Vox Network Sols. v. Gage Techs.

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VOX NETWORK SOLUTIONS, INC., Plaintiff, v. GAGE TECHNOLOGIES, INC., et al., Defendants.

No. 22-cv-09135-AMO

United States District Court, N.D. California

March 25, 2024

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

RE: DKT. NO. 16

ARACELI MARTÍNEZ-OLGUÍN UNITED STATES DISTRICT JUDGE

This is a case about trade secret misappropriation. Before the Court is Defendants' motion to dismiss. The matter is fully briefed and suitable for decision without oral argument. See Civil L.R. 7-6. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the Court hereby GRANTS IN PART AND DENIES IN PART the motion to dismiss for the following reasons.

I. BACKGROUND^[1]

Plaintiff Vox Network Solutions, Inc. (“Vox”) and Defendant Gage Technologies, Inc. (“Gage”) are companies that provide consulting and network support services. Compl. ¶¶ 2, 5. In late 2017, Vox hired Defendant Kristopher McGreevey as a Regional Sales Director for the Pacific Northwest, and Defendant Kevin Frazier as a Senior Account Executive. Compl. ¶¶ 23-25. In November of 2019, Gage and Vox became business partners. Compl. ¶ 6. Gage worked as a subcontractor for Vox, providing mid-market phone system implementation services. Compl. ¶ 6.

As conditions of their employment, Frazier and McGreevey (collectively, “Individual Defendants”) signed Employee Confidentiality Agreements which obligated them to keep certain information confidential and not to share confidential information with any competitor. Compl. ¶ 26. The agreements also have a provision preventing the Individual Defendants from soliciting or hiring Vox employees or contractors during employment or for a year after terminating employment. Compl. ¶ 27.

Prior to joining Vox, the Individual Defendants developed a relationship with a cell phone company, Consumer Cellular, Inc. (“Consumer Cellular”) and a software vendor, Avaya, Inc. (“Avaya”). Compl. ¶ 36. Most of Avaya's products are sold through business partners, whose employees must obtain certifications to sell, install, and provide support for Avaya's products. Compl. ¶ 37. Consumer Cellular became an important client for Vox and purchased Avaya products and support through Vox. Compl. ¶ 36.

In August and September of 2021, Frazier scheduled and attended a Vox-funded fishing and golfing trip with Consumer Cellular, where he “proposition[ed]” Consumer Cellular to transfer to Gage. Compl. ¶ 39. In October of the same year, McGreevey and Frazier “engaged Avaya for a quote regarding the cost of transitioning Consumer Cellular to a subscription-based licensing agreement[.] . . .” Compl. ¶ 40. The Individual Defendants did not follow Vox-mandated procedures as they failed to open an engineering ticket or enter the sales opportunity on Vox's software system. Compl. ¶ 40.

Around the same time, McGreevey moved to Texas, where Gage is headquartered. Compl. ¶ 41. Consumer Cellular and Frazier emailed about transitioning Consumer Cellular to a subscription-based Avaya license and about obtaining a temporary product license while Frazier worked out a quote, which he did not record in violation of Vox's procedure. Compl. ¶¶ 42-45. In October of 2021, McGreevey and Frazier resigned from Vox and joined Gage. Compl. ¶¶ 24-25. McGreevey is currently Gage's President and CEO and Frazier is Gage's Executive Vice President and CRO. Compl. ¶¶ 24-25. McGreevey left Vox on the same day Avaya approved the temporary license for Consumer Cellular, and Frazier resigned thirty-three minutes before delivering the temporary licenses to Consumer Cellular. Compl. ¶¶ 47, 49. In a November 2021 email exchange with Vox, Consumer Cellular confirmed that it was migrating its account to Gage under the subscription-based license Frazier had generated. Compl. ¶ 53.

Two days after Frazier resigned, Vox learned for the first time that Consumer Cellular intended to migrate to a subscription-based model with Avaya. Compl. ¶ 50. Vox conducted a forensic review of Frazier's Vox-registered email and discovered that Frazier had deleted many communications regarding Consumer Cellular's planned migration to a subscription-based model. Compl. ¶ 51. In late November of 2021, Vox reassigned the Consumer Cellular account to another Vox employee, Kevin Bryant. Compl. ¶ 53. In emails between Bryant and Consumer Cellular, Consumer Cellular confirmed that it was migrating its account to Gage under the subscription-based quote Frazier had generated. Compl. ¶ 53. In December of 2021, Bryant delivered Consumer Cellular a quote from Vox to convert Consumer Cellular to a subscriptionbased model and offered a $268,000 discount if it chose to continue with Vox. Compl. ¶ 54. Consumer Cellular informed Vox that it planned to move its account to Gage beginning in January 2022. Compl. ¶ 55.

On December 28, 2022, Vox filed a complaint for damages against Gage, McGreevey, and Frazier for (1) violation of the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code § 3426 et seq.; (2) violation of California's Unfair Competition Law (“UCL”), Cal. Bus. and Prof. Code § 17200; (3) breach of fiduciary duty (4) breach of duty of loyalty; (5) fraudulent concealment; (6) aiding and abetting breach of fiduciary duty; (7) civil conspiracy; (8) tortious interference with contract, and (9) tortious interference with prospective economic advantage. On February 28, 2023, Defendants filed a motion to dismiss all of Vox's claims for failure to state a claim. Motion (ECF 16). Defendants allege that Vox failed to adequately plead trade secret misappropriation under CUTSA, that the CUTSA claim preempts the remaining causes of action, and alternatively that the remaining causes of action fail for failure to state a claim.

II. LEGAL STANDARD

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint may be dismissed for failure to state a claim for which relief may be granted. Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) requires dismissal when a complaint lacks either a “cognizable legal theory” or “sufficient facts alleged” under such a theory. Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019) (citation omitted).

Whether a complaint contains sufficient factual allegations depends on whether it pleads enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678.

When evaluating a motion to dismiss, the court “accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). However, “allegations in a complaint . . . may not simply recite the elements of a cause of action [and] must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014) (citations omitted). The Court may dismiss a claim “where there is either a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal claim.” Hinds Invs., L.P. v. Angioli, 654 F.3d 846, 850 (9th Cir. 2011).

III. ANALYSIS

Defendants contend that Vox fails to adequately plead the trade secret misappropriation claim, that the trade secret claim supersedes the remaining causes of action, and alternatively that the remaining causes of action fail to state a claim. The Court first addresses the trade secret misappropriation claim before considering supersession and the remaining causes of action.

A. Trade Secret Misappropriation (Count 1)

“A cause of action for misappropriation of trade secrets requires a plaintiff to show the plaintiff owned the trade secret; at the time of misappropriation, the information was a trade secret; the defendant improperly acquired, used, or disclosed the trade secret; the plaintiff was harmed; and the defendant's acquisition, use, or disclosure of the trade secret was a substantial factor in causing the plaintiff harm.” AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal.App. 5th 923, 942 (2018); see Alta Devices, Inc. v. LG Elecs., Inc., 343 F.Supp.3d 868, 877 (N.D. Cal. 2018) (“[t]o state a claim for trade secret misappropriation under the DTSA and the CUTSA, a plaintiff must allege that: ‘(1) the plaintiff owned a trade secret; (2) the defendant misappropriated the trade secret; and (3) the defendant's actions damaged the plaintiff.'”) (citation omitted).

The California Uniform Trade Secrets Act (“CUTSA”) defines a trade secret as information that (1) derives its economic value from not being generally known, and (2) is subject to reasonable measures of secrecy by its owner. See Cal. Civ. Code § 3426.1(d). “‘Information' has a broad meaning under the [CUTSA].” Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 Cal.App.4th 26, 53 (2014) (citation omitted). “A plaintiff seeking relief for misappropriation of trade secrets must identify the trade secrets and carry the burden of showing that they exist,” and “describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons . . . skilled in the trade.” Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998) (quotations and citations omitted) (emphasis in original).

Vox alleges that it owns the following trade secrets:

[S]olutions for complex customer

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