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Monday, August 29, 2011

NewLife Sciences v. Weinstock: Court Did Not Err in Granting Trade Secret Injunction as Discovery Sanction

In NewLife Sciences v. Weinstock (July 15, 2011) 197 Cal.App.4th 676, a medical device corporation brought a trade secret action against the device's inventor for trade secret and other claims, including an injunction to enforce a non-competition agreement. Following a number of discovery disputes, the court (Los Angeles Superior, Judge Charles F. Palmer) entered issue sanctions against the inventor. Relying on the issue sanctions, the Court later granted a preliminary injunction against the inventor, prohibiting him from competing against the corporation. After further discovery disputes, the court entered terminating sanctions.

On appeal from the order granting the order granting the preliminary injunction, the Court held that the trial court did not abuse its discretion in granting the preliminary injunction based on the issue sanctions.
Weinstock argues that the court erred in relying on the issue sanctions rather than holding a hearing to determine, without regard to the sanctions, whether the noncompete agreement was enforceable. He argues that had the court not granted the issue sanctions, it would have determined that the noncompete clause was invalid and unenforceable and would have found that NLS did not demonstrate a probability of success on the merits. Essentially, Weinstock argues that the court should have ignored the issue sanctions and determined the issues anew. This misunderstands the nature of issue sanctions. Such sanctions for discovery abuse may be proper even when inconsistent evidence is available, leaving the jury with a misimpression as to actual facts, because the sanctions “effectively remove[ ] from the jury's consideration evidence favorable to the offending party's position, or ... deem [ ] issues in favor of the aggrieved party even though the offending party has strong evidence to the contrary. Such is the natural consequence of serious discovery violations.” (Karlsson v. Ford Motor Co., supra, 140 Cal.App.4th at 1220, fn. 11, 45 Cal.Rptr.3d 265.) The court did not abuse its discretion in relying on the issue sanctions in granting the preliminary injunction.
The issue sanctions established that Weinstock knowingly breached his employment contract, including the noncompete clause, and engaged in unfair competition; that the employment contract and the noncompete clause were enforceable; that Weinstock used the TMR machine in doing so, and without the proper supervision of a physician; and that NLS suffered damages. These issues having been deemed determined against Weinstock, the court was entitled to consider them in determining NLS's likelihood of success. Given that the determined issues virtually assured that NLS would prevail at trial, there was a very strong showing of likelihood of success on its claim that Weinstock had violated the enforceable noncompete clause and had used the TMR device in doing so, to the detriment of NLS.
Slip op. at 10.

The opinion is available here.

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