John M. Floyd & Associates, Inc. v. First Imperial Credit Union

Filing 33

ORDER Granting 26 Defendants' Motion for Summary Judgment or Partial Summary Judgment. Signed by Judge Dana M. Sabraw on 10/25/2017. (aef)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 JOHN M. FLOYD & ASSOCIATES, INC, a Texas corporation, Plaintiff, 13 v. 14 15 Case No. 16-cv-1851 DMS (WVG) ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT FIRST IMPERIAL CREDIT UNION, a California corporation, 16 Defendant. 17 18 19 This case comes before the Court on Defendant First Imperial Credit Union’s 20 (“FICU”) motion for summary judgment or partial summary judgment pursuant to 21 Federal Rule of Civil Procedure 56. The motion came on for hearing on October 20, 22 2017. Stephen L. Schreiner and Michael D. Breslauer appeared for Plaintiff John 23 M. Floyd & Associates, Inc. (“JMFA”), and Jennifer E. Duty and Benjamin 24 Taliaferro Morton appeared for Defendant. After considering the parties’ briefs, oral 25 argument, the relevant legal authority, and the record, Defendant’s motion is 26 granted. 27 /// 28 /// –1– 16-cv-1851 DMS (WVG) 1 I. 2 BACKGROUND 3 JMFA is a consulting firm that develops and implements an overdraft 4 privilege (“ODP”) program for financial institutions. The ODP program generates 5 and captures non-interest revenue for financial institutions by charging customers a 6 fee for covering purchases when they overdraft their account. On or about August 7 5, 2008, JMFA entered into a three-year agreement with FICU to implement JMFA’s 8 ODP program. 1 9 The agreement describes four phases for implementing the ODP program. 10 First, in the “analysis phase,” JMFA would examine FICU’s account structures and 11 procedures, and provide “recommendations” for implementing the ODP system. 12 Second, in the “presentation phase,” JMFA would review its recommendations with 13 FICU, and provide a plan for implementing the approved recommendations. Third, 14 in the “implementation phase,” JMFA would coordinate and assist in the 15 implementation of the approved recommendations and install systems to track the 16 progress of the implemented recommendations. Lastly, in the “follow-up phase,” 17 JMFA would meet with FICU to review the status and the results of the implemented 18 recommendations. 19 The agreement expressly states JMFA would be compensated on a 20 contingency basis. Specifically, FICU agreed to pay 27 percent of its monthly 21 quantified net increase in non-interest income and returned item expenses related to 22 nonsufficient funds (“NSF”) and overdraft charges. The agreement provided for a 23 24 25 26 27 28 1 On June 6, 2008, JFMA sent a letter proposal to FICU’s former Chief Executive Officer (“CEO”), Joseph R. Ramirez, regarding the implementation of its ODP program at FICU. On July 24, 2008, Mr. Ramirez signed the proposal on behalf of FICU, and on August 5, 2008, JMFA’s Chairman, John M. Floyd, signed the proposal on behalf of JMFA. The letter proposal expressly states, “Upon acceptance by [FICU], this proposal shall become the Agreement between [JMFA] and [FICU].” (Compl. ¶ 8, Ex. 1.) –2– 16-cv-1851 DMS (WVG) 1 36-month contract term to commence as follows: 2 [FICU] will have the program operational for ninety (90) days prior to JMFA billing for contingency fee pricing. After the recommendations have been installed and monitored for ninety (90) days, we will quantify the increased income and [FICU] agrees to pay monthly the fees, as referenced above…. 3 4 5 6 (Compl. ¶ 8, Ex. 1.) 7 The agreement further provides that in the event a recommendation is not 8 installed, it will not be included in the fee calculation.2 9 recommendation, within 24 months of the end of the tracking period, is installed or 10 installed as modified, or initially declined and later installed as recommended or as 11 subsequently modified or installed using another party, it will be included in the fee 12 calculation for a period equal to the contract term.” (Compl. ¶ 8, Ex. 1.) The 13 agreement does not define “tracking period.” However, “if any 14 After the parties executed the agreement, JMFA sent two representatives to 15 FICU’s headquarters in El Centro, California to review FICU’s account structures 16 and procedures. After the completion of the on-site review, JMFA presented FICU 17 with two studies dated September 5, 2008, containing JMFA’s recommendations for 18 implementing the ODP program. Subsequently, FICU began installing JMFA’s 19 recommendations. 20 recommendations; however, JMFA’s ODP program was never made operational. It is undisputed that Defendant installed JMFA’s 21 On March 2, 2009, Mr. Ramirez left FICU. As a result, FICU delayed 22 launching the ODP program until a new CEO joined FICU. On July 1, 2009, FICU 23 hired Fidel Gonzalez as its new CEO. On December 9, 2009, Mr. Gonazlez 24 attempted to renegotiate the agreement with JMFA’s Regional Director, Emily 25 Harrington, seeking to reduce the percentage of JMFA’s contingency fee. Ms. 26 27 2 28 The agreement appears to use “recommendation” and the ODP program interchangeably. –3– 16-cv-1851 DMS (WVG) 1 Harrington declined Mr. Gonzalez’s request for fee reduction. On the same day, Mr. 2 Gonzalez e-mailed Ms. Harrington, stating “[t]his is to officially inform you that we 3 will not be moving forward with the JMFA overdraft privilege program.” (Mem. of 4 P. & A. in Supp. of Mot., Ex. 10.) 5 In 2012, FICU installed and implemented an ODP program through another 6 vendor, SmartStep, which like JMFA, designs and implements an ODP program. In 7 May 2016, JMFA discovered that FICU had implemented an ODP program, and 8 believed it was improperly using JMFA’s recommendations and software. 9 Thereafter, on July 20, 2016, JMFA filed a Complaint against FICU alleging the 10 following claims for relief: (1) breach of contract, (2) fraudulent misrepresentation, 11 (3) fraudulent concealment, (4) misappropriation of trade secrets, (5) unfair 12 competition, and (6) declaratory relief. On May 25, 2017, the parties filed a joint 13 motion to dismiss the second and third claims for relief, which the Court granted. 14 On August 28, 2017, FICU filed the present motion. 15 II. 16 DISCUSSION 17 A. Legal Standard 18 Summary judgment is appropriate if there is “no genuine dispute as to any 19 material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. 20 P. 56(a). The moving party has the initial burden of demonstrating that summary 21 judgment is proper. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). The 22 moving party must identify the pleadings, depositions, affidavits, or other evidence 23 that it “believes demonstrates the absence of a genuine issue of material fact.” 24 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “A material issue of fact is one 25 that affects the outcome of the litigation and requires a trial to resolve the parties’ 26 differing versions of the truth.” S.E.C. v. Seaboard Corp., 677 F.2d 1301, 1306 (9th 27 Cir. 1982). 28 The burden then shifts to the opposing party to show that summary judgment –4– 16-cv-1851 DMS (WVG) 1 is not appropriate. Celotex, 477 U.S. at 324. The opposing party’s evidence is to be 2 believed, and all justifiable inferences are to be drawn in its favor. Anderson v. 3 Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). However, to avoid summary 4 judgment, the opposing party cannot rest solely on conclusory allegations. Berg v. 5 Kincheloe, 794 F.2d 457, 459 (9th Cir. 1986). Instead, it must designate specific 6 facts showing there is a genuine issue for trial. Id.; see also Butler v. San Diego 7 Dist. Attorney’s Off., 370 F.3d 956, 958 (9th Cir. 2004) (stating if defendant 8 produces enough evidence to require plaintiff to go beyond pleadings, plaintiff must 9 counter by producing evidence of his own). More than a “metaphysical doubt” is 10 required to establish a genuine issue of material fact. Matsushita Elec. Indus. Co., 11 Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). 12 B. Breach of Contract 13 Defendant moves for summary judgment on the claim for breach of contract, 14 contending there was no breach. In California, “[a] cause of action for breach of 15 contract requires proof of the following elements: (1) existence of the contract; (2) 16 plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and 17 (4) damages to plaintiff as a result of the breach.” CDF Firefighters v. Maldonado, 18 158 Cal. App. 4th 1226, 1239 (Cal. Ct. App. 2008). Defendant contends there was 19 no breach because it never implemented Plaintiff’s ODP program. Plaintiff argues 20 Defendant implemented an ODP program that was “functionally identical” to its 21 ODP program, and therefore, Defendant’s failure to pay amounted to a breach. 22 Nothing in the agreement, however, requires Defendant to pay Plaintiff for the 23 increase in Defendant’s monthly income from ODP and NSF fees as a result of 24 implementing another vendor’s program, even a functionally equivalent one. 25 Indeed, Defendant’s obligation to pay under the agreement arises after “[Plaintiff’s] 26 ODP program has been operational” or “[Plaintiff’s] recommendations have been 27 installed and monitored for ninety (90) days[.]” (Compl. ¶ 8, Ex. 1.) Plaintiff, 28 however, fails to provide any evidence to show Defendant operated Plaintiff’s ODP –5– 16-cv-1851 DMS (WVG) 1 program or installed and monitored Plaintiff’s recommendations. 2 Plaintiff relies on the following provision in the contract to support its breach 3 of contract claim: “[i]f any recommendation … is installed or installed as modified, 4 or initially declined and later installed as recommended or as subsequently modified 5 or installed using another party, it will be included in the fee calculation for a period 6 equal to the contract term.” (Compl. ¶ 8, Ex. 1; see Mem. of P. & A. in Opp’n to 7 Mot. at 17.) However, Plaintiff does not offer any evidence to show that SmartStep, 8 in implementing its ODP program, installed Plaintiff’s recommendations. Plaintiff 9 merely claims SmartStep’s ODP program and Plaintiff’s ODP program are 10 functionally identical. Moreover, the installation of SmartStep’s ODP program does 11 not amount to a modification of Plaintiff’s ODP program, but rather a replacement 12 with another vendor’s product. See John M. Floyd & Assoc., Inc. v. First Bank, No. 13 CIV.A. 5:02CV00101, 2004 WL 2550453, at *6 (W.D. Va. Nov. 3, 2004) (“It is 14 nonsensical to conclude that installation of a competing vendor’s program was a 15 modification of Floyd’s recommendation to install its own program…. Therefore, 16 the fact that First Bank installed a competitor’s product, as a matter of law, is not a 17 ‘modification’ of Floyd’s recommendation to install its own program.”). Because 18 Plaintiff has failed to identify a genuine dispute of material fact with regard to 19 whether there was a breach of contract, Defendant’s motion is granted as to this 20 claim. 3 21 C. Misappropriation of Trade Secrets 22 Defendant also moves for summary judgment on the claim for 23 misappropriation of trade secrets, arguing Plaintiff’s ODP program does not 24 constitute a trade secret. To prevail on a claim for trade secret misappropriation 25 under the California Uniform Trade Secrets Act (“CUTSA”), the plaintiff must 26 27 3 28 In light of this ruling, the Court declines to address the parties’ remaining arguments with respect to the breach of contract claim. –6– 16-cv-1851 DMS (WVG) 1 establish: “(1) the plaintiff owned a trade secret, (2) the defendant acquired, 2 disclosed, or used the plaintiff’s trade secret through improper means, and (3) the 3 defendant’s actions damaged the plaintiff.” Sargent Fletcher, Inc. v. Able Corp., 4 110 Cal. App. 4th 1658, 1665 (Cal. Ct. App. 2003). Here, Defendant only challenges 5 the first element. 6 Under the CUTSA, a trade secret is defined as: 7 information, including a formula, pattern, compilation, program, device, method, technique, or process, that: 8 9 10 11 12 13 (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 14 Cal. Civ. Code § 3426.1(d). Thus, the definition of trade secrets consists of three 15 elements: “(a) information (b) which is valuable because unknown to others and (c) 16 which the owner has attempted to keep secret.” Abba Rubber Co. v. Seaquist, 235 17 Cal. App. 3d 1, 18 (Cal. Ct. App. 1991) (citation omitted). A plaintiff seeking relief 18 for misappropriation of trade secrets “must identify the trade secrets and carry the 19 burden of showing that they exist.” MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 20 511, 522 (9th Cir. 1993). The plaintiff “should describe the subject matter of the 21 trade secret with sufficient particularity to separate it from matters of general 22 knowledge in the trade or of special knowledge of those per’sons skilled in the 23 trade.” Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164–65 (9th Cir. 1998) 24 (citation omitted). 25 Defendant contends Plaintiff’s ODP program does not constitute a trade secret 26 because ODP programs are generally known and used in the banking industry. In 27 support, Defendant offers deposition testimony of its expert witness, Peggy Hansen, 28 who testified that JMFA did not invent the ODP program, and such program “exists –7– 16-cv-1851 DMS (WVG) 1 all over the United States in all types and sizes of financial institutions.” (Mem. of 2 P. & A. in Supp. of Mot., Ex. 26.) Further, Ms. Hansen reviewed the procedural 3 studies and training guidelines provided by JMFA to FICU and stated these 4 documents contain “general information about those types of programs that are 5 available to anyone skilled and knowledgably about them.” (Id.) Ms. Hansen 6 analogized an ODP program to programs or services for a home equity line of credit 7 or commercial real estate loans, which are also in general broad usage in the banking 8 industry. 9 Plaintiff responds the elements of its ODP program, including its “software, 10 recommendations, ODP and NSF policies, implementation procedures, forms of 11 customer communications, and other written materials[,]” are confidential and 12 proprietary trade secrets that are not generally known to the public. (Mem. of P. & 13 A. in Opp’n to Mot., 21.) Plaintiff, however, has not provided any evidence to 14 counter Defendant’s argument that the alleged trade secrets were common or 15 generally known in the banking industry. See Princess Cruises, Inc. v. Amrigon 16 Enterprises, Inc., 51 F. App’x 626, 628 (9th Cir. 2002) (defendant was not liable for 17 misappropriation of trade secrets absent “specific evidence that its alleged trade 18 secrets were not common or obvious concepts in the [relevant] industry.”). Further, 19 Plaintiff has not identified specific information that it claims to be trade secrets, but 20 rather identifies a broad range of documents that it contends contain confidential and 21 proprietary trade secrets. See Social Apps, LLC v. Zynga, Inc., 2012 WL 2203063, 22 at *4 (N.D. Cal. June 14, 2012) (“A description of the category, or even of the 23 subcategories of information within a category, does not comply with the 24 requirement to identify the actual matter that is claimed to be a trade secret.”). 25 Plaintiff’s generalizations concerning the elements of its ODP program are 26 insufficient to establish the necessary distinctions between its proprietary 27 information and general knowledge in the trade. Because Plaintiff has not identified 28 its purported trade secrets with sufficient particularity, it has failed to establish a –8– 16-cv-1851 DMS (WVG) 1 genuine dispute of material fact as to this claim. Accordingly, Defendant’s motion 2 with respect to this claim is granted. 3 D. Unfair Competition 4 Defendant contends it is entitled to summary judgment on the UCL claim 5 under the unlawful prong because Plaintiff cannot prevail on its claims for breach of 6 contract or misappropriation of trade secrets. The UCL prohibits “any unlawful, 7 unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. 8 “Each of these three adjectives captures a separate and distinct theory of liability.” 9 Rubio v. Cap. One Bank, 613 F.3d 1195, 1203 (9th Cir. 2010) (quotation marks 10 omitted). The Complaint appears to allege a UCL claim based on all three prongs. 11 The unlawful prong of the UCL incorporates “violations of other laws and 12 treats them as unlawful practices.” Cel-Tech Comms., Inc. v. L.A. Cellular Tel. Co., 13 20 Cal. 4th 163, 180 (Cal. 1999). “Thus, a violation of another law is a predicate for 14 stating a cause of action under the UCL’s unlawful prong.” Berryman v. Merit Prop. 15 Mgmt., 152 Cal. App. 4th 1544, 1554 (Cal. Ct. App. 2007). For example, a claim 16 for misappropriation of trade secrets can also support a claim for violation of the 17 UCL. Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1169 (9th Cir. 1998).4 18 Therefore, a UCL claim under the unlawful prong “stands or falls depending on the 19 fate of antecedent substantive causes of action.” Krantz v. BT Visual Images, 89 20 Cal. App. 4th 164, 178 (Cal. Ct. App. 2001). Here, because the misappropriation of 21 trade secrets claim does not survive summary judgment, the Court grants summary 22 judgment on the UCL claim under the unlawful prong. 5 23 /// 24 25 4 26 27 28 Generally, a common law violation such as breach of contract is insufficient to establish a violation of “unlawful” prong of California’s unfair competition law. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1044 (9th Cir. 2010) (citations omitted). 5 Plaintiff’s UCL claim under the unfairness and fraudulent prongs survive. –9– 16-cv-1851 DMS (WVG) 1 E. Declaratory Relief6 2 Defendant argues it is entitled to summary judgment on the declaratory relief 3 claim because it is ancillary to the breach of contract claim. Plaintiff alleges “FICU 4 is obligated to pay JMFA at least $460,350 in fees due under the terms of the ODP 5 Agreement.” (Compl. ¶ 63.) Plaintiff therefore seeks a declaratory judgment 6 “determining the respective rights and obligations of the parties under the ODP 7 Agreement[.] (Id. ¶ 65.) 8 Declaratory relief “is designed in large part as a practical means of resolving 9 controversies, so that parties can conform their conduct to the law and prevent future 10 litigation.” Meyer v. Sprint Spectrum L.P., 45 Cal. 4th 634, 648 (Cal. 2009). “To 11 qualify for declaratory relief, [a party] would have to demonstrate its action 12 presented two essential elements: ‘(1) a proper subject of declaratory relief, and (2) 13 an actual controversy involving justiciable questions relating to [the party’s] rights 14 or obligations.’” Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872, 909 (Cal. 15 Ct. App. 2013) (quoting Wilson & Wilson v. City Council of Redwood City, 191 Cal. 16 App. 4th 1559, 1582 (Cal. Ct. App. 2011)). A declaratory judgment is not a 17 corrective action, and therefore, it should not be used to remedy past wrongs. See 18 Britz Fertilizers, Inc. v. Bayer Corp., 665 F. Supp. 2d 1142, 1173 (E.D. Cal. 2009) 19 (“‘A declaratory relief claim ‘operates prospectively, and not merely for the redress 20 of past wrong.’”) (quoting Babb v. Super. Ct., 3 Cal. 3d 841, 848 (Cal. 1971)). 21 Therefore, “where there is an accrued cause of action for an actual breach of contract 22 23 6 24 25 26 27 28 Federal courts sitting in diversity apply the substantive law of the forum state. See Clark v. Allstate Ins. Co., 106 F. Supp. 2d 1016, 1018 (S.D. Cal. 2000) (“It is wellestablished that federal courts sitting in diversity must apply state substantive law and federal procedural rules.”) (citations omitted). For this reason, federal courts have consistently applied California Code of Civil Procedure § 1060 rather than the federal Declaratory Judgment Act when sitting in diversity. See Schwartz v. U.S. Bank, Nat. Ass’n, No. CV 11-08754 MMM JCG, 2012 WL 10423214, at *15 (C.D. Cal. Aug. 3, 2012) (compiling cases). The Court likewise applies California law. – 10 – 16-cv-1851 DMS (WVG) 1 or other wrongful act, declaratory relief may be denied.” Baldwin v. Marina City 2 Properties, Inc., 79 Cal. App. 3d 393, 407 (Cal. Ct. App. 1978). 3 Plaintiff’s declaratory relief claim is predicated upon Defendant’s purported 4 breach of the agreement. Because the Court grants summary judgment on the breach 5 of contract claim, there is no longer an actual or present controversy such that 6 declaratory relief would be appropriate. See Eisenberg v. Citibank, N.A., No. 7 213CV01814CASJPRX, 2017 WL 2978752, at *7 (C.D. Cal. July 10, 2017) 8 (granting summary judgment on the declaratory relief claim predicated on a 9 purported breach because the court concluded defendants have not breached the 10 agreement); Trapana v. Prudential Ins. Co. of Am., No. D038617, 2002 WL 505764, 11 at *6 (Cal. Ct. App. 2002) (“Once [plaintiff] no longer had a breach of contract cause 12 of action against [defendant], her declaratory relief cause of action did not ‘present 13 an actual controversy which [could] be resolved by means of declaratory 14 judgment.’”) (quoting Cardellini v. Casey, 181 Cal. App. 3d 389, 397 (Cal. Ct. App. 15 1986)). Moreover, the requested declaratory relief is based on allegations regarding 16 Defendant’s past wrongs in connection with the alleged breach, which is an improper 17 basis for declaratory relief. Accordingly, Defendant’s motion is granted with respect 18 to this claim. 19 III. 20 CONCLUSION 21 22 23 24 For the foregoing reasons, Defendant’s motion for summary judgment is granted. IT IS SO ORDERED. Dated: October 25, 2017 25 26 27 28 – 11 – 16-cv-1851 DMS (WVG)

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