Court Rules that Employees Cannot Disclose Your Trade Secrets, Even to Themselves

On August 10, 2020, the District Court for the District of New Jersey in Bramshill Investments, LLC v. Ashley Pullen, 2:19-cv-18288 (D.N.J. August 10, 2020) recently considered a motion to dismiss a complaint against an employee who allegedly misappropriated Bramshill’s trade secrets. The District Court denied defendant’s motion in part, holding that Bramshill sufficiently pled causes of action for violations of the Defense of Trade Secrets Act, the New Jersey Trade Secrets Act, breach of contract, and breach of the duty of loyalty.

Facts

Before working for Bramshill, Defendant operated her own advisory firm, SparHawk, assisting alternative asset managers with raising capital. When Bramshill, an alternative asset management firm speciailizing in investment opportunities, hired Defendant, she denied operating any competing businesses and assured Bramshill that she had ceased all SparHawk operations. In addition to signing a non-competition agreement, Defendant also agreed to Bramshill’s policies concerning the safeguarding of its proprietary and confidential information. While Defendant was working from Bramshill, it was discovered that Defendant was sending Bramshill’s client lists, marketing lists, investor lists, and contact lists to her SparHawk email account. Critically, a review of social media demonstrated that SparHawk was “alive and well.”

Bramshill thereafter filed a complaint alleging violations under the Defend Trade Secrets Act (DTSA), New Jersey Trade Secrets Act (NJTSA), New Jersey Computer Related Offenses Act (NJCROA), breach of contract, breach of the duty of loyalty, and unjust enrichment.

Defendant filed a motion to dismiss the complaint.

District Court's Ruling

Ruling on the motion to dismiss, the Court upheld the counts brought under the DTSA and NJTSA, and the counts alleging breach of contract and breach of the duty of loyalty, while dismissing the remaining counts.

With respect to the claims under the DTSA and NJTSA, the Defendant did not dispute the proprietary and confidential nature of the documents that she sent to her SparHawk account. Instead, the Defendant contested that she did not missapropriate the information, insofar as she did not improperly acquire or use the information to compete against Bramshill. Analyzing the two claims under the same standard, the court disagreed with Defendant, holding that Bramshill demonstrated misappropriation under both the “use” theory and the “improper acquisition” theory.

Similarly, the court held that Bramshill sufficiently pled a breach of contract claim insofar as Bramshill alleged that Defendant violated the confidentiality and non-disclosure provisions of her Employment Agreement. Furthermore, even though there was no allegation of direct competition, by sending the proprietary and confidential information to SparHawk, a competitor of Bramshill, the court held that Bramshill’s claim for breach of duty of loyalty would also survive the motion to dismiss.

Bottom Line

Even where there is no direct competition, employees who disclose proprietary or confidential information to competitors, or otherwise self-deal in that information, may be in violation of the DTSA, NJTSA, the duty of loyalty, and any pertinent confidentiality or non-disclosure provisions found in an employment agreement. When an employee is discovered to have misappropriated your trade secrets, it is important to take action swifty to enforce confidentiality policies, and safeguard trade secrets that fall within the scope of the DTSA and NJTSA. By failing to protect your trade secrets, you run the risk that the information will no longer be deemed trade secrets by courts.

If you have any questions about the District Court’s decision or would like to discuss best practices in establishing or enforcing trade secret policies, please contact Harris S. Freier, Esq., a Partner in the Employment Law & Litigation Practice Group, via email here, or John C. Petrella, Esq., Partner & Chair of the Employment Law & Litigation Practice Group via email here, or call 973-533-0777.