An employee trading places among industry competitors allegedly provided his new employer with bidding and pricing information so critical that the receiving company’s CEO thought it was a “gold mine” it could use “to destroy” the competitor. In considering a motion to dismiss, the Business Court had to decide if the information was more like Fort Knox or Fool’s Gold.

In New Restoration & Recovery Servs., LLC v. Dragonfly Pond Works, 2023 NCBC 43, a business development executive was laid off by plaintiff Aqualis Co., a stormwater management company, but quickly found his way to a competitor, Dragonfly, allegedly while still negotiating the terms of his exit. Aqualis claimed that its former employee, P.J. Bogensberger, paved the way for his transition by providing confidential information to Dragonfly in violation of an NDA. Id. ¶¶ 6-7.

Bogensberger lasted six weeks at Dragonfly, which fired the “gold mine” provider and issued a statement asserting it had not known that Aqualis claimed he had provided Dragonfly with its confidential information. ¶¶ 7-8.

Dragonfly claimed that Aqualis had not taken “efforts that are reasonable under the circumstances to maintain [the] secrecy” of the allegedly misappropriated trade secrets conveyed by Bogensberger because its pricing information was “necessarily shared” with third-party customers not bound by confidentiality agreements. ¶¶ 14, 18 (citing N.C.G.S. § 66-152(3)(b)). Judge Bledsoe found the argument “has an intuitive appeal at first glance but does not withstand scrutiny.” Id. at ¶ 18.

The Court rejected Dragonfly’s contention “that information cannot constitute a trade secret if even a single third party, such as a customer, is privy to the information.” Id., ¶ 22. It relied on Byrd’s Lawn & Landscaping, Inc. v. Smith, 142 N.C. App. 371, 375-76 (2001) for the proposition that “historical customer information” and bidding records “could constitute trade secrets, even though they ‘may have been ascertainable by anyone in the [same] business[.]’” New Restoration, ¶ 21.

In a bit of a “what goes around comes around” jurisprudence, the Business Court used Byrd to distinguish Dragonfly’s reliance on Edgewater Servs. v. Epic Logistics, Inc., 2009 WL 2456868, 2009 NCBC 20 (N.C. Super Ct. Aug. 11, 2009), an earlier Business Court case which had distinguished Byrd and held that “customer files do not constitute ‘trade secrets’ and information contained therein is such that can be learned directly from . . . customers[.]” Edgewater, *5. If you’re keeping score at home, have an eraser handy.

The Court may well have left some elbow room for later litigants to take a swing at the contours of “customer information as trade secrets.” Byrd seems to acknowledge that public availability of customer information does matter in some settings, but the Court of Appeals observed that same information could well be protected as a trade secret if maintained and analyzed by its maker as a key component of its pricing and market behavior.  The Byrd court noted (142 N.C. App. at 376):

“Notwithstanding evidence offered by defendant that similar information may have been ascertainable by anyone in the lawn maintenance and landscape business, plaintiff’s evidence, when considered in the light most favorable to it, is sufficient to sustain a finding by the jury that plaintiff’s cost history records were “a compilation of information, method, technique, or process” which was treated by plaintiff as confidential, was neither known outside plaintiff’s business nor shared with its employees, [and] which had value to plaintiff and potential value to plaintiff’s competitors[.]”

Edgewater, in turn, relies on this tension, noting that the “special sauce” in Byrd was that the information was “maintained in detail by the plaintiff’s president in a personal notebook over a period of seventeen years and was not shared with any employees.” Edgewater, *5.  However, the issue may often be ultimately decided – as it was here – on the fact that the disclosures at issue contain more than simply information that was shared openly with customers. Restoration, ¶ 23.

Takeaways

• The Court did not resolve whether an executed NDA, alone, would suffice to demonstrate reasonable efforts to maintain data secrecy. But it did note that having an NDA would typically be enough to overcome a Rule 12(b)(6) challenge. Id. ¶ 26, citing Se. Anesthesiology Consultants, PLLC v. Charlotte-Mecklenburg Hosp. Auth., 2019 WL 6831142, at *6, 2019 NCBC 74 (N.C. Super. Ct. Dec. 13, 2019).
• The Court also clarified North Carolina unjust enrichment law. Noting that the state Supreme Court has not declared that the named plaintiff must have been the party to confer a benefit on the other party, it endorsed cases from around the country to hold that benefits may be transferred indirectly, like here where Bogensberger is alleged to have conveyed Aqualis trade secrets to Dragonfly. Id. ¶ 51, citing Bank of America v. Gibbons, 918 A.2d 565 (Md. Ct. Spec. App. 2007).

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