Orca Communications v. Ann Noder Et vir/pitch Public

IN THE

SUPREME COURT OF THE STATE OF ARIZONA

ORCA COMMUNICATIONS UNLIMITED, LLC, A LIMITED LIABILITY

COMPANY,

Plaintiff/Appellant,

v.

ANN J. NODER AND CHRISTOPHER C. NODER, WIFE AND HUSBAND; PITCH

PUBLIC RELATIONS, LLC, A LIMITED LIABILITY COMPANY,

Defendants/Appellees.

No. CV-13-0351-PR

Filed November 19, 2014

Appeal from the Superior Court in Maricopa County

The Honorable John A. Buttrick

No. CV2010-023187

REVERSED AND REMANDED

Opinion of the Court of Appeals, Division One

233 Ariz. 411, 314 P.3d 89 (App. 2013)

AFFIRMED IN PART; DEPUBLISHED IN PART

COUNSEL:

David B. Earl (argued), Phoenix, for Orca Communications Unlimited,

LLC

Monica A. Limón-Wynn (argued), Law Offices of Monica A. Limón-Wynn

Law PLLC, Tempe, for Ann J. Noder, Christopher C. Noder and Pitch

Public Relations, LLC

VICE CHIEF JUSTICE PELANDER authored the opinion of the Court, in

which CHIEF JUSTICE BALES, JUSTICE BERCH, JUSTICE BRUTINEL,

and JUSTICE TIMMER joined.

ORCA V. NODER

Opinion of the Court

VICE CHIEF JUSTICE PELANDER, opinion of the Court:

¶1 Arizona’s Uniform Trade Secrets Act (“AUTSA”), A.R.S.

§§ 44-401 to -407, creates an exclusive cause of action—and displaces

conflicting causes of action—for claims based on the misappropriation of

trade secrets. We hold that AUTSA does not displace common-law claims

based on alleged misappropriation of confidential information that is not a

trade secret.

I.

¶2 Because the superior court dismissed the plaintiff’s complaint

pursuant to Arizona Rule of Civil Procedure 12(b)(6), we “look only to the

pleading itself and consider the well-pled factual allegations contained

therein.” Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419 ¶ 7, 189 P.3d 344,

346 (2008). The complaint alleges that between 2002 and 2009, Ann Noder

served as president of Orca Communications Unlimited, LLC (“Orca”), a

public relations company. During that time, she had access to its contracts,

financial data, and customer information. After a failed negotiation to

purchase Orca in early 2009, Noder informed some of Orca’s customers that

she was starting a competing company, Pitch Public Relations, LLC, and

urged them to do business with her new company instead of with Orca.

Noder resigned from Orca in May 2009. This action by Orca against Noder

and her company followed.

¶3 In the only claim at issue here―“unfair competition”―Orca

alleged that Noder had “learned confidential and trade secret information

about Orca,” including “information about Orca’s business model,

operating procedures, techniques, and strengths and weaknesses.” Orca

further alleged that Noder intended to “steal[]” and “exploit” that

information and Orca’s customers to gain a competitive advantage for her

company.

¶4 The superior court dismissed Orca’s complaint under Rule

12(b)(6), concluding that AUTSA preempts Orca’s “common law tort claims

arising from the alleged misuse of ‘confidential information,’” even as to

information “not asserted to rise to the level of a trade secret.” The court of

appeals reversed in part, holding that AUTSA preempts Orca’s unfair-

competition claim to the extent it is based on misappropriation of a trade

secret, but that AUTSA “does not preempt a claim based on the misuse of

confidential information that does not rise to the level of [a] trade secret.”

2

ORCA V. NODER

Opinion of the Court

Orca Commc’ns Unlimited, LLC v. Noder, 233 Ariz. 411, 419 ¶ 28, 421 ¶ 31, 314

P.3d 89, 97, 99 (App. 2013).

¶5 We granted review because the scope of AUTSA’s

displacement of common-law tort claims is a legal issue of statewide

importance. We have jurisdiction pursuant to Article 6, Section 5(3) of the

Arizona Constitution and A.R.S. § 12-120.24.

II.

¶6 We review de novo the dismissal of a complaint under Rule

12(b)(6). Coleman v. City of Mesa, 230 Ariz. 352, 355 ¶ 7, 284 P.3d 863, 866

(2012). Dismissal for failure to state a claim is appropriate “only if as a

matter of law [the] plaintiff[] would not be entitled to relief under any

interpretation of the facts susceptible of proof.” Id. at 356 ¶ 8, 284 P.3d at

867 (citation and internal quotation marks omitted).

A.

¶7 The Arizona Legislature enacted AUTSA in 1990 and adopted

most of the provisions of the Uniform Trade Secrets Act, “which codifies

the basic principles of common-law trade-secret protection, to govern the

resolution of trade-secret issues.” Enter. Leasing Co. of Phx. v. Ehmke, 197

Ariz. 144, 148 ¶ 12, 3 P.3d 1064, 1068 (App. 1999). AUTSA defines “trade

secret” as

information, including a formula, pattern, compilation,

program, device, method, technique or process, that both:

(a) Derives independent economic value, actual or

potential, from not being generally known to, and not being

readily ascertainable by proper means by, other persons who

can obtain economic value from its disclosure or use.

(b) Is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy.

A.R.S. § 44-401(4).

¶8 This case requires us to interpret the scope of AUTSA’s

displacement provision, which states as follows:

3

ORCA V. NODER

Opinion of the Court

A. Except as provided in subsection B, this chapter displaces

conflicting tort, restitutionary and other laws of this state

providing civil remedies for misappropriation of a trade

secret.

B. This chapter does not affect:

1. Contractual remedies, whether or not based on

misappropriation of a trade secret.

2. Other civil remedies that are not based on

misappropriation of a trade secret.

3. Criminal remedies, whether or not based on

misappropriation of a trade secret.

Id. § 44-407.

B.

¶9 If a statute is unambiguous, we apply its terms without

resorting to other tools of statutory interpretation, unless doing so leads to

impossible or absurd results. N. Valley Emergency Specialists, L.L.C. v.

Santana, 208 Ariz. 301, 303 ¶ 9, 93 P.3d 501, 503 (2004). Noder asserts that

§ 44-407 broadly displaces all common-law claims for misuse of

confidential information that does not fall within AUTSA’s definition of

“trade secret.” We disagree. On its face, § 44-407 displaces only conflicting

tort claims for “misappropriation” of a “trade secret,” terms AUTSA

specifically defines, A.R.S. § 44-401(2), (4), and leaves undisturbed claims

“that are not based on misappropriation of a trade secret,” id. § 44-407(A),

(B)(2). Nothing in this language suggests that the legislature intended to

displace any cause of action other than one for misappropriation of a trade

secret.

¶10 In addition to giving § 44-407 a broader preemptive sweep

than that statute’s text supports, Noder’s argument conflicts with another

well-established principle. “If the legislature seeks to preempt a cause of

action[,] . . . the law’s text or at least the legislative record should say so

explicitly.” Hayes v. Cont’l Ins. Co., 178 Ariz. 264, 273, 872 P.2d 668, 677

(1994). Absent a clear manifestation of legislative intent to displace a

4

ORCA V. NODER

Opinion of the Court

common-law cause of action, “we interpret statutes with every intendment

in favor of consistency with the common law.” Pleak v. Entrada Prop.

Owners’ Ass’n, 207 Ariz. 418, 422 ¶ 12, 87 P.3d 831, 835 (2004) (citation and

internal quotation marks omitted). Although we do not decide here

whether Arizona common law recognizes a claim for unfair competition,

see infra ¶ 21, “we are reluctant to interpret a statute in favor of denial or

preemption of tort claims—even those that are not or may not be

constitutionally protected—if there is any reasonable doubt about the

legislature’s intent.” Hayes, 178 Ariz. at 272, 872 P.2d at 676; see A.R.S. § 1-

201 (adopting the common law as the rule of decision in Arizona courts

except when repugnant to or inconsistent with Arizona’s Constitution or

laws or the Federal Constitution).

¶11 “[I]t is not the function of the courts to rewrite statutes. The

choice of the appropriate wording rests with the Legislature, and the court

may not substitute its judgment for that of the Legislature.” City of Phoenix

v. Butler, 110 Ariz. 160, 162, 515 P.2d 1180, 1182 (1973) (citation omitted). At

the least, § 44-407’s text creates reasonable doubt about the legislature’s

intent regarding displacement of common-law claims that do not involve

trade secrets as defined in AUTSA. See Hayes, 178 Ariz. at 272, 872 P.2d at

676. Because that displacement provision is expressly limited to claims

“providing civil remedies for misappropriation of a trade secret,” A.R.S.

§ 44-407(A), and because Orca’s unfair-competition claim, as alleged, is not

limited to trade secrets, the superior court erred in dismissing that claim on

preemption grounds.

C.

¶12 Noder argues that refusing to extend § 44-407’s displacement

provision beyond its express terms will lead to “absurd results” because a

plaintiff that demonstrates willful and malicious misappropriation of

confidential information could possibly recover more punitive damages

than a plaintiff that prevails on an AUTSA claim for such misappropriation

of a trade secret. We are not persuaded.

¶13 That AUTSA authorizes a trial court, rather than a jury, to

award exemplary damages of no more than twice the amount of actual

damages, A.R.S. § 44-403(B), is not necessarily anomalous. In cases of

willful and malicious misappropriation of trade secrets, punitive damages

might be easier to obtain under AUTSA than under our common law, which

requires clear and convincing evidence of a defendant’s “evil mind” for a

5

ORCA V. NODER

Opinion of the Court

punitive damages award. See Linthicum v. Nationwide Life Ins. Co., 150 Ariz.

326, 332, 723 P.2d 675, 681 (1986). Unlike other statutes, § 44-403(B) does

not adopt the common law or impose a heightened standard of proof for a

punitive damages award. Cf. A.R.S. §§ 12-653.03 (permitting an award of

punitive damages “subject to applicable rules of law governing such

damages in this jurisdiction”), -701(B) (requiring proof “by clear and

convincing evidence” for an award of punitive damages). Moreover,

although punitive damages awards under the common law are not subject

to any statutory limits and are generally left to the jury’s discretion, Arizona

courts quite often overturn or reduce excessive punitive damages awards

based on constitutional limitations. See, e.g., Arellano v. Primerica Life Ins.

Co., 235 Ariz. 371, 380 ¶ 45, 332 P.3d 597, 606 (App. 2014); Nardelli v. Metro.

Grp. Prop. & Cas. Ins. Co., 230 Ariz. 592, 612 ¶ 100, 277 P.3d 789, 809 (App.

2012); Hudgins v. Sw. Airlines, Co., 221 Ariz. 472, 492 ¶ 65, 212 P.3d 810, 830

(App. 2009).

¶14 In addition, AUTSA provides protections and remedies in the

trade-secret arena that are not generally available under common law. See

A.R.S. §§ 44-402 (permitting injunctive relief for actual or threatened

misappropriation), -404 (permitting award of attorney fees), -405

(preserving the secrecy of alleged trade secrets during litigation); Cortaro

Water Users’ Ass’n v. Steiner, 148 Ariz. 314, 316, 714 P.3d 807, 809 (1986)

(noting the general rule that attorney fees are not recoverable unless

provided for by statute or contract). In sum, limiting the scope of AUTSA’s

displacement provision to its express terms does not produce absurd

results.

¶15 We also find unpersuasive Noder’s argument that a literal

reading of § 44-407 undermines the Uniform Act’s purpose of creating a

single, uniform tort action governing the misuse of allegedly confidential

information. Although the Uniform Act promotes uniformity regarding the

treatment of trade secrets, it says nothing about confidential information

generally. Nor does the Uniform Act affect various other claims and

remedies. See Unif. Trade Secrets Act § 7 cmt. (amended 1985), 14 U.L.A.

463 (2005) (noting that the Uniform Act “is not a comprehensive statement

of civil remedies,” and does not apply to duties imposed by law that are

independent of the existence of a trade secret); see also A.R.S. § 44-407(B).

¶16 We acknowledge, as did the court of appeals, the split of

authority on whether the Uniform Act displaces all common-law tort claims

based on misappropriation of confidential information, whether or not the

6

ORCA V. NODER

Opinion of the Court

information constitutes a statutorily defined trade secret. Compare Firetrace

USA, LLC v. Jesclard, 800 F. Supp. 2d 1042, 1048 (D. Ariz. 2010) (concluding

that AUTSA displaces claims based on misappropriation of confidential

information that falls outside AUTSA’s definition of trade secret), BlueEarth

Biofuels, LLC v. Hawaiian Elec. Co., 235 P.3d 310, 327 (Haw. 2010) (same,

interpreting Hawaii Uniform Trade Secrets Act), and Mortg. Specialists, Inc.

v. Davey, 904 A.2d 652, 664 (N.H. 2006) (same, interpreting New Hampshire

Uniform Trade Secrets Act), with Stone Castle Fin., Inc. v. Friedman, Billings,

Ramsey & Co., 191 F. Supp. 2d 652, 656–59 (E.D. Va. 2002) (holding that

Virginia Uniform Trade Secrets Act displaces only those remedies based on

misappropriation of a trade secret, and leaves available all other remedies

for the protection of confidential information), and Burbank Grease Servs.,

LLC v. Sokolowski, 717 N.W.2d 781, 789 (Wis. 2006) (same, interpreting

Wisconsin Uniform Trade Secrets Act).

¶17 We generally consider decisions from other jurisdictions

when construing a statute derived from a uniform act to achieve uniformity

in interpretation. See Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 180 Ariz.

148, 154, 882 P.2d 1274, 1280 (1994). But that purpose is not served when,

as here, “the quest for uniformity is a fruitless endeavor and Arizona’s

ruling one way or the other neither fosters nor hinders national

uniformity.” Bunker’s Glass Co. v. Pilkington, PLC, 206 Ariz. 9, 15 ¶ 16, 75

P.3d 99, 105 (2003).

¶18 In addition, AUTSA does not contain the Uniform Act’s

directive that “[t]his [Act] shall be applied and construed to effectuate its

general purpose to make uniform the law with respect to the subject of this

[Act] among states enacting it.” Unif. Trade Secrets Act § 8 (amended 1985),

14 U.L.A. 656 (2005) (second and third brackets in original). Because other

statutes derived from uniform acts include similar language, see, e.g., A.R.S.

§§ 12-1845, 12-3028, 14-10018, 14-12501, 29-1110, 36-862, 44-331, 44-1412, 47-

1103, its absence from AUTSA suggests that the legislature intentionally

omitted it. See Ballesteros v. Am. Standard Ins. Co. of Wis., 226 Ariz. 345, 349

¶ 15, 248 P.3d 193, 197 (2011). Even when the legislature has adopted a

uniformity clause, we have not felt compelled to follow other courts’

decisions. Bunker’s Glass, 206 Ariz. at 12 ¶¶ 7–8, 75 P.3d at 102 (declining to

follow federal precedent even though A.R.S. § 44-1412 provides that “in

construing this article, the courts may use as a guide interpretations given

by the federal courts to comparable federal antitrust statutes”).

7

ORCA V. NODER

Opinion of the Court

¶19 Absent a uniformity directive in AUTSA, and given § 44-407’s

clear text and the split of authority on the preemptive scope of similar

provisions, we do not find the conflicting views of other courts helpful.

D.

¶20 We do not decide today what aspects, if any, of the

confidential information alleged in Orca’s unfair-competition claim might

fall within AUTSA’s broad definition of “trade secret” and therefore be

displaced. See Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, 109 ¶ 26, 302

P.3d 628, 634 (App. 2013) (“Although there may be substantial overlap

between confidential information and trade secrets, they are not

synonymous.”); Enter. Leasing Co., 197 Ariz. at 149 ¶ 14, 3 P.3d at 1069

(noting AUTSA’s “rather expansive definition” of “trade secret”). That

determination will not hinge on the claim’s label, but rather will depend on

discovery and further litigation that has not yet occurred.

¶21 Nor do we decide whether Arizona recognizes a common-law

claim for unfair competition as alleged in Orca’s complaint. Cf. Restatement

(First) of Torts §§ 757, 759 (1939) (enumerating several theories of liability,

including disclosure or use of another’s trade secret, and improper

acquisition of information, whether or not it constitutes a trade secret, to

advance a rival business interest). Compare Fairway Constructors, Inc. v.

Ahern, 193 Ariz. 122, 124 ¶¶ 8–9, 970 P.2d 954, 956 (App. 1998) (finding

plaintiff’s unfair-competition claim preempted by federal copyright law,

and noting that such a claim is “based on principles of equity” and

“encompasses several tort theories,” including “misappropriation”), with

Restatement (Third) of Unfair Competition § 1 cmt. g (1995) (noting that the

“specific forms of unfair competition [described therein] do not fully

exhaust the scope of statutory or common law liability for unfair methods

of competition”), and Restatement (Second) of Agency §§ 395, 396 (1958)

(describing agent’s duty not to use or disclose confidential information

acquired during the course of his agency in competition with principal).

¶22 Assuming the viability of a common-law claim for

misappropriation of confidential information that falls outside AUTSA’s

definition of “trade secret,” we hold that AUTSA does not, as a matter of

law, displace Orca’s unfair-competition claim. If such broad displacement

was intended, the legislature was required to express that intent clearly.

8

ORCA V. NODER

Opinion of the Court

III.

¶23 For the foregoing reasons, we reverse the superior court’s

dismissal of Orca’s unfair-competition claim and remand the case to that

court for further proceedings consistent with this opinion. Although we

agree with the result reached by the court of appeals, we order ¶¶ 28–31 of

its opinion depublished pursuant to Rule 111(g), Rules of the Supreme

Court.

9