Breach of Contract, Confidential Info Leak Case: Hallmark Prevails - U.S. Eighth Circuit
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Breach of Contract, Confidential Info Leak Case: Hallmark Prevails

In 2002, Hallmark Cards, Inc. and Janet Murley parted ways. She had served as the vice-president of marketing and was responsible for product and business development, advertising, and research, and by extension, had access to confidential business plans, market research, and other internal information.

When she was let go, she was paid a severance of $735,000, 18 months of paid COBRA insurance, paid tax preparation for 2 years, and was given executive outplacement services. In exchange, she agreed to not work in the greeting card industry for 18 months, solicit Hallmark employees, disclose or use any propriety or confidential Hallmark information, or retain any Hallmark records or documents. She also waived any claims against Hallmark arising from her termination.

After her non-compete agreement expired, she was hired as a consultant to Recycled Paper Greetings (RPG), and paid $125,000. In exchange, she provided them with a number of confidential documents from Hallmark. When her new company was acquired by American Greetings, the disclosures were made known to Hallmark, resulting in this lawsuit.

Days before her computer was to be analyzed, Murley deleted a number of Hallmark-related documents. As a result, the court ordered an adverse inference spoliation instruction.

The jury returned a verdict in Hallmark’s favor for $860,000 - equal to her severance pay plus her consulting fee with RPG.

The Adverse Inference Instruction

Prior to this ruling, there was some dispute about whether an explicit finding has to be made on the record that the evidence was destroyed in bad faith. The circumstances of the trial court proceedings indicated that the judge made a finding of bad faith, though it was never on the record. Murley objected to the instruction numerous times, yet the instruction was given. A finding of bad faith, however, could be implied from the lower court’s denial of her objections.

Prior cases have required “a finding.” The majority here held that the prior law was unclear, despite at least one prior case requiring an “explicit finding.” The concurrence maintained that the Eighth Circuit has always required an explicit finding on the record. Either way, both the majority and concurrence agree that if there was an error by the lower court, it was harmless.

They also agreed that in the future, adverse inference instructions resulting from spoliation would require an on-the-record explicit finding of bad faith.

The Verdict

Remember that axiom from the Paper Chase (and that hairy hand case, of course)? It was something like, “Put the party in as good of a position as he would have been absent the breach.” The Eighth Circuit felt that while the return of her severance pay was appropriate because the heart of the agreement was the breached confidentiality provisions, the award of her consulting fee was not, as it would put Hallmark in a better position than it would have been had she not breached.

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