Choice of Law Principles and Statute of Limitations Bar Plaintiff’s Trade Secret Claim

Alabama Aircraft Industries, Inc. (“AAI”) sued Boeing Co., Inc. in the U.S. District Court for the Northern District of Alabama, Southern Division, for, inter alia, misappropriation of trade secrets. AAI argued its trade secrets claim should be determined in accordance with Missouri law because the parties’ Non-Disclosure Agreement stated that the interpretation of the that Agreement would be governed by Missouri law, excluding it conflicts of law principles.

The Court rejected AAI’s argument in favor of applying Missouri law since the choice of law provision in the parties’ Non-Disclosure Agreement did not extend to subsequent written agreements between the parties. The significance of this case is the Court’s application of the  lex loci delicti rule.

AAI has its principle place of business in Alabama and the Court noted that any financial injury suffered by AAI would have been was suffered in Alabama. The Court held that a federal court considering diversity cases is compelled to apply the choice of law rules in the state in which it sits, citing Fitts v. Minnesota Mining & Manufacturing Co., 581 So.2d 819, 820 (Ala. 1991). In Alabama, the  long established choice of law rule of lex loci delicti governs tort causes of action and requires that the substantive law of the place where the tort occurred must be employed while procedural law of the forum state is to be applied. Therefore, the Court held that the parties’ trade secrets dispute was governed by Alabama’s Trade Secret Act (Ala. Code § 8-27-5).

The consequence of the Court’s application of Alabama law to the trade secrets dispute was that AAI’s claim was barred by the applicable Alabama two-year statute of limitation.

This case illustrates the fundamental importance of recognizing choice of law issues in both the contract negotiation phase as well as educating clients to alert counsel promptly after a plaintiff becomes aware of trade secret violations by a third party.

The case is Alabama Aircraft Industries, Inc. v. Boeing Co., Inc., 2013 WL 1178720, N.D.Ala., March 20, 2013 (No. 2:11-CV-3577-RDP, decided by District Judge R. David Proctor.