VUTSA Preemption Held Insufficient Basis for Pretrial Dismissal

The Virginia Uniform Trade Secrets Act (“VUTSA”) contains a section stating that “this chapter displaces conflicting tort, restitutionary, and other law of this Commonwealth providing civil remedies for misappropriation of a trade secret.” (See Va. Code § 59.1-341). Known as the preemption provision, it is designed to prevent inconsistent theories of relief for the same underlying harm by eliminating alternative theories of common law recovery premised on misappropriation of trade secrets. (See Smithfield Ham & Products Co., Inc. v. Portion Pac, Inc., 905 F.Supp. 346, 348 (E.D. Va. 1995)). The General Assembly has decided that if you’re going to file a lawsuit for a tort based on the unlawful taking or use of a trade secret, your sole remedy should lie in VUTSA. Any common-law claim premised entirely on a claim for misappropriation of a trade secret will be deemed preempted by the statute. To avoid preemption, a plaintiff must be able to demonstrate that the distinct theories of relief sought are supported by facts unrelated to the alleged misappropriation of the trade secret. (See Combined Ins. Co. of Am. v. Wiest, 578 F. Supp. 2d 822, 833 (W.D. Va. 2008)).

If a plaintiff sues a defendant for misappropriation of trade secrets under VUTSA but also for conversion, unjust enrichment, and tortious interference, one might suppose that the three common-law torts would be preempted and that a motion to dismiss would be in order. As noted by a recent decision in the case of Signature Flight Support, LLC v. Catherine Carroll, however, the preemption issue often cannot be decided at the outset of a case and must wait for trial to be resolved. This is primarily because the determination of whether a particular piece of confidential commercial information qualifies as a “trade secret” under VUTSA is generally a question of fact to be determined at trial. If the plaintiff can’t prove the existence of trade secrets, then preemption won’t apply and the tort claims would become viable.

VUTSA defines a trade secret as “information, including but not limited to, a formula, pattern, compilation, program, device, method, technique, or process, that:

  1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
  2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

(See Va. Code § 59.1-336). Almost anything can constitute a trade secret, but an alleged trade secret must meet all the criteria listed in the statute: (1) independent economic value; (2) not known or readily ascertainable by proper means; and (3) subject to reasonable efforts to maintain secrecy. This is a fact-intensive inquiry, the result of which won’t be known until evidence is presented at trial.

Here’s what happened in the Signature Flight Support case, according to the opinion. Signature is a global provider of Fixed Base Operations (“FBO”) services for general aviation. FBO is an aviation service business offered at an airport to non-commercial aircraft that provides services such as aircraft fueling, hangar and office rentals, and maintenance and repair. Signature had been providing FBO services to the Roanoke Blacksburg gavel-4-1236439-300x200Regional Airport for many years, but its lease was about to expire and the airport commission decided to issue a Request for Proposals to solicit bids for the provision of FBO services.

When Signature reviewed the RFP, it discovered that some of its proprietary data had somehow found its way into the document. For example, there were tables illustrating the FBO’s historical fuel sales and revenue at the airport, as well as electronic files containing other confidential financial information. Signature eventually noticed that some of the RFP documents contained the handwriting of a former employee, Catherine Carroll, whose employment had recently been terminated by the company. Signature sued her for misappropriation of trade secrets, breach of fiduciary duties, conversion, unjust enrichment, tortious interference with customer relationships, and business conspiracy in violation of Virginia Code §§ 18.2-499 and -500. In a motion to dismiss, Carroll argued that the court should dismiss Signature’s claims for conversion, unjust enrichment, and tortious interference because they are preempted under VUTSA.

While acknowledging that VUTSA could indeed preempt these other claims, the court concluded that it was too early to make that determination. The court held that unless it could be clearly discerned on the papers that the information in question constitutes a trade secret and that the plaintiff was entitled to recovery under VUTSA, the court should not dismiss alternative theories of relief on grounds of preemption. It noted that some courts have granted motions to dismiss on similar facts where the plaintiff did not make clear it was pursuing alternative theories of recovery, but in this case, although the pleadings did not expressly indicate the common-law torts were being pursued as alternative claims, Signature’s counsel had acknowledged at oral argument that such was the case and that Signature was not looking to recover on all claims simultaneously. The court therefore declined to invoke preemption as a basis for dismissing these alternative counts.



Contact Us
Virginia: (703) 722-0588
Washington, D.C.: (202) 449-8555
Contact Information