A little background:

Two employees working for a competing beauty salon left it and came to us to rent out two stations. Since day one we have had landlord-tenant and not employer-employee relationship with those two persons, because:

  1. every month they pay us fixed station rent,
  2. they get to keep 100% of their profits,
  3. we also have a clause in rental contract that explains that we get to keep our already existing customers and walk-in customers, unless customers are explicitly looking for them.

Few days ago we got a notice from court that this competing beauty salon is suing us along with those two former employees alleging that we have stolen their "trade secrets", which in this case is customer contact list. Obviously, the plaintiff is not aware of the fact that we are their landlord and not employer. They are suing all 3 of us for monetary damage due to lost profits.

Also, to my surprise the competing beauty salon is represented by a legit lawyer registered at http://www.calbar.ca.gov/

To make it clear, I am not asking for legal advice. I am currently inquiring if our business insurance would cover legal defense and, most likely, will end up seeking professional legal defense. However, in the mean time I have 2 generic questions about court process in California to understand the process better:

  1. If someone is incorrectly listed as defendant, then what is the correct way to remove his name from lawsuit? Should one ask plaintiff to voluntarily remove him as defendant? Or is it safer for defendant to file something like "motion to dismiss"?
  2. If plaintiff's lawyer has not done due diligence and is misrepresenting relationship between listed defendants, then would that qualify as frivolous lawsuit? Would this lawyer risk sanctions imposed on him by State Bar of California? Would the plaintiff have to cover legal defense expenses for the defendant that was incorrectly listed?
  • "to my surprise the competing beauty salon is represented by a legit lawyer registered at...": it's not possible for a corporation to file a lawsuit without representation by a lawyer who has been admitted to the bar, so the fact that they are represented by such a lawyer should not be surprising. – phoog Dec 3 '19 at 0:48
  • Had either one signed a non-compete with their previous employer? Were they employees or rented stations as they do with you? – mkennedy Dec 3 '19 at 1:05
  • I don’t think you were added “incorrectly.” That would be if you owned Hair Emporium at 123 Main St. and these stylists were renting at Emporium of Hair at 132 Main St. – Damila Dec 3 '19 at 5:08
  • @phoog Beauty salons are rarely corporations. They are usually Sole Proprietorship or General Partnership. The plaintiff in our case is named as a person, not a corporation. – user9999123 Dec 4 '19 at 2:33
  • @mkennedy 1) the complaint does not mention anything about a signed non-compete agreement. The plaintiff just alleges that former employees knew that customer contact list was trade secret as all appointments were supposed to be routed through general manager. Though, I haven't talked with other defendants in details if they recall signing something like non-compete. 2) they were working there and not renting stations. Of course afaik that salon has other set of issues with classifying employees as they did not give w-2 as IRS would want. – user9999123 Dec 4 '19 at 6:05

The only way in which you could be "incorrectly listed as a defendant" is if somehow your name was typed in as a party (there would be a glaring gap, that no paragraph of the complain says anything about you as a defendant). Assuming the situation is nothing so bizarre as a typo, you are a defendant. Whether or not you are liable in this case is a matter of fact and law, and the plaintiff's attorney has probably done due diligence in suing everybody imaginable.

Perhaps the plaintiff lied to his attorney about material facts (read the complain); or perhaps there is a credible legal theory under which you would be liable (read the complaint). Your attorney will take care of your problems, to the best of his ability. He may be able to persuade plaintiff's attorney that they stand no realistic hope of winning and some chance of getting smacked for pointlessly involving you. If plaintiff's attorney isn't persuaded by the argument, your attorney could submit the legal arguments as a motion to dismiss. If the judge is not persuaded (at this stage), you (your attorney) will have to counter the arguments presented at trial.

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  • 1
    This isn't all that accurate. One can indeed be mistakenly added as a defendant and, if the Plaintiff receives notice that he's sued the wrong party but nonetheless forges ahead with litigation, there is precedent for the Plaintiff's attorney receiving sanctions and the Plaintiff having to cover attorneys' fees for the mistakenly-added defendant. – A.fm. Dec 3 '19 at 11:25

Raise a defence

You are being sued - it's unlikely this will go away just because you ask the plaintiff nicely.

The papers you were served with will tell you when and how to raise a defense. With or without insurance, you probably need a lawyer to help you.

It's quite likely that if you raise the defense that you have not stolen their secrets because you are not employing their ex-employees they will still require you to prove that in court.

Notwithstanding, if I were in their shoes I would amend my statement of claim to also sue for your tort of inducing breach of contract. If you facilitated your tenants in breaching their contract with their ex-employer (stealing trade secrets would breach their employment contract) then you can be held liable.

There is virtually no chance that this is an abuse of process by their lawyer even if you are completely innocent. It looks like you have a case to answer and that's grounds enough for starting a lawsuit.

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  • Actually, the first attorney we contacted explained that we should try to get plaintiff to dismiss the complaint against us out of court. If that fails, only then respond to complaint with Motion to Dismiss. – user9999123 Dec 4 '19 at 3:06

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