Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00009/USCOURTS-caed-2_09-cv-00009-19/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

PATRIOT RAIL CORP., a No. 2:09-cv-00009-MCE-EFB

Delaware Corporation,

Plaintiff,

v. MEMORANDUM AND ORDER

SIERRA RAILROAD COMPANY,

a California corporation,

Defendant.

__________________________

And Related Counterclaim.

----oo0oo----

As a result of its ultimately unsuccessful attempt to

purchase a short-line rail company from Defendant Sierra Railroad

Company (“Sierra”), Plaintiff Patriot Rail Corporation

(“Patriot”) seeks monetary damages through the present action

under various theories, including breach of contract, breach of

the implied covenant of good faith and fair dealing, fraud, and

unfair competition. 

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Sierra, in turn, by way of counterclaim seeks damages from

Patriot under the same theories, and further asserts additional

claims premised on intentional and negligent interference with

prospective economic advantage, misappropriation of trade

secrets, and coercion. Sierra also seeks damages from CrossDefendant Larry Coe (“Coe”), a Patriot employee, under all the

same theories except breach of contract, and breach of the

implied covenant of good faith and fair dealing.

Presently before the Court is Patriot and Coe’s Motion for

Summary Judgment as to Sierra’s counterclaim. Patriot and Coe

alternatively seek summary adjudication as to particular issues. 

For the reasons set forth below, the Motion for Summary Judgment

as to the case as a whole will be denied. The alternative

request for summary adjudication is denied in part and granted in

part.1

BACKGROUND

This case arises out of a dispute between two railroad

companies who were in negotiations aimed at the apparent

purchase, by Patriot, of Sierra’s business. Sierra is a smaller

company operating its short-line railroads solely within Northern

California, whereas Patriot is a larger concern that purchases

and operates short-line railroads and regional freight railroads

throughout the United States and North America.

 Because oral argument was not of material assistance, this 1

matter was deemed suitable for decision on the briefs. See

Eastern District Local Rule 230(g).

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It is undisputed that the parties began sales negotiations

in 2005. The parties disagree about who pursued the acquisition

opportunity and initiated discussions concerning a proposed sale. 

In connection with the potential acquisition, a non-disclosure/

confidentiality agreement (“NDA”) was entered into by the parties

later that same year. The NDA was intended among other things to

protect the confidential and trade-secret information of Sierra,

while allowing a free flow of information to Patriot. 

During the course of these negotiations, Sierra had an

ongoing short-term contract, renewed yearly, for the provision of

rail services to McClellan Business Park (“McClellan”) in

Sacramento County, California. Sierra was seeking a long-term

contract with McClellan by 2007, and introduced Patriot as a

potential buyer that could fund what was necessary to expand its

operations on the McClellan site. Sierra asked Patriot to assist

in its presentation to McClellan, and Patriot agreed. During

this process, Sierra asserts it provided significant confidential

information to Patriot.

After Sierra introduced Patriot to McClellan, the three

parties met to discuss the long-term contract sought by Sierra. 

In August 2007, Patriot met with McClellan alone. Sierra claims

it was not advised of that meeting. Sierra contends that while

Patriot did indicate to Sierra, following the meeting, that it

intended to draft its own proposal to submit to McClellan, it

assured Sierra that this merely constituted an alternate proposal

to increase the chance that as a group they would secure the

desired long-term contract.

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Approximately three days after this discussion, and two

weeks after the private meeting with Patriot and McClellan,

McClellan gave notice to Sierra that it was terminating its lease

and starting a new Request for Proposal Process (RFP) for a

long-term contract. McClellan told Sierra it would be considered

along with three other bidders. According to Sierra, it did not

know the identity of the other bidders at that time. Sierra

alleges that Patriot never informed Sierra that it was selected

as one of the other three companies in contention. Around this

same time, in September 2007, Patriot sent a Stock Purchase Offer

to Sierra, with a provision reconfirming the effectiveness of the

NDA. Patriot then proceeded to file its own RFP response with

McClellan. 

In January of 2008, McClellan informed Sierra that it had

selected Patriot for its long-term contract. In March 2008,

Sierra filed suit against Patriot alleging the claims that are in

its current counterclaim. Following institution of that lawsuit,

however, the parties apparently agreed to attempt to continue

buyout negotiations, and Sierra accordingly dismissed its

complaint without prejudice. At this time, the parties entered

into a Letter of Intent (“LOI”) that proposed buyout terms while

at the same time clarifying that there was no binding obligation

to actually consummate the transaction as described. The LOI

nonetheless provided that sections 3(a)-3(e) of the agreement

were binding on the parties. Section 3(c) is of particular

importance to Sierra as it reiterated that the Confidentiality

Agreement between Patriot and Sierra remained in full effect. 

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During the course of the negotiations, each party alleges

the other was acting unreasonably and purposefully delaying the

negotiations. In December of 2008, both parties seemed to be

nearing a final agreement. According to Patriot, however, Sierra

rejected its offer without discussion or negotiation. Sierra on

the other hand, claims Patriot substantially changed the terms of

the agreement finally submitted to Sierra, and thereby

effectively negated all previous negotiations leading up to the

December offer. This led both parties to inform each other of

their intention to file suit. Patriot got to court first, and

Sierra quickly responded with its own counterclaim against

Patriot. This led to the Motion now before the Court for

consideration. 

STANDARD

The Federal Rules of Civil Procedure provide for summary

judgment when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c). One of the principal

purposes of Rule 56 is to dispose of factually unsupported claims

or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

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Rule 56 also allows a court to grant summary adjudication on

part of a claim or defense. See Fed. R. Civ. P. 56(a) (“A party

seeking to recover upon a claim ... may ... move ... for a

summary judgment in the party’s favor upon all or any part

thereof.”); see also Allstate Ins. Co. v. Madan, 889 F. Supp.

374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter

Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992). The

standard that applies to a motion for summary adjudication is the

same as that which applies to a motion for summary judgment. See

Fed. R. Civ. P. 56(a), 56(c); Mora v. ChemTronics, 16 F. Supp.

2d. 1192, 1200 (S.D. Cal. 1998).

Under summary judgment practice, the moving party always

bears the initial responsibility of informing the district court

of the basis for 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. at 323

(quoting Rule 56(c)).

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, 288-89 (1968).

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In attempting to establish the existence of this factual

dispute, the opposing party must tender evidence of specific

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

material, in support of its contention that the dispute 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, and that

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

reasonable jury could return a verdict for the nonmoving party.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251-52

(1986); Owens v. Local No. 169, Assoc. of Western Pulp and Paper

Workers, 971 F.2d 347, 355 (9th Cir. 1987). 

Stated another way, “before the evidence is left to the

jury, there is a preliminary question for the judge, not whether

there is literally no evidence, but whether there is any upon

which a jury could properly proceed to find a verdict for the

party producing it, upon whom the onus of proof is imposed.”

Anderson, 477 U.S. at 251 (quoting Improvement Co. v. Munson, 14

Wall. 442, 448, 20 L. Ed. 867 (1872)). As the Supreme Court

explained, “[w]hen the moving party has carried its burden under

Rule 56(c), its opponent 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.

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In resolving a summary judgment motion, 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.

In judging evidence at the summary judgment stage, the court does

not make credibility determinations or weigh conflicting

evidence. See T.W. Elec. v. Pacific Elec. Contractors Ass’n,

809 F.2d 626, 630-631 (9th Cir. 1987), citing Matsushita Elec.

Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

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 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).

ANALYSIS

A. Breach Of Contract

“In a breach of contract claim under California law, a

plaintiff must allege (1) a contract, (2) plaintiff’s

performance, (3) defendant’s breach, and (4) damages.” Lyons v.

Coxcom, Inc., 718 F. Supp. 2d 1232, 1237 (9th Cir. 2009). “Two

basic prerequisites for contract formation are the existence of

mutual consent and terms that are sufficiently definite so that

the performance promised is reasonably certain.” Schwarzkopf v.

Intern. Business Machines, Inc., 2010 WL 1929625, 5 (9th Cir.

2010) citing Weddington Productions, Inc. v. Flick, 60 Cal. App.

4th 793, 811 (1998). 

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“A contract must be so interpreted as to give effect to the

mutual intention of the parties as it existed at the time of

contracting, so far as the same is ascertainable and lawful.”

Cal. Civ. Code § 1636. “When a contract is reduced to writing,

the intention of the parties is to be ascertained from the

writing alone, if possible; subject, however, to the other

provisions of this title.” Cal. Civ. Code § 1639. If the terms

of a contract are unambiguous, no obligation may be enforced that

would result in a right being lost by a party given expressly

under the contract. See Thrifty Payless, Inc. v. Mariners Mile

Gateway, LLC, 185 Cal. App. 4th 1050, 1062 (2010). Where a

writing of an intent to purchase contains language contemplating

that the parties may not conclude the agreement to purchase, and

where language excusing obligation is written into the agreement,

the parties are not contractually bound to go forward with the

purchase. See J.B. Enterprises Intern., L.L.C. v. Sid and Marty

Krofft Pictures Corp., 2003 WL 21037837, 3 (9th Cir. 2003).

The issue now before the court is whether the LOI was a

valid and enforceable contract. Patriot asserts that the

language of 3(f) in the LOI specifically excuses both parties

from an obligation to complete the transaction. Section 3(f)

states in pertinent part as follows: 

“Except with respect to paragraphs (3)a - 3(e) above,

this letter is not intended to be, and shall not be, a

binding contract. Your acceptance of the general

principles set forth in this letter shall not

constitute an agreement to consummate the Transaction

described herein. Such an agreement will be contained

only in the Asset or Stock Purchase Agreement, nor

shall this letter constitute an agreement to enter into

an Asset or Stock Purchase Agreement.”

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Sierra asserts that Patriot is precluded from denying the

enforceability of the LOI because Patriot alleged in both its

original Complaint and First Amended Complaint that this

agreement was binding, and breached by Sierra. Sierra relies on

American Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226

(9th Cir. 1988), to make its argument in that regard. Patriot

points out two reasons, however, why this reliance is flawed. 

First, Lacelaw held only that where an issue of fact would

normally be in dispute, “judicial admissions are formal

admissions in the pleadings which have the effect of withdrawing

a fact from issue and dispensing wholly with the need for proof

of the fact.” Id. at 226. Here, the LOI contained unambiguous

language. The language of 3(f) explicitly negates any obligation

of the parties to make the LOI a binding purchase agreement. If

the language of the contract was ambiguous, and extrinsic

evidence was necessary to determine the two parties’ intentions

in the formation of the contract, then this would require a

determination of fact which could be admitted to in the

pleadings. However, when a contract is reduced to writing, the

intention of the parties is to be ascertained from the writing

alone where possible. No additional fact need be determined, and

the writing of the LOI speaks for itself.

Second, Lacelaw unequivocally states that “factual

assertions in the pleading and pretrial orders, unless amended,

are considered judicial admissions conclusively binding.” Id.

(emphasis added). 

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Patriot’s First Amended Complaint, while still acknowledging that

some provisions in the LOI are binding, nonetheless corrects its

earlier assertion that the agreement is binding in its entirety. 

Therefore, even if the Court considers any admission on the part

of Patriot, it must do so in light of the First Amended

Complaint. Patriot has only admitted as binding the limited

provisions contained in paragraphs 3(a)-3(e) of the LOI. This

does not contradict the plain language of the agreement, and the

same determination can be ascertained from the writing alone.

Therefore, regarding the narrow issue of whether there could

have been a breach of the LOI agreement simply because Patriot

failed to acquire Sierra by its terms, summary adjudication is

granted inasmuch as the LOI does not constitute a binding

purchase agreement. Summary adjudication is not extended to the

rest of Sierra’s breach of contract claim, however, including

whether the NDA or binding provisions of the LOI were breached. 

Sierra has presented triable issues of fact that must be

considered in assessing whether any breaches occurred in those

areas. 

Sierra points to evidence that Patriot’s bid, in response to

McClellan’s RFP, contained information that it knew to include

only because Patriot had seen Sierra’s bid. See Sierra’s Opp’n

to Mot. Summ. J., pp. 11-12, ECF No. 131 (“Opp’n”). This

information was allegedly gained through Sierra’s confidential

long-term relationship with McClellan. Id. Sierra further

points to the fact that the other two bidders’ proposals looked

markedly different. Id. at 12. 

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Sierra asserts that Patriot’s bid was much more similar to

Sierra’s than the other two bidders, and was the only one other

than its own to have an offer to invest in the McClellan

infrastructure. Id. at 14. Sierra contends the offer to invest

was not a requirement, and would only be included if the bidder

understood its importance to McClellan, which it could only have

known from intimate knowledge gained from McClellan and Sierra’s

past business relationship. Id. Patriot had obtained this type

of information through its relationship with Sierra, and Sierra

asserts that is why it knew, unlike the other bidders, to include

this as part of its response. Id. at 12. While Patriot asserts

that such evidence is purely speculative, (see Patriot’s Reply to

Opp’n to Mot. Summ. J., p. 9, ECF No. 143 (“Reply”)) the nonmoving party may overcome a summary judgment motion by

referencing evidence, even if in inadmissible form, as long as it

is possible for the party to later present the same evidence in

admissible form at trial. Colony Holdings, Inc. v. Texaco

Refining and Marketing, Inc., 2001 WL 1398403 at * 5 (9th Cir.

2001). At the very least, the bids themselves would be

admissible as evidence, so regardless of the evidence referenced

by Sierra it would be inappropriate to rule against Sierra at

this juncture as a matter of law. 

Patriot, for its part, points to evidence tending to explain

how it independently arrived at the decision to include this

information. Reply, p. 8. However, neither side offers

undisputed evidence, and a genuine issue of material fact

remains. 

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Each party has simply provided evidence that tends to support its

own contention. Therefore, summary adjudication as to whether

the NDA was breached is not appropriate.

Sierra also claims that Patriot had no intention of entering

into the 2008 LOI at the time of its creation. This is relevant

to a breach of contract claim, because a LOI implies that there

was at least an obligation that Patriot have the intent to

purchase Sierra when forming the agreement, even if no agreement

for purchase was ever concluded. “Under limited circumstances,

the court may find that a contract includes an implied term or

covenant. To effectuate the intent of the parties, implied

covenants will be found if after examining the contract as a

whole it is so obvious that the parties had no reason to state

the covenant, the implication arises from the language of the

agreement, and there is a legal necessity.” Britz Fertilizers,

Inc. v. Bayer Corp., 665 F. Supp. 2d 1142, 1165 (9th Cir. 2009). 

From the language of the contract and the purpose of its

creation, it appears clear that there is an implied covenant that

Patriot have the intent to purchase Sierra, even though it was

not bound to do so if an agreement as to the terms was never

made. Sierra has pointed to evidence that could lead a trier of

fact to find that this implied covenant was breached or

frustrated. 

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First, Sierra references Patriot’s response to McClellan’s

RFP, where Patriot named Crouch Engineering as the group it would

work with to assist with railroad construction. Opp’n, p. 18. 

Sierra had the ability to do railroad construction in house at a

profit, and it argues that if Patriot had an intent to purchase

Sierra it would have named Sierra instead. Id. Patriot asserts

that because the 2007 negotiations had ended, it included Crouch

since Sierra had rejected Patriot’s September offer to purchase,

and this was therefore not demonstrative of any intent to mislead

Sierra. Reply, p. 4. However, whether the parties were still in

negotiations is not an undisputed fact from the record. Sierra

contends that Patriot made representations to Sierra at the time

it was submitting a separate proposal with McClellan Park,

indicating the proposal was meant to be a functional equivalent

of a second proposal by Sierra in order to double the odds of the

duo getting the long-term contract. Opp’n, p. 4. This suggests

that the two were in continuing negotiations during the time this

bidding process was going on. Even though Sierra would reject

one offer by Patriot, it does not necessarily follow that both

parties were no longer in negotiations. At least Sierra was

under the belief that during the bidding process Patriot had

every intention of buying it out. Therefore, it is feasible that

evidence of Patriot naming another party besides Sierra in its

bid proposal could lead a trier of fact to find Patriot already

lacked intent to acquire Sierra before it drafted the 2008 LOI. 

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 For the reasons above, and viewing the evidence in the light

most favorable to the non-moving party, it is not appropriate to

grant summary adjudication as to the breach of contract claim as

a whole, but rather only as to the limited question of whether a

breach occurred because Patriot did not buy out Sierra based on

the terms in the LOI. Therefore, for the claim that Patriot

breached the LOI by failing to buy Sierra out on the terms of the

LOI, summary adjudication is granted, and for all other questions

as to whether a breach of contract occurred regarding either the

LOI or the NDA, summary adjudication is denied. 

B. Breach Of The Implied Covenant Of Good Faith And Fair

Dealing

“In every contract, the law implies a covenant of good faith

and fair dealing. The implied promise requires that the

contracting parties must refrain from engaging in any act that

will injure the rights of the other to receive the benefits of

the agreement.” Trinity Hotel Investors, LLC v. Sunstone OP

Properties, LLC, 2009 WL 303330 at * 11 (9th Cir. 2009). 

“To properly allege a breach of the covenant,

plaintiffs’ allegations must show that the conduct of

the defendant, whether or not it also constitutes a

breach of a consensual contract term, demonstrates a

failure or refusal to discharge contractual

responsibilities, prompted not by an honest mistake,

bad judgment or negligence but rather by a conscious

and deliberate act, which unfairly frustrates the

agreed common purposes and disappoints the reasonable

expectations of the other party thereby depriving that

party of the benefits of the agreement.” 

Id. 

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As previously discussed, although the LOI is not a binding

purchase agreement, it is binding in some respects, including

implied provisions that are obvious by the nature of the

document, such as an implied intent to purchase at the time of

formation. While an implied covenant of good faith and fair

dealing must not contradict the express covenants or purpose of

the agreement, breach of an express covenant is not a

prerequisite for breach of an implied covenant of good faith and

fair dealing. See Berger v. Home Depot U.S.A., Inc.,

476 F. Supp. 2d 1174, 1177 (9th Cir 2007). The purpose of the .

LOI agreement between Sierra and Patriot was to attempt to

negotiate a buyout transaction of Sierra, to which there is an

implied intent at the formation of the agreement to carry through

with such transaction. 

As discussed above, Sierra has offered evidence that there

was no such intent by Patriot at the time the agreement was made. 

Sierra has also offered evidence that may lead a trier of fact to

find that Patriot had breached the terms of the NDA, which

Patriot reacknowledged was effective in the binding provisions of

the LOI. Viewing that evidence in the light most favorable to

the non-moving party could lead a trier of fact to find that

Patriot consciously and deliberately frustrated the purpose of

the LOI. Therefore, summary adjudication is denied as to whether

there was a breach of the implied covenant of good faith and fair

dealing.

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C. Misappropriation Of Trade Secrets

A trade secret may consist of any formula, pattern, device

or compilation of information which is used in one’s business,

and provides an opportunity to obtain an advantage over

competitors who do not know or use it. Walker v. University

Books, Inc., 602 F.2d 859, 865 (9th Cir. 1979). An exact

definition of a trade secret is not possible. Some factors to be

considered in determining whether given information constitutes a

trade secret are: (1) the extent to which the information is

known outside the business of the person or entity claiming a

trade secret; (2) the extent to which it is known by employees

and others involved in the business; (3) the extent of measures

taken by him to guard the secrecy of the information; (4) the

value of the information to the person or entity as well as to

its competitors; (5) the amount of effort or money expended in

developing the information; (6) the ease or difficulty with which

the information could be properly acquired or duplicated by

others. Id.

Patriot asserts various reasons why a trier of fact could

not find any misappropriation, by Patriot, of Sierra’s trade

secrets. First, Patriot claims that the opportunity to bid on

the McClellan contract was not a trade secret simply because

Sierra provided the initial introduction between Patriot and

McClellan. 

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Secondly, Patriot claims that McClellan’s RFP was not

confidential information as it was made public, and its use was

unrestricted. Finally, Patriot asserts that Sierra has no

evidence, even after discovery, beyond mere speculation, that

Patriot’s response included any trade secret information. 

Sierra does not take issue with the first two contentions,

and instead premises its trade secrets claim on the provision of

confidential information within Patriot’s bid proposal. As

already mentioned, Sierra references evidence of similarities

between Sierra’s and Patriot’s bids, and asserts that Patriot’s

bid contained this similar information only because Patriot had

seen Sierra’s bid, and knew of particular confidential

information gathered by Sierra during its long-term relationship

with McClellan. Opp’n, pp. 11-12. Sierra contends this is

further supported by the fact that none of the other bids

contained such information. Id. Sierra’s bid proposal, along

with materials used to prepare the bid, could fit the definition

of a trade secret. Similarities of important and non-obvious bid

information could lead a trier of fact to find that Sierra’s

trade secret information was misappropriated in Patriot’s

preparation of its bid proposal to McClellan. Therefore, summary

adjudication as to Sierra’s claim for misappropriation of trade

secrets is denied.

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D. Intentional And Negligent Interference With Prospective

Economic Advantage

The tort of negligent interference with prospective economic

advantage is established where a plaintiff demonstrates that

(1) an economic relationship existed between the plaintiff and a

third party which contained a reasonably probable future economic

benefit or advantage to plaintiff; (2) the defendant knew of the

existence of the relationship and was aware or should have been

aware that if it did not act with due care its actions would

interfere with this relationship and cause plaintiff to lose in

whole or in part the probable future economic benefit or

advantage of the relationship; (3) the defendant was negligent;

and (4) such negligence caused damage to plaintiff in that the

relationship was actually interfered with or disrupted and

plaintiff lost in whole or in part the economic benefits or

advantage reasonably expected from the relationship. Young v.

Fluorotronics, Inc., 2010 WL 4569996 at * 6 (9th Cir. 2010)

citing Venhaus v. Shultz 155 Cal. App. 4th 1072, 1078 (2007).

The tort of intentional interference with prospective

economic advantage requires allegations of the following

elements: (1) a valid contract between plaintiff and a third

party; (2) defendant’s knowledge of this contract;

(3) defendant’s intentional acts designed to induce a breach or

disruption of the contractual relationship; (4) actual breach or

disruption of the contractual relationship; (5) defendant

committed an act that is wrongful independent of the interference

itself, and (6) resulting damage. Id. at * 5. 

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“As a matter of law, a threshold causation requirement exists for

maintaining a cause of action for either tort, namely, proof that

it is reasonably probable that the lost economic advantage would

have been realized but for the defendant’s interference.” Youst

v. Longo, 43 Cal. 3d 64, 71 (1987). 

Patriot disputes the causation element of each claim,

stating that Patriot did not cause any damage because all of the

evidence indicates that Sierra would have lost the McClellan

contract in the 2007 RFP regardless of whether Patriot had won. 

See Patriot’s Mot. for Summ. J., pp. 14-15, ECF No. 108 (“Mot.”). 

Patriot’s assertion to that effect is primarily based upon the

declaration of Larry Kelley. Kelley opines that Sierra lost its

original contract due to poor performance. See Decl. of Larry

Kelley, pp. 4-5, ECF No. 108-3. He further indicates that even 2

if Patriot had not been chosen, the contract likely would have

been awarded to another bidder, and not Sierra. Id. at 8.

As Sierra argues in response, however, McClellan’s senior

management team never ranked the bids, and Kelley only spoke as

to his own particular opinion on the matter. Id. Sierra also

points to conflicting evidence provided by Frank Myers in his

deposition. See Opp’n, p. 14. Myers testified that the reason

for cancelling Sierra’s first contract was not due to poor

performance. Myers Dep., July 13. 2010, 141:23-142:6. 

 The Court acknowledges that certain evidentiary objections 2

have been interposed by both parties. Unless specifically

discussed within the body of this Memorandum and Order, the

subject matter of those objections were not necessary to the

Court’s rulings and consequently no ruling on the objections is

necessary. To the extent the disputed evidence was deemed

relevant and discussed herein, any related objections are hereby

overruled.

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Myers also testified that Sierra had as good a chance as any for

winning the bid, and actually was expected to have a home court

advantage. Id. at 110:1-25. Myers further expressed his belief

that Sierra’s proposal appeared the strongest behind Patriot’s,

and of the other two bids remaining at least one was out of the

running. Id. at 134:10-135:14. 

Patriot argues that this evidence is nonetheless unimportant

because, as even Myers concedes, Larry Kelley is the final

decision maker, and can ultimately make any decision he chooses. 

Id. at 209:3-210:6. According to Myers, however, it is not

customary for Kelley to override a group decision. Id. Further,

Kelley himself is careful to indicate in his declaration that the

senior management team did not rank any bids besides Patriot’s,

and states clearly that it was only his opinion that Sierra would

not have been the runner-up behind Patriot. Kelley Decl., p. 8. 

 Given all the above, the Court concludes that Sierra has

pointed to evidence allowing the jury to find that it was

reasonably probable that but for Patriot’s bid, Sierra could have

been chosen by the senior management board as having the best

proposal. A trier of fact could also find that it was reasonably

probable based upon normal practice that Kelley would not have

overridden a finding of the board, and thus, Sierra could have

secured the bid despite Kelley’s personal opinion to the

contrary. Therefore, summary adjudication is denied as to the

claims of intentional and negligent interference with prospective

economic advantage.

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E. Fraud

In a contractual relationship, fraudulent intent must often

be demonstrated by circumstantial evidence, which can be inferred

from circumstances surrounding the defendant, or even failure to

attempt performance. Locke v. Warner Bros., Inc., 57 Cal. App.

4th 354, 368 (9th Cir. 1997). When a triable issue of fact

remains as to whether a breach of contract occurred, it is

generally not appropriate to summarily adjudicate a fraud claim

based around the contract or its terms. See id. at 367 (Where

the appeals court stated “a triable issue exists as to whether

Warner breached the agreement with Locke. Therefore, the trial

court’s rationale for disposing of the fraud claim is

undermined.”)

There is a triable issue of fact as to whether a contract or

implied covenant of the agreement between the parties was breached

as previously discussed. Since summary adjudication was not

proper in determining the breach of contract claim, it is also

inappropriate to award summary adjudication on a claim of fraud. 

Summary adjudication is accordingly denied as to this matter. 

F. Coercion

Merriam Webster defines the term “coerce” as the act of

compelling an act or choice. Economic duress applies when a

party acts wrongfully in a way sufficiently coercive to cause a

reasonably prudent person, when faced with no reasonable

alternative, to agree to an unfavorable contract. 

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CrossTalk Productions, Inc. v. Jacobson, 65 Cal. App. 4th 63, 644

(1998). The purpose of asserting this claim is to invalidate an

otherwise valid contract. See Aulakh v. 7-Eleven, Inc., 2006 WL

224398 at * 6 (9th Cir. 2006). 

Sierra asserts that Patriot used coercive means to attempt

to induce Sierra into agreeing to a particular transaction. The

key word here, however, is attempt. No transaction ever occurred

because Sierra never agreed to Patriot’s terms. Therefore,

coercion is not a proper basis for relief as there is not a

contract to invalidate. Summary adjudication on this matter is

accordingly granted.

G. Unfair Competition

Sierra asserts claims of unfair competition, pointing both

to the California Business and Professions Code and to common law

standards. “The privilege of competition is limited by the

nature of things by a legal standard of fairness to the method of

competition and the motive of the competitor. Any abuse of the

privilege is the basis for imposing liability. Standards change

as public policy changes with reference to competition in

business as business is modified by social and economic

conditions; however, deception has always been and is now

recognized as bad conduct.” Southern California Disinfecting Co.

v. Lomkin, 183 Cal. App. 2d 431, 446 (1960). 

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According to California law, unfair competition means any

unlawful, unfair or fraudulent business act or practice and

unfair, deceptive, untrue or misleading advertising and any act

prohibited by Chapter 1 (commencing with Section 17500) of Part 3

of Division 7 of the Business and Professions Code. Cal. Bus. &

Prof. Code § 17200. A practice may be unfair or deceptive

without being unlawful, or vice versa. Smith v. Chase Mortg.

Credit Group, 653 F. Supp. 2d 1035, 1043 (9th Cir. 2009). 

“Virtually any federal, state, or local law can serve as a

predicate for an action under section 17200.” Id. Misappropriation

of a trade secret claim can itself provide a basis for an unfair

competition claim. Competitive Technologies v. Fujitsu Ltd.,

286 F. Supp. 2d 1118, 1152 (9th Cir. 2003). 

Patriot asserts that any indication it provided to Sierra of

its intent to file a lawsuit cannot be the basis of an unfair

competition claim. Mot., p. 18. Sierra asserts in its

opposition to the motion that Patriot’s claim in that regard is

misplaced since the unfair competition claim is based instead on

Patriot’s misappropriation of trade secret information, as well

as bad faith tactics during the failed negotiation transaction. 

Opp’n, p. 15. While Patriot’s assertion is true that simply

letting a party know that it intended to file suit is not proof

of unfair competition, this alone is not what supports Sierra’s

unfair competition claim. As indicated above, Sierra has

identified facts that could enable a jury to find in Sierra’s

favor on its claims for misappropriation of trade secrets, fraud,

breach of the implied covenant surrounding the formation of the

LOI and the negotiation proceedings. 

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Summary adjudication is improper for an unfair competition claim

where the underlying claims on which it is based remain viable. 

Summary adjudication is accordingly denied on the unfair

competition claim.

H. Claims Asserted Against Larry Coe

In cases involving intentional misrepresentation or fraud,

an employee or agent may be individually responsible for the

commissions of that tort. See McNeill v. State Farm Life Ins.

Co., 116 Cal. App. 4th 597 (2004). Patriot contends that because

Coe only dealt with entertainment passenger operations, and did

not have any involvement in the McClellan RFP, he cannot be

individually responsible for the claims being asserted here by

Sierra. 

In response, however, Sierra points to evidence that it was

Coe’s misleading statements that induced Sierra to provide Coe

with confidential information that he then passed along to others

at Patriot. Opp’n, pp. 18-19. Sierra also provides evidence

that Coe was consistently interacting with Patriot, even if his

job was primarily to assess Sierra’s entertainment operations. 

Id. Patriot asserts, in response, that it never had any intention

of buying that portion of Sierra’s operation, as evidenced by the

fact that the LOI did not address the entertainment component as

a possible target for acquisition. Reply, p. 10. Patriot

further maintains that Coe was not in any authority to suggest to

Sierra that it would explore that acquisition. Id. 

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It has already been determined, however, that the LOI

section referenced by Patriot is non-binding, and that the terms

contained therein could have been changed at any time before

purchase. Moreover, the question remains as to why Coe

apparently continued to deal with Sierra if Patriot never had any

intention of buying the operations in which Coe was involved. 

Sierra and Patriot both agree that the tourist operations of the

railroad had been losing money. See Opp’n, p. 19; Reply, p. 10. 

Sierra asserts it had a plan to change the operations in such a

way to reduce its losses. Opp’n, p. 19. Sierra provides

evidence that Coe instructed Sierra not to take any action since

taking action could jeopardize the contemplated buyout

transaction. Id. If Patriot never had an intent to purchase

these operations, as it readily admits in its Reply memorandum,

and if Coe was aware of this when he made these statements to

Sierra and continued to obtain confidential information, Coe

could be found personally liable. Because there is evidence

suggesting that Coe may have personally misled Sierra, and may

have fraudulently obtained confidential information through such

acts, summary adjudication as to this matter is denied.

CONCLUSION

Based on the foregoing, Patriot is not entitled to summary

judgment as a whole with regard to Sierra’s counterclaim in this

matter. Patriot’s Motion for Summary Judgment (ECF No. 108) is

accordingly DENIED. 

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As set forth above, Patriot’s alternative request for summary

adjudication is GRANTED in part as to Sierra’s Third Claim for

Relief, for breach of contract, and further is GRANTED as to

Sierra’s Eighth Claim for Relief, for coercion. Patriot’s

remaining requests for summary adjudication are DENIED.

IT IS SO ORDERED.

Dated: January 31, 2011

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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