Superior Court of California Attorneys’ Fees Award Punishes Plaintiff’s Bad-Faith Litigation for Alleged Misappropriation of Trade Secrets

A California Superior Court Judge in Orange County granted an attorneys’ fees award in the amount of $5.8 million to defendant Landmark Event Staffing Services, Inc. (“Landmark”) in Contemporary Services Corporation v. Landmark Event Staffing Services, Inc., Case No. 30-2009-00123939. This ruling reinforces the importance of carefully calibrating litigation strategy in trade secrets misappropriation cases to focus on vindicating legally protectable interests. Trade secrets litigation should not be used merely as an aggressive tactic to stifle a competitor.

Under California Civil Code § 3426.4, “[i]f a claim of misappropriation is made in bad faith, . . . the court may award reasonable attorney’s fees and costs to the prevailing party.” Quoting Dr. V. Productions, Inc. v. Rey (2021) 68 Cal. App. 5^th 793, 796, the court noted that “[i]n enacting [California Civil Code § 3426.4], the Legislature was concerned with curbing specious actions for misappropriation of trade secrets,” and that “[a]n award of reasonable attorney’s fees may act as a deterrent to specious claims of misappropriation.”

The court found that plaintiff Contemporary Services Corporation (“Contemporary”) pursued its trade secrets misappropriation case against Landmark in bad faith because:

• Contemporary initially demanded $5.8 million to settle the case, which, according to the court, was an “outrageous demand” and “evidence of bad faith”;
• Contemporary’s President “habitually use[d] litigation to attack competit[ors]”;
• “[Contemporary] essentially had a business plan to file and maintain unmeritorious claims against competitors”; and
• After thirteen years of litigation, Contemporary opted to voluntarily dismiss the case one month before trial. As the Court put it, “[a]fter forcing its opponent to incur millions in attorney fees, [Contemporary] effectively said, ‘Oh, never mind.’”

Notably, the Court’s order only analyzed the “subjective bad faith” of Contemporary’s conduct. The Court did not analyze the “objective speciousness” of Contemporary’s claim, which is required to award attorneys’ fees for “bad faith” litigation under California Civil Code § 3426.4.  See FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1275-76.  The parties’ 13-year litigation saga included an appeal before the Ninth Circuit U.S. Court of Appeals, which reversed a district judge’s ruling that granted summary judgment in Landmark’s favor on the trade secrets and breach of contract claims, and found that Contemporary raised triable issues as to whether certain Contemporary documents qualified as trade secrets. The Ninth Circuit’s decision appeared to lend credence to Contemporary’s position that its trade secrets misappropriation theory was not frivolous or brought in bad faith.  However, the Superior Court found that Contemporary filed suit, and litigated the case for over a decade, for “specious” purposes, notwithstanding the trade secrets misappropriation claim capable of supporting a legitimate suit.