Sixth District Applies Gemini/Stilwell Bad Faith Test in Two Unpublished Companion Decisions.
In our March 3, 2009 post on K.C. Multimedia, Inc. v. Bank of America Technology & Operations, we discussed a Sixth District Court of Appeal decision that affirmed a $1,114,930 attorney’s fees under Civil Code section 3426.4. That provision authorizes a discretionary award of attorney’s fees against a litigant bringing a misappropriation claim in bad faith. The Sixth District also affirmed two hefty section 3426.4 fee awards in the next companion decisions that we discuss.
In Augeas Corp. v. Brown, Case Nos. H031275 & H032082 (6th Dist. May 21, 2009) (unpublished), the Sixth District sustained a fee award of $194,990.25 (full amount requested) against Augeas, while it affirmed another fee award of $100,000 (out of a requested $114,317.85) against Augeas in Augeas Corp. v. Krupski, Case Nos. H031423 & H032156 (6th Dist. May 21, 2009) (unpublished).
One defendant (Mr. Brown) was an employee of an outside fuel/lubricant manufacturer using Augeas to perform state-required environmental investigation at its various properties, while the other defendants were former employees of Augeas who started and worked for a competing business called Allterra Environmental. Mr. Brown moved for summary judgment against Augeas’ various trade secret misappropriation, interference, and other contractual/tort claims, with the trial court basically finding that Augeas had submitted no admissible opposing evidence to support its case. The former employees fully defeated their former employer after a bench trial, successfully fending off trade secret misappropriation, interference, breach of loyalty, and other associated contractual/tort claims. With respect to the misappropriation claims in both suits, the lower court concluded that no trade secrets were involved because Augeas had to file reports with public agencies that contained its client information and a description of the company’s services—meaning that the information was available to the public (and, hence, not secret). The merits judgments were upheld on appeal after Augeas sought review of both the merits and fee rulings.
With respect to the fee awards, the Sixth District—in two 3-0 decisions authored by Presiding Justice Rushing—found them fully justifiable under section 3426.4. The appellate court utilized the “bad faith” test formulated in Stilwell Development, Inc. v. Chen, 1989 U.S. Dist. LEXIS 5971 (C.D.Cal. Apr. 25, 1989), which was adopted in both Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1261-1262 (2002) and Yield Dynamics, Inc. v. TEA Systems Corporation, 154 Cal.App.4th 547, 578 (2007). Under this test, the fee claimant must show the objective speciousness of the plaintiff’s claim and plaintiff’s subjective bad faith in bringing or maintaining the claim (similar to the elements of a malicious prosecution claim). Justice Rushing had no difficulty concluding that both prongs were met, because (1) the information at issue was available to the public and not secret in nature, and (2) subjective bad faith could be inferred from the objective speciousness of Augeas’s claims.
Although not as steep as the fee award affirmed in K.C. Multimedia, Augeas still was hit with almost a $300,000 fee exposure in the two cases, with the Sixth District demonstrating that it will affirm awards that are sustainable under section 3426.4.