Trade Secret Misappropriation: Denial of Motion for Attorneys’ Fees under CUTSA is Not an Appealable Order

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Whether a court order is appealable is often the first issue analyzed by appellate attorneys. An interlocutory order is an order issued by a court while a case is pending. These orders are not a final disposition of the case, but some interlocutory orders may be appealed even while the litigation continues. California law generally holds that “[t]o qualify as appealable, the interlocutory order must be a final determination of a matter that is collateral—i.e., distinct and severable—from the general subject of the litigation.”[1]

The California Uniform Trade Secrets Act (“CUTSA”) allows for the recovery of reasonable attorneys’ fees and costs if “a claim of misappropriation [of trade secrets] is made in bad faith” or if “willful and malicious misappropriation exists.”[2] The California legislature enacted this statute primarily to act as a “deterrent to specious claims of misappropriation.”[3] The question arises: is a court’s order denying a motion for attorneys’ fees under CUTSA an appealable interlocutory order?

Dr. V Prods., Inc. v. Rey, 68 Cal. App. 5th 793 (2021) (“Rey”) is the first California published appellate decision to answer this question. An employer filed suit against a former employee, alleging the former employee converted and destroyed documents belonging to the employer, which contained “proprietary company information.” Id. at *1. After significant discovery, the employer voluntarily dismissed its trade secret misappropriation claim, and the former employee moved for an award of attorneys’ fees under CUTSA which the court denied. Id. The former employee appealed, and the employer moved to dismiss on the grounds that a denial of a motion for attorneys’ fees under CUTSA is not an appealable order. Id. at *2.

The California Court of Appeal for the Second District agreed and dismissed the appeal. The appellants argued that “if a collateral order directing the payment of attorneys’ fees is appealable, by parity of  reasoning the opposite should be true.” Id. at *2. The Rey court disagreed, citing to case law which made no mention of an order denying the payment of money being appealable. Id. The court also listed several other examples where “statutes are not always reciprocal to parties” and where “some authorize an appeal by one side but deny that right to the other side.” Id. One such example is that an order granting a motion to compel arbitration is generally not immediately appealable but an order denying a motion to compel arbitration is appealable. Id.

The appellant also argued that an order denying fees under CUTSA is collateral to the litigation. The court disagreed, and cited authority that a party may not normally appeal from a judgment on one cause of action if determination of other causes of action is pending. Id. Here, appellant’s underlying motion addressed only one of respondent’s causes of action and six remained. Id. at *3. The court also reasoned that because the core of the lawsuit concerned destruction and conversion of corporate documents, the trade secret misappropriation claim was intertwined with the other claims and therefore not collateral. Id.

Rey is an important appellate decision for trade secret practitioners, confirming that an order denying a motion for attorneys’ fees under CUTSA is not immediately appealable.  Rather, an attorneys’ fees claimant must litigate the rest of the lawsuit to conclusion at the trial level, before appealing the order.

FOOTNOTES

[1] Koshak v. Malek, 200 Cal.App.4th 1540, 1545 (2011).

[2] Cal. Civ. Code § 3426.4.

[3] Stilwell Dev. Inc. v. Chen, No. CV86-4487-GHK, 1989 WL 418783, at *3 (C.D. Cal. Apr. 25, 1989).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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