UTSA and Displacement of Other Claims

On October 30, 2013, in Trade Secrets, by Brian A. Hall

An appeal from a judgment of the Superior Court of San Diego County highlights what is typically a hotly disputed topic with regard to trade secret misappropriation litigation involving an employer and former employee (and that new employee’s employer, who more often than not is a competitor of the former employer).  Commonly, a plaintiff will allege multiple counts in its Complaint, beyond merely violation of the Uniform Trade Secrets Act (UTSA).  The question becomes whether those other claims are displaced by UTSA.

In this unfair competition lawsuit, the plaintiff, a large scale laundry business that provided linens to local hospitals and other health care facilities, sued a new competitor in the laundry business and one of its own former employees on a variety of theories, including a claim under California’s Uniform Trade Secrets Act (Civ.Code, § 3426 et seq.; UTSA). Prior to trial, the trial court granted the defendants summary adjudication on all of the plaintiff’s non-UTSA claims. The trial court found those claims were pre-empted or displaced by UTSA.  The issue on appeal was whether these other claims, which included violations of California’s Business and Professions Code section 17200, breach of contract, breach of fiduciary duty, unfair competition, and interference with business relations, and conversion were displaced by UTSA.  The trial court had held that none of the nformation that the plaintiff asserted had been wrongfully appropriated was a trade secret within the meaning of UTSA.  However, on appeal, this court held that, even so, UTSA did not displace the other theories for relief.

In particular, this court held that “UTSA does not displace breach of contract claims, even if they are based in part on the alleged misappropriation of a trade secret. Moreover, UTSA does not displace other claims when they are not based on an alleged misappropriation of a trade secret.”  The court found that the other claims were based upon violation of a non-compete rather than the trade secret.  Moreover, the conversion claim was based upon the former employee’s taking tangible documents.  Thus, consistent with California precedent, it held that these other claims, “although related to a trade secret misappropriation, are independent and based on facts distinct from the facts that support the misappropriation claim.”

Having litigated this issue in other states, the facts are so important.  UTSA has language that specifically excepts certain claims from displacement.  However, there does need to be a set of facts and arguments apart from the trade secret in order to avoid such displacement.  When in doubt, talk to a trade secret attorney before filing the lawsuit with the laundry list of claims that typically are included.  PS: I love the first footnote in this opinion that makes the distinction between preemption and displacement, especially since I regularly see lawyers use both terms with regard to this issue.

Angelica Textile Services, Inc. v. Jaye Park et al., 2013 WL 5797605 (Cal. Fourth District October 29, 2013).


 

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