For years, it was not uncommon for misappropriation of trade secrets claims to be accompanied by a variety of other common law causes of action such as breach of fiduciary, fraud, and conspiracy. The Texas Uniform Trade Secrets Act (TUTSA), however, states that it “displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.” Generally, this provision means that all common law or non-contractual claims based on “the alleged improper taking of trade secret and confidential business information” are preempted. Some cases, though, hold that TUTSA “does not preempt causes of action stemming from the misappropriation of confidential information that is not a trade secret.” The Eastern District of Texas explored this split in the case law in BKL Holdings, Inc. v. Globe Life Inc., No. 4:22-CV-00170, 2023 WL 2432012 (E.D. Tex. Mar. 9, 2023).
BKL Holdings involved the claims of License Coach, a company that provided testing and training materials to prospective insurance agents preparing for licensing exams. License Coach alleged that it provided several confidential sales presentations to the affiliates of Globe Life, a holding company for several insurance companies. Eventually, the Globe Life affiliates stopped communicating with License Coach, and License Coach later found the confidential materials from its presentations in the marketing materials for competitor XCel Testing. According to Life Coach, XCel Testing is owned by individuals and entities affiliated with Globe Life’s executives.
License Coach sued the Globe Life affiliates and two Globe Life executives for (1) misappropriation of trade secrets under TUTSA, (2) breach of fiduciary duty, (3) fraud, and (4) conspiracy. In response, the Globe Life defendants removed the case to the Eastern District of Texas and filed a 12(b)(6) motion to dismiss, arguing, among other things, that License Coach’s breach of fiduciary duty, fraud, and conspiracy claims were preempted. In response, License Coach argued that its claims were not preempted because these claims were based on allegations that the Globe Life defendants misappropriated confidential business information that may not constitute trade secrets under TUTSA.
The Eastern District of Texas agreed with the Globe Life defendants. In doing so, the court noted that “the majority of courts considering this issue—including this one—have held that TUTSA preempts all claims based on ‘the alleged improper taking of trade secret and confidential business information.’” The court further noted that this is the majority rule in courts applying the Uniform Trade Secrets Act, which TUTSA was based on. Notably, a pair of cases from Southern District of Texas follows the minority rule that “TUTSA does not preempt causes of action stemming from the misappropriation of confidential information that is not a trade secret,” but the court determined that it was not going to follow these cases. Thus, since License Coach’s breach of fiduciary duty, fraud claim, and conspiracy claims were based on the misappropriation of proprietary information, they were preempted.
The lesson here is that under TUTSA, most related non-contractual causes of action are going to be preempted despite arguments that the information might not qualify as a trade secret. Of course, the result might be different in the Southern District of Texas, where courts follow the minority rule.