CURRENT MONTH (January 2021)

Business Litigation

Delaware Court of Chancery Holds That Delaware Trade Secret Statute Preempts Claim for Common Law Unjust Enrichment

By Jonathan M. Stemerman, Armstrong Teasdale

In 250ok, Inc. f/k/a 250ok, LLC v. Message Systems, Inc. a/k/a SparkPost, C.A. No. 2020-0588-JRS (Del. Ch. Jan. 22, 2021), plaintiff and defendant entered into an agreement (the “Reseller Agreement”), whereby defendant was designated as a reseller of one of plaintiff’s technology services (the “Service”).  To protect plaintiff’s proprietary information, the Reseller Agreement restricted defendant’s use of the Service, including making copies or derivative works of the Service, mirroring any content of the Service, or creating a competitive product.  The Reseller Agreement also prohibited defendant from using or disclosing plaintiff’s “Confidential Information.”  According to the complaint, defendant subsequently explored acquiring plaintiff and, at a meeting with the plaintiff demonstrated a competitive product that the defendant admitted was reverse engineered from plaintiff’s Service.  Two weeks after that meeting, defendant launched its product to compete with plaintiff’s Service.

Plaintiff commenced an action in the Delaware Court of Chancery alleging breach of the Reseller Act, misappropriation of trade secrets under the Delaware Uniform Trade Secret Act (the “DUTSA”) and unjust enrichment.  Defendant moved to dismiss the unjust enrichment claim, arguing that it was preempted by plaintiff’s statutory claim under the DUTSA, which states that it “displaces conflicting tort, restitutionary and other laws of this State providing civil remedies for misappropriation of a trade secret,” but also states that it does not affect contractual remedies.   6 Del. C. §2007.    Plaintiff argued that DUSTA does not preempt contract-based claims like unjust enrichment.

The Court disagreed, holding that unjust enrichment is a quasi-contract claim that seeks restitution.  The Court stated that the DUSTA’s displacement provisions do not only apply to tort-based claims, but potentially “all ‘alternative common law claims’ beyond those expressly exempted from preemption in the statute.”  The Court explained that whether a claim is preempted under the DUSTA is dependent on whether the trade secrets and unjust enrichment claims are based on the same alleged wrongful conduct.  Finding that the factual allegations of plaintiff’s unjust enrichment and misappropriation of trade secrets claim overlapped, the Court dismissed the unjust enrichment claim as preempted by the DUSTA.

Supreme Court Declines to Review Seventh Circuit Opinion Regarding Class Action Jurisdiction

By Kevin Liu, Pilgrim Christakis

On January 11, 2021, the Supreme Court declined to review the Seventh Circuit’s decision in IQVIA Inc. v. Mussat (2020), keeping in place the appellate court’s pivotal decision on the federal courts’ jurisdiction over class members under Bristol-Myers Squibb v. Superior Court of California (2017).  In BMS, over 600 plaintiffs spread across the nation brought eight mass tort actions against Bristol-Myers Squibb in California. The Supreme Court found that “settled principles” of specific personal jurisdiction required an affiliation between the forum and the underlying controversy. Because the claims of out-of-state plaintiffs had no involvement with California at all, the Supreme Court found that California courts did not possess specific jurisdiction to hear those claims.

Following BMS, there was a flurry of litigation in federal courts nationwide as to whether the High Court decision also affected personal jurisdiction over the claims of out-of-state unnamed class members. In particular, numerous courts in the Northern District of Illinois agreed that BMS did apply to class actions, and restricted the scope of class actions down to “Illinois-only” classes. On March 11, 2020, the Seventh Circuit in IQVIA reached the opposite conclusion, finding that in a class action, specific jurisdiction requirements applied only to the claims of putative named class representatives, rather than the unnamed class members. The Seventh Circuit’s opinion was one of the first appellate decisions to address the issue, and completely overturned the developing line of precedent in the Northern District of Illinois.

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