Plaintiff filed suit against a former employee, Defendant, who had started a competing business selling a wearable camera device. The lawsuit alleged misappropriation of trade secrets, breach of fiduciary duty, tortious interference with contract, and other claims.
On cross-motions for partial summary judgment, the trial court ruled that Defendant had breached his fiduciary duty of loyalty. The court subsequently entered partial judgment under Rule 54(b), Ariz. R. Civ. P., and Defendant appealed. The Court of Appeals reversed, directed partial summary judgment in favor of Defendant, and remanded for further proceedings.
Plaintiff’s breach of fiduciary duty claim was grounded in allegations that Defendant (1) engaged in direct competition before his resignation, (2) improperly used Plaintiff’s materials and confidential information, (3) failed to inform Plaintiff of his plans to form a competing business, and (4) usurped Plaintiff’s corporate opportunity to market a second generation clip-on recording device.
Disputed questions of fact precluded summary judgment on the first three grounds.
First, although an employee may not compete with his employer, he may take action, not otherwise wrongful, to prepare to compete. The facts did not conclusively demonstrate actual competition during the time of employment.
Second, the duty of loyalty prohibits an employee from using the employer’s property or confidential information for the employee’s own purposes or those of a third party. But, again, the evidence on this issue left material facts in dispute.
With respect to the third ground, Defendant had no duty to inform the Plaintiff that he was planning to compete with the employer. He was, however, obligated to inform the Plaintiff if he was already directly competing while still employed, or if he was using Plaintiff’s proprietary information. Factual disputes again precluded summary judgment on this theory.
Finally, the court directed entry of partial summary judgment in favor of Defendant as to whether he had usurped a corporate opportunity by developing the competing product. There was no evidence that Defendant had wrongfully deprived Plaintiff of a concrete opportunity to enter any specific transaction. Plaintiff’s successful development and marketing of its own wearable camera device demonstrated that Defendant had not deprived Plaintiff of that opportunity.
Presiding Judge Portley authored the opinion; Judges Winthrop and Downie concurred.
Posted by: Mark P. Hummels