Jasmine Networks, Inc. v. Superior Court

• Decision Date: 29 December 2009
• Docket Number: No. H034441.,H034441.
• Citation: 103 Cal. Rptr. 3d 426,180 Cal.App.4th 980
• Court: California Court of Appeals Court of Appeals
• Parties: JASMINE NETWORKS, INC., Petitioner, v. THE SUPERIOR COURT OF SANTA CLARA COUNTY, Respondent; MARVELL SEMICONDUCTOR, INC., et al., Real Parties in Interest.

180 Cal.App.4th 980

103 Cal. Rptr. 3d 426

JASMINE NETWORKS, INC., Petitioner, v. THE SUPERIOR COURT OF SANTA CLARA COUNTY, Respondent MARVELL SEMICONDUCTOR, INC., et al., Real Parties in Interest.

No. H034441.

Court of Appeals of California, Sixth District.

December 29, 2009.

Trepel Law Firm, Anthony J. Trepel; McGrane Greenfield, William McGrane, Christopher Sullivan, Maureen Harrington; Greines, Martin, Stein & Richland, Robin Meadow, Marc J. Poster and Alana H. Rotter for Petitioner.

No appearance for Respondent.

Latham & Watkins, Steven M. Bauer, Charles Crompton, James K. Lynch; Cooke Kobrick & Wu, Steven S. Wu, Christopher C. Cooke and Jeffrey W. Kobrick for Real Parties in Interest.

OPINION

RUSHING, P. J.

Plaintiff Jasmine Networks, Inc. (Jasmine), brought this action charging Marvell Semiconductor, Inc. (Marvell), and others with violating California's Uniform Trade Secrets Act (Civ. Code, § 3426 et seq.) (CUTSA) by misappropriating certain trade secrets belonging to Jasmine. Not long after filing the action Jasmine went through bankruptcy proceedings, in the course of which it sold its rights in the alleged trade secrets, while reserving its rights of action for misappropriation commencing before the date of the transfer. As this lawsuit reached the verge of trial, Marvell moved to dismiss Jasmine's complaint on the ground that by selling the alleged secrets, Jasmine had forfeited its "standing" to maintain an action for misappropriation. Marvell asserted the existence of a "current ownership rule," under which a plaintiff can recover for misappropriation of a trade secret only if he owns the trade secret at the time of suit. The trial court found this argument persuasive, and dismissed Jasmine's complaint.

(1) Jasmine petitioned this court for a writ of mandate directing the trial court to set aside its order of dismissal and permit the matter to proceed to trial. We issued an order to show cause why the petition should not be granted. We will now grant the requested relief. Despite the impressive efforts by Marvell's counsel to conjure up a "current ownership rule," we find no support for such a rule in the text of the CUTSA, cases applying it, or legislative history. Nor do we find any evidence of such a rule in patent or copyright law, which defendants have cited by analogy. Defendants have offered no persuasive argument from policy for our adoption of such a rule. There may be situations where a suit by a former owner raises concerns about the rights of absent parties, or a risk of multiple or inconsistent liabilities on the part of parties before the court, but the remedy for such concerns lies in our liberal and highly flexible procedures for the permissive or compulsory joinder of parties. There is in short no substantial basis for the argument put forward by defendants, and the trial court erred by dismissing the complaint.

BACKGROUND

Jasmine originally sued 12 defendants, but by the time the matter came on for trial, only three remained: Marvell and two former Jasmine managers, Richard Sowell and Patrick J. Murphy. Jasmine alleged in its second amended complaint that commencing in April 2001, Marvell had sought to negotiate, under a mutual confidentiality agreement, the right to use certain technology developed by Jasmine involving application-specific integrated circuits (ASIC's) and packet fabric switching. In May 2001, Marvell offered $40 million to acquire Jasmine's entire ASIC development group, including the fabric switching technology. According to Jasmine, however, even as negotiations were proceeding, Marvell was acquiring much or all of the technology it sought by wrongful means, including from information provided under the nondisclosure agreement, and from Jasmine employees, including defendants Sowell and Murphy, whom Marvell induced to breach their fiduciary and contractual obligations to Jasmine. By late August 2001, Jasmine alleged, Marvell had obtained substantially all of the value of Jasmine's ASIC group. Around that time it offered Jasmine $15 million for it.

Jasmine brought this action on September 12, 2001. By the time of trial the following causes of action remained: misappropriation of trade secrets, breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, wrongful interference with contract and economic advantage, and unfair business practices. Marvell cross-complained, charging Jasmine with, among other things, fraud, in that the technology it had offered to Marvell was actually purloined from a third party and that Jasmine had itself breached their disclosure agreement by wrongfully disclosing confidential information provided to it by Marvell. Sowell and Murphy also cross-complained, charging Jasmine with slander and violations of wage laws.

In August 2002, Jasmine filed for protection under chapter 11 of the bankruptcy laws. In December 2002, Jasmine proposed to the bankruptcy court that it sell substantially all of its assets, reserving only the claims in this action, which it explicitly intended to pursue. The proposal identified these claims as Jasmine's most valuable asset. It also contemplated the sale of "Jasmine's Optical Networking Business, including its ASIC Products," to an entity named Teradiant Networks, Inc. (Teradiant), for the sum of $300,000. Marvell requested notice of all bankruptcy proceedings, and appeared by counsel at the hearing on the proposed disposition of assets. No one objected to the proposal. On December 5, 2002, the bankruptcy court approved it. Under the terms of the agreement, the transfer of assets occurred on or before December 31, 2002.

This matter proceeded to the verge of trial. On May 21, 2009, in preparatory discussions in open court, counsel for Marvell stated, "There is a defense here that puts an end to the whole case. . . . It's called standing." He acknowledged that this "defense" had not been raised earlier by summary judgment or other dispositive motion, but said it could be raised "at any time."¹ He went on to assert that the pattern jury instructions for misappropriation of trade secrets "say you must either be an owner or a licensee of the intellectual property that you're suing on." (See p. 997, post.) Having sold all of its intellectual property to Teradiant, he contended, Jasmine could not satisfy this requirement, despite having "held on" to the cause of action it asserted here.

Five days later Marvell submitted a written motion "for an order dismissing Jasmine Networks, Inc.'s Second Amended Complaint due to lack of standing."² Sowell and Murphy joined in the motion. Jasmine opposed the motion both on the grounds that there was no such rule, and that the bankruptcy court's rulings were conclusive on the issue of its standing. The court heard the motion on May 29, and on June 5 issued a formal order dismissing the complaint with prejudice. Finding the question to be one of first impression, the court wrote, "[A] former owner of a trade secret lacks the requisite property interests and rights that trade secret law seeks to protect. Although there are persuasive arguments and legitimate equities on both sides of this issue, it is the Court's opinion a former owner lacks the necessary standing to sue for the misappropriation of property that it no longer owns because the former owner no longer has a protectable interest in the property."

Jasmine petitioned this court for a writ directing the trial to reverse its order of dismissal, and for a stay of defendants' pending cross-actions against it. We issued the requested stay and an order to show cause.

DISCUSSION

I. Conditions for Extraordinary Relief; Standard of Review

Our issuance of an order to show cause rested on our determination that plaintiff had no "plain, speedy, and adequate remedy" for the dismissal of its action "in the ordinary course of law" (Code Civ. Proc., § 1086; see Marron v. Superior Court (2003) 108 Cal.App.4th 1049, 1056 ) and that, if its contentions were correct, it would suffer irreparable injury in the absence of extraordinary relief (Smith v. Superior Court (1996) 41 Cal.App.4th 1014, 1020-1021 ). Plaintiff could of course have obtained review of that order on direct appeal from an eventual judgment, but in the meantime the trial court was poised to proceed with a trial of defendants' cross-actions against plaintiff. This exposed all participants to the risk of two trials if we concluded, as it appeared to us we were likely to do, that the dismissal of the complaint was erroneous. The requisite urgency is commonly found where, as here, the trial court has effectively disposed of part of an action, leaving the rest for trial, and there is a substantial likelihood that the partial disposition may be held on appeal to constitute error, necessitating a second trial, whereas timely appellate intervention by extraordinary writ would permit the entire case to be disposed of in a single trial. (See, e.g., Coulter v. Superior Court (1978) 21 Cal.3d 144, 148 [145 Cal.Rptr. 534, 577 P.2d 669] [demurrer sustained to less than all causes of action; writ appropriate to "prevent a needless and expensive trial and reversal"]; Barrett v. Superior Court (1990) 222 Cal.App.3d 1176, 1183 [summary adjudication disposing of one but not all theories of liability; "were plaintiffs not to prevail on their other two theories, and were the order here under review determined to have been incorrect, then a second trial would be required, with the attendant waste of judicial resources"]; Lopez v. Superior Court (1996) 45 Cal.App.4th 705, 710, fn. 1 [summary judgment in favor of one defendant, with trial pending against other].)

The order under review is based upon the trial court's determination that plaintiff was unable to maintain a cause of action for misappropriation of a trade secret because, as plaintiff conceded, it had sold its rights in the underlying trade secret to a third pa...