Commercial Division Blog
Posted: December 31, 2015 / Categories Commercial, Fiduciary Duties, Intellectual Property
Taking or Copying Customer Lists is Breach of Fiduciary Duty Even if Not Trade Secrets
On November 21, 2015, Justice Grays of the Queens County Commercial Division issued a decision in Pavers & Road Builders District Council Welfare Fund v. Briceno, 2015 NY Slip Op. 32415(U), explaining that even if they are not trade secrets, it is a breach of fiduciary duty for an employee to take customer lists.
In Pavers & Road Builders District Council Welfare Fund, the plaintiff alleged that the defendant, a former administrative employee, "took or copied [the plaintiff's] records containing confidential participant data containing the identity, addresses, and phone numbers of more than a thousand participants in the plaintiff funds, information which is not readily available to others" and that he "used the information that he had taken from the plaintiff funds to send letters to the homes of participants in the plaintiff funds for the purpose of convincing them to transfer to" a competitor fund.
The defendant moved to dismiss. First, the court held that the lists were not trade secrets:
A trade secret is any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. The Restatement suggests that in deciding a trade secret claim several factors should be considered: (1) the extent to which the infonnation is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. New York case law pertaining to customer lists is in harmony with the Restatement. Where customer lists have been compiled by years of effort and the expenditure of substantial time and money, and the identity of the customers is not readily ascertainable, the customer list may be treated as a trade secret.
(Internal quotations and citations omitted). However, the defendant demonstrated that the plaintiff had publicly-disclosed the customer lists, and that for that reason they were not trade secrets. However, the court found that the plaintiff still stated a claim regarding the customer lists, explaining:
The use of information about an employer's customers which is based on casual memory is not actionable. However, the physical taking or copying of customer lists by an employee is actionable. Solicitation of an entity's customers by a former employee or independent contractor is not actionable unless the customer list could be considered a trade secret, or there was wrongful conduct by the employee or independent contractor, such as physically taking or copying files or using confidential information.
(Internal quotations and citations omitted) (emphasis added).