Indiana Appeals Court: Trial Court Erred in Holding Common Law Actions for Misappropriation of Ideas and Civil Conversion not Preempted by Uniform Trade Secrets Act

On August 10, 2012, the Court of Appeals of Indiana held that a trial court erred in ruling that the Indiana Uniform Trade Secrets Act (IUTSA) did not preempt a common law claim for idea misappropriation where the allegedly misappropriated idea did not rise to the level of a statutorily-defined trade secret. HDNET, LLC v. North American Boxing Council, No. 49A02-1112-PL-1146 (Ind. Ct. App. Aug. 10, 2012). The appellate court also determined that the plaintiff’s claim for civil conversion of an idea was not saved from the IUTSA’s express preemption on the ground that civil conversion finds its origin in criminal law.

Plaintiff’s Claims. The court’s decision came in a case brought by the North American Boxing Council (NABC) against HDNet, LLC, for allegedly stealing NABC’s idea to create a mixed martial arts broadcast television series. NABC exchanged e-mails with HDNet regarding the possibility of their collaborating to produce such a program. The parties decided not to enter into a contract. However, HDNet established a company called HDNet Fights for the purpose of producing a mixed martial arts program. Considering the idea that it discussed with HDNet to be a confidential, protectable commercial idea, NABC sued HDNet for idea misappropriation, unfair competition, breach of oral contract, breach of the implied covenant of good faith and fair dealing, negligence, trade secret misappropriation, conversion of trade secrets, and promissory estoppel.

Proceedings in the Trial Court. The parties filed motions for partial summary judgment on the question whether the preemption provision of the IUTSA preempted NABC’s idea misappropriation and civil conversion claims.  Indiana Code § 24-2-3-1(c) provides that the IUTSA “displaces all conflicting law of this state pertaining to the misappropriation of trade secrets, except contract law and criminal law.” The trial court held that 24-2-3-1(c) did not preempt either of the idea misappropriation and civil conversion claims. HDNet requested and was granted leave to file an interlocutory appeal.

Plaintiff’s Arguments on Appeal. On appeal, NABC argued that the ideas that formed the basis of its idea misappropriation and civil conversion claims did not rise to the level of a “trade secret” protected by the IUTSA. For this reason, and because a claim of civil conversion purportedly arose from the criminal law, NABC contended that the trial court had correctly found NABC’s claims not to be preempted.

Uniform Trade Secret Act Preemption. The court of appeals disagreed with NABC and reversed the trial court’s ruling. The appellate court pointed out that the preemption provision in Indiana Code § 24-2-3-1(c) must be read together with Indiana Code § 24-2-3-1(b), which provides that the IUTSA “shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject matter of this chapter among states enacting the provisions of this chapter.” The court held that even if NABC’s claims did not constitute trade secrets under the IUTSA, they were still preempted by Indiana Code § 24-2-3-1(c). The court cited in support of this ruling the decision of the Hawaii Supreme Court in BlueEarth Biofuels, LLC v. Hawaiian Electric Company, 235 P. 3d 310 (Haw. 2010), which held that the Uniform Trade Secrets Act–

. . . abolishes 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, or commercial information, etc.).

Civil Conversion Does not Arise Under Criminal Law. The court also rejected NABC’s contention that its civil conversion claim was saved from preemption as a a result of Indiana Code § 24-2-3-1(c)’s carve-out from preemption of “criminal law.” The court observed that the civil conversion statute, Indiana Code § 34-24-3-1, “was not enacted as part of the same statutory scheme as criminal conversion.” The court explained that NABC’s conversion allegation did “not delineate a criminal act; it merely outlines another allegation of civil misappropriation of NABC’s ideas. Thus, the conversion action is not saved by the criminal law exception to the IUTSA’s preemption provision.”

The court of appeals remanded the action to the trial court for further proceedings.

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