Preview
WEBB LEGAL GROUP
155 Montgomery Street, Suite 1200
San Francisco, CA 94104
(415) 277-7200
w
a
WILLIAM T. WEBB #193832
JENNIFER D. SU #291603
155 Montgomery Street, Suite 1200
San Francisco, CA 94104
(415) 277-7200
(415) 277-7210 (fax)
Attorneys for BILLFLOAT, INC.,
ELECTRONICALLY
FILED
Superior Court of California,
County of San Francisco
04/28/2017
Clerk of the Court
BY: ANNA TORRES
RYAN GILBERT AND SEAN O’MALLEY Deeue Siar
SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF SAN FRANCISCO
(Unlimited Jurisdiction)
GOLDEN PACIFIC BANK, N.A.,
Plaintiff,
v.
} Case No.: CGC-16-549804
)
)
) BILLFLOAT, INC.“S MEMORANDUM
} OF POINTS AND AUTHORITIES IN
SUPPORT OF ITS MOTION FOR
BILLFLOAT, INC., RYAN GILBERT, SEAN ) SUMMARY ADJUDICATION
O'MALLEY, DOES 1-50,
Defendants.
) Date: July 14,2017
) Time: 10:00 a.m.
pt: 606
o
é
BILLFLOAT, INC.
Cross-Complainant,
v.
GOLDEN PACIFIC BANK, N.A., and ROES
1-50,
Cross-Defendants.
ee
BILLFLOAT, INC.’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION=
2
SC e
=~ oe
o38s
ees
Za se
oO 1
Be2e
Bbac
a EES
aa
Se
=
w
a
TABLE OF CONTENTS
TABLE OF CONTENTS. ....cccsssssssesscssscssssessscsnesacencenseneeseeaccsncenssasanesaccacennsasseeaesacsnseneaneaaeenceneeaeane i
TABLE OF AUTHORITIES .......sccsssssssecsscssssnessssncesesnsenesarsssssnesssanssnssnceneraeesssanesassnesscaneanssasenerses iii
INTRODUCTION. ..cssscsssssssesseesssssssssssssnecansssnesanesavecsnecsnecsscenscensssnscenscsnscenscenscensseasecsucesneesssesseensess 1
ANALYS
I. Third Cause of Action: Fraud.....sscsscssscsssessserseesseassacenecasesscerssessncsssenseassaceneennes 3
A. The Third Cause of Action is barred by California’s economic loss
a. GPB’s alleges nine instances of “false promises” or
“PrOMISSOLY FFAUA.”’..........sesesesserseseseeeseesesesesssereearaeerseetsesesesesereeee 4
b. GPB alleges one instance of “intentional
MisrepresentatiOn.”..........ccscseeseceeeessensessseseesseesseeseessenseseeseees 5
5
c. GPB alleges one instance of “concealment.
B. The undisputed facts demonstrate that the Plaintiff is unable to
prove fraud.
a. The undisputed facts demonstrate that BillFloat made no
misrepresentations to GPB.
i. Mr. Gilbert made no
Plaintiff.
isrepresentations to the
ii. Mr. O’Malley made no misrepresentations to the
Plaintiff.
b. The undisputed facts demonstrate that BillFloat had no
knowledge of falsity.
c. The undisputed facts demonstrate that there was no intent
to defraud GPB.
d. GPB has provided no evidence supporting the element of
justifiable reliance.
e. The undisputed facts demonstrate that GPB has not pled
any damages aside from those alleged incurred based on
the JMA and AMA ......cscsseseserssesssesssesssessenesesesesssersseussessenscesesenes 10
fF. Fraud: Conclusion .......scssssscsecssssssserssassssessesessessecarsnssasenseasseseseeeeeeee LL
i
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION1 I. Fifth Cause of Action: Misappropriation of Trade Secrets ..........sssssessereseeee il
2 A. GPB has not established that it owns clearly identified trade
SOCT CES. .ssesssessssesesesssesenesevesenessneesneesneesaeeeey
w
4 B. GPB does not establish misappropriation, i.e., BillFloat has not
inappropriately used, disclosed or disseminated the alleged
trade secret information. ...
a
6 C. GPB does not demonstrate resulting damage. .........sccssssssssssessssseseseees 14
7 | CONCLUSION.
(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
ii
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION=
2
SC e
=~ oe
o38s
ees
Za se
oO 1
Be2e
Bbac
a EES
aa
Se
=
w
a
TABLE OF AUTHORITIES
Cases
Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App 4th 826 .......c.ccee 12
Agency Solutions.Com, LLC v. TriZetto Group, Inc. (E.D. Cal. 2011) 819 F.Supp.2d 1001... 12, 13
Alliance Mortgage Co. v. Rothwell (1995) 10 Cal Ath 1226.0... ccc cesessscereeerseessesessseseseeeeees 9
Archuleta v. Grand Lodge ete. of Machinists (1968) 262 Cal.App.2d 202, 208-209 .......cccseeeee 6
Cadence Design Systems, Inc. v. AvantA Corp. (2002) 29 Cal.4th 215.
Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508 ........... 10
Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc. (2008) 160 Cal.App4th 288.0... eee 11
DeKellis v. Microbilt Corp. (9th Cir. 1997) 131 P.3d 146.000... cece reseeeeteeeeeeeseeneeeeees LO
DVD Copy Control Ass'n, Inc. v. Bunner (2003) 31 Cal Ath 864 0... ccccececcececeteneseeeeseeseeeeeeeenees 12
Erlich v. Menezes (1999) 21 Cal 4th 543
Hoffman v. 162 North Wolfe LLC (2014) 228 Cal .App.4th 1178 ......cescseeessessecsecsessseseeseeseeseeseesees 9
Jacobson v. Mead (1936) 12 Cal. App.2d 75....cecccsscssssesssesccecsesessesecsceesseencneeecsesseeeneneesansneseeesseeseas 7
JMP Securities LLP vy. Altair Nanotechnologies Inc. (N.D. Cal. 2012) 880 F.Supp.2d 1029......... 3
Lazar v. Superior Ct., (1996) 12 Cal Ath 631... ceccecsessescecsecsessecsessessscsnsssesneeeesecesecasnessnseessnseseeneesee 7
People v. Ashley (1954) 42 Cal.2d 246
Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal Ath 979... ccc eeneseseeeeeeeeeeneeees 3
Rossberg v. Bank of America, N.A. (2013) 219 Cal. App 4th 1481 oo. tectsseeteeeseenseeesenee 10
Scott v. Snelling and Snelling, Inc. (N.D. Cal. 1990) 732 F.Supp. 1034 .....cccceeesesesecesseeneseeeees 12
Small y. Fritz Companies, Inc. (2003) 30 Cal Ath 167... cccesccsseseresseesssecneseserssesssecssecsneseressecsees 5,7
Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18 78
UMG Recordings, Inc. v. Global Eagle Entertainment, Inc. (C.D. Cal. 2015) 117 F.Supp.3d 1092
wee 3, 5, 11
Unterberger v. Red Bull North America, Inc. (2008) 162 Cal.App.4th 414
Whyte v. Schlage Lock Co, (2002) 101 Cal App Ath 1443 .....cceseseessscneesseesseesesstesresneesesneeneensens 12
Statutes
California Civil Code section 3426.1 .....cccesscessessesseeseeseesessescsessensseessessseessuesasesaseesseesseeaneeanesses 11
iii
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
INTRODUCTION
On October 2, 2015, Plaintiff Golden Pacific Bank, N.A. (“Plaintiff” or “GPB”) filed its
complaint (the “Complaint”) against Defendants BillFloat, Inc. (“BillFloat’”’), Ryan Gilbert (“Mr.
Gilbert’) and Sean O'Malley (“Mr. O’ Malley”) (collectively “Defendants”). Plaintiff alleged
eight causes of action for: (1) Breach of Contract; (2) Breach of the Covenant of Good Faith and
Fair Dealing; (3) Fraud; (4) Rescission; (5) Misappropriation of Trade Secrets; (6) Breach of
Non-Disclosure Agreement; (7) Unjust Enrichment; and (8) Unfair Business Practices/Business
and Professions Action §§ 17200, et seg. The Third and Fifth causes of action for Fraud and
Misappropriation of Trade Secrets are against all three Defendants. All other causes of action
pend against BillFloat only.
This Motion for Summary Adjudication (the “Motion”) applies to the Third and Fifth
Causes of Action. Mr. Gilbert and Mr. O’Malley will be filing a separate motion for summary
adjudication to be heard concurrently with this Motion. That motion largely tracks the same
issues, facts and arguments. However, this instant Motion is filed on behalf of BillFloat only.
The Court should grant BillFloat’s Motion because there are no triable issues of any
material fact and BillFloat is entitled to judgment as a matter of law as to the Third and Fifth
Causes of Action. This Motion is based upon the following points:
1. The Third Cause of Action for Fraud is barred by California’s economic loss rule.
2. The Third Cause of Action for Fraud fails because (1) neither Mr. Gilbert nor Mr.
O’Malley made any misrepresentations to GPB; (2) neither Mr. Gilbert nor Mr. O’Malley
had any knowledge of the alleged falsity of their alleged misrepresentations; (3) GPB is
unable to provide any facts demonstrating that BillFloat had any intent to defraud GPB;
(4) GPB has provided no evidence supporting the element of justifiable reliance; and (5)
the undisputed facts demonstrate that GPB has not pled any damages in addition to those
they allege for breach of contract.
3. The Fifth Cause of Action for Misappropriation of Trade Secrets fails because (1) GPB
cannot establish that it owns clearly identified trade secrets and (2) the evidence shows
that BillFloat has not disclosed or disseminated the alleged trade secret information.
STATEMENT OF FACTS
Mr. Gilbert and Mr. O’Malley are founders, officers and/or directors of BillFloat.
(Declaration of Ryan Gilbert, § 1 (herein “Gilbert Decl.,§ __.”); Declaration of Sean O'Malley, §
1 (herein “O’Malley Decl.,§ __.”).) BillFloat is a technology company that developed software,
1
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
called the BELIEF System, that automates the process for businesses that want to apply for
certain SBA loans called “SBA 7(a) Loans.” (Declaration of Evan Singer, § 2 (“herein “Singer
Decl.,§ __.”).) GPB is a bank that wanted to fund SBA 7(a) Loans. (/d.)
In order to make a digital embodiment of GPB’s underwriting standards for SBA 7(a)
Loans that would run on the BELIEF System, BillFloat and GPB developed a “Joint Technology”
the Parties call the “GOLD STANDARD.” (Id. at § 3.) As part of this development process,
GPB naturally disclosed its underwriting criteria to BillFloat (the “GPB Underwriting Criteria”).
(Id.)
The Parties thought that perhaps other lenders with whom BillFloat might enter into
agreements in the future might be interested in licensing the GOLD Standard, rather than
developing their own standards with BillFloat. (/d. at § 4.) Accordingly, the Parties entered into
two contracts. (/d.) First, the Parties signed the Joint Marketing and Joint Technology
Improvement Agreement on December 5, 2013. (/d.) Second, the Parties executed the First
Amended Joint Marketing Agreement effective on July 24, 2014. (/d.) These contracts are
collectively referred to as the “Marketing Agreements.”
The Marketing Agreements contemplate that, in connection with its dealings with other
lenders, BillFloat would try to license the GOLD Standard to other lenders. (/d. at § 5.) In fact,
Section 3.4 of the Marketing Agreements authorizes BillFloat to act as GPB’s agent for the
purpose of marketing the GOLD Standard to other lenders. (/d.)
Ultimately, the relationship broke down, and this litigation resulted. In its complaint,
GPB makes two allegations material to this motion.
First, in connection with its Third Cause of Action for Fraud, GPB argues that Mr. Gilbert
and Mr. O’Malley made certain fraudulent statements on BillFloat’s behalf when negotiating the
Marketing Agreements with GPB. However, each of these alleged statements were actually
incorporated into the Marketing Agreements, so they are not actionable as allegedly fraudulent
statements. Moreover, in their declarations, Mr. Gilbert and Mr. O’Malley deny making the
statements ascribed to them. (Gilbert Decl., §§ 4 - 12; O’Malley Decl., §§ 12 - 21.)
Second, in connection with GPB’s Fifth Cause of Action for Misappropriation of Trade
Secrets and its trade secret disclosure (the latter of which is filed conditionally under seal), GPB
argues that its underwriting standards are trade secrets that have been misappropriated by Mr.
Gilbert, Mr. O’Malley and BillFloat. However, as set forth below, a bank’s underwriting
standards are not protectable as trade secrets. Moreover, BillFloat used its best efforts to market
2
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
the GOLD Standard to other lenders, using non-disclosure agreements, as is standard in the
industry. (Singer Decl., § 5.) However, no other lender was interested in licensing the GOLD
Standard; banks want to use their own underwriting standards that reflect their own credit policies
and risk appetites. (Singer Decl.,§ 5.) This means that there was no misappropriation, and any
disclosure was appropriate and authorized by GPB in the Marketing Agreements.
ANALYSIS
Two of GPB’s causes of action should be disposed of by way of summary adjudication —
the Third Cause of Action for Fraud against all Defendants and the Fifth Cause of Action for
Misappropriation of Trade Secrets against all Defendants.
I. Third Cause of Action: Fraud
A. The Third Cause of Action is barred by California’s economic loss rule.
Pursuant California’s economic loss rule, California courts have held that tort claims
based on breach of contract are generally barred. UMG Recordings, Inc. v. Global Eagle
Entertainment, Inc. (C.D. Cal. 2015) 117 F.Supp.3d 1092, 1103. The California Supreme Court
has stated that “the economic loss rule ‘prevent[s] the law of contract and the law of tort from
dissolving one into the other.” Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal 4th
979, 988. “A breach of contract is tortious only when some independent duty arising from tort
law is violated.” Erlich v. Menezes (1999) 21 Cal 4th 543,554. Accordingly, California courts
have held that the economic loss rule provides that “‘no tort cause of action will lie where the
breach of duty is nothing more than a violation of a promise which undermines the expectations
of the parties to an agreement.’” JMP Securities LLP v. Altair Nanotechnologies Inc. (N.D. Cal.
2012) 880 F.Supp.2d 1029, 1042.
In UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., the court found that the
counterclaimants’ fraud and negligent misrepresentation claims were based entirely on an alleged
oral agreement. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., supra, 117
F.Supp.3d at 1104. It further held that unless the counterclaimants could identify an “independent
duty that was violated,” the economic loss rule would bar its fraud claims. /d. In that case, the
counterclaimants simply asserted claims for promissory fraud, which the court held was
nonetheless subject to the economic loss rule. Id.
Similarly here, GPB alleges false promises or promissory fraud, based upon alleged
misrepresentations that were fulfilled when the terms complained of were incorporated into the
JMA and the AMA, so there is, as a matter of law, no basis for the fraud allegations. The Third
3
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
Cause of Action is barred pursuant to the economic loss rule. The alleged promises are set forth
below.
a. GPB alleges nine instances of “false promises” or “promissory fraud.”
GPB alleges the following statements made by BillFloat.
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.” (BillFloat, Inc.’s Separate Statement,
Undisputed Material Fact 1 (herein “UMF __.”).)
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.” (UMF 8.)
3) In negotiating the Marketing Agreement and the Amended Marketing Agreement,
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.” (UMF 9.)
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. (UMF 10.)
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.” (UMF 11.)
6) In negotiating the Marketing Agreement and the Amended Marketing Agreement,
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.” (UMF
12.)
7) In negotiating the Marketing Agreement and the Amended Marketing Agreement,
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.” (UMF 13.)
4
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
b. GPB alleges one instance of “intentional misrepresentation.”
8) After execution of the Marketing Agreement and the Amended Marketing
Agreement, 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.” (UMF 14.)
c. GPB alleges one instance 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 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 (sic) provide any such
license agreement or other arrangement to GPB.” (UMF 15.)
GPB alleges that each of the alleged misrepresentations was made prior to the formation
of the JMA and the AMA. However, each alleged statement was actually subsequently
incorporated into those agreements. As such, each of the aforementioned representations was
superseded by the integration clauses in the JMA and AMA. Ultimately, any breach based on the
alleged misrepresentations is therefore a breach of the agreement that governs them, i.e., the JMA
and/or the AMA. Accordingly, the economic loss rule bars GPB’s Third Cause of Action for
Fraud because GPB has not identified an independent duty from outside of the agreements that
was violated. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., supra, 117 F.Supp.3d
at 1104. Further, California courts have granted motions for summary adjudication in instances
where “[t]he claim is merely a breach of contract claim dressed in the language of fraud.”
Unterberger v. Red Bull North America, Inc. (2008) 162 Cal.App.4th 414, 423. The Court should
grant BillFloat’s Motion as to the Third Cause of Action on the basis that the economic loss rule
bars GPB’s cause of action for fraud.
B. The undisputed facts demonstrate that the Plaintiff is unable to prove fraud.
The Plaintiff must assert the following elements in order to claim a cause of action for
fraud: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge
of falsity (or “scienter”); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and
(5) resulting damage. Small v. Fritz Companies, Inc. (2003) 30 Cal 4th 167, 173-74. In this case,
the undisputed evidence demonstrates that GPB will not be able to meet its burden.
5
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
a. The undisputed facts demonstrate that BillFloat made no misrepresentations
to GPB.
When a plaintiff sues a corporate defendant for fraud, California courts have held that the
plaintiff must expressly specify the names of the persons who made the allegedly fraudulent
representations, their authority to speak, to whom they spoke, what they said or wrote, and when
aid or written. Archuleta v. Grand Lodge etc. of Machinists (1968) 262 Cal.App.2d 202,
208-209; UMG Recordings, Inc. v. Global Eagle Entertainment, Inc. (C.D. Cal. 2015) 117
F.Supp.3d 1092, 1108.
According to GPB’s allegations in the Complaint, GPB identified Mr. Gilbert and Mr.
it was
O’Malley as the only individuals who made the alleged fraudulent misrepresentations. Since
GPB only identified Mr. Gilbert and Mr. O’Malley in the Complaint, the following sections will
address the allegations asserted against BillFloat as alleged against Mr. Gilbert and Mr.
O'Malley.
i. Mr. Gilbert made no misrepresentations to the Plaintiff.
Mr. Gilbert states in his declaration that he did not make any of the aforementioned
representations to GPB. (UMF 25 — 33: Gilbert Decl., §§ 4 — 12.) Additionally, he explains that
he was not extensively involved in the negotiation of the terms of the License Agreement, the
JMA or the AMA (collectively the “Agreements”). Although Mr. Gilbert was copied on e-mail
communications during the course of the negotiations between the Parties leading up to the
execution of the Agreements, his direct communications with GPB concerning the negotiation of
any specific term or condition was limited. (Gilbert Decl. at § 3.) More specifically, Mr. Gilbert
did not serve as BillFloat’s lead representative in any phone conferences or in-person meetings
with GPB with respect to the negotiation of specific terms and conditions of the Agreements.
Additionally, he did not prepare any correspondence sent to GPB that attempted to articulate or
advance BillFloat’s position concerning specific terms or conditions under consideration by the
Parties. (/d.) In any event, any statement made by Mr. Gilbert during the negotiation of the
Agreements was made with the expectation that BillFloat would perform in a manner consistent
with the Agreements. (/d.) GPB has no evidence otherwise.
ii. Mr. O’Malley made no misrepresentations to the Plaintiff.
Although Mr. O’Malley had some involvement in the negotiation of the terms of the
Agreements, he did not make any misrepresentations to GPB. Specifically, Mr. O’Malley denies
that he made any of the alleged statements GPB attributes to him in its Complaint, detailed above.
6
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
w
a
(UMF 16 - 24; O'Malley Decl., §§ 13 — 21.) During these negotiations, Mr. O’Malley’s goal,
and the goal of BillFloat, was to reach agreement on terms and conditions that were mutually
acceptable to both Parties. (O’Malley Decl.,§ 12.) Any statements that were made by Mr.
O'Malley during these negotiations were backed by his belief and expectation that BillFloat
would perform in a manner consistent with the agreements, including, but not limited to, the
terms and conditions pertaining to such things as ownership of intellectual property, appropriate
charges to GPB, sharing of improvement costs for the Joint IP (as defined in the agreements), the
issuance and reconciliation of Joint IP SOWs (as defined in the agreements), referral of business
to GPB, and the delivery of accurate reports to GPB regarding the volume of loan referrals to and
fee income from other lenders. (/d.) Further, since the time the Agreements were executed,
BillFloat has in fact performed in a manner consistent with the terms of the Agreements. (/d.)
GPB has no evidence otherwise.
b. The undisputed facts demonstrate that BillFloat had no knowledge of
Moreover, GPB cannot establish Mr. Gilbert and Mr. O’ Malley had any knowledge of any
alleged statement’s falsity. Lazar v. Superior Ct., (1996) 12 Cal.4th 631,638. As discussed
above, Mr. Gilbert did not make any misrepresentations or have any knowledge of falsity of any
alleged misrepresentations. (UMF 25 — 33; Gilbert Decl., §§ 4 — 12.) Additionally, Mr. O’Malley
did not make any misrepresentations or have any knowledge of falsity of any alleged
misrepresentation. (UMF 16 — 24; O’Malley Decl., JJ 13 — 21.) With respect to GPB’s
contractual allegations after the execution of the AMA, again GPB has presented no evidence that
BillFloat overbilled GPB regarding operating costs. By contrast, the evidence demonstrates the
expenses were subject to a lengthy reconciliation process, which required substantial input by
GPB. (UMF 36 — 40; Singer Decl., §§ 6 — 22.) The undisputed evidence shows that GPB is
unable to meet its burden with respect to the allegations against Mr. Gilbert.
c The undisputed facts demonstrate that there was no intent to defraud
GPB.
The third element of a promissory fraud claim is intent not to perform at the time the
promise was made and intent to deceive or induce the promisee to enter into a transaction. Small
v. Fritz Companies, Inc., supra, 30 Cal.4th at 173. California courts have held that “something
more than nonperformance is required to prove the defendant’s intent not to perform his
promise.” Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30; People v. Ashley (1954) 42 Cal.2d
246, 263; Jacobson v. Mead (1936) 12 Cal.App.2d 75, 82.
7
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
GPB has no evidence that Mr. Gilbert or Mr. O’Malley had the requisite intent not to
perform or the intent to defraud GPB at the time the alleged misrepresentations were made. GPB
attempts to rely solely on the alleged nonperformance of BillFloat to prove intent. However, this
approach fails as a matter of law. See Tenzer, supra, 39 Cal.3d at 30-31.
In response to various discovery requests requesting GPB to state all facts supporting its
contentions with respect to specific allegations contained in GPB’s Complaint that Mr. O’Malley
and Mr. Gilbert “had knowledge of the falsity of their representations with the intent to defraud
and/or induce reliance,” GPB has either entirely failed to identify any facts demonstrating intent
or instead alleged that the Defendants’ actions constitute breach of contract. (Declaration of
Jennifer D. Su, § 2, Ex. 14, Special Interrogatory No. 154 (herein “Special Interrogatory No.
__.”); Special Interrogatory No. 160; Special Interrogatory No. 166; Special Interrogatory No.
172.)
For example, in response to Special Interrogatory number 172, GPB alleges that Mr.
Gilbert and Mr. O’Malley concealed BillFloat’s license agreements and loan referrals to other
lenders starting in June 2015, which is 11 months after the AMA was executed. (Special
Interrogatory No. 172.) This evidence demonstrates that GPB admits that the Defendants
intended to perform their alleged promises and actually did in fact perform those promises for
nearly a year. At best, this entitles GPB to maintain a breach of contract action, but not a cause of
action for fraud. And, in fact, GPB has included a cause of action for breach of contract, so GPB
is adequately protected in that regard. In other words, BillFloat does not allege in this Motion
that GPB is not entitled to relief for any alleged breach of these contractual provisions — just that
it is not entitled to any damages for fraud.
Another example is GPB’s response to Special Interrogatory number 160, which asks
GPB to state all facts supporting the contention in paragraph 45(b) that Mr. Gilbert and Mr.
O'Malley had knowledge of the falsity of operating costs unrelated to the joint technology with
the intent to defraud. In response, GPB cites a letter sent by GBP to BillFloat nearly 7 months
after the AMA was executed. (Special Interrogatory No. 160.) The letter simply requests a more
detailed account of shared expenses supporting the Joint IP SOWs i.e. a request regarding
performance of the contract. (/d.) However, GPB’s response ignores the lengthy reconciliation
process the parties previously went through with other Joint IP SOWs. (Singer Decl., §§ 6 — 22.)
The letter simply does not evidence any intent to defraud.
8
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
GPB is unable to produce any evidence demonstrating the Defendants intended not to
perform a promise at the time it was made or that the Defendants intended to defraud GPB.
Moreover, allegations of BillFloat’s nonperformance are insufficient as a matter of law. Tenzer,
supra, 39 Cal.3d at 30-31. In any event, the evidence shows that BillFloat performed the terms of
the contracts. GPB admits that from November 2014 to May 2015, GPB funded an average of
more than sixteen SBA 7(a) loans per month, totaling over $1.3 million in funding each month.
(Special Interrogatory No. 151.) Additionally, GPB admitted in its Complaint that BillFloat
provided GPB with “access to contractually required information to determine funding volume
and fees received from third party lenders” until June 2015. (Request for Judicial Notice, Att. A,
Complaint, § 38(a) (herein “Complaint, § __.”).) Further, BillFloat delivered returns on licensing
and referral fees from third party lenders up until December 2014, five months after the AMA
was executed. /d. Lastly, GPB and BillFloat engaged in a collaborative reconciliation process
regarding the Joint IP SOW statements, wherein GBP negotiated and agreed to what operating
costs they would pay. (Singer, Decl., JJ 6 — 22.)
The evidence demonstrates that BillFloat, Mr. Gilbert, and Mr. O’Malley intended to
perform on their alleged promises and did actually perform. Accordingly, GPB cannot show any
evidence of any intent not to perform or intent to defraud as a matter of law.
d. GPB has provided no evidence supporting the element of justifiable
reliance.
“Reliance exists when the misrepresentation or nondisclosure was an immediate cause of
the plaintiff's conduct which altered his or her legal relations, and when without such
misrepresentation or nondisclosure he or she would not, in all reasonable probability, have
entered into the contract or other transaction.” Alliance Mortgage Co. v. Rothwell (1995) 10
Cal.4th 1226, 1239. California courts have held that the issue of whether reliance is justifiable
can be one of law, not fact “‘if reasonable minds can come to only one conclusion based on the
facts.”” Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1194-95, as modified on
denial of reh’g (Aug. 13, 2014); Alliance Mortgage Co. v. Rothwell (1995) 10 Cal Ath 1226,
1239. In those instances, “summary judgment or summary adjudication is an appropriate
vehicle.” Id. at 1195.
Importantly, the contracts in question had a merger clause. In the context of contract
negotiations, California courts have held that “[t]here cannot be justifiable reliance on
precontractual representations when there is a merger clause in the contract.” DeKellis v.
9
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
Microbilt Corp. (9th Cir. 1997) 131 F.3d 146. In DeKellis, the court held that summary judgment
was appropriate against the appellants’ fraud claim because the written agreement contained a
broad merger clause and the appellants produced no other evidence as to the element of justifiable
reliance. Jd. In that case, the court rejected the appellants’ argument that “merger clauses bar
only precontractual representations that vary from the terms of the agreement.” Id.
In this case, both the JMA and the AMA both contain merger clauses. The JMA states in
part as follows:
13. Entire Agreement
This Agreement constitutes the entire agreement between the Parties with respect
to the Joint IP, and supersedes all other prior and contemporary agreements,
understandings, and commitments between the Parties regarding the subject
matter of this Agreement. . . .
(UMF 43; Singer Decl., Ex. 2, JMA,§ 13, p. 8). An identical provision is incorporated in the
AMA as well. (UMF 43; Singer Decl., Ex. 3, AMA, § 21, p. 14.) Therefore, in light of the
merger clause contained in both agreements, the Court should find, consistent with the holding in
DeKellis, supra, that GPB is unable to prove justifiable reliance.
e The undisputed facts demonstrate that GPB is not entitled to any
damages for fi
“Tn fraud, the pleading must show a cause and effect relationship between the fraud and
damages sought; otherwise no cause of action is stated.” Commonwealth Mortgage Assurance
Co. v. Superior Court (1989) 211 Cal.App.3d 508, 518. In order to establish the causal
relationship, the plaintiff must “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.” Rossberg v. Bank of
America, N.A. (2013) 219 Cal.App.4th 1481, 1499, as modified on denial of reh'g (Sept. 26,
2013).
Here, there is no evidence of a causal relationship between any alleged misrepresentation
and GPB’s claimed damages of $3,000,000. (UMF 44; Complaint § 50.) As discussed above,
Mr. Gilbert was not involved in negotiations and therefore, did not engage in any representation,
much less misrepresentation to GPB. As such, no causal relationship can exist between Mr.
Gilbert and the alleged damages. Further, there is no evidence that Mr. O’Malley made any
misrepresentations to GPB. In fact, according to the evidence, Mr. O’ Malley actually performed
his alleged promises, thus negating the existence of any intent not to perform at the time the
alleged promises were made, and also negating any intent to deceive or induce the promisee to
10
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
enter into a transaction. If there were any issues with performance after the JMA and AMA were
executed and after the time period in which Mr. O’ Malley performed, they could not be linked to
any alleged misrepresentation. Any issues are more appropriately addressed by GPB’s breach of
contract claim. GPB is unable to prove the elements of a claim for fraud as a matter of law and
therefore BillFloat’s Motion should be granted.
f. Fraud: Conclusion
BillFloat’s Motion as to the Third Cause of Action should be granted because GPB has
failed to meet its burden. First, the economic loss rule bars GPB’s Third Cause of Action for
Fraud because GPB has not identified an independent duty from outside of the agreements that
was violated. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., supra, 117 F.Supp.3d
at 1104. Second, GPB is not able to prove the elements of a claim for fraud as a matter of law
because: (1) neither Mr. Gilbert nor Mr. O’Malley made any misrepresentations to GPB; (2)
neither Mr. Gilbert nor Mr. O’Malley had any knowledge of the alleged falsity of their alleged
misrepresentations; (3) GPB is unable to provide any facts demonstrating that BillFloat had any
intent to defraud GPB; (4) GPB has provided no evidence supporting the element of justifiable
reliance; and (5) the undisputed facts demonstrate that GPB is not entitled to any damages.
Il. Fifth Cause of Action: Misappropriation of Trade Secrets
A claim for misappropriation of trade secrets is a statutory cause of action arising from the
Uniform Trade Secrets Act, California Civil Code section 3426, et seq. The elements of a
misappropriation of trade secrets cause of action are as follows: “(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; Cadence Design Systems, Inc. v. AvantA
Corp. (2002) 29 Cal.4th 215, 221-22; Civil Code § 3426.1(b). As set forth below, GPB will not
be able to prove (1) that GPB owns clearly identified trade secrets, (2) that BillFloat
misappropriated any alleged trade secrets or (3) any resulting damages.
A. GPB has not established that it owns clearly identified trade secrets.
A trade secret is defined as “information, including a formula, pattern, compilation,
program, device, method, technique, or process, that: (1) Derives independent economic value,
actual or potential, from not being generally known to the public or to other persons who can
obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are
1
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
reasonable under the circumstances to maintain its secrecy.” California Civil Code section
3426.1(d); DVD Copy Control Ass’n, Inc. v. Bunner (2003) 31 Cal Ath 864, 874.
California courts require that “a party seeking to protect trade secrets [] ‘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 defendant to ascertain at least the boundaries within which the secret lies.’” Whyte v.
Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1453 (emphasis in original). The party must
identify the allegedly misappropriated trade secret(s) with “reasonable particularity.” California
Code of Civil Procedure section 2019.210. However, reasonable particularity “does not mean
that the party alleging misappropriation has to define every minute detail of its claimed trade
secret at the outset of the litigation. . . . Rather, it means that the plaintiff must make some
showing that is reasonable, i.c., fair, proper, just and rational [Citations], under all of the
circumstances to identify its alleged trade secret in a manner that will allow the trial court to
control the scope of subsequent discovery, protect all parties’ proprietary information, and allow
them a fair opportunity to prepare and present their best case or defense at a trial on the merits.”
Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826, 835-836.
In Scout v. Snelling and Snelling, Inc. (N.D. Cal. 1990) 732 F.Supp. 1034, the court found
that business forms and procedures were not trade secrets. The plaintiff “produced declarations
that demonstrate that the forms and procedures are widely used in the industry.” However, the
defendant did not produce any evidence to support its contention in order to generate a triable
issue of fact. The court found that the defendant did not carry “its burden necessary to survive
summary judgment on the issue whether its business forms and procedures ‘derive [] independent
economic value,’ Cal.Civ.Code § 3426.1(d)(1), since such non-exclusivity of information
mitigates strongly against finding the existence of a trade secret. [Citation.]” Jd. at 1045.
Similarly, in Agency Solutions.Com, LLC v. TriZetto Group, Inc. (E.D. Cal. 2011) 819
F.Supp.2d 1001, the parties entered into an agreement to jointly develop a software program “to
provide [health insurance] payers and brokers a complete end-to-end solution for sales and
service processes, including prospecting, rating and quoting, underwriting, enrollment, billing,
membership and customer service.” /d. at 1006. The court found that what the plaintiff alleged as
a trade secret “regarding underwriting is more along the lines of ‘this is the way we do it’
information.” Jd. at 1022 (emphasis original). In that case, the court held that the alleged trade
secrets were, in fact, not trade secrets. Id.
12
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
GPB’s cause of action for misappropriation of trade secrets is based on GPB’s business as
a lending bank, including assessment of loan applications, SBA lending operations, and
compliance with applicable rules and regulations. (UMF 46.) On February 17, 2016, GPB
provided its trade secrets disclosure pursuant to California Code of Civil Procedure section
2019.210 (the “Disclosure”). (Ex. X, GPB’s Trade Secret Disclosure submitted under seal.)
BillFloat denies that it misappropriated any of the alleged trade secrets set forth in the Disclosure.
(UMF 48 — 61.)
GPB claims that its underwriting criteria, including its “unique combinations” and
“unique weighting of the criteria,” constitute trade secrets because “they had actual or potential
independent economic value because they were secret and GOLDEN PACIFIC BANK made
reasonable efforts to keep the information secret.” (Complaint, § 58.) However, the underwriting
processes are not unique and are used widely in the lending industry. (UMF 47. Further, the
requirements and procedures governing the SBA 7(a) Loan Program, including but not limited to
the Program’s underwriting standards, are matters of public record. (/d.) As with health
insurance underwriting processes, loan underwriting processes “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.” AgencySolutions.Com, supra, 819
FSupp.2d at 1022. In any event, loan underwriting processes appear “to involve information that
is very likely to be in the nature of information generally known to other persons skilled in the
same field and therefore not trade secrets.” Id. Different banks may weight certain factors such
as credit scores differently, but they use the same quantum of information. Stated another way,
each lender “handles the same core information their own way.”
The Court should find that GPB has failed to identify any specific trade secret
information. However, even if GPB somehow met its burden to identify a legally cognizable
trade secret, the Court should find that GPB has not met its burden of demonstrating that BillFloat
misappropriated any alleged trade secret information.
B. GPB does not establish misappropriation, i.e., BillFloat has not
inappropriately used, disclosed or disseminated the alleged trade secret
information.
GPB has taken extensive discovery. BillFloat has produced 22,298 total records totaling
75,923 pages. (Su Decl..§ 3.) In addition, BillFloat has responded to numerous discovery
requests, including 497 special interrogatories, 282 inspection demands, and form interrogatories.
(Id.) GPB has not shown any evidence tending to demonstrate that BillFloat or any of its
13
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION(415) 277-7200
WEBB LEGAL GROUP
155 Montgomer
w
a
representatives, employees, or agents, used or had the opportunity to use any such information or
disclosed any such information to a third party lender or anyone else. (UMF 48 — 61; Singer
Decl., § 25; Gilbert Decl.,§ 13; O’Malley Decl.,§ 22.) Further, any disclosure of the Joint
Technology was authorized by the JMA and the AMA. (UMF 53, 62 — 63; Singer Decl., § 26.)
There is no evidence in the record to support GPB’s claim that BillFloat misappropriated any
alleged trade secret information.
Therefore, the Court should find that GPB has failed to meet its burden of demonstrating
that BillFloat misappropriated any trade secret information. Therefore, the Court should grant
BillFloat’s motion for summary adjudication as to this cause of action.
Cc GPB does not demonstrate resulting damage.
In order to state an actionable claim for misappropriation of trade secrets, GPB must show
that the alleged misappropriation caused damage. GPB has alleged damages for the alleged
misappropriation of trade secrets, but has not supported its claim with actual evidence in the
record. (UMF 64.) The undisputed evidence shows that GPB has not demonstrated that BillFloat
misappropriated any alleged trade secret information. Accordingly, the Court should find that
BillFloat’s Motion is granted as to the Fifth Cause of Action.
CONCLUSION
For the foregoing reasons, the Court should grant BillFloat’s Motion for Summary
Adjudication as to the Third and Fifth Causes of Action.
The Motion should be granted as to the Third Cause of Action for fraud because GPB’s
claim barred by California’s Economic Loss Rule. Further, the undisputed facts demonstrate that
GPB is unable to allege a viable claim for fraud because neither Mr. Gilbert nor Mr. O’ Malley
made any misrepresentations to GPB. There is no evidence that either Mr. Gilbert or Mr.
O’Malley had any knowledge of the falsity of their alleged representations with the intent to
defraud and/or induce reliance.
The Motion should be granted as to the Fifth Cause of Action for misappropriation of
trade secrets because the undisputed evidence shows that GPB has no evidence that BillFloat
misappropriated any alleged trade secret information.
Date: April 27, 2017 be
WALITAMEAVEBB #193832
JENIFER D. SU #291603
14
BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY
ADJUDICATION
Preview
WEBB LEGAL GROUP 155 Montgomery Street, Suite 1200 San Francisco, CA 94104 (415) 277-7200 w a WILLIAM T. WEBB #193832 JENNIFER D. SU #291603 155 Montgomery Street, Suite 1200 San Francisco, CA 94104 (415) 277-7200 (415) 277-7210 (fax) Attorneys for BILLFLOAT, INC., ELECTRONICALLY FILED Superior Court of California, County of San Francisco 04/28/2017 Clerk of the Court BY: ANNA TORRES RYAN GILBERT AND SEAN O’MALLEY Deeue Siar SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO (Unlimited Jurisdiction) GOLDEN PACIFIC BANK, N.A., Plaintiff, v. } Case No.: CGC-16-549804 ) ) ) BILLFLOAT, INC.“S MEMORANDUM } OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR BILLFLOAT, INC., RYAN GILBERT, SEAN ) SUMMARY ADJUDICATION O'MALLEY, DOES 1-50, Defendants. ) Date: July 14,2017 ) Time: 10:00 a.m. pt: 606 o é BILLFLOAT, INC. Cross-Complainant, v. GOLDEN PACIFIC BANK, N.A., and ROES 1-50, Cross-Defendants. ee BILLFLOAT, INC.’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION= 2 SC e =~ oe o38s ees Za se oO 1 Be2e Bbac a EES aa Se = w a TABLE OF CONTENTS TABLE OF CONTENTS. ....cccsssssssesscssscssssessscsnesacencenseneeseeaccsncenssasanesaccacennsasseeaesacsnseneaneaaeenceneeaeane i TABLE OF AUTHORITIES .......sccsssssssecsscssssnessssncesesnsenesarsssssnesssanssnssnceneraeesssanesassnesscaneanssasenerses iii INTRODUCTION. ..cssscsssssssesseesssssssssssssnecansssnesanesavecsnecsnecsscenscensssnscenscsnscenscenscensseasecsucesneesssesseensess 1 ANALYS I. Third Cause of Action: Fraud.....sscsscssscsssessserseesseassacenecasesscerssessncsssenseassaceneennes 3 A. The Third Cause of Action is barred by California’s economic loss a. GPB’s alleges nine instances of “false promises” or “PrOMISSOLY FFAUA.”’..........sesesesserseseseeeseesesesesssereearaeerseetsesesesesereeee 4 b. GPB alleges one instance of “intentional MisrepresentatiOn.”..........ccscseeseceeeessensessseseesseesseeseessenseseeseees 5 5 c. GPB alleges one instance of “concealment. B. The undisputed facts demonstrate that the Plaintiff is unable to prove fraud. a. The undisputed facts demonstrate that BillFloat made no misrepresentations to GPB. i. Mr. Gilbert made no Plaintiff. isrepresentations to the ii. Mr. O’Malley made no misrepresentations to the Plaintiff. b. The undisputed facts demonstrate that BillFloat had no knowledge of falsity. c. The undisputed facts demonstrate that there was no intent to defraud GPB. d. GPB has provided no evidence supporting the element of justifiable reliance. e. The undisputed facts demonstrate that GPB has not pled any damages aside from those alleged incurred based on the JMA and AMA ......cscsseseserssesssesssesssessenesesesesssersseussessenscesesenes 10 fF. Fraud: Conclusion .......scssssscsecssssssserssassssessesessessecarsnssasenseasseseseeeeeeee LL i BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION1 I. Fifth Cause of Action: Misappropriation of Trade Secrets ..........sssssessereseeee il 2 A. GPB has not established that it owns clearly identified trade SOCT CES. .ssesssessssesesesssesenesevesenessneesneesneesaeeeey w 4 B. GPB does not establish misappropriation, i.e., BillFloat has not inappropriately used, disclosed or disseminated the alleged trade secret information. ... a 6 C. GPB does not demonstrate resulting damage. .........sccssssssssssessssseseseees 14 7 | CONCLUSION. (415) 277-7200 WEBB LEGAL GROUP 155 Montgomer ii BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION= 2 SC e =~ oe o38s ees Za se oO 1 Be2e Bbac a EES aa Se = w a TABLE OF AUTHORITIES Cases Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App 4th 826 .......c.ccee 12 Agency Solutions.Com, LLC v. TriZetto Group, Inc. (E.D. Cal. 2011) 819 F.Supp.2d 1001... 12, 13 Alliance Mortgage Co. v. Rothwell (1995) 10 Cal Ath 1226.0... ccc cesessscereeerseessesessseseseeeeees 9 Archuleta v. Grand Lodge ete. of Machinists (1968) 262 Cal.App.2d 202, 208-209 .......cccseeeee 6 Cadence Design Systems, Inc. v. AvantA Corp. (2002) 29 Cal.4th 215. Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508 ........... 10 Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc. (2008) 160 Cal.App4th 288.0... eee 11 DeKellis v. Microbilt Corp. (9th Cir. 1997) 131 P.3d 146.000... cece reseeeeteeeeeeeseeneeeeees LO DVD Copy Control Ass'n, Inc. v. Bunner (2003) 31 Cal Ath 864 0... ccccececcececeteneseeeeseeseeeeeeeenees 12 Erlich v. Menezes (1999) 21 Cal 4th 543 Hoffman v. 162 North Wolfe LLC (2014) 228 Cal .App.4th 1178 ......cescseeessessecsecsessseseeseeseeseeseesees 9 Jacobson v. Mead (1936) 12 Cal. App.2d 75....cecccsscssssesssesccecsesessesecsceesseencneeecsesseeeneneesansneseeesseeseas 7 JMP Securities LLP vy. Altair Nanotechnologies Inc. (N.D. Cal. 2012) 880 F.Supp.2d 1029......... 3 Lazar v. Superior Ct., (1996) 12 Cal Ath 631... ceccecsessescecsecsessecsessessscsnsssesneeeesecesecasnessnseessnseseeneesee 7 People v. Ashley (1954) 42 Cal.2d 246 Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal Ath 979... ccc eeneseseeeeeeeeeeneeees 3 Rossberg v. Bank of America, N.A. (2013) 219 Cal. App 4th 1481 oo. tectsseeteeeseenseeesenee 10 Scott v. Snelling and Snelling, Inc. (N.D. Cal. 1990) 732 F.Supp. 1034 .....cccceeesesesecesseeneseeeees 12 Small y. Fritz Companies, Inc. (2003) 30 Cal Ath 167... cccesccsseseresseesssecneseserssesssecssecsneseressecsees 5,7 Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18 78 UMG Recordings, Inc. v. Global Eagle Entertainment, Inc. (C.D. Cal. 2015) 117 F.Supp.3d 1092 wee 3, 5, 11 Unterberger v. Red Bull North America, Inc. (2008) 162 Cal.App.4th 414 Whyte v. Schlage Lock Co, (2002) 101 Cal App Ath 1443 .....cceseseessscneesseesseesesstesresneesesneeneensens 12 Statutes California Civil Code section 3426.1 .....cccesscessessesseeseeseesessescsessensseessessseessuesasesaseesseesseeaneeanesses 11 iii BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a INTRODUCTION On October 2, 2015, Plaintiff Golden Pacific Bank, N.A. (“Plaintiff” or “GPB”) filed its complaint (the “Complaint”) against Defendants BillFloat, Inc. (“BillFloat’”’), Ryan Gilbert (“Mr. Gilbert’) and Sean O'Malley (“Mr. O’ Malley”) (collectively “Defendants”). Plaintiff alleged eight causes of action for: (1) Breach of Contract; (2) Breach of the Covenant of Good Faith and Fair Dealing; (3) Fraud; (4) Rescission; (5) Misappropriation of Trade Secrets; (6) Breach of Non-Disclosure Agreement; (7) Unjust Enrichment; and (8) Unfair Business Practices/Business and Professions Action §§ 17200, et seg. The Third and Fifth causes of action for Fraud and Misappropriation of Trade Secrets are against all three Defendants. All other causes of action pend against BillFloat only. This Motion for Summary Adjudication (the “Motion”) applies to the Third and Fifth Causes of Action. Mr. Gilbert and Mr. O’Malley will be filing a separate motion for summary adjudication to be heard concurrently with this Motion. That motion largely tracks the same issues, facts and arguments. However, this instant Motion is filed on behalf of BillFloat only. The Court should grant BillFloat’s Motion because there are no triable issues of any material fact and BillFloat is entitled to judgment as a matter of law as to the Third and Fifth Causes of Action. This Motion is based upon the following points: 1. The Third Cause of Action for Fraud is barred by California’s economic loss rule. 2. The Third Cause of Action for Fraud fails because (1) neither Mr. Gilbert nor Mr. O’Malley made any misrepresentations to GPB; (2) neither Mr. Gilbert nor Mr. O’Malley had any knowledge of the alleged falsity of their alleged misrepresentations; (3) GPB is unable to provide any facts demonstrating that BillFloat had any intent to defraud GPB; (4) GPB has provided no evidence supporting the element of justifiable reliance; and (5) the undisputed facts demonstrate that GPB has not pled any damages in addition to those they allege for breach of contract. 3. The Fifth Cause of Action for Misappropriation of Trade Secrets fails because (1) GPB cannot establish that it owns clearly identified trade secrets and (2) the evidence shows that BillFloat has not disclosed or disseminated the alleged trade secret information. STATEMENT OF FACTS Mr. Gilbert and Mr. O’Malley are founders, officers and/or directors of BillFloat. (Declaration of Ryan Gilbert, § 1 (herein “Gilbert Decl.,§ __.”); Declaration of Sean O'Malley, § 1 (herein “O’Malley Decl.,§ __.”).) BillFloat is a technology company that developed software, 1 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a called the BELIEF System, that automates the process for businesses that want to apply for certain SBA loans called “SBA 7(a) Loans.” (Declaration of Evan Singer, § 2 (“herein “Singer Decl.,§ __.”).) GPB is a bank that wanted to fund SBA 7(a) Loans. (/d.) In order to make a digital embodiment of GPB’s underwriting standards for SBA 7(a) Loans that would run on the BELIEF System, BillFloat and GPB developed a “Joint Technology” the Parties call the “GOLD STANDARD.” (Id. at § 3.) As part of this development process, GPB naturally disclosed its underwriting criteria to BillFloat (the “GPB Underwriting Criteria”). (Id.) The Parties thought that perhaps other lenders with whom BillFloat might enter into agreements in the future might be interested in licensing the GOLD Standard, rather than developing their own standards with BillFloat. (/d. at § 4.) Accordingly, the Parties entered into two contracts. (/d.) First, the Parties signed the Joint Marketing and Joint Technology Improvement Agreement on December 5, 2013. (/d.) Second, the Parties executed the First Amended Joint Marketing Agreement effective on July 24, 2014. (/d.) These contracts are collectively referred to as the “Marketing Agreements.” The Marketing Agreements contemplate that, in connection with its dealings with other lenders, BillFloat would try to license the GOLD Standard to other lenders. (/d. at § 5.) In fact, Section 3.4 of the Marketing Agreements authorizes BillFloat to act as GPB’s agent for the purpose of marketing the GOLD Standard to other lenders. (/d.) Ultimately, the relationship broke down, and this litigation resulted. In its complaint, GPB makes two allegations material to this motion. First, in connection with its Third Cause of Action for Fraud, GPB argues that Mr. Gilbert and Mr. O’Malley made certain fraudulent statements on BillFloat’s behalf when negotiating the Marketing Agreements with GPB. However, each of these alleged statements were actually incorporated into the Marketing Agreements, so they are not actionable as allegedly fraudulent statements. Moreover, in their declarations, Mr. Gilbert and Mr. O’Malley deny making the statements ascribed to them. (Gilbert Decl., §§ 4 - 12; O’Malley Decl., §§ 12 - 21.) Second, in connection with GPB’s Fifth Cause of Action for Misappropriation of Trade Secrets and its trade secret disclosure (the latter of which is filed conditionally under seal), GPB argues that its underwriting standards are trade secrets that have been misappropriated by Mr. Gilbert, Mr. O’Malley and BillFloat. However, as set forth below, a bank’s underwriting standards are not protectable as trade secrets. Moreover, BillFloat used its best efforts to market 2 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a the GOLD Standard to other lenders, using non-disclosure agreements, as is standard in the industry. (Singer Decl., § 5.) However, no other lender was interested in licensing the GOLD Standard; banks want to use their own underwriting standards that reflect their own credit policies and risk appetites. (Singer Decl.,§ 5.) This means that there was no misappropriation, and any disclosure was appropriate and authorized by GPB in the Marketing Agreements. ANALYSIS Two of GPB’s causes of action should be disposed of by way of summary adjudication — the Third Cause of Action for Fraud against all Defendants and the Fifth Cause of Action for Misappropriation of Trade Secrets against all Defendants. I. Third Cause of Action: Fraud A. The Third Cause of Action is barred by California’s economic loss rule. Pursuant California’s economic loss rule, California courts have held that tort claims based on breach of contract are generally barred. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc. (C.D. Cal. 2015) 117 F.Supp.3d 1092, 1103. The California Supreme Court has stated that “the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.” Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal 4th 979, 988. “A breach of contract is tortious only when some independent duty arising from tort law is violated.” Erlich v. Menezes (1999) 21 Cal 4th 543,554. Accordingly, California courts have held that the economic loss rule provides that “‘no tort cause of action will lie where the breach of duty is nothing more than a violation of a promise which undermines the expectations of the parties to an agreement.’” JMP Securities LLP v. Altair Nanotechnologies Inc. (N.D. Cal. 2012) 880 F.Supp.2d 1029, 1042. In UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., the court found that the counterclaimants’ fraud and negligent misrepresentation claims were based entirely on an alleged oral agreement. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., supra, 117 F.Supp.3d at 1104. It further held that unless the counterclaimants could identify an “independent duty that was violated,” the economic loss rule would bar its fraud claims. /d. In that case, the counterclaimants simply asserted claims for promissory fraud, which the court held was nonetheless subject to the economic loss rule. Id. Similarly here, GPB alleges false promises or promissory fraud, based upon alleged misrepresentations that were fulfilled when the terms complained of were incorporated into the JMA and the AMA, so there is, as a matter of law, no basis for the fraud allegations. The Third 3 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a Cause of Action is barred pursuant to the economic loss rule. The alleged promises are set forth below. a. GPB alleges nine instances of “false promises” or “promissory fraud.” GPB alleges the following statements made by BillFloat. 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.” (BillFloat, Inc.’s Separate Statement, Undisputed Material Fact 1 (herein “UMF __.”).) 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.” (UMF 8.) 3) In negotiating the Marketing Agreement and the Amended Marketing Agreement, 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.” (UMF 9.) 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. (UMF 10.) 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.” (UMF 11.) 6) In negotiating the Marketing Agreement and the Amended Marketing Agreement, 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.” (UMF 12.) 7) In negotiating the Marketing Agreement and the Amended Marketing Agreement, 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.” (UMF 13.) 4 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a b. GPB alleges one instance of “intentional misrepresentation.” 8) After execution of the Marketing Agreement and the Amended Marketing Agreement, 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.” (UMF 14.) c. GPB alleges one instance 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 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 (sic) provide any such license agreement or other arrangement to GPB.” (UMF 15.) GPB alleges that each of the alleged misrepresentations was made prior to the formation of the JMA and the AMA. However, each alleged statement was actually subsequently incorporated into those agreements. As such, each of the aforementioned representations was superseded by the integration clauses in the JMA and AMA. Ultimately, any breach based on the alleged misrepresentations is therefore a breach of the agreement that governs them, i.e., the JMA and/or the AMA. Accordingly, the economic loss rule bars GPB’s Third Cause of Action for Fraud because GPB has not identified an independent duty from outside of the agreements that was violated. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., supra, 117 F.Supp.3d at 1104. Further, California courts have granted motions for summary adjudication in instances where “[t]he claim is merely a breach of contract claim dressed in the language of fraud.” Unterberger v. Red Bull North America, Inc. (2008) 162 Cal.App.4th 414, 423. The Court should grant BillFloat’s Motion as to the Third Cause of Action on the basis that the economic loss rule bars GPB’s cause of action for fraud. B. The undisputed facts demonstrate that the Plaintiff is unable to prove fraud. The Plaintiff must assert the following elements in order to claim a cause of action for fraud: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or “scienter”); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Small v. Fritz Companies, Inc. (2003) 30 Cal 4th 167, 173-74. In this case, the undisputed evidence demonstrates that GPB will not be able to meet its burden. 5 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP a. The undisputed facts demonstrate that BillFloat made no misrepresentations to GPB. When a plaintiff sues a corporate defendant for fraud, California courts have held that the plaintiff must expressly specify the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when aid or written. Archuleta v. Grand Lodge etc. of Machinists (1968) 262 Cal.App.2d 202, 208-209; UMG Recordings, Inc. v. Global Eagle Entertainment, Inc. (C.D. Cal. 2015) 117 F.Supp.3d 1092, 1108. According to GPB’s allegations in the Complaint, GPB identified Mr. Gilbert and Mr. it was O’Malley as the only individuals who made the alleged fraudulent misrepresentations. Since GPB only identified Mr. Gilbert and Mr. O’Malley in the Complaint, the following sections will address the allegations asserted against BillFloat as alleged against Mr. Gilbert and Mr. O'Malley. i. Mr. Gilbert made no misrepresentations to the Plaintiff. Mr. Gilbert states in his declaration that he did not make any of the aforementioned representations to GPB. (UMF 25 — 33: Gilbert Decl., §§ 4 — 12.) Additionally, he explains that he was not extensively involved in the negotiation of the terms of the License Agreement, the JMA or the AMA (collectively the “Agreements”). Although Mr. Gilbert was copied on e-mail communications during the course of the negotiations between the Parties leading up to the execution of the Agreements, his direct communications with GPB concerning the negotiation of any specific term or condition was limited. (Gilbert Decl. at § 3.) More specifically, Mr. Gilbert did not serve as BillFloat’s lead representative in any phone conferences or in-person meetings with GPB with respect to the negotiation of specific terms and conditions of the Agreements. Additionally, he did not prepare any correspondence sent to GPB that attempted to articulate or advance BillFloat’s position concerning specific terms or conditions under consideration by the Parties. (/d.) In any event, any statement made by Mr. Gilbert during the negotiation of the Agreements was made with the expectation that BillFloat would perform in a manner consistent with the Agreements. (/d.) GPB has no evidence otherwise. ii. Mr. O’Malley made no misrepresentations to the Plaintiff. Although Mr. O’Malley had some involvement in the negotiation of the terms of the Agreements, he did not make any misrepresentations to GPB. Specifically, Mr. O’Malley denies that he made any of the alleged statements GPB attributes to him in its Complaint, detailed above. 6 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP w a (UMF 16 - 24; O'Malley Decl., §§ 13 — 21.) During these negotiations, Mr. O’Malley’s goal, and the goal of BillFloat, was to reach agreement on terms and conditions that were mutually acceptable to both Parties. (O’Malley Decl.,§ 12.) Any statements that were made by Mr. O'Malley during these negotiations were backed by his belief and expectation that BillFloat would perform in a manner consistent with the agreements, including, but not limited to, the terms and conditions pertaining to such things as ownership of intellectual property, appropriate charges to GPB, sharing of improvement costs for the Joint IP (as defined in the agreements), the issuance and reconciliation of Joint IP SOWs (as defined in the agreements), referral of business to GPB, and the delivery of accurate reports to GPB regarding the volume of loan referrals to and fee income from other lenders. (/d.) Further, since the time the Agreements were executed, BillFloat has in fact performed in a manner consistent with the terms of the Agreements. (/d.) GPB has no evidence otherwise. b. The undisputed facts demonstrate that BillFloat had no knowledge of Moreover, GPB cannot establish Mr. Gilbert and Mr. O’ Malley had any knowledge of any alleged statement’s falsity. Lazar v. Superior Ct., (1996) 12 Cal.4th 631,638. As discussed above, Mr. Gilbert did not make any misrepresentations or have any knowledge of falsity of any alleged misrepresentations. (UMF 25 — 33; Gilbert Decl., §§ 4 — 12.) Additionally, Mr. O’Malley did not make any misrepresentations or have any knowledge of falsity of any alleged misrepresentation. (UMF 16 — 24; O’Malley Decl., JJ 13 — 21.) With respect to GPB’s contractual allegations after the execution of the AMA, again GPB has presented no evidence that BillFloat overbilled GPB regarding operating costs. By contrast, the evidence demonstrates the expenses were subject to a lengthy reconciliation process, which required substantial input by GPB. (UMF 36 — 40; Singer Decl., §§ 6 — 22.) The undisputed evidence shows that GPB is unable to meet its burden with respect to the allegations against Mr. Gilbert. c The undisputed facts demonstrate that there was no intent to defraud GPB. The third element of a promissory fraud claim is intent not to perform at the time the promise was made and intent to deceive or induce the promisee to enter into a transaction. Small v. Fritz Companies, Inc., supra, 30 Cal.4th at 173. California courts have held that “something more than nonperformance is required to prove the defendant’s intent not to perform his promise.” Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30; People v. Ashley (1954) 42 Cal.2d 246, 263; Jacobson v. Mead (1936) 12 Cal.App.2d 75, 82. 7 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a GPB has no evidence that Mr. Gilbert or Mr. O’Malley had the requisite intent not to perform or the intent to defraud GPB at the time the alleged misrepresentations were made. GPB attempts to rely solely on the alleged nonperformance of BillFloat to prove intent. However, this approach fails as a matter of law. See Tenzer, supra, 39 Cal.3d at 30-31. In response to various discovery requests requesting GPB to state all facts supporting its contentions with respect to specific allegations contained in GPB’s Complaint that Mr. O’Malley and Mr. Gilbert “had knowledge of the falsity of their representations with the intent to defraud and/or induce reliance,” GPB has either entirely failed to identify any facts demonstrating intent or instead alleged that the Defendants’ actions constitute breach of contract. (Declaration of Jennifer D. Su, § 2, Ex. 14, Special Interrogatory No. 154 (herein “Special Interrogatory No. __.”); Special Interrogatory No. 160; Special Interrogatory No. 166; Special Interrogatory No. 172.) For example, in response to Special Interrogatory number 172, GPB alleges that Mr. Gilbert and Mr. O’Malley concealed BillFloat’s license agreements and loan referrals to other lenders starting in June 2015, which is 11 months after the AMA was executed. (Special Interrogatory No. 172.) This evidence demonstrates that GPB admits that the Defendants intended to perform their alleged promises and actually did in fact perform those promises for nearly a year. At best, this entitles GPB to maintain a breach of contract action, but not a cause of action for fraud. And, in fact, GPB has included a cause of action for breach of contract, so GPB is adequately protected in that regard. In other words, BillFloat does not allege in this Motion that GPB is not entitled to relief for any alleged breach of these contractual provisions — just that it is not entitled to any damages for fraud. Another example is GPB’s response to Special Interrogatory number 160, which asks GPB to state all facts supporting the contention in paragraph 45(b) that Mr. Gilbert and Mr. O'Malley had knowledge of the falsity of operating costs unrelated to the joint technology with the intent to defraud. In response, GPB cites a letter sent by GBP to BillFloat nearly 7 months after the AMA was executed. (Special Interrogatory No. 160.) The letter simply requests a more detailed account of shared expenses supporting the Joint IP SOWs i.e. a request regarding performance of the contract. (/d.) However, GPB’s response ignores the lengthy reconciliation process the parties previously went through with other Joint IP SOWs. (Singer Decl., §§ 6 — 22.) The letter simply does not evidence any intent to defraud. 8 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a GPB is unable to produce any evidence demonstrating the Defendants intended not to perform a promise at the time it was made or that the Defendants intended to defraud GPB. Moreover, allegations of BillFloat’s nonperformance are insufficient as a matter of law. Tenzer, supra, 39 Cal.3d at 30-31. In any event, the evidence shows that BillFloat performed the terms of the contracts. GPB admits that from November 2014 to May 2015, GPB funded an average of more than sixteen SBA 7(a) loans per month, totaling over $1.3 million in funding each month. (Special Interrogatory No. 151.) Additionally, GPB admitted in its Complaint that BillFloat provided GPB with “access to contractually required information to determine funding volume and fees received from third party lenders” until June 2015. (Request for Judicial Notice, Att. A, Complaint, § 38(a) (herein “Complaint, § __.”).) Further, BillFloat delivered returns on licensing and referral fees from third party lenders up until December 2014, five months after the AMA was executed. /d. Lastly, GPB and BillFloat engaged in a collaborative reconciliation process regarding the Joint IP SOW statements, wherein GBP negotiated and agreed to what operating costs they would pay. (Singer, Decl., JJ 6 — 22.) The evidence demonstrates that BillFloat, Mr. Gilbert, and Mr. O’Malley intended to perform on their alleged promises and did actually perform. Accordingly, GPB cannot show any evidence of any intent not to perform or intent to defraud as a matter of law. d. GPB has provided no evidence supporting the element of justifiable reliance. “Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff's conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction.” Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239. California courts have held that the issue of whether reliance is justifiable can be one of law, not fact “‘if reasonable minds can come to only one conclusion based on the facts.”” Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1194-95, as modified on denial of reh’g (Aug. 13, 2014); Alliance Mortgage Co. v. Rothwell (1995) 10 Cal Ath 1226, 1239. In those instances, “summary judgment or summary adjudication is an appropriate vehicle.” Id. at 1195. Importantly, the contracts in question had a merger clause. In the context of contract negotiations, California courts have held that “[t]here cannot be justifiable reliance on precontractual representations when there is a merger clause in the contract.” DeKellis v. 9 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a Microbilt Corp. (9th Cir. 1997) 131 F.3d 146. In DeKellis, the court held that summary judgment was appropriate against the appellants’ fraud claim because the written agreement contained a broad merger clause and the appellants produced no other evidence as to the element of justifiable reliance. Jd. In that case, the court rejected the appellants’ argument that “merger clauses bar only precontractual representations that vary from the terms of the agreement.” Id. In this case, both the JMA and the AMA both contain merger clauses. The JMA states in part as follows: 13. Entire Agreement This Agreement constitutes the entire agreement between the Parties with respect to the Joint IP, and supersedes all other prior and contemporary agreements, understandings, and commitments between the Parties regarding the subject matter of this Agreement. . . . (UMF 43; Singer Decl., Ex. 2, JMA,§ 13, p. 8). An identical provision is incorporated in the AMA as well. (UMF 43; Singer Decl., Ex. 3, AMA, § 21, p. 14.) Therefore, in light of the merger clause contained in both agreements, the Court should find, consistent with the holding in DeKellis, supra, that GPB is unable to prove justifiable reliance. e The undisputed facts demonstrate that GPB is not entitled to any damages for fi “Tn fraud, the pleading must show a cause and effect relationship between the fraud and damages sought; otherwise no cause of action is stated.” Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508, 518. In order to establish the causal relationship, the plaintiff must “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.” Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1499, as modified on denial of reh'g (Sept. 26, 2013). Here, there is no evidence of a causal relationship between any alleged misrepresentation and GPB’s claimed damages of $3,000,000. (UMF 44; Complaint § 50.) As discussed above, Mr. Gilbert was not involved in negotiations and therefore, did not engage in any representation, much less misrepresentation to GPB. As such, no causal relationship can exist between Mr. Gilbert and the alleged damages. Further, there is no evidence that Mr. O’Malley made any misrepresentations to GPB. In fact, according to the evidence, Mr. O’ Malley actually performed his alleged promises, thus negating the existence of any intent not to perform at the time the alleged promises were made, and also negating any intent to deceive or induce the promisee to 10 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a enter into a transaction. If there were any issues with performance after the JMA and AMA were executed and after the time period in which Mr. O’ Malley performed, they could not be linked to any alleged misrepresentation. Any issues are more appropriately addressed by GPB’s breach of contract claim. GPB is unable to prove the elements of a claim for fraud as a matter of law and therefore BillFloat’s Motion should be granted. f. Fraud: Conclusion BillFloat’s Motion as to the Third Cause of Action should be granted because GPB has failed to meet its burden. First, the economic loss rule bars GPB’s Third Cause of Action for Fraud because GPB has not identified an independent duty from outside of the agreements that was violated. UMG Recordings, Inc. v. Global Eagle Entertainment, Inc., supra, 117 F.Supp.3d at 1104. Second, GPB is not able to prove the elements of a claim for fraud as a matter of law because: (1) neither Mr. Gilbert nor Mr. O’Malley made any misrepresentations to GPB; (2) neither Mr. Gilbert nor Mr. O’Malley had any knowledge of the alleged falsity of their alleged misrepresentations; (3) GPB is unable to provide any facts demonstrating that BillFloat had any intent to defraud GPB; (4) GPB has provided no evidence supporting the element of justifiable reliance; and (5) the undisputed facts demonstrate that GPB is not entitled to any damages. Il. Fifth Cause of Action: Misappropriation of Trade Secrets A claim for misappropriation of trade secrets is a statutory cause of action arising from the Uniform Trade Secrets Act, California Civil Code section 3426, et seq. The elements of a misappropriation of trade secrets cause of action are as follows: “(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; Cadence Design Systems, Inc. v. AvantA Corp. (2002) 29 Cal.4th 215, 221-22; Civil Code § 3426.1(b). As set forth below, GPB will not be able to prove (1) that GPB owns clearly identified trade secrets, (2) that BillFloat misappropriated any alleged trade secrets or (3) any resulting damages. A. GPB has not established that it owns clearly identified trade secrets. A trade secret is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are 1 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a reasonable under the circumstances to maintain its secrecy.” California Civil Code section 3426.1(d); DVD Copy Control Ass’n, Inc. v. Bunner (2003) 31 Cal Ath 864, 874. California courts require that “a party seeking to protect trade secrets [] ‘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 defendant to ascertain at least the boundaries within which the secret lies.’” Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1453 (emphasis in original). The party must identify the allegedly misappropriated trade secret(s) with “reasonable particularity.” California Code of Civil Procedure section 2019.210. However, reasonable particularity “does not mean that the party alleging misappropriation has to define every minute detail of its claimed trade secret at the outset of the litigation. . . . Rather, it means that the plaintiff must make some showing that is reasonable, i.c., fair, proper, just and rational [Citations], under all of the circumstances to identify its alleged trade secret in a manner that will allow the trial court to control the scope of subsequent discovery, protect all parties’ proprietary information, and allow them a fair opportunity to prepare and present their best case or defense at a trial on the merits.” Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826, 835-836. In Scout v. Snelling and Snelling, Inc. (N.D. Cal. 1990) 732 F.Supp. 1034, the court found that business forms and procedures were not trade secrets. The plaintiff “produced declarations that demonstrate that the forms and procedures are widely used in the industry.” However, the defendant did not produce any evidence to support its contention in order to generate a triable issue of fact. The court found that the defendant did not carry “its burden necessary to survive summary judgment on the issue whether its business forms and procedures ‘derive [] independent economic value,’ Cal.Civ.Code § 3426.1(d)(1), since such non-exclusivity of information mitigates strongly against finding the existence of a trade secret. [Citation.]” Jd. at 1045. Similarly, in Agency Solutions.Com, LLC v. TriZetto Group, Inc. (E.D. Cal. 2011) 819 F.Supp.2d 1001, the parties entered into an agreement to jointly develop a software program “to provide [health insurance] payers and brokers a complete end-to-end solution for sales and service processes, including prospecting, rating and quoting, underwriting, enrollment, billing, membership and customer service.” /d. at 1006. The court found that what the plaintiff alleged as a trade secret “regarding underwriting is more along the lines of ‘this is the way we do it’ information.” Jd. at 1022 (emphasis original). In that case, the court held that the alleged trade secrets were, in fact, not trade secrets. Id. 12 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a GPB’s cause of action for misappropriation of trade secrets is based on GPB’s business as a lending bank, including assessment of loan applications, SBA lending operations, and compliance with applicable rules and regulations. (UMF 46.) On February 17, 2016, GPB provided its trade secrets disclosure pursuant to California Code of Civil Procedure section 2019.210 (the “Disclosure”). (Ex. X, GPB’s Trade Secret Disclosure submitted under seal.) BillFloat denies that it misappropriated any of the alleged trade secrets set forth in the Disclosure. (UMF 48 — 61.) GPB claims that its underwriting criteria, including its “unique combinations” and “unique weighting of the criteria,” constitute trade secrets because “they had actual or potential independent economic value because they were secret and GOLDEN PACIFIC BANK made reasonable efforts to keep the information secret.” (Complaint, § 58.) However, the underwriting processes are not unique and are used widely in the lending industry. (UMF 47. Further, the requirements and procedures governing the SBA 7(a) Loan Program, including but not limited to the Program’s underwriting standards, are matters of public record. (/d.) As with health insurance underwriting processes, loan underwriting processes “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.” AgencySolutions.Com, supra, 819 FSupp.2d at 1022. In any event, loan underwriting processes appear “to involve information that is very likely to be in the nature of information generally known to other persons skilled in the same field and therefore not trade secrets.” Id. Different banks may weight certain factors such as credit scores differently, but they use the same quantum of information. Stated another way, each lender “handles the same core information their own way.” The Court should find that GPB has failed to identify any specific trade secret information. However, even if GPB somehow met its burden to identify a legally cognizable trade secret, the Court should find that GPB has not met its burden of demonstrating that BillFloat misappropriated any alleged trade secret information. B. GPB does not establish misappropriation, i.e., BillFloat has not inappropriately used, disclosed or disseminated the alleged trade secret information. GPB has taken extensive discovery. BillFloat has produced 22,298 total records totaling 75,923 pages. (Su Decl..§ 3.) In addition, BillFloat has responded to numerous discovery requests, including 497 special interrogatories, 282 inspection demands, and form interrogatories. (Id.) GPB has not shown any evidence tending to demonstrate that BillFloat or any of its 13 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION(415) 277-7200 WEBB LEGAL GROUP 155 Montgomer w a representatives, employees, or agents, used or had the opportunity to use any such information or disclosed any such information to a third party lender or anyone else. (UMF 48 — 61; Singer Decl., § 25; Gilbert Decl.,§ 13; O’Malley Decl.,§ 22.) Further, any disclosure of the Joint Technology was authorized by the JMA and the AMA. (UMF 53, 62 — 63; Singer Decl., § 26.) There is no evidence in the record to support GPB’s claim that BillFloat misappropriated any alleged trade secret information. Therefore, the Court should find that GPB has failed to meet its burden of demonstrating that BillFloat misappropriated any trade secret information. Therefore, the Court should grant BillFloat’s motion for summary adjudication as to this cause of action. Cc GPB does not demonstrate resulting damage. In order to state an actionable claim for misappropriation of trade secrets, GPB must show that the alleged misappropriation caused damage. GPB has alleged damages for the alleged misappropriation of trade secrets, but has not supported its claim with actual evidence in the record. (UMF 64.) The undisputed evidence shows that GPB has not demonstrated that BillFloat misappropriated any alleged trade secret information. Accordingly, the Court should find that BillFloat’s Motion is granted as to the Fifth Cause of Action. CONCLUSION For the foregoing reasons, the Court should grant BillFloat’s Motion for Summary Adjudication as to the Third and Fifth Causes of Action. The Motion should be granted as to the Third Cause of Action for fraud because GPB’s claim barred by California’s Economic Loss Rule. Further, the undisputed facts demonstrate that GPB is unable to allege a viable claim for fraud because neither Mr. Gilbert nor Mr. O’ Malley made any misrepresentations to GPB. There is no evidence that either Mr. Gilbert or Mr. O’Malley had any knowledge of the falsity of their alleged representations with the intent to defraud and/or induce reliance. The Motion should be granted as to the Fifth Cause of Action for misappropriation of trade secrets because the undisputed evidence shows that GPB has no evidence that BillFloat misappropriated any alleged trade secret information. Date: April 27, 2017 be WALITAMEAVEBB #193832 JENIFER D. SU #291603 14 BILLFLOAT, INC.*S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION