Employer’s Failure to Require Confidentiality Agreements Leads to Dismissal of Trade Secret Claims

On September 12, 2025, the U. S. District Court for the Eastern District of New York dismissed an employer's trade secret and fraud claims, finding that the employer and related entities had not sufficiently pleaded facts sufficient to show that they took reasonable efforts to protect their alleged trade secrets. In doing so, the court concluded that AutoExpo's failure (a) to identify any specific non-disclosure agreements or contractual obligations binding employees to secrecy or non-disclosure, rather than non-competition, and (b) to assert that the information at issue was restricted to need-to-know employees, was fatal to a claim that the purported trade secrets were held in confidence.

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In relevant part, plaintiffs alleged that former insiders-including a co-owner, a former controller and a former manager misappropriated AutoExpo's proprietary systems and diverted customers to competing dealerships in violation of the Defend Trade Secrets Act ("DTSA"). To support their claim that they took reasonable efforts to protect this information, plaintiffs alleged that they "restricted the alleged trade secrets only to employees owing a fiduciary duty and required them 'to maintain its confidentiality in a computer system secured with firewalls, usernames, and passwords'." The Court concluded, however, that this was "not sufficient to meet the DTSA pleading requirements for reasonable secrecy measures" and therefore "fail[ed] to plausibly support the existence of a trade secret." In its analysis, the Court specifically noted that plaintiffs "ha[d] not identified any specific non-disclosure agreements or contractual obligations binding employees to secrecy or non-disclosure, rather than non-competition, nor have they asserted that the information was restricted to need-to-know employees."

This decision underscores that employers should implement appropriate safeguards for confidential and proprietary information, including appropriate confidentiality agreements.