Non-Solicit Violation: $4.5 Million Punitive Damage Award Upheld
Rarely do we see punitive damages being awarded in cases involving the movement of employees and information between firms. The Superior Court of Pennsylvania last week affirmed a punitive damage award granted by a Judge of the Court of Common Pleas in such a matter, albeit which also found tort liability against the new employer and the five former employees.
The decision in B.G. Balmer & Co., Inc. v. Frank Crystal & Co. Inc., et al. sets forth a classic example of “bad leavers” and a complicit new employer. Confidential information concerning clients was copied and given to the new employer. The senior employees, on Company time and using Company facilities, conspired with the new employer to hire the junior employees and solicit existing clients, including the largest and best clients of the Company. Complete indemnification was provided by the new employer to the employees. Personnel files were purloined and not returned upon request. Upon resignation they immediately solicited the company’s largest client and did so using trade secret and confidential information of the Company while disparaging the Company in the process.
Applying Pennsylvania law, the Appellate Court found that the trial court did not abuse its discretion in finding that the defendants’ conduct was outrageous and shocking to the Court’s sense of justice. As summarized by the trial court:
All [Appellants] met on June 25, 2003 in New York City to discuss their resignations and start date at FCC Philadelphia. All [Appellants] knew of the existence of the employment agreements. The individual [Appellants] cleared out personal belongings at the Balmer Agency, attempted to delete information from Balmer Agency computers, immediately went to work at FCC Philadelphia and immediately began soliciting Balmer Agency clients using Balmer Agency trade secrets in violation of the employment agreements, all with the knowledge and assistance of FCC and for the purpose of benefitting FCC Philadelphia. This conduct was deliberate and reckless with respect to the violation of their contractual and fiduciary obligations at the Balmer Agency and the resultant damage their actions would create. The [trial court] finds these actions to be with unjustifiable malice with the intent to establish FCC Philadelphia at the direct and crippling expense of the Balmer Agency. As a result of this conduct, the Balmer Agency suffered damage. All revenues in the first year of FCC Philadelphia w[ere] received from Balmer clients. This intended malice is reflected in [Appellant] Reilly’s letter to Craig Richards stating that 50% of FCC Philadelphia revenues for 2004, 2005 and 2006 will come from solicited Balmer Agency clients. He states: “In short, why compete when we do not have to do so….”
The conduct of the defendants in Balmer provides a roadmap on how not to recruit employees from a competitor and the resulting punitive damages award should be a further deterrent to all bad leavers and their new employers.