Wednesday, November 03, 2010, 11/03/2010 04:11:00 PM

California Appellate Court - Just Because Trade Secrets Were Misappropriated Doesn't Mean Unjust Enrichment Occurred

By Todd

Yesterday, the Court of Appeals of California, Sixth District decided an appeal brought by San Jose Construction Company.

Seems San Jose Construction sued its former employee, Richard Foust, and Foust's new employer, South Bay, for trade secret misappropriation. The claim made it to the jury. San Jose Construction asked the jury for an award of $1,355,660 based on alternative theories: lost profits (from Foust); unjust enrichment (from South Bay). The jury found that both defendants had misappropriated plaintiff's trade secrets but it awarded no damages. The trial court entered judgment for the defendants.

San Jose Construction, on appeal, argued for what the appellate court called a "double negative" thus:

"No evidence, let alone substantial evidence, shows that South Bay was not unjustly enriched." Later, after extensively detailing Foust's misappropriation (an undisputed fact given the jury finding) and other claimed transgressions not relevant to the issues on appeal, it reiterates: "No evidence—none—supports the proposition that South Bay derived no benefit from Foust's misdeeds."

Well, the appellate court did not buy that argument and reasoning in affirming the trial court and held as follows:

Here, South Bay did not benefit at plaintiff's expense—South Bay benefited from an opportunity that plaintiff had spurned by firing Foust. Thus, the verdict is entirely consistent with reasoning that it was not "unjust" or "enrichment" for South Bay to benefit from the spurned opportunity.

Moreover, the trial court instructed the jury that South Bay was unjustly enriched if its misappropriation of plaintiff's trade secrets caused South Bay to receive profits it otherwise would not have achieved. This instruction, together with the burden-of-proof instructions, indisputably asked the jury to determine whether plaintiff proved facts, namely a receipt of profits, that South Bay otherwise would not have achieved. The jury's verdict specifically found that plaintiff had failed to prove those facts.

SO - the point to our readers is that unjust enrichment will not be established, as a matter of law in California, just because the jury is convinced that misappropriation occurred. This, of course, comports with the law of evidence and proof of damages and is not a major development in the law. But it is an interesting argument and decision, nonetheless.


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