Citcon USA, LLC v. Riverpay, Inc. ( 2022 )


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  •                            NOT FOR PUBLICATION                           FILED
    UNITED STATES COURT OF APPEALS                        JAN 31 2022
    MOLLY C. DWYER, CLERK
    U.S. COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    CITCON USA, LLC,                                No.    20-16929
    Plaintiff-counter-                        D.C. No. 5:18-cv-02585-NC
    defendant-Appellant,
    v.                                             MEMORANDUM*
    RIVERPAY INC., a Canadian Corporation;
    et al.,
    Defendants-counter-
    claimants-Appellees,
    and
    HANG MIAO,
    Defendant,
    WEI JIANG,
    Counter-defendant.
    Appeal from the United States District Court
    for the Northern District of California
    Nathanael M. Cousins, Magistrate Judge, Presiding
    Argued and Submitted January 13, 2022
    San Francisco, California
    *
    This disposition is not appropriate for publication and is not precedent
    except as provided by Ninth Circuit Rule 36-3.
    Before: GOULD, BENNETT, and R. NELSON, Circuit Judges.
    Citcon sued two former executives (Yue Hua and Kenny Shi), their new
    employer (RiverPay), and a former contractor (Hank Miao) for claims under federal
    and California law. It now appeals the district court’s dismissal of its duty of loyalty
    and defamation claims, decision not to give a jury instruction on joint and several
    liability, and denial of its request for punitive damages, costs, attorney’s fees, and
    an injunction. Citcon also appeals the judgment for Shi on his breach of contract
    counterclaim. We have jurisdiction under 
    28 U.S.C. § 1291
    . See also 
    28 U.S.C. § 636
    (c)(3).
    1.       Citcon alleged that (1) Shi and Hua created and lied about the Dropbox
    account to use Citcon’s confidential transaction information; (2) they sabotaged
    Citcon’s system by arranging it in a way that critically depended on Hua’s login;
    (3) they participated in the Terry Liu email attack; and (4) Shi engineered the “Miao
    incident” and article to damage Citcon’s reputation and recruit Miao for RiverPay.
    Citcon’s Dropbox allegations are “based on the same nucleus of facts as the
    misappropriation of trade secrets claim for relief,” and therefore these allegations
    cannot support a duty of loyalty claim. See K.C. Multimedia, Inc. v. Bank of Am.
    Tech. & Operations, Inc., 
    171 Cal. App. 4th 939
    , 958 (2009) (quoting Digit. Envoy,
    Inc. v. Google, Inc., 
    370 F. Supp. 2d 1025
    , 1035 (N.D. Cal. 2005)). And because
    Citcon did not identify the Terry Liu allegations as a basis for its duty of loyalty
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    claims in its arguments to the district court, its argument about those pleadings is
    waived. See Putnam Fam. P’ship v. City of Yucaipa, 
    673 F.3d 920
    , 932 (9th Cir.
    2012).
    The remaining allegations—that Hua and Shi designed Citcon’s system so that
    it would critically depend on Hua’s login and that Shi engineered the Miao
    incident—state a claim for breach of Hua’s and Shi’s duties of loyalty. Citcon
    essentially alleged that Hua and Shi embedded a “logic bomb”—a piece of code
    inserted into software that sets off a malicious function when certain conditions are
    met, see Computer Security Resource Center, Logic Bomb, https://csrc.nist.gov/
    glossary/term/logic_bomb (last visited Jan. 27, 2022)—in Citcon’s system while still
    at the company. The logic bomb went off when Citcon disabled Hua’s login and
    Citcon’s system crashed; it required no further action by Hua or Shi. And Citcon’s
    allegation that Shi engineered the Miao incident to damage Citcon’s reputation and
    steal a potential employee also states a breach of duty of loyalty claim against Shi.
    See Stokes v. Dole Nut Co., 
    41 Cal. App. 4th 285
    , 295 (1995).
    Because we reverse and remand on the claims against Shi and Hua, we also
    reverse and remand on the breach of duty of loyalty claim against RiverPay based
    on vicarious liability.
    2.     Citcon also appeals the judgment for Shi on his breach of contract
    counterclaim. But the district court’s dismissal of Citcon’s breach of duty of loyalty
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    claims did not prohibit Citcon from seeking discovery on defenses to Shi’s
    counterclaim. See Fed. R. Civ. P. 26(b)(1). We accordingly affirm the judgment for
    Shi on his breach of contract counterclaim.
    3.     Citcon next appeals the dismissal of its defamation claim. Citcon’s
    defamation claim is based on an internet blog article titled How My Life Was Ruined
    By A Silicon Valley Startup And Former PayPal & Uber Execs. The district court
    properly held that the statements in the blog post were nonactionable statements of
    opinion. See Knievel v. ESPN, 
    393 F.3d 1068
    , 1074–75 (9th Cir. 2005). In context,
    the article is “a personal story, expressing personal impressions, rather than a
    presentation of facts.” Citcon USA, LLC v. RiverPay Inc., No. 18-CV-02585-NC,
    
    2018 WL 6813211
    , at *9 (N.D. Cal. Dec. 27, 2018). It leaves readers “free to draw
    their own conclusions about the hiring dispute rather than take the account in the
    article as fact.” 
    Id.
     The post does not try to hide the fact that it is a collection of the
    author’s feelings of anger toward Citcon and its executives and uses crass,
    hyperbolic, and emotional language. In short, readers can be expected to take the
    article with a grain of salt. See Gardner v. Martino, 
    563 F.3d 981
    , 986–89 (9th Cir.
    2009).
    4.     Citcon also appeals the district court’s decision not to include a jury
    instruction on Hua’s joint and several liability for the trade secret misappropriation
    award against RiverPay. Citcon’s damages evidence was presented under a theory
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    of unjust enrichment. The district court properly declined to give Citcon’s proposed
    instruction because an instruction on joint and several liability had no foundation in
    the evidence presented at trial. See Yan Fang Du v. Allstate Ins. Co., 
    697 F.3d 753
    ,
    757 (9th Cir. 2012).
    5.     Citcon argues the district court’s decision not to award punitive and
    exemplary damages against RiverPay was an abuse of discretion. Because the
    California Uniform Trade Secrets Act (“CUTSA”) displaces “alternative civil
    remedies based on trade secret misappropriation,” K.C. Multimedia, 171 Cal. App.
    4th at 954, we need only consider what punitive damages might be properly awarded
    under CUTSA. CUTSA provides that punitive damages are awarded by the court,
    not the jury, and punitive damages are not mandatory even if the jury finds the
    misappropriation willful and malicious. See 
    Cal. Civ. Code § 3426.3
    (c). The district
    court did not abuse its discretion, as it identified the relevant factors and ultimately
    declined to award punitive damages for reasons including RiverPay’s lack of wealth,
    the nature of the conduct, and the sufficiency of the $1.5 million compensatory
    damages award.
    6.     On a similar note, the district court did not abuse its discretion by
    declining to award costs or fees. See Thomas v. City of Tacoma, 
    410 F.3d 644
    , 647
    (9th Cir. 2005). We apply California law, which provides for the recovery of
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    attorney’s fees when authorized by contract or statute. 
    Cal. Civ. Proc. Code § 1033.5
    (a)(10).
    Even with the jury’s finding of malice, oppression, or fraud, neither the
    Defend Trade Secrets Act nor CUTSA requires the court to award attorney’s fees.
    See 
    18 U.S.C. § 1836
    (b)(3)(D); 
    Cal. Civ. Code § 3426.4
    . And a party’s partial
    success does not establish an abuse of discretion when the district court considered
    factors such as the complexity of the case, the efforts of the parties, and the nature
    of relief awarded. K-S-H Plastics, Inc. v. Carolite, Inc., 
    408 F.2d 54
    , 60 (9th Cir.
    1969). Here, the district court explained that its decision was based on balancing
    Citcon’s mixed success on its misappropriation claims (Citcon succeeded on its
    claim for misappropriation of source code but not as to four other categories of
    alleged trade secrets) with Shi’s success on his breach of contract counterclaim and
    the failure of Defendants’ trade libel, defamation, and intentional interference with
    prospective economic relations counterclaims.
    7.     Citcon’s final argument challenges the district court’s denial of its
    motion for a permanent injunction.            Citcon contends that trade secret
    misappropriation always leads to at least a presumption of future irreparable harm
    because other cases have recognized that injunctions in trade secrets cases seek to
    “protect the secrecy of misappropriated information and to eliminate any unfair head
    start the defendant may have gained.” Lamb-Weston, Inc. v. McCain Foods, Ltd.,
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    941 F.2d 970
    , 974 (9th Cir. 1991). Indeed, an important goal of trade secrets law is
    to protect a party’s interest in the exclusive use of secrets it has cultivated. But
    Citcon’s argument, which is essentially that injunctive relief automatically flows
    from a successful trade secret misappropriation claim, is untenable. See Winter v.
    Nat. Res. Def. Council, Inc., 
    555 U.S. 7
    , 32 (2008) (“An injunction . . . does not
    follow from success on the merits as a matter of course.”).
    We are not obligated to grant injunctive relief in trade secrets cases and the
    sufficiency of the $1.5 million damages award is supported by Citcon’s evidence at
    trial. Citcon bore the burden of establishing the necessity of injunctive relief, see
    Klein v. City of San Clemente, 
    584 F.3d 1196
    , 1201 (9th Cir. 2009), and gives no
    reason the $1.5 million award is inadequate. The district court’s decision to deny its
    motion for an injunction was not an abuse of discretion.
    The district court’s decisions not to include a jury instruction on joint and
    several liability, award punitive damages, or issue a permanent injunction and to
    have the parties bear their own costs and fees are AFFIRMED. The judgment on
    Shi’s breach of contract counterclaim is AFFIRMED. The dismissal order is
    AFFIRMED IN PART regarding Citcon’s defamation claim and REVERSED IN
    PART regarding the duty of loyalty claims against Shi, Hua, and RiverPay. The
    case is remanded for further proceedings consistent with this memorandum
    disposition. The parties shall bear their own costs on appeal.
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