Wednesday, January 30, 2013

Jury Verdict Highlights Dangers of Destroying Evidence

Those of us practicing unfair competition law often find ourselves in a unique spot. When we counsel clients - really, departing employees - we can help shape the facts of a potential lawsuit.

Imagine for a second you're a lawyer (bear with me...) and have been hired to counsel a business executive or sales manager on how to make a clean departure with the looming specter of a competition lawsuit. You must give clear, proper advice on at least three issues:

(1) The meaning of any contracts that could impact employment with a competitor.

(2) The best, worst, and most realistic outcomes should a dispute arise - with conservative estimates of what kind of legal fees are likely to accrue.

(3) The need to avoid misappropriation of company information - trade secret or otherwise.

Now, on point (3), you have to go the extra mile. You must advise your client not to delete or impair any company data when leaving. And to go even another mile, you must advise your client not to delete any evidence of misappropriation if such a taking has already occurred before you could advise your client.

On this last point, it's awfully tempting for employees to try and hide their tracks - to cleanse a hard drive or an email account, or even to go old school and shred paper documents. But the consequences can be severe.

For starters, the client will be behind the proverbial eight-ball during litigation because the court will conclude there was something to hide. Every benefit of the doubt or close call will go against the client.

And the consequences can be severe.

Take the case of Janet Murley, a former Hallmark Cards executive who was terminated from her role as Vice-President of Marketing and inked a $735,000 severance package in 2002. Years later, Murley hooks on with Recycled Paper Greetings and discloses a wide range of Hallmark confidential documents.

And the key...hallmark...of that case?

Murley destroyed industry analyses, consumer buying information, and other strategic data a mere 48 hours before an internal investigation (commissioned by RPG's investor) would have revealed the extent of her misappropriation.

So what did a Missouri jury do with that information? It bought Hallmark Cards' theory of damages - forfeiture of the entire severance package - without reservation. And it clearly accepted the adverse inference instruction the district court gave it.

The Eighth Circuit Court of Appeals affirmed a judgment that forfeited Murley's $735,000 severance pay for the improper disclosure. On the legal side, the Eighth Circuit held that the jury properly received an adverse inference destruction - which essentially means the jury was able to conclude that what Murley destroyed would have shown she misappropriated confidential documents of her ex-employer.

Think about it this way. A reasonable jury could have concluded Murley honored other essential terms of the contract - the non-compete, for instance. But her conduct apparently rankled her peers enough that the jury determined she should give back the entire severance amount. Hallmark Cards' damages theory was simple (and obviously cheap to prove), risky, and (in the end) quite effective.

As lawyers, we have obligations to give our clients tough advice. No doubt Murley's attorneys advised her properly when she left, and as sophisticated as she was, Murley had to know what she did was improper.

When lawyers are called on to manage a departing employee's transition, we can shape the facts in such a way to avoid these data spoliation issues and eliminate this thread of evidence from the case entirely. And attorneys ought to document the precise advice they've given, so there is no misunderstanding as to what we have told our clients.

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