Trade Secrets Misappropriation Claims Against Non-Employees Survive Motion to Dismiss

By:  John Bloss, Member, Higgins Benjamin, PLLC

The North Carolina Business Court continues to be a battleground for disputes involving alleged misappropriations of trade secrets.  These lawsuits typically target disloyal former employees, but in a recent opinion, the Business Court allowed claims against non-employee defendants to move forward.

The plaintiff in Koch Measurement Devices, Inc. v. Armke, 2013 NCBC 48 (Oct. 14, 2013), is a wholesaler of high-end “beer growlers”—collectible glass jugs typically used to transport draft beer out of craft breweries. Koch sued its former web designer and web host, Michael Walsak, and Tote Glass, Inc., a company in which Walsak held an interest, alleging that Walsak and Tote had conspired with Koch’s former (and now-deceased) President to divert Koch’s assets, business opportunities, and trade secrets to Tote.  In particular, Koch’s complaint alleged that Walsak and Tote misappropriated confidential information including Koch’s customer lists, the ordering habits and history of Koch’s customers, and Koch’s pricing and inventory management strategies; diverted Koch’s inventory to Tote; imported growlers from Koch’s German supplier; used Koch’s glass decorator; used the same pricing schedule as Koch; stole Koch’s largest client; and removed Koch’s website from the web.

Business Court Chief Judge Jolly first ruled that the absence of any former employee of Koch as a defendant did not prevent Koch from maintaining the action, since Koch made “sufficient allegations . . . concerning the coordinated efforts of [Koch’s former President], Walsak, and Tote to, in essence, steal Koch’s business to allow this action to continue without the presence of [the former President].”  Judge Jolly then evaluated each of the causes of action asserted by Koch—misappropriation of trade secrets, unfair and deceptive trade practices, constructive trust, unjust enrichment, conversion, breach of contract, and civil conspiracy—and determined that each stated a claim for which relief could be granted.  The Court held that Koch had identified its allegedly misappropriated trade secrets with sufficient specificity, distinguishing Washburn v. Yadkin Valley Bank & Trust Co., 190 N.C. App. 315 (2008), in which the Court of Appeals upheld dismissal of a complaint that generally described the trade secret at issue at “business methods; clients, their specific requirements and needs and other confidential information pertaining to Yadkin’s business.”

If you would like to discuss a trade-secret misappropriation issue contact John Bloss at (336) 273-1600 or jbloss@greensborolaw.com.
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