Applied Med. Distribution Corp. v. Jarrells

319 Cal.Rptr.3d 205

APPLIED MEDICAL DISTRIBUTION CORPORATION, Plaintiff and Appellant,

v.Stephen JARRELLS, Defendant and Appellant.

G062056

Court of Appeal, Fourth District, Division 3.

Filed March 8, 2024

Appeal from a judgment of the Superior Court of Orange County, Robert J. Moss and Michael J. Strickroth, Judges. Affirmed in part, reversed in part, and remanded. (Super. Ct. No. 30-2019-01049441)

Jones Day, Nathaniel P. Garrett, San Francisco, Koree B. Wooley, David A. Phillips, San Diego, and Steven M. Zadravecz, Los Angeles, for Plaintiff and Appellant.

Forward Counsel, Michael E. Caspino and Michael W. Weiler for Defendant and Appellant.

OPINION

GOODING, J.

Applied Medical Distribution Corporation (Applied) sued its former employee, Stephen Jarrells, for misappropriation of trade secrets, breach of a contract governing Applied’s proprietary information, and breach of fiduciary duty. Applied also sued Jarrells’s new employer, Bruin Biometrics, LLC (Bruin), for misappropriation and intentional interference with contract. A jury found both Jarrells and Brain misappropriated Applied’s trade secrets, but also found Applied had not been damaged and neither defendant had been unjustly enriched by the misappropriation. The jury found in favor of defendants on all other causes of action. The trial court granted Applied’s posttrial motion for a permanent injunction and awarded Applied a portion of the attorney fees, costs, and expenses it requested. Both Jarrells and Applied appealed from the judgment. We affirm in part, reverse in part, and remand for further proceedings.

Jarrells argues Applied did not prevail on any cause of action so the trial court erred by entering a permanent injunction against him and awarding Applied attorney fees. We disagree on both counts. Applied was the prevailing party on the misappropriation cause of action and was entitled to a permanent injunction to recover its trade secrets and prevent further misappropriation. Under the plain language of the parties’ proprietary information agreement, Applied was entitled to an award of the reasonable attorney fees, costs, and expenses it incurred to obtain injunctive relief.

Applied contends the trial court erred in several respects by awarding only a fraction of the requested attorney fees, costs, and expenses. We agree in part.

We conclude the trial court did not err by refusing to accept the assertion by Applied’s counsel that it had already excluded from its attorney fee request all fees incurred for work for which an award was not authorized. The court was entitled to make that determination itself.

We further conclude the trial court did not err by determining Applied was entitled only to the attorney fees, costs, and expenses it reasonably incurred to obtain the injunctive relief against Jarrells. Nevertheless, we find the court erred in how it went about determining the amounts awarded by (1) mechanically awarding only 25 percent of the incurred attorney fees and costs because Applied prevailed on only one of four claims it asserted and failing to address the extent to which the facts underlying the other claims were inextricably intertwined with or dependent upon the allegations that formed the basis of the one claim on which Applied prevailed; and (2) denying recovery of any attorney fees incurred for discovery and motion practice. We reverse on these issues and remand to allow the court to properly exercise its discretion to determine the reasonable amount of attorney fees and costs incurred by Applied to obtain injunctive relief.

Applied also argues the trial court erred by refusing to allow Applied to include, as part of its damages calculations at trial, the fees it paid to a computer forensics expert to determine the existence and extent of any trade secret misappropriation by Jarrells and to stop or mitigate the misappropriation. We hold a plaintiff in a misappropriation case may recover, as an element of damages, the expert fees it incurs to stop or mitigate misappropriation, but not the expert fees to investigate a suspected misappropriation. Applied offered evidence its forensics expert performed work to stop or mitigate Jarrells’s misappropriation, and the court erred in excluding those expert witness fees from the damages calculation presented to the jury. As to other expert witness fees Applied incurred, we conclude the court did not err by denying Applied’s request for such fees as part of its postjudgment cost memorandum.

Finally, Applied argues the trial court erred by granting a nonsuit on whether Jarrells’s misappropriation was willful and malicious. We find there was evidence from which a reasonable jury could find a willful and malicious misappropriation. We reverse and remand for a jury trial on this issue. If the jury finds the misappropriation was willful and malicious, the court shall, in its discretion, decide whether attorney fees and costs should be awarded to Applied pursuant to Civil Code section 3426.4 and, if so, in what amount. If the jury awards damages for the costs incurred by Applied to stop or mitigate the misappropriation, and further finds the misappropriation was willful and malicious, it may also consider whether exemplary damages should be awarded.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Applied sells and distributes medical devices produced by its parent company, Applied Medical Resources. Jarrells began working for Applied as a director of academic medical centers in January 2011. At the time he was hired, Jarrells and Applied entered into a proprietary information agreement (Agreement).¹ As relevant here, the Agreement provided:

1. "I agree at all times during the term of my employment and thereafter to hold in strictest confidence, and not to use except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, knowhow, designs, formulas, developmental or experimental work, computer programs, data bases, original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its clients, consultants or licensees."

2. "I agree that, at the time of leaving the employ of the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any [of the] aforementioned items developed by me pursuant to my employment with the Company or otherwise belonging to the Company, its successors or assigns."

3. "I agree that it would be impossible or inadequate to measure and calculate the Company’s damages from any breach of the covenants set forth … herein. Accordingly, I agree that if I breach any of such Sections, the Company will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of such provision of this agreement. I further agree that no bond or other security shall be required in obtaining such equitable relief and I hereby consent to the issuance of such injunction and to the ordering of specific performance. I further agree that if any such equitable relief is granted, I shall be obligated to reimburse the company for the reasonable attorneys fees, costs and expenses incurred in obtaining such relief.’’

In December 2018, Jarrells accepted a position as vice president of sales for Bruin, another medical device manufacturer. Before resigning from Applied in January 2019, Jarrells created a folder on his laptop computer titled "Good Stuff’ and copied to it trade secrets and confidential information belonging to Applied. Jarrells transferred the contents of the "Good Stuff’ folder onto a thumb drive and uploaded them to a computer issued to him by Bruin. Jarrells then wiped his Applied computer and network drives and returned his Applied computer to Applied. Jarrells shared Applied’s documents with employees of Bruin.

Jarrells knew his actions violated the Agreement. He admitted he never told anyone at Applied about his actions or requested their permission because he "did not want the company to know what [he] had done."

After noticing a suspicious increase in the volume of downloads and transfers of data, Applied hired an outside forensics expert to investigate the nature and extent of what Jarrells had done.

In February 2019, one month after Jarrells resigned, Applied sued Jarrells for misappropriation of trade secrets and breach of the Agreement. Applied also filed an ex parte application for a temporary restraining order and a preliminary injunction. Applied and Jarrells stipulated to a preliminary injunction under which Jarrells agreed to (1) return all files containing Applied’s business information and any devices on which such business information had ever been stored, (2) not destroy, manipulate, or alter any evidence, and (3) refrain from possessing, using, or disclosing Applied’s business information while the injunction was in place. The stipulated injunction provided neither party was making any concessions or admissions regarding wrongful conduct or whether trade secrets and confidential business information were actually at issue. The parties agreed the stipulated injunction could not be used to prove Applied was the prevailing party in the litigation.

Applied filed a first amended complaint in September 2019, adding a cause of action against Jarrells for breach of fiduciary duty and asserting claims against Bruin for misappropriation and intentional interference with contractual...