Tenth Circuit Partially Reverses Denial of Employee’s Trade Secret Claim Against Former Employer

The U.S. Court of Appeals for the Tenth Circuit on Tuesday partially reversed and remanded a district court decision granting summary judgment for an employer in a trade secret misappropriation case brought against it by a former employee.

The district court found the employer was not liable for misappropriating a customer list belonging to the former employee, and also granted a motion to exclude an expert witness, as well as any evidence or witnesses on lost wages.

The Tenth Circuit first evaluated whether John Snyder, a former employee of Beam Technologies, Inc., had proven that a valid trade secret existed. The district court had determined that Snyder had failed to show “ownership” of the trade secret at issue—a national customer list of over 40,000 insurance broker names he had obtained while employed by Guardian Life Insurance Company, prior to his employment with Beam. Snyder claimed that Beam offered to pay him for the list if he was hired, and following his acceptance of a job offer from Beam, he shared the list with Beam employees. While he claimed he meant to only send individualized lists to specific employees, he accidentally shared the full list as a separate tab in the spreadsheets he emailed those employees.

“When Snyder sent these critical emails, he did so without any safeguards or effort to maintain secrecy,” said the Tenth Circuit opinion. “He did not mark any of the three new spreadsheets or the Guardian Broker List as confidential or a trade secret, did not limit Beam employees or anyone else’s access to any of these documents, did not password protect any of these documents, and did not inform Beam that any of these customer lists was confidential or a trade secret.” Snyder was subsequently terminated by Beam after only a few months.

Following his termination, Snyder sued Beam in the U.S. District Court for the District of Colorado for trade secret misappropriation, ultimately alleging five claims: 1) violation of the Defend Trade Secrets Act (DTSA); (2) violation of the Colorado Uniform Trade Secrets Act (CUTSA);  (3) violation of a Colorado statute barring an employer from obtaining workers by misrepresentation; (4) fraudulent misrepresentation; and (5) promissory estoppel.

Defining ‘Ownership’

While the district court found Snyder failed to prove a valid trade secret existed under either the DTSA or the CUTSA, the Tenth Circuit majority said only the DTSA expressly requires a showing of “ownership” for a trade secret claim, while the CUTSA specifically refers to “possession” of the trade secret. The summary judgment order acknowledged that CUTSA lists “possession” as the first element for succeeding on a trade secret misappropriation claim but then entered summary judgment against Snyder based on insufficient evidence of “ownership,” which the appellate court found contradictory, and thus declined to affirm summary judgment on the CUTSA claim.

However, turning to the other elements under which Beam challenged the misappropriation claim—”whether Snyder took reasonable measures or efforts to maintain secrecy and whether Beam misappropriated the Guardian Broker List”—which the district court did not address but the majority reached because Snyder fully addressed them at the summary judgment stage, the Tenth Circuit agreed Snyder’s efforts fell short. “[B]y openly sharing the Guardian Broker List with multiple Beam employees without any restrictions or notice that the information was a trade secret, Snyder failed to take reasonable measures or efforts of secrecy under federal or Colorado law,” said the majority’s opinion. Ultimately, no reasonable jury could conclude that Snyder took reasonable measures to ensure the list’s secrecy.

Rule 702 Order

The majority then addressed Snyder’s challenge to the district court’s order excluding his damages expert under Federal Rule of Evidence 702 or allowing any evidence as to lost earnings and wages. Snyder argued on appeal that the district court cannot block him from submitting any evidence or witnesses, and the appellate court agreed that this expands Rule 702’s scope. This did not provide Snyder the requisite notice to come forward with all evidence. “We express no view as to whether Snyder can point to sufficient evidence supporting his alleged damages for lost earnings and wages, but he at least points to some evidence that he could have offered if he had been told that the district court was going to enter summary judgment on damages,” wrote the court. The Rule 702 Order was therefore reversed.

The Dissent

Judge Bacharach dissented in part, noting that he disagreed with the majority’s interpretation of ownership under the DTSA. “Like the majority, I believe that Colorado law allows suit by lawful possessors of the information even if they aren’t considered owners in a conventional sense,” wrote Judge Bacharach. And the DTSA’s definition of ownership is broad. It “defines ownership based on the existence of a legal title, an equitable title, or a license. 18 U.S.C. § 1839(4). For purposes of this law, legal title to a trade secret extends to individuals in lawful possession,” he added.

Furthermore, said the dissent, there is a factual issue as to whether Snyder or Guardian lawfully possessed the customer list. Snyder claimed Guardian gave him permission to take the list at the end of his employment but Beam only contended that Guardian meant for Snyder’s possession to end when he was terminated during oral argument, rather than on summary judgment or in the appeal briefs. Because he would have found that a lawful possessor can sue for trade secret misappropriation, Judge Bacharach would have reversed the summary judgment ruling and remanded for the district court to further consider the existence of a trade secret and Beam’s alternative arguments.