Computer Economics, Inc. v. Gartner Group, Inc.

50 F.Supp.2d 980

COMPUTER ECONOMICS, INC., Plaintiff, v. GARTNER GROUP, INC., Defendant.

No. 98-CV-0312 TW.

United States District Court, S.D. California.

May 25, 1999.

James R. Lance & Monique Ballard Candor Post, Kirby, Noonan & Sweat, San Diego, CA, for plaintiff Computer Economics.

David L. Larson, Usha Narayanan & R. Craig Gordon, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, CA, for defendant Gartner Group.

AMENDED MEMORANDUM OPINION AND ORDER

WHELAN, District Judge.

Before the court are defendant Gartner Group, Inc.'s objections to the magistrate judge's September 28, 1998 order sanctioning Gartner for failing to produce discovery. For the reasons expressed herein, the court sustains Gartner's objections.

I. BACKGROUND

Plaintiff Computer Economics, Inc. ("CEI") is a newsletter publisher specializing in the information technology industry. CEI publishes eight analytical and investigative newsletters in the fields of corporate computing, Internet marketing and electronic commerce. Defendant Gartner Group, Inc. ("Gartner") is an international publisher of various publications including books, reports, CD-ROM discs, surveys, and analyses relating to the computer and information industry.

In November 1995 a representative from Gartner contacted CEI and arranged a tour of CEI's headquarters in Carlsbad, California. According to CEI, Gartner stated that it was seeking to expand its newsletter publishing business and was investigating possible opportunities for acquisition, including CEI. On or about January 1996, CEI allegedly sent Gartner a document containing confidential information concerning CEI's sales volumes, subscription renewal rates, and marketing techniques.

On February 16, 1996 Gartner toured CEI's headquarters a second time and was allegedly provided with additional trade secrets. At the conclusion of the tour, Gartner informed CEI that Gartner did not wish to acquire CEI's operations. During the next 18 months Gartner launched nine newsletters in direct competition with CEI, each containing content similar to CEI's newsletters.

On January 13, 1998 CEI commenced this action against Gartner in San Diego Superior Court. The complaint asserts state law claims sounding in trade secret misappropriation, breach of contract, and fraud. In essence, CEI alleges that Gartner used the confidential information obtained during the February 1996 tour of CEI's facilities to expand its newsletter publication business. In February 1998, Gartner removed this action to federal court based on diversity of citizenship.

On March 31, 1998 CEI served Gartner with its first set of document requests and interrogatories. Gartner served timely written objections and responded that it believed CEI was required to provide a reasonably detailed list of its allegedly misappropriated trade secrets before Gartner was obligated to produce discovery.

Gartner's refusal to produce discovery was based on a unique statutory provision of California's Uniform Trade Secrets Act: Section 2019(d) of the California Code of Civil Procedure. That statute prevents a plaintiff from conducting discovery in a trade secret misappropriation case until it identifies its allegedly misappropriated trade secrets "with reasonable particularity." Cal.Civ.Proc.Code § 2019(d) (West 1997) (hereinafter "CCP § 2019(d)"). Gartner stated that it would produce the requested discovery within five days of receipt of CEI's trade secret identification.

CEI responded that CCP § 2019(d) was a procedural rule applicable only in California state courts. Between April and July 1998 the parties exchanged further correspondence in an attempt to resolve the dispute. CEI declined to identify its allegedly misappropriated trade secrets.

In July 1998 CEI and Gartner filed cross-motions on the subject. CEI filed a motion to compel Gartner to respond to CEI's interrogatories while Gartner filed a motion to compel CEI to identify its allegedly misappropriated trade secrets. Both motions were based on the central question of whether CCP § 2019(d) applied in federal court. Although Gartner acknowledged that there was no authority directly addressing the issue, its motion referred to several cases where federal courts applied CCP § 2019(d) without analysis, presumably because the issue was not in dispute.¹ CEI disagreed and argued that CCP § 2019(d) was a rule of procedure applicable only in state courts.

By order dated August 12, 1998, the magistrate judge granted CEI's motion to compel discovery and denied Gartner's motion to compel trade secret identification under CCP § 2019(d). The magistrate judge rejected Gartner's arguments that CCP § 2019(d) was enforceable in federal court, concluded that Gartner was not substantially justified in invoking CCP § 2019(d) to resist discovery, and indicated that sanctions would be imposed. On September 28, 1998 after additional briefing on the amount of sanctions, the magistrate judge ordered Gartner to pay $6,856.45 to reimburse CEI for the costs of bringing its motion to compel. The order concluded that sanctions were appropriate because the cases cited by Gartner "d[id] not support [its] argument that section 2019(d) is a substantive obligation enforced by federal courts in trade secret litigation." The order concluded that "it is clear that Plaintiff was not obligated to identify its trade secrets before commencing discovery in this action."

Gartner objects to the September 28 order on three grounds. First, Gartner argues that CCP § 2019(d) is rule of substance that should be enforced in federal court. Second, Gartner contends that even if CCP § 2019(d) is not applicable, its reliance on that statute was reasonable and justified such that sanctions were inappropriate. Third, Gartner asserts that $6,856.45 represents an excessive and disproportionate sanction award.

This court requested additional briefing on whether the doctrine announced in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) required application of CCP § 2019(d) in federal court. For the reasons expressed herein, the court sustains Gartner's objections and holds that CCP § 2019(d) is applicable in this case.

II. STANDARD OF REVIEW

A party may object to a non-dispositive pretrial order of a U.S. Magistrate Judge within ten days after service of the order. Fed.R.Civ.P. 72(a). The magistrate judge's order will be upheld unless it is "clearly erroneous or contrary to law." Id.; 28 U.S.C. § 636(b)(1)(A). The "clearly erroneous" standard applies to the magistrate judge's factual determinations and discretionary decisions, including orders imposing discovery sanctions. Maisonville v. F2 Am., Inc., 902 F.2d 746, 748 (9th Cir.1990) (holding that factual determinations made in connection with sanction award are reviewable for clear error); Grimes v. City and County of San Francisco, 951 F.2d 236, 240 (9th Cir.1991) (holding that discovery sanctions are nondispositive pretrial matters reviewable for clear error under Rule 72(a)). Under this standard, "the district court can overturn the magistrate judge's ruling only if the district court is left with the definite and firm conviction that a mistake has been made." Weeks v. Samsung Heavy Indus. Co., Ltd., 126 F.3d 926, 943 (7th Cir.1997).

On the other hand, the "contrary to law" standard permits independent review of purely legal determinations by a magistrate judge. See, e.g., Haines v. Liggett Group, Inc., 975 F.2d 81, 91 (3d Cir.1992) ("the phrase `contrary to law' indicates plenary review as to matters of law."); Medical Imaging Centers of America, Inc. v. Lichtenstein, 917 F.Supp. 717, 719 (S.D.Cal.1996) (Brewster, J.) ("Section 636(b)(1) ... has been interpreted to provide for de novo review by the district court on issues of law."); 12 Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 3069 at 350 & 355 (2d ed.1997). Thus, the district court should exercise its independent judgment with respect to a magistrate judge's legal conclusions. Gandee v. Glaser, 785 F.Supp. 684, 686 (S.D.Ohio 1992), aff'd 19 F.3d 1432 (6th Cir.1994).²

Careful review of the transcript of the hearings before the magistrate judge, the briefs filed by the parties, and the magistrate judge's order reveals that the sanctions order was based solely on a determination that CCP § 2019(d) is a rule of procedure inapplicable in federal court. Since the magistrate judge's order was based entirely on a conclusion of law, Harvey's Wagon Wheel, Inc. v. Van Blitter, 959 F.2d 153, 154 (9th Cir.1992), it will be reviewed independently.

III. CALIFORNIA'S UNIFORM TRADE SECRETS ACT AND SECTION 2019 (D) OF THE CALIFORNIA CODE OF CIVIL PROCEDURE

In 1984, California became one of many states to adopt the Uniform Trade Secrets Act ("UTSA"). Cal.Civ.Code §§ 3426 et seq (West 1997). As part of the UTSA the California legislature enacted a unique provision which prevents a trade secret plaintiff from taking discovery until it specifically identifies the trade secrets it claims the defendant misappropriated.³ That section reads:

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.

Cal.Civ.Proc.Code § 2019(d) (West 1997).⁴ Section 3426.5 of the Civil Code,⁵ referenced in the last clause of CCP § 2019(d), allows the court to issue a protective order to ensure the confidentiality of plaintiff's trade secret identification.

The rationale behind this rule was first articulated in Diodes, Inc. v. Franzen, 260 Cal.App.2d 244, 67 Cal.Rptr. 19 (1968). In Diodes, Inc., the trial court dismissed plaintiff's third amended...