Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00533/USCOURTS-caed-2_06-cv-00533-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Contract Dispute

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

FUNCAT LEISURE CRAFT, INC., et al.,

Plaintiffs, CIV. NO. S-06-0533 GEB GGH 

vs.

JOHNSON OUTDOORS, INC.,

Defendant. ORDER

 /

Previously pending on this court’s law and motion calendar for January 18, 2007,

was plaintiffs’ motion to compel discovery. The parties filed a joint statement. Andrew Stroud

appeared for plaintiffs. Allen Schlinsog and Robert Milligan appeared for defendant. After

hearing, the court issues the following order.

BACKGROUND

This case concerns plaintiffs’ electric chaise lounger boat and their claim that

defendant copied their design and introduced its own version of the boat after discussions for

defendant’s subsidiary to purchase the product line fell apart. Plaintiffs claim that defendant

obtained access to critical technical, manufacturing, marking and design changes, and used them

in its own line, thereby providing plaintiffs with the following claims: (1) breach of contract

(“Claim I”), (2) breach of the covenant of good faith and fair dealing (“Claim II”), (3)statutory

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26 This code section was previously numbered 2019(d). 1

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misappropriation of trade secrets (“Claim III”), (4) common law misappropriation of trade secrets

(“Claim IV”), (5) trade dress infringement (“Claim V”), (6) unfair competition (“Claim VI”), (7)

breach of confidence (“Claim VII”), (8) intentional interference with prospective economic

advantage (“Claim VII”), and (9) fraud and deceit (“Claim IX”). On July 25, 2006, Judge Burrell

dismissed some of the claims. Claims remaining after that order are breach of nondisclosure

agreement, statutory trade secret misappropriation, trade dress infringement, unfair competition,

breach of confidence, and intentional interference with prospective economic advantage. 

The instant dispute concerns plaintiffs’ motion to compel Johnson to provide

documents in response to two sets of requests for production, and substantive responses to

plaintiffs’ interrogatories. Johnson has refused to provide discovery, claiming that plaintiffs have

not sufficiently identified trade secrets at issue in their Code of Civil Procedure § 2019.210

statement.

DISCUSSION

At hearing, the court questioned the applicability of Cal. Code Civ. Proc. §

2019.210 in a diversity action in federal court. After permitting the parties to provide

supplemental statements on this issue which had not been briefed previously, the court has made

the following determination.

Cal. Code Civ. Proc. § 2019.210 provides :

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In any action alleging the misappropriation of a trade secret under

the Uniform Trade Secrets Act (Title 5 (commencing with Section

3426) of Part 1 of Division 4 of the Civil Code), before

commencing discovery relating to the trade secret, the party

alleging the misappropriation shall identify the trade secret with

reasonable particularity subject to any orders that may be

appropriate under Section 3426.5 of the Civil Code.

The applicability of this code section in federal courts has not been finally

determined. Advante International Corp. v. Mintel Learning Technology, 2006 WL 3371576 n. 4

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(N.D. Cal. 2006) (specifically refusing to decide applicability of § 2019.210 in federal cases but

using it as guide); Excelligence Learning Corp. v. Oriental Trading Co., Inc., 2004 WL 2452834,

n.3 (N.D. Cal. 2004) (noting state code of civil procedure not binding, but applying it because

there was no parallel trade secret discovery provision in Federal Rules of Civil Procedure). Other

federal courts have applied this state code section without analysis, or much analysis, of its

applicability in federal court. See Neothermia Corp. v. Rubicor Medical, Inc., 345 F. Supp. 2d

1042(N.D. Cal. 2004); Pixion, Inc. v. PlaceWare, Inc., 421 F. Supp. 2d 1233, 1242 (N.D. Cal.

2005); Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1322 (S.D. Fla. 2001)

(deciding only between California and Florida law, without mentioning federal law). These

cases have also been cited by defendant; however, their lack of analysis on the issue lends little

support to defendant’s argument.

Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980, 985 (S.D.

Cal. 1999) analyzed the applicability of § 2019.210 in federal court proceedings. There, the court

determined that Fed. R. Civ. P. 26(c)(7), the section providing for protective orders for trade

secrets or other confidential information, did not conflict with § 2019.210 and that they in fact

complemented each other. Id. at 988. The court stated: “Rule 26(c) permits a defendant to file a

motion for a protective order to prevent the disclosure of defendant’s trade secrets, while CCP §

2019(d) requires the plaintiff to identify its allegedly misappropriated trade secrets before seeking

discovery. Hence, there is no inconsistency, let alone a collision, between the provisions. Id.

(emphasis in original). 

With respect, while the “collision” analysis may be correct in the abstract, the

court disagrees with Computer Economics insofar as “collision” is the deciding factor for

determination of whether a state procedural rule can be engrafted into federal court proceedings. 

The Federal Rules of Civil Procedure govern this case, Fed. R. Civ. P. 1, and, unless stipulated

otherwise or ordered after stipulation pursuant to case management orders, it is not within the

discretion of the court to willy nilly apply bits and pieces of the discovery civil procedure codes

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 The genius of the Federal Rules as they pertain to discovery is that the parties are 2

expressly given the opportunity in large part to craft their own discovery procedures. However,

this authority to depart from the default provisions of the federal rules applies to stipulations of

the parties. Thus, the parties could have stipulated to the use of Cal. Code of Civ. Proc. §

2019.210, and this stipulation could have been made part of a case management order. However,

no such stipulation appears in this case. Although plaintiff earlier acquiesced to its application,

and actually supplied a statement pursuant to § 2019.210, this one time acquiescence does not

amount to a stipulation. Moreover, if acquiescence were the rule, defendant acquiesced to the

propriety of the statement by participating in previous discovery without objection.

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of the various states, even the state in which the district court sits. And, the district court is not

free to legislate new, mandatory discovery procedures under the rubric that the state law does not

“conflict with” the federal rules simply because it thinks state law supplies a better way to go. 

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The Computer Economics court fails to emphasize that the rule of application is one of

procedure, and therefore federal law controls. As plaintiffs point out in their supplemental

briefing, “[a] special case arises when the federal law is embodied in a Federal Rule of Civil

Procedure. In that situation, the federal rule must be applied if it does not ‘abridge, enlarge, or

modify any substantive right’ in violation of the Rules Enabling Act.” Freund v. Nycomed

Amersham, 347 F.3d 752, 761 (9th Cir. 2003), citing Rules Enabling Act, 28 U.S.C. § 2072. 

If Rule 26 applies, plaintiffs may go forward with the instant discovery. If §

2019.210 applies, plaintiffs are prevented from pursuing discovery if the insufficiency of their §

2019.210 statement is adversely determined. Here, application of § 2019.210 would serve to

prevent application of Rule 26, if defendant had its way. As stated in Hanna v. Plumer, 380 U.S.

460, 470, 85 S. Ct. 1136, 1144 (1965), under the rule of Erie R. Co. v. Tompkins, state law is

not to be invoked in order to void a federal rule. Where a federal rule of procedure covers a rule

of practice, such rule governs in a federal diversity case, even in the face of a contrary state rule. 

Santana v. Holiday Inns, Inc., 686 F.2d 736, 740 (9th Cir. 1982). In fact, as plaintiffs point out,

the rules are in direct conflict. 

It is certainly true that litigation rules to be applied may touch upon both

substantive and procedural matters, and matters of substance in diversity cases are governed by

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 By comparison, the situation in this case is different from that in U.S. ex rel Newsham 3

v. Lockheed Missles & Space Co., 190 F.3d 963 (9th Cir. 1999) in which the Ninth Circuit

determined that the anti-SLAPP provisions of California law applied in a diversity action. 

Application of the state law was determined not to conflict with the federal rules of civil

procedure, unlike the result which would obtain here, and the SLAPP suit provisions are quasi

substantive as well, i.e., claims may be stricken and attorneys fees awarded. Moreover,

defendant’s citation of IMAX Corp. v. Cinema Technologies, 152 F.3d 1161 (9th Cir. 1998)

actually diminishes rather than enhances defendant’s argument. In that case, after full federal

discovery had been permitted, the court determined at summary judgment that a trade secret

claim was insufficiently set forth. If defendant Johnson’s position had been applied in IMAX, no

federal discovery should have been permitted at all. 

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state law. However, a rule regulates procedure rather than substance if it encompasses “the

judicial process for enforcing rights and duties recognized by substantive law and for justly

administering remedy and redress for disregard or infraction of them.” Hanna, 380 U.S. at 464,

quoting Sibbach v. Wilson & Co., 312 U.S. 1, 14, 61 S. Ct. 422, 426 (1941). See Gasperini v.

Center For Humanities, Inc., 518 U.S. 415, 431-437, 116 S. Ct. 2211(1996) (federal law will

govern standards of appellate review vis-a-vis the district and circuit court in a diversity action

even if the law of damages itself will be based on state law). Section 2019.210 clearly addresses

procedure and not substance. The California statute simply sets out a procedural pleading or

identification threshold prior to the initiation of discovery– both purely procedural matters. Rule

26, et seq., without question regulates the procedure for discovery.3

This rule at issue in this case is not unlike that applied to the issue of bifurcation

of liability and amount of punitive damages at trial. In Hamm v. American Home Products

Corp., 888 F. Supp. 1037, 1038 (E. D. Cal. 1995), the court found that Cal. Civ. Code § 3295(d),

requiring bifurcation, was inconsistent with Fed. R. Civ. P. 42(b), granting the district court

discretion to bifurcate issues. Accordingly, it refused to apply § 3295, and, applying Rule 42(b),

exercised its discretion to deny bifurcation at trial of the issues of liability and amount of punitive

damages. The majority of federal courts analyzing the issue of delayed or denied punitive

damages discovery have declined to apply state law on the issue, or have otherwise declined to

incorporate a prima facie case requirement before discovery is allowed. CEH, Inc. v. FV

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“Seafarer”, 153 F.R.D. 491, 497- 498 (D.R.I. 1994) (collecting cases).

Courts have also refused to apply Cal. Civ. Code § 3295(c), which allows

discovery only where the plaintiff has made a substantial showing that he will probably prevail

on a punitive damages claim, because it is inconsistent with Rule 42. Subdivision (c) is even

more procedural in nature than subdivision (d), and more akin to the instant case, in providing for

the manner in which financial discovery is to be undertaken. 

Therefore, for the reasons stated, the court finds that § 2019.210 has no

application in this present dispute.

CONCLUSION

Accordingly, IT IS ORDERED that plaintiffs’ motion to compel discovery, filed

December 4, 2006, is granted.

DATED: 1/29/07 /s/ Gregory G. Hollows

 

GREGORY G. HOLLOWS

 U. S. MAGISTRATE JUDGE

GGH:076/Funcat0533.trd.wpd

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