In a decision of great importance to businesses who jealously protect their confidential information and who must guard against employees taking that information to compete against them, the Delaware Supreme Court in a recent decision provided some additional ammunition for those businesses to protect themselves from thieving employees. The case of Empire Financial Services, Inc. v. The Bank of New York , download file, involved a key employee from a credit agency who did business with the Bank of New York. The trial court found that the Bank of New York engaged in a conspiracy with that key person at the credit agency. The conspiracy involved a plan that the Bank of New York would transfer business to the new agency that the key person be joining (if the Bank would transfer their business.) Notably, this plan was hashed while the key employee was still at the agency doing business with the Bank of New York. Before he left, the key person wanted to make sure he could bring the business to his new employer. Part of the plan was that proprietary and confidential data would be stolen from his old employer. In sum, prior to his departure from the credit agency, the key person had an informal agreement with his counterpart at the Bank of New York to transfer business to a new credit agency, which involved the unauthorized taking (theft) of confidential and proprietary information to a new credit agency. Although the agreement between the “old” credit agency and the bank was terminable at will, the Delaware Supreme Court determined that the tortious conduct could be characterized as “wrongful interference with a prospective contractual relationship”.
This tort is available instead of contract damages even when a business relationship is terminable at will, and requires proof of: (1) the reasonable probability of a business opportunity; (2) the intentional interference by defendant with that opportunity; (3) proximate causation, and; (4) damages resulting from the loss of benefits of the relation including interference that consists of: (i) inducing or otherwise causing a third person not to enter into or continue the prospective relation; or (ii) preventing the other from acquiring or continuing the prospective relation.
(As an aside, on a social level, we all have at least heard of–if not actually met–nefarious persons who engage in these types of torts in a social context as opposed to a business context. Iago in Shakespeare’s Othello comes to mind. Although, I am not aware of a tort for interfering with “social relationships”. ) The court relied on the Restatement (Second) of Torts, Section 766 and also Section 766B.
The court defined the requirements for conspiracy and emphasized the point that a conspiracy “need not be expressed in words and may be implied and understood to exist by mere conduct.” Lastly, on a side issue, the court noted the very limited review allowed by courts of a decision by an arbitrator in binding arbitration.
UPDATE: In its second decision in this case, available here, the Delaware Supreme Court remanded the case once again to the Superior Court.