Motion-Secondary: GOLDEN PACIFIC BANK, N.A. VS. BILLFLOAT, INC. ET AL

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PETER L. ISOLA (SBN 144146)
pisola@hinshawlaw.com

ROBERT I. LOCKWOOD (SBN 259870)
tlockwood@hinshawlaw.com
HINSHAW & CULBERTSON LLP

One California Street, 18th Floor

San Francisco, CA 94111

415-362-6000
415-834-9070

Telephone:
Facsimile:

Attorneys for Defendants
RYAN GILBERT and SEAN O'MALLEY

WILLIAM T. WEBB (SBN 193832)
wwebb@webblegalgroup.com
JENNIFER D. YU (SBN 291603)
jyu@webblegalgroup.com

Webb Legal Group

155 Montgomery Street, Suite 1200
San Francisco, CA 94104
Telephone; 415-277-7200
Facsimile: 415-277-7210

Attorneys for Defendants
BILLFLOAT, INC., RYAN GILBERT
and SEAN O'MALLEY

ELECTRONICALLY

FILED

Superior Court of Califomia,
County of San Francisco

09/02/2016
Clerk of the Court
BY:VANESSA WU

Deputy Clerk

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF SAN FRANCISCO

UNLIMITED JURISDICTION

GOLDEN PACIFIC BANK, N.A., a National
Bank,

Plaintiff,
VS.

BILLFLOAT, INC., RYAN GILBERT, SEAN
O'MALLEY, and DOES 1 - 50, inclusive,

Defendants.

BILLFLOAT, INC.,
Cross-Complainant,
v.

GOLDEN PACIFIC BANK, N.A., and ROES
1-50,

Cross-Defendants,

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Case No, CGC-16-549804

MEMORANDUM OF POINTS AND
AUTHORITIES IN SUPPORT OF
MOTION FOR JUDGMENT ON THE
PLEADINGS BY DEFENDANTS RYAN
GILBERT AND SEAN O’MALLEY

Judge: Hon. Harold E. Kahn
Date: September 27, 2016
Time: 9:30 AM

Dept.: 302

Reservation Number: 09010927-10

Transferred from Sacramento: 01/11/2016
Trial Date: None Set

 

 

 

MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS. GILBERT AND O’MALLEY

— Case No. CGC-16-549804
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TABLE OF CONTENTS
Page

INTRODUCTION ....essscesssesssecsssesseessssecsseccssnecssesssessnecsuecssvessueesnsesnsesnseenneensstssessussssnaeeseeaneesnee 1
LEGAL STANDARD... sesssessssssssssesesesssecossesssseessesseessseesseesssecsseesnecssecssseseseeassuesssnreeaneceneesnessnee 1
FACTS ALLEGED IN PLAINTIFF'S COMPLAINT.
A. Relationship Commenced Between Better Finance and Golden Pacific Ban!
B. Specific Provisions In The Agreements Between BillFloat and GPB.....ssesssesseenseees 3
Cc. Performance Under The Agreements And Notice Of Default... cesses 4
LEGAL ARGUMENT ....ucsecssssssesessssecsssessssesssessnessseesuesssesssessnsesusesneenneeneesusecanneessnecaneeneessne 6
A. GPB Attempts To Combine Three Types of Fraud In A Single Cause of

WACHHOM Satatotatetbaadhdhsadsdadetadebatetatatebatchstchabshdadedadedadeletatetatalchchahcadedadadadetatahabalebalhebahdhfadadads 6
B. Each Of GPB's Fraud Contentions Duplicates An Identical Corresponding

Allegation In The Cause Of Action For Breach Of Contract .......ccccssscssesesssesseeneeens 8
Cc. The Complaint's Third Cause Of Action Fails To Allege Facts Necessary To

Support The Required Elements of Justifiable Reliance And DamageS..........cce ll
D. Because The Complaint Fails To Identify A Trade Secret, The Fifth Cause Of

Action Does Not State Facts Sufficient To Constitute A Cause Of Action.........00 12
CONCLUSION .sesssssssssssesssessnsesssessressvscssvsasssvessssssssncssasecaseceuscsueeessecnsessacsasesuecsssaessneceeessseess 14

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MPA IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS BY DEFENDANTS

RYAN GILBERT AND SEAN O’MALLEY — Case No. CGC-16-549804
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TABLE OF AUTHORITIES

Page(s)

Cases

Agency Solutions.Com v. TriZetto Group, Inc.,

 

 

 

 

 

819 F.Supp.2d 1001 (ED Cal. 2011)... 13, 14
Blank vy. Kirwan

(1985) 39 Cal.3d 311 c.ccescccsesesesesssesesssessessssessvssssesssecessesssessesnsssssessvcessesssnecsessssssecsueesseessneesueeneeannees 1
Building Permit Consultants, Inc. v. Mazur

(2004) 122 Cal.App.4th 1400 v....cccessecssseesseesssessessesessssnsssnsesssesniessessseessecssvecseecssecssseesesaneennes 12
Chapman v. Skype Inc.

(2013) 220 Cal.App.4th 217 vsccccssssecsseessseesssesssessvecssseesscssecsssssssssscsneessuseesuesseesueesneesnneeeeeeeeesenes 11
Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc.

(2008) 160 Cal.App.4th 288 13
Diodes, Inc., v. Franzen

(1968) 260 Cal.App.2d 250 vesssesessseecsssssesesesssssessssssecessssssvecssusesssvecsssssecssssneseusnecsesnecsesneessneeesnnes 13
Dodd v. Citizens Bank of Costa Mesa

(1990) 222 Cal.App.3d 1624 veeccccsseesssecssseesseessessssessvecssesssesseesscssesssnecssssssuecessessseeneeneeesneeneeseeesan 2
Fleet v, Bank of America N.A.

(2014) 229 Cal. App.4th 1403 v..ccesssecsssecssseessessseessssssecssssseesseessesssesssueesusssveesueeessegnesneersneesee 10, 12
Foley v. Interactive Data Corp.

47 Cal.3d 654 (1988). 14, 15
Gelfo v. Lockheed Martin Corp.

(2006) 140 Cal. App.4th 34 v..cccscsseessesssseessessseessssssuesssesssssecssecsvessusessscessvecsnesssueeeneennsessnseateaneeeens 2
Hilly. Roll Internat. Corp.

(2011) 195 Cal.App.4th 1295 v.cccecscecsssescsseessessseesssesssesssessesssessvecssecsuscsssesssessssccseessneesseesnsenteanseenes 1
Holland v. Morse Diesel International, Inc.

(2001) 86 Cal.App.4th 1443 ...csssssecsseessseeesesssecesscesssssssessesseessessesssuscsseessursssvecssecssseesveessneenseavecsnes 2
Jobscience, Inc. v. CVPartners, Inc.

(N.D. Cal., May 1, 2014, No. C 13-04519 WHA) 2014 WL 1724763 15
Lazar v. Superior Court

(1996) 12 Cal 4th 631 oo. ceceesessssssesneessceresseesessssnsesaceeneesecnsssesaeeracanessuesareavesnecsneasssuseensenened 6, 10

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MPA IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS BY DEFENDANTS

RYAN GILBERT AND SEAN O’MALLEY -- Case No, CGC-16-549804
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Myers v. Trendwest Resorts, Inc.

 

 

 

(2009) 178 Cal.App.4th 735 ..sccescssesssseessssessssssesssuesssseceseressseeesnneeessnesessaneeesans
Oreilla v. Big Sur, Inc.

(2016) 244 Cal.App.4th 982 .cccccsssecsssssessssesssssseesssseeesssssessvecssuseesnsecssnesessenssessuesessnecsessnmesseaneeeee 2,11
Riverisland Cold Storage v. Fresno-Madera Production Credit

(2013) 55 Cal.4th 1169 ..cscssecssessssssssssssesssecssseessesssessueescsnsesnecsusessuessussasecassssssssssesssssesssnessneessers 11
Silvaco Data Systems v. Intel Corp.

(2010) 184 Cal. App.4th 210 vceccecscssssessecssessssessseesssessseessssuesseesssssuecsuecsesansessusscussssuscsesessteessees 13
Sofias v. Bank of Am.

(1985) 172 Cal. App.3d 583 v.cccecsssscssessseesseessesssseesssesssecssvesussssesseessssesseccsneesessssesssssseessssecsssessnseesseess 1
Stoops v. Abbassi

(2003) 100 Cal. App.4th 644 o.....cccccccssssessecssecsssessssssssecssecsuscsvecsesseecsuseesesessessasessnessnecsnussssnesanseeeseens 1
Statutes
Business & Professions Code § 17200 ......cesssssessscsesessessesessesnssessessessecsssvesseasessessessessvesassesessseesceeed 6
California's Uniform Trade Secrets Acto..csssesssccsseessssssecssesssecsnessessuessuesssvessussssscsuscssveesssesssneesssesses 12
COP T2ODO-21. 0 ceretatatetetatenatdndadedsdededudedalatetelatetatccabaescdodededetadedoletatelahcldncadadadedadadalababahabahchabchcbdhchdadhdadeded 13
CCP § 438(c)(2)(A) cascccssseseccscccsrssssssssesersssssnsescsasssssssessesussasesassessensssusssseesseseuvasasonseesscaneesevsanenseet 1
COP § 438(£)(2) ...ssessssesscrnsscassssecassessosssesssesecsnssossssnascossesesusessssacssusesosssscatescssesnsssonsssessscsesseseeseasssseseseesess 1
Civil Code, § 1709 ...eessessssssssssssessssssecssssessssecssssessssssecsessecsesesssssecssssesssusesssussessunsesaueessneneestannressesnecsnees 6
Civil Code § 1710 .sccesssssssssssssssssessssssssssssssssecsnecssessusecssecsesssnecsvessucssecsssssssessasecsusssessssecenessssvessasesessessneed 6
Civil Code § 171001) ssesscsssssessssssossssersescsssssessesssssnvesesssssnsrsceesaseveceesnuseesssnsmsesssessnineceessansnscesseeesnsnanesesssted 6
Civil Code § 1710(2) ...secscssesssssesesssssesssesesssseessssnessssuesssnsessssscssusessssessssessssunsesausecsuscessansecansansesstsnecsases 6
Civil Code § 171003) ....scessssesssessssessssessssssssssssssssssssssssssssussssssssesssessscsssccsucccusecauesavecsuccnnecsseccesssesseeesseees 12
Civil Code §§ 3426 - 3426.1 Lessscsscsssssssssssssssssesssssessssssesssssssssssosssvessssessssasssseecsensecsuseessaseeesees wd

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MPA IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS BY DEFENDANTS

RYAN GILBERT AND SEAN O’MALLEY - Case No. CGC-16-549804
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I. INTRODUCTION

Plaintiff Golden Pacific Bank, N.A. ("GPB") asserts two causes of action against the
individual defendants Ryan Gilbert and Sean O'Malley: Fraud; and Misappropriation of Trade
Secrets, Pursuant to Code Civ. Proc. (CCP) §§ 438(c)(1)(B(ii) and 438(c)(2)(A), this Motion for
Judgment on the Pleadings attacks these claims because: 1) allegations in the Third Cause of Action
for Fraud do not state facts sufficient to constitute a cause of action; and 2) allegations in the Fifth
Cause of Action for Misappropriation of Trade Secrets do not state facts sufficient to constitute a
cause of action.' This motion is appropriate under CCP § 438(f)(2) because: the moving parties are
Defendants who have already filed their Answer to GPB's Complaint; the time for Defendants to file
a demurrer has expired; and the Complaint does not allege facts necessary to support the elements of
"fraud" or the existence of any "trade secret" owned by GPB. Indeed, the Complaint itself negates
key elements required for pleading fraud, fails to allege any specific facts required to support other
elements of that claim, and undermines any possible claim for trade secret misappropriation.
I. LEGAL STANDARD

A motion for judgment on the pleadings may be made at any time, either prior to the trial, or
at the trial itself. Stoops v. Abbassi (2003) 100 Cal.App.4th 644, 650, citing Jon Equipment Corp. v.
Nelson (1980) 110 Cal.App.3d 868, 877, Whether under that standard or pursuant to CCP § 438,
this motion is timely. No trial date is set. A motion for judgment on the pleadings is the functional
equivalent of a general demurrer: the Court must determine whether the pleading states facts
sufficient to constitute a cause of action. Stoops, supra, 100 Cal.App.4th at 650. “Because the
motion is, in effect, a general demurrer, the same rules apply.” Sofias v. Bank of Am. (1985) 172
Cal. App.3d 583, 586 (citations omitted),

As ina demurrer, the motion for judgment on the pleadings admits the truth of material facts
properly pleaded in the subject complaint [Blank v. Kirwan (1985) 39 Cal.3d 311, 318]; however,
contentions, deductions, and conclusions of law are not deemed to be true. Hill vy. Roll Internat.

Corp. (2011) 195 Cal.App.4th 1295, 1300. In addition to the allegations in the complaint, facts

' A § 438 motion may be made against the entire complaint or any cause of action therein. CCP § 438(c)(2)(A).

 

 

 

MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS, GILBERT AND O’MALLEY
— Case No. CGC-16-549804

FerINENW! ANNIEw

    

appearing in exhibits attached to the complaint also are accepted as true and are given precedence, to
the extent they contradict the allegations. Orcilla v, Big Sur, Inc. (2016) 244 Cal.App.4" 982, 994;
Holland v. Morse Diesel International, Inc, (2001) 86 Cal.App.4th 1443, 1447; Dodd v. Citizens
Bank. of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627. Thus, in the event of any inconsistency
between the allegations in Plaintiff's Complaint and the agreements attached to the Complaint as
Exhibits, the language in the agreements controls. Further, the Court also may consider matters
subject to judicial notice. Orcilla, supra, 244 Cal.App.4th at 994; citing Hill v. Roll Internat. Corp.,
supra, 195 Cal.App.4th at 1300, Facts that are subject to judicial notice likewise trump contrary
allegations in the pleadings. Id?
Wl, © FACTS ALLEGED IN PLAINTIFF'S COMPLAINT

A. Relationship Commenced Between Better Finance and Golden Pacific Bank

Without admitting any allegations stated therein, GPB's Complaint asserts the following:
Ryan Gilbert and Sean O'Malley are founders, officers and/or directors of defendant and cross-
complainant Billfloat, Inc. (“BillFloat”). Complaint, {¥ 3-4. BillFloat developed a technology
platform designed to provide fast and affordable Small Business Administration (SBA) loans. Id., §
8. GPB is a "traditional brick-and-mortar bank" claiming to have "core competencies in general
banking operations and regulatory matters, and SBA lending operations, compliance rules and
regulatory matters" and "important relationships" with the Office of the Comptroller of the Currency
(OCC), Federal Reserve Bank and SBA regulators. /d., 1 9.

The Complaint alleges that Mr. Gilbert and Mr. O'Malley approached GPB with the promise
of a business “partnership” in which BillFloat would "leverage its technology platform through
GPB's core competencies in general lending and SBA lending operations and regulations, and using

(sic) GPB as its primary funding vehicle to provide fast and affordable SBA loans to small

? «A judicial admission is a party’s unequivocal concession of the truth of a matter, and removes the matter as an issue in
the case. [Citations,]” Gelfo v. Lockheed Martin Corp. (2006) 140 Cal.App.4th 34, 48. “Judicial admissions may be
made in a pleading (. . .) [Citations.] Facts established by pleadings as judicial admissions ‘ “are conclusive concessions
of the truth of those matters, are effectively removed as issues from the litigation, and may not be contradicted by the
party whose pleadings are used against him or her.” [Citations.] “ '[A] pleader cannot blow hot and cold as to the facts
positively stated.'” [Citations.] Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 746,

* Unless stated otherwise, all references herein are to the Complaint of Plaintiff GPB.

 

 

 

MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS, GILBERT AND O’MALLEY
— Case No. CGC-16-549804

FENINEANI ANEAANEbusinesses across America." Jd., 4 10 (3:13-17). For many months in 2013, GPB and BillFloat
negotiated the terms of an agreement for the joint development of technology that combined
BillFloat's software platform with GPB's "knowledge and experience of evaluating, processing,
underwriting and approving small business loans created and funded under the SBA 7(a) Loan
Program," Id., § 12 (4:7-11).

By the time extensive negotiations were underway in 2013, GPB and BillFloat had already
signed at least one agreement: a Mutual Non-Disclosure and Confidentiality Agreement on or about
November 26, 2012 (Complaint, { 19 & Exh. 3) that, according to the Complaint, was necessary to
protect GPB's "confidential and proprietary business information." Starting in late 2013, GPB and

BillFloat entered into the following agreements:

i) the November 6, 2013 Software License, Maintenance, and Support Agreement ("License
Agreement", Exh. 1 to Complaint), which licensed BillFloat's BELIEF System to GPB;*

ii) the December 5, 2013 Joint Marketing and Joint Technology Improvement Agreement
("JMA", Complaint, Exh. 2), in which GPB agreed to share with BillFloat the marketing and
business development costs of a “Joint Technology” that provided a “unique combination of
particular underwriting criteria for assessing applications for small business loans.” Complaint, { 16,
citing Exh. "A" of the Marketing Agreement and § 2.1 therein; and

iii) on or about July 24, 2014, the First Amended Joint Marketing and Joint Technology
Improvement Agreement (“AMA”), which superseded and replaced the original Marketing
Agreement. Complaint, § 24 and Exh. 4 thereto.>

B. Specific Provisions In The Agreements Between BillFloat and GPB

According to the Complaint, BillFloat agreed in the License Agreement that GPB would
have the "right of first refusal to provide the financing required for any future small business lending
products or services [BillFloat] plans to offer that are projected to yield at least $500,000 in net
profit per year”. According to the Complaint, citing § 16 of the License Agreement, this provision
included “products and services that include sharing revenue or profit or making some other type of
payment to a third party provider.” Complaint, § 14.

With respect to the AMA, the Complaint alleges that, in order for GPB to be obligated to

* “BELIEF” stands for BillFloat Electronic Loan Investigation and Evaluation Framework System, Complaint, § 14 and
Exhibit 1 (Exh, A thereto).
* According to the Complaint ({ 24 at 8:27 — 9:4), the only material changes in the Amended Marketing Agreement were
improved licensing fees paid to GPB for the “Joint Technology” owned by GPB and Better Finance. In all other material
respects, the contractual obligations, rights, common assumptions and understandings remained the same, Id.
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share in marketing and business development costs, BillFloat was required to propose a “plan” to
maintain and operate, improve or increase the value of the parties’ Joint Technology and related
“SmartBiz” trademark to market their jointly developed small business lending products.
Complaint, { 16 (citing §§ 4.2, 1.8.) The Complaint further alleges that, in the AMA, BillFloat
promised GPB “most favored nation” status with respect to any future small business lending
products or services BillFloat may offer to or through a depository institution. /d. (citing § 3.1.)
According to GPB, the “most favored nation” status required BillFloat to “negotiate in good faith”
with GPB to jointly offer new small business and other lending products developed by BillFloat. Jd.

As stated, the Complaint alleges that material changes in the AMA were limited to improved
licensing fees paid to GPB for the “Joint Technology” owned by GPB and BillFloat. Complaint, {
24 (8:27 — 9:4). The Complaint alleges that this Joint Technology provides "a method for applying
certain underwriting criteria for small business lending" and that, while BillFloat's software
"provided the code to efficiently read and process the underwriting criteria," it was GPB that taught
BillFloat "how to design the underwriting criteria, and the unique weighting of the criteria, from
which to assess applications for small business loans" on BillFloat's software in a manner that meets
underwriting standards for the SBA 7(a) Loan Program." Complaint, { 18 (6:16-22). The
Complaint references the AMA's Exhibit A, which "provides a summary description of the unique
combination of the underwriting criteria" developed by GPB for SBA 7(a) loans, and alleges that
GPB's "experience and knowledge in SBA lending and its development of the unique combinations
of underwriting criteria for assessing applications for small business loans, and the weighting of
those factors into a decision-making matrix" permitted BillFloat to enter the online lending market
through its software platform. Jd., at 6:23-7:1. The Complaint further alleges that GPB "provided
other expertise in banking operations and compliance with applicable rules and regulations to
contribute to overall development of the software platform." Jd. at 7:1-3.

Cc Performance Under The Agreements And Notice Of Default

The Complaint implicitly acknowledges that GPB received benefits under the agreements it
reached with BillFloat in late 2013, i.e., the License Agreement and the JMA. Complaint, {ff 14-15.

Certainly, if GPB had received no benefits under these agreements, it would have complained of that

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MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS. GILBERT AND O’MALLEY
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in its Complaint and would not have entered into the AMA in late July of 2014.5 Id, 24. For the
next year after that, GPB maintained its relationship with BillFloat under these agreements, pursuant
to which GPB continued to receive from BillFloat "referrals of 'qualified' businesses seeking an SBA
loan of $25,000 or less" based on its "most favored nation" status. /d., 4 20, 32.

However, on August 17, 2005, GPB's counsel sent a letter to BillFloat providing notice of
four alleged breaches by BillFloat of the AMA ("Notice"; see Complaint, Exh. 6 & 932). In the
Notice, GPB's counsel claimed the following breaches, each disputed by BillFloat, and demanded
that they be cured within 10 business days pursuant to section 12.2 of the AMA (Complaint, 33):
1) violation of section 4.2 based on alleged failure to provide budget and other information required
for the "Joint IP SOW" (i.e., the plans submitted to maintain or improve the parties’ Joint
Technology ["Joint IP"]) (/d., 33 (12:15-24) & Exh. 6); 2) further violation of section 4.2 by
BillFloat by allegedly overcharging GPB for expenses relating to the Joint IP (Id., 12:23-24 & Exh.
6); 3) alleged failure by BillFloat to make the necessary referrals to GPB for prospective new loans
pursuant to section 3.3 (/d., 12:25-13:3 & Exh. 6); and 4) violation of section 3.1 based on
BillFloat's alleged failure to afford GPB "most favored nation" status for loans over $25,000 and
loans involving real estate over $250,000, Id. & Exh. 6.

No contention of any pre-contractual misrepresentation or other "fraud" was asserted against
any Defendant in the Notice. Moreover, the Complaint does not refer to any post-Notice
negotiations or other communications between the parties concerning GPB's relationship with
BillFloat pursuant to the four signed agreements. On October 2, 2015, GPB filed the current action
in Sacramento County asserting claims against BillFloat (i.e., for Breach of Contract et al.) and the

two causes of action against all three defendants attacked here: the third and fifth causes of action

° Moving parties have requested judicial notice of the fact that GPB received public recognition for its work involving
SBA Loans, By April 2015, GPB was awarded the SBA Community Lender of the Year award by the SBA's
Sacramento regional _ office. See _ http://www.sacbee.com/news/business/article17584754.html — and
https://www.sba.gow/sites/default/files/files/resourceguide_3100.pdf In May 2014, Bloomberg BusinessWeek reported
that “Golden Pacific Bank was the country’s top participant in a program that provides SBA loans of up to $25,000.
Golden Pacific now commands 20 percent of that loan market nationwide.” See
http://www. bloomberg.com/news/articles/20 14-05-27/an-innovative-lending-fix-for-small-businesses-and-banks In
October 21, 2014, GPB received the American Bankers Association Community Commitment Award for its
participation in SmartBiz, “the nation’s first online and automated Small Business Administration loan application
process.” See http://www.aba.com/Press/Pages/102114CommunityCommitmentA wards.aspx
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for fraud and misappropriation of trade secrets, Complaint, 17:19 & 20:25.’
IV. LEGALARGUMENT

A. GPB Attempts To Combine Three Types of Fraud In A Single Cause of Action

Civil Code § 1710 identifies three (3) forms of "deceit": (1) Intentional Misrepresentation,
which is defined as: "The suggestion, as a fact, of that which is not true, by one who does not
believe it to be true"; (2) Concealment: "The suppression of a fact, by one who is bound to disclose
it"; and (3) False Promise: "A promise, made without any intention of performing it."

GPB's allegations of "fraud" in the Complaint's Third Cause of Action do not all fit squarely
into a single one of these different species of fraud. Nonetheless, GBP attempts to jam its fraud
allegations — nine (9) separate contentions involving fraud -- into a single cause of action. Most of
these contentions sound in "false promise" in that they concern alleged representations made in the
negotiations between GPB and BillFloat leading to the execution of the written agreements. Only
two (2) of the specific contentions of alleged fraud fall outside of the "false promise" category: one
is an alleged misrepresentation [Civil Code § 1710(1)]; the other is an allegation of concealment
[Civil Code § 1710(2)]. These are the nine specific fraud allegations, divided accordingly:

The Complaint's Allegations of "false promise" or "promissory fraud":

1. Defendants promised "that GPB and BILLFLOAT would jointly own the intellectual
property which they would jointly develop and finance into an online design to apply GPB's
decision-making criteria to process more accurate, rapid and efficient evaluation, underwriting and
marketing of SBA 7(a) Program Loans." Complaint, 12 (4:12-16) (Emphases added herein).

2. Defendants "further promised GPB that Plaintiff would have 'most favored nation' status

with respect to any future small business lending products or services that BILLFLOAT would

"In its cross-complaint, BillFloat asserts own claims against GPB — for breach of fiduciary duty; declaratory relicf;
breach of (oral) joint venture agreement; breach of the AMA; breach of the License Agreement; breach of the implied
covenant of good faith and fair dealing; intentional interference with contractual relations; intentional interference with
prospective economic relations; appointment of a Judicial Referee for examination of a long account; theft of trade
secrets; and for Unfair Business Practices / Violations of Business & Professions Code § 17200 — and seeks damages
from GPB exceeding $7.5 million.

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation,
concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.¢., to induce reliance; (d)
justifiable reliance; and (e) resulting damage.” Lazar v. Superior Court (1996) 12 Cal.4" 631, 638; Civ. Code, § 1709.

6
MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS. GILBERT AND O’MALLEY
— Case No. CGC-16-549804offer." Id., $13 (4:17-19).

3. In negotiating the JMA and the AMA, Defendants "promised GPB’s negotiators that, by
entering into” these agreements, GPB "was not responsible for all of BILLFLOAT’s operating
costs or even for any of BILLFLOAT’s operating costs unrelated to the Joint Technology or the
SmartBiz brand that marketed the Joint Technology." Jd., 945(a) at 17:26-18:5.

4, Defendants "told GPB’s executives, that prior to the commencement of work on
technology development that would improve or add to the value of the ‘Joint IP," BILLFLOAT
would have to deliver a Joint IP SOW to GPB no later than 15 days before the work would
commence. /d., §45(a) at 18:5-9.

5. Defendants "told GPB’s executives that BILLFLOAT could not charge GPB for a 50
percent share of the improvement costs of their Joint IP Improvement Expenses to which GPB
did not agree." /d., §45(a) at 18:9-12.

6. In negotiating the JMA and the AMA, Defendants "promised GPB’s negotiators that (sic)
would make referrals of 'qualified' businesses seeking an SBA loan of $25,000 or less and from
future lending products and services that BILLFLOAT would offer through GPB under the proposed
‘most favored nation status." Jd., ]45(c) at 19:1-6.

7, In negotiating the JMA and the AMA, Defendants "promised GPB’s negotiators that (sic)
would deliver accurate reports for the volume of referrals to, and fee income from other lending
banks to GPB." Jd, $45(d) at 19:9-13.

The Complaint's Allegation of intentional misrepresentation":

8. After execution of the AMA and the Amended AMA, Defendants "caused to be delivered
BILLFLOAT’s Joint IP SOWs to GPB that over-billed GPB for BILLFLOAT’s operating costs
unrelated to the Joint Technology or the SmartBiz brand that marketed the Joint Technology." /d.,
§45(b) at 18:20-25,

The Complaint's Allegation of "concealment":

9. Defendants "purposely concealed BILLFLOAT’s license agreements and loan
referrals to other lenders from GPB in direct meetings with Plaintiffs executives, including Ms.

Varela and board members, notwithstanding BILLFLOAT’s contractual obligation to give GPB 30

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~ Case No. CGC-16-549804

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days prior written notice before entering into a bank license agreement or other arrangement with

any other lender for underwriting SBA 7(a) loan (sic), and shall provide any such license agreement

or other arrangement to GPB." /d., §29 at 11:7-13.

B. Each Of GPB's Fraud Contentions Duplicates An Identical Corresponding
Allegation In The Cause Of Action For Breach Of Contract

The First Cause of Action for Breach of Contract is asserted exclusively against BillFloat ({

36-39) and incorporates the Complaint's preceding 35 paragraphs. GPB alleges that it "fulfilled all

of its obligations and complied with any and all conditions and agreements" under the License

Agreement, the JMA, and the AMA, but that BillFloat "unjustifiably and inexcusably failed to

perform its contractual obligations" under these agreements. Complaint, {{/ 37-38. The Complaint

enumerates the ways in which GPB contends BillFloat breached these agreements in the thirteen

13) sub-parts of 38 (i.e., in subdivisions "a" through "m" at pages 13-16).° In this section of the
P pag

Complaint, GPB asserts allegations of "breach of contract" against BillFloat that duplicate each and

every allegation of "fraud" made against the Defendants, including Mr. Gilbert and Mr. O'Malley.

This fact is demonstrated by the following Chart:

 

Allegations of Fraud in 3" Cause of Action
(asserted against All Defendants)

Matching Allegation for Breach of Contract
(1" Cause of Action vs. BillFloat, Inc.)

 

1. Defendants promised "that GPB and
BILLFLOAT would jointly own the
intellectual property which they would
jointly develop and finance into an online
design to apply GPB's decision-making
criteria to process more accurate, rapid and
efficient evaluation, underwriting and
marketing of SBA 7(a) Program Loans."
Complaint, {12 at 4:12-16.

1. In $38(i) of the Complaint, GPB
alleges that BillFloat "breached paragraph 4.3
(of the AMA) when it shared intellectual
property jointly developed and owned by
GPB with other depository institutions without
GPB’s consent." /d., {38(i) at 15:17-19,

 

2. Defendants "further promised GPB
that Plaintiff would have 'most favored
nation' status with respect to any future
small business lending products or services
that BILLFLOAT would offer." Complaint,
13 at 4:17-19.

2. In 38(b) of the Complaint, GPB
alleges that BillFloat breached paragraph 3.1 of
the AMA by "not complying with the 'most
favored nation' status covenant for larger
loans and other business ventures" and by not
offering GPB as a “preferred” banking partner.
Complaint, §38(b) at 14:7-10.

 

3. In negotiating the JMA and the
AMA, Defendants "promised GPB’s
negotiators that, by entering into" these
agreements, GPB "was not responsible for

 

 

3. In §38(a) of the Complaint, GPB
alleges that BillFloat breached paragraph 2.5 of
the AMA by "over-charging" GPB with
“improvement expenses” that are not directly

 

 

° The breach allegations in subdivisions (a) through (k) all concern the AMA, while subdivisions (I) and (m) reference

the License Agreement, Complaint, [38 (pages 13-16).

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— Case No. CGC-16-549804

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all of BILLFLOAT?’s operating costs or
even for any of BILLFLOAT’s operating
costs unrelated to the Joint Technology or the
SmartBiz brand that marketed the Joint
Technology." Id., §45(a) at 17:26-18:5.

tied to the Joint IP SOW. Complaint, §38(a) at
13:26-28.

 

4. Defendants "told GPB’s executives,
that prior to the commencement of work on
technology development that would improve
or add to the value of the ‘Joint IP,’
BILLFLOAT would have to deliver a Joint
IP SOW to GPB no later than 15 days before
the work would commence. /d., §45(a) at
18:5-9,

4. In §38(£) of the Complaint, GPB
alleges that BillFloat breached paragraph 4.2(a)
of the AMA by: i) "not providing a complete
Joint IP SOW that fully meets the defining
requirements ... in section 1.6" concerning
proposed schedules for deliverables and
payments, budget information, and criteria for
evaluating functionality; ii) never providing a
complete Joint [IP SOW on a monthly basis to
GPB at least 15 days in advance of the month
in which the work related to the Joint IP SOW
would commence; and iii) not providing GPB a
reasonable opportunity to dispute the
Improvement Expenses. Complaint, 138(f) at
14:26-15:9.

 

5. Defendants "told GPB’s executives
that BILLFLOAT could not charge GPB
for a 50 percent share of the improvement
costs of their Joint IP Improvement Expenses
to which GPB did not agree." /d., {45(a) at
18:9-12,

5. In §38(g) of the Complaint, GPB
alleges that BillFloat breached paragraph
4.2(b) of the AMA when it "refused to provide
GBP the opportunity to agree or disagree
within three (3) business days to fund half of
the Improvement Costs because of the lack of
Joint IP SOWs." Id., §38(g) at 15:10-13.

 

6. In negotiating the JMA and the
AMA, Defendants "promised GPB’s
negotiators that (sic) would make referrals
of 'qualified' businesses seeking an SBA
loan of $25,000 or less and from future
lending products and services that
BILLFLOAT would offer through GPB under
the proposed 'most favored nation' status."
Complaint, §45(c) at 19:1-6.

6. In §38(c) of the Complaint, GPB
alleges that BillFloat breached paragraph 3.3 of
the AMA by "not providing accurate reports
for the volume of referrals to, and fee income
from other lending banks, and not referring
70% of qualified introduced businesses
seeking a loan of $25,000 or less before
referring said loans to another lender."
Complaint, §38(c) at 14:11-14 (emphasis
added).

 

7. In negotiating the JMA and the
AMA, Defendants "promised GPB’s
negotiators that (sic) would deliver accurate
reports for the volume of referrals to, and fee
income from other lending banks to GPB."
Complaint, §45(d) at 19:9-13.

7. In §38(c) of the Complaint, GPB
alleges that BillFloat breached paragraph 3.3 of
the AMA by "not providing accurate reports
for the volume of referrals to, and fee
income from other lending banks, and not
referring 70% of qualified introduced
businesses seeking a loan of $25,000 or less
before referring said loans to another lender."
Id., §38(c) at 14:11-14.

 

 

8. After execution of the JMA and the
AMA, Defendants "caused to be delivered
BILLFLOAT’s Joint IP SOWs to GPB that
over-billed GPB for BILLFLOAT’s
operating costs unrelated to the Joint
Technology or the SmartBiz brand that
marketed the Joint Technology." Complaint,
§45(b) at 18:20-25.

 

8. In §38(a) of the Complaint, GPB
alleges that BillFloat breached paragraph 2.5 of
the AMA by over-charging GPB with
“improvement expenses” not directly tied to
the Joint IP SOW. Complaint, {38(a) at 13:26-
28.

 

 

 

MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS. GILBERT AND O’MALLEY
— Case No. CGC-16-549804

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9. Defendants "purposely concealed 9. In 38(i) of the Complaint, GPB

BILLFLOAT?’s license agreements and alleges BillFloat breached paragraph 2.5 of the
loan referrals to other lenders from GPB in | AMA by: i) not delivering returns on

direct meetings with Plaintiffs executives, licensing and referral fees from third party
including Ms. Varela and board members, lenders on a monthly basis since December

notwithstanding BILLFLOAT’s contractual 2014; ii) withholding contractually required
obligation to give GPB 30 days prior written | information that would allow GPB to
"_BA_Cite_221 entering into a bank license | calculate monies owed to it by BillFloat; and
agreement or other arrangement with any iii) refusing to provide GPB with access to
other lender for underwriting SBA 7(a) loan contractually required information to

(sic), and shall (sic) provide any such license | determine funding volume and fees received
agreement or other arrangement to GPB. from third party lenders since June 2015. Id.,
Complaint, 29 at 11:7-13.'° 38(a) at 13:26-14:5."!

 

 

 

 

The foregoing Chart thus negates the first three elements required for a fraud claim. First,
there was no misrepresentation (i.e, a false representation, concealment, or nondisclosure) because
each of these alleged items was, in fact, incorporated into the AMA, as Defendants allegedly
promised to do. Second, knowledge of falsity (or ‘scienter’) is not present because none of the
contentions is "false." Rather, each claimed promise was incorporated into the agreement. Finally,
the "intent to defraud" (i.e., to induce reliance) is negated because, if such intent had been the case,
then promises made likewise would not have been memorialized in the written agreement, the
AMA.” GPB's Complaint thus stands in sharp contrast to situations in which a plaintiff was allowed
to plead fraud. See Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403 (lender promoted
trial period plan as step toward loan modification, received requested payments from borrower, and
represented that foreclosure process was suspended, but then completed foreclosure anyway); Lazar
vy. Superior Court (1996) 12 Cal.4th 631, 638 (employer, a financially struggling company, induced
plaintiff to leave a family business based on oral promises of job security, financial stability, and

salary increases, but failed to deliver and terminated plaintiff after two years). Regardless of the

”° Significantly, this allegation admits that BillFloat had a "contractual obligation to give GPB 30 days prior written
notice before entering into a bank license agreement or other arrangement with any other lender for underwriting SBA
7(a) loan (sic)" and to "provide any such license agreement or other arrangement to GPB." Complaint at 11:7-13.
' This fraud contention no. 9 is likewise duplicated by allegations in: ‘{38(c) that Better Finance breached § 3.3 of the
Amended Marketing Agreement by: i) not providing accurate reports for the volume of referrals to, and fee income from
other lending banks and ii) not referring 70% of qualified introduced businesses seeking a loan of $25,000 or less before
referring said loans to another lender; and in §38(d) that Better Finance breached § 3.4 of the Amended Marketing
Agreement "by (sic) providing 30 days prior written notice to" GPB before "entering into a bank license agreement or
other arrangement with any other lending (sic) for underwriting SBA 7(s) (sic) loans, ..." /d., ] 38(c) and 38(d).
” The claims of "misrepresentation" (alleged overbilling) and "concealment" (reports allegedly not delivered) are equally
dubious; each of these merely re-brands an item on which GPB sues for breach of contract.
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arguments GPB may make to support its Fourth Cause of Action against BillFloat for "Rescission
based on Fraud and Failure of Consideration,”'? the Complaint itself negates the first three elements

required for GPB to assert an affirmative claim for fraud.

Cc The Complaint's Third Cause Of Action Fails To Allege Facts Necessary To
Support The Required Elements of Justifiable Reliance And Damages

As declared in Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4" 982, 1007-1008, citing
Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1499: "A plaintiff asserting fraud
by misrepresentation is obliged to ... ‘establish a complete causal relationship’ between the alleged
misrepresentations and the harm claimed to have resulted therefrom. This requires a plaintiff to
allege specific facts not only showing he or she actually and justifiably relied on the defendant’s
misrepresentations, but also how the actions he or she took in reliance on the defendant's
misrepresentations caused the alleged damages, Misrepresentation, even maliciously committed,
does not support a cause of action unless the plaintiff suffered consequential damages.” (Emph.
added; internal cites & marks omitted)

As explained in Orcilla, supra, 244 Cal.App.4th at 1008: "[a]ssuming ... a claimant’s
reliance on the actionable misrepresentation, no liability attaches if the damages sustained were
otherwise inevitable or due to unrelated causes. If the defrauded plaintiff would have suffered the
alleged damage even in the absence of the fraudulent inducement, causation cannot be alleged and a
fraud cause of action cannot be sustained." Accordingly, each element of a fraud claim must be
pleaded with specificity. Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231. This
specificity requirement serves two purposes: “to apprise the defendant of the specific grounds for
the charge and enable the court to determine whether there is any basis for the cause of action.”
Orcilla, supra, 244 Cal.App.4th at 1008, citing Chapman, supra, 220 Cal.App.4" at 231,

GPB's Complaint is deficient in that it fails to plead specific facts supporting either (1)

3 Pursuant to the AMA’s Integration Clause, GPB and BillFloat confirmed that the AMA superseded "all other prior and
contemporary agreements, understandings, and commitments, including the Original Agreement, between the Parties
regarding the subject matter of this Agreement." Complaint, Exh. 4 at § 13 ("Entire Agreement"), Further, the facts
alleged in GPB's Complaint do not rise to the level of "fraud and negligent misrepresentation" required to support
rescission and reformation causes of action. See Riverisland Cold Storage v. Fresno-Madera Production Credit (2013)
55 Cal.4" 1169, 1173.

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MPA ISO MOT. FOR JUDGMENT ON THE PLEADINGS BY DEFS, GILBERT AND O’MALLEY
~ Case No, CGC-16-549804

Deranen..t AnEnrnCjustifiable reliance by GPB or (2) the incurring of damages caused by that reliance. To state a claim
for promissory fraud, Civil Code § 1710(3) requires plaintiff to allege "that the promissor did not
intend to perform at the time the promise was made, that the promise was intended to deceive and
induce reliance, that it did induce reliance, and that this reliance resulted in damages." Fleei, supra,
229 Cal.App.4" at 1411, citing Lazar, supra, 12 Cal.4th at 637, and Building Permit Consultants,
Inc. v. Mazur (2004) 122 Cal.App.4th 1400, 1414-1415.!4

In Fleet, supra, 229 Cal.App.4th at 1412, the plaintiffs were allowed to sue three bank
employees for fraud by alleging that these individuals assured plaintiffs that payments submitted
under the parties’ trial period plan agreement had been received and credited and that foreclosure
proceedings on plaintiffs' residence had been suspended. Nonetheless, the foreclosure went forward
and plaintiffs lost their home. Plaintiffs alleged that the individual defendants had promoted the trial
period plan agreement without any intention of honoring it; and further alleged that two of these
individuals had told plaintiffs to ignore a demand for payment letter from the lawyers representing
the trustee and the bills from the bank for past due amounts. Jd. Whereas the allegations in Fleet of
reliance by plaintiffs (i.¢., refraining from further action to stop a foreclosure) and resulting damages
(loss of residence) were clear, no such specific facts for these elements are alleged in GPB's
Complaint. The Complaint fails to allege any specific facts of actual reliance or indicate how GPB
was damaged by such reliance. Complaint, {J 46, 49.'° For these reasons, the Motion should be

granted as to the fraud cause of action.

D. Because The Complaint Fails To Identify A Trade Secret, The Fifth Cause Of
Action Does Not State Facts Sufficient To Constitute A Cause Of Action

California's Uniform Trade Secrets Act (“UTSA”) is codified at Civil Code §§ 3426 -

'4 These same elements of reasonable reliance and damages are required for all species of fraud, including intentional
misrepresentation (CACI 1900), concealment (CACI 1901), and false promise (CACI 1902). CACI 1907 ("Reliance")
provides that a plaintiff has "relied on" the defendant's misrepresentation, concealment, or false promise if: 1. The
[misrepresentation/concealment/false promise] substantially influenced [him/her/it] to [insert brief description of the
action, ¢.g., “buy the house”]; and 2, [He/She/It] would probably not have [e.g., bought the house] without the
[misrepresentation/concealment/false promise]."

"> For contention nos, 3-5 herein, GPB alleges that it "relied on said representations in agreement to contract provisions,
.." [see Chart, above, & Complaint, 45(a)], but fails to allege any facts as to when, why, how or in what form it
suffered damages resulting from that "reliance" (i.e., stating only that "[a]s a direct and proximate result of the fraud
committed by Defendants, and each of them, GPB has been damaged in a sum believed to be in excess of $3,000,0000
and according to proof at trial."). /d., §50. This allegation does not meet the specificity standard required for fraud.

 

 

 

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3426.11. To state a prima facie claim for trade secret misappropriation, a plaintiff must 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.”
Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc. (2008) 160 Cal.App.4th 288, 296.6

As explained in Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4" 210, 220-221:
"Trade secret law does not protect ideas as such. Indeed, a trade secret may consist of something we
would not ordinarily consider an idea (a conceptual datum) at all, but more a fact (an empirical
datum), such as a customer's preferences, or the location of a mineral deposit. In either case, the
trade secret is not the idea itself, but information tending to communicate (disclose) the idea or fact
to another.” After considering Silvaco and other authorities, the court in Agency Solutions.Com v,
TriZetto Group, Inc., 819 F.Supp.2d 1001, 1017 (ED Cal. 2011) constructed the following list to
summarize what is nota trade secret: 1) “[G]eneral knowledge in the trade or [...] special
knowledge of those persons who are skilled in the trade” are not trade secrets [Diodes, Inc., v.
Franzen (1968) 260 Cal.App.2d 250, 253]; 2) Ideas or concepts are not, in and of themselves, trade
secrets [Silvaco, supra, at 221-222]; and 3) Proprietary ways of doing the same thing that others in
the same field do are not trade secrets.” Id.'7

At best, GPB complains its “proprietary ways” of underwriting were acquired. In paragraph
57 of the Complaint, GPB alleges that it "owned confidential and proprietary business information
concerning its development of unique combinations of underwriting criteria for assessing
applications for small business loans, and the weighting of those factors into a decision-making
matrix, which permitted BILLFLOAT’s (sic) to enter the online lending market through its software
platform" and that it "also provided other proprietary and confidential expertise and training to

BILLFLOAT concerning SBA lending operations and compliance with applicable rules and

'© This motion does not challenge or require the Court to consider GPB's CCP 2019.210 disclosure. Rather, the
Complaint admits and establishes that GPB has not alleged facts supporting its ownership of any trade secret.
"’ TyiZetto also identified a fourth category, again citing Silvaco, supra, 184 Cal.App.4" at 221-222: “Plans, flows,
inputs, outputs, rules of operation, priorities of operation, and the like are not trade secrets to the extent they are manifest
in the way a program works." Agency Solutions.Com v, TriZetto Group, Inc., 819 F.Supp.2d at 1017.
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regulations to contribute to overall development of the software platform." Complaint, 57.'° This
Motion should be granted because GPB has failed to allege facts supporting the conclusion that its
"confidential and proprietary business information" constituted a "trade secret". Complaint, 58.

In TriZeito, the court found that the handling of insurance rate and underwriting information
did not constitute a trade secret because such a process fell into the category of “this is the way we
do it” information. The court concluded that the handling and processing of "information like rates
and underwriting rules that are commonly handled by all front-end software providers cannot be held
to have independent economic value on account of its confidential nature because each of the
software providers handles the same core information their own way." See TriZetto Group, Inc., 819
F.Supp2d at 1022-1023. This same logic applies to loan application criteria and the underwriting
process used by banks. Everyone knows that banks use various criteria in determining whether to
approve loan applications and release the requested funds. Every dictionary will define the noun
"bank" pretty much the same way, e.g.: "an establishment for the custody, loan, exchange, or issue
of money, for the extension of credit, and for facilitating the transmission of funds." See
http://www.merriam-webster.com/dictionary/bank (emphasis added) The