In an August 8 filing in Federal Court in Texas, electric vehicle manufacturer Karma Automotive ("Karma") sued several of its ex-executives, claiming trade secret theft, breach of the noncompete provisions of their respective employment agreements, as well as breach of fiduciary duties.

More particularly, Karma alleges that instead of pursuing the corporate directive to come up with a viable proposal whereby they could work in tandem with the DeLorean Motor Corporation to jointly develop an electric vehicle, these executives "tanked" the proposal, left Karma one after the other, taking Karma's proprietary and trade secret information with them, and then used it to form a competing entity that ulitmately secured the joint venture bid with DeLorean, in violation of the restrictive covenants contained in their employment agreements with Karma, their fiduciary responsibilities to Karma, and in violation of both the Federal Defend Trade Secrets Act, as well as Texas's own trade secrets statute.

What Kind of Financial Exposure These Former Karma Executives Face if They Lose

Admittedly, from my review of the 55-page complaint, nothing seems particularly novel, but it does serve a valuable purpose in reminding both former employers and employees as to what the potential liability and financial exposure in these kinds of claims, most prominent of which are the following:

  • Damages for Breach of Fiduciary Duty. Granted, I have no idea how much money these former executives were earning at Karma (as it isn't set forth in the compliant that was filed). But presumably, they were making good money. Thus, if they are ultimately held liable for acting against Karma's interests while still employed by (and still collecting a paycheck from) Karma, they potentially stand to have the salary they were paid during the period of disloyalty disgorged.
  • Damages for Breach of the Restrictive Covenant. According to the complaint, each of these former executives' restrictive covenants contained a provision that allowed Karma to recoup their reasonable attorneys' fees incurred in seeking to enforce the terms of the agreement. That provision alone - even if the compensatory damages end up being relatively minimal - could prove susbtantial.
  • Damages for Violations of the Defend Trade Secrets ActOne of the most significant provisions of this statute is that beyond recovering their reasonable attorneys' fees incurred in litigating this claim, a prevailing party can also recover "exemplary" or double, damages on these claims if the misappropriation was found to be willful, which, at the risk of stating the obvious, can, in some cases, be rather large. (That said, it is worth noting that Defend Trade Secret Act cases pose as somewhat of a double-sword, because if the defendant prevails on these claims, there are instances where they can recover their own attorneys' fees on these claims as well, see, e.g., "Why Degree of Intent Matters by Trade Secret Theft").


Jonathan Cooper
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Non-Compete, Trade Secret, Unfair Competition and School Negligence Lawyer