By:   Chelcey E. Lieber

The California Supreme Court recently granted review of Richey v. Autonation, Inc., a Court of Appeal case that vacated an arbitration award in favor of the employer. The Court rejected the employer’s argument that it had an “honest belief” that an employee was misusing his CFRA/FMLA leave, and this honest belief justified the employee’s discharge. We previously discussed the Richey case here https://www.thelelawblog.com/2012/11/articles/labor-law/the-continuing-danger-of-terminating-employees-on-leave-an-honest-belief-that-leave-is-being-misused-is-not-always-enough-richey-v-autonation-inc/ on our blog.

Continue Reading California Supreme Court Grants Review of CFRA/FMLA Case Richey v. Autonation, Inc.

Join us at this year’s “ADA: Defense Strategies and Attorney Fee Awards in Light of Recent Legislation and Jankey v. Lee” seminar where Weintraub attorney Lizbeth West will be speaking as one of the panelist in regards to:

  • An overview of the Jankey v. Lee decision
  • Recent Federal and State Legislation
  • Establishing available affirmative defenses
  • Effective negotiations of settlement

 

Date:

Friday, February 22, 2013

Location:

Sutter Club Sacramento
1220 Ninth Street
Sacramento, CA 95814

Time:

4:30-5:30 – Sessions
5:30-6:30 – Reception

Register online at www.adcncn.org

This blog has periodically visited the issue of preemption in trade secret cases.  Preemption arises when a plaintiff alleges common law causes of action (such as conversion or interference with economic relations) with a trade secret misappropriation claim that is based on the “same nucleus of facts.”  California courts have repeatedly held that California’s Uniform Trade Secrets Act [“CUTSA”] preempts, displaces and supersedes all “claims based on the same nucleus of facts as trade secret misappropriation.”  (See RSPE Audio Solutions, Inc. v. Vintage King Audio, Inc. 2013 U.S. District Lexis 2909 at *4-5 (C.D. Cal. Jan. 7, 2013) [citing KC Multimedia, Inc. v. Bank of America Tech. & Operations, Inc. 171 Cal.App.4th 939, 962 (2009)].)  Essentially, courts have ruled that CUTSA provides the exclusive civil remedy for trade secret claims.

In RSPE Audio, the Court again faced the preemption issue.  RSPE provides professional audio and video equipment as well as consulting/engineering services to its clients.  RSPE alleged that it maintained confidential information, such as customer lists, deal proposals and the like, which it claimed were its trade secrets.  In May 2012, two of its employees resigned from RSPE and joined Vintage King Audio, allegedly taking RSPE’s trade secrets.  RSPE filed suit against the employees and Vintage King alleging claims for (1) trade secret misappropriation; (2) intentional interference with economic advantage; (3) unfair business practices; and (4) aiding and abetting trade secret misappropriation.  Vintage King moved for judgment on the pleadings as to the non-trade secret claims arguing they were preempted by CUTSA.

RSPE opposed the motion by claiming that it had alleged additional bad acts independent of the trade secret claims, such as (1) the former employees misdirected emails from RSPE clients; and (2) that they had tampered with RSPE’s eBay store front and its Amazon.com account.  RSPE further pointed out that its common law claims incorporated by reference this non-trade secret misconduct.

The Court rejected RSPE’s arguments and granted the motion with leave to amend.  The Court found that each of the common law claims made explicit reference to the trade secret misappropriation allegations and were thus preempted.  For instance, RSPE alleged that “defendant’s misappropriation of the trade secrets as alleged herein constitutes unfair and/or fraudulent business practices … .“  The court concluded that “while the [first amended complaint] contains allegations potentially unrelated to RSPE’s trade secrets claims, the [common law] causes of action are based upon the same nucleus of fact as RSPE’s CUTSA claim for misappropriation of trade secrets.”  The Court concluded that they were preempted by CUTSA.

Plaintiffs alleging trade secret misappropriation claims are again reminded as to the necessity of being careful in how they plead additional common law tort claims.  Merely incorporating by reference allegations earlier in the complaint of non-trade secret related misconduct may not be sufficient to withstand a motion to dismiss on the ground of preemption under CUTSA.

By:    Duyen T. Nguyen

In Young v. UPS, 2013 U.S. App. Lexis 530, a UPS worker sued her employer for sex and race discrimination under Title VII and for disability discrimination under the ADA on the basis of her pregnancy. On January 9, 2013, the Fourth Circuit Appellate Court issued a decision affirming the district court’s grant of summary judgment for the employer.

Continue Reading The Fourth Circuit Court Says Pregnant Employee Not Entitled to Accommodation

Prior blog posts have addressed the issue of when a court may award attorneys’ fees in a trade secret misappropriation case.  Under the California trade secret statute, the court may award attorneys’ fees where there has been a willful and malicious misappropriation of plaintiff’s trade secrets or when a trade secret misappropriation claim is brought in bad faith.  (See Civil Code §3426.4.)  In Weco Supply Company, Inc. v. Sherwin-Williams Company, 2013 U.S. Dist. LEXIS 1572 (January 3, 2013), a district court in the Eastern District of California, revisited the issue of what constitutes “bad faith” for purposes of awarding attorneys’ fees in trade secret cases.

Weco and Sherwin-Williams had entered into a “jobber” agreement by which Weco would distribute Sherwin-Williams paint products.  Weco alleged that Sherwin-Williams breached the jobber agreement by discontinuing certain of its product lines and then dealt directly with some of Weco’s end customers.  In addition to breach of contract claims, Weco asserted a claim for trade secret misappropriation against Sherwin-Williams.  Weco argued that its pricing arrangements with its end users were trade secret and were misappropriated by Sherwin-Williams to deal directly with these customers.  The court eventually granted Sherwin-Williams summary judgment against Weco as to its trade secret misappropriation claim and found that “the undisputed facts showed that Weco’s pricing to end users and cost of acquisition were not trade secrets” under California law.  Thus, the court found there was no misappropriation and dismissed Weco’s trade secret misappropriation claim.

Following the granting of summary judgment, Sherwin-Williams moved for an award of attorneys’ fees claiming that Weco’s trade secret misappropriation claim had been brought in bad faith.  The court began by recognizing that a party seeking an award of attorneys’ fees under Civil Code section 3426.4 must satisfy two elements:  “(1) the objective speciousness of the opposing party’s claim and (2) the subjective bad faith of the opposing party in bringing or maintaining the action that is an improper purpose.”  The court reasoned that “objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim.”  As to the second prong, “subjective bad faith may be inferred by evidence that [a party bringing an action for trade secret infringement] intended to cause unnecessary delay filed the action to harass [the opposing party] or harbor improper motive.”

The court agreed with Sherwin-Williams that it satisfied the first element by showing that Weco’s trade secret misappropriation claim was objectively specious because of plaintiff’s failure to produce evidence in opposition to Sherwin-William’s motion for summary judgment.  This demonstrated that it lacked evidentiary support.

However, the court found that “bad faith” under California’s trade secret misappropriation law “means more than the simple inability to provide the necessary elements of a cause of action.  The second prong of the test requires a showing of subjective bad faith.”  Sherwin-Williams pointed to evidence in the deposition of Weco’s principal that he was “mad” at Sherwin-Williams and refused to pay Sherwin-Williams for paint purchases because he “was going to use that money to sue [Sherwin-Williams].”  Weco’s principal also testified that he “was trying to hurt [Sherwin-Williams] by sending letters to Sherwin-Williams’ customers informing them of the pricing Sherwin-Williams was offering to their competitors.  The court concluded that while this deposition testimony showed that “there was no love lost between [Weco’s principal] and Sherwin-Williams, it does not support a finding that Weco brought the trade secret claim in bad faith.”  The court stated that civil litigation “is frequently engendered by animosity.  That is not the same as bad faith.”  The court found that the anger of Weco’s principal towards Sherwin-Williams was not sufficient to establish that Weco brought its trade secret claim to cause delay or harassment or was due to an improper motive.

While the defendant in the Weco case did not prevail on its attorneys’ fees motion, litigants in a trade secret misappropriation claim must continue to be aware of the penalties for bringing a trade secret claim in bad faith.  It is quite possible that a different court hearing the same evidence presented by Sherwin-Williams would have concluded that the owner’s “anger” at Sherwin-Williams was sufficient to constitute subjective bad faith and allow an award of attorneys’ fees.  Litigants are also reminded that they should seek to develop such evidence during discovery so that they can bring an attorneys’ fees motion should they prevail at the summary judgment stage.