The Massachusetts Appeals Court recently reviewed a Chapter 93A Section 11 claim for a second time. Plaintiff Governo Law Firm LLC alleged that former employees secretly copied files while still employed by the firm and later used them to compete unfairly. After the initial trial, the jury found the defendant liable of conversion but determined that the former employees did not violate Chapter 93A Section 11. The Supreme Judicial Court vacated that portion of the judgment and remanded for a new trial on that claim.
After a subsequent bench trial, the trial judge found that defendants did not violate Section 11 because their unfair and deceptive conduct did not harm or injure plaintiff law firm.
On appeal, the court found that the trial court's findings related to a lack of harm or injury was based on clear error. The appeals court reversed the Chapter 93A judgment and remanded for entry of a new judgment in plaintiff's favor and an assessment of damages consistent with the court's opinion.
The bench trial found that after failed sale negotiations at plaintiff law firm, defendants prepared to leave in order to begin their own firm. Prior to departing, the defendants copied electronic files to external drives that they brought with them to their new firm. Once the new firm was established, most clients that the departing attorneys represented decided to transfer their business to the new law firm. The trial court thus concluded that while defendants acted unfairly and deceptively when they secretly copied the electronic materials and took them to the new firm before they had any clients, the firm did not suffer a loss or injury since the defendants only accessed materials that belonged to clients who ultimately transferred their business.
The appeals court was not persuaded by this no-harm, no foul approach. Specifically, defendants took an organizational system they developed while employed at the plaintiff law firm in order to streamline their practice. This database was not the type of material that the Rules of Professional Conduct contemplate would be transferred when a client transfers their business to a new firm. The appeals court determined that the clients who ultimately left plaintiff firm were not entitled to the entire database that was developed to efficiently represent multiple clients defending against similar claims, even if those clients paid for some portion of the time used to create and update the database. While at the new law firm, the defendants did not rebuild the database and re-enter the data record by record from current client files. Instead, they used the copied materials to "find and access discovery materials, investigatory materials, [and] case history summaries." That evidence was adequate to establish unfair and deceptive conduct and that the violation was willful or knowing. The use of the copied materials harmed plaintiff law firm. The appeals court then remanded for an assessment of damages (including attorney's fees) based on a disgorgement of profits theory resulting from unfair competition. The parties may present experts on remand to determine the appropriate amount of damages. This case demonstrates the scope of the "loss of money or property" requirement for Section 11 claims.
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