Some of you may recall that in 2007, I had written about Charter Oak Lending Group, LLC’s lawsuit against CTX Mortgage Company, and what Charter Oak claimed were CTX’s illegal – and successful – efforts to hire Charter Oak’s employees and obtain proprietary information regarding its clients for the purpose of damaging or ruining Charter Oak’s business.
In an order entered on August 27, 2008, Judge Vincent Roche of the Superior Court for the Judicial District of Waterbury, Connecticut dismissed Charter Oak’s claims for misappropriation of trade secrets, conversion and statutory theft, and breach of fiduciary duty. That decision left Charter Oak’s claims under the Connecticut Unfair Trade Practices Act, civil conspiracy, and unauthorized computer access.
The court ruled on those issues on July 7, 2009, when it dismissed all of Charter Oak’s remaining claims against CTX and its former employees whom CTX had hired.
Debra Killian, Charter Oak’s president, kindly provided me with copies of the court’s decisions and advised me by email that Charter Oak is appealing the rulings.
This is what the court had to say about Charter Oak’s claim for civil conspiracy:
The more credible evidence adduced at trial indicates that some individual defendants made independent decisions to leave the plaintiff’s employment and in effect sought out and related to the corporate defendant CTX as a possible source of employment. The individual defendants as independent contractors and “at will” employees, not under any contractual restraints from the plaintiff, could seek whatever employment opportunities were available in the marketplace without being conspiratorial about it. The fact remains that two or more defendants had a “book of work” and realized independently that their best economic interests as loan originators were not going to be served by remaining within the plaintiff’s employment. This does not mean that they engaged in some unlawful act(s) or were necessarily exercising unlawful means to seek new employment with a ready, willing and able new employer, namely CTX.
But I think this sentence in the July 8 order, which the court quoted from its August 27, 208 order, sums up the rationale for the court’s rulings:
The departure from one employer, who had announced a new business model with the cutting of benefits and other financial remunerations in order to go to another employer is not unfair and not unlawful especially in a situation where the parties are under no contractual obligations concerning confidentiality or competition and in effect are employed “at will.”
Womble Carlyle’s Trade Secrets Blog wrote this about the decision (the link is to the blog’s October archive because the post doesn’t have its own link), and Carlye Adler at CNN/Money wrote this aptly-titled article. And N. Kane Bennett, who writes the Connecticut Business Litigation blog, uses the Charter Oak decision to ask a particularly pertinent question.
I agree with Kane’s analysis. Not having a non-compete or confidentiality agreement does not mean necessarily that an employer has no recourse if an employee unfairly competes, but an employer should err on the side of having employees, especially those with access to any proprietary or confidential information, execute such an agreement. Otherwise an employer may find itself in Charter Oak’s position.