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Preemption Under The NJ Trade Secrets Act

CHANCERY DIVISION HOLDS THAT THE NEW JERSEY TRADE SECRETS ACT DOES NOT PREEMPT RELATED COMMON LAW CAUSES OF ACTION

In an apparent case of first impression, the Superior Court of New Jersey, Chancery Division, Bergen County, held that the New Jersey Trade Secrets Act (“NJTSA”), which became effective on January 5, 2012, does not preempt a common law claim for misappropriation of confidential information or other tort claims arising out of the same core facts that form the basis for a plaintiff’s trade secret claims.  See SCS Healthcare Mktg., LLC v. Allergan USA, Inc., Docket No. C-268-12, 2012 N.J. Super. Unpub. LEXIS 2704, at *1 (Ch. Div. Dec. 7, 2012).

In SCS Healthcare, the Plaintiff (“SCS”) contracted to provide promotional marketing services to Defendant Allergan from approximately 2005 through the end of 2012.  Id. at *3.  In or about April 2012, Allergan informed SCS that it had selected another company, Defendant Call, Inc. (d/b/a Medforce), to provide marketing services upon termination of Allergan’s contract with SCS.  Id.  To facilitate the transition from SCS to Medforce, SCS agreed that, during the transition period, Allergan would continue to have access to certain computer-based information that SCS alleged to be confidential and proprietary, provided that Allergan assured SCS that it would not allow Medforce to use the SCS client portal through which the information could be accessed.  Id.  According to SCS, despite Allergan’s assurances, Allergan allowed Medforce to access the client portal containing SCS’s confidential information on nine separate occasions, which caused SCS to file suit.  Id. at *3-4.

In addition to a claim under the NJTSA, SCS asserted various common law tort claims against Allergan and Medforce, including claims for misappropriation of confidential information, conversion, trespass to chattels, unfair competition, tortious interference and civil conspiracy.  Id. at *6-7.  Defendants moved to dismiss those claims on the ground that the NJTSA – specifically, N.J.S.A. 56:15-9(b) – preempted SCS’s common law claims.  Id. at *7.

N.J.S.A. 56:15-9(b) states that the NJTSA “shall supersede conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret.”  N.J.S.A. 56:15-9(b).  The language in that section closely approximates the language of section 7(a) of the Uniform Trade Secrets Act (“UTSA”), upon which the NJTSA is based.  Defendants argued that N.J.S.A. 56:15-9(b) mandated a finding of preemption as to any claims based on the same core set of facts as SCS’s claim under the NJTSA.  Id. at *6.

In analyzing Defendants’ position, the court acknowledged that courts in jurisdictions that have adopted the UTSA have “uniformly” interpreted UTSA § 7(a) (the provision that corresponds to N.J.S.A. 56:15-9(b)) as preempting previously existing causes of action for trade secret misappropriation.  Id. at *13.  The court also observed that the majority of courts that have considered the scope of preemption under UTSA § 7(a) have held that it “‘abolish[es] all free-standing alternative causes of action for theft or misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status.’”  Id. at *15-16 (quoting Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649, 655 (E.D. Tenn. 2004)).  The court went on to write that, standing alone, N.J.S.A. 56:15-9(b) “would likely bar plaintiff’s claims for misappropriation of confidential information under New Jersey common law, and any other causes of action, however labeled, predicated thereon.”  Id. at *16.

However, the court reasoned that N.J.S.A. 56:15-9(b) “cannot be read in isolation so as to reach the result which defendants urge.”  Id. at *17.  The court observed that, unlike the UTSA, the NJTSA contains the following language preserving common law remedies:

The rights, remedies and prohibitions provided under this act are in addition to and cumulative of any other right, remedy or prohibition provided under the common law or statutory law of this State and nothing contained herein shall be construed to deny, abrogate or impair any common law or statutory right, remedy or prohibition except as expressly provided in subsection b. of this section.

Id. at *10 (quoting N.J.S.A. 56:15-9(a)).  While conceding that “the statute is not the model of clarity,” the court interpreted this language as evidence of legislative intent that the remedies provided under the NJTSA were to be deemed cumulative to common law remedies.  Id. at *17-19.  The court offered the following reasoning in support of its ruling:

[C]onstruing subsections (a) and (b) of N.J.S.A. 56:15-9 in pari materia leads this court to conclude that at the time of its enactment of the New Jersey Trade Secrets Act, our legislature was well aware of the rights and remedies afforded aggrieved litigants under our common law and expressly intended to preserve, rather than abrogate or preempt, those rights and remedies. Any other construction would render N.J.S.A. 56:15-9(a) meaningless.

Id. at *18.

The questions addressed in SCS Healthcare concern important issues regarding the scope of remedies available for alleged torts involving misuse of commercially sensitive information.  While the decision in SCS Healthcare is obviously a boon to plaintiffs, only time will tell how often the issue of preemption will arise in cases under the NJTSA and whether other Superior Court Judges or the District of New Jersey (in cases where there is federal court jurisdiction) will interpret the NJTSA in a manner consistent with the SCS Healthcare holding.  In any event, until this issue is settled by the Appellate Division or, perhaps, the New Jersey Supreme Court, defendants facing a myriad of common-law claims in a case falling under the NJTSA may wish to seek dismissal on the basis of preemption.  Correspondingly, plaintiffs who have asserted claims under the NJTSA should anticipate the possibility of a preemption-based challenge to their claims and be aware of the SCS Healthcare opinion.

 Authored by Jason B. LattimoreView Jason Lattimore's profile on LinkedIn

© 2013, Jason B. Lattimore, Esq. LLC

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