Superior Court, State of California



DATE: AUGUST 4, 2022 TIME: 1:30 P.M.

PREVAILING PARTY SHALL PREPARE THE ORDER

UNLESS OTHERWISE STATED (SEE RULE OF COURT 3.1312)

|LINE # |CASE # |CASE TITLE |RULING |

|LINE 1 |20CV372610 |Huizar v. California Sports Center |See tentative ruling. The Court will provide the |

| | | |final order. |

|LINE 2 |19CV353132 |In Re Hewlett Packard Enterprise Co. |See tentative ruling. The Court will provide the |

| | |Shareholder Litigation (Lead Case; |final order. |

| | |Consolidated With Case No. 19CV359073) | |

|LINE 3 |21CV390154 |Lady Freethinker v. Google LLC |See tentative ruling. The Court will provide the |

| | | |final order. |

|LINE 4 |19CV359055 |Kaga FEI Co., Ltd. v. Cypress Semiconductor |See tentative ruling. The Court will provide the |

| | |Corp. |final order. |

|LINE 5 |17CV306546 |Rogers v. iTy Labs Corp., et al |OFF CALENDAR, due to stay imposed by the Sixth |

| | | |District. |

|LINE 6 |2008-1-CV-130677 |Kenmark Ventures, LLC vs T. Thomas, et al |The Court DENIES the motion for reconsideration. |

| | | |The allegedly-new facts adduced now could have been|

| | | |provided, through the exercise of reasonable |

| | | |diligence, at earlier times. Defendant thus has |

| | | |not met the requirements of CCP section 1008. And |

| | | |the Court declines to sua sponte reconsider its |

| | | |previous ruling. |

| | | | |

| | | |In addition, the Court is inclined to strike |

| | | |Defendant’s reply, as there is no substitution of |

| | | |counsel form on file with the Court showing that |

| | | |the attorney who filed the reply was, in fact, |

| | | |Defendant’s counsel. |

| | | | |

| | | |The Court will prepare the final order. |

|LINE 7 |2008-1-CV-130677 |Kenmark Ventures, LLC vs T. Thomas, et al |See tentative ruling. The Court will prepare the |

| | | |final order. |

|LINE 8 | | | |

|LINE 9 | | | |

|LINE 10 | | | |

|LINE 11 | | | |

|LINE 12 | | | |

|LINE 13 | | | |

Calendar Line 1

Case Name: Anthony Huizar v California Sports Center, et al.

Case No.: 20CV372610

This is a putative class and Private Attorneys General Act (“PAGA”) action. Plaintiffs Anthony Huizar and Paola Navarro allege that Defendant California Sports Center failed to provide compliant meal and rest breaks, failed to pay employees for all hours worked due to time rounding and off-the-clock work, and committed other wage and hour violations.

The parties reached a settlement, which the Court preliminarily approved in an order filed on March 21, 2022. The factual and procedural background of the action and the Court’s analysis of the settlement and settlement class are set forth in that order.

Before the Court is Plaintiffs’ motion for final approval of the settlement and for approval of their attorney fees, costs, and service award.  The motion is unopposed.

As discussed below, the Court GRANTS final approval.

 

I. LEGAL STANDARDS FOR SETTLEMENT APPROVAL

A. Class Action

Generally, “questions whether a [class action] settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper are matters addressed to the trial court’s broad discretion.”  (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234–235 (Wershba), disapproved of on other grounds by Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260.)   

   

In determining whether a class settlement is fair, adequate and reasonable, the trial court should consider relevant factors, such as the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.    

 

(Wershba, supra, 91 Cal.App.4th at pp. 244–245, internal citations and quotations omitted.)

        

 In general, the most important factor is the strength of the plaintiffs’ case on the merits, balanced against the amount offered in settlement. (See Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130 (Kullar).) But the trial court is free to engage in a balancing and weighing of factors depending on the circumstances of each case.  (Wershba, supra, 91 Cal.App.4th at p. 245.)  The trial court must examine the “proposed settlement agreement to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.”  (Ibid., citation and internal quotation marks omitted.)

The burden is on the proponent of the settlement to show that it is fair and reasonable.  However “a presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.”    

 

(Wershba, supra, 91 Cal.App.4th at p. 245, citation omitted.)  The presumption does not permit the Court to “give rubber-stamp approval” to a settlement; in all cases, it must “independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished,” based on a sufficiently developed factual record.  (Kullar, supra, 168 Cal.App.4th at p. 130.)

B. PAGA

Labor Code section 2699, subdivision (l)(2) provides that “[t]he superior court shall review and approve any settlement of any civil action filed pursuant to” PAGA. The court’s review “ensur[es] that any negotiated resolution is fair to those affected.” (Williams v. Superior Court (2017) 3 Cal.5th 531, 549.)  Seventy-five percent of any penalties recovered under PAGA go to the Labor and Workforce Development Agency (LWDA), leaving the remaining twenty-five percent for the aggrieved employees. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 380, overruled on other grounds by Viking River Cruises, Inc. v. Moriana (2022) ___U.S.___, 2022 U.S. LEXIS 2940.)    

Similar to its review of class action settlements, the Court must “determine independently whether a PAGA settlement is fair and reasonable,” to protect “the interests of the public and the LWDA in the enforcement of state labor laws.” (Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5th 56, 76–77.) It must make this assessment “in view of PAGA’s purposes to remediate present labor law violations, deter future ones, and to maximize enforcement of state labor laws.” (Id. at p. 77; see also Haralson v. U.S. Aviation Servs. Corp. (N.D. Cal. 2019) 383 F. Supp. 3d 959, 971 [“when a PAGA claim is settled, the relief provided for under the PAGA [should] be genuine and meaningful, consistent with the underlying purpose of the statute to benefit the public ….”], quoting LWDA guidance discussed in O’Connor v. Uber Technologies, Inc. (N.D. Cal. 2016) 201 F.Supp.3d 1110 (O’Connor).)

The settlement must be reasonable in light of the potential verdict value. (See O’Connor, supra, 201 F.Supp.3d at p. 1135 [rejecting settlement of less than one percent of the potential verdict].) But a permissible settlement may be substantially discounted, given that courts often exercise their discretion to award PAGA penalties below the statutory maximum even where a claim succeeds at trial. (See Viceral v. Mistras Group, Inc. (N.D. Cal., Oct. 11, 2016, No. 15-CV-02198-EMC) 2016 WL 5907869, at *8–9.)  

II. TERMS AND ADMINISTRATION OF SETTLEMENT

The non-reversionary gross settlement amount is $558,258.06 (increased from $550,000 by the settlement’s escalator clause).  Attorney fees of up to one-third of the gross settlement, litigation costs not to exceed $20,000, and administration costs of $13,700 will be paid from the gross settlement. $50,000 will be allocated to PAGA penalties, 75 percent of which will be paid to the LWDA. Mr. Huizar will seek an incentive award of $7,500, while Ms. Navarro will seek an incentive award of $5,000.

The net settlement will be allocated to settlement class members proportionally based on their weeks worked during the class period. Class members will not be required to submit a claim to receive their payments. For tax purposes, settlement payments will be allocated 20 percent to wages and 80 percent to interest and penalties. The employer’s share of taxes will be paid separately from the gross settlement. Funds associated with checks uncashed after 180 days will be tendered to the State Bar’s Justice Gap Fund (one of three significant sources of funding for about 100 legal aid organizations across the state).

In exchange for the settlement, class members who do not opt out will release all claims, rights, etc. “that were or could have been pleaded based on, arising from, or related to, the factual allegations set forth in the Operative Complaint and in the November 3, 2020, and August 27, 2021 Notice of Labor Code Violations and PAGA Penalties sent to the LWDA and Defendant, including” specified relevant causes of action. Consistent with the statute, PAGA employees will not be able to opt out of that portion of the settlement.

The notice process has now been completed.  There were no objections to the settlement and only one request for exclusion from the class.  Of the 673 notices mailed by the administrator, 7 were re-mailed to updated addresses and 48 were ultimately undeliverable.  The administrator estimates that the average payment to class members will be $410.70, with a high payment of $2,081.65.

At preliminary approval, the Court found that the settlement is a fair a reasonable compromise of the class claims and that the PAGA allocation is genuine, meaningful, and reasonable in light of the statute’s purposes.  It finds no reason to deviate from these findings now, especially considering that there are no objections.  The Court thus finds that the settlement is fair and reasonable for purposes of final approval.       

III. ATTORNEY FEES, COSTS, AND INCENTIVE AWARD

Plaintiffs seek a fee award of $186,067.41, about one-third of the gross settlement, which is not an uncommon contingency fee allocation in a wage and hour class action. This award is facially reasonable under the “common fund” doctrine, which allows a party recovering a fund for the benefit of others to recover attorney fees from the fund itself.  Plaintiffs also provide a lodestar figure of $145,572.50, based on 273.65 hours spent on the case by counsel billing at $450–725 per hour.  Plaintiffs’ request results in a modest multiplier of about 1.3.  The lodestar cross-check supports the percentage fee requested, particularly given the lack of objections to the attorney fee request. (See Laffitte v. Robert Half Intern. Inc. (Cal. 2016) 1 Cal.5th 480, 488, 503–504 [trial court did not abuse its discretion in approving fee award of 1/3 of the common fund, cross-checked against a lodestar resulting in a multiplier of 2.03 to 2.13].)    

 

Plaintiffs’ counsel also request $16,794.30 in litigation costs, below the amount estimated at preliminary approval.  Plaintiffs’ costs appear reasonable based on the summary provided and are approved.  The $13,700 in administrative costs are also approved.

  Finally, the named plaintiffs seek incentive awards totaling $12,500. To support their requests, they submit declarations describing their efforts on the case. The Court finds that the class representatives are entitled to enhancement awards and the amounts requested are reasonable.

IV.   ORDER AND JUDGMENT  

 

In accordance with the above, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT:          

 

The motion for final approval is GRANTED.  The following class is certified for settlement purposes:         

 

[A]ll current and former hourly non-exempt employees employed by Defendant in California at any time from November 5, 2016, to October 25, 2021.

Excluded from the class is the one individual who submitted a timely request for exclusion.  

 

Judgment shall be entered through the filing of this order and judgment.  (Code Civ. Proc., § 668.5.)  Plaintiffs and the members of the class shall take from their complaint only the relief set forth in the settlement agreement and this order and judgment.  Pursuant to Rule 3.769(h) of the California Rules of Court, the Court retains jurisdiction over the parties to enforce the terms of the settlement agreement and the final order and judgment.          

 

The Court sets a compliance hearing for March 9, 2023 at 2:30 P.M. in Department 1.  At least ten court days before the hearing, class counsel and the settlement administrator shall submit a summary accounting of the net settlement fund identifying distributions made as ordered herein; the number and value of any uncashed checks; amounts remitted to the cy pres recipient; the status of any unresolved issues; and any other matters appropriate to bring to the Court’s attention.  Counsel shall also submit an amended judgment as described in Code of Civil Procedure section 384, subdivision (b). Counsel may appear at the compliance hearing remotely.        

 

The Court will prepare the order and judgment.  

***

LAW AND MOTION HEARING PROCEDURES 

Remote hearings are required. If a party gives notice that a tentative ruling will be contested, any party seeking to participate in the hearing remotely should contact CourtCall. If a party wants to appear in person, please contact Rowena Walker (rwalker@) to reschedule the hearing. 

 

Public access to hearings is available on a listen-only line by calling 888-808-6929 (access code 2752612). 

 

State and local rules prohibit recording of court proceedings without a court order. These rules apply while in court and also while participating in a hearing remotely or listening in on a public access line. No court order has been issued which would allow recording of any portion of this motion calendar. 

 

The court does not provide court reporters for proceedings in the complex civil litigation departments. Any party wishing to retain a court reporter to report a hearing may do so in compliance with this Court’s October 13, 2020 Policy Regarding Privately Retained Court Reporters. The court reporter may participate remotely and need not be present in the courtroom.  

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Calendar Line 2

Case Name: In re Hewlett Packard Enterprise Co. Shareholder Litigation

Case No.: 19CV353132 (lead case)

This consolidated putative class action arises from alleged misrepresentations and omissions in the Offering Materials issued in connection with the April 2017 transaction by which defendant Hewlett Packard Enterprise Company (“HPE”)’s Enterprise Services business segment was spun off and merged with Computer Sciences Corporation, Inc. (“CSC”) to form defendant DXC Technology Company (“DXC”) (the “Merger”).

Before the Court is a demurrer by HPE, DXC, and the individual defendants on the ground that each cause of action in the operative First Amended Consolidated Complaint (“FAC”) fails to state a claim by pleading a material misstatement or omission. (Code Civ. Proc., § 430.10, subd. (e).) Plaintiffs oppose the demurrer.

As discussed below, the Court SUSTAINS the demurrer with 30 days’ leave to amend.

I. BACKGROUND

A. Factual

HPE is a technology company based in Palo Alto, California. (FAC, ¶ 2.) In April 2017, HPE consummated the Merger, spinning off its Enterprise Services business segment, merging it with CSC, and forming the company now known as DXC, which provides information technology consulting services to businesses nationwide. (Ibid.) In connection with the Merger, each former shareholder of CSC common stock received one share of new DXC common stock in exchange for each share of CSC common stock, representing 49.9% of outstanding DXC common shares. (Id., ¶ 3.) The new shares of DXC common stock were registered, issued, and solicited pursuant to the Offering Materials. (Ibid.)

The Offering Materials repeatedly referenced purported “net synergies” and other “strategic and financial benefits” that the Merger would realize, specifically claiming over $1 billion in immediate year-one “synergies” as a result of the incoming management team’s detailed “workforce optimization” plan. (FAC, ¶ 46.) The Offering Materials projected cost savings of “approximately $1.0 billion post-close, with a run rate of $1.5 billion by the end of year one,” by virtue of “workforce optimization such as elimination of duplicative roles.” (Ibid.) In statements incorporated into the Offering Materials, individual defendant J. Michael Lawrie placed focus on “data centers and the delivery centers” where there was “clearly duplication . . . . across both organizations.” (Ibid.)

The Offering Materials also touted more than $7 billion in increased goodwill from the Merger, attributing the increase in part to “synergies” from “cost-saving opportunities [such as] improved operating efficiency and asset optimization.” (FAC, ¶ 48.) The materials stated that defendants’ plan for the post-Merger Company was to “align [DXC’s] costs with its revenue trajectory” and complement “initiatives to improve execution in sales performance and accountability . . . ,” but emphasized DXC’s intent and ability “to attract and retain highly motivated people with the skills necessary to serve their customers,” and its plan to continue to “hire, train, motivate and effectively utilize employees with the right mix of skills and experience . . . to meet the needs of its clients.” (Id., ¶ 53.) The materials promised that “[w]ith a collective workforce of approximately 178,000 employees, the size and scale of the combined company will enhance its ability to provide value to its customers through a broader range of resources and expertise to meet their needs.” (Ibid.)

But contrary to these and other statements in the Offering Materials, the Company planned to target experienced employees for termination even where those employees were not redundant but, rather, were essential to the Company’s ability to meet its commitments to existing and future clients. (FAC, ¶ 47.) Defendants’ planned “workforce optimization” plan in fact provided for eliminating tens of thousands of critical senior personnel through the imposition of quotas that would cut costs by nearly three times as much as had been represented to investors. (Id., ¶ 59.) Implementing its plan, the Company would slash 20% of its global workforce within its first year, imposing these cuts on its component groups regardless of whether they could absorb the loss of experienced employees. (Ibid.) As part what DXC employees called “greening,” the Company targeted senior, more experienced, more expensive employees without regard to their value to the Company, in a short-term effort to improve the Company’s quarterly numbers. (Id., ¶ 64.) The terminations inflated reported earnings over the short term and boosted DXC’s stock price, allowing individual defendants J. Michael Lawrie and Margaret C. Whitman, and others, to sell tens of millions of dollars in DXC shares they acquired in connection with the Merger before the effects of the terminations became clear. (Id., ¶¶ 74–75.)

The involuntary terminations of so many experienced employees had a snowball effect, as many more of the Company’s most valuable employees left voluntarily even if they had not been targeted for termination. (FAC, ¶ 66.) As the Company shed its most experienced and knowledgeable employees, it became unable to meet its commitments to existing and potential customers. (Id., ¶ 90.) Deals were closed, but DXC could not deliver on them because it lacked the personnel and resources to fulfill its obligations; the Company also had to forgo lucrative business opportunities because it lacked the resources and capacity to staff existing and new projects. (Ibid.)

Decisions about which employees to lay off immediately after the Merger had been made before it closed. (FAC, ¶ 72.) A management consulting firm (McKinsey & Co.) was retained by the Company to assist with its layoff plans, and representatives of that firm were deployed immediately after the Merger. (Ibid.) At McKinsey’s suggestion, DXC eliminated numerous senior-level employees in Global Delivery with client-specific specialized skills formed during long-term relationships with DXC customers. (Id., ¶ 73.) This predictably resulted in significant customer complaints and loss. (Ibid.) Within the first year of its existence, the Company laid off close to a fifth of its workforce, with “the bulk impacting the most experienced, higher paid employees whose experience and expertise were critical to both ongoing customer relationships and obligations and the Company’s ability to deliver on new business.” (Id., ¶ 75.) DXC employees have admitted that workforce reductions were tied to financial metrics, not redundancies, and rejected automation as an explanation for terminations. (Id., ¶ 69.) Underscoring the short-term focus on inflating financial metrics, DXC employees have admitted that thousands of U.S. employees were cut to offset cuts that could not be made quickly enough to impact quarterly financial metrics in other regions due to more protective labor laws. (Ibid.)

Defendants completed the Merger on April 1, 2017, and on April 3, DXC common stock began trading at approximately $59 per share. (FAC, ¶¶ 61-62.) However, once investors and the public at large became aware of the effects of the Company’s longstanding plans, DXC’S value dropped precipitously. (Id., ¶ 89.) On February 6, 2019, DXC’s former Executive Vice President and Head of Global Delivery, Stephen J. Hilton, filed a civil complaint in the Southern District of New York detailing how defendants planned DXC’s severe layoff and earnings manipulation effort before the Merger, and describing how the pace and severity of DXC’s massive layoffs had foreseeable “negative impacts on customer satisfaction” and were “disastrous for DXC’s long-term revenue.” (Id., ¶ 120.) As of the filing of plaintiffs’ complaint, DXC shares have traded as low as $26.02 per share, a decline of over 50% from the approximately $59 price per share on the exchange date for the Merger. (Id., ¶ 123.)

Plaintiffs Jason McLees and Palm Tran, Inc. Amalgamated Transit Union Local 1577

Pension Plan directly acquired DXC shares in the Merger. (FAC, ¶ 19.) Based on the allegations summarized above, they assert claims under (1) Section 11 of the Securities Act of 1933 (against all defendants), (2) section 12(a)(2) of the Act (against all defendants), and (3) section 15 of the Act (against all defendants) on behalf of a class of “all persons and entities who acquired DXC common stock in exchange for CSC securities pursuant to the Offering Materials.” (Id., ¶ 124.)

B. Procedural

On July 15, 2020, the Court (Judge Walsh) denied Defendants’ motion to stay this action in favor of a related federal action, Costanzo v. DXC Tech. Co. (N.D. Cal., No. 5:19-CV-05794-BLF) (“Costanzo”). The Court observed that a motion to dismiss had been heard in the federal action and was under submission with the federal court. After weighing the relevant factors governing its evaluation of Defendants’ motion, the Court concluded that “informal coordination” with the federal action was preferable to a formal stay and noted that it expected to “have the benefit of Judge Freeman’s ruling [on the motion to dismiss the federal action] before any demurrer is heard in this case.”

The federal court ultimately heard several motions to dismiss. In an order filed on December 14, 2021, it dismissed the third amended complaint before it with prejudice. (See Costanzo v. DXC Tech. Co. (N.D.Cal. Dec. 14, 2021, No. 19-cv-05794-BLF) 2021 U.S.Dist.LEXIS 239182 (“Third Costanzo Order”).[1]

II. LEGAL STANDARDS

A.   General Legal Standard Governing Demurrers  

 

A demurrer tests the legal sufficiency of the complaint.  (Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 568.) Consequently, it “reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice.” (Weil v. Barthel (1955) 45 Cal.2d 835, 837; see also Code Civ. Proc., § 430.30, subd. (a).)  “It is not the ordinary function of a demurrer to test the truth of the plaintiff’s allegations or the accuracy with which he describes the defendant’s conduct. … Thus, … the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.)     

 In ruling on a demurrer, the allegations of the complaint must be liberally construed, with a view to substantial justice between the parties.  (Glennen v. Allergan, Inc. (2016) 247 Cal.App.4th 1, 6.)  Nevertheless, while “[a] demurrer admits all facts properly pleaded, [it does] not [admit] contentions, deductions or conclusions of law or fact.”  (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120.)  A demurrer will succeed where the allegations and matters subject to judicial notice clearly disclose a defense or bar to recovery. (Casterson v. Superior Court (2002) 101 Cal.App.4th 177, 183.)

B. The Securities Act

The Securities Act of 1933 protects investors by ensuring that companies issuing securities (known as “issuers”) make a “full and fair disclosure of information” relevant to a public offering. The linchpin of the Act is its registration requirement. With limited exceptions …, an issuer may offer securities to the public only after filing a registration statement. That statement must contain specified information about both the company itself and the security for sale. Beyond those required disclosures, the issuer may include additional representations of either fact or opinion.

(Omnicare, Inc. v. Laborers Dist. Council Const. Industry Pension Fund (2015) 135 S.Ct. 1318, 1323, citations omitted.)

Section 11 of the Act creates a private remedy for any purchaser of a security if any part of the registration statement “contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading….”  (In re Stac Electronics Securities Litigation (9th Cir. 1996) 89 F.3d 1399, 1403–1404 (Stac), quoting 15 U.S.C. § 77k(a).)  No scienter is required; defendants are liable even for innocent or negligent misstatements or omissions. (City of Warren Police & Fire Retirement System v. Natera Inc. (2020) 46 Cal.App.5th 946, 953–954 (City of Warren).)

“The ‘materiality’ of [a statement or] omission is a fact-specific determination that should ordinarily be assessed by a jury.”  (Stac, supra, 89 F.3d at p. 1405.)  Only where “ ‘the adequacy of [any] disclosure or the materiality of the statement is so obvious that reasonable minds could not differ are these issues appropriately resolved as a matter of law.’ ”  (Ibid., internal citation omitted.)

To determine whether statements are misleading, we must read them “in the context of the whole document.  [Citation.] And they should be judged based on ‘the facts as they existed when the applicable registration statement became effective.’ [Citation.] ‘[T]he central issue … is not whether the particular statements, taken separately, were literally true, but whether defendants’ representations, taken together and in context, would have misled a reasonable investor about the nature of the [investment].’ [Citation.]” (In re InterActiveCorp Securities Litigation (S.D.N.Y. 2010) 695 F.Supp.2d 109, 117; see also In re Restoration Robotics, Inc. Securities Litigation (N.D.Cal. 2019) 417 F.Supp.3d 1242.)

(City of Warren, supra, 46 Cal.App.5th at p. 955.)

Section 12(a)(2) imposes similar liability on sellers of securities for misstatements or omissions in a prospectus, and Section 15 imposes liability on those who “control[ ] any person liable” under Sections 11 and 12.  (In re Ply Gem Holdings, Inc. Securities Litigation (S.D.N.Y. 2015) 135 F.Supp.3d 145, 149.)  Claims under Sections 11, 12, and 15 may consequently be considered together for purposes of determining whether the statements or omissions at issue are actionable.  (Ibid.)

III. DISCUSSION

Plaintiffs allege that Defendants were required to disclose additional details about the nature and extent of the planned layoffs in the Offering Materials for three reasons. “First, SEC Regulation S-K, 17 C.F.R. § 229.303 (‘Item 303’), required disclosure of any known events or uncertainties that had caused or were reasonably likely to cause DXC’s disclosed financial information not to be indicative of future operating results. Defendants’ planned quota-driven firings of tens of thousands of critical, non-duplicative employees … targeted the most knowledgeable, longer-tenured (and hence more costly) senior personnel [and] … prevented DXC from performing its contracts, predictably leading to a backlash from dissatisfied customers and materially and adversely affecting DXC’s financial results and prospects.” (FAC, ¶ 11.) “Second, SEC Regulation S-K, 17 C.F.R. § 229.105 (‘Item 105’), required, in the ‘Risk Factor’ section of the Offering Materials, (a) a discussion of the most significant factors that made the offering risky or speculative and (b) an adequate description of each risk factor. The Offering Materials’ discussion of risk factors did not mention the likely risks and impact of the drastic mass layoff and earnings management plan already decided before the Merger….” (Id., ¶ 12.) “Third, Defendants’ failure to disclose the nature and extent of the planned cost-cutting and earnings management measures, and their likely impact, rendered false and misleading the Offering Materials’ numerous references to known risks that, ‘if’ they occurred, ‘may’ or ‘could’ affect the Company. These ‘risks’ were, in truth, already near certainties at the time of the Merger. Indeed, by affirmatively touting the incoming management team’s ‘workforce optimization’ plan, purported ‘synergies,’ and the like, Defendants were required to disclose the materially different nature, extent, and severity of the actual planned cuts.” (Id., ¶ 13.)

Defendants contend that Plaintiffs fail to allege any statements that were false or misleading when made, because—as Judge Freeman found—they fail to plead that DXC’s layoffs were actually more extensive than disclosed, and the statements at issue are non-actionable forward-looking statements, puffery, or opinion. And Defendants urge that the theories under Items 303 and 105 fail for similar reasons.

A. Cautionary Language and Disclosure of Risk Factors

As summarized by Judge Freeman, the registration statement[2] included the following cautionary language:

• Even if CSC and Everett successfully integrate, CSC and Everett cannot predict with certainty if or when these cost and revenue synergies, growth opportunities and benefits will occur, or the extent to which they actually will be achieved. Registration Statement at 33….

• The amount of synergies actually realized in the Transactions, if any, and the time periods in which any such synergies are realized, could differ materially from the expected synergies discussed in this proxy statement/prospectus-information statement, regardless of whether the two business operations are combined successfully. Registration Statement at 33.

• CSC, Everett and the combined company may have difficulty attracting, motivating and retaining executives and other employees in light of the Transactions. Registration Statement at 34.

• The ability of the combined company to provide customers with competitive services is dependent on the ability of the combined company to attract and retain qualified personnel. Registration Statement at 42.

• The loss of personnel could impair the ability of the combined company to perform under certain contracts, which could have a material adverse effect on the consolidated financial position, results of operations and cash flows of the combined company. Registration Statement at 43.

(Costanzo v. DXC Tech. Co. (N.D.Cal. July 27, 2020, No. 19-cv-05794-BLF) 2020 U.S.Dist.LEXIS 132658, at *27-28 (“First Costanzo Order”), italics added.)

B. Misleading Statements About Workforce Optimization

As the FAC makes clear, the registration statement disclosed that the combined company expected to achieve large “synergies” from “workforce optimization.” While “elimination of duplicative roles” was disclosed as an example of what that might entail, the registration statement did not state or imply that the plan was limited to this approach, or that more senior workers or workers from particular key units or with particular key skills and relationships would be excepted. And the registration statement did note the importance of having the right mix of skilled employees, and the risks that the combined company would fail to hit the mark in that regard:

The markets the combined company expects to serve are highly competitive and competition for skilled employees in the technology outsourcing, consulting and systems integration and enterprise services markets is intense for both on-shore and offshore locales. The loss of personnel could impair the ability of the combined company to perform under certain contracts, which could have a material adverse effect on the consolidated financial position, results of operations and cash flows of the combined company.

[¶]

If the combined company does not hire, train, motivate and effectively utilize employees with the right mix of skills and experience in the right geographic regions to meet the needs of its clients, its financial performance could suffer. …

Ultimately, the Court agrees with Judge Freeman that the disclosure about workforce optimization “clearly means layoffs were to be expected,” and “does not find the cautionary language in DXC’s Registration Statement to be boilerplate or conclusory.” (First Costanzo Order, *28.)

Plaintiffs emphasize that the complaints in Costanzo were focused on an alleged failure to disclose the size of the planned layoffs, as opposed to how layoffs would be approached (dollar-driven quotas) and who would be impacted (senior/key personnel). But the bottom line remains the same: extensive layoffs were disclosed, and so were the risks. There was no suggestion that these layoffs would be limited in the manner Plaintiffs propose.[3]

Plaintiffs argue that the Offering Materials “emphasized a plan to achieve over $1 billion in ‘synergies’ through a ‘strategic workforce optimization’ that supposedly would ‘consolidate redundant roles’ and ‘eliminat[e] . . . duplicative roles,’ yet also ‘retain talent’ with ‘the skills and experience’ to ‘meet the needs of . . . clients,’ and thereby ‘align’ the Company’s ‘costs with its revenue trajectory’ and ‘improve execution in sales performance and accountability.’ See Compl. ¶¶ 45-62.” It is difficult to tell where all of these short quotations come from. But in context in the FAC, Plaintiffs do not allege that the Offering Materials said or implied that certain categories of employees would avoid layoffs. For example, Plaintiffs allege:

In a March 29, 2017 Investor Day presentation, Defendants announced their plan for “workforce optimization,” which included “[c]onsolidat[ing] redundant roles across all functions” and “[s]treamlin[ing] management layers,” but which also touted that DXC planned to “retain talent,” and “re-skill and up-skill” current employees though, inter alia, “DXC-University certifications” and “Partner certifications.” Alongside efforts to “[a]ttract, develop, and retain nextgen talent,” Defendants stated that their plan for the post-Merger Company was to make use of existing, experienced employees by “[b]uild[ing] on [the] DXC dynamic talent cloud.”

(FAC, ¶ 45, italics added.)

As for the “cost reduction” portion of DXC’s “turnaround plan,” the Offering Materials state that Defendants’ plan for the post-Merger Company was to “align [DXC’s] costs with its revenue trajectory” and complement “initiatives to improve execution in sales performance and accountability . . . .” Further, the Offering Materials emphasize DXC’s ability “to attract and retain highly motivated people with the skills necessary to serve their customers,” and that its plan was to continue to “hire, train, motivate and effectively utilize employees with the right mix of skills and experience . . . to meet the needs of its clients.’ …

(FAC, ¶ 53.)

The fuller context provided in the FAC and the documents it cites shows that Defendants disclosed layoffs would occur “across all functions”—and certainly did not suggest otherwise. And statements about “attract[ing] and retain[ing],” “hir[ing],” and “train[ing]” needed talent going forward do not suggest anything about the nature of the planned layoffs. (If anything, they suggest that new hires would play a large role in meeting customer needs in the future.)

In sum, Plaintiffs fail to allege that Defendants’ statements in this regard were misleading.

C. Item 303

Item 303 of SEC Regulation S-K requires the disclosure of “any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” (17 C.F.R. § 229.303(a)(3)(ii); see Steckman v. Hart Brewing, Inc. (9th Cir. 1998) 143 F.3d 1293, 1296 (Steckman) [there is liability under section 11 if a registrant fails to state a material fact required to be stated under Item 303].) To state a claim based on Item 303, the plaintiff must allege “knowledge of an adverse trend,” “material impact,” and “also that the future material impacts are reasonably likely to occur from the present-day perspective” (or already have occurred). (Steckman, supra, 143 F.3d at p. 1297, italics original.) “The ‘reasonably expects’ language in Item 303(a)(3)(ii) helps distinguish statements of known facts relating to the future, which are mandatory, from forward-looking statements, which are not required. Only when future impacts are ‘reasonably likely to occur’ do they cease to be optional forecasts and instead become present knowledge subject to the duty of disclosure.” (Ibid., citation omitted.)

In theory, it seems that Plaintiffs’ allegations of an undisclosed plan to target key senior employees to temporarily reduce costs could work as an Item 303 claim. But Plaintiffs’ allegations about this plan are so general that they border on “adjectival descriptions” and “unsupported speculation” that the Court need not accept. (Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th 953, 960, internal citations and quotation marks omitted.) In essence, Plaintiffs repeatedly state that Defendants’ undisclosed plan “targeted the most knowledgeable, longer-tenured (and hence more costly) senior personnel.” (FAC, ¶ 11; see also ¶¶ 47, 49, 52, 55, 56, 59.) But nowhere do Plaintiffs identify who these personnel were, or explain what it meant to “target” them. This is particularly important given the disclosures discussed above, which made it clear enough that widespread layoffs would impact employees in general: if Defendants’ plan was nothing more than that, then it was disclosed.

The closest Plaintiffs come to hinting at these specifics are general mentions of the “Deliver” and/or “Global Delivery” divisions, at paragraphs 59 and 73 of the FAC, and an allegation that the Consulting Group was ultimately “required to eliminate personnel so that staff salaries would be distributed according to a pyramid structure,” at paragraph 65. But there are no allegations that these groups—or senior employees in general—were “targeted” in the sense of being treated differently than others; or that the Consulting Group “pyramid structure” was part of the undisclosed plan predating the Merger; or that imposing this structure changed how the Consulting Group had been structured in the past. Again, some kind of details along these lines are necessary because widespread layoffs were disclosed.

Nor do Plaintiffs’ allegations about “admi[ssions]” regarding so-called “greening” fill these gaps. Plaintiffs allege that in an earnings call several months after the Merger, Mr. Lawrie “admitted to investors that ‘we took quite a few people out in the first quarter, but we also hired 6,000 people in the first quarter. 6000. And we need to continue to do that to refresh the workforce.’ Lawrie further explained that ‘[W]e had a very strong graduate recruiting program this year, so we’re bringing in a lot of kids.’ ” (FAC, ¶ 63.) These statements do not suggest that layoffs targeted key senior employees, only that new hires trended younger due to a “strong graduate recruiting program.” Plaintiffs further allege that DXC employees “have admitted that the quota-based reductions often removed mission critical subject matter experts.” (Id., ¶ 64.) Again, this does not suggest these unidentified “experts” were particularly “targeted” from a pre-Merger perspective. Finally, Plaintiffs allege that DXC employees termed the process of eliminating more experienced, better paid employees “greening.” (Id., ¶ 64.) But this general, after-the-fact characterization by “employees” cannot support the conclusion that there was an undisclosed plan by Defendants to “green” prior to the Merger.

Ultimately, Plaintiffs’ Item 303 theory fails for the reasons already discussed: “the Registration Statement discloses the trend” (broad layoffs) “in some depth.” (City of Warren, supra, 46 Cal.App.5th at p. 961.) More specific allegations showing that there was an undisclosed plan materially different than the one that was disclosed are lacking.

D. Item 105

Again, the planned workforce optimization and its risks were specifically disclosed. Without more specific allegations about a riskier, undisclosed plan to target senior employees, Plaintiffs fail to state a claim under Item 105.

IV. CONCLUSION

For the reasons discussed above, the Court SUSTAINS Defendants’ demurrer. However, the Court will grant Plaintiffs 30 days’ leave to amend the FAC to address the issues discussed herein.

The Court will prepare the order.

***

LAW AND MOTION HEARING PROCEDURES 

Remote hearings are required. If a party gives notice that a tentative ruling will be contested, any party seeking to participate in the hearing remotely should contact CourtCall. If a party wants to appear in person, please contact Rowena Walker (rwalker@) to reschedule the hearing. 

 

Public access to hearings is available on a listen-only line by calling 888-808-6929 (access code 2752612). 

 

State and local rules prohibit recording of court proceedings without a court order. These rules apply while in court and also while participating in a hearing remotely or listening in on a public access line. No court order has been issued which would allow recording of any portion of this motion calendar. 

 

The court does not provide court reporters for proceedings in the complex civil litigation departments. Any party wishing to retain a court reporter to report a hearing may do so in compliance with this Court’s October 13, 2020 Policy Regarding Privately Retained Court Reporters. The court reporter may participate remotely and need not be present in the courtroom.  

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Case Name: Lady Freethinker v. Google LLC d/b/a YouTube, et al.

Case No.: 21CV390154

Lady Freethinker, a nonprofit opposed to animal cruelty, brings this action against Google LLC arising from Google’s alleged failure to remove animal abuse videos from its YouTube platform. Goggle demurs on the grounds that each of Plaintiff’s claims is barred by section 230 of the Communications Decency Act (the “CDA”)[4] and otherwise fail to state a cause of action.  (Code Civ. Proc., § 430.10, subd. (e).)  Alternatively, it moves to strike allegations concerning remedies it contends are unavailable and allegations it contends are argumentative, irrelevant, inflammatory, or otherwise improper.

As discussed below, the Court SUSTAINS Defendant’s demurrer with leave to amend based on CDA immunity. The alternative motion to strike is MOOT.

I. BACKGROUND

As alleged in the Complaint, Lady Freethinker is a registered 501(c)(3) nonprofit organization founded in 2015 and based in Los Angeles. (Complaint, ¶ 56.) YouTube, a wholly owned subsidiary of Google LLC, is the second most visited website in the world (Google is number one). (Id., ¶¶ 57–58.) Lady Freethinker is a user of YouTube and has its own YouTube channel. (Id., ¶ 35.) But in addition, it “has corresponded with YouTube at length” regarding “animal abuse content” on YouTube’s website, which Lady Freethinker alleges “violates YouTube’s own Community Guidelines” (id., ¶ 13)—and federal law.

Plaintiff alleges that YouTube “is profiting (or at least trying to profit) by the distribution of illegal (see 18 U.S.C § 48) animal abuse videos,” which YouTube pairs with paid advertisements. (Complaint, ¶¶ 1–8.) Plaintiff and others, including news outlets and other animal protection organizations, have “brought these videos to YouTube’s attention multiple times.” (Id., ¶ 9; see also ¶¶ 13–20.) According to a March 25, 2021 story in The Times, YouTube’s global head of trust and safety said a ban on one category of abusive videos—fake animal “rescues”—would be implemented within weeks, but the number of such videos only increased following this pledge. (See ¶¶ 18–20.)

Lady Freethinker alleges that “YouTube’s knowing distribution of these videos is in clear violation of 18 U.S.C. § 48,” “it is possible that some of the content may show violations of the Endangered Species Act of 1973,” and moreover, “many of these videos are used for sexual stimulation and/or clearly meet the definition of obscenity under existing federal jurisprudence, making YouTube’s distribution illegal under 18 U.S.C. § 48 (a)(3),” as well as making Defendant liable for aiding and abetting related violations. (Complaint, ¶¶ 23–24.)

And according to Plaintiff, this conduct also violates Google’s Code of Conduct as well as YouTube’s Community Guidelines, which specifically promise that animal abuse content will not be allowed on YouTube. (Complaint, ¶¶ 27–31.) “YouTube makes powerful public promises about enforcement of its Community Guidelines that are relied on by users, like Lady Freethinker.” (Id., ¶ 33.) And Plaintiff “detrimentally relied” on these promises. (Id., ¶ 35.) Specifically, “Lady Freethinker, a non-profit completely dependent on donations, has incurred financial damages and diverted resources away from other work in furtherance of its core mission because it has had to expend its limited funds to try to force YouTube to live up to its contractual obligations and honor the very policies it claims it requires of all users.” (Id., ¶ 36.) “One example of the reputational damage being done to Lady Freethinker by YouTube’s breach is someone impersonating Lady Freethinker on YouTube — with an avatar that appears to be a baby monkey lit on fire and burning in the flames — posting on baby monkey torture video channels voicing support for the abuse….” (Id., ¶ 37.)

Lady Freethinker “has kept its end of the deal with YouTube by complying with the terms of service and Community Guidelines” and even volunteered “to help YouTube find animal abuse videos so they can be removed by participating in YouTube’s ‘Trusted Flagger’ program,” which YouTube rejected by saying that the program was full. (Complaint, ¶ 46.) Despite its financial and intellectual resources, YouTube only rarely acts on reported animal abuse videos. (Id., ¶¶ 47–48.) Ultimately, “Google/YouTube’s continued hosting of animal abuse videos constitutes an irreparable harm to the animals being subjected to this abuse, the public at large, and Plaintiff as a party to the Terms of Service and Community Guidelines.” (Id., ¶ 51.) YouTube not only “distribute[s] these videos for views [and] promotes and supports them with advertising, it provides a chat feature where fans and supporters of the abuse can cheer on the makers and give them ideas for how to be more cruel.” (Id., ¶ 53.)

Plaintiff alleges that CDA immunity “does not apply to violations of federal criminal law, or actions based on deceit and breaches of contract under consumer protection laws such as those asserted here.” (Complaint, ¶ 54.) Lady Freethinker asserts claims for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) violations of the False Advertising Law (“FAL”), Business & Professions Code section 17500; (4) violations of the Unfair Competition Law (“UCL”), Business & Professions Code section 17200; and (5) specific performance in the form of “an order requiring that Defendant(s) remove any all illegal or infringing animal abuse videos; an order allowing Plaintiff to be part of GOOGLE LLC d/b/a YouTube’s ‘Trusted Flagger’ program so that it may aid in the removal of said videos; and for such further relief that this Court deems just.” (Id., ¶ 90.)

II. DEMURRER

A. Legal Standard

 

A demurrer tests the legal sufficiency of the complaint.  (Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 568.) Consequently, it “reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice.” (Weil v. Barthel (1955) 45 Cal.2d 835, 837; see also Code Civ. Proc., § 430.30, subd. (a).)  “It is not the ordinary function of a demurrer to test the truth of the plaintiff’s allegations or the accuracy with which he describes the defendant’s conduct. … Thus, … the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.)     

 In ruling on a demurrer, the allegations of the complaint must be liberally construed, with a view to substantial justice between the parties.  (Glennen v. Allergan, Inc. (2016) 247 Cal.App.4th 1, 6.)  Nevertheless, while “[a] demurrer admits all facts properly pleaded, [it does] not [admit] contentions, deductions or conclusions of law or fact.”  (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120.)  A demurrer will succeed where the allegations and matters subject to judicial notice clearly disclose a defense or bar to recovery. (Casterson v. Superior Court (2002) 101 Cal.App.4th 177, 183.)

Specifically with regard to CDA immunity, “[w]hen a plaintiff cannot allege enough facts to overcome Section 230 immunity, a plaintiff’s claims should be dismissed.” (Dyroff v. Ultimate Software Grp., Inc. (9th Cir. 2019) 934 F.3d 1093, 1097.)

B. CDA Immunity

One important objective of the CDA “was to avoid the chilling effect upon Internet free speech that would be occasioned by the imposition of tort liability upon companies that do not create potentially harmful messages but are simply intermediaries for their delivery.” (Delfino v. Agilent Technologies, Inc. (2006) 145 Cal.App.4th 790, 802–803.) The legislative history reflects that Congress was responding to a New York trial court case where “a service provider was held liable for defamatory comments posted on one of its bulletin boards, based on a finding that the provider had adopted the role of ‘publisher’ by actively screening and editing postings.” (Barrett v. Rosenthal (2006) 40 Cal.4th 33, 44.) “Fearing that the specter of liability would ... deter service providers from blocking and screening offensive material, Congress forbade the imposition of publisher liability on a service provider for the exercise of its editorial and self-regulatory functions.” (Id., internal quotation marks and citation omitted.) Thus, the CDA “confer[s] broad immunity on Internet intermediaries” so as to help “maintain[] a free market for online expression.” (Hassell v. Bird (2018) 5 Cal.5th 522, 539, international quotation marks and citation omitted (Hassell).)

The CDA provides such broad immunity through section 230(c)(1). This section provides that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” “§ 230 precludes courts from entertaining claims that would place a computer service provider in a publisher’s role. Thus, lawsuits seeking to hold a service provider liable for its exercise of a publisher’s traditional editorial functions—such as deciding whether to publish, withdraw, postpone or alter content—are barred.” (Hassell, supra, 5 Cal.5th at p. 536, internal quotation marks and citation omitted.)

There is a “general consensus” by courts across the country, including in California, that section 230(c)(1) immunity is to be construed broadly. (See Doe II v. MySpace Inc. (2009) 175 Cal.App.4th 561, 572–573; accord Hassell, supra, 5 Cal.5th at p. 537.) For example, “[n]umerous courts have held the CDA bars claims based on a failure to remove content posted by others.” (Cross v. Facebook, Inc. (2017) 14 Cal.App.5th 190, 207 (Cross) [citing cases]; accord Fair Hous. Council v. , LLC (9th Cir. 2008) 521 F.3d 1157, 1170–1171 (Roommates) [“any activity that can be boiled down to deciding whether to exclude material that third parties seek to post online is perforce immune under section 230.”].) In addition, a service provider’s motive in deciding whether to remove content from its service is not relevant when deciding section 230(c)(1) immunity. (See Hassell, supra, 5 Cal.5th at p. 540; Spy Phone Labs LLC v. Google Inc. (N.D.Cal. Oct. 14, 2016, No. 15-cv-03756-KAW) 2016 U.S.Dist.LEXIS 143530, at *26 [“Section 230(c)(1) immunity … by its plain terms does not require good faith (by a service provider)”].)

In summary, immunity under section 230(c)(1) requires the following: “(1) the defendant be a provider or user of an interactive computer service; (2) the cause of action treat the defendant as a publisher or speaker of information; and (3) the information at issue be provided by another information content provider.” (Gentry v. eBay, Inc. (2002) 99 Cal.App.4th 816, 830 (Gentry).)

C. Discussion

There does not appear to be any dispute that YouTube is a provider of an interactive computer service. The issues are whether Plaintiff’s claims “(2) … treat the defendant as a publisher or speaker of information” that is “(3) … provided by another information content provider.” (Gentry, supra, 99 Cal.App.4th at p. 830.)

“In assessing whether a claim treats a provider as a publisher or speaker of user-generated content” for purposes of CDA immunity, “courts focus not on the name of the cause of action, but whether the plaintiff’s claim requires the court to treat the defendant as the publisher or speaker of information created by another.” (Murphy v. Twitter, Inc. (2021) 60 Cal.App.5th 12, 26 (Murphy), citing Barnes v. Yahoo!, Inc. (9th Cir. 2009) 570 F.3d 1096, 1101–1102 (Barnes) and Cross, supra, 14 Cal.App.5th at p. 207.) “This test prevents plaintiffs from avoiding the broad immunity of section 230 through the creative pleading of barred claims or using litigation strategy to accomplish indirectly what Congress has clearly forbidden them to achieve directly.” (Id. at pp. 26–27, quoting Hassell, supra, 5 Cal.5th at pp. 542, 541, internal quotation marks and other notations omitted.)

While “some courts have rejected the application of section 230 immunity to certain breach of contract and promissory estoppel claims, many others have concluded such claims were barred because the plaintiff's cause of action sought to treat the defendant as a publisher or speaker of user generated content.” (Murphy, supra, 60 Cal.App.5th at p. 28 [collecting cases].) That was the case in Murphy, where the plaintiff asserted claims based on Twitter’s blocking of her content in supposed contravention of its own terms of service and related policies. Murphy explained that

the substance of [the] complaint accuses Twitter of unfairly applying its general rules regarding what content it will publish …. Murphy does not allege someone at Twitter specifically promised her they would not remove her tweets or would not suspend her account. Rather, Twitter’s alleged actions in refusing to publish and banning Murphy’s tweets, as the trial court in this case observed, “reflect paradigmatic editorial decisions not to publish particular content” that are protected by section 230.

(Murphy, supra, 60 Cal.App.5th at p. 29.) Murphy distinguished Barnes on the ground that in that case, “the plaintiff sought damages for breach of a specific personal promise made by an employee to ensure specific content was removed from Yahoo’s website.” (Id. at p. 29.) Barnes must be distinguished from our case for the same reason.[5] And Murphy approved Cross, which—like this case—“involved liability for a service provider’s failure to remove third party content.” (Id. at p. 31.)

Cross arose from the plaintiff’s allegations that Facebook improperly failed to remove a page that “incited violence and generated death threats” against him. (Cross, supra, 14 Cal.App.5th at p. 194.) The court of appeal held that the entire complaint, including claims for breach of contract and negligent misrepresentation based on Facebook’s terms of service and related policies, must be struck as unmeritorious pursuant to the anti-SLAPP statute. The theory in Cross was similar to Plaintiff’s theory here: plaintiffs alleged that Facebook’s terms of service

“ …prohibited harassing and violent speech against Facebook users [and] made an explicit promise to [plaintiff]: ‘We remove credible threats of physical harm to individuals.’ Facebook also stated that ‘[w]e want people to feel safe when using Facebook,’ and agreed to ‘remove content, disable accounts, and work with law enforcement when we believe there is a genuine risk of physical harm or direct threats to public safety.’”

(Cross, supra, 14 Cal.App.5th at p. 201.)

But Cross explained that “even if statements in Facebook’s terms could be construed as obligating Facebook to remove the pages…[,] it would not alter the reality that the source of [plaintiff’s] alleged injuries, the basis for his claim, is the content of the pages and Facebook’s decision not to remove them.” (Cross, supra, 14 Cal.App.5th at pp. 201–202.) So despite the plaintiff’s argument that he only sought to enforce Facebook’s “ ‘own promises and representations’ ” to him (id. at p. 206, italics original), these claims were barred by CDA immunity (id. at pp. 206–207). While styled as claims for breach of contract and negligent misrepresentation, the claims treated Facebook as a publisher and sought to hold it liable for harmful third-party content. The same is true here.

In re Zoom Video Communs. Privacy Litig. (N.D.Cal. 2021) 525 F. Supp. 3d 1017 (Zoom), by contrast, the contract-related claims did not depend on third-party content. (See King v. Facebook, Inc. (N.D.Cal. Nov. 12, 2021, No. 21-cv-04573-EMC) 2021 U.S.Dist.LEXIS 219277, at *35, fn. 7 [noting that the implied contract theory in Zoom alleged “Defendant was obligated to provide Plaintiffs … with Zoom meetings that were suitable for their intended purpose of providing secure video conferencing services, rather than other video conferencing services vulnerable to unauthorized access…”].) To the extent Zoom suggests that contract-related claims are categorically exempt from CDA immunity, the Court disagrees (see id. at *35–36 [rejecting such a categorical rule]), and in any event, it is bound to follow Cross and Murphy on this point.

Finally, Plaintiff alleges that the animal abuse content at issue here was criminal. But the “criminal” label does not change the analysis above. While section 230 does state that it shall not be construed to impair the enforcement of any federal criminal statute (§ 230(e)(1)), this action does not seek to enforce a federal criminal statute. Section 230 clearly states that “[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.” (§ 230(e)(3).) Yet that what Plaintiff seeks to do here.

Based on Cross and Murphy, Plaintiff’s claims are barred by Section 230.

III. CONCLUSION

The Court SUSTAINS Defendant’s demurrer with 30 days’ leave to amend. The motion to strike is accordingly MOOT.

The Court will prepare the order.

***

LAW AND MOTION HEARING PROCEDURES 

Remote hearings are required. If a party gives notice that a tentative ruling will be contested, any party seeking to participate in the hearing remotely should contact CourtCall. If a party wants to appear in person, please contact Rowena Walker (rwalker@) to reschedule the hearing. 

 

Public access to hearings is available on a listen-only line by calling 888-808-6929 (access code 2752612). 

 

State and local rules prohibit recording of court proceedings without a court order. These rules apply while in court and also while participating in a hearing remotely or listening in on a public access line. No court order has been issued which would allow recording of any portion of this motion calendar. 

 

The court does not provide court reporters for proceedings in the complex civil litigation departments. Any party wishing to retain a court reporter to report a hearing may do so in compliance with this Court’s October 13, 2020 Policy Regarding Privately Retained Court Reporters. The court reporter may participate remotely and need not be present in the courtroom

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Case Name: Kaga FEI Co., Ltd. v. Cypress Semiconductor Corp.

Case No.: 19CV359055

This action arises from alleged breaches of the Distributor Agreement by which Plaintiff and Cross-Defendant Kaga FEI Co. (“KFEI”) and Defendant and Cross-Complainant Cypress Semiconductor Corporation agreed that KFEI would serve as a nonexclusive distributor of Cypress products to Japanese companies and their affiliates.

Before the Court is Cypress’s unopposed motion to seal portions of its answer to the Amended Complaint and portions of its Cross-Complaint. As discussed below, the Court GRANTS Cypress’s motion.

I. LEGAL STANDARD

“The court may order that a record be filed under seal only if it expressly finds facts that establish: (1) There exists an overriding interest that overcomes the right of public access to the record; (2) The overriding interest supports sealing the record; (3) A substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) The proposed sealing is narrowly tailored; and (5) No less restrictive means exist to achieve the overriding interest.”  (Cal. Rules of Court, rule 2.550(d).) Pleadings, in particular, should be open to public inspection “as a general rule,” although they may be filed under seal in appropriate circumstances.  (Mercury Interactive Corp. v. Klein (2007) 158 Cal.App.4th 60, 104, fn. 35.)       

 

  “Courts have found that, under appropriate circumstances, various statutory privileges, trade secrets, and privacy interests, when properly asserted and not waived, may constitute overriding interests.”  (In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292, 298, fn. 3 (Providian).)  “[A] binding contractual agreement not to disclose” may suffice. (Huffy Corp. v. Superior Court (2003) 112 Cal.App.4th 97, 107.) In addition, confidential matters relating to the business operations of a party may be sealed where public revelation of the information would interfere with the party’s ability to effectively compete in the marketplace.  (See Universal City Studios, Inc. v. Superior Court (2003) 110 Cal.App.4th 1273, 1285–1286.)     

Where some material within a document warrants sealing, but other material does not, the document should be edited or redacted if possible, to accommodate both the moving party’s overriding interest and the strong presumption in favor of public access. (Cal. Rules of Court, rule 2.550(d)(4), (5).)  In such a case, the moving party should take a line-by-line approach to the information in the document, rather than framing the issue to the court on an all-or-nothing basis.  (Providian, supra, 96 Cal.App.4th at p. 309.)  

II. DISCUSSION

Cypress explains that in the Distributor Agreement, the parties agreed not to disclose any “non-public information pertaining” to either party’s “business,” including “all information relating to customers and customer transactions and other technical, business, financial, customer and Product development plans, forecasts, Product prices, strategies and information,” as well as the terms of the Distributor Agreement itself. This information is not publicly available, and its disclosure could harm the parties’ positions when entering into future agreements or negotiations. The proposed redactions are narrowly tailored to this information. The Court finds that Cypress has established an overriding interest that justifies sealing these limited portions of its answer and Cross-Complaint, and the other factors set forth in rule 2.550 are satisfied.

III. CONCLUSION

The Court GRANTS Cypress’s motion to seal.

The Court will prepare the order.

***

LAW AND MOTION HEARING PROCEDURES 

Remote hearings are required. If a party gives notice that a tentative ruling will be contested, any party seeking to participate in the hearing remotely should contact CourtCall. If a party wants to appear in person, please contact Rowena Walker (rwalker@) to reschedule the hearing. 

 

Public access to hearings is available on a listen-only line by calling 888-808-6929 (access code 2752612). 

 

State and local rules prohibit recording of court proceedings without a court order. These rules apply while in court and also while participating in a hearing remotely or listening in on a public access line. No court order has been issued which would allow recording of any portion of this motion calendar. 

 

The court does not provide court reporters for proceedings in the complex civil litigation departments. Any party wishing to retain a court reporter to report a hearing may do so in compliance with this Court’s October 13, 2020 Policy Regarding Privately Retained Court Reporters. The court reporter may participate remotely and need not be present in the courtroom.  

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Case Name: Kenmark Ventures, LLC v T. Thomas

Case No.: 2008-1-CV-130677

On June 1, 2022, the Court denied Defendant Tony Thomas’s motion to vacate the judgment entered against him. (And in a tentative filing filed on August 3, 2022, the Court denied his motion for reconsideration.)

Now before the Court is Plaintiff Kenmark Ventures, LLC’s motion for sanctions against Defendant and his then-law firm (the Wade Law Group) under Code of Civil Procedure section 128.7. In this motion, Plaintiff argues Defendants’ motion to vacate was so frivolous or so lacking in legal or factual support that monetary sanctions are appropriate.

A. Standard

An attorney or unrepresented party who presents a pleading, motion or similar paper to the Court makes an implied “certification” as to its legal and factual merit; and is subject to sanctions for violation of this certification. (California Practice Guide, Civil Procedure Before Trial, ¶ 9:1135 (The Rutter Group) (citing Code Civ. Proc., §128.7 and Murphy v. Yale Materials Handling Corp. (1997) 54 Cal.App.4th 619, 623).)

This implied certification includes the following “sub-certifications”:

• The pleading is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;

• The claims, defenses and other legal contentions asserted in the filing are warranted by existing law or by a nonfrivolous argument for the extension or change in existing law;

• Any factual contentions in the pleading have evidentiary support or, if specifically so identified, are likely to have evidentiary support after reasonable opportunity for further investigation or discovery;

• The denials of factual allegations are warranted on the evidence or, if identified as such, are reasonably based on a lack of information or belief.

(California Practice Guide, Civil Procedure Before Trial, ¶ 9:1136 (The Rutter Group) (citing Code Civ. Proc., §128.7(b)).)

Violation of any of these certifications may give rise to sanctions under section 128.7. (See Eichenbaum v. Alon (2003) 106 Cal.App.4th 967, 976.)

B. Discussion

While there are various procedural hurdles a moving party must overcome for a section 128.7 motion, here Defendant and his law firm (the non-moving parties) do not seriously dispute the procedural propriety of the motion.[6] The Court therefore examines the substance of Plaintiff’s motion.

After reviewing the factual and legal arguments in Defendant’s motion to vacate, the Court finds that while these arguments lacked merit, they were not so frivolous, legally unreasonable, or lacking in factual foundation that sanctions are appropriate. (See Bockrath v. Aldrich Chem. Co., Inc. (1999) 21 Cal.4th 71, 82.) The Court therefore finds that Plaintiff and her counsel have not filed objectively unreasonable claims that would violate section 128.7. (See Peake v. Underwood (2014) 227 Cal.App.4th 428, 440 [noting that “[a] claim is objectively unreasonable if any reasonable attorney would agree that [it] is totally and completely without merit”] (brackets in original; internal quotes omitted).)

If there are no objectively unreasonable claims in the complaint, there is no section 128.7 violation and sanctions cannot be awarded, unless an improper purpose for making the filing the is shown. (See Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 189.) While the filing of this motion (and the later motion for reconsideration) has caused some delay in fully resolving this case, it appears to the Court that Defendant’s main purpose in filing the motion was to relieve himself from the multi-million-dollar judgment he otherwise must pay. That is a legitimate purpose to make this filing.

Therefore, the Court DENIES Plaintiff’s motion.

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[1] The Court GRANTS Defendants’ request for judicial notice of relevant orders in Costanzo and other related federal litigation (Exs. 2-7 to Defendants’ request). (Evid. Code, § 452, subd. (d).)

[2] The Court GRANTS Defendants’ request for judicial notice of the registration statement (Ex. 1 to Defendants’ request), as well as other relevant DXC public filings and transcripts (Exs. 8–12 to Defendants’ request). (Evid. Code, § 452, subds. (c) and (h); StorMedia, Inc. v. Superior Court (1999) 20 Cal.4th 449, 456, fn. 9 [taking judicial notice of proxy statement and registration statement filed with SEC].)

[3] Plaintiffs’ authorities do not address facts similar to those at issue here, and contrary to Plaintiffs’ suggestion, do not support the conclusion that vaguely positive statements about the anticipated benefits of an acquisition are actionable absent a specific, existing, undisclosed material issue. (See, e.g., Sherleigh Assocs. v. Windmere-Durable Holdings (S.D.Fla. 2000) 178 F.Supp.2d 1255, 1270 [“The most significant of Plaintiffs’ allegations are … that at the time of the July Offering, ‘Windmere did not have the requisite licenses in place required to operate … in Latin America and thus could not, until such time as the licenses were obtained, sell HPG products in Latin America or even call on HPG’s then-existing customer base.’ [Citation.] Plaintiffs contend that the disclosures regarding the HPG acquisition triggered a duty to disclose, among other things, the risk that, after the acquisition, months could pass during which Windmere would be unable to move or sell products in Latin America until these license issues were resolved.”]; In re MobileMedia Sec. Litig. (D.N.J. 1998) 28 F.Supp.2d 901, 925 [“as of the date of the Secondary offering, the Secondary Offering Plaintiffs allege MobileMedia was aware of technical problems in assimilating and absorbing Dial Page’s subscriber base, billing problems arising from the assimilation of Dial Page customers, an increased churn rate, and increased personnel expenses”].)

[4] All future references are to this section.

[5] Berenson v. Twitter, Inc. (N.D.Cal. Apr. 29, 2022, No. C 21-09818 WHA) 2022 U.S.Dist.LEXIS 78255 (Berenson) simply followed Barnes, emphasizing the plaintiff’s allegations that Twitter not only “established a specific, detailed five-strike policy regarding COVID-19 misinformation” but “its vice president gave specific and direct assurances to plaintiff regarding his posts pursuant to that policy.” (Id. at *6, italics original.) Berenson was clear that these specific and direct promises were the key to avoiding CDA immunity:

These facts differ from other recent opinions … where the pleading did “not allege[] Twitter ever made a specific representation directly to [plaintiff] or others that they would not remove content from their platform or deny access to their accounts.” Murphy[, supra,] 60 Cal. App. 5th [at p.] 39, …; see also King v. Facebook, Inc., ___ F. Supp. 3d ___, 2021 U.S. Dist. LEXIS 219277, 2021 WL 5279823, at *13 (N.D. Cal. Nov. 12, 2021) (Judge Edward M. Chen).

(Berenson, supra, 2022 U.S.Dist.LEXIS 78255, at *7–8.) With the exception of this one theory, Berenson held that “all claims in th[at] action [we]re barred” by CDA immunity. (Id. at *4.) So it is consistent with the Court’s conclusion here.

Similarly, Daniels v. Alphabet Inc. (N.D.Cal. Mar. 31, 2021, No. 20-cv-04687-VKD) 2021 U.S.Dist.LEXIS 64385 cites Barnes to support its tentative conclusion that “[a]t the hearing, defendants acknowledged that Section 230(c)(1) immunity would not apply to a properly pled breach of contract claim.” (Id. at *35.) This statement was unsupported by any reasoning and was not a holding that the plaintiff had stated a claim avoiding CDA immunity—it merely justified the court’s decision to grant leave to amend so that the issue could be more thoroughly addressed in the future. The Court declines to apply this overly broad, tentative statement from Daniels here.

Finally, the Court respectfully disagrees with Darnaa, LLC v. Google, Inc. (N.D.Cal. Nov. 2, 2016, No. 15-cv-03221-RMW) 2016 U.S.Dist.LEXIS 152126, which predates Cross and Murphy.

[6] Mr. Thomas claims he was not individually served with the motion, but at the time of service, he was represented by the Wade Law Group. Therefore, it was proper for Plaintiff to serve Mr. Thomas through his law firm. Also, the Court sees no prejudice from considering Mr. Thomas’s late opposition, so the Court will consider it on its merit.

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