Opinion
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. CV024251
ELIA, J.Plaintiff InSyst, Ltd. sued defendant Applied Materials, Inc. and its subsidiary for misappropriation of trade secrets, fraud, breach of contract, and related causes of action. Defendant obtained summary adjudication of the misappropriation claim based on the applicable statute of limitations, Civil Code section 3426.6. The remaining claims were eventually eliminated with the exception of fraud, which a jury determined in defendant's favor by special verdict.
Throughout this opinion we will refer to Applied Materials, Inc. and Applied Materials Israel, Ltd. as defendant.
On appeal, plaintiff asserts error in the grant of defendant's summary adjudication motion. Plaintiff further challenges the trial court's evidentiary rulings during trial and the court's refusal of plaintiff's proposed jury instruction on fraud by concealment. We find merit in plaintiff's first argument and therefore must reverse the judgment on that ground alone.
Background
Defendant is in the business of making machines that fabricate semiconductors. Plaintiff InSyst was formed around an idea for mapping, modeling, and optimizing the processes of the fabrication machines. Plaintiff's idea involved an automated decision-making technology that would map the variables involved in the machine's processes in a knowledge tree, modeling them empirically, and then optimizing them. Plaintiff’s approach was intended to apply to a single machine, to several machines working together in a module, or to an entire fabrication plant.
The "Process Output Empirical Modeler" was known as "POEM."
The parties' business relationship started with a nondisclosure agreement on August 31, 1999. In this agreement plaintiff disclosed its confidential and proprietary technology and intellectual property (IP) to defendant. On December 21, 1999, the parties entered into a letter agreement, and on July 11, 2000, they signed an "Interim Joint Project Development Agreement, " effective April 11, 2000. Under this interim agreement all IP created by either party pursuant to the agreement, as well as all prior IP related to an advance payment, was "Foreground IP" owned by defendant. All other pre-existing IP ("Pre-existing Background IP") was deemed owned by the party that owned it as of the effective date. Likewise, IP developed or acquired during the term of the agreement but unrelated to it ("New Background IP") would be owned by that party.
The interim agreement expressly contemplated a long-term agreement. On March 14, 2001, plaintiff and defendant entered into a 40-page "Long-Term Joint Development Project Agreement" that was effective on February 11, 2001. The long-term agreement recognized that defendant had expertise in technology related to "semiconductor manufacturing and processing equipment, " while plaintiff had expertise in technology related to "advanced process control software." The parties expressed their intent to "enter into a cooperative relationship for the development of advanced process control software products having application both within and outside the semiconductor field." To promote their joint development project, the parties wished "to license to each other certain intellectual property rights" in technology developed under the agreement. Thus, plaintiff would perform product development work in collaboration with defendant.
Like the interim agreement, the long-term agreement defined a number of terms related to the intellectual property of each party. "Foreground Technology" was all Technology created for Applied by or for InSyst pursuant to this agreement as well as the interim agreement and advance payment agreement. All IP rights in Foreground Technology were "Foreground IP." Any technology developed or acquired by a party on or after January 1, 2000 that did not qualify as Foreground Technology was called "New Background Technology." "Background Technology" included both "New Background Technology" and "Pre-existing Background Technology, " i.e., technology owned by or licensed to a party as of December 31, 1999. All IP rights in Background Technology were called "Background IP." Attached to and incorporated into the long-term agreement was a 20-page document in which plaintiff described its Background IP.
Under the agreement, defendant would be the sole owner of all Foreground IP, while granting plaintiff an exclusive license to use Foreground IP outside of the semiconductor field. (Section 5.1.1) The parties exchanged certain other licenses applicable to their respective Background technology and improvements.
Among the promises made by the parties in the long-term agreement were certain disclosure obligations. Section 3.7, entitled "Insyst Right of First Refusal to Perform Improvements to Source Code, " required defendant to propose to plaintiff any planned improvements to plaintiff's source code. Section 5.4.1 required any personnel developing "Foreground Inventions" (i.e., inventions that could result in Foreground IP) to provide a written "invention disclosure" to the other party. Though defendant had the right to file the first patent application on any Foreground Invention, if it failed to provide plaintiff with a written undertaking to file an application within 45 days of an invention disclosure or within 30 days of a written reminder from plaintiff, then plaintiff had the right to file the first patent application on defendant's behalf. (Section 5.4.3 (i), (ii).) If a party elected to discontinue prosecuting or maintaining a patent application, it had to provide the other party with written notice of this election. (Sec. 5.4.5.)
Section 3.7 provided: "If Applied intends to perform, or have performed, any work permitted under this Agreement relating to the development of any Improvements or other changes to source code developed by InSyst pursuant to the Development Agreements or otherwise ('Source Code Improvements') ('Source Code Improvement Work'), Applied shall first propose the Source Code Improvement Work to InSyst as Additional Product Development Work (or a change order related thereto).... If a non-InSyst Entity performs the Source Code Improvement Work, Applied shall provide InSyst, during the terms of this Agreement, with copies of all Source Code Improvements and associated documentation...."
Plaintiff brought this action on July 30, 2004. Its first amended complaint, filed March 15, 2006, asserted causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory relief, misappropriation of trade secrets, conspiracy, unfair competition, unjust enrichment, and fraud. Plaintiff alleged essentially that during and after their business relationship, defendant had treated plaintiff's IP as defendant's property, contrary to the terms protecting plaintiff's IP in their past agreements. In January 2001, after plaintiff discovered that defendant had been using plaintiff's technology in a manner prohibited under the interim agreement and the anticipated long-term agreement, defendant promised that there would be no future violations of the terms of the interim agreement. While negotiating the long-term agreement, defendant also promised to abide by the terms restricting its use of plaintiff's IP. Yet, plaintiff alleged, even before signing the long-term agreement (which was effective in February 2001), defendant continued to misappropriate plaintiff's intellectual property and draft its own patent applications based on plaintiff's technology.
On October 26, 2007, defendant filed a motion for summary adjudication asserting that plaintiff's claims of fraud, misappropriation, and unfair competition were barred by the applicable statutes of limitation. According to defendant, plaintiff was on notice of defendant's conduct by October 2000, and had admitted having discovered defendant's wrongdoing in December 2000 or January 2001. Plaintiff therefore suspected or should have suspected the conduct it alleged as fraud and misappropriation, but it waited more than three years to bring suit. Consequently, defendant argued, Civil Code section 338, subdivision (d), precluded the fraud cause of action, while Civil Code section 3426.6 barred the misappropriation claim.
The cause of action for unfair competition was asserted to be barred by Business and Professions Code section 17208. The court's ruling on this assertion is not before us on appeal.
In its opposition to the motion plaintiff argued that the statute of limitations for misappropriation of trade secrets was subject to equitable tolling or "disregarded entirely through equitable estoppel principles." In reply, defendant argued that the doctrine of equitable tolling was inapplicable to these facts, as plaintiff had not asserted that it had pursued an alternative remedy. Defendant also argued that equitable estoppel did not apply, because plaintiff had admitted discovering defendant’s fraud when defendant’s patent application was published in December 2002, before the limitations period lapsed. Defendant also argued that plaintiff "has made no showing of diligence and has offered no excuse for failing to proceed diligently" after that second discovery.
The trial court ruled that the misappropriation claim was barred by the statute of limitations but denied summary adjudication of the other causes of action. In its January 15, 2008 order, the court explained that defendant had established that plaintiff "discovered December 2000 to January 2001 that Applied was performing work that was clearly prohibited under the Interim Agreement and the anticipated Long-Term Agreement. Therefore, the cause of action for a misappropriation claim would have accrued by January 2001 at the latest, and the claim would be time-barred after January 2004." The court reasoned further that defendant's assurances that it would abide by the agreement did not extend the limitations period, because plaintiff had learned of defendant's patent applications allegedly based on plaintiff's IP a year before the limitations period lapsed.
The parties proceeded to trial on plaintiff's remaining claims. By the end of the 13-day trial, however, the only question submitted to the jury was whether defendant had fraudulently induced plaintiff to enter their long-term agreement by making any of five different promises. The jury was given a special verdict form with a series of 10 questions, some with subparts. The jury found that defendant had made four promises important to the transaction, but also that when it made those promises, it intended to perform them. Having reached this conclusion, the jury was excused from answering other questions, such as whether plaintiff had reasonably relied on defendant's promises, whether defendant had failed to perform its promises, and whether plaintiff had proved that it "should not have known" of defendant's fraud before July 30, 2001. The result of this special verdict was a judgment in favor of defendant.
As a result of the summary adjudication, the jury was not asked to decide whether defendant had misappropriated plaintiff's trade secrets. Indeed, the jury was properly not even informed that this claim had been made and resolved by the court. (Code Civ. Proc., § 437c, subd. (n)(1), (3).) The jury was instructed, "There is no claim for misappropriation of a trade secret in this case."
At the end of trial, plaintiff consented to a nonsuit on its claim that Applied Materials, Inc. had conspired with its Israeli subsidiary, Applied Materials (Israel) Ltd. Plaintiff declined the court's offer to give an instruction on nominal damages for breach of contract. In light of this ruling, the court refused to instruct about unjust enrichment or breach of the covenant of good faith and fair dealing. The trial court granted defendant a directed verdict on the breach of contract claim due to plaintiff's failure to prove damages, and the jury was instructed that "[t]here is no claim for breach of contract in this case." In light of the jury's verdict, the court found that plaintiff had not established unfair competition or a right to declaratory relief. On appeal plaintiff does not directly challenge either the jury's verdict or these rulings.
Discussion
On appeal, plaintiff directs its arguments to its claims of misappropriation and fraud. Plaintiff contends that the trial court erred by summarily adjudicating the misappropriation claim under Civil Code section 3426.6 (hereafter, "section 3426.6"). It further argues that the court erred by refusing plaintiff's request for a jury instruction on fraud by concealment and by sustaining defense objections to plaintiff's cross-examination at trial. As we explain below, we find prejudicial error in the summary adjudication, as defendant presented no evidence allowing the trial court to determine as a matter of law whether defendant should be equitably estopped to assert the statute of limitations. As to plaintiff's fraud allegations, we find no error requiring retrial.
1. Summary Adjudication
In moving for summary adjudication of plaintiff's cause of action for misappropriation of trade secrets, defendant successfully argued that the three-year limitations period prescribed by section 3426.6 had lapsed long before plaintiff brought suit in July 2004. This statute, part of California's Uniform Trade Secrets Act (UTSA), provides: "An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim."
A trial court may grant a defense motion for summary adjudication of a cause of action if the defendant establishes as a matter of law that the statute of limitations has elapsed on the claim. (Code Civ. Proc., § 437c, subd. (f); Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 487.) " 'While resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts established through discovery are susceptible of only one legitimate inference, summary judgment is proper.' " (Ibid., quoting Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112; County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 316.) On appeal, we review the record de novo and exercise our independent judgment as to the application of the statute of limitations. (County of Santa Clara v. Atlantic Richfield Co, supra, 137 Cal.App.4th at p. 316; see also McCoy v. Gustafson (2009) 180 Cal.App.4th 56, 107.)
a. Allegations of the First Amended Complaint
InSyst's second cause of action for willful misappropriation generally alleged a misappropriation of "trade secrets, and/or confidential and proprietary information." Incorporated into the allegation was paragraph 53, which stated: "In approximately December 2000 to January 2001 InSyst discovered that Applied had been working on the InSyst technology in a manner clearly prohibited under the Interim Agreement and the anticipated Long-Term Agreement beginning in at least December 2000, and probably earlier." As a result, plaintiff made a presentation to a number of defendant's representatives on January 23, 2001 "specifically emphasizing the contractual limitations on Applied's use of InSyst's technology." "Applied acknowledged in several ways that it understood these restrictions, agreed with them and would abide by them."
Other paragraphs of the first amended complaint provided more details. On January 25, 2001, the manager of defendant's "APC [advanced process control] engineering team" in Israel promised to abide by the restrictions in the interim agreement. Defendant's in-house counsel Michael Einschlag said he would instruct defendant's employees about the restrictions so there would be no future violations. In negotiations leading up to the long-term agreement and by signing the long-term agreement itself, defendant also promised to abide by its terms restricting its use of plaintiff's IP.
Despite these representations, "Applied continued to use, implement, and disclose the technology in ways directly contrary to what it had promised InSyst and directly contrary to what it had just agreed to in the Long-Term Agreement." For example, on several occasions in July and August 2002, defendant "impermissibly modified source code supplied by InSyst." Most notably, on June 19, 2001, defendant began filing for patent applications based on plaintiff's IP. Defendant did not disclose these applications to plaintiff nor did its patent applications list plaintiff's inventors.
"Given the lead time it must have taken for Applied to consider, authorize, prepare and file its June 19, 2001 provisional application, it is clear that Applied was already flagrantly breaching the Long Term Agreement even before Applied signed this agreement in March (it was retroactive to February 2001). It is also clear that as InSyst was disclosing its protected intellectual property to Applied, Applied was misappropriating it and treating it as its own without any regard to InSyst's contractual or legal rights." Defendant's employees even published articles taking credit for InSyst's technology.
On August 1, 2002, defendant gave three months' notice of terminating the long-term agreement. One month after the termination was effective, the first of defendant's patent applications was published. According to the complaint, "[i]t was only after InSyst discovered these Applied patent applications that the reason for Applied's termination became apparent." In plaintiff's view, defendant's true intent was to disregard its contractual promises. It "intended to take InSyst's IP, gain patent rights to it, use it as its own, and disclose it to third parties as its own."
The long-term agreement contained elaborate termination provisions. "This Agreement shall terminate upon Acceptance by Applied of the final product resulting from the last development effort under this Agreement." (Section 10.1.) Alternatively, defendant could terminate it without cause from six to 12 months after the effective date by giving written notice to plaintiff. If defendant gave three months' notice within this time period, its licenses would be nonexclusive. (Section 10.1(i).) If defendant gave six months' notice within this time period, its licenses would remain exclusive. (Section 10.1(ii).) After 12 months from the effective date, defendant could give three months' written notice and retain exclusive licenses. (Section 10.1(iii).)
b. Defendant's Showing
Defendant’s separate statement of facts in support of its motion included the following evidence. Arnold Goldman, plaintiff's chief executive officer (CEO), explained in his deposition that plaintiff's discovery of the misuse consisted of finding out that defendant was using a commercially available mathematical software program, "MATLAB, " as an improvement to plaintiff's source code. Defendant's separate statement of undisputed facts presented no fact post-dating the signing of the long-term agreement on March 14, 2001 except for the filing of the initial complaint on July 30, 2004.
Defendant's motion asserted further details, which do not appear in defendant's separate statement of undisputed material facts. (Code Civ. Proc., § 437, subd. (b).) They are not supported by reference to any product of discovery, other than a November 17, 2000 e-mail lodged under seal in the trial court in support of defendant's motion. Appellate courts have disagreed about whether the trial court has discretion to rely on facts not stated or documented in a party's separate statement of facts.
In its opposition to the motion plaintiff argued that defendant was taking this allegation of discovery out of context. While plaintiff had indeed discovered that defendant was misappropriating its technology, when plaintiff brought it to defendant's attention in a meeting on January 23, 2001, defendant gave plaintiff repeated assurances that it would not happen again. Plaintiff reasonably relied on those assurances in deciding to sign the long-term agreement.
Plaintiff's response to defendant's statement of material facts included excerpts from the deposition testimony of Goldman, plaintiff's CEO. Goldman stated that he knew at the time that there was work taking place involving MATLAB "using what we consider our intellectual property." He learned only later that there was an idea of replacing part of plaintiff's "POEM" with MATLAB. In discussions with defendant, he asserted that "the implementation of MATLAB modeling by integration... was something that would be [the] exclusive rights of InSyst." In a meeting in January 2001, defendant's in-house counsel, Michael Einschlag, indicated that "there would be procedures set up and clarifications made that would respect our rights."
Goldman also stated by declaration that in entering the long-term agreement InSyst had "relied on the foregoing representations that Applied's conduct would not be repeated." Goldman further declared that, "[a]s the parties moved forward with their relationship in 2001, InSyst had no reason to question Applied's promises, representations, or assurances. [¶] InSyst and Applied worked together under the Long-Term Agreement largely without incident until late 2001 and, even then, the issues that arose were resolved in fairly short order. [¶] InSyst was not aware of Applied's fraudulent scheme until sometime after the time InSyst received Applied's termination notice in August 2002 and InSyst first became aware of Applied's first of several clandestine patent applications based on InSyst's technology when the patent application was published in December 2002."
In support of its equitable estoppel theory, plaintiff argued below that once it suspected defendant's wrongdoing, it investigated its suspicions and directly confronted defendant. "Applied then made affirmative, fraudulent statements to induce InSyst to move forward with the contract and business relationship." "[A]t the time, InSyst had no reason to discount Applied's affirmative representations and assurances." Whether InSyst's reliance "was reasonable in light of the facts of this case is a question for the jury." Plaintiff maintains this position on appeal, contending that the statute of limitations did not begin to run on the misappropriation claim until plaintiff discovered defendant's wrongful intent-which was after defendant terminated the long-term agreement in August 2002. Alternatively, plaintiff argues, the limitations period defined in section 3426.6 was tolled by defendant's fraudulent concealment, a variation on the estoppel argument plaintiff made in the trial court.
c. Accrual of the Misappropriation Cause of Action
The UTSA defines "misappropriation" as either the improper acquisition of a trade secret or its unauthorized disclosure or use. (Civ. Code, § 3426.1, subd. (b)(1), (2).) "Under the UTSA, a prima facie claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff's trade secret through improper means, and (3) the defendant's actions damaged the plaintiff." (Sargent Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665.)
The first amended complaint contains no specific allegation of plaintiff's discovery of the alleged misappropriation. Plaintiff essentially alleged that defendant was misappropriating plaintiff's IP as it was being disclosed. Plaintiff began disclosing it on or about August 31, 1999. According to plaintiff, "it did not discover – and could not have discovered – the cause of action for misappropriation before 2002." Only after defendant terminated the parties' agreement in August 2002 did plaintiff discover the misappropriation, "and the magnitude of the misappropriation became clear only after December 2002, " when the U.S. Patent and Trademark Office began to publish a series of defendant's patent applications incorporating plaintiff's IP. Thus, plaingiff urges, when the original complaint was filed July 30, 2004, it was timely.
On appeal, plaingiff argues that the misappropriation cause of action did not accrue until plaingiff actually discovered all the elements of the cause of action, including defendant's wrongful intent and plaintiff's resulting injury. In Cypress Semiconductor Corp. v. Superior Court (2008) 163 Cal.App.4th 575 (Cypress), this court rejected the contention that the accrual of the cause of action for misappropriation depends on the alleged misappropriator's actual intent. There the trade secret holder first sued and settled with a company that had misappropriated its secrets. Then the holder sued customers who had licensed software from the original misappropriator. The trial court concluded that the limitations period did not begin to run until the third party had "actual notice of the trade secret owner's claim to the information." (Id. at p. 579.) We disagreed, holding that the statute of limitations for misappropriation begins to run "when the plaintiff has any reason to suspect that the third party knows or reasonably should know that the information is a trade secret. The third party's actual state of mind does not affect the running of the statute." (Ibid.) The proper focus, we explained, "is not upon the defendant's actual state of mind but upon the plaintiff's suspicions. Indeed, a defendant's bad faith is often something a plaintiff cannot prove directly. In many cases a plaintiff must allege the defendant's tortious state of mind on information and belief. Certainly that plaintiff should not be expected to wait until he or she has direct proof of the defendant's mental state before filing the lawsuit." (Id. at p. 587.)
The Supreme Court drew "a distinction between a 'misappropriation' and a 'claim'... A misappropriation within the meaning of the UTSA occurs not only at the time of the initial acquisition of the trade secret by wrongful means, but also with each misuse or wrongful disclosure of the secret. But a claim for misappropriation of a trade secret arises for a given plaintiff against a given defendant only once, at the time of the initial misappropriation, subject to the discovery rule provided in section 3426.6. Each new misuse or wrongful disclosure is viewed as augmenting a single claim of continuing misappropriation rather than as giving rise to a separate claim." (Cadence Design Systems, Inc. v. Avant! Corp. (2002) 29 Cal.4th 215, 222.)
In Cypress, supra, 163 Cal.App.4th 575, we relied on the Supreme Court's discussion in Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 of "the interplay between accrual and the discovery rule, which delays accrual until the plaintiff discovers or has reason to discover the cause of action." (Id. at p. 586.). "As Fox explained: 'A plaintiff has reason to discover a cause of action when he or she "has reason at least to suspect a factual basis for its elements." [Citations.] Under the discovery rule, suspicion of one or more of the elements of a cause of action, coupled with knowledge of any remaining elements, will generally trigger the statute of limitations period. [Citations.] Norgart [v. Upjohn Co. (1999) 21 Cal.4th 383] explained that by discussing the discovery rule in terms of a plaintiff's suspicion of "elements" of a cause of action, it was referring to the "generic" elements of wrongdoing, causation, and harm. (Norgart, supra, 21 Cal.4th at p. 397.) In so using the term "elements, " we do not take a hyper technical approach to the application of the discovery rule. Rather than examining whether the plaintiffs suspect facts supporting each specific legal element of a particular cause of action, we look to whether the plaintiffs have reason to at least suspect that a type of wrongdoing has injured them.' " (Cypress, supra, 163 Cal.App.4th at p. 586, italics added.)
When the reasoning of Cypress is applied to this case, the cause of action for misappropriation may be found to have accrued before plaintiff actually marshaled proof of its injury and defendant’s intent. Indeed, some of the remedies provided by the UTSA for misappropriation are based on the premise that actual damages may never be provable. The essential question under Civil Code section 3426.6 is when plaintiff had " 'objectively reasonable notice of misappropriation.' " (Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1024.) The discovery rule does not necessarily extend the statute of limitations until a plaintiff has actually learned of a defendant's misconduct if the plaintiff reasonably should have discovered the misconduct sooner due to awareness of facts that would make a reasonably prudent person suspicious. "Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact." (Civ. Code, § 19; Alfaro v. Community Housing Imp. System & Planning Ass'n, Inc. (2009) 171 Cal.App.4th 1356, 1388 (Alfaro).)
Here the trial court focused on plaintiff's allegation that it had discovered by January 2001 that "Applied had been working on the InSyst technology in a manner clearly prohibited under the Interim Agreement." Plaintiff is "bound by this admission" (Glue-Fold, Inc., supra, 82 Cal.App.4th 1018, 1024), and we believe that the only reasonable construction of this statement is that plaintiff had notice of defendant's misappropriation at that time.
Plaintiff asserts that it alleged discovery of only "violations of the parties' agreements, not trade-secret misappropriation." But in this case, as in Ajaxo Inc. v. E*Trade Group, Inc (2005) 135 Cal.App.4th 21, 61-62, the agreements were designed to protect the trade secrets of both parties, such that any use of trade secrets not authorized by an agreement would amount to a misappropriation. The conduct alleged in relation to the MATLAB incident is the kind of conduct that would make a reasonably prudent person suspicious. It was at least reason to suspect that plaintiff was being injured by a type of wrongdoing, thereby triggering the limitations period.
d. Equitable estoppel
Plaintiff's best argument is not that the cause of action did not accrue until it discovered the published patents, but that defendant is estopped from asserting the statute of limitations. " 'One cannot justly or equitably lull his adversary into a false sense of security, and thereby cause his adversary to subject his claim to the bar of the statute of limitations, and then be permitted to plead the very delay caused by his course of conduct as a defense to the action when brought.' " (Carruth v. Fritch (1950) 36 Cal.2d 426, 433.) " ' "[Equitable estoppel] is wholly independent of the limitations period itself and takes its life... from the equitable principle that no man [may] profit from his own wrongdoing in a court of justice." ' [Citations.] Thus, equitable estoppel is available even where the limitations statute at issue expressly precludes equitable tolling." (Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 383-384 [Lantzy].) Furthermore, " ' "[a]n estoppel may arise although there was no designed fraud on the part of the person sought to be estopped. [Citation.] To create an equitable estoppel, 'it is enough if the party has been induced to refrain from using such means or taking such action as lay in his power, by which he might have retrieved his position and saved himself from loss.'... '...Where the delay in commencing action is induced by the conduct of the defendant it cannot be availed of by him as a defense.' " ' " (Id. at p. 384, fn. omitted.)
In Lantzy the court considered whether equitable estoppel applied against the 10-year limitations period for construction defects in housing. The court indicated that it might: "(1) [I]f one potentially liable for a construction defect represents, while the limitations period is still running, that all actionable damage has been or will be repaired, thus making it unnecessary to sue, (2) the plaintiff reasonably relies on this representation to refrain from bringing a timely action, (3) the representation proves false after the limitations period has expired, and (4) the plaintiff proceeds diligently once the truth is discovered... the defendant may be equitably estopped to assert the statute of limitations as a defense to the action." (Lantzy, supra, 31 Cal.4th at p. 384; fn. omitted.)
The trial court cited this passage in Lantzy in rejecting plaintiff's claim of estoppel, stating, "The falsity of the misrepresentation that lulls a plaintiff into delaying the filing of a complaint must not be discovered by the plaintiff prior to the running of the statute of limitations in order for the doctrine of estoppel to apply." We disagree with this conclusion. We do not understand Lantzy to establish that for estoppel to apply, the discovery of the falsity of the representation must occur after the limitations period expires.
The facts in Lantzy, supra, 31 Cal.4th 313, did not require the Supreme Court to decide what the impact would have been if the falsity had been discovered before the limitations period lapsed. In that appeal, which arose from the sustaining of a demurrer, the plaintiffs had alleged merely that after they complained about defective construction of their homes, the developer "at various times" attempted to make repairs or advised the plaintiffs that there were no defects. (Id. at pp. 367-368, 385.) The Supreme Court concluded that "the complaint is devoid of any indication that defendants' conduct actually and reasonably induced plaintiffs to forbear suing within the 10-year period." (Id. at p. 385.) The plaintiffs offered to amend the complaint to include such allegations, but the court rejected the offer, not because the amendment would have alleged discovery of the fraud before the limitations period had lapsed, but because there was "no reasonable possibility plaintiffs [could] state credible facts to support an equitable estoppel." (Id. at p. 386.)
We have requested and received supplemental briefing on the question of how long a party has to file a complaint if the falsity of the representation giving rise to an estoppel is discovered before the lapse of the limitations period. The rule is that " 'a party has a reasonable time in which to bring his action after the estoppel has expired, not exceeding the period of limitation imposed by the statute for commencing the action.' [Citation.]" (County of Santa Clara v. Vargas (1977) 71 Cal.App.3d 510, 524; see also Industrial Indem. Co. v. Industrial Acc. Com. (1953) 115 Cal.App.2d 684, 690 [only when "substantial period" remains in limitations period will estoppel be unavailable].) "If there is still ample time to institute the action within the statutory period after the circumstances inducing delay have ceased to operate, the plaintiff who failed to do so cannot claim an estoppel." (Lobrovich v. Georgison (1956) 144 Cal.App.2d 567, 573-574; see also Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 655-656 [plaintiffs had ample time to sue when a year or more remained after they stopped relying on defendant's promises]; Santee v. Santa Clara County Office of Education (1990) 220 Cal.App.3d 702, 716 [estoppel precluded where two months remained to file claim].)
The Supreme Court applied this rule in John R. v. Oakland Unified School Dist. (1989) 48 Cal.3d 438 (John R.), though in a different factual and procedural context. There the trial court granted non suit to a school district on untimeliness grounds, in a case involving an alleged molestation by a teacher in the district. The teacher allegedly had threatened the student with retaliation if he reported the incidents. The court concluded that "for purposes of applying equitable estoppel, the time for filing a claim against the district was tolled during the period that the teacher's threats prevented plaintiffs from pursuing their claims." (Id. at p. 446.) Whether estoppel should be applied in the circumstances presented, however, was a question of fact for the trial court.
Defendant seeks to cast doubt on John R. by saying that in Lantzy, the "California Supreme Court recently clarified that tolling is not a feature of equitable estoppel." This oversimplifies the Lantzy opinion. Lantzy explained: "Equitable tolling is a judge-made doctrine 'which operates independently of the literal wording of the Code of Civil Procedure' to suspend or extend a statute of limitations as necessary to ensure fundamental practicality and fairness." (Lantzy, supra, 31 Cal.4th 363, 370.) "[T]he effect of equitable tolling is that the limitations period stops running during the tolling event, and begins to run again only when the tolling event has concluded." (Ibid.) A majority of the court concluded that it would violate the Legislature's intent in enacting a lengthy 10-year limitations period for construction defects to apply the doctrine of equitable tolling. (Id. at pp. 374-382.) The court went on to suggest, however, that equitable estoppel could apply, as "[e]quitable tolling and equitable estoppel are distinct doctrines" (id. at p. 383), and "equitable estoppel is available even where the limitations statute at issue expressly precludes equitable tolling." (Id. at pp. 383-384.) Lantzy does not establish that misrepresentations giving rise to an estoppel have no effect if their falsity is discovered at any time before the limitations period runs out. The deceived party is allowed a reasonable time after this discovery to file an action. Whether a party has acted diligently within a reasonable time is generally a factual question; it may be resolved as a matter of law only when one conclusion can be reasonably drawn from the material undisputed facts. (John R., supra, 48 Cal.3d at p. 446; Gundogdu v. King Mai, Inc. (2009) 171 Cal.App.4th 310, 317.)
In this case, defendant asserted that plaintiff had first discovered the misappropriation by January 2001. Defendant's motion did not directly address the allegations in the complaint that, in plaintiff's view, estopped defendant from asserting the statute of limitations. In a related argument, defendant did assert that the limitations period for fraud had elapsed because the terms of the long-term agreement signed in March 2001 revealed to plaintiff that some of defendant’s earlier promises were false. But defendant did not assert that anything in the long-term agreement exposed the falsity of its representations regarding the use of plaintiff's IP.
The motion did argue as to the fraud claim that, apart from the terms of the long-term agreement, InSyst knew that the alleged IP representations were false before July 30, 2001. The motion cited a letter sent by e-mail from James Pursiano, defendant's "negotiator, " to Goldman on February 8, 2001 that, according to defendant, "exposed the falsity of Applied's earlier misrepresentations." The letter reflected defendant's attempt to resolve a possible disagreement between plaintiff and defendant over the scope of plaintiff's "First Refusal Right." Defendant asserted that the right of first refusal did not extend to "all future Advanced Process Control work, " but only to changes in plaintiff's source code.
This letter was lodged under seal in the trial court in support of defendant's motion and it is lodged under seal in this court. It was not mentioned in defendant's separate statement of facts. While sealed documents should not be disclosed in a public record, defendant's motion quoted from this letter, and this part of the motion was not lodged under seal. The motion also mentioned Goldman's reply letter of February 14, 2001, without quoting it. This document has also been lodged under seal.
The trial court justifiably did not rely on this February 2001 letter as defeating plaintiff's estoppel argument. It falls far short of defendant expressly repudiating or recanting prior IP promises. Reasonable minds could differ about whether the letter exposed the falsity of defendant's IP representations or simply reflected an attempt to resolve a potential disagreement about a term of the proposed long-term agreement. In the same vein, in denying summary adjudication as to plaintiff's fraud claims, the trial court reasoned: "In[S]yst's evidence does show that In[S]yst was concerned about Applied's employees' conduct but it also permits an inference that In[S]yst concluded that Applied's actions were inadvertent, rather than the product of intentional fraud, and therefore In[S]yst would not necessarily have been placed on inquiry notice that Applied had made intentional misrepresentations regarding compliance with the agreements at the time they were executed."
As indicated above, the trial court concluded that estoppel was inapplicable because plaintiff had discovered the patent application filed in December 2002 before the lapse of the limitations period. Defendant's reply to plaintiff's opposition had argued that plaintiff "has made no showing of diligence and has offered no excuse for failing to proceed diligently" after that second discovery. However, the trial court made no finding about plaintiff’s diligence or lack of diligence after December 2002 as a matter of law, instead concluding that plaintiff's diligence was not an issue under Lantzy so long as the fraud was discovered prior to the lapse of the limitations period. We have indicated above that this was a mistake of law.
We have received briefing on the question whether there was "evidence submitted on the motion for summary adjudication showing when plaintiff discovered defendant's published patents or whether plaintiff acted diligently after making this discovery." Defendant and plaintiff both point to a declaration by Goldman as establishing that plaintiff discovered the patent applications after they were published in December 2002. But defendant's separate statement presented no facts showing when plaintiff discovered defendant's patent application or what plaintiff did or did not do after that time before filing a complaint on July 30, 2004.
Defendant effectively concedes that in its motion it presented no evidence of plaintiff's conduct after December 2002 apart from the filing of the complaint on July 30, 2004. Instead, in its reply defendant simply challenged plaintiff to present evidence of its diligence, arguing that plaintiff made no showing of diligence. This is not how a party should be able to obtain a summary adjudication. "[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) "Summary judgment law in this state... continues to require a defendant moving for summary judgment to present evidence, and not simply" to challenge the plaintiff to prove its case. (Id. at p. 854.)
Without evidence of when plaintiff discovered defendant's December 2002 patent application or what plaintiff did after this discovery, we cannot determine as a matter of law whether plaintiff had ample time or was diligent in filing suit on July 30, 2004. We conclude that the trial court erred in granting summary adjudication of the cause of action for misappropriation based on the lapse of the statute of limitations. (Cf. Massachusetts Eye and Ear Infirmary v. QLT Phototherapeutics, Inc. (1st Cir. 2005) 412 F.3d 215, 239 [triable issue whether plaintiff knew about defendant's misappropriations of trade secrets in light of defendant's assurances].) In light of this conclusion, we do not reach plaintiff's related contention that "the statute of limitations was tolled by Applied's fraudulent concealment" of its misappropriation. (Emphasis omitted.)
3. Prejudice
Although the jury was not specifically instructed about the elements of misappropriation of trade secrets or estoppel, if there were evidence that the jury's verdict necessarily resolved any of the elements adversely to plaintiff in another factual context, we might be able to conclude that plaintiff was not prejudiced by the summary adjudication. (Cf. Safeco Ins. Co. of America v. Parks (2009) 170 Cal.App.4th 992, 1002-1003 [no prejudice from denial of summary adjudication when jury later resolved the factual issue adversely to the moving party]; F.D.I.C. v. Dintino (2008) 167 Cal.App.4th 333, 343 [moving party must show miscarriage of justice from erroneous denial of summary adjudication].) However, the only questions decided by the jury pertained to whether defendant had fraudulently induced plaintiff to enter their long-term agreement. The jury did not reach the question whether defendant had failed to perform any of its four specific promises, whether plaintiff had reasonably relied on defendant's promises, or whether plaintiff should have known of defendant's fraud before July 2001.
Defendant asserts that "InSyst tried and lost its trade secret misappropriation claims on a breach of contract theory." However, elsewhere in its brief defendant acknowledges that the jury was never instructed about breach of contract, because InSyst abandoned the contract claim when the trial court granted nonsuit on damages.
Most significantly, the jury was not also asked to determine whether defendant had acquired, used, or disclosed any of plaintiff's trade secrets by proper or improper means. In its supplemental brief, defendant admits that the jury's special verdict did not decide any issues of misappropriation or estoppel. Under these circumstances, we must conclude that plaintiff was prejudiced by the summary adjudication of its misappropriation claim. Accordingly, the judgment must be reversed.
We do not intend to imply that there are necessarily triable factual issues regarding plaintiff's reasonable reliance on defendant's promises and plaintiff's diligence after suspecting their falsity. On a more fully developed record, these issues may be able to be resolved as a matter of law. Our conclusion is based on the state of the record existing before trial and at the time the motion for summary adjudication was heard.
2. Trial
Having concluded that the judgment must be reversed on plaintiff's claim of misappropriation, for the guidance of further proceedings we will consider whether there was additional error affecting how plaintiff's fraud claim was presented to the jury at trial. (Code Civ. Proc., § 43.)
In addition to the contentions discussed in the following text, plaintiff also asserts that the elimination of the misappropriation claim affected how plaintiff presented its fraud claim. Plaintiff refers to the court's comments on defendant's motion in limine to prevent plaintiff from resurrecting its misappropriation claim as a fraud claim. The court made a general observation that plaintiff could not offer evidence that a trade secret was acquired inappropriately, but it could produce evidence that technology was fraudulently transferred pursuant to the contract. The court added that it would have to wait to hear individual objections as to whether evidence amounted to an indirect claim of misappropriation.
a. Fraudulent Concealment
Plaintiff contends that the trial court erred by refusing its request to instruct the jury with CACI No. 1901 on fraudulent concealment. Plaintiff maintains that the requested instruction should have been given because there was "substantial evidence of two independent theories" of fraudulent concealment: that defendant had fraudulently concealed "its plan to file patent applications on [plaintiff's] technology and thereby to claim InSyst's technology as its own"; and that it planned "to terminate the Long-Term Agreement and take over the development work in-house."
In denying plaintiff's request the trial court found "insufficient evidence to submit to the jury on the issue of fraud by concealment. The court thinks that this would mislead the jury if submitted in the present circumstances because the duty to disclose has not been adequately addressed.... [CACI No.] 1901 relates to a specific cause of action for concealment and that has not been established by the evidence here." The court noted that counsel could still argue that the nondisclosure of known facts was probative of a party's motive or intent.
The court did instruct the jury about the elements of a false promise in terms of CACI No. 1902. The special verdict form asked the jurors if defendant had made any of five specific promises to plaintiff. They answered yes to four. Three of those four promises involved express or implied obligations to disclose: "a. That Applied would promptly provide InSyst with copies of any invention disclosures for any inventions that could result in Foreground IP." "b. That Applied would consult with InSyst regarding any patent applications relating to Foreground Technology before filing such applications." "c. That Applied would not develop products involving InSyst Background IP unless Applied first offered InSyst the opportunity to do such work." The first and third are based directly on provisions in the long-term agreement (sections 5.4.1, 3.7.1 respectively). The second appears to be a characterization of the many provisions regarding disclosing inventions and applying for patents in section 5.4.
The jury also determined that defendant had promised "d. That Applied Engineers would be instructed that they could not do development work involving InSyst Background IP without InSyst." The fifth finding was that defendant had not promised that it "would ensure controls were in place so that Applied would not do development work regarding InSyst Background IP without InSyst."
In light of the fact that the long-term agreement contained these promises by defendant to disclose some of its development proposals, inventions, and patent applications, we do not understand the trial court to have determined that defendant had no contractual disclosure obligations. Instead, we interpret the trial court's ruling as to have determined that the nature of the parties' relationship did not impose any additional duty of disclosure beyond the contractual promises. Plaintiff's appeal poses the question whether those promises of disclosure or other aspects of the parties' contractual relationship gave rise to a tort duty of disclosure.
It is established that "[t]he same act may be both a tort and a breach of contract. [Citation.] Even where there is a contractual relationship between the parties, a cause of action in tort may sometimes arise out of the negligent manner in which the contractual duty is performed, or out of a failure to perform such duty." (Eads v. Marks (1952) 39 Cal.2d 807, 810-811.)
"Conduct amounting to a breach of contract becomes tortious only when it also violates an independent duty arising from principles of tort law. 'The law imposes the obligation that "every person is bound without contract to abstain from injuring the person or property of another, or infringing upon any of his rights." (Sec. 1708, Civ. Code.) This duty is independent of the contract.... "[A]n omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty." ' (Jones v. Kelly (1929) 208 Cal. 251, 255....) [¶] The differences between contract and tort give rise to distinctions in assessing damages and in evaluating underlying motives for particular courses of conduct." (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515.)
This court has reviewed situations in which a claim of fraud may be based on mere nondisclosure. " 'In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.' (Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294... [fns. omitted]; accord, Marketing West, Inc. v. Sanyo Fisher (USA) Corp. [(1992)] 6 Cal.App.4th [602] at p. 613; see also Goodman v. Kennedy (1976) 18 Cal.3d 335, 347... [no duty of disclosure supporting fraud absent allegation of representation that was 'likely to mislead for want of the disclosures, ' active concealment of undisclosed matters, or knowledge of the materiality of the omitted matters or their inaccessibility to the plaintiff].)" (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 132; cf. Alfaro, supra, 171 Cal.App.4th 1356, 1382; Wilkins v. National Broadcasting Co., Inc. (1999) 71 Cal.App.4th 1066, 1082 (Wilkins).)
"Putting aside a fiduciary relationship, '[e]ach of the other three circumstances in which nondisclosure may be actionable presupposes the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise.... [¶]... [S]uch a relationship can only come into being as a result of some sort of transaction between the parties.... Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement. [Citation.]' " (Wilkins, supra, 71 Cal.App.4th at p. 1082, quoting LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336-337; cf. OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 859.)
This authority acknowledges that a tort duty of disclosure may arise from a contractual agreement, but it does not establish that every contractual agreement gives rise to such a duty. As we will explain, none of the cases on which plaintiff relies considered imposing a tort duty of disclosure in circumstances comparable to those presented here, where an equipment manufacturer has paid a company to create software to control the processes of its equipment. (See, e.g., OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., supra, 157 Cal.App.4th at p. 860 [duty of seller of securities to disclose financial condition of issuer of notes to subsequent purchasers]; Marketing West, Inc. v. Sanyo Fisher (USA) Corp., supra, 6 Cal.App.4th at p. 613 [company improperly compelled sales representatives to sign new agreements allowing termination without cause as "merely a formality" while concealing decision to terminate plaintiffs].)
Hynix Semiconductor Inc. v. Rambus Inc. (N.D. Cal. 2006) 441 F.Supp.2d 1066, 1076 (Rambus) is a case at least involving the same industry. Nevertheless, although Rambus involved patents, memory devices, and licenses, the court did not rely on any general duties of disclosure applicable to vendors and purchasers or more specific duties applicable to patent applicants, licensees, or licensors. Instead, the court relied on an express disclosure agreement among members of a committee, and the fact that one party had given a misleadingly incomplete answer when specifically asked if certain work would infringe its patents. The court invoked the principle that a party with no duty to disclose may not withhold facts that materially qualify what the party affirmatively states. (Ibid.)
We believe that the imposition of a tort duty of disclosure should be the result of a considered policy choice. As explained in Tarasoff v. Regents of University of California (1976) 17 Cal.3d 425 at page 434: "we bear in mind that legal duties are not discoverable facts of nature, but merely conclusory expressions that, in cases of a particular type, liability should be imposed for damage done. As stated in Dillon v. Legg (1968) 68 Cal.2d 728, 734...: 'The assertion that liability must... be denied because defendant bears no "duty" to plaintiff "begs the essential question – whether the plaintiff's interests are entitled to legal protection against the defendant's conduct.... [Duty] is not sacrosanct in itself, but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection." (Prosser, Law of Torts [3d ed. 1964] at pp. 332-333.)' "
City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375 (Genentech) is instructive, though the court did not directly consider the imposition of a tort duty of disclosure. In that case, the California Supreme Court considered the question "whether an agreement to develop, patent, and commercially exploit a secret scientific discovery in exchange for the payment of royalties is the type of relationship" which creates a fiduciary relationship as a matter of law. (Id. at p. 386.) The court concluded that the trial court had "erred in instructing the jury that a fiduciary relationship is necessarily created when a party, in return for royalties, entrusts a secret idea to another to develop, patent, and commercially develop." (Id. at p. 392, fn. omitted.) The court noted that this contract had been executed by "two sophisticated parties of substantial bargaining power, " both of whom were represented by counsel throughout the negotiations. (Id. at p. 389.) The contract itself "stated that, in return for the payment of royalties to City of Hope, Genentech was to be the sole owner of patents it would obtain for City of Hope's scientific discovery of synthetic DNA; that Genentech could assign and transfer its contractual rights, including patents; and that the parties' relationship was not one involving agency, joint venture, or partnership, which are categories in which fiduciary obligations are imposed by operation of law [citation], but that City of Hope was to be an independent contractor." (Ibid.) In other words, "fiduciary obligations are not necessarily created when one party entrusts valuable intellectual property to another for commercial development in exchange for the payment of compensation contingent on commercial success. The secrecy of information provided by one party to another – here the scientific discovery by City of Hope – may be considered by the trier of fact in deciding whether a fiduciary relationship exists, but it does not compel the imposition of fiduciary duties by operation of law." (Id. at p. 391.)
While plaintiff does not appear to be arguing that defendant was its fiduciary, plaintiff seeks to impose a fiduciary-like tort duty of disclosure on defendant without really elaborating on the social policy this would serve. Plaintiff was able to negotiate a 40-page written agreement in which both parties sought to establish and protect their IP rights. To this end, the agreement included several specific promises of disclosure under specified conditions. Under these circumstances, we see no social policy or other reason to regard plaintiff as needing additional protection beyond the usual rules applicable to arm's-length transactions. Accordingly, we will not impose duties of disclosure on defendant beyond those inherent in the parties' agreements. (Cf. Linear Technology Corp. v. Applied Materials, Inc., supra, 152 Cal.App.4th 115, 132-133 [equipment seller was not required to disclose to buyer that equipment was subject of a patent infringement lawsuit].) If plaintiff had wanted defendant to disclose all of its patent applications, it should have negotiated for such a disclosure term in the long-term agreement.
Plaintiff did seek leave to amend its complaint to add a "cause of action for breach of confidential and/or fiduciary relationship." At a hearing on the motion, however, plaintiff elected to withdraw this motion in order to keep its trial date.
As to plaintiff's second theory -- that defendant fraudulently concealed its plan to "terminate the Long-Term Agreement and take over the development work in-house"-- again we find no tort duty of disclosure. The long-term agreement provided that, after the agreement was in effect one year, defendant could terminate it without cause by providing at least three months' written notice to plaintiff. In other words, it was within defendant's contract rights to terminate on three months' notice. Plaintiff appears to be seeking more advance notice of termination than what it obtained by negotiating elaborate termination provisions. In our view, one party should not be required to give notice to the other of its intent to exercise its contractual rights unless the contract so provides. We decline to impose a tort duty to disclose termination plans at variance with the notice provisions of the long-term agreement.
This point was featured in plaintiff's argument to the jury: "[T]hey had a termination plan and the only document that exists about that termination plan is joint exhibit 50 and we spent a lot of time on this." "And the termination plan is being developed which will enable Applied to continue the development in-house. [¶] They will do exactly what they told us they wouldn't do and in order to do that they need to train, recruit, and get all the knowledge from InSyst." "[W]hile this plan is being developed while they need to recruit, hire and train, he's saying InSyst development work is being postponed. That's all we know. That's all he tells us. He doesn't tell us we really have a termination plan and we're going to hire other people to do the work." "[W]e figured they would terminate and honor what they said, they wouldn't do development work."
Our conclusion is not, as plaintiff suggests, that "the duty to disclose is extinguished after the parties enter into a contractual agreement." Rather, when an agreement reached after lengthy negotiations explicitly requires a specified set of disclosures, these obligations should not be lightly expanded by imposition of tort duties of disclosure inconsistent with the contractual obligations. We thus conclude that the trial court did not err by refusing to instruct the jury about fraudulent concealment.
Even if we were to reach the opposite conclusion, we would find no prejudice from the omission of the requested instruction. As plaintiff recognizes, "A judgment may not be reversed for instructional error in a civil case 'unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice.' (Cal. Const., art. VI, § 13.)... [¶] Instructional error in a civil case is prejudicial 'where it seems probable' that the error 'prejudicially affected the verdict.' [Citations.] Of course, that determination depends heavily on the particular nature of the error, including its natural and probable effect on a party's ability to place his full case before the jury." (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580.) "[W]hen deciding whether an error of instructional omission was prejudicial, the court must also evaluate (1) the state of the evidence, (2) the effect of other instructions, (3) the effect of counsel's arguments, and (4) any indications by the jury itself that it was misled." (Id. at pp. 580-581, fn. omitted.)
Plaintiff does not suggest that the trial court's refusal to instruct about fraudulent concealment kept any evidence from the jury. As we have indicated above, the jury heard all the evidence of what plaintiff characterizes as fraudulent concealment of its patent application and termination plan. Nor was plaintiff deprived of the opportunity to argue that concealment of these items was evidence of defendant's fraudulent intent. On the contrary, plaintiff told the jury that defendant had concealed its patent application and its termination plan. Because it may be difficult to obtain direct evidence of what was in a person's mind at the time of making a promise, the person's subsequent conduct may be considered as relevant to establish his or her fraudulent intent. (Snyder v. City Bond & Finance Co. (1930) 106 Cal.App. 745, 748-749.)
Plaintiff insists that it was deprived "of the opportunity to have the jury consider the full import of the evidence that followed execution of the Long-Term Agreement." (Emphasis omitted.) "The absence of sufficient evidence of Applied's intent to defraud before entering the Long-Term Agreement does not show that Applied lacked fraudulent intent after executing the contract. That is precisely the question the jury was prevented from considering." As stated in plaintiff's complaint, plaintiff's position has been and still is that defendant's intent from the outset was "to take InSyst's IP, gain patent rights to it, [and] use it as its own." Plaintiff argued to the jury that "Applied Materials made a conscious and willful decision to take this technology through fraud and deceit and call it its own." In other words, defendant had the same fraudulent intent throughout the course of their business relationship.
In support of this position, plaintiff presented evidence of defendant's conduct following the execution of the long-term agreement, and it argued to the jury that the post-agreement concealment was probative of defendant's fraudulent intent when the agreement was executed. In light of this argument and evidence, the jury obviously determined that defendant's post-agreement conduct did not establish that defendant's initial intent was fraudulent. Because of the structure of the special verdict form and because plaintiff opted to withdraw a breach of contract claim after the trial court limited it to nominal damages, the jury was not asked to determine whether defendant had breached its promises of disclosure. We have little doubt that if the jury had been asked to determine whether defendant had intended to deceive plaintiff by concealing its patent application or its termination plans, it would have reached the same conclusion that it did about defendant's intent at the time of making its promises to disclose. Under these circumstances, plaintiff is unable to establish that it was prejudiced by the trial court's refusal to instruct the jury about liability for fraudulent concealment.
b. Cross-Examination Testimony
Plaintiff next contends that the trial court abused its discretion by sustaining defendant's objections to its cross-examination of Jim Pursiano, defendant's director of business development who had represented defendant in negotiating the interim and long-term agreements with plaintiff. On direct examination, Pursiano denied lying to plaintiff or attempting to trick or defraud plaintiff during the negotiations.
Among the subjects of negotiation was section 3.7, plaintiff's right of first refusal (ROFR) of development work proposed by defendant. In January 2001, plaintiff took the position that the ROFR was broader than just source code and that defendant was violating their existing agreements. As a result, Pursiano proposed a modification to section 3.7.1. Defendant did not agree to it. Pursiano sent a side letter to Goldman on February 8, 2001 purporting to clarify the parties' intent about the ROFR. Goldman did not agree with Pursiano's proposal and wrote back that he agreed with section 3.7 as written. Pursiano was satisfied with Goldman's letter.
At this stage of cross-examination plaintiff asked: "And, sir, at this point in the relationship you knew as the lead business person that if the long-term agreement was not signed, Applied would have to stop using InSyst Background Technology, correct?" The court sustained a "no foundation" objection. Pursiano testified that he did not recall discussing defendant's ability to use plaintiff's Background Technology if the long-term agreement was not signed.
Plaintiff sought to impeach Pursiano with his deposition. At a bench conference, the court sustained an objection made at the witness's deposition that a question about his understanding of the business deal called for a legal conclusion. When plaintiff's counsel said it went to his state of mind, the court responded, "his state of mind is not at issue here."
After an afternoon recess, plaintiff sought to establish that plaintiff's position about the ROFR had been clear from Goldman's letter and telephone conversation. Pursiano said "it didn't seem to be clear between the two of us." The following dialogue ensued: "[Plaintiff]: But, sir, the way Mr. Goldman explained it to you in this letter and in your conversation, under that interpretation, sir, you never intended to honor the terms of the agreement under Mr. Goldman's interpretation, did you? [¶] [Defendant]: Argumentative, no foundation. [¶] The Court: Sustained. [¶] [Plaintiff]: Did you ever, on behalf of Applied, intend to honor the requirement that only InSyst could do development work on its Background IP? [¶] [Defendant]: No foundation, argumentative. [¶] The Court: Sustained."
"While a large latitude should be allowed in the cross-examination of a witness, for the purpose of developing the truth, and more especially where the witness is a party in interest, the Court has the power, in the exercise of a sound discretion, to confine the examination within reasonable limits." (Reed v. Clark (1873) 47 Cal. 194, 201.) Trial courts should exercise control over cross-examination of witnesses "so as to make interrogation as rapid, as distinct, and as effective for the ascertainment of the truth, as may be, and to protect the witness from undue harassment or embarrassment." (Evid. Code, § 765, subd. (a).)
"An argumentative question is a speech to the jury masquerading as a question. The questioner is not seeking to elicit relevant testimony. Often it is apparent that the questioner does not even expect an answer. The question may, indeed, be unanswerable." (People v. Chatman (2006) 38 Cal.4th 344, 384; see also In re Loucks' Estate (1911) 160 Cal. 551, 558 [challenge to witness to reconcile inconsistencies called for an argument, not a fact].)
On appeal plaintiff argues that defendant's intent to perform its contractual promises was a key issue in the case, as "inquiry as to the state of mind of the party alleged to have committed the fraud is essential to proof of fraudulent intent." We acknowledge that, on a cold reading of the transcript, some of plaintiff's questions arguably were relevant to the intent of a key agent of defendant. However, the same words may have very different meanings depending on the intonation and expression of the speaker and the context in which they are uttered. The trial court was in a position to hear and observe the manner in which these questions were phrased to the witness. We see no abuse of discretion in the court's apparent conclusion that plaintiff's counsel was asking these questions in order to make rhetorical points to the jury, without a serious expectation of an answer. Plaintiff made no offer of proof that Pursiano would admit an intent to disregard the terms of the long-term agreement if required to answer these questions. We find no abuse of discretion in the court's sustaining of these objections, and no resulting prejudice.
Plaintiff asserts that Pursiano "had to answer that he/Applied did not intend to honor the contract as interpreted by InSyst." This is pure speculation, as Pursiano had testified that he was satisfied with Goldman's explanation.
Disposition
The judgment is reversed. The trial court is directed to vacate its order granting summary adjudication of the misappropriation of trade secrets cause of action and enter a new order denying summary adjudication of that cause of action. The parties shall bear their own costs on appeal.
WE CONCUR: RUSHING, P. J., PREMO, J.
Based on defendant's failure to include these assertions in its separate statement and to provide evidentiary support, we will assume that defendant did not consider them either material or undisputed. "In ruling on a motion for summary judgment, the trial court may properly disregard evidence that 'is not referenced, is hidden in voluminous papers, and is not called to the attention of the court at all.' " (Jones v. P.S. Development Co., Inc. (2008) 166 Cal.App.4th 707, 722, fn. 6.) It is the supporting evidence that establishes a fact as undisputed, not the mere repetition of an unsupported factual assertion. (Cf. Grant-Burton v. Covenant Care, Inc. (2002) 99 Cal.App.4th 1361, 1378-1379.)
Plaintiff asserts that "[t]his limitation required InSyst to alter its entire theory of the case" and "forced InSyst to abandon its theory of fraud." However, plaintiff does not identify a single item of evidence that was excluded based on such an objection. Plaintiff fails to show either error or prejudice as to this claim.