Best Lawyers in America 2023

Twelve Lum, Drasco & Positan LLC Attorneys Recognized by The Best Lawyers in America® 2023 Edition and One Attorney Named “Lawyer of the Year”

Roseland, NJ (August 18, 2022) – Twelve attorneys at Lum, Drasco & Positan LLC have been selected by their peers for inclusion in The Best Lawyers in America ® 2023 and one lawyer is “Lawyer of the Year” recipient. Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 108,000 industry leading lawyers are eligible to vote (from around the world), and we have received over 13 million evaluations on the legal abilities of other lawyers based on their specific practice areas around the world. For the 2021 Edition of The Best Lawyers in America©, 9.4 million votes were analyzed, which resulted in more than 67,000 leading lawyers being included in the new edition. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor.  (No aspect of this advertisement has been approved by the Supreme Court of New Jersey)

Lum, Drasco & Positan LLC – 2023 “Lawyer of the Year” Recipient
Bernadette Hamilton Condon – Litigation – Construction

Lum, Drasco & Positan LLC – The Best Lawyers in America® 2023 Edition

Dennis J. Drasco (2001), was named in the fields of Appellate Practice, Arbitration, Commercial Litigation, Construction Law, Litigation – Construction, Litigation – Insurance, Litigation – Real Estate, Litigation – Trusts and Estates.

Wayne J. Positan (1993), was named in the fields of Appellate Practice, Arbitration, Commercial Litigation, Employment Law – Management, Labor Law – Management, Litigation – Labor and Employment. Wayne Positan has over forty years of experience representing
management and defendants in labor and employment matters, including discrimination, whistleblower, and non-compete litigation, as well as traditional labor practice in the private and public sectors.

Paul A. Sandars III (2005), who was named in the fields of Commercial Litigation, Construction Law, Litigation – Construction, is a member of the firm. He concentrates his practice in complex commercial litigation as well as construction law and litigation. He is a frequent lecturer on
construction law issues, and has been certified as an American Arbitration Association Construction Arbitrator.

Kevin J. O’Connor (2015), who was named in the field of Commercial Litigation, concentrates his practice in the area of civil litigation with a focus on commercial litigation, insurance law, eminent domain, land use law, and life, health and disability insurance law.

Gina M. Sorge (2019), who was named in the field of Family Law, has been certified as a
Matrimonial Law Attorney by the New Jersey Supreme Court since 2013. She presently serves as a Bergen, Essex and Morris County Family Court appointed Early Settlement Panelist.

Bernadette Hamilton Condon (2015), who was named “Lawyer of the Year” in the field of Litigation – Construction and further named as a Best Lawyer in the fields of Construction Law, Litigation – Construction, is a member of the firm’s litigation department. She concentrates her
practice in commercial and business litigation.  Bernadette handles a wide variety of contract, construction and shareholder disputes.  She also has extensive experience representing condominium and homeowners’ associations in transition litigation and general governance matters.

Daniel M. Santarsiero (2016), who was named in the fields of Employment Law – Management, Labor Law – Management, represents management and individuals in defense litigation and counseling in connection with various labor and employment matters including discrimination claims, harassment claims, whistleblower, public policy claims as well as wage and hour claims and collective bargaining.  Daniel also provides counseling in connection with various
employment disputes including employee grievances other workplace issue in both the private and public sector.

Jack P. Baron (2021), who was named in the field of Corporate Law, is a member of the firm, concentrating his practice in commercial transactions, including acquisitions, sales and reorganizations of businesses; commercial real estate matters, and asset based financing. In addition to counseling clients in business matters, Jack has an in depth knowledge of estate and trust law, and assists his clients in estate and succession planning.

Scott E. Reiser (2015), who was named in the field of Commercial Litigation, litigates a broad array of commercial disputes, business ownership matters, various commercial cases, and estate and trust matters.

Richard C. Camp (2019), who was named in the fields of Family Law Arbitration, Family Law Mediation, Mediation, is a retired Superior Court judge.  He handles both family and civil cases and serves as a Discovery Master in complex matters.

Elizabeth Moon (2016), who was named in the field of Employment Law – Management, represents employers and individuals in litigation against claims of discrimination, retaliation, harassment, breach of contract, defamation, and other employment-related claims in cases alleging violations of federal laws including Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act as well as violations of state laws including the New Jersey Law Against Discrimination, the New Jersey Conscientious Employee Protection Act, and the New Jersey Family Leave Act.  Ms. Moon also defends governmental entities and their employees against claims arising under the New Jersey Tort Claims Act, the New Jersey Civil Rights Act, and 42 U.S.C. § 1983.

Cynthia A. Matheke (2003), who was named in the fields of Personal Injury Litigation – Defendants, Personal Injury Litigation – Plaintiffs, is concentrating on both office and hospital based cases of negligence and malpractice, including ancillary departments of pathology, nursing, pharmacy, and radiological imaging.  She has expanded her practice to include cases of nursing home neglect.

Contact Lum, Drasco & Positan

Lum, Drasco & Positan LLC
103 Eisenhower Parkway
Suite 401
Roseland, NJ 07068
Phone: 973-403-9000
Fax: 973-403-9021

Our law office is located in Roseland, New Jersey.

To speak with an attorney at our firm about your legal needs, call 973-403-9000.

Attorneys Named to 2022 NJ Super Lawyers List

Lum, Drasco & Positan Attorneys Named to the 2022 NJ Super Lawyers List

The Firm is pleased to announce six of our attorneys have been selected for inclusion in the 2022 listing of New Jersey Super Lawyers by Thomson Reuters which is published in New Jersey Monthly MagazineThese selections were based on a statewide survey, an evaluation process and a peer review by a blue ribbon panel of attorneys. The methodology for selection can be found at http://www.superlawyers.com/. (No aspect of this advertisement has been approved by the Supreme Court of New Jersey).

Dennis J. Drasco for Business Litigation (Top 100 Lawyers)

Kevin F. Murphy for Estate Planning and Probate (10th year) 

Kevin J. O’Connor for Business Litigation

Wayne J. Positan for Employment and Labor (Top 100 Lawyers)

Paul A. Sandars, III for Construction Litigation

Daniel M. Santarsiero for Employment and Labor

Contact Lum, Drasco & Positan

Lum, Drasco & Positan, LLC
103 Eisenhower Parkway
Suite 401
Roseland, NJ 07068
Phone: 973-403-9000
Fax: 973-403-9021

Our law office is located in Roseland, New Jersey.

To speak with an attorney at our firm about your legal needs, call 973-403-9000.

De Facto Developer: A New Basis for Construction Lender Liab

DE FACTO DEVELOPER: A NEW BASIS FOR CONSTRUCTION LENDER LIABILITY

Lenders on construction projects that do not become significantly involved with aspects of the project, other than lending, will usually not be found liable under a lender liability theory. This general proposition of law, however, is tempered by factual scenarios which affect the ultimate outcome. In a recent New Jersey jury case, a lender was held as the “de facto”developer of a condominium project since the Bank exercised such dominion and control over the project so as to step into the shoes of the nominal developer. This article will discuss the peculiar facts of the case, analyze the existing lender liability case law, and attempt to define that level of control which subjects construction lenders to potential developer liability.

The Condominium

The building at issue is an oceanfront condominium in Atlantic City, New Jersey, known as The Ocean Club Condominium, managed by the Ocean Club Condominium Association (“OCCA”). The complex contains twin 32-story high-rise luxury buildings situated on the Atlantic City Boardwalk. There is a common sixth floor terrace with a three-story parking garage below.

The case under discussion involved OCCA’s claims for defects in certain common and limited common elements, including balconies, sixth floor terrace, ventilation systems and roof access/egress. OCCA had undertaken certain temporary repairs to the balconies and sixth floor terrace under the direction of consulting engineers. However, these measures were only temporary; more elaborate (and expensive) remediation efforts are required to permanently cure the deficiencies.

OCCA brought suit against the developer, MLM Associates (“MLM”), a New Jersey limited partnership, various contractors, subcontractors, design professionals, as well as Bank of America (“BA”), the construction lender. OCCA’s theory against BA was that it became the “de facto”developer of the project by asserting such dominion and control over the project that it deviated from the role of a traditional lender. OCCA sought recovery for defects in the common and limited common elements. The case was mediated, reducing the parties to OCCA, BA and Albert Gardner (“Gardner”), general partner of MLM, for a bifurcated liability trial.

The Court framed the issue for decision on an all or nothing basis; that is, there could be only one developer of the Ocean Club Project; either MLM, the borrower/developer, or BA, the de facto developer. The borrower/developer, MLM, had brought its own lender liability action against BA, alleging interference with the development of the project, loss of the prospective economic advantage of the anticipated profits in the project, and other relief. Thus, both MLM (through its general partner, Gardner) and OCCA, were seeking to impugn BA with liability; Gardner, through traditional lender liability recovery, and OCCA, through a “de facto developer”theory. Both plaintiffs proved their case against BA by unanimous jury verdicts.

Evidence of BA's Control Over the Project

The salient facts in connection with the BA’s control, developed during this trial were, in a word, overwhelming. Based upon testimony and documentation the jury found as a matter of fact that BA imposed upon MLM its own choice of construction consultant, and then, without any business reason whatsoever, the project’s general contractor. The evidence revealed that loan terms were manipulated by BA to permit the imposition of its chosen contractor into the project, with much more favorable contractual provisions for the contractor than originally contemplated.
Furthermore, the evidence revealed that the BA’s inspector, who was visiting the project monthly, performed 30-50 hours per month of “construction project management” off-site. Numerous and detailed correspondence from the project revealed that BA’s inspector was involved in virtually every aspect of the project from pre-construction “value engineering”, to pre-approval of change orders to making day-to-day construction decisions to the detriment of MLM’s on-site construction manager.

In connection with the control of the project, it was confirmed that contrary to normal construction payment procedures, BA paid the contractor directly, by wire transfer, as opposed to including the contractor’s requisitions in the monthly payment draw to MLM. These direct payments precluded MLM the normal leverage associated with disbursement of money. The most telling example of BA’s control of the project was control of the project profit; MLM’s planned profit of $34.5M turned into a $15M loss, whereas BA’s $2.9M planned profit turned into an actual calculated profit of $6.2M, or a net increase of 114%.

Based upon the foregoing evidence, the ten person jury unanimously found that BA interfered with MLM’s development of the Ocean Club Project through the imposition of the general contractor, that BA improperly exercised effective control over the construction of the project, and that BA deviated from accepted standards of banking practice in its conduct with respect to the project.

Construction Lender Liability Law Prior to OCCA

A dearth of case law addressing lender liability existed at the time of the OCCA v. MLM trial in New Jersey and throughout the country. Nevertheless, the theme of control and its effect on a particular development are the linchpin of existing precedent. No case involving “de facto”developer liability had been reported, which made the task at hand formidable, to say the least.

The concept of lender liability has its roots in Connor v. Great Western S&L Assn, which dealt with the issue of lender liability for construction defects in a real estate development setting. The facts of Connor are important to gain an understanding of the ultimate holding in the case. The lender, Great Western, agreed to make loans to the developer to acquire developable land on which the developer was to construct homes. In return, Great Western had the right to make construction loans on the homes to be built and the right of first refusal to make long-term loans to the buyers of the homes. After analyzing the factual relationship between the parties, the California Supreme Court concluded that Great Western was not a joint venturer and therefore, not responsible for the negligence of the nominal developer, but rather, found that Great Western was responsible for its own negligence. The court explained Great Western’s role in connection with the relationship to the developers as follows,

“In undertaking these relationships, Great Western became much more than a lender content to lend money at interest on the security of real property. It became an active participant in a home construction enterprise. It had the right to exercise extensive control of the enterprise. Its financing, which made the enterprise possible, took on ramifications beyond the domain of the usual moneylender. It received not only
interest on its construction loans, but also substantial fees for making them, a 20% capital gain for ‘warehousing’ the land, and protection from loss of profits in the event individual homebuyers sought permanent financing elsewhere.

Based upon the foregoing, the California Supreme Court found that the lender was liable on a negligence theory, further concluding that the lender had knowledge that the inexperienced developer constructed homes built on expandable soil and approved plans without addressing those conditions, and further, that the lender knew or should have known that the developer was not adequately capitalized and lacked experience in construction of such magnitude.

However, the ambit of the Connors holding was severely impacted by the California Legislature, which enacted Civil Code §3434, which provided, inter alia, that a construction lender shall not be liable to third persons for any loss or damage in connection with the improvement of real property, “. . . unless such loss or damage is a result of an act of the lender outside the scope of the activities of a lender of money or unless the lender has been a party to misrepresentations with respect to such real or personal property.” Following the enactment of Civil Code §3434, lender liability claims in California were not favorably accepted.

Florida courts have dealt with potential construction lender liability in the context of subcontractors suing lenders for liability in connection with alleged negligence regarding disbursement of construction funds. One Florida court held that a lender may be liable, at least to an owner, for improper payments to a general contractor when the lender had knowledge of subcontractor’s lien claims. Another Florida court has held that, where a relationship of trust existed between the lender and homebuyers, the lender may be liable to the buyers for breach of fiduciary duty.

The imposition of construction lender liability has generally been limited to situations where the lender, either through a Deed in Lieu of Foreclosure, or through direct ownership, has assumed control of the project. The New Jersey case of Terrace Condominium Association v. Midlantic National Bank presents a situation where the borrower/developer, due to financial difficulties, gave a Deed in Lieu of Foreclosure to the construction lender, which lender completed construction and sold units. The court had little difficulty in concluding that the lender there was responsible to the condominium association as a builder for construction defects, including those which were constructed prior to the lender’s takeover of the project. Florida law is in accord with the foregoing.

Therefore, in the absence of the legal involvement by a lender taking over a project, courts have been loath to extend liability to construction lenders. However, the OCCA case represents a departure from this trend and signals a new threshold of lender liability for lenders whose activities during the development of a project exceed the normal level of anticipated lender activity.

Analysis of BA's Control Over The Ocean Club Project

While it is normal for a lender to inspect a construction site on a monthly basis, so as to ensure construction completion for monthly mortgage disbursements, it is extremely unusual for that inspector to be involved, on a day-to-day basis, with the project and bill his or her time to “construction project management”. It is also extremely unusual for such an inspector to have the authority to require pre-approval of change orders in amounts as little as $300.00 on a $122M condominium development. In fact, MLM’s project superintendent testified that absent telephonic change order approval from representatives at BA in California, work could not proceed at the Atlantic City, New Jersey site.

Such was the level of control that BA exhibited at the Ocean Club project. Coupled with BA selecting the general contractor, negotiating favorable terms in the general contractors’ construction agreement with the developer, and paying the general contractor directly, through wire transfer, it is understandable how the jury in this case came to the conclusion that BA exceeded the role of a traditional lender on a construction project and was therefore the de facto developer. A comparison of the profits earned by BA as compared to the losses of MLM establish BA’s financial gain to the detriment of MLM, not unlike the lender in Connors, whose control of downstream financing caused developer liability to imbue upon it.

Obviously, the Ocean Club facts are unique and the jury’s finding is a direct result of such particular facts presented. Whether other factual scenarios exist which would compel a finder of fact to establish de facto developer status of a construction lender is an open question. However, that quantum of control necessary for a lender to cross the line certainly has been shown to exist in the case at issue. 

Contact Lum, Drasco & Positan

Lum, Drasco & Positan LLC
103 Eisenhower Parkway
Suite 401
Roseland, NJ 07068
Phone: 973-403-9000
Fax: 973-403-9021

Our law office is located in Roseland, New Jersey.

To speak with an attorney at our firm about your legal needs, call 973-403-9000.

Two New Restrictions On Employees Seeking To Compete Against

Two New Restrictions On Employees Seeking To Compete Against their Former Employer

This article is republished with approval of the New Jersey State Bar Association, and it was first published in the New Jersey Labor and Employment Quarterly, Vol. 25 No. 1 (Fall 2001)

……….For more than 30 years two principles have governed when and how a departing employee can or cannot compete against his or her former employer. First, the employee is barred from utilizing the former employer’s trade secrets disclosed in confidence. Second, an employer may further enforce a non-competition covenant agreed to by an employee that is reasonable in time, scope and area, necessary to protect the employer’s legitimate interest, not unduly burdensome on the employee, and not injurious to the public interest. Two recent decisions, however, should give additional pause to employees considering competing against a former employer: the first appears to create a third type of restriction on “competing” employees, at least in the service industry; the second expands the definition of trade secret in the context of manufacturing.

……….In Lamorte Burns & Co., Inc. v. Walters, Lamorte Burns & Co., Inc. (Lamorte), brought an action against two former employees, Michael Walters and Nancy Nixon, and their newly created competing corporation, The Walters Nixon Group, Inc. (WNG), alleging breach of a restrictive covenant, breach of duty of loyalty, tortuous interference with economic advantage, misappropriation of confidential and proprietary information and unfair competition.

……….The business of Lamorte’s New Jersey office, where Walters and Nixon were employed, was investigating and adjusting two types of marine insurance claims: protection and indemnity (P & I) claims and harbor workers’ compensation claims. In July 1996, 17 months before leaving Lamorte, Walters incorporated WNG. During the next 17 months, while performing their duties on P & I claim files for Lamorte, Walters and Nixon were also compiling a “target solicitation list” from these files, including Lamorte “client names, addresses, phone and fax numbers, file numbers, claim incident dates, claim contact information, and names of the injured persons”, that was stored on Walters’ home computer. In October 1997, Walters and Nixon signed a three-year lease for office space and purchased office equipment, leased computers, and obtained telephone and fax lines for the new office.

……….On December 20, 1997, a Saturday, Walters and Nixon removed their personal belongings and faxed resignation letters to the private office of Lamorte’s president. With these resignations, Lamorte no longer had a P & I claims adjuster in its Clark office.

……….The next day, WNG faxed solicitation letters and file transfer authorization forms to all but one of Lamorte’s 34 P & I clients. In addition to notifying the client that Walters and Nixon had been handling the client’s file, and had resigned to start a new business that was seeking to service the client, the typical letter and form stated as follows:

[The letter] stated “Our fee structure will be less than Lamorte Burns fee structure for 1998.” The client was told that it had absolute discretion in deciding whether to continue with Lamorte or to have its claim files in progress transferred to WNG or to any other firm. …The form included “a list of open files we have been handling for you.” (emphasis added). In addition to the client’s file number, the transfer form included the client’s name, the name of the injured person, and the accident date. The client was instructed simply to mark an “X” next to each listed file that it wished to have transferred from Lamorte to WNG

……….All 33 P & I clients who received these letters and forms requested that their active claim files be transferred to WNG.

……….The trial court granted summary judgment on liability in favor Lamorte on all of its claims, and then, after a hearing, awarded it $232,684 in compensatory damages and $62,816.23 in punitive damages. The court explained its findings:

If you examine the solicitation, you will see that they didn’t just ask generally for a customer’s business. They asked for the work that was specifically behind handled by the plaintiff, and on a case-by-case basis specifically mentioning the name of the claimant … . Effectively, what they said to the customer that they were soliciting is, look, we’re dealing with the following cases right now for Lamorte, and we want them … This was information [defendants] would not have generally known but for their employment with plaintiff. They wouldn’t have known the specific file, the accident date… . And there isn’t any dispute that information came from the plaintiff

……….While affirming the liability judgment concerning the covenant claim, the Appellate Division reversed the grant of judgment concerning the tort claims, finding “disputed facts concerning the confidential and proprietary nature of the information defendants had taken from plaintiff, as well as issues concerning whether defendants’ conduct was acceptable competitive behavior or malicious and in violation of the “rules of the game’ of the parties’ business.” The court’s ruling “was founded on defendants’ assertions that they were never told that the information was confidential and proprietary, and that although the information was not generally available, it could have been obtained simply by sending out letters of solicitation to all of Lamorte’s clients asking permission to have all files transferred, not just those files defendants were working on.”

……….The Supreme Court reversed the Appellate Division decision concerning the tort claims, and reinstated the trial court’s decision concerning these claims. The Court’s decision was premised upon its finding that the information utilized by Walters and Nixon to compete against Lamorte, even if not a trade secret, was Lamorte’s confidential information that could not be utilized by its employees, with or without the existence of a restrictive covenant.

……….The Court first opined that confidential information “need not rise to the level of a trade secret to be protected” in the absence of a restrictive covenant. In making this finding, the Court followed the reasoning of the oft-cited Law Division decision in Platinum Management, Inc. v. DahmsPlatinum Management, which involved a non-competition covenant, held that a customer list may be protected if it goes “beyond mere names, but also include[s] buying habits, mark-up structure, merchandising plans, projections, and product strategies.” This is true even when the identities of the customers are “listed in readily obtainable trade directories”, since “the fact that they were the plaintiff’s customers [is] not.”

……….According to the Court, the essential inquiry as to when a non-trade secret may nevertheless be protectable at common law concerns “the relationship of the parties at the time of disclosure and the intended use of the information.” Thus, the Court adopted the reasoning that information could be confidential not only based upon the nature of the information itself (the traditional trade secret analysis), but also as a byproduct of the special agency relationship between the employer and employee. The Court cited favorably Restatement (Second) on Agency, § 395 (1958), which provides that “unless otherwise agreed, an agent is subject to a duty to the principal not to use or to communicate information confidentially given him by the principal or acquired by him during the course of or on account of his agency or in violation of his duties as agent, in competition with or to the injury of the principal.”

……….The Court thus concluded that “[t]he specific information provided to defendants by their employer, in the course of employment, and for the sole purpose of servicing plaintiff’s customers, is legally protectable as confidential and proprietary information”, aside from whether or not it qualifies as a trade secret, because defendants “would not have been aware of that information but for their employment.” The Court held that Walters and Nixon, by virtue of having utilized this information to compete against Lamorte, violated their duties of loyalty to Lamorte, even though they did not actually solicit Lamorte’s clients while employed by Lamorte. The Court further held that this same conduct constituted causes of action for tortuous interference with economic advantage, misappropriation of confidential and proprietary information and unfair competition.

……….In so holding, the Supreme Court in Lamorte Burns adopts and extends the rule of Platinum Management, reasoning that specific customer information not rising to the level of a trade secret provided by an employer to an employee for the purpose of furthering the employer’s business may be protectable even in the absence of a restrictive covenant. Thus, while still free to provide services to customers cultivated prior to becoming employed with his or her present company, an employee not restricted by a covenant who possesses specific information about his former employer’s customers and marketing must now proceed more carefully to the extent he or she seeks to leave employment and start or join a competing business.

……….In Rycoline Products, Inc. v. Walsh, the Appellate Division addressed an apparent issue of first impression: Is a company that reverse engineers a competitor’s product entitled to have the fruit of its efforts protected? The plaintiff, Rycoline Products, Inc., a manufacturer of chemical products in the printing industry, had employed three persons (two salespersons and a district managers) who left to work for a competitor, C&W Unlimited. While these individuals were still in its employ, Rycoline developed a “fountain solution” labeled ACFS 276. ACFS 276 was the result of an attempt by Rycoline to reverse engineer Anchor MXEH, an unpatented product manufactured by Anchor Lithkemko, a company not a party to this action. Rycoline spent nearly one million dollars in hiring chemists and setting up a laboratory in order to reverse engineer Anchor MXEH. Rycoline alleged that the district manager had access to “a hard copy of the formula for ACFS 276”.

……….Shortly after the district manager began working at C&W, C&W began purchasing chemicals found in ACFS 276, and months later formulated a product that was similar to ACFS 276 in that it “included a three-part buffering system as well as a two-part synthetic gum/natural gum system”. Rycoline filed suit against C&W, the two owners of C&W, and the three individuals who left Rycoline to work for C&W. Rycoline alleged, inter alia, that C&W, the C&W owners and the former district manager had misappropriated Rycoline’s asserted trade secret concerning ACFS 276.

……….The trial court dismissed the misappropriation claim, predicating its ruling upon a finding that “you cannot protect as your trade secret that product which was taken from another manufacturer through re-engineering of his trade secret”. However, the Appellate Division reversed the trial court’s determination that there was no trade secret, and remanded for a jury determination on Rycoline’s claims.

……….The Court first clarified the respective burdens of proof for a tort of misappropriation of a trade secret under New Jersey law. A plaintiff, as aprima facie case, must demonstrate the following six elements:

(1) A trade secret exists; (2) the information comprising the trade secret was communicated in confidence by plaintiff to the employee; (3) the secret information was disclosed by that employee and in breach of that confidence; (4) the secret information was acquired by a competitor with knowledge of the employee’s breach of confidence; (5) the secret information was used by the competitor to the detriment of plaintiff; and (6) the plaintiff took precautions to maintain the secrecy of the trade secret.

……….If the plaintiff can satisfy this burden, then “the burden shifts to defendant to show that it could have arrived at its product by reverse engineering some product in the public domain.” Defendant’s burden, however, is not simply whether it could have simply reverse engineered a product in the public domain, but that the product at issue was “quickly reverse engineer able” The Court further noted that “[t]he more difficult, time consuming and costly it would be to develop the product, the less likely it can be considered to be “reverse engineer able’.”

……….The Court then held that there was no basis in law for a per se rule that the fruit of a competitor’s reverse engineering could never itself become a trade secret entitled to legal protection. Instead, the Court instead adopted the reasoning of the following commentary to the Uniform Trade Secrets Act, which the Court quoted in its decision:

Information is readily ascertainable if it is available in trade journals, reference books, or published materials. Often, the nature of the product lends itself to being readily copied as soon as it is available on the market. On the other hand, if reverse engineering is lengthy and expensive, a person who discovers a trade secret through reverse engineering can have a trade secret in the information obtained from reverse engineering.

……….Having reversed the trial court’s legal ruling that Rycoline could not as a matter of law demonstrate that its reverse engineering of ACFS 276 constituted a trade secret, the Court remanded for a jury determination as to 1) whether the result of Rycoline’s reverse engineering of Anchor MXEH was a trade secret, 2) whether plaintiff could meet the other elements of its prima facie case, and 3) whether the defendant could demonstrate that it could have sufficiently quickly learned the information comprising Rycoline’s trade secret through reverse engineering.

……….The Court made clear that even though the commencement of the reverse engineering process does not implicate a protected trade secret, it is possible that the process may ultimately result in the development of a compilation that is, in fact, a trade secret. The Court held, in effect, that a compilation or formula developed through lawful reverse engineering is entitled to the same protection as any other compilation or formula that may be deemed a trade secret. It did not rule that all successful reverse engineering would yield a trade secret; it ruled that the fact that the trade secret was the result of reverse engineering does not permit the conclusion that it is entitled to less protection that some other type of trade secret.

……….Rycoline Products has made it easier for a party asserting a trade secret to establish its prima facie case by broadening the definition of potential trade secrets to include those resulting from reverse engineering. The critical inquiry may now be whether the defendant can show that the plaintiff should not be able to recover because the defendant could have “quickly” derived through reverse engineering plaintiff’s asserted trade secret. This inquiry may lead to many further questions. Should quickly be defined exclusively as a function of time, and if so, what is quick -two weeks, one month, three months? Or should quickly also be defined in consideration of other factors, such as the amount of resources that would be required for such reverse engineering? Does the standard require a complete reverse engineering, or only a substantial one? Will expert testimony be required to demonstrate that a product is “quickly reverse engineer able”?

Contact Lum, Drasco & Positan

Lum, Drasco & Positan LLC
103 Eisenhower Parkway
Suite 401
Roseland, NJ 07068
Phone: 973-403-9000
Fax: 973-403-9021

Our law office is located in Roseland, New Jersey.

To speak with an attorney at our firm about your legal needs, call 973-403-9000.