Executive Ordered to Repay $735,000 for Breach of Agreement
A panel of the Eighth Circuit Court of Appeals recently upheld a jury verdict requiring a former Hallmark executive to repay her entire cash severance after she violated the severance agreement by using and disclosing confidential company documents. Janet Murley was Hallmark’s group vice president of marketing until her position was eliminated in 2002. Murley and Hallmark signed a separation agreement under which she received a $735,000 payment plus certain benefits. In exchange, she agreed not to compete for a period of eighteen months, and also agreed not to retain any Hallmark business records and not to disclose or use any Hallmark proprietary and confidential information.
Four years later, long after her 18 month non-compete had expired, she obtained a consulting assignment with a company called Recycled Paper Greetings (RPG), during which she used and disclosed confidential Hallmark information. Three years later (now seven years after Murley’s separation), Hallmark learned of the disclosures and filed suit. During discovery in the lawsuit, Hallmark also learned that in 2007, just two days before giving RPG a copy of a hard drive containing documents she used in consulting with it, Murley deleted 67 documents, including a number of Hallmark records.
The court’s opinion on appeal was primarily focused on two legal issues. First, the court held that the jury verdict awarding Hallmark a refund of the entire cash severance was not improper; while it may seem harsh, it was within the jury’s discretion and did not meet the legal standard of being “grossly excessive” or “glaringly unwarranted by the evidence” which would be required to overrule the jury. (The court did, however, overrule the jury’s decision that Murley should also pay to Hallmark the $125,000 consulting fee she received from RPG – that would have put Hallmark in a better position than it would have been if the agreement had never been violated, which the law does not support).
Second, the court held that because there was “overwhelming” evidence of bad faith by Murley, the trial court was correct in giving an “adverse inference instruction” to the jury, i.e., instructing the jury that if they found that Murley willfully destroyed evidence, they could assume that the contents of the destroyed files would have been adverse to Murley. This gave Hallmark the benefit of the doubt with respect to all of the documents which Murley purged from her hard drive in 2007.
Although not directly addressed by the court on appeal, there are two other lessons from this case as well:
Confidentiality agreements can make a difference. While it might have been possible for Hallmark to sue Murley even without an agreement based on state trade secret or unfair competition laws, it is usually easier to do so based upon breach of a clear written contract. Further, as shown in this case, a contract can help determine the measure of damages. Here, the jury concluded that since Murley violated the contract, she should give back the entire contract severance payment.
Confidentiality protections can last a long time. While the typical non-compete or non-solicitation agreement will have to be time-limited to survive legal challenge (typically from 12 to 24 months), this time limit does not have to apply to a company’s confidential information. Proprietary rights agreements with employees, whether entered into at the onset of employment, during employment in exchange for some benefit like a promotion or bonus, or at the end as part of a severance agreement, need to be carefully written to give a company’s various proprietary rights the best protection possible.