Lawyers leaving their law firm may want to think twice before taking firm documents with them upon departure. One state supreme court has held that attorneys who did just that are subject to the state’s unfair and deceptive trade practices statute. The ruling is a cautionary tale for lawyers looking to transition firms, according to ABA Litigation Section leaders.
In Governo Law Firm, LLC v. Bergeron, Governo, an asbestos defense firm, sued six former non-equity partners who downloaded a substantial amount of firm materials before leaving. The materials consisted of more than 100,000 documents and included (i) a research library with witness interviews as well as expert and investigative reports, (ii) databases that organized the research library, and (iii) administrative files including an employee handbook, marketing materials, and client lists.
The partners later approached Governo’s owner with a proposal that they would either purchase the firm or resign in 30 days. The owner rejected the offer the same day. Within three days, the lawyers opened their new firm, which they had incorporated prior to their departure. Computer analytics suggested the former partners had used “tens of thousands of the files” from Governo at their new firm.
Governo sued the former partners and the new firm in the Massachusetts Superior Court. A jury awarded Governo $915,937.23 in damages on claims for conversion, breach of the duty of loyalty, and conspiracy. But the jury did not find the lawyers liable for unfair or deceptive trade practices. The judge then issued a permanent injunction enjoining the defendants from using the library and databases, but not the administrative files.
Governo appealed, arguing the trial judge gave the wrong instruction regarding Massachusetts’ unfair and deceptive trade practices statute, which authorizes treble damages, as well as costs and attorney fees. The judge instructed the jury that “by law[,] an employee and employer are [not] in trade or commerce with each other,” the statute did not apply to “anything” the lawyers did “while they were still employed” at Governo, and that the copying of the materials, because it occurred while the lawyers still worked at Governo, was irrelevant.
The Massachusetts Supreme Judicial Court, on direct appellate review, disagreed and distinguished what the lawyers did from an intracompany dispute. It reasoned that the lawyers’ pre-separation conduct was relevant, explaining as follows: “Where an employee misappropriates his or her employer’s proprietary materials during the course of employment and then uses the purloined materials in the marketplace, that conduct is not purely an internal matter; rather, it comprises a marketplace transaction that may give rise to a claim.”
The supreme court remanded the case for a new trial and instructed the trial judge to modify the permanent injunction to include the administrative files, because the record supported the jury’s findings that Governo owned, and the lawyers converted, the administrative files.
Litigation Section leaders say it is too soon to tell whether, and how far, this ruling may be expanded. In some respects, “the decision just seemed to fix a bad jury instruction which told the jury to look at the misconduct in an extreme vacuum,” opines Paula M. Bagger, Boston, MA, cochair of the Section’s Commercial & Business Litigation Committee.
However, because Massachusetts is “a fairly employee-friendly jurisdiction, for this decision to come from Massachusetts might be persuasive in other jurisdictions,” suggests Michael P. Avila, Philadelphia, PA, cochair of the Restrictive Covenants Subcommittee of the Section’s Business Torts & Unfair Competition Committee. “We might see this theory expanded into other industries as well where large collections of otherwise non-proprietary, or potentially non-proprietary, information are at issue, particularly as an alternative argument where the information’s trade secret status is subject to challenge,” Avila adds.
In the legal community, where “historically, there has not been a great deal of contractual restraints in lawyer employment agreements,” the decision could “represent a sea change” in the way firms look at departures, offers Avila. It could “give law firms some insulation” regarding information that is neither trade secret nor privileged but nonetheless meaningful to the firm, he explains.
While lawyers may have traditionally taken public items, such as pleadings, with them when they transitioned firms, this decision suggests “taking compilations of such data may be seriously problematic,” Avila notes. This is because the compiled data can significantly benefit the firm, especially in “high volume practices where efficiency and experience are really important for securing work,” he elaborates.
The ruling “closes a logic loop” by giving employers a way to protect information from employees who are preparing to compete, notes Avila. To hold otherwise, he explains, “may have the unintended consequence of motivating people to do all of this bad stuff before they quit.” The decision “makes preparing to compete a little more fraught with risk,” especially for lawyers, “who also have to stay in compliance with ethical rules,” Bagger agrees.
Additionally, the holding “gives the employer a litigation advantage because the underlying statute allows for fee shifting and the possibility of treble damages,” suggests Bagger. The ramifications of those fees and treble damages, on top of a significant actual damages award, could “bankrupt a small firm practice,” Avila concludes.
