In a recent case, the U.S. District Court for the Eastern District of Virginia sided with the employer seeking injunctive relief after employees acquired confidential information and disclosed that information to a competitor, causing irreparable harm to the employer. This case should serve as a warning to employees, as well as guidance for employers who may face similar situations with employees leaving to work for competitors.
Capital One Fin. Corp. v. Sykes
In Capital One Fin. Corp. v. Sykes, Brian Sykes, Jonathan Wood, and Timothy Smits (“Defendants”) worked for Capital One Financial Corporation (“Capital One”). In 2020, Defendants left Capital One and began working for ORIX, a competitor in the commercial real estate loan industry. Before leaving Capital One and while negotiating employment with ORIX, Defendants sent confidential information to their personal emails from their work emails, including quote narratives, loan information, and customer lists, and disclosed this information to ORIX.
Capital One sought a preliminary injunction alleging breach of contract when Defendants breached the confidentiality, work product, and non-solicitation clauses in their employment agreements by taking confidential information and misappropriating Capital One’s trade secrets.
To be entitled to injunctive relief, a party must establish that (1) he is likely to succeed on the merits, (2) that he is likely to suffer irreparable harm without preliminary relief, (3) that the balance of the equities tips in his favor, and (4) that an injunction is in the public interest.
Additionally, under Virginia law, to establish a claim for breach of contract, a plaintiff must show (1) a legally enforceable obligation of a defendant to a plaintiff, (2) the defendant’s violation or breach of the obligation, and (3) an injury or harm caused by the defendant’s breach.
Here, defendants don’t dispute that they took confidential information in violation of the agreements they signed. At issue is whether or not an injury or harm was caused by the defendants’ breach.
Defendants argued they did not divert loans from Capital One to ORIX, but rather the loans were lost in the marketplace and handled in ways that are standard in the industry. However, the court determined that Capital One did suffer damages as a result of Defendants’ breach. While still employed with Capital One, Sykes assisted ORIX in closing loans for a business and did not present those loan opportunities to Capital One. Capital One also provided a list of six loans created by ORIX that Defendants worked on while employed at Capital One and then diverted to ORIX. The court found that all of these diverted loans harmed Capital One’s business and resulted in damages.
The court also found that Defendants’ breach harmed Capital One, because Defendants disclosed confidential information to ORIX about how Capital One structures its bids, meaning Capital One must compete with ORIX for deals when ORIX has access to its pre-deal information, giving ORIX a competitive advantage in future loans.
The court next determined that Capital One was likely to face irreparable harm without injunctive relief. The court noted that when the failure to grant injunctive relief “creates the possibility of permanent loss of customers to a competitor or the loss of goodwill, the irreparable injury prong is satisfied.” The court found that Capital One’s potential loss of business is actual and imminent and monetary damages would be difficult to ascertain. Since Defendants diverted deals to ORIX and ORIX continues to have access to Capital One’s confidential information, which may continue to be used when Defendants or ORIX compete for Capital One’s business, the threat of future harm is also imminent.
Since the court also concluded that the balance of the equities tipped in Capital One’s favor and that public interest favors the protection of confidential business information and the enforcement of valid contracts, the court ultimately granted Capital One’s request for a preliminary injunction, prohibiting Defendants for nine months from soliciting business from Capital One’s client list and disclosing Capital One’s confidential information to any third party.
What Does Capital One Fin. Corp. v. Sykes Mean For Employers?
Not all information kept by a business constitutes confidential information. The court will decide what specific information is considered confidential on a case-by-case basis. The Defendants here didn’t dispute that the information they took and disclosed qualified as confidential, so the court didn’t include an in-depth discussion on this topic. However, the court here did discuss when disclosure of confidential information results in harm to the employer. The court found that the disclosure of confidential information to a competitor created an unfair advantage to the competitor when competing with Capital One for future business. Additionally, the court determined that Defendants here worked directly to divert business from Capital One to OPIX, which resulted in the loss of customers and goodwill of the business.
The court also found that monetary damages were not sufficient here, and ordered injunctive relief, prohibiting Defendants from certain conduct. The court will only grant injunctive relief if monetary damages are insufficient or difficult to ascertain and that decision is also made on a case-by-case basis. The court focused on the fact that Defendants already assisted in diverting business from Capital One, which could result in the permanent loss of customers and goodwill. Additionally, because ORIX’s access to Capital One’s confidential information put them at a competitive advantage in bids for future business, the threat of future harm was imminent. This potential loss of business would be hard to calculate monetary damages for, which resulted in the court determining injunctive relief was appropriate. For employers facing a similar loss of business or goodwill, this case may be an indication of the likelihood of a court granting injunctive relief to prohibit similar conduct from past employees.
If you need more guidance or information, contact the employment law experts at General Counsel, PC today at 202-360-4230. Attorneys at General Counsel, PC are specialized in labor and employment law and have experience working with business owners and individuals across Virginia and the DC Metro area, including Fairfax County, Arlington, Loudoun County, and Prince William.