A&C Trade Consultants, Inc. v. Alvarez

Background

A&C Trade Consultants, Inc. sells industrial washdown equipment. It alleged that Joel E. Alvarez, a former employee who had overseen the South American market, diverted A&C’s money into accounts in his name and used A&C’s trade secrets with other defendants to establish and promote a joint business venture.

A&C asserted claims under the federal Defend Trade Secrets Act, California’s trade-secret law, the Computer Fraud and Abuse Act, several California Penal Code provisions, breach of contract, breach of fiduciary duty, conversion, money had and received, fraud, unjust enrichment, and California’s Unfair Competition Law. The clerk entered defaults against Alvarez, Revolution Racing Team, Importtrix, Martin Alonso Guerra Espinosa, and Suministros Industriales Joma S.A.S. A&C then sought default judgment against all five defendants.

Jurisdiction and Default Judgment

The court found that it had subject-matter jurisdiction over the federal claims and supplemental jurisdiction over the remaining claims. It also found personal jurisdiction over Alvarez because the complaint alleged that he resided in the judicial district. But A&C did not provide enough information about the forum contacts of Revolution Racing Team or Importtrix, and alleged no such contacts for Espinosa or Suministros Industriales Joma S.A.S. The court therefore denied default judgment against those four defendants.

The court applied the Ninth Circuit’s seven-factor test for deciding whether to enter a default judgment. It concluded that all seven factors favored entering judgment against Alvarez, who had been served but had not responded or challenged the clerk’s entry of default.

Claims Against Alvarez

The court found that A&C established its claims against Alvarez under the Defend Trade Secrets Act and California’s Uniform Trade Secrets Act. A&C presented evidence that Alvarez had access to customer lists, shared information with Espinosa, provided wire instructions to buyers, and directed payments into business accounts.

The court also found that A&C established its Computer Fraud and Abuse Act claim. A&C’s evidence indicated that Alvarez exceeded his limited access to the accounting system, manipulated the computer system and security protocols, and caused losses exceeding $5,000 during a one-year period.

A&C established its breach-of-contract claim based on a nondisclosure agreement that prohibited Alvarez from disclosing trade secrets and confidential or proprietary information. The court also found that A&C established claims for conversion and money had and received, based on evidence that at least 636 checks payable to A&C and wire transfers from A&C customers went into Alvarez’s account, including at least $2,280,609 in A&C sales.

A&C did not establish its claims under the cited California Penal Code provisions, breach of fiduciary duty, fraud, or the Unfair Competition Law. The court explained that A&C did not address the Penal Code or Unfair Competition Law claims as required and did not show that Alvarez owed it the fiduciary duty required for that claim or had a duty to disclose the information underlying the fraud claim. The court treated unjust enrichment as a principle relevant to monetary relief rather than as a separate cause of action.

Relief

A&C requested $2,280,609 in compensatory damages, $1,252,419 in treble damages, $75,000 in punitive damages, equitable relief, and attorney fees and costs. The court reduced the compensatory award by approximately $160,000 in payments Alvarez had made and awarded $2,120,609 in compensatory damages. It did not award treble or punitive damages because A&C provided no adequate argument supporting treble damages and no evidence of Alvarez’s financial condition to support punitive damages.

The court denied A&C’s requests for a constructive trust, an injunction, and other equitable relief because A&C had an adequate remedy through its damages award. It denied the request for attorney fees and costs without prejudice to A&C filing a separate motion under the district’s local rules.

Disposition

The court granted A&C’s amended motion for default judgment in part and denied it in part. The motion was granted as to Alvarez, with judgment against him for $2,120,609. In all other respects, the motion was denied, except that the denial of attorney fees and costs under the trade-secret statutes was without prejudice to a separate motion.