United States v. 2007-03-14 | 04-56809 | CRST VAN EXPEDITED VWERNER | precedential | opinion |

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 CRST VAN EXPEDITED, INC.,
Plaintiff-Appellant, No. 04-56809
v. D.C. No.
 WERNER ENTERPRISES, INC., doing CV-04-04676-R
business in California as C.L.
Werner, Inc.,
Defendant-Appellee. 
 CRST VAN EXPEDITED, INC.,
Plaintiff-Appellant, No. 04-57129
v. D.C. No.
 WERNER ENTERPRISES, INC., doing CV-04-04676-R
business in California as C.L. OPINION
Werner, Inc.,
Defendant-Appellee. 
Appeals from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted
October 23, 2006—Pasadena, California
Filed March 15, 2007
Before: A. Wallace Tashima, Carlos T. Bea, and
Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Bea
3183

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COUNSEL
Barry Levenstam, Jenner & Block LLP, Chicago, Illinois, for
the appellant; Scott T. Schutte and Kathy A. Karcher, Jenner
& Block LLP, Chicago, Illinois, were on the briefs.
Robert M. Waxman, Ervin, Cohen & Jessup LLP, Beverly
Hills, California, for the appellee. Andres Quintana, Ervin,
Cohen & Jessup LLP, Beverly Hills, California, was on the
brief.
OPINION
BEA, Circuit Judge:
This case calls on us to decide whether, under California
law, a corporation’s allegations that its competitor lured away
employees who had signed employment contracts, sufficiently
states two common law tort claims and one state statutory
claim.
Appellant CRST Van Expedited, Inc. (“CRST”) sued Wer-
ner Enterprises, Inc. (“Werner”), claiming Werner had inten-
tionally interfered with CRST’s employment contracts by
soliciting and hiring away truck driver employees whom
CRST had trained at its expense. CRST additionally claimed
Werner violated California Business and Professions Code
§ 17200 et seq., also known as the Unfair Competition Law
(“UCL”) and had interfered with CRST’s prospective eco-
nomic advantage. In a claim later informally withdrawn,
CRST alleged Werner misappropriated CRST’s trade secrets.
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The district court granted Werner’s Federal Rule of Civil
Procedure 12(b)(6) motion to dismiss the first amended com-
plaint, without reasoned analysis or explanation. The court
also granted Werner’s motion for attorneys’ fees for CRST’s
bad faith filing of the trade secret claim. We now reverse in
full the district court’s dismissal of CRST’s complaint. We
affirm the district court’s grant of attorneys’ fees to Werner.
I. Factual and Procedural Background
A. Facts
CRST alleged that it makes use of a three-phase driver
training program (“DTP”) to help individuals become certi-
fied to be truck drivers without having to spend their own
money on such certification. CRST enters into the Pre-
employment Driver Training Agreement (“training agree-
ment”) with an individual who seeks certification. The train-
ing agreement specifies that CRST will pay for the first two
phases of a student’s training, which consist of driver training
at an educational facility selected by the student and not affili-
ated with CRST, and attendance at an orientation program at
a site selected by CRST. After a student has successfully
completed the first two phases, CRST and the student decide
whether to enter into the Driver Employment Contract
(“employment contract”). If CRST and the student enter the
employment contract, CRST pays for the third phase of train-
ing, which consists of hands-on driver training with a CRST
lead driver. The employment contract provides, in pertinent
part:
3. TERM OF EMPLOYMENT: The term of
CRST’s employment of Employee under this
contract shall be for a period of one (1) year
commencing as of the Effective Date subject to
termination for Due Cause by CRST prior to the
end of the term pursuant to Section 4 of this
Contract. CRST’s employment of Employee
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after this one (1) year period shall be at will and
may be terminated at any time by either CRST
or Employee. . . .
4. TERMINATION OF EMPLOYMENT: During
the one (1) year term of this Contract, CRST’s
employment of Employee may only be termi-
nated for the following reasons: (1) by CRST for
Due Cause, effective immediately, (2) by mutual
agreement of CRST and Employee, and (3)
upon the death of Employee. For the purposes of
this Contract, “Due Cause” means Employee’s
breach of this Contract and/or Employee’s fail-
ure to satisfy or comply with or violation of any
of the standards, requirements, obligations and
conditions set forth in the Handbook. Addition-
ally, CRST may terminate the Employee’s
employment without Due Cause during the life
of this Contract. If Employee is terminated with-
out Due Cause, under that circumstance,
Employee is forgiven for the amount due under
paragraph 6.
6. REIMBURSEMENT OF AMOUNT DUE:
Employee hereby agrees that if during the one
(1) year term of this Contract: (1) Employee
breaches this Contract, or (2) Employee’s
employment is terminated for Due Cause, then
the total amount of $3,600.00 will be immedi-
ately due and payable by Employee to CRST.
. . .
(Emphasis added.) The contract also requires the employee to
devote “full time” to his employment with CRST and not to
take actions in conflict with CRST’s interests.
Drivers Spencer and Chatman signed CRST’s pre-
employment driver training agreement and, after completing
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some of CRST’s training program, signed CRST’s employ-
ment contract.1 In February 2004, after Spencer and Chatman
had been employed by CRST for a month, CRST received
notice the two drivers had applied for employment with Wer-
ner after Werner requested information about them. CRST
responded with a series of letters: one on February 9, 2004,
advising Werner of the employment contract with Spencer; a
second on March 1, 2004, advising Werner of CRST’s con-
tracts with Chatman and Spencer, and Werner’s alleged inter-
ference with them; and a third on March 5, 2004, informing
Werner that both Spencer and Chatman were employed pursu-
ant to contracts with noncompetition clauses that would last
another 300 days. On March 24, 2004, CRST learned that
Spencer and Chatman had accepted truck driver positions
with Werner.2 CRST alleged that Werner’s hiring of Spencer
and Chatman were “but two examples of Werner’s ongoing
course of conduct that involves waiting for CRST to train
driver [sic] through the DTP, at CRST’s expense, and then
soliciting away those trained employees to work for Werner.”
B. Procedural History
CRST’s original complaint was filed in California Superior
Court and alleged Werner was liable for intentional interfer-
ence with contract, negligent interference with contract, and
violation of the UCL. After Werner removed the case to fed-
eral court and filed a Rule 12(b)(6) motion to dismiss the
1The Spencer employment contract states that it shall be governed by
the law of the state of California and any claim or dispute litigated in Cali-
fornia. The Chatman employment contract states that it shall be governed
by the law of the state of Iowa and any claim or dispute litigated in Iowa.
Otherwise, the contracts do not appear to differ materially. In this diversity
action, neither party attempted to invoke Iowa law below; hence, we do
not consider it. See infra at 3193-94.
2Chatman later returned to CRST, and again signed the employment
contract on March 25, 2004, only to leave again a week later, allegedly to
work for Werner.
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complaint, CRST filed the First Amended Complaint (“FAC”)3
alleging two new claims. The claims in the FAC were: (I)
intentional interference with contract; (II) negligent interfer-
ence with contract; (III) violation of the UCL; (IV) interfer-
ence with prospective economic advantage; and (V)
misappropriation of trade secrets. CRST sought compensatory
damages, punitive damages, attorneys’ fees, a permanent
injunction against the continuing solicitation of CRST’s and
other competitors’ employees, determination of unjust enrich-
ment, costs of suit, and other relief deemed just. By stipula-
tion, the parties then removed from the court’s calendar,
without prejudice, Werner’s motion to dismiss the original
complaint.
Werner’s counsel informed CRST’s counsel that it consid-
ered Count V, the misappropriation of trade secrets claim, to
be brought in bad faith and would seek attorneys’ fees were
it not dismissed. CRST’s attorneys replied without further
elaboration that they would dismiss the claim if Werner gave
CRST a “release.” Werner refused and filed a new motion to
dismiss the entire FAC under Rule 12(b)(6). CRST then filed
a memorandum opposing the motion to dismiss, in which it
conceded it was prepared to dismiss the misappropriation of
trade secrets claim.
The district court held a hearing at which it orally ruled to
dismiss the FAC in its entirety, with prejudice, without pro-
viding reasons for its ruling. The court later entered a written
order that also failed to state any reason for the dismissal.
CRST filed a timely notice of appeal of the order of dismissal.
Werner then filed a motion for attorneys’ fees in the
3A party may amend a pleading once as a matter of course before a
responsive pleading is served. Fed. R. Civ. P. 15(a). A Rule 12(b)(6)
motion to dismiss is not such a responsive pleading as to cut off a plain-
tiff’s right to amend once, without leave of court. See Crum v. Circus Cir-
cus Enters., 231 F.3d 1129, 1130 n.3 (9th Cir. 2000).
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amount of $55,655 on the basis that CRST’s claim for misap-
propriation of trade secrets was specious and brought in bad
faith. The court granted attorneys’ fees, but only in the
amount of $8,750. CRST filed a timely notice of appeal of the
attorney fee order. CRST’s two appeals were consolidated.
CRST appeals the district court’s dismissal of Counts I (inten-
tional interference with contract), III (violation of the UCL),
and IV (interference with prospective economic advantage),
and its grant of attorneys’ fees.4
II. Standard of Review and Choice of Law
We review the district court’s Rule 12(b)(6) dismissal of
CRST’s claims de novo. McGary v. City of Portland, 386
F.3d 1259, 1261 (9th Cir. 2004). We review the district
court’s grant of attorneys’ fees for an abuse of discretion.
United States v. Stone Container Corp., 196 F.3d 1066, 1068
(9th Cir. 1999).
Werner did not move to transfer the action to an Iowa
court, nor did it invoke Iowa law in reliance on the Iowa
forum selection clause in Chatman’s contract. Rather, both
parties relied on California law in contesting the motion to
4Each party submitted a Federal Rule of Appellate Procedure 28(j) letter
of supplemental authority. A number of related documents also were filed.
CRST filed a Rule 28(j) letter, to which Werner responded by filing a
“motion to strike.” Werner filed a Rule 28(j) letter, to which CRST
responded by filing a two-page response letter. Werner then filed a “mo-
tion to strike” CRST’s response letter as overlong.
Rule 28(j) requires that “[a]ny response” to a letter bringing supplemen-
tal authority to the attention of the court is subject to a limit of 350 words.
Ninth Circuit Rule 28-6 provides an alternate page limit of two pages for
responses. Werner’s two “motion to strike” filings were, respectively, a
response to a letter bringing supplemental authority to the attention of the
court, and a response to CRST’s response. Neither of Werner’s filings sat-
isfied either the limitations in Federal Rule of Appellate Procedure 28(j)
or the limitations in Ninth Circuit Rule 28-6. Werner’s overlong responses
are stricken.
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dismiss. Werner is correct that because CRST did not raise
the issue of Iowa law in the court below it may not do so on
appeal. Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270
(9th Cir. 2002) (citing Portland Gen. Elec. Co. v. U.S. Bank
Trust Nat’l Ass’n, 218 F.3d 1085, 1089 (9th Cir. 2000)).
III. Intentional Interference with Contract (Count I)
[1] In Count I, CRST alleged Werner intentionally inter-
fered with CRST’s employment contracts. California provides
a cause of action against a defendant who interferes with a
contract between the plaintiff and a third party. As the Cali-
fornia Supreme Court has stated:
The courts provide a damage remedy against third
party conduct intended to disrupt an existing contract
precisely because the exchange of promises resulting
in such a formally cemented economic relationship
is deemed worthy of protection from interference by
a stranger to the agreement.
Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th
376, 392 (1995). The tort of intentional interference with con-
tract requires allegations of the following elements: “(1) a
valid contract between plaintiff and a third party; (2) defen-
dant’s knowledge of this contract; (3) defendant’s intentional
acts designed to induce a breach or disruption of the contrac-
tual relationship; (4) actual breach or disruption of the con-
tractual relationship; and (5) resulting damage.” Quelimane
Co. v. Stewart Title Guar. Co., 19 Cal. 4th 26, 55 (1998).5
[2] CRST adequately alleged each of these five elements
required for intentional interference with contract. First,
CRST alleged the existence of the Spencer employment con-
5In Della Penna, the California Supreme Court used the term “third
party” to refer to the defendant, while in Quelimane it used that term to
refer to the party with whom the plaintiff contracts.
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tract and the first Chatman employment contract and incorpo-
rated the contracts by reference and attachment to the FAC.
Second, CRST alleged Werner had knowledge of these con-
tracts. Third, CRST alleged Werner intentionally induced
breach of these contracts. Fourth, CRST alleged the employ-
ment contracts were breached. Fifth, CRST alleged resulting
damage in the form of expended, unreimbursed, and hence,
lost training costs, and recruiting and advertising costs.
[3] If CRST’s employment contract provided for “at-will”
employment of Spencer and Chatman when Werner allegedly
induced them to leave their posts, there would be an addi-
tional requirement that CRST allege an independently wrong-
ful act by Werner. Reeves v. Hanlon, 33 Cal. 4th 1140 (2004).
Here, no independently wrongful act was alleged. However,
as will be seen, the employment contract alleged does not
create an at-will employment relationship during the first year
of employment, the period when it was allegedly the subject
of Werner’s interference and consequent breach. Hence,
CRST is under no obligation to meet the additional require-
ment of alleging an independently wrongful act beyond the
alleged solicitation of Spencer and Chatman.
[4] CRST’s employment contract provides that the term of
employment is one year, after which the employment may be
terminated at will by either party. However, the alleged con-
tract further provides that if, within that one year, an
employee breaches the contract or is terminated for due cause,
$3600 immediately becomes due and payable by such
employee to CRST. If, on the other hand, CRST terminates
the employee without due cause, the employee is under no
obligation to pay the $3600. Thus, the parties have limited
their freedom to walk away from the employment with no
consequences—the essence of an at-will contract. During that
first year, the employer cannot fire the employee without due
cause unless it is willing to forego reimbursement of $3600.
Similarly, the employee cannot walk off the job without pay-
ing CRST the $3600. Werner argues that, under California
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law, the only non-at-will employment contracts that employee
and employer may reach are those contained in Cal. Lab.
Code § 2924, which provides:
An employment for a specified term may be termi-
nated at any time by the employer in case of any
willful breach of duty by the employee in the course
of his employment, or in case of his habitual neglect
of his duty or continued incapacity to perform it.
Werner is incorrect. Section 2924 provides specific means by
which any employer “may” terminate an employee whose
employment contract contains a specified term. It does not
limit what contract terms can create an employment relation-
ship other than “at-will.” To answer that question, we look to
Guz v. Bechtel Nat’l Inc., 24 Cal. 4th 317 (2000), which pro-
vides that, in fashioning an alternative to at-will employment,
contracting parties may provide for “any” contrary under-
standing limiting the employer’s termination rights:
While the statutory presumption of at-will employ-
ment is strong, it is subject to several limitations. . . .
[T]hough Labor Code section 2922 prevails where
the employer and employee have reached no other
understanding, it does not overcome their “funda-
mental . . . freedom of contract” to depart from at-
will employment. . . . The parties may reach any
contrary understanding, otherwise lawful, concern-
ing either the term of employment or the grounds or
manner of termination.
Id. at 335-36 (citations omitted) (internal quotation marks
omitted). Nor are we persuaded by Werner’s attempt to shoe-
horn its argument into the term “otherwise lawful” as used in
Guz. If the California Supreme Court had intended that limits
on an employer’s termination rights other than those provided
in § 2924 were unlawful, we believe it would have said so
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plainly, rather than using the broad language present in the
Guz opinion.6
[5] We find that CRST’s employment contract provides for
employment of a specified term, during which the employer’s
termination rights are limited. As such, the employment con-
tract does not provide for at-will employment during the first
year. See Cal. Lab. Code § 2922; Guz, 24 Cal. 4th at 335-36;
Reeves, 33 Cal. 4th at 1152-53. Having found all elements of
interference with contract to be adequately alleged, we con-
clude that the district court must be reversed on its dismissal
of Count I.
IV. The UCL, Cal. Bus. & Prof. Code § 17200 et seq.
(Count III)
[6] CRST’s third cause of action7 alleges that Werner has
violated the UCL and seeks an order requiring Werner to
cease and desist from “stealing” CRST employees and requir-
ing Werner to terminate employees wrongfully solicited. The
UCL provides a cause of action for parties injured by any
“unlawful, unfair or fraudulent business act or practice” to
seek injunctive relief. Cal. Bus. & Prof. Code §§ 17200,
17203, 17204. The California Supreme Court has given the
term “unlawful” a straightforward and broad interpretation:
6Our own statement to the contrary in Nuelsen v. Sorensen, 293 F.2d
454, 461 (9th Cir. 1961), does not control over the California Supreme
Court’s more recent statement in Guz. “[A] State’s highest court is the
final judicial arbiter of the meaning of state statutes . . . .” Gurley v. Rho-
den, 421 U.S. 200, 208 (1975). When sitting in diversity, we are bound by
our previous interpretations of state law only “in the absence of any subse-
quent indication from the [state] courts that [the previous] interpretation
was incorrect.” Pershing Park Villas Homeowners Ass’n v. United Pac.
Ins. Co., 219 F.3d 895, 903 (9th Cir. 2000) (citation and internal quotation
marks omitted).
7CRST does not appeal the district court’s dismissal of Count II, negli-
gent interference with contract.
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The UCL covers a wide range of conduct. It
embraces anything that can properly be called a busi-
ness practice and that at the same time is forbidden
by law. . . . Section 17200 “borrows” violations from
other laws by making them independently actionable
as unfair competitive practices.
Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th
1134, 1143 (2003) (quoting Cel-Tech Commc’ns, Inc. v. L.A.
Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999)) (internal quo-
tation marks omitted).8
[7] We conclude that CRST adequately alleged that Werner
violated the UCL because CRST adequately alleged that Wer-
ner engaged in an “unlawful” business act or practice that
allegedly harmed CRST, namely, intentional interference with
CRST’s employment contracts. See id.; supra Part III. First,
CRST’s allegation of intentional interference by a corporate
competitor with the employment contracts CRST had with
two of its drivers clearly alleges a business act or practice.
Korea Supply, 29 Cal. 4th at 1143.9 Second, intentional inter-
ference with contract is a tortious violation of duties imposed
by law. Id.; Quelimane, 19 Cal. 4th at 55-56. We need go no
further to conclude that the district court must be reversed on
its dismissal of Count III. We conclude CRST adequately
alleged a violation by Werner of the UCL by alleging Werner
8The California Supreme Court has held that the word “unfair” in the
UCL means conduct that threatens an incipient violation of antitrust law,
or violates the policy or spirit of one of those laws, or otherwise signifi-
cantly threatens or harms competition. Cel-Tech, 20 Cal. 4th at 187.
9CRST’s complaint contained the assertion that Werner’s hiring of
Chatman and Spencer were but two examples of an ongoing course of
conduct. The allegations of interference with the Spencer and Chatman
contracts are sufficient to establish a business act or practice under the
UCL. A business act or practice need not be an ongoing pattern of con-
duct. See United Farm Workers of America, AFL-CIO v. Dutra Farms, 83
Cal. App. 4th 1146, 1163 (2000) (discussing 1992 legislative expansions
to the UCL’s definition of qualifying conduct).
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engaged in an “unlawful” business practice, to wit, intentional
interference with existing contracts of employment.10
V. Interference with Prospective Economic Advantage
(Count IV)
[8] The elements of interference with prospective economic
advantage resemble those of intentional interference with con-
tract. They are: “(1) an economic relationship between the
plaintiff and some third party, with the probability of future
economic benefit to the plaintiff; (2) the defendant’s knowl-
edge of the relationship; (3) intentional acts on the part of the
defendant designed to disrupt the relationship; (4) actual dis-
ruption of the relationship; and (5) economic harm to the
plaintiff proximately caused by the acts of the defendant.”
Korea Supply, 29 Cal. 4th at 1153 (citation and internal quota-
tion marks omitted); compare supra Part III (discussing ele-
ments of intentional interference with contract).
[9] The primary difference between the two torts is that,
unlike intentional interference with existing contractual rela-
tions, interference with prospective economic advantage
requires a plaintiff to allege an act that is wrongful indepen-
dent of the interference itself. Della Penna, 11 Cal. 4th at
392-93. In Della Penna, the California Supreme Court upheld
a jury instruction requiring a “wrongful” act in a suit by an
auto wholesaler who had been blacklisted by an auto manu-
facturer for exporting vehicles and who sued the manufacturer
for interfering with his economic relationships with dealers.
The Court of Appeal had reversed the judgment entered upon
a defense verdict, finding instructional error in a requirement
the manufacturer’s act be wrongful. Id. at 378, 380. Reversing
the Court of Appeal, the California Supreme Court empha-
sized the difference between interference with an existing
contract and interference with prospective economic relations:
10We need not, and do not, decide whether CRST adequately alleged
that Werner has engaged in an “unfair” business practice.
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Our courts should, in short, firmly distinguish the
two kinds of business contexts, bringing a greater
solicitude to those relationships that have ripened
into agreements, while recognizing that relationships
short of that subsist in a zone where the rewards and
risks of competition are dominant.
Id. The Court held that the jury instruction, which required a
finding of a wrongful act, was not erroneous because “a plain-
tiff seeking to recover for alleged interference with prospec-
tive economic relations has the burden of pleading and
proving that the defendant’s interference was wrongful ‘by
some measure beyond the fact of the interference itself.’ ” Id.
(quoting Top Serv. Body Shop, Inc. v. Allstate Ins. Co., 283
Or. 201, 582 P.2d 1365, 1371 (1978)).
Our analysis in Part III, Intentional Interference with Con-
tract (Count I), is applicable to the question of whether CRST
properly alleged the elements of interference with prospective
economic advantage. CRST’s contracts with its employees
created an “economic relationship” because this is how CRST
claims it expected to recoup the costs of training those
employees. Werner was allegedly aware of this relationship
and allegedly performed acts intended to, and that did in fact,
disrupt the economic relationship. Finally, CRST allegedly
experienced harm from these acts. See supra Part III.
[10] The more difficult question is whether CRST has
alleged an act, independently wrongful, to support its claim of
interference with prospective economic advantage. See Della
Penna, 11 Cal. 4th at 392-93. In Korea Supply, 29 Cal. 4th
1134, the California Supreme Court provided guidance as to
what constitutes an independently wrongful act. There, a com-
pany representing a military equipment manufacturer sued its
client’s competitor for ruining the client’s chances of winning
a contract bid by improperly soliciting a potential customer
with bribes and sexual favors. Id. at 1141-42. The complaint
alleged conspiracy to interfere with prospective economic
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advantage, intentional interference with prospective economic
advantage, and violation of the UCL. Id. at 1142. The trial
court sustained a general demurrer to the complaint on the
basis the complaint did not state a cause of action under Cali-
fornia law. Id. at 1142-43. The Court of Appeal reversed,
holding the plaintiff did not need to plead that defendant acted
with the specific intent to interfere with plaintiff’s prospective
economic advantage. Id. at 1143. The California Supreme
Court affirmed this holding. Id. at 1156-57. It also held that
the “independently wrongful act” requirement was satisfied
by the acts of solicitation pleaded by plaintiff, which were
unlawful under the Foreign Corrupt Practices Act, 15 U.S.C.
§ 78dd-2. Such acts were, therefore, “wrongful in and of
themselves.” Id. at 1159. The court stated: “[A]n act is inde-
pendently wrongful if it is unlawful, that is, if it is proscribed
by some constitutional, statutory, regulatory, common law, or
other determinable legal standard.” Id.
Further guidance comes from a recent decision by the Cali-
fornia Court of Appeal. Stevenson Real Estate Servs., Inc. v.
CB Richard Ellis Real Estate Servs., Inc., 138 Cal. App. 4th
1215 (2006). There, a real estate broker sued its client’s par-
ent corporation and other parties when the parent corporation
requested that ongoing negotiations for a lease agreement on
behalf of the client be conducted instead by the broker’s com-
petitor. Id. at 1218-19. The broker claimed that the attempted
insertion of its competitor into the broker’s relationship with
its client illegally interfered with its prospective economic
advantage because such insertion was proscribed by industry
trade rules and the UCL. Id. at 1220-21. The Superior Court
granted defendant’s motion for judgment on the pleadings
without leave to amend. Id. at 1219. The Court of Appeal
affirmed the grant of judgment on the pleadings, but held that
the broker should be granted leave to amend the complaint.
Id. at 1225-26. It held that the violation of trade rules was not
independently actionable conduct and therefore, not an inde-
pendently wrongful act, but ordered that plaintiff should be
allowed to amend its pleading to allege that the trade rules
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provided for a sanction or means of enforcement for a viola-
tion of the rules, such as a right of arbitration or some other
remedy. Id. at 1223-24.
The court then addressed, “[f]or guidance of the parties,”
whether the alleged UCL violation could provide the requisite
independently wrongful act. Id. at 1224. The court rejected
the defendant’s argument that the pleading of a UCL violation
could not supply the requisite wrongful act because such
pleading did not allege any conduct independent of the inter-
ference with prospective economic advantage:
Respondents’ motion for judgment on the pleadings
argued that the Business and Professions Code sec-
tion 17200 allegation was insufficient to meet the
requirement of wrongful conduct because it did not
allege any conduct independent of the interference.
It appears respondents and the trial court misunder-
stood the nature of the independently wrongful con-
duct element. A plaintiff need not allege the
interference and a second act independent of the
interference. Instead, a plaintiff must plead and
prove that the conduct alleged to constitute the inter-
ference was independently wrongful, i.e., unlawful
for reasons other than that it interfered with a pro-
spective economic advantage.
Id. at 1224 (citing Della Penna, 11 Cal. 4th at 379, 393;
Korea Supply, 29 Cal. 4th at 1158-59, 1162); see also id. at
1224 n.3. Although the court entertained the idea that the
pleading of a UCL violation could supply the requisite inde-
pendently wrongful act, it ultimately concluded that plaintiff
had not adequately alleged a UCL violation because plaintiff
had not pleaded “unfair” conduct violating the spirit of anti-
trust laws. Id. at 1225.11 Therefore, the court concluded, plain-
11Curiously, the Court of Appeal did not engage in a separate analysis
of whether any conduct violated the UCL for the reason that conduct was
“unlawful.” Its inquiry was limited to the UCL’s proscription of “unfair”
conduct. See id.
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tiff had not adequately pleaded a claim for interference with
prospective economic advantage. Id. at 1225-26.
[11] Applying the principles stated in Korea Supply and
Stevenson Real Estate, we conclude that CRST need not
allege acts by Werner different from the alleged solicitation
of Chatman and Spencer to allege a wrongful act giving rise
to a claim for interference with prospective economic advan-
tage.12 CRST merely must allege that Werner’s acts were
unlawful for a reason other than that they interfered with
CRST’s prospective economic advantage. We have already
concluded in Part IV that CRST validly alleged that Werner’s
acts violated the UCL, which the Court of Appeal considered
as a predicate for an independently wrongful act in Stevenson
Real Estate. Thus, CRST has adequately alleged that Wer-
ner’s acts were unlawful for a reason other than that those acts
interfered with CRST’s prospective economic advantage. As
a result, and because CRST has otherwise adequately alleged
the elements of interference with prospective economic
advantage, the district court must be reversed on its dismissal
of Count IV.
[12] We are aware that our reasoning works a practical
merger of the two common law torts of intentional interfer-
ence with existing contract and intentional interference with
prospective economic relations, where the two are alleged to
coexist along with a contemporaneous and derivative UCL
violation. This might appear contrary to the careful distinction
drawn between the two torts by the California Supreme Court
12The relevant portions of Stevenson Real Estate were dicta “[f]or guid-
ance of the parties.” 138 Cal. App. 4th at 1224. We are aware of the prob-
lems with relying on dicta in judicial opinions. See generally Pierre N.
Leval, Judging Under the Constitution: Dicta About Dicta, 81 NYU L.
Rev. 1249 (2006). However, as a federal court sitting in diversity, we are
generally bound by the dicta of state courts. Homedics, Inc. v. Valley
Forge Ins. Co., 315 F.3d 1135, 1141 (9th Cir. 2003) (citing Rocky Moun-
tain Fire & Cas. Co. v. Dairyland Ins. Co., 452 F.2d 603, 603-04 (9th Cir.
1971)).
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in Della Penna, 11 Cal. 4th 376. But Della Penna did not
involve (1) allegations of contract interference coexisting with
interference with prospective economic relations, nor (2) the
effect that invocation of the UCL would have if there were
allegations that both torts were simultaneously inflicted, along
with a contemporaneous UCL violation dependent on one of
the torts. We see nothing inconsistent with Della Penna in
recognizing that the requirement of an independently wrong-
ful act under the California law of intentional interference
with prospective economic relations may be satisfied even by
an alleged violation of a borrowing statute like the UCL.
True, our conclusion allows the allegations of interference
with existing contract do triple duty: first as a basis for tort,
then as a basis for a statutory violation, then again as the basis
for another tort because of the allegation of a statutory viola-
tion, because of the tort first alleged. The reason for Califor-
nia’s requirement of an act that is independently wrongful to
establish intentional interference with prospective economic
advantage is the California Supreme Court’s decision to allow
greater liberty of competitive forces where no contract yet
exists with which to be interfered. Id. at 392. But not all com-
petitive forces are licit. What is “unlawful” competition per
the UCL, is illicit. Hence, even though the act that constitutes
the violation of tort duties—the alleged solicitation of Chat-
man and Spencer—is the same, it also violates the law, to wit,
the UCL, independent of those tort duties.
VI. Attorneys’ Fees
[13] CRST objects to the district court’s imposition of
attorneys’ fees for its filing of Count V, alleging misappropri-
ation of trade secrets. Cal. Civ. Code § 3426.4 (2004) pro-
vides in part:
If a claim of misappropriation is made in bad faith,
a motion to terminate an injunction is made or
resisted in bad faith, or willful and malicious misap-
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propriation exists, the court may award reasonable
attorney’s fees to the prevailing party.13
The California Court of Appeal has interpreted the statute’s
“bad faith” element to require “objective speciousness of the
plaintiff’s claim . . . and its subjective bad faith in bringing
or maintaining the claim.” Gemini Aluminum Corp. v. Cali-
fornia Custom Shapes, Inc., 95 Cal. App. 4th 1249, 1262
(2002).
[14] As a preliminary matter, we conclude that § 3426.4
properly was applied by the district court under the rule of
Erie v. Tompkins, 304 U.S. 64 (1938), which requires federal
courts sitting in diversity to apply state substantive law and
federal procedural law. We have held that when state statutes
authorize fee awards to litigants in a particular class of cases,
the statutes are substantive for Erie purposes if there is no “di-
rect collision” with the Federal Rules. See, e.g., U.S. ex rel.
Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963,
971-73 (9th Cir. 1999) (concluding that California anti-
SLAPP statute’s provision allowing attorneys’ fees to party
successfully striking suit under statute could be applied in
diversity cases); Helfand v. Gerson, 105 F.3d 530, 536-39
(9th Cir. 1997) (applying Hawaii statute authorizing attor-
neys’ fees to prevailing party in actions “in nature of assump-
sit”); Price v. Seydel, 961 F.2d 1470, 1475 (9th Cir. 1992)
(applying Oregon law allowing attorneys’ fees to prevailing
party in actions enforcing contracts because law was “con-
nected to the substance of the case”). Here, § 3426.4 applies
only in cases where a trade secret misappropriation claim was
filed. The statute does not supplant or collide directly with
any Federal Rule, see Newsham, 190 F.3d at 972-73, and it
embodies a substantive state policy against the frivolous filing
13The statute was amended in 2006, subsequent to the district court pro-
ceedings in this case, to permit the award of “costs” as well as attorneys’
fees. An Act to amend Section 3426.4 of the Civil Code, relating to trade
secrets, 2006 Cal. Legis. Serv. 1077-78 (S.B. 1636) (West).
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of trade secret claims, see Gemini, 95 Cal. App. 4th at 1262.
The district court could, consistent with Erie, apply § 3426.4
to sanction CRST for its filing of a trade secret appropriation
claim in bad faith.
We now apply § 3426.4 and the California Court of Appeal
interpretation of that statute to the facts of this case. We con-
clude that the district court did not abuse its discretion in
awarding attorneys’ fees to Werner. In Gemini, an aluminum
company sued its subcontractor for interference with prospec-
tive economic advantage and misappropriation of trade
secrets after the subcontractor solicited a common customer
of the two companies. 95 Cal. App. 4th at 1253-54. The jury
rejected these claims and additionally found that plaintiff
acted in bad faith in its claim for misappropriation of trade
secrets. Id. at 1255. The trial court awarded $160,200 in attor-
neys’ fees. Id. The California Court of Appeal affirmed this
award, holding that in enacting § 3426.4, “the Legislature was
concerned with curbing ‘specious’ actions for misappropria-
tion of trade secrets, and such actions may superficially
appear to have merit.” Id. at 1262. The court held the claim
was objectively specious because the trade secrets alleged to
have been stolen had no economic value, and held subjective
bad faith was present because defense counsel had pointed out
these shortcomings, with no response from the plaintiff. Id. at
1263-64.
[15] Here, the order granting attorneys’ fees is correct that
“CRST failed to demonstrate the required use of disclosure of
trade secrets by Werner and the written contracts attached as
exhibits to the FAC reflected the absence of any trade secrets
as a matter of law vis-a-vi [sic] truck driving schools or truck
driving.” Perhaps CRST recognized the deficiency because it
ultimately agreed to abandon the claim, but not before Werner
threatened it with attorneys’ fees under § 3426.4, or before
Werner had filed a motion to dismiss arguing the merits of the
claim. While there is no proof that CRST’s purported trade
secrets are worthless, there is also no proof in the record that
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they are worth anything. This supports the conclusion that
CRST’s claim was objectively specious. The district court
could infer subjective bad faith because defense counsel
warned the plaintiff the claims were specious but CRST first
haggled for a release and then, when unsuccessful, agreed to
abandon the claim after Werner filed its motion to dismiss.
See Gemini, 95 Cal. App. 4th at 1263-64. On the deferential
standard of review we apply to the district court’s decision to
sanction CRST, we cannot say that the district court abused
its discretion in awarding attorneys’ fees to Werner.14 We
affirm the district court on this ground.
VII. Conclusion
We emphasize the circumscribed reach of our holdings.
Our starting point is that CRST adequately alleged a violation
of intentional interference with contract. Under the California
Supreme Court’s interpretation of the UCL, an adequate claim
for relief from a tortious business act or practice effects a vio-
lation of the UCL because the UCL is a “borrowing” statute;
hence, CRST adequately alleged a violation of the UCL. It
“borrows” a common law “wrong” to constitute a statutory
“unlawful” business practice. In turn, having adequately
alleged a violation of the UCL, CRST has adequately alleged
that Werner’s acts were independently wrongful so as to sup-
port a claim for intentional interference with prospective eco-
nomic advantage.
14CRST argues that the district court’s procedure of entering an order
drafted by Werner’s counsel, without letting CRST review the order, war-
rants reversal. Although the district court did not provide CRST an oppor-
tunity to review the final order for attorneys’ fees before filing it, we may
affirm the district court on any basis present in the record, and do not
reach this claim by CRST. See Forest Guardians v. U.S. Forest Serv., 329
F.3d 1089 (9th Cir. 2003). We do not consider CRST’s argument, raised
for the first time in its reply brief, that the district court violated its Local
Rules. See Koerner v. Grigas, 328 F.3d 1039, 1048 (9th Cir. 2003).
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Finally, we express no opinion on the merits of CRST’s
claims. We reverse the district court’s dismissal of Claims I,
III, and IV of CRST’s FAC. We affirm the district court’s
grant of attorneys’ fees to Werner. This matter is remanded to
the district court.
Each party shall bear its own costs on appeal.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
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