364 P.3d 1013 (Utah 2015), 20110261, InnoSys, Inc. v. Mercer

Docket Nº:20110261
Citation:364 P.3d 1013, 2015 UT 80
Opinion Judge:Lee, Associate Chief Justice
Party Name:INNOSYS, INC., Appellant, v. AMANDA MERCER, Appellee
Attorney:Daniel L. Day, Sandy, Erik A. Olson, Salt Lake City, for appellant. Kathleen M. McConkie, Michelle R. O'Neil, Bountiful, Sara Pfrommer, Park City, for appellee.
Judge Panel:ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in which CHIEF JUSTICE DURRANT, and JUSTICE HIMONAS joined. JUSTICE DURHAM filed a dissenting opinion, in which JUSTICE PARRISH joined. Durham Justice , dissenting
Case Date:August 28, 2015
Court:Supreme Court of Utah
 
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Page 1013

364 P.3d 1013 (Utah 2015)

2015 UT 80

INNOSYS, INC., Appellant,

v.

AMANDA MERCER, Appellee

No. 20110261

Supreme Court of Utah

August 28, 2015

Released for Publication February 10, 2016.

Editorial Note:

This opinion is subject to revision before publication in the official reporter.

Third District, West Jordan Dep't. The Honorable Robert Adkins. No. 090421501.

Daniel L. Day, Sandy, Erik A. Olson, Salt Lake City, for appellant.

Kathleen M. McConkie, Michelle R. O'Neil, Bountiful, Sara Pfrommer, Park City, for appellee.

ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in which CHIEF JUSTICE DURRANT, and JUSTICE HIMONAS joined. JUSTICE DURHAM filed a dissenting opinion, in which JUSTICE PARRISH joined.

OPINION

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Lee, Associate Chief Justice

[¶1] This is an appeal from a decision granting summary judgment to Amanda Mercer in a suit filed against her by InnoSys, Inc. Mercer worked for InnoSys, a technology company focusing on the defense industry, as an engineer. In its suit against her, InnoSys alleged that Mercer had violated a non-disclosure agreement and misappropriated company trade secrets. Mercer's disclosures and misappropriations were undisputed. During and after her employment with InnoSys, Mercer forwarded confidential emails to her private Gmail account, copied a confidential business plan to a thumb drive, and placed protected information on the record in an administrative (unemployment) proceeding.

[¶2] Despite these admitted disclosures, the district court granted summary judgment for Mercer. It did so on the basis of its determination that InnoSys had failed to make an adequate showing of harm. And in granting summary judgment, the district court entered rule 11 sanctions against InnoSys and awarded attorney fees to Mercer under Utah Code section 78B-5-825.

[¶3] We reverse. Mercer's disclosures at least arguably sustain a presumption of harm to InnoSys--a presumption that stands un-rebutted on the summary judgment record before us on appeal. Genuine issues of material fact regarding the risk of future disclosures also preclude summary judgment on InnoSys's claims. We accordingly reverse the decisions before us on appeal, including the decision entering rule 11 sanctions and awarding attorney fees to Mercer.

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I

[¶4] In January of 2008, immediately following Amanda Mercer's graduation from the University of Utah, InnoSys hired her as an engineer. Per its standard practice, InnoSys had Mercer sign a non-disclosure agreement (NDA). By signing, Mercer promised not to " copy, transmit, reproduce, summarize, quote or make any commercial or other use of any Protected Information, except for the benefit of [InnoSys]." She also agreed, upon termination, to " return to [InnoSys] all items and material in [Mercer's] possession or control which contain any Protected Information." And she acknowledged that " it may be impossible to measure in money the damage to [InnoSys] resulting from [a] breach [of the NDA]," and thus agreed that " in the event of any such violation or threatened violation, [InnoSys] shall be entitled to an injunction . . . to minimize or prevent damage to [InnoSys]." 1

[¶5] In time InnoSys became dissatisfied with Mercer's job performance. It accordingly fired her. Mercer later filed a claim for unemployment benefits with the Department of Workforce Services. That claim was initially denied by DWS. When Mercer appealed, she submitted a number of protected documents--protected emails and a confidential business plan--into the administrative record.

[¶6] InnoSys was displeased. At a subsequent hearing, it asserted that Mercer's possession and disclosure of the emails and business plan constituted a breach of the non-disclosure agreement and threatened an " injur[y] [to] the company." In light of this concern, InnoSys's counsel pressed Mercer for details as to when and how she gained access to the protected material. In response, Mercer insisted that she " [had] permission from the IT department" to forward confidential InnoSys emails to a personal Gmail account. And, when asked why she didn't " leave" the confidential business plan with InnoSys at the time of her termination, Mercer asserted that she " didn't have it with [her]" at the time, indicating that she left it " [a]t home" because she " was asked to review it" previously and had been working on it at home over the weekend before she was fired.

[¶7] The day after the hearing, Mercer--on the advice and in the presence of her sister and then-attorney--deleted all " emails" and " files" containing information about InnoSys. She then sent InnoSys a fax informing it of her actions. According to an affidavit from InnoSys, InnoSys's counsel made the decision to sue Mercer that same day and began drafting the complaint just three days later. A little less than two weeks after receiving Mercer's fax, InnoSys sent Mercer a demand letter informing her that, in InnoSys's view, she had spoliated evidence and should recover and return all protected information in her possession.

[¶8] InnoSys then filed this suit. Its complaint asserted claims for breach of contract, misappropriation of trade secrets under the Uniform Trade Secrets Act (UTSA), and breach of fiduciary duty. Mercer subsequently filed a motion to dismiss (later converted to a motion for summary judgment), asserting that InnoSys's claims failed in light of its failure to establish any actual or threatened harm.

[¶9] The district court granted Mercer's summary judgment motion in full. It also entered rule 11 sanctions against Innosys and awarded Mercer attorney fees. But the path to those decisions was a bit convoluted--involving a " conditional" ruling from the district court, a first round of limited discovery by the parties, a first motion to reconsider, a rule 11 hearing, two more motions to reconsider, three reassignments of the case (from the original judge to a second judge, back to the original judge, and then to a third judge), a second round of limited discovery, and a motion for attorney fees. We recount the relevant details of that procedural history below.

[¶10] During the first round of discovery, Mercer changed her story regarding the use of her Gmail account and the timing of her acquisition of the confidential business plan. InnoSys's IT chief, Christopher Strong, submitted

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a declaration in which he stated he " did not instruct Ms. Mercer to use Gmail" and never " help[ed] her set up Gmail in any way." He reiterated this point in his deposition, stating that he could not recall ever having instructed Mercer on how she could forward her emails to her Gmail account. In response to a request for admission, Mercer then admitted " Chris Strong did not give permission to transfer InnoSys e-mail to her g-mail account," and that no particular person " gave her " permission'" to forward her emails. She maintained however, that Strong " failed to tell her not to transfer emails when she told him her intention and he even went so far as to provide direction as to how she could establish the connection."

[¶11] As to the business plan, Mercer testified in her deposition that she had received an email asking her to review the plan the day before her termination. But she said she was unable to access it via InnoSys's secure remote network. Thus, Mercer also changed her story regarding the business plan. She admitted that she did not have the business plan in her possession at home the day before she was fired, but instead copied it on the day of her termination. And when pressed on why her story had changed, Mercer responded that she felt InnoSys was " pressuring [her]" at the earlier DWS hearing.

[¶12] This discovery was followed by additional briefing and a hearing in the district court. At the hearing, the court " conditionally" dismissed InnoSys's UTSA, breach of contract, and breach of fiduciary duty claims. The dismissal was with prejudice, but " condition[ed]" on the outcome of further forensic discovery.2 The court also expressed its concerns that InnoSys had yet to produce a copy of the NDA signed by Mercer.

[¶13] InnoSys then proceeded with a preliminary forensic analysis of Mercer's email accounts and her thumb drive. Its expert concluded that Mercer's deletion of the " sent" and " trash" folders in her Gmail account prevented anyone from determining " what particular emails she copied from her InnoSys account to her Gmail accounts and when," " what InnoSys related documents or emails were sent from this Gmail account to other email accounts or to third parties and when," and which " sent or received items were deleted" and when they were deleted. The expert also concluded that at some point prior to April 21, 2010, Mercer performed a data wipe on the thumb drive. According to the expert, this deleted all data and made it " impossible to determine from the drive itself when the data wipe occurred." Finally, the expert concluded that someone had reformatted the thumb drive, that this was a " destructive act," and that it had occurred either on or prior to April 21, 2010.

[¶14] The parties then returned to the district court on two motions by InnoSys--one to reconsider, and another seeking spoliation sanctions against Mercer. The district court rejected the spoliation claim and confirmed the dismissal of InnoSys's claims. First, the district court concluded that InnoSys's claims all hinged on the existence of an actual NDA signed by Mercer, which InnoSys had not yet located and thus had not produced. And, in response to InnoSys's proposal to submit a copy of a sample agreement evidencing the NDA Mercer would have signed, the court suggested that such a...

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