IP Law Daily, TRADE SECRETS—D.D.C.: California trade secrets law did not preempt common law claims based on different facts, (Jun 6, 2022)

By Robert B. Barnett Jr., J.D.

The California Uniform Trade Secrets Act did not preempt related state common law claims because those claims involved personal, private information rather than trade secrets.

In a trade misappropriation case involving allegations that Qatari residents stole the trade secrets of a U.S. company and published them in retaliation for anti-Qatari comments, the D.C. federal district court has denied the Qataris’ motion for reconsideration of a prior ruling and has reiterated that the California Uniform Trade Secrets Act did not preempt the U.S. company’s other state law claims because those other claims had factual bases independent of any misappropriation of a trade secret. The court also took two additional steps. First, it granted the U.S. company’s motion to narrow its previous protective order to cover only “highly confidential” information as being for attorney’s eyes only, because the prior order was overbroad and unfairly obstructed the U.S. company’s ability to consult freely with its attorney. Second, the court granted the U.S. company’s motion to compel discovery from the Qataris, who had inappropriately withheld “considerable discovery” in reliance on (1) privileges allegedly held by Qatar, a non-party, (2) international treaties, and (3) international comity (Broidy Capital Management LLC v. Muzin, June 2, 2022, Friedrich, D.).

Background. Broidy Capital Management and its owner Elliott Broidy sued three foreign individuals and one company—Nicolas Muzin, Joseph Allaham, Gregory Howard, and Stonington Strategies, LLC—in District of Columbia federal court, alleging that they hacked into Broidy computers and disseminated hacked information to the media as retaliation for Broidy’s anti-Qatar advocacy. The hacked information included private communications, documents, trade secrets, and intellectual property.

The court denied the Qataris’ motion to dismiss, ruling that Broidy had alleged plausible claims under the Computer Fraud and Abuse Act (CFAA), the Defend Trade Secrets Act (DTSA), the California Uniform Trade Secrets Act (CUTSA), and the torts of receiving stolen property, intrusion upon seclusion, and civil conspiracy. The court also ruled that the Qataris’ affiliation with Qatar did not entitle them to foreign sovereign immunity, and it ruled that CUTSA did not preempt the state common laws claims.

The parties then filed three motions. The Qataris filed a motion for reconsideration of the court’s ruling that CUTSA did not preempt the other state law claims. Broidy filed two motions. First, Broidy moved for reconsideration of a protective order that the court issued to classify certain discovery material as “Attorneys’ Eyes Only.” Second, Broidy filed a motion challenging the Qataris’ claim that they could withhold certain discovery based on several grounds, including privileges held by Qatar, which is not a party.

Preemption. In seeking reconsideration of the ruling that CUTSA did not preempt the other state law claims, the Qataris cited no new grounds. California law had not changed. No new facts had emerged. They simply argued that the prior ruling was “plainly erroneous.”

The court, therefore, denied the motion for reconsideration, noting that CUTSA clearly allows “other civil remedies that are not based upon misappropriation of trade secret” to coexist (Cal. Civ. Code §3426.7(b)). The court noted that the other common law claims relied on different factual allegations than the CUTSA claims. For example, the CUTSA claims relied on the theft of trade secrets, which included confidential business plans, supporting research, and important business contacts. The common law claims, on the other hand, relied on both trade secrets and personal property, including private communications having nothing to do with trade secrets. Ultimately, the court concluded, Broidy could prevail on the those claims without showing that the Qataris took any action regarding the trade secrets. Furthermore, the alleged wrongdoings were different. The intrusion claim, for example, involves proof of a conspiracy to infiltrate Broidy’s computer system, which was not required for the CUTSA claim.

The court also rejected the Qataris’ claim that CUTSA preempts any claim involving “misuse” of all confidential information. This theory, the court ruled, was inconsistent with California law, which has held that common law claims with distinct factual bases can exist alongside the CUTSA claim. Furthermore, there is no indication in California law, the court said, that CUTSA covers civil remedies not involving misappropriation of a trade secret. In any event, even if CUTSA covered all confidential business and proprietary information, the argument would still fail because the common law claims involved personal, private information. The motion for reconsideration, therefore, was denied.

Protective order. The court had issued a protective order to classify certain discovery as for attorney eyes only. The order was modelled on an order another court in a similar case involving similar facts had issued. Broidy argued, however, that the order was overbroad and was affecting its right to consult with its attorney, if only the attorney were permitted to see certain information.

The court agreed with Broidy’s argument, ruling that the prior order included too much information falling under the category “for attorneys’ eyes only.” Such orders, the court acknowledged, should be “narrowly drawn and precise,” which this order was not. The prior order had covered confidential “non-public…information” and “information relating to the conduct by Qatar of its foreign policy.” In narrowing the early order, the court dismissed the Qataris’ concern that Broidy might disclose the information publicly, noting that Broidy faced contempt proceedings and monetary sanctions if the information were disclosed.

Thus, the court agreed to modify the order to apply only to information deemed “highly confidential.” This narrower definition captured only two categories of information: (1) information that would result in competitive, commercial, or financial harm if it were released and (2) information that should not be released according to the Vienna Convention. The court concluded that this narrower definition should satisfy both parties’ concerns.

Compel discovery. The Qataris refused to comply with certain discovery requests, citing Qatar’s immunity, the Vienna Convention on Diplomatic Relations (VCDR), the Vienna Convention of Consular Relations (VCCR), and the principles of international comity.

The court first dismissed the immunity argument rather easily. It had already ruled that none of the Qataris were immune from suit because they were not foreign states. They lacked conduct-based immunity because they were neither Qatari diplomats nor Qatari heads of state. As a result, they could neither assert immunity for themselves nor assert Qatar’s immunity.

Turning next to the Vienna Conventions, the court ruled the documents the Qataris’ possessed that were being sought by Broidy were not documents received on a diplomatic mission. Furthermore, Broidy was not seeking documents held by Qatar. Under the VCDR, documents freely given to non-mission parties are not covered by the VCDR. The VCDR also grants immunity only to “diplomatic agents,” which means a member of the diplomatic staff. These Qatari defendants were not diplomatic agents. The fact that they may have been on a mission from the Qatari government did not make them members of the diplomatic mission.

Analysis of the VCCR yielded similar results. Consular documents and archives are protected. Communications between the Qataris and Qatar, however, did not qualify as consular documents because the Qataris were not diplomats or agents.

In any event, the court went on to note, neither convention applied to these facts because of the Foreign Agents Registration Act, which requires that the Qataris have registered with the Attorney General as agents of a foreign government. Because they never registered, they could not be considered Qatari agents. And at least two other courts have ruled that the Vienna Conventions and related laws protect sovereign entities from civil discovery collected from non-agent third parties.

Shield doctrine. Turning to the final argument of international comity, the court noted that the Federal Rules of Civil Procedure contained no such comity exception. The Qataris also otherwise failed to offer any authority that such comity shields private, American parties from discovery. The case law was against them. Similarly, the Qataris failed to identify any Qatari law that would allow the Qataris to avoid U.S. discovery requests. None of the other arguments offered, such as that the discovery requests would subject the Qataris to the “attendant burdens of litigation” was deemed to have had any merit.

The court, therefore, denied the Qataris’ motion for reconsideration, granted Broidy’s motion for reconsideration of the protective order, and granted Broidy’s motion to compel discovery.

The Case is No. 1:19-cv-00150-DLF.

Attorneys: Daniel R. Benson (Kasowitz Benson Torres LLP) for Broidy Capital Management LLC. Stephen J. Obermeier (Wiley Rein LLP) for Nicolas D. Muzin.

Companies: Broidy Capital Management LLC

Cases: TradeSecrets TechnologyInternet DistrictofColumbiaNews