Court Opinion

ID: 9471550
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:35:24.844384+00
Date Added: 2024-06-11T17:42:27.738876
License: Public Domain

ELY, Circuit Judge,
dissenting in part:
I respectfully dissent from the portion of the majority opinion that reverses the District Court’s rulings on the fraud claims, trade secret claims, and claims for tortious interference with prospective business advantage.
In my judgment, the District Court was correct in all respects. The conclusion of the trial reflected an aberration of justice which the District Court quickly and decisively corrected. The record reveals that the plaintiffs fashioned this complex action, adorned with allegations of fraud, trade secret misappropriation, patent infringement and tortious interference, from a simple $3000.00 contract dispute over the interpretation of the Agreement and a claim of patent infringement. The jury, their collective vision blurred by a smokescreen of nonexistent torts and plaintiffs’ pleas for sympathy, overlooked the crucial points and awarded an outrageous and unsupportable verdict in excess of $31,000,000.00, a sum equal to nearly 80% of Munsingwear’s 1979 total net worth. Unlike the jury’s verdict, the District Court’s rulings on Munsingwear’s motions for judgment notwithstanding the verdict (“judgment n.o.v.”), and post-trial motion for summary judgment on plaintiffs’ fraud claim, were squarely based upon the applicable law and the evidence and should be affirmed.
FRAUD CLAIM:
It is my view that the District Court correctly held that the plaintiffs’ claim for fraud was barred by the applicable statute of limitations.
To determine this issue on summary judgment requires undisputed material facts which leave the inference that a “reasonably prudent person” would have had such knowledge as to put him on “inquiry” more than three years prior to the filing of the complaint. Garter-Bare Co. v. Munsingwear, Inc., 650 F.2d 975, 981 (9th Cir.1980) (Garter-Bare I). See also Von Brimer v. Whirlpool Corp., 536 F.2d 838, 848-49 (9th Cir.1976); Turner v. Lundquist, 377 F.2d 44, 46—48 (9th Cir.1967). Such a finding requires the emphasis of two general legal propositions. First, we have held that section 338(4) of the California Code of Civil Procedure establishes an objective “reasonably prudent person” standard for determining when the statute of limitations begins to run. A plaintiff’s personal uncertainty about, or mere failure to discover all the facts of the existence of, a fraud claim is immaterial. See Von Brimer, 536 F.2d at 848; Lundquist, 377 F.2d at 47-48. Second, once “inquiry,” upon notice of sufficient facts indicating possible fraud, is triggered, “a plaintiff will be deemed to have knowledge of facts which would have been disclosed in a more extensive investigation.” Briskin v. Ernst & Ernst, 589 F.2d 1363, 1367 (9th Cir.1978); Von Brimer, 536 F.2d at 848.
From a review of the record upon which the District Court granted Munsingwear’s post-trial motion for summary judgment, I cannot escape the conclusion that a reasonably prudent person would have had knowledge of facts sufficient to make him suspicious of fraud, thus putting him on inquiry. This conclusion is supported by the following material facts:
One, by mid-December 1968, Larsen obtained a copy of a Munsingwear publication containing a color photograph of a woman wearing a 988 style girdle. Upon inspection, Larsen became “concerned that [he] had been deceived and mislead [sic] by *718... Munsingwear.” Unlike my Brothers, I equate deception with fraud. In fact, Black’s Law Dictionary defines “deceit” as “a fraudulent or cheating misrepresentation .... ” Black’s Law Dictionary 493 (rev. 4th ed. 1951) (emphasis added).
Two, by mid-December 1968, Larsen concluded that Munsingwear’s 988 girdle was a “violation of Garter-Bare’s rights.” “From [its] appearance ... [we] deducted [sic] that there must be something there, where it refers to no garters, ... our secret combination to foam ripples and exclusive stay there, and then particularly to foam ripples. We deducted [sic] that it had to do with the plastisol and the friction principle that had been disclosed to Munsingwear.” Upon learning these facts, Larsen began to search for the actual girdle displayed in the photograph. Larsen also made inquiries to his lawyers, Burum and Wallen, and discussed with them the possibility of suing Munsingwear.
Three, in late November 1968, Larsen told Dr. Richard Gilman, President of Occidental College, that Munsingwear was “planning to market very shortly a product using [Larsen’s] elastic fabric.” Larsen also contacted Gilman in an effort to have Occidental College “participate in his [Larsen’s] legal expenditures, in return for certain payments [which] would be made to the college upon success of his litigation” against Munsingwear. Although Gilman declined the offer, he put Larsen in contact with Graham Sterling, an Occidental trustee and a partner in O’Melveny & Meyers, a prestigious Los Angeles law firm. In early December 1968, Larsen consulted with Sterling, who gave Larsen “advice and recommendation for future action,” including advice that Larsen “seriously consider employing a trial lawyer to contact Munsingwear.”
On December 13, 1968, Larsen told Gil-man that: “The whole picture was ‘very clear’ to him, and that it was ‘most important’ to move right away to pursue matters with or against Munsingwear for royalties or indemnity, as the case might be.”
On December 23, 1968, Larsen’s attorney Burum notified Munsingwear that his client had learned that Munsingwear was about to introduce a garterless girdle “which appeared] to be a direct result of the ... [A]greement.”
Four, by letter dated December 22, 1967, Munsingwear notified the plaintiffs that Munsingwear “does not wish to renew the Agreement .... ” Burum, by letters dated January 2 and 17,1968, twice acknowledged that Munsingwear’s letter-notice effected a cancellation of the contract. Although this event certainly did not cause the three-year fraud statute of limitations to begin, it did effectively put Burum and Garter-Bare on notice that any future employment of their designs by Munsingwear would constitute substantial grounds for suspecting fraud.
This cumulation of undisputed pre-trial, trial, and post-trial evidence leaves the inference that a “reasonably prudent person” would have been on inquiry as of December 1968 that Munsingwear was marketing a device that plaintiffs believed was the “direct result” of the Agreement. Plaintiffs admit that they “made an inquiry on December 23, 1968, to the President of Munsingwear . ... ” This admission, in addition to the above undisputed facts, convinced the District Court that the statute of limitations began running before the end of 1968. I am firmly convinced that this conclusion was legally correct.
The majority, in reaching its conclusion, has “grave difficulty with [the] assumption that notice of contract breach or notice of patent infringement constitutes, at law, notice of any fraud perpetrated by the defendant.” The majority further asserts that “[n]o authority offered by Munsingwear supports its contention that notice of the violation of one’s contract rights or patent rights triggers a duty to inquire as to possible fraud under the reasonable person notice requirements as C.C.P. § 338(4).” Such reasoning misses the mark. It is knowledge of facts, not precise legal theories, that triggers inquiry and the running of the statute. See Bedolla v. Logan & Frazer, 52 Cal.App.3d 118, 130 & n. 10, 125 Cal.Rptr. 59, 68 & n. 10 (1975). The salient point is that by mid-December 1968, a *719reasonably prudent person would have been on inquiry notice of the essential facts comprising plaintiffs’ fraud claim. These facts, in these circumstances, also constituted notice of contract breach or notice of patent infringement; however, the “dual nature” of these facts should not, and does not, invalidate the conclusion that a reasonably prudent person would have had knowledge to make him suspicious of fraud, thus putting him on inquiry.
TRADE SECRET CLAIMS:
On appeal from the judgment n.o.v., the key issue for our review is whether the plaintiffs have presented substantial evidence to support the jury’s verdict. See California Computer Products v. International Business Machines, 613 F.2d 727, 733-34 (9th Cir.1979).
The majority correctly points out that Munsingwear contends on appeal that the judgment n.o.v. on this issue might be sustained on the ground that the trade secret claims are barred by the two-year statute of limitations for claims based on oral contract, Cal.Civ.Proc.Code § 339 (West 1982), or the three-year statute of limitations for fraud, id. at § 338(4). Munsingwear also made this argument to the District Court, but the District Court did not base its judgment n.o.v. on this ground. Nonetheless, plaintiffs concede that the gravamen of the trade secret claims is fraud, and as the majority notes, there are heavy fraud overtones in the pleading and in the evidence plaintiffs sought to produce. This being so, I would affirm the judgment n.o.v. on the ground that the statute of limitations for fraud bars the trade secret claims, for the reasons I have above set forth in respect to the fraud claim.
Even if one reaches the merits, plaintiffs’ trade secret claims must fail because, as the District Court correctly concluded, there is no substantial evidence that the five claimed trade secrets either were legally protectable secrets or were used by Munsingwear.
First, plaintiffs failed to show that the “preferred operating conditions” of Larsen’s machine were not matters of general knowledge or that it would have been difficult to acquire this information except through improper means. See Clark v. Bunker, 453 F.2d 1006, 1009-10 & n. 5 (9th Cir.1972). To the contrary, the evidence establishes that, for many years prior to any work by Larsen, plastisol or latex had been applied to fabrics and subsequently cured by passing them through ovens. Indeed, a patent issued in 1959 (U.S. Patent No. 2,893,315) shows an operation for applying elastomeric friction elements in the form of latex dots to glove fabric in a manner nearly identical in operation to that of Larsen’s machine. Nor is there any substantial evidence that Munsingwear used the knowledge of the “preferred operating conditions” subsequent to the termination of the research and development period.
Second, as the District Court correctly observed, H-lll-C was obtained from Car-am Latex — “a commercial supplier of a variety of products freely available in the marketplace” — and Larsen did not select the product at all. Instead, Larsen simply described to Caram Latex a result he wished to obtain, and Caram Latex selected the specific product that it believed would accomplish the task. As the District Court correctly noted, “anyone making the same request would have been supplied the same product.” The evidence also establishes that plastisols were being applied to fabrics, cured on fabrics in ovens, and used in a variety of ways, including as friction elements, long before Larsen did any work in this area, let alone shared his “knowledge” with Munsingwear. On this record, the H— 111-C information simply did not rise to the level of a legally “protectable trade secret.” See id.
Third, plaintiffs failed to produce evidence that either the fact that an industrial-type glue gun could be made to act as a plastisol extruder or that Fox Aro Company was a source of such a gun were secret, were not generally known, and would have been information difficult to obtain except by improper means. See id. The plastisol applying heads used with Munsingwear’s machine were designed and manufactured *720by Munsingwear personnel. And, as the District Court correctly observed, there was no evidence that it was not generally known in the industry that a “glue-gun” could be made to act as an extruder for materials including plastisols. On the evidence produced at trial, the District Court was correct in concluding that there was no substantial evidence to establish either that the “glue-gun” information constituted a “protectable trade secret” or that Munsingwear used a Fox Aro glue extruder subsequent to the research and development period.
Fourth, plaintiffs simply did not produce any evidence either that the cleaning of residual oil from spandex was not generally known in the industry or that Munsingwear used this information.
Finally, in reversing the District Court’s judgment n.o.v., the majority states that the burden was shifted to Munsingwear to show that “at the time, it could have arrived at the process by independent invention, inspection, or reverse engineering.” In so reasoning, the majority first concludes, without supporting its conclusion, that the plaintiffs have proved a crucial fact — the fact that the information at issue was indeed “secret.” If I understand the law correctly, the burden is on the plaintiffs to show, without resort to presumptions of any kind, that the claimed trade secrets are “secret.” See Frodge v. United States, 180 U.S.P.Q. 583, 587 & n. 3 (Ct.Cl.1974). The plaintiffs simply have not produced substantial evidence to support such a conclusion. The District Court was correct in granting the judgment n.o.v. as to the trade secret claims.
CLAIMS FOR TORTIOUS INTERFERENCE WITH PROSPECTIVE BUSINESS ADVANTAGE:
As with the trade secret claims, the key issue for our review is whether there is substantial evidence to support the jury’s verdict. See California Computer Products, 613 F.2d at 733-34.
Plaintiffs allege that Munsingwear’s acts lead to “inevitable inferences of damage” to plaintiffs’ ability to enter into profitable relationships for the commercial exploitation of the Larsen process. In reversing the District Court’s judgment n.o.v., the majority relies on evidence in the record of Munsingwear’s “competitive advantage” seen “in the context” of allegedly fraudulent acts. As to the evidence of Munsingwear’s competitive advantage, I have little disagreement. Munsingwear is indeed “one of the giants of the garment industry.” The point at which I must part company with the majority hinges on the question it does not ask insistently enough: Did the plaintiffs present substantial evidence that they were deprived by Munsingwear of any probable beneficial economic relationship or that they sustained any proximately caused damage? This question must be answered in the negative. Viewing the evidence of Munsingwear’s obvious competitive advantage “in the context” of allegedly fraudulent acts does not mask the fact that plaintiffs simply have not produced substantial evidence of the elements of their claim.
Plaintiffs have not produced a single reasonably probable “profitable relationship for the commercial exploitation of the Larsen process” that they could have entered into but for Munsingwear’s acts. Plaintiffs attempted unsuccessfully to license the ’748 patent to 43 companies. Yet plaintiffs produced no evidence that any of the 43 companies they contacted ever refused a license due to any act of Munsingwear. There is no evidence that Munsingwear did anything to cause such universally negative responses to plaintiffs’ attempts to license the ’748 patent. The obtaining of the anticipated Cuozzi patent was not enough. There is no substantial evidence that the mere issuance of the Cuozzi patent “interfered” with plaintiffs’ licensing opportunities in any way. Thus, there is no substantial evidence that Munsingwear’s acts proximately caused any particularized damage to plaintiffs. This being so, I would affirm the District Court’s judgment n.o.v. as to this issue.
CONCLUSION:
As the majority aptly points out, this case has consumed the energy and emotion of *721-729the parties and of the court for nearly fourteen years. And,- as the majority states, the expense caused by this protracted litigation is indeed manifest. This Court now has the opportunity to bring a just and proper end to the litigation. Yet, the majority unwisely elects instead to grant a new trial on three of plaintiffs’ claims. I sincerely believe that the plaintiffs have had a full and fair opportunity to prosecute their claims and have failed in that attempt by not presenting substantial evidence to support those claims. The District Court’s judgments should be affirmed in all respects.