DTSA Statute of Limitations and Reasonable Diligence in Employee Trade Secret Misappropriation Claims

The court described factual circumstances that may trigger the Defend Trade Secrets Act’s (DTSA) three-year statute of limitations when a company is asserting misappropriation claims against a former employee. Those circumstances include (1) whether the alleged misappropriator committed prior wrongdoing against the company, (2) whether the alleged misappropriator failed to obey company rules, and (3) whether the alleged misappropriator left to work for a competitor.

Case Information

Williams v. Insomnia Cookies, LLC, No. 4:23-cv-669, 2025 WL 206189 (E.D. Mo. July 23, 2025)

Judge: Hon. Henry Edward Autrey

Plaintiffs: Michael Williams and Jonn Gibson

Defendants: Insomnia Cookies, LLC, Serve U Brands, Inc., and Seth Berkowitz

Background

Plaintiffs Michael Williams and Jonn Gibson had been employed as store managers at Insomnia Cookies’ stores in the St. Louis, Missouri, region. The plaintiffs brought Fair Labor Standards Act (FLSA) and other employment-related claims against Insomnia Cookies. The court granted Insomnia’s motion to compel arbitration with respect to Williams.

Gibson filed a second amended complaint against Insomnia, adding additional FSLA and employment claims against the company. In response, Insomnia filed an amended answer and asserted, for the first time, counterclaims against Gibson. Insomnia alleged that Gibson had violated the DTSA and related Missouri state laws.

Insomnia alleged that Gibson, while employed as a Store Manager between 2017 and 2021, accessed and retained “43 pages of detailed financial forecasting reports for over 170 Insomnia Cookie stores … in addition to sales charts from varying points in 2020[.]” Id. at *5. Insomnia alleged that the financial records “contained sensitive sales data, financial outlooks, and business strategies that would be valuable to a competitor[.]” Id.

Gibson filed a motion to dismiss the trade secrets claims, arguing that the court lacked subject matter jurisdiction, Insomnia failed to state a claim, and the DTSA claim was time-barred.

The court denied Gibson’s motion on all three bases.

Holdings

Subject Matter Jurisdiction

Gibson urged the court to not exercise jurisdiction over Insomnia’s counterclaims on the basis that “there is a risk that the counterclaims will predominate over his FLSA claims[.]” The court denied Gibson’s request, concluding it had original jurisdiction to hear the DTSA claim and choosing to exercise supplemental jurisdiction over the related state-law claims.

Failure to State a Claim

The court found that Insomnia allegedly took sufficient measures to protect the financial information by requiring employees to sign a nondisclosure agreement, and to reaffirm the obligations of that agreement upon their separation from the company. The court further found that there was a factual basis to infer that Gibson had misappropriated the financial information. Gibson produced the confidential financial records during discovery in his FLSA case. While there are no allegations that Gibson used the financial data, the court found that there exists a factual basis to infer that “Gibson accessed the documents without authorization[.]” Id. at *6.

Time-Barred

Gibson alleged that Insomnia’s DTSA claim was time-barred by the three-year statute of limitations because the financial documents were from 2020, and Insomnia did not bring its trade secrets claims until October 2024. Insomnia claimed it did not learn of the misappropriation until Gibson produced the financial records in September 2024. Gibson argued, nonetheless, that Insomnia should have known of the alleged misappropriation sooner. The court disagreed, holding that the statute of limitations did not begin until September 2024. The court found that Insomnia exercised reasonable diligence in uncovering the alleged misappropriation. The court found that nothing in the pleadings that “suggest[s] that Defendants had reason to suspect Gibson, a Store Manager, was accessing and taking their confidential, financial documents.” The court noted that “there were no allegations, for example, that Gibson had committed prior malfeasance against the company, that he did not obey company rules, or that he was leaving to work for a competitor.” Id. at *7.

A jury trial is scheduled to begin in this case on September 29.