Archives for April 2015

Is The Refusal To Give Up Control of a Private LinkedIn Group A Trade Secret Violation? IL ND Weighs In

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When a former media company executive refused to turn over a private LinkedIn group’s contact information, the company responded with a multi-count lawsuit.

In CDM Media USA, Inc. v. Simms, 2015 WL 1399050 (N.D. Ill Mar. 25, 2015), the plaintiff company alleged that the LinkedIn group (the “Group”), which was geared towards high-level IT professionals and administered by the defendant, was company property.  The plaintiff also claimed the Group’s comments threads were competitively valuable trade secrets.

The plaintiff joined a common law misappropriation claim premised on the allegation that the defendant downloaded confidential company data on to his cell phone and refused to return it.

In partially granting the ex-employee’s motion to dismiss, the court considered whether social media content and contacts can qualify for trade secret protection under the Illinois Trade Secret Act.

The LinkedIn Private Group: A Trade Secret? Maybe

The court first considered whether the Group (which contained nearly 700 members) fit the definition of a trade secret under Illinois law.  An Illinois trade secret plaintiff must allege (1) the existence of a trade secret, (2) misappropriation of that trade secret, and (3) that the trade secret was used in the defendant’s business. The Illinois Trade Secrets Act (ITSA) defines “trade secret” to include, among other things, “list of actual or potential customers.” 765 ILCS 1065/2(d).

A key common law trade secrets factor is the time and expense incurred in developing a client base.  The more time and money spent, the better chance of showing a trade secret.

Here, the media company’s allegation that the Group was developed at significant expense over several years and was secret enough to give plaintiff a competitive advantage over rival B2B marketers was sufficient to state a trade secrets claim under the Act for purposes of a motion to dismiss.

The court found that “too little is known” about how the Group was set up, its contents and how it impacted the plaintiff’s business to definitively rule that the Group wasn’t a trade secret as a matter of law.

The Group Communications/Comments: Not A Trade Secret

The court rejected the plaintiff’s trade secrets claim based on the Group comments.  While the court allowed that in some cases a social media group’s communications might qualify as a trade secret, the plaintiff failed to pinpoint the specific Group content that was secret or that gave the plaintiff advantage over the competition.  Because the Group trade secrets allegations were too vanilla, that claim was dismissed.

Defendant’s Cell Phone Data: No Allegation of Use in Business

The plaintiff’s trade secrets claim premised on the allegation that the defendant swiped information from plaintiff’s private database and downloaded it to his cell phone also failed.  Trade secrets misappropriation requires an allegation that defendant actually used a trade secret in his business.  Here, the plaintiff failed to allege that defendant used any of the cell phone data in the course of his current employment.

Lastly, the court found the plaintiff’s “inevitable disclosure” allegations to sparse to be actionable.

Under the inevitable disclosure rule, a trade secrets claim will succeed if the plaintiff shows the defendant can’t function or operate in his new job without relying on the plaintiff’s trade secrets.  Here, the plaintiff failed to allege any facts to support his bare-bones assertion that defendant would inevitably disclose plaintiff’s trade secrets to defendant’s new employer.

Afterwords:

Post-worthy for its modeling of some creative lawyering: trade secrets law isn’t the typical legal theory of choice in a dispute over who owns a private social media account;

If a private social media group is secret enough to give an employer a competitive advantage and was developed over a lot of time and expense, the group can qualify as a trade secret;

Even under Federal notice pleading, a plaintiff must allege use in business to establish misappropriation and must give some specifics to support an inevitable disclosure theory.

Denial of Motion to Disqualify Counsel Doesn’t Bar Later Legal Malpractice Suit- No Issue Preclusion (IL ND)

Eckert v. Levin, et al., 2015 WL 859530 (N.D.Ill. 2015), a case I featured earlier this week, gives some useful guidance on when collateral estoppel or “issue preclusion” bars a second lawsuit between two parties after a judgment entered against one of them in an earlier case.

The case’s tortured history included the plaintiff getting hit with a $1 million dollar judgment in 2012 as part of  a state court lawsuit after he breached a 2010 written settlement agreement orchestrated by the defendants – the lawyers who represented plaintiff’s opponent in the state court case.

In the state court case, the plaintiff moved to disqualify the lawyer defendant and later, to vacate the $1 million judgment.  Both motions were denied.

In the 2014 Federal suit, the defendants (the individual lawyer and his Firm) moved to dismiss the plaintiff’s legal malpractice claim.  They argued that the state court’s denial of the plaintiff’s motion to disqualify defendants as counsel was a tacit ruling that the defendants didn’t commit malpractice.  Defendants contended that the plaintiff was collaterally estopped from bringing a legal malpractice claim in the 2014 Federal case since he lost his earlier state court motion to disqualify defendants as counsel for the plaintiff’s opponent.

The court disagreed and denied the motion to dismiss.  It held that issue preclusion didn’t apply since a motion to disqualify involves different issues than a legal malpractice claim.

Issue Preclusion, Legal Malpractice, and Motions to Disqualify

Issue preclusion applies if (1) the issues decided in the before and after cases are identical; (2) there was a final judgment on the merits in the first case; (3) the party against whom estoppel is asserted was a party or in privity with a party to the first case; prior and (4) a decision on the issue must have been necessary for the judgment in the first case.

Collateral estoppel also requires the person to be bound must have actually litigated the issue in the first suit.  Like res judicata, the rationale for the issue preclusion rule is to bring lawsuits to an end at some point and avoid relitigation of the same issues ad nauseum.

In Illinois, to prevail on a legal malpractice suit, a plaintiff must show: (1) an attorney-client relationship giving rise to a duty on the attorney’s part; (2) a negligent act or omission by the attorney amounting to a breach of that duty; (3) proximate cause establishing that but for the attorney’s negligence, the plaintiff would have prevailed in the underlying action; and (4) actual damages.

A motion to disqualify counsel has different elements than a malpractice claim.  A disqualification motions require a two-step analysis: the court must consider (1) whether an ethical violation has occurred, and (2) if disqualification is the appropriate remedy.  The main rules of professional conduct that usually underlie motions to disqualify are Rules 1.7, 1.9 (conflict of interests to current and former clients) and 3.7 (lawyer-as-witness rule).

The court held that since the elements of a legal malpractice claim and a motion to disqualify don’t overlap, plaintiff’s legal malpractice wasn’t barred by the earlier motion to disqualify denial.

Non-Reliance Clause in Settlement Agreement

The court also rejected the defendants’ argument that the 2010 settlement agreement’s non-reliance clause (which provided that plaintiff wasn’t relying on any representations in connection with signing the agreement) defeated the legal malpractice case.  The reason was mainly chronological: the plaintiff’s central legal malpractice allegations stemmed from the attorney defendant’s conduct that occurred after the 2010 settlement agreement.  As a result, the non-reliance clause couldn’t apply to events occurring after the agreement was signed.

Afterwords:

– Issue preclusion doesn’t apply where two claims have different pleading and proof elements;

– a motion to disqualify an attorney for unethical conduct differs from the key allegations needed to sustain a legal malpractice suit;

– a non-reliance clause in a settlement agreement won’t apply to conduct occurring after the agreement is signed.

Tortious Interference And The Corporate Officer Privilege Defense

6030 Sheridan Road, LLC v. Wright Management, LLC, 2011 IL App. (1st) 093282-U examines when a corporate officer is privileged to tortiously interfere with a contract that his company is involved with.

There, the plaintiff real estate developer sued defendants – an LLC property owner and its principal – for tortious interference with business relationship after a planned condominium conversion failed.

The claimed the defendants tortiously interfered with plaintiff’s contracts with a real estate broker and marketing firm of the site.

The appeals court affirmed summary judgment for the defendants.

The tortious interference with contract cause of action stems from the recognition that a person’s business relationships constitute a property interest that should be protected from unjustified interference.

The tort’s elements are: (1) the existence of a valid and enforceable contract between the plaintiff and another; (2) the defendant’s awareness of this contractual relation; (3) the defendant’s intentional and unjustified inducement of a breach of the contract which causes a subsequent breach by the other; and (4) damages. By definition, a party can’t tortiously interfere with its own contract.

A defendant is privileged to interfere with a contract where a corporate officer uses his business judgment and discretion on behalf of his corporation.

This privilege reflects the corporate law axiom that duties owed by corporate officers to their corporation trump their obligations to corporate creditors. (¶¶ 34, 37).

Where a defendant’s conduct is conditionally privileged, the tortious interference plaintiff can overcome the privilege by showing the defendant’s conduct was unjustified or malicious. “Malicious” means conduct that is “totally unrelated” or “antagonistic” to the interest that gives rise to the privilege or that is solely for his own gain or done to harm the plaintiff. (¶ 39).

In Wright Management, the court found for the defendants. Saying that an LLC manager owes comparable duties of loyalty to the LLC as that of an officer to a corporation, the court held the individual defendant was conditionally privileged to interfere with the development contract in to further the LLC’s business interests.

Since there was no evidence that defendant’s dissatisfaction with the real estate broker and the marketing company was pretextual or based on anything other than the quality of their services, the decision to terminate the contracts was a protected business decision.

Since the plaintiff failed to generate evidence to support its claim that the individual defendant acted maliciously when he pulled out of the development agreement, it couldn’t defeat the defendants’ privilege defense. (¶ 44).

Afterwords:

A corporate officer is privileged to interfere with a company contract where he is acting to further a legitimate business interest.