PHL Assocs. v. Superior Court

Decision Date16 July 2020
Docket NumberC088437
PartiesPHL ASSOCIATES, INC., Petitioner, v. THE SUPERIOR COURT OF YOLO COUNTY, Respondent; DALE WALLIS, Real Party in Interest.
CourtCalifornia Court of Appeals Court of Appeals
ORDER MODIFYING OPINION AND DENYING REHEARING[NO CHANGE IN JUDGMENT]

THE COURT:

In response to the petition for rehearing filed by real party in interest Dale Wallis, the court modifies its opinion filed in this matter on July 16, 2020 as follows:

1. On page 25 of the opinion, the paragraph that begins "Wallis contends PHL's argument . . ." is modified, and additional paragraphs are added following that paragraph, as follows:

Wallis contends PHL's argument is at odds with PHL's opposition to her motion in the liability trial to amend her complaint to allege a claim of misappropriation under CUTSA. Wallis did not challenge on appeal the trial court's denial of her motion or its later dismissal of her cross-complaint raising a claim under CUTSA. Those decisions are now final.

At oral argument, Wallis contended that two recent California opinions supported her argument. Those cases, Quigley v. Garden Valley Fire Protection Dist. (2019) 7 Cal.5th 798 (Quigley) and Department of Finance v. City of Merced (2019) 33 Cal.App.5th 286 (City of Merced), are distinguishable. In Quigley, an injured firefighter sued for damages under the Government Claims Act (Gov. Code, § 900 et seq.). The defendant agencies asserted a statutory immunity at trial which they had not pleaded in their answers. The lower courts held that the immunity was jurisdictional and could be raised at any time, but the California Supreme Court reversed. It held that the immunity did not go to the trial court's fundamental jurisdiction. Rather, it "shield[ed] particular actors or activities from otherwise applicable liability for tortious conduct. . . . [It] provides a justification or excuse from liability that would otherwise exist . . . ." (Quigley, supra, 7 Cal.5th at p. 809.) As a general rule, such a matter had to be pleaded as an affirmative defense. (Ibid.)

Unlike the statutory immunity at issue in Quigley, CUTSA does not just shield a defendant from liability that would otherwise exist. It prohibits a plaintiff from bringing any action at law or equity for trade secret misappropriation except as CUTSA provides. A cause of action that falls within the scope of CUTSA but is not brought under CUTSA fails to state a cognizable claim—it does not exist—and is subject to dismissal at any time. (Code Civ. Proc., § 430.80, subd. (a).)

The second case Wallis raises, City of Merced, is similarly distinguishable. There, the Department of Finance determined the city was required to transfer funds to the state as part of the dissolution of the city's redevelopment agency. The city did not timely challenge the agency's findings, and it also did not transfer the money. The agency sought a writ of mandate to compel the city to pay. The city answered with a general denial, but it later opposed the petition by challenging the merits of the agency's determinations. It also filed a cross-petition without the trial court's approval to raise the same arguments. The trial court struck the cross-petition and awarded the writ. (City of Merced, supra, 33 Cal.App.5th at pp. 289-293.)

On appeal, the city claimed its general denial to the writ petition placed at issue the merits of the agency's determinations. A panel of this court disagreed. Not only did the general denial not place the claim at issue, but the city was required to allege the claim as an affirmative defense. An affirmative defense is " 'new matter' " relied upon by the defendant that is not responsive to the complaint's essential allegations. (City of Merced, supra, 33 Cal.App.5th at p. 294.) A failure to plead new matter as an affirmative defense waives the defense. (Ibid.) The city's claims were outside the petition's allegations and, having not been pleaded as an affirmative defense, were forfeited. (Id. at pp. 294-295.)

Unlike the new matter the city failed to plead as an affirmative defense in City of Merced, PHL's motion to dismiss for failure to state a claim responds to the complaint's allegations. Claiming that the plaintiff's cause of action cannot be stated as a matter of law directly responds to the action's allegations and does not rely on facts not alleged in the complaint to excuse a defendant from potential liability.

2. The text beginning with and including the paragraph on page 26 that begins "Wallis argued, and the jury . . .", and continuing through and including the paragraph on page 27 that begins "Wallis claims the trial court found . . ." is replaced with the following text:

Wallis argued, and the jury and the trial court found that PHL acquired the antigen due to Wallis's reliance on PHL's misrepresentation of her shareholder status. The jury also found that PHL knowingly made a false representation and induced Wallis to rely on it, which she did. These findings establish that PHL had reason to know that it acquired the antigen by misrepresentation. Because PHL was the one who made the misrepresentation, it had reason to know that the antigen was acquired by improper means. These facts are the same nucleus of facts which would support a claim of trade secret misappropriation under CUTSA.

Wallis contends CUTSA did not supersede her equitable claims. She raises several reasons. She argues the equitable claims are not based on misappropriation. Rather, they assert Wallis allowed PHL to use the antigen in exchange for compensation as a shareholder, a factual scenario she claims is distinct from the facts that would support a misappropriation claim. This scenario, however, is not what the jury and trial court found. The court found that Wallis "relinquished" the antigen to PHL, not just licensed PHL to use it. The court also found that Wallis relinquished the antigen "in reliance" on PHL's false promise to make her a shareholder. Because PHL committed the fraud, it had reason to know that Wallis gave it the antigen in reliance on the fraud. Wallis's claims for equitable relief are based on the same nucleus of facts that would support a claim for misappropriation due to misrepresentation.

Wallis asserts the jury's findings foreclose a misappropriation claim. She contends misappropriation would have required PHL to commit an intentional act related to the antigen, but the jury found that PHL did not make a misrepresentation or false promise related to the antigen. As we have tried to make clear in this opinion, the misrepresentation did not have to "relate" to the antigen for PHL to be held liable. The scope of liability is based on the extent Wallis actually and reasonably relied on the misrepresentation and whether PHL had reason to know that it had acquired the antigen by its fraud. If PHL acquired the antigen by falsely and knowingly inducing Wallis to believe she was a shareholder, then it had reason to know it had acquired the antigen by improper means—which is misappropriation under CUTSA.

Wallis claims the trial court found that her equitable claims were not based on misappropriation. She notes the court stated she had no claim for misappropriation "because she unilaterally relinquished the antigen, albeit in reliance on the promise of a stake in the company." (Italics added.) She argues her claims for equitable relief were based on her reliance, not on PHL's intent to take the antigen by improper means, a showing she claims misappropriation requires. She and the trial court cannot have it both ways. If she relinquished the antigen due to her reliance on PHL's knowingly false promise, as the jury and trial court said she did, then PHL acquired the antigen with reason to know it had done so by its misrepresentation, and that act constitutes misappropriation under CUTSA.

These modifications do not affect the judgment. The petition for rehearing is denied.

BY THE COURT:

/s/_________

HULL, Acting P.J.

/s/_________

ROBIE, J.

/s/_________

MAURO, J.

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.

(Super. Ct. No. 06CV72352)

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.

FACTS AND PROCEEDINGS
1. Development and sale of the antigen

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...

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