Fifth Circuit Rules Louisiana Trade Secret Claim Does Not Preempt Claim For Conversion Of Confidential Info
The Louisiana Supreme Court has not addressed whether a claim under the Louisiana Uniform Trade Secrets Act (LUTSA) precludes a claim for conversion of confidential information. But the U.S. Fifth Circuit recently did in Brad Services, LLC v. Irex Corporation, No. 17-30660 (October 17, 2018), finding that these conversion claims are not preempted.
Factual Background. Brad Services is an industrial scaffolding company who sued its director competitor Irex after it hired one of Brand Services’ former employees. Brand Services alleged that prior to leaving, its former employee misappropriated Brand Services’ trade secrets and confidential information and transferred that information to Irex. Brand Services asserted that Irex violated LUTSA by knowingly accepting its trade secrets and was also liable under the tort theory of conversion.
Trial Court Decision. Irex filed a motion for summary judgment, arguing that the LUTSA preempted Brand Services’ claim for conversion of confidential information. The trial court agreed. It ruled that LUTSA preempts claims for conversion of trade secrets as well as claims confidential information.
On Appeal. The Fifth Circuit first recognized that the Louisiana Supreme Court had not addressed this issue and that it, therefore, must determine how Louisiana’s high court would rule if the issue was before that court. The court then turned to the relevant language of LUTSA, which provides that it “displaces conflicting tort, restitutionary, and other laws of [Louisiana] pertaining to civil liability for misappropriation of a trade secret.” The court noted that LUTSA does not affect “civil liability or relief that is not based upon the misappropriation of a trade secret.” Based on the statute’s plain language, the acknowledged that LUTSA preempts claims for conversion of “trade secrets,” but ruled the statute has no effect on a claim for conversion of confidential information. The court reasoned that trade secrets and confidential information are separate and distinct concepts, with LUTSA only protecting the former, more valuable trade secrets, and thus reversed the trial court and reinstated Brand Services’ claim for conversion of confidential information.
The Take Away. Unless the Louisiana Supreme Court rules otherwise, federal courts within the Fifth Circuit will allow claims for conversion of confidential information to proceed along with LUTSA claims. The ruling gives companies seeking to protect trade secrets and confidential information backup recovery to protect stolen confidential information that may not rise to the level of a trade secret. Moving forward, companies should bring both claims when appropriate.