Citcon USA, LLC v. RiverPay, Inc.

Background

This order addressed post-trial matters in a trade-secret misappropriation case that ended with a ten-day jury trial and verdict on December 20, 2019. The jury found that Citcon owned and had protected trade secrets in its source code, transaction information, business plans, and point-of-sale designs. It found that RiverPay, Inc. and Yue “York” Hua acquired or used Citcon’s source code by improper means, and awarded Citcon $1.5 million against RiverPay based on RiverPay’s unjust enrichment.

The jury also found that Hua converted a point-of-sale device belonging to Citcon and awarded Citcon $301.76 against him. It found that RiverPay acted with malice, oppression, or fraud in misappropriating the source code for purposes of punitive damages. On the defendants’ counterclaims, the jury found that Citcon and Wei Jiang were not liable for trade libel, defamation, or intentional interference with prospective economic relations. It found that Kenny E. Shi had a contract with Citcon, that the conditions for his 150,000 shares to vest had occurred, and that Citcon breached the contract, awarding Shi $29,999.99.

Evidentiary objections and remaining issues

The court sustained defendants’ objections to Citcon’s use of material that had not been admitted into evidence, including demonstrative slides and references to counsel’s opening statement. The court stated that it would consider portions of those materials only when the underlying information had separately been admitted at trial.

The remaining issues for the court included both parties’ claims under California’s Unfair Competition Law, Citcon’s requests for punitive damages, a reasonable royalty, and injunctive relief. The court also considered defendants’ motion for judgment as a matter of law and Citcon’s request for joint and several liability.

California Unfair Competition Law claims

The court found that Citcon proved by a preponderance of the evidence that Hua engaged in an unlawful business practice by converting the point-of-sale device. But the court explained that the Unfair Competition Law permits injunctive relief and restitution, not nominal damages. Citcon had requested a nominal one-dollar award, had not requested or supported an injunction for this claim, and had presented no evidence allowing the court to calculate restitution. Because Citcon had already received $301.76 from the jury for conversion, the court found that Citcon was not entitled to relief under the Unfair Competition Law and denied Citcon’s claim.

The court also denied RiverPay’s Unfair Competition Law claim against Citcon and Wei Jiang. The court did not consider alleged conduct occurring during or after trial, including a December 27, 2019 email and December 30, 2019 letter. It also found no basis to conclude that Citcon brought unsuccessful trade-secret and conversion claims in bad faith or for improper anticompetitive purposes.

Reasonable royalty

Citcon sought a court-determined reasonable royalty for alleged misappropriation of its transaction information, business plans, and point-of-sale designs, but not for its source code. Because the jury found misappropriation only as to the source code, Citcon agreed that the royalty issue was moot. The court agreed and declined to award a reasonable royalty for any other trade-secret category.

Punitive damages

The court denied Citcon’s requests for separate punitive and exemplary damages and denied its request for punitive damages under California’s general punitive-damages statute. The court treated “punitive” and “exemplary” damages as interchangeable and concluded that California’s Uniform Trade Secrets Act governed punitive damages for the trade-secret claim.

The court found that the clear-and-convincing-evidence standard was properly included on the verdict form. It also found sufficient evidence for the jury to conclude that RiverPay acted willfully and maliciously. The fact that the jury identified RiverPay, but not Hua or Shi, did not prevent a punitive-damages award against RiverPay because the jury could attribute the conduct of RiverPay founders and investors Ryan Zheng and Simon Han to the corporation.

Even so, the court declined to award punitive damages against RiverPay. It found that RiverPay’s conduct was not highly reprehensible under the relevant factors, that the $1.5 million compensatory award was sufficient to punish and deter the conduct, and that RiverPay’s lack of funds was especially important. The evidence showed that RiverPay had operated at a loss and might not have been able to pay even its preferred stockholders if it entered bankruptcy.

Injunctive relief

Citcon requested an injunction preventing RiverPay from conducting business for at least one year unless RiverPay developed new source code through a cleanroom process or otherwise. The court denied the request. Although Citcon had been injured, the court found that Citcon had not shown irreparable harm, because the $1.5 million monetary award had compensated it for the injury. The court also found that the balance of hardships and public interest did not support an injunction.

Joint and several liability

The court again denied Citcon’s request to hold all defendants jointly and severally liable for the trade-secret misappropriation. It relied on its prior reasoning that Citcon had not presented the case at trial under a joint-and-several-liability theory and that vicarious liability, rather than joint and several liability, was the appropriate theory between the corporation and its employees.

Judgment as a matter of law

Judgment as a matter of law is a ruling that a reasonable jury lacked a legally sufficient evidentiary basis for its decision. The court denied defendants’ motion on each issue addressed. It found sufficient evidence for the jury to attribute willful and malicious conduct to RiverPay, to identify the point-of-sale designs as trade secrets improperly acquired or used by Hua, and to consider the agreement between Citcon and Dino Lab concerning confidentiality and source-code ownership.

Fees and costs

The court declined to award attorney’s fees. It recognized that Citcon prevailed on the source-code misappropriation claim and point-of-sale-device conversion claim, while Shi prevailed on his contract claim and defendants defeated several other Citcon claims. Because the case ended in what the court called a mixed judgment, each party was ordered to bear its own costs.

Disposition

The court denied defendants’ motion for judgment as a matter of law and denied both parties’ Unfair Competition Law claims. It declined to award a reasonable royalty, punitive damages, injunctive relief, attorney’s fees, or costs, and denied Citcon’s request for joint and several liability.