Opinion
B158352
7-14-2003
HARDIES KORN KETTLE, INC., Plaintiff and Appellant, v. METROVOX SNACKS, et al., Defendants and Respondents.
Greenberg Traurig, Diana P. Scott and Michelle Lee Flores, for Plaintiff and Appellant. Kulik, Gottesman & Mouton, Glen L. Kulik and Philip M.W. Pailey, Jr., for Defendants and Respondents.
INTRODUCTION
Parties
Plaintiff/appellant, Hardies Korn Kettle, Inc. ("HKK"), is a California corporation whose business activities include the manufacturing, distribution, and sale of coated food products including "premier gourmet popcorn."
Defendant, George Compton ("Compton"), worked for HKK as a salesman. Compton is not a party to this appeal nor a participating defendant in the trial before Judge Birney. Compton was dismissed from the action prior to commencement of the trial.
Defendant/respondent Metrovox Snacks is a California limited liability company ("Metrovox"). Metrovox does business as "Snack Works."
Defendant/respondent Metropolitan Provisions is a California limited liability company ("Metropolitan"). Metropolitan does business as "Metropolitan Concessions."
Defendant/respondent Paul Voxland ("Voxland") is the chairman of Metrovox. Voxland has been engaged in the business of manufacturing candy coated popcorn since 1987, which includes approximately 60 different flavors of gourmet popcorn.
Defendant/respondent Rory Ritts ("Ritts") is a person experienced in sales and marketing of specialty food products. For the time frames pertinent to this litigation, Ritts was employed by Metrovox as a sales employee.
For convenience, respondents will be hereafter referred to collectively as "Metrovox" unless context requires otherwise.
Dispute Summarized
HKK maintains that it was "lured" by Metrovox "into handing over its client list" which Metrovox then used as the basis for introducing Metrovox as a joint venturer with HKK as HKKs new marketing arm focusing on customer service and product development. HKK alleges that a course of conduct by Metrovox then ensued which resulted in a complete usurpation of HKKs loyal client base to the advantage of Metrovox and the detriment of HKK. HKK further maintains that it was compelled to protect its interests and did so by filing a complaint containing causes of action for restraint of trade, statutory and common law misappropriation of trade secrets, interference with economic relationships, trade libel and breach of contract.
Judgment in the trial court favored Metrovox, following the grant of a motion for nonsuit on certain causes of action and special verdicts by the jury on questions submitted to it for decision. A post judgment motion for attorneys fees resulted in an award of $ 133,811 to Metrovox. HKK complains on appeal that both the judgment and the award of attorneys fees constituted reversible error.
Issues Presented
In urging reversible error by the trial court, HKK presents six issues on appeal in the form of interrogatories and contends that each question must be affirmatively answered in its favor. The six questions are repeated verbatim from HKKs opening brief as follows:
"1. Did the Superior Court err in granting a nonsuit as to the intentional interference with economic relationships (intentional interference) where the evidence presented by Plaintiff was sufficient as a matter of law to establish a prima facie case of intentional interference against Defendants?
"2. Did the Superior Court err in granting a nonsuit as to the negligent interference with economic relationships (negligent interference) where the evidence presented by Plaintiff was sufficient as a matter of law to establish a prima facie case of negligent interference against Defendants?
"3. Did the Superior Court exceed the bounds of reason in awarding attorneys fees when it considered all of Plaintiffs claims in evaluating its purported bad faith?
"4. Did the Superior Court exceed the bounds of reason in awarding attorneys fees when it failed to find subjective bad faith by Plaintiff?
"5. Did the Superior Court exceed the bounds of reason in awarding attorneys fees when it assertedly found objective speciousness in light of submission of Plaintiffs claim to the jury?
"6. Did the Superior Court exceed the bounds of reason in awarding attorneys fees when its award of fees was based on an arbitrary calculation that did not apportion the fees for the misappropriation claim?" (Original italics.)
FACTUAL AND PROCEDURAL SYNOPSIS
Business history of HKK.
In 1990, HKKs president, George Hardie ("Hardie"), purchased an ongoing business from a partnership originally called Nut Kettle. The purchase included recipes for premium popcorn and client lists of the seller. Hardie maintains that the client lists and recipes are confidential, proprietary and constitute trade secrets. From 1990 to mid-1997, HKK cultivated the existing client base by manufacturing and selling its premium popcorn under its own label and also for customers who wanted the popcorn sold under their own private labels. Hardie admits that over the years it has proved challenging to turn a profit but Hardie believed in his "exemplary product" and continued to explore ways to make HKK a profitable enterprise.
Joint venture relationship with Metrovox.
Ritts approached Hardie in the summer or early fall of 1997 with a proposal to handle HKKs marketing and sales. Ritts was successful in obtaining the agreement of Hardie to a six-month trial period during which the client lists of HKK would be utilized by Metrovox to increase sales to existing clients, reestablish business with former clients and develop new clients. The agreement was memorialized in a Letter of Understanding on October 29, 1997, which Ritts signed as national sales manager of Metrovox Snacks utilizing its letterhead. Hardie hoped to secure additional sales from existing private label accounts, improve marketing, and increase sales volume by reestablishing old private label clients as current business acquaintances. At trial, Hardie testified to his aspirations by stating: "We thought this was an opportunity to, you know, have a lot of the problems that we had had in selling handled for [Hardies]."
HKK provided Metrovox with contact information about HKKs existing clients for implementation of the letter of understanding. An additional reason for providing contact information was Hardies understanding that HKK would be supplying Metrovox with popcorn products for Metrovox to sell under its own label.
Implementation of joint venture agreement by HKK.
After the letter of understanding was signed HKK took the following measures: sent letters to its private label customers dated November 1, 1997, apprising customers of the details of the joint venture arrangement utilizing the letterhead "Hardies Korn Kettle" and generally expressing optimism and the mutual benefits that were expected from the venture; provided Metrovox with HKKs entire customer list, including private label clients which revealed the identities of 30 to 40 accounts, including the accounts of Jacobsons and Harris Teeter; and provided all of HKKs client information.
The letter agreement was apparently initialed by Hardie as evidenced by certain delineations on the letter in evidence as exhibit 5; the initials appear in two places and legibility presents a problem but we infer them to be "G.G.H." standing for the initials of "George G. Hardie."
Purported unfair competition by Metrovox.
HKK maintains that Metrovox began to engage in unfair competition within a few months of receipt of HKKs customer lists by the following conduct: secretly hired one Steven Turner, a popcorn engineer, in an attempt to duplicate HKKs recipes for premium gourmet popcorn varieties, including its three top sellers, i.e., Kettle Korn Krunch, Chocolate Pecan and Golden Butter Nut; Voxland represented to Steven Turner that HKK was going out of business and thus the need to copy HKKs recipes so that Metrovox could continue to sell HKKs product after HKK went out of business; provided Steven Turner with packaged samples of HKKs three top varieties containing labels reflecting ingredients; upon the engineers encountering difficulty in recreating the recipes, Metrovox somehow acquired the specific brands and types of ingredients for HKKs three top sellers and provided the information to Steven Turner which HKK alleges could only be found in its confidential recipes; received orders from HKKs private label customers, notably Harris Teeter and Jacobsons; unilaterally terminated HKKs business relationship with Harris Teeter by contacting food broker Gennie Tull and stating that Metrovox would no longer accept orders from Harris Teeter resulting in the elimination of a longstanding business relationship with HKK by reason of Harris Teeters inability to purchase HKKs gourmet popcorn since Metrovox was HKKs contact and product supplier; and initiated the phasing out of HKKs product and simultaneously packaging and selling Metrovoxs product to Jacobsons as though the product was that of HKK, without informing HKK or Jacobsons.
HKKs efforts to cover its losses.
In late 1998 HKK attempted to cover its losses by reacquiring the business of Jacobsons and Harris Teeter. Pertaining to Jacobsons, the following occurred: attempts were made to recapture lost business but Jacobsons took the position that it could not reaffiliate with HKK until the contract with its current vendor and supplier expired. Being unsuccessful in acquiring the name of the current vendor and supplier for Jacobsons, HKK eventually discovered that the exclusive vendor and supplier for Jacobsons was Metrovox (Metrovox Snacks.) The discovery was made by HKK in January 2002 through HKKs then food broker, Peter Wykoff, who so advised HKK. HKK then acquired the current food pricing of Metrovox and provided limited product to Jacobsons in 2002. As to Harris Teeter, a momentary reacquisition of the account by HKK occurred but HKK was never able to recapture the account as an ongoing business client. HKK further maintains: it never stopped producing popcorn from 1997 to the present time, nor did HKK suffer any production problems; HKK never closed nor intended to close its business of manufacturing premium glazed popcorn.
Respondents case.
HKK was a struggling business; manufacture and sale of expensive gourmet popcorn had a very limited market; HKK lost money every year since its founding in 1990; by 1997 HKK was insolvent and never turned a profit; HKK remained in operation by reason of the infusion of personal funds from Hardie; HKK hired and fired a large number of employees who failed to sell its product in significant quantities; by 1997 HKK fired its entire sales staff except for one employee who was also gone by the end of 1997; HKK decided to outsource it sales efforts to sell to certain customers; a contract with Metrovox was entered into on a trial basis to sell HKKs popcorn for a six month period to HKKs two remaining private label customers; Metrovox is a small company which is also engaged in the manufacture and sale of gourmet food products; Metrovox salesman, Ritts, made extensive efforts to find new private label customers for HKK but was not successful just as the sales staff at HKK was never successful because no real market for expensive gourmet popcorn ever existed; HKK presented additional problems in that financial problems prevented the timely manufacture and delivery of product; in July 1998 HKK ceased communicating with Metrovox and no one at HKK was able to be reached; Metrovox believed that HKK had stopped production and was out of business; Metrovox was surprised by the commencement of HKKs lawsuit two years later because there was never any indication that HKK was unhappy with the arrangement; no evidence existed that products sold by Metrovox after 1998 were identical or even similar to HKKs recipes or that such recipes were in its possession or that the formulas were used in any way; no evidence indicated when or how Magnavox acquired such formulas; with relative ease the formulas could be reverse engineered by accessing the labels on HKKs products displaying the ingredients or by consulting popular books at the library or book stores; Metrovox and other competitors had previously sold the same basic products; in this relatively small industry, location and compilation of potential lists of customers was readily available at trade shows; and no evidence existed demonstrating that HKK ever made a profit on its product or that Metrovox ever made a profit under the joint venture agreement, thus leading to the conclusion that no damages were ever suffered by HKK.
Proceedings in the trial court.
At the completion of HKKs case in chief, Metrovox filed its written motion for nonsuit pursuant to Code of Civil Procedure section 581c seeking dismissal of all defendants and all causes of action. HKK responded with written opposition. The trial court heard oral argument and by minute order dated February 20, 2002, granted the motion as to Metropolitan and on the first and sixth causes of action (Restraint of Trade and Trade Libel) but denied as to Voxland and the second, third, fourth and fifth causes of action. The court also denied HKKs motion to amend the complaint to add a cause of action for fraud.
Unless otherwise indicated, all statutory references are to the Code of Civil Procedure.
Section 581c provides in relevant part: "(a) Only after, and not before, the plaintiff has completed his or her opening statement, or after the presentation of his or her evidence in a trial by jury, the defendant, without waiving his or her right to offer evidence in the event the motion is not granted, may move for a judgment of nonsuit." (Emphasis added.)
After Metrovox completed its case in chief and rested, Metrovox filed a written motion for directed verdict pursuant to section 630. HKK filed written opposition. The court heard the matter and declared that it believed it was in error in denying the prior motion of Metrovox for non-suit and now granted the motion. The judgment of nonsuit filed April 8, 2002, reflects the courts change of ruling on the prior motion for nonsuit. The courts reconsideration occurred during the hearing on the motion for directed verdict by Metrovox with the court declaring on the record that it was applying the nonsuit standard. Judgment of nonsuit was subsequently filed on April 8, 2002 as follows:
Section 630 provides in pertinent part: "(a) . . . after all parties have completed the presentation of all of their evidence in a trial by jury, any party may, without waiving his or her right to trial by jury in the event the motion is not granted, move for an order directing entry of a verdict in its favor. [P] (b) If it appears that the evidence presented supports the granting of the motion as to some, but not all, of the issues involved in the action, the court shall grant the motion as to those issues and the action shall proceed on any remaining issues. Despite the granting of such a motion, no final judgment shall be entered prior to the termination of the action, but the final judgment, in addition to any matter determined in the trial, shall reflect the verdict ordered by the court as determined by the motion for directed verdict."
HKK expresses frustration with the courts change of its prior ruling, but does not challenge the right of the court to thus change its mind. In its change of prior ruling the court stated, on its own volition and without detailed analysis in its explanation, that it "believedd [it was] in error in denying the motion." The court further stated that ". . . I have reviewed and thought over and pondered what I formerly done, [sic] so I am re-opening relative — the motion for nonsuit relative to negligent interference with economic relations and intentional interference with economic relations. [P] I have gone over and over the evidence as carefully as I can and listened to the arguments on both sides, which are extensive, and I find that I was I believe in error in denying the motion for nonsuit on those two causes of action. I hereby grant the motion for nonsuit on those two causes of action. [P] Furthermore, I again reviewed the arguments relative to holding in the individual defendant Paul Voxland, and I conclude I was in error in denying the motion for nonsuit in connection with Voxland, and I do so now." (See Darling, Hall & Rae v. Kritt (1999) 75 Cal.App.4th 1148, 1155-1157.)
"After reviewing the papers filed by the parties and considering the oral argument of counsel, and good cause appearing, it is hereby ordered, adjudged, and decreed as follows:
"1. Judgment is hereby entered in favor of Metropolitan as to each cause of action and said defendant is hereby dismissed from the action;
"2. Judgment is hereby entered in favor of Voxland as to each cause of action and said defendant is hereby dismissed from the action;
"3. Judgment is hereby entered in favor of defendants and each of them on the first cause of action in the complaint for restraint of trade, violation of Section 16720 of the Business and Professions Code;
"4. Judgment is hereby entered in favor of defendants and each of them on the fourth cause of action for intentional interference with economic relationship;
"5. Judgment is hereby entered in favor of defendants and each of them on the fifth cause of action for negligent interference with economic relationship;
"6. Judgment is hereby entered in favor of defendants and each of them on the sixth cause of action in the complaint for trade libel;
"7. Paragraph 2 of the prayer, for exemplary and punitive damages, is stricken; and
"8. Metropolitan and Voxland shall recover their costs of suit in the sum of $ ."
The trade secrets and contract claims were then submitted to the jury which returned a unanimous verdict in favor of Metrovox and Ritts. A statutory award for attorneys fees on the trade secrets claim was subsequently entered by the court on the grounds that the claim was specious and maintained in bad faith by HHK after a certain date.
HKK filed a timely notice of appeal.
DISCUSSION
Nonsuit rulings; standard of appellate review.
The first two issues raised by HKK on appeal deal with the propriety of the trial courts judgment granting Metrovoxs motions for nonsuit on HKKs causes of action for intentional interference and negligent interference with economic relationships. We first examine the standard of review to be applied in determining whether reversible error was committed by the trial court. The law is well settled and the litigants are not in dispute as to the legal principles to be applied. The legal principles and citations to decisions set forth in HKKs opening brief are accurate, objective and without challenge from Metrovox. We adopt the principles and citations in full as reflective of the standard of review to be employed by this court in reaching a decision on the first two issues raised by HKK. Those principles and citations are as follows:
"On appeal from a judgment of nonsuit, a reviewing court is governed by the same standard as the trial court, thereby requiring evaluation of the evidence in the light most favorable to the plaintiff[. (Carson v. Facilities Develop. Co. (1984) 36 Cal.3d 830, 839, 206 Cal. Rptr. 136, 686 P.2d 656.)] Evidence most favorable to the plaintiff must be accepted as true and conflicting evidence must be disregarded. [(Id. at p. 838.)] The court may not weigh the evidence or consider the credibility of witnesses. [(Ibid.; see also, Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1065; CC-California Plaza Assocs. v. Paller & Goldstein (1996) 51 Cal.App.4th 1042, 1050.)]
"`A nonsuit in a jury case or a directed verdict may be granted only when disregarding conflicting evidence, giving the plaintiffs evidence all the value to which it is legally entitled, and indulging every legitimate inference which may be drawn from the evidence in the plaintiffs favor, it can be said that there is no evidence to support a jury verdict in their favor. [(Elmore v. American Motors Corp. (1969) 70 Cal.2d 578, 583, 75 Cal. Rptr. 652, 451 P.2d 84; Alpert v. Villa Romano Homeowners Assn. (2000) 81 Cal.App.4th 1320, 1328.)] Put another way, a nonsuit as to a cause of action is proper only where plaintiff fails to prove a prima facie case as to the cause of action. [(Abreu v. Svenhards Swedish Bakery (1989) 208 Cal. App. 3d 1446, 1456-1457, 257 Cal. Rptr. 26.)]
"The reasonable inferences to support plaintiffs prima facie case need not be the only possible inferences, need not be the strongest nor the most believable, as long as there is enough to provide some substance to plaintiffs evidence upon which reasonable minds could differ. [(Carson, supra, 36 Cal.3d at p. 838.)] Thus, an appeals court shall sustain a nonsuit on appeal only where interpreting the evidence most favorably to plaintiffs case and most strongly against the defendant and resolving all presumptions, inferences and doubts in favor of the plaintiff a judgment for the defendant is required as a matter of law. [(Carson, supra, 36 Cal.3d at p. 839; Galanek v. Wismar (1999) 68 Cal.App.4th 1417, 1424.)]
"A nonsuit will be reversed if there is some substance to plaintiffs evidence upon which reasonable minds could differ[,] but will not be reversed if plaintiffs proof raises nothing more than speculation, suspicion, or conjecture. [(Carson, supra, 36 Cal.3d at p. 839.)]
"Since the jury will not have the opportunity to consider a cause of action when a nonsuit is granted, courts traditionally have taken a very restrictive view of the circumstances under which nonsuit is proper. [(Campbell v. General Motors Corp. (1982) 32 Cal.3d 112, 118, 184 Cal. Rptr. 891, 649 P.2d 224.)]"
Nonsuit on the "intentional interference with economic relationships" cause of action was proper.
Metrovox adopts the elements set forth by HKK in HKKs opening brief as being an accurate statement of the law on the cause of action for "intentional interference with economic relationships." The elements of such a claim are:
(1) a valid contract between the plaintiff and a third party;
(2) defendants knowledge of this contract;
(3) defendants intentional acts designed to induce a breach or disruption of the contractual relationship;
(4) actual breach or disruption of the contractual relationship; and
(5) damages to the plaintiff proximately caused by the acts of the defendant. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126, 270 Cal. Rptr. 1, 791 P.2d 587.)
The Achilles Heel of HKKs cause of action for "intentional interference" is failure of proof of damages as required by the fifth element set forth supra. It is clear that the damages element in this context is a claim to lost profits. (Ramona Manor Convalescent Hosp. v. Care Enterprises (1986) 177 Cal. App. 3d 1120, 1138, 225 Cal. Rptr. 120.) As explained by noted writer B.E. Witkin, "If a wrongful act causes the loss of a business, its value may be determine by capitalizing the past profits. Thus, in Elsbach v. Mulligan (1943) 58 [Cal.App.2d 354, 365,] defendant, by misrepresentations and threats, procured the cancellation of plaintiffs sales agencies and obtained them for himself. The court awarded damages consisting of plaintiffs average yearly profits ($ 6,000), capitalized on the basis of a 5-year purchase, or a total of $ 30,000. (Citation.) [P] Where the plaintiff is unable to establish his lost profits with certainty, recovery may be based on proof of the actual profits received by the defendant tortfeasor. (See Ramona Manor Convalescent Hosp. v. Care Enterprise[, supra,] 177 [Cal.App.3d 1120, 1140].)" (6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 1440, p. 914.)
We now focus our attention on the meaning of "profits" and find the term to mean a loss of net profits and not just a loss of gross revenue. (See Kids Universe v. In2Labs (2002) 95 Cal.App.4th 870, 884; Gerwin v. Southeastern Cal. Assn. of Seventh Day Adventists (1971) 14 Cal. App. 3d 209, 222-223, 92 Cal. Rptr. 111.) The courts have further defined net profits as "the gains made from sales after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed." (Ibid.; Kids Universe v. In2Labs, supra, 95 Cal.App.4th at p. 884; Resort Video, Ltd. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1700.) Further, "lost anticipated profits cannot be recovered if it is uncertain whether any profit would have been derived at all from the proposed undertaking." (S.C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, 535.)
The sufficiency of HKKs proof as to damages is to be examined in the light of the testimony of its expert, Ted Vavoulis. We note that the testimony of this expert constituted the only evidence presented by HKK on the subject. Vavoulis testified as to his method of calculating lost profits as follows:
"What I did was to look at the memo of understanding, the agreement between the defendants in this case and Hardies, to determine what the sales would have been based on what the defendants represented as what they could do for Hardies. [P] I looked at those sales and determined from those sales how much of that money would have been a gross profit to Hardies." But a careful reading of page 2 of the letter of understanding clearly indicates that the representations of Ritts on behalf of Metrovox are cast in terms of "goals" and not guarantees or some other concrete and specific method of calculating damages. Page 2 of the letter of understanding contains the following statement by Ritts: "My immediate goal is to develop $ 20,000/month for November and December 97, and at least $ 60,000/month for all of 1998." (Emphasis added.)
Thus, the record on appeal is devoid of any profit being realized by either HKK or Metrovox on the subject enterprise constituting the joint venture. The cause of action for "intentional interference" must fail for this reason alone and the ruling on the motion for nonsuit is found to be error free.
We find it unnecessary to address HKKs remaining contentions on the issue of intentional interference in view of our holding that the cause of action fails as a matter of law for failure of proof of the fifth element, i.e., "damages."
Nonsuit on the "negligent interference" cause of action was proper.
After expressing skepticism concerning the legal viability of HKKs cause of action for negligent interference with economic relationships in California, Metrovox seems to assume for the sake of argument that even if such a controversial claim were to be recognized, the elements set forth by HHK in its opening brief must fail for want of proof. Metrovox repeats those element, six in number, as follows:
Metrovox spars with HKK in its opening brief concerning the exact nature of the cause of action being asserted by HKK. Metrovox maintains that there is no recognized cause of action for negligent interference with the performance of existing contracts in California, citing Fifield Manor v. Finston (1960) 54 Cal.2d 632, 636, 7 Cal. Rptr. 377, 354 P.2d 1073 in support of its position but concedes the existence of a cause of action for the tort of negligent interference with prospective business advantage and relies on Jaire Corp. v. Gregory (1979) 24 Cal.3d 799, 157 Cal. Rptr. 407, 598 P.2d 60in support of its conclusion. Metrovox contends that if this court considers the tort of negligent interference with prospective economic advantage, it should have leave to file additional "papers" to fully brief an issue not raised by HKK in its opening brief. This court sees no necessity to involve itself to referee this sparing match in view of our holding that the element of damages would have to be proved in any event, and as held in this opinion, no damages by way of evidence are extant in this case. Accordingly, Metrovoxs request to file further "papers" is denied.
(1) A valid contract between plaintiff and a third party;
(2) defendant knew or should have known of the relationship;
(3) defendant was negligent, in that it failed to exercise due care;
(4) defendant owes plaintiff a duty of care;
(5) actual breach or disruption of the contractual relationship; and
(6) resulting damage.
We gravitate to element number six pertaining to the existence of resulting damage. No reason appears to repeat our holding as to lack of evidence to prove lost profits in finding that the cause of action for intentional interference with economic relationships must fail as a matter of law. Whether the cause of action for negligent interference with economic relationships exists or doesnt exist is overshadowed by the fact that "loss of profits" would have to be proved as an essential element. As stated supra, the record is devoid of evidence of lost profits. For the reasons previously stated, the cause of action must similarly fail as a matter of law for failure of proof of resultant damages. The trial court was correct in granting Metrovoxs motion for nonsuit on HHKs cause of action for negligent interference with economic relationships.
The attorneys fees award.
Following the jury verdict and the judgment entered thereon, Metrovox filed a written motion for attorneys fees pursuant to Civil Code section 3426.4. HKK filed written opposition. A written reply was filed by Metrovox, followed by further written, supplemental opposition by HKK. The matter was heard on April 25, 2002, wherein the trial court granted the motion for attorneys fees in the amount of $ 133,811.
HKKs motion to tax costs was also heard and denied on April 25, 2002. Total costs in the sum of $ 15,502 were allowed to Metrovox. The propriety and/or the amount of the "costs" award are not issues raised in the appeal.
Standard of review.
Civil Code section 3426.4 provides: "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 attorneys fees to the prevailing party." From the face of the statute it is conspicuous that the trial court is to exercise its discretion in awarding such fees. Otherwise the legislature would not have used the words "may" and "reasonable" in authorizing such an award under the statute. As stated in West Coast Development v. Reed (1992) 2 Cal.App.4th 693, 697-698, in the context of sanctions imposed under section 128.5 for bad faith tactics: "This is, then, principally a review of the evidence supporting the trial judges determination. Thus, we search for substantial evidence in support of the courts implied findings. Assuming some evidence exists in support of the factual findings, the trial courts exercise of discretion will not be disturbed unless it exceeds the bounds of reason." (Citations omitted.)
We note that there is a dearth of authority on the interpretation of Civil Code section 3426.4. as it pertains to an award of attorneys fees. Both Counsel have directed our attention to the only case on the subject, i.e. Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249. The court noted that the Uniform Trades Secrets Act ("UTSA") does not define "bad faith" as used in Civil Code section 3426.4 and the appellate court was unable to locate any California decisions interpreting the term. The Gemini court relied on a federal decision entitled Stilwell Development v. Chen (C.D.Cal. 1989) 1989 U.S. Dist. LEXIS 5971, 11 U.S.P.Q.2d 1328 in coming to the conclusion that "bad faith" under Civil Code section 3426.4 required the presence of objective speciousness of the plaintiffs claim and plaintiffs subjective misconduct in bringing or maintaining a claim for misappropriation of trade secrets. The Gemini court rejected the argument that the standard set forth in section 128.5 as to "bad faith" should apply in interpreting Civil Code section 3426.4, for the reason that, unlike section 128.5, Civil Code section 3426.4 contains no reference to the word "frivolous." The reasoning of the Gemini court was as follows:
"Gemini challenges the propriety of the attorney fees award to CCS. The court relied on section 3426.4, a provision of the Uniform Trade Secrets Act (UTSA) ( § 3426 et seq.), which provides: 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 attorneys fees to the prevailing party.
"The UTSA does not define bad faith as used in section 3426.4, and apparently there is no reported California case interpreting the term. In Stilwell Development, Inc. v. Chen (C.D.Cal. Apr. 25, 1989, No. CV86 4487 GHK) 1989 U.S. Dist. LEXIS 5971 (Stilwell ), a federal court noted the legislative history of section 3426.4 shows it is intended to "allow[] a court to award reasonable attorney fees to a prevailing party in specified circumstances as a deterrent to specious claims of misappropriation . . . ." [Citation.] (Stilwell, supra, 1989 U.S. Dist. LEXIS 5971 at p. 9, italics added.) The court concluded that as to deterrence, . . . it requires conduct more culpable than mere negligence. To be deterrable, conduct must be at least reckless or grossly negligent, if not intentional and willful. Websters defines specious as, among other things, "apparently right or proper: superficially fair, just, or correct but not so in reality . . . ." [Citation.] Thus, the claim must have been without substance in reality, if not frivolous. (Ibid. , citing Websters 3d New Internat. Dict. (1986) p. 1287.)
"The Stilwell court interpreted bad faith under section 3426.4 to require objective speciousness of the plaintiffs claim and its subjective misconduct in bringing or maintaining a claim for misappropriation of trade secrets. (Stilwell, supra, 1989 U.S. Dist. LEXIS 5971, accord, Alamar Biosciences, Inc. v. Difco Laboratories, Inc. (E.D.Cal. Feb. 23, 1996, No. CIV S 94 1856 DFL PAN) 1996 U.S. Dist. LEXIS 18239 (Alamar); VSL Corporation v. General Technologies, Inc. (N.D.Cal. Jan. 5, 1998, No. C 96 20446 RMW(PVT)) 1998 U.S. Dist. LEXIS 7377.) The court awarded attorney fees in Stilwell, finding that as to the objective component, the plaintiffs produced no evidence of confidentiality of the information or misappropriation. As to the subjective component, the court inferred from the complete failure of proof that the plaintiffs must have knowingly and intentionally prosecuted a specious claim. (Stilwell, supra, 1989 U.S. Dist. LEXIS 5971.)
"Gemini contends that in interpreting section 3426.4, we should apply the standard of Code of Civil Procedure section 128.5, subdivision (a), which provides: Every trial court may order a party, the partys attorney or both to pay any reasonable expenses, including attorneys fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay. Whether an action is frivolous under Code of Civil Procedure section 128.5 is governed by an objective standard: Any reasonable attorney would agree it is totally and completely without merit. [Citation.] But there must also be a showing of an improper purpose, i.e., subjective bad faith on the part of the attorney or party to be sanctioned. [Citation.] (In re Marriage of Reese & Guy (1999) 73 Cal.App.4th 1214, 1220-1221 .)
"Unlike Code of Civil Procedure section 128.5, subdivision (a), however, section 3426.4 does not contain the word frivolous. Moreover, in enacting section 3426.4 the Legislature was concerned with curbing specious actions for misappropriation of trade secrets, and such actions may superficially appear to have merit. We find Stilwell persuasive and conclude that bad faith for purposes of section 3426.4 requires objective speciousness of the plaintiffs claim, as opposed to frivolousness, and its subjective bad faith in bringing or maintaining the claim." (Gemini Aluminum Corp. v. California Custom Shapes, Inc., supra, 95 Cal.App.4th at pp. 1261-1262.)
We find the reasoning of the Gemini court to be persuasive on the point and we accordingly adopt the standard set forth in Gemini that "bad faith" for purposes of Civil Code section 3426.4 requires objective speciousness of the plaintiffs claim and the plaintiffs subjective bad faith in bringing or maintaining the claim. The judgment of the trial court in awarding attorneys fees under Civil Code section 3426.4 is supported by substantial evidence and the law and we find that the trial court was free from error in considering and awarding such fees.
Refusal to apportion was not error.
The claim of Metrovox for attorneys fees totaled $ 220,385. The court awarded fees in the amount of $ 133,811 derived from the period November 2001 through February 2002. HKK maintains it was arbitrary and unreasonable for the court to award all fees requested for this period of time because the fees incurred by defense counsel occurred during the last four months in which litigation costs were the heaviest and included litigating all seven causes of action instead of a single cause of action for misappropriation. HKK opines that only one-seventh of the sum requested should have been allowed or the sum of $ 31,483.57. Failure to apportion, argues HKK, was an act exceeding the bounds of reason.
HKK does not challenge the legitimacy of the amount of fees requested by Metrovox, but only the trial courts refusal to apportion the fee request to a single cause of action arising from the "misappropriation" claim.
Metrovox responds by relying on the recent California decision in Akins v. Enterprise Rent-a-Car (2000) 79 Cal.App.4th 1127, where the court states at page 1133: "When a cause of action for which attorney fees are provided by statute is joined with other causes of action for which attorney fees are not permitted, the prevailing party may recover only on the statutory cause of action. However, the joinder of causes of action should not dilute the right to attorney fees. Such fees need not be apportioned when incurred for representation of an issue common to both a cause of action for which fees are permitted and for which they are not. All expenses incurred on the common issues qualify for an award. [Citation.] When the liability issues are so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not, then allocation is not required." (Emphasis added.) Metrovox also relies on the California Supreme Court decision in Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130, 158 Cal. Rptr. 1, 599 P.2d 83 teaching that "Attorneys fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which the fees are proper and one in which they are not allowed."
We are persuaded that the allowance of attorneys fees in this instance was well within reason and no abuse of discretion occurred. The core theme of all causes of actions contained in HKKs complaint as analyzed by Metrovox is that Metrovox "stole HKKs trade secrets, used the trade secrets to copy HKKs popcorn, and stole HKKs customer accounts by selling them what they thought was HKK popcorn." The award of $ 133,811 was not erroneous.
Misappropriation claim was objectively and subjectively specious.
We now address HKKs contentions that the cause of action for misappropriation was free of speciousness, both objectively and subjectively.
For the meaning of "specious" we look to the definition provided by the Gemini court, i.e., ". . . that the claim was seemingly just or fair, but not so in reality." (Gemini, supra, 95 Cal.App.4th at p. 1261.)
We once again gravitate to the complete failure of HKKs proof with respect to the elements of damages in finding that HKK was objectively and subjectively in bad faith for pursuing the misappropriation claim against Metrovox. The court focused its analysis on two letters in reaching its determination that HKKs claims were specious and in bad faith. In looking at two letters from Magnavox, the court stated that the letters are ". . . very strong in attempting in a straightforward way [to] bring it to the attention of the plaintiffs[] counsel that you do not have. . . a case here."
The letter of attorney Glen L. Kulik states in relevant part: ". . . I see very little evidence of any potential liability in this case. I see even less evidence of any appreciable damage. . . . In the final analysis, HKK was a financially losing venture before the Metrovox relationship, during the brief duration of that relationship, and in the nearly three and a half years since the relationship ended. No matter how good the product, there does not appear to be much profit in selling gourmet popcorn products. We recognize Mr. Hardie has ample resources with which to pursue this action whether or not it has any merit. We certainly hope, however, upon further reflection, he will conclude there are better things to do with his time and money. . . ."
In a follow up letter dated January 28, 2002, attorney Kulik stated in relevant portions thereof as follows: "I am disappointed you (and your client) did not show the courtesy of responding to our settlement offer. As I stated then, and repeat now, I see very little evidence of any potential wrongdoing and I see absolutely no evidence of damage. Your client has not made one dime of profit in this business in nearly 12 years, either before, during, or after its relationship with Metrovox . . . I can only surmise Mr. Hardie is trying to recoup from my client 12 years of consistent losses in this failed business endeavor. This case is, in my view, so specious that I am telling you and Mr. Hardie flat out that if the defendants prevail in this case, they will be filing an action for malicious prosecution given the serious damage that has been caused to them. . . ." (Emphasis added.)
The court revealed its thinking on the speciousness of HKKs action by stating that at least a few months before trial, "I feel the plaintiffs should have done the analysis that told them what the jury told them and what I told them in dismissing five causes of action and individuals."
The court did not err in finding HKKs claim for misappropriation under the UTSA to be objectively and subjectively specious and in bad faith.
DISPOSITION
The judgment is affirmed. Respondents to recover costs on appeal.
We concur: PERLUSS, P.J., and JOHNSON, J.