Posts

Employers don’t face either-or decision when recovering for civil theft

A recent Colorado Supreme Court decision addressed what is known as the Economic Loss rule. Under the Economic Loss rule, a victim of wrongdoing who has a contract claim for the same wrongdoing is limited to recovering only the economic losses for breach of the contract.

In this case, an employee expected to be involved in a lawsuit with his employer. In order to prepare himself for the lawsuit, he emailed himself thousands of company emails to use as evidence. The problem was, the employer contends, that violated his employment agreement and constituted, among other things, theft from the company. When he eventually sued the company, the company counterclaimed for breach of the employment agreement, civil theft, and other claims. The employee cited the economic loss rule, saying that if what he did was wrong, then it constituted a violation of his employment agreement, and as such, his former employer was entitled to recover only the economic losses flowing from the breach of his employment agreement … not any of the other remedies available under its other claims, including statutory penalties and attorney fees.

The Colorado Supreme Court rejected the employee’s argument and held that the economic loss rule did not prohibit recovery especially under the Colorado civil theft statute. As the Court explained, the legislature had created the civil theft statute in order to impose enhanced penalties, which “strongly suggests that the section was intended to serve primarily a punitive, rather than a remedial purpose. ”

The case is a strong reminder to employees who are considering violating their employer’s rights by emailing themselves information. Employees cannot take it upon themselves to stockpile evidence in anticipated litigation. Likewise, the case is a reminder for employers who become the victims of such misconduct that they have strong legal rights of their own.

Source: Bermel v. BlueRadios, Inc., case no. 17SC246 (5/6/19).

NLRB General Counsel issues memo outlining likely reversals to Obama-era precedents

As previously reported here in this blog, the Trump Board (NLRB Boards are often colloquially but not pejoratively referred to by the President during their term) has begun overruling Obama-era precedents. Further reversals are anticipated. Curious which Obama-era NLRB precedents are likely to be reversed?

NLRB General Counsel Robb issued a controversial memo, shortlisting the cases he thinks most warrant attention. Indeed to call it a shortlist is a stretch. The General Counsel lists 26 categories, that range from employee access to email, to protections for section 7 rights, obscene and harassing behavior, off-duty access to property, the Weingarten right to have a representative present, rights of employees during contract negotiations, successorship and of course the joint employer doctrine, unilateral changes consistent with past practice, information requests during the processing of a grievance, dues check-offs, remedies, deferral, and, well, the list goes on, as will employers’ need to stay tuned to forthcoming developments at the Board.

Source: NLRB General Counsel Memorandum GC 18-02.

Tenth Circuit reaffirms need for irreparable harm to obtain injunction in trade secrets case

Both federal and state law (respectively, the Defend Trade Secrets Act (DTSA) and Colorado’s Uniform Trade Secrets Act (CUTSA)) authorize a company to obtain a preliminary injunction against a former employee who is using or threatening to use its trade secrets. The Tenth Circuit recently reaffirmed that, among the requirements for such an injunction, is proof of irreparable harm. (The other requirements are (1) substantial likelihood of success once the merits of the case are decided, (2) the threatened injury outweighs the harm of the injunction, and (3) the injunction will not be adverse to the public interest.)

To be “irreparable” the harm that will be suffered but for the preliminary injunction must be the kind that cannot be reversed, repaired or even compensated for in damages.

In this case, the trial court found that the harm the former employer would suffer if no injunction was issued could be compensated for in damages. In other words, quoting the trial court, it could be “reasonably quantified” in terms of dollars, and such an award of damages “would have adequately made (the company) whole.” Typically that is enough to show such harm is not “irreparable” and therefore a preliminary injunction should be denied.

However, the trial court decided that no showing of actual harm was necessary to prove the irreparable harm element; it decided that the element of irreparable harm could instead be presumed. The court so decided “because both the DTSA … and the CUTSA … provide for injunctive relief.”

The Tenth Circuit reversed. The Tenth Circuit held that legislatures can create presumptions of irreparable harm but to do so they need to say so. Both DTSA and CUTSA lack such language. They merely allow for injunctive relief:

DTSA and CUTSA … merely authorize and do not mandate injunctive relief and thus do not allow a presumption of irreparable harm.

Without a presumption of irreparable harm and lacking proof of irreparable harm, the Tenth Circuit reversed.

The case illustrates the need to prove irreparable harm, in order to obtain a preliminary injunction in cases involving trade secrets. The case is also a reminder that irreparable harm cannot exist where monetary damages will make the plaintiff whole.

Source: FIRST WESTERN CAPITAL MANAGEMENT COMPANY v. MALAMED, Court of Appeals, 10th Circuit 2017 – Google Scholar

$1.3-million verdict overturned, where design was held to be publicly known, despite efforts to keep it confidential as a trade secret

Although publicly known information can be combined in proprietary ways that create a trade secret, the Colorado Court of Appeals held that a design that is not “a secret in the first place,” in other words, that is a matter “of public knowledge or of general knowledge in an industry” is not, itself, a trade secret, no matter how hard its owner works to keep it confidential, the design does not become a trade secret.

Lacking protection as a trade secret, the Court of Appeals reversed a jury’s $1.3-million verdict in this case for misappropriate in violation of Colorado’s trade secret laws.

The decision is a sharp reminder of the limitations imposed by Colorado law on companies seeking to claim trade secrets. The determination whether information constitutes a trade secret is often crucial in non-compete and non-solicit cases.

The case was Hawg Tools, LLC v. Newsco international Energy Services, Inc. — P.3d — (Colo.App. 2016).