When does a cause of action come close enough to a trade secret claim to become preempted by the California Uniform Trade Secrets Act (“CUTSA”)? CUTSA preempts statutory and common law claims “based upon misappropriation of a trade secret.” In other words, with some exceptions, claims predicated on trade secret misappropriation allegations may only be asserted through a CUTSA claim.
California courts have articulated two different CUTSA preemption tests: (1) the “common nucleus” test and (2) the “dependence” test. In many cases, the two tests will yield the same result. Sometimes, however, the tests will produce divergent outcomes.
- Under the “common nucleus” test, the CUTSA preempts claims to the extent they “are based on the same nucleus of facts as the misappropriation of trade secrets claim for relief.” The “common nucleus” test is the more frequently applied standard, particularly in federal courts. We have previously examined the application of the “common nucleus” test in federal court.
- The “dependence” test asks whether a claim “depend[s] on the misappropriation of a trade secret.” In other words, would there be a basis for the claim “[w]ithout the claimed theft of a trade secret”? If the alleged conduct would not have been wrongful absent the existence of a trade secret, then a claim depends on the misappropriation of a trade secret and is preempted.
Most of the time, the two tests will produce the same outcome. For example, where a plaintiff asserts claims for trade secret misappropriation and conversion based on the defendant’s alleged theft of a customer list, the CUTSA will preempt the conversion claim under either test. Applying the “common nucleus” test results in preemption because the same facts underlie both the conversion claim and the claim for misappropriation of trade secrets—taking the customer list. The “dependence” test comes out the same way—if the customer list were not a trade secret, there would have been nothing wrongful about the defendant using the customer list.
In other circumstances, however, literal applications of the two tests will result in different outcomes. Take, for example, an employee who uses his employer’s trade secret customer list to compete with his employer. When the employer sues the employee for breach of fiduciary duty and trade secret misappropriation, the facts underlying both claims will be the same—the employee’s use of the customer list for his own purposes. Thus, preemption would seem to apply to the breach of fiduciary duty claim under the “common nucleus” test. However, the employee’s conduct would have been wrongful even if the customer list were not protected as a trade secret. Under the “dependence” test, then, the CUTSA would not preempt the breach of fiduciary duty claim.
California courts have not resolved, or even acknowledged, the potential conflicts between the “common nucleus” and “dependence” tests. Eventually, they may have to do so.