Are Nevada Common Law Trade Secret Claims “Displaced” by the Uniform Trade Secret Act?

A majority of courts have held that all common law claims which might otherwise be made against an employee who uses his employer’s confidential information are abrogated when the legislature enacts the Uniform Trade Secret Act.  Nevada has codified both the Nevada Uniform Trade Secret Act (“NUTSA”), and the idea that common law claims are displaced, in NRS 600A.090:

1. Except as otherwise provided in subsection 2, this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.

2. This chapter does not affect:

(a)        Contractual remedies, whether or not based upon misappropriation of a trade secret;

(b)        Other civil remedies that are not based upon misappropriation of a trade secret; or

(c)       Except as otherwise provided in NRS 600A.035, criminal sanctions, whether or not based upon misappropriation of a trade secret.

(Emphasis added).  By its very language, then, common law torts “conflict” with the statute and are therefore displaced by it.  The Nevada Supreme Court has held that this statutory language is plain and unambiguous.[1]

A Question of Statutory Interpretation?

All questions of statutory construction must start with the language of the statute itself.[2]  In other words, the Court must begin its inquiry with the statute’s plain language.[3]  The Court may not look beyond the statute’s language if it is clear and unambiguous on its face.[4]  Stated another way, in circumstances where the statute’s language is plain, there is no room for constructive gymnastics, and the court is not permitted to search for meaning beyond the statute itself.[5]

NRS 600A.090 is Unambiguous. Or is it?

Courts must not render any part of the statute meaningless, and must not read the statute’s language so as to produce absurd or unreasonable results.[6]  They must consider “the policy and spirit of the law and will seek to avoid an interpretation that leads to an absurd result.”[7]  In fact, “The meaning of words used in a statute may be sought by examining the context and by considering the reason or spirit of the law or the causes which induced the legislature to enact it.  The entire subject matter and the policy of the law may also be involved to aid in its interpretation, and it should always be construed so as to avoid absurd results.”[8]  Finally, the Courts must conform their decisions to reason and the public policy behind the statute.[9]

The Nevada Supreme Court considered the application of NRS 600A.090 sua sponte in Frantz v. Johnson.  The court said ‘[t]he plain language of NRS 600A.090 precludes a plaintiff from bringing a tort or restitutionary action ‘based upon’ misappropriation of a trade secret beyond that provided by the UTSA.”[10]  As the court determined, the statute contains plain language; a court may not look past the “plain” language on the face of the statute.  That plain language shows that common law claims are in “conflict” with the statute and are therefore displaced, or abrogated, by the statutory scheme.

Courts must enforce the statute as written, displacing all common law torts to the extent they are based on the same nexus of facts.  To displace means to “crowd out” or “to take the place of.”[11]  The UTSA was written to “codify all the various common law remedies for theft of ideas,”[12] not to add one more remedy on top of already existing common law remedies.  In fact, the weight of authority among courts that have considered preemption, consider its “history, purpose, and interpretation of the statutory scheme” to preclude the ability to simultaneously maintain common law torts and an UTSA claim based on the same facts.[13]

Allowing a common law claim for unauthorized use of trade secrets alongside a NUTSA claim would “undermine the uniformity and clarity that motivated the creation and passage of the [UTSA].”[14]  In fact, the entire purpose of preemption is to preserve a single tort action for any and all misappropriation of trade secrets as defined under the NUTSA, thus eliminating all other tort causes of action founded on that misappropriation even if that use does not rise to the level sufficient to qualify for a NUTSA claim.[15]  NUTSA created a system in which information is either a protected trade secret covered by NUTSA, or it is unprotected general knowledge.[16]  Therefore, a majority of courts agree that common law claims are preempted when they are based solely on or to the extent they are based on alleged misappropriated trade secrets.[17]

In an unpublished opinion, the Supreme Court stated, the “statute explicitly provides that it does not affect other civil remedies that are not based on misappropriation.”[18]  Other Courts, including the U.S. District Court for Nevada,[19] have held that common law claims may be tried simultaneously with a NUTSA claim under Rule 8’s alternative pleading allowance.[20]  The court reasoned, “[e]ven if any of the above claims are duplicative of the misappropriation of trade secret claims and therefore preempted by the Nevada Unfair (sic) Trade Secrets Act, eTrippid is entitled to plead the claims in the alternative under Rule 8.”[21]

The Frantz Court calls those common law claims “explicitly excluded by the statute, as they all relate[] to a misappropriation of a trade secret.”[22]  While the Frantz court did allow for the possibility that a common law claim might be brought in the same suit, it only recognized that was possible where the facts “do not depend on the information at issue being deemed a trade secret, and thus are not precluded by the UTSA.”[23]

[1] Frantz v. Johnson, 116 Nev. 455, 464-65, 999 P.2d 352, 357 (2000) (emphasis added).  The U.S. District Court for Nevada has expressly followed this holding in Menalco v. Buchan, 2010 WL 428911 (D. Nev. 2010); Montgomery v. eTreppid Tech., LLC, 2008 WL 942524 (D. Nev. 2008); Custom Teleconnect, Inc. v. Int’l Tele-Services, Inc., 254 F.Supp.2d 1173 (D. Nev. 2003).

[2] See 2A Norman J. Singer & J.D. Shambie Singer, Statutes and Statutory Construction § 47:1, at 274–75 (7th ed. 2007) (“The starting point in statutory construction is to read and examine the text of the act and draw inferences concerning the meaning from its composition and structure.” (footnote omitted)) – as quoted by In re Nevada State Eng’r Ruling No. 5823, 128 Nev. Adv. Op. 22, __ P.3d __, 2012 WL 1949859, May 31, 2012 (2012).

[3] Arguello v. Sunset Station, Inc., 127 Nev. ___, 252 P.3d 206, 209 (2011).

[4] See Washoe Med. Ctr. v. Second Jud. Dist. Ct. ex rel. Washoe, 122 Nev. 1298, 1302, 148 P.3d 790, 792-793 (2006).  See also Valdez v. Emp’rs Ins. Co. of Nev., 123 Nev. 170, 162 P.3d 148 (2007);  Hobbs v. Nev., 127 Nev. Adv. Op. 18, 251 P.3d 177, 179 (2011); Pro-Max Corp. v. Feenstra, 117 Nev. 90, 95, 16 P.3d 1074, 1078 (2001).

[5] See Pro-Max Corp. v. Feenstra, 117 Nev. 90, 95, 16 P.3d 1074 1078 (2001).

[6] Leven v. Frye, 123 Nev. 399, 405, 168 P.3d 712, 716 (2007).

[7] Id. (quoting CityPlan Dev. v. State Labor Comm’r, 121 Nev. 419, 435, 117 P.3d 182, 192 (2005)).

[8] Welfare Division of State Dept. of Health, Welfare and Rehabilitation v. Washoe County Welfare Dept., 88 Nev. 635, 637 (1972); Ex parte Siebenhauer, 14 Nev. 365, 368 (1879); Western Pacific R.R. v. State, 69 Nev. 66, 69 (1952).

[9] Great Basin Water Network v. State Eng’r, 126 Nev. ___, ___, 234 P.3d 912, 918 (2010).

[10] 116 Nev. 455, 464-65, 999 P.2d 352, 357 (2000) (emphasis added).  The U.S. District Court for Nevada has expressly followed this holding in Menalco v. Buchan, 2010 WL 428911 (D. Nev. 2010); Montgomery v. eTreppid Tech., LLC, 2008 WL 942524 (D. Nev. 2008); Custom Teleconnect, Inc. v. Int’l Tele-Services, Inc., 254 F.Supp.2d 1173 (D. Nev. 2003).

[11] Black’s Law Dictionary, 423 (5th ed. 1979).

[12] Thomas & Betts Corp. v. Panduit Corp., 108 F.Supp.2d 968, 971 (N.D. Ill. 2000) (quotation omitted).

[13] Mortgage Specialists, Inc. v. Davey, 153 N.H. 764, 766, 904 A.2d 652, 663 (2006).  Since this is a “uniform” act, case law from sister jurisdictions should be considered as persuasive authority to the extent they are interpreting the same section.

[14] Id.; quoting Burbank Grease Serv., LLC v. Sokolowski, 278 Wis.2d 698, 693 N.W.2d 89 (Ct. App. 2005).

[15] Id.; Mattel, Inc. v. MGA Entm’t, Inc., 782 F.Supp.2d 911 (C.D. Cal. 2011); see also Miami Valley Mobile Health Srvc., Inc. v. Examone Worldwide, Inc., 2012 WL 441148 *13 (S.D. Ohio 2012).

[16] Id. quoting Unikel, Bridging the “Trade Secret” Gap: “Confidential Information” not Rising to the Level of Trade Secrets, 29 Loy. U. Chi. L.J. 841, 867-68 (1998).

[17] Id. 904 A.2d at 665 (citations omitted).

[18] Allegiant Air, LLC v. AAMG Mktg. Grp., LLC, No. 64182, 2015 WL 6709144, at *2 (Nev. Oct. 29, 2015).

[19] Montgomery v. eTreppid Tech., LLC, 2008 WL 942524 *3 (D. Nev. 2008).

[20] Newmark Grp., Inc. v. Avison Young (Canada) Inc., No. 215CV00531RFBGWF, 2019 WL 575476, at *10 (D. Nev. Jan. 7, 2019), report and recommendation adopted sub nom. BGC Partners, Inc. v. Avison Young (Canada), Inc., No. 215CV00531RFBGWF, 2019 WL 570724 (D. Nev. Feb. 11, 2019) (“Given the clear conflict among other jurisdictions and some indication in Frantz that the Nevada Supreme Court may adopt the plain language interpretation, however, Plaintiffs should be permitted to allege noncontractual claims for misappropriation of confidential information that does not constitute a trade secret.”)

[21] Id.

[22] 116 Nev. at 65, 999 P.2d at 357-58.

[23] Id., n.3.

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Jay Young, Mediator and Arbitrator

Jay Young is a Las Vegas, Nevada attorney. His practice focuses on acting as an Arbitrator and Mediator. Mr. Young can be reached at 702.667.4828 or at jay@h2law.com. The information provided on this site does not, and is not intended to constitute legal advice. You understand each legal matter should be considered to be unique and subject to varying results. You should not take or refrain from taking action based on any information contained on this website without first consulting legal counsel, as it is not intended to advise you on your particular matter. Further, you understand that no guarantee is given that the information contained herein is an accurate statement of the law at any given point in time, as the law is constantly changing. Guest bloggers are responsible for their own content, which is not to be construed as an article authored by Jay Young. Please see http://nevadalaw.info/disclaimer

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