IP Law Daily, TRADE SECRETS—E.D. Wash.: Small business consulting firm fails to obtain TRO in trade secret misappropriation suit against former employees, (Oct 24, 2022)

By Linda O’Brien, J.D., LL.M.

A complaint against two former employees for alleged trade secret misappropriation was speculative and conclusory and the claims were not supported by specific facts.

A provider of HR and business consulting services did not demonstrate a likelihood of success on the merits of its claims or irreparable harm to enjoin the alleged trade secret misappropriation by two former employees who started a competing employer services business, a federal district court in Spokane, Washington has ruled. The complaint’s allegations were speculative and conclusory and unsupported by specific evidence. Thus, the motion for a temporary restraining order was denied (Barrett Business Services, Inc. v. Colmenero, October 19, 2022, Rice, T.).

Barrett Business Services, Inc. is a human resources management company that provides payroll administration, workers compensation programs, staffing, recruitment, and human resources/business consulting services to small and medium-sized businesses. Charles Colmenero began working for Barrett as an area manager in April 2014 and Santiago Alejo started working for Barrett as a recruitment specialist in July 2015. In connection with their employment, Colmenero and Alejo had access to confidential, proprietary, and trade secret information belonging to Barrett. Both employees also received the Employee Handbook, Code of Business Conduct, and signed non-solicitation agreements when they were hired.

In July 2022, both Colmenero and Alejo left their employment with Barrett and established the competing business Repsel Associates, Inc. d/b/a Personna Employer Services. In September 2022, Barrett filed a complaint against Colmenero and Alejo alleging the following causes of action: (1) breach of contract, (2) violation of Washington Uniform Trade Secrets Act (“UTSA”), (3) violation of the Defend Trade Secrets Act of 2016 (“DTSA”), and (4) tortious interference with contractual relations. Specifically, the complaint alleged that the defendants solicited and obtained Barrett’s customers by using its confidential and proprietary lists, processes, strategies, and pricing information. Before the court was Barrett’s motion for a temporary restraining order seeking to enjoin the defendants from soliciting former and putative clients and employees and requesting the return of all misappropriated confidential business information.

Likelihood of success on the merits. The court found that Barrett failed to demonstrate a likelihood of success on the merits of its four claims. In a breach of contract action under Washington law, the plaintiff must show (1) the existence of a valid contract, (2) breach of the contract, and (3) resulting damages. However, significant questions of fact remained as to whether an enforceable contract existed based on the signed employee handbooks or codes of business conduct since the handbook served as a guide and its contents could be changed at any time at the discretion of the company, the court noted.

According to the court, to pursue a claim under the UTSA, Barrett had the burden of proving that legally protectable secrets existed. The allegations in the plaintiff’s complaint were speculative and conclusory and failed to specify how its alleged trade secrets were not readily ascertainable from other sources or public information. Similarly, the relevant portions of the DTSA, which authorizes private civil actions for the misappropriation of trade secrets that are related to a product or service used in interstate commerce, are almost identical to those in Washington’s UTSA. Since the same evidence used to establish liability under the UTSA would establish liability under the DTSA and the plaintiff failed to establish liability under the UTSA, the court found that Barrett did not demonstrate a likelihood of success on the merits of the DTSA claim.

Furthermore, the plaintiff failed to provide facts to support its tortious interference claim. Barrett’s claim of harm to its reputation was conclusory and the complaint alleged no specific evidence to show damage to any business expectancy, such as a client affidavit, the court found.

Likelihood of irreparable injury. The plaintiff failed to clearly demonstrate irreparable harm, the court determined. The complaint’s allegations of intangible injuries were not supported with evidence beyond conclusory and speculative assertions. In contrast, the defendants provided affidavits that no clients were solicited by them, rather clients reached out for quotes to see if Barrett’s rates could be beat. Outside of speculation, the plaintiff’s service was not unique, could be easily replaced, and Barrett did not allege that it was under threat of going out of business, the court concluded.

The Case is No. 1:22-cv-03122-TOR.

Attorneys: Matthew J. Macario (Fisher & Phillips LLP) for Barrett Business Services, Inc. Brendan Victor Monahan (Stokes Lawrence Velikanje Moore & Shore) for Charles Colmenero and Jane Doe Colmenero.

Companies: Barrett Business Services, Inc.

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