PHL Assocs., Inc. v. Superior Court of Yolo Cnty.
| Decision Date | 16 July 2020 |
| Docket Number | C088437 |
| Court | California Court of Appeals Court of Appeals |
| Parties | PHL ASSOCIATES, INC., Petitioner, v. THE SUPERIOR COURT OF YOLO COUNTY, Respondent; DALE WALLIS, Real Party in Interest. |
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
With this petition for writ relief, we again address the dispute between real party in interest Dale Wallis and her former employer, petitioner PHL Associates, Inc. (PHL), over Wallis's disclosure to, and sale by, PHL of an antigen Wallis developed for use in an animal vaccine. This iteration of the dispute arrives here following a retrial of Wallis's claims for equitable relief. In the bifurcated retrial, the trial court found that PHL was unjustly enriched by acquiring the antigen from Wallis by misrepresenting to her that she was a shareholder in the company.
Before incurring extensive discovery to prepare for the next trial on damages, PHL petitioned this court for relief. It contends the trial court's ruling violates the law of the case and, alternatively, that Wallis's equitable claims are superseded by the California Uniform Trade Secrets Act (Civ. Code, § 3426 et seq. (CUTSA)) and the statute of limitations bars Wallis from now bringing a claim under that law.
We grant the petition. Although Wallis's equitable claims are not barred by the law of the case, they are superseded by CUTSA, and by her not timely pleading a cause of action under CUTSA she is prevented from recovering any equitable relief.
In 1988, while employed by PHL, Wallis developed an antigen, known as the J-5 TC antigen, for a vaccine for bovine mastitis. Although she developed the antigen within the scope of her employment, the jury found that she and PHL agreed she would own the antigen.
In 1989, Wallis discussed producing the vaccine with the PHL board of directors, but she felt they were reneging on an earlier promise to make her a shareholder. She considered taking the antigen to another company, but PHL gave her a raise and the opportunity to purchase 20 shares of PHL stock for $1,000 a share. Wallis paid $15,000 to PHL for 15 shares and $5,000 to the individual shareholders for five shares. She was given a vote in board meetings. PHL began using the antigen to manufacture vaccine for the market. Wallis received shareholder bonuses through 1990 and part of 1991.
In 1991, PHL negotiated to sell the vaccine to Upjohn. During negotiations, it terminated Wallis's employment. She refused an offer to buy back her shares because she believed she was entitled to one-sixth of the Upjohn deal. The other shareholders voted to remove her from the board of directors.
In January 1992, PHL finalized the sale of the vaccine to Upjohn for $2.5 million. PHL agreed not to compete with Upjohn for 10 years, and Upjohn agreed that PHL would be the exclusive producer and supplier of the antigen in the United States.
In March 1992, PHL's attorney notified Wallis in writing that she was not a PHL shareholder because she had purchased only an option to become a shareholder after five years of employment. The attorney enclosed checks to refund the purchase price of the shares plus interest. Wallis rejected the characterization of the transaction and refused to cash the checks.
Meanwhile, Wallis and her former husband started a company to develop and market its own J-5 antigen, and they tried to persuade Upjohn to purchase the vaccine from them. In 1993, Upjohn sued them for infringement, and they counterclaimed. The federal court granted summary judgment in favor of Upjohn on the counterclaim, and the parties settled. As part of the settlement, Wallis agreed that Upjohn owned the rights to the vaccine.
Wallis filed this action against PHL and its shareholders on June 22, 1994. In her fifth amended complaint, she alleged causes of action for fraud, conversion, conspiracy, unjust enrichment, constructive fraud, and constructive trust. PHL filed a cross-complaint. The trial court, Yolo County Superior Court Judge Stephen L. Mock, bifurcated trial on the complaint and cross-complaint, and it stayed discovery on the cross-complaint until after trial on the complaint.
Twice, once during trial in 2000 and once after trial in 2001, Wallis attempted to add a cause of action for misappropriation of trade secrets under CUTSA. PHL opposed both attempts. The trial court denied Wallis's requests. The court denied Wallis's motion to amend the complaint during trial because of the prejudice PHL would incur at that late stage. CUTSA would necessitate additional discovery on a different standard of damages which would further delay trial. It also could allow Wallis to recover attorney fees if she established liability with bad faith, and PHL had not been notified of that risk by any of Wallis's complaints.
After trial, Wallis filed a cross-complaint alleging misappropriation of trade secrets under CUTSA. The trial court sustained PHL's demurrer to the cross-complaint without leave to amend. The action was barred by CUTSA's three-year statute of limitations, and the relation-back doctrine did not apply. Wallis did not challenge on appeal either the denial of her motion to add a cause of action under CUTSA in 2000 or the court's 2001 ruling on the demurrer to her cross-complaint.
In June 2000, the jury returned special verdicts on the fifth amended complaint and found PHL liable for fraud and conversion related to Wallis's money. It found that Wallis invented the antigen within the scope of her employment at PHL, but she and PHL agreed that she would own the antigen.
As to fraud, the jury found:
• PHL did not make a false promise or false representation to Wallis related to the antigen.
• PHL knowingly made a false representation of material fact to Wallis related to her money to induce her to rely on it. Wallis relied on the misrepresentation unaware it was false and that PHL did not intend to perform, and she was justified in relying on the misrepresentation. The parties occasionally refer to this fraud as the share fraud.
As to conversion, the jury found:
• PHL did not deliberately interfere with the antigen.
• PHL deliberately and unjustifiably interfered with Wallis's $15,000.
The jury assessed against PHL over $1.9 million in compensatory damages and $500,000 in punitive damages. The jury also assessed damages against the individual shareholders, but they are not party to the writ petition before us.
After the jury trial was completed, the trial court heard argument on the equitable causes of action. In December 2000, it found there was unjust enrichment. It stated equitable relief was warranted because PHL took the antigen without paying any compensation to Wallis due to a "mistake of fact." The court imposed a constructive trust against royalties PHL received for the antigen after it sold it and for the noncompetition agreement it signed with Upjohn in an amount exceeding $1.4 million, including prejudgment interest. The court also lifted the stay on the cross-complaint proceedings.
PHL filed a written request for a statement of decision, but the court denied it as untimely.
In July 2002, Wallis disqualified Judge Mock under Code of Civil Procedure section 170.6 from hearing PHL's cross-complaint. Approximately six years later, in April 2008, the case was assigned to Judge David De Alba of the Sacramento County Superior Court.
In April 2010, 10 years after trial, the parties settled PHL's cross-complaint. Wallis agreed to pay PHL slightly more than $1.8 million, and PHL dismissed its action.
Wallis elected to recover on her fraud cause of action instead of conversion, and Judge De Alba entered judgment on Wallis's complaint. As later amended, the judgment against PHL awarded Wallis $1,944,997 in damages on the jury's fraud verdict, $500,000 in punitive damages, and $671,262 on the equitable claims. The judgment also awarded prejudgment interest.
Both PHL and Wallis appealed. (Wallis v. PHL Associates, Inc. (2013) 220 Cal.App. 4th 814.) Among other claims, PHL contended the special verdicts were inconsistent. They did not support the damages award of $1.9 million because the jury found PHL committed fraud related to Wallis's money, not the antigen. PHL contended the maximum damages for fraud related to Wallis's money equaled the $15,000 she paid to PHL for shares in the corporation. Wallis disagreed, arguing evidence supported the damages award because PHL obtained the antigen due to its false representations about her status as a shareholder.
In an unpublished portion of the opinion, we held Wallis's argument in support of the damage award did not reflect the correct standard of damages. The correct standard was the out-of-pocket standard, and although the jury had been properly instructed on that standard, there was no evidence Wallis had spent more than $15,000 out of her pocket due to the fraud related to her money. We also stated Wallis could not recover fraud damages for disclosing the antigen based on PHL's false promise of becoming a shareholder where the jury found there was no misrepresentation or false promise related to the antigen. Our statement on this issue is provided in full and discussed in section I.A. of the Discussion below.
We modified the judgment. Applying the out-of-pocket standard of damages, we reduced the award of fraud damages against PHL to $15,000, the amount Wallis paid PHL for the purported shares in the company. Because of the reduction in...
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