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Information about a company’s customers need not rise to the level of trade secrets in order to be protected from plunder by departing employees, the New Jersey Supreme Court ruled last Monday. Reversing the Appellate Division, the justices reinstated summary judgment for a company for breach of loyalty and tortious interference by two employees who copied client information, faxed in their resignations and opened up their own business. “We disagree with the Appellate Division’s conclusion that a trial is needed to determine whether the information secretly gathered by defendants was legally protected,” Justice Jaynee LaVecchia wrote for the unanimous Court. “Although we are persuaded that the facts show that plaintiff’s information should be entitled to trade secret protection, certainty in that regard is not essential to our decision.” “The specific information provided to defendants by their employer, in the course of employment, and for the sole purpose of servicing plaintiff’s customers, is legally protectable as confidential and proprietary information,” LaVecchia wrote in Lamorte Burns & Co. v. Walters, A-26-00. The defendants, Michael Walters and Nancy Nixon, two maritime claims adjusters, went to Lamorte Burns’ office in Clark, N.J., on a Saturday afternoon in December 1997, and compiled lists of clients, including information about claims. They then resigned and opened their own business. Granting summary judgment, a judge awarded Lamorte Burns $232,684 in compensatory damages and $62,816 in punitive damages. But the Appellate Division reversed, finding material facts in dispute, namely, whether the client claim information taken was confidential and proprietary. Walters and Nixon claimed they were never told so and furthermore that the information could have been obtained simply by sending out letters of solicitation to all of Lamorte’s clients, asking permission to have all files transferred. In that light, the panel found, Walters and Nixon might simply have been gathering sufficient information from which to solicit those customers upon their departure. But LaVecchia looked back to a 1939 ruling, Abalene Exterminating Co. v. Oser, 125 N.J. Eq. 329. There, the Court of Chancery said names and addresses of customers “are not open to and ascertainable by everyone; they are private information and property of the company.” An employee has the right to seek other work, LaVecchia said, but still may not breach the duty of loyalty by trying to solicit his employer’s clients. “Defendants purloined protected information from plaintiff’s … files while still employed, for the sole purpose of effecting an advantage in competing with plaintiff immediately upon their resignation and the commencement of their new competitive business,” she wrote. Indeed, LaVecchia pointed out, Walters called in sick the two days before that Saturday and was busy setting up the office for his new company, the Nixon Walters Group Inc. When he and Nixon opened up shop that Monday, they had 33 clients, all of whom were previous clients of Lamorte Burns’. “Walters and Nixon gathered and used Lamorte’s protected information to effect a surprise weekend coup, secretly soliciting clients at a time when Lamorte’s knowledge of their competition was delayed, to put a best light on the tactic,” LaVecchia wrote. “That confidential and proprietary information was provided to defendants only for the purpose of servicing clients on behalf of Lamorte, not to solicit those clients away from Lamorte.” Lamorte Burns’s lawyer, Hackensack, N.J. solo Stephen Roth, says the ruling confirms the Court’s traditional abhorrence for disloyalty and cunning.” Commercial litigator Thomas Muccifori says the court continues to further define the rules of fair play and duty of loyalty. “Here, Walters and Nixon clearly broke the rules of the game,” says Muccifori, a partner at Haddonfield’s Archer & Greiner. The ruling “sends a signal to employees: You can plan on leaving — there’s no indentured servitude in New Jersey — but when it comes down to soliciting your employer’s clients or stealing sensitive or proprietary information, you can’t do that.” Bruce Greenberg, a partner at Newark, N.J.’s Lite DePalma Greenberg & Rivas and the lawyer representing Walters and Nixon, was away from his office and unavailable for comment.

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