Case Name:    SunPower Corporation v. Martin DeBono, et al.

Case No.:        19-CV-349042

Currently before the Court is the demurrer by plaintiff and cross-defendant SunPower Corporation (“SunPower”) to the cross-complaint of defendant and cross-complainant Standard Industries Inc. (“Standard”).

Factual and Procedural Background

SunPower brought this action against defendant Martin DeBono (“DeBono”), Standard, and defendant GAF Energy LLC (“GAF Energy”) for misappropriation of proprietary information and trade secrets.

On March 30, 2020, Standard filed a cross-complaint against SunPower, alleging a single cause of action for unfair competition in violation of Business and Professions Code section 17200.  According to the allegations of the cross-complaint, SunPower included unlawful and unenforceable non-solicitation and non-disclosure provisions in its employment agreements and separation agreements with DeBono and other similarly situated former SunPower employees in violation of Business and Professions Code section 16600.  (Cross-Complaint, ¶¶ 1, 10-15, & 29.)  SunPower’s acts allegedly constitute unlawful business acts or practices, and caused injuries to Standard.  (Id. at ¶¶ 2, 18-21, & 30-32.)  Standard seeks injunctive relief enjoining SunPower from including in its contracts unlawful non-solicitation provisions and provisions that purport to bar solicitation using information that does not rise to the level of a trade secret.  (Id. at ¶ 33 & Prayer for Relief.)

On June 1, 2020, SunPower filed the instant demurrer to the cross-complaint.  Standard filed papers in opposition to the demurrer on August 19, 2020.  On August 25, 2020, SunPower filed reply papers.

Discussion

            SunPower demurs to the cross-complaint on the grounds of uncertainty and failure to allege sufficient facts to constitute a cause of action.  (See Code Civ. Proc., § 430.10, subds. (e) & (f).)

  1. Requests for Judicial Notice
  1. SunPower’s Request

            In connection with its moving papers, SunPower asks the Court to take judicial notice of: (1) portions of the declaration of Elizabeth Hioe (“Hioe”) filed on July 18, 2019, in connection with Standard and GAF Energy’s response to an order to show cause; and (2) a spreadsheet, Proprietary Interest Protection and Non-Compete Agreements, GAF Energy’s Code of Conduct Policy Supplement, DeBono’s acknowledgment of the policy supplement, and an email, which are attached as exhibits to Hioe’s declaration.  SunPower contends the Court should take judicial notice of these documents Evidence Code section 452, subdivisions (d) and (h) because Hioe’s declaration is a court record and the attachments thereto demonstrate that Standard has unclean hands.  In connection with its reply, SunPower asks the Court to take judicial notice of an order entered in an arbitration proceeding, SunPower Corporation v. Gabriela Bunea (American Arbitration Association Employment Arbitration Tribunal, Case No. 01-19-0003-9663).  SunPower asserts the Court should take judicial notice of this order under Evidence Code section 452, subdivision (h) because the order shows SunPower never threatened enforcement of a non-solicitation provision against another Standard/GAF employee, Gabriela Bunea.

            SunPower’s request for judicial notice of Hioe’s declaration is not well-taken.  Although Hioe’s declaration is a court record, the Court may only take judicial notice of such a declaration if it contains statements of Standard that are inconsistent with the allegations of the cross-complaint.  (See Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-605 (Del E. Webb) [“The court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, only where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court.”].)  SunPower does not contend Hioe’s declaration contains statements that directly contradict the allegations of the cross-complaint.  Instead, SunPower seeks judicial notice of the declaration to support its affirmative defense of unclean hands.  Thus, the declaration is not a proper subject of judicial notice.

Furthermore, although the Court may properly take judicial notice of existence of the documents attached to Hioe’s declaration and the order in the arbitration proceeding, the Court cannot take judicial notice of the truth of their contents.  (See People v. Woodell (1998) 17 Cal.4th 448, 455 [the trial court may “take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached—in the documents such as orders, statements of decision, and judgments—but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact”].)

            Accordingly, SunPower’s request for judicial notice is GRANTED IN PART and DENIED IN PART.  SunPower’s request is GRANTED as to the existence of the documents attached to Hioe’s declaration and the order in the arbitration proceeding.  SunPower’s request is DENIED in all other respects.

  1. Standard’s Request

            In connection with its opposition, Standard asks the Court to take judicial notice of: (1) SunPower’s complaint and first amended complaint (“FAC”); (2) reply papers submitted by SunPower in connection with an arbitration proceeding, SunPower Corporation v. Gabriela Bunea (American Arbitration Association Employment Arbitration Tribunal, Case No. 01-19-0003-9663); and (3) SunPower’s responses to Standard and GAF Energy’s special interrogatories, set one (“SI”).

Standard’s request for judicial notice of SunPower’s responses to the SI is not well-taken.  The Court may only take judicial notice of such discovery responses if they contain statements that are inconsistent with the allegations of the cross-complaint.  (See Del E. Webb, supra, 123 Cal.App.3d at pp. 604-605 [“The court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, only where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court.”].)  Standard does not contend the discovery responses contain statements that directly contradict the allegations of the cross-complaint.  Instead, Standard seeks judicial notice of the discovery responses to support its contention that SunPower has not allowed discovery on a particular topic.  Thus, the discovery responses are not proper subjects of judicial notice.

Next, although the Court may properly take judicial notice of existence of the complaint, the FAC, and the papers filed in the arbitration proceeding, the Court cannot take judicial notice of the truth of their contents.  (See People v. Woodell (1998) 17 Cal.4th 448, 455 [the trial court may “take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached—in the documents such as orders, statements of decision, and judgments—but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact”].)

Accordingly, Standard’s request for judicial notice is GRANTED IN PART and DENIED IN PART.  Standard’s request is GRANTED as to the existence of the complaint, the FAC, and the papers filed in the arbitration proceeding.  Standard’s request is DENIED in all other respects.

 

  1. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading.  (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.)  Consequently, “ ‘[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice’ [citation].” (Hilltop Properties, Inc. v. State (1965) 233 Cal.App.2d 349, 353; Code Civ. Proc., § 430.30, subd. (a).)  “ ‘It is not the ordinary function of a demurrer to test the truth of the … allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. … .’  [Citation.]  Thus, … ‘the facts alleged in the pleading are deemed to be true, however improbable they may be. [Citation.]’ [Citations.]”  (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958.)

III.       Uncertainty

SunPower demurs to the cross-complaint on the ground of uncertainty.

However, SunPower’s argument regarding uncertainty addresses Standard’s purported failure to allege sufficient facts to state a claim.  It appears that SunPower misunderstands the nature of uncertainty as a ground for demurrer.  The law is settled that “[a] special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations already made.”  (Butler v. Sequiera (1950) 100 Cal.App.2d 143, 145-146.)  Thus, SunPower’s demurrer on the ground of uncertainty is not well-taken.

Accordingly, SunPower’s demurrer to the cross-complaint on the ground of uncertainty is OVERRULED.

  1. Failure to Allege Sufficient Facts to Constitute a Cause of Action

            SunPower initial argues Standard’s claim for unfair competition in violation of Business and Professions Code section 17200 fails because it is barred by the doctrine of unclean hands.  SunPower contends the judicially noticeable materials shows that Standard also entered into contracts with its employees that contained similar non-solicitation provisions.

Unclean hands is an affirmative defense in actions seeking equitable relief.  (Wilson v. S.L. Rey, Inc. (1993) 17 Cal.App.4th 234, 244 (Wilson).)  “Since the doctrine of unclean hands is heavily fact dependent, it is a uniquely poor candidate to support a demurrer.”  (CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 641 (Crosstalk); see Insurance Co. of North America v. Liberty Mutual Ins. Co. (1982) 128 Cal.App.3d 297, 306 [“As a general rule, the application of the doctrine of unclean hands is primarily a question of fact.”].)  A “ ‘demurrer based on an affirmative defense cannot properly be sustained where the action might be barred by the defense, but is not necessarily barred.’ [Citation.]  Accordingly, [a challenge based on the doctrine of unclean hands] fails unless it is conclusively demonstrated by the facts pleaded in the complaints or subject to judicial notice.  [Citations.]”  (People v. Super. Ct. (J.C. Penney Corp., Inc.) (2019) 34 Cal.App.5th 376, 399.)

The doctrine of unclean hands calls for the denial of relief to a plaintiff guilty of improper conduct only if the inequitable conduct occurred in a transaction directly related to the matter before the court and affects the equitable relationship between the litigants. (Wilson, supra, 17 Cal.App.4th at p. 244.)  “ ‘[W]hether there is a bar depends upon the analogous case law, the nature of the misconduct, and the relationship of the misconduct to the claimed injuries.’  [Citation.]”  (CrossTalk, supra, 65 Cal.App.4th at p. 641.) (Blainsupra, 222 Cal.App.3d at p. 1060.)  Courts refer to this three prong analysis as “the Blain test.”  (Ibid.)

Here, SunPower fails to establish that the doctrine of unclean hands conclusively applies in this case.  With respect to the first prong of the Blain test, i.e., analogous case law, SunPower has cited no authority finding unclean hands generally to be a defense to claims for unfair competition under similar circumstances.  (See CrossTalk, supra, 65 Cal.App.4th at p. 642.)  Additionally, the final prong of the Blain test, which requires examination of the relationship between Standard’s purported misconduct and its claimed injuries, does not support an unclean hands defense because Standard’s purported misconduct was not the cause of its alleged injuries.  (Cf. Blain v. Doctor’s Co. (1990) 222 Cal.App.3d 1048, 1058-1063 [“Blain’s emotional distress, if any, is attributable to his own knowing misbehavior. Even the most naive must know that lying under oath is illegal …. [T]he relationship of misconduct to harm in this case is direct and not incidental.  The misconduct was, so it is alleged, the instrumentality of harm.”]; see CrossTalk, supra, 65 Cal.App.4th at pp. 642-643 [“A fair inference could be drawn that the underlying cause of the damage to plaintiffs was defendant’s extortionate demands.  The allegations here are unlike the situation in Blain.”].)  Therefore, SunPower’s argument based on the doctrine of unclean hands is not well-taken.

Next, SunPower asserts Standard is not entitled to injunctive relief for its alleged violation of Business and Professions Code section 17200 because its non-solicitation covenants were lawful at the time they were drafted, the case of AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923 (AMN) altered settled law establishing the legality of such covenants, and therefore it would violate due process to apply AMN retroactively to hold it liable for using such covenants.

Even assuming for the sake of argument that SunPower’s position had merit, it fails to dispose of Standard’s claim for unfair competition.  As Standard persuasively argues, it is not seeking restitution, or any other form of damages, for SunPower’s past

conduct.  Rather, Standard alleges SunPower regularly includes impermissible non-solicitation provisions in contracts with its high-level employees and terms that purport to bar solicitation of current SunPower employees by former employees using non-trade secret information, and Standard seeks injunctive relief to stop SunPower from using non-solicitation covenants to stifle employee mobility in the future.  (Cross-Complaint, ¶¶ 13-15 & 33, & Prayer for Relief.)  Thus, it cannot be said that Standard is seeking relief for conduct that entirely predates AMN.

SunPower also contends that Standard’s claim fails to the extent it is predicated on its contracts with other, unidentified employees because Standard does not identify with particularity the other employees, the specific contracts to which it refers, or the provisions in those contracts that violate Business and Professions Code section 16600.

However, specificity is not required when pleading a claim under the UCL. Courts historically applied the ordinary fact-pleading standard to UCL claims. (See Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 209–212, superseded by statute on another ground as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.)  And, although courts have stated “[a] plaintiff alleging unfair business practices under [Section 17200] must state with reasonable particularity the facts supporting the statutory elements of the violation” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619), reasonable particularity “is a more lenient pleading standard than is applied to common law fraud claims” (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1261).  Thus, to the extent SunPower seeks to have the Court impose a higher pleading standard, its argument is not well-taken.  Furthermore, Standard alleges sufficient facts regarding the nature of the unlawful covenants allegedly set forth in SunPower’s contracts with other employees for SunPower to identify the terms and provisions at issue.  (See Cross-Complaint, ¶¶ 1 & 10-15.)  For these reasons, SunPower’s argument regarding particularity lacks merit.

Additionally, SunPower argues Standard lacks standing to pursue claims based on its agreements with other employees because it does not identify any economic injury caused by its contracts with those employees.

“[N]o private party has standing to prosecute a UCL action unless he or she ‘has suffered injury in fact and has lost money or property as a result of the unfair competition.’  [Citations.]”  (Law Offices of Mathew Higbee v. Expungement Assistance Services (2013) 214 Cal.App.4th 544, 555-556; Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 788.) “There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary.”  (Kwikset Corp. v. Super. Ct. (2011) 51 Cal.4th 310, 323.)

Here, Standard alleges “SunPower’s unlawful non-solicitation provisions have resulted in increased recruiting costs for [it] and GAF Energy, forced [it] and GAF Energy to lose out on qualified SunPower candidates [who] would have otherwise been interested in coming to Standard/GAF Energy had DeBono and other executives been allowed to recruit, and otherwise hindered Standard’s and GAF Energy’s lawful efforts to build out their solar team.”  (Cross-Complaint, ¶ 21.)  These allegations are sufficient to establish standing.

Finally, SunPower asserts Standard fails to demonstrate that it is entitled to injunctive relief because injunctive relief seeks to prevent future harm and Standard has not shown there is a threat of future harm or a continuing violation.

This assertion is not well-taken.  Standard alleges SunPower regularly includes impermissible non-solicitation provisions in contracts with its high-level employees and terms that purport to bar solicitation of current SunPower employees by former employees using non-trade secret information.  (Cross-Complaint, ¶¶ 13-15 & 33.)  This allegation permits the inference that the alleged unlawful conduct is ongoing.  Moreover, whether SunPower will continue its alleged unlawful conduct is a question of fact not suitable for resolution on demurrer.  (See Prof’l Fire Fighters, Inc. v. City of Los Angeles, (1963) 60 Cal. 2d 276, 286 [“Whether or not there is reasonable probability that defendant will continue its … activities in the future is question of fact”].)

Accordingly, SunPower’s demurrer to the cross-complaint on the ground of failure to allege facts sufficient to constitute a cause of action is OVERRULED.