Disclosure Of Confidential Information Can Result In Liability, Even If It Is All In The Family

liability in the family

If a former employee (one residing in Illinois) discloses confidential information to his or her spouse, that employee can still be required to defend himself or herself against a lawsuit brought by his/her former employer.  The Court so held in Cornerstone Assurance Group, Inc. v. Harrison, Case No. 17 CV 4718 (N.D.Ill. Oct. 5, 2017).

Judge Norgle rejected the argument of defendant – a former sales representative for the plaintiff-insurance company – that because plaintiff’s Complaint alleged she had disclosed confidential information to her husband, the Illinois marital privilege would operate to preclude any recovery by plaintiff, and consequently, plaintiff’s claims against her should be dismissed.  The marital privilege protects against disclosure of communications exchanged between spouses.  However, the Court reasoned that the impact of the marital privilege on plaintiff’s claims was “best addressed after discovery.”  Because the Complaint alleged that confidential information had been disclosed to defendant’s husband and to his limited liability company, the Court determined that it was plausible that disclosure had been made to employees of that company other than defendant’s husband.  If so, such communications would not be insulated by the marital privilege, because the privilege is waived when an otherwise privileged communication is repeated to a third party.  Also, if discovery revealed the limited liability company had used plaintiff’s confidential information to solicit policyholders, that would provide circumstantial evidence of an improper disclosure and use of the confidential information.

The Court also rejected defendant’s other arguments in support of her motion to dismiss the Complaint.  First, defendant argued that the Complaint failed to state a plausible claim for breach of contract because it referred only to one specifically-identified competitor and did not name any client to which confidential information was allegedly disclosed.  In rejecting this argument, the Court relied on plaintiff’s allegations that (a) defendant had, during her prior employment with plaintiff, been made privy to specific types of information that she, in her employment agreement, had promised not to disclose; and (b) nevertheless, defendant had, in fact, disclosed that information.  Judge Norgle decided that this was sufficient to put defendant on notice of the nature of claims she was being required to defend.  Assuming that plaintiff’s allegations were true (as was required for purposes of the Court’s consideration of defendant’s motion to dismiss), the Court held that plaintiff’s allegations stated a plausible claim for breach of contract.

Second, defendant challenged plaintiff’s claim for violation of the Illinois Trade Secrets Act on the basis that plaintiff had not adequately alleged the existence of any trade secret and had not sufficiently set forth facts amounting to misappropriation.  The Court noted that Illinois courts have recognized that customer lists and policyholder information of the type allegedly taken by defendant from plaintiff can be “trade secrets”, depending on the facts concerning the manner in which that information was compiled and maintained.  Here, plaintiff alleged “that it spent years developing the Restricted Information, including … claim histories and claims data – data which is not likely to be ascertainable to others from readily available sources”.  Plaintiff also specifically alleged that the information was “not generally accessible to other persons.”  The Complaint further described the information at issue as having been “uniquely tailored … to the individual needs of its clients”, based on private information concerning them.  As such, the Court concluded that these allegations sufficiently set out a plausible claim that information allegedly disclosed by defendant constituted plaintiff’s trade secrets.

Finally, in contending that that the Complaint failed to allege that trade secrets were misappropriated, defendant argued that the Complaint failed to describe when or how disclosure was made, or which particular trade secrets were disclosed.  Rejecting this argument, the Court accepted plaintiff’s contention that such specificity was unnecessary in view of the existence of an employment agreement that “clearly prohibits defendant from contacting customers of plaintiff and asking them to buy someone else’s product…”.  In the Court’s view, dismissal was not required on the basis that plaintiff had not pleaded the “method of defendant’s alleged contacts with these customers, or when they occurred or name[d] them in the complaint” (quoting from Airgas USA. LLC v. Adams, Case No. 15 C 50316, 2016 WL 3536788 at *3 (N.D.Ill. June 27, 2016)).

We emphasize that this ruling only addresses defendant’s motion to dismiss – that is, defendant’s effort to have the case thrown out before defendant is required to answer the complaint and to contest plaintiff’s claims on the merits.  As the case proceeds and the facts are fleshed out by discovery, the result could be different (and, in any event, most civil cases settle before they are adjudicated).  However, it seems to us that the Court was exceedingly willing to give plaintiff the benefit of a considerable amount of doubt.  Years ago, a civil action in federal court was subject to dismissal only if it appeared beyond doubt that the plaintiff could prove no set of facts which would entitle him to relief.  Certainly, the Complaint in Cornerstone Assurance would have met that prior standard.  However, in 2007, the Supreme Court abandoned the “no set of facts” concept and held instead that in order to state a claim, the plaintiff needs to allege sufficient facts to show that it has a “plausible” claim, and not merely one that is conceivable”.  Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).  This more recent pleading standard arguably would have required plaintiff in Cornerstone Assurance to make the type of specific allegations that defendant contended were lacking from the Complaint.

For example, because defendant’s husband was the principal of the limited liability company he formed, under normal agency principles, a disclosure of confidential information to plaintiff’s husband would be deemed to be a disclosure to the limited liability company as well.  As such, plaintiff’s allegation that confidential information was disclosed by defendant to her husband and to her husband’s company did not necessarily mean that disclosure had been made to anyone at that company other than defendant’s husband, and if the Complaint had been viewed in that way, the notion that the marital privilege would prevent plaintiff from substantiating would warrant greater consideration than it was given by the Court.  Nevertheless, the Court was willing to accept that there might have been a disclosure of confidential information to other employees of the husband’s company even though (so far as we can tell from the Court’s opinion), no such disclosure was specifically alleged.  This seems to be a decision based more on possibilities than on plausibility.  That said, Judge Norgle’s opinion is the one that counts, and he ruled that plaintiff’s complaint was good enough.  As a result, the defendant will be required to defend against plaintiff’s claims.

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Contributing Editors: Ernest Irons, Daniel V. Kinsella


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