July 30, 2019

Pennsylvania’s “Gist of the Action” Doctrine Does Not Preclude Trade Secret Claims

Holland & Knight Trade Secrets Blog
Anthony J. Fuga

Pittsburgh Logistics (PL) sued its competitor and former employee, alleging that the employee breached his employment agreement by working for the competitor and that he would inevitably disclose PL's confidential and trade secret information to his new employer. LaserShip, the defendant and new employer, asserted that PL's trade secret claims – both the DTSA and Pennsylvania Uniform Trade Secret Act – were barred by Pennsylvania's "gist of the action" doctrine because the written employment agreement at issue prohibited disclosure of PL's confidential information or trade secrets.

The court summed up the "gist of the action" doctrine as such:

If the facts of a particular claim establish that the duty breached is one created by the parties by the terms of their contract—i.e., a specific promise to do something that a party would not ordinarily have been obligated to do but for the existence of the contract—then the claim is to be viewed as one for breach of contract. If, however, the facts establish that the claim involves the defendant's violation of a broader social duty owed to all individuals, which is imposed by the law of torts and, hence, exists regardless of the contract, then it must be regarded as a tort.

In short, the doctrine precludes a plaintiff from "recasting ordinary breach of contract claims into tort claims."

Rather than analyzing whether the misappropriated information falls within the definition of confidential information in the breached agreement, this court looked to whether the employee had a duty independent of the employment agreement to keep the identified information confidential. "The critical inquiry is whether the cause of action is premised on breaches of duties imposed by law as a matter of social policy rather than for breaches of duties imposed by mutual consensus agreements between particular individuals."

The court had "little difficulty concluding that the 'gist of the action' doctrine" did not apply in this case because the employee had a duty under both the DTSA and the PUTSA to refrain from misappropriating trade secrets. And for this reason, PL was free to pursue the trade secret claims concurrently with a breach of contract claim, regardless of whether the claims covered the same proprietary information.

Despite PL being free to pursue the trade secret claims, the court did, however, dismiss the trade secrets claims without prejudice because PL failed to plead facts to support its allegations of misappropriation.

The case is Pittsburgh Logistics Sys., Inc. v. LaserShip, Inc., No. 2:18-CV-1382, 2019 WL 2443035 (W.D. Pa. June 12, 2019).

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