Judge: Deirdre Hill, Case: 23TRCV00104, Date: 2023-03-23 Tentative Ruling

Case Number: 23TRCV00104    Hearing Date: March 23, 2023    Dept: M

Hearing Date:                         March 23, 2023

Moving Parties:                      Plaintiff Arthrex Inc.

Responding Party:                  Defendant Robert Loera Medina

OSC re Preliminary Injunction

RULING

            The TRO and the OSC re preliminary injunction are discharged.

BACKGROUND

            On January 12, 2023, plaintiff Arthrex, Inc. filed a complaint against Robert Loera Medina for (1) misappropriation of trade secrets, (2) breach of contract, (3) violation of Defend Trade Secrets Act, (4) conversion, (5) civil theft (Penal Code §496), and (6) specific performance.

            On February 21, 2023, the court granted in part and denied in part plaintiff’s ex parte application.  The court denied plaintiff’s request for a writ of possession and civil seizure.  The court granted plaintiff’s ex parte application for a TRO as stated in the order.

LEGAL AUTHORITY

Under CCP §527(a), “A preliminary injunction may be granted at any time before judgment upon a verified complaint, or upon affidavits if the complaint in the one case, or the affidavits in the other, show satisfactorily that sufficient grounds exist therefor.  No preliminary injunction shall be granted without notice to the opposing party.”

“[A] court will deny a preliminary injunction unless there is a reasonable probability that the plaintiff will be successful on the merits, but the granting of a preliminary injunction does not amount to an adjudication of the merits.”  Beehan v. Lido Isle Community Assn. (1977) 70 Cal. App. 3d 858, 866.  “The function of a preliminary injunction is the preservation of the status quo until a final determination of the merits.”  Id.  “Trial courts traditionally consider and weigh two factors in determining whether to issue a preliminary injunction.  They are (1) how likely it is that the moving party will prevail on the merits, and (2) the relative harm the parties will suffer in the interim due to the issuance or non-issuance of the injunction.”  Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal. App. 4th 1414, 1420.  “[T]he greater the . . . showing on one, the less must be shown on the other to support an injunction.”  Id. (quoting Butt v. State of California, (1992) 4 Cal.4th 668, 678.).  The burden of proof is on the plaintiff as the moving party “to show all elements necessary to support issuance of a preliminary injunction.”  O'Connell v. Superior Court (2006) 141 Cal. App. 4th 1452, 1481.  

DISCUSSION

After granting a TRO, the court set an OSC re preliminary injunction hearing.

In the TRO, the court ordered why a preliminary injunction should not be issued requiring defendant Robert Medina to provide plaintiff’s counsel with any and all documents, including any original, copied, printed, written, or electronic versions or any other tangible matter from whatever source reflecting or including the following:  (a) mechanical drawings of the Scorpion Needle Shape Setting Machine per MPI 2380 (“Machine”); (b) the Machine’s electrical schematics; (c) the Machine’s line drawings; (d) the Machine’s wire numbering; (e) the Machine’s troubleshooting and repair detail; (f) the Machine’s pneumatic schematics related to valve assembly and airline routing; (g) the Machine’s component lists; (h) all PLC/HMI computer programs related to the Machine; (i) the Machine’s instruction manuals; (j) the Machine’s blueprints; (k) any and all passcodes needed to access, modify, or operate to the Machine, including the PLC’s passcode; and (l) other confidential information concerning the Machine (collectively, “Trade Secrets”).

Pending the hearing on the OSC re preliminary injunction, defendant and their agents, employees, assigns, and all persons acting in concert with them are restrained and enjoined from moving, distributing, transporting, using, disclosing, publishing, posting, deleting, revising, modifying, supplementing, or otherwise tampering with the “Trade Secrets.”

The complaint alleges that Arthrex conducts business in LA County, which is where plaintiff employed defendant Medina.  Complaint, ¶1.  Plaintiff hired defendant on March 20, 2017, as a Manufacturing Engineer.  Defendant’s job duties involved designing, developing, implementing, and improving manufacturing processes and equipment to produce quality medical device products and systems cost effectively.  Id., ¶7.  In performance of his duties, defendant had access to plaintiff’s trade secrets and personal property.  Id., ¶8.  On March 16, 2017, the parties entered into an employment agreement whereby defendant agreed to refrain from misappropriating plaintiff’s trade secrets and property.  Id., ¶9.  Defendant was employed with plaintiff until August 31, 2022.  At the time of defendant’s separation, the parties entered into a Separation Agreement and Release.  Id., ¶10.  During defendant's employment, he assisted in developing and building machinery, including a one-of-a-kind machine, the Scorpion Needle Shape Setting Machine per MPI 2380 (“Machine”), which led to defendant receiving a large monetary bonus.  The Machine treats Nitinol Scorpion Needles so they retain a pre-determined shape.  Scorpion needles and devices are proprietary medical devices and intellectual property of plaintiff.  The Machine, which is also the intellectual property of plaintiff, is solely owned and operated by plaintiff, and is essential to plaintiff’s ability to operate portions of its business.  Id., ¶11.

            The complaint further alleges that attached to the Machine is a Programable Logic Controller (“PLC”); this property of plaintiff controls the program of the heat treat cycle of the Machine and the production process.  The PLC is passcode protected.  Defendant created this passcode, regularly used this passcode, and chose not to share this passcode with anyone at plaintiff.  The passcode is needed to modify and improve the PLC and the Machine.  Plaintiff does not have this passcode and defendant has repeatedly refused to provide it to plaintiff.  Id., ¶12.  The passcode, instruction manual, and blueprints for all company machinery were required to remain on plaintiff’s premises at all times.  Employees were not permitted to remove them from plaintiff’s premises.  This was communicated to defendant by plaintiff.  Id., ¶13.  Despite this, for reasons that became apparent later, defendant ensured that the PLC would not be accessible to plaintiff without defendant’s assistance.  Namely, following defendant’s separation from plaintiff, he seized the PLC’s passcode, knowing the passcode is necessary to recreate, modify or remove the Machine software.  Most importantly, if any changes are needed or a system malfunction arises requiring reprogramming, plaintiff would need the PLC’s passcode to address the issue(s) and would not have it.  Id., ¶14.

            The complaint further alleges that upon information and belief, defendant remains in possession of the PLC’s passcode.  Despite numerous efforts to obtain the passcode from defendant both pre-separation and post-separation from employment, he has refused to provide it to plaintiff despite knowing that it is necessary for plaintiff to repair, modify or reset the Machine.  Id., ¶15.  When plaintiff requested the passcode from defendant post-employment, he refused to provide it unless plaintiff paid him thousands of dollars.  In other words, he stole company property and trade secrets and refuses to return it to plaintiff unless he is provided a large sum of money in return.  Id., ¶16.  Following defendant’s separation, plaintiff discovered that, upon information and belief, defendant also seized and/or destroyed plaintiff’s internal documentation necessary for the use of the Machine (“Trade Secrets”).  Id., ¶17.  Since defendant’s separation and seizure of the Trade Secrets, plaintiff has made numerous demands for the return of the Trade Secrets but he has refused to return the Trade Secrets unless plaintiff pays him thousands of dollars.  Id., ¶18.  Defendant’s actions have prevented plaintiff from recreating, modifying, troubleshooting, repairing, and programming the Machine despite plaintiff spending enormous amounts of time, money, and resources in efforts to do so.  Id., ¶19.

            In support of the OSC re preliminary injunction, plaintiff presents the declaration of Bryan King, Senior Director of Operations for plaintiff, who attests to the alleged facts in the complaint. In particular, he states, “following Defendant’s separation from Plaintiff, Defendant misappropriated the PLC’s passcode and removed it from Plaintiff’s premises.  I am aware of this because Defendant has explicitly informed Plaintiff, including me, that he did so.  I am also aware of this because Defendant maintained sole possession of the passcode during his employment with Plaintiff and the passcode went missing once Defendant ceased working for Plaintiff.”  King decl., ¶14.  “I have personally asked Defendant to return the passcode, but he has refused unless provided thousands of dollars.”  Id., ¶16.  He also states, “[i]t is also my belief, based on my experience, professional judgment, and knowledge and review of Plaintiff’s documents and files that Defendant possessed while employed with Plaintiff, that, in addition to the passcode, Defendant seized and/or destroyed Plaintiff’s internal documentation necessary for the manufacture and use of the machine.  Said documentation could include (a) mechanical drawings; (b) electrical schematics, including line drawings, wire numbering, and details used for troubleshooting and repair; (c) pneumatic schematics related to valve assembly and airline routing, which is also used for troubleshooting and repair; (d) component lists for the machine; and (e) all PLC/HMI computer programs with descriptive tags and without passcode restrictions.  Id., ¶17.  Further, he states that it is his belief, based on his experience, professional judgment, and communications with defendant, that defendant “remains in possession of some or all of the Trade Secrets at his home” in Fontana.  Id., ¶21. 

            In response, defendant argues that the court should discharge the OSC.  Defendant contends that plaintiff failed to give notice of the OSC by purportedly serving notice by mail, which is not a permissible method of service for the notice of the OSC, and defendant never received the notice of the OSC by mail.  Defendant also argues that the proposed injunction violates California law because a preliminary injunction is not available if a plaintiff seeks to recover possession of personal property pending trial.  See Simms v. NPCK Enterprises, Inc. (2003) 109 Cal. App. 4^th 233, 243 (“where title to personal property is in dispute, courts will not issue a preliminary injunction to change possession of property pending trial”). 

Defendant further argues that plaintiff has not shown that it is reasonably probable that it will prevail on its claims.  Defendant states in his declaration that he “never needed to enter a passcode to access the PLC because it was not protected by a passcode.  I never created, used, or took a passcode for the PLC from Arthrex.”  He regularly accessed the PLC by using a cable that had a USB jack, which he connected to his laptop, and a RS-485 jack, which he connected to the PLC.  Defendant’s decl., ¶2.  He states that approximately two weeks before his last day at Arthrex, the Machine was moved from the Walnut facility.  “I did not and could not have added a passcode requirement to the PLC after the Machine was moved from the Walnut facility because it was impossible to remotely access the Machine or the PLC.”  Id., ¶3.  He also states that “the fact that the Machine was operable days before it was moved from the Walnut facility coupled with the fact that the personnel operating it were not entering a passcode to access the PLC shows that there was no passcode to access the PLC.”  Id., ¶4.  He explains that on September 1, 2022, the day after he stopped working at Arthrex, he received a text message from his former supervisor Rey Convento, asking him for a passcode for the PLC.  Defendant sent a responsive text message advising that he did not know about any passcode for the PLC.  Id., ¶5.  He received a voicemail from someone who said she worked in HR asking him to call.  He called back and left a voicemail, but she did not respond to it.  Id., ¶6.  Between October 31, 2022 and November 1, 2022, he exchanged text messages again with Convento about the passcode.  He explained again that he was not aware of any such passcode.  Id., ¶8.  “I was exasperated with Arthrex because it felt like I was in a loop having to repeat myself again and again to Arthrex’s personnel about a non-existent passcode.”  Because he was frustrated, he texted Convento that he would participate in a call with Arthrex’s personnel and attempt to help them circumvent the passcode requirements, “but Arthrex would have to pay me $1,000 for 15 minutes of my time . . . . I never intended to take money from Arthrex.  I hoped that they would think the payment was too much and would leave me alone.”  Id., ¶9.  “I never told Mr. Convento or anyone else that I would provide the PLC passcode in exchange for money. . . . I simply offered to help Arthrex in its efforts to circumvent the passcode for the PLC if Arthrex compensated me for my time.”  Id., ¶10.  After he was sued, defendant contacted people knowledgeable about the PLC who might help Arthrex circumvent any passcode requirement and researched what might have triggered the passcode requirement.  He located two people who he believed might be able to help and his attorney passed their contact information along to plaintiff’s attorney.  Id., ¶11.  He also states that based on his research he suspects that the reason the PLC started asking for a passcode is that the Machine was disconnected from all power sources for lengthy period when Arthrex moved it from the Walnut facility.  Id., ¶12.  He states again that he cannot provide a passcode for the PLC because he does not have it.  Id., ¶13.  He further states that King’s “accusations are patently false” and that he did not take any document from Arthrex or any instruction manuals or blueprints for the Machine.  Id., ¶15.  He also states that when he left Arthrex the documents identified in (a) through [(g) – see TRO, supra] did not exist.  Id., ¶16.  He states that he did not take the HMI program [(h) – see TRO].  He further states that no one from Arthrex or Arthrex, Inc., including King, ever asked him about the documents after he left Arthrex or ever asked him to return any of them.  Id., ¶19.  “To ensure that I did not overlook something, I thoroughly searched all locations where any of the documents, instruction manuals, or blueprints for the machine would be located.”  He searched his home computer, his house, his car, workbags, and luggage that he used.  He did not locate any of the documents during his search.  Id., ¶20.  “If I had the passcode for the PLC or the Documents (I do not), it would serve no purpose to withhold them from Arthrex.  I do not need those things in my current job or for any professional or personal reason.”  Id., ¶21.  He states that he harbors no ill will toward Arthrex when he stopped working for it.  Arthrex gave him nearly two years’ advance notice that it was closing the Walnut facility.  Id., ¶22.   He contends that the requested injunction would serve no purpose because defendant is unable to comply with it. 

Moreover, defendant asserts, plaintiff seeks a mandatory injunction, which is not warranted.  Defendant argues the evidence does not show that this case involves extreme circumstances.  Defendant also argues that plaintiff has not shown that defendant misappropriated plaintiff’s trade secrets because it cannot show that defendant acquired the PLC passcode and the documents by improper means or that he disclosed or used those things without the consent of plaintiff.  Lastly, defendant argues that plaintiff has failed to make any showing that a suit for damages is an inadequate remedy.

In reply, plaintiff argues that defendant was properly served and, in any event, defendant responded.  Plaintiff also argues that the requested injunction is permitted under California law under Civil Code §3426.2(a) and the Defend Trade Secrets Act of 2016 and the employee agreement, and that the Simms case cited by defendant is inapplicable because this case is not for claim and delivery.  Plaintiff also contends that it has shown a likelihood of prevailing on the merits and interim harm by citing to the King declaration that was filed in support of the OSC.

The court rules as follows:

“The general rule is that an injunction is prohibitory if it requires a person to refrain from a particular act and mandatory if it compels performance of an affirmative act that changes the position of the parties. [Citations.] The substance of the injunction, not the form, determines whether it is mandatory or prohibitory.”  Davenport v. Blue Cross of Calif. (1997) 52 Cal. App. 4th 435, 448.  “The granting of a mandatory injunction pending trial is not permitted except in extreme cases where the right thereto is clearly established.”  Teachers Ins. & Annuity Ass'n v. Furlotti (1999) 70 Cal. App. 4th 1487, 1493.

Plaintiff is requesting a “mandatory” injunction because it requests that the court compel an affirmative act—the return of documents and the passcode. 

Civil Code §3426.2 states, “(a) Actual or threatened misappropriation may be enjoined. . . . (c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.”  “In order to obtain an injunction prohibiting disclosure of an alleged trade secret, the plaintiff’s first hurdle is to show that the information it seeks to protect is indeed a trade secret.”  DVD Copy Control Assn., Inc. v. Bunner (2004) 116 Cal. App. 4^th 241, 251.  Under Civil Code §3426.1(d), “trade secret” “means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:  (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” 

Plaintiff has not shown that any of the documents referred to in the TRO (in particular, the passcode) falls under (1) and (2).  Also, according to defendant’s declaration, several of the categories of documents did not even exist when he left the company.  Further, plaintiff acknowledges that it was not even in possession of a passcode and thus cannot describe the efforts to maintain its secrecy.  The court notes that “[t]he ultimate determination of trade secret status and misappropriation would be subject to proof to be presented at trial.”  DVD Copy Control Assn., supra, at 256 (citation omitted).

Also, the King declaration is insufficient to show that defendant is in possession of the documents at issue or that he misappropriated them.  In his declaration, he uses the word “could include,” (para. 14) and that defendant retains “some or all” (para. 21) of the referred to documents, which is insufficient to show actual possession.  In any event, “[m]ere possession of trade secrets by a departing employee is not enough for an injunction.”  FLIR Systems, Inc. v. Parrish (2009) 174 Cal. App. 4^th 1270, 1279 (the defendant’s act of downloading files and bringing them home during his employment was not misappropriation even though the defendant retained possession of the files after his employment ended).

Thus, the court finds that plaintiff has not met its burden of showing a likelihood of prevailing on the merits. 

Accordingly, the TRO and the OSC are discharged.

Defendant is ordered to give notice of ruling.