Integral Development Corp v. Tolat

Filing 272

ORDER GRANTING 192 Motion for Summary Judgment, DENYING 194 Motion for Sanctions, DENYING 196 Motion for Summary Judgment, DENYING 198 Motion for Writ of Possession, DENYING 232 Motion for Summary Judgment and Motion for Relief, GRANTIN G 258 Motion to Strike, and REFERRING to Magistrate Judge Corley. Case Management Statement due by 4/18/2014. Case Management Conference set for 4/25/2014 11:00 AM in Courtroom 5, 2nd Floor, Oakland. Signed by Judge Jeffrey S. White on February 24, 2014. (jswlc3, COURT STAFF) (Filed on 2/24/2014)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 INTEGRAL DEVELOPMENT CORPORATION, 10 No. C 12-06575 JSW 11 v. For the Northern District of California United States District Court Plaintiff, 12 ORDER VIRAL TOLAT and DOES 1-20, inclusive, 13 Defendants. 14 / 15 16 Now before the Court are multiple motions for consideration: (1) motion for summary 17 judgment filed by defendant Dr. Viral Tolat (“Tolat”) on multiple causes of action and 18 counterclaims; (2) motion for summary judgment and preliminary injunction filed by plaintiff 19 Integral Development Corporation (“Integral”); (3) motion for sanctions for spoliation and 20 contempt filed by Integral; (4) motion for writ of possession filed by Integral; (5) motion for 21 relief under Federal Rule of Civil Procedure 56(d) filed by Integral; and (6) motion to strike 22 Integral’s objections to evidence filed by Tolat. Having carefully reviewed the parties’ papers, 23 considered their arguments and the relevant legal authority, the Court hereby: (1) GRANTS 24 Tolat’s motion for summary judgment; (2) DENIES Integral’s motion for summary judgment 25 and preliminary injunction; (3) DENIES Integral’s motion for sanctions for spoliation and 26 contempt; (4) DENIES Integral’s motion for writ of possession; (5) DENIES Integral’s motion 27 for relief under Rule 56(d); and (6) GRANTS Tolat’s motion to strike objections to evidence. 28 1 BACKGROUND 2 Integral is a software development company and managed service provides in the area of 3 online trading and liquidity aggregation on the foreign exchange market. At the time of his 4 departure in December 2012, Tolat was the Chief Technology Officer and Head of Integral 5 Products and Services. In 1993, Tolat and Harpal Sandhu (“Sandhu”) co-founded Integral. In 6 2012, Tolat, concerned about his compensation, engaged an executive search firm to explore 7 alternate employment. In December 2012, Tolat left Integral to join a competitor, EBS Dealing 8 Resources, Inc. (“EBS”). The Court will address additional facts as necessary in the remainder of this order. 10 ANALYSIS 11 For the Northern District of California United States District Court 9 A. 12 Applicable Legal Standards. A principal purpose of the summary judgment procedure is to identify and dispose of 13 factually unsupported claims. Celotex Corp. v. Cattrett, 477 U.S. 317, 323-24 (1986). 14 Summary judgment is proper when the “pleadings, depositions, answers to interrogatories, and 15 admissions on file, together with the affidavits, if any, show that there is no genuine issue as to 16 any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. 17 Civ. P. 56(a). “In considering a motion for summary judgment, the court may not weigh the 18 evidence or make credibility determinations, and is required to draw all inferences in a light 19 most favorable to the non-moving party.” Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 20 1997). 21 The party moving for summary judgment bears the initial burden of identifying those 22 portions of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine 23 issue of material fact. Celotex, 477 U.S. at 323; see also Fed. R. Civ. P. 56(c). An issue of fact 24 is “genuine” only if there is sufficient evidence for a reasonable fact finder to find for the non- 25 moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A fact is 26 “material” if it may affect the outcome of the case. Id. at 248. Once the moving party meets its 27 initial burden, the non-moving party must go beyond the pleadings and, by its own evidence, 28 “set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e). 2 1 In order to make this showing, the non-moving party must “identify with reasonable 2 particularity the evidence that precludes summary judgment.” Keenan v. Allan, 91 F.3d 1275, 3 1279 (9th Cir. 1996) (quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir. 1995) 4 (stating that it is not a district court’s task to “scour the record in search of a genuine issue of 5 triable fact”); see also Fed. R. Civ. P. 56(e). If the non-moving party fails to point to evidence 6 precluding summary judgment, the moving party is entitled to judgment as a matter of law. 7 Celotex, 477 U.S. at 323; Fed. R. Civ. P. 56(e)(3). 8 B. 9 Tolat’s Motion For Summary Judgment. Tolat moves for summary judgment on Plaintiff’s claims one through six and eleven, as well as counterclaims one and two. The other claims alleged in the First Amended Complaint 11 For the Northern District of California United States District Court 10 have been dismissed. (See Order dated October 25, 2013.) 12 The Court shall address each claim sequentially. 13 1. 14 Integral’s first claim for relief is for violation of federal securities law. Rule 10b-5 of Claim One: Section 10(b) of 1934 Act. 15 Title 17 of the Code of Federal Regulations states that it is a violation to “directly or indirectly” 16 and “in connection with the purchase or sale of any security,” employ a device or scheme to 17 defraud or engage in any practice that would operate as a fraud upon any person. 17 C.F.R. § 18 240.10b-5; see also 15 U.S.C. § 78j(b). 19 To bring a claim under Section 10(b) of the 1934 Act and Rule 10b-5, plaintiff must be a 20 seller or purchaser of securities. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-32 21 (1975). The 1934 Act defines “purchase,” “buy,” and “sell” to include contracts to buy or sell. 22 Id. at 750-51. However, a party who holds the right of first refusal to purchase shares but does 23 not exercise that right does not necessarily constitute a purchaser or seller. See, e.g., Jackvony 24 v. RIHT Financial Corp., 873 F.2d 411, 415 (1st Cir. 1989) (holding that there is no authority 25 for the position that “an option holder’s failure to exercise an option to buy falls within the 26 critical language: ‘purchase,’ or ‘contract to buy, purchase, or otherwise acquire.’”). 27 28 Here, the undisputed facts establish that Integral did not actually purchase Tolat’s shares. The parties disagree over whether Integral’s offer to purchase Tolat’s shares is 3 1 sufficiently similar to the offer by EBS as to qualify as an underlying contract to sell or 2 purchase securities. Tolat argues that Integral’s right of first refusal does not qualify as such a 3 contract because their offer to him was so markedly different from EBS’s offer that it instead 4 constituted a counteroffer. Under California law, the Court must take a common sense 5 approach to review the factual circumstances and “commercial realities” of the right of first 6 refusal in order to determine whether its terms are materially equivalent to the third-party 7 contract in order to qualify as a contract for sale. See Arden Group, Inc. v. Burk, 45 Cal. App. 8 4th 1409, 1414-15 (1996). Having now reviewed the contracts at issue and the full evidentiary 9 record, and taken from the perspective of Tolat as the would-be seller, the Court finds that the offers to purchase his stock are not materially equivalent. The prices offered for the same stock 11 For the Northern District of California United States District Court 10 differ on the order of nearly half the value. Integral’s contention that considering elements of 12 Tolat’s salary changes the value of the stock purchase offer are unavailing. Because the factual 13 circumstances and commercial realities of the right of first refusal demonstrate that its terms are 14 not materially equivalent to the third-party contract, the Court finds that the right of first refusal 15 fails to qualify as a contract for sale. Accordingly, because there is no predicate contract for 16 sale or purchase of securities, and the claim for federal securities violations fails. 17 2. 18 To prevail on a trade secret misappropriation claim under the California Uniform Trade 19 Secrets Act (“CUTSA”), the plaintiff must establish that it owns a clearly identified trade secret, 20 that the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper 21 means, and that the misappropriation caused damage to the plaintiff. See Cal. Civ. Code § 22 3426.1; see also Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1665 (2003). 23 Claim Two: California Uniform Trade Secrets Act. a. Integral Does Not Establish It Owns Clearly Identified Trade Secrets. 24 25 Under the CUTSA, a “trade secret” is defined as “information, including a formula, 26 pattern, compilation, program, device, method, technique, or process” that “[d]erives 27 independent economic value, actual or potential, from not being generally known to the public 28 or other persons who can obtain economic value from its disclosure or use.” Cal. Civ. Code § 4 1 3426.1(d). A plaintiff seeking relief for misappropriation of trade secrets “must identify the 2 trade secrets and carry the burden of showing that they exist.” MAI Sys. Corp. v. Peak 3 Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993). The trade secrets that form that basis of a 4 claim of misappropriation must be identified with sufficient particularity. Imax Corp. v. 5 Cinema Techs., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998); see also Cal. Civ. Code § 2019(d) 6 (a party alleging misappropriation of trade secrets “shall identify the trade secrets with 7 reasonable particularity.”). 8 9 The Court finds that Integral, despite having had numerous opportunities to do so, has not identified specific information that it claims to be trade secret, but rather identifies broad categories of documents that it contends contain “highly sensitive information essential to 11 For the Northern District of California United States District Court 10 Integrals’ competitive advantage.” (Opp. Br. at 3.) “A description of the category, or even of 12 the subcategories of information within a category, does not comply with the requirement to 13 identify the actual matter that is claimed to be a trade secret.” Social Apps, LLC v. Zynga, Inc., 14 2012 WL 2203063, at *4 (N.D. Cal. June 14, 2012). Integral relies on its allegations that Tolat 15 made a copy of the source code, but failure to identify the specific source code files and the 16 information contained within them is fatal to its claim. Listing hundreds of file names without 17 identifying the trade secret information contained within the files, is insufficient. See 18 FormFactor, Inc. v. Micro Probe, Inc., 2012 WL 2061520, at *6 (N.D. Cal. June 7, 2012). 19 Accordingly, the Court finds Integral has failed to meet its burden of identifying any 20 specific trade secret information and Tolat prevails on his motion for summary judgment on this 21 claim for this independent reason.1 However, even if Integral had met its burden to identify a 22 legally cognizable trade secret, the Court also finds Integral cannot prevail on its CUTSA claim 23 as it has not met its burden of demonstrating that Tolat misappropriated any trade secret 24 information. 25 26 27 28 1 The only specifically identified information Integral alleges constitutes a cognizable trade secret is a third-party valuation of the company. However, there is no evidence that Tolat actually received or improperly used or disclosed any information contained within the valuation report. 5 b. 1 Integral Does Not Establish Misappropriation. Despite undertaking extensive discovery, the Court finds that Integral has not revealed 2 3 any evidence tending to demonstrate that Tolat used or disclosed any potential trade secret 4 information to his current employer or to any other third party.2 Integral relies on its conclusion 5 that because Tolat downloaded a copy of Integral’s source code while still employed at the 6 company but while engaged in discussions to seek employment with a competitor, Tolat must 7 have used the information he downloaded improperly. Despite Integral’s repeated and 8 increasingly outraged protestations, there is no evidence in the record to support this 9 conclusion.3 Integral reasons that because it took EBS a shorter time to bring their competing product 11 For the Northern District of California United States District Court 10 to market, Tolat must have shared trade secret information with his new employer. The only 12 evidence produced in this regard is the testimony from the president of Integral, Sandhu, that 13 based on his experience in the industry, the time frame for EBS to market its product “is 14 15 16 17 18 19 20 21 The Court DENIES Integral’s Rule 56(d) motion for additional discovery. Integral has failed to demonstrate that it diligently pursued the discovery it now seeks and has failed to set forth and specific or essential facts it hopes to elicit from the further testimony it seeks. See Conkle v. Jeong, 73 F.3d 909, 914 (9th Cir. 1995); see also State of California v. Campbell, 138 F.3d 772, 779 (9th Cir. 1998). Integral’s “Table of Falsehoods” allegedly documenting inconsistencies in Tolat’s testimony is unpersuasive attorney argument and bears no evidentiary weight. (Declaration of Jack Russo in Support of Reply Brief of Rule 56(d) Motion, Ex. 1.) Further, Integral’s objections to evidence submitted in conjunction with Tolat’s motion for summary judgment, which were filed in its reply brief of its Rule 56(d) motion are both procedurally improper and substantively irrelevant to the Court’s holdings. Accordingly, Tolat’s motion to strike the objections is GRANTED. 2 The evidence before the Court demonstrates that Tolat deleted all Integral information from his computer devices and cloud storage accounts, with the exception of a limited number of Integral documents retained on Tolat’s Blackberry SD card. (Tolat Decl. at ¶¶ 10-12, 31-38; Declaration of Kelly A. Woodruff in Support of Opposition to Rule 56(d) Motion at ¶¶ 3-7.) The record establishes that Tolat deleted those documents before starting to work at EBS without reviewing them. (Id. at ¶ 38.) The Court finds no basis for sanctions for spoliation and accordingly, DENIES Integral’s motion for spoliation and contempt. With regard to Integral’s application for writ of possession of the Xoom tablet or any other electronic device, the Court finds that Integral has failed to meet the standard for a writ and its application is accordingly DENIED. The Court concludes that, at most, in accordance with its own policy handbook, Integral is entitled to the applicable prorated amount of the reimbursement of the Xoom tablet. (Declaration of Patrick Barkhordarian in Support of Writ of Possession, Ex. 2.) 3 22 23 24 25 26 27 28 6 1 extremely short for going from an announcement to having a service ready to release to paying 2 customers.” (Declaration of Harpal S. Sandhu in Support of Plaintiff’s Motion for Summary 3 Judgment at ¶ 3.) Sandhu opines that EBS was able to compete so quickly in the market 4 “because it hired [Tolat] and used the trade secrets he disclosed to re-fashion their aggregation 5 services to mimic Integral. It took Integral years, and cost Integral a lot of money, to develop 6 this intellectual property honestly and from its own original, inventive work.” (Id. at ¶ 9.) The 7 only facts established by this testimony is that, relative to Integral’s time to market, it took EBS 8 a shorter time to market its competing product. 9 For the theory that a relatively short time to market is an indicator of misappropriation of trade secrets, Integral relies upon two cases which merely note the length of time for a 11 For the Northern District of California United States District Court 10 competing product to come to market. (See Opp Br. at 5-6, citing Integrated Case Mgmt. 12 Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 172 (2d Cir. 1990) and Anaconda Co. v. 13 Metric Tool & Die Co., 485 F. Supp. 410, 414-19 (E.D. Pa. 1980).) To the extent these non- 14 binding cases note the length of time a competitor was able to get a product to market, neither 15 court relies upon the factual predicate as a basis for its holdings. This Court does not find 16 persuasive Integral’s conclusion that Tolat must have shared its trade secret information with 17 EBS because the company was able to get a competitive product to market more quickly than 18 Integral. 19 Integral also relies on a series of email exchanges between Tolat and his current 20 employer, EBS. However, none of the emails upon which Integral relies evidences the 21 disclosure of any trade secret information. Rather, the correspondence evidences ongoing 22 negotiations between Tolat and EBS regarding his potential employment. (See Opp. Br. at 13- 23 15.) 24 Accordingly, the Court finds Integral has failed to meet its burden of demonstrating that 25 Tolat misappropriated any trade secret information and Tolat prevails on his motion for 26 summary judgment on the claim for this independent reason. However, even if Integral had met 27 its burden to identify a legally cognizable trade secret and had produced evidence of 28 7 1 misappropriation, the Court also finds Integral cannot prevail on its CUTSA claim as it has not 2 demonstrated that it has suffered damages as a result of any alleged misappropriation. 3 c. Integral Does Not Demonstrate Resulting Damage. 4 Lastly, in order to state an actionable claim for trade secret misappropriation, a plaintiff 5 must show that the alleged misappropriation caused damage. See, e.g., FormFactor, 2012 WL 6 2061520, at *13 (holding that plaintiff “provided no concrete evidence connecting the alleged 7 misappropriation of a trade secret to the loss of . . . business” but rather “simply stated it must 8 have been [defendant’s] going to [plaintiff’s competitor] that caused the loss of business.”) 9 Integral has claimed damages in the amount of $10,000,000 for alleged trade secret misappropriation, but has not supported its claim with actual evidence in the record that a drop 11 For the Northern District of California United States District Court 10 in its revenue stream was caused by any alleged misappropriation by Tolat. Accordingly, the 12 Court finds Integral has failed to meet its burden of demonstrating that Tolat caused Integral to 13 suffer damages as a result of any misappropriation and Tolat prevails on his motion for 14 summary judgment on the claim for trade secret misappropriation for this additional reason. 15 16 17 3. Claim Three Through Six Under Common Law. a. Preemption. Tolat argues that the common law tort causes of action for breach of fiduciary duty 18 (claim four), breach of duty of loyalty (claim five), and intentional interference with prospective 19 business advantage (claim six) are preempted by California’s Uniform Trade Secrets Act and 20 therefore fail as a matter of law. The CUTSA provides for the recovery of damages due to 21 injury in an action premised upon misappropriation of trade secrets. See Cal. Civ. Code § 22 3426.3. Common law “remedies based on misappropriation of trade secrets are superceded” by 23 the UTSA because it “occupies the field in California.” AccuImage Diagnostics Corp. v. 24 Terarecon, Inc., 260 F. Supp. 2d 941, 953-54 (N.D. Cal. 2003); see also Digital Envoy, Inc. v. 25 Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005) (holding that the UTSA preempts 26 common law claims that are “based on the same nucleus of facts as the misappropriation of 27 trade secrets”). The Court agrees that each of Integral’s common law tort and breach of 28 contract claims are premised upon the same set of operative facts as the misappropriation claim. 8 1 The tort claims are explicitly pled based on allegations that Tolat misappropriated Integral’s 2 trade secret information and caused the company to suffer injury as a result of misusing its 3 proprietary information. (See, e.g., FAC at ¶¶ 82, 84, 92, 98.) 4 In addition, although the CUTSA does not affect contractual remedies, Integral’s breach 5 of contract claim is based on its allegations that Tolat misappropriated trade secrets. (See id. at 6 ¶ 75.) Simply alleging there was a breach of contract claim does not save the claim from 7 preemption. See First Advantage Background Servs., Corp. v. Private Eyes, Inc., 569 F. Supp. 8 2d 929, 936-37 (N.D. Cal. 2008) (where the facts plaintiff pled in support of breach of 9 confidence claim were “identical to those it offered in support of its misappropriation claim” and “[t]he only difference alleged [was] the existence of a contract,” court held this was 11 For the Northern District of California United States District Court 10 “inadequate to avoid preemption”); cf Angelica Textile Servs., Inc. v. Jaye Park, 220 Cal. App. 12 4th 495, 508 (2013) (holding that breach of contract claims, even where premised upon 13 misappropriation of trade secrets, are not displaced by UTSA). 14 15 16 17 However, even without UTSA preemption, the Court finds each of Integral’s breach of contract and common law tort claims lack merit. b. Claim Three for Breach of Contract. In order to state a claim for breach of contract, a plaintiff must prove a contract exists, 18 plaintiff’s performance or excuse for non-performance, defendant’s breach, and resulting 19 damages. See, e.g., CDF Firefighters v. Maldanado, 158 Cal. App. 4th 1226, 1239 (2008). 20 Integral alleges breach of several contracts – Nondisclosure Agreement, Employment 21 Agreement, and Inventions Agreement – based on Defendant’s alleged misuse of Integral’s 22 trade secrets. (See FAC at ¶¶ 73, 75.) As the Court has determined that Integral may not 23 prevail on its cause of action for trade secret misappropriation, its breach of contract claim 24 premised upon misappropriation fails as a matter of law. 25 Integral also contends that Tolat breached the Stock Purchase Agreement (“SPA”) by 26 providing inaccurate and incomplete information to Integral regarding the terms of the proposed 27 sales of his own Integral stock to EBS, thereby causing Integral not to be able to exercise its 28 right of first refusal. (See id. at ¶ 76.) However, the evidence in the record establishes that 9 1 Tolat complied with his obligations under the SPA which required that he provide Integral with 2 a “written Transfer Notice . . . describing fully the proposed transfer, including the number of 3 Purchased Shares proposed to be transferred, the proposed transfer price, the name and address 4 of the proposed Transferee and proof satisfactory to [Integral] that the proposed sale or transfer 5 will not violate any applicable federal or state securities laws.” (See id., Ex. 2 at 5.) The record 6 is replete with evidence that Tolat was in contact with EBS in an effort to secure alternative 7 employment and to sell his shares of Integral stock. However, the evidence demonstrates that 8 Tolat complied with his obligations under the contract by providing Integral with a written 9 Transfer Notice of the stock purchase offered he had received from EBS, containing all of the required information. (See Declaration of Anthony P. Schoenberg, Ex. 28.) Integral’s repeated 11 For the Northern District of California United States District Court 10 mischaracterizations of the evidence are not persuasive and do not provide an evidentiary basis 12 for their breach of contract claim. Accordingly, Integral’s claim for breach of contract fails on 13 the merits. 14 c. Claims Four and Five for Breach of Fiduciary Duty and Breach of Duty of Loyalty. 15 Breaches of fiduciary duties and the duty of loyalty require the existence of the duties, 16 their breach, and damages proximately caused by the breach. See, e.g., Pellegrini v. Weiss, 165 17 Cal. App. 4th 515, 524 (2008); see also Huong Que, Inc. v. Luu, 150 Cal. App. 4th 400, 410 18 (2007). Integral’s breaches of fiduciary duties and loyalty claims premised upon Tolat’s alleged 19 misappropriation of trade secrets fail as a matter of law as the Court has found no 20 misappropriation. To the extent Integral bases the claims for breaches on the usurpation of 21 corporate opportunities for the company, the evidence establishes that this claim also is not 22 viable. 23 The corporate opportunity doctrine provides that a fiduciary may not acquire “in 24 opposition to the corporation, property in which the corporation has an interest or tangible 25 expectancy.” Robinson, Leatham & Nelson, Inc., 109 F.3d 1388, 1392 (1997) (quoting 26 Kelegian v. Mgrdichian, 33 Cal. App. 4th 982, 988 (1995)). A “corporate opportunity exists 27 when a proposed activity is reasonably incident to the corporation’s present or prospective 28 business and is one in which the corporation has the capacity to engage.” Id. In order to state a 10 1 claim for breach of fiduciary duties by usurpation of a corporate opportunity, the company must 2 have an actual opportunity that the fiduciary usurped from it. See Premier Displays & Exhibits 3 v. Cogswell, 2009 WL 8623588, at *9 (C.D. Cal. Dec. 23, 2009). 4 Here, the evidence in the record establishes that the discussions regarding the potential indicates that at the time of discussions between the companies, EBS considered its potential 7 investment interest in Integral to be preliminary and no actual investment decision was made. 8 (See Declaration of Anthony P. Schoenberg, Exs. 10, 11.) Because the record does not support 9 the position that there was a tangible expectancy of a corporate opportunity for Integral, there is 10 no support for the claim that Tolat usurped one. Secondly, there is no evidence in the record to 11 For the Northern District of California deal between EBS and Integral were at their very preliminary stages. The undisputed evidence 6 United States District Court 5 support Integral’s position that the preliminary talks with EBS, which related to large-scale 12 investment, were defeated by a small-scale purchase of Tolat’s minority interest in the 13 company. Accordingly, Integral’s claims for breach of the fiduciary duty and duty of loyalty 14 lack merit. 15 d. Claim Six for Intentional Interference with Prospective Business Advantage. 16 17 In order to state a claim for intentional infliction of emotional distress, a plaintiff must 18 allege “an economic relationship between the plaintiff and some third party, with the probability 19 of future economic benefit to the plaintiff.” Korea Supply Co. v. Lockheed Martin Corp., 29 20 Cal. 4th 1134, 1153 (2003). The claim must relate to “interference with existing noncontractual 21 relations, so that a plaintiff must “demonstrate a reasonable probability of future economic 22 advantage.” Westside Ctr. Assocs. v. Safeway Stores 23 Inc., 42 Cal. App. 4th 507, 524 (1996) 23 (emphasis in original). For the same reasons the Court found there was no evidence to support 24 a finding of a tangible expectancy of a corporate opportunity, the Court finds based on the 25 record, that there is no evidence of an established economic relationship between Integral and 26 EBS with the probability of future economic benefit with which Tolat may have intentionally 27 interfered. Accordingly, Integral’s claim for intentional interference with prospective business 28 advantage lacks merit. 11 1 2 4. Claim Eleven: Copyright Infringement and Violations of 17 U.S.C. § 1201. 3 “To be entitled to sue for copyright infringement, the plaintiff must be the legal or 4 beneficial owner of an exclusive right under a copyright.” Silvers v. Sony Pictures 5 Entertainment, Inc., 402 F.3d 881, 884 (9th Cir. 2005). To prevail on a claim for copyright 6 infringement, a plaintiff “must establish ownership of a valid copyright and unauthorized 7 copying of original elements of the protected work.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 8 499 U.S. 340, 361 (1991). Additionally, in order to sue for copyright infringement, “the 9 infringement must be ‘committed while he or she is the owner of’ the particular exclusive right allegedly infringed.” Id. at 885 (quoting 17 U.S.C. § 501(b)). A claim for violation of 17 11 For the Northern District of California United States District Court 10 U.S.C. § 1201 requires that “defendant’s access was unauthorized.” Chamberlain Grp. v. 12 Skylink Techs., Inc., 381 F.3d 1178, 1193 (Fed. Cir. 2004). 13 In its complaint, Integral merely alleges without further specificity that it “has applied to 14 the U.S. Copyright Office at the Library of Congress to register its copyrights to its proprietary 15 source code and other copyrighted expression in its computer programs.” (FAC at ¶ 138; see 16 also Declaration of Jack Russo in Opposition, Ex. 2.) Integral further alleges that Tolat, while 17 still employed by the company, downloaded some portion of the source code. Tolat confirms 18 that he did in fact download a portion of the source code while still employed, as part of his 19 regular duties and within the scope of his employment. (Declaration of Tolat at ¶¶ 16-25.) 20 Integral confirms in its complaint that Tolat, as part of its “most senior executive staff . . . had 21 detailed access to virtually all of Integral’s trade secret information and confidential and 22 proprietary intellectual property.” (FAC at ¶¶ 8, 16.) Therefore, there is no dispute that Tolat 23 had the authority to and did in fact download copyrightable materials. However, from the 24 record before the Court, there is no evidence to support the contention that Tolat copied any 25 protectable, actually copyrighted elements of Integral’s source code without Integral’s 26 authorization. Integral’s conclusion that the copied source code was used for illegitimate 27 purpose is not supported by the evidence, as addressed in the Court’s analysis on the claim for 28 misappropriation. Accordingly, the claim for copyright infringement lacks merit. 12 1 2 5. Tolat’s Counterclaims for Conversion and Breach of Contract. 3 Tolat asserts counterclaims for conversion and breach of contract for the value of his 4 stock represented by Share Certificate No. CS-603. (Tolat Decl. at ¶ 40; Ex. 9 attached to 5 Counterclaims.) Integral has taken the position that Tolat, having failed to comply with his 6 contractual obligations and during the pendency of this litigation, does not merit the payment on 7 his shares of the company’s stock. Integral represents that it has “escrowed the certificate for 8 the contested shares.” (Opp. Br. at 24.) The Court finds that Tolat prevails on his motion for 9 summary judgment and that Tolat complied with his contractual obligations. However, the precise stock valuation is unclear. The Court shall refer this matter to Magistrate Judge Corley 11 For the Northern District of California United States District Court 10 for further evaluation and settlement discussions in light of this order. 12 C. 13 14 Integral’s Motion for Summary Judgment and for Preliminary Injunction. For all of the reasons the Court grants Tolat’s motion for summary judgment, it denies Integral’s motion. Injunctive relief is not merited. 15 CONCLUSION 16 For the foregoing reasons, the Court (1) GRANTS Tolat’s motion for summary 17 judgment; (2) DENIES Integral’s motion for summary judgment and preliminary injunction; (3) 18 DENIES Integral’s motion for sanctions for spoliation and contempt; (4) DENIES Integral’s 19 motion for writ of possession; (5) DENIES Integral’s motion for relief under Rule 56(d); and 20 (6) GRANTS Tolat’s motion to strike Integral’s objections to evidence. 21 There remain no further claims in this matter for adjudication. However, before entering 22 judgment and tolling the clock for appeal, the Court HEREBY REFERS the matter of the 23 valuation of the stock and discussions of settlement in light of this Order to Magistrate Judge 24 Corley. 25 Lastly, the Court HEREBY SETS a further status conference for April 25, 2014 at 11:00 26 a.m. The parties’ joint status statement shall be filed no later than April 18, 2014. The Court is 27 /// 28 /// 13 1 amenable to continuance of the status conference should the parties require more time and so 2 stipulate. 3 4 IT IS SO ORDERED. Dated: February 24, 2014 JEFFREY S. WHITE UNITED STATES DISTRICT JUDGE 5 6 7 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14

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