California’s employers often express frustration that the civil justice system does not seem to have adequate protections to discourage employees from filing legal claims based on alleged “facts” that the employee knows to be absolutely false.

Rule 11 of the Federal Rules of Civil Procedure, and section 128.7 of the California Code of Civil Procedure, are both intended to prevent such abuses.

Both statutes require that attorneys, in essence, verify whenever they sign and file court papers that there is a reasonable and good faith basis for the factual allegations stated in their papers. That belief must be based on a reasonable pre-filing investigation that consists of more than simply accepting as true what the attorney’s client says. Under both Rule 11 and section 128.7, an attorney who is found not to have complied with their obligations may be subject to monetary sanctions by the trial court.

Unfortunately, in real-world practice, those gateway requirements, which are intended to protect the integrity and public trust in our civil justice system and its procedures, seem rarely invoked by trial judges to hold dishonest claimants and their attorneys to account. Many casual observers of our modern legal processes marvel at the apparent ease with which a claimant may bring false claims, including those under oath, with no apparent repercussion or effective deterrent. Some even question whether a justice system predicated on a party’s promise to tell the truth is not archaic, as one’s “word, “honor,” or “bind” often do not seem as important in today’s world as they once were.

That is precisely why the recent action of a federal District Court Judge in California’s Northern District is so refreshing.

In the case of Yu v. ByteDance Inc. (N.D. Cal. December 12, 2024, Case No. 3:23-cv-04910 December ), federal District Court Judge Susan Illston demonstrated emphatically the perils of dishonestly in court proceedings, and made it known that an employee’s perjury would not be tolerated in her courtroom.

In a engineer’s retaliation suit against his former employer, the parent company of social media platform TikTok, Judge Illston used the plaintiff’s dishonesty as the basis for issuing terminating sanctions–ordering as a punishment that legal proceeds be terminated.

In ByteDance Inc. plaintiff Yintao Yu alleged that he had been fired in retaliation for complaining about his employer’s discrimination against a co-worker who was on medical leave. During the course of the litigation, the employer claimed that Mr. Yu had fabricated a sworn declaration and had also perjured himself in a prior bankruptcy case. Mr. Yu invoked his Fifth Amendment right against self-incrimination during an evidentiary hearing before Judge Illston regarding the alleged fabrication and perjury.

In her ruling, Judge Illiston stated that “this court has the inherent power to investigate whether a party has abused the judicial process or otherwise committed a fraud upon the court.” “It would be a further abuse of the judicial process,” she added, “to allow a party who has committed egregious litigation misconduct to avoid sanctions by voluntarily dismissing his case or similar gamesmanship.”

Plaintiff derisively characterized the employer’s efforts for terminating sanctions as mere “sideshows” that involved collateral matters. Judge Illston, however, would have none of that. “Far from engaging in ‘sideshows,’ defendants’ sanctions motion and the evidentiary hearing have revealed that Yu has engaged in serious, bad faith conduct that has abused the judicial process,” she wrote.

The outcome of the Yu case may well be a product of the extraordinarily and outrageous conduct of the plaintiff. However, the court’s ruling provides a glimmer of hope that truth and the integrity of the civil justice system remain important and that dishonest litigants and their attorneys proceed at their own peril.

By Steven M. Chanley

Every employer should be aware that it need not have the equivalent of the secret formula for Coca Cola, or commercially valuable source code, in order to have a trade secret that is protected under the law from unauthorized use or disclosure by competitors.

For example, customer lists that have taken considerable time, effort, and marketing resources are probably the most common form of protectable trade secret.

However, the right to protect competitively valuable, generally unknown business information must be the subject of reasonable efforts to keep the information secret before it meets the California or federal definition of a protectable “trade secret.”

Steven M. Chanley

In a lawsuit alleging COVID-related religious discrimination in violation of Title VII of the Civil Rights Act of 1964, a former employee of MGM Grand Detroit was just awarded $133,000 by a jury in federal District Court in Michigan. As the prevailing party, the plaintiff will also be awarded attorneys’ fees, in an amount determined by the trial judge, that will likely be multiples of the actual monetary award. Yermenian had worked for MGM Grand for 22 years before his discharge.

The jury found that Yermenian had a sincerely held religious belief that the COVID vaccine was immoral and inconsistent with his theological beliefs as an Orthodox Apostolic Christian, because he believed its production was associated with the use of tissue from aborted fetuses.

The jury was not swayed by MGM Grand’s defense that it was unable to reasonably accommodate plaintiff, because permitting Yermenian to work around his co-workers and guests, potentially exposing them to the COVID contagion, would have posed an undue hardship under Title VII.

MGM Grand told the jury that, before implementing the policy, it had consulted the published guidance of the Equal Employment Opportunity Commission for employers regarding COVID-19 vaccinations and religious accommodation.

A very recent California Court of appeal case hammered home the point that the state’s wage and hour laws, and how they are applied, are intentionally skewed in favor of employees—so much so that even provisions of the California Code of Civil Procedure are bent to achieve that end.

In Chavez v. Cal. Collision, LLC, No. A167658 (Cal. Ct. App. Dec. 10, 2024), California’s First Appellate District overturned the trial court’s award of $54,000 in court costs to an employer defendant. The Court did so even though the award of costs would generally have been appropriate under section 998 of the Code of Civil Procedure. Court costs do not include attorneys’ fees, but do include such expenses as filing fees, transcript costs, service of process costs, and expert witness fess.

Section 998 provides that a “plaintiff shall not recover his or her post-offer costs and shall pay the defendant’s costs from the time of the offer” if two requirements are met. First, the defendant must make an offer of compromise that the plaintiff does not accept. Second, the plaintiff also does not receive an award greater that defendant’s Section 998 offer in compromise.

The public policy underlying Section 998 is to foster the compromise of disputed claims. The plaintiff receiving a 998 offer of compromise is encouraged to accept the settlement offer if they reasonably stand to gain less than the settlement offer.

The encouragement is in the form of having to pay the defendant’s court costs, including expert witness fees, if the plaintiff ends up being awarded less than the settlement offer. On the other hand, the defendant is encouraged to offer a settlement amount that is greater than the predicted value of a potential award to the plaintiff. The more money that the defendant offers, the greater the chance that plaintiff may be required to pay the defendant’s court costs.

In the Chavez case, even though both of the requirements for an award of costs against the plaintiff were satisfied, the First Appellate District overturned the trial court’s award of litigation costs to the employer.

In reaching its decision, the Court of appeal focused on two California Labor Code sections that provide for an award of post-judgment attorneys’ fees and costs.

The first is Labor Code section 1194, which is a one-way statute that only allows employees to recover attorneys’ fees and costs in claims for unpaid minimum wage and overtime. That statute is silent on whether a prevailing employer may be entitled to an award of costs, even though attorneys’ fees are not available to them. The second is Labor Code 218.5, which permits a prevailing employer to recover both attorneys’ fees and costs, but only if the employer can meet the additional burden of showing that the employee brought the unpaid wages suit in bad faith.

In overturning the award of costs to the employer defendant, the Court of Appeal stated that, “Our conclusion is supported by the strong public policy interest underpinning the cost-shifting provisions in Labor Code sections 1194 and 218.5.” The holding, however, gives short shrift to the countervailing public policy interests underpinning Code of Civil Procedure Section 998.

The practical takeaway from the Chavez case is that, once again, employers should not expect a level playing field when litigating a wage-hour case under the California Labor Code. Employees in Labor Code wage and hour cases are essentially immune from the litigation deterrents that apply to all other plaintiffs under Code of Civil Procedure section 998. Ultimately, this is an issue for the California legislature to take up.

chanley@EAGLawGroup.com

https://law.justia.com/cases/california/court-of-appeal/2024/a167658.html

By Steven M. Chanley

While many trade secret disputes can often be nipped in the bud with a stern and timely cease-and-desist letter coupled with diligent monitoring, a very recent federal district court case in Massachusetts illustrates the reality that companies can and will, nonetheless, misappropriate a competitor’s trade secrets when they believe the information may be leveraged to generate enough revenue to warrant the legal risk.

Insulet Corp. v. EOFlow Co. Ltd. et al., Case No. 1:23-cv-11780 (D. Mass.) arose out of the departure of several employees from biotech company Insulet Corporation to joint South Korean-owned competitor, EOFlow Company. Several years later, Insulet was forced to protect its trade secret rights by suing EOFlow in federal court for misappropriating IP related to Insulet’s wearable insulin patch technology of which the former employees were aware.

The jury awarded Insulet $452 million in damages against EOFlow and its CEO, $282 million of which were punitive damages. It is believed to be the largest award in a trade secrets case in decades.

chanley@EAGLAwGroup.com