IP Law Daily, TRADE SECRETS—D. Conn.: Former employee may have misappropriated investment firm’s trade secrets, (Feb 18, 2016)

By Mark Engstrom, J.D.

An investment firm could proceed with a trade secrets claim against a former employee who allegedly disclosed the firm’s confidential information to a new employer, the federal district court in New Haven, Connecticut, has ruled (Tourmaline Partners, LLC v. Monaco, February 16, 2016, Bolden, V.). Because the firm raised genuine issues of material fact regarding challenged elements of its claim under the Connecticut Uniform Trade Secrets Act, the court denied summary judgment to the former employee.

When defendant Nicola Monaco failed to comply with a court order that compelled discovery, plaintiff Tourmaline Partners sought sanctions against Monaco. Thereafter, the court held oral argument and entered a scheduling order for Monaco to provide “all outstanding discovery responses.” Monaco submitted his responses and objected to 10 of 25 interrogatories—well beyond the appropriate time to file objections—and further stated that he could not recall the information being requested. In addition, Monaco objected to eleven of twelve document requests and produced no documents.

The court declined to enter a default judgment against Monaco. Instead, the court awarded attorney fees and costs to Tourmaline and ruled that: (1) Monaco was “limited to the discovery responses” that he had provided; (2) any objections to Tourmaline’s discovery requests were waived; and (3) Monaco was precluded from offering a defense based on discovery materials that he failed to provide. Thereafter, Monaco sought summary judgment on Tourmaline’s trade secrets claim.

The court denied summary judgment to Monaco because Tourmaline had raised genuine issues of material fact regarding: (1) the trade secrets character of the confidential information that Monaco had allegedly acquired and (2) Monaco’s use or disclosure of the asserted trade secrets, and whether Monaco knew or had reason to know—at the time of the alleged use or disclosure—that his knowledge of the asserted trade secrets was acquired under circumstances that created a duty to maintain their secrecy or limit their use, or knew or had reason to know that his knowledge of those trade secrets was derived from or through a person who owed a duty to Tourmaline to maintain their secrecy or limit their use.

Character of firm’s confidential information. The court noted that Tourmaline’s principal, Aaron Hantman, had testified that Monaco had been given “unfettered access” to Tourmaline’s business plans, competitive strategies, and client information, including the identities and contact information of clients that had insisted that their trading activities remain anonymous. Hantman further testified that Monaco had acquired proprietary and confidential information about Tourmaline’s business relationships, including client identities, client investment preferences and practices, client contact information, and client portfolio content, which revealed information such as risk appetite, commission production, vendor rates, and trade history.

In addition, Tourmaline had sent Monaco an interrogatory that sought “all information related to Tourmaline’s business to which Monaco had access,” including client portfolio content, client investment preferences, trading history, business plans, strategies, and processes. Monaco refused to respond to the interrogatory (and to other interrogatories), which led to sanctions against Monaco.

According to the court, an adverse inference could be drawn from Monaco’s failure to respond to Tourmaline’s discovery requests, and a reasonable jury could find that the confidential information that Monaco had allegedly acquired from Tourmaline constituted protected trade secrets.

Disclosure, use of asserted secrets. Monaco argued that Tourmaline failed to proffer any evidence to show that he had used or disclosed any confidential information about Tourmaline. Tourmaline argued that it lacked that evidence because Monaco failed to answer Tourmaline’s discovery requests. According to Tourmaline, Monaco could not rely on the absence of that evidence as a ground for summary judgment.

Because Monaco failed to answer Tourmaline’s discovery requests, the court barred Monaco from asserting any defense that was based on the discovery materials that he failed to provide. Monaco argued that he could be precluded from asserting a defense that was based on existing materials that he failed to provide; he could not be precluded from using Tourmaline’s lack of evidence as a ground for summary judgment.

The court concluded that: (1) it was appropriate to draw an adverse inference from Monaco’s failure to comply with his discovery obligations and (2) in doing so, a reasonable jury could find that Monaco had disclosed Tourmaline trade secrets to his new employer.

The court acknowledged that an adverse inference could not, by itself, defeat a motion for summary judgment. However, in borderline cases, and in combination with “not insubstantial” evidence, an adverse inference could raise a genuine dispute of material fact, according to the court.

The court decided that the record presented a borderline case that included “not insubstantial” evidence that supplemented an adverse inference. According to the court, Monaco had resigned after 4:00 on a Friday afternoon, began to work for a competitor of Tourmaline the following Monday, and took with him clients that he had serviced for nearly two years at Tourmaline, during which time he allegedly had access to—and had acquired—confidential information that belonged to Tourmaline.

In the court’s view, that circumstantial evidence gave probative force to the adverse inference that arose from Monaco’s refusal to respond to Tourmaline’s discovery requests, which sought facts about the confidential information that Monaco had access to while he worked for Tourmaline—and about the information that Monaco disclosed to his new employer following his resignation.

For those reasons, the court concluded that summary judgment was not warranted.

The case is Civil Action No. 3:13-cv-00108 (VAB).

Attorneys: Robert L. Keepnews (Maya Murphy, PC) for Tourmaline Partners, LLC. Mark Paul Carey (Mark P. Carey, PC) for Nicola Monaco.

Companies: Tourmaline Partners, LLC

Cases: TradeSecrets ConnecticutNews