Plaintiff SASCO appeals a postjudgment order awarding defendants
SASCO filed its complaint on July 31, 2008. We briefly describe the factual allegations contained therein, specifying where SASCO made allegations based upon information and belief.
SASCO and defendant Rosendin are licensed electrical contractors doing business in the State of California. Individual defendants Fitzsimmons, Thompson, and Woodworth worked for SASCO in senior management positions until the fall of 2006. Individual defendants each signed nondisclosure agreements with SASCO. Each of the individual defendants resigned from SASCO and joined Rosendin on different dates in October and November 2006.
Woodworth was aware of an opportunity being pursued by SASCO known as the Verizon Tustin Project. Woodworth "supported the effort by SASCO to pursue the project under its normal estimating process. As such, he followed the process through to the bid. Pursuant to the bid, he supported the sales effort to acquire the project. SASCO reasonably believed that it had procured the job and `booked' the job into its business plan." "SASCO is informed and believes ... [that] WOODWORTH contacted the Verizon Tustin MSC
"SASCO is informed and believes ... that [individual defendants] also took confidential, proprietary, and trade secret information including SASCO's unique estimating and job cost systems to ROSENDIN. Said systems are unique in the construction industry in that the estimating system provides the basis for the job cost system and the monitoring systems that allow SASCO to maintain its competitive edge." "SASCO is informed and believes ... that [defendants] surreptitiously accessed, copied, and misappropriated SASCO's estimating and job cost systems and applied them at Rosendin. Access to SASCO's systems was limited to senior management."
Based on these alleged facts, SASCO set forth five causes of action: (1) misappropriation of trade secrets; (2) intentional interference with prospective economic advantage; (3) unfair business practices; (4) breach of contract; and (5) breach of the implied covenant of good faith and fair dealing.
SASCO identified (pursuant to Code of Civ. Proc., § 2019.210) the trade secret at issue as "a proprietary computer program which creates monthly construction project reports, which include, but are not limited to, past and projected labor and materials, project change history, variances from schedules, job performance reports, and labor performed by area and task code. These reports estimate costs and manage projects by monitoring labor and material variances from schedules and make according adjustments, on this and other projects."
The parties engaged in fierce discovery battles over the course of the litigation, with both sides apparently expressing reluctance to comply with the other's requests. The court entered at least three orders pertaining to the parties' discovery disputes. Fortunately, it is unnecessary for purposes of this
On May 1, 2009, defendants filed a motion for summary judgment. SASCO obtained continuances of the summary judgment hearing to conduct additional discovery. On July 7, 2010, SASCO substituted in new counsel. On October 20, 2010, SASCO voluntarily dismissed the action without having filed an opposition to the motion for summary judgment.
Defendants then filed a motion for attorney fees and costs pursuant to section 3426.4. Defendants argued (1) there was no trade secret (the purported trade secret was an "`off the shelf'" computer program); (2) there was no evidence of misappropriation of the trade secret; and (3) the action was filed for the improper purpose of harassing a business competitor and ex-employees. Given the limited scope of this appeal, we focus on evidentiary submissions pertaining to whether there was a lack of evidence of trade secret misappropriation.
Defendants contended this case "was objectively frivolous because there was never one shred of evidence to support the claim of misappropriation of trade secrets." Besides simply pointing to the absence of evidence in the record, defendants also submitted evidence tending to show SASCO's lack of evidence. First, SASCO Chief Executive Officer Larry Smead testified at his deposition that he did not have any actual evidence that the individual defendants "took any Excel ROC'M ... documents." He instead testified that "they either took it or they're stupid." Smead also testified that he had no evidence that the individual defendants "took the MOCRAT system with them to Rosendin." The context of the deposition testimony arguably suggests that Smead was referring to trade secret information. In an immediate followup question about "your job cost system," Smead answered: "Yeah, the
Second, the individual defendants each submitted declarations attesting that they did not take any computer software with them when they left SASCO and that they did not provide Rosendin with any computer software from SASCO. They also declared that SASCO used an "off-the-shelf" computer software program known as the McCormick System, while Rosendin used an "off-the-shelf" computer software program known as the Accubid System. None of the individual defendants modified Rosendin's Accubid System or asked anyone else to modify it.
Third, Joe Martino, a manager for the general contractor on the Verizon Tustin Project, submitted a declaration. Martino attested to the following: (1) the Verizon Tustin Project was initially a $7.2 million project for which SASCO submitted a proposal; (2) SASCO did not obtain a written subcontract, did not receive an oral contract, and did not receive oral promises from the general contractor; (3) the scope of the Verizon Tustin Project was revised downward in November 2006 to a $5.6 million project; (4) Verizon instructed the general contractor to obtain competitive bids from subcontractors for all aspects of the project; (5) Martino contacted Rosendin and sought a bid from it along with other subcontractors, including SASCO; (6) SASCO's bid was the highest bid by far among several bidders; and (7) Rosendin received the subcontract because it was the lowest eligible bidder. SASCO's argument with regard to this evidence is that Martino's declaration, if relevant at all, pertains to damages (not misappropriation) and it was unnecessary for SASCO to establish damages to prove a trade secret misappropriation claim.
The court granted defendants' motion for attorney fees and costs, awarding a total of $484,943.46, which represents a discount on the total attorney fees incurred due to the non-trade secret causes of action pursued by SASCO. The court issued a lengthy written order in which it described the parties' respective positions, set forth the applicable law, and explained its reasons for finding in defendants' favor. Accepting for the sake of argument that SASCO's computer program was a trade secret, the court concluded there
Pursuant to the Uniform Trade Secrets Act (Civ. Code, § 3426 et seq.) (UTSA), "`[t]rade secret' means information ... that: [¶] (1) Derives independent economic value, actual or potential, from not being generally known ... and [¶] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." (Civ. Code, § 3426.1, subd. (d).) "`Misappropriation'" under UTSA includes acquiring trade secrets through "improper means" or using trade secrets of another that were obtained "from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use ...." (Civ. Code, § 3426.1, subd. (b).) "`Improper means' includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Reverse engineering or independent derivation alone shall not be considered improper means." (Civ. Code, § 3426.1, subd. (a).)
"Section 3426.4 authorizes the trial court to award attorney fees as a deterrent to specious trade secret claims. [Citation.] Because the award is a sanction, a trial court has broad discretion in awarding fees." (FLIR Systems, supra, 174 Cal.App.4th at p. 1275.) An award of attorney fees "will not be overturned in the absence of a manifest abuse of discretion, a prejudicial error of law, or necessary findings not supported by substantial evidence." (Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal.App.4th 547, 577 [66 Cal.Rptr.3d 1].)
SASCO raises two arguments on appeal. First, SASCO asserts the court applied an incorrect legal standard for determining whether its misappropriation claim was objectively specious. Second, SASCO contends the court improperly relied on certain evidence in concluding that SASCO's claim was objectively specious. SASCO does not challenge the amount awarded, or the court's findings that defendants were prevailing parties and SASCO had subjective bad faith. Hence, we need not address these latter issues.
SASCO claims this rule of law is inappropriate for cases that are dismissed prior to trial and prior to the completion of discovery, particularly when the defendants have (allegedly) withheld discovery. According to SASCO, the court committed legal error by failing to look to Code of Civil Procedure section 128.7 in deciding whether SASCO's trade secret misappropriation claim was "objectively specious." Code of Civil Procedure section 128.7, subdivision (b), provides that when an attorney (or party representing itself) signs and submits a pleading, petition, or motion to the court, the attorney is
Secondly, published cases have explicitly rejected arguments that "bad faith" under section 3426.4 should be determined by applying the standard of "frivolousness" set forth in Code of Civil Procedure section 128.5 (a sanctions statute applicable to actions commenced prior to Dec. 31, 1994). (FLIR Systems, supra, 174 Cal.App.4th at p. 1276; Gemini, supra, 95 Cal.App.4th at p. 1262.) "[I]n enacting section 3426.4 the Legislature was concerned with curbing `specious' actions for misappropriation of trade secrets, and such actions may superficially appear to have merit. We ... conclude that `bad faith' for purposes of section 3426.4 requires objective speciousness of the plaintiff's claim, as opposed to frivolousness, and its subjective bad faith in bringing or maintaining the claim." (Gemini, at p. 1262.) These cases do not specifically address Code of Civil Procedure section 128.7. But the broader implication of their rejection of Code of Civil Procedure section 128.5 as the test for objective "bad faith" is that courts should concern themselves with applying the "bad faith" standard of section 3426.4 (in light of the purposes of the UTSA) rather than looking to nonapplicable sanctions statutes.
Usually, the phrase "bad faith" refers solely to a party's subjective mental state. (See Smith v. Selma Community Hospital (2010) 188 Cal.App.4th 1, 34-35 [115 Cal.Rptr.3d 416].) Although neither of the parties do so, it might be posited that the proper interpretation of section 3426.4 is that a prevailing defendant may recover its attorney fees if the plaintiff pursued an action with subjective bad faith, regardless of whether there was some evidence supporting plaintiff's contentions. Prior courts, however, have opted to include an "objective speciousness" element in section 3426.4, thereby limiting a defendant's opportunity to recover attorney fees to cases that are both objectively specious and subjectively brought in bad faith.
In light of the foregoing discussion, we reject SASCO's argument that defendants' alleged discovery misconduct should bear on the court's objective
SASCO also posits that, even assuming the court applied the correct standard of objective speciousness, the court abused its discretion by concluding that SASCO's trade secret misappropriation claim was objectively specious.
SASCO mounts its attack by pointing to the limitations of various pieces of evidence (deposition testimony of Smead, declaration of Martino, and the lack of a computer forensics investigation by SASCO) that were cited by the court to support its conclusion that SASCO's claim was objectively specious. SASCO contends that the Smead deposition testimony did not pertain to its trade secrets, but rather to something else (what this something else consists of is not explained clearly by SASCO). SASCO asserts that Martino's declaration does not prove that trade secrets were not misappropriated, but instead only proves that Rosendin provided a lower bid than SASCO (which could be consistent with trade secret theft). And SASCO claims that the lack of a forensics investigation is irrelevant.
The postjudgment order awarding attorney fees is affirmed. Defendants shall recover attorney fees and costs incurred on appeal.
Rylaarsdam, Acting P. J., and Aronson, J., concurred.