SASCO v. Rosendin Electric: Court of Appeal Clarifies Test for Attorney Fees in Trade Secret Misappropriation Case

In addition to wage and hour cases and cases involving discrimination, harassment, and retaliation, I also mediate cases involving allegations of misappropriation of trade secrets.  So, in the midst of all of the class action waiver cases, here's one involving recovery of attorney fees in a trade secret action.  

In SASCO v. Rosendin Electric, Inc. (7/11/12) --- Cal.App.4th ---, SASCO filed suit against Rosendin and three former employees who left SASCO to work for Rosendin.  SASCO alleged misappropriation of trade secrets and related causes of action.  After more than a year of litigation, with defense motions for summary judgment pending, SASCO dismissed the action.  The trial court granted the defendant's motion for attorney fees, finding that SASCO prosecuted the action with no evidence of trade secret misappropriation. SASCO appealed, and the Court of Appeal affirmed.  

First, the Court reviewed the basics:  If a trade secret claim is made in bad faith, the prevailing party can recover its reasonable attorney fees and costs.  The Uniform Trade Secrets Act (UTSA) does not define "bad faith" but courts have held that it includes both "objective speciousness of the plaintiff's claim . . . and [] subjective bad faith in bringing or maintaining the claim."  Slip op. at 8.  

"Objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim."  Slip op. at 9.  The trial court correctly relied on this standard in awarding fees, even though the plaintiff dismissed the case prior to the completion of discovery.  Ibid.  Code of Civil Procedure section 128.7 does not set the standard for frivolousness in a trade secret case.  Slip op. at 10-11.   

Bad faith may exist, and attorney fees may be recovered, even if "objectively speaking, it appeared at the time of the filing of the action some evidence would be obtained in discovery that would support a misappropriation claim." Slip op. at 12 (emphasis in original).  

When an employee entrusted with trade secrets departs to work for a competitor, a reasonable observer might consider it likely that discovery will unearth at least some evidentiary support (if not a winning case) for allegations of trade secret misappropriation.  This objective assessment of a difficult predictive problem has nothing to do with the good faith or bad faith of the plaintiff, which is, after all, what the statute instructs courts to examine. 

Ibid. 

Second, the Court held that the trial court did not abuse its discretion in finding that SASCO's claims were made in bad faith.  SASCO pointed to no evidence in the record to show misappropriation. 

It was perfectly legitimate for Rosendin to hire the individual defendants and for the individual defendants to leave the employ of SASCO in favor of a competitor, Rosendin.  Speculation that the individual employees must have taken trade secrets from SASCO based on their decision to change employers does not constitute evidence of misappropriation.

Slip op. at 13.

The opinion is available here.