Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01650/USCOURTS-caed-2_05-cv-01650-0/pdf.json

Nature of Suit Code: 150
Nature of Suit: Overpayments &amp; Enforcement of Judgments
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CAMERON SMITH,

NO. CIV. S-05-1650 FCD EFB

Plaintiff,

v. MEMORANDUM AND ORDER

BIOWORKS, INC.,

Defendant.

----oo0oo----

This matter is before the court on cross-motions for summary

judgment pursuant to Rule 56 of the Federal Rules of Civil

Procedure. Defendant has also filed a motion for Rule 11

sanctions against plaintiff and his attorney. The court heard

oral argument on the motions on January 26, 2007. For the

reasons set forth below, defendant’s motion for summary judgment

is GRANTED, plaintiff’s cross-motion for summary judgment DENIED,

and defendant’s motion for Rule 11 sanctions is DENIED.

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 The facts are undisputed except where otherwise noted. 

(See Def.’s Reply Stmt. of Uncontroverted Facts in Supp. of Mot.

for Summ. J. (“RUF”), filed Jan. 19, 2007).

However, the court notes that several documents

attached to defendant’s Evidence in Support of Summary Judgment

are not properly authenticated pursuant to Rule 901. However,

none of plaintiff’s objections address the admissibility of the

underlying documents, and plaintiff cites to one such

unauthenticated document in his Statement of Undisputed Facts. 

(See Pl.’s Stmt. of Undisp. Facts, filed Jan. 12, 2007). As

such, for the purposes of this motion, the court considers such

documents to be true and correct copies. 

2 Plaintiff filed a multitude of objections to

defendant’s evidence. Plaintiff made general objections to

defendant’s motion and arguments. These objections are without

merit and OVERRULED. Plaintiff also objects to the statements

made in defendant’s statement of undisputed facts; his objections

are aimed at the phrasing of the statements, not the underlying

evidence upon which they are made. Such statements are not

evidence themselves, but a summary of the material fact contained

in the cited evidence, which the court has reviewed

independently. See Local Rule 56-260. Plaintiff’s objections to

these statements are baseless and OVERRULED. Finally, plaintiff

also objects to certain portions of the Declaration of William J.

Foster. Foster is competent to testify to the matters set forth

in his declaration due to his position as President of defendant

BioWorks, Inc., and plaintiff’s objections are OVERRULED.

2

BACKGROUND1

Plaintiff Cameron Smith (“Smith”) was an employee of

defendant BioWorks, Inc. (“BioWorks”). (See RUF ¶ 1).2 Shortly

after accepting an offer of employment with defendant, on October

1, 1997, plaintiff signed a document entitled “Proprietary

Information, Inventions, and Noncompetition Agreement”

(“Confidentiality Agreement”). (RUF ¶ 1). The non-compete

clause of the Confidentiality Agreement states that its duration

is “for so long as [plaintiff is] employed by the Company and for

one year after termination,” with an extension provision that

states if plaintiff breached any provision of the non-compete

covenant, “the term of this covenant shall be extended by a

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number of days equal to the number of days [plaintiff is] in

breach.” (RUF ¶ 5; Ex. E to Decl. of William J. Foster (“Foster

Decl.”), filed Dec. 27, 2006). On December 2, 2004, BioWorks

terminated plaintiff’s employment based upon his “unacceptable

performance as a BioWorks Sales Manager.” (RUF ¶ 2; Ex. F to

Foster Decl.).

During plaintiff’s termination meeting, the non-compete

clause in the Confidentiality Agreement was not discussed. (RUF

¶ 3). Following plaintiff’s termination from BioWorks, the only

time William J. Foster (“Foster”), the President and CEO of

BioWorks, addressed the issue of the non-compete clause in the

Confidentiality Agreement with plaintiff was in a letter to

plaintiff, dated December 7, 2004. (RUF ¶ 4). In relevant part,

the letter provided, “Also recall the confidentiality agreement

signed by you on October 1, 1997 (copy attached) regarding

maintaining the confidentiality of company information, including

technical data, customer lists, marketing plans, and pricing

strategies.” (Ex. H to Evidence in Supp. of Summ. J.

(“Evidence”), filed Dec. 27, 2006). 

The parties agree that plaintiff did not breach any

provision of the non-compete clause of the Confidentiality

Agreement and that BioWorks did not communicate to plaintiff that

it believed plaintiff was in breach of the non-compete clause of

the Confidentiality Agreement. (RUF ¶¶ 6-7). The parties also

agree that plaintiff’s post-termination business activities do

not violate California’s Uniform Trade Secrets Act and that

plaintiff’s current employment or business activities conform

with and otherwise do not violate the terms and conditions

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contained in Agreements executed by the Parties during their

employment relationship. (RUF ¶¶ 8-9). Finally, plaintiff also

agrees that plaintiff’s employment or business activities

constitute fair competition against defendant and do not

constitute a violation of other federal or state laws. (RUF ¶¶

10-11).

During his employment with BioWorks, plaintiff also signed

and expressed his assent to the written terms of BioWorks

Incentive Stock Option Agreements on November 3, 1997 and on June

1, 1998. (RUF ¶¶ 24-25). The terms of these agreements provide:

If Optionee’s employment with the Company or any of its

Affiliates terminates for cause during the Option

Period, the Option period shall terminate on the date

of such Optionee’s termination of employment and the

option shall not thereafter be exercisable to any

extent.

(Ex. J-L to Evidence). By letter dated December 2, 2004, Foster

stated that “[u]nder the terms of the Agreement, [plaintiff was]

granted the option of purchasing 15,000 shares of the Company’s

Common Stock” and that those 15,000 shares had vested as of

December 2, 2004. (Ex. F to Foster Decl. at 3). The letter also

stated that the period in which plaintiff may exercise his

options terminated on March 1, 2005. (Ex. F to Foster Decl. at

3). By letter dated December 20, 2004, plaintiff wrote that he

reserved the right “to exercise his stock options for ten years,”

reserved the right “to dispute the valuation and or sales price

of the stock options,” and asserted that his options totaled

25,000 options, not 15,000 options. (Ex. I to Evidence). In

response, by letter dated January 10, 2005, Foster informed

plaintiff that upon further review of the claim to option

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 Defendant objects to plaintiff’s filing of a crossmotion for summary judgment and asks this court to strike

plaintiff’s cross-motion. Defendant contends that plaintiff did

not timely notice and file his motion in accordance with Local

Rule 78-230. However, Local Rule 78-230(e) provides that “any

counter-motion or other motion that a party may desire to make

that is related to the general subject matter of the original

motion shall be served and filed with the Clerk in the manner and

on the date prescribed for the filing of opposition.” Because

plaintiff’s cross-motion comports with Local Rule 78-230(e),

defendant’s motion to strike is DENIED.

5

entitlement, “we find that you have no legal right to exercise

any options whatsoever” because plaintiff was terminated for

cause. (Ex. J to Foster Decl.). 

Plaintiff filed a complaint in this court on August 8, 2005,

asserting claims for declaratory relief, breach of oral or

written agreements and promises, and breach of the implied

covenant of good faith and fair dealing. On January 4, 2006,

defendant filed an answer, denying the allegations relating to

plaintiff’s requested declaratory relief. (Answer, filed Jan. 4,

2006, ¶ 26). On December 27, 2006, defendant filed this motion

for summary adjudication and for sanctions. On January 12, 2007,

plaintiff filed his oppositions and a cross-motion for summary

judgment.3

 

STANDARD

A. Summary Judgment

Summary judgment is appropriate when it is demonstrated that

there exists no genuine issue as to any material fact, and that

the moving party is entitled to judgment as a matter of law. 

Fed. R. Civ. P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144,

157 (1970).

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Under summary judgment practice, the moving party

always bears the initial responsibility of informing

the district court of the basis of its motion, and

identifying those portions of “the pleadings,

depositions, answers to interrogatories, and admissions

on file together with the affidavits, if any,” which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the ‘pleadings, depositions, answers to

interrogatories, and admissions on file.’” Id. at 324. Indeed,

summary judgment should be entered against a party who fails to

make a showing sufficient to establish the existence of an

element essential to that party’s case, and on which that party

will bear the burden of proof at trial. Id. at 322. In such a

circumstance, summary judgment should be granted, “so long as

whatever is before the district court demonstrates that the

standard for entry of summary judgment, as set forth in Rule

56(c), is satisfied.” Id. at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

585-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S.

253, 288-289 (1968). In attempting to establish the existence of

this factual dispute, the opposing party may not rely upon the

denials of its pleadings, but is required to tender evidence of

specific facts in the form of affidavits, and/or admissible

discovery material, in support of its contention that the dispute

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exists. Fed. R. Civ. P. 56(e). The opposing party must

demonstrate that the fact in contention is material, i.e., a fact

that might affect the outcome of the suit under the governing

law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986),

and that the dispute is genuine, i.e., the evidence is such that

a reasonable jury could return a verdict for the nonmoving party,

Id. at 251-52.

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue

of fact conclusively in its favor. It is sufficient that “the

claimed factual dispute be shown to require a jury or judge to

resolve the parties’ differing versions of the truth at trial.” 

First Nat’l Bank, 391 U.S. at 289. Thus, the “purpose of summary

judgment is to ‘pierce the pleadings and to assess the proof in

order to see whether there is a genuine need for trial.’” 

Matsushita, 475 U.S. at 587 (quoting Rule 56(e) advisory

committee’s note on 1963 amendments).

In resolving the summary judgment motion, the court examines

the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any. Rule

56(c); SEC v. Seaboard Corp., 677 F.2d 1301, 1305-06 (9th Cir.

1982). The evidence of the opposing party is to be believed, and

all reasonable inferences that may be drawn from the facts placed

before the court must be drawn in favor of the opposing party. 

Anderson, 477 U.S. at 255. Nevertheless, inferences are not

drawn out of the air, and it is the opposing party’s obligation

to produce a factual predicate from which the inference may be

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drawn. Richards v. Nielsen Freight Lines, 602 F. Supp. 1224,

1244-45 (E.D. Cal. 1985), aff’d, 810 F.2d 898 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party

“must do more than simply show that there is some metaphysical

doubt as to the material facts. . . . Where the record taken as a

whole could not lead a rational trier of fact to find for the

nonmoving party, there is no ‘genuine issue for trial.’” 

Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1356.

B. Rule 11 Sanctions

Rule 11 provides that the district court may impose

sanctions upon attorneys or parties “[i]f, after notice and a

reasonable opportunity to respond, the court determines that

subdivision (b) has been violated . . . .” Fed. R. Civ. P.

11(c)). As an initial inquiry, the district court must determine

whether a violation of Rule 11(b) has occurred. See Warren v.

Guelker, 29 F.3d 1386, 1388 (9th Cir. 1994). If a violation is

found, the court may in its discretion decide to impose

sanctions. Fed. R. Civ. P. 11(c)); Guelker, 29 F.3d at 1388 N.1

(9th Cir. 1994); see also 2 Wm. J. Moore, Federal Practice §

11.23(2) (3d ed. 2003). Sanctions are limited to what is

“sufficient to deter repetition of such conduct or comparable

conduct by others similarly situated.” Fed. R. Civ. P.

11(b)(2)(A). The court has broad discretion to choose the

appropriate type of sanction to achieve the Rule’s goal of

deterring future violations. Link v. Wabash R.R. Co., 370 U.S.

626, 633 (1962). 

Pursuant to Rule 11, every pleading, motion, and other paper

presented to the court must be signed by the attorney or an

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unrepresented party. By presenting to the court a pleading,

motion or other paper, an attorney or party represents that “the

claims, defenses and other legal contentions therein are

warranted by existing law or by a nonfrivolous argument for the

extension, modification, or reversal of existing law or the

establishment of new law[.]” Fed. R. Civ. P. 11(a)(b), (b)(2). 

The certification requirements of Rule 11 are violated “if the

paper filed . . . is frivolous, legally unreasonable or without

factual foundation, even though . . . not filed in subjective bad

faith.” Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th

Cir.1986), overruled on other grounds by, Cooter & Gell v.

Hartmarx Corp., 496 U.S. 384 (1990). See also Townsend v. Holman

Consulting Corp., 929 F.2d 1358, 1362-65 (9th Cir.1990)(en banc).

ANALYSIS

A. Declaratory Relief

Plaintiff’s requests declaratory judgment from this court,

finding that (1) plaintiff’s post-termination business activities

do not violate California’s Uniform Trade Secrets Act; (2)

plaintiff’s current employment or business activities conform

with and otherwise do not violate the terms and conditions

contained in Agreements executed by the parties during their

employment relationship; (3) plaintiff’s employment or business

activities constitute fair competition against defendant; (4)

plaintiff’s current employment or business activities do not

constitute a violation of other federal or state law; (5)

defendant’s employment contracts or agreements dealing with noncompetition and non-solicitation are illegal, void, and

unenforceable; and (6) as a prevailing party in this action,

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4 Plaintiff clarified at oral argument that these were

the only requests at issue under his claim for declaratory

relief. To the extent that the prefatory statement of

plaintiff’s complaint included other claims for declaratory

relief, the court views them as voluntarily dismissed.

5 Plaintiff generally alleges a claim for declaratory

relief in his Complaint. Because this is a diversity action, and

because plaintiff alleges that California law applies in this

action, the court applies California’s declaratory relief statute

to plaintiff’s claims. (Complaint, filed Aug. 8, 2005, ¶ 4). 

Further, plaintiff’s opposition and cross-motion references §

1060 of the California Code of Civil Procedure.

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plaintiff is entitled to reimbursement of all attorneys’ fees and

costs incurred in pursuing the matter before, during, and after

litigation of the case.4 (Compl. ¶ 25). 

Defendant does not oppose plaintiff’s first four requests

for declaratory relief. (RUF ¶¶ 6-11). Rather, defendant

contends that because it does not dispute these issues, there is

no justiciable controversy, and thus, plaintiff’s claims should

be dismissed.

Section 1060 of the California Code of Civil Procedure5

provides that “[a]ny person interested under a . . . contract”

may bring a claim for “a declaration of his or her rights and

duties” “in cases of actual controversy.” Cal. Code of Civ.

Proc. § 1060 (West 2006). Decisions interpreting § 1060 “have

held declaratory relief to be proper only where there is a

justiciable controversy as distinguished from a difference or

dispute of a hypothetical or abstract character, from one that is

academic or moot.” School Dist. v. Rafferty, 226 Cal. App. 2d

599, 602-03 (1st Dist. 1964) (citing Monahan v. Dept. of Water &

Power, 48 Cal. App. 2d 746, 750-51 (1941)). “Where it is

apparent that the defendant does not actually oppose the position

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6 The court notes that it does not take accusations of

perjury and misconduct lightly. Parties should be wary of making

such serious accusations without evidentiary support.

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taken by the plaintiff, there obviously can be no controversy and

there is nothing to be determined by the court.” Id. (citing

Maxwell v. Brougher, 99 Cal. App. 2d 824, 828 (1950)); see also

Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th

881, 893 (1st Dist. 1998) (stating that in a declaratory relief

action, where defendant “never really disputed and indeed,

conceded” to plaintiff’s interpretation, “declaratory relief

would be inappropriate”).

Foster declared, under penalty of perjury, that on behalf of

defendant BioWorks, he believes that plaintiff’s post-termination

activities did not (1) breach any provision of the non-compete

clause; (2) violate California’s Uniform Trade Secret Act; (3)

violate any terms and conditions contained in Agreements executed

during the employment relationship; or (4) violate other federal

or state laws. (Foster Decl. ¶¶ 11, 13, 15, 19). Foster also

declared that he never attempted to enforce any term of the noncompete clause against plaintiff nor did he express to plaintiff

that he believed any violations had occurred as a result of his

post-termination activities. (Foster Decl. ¶¶ 12, 14, 16, 20). 

Plaintiff raises no clear argument and cites no case law in

opposition to defendant’s motion. Rather, plaintiff asserts that

Foster’s declaration is perjured,6 and thus, “anything that

defendant or counsel says [is] extremely suspect.” (Pl.’s Opp’n,

filed Jan. 12, 2007, at 15). Specifically, plaintiff points to

the portion of Foster’s declaration that provides: 

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I never expressed to plaintiff that I believed

plaintiff was in violation of any terms and conditions

contained in the Agreements executed by the parties. .

. . I am not aware of any attempt by BioWorks to

express to plaintiff that BioWorks believed plaintiff

was in violation of any terms and conditions contained

in Agreements executed by the parties during their

employment relationship. 

 (Foster Decl. ¶¶ 14, 16). Plaintiff argues that this statement

contradicts averments made in defendant’s Answer to plaintiff’s

Complaint which assert that plaintiff “specifically stole,

converted, and/or destroyed property belonging to the defendant.” 

(Answer, filed Jan. 4, 2006, ¶ 14). As an initial matter, Foster

is not a named defendant in this action, and thus, statements of

defendant BioWorks can not be attributed to Foster per se. 

Further, the averment cited to does not assert that plaintiff

breached any Agreement; rather, it disputes plaintiff’s

contentions that plaintiff “dutifully and in good faith” returned

defendant’s property. As such, there is no contradiction between

statements made in Foster’s declaration and averments made by

defendant in its answer. Essentially, plaintiff asks this court

to disregard a declaration, submitted under penalty of perjury,

based solely on alleged “inconsistencies” with averments

contained in the defendant’s answer, signed by defendant’s

counsel. The court will not do so. 

Based upon Foster’s declaration and the absence of any

evidence that defendant attempted to enforce the non-compete

provisions of the Confidentiality Agreement or charge plaintiff

with the aforementioned violations, it is clear that there is no

justiciable controversy under § 1060 of the California Code of

Civil Procedure as to plaintiff’s first four claims for

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declaratory relief. As such, defendant’s motion for summary

judgment on these four requests for declaratory relief is

GRANTED.

Defendant asserts that plaintiff’s fifth request for a

finding that defendant’s employment contracts or agreements

dealing with non-competition and non-solicitation are illegal,

void, and unenforceable is also not an “actual controversy” under

§ 1060 because the issue is moot. Defendant argues that the noncompete clause at issue expired in December 2005, and therefore,

there is no longer a current controversy for this court to

adjudicate. 

It is undisputed that, by its terms, the non-compete clause

in the Confidentiality Agreement was in effect for one year after

plaintiff’s termination from employment and could be extended by

the number of days for which plaintiff was in breach. (RUF ¶ 5). 

Further, as set forth above, the parties do not dispute that

plaintiff was never in breach of the non-compete clause of the

Confidentiality Agreement. (RUF ¶ 6). Therefore, the noncompete clause could not be extended beyond the one year period

provided in the Confidentiality Agreement. Because plaintiff’s

employment was terminated on December 2, 2004, (RUF ¶ 2), the

non-compete clause expired on December 2, 2005.

Because the non-compete clause expired well before this

issue came before the court, and because there is no evidence to

indicate that plaintiff faces any further liability under this

clause, plaintiff’s claims for declaratory relief under § 1060 of

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7 At oral argument, plaintiff asserted that this claim

was not moot because defendant could bring an action for breach

of the non-compete clause in the future. However, as set forth

above, Foster, as President and CEO of defendant BioWorks, signed

a declaration under penalty of perjury, stating that plaintiff’s

post-termination activities did not breach the non-compete clause

of the Confidentiality Agreement. (Foster Decl. ¶ 11). As such,

there is no plausible threat that defendant will sue plaintiff in

the future for such a breach. 

8 Section 16600 of the California Business & Professions

Code provides that “Except as provided in this chapter, every

contract by which anyone is restrained from engaging in a lawful

profession, trade, or business of any kind is to that extent

void.” (West 2006).

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the California Code of Civil Procedure are MOOT.7 See

Application Group, 61 Cal. App. 4th at 894 (vacating a portion of

the judgment of the district court which adjudicated the merits

of a claim for declaratory relief relating to a non-compete

clause that had expired during the pendency of the proceedings);

see also Morcote v. Oracle Corp., 2005 WL 3157512 at *4-5 (N.D.

Cal. Nov. 23, 2005) (granting defendants’ motion to dismiss

plaintiff’s claim for declaratory relief where the non-compete

provision expired prior to the filing of the complaint). As

such, defendant’s motion for summary judgment on plaintiff’s

fifth request for declaratory relief is GRANTED.

Plaintiff contends that “[w]hat is at issue in this case is

[d]efendant’s use of illegal noncompete agreements against

[p]laintiff and other California employees,” (Pl.’s Opp’n at 7),

and that there is an actionable controversy because “[p]laintiff

has suffered the ‘in terrorem’ effect that Section 166008 . . .

[has] sought to avoid.” (Pl.’s Opp’n at 17). Plaintiff’s

lawsuit is not a class action about non-compete clauses

generally, but is a claim by plaintiff against defendant

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9 Plaintiff clarified at oral argument that the only

contracts at issue under his claim for breach of contract are the

Confidentiality Agreement and the stock options agreement. To

the extent that the allegations in plaintiff’s complaint could be

read to include claims for breach of other contracts or promises,

the court views them as voluntarily dismissed.

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regarding the enforceability of a specific agreement, the terms

of which have expired. Plaintiff fails to cite any authority to

support the position that the court should grant declaratory

relief regarding the validity of an expired agreement. The sole

case plaintiff relies upon, Latona v. Aetna U.S. Healthcare, 82

F. Supp. 2d 1098 (C.D. Cal. 1999), describes the purpose of §

16600 and the in terrorem effect of non-compete provisions in the

context of a wrongful termination in violation of public policy

claim; Latona does not address any issue relating to the mootness

of declaratory relief in the circumstances presented in this

case. 

Finally, defendant argues that plaintiff is not entitled to

his sixth request for declaratory judgment that he is a

prevailing party and entitled to attorneys fees costs because he

is not and cannot be the prevailing party. For the reasons set

forth above, plaintiff has not prevailed on any of his claims for

declaratory relief. For the reasons set forth herein, plaintiff

has also not prevailed on his claims for breach of contract and

breach of the implied covenant of good faith and fair dealing. 

Therefore, plaintiff is not a prevailing party, and defendant’s

motion for summary judgment regarding plaintiff’s sixth request

for declaratory relief is GRANTED. 

B. Breach of Contract9

///

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10 Further, there is no evidence that defendant ever

sought to enforce this provision.

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1. Confidentiality Agreement

Plaintiff claims damages that resulted from defendant’s

alleged breach of contract. Plaintiff argues that defendant

breached the Confidentiality Agreement. However, the court

cannot discern the basis for this claim. Plaintiff has not

identified nor provided evidence that defendant failed to breach

a duty owed plaintiff under the Confidentiality Agreement. The

most comprehensible statement plaintiff makes in his cross-motion

and opposition provides:

What happened is that Plaintiff was looking for work. 

About a month into his job search prospective employers

asked if Plaintiff had a noncompete agreement. At that

point, Plaintiff panicked and began doing some research

on the Internet so to find out about his rights. 

Later, after retaining counsel, yet another prospective

employer asked if Plaintiff had a noncompete agreement

with BioWorks. Plaintiff though at the time that at

any moment he could get sued so he had to figure out a

way to resolve his fears, which were reasonable

considering Defendant’s treatment of him after his

leaving the company.

(Pl.’s Opp’n at 22). Plaintiff’s summation of his version of the

facts fails to enlighten the court as to the basis for

plaintiff’s claim for breach of contract. To the extent that

plaintiff is attempting to argue that the existence of the noncompete provision contained in the Confidentiality Agreement

somehow breached the contract ab initio, plaintiff cites no

support for the unique legal theory that the formation10 and

enforcement of an allegedly illegal contract gives rise to a

claim for a breach of that same contract. Nor is the court

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11 To the extent that plaintiff’s cross-motion asserted a

breach of contract based upon the attorneys’ fees provision,

plaintiff’s counsel conceded at oral argument that such a claim

was based upon plaintiff prevailing, at least in part, in this

action. 

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willing to expand the outer boundaries of contract law in order

to allow plaintiff to prevail on this theory. Therefore,

defendant’s motions for summary judgment regarding plaintiff’s

claim for breach of the Confidentiality Agreement is GRANTED.11 

2. Stock Options Agreement

Plaintiff claims that defendant breached Incentive Stock

Option Agreements and seeks the return of vested stock options. 

The Incentive Stock Option Agreements signed by plaintiff

provide, in relevant part: 

If Optionee’s employment with the Company or any of its

Affiliates terminates for cause during the Option

Period, the Option period shall terminate on the date

of such Optionee’s termination of employment and the

option shall not thereafter be exercisable to any

extent.

(Ex. J-L to Evidence). On December 2, 2004, defendant terminated

plaintiff’s employment based upon his “unacceptable performance

as a BioWorks Sales Manager.” (Ex. F to Foster Decl.). As such,

plaintiff was terminated for cause. Under a clear reading of the

Incentive Stock Option Agreements, the option period terminated

on the December 2, 2004, and any options plaintiff had accrued

were not exercisable to any extent thereafter. 

Plaintiff argues that despite being fired for poor

performance, defendant informed plaintiff that he would receive

his vested stock options. In plaintiff’s termination letter,

defendant stated that “[u]nder the terms of the [1997]

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12 Plaintiff argued at oral argument that the statements

regarding stock options in the termination letter did not

constitute an offer, but rather was a “statement of fact.” It is

unclear how the revocation of a “statement of fact” gives rise to

a claim for breach of contract if there was never a meeting of

the minds between the parties. 

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Agreement,” plaintiff was eligible to purchase 15,000 shares of

stock at $1.90 per share up until March 1, 2005 and under the

1998 agreement, plaintiff was eligible to purchase 2,500 shares

of stock at $1.75 per share up until March 1, 2005. (Ex. F to

Foster Decl. at 3). Plaintiff contends that he signed the

Severance and Release Agreement, thereby accepting defendant’s

offer regarding exercising his stock options. Defendant contends

that plaintiff did not unequivocally accept the offer, and

therefore, no contract was formed. Plaintiff argues that he

signed the release and merely included “questions” about the

number of options he should receive.12 

California law is clear that acceptance of an offer “must be

absolute and unqualified . . . . A qualified acceptance is a new

proposal.” Cal. Civ. Code § 1585 (West 2006). A qualified

acceptance “constitutes a rejection terminating the offer; it is

a new proposal of counteroffer which must be accepted by the

former offeror now turned offeree before a binding contract

results.” Landberg v. Landberg, 24 Cal. App. 3d 742, 750 (1972)

(citations omitted). 

Assuming that the terms contained in plaintiff’s termination

letter constituted an offer to extend stock options despite his

termination for cause, plaintiff replied to this offer by letter

dated December 20, 2004. The letter provides that it accompanies

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13 There is no evidence presented regarding this agreement

in the submissions of either party.

14 Plaintiff’s response letter also disputed the

calculation of his accrued vacation leave, a deduction from his

last pay period for health insurance, and requested written

confirmation regarding FICA payments. (Ex. I to Evidence). 

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the signed Severance and Release Agreement. However, plaintiff’s

letter also provides 

I am reserving my right to exercise my stock options

for ten years (as per Rus Howard’s agreement)13 from

the date this agreement is signed. I am reserving my

right to dispute the valuation and or sales price of

the stock options. I am asserting my right to exercise

all of my options which total 25,000 options, not

15,000 options so noted in the 12-2-04 termination

agreement.

(Ex. I to Evidence).14 Plaintiff’s “reservation of rights” and

dispute over the number of options offered by defendant cannot be

accurately described as “questions.” Plaintiff did not seek to

clarify issues relating to the terms set forth in the December 2,

2004 termination letter. Plaintiff’s reservation and assertion

of rights makes clear that he signed the Agreement with the

proviso that he did not accept certain terms. Because

plaintiff’s letter constituted only a qualified acceptance, no

binding contract was formed, and the rejection terminated

defendant’s offer. Defendant’s response letter, dated January

10, 2005, does not indicate an acceptance of plaintiff’s counteroffer. (Ex. J to Foster Decl.). Rather, defendant’s letter

provides that, pursuant to the Incentive Stock Option Agreements

and due to plaintiff’s termination for cause, plaintiff is not

entitled “to exercise any options whatsoever.” (Id.)

///

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Plaintiff argues that defendant took back plaintiff’s stock

options in order “to bully [p]laintiff because he had dared to

ask any questions in regards to stock option and other benefits

and wages.” (Pl.’s Opp’n at 23). The court does not opine on

defendant’s motivation in not offering plaintiff the right to

exercise stock options in the January 10, 2005 letter, nor is

such motivation relevant to this inquiry. Even if defendant

offered plaintiff the right to exercise stock options in the

December 2, 2004 letter, plaintiff rejected such offer through

his qualified acceptance in his December 20, 2004 letter. As

such, there was no binding contract between plaintiff and

defendant giving plaintiff the right to exercise stock options

after his termination date. Thus, defendant did not breach any

contract by its failure to give plaintiff his vested stock

options. Defendant’s motion for summary judgment regarding

plaintiff’s claim for breach of contract as it applies to his

stock option claim is GRANTED. 

C. Breach of Implied Covenant of Good Faith and Fair Dealing

Plaintiff claims that defendant breached the implied

covenant of good faith and fair dealing. “Every contract imposes

upon each party a duty of good faith and fair dealing it its

performance and its enforcement.” Foley v. Interactive Data

Corp., 47 Cal. 3d 654, 683 (1988) (quoting Rest. 2d Contracts, §

205). This covenant “exists merely to prevent one contracting

party from unfairly frustrating the other party’s right to

receive the benefits of the agreement actually made.” Guz v.

Bechtel. Nat’l Inc., 24 Cal. 4th 317, 349 (2000) (emphasis in

original). Therefore, the covenant “cannot be endowed with an

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15 Plaintiff does not specifically identify what portions

of the Employee Handbook created a contract and thus a covenant,

which was allegedly breached by defendant. However, based upon

plaintiff’s arguments and his Statement of Undisputed Material

Facts, the court infers that plaintiff is referring to the

provision of the Employee Handbook which states that employees

are required to sign the Confidentiality Agreement. (Pl.’s

Statement of Undisputed Material Facts (“PUF”), filed Jan. 12,

2007, ¶¶ 7-8). 

21

existence independent of its contractual underpinnings” and

“cannot impose substantive duties or limits on the contracting

parties beyond those incorporated in the specific terms of their

agreement.” Id. at 349-50 (internal citations omitted). 

Plaintiff states that the contracts applicable to his breach of

covenant claim include (1) the Confidentiality Agreement; (2)

promises contained in the Employee Handbook; and (3) the Stock

Options Agreement.

In regards to the Confidentiality Agreement and the Employee

Handbook,15 plaintiff argues that “in exchange for [p]laintiff

honoring his promises in the Agreement, [d]efendant in turn would

in return reciprocate and honor its obligations as [p]laintiff’s

employer, including the terms contained in the Agreement.” 

(Pl.’s Opp’n at 25). However, plaintiff does not identify, nor

does he provide evidence of, what obligations defendant owed

plaintiff and failed to fulfill in order to constitute a breach

of the covenant.

In regards to the stock option claim, as set forth above

there was no binding contract between plaintiff and defendant

that gave plaintiff the right to exercise stock options after his

termination date. The only valid, applicable contracts relating

to stock options are the Incentive Stock Option Agreements signed

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16 Defendant presents no evidence in support of its claim

that the complaint was filed or reaffirmed for an improper

purpose. Therefore, the court does not address this argument. 

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by plaintiff in 1997 and 1998, which provided that if terminated

for cause, plaintiff is not entitled to exercise any stock

options after the date of termination. Plaintiff has not

provided any evidence that defendant breached the covenant of

good faith and fair dealing in its performance and enforcement of

this contract. 

D. Rule 11 Sanctions

Defendant moves for Rule 11 sanctions in the amount of

approximately $44,300, which is BioWorks asserts is approximately

the amount of fees and costs incurred by BioWorks in this

litigation matter to date. Defendant argues that Rule 11

sanctions are warranted because plaintiff and his counsel filed

and reaffirmed a frivolous complaint, filed for an improper

purpose.16

The court does not find that plaintiff’s conduct violated

Rule 11(b). Plaintiff’s first four requests for declaratory

relief do not present a justiciable controversy based upon

statements made in the Foster declaration. However, there is no

evidence that plaintiff or his counsel was made aware of

defendant’s position on this issue prior to the filing of

defendant’s motions for Rule 11 Sanctions and Summary Judgment. 

To the extent that plaintiff was not aware of defendant’s

position that plaintiff’s post-termination activities were not in

breach of the non-compete clause of the Confidentiality

Agreement, it was not necessarily apparent to plaintiff that the

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17 Further, defendant’s conduct in this litigation does

not demonstrate that they considered plaintiff’s claim to be

frivolous. Despite its assertions that plaintiff’s claims were

without merit from the outset of this litigation, defendant never

filed a motion to dismiss, a motion for judgment on the

pleadings, or an early motion for even partial summary judgment. 

Instead, defendant engaged in discovery. Defendant also waited

until the dispositive motion deadline to file its motions for

Rule 11 Sanctions and Summary Judgment, both of which were

supported by a voluminous amount of papers, and seek an amount of

sanctions equal to the approximate amount of attorney’s fees

litigating this action up to this point.

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non-compete provision had expired in December 2005, based upon

the tolling provision contained in the clause. Therefore,

plaintiff’s claims for declaratory relief were not frivolous. 

As to plaintiff’s claims for breach of contract and breach

of the covenant of good faith and fair dealing, plaintiff’s

claims relating to his right to stock options are not patently

frivolous. Rather, plaintiff asserted that his December 20, 2004

letter did not constitute a counter-offer and rejection, but

rather posed “questions.” While the court ruled against

plaintiff’s interpretation, an unfavorable decision does not

render a claim frivolous. Moreover, Rule 11 “is not intended to

chill an attorney’s enthusiasm or creativity in pursuing factual

or legal theories.” Greenberg v. Sala, 822 F.2d 882, 887 (9th

Cir. 1997). Therefore, because plaintiff’s claims were not

frivolous, defendant’s motion for Rule 11 sanctions is DENIED.17

/////

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CONCLUSION

For the foregoing reasons, defendant’s motion for summary

judgment is GRANTED, plaintiff’s cross-motion for summary

judgment is DENIED, and defendant’s motion for Rule 11 sanctions

is DENIED. The Clerk of the Court is directed to close this

file.

IT IS SO ORDERED.

DATED: January 26, 2007

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