A federal contractor’s claim that a whistleblower breached a nondisclosure agreement, or NDA, by disclosing the company’s confidential information to media outlets has survived dismissal.
The contractor alleged that the whistleblower’s disclosures caused it reputational and financial harm. The whistleblower argued that the contractor hadn’t stated a claim for breach of contract and that the NDA was invalid.
But Judge Thomas J. Cullen of the Western District of Virginia found the pleadings sufficiently alleged a breach of contract.
Further, the judge held that at the motion to dismiss stage of the case “‘dismissal of the breach of contract claim based on the NDA in the employment agreement is inappropriate.’”
The decision is Iovino v. Michael Stapleton Associates, Ltd. (VLW 022-3-368).
Michael Stapleton Associates, or MSA, is a security company under contract with the Department of State to train explosive detection dogs for anti-terror programs run by foreign countries and the U.S. abroad.
Dr. Karen Iovino, a licensed veterinarian, was hired in October 2015 by MSA on a part-time basis and signed an NDA. While working at MSA, Iovino began expressing concern about the company’s treatment of the dogs, billing practices and staffing decisions.
Iovino filed formal complaints, began talking to reporters about her concerns and later sued MSA for retaliatory termination.
MSA filed a counterclaim for breach of Iovino’s NDA, alleging that her statements had harmed the company.
Iovino moved to dismiss for failure to state a claim or, alternatively, for judgment on the pleadings.
MSA alleged that Iovino’s breach had caused significant financial damages and reputational harm, and that it fulfilled its contractual duties by employing and compensating Iovino until it had reason to believe that she was violating her NDA.
Cullen said those allegations were sufficient to survive the plaintiff’s motion to dismiss, but that Iovino’s challenge to the validity of the NDA presented “a tougher question.”
Iovino argued that the NDA was illegal because a regulation prohibits the federal government from contracting with any entity that “requires employees or subcontractors of such entity seeking to report waste, fraud, or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting such waste, fraud, or abuse to a designated investigative or law enforcement representative of a Federal department or agency authorized to receive such information.”
She said the NDA at issue here didn’t contain an explicit carve-out to allow for reports of “waste, fraud, or abuse to government officials,” and she cited a report by the State Department’s Office of Inspector General, or OIG, which concluded that MSA’s NDAs violated federal law.
But Cullen concluded that Iovino’s argument was inappropriate for judgment on the pleadings. He noted that the parties hadn’t cited any authority “nor is the court aware of any, explaining the appropriate level of deference that a federal court owes to an administrative agency’s OIG’s findings.”
“The court lacks the factual predicate necessary to decide whether partial enforcement — allowing MSA to enforce its NDA against employees for some conversations with media reporters — is appropriate.” –U.S. District Judge Thomas J. Cullen
The judge cited two reasons to not give the OIG report deference. First, he found that the regulations’ plain text didn’t obviously support the OIG’s interpretation.
“On their faces, the regulations prohibit certain NDAs; they do not obviously mandate the inclusion of exceptions,” he said.
Second, the judge said MSA’s argument that the OIG never considered a related regulation that exempts its NDA because it was signed at the behest of the government.
Here, the record wasn’t clear, but the judge said it was clear that “whether a contractor adopted and promulgated an NDA ‘at the behest of a Federal agency’ is a fact question that requires discovery.”
Iovino also argued that the NDA was unreasonable under New York law, which the parties agreed was applicable in this case.
The judge explained that New York allows a court to “modify an otherwise invalid restrictive covenant rather than voiding it in its entirety ‘to the extent it deems reasonable in the circumstances of the case.’”
But Cullen concluded that “the court lacks the factual predicate necessary to decide whether partial enforcement — allowing MSA to enforce its NDA against employees for some conversations with media reporters — is appropriate.”
Further, he said “whether Iovino had other employment options when she chose to work at MSA informs this inquiry. So would evidence of coercion by MSA, of a general plan to limit competition, or of MSA’s knowledge that its NDA was overbroad.”
As a result, the judge denied the plaintiff’s motion for judgment here.