Whittaker Corp. v. Execuair Corp.

• Decision Date: 06 July 1984
• Docket Number: No. 81-5694,81-5694
• Parties: , 222 U.S.P.Q. 961, 15 Fed. R. Evid. Serv. 2065 WHITTAKER CORPORATION and Dynasciences Corporation, Plaintiffs-Appellants, v. EXECUAIR CORPORATION, EMC Manufacturing Company, Inc., and Laurence S. Manhan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1341

736 F.2d 1341

39 Fed.R.Serv.2d 619, 222 U.S.P.Q. 961,

15 Fed. R. Evid. Serv. 2065

WHITTAKER CORPORATION and Dynasciences Corporation Plaintiffs-Appellants, v. EXECUAIR CORPORATION, EMC Manufacturing Company, Inc., and Laurence S. Manhan, Defendants-Appellees.

No. 81-5694.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 2, 1984.

Decided July 6, 1984.

Maureen McGuirl, Robert E. Cooper, Fred G. Bennett, Gibson, Dunn & Crutcher, Los Angeles, Cal., for plaintiffs-appellants.

Robert Yale Libott, Libott, Smitas & Associates, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before KILKENNY, HUG and BOOCHEVER, Circuit Judges.

BOOCHEVER, Circuit Judge:

Whittaker and its subsidiary, Dynasciences, (hereinafter referred to as Whittaker) brought this action alleging that Execuair and a related enterprise, EMC Manufacturing Co., (hereinafter referred to as Execuair) and Execuair's founder Larry Manhan misappropriated trade secrets, improperly "palmed off" Execuair's product as Whittaker's and infringed on Whittaker's trademark. Whittaker appeals and we affirm a partial summary judgment holding that Whittaker's claim for misappropriation of trade secrets was barred by the statute of limitations, and that recovery for pre-complaint acts of palming off was barred by laches and estoppel. We reverse a final judgment for Execuair granted by the district court on those claims not barred by the partial summary judgment and remand for further proceedings because of several incorrect pre-trial evidentiary rulings by the district court.

FACTS

Whittaker manufactures and sells valves and their component parts for use in aircraft. Execuair rebuilds and sells Whittaker valves and sells replacement parts for Whittaker valves. Some of the replacement parts sold by Execuair are manufactured by Whittaker and some are manufactured by Execuair itself.

Whittaker filed suit against Execuair for damages and injunctive relief in August 1977. In October 1977, the district court issued a preliminary injunction that essentially required Execuair to clearly inform customers that any valves or parts of valves manufactured or rebuilt by Execuair were Execuair's product and not Whittaker's. Whittaker circulated a copy of the injunction with an accompanying letter to Execuair customers in December 1977. The district court then granted Execuair partial summary judgment, ruling that Whittaker's cause of action for misappropriation of trade secrets was barred by the applicable statute of limitations, laches and estoppel and that Whittaker was barred by laches and estoppel from recovery for acts of palming off occurring prior to the filing of its complaint. Summary judgment on the trademark infringement claim was denied.

The court then made several pre-trial evidentiary rulings. The court denied Whittaker's motion seeking admission into evidence of documents obtained by Whittaker after the date specified for discovery cutoff. These documents were discovered by Whittaker in the course of an antitrust action filed by Execuair against Whittaker after commencement of the case at bar.

The court granted Execuair's motion to limit evidence of palming off to the period after August 29, 1977, when the complaint was filed, and prior to December 9, 1977, when the preliminary injunction and accompanying letter were circulated to Execuair customers by Whittaker. Whittaker then filed a written offer of proof listing witnesses and exhibits it would present at trial if allowed. In its final judgment order, the court held the evidence in the offer of proof inadmissible. The court granted final judgment for Execuair after Whittaker represented that it had no evidence to establish liability other than that rejected in its offer of proof.

ANALYSIS

A. THE SUMMARY JUDGMENT

In reviewing a grant of summary judgment, our task is identical to that of the trial court. State ex rel. Edwards v. Heimann, 633 F.2d 886, 888 n. 1 (9th Cir.1980). Viewing the evidence, de novo, in the light most favorable to the party against whom summary judgment was granted, we must determine whether the trial court correctly found that there was no genuine issue of material fact and that the moving party was entitled to judgment as a matter of law. Heiniger v. City of Phoenix, 625 F.2d 842, 843 (9th Cir.1980).

1. Misappropriation of Trade Secrets

The parties do not dispute application of a two year California statute of limitations, Cal.Civ.Proc.Code Sec. 339(1), to Whittaker's claim for misappropriation of trade secrets. Their dispute is over when Whittaker's cause of action accrued for purposes of the statute.

The essence of Whittaker's claim is that Execuair wrongfully induced Whittaker suppliers to provide Execuair with drawings Whittaker had disclosed to its suppliers in confidence. We find no case squarely addressing the issue of when a cause of action for misappropriation by a third party (Execuair) of material communicated in confidence between two other parties (Whittaker and its suppliers) arises under California law. We find guidance, however, in the cases that address the issue of when a cause of action accrues in a two party context, where the defendant is the legitimate recipient of confidential information from the plaintiff but then wrongfully breaches the confidence.

In Monolith Portland Midwest Co. v. Kaiser Aluminum & Chemical Corp., 407 F.2d 288 (9th Cir.1969), Monolith claimed that Kaiser misused information Monolith had communicated to Kaiser in confidence. This court, applying California law, held that a cause of action accrued at the moment Kaiser "first made adverse use or disclosure of the trade secret in violation of its confidential relationship." Id. at 292 (emphasis added). The court held that the cause of action was based on the protected relationship and that breach of the relationship gave rise to a cause of action, rejecting Monolith's assertion that each adverse use of the information created a new cause of action. Id. at 293.

In Davies v. Krasna, 14 Cal.3d 502, 121 Cal.Rptr. 705, 535 P.2d 1161 (1975) the plaintiff sued for "breach of confidence" when defendant, without plaintiff's consent, disclosed a story plaintiff had submitted to him in confidence. The California court indicated approval of this court's holding in Monolith that breach of confidence is not a continuing tort and that " '[t]he cause of action arises but once, and recovery for the wrong is barred within two years thereafter unless the statute has been effectively tolled.' " 14 Cal.3d at 509, 121 Cal.Rptr. at 710, 535 P.2d at 1166, (quoting Monolith, 407 F.2d at 293). The plaintiff's cause of action was deemed to run from the time of defendant's unauthorized disclosure of the confidential idea. 14 Cal.3d at 512, 121 Cal.Rptr. at 711, 535 P.2d at 1167. The California court explained that a cause of action does not arise until a plaintiff has suffered "appreciable and actual harm, however uncertain in amount," but that "neither uncertainty as to the amount of damages nor difficulty in proving damages tolls the period of limitations." 14 Cal.3d at 514, 121 Cal.Rptr. at 713, 535 P.2d at 1169. The Davies court found that appreciable harm had occurred, because disclosure of the story had damaged its marketability. Id.

We hold that Whittaker's misappropriation claims in the instant case accrued when Whittaker became aware that Execuair acquired the drawings alleged to be trade secrets. We see no reason for accrual purposes to distinguish between wrongful acquisition of a trade secret by a third party who does not stand in a confidential relationship to the plaintiff and wrongful disclosure in a two party situation, such as in Monolith, where the defendant does have a confidential relationship with plaintiff.

Although this is a close case, we hold that the Davies "appreciable harm" standard was satisfied at the time Execuair acquired the drawings. The drawings obviously had value because they could be used by Execuair to obtain crucial Federal Aviation Administration approval for use of the parts. Moreover, someone had to be paid for the original preparation of the drawings. In the absence of some showing of change in value, they would at least be worth the cost of preparation. While the value of the drawings may have been uncertain, under California law neither uncertainty as to amount of damages nor difficulty in proving damages delays accrual. See Davies, 14 Cal.3d at 514, 121 Cal.Rptr. at 713, 535 P.2d at 1169.

Whittaker cites Droeger v. Welsh Sporting Goods Corp., 541 F.2d 790 (9th Cir.1976) another case construing California law, for the proposition that a new cause of action arose each time Execuair used an improperly acquired drawing. Droeger did not, however, involve a statute of limitations issue, and the decision must be read in the context of its facts. The claim in Droeger was that the defendant corporation misappropriated a design which had been communicated to the corporation's agent in confidence. The corporation contended that it had independently developed and put into use a similar design. The case primarily dealt with the issue of when an agent's knowledge is chargeable to the principal, and no allegation of wrongful acquisition of the design or wrongful disclosure of the design to third persons was involved. Id. at 791-92. The corporation appealed an instruction which allowed the jury to find wrongful misappropriation if the jury found that the corporation's agent had knowledge of the secret design, regardless of whether the agent had ever communicated the design to other corporate employees or whether the corporation had developed the similar design entirely independently. Id. The court in this context held that it was wrongful use, if any, which gave rise to plaintiff's claim and that mere knowledge by the...