Case Number: GC051058    Hearing Date: April 25, 2014    Dept: NCD

TENTATIVE RULING/4-25-14
#17
GC 051058
NEW CASTLE BEVERAGE v. PREMIER FOODS

Plaintiffs’ Motion for Summary Judgment, or, in the Alternative, Summary Adjudication of Sole Cause of Action for Misappropriation and Defendants’ Affirmative Defenses

1.) Plaintiffs’ Application to file under seal Documents in Support of Motion for Summary Judgment is GRANTED.
The court finds that:
(1) There exist overriding interests that overcome the right of public access to the record; the ability to protect alleged trade secrets, and to enforce a confidentiality protective order;
(2) The overriding interests support sealing the record;
(3) A substantial probability exists that the overriding interests will be prejudiced if the record is not sealed;
(4) The proposed sealing is as narrowly tailored as the circumstances permit; and
(5) No less restrictive means exist to achieve the overriding interest.

The findings are based on the facts that the documents describe alleged trade secrets, and the parties have entered into protective order agreements providing that the subject information shall remain confidential.

2.) Defendants’ Application to File Under Seal Defendants’ Papers Filed in Opposition to Plaintiffs’ Motion for Summary Judgment, or, in the Alternative, Summary Adjudication is GRANTED.
The court finds that:
(1) There exist overriding interests that overcome the right of public access to the record; the ability to protect alleged trade secrets, and to enforce a confidentiality protective order;
(2) The overriding interests support sealing the record;
(3) A substantial probability exists that the overriding interests will be prejudiced if the record is not sealed;
(4) The proposed sealing is as narrowly tailored as the circumstances permit; and
(5) No less restrictive means exist to achieve the overriding interest.

The findings are based on the facts that the documents describe alleged trade secrets, and the parties have entered into protective order agreements providing that the subject information shall remain confidential.

3.) Plaintiffs’ Motion for Summary Judgment, or, in the Alternative, Summary Adjudication is CONTINUED. The court finds pursuant to CCP section 437c (h) that it appears from the affidavit submitted in opposition to the motion that facts essential to support the opposition may exist but cannot, for reasons stated, now be presented. [Rapoport Decl., paras. 2-4].

Hearing on the motion is continued to September 12, 2014, with defendants to serve any supplemental opposition twenty-one days prior to the newly scheduled hearing, and reply to be filed within the statutory mandates.

4.) Plaintiffs’ Motion for Protective Order on Vexatious, Excessive and Unduly Burdensome Discovery By Defendants

Plaintiffs’ Application to File Under Seal Documents in Support of Motion for Protective Order is GRANTED. The court finds that the documents pertain only to a discovery motion. CRC Rule 2.550(a)(3); NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1208-1209 n. 25.

Motion for Protective Order is referred to the Discovery Referee pursuant to the Order Appointing Referee filed in this matter on March 24, 2014, appointing the Discovery Referee for “all discovery purposes in the action.” [See para. 4(b)(2)(a)(ii)].

5.) Defendants’ Motion for Protective Order Based on Insufficient Disclosure and to Compel Further Disclosure

Defendants’ Application to File Under Seal Motion for Protective Order is GRANTED. The court finds that the documents pertain only to a discovery motion. CRC Rule 2.550(a)(3); NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1208-1209 n. 25.

Defendants’ Motion for Protective Order is referred to the Discovery Referee pursuant to the Order Appointing Referee filed in this matter on March 24, 2014, appointing the Discovery Referee for “all discovery purposes in the action.” [See para. 4(b)(2)(a)(ii)].

6.) Defendants’ Motion to Stay Action Pending Judgment in Pending Federal Case
Defendants’ Unopposed Request for Judicial Notice is GRANTED.

Defendants’ Motion to Stay Action is DENIED. The court has considered the forum non conveniens factors set forth by the California Supreme Court in Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 215 and Thomson v. Continental Insurance Company (1967) 66 Cal.2d 738, 746-747, and finds that staying this matter would not serve the purpose of discouraging multiple litigation designed to harass, given that defendants, not plaintiffs, are pursuing the federal action, and the rights of the parties cannot apparently be best determined by the federal court considering the nature of the subject matter arising from state trade secret law, and particularly at this stage of these proceedings. The federal case is now apparently only entering the initial challenge to the pleadings phase, while this case has proceeded through the pleadings phase into discovery issues, is currently addressing potentially dispositive motions, and is set for an October trial date.

BACKGROUND:
FACTUAL BACKGROUND:
Plaintiffs’ complaint alleges that plaintiff Ricky Monugian is the owner of all trade secrets related to “Micheledas Antojitos,” a spicy beverage cup with drink mix placed around the perimeter of the upper portion of the cup and inside of the cup, and that plaintiff granted an exclusive license of those trade secrets to plaintiff New Castle Beverage, Inc. The FAC alleges that New Castle is in the business of manufacturing, marketing and selling the cups, invested thousands of dollars in trial and error in development of the trade secrets used in connection with product, which are not generally known to the public or to persons who can obtain economic value from its disclosure or use, and that plaintiffs derive economic value from the trade secrets not being publicly available, which gives plaintiffs a competitive advantage and permits mass production. Plaintiffs allege that the trade secrets include the process of applying a secret solution to the surface of the cup, a specially designed apparatus that distributes the solution to the surface of the cup, and the sequence in which pre-determined quantities of the ingredients of a second mixture are blended.

Plaintiffs allege that they have used a variety of reasonable means to protect the secrecy of the information, including requiring employees to keep proprietary trade secrets confidential, limiting access, and requiring employees to sign non-disclosure and confidentiality agreements. The FAC alleges that Robert Montiel worked for New Castle, and while there became intimately familiar with plaintiffs’ operations regarding the product, and was granted access to trade secrets, and signed a non-disclosure agreement.

The FAC alleges that defendant Gregory Murkijanian, Sr. is the President/Owner of defendant Spicy Beer Mix, Inc., and that defendants desired to develop a similar product but lacked the knowledge to do so, and so resorted to improper means to acquire plaintiffs’ trade secrets by illegally inducing and bribing Montiel to disclose plaintiffs’ trade secrets and thereafter used them in direct competition with Plaintiffs in the development, production, and manufacture of defendant Spicy Beer’s cup, “Cheveladas.” The FAC alleges that defendant Premier Foods then fired the Spicy Beer employees familiar with the trade secrets, and began manufacturing a beverage cup product called “Don Chelada” using the trade secrets.

ANALYSIS:
Discovery Motions
Discovery motions shall be referred to the Discovery Referee for resolution and no further discovery motions shall be filed with this court, absent a Court Order to the contrary.

Motion for Summary Judgment
The opposition requests that the hearing on the motion be continued.

CCP § 437c (h) provides
“If it appears from the affidavits submitted in opposition to a motion for summary judgment… that facts essential to justify the opposition may exist but cannot, for reasons stated, then be presented, the court shall deny the motion, or order a continuance to permit affidavits to be obtained or discovery to be had or may make any other order as may be just.”

The Second District in Cooksey v. Alexakis (2004) 123 Cal.App.4th 246, set forth the required elements of an affidavit in support of a request for continuance, holding that
“A declaration in support of a request for a continuance under section 437c, subdivision (h) must show:
(1) the facts to be obtained are essential to opposing the motion;
(2) there is reason to believe such facts may exist; and
(3) the reasons why additional time is needed to obtain these facts.”
Cooksey, at 254, citations, internal quotations omitted.

It is recognized that where an appropriate declaration meeting these requirements is submitted, then denial of the motion or grant of the continuance is mandatory. Dee v. Vintage Petroleum, Inc. (2003) 106 Cal.App.4th 149, 167. Where the declaration is not timely submitted, or fails to make the required showing, then whether to grant a continuance is a matter within the trail court’s discretion, and the trial court’s ruling will be reviewed for abuse of discretion. Cooksey, at 254.

Here, counsel’s declaration was timely filed, and provides testimony stating that there are numerous discovery disputes now pending before the Discovery Referee, Judge Williams, including many involving the definition and scope of the purported trade secrets, the conduct of plaintiffs in protecting such secrets, actual damages, and documents as basic as employee non-disclosure agreements. [Rapoport Decl., para. 3]. The declaration also indicates why the discovery is necessary to prove defendants’ various claims and defenses in response to the MSJ, including that plaintiff did not invent the alleged trade secrets, did not take reasonable measures to protect their secrecy, and whether the alleged secrets are protectable trade secrets or instead are commercially available processes. [Rapoport Decl., para. 4]. While the declaration is not particularly specific with respect to why additional time is needed to obtain facts, it appears from a description of the outstanding discovery that plaintiffs have been resisting discovery in various ways, including interposing objections at PMK depositions and to document demands, and failing to comply with this court’s orders to produce specific documents, and that the key witness who is alleged to have disclosed the trade secrets to defendants, Robert Montiel, is evading service so has not been deposed. [Rapoport Decl., para. 3]. Under the circumstances, the relief would be considered mandatory, and the request for a continuance is granted.

Motion to Stay Action Pending Judgment in Pending Federal Case
Defendants have brought a motion seeking to stay this case while a federal court considers patent claims on processes defendants claim are related to the issues raised in this action.

This state court action based on state trade secret protections was filed on March 7, 2013. On March 21, 2013, plaintiffs filed a Complaint for Patent Infringement against defendants Premiere and Spicy Beer Mix in the USDC for the Central District of California. [RFJN, Ex. 1]. On June 5, 2013, plaintiffs dismissed the federal action in its entirety. [RFJN, Ex. 2].

Defendants have since filed a federal action seeking a declaratory judgment to declare the patent claimed in the previous action to be invalid and have included a claim for declaratory judgment regarding trade secret misappropriation, the dispute at issue here, pursuant to the federal court’s supplemental jurisdiction to hear claims related to the same case or controversy. Defendants’ federal court complaint was filed on January 30, 2014. [RFJN, ex. 3].

That action is currently in the motion to dismiss phase based on the pleadings. It appears that plaintiffs here (defendants in that action) have filed a motion to dismiss (in the nature of a demurrer) and that defendants (plaintiffs in that action) are in the process of amending their pleading.

Defendants argue that the filing of the federal case weighs in favor of this court issuing a stay of this action based on case law which sets forth a standard for staying or dismissing a state action when a federal action on the same subject matter is pending based on a forum non conveniens analysis.

It is recognized that where the issues in a state court are substantially identical to those in an action pending in federal court, granting a stay of the state action, “is a matter addressed to the sound discretion of the trial court.” Thomson v. Continental Insurance Company (1967) 66 Cal.2d 738, 746.

With respect to preventing multiple litigation designed to harass, defendants argue that plaintiffs originally filed the patent action in the federal courts, but dismissed it upon being presented with evidence of the defectiveness of their patent claims, before defendants could file a counterclaim to invalidate the patent, a claim which may be brought only in federal court, so it is now so brought there.

Defendants argue that a stay will avoid unseemly conflicts with the federal court, which has concurrent jurisdiction over the trade secret claim.

With respect to where the claim could best be determined, the argument is that the federal courts can best make determinations, as they have exclusive jurisdiction over patent issues. The motion recognizes, however, that the state court is certainly capable of weighing expert patent testimony for purposes of determining the state claims, although the federal courts at least ostensibly have greater experience determining “patentability.”

Defendants also argue that there would be no prejudice to plaintiffs if this case is stayed, as the parties are far from completing discovery, and would not have to bear the expense of a Discovery Referee in the federal courts, where discovery motions will be heard by a federal Magistrate Judge.

The factor not addressed is the stage to which the proceedings in the other case have advanced, which is still only at the pleadings stage, while this case has substantially advanced, including through the resolution of the pleadings, the joining of numerous discovery issues, the appointment of a Discovery Referee who is also working out further discovery issues, the taking of depositions and other discovery already conducted, the filing of potentially dispositive motions, and a trial date set, originally in April, now in October 2014.

The opposition argues that the federal court in this case should not assume jurisdiction over any declaratory judgment sought in the federal action during the pendency of this parallel state proceeding. The argument is evidently based on the federal Declaratory Judgment Act, which provides that a federal court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 USC § 2201(a) (emphasis added). Plaintiffs rely on Wilton v. Seven Falls Company (1995) 515 U.S. 277, in which the Supreme Court recognized that under this statutory language, district courts “possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites.” Wilton, at 282.

Obviously, this court cannot exercise its discretion to order the federal court not to assume jurisdiction over the declaratory relief claim or to stay the other action. At best, plaintiffs argue that the patents involve the physical appearance of the cups, while the trade secrets concern the processes, formulas, and devices used for mass production later. The argument is that this court can make appropriate determinations of the issues presented, and that such determinations would likely not conflict with any determinations later made by the federal court.

In the exercise of the Court’s discretion on this particular motion under the circumstances, pursuant to the governing law as briefly set forth above, the Court declines to stay this action pending determination of defendants’ federal action. While neither urging nor suggesting it, it appears that perhaps some kind of motion lies in the federal court regarding the jurisdictional and subject matter issues that are raised by these companion cases. The motion to stay this case is denied without prejudice, to permit its renewal if, for example, the federal court decided to assume jurisdiction over the trade secret causes of action.