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Agency Sollutions.Com, LLC Dba Healthconnect v. the Trizetto Group

June 19, 2012

AGENCY SOLLUTIONS.COM, LLC DBA HEALTHCONNECT SYSTEMS, PLAINTIFF,
v.
THE TRIZETTO GROUP, INC.,
DEFENDANT.



ORDER ON DEFENDANT'S MOTION FOR AWARD OF ATTORNEY'S FEES Doc. # 84

This is an action in diversity by plaintiff Agency Solutions.Com., LLC dba Healthconnect Systems, ("Plaintiff" or "HCS") against defendant The TriZetto Group, Inc. ("Defendant" or "TriZetto") pursuant to California's Uniform Trade Secrets Act, Cal. Civ. Code § 3426, et seq. Plaintiff filed a motion for preliminary injunction two days after the original complaint was filed. After a brief period of expedited discovery, the parties filed their arguments for and against issuance of preliminary injunction. Plaintiff's motion for injunctive relief was denied and Plaintiff filed a notice of appeal. During the pendency of the appeal, Plaintiff voluntarily dismissed this action. Defendant thereafter filed the instant motion for award of attorney's fees and costs. For the reasons that follow Defendant's motion will be denied.

FACTUAL BACKGROUND

On September 13, 2011, the court issued a Memorandum Opinion and Order denying Plaintiff's motion for preliminary injunction. (Hereinafter, the "September 13 Order"). Doc. # 61. Plaintiff promptly filed an appeal of the court's September 13 Order to the Ninth Circuit Court of Appeals. Plaintiff alleges that on November 15, 2011, during the pendency of its appeal of the September 13 Order, a company called Ebix "entered into a deal to acquire HCS."*fn1 Plaintiff alleges that Ebix chose not to acquire HCS's claims against Defendant. Plaintiff alleges that "[a]lthough HCS continued to believe in the merits of its case and in the strength of its appeal, it no longer had an operating business and could no longer claim irreparable injury. Therefore, HCS filed a stipulated motion to dismiss the appeal and the action with prejudice." Doc. # 87 at 8:7-10.

Defendant filed the instant motion on January 18, 2012, "pursuant to Fed. R. Civ. Pro. 54(d), Eastern District Rule 293, and Cal. Civ. Code § 3426.4 and for an order of this Court:

(a) finding that TriZetto is the prevailing party in this action; (b) finding that HCS brought this action in bad faith; and (c) awarding TriZetto its reasonable attorneys' fees in an amount totaling $129,092 or in such other amount as the Court determines is proper." Doc. # 84 at 5:5-9. Plaintiff filed its opposition on January 30, 2012, and Defendant filed its reply on February 17, 2012. The parties stipulated that decision on Defendant's motion for attorneys' fees without oral argument is appropriate.

LEGAL STANDARD

Pursuant to California Civil Code § 3426.4:

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees and costs to the prevailing party.

Because there is no statutory definition of "bad faith" in the context of trade secret misappropriation, California courts have developed a two-pronged standard for the evaluation of such claims. The party seeking an award of attorney's fees under section 3426.4 must show (1) the objective speciousness of opposing party's claim, and (2) the subjective bad faith of the opposing party in bringing or maintaining the action, that is, for an improper purpose. Gemini Aluminium Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249, 1261 (2002). "Objective Speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim." FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270, 1276 (2009). Objective speciousness may be shown by, among other factors, demonstrating that there was no misappropriation or threatened misappropriation or that the opposing party could not have suffered any economic harm. Id.

Subjective bad faith may be inferred by evidence that [a party bringing an action for trade secret infringement] intended to cause undecessary delay, filed the action to harass [the opposing party], or harbored improper motive. [. . . .] The timing of the action may rase an inference of bad faith. [. . . .] Similar inferences may be made where the plaintiff proceeds to trial after the actions's fatal shortcomings are revealed by opposing counsel.

Id. at 1278 (internal citations omitted).

DISCUSSION

In the first part of the court's analysis of Plaintiff's motion for preliminary injunctive relief, the court observed: "It is this court's observation that the motion before it seeks to stretch the category of what is a trade secret." Doc. # 61 at 15: 23-24. In retrospect, the court's observation captured accurately the essence of Plaintiff's basic contention with regard to this case. While the court noted that case authority has established that trade secrets are informational elements that include, inter alia, formulae, patterns, compilations, devices, methods techniques or processes, Plaintiff's arguments in favor of injunctive relief urged the court to expand this list to include as trade secrets less discrete things such as insights, trade know-how and experience.

As the court observed in its September 13 Order, the plaintiff seeking to establish a claim under California's Uniform Trade Secrets Act must (1) identify with some particularity the "thing" claimed to be a trade secret, and (2) must clearly state why that "thing" belongs in the legal category of trade secret. The court's decision to deny Plaintiff's motion for preliminary injunction rested on two broad findings. First, the court found that Plaintiff's narrative descriptions of "insights" and "proprietary knowledge" did not identify with sufficient particularity the "thing" that was being alleged a trade secret. Second, the court determined that, to the extent Plaintiff could be said to have identified specific knowledge it imparted to Defendant, it failed to show that the knowledge -- ...


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