Five salespeople sued for theft of trade secrets are getting a full taste of what it means when a judge finds a party has committed "fraud upon the court."
Superior Court Judge Bruce R. Henry has ordered the defendants in Pacific Packaging Products, Inc. v. Barenboim, et al. to pay the plaintiff $916,364 in attorneys' fees, $125,595 for expenses incurred for the forensic examinations of the defendants' computers and other electronic devices, and $31,834 for other litigation costs.
"The courts and the parties need to be able to rely on witnesses' testimony and their conduct and that people will play by the rules so that there can be a fair result," Gottfried says. "Here, [Pacific Packaging] was really denied the opportunity to have its preliminary injunction request fairly resolved because the judge who decided that motion was not aware of the true facts."
Defendants James Barenboim, Andrew Slater, Steven Slater and David Guild worked in sales for plaintiff Pacific Packaging Products. In October 2009, Barenboim, Guild and the two Slaters left to form a competing company, defendant Packaging Partners. Defendant Sandra Zeraschi, another sales employee at Pacific Packaging, subsequently resigned her sales position and went to work for Packaging Partners.
In November 2009, the plaintiff sued the defendants for misappropriation of trade secrets and violation of Chapter 93A, alleging the individual defendants had taken proprietary customer information with them on their laptops when they left for the new venture.
Superior Court Judge Garry V. Inge granted the plaintiff's motion for expedited discovery and ordered the preservation and production of all documents and electronically stored data relating to the plaintiff's claims.
After a hearing that showed the defendants had misused Pacific Packaging information in securing business from a certain customer, Judge Thomas P. Billings granted a preliminary injunction barring the defendants from selling products to that customer for a period of one year.
Zeraschi later quit Packaging Partners and made startling claims of misconduct on the part of the other defendants in the case.
In game-changing testimony, Zeraschi asserted that the other defendants had not complied with discovery orders by turning over all relevant information. Zeraschi also testified that the defendants had been selling products in violation of Billings' injunction.
Zeraschi's revelations prompted the plaintiff to move for a default judgment on the basis that the defendants had committed fraud on the court by falsely testifying that they had turned over all proprietary materials of the plaintiff in their possession, and that they also had spoliated evidence and violated the preliminary injunction.
For Gottfried, it's the first time in 34 years of practice that he's had to litigate a fraud upon the court claim. He says it was fortunate for his client that Zeraschi came forward and revealed the fraud.
"It's very hard to catch and prove when someone commits fraud on the court," Gottfried says. "The cases say that one of the reasons they need to be sanctioned severely when it is caught is that you need the deterrent effect."
In January 2014, Henry found that the defendants' misconduct warranted a default judgment with respect to claims relating to proprietary information used to obtain business in violation of the preliminary injunction.
Henry left the determination of the amount of the sanction for another day. That day arrived last month with his award of attorneys' fees and costs.
But Henry's recent order doesn't end the defendants' pain. Gottfried points out that damages on the default judgment will be decided in a trial scheduled for January.
Newton attorney Seth Salinger represents the defendants. Salinger, who was not the attorney of record during the time related to the alleged fraud on the court, declines to comment other than to say that his clients are considering all of their options.
Michael R. Gottfried is the managing partner of Duane Morris' Boston office and a member of the firm's national governing Partners Board. He regularly tries trade secret disputes, unfair and deceptive trade practice cases brought under M. G. L. c. 93A, patent, trademark and copyright infringement matters and licensing disputes.
Reprinted with permission of Massachusetts Lawyers Weekly.