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1 Shayna Balch Santiago (SBN 304802)
E-Mail: ssantiago@fisherphillips.com
2 FISHER & PHILLIPS LLP
3200 N. Central Avenue, Suite 1550
3 Phoenix, Arizona 85012-2487
Telephone: (602) 281-3400
4 Facsimile: (602) 281-3401
5 Kathryn M. Evans (SBN 323190)
E-Mail: kmevans@fisherphillips.com
6 FISHER & PHILLIPS LLP
4747 Executive Drive, Suite 1000
7 San Diego, California 92121
Telephone: (858) 597-9600
8 Facsimile: (858) 597-9601
9 Attorneys for Defendants,
UCOMMG, LLC; Unified Communications Group, Inc.;
10 Kenneth W. Newbatt; Bianca Newbatt; Mitchell C.
Lipkin; Michael J. Bellas; Jimmie Garrett Baker, Jr.;
11 WesTele Utility Solutions, LLC; and Cynthia Baker
12 SUPERIOR COURT OF THE STATE OF CALIFORNIA
13 FOR THE COUNTY OF SANTA BARBARA - ANACAPA DIVISION
14 BUTLER AMERICA, LLC, a Delaware CASE NO.: 20CV03877
limited liability company, [Unlimited Jurisdiction]
15
Plaintiff, Assigned for all purposes to the
16 Honorable Donna D. Geck, Dept. 4
v.
17 MEMORANDUM OF POINTS AND
UCOMMG, LLC, a Nevada limited liability AUTHORITIES IN SUPPORT OF
18 company; UNIFIED COMMUNICATIONS DEFENDANTS’ MOTION FOR
GROUP, INC., a dissolved Washington SANCTIONS PURSUANT TO CODE OF
19 corporation; KENNETH W. NEWBATT, an CIVIL PROCEDURE SECTIONS 128.7
individual; BIANCA NEWBATT, an
20 individual; MITCHELL C. LIPKIN, an [Filed concurrently with Notice of Motion;
individual; MICHAEL J. BELLAS, an Declaration of Shayna Balch Santiago; and
21 individual; JIMMIE GARRETT BAKER, JR., [Proposed] Order]
an individual; WESTELE UTILITY
22 SOLUTIONS, LLC, a California limited DATE: June 10, 2022
liability company; and DOES 1 through 50, TIME: 10:00 a.m.
23 inclusive, DEPT.: 4
24 Defendants. Complaint Filed: November 20, 2020
Removal Filed: January 4, 2021
25 FAC Filed: April 16, 2021
SAC Filed: December 3, 2021
26 Trial Date: Not Set
27
28
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 TABLE OF CONTENTS
2 I. INTRODUCTION ............................................................................................................1
3 II. STATEMENT OF FACTS ...............................................................................................3
4 A. Procedural Background .........................................................................................3
5 B. Defendants Were Forced to Incur Fees by Filing Two Motions to Dismiss
in Federal Court ....................................................................................................4
6
C. Defendants Were Forced to Incur Fees by Filing A Demurrer and a Motion
7 to Quash Service of Summons in State Court.......................................................5
8 D. Plaintiff Improperly Filed its SAC and Admitted It Cannot Sustain a Trade
Secret Cause of Action Against Defendants .........................................................5
9
E. Defendants Were Forced to Incur Fees By Filing a Second Demurrer in
10 State Court ............................................................................................................6
11 F. Plaintiff Has Consistently Refused to Comply With Its Obligation under
Code of Civil Procedure section 2019.210 ...........................................................6
12
III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO
13 WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING .................7
14 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS .............7
15 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE
SANCTIONS ON PLAINTIFF AND ITS COUNSEL ....................................................9
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A. Plaintiff’s Re-Assertion of Preempted Claims It Previously Dismissed
17 Subjects Plaintiff to Sanctions ..............................................................................9
18 B. Plaintiff’s Argument that Its Common Law Causes of Action Are Not
Preempted by the CUTSA Is Legally Frivolous .................................................10
19
C. Plaintiff Filed Its SAC Despite Knowing No Personal Jurisdiction Exists
20 Over the Nonresident Defendants .......................................................................11
21 D. The SAC Contains False or Misleading Statements ...........................................13
22 E. Plaintiff and Its Attorneys Knew When They Filed the Complaint That It
Lacked Any Factual Support for Plaintiff’s Claims Against Defendants ...........14
23
VI. CONCLUSION ...............................................................................................................15
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1
TABLE OF CONTENTS
FP 43390447.1
1 TABLE OF AUTHORITIES
2 Page(s)
3 Federal Cases
4 Artec Grp., Inc. v. Klimov,
No. 15-CV-03449, 2016 WL 7157635 (N.D. Cal. Dec. 8, 2016), amended,
5 No. 15-CV-03449, 2016 WL 8223346 (N.D. Cal. Dec. 22, 2016) ....................................... 11
6 Barker v. Insight Global, LLC,
(N.D. Cal. Nov. 21, 2017) 2017 WL 10504692 ................................................................... 11
7
California Arch. Building Prods., Inc. v. Franciscan Ceramics, Inc.,
8 (9th Cir. 1987) 818 F.2d 1466 .............................................................................................. 15
9 Hamer v. Career College Association,
(9th Cir. 1992) 979 F.2d 758 ................................................................................................ 12
10
Heller v. Cepia, L.L.C.,
11 (N.D. Cal. Jan. 4, 2012) 11-01146, 2012 WL 13572 ............................................................ 11
12 Heller v. Cepia L.L.C.,
(9th Cir. 2014) 560 Fed.Appx. 678 ....................................................................................... 13
13
Holgate v. Baldwin,
14 (9th Cir. 2005) 425 F.3d 671, 676.) ...................................................................................... 14
15 Jones v. Campbell University,
(D.D.C. 2018) 322 F.Supp.3d 106 ........................................................................................ 12
16
King v. Idaho Funeral Services, Ass’n,
17 (9th Cir. 1988) 862 F.2d 744 ................................................................................................ 15
18 Lipkin v. Hunt,
(S.D.N.Y. 2008) 573 F.Supp.2d 836..................................................................................... 12
19
Loop AI Labs Inc. v. Gatti,
20 (N.D. Cal. Sept. 2, 2015) No. 15-CV-00798, 2015 WL 5158461 ........................................ 11
21 Love v. The Mail on Sunday,
(C.D. Cal. July 13, 2006) No. CV05-7798ABCPJWX, 2006 WL 4046169 ........................ 12
22
Manuel v. Lucenti,
23 (N.D. Ill. Nov. 10, 2004)....................................................................................................... 14
24 Mattel, Inc. v. MGA Entm’t, Inc.,
(C.D. Cal. Jan. 5, 2011) 782 F.Supp.2d 911 ......................................................................... 11
25
NetApp, Inc. v. Nimble Storage, Inc.,
26 (N.D. Cal. 2014) 41 F.Supp.3d 816 ...................................................................................... 11
27 Strategic Partners, Inc. v. FIGS, Inc.,
(C.D. Cal. Aug. 10, 2021) No. 2:19-cv-02286-JWH-KSx, 2021 WL 4813645 ................... 11
28
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TABLE OF AUTHORITIES
FP 43390447.1
1 SunPower Corp. v. SolarCity Corp.,
(N.D. Cal. Dec. 11, 2012) No. 12-CV-00694, 2012 WL 6160472 ....................................... 11
2
Total Recall Techs. v. Luckey,
3 (N.D. Cal. Jan. 16, 2016) No. C 15-02281, 2016 WL 199796 ............................................. 11
4 Truesdell v. S. Cal. Permanente Med. Grp.
(9th Cir. 2002) 293 F.3d 1146 .............................................................................................. 13
5
Warren v. Guelker,
6 (9th Cir. 1994) 29 F.3d 1386 ................................................................................................ 13
7 State Cases
8 Auto Equity Sales, Inc. v. Superior Court
(1962) 57 Cal.2d 450 ............................................................................................................ 11
9
Bockrath v. Aldrich Chemical Co.
10 (1999) 21 Cal.4th 71 ............................................................................................................... 8
11 Bucur v. Ahmad
(2016) 244 Cal.App.4th 175 ............................................................................................... 8, 9
12
Guillemin v. Stein
13 (2002) 104 Cal.App.4th 156 ................................................................................................... 8
14 KC Multimedia, Inc. v. Bank of America Tech. & Operations, Inc.
(2009) 171 Cal.App.4th 939 ................................................................................................. 10
15
Kwikset Corp. v. Super. Ct.
16 (2011) 51 Cal.4th 310 ........................................................................................................... 11
17 Musaelian v. Adams
(2009) 45 Cal.4th 512 ............................................................................................................. 8
18
Peake v. Underwood
19 (2014) 227 Cal.App.4th 428 ......................................................................................... 7, 9, 10
20 Perlan v. Therapeutics, Inc. v. Superior Court
(2009) 178 Cal.App.4th 1333 ................................................................................................. 6
21
Silvaco Data Sys. v. Intel Corp.
22 (2010) 184 Cal.App.4th 210 ................................................................................................. 11
23 State Statutes
24 California Code of Civil Procedure § 128.7 ............................................... 2, 3, 7, 8, 9, 10, 13, 14
25 California Code of Civil Procedure § 128.7 (b)(3) ..................................................................... 13
26 California Code of Civil Procedure § 128.7 (b) ............................................................................ 8
27 California Code of Civil Procedure § 128.7 (b)-(c) .................................................................... 14
28 California Code of Civil Procedure § 128.7 (c)(1) ....................................................................... 7
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FP 43390447.1
1 California Code of Civil Procedure § 2019 .................................................................................. 6
2 California Code of Civil Procedure § 2019.210 ....................................................................... 2, 6
3 California Uniform Trade Secrets Act .................................................................. 1, 2, 4, 6, 10, 11
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FP 43390447.1
1 I. INTRODUCTION
2 Plaintiff Butler America, LLC filed this lawsuit seeking to litigate legally and factually
3 frivolous claims in the incorrect forum and under inapplicable law for no other reason than to try
4 to bully a competitor out of business. Fortunately, the law permits free and fair competition—
5 even by former employees. Unable to accept this fact, Plaintiff filed a frivolous trade secret
6 misappropriation lawsuit against eight different Defendants – UCOMMG, LLC; Unified
7 Communications Group, Inc.; WesTele Utility Solutions, LLC; Kenneth Newbatt; Bianca
8 Newbatt; Mitchell Lipkin; Michael Bellas; and Cindy Baker (collectively “Defendants”).1
9 Presently, after multiple attempts to amend, Plaintiff is still unable to properly assert any
10 of its causes of action against Defendants and unable to assert personal jurisdiction over six of
11 the Defendants—UCOMMG, Unified Communications, Kenneth Newbatt; Bianca Newbatt;
12 Mitchell Lipkin; and Michael Bellas—all of whom are residents of states other than California
13 and have little to no connection to California (collectively the “Nonresident Defendants”). Along
14 the way, Plaintiff has forced Defendants to incur substantial fees by filing five separate motions
15 to address Plaintiff’s pleading deficiencies.
16 Throughout the history of this case, Butler has maintained three versions of its complaint.
17 The original Complaint, First Amended Complaint (“FAC”), and Second Amended Complaint
18 (“SAC”). The original Complaint included causes of action for alleged trade secrets violations as
19 well as claims for common law violation of trade secrets, conversion, intentional interference
20 with contractual relations, intentional interference with prospective economic advantage, and
21 unfair business practices (collectively “non-contract claims”). Defendant’s filed a motion to
22 dismiss the original Complaint, in part, based on the preemption by the California Uniform Trade
23
24
1
Plaintiff also named Jimmie Garrett Baker, Jr. in its Complaint and FAC despite Mr. Baker signing an arbitration
25 agreement as a condition of his employment with Plaintiff. Incredibly, Plaintiff refused to honor its own arbitration
agreement and forced Defendants to incur fees by filing a motion to compel arbitration in federal court. It was only
26 after remand that Plaintiff finally stipulated to binding arbitration for its claims involving Mr. Baker. Even after
stipulating to arbitration, Plaintiff filed its SAC which continues to name Mr. Baker in the caption, identifies Mr.
27 Baker in the “Parties” section, references Mr. Baker multiple times throughout the body of the SAC, and alleges
causes of action five through eight against “all Defendants” - which presumably includes Mr. Baker as he is still
28 named in the caption.
1
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 Secrets Act (“CUTSA”) of the non-contract claims. In response, Plaintiff filed its FAC, which
2 removed causes of action for conversion and intentional interference with contractual relations.
3 Defendants filed another motion to dismiss the FAC, in part, based on Plaintiff’s failure to plead
4 sufficient facts for a trade secret claim.2 In response, Plaintiff filed its SAC, which removed its
5 trade secret claim and re-added its previously dismissed causes of action for conversion and
6 intentional interference with contractual relations. Defendants filed another demurrer to the SAC
7 alleging that each of the non-contract claims continue to be preempted by the CUTSA and
8 Plaintiff failed to allege facts to support its breach of contract causes of action. This demurrer is
9 currently pending before the Court.
10 Tellingly, a year into this litigation and only after Defendants were forced to file the three
11 above referenced motions to dismiss/demurrers and a section 128.7 sanctions motion did Plaintiff
12 finally abandon its frivolous trade secret cause of action—which was previously the crux of its
13 lawsuit. Indeed, Plaintiff has now explicitly admitted in writing that it withdrew its trade secret
14 claim because “Plaintiff concluded that it could not properly allege any trade secrets based on
15 the facts and the CUTSA.” (Declaration of Shayna Balch Santiago (“Santiago Decl.”) ¶ 15, Ex.
16 I.) Nonetheless, Plaintiff refused to dismiss the remaining causes of action, each of which are
17 based on the same faulty nucleus of fact as Plaintiff’s former trade secret cause of action.
18 Accordingly, Plaintiff’s SAC continues to suffer from the same exact deficiencies that were
19 present in Plaintiff’s original Complaint and FAC.
20 Namely, Plaintiff’s SAC still fails to allege any factual allegations sufficient to show
21 California has jurisdiction over any of the Nonresident Defendants. Plaintiff’s SAC still fails to
22 allege the requisite level of facts to properly plead any cause of action against all the Defendants,
23 presumably because no such facts exist. And most importantly, all of Plaintiff’s non-contract
24 causes of action3 continue to be preempted by the CUTSA.
25
26 2
Defendants were forced to file other, additional motions based, in part, on Plaintiff’s faulty trade secret claim,
including a motion for terminating sanctions or, in the alternative, motion for protective order based on Plaintiff’s
27 refusal to provide its trade secret disclosures pursuant to Code of Civil Procedure section 2019.210, a motion for
Rule 11 sanctions in federal court, and a previously filed motion for sanctions pursuant to section 128.7.
28 3
Importantly, Plaintiff’s breach of contract and breach of implied covenant of good faith and fair dealing causes of
2
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 Plaintiff’s failure to correct the numerous deficiencies contained within its SAC can lead
2 the Court to only one conclusion – that Plaintiff either failed to conduct a proper investigation or
3 knowingly brought (and maintained) this suit against Defendants without evidence to support its
4 claims. Plaintiff has continued to vexatiously pursue litigation against the Defendants. This Court
5 should not tolerate Plaintiff’s behavior and, accordingly, Defendants move the Court for an order
6 imposing sanctions on Plaintiff Butler America, LLC and its attorneys of record, Chora Young
7 & Manasserian, on the grounds that they violated Code of Civil Procedure section 128.7. These
8 sanctions are also warranted to deter Plaintiff and its counsel from engaging in similar conduct
9 in the future.
10 II. STATEMENT OF FACTS
11 A. Procedural Background
12 Plaintiff filed its original Complaint against Defendants in the Santa Barbara Superior
13 Court on November 20, 2020, alleging causes of action for (1) Breach of Contract; (2) Breach of
14 Implied Covenant of Good Faith and Fair Dealing; (3) Misappropriation of Trade Secrets (Civil
15 Code § 3426 et seq.); (4) Misappropriation of Trade Secrets (Common Law); (5) Conversion; (6)
16 Intentional Interference with Contractual Relations; (7) Intentional Interference with Prospective
17 Economic Advantage; and (8) Unfair Business Practices.
18 Defendants timely removed the action to this Court on January 4, 2021 on the basis of
19 diversity and fraudulent joinder. In support of the Notice of Removal, Defendants included
20 signed declarations from the Nonresident Defendants detailing that UCOMMG, Unified
21 Communications, Kenneth Newbatt, and Bianca Newbatt are residents of Washington, Mitchell
22 Lipkin is a resident of Minnesota, and Michael Bellas is a resident of North Carolina. (Santiago
23 Decl. ¶ 2, Ex. A.) Plaintiff did not oppose Defendants’ removal to federal court.
24 Defendants’ counsel alerted Plaintiff’s counsel to the jurisdictional issues regarding the
25 Nonresident Defendants, along with the other deficiencies in the Complaint, including Plaintiff’s
26
27
action are only alleged against Michael Bellas and Mitchell Lipkin and, as fully briefed in Defendants’ motion to
28 quash, this Court does not have jurisdiction over Mr. Bellas and Mr. Lipkin.
3
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 complete failure to allege sufficient facts to support its claims and the CUTSA’s preemption of
2 Plaintiff’s common law claims, during a phone call on January 13, 2021. (Santiago Decl. ¶ 3.)
3 Despite numerous further meet and confer efforts, Plaintiff declined to amend its Complaint and
4 Defendants were forced to file multiple motions to dismiss and/or demurrers.
5 B. Defendants Were Forced to Incur Fees by Filing Two Motions to Dismiss in
6 Federal Court
7 Defendants filed their first Motion to Dismiss on March 26, 2021. (Santiago Decl. ¶ 4,
8 Ex. B.) The Motion to Dismiss detailed the multiple reasons why Plaintiff’s Complaint was
9 deficient and subject to dismissal, including the lack of personal jurisdiction over the Nonresident
10 Defendants, the preemption of multiple causes of action by the CUTSA, and the complete lack
11 of factual support for its claims. As part of the Motion to Dismiss, Defendants submitted sworn
12 declarations from the Nonresident Defendants to establish that no personal jurisdiction exists
13 over those Defendants. (Santiago Decl. ¶ 5, Ex. C.)
14 Plaintiff failed to oppose Defendants’ Motion to Dismiss and instead filed its FAC on
15 April 16, 2021. (Santiago Decl. ¶ 6, Ex. D.) In tacit acknowledgment that the claims were
16 preempted by the CUTSA, the FAC removed Plaintiff’s causes of action for conversion and
17 intentional interference with contractual relations. But despite Defendants having fully briefed
18 (and previously described in meet and confer efforts) the numerous other deficiencies contained
19 in its Complaint, Plaintiff’s FAC continued to have the very same pleading deficiencies contained
20 in Plaintiff’s original Complaint.
21 The FAC added almost no additional factual allegations in support of its claim of personal
22 jurisdiction over the Nonresident Defendants, except for the allegations that Mr. Lipkin and Mr.
23 Bellas visited Plaintiff’s headquarters in California numerous times and that Mr. Lipkin and Mr.
24 Bellas serviced clients in California while employed by Plaintiff. (FAC ¶ 32.) As discussed
25 below, these additional pled statements are demonstrably false. The FAC also failed to correct
26 the other deficiencies raised in Defendants’ first Motion to Dismiss, including CUTSA’s
27 preemption of the common law causes of action and Plaintiff’s failure to plead specific and
28 plausible facts in support of its claims.
4
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 Defendants sent a meet and confer correspondence requesting Plaintiff amend its FAC to
2 correct these deficiencies on April 23, 2021. (Santiago Decl. ¶ 7. Ex. E.) Defense counsel
3 specifically noted that if Defendants were forced to file a second motion to dismiss, they would
4 seek sanctions from the Court. (Ibid.) Plaintiff did not respond to Defendants’ letter. (Ibid.)
5 Accordingly, Defendants were forced to file a second Motion to Dismiss on April 30, 2021.
6 (Santiago Decl. ¶ 8, Ex. F.) On August 3, 2021, the District Court remanded this matter to state
7 court and denied the Motion to Dismiss as moot.
8 C. Defendants Were Forced to Incur Fees by Filing A Demurrer and a Motion
9 to Quash Service of Summons in State Court
10 Defendants once again attempted to meet and confer with Plaintiff after the remand to
11 request that Plaintiff amend the Complaint to resolve the deficiencies identified in the Motions
12 to Dismiss. (Santiago Decl. ¶ 11, Ex. H.) Defendants specifically asked Plaintiff if it intended to
13 amend the FAC again and gave Plaintiff ample time to do so. (Ibid.) Plaintiff failed to
14 substantively respond to Defendants’ meet and confer efforts and failed to file any amended
15 Complaint. (Ibid.) Accordingly, Defendants filed their demurrer to the FAC and motion to quash
16 service of summons on September 22, 2021. (Ibid.)
17 D. Plaintiff Improperly Filed its SAC and Admitted It Cannot Sustain a Trade
18 Secret Cause of Action Against Defendants
19 Two months later, on the eve of its deadline to oppose Defendants’ demurrer and motion
20 to quash, Plaintiff improperly filed its SAC without seeking leave of court or agreement of
21 Defendants. (Santiago Decl. ¶ 13.) The improperly filed SAC does not add any additional factual
22 allegations. Instead, the only differences between the FAC and the SAC is (1) the removal of the
23 trade secrets cause of action; (2) the re-addition of conversion and intentional interference of
24 contractual relations causes of action that had previously been removed in the FAC; and (3) use
25 of the term “confidential information” in lieu of “trade secrets” throughout the SAC.
26 On December 3, 2021, this Court sustained Defendants’ demurrer to the FAC with leave to
27 amend and deemed the SAC as filed pursuant to that leave to amend. (Santiago Decl. ¶ 14.)
28 ///
5
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 On December 22, 2021, Plaintiff explicitly confirmed that it could not sustain a trade
2 secret cause of action against any of the Defendants. Specifically, Plaintiff sent Defendants
3 multiple correspondences in which it stated, “Plaintiff concluded that it could not properly allege
4 any trade secrets based on the facts and the CUTSA.” (Santiago Decl. ¶ 15, Ex. I.)
5 E. Defendants Were Forced to Incur Fees By Filing a Second Demurrer in State
6 Court
7 In December 2019, Defendants met and conferred with Plaintiff regarding the continued
8 deficiencies in the SAC, most importantly that binding case law is clear the CUTSA preempts
9 claims premised upon the misappropriation of non-trade secret information and, accordingly,
10 each of Plaintiff’s non-contract causes of action are preempted by the CUTSA. (Santiago Decl.
11 ¶ 16, Ex. J.) Plaintiff failed to substantively respond to Defendants’ correspondence. (Ibid.)
12 Accordingly, Defendants were forced, once again, to incur fees by filing a second demurrer in
13 state court—bringing the number of motions based on Plaintiff’s pleading deficiencies to five.
14 F. Plaintiff Has Consistently Refused to Comply With Its Obligation under
15 Code of Civil Procedure section 2019.210
16 In the context of a claim for misappropriation of trade secrets, section 2019.210 requires
17 an adequate trade secret disclosure before the plaintiff can pursue any discovery. (Code Civ.
18 Proc. § 2019.210.) As the Court of Appeal noted, “If [the plaintiff] does not know what its own
19 trade secrets are, ithas no basis for suggesting defendants misappropriated them.” (Perlan v.
20 Therapeutics, Inc. v. Superior Court (2009) 178 Cal.App.4th 1333, 1352.)
21 Plaintiff has refused to comply with its obligations under Code of Civil Procedure section
22 2019. Defendants have requested Plaintiff provide its trade secret at least a dozen times beginning
23 in March 2021. (See Defendants’ Motion for Terminating Sanctions, or int he alternative Motion
24 for Protective Order.) Nonetheless, Plaintiff has refused for the last year to provide its required
25 disclosure. Defendants can only assume that Plaintiff’s failure to provide its trade secret
26 disclosures is because Plaintiff failed to complete a proper investigation prior to filing this
27 baseless claim, and accordingly is unable to describe the alleged trade secrets and confidential
28 information at issue.
6
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO
2 WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING
3 California Code of Civil Procedure section 128.7(c)(1), provides that notice of a motion
4 for sanctions pursuant to Section 128.7 shall not be filed with or presented to the court unless,
5 within 21 days after the service of the motion, the challenged paper, claim, defense, contention,
6 allegation, or denial is not withdrawn or appropriately corrected. (See Peake v. Underwood
7 (2014) 227 Cal.App.4th 428, 441.)
8 Plaintiff and its counsel have been on notice regarding the lack of jurisdiction over the
9 Nonresident Defendants and other defects with its Complaint since at least January 2021. Instead
10 of correcting these issues, Plaintiff filed a largely identical FAC in April 2021 and SAC in
11 November 2021. Nevertheless, Defendants have provided more than the requisite “safe harbor”
12 time to Plaintiff and its counsel to withdraw its SAC.
13 First, Defendants served a Motion for Rule 11 Sanctions on July 2, 2021 while the matter
14 was still pending before the district court. (Santiago Decl. ¶ 10, Ex. H.) After the remand to state
15 court, Plaintiff was provided an additional 21-day safe harbor period to withdraw the FAC when
16 Defendants served their section 128.7 motion on October 26, 2021. (Santiago Decl. ¶ 12.) Instead
17 of withdrawing the FAC, Plaintiff improperly filed its SAC, which the Court deemed filed as of
18 December 3, 2021. (Santiago Decl. ¶¶ 13-14.) Although Defendants’ position is that the filing of
19 the SAC did not moot the then-pending section 128.7 motion, in an effort to avoid any procedural
20 arguments that the motion was moot and to address new issues now before the Court based on
21 Plaintiff’s re-filing of previously dismissed (and preempted) claims in the SAC, Defendants
22 provided a third safe-harbor period when they served the instant motion on March 1, 2022.
23 (Santiago Decl. ¶ 18.)
24 Accordingly, Plaintiff has been given months of time and multiple opportunities to
25 withdraw this baseless action, and Defendants continue to incur legal fees to preserve their rights.
26 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS
27 “Under … Code of Civil Procedure section 128.7 … there are basically three types of
28 submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally
7
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 frivolous (not warranted by existing law or a good faith argument for the extension, modification,
2 or reversal of existing law); and papers interposed for an improper purpose.” (Guillemin v.
3 Stein (2002) 104 Cal.App.4th 156, 167, emphasis added.) Section 128.7 “requires that parties
4 and their attorneys certify that pleadings or other written matters presented to the courts have
5 merit, ‘to the best of the person’s knowledge, information, and belief, formed after an inquiry
6 reasonable under the circumstances.’” (Musaelian v. Adams (2009) 45 Cal.4th 512, 516.) To
7 satisfy the obligation under Section 128.7 to conduct a reasonable inquiry to determine if his or
8 her client's claim was well-grounded in fact, the attorney must “take into account [the adverse
9 party's] evidence.” (Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 190.) “[F]ederal case law
10 construing Rule 11 [of the Federal Rules of Civil Procedure] is persuasive authority on the
11 meaning of section 128.7.” (Ibid.)
12 Where an attorney signs and files a complaint on behalf of their client that contains
13 allegations without factual support, unsupported by existing law or a reasonable argument for a
14 change of existing law, or where a complaint is filed for an improper purpose, it is a violation of
15 Code of Civil Procedure section 128.7, subdivision (b). In such cases, the parties and their
16 attorney(s) are subject to monetary sanctions under subdivisions (c) and (d) of that section. (Id.
17 at (b)-(d).)
18 A claim is “factually frivolous” if it is “not well grounded in fact” and is “legally
19 frivolous” if it is “not warranted by existing law or a good faith argument for the extension,
20 modification, or reversal of existing law.” (Bucur, supra, 244 Cal.App.4th at 189.) To recover
21 sanctions under section 128.7, the movant need only show the challenged conduct is “objectively
22 unreasonable”; there is no requirement to show subjective bad faith.” (Guillemin, supra, 104
23 Cal.App.4th at 167.) Thus, the reasonableness of a party’s truth finding inquiry and due diligence
24 is measured under the following objective standard, which applies to both attorneys and their
25 clients: if the plaintiff does not believe the requisite evidence exists, but does actually believe
26 that it is likely to be discovered later, after a reasonable opportunity for further investigation or
27 discovery, the pleading must so state. (See Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th
28 71, 81-82.) A pleading is objectively unreasonable if and when any reasonable attorney would
8
MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS
FP 43390447.1
1 agree that it is totally and completely without merit. (Bucur, supra, 244 Cal.App.4th at 189-90.)
2 As discussed below, Plaintiff and its counsel are seeking to litigate legally and factually
3 frivolous claims in the incorrect forum, and under inapplicable law. By continuing to pursue
4 these claims in a California court and under California law, Plaintiff has engaged in a misuse of
5 the litigation process in an effort to intimidate Defendants, caused unnecessary delay, and
6 needlessly increased the cost of litigation. As such, Defendants are entitled to sanctions against
7 Plaintiff and its counsel, jointly and severally, pursuant to Code of Civil Procedure Section 128.7.
8 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE
9 SANCTIONS ON PLAINTIFF AND ITS COUNSEL
10 A. Plaintiff’s Re-Assertion of Preempted Claims It Previously Dismissed
11 Subjects Plaintiff to Sanctions
12 As outlined above, Plaintiff previously dismissed its claims for conversion and intentional
13 interference with contractual relations when it filed its FAC. Plaintiff has since admitted that it
14 dismissed the claims because they were “arguably preempted.” (Santiago Decl. ¶ 15, Ex. I.)
15 Despite this admission, Plaintiff then re-asserted the very same causes of action in the SAC that
16 it had previously dismissed.
17 In Peake v. Underwood (2014) 227 Cal.App.4th 428, 449, the plaintiff had previously
18 dismissed three causes of action. After the defendant filed a section 128.7 motion, the plaintiff
19 then “responded to
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1 Shayna Balch Santiago (SBN 304802) E-Mail: ssantiago@fisherphillips.com 2 FISHER & PHILLIPS LLP 3200 N. Central Avenue, Suite 1550 3 Phoenix, Arizona 85012-2487 Telephone: (602) 281-3400 4 Facsimile: (602) 281-3401 5 Kathryn M. Evans (SBN 323190) E-Mail: kmevans@fisherphillips.com 6 FISHER & PHILLIPS LLP 4747 Executive Drive, Suite 1000 7 San Diego, California 92121 Telephone: (858) 597-9600 8 Facsimile: (858) 597-9601 9 Attorneys for Defendants, UCOMMG, LLC; Unified Communications Group, Inc.; 10 Kenneth W. Newbatt; Bianca Newbatt; Mitchell C. Lipkin; Michael J. Bellas; Jimmie Garrett Baker, Jr.; 11 WesTele Utility Solutions, LLC; and Cynthia Baker 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 FOR THE COUNTY OF SANTA BARBARA - ANACAPA DIVISION 14 BUTLER AMERICA, LLC, a Delaware CASE NO.: 20CV03877 limited liability company, [Unlimited Jurisdiction] 15 Plaintiff, Assigned for all purposes to the 16 Honorable Donna D. Geck, Dept. 4 v. 17 MEMORANDUM OF POINTS AND UCOMMG, LLC, a Nevada limited liability AUTHORITIES IN SUPPORT OF 18 company; UNIFIED COMMUNICATIONS DEFENDANTS’ MOTION FOR GROUP, INC., a dissolved Washington SANCTIONS PURSUANT TO CODE OF 19 corporation; KENNETH W. NEWBATT, an CIVIL PROCEDURE SECTIONS 128.7 individual; BIANCA NEWBATT, an 20 individual; MITCHELL C. LIPKIN, an [Filed concurrently with Notice of Motion; individual; MICHAEL J. BELLAS, an Declaration of Shayna Balch Santiago; and 21 individual; JIMMIE GARRETT BAKER, JR., [Proposed] Order] an individual; WESTELE UTILITY 22 SOLUTIONS, LLC, a California limited DATE: June 10, 2022 liability company; and DOES 1 through 50, TIME: 10:00 a.m. 23 inclusive, DEPT.: 4 24 Defendants. Complaint Filed: November 20, 2020 Removal Filed: January 4, 2021 25 FAC Filed: April 16, 2021 SAC Filed: December 3, 2021 26 Trial Date: Not Set 27 28 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 TABLE OF CONTENTS 2 I. INTRODUCTION ............................................................................................................1 3 II. STATEMENT OF FACTS ...............................................................................................3 4 A. Procedural Background .........................................................................................3 5 B. Defendants Were Forced to Incur Fees by Filing Two Motions to Dismiss in Federal Court ....................................................................................................4 6 C. Defendants Were Forced to Incur Fees by Filing A Demurrer and a Motion 7 to Quash Service of Summons in State Court.......................................................5 8 D. Plaintiff Improperly Filed its SAC and Admitted It Cannot Sustain a Trade Secret Cause of Action Against Defendants .........................................................5 9 E. Defendants Were Forced to Incur Fees By Filing a Second Demurrer in 10 State Court ............................................................................................................6 11 F. Plaintiff Has Consistently Refused to Comply With Its Obligation under Code of Civil Procedure section 2019.210 ...........................................................6 12 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO 13 WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING .................7 14 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS .............7 15 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE SANCTIONS ON PLAINTIFF AND ITS COUNSEL ....................................................9 16 A. Plaintiff’s Re-Assertion of Preempted Claims It Previously Dismissed 17 Subjects Plaintiff to Sanctions ..............................................................................9 18 B. Plaintiff’s Argument that Its Common Law Causes of Action Are Not Preempted by the CUTSA Is Legally Frivolous .................................................10 19 C. Plaintiff Filed Its SAC Despite Knowing No Personal Jurisdiction Exists 20 Over the Nonresident Defendants .......................................................................11 21 D. The SAC Contains False or Misleading Statements ...........................................13 22 E. Plaintiff and Its Attorneys Knew When They Filed the Complaint That It Lacked Any Factual Support for Plaintiff’s Claims Against Defendants ...........14 23 VI. CONCLUSION ...............................................................................................................15 24 25 26 27 28 1 TABLE OF CONTENTS FP 43390447.1 1 TABLE OF AUTHORITIES 2 Page(s) 3 Federal Cases 4 Artec Grp., Inc. v. Klimov, No. 15-CV-03449, 2016 WL 7157635 (N.D. Cal. Dec. 8, 2016), amended, 5 No. 15-CV-03449, 2016 WL 8223346 (N.D. Cal. Dec. 22, 2016) ....................................... 11 6 Barker v. Insight Global, LLC, (N.D. Cal. Nov. 21, 2017) 2017 WL 10504692 ................................................................... 11 7 California Arch. Building Prods., Inc. v. Franciscan Ceramics, Inc., 8 (9th Cir. 1987) 818 F.2d 1466 .............................................................................................. 15 9 Hamer v. Career College Association, (9th Cir. 1992) 979 F.2d 758 ................................................................................................ 12 10 Heller v. Cepia, L.L.C., 11 (N.D. Cal. Jan. 4, 2012) 11-01146, 2012 WL 13572 ............................................................ 11 12 Heller v. Cepia L.L.C., (9th Cir. 2014) 560 Fed.Appx. 678 ....................................................................................... 13 13 Holgate v. Baldwin, 14 (9th Cir. 2005) 425 F.3d 671, 676.) ...................................................................................... 14 15 Jones v. Campbell University, (D.D.C. 2018) 322 F.Supp.3d 106 ........................................................................................ 12 16 King v. Idaho Funeral Services, Ass’n, 17 (9th Cir. 1988) 862 F.2d 744 ................................................................................................ 15 18 Lipkin v. Hunt, (S.D.N.Y. 2008) 573 F.Supp.2d 836..................................................................................... 12 19 Loop AI Labs Inc. v. Gatti, 20 (N.D. Cal. Sept. 2, 2015) No. 15-CV-00798, 2015 WL 5158461 ........................................ 11 21 Love v. The Mail on Sunday, (C.D. Cal. July 13, 2006) No. CV05-7798ABCPJWX, 2006 WL 4046169 ........................ 12 22 Manuel v. Lucenti, 23 (N.D. Ill. Nov. 10, 2004)....................................................................................................... 14 24 Mattel, Inc. v. MGA Entm’t, Inc., (C.D. Cal. Jan. 5, 2011) 782 F.Supp.2d 911 ......................................................................... 11 25 NetApp, Inc. v. Nimble Storage, Inc., 26 (N.D. Cal. 2014) 41 F.Supp.3d 816 ...................................................................................... 11 27 Strategic Partners, Inc. v. FIGS, Inc., (C.D. Cal. Aug. 10, 2021) No. 2:19-cv-02286-JWH-KSx, 2021 WL 4813645 ................... 11 28 1 TABLE OF AUTHORITIES FP 43390447.1 1 SunPower Corp. v. SolarCity Corp., (N.D. Cal. Dec. 11, 2012) No. 12-CV-00694, 2012 WL 6160472 ....................................... 11 2 Total Recall Techs. v. Luckey, 3 (N.D. Cal. Jan. 16, 2016) No. C 15-02281, 2016 WL 199796 ............................................. 11 4 Truesdell v. S. Cal. Permanente Med. Grp. (9th Cir. 2002) 293 F.3d 1146 .............................................................................................. 13 5 Warren v. Guelker, 6 (9th Cir. 1994) 29 F.3d 1386 ................................................................................................ 13 7 State Cases 8 Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450 ............................................................................................................ 11 9 Bockrath v. Aldrich Chemical Co. 10 (1999) 21 Cal.4th 71 ............................................................................................................... 8 11 Bucur v. Ahmad (2016) 244 Cal.App.4th 175 ............................................................................................... 8, 9 12 Guillemin v. Stein 13 (2002) 104 Cal.App.4th 156 ................................................................................................... 8 14 KC Multimedia, Inc. v. Bank of America Tech. & Operations, Inc. (2009) 171 Cal.App.4th 939 ................................................................................................. 10 15 Kwikset Corp. v. Super. Ct. 16 (2011) 51 Cal.4th 310 ........................................................................................................... 11 17 Musaelian v. Adams (2009) 45 Cal.4th 512 ............................................................................................................. 8 18 Peake v. Underwood 19 (2014) 227 Cal.App.4th 428 ......................................................................................... 7, 9, 10 20 Perlan v. Therapeutics, Inc. v. Superior Court (2009) 178 Cal.App.4th 1333 ................................................................................................. 6 21 Silvaco Data Sys. v. Intel Corp. 22 (2010) 184 Cal.App.4th 210 ................................................................................................. 11 23 State Statutes 24 California Code of Civil Procedure § 128.7 ............................................... 2, 3, 7, 8, 9, 10, 13, 14 25 California Code of Civil Procedure § 128.7 (b)(3) ..................................................................... 13 26 California Code of Civil Procedure § 128.7 (b) ............................................................................ 8 27 California Code of Civil Procedure § 128.7 (b)-(c) .................................................................... 14 28 California Code of Civil Procedure § 128.7 (c)(1) ....................................................................... 7 2 TABLE OF AUTHORITIES FP 43390447.1 1 California Code of Civil Procedure § 2019 .................................................................................. 6 2 California Code of Civil Procedure § 2019.210 ....................................................................... 2, 6 3 California Uniform Trade Secrets Act .................................................................. 1, 2, 4, 6, 10, 11 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 TABLE OF AUTHORITIES FP 43390447.1 1 I. INTRODUCTION 2 Plaintiff Butler America, LLC filed this lawsuit seeking to litigate legally and factually 3 frivolous claims in the incorrect forum and under inapplicable law for no other reason than to try 4 to bully a competitor out of business. Fortunately, the law permits free and fair competition— 5 even by former employees. Unable to accept this fact, Plaintiff filed a frivolous trade secret 6 misappropriation lawsuit against eight different Defendants – UCOMMG, LLC; Unified 7 Communications Group, Inc.; WesTele Utility Solutions, LLC; Kenneth Newbatt; Bianca 8 Newbatt; Mitchell Lipkin; Michael Bellas; and Cindy Baker (collectively “Defendants”).1 9 Presently, after multiple attempts to amend, Plaintiff is still unable to properly assert any 10 of its causes of action against Defendants and unable to assert personal jurisdiction over six of 11 the Defendants—UCOMMG, Unified Communications, Kenneth Newbatt; Bianca Newbatt; 12 Mitchell Lipkin; and Michael Bellas—all of whom are residents of states other than California 13 and have little to no connection to California (collectively the “Nonresident Defendants”). Along 14 the way, Plaintiff has forced Defendants to incur substantial fees by filing five separate motions 15 to address Plaintiff’s pleading deficiencies. 16 Throughout the history of this case, Butler has maintained three versions of its complaint. 17 The original Complaint, First Amended Complaint (“FAC”), and Second Amended Complaint 18 (“SAC”). The original Complaint included causes of action for alleged trade secrets violations as 19 well as claims for common law violation of trade secrets, conversion, intentional interference 20 with contractual relations, intentional interference with prospective economic advantage, and 21 unfair business practices (collectively “non-contract claims”). Defendant’s filed a motion to 22 dismiss the original Complaint, in part, based on the preemption by the California Uniform Trade 23 24 1 Plaintiff also named Jimmie Garrett Baker, Jr. in its Complaint and FAC despite Mr. Baker signing an arbitration 25 agreement as a condition of his employment with Plaintiff. Incredibly, Plaintiff refused to honor its own arbitration agreement and forced Defendants to incur fees by filing a motion to compel arbitration in federal court. It was only 26 after remand that Plaintiff finally stipulated to binding arbitration for its claims involving Mr. Baker. Even after stipulating to arbitration, Plaintiff filed its SAC which continues to name Mr. Baker in the caption, identifies Mr. 27 Baker in the “Parties” section, references Mr. Baker multiple times throughout the body of the SAC, and alleges causes of action five through eight against “all Defendants” - which presumably includes Mr. Baker as he is still 28 named in the caption. 1 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 Secrets Act (“CUTSA”) of the non-contract claims. In response, Plaintiff filed its FAC, which 2 removed causes of action for conversion and intentional interference with contractual relations. 3 Defendants filed another motion to dismiss the FAC, in part, based on Plaintiff’s failure to plead 4 sufficient facts for a trade secret claim.2 In response, Plaintiff filed its SAC, which removed its 5 trade secret claim and re-added its previously dismissed causes of action for conversion and 6 intentional interference with contractual relations. Defendants filed another demurrer to the SAC 7 alleging that each of the non-contract claims continue to be preempted by the CUTSA and 8 Plaintiff failed to allege facts to support its breach of contract causes of action. This demurrer is 9 currently pending before the Court. 10 Tellingly, a year into this litigation and only after Defendants were forced to file the three 11 above referenced motions to dismiss/demurrers and a section 128.7 sanctions motion did Plaintiff 12 finally abandon its frivolous trade secret cause of action—which was previously the crux of its 13 lawsuit. Indeed, Plaintiff has now explicitly admitted in writing that it withdrew its trade secret 14 claim because “Plaintiff concluded that it could not properly allege any trade secrets based on 15 the facts and the CUTSA.” (Declaration of Shayna Balch Santiago (“Santiago Decl.”) ¶ 15, Ex. 16 I.) Nonetheless, Plaintiff refused to dismiss the remaining causes of action, each of which are 17 based on the same faulty nucleus of fact as Plaintiff’s former trade secret cause of action. 18 Accordingly, Plaintiff’s SAC continues to suffer from the same exact deficiencies that were 19 present in Plaintiff’s original Complaint and FAC. 20 Namely, Plaintiff’s SAC still fails to allege any factual allegations sufficient to show 21 California has jurisdiction over any of the Nonresident Defendants. Plaintiff’s SAC still fails to 22 allege the requisite level of facts to properly plead any cause of action against all the Defendants, 23 presumably because no such facts exist. And most importantly, all of Plaintiff’s non-contract 24 causes of action3 continue to be preempted by the CUTSA. 25 26 2 Defendants were forced to file other, additional motions based, in part, on Plaintiff’s faulty trade secret claim, including a motion for terminating sanctions or, in the alternative, motion for protective order based on Plaintiff’s 27 refusal to provide its trade secret disclosures pursuant to Code of Civil Procedure section 2019.210, a motion for Rule 11 sanctions in federal court, and a previously filed motion for sanctions pursuant to section 128.7. 28 3 Importantly, Plaintiff’s breach of contract and breach of implied covenant of good faith and fair dealing causes of 2 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 Plaintiff’s failure to correct the numerous deficiencies contained within its SAC can lead 2 the Court to only one conclusion – that Plaintiff either failed to conduct a proper investigation or 3 knowingly brought (and maintained) this suit against Defendants without evidence to support its 4 claims. Plaintiff has continued to vexatiously pursue litigation against the Defendants. This Court 5 should not tolerate Plaintiff’s behavior and, accordingly, Defendants move the Court for an order 6 imposing sanctions on Plaintiff Butler America, LLC and its attorneys of record, Chora Young 7 & Manasserian, on the grounds that they violated Code of Civil Procedure section 128.7. These 8 sanctions are also warranted to deter Plaintiff and its counsel from engaging in similar conduct 9 in the future. 10 II. STATEMENT OF FACTS 11 A. Procedural Background 12 Plaintiff filed its original Complaint against Defendants in the Santa Barbara Superior 13 Court on November 20, 2020, alleging causes of action for (1) Breach of Contract; (2) Breach of 14 Implied Covenant of Good Faith and Fair Dealing; (3) Misappropriation of Trade Secrets (Civil 15 Code § 3426 et seq.); (4) Misappropriation of Trade Secrets (Common Law); (5) Conversion; (6) 16 Intentional Interference with Contractual Relations; (7) Intentional Interference with Prospective 17 Economic Advantage; and (8) Unfair Business Practices. 18 Defendants timely removed the action to this Court on January 4, 2021 on the basis of 19 diversity and fraudulent joinder. In support of the Notice of Removal, Defendants included 20 signed declarations from the Nonresident Defendants detailing that UCOMMG, Unified 21 Communications, Kenneth Newbatt, and Bianca Newbatt are residents of Washington, Mitchell 22 Lipkin is a resident of Minnesota, and Michael Bellas is a resident of North Carolina. (Santiago 23 Decl. ¶ 2, Ex. A.) Plaintiff did not oppose Defendants’ removal to federal court. 24 Defendants’ counsel alerted Plaintiff’s counsel to the jurisdictional issues regarding the 25 Nonresident Defendants, along with the other deficiencies in the Complaint, including Plaintiff’s 26 27 action are only alleged against Michael Bellas and Mitchell Lipkin and, as fully briefed in Defendants’ motion to 28 quash, this Court does not have jurisdiction over Mr. Bellas and Mr. Lipkin. 3 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 complete failure to allege sufficient facts to support its claims and the CUTSA’s preemption of 2 Plaintiff’s common law claims, during a phone call on January 13, 2021. (Santiago Decl. ¶ 3.) 3 Despite numerous further meet and confer efforts, Plaintiff declined to amend its Complaint and 4 Defendants were forced to file multiple motions to dismiss and/or demurrers. 5 B. Defendants Were Forced to Incur Fees by Filing Two Motions to Dismiss in 6 Federal Court 7 Defendants filed their first Motion to Dismiss on March 26, 2021. (Santiago Decl. ¶ 4, 8 Ex. B.) The Motion to Dismiss detailed the multiple reasons why Plaintiff’s Complaint was 9 deficient and subject to dismissal, including the lack of personal jurisdiction over the Nonresident 10 Defendants, the preemption of multiple causes of action by the CUTSA, and the complete lack 11 of factual support for its claims. As part of the Motion to Dismiss, Defendants submitted sworn 12 declarations from the Nonresident Defendants to establish that no personal jurisdiction exists 13 over those Defendants. (Santiago Decl. ¶ 5, Ex. C.) 14 Plaintiff failed to oppose Defendants’ Motion to Dismiss and instead filed its FAC on 15 April 16, 2021. (Santiago Decl. ¶ 6, Ex. D.) In tacit acknowledgment that the claims were 16 preempted by the CUTSA, the FAC removed Plaintiff’s causes of action for conversion and 17 intentional interference with contractual relations. But despite Defendants having fully briefed 18 (and previously described in meet and confer efforts) the numerous other deficiencies contained 19 in its Complaint, Plaintiff’s FAC continued to have the very same pleading deficiencies contained 20 in Plaintiff’s original Complaint. 21 The FAC added almost no additional factual allegations in support of its claim of personal 22 jurisdiction over the Nonresident Defendants, except for the allegations that Mr. Lipkin and Mr. 23 Bellas visited Plaintiff’s headquarters in California numerous times and that Mr. Lipkin and Mr. 24 Bellas serviced clients in California while employed by Plaintiff. (FAC ¶ 32.) As discussed 25 below, these additional pled statements are demonstrably false. The FAC also failed to correct 26 the other deficiencies raised in Defendants’ first Motion to Dismiss, including CUTSA’s 27 preemption of the common law causes of action and Plaintiff’s failure to plead specific and 28 plausible facts in support of its claims. 4 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 Defendants sent a meet and confer correspondence requesting Plaintiff amend its FAC to 2 correct these deficiencies on April 23, 2021. (Santiago Decl. ¶ 7. Ex. E.) Defense counsel 3 specifically noted that if Defendants were forced to file a second motion to dismiss, they would 4 seek sanctions from the Court. (Ibid.) Plaintiff did not respond to Defendants’ letter. (Ibid.) 5 Accordingly, Defendants were forced to file a second Motion to Dismiss on April 30, 2021. 6 (Santiago Decl. ¶ 8, Ex. F.) On August 3, 2021, the District Court remanded this matter to state 7 court and denied the Motion to Dismiss as moot. 8 C. Defendants Were Forced to Incur Fees by Filing A Demurrer and a Motion 9 to Quash Service of Summons in State Court 10 Defendants once again attempted to meet and confer with Plaintiff after the remand to 11 request that Plaintiff amend the Complaint to resolve the deficiencies identified in the Motions 12 to Dismiss. (Santiago Decl. ¶ 11, Ex. H.) Defendants specifically asked Plaintiff if it intended to 13 amend the FAC again and gave Plaintiff ample time to do so. (Ibid.) Plaintiff failed to 14 substantively respond to Defendants’ meet and confer efforts and failed to file any amended 15 Complaint. (Ibid.) Accordingly, Defendants filed their demurrer to the FAC and motion to quash 16 service of summons on September 22, 2021. (Ibid.) 17 D. Plaintiff Improperly Filed its SAC and Admitted It Cannot Sustain a Trade 18 Secret Cause of Action Against Defendants 19 Two months later, on the eve of its deadline to oppose Defendants’ demurrer and motion 20 to quash, Plaintiff improperly filed its SAC without seeking leave of court or agreement of 21 Defendants. (Santiago Decl. ¶ 13.) The improperly filed SAC does not add any additional factual 22 allegations. Instead, the only differences between the FAC and the SAC is (1) the removal of the 23 trade secrets cause of action; (2) the re-addition of conversion and intentional interference of 24 contractual relations causes of action that had previously been removed in the FAC; and (3) use 25 of the term “confidential information” in lieu of “trade secrets” throughout the SAC. 26 On December 3, 2021, this Court sustained Defendants’ demurrer to the FAC with leave to 27 amend and deemed the SAC as filed pursuant to that leave to amend. (Santiago Decl. ¶ 14.) 28 /// 5 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 On December 22, 2021, Plaintiff explicitly confirmed that it could not sustain a trade 2 secret cause of action against any of the Defendants. Specifically, Plaintiff sent Defendants 3 multiple correspondences in which it stated, “Plaintiff concluded that it could not properly allege 4 any trade secrets based on the facts and the CUTSA.” (Santiago Decl. ¶ 15, Ex. I.) 5 E. Defendants Were Forced to Incur Fees By Filing a Second Demurrer in State 6 Court 7 In December 2019, Defendants met and conferred with Plaintiff regarding the continued 8 deficiencies in the SAC, most importantly that binding case law is clear the CUTSA preempts 9 claims premised upon the misappropriation of non-trade secret information and, accordingly, 10 each of Plaintiff’s non-contract causes of action are preempted by the CUTSA. (Santiago Decl. 11 ¶ 16, Ex. J.) Plaintiff failed to substantively respond to Defendants’ correspondence. (Ibid.) 12 Accordingly, Defendants were forced, once again, to incur fees by filing a second demurrer in 13 state court—bringing the number of motions based on Plaintiff’s pleading deficiencies to five. 14 F. Plaintiff Has Consistently Refused to Comply With Its Obligation under 15 Code of Civil Procedure section 2019.210 16 In the context of a claim for misappropriation of trade secrets, section 2019.210 requires 17 an adequate trade secret disclosure before the plaintiff can pursue any discovery. (Code Civ. 18 Proc. § 2019.210.) As the Court of Appeal noted, “If [the plaintiff] does not know what its own 19 trade secrets are, ithas no basis for suggesting defendants misappropriated them.” (Perlan v. 20 Therapeutics, Inc. v. Superior Court (2009) 178 Cal.App.4th 1333, 1352.) 21 Plaintiff has refused to comply with its obligations under Code of Civil Procedure section 22 2019. Defendants have requested Plaintiff provide its trade secret at least a dozen times beginning 23 in March 2021. (See Defendants’ Motion for Terminating Sanctions, or int he alternative Motion 24 for Protective Order.) Nonetheless, Plaintiff has refused for the last year to provide its required 25 disclosure. Defendants can only assume that Plaintiff’s failure to provide its trade secret 26 disclosures is because Plaintiff failed to complete a proper investigation prior to filing this 27 baseless claim, and accordingly is unable to describe the alleged trade secrets and confidential 28 information at issue. 6 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO 2 WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING 3 California Code of Civil Procedure section 128.7(c)(1), provides that notice of a motion 4 for sanctions pursuant to Section 128.7 shall not be filed with or presented to the court unless, 5 within 21 days after the service of the motion, the challenged paper, claim, defense, contention, 6 allegation, or denial is not withdrawn or appropriately corrected. (See Peake v. Underwood 7 (2014) 227 Cal.App.4th 428, 441.) 8 Plaintiff and its counsel have been on notice regarding the lack of jurisdiction over the 9 Nonresident Defendants and other defects with its Complaint since at least January 2021. Instead 10 of correcting these issues, Plaintiff filed a largely identical FAC in April 2021 and SAC in 11 November 2021. Nevertheless, Defendants have provided more than the requisite “safe harbor” 12 time to Plaintiff and its counsel to withdraw its SAC. 13 First, Defendants served a Motion for Rule 11 Sanctions on July 2, 2021 while the matter 14 was still pending before the district court. (Santiago Decl. ¶ 10, Ex. H.) After the remand to state 15 court, Plaintiff was provided an additional 21-day safe harbor period to withdraw the FAC when 16 Defendants served their section 128.7 motion on October 26, 2021. (Santiago Decl. ¶ 12.) Instead 17 of withdrawing the FAC, Plaintiff improperly filed its SAC, which the Court deemed filed as of 18 December 3, 2021. (Santiago Decl. ¶¶ 13-14.) Although Defendants’ position is that the filing of 19 the SAC did not moot the then-pending section 128.7 motion, in an effort to avoid any procedural 20 arguments that the motion was moot and to address new issues now before the Court based on 21 Plaintiff’s re-filing of previously dismissed (and preempted) claims in the SAC, Defendants 22 provided a third safe-harbor period when they served the instant motion on March 1, 2022. 23 (Santiago Decl. ¶ 18.) 24 Accordingly, Plaintiff has been given months of time and multiple opportunities to 25 withdraw this baseless action, and Defendants continue to incur legal fees to preserve their rights. 26 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS 27 “Under … Code of Civil Procedure section 128.7 … there are basically three types of 28 submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally 7 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 frivolous (not warranted by existing law or a good faith argument for the extension, modification, 2 or reversal of existing law); and papers interposed for an improper purpose.” (Guillemin v. 3 Stein (2002) 104 Cal.App.4th 156, 167, emphasis added.) Section 128.7 “requires that parties 4 and their attorneys certify that pleadings or other written matters presented to the courts have 5 merit, ‘to the best of the person’s knowledge, information, and belief, formed after an inquiry 6 reasonable under the circumstances.’” (Musaelian v. Adams (2009) 45 Cal.4th 512, 516.) To 7 satisfy the obligation under Section 128.7 to conduct a reasonable inquiry to determine if his or 8 her client's claim was well-grounded in fact, the attorney must “take into account [the adverse 9 party's] evidence.” (Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 190.) “[F]ederal case law 10 construing Rule 11 [of the Federal Rules of Civil Procedure] is persuasive authority on the 11 meaning of section 128.7.” (Ibid.) 12 Where an attorney signs and files a complaint on behalf of their client that contains 13 allegations without factual support, unsupported by existing law or a reasonable argument for a 14 change of existing law, or where a complaint is filed for an improper purpose, it is a violation of 15 Code of Civil Procedure section 128.7, subdivision (b). In such cases, the parties and their 16 attorney(s) are subject to monetary sanctions under subdivisions (c) and (d) of that section. (Id. 17 at (b)-(d).) 18 A claim is “factually frivolous” if it is “not well grounded in fact” and is “legally 19 frivolous” if it is “not warranted by existing law or a good faith argument for the extension, 20 modification, or reversal of existing law.” (Bucur, supra, 244 Cal.App.4th at 189.) To recover 21 sanctions under section 128.7, the movant need only show the challenged conduct is “objectively 22 unreasonable”; there is no requirement to show subjective bad faith.” (Guillemin, supra, 104 23 Cal.App.4th at 167.) Thus, the reasonableness of a party’s truth finding inquiry and due diligence 24 is measured under the following objective standard, which applies to both attorneys and their 25 clients: if the plaintiff does not believe the requisite evidence exists, but does actually believe 26 that it is likely to be discovered later, after a reasonable opportunity for further investigation or 27 discovery, the pleading must so state. (See Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th 28 71, 81-82.) A pleading is objectively unreasonable if and when any reasonable attorney would 8 MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION FOR SANCTIONS FP 43390447.1 1 agree that it is totally and completely without merit. (Bucur, supra, 244 Cal.App.4th at 189-90.) 2 As discussed below, Plaintiff and its counsel are seeking to litigate legally and factually 3 frivolous claims in the incorrect forum, and under inapplicable law. By continuing to pursue 4 these claims in a California court and under California law, Plaintiff has engaged in a misuse of 5 the litigation process in an effort to intimidate Defendants, caused unnecessary delay, and 6 needlessly increased the cost of litigation. As such, Defendants are entitled to sanctions against 7 Plaintiff and its counsel, jointly and severally, pursuant to Code of Civil Procedure Section 128.7. 8 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE 9 SANCTIONS ON PLAINTIFF AND ITS COUNSEL 10 A. Plaintiff’s Re-Assertion of Preempted Claims It Previously Dismissed 11 Subjects Plaintiff to Sanctions 12 As outlined above, Plaintiff previously dismissed its claims for conversion and intentional 13 interference with contractual relations when it filed its FAC. Plaintiff has since admitted that it 14 dismissed the claims because they were “arguably preempted.” (Santiago Decl. ¶ 15, Ex. I.) 15 Despite this admission, Plaintiff then re-asserted the very same causes of action in the SAC that 16 it had previously dismissed. 17 In Peake v. Underwood (2014) 227 Cal.App.4th 428, 449, the plaintiff had previously 18 dismissed three causes of action. After the defendant filed a section 128.7 motion, the plaintiff 19 then “responded to