Monday, June 13, 2011, 6/13/2011 10:25:00 AM

Eleventh Circuit Holds Former Employer Should Have Used Present Perfect Tense to Restrain Employee In Disclosure of Confidential Information

By Todd

Robert T. Emmel started working for News America in 1999 as an account director in its Atlanta office. He sold News America's services to various retail chains, maintained relationships with those retailers, renewed contracts, contracted for new business, and implemented various sales initiatives. In his position Emmel was privy to a wide variety of confidential and proprietary information.

In late 2005, the relationship began to sour. Emmel asserts that the reason that happened is he became convinced that News America “was engaged in widespread illegal activity against its customers, competitors, and shareholders” and that management intended to do nothing about it. By contrast, News America argues that the deterioration in their relationship was triggered by a change in Emmel's job responsibilities.

Regardless, in January 2006 Emmel began disclosing News America's confidential information to people in a number of government offices. First, Emmel contacted the office of Senator Paul Sarbanes to discuss his concerns about News America, and he later sent the Senator's office a memorandum concerning News America's business practices along with 100 pages of News America's confidential information. Emmel's appellate brief describes those documents as:

"substantial oral and documentary evidence of News's extensive billing and revenue-sharing fraud against its customers; its predatory and anti-competitive schemes against competitors Floorgraphics, Insignia, and Valassis; and News's fraudulent inflation of its reported earnings unbeknownst to its shareholders."

But to News America the documents were: “confidential contract terms, business strategies, financial terms with customers, financial plans, and other financial data.” In February 2006 Emmel made the same disclosures to the SEC and met with SEC staffers. Later that year he made disclosures to the New York Attorney General's Office, to the office of Senator Charles Grassley, and to the Finance and Judiciary Committees of the United States Senate. None of the disclosures was authorized by News America, and during all of that time Emmel remained a News America employee.

By November 2006, the relationship between Emmel and News America had turned from sour to bitter. News America had still not learned of Emmel's disclosures, but he had stopped coming into the office during regular work hours and had let others at the company know that he was looking for employment elsewhere. News America terminated him effective November 30, 2006.

In December 2006 Emmel became interested in a job with POP Radio, and he asked News America to tell POP that he was not obligated under any non-compete agreements. After some negotiations, News America agreed to provide Emmel with a letter explaining that he was not under a non-compete agreement, and he in turn agreed to sign a post-employment agreement that included a promise he would not disclose any of News America's confidential information or disparage the company. That agreement was signed on December 21, 2006. The part of the agreement that is relevant to this appeal includes the following promise:

Emmel agrees that he will not disparage, denigrate or defame the Company and/or related persons, or any of their respected business products, practices or services. Emmel further agrees that he will maintain in complete confidence, and not discuss, share, reveal, disclose or make available to any third party or entity any “Confidential Information” of the Company.

The agreement goes on to broadly define “confidential information” to include: “all trade secrets and information ... and/or compilations of information that was disclosed to or acquired by Emmel ... that relates to the business of the Company and is not generally available to the public or generally known in the Company's industry.”

Emmel had a trick up his sleeve, however - the day BEFORE he signed the agreement, Emmel sent out one more batch of News America's confidential information. On December 20, 2006, he placed in regular mail a package of around 55 pages of News America's internal documents and confidential information. The package was mailed to Nick Podsiadly, a staffer for the U.S. Senate's Finance Committee who had been in regular e-mail contact with Emmel and had met with him in Washington the previous month. The timing of this disclosure was obviously no coincidence: Emmel even admitted in his deposition, “[M]y goal was to make sure that information got out before I would be signing an agreement.”

News America found out later Emmel had done this and sued him for breach of contract.

In support of its breach of contract claim, News America argued two different theories to the district court. First, it contended that various company policy documents, including its “Electronic Communications Policy,” “Standards of Business Conduct Policy,” and “Insider Trading and Confidentiality Policy” had created a binding non-disclosure agreement that Emmel had violated by making disclosures throughout 2006. Second, and more specifically, News America contended that Emmel had breached the terms of the December 21, 2006 agreement by his actions and inactions regarding the confidential information he mailed on December 20, 2006 to Nick Podsiadly at the Senate Finance Committee.

The first argument went nowhere - the district court held that the employment and communications policies did NOT amount to a contract with Emmel. The appellate court agreed.

The district court accepted News America's second contention, however, reasoning that even though Emmel had mailed the package of documents before he signed the agreement, “it is undisputed that the confidential documents had not reached their destination by December 21 and thus could not yet have been viewed by anyone until that point.” The court found it “significant” that Emmel did nothing to prevent the impending disclosure after he signed the agreement. By not making an attempt to stop Podsiadly and the Senate Finance Committee from viewing the documents, the court reasoned, “[Emmel] clearly breached the non-disparagement provision of the agreement.”

Emmel appealed. He argued, persuasively and correctly, that to find him to have breached the confidentiality covenant through conduct that occurred before the contract was executed “disregards the basic rule that a contract operates only prospectively from execution absent language of retroactive effect.” The appellate court agreed with Emmel and his argument that "to capture his pre-contract conduct the promises would have needed to be phrased in the present perfect tense—i.e., “Emmel agrees he has not disparaged, denigrated or defamed the company” and that he “has maintained in complete confidence” News America's confidential information." But Emmel didn't make that promise. He made a future-looking one.

For our readers and followers, the point of this post is to alert you to a possible gap in some of your attempts to restrain a departing or departed employee in connection with company confidential information or trade secrets. If you want to rely on contract as a means for doing that, make sure that you draft the contract in such a way that the employee agrees retrospectfully that he/she has NOT ALREADY DONE what they contractually agree they cannot do in the future. Otherwise there may be a gap in the contract and the company may lose an opportunity to recover for conduct that violates the expectations of those at the contract table. In short, consider having the employee sign an agreement written like a poem by William Carlos Williams - "I have eaten the plums that were in the icebox . . . . " Just sayin'.

The case can be cited as News America Marketing In-Store, LLC v. Emmel, (slip copy), 2011 WL 2222040 (11th Cir. June 8, 2011).


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