Monday, December 01, 2008, 12/01/2008 01:34:00 AM

$44,000 Sanction Against Attorney and Client Upheld in California Trade Secrets Case

By Todd is reporting that a California appellate court has upheld a $44,000 sanction against an attorney and her client in a matter where documents filed under seal were inadvertently placed in the public case file and then used by the attorney and client in an attempt to prove that they weren't secret any longer.

Twelve years into a trade secrets dispute between an animal vaccine manufacturer and a former employee, lawyers for the manufacturer attempted to submit a document under seal that contained the purported secrets. Somehow the document wound up in the court's public file.

On Tuesday, California's 3rd District Court of Appeal in Wallis v. PHL Associates affirmed sanctions totaling almost $44,000 for what the former employee and her attorney, Joanna Mendoza, did next. Despite a long-standing order that excluded the parties and the public from viewing documents labeled confidential and filed under seal, Mendoza, of Sacramento, Calif.'s Malovos & Mendoza, told her client, Dale Wallis, that the document was in the public file.

Wallis had sued her former employer, Davis, Calif.-based PHL Associates Inc., in 1994 for manufacturing and profiting from a vaccine she claimed to have invented for bovine mastitis, an inflammation of cows' udders. But Wallis was slapped with a countersuit from PHL claiming that the vaccine was its trade secret and that she had stolen it.

After learning that the PHL filing containing the vaccine formula was public, Wallis and her ex-husband, who is still her business partner, enlisted friends and a courier service to view and copy the document in the hope of defeating PHL's claim that the vaccine was a trade secret, according to Tuesday's ruling. Two weeks after the PHL lawyers filed the document, on Jan. 25, 2005, Mendoza wrote in a court motion that "they have put all of PHL's alleged trade secrets on display for the world to see in a publicly filed document" and that "if PHL ever had trade secrets, it does not anymore as a direct result of a huge violation of the Protective Order."

Almost four months later, over Mendoza's objection, the court granted a PHL motion to seal the document. A fight ensued over whether PHL's trade secrets had already become public, and the next month, after Mendoza's and the Wallises' actions became known, PHL won a motion for sanctions. Mendoza and her clients "are willing to obfuscate and misdirect when confronted with their duties under the protective order," wrote Justice George Nicholson in Tuesday's ruling. '

In an interview, an emotional Mendoza, who chairs the State Bar's intellectual property section, defended her conduct and called the ruling by the 3rd District Court of Appeal "devastating." Mendoza said she had warned PHL's counsel multiple times on conference calls that they had filed the document publicly, but that the opposing lawyers called her warnings "background noise." Before telling her client about the PHL document, Mendoza called the State Bar's ethics hotline for advice, she said, and determined that she had to tell Wallis the document was public.

But she did not give Wallis any advice on what to do next, she said. But Mendoza should have known she was violating the protective order, even if the document was publicly available, the court ruled. Of the 800 pages, 250 were marked confidential, according to the ruling, and the front page said it was filed under seal. According to Mendoza, the court clerk said the documents did not come in under seal. "The protective order does not apply if you don't follow its terms," she said. But the court ruled that the "minor deviations" didn't nullify the protective order and that Mendoza "acted surreptitiously to have her clients or others ... view the contents ... while they appeared unprotected in the court file in order to argue later that the trade secrets had been made public."

Mendoza said she probably should never have warned the PHL lawyer, Tory Griffin of Sacramento's Downey Brand, about the document at all. "If I had not said anything, it could've been in that file for public access for years," she said. Griffin was not available for comment Tuesday. Mendoza said she can file a motion for the court to reconsider its judgment but added that it is not likely to succeed.
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