Former executives, who are accused of theft of confidential information, trade secrets, and other intellectual property, have asked a federal court to impose severe sanctions against their old employer and its counsel, including dismissal of the case, for their alleged failure to disclose the existence of insurance that could have covered the executives’ defense costs.
In May 2015, in Summer Infant, Inc. v. Bramson, No. 15-cv-218 (D.R.I.), Summer Infant, a company that designs and sells baby products, filed suit against its former CEO and five other executives, alleging that they stole company information to launch a competing business.
As part of Summer Infant’s July 2015 initial disclosures, the company stated that “there are no insurance agreements of the nature described in Fed. R. Civ. P. 26(a)(1)(A)(iv).” Under Rule 26, a party must, without awaiting a discovery request, provide to the other parties “any insurance agreement [that] may be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for payments made to satisfy the judgment.” Fed. R. Civ. P. 26(a)(1)(A)(iv).
In a March 2016 deposition, however, Summer Infant’s CFO indicated that such policies may exist, and the executives requested copies. Summer Infant then disclosed in April a D&O policy and an excess policy that may cover the executive’s defense costs and possible liability.
The former executives claim that Summer Infant employed dozens of lawyers at three law firms to engage in “scorched earth litigation tactics” and “wear the individual Defendants down and exhaust them financially, emotionally, and physically.” According to the executives, Summer Infant leveraged “threat of enormous legal fees” to, among other things, pressure them to forego asserting discovery, mediation, and other litigation positions due to costs, prejudicing their ability to defend themselves. They argue that the company would not have been able to take such “a no-holds-barred approach,” if Summer Infant had properly disclosed its insurance.
The executives contend that because the failure to disclosure “substantially altered and likely prolonged” the case, the court should dismiss the company’s claims against them. They also seek their defense costs to date and an order precluding Summer Infant from opposing their claims for indemnification.
Summer Infant has not yet responded (but we will update you when they file).