Excess Cargo? Shipping Common Law Claims Out of a Trade Secret Complaint

AFS, a company specializing in streamlining shipping costs and logistics, had its eight count amended complaint streamlined to only one—its Tennessee Uniform Trade Secrets Act (“TUSTA”) claim—primarily due to preemption and AFS’s lack of specificity as to its common law claims.

AFS filed suit in December 2016 against two prior employees, Christopher Cochran and Alessandro Rustioni, and their new competing company, Freightwise LLC.  AFS’s complaint set forth the classic case of defecting employee trade secret theft.  Among other things, AFS alleged that Cochran and Rustioni founded Freightwise in 2014 while still employed for AFS.  Both continued to work for AFS in sales leadership positions until late 2015 and early 2016.  And, they allegedly conspired to and secretly organized Freightwise by soliciting one of AFS’s major clients and maliciously interfering with its high-value contracts.

AFS’s complaint levied eight counts against the defendants: (I) breach of duty of loyalty; (II) conversion; (III) intentional interference with business relations; (IV) tortious interference with contract; (V) violation of the TUTSA; (VI) conspiracy; (VII) injunctive relief; and (VIII) punitive damages.  The defendants moved to dismiss the complaint as to all eight counts, and Magistrate Judge Holmes ultimately agreed with them as to all but the TUTSA count.

Regarding trade secrets, AFS alleged that the defendants misappropriated two different categories: (1) confidential customer database information; and (2) a confidential formula that establishes benchmark market prices, calculates new prices, and establishes a unique client pricing structure.  The court was skeptical that this type of information actually amounted to trade secret status in light of a prior order from the Tennessee Court of Appeals denying this status to “customer lists, credit information, pricing information, and profit and loss statements.”  The court also determined that ALS put forth minimal effort to establish trade secret status.  Nevertheless, the court found that, with respect to its TUSTA count, ALS satisfied the “short and plain statement” required by Fed. R. Civ. P. 8(a).

ALS’s seven other counts, however, did not survive. The court dismissed its counts for injunctive relief and punitive damages because they are types of damages, not standalone counts.  The court dismissed the remaining counts on grounds of preemption and/or lack of specificity.  On this point, the TUTSA unequivocally “displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.”  ALS’s “meticulous efforts” to avoid overlap between its common law counts and trade secret counts did not convince the court of their separateness, but rather, resulted in a lack of specificity that the court found fatal.  For example, ALS’s breach of duty of loyalty claim was based on the individual defendants’ misappropriation of ALS’s time and resources for the benefit of Freightwise – they were interfering with and diverting business from ALS while working for ALS.  The court found that this count called for the same proof as ALS’s trade secret claim, which concerned the improper use of customer database information and formulaic pricing.

As TSW has reported before, simply packing claims up with careful drafting to avoid the appearance of overlap with trade secrets claims is likely not enough to avoid preemption.  Common law claims that are truly separate have the best chance of survival.