Friday, August 12, 2011

Agreements To Maintain Confidential Information

In News America Marketing In-Store, LLC v. Emmel, 2011 U.S. App. LEXIS 11810 (11th Cir. June 8, 2011), the defendant former employee, Robert Emmel, while still employed with the plaintiff former employer, News America, felt that the News America was engaged in various unlawful activity.  He reported the alleged wrongdoing to U.S. Senator Sarbanes and to the SEC, and sent both the senator and the SEC a number of News America company documents to support his claims.  Later, but before News America discovered Emmel’s external disclosures of company documents, the relationship between Emmel and News America soured, and News America terminated Emmel.  Emmel was offered a job with another employer, and needed a letter from News America certifying that he was not bound under any non-compete agreement.  News America agreed to provide such a letter, but only in exchange for Emmel signing a nondisclosure agreement (NDA), which provided that:

Emmel agrees that he will not disparage, denigrate or defame the Company and/or related persons, or any of their respected business products, practices, or services.  Emmel further agrees that he will maintain in complete confidence, and not discuss, share, reveal, disclose or make available to any third party or e  ntity any “Confidential Information” of the Company.”

Emmel signed the NDA on December 21, 2006, but only after he mailed a number of additional News America company documents to a staffer for the U.S. Senate’s Finance Committee on December 20, 2006 – one day before he signed the NDA.  News America later learned of Emmel’s various disclosures of company documents to outside parties and sued Emmel for breach of contract.

News America made two arguments – (1) that certain documents in place when Emmel was employed by News America created non-disclosure obligations – such as News America’s “Standards of Business Conduct Policy”; and (2) that Emmel breached the December 21, 2006 NDA by virtue of the mailing Emmel sent out on December 20, 2006.

Both the District Court and the Eleventh Circuit rejected News America’s first argument, and held that the employment documents in question did not impose contractual nondisclosure obligations on Emmel.
But, the District Court agreed with News America’s second argument, granted News America summary judgment on that aspect of News America’s contract breach claim, and issued a permanent injunction barring Emmel from making any further disclosures of News America’s confidential information.  The court reasoned that, while Emmel mailed out the documents in question the day before he signed the NDA, it was undisputed that the recipient did not receive the package until after Emmel had signed the NDA.  The court found it “significant” that Emmel didn’t do anything to prevent the disclosure after he had signed the NDA – for example, he did not warn the recipient not to view the documents.  The court reasoned that Emmel thereby breached the NDA.

The Eleventh Circuit reversed, based on the verb tense which was used in the NDA.  That is, the NDA provided that Emmel “will not disparage…” – i.e., it was written in the future tense, and therefore did not cover any of Emmel’s past conduct which predated his signature of the NDA.  The court reasoned that nothing indicated that the parties intended the agreement to apply retroactively, or to provide any assurances about past actions.  The court ultimately agreed with Emmel’s arguments that “[t]o capture his pre-contract conduct… the promises would have needed to be phrased in the present perfect tense – i.e., ‘Emmel agrees he has not disparaged… and that he has maintained in complete confidence’ News America’s confidential information,” and that the District Court’s ruling “disregards the basic rule that a contract operates only prospectively from execution absent language of retroactive effect.”

Needless to say, the decision vividly highlights the paramount importance of careful drafting when it comes to writing contracts, employment agreements, employment policies, settlement agreements, and other such documents.
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