MANUFACTURING AUTOMATION AND SOFTWARE SYSTEMS INC v. HUGHES (2021)

United States Court of Appeals, Ninth Circuit.2021-01-11No. Nos. 19-55489, 19-55766

Summary · law.co

Holding. The district court's judgment in favor of defendants on all claims and its denial of attorneys' fees to both parties were affirmed.

MASS, Inc. brought suit against former employees Hughes and Huysentruyt for misappropriating proprietary information and breaching contracts to start a competing business. At trial, the jury returned a mixed verdict, but the district court entered judgment in favor of the defendants on all claims. MASS, Inc. appealed, challenging both the judgment and the denial of attorneys' fees; Huysentruyt cross-appealed the denial of his fee request.

The court upheld the judgment for defendants because MASS, Inc. failed to establish essential elements required for most claims. For claims like computer fraud, breach of contract, and tortious interference, proof of damages was mandatory, yet the jury awarded zero damages on each. For the trade secrets claim, although damages were not proven, MASS, Inc. could have pursued a reasonable royalty or injunction but never requested either remedy before trial concluded. Additionally, since MASS, Inc. recovered nothing overall, defendants were deemed prevailing parties entitled to fee consideration.

Regarding Huysentruyt's cross-appeal, the court found no error in denying his fee request because he failed to apportion fees between the breach-of-contract claim and the other fifteen claims in the case, despite being given the opportunity to do so.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether judgment for defendants was proper when jury awarded zero damages on claims requiring damages as an essential element
Whether the district court erred in refusing to consider equitable remedies (reasonable royalty or injunction) not requested before trial concluded
Whether defendants were proper prevailing parties for fee award purposes when plaintiff recovered nothing
Whether plaintiff's failure to apportion attorneys' fees between individual claims justified denial of fee request

Procedural posture

MASS, Inc. appealed from the district court's judgment for defendants on all claims and denial of attorneys' fees, while Huysentruyt cross-appealed the denial of his attorneys' fee motion.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

MEMORANDUM **

Manufacturing Automation & Software Systems, Inc. (MASS, Inc.) sued two former employees, Kristopher Hughes and James Huysentruyt, along with other defendants, for allegedly stealing proprietary information to start a new, competing business. After trial, a jury returned a verdict for defendants on some claims and partly in MASS, Inc.’s favor on other claims, including claims for misappropriation of trade secrets and breach of contract. After the parties exchanged proposed judgments and submitted them to the district court, the court entered judgment for defendants on all claims. MASS, Inc. appeals from the judgment as well as a subsequent order declining to award MASS, Inc. attorneys fees and costs. Huysentruyt cross-appeals from the district courts order denying his “motion for attorneys fees, without prejudice to Huysentruyts making a showing of fees expended only in defending the breach of contract claim.” We affirm.

1. The district court permissibly exercised its discretion by entering judgment for defendants. See Zhang v. American Gem Seafoods, Inc., 339 F.3d 1020, 1038 (9th Cir. 2003). With the exception of the claim for misappropriation of trade secrets, each of the claims on which MASS, Inc. ostensibly prevailed required proof of damages as an essential element of the claim. See 18 U.S.C. § 1030(c)(4)(A)(i)(I) and (g) (Computer Fraud and Abuse Act); Cal. Penal Code § 502(e)(1) (California Comprehensive Computer Data Access and Fraud Act); Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 974, 64 Cal.Rptr.2d 843, 938 P.2d 903 (1997) (fraud); Youst v. Longo, 43 Cal. 3d 64, 71, 233 Cal.Rptr. 294, 729 P.2d 728 (1987) (interference with prospective economic advantage); Richman v. Hartley, 224 Cal. App. 4th 1182, 1186, 169 Cal.Rptr.3d 475 (2014) (breach of contract); Teselle v. McLoughlin, 173 Cal. App. 4th 156, 179, 92 Cal.Rptr.3d 696 (2009) (accounting); Mosier v. Southern California Physicians Insurance Exchange, 63 Cal. App. 4th 1022, 1044, 74 Cal.Rptr.2d 550 (1998) (breach of fiduciary duty). On each of these claims, however, the jury awarded zero damages. Because MASS, Inc. failed to prove an essential element of these claims, the district court properly entered judgment for defendants.

With respect to the claim for misappropriation of trade secrets, the jury also awarded zero damages. Even though it failed to prove damages (or unjust enrichment), MASS, Inc. could have prevailed on this claim by proving its entitlement to a reasonable royalty, see Cal. Civ. Code § 3426.3(b), or injunctive relief. It failed to do so. The district court properly refused to allow MASS, Inc. to submit evidence as to its entitlement to either a reasonable royalty or a permanent injunction, given that MASS, Inc. never filed a motion seeking either form of relief. The first point at which MASS, Inc. indicated its intent to seek equitable relief was in its briefing on the form of the proposed judgment, and even then it made no showing in support of any such relief. At that point, the trial had concluded, and nothing in the Federal Rules of Civil Procedure required the court to reopen proceedings so that additional evidence could be introduced. Accordingly, the district court properly entered judgment for defendants on this claim as well.

Because MASS, Inc. recovered nothing on any of its claims, the district court permissibly deemed defendants the prevailing parties for purposes of awarding attorneys fees and costs. See Hsu v. Abbara, 9 Cal. 4th 863, 875–76, 39 Cal.Rptr.2d 824, 891 P.2d 804 (1995).

2. As to Huysentruyts cross-appeal, the district court appropriately exercised its discretion in denying Huysentruyts motion for attorneys fees based on his failure to apportion fees related to the breach-of-contract claim. See El Escorial Owners’ Association v. DLC Plastering, Inc., 154 Cal. App. 4th 1337, 1365, 65 Cal.Rptr.3d 524 (2007). Although Huysentruyt asserts that it was impossible to apportion fees, defending against the fifteen other claims in the case surely required counsel to spend at least some additional time beyond what was required to defend against the breach-of-contract claim.

When Huysentruyt was offered an opportunity to apportion fees in the district court, he declined to do so. Accordingly, there is no need to remand for further proceedings with respect to the issue of attorneys fees.

MASS, Inc.’s July 29, 2020, motion for judicial notice is DENIED.

AFFIRMED.