A recent trial court decision from Superior Court Judge Tommy Hankinson of the Griffin Judicial Circuit illustrates one of the many difficulties of enforcing a non-compete provision in Georgia. Specifically, the case – Turner v. Peachtree Fayette Women’s Specialists, LLC, Civil Action File No. 2009V-0746, slip op. (2009) – illustrates that when an employer drafts the geographic scope of a non-compete provision, it had better be sure that the signing employee is going to work in all of the specified areas.

The Plaintiff, Dr. Heather Turner, starting working for Defendant Peachtree Fayette Women’s Specialists (“PFWS”) in October 2006. At the outset of her employment, Dr. Turner signed a non-compete provision that prevented her from providing obstetrical and gynecological services for a two-year period after the end of her employment in the following territory: (1) the area within a five-mile radius of PFWS’s office; (2) Piedmont Fayette Hospital in Fayetteville; and (3) Piedmont Hospital in Atlanta. The case turned on the last of the three areas.

Dr. Turner announced her intention to resign on March 16, 2009, and then filed a declaratory judgment action on April 28, 2009, arguing that the non-compete provision was unenforceable. PFWS counterclaimed for a declaratory judgment, injunctive relief, and attorneys’ fees. After conducting an evidentiary hearing, Judge Hankinson found that Dr. Turner never worked or treated patients at Piedmont Hospital in Atlanta, although she did have staff privileges there. Other PFWS physicians treated patients at Piedmont Hospital earlier in Dr. Turner’s employment with PFWS, but they were not doing so and had not renewed their staff privileges there by the time that Dr. Turner resigned. 

The Court concluded that Dr. Turner did not perform work throughout the territory covered by the non-compete provision and that, as a result, the provision was unenforceable. The Court rejected PFWS’s argument that it received referrals from Piedmont Hospital in Atlanta, noting that Dr. Turner had no relationships there from which to obtain referrals. Because Georgia does not permit blue-penciling or modification of unenforceable provisions, the Court’s conclusion leaves Dr. Turner completely free of the non-compete restriction. PFWS has filed a notice of appeal, so the Georgia Court of Appeals will have an opportunity to opine on the case.

On July 30, 2009, the Eleventh Circuit reversed a district court decision granting over $1.6 million in damages to a former employer, but upheld an injunction against the former employee, enforcing a non-compete agreement. In Proudfoot Consulting Co. v. Gordon, No. 09-14075, Judge Trager issued an opinion finding that a non-compete agreement that prevented a former Project Director from competing in North America and any other territory to which the employee had been assigned during his employment for six months following his employment was enforceable under Florida law.

As Project Director, the former employee, Gordon, managed client relationships and was the most senior employee who had routine client contact. One of his duties was to attend weekly meetings that reviewed all of Proudfoot’s North American projects. In addition, Gordon visited Canada once on behalf of Proudfoot. After resigning from Proudfoot, Gordon immediately began working for a direct competitor, the Highland Group, but Gordon worked exclusively in Canada for the first six months of his employment. After joining the Highland Group, Gordon secured a substantial project for the Highland Group from a client that did business with Proudfoot’s European sister company.

The Court of Appeals affirmed the district court’s finding that Gordon violated the non-compete agreement and that the non-compete was reasonable in its geographic scope, which was found to cover the United States, Mexico, Canada, and Europe. The scope was reasonable because Proudfoot conducts operations and markets itself in those territories, Gordon visited one client project in Canada, and Gordon attended weekly meetings that discussed Proudfoot’s North American projects. The district court rejected Gordon’s argument that he had a good-faith belief that working in Canada did not violate the agreement. The Court held that the district court’s injunction that was entered against Gordon, preventing him, for six months, from working for the Highland Group and from soliciting Proudfoot’s clients and employees was proper.

However, the Court of Appeals reversed the district court’s award of over $1.6 million in damages, plus attorneys’ fees, to Proudfoot because Proudfoot did not establish that it would have secured the project that Gordon solicited for the Highland Group, but for Gordon’s breach. The Court held that Proudfoot, thus, did not show that it suffered any financial loss due to Gordon’s actions.

By Rina Wang, summer associate, and Timothy B. Nelson

The California Court of Appeal recently addressed the issue of the interpretation of arbitration clauses in the context of claims for misappropriation of trade secrets in the case of Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal.App.4th 606 (1st Dist. 2009).

In Valentine, respondent John Valentine was the founder and president of Valentine Capital Asset Management, Inc. (“VCAM”) and Valentine Wealth Management, Inc. (“VWM”), neither of which was a member of the Financial Industry Regulatory Authority (“FINRA”). John Valentine was subject to FINRA rules and regulations through his affiliation with FINRA member Geneos Wealth Management, Inc., but not through his affiliation with VCAM and VWM. Appellants Agahi, Luippold and Ortale worked as employees of VCAM and VWM. In their capacity as employees of VCAM and VWM, Agahi, Luippold and Ortale were given business leads, and they were responsible for following up on the leads, developing a client relationship, and providing services to those clients. Agahi resigned from VCAM and VWM to form a competing firm, which added Luippold and Ortale as employees. The competing firm was also not a member of FINRA. The three defendants allegedly brought VCAM and VWM client databases with them to the competing firm. Valentine allegedly discovered that Agahi had e-mailed VCAM and VWM’s client database to Ortale, and that files and e-mails had been deleted from Agahi’s work computer prior to his departure. Valentine also allegedly discovered that Agahi was attempting to persuade clients of the Valentine companies to move their assets to Agahi and his competing firm. Valentine sued Agahi, Luippold and Ortale for misappropriation of trade secrets, intentional interference with contractual relations, intentional interference with prospective economic advantage, trade libel, slander, and common law and statutory unfair competition.

Agahi, Luippold and Ortale moved to compel arbitration, arguing that the dispute was subject to mandatory arbitration under FINRA’s arbitration clause because all of the parties were members of FINRA. Valentine opposed the motion, contending that the defendants had waived their right to arbitrate and that the disputes in the litigation were not subject to FINRA arbitration. The trial court denied the motion to compel arbitration, finding that FINRA was inapplicable because the parties’ dispute did not arise out of their business activities as FINRA members.

The Court of Appeal affirmed. The court first explained that written arbitration provisions in interstate commercial transactions are enforceable under the FAA. Thus, the FAA applied to determine the scope of arbitration provisions in contracts with FINRA-member firms. Before engaging in activities as a registered representative for a FINRA-member firm, all registered representatives of broker-dealers, investment advisors, and securities issuers must sign a “Uniform Application for Securities Industry Registration or Transfer,” also known as Form U-4. See McManus v. CIBC World Markets Corp., 109 Cal. App. 4th 76, 88 n. 3 (2003). Form U-4 contains an arbitration provision. Valentine and the defendants signed this form, thereby agreeing to arbitrate every dispute required to be arbitrated under FINRA rules. Arbitration of a dispute between associated persons is required under FINRA Rule 13200 only “if the dispute arises out of the business activities of a member or an associated person . . . .”

The Valentine court found that the phrase “business activities of . . . an associated person” is limiting and cannot include the activities of every possible business enterprise in which an individual “associated person” might be engaged. Valentine, 174 Cal.App.4th at 615. According to the Valentine court, this language, when reasonably read, must require arbitration of disputes only if they arise out of the business activities of an individual as an associated person of a FINRA member. Id.at 616.

The court held that there was no allegation that any of the parties were acting for any FINRA-member firm or as an associated person. No relation was alleged between any FINRA-member firm and the work performed for Valentine. The Court further determined that none of the purported wrongdoing was alleged to have occurred in the course of the parties’ duties as associated persons with a FINRA-member firm. Rather, it allegedly occurred with investment advisory firms that were not members of FINRA. The disputes thus related to defendants, but not to their business activities as associated persons of a FINRA member.

Although Valentine is based on the distinction between “broad” and “narrow” arbitration clauses, the court reached its conclusion based on the language of the pleadings. The plaintiff pled multiple causes of action alleging misconduct by various defendants.  When the court ruled on the motion to compel arbitration, the legal characterization of the parties in the Complaint controlled the ruling. 

The Valentine decision makes it clear that when prosecuting or defending a claim for misappropriation of trade secrets, one must be mindful of what forum is appropriate, arbitration or litigation. Furthermore, the Valentine decision also provides an example of the importance of pleading causes of action properly based upon the forum. Because Valentine pled his causes of action in a way that made it clear they were not based on the defendants’ business activities as associated persons of a FINRA member, Valentine was able to avoid FINRA arbitration.

The Courthouse News reported on an interesting new Computer Fraud and Abuse Act case.  It appears from the article that Duncan Solutions diverted internal and external e-mails directed to its competitor Affiliated Computer Services’ employees for the purposes of obtaining not only competitive and confidential internal information but also to obtain information regarding Affiliated Computer Services’ clients.  According to The Courthouse News, Affiliated Computer Services sued in Texas and "seeks damages under the Computer Fraud and Abuse Act, Wiretap Act, Stored Communication Act and Texas Harmful Access By Computer Act."  Affiliated Computer Services "is represented by John Cox with Lynn Tillotson."  This could be an interesting case to watch. 

When we last wrote about IBM’s efforts to enjoin David Johnson, its former Vice President of Corporate Development, from joining Dell, Judge Stephen Robinson of the Southern District of New York had denied IBM’s Motion for Preliminary Injunction following a June 22, 2009 preliminary injunction hearing, and IBM had filed an interlocutory appeal. On June 24, 2009, IBM filed an amended complaint, alleging that Johnson violated the terms of IBM’s equity based compensation programs, as well as his fiduciary duties. Two days later (and on the same date that the court issued its decision denying IBM’s first motion for preliminary injunction), IBM filed a request to move a second time for a preliminary injunction based on information developed during the expedited discovery process. The court denied this request.

Two weeks later, IBM filed a second motion for preliminary injunction. In that July 10, 2009 motion, IBM set forth that Johnson should be enjoined pursuant to his "legal duties to protect IBM trade secrets and confidential information" and his "duties to IBM pursuant to a confidentiality agreement that he signed when he joined IBM, the provisions of his various IBM equity grants and IBM’s internal Business Conduct Guidelines." On July 23, 2009, the Court held a pre-motion conference at which IBM conceded that its second motion for preliminary injunction was not based on information obtained during the expedited discovery process.

On July 30, 2009, Judge Robinson denied IBM’s second motion for preliminary injunction in rather strong terms. The court stated that it would not allow IBM to "litigate this matter through piecemeal, seriatim motions requesting the same relief." In fact, the court used the term "piecemeal, seriatim motions" three separate times in its decision as it held that IBM should have asserted all its bases for injunctive relief at the first opportunity. The court went on to refer to IBM’s method of proceeding as "vexatious" and representing a "great disservice to the interests of Mr. Johnson and of the Court in the orderly conduct of this litigation." The court also held that IBM’s second motion would require the court to reconsider certain aspects of its ruling on the first motion for preliminary injunction, a ruling that is before the Second Circuit Court of Appeals.

IBM immediately appealed the decision denying its second motion for preliminary injunction and filed a petition for writ of mandamus on August 7, 2009. The Second Circuit Court of Appeals has consolidated IBM’s appeals and has scheduled oral argument for September 9, 2009. Also, Johnson moved to dismiss IBM’s claims set forth in its amended complaint and to stay discovery. That motion is fully briefed and is before Judge Robinson.

By Robert Milligan and summer associate Alana Friedman

A federal district court in Oregon recently granted a motion to stay in a dual-state non-compete matter based on the first-to-file rule, even though the two cases were filed only a few hours apart. The first-to-file rule provides that, when similar cases have been filed in different federal district courts, it is within the court’s discretion to dismiss the second filed action when it involves the same parties and issues.

In Biotronik, Inc. v. Guidance Sales Corp., 2009 WL 1838322 (D. Or. Jun. 22, 2009), Judge King of the United States District Court for the District of Oregon granted Guidance Sales Corporation’s (“GSC”) motion to stay against GSC’s competitor, Biotronik, Inc (“Biotronik”). The court granted the motion to stay based on the first-to-file rule.  Id. at *3. 

Biotronik and GSC are competitors in the distribution of cardiac rhythm management devices such as pacemakers and defibrillators. Biotronik is an Oregon corporation and GSC is an Indiana corporation with its principal place of business in Minnesota. 

On April 10, 2009, twelve GSC employees ended their employment at GSC and began working at Biotronik. The employees signed agreements with GSC containing non-compete, non-solicit, and non-disclosure provisions. The agreements contained Minnesota forum and choice of law provisions. 

On April 14, 2009, at approximately 12:26 p.m PDT, GSC filed suit in the United States District Court for the District of Minnesota seeking damages from Biotronik and the twelve defecting employees for allegedly breaching their employment agreements. GSC also alleged several employees breached their duty of loyalty as well as their non-disclosure and non-solicitation agreements. GSC further alleged that Biotronik tortiously interfered with GSC’s contract with its employees and aided and abetted the employees’ breach of their duty of loyalty to GSC. Finally, GSC sought a declaration that its non-compete agreement with each of the twelve employees was valid and enforceable and that Minnesota law applies.

Later that same day, Biotronik filed suit in Oregon state court at approximately 5:11 p.m. PDT (Biotronik apparently e-mailed the complaint to GSC at 3:42 p.m. PDT in advance of the filing). Biotronik sought a declaration that the twelve employees, and one additional former GSC employee also working for Biotronik, were in compliance with all of the “enforceable” restrictive covenants contained in the agreements they signed while employed by GSC. The former employees were not named parties to the action. The case was later removed to the federal district court in Oregon and assigned to Judge King.

On April 29, 2009, the Minnesota federal court entered a stipulated temporary restraining order and order for expedited discovery. The tro required Biotronik to return confidential information and prohibited Biotronik from inducing the employees to solicit other GSC employees to leave. The employees were also prohibited from disclosing or retaining confidential information and soliciting current GSC employees to leave.

GSC then moved to have the federal case in Oregon dismissed or stayed under the first-to-file rule. The court found that the first-to-file rule was applicable because Biotronik and GSC are parties to both actions and the issues are substantially similar since both cases seek to determine the enforceability of the non-competition agreement. Id. at *2 (relying on Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F. 2d 93, 94-95 (9th Cir. 1982)). 

Although the court noted that rigid application of the first-to-file rule was not required, especially where the cases were filed only hours apart, it nevertheless chose to enforce the rule. The court provided two reasons as to why it was appropriate to grant the stay and allow the Minnesota case to proceed. Id. at *3. First, the Minnesota case would more thoroughly resolve the dispute because it involved more issues than the Oregon case. The court reasoned that Biotronik would still have to defend some of the charges in the Minnesota action even if the Oregon case proceeded. Second, the Minnesota action had progressed more quickly than the Oregon action since the parties in the Minnesota action had already agreed to a temporary restraining order and discovery had already begun.  Id. The court also noted that Biotronik had not relied on any of the exceptions of the first-to-file rule, such as bad faith, anticipatory suit, and forum shopping. Id.(citing Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 628 (9th Cir. 1991)) (emphasis added).

The court summed up its decision by stating that, “[i]n short, application of the first-to-file rule will promote the interest of judicial economy and avoid the possibility of conflicting judgments.” Id. 

The case serves an important reminder that, depending upon the circumstances, filing suit first can make a difference when it comes to enforcing non-competition and non-solicitation covenants against former employees and their new employers, and vice versa. However, where there is demonstrated evidence of forum shopping, the court may decline to apply the "first-filed" rule.

In a 56-page opinion, the U.S. Court of Appeals for the Second Circuit sent a long-pending trade secrets case, Jasco Tools, Inc. v. Dana Corporation, Appeal No. 08-2762-bk, back to the lower court for further proceedings because of the bankruptcy court’s "flawed application of well established summary judgment principles."  (Slip Op. at 32.)  In the case, Jasco alleged that Dana had conspired, among other things, with former Jasco employees to steal and use Jasco trade secrets.   While the case was pending, Dana filed for bankruptcy.  Jasco subsequently filed a proof of claim against Dana’s estate.  (Slip Op. at 12.) 

The bankruptcy court allowed Dana Corporation ("Dana") to move for summary judgment through an objection to disallow the claim of Jasco as a creditor (the "Objection").  Where the court first erred was by ordering that the parties would file their statements of undisputed material facts (Rule 7056-1 statements) simultaneously.  (Slip Op. at 32.)  Then, as Law 360 discusses, the bankruptcy court erred by refusing to allow Jasco to complete discovery, particularly deposition discovery, of Dana employees. Although the case had a long history, the Second Circuit concluded that, in this case, under Fed. R. Civ. P. 56(f), the bankruptcy court should have allowed Jasco to complete the additional discovery it sought.

Substantively, the Second Circuit found that, "even without discovery of additional evidence, the record as it stands was sufficient to preclude the entry of summary judgment dismissing and expunging the Jasco claim."  (Slip Op. at 38.)  After reviewing the "well established summary judgment principles" referenced earlier in the opinion, the Second Circuit concluded that the "principles were not properly applied."  (Slip Op. at 41.)  Limiting its discussion to Jasco’s claim of conspiracy to misappropriate trade secrets, the Second Circuit carefully and painstakingly analyzed applicable law as well as the direct and circumstantial evidence relating to Jasco’s claim, concluding that there were sufficient disputed issues of material fact on the conspiracy to misappropriate trade secrets claim that the case should have proceeded to a jury.  

One interesting aspect of the Second Circuit’s analysis, which otherwise is worth reading for the facts, was its discussion of Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) as applied to trade secret conspiracy claims.  (Slip Op. at 53-55.)   Dana cited Matsushita for the principle that "conduct that is consistent with permissible competition as well as with illegal conspiracy does not, without more, support even an inference of conspiracy."  475 U.S. at 597 n.21.   The Second Circuit rejected the application of this theory because (1) Matsushita involved antitrust claims, not claims of trade secret misappropriation; (2) Matsushita involved a situation where the actions were "economically senseless parallel actions by persons competing with each other," whereas in this case, the parties were acting collaboratively in a manner that was supported by an obvious pecuniary motive; and (3) even though the Supreme Court in Matsushita made it clear that "mere proof of conduct that is as consistent with permissible competition as with illegal conspiracy, ‘without more’" will not support a inference of conspiracy, the facts in this case supplied the necessary "more."

By Robert Milligan and summer associate Alana Friedman

Production companies for Criss Angel, the star of Cirque de Soleil’s “Believe” and the A&E cable television show Mindfreak, were sued in New York state court recently by a twenty-three year old illusionist who claims that Angel’s companies have failed to pay him for the use of three alleged confidential and proprietary magic tricks that he claims that he created. 

Jacob Spinney’s eight count complaint arises out of an alleged breach of contract involving certain confidential and proprietary magic tricks (e.g. methods of staging and performing three specific illusions or magical effects) that he claims to have permitted Angel to use pursuant to a written contract. Spinney claims that Angel failed to satisfy his end of an agreement that they purportedly entered in 2005. Pursuant to the alleged agreement, Spinney purportedly assigned the rights in three of his magical effects to Angel’s production company in exchange for a percentage of the net profits realized from the magical effects. Spinney is now seeking monetary compensation and for all rights to be returned to him on two of the three illusions.

Spinney, who allegedly makes his living by selling illusions and magical effects that he originates and creates, claims that in late 2004 Criss Angel (whose real name is Christopher Sarantakos) contacted him expressing interest in performing Spinney’s Chair Self-Levitation illusion where the performer appears to be floating above the ground. Spinney claims that Angel was interested in the illusion for his upcoming television series Mindfreak. In the 2005 Agreement which result from Angel’s alleged inquiry, Spinney claims that he assigned the rights in his confidential and proprietary magical tricks entitled Chair Self-Levitation, Chair Self-Suspension (performer appears to be suspended above the ground), and Fork Bending Gimmick (performer appears to bend a fork without exerting any physical pressure upon it) to Angel’s production company in exchange for 25% of the profits that it derived from the magical effects. 

Spinney alleges that he invented, designed, and tested the method of performing all three illusions. He claims that levitation, suspension, and fork bending illusions or magical effects are valuable commodities in the magic industry because they are difficult to create and have significant audience appeal.

Their 2005 Agreement provides that “In the field of magic, a magician’s success depends upon the secrecy of the methods, apparatus, and workings of magical effects and illusions; and…a magician creates and establishes his reputation based upon the originality and novelty of the various magical illusions which are proprietary information, intellectual property and proprietary technologies, and constitute a trade secret.” 

Spinney alleges that Angel performed the Chair Self-Levitation on the second episode of his Mindfreak television series which was later broadcast on the A&E Network and included on four separate Mindfreak DVDs. According to the complaint, Angel’s production company publicized the Chair Self-Levitation illusion as Angel’s most popular demonstration and featured the illusion on “Masterminds Volume 2: Self-Levitation,” a “how to” DVD featuring only the Chair Self-Levitation illusion. Spinney further alleges that the packaging on the Mastermind DVD advertised that “Criss teaches everything you need to know about this modern day miracle; step by step instructions on the method, how to construct it…and how to perform it.” Spinney claims that the Mastermind DVD retailed for $100 and sold over 3,900 copies in its first six months, grossing over $190,000 in profits. 

Spinney alleges that despite the 2005 Agreement, Angel’s production companies did not pay Spinney any royalties from profits it made from the Mindfreak television show or DVDs and paid him only a small portion of the royalties from profits it made on the Mastermind DVDs. According to the complaint, the DVDs made approximately $267,000 in gross sales and Spinney received only $27,000. 

Spinney also claims that his Chair Self-Levitation illusion is proprietary information, intellectual property and proprietary technology, and constitutes a trade secret. He further claims that Angel’s production companies benefited from learning the confidential and proprietary methods of performing the illusion by deriving profits from certain performances and by excluding others from marketing or selling the illusion. He claims that he has suffered a detriment because he was not adequately compensated for the illusion and continues to be precluded from marketing or selling the effect on his own or through alternative means.

Additionally, Spinney alleges that Angel’s production companies failed to make reasonable efforts to sell Spinney’s Chair Self-Suspension or Fork Bending Gimmick pursuant to the 2005 Agreement. Spinney seeks lost profits for the failure to sell or market the two illusions, an amount equal to the fair market value for the illusions, or a judgment returning to him the rights in both.

Apart from its unique and colorful facts, the case highlights some of the issues that exist when confidential information or trade secrets are licensed, such as: 1) ensuring that a reasonable royalty is provided in the agreement with clear definitions of permitted use and payment terms; 2) including language in the agreement providing that the licensee agrees to keep the secrets confidential notwithstanding its use in the ultimate product or service; 3) requiring the licensee to use best efforts to market and sell the ultimate product or service if payment under the agreement is tied to sales; 4) closely monitoring sales of the ultimate product or service in the marketplace to ensure that all royalty payments are made; 5) licensors should consider using a flat fee amount for use of the confidential information and/or trade secrets in lieu or in addition to royalty payments; 6) licensors should closely protect the confidentiality of the target confidential information or trade secrets in the negotiation process with prospective licensees; and 7) the licensor should prohibit independent development of the target confidential information or trade secrets by the licensee in the agreement.

By Carolyn Sieve and summer associate Rina Wang

A California federal court has added to the body of decisional law on preemption under the California Uniform Trade Secrets Act, Cal. Civ. Code §§ 3426, et seq. (“CUTSA”). In Aversan v. Jones, No. 2:09-cv-00132-MCE-KJM, 2009 WL 1810010 (E.D. Cal. June 24, 2009), the Court denied defendants’ motion to dismiss plaintiff’s claims for interference with contractual relations, interference with prospective economic advantage, breach of duty of loyalty, and unfair competition, finding that plaintiff had sufficiently pled facts supporting these claims without relying on the same nucleus of facts as its CUTSA misappropriation of trade secrets claim.

Civil Code section 3426.7 provides that CUTSA “does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.” (Emphasis added.) This provision has been interpreted to mean that CUTSA preempts common law claims that are based on the same nucleus of facts as the CUTSA claim. Thus, preemption is not triggered where the facts in an independent claim are similar to, but distinct from, those underlying the misappropriation claim.

Defendants Jones and Mellse were employees of plaintiff Aversan, which recruits and trains engineers to perform services for Aversan’s customers and clients of its customers. They later quit to work for one of Aversan’s clients, Ambire, which had retained Aversan to provide engineers to one of Ambire’s clients, CalPERS.  Defendants had been assigned by Aversan to work on the CalPERS project. While assigned to CalPERS, defendants wrote custom software programs using Aversan’s proprietary software script. 

Aversan’s complaint alleged that defendants violated CUTSA by using Aversan’s proprietary and confidential information to continue performing work for Ambire and CalPERS. Defendants also allegedly used Aversan’s confidential information to solicit employees, contractors and recruits. In addition, Aversan sought damages for Jones’ alleged interference with a residential lease agreement, and defendants’ supposed interference with Aversan’s customer relationships.

Defendants moved to dismiss plaintiff’s claims for interference with contractual relations, interference with prospective economic advantage, breach of duty of loyalty, and unfair competition. The district court denied the motion, holding that the facts supporting these tort claims were sufficiently independent of the CUTSA claim. Under these causes of action, Aversan claimed that defendants prevented Aversan from participating in and profiting from its agreements with Ambire by working directly for Ambire and that defendants allegedly interfered by usurping Aversan’s position with CalPERS.  Aversan also claimed that Jones encouraged and convinced an apartment lessor to terminate its lease with Aversan. Aversan had already paid for that month’s rent as an employee benefit to Jones and re-let the same apartment unit to Jones directly. These claims survived dismissal because they did not rely on the same nucleus of facts as Aversan’s CUTSA claim and they sufficiently stated an independent claim for relief.  

Aversan thus provides some guidance as to what allegations will overcome dismissal of tort claims in a case alleging CUTSA violations. If a party in a trade secrets case is faced with a possible preemption argument, it is worth comparing this decision with the recent California Court of Appeal decision in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal.App.4th 939 (2009).