By Cheryl Beise, J.D.
An antenna design firm’s monitoring of a former employee’s personal Facebook messenger account for one month after his departure was not related to the firm’s breach of loyalty claim, so the unclean hands doctrine did not apply.
A federal district court did not abuse its discretion in declining to apply unclean hands to deny an antenna design firm’s request for a preliminary injunction to prevent former employees from contacting the firm’s clients and destroying information allegedly taken from the firm, ruled the Third Circuit in an unpublished decision. Even if the firm’s monitoring of a former employee’s Facebook messenger account could be considered “unconscionable,” the district court did not err in finding that the firm’s conduct was not related to the claim upon which equitable relief was sought. In a dissenting opinion, Circuit Judge Thomas Ambro argued that the firm’s conduct was an unlawful intrusion upon the former employee’s privacy. He would remand the case for the district court to consider equitable relief in light of the correct privacy analysis (Scherer Design Group, LLC v. Ahead Engineering LLC, February 25, 2019, Shwartz, P., unpublished).
Plaintiff Scherer Design Group, LLC (”SDG”) is an engineering firm specializing in antenna design. SDG provides consulting services for wireless carriers and other vendors in the telecommunications business. In December 2017, SDG’s director of engineering resigned and formed two competing consulting engineering firms, defendants Ahead Engineering LLC and Far Field Telecom LLC. In January 2018, three other employees left their positions at SDG and joined the former director’s new firms.
Injunction against employees. SDG filed suit in New Jersey state court, asserting claims for breach of the duty of loyalty, tortious interference with prospective business relationships, and misappropriation of trade secrets against the defendants. The defendants removed the case to federal court and the district court determined that SDG was entitled to a preliminary injunction barring the defendants from soliciting SDG’s clients and destroying information taken from SDG. The district court found that SDG established that it was likely to succeed on its claim for breach of the duty of loyalty against the former employees, but it did not establish a likelihood of success on its trade secret misappropriation or tortious interference claims.
The district court rejected the defendants’ argument that SDG’s own unclean hands foreclosed it from seeking equitable relief. According to the defendants, SDG violated their privacy rights by using a password recovery tool to access one of the former employee’s personal accounts. The defendants appealed the district court’s denial of its unclean hands defense.
Unclean hands. SDG did not dispute that its head of information technology reviewed the browser history from the former employee’s old SDG laptop computer and successfully bypassed the log-in requirements for his personal PNC Bank Account, his Dropbox account (associated with his SDG email), and his Facebook Messenger account. For one month, the head of IT and SDG’s founder monitored the former employee’s Facebook Messenger activity, which was both password-protected and end-to-end encrypted. SDG had no computer-use policies disclosing that the company might monitor employee activity on its computers or access personal accounts of employees after they left the company.
A defendant seeking to invoke the unclean hands doctrine must show: (1) the party seeking equitable relief committed an unconscionable act; and (2) the act is related to the claim upon which equitable relief is sought. As to the relation element, the appeals court explained that “the doctrine ‘only applies when there is a direct nexus between the bad conduct and the activities sought to be enjoined.’” Also, a court retains the discretion to grant equitable relief even where the elements of the unclean hands doctrine are met.
Facebook access not related to claim. The Third Circuit found that even if SDG’s monitoring of the former employee’s Facebook account could be considered “unconscionable,” the district court did not err in finding that SDG’s conduct was not related to the claim upon which equitable relief was sought.
The court cited reasons to support this conclusion. First, SDG did not monitor his Facebook account for the purpose of obtaining a right it did not otherwise have. “Defendants owed a duty of loyalty to SDG long before the Facebook monitoring occurred,” the court said. Second, while SDG’s conduct led it to proof of its duty of loyalty claim, this conduct did not give rise to the claim. Third, SDG’s breach of loyalty claim and the defendants’ alleged privacy violations were “governed by distinct bodies of law that provide their own separate remedies for misconduct.”
In sum, the district court did not abuse its discretion declining to apply unclean hands to deny SDG’s request for equitable relief.
Dissenting opinion. In a dissenting opinion, Circuit Judge Thomas L. Ambro agreed with the majority that a preliminary injunction preventing SDG’s former employees from communicating with SDG clients or using SDG documents might be the correct outcome in this case, but he would find that the district court erred in its privacy analysis and would remand for it to reconsider unclean hands with the correct understanding.
According to Judge Ambrose, SDG’s conduct in accessing the former employee’s private accounts was “unlawful and offensive.” The district court cited Stengart v. Loving Care Agency, Inc., 990 A.2d 650 (N.J. 2010), to support its view that SDG’s conduct “may be reasonable and does not necessarily amount to an intrusion upon seclusion.” Stengart held that an employer may not view password-protected attorney-client emails that an employee sent from a company computer and which it subsequently recovered. SDG’s conduct in this case—accessing private password-protected accounts hosted on third-party servers and networks without any authorization—”surely is beyond the scope of permissible conduct that Stengart recognizes,” Judge Ambro said.
Judge Ambro additionally noted that there was no authority suggesting that under New Jersey law “a mere computer-use policy may permit a company to acquire password-protected information not already stored on a company computer.”
Judge Ambrose also opined that SDG violated the former employee’s privacy rights. SDG’s conduct satisfied all three requirements of a claim of tortious intrusion upon seclusion under New Jersey law: (1) intentional conduct that (2) intrudes into a private space and (3) is “highly offensive” to a reasonable person. The head of IT surreptitiously monitored the former employee’s private Facebook messages many times a day for a month. He installed the application “fbunseen,” which permitted SDG to review the former employee’s Facebook Messenger conversations without his knowledge.
SDG also did not dispute that SDG reviewed and downloaded privileged attorney communications from the account. “This monitoring is offensive to anyone’s reasonable expectation of privacy,” Judge Ambro said.
Lastly, in Judge Ambro’s view. The district court’s decision regarding relatedness was not definitive. The district court said only that SDG’s conduct was “arguably not related,” that, “[o]n balance,” unclean hands should not apply to bar a preliminary injunction. Because the district court erred in its privacy analysis, Judge Ambro would not affirm its decision.
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