Mintz v. Mark Bartelstein & Associates Inc.

Citations: 906 F. Supp. 2d 1017; 2012 WL 5391779; 2012 U.S. Dist. LEXIS 161600Docket: Case Nos. 2:12-cv-02554-SVW-SS, 2:12-cv-03055-SVW-SS

Court: District Court, C.D. California; November 1, 2012; Federal District Court

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A legal dispute has arisen involving Plaintiff Aaron Mintz, a former basketball sports agent, and his previous employer, Mark Bartelstein Associates, Inc. (Priority Sports). Mintz seeks a declaration under the Declaratory Judgment Act that two clauses in his employment contract—one imposing a two-year non-compete and another requiring fourteen days’ notice of termination—are unenforceable. Additionally, he has filed a separate complaint against Priority Sports and its principal, Mark Bartelstein, alleging illegal retaliatory actions post-resignation, including unauthorized access to his personal emails and confidential information regarding his new employment with Creative Artists Agency (CAA). The claims in this second complaint include violations of the Computer Fraud and Abuse Act (CFAA), the Electronic Communications and Privacy Act (ECPA), the California Data Access and Fraud Act, defamation, invasion of privacy, interference with economic relations, and violations of the California Unfair Business Practices Act.

In response, Priority Sports counterclaims against Mintz, alleging conspiracy with CAA to misappropriate confidential information and convert clients, along with multiple claims including breach of contract, breach of the covenant of good faith, breach of duty of loyalty, misappropriation of trade secrets, and violations of the UCL. Both parties have filed motions for summary judgment: Mintz and CAA seek to dismiss all counterclaims or, alternatively, obtain partial summary judgment concerning specific claims, while Priority Sports seeks partial summary judgment on its breach of contract and duty of loyalty claims against Mintz.

Plaintiff's Motion for Summary Judgment is granted for the claims of violation of California Penal Code 502 and invasion of privacy, but denied for the UCL claim. The Court grants summary judgment in favor of Defendants regarding Plaintiff's claims for declaratory relief, violation of the CFAA, and violation of the ECPA. Counterdefendants’ Motion for Summary Judgment on Defendants’ counterclaims is granted for all claims. Consequently, Defendants’ Motion for Partial Summary Judgment is denied as moot.

Plaintiff was employed by Priority Sports, a Chicago-based sports agency, from September 25, 2001, to March 23, 2012, under an employment contract that mandated his full commitment to the company, adherence to its policies, and confidentiality of business information. The contract prohibited him from soliciting clients, recruiting employees, providing services for competitors, or disclosing confidential information during and after employment. It allowed Plaintiff to terminate employment with fourteen days' written notice. However, he resigned without such notice on March 23, 2012, after receiving a job offer from CAA. During his resignation call, he was warned by Bartelstein to be prepared for the consequences of his decision.

On March 25, 2012, Priority Sports' General Counsel, Rick Smith, directed employee Bradley Ames to unlawfully access Plaintiff's personal Gmail account, from which Ames obtained a temporary password and viewed the Plaintiff's employment agreement with CAA for at least twenty minutes. The following day, a colleague informed Plaintiff of rumors suggesting that CAA was offering him a lower salary than he would have received at Priority Sports. Plaintiff accuses Defendants of leaking his employment terms to a third party, Josh Ketroser, and alleges that Bartelstein defamed him to various NBA executives and players to dissuade them from joining CAA.

Defendants claim Plaintiff breached his employment contract by not providing fourteen days’ written notice of his resignation, which was effective March 23, 2012. Additionally, they assert that while still employed, Plaintiff shared his Priority Sports contract with CAA and failed to communicate client grievances regarding the marketing department to Priority Sports prior to his resignation. Bartelstein corroborated these claims in his declaration.

Under Rule 56(c), summary judgment is warranted for the moving party when evidence shows no genuine issue of material fact, entitling them to judgment as a matter of law. The moving party must initially demonstrate the absence of material fact issues; if they would bear the burden of proof at trial, they must present evidence that could lead to a directed verdict if unchallenged. If they do not bear that burden, they can meet their obligation by indicating a lack of evidence supporting the nonmoving party's claims. Failure to meet this initial burden results in a denial of summary judgment without evaluating the nonmoving party's evidence. If the moving party meets its burden, the nonmoving party must then identify specific facts that genuinely dispute the issue.

A nonmoving party cannot counter a motion for summary judgment with merely conclusory allegations lacking factual support. To establish a genuine issue of material fact, the evidence must be substantial enough that a reasonable jury could potentially favor the nonmoving party. Only evidence deemed admissible is considered, and determinations of credibility and the weighing of evidence are functions reserved for a jury. Justifiable inferences must be drawn in favor of the nonmoving party, even if they are not the most persuasive.

In the case at hand, the plaintiff seeks a declaratory judgment to invalidate a two-year non-compete clause and a fourteen-day written notice requirement in his employment contract with Priority Sports. However, before addressing the merits, the court examines the defendants' argument regarding the mootness of the non-compete clause. Under the Declaratory Judgment Act, the court must determine if a real and substantial controversy exists between the parties. The burden rests on the plaintiff to demonstrate this controversy.

Defendants assert there is no ongoing controversy since they have indicated they will not enforce the non-compete clause. During a court hearing, defense counsel confirmed there are no plans to enforce this provision. The plaintiff counters that the defendants have declined requests for a stipulation affirming non-enforcement, although the defendants claim their refusal stems from concerns over the stipulation's broad wording rather than an intention to enforce the clause. Nonetheless, there is no evidence of any attempt by the defendants to enforce the non-compete in any litigation. Thus, the court concludes that the plaintiff has failed to establish an actual controversy sufficient to justify a declaratory judgment.

Plaintiff challenges the enforceability of a two-week notice provision in his contract with Priority Sports, specifically contesting the assertion that he remained employed for fourteen days post-resignation, which he claims unjustly restricted his ability to compete for clients. However, Defendants clarify that the notice provision did not prevent Plaintiff from terminating his employment or competing fairly after his termination. Instead, they argue that Plaintiff breached the notice requirement by not providing the requisite notice of resignation. The Court finds no actual controversy regarding the notice provision since both parties' positions are aligned, leading to a lack of standing for Plaintiff to seek declaratory relief. Consequently, summary judgment is granted to Defendants regarding these claims.

Regarding the Computer Fraud and Abuse Act (CFAA), Plaintiff alleges Defendants unlawfully accessed his Gmail account. The CFAA holds individuals liable for unauthorized computer access that results in obtaining information or causing loss. Plaintiff must demonstrate a loss of at least $5,000 to proceed with his claim. Defendants do not dispute that Priority Sports violated CFAA provisions but contest whether Plaintiff has provided sufficient evidence of a loss exceeding $5,000. Plaintiff claims to have incurred $27,796.25 in legal fees to identify Priority Sports as the entity responsible for the hacking.

The Court finds that the Plaintiff has not met the statutory threshold for demonstrating a "loss" under the CFAA for two primary reasons. First, according to 18 U.S.C. 1030(e)(11), a "loss" is defined as "any reasonable cost to any victim." The legal fees in question were incurred by CAA, who is not a victim of the offense, and there is no evidence that Plaintiff is obligated to reimburse CAA. Therefore, Plaintiff has not personally suffered a loss. Second, even if CAA's involvement were to be disregarded, the litigation expenses do not qualify as a "loss" under the CFAA. Previous Ninth Circuit cases have recognized that costs related to investigating computer intrusions and remediation can constitute "losses." However, the current litigation costs do not align with that precedent. In past cases, such as Kimberlite Corp. and Multiven, the plaintiffs presented evidence of substantial expenses directly tied to investigating and repairing damage from intrusions. Conversely, in this case, the litigation costs are not deemed necessary for remedying the harm caused by the unauthorized access. While the current situation shares similarities with the Success-Factors case, where expenses to identify the offender were justified, the Court distinguishes it on the grounds that the Plaintiff's litigation costs do not address an immediate risk or harm, which is a critical factor for qualifying as a "loss."

Plaintiff's evidence indicates a clear belief that Priority Sports was responsible for a Gmail account breach shortly after the incident. It is established that a Priority Sports employee, Kenny Zuckerman, disclosed Plaintiff's compensation details to others, confirming Priority Sports' involvement and access to Plaintiff's employment contract. Plaintiff could have secured his account by changing the password and backup email, making his legal efforts to confirm Priority Sports' involvement unnecessary for remedying any harm. Consequently, the litigation costs do not constitute a "loss" under the Computer Fraud and Abuse Act (CFAA), leading to the conclusion that Plaintiff fails to meet the $5,000 threshold for standing, resulting in summary judgment for Defendants on the CFAA claim.

Regarding the Electronic Communications and Privacy Act (ECPA), Plaintiff alleges that Defendants violated provisions concerning the interception of electronic communications. However, these claims fail because there was no interception; the emails were accessed while in storage, not during transmission. Plaintiff's attempt to assert a violation of the Stored Communications Act (SCA) at the summary judgment stage is invalid as it introduces a new theory not previously included in the complaint. The SCA and ECPA provisions address different types of unauthorized access, with the SCA focusing on data in storage. Since Plaintiff's ECPA claim is legally insufficient, the Court grants summary judgment in favor of Defendants.

Priority Sports is alleged to have violated California Penal Code 502 by unauthorized access to the Plaintiff's Gmail account. The statute holds individuals liable for knowingly accessing and using data or computer systems without permission to wrongfully obtain control over money, property, or data. It allows the owner of the compromised computer or data to file a civil lawsuit for any damage or loss, with no minimum threshold required for standing. The court found that Priority Sports, under the direction of its senior counsel, accessed the Plaintiff's Gmail without permission, viewing sensitive emails, including an employment agreement. The Plaintiff incurred damages while restoring his account and investigating the breach. Consequently, the court granted summary judgment in favor of the Plaintiff on this claim.

Additionally, the Plaintiff claims that the unauthorized access constituted a violation of his right to privacy under the California Constitution. To succeed, he must demonstrate a protected privacy interest, a reasonable expectation of privacy, and a serious invasion of that interest. The court will determine whether a legally recognized privacy interest exists, while the assessment of reasonable expectation and serious invasion involves both legal and factual considerations. If all elements are met, the Plaintiff’s privacy interest is weighed against any legitimate interests of the Defendant. Priority Sports does not dispute the existence of a legally protected privacy interest regarding personal financial and employment information, which is safeguarded against public disclosure under the Fourth Amendment.

The California Supreme Court has established that individuals have a diminished expectation of privacy regarding salaries in public employment compared to private sector earnings, yet individuals still possess a legitimate privacy interest in private sector income. California courts protect an individual’s privacy in their employment personnel file, as seen in *El Dorado Sav. Loan Ass’n v. Super. Ct.* Here, Priority Sports accessed the Plaintiff's Gmail account, revealing sensitive employment and compensation details, which violated his privacy rights.

The Plaintiff demonstrated a reasonable expectation of privacy in his personal Gmail account, which was exclusively used for personal matters and password protected. He was the sole account holder and did not authorize any Priority Sports employees to access it. Although Defendants argued that Plaintiff's actions negated this expectation, their claims lacked merit. They mischaracterized witness testimonies about the disclosure of salary information and failed to substantiate allegations regarding access by Plaintiff's girlfriend. Even though Plaintiff shared details of his agreement with Priority Sports during negotiations with CAA, this did not imply he relinquished privacy over that information.

In conclusion, the Defendants did not present specific facts to challenge the Plaintiff's reasonable expectation of privacy, leading to the next consideration of whether a substantial invasion of his privacy occurred.

Serious invasion of privacy claims require a significant breach of social norms, as established in Hill. In this case, Priority Sports employee Ames intentionally accessed Plaintiff's Gmail account without authorization, opened multiple emails, and viewed the Plaintiff's CAA employment agreement. This conduct was deliberate rather than accidental, distinguishing it from cases like Hernandez v. Hillsides, Inc. Ames’s actions were illegal under California Penal Code 502, and the Defendants’ claim that the invasion was minimal is unsubstantiated, as it ignores the unlawful nature of Ames's initial intrusion. The Court finds no legitimate competing interests that would justify such unauthorized access, leading to the conclusion that the invasion was egregious. Consequently, the Court grants Plaintiff summary judgment on the invasion of privacy claim.

Additionally, under California's Unfair Competition Law (UCL), the Plaintiff alleges that the Defendants engaged in unlawful business practices due to the previous claims. A private plaintiff must demonstrate actual injury and loss due to unfair competition, as established following Proposition 64.

A plaintiff must demonstrate economic injury to succeed in a claim under the Unfair Competition Law (UCL), as established in *Kwikset Corp. v. Superior Court*. Despite the plaintiff's claims of injury, he failed to prove any loss of money or property due to violations of other laws. Courts have ruled that personal information does not qualify as money or property under the UCL, leading to the denial of the plaintiff's motion for summary judgment on the UCL claim.

In the counterclaim by Priority Sports against the plaintiff for breach of contract, the allegations include the plaintiff's prior employment with CAA, solicitation of players on CAA's behalf, misappropriation of trade secrets, inadequate notice of resignation, and failure to return company property. The court notes that since the misappropriation and conversion claims do not hold, they cannot substantiate a breach of contract claim.

For a breach of contract claim to succeed, three elements must be established: the existence of a contract, the plaintiff's performance or excuse for nonperformance, and the defendant's breach resulting in damages. The plaintiff contends that Priority Sports has not shown any damages from the alleged breaches. The plaintiff acknowledges soliciting NBA player Taj Gibson but points out that Gibson did not leave Priority Sports for CAA, negating any harm. Priority Sports’ other allegations regarding communication with recruits Mike Scott and Terrence Ross lack supporting evidence, and any claims of solicitation are speculative. Thus, the plaintiff moves for summary judgment based on the absence of triable issues regarding damages.

A 'reasonable' inference must be based on logical reasoning, not mere speculation. Priority Sports failed to establish that it suffered damages due to the Plaintiffs' lack of fourteen days’ notice. Although Priority Sports argued that the absence of notice prevented it from securing client relationships before the Plaintiffs' departure, the only evidence provided was a declaration from Bartelstein, who acknowledged that a key client remained with Priority Sports despite the delay in contact. Furthermore, Bartelstein’s deposition confirmed he had contacted all relevant players, contradicting the claim of any damage from the lack of notice. Priority Sports did not identify any lost clients due to the notice issue, leading the Court to determine that no reasonable fact-finder could conclude Priority Sports suffered damages from the alleged breach. Consequently, the Court granted the Plaintiffs summary judgment on the breach of contract counterclaim.

Regarding the breach of the implied covenant of good faith and fair dealing, the Court held that Priority Sports' allegations mirrored those of the breach of contract claim and did not present a separate basis for relief. Thus, this counterclaim was deemed superfluous, and summary judgment was granted to the Plaintiffs.

In the context of the breach of duty of loyalty claim, Priority Sports must show the existence of a loyalty relationship, breaches of that duty, and damages caused by such breaches. The Court noted that this claim relied on the same allegations as the breach of contract claim. Since the facts did not establish a triable issue for breach of contract, they could not support a breach of duty of loyalty claim either. As a result, the Court granted summary judgment on this counterclaim as well.

Defendant did not breach his employment contract or the duty of loyalty, leading the court to grant him summary judgment on the loyalty counterclaim. Priority Sports claims disloyal conduct based on allegations that the Plaintiff planned his transition to CAA while still employed. Specific allegations include: 1) an agreement for CAA to cover Plaintiff's representation costs, 2) entering a joint defense agreement with CAA for litigation, and 3) meetings with CAA's attorneys prior to his resignation. However, under California law, preparing to compete is not a breach of the duty of loyalty, and employees may set up competing organizations without violating this duty, provided they do not transfer their loyalty to a competitor. The court found no evidence that Priority Sports suffered harm from Plaintiff's actions, such as loss of clients or disadvantage in litigation. Consequently, there is no triable issue regarding breach or damages.

Regarding Priority Sports' fourth counterclaim for misappropriation of trade secrets under California’s Uniform Trade Secrets Act (CUTSA), the claim requires proof of ownership of a trade secret, improper acquisition or use by the defendant, and resultant damages. The court noted that Priority Sports failed to provide evidence of any specific instance of misappropriation, agreeing with Plaintiff's argument that the opposition lacked substantiation for the allegations, including any concession by Plaintiff regarding the use of client lists.

Priority Sports' counterclaims against Plaintiff and CAA were dismissed by the Court due to insufficient evidence. The misappropriation counterclaim was rejected because the statements from Bartelstein did not implicate Plaintiff or CAA in any wrongdoing. Consequently, summary judgment was granted to Plaintiff and CAA. For the intentional interference with contractual relations claim, Priority Sports failed to prove that CAA engaged in any independently wrongful act to induce Plaintiff's breach of his at-will employment contract. The Court emphasized that California law requires proof of such wrongful actions for claims involving at-will employment. Since no evidence was presented to support allegations of wrongful conduct by CAA or Plaintiff, summary judgment was also granted to CAA on this claim. Furthermore, with respect to the claim of intentional interference with prospective economic advantage, the Court found that Priority Sports could not demonstrate that either Plaintiff or CAA engaged in any independently wrongful acts. The Court reaffirmed that there was no ground for asserting that Plaintiff breached any contractual obligations or misappropriated trade secrets. Lastly, on the conversion claim, although Defendants alleged that Plaintiff took Priority Sports' property, it was noted that Plaintiff had returned the laptop and documents, undermining the basis for the claim. Summary judgment was granted to Counterdefendants on all counterclaims.

The determination of whether the Plaintiff's failure to return a cell phone constitutes conversion hinges on three elements under California law: ownership or right to possession, wrongful disposition of the property, and damages. The Plaintiff claims ownership of the cell phone and asserts that he has already provided Priority Sports with any relevant data from it. Priority Sports contends ownership based on a deposition where Mintz allegedly stated he has not returned a company Blackberry, but evidence contradicts this claim, indicating a dispute over ownership. The Court criticizes Priority Sports for misrepresenting evidence and warns of potential sanctions for future inaccuracies. Consequently, the Court grants summary judgment in favor of the Plaintiff regarding the conversion claim.

In terms of the counterclaim under California Penal Code Section 502, Priority Sports accused the Plaintiff of unauthorized access to its computers and data manipulation. However, the evidence fails to substantiate these allegations, as the key witness could not identify any specific files affected by the Plaintiff's actions. Priority Sports attempted to shift the argument to allegations of unauthorized access to confidential information but provided no factual support for this claim and conceded the lack of evidence regarding any resulting damages. The Court emphasizes that Priority Sports did not fulfill procedural requirements for seeking additional discovery and concludes that they have had sufficient opportunity to gather evidence on damages. Therefore, the Court proceeds with summary judgment.

Priority Sports has not demonstrated any evidence of damages, leading the Court to grant Plaintiff summary judgment on the defamation and trade libel claim. Priority Sports alleges that the Plaintiff made false and defamatory statements to third parties about the company, which damaged its reputation. Specific claims include assertions that the Plaintiff informed an industry blogger about an employee's departure and made disparaging remarks to NBA players regarding the stability and leadership of Priority Sports. The Plaintiff argues that Priority Sports has failed to provide evidence supporting these allegations, asserting that the statements are either inadmissible hearsay or non-actionable opinions. 

Priority Sports contends it will prove these claims at trial but misunderstands the summary judgment process, which requires presenting evidence now. The company has not identified any third-party testimony to back its claims and incorrectly attributes its lack of evidence to CAA's failure to produce NBA players for depositions. Priority Sports requests a continuance under Rule 56(d)(2) to gather further evidence but fails to meet the necessary requirements, as it does not specify what facts it hopes to elicit or how those facts would be essential to opposing the summary judgment. A declaration from defense counsel states that CAA's counsel would accept service for certain players but does not provide specifics on how their testimony would substantiate Priority Sports’ claims. As a result, the Court denies the request for a continuance.

Priority Sports did not establish a triable issue regarding any defamatory or libelous statements made by the Plaintiff, resulting in the Court granting Plaintiff summary judgment on the defamation and trade libel claims. Regarding the conspiracy claim, Priority Sports alleged that Plaintiff and CAA conspired to commit wrongful acts, including breach of contract and misappropriation. However, a conspiracy alone does not incur tort liability unless an actual tort is committed. The Court found that Priority Sports failed to demonstrate any predicate tortious acts, leading to summary judgment in favor of the Counterdefendants on the conspiracy claim. 

For the Unfair Competition Law (UCL) claim, Priority Sports asserted damage from Counterdefendants' unlawful, unfair, or fraudulent business practices. The UCL allows for the actionability of violations of other laws, but Priority Sports did not provide evidence of any unlawful acts by the Counterdefendants. Additionally, the Court determined that there was no evidence to support that the Counterdefendants' actions were unfair or fraudulent under the UCL. Consequently, the Court granted summary judgment to the Counterdefendants on this claim as well. 

In conclusion, the Court granted Plaintiff's motion for summary judgment on its claims for violation of California Penal Code Section 502 and invasion of privacy but denied it regarding the UCL claim.

The Court granted summary judgment in favor of Defendants concerning Plaintiffs' claims for declaratory relief, violations of the CFAA and ECPA. Additionally, summary judgment was granted for Counterdefendants on all Defendants' counterclaims. The Court denied Defendants’ Motion for Partial Summary Judgment regarding breach of contract and duty of loyalty claims as moot. The remaining claims to be tried are for defamation, interference with prospective economic relations, and violations of the UCL. The initial complaint was filed under case number 2:12-cv-03055-SVW-SS and was consolidated on June 11, 2012. The Court rejected the Eighth Circuit's interpretation in United States v. Millot concerning the definition of "loss" as it relates to CFAA claims, emphasizing that "loss" refers specifically to the reasonable costs incurred by victims. While Plaintiffs alleged other violations under § 502, these were deemed unnecessary for establishing liability. The Court noted that it would have granted further summary judgment for Defendants, but the pending claims for defamation and economic interference could potentially affect the UCL claim if they result in economic injury. Consequently, summary judgment on the UCL claim was not granted. The Court also highlighted that Priority Sports failed to adequately support its allegations with sufficient evidence in the record, which the Court may disregard.