Treble Damages Awarded for Employee Theft of Trade Secrets and Breach of Non-Compete

Employers may ask what recourse they have when an employee violates a non-compete or steals confidential client information and passes it to another company.  As a recent Alexandria Federal Court decision demonstrates, employers have substantial and effective remedies.   Alliance Storage Technologies, Inc. v. EngstromCivil Action No. 4:11-cv-46 (E.D.V.A., May 3, 2012).

In that case, Alliance Storage Technologies (Alliance) employed Bryan Engstrom as Worldwide Director of Sales for IT support and data storage for optical hardware. He had access to trade secrets regarding the products as well as the company’s current projects, marketing plans, dates of customer service contracts, and customer financial information. Alliance had required Engstrom to sign Confidentiality and Non-Compete agreements in order to maintain its trade secrets. Nevertheless, Engstrom downloaded thousands of files of trade secrets and resigned, taking up new employment with a competitor, Archive Data Solutions (ADS).

Alliance filed suit against Engstrom, his longtime girlfriend (who also worked at Alliance), and ADS for injunctive relief, breach of contract, breach of fiduciary duty, misappropriation of trade secrets, tortious interference, conversion, and conspiracy. Alliance presented evidence of $500,783.38 in lost business, lost time away from business, and lost value of trade secrets and goodwill. Additionally, under Virginia’s conspiracy statute, Va. Code § 18.2-499 et seq., Alliance asked for treble damages, attorneys’ fees and costs, and punitive damages.

Proof of damages requires detailed evidence in the form of affidavits, records, and testimony. Alliance claimed $500,783.38 in compensatory damages and yet the court granted only $66,252.15. The court declined to award damages for the plaintiff’s lost time away from business or the devaluation of its trade secrets and loss of goodwill, and granted only the direct loss of revenue from specifically identified client contracts at a 31.87% rate of profit.

The court held that Alliance met its burden of establishing the three elements of statutory conspiracy (concerted action; legal malice; and causally-related injury) and granted treble damages, but not punitive damages (Alliance moved for $350,000 in punitive damages for each defendant). Punitive damages require a showing of actual malice, a more difficult standard than legal malice, and the court found that Engstrom and his girlfriend appeared “to have been motivated by a desire to make money” rather than a desire to injure the Plaintiff which would constitute actual malice. $66, 252.15 trebled is $198,756.45.  Alliance also recovered the costs of the suit, as allowed by Va. Code §§ 18.2-499-500, which amounted to $53,486.62.

Lastly, the court denied Alliance’s motion for a permanent injunction, but granted a temporary injunction for two years in which Engstrom and his girlfriend would be held to the terms of the Confidentiality and Non-compete agreements, requiring the return of stolen data and that they not compete within a 50 mile radius of any market area served by Alliance.

The decision of the Alexandria Federal Court reminds employers of the strict remedies that they can pursue when employees breach their legal duties and non-compete agreements.