Khalil Jaber v. Taco Works, Inc.

When reviewing a demurrer, the court must draw all reasonable inferences in favor of the plaintiff, not the defendant. (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1239.)

“To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)

II.

Discussion

Cross-Defendants first contend that Taco Works’s contribution, equitable apportionment and traditional equitable indemnity claims (the first, second and third causes of action) fail to state claims for relief on the grounds that they are procedurally and legally unavailable, and on the grounds that they violate public policy.

Cross-Defendants further contend that the remaining causes of action to which they demur, including implied contractual indemnity and the sixth cause of action for statutory trade secret misappropriation fail to satisfy basic pleading standards.

a. Equitable Indemnity, Equitable Apportionment and Contribution

Cross-Defendants first contend that Taco Works’s claims for contribution and equitable apportionment fail because a right of contribution only arises “[w]here a money judgment has been rendered jointly against two or more defendants in a tort action.” (Code Civ. Proc., § 875(a); see also Coca-Cola Bottling Co. v. Lucky Stores, Inc. (1992) 11 Cal.App.4th 1372, 1378.) Cross-Defendants contend that these claims fail because there is no underlying tort action here, only an action for employment rights, and no judgment that has been rendered.

Taco Works responds that while its contribution claim is brought pursuant to Code of Civil Procedure section 875, et seq., it contends in a conclusory sentence that its claim is sufficiently pleaded. Taco Works requests that if the Court finds it is insufficient, that it should be granted leave to amend to re-allege this as a claim for declaratory relief. However, Taco Works provides no authority that it can state a claim for contribution by re-framing it as a claim for declaratory relief rather than contribution. The Court finds that Taco Works fails to state a claim for contribution.

As to equitable apportionment, Taco Works contends that cause of action is for equitable apportionment/implied contractual indemnity. The second cause of action is titled only equitable apportionment, however, it alleges that if Jaber is found to have suffered an injury, it was caused by the contributory negligence of Cross-Defendants, and that “...Such partial or whole responsibility of the Cross-Defendants should be based upon the finding that the Cross- Defendants, and each of them, were negligent and also contributorily responsible for the alleged injuries and damages.” (X-Cmpl. ¶¶ 25-36.) It then alleges that Cross-Defendants “have a duty to contribute and indemnify Cross-Complainants for any recovery.” (X-Compl., ¶ 37.)

Taco Works contends that apportionment/equitable indemnity can be asserted prior to judgment. To the extent that is true, this claim nonetheless fails. Not only is no judgment of any nature alleged to have been rendered that can or should be equitably apportioned, but there are also no

pending tort claims alleged in the FAC, only wage and hour claims, and the for the reasons set forth in more detail below, the facts alleged here do not state a claim for implied contractual indemnity.

Cross-Defendants contend that likewise, equitable indemnity claims are reserved for tort claims only. “It is well-settled in California that equitable indemnity is only available among tortfeasors who are jointly and severally liable for the plaintiff's injury. [Citation.]” (Stop Loss Ins. Brokers, Inc. v. Brown & Toland Medical Group (2006) 143 Cal.App.4th 1036, 1040, emphasis in original.)

There are no allegations showing that Cross-Defendants are potential joint tortfeasors with Taco Works.

Taco Works responds that an equitable indemnity cause of action includes an implied contractual indemnity claim, which does not require an underlying tort claim. (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp. (2003) 111 Cal.App.4th 1328, 1351; Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 573 (Jocer) [implied contractual indemnity is a form of equitable indemnity] Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157 [there are two types of indemnity: express contractual indemnity and equitable indemnity; equitable indemnity includes implied contractual indemnity and traditional equitable indemnity].) An implied contractual indemnity claim is “predicated on the indemnitor's breach of duty owing to the indemnitee to properly perform its contractual responsibilities.” (Sehulster, supra, at p. 1351.)

“Implied contractual indemnity is applied to contract parties and is designed to apportion loss among contract parties based on the concept that one who enters a contract agrees to perform the work carefully and to discharge foreseeable damages resulting from that breach. [Citations.]” (Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co. (1991) 234 Cal.App.3d 1724, 1736.)

Traditional equitable indemnity is rooted in principles of equity [Citation], and requires no contractual relationship between an indemnitor and an indemnitee [Citation]. In contrast, implied contractual indemnity presupposes a contractual relationship that supports a right to indemnification not rooted in an express contract term. [Citation.] (Jocer, supra183 Cal.App.4th at p. 573.) “[T[he indemnitee and the indemnitor must share liability for the injury.” (Ibid.)

Because indemnification is an equitable rule created to correct potential injustice, the doctrine is not available where it would operate against public policy and does not state a cause of action where it would operate unfairly. (Platt v. Coldwell Banker Residential Real Estate Services (1990) 217 Cal.App.3d 1439, 1444–1445, 1448.)

Taco Works first cause of action for equitable indemnity is alleged generally.

To the extent that Taco Works alleges in its general factual allegations, on information and belief, that Cross-Defendants agreed to indemnify and hold harmless Taco Works (X. Cmpl., ¶ 12), that would be a claim for express indemnity, not equitable indemnity.1 “Express indemnity generally is not subject to equitable considerations or a joint legal obligation to the injured party; rather, it is enforced in accordance with the terms of the contracting parties' agreement. [Citation.]” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1158.)

To the extent that Taco Works seeks to allege implied contractual indemnity, the breaches of contract identified in the cross-complaint (other than the alleged express agreement to indemnify) include failure to timely pay pursuant to the terms of their agreement. (X-Compl., ¶¶ 21, 22, 42, 43.) There are no allegations showing that any breaches of contract by Cross- Defendants relate to or raise any equitable duty with regard to Jaber’s claims of misclassification and wage and hour violations. Jaber’s claimed damages are in no way foreseeable damages resulting from that alleged breach. 2 (Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co., supra, 234 Cal.App.3d at p. 1736.) The facts alleged do not show any basis for equitable indemnity against Cross-Defendants.

Taco Works’s equitable indemnity claim fails as a matter of law.

Cross-Defendants also contend that Taco Works’s contribution, apportionment and equitable indemnity claims impermissibly seek to shift employer liability under the Labor Code back to the worker that these laws seek to protect and are against public policy. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1131 [wage and hour laws have a public purpose]; Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, 912-913 [employee classification of considerable significance to public].)

The Court is concerned that Taco Works’s claims violate public policy by seeking to improperly shift liability away from Taco Works to Jaber and/or third parties for its own violations of the labor laws. However, the ownership, operation and formation of Cross-Defendants is not alleged on the face of either the cross-complaint or FAC, and Cross- Defendants’ argument raises questions of fact not suitable for resolution at demurrer.

Nonetheless, for the reasons set forth above the Court finds that Taco Works has failed to allege facts that state a claim for equitable indemnity, equitable apportionment and contribution.

1 Nowhere in the first three causes of action, which are all designated as equitable, does Taco Works allege a claim for express contractual indemnity. To the extent there is such a claim alleged in the cross-complaint, it is alleged as part of the breach of contract cause of action, to which Cross-Defendants do not demur. Moreover, that agreement is alleged on “information and belief,” is presumably an oral contract, and no specifics of that agreement are alleged, such as when the agreement was alleged to have been made or specifically by whom. 2 To the extent that Cross-Defendants agreed to supply all labor to accomplish tasks for which Taco Works contracted (X.-Cmpl., ¶ 11), there is no alleged breach of that agreement, nor would Cross-Defendants’ breach of an agreement to supply labor state a claim; such a breach would not be related to or the cause of Jaber’s damages claimed in his complaint.

Cross-Defendants’ demurrer to Taco Works’s first, second and third causes of action is sustained; because Taco Works shows no way it can amend to state a claim, the demurrer to these three causes of action is sustained without leave to amend.

b. Violation of the Uniform Trade Secrets Act

Cross-Defendants also demur to Taco Works’s sixth cause of action for violation of the Uniform Trade Secrets Act (UTSA), Civil Code section 3426, et seq.

“Under the UTSA, a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper means, and (3) the defendant’s actions damaged the plaintiff. (Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal. App. 4th 1658, 1665.) “In short, the test for a trade secret is whether the matter sought to be protected is information (1) that is valuable because it is unknown to others and (2) that the owner has attempted to keep secret. [Citation.]” (DVD Copy Control Assn., Inc. v. Bunner (2004) 116 Cal.App.4th 241, 251.)

Cross-Defendants contend that Taco Works does not identify the alleged trade secrets with the reasonable particularity required by California law, or that it took reasonable efforts to maintain the secrecy of the alleged information as required. (Civ. Code, § 3426.1.) They further contend that Taco Works failed to allege facts showing misappropriation through any of the three statutory pathways: acquisition by improper means, disclosure or use knowing the information was acquired by improper means, or disclosure or use knowing of a duty to maintain secrecy. (Civ. Code, § 3426.1.) Finally, they contend that the cross-complaint fails to distinguish between authorized use of information in the ordinary course of the distribution relationship and unauthorized misappropriation.

Taco Works responds that its allegations in paragraphs 51 and 52, including that it is the owner of confidential information, including information related to its customers, pricing, product needs of customers, product specifications for certain customers, that the information is a trade secret and that Cross-Complainants misappropriated the confidential information by using it in an improper manner, satisfy the pleading standard.

One who seeks to protect his trade secrets from wrongful use or disclosure does not have to spell out the details of the trade secret to avoid a demurrer to a complaint. To so require would mean that the complainant would have to destroy the very thing for which he sought protection by making public the secret itself. [Citation.]

The plaintiff must nevertheless allege the ultimate facts showing the existence of a trade secret or other confidential data to state such a cause of action. An averment simply that the plaintiff has a ‘secret process' is a bare legal conclusion. [Citation.]

Before a defendant is compelled to respond to a complaint based upon claimed misappropriation or misuse of a trade secret and to embark on discovery which may be both prolonged and expensive, the complainant should describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.

(Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 252.)

Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc. (2014) 226 Cal.App.4th 26, cited by Cross-Defendants, discusses the adequacy of the disclosure of the trade secret prior to discovery pursuant to Code of Civil Procedure section 2019.210 for purposes of discovery and trial; it does not discuss the pleading standard at demurrer.

The Court finds Taco Works allegations describe the subject matter of the trade secret with sufficient particularity to state a cause of action for purposes of demurrer.

Cross-Defendants’ demurrer is overruled as to the sixth cause of action.

ORDER (PROPOSED)

Cross-Defendants’ demurrer to the first, second and third causes of action in the cross-complaint is sustained without leave to amend.

Cross-Defendants’ demurrer to the sixth cause of action is overruled.

Cross-Defendants shall file and serve their answer to the cross-complaint within ten days of service of notice of this order. (Cal. Rules of Court, rule 3.1320(g),(j).)Taco Works shall serve notice.

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