Enter to open, tab to navigate, enter to select
California's Uniform Trade Secrets Act Preempts Unfair Competition, Conversion and Promissory Fraud Claims: N.D. Cal.
Practical Law Legal Update 1-613-7906 (Approx. 3 pages)
California's Uniform Trade Secrets Act Preempts Unfair Competition, Conversion and Promissory Fraud Claims: N.D. Cal.
by Practical Law Intellectual Property & Technology
| Published on 20 May 2015 • USA (National/Federal) |
In Lifeline Food Company v. Gilman Cheese Corporation, the US District Court for the Northern District of California ruled that California's Uniform Trade Secrets Act (CUTSA) preempted multiple contract claims when the claims were based on the same facts of alleged misappropriation of recipes, processes and formulations for making fat-free cheese.
On May 15, 2015, in Lifeline Food Company v. Gilman Cheese Corporation, the US District Court for the District of Northern California granted Gilman Cheese Corporation's motion to dismiss Lifeline Food Company's breach of contract, promissory fraud and unfair competition claims (No. 5:15:cv-00034-PSG, (N.D. Ca. May 15, 2015)). The court ruled that California's Uniform Trade Secrets Act (CUTSA) preempted Lifeline's unfair competition and conversion claims since all the claims were from the same nucleus of facts. The court also ruled that the doctrine of election of remedies barred Lifeline's false promise claim.
Lifeline and Gilman are both cheese manufacturers that worked together for over 25 years producing fat-free cheeses. In 1991 and 1993, the parties entered into written agreements stating that:
- Lifeline would retain full ownership of the fat-free cheese formulas.
- Gilman would manufacture the cheeses exclusively for Lifeline.
- Particulars regarding marketing, the process and formulation procedure are confidential information to be held in confidence by the parties.
The agreement expired in 1998 and both parties continued to work together under the agreements' terms. In 2014, Lifeline learned that Gilman was both:
- Making fat-free cheese for Red Apple, LLC, one of Lifeline's competitors.
- Advertising its own line of fat-free and reduced-fat cheese on its website.
Concluding that Gilman was using Lifeline's formulas to manufacture its own cheeses, Lifeline sued Gilman for misappropriation of trade secrets, breach of contract, promissory fraud, unfair competition, conversion and injunctive and declaratory relief. Gilman moved to dismiss the unfair competition, conversion and promissory fraud claims.
The court granted Gilman's motion to dismiss, reasoning that:
- CUTSA preempts Lifeline's unfair competition and conversion claims because this statute:
- provides unitary definitions of trade secret and trade secret misappropriation and a single statute of limitations for the various property, quasi-contractual and violation of fiduciary relationship theories of non-contractual trade secret liability under California common law; and
- is intended to preempt and supersede all common law trade secret misappropriation claims and other claims where, as in this case, the CUTSA misappropriation and other claims (Lifeline's claims of unfair competition and conversion) are based on the same nucleus of facts (Gilman's unauthorized use of Lifeline's confidential cheese formulas).
- The doctrine of election of remedies bars Lifeline’s promissory fraud claim because that claim arose out of the same obligations and operative facts as its breach of contract claim, namely, a broken promise to provide Lifeline with ownership of the disputed recipes, formulas and processes.
Citing the above reasons, the court granted Gilman's motion to dismiss Lifeline's unfair competition, conversion and promissory estoppel claims. Lifeline's breach of contract claim remained unchallenged and unaffected by the court's decision.