We
recently prosecuted a case on behalf of a firm client in the building materials
business that resulted in a settlement with a value in cash and other
considerations to the client of over $1.43 million.
The client, CHRYSO, Inc. is based
in Dallas, Texas, and manufactures and sells specialty chemical additives that improve
the performance properties of plastic and hardened concrete, such as
workability, set time control and strength gain, among other things. Our client is the U.S. subsidiary of a French
corporation. They divide the U.S. into
three regions for business purposes, and on January 12, 2015, the head of the
eastern region abruptly emailed the President at 11:46 p.m. resigning,
effective at midnight. In the following
days it emerged that he and other employees were going into business in direct
competition with the client, and were going to be selling the admixtures of a
direct competitor.
The
sales manager had an employment agreement that included a noncompete,
nonsolicitation, nondisclosure, and other terms. The other side vehemently disputed the enforceability of the restrictive covenants. It is important to note, however, that trade secret and computer fraud claims generally do not depend on the enforceability of a noncompete. Moreoever, the other employees that went with
him, including an independent sales representative, did not have
contracts and therefore had no restrictions. Moreover, the manager was in
possession of a company laptop and smart phone that he was refusing to return
unless unspecified expenses were paid.
Immediately, several customers informed company management that they
were “going with” the manager to the competition. Obviously, this appeared to be a well-planned
exit.
We were retained and immediately
wrote demand letters for the return of all information, that they cease
competing and using company confidential information, and added “litigation
hold” language to preserve all evidence.
Ultimately, a lawsuit was filed in federal court alleging 14 counts, including violation of the Computer Fraud and
Abuse Act and the North Carolina Trade Secrets Act, seeking an injunction,
actual and punitive damages, treble damages under the North Carolina Unfair
Trade Practices Act, and attorneys’ fees.
Also, a Motion for Expedited Discovery was filed and argued, which the
judge ultimately partially granted. With
our suggestion, the client retained top tier local counsel in North Carolina to
assist with the case.
Before returning the laptop, the
former manager deleted numerous files.
Immediately, forensic experts were hired to closely examine the activity
on the laptop, what was missing, and what had been copied from the laptop. We ascertained that much of the data had been
removed to a hard drive and demanded the return of the hard drive. While much of the data on the laptop was not
recoverable, we were able to see the file names and what files had been copied
to the hard drive. Just prior to the
hearing on the motion for expedited discovery, a copy of the hard drive image
was produced, and a trove of evidence became available. An expedited and intensive search using
discovery and document management software revealed key information about the
timing and sequence of the events, and what had happened. We contended that this constituted “smoking
gun” evidence of misappropriation, and although the Defendants denied it and denied liability, a
mediation was discussed and scheduled.
Within a few months of filing suit,
the parties mediated the case. Before
the mediation, with the client’s assistance, we prepare an extensive analysis
of damages. It was clear that the
Defendants would not cease their activities and the evidence appeared to show
that the departure had been in the works for nearly a year. We made it clear that we had significant
damages and that monetary value would be the key to a resolution before the
mediation took place. Fortunately, the
Defendants were ably represented by counsel to advise them, apparently, of the
lengthy and expensive process such a major lawsuit would entail and the risks
associated with the case. Moreover, the
competitor appeared eager to resolve the dispute and avoid lengthy
litigation.
Ultimately, the parties were able
to resolve the case by creating a combination of cash and other equivalents
that had a cash value of $1.43 million for the Plaintiff. Moreover, certain protections for remaining
customers were put in place to add more value.
CHRYSO was willing to invest in an aggressive pursuit of its rights and
thorough forensic work by an expert, to sift for key evidence and learn
everything about what happened and how it had happened. The clients dedication to aggressive investigation and litigation ended up saving them time and money. Thanks to the quick settlement the client was
able to recover far more than was spent on the litigation and move
forward.