Denial of employee’s trade secret claim against former employer partially reversed by Tenth Circuit

Denial of employee’s trade secret claim against former employer partially reversed by Tenth Circuit

That CUTSA lists ‘possession’ as the first element for succeeding on a trade secret misappropriation claim was acknowledged by the summary judgment order.

A district court decision granting summary judgment for an employer in a trade secret misappropriation case brought against it by a former employee was partially reversed and remanded by the US Court of Appeals for the Tenth Circuit. The employer was not responsible for misusing a customer list belonging to the former employee, the district court found. A motion to exclude an expert witness as well as any evidence or witnesses on lost wages was granted by the district court.

Whether a former employee of Beam Technologies, Inc. had proven that a valid trade secret existed was first evaluated by the Tenth Circuit. The district court had determined that Snyder had failed to show ‘ownership’ of the trade secret at issue—a national customer list of over 40,000 insurance broker names he had obtained while employed by Guardian Life Insurance Company, prior to his employment with Beam. According to Snyder, Beam offered to pay him for the list if he was hired, and after his acceptance of a job offer from Beam, he shared the list with Beam employees. He maintained that he intended to only send individualized lists to specific employees, but the full list was accidentally shared by him as a separate tab in the spreadsheets he emailed those employees.

The Tenth Circuit opinion reportedly stated: “When Snyder sent these critical emails, he did so without any safeguards or effort to maintain secrecy. He did not mark any of the three new spreadsheets or the Guardian Broker List as confidential or a trade secret, did not limit Beam employees or anyone else’s access to any of these documents, did not password protect any of these documents, and did not inform Beam that any of these customer lists was confidential or a trade secret.”

Subsequently, Beam terminated Snyder after only a few months.

After being terminated, Snyder sued Beam in the US District Court for the District of Colorado for trade secret misappropriation, finally alleging five claims:

1. Violation of the Defend Trade Secrets Act (DTSA)

2. Violation of the Colorado Uniform Trade Secrets Act (CUTSA)

3. Violation of a Colorado statute barring an employer from obtaining workers by misrepresentation

4. Fraudulent misrepresentation

5. Promissory estoppel

According to the district court, Snyder failed to prove a valid trade secret existed under either the DTSA or CUTSA, whereas the Tenth Circuit majority said only the DTSA expressly requires a showing of ‘ownership’ for a trade secret claim, while CUTSA refers to ‘possession’ of the trade secret.

That CUTSA lists ‘possession’ as the first element for succeeding on a trade secret misappropriation claim was acknowledged by the summary judgment order. Later, summary judgment was entered against Snyder based on insufficient evidence of ‘ownership’, which the appellate court found contradictory and thus refused to affirm summary judgment on the CUTSA claim.

Pointing to other elements under which Beam challenged the misappropriation claim, the Tenth Circuit agreed that Snyder’s efforts fell short. The majority’s opinion reportedly said: “[B]y openly sharing the Guardian Broker List with multiple Beam employees without any restrictions or notice that the information was a trade secret, Snyder failed to take reasonable measures or efforts of secrecy under federal or Colorado law.”

Finally, no reasonable jury could conclude that Snyder took reasonable measures to ensure the list’s secrecy.

Snyder’s challenge to the district court’s order excluding his damages expert under Federal Rule of Evidence 702 or allowing any evidence as to lost earnings and wages was then addressed by the majority. On appeal, Snyder argued that the district court cannot block him from submitting any evidence or witnesses, and the appellate court agreed that this expands Rule 702’s scope. This lack of notice prevented Snyder from presenting all available evidence.

The court reportedly wrote: “We express no view as to whether Snyder can point to sufficient evidence supporting his alleged damages for lost earnings and wages, but he at least points to some evidence that he could have offered if he had been told that the district court was going to enter summary judgment on damages.” Hence, the Rule 702 Order was partially reversed.

Dissenting in part, Judge Bacharach noted that he disagreed with the majority’s interpretation of ownership under the DTSA. “Like the majority, I believe that Colorado law allows suit by lawful possessors of the information even if they aren’t considered owners in a conventional sense. And the DTSA’s definition of ownership is broad. It ‘defines ownership based on the existence of a legal title, an equitable title, or a license. 18 U.S.C. § 1839(4). For purposes of this law, legal title to a trade secret extends to individuals in lawful possession,” he reportedly wrote.

Furthermore, said the dissent, there is a factual issue as to whether Snyder or Guardian lawfully possessed the customer list. Snyder claimed Guardian gave him permission to take the list at the end of his employment, but Beam only contended that Guardian meant for Snyder’s possession to end when he was terminated during oral argument, rather than on summary judgment or in the appeal briefs.

Because he would have found that a lawful possessor can sue for trade secret misappropriation, Judge Bacharach would have reversed the summary judgment ruling and remanded for the district court to further consider the existence of a trade secret and Beam’s alternative arguments.