498 F.Supp.3d 1155
N.D. Cal.2020Background
- Gallagher (global insurance broker) sued four former employees (Don Tarantino, Bernadette Heater, Michael Machette, Spencer Brush) and competitor Alliant after employees left for Alliant in July 2020.
- Gallagher alleges employees mass‑emailed confidential/client information to personal accounts and used it to solicit clients and employees; two clients were allegedly wooed by Tarantino shortly before leaving.
- About 50 clients and 15 Gallagher employees allegedly switched to Alliant; Gallagher alleges Alliant recruited the employees and benefited from the information.
- Causes: breach of employment contracts, federal (DTSA) and state (CUTSA) trade‑secret misappropriation, breach of fiduciary duty, interference/aiding and abetting, UCL/ unjust enrichment, conspiracy, injunctive relief.
- Defendants moved to dismiss. Court GRANTED in part and DENIED in part: contract noncompetes unenforceable; trade‑secret and confidentiality claims survive as to individuals but not Alliant (without prejudice); various state claims partly preempted or dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability/expiration of employment agreements | Agreements remain operative beyond initial "Term" and restrictive covenants apply after termination; resale-of-goodwill exception permits restraints | Agreements "expired" with the stated Term; §16600 forbids restraints on employee mobility | §1 did not automatically terminate restrictive covenants at end of the Term; but noncompete/nonsolicit provisions were overbroad and not saved by §16601, so noncompetes unenforceable (those contract claims dismissed to extent based on noncompetes) |
| Breach of confidentiality / identification of trade secrets | Alleged trade secrets (client lists/contact info, client preferences, internal strategies, policy and premium data, retention strategies) were described with sufficient particularity and linked to specific emails/documents | Allegations are vague/categorical and could be innocent (e.g., emailing work materials to self) | Allegations sufficiently particular to survive Rule 12(b)(6) as to the four individuals (Heater, Brush, Tarantino, Machette); confidentiality‑based contract claims survive against individuals |
| Trade‑secret misappropriation and Alliant's liability | Alliant directed a pattern/practice of poaching and thus is liable for misappropriation/aiding and abetting | No specific factual allegations that Alliant directed theft; pattern evidence (prior suits) insufficient | DTSA/CUTSA claims survive against the individual defendants; claims against Alliant for misappropriation and aiding/abetting dismissed without prejudice (may amend if discovery reveals facts) |
| CUTSA preemption and derivative state claims (fiduciary duty, interference, intentional interference with contract, UCL, unjust enrichment) | Many state claims are independent (e.g., breach of fiduciary duty for senior employees) and not solely trade‑secret based | CUTSA preempts other civil claims that are merely a restatement of trade‑secret misappropriation | Partial preemption: claims predicated solely on trade‑secret misappropriation are preempted; breach of fiduciary duty and intentional interference with prospective economic advantage survive as to Tarantino and Machette (not Heater/Brush or Alliant); intentional interference with contract against Alliant dismissed with prejudice; aiding/abetting and some claims dismissed without prejudice; leave to amend on conspiracy/injunctive relief allowed |
Key Cases Cited
- Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (Cal. 2008) (California Supreme Court endorses strong policy favoring employee mobility under §16600)
- Strategix, Ltd. v. Infocrossing West., Inc., 142 Cal. App. 4th 1068 (Cal. Ct. App. 2006) (nonsolicitation covenants enforceable only to protect goodwill of the sold business; broad covenants covering buyer’s entire customer base are problematic)
- Alliant Ins. Servs., Inc. v. Gaddy, 159 Cal. App. 4th 1292 (Cal. Ct. App. 2008) (upheld a temporal restriction in a covenant at preliminary stage; discussed trade‑secret exception context)
- Fillpoint, LLC v. Maas, 208 Cal. App. 4th 1170 (Cal. Ct. App. 2012) (criticized covenants tethered to employment termination that can extend long after sale)
- Alta Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868 (N.D. Cal. 2018) (DTSA and CUTSA require plaintiff to describe trade secrets with sufficient particularity to give notice of the boundaries of the secret)
- K.C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939 (Cal. Ct. App. 2009) (interpreting CUTSA’s savings clause and the "nucleus of facts" preemption analysis)
- Starr v. Baca, 652 F.3d 1202 (9th Cir. 2011) (plaintiff survives dismissal where alternative innocent explanation is plausible but defendant’s explanation is not so convincing as to render plaintiff’s implausible)
- Eclectic Props. E., Ltd. v. Marcus & Millichap Co., 751 F.3d 990 (9th Cir. 2014) (pleading standard for competing explanations at Rule 12(b)(6) stage)