Coast Hematology-Oncology Assocs. Med. Grp., Inc. v. Long Beach Mem'l Med. Ctr.

58 Cal.App.5th 748

272 Cal.Rptr.3d 715

COAST HEMATOLOGY-ONCOLOGY ASSOCIATES MEDICAL GROUP, INC., et al., Plaintiffs and Appellants,

v.LONG BEACH MEMORIAL MEDICAL CENTER et al., Defendants and Respondents.

B297984

Court of Appeal, Second District, Division 8, California.

Filed December 15, 2020

Rutan & Tucker, Gerard Mooney, Costa Mesa, and Proud Usahacharoenporn for Plaintiffs and Appellants.

Foley & Lardner, Tami S. Smason, Los Angeles, and Kathryn A. Shoemaker for Defendants and Respondents.

WILEY, J.

The trial court granted summary judgment for the defense, reasoning the plaintiff's two purported trade secrets were not secrets at all. The court was right about one secret but not the other. The trial court also granted the defense's request for relief from the plaintiff's claims for tortious interference and unfair competition. We affirm the trial court rulings except as to the one trade secret. We remand on this lone claim.

I

For years, one medical group negotiated to buy another. Eventually the would-be buyer decided just to hire staff from the would-be seller. The disappointed seller sued for misappropriation of trade secrets and related torts.

The would-be seller, now the plaintiff and appellant, is Coast Hematology-Oncology Associates Medical Group, Inc. Coast treats cancer and illnesses of the blood.

Coast sued its would-be buyer: Long Beach Memorial Medical Center.

Memorial was planning a medical facility near Coast's location and inquired in 2011 about buying Coast's entire practice to help staff its new establishment. Coast and Memorial negotiated for years but could not agree on price. Each side blamed the other for being inflexible and unrealistic. Eventually in 2016 Memorial hired some people working for Coast: two physicians, Nilesh Vora and Milan Sheth, and four staff members who were not physicians.

Coast responded by suing Memorial, as well as Memorial's manager John Bishop. Coast also sued entities allied with Memorial, as well as Dr. Vora. Coast now has settled with Vora, who is not a party to this appeal. This disposed of the one claim against Vora alone.

Coast's four remaining claims were for misappropriation of trade secrets, intentional interference with prospective economic advantage, tortious interference with contract, and unfair competition in violation of section 17200 of the Business and Professions Code. Coast also sought punitive damages. We recount the specifics of these claims in our analysis. Memorial successfully moved for summary judgment against Coast. In the alternative, Memorial sought summary adjudication of a range of issues. Coast appealed.

II

We independently review summary judgment rulings. ( Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860, 107 Cal.Rptr.2d 841, 24 P.3d 493.) A defendant moving for summary judgment must show the plaintiff cannot establish an element of its cause of action, or that a complete defense destroys the cause. Summary judgment is appropriate where there is no triable issue as to any material fact. It is not a disfavored remedy. ( Oh v. Teachers Ins. & Annuity Assn. of America (2020) 53 Cal.App.5th 71, 81–82, 266 Cal.Rptr.3d 622.) To the contrary, summary judgment motions commonly benefit all sides, no matter who wins: the process of summary judgment is more economical than trial, and the ruling usually gives the parties helpful information about the true value of the case, which can facilitate settlement.

III

In the first count of its complaint, Coast sued Memorial for stealing trade secrets.

A

The gist of a trade secret claim is (1) a valuable secret (2) you have worked reasonably hard to keep secret (3) that someone obtained through improper means. These elements spring from California's version of the Uniform Trade Secret Act, which our legislature adopted in 1984. ( Civ. Code, § 3426 – 3426.11, added by Stats. 1984, ch. 1724, § 1.)

To paraphrase this dense Act, a trade secret is something (1) having commercial value from not being generally known and (2) that is the subject of reasonable secrecy measures. (See Civ. Code, § 3426.1, subds. (d)(1) & (d)(2) ["(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."].)

One can violate this statute by using improper means to get a trade secret. (See Civ. Code, §§ 3426.3, subd. (a) ["A complainant may recover damages for the actual loss caused by misappropriation."], 3426.1, subd. (b) [" ‘Misappropriation’ means: (1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) Disclosure or use of a trade secret of another without express or implied consent by a person who: (A) Used improper means to acquire knowledge of the trade secret; or (B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake."], italics added; 3426.1, subd. (a) [" ‘Improper means ’ includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means."], italics added.)

B

Coast claimed two trade secrets relating to medical billing.

One claimed secret is "CPT." CPT is an acronym for "Current Procedural Terminology."

This jargon concerns a nationally uniform system of codes for medical billing: what the doctor's office puts on the form when billing for payment to an insurance company, for instance, or to a government payor like Medicare. As Memorial told the trial court, CPT codes are well-known: "You can Google them and find them online." If you do that, a website will tell you, for example, CPT code 00811 is defined throughout the industry as "Colonoscopy done for diagnostic purposes." (CIPROMS Medical Billing, Billing Guidelines Vary for Anesthesia During Screening Colonoscopies < http://www.ciproms.com/2018/09/billing-guidelines-vary-for-anesthesia-during-screening-colonoscopies/> [as of Dec. 7, 2020], archived at < https://perma.cc/WX8L-EWYJ>.)

To avoid jargon, we call this first alleged secret the "medical codes secret."

The second disputed secret is "RVU," which stands for "Relative Value Unit." This signifies a nationally uniform quantitative scale that rates the difficulty of different medical services. A heart transplant, for example, has a higher relative value according to this scale than does an office visit, because the transplant is more of a challenge than the visit. This scale also can be used to measure physician productivity, because it can measure a doctor's output by a method more sophisticated than merely the number of hours spent or patients seen. A doctor who performs two heart transplants a day, for example, has done different work than one who accomplished two office visits in one day, even if the two put in the same number of hours.

We call this secret the "physician productivity secret."

Our analysis yields two conclusions.

First, the supposed medical codes secret is out of the case. A statute required Coast to identify its secrets with reasonable particularity for the litigation, but Coast did not comply with the statute. The trial court was right to dispose of this claim.

Second, as to the physician productivity secret, Coast succeeded in generating a genuine factual dispute here, meaning summary judgment of this claim was wrong. We remand the case for further proceedings on the physician productivity secret.

We explain our conclusions.

We start with the medical codes secret. The trial court was right to rule summarily for Memorial on this point because Coast failed to identify this secret with reasonable particularity, as a California statute requires.

Code of Civil Procedure section 2019.210 is the governing statute. It sets out the identification requirement Coast flunked. This statute specifies that, before commencing discovery relating to the trade secret, the party alleging the misappropriation must "identify " the trade secret with "reasonable particularity ." (Ibid. , italics added ["In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act ( Title 5 (commencing with Section 3426 ) of Part 1 of Division 4 of the Civil Code), 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."].)

The penalty for failing to make this disclosure is loss of trade secret protection. ( Pixion, Inc. v. PlaceWare, Inc. (N.D.Cal. 2005) 421 F.Supp.2d 1233, 1240–1242 [applying state law].)

The need for plaintiffs to identify their claimed secret with reasonable particularity flows from the nature of trade secret law. Trade secrets indeed are intellectual property , but of a special sort. We explain.

Fundamentally, any property right entitles the owner of the property to exclude others. If you own some real property, for instance, you can exclude trespassers from it, because that land is exclusively yours. The same is true with a car, or a bicycle, or any other piece of physical property. You can control what is yours and so you can tell others whether, and how, they can use your things. Property law will back you up if events force you to court. (E.g., Ralphs...