Background
E’Mation Controls and Engineering Inc. sued former employee Nicholas DeJong after he resigned and began working as a panel builder for a direct competitor. The trial court dismissed E’Mation’s noncompete claim because the agreement applied only when the company terminated DeJong’s employment, not when he resigned voluntarily. The court allowed E’Mation to amend its complaint to allege that DeJong had used or disclosed confidential information.
E’Mation alleged that DeJong shared its method for consistently positioning labels on wires in electrical panels. Its owner later acknowledged, however, that when the amended complaint was filed, the company had no evidence beyond DeJong’s employment by a competitor and his statement that he would train workers there. Two online photographs of electrical panels, found only after the amended complaint was filed, did not establish who built the panels, when they were built, or whether DeJong had worked on them. After granting DeJong summary disposition, the trial court found the amended complaint frivolous and awarded $63,446.25 in attorney fees and $1,717.90 in costs against E’Mation and its law firm, jointly and severally.
The Court’s Holding
The Michigan Court of Appeals affirmed, holding that the trial court did not clearly err by finding the amended complaint frivolous under MCL 600.2591(3)(a)(ii). That provision applies when a party has no reasonable basis to believe the facts underlying its legal position are true, assessed according to the circumstances when the claim was asserted.
When E’Mation filed its amended complaint, it had only inferred from DeJong’s permissible conduct—joining a competitor and training its workers—that he must have disclosed confidential information. Because speculation alone did not provide a reasonable factual basis for the allegations, the amended complaint was frivolous. The court also deemed abandoned E’Mation’s unsupported argument that sanctions were improper because the record did not show whether DeJong personally, rather than his employer, paid the attorney fees.
Key Takeaways
- A claim may be frivolous when, at the time it is pleaded, the claimant has only speculation rather than a reasonable factual basis for its allegations.
- Discovery cannot substitute for the reasonable prefiling factual inquiry required before an attorney signs and files a pleading.
- Evidence discovered after a complaint is filed does not establish that the claim had an adequate factual basis when asserted.
Why It Matters
The decision underscores that an employer cannot infer misuse of confidential information merely because a former employee joins a competitor and trains its workers. Before pleading a confidentiality breach, the employer and its counsel must possess facts reasonably connecting the former employee to an actual use or disclosure.
The opinion also illustrates the financial consequences of filing first and hoping discovery will uncover supporting evidence later: both the claimant and its law firm may be held jointly and severally responsible for the opposing party’s attorney fees and costs.