Sorting Laundry: California Court Reaffirms Scope Of Uniform Trade Secrets Act

Angelica Textile Services, Inc. v. Park, No. D062405 (October 15, 2013): A California Court of Appeal recently held that claims of breach of contract, breach of fiduciary duty, and unfair competition are not “displaced” or preempted by California’s Uniform Trade Secrets Act (CUTSA).

The case was brought by Angelica Textile Services, Inc., a large-scale laundry business, against Jaye Park, a former employee who began working for Angelica’s San Diego facility in 1982 and by 2008 held the position of market vice president. Park had signed a noncompete agreement with Angelica promising not to “become interested” in any other business similar to Angelica while he worked there.  

In 2008, while employed by Angelica, Park negotiated with two of Angelica’s largest clients, Scripps Healthcare and Sharp Healthcare, about opening a competing laundry business—a venture that did not materialize. In 2009 Park and two of Sharp Healthcare’s board members worked on opening a competing laundry business. During this time, Park’s duties at Angelica included negotiating new contracts for the company’s San Diego clients. In an apparent break from industry standards, Park signed contracts on behalf of Angelica with Scripps Healthcare, Sharp Healthcare, and other medical facilities in 2009, allowing the clients to terminate their contracts with Angelica “without cause and without penalty on 90 days notice.”

In 2010, Park opened a laundry facility called Emerald Textiles, resigned from his position at Angelica, successfully bid for contracts with Sharp Healthcare and Scripps Healthcare, and recruited more than 40 of Angelica’s former employees.

Angelica brought suit against Emerald Textiles and Park for a host of claims, including misappropriation of trade secrets, unfair competition, breach of contract, interference with business relationships, and breach of fiduciary duty. Emerald Textiles filed a motion for summary judgment, but the trial court allowed Angelica’s statutory claim for misappropriation of trade secrets under CUTSA to proceed to trial. The court ruled that all of Angelica’s non-CUTSA claims, including breach of contract, were preempted by CUTSA and therefore the court dismissed those claims. Angelica lost the jury trial on the issue of misappropriation of trade secrets and appealed.

 The Court of Appeal held that by the terms of CUTSA, under California Civil Code § 3426.7(b)(1), the Act does not displace contract claims or other civil remedies that are not based on misappropriation of trade secrets. For example, Angelica’s breach of fiduciary duty, unfair competition, and interference with business relations claims against Park were not predicated on facts related to Park’s breach of his duty of loyalty nor his alleged misappropriation of trade secrets and therefore were not displaced by the Act.

According to Danielle Ochs, a shareholder in the San Francisco office of Ogletree Deakins:

“This decision reaffirms existing statutory CUTSA preemption law, as well as decisional law, which have consistently held that while CUTSA preempts or “displaces” common law tort claims arising from ‘the same nucleus of facts,’ CUTSA continues to allow tort claims arising from different facts, contract claims, and criminal remedies. Employers should be mindful that when a claim of misappropriation of trade secrets is asserted, there may also be contractual obligations based on the same facts and/or conduct involving different facts and duties that are actionable.”

- See more at: http://www.ogletreedeakins.com/publications/2013-12-05/sorting-laundry-california-court-reaffirms-scope-uniform-trade-secrets-act#sthash.aQDTsJo8.dpuf

 

Angelica Textile Services, Inc. v. Park, No. D062405 (October 15, 2013): A California Court of Appeal recently held that claims of breach of contract, breach of fiduciary duty, and unfair competition are not “displaced” or preempted by California’s Uniform Trade Secrets Act (CUTSA).

The case was brought by Angelica Textile Services, Inc., a large-scale laundry business, against Jaye Park, a former employee who began working for Angelica’s San Diego facility in 1982 and by 2008 held the position of market vice president. Park had signed a noncompete agreement with Angelica promising not to “become interested” in any other business similar to Angelica while he worked there.  

In 2008, while employed by Angelica, Park negotiated with two of Angelica’s largest clients, Scripps Healthcare and Sharp Healthcare, about opening a competing laundry business—a venture that did not materialize. In 2009 Park and two of Sharp Healthcare’s board members worked on opening a competing laundry business. During this time, Park’s duties at Angelica included negotiating new contracts for the company’s San Diego clients. In an apparent break from industry standards, Park signed contracts on behalf of Angelica with Scripps Healthcare, Sharp Healthcare, and other medical facilities in 2009, allowing the clients to terminate their contracts with Angelica “without cause and without penalty on 90 days notice.”

In 2010, Park opened a laundry facility called Emerald Textiles, resigned from his position at Angelica, successfully bid for contracts with Sharp Healthcare and Scripps Healthcare, and recruited more than 40 of Angelica’s former employees.

Angelica brought suit against Emerald Textiles and Park for a host of claims, including misappropriation of trade secrets, unfair competition, breach of contract, interference with business relationships, and breach of fiduciary duty. Emerald Textiles filed a motion for summary judgment, but the trial court allowed Angelica’s statutory claim for misappropriation of trade secrets under CUTSA to proceed to trial. The court ruled that all of Angelica’s non-CUTSA claims, including breach of contract, were preempted by CUTSA and therefore the court dismissed those claims. Angelica lost the jury trial on the issue of misappropriation of trade secrets and appealed.

The Court of Appeal held that by the terms of CUTSA, under California Civil Code § 3426.7(b)(1), the Act does not displace contract claims or other civil remedies that are not based on misappropriation of trade secrets. For example, Angelica’s breach of fiduciary duty, unfair competition, and interference with business relations claims against Park were not predicated on facts related to Park’s breach of his duty of loyalty nor his alleged misappropriation of trade secrets and therefore were not displaced by the Act.

According to Danielle Ochs, a shareholder in the San Francisco office of Ogletree Deakins:

“This decision reaffirms existing statutory CUTSA preemption law, as well as decisional law, which have consistently held that while CUTSA preempts or “displaces” common law tort claims arising from ‘the same nucleus of facts,’ CUTSA continues to allow tort claims arising from different facts, contract claims, and criminal remedies. Employers should be mindful that when a claim of misappropriation of trade secrets is asserted, there may also be contractual obligations based on the same facts and/or conduct involving different facts and duties that are actionable.”

Topics:  Breach of Contract, Breach of Duty, Fiduciary Duty, Unfair Competition, UTSA

Published In: Business Torts Updates, General Business Updates, Conflict of Laws 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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