Opinion
G062212
04-30-2024
BROKER SOLUTIONS, INC., Plaintiff and Respondent, v. ABRAHAM PINA, Defendant and Appellant.
Brower Law Group, Steven Brower and Lee K. Fink for Defendant and Appellant. Abel Law Offices, Joshua H. Abel and Evan M. Rothman for Plaintiff and Respondent.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County, No. 30-2019-01108310 Nathan T. Vu, Judge. Affirmed. The request to augment the record is granted.
Brower Law Group, Steven Brower and Lee K. Fink for Defendant and Appellant.
Abel Law Offices, Joshua H. Abel and Evan M. Rothman for Plaintiff and Respondent.
OPINION
SANCHEZ, J.
A defendant who prevails in a claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act (Civ. Code § 3426 et seq.; UTSA) may recover attorney fees if the court finds the claim was made in bad faith. (Civ. Code, § 3426.4.) Bad faith under the UTSA has been interpreted to have both an objective component of "objective speciousness" and a subjective component meaning the trade secrets claim was commenced or continued for an improper purpose. Both objective speciousness and subjective bad faith are required to recover attorney fees under the UTSA. (SASCO v. Rosendin Electric, Inc. (2012) 207 Cal.App.4th 837, 845, 847 (SASCO).)
All further statutory references are to the Civil Code unless otherwise stated.
The issue presented in this case is whether the trial court abused its discretion in denying a motion by defendant Abraham Pina to recover attorney fees pursuant to section 3426.4 against plaintiff Broker Solutions, Inc., doing business as New American Funding (NAF). NAF brought a misappropriation of trade secrets claim under the UTSA against Pina and 10 other defendants, who are not parties to this appeal. After several years of bitter discovery disputes, NAF dismissed Pina from the lawsuit. Pina, as the prevailing party in a UTSA action, moved to recover attorney fees under section 3426.4. The trial court denied Pina's motion on the ground he had failed to show either objective or subjective bad faith on the part of NAF. Pina timely appealed. For the reasons stated below, we affirm the order.
The record contains evidence supporting the trial court's finding that Pina failed to show objective speciousness. Pina essentially admitted he took NAF's customer lists that were not generally available and held economic value. Because Pina failed to show objective speciousness, his claim for attorney fees fails, and we need not address whether NAF acted with subjective bad faith.
FACTS AND PROCEDURAL HISTORY
I. Background Facts
NAF is a mortgage lending company in Southern California. NAF employs loan originators, loan origination support staff, production managers and branch managers, all of whom have the primary task of originating loans to homebuyers.
NAF hired Pina as a production assistant in December 2014. When hired by NAF, Pina agreed to maintain NAF's confidential information in confidence, not to solicit NAF customers, not to sell, publish, or disclose confidential information, and, upon ending employment, to deliver to NAF all work-related material within his control. Confidentiality provisions appear in the offer of employment made to Pina and in NAF's technology and privacy policy. NAF's employee handbook, which Pina acknowledged receiving, defined unacceptable conduct to include "'[g]iving confidential or proprietary Company information to competitors or other organizations,'" and "'[f]ailing to maintain the confidentiality of Company records, work product, assigned passwords, customers' or clients' information.'"
In April 2017, Pina signed NAF's equipment protection agreement, in which Pina agreed to comply with NAF's confidential information policies and safety guidelines. When Pina became an originating loan agent in September 2017, he entered into a loan originator agreement with NAF. Pursuant to that agreement, Pina agreed "to treat, and maintain as confidential, confidential company information, trade secrets, or proprietary data which Employee learns of or has access to during Employee's employment with Company." As required by the loan originator agreement, Pina signed a nondisclosure agreement further restricting his use or dissemination of NAF's confidential information.
Pina resigned from NAF effective April 30, 2019, and went to work for defendant Western Express Lending (Western Express). At about the same time, other employees also left NAF and went to work for Western Express. NAF sent Pina paperwork to confirm his resignation as well as his agreement to "protect, keep confidential and refrain from using, all trade secret, confidential and proprietary information of which [Pina] became aware during [his] employment." Such confidential information was defined to include customer lists, customer contact, financial, and personal information, and work product created or produced by Pina or anybody else at NAF.
After Pina resigned, NAF searched its system and found e-mails Pina had sent from his NAF e-mail account to his personal e-mail account in the days leading to his resignation. These e-mails attached spreadsheets and other information, including customer lists containing the names, phone numbers and e-mail addresses of existing and past NAF customers as well as individuals who were interested in or in the process of borrowing from NAF. NAF found similar e-mails from the other employees who had resigned. NAF discovered that more than 50 of NAF's former customers had taken out loans with Western Express.
II. NAF's Complaint and Identification of Trade Secrets
NAF initiated this lawsuit in October 2019 by filing a complaint asserting 12 causes of action. The primary claim, and the most relevant here, was the cause of action for misappropriation of trade secrets under the UTSA. NAF alleged that Western Express and its agents "targeted" NAF; actively encouraged the NAF ex-employees to divulge NAF's confidential and proprietary information to Western Express; solicited NAF employees to work for Western Express; the NAF ex-employees accessed NAF's confidential and proprietary information and disclosed it to Western Express; and that all ex-employees used NAF's confidential and proprietary information to compete with NAF.
In its designation of trade secrets, NAF identified eight categories: (1) "NAF loan files that have been input into NAF's BankerView or Encompass system;" (2) NAF loan files for borrowers and/or potential borrowers [who] have undergone a credit check;" (3) "Lists of borrowers or potential borrowers [who] have attempted to purchase and/or refinance loans with NAF;" (4) "Lists of borrowers and potential borrowers in the Southern California region that include such borrowers' contact information, including email addresses and telephone numbers;" (5) "Lists of NAF's vendors in . . . Southern California;" (6) "Mortgage loan forms developed by NAF and used by NAF's borrowers and potential borrowers, including, without limitation, loan applications, new loan checklists, new loan information sheets, needs list for borrowers, template letters for borrowers and sellers, payment calculator forms, income worksheets, consent forms, authorization forms, underwriting guidelines, NAF's policies and procedures, and job aid Documents;" (7) "Marketing materials developed by NAF intended for use in direct and indirect marketing to existing and potential borrowers, including, without limitation: [P]ower[P]oint presentations, flyers and flyer templates;" and (8) "Employment applications and other onboarding documents and forms developed and used by NAF."
III. Motion for Judgment on the Pleadings
In January 2022, Pina moved for judgment on the pleadings of NAF's cause of action for misappropriation of trade secrets. Pina argued that NAF's loan files, lists of borrowers and potential borrowers, list of vendors, and application and marketing materials were not protectible trade secrets. NAF opposed the motion.
The trial court denied Pina's motion for judgment on the pleadings. The court found: "The Complaint alleges sufficient facts to support [NAF]'s ownership of a trade secret. [NAF's] Identification of Trade Secrets includes, among other things, client lists." Because the court found at least one trade secret (the customer lists), it did not address whether the other alleged trade secrets were protectible.
On July 6, 2022, NAF filed a request for dismissal without prejudice of Pina. NAF later asserted its decision to dismiss Pina "was motivated, in large part, by the fact that Pina was the lone Defendant represented by [Attorney Steven Brower], who had been a persistent obstacle to discovery and civil dialogue amongst counsel in this case." Although NAF believed Pina had some liability, NAF also believed "it was better to get [Brower] out of the case, [than] to continue to pursue its claims against Pina."
The discovery process in this matter was protracted and acrimonious. NAF and defendants had so many discovery disputes that a discovery referee's report filed in July of 2021 noted that as of October 19, 2020, NAF had brought five discovery motions against 10 parties (50 motions total) and defendants intended to bring six discovery motions. In a June 2022 report the discovery referee expressed concern over evidence of a PowerPoint presentation which Brower had given to its then client, Western Express, in June 2022. One slide in that presentation proclaimed that Brower had "frustrated NAF for over a year." The discovery referee found that boast to be "disturbing." Pina requests we take judicial notice of a minute order entered in the trial court on November 21, 2022, that confirms another recommendation of the discovery referee. The correct way to make this order part of the appellate record is by a motion to augment the record, not a request for judicial notice, because it is a "document filed or lodged in the case in superior court" before entry of the order that is the subject of this appeal. (Cal. Rules of Court, rule 8.155(a)(1)(A); see Starr v. Ashbrook (2023) 87 Cal.App.5th 999, 1013-1014.) We therefore treat the request for judicial notice as a motion to augment the record and as such grant the motion. (Starr, at p. 1014.)
IV. Pina's Motion for Attorney Fees
In September 2022, Pina filed his motion pursuant to section 3426.4 for attorney fees and costs against NAF. Pina sought a total of $594,185.70 in costs and attorney fees. NAF opposed the motion. In opposition to the motion, NAF submitted a declaration from its counsel, Evan Rothman, and a declaration from its Chief Operating Officer, Christy Bunce.
In November 2022, the trial court issued an order denying Pina's motion for attorney fees and costs. The court concluded that Pina had failed to show that NAF's trade secret claim was objectively specious or brought and maintained in bad faith. The court found that NAF had submitted evidence showing Pina, before his resignation from NAF, had sent to his personal e-mail account "various spreadsheets and other information, including client lists containing the names and contact information of existing and past customers of Plaintiff, as well as individuals who were interested in or in the process of borrowing from Plaintiff." The court also found that NAF had submitted evidence showing it had taken the necessary steps to keep its trade secret information confidential. The court declined to infer subjective bad faith from the absence of evidence supporting NAF's trade secret claim or from NAF having brought a number of claims against Pina.
DISCUSSION
I. Law Regarding Recovery of Attorney Fees Under the UTSA
Civil Code section 3426.4, which governs awards of attorney fees under the UTSA, states in relevant part: "'If a claim of [trade secret] misappropriation is made in bad faith, . . . the court may award reasonable attorney's fees and costs to the prevailing party.'" (SASCO, supra, 207 Cal.App.4th at pp. 844-845.) The UTSA does not define the term bad faith as used in section 3426.2. (SASCO, at p. 845.) Courts have filled the gap by defining bad faith under section 3426.2 as consisting of two parts: (1) the
"'objective speciousness of the plaintiff's claim'" and (2) the plaintiff's "'subjective bad faith in bringing or maintaining the claim.'" (SASCO, at p. 845.) Both objective speciousness and subjective bad faith are required to recover attorney fees under the UTSA. (Id. at p. 847.)
A UTSA action is objectively specious if "the action superficially appears to have merit but there is a complete lack of evidence to support the claim." (FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1276; see SASCO, supra, 207 Cal.App.4th at p. 848-849 [objective speciousness shown by complete lack of evidence supporting claim under UTSA].)
"Subjective bad faith under section 3426.4 means the action was commenced or continued for an improper purpose, such as harassment, delay, or to thwart competition." (SASCO, supra, 207 Cal.App.4th at p. 847.) A determination of subjective bad faith requires "'a factual inquiry into the plaintiff's subjective state of mind [citations]: Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it?'" (Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249, 1263.) We review the court's denial of attorney fees for abuse of discretion. (SASCO, supra, 207 Cal.App.4th at p. 845.)
II. The Trial Court Did Not Err by Finding Pina Failed to Show Objective Speciousness
A. NAF Produced Evidence Supporting Its Misappropriation of Trade Secrets Claim
To prove misappropriation of a trade secret, a plaintiff must establish the following elements: (1) possession by the plaintiff of a trade secret; (2) the defendant's misappropriation of the trade secret, meaning its wrongful acquisition, disclosure, or use; (3) resulting harm to the plaintiff or unjust enrichment of the defendant, and (4) the defendant's acquisition, use, or disclosure of the trade secret was a substantial factor in causing" that harm or unjust enrichment. (AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 942.)
1. NAF produced evidence that its customer lists were trade secrets
As to the first element, NAF identifies customer lists and loan files as the NAF trade secrets misappropriated by Pina. The trial court limited its decision to customer lists, and so shall we. NAF's designation of trade secrets limits customer lists to "[l]ists of borrowers or potential borrowers [who] have attempted to purchase and/or refinance loans with NAF" and "[l]ists of borrowers and potential borrowers in the Southern California region that include such borrowers' contact information, including email addresses and telephone numbers."
The UTSA defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that: [¶] (1) [d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and [¶] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." (§ 3426.1, subd. (d).)
A customer list is a trade secret where the list is not generally available in public sources and has economic value. (Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1521-1522 (Morlife) [customer list available only to the employer and those employees to whom the employer disclosed the list was a protectible trade secret]; see Courtesy Temporary Service, Inc. v. Camacho (1990) 222 Cal.App.3d 1278, 1287 [customer list was trade secret because it "was the result of lengthy and expensive efforts"]; American Credit Indemnity Co. v. Sacks (1989) 213 Cal.App.3d 622, 630-631 [insurer's customer list constituted a trade secret under the UTSA].) "[A] customer list can be found to have economic value because its disclosure would allow a competitor to direct its sales efforts to those customers who have already shown a willingness to use a unique type of service or product as opposed to a list of people who only might be interested. [Citation.] Its use enables the former employee 'to solicit both more selectively and more effectively.'" (Morlife, supra, 56 Cal.App.4th at p. 1522.)
There is evidence in the record to support the claim that NAF's customer lists are trade secrets with economic value. The customer lists included customers' telephone numbers and e-mail addresses, as well as credit scores in some cases, and details about the various types of loans the customers had and the rates they paid. Pina acknowledged such information was not readily ascertainable from public records. He also testified that NAF's pricing information "on what it might cost a borrower to do a loan through [NAF] versus what it might cost [with] someone else" was private and confidential.
The customer lists had economic value because they were comprised of people who had shown a willingness to use specific products-mortgage loans-offered by NAF. The economic value of NAF's customer is demonstrated by Pina's own deposition testimony that he saved the customer information lists on a computer and at some point "contacted a lot of them because of the refinance . . . boom."
NAF made reasonable efforts to maintain the secrecy of its customer lists. When hired by NAF, Pina entered into the loan originator agreement, by which he agreed "to treat, and maintain as confidential, confidential company information, trade secrets, or proprietary data" which he learned of or had access to while employed at NAF. The loan originator agreement defines confidential company information and trade secrets to include "customer, client, supplier or vendor information." Pina was presented with NAF's employee handbook, which defined unacceptable employee conduct to include "[f]ailing to maintain the confidentiality of Company records, work product, assigned passwords, customers' or clients' information." When Pina resigned from NAF, he was sent paperwork to confirm he would continue to protect and maintain the confidentiality of NAF's confidential information and trade secrets. These were all reasonable steps to ensure the protection of NAF's trade secrets during and after Pina's employment with NAF. (Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1454 ["Requiring employees to sign confidentiality agreements is a reasonable step to ensure secrecy"]; Morlife, supra, 56 Cal.App.4th at p. 1521 [employment agreement and employee handbook were reasonable efforts to ensure secrecy of customer list].)
Pina argues the steps taken by NAF to protect its customers lists were undertaken to meet regulatory guidelines to protect the security and confidentiality of consumer records. Pina cites no authority to suggest that measures undertaken to comply with regulatory requirements cannot also constitute steps taken to ensure the protection of trade secrets. In her declaration, Bunce describes the steps undertaken by NAF "[i]n order to protect its confidential / trade secret information." The trial court is the sole judge of the credibility of witnesses testifying by declaration. (Cornerstone Realty Advisors, LLC v. Summit Healthcare REIT, Inc. (2020) 56 Cal.App.5th 771, 804-805.) The trial court, by citing the declaration of Bunce in its order denying Pina's motion for attorney fees, implicitly found her to be credible.
2. NAF produced evidence that Pina misappropriated its customer lists
As to element two, the record contains evidence that Pina misappropriated NAF's customer lists. Bunce declared: "Following Pina's resignation, NAF searched its system and uncovered emails that Pina had sent from his NAF email account to his personal email account in the days leading up to his resignation. These emails included spreadsheets and other information, including client lists containing, among other things, the names, phone numbers and email addresses of existing and past NAF customers as well as individuals who were interested in or in the process of borrowing from NAF. NAF found similar emails for other defendants in this action."
Pina did not deny taking the customer lists. He testified during his deposition he believed he "own[ed]" the information about the customers he had found on behalf of NAF. However, under California law, the fruits of an employee's labor, including customer lists, belong to the employer. (Lab. Code, § 2860; see Morlife, supra, 56 Cal.App.4th at p. 1526.)
3. NAF produced evidence it suffered harm or Pina was unjustly enriched
As to element three, NAF produced some evidence it suffered damages or Pina was unjustly enriched from the alleged misappropriation of its customer lists. Bunce declared that after discovering the e-mails NAF conducted an investigation to determine whether Pina and the other ex-employees had used NAF trade secret information to divert customers to Western Express. Bunce declared: "NAF discovered, by reviewing various resources, that more than 50 of NAF's former customers had taken out loans with Western Express in the months surrounding [Pina's] resignations from NAF."
Pina testified he contacted many of the names on the customer lists about refinancing. When asked if he had prepared any loans for people on the lists, Pina replied, "It's probable. I don't remember." He then testified to at least two loan case numbers transferred from NAF to Western Express. Accordingly, there was evidence to support all elements of a misappropriation claim, and thus the claim was not objectively specious. Because it was not objectively specious, we need not address whether the misappropriation of trade secrets claim was brought in bad faith.
At page 40 of the respondent's brief, NAF asserts that "[d]ocuments produced by [Western Express] and publicly available records confirm that Pina closed loans with at least eight of NAF's borrowers shortly after leaving NAF for [Western Express]." In support of that proposition, NAF cites to its opposition to Pina's motion for attorney fees, which does not cite to any evidence.
DISPOSITION
The order denying Pina's motion for attorney fees is affirmed. NAF shall recover costs on appeal.
WE CONCUR: GOETHALS, ACTING P. J. MOTOIKE, J.