The case of EthosEnergy Field Services, LLC v. Axis Mechanical Group, Inc., H-21-3954, 2022 WL 2707734 (S.D. Tex. June 10, 2022) considered whether Ethos pled with sufficient detail its Defend Trade Secrets Act (DTSA) and Texas Uniform Trade Secrets Act (TUTSA) claims. Additionally, the court considered whether TUTSA preempted Ethos’s unfair competition by misappropriation claim. Ultimately, the court determined that Ethos sufficiently pled its DTSA and TUTSA claims. However, the court also determined that TUTSA preempted Ethos’s unfair competition by misappropriation claim.
Ethos and Axis were direct competitors. In 2015, Axis began a campaign to entice Ethos employees to leave the company and join Axis. In 2021, two higher level employees with Ethos left to join Axis. Both employees had previously signed intellectual property agreements requiring them to return all proprietary information to Ethos. Prior to one of the employees departing Ethos, Ethos alleged that this employee installed USB devices to his Ethos computer and saved many of Ethos’s files. Additionally, in an attempt lure other Ethos Employees from Axis, Ethos alleged that the two employees falsely told other employees that Ethos was planning to close several offices.
To properly state a claim under DTSA, a plaintiff must show that: (1) a trade secret exists; (2) that the defendant misappropriated that trade secret; and (3) the trade secret is related to something that is used in interstate commerce. To properly state a claim under TUTSA, the plaintiff must show that: (1) a trade secret existed; (2) that the defendant acquired the trade secret through a violation of a confidential relationship or through some other improper means; (3) the plaintiff did not authorize the defendant to use the trade secret; and (4) the plaintiff suffered harm from the defendant’s illegal use. Moreover, both DTSA and TUTSA use similar definitions of a trade secret. A trade secret is: (1) any information; (2) that the owner of such information takes reasonable steps to keep the information secret; and (3) the information has independent economic value from not being readily ascertainable.
For Ethos’s TUTSA and DTSA claims, Ethos alleged that information that one of its former employees downloaded from the Ethos computer was a trade secret and that this action was in direct violation of the intellectual property agreement. Additionally, Ethos pled that Axis used the information that the former employee saved to solicit Ethos employees and customers, which caused an injury to Ethos. The court found that these allegations were sufficient to comply with Federal Rule of Civil Procedure 12(b)(6). The court noted that Ethos’s allegations were thin on details, but they did meet the pleading standards and established a reasonable expectation that further discovery would support Ethos’s trade secret claims.
Ethos’s unfair competition by misappropriation claim was based on the actions of the former employee saving Ethos’s data to a USB drive and providing it to Axis. TUTSA, however, preempts all civil remedies based on misappropriation of a trade secret. Here, the court found that TUTSA preempted Ethos’s claim because it relied on the same underlying facts as its TUTSA claim. Accordingly, the court dismissed this claim.
The main takeaway from this case is that in order to plead a TUTSA and DTSA claim, the plaintiff must provide more details than to simply recite the elements of each claim. The plaintiff, though, merely has to provide enough details as to establish a reasonable belief that further discovery would support the plaintiff’s claim. The other main takeaway from this case is that to avoid TUTSA’s preemption provision, a party must plead claims that are not based on the same underlying facts as that party’s TUTSA claim.