Parties and counsel to active litigation should tread carefully. The focus of a case may be on one claim, but the common safeguard claims and defenses and fishing expeditions in discovery may put at issue other claims that if not pursued in the pending action may be lost forever.
In the case of MGA Entertainment, Inc. vs. Mattel, Inc. (2019) 41 Cal.App.5th 554, a Plaintiff was primarily pursuing discovery in support of copyright claims, but actively ended up losing trade secret claims.
The Plaintiff’s copyright claims were focused on currently known and marketed dolls. The Defendant filed a counter claim for trade secret misappropriation. In reply to the counter claim the Plaintiff also filed a counter claim (in addition to the separate pending complaint Plaintiff had filed). This is referred to as a counterclaim in reply. In federal court those are only allowed if compulsory.
Case No. 1 resulted in a $80,000,000 for trade secret misappropriation, and an equal amount for punitive damages. The decision was then reversed. The court on appeal found that the counter claim was not allowed, because it was not compulsory. The party making the claim was a Plaintiff, and a Plaintiff cannot make a counter claim in reply unless it is a compulsory counter claim.
Case No. 2 was focused on trade secret claims for unrelated products that had not been marketed. The problem for Case No. 2 was that in Case No. 1 the Plaintiff had sought specific discovery on the trade secrets, and so the statute of limitations in that claim had expired.
Ultimately, the Court ruled that the same suspicion that caused the discovery of the information on the trade secrets in Case No. 1 also triggered the deadline for pursuing a related claim that was pursued in Case No. 2.
The Defendant’s infiltration of confidential presentations put the company on notice that all related trade secret information had been appropriated.
The plaintiff could not “don blinders” to avoid the statute of limitations. And serving discovery on the trade secrets at issue in Case No. 1 and claiming it was not on notice of any appropriation for Case No.2 did not toll any deadline concerning the claim.
Again, this is because the victim suspected wrongdoing, and served discovery on the matter. At that stage, the suspicion of wrongdoing and injury triggered the clock for calculating the statute of limitations.
This case illustrates that in the heat of battle it is critical that the parties not delay in amending pleadings and claims so as to expand the claims and issues in dispute. Otherwise, the parties risk losing those claims that are not the subject of a complaint forever. This case also illustrates how form sometimes trumps substance as Case No.1 was overturned because an amended complaint should have been utilized instead of a cross-claim in reply to a Defendant’s cross-complaint.