MGA Entertainment, Inc. v. Mattel, Inc.

          APPEAL from a judgment of the Superior Court of Los Angeles County. No. BC532708 Carolyn B. Kuhl, Judge. Affirmed.

          Stris & Maher, Peter K. Stris, Kenneth J. Halpern, Douglas D. Geyser, John Stokes; and Benjamin C. Johnson for Plaintiff and Appellant.

          Quinn Emanuel Urquhart & Sullivan, John B. Quinn, Michael T. Zeller, B. Dylan Proctor, Daniel C. Posner and Kathleen M. Sullivan for Defendant and Respondent.

          GRIMES, Acting P. J.

         SUMMARY

         The trial court granted summary judgment on the complaint because it was barred by the statute of limitation. We affirm.

         Litigation between plaintiff MGA Entertainment, Inc. and defendant Mattel, Inc. began in the federal courts in 2004, with disputes over ownership of the Bratz line of dolls and claims of copyright infringement. In that litigation, in August 2007, MGA served a discovery request for documents relating to Mattel's efforts to obtain MGA's trade secrets and information about unreleased products and product development, including by Mattel trying to gain access to MGA showrooms or toy fair displays on false pretenses.

         Ten days after serving this document request, MGA asserted a factually detailed affirmative defense in the federal litigation, alleging Mattel's unclean hands. MGA alleged Mattel engaged in all sorts of unseemly conduct, including “monitoring, ‘spying on' or gaining knowledge of MGA's trade secrets, non-public information, nonpublic activities, unreleased products, and product development, ” and “gaining access, or attempts to gain access, to MGA showrooms, Plan-o-Grams, merchandising displays, Toy Fair displays on false pretenses.”

         Three years and three days later, MGA asserted a “counterclaim-in-reply” in the federal litigation, alleging a cause of action for misappropriation of trade secrets under the California Uniform Trade Secrets Act (Civ. Code, § 3426 et seq.). MGA claimed Mattel employees used fake credentials and misrepresented themselves as retailers to gain access to MGA displays of as-yet-unmarketed products at private showrooms at industry toy fairs. Mattel raised the statute of limitation defense (three years), but the district court found MGA's claim was a compulsory counterclaim-in-reply and related back to Mattel's January 12, 2007 filing of its answer and counterclaims. As we explain below, MGA's reliance on this ruling was misplaced.

         In January 2011, MGA obtained a verdict on its trade secret misappropriation claims of more than $80 million, and the district court awarded an equal amount in punitive damages for the “willful and malicious” misappropriation. Unfortunately for MGA, the Ninth Circuit reversed the district court's ruling that MGA's claim was a compulsory counterclaim-in-reply. The Ninth Circuit vacated the verdict and directed the district court to dismiss MGA's trade secret claim without prejudice. (Mattel, Inc. v. MGA Entertainment, Inc. (9th Cir. 2013) 705 F.3d 1108, 1110-1111.)

         MGA then filed its complaint for misappropriation of trade secrets in the superior court. Mattel filed a motion for summary judgment, contending the three-year statute of limitation had run by the time MGA filed its trade secret claim in federal court on August 16, 2010.

         We agree with the trial court that, under California law, the same suspicions that allowed MGA to request discovery and plead the unclean hands defense in the federal court in 2007 were sufficient to trigger the statute of limitation.

         FACTS

         We have already described the crux of the case. We discuss additional facts below in light of the California rule that the statute of limitation begins to run when the plaintiff has reason to suspect an injury and some wrongful cause, unless the plaintiff proves a reasonable investigation at that time would not have revealed a factual basis for the claim.

         1. The Federal Litigation

         Mattel filed an unopposed request for judicial notice of various documents filed in the federal litigation, all of which appear in the parties' respective appendices. We grant the motion.

         MGA contends that, despite its assertions in August 2007, both in its unclean hands defense and its discovery request in federal court, the statute of limitation did not begin to run until almost three years later, on July 12, 2010. On that day, deposition testimony from Salvador Villasenor, a former Mattel employee (until 2006) who oversaw and directed Mattel's “market intelligence” activities, “blew the case open.”

         Mr. Villasenor testified that, beginning in 1992, Mattel employees had obtained catalogues of products made by Mattel's competitors by visiting their private showrooms at toy fairs, gaining entry by creating fictitious business cards and presenting themselves as toy store owners. Mr. Villasenor engaged in those activities himself for six or seven years, beginning in 1999, with the knowledge of company executives, and he identified others who had also done so for Mattel (although he denied he had done so in any MGA showrooms).

         Further, MGA points out that although it requested documents in November 2006 relating to whether Mattel had access to any displays or showrooms containing any of MGA's Bratz lines, Mattel did not produce relevant documents until early 2010, and the documents produced then were silent about how Mattel acquired MGA information. (Mattel claims such documents were irrelevant because at the time there was no trade secret claim in the litigation.)

         Only after the Villasenor deposition did Mattel begin to produce “smoking gun” documents, including Mattel's toy fair reports, a guide directing employees on how to create false identities and businesses to gain access to competitors' showrooms, a December 2005 e-mail from Mr. Villasenor ...