Contact Sections @:

8000 Weston Parkway
Cary, NC 27513
(919) 677-0561

Corporate Counsel Section Website › Newsletters › The Business Lawyer, May 2012 › Recent Decisions of the North Carolina Business Court

Recent Decisions of the North Carolina Business Court

When Suing Departing Employees, Details Matter — Especially in the Complaint

Article Date: Tuesday, May 08, 2012

Written By: Stephen Feldman & Lenor Marquis Segal

It’s a familiar storyline: Exiting long-time, highly-compensated employees accused of soliciting employees and customers to leave Company A for Company B along with them, confidentiality agreements be damned. But, if and when a lawsuit is needed to stop these employees’ wrongdoing, how much detail is required in a complaint to survive a motion to dismiss?

A recent decision by the North Carolina Business Court sheds lights on this question. The case, decided on February 6, is called AECOM Tech. v. Keating.

Through a review of two of its former employees’ computers, AECOM discovered that the former employees, during their employment at AECOM, had been soliciting AECOM customers and employees in concert with one of AECOM’s competitors.

Based on this discovery, AECOM sued the former employees and its new employer. AECOM alleged five causes of action: breach of fiduciary duty, trade secret misappropriation, unfair and deceptive trade practices, civil conspiracy, and interference with contract.

Significantly, although it referred generally to “confidential commercial information and trade secrets” relating to customer identities, services pricing, customer contract terms, and product information, the complaint did not supply any further details about this information.

In view of the generalized nature of the allegations, the former employees, and their new employer, together moved to dismiss AECOM’s claims. In their motion, they emphasized that AECOM’s complaint lacked the “particularity” that North Carolina law requires when identifying an allegedly misappropriated trade secret.

Notably, AECOM’s brief in response to the motion to dismiss included far more factual details and color commentary about its alleged damages than had been included in the complaint. For example, the brief described the departing employees as “key players” who had worked on some of AECOM’s “biggest projects” with some of the company’s “most important clients.” The brief also said that, in the wake of defendants’ departure, AECOM experienced “a mysterious en masse, departure” of more than 12 employees (eight listed by name) and a “significant loss of business accounts,” naming three specific existing projects and valuing them at a total of approximately $4 million in revenue.

This level of detail (and offer of more) in the brief proved a day late and a dollar short.  The Business Court explicitly disregarded those facts raised in the brief but absent from the complaint, dismissing the trade secret misappropriation claim for failure to allege or identify the trade secrets at issue. Even though business information such as costs, pricing, customer, and personnel information could constitute “trade secrets” under North Carolina law, AECOM failed to plead what its allegedly purloined “trade secrets” were. (An offer by AECOM, in a footnote of its brief, to “provide additional facts” did not sway the court.) Similarly, the court dismissed the tortious interference claim based on AECOM’s failure to identify specific contracts or customers lost.

Notwithstanding the complaint’s generalized facts, AECOM’s other substantive claims survived the motion to dismiss. Because all corporate officers hold a high fiduciary duty to their corporations, the court found that by alleging that one of the former employees had been a “corporate officer,” AECOM had sufficiently alleged a fiduciary relationship that could give rise to breach of fiduciary duty, unfair and deceptive trade practices, and conspiracy claims.

The take-home lesson from AECOM: Because employees leave companies all the time, sometimes “en masse,” it is not enough to plead generally that “they left and then everyone else left and the customers left, too.” The thing does not speak for itself, so former employers should not hold back in the complaint as to what trade secrets were taken and which contracts were disrupted. If AECOM had included the details from the brief in the complaint, or in an amended complaint, the likelihood of an even more favorable outcome for AECOM on the motion to dismiss would have increased
exponentially. •

Stephen Feldman and Lenor Marquis Segal practice with Ellis & Winters, LLP.

Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.