Citcon USA, LLC v. Riverpay, Inc. ( 2022 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JAN 31 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
CITCON USA, LLC, No. 20-16929
Plaintiff-counter- D.C. No. 5:18-cv-02585-NC
defendant-Appellant,
v. MEMORANDUM*
RIVERPAY INC., a Canadian Corporation;
et al.,
Defendants-counter-
claimants-Appellees,
and
HANG MIAO,
Defendant,
WEI JIANG,
Counter-defendant.
Appeal from the United States District Court
for the Northern District of California
Nathanael M. Cousins, Magistrate Judge, Presiding
Argued and Submitted January 13, 2022
San Francisco, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: GOULD, BENNETT, and R. NELSON, Circuit Judges.
Citcon sued two former executives (Yue Hua and Kenny Shi), their new
employer (RiverPay), and a former contractor (Hank Miao) for claims under federal
and California law. It now appeals the district court’s dismissal of its duty of loyalty
and defamation claims, decision not to give a jury instruction on joint and several
liability, and denial of its request for punitive damages, costs, attorney’s fees, and
an injunction. Citcon also appeals the judgment for Shi on his breach of contract
counterclaim. We have jurisdiction under 28 U.S.C. § 1291. See also 28 U.S.C.
§ 636(c)(3).
1. Citcon alleged that (1) Shi and Hua created and lied about the Dropbox
account to use Citcon’s confidential transaction information; (2) they sabotaged
Citcon’s system by arranging it in a way that critically depended on Hua’s login;
(3) they participated in the Terry Liu email attack; and (4) Shi engineered the “Miao
incident” and article to damage Citcon’s reputation and recruit Miao for RiverPay.
Citcon’s Dropbox allegations are “based on the same nucleus of facts as the
misappropriation of trade secrets claim for relief,” and therefore these allegations
cannot support a duty of loyalty claim. See K.C. Multimedia, Inc. v. Bank of Am.
Tech. & Operations, Inc., 171 Cal. App. 4th 939, 958 (2009) (quoting Digit. Envoy,
Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N.D. Cal. 2005)). And because
Citcon did not identify the Terry Liu allegations as a basis for its duty of loyalty
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claims in its arguments to the district court, its argument about those pleadings is
waived. See Putnam Fam. P’ship v. City of Yucaipa, 673 F.3d 920, 932 (9th Cir.
2012).
The remaining allegations—that Hua and Shi designed Citcon’s system so that
it would critically depend on Hua’s login and that Shi engineered the Miao
incident—state a claim for breach of Hua’s and Shi’s duties of loyalty. Citcon
essentially alleged that Hua and Shi embedded a “logic bomb”—a piece of code
inserted into software that sets off a malicious function when certain conditions are
met, see Computer Security Resource Center, Logic Bomb, https://csrc.nist.gov/
glossary/term/logic_bomb (last visited Jan. 27, 2022)—in Citcon’s system while still
at the company. The logic bomb went off when Citcon disabled Hua’s login and
Citcon’s system crashed; it required no further action by Hua or Shi. And Citcon’s
allegation that Shi engineered the Miao incident to damage Citcon’s reputation and
steal a potential employee also states a breach of duty of loyalty claim against Shi.
See Stokes v. Dole Nut Co., 41 Cal. App. 4th 285, 295 (1995).
Because we reverse and remand on the claims against Shi and Hua, we also
reverse and remand on the breach of duty of loyalty claim against RiverPay based
on vicarious liability.
2. Citcon also appeals the judgment for Shi on his breach of contract
counterclaim. But the district court’s dismissal of Citcon’s breach of duty of loyalty
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claims did not prohibit Citcon from seeking discovery on defenses to Shi’s
counterclaim. See Fed. R. Civ. P. 26(b)(1). We accordingly affirm the judgment for
Shi on his breach of contract counterclaim.
3. Citcon next appeals the dismissal of its defamation claim. Citcon’s
defamation claim is based on an internet blog article titled How My Life Was Ruined
By A Silicon Valley Startup And Former PayPal & Uber Execs. The district court
properly held that the statements in the blog post were nonactionable statements of
opinion. See Knievel v. ESPN, 393 F.3d 1068, 1074–75 (9th Cir. 2005). In context,
the article is “a personal story, expressing personal impressions, rather than a
presentation of facts.” Citcon USA, LLC v. RiverPay Inc., No. 18-CV-02585-NC,
2018 WL 6813211, at *9 (N.D. Cal. Dec. 27, 2018). It leaves readers “free to draw
their own conclusions about the hiring dispute rather than take the account in the
article as fact.” Id. The post does not try to hide the fact that it is a collection of the
author’s feelings of anger toward Citcon and its executives and uses crass,
hyperbolic, and emotional language. In short, readers can be expected to take the
article with a grain of salt. See Gardner v. Martino, 563 F.3d 981, 986–89 (9th Cir.
2009).
4. Citcon also appeals the district court’s decision not to include a jury
instruction on Hua’s joint and several liability for the trade secret misappropriation
award against RiverPay. Citcon’s damages evidence was presented under a theory
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of unjust enrichment. The district court properly declined to give Citcon’s proposed
instruction because an instruction on joint and several liability had no foundation in
the evidence presented at trial. See Yan Fang Du v. Allstate Ins. Co., 697 F.3d 753,
757 (9th Cir. 2012).
5. Citcon argues the district court’s decision not to award punitive and
exemplary damages against RiverPay was an abuse of discretion. Because the
California Uniform Trade Secrets Act (“CUTSA”) displaces “alternative civil
remedies based on trade secret misappropriation,” K.C. Multimedia, 171 Cal. App.
4th at 954, we need only consider what punitive damages might be properly awarded
under CUTSA. CUTSA provides that punitive damages are awarded by the court,
not the jury, and punitive damages are not mandatory even if the jury finds the
misappropriation willful and malicious. See Cal. Civ. Code § 3426.3(c). The district
court did not abuse its discretion, as it identified the relevant factors and ultimately
declined to award punitive damages for reasons including RiverPay’s lack of wealth,
the nature of the conduct, and the sufficiency of the $1.5 million compensatory
damages award.
6. On a similar note, the district court did not abuse its discretion by
declining to award costs or fees. See Thomas v. City of Tacoma, 410 F.3d 644, 647
(9th Cir. 2005). We apply California law, which provides for the recovery of
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attorney’s fees when authorized by contract or statute. Cal. Civ. Proc. Code
§ 1033.5(a)(10).
Even with the jury’s finding of malice, oppression, or fraud, neither the
Defend Trade Secrets Act nor CUTSA requires the court to award attorney’s fees.
See 18 U.S.C. § 1836(b)(3)(D); Cal. Civ. Code § 3426.4. And a party’s partial
success does not establish an abuse of discretion when the district court considered
factors such as the complexity of the case, the efforts of the parties, and the nature
of relief awarded. K-S-H Plastics, Inc. v. Carolite, Inc., 408 F.2d 54, 60 (9th Cir.
1969). Here, the district court explained that its decision was based on balancing
Citcon’s mixed success on its misappropriation claims (Citcon succeeded on its
claim for misappropriation of source code but not as to four other categories of
alleged trade secrets) with Shi’s success on his breach of contract counterclaim and
the failure of Defendants’ trade libel, defamation, and intentional interference with
prospective economic relations counterclaims.
7. Citcon’s final argument challenges the district court’s denial of its
motion for a permanent injunction. Citcon contends that trade secret
misappropriation always leads to at least a presumption of future irreparable harm
because other cases have recognized that injunctions in trade secrets cases seek to
“protect the secrecy of misappropriated information and to eliminate any unfair head
start the defendant may have gained.” Lamb-Weston, Inc. v. McCain Foods, Ltd.,
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941 F.2d 970, 974 (9th Cir. 1991). Indeed, an important goal of trade secrets law is
to protect a party’s interest in the exclusive use of secrets it has cultivated. But
Citcon’s argument, which is essentially that injunctive relief automatically flows
from a successful trade secret misappropriation claim, is untenable. See Winter v.
Nat. Res. Def. Council, Inc., 555 U.S. 7, 32 (2008) (“An injunction . . . does not
follow from success on the merits as a matter of course.”).
We are not obligated to grant injunctive relief in trade secrets cases and the
sufficiency of the $1.5 million damages award is supported by Citcon’s evidence at
trial. Citcon bore the burden of establishing the necessity of injunctive relief, see
Klein v. City of San Clemente, 584 F.3d 1196, 1201 (9th Cir. 2009), and gives no
reason the $1.5 million award is inadequate. The district court’s decision to deny its
motion for an injunction was not an abuse of discretion.
The district court’s decisions not to include a jury instruction on joint and
several liability, award punitive damages, or issue a permanent injunction and to
have the parties bear their own costs and fees are AFFIRMED. The judgment on
Shi’s breach of contract counterclaim is AFFIRMED. The dismissal order is
AFFIRMED IN PART regarding Citcon’s defamation claim and REVERSED IN
PART regarding the duty of loyalty claims against Shi, Hua, and RiverPay. The
case is remanded for further proceedings consistent with this memorandum
disposition. The parties shall bear their own costs on appeal.
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