Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02001/USCOURTS-azd-2_07-cv-02001-2/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:271 Patent Infringement

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The Court dismissed the conversion claim, pursuant to Plaintiffs’ stipulation.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Firetrace USA, LLC, et al., 

Plaintiffs, 

vs.

Candice Jesclard, et al., 

Defendants. 

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No. CV-07-02001-PHX-ROS

SEALED ORDER

Before the Court is Defendants’ Motion for Partial Summary Judgment, which will

be granted in part. (Doc. 564). 

BACKGROUND

Plaintiffs filed an Amended Complaint alleging patent infringement, misappropriation

of trade secrets in violation of the Arizona Uniform Trade Secrets Act (“AUTSA”), A.R.S.

§ 44-401 et seq., unfair competition, unjust enrichment, tortious interference with contractual

relationship or business expectation, breach of fiduciary duty, breach of the duty of loyalty,

breach of contract, and conversion.1

 Plaintiff Firetrace Aerospace, LLC (“Firetrace”) was

formed in 2003 by its parent company, Plaintiff Firetrace USA, LLC, to design, manufacture,

and sell fire suppression technology to the military and its suppliers. One of Firetrace’s

patented products is “FIRE Panel,” a shell containing a fire suppression powder that is used

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to protect fuel tanks on vehicles. Lawrence Jesclard (former Defendant, now deceased), was

a Senior Program Manager at Firetrace before resigning in February 2006. After resigning,

Mr. Jesclard founded Defendant Hazard Protection Systems, Inc., to develop and market a

fire suppression product called “NCASE.” Plaintiffs allege Mr. Jesclard improperly utilized

Firetrace’s trade secrets, including customer information, pricing, suppliers, and other

information. Defendants move for partial summary judgment on all of Plaintiffs’ claims

except patent infringement. 

STANDARD

Summary judgment is appropriate where “there is no genuine issue as to any material

fact” and “the movant is entitled to judgment as a matter of law.” Fed R. Civ. P. 56(c). To

enter summary judgment, the Court must examine all evidence and find no dispute

concerning genuine issues of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 255-256 (1986). The evidence of the non-moving party is to be believed, and all

reasonable inferences drawn in its favor. See id. “[A] party seeking summary judgment

always bears the initial responsibility of informing the district court of the basis for its

motion, and identifying those portions of the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, which it believes

demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477

U.S. 317, 323 (1986) (internal citations omitted). However, if the non-moving party bears

the burden of proof at trial, the moving party’s summary judgment motion need only

highlight the absence of evidence supporting the non-moving party’s claims. See Devereaux

v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (citing Celotex Corp., 477 U.S. at 323-25).

The burden then shifts to the non-moving party who must produce evidence sustaining a

genuine issue of disputed material fact. See id.

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DISCUSSION

I. Unfair Competition, Unjust Enrichment, Breach of Fiduciary Duty, Breach of

the Duty of Loyalty, and Tortious Interference

A. Preemptive Effect of the Arizona Uniform Trade Secrets Act

Defendants argue the claims for unfair competition, unjust enrichment, breach of

fiduciary duty, breach of the duty of loyalty, and tortious interference are prohibited by the

preemption provision of the Arizona Uniform Trade Secrets Act (“AUTSA”), A.R.S. § 44-

407. The AUTSA defines the common law term “trade secret,” and sets forth the remedies

that are available for a misappropriation of trade secrets claim. The AUTSA expressly

displaces other conflicting Arizona laws that provide remedies for misappropriation of trade

secrets:

§ 44-407. Effect on other laws

A. Except as provided in subsection B, this chapter displaces conflicting tort,

restitutionary and other laws of this state providing civil remedies for

misappropriation of a trade secret.

B. This chapter does not effect:

1. Contractual remedies, whether or not based on misappropriation of a trade

secret.

2. Other civil remedies that are not based on misappropriation of a trade secret.

3. Criminal remedies, whether or not based on misappropriation of a trade

secret.

Defendants argue that because Plaintiffs’ common law tort claims are all based on alleged

misappropriation of trade secrets, they are all preempted by the AUTSA. Defendants also

argue that even if the claims are based on misappropriation of information not rising to the

level of “trade secret,” they are still preempted by the AUTSA.

Plaintiffs do not dispute that the AUTSA preempts their common law tort claims to

the extent they are based on an allegation that Defendants misappropriated trade secrets.

Defendants will be granted summary judgment on the common law tort claims in so far as

they are based on misappropriation of trade secrets. Plaintiffs argue their tort claims are not

preempted to the extent they are based on the misuse of confidential information that does

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Plaintiffs do not identify which of the information involved does not rise to level of

a trade secret, such that a tort claim based on it would not be displaced by the AUTSA. 

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not meet the AUTSA’s definition of a “trade secret.”2 Plaintiffs also argue that their common

law tort claims are not entirely preempted because they are not based solely on

misappropriation of information, but are also premised on other wrongful acts committed by

Mr. Jesclard while employed by Firetrace: (1) initiating his plan to develop a competing

product, (2) concealing a request from a customer for a “blanket-type” product, and (3)

discussing with a potential Firetrace customer the limitations of the Firetrace product, and

failing to share those observations with Firetrace. 

Arizona courts have not considered the effect of the preemption provision of the

AUTSA. In the absence of a decision from a state’s highest court on an issue of state law,

a federal court “must predict how the highest state court would decide the issue using

intermediate appellate court decisions, decisions from other jurisdictions, statutes, treaties,

and restatements as guidance.” Vestar Development II v. General Dynamics Corp., 249 F.3d

958, 960 (9th Cir. 2001) (quotation marks and citation omitted). 

The preemption provision in the AUTSA is identical to the preemption provision in

the Uniform Trade Secrets Act ("UTSA"), which has been adopted in some form by most

states. A number of courts have considered whether the provision preempts all common law

tort claims based on the misappropriation of information, or only those that are based on

misappropriation of information that meets the statutory definition of a “trade secret,”and two

camps have developed on both sides. See Hauck Mfg. v. Astec Industries, Inc., 375 F.Supp.2d

649 (E.D. Tenn. 2004) (discussing the nationwide jurisprudence on this issue). The majority

interpretation appears to be that the UTSA preempts all common law tort claims based on

misappropriation of information, whether or not it meets the statutory definition of a trade

secret. See id. at 654 (“[T]he UTSA’s preemption provision has generally been interpreted

to abolish all free-standing alternative causes of action for theft or misuse of confidential,

proprietary, or otherwise secret information falling short of trade secret status . . . .”);

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Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 776 (N.H. 2006) (disagreeing with the

“minority of courts that have held that common law and statutory claims are not preempted

by the UTSA if they involve information that does not meet the statutory definition of a trade

secret.”); Learning Curve Toys, L.P. v. Playwood Toys, Inc., 1999 WL 529572, * 3 (N.D. Ill.

1999) (“The purpose of the ITSA [Illinois Trade Secrets Act] was to codify all the various

common law remedies for theft of ideas.”); Composite Marine Propellers, Inc. v. Van Der

Woude, 962 F.2d 1263, 1265 (7th Cir. 1992) (“[The UTSA] has abolished all common law

theories of misuse of [secret] information.”). 

The Court is persuaded that the Arizona Supreme Court would construe the AUTSA

preemption provision in the same manner as the majority of courts, such that it preempts all

common law claims based on the misappropriation of secret information. When the Arizona

Supreme Court interprets statutes, it applies “fundamental principles of statutory

construction, the cornerstone of which is the rule that the best and most reliable index of a

statute’s meaning is its language and, when the language is clear and unequivocal, it is

determinative of the statute’s construction.” Backus v. State, 203 P.2d 499, 502 (Ariz. 2009)

(internal quotation marks and citation omitted). The language of the preemption provision

of the UTSA is not clear and unequivocal, as evidenced by the divergence in the

interpretation given to it by courts. When there is confusion in statutory interpretation, it is

necessary to determine the legislative intent for the statute. Id; State v. Sweet, 693 P.2d 921,

925 (1985). When determining the intent of the legislature, it is “helpful and proper to turn

to the overall purposes and aims of the legislature in enacting the statute in order to glean the

legislative intent.” Sweet, 693 P.2d at 925 (internal quotation marks and citation omitted).

The purpose of the UTSA preemption provision is to “create a uniform business

environment [with] more certain standards for protection of commercially valuable

information, and to preserve a single tort action under state law for misappropriation of a

trade secret as defined in the statute and thus to eliminate other tort causes of action founded

on allegations of misappropriation of information.” Mortgage Specialists, Inc., 904 A.2d at

776; see also Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F.Supp.2d 943,

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As noted, not all of Plaintiffs’ common law tort claims (unfair competition, unjust

enrichment, breach of fiduciary duty, breach of the duty of loyalty, and tortious interference)

are based on misappropriation of information. Plaintiffs also base these claims on other

alleged wrongful conduct committed by Mr. Jesclard. In so far as these claims are based on

wrongful conduct other than misappropriation of information, they are considered below

under section D: “Common Law Tort Claims Not Based on Misappropriation of

Information.”

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948 (W.D. Mich. 2003) (internal citation and quotation marks omitted) (noting the purpose

of the UTSA was to “codify all the various common law remedies for theft of ideas . . . .”).

If the UTSA’s preemption provision only preempted claims of misappropriation of

information that meets the statutory definition of a “trade secrets,” the provision’s purpose

would be undermined. In Auto Channel, Inc. v. Speedvision Network, LLC, 144 F.Supp.2d

784, 789 (W.D. Ky. 2001), the court explained: 

In every instance where a plaintiff could not meet the statutory requirements

of the Uniform Act, the court would be forced to re-analyze the claim under

the various common law theories. See, e.g., Weins v. Sporleder, 1999 SD 10,

605 N.W.2d 488, 491-92 (S.D. 2000) (citing cases where “numerous courts

have specifically found that tort claims such as fraud, unfair competition, and

breach of fiduciary duty are preempted by the Uniform Trade Secret Act”).

Such a result would undermine the uniformity and clarity that motivated the

creation and passage of the Uniform Act. 

Plaintiffs’ proposed interpretation of the provision would also “forbid preemption of state

law claims until a final determination has been made with respect to whether the confidential

information at issue rises to the level of a trade secret.” Thomas & Betts Corp. v. Panduit

Corp., 108 F.Supp.2d 968, 972-72 (N.D. Ill. 2000). Because a different interpretation would

undermine the statute’s purpose, the Court is persuaded that the AUTSA preempts all

Plaintiffs’ common law tort claims based on the misappropriation of information, whether

or not that information meets the statutory definition of a trade secret.3

 

B. Arizona Constitution Anti-abrogation Clause

Plaintiffs argue that if the AUTSA is construed as preempting common law tort claims

based on the misappropriation of information not rising to the level of a trade-secret, then the

Act violates Ariz. Const. Art. XVIII, § 6, which provides: “The right of action to recover

damages for injuries shall never be abrogated, and the amount recovered shall not be subject

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to any statutory limitation.” This provision “prevents the legislature from abrogating a cause

of action to recover damages for injuries that existed at common law.” Hazine v.

Montgomery Elevator Co., 861P.2d 625, 633 (Ariz. 1993). In order to be protected by the

abrogation clause, the cause of action must have either been recognized at common law when

the Arizona Constitution was established in 1912, or have evolved from common law

antecedents. Cronin v. Sheldon, 991 P.2d 231, 239 (Ariz. 1999). 

Plaintiffs fail to establish that a right of action for misappropriation of information was

recognized at common law, or has evolved from common law antecedents. Plaintiffs cite a

single case, Amex Distributing Co. v. Mascari, 724 P.2d 596, 603 (Ariz. Ct. App. 1986),

which they claim recognized “confidential information” as a category of protected

information distinct from trade secrets. In Mascari, the court considered whether

information about customers could be given trade secret protection. The court noted that if

“customer information is truly confidential, and to a substantial degree inaccessible, it may

be given a measure of the protection accorded true trade secrets.” Id. at 602 (emphasis

added). But the court went on to rule that the customer information before it was not entitled

to protection. Id. at 603. A note in a 1986 case stating that it is possible customer

information could be protected, though not a “true” trade secret, but concluding that such

information was not protected under the circumstances present, provides no evidence that a

cause of action for torts based on misappropriation of non-trade secret information existed

at common law in 1912. Plaintiffs fail to establish the AUTSA preemption provision violates

the anti-abrogation clause of the Arizona Constitution.

C. Defendants Did Not Waive Preemption Defense

Plaintiffs argue Defendants waived the preemption defense because they did not

present it in their initial Answer. Because Plaintiffs’ common law claims for

misappropriation of confidential information are preempted, they contain no cause of action

that can proceed to trial. Defendants did not, and could not have, waived the defense that the

Plaintiffs fail to state claims upon which relief can be granted.

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D. Common Law Tort Claims Not Based on Misappropriation of Information

As noted above, Plaintiffs argue their common law tort claims for unfair competition,

unjust enrichment, breach of fiduciary duty, breach of the duty of loyalty, and tortious

interference are not entirely preempted because they are not based solely on misappropriation

of information, but are also premised on the following other wrongful acts committed by Mr.

Jesclard while still employed by Firetrace: (1) initiating his plan to develop a competing

product, (2) concealing a request from a customer for a “blanket-type” product, and (3)

discussing with a potential Firetrace customer the limitations of the Firetrace product, and

failing to share those observations with Firetrace. 

Defendants argue the claims based on these wrongful acts fail on other grounds.

Specifically, Defendants argue: (1) the tortious interference and unfair competition claims

are barred by the economic loss rule, (2) the unjust enrichment claim is precluded by Mr.

Jesclard’s employment contract, and (3) the breach of fiduciary duty/duty of loyalty claim

fails because Plaintiffs have failed to show proximately caused damages. These arguments

will be considered in succession. 

1. Tortious Interference and Unfair Competition Claims are Not Barred

by the Economic Loss Rule

Defendants argue Plaintiffs’ tortious interference and unfair competition claims are

barred by the economic loss rule because Plaintiffs are only seeking economic damages. The

“economic loss rule” is an Arizona State common law doctrine that limits recovery, under

certain circumstances, of purely economic damages for a tort claim. Flagstaff Affordable

Housing Ltd. Partnership v. Design Alliance, Inc., 223 P.3d 664, 665 (Ariz. 2010). The rule

limits “a contracting party to contractual remedies for the recovery of economic losses

unaccompanied by physical injury to persons or other property.” Id. at 667. The purpose

of the rule is “to encourage private ordering of economic relationships and to uphold the

expectations of the parties by limiting a plaintiff to contractual remedies for the loss of the

benefit of the bargain.” Id. at 671. 

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In an decision that was later depublished and which lacks precedential value, Kana,

Inc. v. Burger King, Corp., the Arizona Court of Appeals applied the economic loss rule

outside the products liability and construction defects context. Evans, 518 F. Supp.2d at 1142

n. 2. 

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Despite the broadly worded manner in which the economic loss rule has been defined

as set forth above, the rule does not bar all tort claims that seek only economic damages. See

id. The borders of the rule are hazy because courts are struggling to determine precisely

which tort claims are barred. See id. at 666-67 (Noting that “the court of appeals and the

federal courts have reached conflicting conclusions regarding the application of the doctrine

under Arizona law,” and “[c]ourts and commentators have defined the economic loss

doctrine in various ways.”). The doctrine first arose in product liability cases, informed by

a belief that tort law principles should not interfere with the right and responsibility of sellers

and consumers of products to privately assign the risks of product failure—unless the product

failure threatens public safety. See Edward P. Ballinger, Jr. & Samuel A. Thumma, The

Continuing Evolution of Arizona’s Economic Loss Rule, 39 Ariz. St. L.J. 535 (2007)

(hereinafter “Ballinger & Thumma”); Evans v. Singer, 518, F.Supp.2d 1134 (D. Ariz. 2007).

The doctrine was subsequently applied to construction defect cases based on similar policy

considerations. See Flagstaff Affordable Housing Ltd. Partnership, 223 P.2d at 667. To date,

no Arizona court has issued a published decision applying the rule outside of product liability

and construction defect cases.4 Id.; Giles Constr., Inc. v. Commercial Fed. Bank, 2006 WL

2711501, *10 (D. Ariz. 2006) (“Other than construction and product defect cases, however,

the Arizona courts have not applied the economic loss rule as a bar to the recovery of

economic damages in tort cases.”)

A few federal courts, however, have invoked the economic loss rule outside of product

liability and construction defect cases. See Ballinger & Thumma (discussing the various

cases). In QC Const. Products, LLC v. Cohill’s Bldg. Specialties, Inc., 423 F.Supp.2d 1008,

1015-16 (D. Ariz. 2006), the Court ruled that the economic loss rule barred claims for

tortious interference with business relationships, fraud, and unfair competition, which were

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based on an allegation that the defendant represented that it was marketing plaintiff’s

products, when it was in fact marketing a competitor’s product. See also Marks v. Citizens

Commc’n Co., CV-00-2333-PHX-SMM, (Doc. 143) slip op. (D. Ariz. July 21, 2003);

Pegasus LLC v. Heil Co., Inc., CV-96-2851-PHX-JWS, (Doc. 148) slip op. (D. Ariz. April

2, 1999); Wojtunik v. Kealy, 394 F.Supp.2d 1149, 1171 (D. Ariz. 2005). 

The federal courts that have broadly applied the economic loss rule did not have the

benefit of the recent Arizona Supreme Court decision, Flagstaff Affordable Housing Ltd.

Partnership v. Design Alliance, Inc., which analyzes the rule at length, adding clarity to its

meaning and scope. 223 P.3d 664. In Flagstaff Affordable Housing Ltd. Partnership, the

court explained that for purposes of the economic loss rule, the term “economic loss” carries

a very distinct and particular meaning: “‘Economic loss,’ as we use the phrase, refers to

pecuniary or commercial damage, including any decreased value or repair costs for a product

or property that is itself the subject of a contract between the plaintiff and defendant, and

consequential damages such as lost profits.” Id. Although the court’s comma placement

renders this definition slightly ambiguous, the court appears to be stating that “economic

loss” refers only to pecuniary or commercial damage to products or property that is the

subject of a contract between the plaintiff and defendant. 

In this case, Plaintiffs allege Defendants’ torts caused a business to suffer pecuniary

damages. Although an employment contract governed the parties’ relationship, it was a

contract for services—not a contract for a product or property. Hence, applying the Court's

reading of Flagstaff Affordable Housing Ltd. Partnership, the economic loss rule is

inapplicable to Plaintiffs’ tortious interference and unfair competition claims.

The Court recognizes that the scope of the economic loss doctrine remains unclear,

and the Arizona Supreme Court’s definition of “economic loss” could be interpreted

differently. The Arizona Supreme Court’s ruling fell short of expressly declaring that the

rule only applies in product liability and construction defect cases. But there is little to

support the argument that Arizona courts intended the doctrine to apply outside these

contexts. The Ninth Circuit has observed that in cases in which the rule has been applied

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“outside the product liability context, the [economic loss] doctrine has produced difficulty

and confusion.” Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 874 (9th Cir. 2007).

If the doctrine were extended beyond these contexts, it could potentially bar far more

common law tort claims than Arizona courts ever intended. As the court warned in KD &

KD Enterprises, LLC, 2006 WL 3808257, *1 (D. Ariz. 2006), a broad reading of the rule

“would basically eviscerate the tort of fraud, for the only damages one has in fraud are

economic. The law cannot be so twisted.” Breach of fiduciary duty claims (which typically

cause only pecuniary damages and arise in situations in which a contract already governs the

parties’ relationship) could similarly become nearly obsolete. Without some clear indication

from the Arizona courts that the economic loss rule applies beyond product liability and

construction defect cases, the Court will not extend it to Plaintiffs’ tort claims. Summary

judgment on Plaintiffs’ tortious interference and unfair competition claims will be denied.

2. Unjust Enrichment Claim Precluded by Employment Contract

Defendants argue the unjust enrichment claim is precluded by Mr. Jesclard’s

employment contract. Where “there is a specific contract which governs the relationship of

the parties, the doctrine of unjust enrichment has no application.” Brooks v. Valley Nat’l

Bank, 548 P.2d 1166, 19071 (Ariz. 1976). As discussed above, all of the wrongful acts

Plainiffs allege Mr. Jesclard committed were expressly governed by his employment contract

with Firetrace. The unjust enrichment claim is therefore barred. 

3. Proximate Damage Resulting from Breach of Fiduciary Duties

Defendants argue Plaintiffs have suffered no damage as a proximate result of any

wrongful conduct constituting a breach of fiduciary duties, including the duty of loyalty. In

Arizona, an employee owes his or her employer a “fiduciary duty,” which includes a “duty

of loyalty.” Security Title Agency, Inc. v. Pope, 200 P.3d 977, 989 (Ariz. Ct. App. 2008). To

recover for breach of the fiduciary duty of loyalty in Arizona, a plaintiff must prove

proximately caused damages. See Agilysys, Inc. v. Vipond, 2006 WL 2620103, *2 (D. Ariz.

2006). For the breach to proximately cause an injury, the wrongful conduct must be a

“substantial factor in bringing about the harm.” Standard Chartered PLC v. Price

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Waterhouse, 945 P.2d 317, 343 (Ariz. Ct. App. 1997); see also Smith v. Johnson, 899 P.2d

199, 202 (Ariz. Ct. App. 1995) (A tort plaintiff “must show a reasonable connection between

the defendant’s act or omission and the plaintiff’s injury or damages.”) 

 Plaintiffs allege Mr. Jesclard is liable for breach of fiduciary duty because he told a

potential Firetrace customer (while still employed by Firetrace) that the Firetrace product had

certain limitations; told the customer he was going to design a better product; falsely told the

customer he had unsuccessfully tried to get Firetrace to implement his ideas; and never

shared his thoughts regarding the limitations of the product with Firetrace. Plaintiffs also

allege Mr. Jesclard failed to disclose he received an email from another potential customer

expressing interest in a flexible product. As a result of these wrongful acts, Plaintiffs

contend they have been injured in two ways: (1) Firetrace was deprived of the opportunity

to pursue the idea and to obtain business from the customer in question, and (2) Mr. Jesclard

developed a competing product after leaving Firetrace.

In reply, Defendants argue Mr. Jesclard only owed fiduciary duties and a duty of

loyalty to Firetrace while employed with Firetrace, such that there can be no liability for the

subsequent development of a competing product. Defendants are correct that an employee

owes no fiduciary duty post-termination of the employment relationship. See Taser Intern.,

Inc. v. Ward, 231 P.3d 921, 926 (Ariz. Ct. App. 2010) (“Following the termination of the

employment relationship . . . a former employee is free to compete.”) Plaintiffs allege,

however, that Mr. Jesclard committed the acts described while still employed at Firetrace.

Defendants also argue Mr. Jesclard’s alleged acts merely constituted preparation to

compete, which is not a breach of fiduciary duty. Defendants are correct that preparation to

compete is not enough to support a breach of fiduciary duty claim. See id. (“Although an

employee may not compete prior to termination, the employee may take action during

employment . . . to prepare for competition following termination of the agency

relationship.”) (internal quotation marks and citation omitted). But the fiduciary duty of

loyalty requires that an employee refrain from actively competing with his employer while

still employed. Id Although an employee may “prepare” to compete, he may not engage in

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By ruling on “liability,” the Court did not rule on whether Plaintiffs satisfied all the

elements of the trade secret and breach of contract claims sufficient to overcome summary

judgment. As discussed in this Order, damages are an essential element of both

misappropriation of trade secret and breach of contract claims. The Court did not consider,

and did not rule, on the question of whether Plaintiffs suffered damage. In determining

“liability,” the Court only considered the question of whether Defendants committed

wrongful acts that constituted a breach of duty or breach of contract. 

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“acts in direct competition with the employer’s business.” Id. (internal quotation marks and

citation omitted). Here, a reasonable jury could find the various alleged wrongful acts by Mr.

Jesclard, taken together, constitute a breach of his fiduciary duties. “The line separating mere

preparation from active competition may be difficult to discern in some cases.” Id. (internal

quotation marks and citation omitted). Whether an employee’s actions constitute a breach

of the fiduciary duty of loyalty is “a question of fact to be decided by the trier of fact based

on a consideration of all the circumstances of the case.” Security Title Agency, Inc. v. Pope,

200 P.3d 977, 989 (Ariz. Ct. App. 2008). 

There are genuine issues of fact regarding whether Mr. Jesclard’s alleged wrongful

acts proximately caused Firetrace to be deprived of the opportunity to develop and pursue

a different version of its product and to acquire business from a potential customer interested

in that different version. A genuine issue of material fact also remains concerning whether

Mr. Jesclard’s subsequent development of a competing product was proximately caused by

his alleged breach of fiduciary duty. Summary judgment will be denied on Plaintiffs’ breach

of fiduciary duty claims to the extent that they are based on allegations other than

misappropriation of confidential information.

II. Misappropriation of Trade Secrets and Breach of Contract

In the first phase of litigation, the parties agreed to bifurcate liability5

 and damages

proceedings for the misappropriation of trade secrets and breach of contract claims. After

a bench trial, the Court ruled Mr. Jesclard was liable for misappropriation of trade secrets for

disclosing Firetrace’s costs of manufacturing FIRE Panel to potential investors. The Court

also ruled Mr. Jesclard breached his confidentiality agreement by disclosing information

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related to Firetrace’s costs of manufacturing FIRE Panel, and by disclosing information about

the results of FIRE Panel tests. Although finding Mr. Jesclard committed acts constituting

misappropriation of trade secrets and breaches of contract, the Court also found Mr. Jesclard

did not use the misappropriated information in developing NCASE. The Court indicated that

damages, if any, would be determined at a later stage of the litigation.

Defendants move for summary judgment on the misappropriation of trade secrets and

breach of contract claims on the ground that Plaintiffs have not suffered proximate damages.

Defendants cite testimony from a witness for Plaintiffs stating that Firetrace did not suffer

damage from the misappropriation of trade secret liability found by the Court. To recover

on a tort or a breach of contract claim, a plaintiff must show proximately caused damages.

See Thompson v. Better-Bilt Aluminum Prods. Co., 832 P.2d 203, 207 (Ariz. 1992) (torts);

Chartone, Inc. v. Bernini, 83 P.3d 1103, 1111 (Ariz. Ct. App. 2004) (breach of contract);

Home Indem. Co. v. Bush, 513 P.2d 145, 150 (Ariz. App. 1973) (breach of contract). 

Plaintiffs argue they suffered damages as a result of the misappropriation of trade

secrets and breaches of contract because they resulted in Defendants creating a competing

product, and destroyed the value of the confidential information. Plaintiffs argue that but for

Mr. Jesclard’s use of the information, he would not have created NCASE. Although

Plaintiffs acknowledge the Court previously found Mr. Jesclard did not use the trade secret

and other confidential information in developing NCASE, Plaintiffs claim that finding was

only made in the context of determining whether an injunction was warranted. Plaintiffs

argue they did not waive their right to a jury trial on the question of whether Mr. Jesclard’s

wrongful conduct caused them damage.

Assuming the Court’s finding was unnecessary to determining the extent of

Defendants’ liability, and only related to Plaintiffs’ damages, the outcome at this stage is the

same. Plaintiffs have not met their burden to overcome summary judgment by showing

evidence they were proximately damaged by Mr. Jesclard’s use of confidential information.

The proximate cause of an injury is defined in Arizona as “that which, in a natural and

continuous sequence, unbroken by any efficient intervening cause, produces an injury, and

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without which the injury would not have occurred.” Saucedo ex. re. Sinaloa v. Salvation

Army, 24 P.3d 1274, 1278 (Ariz. Ct. App. 2001). To have proximately caused an injury, the

wrongful conduct must be a “substantial factor in bringing about the harm.” Standard

Chartered PLCv. Price Waterhouse, 945 P.2d 317, 343 (Ariz. Ct. App. 1997); see also Smith

v. Johnson, 899 P.2d 199, 202 (Ariz. Ct. App. 1995) (A plaintiff “must show a reasonable

connection between the defendant’s act or omission and the plaintiff’s injury or damages.”)

Proximate cause is typically a question of fact for a jury, but it may become a question of law

when the facts are undisputed: “What constitutes the proximate cause of an injury in a

particular case is a question of fact to be determined from all the surrounding circumstances,

and can only be a question of law when the facts are not only undisputed but are also such

that there can be no difference in the judgment of reasonable men as to the inferences to be

drawn from them.” Kavanaugh v. Kavanaugh, 641 P.2d 258, 266 (Ariz. App. 1981). 

Here, Plaintiffs have shown no evidence sufficient to get to a jury that would support

a finding that Mr. Jesclard’s disclosure of the costs of Firetrace’s product to potential

investors was a substantial factor in Mr. Jesclard’s subsequent creation of a competing

product. Nor have they shown evidence that Mr. Jesclard’s disclosure of information related

to the testing of FIRE Panel proximately caused him to develop a competing product.

Because Plaintiffs fail to meet their burden of showing evidence of proximate damages,

summary judgment will be granted on the misappropriation of trade secrets and breach of

contract claims.

Accordingly,

IT IS ORDERED Defendants’ Motion for Partial Summary Judgment (Doc. 564) IS

GRANTED IN PART. Defendants are granted summary judgment on Plaintiffs’ claims for

misappropriation of trade secrets, breach of contract, and unjust enrichment. Defendants are

granted summary judgment on the unfair competition, tortious interference, and breach of

fiduciary duty/duty of loyalty claims to the extent they are based on misappropriation of

information. To the extent the unfair competition, tortious interference, and breach of

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fiduciary duty/duty of loyalty claims are based on other wrongful acts by Mr. Jesclard while

employed at Firetrace, the claims survive and summary judgment is denied. 

FURTHER ORDERED the parties shall file the pretrial documents referenced in the

Rule 16 Scheduling Order by September 17, 2010. The trial will only address Plaintiffs'

surviving unfair competition, tortious interference, and breach of fiduciary duty/duty of

loyalty claims, and the pretrial documents should only address these claims. If the patent

infringement claim survives summary judgment, a separate trial will be held on the patent

infringement claim.

FURTHER ORDERED a final pretrial conference will be held on November 19,

2010 at 1:30 p.m. The Court will set the trial date and a status conference regarding juror

questionnaires at the final pretrial conference.

FURTHER ORDERED the parties shall indicate whether this Order should remain

sealed and state good cause for keeping it sealed by August 6, 2010. If the parties fail to do

so, the Clerk of the Court shall unseal this Order. 

DATED this 30th day of July, 2010.

cc: all counsel

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