In a case whose facts plainly compelled the outcome, California’s Fourth Appellate District held on October 15, 2013 in Angelica Textile Services, Inc. v. Jaye Park, No. D062405 that a claim for trade secret misappropriation under California’s Uniform Trade Secrets Act does not displace claims such as breach of contract, breach of fiduciary duty, unfair business practices, unfair competition, tortious interference with business relations, and conversion if those causes of action are based on facts that are distinct from those that support the trade secret misappropriation claim.

Defendant Park began working for Angelica Textile Services in 1982.  By 2008, he had been promoted to vice president.  During his employment, Park signed a “non-competition agreement” whereby he promised his “best endeavors” for the company and that he would not, during the course of his employment, become involved with any business similar to Angelica’s.  In 2008, while still employed by Angelica, Park initiated steps with executives at two of Angelica’s largest customers to set up a competing enterprise.  His work included preparing a business plan that laid out Angelica’s market control, descriptions of Angelica’s facilities, detailed financial projections, production costs, and revenue estimates.  In 2009, the competing business, Emerald Textiles, was established based in part on Park’s business plan.  While he was still employed by Angelica, Park also met with bankers to obtain financing for Emerald and he negotiated key contracts for Angelica with clauses that allowed those customers to easily terminate their agreements with Angelica.  After obtaining financing, Park resigned from Angelica and joined Emerald as its chief operating officer.

Angelica’s amended complaint against Park and Emerald alleged causes of action for misappropriation of trade secrets, unfair business practices, unfair competition, interference with business relationships, breach of contract, breach of fiduciary duty, and conversion.  Emerald filed a cross-complaint.  In ruling on Emerald’s motion for summary judgment, the Court found triable questions regarding the existence of trade secrets, but it granted Emerald’s motion on all of Angelica’s non-CUTSA claims.  The trial court concluded that those claims were dependent upon and derivative of an alleged misappropriation of trade secrets and therefore the CUTSA displaced those causes of action.  At trial, the jury returned a verdict in favor of defendants on Angelica’s trade secret cause of action.

The Court of Appeal reversed the judgment for Emerald on the non-CUTSA causes of action.  The Court relied on California Civil Code section 3426.7(b), which provides that the CUTSA does not affect other civil remedies that are not based on the misappropriation of a trade secret.  Further, the Court stated, the CUTSA does not displace a contract claim even if it is based on the misappropriation of a trade secret.  More fundamentally, the Court held, the CUTSA does not displace a non-contractual claim that, although related to a trade secret misappropriation, is based on facts distinct from those that support the trade secret claim.  None of Angelica’s non-CUTSA claims were dependent on the same operative facts as Angelica’s trade secret misappropriation cause of action, nor were they directly derivative of those facts.  Each of those causes of action, the Court held, had a basis independent of any trade secret misappropriation.

The Court also made short work of defendants’ effort to characterize the “non-competition agreement” as a violation of Section 16600 of the Business and Professions Code.  The non-competition agreement did not violate Section 16600, because its limitations on Park’s conduct only concerned his activities while still employed with Angelica, not after he left the company.

Park’s actions as a senior executive with Angelica made it easy for the Court of Appeal to decide that Angelica’s claims were not displaced by the CUTSA: Park had undeniably engaged in conduct that would have been actionable irrespective of any alleged trade secret theft.  The lesson in Angelica is that where liability can be asserted independently of any determination over the existence and misappropriation of a trade secret, those claims will survive.  They will not be displaced or superseded by the CUTSA simply because a CUTSA claim is also part of the complaint.

Topics:  Breach of Contract, Competition, Fiduciary Duty, Misappropriation, Non-Compete Agreements, Tortious Interference, Trade Secrets, Unfair or Deceptive Trade Practices, Uniform Trade Secrets Acts

Published In: Business Torts Updates, Civil Procedure Updates, General Business Updates, Intellectual Property Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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