Opinion
D071671
02-22-2018
AUTHORIZED CITY TOWING, Plaintiff and Appellant, v. TEGSCO, LLC, Defendant and Respondent.
Webb & Carey, Patrick D. Webb for Plaintiff and Appellant. Moscone Emblidge & Otis, G. Scott Emblidge, and Matthew K. Yan for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2009-00087082-CU-BT-CTL) APPEAL from an order of the Superior Court of San Diego County, Joel M. Pressman, Judge. Reversed and remanded with directions. Webb & Carey, Patrick D. Webb for Plaintiff and Appellant. Moscone Emblidge & Otis, G. Scott Emblidge, and Matthew K. Yan for Defendant and Respondent.
Plaintiff Authorized City Towing (ACT) appeals from an order granting a motion by TEGSCO, LLC, doing business as San Francisco AutoReturn (AutoReturn) for attorney fees and costs against ACT under Civil Code section 3426.4 of the California Uniform Trade Secrets Act (§ 3426 et seq.) (UTSA). The court awarded AutoReturn attorney fees under section 3426.4 based on its finding that ACT prosecuted its misappropriation of trade secrets claim against AutoReturn in bad faith.
All subsequent statutory references are to the Civil Code unless otherwise specified.
ACT contends the fee award should be reversed because (1) the trial court failed to recognize that ACT's trade secret claims were not the same as Dispatch & Tracking Solutions, LLC's (DTS) trade secret claims that were adjudicated to have been brought in bad faith; (2) the court (Judge Pressman) erred in relying on findings made by Judge Timothy B. Taylor in an order granting summary judgment against ACT after this court reversed that order on appeal; and (3) there was insufficient evidence to support the court's finding that ACT brought its trade secret cause of action in bad faith.
We conclude the trial court based its bad faith finding on the erroneous view that ACT's trade secret claim was identical to DTS's trade secret claim. Because the court did not recognize that ACT's cause of action for misappropriation of trade secrets was based, in part, on technology that was not a basis for DTS's trade secret claims, we reverse the attorney fee award against ACT with directions to reconsider AutoReturn's motion for fees based on a complete view of ACT's trade secret claims.
I.
FACTUAL AND PROCEDURAL BACKGROUND
To set forth the general background regarding the identities of the parties and the issues involved in the underlying litigation, we quote the following from our prior nonpublished opinion in this case (Dispatch & Tracking Solutions, LLC v. City of San Diego, et al. (Apr. 8, 2016, D062426)). We then set forth the relevant postjudgment factual and procedural background.
"This litigation arises out of the decision of the City of San Diego (the City) to award a competitively bid contract to provide the City a computerized system for dispatching tow trucks (the towing contract) to . . . AutoReturn . . . . In providing similar services to other municipalities, AutoReturn used tow dispatching communications software provided by . . . DTS known as Law Enforcement Towing System (LETS) and Towing Management System (TMS). AutoReturn's bid proposal to the City referenced AutoReturn's intended use of DTS's LETS/TMS software as a component of AutoReturn's own tow dispatch and impound management software package known as the AutoReturn Integrated Enterprise System (ARIES).
"[ACT] submitted a competing bid for the towing contract in which ACT also proposed using LETS/TMS. ACT had provided computerized tow dispatch services to the City using LETS/TMS before the City awarded the contract to AutoReturn. During the competitive bidding process for the towing contract, ACT informed the City and AutoReturn that it held an exclusive license to use LETS/TMS software in San Diego County. Because of ACT's exclusive license claim, after the City awarded the towing contract to AutoReturn, AutoReturn decided to replace DTS's LETS/TMS software with similar software provided by Orion Communications, Inc. (Orion). However, as a result of the present litigation, Orion decided not to work with AutoReturn in San Diego. After Orion withdrew, AutoReturn developed its own tow management software to replace the LETS/TMS component of its ARIES package.
"ACT sued the City, AutoReturn, DTS, Orion and related parties for—among other causes of action—breach of contract, intentional interference with contractual relations, intentional interference with prospective economic advantage, unfair business practices, and misappropriation of trade secrets arising out of its alleged exclusive license agreement with DTS and the City's award of the towing contract to AutoReturn. DTS filed a cross-complaint against ACT, the City, AutoReturn, and Orion. At issue in [the prior] appeal [were] DTS's cause of action under the [UTSA] (Civ. Code, § 3426 et seq.) . . . against AutoReturn, the City, and Orion and Orion's chief executive officer, Leslie DeLatte, for misappropriation of trade secrets, and a cause of action against AutoReturn for breach of a joint venture agreement.
"The trial court entered judgment against ACT and in favor of AutoReturn on ACT's operative fourth amended complaint after granting AutoReturn's motion for summary judgment on that complaint. The court also entered judgment against DTS and in favor of AutoReturn, Orion, and the City on DTS's second amended cross-complaint after granting Orion's motion for summary judgment and AutoReturn and the City's motion for summary judgment on the second amended cross-complaint. The court granted a motion by Orion for attorney fees and costs against DTS under section 3426.4 and awarded Orion fees of $120,000 based on its finding that DTS prosecuted its misappropriation of trade secrets claim against Orion in bad faith. AutoReturn and the City moved for attorney fees and costs under section 3426.4 against both ACT and DTS. The court denied the motion as to ACT on the ground it lacked jurisdiction to award fees against ACT under section 3426.4 because ACT had dismissed its trade secret cause of action. The court granted the motion as to DTS and awarded AutoReturn and the City attorney fees and costs against DTS in the amount of $450,000." (Fns. omitted.)
In the prior appeal, we affirmed the portion of the amended judgment entered on February 28, 2013, that dismissed with prejudice DTS's second amended cross-complaint (including DTS's cause of action for misappropriation of trade secrets) as to Orion, DeLatte, and the City. As to AutoReturn, we reversed the summary adjudication of DTS's cause of action for breach of joint venture agreement, but affirmed the summary adjudication of DTS's cause of action for misappropriation of trade secrets. We also affirmed the orders and portion of the judgment awarding Orion and AutoReturn attorney fees and costs under section 3426.4.
The amended judgment entered on February 28, 2013, reflects the trial court's summary judgment rulings and awards of attorney fees and costs to Orion and AutoReturn.
We reversed the portion of the amended judgment in favor of AutoReturn on ACT's fourth amended complaint and vacated the order granting AutoReturn's motion for summary judgment on that pleading. We directed the trial court to enter a new order denying AutoReturn's motion for summary judgment and alternative motion for summary adjudication as to the voluntarily dismissed 18th cause of action (and other causes of action not relevant to this appeal). We concluded the court lacked jurisdiction to summarily adjudicate ACT's 18th cause of action after ACT had voluntarily dismissed it. However, we concluded AutoReturn could seek attorney fees against ACT under section 3426.4 even though ACT had dismissed its 18th cause of action for misappropriation of trade secrets. Accordingly, we reversed the order denying AutoReturn's motion for attorney fees and costs under section 3426.4 against ACT and directed the trial court to reconsider the motion as to ACT.
Pursuant to our direction, the trial court (Judge Pressman) reconsidered AutoReturn's motion for attorney fees against ACT under section 3426.4 and awarded fees in the amount of $45,820 payable by ACT alone, and $292,468.78 payable jointly and severally by ACT and DTS, based on its finding that ACT prosecuted its misappropriation of trade secrets claim against AutoReturn in bad faith.
The court ordered the "$292,468.78 payable by ACT jointly and severally with DTS'[s] existing judgment." ACT represents in its opening brief that "[t]he joint and several award is moot for purposes of this appeal because DTS has satisfied the judgment amount."
II.
DISCUSSION
ACT contends the attorney fee award to AutoReturn against ACT should be reversed because the evidence does not support the trial court's finding that ACT brought its 18th cause of action for misappropriation of trade secrets against AutoReturn in bad faith. ACT argues the trial court based its bad faith finding on the erroneous view that ACT acted solely in concert with DTS in bringing that cause of action.
Section 3426.4 provides that "[i]f a claim of misappropriation is made in bad faith, . . . the court may award reasonable attorney's fees and costs to the prevailing party." " 'Although the Legislature has not defined "bad faith" ' for purposes of section 3426.4, 'our courts have developed a two-prong standard: (1) objective speciousness of the claim, and (2) subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose.' " (Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc. (2015) 236 Cal.App.4th 243, 260 (Cypress), quoting FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1275 (FLIR).)
"Objective speciousness is said to be present 'where the action superficially appears to have merit but there is a complete lack of evidence to support the claim.' " (Cypress, supra, 236 Cal.App.4th at p. 261.) "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 v. Rosendin Electric, Inc. (2012) 207 Cal.App.4th 837, 847.) The question of subjective bad faith " ' "involves 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?" ' " (Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal.App.4th 547, 578.)
"An award of attorney fees for bad faith constitutes a sanction [citation], and the trial court has broad discretion in ruling on sanctions motions. [Citation.] 'Assuming some evidence exists in support of the factual findings, the trial court's exercise of discretion will not be disturbed unless it exceeds the bounds of reason. [Citation.] [¶] In reviewing the facts which led the trial court to impose sanctions, we must accept the version thereof which supports the trial court's determination, and must indulge in the inferences which favor its findings.' " (Gemini Aluminum Corp. v. Cal. Custom Shapes (2002) 95 Cal.App.4th 1249, 1262-1263.)
ACT's main argument on appeal is that the trial court erred in failing to recognize that ACT's trade secret claims were not identical to DTS's trade secret claims, which the court determined were prosecuted by DTS in bad faith. ACT explains that its cause of action for misappropriation of trade secrets had two distinct bases. The first basis was that AutoReturn copied DTS's LETS/TMS software and mislabeled it as its own for purposes of the City's tow dispatching requirements. The second factual basis for ACT's misappropriation cause of action was, in ACT's words, "that AutoReturn, in the implementation of its own tow dispatching software for the City, was using, with no consent or permission from ACT, a software/hardware PRC interface module developed and owned by ACT." ACT contends that although the trial court found, and this court affirmed, that there was insufficient evidence to support the first basis for ACT's misappropriation claim, the court erred in failing to recognize that ACT had a separate trade secret claim based on AutoReturn's misappropriation of the PRC interface.
AutoReturn contends the PRC interface is irrelevant to the issue of ACT's bad faith because ACT never claimed the PRC interface was a trade secret. According to AutoReturn, ACT's trade secret claim was based solely on DTS's LETS/TMS software and was identical to DTS's baseless trade secret claim, which was adjudicated to have been brought in bad faith. AutoReturn notes that in the order granting AutoReturn's motion for attorney fees under section 3426.4, the trial court stated that ACT's cause of action for misappropriation of trade secrets "referred only to DTS software (known as LETS and TMS) and not a PRC Interface. It does not appear that ACT filed a statement identifying the PRC interface as a trade secret." AutoReturn also maintains that ACT failed to mention the PRC interface in its opposition to AutoReturn's first motion for attorney fees in 2012.
In its reply brief, ACT asserts that contrary to AutoReturn's "false assertions," ACT alleged in its fourth amended complaint that the PRC interface was a trade secret, identified the PRC interface as a trade secret in responses to AutoReturn's "trade secret" interrogatories propounded under Code of Civil Procedure section 2019.210, and referenced the PRC interface as a trade secret in its opposition to both of AutoReturn's motions for attorney fees under section 3426.4.
Our independent review of the record reveals that although ACT, in alignment with DTS, pursued its cause of action for misappropriation of trade secrets primarily on the theory that AutoReturn copied and used the LETS/TMS software, ACT additionally claimed that AutoReturn misappropriated trade secrets in the PRC interface allegedly owned by ACT.
In the general allegations of its fourth amended complaint, ACT alleged that in September 1994, it entered into a written contract with Ball Corporation (Ball) "whereunder Ball developed for, and licensed to, ACT, certain computer software intellectual property, including both copyrights and trade secrets and communication related products and services (the 'Ball Contract'). The computer software intellectual property and communications services included, but were not limited to, the installation, maintenance, and training in the use of a computer based dispatch communications system initially known as 'Message Router Data Base Query' ('MRDBQ')." The fourth amended complaint further alleged that under the Ball Contract, in exchange for money paid by a group of towing companies referred to as "the City Towers" over the term of the contract, "Ball transferred to the City Towers an exclusive license of all intellectual property rights, including both copyrights and trade secrets, in the MRDBQ technology, for use in San Diego County. Moreover, the City Towers purchased from Ball and its vendor all intellectual property rights in a PRC interface, including, but not limited to, the interface hardware and source code, between the [San Diego Police Department's] CAD[] system and MRDBQ. The City Towers own the PRC interface and all proprietary rights attendant thereto." (Italics added.)
The fourth amended complaint identifies as "the City Towers" ACT's coplaintiffs Allied Gardens Towing, Inc.; C & D Towing Specialists, Inc.; and Star Towing or Starrue, Inc.; and a nonparty entity named Anytime Towing. In the prior opinion in this case, we referred to ACT and five towing contractors it subcontracted with collectively as "ACT." We identified those five towing companies as Allied Gardens Towing, Inc.; C & D Towing Specialists, Inc.; Starrue, Inc.; Nancar, Inc.; and San Diego Police Towing Operators. We presume that actions of the City Towers alleged in the fourth amended complaint are also actions of ACT, noting that the fourth amended complaint alleges ACT and the City Towers and DTS in 2003 entered into a written extension and modification of the Ball Contract.
CAD presumably is an acronym for "computer aided dispatch."
The fourth amended complaint further alleges: "Under the terms of the Ball Contract, and in exchange for the costs of development of the MRDBQ system paid to Ball by the City Towers, ACT and the City Towers were exclusively licensed and were granted the exclusive right to use the MRDBQ software/hardware system during the term of the Tow Contracts, including, but not limited to, any extensions, renewals, hold over, or continuation of the Tow Contracts. Further, the City Towers own the PRC interface module and source code contained therein." (Italics added.) The City, including its police department and administrative personnel supervising the City's towing program, allegedly "had actual knowledge of ACT's and the City Towers' design and development of, and ACT's and the City Towers' exclusive license and rights in and to the MRDBQ computer dispatch communications and interface system and services." (Italics added.)
The fourth amended complaint alleges that MRDBQ evolved into LETS, and that after DTS became the successor to the Ball Contract, it converted a management software platform known as C.A.T.S. into TMS.
ACT's 18th cause of action for misappropriation of trade secrets begins by incorporating and realleging by reference all of the preceding allegations of the fourth amended complaint. " 'The phrase "incorporation by reference" is almost universally understood, both by lawyers and nonlawyers, to mean the inclusion, within a body of a document, of text which, although physically separate from the document, becomes as much a part of the document as if it had been typed in directly.' " (Pine Terrace Apartments, L.P. v. Windscape, LLC (2009) 170 Cal.App.4th 1, 16.) It follows that when text in one section of a document is incorporated by reference into another section of the document, the first part becomes as much a part of the latter section as if it had been typed in directly. Accordingly, the allegations regarding the PRC interface in the general allegations section of ACT's fourth amended complaint are part of the 18th cause of action for misappropriation of trade secrets.
After incorporating by reference the prior allegations of the fourth amended complaint, the 18th cause of action alleges: "Plaintiffs have spent the past 16 years researching, developing, and protecting their exclusive license in and intellectual property of the LETS and TMS computer platforms and related computer technology, including the unique system parameters and characteristics required by the City's purported exclusive towing franchise, which have been incorporated into the computer programs, methods, techniques and processes exclusively licensed to Plaintiffs. This information derives 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 has been the subject of efforts that are reasonable under the circumstances to maintain its secrecy, as defined by the [UTSA], Civil Code 3426 et seq." (First italics added.)
ACT and its coplaintiffs allegedly kept the alleged trade secret information confidential and "made reasonable efforts to maintain the confidentiality of these trade secrets and the other confidential and proprietary information and materials." AutoReturn and other named defendants allegedly "acquired ACT's and the City Towers' confidential, proprietary and trade secret information and trade secrets through improper means."
Thus, ACT's fourth amended complaint effectively alleged that ACT owned the PRC interface and that AutoReturn misappropriated ACT's trade secrets in the PRC interface. The trial court's statement in its order granting AutoReturn's motion for attorney fees that ACT's cause of action for misappropriation of trade secrets "referred only to DTS software (known as LETS and TMS) and not a PRC Interface[]" is factually incorrect.
Also factually incorrect is the trial court's statement that it did "not appear that ACT filed a statement identifying the PRC interface as a trade secret." Code of Civil Procedure section 2019.210 provides that in an action for misappropriation of a trade secret under the UTSA, "before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity . . . ." In its supplemental appellant's appendix, ACT submitted a separate statement that AutoReturn filed in 2011 in support of its motion to compel further responses from ACT to trade secret interrogatories that AutoReturn propounded under Code of Civil Procedure section 2019.210. AutoReturn's separate statement sets forth AutoReturn's special interrogatories and ACT's responses.
The court denied the motion to compel further responses on the ground it was moot in light of ACT's withdrawal of its trade secret claims.
ACT's response to an interrogatory asking it to identify every alleged trade secret it contended AutoReturn or the City misappropriated included the following language: "ACT holds, owns and maintains trade secrets in the PRC software module embodied within the San Diego Police Department's CAD systems which provides a link layer (digital pathway) between the CAD and the LETS systems, involving tow transactions . . . . [¶] ACT contends that AutoReturn has . . . misappropriated, copied, augmented, modified, and used the . . . PRC link layer."
In response to an interrogatory asking ACT when it first learned of its alleged trade secrets, ACT stated, "ACT learned of the creation of [the] PRC software link layer (digital pathway) between the CAD and LETS in or about November 1994." In another response, ACT stated that it "directly paid for the development, creation, design, testing, training, maintenance, upgrades, and/or enhancements of the MR/DBQ, PRC module, LETS and TMS systems from approximately mid-1994 through and including September 15, 2011." (Italics added.) In a response regarding AutoReturn's alleged misappropriation of trade secrets, ACT stated that AutoReturn "copied and modified ACT's PRC software module residing in CAD for the purpose of enabling AutoReturn's law enforcement tow system to access, translate and bi-directionally interface with tow related data within the CAD environment." (Italics added.) Thus, ACT clearly identified the PRC interface as a trade secret separate from DTS's LETS/TMS software in its responses to AutoReturn's trade secret interrogatories.
Regarding AutoReturn's assertion that ACT failed to mention the PRC interface in its opposition to AutoReturn's first motion for attorney fees in 2012, we note that although ACT did not specifically rely on the PRC interface in its opposition memorandum of points and authorities, its 2012 opposition papers included the same declaration by director and former president of ACT, William Cary Shultz, that it submitted in opposition to AutoReturn's 2016 motion for attorney fees. Shultz's declarations identified the PRC interface as a misappropriated trade secret. After averring that Ball agreed to design and develop the MRDBQ system for ACT from scratch and that the system would be proprietary to ACT as a protectable intellectual property and trade secret for ACT's exclusive use in San Diego County, Shultz stated: "The interface component of the MRDBQ system was known as the 'PRC Interface,' which was, as I understand it, a piece of hardware which 'plugs into' the CAD system enabling MRDBQ to cull out tow dispatching data entered by officers in the field initiating tow requests. ACT purchased the PRC Interface from a separate software/hardware designer. ACT purchased the PRC Interface module and all intellectual property rights in the PRC Interface, including, but not limited to, the actual one-off interface hardware and source code. Such a module has not been designed before or since for the purpose of interfacing between the [San Diego Police Department's] CAD and MRDBQ/LETS. The PRC Interface was still residing in the [San Diego Police Department's] CAD at the time of the transition from ACT dispatching and AutoReturn dispatching. It is my understanding that the PRC Interface was still in use at the time AutoReturn actually commenced the dispatching of tows using their 'newly developed' dispatching system."
In its respondent's brief, AutoReturn contends that the Shultz declaration "is the only piece of evidence ever submitted by ACT relating to the 'PRC interface,' and it was written four years after ACT dismissed its trade secret claim against AutoReturn." However, AutoReturn's own respondent's appendix and ACT's supplemental appellant's appendix both contain a 2012 Schulz declaration that is identical to his 2016 declaration and states that it was executed on December 10, 2012. According to AutoReturn's table of contents, Shultz's 2012 declaration was filed on December 10, 2012. According to ACT's table of contents, the declaration was filed on September 10, 2012.
Shultz further averred that "[a]lthough ACT owned the PRC Interface and all proprietary rights attendant thereto, AutoReturn never obtained authorization from ACT to use the PRC Interface. . . . ACT and each of its members, including me, always harbored a reasonable and good faith belief that ACT owned all trade secrets relating to the PRC Interface and owned protectable intellectual and proprietary property rights in and to the MRDBQ (the predecessor to the renamed and enhanced version of MRDBQ known as LETS . . . .)." Shultz stated that "the entire point of [his] declaration [was] to demonstrate that ACT had a reasonable and good faith belief, and still does, that ACT had sufficient rights in and to the LETS/TMS system to bring a cause of action for AutoReturn's misappropriation of the PRC Interface . . . and for the bidding of the LETS/TMS products to the City of San Diego at a time when AutoReturn had no license granted to it by DTS and without any authority from ACT, as the exclusive licensee."
It is puzzling that ACT did not rely on its claim that the PRC interface was a trade secret in its memorandum of points and authorities in opposition to AutoReturn's 2012 motion for attorney fees under section 3426.4. ACT cited the Shultz declaration in its points and authorities only as support for the general assertion that it objectively and subjectively believed its exclusive license rights in the LETS/TMS software supported its trade secret claims. ACT's failure to focus on the PRC interface in opposing AutoReturn's 2012 motion for fees may be due to the fact that ACT opposed the motion mainly on procedural grounds, arguing, among other things, that its dismissal of its 18th cause of action deprived the court of the power to determine whether it brought that cause of action in bad faith. In any event, notwithstanding ACT's failure to focus on the PRC interface as basis for its trade secret cause of action in 2012, the record shows that ACT effectively raised the issue of AutoReturn's alleged misappropriation of an alleged trade secret in the PRC interface.
In arguing in 2012 that it should not bear any attorney fees in connection with AutoReturn's defense against DTS's cross-complaint and AutoReturn's multiple discovery disputes with DTS, ACT distinguished its trade secret claim from DTS's trade secret claim as follows: "The court has recognized that Plaintiffs' misappropriation claim differs from DTS's misappropriation claim. The facts and legal theory giving rise to these[] parties' respective claims are readily distinguishable. Plaintiffs brought their claim under a theory of the exclusive license which should have prevented AutoReturn from offering the LETS/TMS products to the City when AutoReturn had no license to do so; whereas, DTS, as the owner of the software, claimed that AutoReturn pirated its software for the development of the AutoReturn dispatching system. [AutoReturn] defended the claims differently and distinctly, challenging Plaintiffs' standing to assert a misappropriation claim. There is no common ground or overlap in AutoReturn's defense of the differently alleged claims." In short, ACT cited the fact that ACT was an exclusive licensee of LETS/TMS whereas DTS owned LETS/TMS as the principal difference between its misappropriation cause of action and DTS's. ACT did not mention the PRC interface in its attempt to distinguish its trade secret cause of action from DTS's.
AutoReturn argues that the issue of ACT's bad faith has already been adjudicated against ACT, noting that in the 2012 order granting AutoReturn's motion for attorney fees under section 3426.4 against DTS, Judge Taylor stated: "As indicated [by the court's rulings on the motions for summary judgment on ACT's fourth amended complaint and DTS's cross-complaint], ACT's and DTS's decision to drag City and AutoReturn into the case was made without any admissible evidence (as opposed to rumor, suspicion, and speculation) of any wrongdoing by City and AutoReturn, and thus [was] objectively unreasonable and in bad faith." AutoReturn contends that because ACT's trade secret claims were identical to DTS's trade secret claims and this court affirmed the award of attorney fees under section 3426.4 against DTS, the speciousness of ACT's trade secret claims is undisputed.
In granting AutoReturn's 2016 motion for an award of attorney fees under section 3426.4 against ACT, Judge Pressman noted Judge Taylor's finding that "the misappropriation claim made by ACT and DTS was 'objectively unreasonable and in bad faith.' " Judge Pressman further noted that this court "upheld Judge Taylor's determination as to DTS on both objective speciousness and subjective bad faith." AutoReturn contends this court's reversal of Judge Taylor's decision to summarily adjudicate ACT's cause of action for misappropriation of trade secrets did not repudiate Judge Taylor's fact findings or bar Judge Pressman from later adopting those findings.
Judge Taylor's finding that ACT and DTS prosecuted their trade secret claims in bad faith is irrelevant to the issue of whether ACT had a good faith belief that its alleged PRC interface was a trade secret that AutoReturn misappropriated. Judge Taylor did not actually rule on the issue of ACT's bad faith because he believed he lacked jurisdiction to do so. In any event, his determination that DTS's and ACT's trade secret claims lacked merit and were pursued in bad faith was based on his view that LETS/TMS was the sole basis for both DTS's and ACT's trade secret claims; there is no indication he considered ACT's alleged PRC interface as a separate basis for ACT's cause of action for misappropriation of trade secrets. As AutoReturn acknowledges in its respondent's brief, "Judge Taylor's [ruling on AutoReturn's 2012 motion for attorney fees] included a lengthy summary of the facts of the case and the parties' arguments. The opinion makes repeated reference to LETS and TMS, and no reference to any 'PRC interface.' "
Because the trial court (Judge Pressman) incorrectly found that the PRC interface was not a component of ACT's cause of action for misappropriation of trade secrets, the court did not consider the PRC interface in deciding whether ACT brought that cause of action in bad faith. When the trial court's findings supporting its ruling on a motion are based on an incorrect inquiry or factual predicate, the appropriate remedy on appeal is to remand the matter for a new hearing on the motion with directions to the trial court to make the necessary factual findings. (People v. Jenkins (2004) 119 Cal.App.4th 368, 374-375 [remand for a new hearing required where court granted motion to suppress evidence on basis that officers lacked reasonable suspicion defendant committed a crime but proper inquiry was whether encounter was consensual under the totality of the circumstances]; Linton v. Desoto Cab Co., Inc. (2017) 15 Cal.App.5th 1208, 1218, 1225-1226 [reversal and remand required for proper weighing and analysis of the evidence under the correct factors where trial court applied the wrong test in deciding whether taxicab driver was employee or independent contractor].) Further, when the trial court fails to consider an appropriate factor in making a ruling, remand is required if we are unable to determine how the trial court would have ruled had it applied the correct factor. (See Brown v. Superior Court (2004) 116 Cal.App.4th 320, 337 [remand appropriate where appellate court could not determine how court would have ruled on judgment creditor's application for judgment proceeds had it considered all relevant circumstances].)
Here, the trial court based its finding of bad faith on an erroneous view of the trade secrets forming the basis of ACT's 18th cause of action for misappropriation of trade secrets. Because we cannot determine how the trial court would have ruled on AutoReturn's motion for attorney fees under section 3426.4 had it considered the PRC interface as a basis for ACT's misappropriation of trade secret claim, we remand the matter for the court to redetermine whether ACT prosecuted its 18th cause of action in bad faith, taking into consideration that ACT's trade secret claim was based in part on ACT's ownership of the PRC interface alleged in paragraph Nos. 21 and 22 of its fourth amended complaint and identified in its above-noted answers to AutoReturn's trade secret interrogatories.
ACT's failure to actively pursue its claim that AutoReturn misappropriated trade secrets in the PRC interface is a factor the court may consider in determining whether the PRC interface component of ACT's trade secret cause of action supports a finding that ACT prosecuted the cause of action in good faith. --------
Remand is also appropriate because ACT's claim that AutoReturn misappropriated trade secrets in using the PRC raises a number of issues of fact regarding AutoReturn motion for attorney fees under section 3426.4—e.g., does the PRC interface qualify as a trade secret? If so, was there sufficient evidence to support findings that ACT reasonably believed it was a trade secret and that it had been misappropriated? Such factual issues are more appropriately decided by the trial court than by the reviewing court. (Tupman v. Haberkern (1929) 208 Cal. 256, 262-263 ["[I]t is the province of the trial court to decide questions of fact and of the appellate court to decide questions of law . . . ."]; In re Zeth S. (2003) 31 Cal.4th 396, 405.)
DISPOSITION
The November 1, 2016 order granting AutoReturn's motion for attorney fees under section 3426.4 against ACT is reversed and the matter is remanded with directions to reconsider the motion, taking into consideration that ACT's trade secret claim was based in part on ACT's ownership of the PRC interface alleged in paragraph Nos. 21 and 22 of its fourth amended complaint. ACT is awarded its costs on appeal.
IRION, J. WE CONCUR: BENKE, Acting P. J. NARES, J.