Destroying Evidence Did Not Allow Entry of Unlimited Default Damages in Trade Secret Case

Case: Electronic Funds Solutions v. Murphy, No G031778 (Cal. 4th App. Dist. 12/14/05)

The One Sentence Summary: Entry of default and a $24 million trade secret judgment as a discovery sanction for destroying evidence was reversed because the complaint stated only damages "in excess of $50,000."



Appellate Court Holdings:

• Compensatory damages on default could not exceed the $50,000 amount pled in the complaint.
• The service of a statement of damages did not increase the amount that could be awarded upon entry of default.
• Plaintiffs gave adequate notice of punitive damages, but the award of punitive damages had to be reconsidered in light of the reversal of the compensatory damages.
• The complaint failed to plead a cause of action for misappropriation of trade secrets where plaintiffs failed to allege efforts to keep the information secret.
• The defendants could have tortiously interfered with contracts that they entered on behalf of plaintiff by interfering after they withdrew from plaintiff's company.
• Tortious interference with prospective economic advantage was adequately pled when the complaint alleged an independent wrong of mispresentations to disrupt plaintiff's business.
• Because defendants had no management authority as officers of plaintiff, they owed no fiduciary duties.
• An unjust enrichment remedy could not be received under Business and Professions Code § 17200.
• Taking the goodwill of a business did not allow a conversion cause of action.
• Loss of profits was the proper measure of damages rather than the estimated market value of the destroyed business.
• Treble damages could not be awarded because the complaint did not state a cause of action for misappropriation of trade secrets.
• The terminating sanction did not violate defendants' due process rights.