Category: Litigation Tips

When departing a company to join a competitor, employees should proceed with caution before downloading “personal” information saved on their work computer.  While this material is not a company trade secret, downloading it shortly before departing the company can unnecessarily expose the employee to a legal headache.  After the employee has departed, the former employer will likely forensically examine her work computer, which will reveal whether and when external storage devices were connected.  But the exam will rarely determine what materials were actually transferred—meaning the former employer doesn’t know whether the employee downloaded family photos or key business documents.  So, connecting an external device to a work computer in the days/weeks before the employee’s departure can set off alarm bells, often resulting in the former employer sending a cease and desist letter to the departed employee and her new company.  The new company will then be concerned about liability for knowingly acquiring and/or using trade secrets, which leads to investigation, legal fees, and a less than stellar first impression of the new employee.

Lewis & Llewellyn has extensive experience advising individuals and companies on the myriad issues that can arise when an employee transitions from one company to another.  Click here to read more about this practice area.

On April 6, 2017, the California Supreme Court handed down a unanimous decision that will likely become a seminal case on the subject of class-action waivers and arbitration clauses in consumer contracts.  In McGill v. CitiBank, N.A., No. S224086 (Apr. 6, 2017), the Court held that an arbitration clause in Citibank’s credit card agreement purporting to waive a plaintiff’s right to seek public injunctive relief in any forum was contrary to California public policy and therefore unenforceable.  The Court further held that the Federal Arbitration Act does not preempt California’s consumer protection statutes.

In 2011, McGill brought a putative class action against Citibank based on alleged violations of three well-known California consumer-protection statutes—the Consumers Legal Remedies Act (CLRA), the False Advertising Law (FAL), and the Unfair Competition Law (UCL)—each of which provides injunctive relief as a remedy.  Citibank responded by seeking to compel arbitration of each of these claims.

The trial court declined to force McGill to arbitrate her public injunctive relief claims, finding that agreements to arbitrate claims for public injunctive relief under the CLRA, FAL, or UCL are unenforceable.  The Court of Appeal, however, disagreed and ordered all of McGill’s claims to arbitration, reasoning that the Broughton-Cruz rule was preempted by the Federal Arbitration Act.  The California Supreme Court reversed, holding that the contractual waiver of McGill’s right to seek public injunctive relief in any forum was unenforceable.  The Court side-stepped the issue of whether the Broughton-Cruz rule was preempted by the Federal Arbitration Act, focusing instead on the fact that the arbitration clause at issue purported to prevent McGill from seeking public injunctive relief in any forum, be it a court of law or arbitration.  By agreeing to submit her claims to arbitration, therefore, McGill was in effect also agreeing to limit the remedies to which she would have been entitled if she prevailed on her claims, reasoned the Court.  Because the public injunction remedies are intended to benefit the public, the Court held that their waiver is invalid.

Two takeaways from the Court’s decision are apparent.  First, savvy companies should review their consumer contracts to ensure that they do not contain the arbitration language at issue in McGill, and should consider adding carve-outs for public injunctive relief, or else they risk a finding that an agreement to arbitrate is “permeated by unconscionability” and therefore unenforceable.  Second, given that the U.S. Supreme Court has repeatedly ruled against California’s High Court in recent cases centered on arbitration—most notably AT&T Mobility v. Concepcion in 2011—it is almost certain that Citibank will petition the Court to review this decision.  And with the recent confirmation of Judge Neil Gorsuch to the long-vacant ninth seat on the Court, efforts to limit what rights consumers may waive through arbitration agreements are entering treacherous waters.

A few weeks ago, in A.M. v. Ventura Unified School District, et al., 2016 WL 5936851 (Cal. Ct. App. Oct. 12, 2016), the Court of Appeal overturned a trial court decision limiting the ability of childhood sexual abuse victims to file suit.  The Court of Appeal found that California Government Code section 905(m), which waives the requirement that a tort claim be filed before suing a public agency for childhood sexual abuse, is not limited to cases in which the alleged abuser was employed by the public agency.  In other words, if a child files suit alleging that he or she was abused by his or her fellow students, no tort claim form is required.

The underlying complaint in A.M. alleged that the victim was bullied, battered, and sexually abused by some of her fellow students.  Even though her mother complained to the school district, no action was taken.  The trial court granted summary judgment in favor of the student defendants, finding that the plaintiff had failed to file a claim form and, therefore, was barred from filing suit against them.  The Court of Appeal rejected this narrow interpretation of the statute and reversed the trial court’s decision.

This decision is a welcome development for victims of childhood sexual abuse, and removes another barrier for victims seeking recourse through the courts.

California Code of Civil Procedure section 2019.210 provides that, before the plaintiff in a trade secret lawsuit may commence discovery relating to its alleged trade secret(s), it must “identify the trade secret with reasonable particularity.”  This provision provides defendants with a powerful tool, preventing a plaintiff from alleging the misappropriation of trade secrets in vague or generalized terms, and then back-filing the allegations after discovery starts.  The Ninth Circuit has yet to rule on its applicability in federal court, and California district courts conducting an Erie analysis are split on the issue.  However, even district courts that hold section 2019.210 does not apply often require plaintiffs, pursuant to a federal court’s inherent Rule 26 powers, to disclose their trade secrets with particularity before obtaining discovery from defendants.  In sum, section 2019.210 can be a powerful tool, and in deciding whether to file a trade secret action in federal or state court, plaintiffs should expect that they will have to disclose their trade secrets with “reasonable particularity” – either pursuant to section 2019.210 or the court’s Rule 26 order – before they can begin discovery.

The California Automatic Renewal Law (ARL) was passed in 2010 in order to prevent companies from locking consumers into renewal payment contracts without any ability to cancel.  Unfortunately, the ARL has created a difficult business environment, riddled with pitfalls for unsuspecting companies.  Most importantly, the regulatory framework created by the ARL provides for an incredibly precise set of rules detailing what all companies which have recurring payment contracts must do before, and after, signing up a customer.

The penalties for failing to comply are severe.  If a company fails to follow the ARL’s very specific and detailed rules, the law deems all “goods, wares, merchandise or products” sold as “unconditional gifts.”  This has allowed plaintiffs’ attorneys to argue that a company which violates the ARL must return 100% of its proceeds to every single California customer since 2010.

While the law was largely ignored at first, over the last few years, plaintiffs’ attorneys have begun aggressively pursuing class actions.  Since 2015, plaintiffs have filed putative class action lawsuits agains Birchbox, Dropbox, Google, Spotify and Tinder, just to name a few.  Nor are these class actions limited to large companies.  We have seen, and defended, relatively small subscription-based companies that have been targeted by plaintiffs’ counsel.

Due to the ARL’s broad language, few companies have opted to test its limits.  Based on a study of publicly available information, we have seen a large trend of defendants, or even would-be defendants, settling based on a demand letter or complaint alone.  However, the few companies that have engaged plaintiffs in litigation over the ARL have found some success, especially at the federal level.

On May 11, 2016, the Defense of Trade Secrets Act (“DTSA”) became effective, establishing the first civil federal trade secrets law.  Importantly, the DTSA does not preempt state law, meaning a plaintiff alleging trade secret misappropriation can assess which law is more favorable before bringing suit and could also, depending on the case, opt to assert claims under both laws.  While the substantive elements of trade secret claims under the DTSA are similar to those under California law, the DTSA differs in several key respects.  For example, in contrast to California law, the DTSA does not, on its face, require a plaintiff to disclose its purported trade secrets with particularity before commencing discovery.  Because the particularity requirement can be a powerful tool for defendants, depending on the nature of its case, a plaintiff should consider whether to file suit under the DTSA to potentially avoid this procedural hurdle to obtaining discovery.  Moreover, the DTSA contains a civil seizure remedy, which, under certain circumstances, allows a plaintiff to obtain an ex parte order providing for the seizure of property necessary to prevent the dissemination of the trade secrets.  Depending on how courts apply the seizure provision, this remedy could be a reason in and of itself to bring suit under the DTSA.

While potential juror research, including the use of juror questionnaires, has become common in litigation, a recent order from U.S. District Judge William Alsup in the Oracle Corp. v. Google, Inc. copyright dispute is a good reminder that juror investigation can be taken too far.  Judge Alsup rejected the parties’ “intrusive” juror questionnaire, finding that the questionnaire was a tool for gathering information to be used in background checks on potential jurors.  “The court suspects that a real reason the parties wish to use the proposed questionnaire and its two-day (or more) procedure is to get the names of prospective jurors and their places of residence so that they may conduct extended Internet investigation,” wrote Judge Alsup.  Beyond juror privacy, Judge Alsup was also concerned that the information gathered could act as an insurance policy on appeal.  For example, the parties could use their internet research in an attempt to demonstrate a juror was untruthful during selection.  Canvassing the internet for jurors’ private information was particularly troubling, Judge Alsup noted, because jurors are instructed not to do any internet research on the case.  Such a double-standard could be confusing to them.

Whether or not others follow Judge Alsup’s lead remains to be seen.  But practitioners should exercise caution when crafting juror questionnaires to give due consideration to juror privacy.

On January 1, 2016, important changes were made to the California Code of Civil Procedure (CCP) which will have a significant impact on the litigation process, particularly as it relates to demurrers.

The new CCP section 430.41 requires the parties to “meet and confer” before a demurrer is filed.  If the parties cannot complete a meet and confer 5 days before a responsive pleading is due, the demurring party can obtain an automatic 30-day extension by filing a declaration with the court.

Additionally, CCP section 430.41 now imposes a limit on the number of amended complaints that can be filed.  Under the previous demurrer statutes, there was no such limitation.  Now, a complaint cannot be amended more than three times, absent an offer to the trial court that there is a reasonable possibility the defect can be cured.

Moreover, CCP section 472 is amended to prevent amended complaints from being filed on the eve of a demurrer hearing.  An amended complaint must now be filed no later than the date an opposition to the demurrer is due.  An amended pleading can only be filed after that date pursuant to a stipulation of the parties.

In short, the new rules will limit the number of amended complaints and demurrers that can be filed.  It will also save counsel and the courts from having to prepare for demurrer hearings, only to have them rendered moot by amended complaints filed on the eve of the hearing.

On December 1, 2015, some significant changes to the Federal Rules of Civil Procedure will take effect.  Among the changes are revisions to Rule 26(b), which defines the scope of discovery.  The amendments will place new constraints on discoverable information.  Attorneys and clients should be aware of how these changes will affect their discovery requests to opposing parties, and also how they can use the amendments to limit overbroad requests.

The amended FRCP 26 will clarify the scope of discovery by requiring that discovery is both “relevant to any party’s claim or defense” and “proportional to the needs of a case.”  Courts are currently permitted to consider proportionality factors in order to limit discovery, but the amendment more clearly ties the proportionality factor to the scope of discovery.

In addition, the amendments will remove the well-known current language in Rule 26(b)(1) that allows discovery of information “reasonably calculated to lead to the discovery of admissible evidence.”  It will be replaced with the statement: “Information within this scope of discovery need not be admissible in evidence to be discoverable.”  According to the rule’s committee notes, the change is meant to correct the common misuse of the “reasonably calculated” phrase in defining the scope of discovery.  Instead, the new language is designed to allow discovery of non-privileged inadmissible information “so long as it is otherwise within the scope of discovery” (i.e., information that is both relevant and proportional).

These changes will likely limit the discovery burden that parties can attempt to impose on one another and encourage narrower discovery orders, especially in cases involving relatively small amounts of damages or clients with less resources.  All counsel practicing in federal court should stay abreast of these developments.

Earlier this month, Governor Jerry Brown signed legislation aimed at helping courts dispose of motions for summary judgment and summary adjudication more quickly.  Under Senate Bill 470, sponsored by the Judicial Council and California Judges Association, courts deciding summary judgment and adjudication motions need only consider evidentiary objections they deem material to the motion.  Objections not ruled on by the judge will be preserved for appellate review.

The goal of the bill is to “reduce and better direct the time and effort of trial courts” in ruling on these motions.  The impact of the legislation on practitioners remains uncertain, but in light of this new rule, attorneys would be well advised to consider streamlining their objections on summary judgment in order to minimize the risk that important ones are not overlooked.