Dispatch & Tracking Solutions v. City of San Diego CA4/1 ( 2016 )

Filed 4/8/16 Dispatch & Tracking Solutions v. City of San Diego CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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. *
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
DISPATCH & TRACKING SOLUTIONS,
LLC,
Cross-complainant and Appellant, D062426
v.
CITY OF SAN DIEGO et al.,
Cross-defendants and Respondents.
DISPATCH & TRACKING SOUTIONS,
LLC,
Cross-complainant and Appellant, D062927
v.
CITY OF SAN DIEGO et al., (Super. Ct. No.
37-2009-00087082-CU-BT-CTL)
Cross-defendants and Appellants;
JOHN WICKER et al.,
Cross-defendants and Respondents.
AUTHORIZED CITY TOWING et al.,
Plaintiffs, Cross-defendants and D063855
Appellants,
v.
DISPATCH & TRACKING SOLUTIONS,
LLC,
Defendant, Cross-complainant and
Appellant;
CITY OF SAN DIEGO et al.,
Cross-defendants and Appellants.
CONSOLIDATED APPEALS from a judgment and orders of the Superior Court
of San Diego County, Timothy B. Taylor, Judge. Affirmed in part; reversed in part.
ClintonBailey, Mark Bailey, Sean T. McGee; ONE LLP, Peter Afrasiabi and
Kathryn M. Davis for Cross-complainant and Appellant in D062426 and D062927 and
for Defendant, Cross-complainant and Appellant in D063855.
Moscone Emblidge Sater & Otis, Moscone Emblidge & Otis, G. Scott Emblidge
and Matthew K. Yan for Cross-defendants and Respondents City of San Diego,
TEGSCO, LLC, John Wicker and John Pendleton in D062426, for Cross-defendants and
Respondents John Wicker and John Pendleton in D062927, and for Cross-defendants and
Appellants City of San Diego and Tegsco, LLC, in D062927 and D063855.
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Chapin Fitzgerald, Fitzgerald Knaier, Kenneth M. Fitzgerald and Jennifer Arnold
for Cross-defendants and Respondents Orion Communications, Inc., and Leslie Delatte in
D062426, and for Cross-defendants and Appellants Orion Communications and Leslie
DeLatte in D062927 and D063855.
Webb & Carey, Patrick D. Webb and Kevin A. Carey for Cross-defendants and
Appellants Authorized City Towing, Nancar, Inc., C & D Towing Specialists, Inc.,
Starrue, Inc., San Diego Police Towing Operators, Inc., and A to Z Enterprises, Inc., in
D062927, and for Plaintiffs, Cross-defendants and Appellants Authorized City Towing,
Allied Gardens Towing, Inc., Nancar, Inc., C & D Towing Specialists, Inc., Starrue, Inc.,
San Diego Police Towing Operators, Inc., and A to Z Enterprises, Inc., in D063855.
INTRODUCTION
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 TEGSCO, LLC, doing business as San
Francisco AutoReturn (AutoReturn). In providing similar services to other
municipalities, AutoReturn used tow dispatching communications software provided by
Dispatch & Tracking Solutions, LLC (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).
3
Authorized City Towing and five towing companies it subcontracted with
(together ACT) submitted a competing bid for the towing contract in which ACT also
proposed using LETS/TMS.1 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 this
1 The five towing companies that contracted with Authorized City Towing are
Allied Gardens Towing, Inc.; C & D Towing Specialists, Inc.; Starrue, Inc.; Nancar, Inc.;
and San Diego Police Towing Operators. ACT's opening brief omits Nancar, Inc., from
its list of towing subcontractors.
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appeal are DTS's cause of action under the California Uniform Trade Secrets Act (Civ.
Code,2 § 3426 et seq.) (CUTSA or UTSA) against AutoReturn, the City, and Orion and
Orion's chief executive officer, Leslie DeLatte,3 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
2 All subsequent statutory references are to the Civil Code unless otherwise
specified.
3 Subsequent references to AutoReturn include AutoReturn's executive officers,
John Wicker and John Pendleton, who are identified as cross-defendants in DTS's second
amended cross-complaint. Subsequent references to Orion include DeLatte.
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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 $450,000.4
DTS, ACT, Orion, and AutoReturn and the City have all appealed. DTS contends
the court erred in (1) denying its motions to redact and seal its proprietary information
under section 3426.5; (2) summarily adjudicating its misappropriation of trade secrets
claim in favor of Orion, AutoReturn, and the City; (3) denying its motion to reconsider
the summary adjudication of its misappropriation of trade secrets claim; (4) summarily
adjudicating its cause of action for breach of joint venture agreement in AutoReturn's
favor; (5) awarding Orion attorney fees under section 3426.4; (6) awarding AutoReturn
attorney fees under section 3426.4; and (7) denying it`` leave to amend its cross-complaint
to add causes of action for interference with contractual relations and breach of fiduciary
duty against Orion and AutoReturn, respectively, on the ground the proposed causes of
action were superseded under the CUTSA.
ACT contends the court should have denied AutoReturn's motion for summary
judgment as procedurally defective because AutoReturn did not provide its supporting
evidence with the motion. ACT further contends that the court erred in summarily
adjudicating, in AutoReturn's favor, ACT's seventh cause of action for unfair business
4 AutoReturn and the City also filed a motion for sanctions under Code of Civil
Procedure section 128.7 against both ACT and DTS based on their having brought a
frivolous motion to disqualify AutoReturn and the City's counsel. The court granted the
motion and awarded sanctions jointly against ACT and DTS and their respective counsel
in the amount of $13,925. Neither ACT nor DTS appeal the award of sanctions under
Code of Civil Procedure section 128.7.
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practices, eighth cause of action for intentional interference with contractual relations,
and ninth cause of action for intentional interference with prospective economic
advantage.
Orion contends the court erred in denying attorney fees incurred by its Texas
counsel as part of the fee award to Orion under section 3426.4. AutoReturn and the City
contend that the court erred in denying their motion for attorney fees under section
3426.4 as to ACT. They also contend that the court erred in denying AutoReturn certain
expert witness fees against DTS under section 3426.4.
We affirm the summary adjudications of DTS's statutory cause of action for
misappropriation of trade secrets and reverse the summary adjudication of DTS's cause of
action for breach of joint venture agreement. We affirm the orders awarding Orion and
the City and AutoReturn attorney fees and costs against DTS under section 3426.4. We
reverse the orders denying DTS's requests to file records under seal. We reverse the
order denying AutoReturn's request for attorney fees under section 3426.4 against ACT
with directions to reconsider that request, and reverse the summary adjudication of ACT's
causes of action against AutoReturn for unfair business practices, intentional interference
with contractual relations, and intentional interference with prospective economic
advantage.
FACTUAL AND PROCEDURAL BACKGROUND
ACT's History with DTS and LETS/TMS
In 1994 ACT contracted with Ball Corporation (Ball), a company that had created
satellite tracking software, to design and develop a computer automated tow dispatch
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system for vehicle tows requested by the San Diego Police Department (SDPD). The
system that Ball agreed to develop "to facilitate dispatching and accounting of SDPD tow
requests" included a message router system and database query system (MRDBQ), and a
computer automated tow system known as CATS. Ball incorporated CATS into the
MRDBQ system to interface between an individual tow company's dispatch terminal and
MRDBQ. The CATS software took tow requests from SDPD officers and communicated
them in a format that was understandable by the tow companies. Ball installed CATS
software and supporting hardware at each of the tow companies as a "stand alone"
platform for the tow companies to manage their towing. An enhanced version of
MRDBQ became known as LETS, and CATS became known as TMS. The Ball
contract was assigned to DTS in 2003. The City awarded each of the ACT towing
companies a tow contract with a commencement date of January 1, 1995.
In October 2003 DTS and ACT entered into an agreement that extended and
modified the original Ball contract (the 2003 amendment). The 2003 amendment
provided that in the event ACT's contract with the City was extended past its expiration
date of December 31, 2004, DTS was "strictly prohibited from entering into any
communications or negotiations with the City . . . or any other person relating to
operational or dispatching/communications without first obtaining prior written consent
from [ACT's] president or other authorized representative[,]" and that the original Ball
contract and the 2003 amendment would "remain in full force and effect . . . for a period
of sixty (60) months after the termination of [ACT's] members' services under the City
Contract." The 2003 amendment also provided that DTS granted ACT "and its members
8
an irrevocable license for the exclusive use in San Diego County, California, of the TMS
software, including, but not limited to, any related software and/or updates or revisions
thereto." The 2003 amendment also stated that "DTS shall refrain from offering any
similar or competing service to any person operating a tow company or engaged in tow
and/or related services within [San Diego County], including, but not limited to . . . the
City, and/or any third party tow company."
AutoReturn's History with DTS and LETS/TMS
AutoReturn was founded in 2002 and offers automated, computerized tow
management services to municipalities across the United States. In 2012 when
AutoReturn filed its motion for summary judgment in this case, it was providing towing
management services to the City of San Diego, the City and County of San Francisco,
and Baltimore County, Maryland.
According to AutoReturn's chief technology officer, John Pendleton, from 2004 to
2011 AutoReturn included LETS/TMS as part of ARIES, its own integrated tow
management software package. AutoReturn used LETS/TMS under a license agreement
that gave AutoReturn access and use of the LETS/TMS system to carry out its Baltimore
County and San Francisco contracts in return for regular payments to DTS in the form of
either a monthly flat rate usage fee or a certain amount for each tow request processed by
LETS/TMS. AutoReturn maintains that DTS's relationship to AutoReturn was always
that of a vendor and licensor, and that AutoReturn never contemplated forming a joint
venture with DTS in which AutoReturn and DTS would share profits, control, and
9
ownership. DTS claims that it formed a joint venture with AutoReturn in 2008 to jointly
pursue municipal tow dispatch and management contracts throughout the United States.
The City's Request for Proposals and Award of the Towing Contact
In 2008 the City issued a request for proposals (RFP) seeking bids to provide the
City with computerized tow dispatch services. The RFP did not require that any bidding
company use LETS/TMS software or any other particular software in its proposal. ACT,
the City's incumbent tow dispatch provider, submitted a proposal in response to the RFP.
AutoReturn also submitted a proposal in response to the City's RFP. AutoReturn
wanted to use LETS/TMS in its proposal to avoid incurring additional expenses and
having to retrain its employees on different software. In the course of AutoReturn's
preparing its bid, DTS management notified AutoReturn that DTS had been sold to a
company called C:Logic. Before the change in ownership, AutoReturn executives spoke
to DTS management about licensing LETS/TMS for use in San Diego. DTS's
management suggested that ACT would take issue with DTS's licensing LETS/TMS to
AutoReturn for use in San Diego, but agreed to work with AutoReturn on its proposal.
After DTS changed ownership, C:Logic's chief executive officer (CEO), Larry Estes,
informed AutoReturn that ACT claimed an exclusive license to use LETS/TMS in San
Diego. However, based on the assurances of Estes and DTS management that the
exclusive license was invalid and unenforceable, AutoReturn submitted a proposal to the
City in May 2008 that specified LETS/TMS as a component of ARIES. ACT also
included LETS/TMS in its bid proposal.
10
In December 2008 the City informed AutoReturn that it had won the towing
contract. The City gave AutoReturn's bid an "Overall Rank" of 1 and gave ACT's bid a
rank of 2. In January 2009, ACT's counsel sent the City a letter giving notice that ACT
intended to protest the bid on the grounds that (1) "City employees and the evaluation
team members engaged in misconduct or impropriety in knowingly awarding the
[towing] contract to a bidder interfering with [ACT's exclusive license to use LETS/TMS
in San Diego County]"; and (2) "the bid of AutoReturn should have been deemed as
nonresponsive by virtue of its unauthorized incorporation of LETS and/or TMS into their
[sic] bid package." The City responded by letter stating that "the City's RFP did not
require that the winning bidder use the LETS and/or TMS systems." (Original italics.)
The City concluded that ACT had not shown any misconduct or impropriety by City staff
or other grounds for a formal bid protest hearing. In August 2009 the City and
AutoReturn executed a memorandum of agreement (MOA) confirming that AutoReturn
would provide tow dispatch services to the City.
Because of the dispute over ACT's claimed exclusive license to use LETS/TMS in
San Diego County and the City's award of the towing contract to AutoReturn,
AutoReturn contracted with Orion to provide towing services software that would replace
LETS/TMS software as a component of AutoReturn's ARIES software package.
However, when Orion's CEO DeLatte became aware of the dispute over AutoReturn's use
of LETS/TMS in its bid and the potential for Orion to become involved in the present
litigation, she terminated Orion's work with AutoReturn. In response to Orion's
withdrawal, AutoReturn directed its own software engineers to redesign ARIES to cover
11
the functions that LETS/TMS would have performed under the towing contract with the
City. Since completing its overhaul of ARIES in August 2011, AutoReturn has relied
exclusively on its own software for tow management.
Procedural Background
As noted, ACT filed a fourth amended complaint against the City, AutoReturn,
DTS, and Orion. Relevant to this appeal are ACT's seventh cause of action against
AutoReturn for "Unfair Business Practices–Violation of Business & Professions Code
[s]ection 17200 et seq."; eighth cause of action against AutoReturn for intentional
interference with contractual relations; ninth cause of action against DTS and AutoReturn
for intentional interference with prospective economic advantage; and 18th cause of
action against DTS, AutoReturn, and the City for misappropriation of trade secrets. On
appeal, ACT challenges the court's summary adjudication of the seventh, eighth and,
ninth causes of action in AutoReturn's favor.5
DTS filed a second amended cross-complaint that included a fifth cause of action
against AutoReturn for breach of joint venture agreement; a sixth cause of action for
misappropriation of trade secrets and seventh cause of action for "Common Law
Misappropriation" against AutoReturn, the City, and Orion; an eighth cause of action
against Orion for interference with contractual relations; and a 12th cause of action
against AutoReturn and Orion for unfair competition. In July 2012 the court ruled that
5 ACT does not challenge the disposition of any of its causes of action as to the City
or DTS.
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none of DTS's causes of action against Orion had merit and granted Orion's motion for
summary judgment.
In September 2012 the court granted the City and AutoReturn's motion for
summary judgment that targeted DTS's fifth cause of action for breach of joint venture
agreement and sixth cause of action for misappropriation of trade secrets, resulting in
entry of judgment in favor of the City and AutoReturn on DTS's second amended cross-
complaint.6 The minute order granting the City and AutoReturn's summary judgment
motion noted that DTS had filed "several motions/applications seeking leave to file under
seal documents that were previously filed conditionally under seal. The court denied the
first of these on July 6, 2012, and has ruled consistently on the follow-on motions but has
stayed the actual unsealing. . . . DTS has appealed these rulings."
As noted, on motions by Orion and the City and AutoReturn seeking attorney fees
and costs under section 3426.4, the court awarded Orion $120,000 and awarded the City
and AutoReturn $450,000 in attorney fees and costs. On February 28, 2013, the court
entered an amended judgment that reflects its summary judgment rulings and awards of
attorney fees and costs.
6 A minute order denying DTS leave to file a third amended cross-complaint notes
that a previous judge assigned to the case ruled, in sustaining a demurrer, that "DTS's
claims for common law misappropriation, interference with contract and contractual
relations, and undue business practices were superseded by DTS's claim for
Misappropriation of Trade Secrets (Civil Code section 3426 et seq.), as all of these claims
were premised on a common nucleus of fact relating to alleged misuse of DTS's
software."
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DISCUSSION
DTS'S APPEAL
I. Summary Adjudication of DTS's Sixth Cause of Action
for Misappropriation of Trade Secrets
DTS contends the trial court erred in granting summary adjudication of its sixth
cause of action for misappropriation of trade secrets in favor of Orion, AutoReturn, and
the City.
Standard of review
A motion for summary judgment or adjudication must be granted when there is no
triable issue of material fact and the moving party is entitled to judgment as a matter of
law. (Code Civ. Proc., § 437c, subd. (c).) "A defendant 'moving for summary judgment
bears an initial burden of production to make a prima facie showing of the nonexistence
of any triable issue of material fact.' [Citation.] A defendant may meet this burden either
by showing that one or more elements of a cause of action cannot be established or by
showing that there is a complete defense. [Citation.] . . . 'A defendant moving for
summary judgment may establish that an essential element of the plaintiff's cause of
action is absent by reliance on the pleadings, competent declarations, binding judicial
admissions contained in the allegations of the plaintiff's complaint, responses or failures
to respond to discovery, and the testimony of witnesses at noticed depositions.' " (Mills
v. U.S. Bank (2008) 166 Cal. App. 4th 871, 894 (Mills).) "The defendant may, but need
not, present evidence that conclusively negates an element of the plaintiff's cause of
action. The defendant may also present evidence that the plaintiff does not possess, and
14
cannot reasonably obtain, needed evidence . . . ." (Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal. 4th 826, 855 (Aguilar).)
"If the defendant's prima facie case is met, the burden shifts to the plaintiff to
show the existence of a triable issue of material fact with respect to that cause of action or
defense. [Citations.] ' "When opposition to a motion for summary judgment is based on
inferences, those inferences must be reasonably deducible from the evidence, and not
such as are derived from speculation, conjecture, imagination, or guesswork." ' " (Mills,
supra, 166 Cal.App.4th at p. 894.) "[R]esponsive evidence that gives rise to no more
than mere speculation cannot be regarded as substantial, and is insufficient to establish a
triable issue of material fact." (Sangster v. Paetkau (1998) 68 Cal. App. 4th 151, 163.)
For an inference to be sufficient to establish a triable issue of material fact, the inference
must show or imply the existence of the required finding more likely than the
nonexistence of the finding, either by itself or together with other inferences or evidence.
(Aguilar, supra, 25 Cal.4th at p. 857; accord, Smith v. Wells Fargo Bank, N.A. (2005) 135
Cal. App. 4th 1463, 1474.) That is because an "inference is reasonable if, and only if, it
implies [existence of the finding is] more likely than [its nonexistence]." (Aguilar, at
p. 857; accord, Smith v. Wells Fargo Bank, at p. 1474.)
"On appeal after a motion for summary judgment has been granted, we review the
record de novo, considering all the evidence set forth in the moving and opposition
papers except that to which objections have been made and sustained." (Guz v. Bechtel
National, Inc. (2000) 24 Cal. 4th 317, 334.) " 'In practical effect, we assume the role of a
trial court and apply the same rules and standards which govern a trial court's
15
determination of a motion for summary judgment.' [Citation.] '[W]e are not bound by
the trial court's stated reasons for its ruling on the motion; we review only the trial court's
ruling and not its rationale.' " (Mills, supra, 166 Cal.App.4th at p. 895.) "In performing
our de novo review, we must view the evidence in a light favorable to plaintiff as the
losing party [citation], liberally construing [plaintiff's] evidentiary submission while
strictly scrutinizing defendants' own showing, and resolving any evidentiary doubts or
ambiguities in plaintiff's favor." (Saelzler v. Advanced Group 400 (2001) 25 Cal. 4th 763,
768 (Saelzler); Aguilar, supra, 25 Cal.4th at p. 843.) However, "[a] different standard of
review applies to the court's evidentiary rulings in connection with the motion, which we
review for abuse of discretion." (Garrett v. Howmedica Osteonics Corp. (2013) 214
Cal. App. 4th 173, 181; Kincaid v. Kincaid (2011) 197 Cal. App. 4th 75, 82-83.)
Authority regarding misappropriation of trade secrets
Under the UTSA, "[a] 'trade secret' is 'information, including a formula, pattern,
compilation, program, device, method, technique, or process that: [¶] (1) 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
[¶] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its
secrecy.' (Civ. Code, § 3426.1, subd. (d).)" (Whyte v. Schlage Lock Co. (2002) 101
Cal. App. 4th 1443, 1452 (Whyte).) "The test for trade secrets is whether the matter sought
to be protected is information (1) which is valuable because it is unknown to others and
(2) which the owner has attempted to keep secret." (Id. at p. 1454.) "Under the UTSA, a
prima facie claim for misappropriation of trade secrets 'requires the plaintiff to
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demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed,
or used the plaintiff's trade secret through improper means, and (3) the defendant's
actions damaged the plaintiff.' " (CytoDyn of New Mexico, Inc. v. Amerimmune
Pharmaceuticals, Inc. (2008) 160 Cal. App. 4th 288, 297.) "The ultimate determination of
trade secret status is subject to proof presented at trial." (Whyte, supra, 101 Cal.App.4th
at p. 1453.)
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 subject to any orders that may
be appropriate under Section 3426.5 of the Civil Code." (Code Civ. Proc., § 2019.210.)
"[A] party seeking to protect trade secrets must 'describe the subject matter of the trade
secret with sufficient particularity to separate it from matters of general knowledge in the
trade or of special knowledge of those persons who are skilled in the trade, and to permit
the defendant to ascertain at least the boundaries within which the secret lies.' " (Whyte,
supra, 101 Cal.App.4th at p. 1453.)
"[Code of Civil Procedure] section 2019.210 serves four interrelated goals:
' "First, it promotes well-investigated claims and dissuades the filing of meritless trade
secret complaints. Second, it prevents plaintiffs from using the discovery process as a
means to obtain the defendant's trade secrets. [Citations.] Third, the rule assists the court
in framing the appropriate scope of discovery and in determining whether plaintiff's
discovery requests fall within that scope. [Citations.] Fourth, it enables defendants to
form complete and well-reasoned defenses, ensuring that they need not wait until the eve
17
of trial to effectively defend against charges of trade secret misappropriation." ' "
(Brescia v. Angelin (2009) 172 Cal. App. 4th 133, 144.)
In the present case, DTS filed a "second amended statement . . . in compliance
with Code of Civil Procedure [section] 2019.210" that identified the following five "trade
secret databases:" (1) The "reasons code database," which collects, tracks, and propagates
information about the reasons for a tow; (2) the "beat or district database," which
provides information about the geographic region at issue; (3) the "hold reasons
database," which collects information concerning the reasons that vehicles are held; (4)
the "holding unit database," which collects information relevant to the agency holding an
impounded vehicle; and (5) the "administrative fees database," which collects
information relative to reason codes connected with fee charges.
DTS's trade secret statement also identified "[f]low of control trade secrets" with
the following explanation: "The static information in the [specified trade secret]
databases is valuable in and of itself, but of greater value in any automated system is the
way in which that information is used. The data in each of the databases . . . also controls
both the functioning of the program and the flow of information. Each new data entry
triggers different parts of each database and directs both the program and its users to do
different things. The database can direct the program to ask the users for additional
information, transmit information to a third party, or direct the users to take specific
courses of action outside the confines of the program. Because each combination of
instances can trigger a different set of directions, the number of different direction sets is
enormous. DTS contends that each possible combination is a trade secret that has been
18
misappropriated by Cross-Defendants and is at issue in this litigation. Each instruction
set which translates a combination of inputs into a concrete course of action represents a
use of the underlying data and is therefore a trade secret distinct from the trade secret
claimed in the static databases. [¶] . . . In the present case, DTS alleges the Cross-
Defendants misappropriated both the static data and the dynamic flow of control or
instruction sets."
A. Summary Adjudication in Favor of Orion
In its motion for summary judgment/adjudication, Orion argued there was no
evidence that it misappropriated any trade secrets and that DTS's specified trade secrets
did not qualify as trade secrets because DTS did not make reasonable efforts to maintain
their secrecy. The trial court concluded that DTS failed to raise a triable issue of fact on
any of these points and that DTS did not show that it was damaged by Orion's alleged
misappropriation of trade secrets.
Assuming, without deciding, that DTS's opposition evidence was sufficient to
raise a triable issue of facts as to whether the databases DTS specified as trade secrets
qualify as trade secrets and DTS made reasonable efforts to maintain their secrecy, we
conclude the court nevertheless correctly granted Orion's motion for summary judgment
based on the lack of evidence that Orion misappropriated any trade secret. As evidence
that Orion misappropriated DTS's trade secret databases, DTS presented an e-mail sent
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by AutoReturn employee Jason Miller that includes XML schema7 that DTS suggests
was from Orion. DTS also presented an e-mail from Miller that included reason code
script allegedly prepared by Orion that was similar to DTS's reason code script.
DTS's computer science expert Bruce Abramson stated in a declaration that "[t]he
defendants had access to DTS's software including its databases, and at least some if not
all of the underlying source code[,]" and that "DTS granted the Defendants such access
subject to an agreed code of confidentiality and limitations on the ways that the
Defendants could use the software." Abramson asserted that "[a]t least some parts of the
Defendants' competing software system was copied directly from DTS's software," and
that evidence "proves conclusively that the Defendants made at least some improper use
of DTS's software." Abramson had "seen one document purporting to be part of the
Defendants' implementations of its database paralleling one of DTS's claimed trade secret
databases, and compared it to the analogous portion of the DTS system." He opined that
"the two database fragments are similar enough to suggest that Defendants[']
inappropriate use of DTS's software extended to this particular trade secret."8
7 In its opposition to Orion's summary judgment motion, DTS explained that "XML
is a 'markup language' designed to present materials in a way that both machines and
humans can read and understand. [Citation.] An XML schema is one type of document
written in XML language."
8 The record does not contain a complete copy of the declaration that Abramson
prepared in opposition to Orion's summary judgment motion. The copy in the record
begins on page seven and portions of the declaration are redacted. In DTS's sealed
appendix, the declaration that Abramson prepared in opposition to AutoReturn and the
City's motion for summary judgment appears twice, presumably through inadvertence.
20
Orion objected to these statements by Abramson on the grounds of lack of
foundation and assuming facts not in evidence. Orion explained that Abramson's
opinions were not based on reasonable inferences, there was no evidence that DTS
granted Orion access to DTS's software subject to a code of confidentiality and limitation
on the ways the software could be used, Abramson did not state the basis for his opinion
that Orion had access to or copied DTS's software, and he assumed without factual
support that the document he referred to was developed by Orion. The court sustained
Orion's objections.
Abramson also compared the alleged Orion XML schema and reason code script
to DTS's XML schema and reason code script and noted "a number of stylistic
similarities that are unlikely to have arisen by sheer coincidence, including words
misspelled the same way in both schemas, and arbitrary-length lists assigned the same
arbitrary lengths." He concluded that "[t]he only plausible explanation for such stylistic
similarities is that the designers of the second schema–Orion's by assumption–simply
copied the first schema (i.e. DTS's schema)." (Italics added.) Regarding his comparison
of the reason code scripts, Abramson stated: "Though they are not identical, the
similarities overwhelm the differences—thereby suggesting that Defendants'
inappropriate use of DTS's systems and software extended into the specific components
claimed as trade secrets." Abramson concluded that "it appears quite clear that Orion
copied DTS's schema—thereby making inappropriate use of DTS's property in violation
However, portions of Abramson's declaration in opposition to Orion's motion not
otherwise in the record are quoted in Orion's written objections to DTS's evidence.
21
of existing confidentiality agreements—and likely continued its copying to the full extent
possible given the access that DTS granted it, including into the realm of the protected
trade secrets that DTS has indentified in this matter."
Orion objected to Abramson's statements about the similarities between the XML
schema he compared, his opinion that the only plausible explanation for the similarities
was that Orion copied DTS's schema, and his suggestion that "Defendants' inappropriate
use of DTS's systems and software extended into the specific components claimed as
trade secrets" on the grounds they were irrelevant, lacked foundation, assumed facts not
in evidence, and were speculative. Regarding relevancy, Orion noted that Abramson did
not opine that Orion misappropriated DTS's claimed trade secrets; his opinion was
limited to his conclusion that Orion copied a schema that was not one of DTS's claimed
trade secrets. Orion also objected that Abramson did not support his assumption that the
XML schema in question was Orion's, and the e-mail containing the schema showed that
it was sent by an AutoReturn employee. The court sustained the objections.
Orion objected to Abramson's statements that stylistic similarities between the
schemas he compared were "unlikely to have arisen by sheer coincidence, including
words misspelled the same way in both schemas, and arbitrary-length lists assigned the
same arbitrary lengths," and that "[t]he only plausible explanation for such stylistic
similarities is that the designers of the second schema—Orion's by assumption—simply
copied the first schema (i.e. DTS's schema)." Orion objected the statements were
irrelevant because Abramson's opinion was "limited to his conclusion that Orion copied a
schema, which DTS does not claim to be a trade secret." Orion further objected that the
22
statements lacked foundation, assumed facts not in evidence, and were speculative,
contending that the XML schema in question was AutoReturn, and Abramson did not
support his assumption that it was Orion's. The court sustained Orion's objections on all
stated grounds.
Among other grounds, Orion objected to Abramson's statement that the
similarities between the reason code scripts he compared "overwhelm the differences–
thereby suggesting that Defend[an]ts' inappropriate use of DTS's systems and software
extended into the specific components claimed as trade secrets[,]" as speculative and
lacking foundation. Orion argued that Abramson had not provided "any factual basis for
his speculation that copying of the non-trade secret code fragment suggests inappropriate
use that extended to claimed trade secrets." The court sustained the objection. The court
also sustained Orion's objection on grounds of lack of foundation and speculation to
Abramson's conclusion that Orion copied DTS's, "thereby making inappropriate use of
DTS's property in violation of existing confidentiality agreements—and likely continued
its copying to the full extent possible given the access that DTS granted it, including into
the realm of the protected trade secrets that DTS has indentified in this matter."
We find no abuse of discretion in the court's evidentiary rulings. The court
reasonably sustained the noted objections for the reasons stated by Orion. DTS
complains that the court denied it due process by not allowing it "discourse" on the
sustained objections and an opportunity to cure any foundational defects. There was no
due process violation. DTS received Orion's evidentiary objections and the court's
rulings on them before oral argument and therefore had the opportunity to address them
23
then. The court was not required to provide the parties an opportunity to argue the merits
of each other's evidentiary objections; it was required only to rule on them. (See Cal.
Rules of Court, rule 3.1354; Mora v. Big Lots Stores, Inc. (2011) 194 Cal. App. 4th 496,
512, fn. 15 [trial court is not required to explain evidentiary rulings; it need only
expressly rule on each evidentiary objection].)
In any event, Abramson's declaration had no evidentiary value on the issue of
Orion's alleged copying of DTS's trade secrets. It was purely speculative for Abramson
to infer from evidence that Orion may have copied material that was not a trade secret
that Orion also copied trade secret material. It was further speculative for Abramson to
assume that the copying (i.e., designing of the second schema) was done by Orion
without articulating any basis for that assumption. Orion submitted DeLatte's declaration
explaining that the EML schema was not Orion's and that Jason Miller, the sender of the
e-mail that included the XML schema in question, was an AutoReturn employee. The
Abramson declaration that DTS filed in opposition to AutoReturn and the City's later
motion for summary judgment was modified to reflect that AutoReturn rather than Orion
authored the XML code that was copied.
As noted, to defeat summary judgment, inferences from opposition evidence must
be reasonably deducible and not constitute mere " 'speculation, conjecture, imagination,
or guesswork.' " (Mills, supra, 166 Cal.App.4th at p. 894.) An inference must show or
imply the existence of the required finding more likely than the nonexistence of the
finding, either by itself or together with other inferences or evidence. (Aguilar, supra, 25
Cal.4th at p. 857.) Further, although an expert may rely on inadmissible matter in
24
forming an opinion, "that matter relied upon must 'provide a reasonable basis for the
particular opinion offered.' [Citation.] An expert opinion may not be based on
conjectural or speculative matters." (Howard Entertainment, Inc. v. Kudrow (2012) 208
Cal. App. 4th 1102, 1115.) Abramson's inference that Orion or some other entity "likely"
copied DTS's trade secret material based on evidence that someone copied DTS's non-
trade-secret XML schema is conjectural and insufficient to raise a triable issue of
material fact on the issue of trade secret misappropriation.
Moreover, notwithstanding its rulings on Orion's evidentiary objections to
Abramson's declaration, the court considered the XML schema and reason code
documents that Abramson compared and ruled that they did not raise a triable issue of
fact as to whether Orion misappropriated DTS's trade secrets. The court stated: "[T]he
only two pieces of evidence DTS argues creates a material issue of fact whether Orion
misappropriated DTS's trade secrets, an XML schema and reason code script, do not do
so. The XML schema and reason code script are not the five (5) databases
DTS . . . identified as its trade secrets. Further, DTS has not shown that
these . . . documents have any independent economic value to DTS by virtue of being
secret. The XML schema was not created by Orion . . . . Thus, it is not evidence of
Orion copying anything belonging to DTS. Also, the reason script does not create a
triable issue as it is nothing more than a program used to harvest the reason cars are
towed from the City's database. There is nothing secret, or valuable by virtue of being
secret, about the reason cars are towed, nor about a script to migrate the City's tow reason
data from one system to the other. Many of the 'reason codes' are simply citations to the
25
California Vehicle Code or the Municipal Code, undeniably public documents. There is
no evidence that Orion copied the DTS system or the database programming. Rather, it
only prepared to harvest the data (which is owned by the City) from that database. Orion
never got to that point, as it pulled out of the project when it found out DTS was suing
over the bid it lost."
The court's key findings, which the record supports, were that DTS did not
identify the XML schema and reason code script as trade secrets,9 the XML schema was
not created by Orion, and there is nothing secret, or valuable by virtue of being secret,
about the reason cars are towed. Further, as Abramson acknowledged, there were
differences between DTS's reason codes database and the reason code script Abramson
compared it to that the court noted were "sufficient to negate the assertion of wholesale
copying." The court correctly granted summary judgment in Orion's favor as to DTS's
cause of action for misappropriation of trade secrets.
B. Summary Adjudication in Favor of AutoReturn and the City
AutoReturn and the City sought summary adjudication of DTS's sixth cause of
action for misappropriation of trade secrets on the grounds that DTS failed to identify a
trade secret and neither AutoReturn nor the City misappropriated any trade secret. In its
9 Although DTS identified its "reasons code" database as one its trade secrets,
Abramson stated in his declaration that the reason code script and DTS's database were
not identical. As noted, Abramson stated that "the similarities overwhelm the
differences—thereby suggesting that Defend[an]ts' inappropriate use of DTS's systems
and software extended into the specific components claimed as trade secrets." The trial
court correctly sustained Orion's objection to Abramson's "suggestion" of trade secret
misappropriation on the grounds it lacked foundation and was speculative.
26
order granting summary judgment as to the sixth cause of action, the court stated it
"continues to be of the view that DTS has failed to demonstrate the existence of any trade
secrets in the first place."
The court further ruled that there was "no material evidence of misappropriation."
Similar to its ruling on Orion's summary judgment motion, the court noted that
depositions had "narrowed the dispute to two documents AutoReturn allegedly sent to
Orion: an XML schema file and an Orion reason code script." The court concluded that
the City was entitled to summary adjudication because "[t]here is nothing implicating the
City in any misappropriation." The court ruled that as to AutoReturn, DTS failed to raise
a triable issue of fact, noting, among other things, that "DTS failed to indentify the
'schema' as a trade secret[, and that Abramson stated in] his declaration that '[l]ittle if
anything about XML is important . . . to the present dispute.' " Regarding the reason code
script, the court stated that it had "already expressed its view that this document is largely
based on the California Vehicle Code, the exact opposite of a protectable trade secret, and
even if it were otherwise, there are differences between the databases . . . sufficient to
negate the assertion of wholesale copying."
We conclude the trial court correctly found that DTS failed to raise a triable issue
of fact as to whether AutoReturn or the City misappropriated any alleged trade secret.
AutoReturn presented evidence that it developed ARIES for use in San Diego from the
public information and SDPD's tow operations manual provided by the City.
AutoReturn's former chief technology officer Pendleton stated in a declaration that
AutoReturn developed AIRES based on AutoReturn's 10 years of experience in towing
27
and impound management and consideration of the specific needs of San Francisco,
Baltimore County, San Diego and other prospective clients. During the development of
ARIES, AutoReturn isolated the development team from other competing tow dispatch
platforms, including LETS/TMS. Pendleton averred that although he had used
LETS/TMS, neither he nor anyone on the ARIES development team had knowledge of
LETS/TMS's internal functions and "inner workings" beyond what can reasonably be
deduced from using the software and having a software engineering background.
Pendleton stated no part of LETS/TMS was used in developing ARIES and he had "never
seen the LETS/TMS source code, object code, database components or any other
programming code for LETS and TMS, and [had] no knowledge of any part of LETS and
TMS that might be considered a 'trade secret.' "
DTS's opposing evidence included a declaration by Abramson that was
substantially the same as his declaration filed in opposition to Orion's motion for
summary judgment. Like Orion, AutoReturn and the City objected to Abramson's
assertions and suggestions that "Defendants" copied DTS's software as lacking
foundation, and the court properly sustained the objections. The exclusion of Abramson's
opinion evidence left no evidence raising a triable issue of fact as to whether AutoReturn
or the City misappropriated any trade secrets from DTS.
We recognize that Pendleton testified during his deposition that DTS had provided
AutoReturn access to DTS's source code with a log-in and password to enable
AutoReturn to review the code as part of AutoReturn's "due diligence effort" in
connection with discussions about AutoReturn acquiring DTS. Pendleton testified that he
28
did not log into "that passcode," but he provided the passcode to two AutoReturn
employees. Only one of those employees, Maxim Glaezer, accessed the source code and
reported to Pendleton that he saw "a bunch of files that appeared to be source code" and
asked Pendleton what he wanted him to do. Pendleton told the Glaezer it was
unnecessary to do anything further because the acquisition was not going to happen and,
therefore, there was no need to "go[] through this due diligence exercise." He did not ask
Glaezer to make copies of the source code.
Although Pendleton admitted it was possible for him or his employees to have
copied the source code, there is no evidence that any such copying occurred. AutoReturn
submitted a declaration by Glaezer in which he stated that in early 2009, Pendleton asked
him to review and evaluate the LETS/TMS source code as part of due diligence for a
potential acquisition, but before he had time to review the code, "DTS and AutoReturn
terminated acquisition talks, and DTS rescinded AutoReturn's access to the LETS/TMS
code." Glaezer averred that he has never reviewed the code. Pendleton's
acknowledgement that it was theoretically possible for AutoReturn employees to have
copied DTS's source code is insufficient to raise a triable issue of fact as to whether
AutoReturn actually misappropriated a trade secret because it does not imply the
existence of misappropriation more likely than the nonexistence of misappropriation,
either by itself or together with other inferences or evidence. (Aguilar, supra, 25 Cal.4th
at p. 857.)
DTS argues that it presented evidence that the City misappropriated DTS's trade
secrets within the meaning of section 3426.1 by knowing that DTS's software was
29
confidential material and using it without DTS's approval. Specifically DTS cites the
following paragraph in the declaration of former manager of DTS Sushil Garg: "From
my interactions with various City personnel over the years I understood that the City was
aware that DTS's software was required to be kept confidential. It was my intent as
manager of DTS that the City have the same confidentiality obligations relating to DTS
software as AutoReturn had under the San Francisco Agreement and Baltimore
Agreement. AutoReturn and the City were exposed to the structure of DTS's software
every time they used DTS's programs. Furthermore, AutoReturn was provided source
code and script on a need to know basis. However, it was understood that AutoReturn
and the City were to keep DTS's information confidential."
DTS also cites the following paragraph in Estes's declaration: "DTS and
AutoReturn also agreed that the City of San Diego would be permitted to operate the
LETS software as a 'User,' as the term is defined in the Definition section of the San
Francisco Agreement. As a User, the City was to be provided limited security access
(i.e.[,] password protected) for use by specified personal [sic] on a 'need to know' basis
only, and for use solely related to performance of the City's tow communications contract
with AutoReturn. Furthermore, the City understood it was not to share the contents of
DTS's software with any prospective competitors of DTS. While DTS has disclosed
portions of its reasons codes and hold reasons databases to the public for marketing
purposes, it has not disclosed the majority of these databases as I have been advised
AutoReturn contends. Furthermore, contrary to AutoReturn's assertions, the contents of
the reasons codes database, holds reasons database and beat or district database were not
30
'nearly all' derived from public materials or documents provided from the City. While
much of the information was publically available, DTS also had to conduct extensive
interviews with City employees and other research to collect and compile the information
needed for these databases. Moreover, while the information contained in the
administrative fee database consists of public information, aggregation of this
information took time and effort on DTS's part."
The trial court sustained AutoReturn and the City's objections on the ground of
lack of foundation to Garg's statements that he understood the City was aware that DTS's
software was required to be kept confidential, that AutoReturn was provided source code
and script on a need to know basis, and that "it was understood that AutoReturn and the
City were to keep DTS's information confidential." The court also sustained AutoReturn
and the City's foundation objections to Estes's statements that the City understood it was
not to share the contents of DTS's software with any prospective competitors of DTS, and
that " 'contrary to AutoReturn's assertions, the contents of the reasons codes database,
holds reasons database and beat or district database were not "nearly all" derived from
public materials or documents provided from the City.' " The court's sustaining the
foundation objections to Garg's and Estes's assertions about what the City understood was
not an abuse of discretion.
In any event, evidence that use of DTS's software by the City was password
protected and that City employees understood the software was to be kept confidential
does not support a reasonable inference that City employees misappropriated any trade
secret aspect of the software. DTS acknowledges that the databases it identifies as trade
31
secrets are, in DTS's words, "largely comprised of public information." DTS argues that
the trade secret aspect of the databases is "how these specific databases operate to
correlate complex sets of information and make those correlated data sets generate
results. . . . [H]ow the data bases interrelate to pull information, query users for more
information, and generate results based on data sets is the 'flow of control['] trade
secret."10 Even if there were substantial evidence that the City, through unspecified
employees, understood that DTS's software was required to be kept confidential, there is
no evidence that any agent of the City had sufficient knowledge and understanding of
DTS's claimed "flow of control" secrets to be able to misappropriate them. The court
properly ruled that there was no evidence "implicating the City in any misappropriation."
The court did not err in summarily adjudicating DTS's cause of action for
misappropriation of trade secrets in the City and AutoReturn' favor.
10 In its second amended trade secret statement under Code of Civil Procedure
section 2019.210, DTS stated the following under the heading, "Flow of control trade
secrets:" "The static information in the [specified trade secret] databases is valuable in
and of itself, but of greater value in any automated system is the way in which that
information is used. The data in each of the databases . . . also controls both the
functioning of the program and the flow of information. Each new data entry triggers
different parts of each database and directs both the program and its users to do different
things. The database can direct the program to ask the users for additional information,
transmit information to a third party, or direct the users to take specific courses of action
outside the confines of the program. Because each combination of instances can trigger a
different set of directions, the number of different direction sets is enormous. DTS
contends that each possible combination is a trade secret that has been misappropriated
by Cross-Defendants and is at issue in this litigation. Each instruction set which
translates a combination of inputs into a concrete course of action represents a use of the
underlying data and is therefore a trade secret distinct from the trade secret claimed in the
static databases. [¶] . . . In the present case, DTS alleges the Cross-Defendants
misappropriated both the static data and the dynamic flow of control or instruction sets."
32
II. Denial of DTS's Motion for Reconsideration
DTS contends the court abused its discretion in denying DTS's motion for
reconsideration of the order granting AutoReturn and the City's motion for summary
judgment. Code of Civil Procedure section 1008, subdivision (a) provides that "any party
affected by [an] order may, within 10 days after service upon the party of written notice
of entry of the order and based upon new or different facts, circumstances, or law, make
application to the same judge or court that made the order, to reconsider the matter and
modify, amend, or revoke the prior order." "The party seeking reconsideration must
provide not just new evidence or different facts, but a satisfactory explanation for the
failure to produce it at an earlier time. . . . A trial court's ruling on a motion for
reconsideration is reviewed under the abuse of discretion standard." (Glade v. Glade
(1995) 38 Cal. App. 4th 1441, 1457.)
DTS moved for reconsideration based on the "newly discovered fact" that
AutoReturn did not produce relevant components of its ARIES software for inspection by
DTS's computer science expert Abramson. Specifically, DTS complained that
AutoReturn failed to provide access to the maintenance section of the ARIES software,
and that without access to maintenance screens, DTS could not determine whether
AutoReturn copied significant portion of DTS's software.
In opposition to DTS's motion, AutoReturn and the City noted that after amending
its cross-complaint to allege misappropriation of trade secrets, DTS obtained over 40,000
pages of documents from the cross-defendants, took six depositions, and demanded a
five-day review of ARIES by its software expert. Pendleton and AutoReturn's counsel
33
submitted declarations stating that the parties agreed that DTS's expert Abramson's access
to ARIES would be limited to the portions of the software that a typical user would see,
with DTS reserving the right to seek greater access if it deemed it reasonably necessary.
AutoReturn complied with the agreement and provided Abramson full user-level access,
which included all of the ARIES maintenance screens. Abramson conducted his review
over a period of five days, before DTS filed its opposition to AutoReturn and the City's
summary judgment motion. At one point he requested a link to the ARIES administrative
module and AutoReturn provided the link. DTS never requested additional access to
ARIES or indicated that the access it was provided was inadequate. DTS did not refer to
its review of ARIES in its opposition to AutoReturn and the City's motion for summary
judgment.
AutoReturn asserted that DTS's motion for reconsideration was based on the
incorrect assumption that the ARIES software contained similar maintenance screens to
those in DTS's software. AutoReturn contended that "ARIES does not manage its data in
the same way as DTS, and has just a handful of maintenance screens, unlike the dozens
of screens in DTS's software." AutoReturn and the City requested sanctions against DTS
for bringing a frivolous motion for reconsideration.
The court denied the motion for reconsideration, ruling that "DTS had ample time
and opportunity to conduct discovery necessary to establish its trade secret claim. It
received 40,000 pages of documents, took numerous depositions, and was granted wide
access to the ARIES software." The court concluded that DTS failed "to demonstrate
legally cognizable 'new or different' facts [or] circumstances,' as the moving papers do
34
not provide a satisfactory explanation for failing to present the information at or before
the [summary judgment] hearing or other indicia of reasonable diligence." The court
denied AutoReturn and the City's request for sanctions. Given the evidence that before
DTS filed its opposition to the AutoReturn and the City's summary judgment motion,
AutoReturn provided DTS full user-level access to the ARIES software in accordance
with the parties' agreement, including access to ARIES maintenance screens, the court
did not abuse its discretion in denying DTS's motion for reconsideration based on
AutoReturn's alleged failure to produce ARIES maintenance screens.
III. Denial of DTS's Motions to Redact and Seal Its Proprietary Information
DTS contends the court erred in denying five motions that DTS brought under
section 3426.5 to redact and seal its proprietary information. None of the parties
responding to DTS's appeal have addressed this assignment of error. We agree that the
court erred in denying the motions.
On June 4, 2012, DTS sought an order under section 3426.5 to redact and seal
verbatim quotes of two of its interrogatory responses that were filed conditionally under
seal with AutoReturn and Orion's summary judgment motions. The court denied this
sealing motion as a motion under California Rules of Court, rule 2.550. The court found
it was tardy under rule 2.551(b)(3)(B). The court acknowledged that DTS sought to seal
under section 3426.5, but ruled that section 3426.5 did not apply, stating: "This theory
was undermined with the withdrawal of the trade secret claims from the main action, as
evidenced by paragraph 6 of the Carey Declaration filed May 25[, 2012]. DTS claims
35
this is still a viable theory as the sixth count of the second amended cross-
complaint . . . still contains such a claim."
The court ruled that "DTS has failed to substantiate its claim that the lodged
documents will disclose a trade secret, and has failed to make a showing justifying the
sort of express and detailed findings necessary under [California Rules of Court, r]ule
2.550(d) if the presumption of [r]ule 2.550(c) is to be overcome." Accordingly, the court
denied DTS's sealing request and ordered the clerk to unseal all documents lodged
provisionally under seal. However, the court stayed that portion of the order for 30 days.
On June 29, 2012, DTS filed two additional motions to seal. One of those motions
requested to redact and seal the following documents filed conditionally under seal in
connection with AutoReturn's and the City's summary judgment motion: (1) Exhibits 1
through 5 to its second amended trade secret statement under Code of Civil Procedure
section 2019.210, (2) portions of attorney Matthew Yan's declaration, (3) portions of
AutoReturn and the City's points and authorities in support of their summary judgment
motion, and (4) portions of AutoReturn and the City's separate statement.
DTS's other motion filed on June 29 requested to redact or seal the following
documents filed conditionally under seal in connection with Orion's summary judgment
motion: (1) seal Exhibits 1 through 5 to its second amended trade secret statement under
Code of Civil Procedure section 2019.210, (2) seal DTS's XML schema (DTS's Exh. 6),
(3) redact Orion's XML schema represented in July 10, 2010 e-mail from Miller to
Hendry (DTS's Exh. 7), (4) seal DTS's summary judgment opposition exhibits 8 through
27, (5) redact Abramson's opposition declaration at paragraphs 21 and 22.
36
The court denied these sealing requests on September 4, 2012, stating: "The court
finds, as it did [in ruling on DTS's first sealing motion], that DTS has failed to
substantiate its claim that the lodged documents will disclose a trade secret, and has
failed to make a showing justifying the sort of express and detailed findings necessary
under [California Rules of Court, r]ule 2.550(d) if the presumption of [r]ule 2.550(c) is to
be overcome. The court incorporates fully its detailed findings in part 2 of the July 6
minutes." The court again ordered the clerk to unseal all documents lodged provisionally
under seal, but stayed that portion of the order because it was aware that DTS had
appealed the court's previous order denying DTS's motion to seal. The court assumed
DTS would also appeal the second order denying its sealing requests and stated: "The
stay will expire if DTS does not file a timely notice of appeal on this issue."
DTS's fourth motion to seal was an ex parte application on September 13, 2012,
that again sought to fully redact and seal its summary judgment opposition exhibits 6
through 27 and to redact specified portions of Abramson's opposition declaration, and to
redact and seal certain documents it submitted in opposition to Orion's motion for
attorney fees, including portions of a declaration by Abramson. The court denied DTS's
requests to seal and redact, but again stayed the unsealing of the conditionally sealed
documents "pending the appellate decision."
DTS's fifth request to seal was an ex parte application in December 2012 to seal
documents filed in support of AutoReturn and the City's motion for attorney fees and
costs. Specifically, DTS sought to seal an exhibit "O," which consisted of excerpts from
the deposition transcript of DTS employee Reba Hildebrand and to file a copy of the
37
exhibit with specified redactions. DTS also sought to seal all of AutoReturn and the
City's exhibit "P," which was previously an exhibit to Hildebrand's deposition. The court
again denied the application but stayed the unsealing.
The court erred in applying California Rules of Court, rule 2.550 to DTS's requests
to seal instead of section 3426.5, which provides: "In an action under this title, a court
shall preserve the secrecy of an alleged trade secret by reasonable means, which may
include granting protective orders in connection with discovery proceedings, holding in-
camera hearings, sealing the records of the action, and ordering any person involved in
the litigation not to disclose an alleged trade secret without prior court approval." (Italics
added.) California Rules of Court, rules 2.550 and 2.551 regarding sealed records "do
not apply 'to records that courts must keep confidential by law.' " (In re Providian Credit
Card Cases (2002) 96 Cal. App. 4th 292, 298 (Providian).) A mandatory confidentiality
requirement is imposed only in actions for misappropriation of trade secrets under the
UTSA. (Providian, at p. 298.)
As the plain meaning of section 3426.5 and Providian make clear, because DTS
was prosecuting an action for misappropriation of the alleged trade secrets under the
UTSA, it was entitled to file its alleged trade secret material under seal to preserve its
secrecy. DTS has not been prejudiced so far by the court's denials of its requests to seal
because all of the documents that DTS sought to seal or redact were filed conditionally
under seal and remain under seal as a result of the trial court's staying their unsealing
pending this appeal. Because DTS claims the right to trade secret protection under
section 3426.5 and we have affirmed summary adjudication of its statutory trade secret
38
cause of action solely based on lack of evidence of misappropriation and not on the
ground there is no trade secret, DTS is entitled to maintain the material in question under
seal. Accordingly, we will reverse the orders denying DTS's requests to seal and direct
the court to grant those requests.
IV. Attorney Fee Awards Under Section 3426.4
DTS contends the trial court erred in awarding attorney fees to Orion and
AutoReturn under section 3426.4.11 Section 3426.4 provides: "If a claim of
misappropriation is made in bad faith, . . . the court may award reasonable attorney's fees
and costs to the prevailing party. Recoverable costs hereunder shall include a reasonable
sum to cover the services of expert witnesses, who are not regular employees of any
party, actually incurred and reasonably necessary in either, or both, preparation for trial
or arbitration, or during trial or arbitration, of the case by 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
11 Although the court awarded attorney fees and costs to AutoReturn and the City
jointly, DTS's challenge on appeal to that award addresses only the propriety of the award
as to AutoReturn.
39
evidence to support the claim.' [Citation.] The first clause, of course, is superfluous;
there is no logical reason to require that the action 'superficially appear[ ] to have merit.' "
(Cypress, supra, at p. 261.) "Subjective bad faith may be inferred by evidence that
appellants intended to cause unnecessary delay, filed the action to harass respondents, or
harbored an improper motive. [Citation.] The timing of the action may raise an
inference of bad faith. [Citation.] Similar inferences may be made where the plaintiff
proceeds to trial after the action's fatal shortcomings are revealed by opposing counsel."
(FLIR, supra, at p. 1278.)
"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. California Custom
Shapes, Inc. (2002) 95 Cal. App. 4th 1249, 1262-1263 (Gemini).) Thus, on an appeal from
an order under section 3426.4, "the appellant has an 'uphill battle' and must overcome
both the 'sufficiency of evidence' rule and the 'abuse of discretion' rule. . . . We do not
retry cases on appeal and we do not substitute our discretion for that of the trial court."
(FLIR, supra, 174 Cal.App.4th at pp. 1275-1276.)
"A defendant moving for attorney fees under section 3426.4 is 'not required to
conclusively prove a negative (i.e., that they did not steal [the plaintiff's] trade secrets).
40
Instead, under the "objectively specious" standard, it [i]s enough for defendants to point
to the absence of evidence of misappropriation in the record.' [Citation.] Further, the
sufficiency of the evidence to support a given finding is not tested solely by examining
evidence presented by one party, but raises the question whether 'on the entire record,
there is substantial evidence, contradicted or uncontradicted, which will support the
determination . . . . [W]hen two or more inferences can reasonably be deduced from the
facts, a reviewing court is without power to substitute its deductions for those of the trial
court.' " (Cypress, supra, 236 Cal.App.4th at p. 260.)
Attorney fee award to Orion
We conclude substantial evidence supports the trial court's determination that DTS
maintained its trade secret claim against Orion in bad faith. Accordingly, we conclude
the court did not exceed the bounds of reason in awarding Orion attorney fees under
section 3426.4 as a sanction against DTS. Although the trial court did not expressly state
that DTS's trade secret claim was "objectively specious," the court expressly noted in its
order that " 'bad faith" as used in section 3426.4 consists of both 'objective speciousness'
of the plaintiff's claim and 'subjective bad faith in bringing or maintaining the claim.' "
In ruling on Orion's motion for attorney fees, the court stated: "As foreshadowed by the
court's . . . ruling on the DeLatte/Orion motion for summary judgment, DTS's decision to
drag them into the case was made without any admissible evidence (as opposed to rumor
and suspicion) of any wrongdoing by them, and was thus objectively unreasonable and in
bad faith." (Italics added.) Regarding subjective bad faith, the court ruled: "And there is
more than a little evidence, outlined in [Orion's] moving and reply papers, to suggest that
41
[DTS's] decision to file the cross-action was also made for an improper purpose, and that
the cross[-]action was thereafter maintained for an ulterior purpose by DTS long after it
should have been clear that DeLatte and Orion had no liability."
During oral argument on the attorney fee motions, DTS's counsel equated
"objective bad faith" with "objective speciousness," arguing: "Orion has failed to meet
its burden of proof by a preponderance of the evidence. They are required not just to
show subjective bad faith, but also to show objective bad faith. And the court doesn't
specifically address that in its tentative." (Italics added.) The court disagreed, stating, "I
specifically say [in the written order] 'and was thus objectively unreasonable and in bad
faith,' so you are starting off on the wrong foot. I did make a ruling on that." (Italics
omitted.) Thus, the court clarified that the word "objectively" in its written order
modified both "unreasonable" and "bad faith." Taking our cue from DTS's counsel and
the trial court, we construe "objective bad faith" to mean the same as "objective
speciousness" for purposes of Orion's motion for attorney fees under section 3426.4.12
Bearing in mind that we must accept the version of the facts that supports the trial
court's determination, if supported by substantial evidence, and must indulge in the
inferences that favor the court's findings (Gemini, supra, 95 Cal.App.4th at pp. 1262-
1263), we conclude the trial court reasonably found that DTS's trade secret claim against
12 Later during oral argument, DTS's counsel again equated objective bad faith with
objective speciousness, stating: "Your Honor, for purposes of ruling on this motion, the
issue with regard to objective bad faith is whether there is any evidence that supports the
filing of this [trade secret] claim."
42
both Orion was objectively specious and subjectively maintained in bad faith. Orion
submitted a declaration by its counsel (Kenneth Fitzgerald), with supporting e-mails and
other documentation, recounting negotiations between him and DTS's counsel (Mark
Bailey) and ACT's counsel (Patrick Webb) regarding Orion's request to be dismissed
from DTS's and ACT's lawsuits. Bailey and Webb informed Fitzgerald that "they had
sued Orion to dissuade Orion from moving forward in San Diego, and their hope was that
without Orion's participation in the project, AutoReturn would not be able to meet the
City's [towing] needs, and the City would drop AutoReturn as its vendor." Orion rejected
certain settlement demands by ACT and DTS13 and decided to proceed with the
litigation and produce all documents requested by DTS with the view that "DTS would
see that none of its source code or trade secrets were provided to or used by Orion, and
that DTS would then voluntarily dismiss Orion from the action."
In ensuing e-mail exchanges, Fitzgerald repeatedly requested that DTS dismiss
Orion from its lawsuit based on the absence of any evidence that Orion had
13 Bailey told Fitzgerald that DTS and ACT would be willing to dismiss Orion from
the litigation if DeLatte provided a predeposition interview with Bailey and if Orion
provided an informal production of its documents. Orion agreed to those terms, but was
unwilling to produce documents and disclose information that would violate a
confidentiality agreement between Orion and AutoReturn. However, Orion agreed to
produce documents that would potentially violate the confidentiality agreement if DTS
would subpoena them. Rather than subpoena the documents, DTS proposed that Orion
assign to DTS claims it might have against AutoReturn so that Orion and DTS would be
in privity and could therefore share AutoReturn's confidential information. DTS also
suggested that Orion did not have to comply with its confidentiality agreement because
AutoReturn had breached the agreement by not disclosing the present litigation to Orion.
43
misappropriated DTS's trade secret. Fitzgerald asserted that the documents Orion
produced in discovery showed that Orion and DeLatte "did not receive any source code
or other arguably proprietary information belonging to [DTS or ACT], and they certainly
were unaware of any possible proprietary status of any information they did receive in the
course of their dealings with AutoReturn. . . . [¶] There is no factual basis for the
allegations that [Orion] misappropriated [DTS's or ACT's] trade secrets . . . . The
continued prosecution of this action against [Orion] makes no sense, and is in bad faith.
There is no legitimate reason that my clients remain parties to this case. Please dismiss
them immediately."
Before incurring the expense of preparing Orion's summary judgment motion,
Fitzgerald again asked DTS to dismiss Orion from its lawsuit and gave DTS notice that
Orion would seek sanctions under section 3426.4 if it were not dismissed. After
receiving a message from DTS's counsel asking Orion to identify documents that
exonerated Orion from DTS's trade secret misappropriation claim, Fitzgerald pointed out:
"I'm afraid you have things reversed. It is not [Orion's] burden to prove a negative, that
is, the absence of theft. It is your burden to prove there was theft. In [Orion's] document
production there is no transmittal of code, no transmittal of your client's information, and
no communication that reflects any copying or transmission of [DTS's] information.
There is no evidence of trade secret theft because there was no trade secret theft. If you
think I am mistaken, please identify the documents you believe show that [DTS's] trade
secrets were stolen." DTS did not identify documents or other evidence of trade secret
44
misappropriation by Orion and Orion successfully moved for summary adjudication of
DTS's trade secret cause of action.
DeLatte filed a declaration in support of Orion's motion for attorney fees in which
she recounted a number of conversations with DTS officer Morgan Hill in which Hill
promised to dismiss Orion from DTS's lawsuit. DeLatte agreed to be interviewed by
DTS's counsel in exchange for a dismissal, but DTS never dismissed Orion from the case.
DeLatte declared: "I tried to do everything possible to obtain a dismissal from this
lawsuit, starting with the decision to withdraw from the San Diego project. Then, I
agreed to cooperate, to the extent I lawfully could, to provide information to DTS, and to
provide a deposition in San Diego if Orion would be dismissed. Orion and I provided all
of the discovery requested of us, in the hopes that the parties would see from this
discovery that Orion had done nothing wrong, and did not belong in this lawsuit."
In a reply declaration, DeLatte stated that Hill had told her on a number of
occasions that his lawyers said they had to sue her in order to obtain her cooperation.
Delatte told Hill he did not have to sue her to get information; he could simply take her
deposition. Hill said that he did not know he could depose someone without suing them,
and that he would talk to his lawyers and get them to dismiss Orion. DeLatte averred that
Hill's statement in his opposition declaration that DeLatte told him AutoReturn had
provided her with DTS's data and other information was "completely false," and that
AutoReturn never provided her with any DTS data.
Based on Orion's evidence, the court could reasonably find that DTS's trade secret
claim against Orion was objectively specious and brought in subjective bad faith—i.e.,
45
for the improper purpose of dissuading Orion from moving forward in San Diego in the
hope Orion's withdrawal from the project would cause the City to drop AutoReturn as its
towing contractor.
DTS contends the court's bad faith finding was improperly based on statements by
DTS's and ACT's counsel that the court should have excluded from evidence under
Evidence Code sections 115214 and 115415 as statements made during settlement
negotiations between Orion, DTS, and ACT. The court rejected that argument in its
order, stating: "The information [in Fitzgerald's declaration] is not offered to show
liability or damage but rather is offered to show the presence or absence of good faith."
The trial court's consideration of statements made by DTS's counsel during
settlement negotiations was not an abuse of discretion. Evidence Code sections 1152 and
1154 do not absolutely bar admission of evidence of settlement negotiations; such
evidence "may be admissible for a purpose other than proving liability[,]" including
proving bad faith. (Volkswagen of America, Inc. v. Superior Court (2006) 139
Cal. App. 4th 1481, 1491; White v. Western Title Ins. Co. (1985) 40 Cal. 3d 870, 887
14 Evidence Code section 1152, subdivision (a), provides: "Evidence that a person
has, in compromise or from humanitarian motives, furnished or offered or promised to
furnish money or any other thing, act, or service to another who has sustained or will
sustain or claims that he or she has sustained or will sustain loss or damage, as well as
any conduct or statements made in negotiation thereof, is inadmissible to prove his or her
liability for the loss or damage or any part of it."
15 Evidence Code section 1154 provides: "Evidence that a person has accepted or
offered or promised to accept a sum of money or any other thing, act, or service in
satisfaction of a claim, as well as any conduct or statements made in negotiation thereof,
is inadmissible to prove the invalidity of the claim or any part of it."
46
[Evidence Code section 1152 does not preclude evidence of settlement negotiations that
is offered to prove an insurer's bad faith rather than liability for the original loss or
damage.].) The court properly considered statements by DTS's counsel during settlement
negotiations in determining whether DTS acted with subjective bad faith in suing Orion
for misappropriation of trade secrets. DTS's counsel's statements are admissible against
DTS under the rule that "[s]tatements made by agents authorized to act on behalf of a
party are admissible against that party." (Volkswagen of America, Inc. v. Superior Court,
supra, 139 Cal.App.4th at p. 1492.)
DTS complains that the court considered only Orion's evidence in ruling on the
motion for attorney fees and did not consider Hill's declaration, which DTS contends is
the only direct evidence of DTS's subjective state of mind. We assume in support of the
judgment that the court considered DTS's evidence and found Orion's evidence more
credible on the issue of whether DTS maintained its trade secret claim against Orion in
bad faith. As noted, we must accept the version of the facts that supports the trial court's
determination. (Gemini, supra, 95 Cal.App.4th at pp. 1262-1263.)
Hill's opposition declaration contains his recounting of settlement negotiations
with Orion (DeLatte and Fitzgerald) and his assessment of why the negotiations were
unsuccessful, but it does not compel a finding that Hill reasonably thought that Orion had
misappropriated DTS's alleged trade secrets. Hill averred that software engineers had
advised him "that it simply was not possible to create a complex software system such as
DTS's from whole cloth[,]" and that the only way to develop such a system in a short
time was to copy DTS's existing system. Thus, Hill concluded it was likely that Orion
47
and AutoReturn were copying DTS's proprietary information "with the City's help in
providing access." Hill stated: "I was advised that Orion did not need to see DTS's
source code to perpetrate this copying, and in fact viewing DTS's source code would be a
slow and ineffective way to steal DTS's proprietary information. It would be much more
effective . . . for Orion [and AutoReturn] to simply look at LETS [and TMS] and copy
how it was set up and the data that was contained on the system. This readily viewable
information took DTS years to configure and compile so that it was optimally useful by
the City." (Italics added.) Based on these statements by Hill, the court could reasonably
find that DTS merely suspected AutoReturn and Orion of copying only "readily
viewable" information that was not trade secret information–a finding that supports the
court's conclusion that DTS had no evidence that Orion or AutoReturn misappropriated a
trade secret and that DTS did not maintain its trade secret claim against Orion and
AutoReturn in subjective good faith.
The court did not abuse its discretion in awarding Orion attorney fees under
section 3426.4.
Attorney fee award to AutoReturn
We conclude that substantial evidence also supports the trial court's determination
that DTS maintained its trade secret claim against AutoReturn in bad faith within the
meaning of section 3426.4. In ruling on AutoReturn's motion for attorney fees, the court
found that the "trade secret counts" in this case were "specious" and that "ACT's and
DTS's decision to drag [the] City and AutoReturn into the case was made without any
admissible evidence (as opposed to rumor and suspicion) of any wrongdoing by the City
48
and AutoReturn, and was thus objectively unreasonable and in bad faith." The court
further stated that "DTS fail[ed] to offer any evidence that its trade secret claims were
objectively reasonable, instead regurgitating arguments rejected in the prior summary
judgment/adjudication motions." Regarding subjective bad faith, the court ruled that
"DTS fail[ed] to address or dispute any of the evidence that it acted with subjective bad
faith and engaged in gamesmanship." The court noted that DTS "prosecut[ed] its claims
against the City and AutoReturn for several months even though an identical claim
against DeLatte/Orion was dismissed by summary judgment on July 6, 2012." The court
concluded that "without any evidence in support of its trade secrets claim, DTS litigated
and pursued this action against the City and AutoReturn without any good faith basis for
believing that a trade secret theft had taken place."
As noted, under the "objectively specious" standard, it is enough for a defendant to
a trade secret claim to point to the absence of evidence of misappropriation in the record
(Cypress, supra, 236 Cal.App.4th at p. 260.) Accordingly, the court reasonably based its
finding of objective speciousness on its prior determination on summary judgment that
DTS presented "no material evidence of actual misappropriation"—i.e., that there was
insufficient evidence to raise a material issue of fact as to whether AutoReturn
misappropriated a trade secret.
Hill's declaration in opposition to AutoReturn's motion for attorney fees was
similar to his declaration in opposition to Orion's motion. Hill stated that "the only
means that DTS had to determine whether AutoReturn was in fact copying DTS's
proprietary software was to file suit." This statement supports the court's finding that the
49
suit was filed based on suspicion rather than evidence of trade secret misappropriation.
Hill mentioned DTS's discovery that Orion was in possession of DTS's XML schema and
reason code information, but Abramson's declaration filed by DTS in opposition to
summary judgment motions did not identify those as trade secrets; Abramson merely
speculated that because they had been copied, the copying "likely" extended to trade
secret information. Hill's declaration reiterated statements in his prior declaration
regarding Orion and AutoReturn's suspected copying of "readily viewable" LETS/TMS
information that "took DTS years to configure and compile so that it was optimally useful
by the City." As we discussed, these statements reasonably support a finding that DTS
merely suspected AutoReturn and Orion of copying "readily viewable" information that
was not trade secret information. The court could reasonably find DTS's trade secret
claim against AutoReturn was objectively specious based on the lack of evidence that
AutoReturn misappropriated a trade secret. The court could reasonably find subjective
bad faith based on DTS's continuing to prosecute the claim "after [its] fatal shortcomings
[were] revealed by opposing counsel[,]" as well as the court's prior ruling on Orion's
summary judgment motion. (FLIR, supra, 174 Cal.App.4th at p. 1278.)
The court did not abuse its discretion in awarding AutoReturn attorney fees under
section 3426.4. In light of our affirmance of the attorney fee award to AutoReturn under
50
section 3426.4, we need not address AutoReturn's argument that it is, alternatively,
entitled to attorney fees under section 1717 as a prevailing party in a contract dispute.16
V. Summary Adjudication of Cause of Action for Breach of Joint Venture Agreement
DTS contends the court erred in summarily adjudicating its cause of action for
breach of joint venture agreement in AutoReturn's favor. In its fifth cause of action for
breach of joint venture agreement, DTS alleged that DTS and AutoReturn "teamed up
and entered into an oral and/or implied joint venture agreement in order to jointly submit
a bid for the 2008 RFP to provide dispatch communications services to the City and the
City's tow contractors. Under the joint venture, AutoReturn and [DTS] agreed to use
[DTS's] LETS, TMS, . . . and other communications and integration software and
hardware to fulfill the requirements of the 2008 RFP." DTS further alleged that
AutoReturn breached the "joint venture agreement by terminating [DTS's] responsibilities
under the 2008 RFP, and contracting to have those services performed by Orion, or
performing [DTS's] responsibilities under the joint venture in house . . . ."
" 'A joint venture . . . is an undertaking by two or more persons jointly to carry out
a single business enterprise for profit.' [Citation.] 'There are three basic elements of a
joint venture: the members must have joint control over the venture (even though they
may delegate it), they must share the profits of the undertaking, and the members must
16 AutoReturn contends it was a prevailing party in its licensing agreements with
DTS because, in AutoReturn's words, "DTS's trade-secret claim against AutoReturn was
(and still is) premised largely on these 'two agreements that required AutoReturn to keep
DTS's software confidential.' "
51
each have an ownership interest in the enterprise. [Citation.]' [Citation.] 'Whether a
joint venture actually exists depends on the intention of the parties. [Citations.]
[¶] . . . [¶] . . . [W]here evidence is in dispute the existence or nonexistence of a joint
venture is a question of fact to be determined by the jury.' " (Unruh-Haxton v. Regents of
the University of California (2008) 162 Cal. App. 4th 343, 370.)
In its motion for summary judgment, AutoReturn, presented declarations of its
CEO, Wicker, and chief technology officer, Pendleton. Both averred that DTS did not
form a joint venture with AutoReturn and did not share profits, control, or ownership of a
separate entity with AutoReturn. Pendleton declared that at all times, AutoReturn
considered DTS to be a vendor and that the parties never discussed forming a joint
venture. Wicker stated that AutoReturn considered DTS to be a subcontractor, as it had
in all of its prior dealings with DTS. The parties contemplated the same type of licensing
arrangement they had in San Francisco and Baltimore County—i.e., DTS would provide
software and technical support for the software in return for AutoReturn's payment of a
fee.
DTS's opposition evidence included deposition testimony and declarations from
Estes and Garg. Estes testified that in the spring of 2008, DTS and AutoReturn entered
into an oral "global joint venture agreement," which they intended to later put in writing.
The parties agreed to "jointly propose deals for prospective clients and share in the
revenue and the costs." Estes initially testified that the parties agreed to percentages of
revenue they would share, but he did not recall the specific percentages and did not know
where to find "that number." However, later in his deposition Estes testified that
52
AutoReturn and DTS agreed to share gross profits on a "pro rata" or percentage basis
with a "60/40"split, meaning that AutoReturn would receive 60 percent and DTS would
receive 40 percent of the gross profits. At the hearing on AutoReturn and the City's
summary judgment motion, AutoReturn's counsel represented that Estes recalled the
60/40 profit percentages after having lunch with his counsel.
In his declaration, Estes averred that in the spring of 2008 "AutoReturn and DTS
entered into an oral joint venture agreement to jointly pursue municipal contracts
throughout the United States" and that he personally negotiated the agreement with
AutoReturn's principals, including Wicker and Pendleton. Under the joint venture
agreement, DTS and AutoReturn agreed to share the profits and losses associated with
pursuing each contract, with the parties sharing joint control over the business of the
venture. Regarding profit sharing, Estes declared: "During my deposition in this case, I
was asked what the compensation structure was for the joint venture arrangement with
AutoReturn in San Diego. At that time I could not recall the figure, but since my
deposition I have been able to refresh my recollection and recall that we agreed to split
the $22.00 per-tow fee for City authorized tows in San Diego at 60% AutoReturn and
40% DTS."
Garg testified in his deposition that DTS had "pretty vast discussions with
AutoReturn about a joint venture relationship which centered around the San Diego
contract being in the RFP stage. We had talked about over time . . . having a closer joint
venture whereby [AutoReturn] would go out and become . . . an exclusive marketing arm
for DTS to go market. [DTS would] do all the development and [AutoReturn would] do
53
all the marketing, and that would be the nature of a joint venture." Garg testified that he
sold DTS before the joint venture agreement was finalized, but DTS and AutoReturn
reached an "agreement in principle" and "clear understanding" regarding how the joint
venture relationship would be structured for San Diego. The parties agreed that DTS
would assist AutoReturn in the RFP process, and would work with AutoReturn "to
provide whatever they needed to get the response and work with the City to let them
know that they are [DTS's] partner in this process, and in return, when they get the
contract, [DTS gets] a split of the revenue and provide[s] all the software services." DTS
expected "[a] percentage split of the revenue" and agreed to AutoReturn's receiving 60
percent and DTS's receiving 40 percent.
In AutoReturn and the City's reply to DTS's opposition to the summary judgment
motion, AutoReturn asserted that DTS's joint venture claim was based entirely on Estes's
declaration and that the court should strike the declaration because of DTS's discovery
abuse regarding Estes's deposition. AutoReturn contended that DTS had refused to
produce Estes to complete his deposition despite a court order.
Although the court overruled AutoReturn and the City's four evidentiary
objections that were directed at the portions of Estes's declaration regarding AutoReturn
and DTS's joint venture agreement, in its order granting the motion for summary
judgment, the court struck Estes's entire declaration. The court stated:
"DTS has not created a triable issue of fact as to the joint venture
claim, count 5. The key declarant in opposition to the motion as to
count 5 is Lawrence Estes. Much of the Estes declaration is
inadmissible, and that which does not run afoul of the Evidence
Code is a classic sham declaration. The key passage of the
54
Declaration is in paragraph 14 on page 5. Estes admits that when
deposed he 'could not recall' the key element of the joint venture, the
'compensation structure.' He then purports to testify in the
Declaration that 'since [his] deposition, I have been able to refresh
my recollection.' He never states by what means he was refreshed.
There were several other instances of Mr. Estes not recollecting
important information . . . , at least until after the lunch break . . . .
During argument, counsel for DTS tacitly acknowledged he could
not have been refreshed by a document, as there are no documents
which reflect the existence of the purported 'joint venture.' "
Regarding Estes's deposition testimony that AutoReturn and DTS agreed to share
gross profits on a percentage basis with a 60/40 split, the court stated that "this does not
change the result. Contrary to the suggestion at oral argument, this is not a credibility
determination, but rather a determination that the referenced testimony is so equivocal in
context that it does not raise a triable issue of fact. This is confirmed by the fact that even
Estes did not reference it in his own Declaration."
The court struck Estes's entire declaration on the ground it was a "sham
declaration," but viewed DTS's discovery abuse regarding Estes's deposition as further
support for its decision.17 The court stated: "The failure of DTS to produce Estes for
completion of his deposition until the day before the reply brief was due, despite Judge
Denton's order to the contrary and following a series of emails seeking to confirm he
would be produced in a timely fashion (which emails went without response), confirms
the court's view that the Estes Declaration should be stricken in its entirety."
17 AutoReturn did not ask the court to strike Estes's declaration on the ground it
contradicted his deposition testimony; its request to strike the declaration was based
solely on alleged discovery abuse regarding his deposition.
55
DTS contends the court erred in striking Estes's entire declaration. We agree. One
of the cases the court cited in its ruling as authority for striking Estes's declaration is
Yeager v. Bowlin (9th Cir. 2012) 693 F.3d 1076, in which the Ninth Circuit Court of
Appeals applied what is referred to in federal case law as the "sham affidavit rule." (Id.
at p. 1079.) Under that rule, " 'a party cannot create an issue of fact by an affidavit
contradicting his prior deposition testimony.' " (Van Asdale v. International Game
Technology (9th Cir. 2009) 577 F.3d 989, 998 (Van Asdale).)
However, federal cases have "recognized that the sham affidavit rule is in tension
with the principle that a court's role in deciding a summary judgment motion is not to
make credibility determinations or weigh conflicting evidence. Aggressive invocation of
the rule also threatens to ensnare parties who may have simply been confused during their
deposition testimony and may encourage gamesmanship by opposing attorneys. [The
Ninth Circuit has] thus recognized that the sham affidavit rule 'should be applied with
caution.' " (Van Asdale, supra, 577 F.3d at p. 998.)
There are "two important limitations on a [trial] court's discretion to invoke the
sham affidavit rule. First, . . . the rule 'does not automatically dispose of every case in
which a contradictory affidavit is introduced to explain portions of earlier deposition
testimony,' [citation]; rather, 'the [trial] court must make a factual determination that the
contradiction was actually a "sham." ' [Citation.] Second, . . . the inconsistency between
a party's deposition testimony and subsequent affidavit must be clear and unambiguous
to justify striking the affidavit." (Van Asdale, supra, 577 F.3d at pp. 998-999, italics
added.)
56
California law regarding "sham declarations" is similar to federal law: "[I]n
opposing a summary judgment motion, a plaintiff may not create a disputed issue of fact
by contradicting his or her deposition testimony with an affidavit or declaration."
(Jogani v. Jogani (2006) 141 Cal. App. 4th 158, 177, citing D'Amico v. Board of Medical
Examiners (1974) 11 Cal. 3d 1, 20-22 (D'Amico).) This rule has been referred to as the
D'Amico rule. (See Ahn v. Kumho Tire U.S.A., Inc. (2014) 223 Cal. App. 4th 133, 136,
143-144 (Ahn).)18
However, like federal courts considering the sham affidavit rule, California courts
have cautioned that " 'an uncritical application of the D'Amico decision can lead to
anomalous results, inconsistent with the general principles of summary judgment
law.' . . . D'Amico should not be interpreted 'as saying that admissions should be shielded
from careful examination in light of the entire record.' [Citation.] This is because the
record may contain evidence that credibly contradicts or explains what might appear to
be clear and unequivocal admissions, if the admissions are viewed in isolation and
without reference to the other evidence." (Ahn, supra, 223 Cal.App.4th at p. 144, quoting
Price v. Wells Fargo Bank (1989) 213 Cal. App. 3d 465, 482.) "Courts have consistently
refused to apply the D'Amico rule to exclude evidence adduced in opposition to a
summary judgment motion when either evidence adduced on the motion credibly
18 Under the D'Amico rule, " ' "[w]here . . . there is a clear and unequivocal
admission by the plaintiff, himself, in his deposition" ' and the plaintiff contradicts that
admission in a subsequent declaration, ' "we are forced to conclude there is no substantial
evidence of the existence of a triable issue of fact." ' " (Ahn, supra, 223 Cal.App.4th at p.
144, quoting D'Amico, supra, 11 Cal.3d at p. 21, first italics added by Ahn.)
57
explains or contradicts a party's earlier admissions." (Ahn, supra, 223 Cal.App.4th at pp.
144-145.) "A summary judgment should not be based on tacit admissions or fragmentary
and equivocal concessions, which are contradicted by other credible evidence." (Price v.
Wells Fargo Bank, supra, 213 Cal.App.3d at p. 482.)
Here, the court's decision to strike Estes's entire declaration was, in the words of
the Ahn court, "an overly broad and erroneous application of the D'Amico rule." (Ahn,
supra, 223 Cal.App.4th at p. 136.) The trial court was not presented with a clear and
unequivocal admission by Estes in his deposition that was contradicted by his later
declaration. In his deposition, Estes initially stated he could not recall the specific profit
sharing percentages to which DTS and AutoReturn agreed under their alleged joint
venture agreement. Later in the same deposition Estes testified that AutoReturn and DTS
agreed to a 60/40 split of profits. In his declaration he again stated that the parties
"agreed to split the $22.00 per-tow fee for City authorized tows in San Diego at 60%
AutoReturn and 40% DTS." Although circumstances may render Estes's credibility on
that point suspect, we cannot say that his deposition testimony and declaration averment
about the agreement to share profits with a 60/40 split were so contradictory to his earlier
testimony that striking his entire declaration under the D'Amico or sham affidavit rule
was warranted. Estes's initial testimony was more a "fragmentary and equivocal
concession[], which [was] contradicted by other credible evidence" (Price v. Wells Fargo
Bank, supra, 213 Cal.App.3d at p. 482) than a clear and unequivocal admission that was
clearly and unambiguously inconsistent with his later testimony and declaration.
58
Notwithstanding the court's assertion in its summary judgment ruling that its
decision to strike Estes's declaration was "not a credibility determination, but rather a
determination that the referenced testimony is so equivocal in context that it does not
raise a triable issue of fact," we view the court's striking Estes's declaration as a
credibility determination–i.e., the court determined that Estes's deposition testimony and
declaration that the parties agreed to a 60/40 profit split was not credible because he
initially testified in his deposition that he could not recall the profit sharing percentages.
The court's credibility determination contravenes the D'Amico rule because there was no
"clear and unequivocal" admission in Estes's deposition that his later declaration
contradicted. The credibility determination also contravenes the well-settled rule that in
ruling on a summary judgment motion, the court must view the evidence in the light most
favorable to the opposing party and resolve any evidentiary doubts or ambiguities in the
opposing party's favor. (Aguilar, supra, 25 Cal.4th at p. 843; Saelzler, supra, 25 Cal.4th
at p. 768.)
DTS additionally contends that the order striking Estes's declaration constituted an
evidence sanction under Code of Civil Procedure section 2023.030, subdivision (c) for
misuse of the discovery process, and that the court erred by imposing the sanction
without providing the notice and opportunity for hearing required by that statute. We
agree that the court's striking the declaration cannot be upheld as a sanction under Code
of Civil Procedure section 2023.030 because DTS was not afforded proper notice and
opportunity for hearing on the issue. "Code of Civil Procedure section 2023.030,
provides for discovery sanctions only 'after notice . . . and after opportunity for hearing'
59
and only in the manner 'authorized by the chapter governing any particular discovery
method or any other provision of this title . . . .' " (People ex rel. City of Dana Point v.
Holistic Health (2013) 213 Cal. App. 4th 1016, 1030 [seeking potentially dispositive
evidentiary sanctions in a summary judgment brief did not satisfy the notice and hearing
requirements of Code of Civil Procedure section 2023.030].) As noted, AutoReturn and
the City requested the court to strike Estes's declaration in their reply to DTS's opposition
to their summary judgment motion; they did not make that request by noticed motion.
Further, in the absence of a violation of an order compelling an answer or further
answer, an evidence sanction may be imposed only where the answer given by a party
responding to discovery is willfully false. (Saxena v. Goffney (2008) 159 Cal. App. 4th
316, 334.) The inconsistency between Estes's initial deposition answer that he did not
recall the agreed profit sharing percentages and his later deposition testimony and
declaration that AutoReturn and DTS agreed to share gross profits on a percentage basis
with a "60/40" split does not establish that Estes's later deposition testimony and
declaration were willfully false. We conclude the court erred in striking Estes's
declaration.
DTS presented evidence that raises a triable issue of fact as to the existence of
DTS's alleged joint venture agreement with AutoReturn.19 As noted, the three basic
elements of a joint venture are that the members must jointly control the venture, share
19 The parties' dispute regarding the alleged joint venture is focused entirely on
whether there was a joint venture agreement; there is no argument that to the extent there
was such an agreement, AutoReturn did not breach it.
60
the profits of the undertaking, and each have an ownership interest in the enterprise.
(Unruh-Haxton v. Regents of the University of California, supra, 162 Cal.App.4th at p.
370.) "While in a technical joint venture there is usually a sharing of profits and losses in
the prosecution of the common enterprise [citation], the mode of participating in the fruits
of the undertaking may be left to the agreement of the parties." (Universal Sales Corp. v.
California Press Mfg. Co. (1942) 20 Cal. 2d 751, 764.)
The deposition testimony of both Estes and Garg, and Estes's declaration, provide
substantial evidence that the parties discussed and orally agreed to pursue a joint venture
to pursue municipal contracts and to share control and the profits of the venture.
Additional evidence of a joint venture is the statement in AutoReturn's proposal that
"AutoReturn is pleased to present this proposal with support from DTS as its technology
partner." (Italics added.)
AutoReturn argues that there is no evidence of joint control over the alleged joint
venture because AutoReturn and DTS each controlled separate aspects of the venture.
However, the element of joint control may be satisfied even though the parties to a joint
venture delegate control over a particular aspect of the venture to the party who is
qualified to perform that aspect. (See Scottsdale Ins. Co. v. Essex Ins. Co. (2002) 98
Cal. App. 4th 86, 93.) "Although it has been said that joint control of the undertaking and
equal power to direct the enterprise is an essential element of a joint venture [citations][,]
this is not to say that there cannot be a joint venture where the parties have unequal
control of operations. The requirement of authority and control has been construed to
mean that while in the absence of special agreement one joint venturer cannot bind the
61
others, 'they may by agreement grant authority to one or more of their number which
would not be implied from the relationship alone.' " (Stilwell v. Trutanich (1960) 178
Cal. App. 2d 614, 619.) DTS and AutoReturn could delegate control of different aspects
of the alleged joint venture between themselves according to their respective areas of
expertise.
The evidence properly considered raises a triable issue of fact as to whether DTS
and AutoReturn entered into a joint venture agreement that AutoReturn breached. The
trial court erred in adjudicating DTS's fifth cause of action for breach of joint venture
agreement in AutoReturn's favor.
VI. Denial of Leave to Amend to Plead Causes of Action for Tortuous Interference with
Contract and Breach of Fiduciary Duty
DTS contends that the court erred in denying its motion for leave to file a third
amended cross-complaint on the ground that statutory CUTSA supersession barred DTS's
proposed cross-claim against AutoReturn for breach of fiduciary duty and cross-claim
against Orion for tortuous interference with contract. DTS's contention mischaracterizes
what happened in the trial court.
DTS filed a motion for leave to file a third amended cross-complaint that would
add a cause of action of for breach of fiduciary duty against AutoReturn. The motion
created a procedural muddle. AutoReturn filed a "Statement of Non-Opposition" to
DTS's motion, in which it stated that it did not oppose the motion but did "not concede
any of the merits, allegations, or causes of action alleged in the Motion or in the proposed
Third Amended Cross-Complaint." In its opening brief, DTS asserts that its motion to
62
amend also sought to add a cause of action against Orion for tortuous interference with
contract. However, DTS's operative second amended cross-complaint already contained
an eighth cause of action against Orion for interference with contractual relations that had
not been dismissed when the court ruled on Orion's motion for summary judgment
against DTS. DTS's second amended cross-complaint also contained a 10th cause of
action for interference with contractual relations against the City. AutoReturn and the
City demurred to the 10th cause of action (and other causes of action) on the ground it
was superseded by DTS's sixth cause of action for misappropriation of trade secrets under
the CUTSA, which DTS brought against AutoReturn, the City, Orion, and DeLatte.
Orion did not file a demurrer to DTS's second amended cross-complaint. The court
(Judge William R. Nevitt, Jr.) sustained AutoReturn and the City's demurrer to the 10th
cause of action without leave to amend on the ground the CUTSA superseded that cause
of action because it was "based on the same nucleus of facts as the sixth . . . cause of
action [for misappropriation of trade secrets]."
In denying DTS's motion to file its proposed third amended cross-complaint, the
court (Judge Taylor) noted in its minute order that Judge Nevitt had "previously sustained
a demurrer, holding that DTS's claims for common law misappropriation, interference
with contract and contractual relations, and undue business practices were superseded by
DTS's [statutory] claim for Misappropriation Of Trade Secrets . . . , as all of these claims
were premised on a common nucleus of fact relating to alleged misuse of DTS's
software." Judge Taylor's minute order stated that "the proposed [third amended cross-
complaint] attached to the moving papers . . . continues inexplicably to assert these
63
previously dismissed claims."20 The proposed third amended cross-complaint attached
to DTS's motion included the eighth cause of action against Orion for interference with
contractual relations, but omitted the dismissed 10th cause of action for interference with
contractual relations against the City. Thus, it appears that at the time he ruled on DTS's
motion for leave to amend, Judge Taylor either mistakenly believed the eighth cause of
action against Orion for interference with contractual relations had been dismissed on
demurrer, or impliedly found that the eighth cause of action lacked merit based on the
dismissal of the 10th cause of action for interference with contractual relations against
City.21
In any event, because the eighth cause of action against Orion for interference with
contractual relations had not been dismissed when Orion moved for summary judgment
20 The causes of action for common law misappropriation, interference with
contractual relations, and unfair competition in DTS's proposed third amended cross-
complaint were against Orion and DeLatte only.
21 Although DTS's motion for leave to file a third amended cross-complaint did not
seek to add a cause of action against Orion, Orion opposed the motion by arguing that
Judge Nevitt's dismissal of the contract interference cause of action against the City
established that its contract interference cause of action against Orion was futile. In
reply papers and at oral argument, DTS pointed out that Orion had not challenged the
eighth cause of action and it had not been dismissed. DTS argued that its contract
interference claim against Orion was based on different facts than the dismissed contract
interference claim against the City, and was not superseded by its cause of action for
misappropriation of trade secrets. The court at oral argument stated, "I think Judge
Nevitt did adjudicate this issue. I think he did dismiss these counts. And I think they are
the same. And you are asking me to second-guess a colleague, and I'm just not going to
do that. I don't have the authority to do that." DTS's counsel responded, "Okay. I will
concede that today. That's fine, but we still have the issue of the breach of fiduciary duty
claim [against AutoReturn]."
64
on DTS's second amended cross-complaint, Orion's motion for summary judgment
appropriately sought summary adjudication of that cause of action on the ground it was
superseded by the CUTSA, and on the additional ground that DTS could not establish
that Orion and DeLatte knew about DTS's contractual relations. DTS's opposition to
Orion's motion did not address Orion's request for summary adjudication of the eighth
cause of action, and the court granted the request on the ground DTS had not opposed it.
The court granted summary adjudication of DTS's seventh cause of action for common
law misappropriation and 12th cause of action for unfair competition on the same ground.
The court stated in its order that by failing to oppose the portion of Orion's motion for
summary judgment seeking adjudication of the eighth cause of action, "DTS has failed to
preserve for appeal a challenge to the granting of the motion."22
The trial court's observation that DTS has forfeited the right to challenge the trial
court's adjudication of its cause of action against Orion for interference with contractual
relations is correct. (Arnall v. Superior Court (2010) 190 Cal. App. 4th 360, 373 [failure
to oppose summary adjudication on a particular ground before the trial court forfeits the
right to challenge adjudication on that ground on appeal]; Newton v. Clemons (2003) 110
22 It its reply brief, DTS takes the position that the court's incorrect view that its
contract interference claim against Orion had been dismissed operated as a dismissal of
that claim. DTS argues that it "could not defend against a motion seeking judgment on
an interference claim that had been ruled dismissed already." We do not view the court's
erroneous statement that a prior judge had dismissed DTS's eighth cause of action against
Orion as constituting a dismissal of that cause of action. DTS could have opposed
Orion's request for summary adjudication of the eighth cause of action on the merits and
argued that the court misunderstood or misconstrued the effect of the prior dismissal of
DTS's 10th cause of action on status of the eighth cause of action.
65
Cal. App. 4th 1, 11 [issues raised for the first time on appeal that could have been
presented to the trial court are generally deemed waived].) Because the court granted
Orion's motion for summary adjudication of the eighth cause of action for intentional
interference with contractual relations and DTS has forfeited the right to challenge that
ruling on appeal, we will not address DTS's argument that the court erred in denying it
leave to include that cause of action in a third amended cross-complaint.
Regarding its proposed cause of action for breach of fiduciary duty against
AutoReturn, DTS argues on appeal that the court erred in denying leave to amend "across
the board on the basis of UTSA supersession, even though AutoReturn did not assert that
issue." However, the court did not rule that DTS's proposed breach of fiduciary duty
cause of action was superseded by its statutory cause of action for misappropriation of
trade secrets. As noted, the court denied leave to amend on the ground that "DTS's
claims for common law misappropriation, interference with contract and contractual
relations, and undue business practices were superseded by DTS's [statutory] claim for
Misappropriation of Trade Secrets." (Italics added.) After DTS's counsel failed to
persuade the court at oral argument that Judge Nevitt had not dismissed those causes of
action against Orion and DeLatte, counsel stated, "That's fine, but we still have the issue
of the breach of fiduciary duty claim [against AutoReturn]." The court responded, "You
have to bring another motion [for leave to amend] and append to it a proposed . . . cross-
complaint that doesn't have included in it causes of action that my colleague has already
dismissed." "If you want to try and seek leave to amend again . . . with just the fiduciary
66
duty claim appended, just that being the new proposed third amended cross-complaint,
that might be another kettle of fish."
Thus, the court did not deny DTS leave to add a cause of action against
AutoReturn for breach of fiduciary duty; the court invited DTS to file another motion for
leave to amend to add that cause of action with a proposed third amended cross-
complaint that omitted the second amended cross-complaint's seventh, eighth, and 12th
causes of action against Orion for common law misappropriation, interference with
contractual relations, and unfair competition, respectively. The court deferred ruling on
whether it would allow DTS to add a cause of action against AutoReturn for breach of
fiduciary duty until DTS submitted a proposed third amended cross-complaint that
omitted the three causes of action that the court believed had been dismissed. The court
later disposed of those three causes of action by granting Orion's motion for summary
adjudication of the seventh, eighth, and 12th causes of action of DTS's second amended
cross-complaint.
Because the trial court declined to exercise its discretion and rule on whether to
grant DTS leave to plead a cause of action for breach of fiduciary duty against
AutoReturn, DTS is free on remand to file a motion for leave to amend its second
amended cross-complaint to add that cause of action. If DTS files a new motion for leave
to file a third amended cross-complaint, its proposed third amended cross-complaint
should omit the three causes of action against Orion that court summarily adjudicated in
Orion's favor.
67
ACT'S APPEAL
I. AutoReturn's Reliance on Declarations Filed with Its Previous Motion
for Summary Judgment Against ACT
ACT's contends the court should have denied AutoReturn's motion for summary
judgment on ACT'S fourth amended complaint as procedurally defective because
AutoReturn did not provide its supporting evidence with the motion. AutoReturn
initially filed a motion for summary judgment on ACT's fourth amended complaint in
January 2012. AutoReturn later withdrew the motion and refiled a revised version of it in
March 2012. Rather than refile all of the declarations it filed in support of its original
motion for summary judgment against ACT, AutoReturn stated in a footnote in its
memorandum of points and authorities in support of its second motion: "Each of the
declarations referred to in this Memorandum of Points and Authorities was filed with this
Court on January 6, 2012, when AutoReturn originally filed a motion for summary
judgment against ACT." In its summary judgment order, the court rejected ACT's
argument that the declarations in question were irrelevant because they were not served
with the moving papers, stating: "The declarations in question were part of a similar
although not identical motion filed on 1/9/12 . . . which went off calendar. However, the
declarations were served on [ACT] in connection with the earlier motion, so [ACT] is
aware of and has copies of same."
We agree with the trial court's implied finding that ACT was not prejudiced by the
court's consideration of the declarations that the City and AutoReturn filed with their
prior motion for summary judgment, and conclude that the court acted within its
68
discretion in considering the declarations. ACT cites Fleet v. CBS, Inc. (1996) 50
Cal. App. 4th 1911 (Fleet) for the proposition that the evidence supporting a motion for
summary judgment must be provided with the motion; it is not enough to refer to other
sources where the evidence may be located. In Fleet, the defendant moving for summary
judgment stated only one fact in its separate statement of undisputed facts and, in the
words of the Fleet court, "expected the court to glean the background facts necessary to
resolving its motion from the complaint [and other sources]." (Id. at p. 1916, fn. 3.) The
Fleet court noted that "[e]very motion for summary judgment should be accompanied by
a 'separate statement setting forth plainly and concisely all material facts which the
moving party contends are undisputed.' (Code Civ. Proc., § 437c, subd. (b).) Facts stated
elsewhere need not be considered by the court [citation], and failure to comply with this
rule constitutes ground for denial at the court's discretion [citation]." (Fleet, supra, 50
Cal.App.4th at p. 1916, fn. 3, italics added.) Because the trial court "was apparently
willing [to glean the background facts from other sources] and because the crucial facts
[were] to be found somewhere in the record and [were] undisputed by appellants, [the
Fleet court decided it would] not disturb the trial court's ruling on this ground." (Ibid.)
In the present case, there is no issue regarding facts not stated in AutoReturn's
separate statement; ACT's complaint is that AutoReturn's separate statement's cites
declarations that were submitted with a prior summary judgment motion. Fleet supports
the proposition that the trial court has discretion to overlook defects in the separate
statement and the moving party's presentation of evidence.
69
ACT also cites Artiglio v. General Electric Co. (1998) 61 Cal. App. 4th 830
(Artiglio) for the proposition that "facts[]stated elsewhere may not be considered by the
court—even if submitted with a party's earlier summary judgment motion." In Artiglio
the plaintiffs opposing a motion for summary judgment failed to cite specific evidence
that contradicted the moving defendant's evidence. The plaintiffs' separate statement of
disputed facts simply stated: " 'See evidence previously produced in opposition to
[defendant's] earlier motions for summary judgment.' " (Id. at p. 841.) Further, the
plaintiffs' memorandum of points and authorities in opposition to the summary judgment
motion did not "provide any greater clue about what evidence they believe contradicted
the evidence presented by [the defendant]." (Ibid.) Based on the plaintiffs' failure to cite
any evidence that contradicted the defendant's evidence, the Artiglio court concluded that
"the trial court was fully warranted in concluding [the defendant's] evidence was not
disputed." (Id. at p. 842.) Artiglio is inapposite because AutoReturn's separate statement
in support of its motion for summary judgment cited specific evidence supporting each
fact listed in its separate statement. The trial court was not required to deny AutoReturn's
motion simply because certain declarations cited in AutoReturn's separate statement had
been filed and served on ACT with AutoReturn's earlier withdrawn motion.
II. Summary Adjudication of ACT's Seventh Cause of Action
for Unfair Business Practices
ACT contends the trial court erred in granting summary adjudication of its cause
of action against AutoReturn for unfair business practices in violation of the Business and
Professions Code section 17200 et seq., commonly referred to as the unfair competition
70
law (UCL). Business and Professions Code section 17200 defines unfair competition as
"any unlawful, unfair or fraudulent business act or practice . . . ." Because the statute " 'is
written in the disjunctive, it establishes three varieties of unfair competition–acts or
practices which are unlawful, or unfair, or fraudulent. "In other words, a practice is
prohibited as 'unfair' or 'deceptive' even if not 'unlawful' and vice versa." ' " (Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th 163, 180
(Cel-Tech).)
The California Supreme Court in Cel-Tech held that in the context of a UCL
action against a direct competitor of the plaintiff, in contrast to a consumer action, the
word "unfair" in Business & Professions Code section 17200 "means conduct that
threatens an incipient violation of an antitrust law, or violates the policy or spirit of one
of those laws because its effects are comparable to or the same as a violation of the law,
or otherwise significantly threatens or harms competition." (Cel-Tech, supra, 20 Cal.4th
at p. 187, fn. omitted.) The Cel-Tech court emphasized that "the ' "antitrust laws . . . were
enacted for 'the protection of competition, not competitors. ' " ' [Citation.] . . . Injury to a
competitor is not equivalent to injury to competition; only the latter is the proper focus of
antitrust laws." (Id. at p. 186.)
"The 'unlawful' practices prohibited by [Business and Professions Code] section
17200 are any practices forbidden by law, be it civil or criminal, federal, state, or
municipal, statutory, regulatory, or court-made. [Citation.] It is not necessary that the
predicate law provide for private civil enforcement. [Citation.] . . . [Business and
Professions Code] section 17200 'borrows' violations of other laws and treats them as
71
unlawful practices independently actionable under [Business and Professions Code]
section 17200 et seq." (Saunders v. Superior Court (1994) 27 Cal. App. 4th 832, 838-
839.)
"[U]nder the fraud prong of the UCL a plaintiff need not show that he or others
were actually deceived or confused by the conduct or business practice in question. . . .
A violation can be shown even if no one was actually deceived, relied upon the
fraudulent practice, or sustained any damage." (Schnall v. Hertz Corp. (2000) 78
Cal. App. 4th 1144, 1167.) The plaintiff need only "show deception to some members of
the public, or harm to the public interest" (Watson Laboratories, Inc. v. Rhone-Poulenc
Rorer, Inc. (C.D.Cal. 2001) 178 F. Supp. 2d 1099, 1121 (Watson Laboratories), or " 'that
members of the public are likely to be deceived.' " (Schnall v. Hertz Corp., supra, 78
Cal.App.4th at p. 1167.)23
In its seventh cause of action for unfair business practices in violation of the UCL,
ACT alleged that it "sustained actual harm and injury resulting from the unlawful, unfair
and fraudulent competition and business practices on the part of AutoReturn . . . ."
Specifically, ACT alleged that the City awarded the towing contract to AutoReturn based
23 In In re Tobacco II Cases (2009) 46 Cal. 4th 298, the California Supreme Court
held that to comply with UCL's standing requirements after 2004 amendments to the
UCL by Proposition 64, a class representative in a consumer class action alleging
misrepresentation under the fraudulent prong of the UCL "must demonstrate actual
reliance on the allegedly deceptive or misleading statements, in accordance with well-
settled principles regarding the element of reliance in ordinary fraud actions" (In re
Tobacco II Cases, at p. 306.) The Supreme Court further held, however, that the
"standing requirements are applicable only to the class representatives, and not all absent
class members." (Ibid.)
72
on "AutoReturn's wrongful inclusion of LETS and TMS software platforms in response
to the 2008 RFP and in disregard of ACT's exclusive license to use . . . LETS and TMS
software products in San Diego County, and in violation of the City Charter and
Municipal Code."
The trial court granted summary adjudication of ACT's seventh cause of action on
several grounds. First the court ruled that ACT lacked standing to bring its claim under
the UCL because ACT only "leased" DTS's software. The court further ruled that even if
ACT could show it had standing, it had "not shown a causal connection between the
unlawful practice it alleges and the injury it claims to have suffered. It only speculates
that but for AutoReturn's inclusion of LETS/TMS in its bid, [ACT] would have been
awarded the contract. This conclusory, speculative statement is insufficient to raise a
triable issue of material fact." The court then ruled that to the extent ACT based its UCL
claim on its eighth cause of action for interference with contractual relations, "both
claims fail because no contract was ever breached." The court also ruled that ACT's
seventh cause of action failed under the " 'unfair' prong of the UCL because ACT did not
and cannot establish AutoReturn's conduct violated an antitrust law[]"—i.e., that it
injured competition and not just a particular competitor. Finally, the court ruled that as a
result of ACT's having brought its 18th cause of action for misappropriation of trade
73
secrets, ACT's seventh cause of action was "superseded by the CUTSA as a matter of
law."24
We conclude the court erred in summarily adjudicating ACT's seventh cause of
action in AutoReturn's favor. ACT had standing to bring its UCL claim against
AutoReturn regardless of whether it had standing to bring a claim for misappropriation of
trade secrets based on AutoReturn's use of LETS/TMS in its bid. Business and
Professions Code section 17204 confers standing to bring a UCL action on "a person who
has suffered injury in fact and has lost money or property as a result of the unfair
competition." ACT's UCL claim is based on its exclusive license to use LETS/TMS in
San Diego County and not on the alleged trade secret status of LETS/TMS. ACT claims,
and argued in opposition to AutoReturn's motion for summary judgment, that it would
have been awarded the towing contract but for AutoReturn's unfair business practice of
"bidding the LETS/TMS software products in disregard of ACT's exclusive use rights, to
the loss of $1.5 million." Regardless of the merit of that claim, ACT has standing to
assert it.
The trial court correctly ruled that ACT's seventh cause of action failed under the
"unfair" prong of the UCL. There is no evidence that AutoReturn's alleged unfair
practice threatened an incipient violation of an antitrust law, violated the policy or spirit
24 ACT voluntarily dismissed its 18th cause of action for misappropriation of trade
secrets without prejudice the same day it filed its opposition to AutoReturn's motion for
summary judgment. Despite the dismissal, the court granted AutoReturn's motion for
summary adjudication as to the 18th cause of action.
74
of one of those laws, or significantly threatened or harmed competition as opposed to
harming ACT as a direct competitor. (Cel-Tech, supra, 20 Cal.4th at pp. 186-187.)
However, we conclude there was sufficient evidence to preclude summary adjudication
of ACT's seventh cause of action under the "unlawful" and "fraudulent" prongs of the
UCL.
As noted, the unlawful practices prohibited under Business and Professions Code
section 17200 include any practices forbidden by civil law. (Saunders v. Superior Court,
supra, 27 Cal.App.4th at pp. 838-839.) "Since the addition of the word 'unlawful' to the
predecessor statute in 1963, this section has been liberally construed so as not to be
limited to traditional anticompetitive practices." (People v. E.W.A.P., Inc. (1980) 106
Cal. App. 3d 315, 318.) As we discuss infra, AutoReturn's use of LETS/TMS fell within
the unlawful prong of the UCL because it subjected AutoReturn to liability for tortious
interference with ACT's contractual relationship with DTS with ACT's prospective
economic advantage.
Regarding the fraudulent prong of the UCL, we reiterate that the plaintiff need
only "show deception to some members of the public, or harm to the public interest"
(Watson Laboratories, supra, 178 F.Supp.2d at p. 1121) or " 'that members of the public
are likely to be deceived.' " (Schnall v. Hertz Corp., supra, 78 Cal.App.4th at p. 1167.)
ACT's UCL cause of action is viable under the fraudulent prong because it is based on
AutoReturn's alleged fraudulent representations to the City that it was authorized to use
LETS/TMS in its prospective performance of the City's towing contract and, therefore,
implicates public deception or harm to the public interest. (Watson Laboratories, supra,
75
178 F.Supp.2d at p. 1121; Travelers Prop. Cas. Co. of Am. v. Centex Homes (N.D.Cal.
Aug. 26, 2013, No. 12–0371–SC) 2013 U.S.Dist. Lexis 121401 [corporation may bring a
UCL fraud prong claim if it shows the alleged wrongdoing has some impact on the
general public].)25 Deceptive public contract bidding is inherently harmful to the public
interest and deceives the general public through public employees who issue requests for
public contract bids and award public contracts on behalf of the general public.
Accordingly, we conclude that a deceptive bid that harms a direct competitor as well as
the public interest may serve as the basis for an action by the direct competitor under the
25 AutoReturn contends that ACT waived the right to argue on appeal that its seventh
cause of action falls under the fraudulent prong of the UCL because ACT did not make
that argument in opposition to AutoReturn's motion for summary judgment We disagree.
In its seventh cause of action, ACT alleged that AutoReturn engaged in fraudulent
business practices, and specifically alleged that AutoReturn "falsely represented to the
City that AutoReturn was authorized to utilize LETS and TMS systems in AutoReturn's
prospective performance of the [towing contract] in the event said contract was awarded
to AutoReturn." The seventh cause of action further alleges that AutoReturn falsely
represented to the City that "ACT has no rights of exclusivity which would bar an award
of the [contract] to AutoReturn." In its opposition to AutoReturn's summary judgment
motion, ACT argued that the City awarded the contract to AutoReturn "based upon
AutoReturn's false representation that it would use the LETS and TMS products to
automate tow dispatching for the City. Having used LETS/TMS to bait the City, once
AutoReturn was awarded the . . . contract, it then switched to other allegedly non-
infringing computer software to avoid ACT's preliminary injunction of its infringement
of ACT's exclusive license rights in LETS/TMS." In arguing that it had standing to bring
a UCL claim because it lost money as a result of AutoReturn's infringement of its
exclusive license, ACT contended that AutoReturn's interference with ACT's rights in
LETS/TMS arose when AutoReturn "falsely represented" to the City that AutoReturn
was able and intended to use LETS/TMS in the performance of the contract. This
argument in ACT's opposition to AutoReturn's motion for summary judgment, along with
the allegations in ACT's seventh cause of action, sufficiently preserve ACT's right to
argue on appeal that its seventh cause of action is viable under the fraudulent prong of the
UCL.
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"fraudulent" prong of Business and Professions Code section 17200. In the present case,
ACT presented evidence that AutoReturn's allegedly deceptive bid harmed the public
interest by resulting in a substantial delay in AutoReturn's ability to perform the towing
contract while it developed software to replace LETS/TMS after ACT complained that
AutoReturn's proposal infringed ACT's exclusive license to use LETS/TMS in San Diego
County.
ACT contends the trial court erred in ruling there was no evidence showing a
causal connection between AutoReturn's alleged unlawful business practice and the
resulting injury ACT claims to have suffered. We conclude the evidence is sufficient to
raise a triable issue of fact as to causation. The court made a factual finding based on
declarations of three City employees, which the court referred to as "undisputed
testimony," that the "City did not require any specific software platform, and that it
ranked AutoReturn's proposal highest because of its superior technical score and its oral
and written responses." However, ACT presented sufficient evidence to raise a triable
issue of fact as to whether AutoReturn's use of the LETS/TMS software in its bid
proposal was a substantial factor in the City's decision to award the towing contract to
AutoReturn. AutoReturn's bid proposal was almost entirely based on its proposed use of
LETS/TMS. ACT submitted evidence that AutoReturn represented to the City during the
bidding process that AutoReturn's ARIES platform was then comprised of LETS and
TMS, that AutoReturn would use LETS/TMS to manage tows under the contract, and
that LETS/TMS was already in place and being used by the SDPD. The fact that
AutoReturn's proposed use LETS/TMS software was essentially the centerpiece of its
77
proposal raises a reasonable inference that the software was a substantial factor in the
City's decision to award AutoReturn the towing contract. The fact that the City ranked
ACT's proposal second to AutoReturn's supports a reasonable inference that the City
likely would have awarded ACT the contract if AutoReturn had not included LETS/TMS
in its proposal.
Further, a "Consensus Technical Evaluation Form—Summary" prepared by the
City's Technical Evaluation Committee (the committee) noted AutoReturn's use of a
"Dispatch Tow System" as a component of AIRIES and gave AutoReturn's proposal an
"Exceptional" rating because "AutoReturn offers a fully comprehensive, all inclusive
suite of services that will allow the City of San Diego to migrate their current system
seamlessly with little or no impact to the current business operation." The committee's
evaluation further stated that AutoReturn's proven experience and expertise "combined
with the system capabilities provided by the DTS . . . software platform will fulfill all the
requirements to provide the communication and administrative services the City of San
Diego requires." The evaluation concluded with the statement that "[t]he integration of
LETS/TMS, DTS and the ARIES full-feature solutions will meet and exceed the City
Dispatch Towing Services RFP requirements." Another bidder whose proposal was rated
acceptable but not exceptional proposed to use software other than LETS and integrate it
with TMS. The committee rated this proposal as marginal, stating: "If the TMS system
is not available from the other vendor it would require this vendor to develop and
integrate a new system to replace its functions. This may cause of action a delay in
implementation and/or unknown additional costs to the City." (Italics added.) It is
78
reasonable to infer from this statement that the City may not have awarded the contract to
AutoReturn if AutoReturn's proposal indicated it would have to develop a new software
platform to replace LETS/TMS's functions in its ARIES software. The committee's
evaluations raise a triable issue of fact as to whether AutoReturn's use of LETS/TMS in
its proposal was a substantial factor in the City's decision to award the contract to
AutoReturn.
III. Summary Adjudication of ACT's 18th Cause of Action for Misappropriation of
Trade Secrets and Ruling That It Supersedes the Seventh Cause of Action
As noted, the court granted AutoReturn's motion for summary adjudication as to
ACT's 18th cause of action for misappropriation of trade secrets even though ACT
voluntarily dismissed that cause of action without prejudice the same day it filed its
opposition to AutoReturn's motion for summary judgment. In the same order, the court
ruled that ACT's seventh cause of action for unfair business practices in violation of the
UCL was "superseded by the CUTSA as a matter of law." On appeal, ACT challenges
the court's jurisdiction to summarily adjudicate the 18th cause of action and rule that it
supersedes the seventh cause of action.
We conclude that the court lacked jurisdiction to summarily adjudicate ACT's 18th
cause of action after ACT voluntarily dismissed it. Code of Civil Procedure section 581,
subdivision (c) provides that "[a] plaintiff may dismiss his or her complaint, or any cause
of action asserted in it, in its entirety, or as to any defendant or defendants, with or
without prejudice prior to the actual commencement of trial." In ruling that it could
properly adjudicate ACT's 18th cause of action despite ACT's having voluntarily
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dismissed it, the trial court cited Cravens v. State Bd. of Equalization (1997) 52
Cal. App. 4th 253, 257 (Cravens), in which the Court of Appeal decided the trial court had
properly ruled on a motion for summary judgment where the plaintiff had not filed
opposition to the motion and voluntarily dismissed the action the day before the hearing
on the motion. The Cravens court stated: "[R]espondents' moving papers met their
burden of negating appellant's claims, entitling them to judgment as a matter of law if no
issues of disputed fact were raised. Appellant failed to file opposition within the requisite
time. At that point, entry of summary judgment in favor of respondents became a
formality which appellant could not avoid by the stratagem of filing a last minute request
for dismissal without prejudice." (Ibid.)
Cravens is distinguishable from the present case, which is more analogous to
Zapanta v. Universal Care, Inc. (2003) 107 Cal. App. 4th 1167 (Zapanta). The plaintiffs
in Zapanta filed a request to dismiss their medical malpractice lawsuit without prejudice
one day before their opposition to the defendants' motion for summary judgment was
due. (Id. at p. 1169.) The trial court struck the plaintiffs' request for dismissal and
granted defendants' summary judgment motion on the merits. (Id. at pp. 1170-1171.)
The Zapanta court reversed the judgment, concluding that the plaintiffs' request for
dismissal was valid and that the trial court exceeded its jurisdiction in granting the
defendant's motion for summary judgment. (Id. at pp. 1171, 1174.)
The Zapanta court distinguished Cravens, noting that the plaintiff in Cravens filed
a request for dismissal one day before the summary judgment hearing and that the
defendants had no notice of the dismissal and appeared at the hearing. (Zapanta, supra,
80
107 Cal.App.4th at p. 1172.) The Zapanta court stated: "By contrast, appellants here did
not fail to file opposition to the summary judgment motion; they filed their request for
dismissal prior to their deadline for filing opposition to the summary judgment motion,
albeit by only one day. Under these circumstances, it cannot be said that judgment on the
motion was a mere formality, thus distinguishing this case from Cravens." (Id. at pp.
1172-1173, some italics added.) The Zapanta court concluded: "At the time appellants
filed their request for dismissal, the opposition to the summary judgment motion was not
past due, no hearing on the motion had been held and no tentative ruling or other decision
tantamount to an adjudication had been made in respondents' favor. In other words, the
case had not yet reached a stage where a final disposition was a mere formality." (Id. at
pp. 1173-1174.)
Similar to the situation in Zapanta, when ACT filed its request to dismiss its 18th
cause of action there had been no hearing on AutoReturn's motion for summary
adjudication of the cause of action, there was no tentative decision in AutoReturn's favor
on the motion, and it cannot be said a final disposition of the cause of action was a mere
formality. Accordingly, the court lacked jurisdiction to summarily adjudicate the 18th
cause of action.26
26 The court also cited Mary Morgan, Inc. v. Melzark (1996) 49 Cal. App. 4th 765, in
which the Court of Appeal decided the plaintiff could not voluntarily dismiss the action
without prejudice after the court announced an adverse tentative summary judgment
ruling and the summary judgment hearing had commenced and been continued to permit
the plaintiff to produce additional opposition evidence (id. at pp. 768-769), and Harbrodt
v. Burke (1996) 42 Cal. App. 4th 168, in which the Court of Appeal held that a plaintiff
could not avoid dismissal of an action as a discovery sanction by voluntarily dismissing
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We conclude that ACT's voluntary dismissal of the 18th cause of action also
deprived the court of jurisdiction to rule, post-dismissal, that ACT's seventh cause of
action was superseded under the CUTSA by the dismissed 18th cause of action. "A
plaintiff's voluntary dismissal of his action has the effect of an absolute withdrawal of his
claim and leaves the defendant as though he had never been a party. . . . '[I]t is a well-
settled proposition of law that where the plaintiff has filed a voluntary dismissal of an
action . . . , the court is without jurisdiction to act further [citations], and any subsequent
orders of the court are simply void.' " (Paniagua v. Orange County Fire Authority (2007)
149 Cal. App. 4th 83, 89; Harris v. Billings (1993) 16 Cal. App. 4th 1396, 1405 [after a
voluntary dismissal of an action under Code of Civil Procedure section 581 the trial court
lacks jurisdiction to act further in the action except to award costs and statutory attorney
fees].) Accordingly, at the time it ruled on AutoReturn's motion for summary judgment,
the court lacked jurisdiction to rule that the dismissed 18th cause of action superseded the
seventh cause of action.
Further, we conclude that if ACT had not voluntarily dismissed its 18th cause of
action, it would not supersede its seventh cause of action. "CUTSA provides the
exclusive civil remedy for conduct falling within its terms, so as to supersede other
[claims and] civil remedies 'based upon misappropriation of a trade secret.' (§ 3426.7,
the action without prejudice because that "tactic would simply defeat the trial court's
power to enforce its discovery orders." (Id. at pp. 175-176.) These cases are
distinguishable. ACT voluntarily dismissed its 18th cause of action before the trial court
issued a tentative ruling on AutoReturn motion for summary judgment and the dismissal
did not implicate the court's power to enforce discovery orders through a terminating
sanction.
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subds. (a), (b).)" (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal. App. 4th 210, 236,
238 (Silvaco).) The determination of whether a claim is based on misappropriation of a
trade secret is largely factual. (Angelica Textile Services, Inc. v. Park (2013) 220
Cal. App. 4th 495, 505.) The "UTSA by its terms does not displace a contract claim, even
if it is based on the misappropriation of a trade secret. (Civ. Code, § 3426.7, subd.
(b)(1).) Moreover, UTSA does not displace noncontract claims that, although related to
a trade secret misappropriation, are independent and based on facts distinct from the
facts that support the misappropriation claim." (Angelica, at p. 506, italics added.)
ACT's seventh cause of action cause of action on its face is based on facts that are
distinct from the alleged facts that support ACT's 18th cause of action for
misappropriation of trade secrets. The seventh cause of action was included in ACT's
original complaint filed in 2009 after the City awarded AutoReturn the towing contract
but before AutoReturn decided not to use LETS/TMS and develop its own software to
replace it. The factual basis of the seventh cause of action is AutoReturn's alleged
infringement of ACT's exclusive license to use LETS/TMS in San Diego County—i.e.,
the City's award of the towing contract to AutoReturn "based upon AutoReturn's
wrongful inclusion of LETS and TMS software platforms in response to the 2008 RFP
and in disregard of ACT's exclusive license to use . . . LETS and TMS software products
in San Diego County . . . ." The seventh cause of action contains no reference to a trade
secret and is in no way dependent on whether any aspect of LETS/TMS is a trade secret.
Thus, it is not a claim " 'based upon misappropriation of a trade secret.' " (Silvaco, supra,
184 Cal.App.4th at p. 238.)
83
In contrast, ACT's 18th cause of action for misappropriation of trade secrets is
based on allegations that ACT maintained the LETS/TMS programs "as confidential,
proprietary, and exclusively licensed trade secrets . . . under passworded lock and key,"
and that AutoReturn acquired ACT's "confidential, proprietary and trade secret
information and trade secrets through improper means[,]" and used and allowed "non-
licensed third parties" to use that information to unfairly compete with ACT in violation
of its exclusive license. In short, the seventh cause of action is based on alleged
infringement of an exclusive license to use software; the 18th cause of action is based on
alleged misappropriation of trade secrets contained within the software. Although ACT's
seventh cause of action is related to the 18th cause of action, each cause of action is based
on distinct facts. Thus, the 18th cause of action does not preempt or supersede the
seventh cause of action. The court erred in summarily adjudicating ACT's seventh cause
of action in AutoReturn's favor.
IV. Summary Adjudication of ACT's Eighth Cause of Action for Intentional Interference
with Contractual Relations
ACT contends the trial court erred in summarily adjudicating ACT'S eighth cause
of action of intentional interference with contractual relations. The elements of "a cause
of action for intentional interference with contractual relations are (1) a valid contract
between plaintiff and a third party; (2) defendant's knowledge of this contract; (3)
defendant's intentional acts designed to induce a breach or disruption of the contractual
relationship; (4) actual breach or disruption of the contractual relationship; and (5)
resulting damage. [Citations.]' [Citation.] The plaintiff need not allege an actual breach,
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but only interference with or disruption of his or her contractual relations." (LiMandri v.
Judkins (1997) 52 Cal. App. 4th 326, 343-344.) " '[I]t is not necessary that the defendant's
conduct be wrongful apart from the interference with the contract itself. [Citation.]
[¶] . . . Intentionally inducing or causing a breach of an existing contract is . . . a wrong
in and of itself. . . .' " (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th
1134, 1158 (Korea Supply).)
The contract that is the subject of this cause of action against AutoReturn is the
Ball contract as amended in 2003–the agreement between DTS and ACT that gave ACT
an exclusive license to use DTS's LETS/TMS software in San Diego County. In its
eighth cause of action, ACT alleged that AutoReturn interfered with ACT's contractual
relations with DTS by entering into negotiations and contractual relationships with DTS
for the use of LETS/TMS, using confidential, proprietary and trade secret information
regarding LETS/TMS in its bid for the towing contract, and falsely representing to the
City that ACT's exclusive rights in LETS/TMS had expired or terminated.
In its motion for summary judgment AutoReturn did not separately address the
eighth cause of action; it argued generally that it was entitled to summary adjudication of
ACT's seventh through 13th, 18th, and 21st causes of action because it never used DTS's
software in San Diego and ACT could not establish a causal connection between
AutoReturn alleged use of DTS's software and ACT's loss of the towing contract. The
trial court ruled: "AutoReturn is entitled to summary adjudication of ACT'S counts #7-
14, 18, and 21 because AutoReturn did not interfere with ACT's alleged exclusive license
given that AutoReturn never used LETS/TMS. Further, AutoReturn is entitled to
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summary judgment/adjudication of these same claims because the undisputed facts show
that AutoReturn's mentioning of LETS/TMS in its proposal did not cause ACT any
harm."
In considering whether AutoReturn could be held liable for inducing a breach of
this contract or disrupting the contractual relationship between DTS and ACT, it is
important to focus on the contract's relevant terms. The subject agreement (2003
amendment) provided that in the event ACT's contract with the City was extended past its
expiration date of December 31, 2004, DTS was "strictly prohibited from entering into
any communications or negotiations with the City . . . or any other person relating to
operational or dispatching/communications without first obtaining prior written consent
from [ACT's] president or other authorized representative." (Italics & boldface added.)
The 2003 amendment provided that DTS granted ACT "and its members an irrevocable
license for the exclusive use in San Diego County, California, of the TMS software,
including, but not limited to, any related software and/or updates or revisions thereto."
The 2003 amendment also provided that "DTS shall refrain from offering any similar or
competing service to any person operating a tow company or engaged in tow and/or
related services within [San Diego County], including, but not limited to . . . the City,
and/or any third party tow company." (Italics added.)
The emphasized language shows that, contrary to the trial court and AutoReturn's
reasoning, ACT did not have to present evidence that AutoReturn used DTS's software in
San Diego County for DTS to be held liable for breaching its contract with ACT.
Regardless of whether AutoReturn "used" LETS/TMS, the evidence shows that DTS
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committed acts in connection with AutoReturn's bid for the City towing contract that
breached the terms of its contract with ACT. DTS cooperated with AutoReturn in
AutoReturn's bid preparation without obtaining prior written consent from ACT as the
contract required. As noted ante, AutoReturn wanted to use LETS/TMS in its bid
proposal to avoid incurring additional expenses and having to retrain its employees on
different software. DTS's management agreed to work with AutoReturn on its bid
proposal despite knowing and communicating to AutoReturn that ACT would take issue
with DTS's licensing LETS/TMS to AutoReturn for use in San Diego. DTS's CEO Estes
later informed AutoReturn that ACT claimed an exclusive license to use LETS/TMS in
San Diego but Estes and DTS's management assured AutoReturn that the exclusive
license was invalid and unenforceable. Given that assurance, AutoReturn submitted a bid
proposal to the City that was based on its proposed use of LETS/TMS. The relationship
between DTS and AutoReturn soured only after AutoReturn decided not to not use
LETS/TMS in performing the city contract because of ACT's exclusive license claim.
Thus, there is sufficient evidence to support a claim that AutoReturn induced DTS
to breach the provision in its agreement with ACT that "strictly prohibited" it "from
entering into any communications or negotiations with . . . any . . . person relating to
operational or dispatching/communications without first obtaining prior written consent
from [ACT's] president or other authorized representative." The evidence regarding DTS
and AutoReturn's working together on AutoReturn's bid for the towing contract also
violates the spirit, if not the letter, of the contract provision prohibiting DTS "from
offering any similar or competing service to any person operating a tow company or
87
engaged in tow and/or related services within [San Diego County], including, but not
limited to . . . the City, and/or any third party tow company."27
A trier of fact could reasonably find that AutoReturn induced DTS to breach or
disrupt its exclusive license agreement with ACT by cooperating and working closely
with AutoReturn on AutoReturn's bid to the City, which was based on AutoReturn's
proposed use of DTS's LETS/TMS. DTS's communication and cooperation with
AutoReturn regarding AutoReturn's use of LETS/TMS in its bid evidences both DTS's
breach of its contract with ACT and AutoReturn's inducement of the breach and
disruption of DTS and ACT's contractual relationship. Regarding causation and
damages, as we discussed in connection with ACT's seventh cause of action for unfair
business practices, there is sufficient evidence to raise a triable issue of fact as to whether
AutoReturn's use of LETS/TMS in its bid was a substantial factor in the City's decision to
award AutoReturn the towing contract, and whether ACT would have won the contract if
AutoReturn had not used LETS/TMS in its bid. The court erred in granting AutoReturn's
motion for summary adjudication of the eighth cause of action.
27 The only reason it may not violate the letter of that provision is that AutoReturn
was not yet engaged in towing related services in San Diego County when DTS helped it
with its bid. In any event, regardless of whether DTS actually breached that provision, a
trier of fact could reasonably view AutoReturn's working with DTS to prepare a bid
based on its proposed use LETS/TMS as a disruption of DTS's contractual relationship
with ACT.
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V. Summary Adjudication of ACT's Eighth Cause of Action for Intentional Interference
with Prospective Economic Advantage
The elements of the tort of intentional interference with prospective economic
advantage "are usually stated as follows: ' "(1) an economic relationship between the
plaintiff and some third party, with the probability of future economic benefit to the
plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part
of the defendant designed to disrupt the relationship; (4) actual disruption of the
relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the
defendant." ' " (Korea Supply, supra, 29 Cal.4th at p. 1153.) "[A] plaintiff seeking to
recover for alleged interference with prospective economic relations has the burden of
pleading and proving that the defendant's interference was wrongful 'by some measure
beyond the fact of the interference itself. ' " (Della Penna v. Toyota Motor Sales, U.S.A.,
Inc. (1995) 11 Cal. 4th 376, 392-393.) Although intentional interference with prospective
economic advantage and intentional interference with contract are distinct torts, a
plaintiff may be able to state causes of action for both torts. (Korea Supply, supra, 29
Cal.4th at p. 1157.)
ACT alleged in its ninth cause of action that AutoReturn intentionally interfered
with ACT's "actual and prospective economic relationships with the City" by engaging in
the same conduct alleged in its eighth cause of action for intentional interference
contractual relations—i.e., by entering into negotiations and contractual relationships
with DTS for the use of LETS/TMS, using confidential, proprietary and trade secret
information regarding LETS/TMS in its bid for the towing contract, and falsely
89
representing to the City that ACT's exclusive rights in LETS/TMS had expired or
terminated. As noted, AutoReturn sought summary adjudication of both the eighth and
ninth causes of action on the grounds it never used DTS's software in San Diego and
ACT could not establish a causal connection between AutoReturn alleged use of DTS's
software and ACT's loss of the towing contract.
The trial court in its order granting AutoReturn's motion for summary judgment on
ACT's fourth amended complaint did not separately address ACT's ninth cause of action
for intentional interference with prospective economic advantage. As noted ante, the
order states that "AutoReturn is entitled to summary adjudication on ACT'S counts #7-14,
18, and 21 because AutoReturn did not interfere with ACT's alleged exclusive license
given that AutoReturn never used LETS/TMS. Further, AutoReturn is entitled to
summary judgment/adjudication of these same claims because the undisputed facts show
that AutoReturn's mentioning of LETS/TMS in its proposal did not cause ACT any
harm."28
The evidence that AutoReturn intentionally interfered with ACT's exclusive
license to use LETS/TMS in San Diego County by using LETS/TMS in its proposal for
the City's towing contract and that, as a result, ACT lost the future economic benefit it
would have realized by continuing its contractual relationship with the City is sufficient
28 Through inadvertence or clerical error, the summary judgment order referred to
ACT's 10th cause of action for "Imposition of Constructive Trust" and 11th cause of
action for "Equitable Lien" as ACT's eighth and ninth causes of action, respectively,
stating: "ACT's counts 8 and 9 alleging a constructive trust or equitable lien fail as a
matter of law as each is a remedy and not a cause[] of action."
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to defeat AutoReturn's motion for summary adjudication of ACT's ninth cause of action
for intentional interference with prospective economic advantage. For purposes of
summary adjudication, ACT satisfied the requirement of showing independently
wrongful conduct by presenting sufficient evidence to raise a triable issue of fact as to
whether AutoReturn falsely represented to the City that it had legal access to and the
right to use LETS/TMS in its prospective performance of the City's towing contract, and
whether AutoReturn induced DTS to breach its exclusive license contract with ACT by
working with AutoReturn to include LETS/TMS in AutoReturn's bid proposal. We
reiterate that the evidence raises a triable issue of fact as to whether AutoReturn's use of
LETS/TMS in its bid was a substantial factor in the City's decision to award AutoReturn
the towing contract, and whether ACT would have won the contract if AutoReturn had
not used LETS/TMS in its bid. Accordingly, the court erred in granting AutoReturn's
motion for summary adjudication of ACT's ninth cause of action.
AUTORETURN AND THE CITY'S APPEAL
I. Trial Court's Jurisdiction to Consider AutoReturn's Request for Attorney Fees Against
ACT Under Section 3426.4
AutoReturn's contention that the court erred in ruling it lacked jurisdiction to
consider AutoReturn's request for attorney fees under section 3426.4 against ACT has
merit.29 The court found that "ACT's and DTS's decision to drag City and AutoReturn
29 Although AutoReturn's notice of motion for attorney fees identifies the moving
parties as both AutoReturn and the City, their argument heading regarding fees under
section 3426.4 states that ACT and DTS "must compensate AutoReturn for attorney fees
spent in response to trade secret claims brought in bad faith under . . . [section] 3426.4."
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into the case was made without any admissible evidence (as opposed to rumor, suspicion,
and speculation) of any wrongdoing by City and AutoReturn, and was thus objectively
unreasonable and in bad faith." However, the court denied AutoReturn's motion for
attorney fees under section 3426.4 as to ACT on the ground it lacked jurisdiction to
award fees because ACT had dismissed its trade secret cause of action.
As noted, after a voluntary dismissal of an action under Code of Civil Procedure
section 581 the trial court lacks jurisdiction to act further in the action except to award
costs and statutory attorney fees. (Harris v. Billings, supra, 16 Cal.App.4th at p. 1405.)
Section 3426.4 provides, in relevant part: "If a claim of misappropriation is made in bad
faith . . . the court may award reasonable attorney's fees and costs to the prevailing party."
It is clear under case law that a defendant to a claim for misappropriation of trade
secrets may be deemed a prevailing party under section 3426.4 when the plaintiff
voluntarily dismisses the claim. In SASCO v. Rosendin Electric, Inc. (2012) 207
Cal. App. 4th 837, a former employer sued form employees and a competitor for
misappropriation of trade secrets and other causes of action. (Id. at pp. 840-841.) After
the defendants filed a motion for summary judgment the plaintiff dismissed its action,
including a cause of action for misappropriation of trade secrets, without having filed
opposition to the summary judgment motion. (Id. at p. 842.) Defendants then
successfully moved for attorney fees and costs under section 3426.4. (Id. at pp. 842-
(Capitalization omitted.) AutoReturn and the City's briefs in this appeal argue only that
the court erred in not awarding attorney fees under section 3426.4 to AutoReturn against
ACT. We view this challenge to the court's denial of fees against ACT to be limited to
the denial as to AutoReturn only, and not as to the City.
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843.) On appeal the plaintiff challenged the trial court's ruling that its trade secret claim
was objectively specious, but did not challenge the court's finding that the defendants
were prevailing parties under section 3426.4. (Id. at p. 845.) The Court of Appeal
affirmed the award of fees and costs. (Id. at p. 849.)
In Cypress, the plaintiff voluntarily dismissed its action for misappropriation of
trade secrets and the Court of Appeal upheld the trial court's finding that the defendants
were prevailing parties under section 3426.4. (Cypress, supra, 236 Cal.App.4th at p.
253.) The Court of Appeal observed that "[a] statute predicating an entitlement to fees
solely or predominantly on status as the prevailing party will inevitably raise the question
of why a party achieving only an arguable or equivocal victory should be permitted to
recoup fees from an opponent. The analogous question here is why a party who has
made a trade secret claim in bad faith should be permitted to inflict the costs of defense
on his or her opponent. Given the manifest legislative intention to avoid such
impositions, [section 3426.4] would seem to warrant a liberal construction of 'prevailing
party,' trusting in the 'bad faith' requirement to filter out doubtful cases." (Id. at p. 254.)
Thus, ACT's voluntary dismissal of its cause of action for misappropriation of
trade secrets did not deprive the court of jurisdiction to award AutoReturn attorney fees
under section 3426.4 against ACT. We will remand the matter to the trial court to
reconsider AutoReturn's motion for attorney fees and costs against ACT under section
3426.4.
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II. Denial of AutoReturn's Request for an Award of Expert Witness Fees Against DTS
AutoReturn contends that under section 3426.4, the court erred in denying it
$36,500 in costs it paid for the services of Dr. Howard Cohen, a software engineering
expert that AutoReturn retained.30 As noted, section 3426.4 provides that recoverable
costs under that statute "shall include a reasonable sum to cover the services of expert
witnesses, who are not regular employees of any party, actually incurred and reasonably
necessary in either, or both, preparation for trial or arbitration, or during trial or
arbitration, of the case by the prevailing party." AutoReturn contends that under this
language, an award of the fees it paid Cohen was mandatory.
AutoReturn did not request recovery of Cohen's fees in its motion for attorney fees
and costs under section 3426.4; it listed Cohen's fees as a cost under "Other" on its
memorandum of costs. DTS challenged AutoReturn request for Cohen's fees in a motion
to tax AutoReturn's costs. DTS argued that the $55,246.66 in total costs that AutoReturn
requested in its memorandum of costs, including $36,050.00 for Cohen's services, should
be reduced to $10,182.42. Regarding Cohen's fees, DTS argued: "There does not appear
to be a reasonable basis for Defendants to have spent $36,000 on a computer expert in
this case. However, without a breakdown of the time the expert purportedly spent on the
case, it is impossible for DTS to provide further comment."
30 In the trial court, AutoReturn sought expert fees for Cohen's services in the
amount of $36,050.
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In its opposition to DTS's motion to tax costs, AutoReturn represented that Cohen
"spent over 100 hours on this case reviewing pleadings and other case materials, reading
hundreds of pages of documents produced by DTS, learning the ins-and-outs of both
AutoReturn's and DTS's software platforms, conducting a five-day extensive review of
DTS's software in August 2012, and preparing an expert report for trial." The court
granted DTS's request to reduce AutoReturn's costs and awarded AutoReturn costs of
$10,182.42. The court did not explain the reduction other than stating that it found DTS's
"attack justified to the extent reflected [in DTS's memorandum of points and authorities
in support of its motion to tax costs]."
"If the items appearing in a cost bill appear to be proper charges, the burden is on
the party seeking to tax costs to show that were not reasonable or necessary. On the other
hand, if the items are properly objected to, they are put in issue and the burden of proof is
on the party claiming them as costs. [Citations.] Whether a cost item was reasonably
necessary to the litigation presents a question of fact for the trial court and its decision is
reviewed for abuse of discretion." (Ladas v. California State Auto. Assn. (1993) 19
Cal. App. 4th 761, 774.)
"[T]he mere filing of a motion to tax costs may be a 'proper objection' to an item,
the necessity of which appears doubtful, or which does not appear to be proper on its
face. [Citation.] However, '[i]f the items appear to be proper charges the verified
memorandum is prima facie evidence that the costs, expenses and services therein listed
were necessarily incurred by the defendant [citations], and the burden of showing that an
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item is not properly chargeable or is unreasonable is upon the [objecting party].' "
(Nelson v. Anderson (1999) 72 Cal. App. 4th 111, 131.)
We conclude the court did not abuse its discretion in denying AutoReturn Cohen's
expert fees as costs. DTS's objection to Cohen's fees designated as "other" costs was
proper because the necessity of that item was doubtful—i.e., the necessity was unclear on
the face of the cost memorandum. Thus, the burden of proving the cost was proper or
reasonably necessary fell on AutoReturn.
The trial court could reasonably find that AutoReturn failed to meet its burden of
proving Cohen's services were reasonably necessary in the preparation for trial under
section 3426.4. Cohen's declarations filed in opposition to DTS's motion to tax costs and
support of AutoReturn's motion for summary judgment against DTS indicate Cohen was
retained as a consultant. He was not deposed as an expert designated to testify at trial.
Cohen's declaration showed he performed the vast majority of his work on the case after
AutoReturn and the City filed their motion for summary judgment in June 2012 and
while the hearing on that motion was pending. The court could reasonably find that it
was not reasonably necessary for AutoReturn to incur substantial expert fees before any
expert depositions had been set and while its summary judgment motion was pending,
especially considering Orion's prior success in moving for summary adjudication of
DTS's trade secret claim. DTS points out that AutoReturn cited one paragraph of Cohen's
declaration in its separate statement of material facts, and the court did not rely on
Cohen's declaration in granting AutoReturn and the City's motion for summary judgment.
The court's conclusion that Cohen's services were not reasonably necessary for trial
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preparation under section 3426.4 did not exceed the bounds of reason under " 'all of the
circumstances before it being considered.' " (Denham v. Superior Court (1970) 2 Cal. 3d
557, 566.)
ORION'S APPEAL
I. Denial of Attorney Fees Incurred by Orion's Texas Counsel
Orion contends the court erred in denying attorney fees incurred by its Texas
counsel as part of the fee award to Orion under section 3426.4. In its motion for attorney
fees under section 3426.4, the total amount Orion requested ($138,631.49) included "the
fees and costs charged to Orion by its longtime lawyers in Dallas ($45,536.82)." As
summarized by Orion, Texas counsel's "activities included participating in strategy
discussions, providing information and documents to California counsel, and reviewing
pleadings and submissions to the California court that were prepared by California
counsel." In its opposition to Orion's motion, DTS argued the fees sought by Orion's
Texas counsel were not compensable because Texas counsel was not licensed to practice
law in California and Orion "utterly failed to explain how their efforts were necessary
and not duplicative of the work that was also performed by the attorneys of record in San
Diego."
The trial court ruled as follows on Orion's request to recover fees paid to its Texas
counsel: "The court declines to award the fees of Texas counsel, as to do so [would] send
a message that it is acceptable for lawyers in other states to practice law in California
without pro hac vice admission and make fee applications after having done so." The
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court added that Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17
Cal. 4th 119 (Birbrower) "suggests this is the safest path."
Business and Professions Code section 6125 provides: "No person shall practice
law in California unless the person is an active member of the State Bar." Accordingly,
the general rule is that no one may recover compensation for attorney services in
California unless the person was a member of the State Bar when the services were
performed. (Birbrower, supra, 17 Cal.4th at p. 136; Golba v. Dick's Sporting Goods, Inc.
(2015) 238 Cal. App. 4th 1251, 1261.)
In Birbrower, attorneys at a New York firm that had no California-licensed
attorneys traveled to California on multiple occasions to resolve a contract dispute
between their California client and a computer software company. (Birbrower, supra, 17
Cal.App.4th at pp. 124-125.) The New York firm filed an arbitration demand against the
software company in San Francisco, but the parties settled their dispute before hearings
commenced. (Id. at p. 125.) The firm's California client later sued the firm for
malpractice, and the firm filed a cross-complaint to recover fees under a fee agreement.
(Id. at p. 126.) The trial court dismissed the firm's claim for fees, ruling that the firm was
not authorized to practice law in California. (Ibid.) The Court of Appeal agreed and
denied the petition for writ of mandate and affirmed the trial court's order. (Id. at p. 127.)
The Supreme Court in Birbrower concluded that the New York attorneys had
engaged in unauthorized practice of law in California and could not recover fees for legal
services performed in California for the California client. (Birbrower, supra, 17 Cal.4th
at p. 135.) However, the Birbrower concluded that New York counsel may be able to
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recover fees under a fee agreement with a California client for legal services it performed
in New York "to the extent they did not constitute practicing law in California . . . ."
(Birbrower, supra, 17 Cal.4th at p. 137, italics added.) The corollary to that conclusion is
that out-of-state counsel may not recover fees for legal services performed for a client if
those services constitute practicing law in California, regardless of where the services
were performed.
The Birbrower court noted that case law defines the statutory term "practice law"
as " ' "the doing and performing services in a court of justice in any matter depending
therein throughout its various stages and in conformity with the adopted rules of
procedure." ' " (Birbrower, supra, 17 Cal.4th at p. 128.) The practice of law also
includes "legal advice and legal instrument and contract preparation, whether or not these
subjects were rendered in the course of litigation." (Ibid.) Although Business and
Professions Code section 6125 does not define what it means to practice law "in
California," the Birbrower court stated that "the practice of law 'in California' entails
sufficient contact with a California client to render the nature of the legal service a clear
legal representation. . . . The primary inquiry is whether the unlicensed lawyer engaged
in sufficient activities in the state, or created a continuing relationship with the California
client that included legal duties and obligations." (Birbrower, at p. 128.)
The Birbrower court explained that its definition of the practice of law "in
California" "does not necessarily depend on or require the unlicensed lawyer's physical
presence in the state. Physical presence [in California] is one factor [courts] may
consider in deciding whether the unlicensed lawyer has violated [Business and
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Professions Code] section 6125, but it is by no means exclusive. For example, one may
practice law in the state in violation of [Business and Professions Code] section 6125
although not physically present here by advising a California client on California law in
connection with a California legal dispute by telephone, fax, computer, or other modern
technological means." (Birbrower, supra, 17 Cal.4th at pp. 128-129.) However, the
Birbrower court rejected "the notion that a person automatically practices law 'in
California' whenever that person practices California law anywhere or 'virtually' enters
the state by telephone, fax, e-mail, or satellite." (Ibid.) The Supreme Court concluded
that courts "must decide each case on its individual facts." (Ibid.)
We conclude that the trial court properly denied Orion recovery of the fees its
Texas counsel incurred because the services that Texas counsel performed constitute the
practice of law in California. The services for which Orion seeks compensation
unquestionably constitute a "clear legal representation" arising from a continuing
relationship that included legal duties and obligations. (Birbrower, supra, 17 Cal.4th at
p. 128.) The question is whether with respect to this case, Orion is properly viewed as a
"California client" despite the fact it is a Texas corporation. We recognize that for
purposes of determining whether the provision of legal services constitutes practicing law
in California, the Court of Appeal in Estate of Condon (1998) 65 Cal. App. 4th 1138
defined "California client" as a client "that either resides in or has its principle place of
business in California." (Id. at p. 1145.) We believe, however, that it may be appropriate
to view an out-of-state entity involved in litigation in California arising from the entity's
activities in California as a California client with respect to legal services provided to the
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entity in connection with the California litigation. The purpose of Business and
Professions Code section 6125 is to protect California citizens from incompetent
attorneys who are not trained, examined, and licensed to provide representation and legal
advice in California. (Birbrower, supra, 17 Cal.4th at p. 132; Condon, supra, 65
Cal.App.4th at p. 1146.) We see no reason why an out-of-state person or entity with
sufficient contacts with California to be sued in California is any less deserving of the
protection from unauthorized practice of law in California than a California citizen.
Although Orion is a Texas corporation, for purposes of Business and Professions
Code section 6125 and with respect to the instant litigation, we view Orion as a
California client because it was sued in California under California law for alleged
wrongdoing arising from business activities it conducted in California. Accordingly,
Orion's Texas counsel's services in connection with this case constituted the practice of
law in California because they entailed sufficient contact with a California client to
render the nature of the legal service a clear legal representation, and Texas counsel
undisputedly had a continuing relationship with Orion that included legal duties and
obligations. (Birbrower, supra, 17 Cal.4th at p. 128.)
To the extent Orion's Texas counsel performed services for Orion that did not
require them to be licensed in California or obtain pro hac vice status, the services are not
compensable under section 3426.4. Birbrower is distinguishable from the present case
because the out-of-state law firm in Birbrower sought fees under its fee agreement with
the client, whereas Orion seeks fees against DTS as a sanction under a fee-shifting
statute. An award of attorney fees under a fee-shifting statute like section 3426.4
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authorizes compensation only for attorney services reasonably necessary to the conduct
of the litigation. (Code Civ. Proc., § 1033.5, subdivision (c)(2) & (5); Robertson v.
Fleetwood Travel Trailers of California, Inc. (2006) 144 Cal. App. 4th 785, 817-818
[prevailing party seeking attorney fees under section 1794 of the Song-Beverly Consumer
Warranty Act has the burden of showing the fees incurred were reasonably necessary to
the conduct of the litigation].) Attorney services that are reasonably necessary to the
prosecution or defense of a California action necessarily require California licensure.
(See Cal. Rules of Court, rule 9.48(f) [permitting out-of-state attorney under certain
conditions "to provide legal assistance or legal services concerning only a transaction or
other nonlitigation matter"].) Accordingly, any services that Orion's Texas counsel
provided in connection with the instant litigation were either not reasonably necessary to
the conduct of the litigation or required pro hac vice status to be compensable. The court
did not err in denying Orion recovery of attorney fees incurred by its Texas counsel.
DISPOSITION
The portion of the amended judgment entered on February 28, 2013, dismissing
DTS's second amended cross-complaint with prejudice as to Orion, DeLatte, and the City
and entering judgment in their favor is affirmed. The portion of the amended judgment,
dismissing DTS's second amended cross-complaint with prejudice as to AutoReturn and
entering judgment in AutoReturn's favor is reversed. The portion of the September 24,
2012 order granting AutoReturn's motion for summary judgment or, alternatively,
summary adjudication of the fifth and six causes of action of DTS's second amended
cross-complaint is vacated. The court is directed to enter a new order denying the motion
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for summary judgment as to AutoReturn, denying the motion for summary adjudication
as to the fifth cause of action, and granting the motion for summary adjudication as to the
sixth cause of action.
The portion of the amended judgment in favor of AutoReturn on ACT's fourth
amended complaint based on the court's granting of AutoReturn's motion for summary
judgment is reversed. The portion of the June 8, 2012 order granting AutoReturn's
motion for summary judgment or, alternatively, summary adjudication of the seventh
through 14th, 18th, and 21st causes of action of ACT's fourth amended complaint is
vacated. The court is directed to enter a new order denying the motion for summary
judgment and motion for summary adjudication as to the seventh, eighth, and ninth
causes of action of action and the voluntarily dismissed 18th cause of action, and granting
the motion for summary adjudication as to the 10th through 14th causes of action and
21st cause of action.
The portion of the September 24, 2012 order granting Orion's motion for attorney
fees and costs against DTS under section 3426.4 is affirmed and the portion of the
amended judgment awarding those fees and costs is affirmed. The portion of the
December 31, 2012 order granting the City and AutoReturn's motion for attorney fees
under section 3426.4 as to DTS is affirmed and the portion of the amended judgment
awarding those fees is affirmed. The portion of the December 31, 2012 order denying
AutoReturn's motion for attorney fees and costs under section 3426.4 as to ACT is
reversed with directions to reconsider the motion as to ACT light of the views expressed
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in this opinion. The portion of the May 10, 2013 order granting in part DTS's motion to
tax costs and reducing the City and AutoReturn's claimed costs to $10,182.41 is affirmed.
The portion of the July 6, 2012 order denying DTS's motion to file documents
under seal; the portion of the September 4, 2012 order denying DTS's motions filed on
June 29, 2012, to file documents under seal; the September 13, 2012 order denying DTS's
ex parte application to file documents under seal; and the December 18, 2012 order
denying DTS's ex parte application file to seal documents under seal are reversed. The
court is directed to enter an order granting DTS's requests to file documents under seal
under section 3426.5.
In all other respects the amended judgment is affirmed. The City is awarded its
costs on appeal against DTS. ACT is awarded its costs on appeal against AutoReturn.
The parties shall otherwise bear their own costs on appeal.
NARES, Acting P. J.
WE CONCUR:
McDONALD, J.
IRION, J.
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