In his last decision from the bench, Chancellor Chandler on June 17, 2011, addressed a motion to dismiss a seven-count lawsuit arising from a failed venture between OverDrive, Inc. and Baker & Taylor, Inc. (“B&T”). Read opinion here in Overdrive, Inc. v. Baker & Taylor, Inc., C.A. No. 5835-CC (Del. Ch. June 17, 2011).

Claims Addressed

Overdrive alleged a variety of claims against B&T including misappropriation of trade secrets (Count I), conversion (Count II), fraud (Count III), breach of contract (Count IV), breach of the implied covenant of good faith and fair dealing (Count V), tortious interference (Count VI), and deceptive trade practices (Count VII). B&T moved to dismiss certain counts arguing that among other things, plaintiff’s tort claims are preempted by its misappropriation of trade secrets claim under the Delaware Uniform Trade Secrets Act (“DUTSA”).  In the end the Court denied defendant’s motion to dismiss Counts II and III, and granted defendant’s motion to dismiss Counts V, VI, and VII.

Delaware Uniform Trade Secrets Act

The Court stated that the DUTSA “displaces conflicting tort, restitutionary and other law of this State providing civil remedies for misappropriation of a trade secret.” Accordingly, the DUTSA preserves a single tort cause of action under state law for misappropriation of trade secrets and “eliminate[s] other tort causes of action founded on allegations of trade secret misappropriation.” The statute explicitly does not, however, affect “[o]ther civil remedies that are not based upon misappropriation of a trade secret.” The main focus is whether a trade secret exists or is alleged as an element of each claim (i.e., the claim is “based upon” a trade secrets claim) in order for a common law claim to be preempted by the DUTSA.

The Court noted that “Delaware courts have interpreted this language to mean that the DUTSA preempts claims that are “grounded in the same facts which purportedly support the misappropriation of trade secrets claims.” A common law claim is said to be “grounded in the same facts” as a trade secrets claim “if the same facts are used to establish all the elements of both claims.”

The Court concluded that it could not “say with certainty that plaintiff s conversion (Count II), fraud (Count III), and tortious interference (Count VI) claims are “based upon” plaintiff’s claim for trade secrets misappropriation.” Thus the Court found that it was “premature to consider the issue of preemption by the DUTSA at this time and therefore Counts II, III, and VI were not displaced by the DUTSA.” However, the Court did find that plaintiff’s deceptive trade practices claim (Count VII) was based upon the same facts as plaintiff’s trade secrets claim and thus it was preempted by the DUTSA.

Kevin F. Brady of Connolly Bove Lodge & Hutz LLP prepared this summary