Trade Secrets Disclosures

Coast Hematology Oncology Assocs. Med. Grp., Inc. v, Long Beach Mem. Med. Cntr., No. B297984 (D2d8 Dec. 15, 2020)

Code of Civil Procedure § 2019.210 requires a plaintiff alleging misappropriation of trade secrets to identify the trade secrets at issue with reasonable particularity. As the Court explains, it is meant to address a problem intrinsic to trade secret litigation. 

Like all intellectual property, trade secrets are intangible. But unlike the other common forms of IP—patents, copyrights, trademarks—the nature of a trade secret is almost never defined in any objective way prior to litigation. Which motivates plaintiffs bringing trade secrets claims to define their secrets expansively. As Justice Wiley puts it: “When you define the proposed boundaries of your own property, and when exclusion is valuable, and when litigation is intense, human nature prompts us to ask for more, not less, and to ask for it in a vague and all-encompassing way.”

So to push back on that temptation, § 2019.210 requires a plaintiff to describe its trade secret with enough particularity to separate it “from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.’” This is supposed to happen before discovery. That’s because “[e]xperience has shown that it is easy to allege theft of trade secrets with vagueness, then take discovery into the defendants’ files, and then cleverly specify whatever happens to be there as having been trade secrets stolen from plaintiff.”

In this case, the defendant, a medical practice, allegedly used trade secrets that it gained access to while conducting diligence as part of an unconsummated effort to purchase Plaintiff, also a medical practice. By the time summary judgment came around, the case turned on two alleged trade secrets. One of them dealt with certain codes used for medical billing. The other addressed Plaintiff’s evaluation of its doctors’ productivity using an industry standard scale. The trial court granted SJ on both. The Court of Appeal agrees as to the first, but not the second.

On the codes, Plaintiff’s problem was that it never disclosed them in its § 2019.210 specification. Instead, it referenced them in a single sentence in its summary judgment opposition, where it purported to seek leave to amend its disclosure. That, however, isn’t good enough. First, summary judgment opposition is too late. Were there a reason to amend, it needed to be offered before summary judgment briefing. As the Court puts it, “[w]hat the plaintiff cannot do is to wait until the defense has loosed its arrow at the bullseye, then move the target, and finally claim victory when the defense’s arrow misses the mark.” Second, a one sentence reference in an SJ opposition is not a proper manner to seek amendment. “One may not make an important motion by adding an indefinite sentence to the middle of a summary judgment opposition.” If it wanted to amend, it should have filed an appropriate motion.

One the second secret, however, the Court reverses. It is true that the productivity scale was based on a standardized system. But that doesn’t make each doctor’s productivity score a matter of public knowledge. That information has value in recruiting, and if reasonable means are taken to keep it secret, it could satisfy the definition of a trade secret. That’s particularly the case given that the secret purportedly used was firm-wide productivity data for doctors over two years. Although defendant makes a number of arguments otherwise, the Court makes short shrift in rejecting them.

Affirmed in part.

This Was a Terrible Strategy

Malek Media Grp. v. Axqg Corp., No. B. 299743 (D2d3 Dec. 16, 2020)

After losing an arbitration about the dissolution of a partnership, Loser did a deep Internet dive on the arbitrator’s background. It discovered that, many decades ago, the arbitrator was involved with a prominent gay rights organization. According to Loser, because the case purportedly involved sexual harassment by Loser, who is purportedly Catholic, and because gay rights proponents have some kind of purported relationship to #metoo or to hostility against the Catholic church, Arbitrator should have disclosed the relationship under Code of Civil Procedure § 1281.9(a). And then this failure to disclose is purportedly a basis to vacate the arbitration.

But potential arbitrators are only required to disclose facts that would cause a disinterested, objective observe to have doubts as to the arbitrator’s impartiality. It does not require disclosure of any fact that might concern a “partisan litigant emotionally involved in the controversy.” 

The Court finds Loser’s theory here to be ridiculous. (Or, more precisely, “strained and convoluted to say the least.”) The idea that the arbitrator’s involvement, decades ago, with an organization that supported a cause, which is arguably sympathetic with a different cause espoused by different organizations, whose views, if attributed to the arbitrator, might suggest some favoritism towards sexual harassment claimants or against Catholics, in a partnership dissolution case where Loser’s alleged sexual harassment was a minor and collateral issue and his Catholicism a nonissue is the kind of chain of crazy inferences that a rational disinterested observer would not draw. Were the disclosure standard to require otherwise, it would put a bullseye on every arbitrator for post-hoc allegation of inadequate disclosure by any losing party based on facts that could not possibly be even known to the arbitrator at the time of the disclosures.

Indeed, Loser’s argument is so far off the mark that the Court of Appeal awards sanctions for filing a frivolous appeal under Code of Civil Procedure § 907, which permits a sanction when any reasonable attorney would agree that the appeal is totally and completely without merit. Here, the Court finds Loser’s appeal to be “objectively and subjectively frivolous.” It was based on a series of dots, themselves largely unsupported by the evidence, that couldn’t be connected. 

It certainly did not help that Loser absurdly sought judicial notice of entire “the #MeToo” movement. Or that his whole theory was imbued with a deplorable bigotry. As the Court explains, the “Court of Appeal is not an appropriate forum to peddle far-fetched conspiracy theories, laced with sexism and homophobia, disguised as a legitimate appeal.”

Affirmed and sanctions awarded.

Oh Yeah, Those Other Four Cases ....

Honeycutt v. JPMorgan Chase Bank, No. B281982 (D2d7 Aug. 2, 2018)

 

Potential arbitrators are required to make disclosures of potential conflicts. Many of the arbitration service providers accomplish this through a questionnaire where the arbitrator walks through a series of questions. In this case, the arbitrator’s disclosure consisted of 28 questions over 11 pages. To question 28, which asked if the arbitrator would entertain any other offers of employment from the parties while the case is pending, the arbitrator answered, “yes,” that he or she* would consider offers to serve as an arbitrator in other matters for the parties or their counsel. Unfortunately, the eleventh page of the disclosures was missing.