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Lawsuit alleges noncompete breach and theft of trade secrets

Posted by William J. Cook | Jul 10, 2017 | 0 Comments

What was once reported as a friendly departure from a business has turned into a contentious lawsuit between the company and a former partner, according to a recent news account. The public statement that the departure was friendly does not necessarily mean that all ran smoothly within the business. Nearly two-decades ago, a man started working for a well-established jewelry store on the Eastern seaboard. He worked his way up in the business and became Chief Operating Officer in 2007. At that time, the COO was given a one-quarter partnership in the company and signed a contract that included a noncompete agreement.

New Partner Seeks To Expand Scope Of Business

After some time passed, the COO convinced the board to seek new opportunities, not all of which were successful. In fact, court documents indicate that one venture lost nearly $5 million over the course of roughly three years, ending in 2015. In all, under the COO's influence, the business opened roughly 19 new operations, all of which have since been sold.

What led to the departure of the COO is not outlined in a recent news report. However, after leaving the family-run business, the former COO and partner apparently sought to open his own new business (with three other people who worked for the same local business entity, none of which appear to be related to the family). The jewelry store responded with a lawsuit alleging breach of contract over the noncompete agreement the business had with the former partner.

Trade Secret Litigation Added To Noncompete Dispute

The litigation has since become more complex as evidence surfaced that the former COO allegedly took control of confidential company information stored in “the cloud,” through a Dropbox account. The jewelry business (which still runs three stores) says that the former partner misappropriated thousands of documents, client lists and information that the lawsuit alleges has allowed the former partner to replicate the jewelry business that has been in existence since 1914. The original lawsuit adds claims of misappropriation of trade secrets and has been expanded to include other defendants.

We live in a highly digital – and a highly mobile – age. The story has an undertone that there may have been challenges between the partners before the former COO left the company. However, even with a noncompete clause in place, a worker (or former partner) may often seek to compete with a company after leaving with knowledge of the company's inner workings. The allegations in today's story add a second prong – the alleged theft of trade secrets that had been stored in the cloud.

Partnership disputes may end with the departure of one or more partners without litigation – and often without future dispute. However, as today's story highlights, damaging disputes can arise after the departure of employees or partners. It is often necessary to seek a resolution in court when these conflicts occur.

About the Author

William J. Cook

William J. Cook represents clients in matters involving business litigation and commercial and employment disputes, securities litigation, business transactions and counseling, and insurance. Mr. Cook's peers have awarded him with the highest possible rating of AV-Preeminent* by Martindale-Hubbell, which speak...


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