Sargent Fletcher, Inc. v. Able Corp.

• Decision Date: 07 August 2003
• Docket Number: No. B145831.,B145831.
• Citation: 110 Cal.App.4th 1658,3 Cal.Rptr.3d 279
• Court: California Court of Appeals Court of Appeals
• Parties: SARGENT FLETCHER, INC., Plaintiff and Appellant, v. ABLE CORPORATION, Defendant and Respondent.

3 Cal.Rptr.3d 279

110 Cal.App.4th 1658

SARGENT FLETCHER, INC., Plaintiff and Appellant, v. ABLE CORPORATION, Defendant and Respondent.

No. B145831.

Court of Appeal, Second District, Division 4.

August 7, 2003.

Certified for Partial Publication.^*

Horvitz & Levy, Stephen E. Norris, Encino, and Jason R. Litt; Fried, Frank, Harris, Shriver & Jacobson, Stephen D. Alexander and Susan C. Chun, Los Angeles, for Plaintiff and Appellant.

Manatt, Phelps & Phillips, Brad W. Selling and Adam Pines; Greines, Martin, Stein & Richland, Robin Meadow, Barbara W. Ravitz, Los Angeles, and Donovan Cocas for Defendant and Respondent.

EPSTEIN, J.

An aerospace manufacturer subcontracted with an engineering company for development of a new in-flight aircraft refueling system. Subject to a confidentiality agreement, the manufacturer revealed trade secrets to the subcontractor in order to facilitate the design of a new device for the system. After the relationship disintegrated, the subcontractor contracted with the United States Air Force to create a similar device. The manufacturer sued the subcontractor for misappropriation of trade secrets under the California Uniform Trade Secrets Act (UTSA). The subcontractor denied using trade secrets, claiming it reverse engineered and independently developed the device. The principal issue in this case is who bears the burden of proof with respect to that claim. The manufacturer sought a trial court instruction that placed the burden of proof on the subcontractor, arguing the subcontractor was in the better position to bear that burden. The trial court refused the manufacturer's proposed instruction. The jury found for the subcontractor.

The law deals with this problem by shifting the burden of producing evidence, not the burden of proof, which remains with the plaintiff or the party asserting an affirmative defense, and does not shift. The practical effect of this allocation is to require a defendant to produce rebutting evidence once the plaintiff has presented a prima facie and credible case. This is a fair allocation, well suited to a fair result. There are limited exceptions (and some confusion) in the reported cases. But the basic principles controlling this allocation of burdens remain intact. They govern the issue presented in this case.

For this reason, in the published portion of this opinion, we find no error in the court's ruling on the proposed instruction. We also conclude that under the facts of the case, even if there was error, it was not prejudicial. In the nonpublished portion of the opinion, we reject the claim that evidence was improperly admitted.

FACTUAL AND PROCEDURAL SUMMARY

Sargent Fletcher, Inc. (Sargent Fletcher), designs and manufactures in-flight aircraft refueling systems. Able Corporation (Able), is an engineering company that designs mechanical devices for the aerospace industry.

Sargent Fletcher designed the FR-300, an in-flight refueling system, in the late 1950's. The system typically mounts on the wings of a Lockheed C-130 tanker aircraft and allows mid-air refueling of aircraft such as fighter jets and helicopters. The FR-300 functions using a hose and drogue system. A control assembly runs the hose and reel portion of the hose and drogue system. The control assembly is the "brain" of the system, governing the extension, retraction, and storage of the hose. The "brain" automatically maintains a constant tension on the probe to prevent the hose from snapping or becoming too loose during refueling. In the early 1990's, the Air Force contracted with Sargent Fletcher to replace the original F300's "brain," which had hydro-mechanical controls, with an updated microprocessor-based control system. Sargent Fletcher subcontracted work for development of the microprocessor controls to Able. In order to perform under its contract, Able needed access to Sargent Fletcher's proprietary information on the FR-300 design. Sargent Fletcher provided that access to Able.

In September 1994, while the companies were in the midst of developing the new technology, Sargent Fletcher filed for bankruptcy protection. The company that purchased Sargent Fletcher pulled out of the contract with Able, but the two firms continued to work together without a written agreement.

Able withdrew from the collaboration in December 1995. Able then won an Air Force contract to build a system to replace the FR-300. Sargent Fletcher sued Able, alleging misuse of its trade secret information. Able generally and specifically denied all allegations in Sargent Fletcher's complaint and pleaded 14 affirmative defenses, none of which asserted reverse engineering or independent derivation.

The case was tried to a jury. The trial lasted seven weeks. Each party presented volumes of evidence bearing on whether Able improperly used Sargent Fletcher's trade secret. Sargent Fletcher proposed an instruction that would have placed the burden of proof for the element of use of the trade secret onto Able: "If you believe that Sargent Fletcher disclosed any trade secrets for its FR-300 series aerial refueling system to Able, and that Able subsequently manufactured a substantially similar system, the burden then shifts to Able to prove that it in fact developed its hose reel system independently, that is, without the use of any of Sargent Fletcher's trade secrets." The trial court rejected the instruction. After five weeks of deliberation, the jury reached a verdict for the defendant, Able. In a special verdict, the jurors found nine to two that at least one of Sargent Fletcher's drawings and specifications contained a trade secret to which Able had access, but that Able did not use one or more of the trade secrets in designing, manufacturing, or testing its own product. Sargent Fletcher has appealed from the ensuing judgment.

DISCUSSION

I

Under the UTSA, a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiffs trade secret through improper means, and (3) the defendant's actions damaged the plaintiff. (Civ.Code, § 3426.1;¹ see Frantz v. Johnson (2000) 116 Nev. 455, 466 [Nevada Supreme Court detailing similar elements for the same provision of the UTS A]; Total Care Physicians, P.A v. O'Hara (Del.Super.2001) 798 A.2d 1043, 1052-1053 [Superior Court of Delaware detailing similar elements for the same provision of the UTSA].) "`Improper means' includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means," but "[r]everse engineering or independent derivation alone shall not be considered improper means." (Civ. Code, § 3426.1, subd. (a).)

During the seven-week trial, the parties presented extensive evidence and testimony to convince the jury that Able did or did not misappropriate Sargent Fletcher's trade secrets. There is no issue on appeal as to sufficiency of the evidence to support the jury's verdict in favor of Able. Because there is not, there is no need to discuss the technical details of Sargent Fletcher's claim that Able improperly used its technology or that Able could not have independently derived or reverse engineered the device. Instead, the issues are whether the trial court erred in rejecting Sargent Fletcher's proposed jury instruction or in admitting Abie's documentary evidence and, if so, the effect of that error. The principal objection to the instruction was that it would have shifted the burden of proof to show proper use onto the defendant. Able also asserted various technical objections, which we do not discuss since Abie's principal objection is well taken.

II

We begin with a discussion of key terms: burden of proof and burden of producing evidence. Attorneys, judges, and commentators often have confused these terms and the concepts they represent. As the United States Supreme Court observed, "For many years the term `burden of proof was ambiguous because the term was used to describe two distinct concepts. Burden of proof was frequently used to refer to what we now call the burden of persuasion—the notion that if the evidence is evenly balanced, the party that bears the burden of persuasion must lose. But it was also used to refer to what we now call the burden of production—a party's obligation to come forward with evidence to support its claim." (Director, Office of Workers' Compensation Programs v. Greenwich Collieries (1994) 512 U.S. 267, 272, 114 S.Ct. 2251, 129 L.Ed.2d 221; see 2 McCormick, Evidence (5th ed. 1999) Burden of Proof, § 336, p. 409.)

The terms burden of proof and burden of persuasion are synonymous. (1 Witkin, Cal. Evidence (4th ed. 2000) Burden of Proof, § 3, p. 157; 2 McCormick, Evidence, supra, Burden of Proof, § 336, p. 409.) Because the California usage is "burden of proof," we use that term here.

"Except as otherwise provided by law, a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting." (Evid.Code, § 500.) To prevail, the party bearing the burden of proof on the issue must present evidence sufficient to establish in the mind of the trier of fact or the court a requisite degree of belief (commonly proof by a preponderance of the evidence). (Evid. Code, §§ 115, 520.) The burden of proof does not shift during trial—it remains with the party who originally bears it. (Evid Code, § 500; Mathis v. Morrissey (1992) 11 Cal.App.4th 332, 346, 13 Cal.Rptr.2d 819; Smith v. Santa Rosa Police Dept. (2002) 97 Cal.App.4th 546, 569, 119 Cal. Rptr .2d 72; 2 McCormick, Evidence, supra, Burden of Proof, § 336, pp. 409-410.)

Historically in California, the burden of producing evidence or burden of production also has been known as the "burden of going forward" with the evidence. (People v. Valverde (1966) 246 Cal.App.2d 318, 321, 54...