Objective Speciousness of Claim Results From Lack of Evidence – Plaintiff’s Belief That Claim Might Be Supported Doesn’t Cut the Mustard
Under California Civil Code section 3426.4, “[if] a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees and costs to the prevailing party.” And under the applicable case law, “bad faith” in connection with a trade secrets claim has both an “objective” and a “subjective” prong. The claim must be “objectively specious” and brought in “subjective bad faith.” In our next case, the trial court found objective speciousness and subjective bad faith on the part of Plaintiff SASCO, who sued a competitor and individual defendants alleging misappropriation of trade secrets and related torts. The trial judge awarded $484,943.46 in fees and costs. Plaintiff appealed. SASCO v. Rosendin Electric, Inc., et al., Case No. G045229 (4th Dist. Div. 3 July 11, 2012) (Ikola, J., author) (certified for publication).
Because the finding of “subjective bad faith” was not contested on appeal, the case hinged on the meaning of “objective speciousness.” “Objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim.” FLIR Systems, 174 Cal.App.4th 1270, 1276 (2009).
Plaintiff argued, by analogy to the sanction statute, Code of Civ. Proc. section 128.7, that it didn’t need actual evidence of misappropriation, just a reasonable basis for believing that, after a reasonable opportunity to investigate, it could support its contentions with evidence. The Court of Appeal, however, concluded that section 128.7 did not provide the legal standard, Civ. Code section 3426.4 and case law provided the standard. Therefore, merely suspecting trade secrets misappropriation is not enough to defeat objective speciousness. Instead, one needs facts.
It does not follow that bringing a trade secrets claim upon a suspicion of misappropriation alone, without hard facts, will necessarily subject one to attorney’s fees if one loses. There is still the subjective bad faith prong, which was not at issue in this appeal, because Plaintiff did not contest the finding of subjective bad bath.
Still, the case is a wake-up call to do due diligence and plead facts of misappropriation, rather than plead upon information and belief – as Plaintiff had apparently pleaded its misappropriation claim in this case.