Source: https://cal-employment.com/category/preemption/
Timestamp: 2019-04-18 20:21:10+00:00

Document:
The Northern District of California denied defendants’ motion to dismiss based on UTSA preemption and denied plaintiff’s motion for preliminary injunction. Kovesdy v. Kovesdy, C 10-02012 SBA, 2010 WL 3619826 (N.D. Cal. Sept. 13, 2010) (slip op.). Plaintiff Eric Kovesdy (“Eric” or “Plaintiff”) sued his stepmother, Defendant Hedy Kovesdy (“Hedy”) for, inter alia, for misappropriation of trade secrets under California’s Uniform Trade Secrets Act (“UTSA”), Cal. Civ. Code §§ 3426-3426.11, and trademark infringement under the Lanham Act, 15 U.S.C. § 1125(a). Id. (1) Defendants moved to dismiss; and (2) Plaintiff moved for preliminary injunction.
Since the opinion in Court of Appeal decision in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal. App. 4th 939, 954 (2009), defendants have successfully demurred to common law-based causes of action, arguing that the UTSA preempts them. In this next case, Removable Media Solutions v. AAR Mobility Systems, 2010 WL 3034219 (E.D. Cal. July 28, 2010) (slip op.), defense counsel takes it one step further, arguing that the statute preempts a contract claim. This is despite the language of the statute that expressly excludes preemption of “contractual remedies, whether or not based upon misappropriation of a trade secret“.
Plaintiff Removable Media Solutions, Inc. (“RMSI”) previously sought to sell a telecommunications device to the California National Guard. RMSI sought the assistance of defendant AAR Manufacturing, Inc., (“AAR”) in this endeavor. The California National Guard eventually elected to retain the services of AAR but not RMSI in producing the device, and AAR subsequently sold similar devices to other states.
RMSI’s claims alleged that AAR breached a non-disclosure agreement. AAR sought summary judgment on both. The court denied the motion as to the non-disclosure agreement.
(a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets.
Courts have held that except for the three exemptions noted in subsection (b), the statute implicitly “preempts common law claims that are based on misappropriation of a trade secret.” Ali v. Fasteners for Retail, Inc., 544 F.Supp.2d 1064, 1070 (E.D.Cal.2008) (internal quotation marks omitted); see also K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal.App. 4th 939, 954 (2009), Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 954 (N.D.Cal.2003) (holding that this interpretation was implied by Cadence Design Systems, Inc. v. Avant! Corp., 29 Cal.4th 215, 224 (2002)).
AAR’s argument that this implicit preemption extends to contract claims invokes a gross misreading of the caselaw. AAR quotes the statement from Digital Envoy, Inc. v. Google, Inc., 370 F.Supp.2d 1025 (N.D.Cal.2005) that “all state law claims based on the same nucleus of facts as the trade secrets claim are preempted under California’s UTSA.” Id. at 1034.FN4 AAR argues that notwithstanding the statute’s explicit saving of contract claims, courts have stated that “common law claims” arising out of the same operative facts as a trade secret claims are preempted, and that contract claims are common law claims, so contract claims must be preempted.
To the extent that Digital Envoy held that “all claims” are preempted, it plainly referred to “all claims” argued to be preempted in that case, i.e., claims for unfair competition and unjust enrichment. Id. at 1035 (“California’s statute. preempts Digital’s claims for unfair competition and unjust enrichment.”). Digital Envoy and other cases have explicitly recognized that § 3426.7 does not preempt contract claims. Id. (§ 3426.7 “explicitly states that claims based upon breach of contract … are not preempted by the statute.”); see also First Advantage Background Servs. Corp. v. Private Eyes, Inc., 569 F.Supp.2d 929, 936 (N.D.Cal.2008), HiRel Connectors, Inc. v. United States, No. CV 01-11069, 2006 U.S. Dist. LEXIS 93332 (C.D.Cal. July 18, 2006) (“Plaintiff’s claim for breach of contract is not preempted by California’s Uniform Trade Secrets Act.”). While few California courts have spoken to the scope of this statute, at least one state court has allowed a claim for breach of a non-disclosure agreement to proceed in parallel with a claim for misappropriation of trade secrets. Glue-Fold, Inc. v. Slautterback Corp., 82 Cal.App. 4th 1018, 1021 (2000). Although Glue-Fold did not discuss possible preemption of the contract claim, this may well be because the issue was so clear as to require no discussion.
Although this conclusion should be obvious, the court has exhaustively searched cases citing § 3426.7, finding no cases providing even implicit support for AAR’s theory. AAR’s motion is therefore denied as to this claim.
Senior District Judge Lawrence K. Karlton wrote the opinion.
Plaintiff Spring Design, Inc. brought an action Barnesandnoble.com, LLC alleging, inter alia, misappropriation of trade secrets and violations of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code section 17200, et. seq. Id. *1.Plaintiff alleged that Barnesandnoble.com used Plaintiff’s confidential information to develop a competing eReader device, the Nook, in violation of the parties’ non-disclosure agreement.Id. The parties brought cross motions for summary judgment.

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