WORLD FINANCIAL GROUP INSURANCE AGENCY, Plaintiff, v. ERIC OLSON, et al., Defendants.
Case No. 24-cv-00480-EJD
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION
July 19, 2024
Re: ECF Nos. 79, 80
For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Mr. Olson‘s and Ms. Olson‘s motions to dismiss.
I. BACKGROUND
A. The Parties
The following factual background is taken from the FAC except if otherwise noted.
WFG provides a business platform for individuals who wish to operate their own independent financial services business. FAC ¶ 23. It offers fixed insurance products through
Mr. Olson began working as a WFG agent in 2003. Id. ¶ 57. He rose through his hierarchy at WFG and achieved the position of Field Chairman. Id. During the last 20 years, Mr. Olson made millions of dollars through his association with WFG. Id. To help him conduct business through WFG, Mr. Olson began using a WFG cobrand name, through which his hierarchy operates, called Pinnacle Elite (“Pinnacle“). Id. ¶ 58. Ms. Olson also worked with WFG. Id. ¶ 62. After marrying Mr. Olson, she moved into his hierarchy. Id.
In September 2023, Mr. Olson attempted to move his hierarchy under Ms. Olson‘s name. Id. ¶ 65. WFG prevented him from doing so because WFG contends it “had difficulty understanding the Olsons’ motivation.” Id. ¶ 66. On October 4, 2023, Ms. Olson resigned from WFG, and on October 13, 2023, Ms. Olson formed Global Financial Impact, LLC (“GFI“). Id. ¶¶ 68-69. WFG alleges that GFI was formed to enrich both of the Olsons and for the unlawful purpose of stealing from WFG and its insurance agents. Id. ¶ 78.
WFG alleges that Mr. Olson improperly recruited WFG insurance agents away from WFG to join his and Ms. Olson‘s newly formed company, GFI. Id. ¶ 83. WFG alleges that the Olsons, with the help of others, used WFG‘s confidential and proprietary compensation and organizational data to target specific teams of insurance agents with spouses who also served as WFG insurance agents to recruit agents to GFI. Id. ¶¶ 84-88.
B. The Agreement
When WFG brings on an insurance agent, it requires the agent to sign the Agent
The Non-Solicitation Provision.
Except as prohibited by law, during the period that Agent is an Agent of WFG and for a period of two (2) years following the termination of this Agreement for any reason, Agent shall not, either individually or in partnership or jointly or in conjunction with any other person or entity, as principal, agent, consultant, contractor, employer, employee or in any other manner, directly or indirectly, solicit, induce or entice away or in any other manner persuade or attempt to persuade any individual who is a current agent of WFG and with whom the Agent had business contact with on behalf of WFG or its affiliated or related entities, to terminate or alter their agent relationship with WFG to join a competing organization. This non-recruitment restriction is limited and only applies with respect to any recruitment of an agent that resided in or engaged in business activities in the geographic area within fifty (50) miles of the location of the Agent‘s office(s) during the eighteen (18) month period preceding the recruitment. This provision survives the termination of this Agreement.
Agreement § 2.15.
The Confidentiality Provision.
Agent will not use, disseminate or reveal, other than on behalf of WFG as authorized by WFG or the Product Providers, any Confidential Information or Trade Secret of WFG or of the Product Providers, which Agent has or hereafter receives. Agent agrees that immediately upon the termination of this Agreement, Agent will return all documents, files and lists containing any Confidential Information or Trade Secret to WFG and the same shall not be copied or duplicated.
Agreement § 2.16.
The Non-Disparagement Provision.
Agent shall not do anything that will damage the business, good name or reputation of WFG, Affiliated Companies and/or their respective officers, directors, and employees.
Agreement § 2.17.
Agents are required to sign the Agreement each year. Mr. Olson signed his annual Agreement on February 27, 2023, and Ms. Olson signed her annual Agreement on April 12, 2023.
C. Procedural History
WFG commenced this action and applied for an ex parte temporary restraining order against Defendants Eric Olson, Sandra Olson, and Does 1-50 (i.e., unknown co-conspirators) before the Superior Court of California, County of Santa Clara, on January 25, 2024. ECF No. 1-3. The Olsons removed the case to this Court on January 26, 2024. ECF No. 1. On January 29, 2024, WFG refiled its Motion for Temporary Restraining Order in this Court. ECF Nos. 15, 16. On February 22, 2024, the Court denied the motion and granted WFG‘s request for expedited discovery. Order Denying Motion for Temporary Restraining Order (“TRO Order“), ECF No. 64; Order Granting Request for Expedited Discovery, ECF No. 67.
On February 15, 2024, Mr. Olson filed a Motion to Dismiss the Complaint, which was joined by Ms. Olson. ECF Nos. 62, 63. On February 29, 2024, WFG filed its FAC and added three new defendants: Defendants Michael Cherniawski, Eric Carter, and DaJuan Cofield. See FAC. On March 14, 2024, the Olsons filed the present Motions. ECF Nos. 79, 80. The Motions are fully briefed. WFG‘s Opposition to Motion to Dismiss (“Opp.“), ECF No. 96; Eric Olson‘s Reply in Support of Motion to Dismiss (“Reply“), ECF No. 98; Sandra Olson‘s Joinder in Eric Olson‘s Reply, ECF No. 99. The Court heard oral argument on the Motion on May 2, 2024.
Both Mr. and Ms. Olson have separately filed lawsuits against WFG alleging various causes of action relating broadly to their involvement with WFG. Eric Olson v. World Fin. Group Ins. Agency, No. 24-cv-00481-EJD (N.D. Cal.); Sandra Olson v. World Fin. Group Ins. Agency, No. 24-cv-00477-EJD (N.D. Cal.).
II. LEGAL STANDARD
For purposes of ruling on a
III. DISCUSSION
The Olsons move to dismiss all claims against them for failure to state a claim under
The Court addresses each cause of action below.
The Olsons first move to dismiss WFG‘s breach of contract claim under
As an initial matter, the Court observes that the Olsons rely heavily on the Court‘s ruling in denying WFG‘s motion for temporary restraining order. That order evaluated the relevant provisions under a different standard and with the evidence before the Court at that time. To the extent that the Court‘s reasoning in its TRO Order is applicable here, the Court will so state. With that in mind, the Court proceeds to evaluate the present motion under
1. Section 2.15—the Non-Solicitation Provision
Turning first to the Non-Solicitation Provision, the Court agrees with WFG that the TRO Order did not expressly rule that the Non-Solicitation Provision is entirely unenforceable. For the reasons explained in its TRO Order, the Court will evaluate whether the relevant provisions are void under the Edwards framework. See TRO Order 12-16. The Court briefly restates its findings here.
Whether WFG has stated a claim for breach of the Non-Solicitation Provision involves the application of
Prior to Edwards, Loral Corp. v. Moyes found that an agreement which was more akin to “a restraint on solicitation of customers or on disclosure of confidential information” than a noncompete agreement was upheld. 174 Cal. App. 3d 268, 276 (1985) (”Loral“). The court reasoned that the agreement only slightly affected the plaintiff‘s employees because they were not hampered from seeking employment with defendant‘s new employer; nor did the agreement prevent the plaintiff‘s employee from contacting the contracting defendant. The only option employees lost was the option of being contacted by the defendant first. Id. at 279-80. The court further reasoned that “[t]he restriction presumably was sought by plaintiffs in order to maintain a stable work force and enable the employer to remain in business.” Id. at 280. Thus, since the court found that the noninterference agreement “ha[d] the apparent impact of limiting [defendant‘s] business practices in a small way in order to promote [the employer‘s] business,” it did not find the agreement to be void on its face under
Courts have considered the impact of the Edwards holding on Loral. For instance, AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc. expressly stated that it “doubt[s] the continuing viability of [Loral] post-Edwards” but nevertheless evaluated the agreement at issue using the Loral reasonableness standard. 28 Cal. App. 5th 923, 939 (2018). Other courts, in evaluating the two cases vis-à-vis, have similarly questioned whether non-solicitation agreements permitted under Loral remain so following Edwards. For example, Race Winning Brands, Inc. v. Gearhart evaluated a confidentiality agreement that stated plaintiff must not, “for one year following the termination of [his] employment ... directly or indirectly through another person or entity, induce or attempt to induce any employee of [plaintiff] to suspend, decrease or terminate their employment or otherwise interfere with the relationship ....” Id. at *9. This is nearly identical to the Non-Solicitation Provision in the Agreement here. The court explained that, before Ixchel, “several district courts considering AMN followed its interpretation that
As explained in the TRO Order, the Court finds that Edwards, at a minimum, cast doubt on Loral. See TRO Order 12-16. Moreover, the Olsons have stated that they are in the business of recruiting, so the Non-Solicitation Provision would have a negative impact on their business. See AMN Healthcare, 28 Cal. App. 5th at 939; see also NuLife Ventures v. Avacen, No. 20-cv-2019-BAS-KSC, 2020 WL 7318122, at *11 (S.D. Cal. Dec. 11, 2020) (finding plaintiff failed to demonstrate a probability of prevailing on the merits of its breach of contract claim where the contractual provisions at issue “restrict [the independent contractor‘s] ability to practice their sales profession in the MLM industry, which rely on a sales agent‘s recruitment of new sales agents“). If enforced, the Non-Solicitation Provision would restrain the Olsons “from engaging in their chosen profession.” AMN Healthcare, 28 Cal. App. at 939. Thus, the Court concludes that the
WFG argues that the Edwards holding and analysis “only govern post-termination activity when reviewing the enforceability of restrict covenants,” and it “does not void covenants not to solicit while the worker is still engaged with the company.” Opp. 12. In support, WFG cites Techno Lite, Inc. v. Emcod, LLC, which explained that
Even if Edwards does not void covenants not to solicit while the worker is still engaged with the company––as WFG contends––that is not the covenant at issue here. The Non-Solicitation Provision here involves an agreement not to compete “during the period that Agent is an Agent of WFG and for a period of two (2) years following the termination of this Agreement.” Agreement § 2.15 (emphasis added). WFG‘s argument that the Non-Solicitation Provision is not invalid because it prohibits solicitation during employment “ignores the broad wording” of the Non-Solicitation Provision. Dowell v. Biosense Webster, Inc., 179 Cal. App. 4th 564, 578 (2009). Because the Non-Solicitation Provision “at issue here goes well beyond prohibiting active solicitation by prohibiting departing employees from” soliciting WFG agents for a period of two years following the termination of the Agreement, the provision is not exempt from
Moreover, the California Court of Appeal in AMN Healthcare tested “broadly worded provisions preventing [employees], for a period of at least one year after termination of employment ..., from either directly or indirectly soliciting or recruiting, or causing others to solicit or induce, any employee of” the plaintiff firm. 28 Cal. App. 5th at 936. As here, the language of the nonsolicitation provision at issue in AMN proscribed solicitation both “during Employee‘s employment with the Company” and “for a period of [one year or] eighteen months
The Court also rejects WFG‘s suggestion that the Non-Solicitation Provision can be reformed to apply only to pre-termination misconduct. Opp. 12. “Any attempt to construe the [Non-Solicitation Provision] in such a manner as to make [it] lawful would not be reforming the contract to correct a mistake of the parties but rather to save a statutorily proscribed and void provision.” Dowell, 179 Cal. App. 4th at 579; see also Kolani v. Gluska, 64 Cal. App. 4th 402, 407, 75 Cal. Rptr. 2d 257 (1998) (affirming trial court‘s decision “not [to] rewrite the broad covenant not to compete into a narrow bar” because “the policy of [
Because the Court finds that the Non-Solicitation Provision is subject to Edwards and void under
2. Section 2.16—The Confidentiality Provision
The Olsons contend that the Confidentiality Provision (1) is separately void for the same reasons they contend the Nonsolicitation Provision is void, and (2) WFG‘s breach of contract claim based on the Confidentiality Provision separately fails because WFG has not plead
Any and all Personally Identifiable Information or confidential and proprietary records, data or information created by or on behalf of, or belonging to, WFG and now or hereafter acquired by, made known or disclosed to the Agent or any Assistant which has value to, and is not generally known by, competitors or potential competitors of WFG, and includes but is not limited to hierarchy lists and Personally Identifiable Information deemed to be confidential by applicable federal, state, commonwealth and/or local laws and list(s) of WFG agents, including their identities and contact information. Confidential information does not include information which becomes generally available to the public other than as a result of disclosure by the Agent, any Assistant or any member of WFG‘s network of contractually affiliated agents.
Id. § 1.8.
a. Whether Section 2.16 Is Void
The Olsons argue that this provision is “even broader” than the Nonsolicitation Provision because it “would preclude Mr. Olson from contact with his mom, who is an agent at WFG.” Mot. 11.
The Court finds that the Confidentiality Provision, while broad, is not so broad to be void under
The Confidentiality Provision here differs from those at issue in both Dowell and W. Air Charter in that it is a standalone provision not tethered to the Nonsolicitation Provision, and it is more narrow in scope. For instance, the Confidentiality Provision here is tailored to personally identifiable information “deemed to be confidential by applicable federal, state, commonwealth and/or local laws and list(s) of WFG agents, including their identities and contact information” with an exception for information “which becomes generally available to the public.” Agreement § 1.8. Moreover, the claims brought by WFG appear to be about the improper use of confidential information, and the breach of contract claim based on breach of the Confidentiality Provision “does not stand or fall on the non-solicitation provision and instead turns on the misuse of information.” First-Citizens Bank & Tr. Co. v. HSBC Holdings plc, No. 23-CV-02483-LB, 2024 WL 115933, at *10 (N.D. Cal. Jan. 10, 2024) (declining to dismiss at pleading stage breach of contract claim that “turn[ed] on use of confidential and trade-secret information to solicit others“).
At this stage, the Court declines to find that the Confidentiality Provision is void under
The Olsons argue that WFG‘s contract claim separately fails because WFG has not plead sufficient factual matter to state a plausible claim for breach of the Confidentiality Provision. Mot. 15. The Olsons contend that WFG‘s allegations with respect to breach of the Confidentiality Provision (e.g., misuse of “hierarchy,” “compensation structure,” “insurance agent lists“) amount to conclusory references to undefined confidential information. Id.
WFG alleges that “the position of an agent within a particular hierarchy, and the relationship between agents within a hierarchy” is “maintained as confidential.” FAC ¶ 26. It is knowledge of this specific location within the hierarchy that WFG contends the Olsons used to target insurance agents to move to GFI. Id. ¶¶ 105-06 (alleging that the Olsons “directed [] lies to the downline insurance agents so they could line up those recruits and use them to force the uplines to move to GFI” and “recruited WFGIA insurance agents that were upline and incentivized them to encourage their downlines to join GFI“). WFG argues that the Olsons’ use of this confidential hierarchy information to recruit WFG agents allegedly violates the Confidentiality Provision. See Mot. 6-7.
In addition to the confidential hierarchy information, WFG contends it has alleged that the Olsons violated the Confidentiality Provision by sharing “confidential compensation information” through statements made by other defendants. Id. at 7-8 (arguing “GFI employees,” “Defendant DaJuan Cofield,” “Defendant Cherniawski,” and “Manuel Valle” shared confidential information). The Court is not convinced that WFG can rely on statements made by other Defendants to support its claim for breach against the Olsons. Nevertheless, taking the allegations in the FAC as true, the Court finds that WFG‘s allegations regarding the confidential location of an agent within a particular hierarchy and the Olsons’ alleged use of that information are sufficient to plausibly plead a breach of the Confidentiality Provision against the Olsons.
Accordingly, the Court DENIES the Olsons’ motion to dismiss WFG‘s breach of contract claim against the Olsons arising from breach of the Confidentiality Provision.
The Olsons next argue that the Disparagement Provision (1) is void as being “even broader” than the other restrictions, and (2) WFG‘s breach of contract claim based on the Disparagement Provision separately fails because WFG has not plead “sufficient factual matter” to support the claim. Mot. 13, 17. The Disparagement Provision provides that the Agent “shall not do anything that will damage the business, good name or reputation of WFG, Affiliated Companies and/or their respective officers, directors, and employees.” Agreement § 2.17.
a. Whether Section 2.17 Is Void
The Olsons argue that the Nondisparagement Provision is void because, if enforced, the practical effect of the provision would prohibit them from “differentiating themselves and any of their future business endeavors from WFG.” Mot. 14.
Both parties refer to Parsable. 2022 WL 19692034. In that case, the court evaluated a separation agreement entered into between employee and his former employer. The employee agreed to “refrain from any disparagement, defamation, libel, or slander” of his employer and “refrain from making, either directly or indirectly, any negative, damaging or otherwise disparaging communication concerning [his employer] or its services to any of the clients of [his employer],” including “any negative, damaging or otherwise disparaging communications on Glassdoor, Indeed, LinkedIn, or any other similar websites, media outlets, newspaper, magazine, forum, or any other distribution channel or other third parties.” Id. The employer alleged the employee violated the agreement by making false and disparaging statements. The employee moved to dismiss the complaint, arguing, among other things, that the non-solicitation clause was void and the non-disparagement clause was “an unlawful de facto non-compete clause.” Id. at *3. The court found that the non-solicitation clause was void under California law, but the non-disparagement clause “appear[ed] to be enforceable, at least in part.” Id. at *5.
Here, as in Parsable, WFG‘s breach of contract claim based on the Nondisparagement Provision “does not depend upon [the Olsons‘] obligation not to make negative comments.” Id. The FAC, as in Parsable, alleges “not only negative comments made by [Defendants], but
Accordingly, the Court declines to find that the Nondisparagement Provision is void under
b. Whether WFG Pleads Sufficient Facts to Establish Breach of Section 2.16
The Olsons argue that WFG‘s contract claim separately fails because WFG has not plead (1) special damages, or (2) any statements made by the Olsons that could meet any enforceable definition of disparagement. Mot. 17-18.
To state a claim for disparagement, a plaintiff must allege “a false and misleading statement that (1) specifically refers to the plaintiff‘s product or business and (2) clearly derogates that product or business.” Parsable, 2022 WL 19692034, at *5 (citing Hartford Cas. Ins. Co. v. Swift Distrib., Inc., 59 Cal. 4th 277, 286 (2014)). A plaintiff must also allege special damages. Id. (citing TSI USA LLC v. Uber Techs., No. 17-cv-3536-HSG, 2018 WL 4638726, at *6 (N.D. Cal. Sept. 25, 2018)). “Usually, ... the damages claimed have consisted of loss of prospective contracts with the plaintiff‘s customers.” Nichols v. Great Am. Ins. Cos., 169 Cal. App. 3d 766, 773 (Ct. App. 1985).
WFG has alleged that, because of the Olsons’ disparagement, “[d]ozens of insurance agents have already terminated their agreements with WFGIA and moved to GFI” and “WFGIA continues to lose insurance agents and customers.” FAC ¶ 255. WFG contends it plead the special damages it has endured “as best it can currently” without the benefit of expedited
The above allegations regarding loss of “dozens” of unnamed agents and “customers” are insufficient to adequately plead special damages stemming from the Olsons’ alleged disparagement. Bastidas v. Good Samaritan Hosp. LP, No. 3:13-CV-04388-SI, 2017 WL 1345604, at *5 (N.D. Cal. Apr. 12, 2017) (“special damages must be pled with particularity because such damages are unusual for the type of claim in question—[they] are not the natural damages associated with such a claim“) (quotations omitted).
Accordingly, the Court GRANTS the Olsons’ motion to dismiss WFG‘s breach of contract claim against the Olsons arising from breach of the Nondisparagement Provision with leave to amend to plead with greater specificity any special damages.
B. Tortious Interference with Contract—Second Cause of Action
The Olsons also move to dismiss WFG‘s tortious interference with contract claim on the grounds that WFG has not plead an independently wrongful act or “any specific resultant disruption to contractual or economic relationships.” Mot. 19.
“In order to state a claim for tortious interference with a contract, a plaintiff must plead (1) a valid contract between plaintiff and a third party; (2) defendant‘s knowledge of this contract; (3) defendant‘s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990) (citations omitted). To state a claim for interference with an at-will contract, WFG must also “allege that [the Olsons] engaged in an independently wrongful act.” Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1148 (2020). Because WFG alleges that the Olsons interfered with at-will contracts, it must allege that the Olsons did so through wrongful means. Id. at 1162.
The Olsons argue that “the only independently wrongful act alleged in the Complaint is the use of WFG‘s ‘confidential business information about its business structure, insurance agent performance, hierarchy structure, compensation, and agreements with product providers to induce their colleagues to leave WFGIA.‘” Mot. 19 (citing FAC ¶ 263). As explained above, supra
The Olsons next argue that WFG‘s tortious interference claim fails because WFG has not pled “any specific resultant disruption to contractual or economic relationships.” Mot. 19 (quoting Name.Space, Inc. v. Internet Corp. for Assigned Names & Numbers, 795 F.3d 1124, 1134 (9th Cir. 2015)). The Court agrees. The FAC lacks sufficient specificity regarding which contract was disrupted. The FAC alleges that “[d]ozens of insurance agents have already terminated their agreements with WFGIA and moved to GFI” and “WFGIA continues to lose insurance agents and customers.” FAC ¶ 255. The FAC also alleges that the Olsons induced “other insurance agents” to breach their contracts. Id. ¶ 262. But these allegations of “generalized disruption of contracts” are insufficient to identify, at a minimum, “the particular contracts” that were interfered with. Image Online Design, Inc. v. Internet Corp. for Assigned Names & Numbers, No. CV 12-08968 DDP JCX, 2013 WL 489899, at *9 (C.D. Cal. Feb. 7, 2013); see also Nat‘l Specialty Pharmacy, LLC v. Padhye, No. 23-CV-04357-PCP, 2024 WL 2206336, at *4 (N.D. Cal. May 16, 2024) (dismissing tortious interference with contract claim that “d[id] not specify what contracts were interfered with“).
WFG argues that, unlike the plaintiff in Name.Space, it has alleged that the Olsons “intentionally disregarded their own contractual obligations when they encouraged other WFGIA insurance agents to breach their own contractual obligations and resign from WFGIA to join GFI.” Opp. 15. But that distinction is unavailing because allegations that the Olsons interfered with “other insurance agents[‘]” contracts (FAC ¶¶ 259, 263) nevertheless lack sufficient specificity regarding which contracts were disrupted.
Accordingly, the Court GRANTS the Olsons’ motion to dismiss WFG‘s tortious interference with contract claim against the Olsons with leave to amend consistent with the
C. Fraud—Fourth Cause of Action
The Olsons argue that WFG fails to state a claim for fraud because the allegations lack the requisite specificity for pleading fraud under
Specifically, the Olsons contend that WFG‘s fraud claim does not identify the speaker of the false statement, how such statements could be attributable to the Olsons, or identify the “time, place, or specific content” of the false statement. Mot. at 20. WFG responds that the “speaker” of the false statement is any “Target” WFG insurance agent engaged in the Anchor Leg strategy, who represented to WFG in word or action (fraudulently) that they remained loyal to WFG, while they make plans to follow their spouse to GFI, including the Olsons. Opp. 17 (citing FAC ¶¶ 84-87). WFG contends that the fraudulent statements “of other Anchor Leg participants” can be attributed to the Olsons “because they are working to the benefit of Defendants via GFI, and thus serve as their co-conspirator agents.” Opp. 17 (citing FAC ¶ 78).
As an initial matter, to the extent WFG is relying on an agency-principal relationship to support its allegations of fraud, such a relationship must be plead. See Union Pac. R.R. Co. v. Hill, No. 21-CV-03216-BLF, 2021 WL 5964595, at *8 (N.D. Cal. Dec. 16, 2021) (“Union Pacific has failed to sufficiently plead a principal-agent relationship that would make Mobile Mini liable for the acts of the Hills and Privette“). The FAC alleges that “GFI was formed to enrich the Olsons and for the unlawful purpose of stealing from WFGIA and its insurance agents.”
WFG also argues that the Olsons “made representations to WFGIA through their Agreements that they would not violate the terms of their Agreements.” Opp. 17. But the FAC does not allege that the Olsons made any false statements by signing their Agreements.
Having failed to plead with particularity the details of the false representations, WFG has failed to state a claim for fraud. Accordingly, the Court GRANTS the Olsons’ motion to dismiss WFG‘s fraud claim against the Olsons with leave to amend consistent with the Court‘s Order.
D. Conversion—Sixth Cause of Action
The Olsons next argue that WFG‘s conversion claim fails because (1) the Restrictive Covenant is void, (2) there is no factual allegation that Mr. or Ms. Olson took any confidential information, and (3) the conversion claim is predicated solely on the alleged taking of confidential information and is therefore preempted by the California Uniform Trade Secret Act (“CUTSA“). Mot. 21. Having found that WFG has stated a claim for breach of the Confidentiality Provision, the Court rejects WFG‘s first two arguments.
Regarding the second preemption argument, “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies ‘based upon misappropriation of a trade secret.‘” Silvaco Data Systems v. Intel Corp., 184 Cal. App. 4th 210, 236 (2010) (quoting
The Olsons argue that WFG‘s conversion claim “is based exclusively on the Olsons’ alleged use of ‘WFGIA‘s confidential business information’ and does not allege that the Olsons converted anything apart from its supposed ‘confidential information.‘” Mot. 22 (citing FAC ¶¶ 183-88). WFG responds that the Olsons’ preemption argument is “premature,” and WFG‘s
Here, WFG‘s conversion claim is based entirely on its allegations that Defendants “obtained WFGIA‘s confidential business information” and “unlawfully brought this information to their new competing business.” FAC ¶¶ 288-89. In other words, WFG alleges that Defendants “converted” WFG‘s confidential information. See id.; see also Opp. 20. Even though WFG “does not plead a trade secret claim or that the confidential information which was converted constitute trade secrets” (Opp. 20), its conversion claim is still based exclusively on the Olsons’ alleged use of this confidential business information. Thus, WFG‘s conversion claim is preempted by CUTSA. See Avago, 2017 WL 412524, at *6 (“Courts in this District have concluded ... that CUTSA preemption extends to claims based on the misappropriation of confidential and proprietary information, regardless of whether it qualifies as a ‘trade secret.‘“); see also SunPower Corp. v. SolarCity Corp., No. 12-CV-00694-LHK, 2012 WL 6160472, at *7 (N.D. Cal. Dec. 11, 2012) (holding that “CUTSA supersedes claims based on the misappropriation of information, regardless of whether such information ultimately satisfies the definition of trade secret“).
WFG has not plead separate facts that could support a conversion claim apart from the facts alleged regarding the misuse of confidential information. The FAC describes the Olsons’ purported misuse of WFG‘s confidential information for use in establishing their competing company, GFI. These are the same facts used to support WFG‘s claim for conversion of confidential information. Accordingly, as currently plead, WFG‘s conversion claim is preempted by CUTSA. See Avago, 2017 WL 412524, at *5 (dismissing at pleading stage conversion claim as preempted where “the only materials described in the Counterclaim are identified only generally as the confidential and proprietary materials that were provided to Avago“).
The Court GRANTS the Olsons’ motion to dismiss WFG‘s conversion claim against the Olsons. Although the Court is skeptical WFG can avoid preemption based on the facts currently alleged in the FAC, WFG will be permitted leave to amend to state a claim of conversion.
The Olsons argue that WFG‘s civil conspiracy claim fails because WFG has not “identif[ied] a specific wrongful tort that Defendants engaged in.” Mot. 20. Civil conspiracy consists of three elements: “(1) the formation and operation of the conspiracy, (2) wrongful conduct in furtherance of the conspiracy, and (3) damages arising from the wrongful conduct.” Swipe & Bite, Inc. v. Chow, 147 F. Supp. 3d 924, 935-36 (N.D. Cal. 2015) (citing Kidron v. Movie Acquisition Corp., 40 Cal. App. 4th 1571, 1581 (1995)).
The FAC alleges that Defendants and others “conspired to create a competing business to unfairly and unlawfully compete against WFGIA” and “conspired to use WFGIA‘s confidential information to induce insurance agents to breach their agreements.” FAC ¶ 267. WFG argues that the FAC makes plausible allegations regarding the “Anchor Leg” scheme to purportedly recruit away WFG agent married couples to GFI, while one of the spouses remained at WFG (mirroring the overt acts that the Olsons had already begun). Opp. 15-16 (citing FAC ¶¶ 83-88).
The Olsons argue that WFG cannot plead a civil conspiracy claim on a breach of contract. Mot. 20 (citing Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 508 (1994) (holding that a contracting party cannot be liable for civil conspiracy to interfere with its own contract)). The allegations relating to the “Anchor Leg” scheme appear related to both WFG‘s claims for breach of contract and WFG‘s claims for tortious interference with contract. However, for the reasons stated above, including because the FAC lacks sufficient specificity regarding which contracts were disrupted, WFG has not stated a plausible claim for tortious interference with contract. Thus, those allegations cannot supply the tort required to state a claim for civil conspiracy. WFG also brings claims for fraud and conversion. Because the Court finds that WFG has failed to state a plausible claim for fraud and conversion (see supra Parts III(C) and III(D)), WFG‘s allegations for those claims similarly cannot supply the tort required to state a claim for civil conspiracy.
Accordingly, the Court GRANTS the Olsons’ motion to dismiss WFG‘s civil conspiracy claim against the Olsons with leave to amend consistent with the Court‘s Order.
The Olsons argue that WFG‘s UCL claim fails because “all of WFG‘s other claims fail as a matter of law.” Mot. 22 (cleaned up). The Court denied the Olson‘s motion as to WFG‘s breach of contract claim based on breach of the Confidentiality Provision. See supra, Part III(A)(2). Accordingly, the Court rejects the Olsons’ argument that WFG‘s UCL claim fails on this basis and DENIES the Olsons’ motion to dismiss WFG‘s UCL claim.
G. Unjust Enrichment—Fifth Cause of Action
The Olsons argue that WFG‘s unjust enrichment claim fails because (1) unjust enrichment is not a cause of action under California law; (2) the unjust enrichment claim is entirely derivative of its UCL claim; and (3) the unjust enrichment claim is preempted by CUTSA because it is based solely on Defendants’ alleged misuse of WFG‘s confidential information. Mot. 23. The Court finds the first two arguments unpersuasive. See Katz-Lacabe v. Oracle Am., Inc., No. 22-CV-04792-RS, 2023 WL 6466195, at *6 (N.D. Cal. Oct. 3, 2023), aff‘d, 2023 WL 7166815 (N.D. Cal. Oct. 30, 2023) (“Plaintiffs’ FAC successfully pleads an unjust enrichment cause of action under California law“); see also Astiana v. Hain Celestial Group., Inc., 783 F.3d 753, 756 (9th Cir. 2015) (“To the extent the district court concluded that the [unjust enrichment] cause of action was nonsensical because it was duplicative of or superfluous to [plaintiff‘s] other claims, this is not grounds for dismissal“).
Regarding the Olsons’ argument that the unjust enrichment claim is preempted by CUTSA, WFG responds that the claim is not preempted because its unjust enrichment claim is “wholly distinct” from its claims for conversion and unfair competition law. Opp. 22. As WFG acknowledges, its unjust enrichment claim is based on allegations that “Defendants unjustly enrich themselves when they use WFGIA‘s confidential business information to replicate its successful business model and start a new, competing business.” Opp. 21 (citing FAC ¶ 279) (emphasis added). Thus, WFG‘s unjust enrichment claim is preempted by CUTSA. See Memry Corp. v. Kentucky Oil Tech., N.V., No. C-04-03843 RMW, 2005 WL 1656877, at *1 (N.D. Cal. July 14, 2005) (unjust enrichment claim preempted by CUTSA “to the extent” the claim is based on
Accordingly, as currently plead, WFG‘s unjust enrichment claim is preempted by CUTSA. As mentioned however, although the Court is skeptical WFG can avoid preemption based on the facts currently alleged in the FAC, WFG will be permitted leave to amend to state a claim of unjust enrichment.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART the Olsons’ motions as follows:
- The Court GRANTS the Olsons’ motion to dismiss WFG‘s breach of contract claim against the Olsons arising from breach of the Non-Solicitation Provision without leave to amend.
- The Court DENIES the Olsons’ motion to dismiss WFG‘s breach of contract claim against the Olsons arising from breach of the Confidentiality Provision.
- The Court GRANTS the Olsons’ motion to dismiss WFG‘s breach of contract claim against the Olsons arising from breach of the Nondisparagement Provision with leave to amend.
- The Court GRANTS the Olsons’ motion to dismiss WFG‘s tortious interference with contract claim against the Olsons with leave to amend.
- The Court GRANTS the Olsons’ motion to dismiss WFG‘s civil conspiracy claim against the Olsons with leave to amend.
- The Court GRANTS the Olsons’ motion to dismiss WFG‘s fraud claim against the Olsons with leave to amend.
- The Court GRANTS the Olsons’ motion to dismiss WFG‘s conversion claim against the Olsons with leave to amend.
The Court DENIES the Olsons’ motion to dismiss WFG‘s UCL claim against the Olsons. - The Court GRANTS the Olsons’ motion to dismiss WFG‘s unjust enrichment claim against the Olsons with leave to amend.
Any amended complaint must be filed within 21 days of this Order.
IT IS SO ORDERED.
Dated: July 19, 2024
EDWARD J. DAVILA
United States District Judge