OPINION
HUDSON, Judge.
Relator St. Croix Sensory Inc. argues that the unemployment-law judge (ULJ) erred in determining that certain individuals working for relator as "sensory assessors" were employees rather than independent contractors. Under the undisputed facts, the totality of the circumstances demonstrates that the sensory assessors were independent contractors as a matter of law, and we reverse.
FACTS
Relator is a sensory laboratory that specializes in odor testing, training, and sales and rental of sensory equipment. Relator performs odor testing of materials, products, and air, and provides training to universities, governments, and industries for "monitoring odors in the field." As part of its odor-testing service, relator hires "sensory assessors" to perform odor evaluations. A sensory assessor sniffs a product or air sample and records his or her observations on a questionnaire, which is tallied and compiled into a client report. Any person can become a sensory assessor if he or she meets the standard industry qualifications.
The assessors perform smell tests at relator's facility, at a neutral site, or at the client's site. In most cases, however, the tests take place in relator's facility. Often, an olfactometer is used to perform the evaluations. An olfactometer is a large, podium-shaped machine with an attached nozzle, which dilutes the sample odor to varying levels. Smell tests are generally performed in a controlled laboratory setting because the olfactometer is very heavy and immobile, and the atmosphere must be completely odor-free to perform the evaluations pursuant to industry standards.
Relator enters into a contract with each assessor that states that the assessors are independent contractors and not employees. The contract provides that an assessor will be paid for each session for which he or she was hired, even if the session is canceled or ends prematurely. Once hired, assessors select sessions to participate in using an online system. If a particular session is selected by more assessors than are necessary to complete the evaluation, relator selects those assessors who have completed the fewest sessions. Assessors are paid a stipend for each testing session ranging between $20 and approximately $100 per session. The general stipend for each session is $38. Assessors are not paid hourly, so if a session ends early or begins late, the assessor will still receive the full stipend but nothing more. Test sessions may last from one to three hours. Only 10 to 15 minutes of each test session are spent actually smelling the samples, and assessors are free to use the remainder of the time as they see fit.
Relator has never asked an assessor to leave during a test session, but would allow or encourage an assessor to leave if he or she became ill during a session. Relator cannot order an assessor to participate in a particular session or discipline an assessor for not participating. Relator has never disciplined an assessor for conduct during a test session and does not believe that the assessors may be disciplined.
Relator trains the assessors "on their sense of smell and their sensory perception in general." If an assessor trained elsewhere began working for relator, the training program would only entail ensuring that the assessor's sense of smell meets industry standards and instructing the assessor on how to complete relator's forms. Relator gives assessors instructions on how to complete the questionnaires and operate the equipment, but does not instruct assessors how to smell the samples. For example, relator does not tell assessors whether to sniff slowly or quickly or whether to take one or many sniffs. Relator does not prescribe any specific method or technique for observing the odors and does not closely monitor test sessions. Relator relies on the assessors' backgrounds to interpret terms in the questionnaires and does not explain terms in the questionnaires. Assessors use their own judgment in assessing odors and recording reactions on the questionnaires.
After conducting a routine audit, the Minnesota Department of Employment and Economic Development (DEED) issued a decision finding that 37 sensory assessors, who were designated by relator as independent contractors and who provided services to relator during 2006 were actually employees. Accordingly, relator was ordered to pay unemployment taxes on wages paid to the sensory assessors and any others performing similar services.
Relator appealed DEED's determination. Following a hearing, the ULJ issued a decision affirming the determination that the sensory assessors were employees rather than independent contractors. The ULJ determined that relator "substantially possessed the right to control the means and manner of the [assessors'] performance," and that relator's right to inspect and stop work or prescribe alterations "suggests a right to discharge an assessor . . . without incurring liability." Relator filed a request for reconsideration, and the ULJ affirmed the decision. This certiorari appeal follows.
ISSUE
Are the sensory assessors working for relator considered to be employees or independent contractors?
ANALYSIS
Whether an individual is an employee or an independent contractor is a mixed question of law and fact. Lakeland Tool Eng'g, Inc. v. Engle, 450 N.W.2d 349, 352 (Minn.App. 1990). We review factual findings in the light most favorable to the decision. Skarhus v. Davanni's Inc., 721 N.W.2d 340, 344 (Minn.App. 2006). But where the facts are not disputed, a legal question is presented. Wise v. Denesen Insulation Co., 387 N.W.2d 477, 479 (Minn.App. 1986). We review questions of law de novo. Ywswf v. Teleplan Wireless Servs., Inc., 726 N.W.2d 525, 529 (Minn. App. 2007). Here, the parties agree that the facts are not disputed, and, accordingly, our review of this issue is de novo.
An employee is an "individual who is performing or has performed services for an employer in employment." Minn. Stat. § 268.035, subd. 13(1) (2008). Employment includes services performed by "an individual who is considered an employee under the common law of employer-employee and not considered an independent contractor." Id., subd. 15(a)(1) (2008). Unemployment taxes are those money payments "to be paid into the trust fund by an employer on account of paying wages to employees in covered employment." Minn. Stat. § 268.035, subd. 25 (2008). The remuneration of independent contractors does not constitute taxable wages covered by the unemployment-benefits law. Nicollet Hotel Co. v. Christgau, 230 Minn. 67, 68, 40 N.W.2d 622, 622-23 (1950).
Traditionally, five factors are used to determine whether a worker is an employee or an independent contractor: "(1) The right to control the means and manner of performance; (2) the mode of payment; (3) the furnishing of material or tools; (4) the control of the premises where the work is done; and (5) the right of the employer to discharge." Guhlke v. Roberts Truck Lines, 268 Minn. 141, 143, 128 N.W.2d 324, 326 (1964). Of these five factors, the two most important are "the right or the lack of the right to control the means and manner of performance," and the right or the lack of the right "to discharge the worker without incurring liability." Minn. R. 3315.0555, subp. 1 (2009).
The Minnesota Rules also provide additional factors to be considered when determining whether an employment relationship exists, including: (1) whether the individual makes services available to the public; (2) whether the individual is compensated on a job basis or by the hour; (3) whether the individual is in a position to realize a profit or loss as a result of the services offered; (4) whether the individual may end the relationship without incurring liability; (5) whether the individual made a substantial investment in the facilities used to perform the services; (6) whether the individual works simultaneously for multiple firms; (7) whether the individual is accountable for his or her own actions while working; and (8) whether the services performed by the individual are in the course of the employer's organization, trade or business. Minn. R. 3315.0555, subp. 2 (2009).
Finally, it is well settled that "[t]he nature of the relationship of the parties is to be determined from the consequences which the law attaches to their arrangements and conduct rather than the label they might place upon it." Speaks, Inc. v. Jensen, 309 Minn. 48, 51, 243 N.W.2d 142, 145 (1976). Therefore, "whether the parties have entered into a contract defining their relationship is not determinative." Wise, 387 N.W.2d at 479. In employment-status cases, there is no general rule that covers all situations, and each case will depend in large part upon its own particular facts. Pettis v. Harken, Inc., 263 Minn. 289, 291, 116 N.W.2d 565, 567 (1962). We consider the traditional factors in turn.
A. The right to control the means and manner of performance
Relator argues that it does not have the right to control the means and manner of the assessors' performance, and, therefore, the assessors are independent contractors. The right of control is the most important factor for determining whether a worker is an employee. Wise, 387 N.W.2d at 479. "The determinative right of control is not merely over what is to be done, but primarily over how it is to be done." Neve v. Austin Daily Herald, 552 N.W.2d 45, 48 (Minn.App. 1996) (quotation omitted).
The Minnesota Rules provide criteria for determining whether the employer has control over the method or performance of services, but the rules also state that control is determined by the totality of the circumstances. Minn. R. 3315.0555, subp. 3 (2009). The criteria include: (A) whether the employer has authority over assistants; (B) whether the individual is required to comply with detailed instructions or the employer has the right to instruct or direct the method of doing work; (C) whether regular reports relating to how the services are performed must be submitted to the employer; (D) whether the work is done on the employer's premises; (E) whether services must be personally rendered to the employer; (F) whether a continuing relationship exists between the parties; (G) whether the employer can terminate the individual without incurring liability; (H) whether set work hours are established; (I) whether training is given; (J) whether the employment is full-time; (K) whether the employer furnishes tools, supplies, and materials; (1) whether expenses are paid; and (M) whether the employer is required to enforce standards imposed by regulatory agencies. Id.
Authority over assistants
Control may be indicated "when the employer hires and pays the individual's assistants and supervises the details of the assistant's work." Minn. R. 3315.0555, subp. 3(A). Here, relator hires laboratory associates and assistants who are paid to assist the assessors during test sessions and ensure that assessors perform according to industry standards. The associates present samples to the assessors, ensure that the assessors actually smell the samples, and tell the assessors the sample numbers to mark on the forms. This factor indicates control.
Right to instruct or direct the method of work
Control may be indicated where the employer instructs or directs the method of work. Minn. R. 3315.0555, subp. 3(B). Two contract provisions address relator's right to instruct or direct the method of work. According to the first provision, the assessor "retains the right and responsibility to control or direct the manner in which the sensory evaluation services are to be performed, consistent with standard methods and procedures of test sessions." The second provision states that relator "retains the right to inspect the assessor's work, to stop work, to prescribe alterations, and generally to ensure its conformity to the needs of [relator] or [relator's] client."
The retained right to instruct or direct the method of work, even if not exercised, is a factor indicating control. Moore Assocs., LLC v. Comm'r of Econ. Sec, 545 N.W.2d 389, 393 (Minn.App. 1996). Here, although apparently not exercised, relator had the right to stop an assessor during a session or prescribe alterations. The ULJ determined that this contract language gives relator the right to control what is done during test sessions.
But relator argues that under the contract, only the assessors actually exercise control over the method of the work. Relator contends that its contractual reservation of the right to require the assessors to follow certain instructions does not negate the assessors' overall right to control the method and manner of performance. Relator's position is persuasive. A contract must be interpreted to give effect to all of its provisions. Current Tech. Concepts, Inc. v. Irie Enters., Inc., 530 N.W.2d 539, 543 (Minn. 1995). Factors that relate to the definition of a task, rather than the means of accomplishing it, are not relevant to the employment-status inquiry and do not support a finding of an employment relationship. Neve, 552 N.W.2d at 48. A worker may be an independent contractor and still remain "subject to control over [the] end product." Id.
Here, when reading the two contract provisions together, it appears that the assessors control the manner in which they perform the tests — how long to sniff, how many sniffs to take, and what reactions to record — while relator has control over the end product by retaining the ability to stop work or prescribe alterations if the work does not conform to requirements. Thus, relator grants the assessors the freedom to perform the services in a manner of their choosing, but within the parameters set by relator. We also note that some of the parameters set by relator appear to come directly from individual clients or are dietated by industry regulations. We conclude that under the totality of the circumstances, relator does not control the means and manner of performance.
Requirement to comply with detailed instructions
"Control is indicated when an individual is required to comply with detailed instructions about when, where, and how to work including the order or sequence in which the service is to be performed." Minn. R. 3315.0555, subp. 3(B). At the hearing before the ULJ, an assessor testified that he did not feel that relator supervised the test sessions and that relator has never given a performance review or advice on how to improve performance. "Mere suggestions as to detail or necessary and usual cooperation where the work furnished is part of a larger undertaking, does not normally evince control." Id. Oral or written instructions that show how the desired result is to be accomplished evince control, but instructions required by laws or regulations or general instructions passed on by the employer from a client generally do not evince control. Id.
Here, relator gives the assessors instructions on how to operate the equipment and complete the questionnaires, but does not instruct the assessors as to their method of sniffing or how to formulate their opinions, which are recorded by the assessors on the questionnaires. Thus, assessors rely on their own sense of smell and background when filling out the questionnaires. Some of the instructions, however, do seem to indicate that the assessors must perform the tests in a certain way in order to properly utilize the equipment and conform to industry standards. But these instructions are not overly complex and relate in part to the standards that must be enforced by regulation. This factor does not demonstrate a strong showing of control.
Work performed on premises
Generally, testing takes place on relator's premises because a neutral, odor-free environment is required to accurately conduct the tests. But testimony indicated that testing might sometimes take place at a client facility or another location as long as that location meets the testing-site standards. Testing cannot take place at an assessor's home. Performing work on the employer's premises "is not control in itself," but this factor tends to imply control. Minn. R. 3315.0555, subp. 3(D). However, industry standards, rather than relator, generally require that the tests be performed in a laboratory environment. Still, assessors utilize large equipment owned by relator and tests are overseen by lab associates employed by relator.
Existence of a continuing relationship
Relator admits that there is a continuing relationship with many assessors who "have been doing this for many years." But relator also noted that some assessors perform one or two test sessions and leave, some are "seasonal," and some simply stop bidding on test sessions. Relator does not advertise for assessor positions and new assessors generally find out about the job via word-of-mouth. The continuing relationship between relator and most of the assessors indicates control, but the fact that some assessors are very short-term undercuts that conclusion.
Provision of tools and materials
Relator provides certain tools, supplies, and materials to the assessors to perform the tests. The furnishing of tools by the employer indicates control. Minn. R. 3315.0555, subp. 3(K). Lack of control is indicated if the worker provides tools, but "not . . . if the individual provides tools or supplies customarily furnished by workers in the trade." Id. Relator provides the assessors with the evaluation forms and the use of the olfactometer and a carbon respirator for refreshing their sense of smell between sniffs. Relator also provides sniffing masks that are retained and washed in between uses. The provision of such tools and materials indicates control.
Relator notes that assessors provide their own noses, which is arguably the most important tool for their job. Because assessors must pass a test showing that they have a sufficiently sensitive sense of smell, relator argues that this sets an assessor's nose apart from the body parts of other workers. But the nose is a tool that would certainly be customarily supplied by every worker in the sensory-assessor trade. Thus, lack of control is not indicated by the assessors' provision of their own noses.
Submission of reports, fixed schedules, training, full-time employment
Numerous other important factors in the record indicate a lack of control. Assessors do not submit regular reports to relator or participate in performance reviews. The assessors do not have fixed work schedules, and they set their own hours because they can choose which test sessions to participate in. Assessors do not work full-time for relator. Some assessors also perform the same job for other sensory assessment agencies in Minnesota, including relator's competitors. Training is limited, and assessors work without excessive supervision.
Enforcement of regulatory standards
Many of relator's standards and rules used during test sessions are established by outside regulatory agencies, including the European Committee for Standardization and the American Society for Testing and Materials. "If an employer is required to enforce standards or restrictions imposed by regulatory or licensing agencies, such action does not evince control." Minn. R. 3315.0555, subp. 3(M).
In sum, we conclude that, while some of the factors indicate control by relator — particularly relator's control over the assessors' final product — the totality of the circumstances demonstrates that the assessors have a significant degree of independence in determining the means and manner of their own performance and primarily control how they each perform their own job. This supports a determination of an independent-contractor relationship.
B. Right to discharge without liability
Relator argues that it cannot discharge an assessor without incurring liability, and thus the assessors are independent contractors. The right to discharge a worker without incurring liability is the other most important factor in determining whether a worker is an employee or independent contractor. Minn. R. 3315.0555, subp. 1. "An independent worker generally cannot be terminated without the firm being liable for damages if [the worker] is producing according to his or her contract specifications." Id., subp. 3(G). Control may be indicated "particularly if the individual may be terminated with little notice, without cause, or for failure to follow specified rules or methods." Id.,
The ULJ found that "any theoretical liability is very limited" because assessors are only paid between $25 and $38 per session, and that relator's right to stop work during a session "suggests a right to discharge an assessor who did not perform to these standards, without incurring liability." The parties' contract does not reflect that an assessor must be paid if he or she refuses to complete the session or does not meet relator's standards. The contract between relator and the assessors is not a fixed, long-term contract; assessors may work one or multiple test sessions. Moreover, the contract states that assessors will provide services "from time to time at test sessions." The contract also states that it will remain in effect until terminated by written notice of either party. Although the contract requires notice before termination, it appears that the notice may be very short or even immediate.
Here, testimony indicated that, if an assessor was discharged during a session, that assessor would still be paid for the session. Accordingly, relator would at least be liable to the assessor for the cost of the session. The fact that relator may stop work during a session indicates that it may discharge an assessor, but presumably liability would still be incurred. Either party is apparently able to end the relationship at any time, and relator can cancel a test session or refuse to hire an assessor for a future session. Similarly, assessors may stop working for relator at any time simply by not bidding on test sessions or even leaving during a test session, without incurring liability. We conclude that, while control may be indicated because the assessors can be fired with little notice or even during a test session for failing to follow the test session rules, relator would nevertheless incur some liability upon discharge of an assessor. Accordingly, this factor suggests an independent-contractor relationship.
C. Remaining traditional factors
The remaining traditional factors are the furnishing of tools, control of the premises where work is performed, and the mode of payment. Guhlke, 268 Minn, at 143, 128 N.W.2d at 326. The furnishing of tools and control of premises are discussed above and tend to indicate an employee-employer relationship, although this showing is somewhat weakened by the industry standards that dictate where tests can be performed.
Here, the mode of payment indicates independent-contractor status because the assessors are paid on a per-job basis. See Minn. R. 3315.0555, subp. 2(B) ("Payment on a job basis is customary where the worker is independent."). Assessors and relator's full-time employees are paid out of different accounts. Furthermore, the contract between relator and assessors provides that the assessors are required to pay all state and federal tax obligations. Evidence that an individual is responsible for his or her own tax obligations is indicative of independent-contractor status. See Neve, 552 N.W.2d at 48.
Based on the totality of the circumstances and our review of the five traditional factors, we conclude that the sensory assessors are independent contractors. Our decision is based primarily on the fact that the assessors retain control over the performance of their jobs and have significant freedom in their work. Significantly, many of the rules and instructions given by relator to the assessors relate to industry standards and regulations that relator must enforce. And finally, there is evidence that relator is subject to liability if an assessor is discharged during a testing session.
DECISION
Because the strength of the factors indicating an independent-contractor relationship outweighs the strength of factors indicating an employer-employee relationship, the ULJ erred in its determination that the sensory assessors were relator's employees.
Reversed.
et. Thus, Plaintiff's nonUTSA claims against [defendant] will be preempted if, as plead, they would succeed or fail dependent on proof [defendant] acquired, disclosed, or used Plaintiff's trade secrets or otherwise confidential information . . . .
Hauck, 375 F.Supp.2d at 658 (footnote and internal citations omitted) (emphases in original).
c. analysis
The preemption provision of the HUTSA, like that of the UTSA, states that "[t]his chapter does not affect . . . [o]ther civil remedies that are not based upon the misappropriation of a trade secret[.]" HRS § 482B-8(b)(2) (2008). We agree with the Hauck court's analysis that the phrase "based upon" implies that "the UTSA's preemptive force reaches more than just claims of or for misappropriation of a trade secret." Hauck, 375 F.Supp.2d at 658 (emphases in original). Otherwise, a plaintiff could state multiple different claims, all stemming from the same misappropriation of trade secret injury. This would undermine the purpose of the UTSA, which was to resolve the "uncertainty concerning the parameters of trade secret protection" and create a uniform law to remedy trade secret misappropriation. See 14 U.L.A. at 531 (prefatory note); see also id. § 8 at 656; HRS § 1-24 (2009).
The "elements" test advocated by BlueEarth faces precisely the problem stated above. It would allow a party to raise multiple different claims based on the same trade secret misappropriation injury. Only a minority of courts apply the "elements" test to determine preemption. See Nucor Corp. v. Bell, 482 F.Supp.2d 714, 725 (D.S.C. 2007) ("To determine whether a particular cause of action involves rights equivalent to those protected by the Trade Secrets Act, the elements of the causes of action should be compared, not the facts pled to prove them."); see also Powell Products, Inc. v. Marks, 948 F.Supp. 1469, 1474 (D.Colo. 1996) ("[H]ere, plaintiff alleges that defendants conspired to misappropriate its trade secrets, which requires an agreement, which is not an element of a misappropriation claim under the UTSA. This claim . . . does not conflict with the UTSA and will not be preempted.").
Some courts have employed the language of the "elements" test, but have then gone on to analyze the underlying factual basis for each claim to determine whether it is based on misappropriation of a trade secret. For example, in Mortgage Specialists, Inc. v. Davey, 153 N.H. 764, 904 A.2d 652, 665 (2006), the court stated that it "agree[d] with the courts that have concluded that a claim is not preempted where the elements of the claim require some allegation or factual showing in addition to that which forms the basis for a claim of misappropriation of a trade secret." Id. However, the court went on to find plaintiff's claim for breach of fiduciary duty, which required different elements than a trade secret misappropriation claim, to be preempted. Id. at 667. See Powell, 948 F.Supp. at 1475 (holding plaintiff's conversion claim was preempted to the extent it sought recovery for misappropriation of a trade secret, but was not preempted to the extent it sought recovery for physical items stolen); see also LaFrance Corp. v. Werttemberger, No. C07-1932Z, 2008 WL 5068653, *4 (W.D.Wash. Nov. 24, 2008) ("Conspiracy requires an element in addition to that required to make out a UTSA cause of action. In addition, LaFrance alleges facts that are not necessary to the UTSA claim . . . Therefore, this claim cannot be dismissed at this time.") As the court in Hauck observed
[t]he variations in language employed by courts to articulate a test for UTSA preemption can be misleading when considered in the abstract . . . In the end, all of these cases turn on their respective factual circumstances as reflected by the plaintiff's pleadings. In fact, in several instances courts have stated the law in divergent manners but proceeded to apply those seemingly contrary standards in similar, if not identical, fashion.
375 F.Supp.2d at 657-58.
The majority of courts, however, have rejected the "elements" test and have instead examined the factual allegations underlying each claim to determine whether a claim, whatever its label, is based upon misappropriation of a trade secret.
See, e.g., Hauck, 375 F.Supp.2d at 657 (surveying cases and concluding that "[i]n the end, all of these cases turn on their respective factual circumstances as reflected by the plaintiff's pleadings"); Allied Erecting, 649 F.Supp.2d at 721 ("the appropriate scope of displacement should be defined by the `same facts' or `same proof' standard"); Auto Channel, Inc. v. Speedvision Network, LLC, 144 F.Supp.2d 784, 789 (W.D.Ky. 2001) ("[the] Court must first examine each of Plaintiff's' noncontractual claims and determine whether the claim seeks a remedy for the misappropriation of trade secrets"); Thomas Betts Corp. v. Panduit Corp., 108 F.Supp.2d 968, 972 (N.D.Ill. 2000) ("[W]e must review the challenged counts of T B's complaint to determine whether they are based on a misappropriation of trade secrets, or on something more."); Mortgage Specialists, 904 A.2d at 666 ("to determine whether a plaintiff's claims are preempted by the NHUTSA, a court must examine the facts alleged in support of each claim to determine the extent to which the claim is based upon the misappropriation of trade secrets or other information."); Weins v. Sporleder, 605 N.W.2d 488, 491 (S.D. 2000) ("the court is to look beyond the label to the facts being asserted in support of the claims"); Chatterbox, LLC v. Pulsar Ecoproducts, LLC, No. CV 06-512-S-LMB, 2007 WL 1388183, *4 (D.Idaho May 9, 2007) ("Plaintiff's claims for unjust enrichment and unfair competition are based on the same nucleus of facts as its trade secrets claim and, therefore, these should be dismissed as preempted by the Idaho Trade Secrets Act."); Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F.Supp.2d 943, 949-51 (W.D.Mich. 2003) (court analyzed factual allegations underlying each claim to determine if claim was based upon misappropriation of a trade secret); Ethypharm S.A. France v. Bentley Pharm., Inc., 388 F.Supp.2d 426, 434-35 (D.Del. 2005) (same); Diamond Power Int'l, Inc. v. Davidson, 540 F.Supp.2d 1322, 1345-47 (N.D.Ga. 2007) (same).
BlueEarth's arguments to the contrary are not supported by the comment to the UTSA's preemption provision. BlueEarth contends that the comment's statement that "[t]his Act . . . is not a comprehensive statement of civil remedies[,]" means that "[b]eyond displacing previously existing common law actions for trade secret misappropriation . . . the Act does not displace other civil remedies." However, it appears that the comment is merely restating the substance of the preemption provision. The UTSA is not a comprehensive statement of civil remedies because "[i]t does not apply to a duty voluntarily assumed through an express or implied-in-fact contract." 14 U.L.A § 7 at 651 (comment); see also id. § 7(b) at 651 ("This Act does not affect . . . contractual remedies, whether or not based upon misappropriation of a trade secret[.]") (brackets omitted).
The comment further states that "[t]he Act also does not apply to a duty imposed by law that is not dependent upon the existence of competitively significant secret information, like an agent's duty of loyalty to his or her principal." Id. § 7 at 651 (comment) (emphasis added). BlueEarth argues that the comment's reference to "duties" implies a legal, rather than a factual, inquiry, and that the duty to refrain from misappropriating trade secrets is unrelated to and independent from, for example, the duty not to intentionally interfere with the contracts of others. Contrary to BlueEarth's argument, the language of the comment implies that the UTSA does apply to duties that are dependent upon the existence of competitively significant secret information, whatever their label. In analyzing whether a claim is preempted by the UTSA, "the court is to look beyond the label to the facts being asserted in support of the claims." Weins, 605 N.W.2d at 491; see also Mortgage Specialists, 904 A.2d at 665 ("The majority of courts that have examined this issue have not relied upon the label attached to the claim, but have examined the facts underlying the claim to determine whether it is preempted by the UTSA.").
BlueEarth states that, "[d]espite its obvious importance, no case reviewed by counsel for BlueEarth has discussed or even noted this comment" to the UTSA's preemption provision. Respectfully, it is unlikely that this "dispositive" comment has been simply overlooked by every court to have considered the scope of the UTSA's preemption. Instead, it is more likely that these courts found that the comment did not support arguments similar to those made by BlueEarth.
Though the majority of courts agree that an analysis of the plaintiff's allegations is necessary to determine whether a claim is based upon misappropriation of a trade secret, courts have differed on how the presence of facts relating to the improper acquisition, disclosure, or use of trade secrets within non-UTSA claims affects preemption. Some courts have imposed broad preemption, going so far as to wholly preempt claims that include trade secret misappropriation allegations. See Thomas Betts Corp. v. Panduit Corp., 108 F.Supp.2d 968, 972-73 (N.D.Ill. 2000) (holding that claims for conversion and breach of fiduciary duty for theft of computers, disks and documents were preempted by the Illinois Trade Secrets Act because "these physical items have little value apart from the information contained therein[.]"); see also Learning Curve Toys, L.P. v. Playwood Toys, Inc., No. 94 C 6884, 1999 WL 529572, *3 (N.D.Ill. July 20, 1999) ("[I]f the operative facts are arguably cognizable under the ITSA, any common law claim that might have been available on those facts in the past now no longer exists in Illinois."). Other courts suggest that the mere presence of facts in a claim that go beyond trade secret misappropriation prevents preemption. See Micro Display Sys., Inc. v. Axtel, Inc., 699 F.Supp. 202, 205 (D.Minn. 1988) ("[T]he court will allow plaintiff to go forward and maintain its separate causes of action to the extent that the causes of action have `more' to their factual allegations than the mere misuse or misappropriation of trade secrets . . . If the facts at trial disclose that the whole of plaintiff's case involves the misappropriation of trade secrets, those counts will be dismissed which are merely duplicative of the MUTSA." (Emphasis added.)); see also LaFrance Corp. v. Werttemberger, No. C07-1932Z, 2008 WL 5068653, *3 (W.D.Wash. Nov. 24, 2008) ("LaFrance alleges facts that are not necessary to the UTSA claim. Therefore, this common law claim is not dismissed." (Internal citation omitted.)).
The UTSA's unitary definitions of "trade secret" and "misappropriation", its statutory remedies and statute of limitations for misappropriation of a trade secret, and its uniformity provision all evince the goal of eliminating uncertainty and creating a single action for misappropriation of a trade secret. See Burbank Grease Servs., LLC v. Sokolowski, 278 Wis.2d 698, 693 N.W.2d 89, 98 (Wis. Ct.App. 2005), rev'd in part by 294 Wis.2d 274, 717 N.W.2d 781 (2006) (hereinafter Burbank Grease I) ("[T]he purpose of the preemption provision is to preserve a single tort action under state law for misappropriation of a trade secret as defined in the statute[.]"); see also Auto Channel, 144 F.Supp.2d at 789 (The UTSA "arose to create a uniform business environment that created more certain standards for protection of commercially valuable information."). The HUTSA was adopted by the Hawai'i State Legislature in furtherance of these goals, as evidenced by the fact that the language of the HUTSA is virtually identical to the UTSA. See Kaho'ohanohano, 117 Hawai'i at 288, 178 P.3d at 564 (stating that "this court must read statutory language in the context of the entire statute and construe it in a manner consistent with its purpose" (brackets omitted)); see also Bateman Constr., Inc. v. Haitsuka Bros., Ltd., 77 Hawai'i 481, 485, 889 P.2d 58, 62 (1995) (finding that because the pertinent language of certain Hawai'i arbitration statutes was "virtually identical to the language of the federal arbitration statute . . . we review federal authority for guidance."); HRS § 1-24 (2009). We find that the best approach to preemption, consistent with the goals of the UTSA and HUTSA, is the "same proof" standard articulated in Hauck. Under this standard, "if proof of a non-UTSA claim would also simultaneously establish a claim for misappropriation of trade secrets, it is preempted irrespective of whatever surplus elements of proof were necessary to establish it." Hauck, 375 F.Supp.2d at 658. To the extent, however, that the claim is "based upon wrongful conduct[,] independent of the misappropriation of trade secrets[,]" it will not be preempted by the HUTSA. Bliss Clearing, 270 F.Supp.2d at 950. In this way, the HUTSA will be the sole noncontractual civil remedy for misappropriation of a trade secret, while preserving "tort, restitutionary, and other law[s,]" HRS § 482B-8, that "seek[] to remedy an injury caused not by the misappropriation of proprietary information, but by separate conduct[.]" Diamond Power, 540 F.Supp.2d at 1345.
See, e.g., Hauck, 375 F.Supp.2d at 659-60 (holding that plaintiff's tortious interference with contract claim survived to the extent that it did not rely on allegations that defendant misappropriated plaintiff's trade secrets); see also Smith-field Ham Prods. Co. v. Portion Pac, Inc., 905 F.Supp. 346, 350 (E.D.Va. 1995) ("The question is not whether success on the misappropriation claim would provide the relief sought by the common law counts, but whether failure of the misappropriation claim would doom the remaining counts as well."); Mortgage Specialists, 904 A.2d at 666-67 (holding that claims for tortious interference with advantageous relations and breach of the New Hampshire Consumer Protection Act were not preempted to the extent that they were supported by more than the misuse of plaintiff's customer information); Glynn v. EDO Corp., 641 F.Supp.2d 476, 484 (D.Md. 2009) (holding that a conversion claim "survives as to any claim for tangible items and property that is not based on improper use of information or trade secrets."); Allied Erecting, 649 F.Supp.2d at 724 ("where a claim for breach of fiduciary duty has an independent factual basis, which is not solely dependent on misappropriation-of-trade-secret facts, courts have concluded there is no preemption."); Lucini Italia Co. v. Grappolini, 231 F.Supp.2d 764, 771 (N.D.Ill. 2002) (" MG Capital v. Sullivan [, No. 01 C 5815, 2001 WL 1609382, at *4 (N.D.Ill. Dec. 17, 2001)] is a good example of how to resolve these issues. There, the court struck only the portion of a fraud claim relying on the misappropriation of trade secrets; any portion independent of the trade secret was retained."); Diamond Power, 540 F.Supp.2d at 1345 ("if a claim seeks to remedy an injury caused not by the misappropriation of proprietary information, but by separate conduct — such as the misappropriation of physical property or the improper interference with contractual relationships respecting something other than proprietary information — such a claim cannot be said to be `in conflict' with the GTSA" (emphasis in original)).
2. A non-contract civil claim that is based upon "confidential" information which does not rise to the level of a statutorily-defined trade secret is preempted.
a. BlueEarth's argument
BlueEarth argues that
the plain language of the preemption provision . . . refers only to "trade secrets" as defined by the Act. The preemption provision nowhere refers to "other confidential information." It follows, then, that the statute only anticipates preemption of common law claims involving trade secrets. Since there is no statutory language regarding preemption of other confidential information not rising to the level of trade secrets, there is no reason to think such preemption was intended.
For this reason, BlueEarth contends that determination of whether its claims are preempted by the HUTSA is not proper on a motion to dismiss. Rather, BlueEarth argues, the court should delay the preemption inquiry until sufficient discovery has occurred, after which the court may properly determine whether the information at issue rises to the level of a statutorily-defined trade secret.
b. the defendants' arguments
Aloha argues that the relief provided by the HUTSA "is the sole noncontractual remedy when the underlying injury is the improper acquisition, disclosure or use of commercially valuable information; if the information does not constitute a trade secret, there is no remedy." This is so because "there is no property right in information [that] is already generally known, readily ascertainable or not the subject of reasonable efforts to maintain its secrecy." Defining the scope of the HUTSA's preemption in this manner is, according to Aloha, "[t]he only way to accord the Uniform Act its intended scope, preserve uniformity and avoid duplicative results[.]"
Similarly, the HECO defendants argue that "the `weight of authority' holds that the UTSA's preemption provision eliminates non-contract claims founded on the alleged misuse of confidential information, regardless of whether that information is a statutory trade secret." The HECO defendants contend that this is because the UTSA was intended to preserve a single tort action for allegations of misappropriation of information.
c. analysis
Courts holding that non-UTSA, non-contract claims based upon "confidential" or "commercially valuable" information are not preempted have generally stated that their analysis is based on the "plain language" of the UTSA's preemption provision. See, e.g., Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey Co., 191 F.Supp.2d 652, 656-59 (E.D.Va. 2002) (holding that the "plain reading" of the Virginia UTSA compelled a decision that claims based on information not determined to be a trade secret were not preempted); Combined Metals of Chicago Ltd. P'ship v. Airtek, Inc., 985 F.Supp. 827, 830 (N.D.Ill. 1997) ("By its plain language . . . the [Illinois]TSA preemption provision applies only if the claim is based on the `misappropriation of a trade secret' . . . Thus, if the Airtek die and specifications is not a trade secret or secrets, the ITSA preemption provision is inapplicable."); Nucor, 482 F.Supp.2d at 726 ("The causes of action at issue, unlike a cause of action under [South Carolina] TSA, are not dependant upon a finding that the misappropriated information constitutes `trade secrets.'").
"Confidential" information has been described as "data, technology, or know-how that is known by a substantial number of persons in a particular industry (such that its status as a technical `trade secret' is in doubt) but that, nonetheless, retains some economic and/or competitive value by virtue of the fact that it is unknown to certain industry participants." Robert Unikel, Bridging the "Trade Secret" Gap: Protecting "Confidential Information" Not Rising to the Level of Trade Secrets, 29 Loy. U. Chi. L.J. 841, 844 (Summer 1998). Courts have used the term "commercially valuable" as well as "confidential" to describe this type of information. This opinion uses these terms interchangeably as well.
The causes of action at issue were: breach of duty of loyalty, tortious interference with relations, unfair trade practices, conspiracy, conversion, unjust enrichment, and imposition of constructive trust. Nucor, 482 F.Supp.2d at 726-27.
In Burbank Grease Services, LLC v. Sokolowski 294 Wis.2d 274, 717 N.W.2d 781, 788 (2006) (hereinafter Burbank Grease II), for example, the Wisconsin Supreme Court noted at the outset that the allegedly misappropriated information underlying the plaintiff's claims did not qualify as a trade secret under the WUTSA's definition. The preemption provision of the WUTSA, similar to that of the HUTSA, states that it does not affect "[a]ny civil remedy not based upon misappropriation of a trade secret." Id. (quoting Wis. Stat. § 134.90(6)(b)2.). The Wisconsin Supreme Court held that the plain language of the WUTSA's preemption provision
excepts from the class of unaffected remedies only those remedies based on the misappropriation of a statutorily-defined trade secret. It leaves available all other remaining civil remedies for the protection of confidential information.
Id. at 789. The court added that in order to hold that the WUTSA preempts claims based on confidential information which does not rise to the level of a statutorily-defined trade secret, it would have to read the following underlined language into the statute: "This section does not affect . . . [a]ny civil remedy not based upon misappropriation of a trade secret
and not based on confidential business information." Id. at 790 (emphasis in original). The court declined to so interpret the statute.
Id. The court acknowledged that uniformity with other jurisdictions was one of the goals of the WUTSA; however, the court found that its plain meaning interpretation of the preemption provision was more persuasive than jurisdictions which had determined that the UTSA preempted claims based on allegations of non-trade secret confidential information.
Id. at 792-94.
The purported "plain language" approach, exemplified in Burbank Grease II, has been criticized for disregarding the UTSA's uniformity directive. The dissent in Burbank Grease II described the majority's analysis as
pay[ing] lip service to UTSA's uniformity goal and the corresponding legislative directive. It fails to engage in the necessary analysis to determine what is the uniform interpretation of the preemption provisions in UTSA or how cases decided by courts in other UTSA jurisdictions analyze the language in these provisions.
Burbank Grease II, 717 N.W.2d at 799 (Bradley, J., dissenting);
see also id. (quoting Wis. Stat. § 134.90(7), which provides: "This section shall be applied and construed to make uniform the law relating to misappropriation of trade secrets among states enacting substantially identical laws."). The dissent found that, in contrast, the Wisconsin Court of Appeals analyzed the decisions of other jurisdictions to have considered the question and determined that "the prevailing rule in most UTSA jurisdictions is that UTSA is meant to replace tort claims for unauthorized use of confidential information with a single statutory cause of action."
Burbank Grease II, 717 N.W.2d at 800 (Bradley, J., dissenting) (citing
Burbank Grease I, 693 N.W.2d at 101).
In Mortgage Specialists, the court noted that although the Wisconsin Supreme Court overturned the Court of Appeals' decision in Burbank Grease I, it still found Burbank Grease I
well-reasoned, particularly for its adherence to the principles of uniformity and clarity that motivated the creation of the UTSA, in light of the legislative directive that the UTSA be construed to make uniform the law among the jurisdictions enacting it. We find the opinion of the Wisconsin Court of Appeals persuasive.
Mortgage Specialists, 904 A.2d at 664 (internal citations omitted). Commentators have also criticized the
Burbank Grease II decision for failing to conduct a uniformity analysis.
The view of the dissenting opinion in Burbank Grease Services and [similar opinions] may be regarded as the most restrictive approach to preemption. In spite of the majority's protestations to the contrary, it is also the most reasonable . . . refusing to preempt claims for the misappropriation of confidential information "effectively negate[s] the UTSA's goal of promoting uniformity" and "render[s] the statutory preemption provision effectively meaningless."
Michael Ahrens, Wisconsin Confidential: The Mystery of the Wisconsin Supreme Court's Decision in Burbank Grease Services v. Sokolowski and Its Effect Upon the Uniform Trade Secrets Act, Litigation, and Employee Mobility, 2007 Wis. L. Rev. 1271, 1302 (2007) (footnotes omitted) (quoting Unikel, Bridging the "Trade Secret" Gap, 29 Loy. U. Chi. L.J. at 888); see also Sarah Gettings, Burbank Grease Services, LLC v. Sokolowski: Frustrating Uniformity in Trade Secret Law, 22 Berkeley Tech. L.J. 423, 438-39 (2007) ("The Burbank majority is dangerously misguided . . . Indeed, the plain language of the WUTSA's uniformity clause directs the court to conduct a uniformity analysis . . . The majority of courts interpreting the preemption provision have found that the UTSA must preempt some claims involving the protection of confidential, but not trade secret, information." (Footnotes omitted)).
The majority of the courts to have considered the issue have held that the UTSA's preemption provision
abolish[es] all free-standing alternative causes of action for theft or misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status (
e.g. idea misappropriation, information piracy, theft of commercial information,
etc.).
Hauck, 375 F.Supp.2d at 655.
The rationale for these decisions has been explained as follows:
See also, e.g., Mortgage Specialists, 904 A.2d at 664 (holding that the "NHUTSA preempts claims that are based upon the unauthorized use of information, regardless of whether that information meets the statutory definition of a trade secret."); Auto Channel, 144 F.Supp.2d at 789 ("KUTSA replaces other law relating to the misappropriation of trade secrets, regardless of whether the Plaintiff's demonstrate that the information at issue qualifies as a trade secret."); Burbank Grease I, 693 N.W.2d at 98 ("[T]he purpose of the preemption provision is to preserve a single tort action under state law for misappropriation of a trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information that may not meet the statutory standard for a trade secret."); Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir.I992) ("Illinois has abolished all common law theories of misuse of such [confidential] information. Unless defendants misappropriated a (statutory) trade secret, they did no legal wrong."); Thomas Belts, 108 F.Supp.2d at 971 (holding that the Illinois TSA "was meant `to codify all the various common law remedies for theft of ideas.'" (quoting Learning Curve Toys, 1999 WL 529572 at *3)); Diamond Power. 540 F.Supp.2d at 1345 ("If a plaintiff could alternatively recover for misappropriation of non-proprietary information or misappropriation of unguarded proprietary information, the legislative judgment contained in the GTSA that such information should otherwise flow freely in the public domain would be subverted."); Ethypharm, 388 F.Supp.2d at 433 (same); Allied Erecting, 649 F.Supp.2d at 720 (same); Bliss Clearing. 270 F.Supp.2d at 948-49 (same).
States adopting statutory provisions analogous to the UTSA's section 7 intend that at least some prior law relating to the protection of commercial information be displaced.
Permitting litigants in UTSA states to assert common-law claims for the misappropriation or misuse of confidential data would reduce the UTSA to just another basis for recovery and leave prior law effectively untouched. Further, by expressly exempting "contractual remedies, whether or not based upon misappropriation of a trade secret" and "other civil remedies that are not based upon misappropriation of a trade secret" from its preemptive penumbra, the UTSA makes clear that only those claims addressing or arising out of wrongs distinct from pure information piracy survive passage of the trade secret statute. Indeed, contrary interpretations of the UTSA's "Effect on Other Law" provision . . . effectively negate the UTSA's goal of promoting uniformity in "trade secrets" law. Additionally, these contrary interpretations render the statutory preemption provision effectively meaningless.
Unikel, Bridging the "Trade Secret" Gap, 29 Loy. U. Chi. L.J. at 887-88 (footnotes omitted). The UTSA creates a "two-tiered" approach to protection of commercial knowledge, under which "information is classified only as either a protected `trade secret' or unprotected `general skill and knowledge.'" Id. at 867-68 (footnote omitted).
Courts and commentators have recognized the argument that "[b]y adopting this approach, courts would be leaving businesses without an effective remedy for the misappropriation of information they viewed as valuable but that did not rise to the level of a trade secret." Ahrens, Wisconsin Confidential, 2007 Wis. L. Rev. at 1302; see also Mortgage Specialists, 904 A.2d at 664 (noting that its holding that non-contract claims based on confidential information are preempted "may seem harsh"). However, the HUTSA does not preempt claims for the misappropriation of such information when it is protected by contract. See HRS § 482B-8(b)(1) (2008) ("This chapter does not affect . . . [c]ontractual remedies, whether or not based upon misappropriation of a trade secret[.]").
Further, commentators have cautioned that information which is broader than the scope of information defined as a "trade secret" by the UTSA, and not the subject of reasonable efforts to maintain its secrecy does not deserve protection in the form of non-contract tort claims. The UTSA's definition of "trade secret" is more inclusive than the previous definitions of "trade secret" at common law. See 14 U.L.A. § 1 at 538 (comment) (noting that the UTSA's definition of "trade secret" is broader and more inclusive than the definition in the Restatement of Torts (First)); see also James Pooley, Trade Secrets, § 2.03[2][a] (2009) ("The Uniform Act definition [of a trade secret] is thus considerably broader than that of Section 757 of the original Restatement of Torts . . .."). Professor Mark Lemley, in discussing how courts should treat the overlap between trade secret law and other torts such as breach of confidence, unfair competition, unjust enrichment and interference with contract, has stated that
[t]rade secret law should preempt these torts when they are applied to protect information that would, if secret, have been protected by trade secret law. That is, a plaintiff who complains of the defendant's use of its information, but who cannot prove that the information is secret, should not be able to rely on one of these torts (or any other common law variants) to bypass the requirement that it prove secrecy. If trade secret law does not preempt these torts, the point of the secrecy requirement will be lost, and with it the benefits of dissemination of new inventions. Companies will be unable to rely on the presence of ideas in the public domain; any information might potentially be subject to one of these torts. As a result, companies will be less willing to compete vigorously on the merits. Departing employees will be less willing to rely on information in the public domain to start new companies, and as a result more reluctant at the margins to start those companies. As Jim Pooley notes, "there is arguably little social utility" in allowing state claims based on misappropriation of trade secrets to go forward if the plaintiff cannot prove the elements of a trade secret claim.
Mark A. Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights, 61 Stanford L. Rev. 311, 345-46 (Nov. 2008) (footnotes omitted) (quoting Pooley, Trade Secrets, § 3.04[4], 3-43 to -44).
Similar to the court in Burbank Grease II, BlueEarth argues that
the plain language of the preemption provision . . . refers only to "trade secrets" as defined by the Act . . . Since there is no statutory language regarding preemption of other confidential information not rising to the level of trade secrets, there is no reason to think such preemption was intended.
However, the HUTSA's preemption provision should not be considered "in a vacuum." Burbank Grease II, 717 N.W.2d at 798 (Bradley, J., dissenting). Rather, "this court must read statutory language in the context of the entire statute and construe it in a manner consistent with its purpose." Kaho'ohanohano, 117 Hawaii at 288, 178 P.3d at 564 (brackets omitted). Here, the Hawai'i State Legislature has directed that "[a]ll provisions of uniform acts adopted by the State shall be so interpreted and construed as to effectuate their general purpose and to make uniform the laws of the states and territories which enact them." HRS § 1-24 (2009). As the foregoing analysis shows, courts in other jurisdictions have not been absolutely uniform in deciding whether non-contract claims based on information which does not rise to the level of a statutorily-defined trade secret are preempted under the UTSA. However, the conclusion that such claims are preempted, reached by the majority of courts to have considered the issue, comports with the HUTSA's goal of uniformity in the area of trade secret misappropriation.
The UTSA Commissioners made clear that the "general purpose" of the UTSA was uniformity of trade secret law. 14 U.L.A § 8 at 656. A common law claim premised on information that fails to
qualify as a trade secret would seemingly undercut the statute's primary goal of uniformity, potentially render parties liable for using information that is not secret when the UTSA would not impose liability, and potentially pose Supremacy Clause problems. Likewise, it is not clear if such alternative claims would permit different results on matters such as the statute of limitations, punitive damages, attorneys' fees, and the like.
Pooley, Trade Secrets, § 2.03[6] (footnote omitted). The court in Mortgage Specialists noted that, along with the contribution of unitary definitions of "trade secret" and "misappropriation"
[t]he UTSA "also arose to create a uniform business environment that created more certain standards for protection of commercially valuable information."
[Auto Channel, 144 F.Supp.2d at 789.] "[T]he purpose of the preemption provision is to preserve a single tort action under state law for misappropriation of a trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information that may not meet the statutory standard for a trade secret."
[Burbank I, 693 N.W.2d at 98.] As such, the UTSA "was meant to codify all the various common law remedies for theft of ideas."
[Thomas Betts, 108 F.Supp.2d at 971 (quotation omitted)];
see also [Bliss Clearing, 270 F.Supp.2d at 948]. With the enactment of the UTSA, confidential information not rising to the level of a statutory trade secret was left largely unprotected by the law. See [N.H. Rev. Stat. §] 350-B:7, I. . . . "If a common law claim for unauthorized use of information that did not meet the statutory definition of a trade secret were permitted, the result `would undermine the uniformity and clarity that motivated the creation and passage of the [UTSA].'"
Burbank Grease I, 693 N.W.2d at 99 (quoting
Auto Channel, 144 F.Supp.2d at 789).
Mortgage Specialists, 904 A.2d at 663. The
Mortgage Specialists court's analysis is persuasive and consistent with the Hawai'i State Legislature's goals in adopting the HUTSA. See HRS § 1-24 (2009);
see also Kaho'ohanohano, 117 Hawai'i at 288, 178 P.3d at 564. Accordingly, we hold that the HUTSA preempts non-contract, civil claims based on the improper acquisition, disclosure or use of confidential and/or commercially valuable information that does not rise to the level of a statutorily-defined trade secret.
3. Preemption analysis is appropriate at the motion to dismiss stage
In BlueEarth's view, preemption is proper only when allegations are based upon "trade secrets" as that phrase is defined in the UTSA. Thus, BlueEarth argues that it is premature to consider preemption at the motion to dismiss stage because the court does not yet have sufficient information to determine whether the allegations in the complaint rise to the level of statutorily-defined trade secrets. However, as analyzed above, we hold that the HUTSA preempts claims when the alleged injury is based on the improper acquisition, disclosure, or use of confidential and/or commercially valuable information, whether or not that information rises to the level of a statutorily-defined trade secret. As the court in Hauck stated:
Plaintiff argues, at least in part, certain of its non-UTSA claims against [defendant] are not preempted because they do not depend on the information at issue qualifying as a "trade secret." While some courts have employed language seemingly indicating as much, a plaintiff surely cannot use general tort causes of action to revive claims which would otherwise not be cognizable in light of the UTSA (
i.e., claims alleging theft of non-trade secret information). It is a legal
non sequitor to suggest general tort causes may be employed to protect legal rights which otherwise do not exist . . . such an approach would be wholly inconsistent with the UTSA's goals of promoting uniformity and predictability . . . A claim cannot be preempted or not preempted based entirely upon whether or not the information at issue qualifies as a trade secret. If the information is a trade secret, the plaintiff's claim is preempted; if not, the plaintiff has no legal interest upon
which to base his or her claim. Either way, the claim is not cognizable.
Hauck, 375 F.Supp.2d at 656-57 (internal citations omitted). Accordingly, we hold that a court need not wait to determine if the allegedly misappropriated confidential and/or commercially valuable information constitutes a "trade secret", as that term is defined in the HUTSA, before considering preemption.
See also Ethypharm, 388 F.Supp.2d at 433 ("Because all claims stemming from the same acts as the alleged misappropriation are intended to be displaced, a claim can be displaced even if the information at issue is not a trade secret. Thus, a determination of whether the information at issue constitutes a trade secret under the DUTSA need not be addressed prior to making a determination of displacement."); Bliss Clearing, 270 F.Supp.2d at 948-19 ("[T]he Court concludes that the disputed status of information as a trade secret does not preclude a court from determining whether a claim or claims are displaced by the MUTSA."); Allied Erecting, 649 F.Supp.2d at 722 ("[T]he Court joins the majority view in finding that displacement of common-law claims may precede the Court's determination of whether the information at issue constitutes a trade secret."); Mortgage Specialists, 904 A.2d at 666-668 (finding that a preemption analysis was proper at the motion to dismiss stage).
IV. CONCLUSION
Based on the analysis above, we answer the certified questions as follows.
1. When are "tort, restitutionary, and other law[s] of this state" displaced because they "conflict" with HUTSA, [HRS] § 482B-8?
"Tort, restitutionary, and other law[s] of this state" conflict with the HUTSA, are therefore displaced, to the extent that they are based upon misappropriation of a trade secret. That is, "if proof of a [non-HUTSA] claim would also simultaneously establish a claim for misappropriation of trade secrets, it is preempted irrespective of whatever surplus elements or proof were necessary to establish it." Hauck, 375 F.Supp.2d at 658.
2. When a claim is found to "conflict" with HUTSA, what is the scope of preemption, or displacement, of that claim under HRS § 482B-8?
For those claims found to conflict with the HUTSA, the scope of displacement is complete. However, a claim may survive to the extent it alleges wrongful conduct independent of the misappropriation of trade secrets.
3. May a claim that is found not to "conflict" with HUTSA still be preempted, or displaced, under HRS § 482B-8?
Only claims that are found to conflict with the HUTSA are preempted.
4. Does HUTSA also preempt, or displace, claims based upon the alleged misuse of "confidential information," which is determined, before or during trial, not to meet the definition of "trade secret" under HRS § 482B-8?
The HUTSA displaces non-contract civil claims based upon the alleged acquisition, disclosure, or use of confidential information that does not rise to the level of a statutorily-defined trade secret. Accordingly, it is unnecessary to determine whether or not the information at issue meets the definition of a trade secret before addressing displacement under the HUTSA.