Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
San Mateo County Super. Ct. No. 440552
RIVERA, J.
CrossTest, Inc., (CrossTest) was a start-up company that developed a software application to test embedded software. Fabien Cappa brought an action against CrossTest and three of its officers and owners, seeking allegedly unpaid wages and asserting causes of action for violation of the minimum wage laws, unfair business practices, fraud, conversion, misappropriation of trade secrets, rescission, and declaratory relief. CrossTest cross-complained, alleging Cappa had misappropriated its trade secrets and proprietary information, including its source code, and seeking damages, restitution, and injunctive relief. After Cappa presented his evidence at trial, the court granted nonsuit on Cappa’s remaining causes of action, and the jury found in favor of CrossTest on its cause of action for misappropriation of trade secrets. The trial court awarded defendants their attorney fees. Cappa appeals, and we affirm in part and reverse in part.
Two of the officers and owners were dismissed at the beginning of trial, leaving only CrossTest and Khalid Sebti as defendants. Cappa dismissed his cause of action for misappropriation of trade secrets during trial, and he has abandoned his contention on appeal that nonsuit should not have been granted as to the fourth cause of action for conversion of wages. The eighth cause of action for declaratory relief sought a declaration that Cappa was the sole inventor of CrossTest’s software product. Cappa does not make any arguments on appeal in connection with the trial court’s grant of nonsuit on this cause of action, except to state that the cause of action is derivative of other claims, and we deem the issue abandoned.
I. Background
A. Cappa’s Involvement with CrossTest
Cappa testified that he was born and educated in France, where he achieved bachelor’s and master’s degrees in computer science. After he came to the United States in 1998, he worked at various companies. In 2002 or 2003, he met Khalid Sebti, a cofounder of CrossTest, and spoke with him and the other cofounders many times over the course of several months to discuss the possibility of joining CrossTest. Sebti told him he would “grow with the company” and gain a share of ownership in the range of 5 to 7 percent at the beginning, with the possibility of a greater share later, depending on his performance. Cappa was excited about the possible financial rewards of being involved with a start-up company from the beginning and getting shares in the company for a low price. He started working for CrossTest in approximately March 2003, and Sebti gave him an independent contractor agreement to sign (the Agreement).
The Agreement was headed “Independent Contractor Services Agreement.” The Agreement provided that “[t]he manner and means by which Contractor [Cappa] chooses to complete the Projects are in Contractor’s sole discretion and control.” An exhibit to the Agreement required Cappa and Sebti to agree on “three . . . product milestones and the timing of completion of such milestones,” and provided that stock options for 50,000 shares would vest quarterly beginning March 3, 2002, and that 20,000 shares would begin vesting quarterly on the achievement of the three milestones. The Agreement did not provide for any other compensation. It contained an integration clause stating that it was the “final, complete, and exclusive agreement of the parties . . . and supersedes and merges all prior discussions between us.”
Cappa testified that he asked Sebti why he was being treated as an independent contractor, and Sebti indicated the classification was a formality. When Cappa asked why he was receiving stock options instead of a share of ownership in the company, Sebti told him that although the options in the Agreement amounted to about 2 percent of the company, that amount could grow quickly based on Cappa’s performance. Cappa took the Agreement home; he testified variously that he had it with him for one to three days or three to five days. He read the Agreement and signed it.
Cappa testified that he expected he would begin receiving a salary when the company was able to obtain funding, and testified at his deposition that his understanding was he would be a contractor until CrossTest was funded. He understood that there was a possibility the company would never get funding.
At the time Cappa signed the Agreement, the founders had not yet decided what product CrossTest would develop, and as a result the project milestones had not yet been defined. After discussions, Sebti and Cappa agreed that the milestones would reflect Cappa’s work on the user interface for CrossTest’s product.
Cappa’s early work for CrossTest involved working on the “architecture” of the application CrossTest was developing. He also worked with other CrossTest personnel “defining presales propositions” for potential customers.
According to Cappa, Sebti expected him and the others who worked at CrossTest to be at the office not only during regular workdays but on most weekends as well and in the evening as needed. He was not free to set his own hours, and Sebti told him he could not work from home. However, he worked from his home on nights and weekends, from 10 to 30 percent of the time. For the first few months of the company’s existence, Sebti would visit each worker’s office each day, review the work each worker had done, and tell them what they should do next. There were weekly meetings at the company’s office, and everyone was expected to be on time for the meetings. Cappa was once asked to leave a meeting because he had arrived late. Sebti ran the meetings, which would begin with a review of the work everyone had done in the previous week. He would decide what everyone should work on in the following week.
By April 2003, Cappa and Sebti had decided on the three “milestones” and had estimated that it would take three months for Cappa to complete them. Sebti regularly asked Cappa to turn his attention to other matters, however, such as adding new features to satisfy potential customers and preparing sales proposals and presentations. In one instance, Cappa sent an e-mail to Sebti telling him he was willing to take charge of a sales demonstration to Cisco, but that he would need to “reshuffle what’s in my Milestones again, to take this into account.” Sebti responded that the demonstration “needs to take priority on everything else. . . . THIS IS A VERY IMPORTANT MILESTONE.” Cappa believed he did not have a choice about whether to perform the new tasks, which were not part of the original milestones. When Cappa had disagreements with Sebti about how work should be done, Sebti would tell him he was free to leave the company if he was not happy.
During his initial discussions with Sebti, Cappa told him he wanted CrossTest to sponsor him for an H-1B work visa, and Sebti agreed to do so. Cappa testified that when he and Sebti were preparing the visa application, Sebti promised that he would begin giving Cappa a salary of $48,000 a year, and a letter dated July 14, 2003, and signed by Sebti, contained in the application packet, indicated that CrossTest intended to employ Cappa on a temporary basis at an annual salary of $48,000.
Cappa received four grants of stock options, the final one on December 24, 2003, with a vesting commencement date of October 3, 2003. According to Cappa, he continued to work approximately 60 to 80 hours a week for CrossTest until March 12, 2004, but received no additional compensation for his work. While he was working with CrossTest, Cappa also worked for another company for three months, and he received unemployment benefits after his job at the other company ended.
He did not exercise any of the options.
Sebti testified that Cappa did not do much work for CrossTest between October 2003 and March 2004.
Cappa became dissatisfied at CrossTest because he was not receiving a salary and the company had not received funding, and he stopped working for the company in March 2004.
B. Causes of Action for Misappropriation
Both Cappa and CrossTest asserted causes of action for misappropriation of trade secrets, although Cappa dismissed his misappropriation claim during trial. In his cause of action, Cappa alleged CrossTest had obtained his work product and included it in CrossTest’s products through misappropriation. CrossTest in turn alleged that Cappa had taken its source code and other trade secret information without its knowledge or consent.
The Agreement contained various provisions to protect CrossTest’s interest in the products it developed. Among other things, it stated that Cappa agreed to hold CrossTest’s proprietary information in confidence and not to use it in any manner not set forth in the Agreement; that any inventions made in performing work under the Agreement would be the sole and exclusive property of CrossTest; that Cappa assigned to CrossTest all interest in the work product he had made during the course of work performed for CrossTest; and that upon request he would give CrossTest all materials containing or disclosing any client work product or proprietary information. Cappa indicated in the Agreement that he had not developed any inventions or improvements relating to CrossTest’s business before his engagement by CrossTest.
Cappa testified at trial that he understood that CrossTest took steps to protect the confidentiality of its software source code, which was its most important asset, and that the source code, technical documents, and marketing documents were proprietary information. He also understood that under the Agreement, all of the work he did for CrossTest belonged to CrossTest and that he was obliged to return all of his work product to CrossTest. Nevertheless, after he left CrossTest, he retained on his home computer information such as CrossTest’s source code, technical documents, marketing documents, and e-mails that had been exchanged within CrossTest. These documents contained highly confidential information, which was not publicly available, and which CrossTest protected in its network by “fire walls and blackboards and the like.” Cappa testified that he believed that Sebti had broken the contract and that as a result the information he had retained belonged at least in part to him.
The owner of a venture capital investment firm testified that he would hesitate to invest in a company that had an outstanding action by an independent contractor claiming an ownership interest in the company’s software. Sebti likewise testified that it was a “huge, huge risk” for venture capitalists to invest in a company when there was a dispute about who owned its intellectual property, and that as a result CrossTest was “unfundable by any venture capitalist.”
Cappa testified that he understood his claim of an ownership interest in the software made it difficult for CrossTest to get funding. According to Cappa, no one at CrossTest asked him to return the source code or marketing materials that were on his home computer until he filed his complaint, and he had not offered to sell the source code to anyone else. However, he agreed that he was claiming an ownership interest in the CrossTest software and that if anyone asked him to return the software and related documents to the company, he would refuse.
The following exchange took place during the cross-examination of Cappa: “Q. Sir, you understand, do you not, that for Crosstest to have you claiming an ownership interest in its software, makes it very difficult for that company to get funding from a venture company. You do understand that; do you not? [¶] A. Yes. What I don’t understand, why it’s never been able to be possible to reach a settlement. [¶] Q. You don’t understand why it makes it difficult for the company to get funding because you’re claiming you own the company software? [¶] A. I think you misheard my answer. I said I understand that. What I don’t understand is why after having tried everything to settle, the process has never afforded that sense. [¶] Q. Let me get you to focus on my question. It is not true, sir, that by your claiming you own Crosstest software, you are making it very difficult for Crosstest to get venture funding—you do understand that; do you not? [¶] A. Yes, I understand that. [¶] Q. And you are claiming that you owned this software because you want to force this company to give you money in a settlement; isn’t that what you are doing. [¶] A. This is my software which I created.”
In fact, after this action was filed, CrossTest’s attorney sent a letter to Cappa’s counsel asking Cappa to return CrossTest’s software source code, its specifications, design documents and drawings, and all CrossTest customer information, business plans, and feedback. Cappa’s counsel refused to do so.
C. Verdict and Appeals
The trial court granted CrossTest’s motion for nonsuit on the complaint. In ruling on the cause of action for violation of the minimum wage and other wage laws, the court stated that the primary question was whether or not Cappa was an employee. Based on the independent contractor agreement and Cappa’s testimony, the court concluded Cappa was an independent contractor. The court also granted nonsuit on Cappa’s remaining causes of action.
On the cross-complaint, the jury found Cappa had misappropriated trade secrets and that in doing so he had acted with malice. CrossTest did not seek compensatory damages, and the jury did not award any punitive damages. The trial court also granted injunctive relief which, among other things, enjoined Cappa from using or disclosing CrossTest’s trade secrets or proprietary information and required him to return all trade secrets to CrossTest. CrossTest moved for its attorney fees, and the trial court awarded $175,000. For reasons that the record does not make clear, this award was later increased to $335,370.30.
In case No. A113327, Cappa appealed the judgment on the complaint and the cross-complaint. In case No. A114548, he appealed the judgment for attorney fees and costs. The appeals were consolidated for purposes of the record, briefing, oral argument, and decision.
II. Discussion
A. Nonsuit on the Complaint
1. Standard of Review
Our Supreme Court has explained the standards we must apply when reviewing a judgment of nonsuit: “A motion for nonsuit allows a defendant to test the sufficiency of the plaintiff’s evidence before presenting his or her case. Because a successful nonsuit motion precludes submission of plaintiff’s case to the jury, courts grant motions for nonsuit only under very limited circumstances. [Citation.] A trial court must not grant a motion for nonsuit if the evidence presented by the plaintiff would support a jury verdict in the plaintiff’s favor. [Citations.] [¶] ‘In determining whether plaintiff’s evidence is sufficient, the court may not weigh the evidence or consider the credibility of witnesses. Instead, the evidence most favorable to plaintiff must be accepted as true and conflicting evidence must be disregarded. The court must give “to the plaintiff[’s] evidence all the value to which it is legally entitled, . . . indulging every legitimate inference which may be drawn from the evidence in plaintiff[’s] favor . . . .” ’ [Citations.] [¶] In an appeal from a judgment of nonsuit, the reviewing court is guided by the same rule requiring the evaluation of the evidence in the light most favorable to the plaintiff. ‘The judgment of the trial court cannot be sustained unless interpreting the evidence most favorably to plaintiff’s 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.’ [Citations.] [¶] Although a judgment of nonsuit must not be reversed if plaintiff’s proof raises nothing more than speculation, suspicion, or conjecture, reversal is warranted if there is ‘some substance to plaintiff’s evidence upon which reasonable minds could differ . . . .’ [Citations.]” (Carson v. Facilities Development Co. (1984) 36 Cal.3d 830, 838-839.)
2. Violation of Wage Laws
Cappa contends the trial court erred in granting nonsuit on his first cause of action for violation of the wage laws because there is sufficient evidence to support a conclusion that he was an employee, rather than an independent contractor. In considering this issue, we first note that Cappa and CrossTest agreed in writing that Cappa was an independent contractor. An agreement between a purported employer and employee setting out the details of the relationship is a “significant factor for consideration.” (Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 951-952 (Tieberg); see also S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 358 (Borello).) However, it is not conclusive. (Borello, supra, 48 Cal.3d at p. 358; Tieberg, supra, 2 Cal.3d at p. 952.) As stated in Toyota Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864, 877 (Toyota), “[t]he agreement characterizing the relationship as one of ‘client—independent contractor’ will be ignored if the parties, by their actual conduct, act like ‘employer—employee.’ [Citations.]” (See also Santa Cruz Transportation, Inc. v. Unemployment Ins. Appeals Bd. (1991) 235 Cal.App.3d 1363, 1372.)
California courts have enumerated several factors to be used in determining whether a person who performs services for another is an employee or an independent contractor. The most important factor is “the right to control the manner and means of accomplishing the result, that is, the details of the work. ‘If the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists.’ [Citations.]” (Toyota, supra, 220 Cal.App.3d at pp. 873-874.) However, “ ‘complete’ ” or “ ‘absolute’ ” control is not necessary to a finding of an employment relationship. “To the contrary, ‘[i]t does not follow that because there is a certain amount of freedom inherent in the nature of the work one is called upon to do that one becomes an independent contractor rather than an employee. [Citation.]’ [Citation.]” (Briggs v. Lawrence (1991) 230 Cal.App.3d 605, 618 [salaried public defender engaged in representing client is public employee within meaning of California Tort Claims Act]; JKH Enterprises, Inc. v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046, 1064-1065 [upholding agency finding that drivers were employees for purposes of entitlement to workers’ compensation where employer retained “all necessary control” over operation, despite company’s and drivers’ perception of relationship as one of independent contracting].)
The parties debate whether we should apply the standards of Borello, which imposes on the alleged employer the burden of proving the absence of an employment relationship in the context of a claim for workers’ compensation. (Borello, supra, 48 Cal.3d at p. 349, citing Lab. Code, §§ 3357, 5705, subd. (a).) CrossTest contends that the rule of Borello does not apply to the wage and hours legislation (see Reynolds v. Bement (2005) 36 Cal.4th 1075, 1086), while Cappa argues that the company has the burden of disproving the employment relationship (see Tieberg, supra, 2 Cal.3d 943). We need not decide this issue, because as discussed below, we conclude that even applying the common law standards, nonsuit was improperly granted on this cause of action.
As explained in Toyota, courts have looked to the factors laid out in the Restatement Second of Agency, section 220 to determine whether a person is an employee or an independent contractor. (Toyota, supra, 220 Cal.App.3d at pp. 873-874.) Those factors, “including the issue of employer control, are . . . as follows: [¶] ‘(1) A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control. [¶] ‘(2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered: [¶] ‘(a) the extent of control which, by the agreement, the master may exercise over the details of the work; [¶] ‘(b) whether or not the one employed is engaged in a distinct occupation or business; [¶] ‘(c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; [¶] ‘(d) the skill required in the particular occupation; [¶] ‘(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; [¶] ‘(f) the length of time for which the person is employed; [¶] ‘(g) the method of payment, whether by the time or by the job; [¶] ‘(h) whether or not the work is part of the regular business of the employer; [¶] ‘(i) whether or not the parties believe they are creating the relation of master and servant; and [¶] ‘(j) whether the principal is or is not in business.’ [Citation.]” (Id. at pp. 874-875.)
Since that time, the Restatement Third of Agency has been issued, which does not enumerate the same factors. (Rest.3d Agency, § 7.07.)
There is certainly evidence in the record suggesting that Cappa was an independent contractor. Most important, he signed the Agreement indicating he was a contractor, and he testified that he understood that he would be a contractor until CrossTest obtained funding. Moreover, the Agreement provided that Cappa had control over the manner by which he would complete his work, his compensation depended on achieving certain milestones, he performed skilled work, and the Agreement did not grant CrossTest the right to discharge Cappa at will. (See Toyota, supra, 220 Cal.App.3d at pp. 874-875.) The issue before us is not, however, whether the evidence would support a finding that he was an independent contractor, but whether there was evidence that would support a contrary finding.
There is evidence that, despite the terms of the Agreement, CrossTest and Cappa, “by their actual conduct, act[ed] like ‘employer—employee’ [Citation.]” (Toyota, supra, 220 Cal.App.3d at p. 877), and in particular that CrossTest exercised control over Cappa’s work. Cappa testified that he was not free to set his own hours; that he was told he could not work from home; that he was expected to be at the office every work day by 9:30 in the morning; that he was often expected to be in the office in the evening and on weekends; that in the early days of the company Sebti reviewed the work each worker had done each day and told them what to work on next; that everyone was expected to attend weekly meetings at which Sebti would review everyone’s work and tell them what to work on in the following week; and that Sebti frequently directed Cappa to turn his attention to matters that were not part of the original milestones, including presentations for potential customers.
In connection with the secondary factors enumerated by Toyota, we also note that CrossTest was in business, that there was evidence that Cappa worked for CrossTest for much longer than the three months originally contemplated for the completion of the milestones and did work that was not included in the Agreement, and that in working on the “architecture” of the product CrossTest was developing and preparing sales presentations, Cappa could reasonably be seen as performing “ ‘part of the regular business’ ” of CrossTest. (Toyota, supra, 220 Cal.App.3d at p. 874, quoting Rest.2d Agency, § 220.) Moreover, Sebti stated in Cappa’s H-1B visa application that he would employ Cappa at a salary of $48,000 a year. In our view, this evidence rises to the level of substantial evidence upon which a jury could have found that, at least for some portion of the time Cappa worked for CrossTest, he was an employee, and that Cappa continued to work for CrossTest after all stock options were granted. The trial court should not have granted nonsuit on Cappa’s cause of action for violation of the wage laws.
Because we reach this conclusion, we need not decide whether the trial court erroneously excluded evidence relevant to the question of whether defendants controlled his work.
3. Unfair Business Practices
Cappa alleged in the second cause of action for unfair business practices (Bus. & Prof. Code, § 17200 et seq.) that defendants had engaged in unfair and unlawful practices, including misclassifying Cappa and other employees as independent contractors; failing to pay wages to Cappa and other employees and provide them with wage statements; and misrepresenting the employment status of Cappa and other employees, thus reaping benefits and illegal profits at the expense of Cappa and his fellow employees. Cappa sought restitution of unpaid wages owed to him and his fellow employees, as well as disgorgement of profits defendants had enjoyed as a result of their unfair and unlawful practices.
Defendants acknowledge that this cause of action “depends entirely upon the viability of [the] first cause of action for wage violations.” As our Supreme Court has stated, “any business act or practice that violates the Labor Code through failure to pay wages is, by definition ([Bus. & Prof. Code, ]§ 17200), an unfair business practice.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178.) We have already concluded the trial court should not have granted nonsuit on Cappa’s cause of action for violation of wage laws.
CrossTest points out that this action is subject to Proposition 64, under which a private person has standing to sue only if he or she “has suffered injury in fact and has lost money or property as a result of such unfair competition.” (Bus. & Prof. Code, § 17204, as amended by Prop. 64; § 3, see also Bus. & Prof. Code, § 17203, as amended by Prop. 64, § 2; see also Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227; Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 802-803.) Here, Cappa has alleged that he suffered injury in fact and lost money in the form of unpaid wages. In the circumstances, we conclude the trial court erred in granting nonsuit on the cause of action for unfair business practices.
In reaching this conclusion on the question of whether nonsuit was appropriate on the cause of action for unfair business practices, we express no opinion as to whether Cappa complied with the procedural requirements for stating a claim on behalf of alleged employees other than himself. (Bus. & Prof. Code, §§ 17203, 17204; Code Civ. Proc, § 382.)
4. Fraud
We reach a different conclusion with respect to the cause of action for fraud. Cappa alleged that defendants had falsely represented to him and other employees that they were independent contractors in order to prevent them from “asserting their employment rights in any legal forum available to them,” and promised to pay them a salary and ownership interest in CrossTest.
“ ‘The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’ [Citations.] [¶] ‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Moreover, a person may be liable for negligent misrepresentation, or “[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.” (Civ. Code, § 1710, subd. (2).)
Here, there is no evidence to support a conclusion that defendants committed actionable fraud. Shortly after he began working for CrossTest, Cappa was given the Agreement stating that he would be compensated by stock options, rather than outright grants of shares in the company. He testified that he expected to begin receiving a salary when CrossTest obtained funding, and stated in his deposition that he understood that he was a contractor until that time. At the time Cappa stopped working for CrossTest, the company had not yet been funded. There is no evidence from which a jury could conclude that Sebti knew the legal implications of Cappa’s position, that he did not expect CrossTest to obtain funding, or that he did not intend to pay Cappa a salary when that occurred. Cappa contends the evidence of CrossTest’s fraud can be found in the letter Sebti wrote in support of Cappa’s H-1B visa application, in which Sebti indicated that Cappa’s salary would be $48,000 per year, that this letter modified the Agreement between him and CrossTest, and that Sebti told him as they were preparing the application between June and August 2003 that he would begin paying him a salary immediately. There is no evidence, however, that Sebti made these statements with no intent to perform.
5. Rescission
Cappa contends the trial court should not have granted nonsuit on his cause of action for rescission. In this cause of action, Cappa alleged that despite the terms of the Agreement, he was not an independent contractor, and the contract was either void ab initio because it misclassified him as an independent contractor in order to avoid payment of wages, taxes, and insurance, or voidable because it was unconscionable, there was no consideration, and defendant did not perform.
We see no error in the trial court’s conclusion that the evidence did not show any ground to rescind the Agreement. Cappa argues that the Agreement had an illegal purpose because it was used “to obtain free labor,” and that Sebti then lied on the H-1B visa application by indicating he intended to pay defendant a salary. As we have already concluded, nothing in the evidence indicates that Sebti did not intend to pay Cappa a salary when CrossTest obtained funding or that he did not expect the company to be funded. Nor do we see any illegality in a contract to perform work in exchange for stock options in a startup technology company—options that carried with them the possibility of great rewards. Whether or not a fact finder ultimately determines the true relationship between CrossTest and Cappa was that of employer and employee, there is no evidence the Agreement had an illegal purpose.
Cappa contends, however, that the Agreement is void because CrossTest’s obligations cannot be valued and therefore cannot serve as a basis for calculating damages. In a related argument, he contends that the Agreement should be rescinded because the consideration was inadequate.
“Under basic contract law, ‘[a]n offer must be sufficiently definite, or must call for such definite terms in the acceptance that the performance promised is reasonably certain.’ [Citations.] ‘Where a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable. [Citation.]’ [Citations.] [¶] To be enforceable, a promise must be definite enough that a court can determine the scope of the duty and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.” (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 770.) Moreover, “ ‘something which is completely worthless cannot constitute a valid consideration.’ ” (Louisville Title Ins. Co. v. Surety Title & Guar. Co. (1976) 60 Cal.App.3d 781, 791, quoting Grant v. The Aerodraulics Co. (1949) 91 Cal.App.2d 68, 76; see also Cubic Corp. v. Marty (1986) 185 Cal.App.3d 438, 448 (Cubic) [adequacy of consideration determined in light of conditions at time contract was made].)
Here, CrossTest was obliged to give Cappa a defined number of stock options upon the completion of certain tasks. Although the options had not yet been valued, we cannot conclude either that the intention of the parties cannot be ascertained and there was no rational basis for the assessment of damages, or that the options for stocks were so worthless as to constitute no consideration at all. Indeed, Cappa himself testified that he had believed in the company’s potential and that at the time of trial he still believed in “the whole venture.”
Cappa’s reliance on International Business Machines Corp. v. Bajorek (9th Cir. 1999) 191 F.3d 1033 (IBM) does not aid him. The court in IBM considered in part whether stock options are “wages” for purposes of Labor Code section 221, which makes it unlawful for an employer to take back wages that have already been paid to an employee. (IBM, at pp. 1039-1040.) The employee in IBM had received stock options under an agreement that he would return any profits from them if he worked for a competitor within six months after receiving them. (Id. at p. 1036.) The Ninth Circuit concluded the options were not wages, stating, “Stock options are not ‘amounts.’ They are not money at all. They are contractual rights to buy shares of stock.” (Id. at p. 1039.) To state that stock options are not money, however, does not mean they have no value that can support a contractual obligation. (See McAfee v. Metropolitan Life Ins. Co. (E.D.Cal. 2006) 2006 U.S. Dist. Lexis 33070, *14-16 [fact that stock options may be difficult to value does not prevent them from being treated as earnings].)
Cappa contends, however, that even if the consideration specified in the Agreement was adequate, the Agreement should be rescinded for failure of the consideration. The Agreement provided that in compensation for his services, Cappa would receive “a non-qualified stock option to purchase a total of 110,000 shares of the Company’s common stock under the terms of the Company’s standard Stock Option Plan . . . .” The share option grant notice, however, indicated that Cappa was given “Incentive Share Options,” which according to CrossTest’s equity incentive plan could be granted only to employees. Pointing to this provision of the incentive plan, as well as to the provision that “[n]o [p]articipant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms,” Cappa argues that CrossTest awarded him options that he was unable to exercise.
This contention fails. Cappa was granted the number of stock options specified in the Agreement. He never tried to exercise them. Sebti testified that the error was a clerical one and that Cappa would be able to exercise those options. There is no basis to conclude the consideration failed.
Cappa also contends the consideration for the Agreement failed because he was not paid for the work he did during the last six months that he worked for CrossTest, after he received his last grant of stock options. Any failure to compensate Cappa for work outside the scope of the Agreement, however, does not constitute a breach of the Agreement.
As a final basis for his contention that the Agreement should be rescinded, Cappa argues that it is unconscionable. “Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [Citation.] If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules—legislative or judicial—operate to render it [unenforceable].’ [Citation.] ‘Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or “adhering” party will not be enforced against him. [Citations.] The second—a principal of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or “unconscionable.” ’ [Citation.]” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 113 (Armendariz).) Both procedural unconscionability—focusing on “ ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal bargaining power”—and substantive unconscionability—focusing on “ ‘ “overly harsh” ’ or ‘ “one-sided” ’ results”—must be present for a court to refuse to enforce a contract based on unconscionability. (Id. at p. 114.) However, they do not need to be present in the same degree. The higher the level of procedural unconscionability, the less substantive unconscionability is required to render a contract unenforceable, and vice versa. (Ibid.) Unconscionability is determined based on the circumstances existing at the time the contract is made. “ ‘The principle is one of the prevention of oppression and unfair surprise [citation] and not of disturbance of allocation of risks because of superior bargaining power.’ [Citation.]” (American Software, Inc. v. Ali (1996) 46 Cal.App.4th 1386, 1390.)
We cannot conclude here that the Agreement did not fall within Cappa’s reasonable expectations or that he labored under surprise or oppression due to unequal bargaining power. He reviewed the Agreement at home for several days, and he and Sebti discussed and agreed on the milestones to be achieved. Nor are the terms of the Agreement overly harsh or one-sided. Cappa joined CrossTest because he wanted to “get[] in at the ground floor of a start up company,” with the potential of financial gain from getting shares for a low price. He admitted he had investigated the company and decided the risk was worth taking. Although at the time of trial he had not achieved the financial gain he had hoped for, the trial court correctly concluded that the Agreement was not unconscionable.
We are not persuaded otherwise by the cases Cappa cites arising in employment contexts. Our Supreme Court concluded in Armendariz that a provision requiring the arbitration of claims by an employee arising out a wrongful termination, but not those of the employer’s claims, was unconscionably one-sided. (Armendariz, supra, 24 Cal.4th at pp. 120-121.) The court in Cubic, supra, 185 Cal.App.3d at pages 448-450, concluded a contract that assigned an employee’s inventions to his employer was not unconscionable where design work was part of the employee’s job description, the employee presented his invention to the employer to be added to its products, and he was already adequately compensated through the terms of his employment. Similarly, the court in Chretian v. Donald L. Bren Co. (1984) 151 Cal.App.3d 385, 388, 390, in finding not unconscionable a provision requiring a salesperson to forfeit a portion of commissions on sales pending when the salesperson left his employment, noted that the salesperson had already been paid sufficient compensation for his services in obtaining the pending sales. Here, working on CrossTest’s application was part of the work Cappa had agreed to do for CrossTest, and he had decided he wished to work for CrossTest in order to have the opportunity of “striking it rich” if the company succeeded.
In the circumstances, the trial court correctly granted nonsuit on Cappa’s cause of action for rescission.
6. Conversion of the Application
In his fifth cause of action for conversion, Cappa alleged that defendants took and used his own confidential and proprietary ideas, concepts, strategies, and trade secrets for producing the CrossTest software. He contends on appeal there is substantial evidence that he owns his inventions because CrossTest did not pay him anything of value for his work.
This argument fails. First, we have already rejected Cappa’s contention that the Agreement, which assigned to CrossTest his inventions, should be rescinded. Even if Cappa succeeds in his claim that he was an employee, his conversion claim would fail. Labor Code section 2860 provides: “Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.” This rule has been applied to inventions made by an employee who has been hired to develop the invention. As stated in Famous Players-Lasky Corp. v. Ewing (1920) 49 Cal.App. 676, 679-680, “ ‘An employer who conceives the result embraced in an invention or the general idea of a machine upon a particular principal, and in order to carry his conception into use necessarily employs manual dexterity, or even inventive skill, in the mechanical details and arrangement, is nevertheless the inventor and entitled to patent as against the servant who was the mere instrument through which he realized his idea.’ [Citations.]” (See also Aero Bolt & Screw Co. v. Iaia (1960) 180 Cal.App.2d 728, 736.) The evidence shows that Cappa was hired to develop CrossTest’s product, and he does not dispute that if he was an employee, CrossTest owns the fruits of his labors on the application.
The Agreement provided that “any and all Inventions conceived, written, created or first reduced to practice in the performance of work under this Agreement shall be the sole and exclusive property of [CrossTest],” and Cappa agreed that he did not bring any prior inventions to his work at CrossTest.
B. Cross-complaint
1. Preemption by Uniform Trade Secrets Act
CrossTest’s cause of action for misappropriation was pled as a common law claim. Cappa contends CrossTest’s cause of action for misappropriation of trade secrets was preempted by Civil Code section 3426.7, part of the Uniform Trade Secrets Act (UTSA) (Civ. Code, § 3426 et seq.), which provides in pertinent part: “(a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets. [¶] (b) This title does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.” Whatever merit there may be to the contention that the UTSA preempts a common law cause of action for misappropriation of trade secrets, Cappa did not raise it below, and we will not consider it here. (Lucich v. City of Oakland (1993) 19 Cal.App.4th 494, 498 [defendant could not raise for first time on appeal contention that portion of damages was barred by exclusive remedy principle of Workers’ Compensation Act].) In any case, as we discuss in the next part, the jury instruction on CrossTest’s misappropriation claim was derived from the UTSA.
2. Use of Trade Secrets
Cappa contends the evidence does not support the conclusion that he used CrossTest’s trade secrets. As he points out, there is no evidence that he disclosed CrossTest’s information or that he used it in the marketplace. CrossTest argues that the necessary evidence is found in Cappa’s failure to return or delete the information stored on his computer, in the fact that his legal claim could make it difficult for CrossTest to obtain financing, and in his “use” of the information as leverage to secure a settlement.
Nor, for that matter, is there any indication that he acquired CrossTest’s confidential information improperly.
The jury was instructed that to recover damages for misappropriation, CrossTest had to prove that it owned a trade secret, that Cappa used the trade secret without express or implied consent, and that Cappa knew or had reason to know that his knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use. The parties have not drawn our attention to any cases discussing whether retaining a trade secret under claim of right constitutes “use,” and our own research has disclosed none. The court in The Gibson-Homans Co. v. Wall-Tite, Inc. (C.D. Cal. 1992) 1992 U.S. Dist. Lexis 21909, [26 U.S.P.Q.2d (BNA) 1867] (Gibson-Homans), construing California law, concluded that mere possession of trade secret formulas was insufficient to establish misappropriation. A defendant there had recorded notes and formulas while he was working at the plaintiff company and its predecessor. He later formed a new company that competed with his former employer, but that did not manufacture any product using the plaintiff’s formulas. (Gibson-Homans, at *2-5, 11.) The court stated, “Since defendants have not used the formulas or otherwise impaired their commercial benefit to plaintiff, no misappropriation has occurred.” (Id. at *11-12.)
This language tracks Civil Code section 3426.1, subdivision (b), a portion of the UTSA, which defines misappropriation as: “(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or [¶] (2) Disclosure or use of a trade secret of another without express or implied consent by a person who: [¶] (A) Used improper means to acquire knowledge of the trade secret; or [¶] (B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: [¶] (i) Derived from or through a person who had utilized improper means to acquire it; [¶] (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or [¶] (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or [¶] (C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.” The elements of a common law cause of action for misappropriation are: “(a) the plaintiff invested substantial time, skill or money in developing its property; (b) the defendant appropriated and used the plaintiff’s property at little or no cost to the defendant; (c) the defendant’s appropriation and use of the plaintiff’s property was without the authorization or consent of the plaintiff; and (d) the plaintiff can establish that it has been injured by the defendant’s conduct.” (United States Golf Assn. v. Arroyo Software Corp. (1999) 69 Cal.App.4th 607, 618.) CrossTest does not dispute that under any standard, it must show that Cappa used its trade secret.
“Opinions of the United States District Court that have not been published in the Federal Supplement are properly cited by this court as persuasive, although not precedential, authority.” (Schlessinger v. Holland America (2004) 120 Cal.App.4th 552, 559, fn. 4, citing Bowen v. Ziasun Technologies, Inc. (2004) 116 Cal.App.4th 777, 787, fn. 6, & City of Hawthorne ex rel. Wohlner v. H&C Disposal Co. (2003) 109 Cal.App.4th 1668, 1678, fn. 5.)
On the other hand, it appears that for misappropriation to occur, a trade secret need not be used to compete directly. As stated in PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, 1383, “Employing the confidential information in manufacturing, production, research or development, marketing goods that embody the trade secret, or soliciting customers through the use of trade secret information, all constitute use.” Relying on PMC, the Northern District of California has concluded that “internal experimentation with trade secret information not resulting in a market product can constitute use.” (O2 Micro International Limited v. Monolithic Power Systems, Inc. (N.D.Cal. 2005) 399 F.Supp.2d 1064, 1072.)
We agree with the court in Gibson-Homans that mere possession of validly acquired information does not establish use of a trade secret for purposes of a cause of action for misappropriation. And although it is a more difficult question, we also conclude that asserting a legal claim to the confidential information—here in the form of Cappa’s own causes of action for misappropriation and conversion—likewise does not amount to misappropriation. While there are remedies available to a defendant against whom a claim of misappropriation has been made in bad faith, such as an award of attorney fees to the prevailing defendant (Civ. Code, § 3426.4), it is too much of a stretch of the meaning of the word “use” to conclude it encompasses asserting a legal claim to ownership of intellectual property. Indeed, to conclude that asserting a right to intellectual property could constitute misappropriation would create a chilling effect on the assertion in good faith of potentially legitimate claims.
Therefore, we agree with Cappa that CrossTest has not met its burden to prove he improperly used its trade secret. (See Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1668.) As a result, the judgment against Cappa on the cross-complaint must be reversed.
C. Attorney Fees
After judgment was entered, defendants sought their attorney fees under two statutes: Labor Code section 218.5 and Civil Code section 3426.4. In awarding attorney fees, the trial court did not specify whether it was making the award under one of these statutes, or both.
Labor Code section 218.5 provides in pertinent part: “In any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, the court shall award reasonable attorney’s fees and costs to the prevailing party if any party to the action requests attorney’s fees and costs upon the initiation of the action . . . . [¶] This section does not apply to any action for which attorney’s fees are recoverable under Section 1194.” Cappa concedes that if the nonsuit is upheld, Labor Code section 218.5 would support the fee award here. For purposes of this appeal, we accept the concession. Here, of course, we have concluded that Cappa’s causes of action for violation of the wage laws and unfair business practices should have gone to the jury. In each of these causes of action, Cappa sought the payment of wages. In the circumstances, attorney fees could not properly be awarded under Labor Code section 218.5.
Labor Code section 1194 provides for an award of attorney fees to an employee who has received less than the legal minimum wage or legal overtime compensation.
Cappa also contends that the record does not support an award of attorney fees under Civil Code section 3426.4. This statute, a part of the UTSA, provides: “If a claim of misrepresentation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney’s fees to the prevailing party.” CrossTest contended below it was entitled to its attorney fees because Cappa made his misappropriation claim in bad faith.
The problem with this contention, as Cappa points out, is that no finding was ever made that Cappa brought his cause of action for misappropriation in bad faith. At trial, Cappa dismissed this cause of action. After the trial court granted nonsuit on the remaining causes of action, CrossTest’s counsel told the trial court, “[W]e have the lingering issue of the bad faith under the sixth cause of action.” The court responded: “Well, we don’t. The sixth cause of action has been dismissed, so we’re not going to be able to proceed. Had it not been for nonsuit—it would have been granted as to the sixth cause of action had the motion for nonsuit been granted.” While the trial court’s statement is not entirely clear, it is apparent that the court declined to allow a finding on whether Cappa had brought his cause of action for misappropriation in bad faith.
CrossTest contends, however, that a finding of bad faith can be inferred from the jury’s finding on its claim for misappropriation on the cross-complaint that Cappa acted with malice in misappropriating trade secrets. Whether or not a finding that Cappa misappropriated trade secrets with malice is the functional equivalent of a finding that he brought his own claim for misappropriation in bad faith—an issue we do not decide—CrossTest’s argument fails. We have already concluded that the evidence does not support the jury’s finding that Cappa misappropriated CrossTest’s trade secrets. As a result, its finding that the misappropriation was malicious necessarily falls as well, and cannot support an award of attorney fees.
Accordingly, the award of attorney fees must be reversed. Because we reach this conclusion, we need not decide whether the amount of fees was determined correctly.
III. Disposition
The judgment is reversed as to Cappa’s causes of action for wage law violations and unfair business practices. The judgment on the cross-complaint is reversed. The judgment awarding attorney fees is reversed. In all other respects, the judgment is affirmed. The parties shall bear their own costs on appeal.
We concur: RUVOLO, P. J., REARDON, J.