Pleading for ReliefThe attainment of injunctive relief in business litigation requires as much art as science |
Los Angeles Lawyer, November 1996by Lawrence C. Waddington |
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Judicial decisions frequently have an impact on fundamental business practices. In declining to rule on contested issues of economic policy, however, courts are reluctant to impose the standards of judicial review on ad hoc and fact-specific business disputes. In a tripartite government, with a federal and state commitment to free enterprise (subject to administrative regulation), the legislature provides a more suitable forum for regulating the marketplace. In fact, the California legislature has provided broad guidelines to prohibit those business practices that are deemed inconsistent with fair competition in order to assure a level, competitive, playing field. The substantive law, nevertheless, is sparse. Thus, by default, the procedural requirements of unfair-competition litigation often provide the key to the successful resolution of business disputes. The pleadings, as well as applications for injunctive relief (routinely sought in unfair competition litigation), must be tailored not only to law-and-motion practice generally but also to the specific type of business and its customs and practices. The plaintiff requesting equitable relief must weave the statutory boundaries of unfair competition, theft of trade secrets, or infringement of trademarks into the particular manufacturing, distributing, or sales or service practices of the industry in question. An application for a temporary restraining order requires plaintiff's counsel to file a memorandum of points and authorities (accompanied by exhibits; affidavits, and declarations) that presents a demonstrated nexus between the nature of the business and the inadequacy of the legal remedy to ameliorate the harm to the plaintiff. Plaintiff's counsel also must show a likelihood of prevailing on the merits. Thus, without the court's knowledge of the intricate operations of a variety of enterprises, substantive law questions may not be addressed. Judges presiding over business litigation are keenly aware of the parties' underlying competitive instincts, which are fueled by feelings of betrayal, disloyalty, anger, and fear. The issuance of a temporary restraining order or preliminary injunction may effectively terminate not only the litigation but the business operations of the defendant as well. These high stakes compel counsel for both sides to submit extensive points and authorities, exhibits, and declarations in support of their respective positions. But the sheer volume of litigation in California civil courts often does not allow sufficient time for judges to read the voluminous papers filed in applications for temporary restraining orders or preliminary injunctions. Succinct but comprehensive statements of the nature of the business in the points and authorities will enable the court to grasp quickly the basis for enjoining the alleged improper competitive acts or violations of trade-secret information. In preparing the pleadings, plaintiffs' attorneys often file a complaint alleging multiple causes of action seeking legal or equitable relief. In the general field of unfair business practices, the remedies are prescribed by statute and, in some cases, identify those parties who have standing to assert alleged violations. The court may decline equitable relief if other causes of action arguably suggest an adequate legal remedy. It is not uncommon for parties to request remedies beyond the scope of the statute, but this is a certain route to denial of an application for a temporary restraining order. Courts are cognizant of the immediate impact of pretrial relief. The issuance of a temporary restraining order or preliminary injunction not only can effectively terminate the litigation, but the defendant usually suffers an irremediable loss even if the court sets the hearing for a preliminary injunction in the prescribed time after issuing a temporary restraining order. The Unfair Practices Act, California's basic statute covering unfair business activities, is codified in Business and Professions Code Sections 17000, et seq. Section 17200 defines "unfair competition" to "include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising, and any act prohibited...by [Business and Professions Code Sections 17500, et seq.]." Unfair competition originally was classified judicially as a tort-a "competitive injury." California courts now interpret the Unfair Practices Act to not only protect business competitors but also consumers against fraudulent or deceitful acts or practices. The statutory framework embraces fraudulent acts as well as any unlawful business practice regardless of the context of the activities. Because false advertising is often asserted as a species of unfair competition, the statute regulates "untrue...or misleading advertising." For alleged violations of consumer-related causes of action for unfair competition, the California Supreme Court has relaxed its pleading requirements, suggesting that exhibits attached to a complaint will overcome objections to demurrers for uncertainty. But allegations of fraud require specificity, and damages are an important element of pleading that cause of action. Despite the wide sweep of the Unfair Practices Act, the Supreme Court has carved out at least two exceptions for unfair-competition claims:
Public officials have standing to allege acts of unfair competition as well as "any person acting for the interest of itself, its members, or the general public." Thus the statutory language, in effect, creates a private cause of action. But the creation of the right to sue is not synonomous with a right to a damage remedy. Business and Professions Code Section 17204 outlines the scope of relief available but does not specifically provide for damages. Whether a successful plaintiff can recover damages in an unfair-competition case is an open question, except for insurance-related violations that contain a statutory preclusion of a private right of action for some consumers. The inability to obtain a damage remedy may not prevent a successful plaintiff from obtaining restitution under the explicit terms of the statute. However, restitution or disgorgement, as authorized by statute, can only be ancillary to injunctive relief. The Unfair Practices Act was not the only attempt by the California legislature to protect businesses and ensure fair competition. The Uniform Trade Secrets Act, codified at Civil Code Sections 3426 through 3426.11, prohibits misappropriating or obtaining a trade secret by improper means. Section 3426.1(d) (2) defines "trade secrets" but includes a provision requiring the owner of the secrets to undertake reasonable efforts to maintain their secrecy. Like unfair competition, the California case law on point is meager. The alleged theft of customer lists often dominates litigation in this field. Because significant economic interests are at stake, courts can issue broad remedial orders, including injunctions coupled with 1) payment of a royalty and "affirmative acts to protect the trade secret," 2) damages for unjust enrichment in addition to compensatory damages; and 3) punitive damages. Attorneys' fees are authorized if there is evidence of bad faith in seeking or terminating an injunction Applications for pretrial relief in trade-secret litigation require adherence to the same general procedures applicable to all requests for temporary restraining orders and preliminary injunctions. In trade-secret litigation, plaintiffs must respond to discovery requests that inevitably will include a demand to disclose the trade secret allegedly misappropriated or obtained by improper means. Code of Civil Procedure Section 2019(d) requires the party alleging misappropriation to identify the trade secret with "reasonable particularity" subject to orders issued pursuant to Civil Code Section 3426.5.27 Courts can preserve the secrecy of an alleged trade secret by issuing protective orders, conducting in-camera hearings, sealing records, and ordering nondisclosure by "any person involved in the litigation." If the court orders disclosure, the plaintiff may seek a protective order restricting disclosure in response to deposition questions, answers to interrogatories, and requests for production. Less restrictive orders may be issued if the court denies a request for a protective order. Precision in identifying the parties, counsel, and witnesses subject to the order is crucial, as is the scope of protection. Violation of a protective order is punishable by contempt; thus acknowledgment, receipt, and acceptance of the order's terms are critical to enforcing its provisions. But violation of a discovery order is not a tort unless an independent ground for wrongful disclosure exists. And the litigation privilege may bar tort actions for wrongful disclosure of information obtained during discovery. The owner of a trade secret does have a statutory, qualified privilege to "refuse to disclose… the secret unless nondisclosure will tend to conceal fraud or otherwise work an injustice." In Bridgestone/Firestone, Inc. v. Superior Court, a case alleging wrongful death, the defendant asserted the trade-secret privilege. Although the court discussed the procedural mechanism for resolving this issue, Bridgestone did not involve allegations of misappropriation, and the balancing process recommended in the context of personal injury litigation may not necessarily apply in a pure trade-secret context. Defense counsel must be concerned about a discovery request to share a disclosed trade secret with counsel representing other plaintiffs in related litigation. During the discovery process, the plaintiff bears the burden of establishing that the documents qualify as a "trade secret" under the statutory definition of the term. The discovery statute covers not only trade secrets but "other confidential research, development, or commercial information" as well. Public policy still favors open competition despite legislative attempts to restrict disclosure of protectible trade secrets. Business and Professions Code Section 16600, which forbids covenants not to compete except in conjunction with the disclosure of trade secrets, reflects this policy. But public policy equally discourages secret court proceedings. Thus a party is required to establish a showing of good cause for the nondisclosure of any court document. Judges must weigh public interest as a factor in determining good cause. California provides remedies for a variety of other unfair unlawful, or fraudulent practices among business competitors, including trademark infringement, secret rebates, locality discrimination, sales below cost, loss leaders, and antitrust violations. Before proceeding under any of the California laws, counsel must answer at least two preliminary questions:
Because statutory law specifically authorizes injunctive relief, the general rules for equitable relief are mandatory: plaintiffs must show 1) the inadequacy of the legal remedy; 2) irreparable harm; and 3) the likelihood of prevailing on the merits. If there is no underlying contract, as in cases alleging unfair competition, the parties must devote considerable discussion to the nature of the business and the conduct allegedly unfair. If a written contract is attached, counsel should highlight and tab the terms most likely to be dispositive as a ready reference for the court. Only the most significant contractual language should be included in the points and authorities. Counsel face a herculean task in their attempt to stay within the page limitations established by local superior court rules. An ex parte motion to permit an extended brief is one possible solution, but applications for temporary restraining orders by their nature represent a desire for immediate relief that mitigates against the luxury of more time. As an alternative, counsel should consider providing the court with an executive summary that outlines, in one or two pages at most, the key issues, with references to specific declarations or exhibits. The key document in any application for a temporary restraining order or preliminary injunction is the memorandum of points and authorities. Judges are familiar with the general rules applicable to requests for temporary restraining orders, but references are necessary to establish the equitable foundation. After initially establishing the interim harm and likelihood of success on the merits, the plaintiff should identify the specific statute that authorizes injunctive relief for the alleged violation, rather than relying exclusively on general rules for injunctions. A memorandum comprising the precise statutory language authorizing injunctive relief alerts the court to a specific remedy for the alleged violation. The statutory framework may also permit disgorgement, appointment of a receiver, damages (including punitive damages), and attorneys' fees. After informing the court of the general and specific rules that authorize equitable relief as well as other remedies, for the alleged unfair practice, misappropriation, or infringement, the memorandum must discuss the relevant substantive law as it applies to the particular business. If proceeding under the unfair-competition statute, the conduct must be identified within the language of the statute. Both the legislature, in its definitions, and the courts, in its decisions, concede that all of these terms are broad in application. Unless preempted by federal law, counsel should cite violations of other statutes specifically prohibiting a particular business practice. Absent a statute on point, allegations should mirror the principles of fraud, although judicial interpretation of unfair business practices is not bound by common law or statutory fraud. In responding to applications for temporary restraining orders or preliminary injunctions, defense counsel usually challenge the evidence that allegedly supports the substantive law, arguing that the particular business practice is not within the ambit of an unfair trade practice, or is not a trade secret, or an infringement of a trademark. Because of the risk of drastic consequences; defense counsel must consider alternative arguments to present to the court A careful reading of the proposed order may reveal ambiguity; vagueness, or overbreadth. Frequently the order requested by the plaintiff will track a practice rather than prohibit an isolated act. A responding party may request that the scope of the injunction be narrowed to ameliorate its more draconian reach. Defense counsel, for example, can request that the business be allowed to continue operating at least until the hearing on the preliminary injunction. Both parties should realize that imprecise language can be fatal to a plaintiff if a violation of a court order is asserted. Responding parties also can urge the court to set a bond, required by statute, that will sufficiently compensate the defendant. Although the amount is within the judge's discretion, counsel should urge the court to require the posting of a substantial amount if the economic consequences to the defendant are significant. The court ordinarily requires that counsel post a bond within 24 hours. In the absence of a posted bond, defense counsel may move to vacate the temporary restraining order or preliminary injunction. If a temporary restraining order is issued, the defendant should seek an immediate hearing on the preliminary injunction in advance of the 15 days provided by statute. Appeals from a grant or dissolution of a preliminary injunction are governed by Code of Civil Procedure Section 904.1. Plaintiffs who are successful in obtaining a temporary restraining order secure an advantage, but neither party should assume the court will automatically issue a preliminary injunction. Defense counsel should note that papers filed in opposition to a request for a temporary restraining order-usually prepared under the stress of time constraints-can be supplemented at the time of the injunction hearing. A compact file consisting of the notice of motion, points and authorities with a nexus to business practices, and clearly marked tabs for exhibits and declarations considerably eases the work of the law clerk and the judge. This type of presentation facilitates a thorough reading and comprehension of the material. California decisional law is meager; accordingly, citations to federal law may be helpful. But copies of federal cases attached to a filing should be excerpted and kept to a minimum. Most courts have initiated some form: of tentative ruling that alerts counsel to the prospective decision in a case. If the tentative ruling is cryptic without informing either side of the basis for the deci- (article is continued but not currently available) *** |