K.C. Multimedia Inc. v. Bank of Am. Tech. & Operations Inc.

171 Cal.App.4th 939

90 Cal.Rptr.3d 247

09 Cal. Daily Op. Serv. 2624

2009 Daily Journal D.A.R. 3150

K.C. MULTIMEDIA, INC., Plaintiff and Appellant,

v.BANK OF AMERICA TECHNOLOGY & OPERATIONS, INC., et al., Defendants and Respondents.

No. H030494.

Court of Appeal, Sixth District, California.

March 3, 2009.Certified for Partial Publication.*

Law Offices of Richard L. Antognini, Richard L. Antognini, Fair Oaks, Downey Brand, Michael J. Thomas, Sacramento, for Appellant.Law Offices of Allen Ruby, Allen Ruby, San Jose, for Respondents.McADAMS, J.

After a lengthy trial on appellant's civil claims for trade secret theft, the jury found for respondents. Appellant attacks the special verdicts, arguing that the jury erred as a matter of law in interpreting two contracts. Appellant also challenges the pretrial dismissal of three of its causes of action, which the trial court found statutorily preempted.

We shall affirm the judgment for respondents. In the unpublished portion of the opinion, we reject appellant's attack on the special verdicts, concluding that they are supported by the evidence and by the law. In the published portion of the opinion, we address and reject appellant's procedural and substantive challenges to the trial court's pretrial preemption ruling.

BACKGROUND

The parties to this appeal are plaintiff and appellant K.C. Multimedia, Inc. (KCM), and defendants and respondents Bank of America Technology & Operations (BATO), Bank of America National Association (BANA), and Bank of America Corporation (BA). This litigation arose out of a business relationship, in which appellant supplied technology services to respondents or related entities, including BA's predecessor, Bank of America National Savings & Trust Association (NTSA).

The Contracts

The parties entered into two written contracts, one in 1998 and another in 2000. Contract documentation included appendices and work orders.

The Technology

Appellant developed prototypes for two banking applications: “Palm VII,” which allowed bank customers to use a handheld wireless device to access their account information; and “Gating,” which simplified customers' access to online banking services following a merger between Nations Bank and BA's predecessor, by allowing a “single sign-on” or “SSO.” The software for both applications was derived from preexisting technology known as “Wirelessproxy,” which had to be customized for respondents. Appellant claimed the two applications derived from Wirelessproxy source code “core technology” as a trade secret.¹

Pleadings; Pretrial Proceedings

This action was filed in June 2001. The sole named defendant in the original complaint was BATO, but allegations also were asserted against appellant's former employee, Allen Tam. The complaint asserted causes of action for (1) misappropriation of trade secrets; (2) conversion; (3) breach of contract; and (4) unjust enrichment. The complaint alleged that BATO misappropriated the technology used in the two banking applications. As characterized in appellant's trial brief, Tam “took the trade secrets to the Bank in exchange for its promise of employment.” In its answer, BATO disputed those allegations.

The litigation generated an extensive pretrial procedural history, including multiple demurrers and complaint amendments, as well as several unsuccessful motions for summary adjudication or summary judgment.

By the time the case went to trial in February 2006, the operative pleading was appellant's fifth amended complaint. The named defendants were respondents BATO, BA, and BANA, plus appellant's former employee Allen Tam. The causes of action asserted in this pleading were: (1) trade secret misappropriation; (2) breach of confidence; (3) conversion; (4) breach of contract; (5) tortious interference with contract; and (6) unfair competition. The conversion claim involved a laptop computer; it was asserted against Tam alone. The other five causes of action were asserted against all defendants. Appellant's claims against Tam were stayed prior to trial because of his bankruptcy.

In February 2006, just prior to trial, the court heard a number of in limine motions. Immediately thereafter, the court took up an issue raised in respondents' trial brief, statutory preemption. After entertaining written and oral argument on the issue, the court dismissed three causes of action of appellant's fifth amended complaint on the ground that they were preempted by California's Uniform Trade Secrets Act. (Civ.Code, § 3426 et seq.) This ruling eliminated appellant's second cause of action (for breach of confidence), its fifth cause of action (for interference with contract), and its sixth cause of action (for unfair competition). Appellant confirmed that it would dismiss its fourth cause of action for breach of contract, if it had not done so already. Thus, by the time of trial, appellant's sole remaining cause of action against respondents was its first cause of action, for trade secret misappropriation.

Jury Trial

The case was tried over the course of approximately eight weeks, from late February 2006 to late April 2006.

The trial was aptly described as “lengthy and complex” by respondents in their opposition to appellant's post-trial motion. As respondents further observed there: “More than 300 exhibits were received in evidence. Each side presented multiple experts. On some points, the evidence was sharply in conflict.” As appellant observed in reply, “thousands of pages of testimony” were generated during trial. Respondents' witness list included more than three dozen names. Appellant's many witnesses included two of its principals, Sing Koo and Connie Chun, who each testified for several days.

Among the issues that appellant pressed at trial was its claim that Chun's signature on the 2000 contract had been forged. Both sides presented handwriting experts (forensic document examiners) to testify about this claim.

During trial, appellant sought leave to amend its complaint (1) to change “the identity of the contracting party to the December 1998 Agreement” from respondent BA to its predecessor NTSA, and (2) to reflect appellant's “position that the November 2000” Agreement was “not valid.” Over respondents' objection, the court allowed the amendment. The matter thus reached the jury on appellant's sixth amended complaint, which was filed April 11, 2006. That pleading asserted a single cause of action against respondents for misappropriation of trade secrets.

On April 24 and 25, 2006, the parties delivered lengthy closing arguments to the jury.

On April 26, 2006, the court instructed the jury and deliberations began.

Verdict and Judgment

On April 27, 2006, the day after it began deliberating, the jury returned special verdicts for respondents. As reflected in the special verdicts, the jury found that appellant failed to “prove that it is more likely than not that it is the owner of trade secrets contained in the Palm VII wireless banking application” or “in the Gating server application[.]” The jury also found that appellant made its misappropriation claims in bad faith.

On May 9, 2006, the court entered judgment for respondents.

Post–Trial Proceedings

Appellant moved for judgment notwithstanding the verdict, or, in the alternative, for a new trial. Respondents opposed the motion, and the court denied it in July 2006.

In August 2006, respondents moved for attorney fees. Appellant opposed the motion. The motion was heard and granted on September 29, 2006. On October 16, 2006, the court entered its formal order awarding respondents more than $1.1 million in fees and costs.

Appeals

On August 4, 2006, appellant filed this appeal from the judgment (H030494).

On December 18, 2006, appellant filed its companion appeal (H031026), which challenges the post-trial order awarding attorney fees.

We denied appellant's motion to consolidate the appeals, but on our own motion we decided to consider the two appeals together for purposes of briefing, oral argument, and decision. Our decision in the companion appeal appears in a separate unpublished opinion, filed concurrently with this one.

CONTENTIONS

In this appeal, appellant presents a two-pronged attack on the judgment, targeting both the jury's verdict and the court's preemption ruling as contrary to law. Respondents dispute both points.

DISCUSSION

We address appellant's attack on the special verdicts in the unpublished portion of the opinion, before turning to its arguments concerning the preemption ruling.

I. The Verdict^** II. The Preemption Ruling

In its second line of attack on the judgment, appellant asserts error in the pretrial dismissal of three causes of action of its fifth amended complaint: the second cause of action, for breach of confidence; the fifth cause of action, for interference with contract; and the sixth cause of action, for unfair competition. As noted above, the trial court concluded that those three causes of action were preempted by California's Uniform Trade Secrets Act. (Civ.Code, § 3426 et seq.) Appellant challenges the preemption ruling on both procedural and substantive grounds.

A. Appellant's Procedural Challenges

The preemption issue was first raised below in respondents' trial brief. After motions in limine and before the jury was impaneled, the court addressed the question on its own motion, first giving appellant a chance to respond orally and in writing.

Appellant takes issue with the procedure employed, asserting two related claims of error. First, appellant challenges the pretrial procedure employed by the court as “improper.” According to appellant: “If the trial court was using the motion in limine procedure to rule on the preemption procedure, it was in error. A motion in limine can only ask a court to admit or bar the admission of evidence.” Second, appellant contends that the court ruled “prematurely,” having acted without first hearing its evidence.

In response to appellant's procedural arguments, responden...