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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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 11 12 13 14 15 16 17 18 19 20 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. 21 22 23 THOMAS DEROSA, Third-Party Plaintiff, 24 v. 25 LBF TRAVEL, INC.; LBF TRAVEL HOLDINGS, LLC; MONDEE HOLDINGS, LLC; MONDEE, INC.; and PRASAD GUNDUMOGULA, 26 27 28 Third-Party Defendants. -1- 20-cv-2404-MMA-SBC 1 Plaintiffs/Counter-Defendants LBF Travel Management Corp. (“Old LBF”) and 2 Michael Thomas (“Thomas”) (collectively, “Plaintiffs”) and Defendant/Counter- 3 Claimant/Third-Party Plaintiff Thomas DeRosa (“DeRosa”) cross-move for summary 4 judgment, or in the alternative partial summary judgment, regarding Plaintiffs’ Complaint 5 filed on December 9, 2020, Doc. No. 1. See Doc. Nos. 204; 208. In addition, Third- 6 Party Defendants LBF Travel, Inc. (“New LBF”), LBF Travel Holdings, LLC, Mondee 7 Holdings, LLC, Mondee, Inc., and Prasad Gundumogula (“Gundumogula”) (collectively, 8 “Third-Party Defendants”) move for summary judgment, or in the alternative partial 9 summary judgment, against DeRosa regarding the remaining claims against them in his 10 Second Amended Counterclaim and Third-Party Complaint (“Second Amended 11 Pleading” or “SAP”) filed on March 9, 2022, Doc. No. 74. See Doc. No. 210. The 12 parties also relatedly move to exclude certain opinions offered by each other’s retained 13 experts. See Doc. Nos. 203; 205; 211. The Court found these matters suitable for 14 determination on the papers and without oral argument pursuant to Civil Local Rule 15 7.1.d.1. See Doc. No. 268. For the reasons set forth below, the Court GRANTS in part 16 and DENIES in part Plaintiffs’ motion for partial summary judgment, Doc. No. 204, 17 GRANTS in part and DENIES in part DeRosa’s motion for summary judgment, Doc. 18 No. 208, GRANTS in part and DENIES in part Third-Party Defendants’ motion for 19 summary judgment, Doc. No. 210, and DENIES the parties’ respective motions to 20 exclude expert testimony. Doc. Nos. 203, 205, 211. I. BACKGROUND 1 21 22 The present action originates from the fallout of a business relationship between 23 Thomas and DeRosa. Thomas is Old LBF’s co-founder, Chief Executive Officer, and 24 majority shareholder. Doc. No. 239 (“Plaintiffs’ Response to DeRosa’s Separate 25 26 27 28 1 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. -2- 20-cv-2404-MMA-SBC 1 Statement” or “PRS”) at No. 47. He is also the co-founder of New LBF. Doc. No. 247 2 (“DeRosa’s Additional Material Facts” or “AMF”) at No. 72. DeRosa is a software 3 developer who “developed e-commerce software for booking airfares online” (the 4 “Technology”), which he sold to Old LBF. PRS at Nos. 1–2. 5 Thomas and Old LBF first sued DeRosa, alleging that DeRosa breached contracts 6 and misappropriated trade secrets related to the Technology. See Doc. No. 1. Plaintiffs 7 seek partial summary judgment on only their fifth cause of action for breach of contract. 8 See Doc. No. 204. DeRosa cross-moves for summary judgment, or in the alternative 9 partial summary judgment, on all eleven of Plaintiffs’ causes of action in their Complaint, 10 including: (1) misappropriation of trade secrets in violation of the Defend Trade Secrets 11 Act (“DTSA”), 18 U.S.C. §§ 1831 et seq.; (2) misappropriation of trade secrets in 12 violation of the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code 13 §§ 3426.1 et seq.; (3) violation of the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030 14 et seq.; (4) conversion; (5) breach of contract; (6) breach of oral contract; (7) breach of 15 fiduciary duty; (8) tortious interference with prospective economic relations; (9) unfair 16 competition in violation of Cal. Bus. & Prof. Code §§ 17200 et seq.; (10) unjust 17 enrichment; and (11) preliminary injunctive relief. See generally Doc. Nos. 1, 208. 18 DeRosa also filed counterclaims 2 and third-party claims, alleging that Thomas, 19 Gundumogula, and a myriad of entities Thomas and Gundumogula own/manage, 20 collaborated to gut Old LBF of its assets in an effort to defraud and avoid paying DeRosa 21 what he was owed. See Doc. No. 74. Third-Party Defendants seek summary judgment, 22 or in the alternative partial summary judgment, on all of the remaining claims3 against 23 them in DeRosa’s SAP, including: (1) aiding and abetting breach of fiduciary duties, not 24 25 26 27 28 2 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. 3 The Court previously dismissed several claims in DeRosa’s SAP following Third-Party Defendants’ motions to dismiss. See Doc. Nos. 34, 52, 117. -3- 20-cv-2404-MMA-SBC 1 including DeRosa’s theory of “usurping a corporate opportunity” (Claim 6); 2 (2) fraudulent conveyance (Claim 7); (3) unfair business practices (Claim 11); and 3 (4) unjust enrichment (Claim 14). See Doc. Nos. 74, 117, 210. 4 A. 5 The Technology and Relevant Contracts In October 2010, “DeRosa sold his Technology to Old LBF through an Asset 6 Purchase Agreement.” PRS at No. 2. The sale of the Technology was “for Old LBF to 7 own all of the current Technology, as well as any modifications to and derivatives of the 8 Technology,” which DeRosa refers to as “DerivativeTech.” Doc. No. 247 (“Third-Party 9 Defendants’ Reply to DeRosa’s Separate Statement” or “TPDRS”) at No. 5. The 10 purchase price for the Technology was $1.25 million in cash “plus 200,000 shares of Old 11 LBF stock, representing 10% of the business.” PRS at No. 6. DeRosa was to receive the 12 cash payment in two forms: $499,200 in 24 monthly installments; and total “Earn-Out 13 Consideration” of $750,800 in quarterly installments equal to 25% of Old LBF’s Net 14 Income for the prior fiscal quarter. Id. at Nos. 7–8; Doc. No. 208-4 (“Asset Purchase 15 Agreement” or “APA”) at 7–8. On September 28, 2011, Thomas and Old LBF granted 16 DeRosa a right to purchase an additional 10% of Old LBF shares at $0.01 per share.4 17 PRS at No. 21. This stock option vested on November 22, 2011, and expired on 18 September 30, 2021. Id. at Nos. 21–22. 19 DeRosa and Old LBF also entered into a Consulting Services Agreement in 20 October 2010 where DeRosa would “provide services and advice in a capacity similar to 21 22 23 24 25 26 27 28 4 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). -4- 20-cv-2404-MMA-SBC 1 a Chief Technology Officer.” Doc. No. 239 at Nos. 3, 5; Doc. No. 208-5 (“Consulting 2 Services Agreement”) at 3. Pursuant to the Consulting Services Agreement, DeRosa 3 agreed to a nondisclosure clause regarding Old LBF’s confidential information and trade 4 secrets. TPDRS at No. 4; Consulting Services Agreement at 5–6. By its own terms, the 5 Consulting Services Agreement terminated in October 2012. PRS at No. 4; Consulting 6 Services Agreement at 4. However, DeRosa continued to provide his services to Old 7 LBF until December 2019. PRS at Nos. 42, 67. 8 In December 2010, DeRosa and Old LBF entered into a Promissory Note, 9 “pursuant to which DeRosa agreed to pay Thomas $25,000 on or before October 1, 10 2012.” Doc. No. 204-2 at 83; PRS at No. 14; see also Doc. No. 223-1 (“DeRosa’s 11 Response to Plaintiffs’ Separate Statement” or “DRS”) at No. 1. The Promissory Note 12 was secured by a Pledge Agreement, wherein DeRosa “pledged his right to receive the 13 Earn-Out Consideration until he paid the amount due under the [Promissory] Note.” 14 Doc. No. 204-2 at 86; DRS at No. 7. Under the Pledge Agreement, “a default [would] 15 occur[] ‘in the event of a [d]efault under the [Promissory] Note.” Doc. No. 223-1 16 (“DeRosa’s Additional Materials Facts to Plaintiffs’ Separate Statement” or “AMF-2”) at 17 No. 14; Doc. No. 204-2 at 87. DeRosa never paid the amount due under the Promissory 18 Note. DRS at No. 2. 19 DeRosa’s rights to the Technology in the event Old LBF defaulted under the Asset 20 Purchase Agreement were set forth in a separate security agreement, which provided that 21 DeRosa had “a continuing security interest in, lien on, assignment of and right of set-off” 22 over “all of Old LBF’s assets” until Old LBF paid the Earn-Out Consideration. TPDRS 23 at Nos. 6–8; Doc. No. 204-2 (the “Security Agreement”) at 57. Specifically, the Security 24 Agreement provided for the “termination” of the agreement upon the “payment of all 25 Secured Obligations.” TPDRS at No. 8. “Secured Obligations” are defined in the 26 Security Agreement as “being Old LBF’s obligation to pay the Earn-Out Consideration 27 under the [Asset Purchase Agreement].” Id. at No. 7. Pursuant to the Security 28 Agreement, in October 2018, DeRosa recorded a Uniform Commercial Code (“UCC”) -5- 20-cv-2404-MMA-SBC 1 Financing Statement which placed a lien against the Technology to secure Old LBF’s 2 obligations to pay him. Doc. No. 204-2 at 126. On December 20, 2019, Thomas—who 3 desired to terminate DeRosa’s lien—sent an email to DeRosa confirming a wire transfer 4 by Old LBF to DeRosa’s bank account of the $750,800 Earn-Out Consideration. TPDRS 5 at Nos. 10–11. DeRosa acknowledges receiving the payment and Thomas’s email. Id. at 6 No. 12. Old LBF proceeded to file a UCC-3 Financing Statement amendment with the 7 Delaware Secretary of State. Id. at No. 24; see Doc. No. 210-23 at 2. DeRosa disputes 8 whether this terminated his lien on the Technology. TPDRS at Nos. 11–13. 9 B. 10 Sale of Old LBF In early 2019, Thomas informed DeRosa that Mondee, Inc. wanted to purchase Old 11 LBF. Id. at No. 14. Mondee, Inc. is a wholly-owned subsidiary of Mondee Holdings, 12 LLC, while LBF Travel Holdings, LLC and New LBF are wholly-owned subsidiaries of 13 Mondee, Inc. Doc. No. 210-3 (“Declaration of Prasad Gundumogula” or “Gundumogula 14 Decl.”) ¶¶ 1, 4. Gundumogula is the Chief Executive Officer of each of these entities. 15 Id. ¶ 1. 16 On June 19, 2019, Mondee, Inc., Thomas, and Old LBF executed a proposed term 17 sheet (the “June Term Sheet”) wherein Old LBF would “sell 100 percent of Old LBF’s 18 equity interests to Mondee, Inc.” PRS at No. 58; TPDRS at No. 14. In exchange, Old 19 LBF would receive $20 million, which would consist of $5 million in cash and $15 20 million in Mondee, Inc. stock. PRS at No. 58; TPDRS at No. 14. 21 On November 22, 2019, DeRosa met with Thomas and Gundumogula at Mondee, 22 Inc.’s Northern California office to discuss the potential sale of Old LBF. TPDRS at 23 No. 34. “Gundumogula read a part of a due diligence report to DeRosa expressly 24 indicating that Thomas had misappropriated Old LBF [a]ssets.” Id. at No. 25. Thomas 25 and Gundumogula also showed DeRosa the June Term Sheet at the meeting, which 26 contained the $20 million purchase price. Id. at No. 35; Gundumogula Decl. ¶ 8. 27 DeRosa did not believe the proposed terms were fair and did not consent to the sale of 28 -6- 20-cv-2404-MMA-SBC 1 Old LBF at the November 2019 meeting. TPDRS at No. 42; see also AMF at Nos. 60, 2 64. 3 On December 13, 2019, DeRosa stopped working for Old LBF. PRS at No. 67. 4 When he left Old LBF, DeRosa had “his personal laptop, which he regularly used for 5 work.” Id. at No. 68. “The laptop contained work email and code, which was regularly 6 downloaded onto his computer as part of [DeRosa’s] software development 7 responsibilities.” Id. at No. 69. DeRosa does not dispute that he possesses Old LBF’s 8 source code but testified that he has not otherwise used or disclosed the code after he 9 stopped working for Old LBF. Id. at No. 70. On December 16, 2019, DeRosa sued 10 Thomas and Old LBF in California state court. Id. at No. 73. 11 Following DeRosa’s departure from Old LBF, on December 20, 2019, Third-Party 12 Defendants and Plaintiffs “consummated a deal for approximately $20 million.” Id. at 13 No .74. However, “[t]hey changed the structure of the deal from an equity purchase to an 14 asset purchase to avoid the requirement of DeRosa’s consent.” Id. at No. 75. Third-Party 15 Defendants “acquired Old LBF’s assets except for the Technology . . . but Thomas now 16 claims to have orally agreed with himself to provide a royalty-free license of the 17 Technology to New LBF.” Id. at No. 76. 18 II. DAUBERT MOTIONS 19 DeRosa moves to exclude the expert testimony of Jason W. Anderson in its 20 entirety. See Doc. No. 203. Both Plaintiffs and Third-Party Defendants move to exclude 21 portions of the expert testimony of Kenneth D. Rugeti. See Doc. Nos. 205, 211. For the 22 reasons set forth below, the Court DENIES DeRosa’s motion to exclude Anderson’s 23 expert testimony, DENIES Third-Party Defendant’s motion to exclude regarding 24 Rugeti’s opinion on “Additional Lost Value,” and DENIES without prejudice 25 Plaintiffs’ motion to exclude Rugeti’s rebuttal to Anderson’s opinion. 5 26 27 28 5 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 -7- 20-cv-2404-MMA-SBC 1 2 A. Legal Standard Rule 702 of the Federal Rules of Evidence provides that expert opinion evidence is 3 admissible if: “(a) the expert’s scientific, technical, or other specialized knowledge will 4 help the trier of fact to understand the evidence or to determine a fact in issue; (b) the 5 testimony is based on sufficient facts or data; (c) the testimony is the product of reliable 6 principles and methods; and (d) the expert has reliably applied the principles and methods 7 to the facts of the case.” Fed. R. Evid. 702. As the Ninth Circuit recently explained: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 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. 24 City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1043 (9th Cir. 2014). “Challenges 25 that go to the weight of the evidence are within the province of a fact finder, not a trial 26 27 28 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. -8- 20-cv-2404-MMA-SBC 1 court judge. A district court should not make credibility determinations that are reserved 2 for the jury.” Id. at 1044. 3 B. 4 DeRosa’s Motion to Exclude Anderson’s Opinion DeRosa moves to exclude the entirety of the opinions and proposed testimony of 5 Plaintiffs’ expert Anderson. Doc. No. 203-1 at 3. Anderson was retained “to evaluate 6 economic damages claims asserted by Plaintiffs against DeRosa.” Id. Anderson only 7 opines on unjust enrichment damages, measured by DeRosa’s “avoided development 8 costs.” Doc. No. 203-3 at 28. DeRosa argues that Anderson’s opinion must be excluded 9 because (1) he did not write the background section of his report; (2) Anderson’s 10 opinions are “untethered to the facts;” and (3) Anderson did not consider the actual 11 source code that DeRosa possesses. Doc. No. 203-1 at 3–4. Each of DeRosa’s 12 arguments fail. 13 First, courts have admitted expert testimony where the expert worked with 14 attorneys in preparing their reports. See Acentra Inc. v. Staples, Inc., No. CV 07-5862 15 ABC (RZx), 2010 WL 11459205, at *5 (C.D. Cal. Oct. 7, 2010) (finding the expert “was 16 involved enough to have prepared the [report] to satisfy Rule 26” where she worked with 17 attorneys as a group and as a team to create the report) (internal quotation marks 18 omitted). Thus, DeRosa’s first argument is unavailing. 19 Second, DeRosa argues that Anderson’s opinion must be excluded under Daubert 20 because he based his opinion on the incorrect assumption that DeRosa “used” the source 21 code. Doc. No. 203-1 at 4–5. However, improper assumptions are not bases to exclude 22 expert testimony as they concern the weight of the testimony, not admissibility and may 23 be challenged on cross-examination. See Shimozono v. May Dept. Stores Co., No. 00- 24 04261 WJR, 2002 U.S. Dist. LEXIS 28478, 2002 WL 3437390, at *8 (C.D. Cal. Nov. 20, 25 2002) (citation omitted) (arguments that an expert relied on unfounded assumptions in 26 forming his opinion go to the weight, not the admissibility, of expert testimony). 27 Accordingly, DeRosa’s second argument also fails. 28 Finally, the Court is also unpersuaded by DeRosa’s argument that Anderson “did -9- 20-cv-2404-MMA-SBC 1 not even purport to analyze any code actually in DeRosa’s possession.” Doc. No. 203-1 2 at 5. In their opposition, Plaintiffs point to Anderson’s deposition where he testified that 3 his analysis was about Old LBF’s software from 2010 to 2019. Doc. No. 230 at 6; Doc. 4 No. 230-1 at 99–100. Again, the Court finds that DeRosa’s arguments go to the weight 5 of Anderson’s opinion rather than its admissibility. See Odyssey Wireless, Inc. v. Apple 6 Inc., Nos. 15-cv-1735-H-RBB, 15-cv-1738-H-RBB, 15-cv-1743-H-RBB, 2016 WL 7 7644790, at *15 (S.D. Cal. Sept. 14, 2016) (declining to exclude expert’s testimony 8 because the defendant’s “disagreement with the facts underlying that opinion go to the 9 weight to be afforded the testimony and not its admissibility.”). 10 For these reasons, the Court DENIES DeRosa’s motion to exclude Anderson’s 11 opinion. 12 C. 13 Third-Party Defendants’ Motion to Exclude Portions of Rugeti’s Opinion To support his damages claims, DeRosa hired Rugeti to provide expert analysis 14 and testimony “on certain accounting, damages, financial and valuation issues[.]” Doc. 15 No. 211-9 at 3. Although Rugeti’s report includes his opinions on several categories of 16 DeRosa’s alleged losses, Third-Party Defendants seek to exclude only Rugeti’s opinion 17 concerning what he termed “Additional Lost Value,” or the value of Old LBF when 18 Third-Party Defendants acquired its assets. Doc. Nos. 211-1 at 6; 236 at 8. 19 Third-Party Defendants do not challenge Rugeti’s qualifications as an expert. 20 Instead, they argue that Rugeti’s opinion must be excluded because (1) Rugeti failed to 21 consider the income approach or any other reliable valuation methods when he valued 22 Old LBF, (2) Rugeti did not “reliably employ the market approach because he 23 erroneously calculated” Old LBF’s profitability by using an adjusted earnings before 24 interest, taxes, depreciation, and amortization (“EBITDA”) multiplier that included “the 25 value of certain synergies Mondee hoped to develop,” and (3) Rugeti selected an 26 unreasonable EBITDA multiplier. Doc. No. 211-1 at 7–8. 27 In opposition, DeRosa argues that Third-Party Defendants’ “attacks go to the 28 weight of the evidence, not admissibility” and that Rugeti’s opinion is relevant to several -10- 20-cv-2404-MMA-SBC 1 of his claims in this case. Doc. No. 236 at 8. The Court agrees. 2 Simply put, the question under Daubert is “whether or not the reasoning is 3 scientific and will assist the jury. If it satisfies these two requirements, then it is a matter 4 for the finder of fact to decide what weight to accord the expert’s testimony.” Kennedy 5 v. Collagen Corp., 161 F.3d 1226, 1231 (9th Cir. 1998). “Disputes as to the strength of 6 [an expert’s] credentials, faults in his use of [a particular] methodology, or lack of textual 7 authority for his opinion, go to the weight, not the admissibility, of his testimony.’” Id. 8 (quoting McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1044 (2d Cir. 1995)); see also In re 9 REMEC Inc. Sec. Litig., 702 F. Supp. 2d at 1219 (S.D. Cal. 2010) (noting that the 10 determination of weight and sufficiency of expert evidence is the sole province of the 11 jury). Moreover, whether Rugeti chose the correct factors to include in his calculations 12 “and gave them the correct weight is for the jury.” S.E.C. v. Moshayedi, 13 No. SACV1201179JVSMLGX, 2013 WL 12129282, at *6 (C.D. Cal. Nov. 20, 2013). 14 Accordingly, although Third-Party Defendants point to several potential weaknesses in 15 Rugeti’s analysis, they “may explore these perceived deficiencies through cross 16 examination.” In re REMEC Inc. Sec. Litig., 702 F. Supp. 2d at 1219; see also Primiano 17 v. Cook, 598 F.3d 558, 564 (9th Cir. 2010) (“Shaky but admissible evidence is to be 18 attacked by cross examination, contrary evidence, and attention to the burden of proof, 19 not exclusion.”). 20 21 Therefore, the Court DENIES Third-Party Defendants’ motion to exclude Rugeti’s opinion on “Additional Lost Value.” 22 23 24 25 26 27 28 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 -11- 20-cv-2404-MMA-SBC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 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). -12- 20-cv-2404-MMA-SBC 1 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 -13- 20-cv-2404-MMA-SBC 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 -14- 20-cv-2404-MMA-SBC 1 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. -15- 20-cv-2404-MMA-SBC 1 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. -16- 20-cv-2404-MMA-SBC 1 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). -17- 20-cv-2404-MMA-SBC 1 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. -18- 20-cv-2404-MMA-SBC 1 “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 -19- 20-cv-2404-MMA-SBC 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 -20- 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 -21- 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). -23- 20-cv-2404-MMA-SBC 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 -24- 20-cv-2404-MMA-SBC 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 -25- 20-cv-2404-MMA-SBC 1 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, -26- 20-cv-2404-MMA-SBC 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 -27- 20-cv-2404-MMA-SBC 1 “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 -28- 20-cv-2404-MMA-SBC 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. -29- 20-cv-2404-MMA-SBC 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). -30- 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 -31- 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. -32- 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)). -33- 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). -34- 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 -35- 20-cv-2404-MMA-SBC 1 “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. -36- 20-cv-2404-MMA-SBC 1 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. -37- 20-cv-2404-MMA-SBC 1 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. -38- 20-cv-2404-MMA-SBC 1 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 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 23 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. -39- 20-cv-2404-MMA-SBC

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