In Ingram v. Cantwell-Cleary Co., Inc., No. 421, 2023 Md. App. LEXIS 871 (Md. App. Dec. 22, 2023), a lengthy 82-page opinion that was rendered at the end of December, 2023, a Maryland appeals court weighed in on whether an employment agreement that includes a liquidated damages provision for each purported violation of the restrictive covenants contained therein inherently caps that employer from collecting any other damages flowing from the theft. Since this opinion touched on a few different important topics with regard to trade secret misappropriation claims, we will limit our discussion in this particular post to the one, discrete issue of when a liquidated damages provision in an employment contract is in apparent conflict with other damages that may flow from trade secret theft by a former employee - at least according to this Maryland appellate court.
Why, Under Maryland Law, Liquidated Damages Clause Does Not Cap Ex-Employer's Damages for Trade Secret Theft
On this score, the appellate court stated, in pertinent part, as follows:
[T]he record is clear that, at trial, the parties argued over the applicability of the liquidated damages clauses and whether they effectively precluded Cantwell-Cleary from seeking monetary relief under its separate claims for misappropriation of trade secrets. In arguing that Cantwell-Cleary was precluded from seeking monetary damages in excess of $50,000 as provided in the liquidated damages clauses, Appellants elide the exact rulings of the trial court, collapsing all of the separate claims under Cantwell-Cleary’s claims for breach of contract. It seems both parties on appeal fail to understand the discrete nature of the relief awarded by the trial court. As reflected in the record, the trial court awarded only injunctive relief against Appellants under Cantwell-Cleary’s claims for breach of contract—violations of the Non-Compete. The Agreements expressly reserved Cantwell-Cleary’s rights to seek injunctive relief for any breach of the covenants not to compete, and no damages were awarded under those claims.
The court awarded damages against Appellants solely under Cantwell-Cleary’s statutory claims for misappropriation of trade secrets. Considering that those claims arose under MUTSA, as opposed to the Non-Compete agreements, Appellants fail to explain exactly how the liquidated damages clauses even enter the equation. It is of course true that a valid liquidated damages clause normally provides the sole relief for a breach of the agreement, which “may not be altered to correspond to actual damages determined after the fact.” Barrie School v. Patch, 401 Md. 497, 514 (2007) (quoting Bd. Educ. Talbot Cnty. v. Heister, 392 Md. 140, 156 (2006)). Here, the liquidated damages provision specified that Cantwell-Cleary was not precluded from pursuing “other rights it may have against [Appellants] for [] a breach.” Even setting that language aside, Appellants offer no support for their contention that a liquidated damages clause for breach of contract bars monetary relief under an entirely separate statutory cause of action ...
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Because MUTSA explicitly directs that a breach of contract claim—regardless of whether said claim is “based upon misappropriation of a trade secret”—may be brought alongside a statutory claim for misappropriation of trade secrets, it is clear that the existence of an agreement that imposes liquidated damages for a breach of a confidentiality clause or other conduct that is similar to the misappropriation of trade secrets does not necessarily foreclose the availability of monetary relief under MUTSA. CL § 11-1207(b)(1)(i). We observe that claims for misappropriation of trade secrets under MUTSA and breach of contract claims arising out of the breach of a related non-compete or non-disclosure agreement are commonly brought together. See, e.g., Padco Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600 (D. Md. 2002) (breach of contract claim for violation of covenants not to compete and MUTSA claim for misappropriation of trade secrets brought together); NaturaLawn of Am., Inc. v. West Grp., LLC, 484 F. Supp. 2d 392 (D. Md. 2007) (same); Waypoint Mgmt. Consulting, LLC v. Krone, No. ELH-19-2988, 2022 WL 2528465 (D. Md. July 6, 2022) (same); Philips N. Am. LLC v. Hayes, No. ELH-20-1409, 2020 WL 5407796 (D. Md. Sept. 9, 2020) (same); Albert S. Smyth Co. v. Motes, CCB-17-677, 2018 WL 3635024 (D. Md. July 31, 2018) (same); MCS Servs., Inc. v. Jones, No. WMN-10-1042, 2010 WL 3895380 (D. Md. Oct. 1, 2010) (same).
