IP Law Daily, TRADE SECRETS—D. Ariz.: Trade secrets claim against an Arizona wealth management company can go forward, (Mar 8, 2024)
By Matthew Hersh, J.D.
The company allegedly purloined an employer with insider knowledge from a competitor.
A Mississippi bank adequately pleaded misappropriation of trade secrets claims against an Arizona wealth management company because it alleged that the Arizona company purloined an employee with valuable information about proprietary customer lists and then used those lists to solicit clients, the federal court for Tucson has held. The court, in rejecting the Arizona company’s motion to dismiss, also let stand a wide variety of common law claims including tortious interference, unjust enrichment, and unfair competition (Cadence Bank v. Heritage Family Offices L.L.P., March 6, 2024, Rash, S.).
The lawsuit was brought by Cadence Bank, a Mississippi-based financial services company that offers wealth management and financial advisory services to its customers. The lawsuit took aim at Heritage Family Offices, a Scottsdale, Arizona-based wealth manager. The complaint alleged, in essence, that the Arizona company hired away one of the Mississippi bank’s top executives and used his inside knowledge to recruit away clients. The lawsuit brought Defend Trade Secrets Act and Arizona Uniform Trade Secrets Act claims as well as a wide variety of common law claims.
The Arizona company moved to dismiss, leading to this opinion.
Forum selection. The court first found that the Mississippi bank had brought the case in the correct forum. The bank employee at the center of this lawsuit had provided his services to the Mississippi bank through an agreement requiring all disputes to be brought in Texas. But this lawsuit was not against that employee, but rather against his new employer—the Arizona wealth manager. Could that company avail itself of the forum selection clause? The court found that it could not. As a general matter of law, the court noted, forum selection clauses may be enforced against nonparties “where the alleged conduct of the nonparties is closely related to the contractual relationship.” But there was no such close relationship here. The Arizona company played no role in the contract’s drafting or formation—nor did it have any relationship with either party when the agreement was drafted. It could not use the agreement to its benefit now.
Preemption. The court also found that the common law tort claims were not preempted—at least based on the current record. Arizona’s version of the Uniform Trade Secrets Act creates an exclusive cause of action—and displaces conflicting causes of action—for claims based on the misappropriation of trade secrets. But that law, the court explains, displaces only conflicting tort claims for misappropriation of a “trade secret” as defined in the statute. Here, the court noted, the allegations in the complaint could implicate other confidential and proprietary information in addition to trade secrets. “To the extent these claims are based on misappropriation of trade secrets,” the court noted, “they are preempted.” However, that was a question of fact—and it was premature to decide it now. There would be no preemption at this stage of the proceedings.
Trade secrets claims. The court found that the complaint adequately pleaded the misappropriation of trade secrets. The Arizona company challenged the DTSA claim on three grounds, claiming that the Mississippi bank had not adequately pleaded how it took reasonable measures to keep information secret, how the information derived independent economic value, and how the Arizona company itself—as opposed to the allegedly purloined employee—misappropriated trade secrets. The court rejected all of these challenges.
The first two issues were easily dealt with. The Mississippi bank adequately alleged reasonable measures to keep its information secret, the court found, because it imposed a confidentiality agreement upon him requiring him to “protect and maintain the consideration or proprietary character” of trade secrets. And the alleged trade secrets at issue had economic value, the court found, because they involved customer lists with “detailed, non-public customer information” that required “substantial effort to develop” that could give competitors an advantage. That was more than enough to state a claim, the court found.
As to whether the complaint was adequately directed at the Arizona company as opposed to its new employee was a tougher question, but also came out the same way. The complaint alleged that the Arizona company encouraged that employee to purloin trade secrets from his old employee, learned that he had been successful in doing so, and then hired him with that knowledge. Those allegations were enough, the court found. To be sure, the court noted, the allegations were made “on information and belief”—normally not the makings of a valid complaint. But those allegations were paired with additional factual information making “the inference of culpability plausible,” the court noted—including examples of the employee contacting his former colleagues days after resigning and encouraging them to transition or move their business to the Arizona company. That was enough to make out a complaint, the court found.
Common law claims. The court found that the Mississippi bank’s common law claims would survive as well. The tortious interference claim would stand because the Mississippi bank adequately alleged that the Arizona company knew of its contractual relationship with its employee and deliberately interfered with it. The unjust enrichment claim survived because it claimed that customers transferred from one entity to another—to the Arizona company’s benefit and the Mississippi bank’s detriment. The unfair competition claim would survive because there were adequate allegations—at least for now—that the two companies competed directly with one another for customers. Civil conspiracy and aiding and abetting claims would also move forward, the court found.
The Case is No. 4:23-cv-00124-SHR.
Attorneys: Cameron Ailes Fine (DLA Piper LLP) for Cadence Bank f/k/a BancorpSouth Bank. Alexandra DeArman-Miller (Burns Barton PLC) for Heritage Family Offices LLP.
Companies: Cadence Bank f/k/a BancorpSouth Bank; Heritage Family Offices LLP
Cases: TradeSecrets ArizonaNews