Network Firm News

Tuesday, June 19, 2012


Schiff Hardin Wins Unprecedented Sanctions Order in Illinois Trade Secrets Fight

This is a synopsis of an article by Jan Wolfe in The Litigation Daily, June 19, 2012

Schiff Hardin's Matthew Prewitt used email produced by a plaintiff corporation in a trade secrets case to show that plaintiff acted in bad faith and used the lawsuit to harm Prewitt's client, a competitor of plaintiff.
Friday a Chicago state court judge sanctioned plaintiff and awarded Schiff Hardin's client its attorneys' fees (read the opinion here). Based on internal e-mails produced during discovery, the judge found that plaintiff brought the case to undercut defendant's expansion into Canada and then misrepresented its true agenda in court.
The Court's decision read "[m]isrepresentations have permeated this litigation ... [and plaintiff] has elected to persist in relying on them, continuing to offer explanations that defy reason."

Defendant spoke with plaintiff in 2007 about buying its Canadian subsidiary. During the negotiations, plaintiff turned over information about its products and customer base. There is evidence that plaintiff agreed to keep the information confidential, but plaintiff never actually made defendant sign a confidentiality agreement. The negotiations broke down in February 2008. A month later, defendant (Prewitt's client) won a contract with one of plaintiff's major Canadian customers.

More than a year later, plaintiff finally demanded the return of documents it handed over during the negotiations. It brought suit in May 2009, alleging that defendant used confidential information in the documents to lure away the customer, in violation of the Illinois Trade Secrets Act.

Plaintiff's case was dismissed in May 2011, on the ground that the company failed to protect the confidential documents turned over during due diligence. The one-year time lag between the end of the negotiations and the filing of the complaint proved fatal. "[Plaintiff] allowed sensitive and confidential information to remain in the hands of a known competitor," judge Mason wrote.

During fight over attorney fees that followed, defendant's lead lawyer, Schiff's Matthew Prewitt used e-mails by plaintiff's general counsel to convince the judge that plaintiff acted in bad faith.  Plaintiff's lawyers, who were never accused of acting in bad faith, had argued that the e-mails were attorney-client privileged. Judge Mason disagreed, finding the privilege didn't apply because plaintiff had designated its general counsel as a key fact witness.

With the internal plaintiff e-mails and memos in hand, Judge Mason tore into the general counsel in Friday's ruling. Mason found that, in a crucial memo circulated just a few weeks before plaintiff filed its complaint, the GC urged management to sue just to hurt defendatn's business interests. The judge also found that the GC deliberately referred an unrelated matter to defendant's go-to Canadian law firm, Blake Cassels, for purposes of creating a conflict of interest that would block them from taking the case. "Not once did plaintiff's executives express any concern over retrieval of the company's Canada confidential information," the judge wrote. "[Plaintiff] one and only goal was to interfere with defendant's relationship with the customer."

Mason also took plaintiff to task for alleging in its complaint that defendant used information gleaned from confidential plaintiff documents to lure away one of plaintiff's employees. E-mails turned over during discovery showed that plaintiff's GC knew before he filed the complaint that the employee reached out to defendant on his own, the judge ruled. "[Plaintiff's] claim that [defendant] was guilty of using [plaintiff's] confidential information to 'steal' one of its employees was false and was known to [plaintiff] to be false at the time those representations were made to the court," Mason wrote.

Based on those "misrepresentations" and others, the court awarded defendant's attorney's fees for the entire three-year duration of the case. The amount of those fees will be determined at a later hearing.

"The lesson for companies," says Schiff Hardin's Prewitt, "is that you can never take for granted that attorney-client privilege is going to hold."

Counsel for plaintiff said that the ruling ignored "objective evidence" that defendant illegally used plaintiff's confidential information, and that he likes his odds on appeal. In a motion opposing sanctions filed in February 2011, he wrote that "the idea that Portola would commence suit and then incur millions of dollars in fees and costs if it did not believe it could prevail and collect a judgement makes no sense."
 

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