Eighth Circuit upholds refund of severance pay

Hallmark Cards, Inc. prevailed in a $735,000 action brought against a former employee for breaching a confidentiality and separation agreement. Defendant Janet Murley was downsized from Hallmark in 2002 as a result of corporate restructuring. From 1998 to 2002, Murley served as Hallmark's group vice-president of marketing. In her capacity, Murley was responsible for product and business development, advertising, and research, and had access to confidential information including Hallmark's business plans, market research, and financial information. Hallmark and Murley entered into a negotiated separation agreement whereby Murley agreed not to work in the greeting card or gift industry for 18 months, solicit Hallmark employees, disclose or use any proprietary or confidential information, or retain any business records or documents relating to Hallmark. Murley also agreed to release Hallmark from any claims arising from her termination. In exchange, Hallmark offered Murley a $735,000 severance payment, 18 months of paid COBRA benefits, executive outplacement services, and paid tax preparation services for two years. After the expiration of the non-compete agreement, Murley became a consultant for Recycled Paper Greetings ('RPG') for $125,000. In 2009, American Greetings purchased RPG. During American Greetings acquisition due diligence, it contacted Hallmark to review RPG records to ensure none of Hallmark's confidential information was in RPG's possession. It was discovered Murley gave a number of Hallmark documents and other confidential information to RPG, including Hallmark's business model, consumer buying process, and market research. Hallmark filed suit against Murley alleging breach of contract, misappropriation of trade secrets, conversion of Hallmark's confidential information, and unjust enrichment. During the course of the litigation, Murley admitted she had retained and disclosed Hallmark's confidential information to RPG. Additionally, Hallmark's computer expert testified that Murley had deleted several documents, including Hallmark files, from her computer two days before a forensic computer expert made a copy of her hard drive. Based on this destruction, Hallmark sought an adverse inference instruction to the jury allowing the jurors to infer that the contents of the destroyed documents would have been detrimental to Murley. The jury ruled in favor of Hallmark awarding a full refund of the $735,000 severance pay plus the $125,000 from her assignment with RPG. Murley appealed the adverse inference instruction given to the jury as improper and that the total award of $860,000 was excessive. The Eighth Circuit upheld the return of the entire severance pay of $735,000 ruling the award not to be excessive or unwarranted based on the evidence in light of Murley's clear violation of the terms of her agreement with Hallmark. However, the Court declined to uphold the award of the $125,000 reasoning that this would put Hallmark in a better position than it would have been before Murley's breach. This case highlights the importance of monitoring and enforcing severance agreements and taking the necessary steps to protect a company's intellectual property. If you have questions about severance agreement, protecting intellectual property, or other employment matters, please contact Janet Phipps Burkhead at 515-246-4531.