Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00117/USCOURTS-caed-1_05-cv-00117-11/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1

IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

OPTISTREAMS, INC., ) 

 )

Plaintiff, )

)

vs. )

)

SEAN GAHAN and DOES 1 through )

25, inclusive, )

 )

Defendants. )

)

) 

No. CV-F-05-0117 REC SMS

ORDER GRANTING PLAINTIFF’S

MOTION TO DISMISS THE FOURTH

CLAIM FOR RELIEF OF

DEFENDANT’S SECOND AMENDED

COUNTERCLAIM. (Doc. 74)

ORDER GRANTING PLAINTIFF’S

MOTION TO VOLUNTARILY DISMISS

ITS COMPLAINT WITHOUT

PREJUDICE. (Doc. 68)

ORDER GRANTING PLAINTIFF AND

PLAINTIFF’S COUNSEL’S MOTION

TO QUASH SUBPOENA. (Doc. 92)

ORDER GRANTING DEFENDANT’S

COUNSEL’S MOTION TO QUASH OR,

IN THE ALTERNATIVE, MODIFY

PLAINTIFF’S SUBPOENA. (Doc.

105) 

 

On March 13, 2006, the Court heard (1) Plaintiff

OptiStreams, Inc.’s Motion to Dismiss Sean Gahan’s Fourth Claim

for Relief Pursuant to Rule 12(b)(6), (2) Motion to Voluntarily

Dismiss Its Complaint without Prejudice Pursuant to Rule

41(a)(2), and (3) Motion to Quash Subpoena, and (4) Sean Gahan’s

Motion to Quash or, in the Alternative Modify Plaintiff’s

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 1 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

2

Subpoena. Upon due consideration of the written and oral

arguments of the parties and the record herein, the Court GRANTS

the motions, as set forth herein. 

I. Factual Background

Defendant and Counter-Claimant Sean Gahan (“Mr. Gahan”)

worked as a computer programmer for Plaintiff and CounterDefendant OptiStreams, Inc., (“OptiStreams”) from August 2002

through September 30, 2004. 

OptiStreams alleges that, on or about July 15, 2004, Mr.

Gahan accessed OptiStreams’ computer network and electronic

database to tamper with data it contained and caused harm to

electronic storage files. OptiStreams also alleges that, in or

around August 2004, Mr. Gahan falsely told a third party that

OptiStreams was insolvent and could not pay its bills. 

On August 30, 2004, Mr. Gahan gave OptiStreams notice that he was

resigning effective September 30, 2004. Before Mr. Gahan’s

employment ended, OptiStreams asked him to sign a declaration. 

Mr. Gahan claims that the declaration contained false and

misleading statements.

Mr. Gahan claims that, on or around October 18, 2004, and on

other occasions, agents of OptiStreams told third parties that

Mr. Gahan had wrongfully engaged in computer hacking, that a

criminal investigation had implicated Mr. Gahan, and that Mr.

Gahan had failed to sign a truthful declaration arising from the

incident. Mr. Gahan alleges that Steve Genuser, an OptiStreams

employee, made statements about him in a memorandum of October

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 2 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

3

18, 2004. Mr. Gahan alleges that these claims were false and

injured his reputation.

II. Procedural History

On September 30, 2004, OptiStreams filed a lawsuit in Fresno

County Superior Court (the “Superior Court Action”) against

former employees Ryan McMurray, Adam Nostrant, and Josh Golding. 

OptiStreams Inc. v. Network Innovation, 04 CE CG 02822.

On December 22, 2004, in a separate action, OptiStreams sued

Mr. Gahan in the Superior Court of California in Fresno. 

OptiStreams alleged causes of action for slander, breach of

fiduciary duty/duty of loyalty, trespass to chattels, computer

tampering, and conversion. On January 24, 2005, Mr. Gahan

removed the action to this Court and filed a counterclaim for

damages. The counterclaim featured the following causes of

action: waiting time penalties under California Labor Code

section 203, penalties for failure to provide COBRA notice under

29 U.S.C. section 1132, defamation, and retaliation/abuse of

process. Mr. Gahan filed an his First Amended Counterclaim

(“FAC”) on August 26, 2005.

On October 19, 2005, OptiStreams filed a motion to dismiss

the Fourth Claim for Relief of the FAC, arguing that it failed to

state a claim for retaliation or abuse of process. On December

7, 2005, the Court granted the motion to dismiss. On December

15, 2005, Mr. Gahan filed a Second Amended Counterclaim (“SAC”),

which featured a claim for abuse of process.

On December 28, 2005, OptiStreams filed a Motion to

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 3 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

4

Voluntarily Dismiss Its Complaint Without Prejudice. On January

3, 2006, OptiStreams filed a motion to dismiss the Fourth Claim

for Relief of the SAC, claiming that Mr. Gahan had again failed

to state a claim for abuse of process. 

Mr. Gahan has opposed both motions. In opposition to

OptiStreams’ motion to dismiss its own Complaint, Mr. Gahan

requests that the Court condition dismissal on payment of Mr.

Gahan’s attorney’s fees and costs and on a requirement that

OptiStreams refile any new action in this case before this Court. 

With respect to OptiStreams’ motion to dismiss the SAC’s Fourth

Claim, Mr. Gahan contends that he has stated a claim for abuse of

process. OptiStreams has filed a Motion to Strike portions of

declarations Mr. Gahan submitted in opposition to the Motion to

Voluntarily Dismiss, based on a lack of personal knowledge, the

best evidence rule, the hearsay rule, and failure to authenticate

documents.

Mr. Gahan issued a subpoena to OptiStreams and its counsel

Trial & Technology Law Group (“TTLG”) on January 23, 2006. On the

same day, OptiStreams issued a subpoena to Sagaser, Jones &

Hahesy (“SJH”), counsel for Mr. Gahan. Both subpoenas sought

documents related to opposing counsel’s legal representation in

this matter.

On January 27, 2006, OptiStreams and its counsel filed a

Motion to Quash Subpoena, based on several objections. On

February 16, 2006, Mr. Gahan filed a Motion to Quash or, in the

Alternative, Modify Plaintiff’s Subpoena. Each party has opposed

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 4 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

5

the respective Motions to Quash.

III. Motion to Dismiss Fourth Claim for Relief in SAC

A. Legal Standard

Dismissal of a complaint pursuant to Rule 12(b)(6) is proper

if “it appears beyond doubt that the plaintiff can prove no set

of facts in support of his claim which would entitle him to

relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2

L. Ed. 2d 80 (1957). In testing the sufficiency of a complaint

against a Rule 12(b)(6) challenge, a court must “accept all

material allegations in the complaint as true and construe them

in the light most favorable to the plaintiff.” N. Star Int’l v.

Ariz. Corp. Comm’n, 720 F.2d 578, 580 (9th Cir. 1983). The Court

need not, however, “accept legal conclusions cast in the form of

factual allegations if those conclusions cannot reasonably be

drawn from the facts alleged.” Clegg v. Cult Awareness Network,

18 F.3d 752, 754-55 (9th Cir. 1994). 

A complaint may be dismissed as a matter of law if there is

a lack of a cognizable legal theory or if there are insufficient

facts alleged under a cognizable legal theory. Balistreri v.

Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). The

Court must determine whether or not it appears to a certainty

under existing law that no relief can be granted under any set of

facts that might be proved in support of a plaintiff’s claims. 

De La Crux v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978), cert.

denied, 441 U.S. 965, 99 S. Ct. 2416, 60 L. Ed. 2d 1072 (1979). 

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 5 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

6

B. Abuse of Process

In the First Amended Counterclaim, Mr. Gahan’s Fourth Claim

for Relief encompassed two types of claims: retaliation and

abuse of process. The Court dismissed the Fourth Claim because

Mr. Gahan had failed to state a claim on either basis. The SAC

features a Fourth Claim for abuse of process, only.

“To state a cause of action for abuse of process . . . a

plaintiff must allege (1) the defendant’s ulterior motive in

using the process, and (2) the use of the process in an unlawful

manner.” Carney v. Rotkin, Schmerin & McIntyre, 206 Cal. App. 3d

1513, 1525 (1988); Spellens v. Spellens, 49 Cal.2d 210, 231

(1957). 

The Court dismissed the abuse of process claim in the FAC

because Mr. Gahan failed to allege that OptiStreams engaged in

any “willful act . . . not proper in the regular conduct of the

proceeding.” See Oren Royal Oaks Venture v. Greenberg, Bernhard,

Weiss & Karma, Inc., 42 Cal. 3d 1157, 1168-69 (Cal. 1986); see

also Bidna v. Rosen, 19 Cal. App. 4th 27, 40 (1993) (husband did

not state a cause of action for abuse of process where he alleged

that defendant wife filed six custody actions and that she would

continue reopening cases until husband “gave up” custody of their

child on ground that filing the actions did not amount to “misuse

of the tools the law affords litigants once they are in a

lawsuit”). 

In its order granting OptiStreams’ motion to dismiss, the

Court noted that the requirement that an abuse of process claim

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 6 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

7

not lie for merely filing or prosecuting a lawsuit serves the

important policy interest of balancing “the freedom of an

individual to seek redress in the courts and the interest of a

potential defendant in being free from unjustified litigation.” 

Order Granting OptiStreams’ Mot. to Dismiss (“Order”) 7:10-12

(quoting Oren Royal Oaks, 42 Cal. 3d at 1169). This is because

an action for improper filing and maintenance of a lawsuit must

be in the form of claim for malicious prosecution, which requires

a showing that the action was brought without probable cause. 

Id. at 1169-70. An abuse of process claim does not require a

showing of lack of probable cause. Id.

In the SAC, Mr. Gahan still fails to allege that OptiStreams

has engaged in any improper conduct in the course of the

litigation. Despite the Court’s admonishment that an abuse of

process claim requires that the offending party “did something

more than simply file and maintain a lawsuit with an improper

purpose” (Order 6:26-7:2), Mr. Gahan continues in the SAC to

allege just that. Nowhere in the amended Fourth Claim does Mr.

Gahan allege that OptiStreams has engaged in improper or abusive

litigation conduct. Rather, he still claims that “Gahan was sued

in this action because he refused to sign the declaration in the

other legal proceeding” (SAC ¶ 26), that “one of the reasons he

is being sued is to influence the testimony” in the Superior

Court Action (id.), that “the filing of the lawsuit” constitutes

an abuse of process (id. at ¶ 27), and that “the retaliatory

institution of the present legal action” caused him emotional

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 7 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

8

distress (id. at ¶ 28). Mr. Gahan does not point in the Fourth

Claim to any acts by OptiStreams other than filing this lawsuit

and filing the Superior Court Action.

Mr. Gahan claims that the SAC does allege a wrongful act by

OptiStreams: “witness tampering.” Opp’n 4:22-23. Mr. Gahan

argues that the SAC alleges that OptiStreams “filed this lawsuit

with an ulterior and improper motive, and with the distinct

purpose of intimidating Gahan with the intent to influence or

prevent his testimony” in the Superior Court Action. Id. at

4:25-27 (emphasis in original). Mr. Gahan contends that filing

this lawsuit “with the intent to ‘witness tamper’” amounts to a

willful act distinct from filing and maintaining the action. Id.

at 4:27-5:1. 

Mr. Gahan is still alleging the same conduct by OptiStreams

as it did in the FAC: filing the lawsuit. At oral argument, Mr.

Gahan even admitted that the allegations in the SAC referred to

the “same conduct” that he alleged in the FAC. Simply ascribing

a new motive to OptiStreams’ filing of this lawsuit does not

satisfy the requirement under California law that an abuse of

process claim allege more than “the mere filing or maintenance of

a lawsuit.” Oren Royal Oaks, 42 Cal. 3d at 1169. “[A]buse of

process claims typically arise for improper or excessive

attachments or improper use of discovery.” Bidna, 19 Cal. App.

4th at 40 (internal citations omitted); see, e.g., White Lighting

Co. v. Wolfson, 68 Cal. 2d 336 (1968) (attachment of employee’s

automobile bore no relation to his alleged liability); Younger v.

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 8 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

9

Solomon, 38 Cal. App. 3d 289 (1974) (discovery request for

purpose of furthering state bar disciplinary proceedings). Mr.

Gahan does not allege any such wrongful litigation conduct by

OptiStreams. Accordingly, Mr. Gahan has failed to state a claim

for abuse of process.

C. Leave to Amend

Where the complaint fails to state a claim on which relief

can be granted, leave to amend “shall be freely given when

justice so requires.” Fed. R. Civ. P. 15(a); Allen v. Beverly

Hills, 911 F.2d 367, 373 (9th Cir. 1990). “The district court’s

discretion to deny leave to amend is particularly broad where

plaintiff has previously amended the complaint.” Id. (quoting

Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th

Cir. 1989)). “[A] district court does not ‘abuse its discretion

in denying a motion to amend a complaint . . . when the movant

presented no new facts but only “new theories” and “provided no

satisfactory explanation for his failure to fully develop his

contentions originally.”’” Allen, 911 F.2d 367 at 374 (quoting

Vincent v. Trend W. Technical Corp., 828 F.2d 563, 570-71 (9th

Cir. 1987).

Here, Mr. Gahan has twice amended his counterclaim. The

Fourth Claim for Relief, as amended in the SAC, contains the same

defects that the Court pointed out when it dismissed the FAC. 

The SAC contains no new facts indicating that OptiStreams engaged

in improper conduct apart from filing and maintaining the

lawsuit. The Court sees no reason to provide Mr. Gahan yet

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 9 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

10

another opportunity to attempt to revive his claim for abuse of

process. 

Accordingly, Mr. Gahan’s Fourth Claim for Relief is

DISMISSED WITH PREJUDICE.

IV. Motion to Voluntarily Dismiss Complaint

A. Voluntary Dismissal under Rule 41(a)(2)

Federal Rule of Civil Procedure 41(a)(2) provides that,

[e]xcept as provided in paragraph (1) of this

subdivision of this rule, an action shall not

be dismissed at the plaintiff’s instance save

upon order of the court and upon such terms

and conditions as the court deems proper.

. . . Unless otherwise specified in the

order, a dismissal under this paragraph is

without prejudice.

A decision to grant a motion to dismiss under Rule 41(a)(2) lies

within the sound discretion of the trial court. Stevedoring

Servs. of Am. v. Armilla Int’l B.V., 889 F.2d 919, 921 (9th Cir.

1989). Before dismissing the action, the court must determine

whether the defendant would suffer some plain legal prejudice. 

Hyde & Drath v. Baker, 24 F.3d 1162, 1169 (9th Cir. 1994);

Hamilton v. Firestone Tire & Rubber Co., 679 F.2d 143, 145 (9th

Cir. 1982); see also Westlands Water Dist. v. United States, 100

F.3d 94, 97 (9th Cir. 1996) (factors to consider include whether

dismissal would result in the loss of a federal forum, the right

to a jury trial, or a statute of limitations defense). The

prospect of a second lawsuit does not constitute plain legal

prejudice, nor does the fact that the defendant has already

incurred substantial expenses. Hamilton, 679 F.2d at 145; In re

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 10 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

Rule 13(a) of the Federal Rules of Civil Procedure reads, in 1

relevant part, as follows:

Compulsory Counterclaims. A pleading shall

state as a counterclaim any claim which at the

time of serving the pleading the pleader has

against any opposing party, if it arises out

of the transaction or occurrence that is the

subject matter of the opposing party's claim

and does not require for its adjudication the

11

Lowenschuss, 67 F.3d 1394, 1400-01 (9th Cir. 1995) (citing Hyde &

Drath, 24 F.3d at 1169); see also Am. Nat’l Bank & Trust Co. v.

Bic Corp., 931 F.2d 1411, 1412 (10th Cir. 1991) (“The possibility

that plaintiffs may gain a tactical advantage by refiling in

state court is insufficient to deny a voluntary motion to dismiss

without prejudice, especially when state law is involved.”).

Mr. Gahan does not allege in his Opposition that he will

suffer any legal prejudice if OptiStreams voluntarily dismisses

the action. He does contend that such dismissal requires him to

defend “against entirely new allegations” if a new action is

filed against him (Opp’n to Mot. to Voluntarily Dismiss 1:26)

and may be forced to litigate in two different fora

simultaneously (id. at 1:26-27). 

For the first time at oral argument, Mr. Gahan contended

that voluntary dismissal was inappropriate because it deprived

him of a federal forum. He stated that he would be prejudiced

because OptiStreams would assert in the Superior Court Action

what should be a compulsory counterclaim in this action. He

cited in support Rule 13(a) of the Federal Rules of Civil

Procedure, which requires parties who face claims in a 1

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 11 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

presence of third parties of whom the court

cannot acquire jurisdiction.

12

proceeding to introduce certain counterclaims, if at all, in the

same proceeding. The Court sees no reason to evaluate at this

stage the propriety of a future claim that OptiStreams may bring

in the Superior Court Action or in any other case. State courts

have their own procedural rules that govern compulsory crossclaims and prevent multiplicity of litigation. See Cal. Civ.

Proc. Code § 426.30(a); Carroll v. Imp. Motors, Inc., 33 Cal.

App. 4th 1429, 1435-36 (1995) (holding that plaintiff who

voluntarily dismissed his complaint without prejudice was barred

under section 426.30 from bringing in another action new claims

arising from the same transaction as claims in defendants’ crosscomplaint in the initial action). The Court need not alter its

course based on a purported risk that federal procedure might not

be followed in state court. Nor does the mere fact that Mr.

Gahan may be forced to defend in state court rather than in

federal court amount to legal prejudice. See Am. Nat’l Bank &

Trust, 931 F.2d at 1412.

For the first time at oral argument, Mr. Gahan also cited

Sizzler USA Restaurants, Inc. v. Belair & Evans LLP (In re

Sizzler Restaurants International, Inc.), 262 B.R. 811 (Bankr.

C.D. Cal. 2000). In that case, the court refused to dismiss

plaintiff’s complaint without prejudice on the ground that doing

so would legally prejudice defendant by undermining any future

malicious prosecution claim. Id. at 823. This is because a

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 12 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

13

determination on the merits is necessary to maintain such a claim

under California law. Id. at 822. The court found that

defendant had reason to fear that a voluntary dismissal would

make later recovery for malicious prosecution impossible. Id.

The Court is skeptical of Mr. Gahan’s eleventh hour

objection that voluntary dismissal will jeopardize a future

malicious prosecution claim. First, Mr. Gahan has asserted that

OptiStreams plans to refile its claims in the Superior Court

Action. Presumably, these claims will ultimately be resolved on

the merits, allowing Mr. Gahan to bring a malicious prosecution

claim if OptiStreams is unsuccessful. Moreover, as the Court

holds below, OptiStreams has a reasonable chance of success on

the merits, at least on the claims related to computer tampering. 

Finally, while Mr. Gahan’s Opposition discussed the merits of

OptiStreams’ claims, he did not discuss the factors bearing on

the likelihood of success on a malicious prosecution claim, such

as whether OptiStreams lacked probable cause to bring these

claims in the first place. In fact, it was only in passing at

oral argument that Mr. Gahan mentioned any interest in bringing a

malicious prosecution claim. The Court does not find plain legal

prejudice in the possibility that Mr. Gahan’s malicious

prosecution claim may be foreclosed. 

None of Mr. Gahan’s practical concerns rise to the level of

legal prejudice on par with loss of a federal forum, the right to

a jury trial, or the existence of a statute of limitations

defense. Accordingly, voluntary dismissal under Rule 41(a)(2) is

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 13 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

14

appropriate. 

B. Conditioning Voluntary Dismissal on Payment of Fees and

Costs

In deciding to grant OptiStreams’ motion for voluntary

dismissal, the Court must decide whether to subject the dismissal

to any conditions. Mr. Gahan asks the Court to condition the

voluntary dismissal of OptiStreams’ Complaint on its payment of

Mr. Gahan’s attorney’s fees and costs. The party against whom

voluntary dismissal is sought is not entitled to attorney’s fees

and costs if plaintiff had “a realistic chance of prevailing.” 

Stevedoring Servs., 889 F.2d at 922. The Ninth Circuit has not

defined what showing is sufficient to establish a realistic

chance of prevailing. The district court in Stevedoring Services

had already decided, after weeks of hearings, that plaintiff’s

claims failed on the merits, though they “presented a close

question.” Id. Thus, it appears that a “realistic chance” can

be established by something less than a preponderance of the

evidence and less even than a showing that success is more likely

than not.

1. Claims Based on Computer Tampering

The brunt of the claims in OptiStreams’ Complaint are based

on Mr. Gahan’s alleged tampering with its computers and data: 

the Third Cause of Action for Trespass to Chattel, the Fourth

Cause of Action for Computer Tampering under California Penal

Code section 502, and the Fifth Cause of Action for Computer

Tampering under 18 U.S.C. section 1030. OptiStreams has

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 14 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

15

introduced evidence that suggests it would have a realistic

chance of prevailing on these claims.

On July 6, 2004, Mr. Gahan contacted a forum, the “XP

Embedded News Group,” and obtained information about how a

software developer can move an entire database from one computer

to another. Gahan Decl. ¶¶ 66-67. On July 15, 2004, Mr. Gahan

sent an e-mail reminding himself to download a database. Kalra

Decl. Ex. A (Gahan Dep.) at 245:23-246:6. He admitted in his

deposition that the database he was referring to was “the

Platypus database.” Id. at 250:14-15. Platypus is the name of

OptiStreams’ accounting software, and its database includes

information about OptiStreams’ customers, including credit card

numbers, contact information, contract termination dates, and

their requirements. Genuser Decl. ¶ 2.

On July 15, 2004, at 4:58 p.m., someone using the user name

“Prod1” logged onto OptiStreams server. Murphy Supp. Decl. ¶ 16. 

Six minutes later, all the hard drives on the server were erased. 

Id. The Prod1 user name gave the holder access to the entire

computer system. A. Haugan Supp. Decl. ¶ 3. The user name was

created on April 27, 2004, the day after then–network

administrator Ryan McMurry gave notice of his resignation from

OptiStreams. Murphy Supp. Decl. Ex. A; A. Haugan Supp. Decl. Ex.

A. Mr. McMurry, a former network administrator of OptiStreams,

left to found Network Innovation Associates, another computer

company. McMurry Decl. ¶ 3. Mr. McMurry called Mr. Gahan’s

cellular phone eight times between July 12, 2004, and July 16,

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 15 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

16

2004. A. Haugan Decl. ¶ 3; Kalra Decl. Ex. 2.

A firewall log printed July 16, 2004, indicated that at some

point, an amount of data approximately equal to the size of the

Platypus database was downloaded to Mr. Gahan’s home computer. 

Murphy Supp. Decl. ¶ 9; Gahan Supp. Decl. ¶ 53. Because the

firewall log overwrote itself approximately once a day, the entry

indicated that Mr. Gahan had downloaded the data recently. Id.

at ¶ 7.

Mr. Gahan makes a number of contentions that he claims show

that OptiStreams had no realistic chance to succeed on the

computer tampering claims. Using his own declaration as

evidence, Mr. Gahan argues in his opposition brief that:

• he lacked access to the firewall log and the Prod1

account.

• he was not on the premises at the time of the tampering

and lacked the access to the server from his home.

• another OptiStreams employee or an unidentified person

could be the culprit.

• he had permission from Mr. McMurry (whose tenure with

the company had ended months before) to transfer

projects, such as this one, to his home computer.

• contrary to the declaration of OptiStreams’ network

administrator (Murphy Supp. Decl. ¶ 17), the data

allegedly deleted was backed up on tapes.

• OptiStreams has not produced documentation detailing

financial damage it suffered.

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 16 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

The Court finds that Mr. Gahan’s and Mr. Sagaser’s 2

declarations, even if admitted in their entirety, do not show that

OptiStreams lacks a realistic chance of prevailing. Accordingly,

the Court need not decide, at this stage, the merits of Plaintiff’s

motion to strike portions of Mr. Gahan and Mr. Sagaser’s

declarations.

17

• he could have copied information out of the system at

any time without leaving the evidence that was left in

this case.

• he could not have perpetrated the tampering because he

was having dinner with his wife during the time that it

occurred.

The Court finds that these contentions, combined with Mr.

Gahan’s supporting declaration, do not indicate that OptiStreams

lacked a realistic chance of prevailing on the computer tampering

claims. There is a realistic chance that the trier of fact would

determine from the facts that Mr. Gahan entered the OptiStreams

server without permission, downloaded sensitive data, and then

erased the server hard drives to cover their tracks. There is

also a realistic chance that the trier of fact would disregard

Mr. Gahan’s self-interested assertions to the contrary.2

2. Claims Based on Defamation

OptiStreams does not contend in any of its briefing that it

had a realistic chance of prevailing on its First and Second

Causes of Action, which depend on Mr. Gahan’s allegedly

defamatory statements about OptiStreams. Mr. Gahan has presented

evidence indicating that the defamation claims would not likely

succeed. OptiStreams’ claims that “on or about August, 2004,

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 17 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

18

Defendant Gahan told Jack Durban that Plaintiff was insolvent and

could not pay its bills.” Compl. ¶ 6. OptiStreams is admittedly

unprofitable. Genuser Decl. ¶ 1. As of June 18, 2004,

OptiStreams was past due on its payments to FedEx. Sagaser Decl.

Ex. L. These uncontroverted facts indicate that Mr. Gahan would

prevail on the defamation claims based on a defense of truth. 

This, combined with OptiStreams’ failure to present evidence

supporting its First and Second Causes of Action, leads the Court

to find that OptiStreams did not have a realistic chance of

prevailing on these claims.

3. Chance of Prevailing in the Action

The Court must decide whether to grant costs or attorney’s

fees because OptiStreams lacked a realistic chance of prevailing

on two of their five claims. The Ninth Circuit upheld the denial

of costs and fees based on the district court’s finding that

plaintiff “pursued the action . . . with a realistic chance of

success.” Stevedoring Servs., 889 F.2d at 920-21 (emphasis

added). This language indicates that viewing the Complaint in

its entirety is appropriate. Such treatment seems practical in

light of modern litigation practice.

Modern pleading practice involves making claims apparently

supported by existing law that discovery and other developments

in the case may show to be ultimately unsuccessful. The Federal

Rules recognize the prospective nature of pleading and

accordingly even allow complaints featuring mutually inconsistent

claims to proceed past the pleading stage. See Fed. R. Civ. P.

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 18 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

19

8(e)(2); Isra Fruit, Ltd. v. Agrexco Agric. Exp. Co., 631 F.

Supp. 984, 987 (S.D.N.Y. 1986) (holding that plaintiff’s claims

that a contract was illegal under antitrust principles and, in

the alternative, that plaintiff was entitled to recover under the

contract survived a Rule 12(b)(6) motion). Requiring the payment

of fees and costs for unsuccessful claims where plaintiff has a

realistic chance of success on other claims seems inconsistent

and unduly punitive based on these pleading realities.

Viewing an action as a whole is consistent with district

courts’ broad discretion to deny fees to defendants when

plaintiffs’ only partially succeed in prosecuting an action. Cf.

In re Corrugated Container Antitrust Litig., 756 F.2d 411, 418

(5th Cir. 1985) (denying Rule 54(d) costs because jury found for

plaintiffs in part); Sobel v. Yeshiva Univ., 619 F. Supp. 839,

844 (S.D.N.Y. 1985) (finding defendant was not entitled to fees

as a prevailing party where partial settlement substantially

benefitted the plaintiff class). 

The Court finds that OptiStreams had a realistic chance of

prevailing in this action. If it were to succeed on its Third,

Fourth, and Fifth Causes of Action it might be entitled to a

substantial recovery. Under such circumstances, it would have

prevailed in this action despite the failure of the First and

Second Causes of Action. Accordingly, the Court declines to

condition voluntary dismissal of OptiStreams’ Complaint on

payment of attorney’s fees or costs.

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 19 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

20

C. Conditioning Voluntary Dismissal on Refiling Only in 

this Court

Mr. Gahan asks the Court to condition voluntary dismissal on

an order that OptiStreams bring the case in this Court, if at

all. Mr. Gahan cites in support Versa Prods. v. Home Depot, USA,

Inc., 387 F.3d 1325 (11th Cir. 2004). There, the Eleventh

Circuit held that plaintiff was not legally prejudiced by a

requirement that it refile the case, if at all, in the same

district court. Id. at 1329. The venue restriction was

justified in that case based on an earlier district court order

transferring the case based on 28 U.S.C. section 1404(a). Id. 

Because a district court had already decided the propriety of the

new venue, the court of appeal decided that the venue condition

was justified for two reasons. Id. The condition protected

defendant from the unfairness of relitigating the venue issue and

promoted judicial economy by maintaining the legal force of the

transfer. Id.

Mr. Gahan’s rationale for conditioning refiling in this

Court is to relieve him of the burden of prosecuting his

counterclaim in this Court and defending in another court. This

argument is insufficient to support the relief Mr. Gahan

requests. He does not claim that being forced to litigate in

state court would divest him of the benefits of any favorable

rulings. Nor does he claim that he would lose any meaningful

protections of federal law. See Lawson v. Moore, 29 F. Supp.

175, 175-76 (W.D. Va. 1939). His argument is essentially that it

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 20 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

21

would be more convenient for the action to remain in one court. 

A plaintiff’s choice of a court or courts can often create

difficulties for defendants. Nevertheless, federal courts

accommodate these choices and use the tools at their disposal to

dispose of cases efficiently and justly. See McLaughlin v.

United Va. Bank, 955 F.2d 930, 936 (4th Cir. 1992) (“principles

of res judicata, collateral estoppel, and equitable stay” can

ameliorate the potential for future waste of judicial resources

in overlapping suits). The potential inconvenience of Mr.

Gahan’s prosecuting a suit in one court and defending in another

does not justify the extraordinary relief of restricting

OptiStreams’ venue choices. Accordingly, the Court declines to

condition voluntary dismissal on OptiStreams refiling these

claims in this Court.

D. Costs under Rule 54(d)

Additionally, Mr. Gahan seeks costs under Federal Rule of

Civil Procedure 54(d), which creates a presumption that the

prevailing party will be awarded its taxable costs. See Save Our

Valley v. Sound Transit, 335 F.3d 932, 944 (9th Cir. 2003); Fed.

R. Civ. P. 54(d)(1) (“Costs other than attorneys’ fees shall be

allowed as of course to the prevailing party unless the court

otherwise directs.”). Mr. Gahan also requests costs under

California Code of Civil Procedure section 1032, which provides,

in relevant part: “(b) Except as otherwise expressly provided by

statute, a prevailing party is entitled as a matter of right to

recover costs in any action or proceeding. . . .”

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 21 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

The Court cannot determine the prevailing party prior to the 3

final adjudication of the counterclaim. This is because the

success of a counterclaim is considered along with the success of

a complaint in determining which is the prevailing party. See

Hillside Enters. v. Carlisle Corp., 69 F.3d 1410, 1416 (8th Cir.

1995) (comparing recovery on counterclaim with plaintiff’s recovery

to determine prevailing party); Kalkowski v. Ronco, Inc., 424 F.

Supp. 343, 354 (N.D. Ill. 1976) (requiring each party to pay its

own costs were “there are claims and counterclaims” and the case

was “a close and difficult one”).

22

Costs may be granted to a prevailing party who files a bill

of costs “[w]ithin 10 days after entry of judgment . . . .” L.R.

54-292(b). A party against whom costs have been taxed may object

within 10 days of service of the bill of costs. L.R. 54-292(c). 

Here, Mr. Gahan has not filed a bill of costs. In any

event, it appears doing so would be premature as the action

continues due to the existence of Mr. Gahan’s counterclaim.3

Accordingly, Mr. Gahan’s request for costs is DENIED as

premature.

E. Attorney’s Fees

In addition to requesting that the Court condition voluntary

dismissal on the payment of attorney’s fees under Rule 41(a)(2),

Mr. Gahan also argues that several other provisions entitle him

to attorney’s fees.

1. Rule 54(d)

Rule 54(d)(1) only allows the prevailing party to recover

“costs other than attorney’s fees.” Rule 54(d)(2) sets forth the

procedure for awarding attorney’s fees, but only where there is a

“statute, rule, or other grounds entitling the moving party to

the award . . . .” Rule 54(d)(2) does not itself authorize

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 22 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

23

attorney’s fees.

2. Rule 68

Rule 68 sets forth certain consequences that plaintiffs face

when they decline a defendant’s settlement offer. Rule 68

“applies only to offers made by the defendant and only to

judgments obtained by the plaintiff.” Delta Air Lines v. August,

450 U.S. 346, 352, 101 S. Ct. 1146, 67 L. Ed. 2d 287 (1981). 

Here, OptiStreams did not obtain a judgment in its favor on the

claims in its complaint. Therefore, Rule 68 is inapplicable.

3. California Penal Code Section 502

Mr. Gahan claims he is entitled to attorney’s fees under

California Penal Code section 502(e)(2) because OptiStreams has

brought a cause of action under section 502. Section 502(e)(2)

provides that “[i]n any action brought pursuant to this

subdivision the court may award reasonable attorney’s fees.” 

This provision appears to authorize the court to award attorney’s

fees to a plaintiff who prevails in an action under section

502(e). Mr. Gahan does not cite, and the Court is unaware of,

any authority for awarding attorney’s fees to a defendant under

502(e)(1). In any event, the Court finds that awarding Mr. Gahan

such fees would not be “reasonable” given the strength of the

case that OptiStreams presented. 

4. California Civil Procedure Code Section 1032

Mr. Gahan contends that California Civil Procedure Code

section 1032, which entitles a prevailing party to “recover

costs,” also entitles that party to an award of attorney’s fees. 

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 23 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

California Labor Code section 2802 provides, in relevant 4

part:

(a) An employer shall indemnify his or her

employee for all necessary expenditures or

losses incurred by the employee in direct

consequence of the discharge of his or her

duties, or of his or her obedience to the

directions of the employer, even though

unlawful, unless the employee, at the time of

obeying the directions, believed them to be

unlawful.

24

Under California law, attorney’s fees are distinct from costs and

are not awarded unless a statute or agreement of the parties

specifies otherwise. Cal. Civ. Proc. Code § 1021 (“Except as

attorney’s fees are specifically provided for by statute, the

measure and mode of compensation of attorneys and counselors at

law is left to the agreement, express or implied, of the parties;

. . . .”). Therefore, section 1032 does not authorize an award

of attorney’s fees to Mr. Gahan.

5. California Labor Code Section 2802

Mr. Gahan asks the Court to order OptiStreams to indemnify

him for the defense of this action under Labor Code section

2802. Mr. Gahan does not present any authority, nor is the 4

Court aware of any, that employs section 2802 as a self-enforcing

attorney fee provision. Rather, it appears to provide a cause of

action that an employee can bring against the employer for

indemnity. See, e.g., Grissom v. Vons Cos., Inc., 1 Cal. App.

4th 52, 59 (1991) (dismissing plaintiff’s claim under section

2802 with leave to amend his complaint); Holt v. Booth, 1 Cal.

App. 4th 1074, 1081 (1991) (holding that “[t]he cause of action

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 24 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

California Corporations Code section 317(d) provides: 5

To the extent that an agent of a corporation

has been successful on the merits in defense

of any proceeding referred to in subdivision

(b) or (c) or in defense of any claim, issue,

or matter therein, the agent shall be

indemnified against expenses actually and

reasonably incurred by the agent in connection

therewith.

25

for indemnification is dismissed as moot . . . .”). Mr. Gahan

has not brought a cause of action under section 2802, so the

Court will not decide the merits of such a claim.

6. California Corporations Code Section 317(d)

Mr. Gahan also requests indemnity under California

Corporations Code section 317(d). That provision requires a 5

corporation to indemnify the expenses of an employee who is

“successful on the merits in defense” of certain proceedings

involving the corporation. Cal. Corp. Code §§ 317(b)-(d). The

limitation on recovery to situations where the employee is

“successful on the merits” means that section 317(d) applies

“only where the actual merits of the defense have been judicially

determined.” Groth Bros. Oldsmobile, Inc. v. Gallagher, 97 Cal.

App. 4th 60, 73 (2002); Am. Nat. Bank & Trust Co. v. Schigur, 83

Cal. App. 3d 790, 793 (1978). This requires “a showing that ‘the

disposition reflects the opinion of the court or the prosecuting

party that the action would not succeed.’” Gorth Bros.

Oldsmobile, 97 Cal. App 4th at 73. 

In any event, section 317(d) only entitles an employee to

indemnification where he “acted in good faith, in a manner the

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 25 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

26

person believed to be in the best interests of the corporation.” 

Cal. Corp. Code §§ 317(b),(c). The stated purpose of the statute

is to “‘to encourage capable individuals to serve’ the

corporation.” APSB Bancorp v. Thorton Grant, 26 Cal. App. 4th

926, 931 (1994). Mr. Gahan does not contend that he acted in the

best interests of OptiStreams in defending against OptiStreams’

claims. It appears that Mr. Gahan’s only interest was in

avoiding personal liability. A decision in his favor could only

hurt OptiStreams by denying it recovery under its lawsuit. 

Therefore, Mr. Gahan is not entitled to indemnity under section

317(d).

Accordingly, OptiStreams’ Complaint is unconditionally

voluntarily dismissed.

V. OptiStreams’ Motion to Quash

Mr. Gahan issued a subpoena to OptiStreams and its counsel

Trial & Technology Law Group (“TTLG”) on January 23, 2006. The

subpoena sought billing records and records of payment for TTLG’s

legal services. OptiStreams moved to quash the subpoena on the

grounds that it seeks privileged information, seeks only

irrelevant documents, was not properly served, and seeks

documents from a party. Because the court finds that the

subpoena seeks only irrelevant documents, it need not decide

whether OptiStreams’ other objections have merit.

“On timely motion, the court by which a subpoena was issued

shall quash or modify the subpoena if it . . . subjects a person

to undue burden.” Fed. R. Civ. P. 45(c)(3)(A). Courts have

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 26 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

decided whether a subpoena imposes an undue burden based on the

relevance on the material it seeks. Compaq Computer Corp. v.

Packard Bell Elecs., 163 F.R.D. 329, 335-36 (N.D. Cal. 1995);

N.Y. State Energy Research v. Nuclear Fuel Servs., 97 F.R.D. 709,

712 (W.D.N.Y. 1983). “[I]f the sought-after documents are not

relevant nor calculated to lead to the discovery of admissible

evidence, then any burden whatsoever imposed upon [the subpoenaed

party] would be by definition ‘undue.’” Compaq Computer, 163

F.R.D. at 335-36. 

Mr. Gahan alleges that the documents the subpoena seeks are

relevant to his request for an award of attorney’s fees and costs

under Federal Rule of Civil Procedure 41(a)(2). As stated above,

the Court has concluded that Mr. Gahan is not entitled to an

award of attorney’s fees under Rule 41. Accordingly, the

subpoena does not seek documents relevant for that purpose.

Mr. Gahan also claims that the documents concerning

OptiStreams’ attorney’s fees are relevant “[t]o the extent

OptiStreams claims its attorneys’ fees as an aspect of its

damages in this case.” Gahan’s Opp’n to OptiStreams’ Mot. to

Quash Subpoena. Mr. Gahan contends that OptiStreams does not

adequately describe what damages comprise the $85,000 it claims

to have lost because of the computer-tampering incident. Because

these damages may include attorney’s fees, Mr. Gahan posits, he

is entitled to subpoena records that detail these fees. 

Mr. Gahan’s claim that OptiStreams seeks attorney’s fees as

damages for the computer tampering is pure speculation. He

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 27 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

28

points to nothing in the Complaint or any filing of OptiStreams

that indicates such a claim. Mr. Gahan’s mere conjecture that

legal fees comprise that figure does not justify an order

requiring OptiStreams and TTLG to produce details of their legal

relationship. OptiStreams states that no portion of the $85,000

in damages it sought were for its attorney’s fees. OptiStreams

Reply in Supp. of Mot. to Quash Subpoena 2:22-25 n. 1. Moreover,

because the Court has authorized OptiStreams’ unconditional

voluntary dismissal of its claims, details about the damages it

formerly sought are wholly irrelevant. 

 Accordingly, OptiStreams’ motion to quash Mr. Gahan’s

subpoena is GRANTED.

VI. Mr. Gahan’s Motion to Quash

On January 23, 2006, OptiStreams issued a subpoena to

Sagaser, Jones & Hahesy (“SJH”), counsel for Mr. Gahan. It

sought documents concerning details of SJH’s legal representation

of Mr. Gahan. Mr. Gahan moved to quash the subpoena on the

grounds that the documents it seeks are privileged work product,

that the documents are not relevant to the proceeding, that the

subpoena is premature, and that OptiStreams issued the subpoena

to harass and annoy Mr. Gahan.

OptiStreams claims that the information it seeks is relevant

to determining whether and to what extent Mr. Gahan can recover

fees as a condition of OptiStreams’ voluntary dismissal. Because

the Court has allowed OptiStreams to voluntarily dismiss the

Complaint without the condition that it pay Mr. Gahan’s

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 28 of 29
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

29

attorney’s fees or costs, the documents the subpoena seeks are

not relevant. Therefore, responding to the subpoena imposes an

undue burden on SJH. See Compaq Computer, 163 F.R.D. at 335-36.

Therefore, Mr. Gahan’s motion to quash OptiStreams’ subpoena

is GRANTED.

ACCORDINGLY:

1. Sean Gahan’s Fourth Claim for Relief is DISMISSED 

WITH PREJUDICE.

2. OptiStreams’ Complaint is unconditionally DISMISSED 

WITHOUT PREJUDICE.

3. Sean Gahan’s request for costs is DENIED as premature.

4. Sean Gahan’s request for attorney’s fees is DENIED.

5. OptiStreams and TTLG’s motion to quash the subpoena 

Sean Gahan issued to them on January 23, 2006, is 

GRANTED. 

6. SJH’s motion to quash the subpoena OptiStreams issued 

on January 23, 2006, is GRANTED.

IT IS SO ORDERED.

Dated: March 27, 2006 /s/ Robert E. Coyle 

810ha4 UNITED STATES DISTRICT JUDGE

Case 1:05-cv-00117-AWI -SMS Document 114 Filed 03/28/06 Page 29 of 29