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Jasmine Networks, Inc. v. Superior Court of Santa Clara County

December 29, 2009

JASMINE NETWORKS, INC., PETITIONER,
v.
THE SUPERIOR COURT OF SANTA CLARA COUNTY, RESPONDENT;
MARVELL SEMICONDUCTOR, INC., ET AL., REAL PARTIES IN INTEREST.



(Santa Clara County Super. Ct. No. CV801411). The Honorable Thomas C. Edwards.

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

CERTIFIED FOR PUBLICATION

Plaintiff Jasmine Networks, Inc. (Jasmine) brought this action charging Marvell Semiconductor, Inc. (Marvell) and others with violating the California Uniform Trade Secrets Act (Civ. Code, § 3426, et seq.) (CUTSA) by misappropriating certain trade secrets belonging to Jasmine. Not long after filing the action Jasmine went through bankruptcy proceedings, in the course of which it sold its rights in the alleged trade secrets, while reserving its rights of action for misappropriation commencing before the date of the transfer. As this lawsuit reached the verge of trial, Marvell moved to dismiss Jasmine's complaint on the ground that by selling the alleged secrets, Jasmine had forfeited its "standing" to maintain an action for misappropriation. Marvell asserted the existence of a "current ownership rule," under which a plaintiff can recover for misappropriation of a trade secret only if he owns the trade secret at the time of suit. The trial court found this argument persuasive, and dismissed Jasmine's complaint.

Jasmine petitioned this court for a writ of mandate directing the trial court to set aside its order of dismissal and permit the matter to proceed to trial. We issued an order to show cause why the petition should not be granted. We will now grant the requested relief. Despite the impressive efforts by Marvell's counsel to conjure up a "current ownership rule," we find no support for such a rule in the text of the CUTSA, cases applying it, or legislative history. Nor do we find any evidence of such a rule in patent or copyright law, which defendants have cited by analogy. Defendants have offered no persuasive argument from policy for our adoption of such a rule. There may be situations where a suit by a former owner raises concerns about the rights of absent parties, or a risk of multiple or inconsistent liabilities on the part of parties before the court, but the remedy for such concerns lies in our liberal and highly flexible procedures for the permissive or compulsory joinder of parties. There is in short no substantial basis for the argument put forward by defendants, and the trial court erred by dismissing the complaint.

Background

Jasmine originally sued 12 defendants, but by the time the matter came on for trial, only three remained: Marvell and two former Jasmine managers, Richard Sowell and Patrick J. Murphy. Jasmine alleged in its second amended complaint that commencing in April 2001, Marvell had sought to negotiate, under a mutual confidentiality agreement, the right to use certain technology developed by Jasmine involving application- specific integrated circuits (ASIC's) and packet fabric switching. In May 2001, Marvell offered $40 million to acquire Jasmine's entire ASIC development group, including the fabric switching technology. According to Jasmine, however, even as negotiations were proceeding, Marvell was acquiring much or all of the technology it sought by wrongful means, including from information provided under the nondisclosure agreement, and from Jasmine employees, including defendants Sowell and Murphy, whom Marvell induced to breach their fiduciary and contractual obligations to Jasmine. By late August 2001, Jasmine alleged, Marvell had obtained substantially all of the value of Jasmine's ASIC group. Around that time it offered Jasmine $15 million for it.

Jasmine brought this action on September 12, 2001. By the time of trial the following causes of action remained: misappropriation of trade secrets, breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, wrongful interference with contract and economic advantage, and unfair business practices. Marvell cross-complained, charging Jasmine with, among other things, fraud, in that the technology it had offered to Marvell was actually purloined from a third party and that Jasmine had itself breached their disclosure agreement by wrongfully disclosing confidential information provided to it by Marvell. Sowell and Murphy also cross-complained, charging Jasmine with slander and violations of wage laws.

In August 2002, Jasmine filed for protection under Chapter 11 of the bankruptcy laws. In December 2002, Jasmine proposed to the bankruptcy court that it sell substantially all of its assets, reserving only the claims in this action, which it explicitly intended to pursue. The proposal identified these claims as Jasmine's most valuable asset. It also contemplated the sale of "Jasmine's Optical Networking Business, including its ASIC Products," to an entity named Teradiant Networks, Inc. (Teradiant), for the sum of $300,000. Marvell requested notice of all bankruptcy proceedings, and appeared by counsel at the hearing on the proposed disposition of assets. No one objected to the proposal. On December 5, 2002, the bankruptcy court approved it. Under the terms of the agreement, the transfer of assets occurred on or before December 31, 2002.

This matter proceeded to the verge of trial. On May 21, 2009, in preparatory discussions in open court, counsel for Marvell stated, "There is a defense here that puts an end to the whole case . . . . It's called standing." He acknowledged that this "defense" had not been raised earlier by summary judgment or other dispositive motion, but said it could be raised "at any time."*fn1 He went on to assert that the pattern jury instructions for misappropriation of trade secrets "say you must either be an owner or a licensee of the intellectual property that you're suing on." (See pp. 16-17, post.) Having sold all of its intellectual property to Teradiant, he contended, Jasmine could not satisfy this requirement, despite having "held on" to the cause of action it asserted here.

Five days later Marvell submitted a written motion "for an order dismissing Jasmine Networks, Inc.'s Second Amended Complaint due to lack of standing."*fn2 Sowell and Murphy joined in the motion. Jasmine opposed the motion both on the grounds that there was no such rule, and that the bankruptcy court's rulings were conclusive on the issue of its standing. The court heard the motion on May 29, and on June 5 issued a formal order dismissing the complaint with prejudice. Finding the question to be one of first impression, the court wrote, "[A] former owner of a trade secret lacks the requisite property interests and rights that trade secret law seeks to protect. Although there are persuasive arguments and legitimate equities on both sides of this issue, it is the Court's opinion a former owner lacks the necessary standing to sue for the misappropriation of property that it no longer owns because the former owner no longer has a protectable interest in the property."

Jasmine petitioned this court for a writ directing the trial to reverse its order of dismissal, and for a stay of the defendants' pending cross-actions against it. We issued the requested stay and an order to show cause.

Discussion

I. Conditions for Extraordinary Relief; Standard of Review

Our issuance of an order to show cause rested on our determination that plaintiff had no "plain, speedy, and adequate remedy" for the dismissal of its action "in the ordinary course of law" (Code Civ. Proc., § 1086; see Marron v. Superior Court (2003) 108 Cal.App.4th 1049, 1056) and that, if its contentions were correct, it would suffer irreparable injury in the absence of extraordinary relief (Smith v. Superior Court (1996) 41 Cal.App.4th 1014, 1020-1021). Plaintiff could of course have obtained review of that order on direct appeal from an eventual judgment, but in the meantime the trial court was poised to proceed with a trial of defendants' cross-actions against plaintiff. This exposed all participants to the risk of two trials if we concluded, as it appeared to us we were likely to do, that the dismissal of the complaint was erroneous. The requisite urgency is commonly found where, as here, the trial court has effectively disposed of part of an action, leaving the rest for trial, and there is a substantial likelihood that the partial disposition may be held on appeal to constitute error, necessitating a second trial, whereas timely appellate intervention by extraordinary writ would permit the entire case to be disposed of in a single trial. (See, e.g., Coulter v. Superior Court (1978) 21 Cal.3d 144, 148 [demurrer sustained to less than all causes of action; writ appropriate to "prevent a needless and expensive trial and reversal"]; Barrett v. Superior Court (Paul Hubbs Const. Co.) (1990) 222 Cal.App.3d 1176, 1183 [summary adjudication disposing of one but not all theories of liability; "were plaintiffs not to prevail on their other two theories, and were the order here under review determined to have been incorrect, then a second trial would be required, with the attendant waste of judicial resources"]; Lopez v. Superior Court (1996) 45 Cal.App.4th 705, 710, fn. 1 [summary judgment in favor of one defendant, with trial pending against other].)

The order under review is based upon the trial court's determination that plaintiff was unable to maintain a cause of action for misappropriation of trade secret because, as plaintiff conceded, it had sold its rights in the underlying trade secret to a third party. The question thus presented is whether one who claims to have been injured by the misappropriation of a trade secret can retain a right of action on that injury after he has divested himself of any present interest in the underlying secret. This a pure question of law, which we address without deference to the trial court's ruling. (See In re K.F. (2009) 173 Cal.App.4th 655, 661; Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal.App.4th 547, 558.)

II. "Standing"

Defendants contend that a trade secret plaintiff must "currently own" the secret in order to maintain an action for damage resulting from its misappropriation.*fn3 Although they couch their argument in terms of plaintiff's supposed lack of "standing" to maintain this action, we do not believe that characterization adds anything to-indeed it obscures-the real substance of the argument.

Properly understood, the concept of "standing" contemplates a requirement that the plaintiff "establish an entitlement to judicial action, separate from proof of the substantive merits of the claim advanced." (13A Wright & Miller, Fed. Practice & Proc. (3d ed.2008) § 3531, p. 6; italics added.) This concept "has been largely a creature of twentieth century decisions of the federal courts." (Ibid.; italics added, fn. omitted.) It is rooted in the constitutionally limited subject matter jurisdiction of those courts. (See id. at p. 9, italics added ["The threshold requirements are attributed to the `case' and `controversy' terms that define the federal judicial power in Article III. Absent constitutional standing, the courts believe they lack power . . . to entertain the proceeding."]; see 13 Wright & Miller, supra, § 3522, pp. 103-104 [presumption that federal court lacks subject matter jurisdiction].) But as our Supreme Court has written, no such wariness surrounds the subject matter jurisdiction of California courts: "Article III of the federal Constitution imposes a `case-or-controversy limitation on federal court jurisdiction,' requiring ` "the party requesting standing [to allege] `such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues.' " ' [Citation.] There is no similar requirement in our state Constitution. [Citation.]" (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1117, fn. 13; see Cal. Const., art. VI, § 10 [empowering superior court to adjudicate any "cause" brought before it]; National Paint & Coatings Assn. v. State of California (1997) 58 Cal.App.4th 753, 761 [rejecting claimed standing requirement based on federal citations; California Constitution "contains no `case or controversy' requirement"]; Connerly v. State Personnel Bd. (2001) 92 Cal.App.4th 16, 29 [following National Paint].)

Even in the federal courts' the notion of "standing" is nebulous, its application controversial. "The term started out as a nonspecific metaphor, gained currency in equity, and only later became a constitutional doctrine." (Winter, The Metaphor of Standing and the Problem of Self-Governance (1988) 40 Stanford L.Rev. 1371, 1417 (Metaphor).) Its early usage was largely in reference to the plaintiff's entitlement to relief, particularly in proceedings in equity, which were in those days constrained by many factors, some of which reflected the highly artificial separation between proceedings in equity and actions at law. (Id. at pp. 1422-1424.) Although these limitations were sometimes described as jurisdictional, some of the best legal minds criticized such a view. (Id. at p. 1425, quoting Holmes, J., in Massachusetts State Grange v. Benton (1926) 272 U.S. 525, 528 [" `Courts sometimes say that there is no jurisdiction in equity when they mean only that equity ought not to give the relief asked.' "].) The metaphor of "standing" nonetheless exerted an "overpowering" influence on the judicial mind: " `A standing in court' sounds like a question of jurisdiction because standing up is a prerequisite to being heard in court. Justice Holmes, Pomeroy, and the Supreme Court did battle with the metaphor, but lost. `Standing' became a question of jurisdiction in the more fundamental sense of justiciability under article III." (Metaphor, supra, 40 Stanford L.Rev. at p. 1425.)

Defendants suggest that a "standing" requirement arises in California courts by virtue of Code of Civil Procedure section 367 (§ 367), which states that except as otherwise provided by statute, every action "must be prosecuted in the name of the real party in interest." This provision is not the equivalent of, and provides no occasion to import, federal-style "standing" requirements. Again, the federal doctrine requires plaintiffs-or some of them-to "establish an entitlement to judicial action, separate from proof of the substantive merits of the claim advanced."*fn4 (13A Wright & Miller, Fed. Practice & Proc., supra, § 3531, p.6; italics added.) In contrast, section 367 simply requires that the action be maintained in the name of "[t]he person who has the right to sue under the substantive law." (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 121, p. 187; italics added.) Thus if the plaintiff has a cause of action in his own right, and he pursues it in his own name, section 367 poses no obstacle to maintenance of the action. The application of the statute, "while superficially concerned with procedural rules, really calls for a consideration of rights and obligations." (4 Witkin, supra, Pleading, § 121, p. 187.)

The term "standing" may have some utility when a plaintiff attempts to assert the rights of third parties. This problem, sometimes referred to as jus tertii, is not confined to plaintiffs; it may also arise when one seeks to defeat a claim by asserting the paramount rights of a third person. (See Wetherly v. Straus (1892) 93 Cal. 283, 287 ["A bailee can assert a jus tertii in an action by the bailor only when he defends on such title and by the authority of such third person."]; Johnson v. Department of Social Services (1981) 123 Cal.App.3d 878, 883 [vicarious assertion by day care center operators of parents' alleged rights to permit corporate discipline described as "jus tertii"]; ibid., fn. 2, citing Comment, Standing to Assert Constitutional Jus Tertii (1974) 88 Harv.L.Rev. 423, 431-436; Endler v. Schutzbank (1968) 68 Cal.2d 162, 175, fn. 9 [acknowledging " `third-party' problem" of "when A may challenge B's action on the ground that it infringes a right of C"].) Indeed the problem is ...


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