Email forwarding, flash drives, and ignored red flags: A $50M lesson for HR
Three departing executives stole 25,000 files and launched a competitor, resulting in over $50 million in damages for their former employer.
Michael Harvey spent 30 years building Enviro Tech Chemical Services into a successful California-based chemical manufacturer. When he sold it to Arxada Holdings for $450 million in December 2021, he walked away with $327.5 million personally. As part of the deal, he agreed to stay on as an employee and signed restrictive covenants barring him from competing, soliciting employees, or poaching customers for five years.
The relationship soured almost immediately. Harvey clashed with his new corporate owners over pricing and operations. Instead of adapting, he went rogue. In March 2022, he used his company email to coach the firm's largest customer on how to negotiate against his own employer, telling them to "play hardball" for better pricing. He drafted emails for the customer to send, then added: "PLEASE DELETE THIS EMAIL AND DENY YOU EVER SAW IT."
By summer 2022, when the company discovered regulatory violations with products Harvey's team had been selling, the relationship collapsed. On August 6, 2022, Harvey learned he was being terminated. Twenty minutes later, he told his nephew Phil, a vice president at the company.
What followed was a coordinated scheme to steal company secrets. Harvey asked to delay his last day until August 17, claiming he needed time to set up a personal email and say goodbye. The company agreed, not knowing he already had a personal email.
On his final day, Harvey copied approximately 1,700 files to a flash drive, including over 1,000 chemical formulas. His nephews Phil and Aaron, both vice presidents, had already submitted resignations effective September 15. The company offered them severance packages with confidentiality agreements. Both refused to sign.
Between Harvey's termination and their departure, the three had 177 phone calls lasting more than 27 hours. Forensic evidence later showed Aaron copied more than 16,000 files to a flash drive, hiding them in a folder labeled "safety review." The haul included sales data, customer lists, supplier contracts, and 220 formulas. Phil downloaded 7,501 files focused on key customers.
The nephews launched Capacity Chemical using $4 million from trusts Harvey had established for them. The new company was designed as a direct competitor, targeting dissatisfied customers and products Arxada had discontinued. Though they claimed Harvey had no involvement, evidence showed he directed lab operations, hired technicians, and managed product development.
Harvey also bought BlueTech Laboratories for $150,000, listing his stepson's girlfriend as owner to hide his role. BlueTech owned EPA registrations for peracetic acid products, the same high-margin antimicrobials central to Arxada's acquisition strategy. Harvey's plan was to use BlueTech to compete in this premium market, believing his non-compete expired in 2023. It actually ran until 2029.
In August 2023, Harvey sent his nephews a database of more than 1,000 company formulas with detailed instructions. Phil responded: "This stuff is fantastic Mike." An expert later testified these formulas represented years of testing and customer feedback. Capacity Chemical used them to match Arxada's products while undercutting on price.
None of the three produced their flash drives during discovery. Phil and Harvey claimed they couldn't remember downloading files. Harvey admitted he changed his phone settings after the lawsuit started to automatically delete messages older than 30 days.
After a three-and-a-half-day trial with more than 1,000 exhibits, the Delaware Court of Chancery issued its ruling on January 28, 2026. The court found all three had conspired to steal trade secrets and breach their employee duties. They were held jointly liable for $900,000 in lost profits and $24.2 million in disgorgement. The court then awarded an equal amount in punitive damages, bringing the total above $50 million, plus legal fees.
Harvey is now barred from competing or working with Capacity Chemical or BlueTech until October 2029. His nephews face a one-year ban on using the stolen information.
For HR professionals, the case exposes critical vulnerabilities. Granting Harvey extra departure time enabled systematic theft. The refusal of all three to sign separation agreements eliminated crucial safeguards, demonstrating why severance should be conditional on signed confidentiality clauses. The mass downloading went entirely undetected until litigation, pointing to the need for monitoring systems that flag unusual data transfers.
The court enforced Harvey's five-year non-compete despite his substantial payout, validating well-drafted restrictive covenants. But the $50 million judgment proves that prevention costs far less than litigation. Strong exit procedures and monitoring systems are essential business protections, not administrative formalities.
