A Maryland company’s confidential consumer lists and pricing information are trade secrets and were misappropriated when a group of employees left their jobs for a rival company and brought many of their former clients with them to the new company, the Maryland Appellate Court held.
In a reported opinion written by Judge Andrea M. Leahy and filed last month, the Maryland Appellate Court affirmed in part and vacated in part the judgment of the Anne Arundel County Circuit Court, finding that Cantwell-Cleary Co. could seek actual damages under its claims for misappropriation of trade secrets and that its former employees had misappropriated the company’s trade secrets.
The appeals court ordered a limited remand for the circuit court to recalculate Cantwell-Cleary’s damages for lost profits under a new damages calculation. The appeals court further instructed the circuit court to enter an order restating the money damages to be entered against former Cantwell-Cleary employees Timothy Ingram and Kevin Barstow.
In July 2018, a group of key employees of Cantwell-Cleary, including Ingram and Barstow, abandoned their jobs to take positions with Cleary Packaging, a rival company recently formed by Cantwell-Cleary’s former president. According to the opinion, Ingram took with him his list of open orders detailing Cantwell-Cleary’s pricing information, costs and profits.
The former Cantwell-Cleary employees began selling the same packaging products to many of their former customers, resulting in a gross sales decline of nearly 40% for Cantwell-Cleary in the months immediately following the July mass exodus. The decline continued, with the company’s total gross sales falling from $26.5 million in 2017 to $14.6 million in 2020, according to the opinion.
In July 2018, Cantwell-Cleary initiated a lawsuit against Barstow, followed by a separate lawsuit against Ingram and another former employee in September 2018.
“I think the court got it right,” Peter McDowell, counsel for Ingram and Barstow, said of the appellate court’s ruling. “It was novel in the sense that it expanded the rights of one of the parties to get damages in addition to the four corners of the liquidated damages contract.”
The appeals court held that the circuit court ruled correctly in declining to enforce the liquidated damages provisions contained in the former employees’ noncompete agreements because they did not bar Cantwell-Cleary from recovering damages under its separate claims for misappropriation of trade secrets.
According to the testimony of a longtime employee, Cantwell-Cleary uses a standard noncompete agreement to which employees agree, among other items, not to compete with Cantwell-Cleary in the business of selling packaging, paper and related products within a 75-mile radius of any office of Cantwell-Cleary for one year following termination of employment. The noncompete also specifies that former employees must keep confidential any information that was important to the company’s ability to compete, including customer lists, product prices and the contents of business plans.
Under the noncompete, the employees agreed to pay Cantwell-Cleary $50,000 “as and for liquidated damages, and not as a penalty” in the event they breached their duty of confidentiality or any covenants not to compete.
McDowell said there have previously been no rulings about whether a party could obtain remedies from a statute where there was a liquidated damages contract.
McDowell said his clients do not currently have any plans to petition the Maryland Supreme Court for writ of certiorari.
John Lynch, co-counsel for Cantwell-Cleary, said the court’s order for a remand on the damages portion likely “won’t change anything.”
“We don’t think it’s going to change materially the damages that ultimately will be awarded by the Circuit Court for Anne Arundel County,” Lynch said. “The dollars will move up or down a little bit based on the guidance from the court’s decision, but the dollars won’t change significantly.”
Gregory Hislop, co-counsel for Cantwell-Cleary, agreed.
“The court wants us to throw out a little bit more information about what customers actually went to the new employer, Cleary Packaging, as opposed to the ones that simply left Cantwell-Cleary,” Hislop said. “We have most of that information already and it’s just a reworking, really, of the numbers, but ultimately, we think it’s going to be a difference without a distinction.”
A judge for the U.S. Bankruptcy Court for the District of Maryland dismissed Cleary Packaging’s Chapter 11 bankruptcy petition in December 2023.