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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Employees Strike Back Against Former Employer For Alleged Bogus Claim of Trade Secret Misappropriation

Posted in Practice & Procedure, Trade Secrets

A state court issued a preliminary injunction for alleged trade secret misappropriation, but the enjoined parties successfully used post-injunction discovery to convince the court that the complaint was baseless.  Those parties then filed a federal court lawsuit for abuse of process and other torts.  In Peek v. Whittaker, Case No. 2:13-cv-01188 (W.D. Pa., May 22, 2014), the court held that most of the counts stated causes of action.

Summary of the Case 

R.E. Whittaker Co. filed a complaint in a Pennsylvania state court against two ex-employees and their business partner, alleging that they were about to use misappropriated trade secrets to launch a business in competition with Whittaker.  The court entered a preliminary injunction against the defendants.  However, the court ultimately concluded that no evidence supported Whittaker’s complaint and entered summary judgment for the defendants.  Two of them then sued Whittaker in a Pennsylvania federal court.  The majority of Whittaker’s motion to dismiss the complaint was denied. 

State Court Injunction

Whittaker sells commercial carpet cleaning machines and fluids.  In 2008, it filed a 10-count complaint in a Pennsylvania Court of Common Pleas against ex-employee Offutt, another ex-employee, and their business partner Peek.  Whittaker charged them with conspiracy to breach the ex-employees’ covenants with the company and to misappropriate the company’s trade secrets.  The defendants’ intent, according to Whittaker, was to use the purloined confidential information in competition with the company.  Following a multi-day evidentiary hearing, the court preliminarily enjoined the defendants from engaging in any activity competitive with Whittaker.  The injunction order was affirmed on appeal.  Whittaker sent copies of the order to the defendants’ potential customers and suppliers.

Post-Injunction Discovery

Discovery taken after the injunction order was entered disclosed that, contrary to Whittaker’s witnesses’ testimony at the injunction hearing, the defendants had misappropriated no Whittaker trade secrets.  Stating that the record was “much different” from the one on the basis of which the preliminary injunction had been issued, and that Whittaker had failed to show trade secret misappropriation, breach of contract, or damages caused by the defendants, the injunction was vacated and Whittaker’s complaint was tossed.  Whittaker did not appeal.

Federal Court Litigation 

Peek and Offutt sued Whittaker in federal court for abuse of process, unfair competition, false advertising, and other torts.  The complaint alleged that Whittaker’s state court complaint and preliminary injunction motion were filed for an improper purpose.  Further, Peek and Offutt averred that false evidence was used to obtain the injunction.  Whittaker’s motion to dismiss the complaint was denied in most respects.

Takeaways

The federal court opinion teaches that suing and obtaining an injunction against ex-employees for trade secret misappropriation, without persuasive supporting evidence of their wrongdoing, can backfire.  After more than five years of litigation, Whittaker has little to show for its efforts and expenditures, and it now is on the defensive in federal court.  Before filing spurious litigation against ex-employees intended to head off their post-termination competition with the former employer, that company should consider the potential adverse consequences if the defendants have the will and financial resources to stay the course.  In Whittaker, the ex-employees were knocked down, but they weren’t knocked out.