Angelica Textile Services v. Park: Employer Could State Non-Trade Secret Claims Against Former Officer

In Angelica Textile Services, Inc. v. Park (10/15/13) --- Cal.App.4th ---, an employer, Angelica, sued a former officer, Park, and his new employer for misappropriating trade secrets, violating the Unfair Competition Law (Cal. Bus. & Prof. Code 17200), interfering with business relationships, breaching his employment contract, converting documents, and breaching his fiduciary duties. Angelica alleged that Park disparaged it to a local bank and, in negotiating new contracts with two of its large customers, gave the customers cancellation rights that are not customary in the industry and that permitted those customers to shortly thereafter take their business to Park's new employer.

Before trial, the court dismissed Angelica's claims, other than its claim for violation of the Uniform Trade Secret Act (UTSA). Cal. Civil Code section 3426 et seq. The Court found that all non-UTSA claims were based on the alleged misappropriation of trade secrets and were therefore preempted by UTSA. A jury then found for the defendants on the trade secret claim.

The Court of Appeal reversed the judgment as to the non-UTSA causes of action. It held:

The UTSA did not preempt Angelica's non-UTSA claims. Slip op. at 10-16.

Breach of contract claims, even when they are based on misappropriation or misuse of a trade secret, are not displaced by UTSA. Slip op. at 15. Angelica's breach of contract claim was not based on any misappropriation of a trade secret but on Park's violation of a noncompetition agreement and was outside the scope of UTSA displacement on that basis as well. Ibid.

Angelica's claims for breach of fiduciary duty, unfair competition, and interference with business relations also alleged Park's violation of a noncompetition agreement and were outside the scope of UTSA displacement. Slip op. at 16. Angelica's conversion claim alleged that Park took non-trade secret documents and was not displaced by the UTSA. Slip op. at 16.  

Business and Professions Code section 16600, which limits the use of non-competition agreements, "does not affect limitations on an employee's conduct or duties while employed." Slip op. at 17. As a corporate officer, Park owed Angelica "broad fiduciary duties" while employed there, and section 16600 did not apply. Ibid. 

The opinion is available here. 

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.