Todd Wooten, et al. v. Ron Donaire, et al

Case Number

22CV01147

Case Type

Hearing Date / Time

Wed, 10/04/2023 - 10:00

Nature of Proceedings

Cross-Defendants’ Todd Wooten, Maureen Wooten, and VRTCAL Markets, Inc.’s Motion for Summary Judgment or, in the Alternative, Motion for Summary Adjudication as to the Second Amended Cross-Complaint of DelPlaya Media, Inc.

Tentative Ruling

For Plaintiff and Cross-Defendant Todd Wooten and Cross-Defendants Maureen Wooten and VRTCAL Markets, Inc.: Robert A. Curtis, Aaron L. Arndt, Jordan A. Liebman, Foley Bezek Behle & Curtis, LLP                  

For Defendants Jeff Pescatello, John Williams, and Ron Donaire: Robert B. Forouzandeh, Andrew Hazlett, Reicker, Pfau, Pyle & McRoy LLP

For Defendant (as nominal Defendant) and Cross-Complainant DelPlaya Media, Inc.: John J. Thyne III, Thyne Taylor Fox Howard, LLP

RULING

For the reasons set forth herein: The motion for summary judgment is granted.

Background

On March 23, 2022, Plaintiff Todd Wooten filed his original complaint in this action asserting four causes of action for: (1) breach of fiduciary duty; (2) conversion; (3) misappropriation of trade secrets; and (4) usurpation of corporate opportunity.

On October 4, 2022, DelPlaya filed a cross-complaint against Wooten, his wife Maureen Wooten, and VRTCAL Markets, Inc. (VRTCAL), (collectively “cross-Defendants”) alleging causes of action for: (1) conversion; (2) misappropriation of trade secrets; (3) breach of fiduciary duty; (4) copyright infringement; and (5) breach of settlement agreement. On November 14, 2022, DelPlaya filed a first amended cross-complaint against cross-Defendants.  On February 24, 2023, DelPlaya filed the operative second amended cross-complaint (SACC) setting forth causes of action for: (1) conversion; (2) misappropriation of trade secrets; (3) breach of fiduciary duty; and (4) breach of settlement agreement.

Cross-Defendants filed the present motion for summary judgment on July 13, 2023, arguing that DelPlaya’s causes of action are all time barred. DelPlaya opposes the motion.

Note: DelPlaya’s separate statement in support of opposition contains numerous arguments that have nothing to do with the facts set forth by cross-Defendants and disputes facts that are direct quotes from the SACC. (See, for example, ¶¶ 35, 42.) As such, there are multiple facts that are not reasonably disputed and are therefore properly characterized as undisputed. As relevant to the present motion, the undisputed facts, and those not reasonably disputed, include:

In 2011, DelPlaya, then named Freestreams, Inc., was founded by Mr. Wooten and Defendants Jeff Pescatello and John Williams. (DelPlaya’s separate statement, ¶ 1.) “Mr. Wooten sat on DelPlaya’s board of directors from its founding to his departure from the company.” (Id. at ¶ 2.) “Defendants Pescatello and Williams have sat on DelPlaya’s board since its founding, and they continue to sit on the board as of the present date.” (Id. at ¶ 3.) “Mr. Wooten officially departed DelPlaya on February 5, 2016, as memorialized by a Confidential Separation and General release

Agreement (‘Separation Agreement’).” (Id. at ¶ 6.) “At the time Mr. Wooten left DelPlaya, Defendants Pescatello and Williams were officers and directors of the company and remain so as of the present date.” (Id. at ¶ 7.)

“On July 22, 2022, Jeff Pescatello, John Williams, and DelPlaya filed a Motion to Disqualify Todd Wooten as Derivative Plaintiff. In support of that motion, DelPlaya and Defendants Pescatello and Williams filed a declaration from Defendant Williams on the same day (the ‘Williams Dec.’).” (Id. at ¶ 9.) “Defendant Williams represented in this action that he is ‘a duly elected director and the Chief Executive Officer of Defendant DelPlaya Media, Inc. . . . and ha[s] been since the Company’s inception at the end of 2011.’ ” (Id. at ¶ 10.)  “According to Defendant Williams, Mr. Wooten was to develop certain ad-related technology for DelPlaya starting in 2015. Specifically, Defendant Williams claims: Beginning in 2015, Wooten was tasked to work with DelPlaya’s third party technology developer – Drell Systems, LLC (“Drell”) – to develop three products to help DelPlaya compete in the mobile advertising business: 1) a video player that could auto-play VPAID compliant video ads inside a mobile application without the need for an SDK integration by a publisher, 2) a programmatic advertising solution that would allow DelPlaya to connect directly to advertising buyers and sellers on a server-to-server basis via OpenRTB, JSON or XML, and 3) an SDK that would allow publishers to integrate DelPlaya’s advertising solutions directly into their applications (the ‘DelPlaya Products’).” (Id. at ¶ 11.) “DelPlaya tasked Wooten with designing these products to secure the business of, among other potential customers, Bidswitch and LiquidM.” (Id. at ¶ 12.) “Defendant Williams is ‘informed and believe[s] that Wooten is a founder, director, and officer of VRTCAL Markets Inc.’ ” (Id. at ¶ 13.)

“Defendant Williams ‘read the VRTCAL website located at www.vrtcal.com on or about February 7, 2016, and saw that it advertised . . . three products.’ The products that Defendant Williams says he saw were: ‘VMobility Player’ for playing VPAID compliant video ads inside a mobile application without the need for an SDK integration; ‘VAULT-a programmatic marketplace where demand partners can connect via OpenRTB, JSON and XML’; and ‘OPEN FALLS SDK’ an SDK for integration by mobile application developers to source ad buyers directly from VRTCAL.” (Id. at ¶ 14.) Defendant Williams, at the time he viewed the VRTCAL website ‘on or about February 7, 2016,’ concluded that VRTCAL’s products ‘are substantially identical to DelPlaya Products.’ ” (Id. at ¶ 15.)

“On February 24, 2016, Defendant Williams emailed Defendant Pescatello information that he apparently found from the U.S. Patent and Trademark Office regarding VRTCAL’s trademark for the word ‘VRTCAL.’ The language in the email from the U.S. Patent and Trademark Office describes VRTCAL’s ‘Goods and Services’ as ‘Digital advertising services; Internet advertising services.’ ” (Id. at ¶ 19.) 

“On November 16, 2016, Defendant Williams sent an email to Defendants Pescatello and Donaire regarding VRTCAL’s advertisement for a ‘Vmobility Player’ for ‘VRTCAL’s Mobile App In-Page video ad unit.’ The subject-line for this email states: ‘Don’t we own this? Isn’t this what we paid Todd and Drell to build for us?’ ” (Id. at ¶ 22.) “On December 4, 2016, Defendant Williams sent Defendant Pescatello an email containing text from several VRTCAL twitter posts, including one that stated: ‘VRTCAL teams up with BidSwitch for OpenRTB expansion.’ ” (Id. at ¶ 26.)

“On June 15, 2018, The Mentor Group issued a [draft] written valuation of DelPlaya . . . valuing the company as of March 31, 2018.” (Id. at ¶ 29.) “The Valuation Report states: ‘Todd Wooten left [DelPlaya] and began competing in a similar business, apparently using the [DelPlaya]’s technology and customer list. Management believes that Mr. Wooten built the new company while employed with [DelPlaya]. A major client, AOL, was lost in the transition period. The defection also led to the loss of some customers to the new company and an associated revenue

decline.’ ” (Id. at ¶ 31.) “The Valuation Report estimates that, based on the alleged theft and breaches of Mr. Wooten, that ‘[t]he cost to resolve the legal matter with Todd Wooten was estimated at $75,000.’ ” (Id. at ¶ 33.)

“On March 23, 2022, Mr. Wooten initiated this action by filing his Complaint.” (Id. at ¶ 34.) “On October 4, 2022, DelPlaya filed its Cross-complaint in this action.” (Id. at ¶ 35.) “On February 24, 2023, DelPlaya filed its SACC in this action.” (Id. at ¶ 36.)

The remainder, of the not reasonably disputed facts, set forth the allegations of the SACC. The SACC essentially alleges: Wooten was employed by DelPlaya to develop technology that would allow DelPlaya to provide video and display ad serving, to operate a video and display ad marketplace, to insert video ads into electronic media, and to obtain and operate a “BidSwitch” connection that would allow DelPlaya to access the Google ad platform and other ad buyers. (SACC, ¶ 20.) Wooten developed the ad technology and applied for and procured a BidSwitch connection on behalf of DelPlaya but failed to deliver it to DelPlaya and failed to register a copyright for the technology on DelPlaya’s behalf. (Id. at ¶¶ 21-25.) Instead, at the direction of Maureen who is an officer, director, and shareholder of VRTCAL, Wooten formed VRTCAL and diverted and transferred DelPlaya’s documents, customer lists, the BidSwitch connection, and a contract to VRTCAL. (Id. at ¶¶ 22, 26.)

Wooten concealed the conversion of the ad technology and BidSwitch connection and claimed that the BidSwitch connection belonged to VRTCAL. (SACC, ¶ 27.) Once Wooten had developed the ad technology and BidSwitch connection, Wooten formed VRTCAL, tested the technology on DelPlaya’s servers, resigned from DelPlaya, and began using DelPlaya’s technology to directly compete with DelPlaya. (Id. at ¶¶ 3, 12, 29, 42.) In reliance on Wooten’s representations that he had turned over all property owned by DelPlaya, Williams and Pescatello entered into a settlement agreement with Wooten which includes a release in Wooten’s favor and which was procured based on Wooten’s failure to disclose that he had stolen ad technology, documents, customer lists, and the BidSwitch connection from DelPlaya. (Id. at ¶¶ 30, 32-40.)

DelPlaya’s additional undisputed facts are largely conclusory arguments regarding the merits of DelPlaya’s case and do not address the specific statute of limitations issues presented by the motion.

Analysis

1. Objections to Evidence

“In granting or denying a motion for summary judgment or summary adjudication, the Court need rule only on those objections to evidence that it deems material to its disposition of the motion. Objections to evidence that are not ruled on for purposes of the motion shall be preserved for appellate review.” (Code Civ. Proc., § 437c, subd. (q).)

DelPlaya objects to Exhibit 12 in support of the motion for summary judgment, the Mentor Valuation Report, dated March 31, 2018, on hearsay grounds.

Among other things, the report states: “Todd Wooten left the firm and began competing in a similar business, apparently using the Subject’s technology and customer list. Management believes that Mr. Wooten built the new company while employed with the Subject. A major client, AOL, was lost in the transition period. The defection also led to the loss of some customers to the new company and an associated revenue decline.” (Liebman Dec., ¶ 16 & Exh. 12 at DPM00031.) “The Subject is currently investigating whether one of its co-founders is using the Subject’s intellectual property in breach of an agreement concluded while he was still an officer, director and employee. The company’s legal advisors have indicated that litigation will cost the company several hundred thousand dollars or more. Instigation of this lawsuit would be under the premise that the benefit would be greater than the cost.” (Id. at DPM00060.)

“Evidence of a statement is not made inadmissible by the hearsay rule when offered against the declarant in an action to which he is a party in either his individual or representative capacity, regardless of whether the statement was made in his individual or representative capacity.” (Evid. Code, § 1220.)

“Evidence of a writing made as a record of an act, condition, or event is not made inadmissible by the hearsay rule when offered to prove the act, condition, or event if:

“(a) The writing was made in the regular course of a business;

“(b) The writing was made at or near the time of the act, condition, or event;

“(c) The custodian or other qualified witness testifies to its identity and the mode of its preparation; and

“(d) The sources of information and method and time of preparation were such as to indicate its trustworthiness.” (Evid. Code, § 1271.)

“A qualified witness need not be the custodian, the person who created the record, or one with personal knowledge in order for a business record to be admissible under the hearsay exception.” (Unifund CCR, LLC v. Dear (2015) 243 Cal.App.4th Supp. 1, 8.)

“A trial judge has broad discretion in admitting business records under Evidence Code section 1271, and it has been held that the foundation requirements may be inferred from the circumstances. Indeed, it is presumed in the preparation of the records not only that the regular course of business is followed but that the books and papers of the business truly reflect the facts set forth in the records brought to Court.” (People v. Dorsey (1974) 43 Cal.App.3d 953, 961.)

Here, Wooten has submitted the declaration of James Lisi to bring the valuation report under the business record exception and the party admission exception to the hearsay rule. Lisi declares, under penalty of perjury, that he is a certified valuation analyst and has provided valuation reports for privately held businesses since 2003. (Lisi Dec., ¶ 2.) From approximately 2017 to 2020, Lisi worked for The Mentor Group, and in 2018, he prepared the March 31, 2018, valuation report for DelPlaya. (Id. at ¶¶ 3, 4.) Lisi attests to the truth and accuracy of the report. (Id. at ¶ 4.) The report was made in the regular course of business. (Id. at ¶ 5.) The report has a June 15, 2018, certification and the report was made near that date. (Id. at ¶ 6.) The report contains information that Lisi received from DelPlaya’s agents and representatives. (Id. at ¶ 7.) The report contains information concerning Wooten that Lisi learned from DelPlaya’s agents and representatives. (Id. at ¶ 8.)

Wooten has established that the valuation report falls under the business record and party admission exceptions to the hearsay rule. There is no significance that the report may be a draft rather than a final version. DelPlaya’s objection is overruled.

2. Standard

A Defendant’s motion for summary judgment asks the Court to determine that the entire action has no merit, and to terminate the action without the necessity of a trial. (Code Civ. Proc., § 437c, subd. (a).) The procedure enables the Court to look behind the pleadings to determine whether the party against whom the motion is directed has evidence to back up the claims. The Court must determine from the evidence presented that there is no triable issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).)

The moving party bears the burden of persuasion that that there is no triable issue of material fact, and that it is entitled to judgment as a matter of law. (Aguilar v. Atlantic Richfield Co. (2001) 235 Cal.4th 826, 850.) Consequently, a Defendant moving for summary judgment bears the burden of persuasion that one or more elements of the cause of action in question cannot be established, or that there is a complete defense thereto. (Ibid.) The motion must be supported by evidentiary facts, not merely the ultimate facts. Further, conclusions of fact or law are not sufficient to support a motion for summary judgment. (Snider v. Snider (1962) 200 Cal.App.2d 741, 751.) 

Once a moving Defendant meets its initial burden, the burden shifts to the Plaintiff to produce evidence to prove the existence of a triable issue of fact regarding that element of its cause of action or the defense at issue in the motion, and if Plaintiff is unable to do so, Defendant will be entitled to judgment as a matter of law. (Saelzler v. Advanced Group 400 (2001) 35 Cal.4th 763, 780-781.)

In ruling on a motion for summary judgment, the trial Court must consider all of the evidence and all of the inferences reasonably drawn therefrom (Code Civ. Proc., § 437c, subd. (c)) and must view the evidence and inferences in the light most favorable to the opposing party. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 843.) In examining the sufficiency of the affidavits filed in connection with a summary judgment motion, those filed by the moving party are strictly construed, and those of the opposing party are liberally construed. (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 20-21.)

In resolving the motion, the Court may not weigh the evidence. (Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 840.) Rather, the role of the trial Court in resolving a summary judgment motion is to determine whether issues of fact exist, not to decide the merits of the issues. (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.) A triable issue of material fact exists only if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Aguilar v. Atlantic Richfield, supra, 25 Cal.4th at p. 850.)

3. Statute of Limitations

Cross-Defendants argue that the statute of limitations for the causes of action in DelPlaya’s SACC are: “(1) Three years for conversion (Code Civ. Proc., § 338, subd. (c)); (2) Three years for misappropriation of trade secrets (Civ. Code, § 3426.6); (3) Four years for breach of fiduciary duty (Code Civ. Proc., § 343); and (4) Four years for breach of settlement agreement (Code Civ. Proc., § 337.)” (Motion, p. 14, l. 23 to p. 15, l. 3.)

Citing allegations in the SACC, cross-Defendants argue that the causes of action accrued as early as February 7, 2016.

DelPlaya does not argue that the applicable statutes of limitations are other than stated by cross-Defendants. Rather, it argues the “discovery rule” for belated accrual of a cause of action is applicable.

“Traditionally at common law, a ‘cause of action accrues “when [it] is complete with all of its elements”—those elements being wrongdoing, harm, and causation.’ [Citation.] This is the ‘last element’ accrual rule: ordinarily, the statute of limitations runs from ‘the occurrence of the last element essential to the cause of action.’ [Citations.]” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1192.)

“An important exception to the general rule of accrual is the ‘discovery rule ....’ ” (Fox v. Ethicon Endo–Surgery, Inc. (2005) 35 Cal.4th 797, 807.) “ ‘A cause of action under this discovery rule accrues when “ ‘Plaintiff either (1) actually discovered his injury and its negligent cause or (2) could have discovered injury and cause through the exercise of reasonable diligence.’ ” [Citation.] The limitations period begins once the Plaintiff has notice or information of circumstances to put a reasonable person on inquiry. [Citation.] Subjective suspicion is not required. If a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation. [Citations.]’ ” (McCoy v. Gustafson (2009) 180 Cal.App.4th 56, 108.)

“The California rule on delayed discovery of a cause of action is the statute of limitation begins to run “ ‘when the Plaintiff has reason to suspect an injury and some wrongful cause . . ..’ ” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 803) “ ‘A Plaintiff need not be aware of the specific “facts” necessary to establish the claim; that is a process contemplated by pretrial discovery . . .. So long as a suspicion exists, it is clear that the Plaintiff must go find the facts; she cannot wait for the facts to find her.’ ” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1111.)” (MGA Entertainment, Inc. v. Mattel, Inc. (2019) 41 Cal.App.5th 554, 561.)

“When a Plaintiff reasonably should have discovered facts for purposes of the accrual of a case of action or application of the delayed discovery rule is generally a question of fact, properly decided as a matter of law only if the evidence . . . can support only one reasonable conclusion.” (Broberg v. Guardian Life Ins. Co. of America (2009)171 Cal.App.4th 912, 921.)

Here, the evidence submitted can support only one reasonable conclusion. DelPlaya knew or, through the exercise of reasonable diligence, should have discovered Wooten’s alleged conversion, misappropriation of trade secrets, breach of fiduciary duty, and breach of the settlement agreement, no later than March 31, 2018, which is the date of the valuation report. The representations by DelPlaya’s “agents and representatives” are unequivocal. On that date, at the very latest, DelPlaya knew or suspected that: “Todd Wooten left the firm and began competing in a similar business, apparently using the Subject’s technology and customer list. Management believes that Mr. Wooten built the new company while employed with the Subject. A major client, AOL, was lost in the transition period. The defection also led to the loss of some customers to the new company and an associated revenue decline.” (Liebman Dec., ¶ 16 & Exh. 12 at DPM00031.) “The Subject is currently investigating whether one of its co-founders is using the Subject’s intellectual property in breach of an agreement concluded while he was still an officer, director and employee. The company’s legal advisors have indicated that litigation will cost the company several hundred thousand dollars or more. Instigation of this lawsuit would be under the premise that the benefit would be greater than the cost.” (Id. at DPM00060.)

Further strengthening Wooten’s argument is the declaration of DelPlaya’s CEO, John Williams that was submitted in support of Defendants’ motion to disqualify Wooten as derivative Plaintiff. Williams declares that on February 7, 2016, he reviewed the VRTCAL website and noticed that it advertised products that “are substantially identical to DelPlaya Products.” (Williams Dec., ¶ 23.) “The VRTCAL website also stated that VRTCAL was working with Bidswitch. While working at DelPlaya, Wooten was supposed to integrate the DelPlaya Products with Bidswitch. (Id. at ¶ 24.) “Based on my review of VRTCAL’s website and my knowledge of DelPlaya’s business, I believe that VRTCAL is a direct competitor of DelPlaya.” (Id. at ¶ 25.) “Since he resigned in January 29, 2016, and based upon all the information I have stated above, I believe that Wooten has used technology and information, including, but not limited to the DelPlaya Products, to gain an unfair competitive advantage against DelPlaya.” (Id. at ¶ 29.) The declaration, especially combined with Williams’ email of November 16, 2016, demonstrates that, at the very least, DelPlaya suspected that Wooten was engaged in the acts that are the subject of DelPlaya’s cross-complaint. The valuation report takes away all doubt regarding the date that the causes of action accrued. Of note is that Williams, in his declaration submitted in opposition to the present motion, does not declare that he did not suspect Wooten of the actions that are the basis of the SACC prior to the preparation of the valuation report. On the contrary, all of the evidence submitted can lead to no other inference other than DelPlaya at least suspected Wooten of wrongdoing shortly after Wooten left DelPlaya and was contemplating legal action against him by the time that the valuation report was prepared.

As noted above, the cross-complaint was filed on October 4, 2022. While it appears that the causes of action accrued in 2016, viewing the evidence and inferences in the light most favorable to DelPlaya, the Court finds that, at the very latest, the causes of action all initially accrued no later than the date that the valuation report was prepared.

DelPlaya further argues that the conversion cause of action is not barred because it is a continuing tort, and that cross-Defendants continue to use DelPlaya’s stolen technology and customer lists.  The conversion cause of action in the SACC alleges: “DelPlaya is the rightful owner of the Ad Tech including the documents belonging to DelPlaya related thereto, the customer lists including contact information of DelPlaya’s existing and potential customers, and the BidSwitch connection procured by Todd Wooten while an employee, Officer, and Director, of DelPlaya.” (SACC, ¶ 45.)

“ ‘ “Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the Plaintiff's ownership or right to possession of the property; (2) the Defendant's conversion by a wrongful act or disposition of property rights; and (3) damages.” ’ [Citation.]” (Hester v. Public Storage (2020) 49 Cal.App.5th 668, 680.) “Under Code of Civil Procedure, section 338, subdivision (c), which applies to the conversion of personal property, there is a three-year limitations period for “ ‘action[s] for taking, detaining, or injuring any goods or chattels.’ ” Under California law, the general rule is well established: “ ‘[T]he statute of limitations for conversion is triggered by the act of wrongfully taking property.’ ” [Citation.]” (AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 639.) As with the other causes of action, the conversion action was triggered by the act of wrongfully taking DelPlaya technology and documents. The continuing use of the property does not negate the statute of limitations as set forth in Code of Civil Procedure, section 338, subdivision (c).

DelPlaya also argues that the breach of settlement agreement claim is not barred because cross-Defendants continue to breach the agreement. As with their argument regarding conversion, DelPlaya’s argument is unpersuasive. The cause of action accrued when Wooten breached the contract or when DelPlaya suspected he did. As noted above, no later than March 31, 2018, DelPlaya agents or representatives stated that they are “currently investigating whether one of its co-founders is using the Subject’s intellectual property in breach of an agreement concluded while he was still an officer, director and employee.” DelPlaya provides no legal support for the contention that continuing to be in breach of the settlement agreement, without new breaches, renders the statute of limitations inapplicable. All of the allegations in the SACC stem from the initial claimed theft and use of DelPlaya property.

Because March 31, 2018, is the latest that DelPlaya’s causes of action could have accrued, the statute of limitations for the conversion and misappropriation causes of action ran on March 31, 2021. They are thus time barred. The statute of limitations for the breach of fiduciary duty and breach of settlement agreement ran on March 31, 2022. They are also time barred. As such, the motion for summary judgment will be granted.