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Southern District Denies Summary Judgment of Misappropriation of Trade Secrets Complaint, Even Where Defendant Former Employer Signed a Release of Claims

In Releases, Settlements, Summary Judgment on October 6, 2010 at 10:30 am
RUHS vs Mira Costa 2009-094
Image by ewalt_da_boss via Flickr

The Southern District of California denied defendant’s motion for summary judgment in a trade secret misappropriation case.  Applied Professional Training, Inc. v. Mira Costa College, No. 10cv1372 DMS (POR), 2010 WL 3834010 (S.D. Cal. Sept. 28, 2010).  Some of the parties had signed a release of claims after a dispute arose between an individual defendant and the plaintiff relating to certain commissions owed from his employment with plaintiff.  Thereafter, former employer plaintiff filed suit against the releasing parties and others alleging, inter alia, trade secret misappropriation.  Defendants sought dismissal of the claims because of the signed release.  But the court found the operative terms in the release ambiguous, and denied summary judgment.

Background

Plaintiff Applied Professional Training, Inc. (“APT”) is engaged in education and technical training for the communications and electric power industries. Id. *1. Defendants Cawley, Uribe, Glenn and Aydelott are former employees of APT, and Defendant Price was formerly an independent contractor for APT.  Id. The Individual defendants terminated their relationships with APT, and each began working at Defendant Teleskills, which offers educational courses in the telecommunications industry, and is a direct competitor of APT. Id. Teleskills was the brainchild of Cawley and Uribe, who decided to start Teleskills while they were still employed at APT (Cawley states Teleskills did not do any business until after he and Uribe left APT). Id.

After leaving APT, a dispute arose between APT and Price: Price alleged that APT owed him certain commissions pursuant to their agreement, and APT alleged that Price was violating his obligations to protect APT’s trade secrets and proprietary information. Id. APT also alleged that Price was making false and misleading statements about APT.  Id.

At the same time, APT’s President Steve Blume was in contact with Teleskills’s new client, Defendant MiraCosta College, which was preparing to offer a new class with the help of Teleskills.  Id. Blume informed MiraCosta that the instructor for the course was a former employee of APT, and that the materials for the course were in violation of APT’s copyrights.  Id. He also stated that Cawley, Uribe and Price were in violation of a non-compete clause in their respective agreements with APT, and these accusations became part of the dispute between Price and APT. Id. The parties attempted to resolve the dispute informally, and Blume, Cawley, Uribe and Price executed a Settlement Agreement and Mutual Reciprocal Release (“Release”) drafted by defendants’ current counsel.  Id. **1-2.  The Release provides for APT to pay Price $10,000 “less amounts previously paid but plus the sum of $3,000, representing Price’s legal fees incurred in this dispute, as payment in full for the settlement of the dispute.”  Id. *2.

Thereafter APT filed the present case against Defendants, claiming (1) copyright infringement against MiraCosta, Teleskills, Price, Cawley and Uribe, (2) trade secret misappropriation and (3) conversion against Teleskills, Price, Cawley, Uribe, Glenn and Aydelott, (4) breach of contract and (5) breach of confidence/loyalty against Defendants Glenn and Aydelott and (6) unfair competition and (7) conspiracy against all Defendants.  Id. In response to the Complaint, Defendants Teleskills, Price, Cawley, Uribe, Glenn and Aydelott filed the present motion.  Id.

The Release

Defendants argued the Release operates as a bar to all of Plaintiff’s claims, and they are therefore entitled to summary judgment.  Id. The release stated in part:

B. Mutual Release and Discharge: The Parties agree to completely, fully and finally release and forever discharge one another, and their agents, employees, representatives and attorneys, from and against any and all claims, demands, liability, damages, causes of actions, costs, expenses and compensation of every kind and nature whatsoever, past, present, or future, known or unknown, arising from or in any manner related to the dispute.

C. Waiver of Civil Code Section 1542: It is understood and agreed that this release extends to all claims of every kind, nature and description whatsoever, known or unknown suspected or unsuspected, and any and all rights under the provisions of Section 1542 if [sic] the Civil Code of California or under any comparable statute of any other jurisdiction. The Parties expressly acknowledge that they each have been represented by counsel in connection with this settlement, and that they are familiar with and expressly waive and relinquish every right or benefit that they have or may have under the provisions of Civil Code section 1542, which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Id. *3.

APT argued that the language set out above was intended to cover only the employment-related disputes between itself and Price, Cawley and Uribe.  Id. In support of this argument, APT relies on the language of the Release. Specifically, APT relies on the recital that states the parties “are involved in a disputes [sic] arising out of the employment of Cawley and Uribe by APT and an independent contractor agreement between Price and APT.” Id.

Defendants argued the disputed language covers APT’s copyright infringement claim, asserting that  APT accused them of copyright infringement before the Release was executed. Id. *4.  Defendants relied on two portions of the Release:  First, they relied on the language stating the parties were releasing all claims “arising from or in any manner related to the dispute”.  The court found that the competing evidence suggested that the Release is ambiguous as to its scope.  Id.

Second, Defendants pointed to the 1542 waiver in the Release.  The court concluded that the 1542 waiver was ambiguous:

Construed in isolation, this waiver would cover all of APT’s claims in this case. However, that is not how courts are to construe contracts. Rather, “[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” Cal. Civ.Code § 1641.

When construed in this manner, the scope of the 1542 waiver is less clear. By its own terms, the Release recites that the parties “are involved in a disputes [sic] arising out of the employment of Cawley and Uribe by APT and an independent contractor agreement between Price and APT.” (Fuchs Decl., Ex. 5.) It also states that the parties wish “to provide for a general and special mutual reciprocal release of any claims now existing by and between the Parties, to provide for the consideration hereinafter set forth.” (Id.) (emphasis added). As mentioned, APT asserts the copyright dispute was not at issue by the time the Release was executed. (See Blume Decl. ¶ 10) (“… infringement of APT’s copyrights was not at issue by the time we executed the Release ….”) The absence of any reference in the Release to copyright disputes supports APT’s position. Accordingly, the provisions in question of the Release appear to limit the scope of the 1542 waiver, or at a minimum, create an ambiguity as to its scope.

Id. *4.

Thus the court concluded that Defendants failed to meet their burden to show that the Release is unambiguous.  Id. *5.  “Although the 1542 waiver supports their interpretation of the Release as covering the present claims, Plaintiff’s interpretation of the Release is equally reasonable. In light of this ambiguity, Defendant is not entitled to summary judgment based on the Release.”

Judge

District Judge Dana M. Sabraw.

By CHARLES JUNG

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