Lifetouch National School Studios, Inc. v. Moss-Williams

Filing 47

ORDER GRANTING MOTION 33 FOR LEAVE TO FILE SECOND AMENDED COMPLAINT. Signed by Judge Jeremy Fogel on August 25, 2011. (jflc1S, COURT STAFF) (Filed on 8/25/2011)

1

**E-Filed 8/25/2011**

2
3
4
5
6
7
8

IN THE UNITED STATES DISTRICT COURT

9

FOR THE NORTHERN DISTRICT OF CALIFORNIA

10

SAN JOSE DIVISION

11
12
13

LIFETOUCH NATIONAL SCHOOL STUDIOS,
INC.,
Plaintiff,

14

ORDER1 GRANTING MOTION FOR
LEAVE TO FILE SECOND
AMENDED COMPLAINT

v.

15
16

Case Number 5:10-cv-05297 JF (HRL)

[Re: Docket Nos. 33, 40]
KIMBERLY MOSS-WILLIAMS, an individual;
and DOES 1 through 100, inclusive,

17

Defendants.

18
19
20

Pursuant to Fed. R. Civ. P. 15(a)(2), Plaintiff Lifetouch National School Studios, Inc.

21

(“Lifetouch”) seeks leave to file a second amended complaint2 (“SAC”) to add Creative Imaging

22

by Robert Garcia, Inc. (“Creative Imaging”) as a defendant.3 The Court concludes that the

23
1

24
25
26
27
28

This disposition is not designated for publication in the official reports.

2

On November 8, 2010, Lifetouch filed its first amended complaint (“FAC”), adding a
claim for violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, et seq.
3

Defendant Kimberly Moss-Williams (“Moss”) filed untimely opposition to the instant
motion because of an asserted inadvertent error and moves to enlarge time for her response.
Mot. to Enlarge Time, filed August 18, 2011. In order to ensure a complete record, the motion
will be granted.
1
Case No. 5:10-cv-05297 JF (HRL)
ORDER GRANTING MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT
(JFLC1)

1

motion is appropriate for determination without oral argument and will vacate the hearing date of

2

August 26, 2011. See Civ. L.R. 7-1(b). For the reasons set forth below, the motion will be

3

granted.

4
5

I. BACKGROUND
A.

Factual History

6

Lifetouch provides photography services and related products to schools, students, and

7

families. FAC ¶ 6. In August 2001, Lifetouch hired Moss as a sales representative. Id. at ¶ 7.

8

As a condition of her employment, Moss agreed in writing to maintain the confidentiality of all

9

Lifetouch customer lists, pricing arrangements, and other trade secrets. Id. at ¶¶ 19-21. In

10

October 2009, Moss terminated her employment with Lifetouch voluntarily and accepted a

11

position with Lifetouch’s competitor Creative Imaging. Id. at ¶¶ 8-9. Prior to leaving

12

Lifetouch, Moss allegedly copied Lifetouch’s proprietary and confidential information from her

13

company-issued computer to an external data storage device (referred to in the FAC as a “thumb

14

drive”) and used this information to solicit Lifetouch customers once she was employed with

15

Creative Imaging. Id. at ¶¶ 16, 23-24, 37.

16

Lifetouch filed this action in the Alameda Superior Court, but the action subsequently

17

was removed to this Court on the basis of federal question jurisdiction. Notice of Removal, filed

18

November 23, 2010. Lifetouch initially chose not to assert claims against Creative Imaging

19

because counsel for Creative Imaging asserted in a written statement that the company “does not

20

have, nor has it ever had, the alleged ‘thumb drive,’” and that Creative Imaging “is not in the

21

possession of, has never used, nor has it used in any way accessed [sic] any of the information . .

22

. that Kimberly Moss [allegedly] obtained. . .” Carp Decl. ISO Mot. (“Carp Decl.”), Ex. D

23

(November 24, 2009 Letter from counsel for Creative Imaging to Lifetouch).

24

On March 22, 2011, during Moss’s deposition, Lifetouch learned for the first time that

25

Moss had accessed the thumb drive on Creative Imaging computers. Id. at Ex. E. In addition,

26

Moss admitted that during her first week of employment at Creative Imaging she began

27

soliciting Lifetouch customers to do business with Creative Imaging. Id. Lifetouch asserts that

28
2
Case No. 5:10-cv-05297 JF (HRL)
ORDER GRANTING MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT
(JFLC1)

1

these new developments give rise to a claim for misappropriation of trade secrets against

2

Creative Imaging under the California Uniform Trade Secrets Act (“UTSA” or the “Act”), Cal.

3

Civ. Code § 3426, et seq.

4

II. STANDARD OF REVIEW

5

Fed. R. Civ. P. 15(a) provides that “[t]he court should freely give leave when justice so

6

requires.” Absent any “apparent or declared reason–such as undue delay, bad faith or dilatory

7

motive on the part of the movant, repeated failure to cure deficiencies by amendments previously

8

allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility

9

of amendment, etc.–the leave sought should, as the rules require, be freely given.” Foman v.

10

Davis, 371 U.S. 178, 182 (1962) (internal quotation marks omitted). Rule 15 thus embraces “the

11

principle that the purpose of pleading is to facilitate a proper decision on the merits.” Id. at

12

181-82 (quoting Conley v. Gibson, 355 U.S. 41, 48 (1957)). In short, the policy permitting

13

amendment is to be applied with “extreme liberality.” Eminence Capital, L.L.C. v. Aspeon, Inc.,

14

316 F.3d 1048, 1051 (9th Cir. 2003) (citation omitted). Factors which merit departure from the

15

usual “[l]iberality in granting a plaintiff leave to amend” include bad faith and futility. Bowles v.

16

Reade, 198 F.3d 752, 757 (9th Cir. 1999). Undue delay, standing alone, is insufficient to justify

17

denial of a motion for leave to amend. Id. at 758.

18
19

III. DISCUSSION
Moss argues that the motion should be denied because amendment would be futile and

20

would violate the prohibition against meritless claims set forth in Fed. R. Civ. P. 11(b).

21

According to Moss, Lifetouch has no evidence that Creative Imaging ever acquired any

22

proprietary information or that it used such information to solicit Lifetouch customers. Moss

23

also contends that Lifetouch’s claim is not actionable, because misappropriation requires that the

24

alleged tortfeasor acquire trade secrets intentionally, and at most Creative Imaging received the

25

Lifetouch trade secrets inadvertently. However, under the UTSA, misappropriation includes not

26

only the intentional acquisition of a trade secret but also the unpermitted disclosure or use of a

27

trade secret with knowledge that the secret was obtained by improper means. Cal. Civ. Code §

28

3426.1(b)(2). Here, Lifetouch already has alleged that Moss improperly acquired proprietary
information and took that information to Creative Imaging. Whether or not Creative Imaging
3

1
2

used the information and knew that it was obtained improperly is a question of fact.
Additionally, Moss argues that the confidential information at issue is not protected by

3

the UTSA. The Act defines “trade secrets” as “a formula, pattern, compilation, program, device,

4

method, technique, or process, that: (1) [d]erives independent economic value, actual or

5

potential, from not being generally known to the public or to other persons who can obtain

6

economic value from its disclosure or use; and (2) [i]s the subject of efforts that are reasonable

7

under the circumstances to maintain its secrecy.” Relying on Fortna v. Martin, 158 Cal.App.2d

8

634 (1958) and American Paper & Packaging Prods., Inc. v. Kirgan, 183 Cal.App.3d 1318

9

(1986), Moss contends that neither customer lists nor pricing methods qualify as trade secrets

10

under California law. See, e.g., 158 Cal.App.2d at 640 “A former agent may use, after the

11

termination of his employment, methods of doing business and processes which are but skillful

12

variation of general processes known to the particular trade.” (quotation omitted). Courts since

13

Fortna and American Paper have held otherwise. See Morlife, Inc. v. Perry, 56 Cal.App.4th

14

1514, 1521-22 (1997) (“[W]here the employer has expended time and effort identifying

15

customers with particular needs or characteristics, courts will prohibit former employees from

16

using this information to capture a share of the market. Such lists are to be distinguished from

17

mere identities and locations of customers where anyone could easily identify the entities as

18

potential customers.”); See also Whyte v. Schlage Lock Co., 101 Cal.App.4th 1443, 1454-56

19

(2002) (trade secrets may constitute “cost and pricing information not readily known in the

20

industry-information such as the cost of materials, labor, overhead, and profit margins . . .”)

21

(citing SI Handling Systems, Inc. v. Heisley 753 F.2d 1244, 1260 (3d Cir. 1985)).

22

Lifetouch points out that prior to the removal of this action, the Superior Court concluded

23

that the description of the trade secrets contained in the FAC was sufficient to support a claim

24

for misappropriation. In overruling Moss’s demurrer, the state court explained, “[w]hether, e.g.,

25

Plaintiff’s customer lists and identity of school decision makers embody information that is

26

readily ascertainable through public sources . . ., and whether the commission structures and

27

pricing arrangements are unique to Plaintiff or merely reflect commonly used industry formulas .

28

. . cannot be determined from the face of the pleadings.” Carp Supp. Decl. Ex. I.
Accordingly, it appears that Lifetouch is justified in seeking leave to amend, and it would
4

1

not be futile to add a claim for misappropriation of trade secrets against Creative Imaging. None

2

of the factors that would overcome the liberal policy of Rule 15 are present here. Lifetouch

3

sought to amend at the earliest possible date,4 and Moss has not shown that she will be

4

prejudiced by the proposed amendment. The parties have yet to engage in intensive fact

5

discovery, no trial date has been set, and the facts underlying the proposed claim are essentially

6

the same as those set forth in the FAC.

7
8
9
10

IV. ORDER
Good cause therefor appearing, the motion for leave to file a second amended complaint
is GRANTED. The amended pleading shall be filed within twenty (20) days after the date of
this order. The hearing date of August 26, 2011 is VACATED.

11
DATED: August 25, 2011

__________________________________
JEREMY FOGEL
United States District Judge

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

4

At the initial case management conference held on March 25, 2011, the parties were
referred to mediation, which proved unsuccessful. One day after the attempted mediation, at a
subsequent case management conference, Lifetouch informed the Court of its intent to seek leave
to amend to add Creative Imaging as a defendant.
5