CALIFORNIA ATTORNEY'S FEES

Trade Secrets: Lower Court Did Not Erroneously Deny Civil Code § 3426.4 Fees To Unsuccessful Plaintiff In Trade Secret Misappropriation Case

Trial Judge Was Allowed To Credit Plaintiff’s Declaration Showing No Subjective Ill-Will.

            Under Civil Code section 3426.4 (see our category “Trade Secrets”), trial judges have discretion to award attorney’s fees and costs to a prevailing party if they determine that the trade secrets misappropriation claim was objectively and subjectively specious in nature.  Many times, the determination comes down to the state of mind of the plaintiff in commencing and prosecuting the case, although this scrutiny is aided by what objectively happened during the course of a lawsuit.  That is what is came down to in Attia v. Google, LLC, Case No. H049586 et al. (6^th Dist. Nov. 3, 2023) (unpublished).

            Plaintiff lost a trade secrets misappropriation case against Google, but he opposed a section 3426.4 fee motion on the basis that he had no subjective bad faith in commencing or maintaining the lawsuit.  The trial court credited his declaration to that effect.  Even though subjective intent was irrelevant for contractual interpretation purposes on the merit of the dispute, it was probative on the subjective element of section 3426.4, with the lower court’s crediting of his testimony dispositive on appeal.

Trade Secrets, Substantiation Of Reasonableness Of Fees: One Defendant Obtains Fee Award Of $254,147.40 Under Trade Secrets Fee Shifting Statute, While Another Defendant Denied Fees

Other Defendant Denied Fees For Not Providing Sufficient Substantiation Of Claimed Fees.

            In Environmental Logistics, Inc. v. Hayward, Case No. D080515, and Environmental Logistics, Inc. v. Tabush, Case No. D080516 (4^th Dist., Div. 1 Aug. 25, 2023) (unpublished), two companion cases, Plaintiffs sued multiple defendants, including three former employees, for interference and trade secret misappropriation, seeking $37.55 million in damages.  After weeks of trial, including an Evidence Code section 402 hearing, the lower court granted a nonsuit on all Plaintiffs’ claims after excluding the opinions of two experts, one because he did not make himself available for deposition until one week before trial and another because his opinions lacked causal foundational links.  Defendants Hayward and Tabush moved for attorney’s fees under Civil Code section 3426.4, which allows for fee awards in the lower court’s discretion in a trade secrets misappropriate case where both objective speciousness and bad faith in commencing/prosecuting a trade secrets case exists.  The lower court granted Hayward’s fee motion, awarding $254,147.40 against Plaintiffs, but it denied Tabush’s fee motion for lack of sufficient fee substantiation.  Defendant Tabush requested expert witness fees of $13,535.60 for a consulting forensic accountant’s expert witness fees given that Tabush successfully made a CCP § 998 offer to waive costs in exchange for a dismissal with prejudice (a 998 offer which he upheld through the non-suit order).  The lower court granted Tabush’s expert fees as costs, striking only $440 of the request because it represented work for a deposition which never went forward.  Plaintiffs appealed the Hayward fee and expert fee award in Case No. D080515, while Tabush appealed the fee denial in Case No. D080516.

            With respect to the appeal involving the Hayward attorney’s and expert’s fees awards, the 4/1 DCA affirmed.  Plaintiffs’ main challenge was that subjective bad faith was not shown, but this was dispatched based on opposing counsel showing deficiencies in Plaintiffs’ theories at an injunction hearing which persisted through the trial.  Although Tabush’s expert never testified at trial, it was reasonable for this defendant to consult with a forensics accountant given the substantial damages claim by Plaintiffs.

            On the fee denial appeal by Tabush, there was no abuse of discretion by the lower court in reaching its conclusion given that Tabush submitted a conclusory attorney declaration with ultimate conclusions and no supporting documents for a $188,168 fee request.  The appellate court endorsed the view that, in a complicated litigation matter, more detail is better and that a lead attorney declaration on reasonableness does not allow a lower court to make its own determination of the same without detailed substantiation.  Plaintiffs argued that the billing contained attorney-client information, but the defense at a motion hearing diffused this well by indicating that the information could be redacted, filed under seal, or remedied by more detail in the lead attorney declaration.

Allocation, Trade Secrets: $299,647.50 Fee Award Against Plaintiff For Bringing A Frivolous Trade Secret Misappropriate Case Affirmed On Appeal

Lower Court Did Reduce The Fee Request About $121,000 In Fashioning Its Award.

            We have a category “Trade Secrets” describing some fairly hefty fee “sanctions” awards under Civil Code section 3426.4, part of the California’s Uniform Trade Secrets Act.  To this list can be added the award in SASCO v. CSI Electrical Contractors, Inc., Case No. B322686 (2d Dist., Div. 4 Dec. 19, 2022) (unpublished).

            There, a lower court awarded the defense $299,647.50 in attorney’s fees under section 3426.4 after plaintiff lost a trade secrets misappropriation case which the trial judge found to be frivolous, although the fee request was reduced by about $121,000.  On appeal, plaintiff did not contest that the action was objectively specious, but it argued that there was no required subjective bad faith.  The appellate court disagreed based on plaintiff losing other cases against former employees and refusing to comply with discovery orders.  No allocation was required between trade secrets and other claims, because they were inter-related. 

Trade Secrets: Law Firm Loosing Trade Secret Case Against Former Employee, A Transactional Attorney, Properly Assessed With Costs Of $51,477.44 And $714,382.50 In Fees Under Civil Code Section 3426.4

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.4^th 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 (1^st 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. 

Appealability, Trade Secrets: Denial Of Attorney’s Fees Under Trade Secret Statute, Before Resolution Of Entire Case, Was Not Appealable For Now

Order Dismissing Appeal Was Recently Published.

            In Dr. V Productions, Inc. v. Rey, Case No. B312605 (2d Dist., Div. 5 Sept. 10, 2021) (published), the appellate court confronted whether the denial of a $273,484.56 attorney’s fees request under the trade secret fee-shifting statute (Civil Code section 3426.4) was appealable where the trade secret claim was dismissed even though other claims were outstanding.

            The appellate court dismissed the appeal because the interlocutory order was not appealable.  In this case, the collateral order doctrine did not apply because this was not a grant of fees ordering payment of money.  The expansive interpretation of the collateral order doctrine was not prudent, especially given that other claims were pending (which did involve trade secrets issues, only under the rubric of other claims).   Put another way, the review of the denial of trade secret fees had to await a further resolution of all claims. 

Retainer Agreements, Trade Secrets: In The Absence Of An Express Retainer Agreement Otherwise, Fees Earned Under Uniform Trade Secrets Act Belong To The Attorney, Not The Client

Third District Applied Analogous Reasoning From Flannery Decision.

            Many times, “ownership” of an attorney’s fees award can be critical—does it belong to the attorney or the client, especially after disputes fester?  The Third District in Aerotek, Inc. v. Johnson Group Staffing Co., Inc., Case No. C078435 (3d Dist. Sept. 15, 2020) (published) decided where ownership should lie for a fee award under California’s Uniform Trade Secret Act, Civ. Code, § 3426.4, after a trial judge decided the attorneys were entitled to fees of $827,938.17 plus interest following representation of a client resulting in a zero award by the other side.

            The Third District, drawing from analogous reasoning in Flannery v. Prentice, 26 Cal.4^th 572 in the FEHA context, decided that a trade secret fee award belongs to the attorney, not the client, unless there was an express fee agreement dictating otherwise.  Here, the facts appeared to be solidly on the law firm’s side for purposes of reaching this conclusion:  its client defendant was behind in its receivable, the law firm agreed to substantially write down a receivable with the ability to collect the write-off through a fee award on a “modified pro bono” basis (except the client had to reimburse routine or expert costs), and nothing indicated in the written fee agreement where surplus fees over the write-off would go.  The parties’ fee agreement did not dictate otherwise, because it did not address the ownership issue on fees award over the written-off amount. 

            Client argued that its attorneys needed to provide a notice of right to arbitrate under the Mandatory Fee Arbitration Act, but that did not apply to fee disputes determined pursuant to statute as it was here.  Client also contended that the trial judge should have allowed a jury trial on the ownership issue, but the appellate court disagreed by finding that the gist of the dispute was equitable in nature. 

Trade Secrets: Trial Court’s Award Of $65,000 Out Of A Requested $198,380 Affirmed Under Civil Code Section 3426.4, CUTSA’s Fee-Shifting Provision

Both Objective And Subjective Bad Faith Prongs Supported By Substantial Evidence.

            The substantial evidence/abuse-of-discretion standards generally are hard to surmount.  No the less so in Jafari v. Gastelum, Case No. B293034 (2d Dist., Div. 7 July 21, 2020) (unpublished).

            What happened here is that defendant prevailed in an action for breach of contract/trade secret misappropriation after plaintiffs voluntarily dismissed their action without prejudice just before their opposition was due to an adverse summary judgment motion.  Defendant moved to recover attorney’s fees of no less than $198,380 under Civil Code section 1717 (the contract fee-shifting statute) and Civil Code section 3426.4 (the trade secret misappropriation fee-shifting provision).  The lower court awarded $65,000 under the trade secret fee-shifting statute, although there was some confusing language that defendant prevailed on the contract claim.

            The 2/7 DCA affirmed.  After construing the fee award to indicate that it was really hinged to section 3426.4, the appellate court affirmed on the basis that substantial evidence supported that there was objective speciousness and subjective bad faith as required under the trade secret misappropriation statute.  (FLIR Systems, Inc. v. Parrish, 174 Cal.App.4^th 1270, 1275 (2009).)  To some extent, the objective prong was satisfied not only upon the lack of evidence, but plaintiffs’ admission in their opening appellate brief that they “did not have proper ammunition to win anything.”  On the subjective prong, defendant was able to show there might have been some retaliation for his cooperation with former employees in Department of Labor Standards Enforcement (DLSE) proceedings as far as bringing this dismissed suit—certainly enough under a substantial evidence review standard to justify affirmance of the fee award.

Trade Secrets: No Abuse Of Discretion In Trial Court’s Denial Of Prevailing Defendants’ Attorneys’ Fees Request

Plaintiff Was Victorious In Its Other Claims And Trial Court Was Allowed To Consider Equitable Concerns – Such As Attorneys’ Fees Plaintiff Incurred To Preserve Its Business Against Defendants’ “Unscrupulous Behavior.”

            In Techno Lite, Inc. v. Emcod, LLC, Case Nos. B284989 and B289486 (2d Dist., Div. 4 January 21, 2020) (partially published), two partners in a company that sold lighting transformers were also employed – under the promises that they would run their company on their own time and not compete – by Techno Lite which also sold lighting transformers.

            When one of Techno Lite’s three owners died, the remaining two owners offered to gift the deceased owner’s Techno Lite shares to one of the employees.  He refused the shares, but he and other employee offered to purchase Techno Lite.  The purchase never came to fruition and the two employees quit.

            About a month later, based on breach of the employees’ promises, Techno Lite sued the two former employees, their company and one of its sales employees for breach of fiduciary duty, misappropriation of trade secrets, interference with contractual relationships, fraud, unfair business practices, interference with prospective economic advantage, conversion, injunctive relief, and constructive trust.  The two former employees and their company cross-complained – alleging interference with contract, interference with prospective economic relations, California unfair competition law and Cartwright Act violations, violation of the unfair business practices act, defamation and injunctive relief.

            The trial court dismissed the cross-complaint, found in favor of Defendants’ summary judgment motion against Plaintiffs’ trade secret claim, and ruled against Defendants on Plaintiffs’ other causes of action.  Defendants then unsuccessfully moved for attorneys’ fees for their summary judgment defeat of Plaintiffs’ misappropriation of trade secrets claim.

            Defendants appealed, and the 2/4 DCA affirmed in a partially published opinion.  As to the denial of attorneys’ fees – addressed in the unpublished portion of the opinion – the 2/4 DCA found no abuse of discretion in the trial court’s finding that Plaintiff had not brought the trade secrets claim in bad faith.  Civ. Code section 3426.4 provides that if a claim of misappropriation of trade secrets is made in bad faith, “the court may award reasonable attorney’s fees and costs to the prevailing party.”  The fee-shifting statute gives the discretion to award fees to the trial court – expressly stating the trial court “may,” not that it “shall” award fees.

Trade Secrets: $1.1 Million Fee Award Against Two Defendants And Another $100,000 Against A Third Defendant Affirmed Under Trade Secrets Fee Shifting Statute, Civil Code § 3426.4

Even Though Third Defendant Only Found Liable For $2,287, $100,000 Fee Award Proper Because He Was A Chief Actor In Trade Secret Bad Faith Misappropriation.

            In Applied General Agency, Inc. v. Greenleaf Financial and Ins. Services, Inc., Case No. G055737 (4^th Dist., Div. 3 Oct. 17, 2019) (unpublished), plaintiff won a trade secrets misappropriation case against three defendants, obtaining unjust enrichment awards of $1,026,419 against two defendants and $2,287 against a third defendant (although this third defendant was a chief actor with respect to the trade secrets misappropriation).  The jury determined that the misappropriation was willful and malicious in nature with respect to all defendants.  Later, the trial judge awarded Civil Code section 3426.4 trade secrets statutory fees of $1.1 million against the two defendants and $100,000 against the third defendant—much less than the $3.6 million requested (inclusive of a 1.5 positive multiplier), with reductions made for plaintiff filing the fee motion late and excessiveness of the fee request.

            The 4/3 DCA, in a 3-0 opinion authored by Acting Presiding Justice Bedsworth, affirmed the fee awards.

            Because the first two defendants were found to have willfully and maliciously misappropriated, the $1.1 million fee award was justified as to them.

            That brought the appellate panel to the third defendant’s challenge, which boiled down to the contention that $100,000 was too much because he only was found liable for $2,287.  The problem with this argument is that section 3426.4 is not a prevailing party statute, but one which focuses on bad faith conduct.  Here, the third defendant was found to have willfully and maliciously misappropriated trade secrets given he was a chief actor in the overall conduct resulting in the adverse jury verdict.  The trial judge only awarded 10% of the total fees found reasonable, such that third defendant’s financial condition was considered in fashioning the award. 

Trade Secrets: Equities Determine Whether A Prevailing Plaintiff Obtains Fee Recovery Under CUTSA’s Fee-Shifting Provision

Civil Code Section 3426.4 Allows A Prevailing Plaintiff Recovery For Willful And Malicious Misappropriation.

            In trade secrets cases, Civil Code section 3426.4 allows for a discretionary court award of reasonable attorney’s fees and costs to the prevailing party “[i]f 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.”  Most of the case law relates to a prevailing defendant’s discretionary entitlement to fees under the first part of section 3426.4.

            What about prevailing plaintiffs?  We suggest that you consult two cases on the third part of the fee entitlement under section 3426.4.  A recent decision, Bladeroom Group Ltd. v. Emerson Elec. Co. (N.D. Cal. March 11, 2019) by District Judge Edward J. Davila, suggests that the plaintiff inquiry is closely intertwined with proof that a defendant acted willfully and maliciously so as to justify punitive damages under CUTSA.  However, that decision also quoted reasoning from Mattel, Inc. v. MGA Entertainment, Inc., 801 F. Supp.2d 950, 956 (C.D. Cal. 2011) (Carter, D.J.), which found that fees to a prevailing party is based on equitable concerns, especially where there is a well-heeled defendant engaging conduct to undermine legitimate competition and innovation.  In Bladeroom Group, defendants were alleged to lure plaintiff to divulge trade secrets based on “false pretenses” of a proposed merger/acquisition, only to call things off and use the confidential information later, with one defendant settling during the trial and another defendant riding it out so as to be “stung” with a $30 million lost profits/unjust enrichment adverse jury verdict.

Trade Secrets: Los Angeles County Superior Court Judge Sotelo Awards Prevailing Individual Defendant $168,924.96 In Attorney’s Fees And $29,560.28 In Costs In Trade Secret Misappropriation Case

Fee Claimant Did Something Good—Apportioned Fees Upfront From A Common Defense So That The Fee Request Was Not Inflated And Was Reasonable In Nature.

            We congratulate attorneys Eric Bjorgum and Vincent Pollmeier, who apparently follow our blog, for a nice attorney’s fees/costs proceeding win in a trade secrets misappropriation case which was presided over by Los Angeles County Superior Court Judge David Sotelo.

           In SoCal Diesel Inc. v. Extrasensory Software, Inc., LASC Case No. BC597857 (Fee Motion Order dated Aug. 9, 2018, Download Link here ), an individual defendant obtained a nonsuit in a trade secret misappropriations case, while a corporate and other individual defendants, after a jury trial finding them liable for misappropriation, obtained a grant of a new trial motion by Judge Sotelo. The individual defendant obtaining the nonsuit then moved to recover $168,924.96 in attorney’s fees and $29,560.28 in costs (after voluntarily reducing costs by about $10,000 in response to an opposition by plaintiff), doing so based on the CUTSA fee-shifting provision (Civ. Code, § 3426.4) for misappropriation claims brought in bad faith. (For the standards governing bad faith in this context, see our home page category “Trade Secrets”.) The moving defendant did a lot of good things in its fee motion, with the lower court granting the entire request.

            Plaintiff argued that its appeal of the nonsuit/new trial orders divested the lower court of jurisdiction to entertain the fee motion, but the lower court found that case law such as Bankes v. Lucas, 9 Cal.App.4^th 365, 368 (1992) had rejected such a contention. (BLOG OBSERVATION—We believe that Judge Sotelo got this right, something the Fifth District did not in Swinerton Builders v. Fresno Plumbing & Heating, Inc., discussed in our August 2, 2018 post.)

            The moving party persuasively assembled the evidence to show that he was not involved in any misappropriation and was only included as a defendant to put leverage on the other defendants to settle.

            The next good thing which moving party did was actually allocate fees to work efforts relating to just him versus trying to overreach by requesting fees for all of the common defense work on behalf of all three defendants. The lower court bought the allocation, which was not arbitrary, and provides a good tip to practitioners on how to think about issues which would trouble a judge in awarding fees so as to pro-actively apportion in the first instance.

            The hourly rates of $250 to $350 were reasonable, if not low, for Los Angeles County attorneys.

            Congratulations to Messrs. Bjorgum and Pollmeier on their win, as well as sharing the opinion with us. Mr. Bjorgum told us that our website was helpful in the fee proceeding – and this is one reason that we do the blog!

Section 998, Trade Secrets: 4/3 DCA Reverses Trial Judge’s Significant Taxing Of Costs-Shifting Under Rejected CCP § 998 Offer And Reverses Denial Of Fees Under Penal Code Section 502 Fee-Shifting Provision

Remand Was Order, But A Potential $575,000 To $994,000 In Expert And Attorney’s Fees Must Be Considered In “Re Do.”

            Prince v. Invensure Ins. Brokers, Inc., Case Nos. G051996 et al. (4^th Dist., Div. 3 May 18, 2018) (partially published; section 998 discussion published, with remaining fee discussion unpublished) is an insurance business merger discussion gone bad, with plaintiff suing for moneys owed on a payout note and defendant cross-complainant suing for unauthorized computer access and theft of trade secrets, including a violation of Penal Code section 502. Plaintiff sent two CCP § 998 offers, which were rejected. After a five-week jury trial, plaintiff won $647,706.48 on his complaint and “defensed” defendant’s cross-complaint.

            Plaintiff/cross-defendant then moved to recover costs under the rejected 998 offers and reduced fees under a fee-shifting provision in Penal Code section 502 under the cross-complaint. The trial judge found the first 998 offer was invalid and the second 998 offer only applied to plaintiff’s complaint (not the defense cross-complaint), awarding only $5,272,95 out of a requested $134,682.53 in expert fees under the second 998 offer. He denied completely the request for fees under Penal Code section 502, which was a reduced $445,000 request of the $864,000 in fees expended in defending the cross-complaint because “[t]he evidence does not allow the court to allocate fees to the § 502 cause of action” given that the 502 count was not inextricably linked to the cause of action for trade secrets theft so as to allow for recovery of “intermingled” fees.

            Plaintiff’s cross-appeal was successful on the costs and fees issues.

            In the published discussion on the 998 issue, our local Santa Ana appellate court decided that the initial offer indeed was valid in nature. Although there was some facial ambiguity because it only mentioned plaintiff (not addressing plaintiff’s status as a cross-defendant), the other side reached out—as it can do—to seek clarification of the 998 offer, with plaintiff clarifying that the offer (for $400,000, each party bearings his/its own fees and costs) applied to the entire dispute (complaint and cross-complaint). Given that clarification (and a smart move by plaintiff), the appellate court found that the offer was certain and definite in nature, which required a remand because plaintiff prevailed by winning $647,706.48 under the complaint and “defensing” the cross-complaint after defendant/cross-complainant rejected the 998 offer. Here is the pithy observation by the appellate court: “[W]here two sophisticated parties are represented by counsel, allowing an offer to compromise to be clarified in writing after the offer was made serves the purposes of section 998. Such clarification encourages reasonable settlement offers to be accepted.” (Slip Op., at 24.)

            That shifted things to the lower court’s denial of fees to plaintiff for prevailing on the cross-complaint. Penal Code section 502’s fee-shifting provision was broad in nature, stating “[i]n any action brought pursuant to this subdivision the court may award reasonable attorney’s fees.” Nothing in this statute limited the award only to a prevailing plaintiff, with the other work inextricably intertwined with the companion computer access/trade secret theft allegations. As such, the trial judge erred in denying fees on this basis such that the issue had to be remanded for further consideration.

            BLOG OBSERVATION—One needs to carefully consider 998 offers. Here, the case could have been resolved for $400,000, all in, if the losing party indeed had accepted the 998 offer before trial.  Instead, defendant/cross-complainant owes $647,706.48 plus another potential $575,000 - $994,000 depending on the remand result on the “re do” costs and fees issues.

            Acting Presiding Justice Moore authored the 3-0 decision on behalf of the 4/3 DCA panel.

Trade Secrets: $338,288.78 Attorney’s Fees Award Under California’s Uniform Trade Secrets Act Reversed And Remanded

Reason Was That The Trial Judge Based Bad Faith Finding On Determination Which Did Not Fully Encompass The Trade Secret Cause Of Action Relating To The Adversely Impacted Cross-Complainant

            This is part of a continuing trade secret litigation saga, an attorney’s fees proceeding aftermath to a case we posted on in 2016, Dispatch & Tracking Solutions, LLC v. City of San Diego, Case No. D062426 (4^th Dist., Div. 1 April 8, 2016) (unpublished, as discussed in our April 10, 2016 post).

            In essence, Authorized City Towing (ACT) brought a tort/trade secret complaint against the City of San Diego, AutoReturn, Dispatch & Tracking Solutions (DTS), Orion Communications (Orion) and related parties, with DTS fiing its own trade secret cross-complaint against ACT, the City, AutoReturn, and Orion.  The trial court entered judgment against ACT and in favor of AutoReturn on ACT’s fourth amended complaint, and also entered judgment against DTS and in favor of AutoReturn, Orion, and the City on DTS’s second amended cross-complaint.  The lower court granted Orion attorney’s fees and costs under the UTSA fee-shifting provision, awarding Orion fees of $120,000.  AutoReturn and the City also moved for fees under this fee-shifting provision, but the lower court denied the motion as to ACT because it dismissed its trade secret cause of action and granted AutoReturn/City’s motion by awarding $450,000 against DTS.  In the prior 2016 appeal, the 4/1 DCA affirmed the fee award in favor of Orion and AutoReturn, but reversed the fee denial as to AutoReturn vis-à-vis ACT (finding the dismissal of the trade secret cause of action did not divest the lower court of jurisdiction to award fees).  Upon reconsideration of AutoReturn’s fee motion, the lower court awarded UTSA fees against ACT to the tune of $45,820 plus fees against ACT and DTS, jointly and severally, to the tune of $292,468.78.  (Apparently, DTS satisfied the $292,468.78 component of the fee award, such that only $45,820 was in play with respect to ACT.)

            Guess what happened next?  You guessed correctly if you said ACT appealed to the 4/1 DCA.

            The appellate court reversed and remanded again in Authorized City Towing v. Tegsco, LLC, Case No. D071671 (4^th Dist., Div. 1 Feb. 22, 2017; received for posting Feb. 23, 2018) (unpublished).   The reason was that the lower court improperly based the fee against ACT based on the bad faith determination relating to DTS.  On remand, it needed to address the separate trade secret claim of ACT in order to determine the propriety of a fee award. 

             BLOG OBSERVATION—The Court of Appeal observed that the remedy for a trial court’s erroneous motion ruling (based on an incorrect inquiry or factual predicate) is to remand the matter for a new hearing on the motion with directions to the trial court to make the necessary factual findings.  (Linton v. Desoto Cab Co., Inc., 15 Cal.App.5^th 1208, 1218, 1225-1226 (2017).)

Damages/Trade Secrets: Cal Sup. Ct. Holds Interim Adverse Judgment Rule Means Attorneys Not Exposed To Costs And Fee In Malicious Prosecution Action Even If Client Eventually Found Liable But Beat Underlying SJM Though Trial Ct Found Bad Faith

In Dicta, State Supreme Court Does Not Pass On Trade Secret Fee-Shifting Principle

            We believe that all attorneys might breathe a little easier after the recent decision of our California Supreme Court in Parrish v. Latham & Watkins, Case No. S228277 (Cal. Supreme Court Aug. 10, 2017) (published).

            In this one, plaintiff lost a trade secret misappropriation case, although they initially successfully fought back a defense summary judgment motion, but eventually lost after a trial with the trial judge granting the defense $1.6 million in costs and fees under the uniform trade secret fee-shifting statute based on the perception the case was brought/prosecuted in bad faith.  The defense was not done, suing plaintiff’s attorneys for malicious prosecution.  The California Supreme Court in Parrish ruled that the “interim adverse judgment rule” precluded the malicious prosecution suit with respect to the probable cause element.  After all, plaintiff did defeat a summary judgment motion and it was inconsequential that a later trial came to a different result.

            For our fee blog, the Parrish court expressly refused to pass on the propriety on the Gemini test applied to the California’s trade secret fee-shifting statute (see our category “Trade Secrets”), so this issue is still ripe to further litigation.

            BLOG COMMENTARY—We noticed that attorneys we know, Ben Shatz at Manatt Phelps and Jeff Scott of Greenberg Traurig, seemed to be involved on the winning side, amicus briefing considered.  Congratulations, gentlemen!

Trade Secrets: Tattoo You -- $50,000 Fee Award To Prevailing Defendant Sustained On Appeal

 

The True Blue Tattoo Parlor and Body Piercing Parlor in Austin, Texas. 2014-04-19. Carol M. Highsmith, photographer. Library of Congress. [Note: This tattoo and body piercing parlor has no connection whatsoever to the case summarized below, other than the word "tattoo". The photo is included simply to add a little color to our grey legal world.]

Statement Of Decision Properly Found Objective/Subjective Bad Faith.

 

 

    In Vescovi v. Clark, Case No. G052716 (4th Dist., Div. 3 Apr. 7, 2017) (unpublished), plaintiff sued a former independent contractor machinist for misappropriation of trade secrets involving a tattoo machine. Defendant prevailed and was awarded $50,000 in attorney's fees (out of a requested $57,400) under Civil Code section 3426.4. The fee award was affirmed after defendant provided a detailed statement of decision by the trial judge. Objectiveness speciousness was shown by these facts: plaintiff's failure to identify the trade secret; failure to produce an alleged videotape showing defendant's confession to wrongdoing; plaintiff's unreasonable settlement demands; and failure to produce any evidence of damages. Subjective bad faith was demonstrated by plaintiff wanting a settlement non-compete arrangement putting defendant out of business, never producing trade secret specification, making threats to defendant's family, and sending intimidating emails to defendant's current boss. Defendant also likely will be awarded fees for winning on appeal. Presiding Justice O'Leary authored the 4/3 DCA opinion in this one.

Trade Secrets: $570,000 Fee Awards Under Civil Code Section 3426.4 Affirmed, While Refusal To Award Fees Against Another Defendant Dismissing Trade Secret Claim Reversed

 

Also, Prevailing Defendant Did Not Get Fee Recovery For Texas Counsel Work In California Litigation Where No Pro Hac Vice Admission Was Obtained.

     Dispatch & Tracking Solutions, LLC v. City of San Diego, Case Nos. D062426 et al. (4^th Dist., Div. 1 Apr. 8, 2016) (unpublished; over 100 pages long) is quite the megillah of a trade secret litigation battle between various parties arising out of San Diego’s award of a contract to San Francisco AutoReturn (AutoReturn) for purposes of providing computerized systems for the dispatch of tow trucks. AutoReturn, in turn, used communicative software provided by Dispatch & Tracking Solutions (DTS). However, ACT claimed an exclusive license to use the DTS system, which caused AutoReturn to shift to Orion and then to eventually design its own software. ACT, claiming exclusive software rights, sued City, AutoReturn and others for breach of contract, interference, unfair business practices, and trade secret misappropriation, prompting DTS to cross-claim against ACT, City, AutoReturn, and Orion, inclusive of a trade secret misappropriation cross-claim. Eventually, ACT’s case was “defensed” and DTS’ cross-claims were “defensed,” triggering all kinds of attorney’s fees motions under Civil Code section 3426.4, the California Uniform Trade Secret Act’s fee-shifting provision.

     Orion was awarded fees of $120,000 against DTS. AutoReturn and City moved for 3426.4 fees against both ACT and DTS, with the lower court (1) denying fees against ACT based upon its voluntary dismissal of its trade secret claim, and (2) granting fees against DTS in the aggregate sum of $450,000. The lower court also denied Orion some fees for work by its Texas counsel in the California litigation and disallowed some expert witness fees to AutoReturn.

     All kind of parties appealed, although the trade secret claims were the focus of the fee appeals.

     Fee awards against DTS. These were all affirmed because no admissible evidence of misappropriation was presented, satisfying both the objective and subjective prongs of the 3426.4 fee entitlement test. The fee claimants did a good job of presenting correspondence with opposing counsel asking for a resolution or dismissal based on the lack of proof of misappropriation. DTS argued that the settlement negotiations privilege precluded use of this course of conduct, but the appellate court disagreed—finding it was admissible to show bad faith on the fee entitlement prongs.

     Fee denial against ACT. AutoReturn and City got another “bite” at the fee apple in this one. The reviewing court determined that the lower court incorrectly determined it lacked jurisdiction to entertain fees after ACT voluntarily dismissed its trade secret claims, finding the dismissal did not usurp fee entitlement (citing the SASCO and Cypress cases in support of its conclusion).

     Denial of fees for Texas counsel work to Orion. The denied request for $45,536.82 in fees by Orion for work of its Texas counsel was sustained. The reason was that Texas counsel was not licensed to practice in California and did not seek pro hac vice admission in California, with the appellate court finding no reason why Orion (a non-California resident, but with California contacts) should not be subject to the same protective attorney licensing rules as applicable to all non-California attorneys providing litigation advice or litigating in California.

     Denial of expert witness fees to AutoReturn. This one was affirmed because AutoReturn did not prove that the claimed expert’s fees were reasonably necessary to the litigation once the opposing party shifted the burden in the course of a motion to tax costs proceeding.

Trade Secret: $180,817.50 Fee Award Against Dismissing Trade Secret Misappropriation Plaintiff Affirmed On Appeal

 

Defendant Did Prevail, And Both Objective/Subjective Prongs Of Fee-Shifting Statute Were Satisfied.

     For a non-prevailing plaintiff in a trade secret misappropriation under the California Uniform Trade Secret Act (CUTSA), where objective speciousness and a subjective improper purpose is demonstrated, the prevailing defense can be awarded reasonable attorney’s fees and costs under Civil Code section 3426.4 in the trial court’s discretion. Both the objective and subjective prongs must be satisfied under the leading Gemini decision, discussed in many of our posts under the home page category “Trade Secrets.”

     A lower court awarded a defendant sued by a trade secret misappropriation plaintiff $180,817.50 in fees after plaintiff dismissed a suit hinged on the claim that the defense was improperly hiring away touchtone technology specialists from plaintiff. Plaintiff had dismissed the suit after losing a TRO, sensing it was going to lose on the merits.

     The appellate court affirmed in Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc., Case No. H038555 (6^th Dist. Apr. 28, 2015) (published). Defendant did prevail on a practical level by abandoning an action that was designed to “cow” other competitors into not soliciting potential employee candidates from plaintiff, but only after it had a fear it would lose. Plaintiff’s case was objectively specious because the defense had a right to solicit and there was an absence of evidence of misappropriation, with the theory advanced by plaintiff akin to the inevitable disclosure theory rejected in other California appellate decisions. The subjective element was met even though there was no express finding of bad faith. The appellate court rejected the proposition that a subjective belief in the merits by plaintiff defeated the “improper purpose” shown by plaintiff’s efforts to muscle competitors only soliciting qualified employees as they were entitled to do. This subjective element was further confirmed by plaintiff’s vague specification of the trade secrets at issue (required under CUSTA) and its evasive discovery responses.

POOF!/Prevailing Party/Trade Secrets: Prior Reversal Of Tort Claim Dismissals In Trade Secret Case Meant Attorney’s Fees Award Had To Be Overturned Also

 

$1.5 Million Award Went POOF!

     Earlier, in Angelica Textile Services, Inc. v. Park, Case No. D063027 (4^th Dist., Div. 1 Aug. 19, 2014) (unpublished), the appellate court overturned a lower court dismissal of certain tort claims based on the notion that the Uniform Trade Secrets Act (UTSA), which has a fee-shifting provision if the defense can show the plaintiff prosecuted a trade secret action in bad faith, displaced the tort claims, although a jury found there was no “trade secret” on the UTSA claim. However, the lower court had awarded the defense $1.5 million in attorney’s fees for bad faith trade secrets prosecution (yep, no typo here), which led plaintiff to appeal the fee award.

     Plaintiff was successful …. at least at this point in the litigation.

     The fee award at this stage had to be reversed for two reasons.

     First, given that the prevailing party under the UTSA fee-shifting statute is a pragmatically-driven decision, the appellate court was unable to determine who really “won” given the pendency of related tort claims, including one for breach of loyalty based on defendants officers’ setting up of a competing business.

     Second, it was no “slam dunk” that subjective bad faith was shown, one of the prongs of the USTA fee-shifting statute. Obviously, if plaintiff were to prevail on the tort claims, it would be difficult to find bad faith. So, the future is what will determine the result in this one. Stay tuned, maybe or maybe not—depending if a settlement can be had in the meantime.

Allocation/Equity/Trade Secrets: Where Default Judgment Reversed For 3 Out Of 4 Defendants, Attorney’s Fees Had To Be Revisited Although Fourth Defendant Conceded Liability.

 

Complaint Prayer Gave Notice, But Fee Amount “Re-do” Necessary on Remand.

     In Lawson-Hawks Ins., Inc. v. McVey Ins. Broker, Inc., Case No. H038466 (6^th Dist. July 22, 2014) (unpublished), plaintiff sued four defendants (an insurance agency, an insurance brokerage company, and certain agents) for willful violation of trade secrets. Plaintiff obtained a default judgment of $25,000, plus $144,103 in attorney’s fees under Civil Code section 3426.4 (a fee shifting statutory provision applicable in trade secret cases), and $16,497 in costs.

     On appeal, three of the four defendants obtained a reversal because no claim was stated against them. However, the broker defendant conceded the $25,000 judgment was proper. So, what happened to the $144,103 fee award? Broker defendant argued it was invalid because inadequate notice was provided of it through the complaint prior to default, but the appellate court found the complaint prayer for “fees as authorized by statute” sufficed to provide the necessary due process notice. However, given that the fee award involved work for all four defendants, the amount of the fee award was remanded for a “re-fix” as to the broker defendant alone.

Trade Secrets: Third District Affirms $735,781.27 Fee Award To Defendants Under Trade Secret Fee-Shifting Statute

 

Lodestar Plus 1.3 Positive Multiplier for Defense Work Sustained on Appeal.

     Aerotek, Inc. v. The Johnson Group Staffing Co., Inc., Case No. C070832 (3d Dist. May 13, 2014) (unpublished) was somewhat of a train wreck from the suing plaintiff’s perspective.

      Train wrecked by Zapata.  Library of Congress.

     Plaintiff company sued a former employee and his new employer for trade secret (customer list) misappropriation. Plaintiff didn’t do very well in a second trial where these events, among others, occurred: (1) out of 65 customers alleged to have been improperly solicited by former employee, only 3 customers were the subject of the trial; (2) evidence showed the former employee spent a lot of time, before leaving plaintiff, in transitioning clients to other employees of plaintiff; (3) former employee only made an announcement of change in employment or had lunch with ex-colleagues still working for plaintiff, but never solicited work; (4) former employee’s replacement at plaintiff was not liked by any of the 3 customers at issue and was not going to get their business based on his personality; (5) two of the 3 customers closed down so there were no damages; (6) plaintiff never called any one from the 3 customers, but tried to impermissibly rely on hearsay testimony to establish its case; (7) plaintiff’s experts relied only on the sole opinion of one of plaintiff’s employee and never did any double checking; and (8) plaintiff had an improper motive of wanting to drive new employer out of business, just as it did other competitors.

     Well, plaintiff was defensed by former employee and new employer at the second trial. However, the defense firm actually continued to represent their clients even though they ran out of money, under a defense pro bono arrangement which would allow the law firm to share in any fee recovery, if any was obtained.

     The lower court, based on Civil Code section 3426.4 (allowing fee-shifting to a prevailing party if a trade secret claim of misappropriation is made in bad faith), awarded $735,781.27 in fees to defendants—comprised of a $535,215 lodestar augmented by a 1.3 positive enhancement for excellent defense work.

     Plaintiff’s appeal did not alter things at all. In fact, the Third District found the record to overwhelmingly show both objective speciousness and subjective bad faith, with improper motive providing an inference on the subjective prong. The lodestar and multiplier were hardly surprising, especially given defense counsel’s largess in taking the case on a pro bono basis. Plaintiff argued that defense counsel was not really altruistic, because they continued representation of defendants based on malpractice threats. The appellate court not only found no evidence to support this argument, but observed that the firm still incurred risk—malpractice threats or not—and did obtain a successful result. Fee award affirmed, plus a remand to fix defense attorney’s fees for prevailing on appeal.

Allocation/Employment/Trade Secrets: Wage Nonpayment And Trade Secret Misappropriation Fee Recoveries To Prevailing Defendants Affirmed On Appeal

 

Interrelatedness of Contract/Wage Nonpayment Administrative Proceedings and Trade Secret Bad Faith Justified Sustaining of Lower Court Awards.

     Plaintiff lost both DLSE administrative proceedings and a breach of contract/trade secret case against various defendants, with the lower court then awarding one defendant Labor Code section 98.2 fees of $43,881.25 for winning the DLSE appeal/beating plaintiff’s contractual breach action and awarding the other defendants $29,737 in fees under Civil Code section 3426.4 for the bringing of a “bad faith” trade secrets misappropriation case.

     The appellate court affirmed all fee awards in Spot Water Management, Inc. v. Plageman, Case No. D059270 (4th Dist., Div. 1 Nov. 13, 2013) (unpublished).

     The $43,881.25 wage nonpayment fee award was sustained because the fees spent on defeating plaintiff’s breach of contract claims overlapped with work at the DLSE level.

     The $29,737 trade secrets fee award was upheld because bad faith was shown by plaintiff’s voluntary dismissal of one defendant and by the summary judgment grant as to the trade secrets claim as to the other.

Trade Secrets: Jury’s Failure To Award Punitive Damages Did Not Preclude Lower Court From Awarding Fees To Prevailing Plaintiff Under UTSA Fee-Shifting Provision

 

Punitive Damage Ruling Did Not Dispositively Bind Trial Judge From Awarding Fees Under Civil Code Section 3426.4.

     For those of you who follow our blog (or, for first time viewers, welcome), we have discussed many cases under our category “Trade Secrets” to the lefthand side of our Home Page. That happens to be the case because Civil Code section 3426.4, a provision in the Uniform Trade Secrets Act (UTSA), has a fee-shifting provision which allows for fees to be awarded if a judge concludes that a claim of misappropriation was made in bad faith or that the proven misappropriation against the defendant was willful/malicious in nature.

     In S.O. Tech/Special Operations Technologies, Inc. v. Berge, Case No. B243795 (2d Dist., Div. 7 Oct. 9, 2013) (unpublished), plaintiff was denied a request for fees after prevailing in a UTSA case based on the lower court’s perception that a jury’s failure to award punitives damages by clear and convincing evidence deprived him of discretion of being able to award fees even though plaintiff won trade secret damages of $29.036 and was later granted a permanent injunction by the trial judge.

     The appellate court reversed and remanded. It found that the punitive damage determination did not usurp the lower court’s ability to award fees, because different standards of proof were involved and the punitive damages denial did not necessarily mean there was no willfulness/maliciousness for fee-shifting purposes.

Trade Secrets: Failure To Identify Trade Secret With Particularity Meant Plaintiff’s Case Was Baseless, Justifying A Fee Award Of More Than $202,291.50 To Defendant

 

Civil Code Section 3426.4 Was the Fee Entitlement Predicate.

     Civil Code section 3426.4 allows a prevailing party in a trade secret misappropriation case to obtain a discretionary award of attorney’s fees and costs if the claim is made in bad faith. Case law has clarified that both objective speciousness and subjective bad faith are required to demonstrate “bad faith” in bringing or prosecuting the claim. (SASCO v. Rosendin Elec., Inc., 207 Cal.App.4th 837, 844-845 (2012).)

     Plaintiff, after suffering a summary judgment defeat in which it failed to prove the nature of the trade secret with particularity, then was hit with $202,291.50 in fees under section 3426.4.

     That result was affirmed on a 3-0 panel in All American Semiconductor, LLC v. APX Technology Corp., Case Nos. G046605 et al. (4th Dist., Div. 3 Aug. 14, 2013) (unpublished), authored by Justice Aronson.

     Plaintiff’s failure to even identify the trade secret was damning before both the trial and appellate courts, with a defense bare, conclusory declaration not overcoming the complete lack of evidence on the particulars of the alleged trade secret design.

Settlement/Section 1717/Trade Secret: Court of Appeal Honors Settlement Agreement Procedures Reserving Fee Determination

Settlement Agreement’s Reservation Of Fee Determination Based on Trade Secret Misappropriation Statute Did Allow Lower Court To Determine If Fee Entitlement Proven In Postjudgment Fee Proceeding

Denial of Fee Recovery Reversed and Remanded.

     Khavarian Enterprises, Inc. v. Commline, Inc., Case No. B243467 (2d Dist., Div. 4 May 14, 2013) (published) demonstrates that appellate courts will honor settlement agreement procedures reserving fee determinations in a post-dismissal cost proceeding.

     What happened here is that plaintiff and defendants entered into a settlement agreement prior to trial in a a trade secret misappropriation suit, agreeing that plaintiff could file a motion for fees/costs under Civil Code section 3426.7 (a trade secret misappropriation fee-shifting section requiring proof of willful/malicious misappropriation) and Code of Civil Procedure section 1033.5 (the routine costs provision). Plaintiff dismissed its action based on the settlement. However, the trial court denied fees to plaintiff, reasoning that there had been no finding of willful and malicious misappropriation before the dismissal was filed.

     Fee denial reversed on appeal. The principal basis was that the settlement agreement procedure governed, such that plaintiff should be able to obtain a fixing of fees it if could prove that fee entitlement was appropriate after demonstrating willful/malicious misappropriation. Any other interpretation would render the settlement agreement nugatory in nature, and nothing in Civil Code section 1717 found post-dismissal fee awards to be against public policy. Remand to have another fee hearing on the issue.

Discovery/Special Fee Shifting Statute/Trade Secrets: Losing Plaintiffs In Patent/Trade Secret Dispute Hit With $12.46 Million For Attorney’s Fees And Electronic Discovery Expenses

 

Only $1 Million Reduction From Fees Requested.

     Patent/trade secrets are usually vigorously and heavily litigated, and the losers can get hit with substantial fees/expenses as Gabriel Techs., Corp. v. Qualcomm, Inc., Case No. 08CV1992 AJB (MDD), 2013 WL 410103 (S.D.Cal. Feb. 1, 2013) demonstrates.

     There, plaintiffs lost a patent infringement/trade secrets case. But that was hardly the finish of the story. The district judge then awarded winning defendants $12,465,331.01 in attorney’s fees and electronic discovery expenses because the patent and misappropriation claims were objectively baseless and pursued in bad faith. (35 U.S.C. § 285 [patent] and California Civil Code § 3426.4 [trade secret misappropriation] are statutes allowing for fee shifting in these situations.) No apportionment was necessary because each of Plaintiffs’ claims were within the ambit of one of the statutes.

     The district judge assessed $64,316.50 in fees against local counsel, finding that sanctions were warranted under Fed.R.Civ.P. 11 for counsel’s failure to conduct a sufficient inquiry into the merits of Plaintiffs’ case after the judge warned about substantial deficiencies in the case and ordered posting of an $800,000 bond.

     The fee request was only reduced by $1 million, based on the district judge’s view that it was proper to limit the imposition of fees to those incurred after entry of the bond order.

     Yikes!

Special Fee Shifting Statute/Substantiation of Fees/Trade Secrets: Ninth Circuit Decision Is In -- Mattel v. MGA Entertainment Appeal

 

Trade Secrets Damages/Fees/Costs Go POOF!, But Copyright Defense Fee/Costs Recovery to MGA Sustained On Appeal.

     In a remarkably short decision penned by Chief Justice Kozinski on behalf of a 3-0 panel, the Ninth Circuit has taken some things away and let other things stay in the oft-posted-upon Mattel, Inc. v. MGA Entertainment, Inc., Case No. 11-56357 (9th Cir. Jan. 24, 2013) (published) litigation/appeal saga over Bratz and Barbie dolls.

     What happened on appeal is that the Ninth Circuit found that MGA’s trade secret claim was not compulsory, a requirement for counterclaims-in-reply. It ordered the district court to dismiss the claim without prejudice, which meant a compensatory award of $88.5 million, punitive damages award of $85 million, and fee/costs award of $2.5 million went POOF! for now.

     However, a different result altogether on MGA’s recovery of fees and costs of $137.4 million for defensing Mattel’s copyright claims. 17 U.S.C. section 505 allows the district court discretion to award fees, something furthered when a copyright defendant advances meritorious defenses as it did here. Also, MGA did not have to show Mattel’s claims were frivolous or in bad faith in order to garner a fee recovery. Mattel also challenged the fact MGA supported its request through redacted fee substantiation, but the federal appeals court found that the existence of attorney work product entries upheld reliance on redacted billings even though there was no harm because the district court reviewed unredacted billings in camera anyway.

     No costs were awarded on appeal.

     And here is Justice Kozinski’s ending reminder to the parties: “While this may not be the last word on the subject, perhaps Mattel and MGA can take a lesson from their targeted demographics: Play nice.”

 

Children playing in sandbox. Tulare migrant camp. Visalia, California.  Arthur Rothstein, photographer.  March 1940.  Library of Congress.

Trade Secrets: $39,593.87 Fee Award To Defendant, After Case Voluntarily Dismissed By Plaintiff Without Prejudice, Reversed Under Uniform Trade Secrets Act Case

 

Plaintiff’s Case Was Not Objectively Specious, Requiring an Overturn of Fee Award.

     Under the Uniform Trade Secrets Act (UTSA), Civil Code section 3426.4 permits a trial court to award reasonable attorney’s fees and costs to a prevailing party if it determines that a UTSA claim has been made in “bad faith,” which has both objective and subjective components. (FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270, 1275 (2009); Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1261 (2002).) The objective component requires more culpability than mere negligence, meaning the UTSA claim must have been without substance in reality, if not frivolous in nature. (Gemini, 95 Cal.App.4th at 1261.) That objective specious component was front and center in the next case we discuss.

     NuScience Corp. v. McKinney, Case No. B237119 (2d Dist., Div. 4 Nov. 2, 2012) (unpublished) involved a situation where plaintiff dismissed without prejudice an action, primarily anchored by a UTSA claim, against an individual defendant, who then moved to recover fees and costs under section 3426.4. The lower court awarded defendant $39,593.87 in fees and costs, triggering plaintiff’s appeal.

     Plaintiff won a reversal upon review.

     One of the important considerations leading to a reversal was the framing of the correct standard of review. The appellate court determined that the objective component is facially objective and reviewed under the de novo appellate standard. (See, e.g., Smith v. Selma Community Hospital, 188 Cal.App.4th 1, 32 (2010); Austin B. v. Escondido Union School Dist., 149 Cal.App.4th 860, 888 (2007).) With this standard in mind, the reviewing panel concluded that the objective specious standard was not demonstrated because there were emails that established the possible use of a trade secret--especially internal experimentation. In this regard, “use of a trade secret” was found to encompass even internal experimentation with trade secret information not resulting in a market product. (02 Micro Int’l Ltd. v. Monolithic Power Sys., Inc., 399 F.Supp.2d 1064, 1072 (N.D.Cal. 2005); JustMed, Inc. v. Byce, 600 F.3d 1118, 1130 (9th Cir. 2010); Agency Solutions Com., LLC v. TriZetto Group, Inc., 819 F.Supp.2d 1001, 1028-1029 (E.D.Cal. 2011).)

     So, in this one, there was a reversal of fortune, which largely seemed to be dictated by de novo review and the internal emails greatly weighted by the appellate court.

Trade Secrets: Fourth District, Division 3 Attorney’s Fees/Costs Award Of $484,943.46 In Trade Secrets Case

Objective Speciousness of Claim Results From Lack of Evidence – Plaintiff’s Belief That Claim Might Be Supported Doesn’t Cut the Mustard

     Under California Civil Code section 3426.4, “[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 court may award reasonable attorney's fees and costs to the prevailing party.”  And under the applicable case law, “bad faith” in connection with a trade secrets claim has both an “objective” and a “subjective” prong.  The claim must be “objectively specious” and brought in “subjective bad faith.”  In our next case, the trial court found objective speciousness and subjective bad faith on the part of Plaintiff SASCO, who sued a competitor and individual defendants alleging misappropriation of trade secrets and related torts.  The trial judge awarded $484,943.46 in fees and costs.  Plaintiff appealed.  SASCO v. Rosendin Electric, Inc., et al., Case No. G045229 (4th Dist. Div. 3 July 11, 2012) (Ikola, J., author) (certified for publication).  

     Because the finding of “subjective bad faith” was not contested on appeal, the case hinged on the meaning of “objective speciousness.”  “Objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim.”  FLIR Systems, 174 Cal.App.4th 1270, 1276 (2009). 

     Plaintiff argued, by analogy to the sanction statute, Code of Civ. Proc. section 128.7, that it didn’t need actual evidence of misappropriation, just a reasonable basis for believing that, after a reasonable opportunity to investigate, it could support its contentions with evidence.  The Court of Appeal, however, concluded that section 128.7 did not provide the legal standard, Civ. Code section 3426.4 and case law provided the standard.  Therefore, merely suspecting trade secrets misappropriation is not enough to defeat objective speciousness.  Instead, one needs facts.

     It does not follow that bringing a trade secrets claim upon a suspicion of misappropriation alone, without hard facts, will necessarily subject one to attorney’s fees if one loses.  There is still the subjective bad faith prong, which was not at issue in this appeal, because Plaintiff did not contest the finding of subjective bad bath.

     Still, the case is a wake-up call to do due diligence and plead facts of misappropriation, rather than plead upon information and belief – as Plaintiff had apparently pleaded its misappropriation claim in this case.

Trade Secrets: Plaintiff Losing Time-Barred Trade Secrets Misappropriation Claim Suffered Adverse Fee And Costs Awards Totaling Over $311,000

 

Defense Set Up Bad Faith By Sending Litigation Communicative Warnings to Loser Which Showed Claim Was Stale.

     We have discussed Civil Code section 3426.4 several times. This provision allows a court to discretionarily award reasonable attorney’s fees and costs to a prevailing party where a claim of trade secret misappropriation was made in bad faith. The winning defendants in General Nanotechnoogy LLC v. Lawrence Livermore National Security LLC, Case Nos. A129016 et al. (1st Dist., Div. 5 June 27, 2012) (unpublished) did a good job of sending communications to plaintiffs and gaining admissions during the course of litigation so as to demonstrate why their trade secret claims were time barred, and the defense proved it through a successful summary judgment motion. Although requesting over $2.371 million in fees and costs, the trial court presumably apportioned and awarded fees of $189,565.50 and costs of $121,706.49 under section 3426.4.

     Bad faith could be inferred from the fact plaintiffs pressed on with their misappropriation claims long after receiving warnings from the other side about the staleness of the claims. Also, deposition admissions about the timeliness of the claim also put the nail in the proverbial coffin from a sufficiency of evidence standpoint. Fee award affirmed.

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.