On October 15, 2013, California’s Fourth Appellate District held that claims for breach of contract, breach of fiduciary duty, unfair competition, interference with business relations, and conversion are not preempted by California’s Uniform Trade Secrets Act (UTSA). The case is in Angelica Textile Servs., Inc. v. Park et al.

Angelica Textile Services, Inc. (Angelica) provides linens and laundry services to hospitals and health care facilities throughout the United States. The individual defendant began working for Angelica in 1982 and by 2008 held the position of market vice-president, responsible for the operations of Angelica’s San Diego and Phoenix laundry plants. His employment with Angelica was governed by a noncompetition agreement in which he promised to “give his best endeavors, skill and attention to the discharge of his duties . . . .”

While still employed by Angelica in 2008, he began negotiating with two of Angelica’s largest customers in San Diego to develop a linen and laundry enterprise that they would jointly operate in direct competition with Angelica. With his acumen and experience in the industry, he devised a business plan which ultimately came to fruition as Emerald Textiles, LLC (Emerald). This business plan described Angelica’s role as virtually the only provider of laundry services in the area, and contained detailed financial projections. The employee’s pitch material to Emerald’s to-be financier included commentary that Angelica was not providing quality linens and services because it cut back on spending, as well as photographs of Angelica’s seemingly dilapidated production equipment.

Further, in 2009, the employee negotiated no-penalty and no-cause termination clauses for Angelica’s new customer contracts, terms outside the bounds of industry standards. After obtaining financing in 2010, Emerald opened its doors with the employee as its chief operating officer. The employee successfully engaged Angelica’s top customers and recruited more than 40 of Angelica’s former employees.

Angelica brought suit for misappropriation of trade secrets, violation of Business and Professions Code section 17200, unfair competition, interference with business relationships, breach of contract, and conversion against Emerald and the employee, as well as a claim for breach of fiduciary duty against the individual defendant only. Both defendants moved for summary judgment and summary adjudication, arguing that Angelica could not establish any appropriation of its trade secrets, and that most of Angelica’s remaining causes of action were displaced by the UTSA. For Angelica’s breach of contract claim, the defendants argued that, in the absence of proof of a trade secret, Angelica cold not show any contract breach had occurred. The trial court denied the motion, reasoning that pending discovery may provide Angelica with evidence of trade secret misappropriation. However, the trial court granted the motion on all of Angelica’s non-UTSA claims on the grounds that these causes of action were based on the defendants’ alleged trade secret misappropriation and were therefore displaced by the UTSA.

The jury found in favor of the defendants on Angelica’s trade secret misappropriation claim. Angelica thereafter appealed, contending that the trial court erred in granting the defendants’ summary adjudication motion on its six non-UTSA claims. It argued that the UTSA did not preempt those claims.

The appellate court agreed with Angelica, reasoning that the UTSA does not affect contractual remedies, whether or not they are based upon misappropriation of a trade secret. Likewise, the UTSA does not affect other civil remedies that are not based upon misappropriation of a trade secret. The appellate court further noted that determining whether a claim is based on a trade secret misappropriation is a factual inquiry.

Indeed, by its terms, the UTSA does not “displace” or preempt a contract claim. Here, Angelica’s breach of contract claim was based entirely on the individual defendant’s noncompliance with his noncompetition agreement.

The court also found that the UTSA does not “displace” or preempt non-contractual claims that, although related to trade secret misappropriation, are independent of and based on facts distinct from those supporting the misappropriation claim. For example, the UTSA does not prevent liability for unfair competition which does not depend on the existence of a trade secret, but rather, upon facilitating another in violation of other legal obligations. The same logic applies to causes of action for breach of fiduciary duty, interference with business relations, and conversion. The court concluded Angelica’s claims for unfair competition, breach of fiduciary duty, and interference with business relations claims rested upon the individual defendant’s wrongful conduct in breaching his noncompetition agreement and violating his duty of loyalty to Angelica. Furthermore, Angelica’s conversion cause of action depended on his taking of Angelica’s tangible property, regardless of its stature as a trade secret. Therefore, these causes of action were not preempted by the UTSA, given that they were independent of and based on facts distinct from those supporting the trade secret misappropriation claim.

This decision clarifies protections afforded to employers throughout California. The breadth of the UTSA, while expansive, preempts only alternative civil remedies based on trade secret misappropriation.