Contract – Defend Trade Secrets Act – Confidentiality Provision

Appellants sufficiently pleaded their Defend Trade Secrets Act (DTSA) claim against Appellees because the complaint plausibly alleged that Appellant corporation owned a trade secret that it took reasonable measures to secure and that Appellees misappropriated that trade secret.

We reversed the district court’s order dismissing the DTSA claim and remanded.

The question in this appeal was whether Appellants sufficiently pleaded their DTSA claim against Appellees. In 2018, Appellant Sherbrooke was incorporated as a captive insurance company in North Carolina. As a captive insurance company, Sherbrooke insures only its “captive,” which are nursing homes and other entities owned by Appellant Goldner’s company, Goldner Capital Management. Sherbrooke has only three shareholders — Goldner, the majority shareholder, and Appellees Mayer and Queen, who are each minority shareholders. These three shareholders elected themselves as Sherbrooke’s directors. Goldner stepped away from day-to-day operations of Sherbrooke, so Mayer and Queen “assumed and performed all operations of Sherbrooke as the primary officers.” Goldner hired Walker as Sherbrooke’s Chief Technology Officer in 2022. According to the complaint, Walker’s “responsibilities included designing, creating, and maintaining proprietary software (the Proprietary Software) for the exclusive use of Sherbrooke and its related entities.” The complaint alleged that each of the Appellees was required to sign an employment contract, which contained a confidentiality agreement.

The complaint alleges that “[a]ny property that [Appellee] Walker created during or related to his employment as CTO of Sherbrooke, including but not limited to the Proprietary Software, is the confidential and exclusive property of Sherbrooke.” It further alleged, “[t]his Proprietary Software is—and always has been—the confidential property of Sherbrooke. Sherbrooke has used all commercially reasonable measures to ensure that the Proprietary Software remains confidential and provides unique value to Sherbrooke.” Appellants claimed that Appellees violated their employment contracts and misappropriated the Propriety Software.

In 2024, Appellants alleged, in addition to various state law claims related to corporate malfeasance, that Appellees misappropriated Sherbrooke’s trade secrets in violation of the DTSA. The district court later granted Appellees’ motion for judgment on the pleadings as to the DTSA claim and declining to exercise supplemental jurisdiction over all of the remaining state law claims.

The complaint makes clear that the “Proprietary Software is—and always has been—the confidential property of Sherbrooke.” It also alleges that the employment contract specified that employees “shall not, at any time hereafter, disclose Confidential Information.” And it alleges that the Invention Provision provided, “any invention, idea, design, process, system, procedure, improvement, development or discovery (an ‘Invention’) conceived, created, made or developed by Employee” through their employment “shall become the sole and exclusive property of [Sherbrooke].” Taking these allegations as true, we have no trouble concluding that the complaint sufficiently alleges that the Proprietary Software, which was “confidential property,” was treated as confidential information under the employment contract.

Reversed and remanded.

Samuel Sherbrooke Corporate Ltd. v. Mayer (Lawyers’ Weekly No. 001-181-25, 12 pp.) (Stephanie Thacker, J.) Appealed from the U.S. District Court for the Eastern District of North Carolina, at Raleigh (Terrence W. Boyle, J.) ARGUED: Dylan Michael Bensinger, MCGUIREWOODS, LLP, Charlotte, North Carolina, for Appellants. David L. Pardue, PIERSON FERDINAND, Atlanta, Georgia, for Appellees. ON BRIEF: Jonathan Y. Ellis, Raleigh, North Carolina, Brian A. Kahn, Zachary L. McCamey, Elizabeth P. Briand, MCGUIREWOODS LLP, Charlotte, North Carolina, for Appellants. Brian D. Stoltz, Atlanta, Georgia, Scott E. Bayzle, Andrew P. Tabeling, PARKER POE ADAMS & BERNSTEIN LLP, Raleigh, North Carolina, for Appellees. U.S. Court of Appeals for the Fourth Circuit