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October 2013

California Court Holds UTSA Does Not Displace Non-UTSA Claims Based on Unrelated Conduct

In Angelica Textile Services, Inc. v. Jaye Park, et al., the California Court of Appeal addressed the scope of the Uniform Trade Secret Act (UTSA), codified in California Civil Code §3426 et seq., and whether that statute displaced non-UTSA claims.  The court held that non-UTSA claims were not displaced by the UTSA claims and overturned the lower court’s granting of summary adjudication on the issue.  The matter was remanded to the Superior Court for further proceedings related to the non-UTSA claims. 

The plaintiff, a large-scale laundry business that provided linens to local health care facilities, sued a new competitor founded by the plaintiff’s former market vice president.  The suit alleged a variety of business torts and made a claim for misappropriation of trade secrets under the UTSA.  In support of its claims, the plaintiff alleged that the former employee was intimately involved in its business and was responsible for operations of the plaintiff’s laundry plants in San Diego and Phoenix.  The plaintiff alleged that, during his employment, the former employee signed a noncompetition agreement, which provided, among other things, that the former employee would use his best efforts and discharge all duties on behalf of the company in a manner consistent with his position.  The former employee also promised that during his employment he would not become interested in any other business similar to the plaintiff’s business.  However, before leaving the plaintiff company, the former employee negotiated service contracts with local health care facilities to his new venture’s benefit and allegedly took some of the plaintiff’s documents with him. 

Prior to trial, the lower court granted the defendants’ motion for summary adjudication on all non-UTSA claims finding that the UTSA displaced such claims.  The matter proceeded to a jury trial on the UTSA claims only and the jury found that none of the allegedly misappropriated information was a trade secret within the meaning of the UTSA.  Accordingly, judgment was entered in favor of the defendants and against the plaintiff, which included a post-verdict award of attorney’s fees based on a finding that the plaintiff’s suit was brought in bad faith.  On appeal, the plaintiff did not contest the jury’s verdict, but rather argued that the trial court erred in granting summary judgment on the non-UTSA claims. 

At issue on appeal were the plaintiff’s claims for violation of Business & Professions Code §17200; unfair competition; interference with business relationships; breach of contract; and conversion of certain property (namely documents).  An additional claim was brought against the former employee for breach of fiduciary duty. 

The Court of Appeal found that all the non-UTSA claims were not displaced by the plain meaning of the UTSA.  Rather, Civil Code §3426.7 carved out claims for contractual remedies, whether or not based on misappropriation of a trade secret; other civil remedies, whether or not based on misappropriation of a trade secret; and/or criminal remedies, whether or not based on misappropriation of a trade secret.  The court held that all of the plaintiff’s non-UTSA claims were based on conduct unrelated to the plaintiff’s UTSA claims and thus should have survived summary adjudication.  The Court of Appeal, however, declined to address the merits of the plaintiff’s claims and limited its opinion to the scope of the UTSA only. 

Going forward, this ruling provides authority for courts to allow parties to plead non-UTSA and UTSA claims and to prevent parties from using the UTSA to displace certain other state law claims.  Furthermore, where applicable, careful consideration should be given to pleading both claims for non-UTSA and UTSA violations to allow for alternate theories of recovery and to survive summary judgment on displacement grounds.

Commercial Litigation

Spencer P. Hugret

Commercial Litigation