BFV Perspectives, Noncompete & Trade Secrets, | Aug 15, 2013

“Strong” Circumstantial Evidence May Not Be Enough To Defeat Summary Judgment on A Misappropriation of Trade Secrets Claim in Georgia (At Least In Some Instances)

The Georgia Court of Appeals recently refused to allow “strong” circumstantial evidence to defeat summary judgment with respect to a misappropriation of trade secrets claim.  In Contract Furniture Refinishing & Maintenance Corp. v. Remanufacturing & Design Grp., LLC, 317 Ga. App. 47, 730 S.E.2d 708 (2012), the employer (doing business as The Refinishing Touch (“TRT”)) alleged that certain sales and marketing “recap reports” constituted its trade secrets because such reports included lists of current and prospective customer contact information, current and prospective customer leads, and customer quote amounts.  Id. at 52-53, 712.  TRT had granted its employee, Scott Deutsch, access to these recaps in conjunction with his employment.  Id.  While Deutsch was still employed by TRT, he signed an operating agreement for Remanufacturing & Design Group, LLC (“RDG”), along with two other individuals.  Id. at 49, 710.  Under the operating agreement each individual, including Deutsch, owned one-third of the company.  Id.  Additionally, under the operating agreement, Deutsch was in charge of running operations for RDG, and he began these duties in October 2008, while still employed with TRT.  Id.  Deutsch resigned from TRT in February 2009 and left his company-issued cellphone, truck, and laptop at the home of TRT’s operations manager, along with his resignation letter.  Id.

TRT filed suit against Deutsch alleging multiple causes of action, including misappropriation of trade secrets.  Id.  Both parties moved for summary judgment. The trial court granted partial summary judgment to Deutsch on TRT’s trade secrets claims, reasoning that TRT “failed to establish it has trade secrets and further that it has failed to adequately protect as confidential the information Plaintiff considers trade secrets.”  Id. at 52, 713.  TRT appealed.

In considering the misappropriation of trade secrets claim, the Georgia Court of Appeals considered the evidence that TRT presented.  Id. at 52-57, 713-15.  Specifically, the court examined evidence that TRT had proffered which showed that RDG was successful on two bids with three specific customers after TRT had provided Deutsch with information about those leads.  Id. at 52, 713.  TRT also pointed to evidence “regarding the connection of a flash drive between Deutsch’s personal computer and his company-issued laptop the day before he resigned.”  Id.  Finally, TRT stated that upon inspecting Deutsch’s computer, it discovered that the computer had been “stripped of all of TRT’s proprietary and trade secret files.”  Id. at 54, 713.

On the other hand, Deutsch testified that he did not retain any papers or reports from TRT; he denied downloading or saving any email attachments sent to him by TRT; he denied copying any files to a flash drive or CD; and he denied giving any TRT company information to anyone at RDG or anyone else (except for that information which he disclosed in relation to the work he performed for TRT).  Id. With respect to the specific successful bids that TRT pointed to, Deutsch and the other two owners of RDG, testified that such bids had come from other sources.  Id. at 54-55, 713-14.

In its analysis, the Georgia Court of Appeals focused on whether TRT had demonstrated a genuine issue of material fact that Deutsch had misappropriated any of TRT’s information.  Id. at 55, 714.  After quoting the definition of “misappropriation” provided by the Georgia Code, the court stated, “TRT presents only circumstantial evidence to support its allegation that Deutsch disclosed or used its trade secrets.” Id. at 56, 714.  The court further reasoned that, in considering a motion for summary judgment “a finding of fact that may be inferred from, but is not demanded by, circumstantial evidence has no probative value against positive and uncontradicted evidence that no such fact exists, provided that the circumstantial evidence may be construed consistently with the direct evidence.” Id. (citing White v. Shamrock Bldg. Sys., 294 Ga. App. 340, 669 S.E.2d 168 (2008)).  Even though TRT produced “strong” circumstantial evidence that Deustch may have used or disclosed trade secrets, the court found that such evidence was also consistent with an explanation that Deustch did not misappropriate any information.  Id. The court thus affirmed the grant of summary judgment to Deutsch on TRT’s misappropriation of trade secrets claim, finding that TRT’s evidence had no probative value.  Id. at 57, 715.

In so ruling, the Georgia Court of Appeals seems to indicate that circumstantial evidence (perhaps even “strong” circumstantial evidence) offered in support of a misappropriation of trade secrets claim may not defeat a motion for summary judgment on such a claim, so long as another “story,” which is supported by uncontradicted testimony, can be told with such evidence.

BFV Perspectives, Noncompete & Trade Secrets, | Aug 15, 2013