New England Biz Law Update
A bank manager’s unauthorized review and use of privileged emails detailing his former employer’s litigation strategy warranted the dismissal of his lawsuit over breach of his employment contract, a U.S. District Court judge has ruled.
The plaintiff, John C. Ponte, argued that dismissal was not justified because he acquired the privileged communications in good faith and because the employer, Sage Bank, could not demonstrate lasting prejudice from the disclosure.
But Chief Judge William E. Smith observed that while the circumstances surrounding how the plaintiff acquired the privileged information were “murky,” the employee’s misconduct after receiving the information was “clear and damning.”
Smith found that the extreme sanction of dismissal was in order in light of evidence that the plaintiff clearly understood the privileged nature of the emails, read the materials after being advised by his attorney not to do so, and attempted to use the documents against the employer in an attempt to leverage a more favorable settlement.
The judge concluded that the plaintiff’s conduct “was in deliberate disregard of his attorney’s admonition, and his willful invasion of Sage’s privileged information was flagrantly improper and constitutes extreme misconduct.”
The 17-page decision is Ponte v. Sage Bank, Lawyers Weekly No. 52-059-15. The full text of the ruling can be found here.
Harsh result
The plaintiff was represented by Providence attorney Christopher M. Mulhearn.
Mulhearn said his client was disappointed that the underlying merits of his claim for breach of his employment contract would not be reached.
“We don’t believe that [Ponte] did anything improper,” Mulhearn said, adding that his client also was disappointed that more weight was not given to the fact that he acquired the privileged material innocently.
“The information was provided by an employee of the bank,” Mulhearn said. “At no point did Mr. Ponte ever request, solicit or otherwise induce the release of this information. That was an important mitigating factor.”
Sage Bank was represented by Charles D. Blackman of Lederberg & Blackman in Providence. Blackman did not respond to a request for comment prior to deadline.
Providence attorney Sonja L. Deyoe agreed that dismissal was the appropriate remedy in the case, if not a harsh result.
“Given the plaintiff failed to take the steps necessary to purge himself of the information that he got by accident, I do believe that [dismissal] was warranted, actually,” she said. “I was really disturbed by the fact that the client himself engaged in behavior which made the court question whether he had destroyed the emails and gotten rid of the information after the court directed him to.”
Deyoe said it is not uncommon to get “lower level” privileged material inadvertently turned over in the course of discovery, but that attorneys typically do a good job policing themselves.
“I’ve had instances where the other side’s emails were turned over to me,” Deyoe said. “You basically pick up the phone, call the other side, and ask them what they want you to do with it. To turn around and use it against them when it was inadvertently provided to you is certainly not the way we do things around here.”
Employment dispute
Sage Bank, formerly known as Lowell Cooperative Bank, is a Massachusetts financial institution. In 2011, Sage hired Ponte as manager of a new branch in Warwick.
The parties’ relationship was governed by an employment contract that called for the plaintiff to receive 100 percent of “monthly branch profits” in addition to his base salary. The contract specified that branch profits were to be calculated in accordance with a formula based on income from loans minus branch expenses.
After the plaintiff left Sage in September 2013, he sued in Kent Superior Court, claiming the bank failed to pay him the compensation he was due under the terms of his employment contract. Sage removed the case to federal court.
According to court records, during the course of the litigation Mulhearn sent counsel for Sage an email in which Mulhearn warned: “[I]f I were you, I would be very careful what you ask for. Please see attached.” The attached document turned out to be an email from Sage’s counsel to Sage executives assessing the strength of the plaintiff’s case.
Alerted to the fact that the plaintiff appeared to be in possession of its privileged information, Sage quickly responded by filing a motion for injunctive relief. Smith granted the motion and enjoined the plaintiff and his agents from reviewing, using or disclosing any communications between Sage and its counsel. The judge also ordered the plaintiff to return the information to Sage and destroy all electronic and hard copies of the information in his possession.
In a subsequent hearing on the bank’s motion for sanctions, it came to light that the bank’s former IT director had placed the privileged emails along with other company information on ShareFile, a service that provides an off-site repository for the storage of electronic files. The IT director was a friend of the plaintiff’s cousin and allowed the cousin to access ShareFile from his desktop. The plaintiff’s cousin opened the files containing the privileged information, printed them, and gave hard copies to the plaintiff.
The plaintiff testified that, a few days later, he advised Mulhearn that he had the emails in his possession. According to court records, the plaintiff further testified that though Mulhearn advised him not to do anything with the privileged information, he disregarded that advice and read the material.
The parties disputed the motivations behind the IT director’s actions. The plaintiff maintained that he obtained the ShareFile material “gratuitously” as the result of an internal power struggle within the bank. According to the plaintiff, the IT director acted at the behest of at least one bank executive who was using back channel communications in an attempt to enlist the plaintiff’s assistance.
The bank denied that any Sage executive ever authorized the IT director to grant the plaintiff or his agents access to the ShareFile material.
Extreme sanction
In addressing the bank’s motion for sanctions, Smith found that the circumstances surrounding, and motivations behind, the IT director’s actions were largely irrelevant and that the plaintiff’s actions after receiving the emails were “determinative.”
The judge noted that the plaintiff testified he had extensive experience dealing with attorneys, understood the attorney-client privilege, and understood the privileged nature of the material at issue in the case.
“Ponte also knew that privileged documents generally cannot be obtained by the adverse party through discovery,” Smith wrote. “And yet, notwithstanding this extensive knowledge, Ponte decided to read and use the privileged information.”
The judge characterized Mulhearn’s threatening email to Sage’s counsel as “equally brazen.”
According to Smith, the plaintiff hurt his own case by engaging in efforts to “cover his tracks” concerning his use of the disputed emails. In that regard, the judge noted that the plaintiff had deleted emails between himself and the IT director that Sage had sought in discovery.
Also weighing against the plaintiff was the fact that he had not fully complied with the court’s order for the return of the privileged information, Smith found.
“This Court ordered Ponte, ‘and any and all agents of Ponte,’ to return all of the information that Ponte received from [the IT director] after Ponte left Sage,” Smith wrote. “However, Ponte admitted that he did not return all of the information to Sage, and that some of it remained in [his cousin’s] possession.”
Moreover, Smith found that the plaintiff testified “untruthfully” at the hearing on sanctions.
“He routinely gave evasive answers to questions from both Sage’s counsel and this Court,” Smith wrote. “He testified that the truth can change over time. His testimony was riddled with inconsistencies concerning a host of subjects.”
In deciding that dismissal was the appropriate sanction for the plaintiff’s unauthorized review of privileged information, Smith also found that the defendant was plainly prejudiced by the disclosure of its communications with counsel.
“Ponte testified that he learned new information through his review of the privileged information, and he planned on amending his complaint to make use of this information,” Smith said. “Additionally, emboldened by this newfound intel, Ponte dramatically increased his settlement demand.”
While acknowledging that dismissal is “strong medicine,” Smith concluded it was the appropriate sanction in the plaintiff’s case.
“After full consideration of the evidence presented, this Court deems this case to be the rare one involving the requisite level of misconduct to warrant dismissal as a sanction,” the judge wrote.
CASE: Ponte v. Sage Bank, Lawyers Weekly No. 52-059-15
COURT: U.S. District Court
ISSUE: Did a bank manager’s unauthorized review and use of privileged emails detailing his former employer’s litigation strategy amount to misconduct warranting the dismissal of his lawsuit for breach of his employment contract?
DECISION: Yes
