A Chicago federal judge denied summary judgment to an employer alleged to have misappropriated and converted a subordinate’s trade secrets. Stevens v. Interactive Financial Advisors, Inc., Case No. 11 C 2223 (N.D. Ill., Feb. 24, 2015) (Kennelly, J.).

Summary of the case. After 20 years as a licensed insurance broker, Stevens wanted to provide investment advisory services as well. However, he was not a registered investment advisor, and so he affiliated with Interactive which was registered. Stevens uploaded his insurance client and investment customer information — which he considered to be his trade secrets — to the electronic database of Redtail, a technology company also used by Interactive. When Interactive subsequently terminated Stevens’ affiliation, it reassigned his customers to two other Interactive advisors and directed Redtail to block his access to his client and customer information. Stevens sued, charging Interactive and Redtail with trade secret misappropriation and conversion. The court granted the defendants’ summary judgment motion as to Stevens’ investment customers but denied it with regard to his insurance clients.

Stevens’ relationship with Redtail. Although Stevens apparently had no written agreement with Redtail, he considered their relationship to be contractual. He paid Redtail for its services relating to his client and customer information.

Termination of Stevens. In year six of Stevens’ association with Interactive, the firm accused him of involvement in a Ponzi scheme and terminated his affiliation. After he was terminated, he still could provide services to his insurance clients but not to his reassigned investment customers.

The litigation. Stevens’ federal court complaint was based on diversity jurisdiction. He alleged that both by blocking access to his data base and by granting such access to other advisors, Interactive and Redtail misappropriated his trade secrets in violation of the Illinois Trade Secrets Act, converted his property, and committed other torts.

The court’s decision on the defendants’ motions for summary judgment.

  1. Investment customers. Judge Kennelly observed that, as a result of the termination, Stevens no longer was affiliated with a registered securities advisor and, thus, could not legally service his investment customers. Interactive had to reassign them. Moreover, federal regulations and Interactive’s own policies provided that a terminated representative ceased to have a right of access to his investment customers’ non-public personal information. The defendants were entitled to summary judgment, the judge concluded, with regard to Stevens’ claims of misappropriation and conversion of his investment customers’ information because no material issues were in dispute.
  2. Insurance clients. Material facts were in dispute, according to Judge Kennelly, concerning Stevens’ allegations of misappropriation and conversion of information relating to his insurance clients, and a reasonable jury could agree with Stevens that he owned that information, that it constituted a trade secret, and that Interactive misappropriated and converted it.

Further, the court ruled that a reasonable jury could find that Redtail acted as Interactive’s agent by blocking Stevens’ access to the data base and granting access to others designated by Interactive. According to the judge, if Redtail assisted Interactive in committing torts, Redtail could be held jointly and severally liable with Interactive. In addition, there was a genuine dispute relating to the existence and terms of a contractual relationship Stevens contended that he had with Redtail, and as to the duties Redtail owed to him. For these reasons, Redtail’s motion for summary judgment as to Stevens’ claims of misappropriation and conversion of his insurance clients’ information was denied.

Takeaways. Several judicial opinions state in dicta that employers rarely are sued for conversion and trade secret misappropriation. The case of Stevens v. Interactive is one of those rare lawsuits. Judge Kennelly’s decision illustrates that — like anyone else — an employer who takes and uses someone else’s property without permission risks being sued for conversion. Further, if that property constitutes a trade secret, the employer also may be accused of misappropriation. To be sure, Stevens was an independent contractor, not an Interactive employee, but nothing in the court’s opinion suggests that the ruling turned on that distinction.