Don't Play Fast and Loose With Discovery Responses
A very interesting case out of federal court in Atlanta today provides some important lessons for businesses.
In the case, Lockheed Martin Corporation and L-3 Communications Integrated Systems are suing one another. Both companies make some nice money refurbishing military aircraft around the world. Problem is, according to Lockheed, L-3 got into the business working as a subcontractor for Lockheed, and then used Lockheed's trade secrets to go off on its own. For its part, L-3 claims that it is not using any trade secrets, and alleges that the entire action is but an attempt to stifle competition, and therefore amounts to antitrust.
After a three-week trial, the jury found in favor of Lockheed and awarded $37.3 million in damages, representing the amount of profit Lockheed claimed it would have made from a 427 million dollar contract L-3 obtained, plus some breach of contract damages. However, the jury did not award punitive damages. Lockheed also sought $16 million in legal fees.
Now the fun begins.
I've written here before that trade secrets must be actual secrets if a company is going to successfully claim that they were stolen. In one case, for example, a company sued our client claiming he had "stolen" their secret customer list and was using it to solicit business for his new company. I went onto the plaintiff company's website and found a list of all of their customers, proudly displayed. Case dismissed.
So, did Lockheed understand this basic principal of trade secrets? According to today's decision, during the discovery process L-3 had demanded production of any documents that would show that Lockheed allowed any other companies to use the alleged trade secrets without any sort of license. Obviously you can maintain a trade secret even though you tell others so long as you license the information to them, or make them sign non-disclosures and the like. But if you hire a subcontractor to provide services and show them all the trade secrets on how the work is performed, with no limitation on how that information can be used, then the sub is under no obligation to maintain the trades secrets and they really aren't secrets anymore.
In response to the discovery, according to the court, Lockheed did not produce certain documentation about a company called CASA, which had used the alleged trade secrets with no license. Unfortunately for Lockheed, that documentation was produced in another case, L-3 learned of it, and moved for a new trial, asserting that the verdict would have been different had the jury been made aware of these facts.
The judge agreed. Out goes the $37.3 million judgment, and out goes the request for $16 million in attorney fees. The parties are back to square one with a new trial, and unless the judge later reverses his position, Lockheed now has no way to recover the attorney fees incurred in the initial trial. A good discussion of the trial and the trade secret issues, before the judge decided to grant a new trial, can be found here.
Lessons for all businesses: If you are in the right, then the truth should be your servant. Too often, businesses want to hide the ball when responding to discovery. I love it when attorneys think they are being clever by making groundless objections and withholding documents based on tortured interpretations of what is being requested. Time after time, opposing counsel fails to realize that I already have the documents being requested, and it is the objection that is far more powerful. For example, in business litigation I will ask for all documents that the other side contends forms the contract between the parties. Inevitably, the other side will object, claiming that the request is just too ambiguous because they just can't figure out what I mean by "contract". Brilliant strategy. Now at trial, I get to exclude all of the documents the other side wants to put on to prove their interpretation of the contract, because they were not produced in discovery, and I get to make the witness look like a fool for claiming that he could not understand the meaning of the term "contract". Don't play fast and loose with discovery responses, because as Lockheed just learned, the consequences can be severe. (Which is not to say Lockheed acted inappropriately, only that it paid the price for failing to turn over documents the judge felt should have been turned over. These are attorneys that can run up a $16 million legal bill; you think I want them coming after me?)
And finally, before going to the mat over trade secrets, take a hard look at whether they are really secret.
To Pay My Judgment Now or Later? Comment on the Risk of Judgment Debtor Evasion
C.C.P. § 685.0401 provides that when a judgment includes an award of attorney fees pursuant to a contract, then the "[a]ttorney’s fees incurred in enforcing [the] judgment are included as costs collectible." While most would assume that "enforcing" include measures taken to collect on the judgment, on October 28, 2008 the Third Division of the Fourth Appellate District of the California Court’s of Appeal elaborated on just how broadly the term "enforcing" is to be construed.2
Globalist v. Reda3 involved a failed settlement agreement stemming from a separate action,4 negotiated by the parties to the underlying action as well as by the defendants in the separate action. Albert Reda and Internet Business’s International, Inc., ("IBI") recognized that the amount they owed under the terms of the failed settlement ($75,000.00) was far more favorable than the amount due under the final judgment from the underlying case ($444,600.00), and accordingly initiated enforcement proceedings.5 After successfully defending the settlement enforcement action, Globalist requested the inclusion of the attorney fees incurred in that defense as fees incurred in enforcing the final judgment pursuant to C.C.P. § 685.040.6 The trial court denied this request on the grounds that the fees were incurred in a "different" action, however the Appellate Court found otherwise.7
"Neither section 685.040, nor the Enforcement of Judgments Law of which it is a part, ascribe any special meaning to the word "enforcing."8 "The plain meaning of the word necessarily suggests ‘enforcing a judgment’ would include defending the validity of the judgment against challenge in a separately filed attack."9
The Court went onto note that the sole purpose of Reda’s and IBI’s settlement enforcement action was to "significantly decrease their unsatisfied judgment debtor obligations in this action . . . [and had] Globalist not defended against the specific performance action, it would have lost substantial rights under the judgment in this case."10
Considering it was ultimately held that Globalist’s attorney fees incurred in defending the settlement enforcement action were fees incurred in "enforcing" the underlying judgment, Globalist serves as a lighthouse for all judgment debtors considering wading the waters of avoidance: tread carefully. Indeed, as the court in Jaffe v. Pacelli11 made clear, even filing bankruptcy may not help.
1. California Code of Civil Procedure § 685.040.
2. Globalist v. Reda, 2008 DJDAR 16325 (4th Dist. 2008).
3. Id.
4. Id. at 16325-26.
5. Id. at 16326 & 16328.
6. Id. at 16326.
7. Id. at 16326-27.
8. Id. at 16327.
9. Id.
10.Id. at 16328.
