It is common for plaintiffs in employee-related trade secrets and unfair competition cases to allege something of a grab bag of statutory and common law theories. Often, claims of misappropriation of trade secrets, intentional interference with economic advantage, breach of duty, and common law unfair competition will be based on the same set of facts (a departing employee exported a former employer’s confidential, proprietary and trade secret information, or solicited the former employer’s customers on the basis of such information). The number of differing theories is limited only by the facts and the scope of the pleading attorney’s legal imagination.
Over the last decade however, defendants in these cases have begun to attack such pleading by claiming that the California Uniform Trade Secrets Act (“CUTSA”) “preempts” common law provisions which, prior to the passage of CUTSA, would have supported claims based on misappropriation. In K.C. Multimedia, Inc. v. Bank of America Technology and Operations, Inc. (2009) 171 Cal.App.4th 939, the Sixth Appellate District of the Court of Appeal of California held that the CUTSA preempts common law claims that are based on the same nucleus of facts as the misappropriation of trade secrets claim.
Depriving a plaintiff of alternative common law claims can be valuable to a Defendant. Proving a trade secret misappropriation claim can be much more difficult than proving a claim of intentional interference or breach of duty. CUTSA requires a plaintiff to satisfy specific statutory standards to prevail. The standards under common law theories can be relatively less demanding and easier to prove.
In its broadest sense, a CUTSA preemption attack argues that CUTSA preempts any common law claim that is based on conduct which could support a trade secret claim. This interpretation of CUTSA is well established in federal courts. (See, for example, First Advantage Background Services Corp. v. Private Eyes, Inc. (2008) 569 F.Supp.2d 929 [motion to dismiss]; “If there is not material distinction between the wrongdoing alleged in a CUTSA claim and that alleged in a different claim, the CUTSA claim preempts the other claim.” (Convolve, Inc. v. Compaq Computer Corp., 2006 U.S. Dist. LEXIS 13848 cited in Bryant v. Mattel, Inc., 2010 U.S. Dist. LEXIS 103851.)) The K.C. Multimedia case was the first published California Court of Appeal decision to adopt the reasoning of these Federal Courts. Many practitioners viewed K.C. Multimedia and its federal predecessors as a significant shift in the law, one that increased the plaintiff’s burden in these cases. I thought that too. Now, I don’t think so.
Although federal courts appear willing to consider a preemption attack based on the pleadings in a case, some defense practitioners report that California trial courts appear more reluctant than federal courts to sustain demurrers or motions for judgment based on CUTSA preemption. That certainly has been my experience. This reluctance, if it exists, might be explained by the fact that in K.C. Multimedia, the Court found preemption in response to an in limine motion after a long period of discovery. In K.C. Multimedia, the plaintiff was well committed by testimony and discovery responses to its allegations that the same acts supported both the CUTSA and common law claims. Some lawyers defending employee mobility lawsuits brought in California state courts feel that instead of a demurrer or attack on the pleadings, the better strategy is to conduct discovery designed to commit the plaintiff to a particular set of facts, and then to demonstrate to the court that plaintiff is grounding both the CUTSA and common law claims on the same facts.
Frankly, I wonder if this strategy will remain effective for very long. Employee misconduct and unfair competition cases often involve various forms of misconduct (See, for example, Reeves v. Hanlon and Bancroft Whitney). Often, it is not difficult for this conduct to be pleaded so that common law claims are supported by factual allegations that are distinct and separate from the allegations that support the statutory trade secrets claim. Precise pleading and a clearly developed theory by the pleading party may bar most preemption attacks.