581 F.Supp.3d 1000
E.D. Tenn.2022Background
- Knox Trailers and Post Trailer (both owned by Steve Fultz) discovered alleged widespread employee misconduct after hiring a consultant; several long‑time employees (including B. Maples, A. Maples, J. Clark, A. Clark, P. Henegar, R. Bailey, and S. Powell) are accused.
- Alleged financial misconduct: unauthorized bonuses and reimbursements, personal use of company credit cards, improper health‑insurance subsidies, diversion of customer cash payments to employees, and other misuses of company funds and inventory (specific sums pleaded).
- Alleged misappropriation and competitive misconduct: downloading Plaintiffs’ Southware database (customer, vendor, pricing, order history, reports), copying proprietary documents, soliciting Plaintiffs’ customers and employees, and forming Titan Trailer Repair & Sales, LLC to compete.
- Plaintiffs sued asserting breach of fiduciary duty, intentional interference with business relations, unfair competition, DTSA and TUTSA trade‑secrets claims, conversion, constructive trust, and civil conspiracy; Defendants moved for judgment on the pleadings.
- The court applied Rule 12(c)/12(b)(6) standards and TUTSA’s preemption (the “same‑proof” test) and granted the motion in part: several claims were dismissed in whole or in part to the extent they rely on trade‑secret misappropriation; all claims against Heath Brownlee were dismissed; Brownlee and Powell were dismissed from certain counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TUTSA preempts state‑law claims (breach of fiduciary duty, unfair competition, civil conspiracy, conversion) | Claims rest on a mix of trade‑secret and non‑trade‑secret misconduct; non‑trade‑secret theories (bonuses, card misuse, health benefits, diversion, employee poaching, misuse of time) survive | TUTSA displaces alternative tort claims where proof would necessarily be the same as for misappropriation (same‑proof test) | Partial preemption: claims premised on misappropriation of Southware/customer data are preempted; claims based on non‑trade‑secret misconduct survive. |
| Intentional interference with business relations | Even excluding Southware allegations, plaintiffs plead improper means (use of company resources, formation of Titan while employed) adequate to state claim | Improper means allegation is inseparable from trade‑secret misconduct, so claim is preempted | Dismissed in full (Count Three) because the alleged improper means were inseparable from trade‑secret allegations. |
| DTSA exemplary damages/attorney’s fees defense under 18 U.S.C. § 1833(b) (notice of whistleblower immunity) | Plaintiffs did not plead any disclosure to government or contractual notice; seek DTSA remedies | Defendants say absence of required §1833(b) notice precludes exemplary damages and fees and is an affirmative defense | Court declined to resolve on 12(c); DTSA claims remain for now and defendants may raise the affirmative defense later. |
| Conversion of information, inventory, and funds | Conversion alleged as to documents/electronic data, inventory, and identifiable sums (bonuses, card charges, health benefits) | Tennessee law does not recognize conversion of intangible property (trade secrets/data) | Conversion claims based on intangible/trade‑secret information are dismissed; conversion may proceed for tangible inventory and specifically identified/identifiable funds. |
| Constructive trust remedy | Plaintiffs seek constructive trust to prevent unjust enrichment from defendants’ misconduct | Defendants argue constructive trust is not a standalone cause or plaintiffs failed to allege legal title transfer | Constructive‑trust claims dismissed for failure to allege acquisition of legal title (Counts 11 & 12). |
| Dismissal of Brownlee and Powell | Plaintiffs asserted only interference/unfair‑competition/conspiracy claims against Brownlee and limited claims against Powell | With core underlying torts dismissed or preempted, Brownlee and Powell lack remaining liability | All claims against Brownlee dismissed; Powell dismissed from conspiracy counts to the extent based only on trade‑secret allegations. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard requires factual allegations sufficient to state a plausible claim)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Hauck Mfg. Co. v. Astec Indus., Inc., 375 F. Supp. 2d 649 (E.D. Tenn. 2004) (adopting the same‑proof test for USTA preemption)
- PartyLite Gifts, Inc. v. Swiss Colony Occasions, [citation="246 F. App'x 969"] (6th Cir. 2007) (discussing preemption of non‑TUTSA claims by trade‑secrets statute)
- ProductiveMD v. 4UMD, LLC, 821 F. Supp. 2d 955 (M.D. Tenn. 2011) (breach of loyalty/solicitation while employed can support fiduciary‑duty claim)
- Venture Express, Inc. v. Zilly, 973 S.W.2d 602 (Tenn. Ct. App. 1998) (factors for determining trade‑secret status)
- Wright Med. Tech., Inc. v. Grisoni, 135 S.W.3d 561 (Tenn. Ct. App. 2001) (trade‑secret/confidential information analysis)
- Paehler v. Union Planters Nat’l Bank, 971 S.W.2d 393 (Tenn. Ct. App. 1997) (elements of conversion under Tennessee law)
- PNC Multifamily Capital Institutional Fund XXVI Ltd. P’ship v. Bluff City Cmty. Dev. Corp., 387 S.W.3d 525 (Tenn. Ct. App. 2012) (identifiable funds exception to intangible‑conversion rule)