion

9

claim because Copart owns the property based on the parties’ contract; ownership does not rest on

10

the property’s trade secret status. Opp’n to KPIT India at 18–19 (citing ISA § 11.4 (Copart owns

11

“deliverables” from the project)). Copart’s argument relies on the Silvaco court’s suggestion that

12

a contractual basis to trade secret ownership may take the claim out of the “nucleus of facts” as a

13

CUTSA claim and therefore survive preemption. 184 Cal. App. 4th at 238–39.

14

Neither party cites case law that clearly resolves the question here. Sparta cites

15

authority holding, at least where there is no contractual basis for ownership, a common law claim

16

may not proceed under the theory that the material is not a trade secret but still proprietary

17

information. See, e.g., id. at 233 n.22 (2010); SunPower, 2012 WL 6160472, at *5. To the extent

18

these cases stand for the proposition that Copart is required to show a non-CUTSA property right,

19

Copart has done so. Opp’n at 21 (citing ISA §§ 11.3–11.4).

20

On the other hand, Copart cites no case that demonstrates a contractual right to the

21

material yields a different “nucleus of facts” as the trade secrets claim. Silicon Image, Inc. v.

22

Analogix, Inc., is distinguishable. No. C-07-0635 JCS, 2007 WL 1455903, at *1, *9–10 (N.D.

23

Cal. May 16, 2007). There, the court found Silicon Image’s false advertising and tortious

24

interference claims, which were based on its software license agreements with its customers and

25

not the defendant, relied on new facts distinct from those supporting its CUTSA claim. Id.

26

Silicon Image does not support the exception Copart asserts. Copart’s reliance on Integral Dev.

27

Corp. v. Viral Tolat, is also misplaced. 675 Fed. App’x 700 (9th Cir. 2017). In Integral

28

Development, the Ninth Circuit in an unpublished memorandum applied the “nucleus of facts”
35

1

test and determined that CUTSA did not preempt a claim for breach of fiduciary duty for a former

2

employee’s sharing of confidential information with the employer’s competitor. Id. at 704. The

3

decision does suggest a narrow test that finds preemption only if the claim “require[s] that the

4

confidential information qualify as a trade secret.” Id. (citing Angelica Textile Servs., Inc. v.

5

Park, 220 Cal. App. 4th 495, 506–08 (2013)). But the sole case relied on by the Ninth Circuit

6

does not engage in such a narrow inquiry. See Angelica Textile Servs., 220 Cal. App. 4th at 508

7

(finding conversion of tangible property provided independent basis for conversion claim); see

8

also Lifeline Food Co., Inc. v. Gilman Cheese Corp., 5:15-CV-00034-PSG, 2015 WL 2357246, at

9

*5 (N.D. Cal. May 15, 2015) (finding no preemption where, unlike in Angelica, plaintiffs could

10

not point to converted property other than the alleged trade secrets). Integral Development does

11

not appear to provide helpful guidance here.

12

Courts evaluating preemption of a conversion claim look to the source of the

13

property’s value rather than a person’s basis for owning it. In Mattel, for example, the court

14

considered CUTSA preemption of conversion claims involving: a product designer’s property

15

and materials; other tangible inventory; and trade secret documents, materials, designs, names and

16

other information. See Mattel, 782 F. Supp. 2d at 996–97. The court found CUTSA preempted

17

Mattel’s conversion claim “to the extent it is based upon the misappropriation of Mattel’s

18

confidential information” and “predicated upon the physical documents allegedly misappropriated

19

by Mattel’s former employees because Mattel cannot show that the documents had any value

20

apart from the information contained therein.” Id. at 997. But CUTSA did not preempt Mattel’s

21

claim to the extent it was based on misappropriation of “tangible documents and things,” such as

22

sketches and sculpts, because they had some value apart from the information they embodied and

23

Mattel sought the return of those items. Id. Thus, when the property and the alleged trade secret

24

are distinguishable, and the property’s value is not tied to the trade secret, CUTSA does not

25

preempt the conversion claim; when they are indistinguishable, and the property’s only source of

26

value is the trade secret information, CUTSA preempts. Compare Loop AI Labs, Inc. v. Gatti,

27

15-CV-00798-HSG, 2015 WL 5158461, at *3 (N.D. Cal. Sept. 2, 2015) (finding CUTSA did not

28

preempt claim of conversion of plaintiff’s computer, as “[n]o reasonable application of CUTSA’s
36

1

savings clause precludes a cause of action based on an employee’s alleged theft of a piece of

2

tangible property), with MedioStream, Inc. v. Microsoft Corp., 869 F. Supp. 2d 1095, 1116 (N.D.

3

Cal. 2012) (finding CUTSA preempted claim of conversion of property, including “certain

4

documents and data and computer data discs,” that was indistinguishable from the alleged trade

5

secret material).

6

Here, Copart does not argue the property underlying its conversion claim is unique

7

from what it claims as trade secrets. Opp’n to KPIT India at 18–19. Indeed, defendants’

8

wrongful conduct and the property defendants wrongfully took are described identically in both

9

claims. Compare TAC ¶¶ 165–70 (citing ZCL_IMAGING) with id. ¶ 187(a)–(c) (same). This is

10

true despite Copart’s contractual ownership of that property as a “deliverable.” CUTSA thus

11

preempts Copart’s conversion claim. Cf. Argo Grp. US, Inc. v. Prof. Govtl. Underwriters, Inc.,

12

SACV131787AGDFMX, 2014 WL 12577144, at *1, 3 (C.D. Cal. Jan. 6, 2014) (although

13

defendant had independent contractual duty to maintain plaintiffs’ confidential information,

14

CUTSA preempted claim for conversion of that information).

15
16

D.

Unfair Competition and Unjust Enrichment
Copart’s unfair competition and unjust enrichment claims also partially rely on the

17

same facts as its CUTSA claim. See TAC ¶¶ 214 (“[Defendants] violated UCL by taking

18

materials and work product from the Project that in fact belonged to Copart, and using that work

19

product and those materials in their proprietary AutoEdge product.”), 219 (defendants were

20

unjustly enriched when they “received benefits from their theft of work product from the AIMOS

21

project.”). CUTSA preempts the parts of those claims that rely on these allegations.

22

Copart nonetheless argues preemption does not apply to the portions of these

23

claims that rely on Sparta’s alleged fraud, negligence and other improper conduct aside from its

24

theft of the intellectual property. Opp’n to KPIT India at 22; see, e.g., TAC ¶¶ 214 (“Sparta has

25

violated the UCL by engaging in [] unlawful, unfair and/or fraudulent business acts and/or

26

practices . . . , including its false representations to Copart . . . .”), 218 (Sparta received benefits

27

“as a result of its fraud, negligence, and other improper conduct”). The court agrees. Copart’s

28
37

1

unjust enrichment and unfair competition claims survive CUTSA preemption to the extent they

2

rely on these other, non-theft related allegations.

3

E.

4

Professional Negligence
Copart’s professional negligence claim also relies on multiple bases, most of

5

which do not derive from the same facts as its CUTSA claim. See TAC ¶ 193(a)–(f) (listing ways

6

defendants’ work processes and products fell below accepted industry standards). Thus, Copart’s

7

professional negligence claim is not preempted to the extent it relies on any of these other bases.

8
9

CUTSA does preempt Copart’s allegations that rely in part on defendants’ theft of
its intellectual property. See TAC ¶ 195 (“[Defendants] knew that the theft of client property, and

10

giving unauthorized persons access to client intellectual property, was contrary to professional

11

standards applicable to their industry. [Defendants] nonetheless stole Copart’s property and gave

12

unauthorized persons access to that property.”). Preemption applies because Copart’s

13

professional negligence claim relies on the same alleged theft as Copart’s CUTSA claim. Cf.

14

Callaway Golf, 318 F. Supp. 2d at 220 (CUTSA preempts claim for negligently hiring,

15

supervising or retaining an unfit employee where claim relied on same facts as the trade secret

16

claim).

17

F.

18

Conclusion
CUTSA wholly preempts Copart’s common law trade secrets claim and its

19

conversion claim. CUTSA also preempts parts of Copart’s claims that rely on the “same nucleus

20

of facts” as its trade secrets claims, as explained above. The court accordingly GRANTS

21

summary judgment on Copart’s claims for common law misappropriation and conversion.

22

Copart’s claims of unfair competition, unjust enrichment and professional negligence survive

23

summary judgment to the extent they rely on allegations other than defendants’ misappropriation

24

of its trade secrets. Copart’s professional negligence claim is also partially limited by the statute

25

of limitations, as discussed further below. See infra Part IX.

26

VIII.

COMPUTER HACKING CLAIMS

27

Defendants move for summary judgment on Copart’s “computer hacking claims”:

28

that is, Copart’s claims under the Computer Fraud and Abuse Act (“CFAA” or “the Federal Act”)
38

1

and California’s Data Access Fraud Statute (“CDAFA” or “the California Act”). TAC ¶¶ 198–

2

211. Copart alleges defendants intentionally accessed Copart’s computer systems without

3

authorization and copied Copart’s software to Sparta’s AutoEdge product. Id.

4

A.

5

CFAA and CDAFA Generally
Congress enacted the Computer Fraud and Abuse Act in 1984 “to enhance the

6

government’s ability to prosecute computer crimes.” LVRC Holdings LLC v. Brekka, 581 F.3d

7

1127, 1130–31 (9th Cir. 2009) (internal quotation omitted). The majority of the crimes the

8

CFAA prohibits “involve accessing computers without authorization or in excess of

9

authorization, and then taking specified forbidden actions, ranging from obtaining information to

10

damaging a computer or computer data.” Id. More specifically, the CFAA “imposes liability on

11

anyone who ‘intentionally accesses a computer without authorization or exceeds authorized

12

access, and thereby obtains . . . information from any protected computer.’” Mintz v. Mark

13

Bartelstein & Assocs. Inc., 906 F. Supp. 2d 1017, 1029 (C.D. Cal. 2012) (citing 18 U.S.C.

14

§ 1030(a)(2)). The CFAA also imposes liability on whomever “knowingly and with intent to

15

defraud, accesses a protected computer without authorization, or exceeds authorized access, and

16

by means of such conduct furthers the intended fraud and obtains anything of value.” Id. (quoting

17

18 U.S.C. § 1030(a)(4)). A person who “suffers damage or loss” as a result of a violation may

18

bring a civil action against the violator under five enumerated circumstances. 18 U.S.C. §§

19

1030(g), (c)(4)(A)(i)(I)-(V).

20

Similar to the CFAA, liability under California’s Data Access Fraud Statute, Cal.

21

Penal Code § 502(a), requires the person to act “knowingly” and “without permission” in

22

committing computer-related crimes. Paskenta Band of Nomlaki Indians v. Crosby,

23

215CV00538MCECMK, 2016 WL 3854237, at *3 (E.D. Cal. July 15, 2016). The CDAFA is “an

24

anti-hacking statute intended to prohibit the unauthorized use of any computer system for

25

improper or illegitimate purpose.” Sunbelt Rentals, Inc. v. Victor, 43 F. Supp. 3d 1026, 1032

26

(N.D. Cal. 2014). The act enumerates fourteen hacking-related crimes that trigger civil liability

27

where a violation causes a person “damage or loss.” Cal. Penal Code § 502(c)(1)–(14); id.

28

§ 502(e).
39

1

B.

2

Copart’s Evidence of Computer Hacking
Defendants argue Copart’s computer hacking claims fail because Copart has not

3

shown defendants lacked authorization or that Copart suffered any loss. KPIT Infosystems Mot.

4

at 19–26.

5

1.

6

Copart’s allegations of computer hacking are similar to those underlying its trade

Authorization

7

secrets claim. Copart alleges that in 2012 Sparta employee Shivraj Sinha distributed his personal

8

Copart computer system log-in credentials to other Sparta employees without authorization, and

9

that at least one Sparta employee, Narenda Pratap Singh, used Sinha’s login information to gain

10

access to Copart’s computer system and copy the SAP Code without authorization. TAC ¶¶ 200–

11

01, 207–08.

12

Two genuine disputes of material fact preclude summary judgement. First, who, if

13

anyone, actually copied the material is fairly disputable. It is unclear if Singh copied the material:

14

although Singh responded to a group e-mail that the “task assigned to us . . . is completed,”

15

Takenouchi Decl. Ex. 35, ECF No. 198-35, another employee also responded “[t]he work

16

assigned has been done,” Suppl. Llewellyn Decl. Ex. J, ECF No. 207-10. Even drawing an

17

inference that someone copied the material, a genuine dispute exists as to who did it. Because

18

Copart must show the person who copied the material lacked authorization, this genuine dispute

19

about identity is material and precludes summary judgment. If Singh copied the SAP Code, a

20

second dispute exists as to whether Singh lacked authorization. Sparta requested in writing that

21

Singh have AIMOS access before the alleged copying and Copart eventually granted the request,

22

though the record is unclear as to when. See SUF 154–59. On the other hand, Singh learned

23

Copart granted his access to AIMOS only several days after the alleged copying. Takenouchi

24

Decl. Ex. 117. A trier of fact is needed to resolve these disputes regarding defendants’

25

authorization or lack thereof.

26

2.

27

To support a computer hacking claim under federal or state law a plaintiff must

28

Damages

show “damage or loss.” See 18 U.S.C. § 1030(g); Cal. Penal Code § 502(e). The CFAA is broad,
40

1

defining “damage” as “any impairment to the integrity or availability of data, a program, a

2

system, or information,” 18 U.S.C. § 1030(e)(8), and “loss” as “any reasonable cost to any victim,

3

including the cost of responding to an offense [and] conducting a damage assessment,” 18 U.S.C.

4

§ 1030(e)(11). “[C]ourts have considered the cost of discovering the identity of the offender or

5

the method by which the offender accessed the protected information to be part of the loss for

6

purposes of the CFAA.” SuccessFactors, Inc. v. Softscape, Inc., 544 F. Supp. 2d 975, 981 (N.D.

7

Cal. 2008); see also United States v. Nosal, 844 F.3d 1024, 1047 (9th Cir. 2016); Shamrock

8

Foods Co. v. Gast, 535 F. Supp. 2d 962, 963–64 (D. Ariz. 2008). Although the CDAFA does not

9

define damage or loss, it similarly permits recovery of damages that “include any expenditure

10

reasonably and necessarily incurred by the owner or lessee to verify that a computer system,

11

computer network, computer program, or data was or was not altered, damaged, or deleted by the

12

access.” Cal. Penal Code § 502(e).

13

Here, Copart alleges it has expended resources investigating defendants’

14

unauthorized access to its computer systems. TAC ¶ 202. As support, Copart provides evidence

15

that it has spent over 80 hours, at an internal rate of $100 per hour, conducting its investigation.

16

Mosothoane Decl. ¶¶ 11–12, ECF No. 221. Investigation expenses are recoverable under the

17

Federal and California acts. SuccessFactors, 544 F. Supp. 2d at 981; Cal. Penal Code § 502(e).

18

Defendants do not challenge that Copart incurred such expenses. See KPIT Infosystems Mot. at

19

23–24. On this record, uncontested albeit sparse, summary judgment is not appropriate.

20

3.

21

The court DENIES defendants’ motion on Copart’s computer hacking claims. In

22

light of genuine factual disputes, and because Copart has not established the remaining elements

23

as a matter of law, the court similarly DENIES Copart’s motion for partial summary judgment on

24

the computer hacking claims.

25

IX.

26
27

Conclusion

PROFESSIONAL NEGLIGENCE
Defendants argue California’s two-year statute of limitations bars Copart’s

professional negligence claim. KPIT Infosystems Mot. at 28 (citing Cal. Civ. Proc. Code § 339).

28
41

1

Copart’s professional negligence claim is partially preempted under CUTSA, as discussed above.

2

See supra Part VII. This section addresses Copart’s claim only to the extent it does not rely on

3

defendants’ alleged misappropriation of Copart’s trade secrets. Copart argues the claim is not

4

barred because it “relates back” to the filing of the original complaint. Opp’n to KPIT

5

Infosystems at 27 (citing Fed. R. Civ. P. 15(c)(1)).

6

A.

7

Relation Back Generally
A new claim relates back to the date of the original pleading when it arises out of

8

the “same conduct, transaction, or occurrence” as the original pleading, Fed. R. Civ. P.

9

15(c)(1)(B), meaning the pleadings “share a common core of operative facts” such that the

10

plaintiff will rely on the same evidence to prove each claim. Williams v. Boeing Co., 517 F.3d

11

1120, 1133 (9th Cir. 2008); see also Martell v. Trilogy Ltd., 872 F.2d 322, 325–26 (9th Cir.

12

1989).

13

With respect to a new party, on the other hand, relation back applies only if: (1)

14

the claim arises from the same conduct as the original pleading; (2) the added party received

15

“such notice of the action that it will not be prejudiced in defending on the merits”; and (3) the

16

added party knew or should have known that, “but for a mistake concerning identity, the action

17

would have been brought against it.” Butler v. Natl. Cmty. Renaissance of Cal., 766 F.3d 1191,

18

1202 (9th Cir. 2014); Fed. R. Civ. P. 15(c)(1)(C).

19

Rule 15’s relation back doctrine is an exception to the statute of limitations and

20

implicates the same underlying policies of fairness to the defendant. Percy v. S.F. Gen. Hosp.,

21

841 F.2d 975, 979 (9th Cir. 1988) (explaining fairness requires “the defendant be able to

22

anticipate claims that might follow from the facts alleged by the plaintiff”); cf. Santana v. Holiday

23

Inns, Inc., 686 F.2d 736, 738–39 (9th Cir. 1982) (permitting relation back where defendant “was

24

not taken by surprise” by the new claim).

25
26

B.

Initial Matters
The parties dispute whether the Third Amended Complaint should be compared

27

with the Second Amended Complaint or Copart’s original complaint for the purposes of

28

determining relation back. Opp’n to KPIT Infosystems at 26–28; KPIT Infosystems Reply at 11–
42

1

12. The difference may impact whether the Third Amended Complaint relates to the same

2

“conduct, transaction, or occurrence” as the prior pleading. Because the Second Amended

3

Complaint satisfies the statute of limitations, Copart may refer to that pleading and need not relate

4

back to the original complaint, as discussed next.

5

In California, the statute of limitations for professional negligence is two years.

6

Cal. Civ. Proc. Code § 339; Thomas v. Canyon, 198 Cal. App. 4th 594, 606 (2011). A claim for

7

professional negligence accrues when “the plaintiff (1) sustains damage and (2) discovers, or

8

should discover, the negligence.” Roger E. Smith, Inc. v. SHN Consulting Eng’rs & Geologists,

9

Inc., 89 Cal. App. 4th 638, 650–51 (2001). “It does not matter [if] the damages or losses . . . may

10

have increased over time.” Hydro-Mill Co., Inc. v. Hayward, Tilton and Rolapp Ins. Assocs.,

11

Inc., 115 Cal. App. 4th 1145, 1161 (2004).

12

Here, Copart terminated the Contract on September 17, 2013. SSUF 60. The

13

court thus assumes Copart’s professional negligence claim accrued on that date, and the parties

14

have not argued otherwise.5 Because Copart filed the Second Amended Complaint on October

15

30, 2014, well within California’s two-year period, that pleading could have included a timely

16

professional negligence claim. Copart filed its Third Amended Complaint on June 8, 2016,

17

beyond the statutory time period: to be timely, the professional negligence claim would thus have

18

to “relate back” to the previous pleading. Copart argues the Second Amended Complaint notified

19

defendants of the factual bases for its new claim, so the court compares the Second and Third

20

Amended Complaints. Cf. Philippine Am. Life Ins. v. Raytheon Aircraft Co., 252 F. Supp. 2d

21

1138, 1148 (D. Kan. 2003) (finding claims asserted in amended complaint related back to prior,

22

amended complaint).

23

C.

24

Relation Back Here
Copart first included its claim for professional negligence in its Third Amended

25

Complaint. SSUF 77; see also TAC ¶¶ 191–197. The Third Amended Complaint also added the

26

KPIT entities as defendants. See Order June 2, 2016, ECF No. 125 (granting leave to amend the

27
28

5

Defendants argue only that the date of accrual must be no later than the filing of the state
complaint on November 1, 2013. KPIT Infosystems Mot. at 29.
43

1

second amended complaint to add KPIT entities). Accordingly, the court separately analyzes the

2

new claim against Sparta under Rule 15(c)(1)(B) (governing amendment asserting new claim or

3

defense) and against the new KPIT entities under Rule 15(c)(1)(C) (governing amendment

4

naming a new party).

5

1.

6

Copart’s professional negligence claim is largely based on the same “conduct,

Sparta

7

transaction, or occurrence” to warrant relation back to the date of the Second Amended

8

Complaint. Sparta effectively concedes this when it argues that the original state complaint

9

includes the same allegations that underlie the new claim, to establish the accrual date. KPIT

10

Infosystems Mot. at 29. A comparison of the Second and Third Amended Complaints

11

demonstrates Copart is correct.

12

Copart’s new claim is largely based on defendants’ failure to “adhere to, work

13

pursuant to, employ and utilize [an accepted] standard skill, prudence and diligence in designing,

14

configuring, coding, testing, building and implementing the AIMOS solution; in managing [] the

15

Project; and in identifying, managing and mitigating risk on the Project.” TAC ¶ 193. As

16

examples of that misconduct, the complaint includes defendants’ “[c]reating and providing

17

deliverables and work product that Sparta and KPIT admitted internally were ‘extremely poor

18

quality,’” id. ¶ 193(a); “[c]reating and delivering a software system that Sparta and KPIT

19

admitted internally was ‘unstable,’” id. ¶ 193(b); and “[d]elivering a defective software system

20

caused by a failure to use basic quality controls that are accepted practice in the software

21

industry,” id. ¶ 193(f).

22

Likewise, Copart’s Second Amended Complaint alleges Sparta “assign[ed]

23

consultants who lacked the skill and experience to successfully design and implement an SAP

24

solution,” SAC ¶ 4; Sparta knew it lacked the ability to “staff[] the Copart SAP project with

25

consultants with the necessary skills, experience and expertise,” id. ¶ 6; and that Sparta ultimately

26

produced an “incomplete software system that was incapable of operating Copart’s basic business

27

processes,” which left Copart “saddled with an unfinished SAP system that lacked critical

28

functionality and an implementation project plagued by repeated missed deadlines with no
44

1

realistic go-live date,” id. ¶ 7. Because proof of these allegations would “share a common core of

2

operative facts,” relation back is appropriate. Williams v. Boeing Co., 517 F.3d at 1133.

3

In sum, Copart’s professional negligence claim against Sparta relates back to the

4

Second Amended Complaint. As discussed in an earlier section, Copart’s allegations of

5

defendants’ alleged theft of the SAP Code, TAC ¶ 195, are preempted by CUTSA. See supra

6

Part VII. Accordingly, the court need not address the timeliness of this newly discovered

7

information underlying its professional negligence claim.

8

2.

9

In contrast, Copart’s professional negligence claim against the KPIT entities is

KPIT Entities

10

untimely and does not relate back. Rule 15(c)(1)(C) allows relation back against a new party only

11

if that defendant “knew or should have known that the action would have been brought against it,

12

but for a mistake concerning the proper party’s identity.” Fed. R. Civ. P. 15(c)(1)(C); Krupski v.

13

Costa Crociere S.p.A., 560 U.S. 538 (2010). The court notes an ambiguity under Rule 15(c),

14

which “distinguishes between two types of amendments: one that amends the claims against a

15

party already named in the pleading and the other that amends the party to the original pleading.”

16

Martell, 872 F.2d at 324–25; accord Percy, 841 F.2d at 978. In this case, the Third Amended

17

Complaint did both things at once, adding new claims against new parties. The court applies the

18

more stringent test under Rule 15(c)(1)(C) used to bring in a party not named in the original

19

pleading. Cf. Kilkenny v. Arco Marine Inc., 800 F.2d 853, 856 (9th Cir. 1986) (where a new

20

defendant is added, the “critical inquiry” is whether it knew or should have known, but for a

21

mistaken identity, it would have been named).

22

Here, Copart does not argue the KPIT entities should have known they were the

23

proper defendants. Thus, Copart has not satisfied Rule 15(c)(1)(C)(ii), which requires that the

24

defendant “knew or should have known that the action would have been brought against it, but for

25

a mistake concerning the proper party’s identity.” See, e.g., Ramos-Santoya v. Ins. Co. of State of

26

Pa., 379 Fed. App’x 596, 597 (9th Cir. 2010) (no mistake of identity where plaintiff first sued the

27

Mexican Embassy and later amended the complaint to sue the Embassy’s insurer, explaining

28

“[t]hat was a mistake all right, but not one of identity”). So whether the KPIT entities had actual
45

1

or constructive notice of the suit is irrelevant. Copart’s professional negligence claim against the

2

KPIT entities is time-barred. As noted, to the extent Copart’s claim relies on newly discovered

3

information involving defendants’ alleged theft of the SAP Code, TAC ¶ 195, CUTSA preempts

4

the claim. See supra Part VII. Thus, Copart’s professional negligence claim against the KPIT

5

entities is either time-barred or preempted, and summary judgment is appropriate.

6

In sum, the court GRANTS summary judgment on Copart’s professional

7

negligence claim brought against the KPIT entities but DENIES the motion as against Sparta.

8

X.

9

KPIT ENTITIES
The KPIT entities both move for summary judgment on all claims, arguing Copart

10

has not shown how they are liable for Sparta’s actions. See KPIT India Mot. at 10–14; KPIT

11

Infosystems Mot. 15–17.

12

The parties do not dispute that employees from both KPIT entities worked on

13

AIMOS. See SSUF 170, 177. But they dispute how many employees from each entity worked

14

on the project and for whom they worked. See, e.g., SSUF 177 (dispute whether Ashu Bhalla was

15

employee of KPIT Infosystems when working on AIMOS); see also Bhalla Dep. at 40:9–16.

16

They also dispute the level of responsibility KPIT employees had on the AIMOS project. See,

17

e.g., SSUF 171.

18

Their general participation aside, KPIT India and KPIT Infosystems each are

19

specifically linked to AIMOS and the alleged misappropriation involving AutoEdge. As to KPIT

20

India, after a Sparta employee e-mailed login credentials and instructed recipients to copy

21

material to the AutoEdge system, KPIT India consultant Maugdha Gupte responded to confirm

22

the copying was complete. See Takenouchi Decl. Exs. 34–36. As to KPIT Infosystems,

23

consultant Chandrasekhar Bade, who logged thousands of hours on the AIMOS project, also

24

apparently worked on the AutoEdge project. See Takenouchi Decl. Ex. 81 at 8–14, ECF No. 198-

25

81 (timesheet); id. Ex. 132 at 2, ECF No. 222-40 (Bade cc’ed on April 17, 2013 e-mail entitled

26

“AutoEdge Data manager – Initial Thoughts”). This evidence, though thin, overcomes

27

defendants’ motion. As discussed above, genuine disputes exist regarding Copart’s trade secrets

28

and computer hacking claims, and the evidence of KPIT entities’ involvement in that alleged
46

1

misconduct is sufficient for the court to deny summary judgment. Accordingly, the court

2

DENIES KPIT India’s and KPIT Infosystems’s motions. The court need not address Copart’s

3

other theories of alter ego or agency liability.

4

XI.

CONCLUSION

5

The court orders as follows:

6

The court DENIES in full Copart’s motion for partial summary judgment on

7
8
9
10

elements of its own claims.
The court GRANTS IN PART Copart’s motion for summary judgment on Sparta’s
claims as follows:
-

The court GRANTS IN PART Copart’s motion on Sparta’s contract-related

11

counterclaims. The court DENIES summary judgment on Sparta’s

12

counterclaims for breach of contract and implied covenant of good faith. The

13

court GRANTS summary judgment on Sparta’s counterclaims of promissory

14

estoppel, quantum meruit and unjust enrichment.

15
16
17

The court GRANTS IN PART defendants’ motions for summary judgment on
Copart’s claims as follows:
-

The court GRANTS IN PART Sparta’s motion on Copart’s contract claims.

18

Not only is Copart limited to its fraud theory to recover on the first seven

19

milestones (Milestones 1 through 7), but it also is precluded from pursuing

20

damages related to the remaining eight milestones for which it never paid

21

(Milestones 8 through 15).

22

-

The court GRANTS IN PART Sparta’s motion on Copart’s fraud-related

23

claims. The court limits Copart’s fraudulent inducement and fraud claims to

24

reliance on specific statements as explained above, but DENIES summary

25

judgment on these two claims. The court GRANTS summary judgment on

26

Copart’s negligent misrepresentation claim. The court DENIES summary

27

judgment on the derivative claims, that is Copart’s claims for unfair

28
47

1

competition, unjust enrichment, breach of implied covenant of good faith and

2

fair dealing as well as declaratory relief.

3

-

4
5

The court DENIES summary judgment on Copart’s claim for trade secret
misappropriation under CUTSA.

-

The court GRANTS IN PART defendants’ motion on Copart’s claims on the

6

basis of CUTSA preemption. The court GRANTS summary judgment on

7

Copart’s claims for common law misappropriation and conversion, which are

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wholly preempted. The court DENIES summary judgment on Copart’s claims

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for unfair competition, unjust enrichment and professional negligence,

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although these claims are partially preempted, as discussed above.
-

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The court DENIES summary judgment on Copart’s computer hacking claims
under CFAA and CDAFA.

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The court GRANTS summary judgment on Copart’s professional negligence

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claim brought against the KPIT entities as time-barred, but DENIES the

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motion as against Sparta.

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This order resolves ECF Nos. 184, 185, 186 and 197.

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IT IS SO ORDERED.

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DATED: September 25, 2017.

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UNITED STATES DISTRICT JUDGE

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