FLORIDA TRADE SECRET LITIGATION: CLAIMS OF TRADE SECRET MISAPPROPRIATION MAY PREEMPT FILING ALTERNATIVE CLAIMS

Plaintiffs in litigation often allege as many types of claims as are applicable to the facts of their case. This practice essentially allows a party to plead alternative claims for different types of relief based on the same nucleus of facts. Under Florida law, a trade secret claim may preempt, i.e. supersede or displace, pleading alternative claims that are not materially different from a plaintiff’s claims for misappropriation of trade secrets. Lawsuits that include such alternative claims may be subject to dismissal. Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation and other business litigation.

In Sentry Data Systems, Inc. v. CVS Health, 361 F.Supp.3d 1279 (S.D. Fla. 2018), Sentry Data Systems, Inc. (“Sentry”) was a developer and provider of information technology systems that assisted certain hospitals and hospital-like entities—which the parties refer to as “covered entities”—in monitoring compliance with a federal drug pricing program, the 340B Program. Sentry developed tracking software to assist covered entities in managing their prescription inventory, tracking reimbursements and rebates, and maintaining records of eligible drugs and patients. A covered entity may contract with several “contract pharmacies” to dispense its 340B Program-eligible drugs. Sentry and 340B administrators like it, provided tracking software to their covered entity customers and serve as a conduit of information between the covered entity and the contract pharmacy.

CVS Pharmacy, Inc. (“CVS”) is one of these contract pharmacies. Sentry worked directly with CVS to develop contracts between CVS and covered entities, improve CVS’s operational procedures, and develop proprietary software programs for CVS. During this process, CVS was given a “front-row seat to Sentry’s core business model and internal business methods …,” and signed several confidentiality, non-disclosure, and non-compete agreements. As part of this arrangement with CVS, Sentry also worked with Wellpartner, Inc. (“Wellpartner”), a competitor 340B administrator, to provide CVS with operational and software support for administering CVS’s side of the 340B Program where Wellpartner served as the 340B administrator. Wellpartner and Sentry also entered into several non-disclosure and confidentiality agreements.

On December 18, 2017, CVS announced that it acquired Wellpartner and that all covered entities seeking to maintain CVS as a contract pharmacy must use Wellpartner for their 340B tracking and program administration by December 31, 2018. After CVS’ announcement, Wellpartner representatives contacted covered entities, including entities listed on Sentry’s confidential customer lists that had been shared with CVS subject to the confidentiality and non-disclosure agreements.

Sentry filed a lawsuit against CVS and alleged that CVS misappropriated Sentry’s trade secrets, including its customer lists to target Sentry customers to switch to Wellpartner. Sentry further alleged that CVS misappropriated Sentry’s proprietary software and trade secrets in developing a platform that would allow an efficient switch for Sentry’s customers between Sentry’s product and Wellpartner’s platform in violation of the confidentiality and non-disclosure agreements. Based on CVS’ alleged misappropriation of customer lists and proprietary software, Sentry also alleged claims against CVS for violation of Florida’s Deceptive and Unfair Trade Practices Act (“FDUPTA”), Florida common law conversion of confidential information and proprietary information, and Florida common law unfair competition (“other tort claims”).

CVS moved to dismiss Sentry’s other tort claims. CVS contended that each of these other tort claims re-allege all the prior allegations of the Complaint and are based on the allegations of “conversion” or “tak[ing]” of the same trade secrets and proprietary information as the misappropriation of trade secrets claims. CVS argued that these other tort claims are preempted, by Sentry’s claim for misappropriation of trade secrets. Section 688.008 of the Florida Statutes,“displace[s] conflicting tort, restitutory, and other law of this state providing civil remedies for misappropriation of a trade secret.” Fla. Stat. § 688.008(1). The statute does not preempt “other civil remedies that are not based upon misappropriation of a trade secret” or “[c]ontractual remedies, whether or not based upon misappropriation of a trade secret.” Fla. Stat. § 688.008(2).

To determine whether allegations of trade secret misappropriation preempt pleading a separate, but related tort (a wrongful act or an infringement of a right (other than under contract) leading to civil legal liability), the Court must evaluate “whether allegations of trade secret misappropriation alone comprise the underlying wrong; if so, the cause of action is barred by § 688.008.” Allegiance Healthcare Corp. v. Coleman, 232 F.Supp.2d 1329 (S.D. Fla. 2002). In other words, if there is no “material distinction” between the misappropriation of trade secret claim and the other tort claims, then those tort claims are preempted and should be dismissed. Allegiance Healthcare Corp. v. Coleman supra.

The trial court found that Sentry’s claims for violation of FDUPTA, Florida common law conversion of confidential information and proprietary information, and Florida common law unfair competition, each re-alleged all the prior allegations of the Complaint and were based on the same allegations of conversion of trade secrets and proprietary information as Sentry’s misappropriation of trade secrets claims. The trial court granted CVS’ Motion to Dismiss those three claims with prejudice based on preemption.

Peter Mavrick is a Fort Lauderdale trade secret attorney. This article does not serve as a substitute for legal advice tailored to a particular situation.