Defense Contractor Sues Former Employee In Virginia Court For Taking Trade Secrets To Competitor And Helping Competitor Secure Lucrative Government Contract
A nuclear engineer’s purported theft of a defense contractor’s trade secrets is at the heart of a lawsuit that is currently pending in Lynchburg (Virginia) Circuit Court. Babcock & Wilcox, Co., a government contracting company that provides nuclear components and services, has filed a $5 million action against former employee Daniel Glenn alleging that he breached a company confidentiality agreement and violated the Virginia Trade Secrets Act.
In its lawsuit, B&W claims that Glenn, who was terminated from B&W and went to work for one of its chief competitors, retained three USB storage devices containing B&W’s secret formulas, 1,400 pages of confidential contractor files, financial data, and other proprietary documents. B&W claims that Glenn used its confidential documents and information to help his new employer win a lucrative multi-billion dollar government contract.
Through his lawyers, Glenn first denied having any of B&W’s confidential documents or information in his possession; however, he later found the three USB storage devices containing B&W’s trade secrets in his home. Upon receiving the USB storage devices from Glenn’s lawyers, B&W conducted a forensic review of Glenn’s home laptop computers, which revealed that each of the newly discovered storage devices had been connected to one of Glenn’s laptops shortly after he was terminated by B&W. Thereafter, Glenn confessed that he knew he had the thumb drives in his home after his firing, but that he purposefully represented to his lawyers and to B&W that he did not. Glenn maintains that he did not turn any of B&W’s trade secrets over to his new employer or to anyone else.
In January, the Court directed Glenn to return any other B&W property that he may have in his possession and to produce monthly certifications from himself and his new employer that they are not using B&W’s trade secrets. B&W’s case against Glenn remains ongoing in Lynchburg Circuit Court and B&W is pursuing an appeal with the U.S. Government Accountability Office on the award of the contract to its competitor.
After a less-than-satisfactory boiler improvement job done by a subcontractor, a Henrico County Circuit Court judge allowed the prime contractor to pierce the corporate veil and reach the personal assets of the subcontractor’s owner for damages related to this job. In this case, the Court found evidence that the sole shareholder of the subcontractor failed to uphold corporate formalities such as annual meetings and the maintenance of separate financial books for the company. Moreover, the subcontractor arranged for the corporation to enter into a contract while grossly undercapitalized. The finding resulted in a judgment worth $137,454 against the shareholder personally.
In Virginia, courts regard veil-piercing as an extraordinary remedy. Generally, each corporation is a separate legal entity with its own debts/liabilities and assets. However, under Virginia law, a court may pierce the corporate veil to find that an individual owner is the alter ego of a corporation where it finds (1) a unity of interest and ownership between the individual and the corporation, and (2) that the individual used the corporation to evade a personal obligation, to perpetrate fraud or a crime, to commit an injustice, or to gain an unfair advantage.
When deciding whether to pierce the corporate veil, courts consider a variety of factors, including the intermingling of assets of the corporation and of the shareholder; the absence or inaccuracy of company records; and significant undercapitalization of the business entity. Virginia businesses must be cognizant of such corporate formalities and protocols in order to protect the personal assets of owners from potential liability.