BFV Perspectives, Noncompete & Trade Secrets, | May 02, 2013

CPA Firm Unsuccessful at Enjoining Former Employee

Drawdy CPA Services, P.C. v. North Ga CPA Services, P.C., — S.E.2d –, 2013 WL 1189274 (Ga. App. March 25, 2013), pitted a CPA firm against its former employee and the new company she formed.

Jamie Pritchett was employed with and worked for Drawdy CPA Services, P.C. and its principal, John T. Drawdy, Jr. (collectively, “Drawdy”).  After Ms. Pritchett left Drawdy and formed North Ga. CPA Services, P.C., Drawdy filed suit against her and her new company.  Drawdy sought injunctive relief to prevent alleged misappropriation of client information and trade secrets.  Drawdy specifically sought to prevent Ms. Pritchett from accessing Drawdy’s client portals and from “siphoning off” Drawdy’s clients.

The factual basis for Drawdy’s request for injunctive relief was two-fold.  Drawdy had developed a “client portal” on its website.  The client portal housed Drawdy’s clients’ tax returns.  When clients sought out Ms. Pritchett after she left Drawdy to prepare their tax returns, many of those clients provided Ms. Pritchett with the password to access their portal at Drawdy so that she could obtain copies of their prior tax returns.  Ms. Pritchett entered Drawdy’s client portals for this purpose and with express permission from the clients.

Ms. Pritchett also sent a direct market mailer to a list of 2500 people who fit a particular demographic profile.  The list was compiled by a third-party company.  Drawdy introduced evidence that one of the clients who received the mailer was a client of Drawdy’s.

The trial court found that this evidence did not support the grant of any injunctive relief in Drawdy’s favor.  Drawdy appealed the trial court’s ruling, enumerating several grounds why Ms. Pritchett should have been enjoined.  First, Drawdy relied on the non-disclosure covenant in Ms. Pritchett’s employment agreement.  Drawdy argued that the company owned the client portals which housed the clients’ tax returns, and that Ms. Pritchett breached the non-disclosure covenant by accessing and using the portals.  The Court of Appeals rejected Drawdy’s argument, however, finding that because Mr. Drawdy testified that he had already shut down the portal system for former clients, there was no need to enter injunctive relief to enjoin Ms. Pritchett from using the company’s client portals.

Drawdy also argued that injunctive relief should have been granted under the Georgia Trade Secrets Act, claiming that the process by which he delivered client services was a trade secret.  The Court of Appeals rejected Drawdy’s arguments that any alleged trade secrets had been misappropriated, noting that Ms. Pritchett had not misappropriated the client portal software itself.  Rather, she merely used the portal to gain access to the clients’ tax returns, and Drawdy admitted that the returns belonged to the clients, not to the company.

The Court of Appeals also rejected Drawdy’s arguments for injunctive relief based on the Georgia Computer Systems Protection Act.  The Court of Appeals found that because Ms. Pritchett obtained the passwords to access the client portals from her clients and never accessed the clients’ files on Drawdy’s network, she did not commit the crime of computer theft.  The Court of Appeals also again noted that the fact that the portals had already been shut down warranted denial of the request for injunctive relief.

Finally, the Court of Appeals rejected Drawdy’s attempt to enjoin Ms. Pritchett based on the non-solicitation covenant in her employment agreement.  Drawdy submitted the affidavit of only one client who had received the direct mail advertisement from Ms. Pritchett.  Ms. Pritchett testified that prior to using the list generated by the third-party company to send the mailer, she reviewed the list and removed five or six individuals that she recognized to be Drawdy’s clients, but missed the one that was sent to the client whose affidavit was introduced.  Based on this evidence, the Court of Appeals agreed with the trial court that injunctive relief was not necessary.

The Court of Appeals thus agreed with the trial court that Drawdy’s claims had very little merit.  Drawdy thus appears to reflect a situation where a former employee is lawfully competing and the employer has little legal recourse to thwart its competitor’s efforts.

BFV Perspectives, Noncompete & Trade Secrets, | May 02, 2013
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.