CALIFORNIA ATTORNEY'S FEES

Trade Secrets: Voluntarily Dismissed Action Did Not Lead to Award Of Attorney’s Fees In Trade Secret Action

 

Trial Court Found That Employer Did Not File Action in Bad Faith.

     Bad faith trade secret claims allow the court to discretionarily award reasonable fees and costs to the prevailing party, although the claimant has to prove both objective speciousness of the plaintiff’s claim and subjective bad faith in bringing/maintaining the claim. (Civ. Code, § 3426.4; Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1262 (2002).)

     In Rusnak Auto Group v. McTaggart, Case No. B224239 (2d Dist., Div. 2 Oct. 12, 2011) (unpublished), the trial court denied an employee’s request for section 3426.4 fees after employer voluntarily dismissed a trade secrets claim, finding no bad faith. Employee appealed, but did not win at the appellate stage either. Conflicting declarations had been submitted before the lower court, so the appellate court assumed that the trial judge accepted the dismissing plaintiff’s version of the facts and reasons that showed why its prosecution of the action was proper.

Trade Secrets: Defendant Winning Trade Secret Case Properly Denied Fee Recovery

 

Trial Court’s Finding of “No Bad Faith” Was Deferred to on Appeal.

     For appellate practitioners and litigators contemplating an appeal, you by now should know that most factual findings--even those than can be implied--usually will uphold a judgment or trial court determination. This substantial evidence rule and its close cousin, the abuse of discretion standard, are beacons of appellate practice, and those beacons were dispositive in the next case we discuss.

     The lower court, although granting summary adjudication for the defense on a trade secrets misappropriation count, nonetheless did not find it was brought or prosecuted in bad faith, denying the defense request for an award of attorney’s fees under Civil Code section 3426.4.

     The defense lost its appeal of this fee denial in Westside Athletic Club, LLC v. Farmer, Case No. D057023 (4th Dist., Div. 1 July 28, 2011) (unpublished).

     The reason was that there was conflicting evidence from which the lower court could deduce that no bad faith was associated with the trade secrets misappropriation claim. Continuances requested by plaintiff related to discovery problems, and plaintiff even requested mediation--with the latter showing plaintiff’s willingness to avoid costly, prolonged litigation.

     Defendant asked the appellate court to adopt a rule by which an adverse ruling (objective specious prong) and an inference of plaintiff’s subjective bad faith would shift the burden to plaintiff to rebut the inference. The appellate court declined the invitation to do so, finding that the two-prong (objective/subjective) test in Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1262 (2002) was workable and “that courts routinely evaluate bad faith in different contexts” such that it could be done in a fees motion under section 3426.4.

Trade Secrets: Orange County Superior Court Awards $484,943.46 In Fees/Costs To Prevailing Defendants In Trade Secrets Case

 

Only About 10% Reduction Made by Superior Court Judge Charles Margines.

     Hat Tip to Howard M. Fields, Senior Counsel with Miller, LLP in Los Angeles, who brought the next case to our attention. He obtained a great result for his firm’s clients in a recent trade secrets case that was voluntarily dismissed without prejudice. A substantial fee/costs award was the award for the work on this case.

     In SASCO v. Rosendin Electric, Inc., Orange County Superior Court Case No. 30-2008-00110031-CU-BC-CJC, plaintiff SASCO sued defendant competitor Rosendin Electric and several individual defendants (who else but former employees of SASCO) primarily for trade secret misappropriation. The problem, if you lose, is that the Uniform Trade Secrets Act has an attorney’s fees shifting provision (Civ. Code, § 3426.4) which applies if a trade secret misappropriation claim is made in bad faith, requiring satisfaction of both objective and subjective prongs on this issue. (Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1261 (2002).)

     The fee-shifting statute was satisfied in this case, because there was evidence showing that (1) SASCO never had any competent evidence of trade secret misappropriation (with even plaintiff’s CEO admitting this), simply relying on uncorroborated beliefs; (2) SASCO’s main injury--a lost bid--could not be sustained because it lost the bid due to a highly inflated bid rejected by the bid proponent; (3) plaintiff never opposed a defense summary judgment on the claim, waiting at the last minute to dismiss after trying for a last-gasp settlement; (4) plaintiff had attempted to deprive individual defendants of ERISA benefits in a federal court case, but met defeat in a manner that resulted in a $568,573.32 (1.5 multiplier) fee award against SASCO there; and (5) there was proof from which an anticompetitive motive could be tacked on plaintiff, which can satisfy the objective bad faith prong (FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270, 1276 (2009)).

     In finding defendants were the prevailing parties, Orange County Superior Court Judge Charles Margines used a “practical” approach in finding that defendants prevailed. He applied the lodestar method for determining fee reasonableness, but discounted the requested amounts by 10% for work on non-trade secret claims (although most were intertwined) and excluded 15 hours for time spent on fee reply motion work. Even with that, the cumulative award to defendants was substantial--$474,336 in fees and $10,607.46 in costs, for a grand total of $484,943.46.

     For those of you wanting to read the very detailed, scholarly April 27, 2011 minute order ruling in this case, here it is. We also have more cases in this substantive area under our “Trade Secrets” home page category.

Trade Secrets: Losing Plaintiff In Trade Secret Misappropriation Suit Has Adverse $126,550.13 Fee Award Sustained On Appeal

Blatant Lack of Standing Dooms Plaintiff’s Effort at Reversal.

     Civil Code section 3426.4, a fee-shifting statute under the Uniform Trade Secrets Act, allows a court to award reasonable attorney’s fees and costs to the prevailing party if a trade secrets misappropriation claim is made in “bad faith.” Well, the Legislature did not define “bad faith,” but the appellate courts have determined that there are two components that need to be satisfied in this context, namely, (1) objective speciousness of plaintiff’s claim, and (2) plaintiff’s subjective bad faith in bringing or maintaining the claim. (FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270, 1275-1276 (2009).) Plaintiff hit with an adverse fee award of $126,550.13 could not convince the appellate court that the award was erroneous in the next trade secrets misappropriation case we discuss.

     That case is O’Reilly v. Musk, Case No. H035511 (6th Dist. Mar. 23, 2011) (unpublished).

     The reason for affirmance? Plaintiff had a critical missing element from successfully prosecuting his trade secret claim--he did not own the trade secret such that he lacked standing to pursue it. That certainly showed objective speciousness, but what about the subjective element? No problem here, because both the objective speciousness and continued pursuit of the claim can combine to satisfy the subjective element. In this one, plaintiff vehemently pursued discovery and opposed summary judgment even though he was on notice of the standing infirmity. Once he lost, no real contest on why the fee award should not be affirmed--and it was, by the Sixth District.

          Blog Bonus (maybe).  Woody Allen on Objectivity and Subjectivity (Love and Death, 1975):

Boris: Murder's immoral.
Sonja: Immorality is subjective.
Boris: Yes, but subjectivity is objective.
Sonja: Not in a rational scheme of perception.
Boris: Perception is irrational. It implies immanence.
Sonja: But judgment of any system or a priori relation of phenomena exists in any rational or metaphysical or at least epistemological contradiction to an abstracted empirical concept such as being or to be or to occur in the thing itself or of the thing itself.
Boris: Yeah, I've said that many times.

Trade Secrets/Costs: Bad Faith Trade Secret Sanctions Of Fees And Costs Cannot Be Imposed Against Party’s Counsel

 

Second District, Division 2 Finds Silence In Fee Shifting Statute Does Not Translate Into Legislative Intent to Impose Fees and Costs on Counsel.

     We have seen a recent surge in cases where appellate courts have reversed trial court decisions imposing fees and costs against a party’s counsel under certain fee shifting or sanction statutes. This one joins the list, involving Civil Code section 3426.4 (which authorizes an award of attorney’s fees “to the prevailing party” if a trade secret misappropriation claim under the California Uniform Trade Secrets Act is made in bad faith) and Code of Civil Procedure section 1032 (the routine cost statute allowing an award of specified costs to “a prevailing party”).

     In Jewels Connection, Inc. v. Czar Jewelry/Oro Direct, Case No. B219034 (2d Dist., Div. 2 Feb. 8, 2011) (unpublished), a trial court awarded $200,000 (out of a requested $224,989.68) in attorney’s fees and $12,087.93 in costs against a plaintiff losing a summary judgment motion in a trade secret misappropriation case as well as against plaintiff’s attorney. Attorney appealed as an objector to these awards.

Trade Secrets: One Losing Plaintiffs Ordered To Pay Compensatory Damages of $72,403 And 80% Of Defense Fees Amounting To $372,094

 

Arbitration Panel Awards Fee to Defense, With Motion to Vacate Award Being Denied.

     In Holland v. Wachovia Securities, LLC, 2009 WL 7035871 (S.D. Cal. Award May 18, 2009), plaintiffs sued Wachovia Securities, LLC and its manager for wrongful termination based mainly on age discrimination. Wachovia counterclaimed that plaintiffs violated the Computer Fraud and Abuse Act and misappropriated trade secrets.

     An arbitration panel dismissed plaintiffs’ claims after a ten day hearing, entering an award in favor of Wachovia and against one of the plaintiffs for $72,403 in compensatory damages. However, in line with our Mission Statement that a fee award can often sting a litigant greatly where there are fee shifting statutes (as there are in the trade secret area), the losing plaintiff also was ordered to pay $372,094 in defense attorney’s fees (representing about 80% of the total fees and costs incurred by both defendants). Holy smokes, Batman! Not to mention that plaintiffs’ motion to vacate the arbitration award was denied.

Trade Secret Fee Award: Second District, Division 6 Affirms $1,641,216.78 Fee/Costs Award For Bad Faith Prosecution Of Trade Secrets Action

Appellate Court Sustains Award Under Gemini Test.

     What more perfect venue to devise the “bad faith” trade secret misappropriation fee test than the Silicon Valley? Well, there is none. In fact, the Sixth District in Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4^th 1249, 1262 (2002) did just that under the California Uniform Trade Secrets Act section 3426.4, holding that fees and costs can be awarded to a prevailing party in a bad faith misappropriation case where the claim was objectively specious and there was subjective bad faith in bringing or maintaining the action. Gemini was front stage and center in an appeal of a substantial fee award before the Second District, Division 6.

     In Flir Systems, Inc. v. Parrish, Case No. B209964 (2d Dist., Div. 6 June 15, 2009) (certified for publication), plaintiffs lost a trade secret misappropriation case against defendants, with the lower court awarding plaintiffs $1,641,216.78 in fees and costs ($1,352,000 in fees and $289,216.78 in costs) out of a requested $2,399,650.55 in fees. Earlier, defendants moved for summary judgment, but it was denied even though the trial court found the defense “made a compelling argument for summary judgment” (but denied it because very technical issues were involved). Section 3426.4 was the basis for the subsequent award after the plaintiffs lost on the merits at trial.

     Plaintiffs appealed the “bad faith” fee award, which was affirmed.

     Presiding Justice Yegan, on behalf of a 3-0 panel, importantly observed early on that plaintiffs did not appreciate the trial court’s fact-finding power, commenting that “[w]e do not retry cases on appeal and we do not substitute our discretion for that of the trial court.”

     The objective speciousness prong was satisfied based on defense evidence that the action was filed as a preemptive strike and for an anticompetitive purpose. Beyond that, there was no evidence of misappropriation, with the defendant employer only relying on the “inevitable disclosure” doctrine—speculation that will not show an actual use or actual threat for misappropriation purposes. Simple deletion of computer documents, emails, or phone messages after an employee changes jobs should not automatically give rise to misappropriation claims.

     Plaintiffs argued that their prior victory in defeating a defendants’ summary judgment motion negated any section 3426.4 “bad faith” finding. Wrong—“Appellants cite no California authority that the denial of a summary judgment motion in a trade secret case precludes the trial court from finding, after it has heard all the evidence, that the action was brought or maintained in bad faith … If the rule was otherwise, a trade secrets plaintiff could file sham declarations to successfully oppose a summary judgment motion and immunize itself from sanctions.” (Slip Opn., at p. 13.)

Uniform Trade Secrets Act: Appellate Court Affirms Hefty Fee Awards Against Plaintiff Where Trade Secrets Claims Were Made In Bad Faith

 

Sixth District Applies Gemini/Stilwell Bad Faith Test in Two Unpublished Companion Decisions.

     In our March 3, 2009 post on K.C. Multimedia, Inc. v. Bank of America Technology & Operations, we discussed a Sixth District Court of Appeal decision that affirmed a $1,114,930 attorney’s fees under Civil Code section 3426.4. That provision authorizes a discretionary award of attorney’s fees against a litigant bringing a misappropriation claim in bad faith. The Sixth District also affirmed two hefty section 3426.4 fee awards in the next companion decisions that we discuss.

     In Augeas Corp. v. Brown, Case Nos. H031275 & H032082 (6^th Dist. May 21, 2009) (unpublished), the Sixth District sustained a fee award of $194,990.25 (full amount requested) against Augeas, while it affirmed another fee award of $100,000 (out of a requested $114,317.85) against Augeas in Augeas Corp. v. Krupski, Case Nos. H031423 & H032156 (6^th Dist. May 21, 2009) (unpublished).

Trade Secret Misappropriation: Sixth District Affirms $1,114,930 Attorney’s Fees Award To Defense For Bad Faith Trade Secret Misappropriation Claim

Court of Appeal Applies Gemini Bad Faith Test Under Civil Code Section 3426.4.

     Civil Code section 3426.4 is a special fee-shifting provision in the trade secret misappropriation area. It authorizes a trial court to make a discretionary award of fees and costs to the prevailing party “if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists.” The Sixth District recently affirmed a substantial fee award to the defense under the first prong of section 3426.4. We now review that decision.

     In K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Case No. H031026 (6^th Dist. Mar. 3, 2009) (unpublished), plaintiff lost a jury trial on a trade secret misappropriation claim. The jury expressly found that the plaintiff made its misappropriation claims in bad faith, a finding endorsed by the trial judge. (As we shall see, this was based on the fact that plaintiff attempted to support its case with forged documents.) Defendants moved for attorney’s fees in a multi-pronged attack: (1) they asked for $1,114,930 in fees under section 3426.4; (2) they requested fees of $782,883.80 under Civil Code section 1717 based on a fees clause; and (3) they requested fees of $1,100,068.75 based on plaintiff’s failure to admit requests for admissions that resulted in substantial expenses in proving the non-admitted facts as true. The trial court granted the fee request of $1,114,930 under section 3426.4.