Whistleblower Prevails Against News

By: Philip Hilder [1]

Khoa Tran [2]

In News America Marketing In-Store, LLC v. Emmel, No. 09-11858, 2011 WL 2222040 (11th Cir. June 8, 2011), the 11th Circuit Court of Appeals held that Firm client Robert Emmel did not breach his confidentiality agreement with News America Marketing when he disclosed confidential information to various government agencies prior to the signing of a confidentiality agreement with News America.

News America is the multi-billion newspaper-insert subsidiary of News Corporation. Robert Emmel had been working as an account manager for News America since 1999 where he was privy to a wide variety of confidential and proprietary information. Emmel's relationship with News America soured in late 2005 when Emmel became convinced that News America was engaged in widespread illegal activity against its customers, competitors, and shareholders. This relationship further deteriorated as Emmel realized that management intended to do nothing about these illegal activities. Because of the company's inaction, Emmel began reporting News America's confidential information to the SEC, the New York Attorney General, two U.S. Senators, and two Senate committees.

The growing discord between Emmel and News America led to Emmel's termination on November 30, 2006. On December 21, 2006, Emmel signed a confidentiality agreement with News America, agreeing that he "will not disparage, denigrate or defame the company," and that he "will maintain complete confidence." The day before signing the agreement, Emmel sent one final packet of News America's internal documents and confidential information to a staffer of the U.S. Senate's Finance Committee. Upon discovering that Emmel had disclosed confidential information, News America pursued legal action against Emmel for injunctive relief and monetary damages on numerous legal grounds. The district court granted Emmel summary judgment on all claims except for breach of contract, in which it found in favor of News America. The court ordered a permanent injunction on Emmel and ordered a trial to determine damages. To protect himself from the $1.5 million in News America attorney fees, Emmel filed for bankruptcy.

Upon review of the case, the Circuit Court overruled the district court's finding that Emmel breached his confidentiality contract. The Circuit Court construed "ambiguities" of language against News America and held that contracts written in the simple future tense cannot be applied retroactively without specific terms that say so. Furthermore, the court held that "disclosure" of confidential information occurs when the information is mailed, and, absent an omission or inaction clause, a person cannot be expected to attempt to recover information already sent or stop the receipt of the information. Therefore, the court held that Emmel did not breach his December 21, 2006, confidentiality agreement by mailing out confidential information on December 20, 2006. The Circuit did not address the public policy aspect of providing the information to Government authorities.

The issues that the 11th Circuit determined seem to be basic issues of contract law, but they have had resounding impact. Three suits against News America based on Emmel's testimony have already settled for a total of $654.5 million. Therefore, if future employers want to restrain a departing or departed employee with a confidentiality agreement, they must make sure that there are clauses that apply retroactively. As the Circuit court suggested, these contracts could be phrased as "the person agrees he has not disparaged the company," and "that he has maintained complete confidence." Without the past tense however, there will surely be temporal gaps where the contract does not apply.

[1] Philip H. Hilder is a former federal prosecutor and founder of Hilder & Associates, P.C., located in Houston, Texas. Mr. Hilder focuses on white-collar criminal defense matters. He is co-founder of the ABA National Institute on Securities Fraud. He had been the Attorney-in-Charge of the Organized Crime Strike Force, Houston Field Office, and was an assistant U.S. Attorney for the Southern District of Texas. Hilder & Associates, P.C., 819 Lovett Blvd., Houston, TX 77006-3905; (713) 655-9111; www.hilderlaw.com.

[1] Khoa Tran is on Law Review at University of California, Berkeley School of Law. He obtained his undergraduate from Harvard University. Mr. Tran interned at Hilder & Associates, P.C., summer of 2011.