Court Opinion

ID: 9952065
Source: CourtListenerOpinion
Date Created: 2024-03-19 17:02:49.903046+00
Date Added: 2024-06-11T14:38:01.453004
License: Public Domain

Filed 3/19/24 Reilly Financial Advisors v. Cariani CA4/1
                 NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been certified for publication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 ordered published for purposes of rule 8.1115.

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                 DIVISION ONE

                                         STATE OF CALIFORNIA

REILLY FINANCIAL ADVISORS,                                           D081870
LLC,

     Plaintiff, Cross-Defendant and
Appellant,                                                           (Super. Ct. No. 37-2019-
                                                                     00059651-CU-BT-CTL)
         v.

DAVID CARIANI et al.,

     Defendants, Cross-Complainants,
and Respondents.

         APPEAL from a judgment of the Superior Court of San Diego County,
Katherine A. Bacal, Judge. Affirmed.
         Duckor Metzger & Wynne, Scott L. Metzger and Nathaniel R. Smith for
Plaintiff, Cross-Defendant and Appellant.
         Witham Mahoney & Abbott, Matthew M. Mahoney, Mary K. Wyman
and Michael Leone for Defendants, Cross-Complainants and Respondents.
                                            I.     INTRODUCTION
         Reilly Financial Advisors, LLP (RFA) sued two former employees,
David Cariani and Matthew Griffith, and their new employer, Centura
Wealth Advisory, (collectively, Respondents) for trade secret
misappropriation, among other claims. After nearly two years of discovery,
Respondents filed a motion for summary judgment. RFA sought an extension
on its response but, rather than responding to the motion, RFA moved to
dismiss its claims. Respondents sought, and the trial court awarded,
attorney fees pursuant to Civil Code section 3426.4 of the Uniform Trade
Secrets Act (UTSA), which gives the trial court discretion to award such fees

if a claim of misappropriation is made in bad faith.1 RFA appeals from the
judgment awarding fees and asserts that the trial court erred in determining
that Respondents had met the two-prong test for establishing that RFA
brought its misappropriation claim in bad faith. We disagree and affirm the
judgment.
         II.   FACTUAL AND PROCEDURAL BACKGROUND
A.    Allegations in the Complaint
      RFA is a financial planning and investment firm. Cariani began
working for RFA in April 2013, initially as a senior wealth advisor and later
as chief investment officer. Griffith began working for RFA in December
2011, as a senior wealth advisor and then as director of wealth management.
Griffith and Cariani resigned from their employment at RFA on February 1,
2019, and went to work in similar roles for Centura Wealth Advisory

(Centura), a direct competitor to RFA.2
      While employed at RFA, Respondents each had a number of existing
and prospective clients that they serviced. RFA engaged in various forms of
marketing and business development to secure these clients, and they were

1     All further statutory references are to the Civil Code.

2    RFA filed its complaint against Respondents on November 8, 2019,
approximately nine months after Cariani and Griffith resigned from RFA.

                                       2
clients of RFA, not the individual Respondents. Respondents spent none of
their own money on RFA’s marketing efforts. RFA also maintained a
comprehensive client relationship management system (CRM) with
information regarding its clients, their investments, and such details as their
personal risk tolerance.
      “RFA has invested significant time and money marketing to, vetting
and establishing relationships with clients, creating and implementing its
processes for managing client relationships, and developing [the CRM data].”
Accordingly, RFA maintains the data on a secure, encrypted computer
network and requires its employees to sign confidentiality agreements. Like
other RFA employees, Cariani and Griffith each signed a “Confidentiality and
Restrictive Covenant Agreement” in December 2016. The agreement
required them to return all confidential information to RFA upon termination
of their employment with RFA.
      RFA alleged that Respondents breached these obligations when they
left RFA to join Centura. More specifically, RFA alleged, on information and
belief, that Respondents “took with them and gave to Defendant Centura
[c]onfidential [i]nformation that they had stolen from RFA, and that
Defendants Cariani, Griffith, and Centura have used information stolen from
RFA to unlawfully compete against [RFA], including by soliciting RFA’s
clients to leave RFA and retain Centura.” RFA alleged further that
Respondents “have made repeated efforts to interfere with RFA’s contractual
relationships with its clients and to solicit RFA’s clients and, in some
instances, have been successful in . . . inducing these clients to move their
accounts from RFA to Defendant Centura,” and that, “[d]espite demand being
made upon them to immediately cease and desist from their illegal conduct
and return to RFA the information they stole, [they] refused to do so and

                                        3
have continued to use the information they stole from RFA to unlawfully
compete against [RFA].”
      Based on the foregoing allegations, RFA asserted causes of action for
breach of contract, misappropriation of trade secrets, and statutory and
common law unfair business practices.
B.    Response to the Complaint, Motion for Summary Judgment and
      Dismissal
      Respondents filed a general denial to the complaint, and asserted 10
affirmative defenses, including failure to state a cause of action, illegality,
and unclean hands. They also filed a cross-complaint in which they alleged
that RFA made false and defamatory accusations of theft and unethical
behavior against them in an effort to retain clients that wanted to move their
accounts to Centura.
      After two years of discovery, during which Respondents produced over
10,000 documents, Respondents filed a motion for summary judgment or, in
the alternative, summary adjudication, with a hearing date of November 5,
2021. In support of the motion, Respondents provided declarations from
Cariani and Griffith; excerpts from the depositions of Frank Reilly and
certain other RFA employees; and a number of exhibits, including copies of
notices Cariani and Griffith sent to certain RFA clients upon their
resignations, and copies of e-mails and text messages to and from their
former RFA clients in the days that followed.
      Respondents alleged, in the motion and associated declarations, that
Cariani and Griffith left RFA because they disagreed with new policies that
RFA intended to implement. They conceded that Cariani and Griffith sent a
one-page notice—commonly known as a “tombstone”—to family, friends, and
certain RFA clients announcing that they were joining Centura. And they
conceded that they accessed client information in the CRM system on their

                                        4
last day of employment at RFA to obtain client addresses for the tombstone
announcements, but averred that they did not save or in any way take the
information with them when they left and did not transmit or disclose it to
Centura. Rather, Cariani and Griffith declared that they “went to great
lengths to ensure that they took no confidential information upon resigning
from RFA,” including deleting all electronic information related to RFA or
any RFA client from their personal devices.
      Respondents stated that Cariani contacted approximately 15 former
RFA clients, whose information he found on public databases, after learning
that Frank Reilly was making disparaging comments about him. Likewise,
Griffith called approximately 18 former RFA clients, whom he had neglected
to send the tombstone notice to, but only told them his new contact
information. He did not speak to them substantively unless they called back
and expressed an interest in moving their accounts to Centura. Respondents
admitted that 22 RFA clients (out of hundreds) eventually transferred over to
Centura, but asserted that 16 of the 22 were either Cariani and Griffith’s
friends and family, or persons who were referred directly to Cariani and
Griffith by other RFA clients.
      Finally, Respondents acknowledged RFA’s claim that Cariani had e-
mailed himself a copy of a “defensive portfolio” maintained by RFA, which
contained sensitive information about client accounts, two days before
leaving RFA. Cariani averred that he regularly sent himself copies of the
portfolio when working outside the office, but that he deleted anything
related to the portfolio or the “Bloomberg Terminal,” from which it came,
upon his departure from RFA. He did not share the information with
Centura or anyone else. In addition, he explained that retaining the portfolio

                                      5
would not have provided him an advantage in any event as he could get the
same information from client account statements.
        RFA obtained a continuance on Respondent’s motion for summary
judgment, allegedly to pursue additional discovery, and scheduled depositions
for Griffith and Cariani in March 2022. RFA then filed requests to dismiss
the complaint and cross-complaint without prejudice in late February, just
before the depositions. The trial court granted the requests in March 2022.
C.      Attorney Fees Motion
        Respondents filed a motion for attorney fees pursuant to section 3426.4.
They asserted that RFA brought the action in bad faith knowing that they
lacked evidence to support their “speculative theory” that Respondents “must
have stolen their clients because only a handful of clients (out of hundreds)
elected to transfer over to Centura.” Respondents asserted, further, that
RFA persisted despite a lengthy and contentious discovery period that
produced no further evidence of wrongdoing. They also pointed out that RFA
had filed two other, nearly identical lawsuits against two other advisors that
resigned from RFA in the previous two years. Respondents argued, based on
the foregoing, that RFA’s true motivation was to send a message to its
advisors that anyone who left the company to work for a competitor would be
sued.
        In its opposition, RFA pointed to the following categories of evidence as
support for its claim: (1) Griffith and Cariani accessed its CRM before
leaving and sent the tombstone notice to approximately 130 RFA clients;
(2) Cariani wiped his browser history before resigning, leading “RFA to the
reasonable conclusion that Cariani was attempting to hide wrongdoing”;
(3) Cariani sent himself a copy of RFA’s defensive portfolio two days before
resigning; and (4) clients had informed RFA that Respondents called and
solicited them to move their business to Centura. RFA asserted further that

                                         6
it maintained the lawsuit to vindicate its rights, and not for any bad faith
purpose. RFA disputed Respondents’ reliance on the two other pending
lawsuits, and pointed out that those cases had not yet been resolved on their
merits.
        After reviewing the evidence and hearing argument from the parties,
the trial court concluded that Respondents had shown that RFA brought and
maintained the action in bad faith. The court therefore granted the motion in
part and found that the alleged evidence in support of RFA’s claims
supported only a suspicion of misappropriation; that “[s]uspicion is not the
same as evidence”; and that RFA should have conducted a more thorough
investigation before filing the complaint. The trial court also found that
Respondents had shown subjective bad faith, which could be inferred from
circumstantial evidence. The court clarified that Respondents did not rely on
the other lawsuits as the sole evidence of bad faith, but that they did bolster
Respondents’ arguments. The court reduced the amount of the fees
significantly to account for time spent prosecuting the cross-complaint, and
ultimately awarded Respondents fees in the amount of $272,325.05.
        RFA timely appealed from the resulting judgment, and in particular
that portion of the judgment awarding attorney fees.
                             III.   DISCUSSION
        RFA contends the trial court erred in granting Respondents’ request for
attorney fees for several reasons: by failing to consider circumstantial
evidence as evidence supporting its claims; by holding that RFA was required
to conduct a thorough investigation before filing suit; by relying on the other
two lawsuits as evidence of bad faith; by inferring subjective bad faith based
on a lack of evidence; and by awarding attorney fees from the inception of the
case.

                                        7
A.    Governing Law and Standard of Review
      Civil Code section 3426.4 provides, in relevant part: “If a claim of
misappropriation is made in bad faith . . . the court may award reasonable
attorney’s fees and costs to the prevailing party.”
      “ ‘Although the Legislature has not defined “bad faith” ’ for purposes of
section 3426.4, ‘our courts have developed a two-prong standard: (1) objective
speciousness of the claim, and (2) subjective bad faith in bringing or
maintaining the action, i.e., for an improper purpose.’ ” (Cypress
Semiconductor Corp. v. Maxim Integrated Products, Inc. (2015) 236
Cal.App.4th 243, 260 (Cypress).) “Objective speciousness is said to be present
‘where the action superficially appears to have merit but there is a complete
lack of evidence to support the claim.’ ” (Id. at p. 261.) It is not necessary for
the party seeking attorney fees to prove that the action superficially
appeared to have merit; they must only prove that there is an objective lack
of evidence to support any claims asserted under the UTSA. (Cypress, at
p. 261.)
      “Subjective bad faith under section 3426.4 means the action was
commenced or continued for an improper purpose, such as harassment, delay,
or to thwart competition.” (SASCO v. Rosendin Electric, Inc. (2012) 207
Cal.App.4th 837, 847 (SASCO).) “The timing of the action may raise an
inference of [subjective] bad faith.” (FLIR Systems, Inc. v. Parrish (2009)
174 Cal.App.4th 1270, 1278 (FLIR).) “ ‘ “Bad faith may be inferred where the
specific shortcomings of the case are identified by opposing counsel, and the
decision is made to go forward despite the inability to respond to the
arguments raised.” ’ ” (Id. at p. 1283.) “The trial court [may, in some
circumstances] reasonably infer[ ] that appellants knew there was no
misappropriation or threatened misappropriation of trade secrets before the
summary judgment motion was argued.” (Ibid.)

                                        8
      “Because the award is a sanction, a trial court has broad discretion in
awarding fees” under section 3426.4. (FLIR, supra, 174 Cal.App.4th at
p. 1275.) A trial court awarding fees under section 3426.4 does not need to
state the basis for its decision on the record. (Cypress, supra, 236
Cal.App.4th at p. 266.) “ ‘[T]he necessary findings of ultimate facts will be
implied and the only issue on appeal is whether the implied findings are
supported by substantial evidence.’ ” (Ibid.; see also FLIR, at p.1278 [“ ‘ “In
reviewing the facts which led the trial court to impose sanctions, we must
accept the version thereof which supports the trial court’s determination, and
must indulge in the inferences which favor its findings.” ’ ”].) However,
whether the trial court applied the correct legal standard in exercising its
discretion to award attorney fees under section 3426.4 is a question of law

that we review de novo.3 (Cueto v. Dozier (2015) 241 Cal.App.4th 550, 560.)
B.    Objective Speciousness/Lack of Evidence
      In support of its finding that Respondents had met their burden to
establish objective speciousness—or a lack of evidence to support the asserted
claims—the trial court explained: “At oral argument, [RFA’s] counsel pointed
to four different pieces of alleged evidence in support of [RFA’s] claims. But,
as [Respondent] replied, all this evidence only supported [RFA’s] suspicion of
misappropriation. Suspicion is not the same as evidence. As the SASCO
court made clear, given [RFA’s] suspicion, [RFA] should have conducted a
‘thorough investigation prior to filing suit. . . .’ SASCO v. Rosendin Elec., Inc.
[2012] 207 Cal.App.4th at [p.] 844. This they did not do.”

3     While we acknowledge that the correct legal standard is a matter of law
that we review de novo, we disagree with Appellant’s assertions that the trial
court’s findings, including as to objective speciousness of the claims, are
subject to a de novo standard of review.

                                        9
      1.    RFA’s Evidence
      RFA asserts that, contrary to the trial court’s ruling, the categories of
evidence it relied upon were sufficient to support its claim. In doing so, RFA
asks us to reweigh the evidence and overlook the requirements underlying a
claim for misappropriation.
      First, RFA asserts that Griffith and Cariani admitted that they
acquired addresses from the CRM database. But, as RFA concedes, Griffith
and Cariani did so solely for the purpose of sending the tombstone notice
announcing their change of employment, which was legally permissible. (See
Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1156 (Reeves).)
      RFA argues Reeves is not applicable here because RFA’s claim of
misappropriation is based on the mere acquisition of names from the
confidential CRM, as opposed to that from Griffith and Cariani’s memory. To
the contrary, like here, the defendants in Reeves accessed a “password-
protected computer database to print out confidential name, address, and
phone number information on 2,200 clients.” (Reeves, supra, 33 Cal.4th at
p. 1146.) With that fact in mind, the California Supreme Court found that
“the UTSA does not forbid an individual from announcing a change of
employment, even to clients on a protected trade secret client list.” (Reeves, at
p. 1156, italics added.)
      Misappropriation requires acquisition of a trade secret by improper

means or “[d]isclosure or use” of a trade secret.4 (§ 3426.1, subd. (b).) Mere
possession of a trade secret by a departing employee is not sufficient to

4     “ ‘Improper means’ includes theft, bribery, misrepresentation, breach or
inducement of a breach of a duty to maintain secrecy, or espionage through
electronic or other means.” (§ 3426.1, subd. (a).)

                                       10
support an action under the UTSA. (FLIR, supra, 174 Cal.App.4th at
p. 1279.) RFA has presented no authority, here or in the trial court,
suggesting that the mere accessing of client names and addresses, for the
purpose of sending an announcement like the one at issue is Reeves, is
sufficient to support a claim for misappropriation.
      Second, in a related argument raised for the first time in its reply brief,
RFA asserts that Cariani’s wiped browser history raised an inference of
wrongdoing, which was later proven when Respondents admitted to accessing
the CRM database to obtain client addresses. Like the foregoing argument,
though, this evidence does not support a claim of misappropriation. Rather,
as the trial court found, at most it supported a suspicion that RFA could, and
should, have investigated further.
      Third, RFA asserts there was evidence Griffith and Cariani solicited
RFA clients over the phone. In American Credit Indemnity Co. v. Sacks
(1989) 213 Cal.App.3d 622 (American Credit), one of the cases the California
Supreme Court relied on in Reeves, the court explained: “[m]erely informing
customers of one’s former employer of a change of employment, without more,
is not solicitation. Neither does the willingness to discuss business upon
invitation of another party constitute solicitation on the part of the invitee.
Equity will not enjoin a former employee from receiving business from the
customers of his former employer, even though the circumstances be such
that he should be prohibited from soliciting such business.” (American
Credit, at p. 636; Reeves, supra, 33 Cal.4th at p. 1156 [citing American Credit
with approval].)
      Here, RFA relies on self-serving testimony from Frank Reilly and an e-
mail from an RFA employee stating that an RFA client stated that Griffith
“had asked them to come and join him at the new firm.” Neither is evidence

                                       11
of misappropriation or unlawful solicitation. Notably, the e-mail states that
the client declined, and that the RFA employee let the client “know that there
was pending litigation against [Griffith],” supporting Respondents’
explanation that they were calling former clients in response to disparaging
comments made by RFA. In his deposition, Reilly asserted that clients told
“us” (presumably, RFA) that Griffith offered them investment advisory
services but he conceded that he could not recall which clients made such
statements, that he did not know exactly what was said, and that he did not
talk to any clients directly.
      RFA also relies on notes that Griffith and/or Cariani took during their
calls but, if anything, those notes belie RFA’s claims as many of the entries
indicate that substantive conversations occurred only after the client called
Griffith or Cariani. Likewise, the record also contains notes from various
RFA employees calling existing clients in February and March 2019 to
discuss the resignations. Those notes confirm that the vast majority of
clients were either unaware of the move, or aware only because they received
the tombstone notice, and made no reference to either Griffith or Cariani
attempting to solicit their business. This evidence supports the trial court’s
finding that RFA’s claim of improper solicitation of former RFA clients was
speculative and unsupported by the evidence.
      Fourth and finally, RFA relies on screenshots and related testimony
showing that Cariani sent himself a copy of the defensive portfolio two days
before his resignation. The screenshots, taken from a third party database
interface, indicate that two different reports were sent from “David Cariani
(REILLY FINANCIAL ADV)” to “David Cariani (REILLY FINANCIAL
ADV).” Dean Peabody, an RFA employee, testified at deposition about the
screenshots. He said that he did not recall whether he was able to open the

                                      12
attachments. He explained that the “from” was from Cariani’s Bloomberg
account, and he knew that because “Bloomberg is a closed-in system” so
someone accessing it could only send an e-mail from their Bloomberg account.
He agreed that the “to” line was the same as the “from” line but stated that
he did not investigate what e-mail address was related to the “to” line
because he did not know how. Thus, he did not know whether Cariani sent
the report outside of RFA. He also did not recall whether he checked to see if
Cariani had sent similar reports to the same address in the past. Another
employee, Sonja Larimore, testified that she searched the RFA e-mail
archives for an e-mail to Cariani containing the reports and did not find any
such e-mail. She confirmed that she was not aware of any further
investigation into the matter by RFA.
        As with the other forms of evidence, the mere sending of the portfolio to
an unknown address while Cariani was still employed by RFA is not evidence
of wrongdoing or misappropriation. (See FLIR, supra, 174 Cal.App.4th at
p. 1279.) Cariani was required, per his agreement with RFA, to purge all
information related to RFA upon his departure. He averred that he did so,
and, despite alleging in the complaint that they made demands on
Respondents to return the allegedly stolen confidential information, RFA
presented no evidence of such demands or Respondents’ failure to comply.
There is also nothing in the record to suggest that RFA made any attempt to
investigate the screenshot further—for example, by contacting the owner of
the database to inquire whether they could determine where the report was
sent.
        Based on the foregoing, we conclude that substantial evidence supports
the trial court’s finding that Respondents had met their burden to establish
objective speciousness.

                                        13
       2.     The Court’s Statement Regarding Circumstantial Evidence
       RFA asserts that the trial court erred because it stated on the record,
during argument, that the evidence it presented was at least circumstantial
evidence of misappropriation, and therefore the court must have incorrectly
concluded that the “circumstantial evidence did not constitute evidence for
the purposes of the objective prong.”
       During the hearing on the fee motion, RFA’s counsel addressed
Respondents’ argument that its claims were based on speculation rather than
evidence and stated: “Cariani’s wiping of his browser history giving rise to
reasonable inference that he had something to hide. [Respondents] argue in
reply that this is mere speculation, not evidence or they should have
conducted a thorough forensic examination of Cariani’s computer.” The trial
court responded: “Well, I think it’s circumstantial evidence.” RFA’s counsel
then stated, “Exactly,” and asserted circumstantial evidence was sufficient to
raise an inference and sustain a verdict. The court then turned its attention
to the subjective bad faith prong.
       Nothing in this exchange suggests that the trial court found, or
believed, that RFA had presented sufficient circumstantial evidence to
support its claims. It is quite possible that the court simply meant that there
was some circumstantial evidence that Cariani “had something to hide.” But
such an inference, without more, was not sufficient to support a claim for
misappropriation. Rather, as we have explained, the trial court’s ultimate
finding in its written order that Respondents met their burden to show an
absence of evidence is supported by substantial evidence.
       3.     The Court’s Statement Regarding a Thorough Investigation
       RFA next asserts that the trial court erred by concluding, in reliance on
SASCO, that RFA “should have conducted a ‘thorough investigation prior to
filing suit.’ ”

                                        14
      In SASCO, the appellate court noted that the trial court “faulted
SASCO for not conducting a thorough investigation prior to filing suit (e.g.,
by asking knowledgeable individuals why SASCO did not obtain the contract
or by conducting forensic tests to determine whether defendants took
computer files).” (SASCO, supra, 207 Cal.App.4th at p. 844.) The appellate
court found that the trial court applied the correct rule of law in making its
ruling. (Id. at p. 845.) SASCO argued that it should have been held only to
the pleading standard set forth in section 128.7, but the court squarely
rejected that argument. (SASCO, at pp. 845−846 [“There is no reason to
import the statutory language of [ ] section 128.7 into the meaning of ‘bad
faith’ as used in section 3426.4.”].) The court went on to point out: “ ‘[I]n
enacting section 3426.4 the Legislature was concerned with curbing ‘specious’
actions for misappropriation of trade secrets, and such actions may
superficially appear to have merit.” (SASCO, at p. 846.)
      The trial court’s statement supporting its finding of subjective bad faith
was similar in this case. RFA may have had some circumstantial evidence
that gave a superficial appearance of merit, but the record reveals that RFA
failed to conduct any further investigation to determine whether the evidence
it was relying upon amounted to anything more than mere suspicion of
wrongdoing before filing suit. RFA now asserts that, by quoting this
language from SASCO, the trial court in this case imported some additional
burden on RFA. Not so. Although RFA was not necessarily required to
conduct further investigation under the pleading standard, the trial court
could nevertheless consider its failure to investigate the evidence it was
relying on in readily available ways, such as calling the database
administrator or getting statements from clients regarding the alleged
solicitation, as evidence of subjective bad faith. In other words, RFA’s

                                        15
willingness to move forward with whatever scintilla of evidence it had,
without any further investigation and despite a nine month delay, supports
an inference that the suit was filed in bad faith.
      As we have concluded, the trial court’s finding that Respondents
established an absence of evidence supporting RFA’s asserted claims is
supported by substantial evidence.
C.    Subjective Bad Faith
      Regarding the second prong of subjective bad faith, the trial court
stated: “for purposes of section 3426.4, this means ‘the action was
commenced or continued for an improper purpose, such as harassment, delay,
or to thwart competition.’ SASCO, supra, [207 Cal.App.4th] at [p.] 847. This
may be inferred from circumstantial evidence. Defendants also have shown
this as well. Wyman Decl. ¶¶ 14−15; Exs. X, Y. [¶] At oral argument,
plaintiff’s counsel emphasized that the filing of other cases—which are still
pending and have not been adjudicated—is insufficient to demonstrate
subjective bad faith. However, as defendant made clear in rebuttal, it did not
rely solely on the filing of the other lawsuits, the other lawsuits merely
bolstered [Respondents’] argument.”
      RFA asserts that the trial court erred both by inferring subjective bad
faith “from a lack of evidence alone,” and therefore “collapsing the
established, two−prong test into a single prong,” and by improperly relying on
the two similar lawsuits filed against other financial advisors that had
resigned from RFA as evidence of RFA’s bad faith. Neither argument has
merit.
      “ ‘ “Bad faith may be inferred where the specific shortcomings of the
case are identified by opposing counsel, and the decision is made to go
forward despite the inability to respond to the arguments raised.” ’ ” (FLIR,
supra, 174 Cal.App.4th 1270, 1283.) Here, the trial court found there was no

                                       16
evidence of misappropriation, prior to the commencement of the suit or
following discovery. But the trial court did not rely solely on its prior finding
that there was no evidence to support RFA’s claims in making its
determination of bad faith. Rather, it stated that bad faith could be “inferred
from circumstantial evidence,” and that the other lawsuits bolstered
Respondents’ arguments.
      Respondents’ other arguments included that RFA failed to take even
readily available steps to confirm (or absolve) their suspicions of
misappropriation; that RFA waited approximately nine months after Griffith
and Cariani’s departure to file the lawsuit; that RFA maintained the action
for two years without obtaining any further evidence of misappropriation;
and that RFA had filed two other lawsuits with nearly identical allegations
against financial advisors that resigned and went to work for a competitor.
All of these factors support a finding of subjective bad faith.
      RFA asserts that the trial court could not infer anything from the other
two pending cases because those two cases had not been resolved on their
merits. But here, Respondents did not assert that it was the mere filing of
additional cases against additional defendants that supported a finding of
bad faith. It asserted that the similarity between the complaints in the three
pending cases was evidence that RFA was using litigation as a tactic to send
a message to other financial advisors that wanted to resign from RFA to work
for a competitor. Indeed, a review of the three complaints reveals that much
of the language is identical across all three, raising at least an inference that
RFA routinely filed boilerplate complaints against departing employees. RFA
presents no authority suggesting that the trial court could not consider the
similarity between the three complaints simply because none had been

                                       17
resolved, nor does it make any attempt to explain why the allegations are so
similar.
      Finally, RFA asserts that it could not have brought the claims in bad
faith if it had reasonable suspicion of wrongdoing at the time of filing.
Several courts have declined to hold that “a subjective belief in the merits of a
claim will bar a fee award under section 3426.4 if the claim was maintained
for an improper purpose.” (Cypress, supra, 236 Cal.App.4th at p. 267
[discussing other cases].) Regardless, here, as the trial court found, RFA had
no more than an unconfirmed suspicion of wrongdoing; it has presented no
evidence that it had a reasonable belief in the merits of its claims.
D.    Reduction in Amount of Fees Awarded
      RFA asserts that the trial court erred by awarding all fees incurred
defending against its claims, and that the trial court should have instead
limited the fees to those incurred after RFA knew or should have known that
its claims were not supported. The argument fails for many of the same
reasons we have explained with respect to the two-prong test for fees in the
first instance.
      The trial court found that Respondents “have shown [RFA] brought and
maintained this misappropriation of trade secrets claim in bad faith.” (Italics
added.) Contrary to RFA’s assertions, the trial court did not make any
finding indicating that RFA was justified in bringing its claims in the first
instance, but either knew or should have known, at some point during the
litigation, that the claims were not actually supported by the evidence. As we
have already discussed, the trial court did state that the evidence “only
supported [RFA’s] suspicion of misappropriation,” but correctly concluded
that RFA’s suspicion, without any further investigation, was not an adequate
basis to support its claims. It is apparent from the trial court’s written ruling
that it concluded both prongs of the applicable test were met when RFA first

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filed its complaint. Thus, there was no reason to reduce the fees based on
such a turning point.
                           IV.    DISPOSITION
      The judgment is affirmed. Respondents are awarded their costs on
appeal.

                                                                  KELETY, J.

WE CONCUR:

HUFFMAN, Acting P. J.

CASTILLO, J.

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