IP Law Daily, TRADE SECRETS—N.D. Ohio: Engineering firm’s suit against former employee can proceed, (May 1, 2023)

By Donielle Tigay Stutland, J.D.

An Indiana court denied a motion to dismiss brought by an industrial engineering company against a former employee and a competitor for trade secret misappropriation.

An Indiana district court denied a motion to dismiss an engineering company’s claims against a former employee and his new employer, a rival company. Orbital Engineering, Inc. (Orbital) had brought suit against its former employee Zachary Topoll and his new employer, DVG Team, Inc., for breach of fiduciary duty, tortious interference with business relations, aiding and abetting breach of fiduciary duty, and trade secret misappropriation. Orbital alleged that Topoll resigned from his position, but did not reveal that he had accepted a role with DVG and thereafter helped DVG divert a previously awarded contract from one of Orbital’s largest customers to DVG. The court denied Topoll’s motion to dismiss. The court allowed Orbital’s claims for tortious interference and trade secret misappropriation to proceed against DVG, but dismissed the claims relating to breach of fiduciary duty, finding that had not alleged that DVG had intended for Topoll to breach his duties (Orbital Engineering, Inc. v. DVG Team, Inc., April 28, 2023, Kolar, J.).

Background. Orbital is a company that provides engineering, design, and construction services for public utilities, among other industries. One of its largest customers was Northern Indiana Public Service Company (“NIPSCO”), for which Orbital was engaged in designing and providing NIPSCO with recloser devices, known as Vipers. Defendant Zachary Topoll was the manager responsible for Orbital’s projects for NIPSCO. In December 2021, Topoll was organizing a project to install 60 Vipers for NIPSCO in and around Valparaiso, Indiana, to be completed during 2022 and 2023.

At some point, Topoll was recruited by a rival firm, defendant DVG, and on April 18, 2022, Topoll announced his resignation to Orbital. Orbital alleges that despite “pointed questions from [Orbital’s] leadership,” he did not tell Orbital that he intended to join a competitor. Because of this, Orbital had Topoll train his replacement, and Topoll continued to work on the Valparaiso Viper project until his employment ended on April 29, 2022, which included access to all of Orbital’s confidential information until his last day of employment.

After Topoll began his employment with DVG, NIPSCO awarded DVG 40 percent of its work from the Valparaiso Viper project, “jump-start[ing] a practice that would have taken [DVG] a significant investment of time and resources to develop.”

Orbital alleged that Topoll and DVG “targeted” the Valparaiso Viper project using the confidential information that Topoll learned during his employment with Orbital. Orbital sued Topoll and DVG, bringing claims for breach of fiduciary duty against both defendants (Count I); tortious interference with business relations against Topoll (Count II); aiding and abetting breach of fiduciary duty against DVG (Count III); and trade secret misappropriation, under the Defend Trade Secrets Act, against both defendants (Count IV).

Breach of fiduciary duty. The court first analyzed the claim brought for a breach of fiduciary duty under Indiana law. At issue where what type of duty the former employee had while he was still employed by Orbital but had accepted his future employment with DVG.

At the outset, the court stressed that Indiana “case law suggests that a breach of fiduciary duty claim cannot center on an allegation that the employee misappropriated trade secrets or confidential information, because that claim would be preempted by the Indiana Uniform Trade Secrets Act (“IUTSA”).” And because the claim brought against DVG did not state a non-prompted theory of a breach of fiduciary duty by DVG, the court dismissed DVG from this claim.

However, turning to the former employee, the court found that Orbital did plausibly allege a breach of a fiduciary duty by Topoll. The claim was not preempted by IUTSA under any standard, because Orbital plausibly pleaded a breach of Topoll’s fiduciary duty of honesty regardless of any trade secret misappropriation. The court found that Orbital plausibly alleged that when Topoll decided to leave Orbital sometime before April 18, 2022, he knew he would join DVG and try to attract some of Orbital’s work to DVG, which would be a breach of the fiduciary duty of honesty owed to the employer by an employee. Further, the court indicated that the complaint offered an allegation that the breach harmed Orbital.

Tortious interference. The court next turned to Orbital’s claim that the former employee tortiously interfered with its business relationship with NIPSCO. Topoll argued that the allegations against him do not support an inference of “illegal” conduct. Topoll contended that he merely “utiliz[ed] information obtained as an employee to further the interests of a competitor.” However, the court concluded that Orbital plausibly alleged that Topoll joined DVG with the goal of intentionally securing Orbital’s work, by breaching his duty of honesty to Orbital and potentially misappropriating its trade secrets. These allegations would appear to satisfy even the stricter test requiring a “malicious” breach exclusively directed at Orbital.

Aiding and abetting breach. Orbital claimed that DVG was liable for aiding and abetting Topoll’s breach of duty. The parties disputed whether this type of claim was recognized under Indiana law. Ultimately, the court determined that it did not matter, the claim would still fail for the same reasons as the breach of fiduciary duty claim did with respect to DVG. The court found that Orbital did not sufficiently allege facts to show that DVG intended or agreed for Topoll to breach his duty of loyalty to Orbital. The court dismissed this claim against DVG.

Trade secret misappropriation. The final claim analyzed by the court was a claim of trade secret misappropriation under the federal Defend Trade Secrets Act (DTSA). The parties first disputed whether Orbital had identified a particular trade secret. Orbital identified software, as well models and methodology, that were all specific to its work with NIPSCO as trade secrets. The former employee and rival company argued that Orbital did not define its “secrets” with enough specificity. However, the court noted that the DTSA does not mandate any degree of specificity; “it requires Orbital to show that it derives economic value from the information not being generally known or ascertainable.”

DVG’s next argument was that Orbital had failed to take reasonable measures to safeguard the information. Orbital offered a rebuttal of several steps it had taken, including its employee handbook which forbade “the disclosure and misuse” of the information; that Topoll understood and agreed with that requirement as a condition of his employment; and that the information was given to employees on a “need-to-know” basis and protected with employee-specific passwords. DVG pointed out the absence of a non-disclosure agreement. However, the court wrote, “there is no per se requirement that trade secrets be protected with non-disclosure agreements.”

With respect to the alleged misappropriation, the court noted that “there were at least two occasions when the information was “disclosed” or “used” without Orbital’s consent: first, when Topoll shared the information with DVG; and later, when DVG (and presumably, Topoll) presented a proposal to NIPSCO that was informed by the confidential information.

The court denied the motion to dismiss the claim for trade secret misappropriation, concluding that Orbital stated a claim against both defendants for the disclosure and use of the alleged trade secrets.

The Case is No. 2:22-CV-185-JPK.

Attorneys: Jared Debona (Dentons Cohen & Grigsby, P.C.) for Orbital Engineering Inc. Schuyler D. Geller (Burke Costanza & Carberry, LLP) for DVG Team Inc. Geoffrey G. Giorgi (Giorgi & Bebekoski, LLC) for Zachary Topoll.

Companies: Orbital Engineering Inc.; DVG Team Inc.

Cases: TradeSecrets OhioNews