Applied Medical Distribution Corporation vs. Jarrells

the requested order would also foreclose evidence relevant to the two issues remaining on remand.

1. Matters conclusively established It has been conclusively established that Applied possessed trade secrets and that Jarrells misappropriated one or more of those trade secrets by acquisition, use, or disclosure through improper means. Those determinations are final and are not subject to reconsideration during this limited retrial. (Applied Medical Distribution Corp. v. Jarrells (2024) 100 Cal.App.5th 556, 597-598; see also ROA 1217.)

Accordingly, Jarrells, his witnesses, and his counsel shall not present evidence or argument for the purpose of establishing, suggesting, or inviting the jury to find that: Applied did not possess any protectable trade secret; Jarrells did not misappropriate Applied’s trade secrets; the conduct found to constitute misappropriation did not violate the California Uniform Trade Secrets Act; or that Applied must prove the elements of trade-secret liability anew. Counsel shall instruct their witnesses not to volunteer testimony calculated to dispute these established matters.

2. Evidence relevant to the issues remaining for trial This ruling does not exclude otherwise admissible evidence merely because it concerns the circumstances surrounding the established misappropriation. The issues remaining for jury determination include: whether Jarrells’s established misappropriation was willful and malicious; and whether Applied incurred recoverable BRG expenses exclusively during Phase 2 of the investigation and, if so, the amount of those expenses.

Evidence concerning Jarrells’s conduct, knowledge, purpose, intent, state of mind, handling of Applied’s information, use or nonuse of particular information, disclosure or nondisclosure to others, and the circumstances under which information was copied or retained may be relevant to willfulness and malice.

Evidence concerning the location, disposition, dissemination, accessibility, or continued possession of Applied’s information may also be relevant to the purpose, causation, allocation, and recoverability of the claimed Phase 2 expenses.

Jarrells may therefore present otherwise admissible evidence that files were copied as part of a broader transfer, that personal and company files were commingled, that he acted for convenience or another asserted purpose, that he did not intend to injure Applied, that particular information was not used or disclosed in a particular

manner, or that particular BRG work was unrelated to compensable Phase 2 mitigation. Such evidence may not be used as a vehicle to argue that Applied lacked trade secrets or that no misappropriation occurred. Objections to particular evidence will be resolved in context under Evidence Code sections 210, 350, 352, and, when appropriate, 402.

3. Preliminary instruction Applied’s proposed Special Instruction No. 1 (Attachment A) will not be given in its present form. The Court is concerned that its incorporation of the term, “improper means” (Plaintiff’s MIL 1, (ROA 1258), attachment A, page 14) risks suggesting that the established finding of misappropriation also establishes willfulness and malice. Whether the established misappropriation was willful and malicious is solely for the present jury to determine. For the Court to use the term, “improper means” constitutes an inappropriate (and unnecessary) comment on the evidence and may be misinterpreted by the jury. It also unnecessarily refers to Bruin Biometrics, LLC, which is not a party to this limited retrial.

Before the presentation of evidence, the Court intends to instruct the jury substantially in the manner as follows:

It has been conclusively established that Applied Medical Distribution Corporation possessed trade secrets and that Stephen Jarrells misappropriated one or more of those trade secrets. You must accept those matters as established and may not reconsider them. Those established matters do not prove that Mr. Jarrells’s conduct was willful and malicious. You must decide that question based solely on the evidence and instructions in this trial. You must also decide whether Applied has proved that it incurred recoverable forensic expenses exclusively to stop or mitigate the established misappropriation and, if so, the amount of those expenses. You may consider evidence concerning the circumstances of the misappropriation only insofar as that evidence bears upon the issues you are being asked to decide.

The Court will settle the precise wording of the preliminary and final instructions with counsel. Neither the prior verdict, the prior trial court’s rulings, nor the appellate proceedings shall be identified to the jury except by further order.

4. Permissible characterizations Neither side may characterize the established liability determination in a manner that resolves an issue left open on remand. Jarrells may not argue that his conduct was wholly lawful or that no misappropriation occurred. Applied may not argue that

the established finding of improper acquisition, use, or disclosure, standing alone, establishes willfulness and malice. Counsel shall alert the Court outside the presence of the jury before presenting evidence or argument whose permissible relevance under this order is reasonably disputed.

PLAINTIFF’S MOTION IN LIMINE NO. 2 (ROA Nos. 1247 and 1259) IS GRANTED IN PART AND DENIED IN PART.

No opposition was filed.

Applied moves to exclude testimony, references, and argument concerning determinations made during the first trial that were subsequently reversed on appeal. Applied identifies the prior nonsuit on willfulness and malice, the prior ruling excluding recovery of certain fees paid to Berkeley Research Group (BRG), and, more generally, the first jury’s no-damages determination.

1. Reversed rulings The Court of Appeal reversed a prior court’s prior ruling precluding Applied’s damages expert from including recoverable BRG fees incurred exclusively during Phase 2 and reversed the grant of nonsuit on whether Jarrells’s misappropriation was willful and malicious. (Applied Medical Distribution Corp. v. Jarrells (2024) 100 Cal.App.5th 556, 597-598.) Those rulings no longer have legal effect.

Jarrells, his witnesses, and his counsel therefore shall not refer to, elicit testimony concerning, or argue that: the prior trial court determined that Jarrells’s conduct was not willful and malicious; the prior trial court determined that the BRG expenses now at issue were categorically unrecoverable; Applied previously failed to establish willfulness and malice; or that a court or jury has already resolved either remanded issue adversely to Applied. Neither party shall identify or characterize the prior trial court’s rulings as erroneous, reversed, or otherwise approved or disapproved on appeal in the jury’s presence.

2. Prior no-damages determination The motion is also granted to the extent it seeks to preclude disclosure that the prior jury awarded no damages or found no unjust enrichment. The prior jury did not receive the Phase 2 BRGexpense theory now permitted on remand. Its verdict therefore does not resolve whether Applied incurred recoverable Phase 2 expenses. Disclosure of the prior verdict would create a substantial danger that the present jury would defer to a determination reached on a materially different evidentiary record. (Evid. Code, §§ 210, 350, 352.)

This ruling does not mean that every damages determination from the first trial was reversed. Applied may not retry lost profits, unjust enrichment, reasonable royalties, contract damages, or any other compensatory theory outside the limited remand.

3. Arguments permitted in this trial Nothing in this order prevents Jarrells from contesting the two issues presently before the jury. Jarrells may present otherwise admissible evidence and argue that: Applied has not proved by clear and convincing evidence that the established misappropriation was willful and malicious; some or all claimed BRG expenses were not incurred during Phase 2; some or all claimed expenses were not incurred exclusively to determine where the files went or to recover, delete, or otherwise prevent further misappropriation; particular expenses were unrelated, duplicative, unreasonable in amount, or insufficiently allocated between compensable and noncompensable work; or that Applied has not proved any recoverable Phase 2 damages.

Jarrells may therefore argue that the evidence presented in this trial warrants an award of zero damages. It is axiomatic that he may not support that argument by informing the jury that a prior judge excluded the expenses or that a prior jury returned a nodamages verdict.

4. Scope of exclusion This order excludes the prior determinations themselves. It does not categorically exclude otherwise admissible evidence merely because the evidence was presented or considered during the first trial. The admissibility of particular evidence will be determined under Evidence Code sections 210, 350, 352, and 402. Counsel shall advise their witnesses of this ruling and alert the Court outside the presence of the jury before referring to any prior ruling, verdict, judgment, appeal, or appellate disposition.

PLAINTIFF’S MOTION IN LIMINE NO. 3 (ROA Nos. 1253, 1260, and 1286) IS GRANTED, SUBJECT TO THE LIMITATIONS SET FORTH BELOW.

Applied moves to exclude testimony, references, and argument concerning the prior jury’s determinations that Jarrells did not breach a fiduciary duty, that Bruin Biometrics, LLC did not interfere with Jarrells’s contractual relationships, and that Applied was awarded no damages despite findings in Applied’s favor on its contract and trade-secret claims.

1. Prior verdict findings shall not be disclosed

The present trial is limited to whether the established misappropriation was willful and malicious and whether Applied incurred recoverable BRG expenses exclusively during Phase 2. The dispositions of Applied’s fiduciary-duty and interference claims involved different elements, different parties, and issues not being retried. They do not tend to prove either remanded issue.

The prior jury’s no-damages and no-unjust-enrichment determinations likewise do not resolve the Phase 2 expense claim because those expenses were excluded from the evidence presented to that jury. Disclosure of these determinations would create a substantial danger of confusion, undue consumption of time, and deference to a verdict reached on other claims and a different evidentiary record.

Accordingly, neither party, its witnesses, nor its counsel shall disclose or refer to the prior jury’s determinations concerning breach of contract; breach of fiduciary duty; interference with contractual relations; damages or unjust enrichment; or any other claim or issue not expressly identified by the Court as conclusively established for purposes of this limited retrial.

The Court excludes those references under Evidence Code sections 210, 350, and 352.

2. Reciprocal application Applied may not selectively disclose portions of the prior verdict it considers favorable. Applied shall not tell the jury that a prior jury found Jarrells breached an agreement. Applied may introduce otherwise admissible evidence concerning Jarrells’s contractual obligations, his knowledge of those obligations, and conduct violating them insofar as that evidence bears upon his state of mind and whether the established misappropriation was willful and malicious.

Applied also shall not quote, characterize, or attribute to the Court of Appeal factual observations concerning the sufficiency of the evidence of willfulness and malice. The Appellate Court’s assessment of the nonsuit is not evidence. Evidence discussed in the opinion may be presented through competent witnesses and exhibits if otherwise admissible.

3. Underlying evidence is not categorically excluded This ruling excludes prior adjudicative determinations; it does not categorically exclude the evidence underlying them. Jarrells may introduce otherwise admissible evidence that Applied suffered no identifiable business loss, that particular information was not used or disclosed, or that Jarrells received no financial or competitive

benefit if that evidence is relevant to his state of mind, the nature of his conduct, or another issue properly before the jury.

Jarrells may also challenge whether the claimed BRG expenses were caused by the established misappropriation, were incurred exclusively during Phase 2, or otherwise qualify for recovery. He may not convert such evidence into an argument that the first jury already determined the questions now before this jury.

4. Evidence Code section 356 and claimed door-opening The Court disagrees with Jarrells’s characterization of Evidence Code section 356. (Opposition (ROA 1286), p. 4, lines 6–16.) Section 356 permits additional evidence when necessary to make an admitted portion of an act, declaration, conversation, or writing understood. The introduction of evidence that was also presented during the first trial does not constitute the partial introduction of the prior verdict or other findings. Section 356 therefore does not, without more, authorize disclosure of those determinations and has no present application in this context.

If either party believes that testimony or argument has created a misleading impression that can be corrected only by reference to the prior proceedings, counsel shall bring it to the Court’s attention outside the presence of the jury and obtain a ruling before making any such reference. Counsel shall advise all witnesses of this order.

PLAINTIFF’S MOTION IN LIMINE NO. 4 (ROA Nos. 1251, 1261, and 1288) IS GRANTED IN PART AND DENIED IN PART.

Applied moves to exclude evidence and argument concerning Applied’s sales or profits, Bruin Biometrics, LLC’s sales or profits, and whether Applied and Bruin were competitors. Jarrells represents that he will not offer such evidence as an affirmative lost-profits or unjust-enrichment theory.

1. Foreclosed compensatory theories Neither party may present evidence or argument for the purpose of establishing: lost sales or lost profits as a category of compensatory damages; Bruin’s or Jarrells’s profits, sales, or other benefits as unjust enrichment; or that Applied is entitled to any compensatory amount other than qualifying Phase 2 BRG expenses.

Neither party may suggest that compensatory damages should be calculated by reference to Applied’s lost profits, Bruin’s gains, or Jarrells’s compensation or financial benefit.

2. Competitor status and use of the information

The motion is denied insofar as it seeks to exclude all evidence concerning whether Applied and Bruin competed or operated in related markets. Evidence bearing upon Jarrells’s purpose, intended use of the information, intent to cause injury, or conscious disregard of Applied’s rights may be relevant to whether the established misappropriation was willful and malicious. Jarrells may therefore present otherwise admissible evidence concerning the nature of Bruin’s business, its relationship to Applied, whether Jarrells believed Bruin competed with Applied, and the intended or actual use of Applied’s information. Applied may present contrary evidence.

Neither party may use competitor-status evidence to argue that the absence of direct competition defeats the established finding of misappropriation. Direct competition is not an element of liability, and the absence of competition does not establish as a matter of law that the misappropriation was not willful and malicious.

3. Evidence concerning sales, profits, and competitive harm Jarrells may present otherwise admissible evidence that the misappropriated information was not used to divert customers, generate identifiable sales, or obtain a competitive advantage if offered for the limited purpose of showing his purpose, state of mind, the nature and consequences of his conduct, or the propriety and amount of any exemplary award submitted to the jury. If Applied requests a limiting instruction concerning this evidence, it shall submit proposed language to the Court.

The absence of realized economic harm may support a circumstantial inference concerning Jarrells’s purpose and state of mind, but it does not establish the absence of malicious intent or conscious disregard and is not dispositive. Nor may either party disclose the prior jury’s findings concerning damages or unjust enrichment as a means of proving these facts.

Absent further order, neither party may introduce the amount of Applied’s or Bruin’s overall revenues, profits, sales, market valuation, or financial performance. Such aggregate figures have little apparent probative value concerning the limited issues and present a substantial risk of reviving foreclosed damages theories. Before eliciting specific financial amounts, counsel shall make an offer of proof outside the jury’s presence identifying the evidence and its permissible purpose.

This limitation does not preclude concise, properly founded testimony that no sales, customers, profits, or competitive advantage were shown to be attributable to use of Applied’s trade secrets.

4. Phase 2 expenses Evidence concerning what Applied knew or reasonably understood about Bruin’s business, the destination of the files, persons with access to them, and the risk of continued use or dissemination at the time Applied undertook the Phase 2 work may be relevant to the purpose and scope of that work.

The subsequent absence of identified lost sales or profits does not, standing alone, establish that the forensic work was unrelated to mitigation or unreasonable in amount. The claimed work must be evaluated considering the circumstances known or reasonably perceived when it was undertaken. Neither party may convert that inquiry into a retrial of lost profits or unjust enrichment.

5. Exemplary damages The Court of Appeal directed that, if the jury awards damages for qualifying mitigation expenses and finds that the misappropriation was willful and malicious, the jury may also consider whether exemplary damages should be awarded. (Applied Medical Distribution Corp. v. Jarrells, supra, 100 Cal.App.5th at pp. 563- 564, 596.)

Evidence relevant solely to whether exemplary damages should be awarded or their amount shall be presented at the time and in the manner directed by the Court. The Court reserves the sequencing of that evidence and the corresponding verdict questions. Counsel shall not refer to a possible exemplary award in voir dire or opening statement without first obtaining leave of Court.

Counsel shall request to be heard outside the jury’s presence before presenting detailed sales, revenue, profit, or other financial evidence not expressly permitted by this ruling.

PLAINTIFF’S MOTION IN LIMINE NO. 5 (ROA Nos. 1255, 1262, and 1290) IS GRANTED IN PART AND DENIED IN PART.

Applied moves to exclude testimony, references, and argument concerning an alleged ulterior motive for suing Jarrells. Jarrells represents that he does not intend to argue that Applied’s reason for filing suit excuses the established misappropriation or constitutes a substantive defense to either issue remaining for trial.

1. Applied’s general litigation motive Jarrells, his witnesses, and his counsel shall not present evidence or argument to the jury that Applied filed or maintained this action

because it disliked Jarrells, wished to punish him for leaving, sought to deter employees generally from changing employment, intended to burden or financially harm Jarrells through litigation, or possessed some other allegedly improper litigation motive.

Applied’s general motive for filing or maintaining this action has, at most, marginal relevance to whether Jarrells’s established misappropriation was willful and malicious or whether particular BRG expenses qualify as recoverable Phase 2 expenses. Any such probative value is substantially outweighed by the danger of confusing the issues, undue consumption of time, and diversion into collateral disputes concerning Applied’s litigation conduct and motives. (Evid. Code, § 352.)

The evidentiary ruling made during the first trial is not independently binding in this retrial. The present ruling rests on the relevance and prejudice analysis applicable to the issues now before the jury.

2. Purpose of the BRG work This ruling does not preclude evidence concerning why Applied retained BRG or why BRG performed particular tasks. Applied may recover only expenses proven to have been incurred exclusively during Phase 2 to determine where the files went and how to recover, delete, or otherwise prevent further misappropriation. Work performed to investigate whether actionable misconduct occurred, develop litigation evidence, support claims outside the remand, or otherwise advance litigation is not recoverable merely because the same forensic firm performed it.

Jarrells may therefore examine Applied’s and BRG’s witnesses concerning: the purpose of particular BRG tasks; who requested or authorized those tasks and when they were performed; the information available when the work was authorized; whether the work was directed toward locating, recovering, deleting, or securing the files; whether the work was directed toward investigating liability or developing litigation evidence; whether invoices or tasks can be reliably allocated between recoverable and nonrecoverable purposes.

Such evidence is relevant to the nature, causation, allocation, and recoverability of the claimed expenses. It shall not be presented as proof that Applied had an improper litigation motive merely because forensic work also assisted the litigation.

3. Witness bias and credibility The motion does not preclude appropriate impeachment of an Applied witness for personal bias, interest, hostility, or animus

under Evidence Code section 780(f). Jarrells must possess a goodfaith factual basis connecting the alleged bias or animus to the particular witness. Generalized evidence that Applied as a corporate entity “disliked” Jarrells or wished to punish departing employees may not be introduced under the label of witness impeachment without a foundation connecting that evidence to the credibility of a witness who testifies. The Court may limit cumulative or collateral impeachment under Evidence Code section 352.

4. Claimed door-opening Applied may explain why it undertook particular forensic measures if relevant to the Phase 2 expense claim. Doing so does not automatically open the door to a generalized examination of Applied’s motive for filing suit.

On the other hand, if Applied affirmatively places its litigation motives at issue or creates a misleading impression concerning the purpose of the BRG work, Jarrells may request permission outside the jury’s presence to introduce evidence necessary to rebut that presentation. Neither party shall reference “door opening” in the presence of the jury without first obtaining a ruling.

5. Attorney-fee proceedings This order governs evidence and argument presented to the jury. It does not determine what evidence may be presented to the Court in connection with any request for attorney fees under Civil Code section 3426.4 or any other postverdict matter. Those questions are reserved. Counsel shall advise their witnesses of this ruling and request a sidebar before eliciting evidence that may implicate Applied’s litigation motives.

Upon reviewing the parties’ proposed Statements of the Case (ROA 1276 and ROA 1302), the Court concludes that neither provides an acceptable neutral statement. Although ROA 1276 is styled as a proposed joint statement, it was submitted and signed only by Applied. Jarrells thereafter filed his own proposed statement. Both submissions contain references to the prior proceedings and adjudicative findings that are unnecessary to orient the jury, inconsistent with the Court’s tentative rulings on the motions in limine, and likely to create confusion concerning the limited issues to be tried.

Specifically, shortcomings of Applied’s Statement of the Case (ROA 1276) are described as set forth below:

First, it is not a joint statement. Although styled a “[Proposed] Joint Statement of the Case,” it was submitted and signed only by Applied. Jarrells filed a separate proposed statement (ROA 1302).

Second, it unnecessarily discloses the prior trial and verdict. The statement informs prospective jurors that another trial occurred and that a prior jury decided the trade-secret claim. Under the Court’s rulings on MILs Nos. 2 and 3, the prior trial, verdict, and related proceedings generally will not be disclosed.

Third, it attributes the established liability determination to another jury. The jury needs to know which matters are conclusively established, but not which tribunal previously decided them. Identifying a prior jury may invite speculation about the earlier proceedings and deference to, or disagreement with, the former jury.

Fourth, it uses potentially prejudicial terminology. The statement tells jurors that Jarrells acquired, used, or disclosed the trade secrets “by improper means.” Consistent with the ruling on MIL No. 1, the statement should identify misappropriation as conclusively established without using terminology that could be understood as bearing upon the unresolved question of willfulness and malice.

Fifth, it overstates the scope of the damages retrial. The jury will not decide generally whether the misappropriation caused Applied to suffer “monetary damages.” The compensatory issue is limited to whether Applied incurred recoverable BRG expenses exclusively during Phase 2 and, if so, their amount.

Sixth, its statement that the current jury is “bound by” the prior jury’s decision is unnecessarily procedural. The jury should instead be told directly that trade-secret ownership and misappropriation have been conclusively established and may not be reconsidered.

Jarrells’s proposed statement (ROA 1302) is deficient in the following respects:

First, it unnecessarily discloses the prior trial, verdict, and appeal. Those proceedings are not evidence and generally may not be identified to the jury under the rulings on MILs Nos. 2 and 3.

Second, it discloses an irrelevant prior finding on fiduciary duty. Whether Jarrells breached a fiduciary duty is not an issue in this limited retrial. The prior defense verdict on that claim is excluded under MIL No.

3.

Third, it discloses the prior no-damages verdict. The prior jury did not receive the Phase 2 forensic-expense theory now permitted on remand. Disclosure of its no-damages determination is excluded under MILs Nos. 2 and 3 because it could cause the present jury to defer to a verdict reached on a materially different evidentiary record.

Fourth, it materially understates the established liability determination. The phrase “found to have downloaded trade secret information” does not accurately convey that Jarrells’s liability for trade-secret misappropriation has been conclusively established. “Downloading” is neither an adequate substitute for the legal determination nor a complete statement of the matter the jury must accept. Just as the Court will not permit Applied to characterize the established misappropriation as “improper” in a manner that suggests willfulness or malice, it will not permit Jarrells to minimize the established legal determination by describing it merely as “downloading.”

Fifth, it fails to tell the jury that liability is conclusively established and may not be reconsidered. Without that instruction, jurors may incorrectly believe they will decide whether Jarrells committed misappropriation.

Sixth, it invites speculation concerning the appellate proceedings. Stating that the former jury’s decision “was appealed” may cause jurors to speculate about who appealed, which rulings were affirmed or reversed, and why another trial is occurring.

Seventh, it overstates the scope of the damages issue. The present jury will not determine generally whether the misappropriation caused Applied to suffer damages. The issue is limited to qualifying Phase 2 BRG expenses.

Eighth, it includes unnecessary dates. The references to misappropriation “in 2019” and a prior trial “in 2022” do not assist the jury in understanding the issues it must decide and accentuate the irrelevant procedural history.

Conclusion

The Court emphasizes that the jury will be informed which matters have been conclusively established and may not be reconsidered. The jury need not be told which tribunal made those determinations or be informed of the remaining portions of the prior verdict or appellate proceedings.

Identifying the prior jury and selectively describing its findings would create a substantial risk that the present jury would speculate about the earlier proceedings, defer to or react against another jury’s conclusions, or misunderstand the issues it is being asked to decide. Those risks substantially outweigh any legitimate value in identifying the source of the established matters. Neither party may refer to the prior jury, its verdict, the prior trial, or the appellate proceedings without first obtaining permission from the Court outside the presence of the jury.

Neither party’s submission provides an acceptable neutral statement of the case. Because the parties did not agree upon an appropriate joint statement, the Court will provide the following statement.

Court’s Statement of the Case Applied Medical Distribution Corporation brings this action against its former employee, Stephen Jarrells.

It has been conclusively established that Applied Medical possessed trade secrets and that Mr. Jarrells misappropriated one or more of those trade secrets. You must accept those matters as established and may not reconsider them.

You will be asked to decide two issues.

First, you will decide whether Applied Medical incurred recoverable expenses for computer-forensic work performed exclusively to determine where the misappropriated files and documents ended up and how to recover, delete, or otherwise prevent further misappropriation and, if so, the amount of those expenses.

Second, you will decide whether Mr. Jarrells’s established misappropriation was willful and malicious.

Applied Medical contends that it incurred recoverable forensic expenses and that Mr. Jarrells’s misappropriation was willful and malicious. Mr. Jarrells disputes that Applied Medical incurred any recoverable expenses and denies that his misappropriation was willful and malicious.

No other claims or issues are before you for decision.