When a top-level executive suddenly quits to take a job at a competing firm, the courts have the power to block the start of the new employment if the evidence shows that such an injunction is needed to prevent a likely misappropriation of trade secrets, the 3rd U.S. Circuit Court of Appeals has ruled.
The ruling came in Bimbo Bakeries USA Inc. v. Botticella, in which the appellate court considered whether the manufacturer of Thomas' brand English muffins was entitled to an injunction that barred one of its top-level executives from taking a new job with Hostess Inc.
Bimbo Bakeries won the first round in February when U.S. District Judge R. Barclay Surrick enjoined Chris Botticella, a former senior vice president at Bimbo, from starting the new job on the ground that Botticella's extensive knowledge of Bimbo's trade secrets -- including manufacturing secrets used to make the famous "nooks and crannies" in Thomas' English muffins -- made it substantially likely, if not inevitable, that he would disclose Bimbo's secrets to Hostess.
The evidence, Surrick said, showed that Botticella continued to work for Bimbo for several months after accepting the new job and attended high-level Bimbo strategy meetings, and that he had copied sensitive computer files just before his departure.
Surrick's preliminary injunction was set to expire after two months. During that time, Surrick said, he intended to hold a full hearing and decide whether to issue a permanent injunction.
But Botticella's lawyer, Elizabeth K. Ainslie of Schnader Harrison Segal & Lewis, took an immediate appeal, arguing that Surrick's preliminary injunction was fatally flawed because it was premised on too broad an application of the "inevitable disclosure" doctrine.
Now the 3rd Circuit has ruled that Surrick's injunction was legally sound and that courts have the power to bar a worker from starting a new job if a misappropriation of trade secrets appears likely.
"The public interest in preventing the misappropriation of Bimbo's trade secrets outweighs the temporary restriction on Botticella's choice of employment," U.S. Circuit Judge Morton I. Greenberg wrote in a 38-page opinion joined by Judges D. Brooks Smith and D. Michael Fisher.
Ainslie argued that Surrick erred in applying the inevitable disclosure doctrine, and that he should have demanded proof from Bimbo that it would be "virtually impossible" for the employee to perform his new job duties without disclosing the trade secrets.
Such injunctions are also limited, Ainslie argued, to cases in which the trade secrets are technical in nature and the new employer has not yet attained the technical know-how of the first employer.
But Bimbo's lawyer, Michael L. Banks of Morgan Lewis & Bockius, argued that Ainslie's notion of a "virtual impossibility" test has never been endorsed by the courts and that Surrick acted within his discretion where the evidence pointed to suspicious behavior by a departing employee who appeared intent on misappropriating valuable trade secrets.
Banks urged the judges to focus on Surrick's discussion of the evidence of Botticella's industrial espionage.
At the preliminary hearing, Banks said, the evidence included detailed descriptions of Botticella's misuse of trade secret information, proven by computer forensics that showed Botticella had "deliberately copied trade secret documents onto an external USB device moments before being escorted from the premises."
According to court papers, Botticella, as a senior vice president earning $250,000 plus bonuses, was in an elite group that had access to Bimbo's competitive planning, including product launch plans and strategies for cutting costs and securing lucrative contracts for store-brand products.
Surrick found that Thomas' English Muffins generate about $500 million in annual sales for Bimbo, and that there are three secrets for making their "nooks and crannies" texture -- the recipe, the engineering and the process.
Most Bimbo employees know only one of the secrets, and Botticella was one of just seven people with knowledge of all three, Surrick noted. Botticella's extensive knowledge of Bimbo's trade secrets made it very likely he would disclose those secrets if he began the new job, Surrick found.
Now the 3rd Circuit has ruled that Surrick had "applied the correct standard" and that Ainslie was wrong in demanding a stricter test under the "virtually impossible" standard.
Greenberg found that, applying Pennsylvania law, the "determination of whether to grant injunctive relief in a trade secrets case and, if so, the proper scope of the relief, depends on a highly fact-specific inquiry into the situation in the case the court is considering."
A court conducting such an inquiry, Greenberg said, "has discretion to enjoin a defendant from beginning new employment if the facts of the case demonstrate a substantial threat of trade secret misappropriation."
Greenberg noted Surrick had considered and weighed the harms to each side and had "concluded that the harm of Bimbo's trade secrets being disclosed to Hostess outweighed the harm to Botticella of not being able to commence employment at Hostess until the court made a final determination of the merits following a trial."
That trial, Greenberg noted, was originally scheduled to start about two months from the date Surrick issued the preliminary injunction, but the case was stayed when Botticella opted to pursue an appeal.
Ainslie could not be reached immediately for comment.
