Appellate Court Rejected That A Frivolousness, Rather Objectively Specious, Standard Governed.
Civil Code section 3426.4 is the fee-shifting statute under California’s Uniform Trade Secret Act. It allows a trial court to discretionarily award reasonable fees and costs to a prevailing defendant where a misappropriation claim “is made in bad faith,” which under interpretive case law means satisfying both an objective speciousness prong and a subjective bad faith in bringing/maintaining the claim prong. (Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1240, 1262 (2002).)
Plaintiff law firm learned the sting of that provision when it lost its CUTSA claim against a former employee transactional attorney in SwedelsonGottlieb v. Noland, Case Nos. A156334/A156766 (1st Dist., Div. 3 Nov. 2, 2021) (unpublished). Right after he was passed over for equity partner and he set up his own firm in which multiple clients chose to go with him, law firm sued. The problem was that they could not prove that defendant attorney had used any trade secrets (not even discussing over 300 documents the firm previously claimed were trade secrets), either because they were not or were publicly shared with clients/third parties, as well as not being able to show that former attorney improperly solicited clients away. The lower court found against plaintiff, subsequently awarding defendant $51,477.44 in costs and $714,382.50 in section 3426.4 attorney’s fees.
The 1/3 DCA affirmed. Both prongs of section 3426.4 were met, rejecting the notion that a more stringent frivolousness standard supplanted the objective speciousness prong. The timing of the law firm’s suit, in tandem with it lacking evidence to show trade secrets were misappropriated, sealed the result. Ouch! – and attorney can now be awarded more appellate fees and was awarded appellate costs by the reviewing court.
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