The Economic Loss Rule Does Not Prohibit a Plaintiff from Asserting Both Breach of Contract and Common Law Misappropriation of Trade Secrets Claims

Article by Heath Coffman

Eagle Oil & Gas Co. v. Shale Exploration, LLC, 549 S.W.3d 256 (Tex. App.—Houston [1st Dist.] 2018, pet., pet. dismissed) involves the familiar situation where a plaintiff sues for both breach of a confidentiality agreement and for misappropriation of trade secrets. Defendant asserted that plaintiff was limited to a breach of contract claim because the misappropriation claim was barred by the economic loss rule, which bars a recovery in tort for economic losses caused by a breach of contract if the losses are due to the failure to fulfill a contractual obligation. The economic loss rule, however, does not apply if the duty breached stands independent from the contractual undertaking, and the alleged damages are not solely the result of a bargained-for contractual benefit. The court determined such was the case here since the duty not to misappropriate trade secrets stands independently from a party’s contractual obligations, even when the contract requires confidentiality. Thus, the economic loss rule does not apply misappropriation of trade secrets claims.