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K.C. Multimedia, Inc. v. Bank of America Technology & Operations

March 3, 2009

K.C. MULTIMEDIA, INC., PLAINTIFF AND APPELLANT,
v.
BANK OF AMERICA TECHNOLOGY & OPERATIONS, INC., ET AL., DEFENDANTS AND RESPONDENTS.



(Santa Clara County Super. Ct. No. CV798875). Honorable Kevin J. Murphy.

The opinion of the court was delivered by: McAdams, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

After a lengthy trial on appellant's civil claims for trade secret theft, the jury found for respondents. Appellant attacks the special verdicts, arguing that the jury erred as a matter of law in interpreting two contracts. Appellant also challenges the pretrial dismissal of three of its causes of action, which the trial court found statutorily preempted.

We shall affirm the judgment for respondents. In the unpublished portion of the opinion, we reject appellant's attack on the special verdicts, concluding that they are supported by the evidence and by the law. In the published portion of the opinion, we address and reject appellant's procedural and substantive challenges to the trial court's pretrial preemption ruling.

BACKGROUND

The parties to this appeal are plaintiff and appellant K.C. Multimedia, Inc. (KCM), and defendants and respondents Bank of America Technology & Operations (BATO), Bank of America National Association (BANA), and Bank of America Corporation (BA). This litigation arose out of a business relationship, in which appellant supplied technology services to respondents or related entities, including BA's predecessor, Bank of America National Savings & Trust Association (NTSA).

The Contracts

The parties entered two written contracts, one in 1998 and another in 2000. Contract documentation included appendices and work orders.

The Technology

Appellant developed prototypes for two banking applications: "Palm VII," which allowed bank customers to use a handheld wireless device to access their account information; and "Gating," which simplified customers' access to online banking services following a merger between Nations Bank and BA's predecessor, by allowing a "single sign-on" or "SSO." The software for both applications was derived from preexisting technology known as "Wirelessproxy," which had to be customized for respondents. Appellant claimed the two applications derived from Wirelessproxy source code "core technology" as a trade secret.*fn2

Pleadings; Pretrial Proceedings

This action was filed in June 2001. The sole named defendant in the original complaint was BATO, but allegations also were asserted against appellant's former employee, Allen Tam. The complaint asserted causes of action for (1) misappropriation of trade secrets; (2) conversion; (3) breach of contract; and (4) unjust enrichment. The complaint alleged that BATO misappropriated the technology used in the two banking applications. As characterized in appellant's trial brief, Tam "took the trade secrets to the Bank in exchange for its promise of employment." In its answer, BATO disputed those allegations.

The litigation generated an extensive pretrial procedural history, including multiple demurrers and complaint amendments, as well as several unsuccessful motions for summary adjudication or summary judgment.

By the time the case went to trial in February 2006, the operative pleading was appellant's fifth amended complaint. The named defendants were respondents BATO, BA, and BANA, plus appellant's former employee Allen Tam. The causes of action asserted in this pleading were: (1) trade secret misappropriation; (2) breach of confidence; (3) conversion; (4) breach of contract; (5) tortious interference with contract; and (6) unfair competition. The conversion claim involved a laptop computer; it was asserted against Tam alone. The other five causes of action were asserted against all defendants. Appellant's claims against Tam were stayed prior to trial because of his bankruptcy.

In February 2006, just prior to trial, the court heard a number of in limine motions. Immediately thereafter, the court took up an issue raised in respondents' trial brief, statutory preemption. After entertaining written and oral argument on the issue, the court dismissed three causes of action of appellant's fifth amended complaint on the ground that they were preempted by California's Uniform Trade Secrets Act. (Civ. Code, § 3426 et seq.) This ruling eliminated appellant's second cause of action (for breach of confidence), its fifth cause of action (for interference with contract), and its sixth cause of action (for unfair competition). Appellant confirmed that it would dismiss its fourth cause of action for breach of contract, if it had not done so already. Thus, by the time of trial, appellant's sole remaining cause of action against respondents was its first cause of action, for trade secret misappropriation.

Jury Trial

The case was tried over the course of approximately eight weeks, from late February 2006 to late April 2006.

The trial was aptly described as "lengthy and complex" by respondents in their opposition to appellant's post-trial motion. As respondents further observed there: "More than 300 exhibits were received in evidence. Each side presented multiple experts. On some points, the evidence was sharply in conflict." As appellant observed in reply, "thousands of pages of testimony" were generated during trial. Respondents' witness list included more than three dozen names. Appellant's many witnesses included two of its principals, Sing Koo and Connie Chun, who each testified for several days.

Among the issues that appellant pressed at trial was its claim that Chun's signature on the 2000 contract had been forged. Both sides presented handwriting experts (forensic document examiners) to testify about this claim.

During trial, appellant sought leave to amend its complaint (1) to change "the identity of the contracting party to the December 1998 Agreement" from respondent BA to its predecessor NTSA, and (2) to reflect appellant's "position that the November 2000" Agreement was "not valid." Over respondents' objection, the court allowed the amendment. The matter thus reached the jury on appellant's sixth amended complaint, which was filed April 11, 2006. That pleading asserted a single cause of action against respondents for misappropriation of trade secrets.

On April 24 and 25, 2006, the parties delivered lengthy closing arguments to the jury.

On April 26, 2006, the court instructed the jury and deliberations began.

Verdict and Judgment

On April 27, 2006, the day after it began deliberating, the jury returned special verdicts for respondents. As reflected in the special verdicts, the jury found that appellant failed to "prove that it is more likely than not that it is the owner of trade secrets contained in the Palm VII wireless banking application" or "in the Gating server application[.]" The jury also found that appellant made its misappropriation claims in bad faith.

On May 9, 2006, the court entered judgment for respondents.

Post-Trial Proceedings

Appellant moved for judgment notwithstanding the verdict, or, in the alternative, for a new trial. Respondents opposed the motion, and the court denied it in July 2006.

In August 2006, respondents moved for attorney fees. Appellant opposed the motion. The motion was heard and granted on September 29, 2006. On October 16, 2006, the court entered its formal order awarding respondents more than $1.1 million in fees and costs.

Appeals

On August 4, 2006, appellant filed this appeal from the judgment (H030494). On December 18, 2006, appellant filed its companion appeal (H031026), which challenges the post-trial order awarding attorney fees.

We denied appellant's motion to consolidate the appeals, but on our own motion we decided to consider the two appeals together for purposes of briefing, oral argument, and decision. Our decision in the companion appeal appears in a separate unpublished opinion, filed concurrently with this one.

CONTENTIONS

In this appeal, appellant presents a two-pronged attack on the judgment, targeting both the jury's verdict and the court's preemption ruling as contrary to law. Respondents dispute both points.

DISCUSSION

We address appellant's attack on the special verdicts in the unpublished portion of the opinion, before turning to its arguments concerning the preemption ruling.

I. The Verdict

To establish the proper framework for our discussion of appellant's challenge to the jury's special verdict, we begin by describing the pertinent general principles that govern (1) special verdicts, (2) trade secrets, and (3) contract interpretation.

A. Legal Principles

1. Special Verdicts

a. Overview

"The verdict of a jury is either general or special. A general verdict is that by which they pronounce generally upon all or any of the issues, either in favor of the plaintiff or defendant; a special verdict is that by which the jury find the facts only, leaving the judgment to the court. The special verdict must present the conclusions of fact as established by the evidence, and not the evidence to prove them; and those conclusions of fact must be so presented as that nothing shall remain to the Court but to draw from them conclusions of law." (Code Civ. Proc., § 624.)

"Unlike a general verdict (which merely implies findings on all issues in favor of the plaintiff or defendant), a special verdict presents to the jury each ultimate fact in the case." (Falls v. Superior Court (1987) 194 Cal.App.3d 851, 854-855; accord, Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 959.)

b. Appellate Review

Where the challenge to a special verdict presents questions of law, appellate review is de novo. That standard applies where, for example, "the issues presented deal solely with interpretation of a statute and application of statutory language to the undisputed facts." (Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 284.) In such cases, the special "verdict's correctness must be analyzed as a matter of law." (Id. at p. 285.) The same is true when the form of the verdict is at issue. (See, e.g., Wilson v. Ritto (2003) 105 Cal.App.4th 361, 366.) De novo review likewise is proper when a jury renders inconsistent special verdict findings. (City of San Diego v. D.R. Horton San Diego Holding Co., Inc. (2005) 126 Cal.App.4th 668, 678.)

Nevertheless, in a proper case, the reviewing court may examine the factual basis for the verdict, testing it for substantial evidence. (See, e.g., Hasson v. Ford Motor Co. (1977) 19 Cal.3d 530, 543, disapproved on another point in Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 574, 580 [jury's special verdicts were not fatally inconsistent, where jurors' possible "conclusions would find support in the evidence" and where one "view of the evidence is also consistent with the jury's actual expression of its findings"].) " 'A verdict should be interpreted so as to uphold it and to give it the effect intended by the jury, as well as one consistent with the law and the evidence.' " (All-West Design, Inc. v. Boozer (1986) 183 Cal.App.3d 1212, 1223, quoting 7 Witkin, Cal. Procedure (3d ed. 1985) Trial, § 343, p. 343.)

2. Trade Secrets

"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 plaintiff's trade secret through improper means, and (3) the defendant's actions damaged the plaintiff." (Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665.) "A plaintiff seeking relief for misappropriation of trade secrets 'must identify the trade secrets and carry the burden of showing that they exist.' " (Imax Corp. v. Cinema Technologies, Inc. (9th Cir. 1998) 152 F.3d 1161, 1164 [applying California law].)

3. Contract Interpretation

Appellant argues that respondents had no contractual rights to the underlying intellectual property. In asserting that argument, appellant invokes well-established rules for contract interpretation, which we summarize now.

a. Overview

The primary goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. (Civ. Code, § 1636; Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390.)

The parties' intent is to be inferred, if possible, solely from the language of the written contract. (Civ. Code, §§ 1638-1639; Powerine Oil Co., Inc. v. Superior Court, supra, 37 Cal.4th at p. 390.) "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practical, each clause helping to interpret the other." (Civ. Code, § 1641.)

"A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates." (Civ. Code, § 1647; see also, Code Civ. Proc., § 1860; Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1356-1357.) A court may consider the subsequent conduct of the parties in construing an ambiguous contract. (Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 851.) And as a last resort in interpretation, ambiguous terms may be construed against the party creating the uncertainty. (Civ. Code, § 1654.)

"Provided it supports a meaning to which the language is reasonably susceptible, extrinsic evidence is admissible to prove the parties' intent as to ambiguous terms in . [an] agreement." (In re Marriage of Iberti (1997) 55 Cal.App.4th 1434, 1439.)

b. Appellate Review

When the interpretation of a written agreement is challenged on appeal, the standard of review depends on whether the trial court admitted conflicting extrinsic evidence to resolve any ambiguity in the contract. (Roden v. Bergen Brunswig Corp. (2003) 107 Cal.App.4th 620, 624-625.) If no conflicting parol evidence was admitted, the interpretation of the contract is a question of law, which we review de novo. (Id. at p. 625.) But if extrinsic evidence was admitted, and if that evidence is in conflict, we uphold a reasonable construction of the contract supported by substantial evidence. (Ibid.) The trial court's threshold determination of ambiguity is a question of law subject to our independent review. (Ibid.)

B. Application

With the foregoing legal principles in mind, we now turn to appellant's contention that the special verdicts are erroneous as a matter of law. As noted above, the jury found that appellant failed to "prove that it is more likely than not that it is the owner of trade secrets contained in the Palm VII wireless banking application" or "in the Gating server application[.]"

1. Contentions

According to appellant, the only "logical reading of the jury's finding" is that respondents had the contractual right to the programs, a reading that flies in the face of contract interpretation principles. Appellant ...


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