X Corp. v. Doe

• Citation: 805 F. Supp. 1298
• Decision Date: 25 August 1992
• Docket Number: Civ. No. 92-338-A.
• Parties: X CORP., Plaintiff, v. John DOE, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

805 F. Supp. 1298

X CORP., Plaintiff, v. John DOE, Defendant.

Civ. No. 92-338-A.

United States District Court, E.D. Virginia, Alexandria Division.

August 25, 1992.

COPYRIGHT MATERIAL OMITTED

MEMORANDUM OPINION

ELLIS, District Judge.

Few problems are as vexing as determining what evidence justifies a lawyer's disclosure of a client's confidential information and documents, which the lawyer believes reflect an ongoing or future crime or fraud. This case presents precisely this problem. Plaintiff, X Corp. ("X Corp."),¹ brings this suit, in part, to prevent defendant, John Doe ("Doe"), X Corp.'s former in-house counsel, from disclosing X Corp.'s confidential information and documents retained by Doe following his discharge from X Corp. X Corp. also seeks return of the documents. In support of the relief sought, X Corp. cites the attorney-client privilege, the parties' confidentiality agreement, and the lawyer's general duty to preserve a client's confidences. For his part, Doe claims that the documents in issue disclose ongoing civil and criminal frauds perpetrated by X Corp. against the federal government. As such, according to Doe, the documents fall within the public policy crime-fraud exception to the attorney-client privilege and to any general or contractual duty of confidentiality.

The matter is before the Court on X Corp.'s motion for a preliminary injunction. For the reasons stated here, the motion is granted in part and denied in part.

Facts

X Corp. hired Doe in March 1989 as a member of its in-house legal staff based in Northern California. Formerly an Associate Deputy Attorney General of the United States and Chief of Staff to the Attorney General, Doe was a member of the bar of the state of Pennsylvania. When he was hired, Doe executed an "Employment, Invention and Confidential Information Agreement" (the "Confidentiality Agreement"), in which he expressly agreed (i) to return to X Corp. all records obtained during, or in connection with, his employment and (ii) to preserve X Corp.'s confidential information. Thereafter, in the course of his employment, Doe regularly received confidential information from X Corp. management and its employees in order to provide legal opinions and advice. During approximately two years with X Corp., Doe apparently excelled; his professional performance was regarded as excellent.² Eventually he was promoted to Group Counsel with primary responsibility worldwide for X Corp.'s compliance with numerous government regulations and antitrust laws.

In November 1990, Doe was transferred from X Corp.'s California office to Virginia as X Corp.'s only United States-based lawyer outside California. The parties sharply dispute the reason for the transfer. In X Corp.'s view, the transfer occurred because Doe failed the California bar examination. Doe, on the other hand, asserts that he initiated the transfer to escape California's high cost of living and because he and his wife wanted to live closer to their relatives in Virginia. Doe also contends that X Corp. negotiated with him to retain his services because he was "an important contributor and asset" and because X Corp. wanted to locate a regulatory and antitrust attorney near Washington, D.C. See Affidavit of John Doe at 2.

X Corp. terminated Doe's employment effective February 28, 1992, providing him with thirty-one weeks severance pay. The reason for Doe's discharge is as hotly disputed as the reason for the transfer. X Corp. claims Doe was laid-off as part of a company-wide reduction in force involving over 700 employees. Doe counters, however, that he was unlawfully fired in retaliation for actions X Corp. believed he was taking in furtherance of a possible qui tam suit.³ See 31 U.S.C. § 3730(h). On leaving X Corp.'s employ, Doe took with him copies of certain documents and files, leaving the originals with X Corp. Doe claims these documents reveal that X Corp. is defrauding the federal government, in violation of the False Claims Act.⁴ 31 U.S.C. §§ 3729-3733. Specifically, Doe makes two allegations of fraud relating to X Corp.'s government contracts operations. First, Doe alleges that X Corp. is violating the New Materials Clause of the Federal Acquisitions Regulations, FAR 52.210-5, by commingling new and used equipment in sales to the government that require new equipment. Second, Doe claims that X Corp. is violating the Price Reduction Clause of the Federal Acquisitions Regulations, FAR 52.215-22, by failing to report to the government certain discounts provided to commercial customers through a remanufactured equipment program. The documents submitted in camera are plainly relevant to these allegations. But without explanatory testimony or evidence, their significance in terms of establishing an ongoing fraudulent scheme is not entirely clear.

By letter dated February 28, 1992, Doe, through counsel, asserted a state law wrongful termination claim against X Corp., provided X Corp. with a draft complaint, and offered to discuss the matter prior to filing the complaint in this Court. The draft complaint contained specific references to, as well as excerpts from, X Corp.'s allegedly confidential documents. Thereafter, on March 5, 1992, X Corp. filed this lawsuit on the public record of this Court, but at that time, neither served Doe nor informed him of the suit's existence. X Corp.'s complaint asserts five causes of action: (i) breach of fiduciary duty by allegedly revealing confidences to his own attorney;⁵ (ii) breach of the Confidentiality Agreement; (iii) recovery of the allegedly misappropriated documents and records; (iv) injunctive relief to prevent disclosure of alleged confidential information in his personal claim against X Corp. or for any purpose; and (v) a declaratory judgment that Doe may not disclose the allegedly confidential information. X Corp. claims that filing this action was necessary to prevent disclosure of X Corp.'s confidential information in the event Doe filed his draft complaint on the public record. That circumstance never materialized, as Doe ultimately consented to delay filing his wrongful termination action and then to do so under temporary seal, which he did on April 7, 1992. One week later, X Corp. notified Doe of the existence of this action.

On April 20, 1992, X Corp. moved this Court for a preliminary injunction (i) to maintain Doe's wrongful termination lawsuit, and all pleadings and papers filed therein, under seal until its conclusion;⁶ (ii) to prohibit Doe and his lawyer from making any disclosures of X Corp.'s allegedly privileged and confidential information; and (iii) to compel Doe to return all allegedly misappropriated documents. Following oral argument, the Court took the matter under advisement. Doe, by counsel, agreed to refrain from further disclosures of X Corp.'s claimed confidential information until the Court's ruling.⁷ On May 4, 1992, Doe filed his counterclaim alleging retaliatory discharge pursuant to 31 U.S.C. § 3730(h) (providing a private cause of action for discharge in retaliation for acts believed to be in furtherance of a qui tam suit).

Analysis

It is well-settled that irreparable harm and inadequacy of legal remedies form the basis for injunctive relief in the federal courts. See Sampson v. Murray, 415 U.S. 61, 88, 94 S.Ct. 937, 951, 39 L.Ed.2d 166 (1974). A preliminary injunction is appropriate where

the court is satisfied that there is a probable right and a probable danger, and that the right may be defeated, unless the injunction is issued, and considerable weight is given to the need of protection to the plaintiff as contrasted with the probable injury to the defendant.

Blackwelder Furniture Co. v. Seilig Mfg. Co., Inc., 550 F.2d 189, 193 (4th Cir.1977) (preliminary injunction issued to preserve status quo) (quoting Sinclair Refining Co. v. Midland Oil Co., 55 F.2d 42, 45 (4th Cir.1932)) (emphasis in original). To prevail, the movant must demonstrate that consideration of the following familiar factors justify preliminary injunctive relief:

1. The likelihood of irreparable harm to the movant if the preliminary injunction is denied;

2. The likelihood of irreparable harm to the non-moving party if the preliminary injunction is granted;

3. The likelihood that the movant will succeed on the merits; and

4. The public interest.

See Natural Resources Defense Council, Inc. v. Watkins, 954 F.2d 974 (4th Cir. 1992); Rum Creek Coal Sales, Inc. v. Caperton, 926 F.2d 353 (4th Cir.1991).⁸ In applying these factors, the Fourth Circuit follows the "balance-of-hardships" test. See Natural Resources Defense Council, 954 F.2d at 981; Blackwelder, 550 F.2d at 196. Under this test, the Court must first consider (i) the probable irreparable injury to plaintiff in the absence of preliminary injunctive relief and (ii) the likely harm to defendant with preliminary injunctive relief. See Blackwelder, 550 F.2d at 196. If the balance of these two factors is decidedly in favor of plaintiff, "it is enough that grave or serious questions on the merits are presented; and plaintiff need not show a likelihood of success." Id. at 196. See Natural Resources Defense Council, 954 F.2d at 981 (reflecting a refined Blackwelder formulation requiring that the balance of harms favor the movant "decidedly"). In essence, plaintiff's likelihood of success on the merits, as a factor in the analytical calculus, increases in significance as the probability of irreparable harm to plaintiff diminishes. See Blackwelder, 550 F.2d at 195; Delaware River Port Authority v. Transamerican Trailer Transport, Inc., 501 F.2d 917, 923 (3rd Cir.1974). And in every case, the public interest must be considered. See Blackwelder, 550 F.2d at 196.

This circuit differentiates between requests for preliminary injunctive relief that seek merely to maintain the status quo and requests that seek "mandatory" relief that in some fashion disturbs the status quo, especially where that relief would in...