IP Law Daily, TRADE SECRETS—D. Ariz.: A ‘specific’ way of flipping land is not a trade secret, (Oct 2, 2023)

By Matthew Hersh, J.D.

Generalized descriptions might be okay to identify a trade secret, but they must at least plausibly describe one.

An online educational academy that claimed that a subscriber made off with “a very specific way of identifying, buying and selling land” did not adequately state a claim under either Arizona or federal trade secret law, the federal court for Phoenix has held. The court, while emphasizing that generalized descriptions such as “market studies,” “financial information,” or “manufacturing methods” might well be enough to state a trade secrets claim in other settings, found that the description given by the real estate company did not describe information that, by nature, would “plausibly cross over from matters of general knowledge to trade secrets” (Smoketree Holding LLC v. Apke, September 29, 2023, Rayes, D.).

The lawsuit involves a clash between two companies that promise to train their clients in the art of buying undervalued property and reselling it for a profit—land flipping, that is. Arizona-based Land Academy, according to its complaint, began with an educational podcast in October 2015 and since then has also launched a YouTube channel, a Discord server, written materials, and various electronic tools and software offerings “to help subscribers launch their own real estate investment businesses.” Land Investment Online, an Ohio company, promises visitors to its website that they can “learn from two brothers who own and operate an 8-figure land flipping business, where they take everything they have learned & bring it to you!”

The Arizona company sued its Ohio competitor in Arizona federal court. The essence of the complaint was that Dan Atke, one of the two brothers behind the Ohio company, used his subscription membership in the Arizona company to purloin trade secrets for the benefit of the family business. The Arizona company contended that this constituted theft of trade secrets under both the Arizona Uniform Trade Secrets Act (AUSTA) and the Defend Trade Secret Act (DTSA). The lawsuit also brought claims of copyright infringement, breach of contract and the duty of good faith and fair dealing, unjust enrichment, conversion, tortious interference, and civil conspiracy.

The Ohio company moved to dismiss, leading to this opinion.

Trade secrets claims. The court dismissed the trade secrets claims. The Arizona company defined its trade secret as “teaching a very specific way of identifying, buying, and selling land.” The company claimed that this “specific way” of teaching, the court noted, was solely developed by the company and its founders “and is therefore not generally known in the real estate industry.” Did this sufficiently identify the trade secret under Arizona and federal trade secret law? The court found that it did not.

The Arizona company failed to adequately plead the trade secrets claim, the court found, because it did not provide sufficient notice to the Ohio company of just what it contended to be secret. To be sure the court noted, the company was not required to plead its trade secret in such detail that it “would amount to an effective surrender of the trade secret.” But to meet pleading standards under Arizona and federal law, the court noted, the complaint must “provide sufficient notice of the trade secrets at issue such that the defendants receive fair notice of what is being claimed as the relevant trade secrets and can defend themselves effectively.” Here, the court noted, it was simply “impossible to determine what parts of Land Academy’s teaching methods, if any, go beyond general knowledge and rise to the level of a trade secret.” The complaint would therefore fail.

Nor did the Arizona company identify anything in the complaint that could even plausibly be considered a secret, the court emphasized. Arizona courts will sometimes allow trade secrets complaints to go forward when they describe general categories such as “confidential client lists,” “advertising data,” “call center metrics,” “proprietary sales processes, metrics, and scripts,” “market studies,” “financial information,” and “manufacturing methods,” the court noted. But at least these are “on their face are the types of propriety information one might expect to be private,” the court noted—and thus they were “categories of information that, by their nature, plausibly cross over from matters of general knowledge to trade secrets.” But nothing in the complaint reached even this level, the court noted. The trade secrets claims would therefore fail.

Preemption. The court also found that the common law claims of conversion, tortious interference, civil conspiracy, and unjust enrichment were preempted by Arizona trade secrets law. Unlike the trade secrets law of other jurisdictions, the court noted, the Arizona Uniform Trade Secrets Act does not displace common-law claims based on alleged misappropriation of confidential information that falls short of being a trade secret. But here, the court noted, the complaint identified nothing that would fall into this category. The category of information on which the complaint was based—the Arizona company’s “very specific way of identifying, buying and selling land”—was expressly pleaded as a trade secret, and not as any other form of confidential information. “Nowhere does that paragraph even hint that this ‘very specific way of identifying, buying, and selling land’ includes confidential information that is not a trade secret, the court held.

The case is No. 2:22-cv-02123-DLR.

Attorneys: Brad Alan Denton (Denton Peterson Dunn PLLC) for Smoketree Holding LLC d/b/a Land Academy. Brett A. Schatz (Wood Herron & Evans LLP) for Daniel Apke, Ron Apke and Land Investing Online LLC.

Companies: Smoketree Holding LLC d/b/a Land Academy; Land Investing Online LLC

Cases: TradeSecrets ArizonaNews