Five Star Gourmet Foods, Inc. v. Fresh Express, Inc.

1

2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6

7 FIVE STAR GOURMET FOODS, INC.,

et al., Case No. 19-cv-05611-PJH

8

Plaintiffs,

9 ORDER GRANTING IN PART AND

v. DENYING IN PART MOTION TO

10 DISMISS

FRESH EXPRESS, INC., et al.,

11 Re: Dkt. No. 20

Defendants.

12

13

14 Defendant Fresh Express Incorporated’s (“Fresh Express”) motion to dismiss

15 came on for hearing before this court on January 15, 2020. Plaintiffs Five Star Gourmet

16 Foods, Inc. (“Five Star”) and Direct Pack, Inc. (“Direct Pack”) appeared through their

17 counsel, Chris Lee. Defendant appeared through its counsel, Gia Cincone. Codefendant

18 Proseal America, Inc. (“Proseal”) appeared through its counsel, Justin Sobaje.

19 Codefendant Plastic Ingenuity, Inc. (“Plastic Ingenuity”) appeared through its counsel,

20 Jason Wu. Having read the papers filed by the parties and carefully considered their

21 arguments and the relevant legal authority, and good cause appearing, the court hereby

22 rules as follows, for the reasons stated at the hearing and for the following reasons.

23 BACKGROUND

24 On September 5, 2019, plaintiffs filed the original complaint in this action against

25 defendants Fresh Express, Proseal, Plastic Ingenuity, John Olivo, Kenneth Dively,

26 Fabian Pereira, and Doe defendants. Dkt. 1. Plaintiffs filed an amended complaint on

27 October 31, 2019. First Amended Compl., Dkt. 10 (the “FAC”).

1 and Does); (2) misappropriation of trade secrets (against Fresh Express, Proseal, and

2 Does); (3) design patent infringement (against Fresh Express, Plastic Ingenuity, and

3 Does); (4) active inducement of patent infringement (against Proseal and Does); (5) trade

4 dress infringement (against Fresh Express, Plastic Ingenuity, and Does); (6) active

5 inducement of trade dress infringement (against Proseal, Plastic Ingenuity, and Does);

6 (7) common law unfair competition (against Fresh Express, Proseal, Plastic Ingenuity,

7 and Does); (8) statutory unfair competition (against all defendants); (9) breach of contract

8 (against Fresh Express, Proseal, Olivo, Dively, and Pereira); and (10) intentional

9 interference with contract (against Fresh Express).

10 Five Star is a company that sells pre-packaged salads in plastic containers.1

11 Those plastic containers are configured with various compartments such that the salad’s

12 ingredients are kept separate in the packaging. Fresh Express is a subsidiary of Chiquita

13 Brands, LLC. It also sells pre-packaged snacks and salads, and it also uses plastic

14 packaging that divides salad ingredients into segregated compartments while packaged.

15 Five Star alleges that Fresh Express and its executives entered into partnership

16 discussions with Five Star under false pretenses, but they never intended to partner with

17 Five Star. Instead, they used those discussions to purloin valuable business information.

18 In 2016, Fabian Pereira, the Head of Marketing for Fresh Express, met Five Star’s

19 CEO, Tal Shoshan. Pereira sent an email to Shoshan saying that his company was

20 interested in exploring potential business relations. In follow-on communications, Pereira

21 made clear that Fresh Express was interested in exploring how the two companies could

22 “develop a fruitful partnership together.” FAC ¶ 16 & Ex. 2. When Pereira proposed that

23 he, Olivo, and Dively meet with Shoshan privately and tour Five Star’s production

24 facilities as part of these partnership discussions, Five Star agreed. Prior to the tour,

25 Pereira, Olivo, and Dively met with Shoshan and asked questions about Five Star’s

26 marketing strategy, product composition, packaging, and manufacturing logistics.

27

1 The Fresh Express visitors toured Five Star’s Florida facility in May of 2017. All of

2 the visitors signed non-disclosure agreements before entering the facility, as is required

3 of all visitors to Five Star. Five Star showed them its production process, how it staffs its

4 production lines, the equipment and equipment vendors it uses, and provided a

5 comprehensive view of Five Star’s entire salad bowl production process, including how it

6 set up its assembly lines.

7 Shortly after Fresh Express toured Five Star’s facility, Henrique Cutrale, of the

8 Cutrale family that owns Fresh Express and parent company Chiquita, met with Shoshan

9 and made it clear that Fresh Express was not interested in any partnership with Five Star.

10 He said that Chiquita/Fresh Express was strictly a family-owned business and would

11 never, under any circumstances, partner with others. Instead, he said that his company

12 was only willing to discuss an outright purchase of Five Star. On June 27, 2018, Cutrale

13 told Shoshan that he had $80 million allocated to purchase new equipment to compete

14 with Five Star.

15 Plaintiffs allege that Fresh Express has since used Five Star’s secret business

16 information and publicly-available information to copy every aspect of Five Star’s salad

17 bowl products, from the added extra toppings which Five Star was known for, to the type

18 of ingredients, to Five Star’s packaging and labeling design. Fresh Express virtually

19 duplicated the look of Five Star’s product line, instead of using their previous look and

20 feel, in order to misappropriate Five Star’s goodwill and customer base as the leading

21 premium salad brand.

22 Defendant Proseal has long been Five Star’s supplier for the packaging machinery

23 that seals its salad-bowl products. Proseal is subject to a non-disclosure agreement as

24 part of its relationship with Five Star. As part of its efforts to misappropriate Five Star’s

25 products and packaging, Fresh Express convinced Proseal to sell them similar equipment

26 and create a manufacturing tool set that is virtually indistinguishable from the tool set

27 used for Five Star’s packaging equipment. As a result, Fresh Express can make

1 toolset to confuse consumers into believing they are purchasing products manufactured

2 by Five Star, or a company affiliated with Five Star.

3 The present motion to dismiss is brought by a single defendant, Fresh Express. It

4 seeks to dismiss all claims asserted against it—the First, Second, Third, Fifth, Seventh,

5 Eighth, Ninth, and Tenth causes of action in the FAC. Defendant has also requested that

6 the court take judicial notice of certain images of product packaging. See RJN, Dkt. 21.

7 DISCUSSION

8 A. Legal Standard

9 A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims

10 alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199–1200 (9th Cir. 2003).

11 Under Federal Rule of Civil Procedure 8, which requires that a complaint include a “short

12 and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ.

13 P. 8(a)(2), a complaint may be dismissed under Rule 12(b)(6) if the plaintiff fails to state a

14 cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal

15 theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013).

16 While the court is to accept as true all the factual allegations in the complaint,

17 legally conclusory statements, not supported by actual factual allegations, need not be

18 accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). The complaint must proffer

19 sufficient facts to state a claim for relief that is plausible on its face. Bell Atlantic Corp. v.

20 Twombly, 550 U.S. 544, 555, 558–59 (2007).

21 “A claim has facial plausibility when the plaintiff pleads factual content that allows

22 the court to draw the reasonable inference that the defendant is liable for the misconduct

23 alleged.” Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not permit the court

24 to infer more than the mere possibility of misconduct, the complaint has alleged—but it

25 has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ.

26 P. 8(a)(2)). Where dismissal is warranted, it is generally without prejudice, unless it is

27 clear the complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d

1 Review is generally limited to the contents of the complaint, although the court can

2 also consider documents “whose contents are alleged in a complaint and whose

3 authenticity no party questions, but which are not physically attached to the plaintiff's

4 pleading.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (quoting In re Silicon

5 Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999)); see also Sanders v. Brown,

6 504 F.3d 903, 910 (9th Cir. 2007) (“a court can consider a document on which the

7 complaint relies if the document is central to the plaintiff’s claim, and no party questions

8 the authenticity of the document”). The court may also consider matters that are properly

9 the subject of judicial notice (Lee v. City of L.A., 250 F.3d 668, 688–89 (9th Cir. 2001)),

10 exhibits attached to the complaint (Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc.,

11 896 F.2d 1542, 1555 n.19 (9th Cir. 1989)), and documents referenced extensively in the

12 complaint and documents that form the basis of the plaintiff’s claims (No. 84 Emp’r-

13 Teamster Jt. Counsel Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 n.2

14 (9th Cir. 2003)).

15 For plaintiffs’ claims that sound in fraud, the complaint must also meet the

16 heightened pleading standard of Federal Rule of Civil Procedure 9(b). See Kearns v.

17 Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). Rule 9(b) requires a party alleging

18 fraud or mistake to state with particularity the circumstances constituting fraud or mistake.

19 “To satisfy Rule 9(b)’s particularity requirement, the complaint must include an account of

20 the time, place, and specific content of the false representations as well as the identities

21 of the parties to the misrepresentations.” Depot, Inc. v. Caring for Montanans, Inc., 915

22 F.3d 643, 668 (9th Cir. 2019) (internal quotation marks omitted). In other words,

23 “[a]verments of fraud must be accompanied by ‘the who, what, when, where, and how’ of

24 the misconduct charged.” Kearns, 567 F.3d at 1124. Plaintiffs must also offer “an

25 explanation as to why the statement or omission complained of was false or misleading.”

26 In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc), superseded

27 by statute on other grounds as stated in SEC v. Todd, 642 F.3d 1207, 1216 (9th Cir.

1 B. Analysis

2 1. First Claim: Fraud

3 “The elements of a cause of action for fraud in California are:

4 ‘(a) misrepresentation (false representation, concealment, or nondisclosure);

5 (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance;

6 (d) justifiable reliance; and (e) resulting damage.’” Kearns, 567 F.3d at 1126 (quoting

7 Engalla v. Permanente Med. Group, Inc., 15 Cal. 4th 951, 974 (1997)). The pleading

8 requirements of Rule 9(b) apply, at least with respect to the first element of the fraud

9 claim.

10 a. Misrepresentation

11 Fresh Express argues that plaintiffs allege only a single, noncommittal statement

12 in an email generally referring to Fresh Express’s intent to discuss the possibility of a

13 future partnership. Plaintiffs argue that defendants claimed to be interested in forming a

14 partnership even though they never had any interest in doing so. Plaintiffs also argue

15 that the FAC contains additional allegations of misrepresentations, other than the single

16 email pled.

17 With respect to the latter argument, the court is not persuaded that plaintiffs have

18 pled any fraudulent statement with the requisite particularity, other than the statements

19 included in Exhibit 2 to the FAC. See FAC, Ex. 2 at 1 (“I have spoken to our owners and

20 leadership team. They would like to continue this conversation with you and see how we

21 develop a fruitful partnership together.”). Rule 9(b)’s pleading requirements apply to

22 allegedly-fraudulent statements. Such statements must be pled with specificity. Plaintiffs

23 argue that the email included as Exhibit 2 to the FAC is merely an example of a

24 fraudulent statement, and that the complaint generally pleads that Fresh Express made

25 other representations to the effect that it was interested in a strategic partnership. See

26 Opp., Dkt. 29 at 2–4 (citing FAC ¶¶ 16, 26). Plaintiffs also argue that the parties held a

27 number of meetings during which defendants made additional misrepresentations not

1 misrepresentations, do not satisfy Rule 9(b)’s pleading requirements.2

2 Given that plaintiffs have adequately alleged a single representation, the court is

3 left to determine whether it, standing alone, adequately pleads a claim for fraud.

4 Defendant argues that the complaint fails to identify what is false or misleading about the

5 statement.3

6 Plaintiffs allege that Pereira stated he had “spoken to [Fresh Express’s] owners

7 and leadership team,” and those individuals “would like to continue this conversation with

8 you and see how we develop a fruitful partnership together.” FAC, Ex. 2. That same

9 email proposed a date for Fresh Express to tour Five Star’s facilities, and dates for other

10 meetings. It closed by stating that “Henry Cutrale the owner will be back from London

11 and spend rest of the day with us [following a May 19 meeting] and we can explore

12 details of the relationship.” Id. at 2.

13 The complaint alleges that Pereira claimed to have spoken with Fresh Express’s

14 owners, and that the owners specifically were interested in developing a partnership with

15 Five Star. The complaint alleges that Pereira’s statements were false because Fresh

16 Express never had any desire to form a partnership—even at the time the email was

17 sent—and made knowingly-false statements about its desire to do so solely to gain

18 access to Five Star’s facilities. Accordingly, the false statement as alleged concerns

19 whether Fresh Express had an actual desire to form a partnership with Five Star, not

20 whether Fresh Express made an actionable promise to enter into any specific business

21 relationship. Plaintiffs allege that those statements were false when made because

22 Fresh Express’s owners and leadership team had a policy that they would never partner

23

2 Plaintiffs’ arguments do support granting leave to amend their complaint in order to

24

allege additional misrepresentations with specificity.

25

3 Defendant also argues that it offered to purchase Five Star subsequent to the alleged

statement, so the court should make a factual finding that the FAC’s allegedly-fraudulent

26

statement to explore a partnership was true. Plaintiffs dispute defendant’s

characterization of that factual question—namely, whether the allegedly-false statement

27

was true. Because the court must accept plaintiffs’ well-pleaded facts as true for the

1 with plaintiffs. Knowing they would never partner with plaintiffs, defendant lied about its

2 desire to partner with Five Star in an effort to pursue partnership discussions as a ruse to

3 observe plaintiffs’ proprietary production facilities.

4 Plaintiffs allege that the statement was false when made based on Fresh

5 Express’s owner’s later statement that the company “would never, under any

6 circumstances, partner with others” and would only “discuss an outright purchase of Five

7 Star.” FAC ¶ 20. This adequately pleads a misrepresentation under Rule 9(b). See In re

8 GlenFed, Inc. Sec. Litig., 42 F.3d at 1549 & n.9 (to plead falseness, the plaintiff must

9 provide “an explanation as to why the disputed statement was untrue or misleading when

10 made[,]” which may be done “by pointing to inconsistent contemporaneous statements or

11 information” or a “later statement by the defendant along the lines of ‘I knew it all along’”);

12 see also Muse Brands, LLC v. Gentil, Case No. 15-cv-01744-JSC, 2015 WL 4572975, at

13 *4 (N.D. Cal. July 29, 2015) (circumstantial evidence of falseness may include the

14 “shortness of time between later revealed truth and prior statements”); see generally

15 Richardson v. Reliance Nat. Indem. Co., Case No. 99-cv-2952-CRB, 2000 WL 284211, at

16 *4 (N.D. Cal. Mar. 9, 2000) (“While mere failure to perform on a contract does not

17 constitute fraud, a promise made without the intention to perform can be actionable

18 fraud”).

19 Plaintiffs adequately allege a misstatement by alleging that a competitor stated it

20 was interested in forming a partnership solely as a ruse to purloin confidential,

21 competitive information, while at all times knowing that it was never interested in forming

22 a partnership under any circumstances.

23 b. Scienter & Intent to Defraud

24 Defendant argues that the complaint does not allege that the speaker, Pereira,

25 knew that his statement was false when made, so the “complaint contains no allegation

26 of scienter on Mr. Pereira’s part.” Reply, Dkt. 32 at 3.4

27

1 “[F]or claims of fraud against a principal, as here, the common law of agency

2 recognizes a limitation on respondeat superior. Specifically, for claims of fraud

3 respondeat superior does not apply if one agent makes a statement, believing it to be

4 true, while another agent knows facts that falsify the other agent’s statement. In such a

5 scenario, no agent of the company has committed fraud because liability for fraud

6 requires that the defendant made a material misstatement with an intent to deceive. The

7 result of this limitation is that liability for fraud cannot be imputed to a corporation without

8 evidence that an agent of the corporation who participated in making the challenged

9 statements did so with scienter, i.e., with intent, knowledge of, or deliberate reckless with

10 respect to the statements’ falsity.” In re Volkswagen "Clean Diesel" Mktg., Sales

11 Practices, & Prod. Liab. Litig., Case No. MDL 2672 CRB (JSC), 2017 WL 6041723, at *8

12 (N.D. Cal. Dec. 6, 2017) (internal quotation marks and citations omitted). “[T]he required

13 state of mind must actually exist in the individual making (or being a cause of the making

14 of) the misrepresentation, and may not simply be imputed to that individual on general

15 principles of agency.” Southland Securities Corp. v. INSpire Insurance Solutions, Inc.,

16 365 F.3d 353, 367 (5th Cir. 2004); accord In re Volkswagen, 2017 WL 6041723, at *9;

17 see also Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 708 (7th Cir. 2008)

18 (“To establish corporate liability for a violation of Rule 10b–5 requires ‘look[ing] to the

19 state of mind of the individual corporate official or officials who make or issue the

20 statement (or order or approve it or its making or issuance, or who furnish information or

21 language for inclusion therein, or the like) rather than generally to the collective

22 knowledge of all the corporation's officers and employees acquired in the course of their

23 employment.’”).

24 Plaintiffs allege that “Fabian Pereira is the Vice President, Marketing for Fresh

25 Express[.]” FAC ¶ 8. They also allege that “Henrique Cutrale, of the Cutrale family that

26 owns Fresh Express and parent company Chiquita, . . . made it clear that Fresh Express

27 was not interested in any strategic partnership with Five Star. He said that

1 circumstances, partner with others. Instead, he said that his company was only willing to

2 discuss an outright purchase of Five Star.” FAC ¶ 20.

3 Plaintiffs fail to allege that the only person who made an adequately-alleged

4 statement (Pereira) acted with scienter or intent to defraud. They allege that Fresh

5 Express’s owner, Cutrale, stated that the company “would never, under any

6 circumstances, partner with others” and would only “discuss an outright purchase of Five

7 Star.” FAC ¶ 20. But they do not allege any misrepresentation that meets the Rule 9(b)

8 pleading standard made by Cutrale. And they do not make any allegation that would

9 support imputing Cutrale’s knowledge that Fresh Express would never partner with Five

10 Star to Pereira.

11 Accordingly, there is no allegation that Pereira knew that his statement was false

12 when making it, or that he made it with an intent to deceive plaintiffs. Because the only

13 misrepresentation adequately alleged is Pereira’s statement, plaintiffs have failed to

14 adequately state a claim for fraud. Plaintiffs’ claim for fraud is DISMISSED WITH LEAVE

15 TO AMEND as to defendant Fresh Express.

16 2. Second Claim: Misappropriation of Trade Secrets

17 “To state a claim for trade secret misappropriation under the DTSA [Defend Trade

18 Secrets Act] and the CUTSA [California Uniform Trade Secrets Act], a plaintiff must

19 allege that: (1) the plaintiff owned a trade secret; (2) the defendant misappropriated the

20 trade secret; and (3) the defendant’s actions damaged the plaintiff.” Alta Devices, Inc. v.

21 LG Elecs., Inc., 343 F. Supp. 3d 868, 877 (N.D. Cal. 2018) (internal quotation marks

22 omitted).

23 a. Whether Five Star Owned A Trade Secret

24 Defendant argues that plaintiffs plead only general categories of things that could

25 potentially be protectable trade secrets, but they fail to plead what specific trade secrets

26 were misappropriated.

27 The DTSA defines “trade secret” as “all forms and types of financial, business,

1 compilations, program devices, formulas, designs, prototypes, methods, techniques,

2 processes, procedures, programs, or codes, whether tangible or intangible, and whether

3 or how stored, compiled, or memorialized physically, electronically, graphically,

4 photographically, or in writing if—(A) the owner thereof has taken reasonable measures

5 to keep such information secret; and (B) the information derives independent economic

6 value, actual or potential, from not being generally known to, and not being readily

7 ascertainable through proper means by, another person who can obtain economic value

8 from the disclosure or use of the information[.]” 18 U.S.C. § 1839(3).

9 The CUTSA defines a “[t]rade secret” as “information, including a formula, pattern,

10 compilation, program, device, method, technique, or process, that: (1) Derives

11 independent economic value, actual or potential, from not being generally known to the

12 public or to other persons who can obtain economic value from its disclosure or use; and

13 (2) Is the subject of efforts that are reasonable under the circumstances to maintain its

14 secrecy.” Cal. Civ. Code § 3426.1(d). “‘Information’ has a broad meaning under the

15 [C]UTSA.” Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 Cal. App. 4th 26, 53

16 (2014). “The definition of trade secret is unlimited as to any particular class or kind of

17 matter and may be contrasted with matter eligible for patent or copyright protection,

18 which must fall into statutorily defined categories. A trade secret may consist of any

19 formula, pattern, device or compilation of information which is used in one's business,

20 and which gives him an opportunity to obtain an advantage over competitors who do not

21 know or use it. It may be a formula for a chemical compound, a process of

22 manufacturing, treating or preserving materials, a pattern for a machine or other device or

23 list of customers.” Id. (internal quotation marks and citations omitted).

24 “[C]ourts are in general agreement that trade secrets need not be disclosed in

25 detail in a complaint alleging misappropriation for the simple reason that such a

26 requirement would result in public disclosure of the purported trade secrets.” Autodesk,

27 Inc. v. ZWCAD Software Co., Cas No. 14-cv-01409-EJD, 2015 WL 2265479, at *6 (N.D.

1 spell out the details of the trade secret,” but it must “describe the subject matter of the

2 trade secret with sufficient particularity to separate it from matters of general knowledge

3 in the trade or of special persons who are skilled in the trade, and to permit the defendant

4 to ascertain at least the boundaries within which the secret lies.” Alta Devices, 343 F.

5 Supp. 3d at 881–82 (internal quotation marks omitted); accord Autodesk, 2015 WL

6 2265479, at *5; Vendavo, Inc. v. Price f(x) AG, Case No. 17-cv-06930-RS, 2018 WL

7 1456697, at *4 (N.D. Cal. Mar. 23, 2018); MedioStream, Inc. v. Microsoft Corp., 869 F.

8 Supp. 2d 1095, 1113 (N.D. Cal. 2012) (“The complaint need not ‘spell out the details of

9 the trade secret’ but must identify the trade secret with sufficient particularity to give

10 defendants ‘reasonable notice of the issues which must be met at the time of trial and to

11 provide reasonable guidance in ascertaining the scope of appropriate discovery.’”).

12 For example, allegations that set out “purported trade secrets in broad, categorical

13 terms” that are merely “descriptive of the types of information that generally may qualify

14 as protectable trade secrets” are insufficient to state a claim. Vendavo, 2018 WL

15 1456697, at *3–4 (rejecting the following allegations as insufficiently-specific: “source

16 code, customer lists and customer related information, pricing information, vendor lists

17 and related information, marketing plans and strategic business development initiatives,

18 ‘negative knowhow’ learned through the course of research and development, and other

19 information related to the development of its price-optimization software, including ideas

20 and plans for product enhancements”); see also Space Data Corp. v. X, Case No. 16-cv-

21 03260-BLF, 2017 WL 5013363, at *2 (N.D. Cal. Feb. 16, 2017) (rejecting the following

22 allegations as insufficiently-specific: “data on the environment in the stratosphere” and

23 “data on the propagation of radio signals from stratospheric balloon-based transceivers”).

24 Plaintiffs allege that Fresh Express learned about and observed Five Star’s

25 processes while under an NDA. FAC ¶ 18. Under that NDA, defendant’s employees

26 learned about “marketing strategy, product composition, packaging and manufacturing

27 logistics.” Id. Also, “Five Star showed [Fresh Express employees] its production

1 and provided a comprehensive view of Five Star’s entire salad bowl production process.

2 For example, only Five Star knows how to set up its assembly lines and what order of

3 operations will most efficiently make its product. Only Five Star knows the complicated

4 order of machinery and live personnel that provides its time-tested method for efficiently

5 producing its salads.” Id.

6 Certainly, some of plaintiffs’ allegations vaguely describe categories of things that

7 might contain trade secret information, rather than trade secrets themselves. For

8 example, plaintiffs’ allegations that defendant took their “marketing strategy, product

9 composition, packaging and manufacturing logistics” are all too vague to adequately

10 allege a trade secret claim. Id. Additionally, some of plaintiffs’ arguments describing

11 their trade secrets are confusingly based on publicly-available information—for example,

12 “the amount of toppings in each salad bowl, and the types of ingredients used in each

13 bowl[.]” Opp. at 7.

14 But plaintiffs’ complaint also includes more specific allegations. Five Star alleges

15 that it showed defendants “how it staffs its production lines, the equipment and

16 equipment vendors it uses,” and the order of operations, machinery, and live-personnel it

17 uses on its assembly line. See FAC ¶ 18. Plaintiffs also allege that they have an interest

18 in the design of the toolset used in the equipment that makes their packaging. See FAC

19 ¶ 23. The complaint’s level of detail is therefore sufficient to ascertain at least the

20 boundaries within which the secrets lie and the scope of appropriate discovery. Plaintiffs

21 therefore adequately allege that they owned a trade secret.

22 b. Whether Defendant Misappropriated A Trade Secret

23 Defendant argues that Five Star does not explain how Fresh Express gained

24 access to Five Star’s alleged trade secrets, beyond touring its production facility and

25 asking questions about Five Star’s manufacturing and production process. Defendant

26 also argues that plaintiffs do not allege which trade secrets Fresh Express is now using.

27 With respect to the first argument, plaintiffs allege that Fresh Express gained

1 after entering into nondisclosure agreements. See FAC ¶¶ 18, 20, 22, 26–29, 33–35.

2 Those allegations are the core of the complaint. The complaint could hardly be more

3 clear in describing how Fresh Express gained access to Five Star’s trade secrets.

4 Second, Fresh Express argues that the complaint fails to allege which specific

5 trade secrets it is using. Plaintiffs allege that the organization of Five Star’s production

6 process is valuable (FAC ¶¶ 18–19), that Fresh Express used $80 million to purchase

7 equipment to compete with Five Star (FAC ¶ 21), and that Fresh Express “used Five

8 Star’s secret business information and publicly available information to copy every aspect

9 of Five Star’s patented salad bowl products, from the added extra toppings which Five

10 Star was known for, to the type of ingredients, to the packaging and labeling design

11 which made Simply Fresh a very successful product line” (FAC ¶ 22). They also allege

12 that Proseal (the maker of plaintiffs’ plastic containers) created a manufacturing tool set

13 for Fresh Express that is virtually indistinguishable from the tool set used for Five Star’s

14 packaging equipment. FAC ¶ 23.

15 The court finds that, taken together, plaintiffs’ allegations adequately allege that

16 Fresh Express misappropriated a protected trade secret. In addition to alleging a specific

17 investment in equipment designed to copy protected elements of Five Star’s production

18 facility, plaintiffs have specifically alleged that Fresh Express obtained a protected toolset

19 design from Proseal that is used to create Five Star’s packaging. FAC ¶ 23.

20 c. Resulting Damage

21 Fresh Express argues that the complaint does not identify what specific elements

22 of plaintiffs’ intellectual property it allegedly learned or has used, such that it has not

23 adequately alleged how Five Star has been harmed as a result.

24 As with plaintiffs’ attempts to allege what particular trade secrets it possessed,

25 many of their allegations are vague on this point or merely describe what Fresh Express

26 hoped to learn (rather than what it learned). See, e.g., FAC ¶¶ 26–29. Still, the

27 complaint adequately alleges that defendant learned about specific, proprietary

1 Defendant also argues that, even if plaintiffs adequately allege what intellectual

2 property was stolen, they have not alleged how that theft caused harm. But plaintiffs

3 allege that, by stealing the proprietary information, defendant entered the ready-made

4 salad market much more cheaply, “ramp[ed] up much more quickly, and compete[d] with

5 Five Star far more effectively” than it otherwise would have been able to do. See FAC

6 ¶¶ 19–22. The complaint sets out a theory of harm sufficient to survive defendant’s

7 motion to dismiss based on those allegations.

8 For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ second cause

9 of action for misappropriation of trade secrets as alleged against Fresh Express is

10 DENIED.

11 3. Third Claim: Design Patent Infringement

12 Defendant argues that the products at issue in this action are too different to

13 support a claim for design patent infringement, and the court can make that determination

14 on this motion by comparing images of the products. Plaintiffs argue that this claim

15 presents a factual question inappropriate for resolution on this motion to dismiss.

16 The Federal Circuit has established “five elements of a patent infringement

17 pleading, to (i) allege ownership of the patent, (ii) name each defendant, (iii) cite the

18 patent that is allegedly infringed, (iv) state the means by which the defendant allegedly

19 infringes, and (v) point to the sections of the patent law invoked. . . . [T]his is enough

20 detail to allow the defendants to answer and . . . Rule 12(b)(6) requires no more.” Hall v.

21 Bed Bath & Beyond, Inc., 705 F.3d 1357, 1362 (Fed. Cir. 2013) (internal quotation marks

22 omitted).

23 “Design patent infringement is a question of fact, which a patentee must prove by

24 a preponderance of the evidence. . . . [T]he ‘ordinary observer’ test should be the sole

25 test for determining whether a design patent has been infringed. The patentee must

26 establish that an ordinary observer, familiar with the prior art designs, would be deceived

27 into believing that the accused product is the same as the patented design. . . . The

1 numerous functional elements. In evaluating infringement, we determine whether the

2 deception that arises is a result of the similarities in the overall design, not of similarities

3 in ornamental features in isolation.” Richardson v. Stanley Works, Inc., 597 F.3d 1288,

4 1295 (Fed. Cir. 2010) (internal quotation marks and citations omitted); accord Ethicon

5 Endo-Surgery, Inc. v. Covidien, Inc., 796 F.3d 1312, 1335 (Fed. Cir. 2015) (“A design

6 patent is infringed ‘[i]f, in the eye of an ordinary observer, giving such attention as a

7 purchaser usually gives, two designs are substantially the same, if the resemblance is

8 such as to deceive such an observer, inducing him to purchase one supposing it to be

9 the other.’”).

10 Resolution of a claim for design patent infringement may require the finder of fact

11 to be familiar with the prior art. “In some instances, the claimed design and the accused

12 design will be sufficiently distinct that it will be clear without more that the patentee has

13 not met its burden of proving the two designs would appear ‘substantially the same’ to the

14 ordinary observer. . . . In other instances, when the claimed and accused designs are not

15 plainly dissimilar, resolution of the question whether the ordinary observer would consider

16 the two designs to be substantially the same will benefit from a comparison of the

17 claimed and accused designs with the prior art . . . . [D]ifferences between the claimed

18 and accused designs that might not be noticeable in the abstract can become significant

19 to the hypothetical ordinary observer who is conversant with the prior art.” Egyptian

20 Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008).

21 Defendant points out that in a nonprecedential opinion, the Federal Circuit has

22 suggested that an accused design may be sufficiently distinct from a patented design in

23 certain instances such that it could be clear based on the pleadings that the patentee

24 cannot satisfy the ordinary observer test. See Anderson v. Kimberly-Clark Corp., 570 F.

25 App’x 927 (Fed. Cir. 2014) (affirming dismissal of claim for design patent infringement on

26 motion for judgment on the pleadings).

27 Here, defendant argues that an ordinary observer would not find the designs to

1 resolving this type of factual question on the pleadings. The court declines to resolve this

2 inherently factual question on this motion to dismiss. Moreover, even were the court to

3 consider the merits of defendant’s argument and make a factual determination, the

4 parties have presented competing factual descriptions that the court is not equipped to

5 resolve based on the papers before it—especially given that familiarity with the prior art is

6 potentially relevant to the determination, and the parties have not adequately addressed

7 its impact.5

8 For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ third cause of

9 action for design patent infringement as alleged against Fresh Express is DENIED.

10 4. Fifth Claim: Trade Dress Infringement

11

5 Defendant requests that, pursuant to Federal Rule of Evidence 201, the court take

12

judicial notice of certain photographs it argues “are true and correct images of the

13 accused packaging in the FAC’s Third Cause of Action for design patent infringement.”

Dkt. 21 at 1. As an initial matter, the court would not be equipped to resolve the factual

14 issues presented by defendant’s motion to dismiss the design patent infringement claim

even if it took judicial notice of those materials. Moreover, the mechanism by which

15

defendant asks the court to take notice of the photographs allows the court to “judicially

notice a fact that is not subject to reasonable dispute because it: (1) is generally known

16

within the trial court's territorial jurisdiction; or (2) can be accurately and readily

17 determined from sources whose accuracy cannot reasonably be questioned.” Fed. R.

Evid. 201. Defendant’s request fails, because the appearance of the products is not

18 generally known in the district, and the images are sources whose accuracy can

reasonably be questioned. In fact, plaintiffs do question the sources (Dkt. 31 at 3–4), and

19

they do so reasonably. The source of the images is entirely unexplained, and they were

20 submitted to the court without a sworn declaration explaining any information that would

allow the court to understand their reliability—e.g., how they were taken, whether they

21 are accurate and faithful reproductions, when they were taken, where the subjects of the

images were sourced, etc. To the extent defendant requests judicial notice pursuant to

22 the doctrine of incorporation by reference, that too fails because that the doctrine applies

only where “the document’s authenticity is not in question” (Coto Settlement v. Eisenberg,

23

593 F.3d 1031, 1038 (9th Cir. 2010)), and plaintiffs contest the authenticity of the images

24 (Dkt. 31 at 3–4). Defendant’s request for judicial notice is accordingly DENIED.

25 Plaintiffs request that the court take judicial notice of the existence of an order issued by

a judge in the Central District of California and the complaint that was filed in that action.

26 Plaintiffs do not ask the court to take notice of the truth of the facts contained in those

documents—merely their existence. Dkt. 30 at 2. Although the court finds the request as

27

superfluous as requesting that the court to take judicial notice of any other district court

1 “Trade dress refers generally to the total image, design, and appearance of a

2 product and may include features such as size, shape, color, color combinations, texture

3 or graphics.” Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1257 (9th Cir.

4 2001) (internal quotation marks omitted). In order to prove a claim for infringement of

5 unregistered trade dress, Five Star must prove “(1) that its claimed dress is

6 nonfunctional; (2) that its claimed dress serves a source-identifying role either because it

7 is inherently distinctive or has acquired secondary meaning; and (3) that [Fresh

8 Express’s] product or service creates a likelihood of consumer confusion.” Id. at 1258

9 (footnote omitted).

10 First, defendant argues that plaintiffs have not adequately identified the elements

11 of the alleged trade dress. Second, defendant argues that plaintiffs inappropriately base

12 their claim on functional elements of the design.

13 a. Specificity of the Pleading

14 Defendant challenges the specificity of the pleading with respect to what precise

15 elements of Five Star’s product constitutes its trade dress.

16 “Trade dress protection applies to a combination of any elements in which a

17 product is presented to a buyer, including the shape and design of a product.” Art

18 Attacks Ink, LLC v. MGA Entm't Inc., 581 F.3d 1138, 1145 (9th Cir.2009) (internal

19 quotation marks omitted). “Trade dress involves ‘the total image of a product and may

20 include features such as size, shape, color or color combination, texture, graphics, or

21 even particular sales techniques.’” Mattel, Inc. v. Walking Mountain Prods., 353 F.3d

22 792, 808 n.13 (9th Cir. 2003) (quoting Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S.

23 763, 765 n.1 (1992)). “In evaluating a trade dress claim, a court must not focus on

24 individual elements, ‘but rather on the overall visual impression that the combination and

25 arrangement of those elements create.’” Sleep Sci. Partners v. Lieberman, Case No. 09-

26 cv-04200-CW, 2010 WL 1881770, at *3 (N.D. Cal. May 10, 2010) (quoting Clicks

27 Billiards, 251 F.3d at 1259). “Trade dress is the composite tapestry of visual effects.”

1 determinative, “[a] plaintiff should clearly articulate its claimed trade dress to give a

2 defendant sufficient notice.” Sleep Sci. Partners, 2010 WL 1881770, at *3.

3 Defendant primarily relies on Sleep Sci. Partners and Autodesk, Inc. v. Dassault

4 Systemes SolidWorks Corp., Case No. 08-cv-04397-WHA, 2008 WL 6742224 (N.D. Cal.

5 Dec. 18, 2008) to argue that plaintiffs must plead the particular elements that constitute

6 the allegedly-infringed trade dress. But defendant would have the court read much more

7 into the AutoDesk order than its text supports. The holding of that order was limited to

8 finding that the plaintiff had not alleged whether or not its “tagline” and mark were even

9 part of the “total image” constituting its product’s trade dress—not that such elements

10 would be insufficient if alleged. Autodesk, 2008 WL 6742224, at *5 (dismissing with

11 leave to amend to “provide more detail and clarify” the claim, because it was “unclear

12 whether Autodesk contends the mark and tagline are also part of the total image, design,

13 and appearance of the product that constitutes its trade dress”).

14 The Sleep Sci. Partners order is more relevant. That order described an

15 amorphous claim of trade dress protection in a website, telephone ordering system, and

16 television commercial. That order dismissed the trade dress claim with leave to amend

17 where the pleadings claimed that a website was protected based on the ability to view a

18 commercial on it, the inclusion of user testimonials, the inclusion of a screening

19 questionnaire, and the layout of text, graphics, and hyperlinks on the site. (The

20 telephone ordering system was separately analyzed and dismissed because the only

21 element for which protection was claimed was a questionnaire, which is a common

22 feature.) The trade dress claim based on the television commercial was also dismissed

23 with leave to amend because the description was too vague—an introduction with sounds

24 of loud snoring, graphics illustrating an opening human airway, and user testimonials.

25 Plaintiffs’ complaint in this case is much more specific than the cases defendant

26 relies upon. Paragraph 55 of Five Star’s complaint specifies distinctive elements of its

27 product that contribute toward an overall appearance deserving of trade-dress protection.

1 particularly lettuce or other greens; b. A companion transparent plastic insert containing a

2 central receptacle to hold the salad dressing cup and several arcuate, segmental

3 receptacles, positioned circumferentially around the central receptacle, each of the

4 receptacles containing various colorful salad toppings; [and] c. An elongated generally

5 rectangular plastic band overwrap or sleeve the overwrap or sleeve being tensioned

6 around the bowl, with said plastic band or sleeve overwrap containing a particular look

7 and feel through its use of font, colors and overall design that provides a vertical billboard

8 as well as allowing for all the salad toppings to be viewed without being obstructed by the

9 band or sleeve[.]” FAC ¶ 55. Moreover, plaintiffs attached photographs of Five Star’s

10 (and Fresh Express’s) salads as a companion to the descriptions provided in the FAC.

11 See FAC, Ex. 5.

12 Five Star’s allegations give Fresh Express sufficient notice of what constitutes the

13 allegedly-protected trade dress. For example, Fresh Express alleges that the particular

14 shape of a clear plastic bowl, the fact that there are clear segmented receptacles

15 arranged in a circle around a central bowl, and a vertical strip of paper wrapped around

16 the center of the product (allowing the product to be seen on either side) with a distinctive

17 font combine to form its trade dress. Plaintiffs are not required to allege an element-to-

18 element comparison with the accused product to allege infringement, but instead must

19 allege a composite tapestry of visual effects that gives defendant sufficient notice of what

20 is allegedly protected in the claim. That, they have done.

21 b. Whether Plaintiffs Impermissibly Rely on Functional Elements

22 Defendant argues that the elements plaintiffs identify are functional, which cannot

23 form the basis of trade dress protection.

24 “[T]rade dress protection cannot be asserted for any functional features of a

25 product.” Millennium Labs., Inc. v. Ameritox, Ltd., 817 F.3d 1123, 1126 (9th Cir. 2016).

26 Functional features are those that are “essential to the use or purpose of the article or . . .

27 affect[] the cost or quality of the article.” Id. at 1129; accord Inwood Labs., Inc. v. Ives

1 exclusive use of the feature would put competitors at a significant non-reputation-related

2 disadvantage.” Qualitex Co. v. Jacobson Prod. Co., 514 U.S. 159, 165 (1995); see also

3 Millennium Labs., 817 F.3d at 1127–28 (clarifying that the two inquiries are alternative

4 methods of assessing functionality).

5 In the Ninth Circuit, “the test for functionality proceeds in two steps. For the first

6 step, courts inquire whether the alleged significant non-trademark function satisfies the

7 Inwood Laboratories definition of functionality—‘essential to the use or purpose of the

8 article or affects its cost or quality.’ . . . If the claimed trade dress is determined to be

9 functional under Step One, then the inquiry is over. If not, the court must proceed to the

10 second step and address aesthetic functionality by inquiring whether protection of the

11 feature as a trademark would impose a significant non-reputation-related competitive

12 disadvantage.” Millennium Labs., 817 F.3d at 1128–29 (internal quotations marks and

13 citations omitted).

14 “Functionality is generally viewed as an intensely factual issue.” Id. at 1129

15 (quoting Tie Tech, Inc. v. Kinedyne Corp., 296 F.3d 778, 783 (9th Cir. 2002)). Moreover,

16 multiple functional items may be combined into a non-functional aesthetic whole.

17 Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 842 (9th Cir. 1987)

18 (“functional elements that are separately unprotectable can be protected together as part

19 of a trade dress. In other words, our inquiry is not addressed to whether individual

20 elements of the trade dress fall within the definition of functional, but to whether the whole

21 collection of elements taken together are functional.”) (citation omitted). As a result,

22 “[g]enericness and functionality are questions of fact, making dismissal under

23 Rule 12(b)(6) inappropriate.” Autodesk, 2008 WL 6742224, at *2; see also Axis Imex,

24 Inc. v. Sunset Bay Rattan, Inc., Case No. 08-cv-3931-RS, 2009 WL 55178, at *3 (N.D.

25 Cal. Jan. 7, 2009) (complaint that alleges some functional and some non-functional

26 design elements survived motion to dismiss); but see Virgin Scent, Inc. v. Bel Air Natruals

27 Care Corp., No. CV1708284ABRAOX, 2018 WL 5264145, at *5 (C.D. Cal. Feb. 8, 2018)

1 in order to state a claim for trade dress infringement”); Deckers Outdoor Corp. v. Fortune

2 Dynamic, Inc., No. CV 15-769 PSG (SSX), 2015 WL 12731929, at *4 (C.D. Cal. May 8,

3 2015) (plaintiff must “allege how a trade dress is non-functional” and cannot rely on

4 description of “an overall [non-functional] aesthetic look”).

5 Here, plaintiffs allege certain elements that appear to be functional (like divots in

6 the plastic and separate containers to segregate different ingredients) in addition to

7 apparently non-functional design elements (like the arrangement of the divots in the

8 plastic, the arrangement of the segregated containers in a circular pattern, and the font

9 and other design elements of the label). Plaintiffs’ allegations present factual questions

10 that cannot be resolved on this motion to dismiss with respect to whether what they seek

11 to protect is functional.

12 For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ fifth cause of

13 action for trade dress infringement as alleged against Fresh Express is DENIED.

14 5. Seventh and Eighth Claims: Unfair Competition

15 The UCL creates a cause of action for business practices that are (1) unlawful,

16 (2) unfair, or (3) fraudulent. Bus. & Prof. Code. § 17200. “Each prong of the UCL is a

17 separate and distinct theory of liability[.]” Lozano v. AT & T Wireless Servs., Inc., 504

18 F.3d 718, 731 (9th Cir. 2007); see also Imax Corp. v. Cinema Techs., Inc., 152 F.3d

19 1161, 1169 (9th Cir. 1998) (discussing common law unfair competition).

20 Defendant argues that to the extent plaintiffs’ common-law and statutory unfair

21 competition claims are based on trade dress infringement, they fail along with that claim.

22 As discussed above, plaintiffs’ trade dress infringement claim is adequately pled.

23 Accordingly, defendant’s motion to dismiss plaintiffs’ unfair competition claims is

24 DENIED.

25 6. Ninth Claim: Breach of Contract

26 Fresh Express argues that it cannot be held liable for breaching any contracts to

27 which it is not a party. Plaintiffs argue that, notwithstanding the language of the

1 were additionally signing on behalf of Fresh Express.

2 The complaint alleges that “Olivo, Dively, and Pereira breached their NDA’s as

3 part of their job duties for Fresh Express and for the benefit of Fresh Express.” FAC

4 ¶ 81. “Therefore, Fresh Express should be deemed to be a signatory to the NDA’s of

5 Olivo, Dively, and Pereira.” FAC ¶ 82.

6 The parties agree that Fresh Express did not execute an NDA with Five Star, and

7 that each of its employees who entered into an NDA did so expressly in their individual

8 capacities. See FAC, Exs. 8–10. Paragraph 7 of each of each of the NDAs states, “This

9 Agreement is personal to you, [and] is nonassignable by you.” Id.

10 “The general rule in California is that ‘only a signatory to a contract may be liable

11 for any breach.’” St. Vincent Med. Ctr. v. Mega Life & Health Ins. Co., 585 F. App'x 417

12 (9th Cir. 2014) (quoting Clemens v. Am. Warranty Corp., 193 Cal. App. 3d 444, 452

13 (1987) (“Under California law, only a signatory to a contract may be liable for any

14 breach.”)); see also Tri-Continent Internat. Corp. v. Paris Sav. & Loan Assn., 12 Cal. App.

15 4th 1354, 1359 (1993) (“[Plaintiff] cannot assert a claim for breach of contract against one

16 who is not a party to the contract.”).

17 Plaintiffs cite to a single case to support their argument that a non-signatory can

18 be liable for breach of a contract in these circumstances, Imax Corp., 152 F.3d at 1161.

19 That case, however, did not address an analogous breach of contract claim. Instead,

20 that case held that the plaintiff’s allegation that a third party breached a confidential

21 relationship (like the NDA here) was sufficient to allege an unfair competition claim

22 against the defendant who knowingly accepted such information. Applying the holding in

23 Imax here would at best allow plaintiffs to state an unfair competition claim against Fresh

24 Express for knowingly accepting the information Olivo, Dively, and Pereira learned under

25 NDA. But such allegations do not support a breach of contract claim against Fresh

26 Express, which was not a signatory to the allegedly-breached contract.

27 Plaintiffs appear to argue that Fresh Express signed the agreement under an

1 agents, that signed the non-disclosure agreement and toured the facility.” Opp. at 15.

2 The FAC alleges that “Olivo, Dively, and Pereira entered into those NDA’s as part of their

3 job duties for Fresh Express.” FAC ¶ 80.

4 The fatal flaw in plaintiffs’ argument is that the contract itself clearly provides that

5 “This Agreement is personal to you, [and] is nonassignable by you[.]” FAC, Exs. 8–10

6 ¶ 7. The “you” referenced in the agreement is the individually-identified signatory, and

7 the signature pages of the NDAs identify the individuals qua individuals. The contract

8 makes no reference to Fresh Express, signing on behalf of Fresh Express, or otherwise

9 acting on behalf of Fresh Express. Because the NDAs are explicit in this regard,

10 amendment would be futile, and plaintiffs’ breach of contract cause of action is

11 DISMISSED WITH PREJUDICE as to Fresh Express.

12 7. Tenth Claim: Intentional Interference With Contract

13 Fresh Express argues that plaintiffs’ claim for misappropriation of trade secrets

14 displaces their claim for interference with contract.6 Plaintiffs argue that the claim is not

15 displaced because the interference claim has different elements. Moreover, plaintiffs

16 argue that pleading in the alternative is permissible at this stage, so that even if the claim

17 were displaced by the CUTSA, they should be permitted to pursue an interference claim

18 in the event their CUTSA claim fails.

19 The California Uniform Trade Secrets Act was intended “to occupy the field of

20 trade secret liability to the exclusion of other civil remedies.” Silvaco Data Sys. v. Intel

21 Corp., 184 Cal. App. 4th 210, 234 (2010). CUTSA therefore “preempts common law

22 claims that are ‘based on the same nucleus of facts as the misappropriation of trade

23 secrets claim for relief.’” K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc.,

24

6 Courts and litigants “sometimes use the word ‘preempt’ rather than ‘displace’ in

25

discussing what effect the California Code has on the other causes of action.

Technically, the doctrine of preemption concerns whether a federal law has superseded a

26

state law or a state law has superseded a local law, not whether one provision of state

law has displaced other provisions of state law. Here, the California Code and other

27

causes of action are all matters of state law. Accordingly, we will use the word ‘displace’

1 171 Cal. App. 4th 939, 958 (2009) (quoting Digital Envoy, Inc. v. Google, Inc., 370 F.

2 Supp. 2d 1025, 1035 (N.D. Cal. 2005)). “Common law claims premised on the wrongful

3 taking of information which does not qualify as a trade secret are also superseded,

4 unless the plaintiff identifies some law which confers the plaintiff with property rights in

5 the information.” Bus. Sols., LLC v. Ganatra, No. SACV181426DOCKESX, 2019 WL

6 926351, at *6 (C.D. Cal. Jan. 7, 2019) (citing Silvaco, 184 Cal. App. 4th at 236–40); see

7 also Angelica Textile Servs., Inc. v. Park, 220 Cal. App. 4th 495, 506 (2013) (“In general,

8 the acquisition, disclosure or transfer of information that does not fit UTSA's definition of

9 a trade secret does not give rise to any liability, even when that liability is couched in

10 terms of a separate tort or statutory violation.”); Jardin v. Datallegro, Inc., 10-cv-2552–

11 IEG-WVG, 2011 WL 1375311, at *4 (S.D. Cal. Apr. 12, 2011) (“CUTSA preempts all

12 claims based upon the misappropriation of confidential information, whether or not that

13 information rises to the level of a trade secret.”) (internal quotation marks omitted);

14 Mattel, Inc. v. MGA Entm't, Inc., 782 F. Supp. 2d 911, 987 (C.D. Cal. 2011) (“[C]UTSA

15 supersedes claims based on the misappropriation of confidential information, whether or

16 not that information meets the statutory definition of a trade secret.”); see generally

17 Silvaco, 184 Cal. App. 4th at 239 n.22 (“a prime purpose of the law was to sweep away

18 the adopting states’ bewildering web of rules and rationales and replace it with a uniform

19 set of principles for determining when one is—and is not—liable for acquiring, disclosing,

20 or using ‘information . . . of value.’”). However, CUTSA does not displace “(1) contractual

21 remedies, whether or not based upon misappropriation of a trade secret, (2) other civil

22 remedies that are not based upon misappropriation of a trade secret, or (3) criminal

23 remedies[.]” Cal. Civ. Code § 3426.7(b).

24 Thus, for non-contractual civil remedies, the issue is whether “the gravamen of the

25 wrongful conduct asserted . . . is the misappropriation of trade secrets.” K.C. Multimedia,

26 171 Cal. App. 4th at 961; accord Banawis-Olila v. World Courier Ground, Inc., Case No.

27 16-cv-00982-PJH, 2016 WL 6563354, at *3 (N.D. Cal. Nov. 4, 2016); see also Angelica

1 that, although related to a trade secret misappropriation, are independent and based on

2 facts distinct from the facts that support the misappropriation claim.”). That

3 “determination of whether a claim is based on trade secret misappropriation is largely

4 factual.” K.C. Multimedia, 171 Cal. App. 4th at 954.

5 For example, a claim alleging a violation of a duty of loyalty is not displaced by

6 CUTSA where the duty of loyalty would be violated by undertaking competitive acts,

7 regardless of whether any proprietary information was implicated. See Angelica Textile

8 Servs., 220 Cal. App. 4th at 499. However, “where the allegation is that [a defendant]

9 breached his duty of loyalty by disclosing trade secrets[,] [t]he claim for breach of

10 fiduciary duty is based on the same operative facts and is therefore preempted by

11 CUTSA.” Anokiwave, Inc. v. Rebeiz, No. 18-cv-629 JLS (MDD), 2018 WL 4407591, at *4

12 (S.D. Cal. Sept. 17, 2018); see also Digital Envoy, 370 F. Supp. 2d at 1035 (CUTSA

13 displaced “claims for unfair competition and unjust enrichment since those claims are

14 based on the same nucleus of facts as the misappropriation of trade secrets claim for

15 relief”); Bus. Sols., 2019 WL 926351, at *8 (claims “for inducement of breach of contract

16 and interference with contractual relations arise under the same nucleus of facts as the

17 third cause of action for misappropriation of trade secrets” where allegation was that

18 employee “was solicited ‘to breach his contract by misappropriating [his employer’s]

19 Trade Secrets’”); Callaway Golf Co. v. Dunlop Slazenger Grp. Americas, Inc., 318 F.

20 Supp. 2d 216, 220 (D. Del. 2004) (claims for conversion and unjust enrichment were

21 displaced where they were “based entirely on the same factual allegations that form the

22 basis of its trade secrets claim”).

23 Here, Five Star alleges that Fresh Express and its employees convinced Five Star

24 to allow Fresh Express employees to tour its production facilities and otherwise learn

25 sensitive information, subject to NDAs. FAC ¶¶ 17–18. The information the employees

26 learned was valuable. FAC ¶ 19. Then, “Fresh Express intentionally took steps to

27 convince Proseal, Olivo, Dively, and Pereira to breach their NDA’s with Five Star.” FAC

1 those breaches to compete against Five Star. FAC ¶¶ 20–22. These allegations

2 underlying plaintiffs’ intentional interference claim are clearly based on the same nucleus

3 of facts underlying their misappropriation claim. That is because the breaches of the

4 NDAs were one of the mechanisms by which Fresh Express allegedly “misappropriated”

5 the confidential information (including the trade secrets) at issue.

6 Plaintiffs argue that they are attempting to enforce an independent property right,

7 “which is the sanctity and enforceability of their nondisclosure agreements.” Opp. at 17.

8 They argue that dismissal of their intentional interference claim “would render the non-

9 disclosure agreements it requires of outsiders meaningless.” Id. at 18. Not so. In fact,

10 CUTSA expressly exempts actions for breach of contract from the scope of its

11 displacement effect, and plaintiffs assert such causes of action against codefendants for

12 breaching their nondisclosure agreements.

13 Plaintiffs argue that they can avoid CUTSA displacement by basing their

14 interference claim on facts underlying their trade dress infringement and UCL claims, as

15 well as violations of the nondisclosure agreement based on disclosure of confidential (but

16 not trade secret) information. The court is skeptical. To the extent plaintiffs would base

17 their interference claim on NDA signatories’ disclosure of confidential information that

18 does not qualify as a trade secret, such an amendment to the complaint would be futile.

19 E.g., Angelica Textile Servs., 220 Cal. App. 4th at 506 (“In general, the acquisition,

20 disclosure or transfer of information that does not fit UTSA's definition of a trade secret

21 does not give rise to any liability, even when that liability is couched in terms of a

22 separate tort or statutory violation.”). To the extent plaintiffs would base their interference

23 claim on facts underlying their trade dress infringement or UCL claims, plaintiffs must

24 identify the allegedly-offending conduct with sufficient particularity to put defendant on

25 notice of the scope of the claim. Given the pleadings before the court, it is unclear what

26 facts could support plaintiffs’ claim of intentional inference that would not, at their core,

27 concern the NDA signatories’ improper sharing of information with Fresh Express and

1 claim would necessarily be futile, plaintiffs shall have leave to amend their complaint to

2 state an intentional interference cause of action against Fresh Express.

3 Plaintiffs also argue that they should be permitted to plead this cause of action in

4 the alternative, because it is possible that the finder of fact will find that the subject matter

5 at issue is not a trade secret. Although alternative pleading is generally permitted,

6 “CUTSA preemption extends to claims based on the misappropriation of confidential and

7 proprietary information, regardless of whether it qualifies as a ‘trade secret.’” Avago

8 Techs. U.S. Inc. v. Nanoprecision Prod., Inc., Case No. 16-cv-03737-JCS, 2017 WL

9 412524, at *6 (N.D. Cal. Jan. 31, 2017) (collecting cases). “[A] prime purpose of the law

10 was to sweep away the adopting states' bewildering web of rules and rationales and

11 replace it with a uniform set of principles for determining when one is—and is not—liable

12 for acquiring, disclosing, or using ‘information ... of value.’ Central to the effort was the

13 act’s definition of a trade secret. Information that does not fit this definition, and is not

14 otherwise made property by some provision of positive law, belongs to no one, and

15 cannot be converted or stolen.” Silvaco, 184 Cal. App. 4th at 239 n.22 (citations omitted).

16 Because CUTSA displaces claims alleging misappropriation of even confidential

17 information that does not qualify for trade-secret protection, plaintiffs’ argument

18 concerning alternative pleading fails.

19 CONCLUSION

20 For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ first cause of

21 action for fraud as alleged against Fresh Express is GRANTED, and the claim is

22 DISMISSED WITH LEAVE TO AMEND; defendant’s motion to dismiss plaintiffs’ second

23 cause of action for misappropriation of trade secrets as alleged against Fresh Express is

24 DENIED; defendant’s motion to dismiss plaintiffs’ third cause of action for design patent

25 infringement as alleged against Fresh Express is DENIED; defendant’s motion to dismiss

26 plaintiffs’ fifth cause of action for trade dress infringement as alleged against Fresh

27 Express is DENIED; defendant’s motion to dismiss plaintiffs’ seventh and eighth causes

1 motion to dismiss plaintiffs’ ninth cause of action for breach of contract as alleged against

2 Fresh Express is GRANTED, and the claim is DISMISSED WITH PREJUDICE; and

3 defendant’s motion to dismiss plaintiffs’ tenth cause of action for intentional interference

4 with contract as alleged against Fresh Express is GRANTED, and the claim is

5 DISMISSED WITH LEAVE TO AMEND. Plaintiffs shall file any amended complaint

6 within 21 days of the date of this order. No new parties or causes of action may be

7 pleaded without leave of court or the agreement of all defendants.

8 IT IS SO ORDERED.

9 Dated: January 31, 2020

10 /s/ Phyllis J. Hamilton

PHYLLIS J. HAMILTON

11 United States District Judge

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