IP Law Daily, TRADE SECRETS—Neb. App.: Former employer’s breach of confidentiality, non-compete claims were speculative, (Jun 25, 2020)

By John W. Scanlan, J.D.

Under Nebraska law, information is not considered to be a trade secret if it is ascertainable at all by any means that are not improper.

A company providing payroll processing and worker’s compensation insurance to other employers was unable to establish claims for breach of confidentiality and non-compete agreements against six former employees and the competing company they started, a Nebraska appellate court ruled in an unpublished decision affirming the trial court’s grant of summary judgment to the defendants on all of their claims (Applied Underwriters Inc. v. Pufall, June 23, 2020, Bishop, R.).

Applied Underwriters Inc. (AUI) provides payroll processing and worker’s compensation insurance to businesses around the United States. Six former AUI employees who left the company between 2009 and 2016 subsequently worked for Omaha National, a competitor they started; except for the last to leave, each worked for another company between their positions at AUI and Omaha National. While working for AUI, each executed a "Proprietary Information Agreement" (PIA) with a provision regarding the retention of confidentiality of trade secret information. Reagan Pufall, who was AUI’s Vice President of Claim Operations and eventually became Omaha National’s President and CEO, also signed a severance agreement prohibiting him from soliciting AUI current employees or clients.

In 2016, AUI filed suit against the six former employees, Omaha National Group, LLC, Omaha National Laboratories, LL, and Omaha National Employer Services, LLC, as well as Agman Partners, which provided financing to the Omaha entities. AUI alleged claims for breach of contract related to the solicitation of AUI employees and disclosure of confidential AUI information, breach of fiduciary and common law duties, misappropriation of confidential information, improper solicitation of AUI employees, tortious interference with a business relationship, diversion of corporate opportunities, unfair competition, and civil conspiracy. AUI asked for various forms of money damages and injunctive relief. The court granted the defendants’ motion for summary judgment on all counts. AUI appealed.

Breach of nondisclosure provision/misappropriation of confidential information. The appellate court agreed with the lower court’s finding that AUI’s claims for breach of the non-disclosure provisions and for misappropriation of confidential information were based upon speculation and conjecture. AUI had claimed that the former employees had breached the PIAs regarding the covenants of non-disclosure of confidential information and had misappropriated and misused confidential AUI broker and client lists taken by a former employee for their benefit and for Omaha National. It also claimed that Pufall had misappropriated information in documents he removed from AUI when his employment there ended and used it in his presentation to Agman Partners.

The appellate court could not consider the issue of the documents Pufall allegedly removed from AUI and used in a presentation to Agman because AUI had not raised this issue before the district court and the lower court had not addressed it. Regarding the broker list, although the Nebraska Supreme Court has not ruled upon whether broker lists are considered trade secrets in the same way as customer lists are, the appellate court observed that it did not need to rule upon this issue because the defendants showed that the former employee’s access to AUI’s broker list ended when he left AUI and that Omaha National had not relied upon his ability to recall names that AUI had done business with but had properly purchased a database of all of the insurance agencies in California. AUI argued that Omaha National was able to identify three brokers that AUI did business with and three employers that AUI insured, but AUI did not show that it ever had a business relationship with those brokers and clients and, therefore, had not offered admissible contradictory evidence to show a material issue of fact.

Finally, regarding AUI’s client list, there was no evidence that Omaha National had acquired any of AUI’s clients, that the defendants had taken or compiled a list of AUI customers before leaving AUI or improperly accessed such a list, or that any defendant had sought clients based on information from AUI. The defendants’ undisputed evidence of Omaha National’s "open brokerage basis" business model showed that it had no reason to try to obtain another agency’s customer list because it had no agency relationships and any customer meeting its underwriting requirements could purchase its products. All of its clients were the customers of some other broker, the appellate court observed.

Claims abandoned or not argued by AUI. AUI did not contest the district court’s ruling that Omaha National and Agman had not aided and abetted the former employees in breaching their contracts with AUI because aiding and abetting requires an underlying tort.

AUI abandoned its claim that the former employees had breached the non-competition covenants in their PIAs; the district court had ruled that there was no language in their PIAs that could be construed as a non-compete clause. It also abandoned its claim that Pufall had breached the non-solicitation clause in his severance agreement after the district court concluded that it was unenforceable as a matter of law because it was unlimited as to time or location.

The appellate court did not address AUI’s claim for breach of fiduciary and common law duties because AUI’s brief made arguments that were merely conclusory and general. AUI did not specifically dispute summary judgment regarding the claims of diversion of corporate opportunities and for unfair competition. It also did not argue how any evidence in the case created a genuine issue of fact regarding its claim of tortious interference with business relationships; the district court had concluded that AUI had not identified any business relationships with which the defendants had interfered and the defendants had shown that their alleged interference was privileged.

This case is No. A-18-975.

Attorneys: Jeffrey A. Silver (Silver Kolker LLP) for Applied Underwriters, Inc. Christopher R. Hedican (Baird Holm, L.L.P.) for Reagan R. Pufall.

Companies: Applied Underwriters, Inc.

Cases: TradeSecrets GCNNews NebraskaNews