Guest post by Solomon B. Genet.
It is worth reading Bailey v. St Louis, if for no other reason than it is a good story where the good guys seem to have won, and the bad guys got smacked – and when I say “smacked,” I mean hit with an award of punitive damages.
All of the details (as found by the court) won’t fit in this post, but in summary, a private equity (“PE”) firm met with a profitable medical center (plaintiff), to consider giving the plaintiff loan. The plaintiff provided the PE firm with confidential materials, including a copy of the business plan and financial information, to perform due diligence.
The PE firm did not offer a loan, but instead offered to purchase a controlling interest in the plaintiff, and accompanied that offer with the following threat: “you’re going to accept this offer or we’re going to take your doctors and we’re going to take your company. And we’re going to go up the street, and we’re going to do it ourselves.”
And to the PE firm’s credit (maybe the only thing to its credit), the PE firm did as it promised. The PE firm created dissent among the plaintiff’s employees, using the confidential documents it had received to mislead certain employees as to the plaintiff’s integrity. It hired away two of the plaintiff’s doctors and established a competing facility. It used the plaintiff’s business plan, in a “cut and paste job,” to create its own business plan. A doctor that left the plaintiff to join the PE firm’s competing facility said that one of the a plaintiff’s principals had many aliases, was a wanted felon, and had “possible” sexual offenses, all of which were false. The PE firm even paid certain of the plaintiff’s employees to quit working for the plaintiff. And the plaintiff’s list of patients and leads and accounts payable information were also misappropriated.
The appellate court directed the trial court to award punitive damages, finding that it met the standard of “wanton intentionality, exaggerated recklessness, or such an extreme degree of negligence as to parallel an intentional and reprehensible act.”
For purposes of this post and the focus of this blog, it’s most relevant that the Court’s conclusion flows from the fact that the plaintiff provided the PE firm with a copy of its business plan and certain financial information upon the condition that they would be kept confidential, and that the PE firm disregarded and abused this agreement. The takeaway is simple and straightforward: if you are contemplating a business relationship of any sort and intend to share confidential information, take the relatively minor step of seeing a lawyer to draft a non-disclosure/limited-use agreement that protects your information. You could be thanking yourself later.