Bad Faith Trade Secret Misappropriation Claims May Leave You on the Hook for Attorney’s Fees
A recent California Court of Appeal case out of the Second Appellate District entitled Dr. V. Productions, Inc. v. Samantha Rey (2021) 68 Cal.App.5th 793 involved a party seeking attorney’s fees pursuant to California Civil Code § 3426.4 on what they alleged was a bad faith trade secret misappropriation claim made against them. While the court denied the motion for attorney’s fees and the subsequent interlocutory appeal on the basis that a final judgment on the case had yet to be levied, the court nevertheless laid out the procedure for obtaining attorney’s fees in accordance with § 3426.4.
In Rey, an entertainment production company terminated an employee. After termination, the production company sued the employee alleging, among other things, trade secret misappropriation due to the conversion and destruction of company documents containing proprietary information. After extensive discovery, the production company dismissed the trade secret misappropriation claim. As a result, the employee sued for attorney’s fees pursuant to § 3426.4 arguing that the company brought the trade secret claim in bad faith. The trial court denied the employee’s motion and an appeal ensued.
On appeal, the court held that an interlocutory appeal—an appeal prior to final judgment—for attorney’s fees under § 3426.4 is not ripe for adjudication unless there is “a final judgment against a party in a collateral proceeding growing out of the action.” Id. at 4. A final judgment on a collateral order is one in which a “distinct and severable” claim results in an order for “the direct payment of money or performance of an act.” Id. at 4-5.
Ultimately, the court found that the lawsuit at large, which claimed destruction and conversion of corporate documents was related to the dismissed trade secret claim. As such, the employee’s motion for attorney’s fees was not yet ripe for judicial review.
In practice, this means that prior to a final judgment on the case at large, attorney’s fees may be sought pursuant to § 3426.4 so long as a final judgment on that claim is deemed to be distinct and severable and the party bringing the motion had previously been directed to pay money or to perform an act.
Author: Michael J. Mellgren is an attorney at Reid & Hellyer, APC where he practices business litigation.
