In my latest article for the current issue of The Delaware Business Court Insider, I provide highlights of a recent Chancery decision that involved virtually no damages for non-compliance with a confidentiality provision. Courtesy of that publication, the article is reprinted below.
A recent noteworthy Delaware Court of Chancery decision should be kept handy by corporate and commercial litigators for its practical and persuasive analysis of noncompliant handling of confidential documents: AlixPartners v. Mori, C.A. No. 2019-0392-KSJM (Del. Ch. April 14, 2022).
Key Aspects of Decision
This litigation is based on the defendant’s departure from AlixPartners to work for a client of AlixPartners in Italy.
The court awarded virtually no damages for noncompliance with the confidential designation given to certain documents. The introductory paragraph in the court’s 58-page post-trial opinion includes a money quote that captures the essence of this decision. In connection with the end of his employment with the plaintiffs:
“… the defendant copied thousands of the plaintiffs’ confidential documents onto his personal devices. He did so to use them in a follow-on employment lawsuit in an Italian court [—he lived in Milan—], although he also used certain of the documents for other innocuous, personal ends—to update his curriculum vitae and email goodbyes to his former clients.” Slip op. at 1 (emphasis added).
One could infer that the court was less than enthused that plaintiffs “pressed on with their claims,” on this issue—notwithstanding the return of the documents defendant had copied other than those he needed for his separate employment lawsuit with the plaintiffs.
Key Background Facts
The defendant, Giacomo Mori, was a managing director in the Milan, Italy, office of AlixPartners.
Italian law applied to some aspects of this dispute and experts on Italian law testified that Mori had a right to take and use documents from AlixPartners that he needed for his lawsuit with AlixPartners about his departure. See AlixPartners v. Mori, 2019 WL 6327325 (Del. Ch. Nov. 20, 2019) (prior decision in this case addressing jurisdictional issues). See generally Slip op. at 20 and n. 92 (observing that the court often grapples with employment disputes that the parties make into partnership agreement disputes, citing a recent case as another example.)
Breach of Confidentiality Obligations
This post-trial opinion features an application of the Italian Constitution, as well as a discussion of decisions of various courts throughout Italy, in addition to Italian statutory authority and various opinions of experts on Italian law.
Importantly, regarding whether there was a defense to a breach of a confidentiality provision for Mori to use some of the documents in connection with his separate employment litigation, the court relied on Section 178(1) of the Restatement (Second) of Contracts for the statement of law that a promise or other term of an agreement is unenforceable in some instances on grounds of public policy. Section 178(3) identifies four additional factors to consider “in weighing a public policy against enforcement of a term.”
The court assumed that Italian law provided a strong public policy to permit Mori to use confidential documents for use in his Italian litigation, based on either Section 178(1) of the Restatement (Second) of Contracts, or Section 187(b) of the Restatement (Second) of Conflict of Laws, regarding the law of the state chosen by the parties to govern their contractual rights and which state has an applicable fundamental policy relevant to an issue in dispute. The court also cited to Williston on Contracts, Section 19:8.
The court found no violation of a nonsolicitation clause, and employed reasoning that has widespread applicability. The court explained that a non-solicitation provision “should not be construed to prohibit a former employee from responding to unsolicited inquiries. Otherwise, a former employee would have to be on guard at every turn and possibly barred from responding to a host of acceptable communications.”
Trade Secrets Under Italian Law
The court determined that Italian law applied to the issue of trade secrets and that the Delaware Uniform Trade Secret Act does not have extraterritorial effect. The court emphasized the challenge it faced to independently test the parties’ Italian law contentions by being unable to conduct its own independent research in original Italian sources, and that it was entirely reliant on the information provided by the parties, one of whom appeared pro se. Therefore the court cautioned that the precedential value of its decision on Italian trade secret law should be understood to be limited to the facts of this case and the law presented by the parties. Nonetheless, the court regaled the reader with a discussion of multiple decisions of several courts throughout Italy that decided trade secret issues under Italian law.
Permanent Injunction and Damages Denied
The court provides the reasons why permanent injunctive relief was denied. Notably, an Italian court awarded the defendant in this case nearly $2 million against AlixPartners regarding employment claims.
The Court of Chancery awarded a mere $7 in nominal damages, which was the amount requested by the plaintiffs, and which for all practical purposes, as an economic matter, is the functional equivalent in the context of this case, of no damages awarded for the breach of confidentiality provisions.