Question

Hallmark Cards, Inc. v. Murley

When a former Hallmark employee breaches a term in her severance contract, how much can Hallmark recover as damages?

iStockPhoto.com/RiverNorthPhotography

BACKGROUND AND 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. In 2002, Murley and the company 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 $735,000 to Murley as part of her severance package.

After the expiration of her noncompete agreement, Murley accepted a consulting position with Recycled Paper Greetings (RPG) for $125,000 and 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 and $125,000 that Murley received from RPG). Murley appealed.

IN THE WORDS OF THE COURT …

BYE, Circuit Judge.

* * * *

With respect to the $735,000, Murley contends Hallmark was not entitled to a return of its full payment under the parties’ separation agreement because Murley fulfilled several material terms of that agreement (e.g., the * * * non-compete provisions). Under the circumstances, we cannot characterize the jury’s reimbursement of Hallmark’s original payment under the separation agreement as grossly excessive or glaringly unwarranted by the evidence. Hallmark’s terms under the separation agreement clearly indicated its priority in preserving confidentiality. At trial, Hallmark presented ample evidence that Murley not only retained but disclosed Hallmark’s confidential materials to a competitor in violation of the terms and primary purpose of that agreement. Thus, the jury’s determination that Hallmark was entitled to a full refund of its $735,000 is not against the weight of the evidence.

With respect to the remaining $125,000 of the jury award, Murley argues Hallmark can claim no entitlement to her compensation by RPG for consulting services unrelated to Hallmark. We agree. In an action for breach of contract, 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. Moreover, the law cannot elevate the non-breaching party to a better position than she would have enjoyed had the contract been completed on both sides. By awarding Hallmark more than its $735,000 severance payment, the jury award placed Hallmark in a better position than it would find itself had Murley not breached the agreement. The jury’s award of the $125,000 payment by RPG was, therefore, improper. [Emphasis added.]

DECISION AND REMEDY The U.S. Court of Appeals for the Eighth Circuit vacated the award of damages but otherwise affirmed the judgment in Hallmark’s favor. The appellate court remanded the case to the lower court to reduce the award of damages to include only the amount of Hallmark’s severance payment.

Question: Do you agree or disagree with the Court's decision and how would you have ruled? Fully explain.

Answer 1

Breach of Contract                

Breach of contract can be defined as a broken contract, stemming from failure to fulfil any term of a contract without a justifiable, lawful excuse. It’s an offence and can be taken to court for verdict. In most cases of breach of contract it must be verified that the contract existed, it was broken, money was lost and the defendant was responsible.

In this case the contract with Hallmark and Murley clearly stated that she was not to disclose any strategy or anything about Hallmark to its competitors. As she was the vice president there must be certain information that she must have known about hallmark it was meant to be kept confidential. She was paid a huge amount by them as Severance Package (this is the compensation or benefits an employer provides to an employee after employment is over, employees who are laid off, whose jobs are eliminated because of downsizing, or who retire)

When hallmark found about the breach of contract the approached the court and sued Murley for the same. The case verdict came favourable to Hallmark Inc. and Murley was accountable to pay back the Severance pay she received plus the payment she received from RPG.

However she was exempted from paying the amount she received from RPG to Hallmark as per the verdict of appellate court.

Adverse inference is a legal inference, adverse to the concerned party, drawn from silence or absence of requested evidence. It is part of evidence codes based on common law in various countries.

I do not fully comply with the court’s decision and would have gone in favour with the Hallmark Inc. by granting them full amount. Hallmark’s terms under the separation agreement clearly indicated its priority in preserving confidentiality. But Murley not only retained but disclosed Hallmark’s confidential materials to a competitor in violation of the terms and primary purpose of that agreement. One should not neglect confidentiality provisions when preparing a separation agreement. When seeing it from ethical point of view what Murley did was not justifiable.