Orca Communications Unlimited, LLC v. Noder – 11/19/2014
Arizona Supreme Court holds that Arizona’s Uniform Trade Secrets Act does not displace common-law claims based on alleged misappropriation of confidential information that is not a trade secret.
Plaintiff Orca Communications brought this action against Ann Noder, its former president, following her resignation in May 2009. Orca alleged that Noder, after an unsuccessful attempt to purchase Orca in 2009, began to tell Orca’s customers that she was leaving to form her own company – Pitch Perfect Relations, LLC – and encouraged clients to take their business to her new company. The trial court granted a 12(b)(6) motion to dismiss all of Orca’s claims. Although Orca brought several claims against Noder, the only claim considered by the Supreme Court was its unfair competition claim.
At the trial court, Noder successfully argued that Orca’s unfair competition claim was preempted by the Arizona Uniform Trade Secrets Act (“AUTSA”), which “displaces conflicting tort, restitutionary and other laws of this state providing civil remedies for misappropriation of a trade secret.” A.R.S. § 44-407(A). The Court of Appeals disagreed and reversed, holding that the AUTSA “does not preempt a claim based on the misuse of confidential information that does not rise to the level of [a] trade secret.” Orca Commc’ns Unlimited, LLC v. Noder, 233 Ariz. 411, 419, ¶ 28 (App. 2013).
The Supreme Court agreed with the result reached by the Court of Appeals and remanded the case to the trial court, but ordered that the portion of the Court of Appeals’ opinion dealing with the unfair competition claim be depublished. The Court disagreed with Noder’s argument that the AUTSA broadly displaced “all common-law claims for misuse of confidential information that does not fall within AUTSA’s definition of ‘trade secret,’” finding that the AUTSA, on its face, “leaves undisturbed claims ‘that are not based on a misappropriation of a trade secret[.]’” The Court noted that the AUTSA specifically defines the terms “misappropriation” and “trade secrets” and found that nothing in the language of the statute “suggests that the legislature intended to displace any cause of action other than one for misappropriation of trade secrets.” Additionally, the Court stated that although it did not decide “whether Arizona common law recognizes a claim for unfair competition,” it was 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.” The Court found that “§ 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,” and concluded that the trial court erred in dismissing the unfair competition claim on preemption grounds.
Noder advanced two additional arguments that the Court found unpersuasive. First, she argued that “refusing to extend § 44-407’s displacement provision beyond its express terms will lead to ‘absurd results’” because of the possibility that a plaintiff could recover more punitive damages on a claim for misappropriation of confidential information “than a plaintiff that prevails on an AUTSA claim for such misappropriation of a trade secret.” The Court disagreed, concluding that punitive damages might actually be easier to obtain under the AUTSA and that the “AUTSA provides protections and remedies in the trade-secret arena that are not generally available under common law.” Second, Noder argued “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.” The Court again disagreed, finding that the Uniform Act “promotes uniformity regarding the treatment of trade secrets,” and “says nothing about confidential information generally.”
The Court also acknowledged a split of authority on the issue in other states that have adopted the Uniform Trade Secrets Act, but found that it was not “compelled to follow other courts’ decisions” because the AUTSA does not contain the uniformity clause found in the Uniform Act and “its absence . . . suggests that the legislature intentionally omitted it.”
In closing, the Court stated that it did not decide “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.” The Court also reemphasized that it did not decide “whether Arizona recognizes a common-law claim for unfair competition as alleged in Orca’s complaint” but held only that, assuming such a claim were valid and fell outside the AUTSA’s definition of trade secret, it would not be preempted.
Vice Chief Justice Pelander authored the Court’s unanimous opinion.