North Carolina Lawyers Weekly
At what point does a business practice rise to the level of being a trade secret? And can dances and the methods of teaching them be classified as trade secrets under state law? Those are the central questions at the heart of a squabble between the owners of two dance studios currently before the North Carolina Business Court.
Happy Dance Inc., which operates under the name Fred Astaire Franchised Dance Studios, claims that two dancers it brought over from Europe to instruct students violated non-compete agreements by moonlighting at a competing studio, Metropolitan Ballroom LLC, using secret information about Happy Dance’s ideas for dance productions.
In a Feb. 3, 2015, complaint, Happy Dance accused Metropolitan Ballroom and its owners of conspiring to obtain confidential trade secrets about Happy Dance’s business for financial gain in violation of North Carolina’s Unfair and Deceptive Trade Practices Act. The complaint also claims the two dancers breached their employment agreements and engaged in fraudulent misrepresentations in order to obtain work visas.
After reviewing those allegations, N.C. Business Court Judge Louis Bledsoe handed down a Jan. 22 order dismissing the claims against Metropolitan Ballroom and its owners, finding that Happy Dance had failed to adequately describe the alleged trade secrets. But Bledsoe ruled the claims against the two dancers stemming from their employment agreements with Happy Dance should be allowed to proceed.
“This case is just the latest example of the Business Court sending a message that they want businesses to be specific about what the trade secrets in question are before they are going to allow a lawsuit to move forward,” said Brooks Pierce partner Darrell Fruth, who represents companies on matters involving intellectual property rights.
Waltzing across oceans
According to Happy Dance’s complaint, owners Michael and Jennifer Krawiec hired Ranko Bogosavac as an instructor in 2009 and helped him secure an O-1B nonimmigrant work visa. The visa was necessary because Bogosavac is a citizen of Bosnia and Herzegovina. In exchange, Bogosavac allegedly entered into an employment agreement whereby he promised to work exclusively for Happy Dance.
Two years later, Happy Dance allegedly entered into a similar employment agreement with Darinka Divljak of Serbia. The company alleges it again helped to secure a work visa for Divljak in exchange for the promise that she would teach students only at Happy Dance studios.
Attorneys who represent dance studios said these types of arrangements are common in the increasingly competitive dance instruction marketplace. The cost of obtaining a visa can run into the thousands, making it prohibitively expensive for many dancers from impoverished countries. By agreeing to cover those costs, dance studios can attract students based on the cachet that comes with hiring top-flight talent from overseas.
But according to Happy Dance, the two dancers allegedly began working as instructors at Metropolitan Ballroom on Feb. 7, 2012, while still employed under their respective O-1B visas. Happy Dance’s complaint says Bogosavac and Divljak provided Jim and Monette Manly, the owners of Metropolitan Ballroom, with proprietary information about dance production concepts, marketing strategies, and student, client and customer information.
Dancing around specifics
The complaint lists Bogosavac, Divljak, the Manlys and Metropolitan Ballroom as defendants. All of the defendants are accused of engaging in civil conspiracy, misappropriating trade secrets, unjust enrichment, and intentionally and negligently inflicting emotional distress. The Manlys and Metropolitan Ballroom face additional claims of tortious interference in business/contract relations, aiding and abetting, and unfair and deceptive trade practices. Bogosavac and Divljak face separate claims of breach of contract, fraudulent misrepresentation and equitable estoppel.
Happy Dance is represented by Nichole Hatcher of Hatcher Legal in Durham. Hatcher did not return calls seeking comment.
In a 29-page opinion in support of his order, Bledsoe dismissed all of the claims against the defendants related to trade secrets. He determined that the plaintiffs had failed to demonstrate that Metropolitan Ballroom and its owners knew of the employment agreements between Happy Dance and Bogosavac and Divljak, meaning Metropolitan Ballroom could not have engaged in a conspiracy to obtain the alleged trade secrets. As for the alleged trade secrets themselves, Bledsoe said the plaintiffs had not provided sufficient detail about what the alleged proprietary information was and what steps had been taken to keep that information secret.
“Plaintiffs’ identification of its alleged trade secrets as ‘original ideas and concepts for dance production’ is so non-specific and generalized as to be meaningless,” Bledsoe said, adding that the plaintiffs also had not stated whether the ideas and concepts were “memorialized in any way or that they are capable of objective verification of any kind.”
Bledsoe also threw out the claims of intentional and negligent emotional distress because the allegations against the defendants did not rise to the level of being “atrocious” conduct that prior court cases have deemed “utterly intolerable in a civilized community.”
H. Monroe Whitesides, a Charlotte-based solo practitioner who has represented the Manlys and Metropolitan Ballroom for over a decade, said he was pleased with Bledsoe’s decision to dismiss the claims against his clients.
“Had the plaintiffs been able to show the alleged secret dance routines had been committed to written form or even video, they may have gotten some protection. But as it was, they didn’t even say what the alleged secrets were,” Whitesides said.
Bledsoe’s ruling did not, however, dismiss several of the claims against Bogosavac and Divljak. The opinion stated that the plaintiffs had made valid claims of breach of contract and fraudulent misrepresentation, unjust enrichment and punitive damages against the dance instructors with regard to their alleged conduct under their employment agreements. Accordingly, Bledsoe said the plaintiffs should be allowed to proceed despite Bogosavac and Divljak’s contention that those claims are barred by the statute of limitations.
Bogosavac and Divljak are represented by Renner St. John of Brock & Scott in Charlotte.
“We appreciate Judge Bledsoe’s decision to throw out the trade secret claims,” St. John said. “We feel we have a strong case with regard to the other claims and intend to respond to the remaining claims.”
Breaking it down
The N.C. Business Court has recently taken a hard line against plaintiffs who fail to adequately describe trade secrets in complaints against competing firms. That can be a challenge for attorneys who are trying to balance the need to be specific without putting too much proprietary information into the public record.
Brooks Pierce’s Fruth said that unlike a patent, in which an inventor gets exclusive legal protection for a period of time by fully disclosing the details of the invention, trade secrets derive their value by being just that, a secret. The tradeoff is that while there are fewer protections for the owners of a trade secret if the details get out, there is no time limit on how long the trade secret can remain confidential.
He said that’s why many companies limit the number of people who know all aspects of whatever the company desires to keep secret. The classic example is the recipe for Coca-Cola. Only a handful of people in the world know the entire recipe, he said.
Jonathan Sasser, a Raleigh-based partner with Ellis & Winters’ commercial litigation practice, said the first thing he advises clients to do with regard to trade secrets is to employ non-disclosure agreements early and often.
“If you don’t require employees to sign confidentiality agreements and they go somewhere else and start using that information, it’s pretty hard to argue that information was a trade secret,” Sasser said. “You have to at least make some kind of effort to keep it secret if you want to convince a court to grant you some kind of protection. The Business Court has been pretty clear about that too.”
The 29-page opinion is Kraweic v. Manly (Lawyers Weekly No. 020-010-16). The full text of the opinion is available online at nclawyersweekly.com.
Follow Jeff Jeffrey on Twitter @NCLWJeffrey
