Cases from Federal District Court for the District of Arizona

Federal District Court for the District of Arizona
Court Rejects Continuing Breach Theory in Trade Secrets Misappropriation Case

On February 25, 2014, a federal district court judge granted summary judgment in favor of Raytheon Missile Systems (Raytheon) finding that nine of ten counts brought by Ordnance Technologies, Inc. (Ordnance) were barred by statute of limitations, and that the continuing breach theory was not applicable in such misappropriation cases.

Ordnance alleged in its complaint that Raytheon had misappropriated Ordnance’s proprietary trade secrets during a partnership between the companies dating back to the early 1990s, and that Raytheon had subsequently used this information to solicit government contracts for warhead systems. Ordnance originally informed Raytheon of its suspicions via letter in January 2009, to which Raytheon replied in March 2009. Ordnance replied nearly a year later in April 2010, and subsequently filed this action in May 2012. In its answer, Raytheon raised statute of limitations as an affirmative defense, arguing that the action had been filed over three years after Ordnance’s initial letter to Raytheon, violating the 3-year statute of limitations for nine of the ten claims asserted.

In granting summary judgment on those claims, the Federal District Court for the District of Arizona found that the causes of action had accrued in January 2009 when Ordnance informed Raytheon of the suspected misappropriation, and that as a result the complaint fell outside the three year statute of limitations. Ordnance argued that the cause of action had not yet accrued under the continuing breach theory, which suggests that a defendant’s continuing breach (in this case continued misuse of the propriety information) may delay the accrual of a cause of action, even after the plaintiff has discovered the breach. The court rejected this argument, finding that under Arizona law, “once the misappropriation is discovered, it does not matter if it is ongoing, the period begins to run when it is discovered.”

Federal District Court for the District of Arizona
Court Declines to Require Highly Particularized Identification of Misappropriated Trade Secrets

Plaintiff Modus, LLC (Modus) hired a number of Defendant Encore Legal Solutions, Inc. (Encore)’s former employees, all of whom had signed a non-compete agreement while working for Encore. Modus brought this action seeking a declaratory judgment invalidating the non-compete agreement, and Encore counterclaimed for, among other things, misappropriation of trade secrets in violation of the Arizona Trade Secrets Act. In response, Modus filed a motion to dismiss, arguing with respect to the trade secrets claim that Encore had failed to identify with particularity what trade secrets had been misappropriated.

In denying the motion to dismiss, the United States District Court for the District of Arizona agreed that a plaintiff must identify the trade secret “with sufficient particularity to separate it from matters of general knowledge in the trade.” The court went on to hold that Encore had been sufficiently particular by pointing to a huge library of software scripts that the former employees had access to. Despite not identifying the exact scripts misappropriated from the library, the court held that Encore had been sufficiently particular to defeat a motion to dismiss.