1

Filed 8/17/20 PHL Associates, Inc. v. Superior Court CA3

Opinion following rehe aring

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Yolo)

----

PHL ASSOCIATES, INC.,

Petitioner,

v.

THE SUPERIOR COURT OF YOLO COUNTY,

Respondent;

DALE WALLIS,

Real Party in Interest. C088437

(Super. Ct. No. 06CV72352)

ORDER MODIFYING

OPINION AND DENYING

REHEARING

[NO CHANGE IN

JUDGMENT]

THE COURT:

In response to the petition for rehearing filed by real party in interest Dale Wallis,

the court modifies its opinion filed in this matter on July 16, 2020 as follows:

1. On page 25 of the opinion, the paragraph that begins “Wallis contends

PHL’s argument .

. .” is modified, and additional paragraphs are added following that

paragraph, as follows:2

Wallis contends PHL’s argument is at odds with PHL’s opposition to her motion

in the liability trial to amend her complaint to allege a claim of misappropriation under

CUTSA. Wallis did not challenge on appeal the trial court’s denial of her motion or its

later dismissal of her cross

- complaint raising a claim under CUTSA. Those decisions are

now final.

At oral argument, Wallis contended that two recent California opinions supported

her argument. Those cases, Quigley v. Garden Valley Fire Protection Dis t. (2019)

7 Cal.5th 798 ( Quigley ) and Department of Finance v. City of Merced (2019)

33 Cal.App.5th 286 ( City of Merced ), are distinguishable. In Quigley , an injured

firefighter sued for damages under the Government Claims Act (Gov. Code, § 900 et

seq.). The defendant agencies asserted a statutory immunity at trial which they had not

pleaded in their answers. The lower courts held that the immunity was jurisdictional and

could be raised at any time, but the California Supreme Court reversed. It held tha t the

immunity did not go to the trial court’s fundamental jurisdiction. Rather, it “shield[ed]

particular actors or activities from otherwise applicable liability for tortious conduct.

. . .

[It] provides a justification or excuse from liability that wo uld otherwise exist .

. . .”

( Quigley, supra , 7 Cal.5th at p. 809.) As a general rule, such a matter had to be pleaded

as an affirmative defense. ( Ibid .)

Unlike the statutory immunity at issue in Quigley , CUTSA does not just shield a

defendant from liab ility that would otherwise exist. It prohibits a plaintiff from bringing

any action at law or equity for trade secret misappropriation except as CUTSA provides.

A cause of action that falls within the scope of CUTSA but is not brought under CUTSA

fails t o state a cognizable claim

— it does not exist

— and is subject to dismissal at any

time. (Code Civ. Proc., § 430.80, subd. (a).)

The second case Wallis raises, City of Merced , is similarly distinguishable. There,

the Department of Finance determined the city was required to transfer funds to the state

as part of the dissolution of the city’s redevelopment agency. The city did not timely3

challenge the agency’s findings, and it also did not transfer the money. The agency

sought a writ of ma ndate to compel the city to pay. The city answered with a general

denial, but it later opposed the petition by challenging the merits of the agency’s

determinations. It also filed a cross

- petition without the trial court’s approval to raise the

same argu ments. The trial court struck the cross

- petition and awarded the writ. ( City of

Merced, supra , 33 Cal.App.5th at pp. 289

- 293.)

On appeal, the city claimed its general denial to the writ petition placed at issue

the merits of the agency’s determinations. A panel of this court disagreed. Not only did

the general denial not place the claim at issue, but the city was required to allege the

claim as an affirmative defense. An affirmative defense is “ ‘new matter’ ” relied upon

by the defendant that is not r esponsive to the complaint’s essential allegations. ( City of

Merced, supra , 33 Cal.App.5th at p. 294.) A failure to plead new matter as an affirmative

defense waives the defense. ( Ibid .) The city’s claims were outside the petition’s

allegations and, ha ving not been pleaded as an affirmative defense, were forfeited. ( Id . at

pp. 294

- 295.)

Unlike the new matter the city failed to plead as an affirmative defense in City of

Merced , PHL’s motion to dismiss for failure to state a claim responds to the complai nt’s

allegations. Claiming that the plaintiff’s cause of action cannot be stated as a matter of

law directly responds to the action’s allegations and does not rely on facts not alleged in

the complaint to excuse a defendant from potential liability.

2. The text beginning with and including the paragraph on page 26 that begins

“Wallis argued, and the jury .

. .”, and continuing through and including the paragraph on

page 27 that begins “ Wallis claims the trial court found

. . .” is replaced with the

follo wing text:

Wallis argued, and the jury and the trial court found that PHL acquired the antigen

due to Wallis’s reliance on PHL’s misrepresentation of her shareholder status. The jury4

also found that PHL knowingly made a false representation and induced Wa llis to rely on

it, which she did. These findings establish that PHL had reason to know that it acquired

the antigen by misrepresentation. Because PHL was the one who made the

misrepresentation, it had reason to know that the antigen was acquired by impr oper

means. These facts are the same nucleus of facts which would support a claim of trade

secret misappropriation under CUTSA.

Wallis contends CUTSA did not supersede her equitable claims. She raises

several reasons. She argues the equitable claims are not based on misappropriation.

Rather, they assert Wallis allowed PHL to use the antigen in exchange for compensation

as a shareholder, a factual scenario she claims is distinct from the facts that would

support a misappropriation claim. This scenario, however, is not what the jury and trial

court found. The court found that Wallis “relinquished” the antigen to PHL, not just

licensed PHL to use it. The court also found that Wallis relinquished the antigen “in

reliance” on PHL’s false promise to make he r a shareholder. Because PHL committed

the fraud, it had reason to know that Wallis gave it the antigen in reliance on the fraud.

Wallis’s claims for equitable relief are based on the same nucleus of facts that would

support a claim for misappropriation due to misrepresentation.

Wallis asserts the jury’s findings foreclose a misappropriation claim. She

contends misappropriation would have required PHL to commit an intentional act related

to the antigen, but the jury found that PHL did not make a misrepre sentation or false

promise related to the antigen. As we have tried to make clear in this opinion, the

misrepresentation did not have to “relate” to the antigen for PHL to be held liable. The

scope of liability is based on the extent Wallis actually and reasonably relied on the

misrepresentation and whether PHL had reason to know that it had acquired the antigen

by its fraud. If PHL acquired the antigen by falsely and knowingly inducing Wallis to

believe she was a shareholder, then it had reason to know it had acquired the antigen by

improper means

— which is misappropriation under CUTSA.5

Wallis claims the trial court found that her equitable claims were not based on

misappropriation. She notes the court stated she had no claim for misappropriation

“becaus e she unilaterally relinquished the antigen, albeit in reliance on the promise of a

stake in the company .” (Italics added.) She argues her claims for equitable relief were

based on her reliance, not on PHL’s intent to take the antigen by improper means, a

showing she claims misappropriation requires. She and the trial court cannot have it both

ways. If she relinquished the antigen due to her reliance on PHL’s knowingly false

promise, as the jury and trial court said she did, then PHL acquired the antige n with

reason to know it had done so by its misrepresentation, and that act constitutes

misappropriation under CUTSA.

These modifications do not affect the judgment. The petition for rehearing is

denied.

BY THE COURT:

HULL, Acting P.J.

ROBIE, J.

MAURO, J.6

Filed 7/1 6 /20 PHL Associates, Inc. v. Superior Court CA3 (u nmodified opinion)

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication

or or dered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Yolo)

----

PHL ASSOCIATES, INC.,

Petitioner,

v.

THE SUPERIOR COURT OF YOLO COUNTY,

Respondent;

DALE WALLIS,

Real Party in Interest. C088437

(Super. Ct. No. 06CV72352)

With this petition for writ relief, we again address the dispute between real party

in interest Dale Wallis and her former employer, petitioner PHL Associates, Inc. (PHL)

,7

over Wallis’s disclosure to, and sale by

, PHL of an antigen Wallis developed for use in a n

animal vaccine. This iteration of the dispute arrives here following a retrial of Wallis’s

claims for equitable relief. In the bifurcated retrial, the trial court found that PHL was

unjustly enriched by acquiring the antigen from Wallis by misrepresenting to her that she

was a shareholder in the company.

Before incurring extensive discovery to prepare for the next trial on damages, PHL

petitioned this court for rel ief. It contends the trial court’s ruling violates the law of the

case and, alternatively, that Wallis’s equitable claims are superseded by the California

Uniform Trade Secrets Act (Civ. Code, § 3426 et seq. (CUTSA)) and the statute of

limitations bars Wa llis from now bringing a claim under that law

.

We grant the petition. Although Wallis’s equitable claims are not barred by the

law of the case, they are superseded by CUTSA, and by her not timely pleading a cause

of action under CUTSA she is prevented fro m recovering any equitable relief.



### F ACTS AND 

### P ROCEEDINGS

1. Development and sale of the antigen

In 1988, while employed by PHL, Wallis developed an antigen, known as the J

- 5

TC antigen, for a vaccine for bovine mastitis. Although she developed the antigen within

the scope of her employment, the jury found that she and PHL agreed she would own the

antigen.

In 1989, Wallis discussed producing the vaccine with the PHL board of directors,

but she felt they were reneging on an earlier promise to make her a sh areholder. She

considered taking the antigen to another company

, but PHL gave her a raise and the

opportunity to purchase 20 shares of PHL stock for $1,000 a share. Wallis paid $15,000

to PHL for 15 shares and $5,000 to the individual shareholders for fi ve shares. She was

given a vote in board meetings. PHL began using the antigen to manufacture vaccine for

the market. Wallis received shareholder bonuses through 1990 and part of 1991.8

In 1991, PHL negotiated to sell the vaccine to Upjohn. During neg otiations, it

terminated Wallis ’s employment . She refused an offer to buy back her shares because

she believed she was entitled to one

- sixth of the Upjohn deal. The other shareholders

voted to remove her from the board of directors.

In January 1992, PHL finalized the sale of the vaccine to Upjohn for $2.5 million.

PHL agreed not to compete with Upjohn for 10 years, and Upjohn agreed that PHL

would be the exclusive producer and supplier of the antigen in the United States.

In March 1992, PHL’s attorney notified Wallis in writing that she was not a PHL

shareholder because she had purchased only an option to become a shareholder after five

years of employment. The attorney enclosed checks to refund the purchase price of the

s hares plus interest. Wallis rejected the characterization of the transaction and refused to

cash the checks.

Meanwhile, Wallis and her former husband started a company to develop and

market its own J

- 5 antigen, and they tried to persuade Upjohn to purch ase the vaccine

from them. In 1993, Upjohn sued the m for infringement, and the y counterclaimed. The

federal court granted summary judgment in favor of Upjohn on the counterclaim, and the

parties settled. As part of the settlement, Wallis agreed that Upj ohn owned the rights to

the vaccine.

2. Complaint, cross

- complaint, and bifurcated trial

Wallis filed this action against PHL and its shareholders on June 22, 1994. In her

fifth amended complaint, s he alleged causes of action for fraud, conversion, cons piracy,

unjust enrichment, constructive fraud, and constructive trus t . PHL filed a cross

complaint. The trial court, Yolo County Superior Court Judge Stephen L. Mock,

bifurcated trial on the complaint and cross

- complaint, and it stayed discovery on the

c ross

- complaint until after trial on the complaint.9

Twice, once during trial in 2000 and once after trial in 2001 , Wallis attempted to

add a cause of action for misappropriation of trade secrets under CUTSA. PHL opposed

both attempts. The trial court de nied Wallis’s requests. The court denied Wallis’s

motion to amend the complaint during trial because of the prejudice PHL would incur at

that late stage. CUTSA would necessitate additional discovery on a different standard of

damages which would further delay trial. It also c ould allow Wallis to recover attorney

fees if she established liability with bad faith , and PHL had not been notified of th at risk

by any of Wallis’s complaints.

After trial , Wallis filed a cross

- complaint alleging misappropriation of trade

secrets under CUTSA. The trial court sustained PHL’s demurrer to the cross

- complaint

without leave to amend. The action was barred by CUTSA’s three

- year statute of

limitations, and the r elation

- back doctrine did not apply. Wallis did not challenge on

appeal either the denial of her motion to add a cause of action under CUTSA in 2000 or

the court’s 2001 ruling on the demurrer to her cross

- complaint

.

In June 2000, the jury returned special verdicts on the fifth amended complaint

and found PHL liable for fraud and conversion related to Wallis’s money. It found that

Wallis invented the antigen within the scope of her employment at PHL, but she and PHL

agreed that she would own the antigen.

As to fraud, the jury found:

• PHL did not make a false promise or false representation to Wallis related to the

antigen.

• PHL knowingly ma d e a false representation of material fact to Wallis related to

her money to induce her to rely on it . Wallis relied on the misrepresentation unaware it

was false and that PHL did not intend to perform , and she was justified in relying on the

misrepresentation

. The parties occasionally refer to this fraud as the share fraud.

As to conversion, the jury found:

• P HL did not deliberately interfere with the antigen.10

• PHL deliberately and unjustifiably interfered with Wallis’s $15,000.

T he jury assessed against PHL over $1.9 million in compensatory damages and

$500,000 in p unitive damages. The jury also assessed damages against the individual

shareholders, but they are not party to the writ petition before us.

After the jury trial was completed, the trial court heard argument on the equitable

causes of action. In Decembe r 2000, it found there was unjust enrichment . It stated

equitable relief was warranted because PHL took the antigen without paying any

compensation to Wallis due to a “mistake of fact.” The court imposed a constructive

trust against royalties PHL receive d for the antigen after it sold it and for the

noncompetition agreement it signed with Upjohn in an amount exceeding $1.4 million,

including prejudgment interest. The court also lifted the stay on the cross

- complaint

proceedings.

PHL filed a written req uest for a statement of decision, but the court denied it as

untimely.

In July 2002, Wallis disqualified Judge Mock under Code of Civil Procedure

section 170.6 from hearing PHL’s cross

- complaint. Approximately six years later, i n

April 2008, the case wa s assigned to Judge David De Alba of the Sacramento County

Superior Court

.

In April 2010, 1 0 year s after trial, the parties settled PHL’s cross

- complaint.

Wallis agreed to pay PHL slightly more than $1.8 million, and PHL dismissed its action.

Wallis e lected to recover on her fraud cause of action instead of conversion, and

Judge De Alba entered judgment on Wallis’s complaint. As later amended, the judgment

against PHL awarded W allis $1,944,997 in damages on the jury’s fraud verdict, $500,000

in puniti ve damages, and $671,262 on the equitable claims. The judgment also awarded

prejudgment interest.11

3. Appeal

Both PHL and Wallis appealed. ( Wallis v. PHL Associates, Inc. (2013)

220 Cal. Ap p. 4th 814.) ( We grant PHL’s request to take judicial notice of its opening

brief in that appeal. (Evid. Code, § § 452, subd. (d); 453.)) Among other claims, PHL

contended the special verdict s were inconsistent. They did not support the damages

award of $1.9 million because the jury found PHL committed fraud r elated to Wallis’s

money, not the antigen

. PHL contended the maximum damages for fraud related to

Wallis’s money equaled the $15,000 she paid to PHL for shares in the corporation.

Wallis disagreed, arguing evidence supported the damages award because PHL obtained

the antigen due to its false representations about her status as a shareholder.

In an unpublished portion of the opinion, w e held Wallis’s argument in support of

the damage award did not reflect the correct standard of damages . The correct standard

was the out

- of

- pocket standard, and although the jury had been properly instructed on

that standard , there was no evidence Wallis had spent more than $15,000 out of her

pocket due to the fraud related to her money . We also stated Wallis c ould not recover

fraud damages for disclosing the antigen based on PHL’s false promise of becoming a

shareholder where the jury found there was no misrepresentation or false promise related

to the antigen. Our statement on this issue is provided in full a nd discussed in section

I.A. of the Discussion below.

We modified the judgment. Applying the out

- of

- pocket standard of damages, we

reduced the award of fraud damages against PHL to $15,000, the amount Wallis paid

PHL for the purported shares in the comp any. Because of the reduction in the

compensatory damages award, we also reduced the award of punitive damages to

$150,000.

As for equitable relief, we concluded the trial court erred when it refused PHL’s

request for a statement of decision as untimely . We also concluded that because Judge12

Mock had been disqualified, the only remedy for this error was to remand for a new trial

on the equitable causes of action.

4. Retrial of equitable claims

Following remand, the Sacramento County Superior Court retu rned the case to the

Yolo County Superior C ourt. Judge Daniel P. Maguire was assigned for all purposes.

Initially, the court bifurcated the equity trial into liability and damages phases.

After taking evidence but p rior to issuing its statement of decision, the trial court

requested supplemental briefing. It asked the parties to address what sort of intellectual

property the antigen was and

, if it was a trade secret, whether Wallis abandon ed he r

ownership of it when she disclosed it to PHL. In their supplemental brief s

, both parties

contended the antigen was a trade secret . PHL argued that Wallis abandoned her rights to

the trade secret when she disclosed it to PHL without a nondisclosure or licensing

agreement

.

T he trial court rele ased a tentative statement of decision . It stat ed the antigen was

a trade secret , and Wallis was entitled to equitable recovery because she unilaterally

disclosed the antigen to PHL in reliance on PHL’s false promise to make her a

shareholder

.

Objecting to the tentative decision, PHL argued that if the antigen was a trade

secret, Wallis’s equitable claims were displaced by CUTSA. PHL contended CUTSA

provided the exclusive civil remedy for claims based on misappropriation of trade secrets

and confidentia l information

, and it superseded equitable claims for unjust enrichment.

The trial court ordered additional briefing on whether CUTSA preempted Wallis’s

equitable claims . The court stated this issue had not been fully briefed

, but it did not fault

eithe r part y as the potential relevance of CUTSA preemption likely came to light with the

court’s tentative statement of decision.13

After this additional round of briefing, t he trial court issued its final statement of

decision. It found that PHL was unjustly enriched by gaining access to the antigen

through its fraud related to Wallis’s money. The court found that “ Wallis unilaterally

relinquished the antigen to PHL, in reliance on its collateral assurance that she would be

made an owner of the comp any. While the Court of Appeal has found that this

relinquishment cannot support legal fraud damages for PHL’s use and sale of the antigen,

this court finds that it presents an appropriate case for equitable relief, as PHL has been

unjustly enriched by it s false promise to make Wallis an owner.” (Original italics.) We

describe the trial court’s decision in more detail in section I.A. below.

The trial court did not address the issue of whether CUTSA displaced or

superseded equitable remedies for misapprop riation of trade secrets. Although the court

found the antigen was a trade secret , it ruled that PHL forfeited its argument under

CUTSA by not alleging it as an affirmative defense in its answer some 20 years earlier

.

Because Wallis’s complaint did not a llege misappropriation of trade secrets or that the

antigen was a trade secret, PHL’s objection based on CUTSA was new matter and was

required to be alleged in the answer as an affirmative defense

.

5. Petition for writ relief

PHL filed this petition for writ of mandate , prohibition, and/or other appropriate

relief , and we issued an order to show cause

. PHL contends the trial court violated the

law of the case, granted equitable relief inconsistent with the jury’s findings, and denied

PHL its right to a j ury trial on the issue of fraud by finding Wallis was entitled to

equitable damages for disclosing the antigen to PHL in reliance on PHL’s false promise

to make her a shareholder. PHL also contends the trial court erred when it determined

PHL had forfeite d its defense that CUTSA displaced Wallis’s equitable claims . T he

defense showed that Wallis could not state a cause of action for equitable relief , and the

failure to state a cause of action can be raised at any time.14

PHL prays for a peremptory writ of mandate directing the trial court to vacate its

statement of decision and to enter a new statement finding that (1) equitable relief based

on Wallis’s loss of the antigen due to PHL’s share fraud is barred by the law of the case,

and (2) any claim for equitable relief based on Wallis’s disclosure of the antigen to PHL

and PHL’s acquisition and use of the antigen is displaced by CUTSA and that this

defense was not forfeited.

In her return, Wallis contends the trial court’s decision is co nsistent with the jury’s

findings and our opinion. She claims that neither we nor the jury determined whether she

gave PHL access to the antigen in reliance on the false representation that she was a

shareholder. We also did not address whether PHL had b een unjustly enriched by its use

of the antigen or the basis for that enrichment.

Wallis further contends the trial court did not err when it determined PHL had

forfeited a defense based on CUTSA. She claims CUTSA is an affirmative defense that

is forfe ited if not pleaded. Moreover, she asserts the trial court ruled that PHL did not

misappropriate the antigen because the jury in the liability trial found that PHL did not

make a false promise or misrepresentation regarding the antigen ; thus

, CUTSA would not

displace her equitable claims.

Wallis asks us to deny PHL’s requested relief or, alternatively, remand to the trial

court for further proceedings. She argues that if we find error, we must remand the

matter to allow the trial court to consider other grounds of equitable relief which the court

did not address and to determine, if necessary, whether her claims are based on facts

other than those that would support trade secret misappropriation subject to CUTSA.

We granted PHL’s motion to stay trial c ourt proceedings on damages , including

discovery, pending our resolution of this petition.15 

### D ISCUSSION

I

Law of the Case

PHL contends the trial court violated the law of the case when it awarded

equitable relief based on an argument we rejected in the earlier appeal. PHL claims t he

trial court’s finding that PHL fraudulently induc ed Wallis to disclose the antigen by

falsely promising to make her a shareholder directly opposes our statement that the jury’s

findings prevented Wallis from recovering on that theory. PHL contends the trial court

was bound by the jury’s findings and our opinion on this point. We disagree.

A. Bac kground

In the earlier appeal, PHL contended the jury’s special verdicts were inconsistent

because the jury found fraud related only to Wallis’s status as a shareholder, yet it

awarded damages far in excess of what Wallis paid to be a shareholder

. W e agre ed and

concluded Wallis was limited to recovering the out

- of

- pocket damages she incurred due

to PHL’s fraudulent promise to make her a shareholder. In making this holding, we may

seem to have rejected Wallis’s argument that the false shareholder promise induced her to

disclose the antigen and supported the trial court’s damage award. We quote from our

opinion at length:

“The question is whether the [jury’s] fraud findings support the amount of

damages when viewed in light of the pleadings, jury instructions, and evidence. We

conclude that they do not.

“ Wallis alleged in her complain t that PHL defrauded her into giving up ‘ all rights,

benefits and profits due her as the owner of the J

- 5 TC vaccine as well as the money paid

to defendants to purchase said shares. ’ She continued: ‘ Plaintiff was justified in relying

upon those represent ations, especially in that she had paid $20,000 for 20 shares to PHL16

[referring to the total amount paid to all defendants]

. . . , having been allowed to purchase

those shares as partial compensation in return for PHL’s use of her J

- 5 TC vaccine. ’

“ The tri al court instructed the jury concerning the out

- of

- pocket loss standard of

fraud damages as

. . . [¶]

. . . ‘the difference, if any, between the actual value of that with

which the Plaintiff parted and the actual value of that with which [ sic ] was received.

. . .’

“ Wallis paid $15,000 to PHL but failed to receive an ownership interest in the

corporation as promised, meaning she received no value; therefore, under this standard

she is entitled to $15,000 in fraud damages. However, Wallis’s argument in suppor t of

the damages is that PHL’s fraud concerning Wallis’s money gave PHL access to the

antigen. She states: ‘Defendants made false promises and representations to Dr. Wallis

concerning her “buy

- in” to the company and her shareholder status, and as a direc t result

of that fraud obtained access to Dr. Wallis’[s] antigen. The damages awarded properly

reflect the value of the antigen Dr. Wallis gave up as a result of Defendants’ fraud.’ This

argument fails entirely to address the standard for fraud damages: out

- of

- pocket loss.

Wallis’s novel fraud

- damages theory posits that she can recover values associated with

ownership of the antigen based on PHL’s fraud related to her money. She cites no

authority for this theory. Indeed, she fails even to attempt to relate it to the out

- of

- pocket

standard for fraud damages (the only fraud

- damages theory presented to the jury), except

to say that it reflected the market value of the antigen. PHL, however, did not defraud

her out of the antigen, according to the jury. [¶] .

. . [¶]

“ Wallis concludes: ‘Defendants’ fraud did not just involve the illusory purchase

of shares. Defendants’ false representations concerning Dr. Wallis’[s] money were the

means by which they induced her to give them access to the antigen, and ultimately sell it

to Upjohn. Dr. Wallis did not just “give up” her money as a direct result of Defendants’

fraud; she “gave up” the antigen as well.’

“This argument is not tenable . H aving asked the jury and having received the

answer that there was no fraud related to the antigen, Wallis cannot now argue17

successfully that there was fraud related to the antigen. The jury concluded PHL did not

make a false promise to Wallis or a false representation of material fact related to the

antigen. If PHL did not make a false promise or a misrepresentation related to the

antigen, PHL did not take the antigen by fraud, and PHL is not liable to Wallis for fraud

damages related to the antigen. Th ere simply is no other way to interpret the special

findings relating to fraud.

“ That leaves, then, the question of what to do about the inconsistency between the

fraud findings and the fraud damages awarded by the jury. Wallis provides no analysis

concer ning how the damages award can be justified considering the fraud only as to

Wallis’s money. Instead, she argues that the jury properly awarded the damages based on

the fair market value of the antigen. PHL, on the other hand, contends that Wallis was

en titled only to $15,000, the amount she paid to PHL for the shareholder buy

- in. PHL

has the better argument. When a special verdict concerning liability does not support the

damages awarded, the damages award must be modified to conform to the liability

f inding if the amount of damages properly awarded is definite. [Citations.] That is the

case here. The damage resulting from PHL’s fraud relating to Wallis’s money is

$15,000, the amount of Wallis’s out

- of

- pocket loss, and not $1,944,997. Accordingly,

w e must modify the judgment to reflect the proper amount. ” ( O riginal italics , fn.

omitted

. )

On the retrial of the equitable claims, the trial court sought to disting uish our

opinion in awarding equitable relief based on Wallis’s disclosure of the antigen i n

reliance on the false promise to make her a shareholder. The trial court stated, “Wallis

invented the antigen, as part of her duties, and she and the company nonetheless agreed

that she would own it. [¶] But PHL, which later sold the antigen to Upjohn , did not

convert it, nor did it make any misrepresentation or fraudulent statement with respect to

it. So PHL had and then sold Wallis’s invention, but did not take it, or defraud her out of

it. How could this be?18

“The answer,” the trial court continued , “is that Wallis unilaterally relinquished

the antigen to PHL, in reliance on its collateral assurance that she would be made an

owner of the company. While the Court of Appeal has found that this relinquishment

cannot support legal fraud damages for PHL’s use and sale of the antigen, this court finds

that it presents an appropriate case for equitable relief, as PHL has been unjustly enriched

by its false promise to make Wallis an owner.” ( O riginal italics

. )

The trial court found as follows, italicizi ng the jury’s findings from the liability

trial and language from our opinion: “In reliance on the offer of an ownership position in

the company, Wallis disclosed the outline of production for the antigen to PHL. [¶] The

offer did not mention the antige n, and neither PHL nor any of the individual defendants

made a false promise or false representation to Wallis related to the antigen. [¶]

Instead, Wallis unilaterally decided to disclose the antigen after being offered an

ownership position, because she determined that her interests would be adequately

protected by that position. The court finds credible Wallis’s testimony that the prospect

of an equity interest in PHL caused her to divulge the ‘recipe’ for the antigen to the

company.” ( O riginal italic s

. )

The trial court recognized that the jury in the liability trial found that PHL did not

make a false promise or representation to Wallis as to any material matter related to the

antigen, and that the misrepresentation was about Wallis’s ownership in PHL. However,

the court distinguished those findings from its holding, stating the jury’s findings

addressed the “subject matter” of the misrepresentation, not the “consequences” of the

misrepresentation. The jury was not asked about the “co llateral consequences” of PHL’s

share fraud, and the court found credible Wallis’s testimony “that one consequence was

Wallis’s unbidden decision to divulge the recipe for the antigen.”

The trial court also determined the antigen was a trade secret. Bec ause of Wallis’s

disclosure, PHL obtained ownership of the trade secret and Wallis lost all rights to it.19

The trial court stated that PHL “ did not deliberately interfere with the antigen , that

is, PHL did not take or convert th e antigen from Wallis, but instead received it through

her decision to disclose it.” ( O riginal italics

. ) The issue, then, was whether that decision

was fraudulently induced.

The trial court ruled that PHL’s offer of ownership was fraudulent, and Wallis

reasonably relied on PHL’s o ffer to her detriment. The offer was fraudulent because, as

the jury found, “ PHL and the individual defendants knowingly made a false

representation to Wallis related to her money for the purposes of inducing Wallis to

justifiably rely on it, which she di d, unaware that the representation was false and that

PHL and the individual defendants did not intend to perform on it. ” ( O riginal italics

. )

The court found that Wallis detrimentally relied on the fraudulent offer of

ownership in two ways. First, she ga ve money for an ownership stake in PHL, and she

has been compensated for that wrong. Second, she unilaterally disclosed the antigen to

PHL and thereby transferred ownership of the trade secret, losing any rights she had in it.

The court explained: “This disclosure was unilateral in the sense that PHL did not ask for

it, nor did PHL make a false promise or false representation to Wallis related to the

antigen. Instead, Wallis was lulled into a sense of security by PHL’s false assurance of

her impending o wnership, and thus disclosed the antigen to PHL.” ( O riginal italics

. )

The trial court stated its decision did not conflict with our earlier opinion. It said,

“[T]he Court of Appeal has held that PHL cannot be legally liable for fraud as to the

antigen un less the misrepresentation or false promise was about the antigen. [¶] But

nothing in the Court of Appeal’s opinion or any other authority forecloses equitable relief

when a defendant makes a promise about one subject (ownership in the company), which

ca uses a plaintiff to take action regarding another subject (access to the antigen). The

Court of Appeal’s rejection of Wallis’s ‘share fraud’ theory as a basis for fraud recovery

in law does not foreclose Wallis’s claim for relief here in equity. [¶] Whi le Wallis was

not defrauded out of the antigen, she did relinquish it as a ‘gratuitous transfer’ based on a20

collateral false assurance. (See Rest.3d, Restitution and Unjust Enrichment, § 13, com. f,

p p. 170

- 171.)” (Fn. omitted.)

In a footnote, the trial court questioned our analysis: “The Court of Appeal cite[s]

no precedent for the proposition that the fraudulent statement must be topically related to

the claimed damage, and it is unclear why there should be no recovery at law when a

misrepresentation about subject X causes reliance concerning subject Y. (Perhaps the

answer relates to foreseeability.) In any event, this court of course accepts the Court of

Appeal’s conclusion that Wallis’s fraud claim cannot support damages relating to the

antigen bec ause the topic of the fraudulent statement was something different, namely

ownership of a stake in the company.”

Despite that acceptance, the trial court held it could award equitable damages

relating to the antigen based on the fraud. It stated, “Equit y is designed for unusual

factual scenarios like this. The wrong here is apparent

— Wallis invented the antigen,

agreed with her employer that she should keep it, and only provided access to it when her

employer falsely promised to give her a stake in the c ompany. She then received nothing

when her employer sold it for a substantial sum.”

The court acknowledged that equity follows the law and a court sitting in equity

cannot create remedies forbidden by law. “But,” the court stated, “while the law does not

provide for relief here, it also does not foreclose it. (See Civ. Code, § 3343, subdivision

(b)(2) [equitable remedies not foreclosed by out

- of

- pocket rule for fraud recovery].) [¶]

Instead, this case presents a novel factual situation apparent ly not addressed by precedent,

wherein a misrepresentation on one subject causes substantial collateral detrimental

reliance with respect to another. In such circumstances it is appropriate for the court to

assert its equitable power to address the manife st injustice that would otherwise result.

(See Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal. Ap p. 4th 1125,

1133 [equitable ‘powers are broad enough to address novel conditions and to meet the

requirements of every case’].)”21

PHL cont ends the trial court’s ruling violates the law of the case established in our

earlier opinion.

B. Analysis

“Under the doctrine of the law of the case, a principle or rule that a reviewing

court states in an opinion and that is necessary to the reviewing co urt ’ s decision must be

applied throughout all later proceedings in the same case, both in the trial court and on a

later appeal.” ( People v. Jurado (2006) 38 Cal. 4th 72, 94.) “ ‘[W]here an appellate court

states a rule of law necessary to its decision, s uch rule “ ‘must be adhered to’ ” in any

“ ‘subsequent appeal’ ” in the same case, even where the former decision appears to be

“ ‘erroneous’ ” ’ ( People v. Whitt (1990) 51 Cal. 3d 620, 638 ( Whitt ), quoting People v.

Shuey (1975) 13 Cal. 3d 835, 841.) Thus , the law

- of

- the

- case doctrine ‘prevents the

parties from seeking appellate reconsideration of an already decided issue in the same

case absent some significant change in circumstances.’ ( Whitt, supra, at p. 638.) The

doctrine is one of procedure, not j urisdiction, and it will not be applied ‘where its

application will result in an unjust decision, e.g., where there has been a “manifest

misapplication of existing principles resulting in substantial injustice” [citation]

. . . . ’

( People v. Stanley (1995 ) 10 Cal. 4th 764, 787.)” ( People v. Boyer (2006) 38 Cal. 4th 412,

441.)

To apply the law of the case doctrine, we must review and interpret our earlier

opinion for the principle or rule it established , recognizing that we must interpret that rule

within it s context. “ ‘ “[L] anguage contained in a judicial opinion is ‘ “ to be understood

in the light of the facts and issue then before the court, and an opinion is not authority for

a proposition not therein considered. [Citation.]” ’ [Citations.] ” [Citation.] When

questions about an opinion’s import arise, the opinion “ should receive a reasonable

interpretation [citation] and an interpretation which reflects the circumstances under

which it was rendered [citation] ” [citation], and it s statements should be considered in22

context [citation]. ’ ( Dyer v. Superior Court (1997) 56 Cal. Ap p. 4th 61, 66.) ” ( Hedwall

v. PCMV, LLC (2018) 22 Cal. Ap p. 5th 564, 57 7 , fn. 7.)

When we rejected Wallis’s fraud theory, we did so in the context of applyi ng the

correct standard of damages. PHL had contended the special verdicts were inconsistent,

and we agreed, finding the jury’s damage award far exceeded Wallis’s out

- of

- pocket

damages. Wallis claimed PHL obtained access to the antigen by the share fraud , and her

out

- of

- pocket costs included the value of the antigen . W e stated, “ T his argument fails

entirely to address the standard for fraud damages: out

- of

- pocket loss.” Any discussion

by us regarding Wallis’s theory concerned her inability to show tha t a misrepresentation

or false promise related to the antigen caused her to suffer out

- of

- pocket costs. We did

not intend to bar her from using her theory to obtain relief beyond her out

- of

- pocket costs

if she could prove a cause of action where such reli ef was available. As a result, o ur

opinion does not stand for the proposition that Wallis cannot show PHL was unjustly

enriched if it wrongfully induced her to disclose the antigen in reliance on the promise of

becoming a shareholder.

PHL contends the j ury rejected Wallis’s share fraud theory by finding PHL did not

make a false promise or misrepresentation related to the antigen. It also claims th at our

statement based on the jury’s findings that “PHL did not take the antigen by fraud” meant

that the ju ry found, and we held that PHL’s misrepresentation regarding Wallis’s

shareholder status did not cause her to disclose the antigen.

To the contrary, the jury’s findings and damage award show the jury was

convinced that PHL’s misrepresentation regarding Wallis’s status as a shareholder caused

Wallis to disclose the antigen to her detriment. After finding PHL made a

misrepresentation regarding Wallis’s “money,” i.e., misrepresenting her status as a

shareholder, the jury p roceeded to address the other elements of fraud. It found PHL

knew its misrepresentation was false, that it made the misrepresentation to induce Wallis

to rely on it, and that Wallis was unaware of the misrepresentation’s falsity.23

The jury then addresse d the element of causation. Under California law, juries

find causation for fraud by determining if the plaintiff’s reliance on the misrepresentation

was a substantial factor in causing the harm (actual reliance), if the plaintiff reasonably

relied on the defendant’s misrepresentation (justifiable reliance), and the extent to which

the plaintiff was harmed by that reliance (resulting damages). ( Beckwith v. Dahl (2012)

205 Cal. Ap p. 4th 1039, 1062 ; CACI No. 1900.) Here, the jury found that Wallis relied

on the shareholder misrepresentation and that she was justified in doing so. Crucially,

when it determined damages, the jury awarded more than $1.9 million, far more than the

$15,000 Wallis had actually paid to PHL. The jury’s damage award can be read only to

indicate the jury found that PHL’s misrepresentation of Wallis’s shareholder status

caused her damage in the form of the loss of the antigen.

Our ruling on appeal was that the jury erred by awarding more in fraud damages

than Wallis had paid to PHL. B ut our holding was limited to that point. The issue of

whether the jury had erred by finding the share fraud caused Wallis’s disclosure of the

antigen was not before us. And our acceptance of the jury’s findings that PHL did not

make a false promise or a misrepresentation related to the antigen did not as a matter of

law foreclose the jury, or a court in equity, from finding the misrepresentation related to

Wallis’s shareholder status caused her to disclose the antigen to PHL to her detriment.

Accordingl y, our opinion was not law of the case on that issue, as the trial court correctly

determined.

II

CUTSA Supersession

With the law of the case doctrine not bar ring the trial court’s award of equitable

relief , PHL contends Wallis’s c auses of action in equity w ere superseded by CUTSA.

CUTSA provides the exclusive civil remedies for claims of trade secret misappropriation.

PHL argues that because Wallis alleged, and the jury found that PHL acquired the24

antigen by misrepresentation, an d the trial court held the antigen was a trade secret,

Wallis’s claim is one of trade secret misappropriation and can be brought only under

CUTSA. The import of this, PHL claims, is that Wallis cannot recover under her

equitable claims because she did not timely bring a CUTSA action and is barred from

doing so under the three

- year statute of limitations.

PHL also claims the trial court erred when it held PHL could not raise CUTSA as

a defense b ecause it did not allege it as an affirmative defense in its answer. PHL argues

that the application of CUTSA shows Wallis cannot state a claim for equitable relief , and

a defendant may raise that defense at any time.

For her part, Wallis contends the t rial court’s ruling is correct . She argu es that

application of CUTSA is an affirmative defense that must be pleaded in the answer or is

forfeited. She claims that even if the defense is not forfeited, it does not apply here as she

did not plead equitable claims based on trade secret misappropriation, the jury and the

trial court made findings that no misappropriation occurred, and inducement to enter into

an agreement is not a claim that is displaced by CUTSA.

We conclude CUTSA supersedes Wallis’s claims for equitable relief, and PHL

was not barred from raising the defense during trial.

A. CUTSA

Prior to CUTSA’s adoption, equity protected the misappropriation of trade secrets.

The unauthorized disclosure or use of a trade secret was not a violation of a p roperty

right, but rather a breach of confidence. (13 Witkin, Summary of Cal. Law (11th ed.

2017) Equity, § 83.) “The typical remedies for wrongful use of a trade secret [were]

damages (consisting usually of an accounting for profits from the unauthorize d use) and

an injunction against future disclosure or unauthorized use.” ( Id . at § 85.)

The Legislature adopted CUTSA in 1984. (Civ. Code, § 34 26 et seq.) The act

“ ‘codifies the basic principles of common law trade secret protection’ .

. . .” (13 Witk in,25

Summary of Cal. Law, supra , Equity, § 88, quoting Prefatory Note to Uniform Trade

Secrets Act, 14 U.L.A. (Master Ed.), p. 530 et seq.) A complainant under the act may

seek injunctive relief. (Civ. Code, § 3 4 2 6.2.) She may also recover damages for the

actual loss caused by the misappropriation and for any unjust enrich ment that is not

considered in computing damages for actual loss

. (Civ. Code, § 3 4 2 6.3 , subd. (a) .) In

addition, if the misappropriation was willful and malicious, the complainant may recover

exempla ry damages and attorney fees. (Civ. Code, § § 3426.3, subd. (c); 3426.4.)

When the Legislature adopted CUTSA, it intended to supersede or displace

common law remedies for trade secret misappropriation. ( K.C

. Multimedia, Inc. v. Bank

of America Technology & Operations, Inc. (2009) 171 Cal. Ap p. 4th 939, 954 ( K.C.

Multimedia ).) “ ‘ The stated purpose of the UTSA is to provide “ unitary definitions of

trade secret and trade secret misappropriation, and a single statute of limitations for the

various property, quasi

- contractual, and violation of fiduciary relationship theories of

noncontractual liability utilized at common law. The Uniform Act also codifies the

results of the better reasoned cases concerning the remedies for trade secret

misappropriation.” ’ (

American Credit Indemnity Co. v. Sacks (1989) 213 Cal. Ap p. 3d

622, 630, quoting [ Comrs. Prefatory Note to Uniform Trade Secrets Act, ] 14 West ’ s U.

Laws Ann. (1980) [ Trade Secre ts at] p p. 537

- 538.) ” ( K.C. Multimedia, at p. 957.)

By stating what claims it does not supersede

, CUTSA displaces or supersedes all

nonstatutory tort and equitable remedies for trade secret misappropriation. A provision

of the act

, Civil Code section 3426.7, reads in pertinent part: “(a) Except as otherwise

expressly provided, this title does not supersede any statute relating to misappropriation

of a trade secret, or any statute otherwise regulating trade secrets. [¶] (b) This ti tle does

not affect (1) contractual remedies, whether or not based upon misappropriation of a trade

secret, (2) other civil remedies that are not based upon misappropriation of a trade secret,

or (3) criminal remedies, whether or not based upon misappropri ation of a trade secret.”26

Interpreting this provision, courts have held that “CUTSA may supersede various

claims, including, inter alia, claims for conversion, common count, quantum meruit,

unjust enrichment, breach of confidence, unfair competition, and intentional and

negligent misrepresentation where the wrongdoing alleged in connection with such

claims is the misappropriation of trade secrets.” ( SunPower Cor p. v. SolarCity

Cor p. (2012 ) 2012 U.S. Dist. LEXIS 176284, at p p. * 10

- 11 (co llecting cases) , italics

omitted .) Th e supersession provision “ would appear to be rendered meaningless if, in

fact, claims which are based on trade secret misappropriation are not preempted by the

state’s statutory scheme.” ( Digital Envoy, Inc. v. Google

, Inc. (2005) 370 F.Sup p. 2d

1025, 1035.)

The test for determining whether a cause of action is displaced by CUTSA is

based on the facts as pleaded

, or as in this case, proven

, and not on the plaintiff’s

designation or theory of the cause of action

. The focus is on “whether ‘other claims are

not more than a restatement of the same operative facts ’ supporting trade secret

misappropriation.

. . . If there is no ‘ material distinction ’ between the wrongdoing

alleged in a [C]UTSA claim and that alleged in a different claim, the [C]UTSA [ claim ]

preempts the other claim.” ( Convolve, Inc. v. Compaq Comp uter Cor p. (S.D.N.Y. 2006)

2006 U.S. Dist. LEXIS 13848, at p p. * 23

- 24 (applying California law).) A ccordingly,

CUTSA “ preempts common law claims that are ‘ based on the same nucleus of facts as

the misappropriation of trade secrets claim for relief. ’ ( Digital Envoy, Inc. v. Google,

Inc.

, supra

, 370 F.Sup p. 2d at p. 1035.) ” ( K.C. Multimedia

, supra

, 171 Cal. Ap p. 4th at

p. 958 .)

B. Affirmative defense

Wallis contends, and the trial court found, that PHL cannot now raise CUTSA

supersession as a defense. The court stated the defense was new matter that did not27

respond to any of the complaint’s allegations and thus had to be pleaded as an affirmative

defense, which PHL had not done. We disagree with the court’s ruling.

“ When California law prohibits the prosecution of a particular cause of action, .

. .

then the defense of failure to state a cause of action is properly raised to terminate the

litigation.” ( 1 Schwing and Carr

, Cal ifornia Affirmative Def enses (2d ed. 201 9 ) § 9:1 ;

see Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal. Ap p. 4th 257, 266

- 270,

2 81

- 282 [general demurrer properly sustained against cause of action abolished by statute

or prohibited by the Constitution]; Haldane v. Bogy (1962) 208 Cal. Ap p. 2d 302, 304

[general demurrer properly sustai ned against cause of action abolished by statute].)

The defense of failure to state a cause of action can be raised at any time,

including for the first time on appeal

. (Code Civ. Proc., § 430.80, subd. (a) ; Cedars

- Sinai

Medical Center v. Superior Court ( 1998) 18 Cal. 4th 1, 7 , fn. 2 ; Falahati v. Kondo (2005)

127 Cal. Ap p. 4th 823

, 831, fn. 18

. ) “ Although an appellate court will normally refuse to

consider points not raised below, questions of law as to failure to state a cause of action

may always be reach ed on appeal. ” ( Henry v. Associated Indemnity Cor p. (1990)

217 Cal. Ap p. 3d 1405, 1413, fn. 8. )

The failure to state a claim need not be pleaded as an affirmative defense. The

defense “ ‘is not a proper affirmative defense, but rather asserts a defect in [the

plaintiff’s] prima facie case.’ [Citations.] .

. . The defense of failure to state a claim is,

in essence, an argument that the plaintiff has not met its burden of alleging the elements

of its claims.” ( LL B Sheet 1, LLC v. Loskutoff (20 19) 362 F.Sup p. 3d 804, 818.)

PHL was not prohibited from raising CUTSA supersession for the first time in the

equity trial. PHL’s contention that CUTSA superseded Wallis’s claims for equitable

relief was a defense that Wallis failed to state a cause of a ction. Such a defense is not an

affirmative defense, and PHL did not need to plead CUTSA supersession in its answer

before raising it at trial.28

Wallis argues that the CUTSA defense raised issues outside the pleadings and thus

had to be alleged in PHL’s an swer because she did not spec ifically plead a cause of

action for misappropriation

. We disagree.

CUTSA displaces not just a cause of action for misappropriation, but all equitable

and tort claims that could arise from conduct that falls within the statu te’s definition of

trade secret misappropriation. “CUTSA provides the exclusive civil remedy for conduct

falling within its terms, so as to supersede other civil remedies ‘based upon

misappropriation of a trade secret.’ ([Civ. Code,] § 3 426.7, subds. (a)

, (b).)” ( Silvaco

Data Systems v. Intel Cor p. (2010) 184 Cal. Ap p. 4th 210, 236, disapproved on another

ground in Kwikset Cor

p. v. Superior Court (2011) 51 Cal. 4th 310, 337.) “[T] he pertinent

statutory language

— ‘ based upon misappropriation ’

— strongly suggests a factual inquiry,

one that examines the conduct alleged in the claim. (See AccuImage Diagnostics Corp v.

Terarecon, Inc. [(2003)] 260 F.Sup p. 2d [941,] 953

- 954 [determining preemption by

examining ‘ the conduct at issue ’ ]

. . . .” ( K.C. Multimedia, supra

, 171 Cal. Ap p. 4th at

p. 958 .) Even Wallis admits CUTSA “was enacted to occupy the field of

misappropriation of trade secrets and to supersede conduct falling within its terms.” That

she did not plead a cause of action entitled trade secret misappropriation did not prevent

CUTSA from displacing her common law claims if they aro se from the same nucleus of

facts that under CUTSA would constitute misappropriation.

Wallis also claims the CUTSA defense was forfeited if not raised in the answer

because the defense does not attack the trial court’s jurisdiction. She relies on authority

from federal and sister

- state courts that hold a defense of preemption or supersession can

be waived if no t raised as an affirmative defense if it alters only the substantive law

governing the case, not the judicial forum applying it. ( See Brannan v. United Student

Aid Funds, Inc. (9th Cir. 1996) 94 F.3d 1260, 1266 ( Bran na n ) ; Johnson v. Armored

Transport of C

alifornia, Inc. (9th Cir. 1987) 813 F.2d 1041, 1043

- 1044 ( Johnson ) ; Hawg29

Tools, Inc. v. Newsco Int’l

. Energy Services (Colo. 201 6 ) 411 P. 3d 1126, 1135, 1138

-

1139 ( Hawg Tools ) .)

Wallis’s authorities do not apply. While they may correctly express federal and

Colorado law, they neither state California law nor reflect the facts of this case

.

“ Litigants ordinarily argue preemption in a motion to dismiss, either for failure to

state a claim or for lack of subject

- matter jurisdiction. ” ( Johnson, supra , 813 F.2d at

p. 1043.) Under federal and Colorado law, “ a preemption argument that affects the

choice of forum rather than the choice of law is not waivable; thus, it can be raised for the

first time on appeal. ” ( Gilchrist v. Jim Slemons Imports, Inc. (9th Cir. 1986) 803 F.2d

1488, 1497 ( Gilchrist ) ; Town of Carbondale v. GSS Properties, LLC (Colo. 2007)

169 P. 3d 675, 682.) This is because such a preemption argument challenges the trial

court’s subject matter jurisdiction

— a defense that can be raised at any time. On the other

hand, preemption of the choice of law does not go to the court’s subject matter

jurisdiction and thus, under federal and Colorado law, cannot be raised for the first time

after tri al . ( Brann a n, supra , 94 F.3d at p. 1266; Johnson, at p p. 1043

- 1044.)

As stated above, California law i s different. Under California law, a defendant

need not plead the failure to state a claim as an affirmative defense, and the defendant

may raise the defense even for the first time on appeal. (Code Civ. Proc., § 430.80, subd.

(a).) This applies even if the defense is not based on lack of jurisdiction. There can be

no dispute that the supersession or displacement of a cause of action goes to whether the

plaintiff can state a claim for relief. If CUTSA superseded Wallis’s equity claims, she

cannot state a cause of action for relief in common law equity , and PHL can make that

defense without having alleged it a s an affirmative defense.

Additionally, the facts in Wallis’s cited cases are distinguishable. B oth the

Federal and Colorado Rules of Civil Proced ure allow a defendant to raise the defense of

failure to state a claim in a pleading , a motion, or at trial. (Fed.R.Civ.Proc., rule 12(h) ;

Colo.R.Civ.Proc., rule 12(h). ) I n Brann a n

, Johnson

, and Gilchrist

, the defendants raised30

the preemption defense for the first time after trial or on appeal

. ( Brann a n, supra

,

94 F.3d at p. 1266; Johnson, supra , 813 F.2d at p. 1043; Gilchrist, supra , 803 F.2d at

p. 1496.) In Hawg Tools , the defendant raised the defense for the first time after trial by

a motion for judgment notwithstanding the verdi c t. ( Hawg Tools, supra , 411 P. 3d at

p. 1135.)

Here, PHL raised the defense at the equity trial. Indeed, t he trial court initiated the

matter by finding in its tentative decision that the antigen was a trade secret. When PHL

objected, the court stated that the CUTSA displacement issue likely came to light through

its tentative decision, and it asked the parties to brief the issue. Both parties fully argued

the issue in their supplemental trial briefs, and th e trial court ruled on the issue in its final

decision. U nlike in Wallis’s cited cases, the issue arose here at trial.

Wallis contends PHL’s argument is at odds with PHL’s opposition to her motion

in the liability trial to amend her complaint to allege a claim of misappropriation under

CUTSA. It is. But Wallis did not challenge on appeal the trial court’s denial of her

motion or its later dismissal of her cross

- complaint raising a claim under CUTSA

. Those

decisions are now final.

PHL’s defense of failure to state a claim due to displacement by CUTSA was not

an affirmative defense, and PHL was not prohibited from raising it for the first time at the

new trial on equitable relief

.

C. Supersession of equitable claims

At issue, then, i s whether Wallis’s claims for equitable relief are superseded by

CUTSA because they are based on the same nucleus of facts that would support a claim

for misappropriation of trade secrets. We conclude they are superseded. Under CUTSA

,

t rade secret misapp ropriation occurs

, among other times, whenever a person “ acquires

another ’ s trade secret with knowledge or reason to know ‘ that the trade secret was

acquired by improper means [.]’ ” ( DVD Copy Control Assn., Inc. v. Bunner (2003)31

31 Cal. 4th 864, 874

, quoting Civ. Code, § 3426.1, subd. (b)(1).) “Improper means”

includes “misrepresentation.” (Civ. Code, 3426.1, subd. (a).)

Wallis argued, and the jury and the trial court found that PHL acquired the antigen

due to Wallis’s reliance on PHL’s misrepresen tation of her shareholder status. The jury

also found that PHL knowingly made a false representation and induce d Wallis to rely on

it, which she did

. This finding establishes that PHL knew or had reason to know that it

acquired the antigen by misrepresen tation. This is trade secret misappropriation

, and it is

the same nucleus of facts on which her equitable claims are based

.

Wallis contends CUTSA did not supersede her equitable claims. She raises

several reasons. She argues the equitable claims are not based on misappropriation.

Rather, they assert Wallis allowed PHL to use the antigen in exchange for compensation

as a shareholder, a factual scenario she claims is distinct from the facts that would

support a misappro priation claim. This scenario, however, is not what the jury and trial

court found. The court found that Wallis “relinquished” the antigen to PHL

, not just

licensed PHL to use it. The court also found that Wallis relinquished the antigen “in

reliance” o n PHL’s false promise to make her a shareholder. Her claims for equitable

relief are based on the same nucleus of facts that would support a claim for

misappropriation due to misrepresentation

.

Wallis asserts the jury’s findings foreclose a misappropriati on claim. She

contends misappropriation would have required PHL to commit an intentional act related

to the antigen, but the jury found that PHL did not make a misrepresentation or false

promise related to the antigen. As we have tried to make clear in t his opinion, the

misrepresentation did not have to “relate” to the antigen for PHL to be held liable. The

scope of liability is based on the extent Wallis actually and reasonably relied on the

misrepresentation. If PHL acquired the antigen by falsely and knowingly inducing

Wallis to believe she was a shareholder, then it acquired the trade secret by

misrepresentation

— which is misappropriation under CUTSA.32

Wallis claims the trial court found that her equitable claims were not based on

misappropriation. She notes t he court stated she had no claim for misappropriation

“because she unilaterally relinquished the antigen, albeit in reliance on the promise of a

stake in the company .” (Italics added.) She argues her claims for equitable relief were

based on her reliance, not on PHL’s intent to take the antigen by improper means, a

showing she claims misappropriation requires. She and the trial court cannot have it both

ways. If she relinquished the antig en due to her reliance on PHL’s knowingly false

promise, as the jury and trial court said she did, then PHL acquired the antigen by means

of misrepresentation, and that act constitutes misappropriation under CUTSA.

Wallis asks us to find persuasive an un published federal opinion in which the

district court found that inducement to enter into an agreement was not a claim that was

superseded by CUTSA. That holding, however, was based on the case’s unique facts. In

Anokiwave, Inc. v. Rebeiz (2018) 2018 U.S. Dist. LEXIS 158346 ( Anokiwave ), the

defendant agreed to become a member of the plaintiff company’s advisory board. He

agreed he would not disclose the company’s proprietary information, would not engage

in unfair competition, and would n ot disclose confidential information about the

company’s business affairs. The defendant received access to the company’s trade

secrets and other proprietary information. He also received stock options. ( Id

. at p. *2 .)

The company ultimately sued the d efendant for disclosing its proprietary

information and competing with it. The company alleged causes of action for breach of

contract, breach of fiduciary duty, fraud in the inducement, other tort actions

, false

advertising, unfair competition, trade sec ret misappropriation, and federal work

infringement. (

Anokiwave, supra

, 2018 U.S. Dist. LEXIS 158346 at p p. * 3

- 4 .)

The district court dismissed the company’s tort and unfair competition claims

except for the claim of fraud in the inducement. The court found the other tort actions

were preempted by CUTSA. ( Anokiwave, supra

, 2018 U.S. Dist. LEXIS 158346 at

p p. * 3

- 8.) The court noted that the elements of fraud in the inducement of a contract are33

the same elements as actual fraud. ( Id

. at p. *14

. ) Yet, in this instance, CUTSA did not

preempt the inducement claim because the company’s overall contention was that the

defendant’s false representation induced the company to enter into a contract with him.

The “gist” of the claim focused on the induc ement to enter into the contract in “the first

place,” not the inducement to disclose confidential information. ( Id

. at p. *1 5 .)

Unlike in Anokiwave

, the gist of Wallis’s equitable claims

, as found by the jury

and the trial court, focused on the inducement to relinquish the antigen in reliance on the

misrepresentation of being a shareholder, not on the inducement simply to enter into the

shareholder agreement. The thrust of Wallis’s arguments is that PHL’s misrepresentation

of her shareholde r status caused her to relinquish the antigen. This is what the jury found

in its award of damages and what the trial court found in its award of equitable relief.

Unlike in Anokiwave

, Wallis’s equitable claim does not have a basis independent from

her a llegations of facts that constitu te misappropriation under CUTSA. Thus, her cause

of action was limited to recovery u nder CUTSA

.

Because Wallis’s claims for equitable relief are superseded by CUTSA, she may

recover only under that statute. Wallis, however, did not plead a misappropriation claim

under CUTSA, and the statute of limitations to do so expired long ago. A claim for

misa ppropriation must be brought within three years of discovering the misappropriation

or when the misappropriation should have been discovered by the exercise of reasonable

diligence. (Civ. Code, § 3 426.6.) At the latest, Wallis should have discovered the

misappropriation when PHL’s counsel informed her in March 1992, after PHL had

terminated her employment and sold the antigen, that she was not and had not been a

shareholder. Although she filed her first complaint in June 1994, she did not include a

cause of action under CUTSA. She sought leave to amend to include a CUTSA cause of

action during trial in 2000, but she did not challenge the trial court’s denial of that motion

on appeal

, nor did she challenge the court’s dismissal of her post

- trial cross

- com plaint34

which attempted to raise the cause of action. Neither did she seek to amend her

complaint in the equity trial. It is now too late to raise the claim.

Because Wallis’s equitable claims are superseded by CUTSA, and because she did

not timely bring a claim under CUTSA, the trial court erred in award ing her damages on

her equitable claims.



### D ISPOSITION

A peremptory writ of mandate shall issue and order the t rial court to vacate its

October 9, 2018

, statement of decision and to enter a new statement of decision finding

that Wallis’s claims for equitable relief are superseded by CUTSA and to enter a

judgment in favor of PHL and against Wallis on each of her equ itable claims. The stay of

all trial court proceedings entered by this court on August 23, 2019, is vacated upon

finality of this opinion. Costs on appeal are awarded to PHL. (Cal. Rules of Court, rule

8. 493 (a).)

HULL, Acting P. J.

We concur:

ROBIE, J.

MAURO, J.