July 25, 2022

Exploring the "Sham Affidavit" Doctrine in Trade Secret Case Relating to Side-Switching Employee

Holland & Knight Trade Secrets Blog
Charles A. Weiss
Trade Secrets Blog

Most litigators have at least a passing familiarity with the "sham affidavit" doctrine, under which an affidavit submitted in opposition to summary judgment that without explanation flatly contradicts the affiant's prior deposition testimony is held insufficient to create a genuine issue of fact. As explained by one court, the term:

[R]efers to the trial court practice of disregarding an offsetting affidavit that is submitted in opposition to a motion for summary judgment when the affidavit contradicts the affiant's prior deposition testimony. The doctrine calls for rejection of the affidavit where the contradiction is unexplained and unqualified by the affiant. In such circumstances, the alleged factual issue in dispute can be perceived as a sham, and as such it is not an impediment to a grant of summary judgment.

Shelcusky v. Garjulio, 797 A.2d 138, 144 (N.J. 2002) (internal citation omitted). For example, in the case often cited as the originator of the doctrine, the plaintiff's president admitted at length during his deposition that he had no direct evidence of the defendant's purported fraudulent intent to enter into a contract with no intention of performing it. In opposition to the defendant's motion for summary judgment, however, he submitted an affidavit recounting in great detail purported conversations in which the defendant essentially admitted that it had never intended to perform. The district court found the affidavit insufficient to create a genuine issue of fact and granted summary judgment. The court of appeals affirmed, explaining that "If a party who has been examined at length on deposition could raise an issue of fact simply by submitting an affidavit contradicting his own prior testimony, this would greatly diminish the utility of summary judgment as a procedure for screening out sham issues of fact." Perma Research and Dev. Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir. 1969).

This issue recently came up in the context of "side-switching" employees in a New Jersey trade secret case between competing telemarketers. The plaintiffs alleged that the defendants "hired away key managers and more than forty members of their sales force, siphoned customers, and misappropriated alleged trade secrets" that included the "script" used on calls with prospects. Metro Marketing, LLC v. Nationwide Vehicle Assurance, Inc., 275 A.3d 459 (N.J. Super. App. Div. 2022)

Among the plaintiffs' claims was that several of their employees, who were also named as defendants, had surreptitiously started working for the defendant while still employed by the plaintiffs. When they were deposed, all three denied they had done so. Thereafter, one such person (referred to as the side-switching employee) returned to work with the plaintiffs and provided an affidavit in opposition to the defendants' summary judgment motion in which he admitted that the plaintiffs' claims were true (contrary to his deposition testimony denying them). His only explanation for contradicting his deposition testimony was that he "had found inaccuracies" and "hereby retract[ed]" that testimony. Id. at 467.

The trial court held that the side-switching employee's affidavit was insufficient to defeat summary judgment, and the Appellate Division affirmed. While noting that the doctrine had not been previously applied on these facts, it held that the policies behind it supported its application:

[W]e conclude the sham affidavit doctrine should be applicable in New Jersey to a codefendant such as Christensen who presents one version of the facts at his deposition refuting a plaintiff's claims, who thereafter recants that testimony after taking employment with that plaintiff. The adoption of this principle in a side-switching employment context aligns with the policy underpinnings of the doctrine . . . . A litigant should not be able to woo away an opposing party who already has been deposed and then, having taken that party under its fold and presumptive control by hiring or rehiring him, obtain from that party a contradictory affidavit to defeat summary judgment.

Although Christensen was not formally realigned in the lawsuit and remains a defendant in the pleadings, he clearly joined plaintiffs' side of the contest after they rehired him. . . . Manifestly, Christensen had "some motive, emotional or financial, to fabricate sham issues of fact." The sham affidavit doctrine sensibly should extend to party affiants such as Christensen as well as nonparty affiants.

A side-switching situation is inherently suspect unless the recanting certification or affidavit "reasonably explain[s]" why the witness changed his or her sworn account . . . . Here, the record is bereft of such a reasonable explanation.

Id. at 156 (citations omitted).

In summarizing its holding, the Appellate Division explained:

In particular, the [sham affidavit] doctrine can apply where, as here: (1) a codefendant is deposed, (2) that deponent thereafter obtains a job with the plaintiff, (3) the deponent then aids his new employer by signing certifications recanting his deposition testimony, and (4) the plaintiff offers those certifications in opposing summary judgment motions by the other defendants.

Id. at 137. Ultimately, the court's decision to apply the sham affidavit doctrine may not matter to this case, given that it remanded the case to the trial court to reconsider its grant of summary judgment in light of other evidence that the trial court erred by not considering. If the trial court on remand denies the defendants' summary judgment motion and the case proceeds to trial, the side-switching witness will presumably be called to testify by one or both sides, and his veracity will be tested by cross examination.

In any event, one may question if the Appellate Division's reasoning for applying the sham affidavit doctrine on these facts is entirely satisfying. To consider this question, we start with some reasons that may support the doctrine:

1. Credibility Related to Timing. The idea that memory fades over time suggests that a person's earlier testimony will reflect a better recollection of events than a subsequent affidavit.

2. Credibility Related to the Type of Testimony, i.e., Oral (at a Deposition) or Written (in an Affidavit). First, unlike an affidavit, deposition testimony is subject to on-the-spot testing via probing by the examining counsel. Second, one may assign greater credibility to deposition testimony on the basis that it is more spontaneous and less filtered than an affidavit, which is typically prepared by or with oversight of counsel. (On the other hand, counsel's role in preparing an affidavit can also be viewed as providing a layer of protection against not-entirely-truthful testimony, potentially making affidavit testimony more reliable.)

3. Credibility Related to the Witness's Self-Interest. In the typical sham affidavit scenario, deposition testimony is used on summary judgment by the witness's opponent (or the witness's employer's opponent). Testimony that goes against the witness's self-interest is perceived to have enhanced credibility. See, e.g., Fed. R. Evid. 804(b)(3) (exception to hearsay rule in the case of statements against interest). By contrast, a subsequent affidavit submitted in opposition to the summary judgment motion will serve the witness's interests.

4. Reliance by the Adversary. An attorney who secures favorable deposition testimony from the other side may not to pursue further discovery on that issue, given that the attorney has secured solid evidence of the facts she sought to establish at the deposition. A subsequent affidavit from the deponent that contradicts his testimony disrupts the orderly process of discovery.

5. Encouraging the Prompt Correction of Erroneous Testimony: Related to point 4, a party that has provided erroneous testimony at a deposition should be incentivized to correct it promptly so the other side can pursue further discovery if necessary. Any seasoned litigator will have experienced a witness who realizes, either himself or prompted by his counsel's inquiry, that he has made a mistake. When this is corrected at the deposition, the adversary can follow up on the spot. If corrected after the deposition, but while discovery remains open, the adversary can seek to redepose the witness or pursue other discovery to try to establish the facts at issue. But if first addressed in an affidavit filed in opposition to a summary judgment motion, which is typically filed after the close of discovery, the court would have to reopen discovery and permit supplemental briefing on the summary judgment motion if the moving party is to have a chance to complete the record.

6. Preserving the Utility of Summary Judgment Practice: If summary judgment motions supported by deposition testimony could be readily defeated by contradicting affidavits by the deponent — thereby creating an issue of fact that required resolution at trial — the utility of summary judgment to dispose of ill-founded claims would be notably diminished. On occasion, a truthful affidavit may be rejected based on the sham affidavit doctrine, but an unspoken assumption behind the doctrine is that it is applied far more often to disregard false affidavit testimony. In an ideal world, this would not be necessary because perjury laws would be sufficient to prevent submission of patently false affidavits submitted to thwart a meritorious summary judgment motion, but experienced (or jaded) litigators know that sadly, this is not the case.

Looking at these bases of support, we see that they can be divided into two broad categories. The first category, embracing points 1 through 3, is consistent with a search for the truth, which is said to be a purpose of pretrial discovery. The second category, comprising points 4 through 6, is about procedural regulatory and efficiency.

On Closer Exam

How does the Appellate Division's application of the sham affidavit doctrine in Metro Marketing stack up if looked at through this lens?

With respect to a search for the truth, the Appellate Division seemed to assume, based on the portion of its opinion quoted above, that the side-switching employee's denials of wrongdoing at his deposition had greater credibility than his subsequent admissions in the affidavit. However, the sequence of denial followed by admission in this case does not follow the usual sham affidavit pattern. For example, the witness in the Perma Research case repeatedly denied knowledge of a conversation during his multiday deposition, but recounted the purported conversation in detail in his affidavit opposing summary judgment. 410 F.2d at 578. More generally, if a witness who testifies at deposition to a lack of knowledge subsequently submits an affidavit presenting facts he previously denied knowing, the affidavit may be disregarded as a sham (unless the witness explains why he now recalls them). Although the pattern in Metro Marketing is superficially similar — the witness denied knowledge of wrongdoing at his deposition but subsequently confirmed the wrongful act in his affidavit — the witness's subsequent "confession" can be thought of as inherently more credible than his earlier denials. Here, the witness is not first denying knowledge of an event at a deposition and then testifying to it in an affidavit. Rather, he was denying wrongdoing at his deposition and subsequently admitting it in his affidavit.

The Appellate Division also expressed concern about a company that hires away the other side's employee in order to procure his testimony. But again, the witness's testimony was first aligned with his then-employer's interest (and his own interest) at the deposition, and then aligned with his new employer's interest at the time of his affidavit. Apart from timing, is there reason to believe that the witness's motivation to help his then-current employer was stronger the second time than the first?

As to the preservation of procedural regularity and efficiency, the Appellate Division's decision fits comfortably in the rationale behind the sham affidavit doctrine. On these grounds, the contradictory affidavit of the side-switching employee was correctly disregarded so as not to disrupt the orderly process of litigation leading to the trial court's grant of the summary judgment motion.

Given the fallibility of memory, the sham affidavit doctrine does not apply if the affidavit provides a credible reason for the witness to contradict his deposition testimony. Stated simply, an affidavit that explains the contradiction is probably not a sham. This raises the question of how, if at all, the witness here (or more likely, the non-movant's counsel who presumably drafted the affidavit) could have explained the contradiction.

For example, if the witness had been threatened prior to his deposition and coerced into lying, that would undoubtedly have been sufficient. Or if the witness stated in his affidavit that he was not in his right mind at the deposition because he had just suffered a death in the family, was ill, was on pain killers due to recent surgery, and could think only about getting out of the deposition to go home, that would likely have been sufficient. (To be clear, these are hypothetical questions for discussion and not based on any facts of the case.)

Moving to a less dramatic explanation, suppose the witness stated in his affidavit that "I denied the wrongdoing at my deposition because I was scared of getting into trouble, didn't want to get my friends in trouble, and was afraid of losing my job. I was embarrassed by what I had done, and denied it even though I knew it was wrong to give inaccurate testimony. But it's been gnawing at me ever since, and I want as best as I can to make things right by coming clean and admitting what I did." This scenario is easy to understand. It would also be a clear admission that the witness had knowingly and intentionally lied at his deposition, putting him in a bad spot (exposure to perjury charges) and potentially raising tough ethical issues for the lawyer drafting the affidavit. But its candor and credibility would seemingly be enough to avoid the sham affidavit doctrine.

From this case, at least in New Jersey, it appears that a bare statement that the affiant "had found inaccuracies" in his deposition testimony and "hereby retract[ed]," it will not be sufficient to overcome the sham affidavit rule once it is triggered, even if the factual bases for the rule's application may not fully align with its original rationale.

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