An award of over $72,000 in fees and costs against a former employee was affirmed by the February 17 Colorado Court of Appeals decision, Saturn Systems v. Delbert J. Militare. The decision demonstrates the risks presented by a fee shifting provision in a noncompete agreement.
After an employee had been terminated by Saturn, he used his relationship with a client to obtain a password to Saturn’s confidential database. With this password, the former employee was able to access and review confidential information. After the close of evidence, the former employee stipulated to the injunctive relief requested. The trial court then found the former employee liable for misappropriation and breach of the nondisclosure and nonsolicitation provisions of his agreement with Saturn. Only $525 in damages were awarded, but the trial court also awarded Saturn over $72,000 in fees and costs under a fee shifting provision. In a lengthy decision, the Court of Appeals affirmed the trial court’s rulings and granted Saturn’s request for attorney fees and costs incurred on appeal.
The Court of Appeals rejected the former employee’s arguments that there was insufficient evidence to support the misappropriation despite the former employee’s argument that no evidence was presented about the exact data allegedly misappropriated. Many courts have recognized, as the Court of Appeals acknowledged, that a plaintiff must identify the trade secret supposedly misappropriated. General allegations about trade secrets typically are not enough. Nonetheless, the Court of Appeals ruled that the “dynamic nature of the information” made it unnecessary for Saturn to identify the confidential information. The court’s ruling may have been guided by its perception that it would have been technologically difficult for Saturn to identify the exact information misappropriated because the information was maintained electronically and continually updated.
The former employee also argued that the nonsolictation provision was void. This argument was rejected because the restriction on the employee was limited to specific customers and because Saturn included the nonsolicitation clause “within a single confidentiality provision”. These factors allowed the court to distinguish a prior decision which had declined to enforce a noncompete, at least in part, because the nonsolicitation clause was included in a different paragraph from the nondisclosure provision.
In an interesting twist, the former employee argued that Saturn had not proven any damages because the $525 awarded was not recoverable under Colorado law. The $525 represented the cost of Saturn’s computer investigation prior to the commencement of litigation. This argument had important implications because damages are an element of any claim for breach of contract. If the $525 awarded was not “damages”, then any fee award might be questioned. The Court of Appeals found, however, that the $525 represented “actual damages as a matter of law”.