Do Non-Disclosure Agreements Trump Protected Whistleblower Disclosures? Depends on Verb Tense, Appeals Court Says

By NICK SCHWELLENBACH

On December 21, 2006, Robert Emmel signed a non-disclosure agreement with News America Marketing In-Store, LLC. This LLC is a part of Rupert Murdoch's News Corporation that does in-store marketing, such as "coupon and promotion dispensers, in-store video, at-shelf signage and floor and shopping cart advertising."

Emmel had been terminated by News America the month before in November 2006. Before his termination, Emmel had provided several government entities, including Senator Charles Grassley (R-IA) of the Senate Finance Committee, with confidential documents from News America. (Emmel believed News America had engaged in fraud against its customers, predatory and anti-competitive schemes, and inflated its earnings.)

The non-disclosure agreement Emmel signed on December 21 barred him from disclosing any confidential information—broadly defined—or from disparaging News America. According to an 11^th Circuit Court opinion issued earlier this month (see the embedded opinion below): 

[H]ere’s the kicker: the day before he signed the agreement, Emmel sent out one more batch of News America’s confidential information. On December 20, 2006, he placed in regular mail a package of around 55 pages of News America’s internal documents and confidential information. The package was mailed to Nick Podsiadly, a staffer for the U.S. Senate’s Finance Committee who had been in regular e-mail contact with Emmel and had met with him in Washington the previous month. The timing of this disclosure was obviously no coincidence: Emmel even admitted in his deposition, “[M]y goal was to make sure that information got out before I would be signing an agreement.” 

A district court had earlier ruled against Emmel, holding him in violation of his non-disclosure agreement. The district court wrote, “it is undisputed that the confidential documents had not reached their destination by December 21 and thus could not yet have been viewed by anyone until that point.” Summarizing the district court’s argument, the appeal court opinion further states:

The court found it “significant” that Emmel did nothing to prevent the impending disclosure after he signed the agreement. By not making an attempt to stop Podsiadly and the Senate Finance Committee from viewing the documents, the court reasoned, “[Emmel] clearly breached the nondisparagement provision of the agreement.”

On appeal, the 11^th Circuit reversed. Yet on what basis did the appeal court reverse? On the principle that whistleblowing on activities one believes are illegal should trump non-disclosure agreements? No. It came down to verb tense:

To capture his pre-contract conduct, Emmel reasons, the promises would have needed to be phrased in the present perfect tense—i.e., “Emmel agrees he has not disparaged, denigrated or defamed the company” and that he “has maintained in complete confidence” News America’s confidential information.

We agree. The December 21, 2006 agreement contains no language that indicates the parties intended for it to apply retroactively or that provides assurance about any past events or actions. The specific promises undertaken were couched in language that applies only prospectively. The agreement, therefore, covered only acts occurring after it was executed on December 21.

We also conclude that Emmel’s act of disclosure or disparagement occurred when he mailed the package of materials on December 20, 2006. The record does not establish that a person can claw back a package once it has been mailed, nor is there any evidence that the addressee would have returned the package unopened if only Emmel had asked. In any event, the language of the agreement does not cover acts of omission or inaction, only acts of commission.

According to the Consumer Goods and Retail Industry Litigation Blog:

News America has spent substantial resources trying to prevent Mr. Emmel from sharing his knowledge because it implicated News America in major lawsuits brought by Valassis, Insignia, and Floorgraphics, all of which have settled -- for $500 million, $125 million, and $29.5 million respectively. With the settlement of those cases, the value of Mr. Emmel's testimony has diminished -- though there's a possibility that News America could be the target of related lawsuits, including possible lawsuits by consumer goods manufacturers who may have been overcharged for advertising by News America.

Nick Schwellenbach is POGO's Director of Investigations.

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