LBF Travel Management Corp. et al v. DeRosa et al

Filing 269

ORDER on Daubert Motions and Motions for Summary Judgment (Doc. Nos. 203 , 204 , 205 , 208 , 210 , 211 ). Signed by Judge Michael M. Anello on 3/26/24. (aas)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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LBF TRAVEL MANAGEMENT CORP.
and MICHAEL THOMAS,

Case No.: 20-cv-2404-MMA-SBC
ORDER ON DAUBERT MOTIONS
AND MOTIONS FOR SUMMARY
JUDGMENT

Plaintiffs,
v.
THOMAS DEROSA,

[Doc. Nos. 203, 204, 205, 208, 210, 211]

Defendant.
THOMAS DEROSA,
Counter-Claimant,
v.
LBF TRAVEL MANAGEMENT CORP.
and MICHAEL THOMAS,
Counter-Defendants.

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THOMAS DEROSA,
Third-Party Plaintiff,

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v.

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LBF TRAVEL, INC.; LBF TRAVEL
HOLDINGS, LLC; MONDEE
HOLDINGS, LLC; MONDEE, INC.; and
PRASAD GUNDUMOGULA,

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Third-Party Defendants.
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Plaintiffs/Counter-Defendants LBF Travel Management Corp. (“Old LBF”) and

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Michael Thomas (“Thomas”) (collectively, “Plaintiffs”) and Defendant/Counter-

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Claimant/Third-Party Plaintiff Thomas DeRosa (“DeRosa”) cross-move for summary

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judgment, or in the alternative partial summary judgment, regarding Plaintiffs’ Complaint

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filed on December 9, 2020, Doc. No. 1. See Doc. Nos. 204; 208. In addition, Third-

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Party Defendants LBF Travel, Inc. (“New LBF”), LBF Travel Holdings, LLC, Mondee

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Holdings, LLC, Mondee, Inc., and Prasad Gundumogula (“Gundumogula”) (collectively,

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“Third-Party Defendants”) move for summary judgment, or in the alternative partial

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summary judgment, against DeRosa regarding the remaining claims against them in his

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Second Amended Counterclaim and Third-Party Complaint (“Second Amended

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Pleading” or “SAP”) filed on March 9, 2022, Doc. No. 74. See Doc. No. 210. The

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parties also relatedly move to exclude certain opinions offered by each other’s retained

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experts. See Doc. Nos. 203; 205; 211. The Court found these matters suitable for

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determination on the papers and without oral argument pursuant to Civil Local Rule

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7.1.d.1. See Doc. No. 268. For the reasons set forth below, the Court GRANTS in part

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and DENIES in part Plaintiffs’ motion for partial summary judgment, Doc. No. 204,

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GRANTS in part and DENIES in part DeRosa’s motion for summary judgment, Doc.

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No. 208, GRANTS in part and DENIES in part Third-Party Defendants’ motion for

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summary judgment, Doc. No. 210, and DENIES the parties’ respective motions to

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exclude expert testimony. Doc. Nos. 203, 205, 211.
I. BACKGROUND 1

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The present action originates from the fallout of a business relationship between

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Thomas and DeRosa. Thomas is Old LBF’s co-founder, Chief Executive Officer, and

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majority shareholder. Doc. No. 239 (“Plaintiffs’ Response to DeRosa’s Separate

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These material facts are taken from the parties’ separate statements of fact and responses thereto, as
well as the supporting declarations and exhibits. Disputed material facts are discussed in further detail
where relevant to the Court’s analysis. Facts that are immaterial for purposes of resolving the current
motions are not included in this recitation.
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Statement” or “PRS”) at No. 47. He is also the co-founder of New LBF. Doc. No. 247

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(“DeRosa’s Additional Material Facts” or “AMF”) at No. 72. DeRosa is a software

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developer who “developed e-commerce software for booking airfares online” (the

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“Technology”), which he sold to Old LBF. PRS at Nos. 1–2.

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Thomas and Old LBF first sued DeRosa, alleging that DeRosa breached contracts

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and misappropriated trade secrets related to the Technology. See Doc. No. 1. Plaintiffs

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seek partial summary judgment on only their fifth cause of action for breach of contract.

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See Doc. No. 204. DeRosa cross-moves for summary judgment, or in the alternative

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partial summary judgment, on all eleven of Plaintiffs’ causes of action in their Complaint,

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including: (1) misappropriation of trade secrets in violation of the Defend Trade Secrets

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Act (“DTSA”), 18 U.S.C. §§ 1831 et seq.; (2) misappropriation of trade secrets in

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violation of the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code

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§§ 3426.1 et seq.; (3) violation of the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030

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et seq.; (4) conversion; (5) breach of contract; (6) breach of oral contract; (7) breach of

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fiduciary duty; (8) tortious interference with prospective economic relations; (9) unfair

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competition in violation of Cal. Bus. & Prof. Code §§ 17200 et seq.; (10) unjust

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enrichment; and (11) preliminary injunctive relief. See generally Doc. Nos. 1, 208.

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DeRosa also filed counterclaims 2 and third-party claims, alleging that Thomas,

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Gundumogula, and a myriad of entities Thomas and Gundumogula own/manage,

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collaborated to gut Old LBF of its assets in an effort to defraud and avoid paying DeRosa

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what he was owed. See Doc. No. 74. Third-Party Defendants seek summary judgment,

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or in the alternative partial summary judgment, on all of the remaining claims3 against

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them in DeRosa’s SAP, including: (1) aiding and abetting breach of fiduciary duties, not

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The Court notes that the remaining counterclaims against Counter-Defendants Thomas and Old LBF in
DeRosa’s SAP (Claims 1–5, 7–8, 10–11 & 14–15), which primarily deal with Thomas’s alleged
malfeasance and “looting” of Old LBF, are not at issue in any of the pending motions. See generally
Doc. No. 74; see also Doc. No. 117.
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The Court previously dismissed several claims in DeRosa’s SAP following Third-Party Defendants’
motions to dismiss. See Doc. Nos. 34, 52, 117.
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including DeRosa’s theory of “usurping a corporate opportunity” (Claim 6);

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(2) fraudulent conveyance (Claim 7); (3) unfair business practices (Claim 11); and

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(4) unjust enrichment (Claim 14). See Doc. Nos. 74, 117, 210.

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A.

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The Technology and Relevant Contracts
In October 2010, “DeRosa sold his Technology to Old LBF through an Asset

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Purchase Agreement.” PRS at No. 2. The sale of the Technology was “for Old LBF to

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own all of the current Technology, as well as any modifications to and derivatives of the

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Technology,” which DeRosa refers to as “DerivativeTech.” Doc. No. 247 (“Third-Party

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Defendants’ Reply to DeRosa’s Separate Statement” or “TPDRS”) at No. 5. The

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purchase price for the Technology was $1.25 million in cash “plus 200,000 shares of Old

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LBF stock, representing 10% of the business.” PRS at No. 6. DeRosa was to receive the

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cash payment in two forms: $499,200 in 24 monthly installments; and total “Earn-Out

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Consideration” of $750,800 in quarterly installments equal to 25% of Old LBF’s Net

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Income for the prior fiscal quarter. Id. at Nos. 7–8; Doc. No. 208-4 (“Asset Purchase

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Agreement” or “APA”) at 7–8. On September 28, 2011, Thomas and Old LBF granted

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DeRosa a right to purchase an additional 10% of Old LBF shares at $0.01 per share.4

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PRS at No. 21. This stock option vested on November 22, 2011, and expired on

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September 30, 2021. Id. at Nos. 21–22.

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DeRosa and Old LBF also entered into a Consulting Services Agreement in

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October 2010 where DeRosa would “provide services and advice in a capacity similar to

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DeRosa and Plaintiffs dispute whether this stock option grant was an amendment to the Asset Purchase
Agreement. Doc. No. 238 at 7–8. Plaintiffs argue that this option grant “resulted from DeRosa’s
expressed desire to keep the APA assets out of his divorce proceeding.” Id. at 7. In response, DeRosa
argues that he had already disclosed his interest in Old LBF to his estranged wife Jennifer DeRosa and
therefore requests judicial notice of a 2011 declaration from her in their divorce proceeding. Doc.
Nos. 208-1 at 16; 209 at 3. DeRosa’s request for judicial notice is unopposed. The Court finds this
document proper for judicial notice and therefore GRANTS DeRosa’s request, Doc. No. 209. Fed. R.
Evid. 201(b) (stating that a court may take judicial notice of facts not subject to reasonable dispute); see
Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 (9th Cir. 2006) (noting courts may take
judicial notice of court filings and other matters of public record).
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a Chief Technology Officer.” Doc. No. 239 at Nos. 3, 5; Doc. No. 208-5 (“Consulting

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Services Agreement”) at 3. Pursuant to the Consulting Services Agreement, DeRosa

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agreed to a nondisclosure clause regarding Old LBF’s confidential information and trade

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secrets. TPDRS at No. 4; Consulting Services Agreement at 5–6. By its own terms, the

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Consulting Services Agreement terminated in October 2012. PRS at No. 4; Consulting

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Services Agreement at 4. However, DeRosa continued to provide his services to Old

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LBF until December 2019. PRS at Nos. 42, 67.

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In December 2010, DeRosa and Old LBF entered into a Promissory Note,

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“pursuant to which DeRosa agreed to pay Thomas $25,000 on or before October 1,

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2012.” Doc. No. 204-2 at 83; PRS at No. 14; see also Doc. No. 223-1 (“DeRosa’s

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Response to Plaintiffs’ Separate Statement” or “DRS”) at No. 1. The Promissory Note

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was secured by a Pledge Agreement, wherein DeRosa “pledged his right to receive the

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Earn-Out Consideration until he paid the amount due under the [Promissory] Note.”

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Doc. No. 204-2 at 86; DRS at No. 7. Under the Pledge Agreement, “a default [would]

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occur[] ‘in the event of a [d]efault under the [Promissory] Note.” Doc. No. 223-1

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(“DeRosa’s Additional Materials Facts to Plaintiffs’ Separate Statement” or “AMF-2”) at

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No. 14; Doc. No. 204-2 at 87. DeRosa never paid the amount due under the Promissory

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Note. DRS at No. 2.

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DeRosa’s rights to the Technology in the event Old LBF defaulted under the Asset

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Purchase Agreement were set forth in a separate security agreement, which provided that

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DeRosa had “a continuing security interest in, lien on, assignment of and right of set-off”

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over “all of Old LBF’s assets” until Old LBF paid the Earn-Out Consideration. TPDRS

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at Nos. 6–8; Doc. No. 204-2 (the “Security Agreement”) at 57. Specifically, the Security

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Agreement provided for the “termination” of the agreement upon the “payment of all

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Secured Obligations.” TPDRS at No. 8. “Secured Obligations” are defined in the

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Security Agreement as “being Old LBF’s obligation to pay the Earn-Out Consideration

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under the [Asset Purchase Agreement].” Id. at No. 7. Pursuant to the Security

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Agreement, in October 2018, DeRosa recorded a Uniform Commercial Code (“UCC”)
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Financing Statement which placed a lien against the Technology to secure Old LBF’s

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obligations to pay him. Doc. No. 204-2 at 126. On December 20, 2019, Thomas—who

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desired to terminate DeRosa’s lien—sent an email to DeRosa confirming a wire transfer

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by Old LBF to DeRosa’s bank account of the $750,800 Earn-Out Consideration. TPDRS

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at Nos. 10–11. DeRosa acknowledges receiving the payment and Thomas’s email. Id. at

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No. 12. Old LBF proceeded to file a UCC-3 Financing Statement amendment with the

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Delaware Secretary of State. Id. at No. 24; see Doc. No. 210-23 at 2. DeRosa disputes

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whether this terminated his lien on the Technology. TPDRS at Nos. 11–13.

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B.

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Sale of Old LBF
In early 2019, Thomas informed DeRosa that Mondee, Inc. wanted to purchase Old

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LBF. Id. at No. 14. Mondee, Inc. is a wholly-owned subsidiary of Mondee Holdings,

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LLC, while LBF Travel Holdings, LLC and New LBF are wholly-owned subsidiaries of

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Mondee, Inc. Doc. No. 210-3 (“Declaration of Prasad Gundumogula” or “Gundumogula

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Decl.”) ¶¶ 1, 4. Gundumogula is the Chief Executive Officer of each of these entities.

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Id. ¶ 1.

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On June 19, 2019, Mondee, Inc., Thomas, and Old LBF executed a proposed term

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sheet (the “June Term Sheet”) wherein Old LBF would “sell 100 percent of Old LBF’s

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equity interests to Mondee, Inc.” PRS at No. 58; TPDRS at No. 14. In exchange, Old

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LBF would receive $20 million, which would consist of $5 million in cash and $15

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million in Mondee, Inc. stock. PRS at No. 58; TPDRS at No. 14.

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On November 22, 2019, DeRosa met with Thomas and Gundumogula at Mondee,

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Inc.’s Northern California office to discuss the potential sale of Old LBF. TPDRS at

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No. 34. “Gundumogula read a part of a due diligence report to DeRosa expressly

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indicating that Thomas had misappropriated Old LBF [a]ssets.” Id. at No. 25. Thomas

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and Gundumogula also showed DeRosa the June Term Sheet at the meeting, which

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contained the $20 million purchase price. Id. at No. 35; Gundumogula Decl. ¶ 8.

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DeRosa did not believe the proposed terms were fair and did not consent to the sale of

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Old LBF at the November 2019 meeting. TPDRS at No. 42; see also AMF at Nos. 60,

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64.

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On December 13, 2019, DeRosa stopped working for Old LBF. PRS at No. 67.

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When he left Old LBF, DeRosa had “his personal laptop, which he regularly used for

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work.” Id. at No. 68. “The laptop contained work email and code, which was regularly

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downloaded onto his computer as part of [DeRosa’s] software development

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responsibilities.” Id. at No. 69. DeRosa does not dispute that he possesses Old LBF’s

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source code but testified that he has not otherwise used or disclosed the code after he

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stopped working for Old LBF. Id. at No. 70. On December 16, 2019, DeRosa sued

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Thomas and Old LBF in California state court. Id. at No. 73.

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Following DeRosa’s departure from Old LBF, on December 20, 2019, Third-Party

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Defendants and Plaintiffs “consummated a deal for approximately $20 million.” Id. at

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No .74. However, “[t]hey changed the structure of the deal from an equity purchase to an

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asset purchase to avoid the requirement of DeRosa’s consent.” Id. at No. 75. Third-Party

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Defendants “acquired Old LBF’s assets except for the Technology . . . but Thomas now

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claims to have orally agreed with himself to provide a royalty-free license of the

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Technology to New LBF.” Id. at No. 76.

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II. DAUBERT MOTIONS

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DeRosa moves to exclude the expert testimony of Jason W. Anderson in its

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entirety. See Doc. No. 203. Both Plaintiffs and Third-Party Defendants move to exclude

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portions of the expert testimony of Kenneth D. Rugeti. See Doc. Nos. 205, 211. For the

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reasons set forth below, the Court DENIES DeRosa’s motion to exclude Anderson’s

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expert testimony, DENIES Third-Party Defendant’s motion to exclude regarding

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Rugeti’s opinion on “Additional Lost Value,” and DENIES without prejudice

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Plaintiffs’ motion to exclude Rugeti’s rebuttal to Anderson’s opinion. 5

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Because the Court has not relied upon Rugeti’s rebuttal to Anderson’s opinion in coming to its
conclusions in this Order, the Court finds it appropriate to DENY without prejudice Plaintiffs’ Daubert
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A.

Legal Standard
Rule 702 of the Federal Rules of Evidence provides that expert opinion evidence is

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admissible if: “(a) the expert’s scientific, technical, or other specialized knowledge will

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help the trier of fact to understand the evidence or to determine a fact in issue; (b) the

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testimony is based on sufficient facts or data; (c) the testimony is the product of reliable

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principles and methods; and (d) the expert has reliably applied the principles and methods

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to the facts of the case.” Fed. R. Evid. 702. As the Ninth Circuit recently explained:

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Under Daubert and its progeny, including Daubert II, a district court’s inquiry
into admissibility is a flexible one. Alaska Rent-A-Car, Inc. v. Avis Budget
Grp., Inc., 738 F.3d 960, 969 (9th Cir. 2013). In evaluating proffered expert
testimony, the trial court is “a gatekeeper, not a fact finder.” Primiano v.
Cook, 598 F.3d 558, 565 (9th Cir. 2010) (citation and quotation marks
omitted).
“[T]he trial court must assure that the expert testimony ‘both rests on a reliable
foundation and is relevant to the task at hand.’” Id. at 564 (quoting Daubert,
509 U.S. at 597). “Expert opinion testimony is relevant if the knowledge
underlying it has a valid connection to the pertinent inquiry. And it is reliable
if the knowledge underlying it has a reliable basis in the knowledge and
experience of the relevant discipline.” Id. at 565 (citation and internal
quotation marks omitted). “Shaky but admissible evidence is to be attacked
by cross examination, contrary evidence, and attention to the burden of proof,
not exclusion.” Id. at 564 (citation omitted). The judge is “supposed to screen
the jury from unreliable nonsense opinions, but not exclude opinions merely
because they are impeachable.” Alaska Rent-A-Car, 738 F.3d at 969. Simply
put, “[t]he district court is not tasked with deciding whether the expert is right
or wrong, just whether his testimony has substance such that it would be
helpful to a jury.” Id. at 969–70.

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City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1043 (9th Cir. 2014). “Challenges

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that go to the weight of the evidence are within the province of a fact finder, not a trial

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motion, subject to re-filing at a date closer in time to trial when the Court sets a date for the parties’
motions in limine.
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court judge. A district court should not make credibility determinations that are reserved

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for the jury.” Id. at 1044.

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B.

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DeRosa’s Motion to Exclude Anderson’s Opinion
DeRosa moves to exclude the entirety of the opinions and proposed testimony of

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Plaintiffs’ expert Anderson. Doc. No. 203-1 at 3. Anderson was retained “to evaluate

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economic damages claims asserted by Plaintiffs against DeRosa.” Id. Anderson only

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opines on unjust enrichment damages, measured by DeRosa’s “avoided development

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costs.” Doc. No. 203-3 at 28. DeRosa argues that Anderson’s opinion must be excluded

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because (1) he did not write the background section of his report; (2) Anderson’s

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opinions are “untethered to the facts;” and (3) Anderson did not consider the actual

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source code that DeRosa possesses. Doc. No. 203-1 at 3–4. Each of DeRosa’s

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arguments fail.

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First, courts have admitted expert testimony where the expert worked with

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attorneys in preparing their reports. See Acentra Inc. v. Staples, Inc., No. CV 07-5862

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ABC (RZx), 2010 WL 11459205, at *5 (C.D. Cal. Oct. 7, 2010) (finding the expert “was

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involved enough to have prepared the [report] to satisfy Rule 26” where she worked with

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attorneys as a group and as a team to create the report) (internal quotation marks

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omitted). Thus, DeRosa’s first argument is unavailing.

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Second, DeRosa argues that Anderson’s opinion must be excluded under Daubert

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because he based his opinion on the incorrect assumption that DeRosa “used” the source

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code. Doc. No. 203-1 at 4–5. However, improper assumptions are not bases to exclude

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expert testimony as they concern the weight of the testimony, not admissibility and may

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be challenged on cross-examination. See Shimozono v. May Dept. Stores Co., No. 00-

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04261 WJR, 2002 U.S. Dist. LEXIS 28478, 2002 WL 3437390, at *8 (C.D. Cal. Nov. 20,

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2002) (citation omitted) (arguments that an expert relied on unfounded assumptions in

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forming his opinion go to the weight, not the admissibility, of expert testimony).

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Accordingly, DeRosa’s second argument also fails.

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Finally, the Court is also unpersuaded by DeRosa’s argument that Anderson “did
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not even purport to analyze any code actually in DeRosa’s possession.” Doc. No. 203-1

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at 5. In their opposition, Plaintiffs point to Anderson’s deposition where he testified that

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his analysis was about Old LBF’s software from 2010 to 2019. Doc. No. 230 at 6; Doc.

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No. 230-1 at 99–100. Again, the Court finds that DeRosa’s arguments go to the weight

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of Anderson’s opinion rather than its admissibility. See Odyssey Wireless, Inc. v. Apple

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Inc., Nos. 15-cv-1735-H-RBB, 15-cv-1738-H-RBB, 15-cv-1743-H-RBB, 2016 WL

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7644790, at *15 (S.D. Cal. Sept. 14, 2016) (declining to exclude expert’s testimony

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because the defendant’s “disagreement with the facts underlying that opinion go to the

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weight to be afforded the testimony and not its admissibility.”).

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For these reasons, the Court DENIES DeRosa’s motion to exclude Anderson’s

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opinion.

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C.

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Third-Party Defendants’ Motion to Exclude Portions of Rugeti’s Opinion
To support his damages claims, DeRosa hired Rugeti to provide expert analysis

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and testimony “on certain accounting, damages, financial and valuation issues[.]” Doc.

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No. 211-9 at 3. Although Rugeti’s report includes his opinions on several categories of

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DeRosa’s alleged losses, Third-Party Defendants seek to exclude only Rugeti’s opinion

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concerning what he termed “Additional Lost Value,” or the value of Old LBF when

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Third-Party Defendants acquired its assets. Doc. Nos. 211-1 at 6; 236 at 8.

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Third-Party Defendants do not challenge Rugeti’s qualifications as an expert.

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Instead, they argue that Rugeti’s opinion must be excluded because (1) Rugeti failed to

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consider the income approach or any other reliable valuation methods when he valued

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Old LBF, (2) Rugeti did not “reliably employ the market approach because he

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erroneously calculated” Old LBF’s profitability by using an adjusted earnings before

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interest, taxes, depreciation, and amortization (“EBITDA”) multiplier that included “the

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value of certain synergies Mondee hoped to develop,” and (3) Rugeti selected an

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unreasonable EBITDA multiplier. Doc. No. 211-1 at 7–8.

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In opposition, DeRosa argues that Third-Party Defendants’ “attacks go to the

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weight of the evidence, not admissibility” and that Rugeti’s opinion is relevant to several
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of his claims in this case. Doc. No. 236 at 8. The Court agrees.

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Simply put, the question under Daubert is “whether or not the reasoning is

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scientific and will assist the jury. If it satisfies these two requirements, then it is a matter

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for the finder of fact to decide what weight to accord the expert’s testimony.” Kennedy

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v. Collagen Corp., 161 F.3d 1226, 1231 (9th Cir. 1998). “Disputes as to the strength of

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[an expert’s] credentials, faults in his use of [a particular] methodology, or lack of textual

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authority for his opinion, go to the weight, not the admissibility, of his testimony.’” Id.

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(quoting McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1044 (2d Cir. 1995)); see also In re

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REMEC Inc. Sec. Litig., 702 F. Supp. 2d at 1219 (S.D. Cal. 2010) (noting that the

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determination of weight and sufficiency of expert evidence is the sole province of the

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jury). Moreover, whether Rugeti chose the correct factors to include in his calculations

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“and gave them the correct weight is for the jury.” S.E.C. v. Moshayedi,

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No. SACV1201179JVSMLGX, 2013 WL 12129282, at *6 (C.D. Cal. Nov. 20, 2013).

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Accordingly, although Third-Party Defendants point to several potential weaknesses in

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Rugeti’s analysis, they “may explore these perceived deficiencies through cross

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examination.” In re REMEC Inc. Sec. Litig., 702 F. Supp. 2d at 1219; see also Primiano

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v. Cook, 598 F.3d 558, 564 (9th Cir. 2010) (“Shaky but admissible evidence is to be

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attacked by cross examination, contrary evidence, and attention to the burden of proof,

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not exclusion.”).

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Therefore, the Court DENIES Third-Party Defendants’ motion to exclude Rugeti’s
opinion on “Additional Lost Value.”

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III. SUMMARY JUDGMENT
A.

Legal Standard
Pursuant to Federal Rule of Civil Procedure 56,
[a] party may move for summary judgment, identifying each claim or
defense—or the part of each claim or defense—on which summary judgment
is sought. The court shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact and the movant is entitled
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to judgment as a matter of law.
Fed. R. Civ. P. 56(a). The party seeking summary judgment bears the initial burden of
establishing the basis of its motion and of identifying the portions of the declarations,
pleadings, and discovery that demonstrate absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party has “the burden of
showing the absence of a genuine issue as to any material fact, and for these purposes the
material it lodged must be viewed in the light most favorable to the opposing party.”
Adickes v. S. H. Kress & Co., 398 U.S. 144, 157 (1970). A fact is material if it could
affect the outcome of the suit under applicable law. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A dispute about a material fact is genuine if there is sufficient
evidence for a reasonable jury to return a verdict for the non-moving party. See id.
The party opposing summary judgment cannot “‘rest upon the mere allegations or
denials of [its] pleading’ but must instead produce evidence that ‘sets forth specific facts
showing that there is a genuine issue for trial.’” Estate of Tucker v. Interscope Records,
Inc., 515 F.3d 1019, 1030 (9th Cir. 2008) (quoting Fed. R. Civ. P. 56(e)). Moreover, “a
party cannot manufacture a genuine issue of material fact merely by making assertions in
its legal memoranda.” S.A. Empresa de Viacao Aerea Rio Grandense v. Walter Kidde &
Co., Inc., 690 F.2d 1235, 1238 (9th Cir. 1982).
Where cross-motions for summary judgment are at issue, the court “evaluate[s]
each motion separately, giving the nonmoving party in each instance the benefit of all
reasonable inferences.” ACLU of Nev. v. City of Las Vegas, 466 F.3d 784, 790–91 (9th
Cir. 2006) (citations omitted). That said, “the court must consider each party’s evidence,
regardless under which motion the evidence is offered.” Las Vegas Sands, LLC v.
Nehme, 632 F.3d 526,532 (9th Cir. 2011). “When opposing parties tell two different
stories, one of which is blatantly contradicted by the record, so that no reasonable jury
could believe it, a court should not adopt that version of the facts for purposes of ruling
on a motion for summary judgment.” Scott v. Harris, 550 U.S. 372, 380 (2007).
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2

B.

Evidentiary Objections
The parties each raise a variety of evidentiary objections to the evidence presented

3

by the opposing party. See Doc. Nos. 237, 240, 245–46, 248. Most of these objections

4

are raised on the grounds that the evidence is argumentative, speculative, prejudicial,

5

irrelevant, or that the form of the evidence is inadmissible because there is a lack of

6

foundation, or it constitutes inadmissible lay opinion or hearsay. The parties also object

7

on the ground that the statements of fact mischaracterize the evidence.

8
9

“A trial court can only consider admissible evidence in ruling on a motion for
summary judgment.” Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002).

10

At the summary judgment stage, district courts consider evidence with content that would

11

be admissible at trial, even if the form of the evidence would not be admissible at trial.

12

See Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003); Block v. City of Los

13

Angeles, 253 F.3d 410, 418–19 (9th Cir. 2001). Objections such as lack of foundation,

14

speculation, hearsay, relevance, or that evidence is argumentative or constitutes an

15

improper legal conclusion “are all duplicative of the summary judgment standard itself”

16

and unnecessary to consider here. Burch v. Regents of Univ. of Cal., 433 F. Supp. 2d

17

1110, 1119 (E.D. Cal. 2006). Moreover, Federal Rule of Evidence 403 objections are

18

unnecessary at the summary judgment stage because there is no jury that can be misled

19

and no danger of confusing the issues. See Montoya v. Orange Cnty. Sheriff’s Dep’t, 987

20

F. Supp. 2d 981, 994 (C.D. Cal. 2013) (stating that courts “need not exclude evidence at

21

the summary judgment stage for danger of unfair prejudice, confusion of the issues, or

22

any other grounds outlined in Rule 403”). Accordingly, the Court OVERRULES the

23

parties’ objections on the grounds that the evidence is irrelevant, speculative,

24

argumentative, prejudicial, that it constitutes hearsay or inadmissible lay opinion, or that

25

there is a lack of foundation. See Burch, 433 F. Supp. 2d at 1122. Similarly, the Court

26

OVERRULES the parties’ objections to the characterization of or purported

27

misstatement of the evidence represented. See Hanger Prosthetics & Orthotics, Inc. v.

28

Capstone Orthopedic, Inc., 556 F. Supp. 2d 1122, 1126 n.1 (E.D. Cal. 2008) (noting that
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1

the parties’ “‘evidentiary objections’ to [their adversary’s] separate statements of

2

undisputed facts are not considered because such objections should be directed at the

3

evidence supporting those statements”).

4

C.

Plaintiffs’ Motion for Partial Summary Judgment

5

Plaintiffs seek summary judgment on their fifth cause of action for breach of

6

contract related to the Promissory Note, the Pledge Agreement, and the Consulting

7

Services Agreement. Doc. No. 204. In California, “[a] cause of action for breach of

8

contract requires proof of the following elements: (1) existence of the contract;

9

(2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and

10

(4) damages to plaintiff as a result of the breach.” Rankine v. Roller Bearing Co. of Am.,

11

No. 12-CV-2065-MMA BLM, 2013 WL 5944248, at *3 (S.D. Cal. Nov. 5, 2013), aff’d

12

sub nom. Rankine v. Does, 1-10, 628 F. App’x 494 (9th Cir. 2015) (quoting CDF

13

Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008)).

14

DeRosa does not dispute: (1) the existence of the above-mentioned contracts,

15

(2) Plaintiffs’ performance, or (3) his breach. Instead, DeRosa asserts that the applicable

16

statute of limitations and the doctrine of waiver bar Plaintiffs’ claim. Doc. No. 223 at 3–

17

10. In addition, as to Plaintiffs’ claim regarding the Consulting Services Agreement,

18

DeRosa argues Plaintiffs have failed to identify any damages. Id. at 8.

19

1.

20

DeRosa argues that Plaintiffs’ claim is time-barred because “the Promissory Note

Promissory Note

21

was breached at the very latest on October 6, 2012,” which “triggered the four-year

22

statute of limitations” for a written contract set forth in Section 337 of the California

23

Code of Civil Procedure. Id. at 6. However, under Section 3118(a) of the California

24

Commercial Code, the statute of limitations for collections on a promissory note is six

25

years from the “final due date” of a promissory note that is due at a specific time. 6

26
27
28

6

Plaintiffs correctly note that newer and more specific statutes take precedence over older and more
general statutes. See Allen v. Stoddard, 212 Cal. App. 4th 807, 816 (2013). Therefore, the Court finds
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Oropeza v. State Farm Bank, F.S.B., No. 17-CV-06920-SK, 2018 WL 11471624, at *5

2

(N.D. Cal. Jan. 31, 2018) (citing Cadle Co. v. World Wide Hospitality Furniture, Inc.,

3

144 Cal. App. 4th 504, 514 n. 8 (2006)). Here, the Promissory Note’s final due date was

4

October 1, 2012.7 See Doc. No. 204-2 at 83. In addition, the Promissory Note contains a

5

written waiver of defenses. Id. This is significant because California Code of Civil

6

Procedure Section 360.5 provides that, if the limitations period is waived, the waiver may

7

extend the statute an additional four years. 8 Therefore, Plaintiffs’ breach of contract

8

claim regarding the Promissory Note, filed on December 9, 2020, was brought within the

9

10-year statute of limitations, and is timely. Accordingly, the Court GRANTS Plaintiffs’

10

motion as to the Promissory Note.

11

2.

12

Plaintiffs argue that DeRosa breached the Pledge Agreement because “the express

Pledge Agreement

13

terms of the Pledge Agreement state that [DeRosa] ‘shall be deemed to be in default of

14

this Pledge Agreement in the event of a Default under the [Promissory] Note.’” Doc.

15

No. 204 at 9. Plaintiffs also assert that DeRosa’s “placing a UCC lien on the assets of

16

[Old] LBF” constitutes a breach of the Pledge Agreement. Id. at 2, 8–9. DeRosa does

17

not dispute that his failure to pay the Promissory Note is a breach of the Pledge

18

Agreement. Instead, DeRosa argues again that the statute of limitations bars Plaintiffs’

19

cause of action. Doc. No. 223. Here, the Court agrees with DeRosa that Section 337’s

20

four-year statute of limitations applies and that Plaintiffs’ claim regarding the Pledge

21

Agreement is time-barred. In addition, the Court finds Plaintiffs’ alternative theory

22

regarding the UCC lien unpersuasive because they fail to sufficiently explain how

23
24
25
26
27
28

that Commercial Code Section 3118 contains the applicable statute of limitations here because section
3118 was enacted in 1992, which is after Civil Procedure Code Section 337 was last amended in 1961.
7
Commercial Code Section 3118(b) is not applicable here because that subdivision only applies to
“pure” demand notes, i.e., those lacking any due date.
8
DeRosa also argues that Plaintiffs’ claim fails because Plaintiffs waived their rights by not seeking
enforcement of the Promissory Note earlier. Doc. No. 223 at 9. The Promissory Note’s inclusion of the
waiver of defenses negates this argument.
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DeRosa’s lien violates any applicable provision of the Pledge Agreement. Accordingly,

2

the Court DENIES Plaintiffs’ motion as to the Pledge Agreement.

3

3.

4

As with Plaintiffs’ claim regarding the Promissory Note, the Court rejects

5

DeRosa’s statute of limitations argument for the Consulting Services Agreement on the

6

basis that the claim is timely under California law. DeRosa’s assertion that any breach of

7

contract must have occurred shortly after the Agreement expired in October 2012 is

8

contradicted by both the facts and the law. The Consulting Services Agreement includes

9

a nondisclosure clause that provides that DeRosa was required to “return all Confidential

Consulting Services Agreement

10

Information within ten (10) business days after the termination or expiration of [the]

11

Agreement and shall not retain any copies.” Doc. No. 204-2 at 76. The clause also states

12

that “[t]his covenant of nondisclosure and [DeRosa’s] liability for breach of such

13

covenant shall survive the expiration or termination of this Agreement.” Id. Such

14

survival clauses are routinely enforced and DeRosa has failed to offer any reason why the

15

provision here should not be enforced. See PAI Corp. v. Integrated Sci. Sols., Inc.,

16

No. C-06-05349 JCS, 2008 WL 11404541, at *15 (N.D. Cal. Feb. 15, 2008). As this

17

claim is based on DeRosa’s retention of source code after he stopped providing his

18

services to Old LBF in December 2019, which he does not dispute, the breach of this

19

obligation accrued within four years of the filing of the complaint. 9

20

DeRosa also argues that Plaintiffs “fail to identify any damages from [his] failure

21

to return” their confidential information. Doc. No. 223 at 8. In response, Plaintiffs argue

22

that DeRosa’s breach of the Consulting Services Agreement “constitutes improper

23

acquisition under the DTSA and CUTSA” and that they “have stated a valid theory of

24

damages for this breach under” both statutes. Doc. No. 242 at 6. Although DeRosa

25

disputes Plaintiffs’ unjust enrichment theory of damages related to their trade secret

26
27
28

9

The Court also finds that the survival clause precludes DeRosa’s waiver argument. See Doc. No. 223
at 10.
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claims, he does not address the fact that Plaintiffs also seek injunctive relief. See Doc.

2

No. 1 at 21 ¶¶ 74, 84, 111. Because Plaintiffs seek injunctive relief in their Complaint,

3

and because DeRosa expressly consented to injunctive relief in the Consulting Services

4

Agreement, 10 see Doc. No. 208-5 at 6, the Court GRANTS Plaintiffs’ motion as to the

5

Consulting Services Agreement. However, as discussed below in Section III.D.1, the

6

Court DENIES Plaintiffs’ motion to the extent they seek any other remedy.

7

D.

8

DeRosa’s Motion for Summary Judgment
As a preliminary matter, the Court addresses DeRosa’s request to enter an order

9

“declaring that he is an owner of Old LBF with at least a 20 percent ownership interest.”

10

Doc. No. 208 at 3. Plaintiffs argue that DeRosa’s request is not appropriate for summary

11

judgment. Doc. No. 238 at 6. Because he does not seek summary judgment as to any

12

specific cause of action in the complaint, the Court construes DeRosa’s request under

13

Federal Rule of Civil Procedure 56(g), which states “[i]f the court does not grant all the

14

relief requested by the motion, it may enter an order stating any material fact—including

15

an item of damages or other relief—that is not genuinely in dispute and treating the fact

16

as established in the case.” Fed. R. Civ. P. 56(g).

17

Rule 56(g) “was intended to avoid a useless trial of facts and issues over which

18

there was never really any controversy and which would tend to confuse and complicate a

19

lawsuit.” Lies v. Farrell Lines, Inc., 641 F.2d 765, 769 n.3 (9th Cir. 1981) (quotation

20

omitted); see also Lahoti v. VeriCheck, Inc., 586 F.3d 1190, 1202 (9th Cir. 2009) (noting

21

that the rule “serves the purpose of speeding up litigation”) (quotation omitted). The

22

Advisory Committee Comments to the 2010 amendments to Rule 56(g) state: “Even if

23

the court believes that a fact is not genuinely in dispute it may refrain from ordering that

24

the fact be treated as established. The court may conclude that it is better to leave open

25
26
27
28

10

Both the Defend Trade Secrets Act and the California Uniform Trade Secrets Act provide for
injunctive relief. See 18 U.S.C. § 1836(b)(3)(A); Cal. Civ. Code § 3426.2. In addition, injunctive relief
is an available remedy for a breach of contract claim where damages may be inadequate. See Smith v.
Mendonsa, 108 Cal. App. 2d 540, 543 (1952).
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for trial facts and issues that may be better illuminated by the trial of related facts that

2

must be tried in any event.” Fed. R. Civ. P. 56(g) advisory committee’s cmt. (2010

3

amd.).

4

DeRosa argues that the Court may grant summary judgment on any part of a claim

5

or defense, and that his “stake in Old LBF is part of three of his counterclaims.” 11 Doc.

6

No. 244 at 7. DeRosa contends that he owns at least 400,000 shares, or at least 20% of

7

Old LBF, while Plaintiffs claim that DeRosa only owns 200,000 shares. Doc. Nos. 208-1

8

at 13; 238 at 9. Indeed, Plaintiffs dispute the majority of DeRosa’s facts related to his

9

percentage of ownership of Old LBF. Doc. No. 238 at 7–10. After considering the

10

parties’ arguments, the Court declines to enter an order pursuant to Rule 56(g) requiring

11

that the facts stated in DeRosa’s motion, Doc. No. 208-1 at 13–20, be treated as

12

established in a jury trial. See SEC v. Retail Pro, Inc., No. 08cv1620-WQH-RBB, 2011

13

WL 589828 at *3, 2011 U.S. Dist. LEXIS 13095 at *8 (S.D. Cal. Feb. 10, 2011) (district

14

courts have “open-ended discretion to decide whether it is practicable to determine what

15

material facts are not genuinely at issue.”). Accordingly, the Court DENIES DeRosa’s

16

request.

17
18

As stated above, DeRosa seeks summary judgment on each cause of action in
Plaintiffs’ Complaint. The Court will address each cause of action in turn.

19

1.

20

DeRosa moves for summary judgment on Plaintiffs’ trade secret misappropriation

Trade Secret Misappropriation (Claims 1 & 2)

21

claims under both the federal Defend Trade Secrets Act (“DTSA”) and the California

22

Uniform Trade Secrets Act (“CUTSA”). Doc. No. 208-1 at 20–24. Specifically, DeRosa

23

argues that Plaintiffs’ claims fail for the following reasons: (1) they are precluded by the

24

litigation privilege; (2) there is no evidence of misappropriation; and (3) they fail to

25

provide any evidence of damages. Id. at 20, 23.

26
27
28

11

As noted in Footnote 2 above, DeRosa’s counterclaims against Thomas are not at issue in any of the
instant motions.
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“The elements of misappropriation under the DTSA are similar to those under the

2

CUTSA, except that the DTSA applies only to misappropriations that occur or continue

3

to occur on or after its date of enactment on May 11, 2016.” Alta Devices, Inc. v. LG

4

Elecs., Inc., 343 F. Supp. 3d 868, 877 (N.D. Cal. 2018) (quotations omitted). Courts have

5

analyzed DTSA and CUTSA claims together “because the elements are substantially

6

similar.” Inteliclear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 657 (9th Cir.

7

2020). This Court likewise concludes that it is appropriate to do so here. To prevail on a

8

DTSA or CUTSA claim, a plaintiff must prove: “(1) the plaintiff owned a trade secret;

9

(2) the defendant misappropriated the trade secret; and (3) the defendant’s actions

10

damaged the plaintiff.” See 18 U.S.C. § 1839(5); Inteliclear, 978 F.3d at 657–58; Kimera

11

Labs Inc. v. Jayashankar, No. 21-CV-2137-MMA (DDL), 2022 WL 11965058, at *6

12

(S.D. Cal. Oct. 20, 2022).

13
14

a.

Litigation Privilege

DeRosa argues “the First Amendment protects [his] alleged misconduct” because

15

he merely “collected evidence for this case, and . . . sent it to his lawyers.” Doc. No. 208-

16

1 at 21. Because these claims involve DeRosa’s breach of a nondisclosure agreement

17

related to trade secrets, the Court finds that the litigation privilege does not apply. See

18

ITT Telecom Products Corp. v. Dooley, 214 Cal. App. 3d 307, 320 (1989) (finding the

19

privilege did not apply after balancing society’s interest in accurate judicial proceedings

20

against the plaintiff’s property interest in trade secrets and the defendant’s signing of

21

written nondisclosure agreement).

22

b.

Ownership of Trade Secret

23

DeRosa does not dispute that Plaintiffs’ code qualifies as a trade secret. However,

24

he argues that Plaintiffs have failed to identify and provide any evidence that they own or

25

possess a trade secret other than the source code. Doc. No. 208-1 at 22. The Court

26

agrees. See MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511, 522 (9th Cir. 1993)

27

(finding a party “who seeks relief for misappropriation of trade secrets must identify the

28

trade secrets and carry the burden of showing that they exist”). In addition, Plaintiffs do
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1

not dispute this argument in their opposition. Accordingly, the Court GRANTS

2

DeRosa’s motion for summary judgment as to any alleged trade secret other than

3

Plaintiffs’ source code.

4
5

c.

Misappropriation of Trade Secret

Next, DeRosa argues that Plaintiffs show “no evidence of misappropriation.” Doc.

6

No. 208-1 at 22. Under both the DTSA and CUTSA, misappropriation means either

7

“(1) the ‘[a]cquisition of a trade secret by another person who knows or has reason to

8

know that the trade secret was acquired by improper means;’ or (2) the ‘[d]isclosure or

9

use of a trade secret of another without express or implied consent.’” Genasys Inc.

10

v. Vector Acoustics, LLC, No. 22-CV-152 TWR (BLM), 2023 WL 4414222, at *18 (S.D.

11

Cal. July 7, 2023) (first quoting 18 U.S.C. § 1839(5); and then quoting Cal. Civ. Code

12

§ 3426.1(b)).

13

Here, Plaintiffs do not contend that DeRosa improperly “used” or “disclosed” their

14

trade secret source code. Doc. No. 238 at 13. Instead, they argue their “theory of

15

misappropriation involves improper acquisition whereby [DeRosa] breached the

16

confidentiality provision of his Consulting [Services] Agreement.” Id. A defendant

17

misappropriates trade secrets by acquisition if he or she “knew or had reason to know that

18

the trade secret was acquired by improper means,” which includes “breach or inducement

19

of a breach of a duty to maintain secrecy.” Masimo Corp. v. True Wearables Inc.,

20

No. SACV182001JVSJDEX, 2021 WL 2548690, at *5 (C.D. Cal. Apr. 28, 2021), aff’d,

21

No. 2021-2146, 2022 WL 205485 (Fed. Cir. Jan. 24, 2022). In his reply, DeRosa argues

22

that he did not breach the Consulting Services Agreement because it expired before he

23

left Old LBF. Doc. No. 244 at 12. However, the Court finds that the survival clause

24

contained in the Consulting Service Agreement’s nondisclosure clause forecloses

25

DeRosa’s argument. Doc. No. 204-2 at 76; PAI Corp. v. Integrated Science Solutions,

26

Inc., No. C-06-05349-JCS, 2008 WL 11404541, at *15 (N.D. Cal. Feb. 15, 2008).

27

Therefore, at minimum, because DeRosa does not dispute that he still holds Old LBF’s

28

source code, the Court finds that Plaintiffs have provided sufficient evidence to show
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20-cv-2404-MMA-SBC

1

DeRosa improperly acquired their source code by breaching the Consulting Services

2

Agreement.

3
4

d.

Damages

The DTSA provides that a court may grant injunctive relief, an award of monetary

5

damages, or both. See 18 U.S.C. § 1836(b)(3). It authorizes three separate measures of

6

damages: (1) “damages for actual loss caused by the misappropriation of the trade

7

secret;” (2) “damages for any unjust enrichment caused by the misappropriation of the

8

trade secret that is not addressed in computing damages for actual loss;” or (3) “in lieu of

9

damages measured by any other methods, the damages caused by the misappropriation

10

measured by imposition of liability for a reasonable royalty for the misappropriator’s

11

unauthorized disclosure or use of the trade secret.” 18 U.S.C. § 1836(b)(3)(B). An

12

award of actual losses and unjust enrichment are permissible as long as there is no double

13

counting. See 18 U.S.C. § 1836(b)(3)(B). CUTSA also authorizes three separate

14

measures of damages: (1) “[a] complainant may recover damages for the actual loss

15

caused by misappropriation;” (2) “[a] complainant also may recover for the unjust

16

enrichment caused by misappropriation that is not taken into account in computing

17

damages for actual loss;” and (3) [i]f neither damages nor unjust enrichment caused by

18

misappropriation are provable, the court may order payment of a reasonable royalty for

19

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

20

§ 3426.3(a) & (b). CUTSA also provides that “[i]f willful and malicious

21

misappropriation exists, the court may award exemplary damages in an amount not

22

exceeding twice any award made under subdivision (a) or (b).” Id. § 3426.3(c). CUTSA

23

differs from the DTSA on reasonable royalty as a court may order a reasonable royalty

24

only where “neither actual damages to the holder of the trade secret nor unjust

25

enrichment to the user is provable.” Ajaxo Inc. v. E*Trade Fin. Corp., 187 Cal. App. 4th

26

1295, 1308–09 (2010).

27
28

Here, neither party addresses the fact that Plaintiffs seek injunctive relief in their
Complaint. As stated above, both DTSA and CUTSA allow injunctive relief as a
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20-cv-2404-MMA-SBC

1

remedy. See 18 U.S.C. § 1836(b)(3)(A); Cal. Civ. Code § 3426.2. In addition, Courts

2

have recognized that behavior similar to DeRosa’s—where a defendant does not dispute

3

that he possesses confidential information of the plaintiff’s—can be evidence of trade

4

secret misappropriation supporting injunctive relief. See WeRide Corp. v. Kun Huang,

5

379 F. Supp. 3d 834, 848 (N.D. Cal. 2019), modified in part, No. 5:18-CV-07233-EJD,

6

2019 WL 5722620 (N.D. Cal. Nov. 5, 2019); Henry Schein, Inc. v. Cook, 191 F. Supp. 3d

7

1072, 1077 (N.D. Cal. 2016); Pyro Spectaculars N., Inc. v. Souza, 861 F. Supp. 2d 1079,

8

1087 (E.D. Cal. 2012). Therefore, to the extent Plaintiffs seek injunctive relief related to

9

their trade secret misappropriation claims, the Court DENIES DeRosa’s motion. See

10

Medimpact Healthcare Sys., Inc. v. IQVIA Inc., No. 19CV1865-GPC(DEB), 2022 WL

11

6281793, at *20 (S.D. Cal. Oct. 7, 2022) (noting that even if the plaintiff’s expert was

12

excluded on damages, the plaintiff was still able to seek injunctive relief as a remedy in

13

DTSA and CUTSA action).

14

As to other forms of relief, Plaintiffs claim that they have suffered damages

15

through DeRosa’s unjust enrichment. Doc. No. 238 at 14. Specifically, Plaintiffs argue

16

they have suffered damages from DeRosa’s avoided development costs by

17

misappropriating their source code. Id. While Plaintiffs are correct that “avoided

18

development costs” are a potential way to calculate a defendant’s unjust enrichment, see

19

Ajaxo Inc., 187 Cal. App. 4th at 1305, the Court finds that the evidence provided by

20

Plaintiffs fails as a matter of law. Plaintiffs’ retained software expert, Anderson, provides

21

an opinion as to the amount of DeRosa’s alleged avoided development costs. Doc.

22

Nos. 238 at 14; 203-3 at 25. However, the Court agrees with DeRosa that Anderson’s

23

opinion is fatally flawed because it assumes DeRosa “used” Plaintiffs’ source code. Doc.

24

Nos. 203-3 at 25; 208-1 at 24; see Ajaxo Inc., 187 Cal. App. 4th at 1305 (stating “unjust

25

enrichment might be calculated based upon cost savings or increased productivity

26

resulting from use of the secret) (emphasis added). Plaintiffs do not provide any counter-

27

authority to DeRosa’s argument that “use” is required to award unjust enrichment

28

damages, and concede both that they have no evidence regarding “use” and that their
-22-

20-cv-2404-MMA-SBC

1

theory of misappropriation is only based on improper acquisition. Doc. No. 238 at 13–

2

14. Therefore, the Court finds Plaintiffs have failed to produce any genuine issue of

3

material fact regarding unjust enrichment damages. Accordingly, the Court GRANTS

4

DeRosa’s motion for summary judgment as to Plaintiffs’ first and second causes of action

5

to the extent that Plaintiffs seek unjust enrichment damages.

6

2.

7

DeRosa moves for summary judgment as to Plaintiffs’ third cause of action for

8

violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. §§ 1030 et seq.

9

Doc. No. 208-1 at 25–26. In their opposition, Plaintiffs concede that “[d]iscovery did not

Computer Fraud and Abuse Act (Claim 3)

10

disclose evidence in support of Plaintiffs’ CFAA claim” and state that they “will not

11

pursue their CFAA claim.” Doc. No. 238 at 15 n.1. Therefore, the Court GRANTS

12

DeRosa’s motion for summary judgment as to Plaintiffs’ third cause of action.

13

3.

14

Next, DeRosa moves for summary judgment on Plaintiffs’ claims for conversion

Tort Claims (Claims 4 & 7–10)

15

(Claim 4), breach of fiduciary duty (Claim 7), tortious interference with prospective

16

economic relations (Claim 8), unfair competition (Claim 9), and unjust enrichment

17

(Claim 10). Doc. No. 208-1 at 25. DeRosa argues that these claims “rest on the same

18

facts underlying their trade secrets claims” and that therefore, they are displaced by

19

CUTSA.12 Id. The Court agrees.

20

With the exception of contractual claims, CUTSA displaces “common law claims

21

that are based on the same nucleus of facts as the misappropriation of trade secrets claim

22

for relief.” 13 Peralta v. California Franchise Tax Bd., 124 F. Supp. 3d 993, 1002 (N.D.

23

Cal. 2015), aff’d, 673 F. App’x 975 (Fed. Cir. 2016) (internal quotation marks and

24
25
26
27
28

12

The Court uses the term “displacement.” Courts have also used “supersession” and “preemption” to
describe CUTSA’s effect on common law tort causes of action related to trade secret misappropriation.
13
Although Plaintiffs’ unfair competition claim is statutory, courts have ruled that CUTSA displaces
both common law and statutory unfair competition claims if they rely on the same facts as a
misappropriation claim. See K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal.
App. 4th 939, 961 (2009).
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1

citation omitted); see Cal. Civ. Code § 3426.7. To survive displacement, Plaintiffs’

2

claims must “allege wrongdoing that is materially distinct from the wrongdoing alleged

3

in a CUTSA claim.” Prostar Wireless Grp., LLC v. Domino’s Pizza, Inc., 360 F. Supp.

4

3d 994, 1006 (N.D. Cal. 2018), aff’d, 815 F. App'x 117 (9th Cir. 2020) (citation omitted).

5

Here, each of Plaintiffs’ tort claims relies exclusively on the assertion that DeRosa

6

absconded with trade secrets and other confidential information. See, e.g., Doc. No. 1

7

¶¶ 99, 120, 127, 136, 142. As this Court has previously noted, CUTSA displaces all

8

claims “based upon the misappropriation of . . . confidential information, whether or not

9

that information rises to the level of a trade secret.” Kimera Labs Inc. v. Jayashankar,

10

2022 WL 11965058, at *11 (citing Jardin v. Datallegro, Inc., No. 10-CV-2552-IEG

11

WVG, 2011 WL 1375311, at *4 (S.D. Cal. Apr. 12, 2011)). In their opposition, Plaintiffs

12

assert that their “tort claims rely on Defendant[’]s improper action in placing a UCC lien

13

on Old LBF’s assets and not on the misappropriation of trade secrets” and that their

14

“Complaint incorporated these allegations.” Doc. No. 238 at 15. However, the Court

15

agrees with DeRosa that Plaintiffs fail to explain how placing a lien on Old LBF’s assets

16

supports any of their tort claims.

17

Indeed, upon close review of Plaintiffs’ Complaint, the Court finds that all of

18

Plaintiffs’ tort claims rest squarely on their factual allegations of trade secret

19

misappropriation. Therefore, the Court GRANTS DeRosa’s motion as to Plaintiffs’

20

fourth, seventh, eighth, ninth, and tenth causes of action.

21

4.

22

DeRosa moves for summary judgment on Plaintiffs’ fifth cause of action for

Breach of Contract (Claim 5)

23

breach of contract related to the Promissory Note, Pledge Agreement, and Consulting

24

Services Agreement. Doc. No. 208-1 at 27–29. The Court analyzed this cause of action

25

in connection with Plaintiffs’ motion for partial summary judgment. See supra Section

26

III.C. As required, the Court has evaluated DeRosa’s motion for summary judgment on

27

this cause of action “on its own merits” and based on the evidence submitted in support

28

of both motions. Fair Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d
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1

1132, 1136 (9th Cir. 2001). Consistent with its decision above but based on its

2

independent analysis of DeRosa’s motion, the Court DENIES DeRosa’s motion as to the

3

Promissory Note, GRANTS DeRosa’s motion as to the Pledge Agreement because it is

4

time-barred, DENIES DeRosa’s motion as to the Consulting Services Agreement to the

5

extent Plaintiffs seek injunctive relief, and GRANTS DeRosa’s motion as to the

6

Consulting Services Agreement to the extent Plaintiffs seek any other remedy.

7

5.

8

DeRosa also seeks summary judgment on Plaintiffs’ sixth cause of action for

9

Breach of Oral Contract (Claim 6)

breach of oral contract. Doc. No. 208-1 at 28–29. “The elements of a breach of oral

10

contract claim are the same as those for a breach of a written contract.” Rhub Commc’ns,

11

Inc. v. Karon, 2018 WL 707596, at *2 (N.D. Cal. Feb. 5, 2018); Cal. Civ. Code §§ 1622,

12

1644. Thus, Plaintiffs must show (1) the existence of a contract, (2) Plaintiffs’

13

performance or excuse for nonperformance; (3) DeRosa’s breach; and (4) resulting

14

damages to Plaintiffs. Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011).

15

The first element is dispositive. See CC Lit Holding, LLC v. Infosys Ltd., No. 18-CV-

16

00807-BLF, 2021 WL 5037676, at *4 (N.D. Cal. Oct. 29, 2021).

17

In their Complaint, Plaintiffs allege the following:

18

113. From about October 22, 2010 to December 12, 2019, LBF
and Defendant entered several oral agreements whereby LBF agreed to
advance a total of $322,394.29 against Defendant’s Earn-Out Consideration
and Defendant agreed the $322,394.29 would be paid as an offset to his EarnOut Consideration when received.

19
20
21
22
23
24

114. LBF has performed all conditions, covenants, and promises required
on its part to be performed in accordance with the terms and conditions
of the oral contract. Specifically, LBF advanced the following monies to
Defendant against his Earn-Out Consideration:

25
26
27
28
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2
3
4
5
6
7
8
9
10
11
12
13

115. On December 20, 2019, Defendant breached the oral agreement by
failing to offset the $750,800 Earn-Out Consideration, which LBF was forced
to pay Defendant. . . .
See Doc. No. 1 at 22.
DeRosa argues that the alleged oral contracts at issue do not exist and “are pure

14

fiction.” Doc. No. 208-1 at 28. Plaintiffs do not dispute DeRosa’s argument that there is

15

no documentary evidence reflecting any oral agreements, see PRS ¶ 54, and that there is

16

also “no documentary evidence reflecting the Old LBF ever accounted for any alleged

17

advances to DeRosa on his earn-out payments in its general ledger or financial

18

statements.” Doc. No. 208-3 at 8 ¶ 47; PRS ¶¶ 55–56. In their opposition, Plaintiffs

19

argue, in conclusory fashion, “that it was the action of [DeRosa] in threatening the

20

acquisition and improperly placing a UCC lien on the assets of Old LBF that necessitated

21

payment of the Earn-Out Consideration in full.” Doc. No. 238 at 17. Upon diligent

22

review of Plaintiffs’ submitted evidence, the Court was unable to locate a record of any

23

of the alleged “advanced monies” that are subject of the alleged oral contracts and

24

Plaintiffs point the Court to none. Plaintiffs also have not provided any evidence from

25

which the Court can infer that the parties agreed to all essential terms or that there was a

26

“meeting of the minds . . . showing [the parties’] tacit understanding” that any advanced

27

monies would “be paid as an offset to his Earn-Out Consideration” when received. Doc.

28

No. 1 ¶ 113; Reed v. KPS Alarms, Inc., No. CV 15-5482 DMG (EX), 2016 WL 1729041,
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1

at *4 (C.D. Cal. Apr. 29, 2016) (citing Moreno v. Los Angeles Child Care & Dev.

2

Council, 963 F. Supp. 876, 879 (C.D. Cal. 1997)); Roth v. Garcia Marquez, 942 F.2d

3

617, 627–28 (9th Cir. 1991). Therefore, the Court finds that there is no material dispute

4

of fact that an oral contract did not exist between Plaintiffs and DeRosa. Accordingly,

5

the Court GRANTS DeRosa’s motion as to Plaintiffs’ sixth cause of action.

6

6.

7

Finally, DeRosa moves for summary judgment as to Plaintiffs’ separate claim for

Preliminary Injunctive Relief (Claim 11)

8

preliminary injunctive relief. Doc. No. 208-1 at 29. DeRosa’s motion is GRANTED as

9

Plaintiffs’ opposition does not address DeRosa’s arguments on this claim. See Abogados

10

v. AT & T, Inc. 223 F.3d 932, 937 (9th Cir. 2000).

11

E.

Third-Party Defendants’ Motion for Summary Judgment

12

Third-Party Defendants move for summary judgment on the remaining claims

13

against them in DeRosa’s SAP including: (1) aiding and abetting breach of fiduciary

14

duties (Claim 6), (2) fraudulent conveyance (Claim 7), (3) unfair business practices

15

(Claim 11), and (4) unjust enrichment (Claim 14). Doc. No. 210 at 2. Third-Party

16

Defendants also request an order pursuant to Federal Rule of Civil Procedure 56(g)

17

stating that DeRosa’s lack of ownership interest or equitable lien on the Technology is

18

not genuinely in dispute and treating this fact as established in this case. Id. at 3.

19

1.

20

The Court first addresses Third-Party Defendants’ Rule 56(g) request. Third-Party

21

Defendants argue that under the express terms of both the Asset Purchase Agreement and

22

Security Agreement, DeRosa’s lien against the Technology was terminated when Old

23

LBF sent a wire transfer to DeRosa’s bank account of the $750,800 Earn-Out

24

Consideration. Doc. No. 210-1 at 14–15. In his opposition, DeRosa argues that his lien

25

is still valid because Old LBF’s payment was “years too late” and did not include interest

26

pursuant to California Civil Code § 3289(b). Doc. No. 233 at 24. Third-Party

27

Defendants reply that DeRosa’s failure to return the $750,800 constituted an accord and

28

satisfaction. Doc. No. 249 at 3. The Court agrees.

DeRosa’s Interest in the Technology

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“An accord is an agreement to accept, in extinction of an obligation, something

2

different from or less than that to which the person agreeing to accept is entitled.” Cal.

3

Civ. Code § 1521. However, “[t]hough the parties to an accord are bound to execute it

4

. . . it does not extinguish the obligation until it is fully executed.” Cal. Civ. Code § 1522.

5

“Acceptance, by the creditor, of the consideration of an accord extinguishes the

6

obligation, and is called satisfaction.” Cal. Civ. Code § 1523. These statutes establish

7

that “accord alone, by which is meant a mere agreement to accept something in extinction

8

of an existing obligation, is insufficient as a defense to an action on the original

9

obligation, and that such original obligation is not actually extinguished until there has

10

been an acceptance of the consideration agreed upon, or, in other words, satisfaction.”

11

Xerox Corp. v. Far W. Graphics, Inc., No. C-03-4059-JF(PVT), 2005 WL 1629815, at *2

12

(N.D. Cal. July 8, 2005) (citing Silvers v. Grossman, 183 Cal. 696, 699 (1920)).

13

Here, Thomas’s email on December 20, 2019 to DeRosa confirming the wire

14

transfer of the $750,800 and noting that it was “payment in full” constituted an accord.

15

TPDRS at Nos. 10–11; see Doc. No. 210-20 at 2. DeRosa relies on Thompson

16

v. Williams, 211 Cal. App. 3d 566, 572 (1989) for the proposition that an “accord and

17

satisfaction can only be successful if the debtor asserts that a payment is in full

18

satisfaction, and the creditor clearly understood that the debtor intended it to be full

19

satisfaction.” Doc. No. 233 at 24. DeRosa argues that because the payment was wired

20

directly into his account, “he was not given an opportunity to disagree” and that “his

21

disagreement was obviously manifested by the fact that he filed” a state court lawsuit on

22

December 16, 2019 “stating that he was owed interest on the Earn-Out Consideration.”

23

Id. The Court finds that Thomas’s email, which was sent after DeRosa had already filed

24

his state court lawsuit, unequivocally states that the wire payment was payment in full of

25

the Earn-Out Consideration and would terminate DeRosa’s lien on the Technology. This

26

is analogous to the Thomas case where the debtor stated his payment was “take it or leave

27

it.” See 211 Cal. App. 3d at 574. Thus, there can be no dispute that Thomas’s email

28

constituted an accord. Moreover, the Court agrees with Third-Party Defendants that
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1

DeRosa’s failure to return the payment—the consideration of the accord—after 90 days

2

constituted a satisfaction.14 See Cal. Civ. Code § 3311. Accordingly, the Court finds that

3

DeRosa’s lien on the Technology was terminated pursuant to the APA and Security

4

Agreement, and as a result of the above-described accord and satisfaction. Therefore, the

5

Court GRANTS Third-Party Defendants’ Rule 56(g) request and finds that the following

6

fact is not in genuine dispute and will be treated as established in this case: DeRosa has

7

no lien or interest in the Technology.

8

2.

9

Previously, this Court dismissed DeRosa’s claim that Third-Party Defendants

10

aided and abetted Thomas’s breach of his fiduciary duties of care and loyalty by assisting

11

Thomas in “usurping a corporate opportunity.” See Doc. No. 117 at 29. Accordingly,

12

Third-Party Defendants now move for summary judgment on all of the remaining

13

theories of alleged wrongdoing related to DeRosa’s sixth claim in his SAP including:

14

(1) restructuring the equity purchase of Old LBF to an asset purchase in order to conceal

15

Thomas’s embezzlement and strip DeRosa of his security interest in the Technology;

16

(2) underpaying for Old LBF and giving Thomas additional/undisclosed consideration as

17

part of the purchase of Old LBF; and (3) refusing to provide DeRosa with information

18

regarding the fact of and the terms of the proposed transaction. Id. at 17–20; Doc.

19

No. 210-1 at 15–23.

20

Aiding and Abetting Breach of Fiduciary Duties (Claim 6)

As an initial matter, the Court addresses DeRosa’s assertion that Third-Party

21

Defendants’ “framing” of his allegations “is too narrow.”15 Doc. No. 233 at 13. In his

22

opposition, DeRosa includes a new theory for his aiding and abetting claim based on

23
24
25
26
27
28

14

The Court is not convinced by DeRosa’s argument that he could not return the payment because “no
one would communicate with him.” Doc. No. 233 at 24. DeRosa, a sophisticated software engineer,
had already engaged counsel by the time he received Thomas’s email and has provided no evidence that
he attempted to return the payment.
15
DeRosa ignores that Third-Party Defendants framed the remaining issues regarding DeRosa’s aiding
and abetting claim in the same way the Court previously characterized his allegations in its Order on the
Third-Party Defendants’ most recent motion to dismiss. See Doc. No. 117 at 17–18.
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1

Third-Party Defendants’ alleged use of the Technology without paying for it. Id.

2

DeRosa argues that Third-Party Defendants’ “purported royalty-free license” in the

3

Technology is part of an “overall scheme.” Id. at 18. This new theory is not reflected in

4

DeRosa’s SAP. A plaintiff may not raise new theories for the first time on summary

5

judgment. Pickern v. Pier 1 Imports (U.S.), Inc., 457 F.3d 963, 969 (9th Cir. 2006).

6

Therefore, because DeRosa did not include these allegations in the SAP, the Court finds

7

that DeRosa failed to provide Third-Party Defendants with adequate notice of the

8

evidence they would need to defend against DeRosa’s new allegations. In addition,

9

because the Court has found that DeRosa has no interest in the Technology, the Court

10

agrees with Third-Party Defendants that “any payment purportedly due for use of the

11

Technology would be due to Old LBF, not DeRosa,” Doc. No. 249 at 4, and that DeRosa

12

therefore lacks standing to pursue this theory. 16 Accordingly. DeRosa’s new theory will

13

be disregarded.

14

“Under California law, ‘[l]iability may . . . be imposed on one who aids and abets

15

the commission of an intentional tort if the person (a) knows the other’s conduct

16

constitutes a breach of duty and gives substantial assistance or encouragement to the

17

other to so act or (b) gives substantial assistance to the other in accomplishing a tortious

18

result and the person’s own conduct, separately considered, constitutes a breach of duty

19

to the third person.’” Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d 1101,

20

1118 (C.D. Cal. 2003) (quoting Fiol v. Doellstedt, 50 Cal. App. 4th 1318, 1325–26

21

(1996)); see also In re First All. Mortg. Co., 471 F.3d 977, 993 (9th Cir. 2006). To

22

establish liability for aiding and abetting, a plaintiff must prove: (1) the fact of

23

perpetration of the overall improper scheme; (2) the aider and abettor’s knowledge of

24

such a scheme; and (3) the aider and abettor’s substantial assistance furthered the scheme.

25

Harmsen v. Smith, 693 F.2d 932, 943 (9th Cir. 1982). “Knowledge is the crucial

26
27
28

16

DeRosa does not dispute that he only brings this claim individually and not derivatively on behalf of
Old LBF. SAP ¶ 182; see Schrage v. Schrage, 69 Cal. App. 5th 126, 153, 158 (2021).
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20-cv-2404-MMA-SBC

1

element” of aiding and abetting liability. See In re First All. Mortg. Co., 471 F.3d at 995

2

(quoting Casey v. U.S. Bank Nat. Assn., 127 Cal. App. 4th 1138, 1145 (2005)). If there is

3

actual knowledge, even “ordinary business transactions” can qualify as substantial

4

assistance. See id.

5

Here, Third-Party Defendants do not dispute that Thomas owed fiduciary duties to

6

DeRosa or that Thomas breached those duties. Instead, they argue that DeRosa fails to

7

provide any evidence that Third-Party Defendants substantially assisted or encouraged

8

Thomas’s alleged breaches. Doc. No. 210-1 at 17. Third-Party Defendants also argue

9

that certain aspects of DeRosa’s theories of aiding and abetting fail as a matter of law.

10
11
12

Id. at 17–18.
a.

Restructuring of the Old LBF Sale Transaction

In his SAP, DeRosa alleges that Third-Party Defendants provided substantial aid,

13

assistance, and encouragement to Thomas in his breach of fiduciary duties by

14

“restructur[ing] the planned equity purchase of Old LBF and call[ing] the new agreement

15

an asset purchase” in order to (1) conceal Thomas’s embezzlement of Old LBF and to

16

(2) assist Thomas in stripping DeRosa of his security interest in the Technology. SAP

17

¶ 178. Third-Party Defendants point to several undisputed facts, including DeRosa’s

18

deposition testimony where he states he has no “specific knowledge” of Third-Party

19

Defendants assisting Thomas in preparing false financial statements and that

20

Gundumogula read part of a due diligence report to DeRosa informing him that Thomas

21

had misappropriated certain Old LBF assets, to argue that DeRosa has failed to show they

22

substantially assisted Thomas in concealing any alleged embezzlement. Doc. No. 210-1

23

at 17–18. In response, DeRosa argues that his own deposition testimony should not be

24

dispositive because he “has never claimed to be a lawyer or forensic accountant” and that

25

his “deposition was not a memory test and his personal knowledge is not controlling.”

26

Doc. No. 233 at 19. Upon a thorough review of the record and the parties’ briefing, the

27

Court finds that DeRosa has failed to provide sufficient evidence showing that Third-

28

Party Defendants substantially assisted Thomas in any concealment of embezzlement of
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20-cv-2404-MMA-SBC

1

Old LBF’s assets.

2

Regarding DeRosa’s theory that Third-Party Defendants restructured the Old LBF

3

sale in order to aid and abet Thomas in stripping DeRosa of his security interest in the

4

Technology, the Court finds this theory is not actionable because, as stated above,

5

DeRosa’s interest in the Technology had already terminated. As such, “there is simply

6

no nexus between changing the mechanics” of the sale and any alleged “stripping” of

7

DeRosa’s security interest. Doc. No. 210-1 at 18.

8

b.

9

Underpaying for Old LBF and Thomas’s Additional/Undisclosed
Consideration

10

Third-Party Defendants argue that DeRosa’s theory they provided substantial

11

assistance to Thomas in his breach of fiduciary duties by “further conceal[ing] Thomas’s

12

looting of Old LBF’s assets by agreeing to pay Old LBF significantly less than Old

13

LBF’s equity and assets were worth” is not actionable as a matter of law. Doc. No. 210-1

14

at 18–19. Specifically, Third-Party Defendants argue that this claim cannot be brought

15

by DeRosa as an individual, and instead must be brought derivatively on behalf of Old

16

LBF because the crux of DeRosa’s claim is that Old LBF itself has been harmed. Id. at

17

19. The Court agrees.

18

DeRosa’s renewed reliance on Jara v. Suprema Meats, Inc., 121 Cal. App. 4th

19

1238 (2004) is unpersuasive.17 Doc. No. 233 at 22. DeRosa argues that under Jara,

20

because Old LBF was a closely-held business, “any injury to Old LBF is an injury to

21

DeRosa that may be raised directly.” Id. Recently, the California Court of Appeal has

22

stated that it has “doubt whether Jara was correctly decided.” Schrage v. Schrage, 69

23

Cal. App. 5th 126, 155 (2021). In addition, Jara is easily distinguished from the case at

24

bar. In Jara, the minority shareholder of a corporation alleged the two other shareholders

25
26
27
28

17

At the hearing on Third-Party Defendants’ most recent motion to dismiss, DeRosa urged the Court to
find that under Jara, he could maintain his individual aiding and abetting claim based on his “usurping a
corporate opportunity” theory and that he did not need to bring it as a derivative action. See Doc.
No. 117 at 19 n.7. The Court declined to adopt DeRosa’s reasoning. Id.
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20-cv-2404-MMA-SBC

1

breached their fiduciary obligations by paying themselves excessive executive

2

compensation without the plaintiff’s approval and for the purpose of reducing the amount

3

of profit to be shared with the plaintiff. 121 Cal. App. 4th at 1248, 1258. The plaintiff

4

did not allege the two majority shareholders mismanaged the corporation; in fact, the

5

corporation’s success enabled the majority shareholders to increase their executive

6

compensation. Id. at 1247.

7

In the instant case, on the other hand, DeRosa alleges that Third-Party Defendants

8

aided and abetted Thomas in essentially “mismanaging” Old LBF by dissipating its

9

assets. SAP ¶¶ 179, 182. Indeed, while the corporation at issue in Jara was an ongoing

10

and profitable business, DeRosa concedes in his opposition that Old LBF was left “as a

11

shell corporation that had no further business, no income, and [was] no longer [in]

12

operat[ion].” Doc. No. 233 at 19. Moreover, if this Court allowed DeRosa to maintain

13

this cause of action as an individual action, it would “essentially eliminate the derivative

14

action rule in the context of close corporations and other closely held entities.” Schrage,

15

69 Cal. App. 5th at 158. And “California law does not support that result.” Id.

16

c.

17

Refusing to Provide DeRosa with Information

Finally, Third-Party Defendants argue that DeRosa fails to provide evidence that

18

they substantially assisted Thomas in breaching his fiduciary duties by refusing “to

19

provide any information to DeRosa about the fact of and the terms of the proposed [Old

20

LBF] transaction.”18 Doc. No. 210-1 at 21; SAP ¶ 181.

21

Upon review of the evidence and the parties’ briefing, the Court finds that DeRosa

22

has failed to establish that Third-Party Defendants substantially assisted or encouraged

23

Thomas in committing a breach by not providing any information about the transaction.

24
25
26
27
28

18

Third-Party Defendants also argue that they did not owe DeRosa any duty “to keep him apprised of
the terms of the LBF Sale Transaction.” Doc. No. 210-1 at 21. However, as the Court previously ruled,
defendants can be “liable for aiding and abetting a breach of fiduciary duty even though they did not
owe a fiduciary duty to [a plaintiff.]” Doc. No. 117 at 19 (citing Am. Master Lease LLC v. Idanta
Partners, Ltd., 225 Cal. App. 4th 1451 (2014)).
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20-cv-2404-MMA-SBC

1

Indeed, Third-Party Defendants point to DeRosa’s own deposition testimony where he

2

expressly acknowledges being provided information by Gundumogula about the

3

proposed Old LBF sale. Doc. No. 210-1 at 22; TPDRS at No. 34. Moreover, DeRosa

4

does not direct the Court to any contrary evidence that can establish substantial assistance

5

by Third-Party Defendants. Therefore, the Court finds that summary judgment is

6

appropriate on this issue as a matter of law.

7
8

Based on the foregoing, the Court GRANTS Third-Party Defendants’ motion as to
DeRosa’s sixth cause of action.

9

3.

Fraudulent Conveyance (Claim 7)

10

Third-Party Defendants argue they are also entitled to summary judgment on

11

DeRosa’s seventh claim for fraudulent conveyance. Doc. No. 210-1 at 24. The elements

12

for a fraudulent conveyance claim under common law are the same as under California’s

13

Uniform Voidable Transfer Act, California Civil Code § 3439.04. See Lehman Bros.

14

Holdings, Inc. v. Cafcalas, No. LA CV16-03167 JAK (PJWx), 2018 U.S. Dist. LEXIS

15

229076, at *15–16 (C.D. Cal. Feb. 27, 2018) (“[T]he necessary elements and available

16

remedies for a fraudulent transfer under common law are the same as under the

17

UVTA[.]”); see also Hyosung (Am.), Inc. v. Hantle USA, Inc., No. C 10–02160 SBA,

18

2011 U.S. Dist. LEXIS 21935, at *7 (N.D. Cal. Mar. 4, 2011) (citation omitted) (noting

19

that in the UFTA, 19 “[T]he elements for a fraudulent transfer claim under common law or

20

the UFTA, Cal. Civ. Code § 3439.04(a)(1), are the same.”). “The UFTA permits

21

defrauded creditors to reach property in the hands of a transferee.” Mejia v. Reed, 31 Cal.

22

4th 657, 663 (2003). “Under the UFTA, a transfer is fraudulent, both as to present and

23

future creditors, if it is made ‘[w]ith actual intent to hinder, delay, or defraud any creditor

24
25
26
27
28

19

California’s Uniform Fraudulent Transfer Act (“UFTA”) was superseded by California’s Uniform
Voidable Transactions Act (“UVTA”). LBF Travel Mgmt. Corp. v. Derosa, No. 20-CV-2404-MMA
(AGS), 2022 WL 3588926, at *11 (S.D. Cal. Aug. 22, 2022).

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20-cv-2404-MMA-SBC

1

of the debtor[,] and “[w]ithout receiving a reasonably equivalent value in exchange for

2

the transfer or obligation.” Id. at 664; Cal. Civ. Code, § 3439.04(a).

3

Third-Party Defendants argue that DeRosa’s claim fails because he cannot show an

4

“actual intent to hinder, delay, or defraud any creditor of Old LBF” and because “Old

5

LBF received reasonably equivalent value in exchange” for the Old LBF transaction.

6

Doc. No. 210-1 at 26. In order to prevail on his claim of fraudulent transfer against

7

Third-Party Defendants, DeRosa must establish each of the following elements: (1) that

8

DeRosa has a “claim” (as defined in California Civil Code § 3439.01(b)); (2) that

9

Thomas “transferred” (as defined in California Civil Code § 3439.01(i)) an “asset” (as

10

defined in California Civil Code § 3439.01(a)) to Third-Party Defendants; (3) that the

11

assets were transferred with the actual intent to hinder, delay, or defraud one or more of

12

Old LBF’s creditors; (4) that DeRosa was harmed by the transfer; and (5) that Third-

13

Party Defendants’ conduct was a substantial factor in causing DeRosa’s harm.

14

As an initial matter, the Court GRANTS summary judgment to Third-Party

15

Defendants on DeRosa’s fraudulent conveyance claim to the extent it is based on any

16

“claim” to the Technology or any debt related to the payment of the Earn-Out

17

Consideration. DeRosa cannot satisfy element one above because, as the Court already

18

found, he has no interest in the Technology because the Earn-Out Consideration was paid

19

in full. Therefore, he has no “right to payment.” See Cal. Civ. Code § 3439.01(b)

20

(defining a “claim” as “a right to payment, whether or not the right is reduced to

21

judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,

22

undisputed, legal, equitable, secured, or unsecured”).

23

Accordingly, as noted by Third-Party Defendants, DeRosa’s claim then rests on his

24

“right to payment from Thomas and Old LBF under the APA” and under DeRosa’s

25

services agreement as “Chief Technology Officer.” See Doc. No. 210-1 at 26 n.12; SAP

26

¶ 185. Because the parties did not sufficiently brief the issue of whether DeRosa has a

27

claim to any other payments under the APA or any other services agreement, and because

28

the Court finds that there are genuine disputes over whether Old LBF was sold for a
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“reasonably equivalent value,” see AMF at Nos. 49–50, 55, 73, the Court DENIES the

2

remainder of Third-Party Defendants’ motion on DeRosa’s fraudulent conveyance claim.

3

4.

4

DeRosa’s eleventh cause of action alleges Third-Party Defendants violated

Unfair Business Practices (Claim 11)

5

California’s unfair competition law (“UCL”) in violation of Business and Professions

6

Code § 17200. SAP ¶¶ 211–231. Specifically, DeRosa alleges Third-Party Defendants

7

“engaged in unlawful business acts or practices, including[] breach of fiduciary duties,

8

fraudulent conveyance, making fraudulent statements, and other illegal acts and practices

9

. . . all in an effort to gain unfair competitive advantage over DeRosa.” Id. ¶ 212.

10

California’s Unfair Competition Law prohibits unfair competition by means of any

11

unlawful, unfair or fraudulent business practice. Cal. Bus. & Prof. Code §§ 17200–

12

17210. Because the statute is written in the disjunctive, it prohibits three separate types

13

of unfair competition: (1) unlawful acts or practices, (2) unfair acts or practices, and

14

(3) fraudulent acts or practices. Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th

15

Cir.2009). Here, DeRosa alleges Third-Party Defendants violated all three sub-parts of

16

the UCL. SAP ¶ 214.

17

In their motion for summary judgment, Third-Party Defendants assert DeRosa’s

18

UCL claim fails for a multitude of reasons, including failure to proffer sufficient evidence

19

to support a violation under the unlawful, unfair, or fraudulent prong. Doc. No. 210-1 at

20

27. Specifically, Third-Party Defendants argue DeRosa’s eleventh claim fails because

21

they “owed no fiduciary duties to DeRosa at any time,” “DeRosa’s claim for fraudulent

22

conveyance fails,” and “DeRosa has no evidence of any false statement the [Third Party

23

Defendants] allegedly made, nor is there any evidence of any alleged reliance on such

24

statements.” Id. In addition, Third-Party Defendants argue that DeRosa’s UCL claim

25

fails to the extent it is based on DeRosa’s allegation that they “paid far less for Old LBF

26

. . . than it was worth” and that he still has an ownership interest in the Technology. Id. at

27

28. In opposition, DeRosa only addresses Third-Party Defendants’ arguments regarding

28

the price they paid for Old LBF and his ownership interest in the Technology. Doc.
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No. 233 at 26–27.

2

Because the Court previously ruled that DeRosa has no ownership interest or lien

3

in the Technology, and because the Court granted Third-Party Defendants’ summary

4

judgment motion on DeRosa’s aiding and abetting claim, the Court GRANTS summary

5

judgment to Third-Party Defendants as to DeRosa’s UCL claim to the extent it relies on

6

these allegations.20 SAP ¶¶ 217, 221–22. In addition, because DeRosa did not dispute

7

Third-Party Defendants’ argument that they did not owe him any fiduciary duties, the

8

Court likewise GRANTS summary judgment to Third-Party Defendants as to the UCL

9

claim to the extent it is based on their failure “to give notice of the de facto merger to

10

DeRosa.” SAP ¶ 220, 225, 227. However, the Court finds that DeRosa’s UCL claim

11

must survive to the extent it is based on the remaining portion of DeRosa’s fraudulent

12

conveyance claim, see supra Section III.E.3. Accordingly, Third-Party Defendants’

13

motion for summary judgment is DENIED to this extent.

14

5.

15

Finally, Third-Party Defendants move for summary judgment on DeRosa’s

Unjust Enrichment (Claim 14)

16

fourteenth cause of action for unjust enrichment. Doc. No. 210-1 at 29. As to Third-

17

Party Defendants, DeRosa alleges that “[t]hrough Gundumogula’s fraudulent

18

misstatements, acting in his capacity as CEO of Mondee Inc., DeRosa was dissuaded

19

from investigating Thomas’[s] fraud and bringing suit against Old LBF and Thomas

20

before Old LBF’s assets were sold to Mondee Inc.” and that Third-Party Defendants’

21

“enrichment was at DeRosa’s expense.” SAP ¶ 242–243.

22

Here, Third-Party Defendants argue that even assuming Gundumogula made any

23

“fraudulent misstatements” to DeRosa, “they obviously did not dissuade DeRosa from

24

investigating and pursuing his alleged fraud claims against Old LBF and Thomas before

25
26
27
28

20

Accordingly, the Court notes that DeRosa is not entitled to any of the relief he seeks related to the
Technology. SAP ¶ 230.
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Mondee’s acquisition of Old LBF’s assets.” 21 Doc. No. 210-1 at 29. The Court agrees

2

because the undisputed evidence shows that DeRosa engaged a lawyer and filed a state

3

court lawsuit before the Old LBF sale. TPDRS at Nos. 16–20. In addition, DeRosa does

4

not dispute this argument. Instead, DeRosa now claims that Third-Party Defendants’

5

unjust enrichment stems from their “improper[] use of the Technology at no cost.” Doc.

6

No. 233 at 27–28. As stated above, DeRosa may not raise new theories for the first time

7

on summary judgment. Pickern, 457 F.3d at 969. Therefore, the Court disregards

8

DeRosa’s new theory of unjust enrichment and GRANTS Third-Party Defendants’

9

motion for summary judgment on DeRosa’s fourteenth cause of action.

10

IV. CONCLUSION

11

For the foregoing reasons, the Court ORDERS as follows:

12

1. DeRosa’s motion to exclude Anderson’s opinions, Doc. No. 203, is DENIED.

13

2. Plaintiffs’ motion to exclude Rugeti’s opinions, Doc. No. 205, is DENIED

14

without prejudice.

15

3. Third-Party Defendants’ motion to exclude Rugeti’s opinions, Doc. No. 211, is

16

DENIED.

17

4. Plaintiffs’ motion for partial summary judgment, Doc. No. 204, is GRANTED in

18

part and DENIED in part.

19

5. DeRosa’s motion for summary judgment, Doc. No. 208, is GRANTED in part

20

and DENIED in part.

21

6. Third-Party Defendants’ motion for summary judgment, Doc. No. 210, is

22

GRANTED in part and DENIED in part.

23

Because there are remaining claims22 in Plaintiffs’ Complaint, Doc. No. 1, against

24
25
26
27
28

21

Third-Party Defendants also renew their argument from their previous motion to dismiss that unjust
enrichment is not a standalone cause of action in California. Doc. No. 210-1 at 29 n.14. As the law is
still unsettled in the Ninth Circuit, the Court declines to address this argument again. See LBF Travel
Mgmt. Corp., 2022 WL 3588926, at *15.
22
As consistent with this Order, only Claims 1 and 2 to the extent Plaintiffs seek injunctive relief remain
against DeRosa.
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DeRosa, and remaining claims 23 in DeRosa’s SAP, Doc. No. 74, against both Plaintiffs

2

and Third-Party Defendants that must proceed to trial, the Court will issue a scheduling

3

order setting forth all relevant pretrial deadlines and hearings in due course. Further, the

4

Court ORDERS the parties to jointly contact the chambers of the assigned magistrate

5

judge within five (5) business days of the date this Order is filed, for the purpose of

6

scheduling a mandatory settlement conference at the convenience of the magistrate judge.

7
8

IT IS SO ORDERED.
Dated: March 26, 2024

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28

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As consistent with this Order, only part of Claims 7 and 11 remain against Third-Party Defendants. In
addition, as stated above, Claims 1–5, 7–8, 10–11, and 14–15 still remain against Plaintiffs.
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