Trade secret misappropriationA recently filed trade secret misappropriation lawsuit in the Michigan Eastern District Federal Court is a good reminder for both employers and individuals about the dangers stemming from not protecting or wrongfully using confidential or trade secret information.

Going Deeper:

The lawsuit was filed on behalf of Van Dyke Horn LLC, a public relations company. The complaint accuses three former Van Dyke Horn employees of violating their non-solicitation and non-compete agreements and misappropriating confidential information for their new employer and competing venture co-defendant VVK PR & Creative.

Here’s an excerpt from the complaint, Van Dyke Horn LLC v Peter Van Dyke:

This case is about an equity member, officer and high-level executive of VDH, Peter Van Dyke, intentionally diverting and misappropriating trade secrets of VDH and converting assets of VDH, including clients, for his own benefit after failing to force his partner, Marilyn Horn, to sell her interest in VDH to him for pennies. And, Van Dyke was not working alone. Van Dyke was conspiring with VDH competitors, Sherman and Walters, to take VDH trade secrets and business for their own and a competing company, VVK, they were in the process of forming. In fact, Van Dyke was so brazen and felt so entitled that while he was still an equity member of VDH with fiduciary duties owed to it, he secretly solicited and convinced several VDH’s key employees to join him and the other Defendants in their secret scheme, all the while knowing that these same employees had restrictive covenants in their VDH employment agreements, and tried to convince prospective VDH staff to reject their offers from VDH and instead join VVK. Days before resigning from VDH, Van Dyke secretly loaded up VDH client files and corporate information into two large zip files and emailed them to his personal email so that he and Defendants could utilize them to compete.

* * *

Indeed, the focus of their secret business plan, which was found after a search of Peter Van Dyke’s VDH issued computer, was to convert VDH clients and the contracts they renewed each year to their competing company, VVK.

Why this lawsuit matters to employers and departing employees:

Of course, it bears remembering there are usually three sides to every story (the plaintiff’s, the defendant’s, and the story the judge or jury believes). And certainly, the Defendants will have their story to tell (as of this post, no response to the complaint was filed).

But even at this early stage, two important universal truths relating to the lawsuit are worth discussing:

  • First, employers must be hyper-vigilant about protecting their confidential, proprietary, and trade secret information. And that protection must be done ahead of time. For instance, the plaintiff, in this case, alleges its business information was protected by post-employment restrictions found in employment with agreements, the company’s operating agreement, and non-compete protections.
  • Second, exit interviews can be critical for discovering red flags about potential misappropriation. Here, the complaint explains the plaintiff asked the main defendant (Peter Van Dyke) before his employment ended to sign a declaration confirming he returned all property and confidential information. This declaration was obviously drafted by legal counsel because it expertly included important points and admissions that would be useful in prospective litigation over the misappropriation and use of the company’s property. Not surprisingly, Van Dyke refused to sign it. And not surprisingly, this refusal raised suspicions that resulted in uncovering evidence of the defendants’ scheme.

Closing Thoughts:

I’ve represented clients – both businesses and individuals – in trade secret misappropriation and noncompete disputes for about 20 years. And I am still surprised how often smart individuals will overlook the importance of digital evidence.

In this regard, the Van Dyke Horn complaint is full of references about digital fingerprints pointing to defendants’ wrongful conduct, e.g., zip files, emailing business information, and (if true, incredibly dumb), storing the details for how the defendants intended to wrongfully compete against their former employer on the employer’s company laptop.

And employers often neglect digital evidence too. For example, I’m representing a defendant in a non-compete dispute pending in Oakland County Circuit Court. The plaintiff and former employer, Save-On Everything, has made various representations about the misappropriation of its confidential or trade secret information. Yet our defense has shown these representations have no factual or legal merit.

For example, Plaintiff’s President, Heather Uballe, was forced to admit at her deposition that the company has no evidence to support the claim:

  • Question: The Amended Complaint, paragraph 14, referenced Save On’s confidential information includes prospects, opportunities, programs, including advertising, et 11 cetera …? Why is this information in
    here about the confidential information? How does it relate to your lawsuit?
  • Answer: It’s to prevent … [i]t from taking place.
  • Question: But you’ve already told me that he didn’t take [it]. You have no evidence that he took it. Your attorney said so as much.
  • Answer: Through today, yes.
  • Question: How would he go back and get the information if he’s no longer employed?
  • Answer: I’m not sure.

Under a court order, Save On has already paid over $1,400.00 in monetary sanctions in its lawsuit for other frivolous representations made in the lawsuit. And more sanctions may be on tap if Save On persists in making fact-free claims about misappropriation.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or complying with Michigan or federal employment laws. Since 2001, Mr. Shinn has represented companies and individuals concerning the issues discussed above and other employment matters under federal and Michigan employment laws.