Trade secret and confidentiality claims survive against former executive

The North Carolina Business Court allowed most of a drone manufacturer‘s counterclaims against a former executive to proceed, holding that the company sufficiently alleged violations of confidentiality provisions, misappropriation of trade secrets and interference with prospective business relationships, while dismissing claims based on a broad nationwide noncompetition agreement and an inadequately pleaded defamation claim.

The dispute arose after the former executive sued the company, prompting the defendant to assert counterclaims alleging breach of a confidentiality and invention assignment agreement, trade secret misappropriation under state and federal law, tortious interference and defamation. The defendant alleged the former executive disclosed confidential information to prospective investors in an effort to undermine fundraising efforts, deleted information from a company-issued computer before resigning, retained confidential materials after leaving his employment and later joined a competing public safety technology company.

The Business Court held that the defendant adequately pleaded breach of contract claims based on alleged violations of the confidentiality provisions and the obligation to return company records and data. The complaint sufficiently alleged that the former executive disclosed confidential business information to prospective investors without authorization and failed to return company information after his employment ended.

The court also allowed most of the trade secret claims to proceed. It concluded that the defendant adequately identified protectable categories of confidential information, including customer lists containing purchasing histories and preferences, confidential partner pricing information, go-to-market strategies and technology strategies. However, the court dismissed trade secret claims based on prospective client lists, investor lists and the identities of business partners because the complaint failed to allege those categories contained nonpublic information not readily ascertainable through ordinary business efforts.

The court dismissed, without prejudice, the portion of the breach of contract claim based on the noncompetition covenant. Applying Texas law, it found the nationwide restriction and broad prohibition on working for competitors appeared facially overbroad, and the complaint lacked sufficient factual allegations to determine whether the covenant could be reformed. The court also dismissed the defamation claim with prejudice because the defendant failed to plead the allegedly defamatory statements with the specificity required under North Carolina law.

The 32 page opinion is Kadah v. Paladin Drones Inc., Lawyers Weekly No. 020-050-26.