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COVID, INC. v. MISENCIK, 1 CA-CV 12-0666 (2014)

Court: Court of Appeals of Arizona Number: inazco20140318016
Filed: Mar. 18, 2014
Latest Update: Mar. 18, 2014
Summary: NOT FOR PUBLICATION UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED. MEMORANDUM DECISION NORRIS, Judge. 1 This case arises out of the superior court's dismissal of breach of contract and misappropriation of trade secrets claims raised by Plaintiff/Appellant Covid, Inc. against its former employee, Defendant/Appellee David J. Misencik. Essentially, the superior court dismissed the claims because it foun
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NOT FOR PUBLICATION

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

MEMORANDUM DECISION

NORRIS, Judge.

¶1 This case arises out of the superior court's dismissal of breach of contract and misappropriation of trade secrets claims raised by Plaintiff/Appellant Covid, Inc. against its former employee, Defendant/Appellee David J. Misencik. Essentially, the superior court dismissed the claims because it found Covid had failed to demonstrate Misencik had caused it any harm. On appeal, Covid argues it did present evidence Misencik's actions had harmed it. Alternatively, Covid argues it was entitled to judgment as a matter of law even without proof of actual harm. Covid also challenges other rulings of the superior court concerning discovery motions, sanctions, garnishment, and attorneys' fees.

¶2 As explained below, we vacate the superior court's entry of summary judgment on Covid's breach of contract claim and remand for entry of final judgment in favor of Covid, but only to the extent of requiring Misencik to return all Covid materials identified in an agreement between the parties, including the materials retained by defense counsel during the litigation. We affirm, however, the superior court's entry of summary judgment to Misencik on Covid's misappropriation of trade secrets claim and the superior court's rulings on Covid's numerous discovery motions. Because we are directing the superior court to enter judgment for Covid requiring return of the documents on its breach of contract claim, we also direct the superior court to reconsider on remand the award of attorneys' fees and costs. Further, on remand, we direct the court to modify the December 20, 2011 order to require Covid's counsel, Peter C. Warner, and not Covid, to pay the sanction award and to quash the writ of garnishment Misencik served on Covid's bank.

FACTUAL AND PROCEDURAL BACKGROUND

¶3 Covid employed Misencik as a salesperson beginning in July 2004. As a condition of his employment, Misencik signed a trade secret agreement (the "Agreement") which provided, inter alia, that Misencik would not "disclose to others, or use, either during, or subsequent to [his] employment, any information which is considered proprietary by Covid or which relates to the Trade Secrets of Covid." The Agreement also required Misencik, "upon termination of [his] employment with Covid, [to] promptly return any and all [Covid materials]."

¶4 In December 2009, Misencik received an offer of employment from Lastar, Inc., a Covid competitor, albeit to work in a division that does not compete with Covid. Misencik notified Brian M., the head of the division, of his acceptance by a December 24, 2009 email ("acceptance email"). Misencik attached to the acceptance email a copy of Lastar's offer letter, which he had signed, and also information relating to a bid Covid had made to one of its customers, Computrac ("Computrac bid"), which was also a Lastar customer. On the same day, Misencik also scanned and emailed to his personal email account a copy of Covid's wiring schematic for the Computrac bid. On Sunday, December 27, 2009, Misencik cleaned out his office and took both personal materials and materials belonging to Covid. Misencik submitted his resignation to Covid the following day. After it received his resignation, Covid demanded Misencik return all material in his possession covered by the Agreement. When Misencik did not respond, Covid sued him for breach of contract and misappropriation of trade secrets.

¶5 Covid obtained a temporary restraining order ("TRO") without notice that, inter alia, prohibited Misencik from "using any trade secret information of Covid or disclosing any trade secret information of Covid to any third party" and required him to "refrain from destroying, deleting, moving, manipulating, changing, opening, accessing or reviewing" any documents covered by the Agreement. On January 8, 2010, Covid served Misencik with the complaint and TRO, which also ordered Misencik to appear and "answer why a preliminary injunction should not be issued in favor of Covid."

¶6 On January 21, 2010, the superior court held an evidentiary hearing on Covid's request for a preliminary injunction. At the hearing, Misencik gave Covid a box filled with documents ("Box Documents") he had taken from Covid when he cleaned out his office. Misencik testified at the hearing and acknowledged scanning the Computrac bid to keep as "a trophy" for his "own personal files." He further acknowledged he had attached the Computrac bid to his acceptance email, but contended he had done so accidentally. Brian M. testified that Misencik had no financial incentive to share the Computrac bid with Lastar. Additionally, Brian M. explained he had not known Misencik had attached the Computrac bid to the acceptance email until Misencik told him about the pending lawsuit, at which time he deleted the attachment. Brian M. further testified he had not shared the acceptance email with anyone else at Lastar. At no time did Covid present any evidence disputing Brian M.'s testimony.

¶7 Based on the evidence presented at the hearing, the superior court preliminarily enjoined Misencik from "disclosing any materials that include pricing data or schematic designs that were obtained from Covid, Inc. that are not readily available to the public" and required him to "return all materials to Covid identified in the Trade Secret agreement." On January 22, 2010, Misencik filed a notice of compliance with an affidavit in which he confirmed he had complied with the court's order requiring him to return to Covid all materials identified in the Agreement.

¶8 On February 3, 2010, Covid moved for expedited discovery and demanded that the court order Misencik to "immediately deliver-up his computer for imaging by Covid's independent computer forensic expert." In the motion, Covid asserted it had reviewed the contents of its computer server and discovered that as of December 24, 2009, Misencik's personal computer — which Covid had authorized him to use for work — contained several thousand emails he had sent or received in his capacity as a Covid employee. Covid also asserted it had reviewed the Box Documents and suspected Misencik of "wholesale copying of the files" because "[a]ll of the files were returned with the staples removed." In response, Misencik explained that he had not used the computer since leaving Covid's employment in December 2009. Misencik turned the computer over to his attorney ("defense counsel") pending the outcome of the motion. After a telephonic hearing, the court ordered defense counsel to retain possession of the computer until the parties could come to an agreement regarding a protective order.

¶9 The motion for expedited discovery was the first of 16 Covid filed over the next 18 months demanding discovery and accusing both Misencik and defense counsel of misconduct in failing to comply with its discovery demands.1 During the course of these discovery disputes, in May 2010, defense counsel informed the court:

Approximately a week to two weeks before the January 21 hearing, I directed my staff to scan and electronically save copies of all of the papers in the box. I also took photographs of the items in the box. While I do not intend to waive any attorney client privilege by making this negative statement, I do wish to inform the Court that Mr. Misencik did not ask me to make the copies or take the pictures. Instead, I ordered the scanning because of the nature of the allegations made by Covid and because the documents were subject to litigation and being delivered in open court, and I wanted a careful record of what was delivered.

¶10 In May 2011, Covid moved to hold Misencik in contempt, asserting it had "learned through forensic discovery that, on January 4, 2010, Misencik downloaded hundreds of Covid files covered by the Trade Secret Agreement on to a portable hard drive." In response, Misencik acknowledged copying the contents of his personal computer onto an external hard drive and explained he had done so "because he had learned that he may not be able to access his personal laptop during the litigation" and had then placed the external hard drive in a file cabinet and "did not look at, remember, touch, or access that external hard drive until it was requested of him by his attorneys almost a year later." The court denied the motion.

¶11 The parties cross-moved for summary judgment in September 2011. As we discuss below, the superior court ruled in favor of Misencik, finding Covid had failed to establish a prima facie claim for either breach of contract or misappropriation of trade secrets because it had failed to show it suffered any harm from Misencik's taking and sharing of documents.

DISCUSSION

I. Summary Judgment

¶12 We review a superior court's "grant of summary judgment on the basis of the record made in [that] court, but we determine de novo whether the entry of [summary] judgment was proper." Schwab v. Ames Constr., 207 Ariz. 56, 60, ¶ 17, 83 P.3d 56, 60 (App. 2004) (citations omitted). "In determining whether the [superior] court properly granted summary judgment, we apply the same standard . . . as that . . . use[d by the superior court when] ruling on the summary judgment motion." Id. (citations omitted).

A. Breach of Contract

¶13 In general, and except as discussed below, to prevail on a breach of contract claim, a plaintiff must show the existence of a contract, breach, and resulting damages. Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, ¶ 30, 83 P.3d 1103, 1111 (App. 2004). Here, it is undisputed that a contract — the Agreement — existed between the parties; and, as the superior court recognized, Covid presented evidence that Misencik had breached the Agreement by taking and disclosing information and not returning documents covered by the Agreement. But, the superior court found Covid had failed to show "resulting damages to [it] as a result of the taking and sharing of information by the Defendants."

¶14 On appeal, Covid first argues the superior court should have granted summary judgment in its favor on the breach of contract claim because it showed resulting damages in the form of lost profits. According to Covid, using the Computrac bid attached to the acceptance email, Lastar was able to submit a lower bid to Computrac, which forced Covid to reduce its own bid to obtain the contract. Although Computrac ultimately accepted Covid's lower bid, Covid argues it would not have had to lower its bid "but for Lastar's bid," and therefore, it lost $6,200 in profits by having to do so.

¶15 Covid failed to present any evidence, however, that Computrac would have awarded it the contract at the higher price "but for Lastar's bid" or that Lastar even used Covid's Computrac bid in preparing and submitting its own bid. Indeed, the chief operations officer of Computrac testified by declaration that it "[was] customary" for "[b]ids between suppliers [to be kept] confidential" and to "suggest vendors `sharpen their pencil' if prices are close between vendors to negotiate the best terms." Additionally, Brian M. testified by declaration he had not realized Misencik had attached the Computrac bid to the acceptance email, he deleted it when he learned of it, and Lastar had not used the bid in preparing its own bid. Covid presented no evidence to contradict any of this evidence and therefore failed to show resulting damages in the form of lost profits.

¶16 Covid next argues it demonstrated resulting damages because it had incurred attorneys' fees in attempting to enforce the Agreement. Attorneys' fees incurred in enforcing a contract are not considered a resulting damage, however, for purposes of a breach of contract claim. See Ponderosa Plaza v. Siplast, 181 Ariz. 128, 132, 888 P.2d 1315, 1319 (App. 1993) (attorneys' fees not normally considered consequential damage).2

¶17 Alternatively, Covid argues it was not required to show any resulting damages to prevail on its breach of contract claim because it was entitled to an order permanently enjoining Misencik from using the documents covered under the Agreement. Permanent injunctive relief is available only when "the plaintiff [is able to] show a likelihood that the defendant will in the future engage in the conduct sought to be enjoined." State ex rel. Babbitt v. Goodyear Tire & Rubber Co., 128 Ariz. 483, 487, 626 P.2d 1115, 1119 (App. 1981). Covid made no such showing. The evidence shows Misencik had taken documents covered under the Agreement when he left Covid's employ, retained his personal computer until February 2010 and his external hard drive until November 2010, accessed certain files on his personal computer both before entry of the TRO and after entry of the TRO but before entry of the preliminary injunction, and may have connected an external storage device to his computer as late as January 27, 2010. Covid failed to show, however, that Misencik had actually used these materials during the litigation or that he was likely to use them in the future. Therefore, the superior court appropriately denied permanent injunctive relief.

¶18 Relatedly, Covid argues it was not required to show any resulting damages to prevail on its breach of contract claim because it was entitled to an order of specific performance directing Misencik to return all materials identified in the Agreement. On this issue, we agree. Specific performance is, generally, an available remedy in a breach of contract action. Daley v. Earven, 131 Ariz. 182, 187, 639 P.2d 372, 377 (App. 1981) (citations omitted); see also Restatement (Second) of Contracts § 357(1) ("[S]pecific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty.").

¶19 Here, the Agreement required Misencik to "return any and all [Covid materials]"when he terminated his employment. In its under advisement ruling on the motions for summary judgment, the superior court "agree[d] that upon conclusion of the litigation any documents held or copied by Counsel for purposes of litigation must be returned to the Plaintiff." It refused, however, to include this directive in the final judgment despite Covid's request. Under the Agreement, Covid was entitled to such an order. Thus, even though Covid failed to present evidence it had sustained any resulting damages from Misencik's breach, the court should have entered summary judgment in Covid's favor on the breach of contract claim to the extent that claim sought return of the documents covered by the Agreement, including the documents that remained in defense counsel's possession for purposes of the litigation.3

B. Misappropriation of Trade Secrets

¶20 The Arizona Uniform Trade Secrets Act ("AUTSA") allows a plaintiff to recover damages for misappropriation of a trade secret.4 Ariz. Rev. Stat. ("A.R.S.") § 44-403 (2013); see also W.L. Gore & Assocs., Inc. v. GI Dynamics, Inc., 872 F.Supp.2d 883, 888 (D. Ariz. 2012). To establish a claim for damages, a plaintiff must show the existence of a trade secret, actions taken by the plaintiff to maintain the secrecy of the trade secret, misappropriation of the trade secret, and resulting damages. See A.R.S. §§ 44-401 (2013), -403; see also Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, 106, ¶¶ 14-15, 302 P.3d 628, 631 (App. 2013). "Damages are `an essential element of . . . [a] misappropriation of trade secret . . . claim[],' and a claim fails as a matter of law without a cognizable theory of proximately caused damages." W.L. Gore & Assocs., Inc., 872 F. Supp. 2d at 888 (quoting Firetrace USA, LLC v. Jesclard, 800 F.Supp.2d 1042, 1053 n.5 (D. Ariz. 2010) (alterations in original)).

¶21 Here, the superior court found Covid had failed to present any evidence Misencik had proximately caused it any damages arising from any misappropriation of a trade secret. Although the court recognized Misencik had disclosed the Computrac bid to Lastar, the evidence on summary judgment was uncontroverted Lastar had not used this information in the bidding process and that "[t]here [was] no evidence from the client that a request to the Plaintiff to `sharpen your pencil' was as a result of anything the Defendant did." Because a misappropriation claim requires proof of proximately caused damages and Covid presented none, the superior court properly granted summary judgment to Misencik on Covid's misappropriation of trade secrets claim.

II. Discovery Motions

¶22 Covid also argues the superior court should have granted its numerous discovery motions. We review a superior court's rulings on discovery motions for an abuse of discretion, State Farm Mut. Auto. Ins. Co. v. Lee, 199 Ariz. 52, 57, ¶ 12, 13 P.3d 1169, 1174 (2000) (citation omitted), and find none.

¶23 Covid filed multiple motions for discovery during the litigation seeking Misencik's computer; all communications between Misencik and Lastar; Misencik's bank and credit card statements; the identity of each joint Covid-Lastar customer with whom Misencik communicated; certain attorney-client communications between Misencik and defense counsel; Misencik's cable, telephone, and fax records; and "[a]ll documents from which information was utilized by Misencik to discover potential customers" for Lastar. The superior court denied these motions as being without merit, "overbroad and burdensome," or because they sought information protected by attorney-client privilege. On one occasion, after Covid's counsel refused to narrow a discovery request, the court noted that ruling on discovery motions is "frequently a balancing test for the Court between discovery that is going to lead to relevant and admissible evidence and discovery requests that are just fishing expeditions. . . . [Y]ou're asking for things that . . . would never lead to relevant or admissible or frankly discoverable items."

¶24 Covid also filed multiple motions asking the superior court to reconsider its denials of the discovery motions after forensic analysis showed Misencik's computer files had been copied onto the external hard drive and Misencik acknowledged he had retained possession of the external hard drive. This fact by itself, although troublesome, is not enough to create what Covid claims on appeal is "more than a fair inference that [Misencik] continued to use documents covered by the A[greement] on that portable drive with the computer given to him by his new employer over the next nine months." Covid presented no evidence Misencik actually used the documents and also made no attempt to cure the overbreadth of its discovery motions.

¶25 Thus, based on our review of the record, the superior court did not abuse its discretion in denying Covid's numerous discovery motions.

III. Attorneys' Fees and Costs

¶26 After the superior court ruled on the cross-motions for summary judgment, both parties requested an award of fees and costs. The court found Misencik was the "prevailing party" and granted his request for an award of attorneys' fees. Covid argues on appeal the superior court abused its discretion in finding Misencik, and not it, was the prevailing party and awarding him attorneys' fees.

¶27 The parties' competing requests for fees and costs were made pursuant to the Agreement, which provided that "[i]n the event that a dispute arises concerning this agreement and a lawsuit is filed, the prevailing party shall be entitled to reasonable attorney's fee [sic] and costs." In finding Misencik was the prevailing party, the court emphasized that Covid had essentially lost the case. The court stated:

Given the totality of the circumstances and the history of the case, the Court cannot find Covid Inc., to be the prevailing party in the lawsuit. The Court additionally cannot find as alleged by the Plaintiff, that the Defendant "stole thousands of pages of documents" or "flagrantly ignored and violated both the TRO and Preliminary Injunction Order". As pointed out by the Defendant, in January 2010, a preliminary injunction was issued and the Defendant promptly complied. Had the matter ended there, Covid Inc., might have been in a position to argue as a prevailing party. Instead what ensued was several years of prolonged litigation perpetuated by the Plaintiff which culminated in the dismissal of the lawsuit filed by the Plaintiff. The Court is persuaded by the authority cited and argument presented by the Defendant, that they are in fact the prevailing party.

¶28 Here, however, as discussed supra ¶¶ 18-19, Covid did prevail to the extent that it sought specific performance of the Agreement; as we have held, the superior court should have ordered Misencik to return to Covid all materials covered by the Agreement. Accordingly, on remand, the superior court should re-evaluate whether Misencik was the prevailing party under the Agreement. Further, because the issue may be relevant to the question of fees, we note the superior court was mistaken in concluding that Misencik had "promptly complied" with the January 21, 2010 preliminary injunction. To the contrary, while the superior court implicitly recognized that defense counsel did nothing improper in retaining documents during the course of the litigation, see supra note 3, the record reflects Misencik did not fully comply with the preliminary injunction order until at least November 2010 when he gave the external hard drive to defense counsel. See supra ¶¶ 8-9, 17. Therefore, on remand, the superior court should reassess whether Covid or Misencik is the prevailing party under the Agreement, whether Covid or Misencik is entitled to a fee award, and if so, the amount of fees to be awarded. Given the acrimonious nature of the litigation and relationship between the parties, we set out the factors the court should consider in making this reassessment.

A. Prevailing Party Under the Agreement

¶29 "Unlike discretionary fee awards made pursuant to A.R.S. § 12-341.01(A), the [superior] court lacks discretion to deny a fee award required by the terms of the parties' contract." Murphy Farrell Dev., LLLP v. Sourant, 229 Ariz. 124, 133, ¶ 32, 272 P.3d 355, 364 (App. 2012) (footnote omitted) (citing Chase Bank of Ariz. v. Acosta, 179 Ariz. 563, 575, 880 P.2d 1109, 1121 (App. 1994)). However, the court has sole discretion in determining the prevailing party for purposes of awarding attorneys' fees. Id. at ¶ 31. Generally, "when a case `involve[es] [sic] multiple claims and varied success' . . . the [superior] court may use a `percentage of success' factor or a `totality of the litigation' rubric to determine which party prevailed." Id. at 134, ¶ 36, 272 P.3d at 365 (first alteration in original) (quoting Berry v. 352 E. Va., L.L.C., 228 Ariz. 9, 13-14, ¶ 22, 261 P.3d 784, 788-89 (App. 2011) (citations omitted)).

¶30 For example, in Schwartz v. Farmers Insurance Co. of Arizona, 166 Ariz. 33, 800 P.2d 20 (App. 1990), the plaintiffs' vehicle was destroyed in an accident. Id. at 34, 800 P.2d at 21. The plaintiffs' insurer offered to reimburse the plaintiffs $11,000 for the vehicle, but the plaintiffs insisted on $14,000. Id. at 34-35, 800 P.2d at 21-22. Unable to reach an agreement, the plaintiffs sued the insurer for breach of contract and bad faith, id. at 35, 800 P.2d at 22, and requested punitive damages for the insurer's alleged bad faith. Id. at 38, 800 P.2d at 25. The jury found in favor of the plaintiffs on the breach of contract claim and awarded them $12,000 for the vehicle, but found in favor of the insurer on the bad faith claim. Id. at 35, 800 P.2d at 22. Both parties requested attorneys' fees pursuant to A.R.S. § 12-341.01(A).5 Id. The superior court, applying a "totality of the litigation" standard, found the insurer was the successful party and thus entitled to a fee award. Id. On appeal, we recognized the superior court's discretion in determining the successful party, id. at 38, 800 P.2d at 25, and held that because a "major issue to be decided" in the case was the bad faith claim, the superior court did not abuse its discretion in determining the insurer prevailed by successfully defending that claim. Id. at 38-39, 800 P.2d at 25-26.

¶31 Here, Misencik breached the Agreement by not returning to Covid all materials covered by the Agreement when he terminated his employment. In addition, the superior court entered both a TRO and a preliminary injunction in Covid's favor, and Covid is entitled to an order directing Misencik to return to Covid all of the materials specified in the Agreement. As the superior court appropriately acknowledged, however, Covid failed to show Misencik's breach had caused it any harm and refused to award it any money damages. Therefore, on remand, the superior court should consider these factors and all other relevant factors in determining the prevailing party under the "totality of the litigation" standard.

B. Reasonableness

¶32 After determining the prevailing party under the Agreement, the superior court must then consider the reasonableness of the fees requested. See supra ¶ 27. "Where a party has achieved only partial or limited success . . . it would be unreasonable to award compensation for all hours expended, including time spent on the unsuccessful issues or claims." Schweiger v. China Doll Rest., Inc., 138 Ariz. 183, 189, 673 P.2d 927, 933 (App. 1983). In making this assessment, and in addition to all other relevant factors, the court should consider the type and amount of relief requested, the relief granted, the relief denied, and the reasonableness of each party's litigation tactics. See id.; see also SWC Baseline & Crismon Investors, L.L.C. v. Augusta Ranch Ltd. P'ship, 228 Ariz. 271, 285-86, ¶ 57, 265 P.3d 1070, 1084-85 (App. 2011) (party whose litigation tactics "ignited litigation flames that scorched the earth . . . has only itself to blame" if it incurs substantial attorneys' fees).6

IV. Sanction Award

¶33 Covid next argues the superior court should not have sanctioned it for filing a motion addressing a topic the court found had been decided by a previous judge. Although we agree with the superior court's finding that Covid's motion was duplicative, we nevertheless agree the court should not have entered the sanction order against it. Instead, the court should have entered the sanction order against Covid's counsel, Peter C. Warner.

¶34 As discussed, supra ¶ 9, before Misencik returned the Box Documents to Covid at the January 2010 evidentiary hearing, defense counsel had scanned and retained an electronic copy of the Box Documents. On July 19, 2011, Covid deposed Misencik and asked him whether he "authorize[d] [his] attorneys to make a paper or electronic copy of any documents taken by [him] from Covid on December 27, 2009," whether he "instruct[ed] [his] attorneys to copy those documents," and whether his "attorneys request[ed] a copy of those documents." Defense counsel instructed Misencik not to answer those questions, asserting the attorney-client privilege.

¶35 During a telephonic status conference on August 1, 2011, Covid requested the court's permission to file a motion to compel Misencik's testimony regarding his communication with defense counsel concerning the scanning of the Box Documents. Misencik objected, asserting the court had previously addressed and rejected the topic. After Covid argued that the judge previously assigned to the case had not addressed the issue, the court granted Covid permission to file the motion but warned counsel that "[i]f I find that you're not being candid with me, I am going to sanction you."

¶36 On August 2, 2011, Covid moved to compel Misencik's testimony and asserted Misencik had waived any attorney-client privilege related to the "secret copying and storage of files stolen by Misencik from Covid on December 27, 2009, including . . . communications between Misencik and his counsel regarding that subject." Specifically, Covid argued defense counsel had waived the attorney-client privilege by stating in a declaration he had submitted to the court in response to a May 4, 2010 motion filed by Covid to hold Misencik in contempt: "Mr. Misencik did not ask me to make the copies or take the pictures." Misencik responded, arguing Covid had sought discovery relating to the scanning of the Box Documents in the May 4, 2010 motion and also in a June 6, 2011 motion to obtain discovery from defense counsel. Misencik explained that both motions asserted he had waived any attorney-client privilege in relation to the scanning of the Box Documents and that the court had rejected both motions and their respective waiver arguments. The court agreed with Misencik, finding "there [was] no meaningful distinction between the issues raised [in the motion to compel] and those previously considered." The court also stated:

Judge Myers has previously advised the Plaintiff that the argument being made today, is without merit; further, that no discovery as to privileged communication between Mr. Misencik and his counsel could occur, and that no discovery from [defense counsel] would occur.

The court sanctioned Covid's counsel the attorneys' fees and costs Misencik had incurred in responding to its motion.

¶37 The superior court did not abuse its discretion in sanctioning Covid's counsel. See Ariz. R. Civ. P. 11(a); Taylor v. S. Pac. Transp. Co., 130 Ariz. 516, 523, 637 P.2d 726, 733 (1981) ("Where there is a complete and repeated disregard of a court order and where there is no reasonable justification for its breach, a court might, in its discretion, award attorneys fees as a sanction." (citation omitted)). Covid's motion sought to uncover information regarding the decision to scan the Box Documents. Although Covid had not previously argued specifically that defense counsel had waived the attorney-client privilege by submitting his affidavit, it had repeatedly demanded discovery from Misencik and defense counsel regarding the decision to scan the Box Documents. Thus, in substance, the motion to compel Misencik's testimony was an effort to obtain the same discovery the court had already denied on at least two occasions. Given this, and because the court had warned Covid's counsel it would sanction him if the court determined Covid had previously raised the matter, the court did not abuse its discretion in imposing sanctions.

¶38 Notwithstanding the court's decision to impose sanctions on Covid's counsel, it ordered Covid to pay the sanction award. Accordingly, we direct the superior court on remand to modify the order to direct Covid's counsel, Peter C. Warner, and not Covid, to pay Misencik the sanction award.7

V. Garnishment

¶39 After the superior court entered the sanction order, Misencik served a writ of garnishment on Covid's bank to execute on the order. Subsequently, the court refused to quash the writ, and Covid appealed. On appeal, Covid argues the superior court should have quashed the writ because at the time Miscencik filed and served it, the superior court had not yet entered a final, appealable judgment in the case. We do not need to address this argument. As explained above, the court should have sanctioned Covid's counsel, not Covid. Thus, even assuming a sanction award constitutes a final, appealable order, the court entered it against the wrong party. See supra ¶ 38. Thus, the court should have quashed the writ.

¶40 Accordingly, we reverse the order denying the motion to quash the writ of garnishment.

VI. Attorneys' Fees and Costs on Appeal

¶41 Both parties request an award of attorneys' fees and costs on appeal pursuant to the Agreement.8 See supra ¶¶ 26-27. Because Covid and Misencik each partially prevailed on appeal, neither is the prevailing party for purposes of recovering attorneys' fees and costs under the Agreement. See supra ¶ 27. Accordingly, we deny their competing requests for fees and costs under the Agreement.

¶42 Covid is, however, entitled to recover its costs on appeal pursuant to A.R.S. § 12-341 (2003) contingent upon its compliance with Arizona Rule of Civil Appellate Procedure 21. Henry v. Cook, 189 Ariz. 42, 44, 938 P.2d 91, 93 (App. 1996) ("[T]he party who obtains partial success [on appeal] is entitled to recover all taxable costs." (citation omitted)).

CONCLUSION

¶43 In summary, we vacate the superior court's entry of summary judgment on Covid's breach of contract claim and remand to the superior court for entry of a final judgment on that claim directing Misencik to return all Covid materials identified in the Agreement, including the materials retained by defense counsel during the litigation. We affirm, however, the superior court's entry of summary judgment to Misencik on Covid's misappropriation of trade secrets claim and the superior court's rulings on Covid's numerous discovery motions. Because we are directing the superior court to grant Covid judgment on its breach of contract claim, we also direct the superior court to reconsider on remand the award of attorneys' fees and costs. Further, on remand, we direct the court to modify the December 20, 2011 order to require Peter C. Warner, and not Covid, to pay the sanction award and to quash the writ of garnishment served on Covid's bank.

FootNotes


1. In addition to the motion for expedited discovery, Covid filed six motions to compel discovery, a motion to obtain discovery from defense counsel, three motions to hold Misencik in contempt, and five motions to reconsider.
2. Covid also argues it was entitled to summary judgment on its breach claim regardless of whether it could show resulting damages because it was entitled to nominal damages. We do not need to decide this issue because, even assuming a plaintiff is not required to show actual damage on a breach of contract claim to recover nominal damages, we will not remand a case solely for entry of a nominal damages award. Restatement (Second) of Contracts § 346 cmt. b (1981) ("Unless a significant right is involved, a court will not reverse and remand a case for a new trial if only nominal damages could result.").
3. In its May 4, 2010 motion to hold Misencik in contempt, Covid argued Misencik violated the court's January 21, 2010 order to "return all materials to Covid identified in the Trade Secret Agreement" through defense counsel's retention of "at least one copy of all of the documents . . . he returned to Covid in open court at the January 21, 2010 preliminary injunction hearing." The superior court denied the motion and, in so doing, implicitly recognized that defense counsel did not act improperly in retaining a copy of the documents for purposes of the litigation.
4. Although the AUTSA also allows a plaintiff to obtain injunctive relief for misappropriation of a trade secret, Ariz. Rev. Stat. ("A.R.S.") § 44-402 (2013), Covid acknowledged in the superior court and at oral argument before this court that if it obtained an order directing Miscencik to return the materials covered by the Agreement, neither the superior court nor this court would need to address whether it was entitled to injunctive relief on its misappropriation claim.
5. We apply the same analysis to determining the prevailing party under the Agreement as we would in determining the successful party under A.R.S. § 12-341.01(A) (Supp. 2013). See Murphy Farrell Dev., LLLP, 229 Ariz. at 134, ¶ 36, 272 P.3d at 365.
6. Because, on remand, the superior court will reconsider the award of attorneys' fees, Covid's argument on appeal challenging the timeliness of Misencik's motion to amend the final judgment to recategorize legal research expenses as attorneys' fees is moot.
7. As discussed, after the superior court entered judgment in Misencik's favor, both parties requested attorneys' fees. See supra ¶ 26. Misencik included in his request the attorneys' fees he had incurred in responding to Covid's August 2, 2011 motion to compel, which the court had already ordered Covid's counsel to pay as a sanction. The superior court granted Misencik's request in its entirety without reducing the amount to account for the sanction award. On remand, if the superior court decides Covid is entitled to a fee award, the court should not award Covid the fees it incurred in connection with its August 2, 2011 motion to compel. Similarly, if the superior court decides Misencik is entitled to a fee award, the court should not award him the fees he incurred in responding to that motion.
8. Although Covid also requests attorneys' fees and costs under Arizona Rule of Civil Appellate Procedure 21, that rule is not, by itself, a substantive basis for an award of attorneys' fees. Ezell v. Quon, 224 Ariz. 532, 539, ¶ 31, 233 P.3d 645, 652 (App. 2010) (citations omitted).
Source:  Leagle

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