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INTERMEDICS, INC. v. VENTRITEX

April 30, 1993

INTERMEDICS, INC., a Texas corporation, Plaintiff,
v.
VENTRITEX, INC., a California corporation; MICHAEL SWEENEY, an individual; and BENJAMIN PLESS, an individual, Defendants.



The opinion of the court was delivered by: WAYNE D. BRAZIL

ORDER AND OPINION RE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON ALL CLAIMS BASED ON DISCLOSURE OR USE OF ALLEGED TRADE SECRETS OR CONFIDENTIAL INFORMATION

 I. PRINCIPAL ISSUE ADDRESSED

 While defendants' motion for summary judgment and plaintiff's opposition constrain us to confront many questions, by far the most difficult and significant issue that we address is this: under California law, when a cause of action accrues against a given defendant for misappropriation of some alleged trade secrets or confidential information, does the statute of limitations also begin to run from that time on possible claims against the same defendant for misappropriation of other alleged trade secrets or confidential information, without regard to whether there is evidence that the defendant has disclosed or used any of those other alleged secrets? This is an issue of first impression. We do not suggest that its resolution would be the same in all factual settings.

 In the circumstances presented here, however, where all the alleged trade secrets (or confidential information) are related to one highly specialized and complex product whose features and components are interdependent, where plaintiff alleges that all the trade secrets (or confidential information) were acquired during the same period, by the same two defendants, and from the same source (plaintiff), where all the alleged misappropriations were committed in connection with the development by those same defendants of one or two similar products for a known competitor, and where misappropriation of those alleged trade secrets as to which the statute clearly has run would have constituted such a clear breach of the confidential relationship that a plaintiff who had actual or constructive knowledge of the misappropriation would have been on notice that its other confidences were at risk, we hold that when the statute of limitations began to run on claims for misappropriation of some of the alleged trade secrets it simultaneously began running as to claims for alleged misappropriations of the other, related secrets, even if no acts of misappropriation of the other secrets had yet occurred.

 After describing the procedural and factual background in which we are working, we address the first and more straightforward portion of defendants' motion, i.e., the contention that, given the jury's findings, plaintiff is forever barred by the statute of limitations from litigating any claims arising out of misappropriations of any of the six design ideas (alleged trade secrets) that were the subject of the trial in November and December of 1992. We then turn to the substantially more demanding issue described in the preceding paragraph.

 For reasons we detail in sections that follow, we GRANT defendants' motion for SUMMARY JUDGMENT, holding that the statute of limitations bars prosecution against these defendants of any claims arising out of or dependent on any alleged misappropriation of any of the alleged trade secrets or confidential information reached by plaintiff's claims in this litigation.

 Having so held, we have no occasion to reach defendants' second contention, that the doctrine of res judicata also bars prosecution of any claim arising out of misappropriation of the alleged trade secrets or confidential information.

 II. PROCEDURAL AND FACTUAL BACKGROUND

 Plaintiff first sued these same defendants in 1985. *fn1" In that earlier litigation, plaintiff alleged that defendants Pless and Sweeney were duty bound not to disclose alleged trade secrets and confidential information about an implantable defibrillator on which Pless and Sweeney had worked while employed at Intermedics. Plaintiff further alleged that Pless and Sweeney had violated their duties to Intermedics by disclosing alleged secrets about the implantable defibrillator to Ventritex and by participating in a conspiracy with Ventritex to misappropriate those secrets. In addition, Intermedics asserted that Ventritex had induced Pless and Sweeney to breach their obligations to Intermedics by disclosing it trade secrets or confidential information about its implantable defibrillator to Ventritex and that Ventritex also was guilty of misappropriation.

 In sum, the 1985 complaint alleged breaches by these same defendants of the same duties that underlie the allegations in the instant action. Moreover, those breaches purportedly arose out of misappropriations of secrets related to the same project that is the subject of this case (the implantable defibrillator project). After limited discovery, the parties to that earlier action agreed to participate in an informal audit process that was designed to give plaintiff, through a former employee (William Winstrom) and its outside counsel, an opportunity to determine whether defendants had in fact misappropriated any of the secrets to which plaintiff laid claim. *fn2" After Mr. Winstrom completed his audit, using a list of trade secrets prepared by plaintiff but somehow lost during the intervening years, plaintiff elected to dismiss its first lawsuit, with prejudice. That dismissal was effective April 10, 1986. *fn3"

 More than four years later, on April 23, 1990, plaintiff filed the instant action against the same defendants, pressing claims, among others, of the same general character that plaintiff had pressed in the earlier litigation. More specifically, the complaint in this action includes causes of action for misappropriation of trade secrets and confidential information, breach of contract, breach of fiduciary duty, unfair competition, inducement to breach contractual obligations and fiduciary duties, and civil conspiracy. The viability of each of these state law claims turns on whether plaintiff can prove that certain design ideas (all of which were features or aspects of an implantable arrhythmia control device) were its trade secrets or confidential information and that defendants misappropriated them.

 As the case development process proceeded it became clear to the court that the subject matter of each alleged trade secret was extremely technical (involving dimensions or features of sophisticated electronic micro-circuitry) and that resolving the issues raised by the trade secret claims would require the trier of fact to comprehend an intimidating new vocabulary as well as esoteric scientific and engineering literature. In the court's view, it was unrealistic to ask one jury in one trial to attempt to absorb, comprehend, and organize all the technical and nontechnical evidence that it would have been necessary to admit if we were to attempt to try all the different state law claims based on all the 37 alleged trade secrets in one setting.

 Thus, the court ordered a staged adjudicatory process in which the first trial would be limited to the liability issues (not damages) with respect to only six of the alleged trade secrets. The court permitted plaintiff to select any four of its alleged trade secrets for this first trial; defendants selected from plaintiff's list the remaining two alleged secrets that would be the subject of the trial. Before the parties selected the design ideas for this first trial the court expressly admonished counsel that this first adjudication of the issues raised by the claims and defenses related to the six design ideas might well have preclusive effects on issues related to other design ideas or even for the patent aspects of the case. In response to pretrial motions, the court ruled that California law would control disposition of all statute of limitations issues with respect to all claims arising out of or dependent on alleged misappropriations of trade secrets or confidential information. Order, filed 10/30/92. The court also ruled that Texas law would control disposition of the substantive liability issues, e.g., would fix the definition of a "trade secret" and of "misappropriation." *fn4" Id.

 Between November 17, 1992 and December 15, 1992, the court presided over a jury trial in which the parties litigated liability issues as to six of the alleged trade secrets (design ideas number 4, 13, 22, 25, 36, and 43). Responding to special interrogatories after all the evidence and argument had been presented, the jury made the following findings of fact:

 1. Defendants had proved that William Winstrom acted as Intermedics' agent when he conducted the audit of Ventritex in March of 1986. (Special Interrogatory 1);

 2. Plaintiff failed to prove that any of the six design ideas was "secret" at the time that Mr. Pless and Mr. Sweeney stopped working for Intermedics (June of 1985) (Special Interrogatories I.A.1., II.A.1., III.A.1., IV.A.1., V.A.1., VI.A.1.);

 3. Defendants proved that all six of the design ideas were disclosed in documents that were available to William Winstrom during the March 1986 audit (Special Interrogatories I.F.1., II.F.1., III.F.1., IV.F.1., V.F.1., VI.F.1.);

 4. Defendants proved that all six of the design ideas were disclosed in documents that were available to Intermedics and its counsel or that were discoverable by Intermedics and its counsel in the earlier lawsuit *fn5" (Special Interrogatories I.F.2., II.F.2., III.F.2., IV.F.2., V.F.2., VI.F.2.);

 5. Ventritex proved, by a preponderance of the evidence, that, after August 10, 1992, no reasonable person who had access to the information about the claims in this case that was available to Intermedics and its counsel could have believed that there was any merit in any of the six trade secret misappropriation claims against Ventritex. (Special Interrogatories I.D.14.a., II.D.14.a., III.D.14.a., IV.D.14.a., V.D.14.a., VI.D.14.a.);

 6. Ventritex proved, by clear and convincing evidence, that, after August 10, 1992, the dominant and driving purpose that led Intermedics to continue the claim that Ventritex misappropriated design idea 43 was improper. (Special Interrogatory VI.D.14.b.).

 The jury concluded that Ventritex had not proved by clear and convincing evidence that such a purpose drove prosecution of the other five trade secret misappropriation claims against Ventritex after August 10, 1992. (Special Interrogatories I.D.14.b., II.D.14.b., III.D.14.b., IV.D.14.b., V.D.14.b.)

 There is ample evidence in the trial record to support these jury findings.

 III.

 GIVEN THE JURIES' FINDINGS, DEFENDANTS ARE ENTITLED TO JUDGMENT AS A MATTER OF LAW THAT, BEFORE PLAINTIFF FILED THE INSTANT ACTION, THE STATUTE OF LIMITATIONS HAD RUN ON ALL CLAIMS ARISING OUT OF OR DEPENDENT ON ALLEGED MISAPPROPRIATION OF THE DESIGN IDEAS THAT WERE THE SUBJECT OF THE 1992 TRIAL

 During the jury trial late last year Intermedics pressed claims against defendants Pless and Sweeney on several different legal theories with respect to each of the six design ideas that were made the subject of those proceedings. Intermedics attempted to prove that each design idea was a trade secret or, failing that, was at least confidential information, and that unauthorized disclosure or use of each design idea simultaneously established liability for misappropriation of a trade secret or confidential information as well as for breach of both contractual and fiduciary obligations.

 The claims that Intermedics pressed against defendant Ventritex during the 1992 trial included misappropriation of trade secrets or confidential information, unfair competition under California Business and Professions Code section 17200 et seq., and inducing defendants Pless and Sweeney to misappropriate trade secrets or confidential information (again, in the form of the six design ideas) and to breach contractual and fiduciary obligations.

 Intermedics also presented at trial its claim that all three of the defendants participated in a conspiracy to misappropriate the six design ideas.

 Through their motion for summary judgment, defendants assert that the jury's findings compel the conclusion that, before plaintiff filed the instant action on April 23, 1990, the statute of limitations had run in favor of all three defendants on each of plaintiff's theories with respect to each of the six alleged trade secrets.

 We divide the discussion in this part of this opinion into three sub-sections. In the first sub-section we analyze the statute of limitations issues as they relate to all the claims (causes of action) against defendants Pless and Sweeney that are dependent on alleged misappropriation of the six design ideas that were the subject of the 1992 trial, except the cause of action sounding in civil conspiracy, which we discuss separately as to all three defendants (including Ventritex) in the last subsection, (C.), of this part. In the second sub-section we discuss the statute of limitations issues as they relate to all claims (causes of action) against defendant Ventritex that are dependent on alleged misappropriation of the six design ideas, again except the cause of action sounding in civil conspiracy. We address separately in the third sub-section the civil conspiracy cause of action against all three defendants, presenting two different bases for granting defendants' motion for summary judgment on this legal theory.

 A. The Statute of Limitations Bar to the Claims (Other than Civil Conspiracy) Against Defendants Pless and Sweeney that Are Dependent on Alleged Misappropriation of the Six Design Ideas

 Under California law, the longest applicable statute of limitations for any of the causes of action (with the arguable exception of the conspiracy claim) against defendants Pless and Sweeney is four years, and that is for the breach of contract claim. Cal. Civ. Proc. Code § 337 (Deering 1991). The statute of limitations for the claims alleging misappropriation of trade secrets and/or confidential information, and for the claims alleging breach of fiduciary duties, is three years. Cal. Civ. Code § 3426.6 (West Supp. 1993); Unif. Trade Secrets Act, Prefatory Note, 14 U.L.A. 435 (1990) (noting that one of the principal contributions of the Uniform Trade Secrets Act ("UTSA") is to establish "a single statute of limitations for the various property, quasi-contractual, and violation of fiduciary relationship theories of noncontractual liability utilized at common law." (emphasis added)).

 The statute of limitations for these kinds of claims begins to run when the cause of action accrues. Because 'misappropriation' (unauthorized disclosure or use) of the design ideas is the essential alleged wrong that gives rise to each of plaintiff's different causes of action, we have assumed that the "discovery" rule that California has adopted for fixing the point of accrual of causes of action sounding in misappropriation also applies, in the circumstances of this case, to Intermedics' other state law claims (e.g., breach of contract and breach of fiduciary duty). *fn6" Since the longest statute of limitations period for any of the claims against Pless and Sweeney (with the arguable exception of the conspiracy claim, which we discuss below in a separate section) is four years for breach of contract, these defendants will be protected by the statute of limitations as against all of plaintiff's state law claims (with the possible exception of conspiracy) if the jury's findings of fact compel the conclusion that plaintiff had discovered or in the exercise of reasonable diligence should have discovered facts which, under plaintiff's view of the case, could have given rise to misappropriation claims with respect to the design ideas in issue more than four years before plaintiff filed the instant action, i.e., more than four years before April 23, 1990.

 The jury found that all six of the design ideas that plaintiff claims are its trade secrets or confidential information were in fact disclosed in documents available to William Winstrom, Intermedics' agent, in March 1986, and were in fact available to, or discoverable by, Intermedics and its counsel in the earlier lawsuit that Intermedics dismissed with prejudice on April 10, 1986, a lawsuit in which Intermedics claimed that these same defendants had misappropriated its implantable defibrillator trade secrets by disclosing them to Ventritex. Since, in the jury's view, the same six design ideas that Intermedics claims in this action are its implantable defibrillator trade secrets were disclosed in Ventritex documents that were either shown to or readily discoverable by plaintiff before April 10, 1986, and since it was plaintiff's position in that first suit, and continued to be plaintiff's position in the case at bar, that plaintiff's implantable defibrillator trade secrets made their way to Ventritex via Messrs. Pless and Sweeney, it necessarily follows that before April 10, 1986, plaintiff either had discovered, or, in the exercise of reasonable diligence should have discovered, facts which, in plaintiff's eyes, give rise to the same causes of action for misappropriation, breach of contract and breach of fiduciary duty that plaintiff seeks to pursue in this litigation. Thus, the jury's findings, amply supported by the evidence, compel the conclusion that before April 10, 1986 plaintiff had (literally or constructively) all the information it needed to bring the same state law claims it brings here against Messrs. Pless and Sweeney. Since April 10, 1986 is more than four years before plaintiff filed the instant action it seems to us clear that the statute of limitations bars the misappropriation, breach of contract, and breach of fiduciary duty claims against these two defendants that are based on alleged unauthorized disclosure or use of any of the six design ideas that were the subjects of the 1992 trial.

 Despite the compelling character of this straightforward line of reasoning, plaintiff interposes a multitude of strained counter-arguments. The argument that plaintiff presses most, from two or three different angles, is, essentially, that the jury's findings show that the statute of limitations could not have begun running in the spring of 1986 because, under those findings, plaintiff could not have established liability on any of the claims that would have been based on the six design ideas. If the design ideas were not secret, the argument ...


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