Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 12

FACTS Janet Murley was the vice president of marketing at Hallmark Cards, Inc., until Hallmark eliminated her position as part of a corporate restructuring. As a vice president, Murley had access to Hallmark's confidential information, including its business plans, market research, and financial statements. Just before Murley left Hallmark, both parties entered into a separation agreement. Murley agreed not to work in the greeting card or gift industry for a period of eighteen months and not to disclose any confidential information or retain any business records or documents relating to Hallmark. In exchange, Hallmark paid Murley a $735,000 severance fee, plus other benefits.
After the expiration of her noncompete agreement, Murley accepted a consulting position with Recycled Paper Greetings (RPG). She admitted that she had disclosed confidential Hallmark information to RPG. Hallmark filed a suit in a federal district court against Murley, alleging breach of contract. A jury returned a verdict in Hallmark's favor and awarded $860,000 in compensatory damages (the $735,000 severance payment plus $125,000 of Murley's earnings from RGP). Murley appealed.
ISSUE Could Hallmark (the nonbreaching party) obtain compensatory damages in an amount that was more than what it had originally lost ($735,000) as a result of the breach?
DECISION No. The U.S. Court of Appeals for the Eighth District affirmed the judgment in Hallmark's favor but remanded the case to the lower court to reduce the award of damages. Hallmark was entitled to the $735,000 severance fee it had paid Murley, but not to the $125,000 she had earned from RPG.
REASON The federal appellate court noted that there was ample evidence that Murley had retained and disclosed Hallmark's confidential materials to RPG, a competitor, in violation of the "terms and primary purpose" of the noncompete agreement. "A plaintiff may recover the benefit of his or her bargain as well as damages naturally and proximately caused by the breach and damages that could have been reasonably contemplated by the defendant at the time of the agreement." The court reasoned that by awarding Hallmark more than its $735,000 severance payment, the jury award placed Hallmark in a better position than it would have found itself had Murley not breached the noncompete agreement. The jury's award of the $125,000 payment by RPG was, therefore, improper.
FOR CRITICAL ANALYSIS-Legal Environment Consideration What are compensatory damages? What is the standard measure of compensatory damages?