Yeiser Research & Development LLC v. Teknor Apex Company et al, No. 3:2017cv01290 - Document 60 (S.D. Cal. 2019)
Court Description: ORDER denying Defendant Teknor Apex Company's 56 Motion for Review and Partial Reversal of Discovery Order. Court affirms the Discovery Order 50 in full. Signed by Judge Cynthia Bashant on 5/20/2019. (jah)
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 YEISER RESEARCH & DEVELOPMENT, LLC, 12 13 14 15 Case No. 17-cv-1290-BAS-MSB Plaintiff, v. TEKNOR APEX COMPANY, Defendant. ORDER DENYING DEFENDANT’S MOTION FOR REVIEW AND PARTIAL REVERSAL OF DISCOVERY ORDER [ECF No. 56] 16 17 This case concerns Plaintiff Yeiser Research & Development LLC (“YRD”) 18 allegations that Defendant Teknor Apex Company (“Teknor”) stole trade secrets and 19 confidential information from YRD to develop Teknor’s Zero G Hose. In the 20 operative First Amended Complaint (“FAC”), YRD raises trade secrets claims 21 pursuant to the federal Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1831 et 22 seq., and the Delaware Uniform Trade Secrets Act (“DUTSA”), 6 Del. C. § 2001 et 23 seq., and YRD also raises state law claims for breach of contract, unjust enrichment, 24 and intentional interference with prospective economic advantage. (ECF No. 26.) 25 26 Teknor moves for review and “partial reversal” of Magistrate Judge Berg’s 27 March 7, 2019 discovery order (the “Discovery Order”) that concerns a discovery 28 dispute regarding the trade secrets aspect of this case. (ECF No. 56.) Specifically, –1– 17cv1290 1 Teknor contends that, contrary to Judge Berg’s determination, YRD has failed to 2 identify its alleged trade secrets with “reasonable particularity” and, consequently, 3 Teknor argues that it should not have to provide certain discovery until YRD does 4 so. YRD opposes Teknor’s motion. (ECF No. 58.) For the reasons herein, the Court 5 denies Teknor’s motion and affirms the Discovery Order. 6 7 RELEVANT BACKGROUND 8 In the time since YRD filed this case in June 2017 (ECF No. 1), the Court has 9 resolved two motions to dismiss filed by Teknor. (ECF No. 23 (order granting in 10 part and denying in part Teknor’s first motion to dismiss); ECF No. 31 (order 11 granting in part and denying in part Teknor’s second motion to dismiss).) In its first 12 order, the Court extensively analyzed Teknor’s motion to dismiss the entire action, 13 including YRD’s state law DUTSA trade secrets claims. See Yeiser Res. & Dev. 14 LLC v. Teknor Apex Co., 281 F. Supp. 3d 1021 (S.D. Cal. 2017). The Court 15 acknowledged that a trade secrets plaintiff must sufficiently identify its alleged trade 16 secrets in order to proceed to discovery. Id. at 1044. With this principle in mind, 17 the Court determined that YRD stated DUTSA claims against Teknor for trade secret 18 misappropriation by, in relevant part, plausibly alleging various trade secrets of 19 YRD—compact hose concepts and designs—that Teknor allegedly stole and used to 20 develop Teknor’s Zero G Hose. Id. at 1044–45. The Court dismissed without 21 prejudice YRD’s trade secrets claims to the extent they were premised on business 22 strategy and marketing and sales data. Id. at 1046–47. 23 24 Thereafter, YRD filed the FAC, in which YRD added federal DTSA claims 25 premised on the same allegedly misappropriated trade secrets the Court previously 26 sustained. (FAC ¶¶ 74–84.) YRD also amended its trade secrets claims to allege 27 misappropriation of a business and marketing strategy related to YRD’s compact 28 hose concepts and designs. In its second dismissal order on Teknor’s partial motion –2– 17cv1290 1 to dismiss the FAC, the Court determined that YRD plausibly stated trade secrets 2 claims for these amended allegations under both DTSA and DUTSA. (ECF No. 31 3 at 9–10.) 4 5 In the course of discovery, YRD served requests for production on Teknor. 6 (ECF No. 42 at 19–51.) Teknor in turn served interrogatories on YRD, the first of 7 which directed YRD to “[i]dentify and describe with specificity each Alleged Trade 8 Secret that you are asserting in this Action.” (ECF No. 42 at 4, 9.) YRD responded 9 to Teknor’s Interrogatory No. 1 with 10 pages of narrative that outlined various trade 10 secrets YRD alleges. (Id. at 9–19.) YRD further discussed its alleged trade secrets 11 in response to several other interrogatories Teknor served. (Id. at 52–92.) Teknor 12 in turn produced documents in response to YRD’s requests, but Teknor objected to 13 YRD’s response to Interrogatory No. 1 as not sufficiency specific and thus Teknor 14 withheld from production a subset of documents that it unilaterally deemed to 15 constitute its “confidential, propriety, and/or trade secret information and other 16 information.” (Id. at 3.) Thereafter, the parties sought judicial intervention. 17 18 In a joint discovery motion, Teknor expressly contended that YRD’s response 19 to Interrogatory No. 1 was “patently deficient” under Delaware law’s requirement 20 that YRD “identify its trade secrets at the discovery stage with reasonable 21 particularity.” (ECF No. 42-1 at 2–3.) Teknor argued that YRD had merely copied 22 portions of the FAC into narrative format and, selectively quoting phrases that 23 appeared in YRD’s response, Teknor argued that YRD’s response was “confusing” 24 and “vague.” (Id. at 2–4.) Teknor sought to compel a more specific response by 25 YRD to Interrogatory No. 1 and requested entry of a protective order permitting 26 Teknor to withhold the disputed documents until YRD supplemented its response. 27 YRD disputed the applicability of Delaware’s particularity requirement, expressly 28 noting that this case involves a federal DTSA claim and argued that, in any event, –3– 17cv1290 1 YRD, had met the particularity requirement under Delaware law. (ECF No. 43.) 2 3 On March 7, 2019, after a telephonic hearing, Magistrate Judge Berg issued 4 the Discovery Order. (ECF No. 50.) Judge Berg denied Teknor’s motion to compel 5 a more specific response by YRD to Interrogatory No. 1 regarding YRD’s alleged 6 trade secrets. (Id.) Finding that Delaware law’s reasonable particularity rule 7 applied, Judge Berg determined that YRD’s answer “is sufficiently specific.” (Id. ¶ 8 2.) Judge Berg also denied Teknor’s motion for a protective order that would 9 preclude Teknor from producing “its confidential, proprietary, and/or trade secret 10 information” until YRD provided a more specific response to Teknor’s 11 interrogatory. (Id.) Judge Berg ordered Teknor to produce its responsive documents 12 no later than March 20, 2019. (Id. ¶ 3.) 13 14 On the eve of its production deadline, Teknor moved ex parte for a stay of the 15 Discovery Order’s production deadline pending resolution of a concurrently filed 16 discovery motion Teknor filed to seek “partial reversal” of the Discovery Order. 17 (ECF Nos. 55, 56). This Court denied Teknor’s ex parte motion on the ground that 18 Teknor failed to show that it would suffer irreparable injury from compliance with 19 the Discovery Order. (ECF No. 57.) The Court now turns to the merits of Teknor’s 20 motion. 21 22 LEGAL STANDARD 23 A magistrate judge may issue a written order deciding any pretrial matter not 24 dispositive of a party’s claim or defense. Fed. R. Civ. P. 72(a). Discovery orders, 25 like the one at issue here, are typically non-dispositive. Maisonville v. F2 Am., Inc., 26 902 F.2d 746, 748 (9th Cir. 1990). A party may appeal a magistrate judge’s order 27 on a pretrial nondispositive matter by filing objections with the district court judge 28 within 14 days. Id. This Court requires such objections to be filed as a noticed –4– 17cv1290 1 motion. See Standing Order of the Hon. Cynthia Bashant for Civil Cases. ¶ 3. 2 3 A district court judge “must consider timely objections and modify or set aside 4 any part of the order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 5 72(a). Factual determinations are reviewed for clear error and legal conclusions are 6 reviewed to determine whether they are contrary to law. United States v. McConney, 7 728 F.2d 1195, 1200–1201 (9th Cir. 1984), overruled on other grounds by Estate of 8 Merchant v. CIR, 947 F.2d 1390 (9th Cir 1991). “Review under the clearly 9 erroneous standard is significantly deferential, requiring a definite and firm 10 conviction that a mistake has been committed.” Concrete Pipe & Prods. v. Constr. 11 Laborers Pension Tr., 508 U.S. 602, 623(1993) (quotation omitted); Hernandez v. 12 Tanninen, 604 F.3d 1095, 1100 (9th Cir. 2010) (same). The contrary to law standard 13 requires de novo review of legal conclusions. Perry v. Schwarzenegger, 268 F.R.D. 14 344, 348 (N.D. Cal. 2010); Lovell v. United Airlines, Inc., 728 F. Supp. 2d 1096, 15 1100 (D. Haw. 2010). “A decision is ‘contrary to law’ if it applies an incorrect legal 16 standard or fails to consider an element of the applicable standard.” Na Pali Haweo 17 Cmty. Ass’n v. Grande, 252 F.R.D. 672, 674 (D. Haw. 2008) (quotation marks and 18 citations omitted). 19 20 DISCUSSION 21 Teknor agrees that Judge Berg “correctly held that the Delaware rule that a 22 trade secret plaintiff must identify its trade secrets with reasonable specificity in fact 23 discovery—before obtaining discovery from the defendant—applies to this action.” 24 (ECF No. 56-1 at 6.) Teknor, however, disputes Judge Berg’s application of the 25 Delaware rule. According to Teknor, Judge Berg “erroneously determined that 26 YRD’s identification in its response to Interrogatory No. 1 was sufficiently specific” 27 and Judge Berg’s determination “is contrary to law because it directly conflicts with 28 how courts have conducted the analysis of similarly vague trade secret disclosures.” –5– 17cv1290 1 (Id. at 6–7.) Teknor contends “alternatively” that Judge Berg’s determination “is 2 clearly erroneous because it fails to square the inadequacy of YRD’s response with 3 [the] unfair prejudice” to Teknor of having to produce the documents Teknor 4 withheld. (Id. at 7.) The Court rejects Teknor’s objections. 5 6 The heart of Teknor’s objections lies in certain state law rules regarding 7 discovery in trade secrets litigation. For example, Teknor points to the Delaware 8 common law rule that “[w]here . . . a plaintiff in a trade secret case seeks to discover 9 the trade secrets and confidential proprietary information of its adversary, the 10 plaintiff will normally be required first to identify with reasonable particularity the 11 matter which it claims constitutes a trade secret, before it will be allowed (given a 12 proper showing of need) to compel discovery of its adversary’s trade secrets.” 13 Engelhard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del. Ch. Ct. 1986) (citations 14 omitted). This rule stems not from statutory requirement, but from a judicial 15 balancing of a plaintiff’s need for discovery in a trade secrets misappropriation case 16 with concern for a defendant’s own trade secrets information. Id. (describing the 17 rule as a “twist” to the “basic discovery principle” that “[w]here a party litigant seeks 18 discovery that its adversary contends is not relevant, the party seeking discovery 19 may, given a proper and timely objection, be required to establish that the proposed 20 discovery is reasonably calculated to lead to the discovery of admissible evidence.”). 21 22 Although this case does not involve trade secrets claims under California law, 23 Teknor also points to a statutory requirement under the California Uniform Trade 24 Secrets Act (“CUTSA”). Pursuant to this requirement, “[i]n any action alleging the 25 misappropriation of a trade secrets under the [CUTSA], before commencing 26 discovery relating to the trade secret, the party alleging the misappropriation shall 27 identify the trade secret with reasonable particularity. . .” Cal. Civ. P. Code § 28 2019.210. Teknor underscores that the Delaware common law discovery rule and –6– 17cv1290 1 the California statutory law are grounded in certain policy rationales, specifically to 2 dissuade “meritless trade secrets claims,” prevent “a plaintiff from retroactively 3 conforming its trade secrets based on reviewing discovery from [a] defendant,” and 4 allow a trade secrets defendant to “form a well-reasoned defense.” (ECF No. 56-1 5 at 7–8.) 6 7 Some federal courts sitting in diversity over actions involving state law trade 8 secrets claims have applied the Erie R.R. v. Tompkins, 304 U.S. 64 (1938), doctrine— 9 a doctrine pursuant to which a federal court sitting in diversity must apply state 10 substantive law that does not conflict with federal law—to find that state law trade 11 secrets “reasonable particularity” rules apply in federal court. 12 Technologies Corp. v. Qualcomm Inc., No. 08CV1992 AJB(MDD), 2012 WL 13 849167, at *3–4 (S.D. Cal. Mar. 13, 2012) (applying Cal. Civ. P. Code § 2019.210 to 14 a case involving CUTSA claims); Loop Al Labs Inc. v. Gatti, No. 15-cv-00798-HSG 15 (DMR), 2015 WL 9269758 (N.D. Cal. Dec. 21, 2015) (same); Computer Economics, 16 Inc. v. Garter Grp., Inc., 50 F. Supp. 2d 980 (S.D. Cal. 1999) (same). See Gabriel 17 18 Other federal courts have refused to apply state law trade secrets discovery 19 rules in federal court on the ground that these state law rules conflict with the Federal 20 Rules of Civil Procedure. See Hilderman v. Enea TekSci, Inc., No. 05cv1049 21 BTM(AJB), 2010 WL 143440, at *2–3 (S.D. Cal. Jan 8, 2010) (concluding that Cal. 22 Civ. P. Code § 2019.210 conflicts with Rule 26 by requiring a plaintiff to take certain 23 actions before discovery can commence that Rule 26 does not require); Funcat 24 Leisure Craft, Inc. v. Johson Outdoors, Inc., No. S-06-0533 GEB GGH, 2007 WL 25 273949, at *2 (E.D. Cal. Jan. 29, 2007) (holding that § 2019.210 does not apply to a 26 federal action “[u]nless stipulated otherwise or ordered after stipulation pursuant to 27 case management orders, it is not within the discretion of the court to willy nilly apply 28 bits and pieces of the discovery civil procedure codes of the various states, even the –7– 17cv1290 1 state in which the district court sits.”). 2 3 This Court’s first dismissal order applied Delaware substantive law to YRD’s 4 DUTSA claim along with federal pleading requirements. Yeiser Res. & Dev. LLC, 5 281 F. Supp. 3d at 1043–48. In applying the Delaware discovery rule to resolve the 6 parties’ discovery dispute, Judge Berg alluded to this Court’s application of 7 Delaware substantive law to YRD’s state law trade secrets claims. (ECF No. 53 at 8 11:21–12:2.) Acknowledging the differing approaches taken by federal courts, 9 Judge Berg determined that the Delaware rule did not conflict with Federal Rule of 10 Civil Procedure 26 and applied the rule to assess YRD’s response. (Id. at 12:3– 11 13:8.) 12 13 YRD, however, amended its complaint to add a federal DTSA claim based on 14 the trade secrets that this Court determined were plausibly alleged to survive 15 Teknor’s Rule 12(b)(6) motion to dismiss. (ECF No. 26.) Whatever the propriety 16 of applying state law discovery rules for trade secrets claims in federal court on 17 diversity jurisdiction may be, this case is no longer before the Court on diversity 18 jurisdiction. The relevant issue becomes the propriety of and basis for applying state 19 law discovery rules to trade secrets cases that involve federal DTSA claims. 20 21 Congress enacted the DTSA in 2016, Pub. L. No. 114-153, 130 Stat. 376, 22 thereby creating a new federal civil cause of action for trade secret misappropriation. 23 18 U.S.C. § 1836(b)(1). This Court has also previously acknowledged the similarity 24 between DTSA and state trade secrets law. See Yeiser Res. & Dev., LLC v. Teknor 25 Apex Co., No. 17-cv-1290-BAS-RBB, 2018 WL 3993370, at *4 (S.D. Cal. Aug. 21, 26 2018) (“Federal law and Delaware law define ‘trade secret’ in similar ways.”). 27 Indeed, “[t]he DTSA includes definitions, remedies, and a statute of limitations 28 substantially similar to provisions in the Uniform Trade Secrets Act (“UTSA”)[.]” –8– 17cv1290 1 Adams Arms, LLC v. Unified Weapon Systems, Inc., No. 8:16-cv-1503-T-33AEP, 2 2016 WL 5391394, at *5 (M.D. Fla. Sept. 27, 2016). These similarities are not 3 happenstance. “It is clear that Congress borrowed heavily from the [Uniform Trade 4 Secrets Act] and the states’ trade secrets law in drafting many (if not most) 5 provisions of the DTSA. The enactment of the DTSA was not a response to an 6 inherent inadequacy in the states’ trade secrets laws. Rather, . . . Congress intended 7 the DTSA to apply in substantially the same way as the states’ trade secrets laws, 8 but with a much broader geographic and jurisdictional reach.” Brand Energy & 9 Infrastructure Servs, Inc. v. Irex Contracting Grp., No. 16-2499, 2017 WL 1105648, 10 at *7 (E.D. Pa. Mar. 24, 2017); see also Great Am. Opportunities, Inc. v. Kent, 352 11 F. Supp. 3d 1126, 1140 (D. Colo. 2018) (“A House Report accompanying the referral 12 of the bill that became Defend Trade Secrets Act suggests an intent to model the 13 DTSA after similar state statutes.” (citing H.R. Rep. No. 114-529, at 2–5, 12–14 14 (2016)). 15 16 However, unlike state trade secrets laws that “vary in a number of ways and 17 contain built-in limitations that make them not wholly effective in a national and 18 global economy,” DTSA aims to establish a “single, national standard for trade 19 secret misappropriation with clear rules and predictability for everyone involved.” 20 Adams Arms, LLC, 2016 WL 5391394, at *5 (quoting H.R. Rep. No. 114-529, at 4 21 (2016)). In furtherance of its aim to establish a uniform federal scheme for trade 22 secret civil litigation, DTSA is notable for what it does not require. DTSA does not 23 contain any heightened pleading requirements for civil litigants. See 18 U.S.C. § 24 1831 et seq. Congress knows how to require heightened pleading requirements for 25 statutory causes of action, but apparently decided against imposing such 26 requirements in federal trade secrets litigation. See 15 U.S.C. § 78u-4(b)(1)–(2) 27 (setting forth Private Securities Litigation Reform Act’s requirements that a 28 securities litigation plaintiff “specify each statement alleged to have been –9– 17cv1290 1 misleading” and “state with particularity facts giving rise to a strong inference that 2 that defendant acted with the required state of mind”). Nor do DTSA’s express 3 provisions regarding civil proceedings incorporate any discovery procedure 4 analogous to certain state law statutory requirements in trade secrets cases that 5 require a plaintiff to first disclose trade secrets before being able to receive discovery 6 from the defendant. See 18 U.S.C. § 1836(b). As YRD contends (ECF No. 58 at 7 12–13), the absence of heightened pleading standards and a discovery procedure in 8 DTSA—despite Congress’s awareness of state trade secrets laws—support the 9 inference that a plaintiff whose DTSA claims proceed past the pleading stage is 10 entitled to discovery in accordance with the general discovery rules set forth in 11 Federal Rule of Civil Procedure 26. 12 13 Even so, this Court believes that a DTSA plaintiff may be required to go 14 beyond its pleadings at the discovery stage consistent with Rule 26’s discovery 15 framework. Teknor moved for a protective order to permit it to withhold certain 16 documents from its production until YRD provided additional information regarding 17 YRD’s alleged trade secrets. Rule 26(c)(1)(G) expressly authorizes federal courts 18 to “for good cause, issue an order to protect a party or person from annoyance, 19 embarrassment, oppression, or undue burden or expense,” including by “requiring 20 that a trade secret or other confidential research, development, or commercial 21 information not be revealed or be revealed only in a specified way[.]” Fed. R. Civ. 22 P. 26(c)(1)(G). This provision—along with Rule 26 as a general matter—allows for 23 case-specific considerations regarding the proper course of discovery. 24 25 In exercising its broad discretion over discovery under Rule 26, it may be that 26 a federal court will look to state law trade secret discovery rules, such as the ones on 27 which Teknor relies, to determine the proper course of discovery. See Jardin v. 28 DATAllegro, Inc., No. 10-cv-2552-IEG (WVG), 2011 WL 3299395, at *3–5 (S.D. – 10 – 17cv1290 1 Cal. July 29, 2011) (finding that magistrate judge did not abuse discretion by 2 considering state law trade secrets discovery rules or “by ordering discovery 3 procedures based on his assessment of the parties’ concerns and the facts in this 4 case.”). This reliance may be particularly appropriate in cases in which a plaintiff 5 raises both federal DTSA claims and state law trade secrets claims, like YRD does 6 in this case. At least one federal court in this circuit has understandably relied on 7 state law trade secrets discovery procedures even in a case involving federal DTSA 8 claims. See Alta Devices, Inc. v. LG Elecs., Inc., No. 18-cv-00404-LHK(VKD), 9 2019 WL 176261 (N.D. Cal. Jan. 10, 2019) (granting motion to compel additional 10 trade secrets identification from plaintiff under Cal. Code of Civ. Proc. § 2019.210 11 in case involving both DTSA and CUTSA claims). 12 13 Here, Judge Berg applied the Delaware common law “reasonable 14 particularity” rule and found that YRD satisfied the rule. (ECF No. 53 at 13:6– 15 14:21.) As a case management matter, this application was proper. On the merits, 16 Teknor’s objection to Judge Berg’s application of the reasonable particularity rule 17 fails. 18 19 Teknor in part re-hashes arguments that this Court rejected at the pleading 20 stage. In an apparent desire to re-litigate the sufficiency of YRD’s pleadings, Teknor 21 contends that “YRD’s pleadings have been persistently vague with respect to what 22 information comprised the alleged trade secrets.” (ECF No. 56-1 at 2.) The Court, 23 however, carefully read the pleadings and distilled the essence of the trade secrets 24 YRD claimed and expressly identified those trade secrets that were sufficiently 25 stated and those that were not. Yeiser Res. & Dev. LLC, 281 F. Supp. 3d at 1043– 26 48. Discovery is not the appropriate setting to re-litigate dismissal arguments the 27 Court has previously rejected. Teknor’s latest objections that YRD has failed to 28 identify its trade secrets with the specificity Teknor contends is required may be – 11 – 17cv1290 1 appropriately entertained at the dispositive motions stage. See Idx Sys. Corp. v. Epic 2 Sys. Corp., 285 F.3d 581, 583–84 (7th Cir. 2002) (affirming district court’s grant of 3 summary judgment when plaintiff “had failed to identify with specificity the trade 4 secrets that it accuses the defendants of misappropriating”). 5 6 Teknor otherwise contends that YRD failed “to further identify its trade 7 secrets” in its discovery response, which Teknor contends Judge Berg failed to 8 appreciate in his assessment of YRD’s discovery response consistent with cases in 9 which courts found that other plaintiffs’ trade secret disclosures were inadequate. 10 (ECF No. 56-1 at 3.) However, as Judge Berg observed, “[t]he trade secret in this 11 case—and getting down to the very basics—is a garden hose.” (ECF No. 53 at 13– 12 14.) And, as Judge Berg determined, YRD provided a thorough response regarding 13 its alleged trade secrets in direct response to Interrogatory No. 1, consistent with 14 YRD’s obligations at this stage of the proceedings. When Judge Berg found YRD’s 15 responses to be adequate—a finding wholly supported by the record—his finding 16 rendered inapposite the cases on which Teknor relies and in which courts deemed a 17 plaintiff’s trade secrets disclosures to be inadequate. On review of Judge Berg’s 18 order, this Court is not left with the distinct impression that Judge Berg’s finding is 19 clearly erroneous. Teknor’s free-standing reliance on the various policy rationales 20 that underlie the reasonable particularity rule cannot render Judge Berg’s 21 determination “contrary to law.” 22 23 24 25 26 27 CONCLUSION & ORDER For the foregoing reasons, the Court DENIES Teknor’s discovery motion (ECF No. 56) and AFFIRMS the Discovery Order in full (ECF No. 50). IT IS SO ORDERED. DATED: May 20, 2019 28 – 12 – 17cv1290
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