Court Opinion

ID: 2752976
Source: CourtListenerOpinion
Date Created: 2014-11-19 17:02:06.407309+00
Date Added: 2024-06-11T10:18:21.742394
License: Public Domain

IN THE

    SUPREME COURT OF THE STATE OF ARIZONA
     ORCA COMMUNICATIONS UNLIMITED, LLC, A LIMITED LIABILITY
                          COMPANY,
                      Plaintiff/Appellant,

                                  v.

 ANN J. NODER AND CHRISTOPHER C. NODER, WIFE AND HUSBAND; PITCH
        PUBLIC RELATIONS, LLC, A LIMITED LIABILITY COMPANY,
                       Defendants/Appellees.

                          No. CV-13-0351-PR
                       Filed November 19, 2014

          Appeal from the Superior Court in Maricopa County
                    The Honorable John A. Buttrick
                         No. CV2010-023187
                   REVERSED AND REMANDED

            Opinion of the Court of Appeals, Division One
                233 Ariz. 411, 314 P.3d 89 (App. 2013)
           AFFIRMED IN PART; DEPUBLISHED IN PART

COUNSEL:

David B. Earl (argued), Phoenix, for Orca Communications Unlimited,
LLC

Monica A. Limón-Wynn (argued), Law Offices of Monica A. Limón-Wynn
Law PLLC, Tempe, for Ann J. Noder, Christopher C. Noder and Pitch
Public Relations, LLC

VICE CHIEF JUSTICE PELANDER authored the opinion of the Court, in
which CHIEF JUSTICE BALES, JUSTICE BERCH, JUSTICE BRUTINEL,
and JUSTICE TIMMER joined.
                              ORCA V. NODER
                            Opinion of the Court

VICE CHIEF JUSTICE PELANDER, opinion of the Court:

¶1            Arizona’s Uniform Trade Secrets Act (“AUTSA”), A.R.S.
§§ 44-401 to -407, creates an exclusive cause of action—and displaces
conflicting causes of action—for claims based on the misappropriation of
trade secrets. We hold that AUTSA does not displace common-law claims
based on alleged misappropriation of confidential information that is not a
trade secret.

                                      I.

¶2            Because the superior court dismissed the plaintiff’s complaint
pursuant to Arizona Rule of Civil Procedure 12(b)(6), we “look only to the
pleading itself and consider the well-pled factual allegations contained
therein.” Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419 ¶ 7, 189 P.3d 344,
346 (2008). The complaint alleges that between 2002 and 2009, Ann Noder
served as president of Orca Communications Unlimited, LLC (“Orca”), a
public relations company. During that time, she had access to its contracts,
financial data, and customer information. After a failed negotiation to
purchase Orca in early 2009, Noder informed some of Orca’s customers that
she was starting a competing company, Pitch Public Relations, LLC, and
urged them to do business with her new company instead of with Orca.
Noder resigned from Orca in May 2009. This action by Orca against Noder
and her company followed.

¶3            In the only claim at issue here―“unfair competition”―Orca
alleged that Noder had “learned confidential and trade secret information
about Orca,” including “information about Orca’s business model,
operating procedures, techniques, and strengths and weaknesses.” Orca
further alleged that Noder intended to “steal[]” and “exploit” that
information and Orca’s customers to gain a competitive advantage for her
company.

¶4             The superior court dismissed Orca’s complaint under Rule
12(b)(6), concluding that AUTSA preempts Orca’s “common law tort claims
arising from the alleged misuse of ‘confidential information,’” even as to
information “not asserted to rise to the level of a trade secret.” The court of
appeals reversed in part, holding that AUTSA preempts Orca’s unfair-
competition claim to the extent it is based on misappropriation of a trade
secret, but that AUTSA “does not preempt a claim based on the misuse of
confidential information that does not rise to the level of [a] trade secret.”

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                              ORCA V. NODER
                            Opinion of the Court

Orca Commc’ns Unlimited, LLC v. Noder, 233 Ariz. 411, 419 ¶ 28, 421 ¶ 31, 314
P.3d 89, 97, 99 (App. 2013).

¶5          We granted review because the scope of AUTSA’s
displacement of common-law tort claims is a legal issue of statewide
importance. We have jurisdiction pursuant to Article 6, Section 5(3) of the
Arizona Constitution and A.R.S. § 12-120.24.

                                     II.

¶6             We review de novo the dismissal of a complaint under Rule
12(b)(6). Coleman v. City of Mesa, 230 Ariz. 352, 355 ¶ 7, 284 P.3d 863, 866
(2012). Dismissal for failure to state a claim is appropriate “only if as a
matter of law [the] plaintiff[] would not be entitled to relief under any
interpretation of the facts susceptible of proof.” Id. at 356 ¶ 8, 284 P.3d at
867 (citation and internal quotation marks omitted).

                                     A.

¶7            The Arizona Legislature enacted AUTSA in 1990 and adopted
most of the provisions of the Uniform Trade Secrets Act, “which codifies
the basic principles of common-law trade-secret protection, to govern the
resolution of trade-secret issues.” Enter. Leasing Co. of Phx. v. Ehmke, 197
Ariz. 144, 148 ¶ 12, 3 P.3d 1064, 1068 (App. 1999). AUTSA defines “trade
secret” as

       information, including a formula, pattern, compilation,
       program, device, method, technique or process, that both:

       (a)    Derives independent economic value, actual or
       potential, from not being generally known to, and not being
       readily ascertainable by proper means by, other persons who
       can obtain economic value from its disclosure or use.

       (b)   Is the subject of efforts that are reasonable under the
       circumstances to maintain its secrecy.

A.R.S. § 44-401(4).

¶8          This case requires us to interpret the scope of AUTSA’s
displacement provision, which states as follows:

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                              ORCA V. NODER
                            Opinion of the Court

       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 affect:

           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.

Id. § 44-407.

                                      B.

¶9            If a statute is unambiguous, we apply its terms without
resorting to other tools of statutory interpretation, unless doing so leads to
impossible or absurd results. N. Valley Emergency Specialists, L.L.C. v.
Santana, 208 Ariz. 301, 303 ¶ 9, 93 P.3d 501, 503 (2004). Noder asserts that
§ 44-407 broadly displaces all common-law claims for misuse of
confidential information that does not fall within AUTSA’s definition of
“trade secret.” We disagree. On its face, § 44-407 displaces only conflicting
tort claims for “misappropriation” of a “trade secret,” terms AUTSA
specifically defines, A.R.S. § 44-401(2), (4), and leaves undisturbed claims
“that are not based on misappropriation of a trade secret,” id. § 44-407(A),
(B)(2). Nothing in this language suggests that the legislature intended to
displace any cause of action other than one for misappropriation of a trade
secret.

¶10              In addition to giving § 44-407 a broader preemptive sweep
than that statute’s text supports, Noder’s argument conflicts with another
well-established principle. “If the legislature seeks to preempt a cause of
action[,] . . . the law’s text or at least the legislative record should say so
explicitly.” Hayes v. Cont’l Ins. Co., 178 Ariz. 264, 273, 872 P.2d 668, 677
(1994). Absent a clear manifestation of legislative intent to displace a

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                              ORCA V. NODER
                            Opinion of the Court

common-law cause of action, “we interpret statutes with every intendment
in favor of consistency with the common law.” Pleak v. Entrada Prop.
Owners’ Ass’n, 207 Ariz. 418, 422 ¶ 12, 87 P.3d 831, 835 (2004) (citation and
internal quotation marks omitted). Although we do not decide here
whether Arizona common law recognizes a claim for unfair competition,
see infra ¶ 21, “we are reluctant to interpret a statute in favor of denial or
preemption of tort claims—even those that are not or may not be
constitutionally protected—if there is any reasonable doubt about the
legislature’s intent.” Hayes, 178 Ariz. at 272, 872 P.2d at 676; see A.R.S. § 1-
201 (adopting the common law as the rule of decision in Arizona courts
except when repugnant to or inconsistent with Arizona’s Constitution or
laws or the Federal Constitution).

¶11            “[I]t is not the function of the courts to rewrite statutes. The
choice of the appropriate wording rests with the Legislature, and the court
may not substitute its judgment for that of the Legislature.” City of Phoenix
v. Butler, 110 Ariz. 160, 162, 515 P.2d 1180, 1182 (1973) (citation omitted). At
the least, § 44-407’s text creates reasonable doubt about the legislature’s
intent regarding displacement of common-law claims that do not involve
trade secrets as defined in AUTSA. See Hayes, 178 Ariz. at 272, 872 P.2d at
676. Because that displacement provision is expressly limited to claims
“providing civil remedies for misappropriation of a trade secret,” A.R.S.
§ 44-407(A), and because Orca’s unfair-competition claim, as alleged, is not
limited to trade secrets, the superior court erred in dismissing that claim on
preemption grounds.

                                           C.

¶12            Noder argues that refusing to extend § 44-407’s displacement
provision beyond its express terms will lead to “absurd results” because a
plaintiff that demonstrates willful and malicious misappropriation of
confidential information could possibly recover more punitive damages
than a plaintiff that prevails on an AUTSA claim for such misappropriation
of a trade secret. We are not persuaded.

¶13           That AUTSA authorizes a trial court, rather than a jury, to
award exemplary damages of no more than twice the amount of actual
damages, A.R.S. § 44-403(B), is not necessarily anomalous. In cases of
willful and malicious misappropriation of trade secrets, punitive damages
might be easier to obtain under AUTSA than under our common law, which
requires clear and convincing evidence of a defendant’s “evil mind” for a

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                              ORCA V. NODER
                            Opinion of the Court

punitive damages award. See Linthicum v. Nationwide Life Ins. Co., 150 Ariz.
326, 332, 723 P.2d 675, 681 (1986). Unlike other statutes, § 44-403(B) does
not adopt the common law or impose a heightened standard of proof for a
punitive damages award. Cf. A.R.S. §§ 12-653.03 (permitting an award of
punitive damages “subject to applicable rules of law governing such
damages in this jurisdiction”), -701(B) (requiring proof “by clear and
convincing evidence” for an award of punitive damages). Moreover,
although punitive damages awards under the common law are not subject
to any statutory limits and are generally left to the jury’s discretion, Arizona
courts quite often overturn or reduce excessive punitive damages awards
based on constitutional limitations. See, e.g., Arellano v. Primerica Life Ins.
Co., 235 Ariz. 371, 380 ¶ 45, 332 P.3d 597, 606 (App. 2014); Nardelli v. Metro.
Grp. Prop. & Cas. Ins. Co., 230 Ariz. 592, 612 ¶ 100, 277 P.3d 789, 809 (App.
2012); Hudgins v. Sw. Airlines, Co., 221 Ariz. 472, 492 ¶ 65, 212 P.3d 810, 830
(App. 2009).

¶14           In addition, AUTSA provides protections and remedies in the
trade-secret arena that are not generally available under common law. See
A.R.S. §§ 44-402 (permitting injunctive relief for actual or threatened
misappropriation), -404 (permitting award of attorney fees), -405
(preserving the secrecy of alleged trade secrets during litigation); Cortaro
Water Users’ Ass’n v. Steiner, 148 Ariz. 314, 316, 714 P.3d 807, 809 (1986)
(noting the general rule that attorney fees are not recoverable unless
provided for by statute or contract). In sum, limiting the scope of AUTSA’s
displacement provision to its express terms does not produce absurd
results.

¶15           We also find unpersuasive Noder’s argument that a literal
reading of § 44-407 undermines the Uniform Act’s purpose of creating a
single, uniform tort action governing the misuse of allegedly confidential
information. Although the Uniform Act promotes uniformity regarding the
treatment of trade secrets, it says nothing about confidential information
generally. Nor does the Uniform Act affect various other claims and
remedies. See Unif. Trade Secrets Act § 7 cmt. (amended 1985), 14 U.L.A.
463 (2005) (noting that the Uniform Act “is not a comprehensive statement
of civil remedies,” and does not apply to duties imposed by law that are
independent of the existence of a trade secret); see also A.R.S. § 44-407(B).

¶16          We acknowledge, as did the court of appeals, the split of
authority on whether the Uniform Act displaces all common-law tort claims
based on misappropriation of confidential information, whether or not the

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                              ORCA V. NODER
                            Opinion of the Court

information constitutes a statutorily defined trade secret. Compare Firetrace
USA, LLC v. Jesclard, 800 F. Supp. 2d 1042, 1048 (D. Ariz. 2010) (concluding
that AUTSA displaces claims based on misappropriation of confidential
information that falls outside AUTSA’s definition of trade secret), BlueEarth
Biofuels, LLC v. Hawaiian Elec. Co., 235 P.3d 310, 327 (Haw. 2010) (same,
interpreting Hawaii Uniform Trade Secrets Act), and Mortg. Specialists, Inc.
v. Davey, 904 A.2d 652, 664 (N.H. 2006) (same, interpreting New Hampshire
Uniform Trade Secrets Act), with Stone Castle Fin., Inc. v. Friedman, Billings,
Ramsey & Co., 191 F. Supp. 2d 652, 656–59 (E.D. Va. 2002) (holding that
Virginia Uniform Trade Secrets Act displaces only those remedies based on
misappropriation of a trade secret, and leaves available all other remedies
for the protection of confidential information), and Burbank Grease Servs.,
LLC v. Sokolowski, 717 N.W.2d 781, 789 (Wis. 2006) (same, interpreting
Wisconsin Uniform Trade Secrets Act).

¶17            We generally consider decisions from other jurisdictions
when construing a statute derived from a uniform act to achieve uniformity
in interpretation. See Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 180 Ariz.
148, 154, 882 P.2d 1274, 1280 (1994). But that purpose is not served when,
as here, “the quest for uniformity is a fruitless endeavor and Arizona’s
ruling one way or the other neither fosters nor hinders national
uniformity.” Bunker’s Glass Co. v. Pilkington, PLC, 206 Ariz. 9, 15 ¶ 16, 75
P.3d 99, 105 (2003).

¶18           In addition, AUTSA does not contain the Uniform Act’s
directive that “[t]his [Act] shall be applied and construed to effectuate its
general purpose to make uniform the law with respect to the subject of this
[Act] among states enacting it.” Unif. Trade Secrets Act § 8 (amended 1985),
14 U.L.A. 656 (2005) (second and third brackets in original). Because other
statutes derived from uniform acts include similar language, see, e.g., A.R.S.
§§ 12-1845, 12-3028, 14-10018, 14-12501, 29-1110, 36-862, 44-331, 44-1412, 47-
1103, its absence from AUTSA suggests that the legislature intentionally
omitted it. See Ballesteros v. Am. Standard Ins. Co. of Wis., 226 Ariz. 345, 349
¶ 15, 248 P.3d 193, 197 (2011). Even when the legislature has adopted a
uniformity clause, we have not felt compelled to follow other courts’
decisions. Bunker’s Glass, 206 Ariz. at 12 ¶¶ 7–8, 75 P.3d at 102 (declining to
follow federal precedent even though A.R.S. § 44-1412 provides that “in
construing this article, the courts may use as a guide interpretations given
by the federal courts to comparable federal antitrust statutes”).

                                       7
                              ORCA V. NODER
                            Opinion of the Court

¶19          Absent a uniformity directive in AUTSA, and given § 44-407’s
clear text and the split of authority on the preemptive scope of similar
provisions, we do not find the conflicting views of other courts helpful.

                                          D.

¶20           We do not decide today what aspects, if any, of the
confidential information alleged in Orca’s unfair-competition claim might
fall within AUTSA’s broad definition of “trade secret” and therefore be
displaced. See Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, 109 ¶ 26, 302
P.3d 628, 634 (App. 2013) (“Although there may be substantial overlap
between confidential information and trade secrets, they are not
synonymous.”); Enter. Leasing Co., 197 Ariz. at 149 ¶ 14, 3 P.3d at 1069
(noting AUTSA’s “rather expansive definition” of “trade secret”). That
determination will not hinge on the claim’s label, but rather will depend on
discovery and further litigation that has not yet occurred.

¶21            Nor do we decide whether Arizona recognizes a common-law
claim for unfair competition as alleged in Orca’s complaint. Cf. Restatement
(First) of Torts §§ 757, 759 (1939) (enumerating several theories of liability,
including disclosure or use of another’s trade secret, and improper
acquisition of information, whether or not it constitutes a trade secret, to
advance a rival business interest). Compare Fairway Constructors, Inc. v.
Ahern, 193 Ariz. 122, 124 ¶¶ 8–9, 970 P.2d 954, 956 (App. 1998) (finding
plaintiff’s unfair-competition claim preempted by federal copyright law,
and noting that such a claim is “based on principles of equity” and
“encompasses several tort theories,” including “misappropriation”), with
Restatement (Third) of Unfair Competition § 1 cmt. g (1995) (noting that the
“specific forms of unfair competition [described therein] do not fully
exhaust the scope of statutory or common law liability for unfair methods
of competition”), and Restatement (Second) of Agency §§ 395, 396 (1958)
(describing agent’s duty not to use or disclose confidential information
acquired during the course of his agency in competition with principal).

¶22           Assuming the viability of a common-law claim for
misappropriation of confidential information that falls outside AUTSA’s
definition of “trade secret,” we hold that AUTSA does not, as a matter of
law, displace Orca’s unfair-competition claim. If such broad displacement
was intended, the legislature was required to express that intent clearly.

                                      8
                            ORCA V. NODER
                          Opinion of the Court

                                   III.

¶23           For the foregoing reasons, we reverse the superior court’s
dismissal of Orca’s unfair-competition claim and remand the case to that
court for further proceedings consistent with this opinion. Although we
agree with the result reached by the court of appeals, we order ¶¶ 28–31 of
its opinion depublished pursuant to Rule 111(g), Rules of the Supreme
Court.

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