Uniform Trade Secret Act preemption error results in reversal — and some lessons on review of orders granting summary adjudication

public domain image from Wikimedia Commons

I have a feeling that the plaintiff’s attorney in Angelica Textile Services, Inc. v. Park, case no. D062405 (4th Dist., October 15, 2013), didn’t lament too much the loss of a jury trial on the plaintiff’s claim for trade secret misappropriation, even though on the surface, it looked like plaintiff’s last gasp following the dismissal of plaintiff’s other claims for breach of contract, unfair competition, breach of fiduciary duty, interference with business relations, and conversion, all of which related to conduct that involved the alleged trade secrets. After all, plaintiff had an ace up his appellate sleeve.

The merits

The claims were all related to the conduct of the plaintiff laundry service’s former executive who, while still employed by plaintiff, entered into contracts with customers that — against standard industry practice — allowed cancellation at any time. The executive also collaborated with third parties in planning a competing laundry business. He then resigned from plaintiff, went to work as the chief executive of the competitor, signed up customers who were able to cancel their contracts with the plaintiff, and hired 40 employees away from the plaintiff.

The defendants obtained summary adjudication of the contract and business tort claims on the ground the those claims were preempted by the Uniform Trade Secrets Act. At the jury trial on the remaining claim for trade secret misapprpriation, the jury found that the information at issue did not constitute a trade secret and rendered a verdict for the defenedants. On appeal from the final judgment, plaintiff did not challenge the jury’s verdict. Instead, they argued that the summary adjudication had been improperly granted. The Court of Appeals reversed.

The Court of Appeal held that the claims were not preempted by the UTSA because plaintiff’s theories of liability made it irrelevant whether the information constituted trade secrets or not. The contract claim depended on a provision in the executive’s employment contract that prohibited competition while employed. The conversion claim was based on the executive’s taking of company documents that comprised company property (and could not be dismissed ion the ground that the physical documents were valueless because that issue had not been litigated). The remaining torts were based on the executive’s breach of his duty of loyalty.

The appellate lessons

The defendants tried to stymie the appeal through several procedural arguments.

First, the appellate court rejected the contention that plaintiff was required to seek writ review of the summary adjudication order, pointing out that “there is no requirement in our summary judgment statute that parties who wish to challenge orders granting summary adjudication do so by way of a writ petition.” (Note, however, that there is some authority — apparently in the minority — that orders denying summary adjudication may only be reviewed by writ petition and cannot be challenged on appeal from the final judgment. (See Sierra Craft, Inc. v. Magnum Enterprises, Inc. (1998) 64 Cal.App.4th 1252.))

Second, the court rejected the contention that plaintiff forfeited review of the summary adjudication ruling by not moving for reconsideration. The business contracts lawyers and the defendants contended in their respondents’ brief that the trial court’s error of law could have been raised in a motion for reconsideration — an odd contention, seeing as how it did not rely on new facts or law. In any event, the appellate court conclusively states that “there is no requirement that a losing party move for reconsideration of an order granting summary adjudication” in order to preserve arguments for appeal that are already in the record.

Manufacturing appellate jurisdiction over a discovery ruling

When I read Brescia v. Angelin, case no. B204003 (2d Dist. Mar. 17, 2009), I was reminded about how Saturday Night Live once ran one a commercial parody for a product with the advertising slogan “It’s a dessert topping! It’s a floor wax!  It’s two products in one!”

How do I make that connection? Because when I was done reading the case, I thought, “It’s a dismissal after sustaining a demurrer! It’s a discovery ruling! It’s two rulings in one!”

And so did the court of appeal, though it didn’t say it in so many words.

Brescia cross-complained against respondents for trade secret misappropriation.  Code of Civil Procedure section 2019.210 requires a trade secret plaintiff to identify the trade secret “with particularity” before commencing discovery.  Respondents moved for protective orders against discovery served by Brescia, claiming that he had not adequately identified the trade secret.  Finding the initial identification inadequate, the court gave Brescia several opportunities to make more particular designations, while the hearing on the protective order motions (which were now greater in number) were continued.  During this time, the respondents also demurred to Brescia’s cross-complaint.

Eventually, the protective order motions and demurrer (as well as a motion to strike) were heard on the same date, and this is where it gets interesting.  The court goes into great detail about the exchange among counsel and the court, but summarizes it as follows:

[T]he parties, in an attempt to expedite any appeal, stipulated that if the court determined the trade secret designation insufficient, it could use respondents’ demurrer to the cross-complaint as a procedural device to dismiss Brescia’s trade secret misappropriation claim for failure to comply with section 2019.210

That should have set off alarms in everyone’s mind, but we’ll get to that in a minute. The court found the disclosure inadequate and sustained the demurrer without leave to amend.

Brescia appealed from the resulting judgment of dismissal and, notwithstanding his stipulation in the trial court that the inadequacy of the trade secret disclosure would dispose of the case, argued that the court could not use a ruling on the trade secret disclosure as a ground for sustaining the demurrer. After recounting all the ways in which the stipulated arrangement violated normal procedural rules and effectively converted an unappealable discovery ruling into an appealable judgment, the court reminds Brescia of the doctrine of “invited error”:

Nonetheless, despite these inherent problems, Brescia stipulated to the procedure used by the court, as did respondents.  Indeed, the trial court would not have used this procedure but for Brescia’s express consent.  Brescia is in the procedural posture he sought. To the extent he now challenges that posture as improper and awkward, he effectively misled the trial court into believing the procedure was acceptable to him as a means to secure immediate appellate review of the sufficiency of his section 2019.210 designation.  Thus, he cannot contend on appeal that the termination of his action against respondents was procedurally defective.  (See Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403 [doctrine of invited error applies where party induces error and, in doing so, misleads court].)

But Brescia actually prevails on the adequacy of his disclosure, so the court reverses, rejecting respondents’ contention that the demurrer gave an alternate ground for affirmance.

Respondents argue that the alternative grounds exist to support the court’s ruling sustaining the demurrer to the cross-complaint without leave to amend:  (1) the cross-complaint fails to state facts sufficient to plead a trade secret misappropriation claim against respondents personally, and (2) Brescia’s legal theory creates an improper prior restraint on trade.

In the unusual procedural posture of this case, we decline to address these issues.  The ruling that forms the basis for this appeal is a discovery ruling – the sufficiency of Brescia’s section 2019.210 designation.  By stipulation, the parties and the court deemed that discovery ruling to be a ground upon which the court would dispose of the cross-complaint through the procedural fiction that it formed a basis for demurrer.  We have given effect to that stipulated fiction and have addressed the merits of the section 2019.210 issue.  But we will not carry the fiction further and purport to review a ruling on a demurrer that was never truly made.  Respondents are asking us, in the first instance, to rule on their challenges to the cross-complaint and to sustain the demurrer without leave to amend.  We decline.  Respondents must first obtain a ruling on the demurrer in the trial court, which is the appropriate forum to determine in the first instance whether the demurrer states meritorious grounds, and, if so, whether leave to amend should be granted.

(Emphasis added.)

Curiously, none of the analysis talked about in this post is part of the published opinion, which is limited to the issue of the adequacy of the trade secret disclosure. The court clearly was not pleased with the stipulation, and a published decision would have announced their discouragement of such arrangements.  On the other hand, notwithstanding the court’s distaste for the arrangement, publication might have encouraged more of them.  The court did, after all, hear the appeal, and determine the merits of the underlying discovery ruling.  Other plaintiffs faced with the same unattractive alternatives to such a stipulation — waiting to appeal after final judgment or petitioning for writ relief with a greater than 90% chance of not being hard on the merits — may find the “Brescia option” attractive . . . if they learn of it.

Apple v. Bloggers Settlement includes Shutdown of Apple Rumor Blog

This isn’t really appellate-related, but I figure that at least some of you must be, as I am, a Mac-using lawyer, and will find this of interest.

In this post at The UCL Practitioner, Kimberly Kralowec updates some of her earlier reporting on the Apple lawsuit against some bloggers that had leaked internal Apple information. She provides links to a few articles about the settlement, reminds us that “in 2006, the Court of Appeal ruled that the bloggers were ‘journalists’ and that California’s shield law therefore protected their sources,” and links to some of her earlier coverage about the case.

How Does a Court Write a Trade Secrets Opinion When It Can’t Disclose the Trade Secrets?

That was the difficult question facing the court in Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826.  An excerpt from the opening paragraph of the opinion gives you an idea of the substantive issues facing the court (emphasis added):

We hold that Code of Civil Procedure section 2019.210 (formerly Code of Civil Procedure section 2019, subdivision (d)), which provides that discovery relating to a trade secret may not commence until the trade secret is identified with “reasonable particularity,” is not limited in its application to a cause of action under the Uniform Trade Secrets Act (UTSA) (Civ. Code, §§ 3426-3426.11), for misappropriation of the trade secret, but extends to any cause of action which relates to the trade secret. We also hold that where the plaintiff makes a showing that is reasonable, i.e. fair, proper, just, rational, the trade secret has been described with “reasonable particularity,” and is sufficient to permit discovery to commence.

The italicized holding is about as specific as the court can get, because the trade secret designation was under seal.  In footnote 2 of the opinion, the court states:

To avoid disclosure of the parties’ confidential information we are, in this publicly available opinion, purposefully vague in our descriptions of the claimed trade secrets, the trade secret designations, the expert witness declarations and other related documents.

The court comes up with a pretty good articulation of the standard for “reasonable particularity,” considering it is foreclosed from demonstrating specifically how the standard applies to the trade secrets before it.