Image: Nuuly

Urban Outfitters wants the trade secret lawsuit filed against it by recently-bankrupt Le Tote tossed out of court. In its August 7 motion to dismiss and corresponding memo, counsel for Urban asked the court to dismiss Le Tote’s case in its entirety, arguing that the fashion rental startup (and parent to Lord & Taylor) has failed to plausibly establish that Urban ran afoul of trade secret and contract law after allegedly stealing proprietary information from Le Tote in connection with an M&A deal that never came to be, and using that info to launch a rival rental business. 

According to the motion and memo that it filed, Urban sets the stage by asserting that the lawsuit at hand “is about the short-lived, and ultimately unsuccessful, discussions between Le Tote and Urban in early 2018 related to Urban’s potential purchase of Le Tote’s fashion rental subscription business.” Two years later, Philadelphia-headquartered Urban claims that “Le Tote is falsely accusing [it] of misappropriating and using unspecified ‘trade secrets’ – which Le Tote supposedly shared with [it] during those discussions – to launch Nuuly, Urban’s own fashion rental subscription business.” 

Instead of setting forth allegations sufficient to establish “any valid claim for relief,” Urban argues that Le Tote relies, instead, on “a self-serving narrative filled with generalized allegations and speculation,” in furtherance of “a misguided and cynical effort to cast blame elsewhere for its own business and financial difficulties.” After all, the company claims that “after teetering on the verge of insolvency for the past several months, Le Tote reached its breaking point less than a week ago, when it filed for bankruptcy protection under Chapter 11.” 

Trade Secret Misappropriation

“Stripped of its rhetorical flourish,” Urban argues that Le Tote’s complaint “boils down to two core contentions: (1) pursuant to a written non-disclosure agreement [“NDA”], Le Tote shared supposed ‘trade secrets’ with Urban (although the complaint never identifies a single specific trade secret disclosed to Urban), and (2) because Urban thereafter launched a business that competes with Le Tote, Urban must have misappropriated and improperly used those purported trade secrets.” 

In lieu of identifying the “trade secret” information with any specificity, Urban alleges that Le Tote makes “vague references to broad areas of technology and practices within the rental clothing industry and asks the court to infer that something there must have been a trade secret, and that Urban must have misappropriated and used Le Tote’s trade secrets in order to launch a competing business notwithstanding Urban’s long-standing leadership within the retail fashion industry.” 

With that in mind, Urban claims that Le Tote fails to allege the necessary facts to establish that “it took reasonable measures to protect whatever supposed trade secret information Le Tote may have disclosed,” which is a critical element here, as in order to claim trade secret misappropriation, a plaintiff must prove that it has taken “reasonable steps” to prevent  theft or misuse of that trade secret information. According to Urban, Le Tote failed to do so, and instead, “asserts generally that it protects the confidentiality of its ‘Proprietary Information’ by ‘requiring its employees, investors, outside consultants, and vendors to sign [NDAs].’” 

Further addressing the limitations of Le Tote’s efforts to protect its “trade secrets,” Urban asserts that “even if the court were to assume that Le Tote’s NDA with Urban alone is sufficient to suggest the existence of a trade secret (it is not), the level of protection provided by the NDA is limited by its very terms.” Le Tote had “the opportunity to seek to restrict Urban from future competitive endeavors,” the defendant argues, but “it failed to do so,” as in the NDA,  “the parties explicitly agreed that either party was permitted ‘to make, use, procure or market any products or services, now or in the future, which may be competitive with those offered or contemplated by the other party.’”

In other words, “in the NDA, Le Tote and Urban expressly contemplated and agreed that Urban could develop at any time a business that would compete directly with Le Tote.”

More than that, Urban argues that Le Tote fails to make it case because it did not specify “how such [alleged trade secret] information derived independent value from being kept secret,” which is a core element in the determination of whether information actually amounts to trade secrets (and thus, could give to claims of misappropriation if improperly acquired and used), and “how such information purportedly was misappropriated and used by Urban.” 

Breach of Contract Claim

In case that is not enough, Urban states that in furtherance of its lawsuit Le Tote did not allege a plausible breach of contract claim. While Le Tote “asserts that Urban breached the parties’ [NDA] by purportedly ‘using Proprietary Information for the purpose of evaluating, developing, establishing, and launching’ a competing business,”  it does not provide “a single fact supporting this conclusion.”

To this, Urban argues that Le Tote’s conclusion fails in at least a couple of respects. For one thing, Urban asserts that “it simply does not follow that, because Urban launched its own fashion rental subscription business approximately a year after the parties’ exploratory discussions ended [that] Urban must have relied on information provided by Le Tote pursuant to the NDA to do so.” This is particularly true “given that the NDA expressly permitted Urban to develop a business that would compete with Le Tote at any point.” 

Second, “Le Tote’s breach of contract claim requires acceptance of the proposition that Urban, a well-established, publicly-traded retail company that has been in the fashion apparel business for decades could not possibly have expanded that business into the complementary clothing rental business—renting its own brands—in one year without using Le Tote’s confidential information.” 

And finally, Urban claims that Le Tote also fails to sufficiently allege damages as a result of Urban’s purported breach of the NDA. Le Tote’s “omission” when it comes to what damages it suffered as a result of the alleged breach “is particularly noteworthy here,” per Urban, as “it is so obvious that Le Tote’s financial distress is tied to its unrelated and ill-fated acquisition of Lord & Taylor” and not to an alleged NDA breach by Urban. As a result, the contract claim should be tossed out, Urban argues, along with the insufficient trade secret claim. 

Dismiss the Case

In terms of the additional claims that Le Tote asserted in its complaint, Urban urges the court to dismiss the unfair competition claim, pointing to Pennsylvania’s “gist of the action” doctrine, which bars tort claims against contracting parties where the claim “is, in actuality, a claim against the party for breach of its contractual obligations.” It also wants the unjust enrichment claim tossed out on the basis that “it is displaced by remedies available under a valid, binding contract—the parties’ NDA.” 

For these reasons, Urban “respectfully asks the court to grant its motion and enter an order dismissing Le Tote’s complaint with prejudice and granting such other relief as the court deems appropriate.” The retail has also requested an oral argument in connection with its motion. 

The case is Le Tote, Inc. v. Urban Outfitters, Inc., 2:20-cv-03009 (E.D.Penn.).