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Ruger Chemical Co., Inc. v. Universal Preservachem, Inc.

A-0018-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

EMPLOYER-EMPLOYEE; CONFIDENTIALITY — Even if there is no direct evidence establishing a causal connection between an ex-employee’s removal of documents and subsequent losses experienced by the ex-employer, proximate cause may be established by circumstantial evidence.

As a condition of her employment, an employee of a chemical products company agreed to sign a confidentiality agreement. The agreement did not contain a non-competition clause. The agreement was binding during and after employment. The employee then resigned and went to work for the company’s competitor. Approximately two years later, her original employer sued its ex-employee alleging she had breached her contract and breached her common law duty of loyalty. It also sued its competitor alleging that it facilitated its ex-employee’s wrongful conduct. The company claimed that: (i) while employed by the company’s competitor, the ex-employee used confidential information that she had taken from the company; and (ii) this information benefitted both the ex-employee and the original company’s competitor.

The Law Division found that the ex-employee had breached her employment contract and her common law duty of loyalty and also held that the competitor knew of, and facilitated, such actions. It refused to impose punitive damages, as it did not consider any of the defendants to have acted wantonly. The employee and competitor appealed.

The Appellate Division held that even though there was no direct evidence establishing the causal connection between the ex-employee’s removal of original employer’s documents and her former employer’s losses, proximate cause may be established by circumstantial evidence. The Court held that the lower court was permitted to find proximate cause based upon reasonable inferences that she improperly removed confidential information. It noted that the lower court had ample credible evidence supporting such an inference, including the testimony of witnesses who had observed the ex-employee photocopying certain documents. As to the ex-employee’s contention that the lower court’s use of gross profits in determining damages was improper, the Court held that the ex-employee failed to allege such an argument before the lower court. It stated that it is the employee’s responsibility to raise such matters before the lower court and that it was not for the Appellate Division to consider such an argument in the first instance. The Court also rejected the argument that net profits must always be the measure of damages where a plaintiff’s overhead or fixed expenses are not affected by the defendant’s breach. Further, the Court agreed with the lower court that a wrongdoer should not be permitted to misappropriate another’s opportunity, and then to use that opportunity in order to help absorb fixed expenses of its own business.

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