A decision from the Arizona Court of Appeals illustrates precisely why employers must exercise care when choosing to classify particular company information as trade secrets. Reversing the lower court’s grant of a counterclaim for misappropriation of trade secrets, the court in Calisi v. Unified Financial Services, 2013 WL 1490465 (Az.Ct. App. 2013) determined that the employer failed to demonstrate why particular customer lists fell within the scope of Arizona’s trade secret laws or how the employer treated the lists as a trade secret.
Michael Calisi (“Calisi”) began working for Unified Financial Services (“UFS”) as a certified public account around January 2006. Eventually, he rose in the ranks to become Vice President of operations for UFS. Around a year later, however, his work performance deteriorated and he was eventually displaced from his position and demoted. As part of his demotion from vice president to commission-only financial advisor, Calisi was given the task of serving as “Tax Season Coordinator” for USF. When USF sought to expand its services and associate with a new broker-dealer, Calisi refused to go along with the new association. Ultimately, although it was unclear whether he resigned or whether USF terminated him, Calisi’s refusal to sign the new broker-dealer agreement was the catalyst for his departure from USF.
Calisi then went to work for Daryle Messina (“Messina”), owner of a mortgage company, to serve as the in-house CPA and offer tax preparation services to his clients. Messina, after hiring Calisi, sent a mass email to clients of his company, announcing the new hire. The email, besides introducing Calisi, offered a discount on his tax preparation services. When USF’s Vice President for operations learned of the email, and that some of UFS’s customers were solicited to switch to Calisi for tax preparation, she demanded that he stop contacting UFS’s clients. Upon this demand, Calisi filed suit for unpaid wages he claimed were due as part of his Tax Season Coordinator position. UFS, for its part, counter-claimed on the basis that Calisi had misappropriated trade secrets entrusted to him, as evidenced by Messina’s email.
A bench trial was held in superior court on the unpaid wage claim and counter-claims. The judge ruled by granting both Calisi’s wage claim, as well as UFS’s counterclaim for misappropriation of trade secrets. After offsetting damages on both sides, the court entered a judgment in UFS’s favor for nearly $8000. Calisi then appealed the ruling to the Arizona Court of Appeals.
A three judge Court of Appeals panel reversed the lower court’s grant of UFS’s counterclaim for misappropriation of trade secrets. In doing so, the Court first determined that UFS had not proven that a legally cognizable trade secret existed. The Court explained that the trial court’s judgment simply lacked supporting evidence describing the information as specialized or valuable. For example the lists did not contain any information such as financial requirements, tax strategies, investment objectives, or investment and risk preferences. UFS also failed to demonstrate that it had obtained or captured information about needs, strategies, or preferences of its clients that were worthy of trade protection.
Moreover, the court held, UFS failed to show it had made any effort to compile trade secret worthy information or that the information it possessed would be difficult for a competitor to obtain. Essentially, UFS did not show that it undertook any substantial effort to develop its clients or their information that would be difficult for a competitor to duplicate.
UFS also did not show that it handled the customer lists as trade secrets. In fact, Messina testified that USF established a mutual referral system with his company and had done so for years. This explained why there was an overlap of Messina’s clients with UFS’s clients when Messina announced Calisi’s hiring. Additionally, when Calisi departed, UFS expressed its willingness to permit him to contact his “personal clients.” This, the Court explained, demonstrated that UFS’s claim of trade secret status was largely void of substance.
Ultimately, because UFS did not present any evidence that it had legally cognizable trade secrets, the grant of the misappropriation of trade secrets was reversed. A money damages award was entered for Calisi on the unpaid wages claim.
Trade secret protection does not automatically extend to every piece of information that a company claims is confidential. Under Texas law, a multi-part test determines whether trade secret protection attaches to particular information. As this case illustrates, the notion that not all alleged confidential information is deserving of trade secret protection is a fairly universal legal concept.