Southern District Requires Plaintiffs in CUTSA Case to Post $800,000 Bond for Fees and Costs Pursuant to California Code of Civil Procedure § 1030

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The United States District Court for the Southern District of California required plaintiffs in a UTSA case to post an $800,000 bond for fees and costs, pursuant to California Code of Civil Procedure section 1030.  Gabriel Technologies Corporation v. Qualcomm Incorporated, No. 08 CV 1992 MMA (POR), Slip Copy, 2010 WL 3718848 (S.D. Cal. Sept. 20, 2010).

The action arose out of events related to technology licenses and related joint ventures between Plaintiffs and their predecessor in interest, and Defendants.  Id *1.  In the Fourth Amended Complaint, Plaintiffs assert claims for: (1) Breach of the Amended and Restated License Agreement; (2) Correction of Inventorship (pursuant to 35 U.S.C. § 256); (3) Declaratory Judgment of Ownership Interest in the Patents (pursuant to 28 U.S.C. § 2201); and (4) Misappropriation (pursuant to Cal. Uniform Trade Secrets Act). Id. *2. Defendants filed a motion for a cost bond under California Code of Civil Procedure section 1030. Id. The Court also has authority under Civil Local Rule 65.1.2(a) to require Plaintiffs to post a bond “where authorized by law and for good cause shown.”

While the Federal Rules of Civil Procedure do not contain a provision governing cost bonds or other means for securing costs, “the federal district courts have inherent power to require plaintiffs to post security for costs…. Typically federal courts, either by rule or by case-to-case determination, follow the forum state’s practice with regard to security for costs, as they did prior to the federal rules; this is especially common when a non-resident party is involved.” Id. (quoting Simulnet East Assocs. v. Ramada Hotel Operating Co., 37 F.3d 573, 574 (9th Cir.1994); see also Plata v. Darbun Enterprises, Inc., 2009 U.S. Dist. LEXIS 89608 *33-37 (S.D. Cal.) (“federal courts have inherent authority to require plaintiffs to post security for costs”)).

Under C.C.P. section 1030, a defendant may move the court to issue a cost bond against a plaintiff who resides outside of California, or, is a foreign corporation.  Id. The defendant must also demonstrate that there is “a reasonable possibility … [it] will obtain judgment in the action …” Id. (quoting C.C.P. § 1030). California state courts describe the purpose of section 1030 as a way to assist California defendants to “secure costs in light of the difficulty of enforcing a judgment for costs against a person who is not within the court’s jurisdiction.” Id. (citing Shannon v. Sims Serv. Center, 164 Cal. App. 3d 907, 913 (1985)).

The court found it likely that defendants would prevail on the merits against plaintiff’s claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act (“CUTSA”).  Id. *8.  Defendants argued that the statute of limitation on Plaintiffs’ misappropriation claim had already expired. Id.

“The statute of limitation is triggered when the plaintiff has reason to suspect wrongdoing. Based on the current record, it appears Plaintiffs had reason to suspect Defendants were misappropriating Locate’s technology during the co-development period in 1999-2001. Thus, the Court finds that Defendants have a reasonable possibility of defeating Plaintiffs’ misappropriation claim.

Id. *9.

Reasonableness of Bond Amount Requested

Defendants requested the Court require Plaintiffs to post a bond in the amount of $2.9 million; $1.9 million for costs and $1 million for attorneys’ fees. Id. *10.  Defendants argue a portion of their attorneys’ fees should also be incorporated into the bond amount because attorneys’ fees are permitted under CUTSA and the Patent Act, where the action is “vexatious, unjustified and brought in bad faith.” Id. *13.  The court noted that the CUTSA allows a prevailing party to recoverable reasonable attorneys’ fees if “a claim of misappropriation is made in bad faith.” Id. (quoting Cal. Civ. Code § 3426.4).

“At this stage, the Court does not decide whether this case will ultimately be deemed “exceptional” within the meaning of 35 U.S.C. § 285. However, Defendants have presented significant, unrebutted evidence that Plaintiffs’ lawsuit is likely unmeritorious, and brought in bad faith to salvage Gabriel. The Court will not go through each individual email correspondence here, but will note that when read as a whole, the Court is convinced they create a logical inference that Gabriel has suffered a long history of corrupt officers and directors who are not above taking illegal and fraudulent actions to guarantee their own personal gain. [FN10] Plaintiffs assert the emails are nothing more than disgruntled employees’ expressions of frustration with Gabriel’s management, and have no bearing on the merits of this case. The Court disagrees. Although the emails indicate their authors are upset by how Gabriel has treated them, and alone, they do not conclusively establish this action is without merit, the Court finds that when the emails are considered in connection with Defendants’ evidence demonstrating a reasonable possibility of success on the merits, there is a strong likelihood Defendants will ultimately prove this case is exceptional, and attorneys’ fees will be warranted at the conclusion of the litigation. The Court recognizes at this stage of the litigation Plaintiffs do not have all the evidence they need to prove their case. But the Court is troubled by Plaintiffs’ inability to draw any meaningful connection between Locate’s technology and the allegedly misappropriated information found in more than 92 patents. The parties began working together approximately a decade ago, Plaintiffs assert they suspected wrongdoing in approximately 2007, and they have been investigating their claims for several years. By now, Plaintiffs should have more than mere allegations to support their theory. Thus, the $1 million in attorneys’ fees Defendants have incurred to date may reasonably be included in the Court’s determination of an appropriate bond amount.

Bond Amount

Although the Court believed a bond for $1,291,580 is reasonable, it reduced the bond amount in light of Plaintiffs’ financial condition, and required Plaintiffs to post a bond for $800,000. Id. *15.


District Judge Michael M. Anello.


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