This blog has periodically visited the issue of preemption in trade secret cases. Preemption arises when a plaintiff alleges common law causes of action (such as conversion or interference with economic relations) with a trade secret misappropriation claim that is based on the “same nucleus of facts.” California courts have repeatedly held that California’s Uniform Trade Secrets Act [“CUTSA”] preempts, displaces and supersedes all “claims based on the same nucleus of facts as trade secret misappropriation.” (See RSPE Audio Solutions, Inc. v. Vintage King Audio, Inc. 2013 U.S. District Lexis 2909 at *4-5 (C.D. Cal. Jan. 7, 2013) [citing KC Multimedia, Inc. v. Bank of America Tech. & Operations, Inc. 171 Cal.App.4th 939, 962 (2009)].) Essentially, courts have ruled that CUTSA provides the exclusive civil remedy for trade secret claims.
In RSPE Audio, the Court again faced the preemption issue. RSPE provides professional audio and video equipment as well as consulting/engineering services to its clients. RSPE alleged that it maintained confidential information, such as customer lists, deal proposals and the like, which it claimed were its trade secrets. In May 2012, two of its employees resigned from RSPE and joined Vintage King Audio, allegedly taking RSPE’s trade secrets. RSPE filed suit against the employees and Vintage King alleging claims for (1) trade secret misappropriation; (2) intentional interference with economic advantage; (3) unfair business practices; and (4) aiding and abetting trade secret misappropriation. Vintage King moved for judgment on the pleadings as to the non-trade secret claims arguing they were preempted by CUTSA.
RSPE opposed the motion by claiming that it had alleged additional bad acts independent of the trade secret claims, such as (1) the former employees misdirected emails from RSPE clients; and (2) that they had tampered with RSPE’s eBay store front and its Amazon.com account. RSPE further pointed out that its common law claims incorporated by reference this non-trade secret misconduct.
The Court rejected RSPE’s arguments and granted the motion with leave to amend. The Court found that each of the common law claims made explicit reference to the trade secret misappropriation allegations and were thus preempted. For instance, RSPE alleged that “defendant’s misappropriation of the trade secrets as alleged herein constitutes unfair and/or fraudulent business practices … .“ The court concluded that “while the [first amended complaint] contains allegations potentially unrelated to RSPE’s trade secrets claims, the [common law] causes of action are based upon the same nucleus of fact as RSPE’s CUTSA claim for misappropriation of trade secrets.” The Court concluded that they were preempted by CUTSA.
Plaintiffs alleging trade secret misappropriation claims are again reminded as to the necessity of being careful in how they plead additional common law tort claims. Merely incorporating by reference allegations earlier in the complaint of non-trade secret related misconduct may not be sufficient to withstand a motion to dismiss on the ground of preemption under CUTSA.