Steven Sholk, director at the Newark, New Jersey office of Gibbons and a longtime source of valuable leads, sent me the Eleventh Circuit’s recent opinion in News America Marketing In-Store, LLC v. Emmel (PDF copy here). It contains an interesting lesson for anyone who drafts confidentiality agreements.
Emmel was an account director for News America. Starting in 2005, the relationship started to sour, and in 2006 Emmel began disclosing confidential News America information to government offices, alleging that News America was engaged in various shenanigans. In November 2006, News America fired Emmel. In December 2006, Emmel was job hunting, and News America agreed to provide him with a letter confirming that he hadn’t entered into a noncompetition agreement with News America, on condition that Emmel promise not to disclose any confidential News American information or disparage the company.
On December 21, 2006, News America and Emmel entered into an agreement that contained the following provision:
Emmel agrees that he will not disparage, denigrate or defame the Company and/or related persons, or any of their respected business products, practices or services. Emmel further agrees that he will maintain in complete confidence, and not discuss, share, reveal, disclose or make available to any third party or entity any “Confidential Information” of the Company.
But the day before signing the agreement, Emmel sent to a staff member of the U.S. Senate’s finance committee a final batch of News America information. Emmel acknowledged that he had timed that final disclosure so that it would take place before he signed the agreement.
In a lawsuit against Emmel, one of News America’s claims was that in disclosing that last batch of information, Emmel had breached the December 21, 2006 agreement. The district court accepted that contention, on the grounds that the package of documents hadn’t reached its destination and Emmel had done nothing to attempt to intercept it.
The Eleventh Circuit reversed, holding as follows:
The December 21, 2006 agreement contains no language that indicates the parties intended for it to apply retroactively or that provides assurance about any past events. The specific promises undertaken were couched in language that applies only prospectively.
The Eleventh Circuit also held that it wouldn’t have been reasonable to expect that Emmel could retrieve the package, and that anyway the contract “does not cover acts of omission or inaction, only acts of commission.”
Here’s what I take from this: I’m revising Koncision’s confidentiality-agreement template so that if you indicate in completing the questionnaire that some confidential information was disclosed before the date of the agreement, the output document will include a representation to the effect that the recipient hasn’t disclosed any of that confidential information, or hasn’t disclosed it in a manner that would have constituted a breach of the NDA if that disclosure had taken place after the NDA was signed. (I’m still working on the wording.)
And I’m contemplating adding guidance regarding the implications of disclosure by a whistleblower of information covered by an NDA.
Nice analysis and very helpful insight going forward. One point you failed to indicate in your color–through no fault of yours as it was not in the 11th Circuit Opinion–is this company has paid out over $650 million to settle three fed district cases, and another large dollar amount that is non-public in two 10 year busines deals. Also, if you read the opinion carefully, the court holds that blame on the poor verb tense wording is assessed solely to the employer drafter of the agreement. Grammar and common sense is a problem even in $30 billion companiies these days.
Red: I think one can say that grammar is at the heart of a contract dispute only if the drafter failed to say something clearly enough. In this case, the drafter simply missed an issue, and addressing it adequately would have required more than just changing the tense of a verb. Ken
Since a duty of confidence can arise even without a contract (at least it can in the UK anyway), one can recite that some disclosure has been made prior to the NDA when the receipient knew that it was disclosed under a duty of confidence.
Ken –
I am not entirely comfortable with language that captures past disclosures. I often see it in recitals as such: “[party] may disclose or has disclosed…” Most of the time the drafting party includes the statement without even considering its applicability in the current discussion.
The issue from my vantage point is “whose foot is the shoe on?” If my client has had loose lips, then I might be OK (after conversations with opposing to clarify and my client to scold). However, if the other side is the pre-agreement discloser, I am less inclined to agree without compelling evidence that there was a disclosure and whether that disclosure is relevant under the subject matter/scope of the agreement at hand. It can get even more messy when the agreement provides for a marking requirement.
I like your idea of providing alternate language to cover this potential situation – it will make the drafter stop, think and ask the question “was there a pre-agreement disclosure”.
And I am shocked at the 11th Cir.! The employee’s last act appears to be an act of intentional misconduct, if not an act of bad faith. I am further surprised that the plaintiff did not have employment-related agreements or an employee manual covering the issue of confidentiality. I have worked almost exclusively for much smaller companies, and in every case such documentation was de riguer – without its review and signature, you are not employed!