California Court Of Appeal Holds That Employee Raiding Schemes Can Be Actionable As Breaches Of The Duty Of Loyalty, Breach Of Fiduciary Duty, And Are Not Preempted By Trade Secrets Law

In a significant decision addressing the intersection of employee loyalty obligations, trade secret law, and business tort claims, the California Court of Appeal, Fourth District, reversed the dismissal of claims brought by Guild Mortgage Company LLC against rival lender CrossCountry Mortgage LLC (“CCM”). In Guild Mortgage Company LLC v. CrossCountry Mortgage LLC, 120 Cal.App.5th 885 (2026), the court held that claims arising from an alleged coordinated effort to recruit an entire branch workforce, divert customers, and access confidential company information could proceed and were not preempted by the California Uniform Trade Secrets Act (“CUTSA”).

Proceedings And Rulings

Background

Guild Mortgage Company LLC (“Guild”), a nationwide residential mortgage lender, sued competitor CrossCountry Mortgage LLC (“CCM”), alleging that CCM conspired with key employees at Guild’s Kirkland, Washington branch to orchestrate a mass departure of personnel and transfer Guild’s customer pipeline and business opportunities to CCM. Guild alleged that while still employed by Guild, employees recruited colleagues, diverted customers and loan applications, and accessed Guild computer systems to obtain confidential information. At the trial court level, the court sustained CCM’s demurrers without leave to amend, finding that (1) three Guild employees who transferred their allegiance to CCM while still employed by Guild owed no actionable common law duty to Guild and that Guild thus could not state a claim against CCM for aiding and abetting a tort; (2) that Civil Code section 3426 et seq. (California's Uniform Trade Secrets Act or CUTSA) preempted four of Guild's other claims; and (3) that Guild's claim for unfair competition was defeated by an inability to state a predicate claim.

Court of Appeal’s Ruling: Employee Loyalty and Fiduciary Duty Claims May Proceed

Reversing, the Court of Appeals reaffirmed that California employees owe a duty of loyalty while employed and may not secretly assist competitors before resignation. The court found that the allegations adequately supported claims for breach of loyalty, fiduciary duty, and aiding and abetting under Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 414 (“The duty of loyalty is breached, and the breach ‘may give rise to a cause of action in the employer, when the employee takes action which is inimical to the best interests of the employer.’ ”) ; Cal. Lab. Code, § 2863; GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 420–421 (““[w]hether a particular officer participates in management is a question of fact.” ). The court thus found that if the allegations in the complaint can be proven, it would have no difficulty concluding that the Guild employees breached a duty of loyalty to Guild; the branch manager owed and breached fiduciary duties to Guild; and CCM aided and abetted such breaches.

CUTSA Does Not Displace Independent Business Tort Claims

Disagreeing with the trial court’s finding that many of the claims were “preempted” by CUTSA, the court held that the gravamen of Guild’s claims was a coordinated scheme to sabotage a branch by recruiting employees and diverting customers, not merely trade secret misuse. Therefore, the interference claims were not displaced by CUTSA, in accordance with the holdings in Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, and Mattel, Inc. v. MGA Entertainment, Inc. (C.D.Cal. 2011) 782 F.Supp.2d 911, 994 (holding CUTSA “does not supersede ... intentional interference with contractual relations [ ]claim to the extent [that the claim] arises out of conduct unrelated to the misappropriation of [claimant's] information”].).

CCDAFA Claims Are Not Displaced by CUTSA

In a matter of first impression, the court also held that California’s Comprehensive Computer Data Access and Fraud Act addresses different harms than CUTSA and remains independently actionable. It thus concluded that CUTSA does not displace claims pursuant to the CCDAFA, and the CCDAFA claims may be based on allegations that confidential information or Trade Secrets were accessed or taken from computer systems without permission.

Unfair Competition Claim Reinstated

Because Guild adequately alleged underlying wrongful conduct, the court also concluded that Guild’s UCL claim could proceed.

Key Takeaways

The Court of Appeals thus clarified a number of important concepts regarding the duties that an employee in California owes to their employer. Namely:

• California employees owe enforceable duties of loyalty while employed.
• Managers with significant discretion may owe fiduciary duties even without officer titles.
• CUTSA does not displace claims based on employee raiding, customer diversion, or branch sabotage.
• CCDAFA claims may proceed independently of CUTSA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.