Daily Decisions: A (Limited, I Hope) Victory for Employers’ Power to Restrict Former Employees

Robert S. Moore v. Commercial Aircraft Interiors, LLC (Division 1, May 29, 2012), is not factually unique — person leaves a job, he wants to work for a competitor, lawsuits are threatened, and we end up in court — but the Court of Appeals’ ruling seems to touch on some new law regarding what sorts of litigation threats a former employer can make (hint: lots of latitude) and what redress a former employee has against those threats (hint: you’re S.O.L.). Don’t get too excited, however. While a broad reading of the opinion gives a lot of power to employers to restrict their former employees, I think a narrower (and more appropriate) reading just requires a former employee to produce some (any!) evidence of improper purpose behind an employer’s allegedly tortious actions. 

Background

First, the facts: Robert Moore worked for Commercial Aircraft Interiors (“CAI”) for a few years. He never signed a non-compete or other such restriction, although he did sign a couple of non-disclosure agreements designed to protect CAI’s trade secrets. Moore resigned from CAI in 2008. After Moore’s resignation, CAI and one of its competitors, Volant, began negotiating a possible transaction/merger between the companies. They hired Moore to act as “an independent consultant to assist them in negotiating the acquisition.” In connection with those duties, Moore signed contracts with both CAI and Volant, each of which prohibited Moore from “divulging the companies’ trade secrets, financial data, and other know-how to third parties.” (emphasis added). Presumably, during the negotiation the two companies were sharing such information with each other.

Negotiations broke down. Moore went back to work at CAI, but was laid off three months later as part of a general reduction in force. Moore then applied for a job at Volant. Volant, however, was hesitant to hire Moore without first ensuring that doing so would not violate any of Moore’s contractual obligations to CAI. Surely, Moore told Volant he had no non-compete, but Volant wanted to be sure. So Volant wrote to CAI asking that CAI “acknowledge and agree . . . that Volant’s offer of employment . . . is not objectionable to CAI and will not violate any agreement to which Mr. Moore may be a party in favor of CAI.” That seems like a nice (albeit C.Y.A-focused) gesture.

Well, CAI was having none of it. Despite laying off Moore, it objected to his subsequent employment with Volant. In a responsive letter, CAI claimed that as a Volant employee Moore “could not avoid the use of or disregard the infinite knowledge he possesses of CAI confidential information and trade secrets.” CAI threatened to sue Volant if it hired Moore.

Volant decided Moore wasn’t worth the trouble; he was not hired. So Moore sued CAI alleging they the company unlawfully interfered with his employment prospects. The superior court dismissed Moore’s claims on summary judgment. He appealed.

The Court’s Decision

To succeed on his claim of tortious interference with business expectancy, Moore had to show (among other things) that CAI “interfered for an improper purpose or used improper means.” It was Moore’s burden to make a prima facie showing on this element (and the other elements). If he could do so, then the burden would shift to CAI, as an affirmative defense, to show that its “interference was either privileged or justified.”

The Court of Appeals held that Moore didn’t produce sufficient evidence of impropriety to survive summary judgment. Sure, CAI threatened litigation against Moore and Volant. But threatened lawsuits are only improper under the law if “the interferor has no belief in the merit of the litigation or threatens litigation only to harass the third parties and not to bring his claim to definitive adjudication.” (quoting Restatement (Second) of Torts.) “To be improper, interference must be wrongful by some measure beyond the fact of the interference itself, such as a statute, regulation, recognized rule of common law, or an established standard of trade or profession.”

It was Moore’s burden to make that showing to survive summary judgment. He didn’t. Instead, he claimed that “CAI failed to prove that it threatened litigation in good faith.” No no no. CAI didn’t need to prove anything on summary judgment. That burden was Moore’s.

A small complaint: At this point in the opinion, Court of Appeals wrote: “To survive the motion to dismiss, Moore had the burden to prove CAI acted in bad faith.” (emphasis added). Ugh. First of all, this was not an MTD; it was an MSJ. Second of all, Moore didn’t need to prove anything to survive the MSJ; he just needed to produce sufficient evidence to show that there was an issue of material fact. He failed to meet this burden because, according to the Court of Appeals, he offered only his own declarations but failed to produce any other evidence of CAI’s allegedly improper purpose. And that seems okay. But still, casual judicial misstatements of the burden of production get rolled over into other cases and muddle up the distinction between the burden of proof and the burden of production at various stages of the case. Nobody likes that!

But anyway, sorry; back to business. The Court of Appeals held in the alternative that CAI was entitled to summary judgment in its favor on its affirmative defense of privilege or justification. According to the Court, an unrebutted showing of good faith entitled CAI to judgment as a matter of law because “[a] person is not guilty of tortious interference when the person in good faith asserts a legally protected interest of his own, which he believes may be impaired by the performance of a proposed transaction.”

The Court of Appeals held that (a) Moore’s non-disclosure agreement, (b) CAI’s assertion that it had trade secrets it did not share with Volant during negotiations, and (c) CAI’s assertion that Moore knew those undisclosed secrets were sufficient to show that its threat of litigation was made in “good faith.” Apparently, this “showing” by CAI was unrebutted by Moore with any evidence of bad faith. And that’s why CAI was entitled to summary judgment on its affirmative defense.

But think about the effect of this alternative holding. An employer learns that a former employee is going to work for a competitor. It is not happy and wants to prevent the employee from joining the competitor. However, the employer has no contractual non-compete with the former employee. As long as the employer has some trade secrets and can assert that the employee knows those secrets, it can write a nasty litigation-threatening letter to the competitor and the employee threatening litigation if the competitor hires the employee. And if the competitor gets scared off, the employee may (more on that “may” later) have no recourse against the employer since the employer gets judgment as a matter of law based on the non-disclosure agreement and existence of trade secrets alone! The Court’s holding turns a non-disclosure agreement into a de facto non-competition agreement. And not only that, the de facto restraint is not subject to the sort of reasonableness/scope/duration analysis that such clauses must face when they, you know, actually exist.

Moore raised this point, arguing that CAI’s threatened suit was based on the “inevitable disclosure doctrine” – a doctrine adopted in some jurisdictions that permits an employer to obtain an injunction preventing a former employee from working for a competitor where “the employee would inevitably disclose the former employer’s confidential trade secret information.” “Washington courts have neither adopted nor rejected the inevitable disclosure doctrine” and the Court of Appeals professed to “make no decision whether it should be adopted or rejected.”

More claimed, however, that even if Washington adopted the inevitable disclosure doctrine, CAI could not obtain an injunction preventing him from working for Volant in these circumstance. The Court of Appeals did not disagree. But by suing Volant, CAI was able to prevent Volant from hiring Moore – “a remedy more extreme than it could have obtained from a court,” according to Moore.

The Court of Appeals had a little sympathy for Moore, but not much:

No injunction has been sought or issued.  Whether or not to hire Moore is a decision that remains with Volant.  CAI’s objection to Volant’s desire to hire Moore does put Moore in a difficult position.  Nevertheless, his claim of tortious interference lacks an adequate evidentiary showing, and therefore may not proceed to trial.

That last sentence is the key, and I hope it is the focus of any future use of this decision. (This is the “may” from above.) Moore’s claim was sufficient to make it past the MTD stage and he was therefore entitled to discovery. But apparently none of the documents he reviewed or any of the depositions he took gave him anything that tended to show that CAI’s letter was motivated by an improper purpose. If he would have produced any evidence over and above his self-serving declarations that tended to show an improper purpose, he would have (a) survived summary judgment on his affirmative claim, and (b) rebutted CAI’s claim of “good faith” in its affirmative defense.

Future courts and employment lawyers may cite to this case for the proposition that, as a matter of law, CAI’s actions here were protected or good faith or otherwise not subject to suit. I hope they don’t. I would read this case for the much more narrow proposition that if a plaintiff produces no evidence of improper purpose, then he loses at summary judgment.

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2 thoughts on “Daily Decisions: A (Limited, I Hope) Victory for Employers’ Power to Restrict Former Employees

  1. I think it’s too bad the court didn’t give any more thought on what would actually be sufficient evidence. I share the concern that courts will interpret this as essentially upping the burden on plaintiffs to produce concrete evidence of bad intentions. In cases like this, I would think the only likely evidence of improper motive is an unreasonable interpretation of the ex-employer’s rights. The court instead seems to progress from requiring a plaintiff to show improper motive at the beginning of the analysis, to actual malice by the end. This seems like a missed opportunity to rein in vindictive ex-employers from making all sorts of overly aggressive claims.

  2. Pingback: Monday Morning Mash-up: June 5, 2012 | Ziff Blog

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