Lead Opinion
After our decision in Augat, Inc. v. Aegis, Inc.,
In Augat I, we identified a theory of liability which we characterized as “important but substantially isolated.” Id. at 173. The defendants had wrongfully joined with Jay Greenspan, while he was the general manager of the plaintiff Isotronics, in a violation of his duty of loyalty to Isotronics. Id. at 172. Greenspan, a top managerial employee, secretly solicited the departure of certain key managerial personnel from Isotronics to the defendant Aegis while he had a “duty to maintain at leаst adequate managerial personnel” at Isotronics. Id. at 173-174.
We said that “[t]he plaintiffs’ damages relate to negative effects on operating results that would not have occurred but for the departure of the key managerial employees” solicited by Greenspan. Id. at 175. We added the following explanation of plaintiffs’ obligations: “The plaintiffs must prove that losses that Isotronics sustained would not have occurred but for Greenspan’s breach of his duty of loyalty. These would be losses that were caused by prоblems arising from the departure to Aegis of key managerial employees who were approached by Greenspan while he and they were still employed by Isotronics, provided that the losses were caused by events occurring before Isotronics reasonably should have replaced the departed managerial employees with competent people. See BBF, Inc. v. Germanium Power Devices Corp.,
The trial judge conducted a thirty-day nonjury trial on the damages question. He issued a memorandum of decision and
We reject the plaintiffs’ argument, which seeks judgment against each defendant severally for the noncompensatory damages awarded under G. L. c. 93A. We also reject the defendants’ argument that the judge erred in ruling that their conduct was a wilful and knowing violation of G. L. c. 93A. We agree with the defendants, however, that the judge’s calculation of damages was erroneous in several significant respects. Consequently, there must be a redetermination of the damages to which the plaintiffs are entitled.
1. We reject the plaintiffs’ argument that damages pursuant to G. L. c. 93A, §§ 2 and 11 (1992 ed.), should have been awarded severally. In International Fidelity Ins. Co. v. Wilson,
2. The defendants urge that we reconsider our determination in Augat I, supra at 177 n.7, that the judge properly ruled that they wilfully and knowingly violated G. L. c. 93A, §§ 2 and 11. They cite our opinion in Underwood v. Risman,
3. We come to the damages question and start with a brief description of the judge’s conclusions that led him to the compensatory damage award of $14,140,000.
The judge found that, in the period from January 1, 1985, through March 31, 1987, Isotronics sustained a loss of profits because of “the disruption of its entire business caused by the departures” of the three key employees in late 1984 and early 1985. Isotronics had held “a dominant market position and a virtually unbroken track record of profitability.” In 1984, however, Isotronics had not had a good year, but that was due to extraordinary conditions.
The judge assumed that Isotronics’s sales would have increased at an annual rate of 20% from 1983 into 1987. He further concluded that, except for adjustments to reflect changes in the cost of gold,
The plaintiffs had to prove that Isotronics sustained monetary losses due to the defendants’ wrongdoing. Jet Spray Cooler, Inc. v. Crampton,
The implausibility of the judge’s projection of Isotronics’s growth figures is further demonstrated by his failure to recognize'the growing share of the market that the defendant Aegis obtained in 1985 and particularly in 1986 and 1987, when Aegis had significant sales. Aegis’s share of the market in these years was, respectively, 3 %, 20 % to 25 %, and 20 % to 25%. The judge’s decision to disregard Aegis’s market share was based on his conclusion that, in the twenty-seven month period for which he calculated Isotronics’s lost profits, Aegis would not have diverted any sales from Isotronics if the three key employees had remained at Isotronics.
The employees’ departures were wholly lawful, and Aegis committed no wrong in hiring them. The harm for which the plaintiffs are entitled to recover is the injury to Isotronics’s profits because the three employees were not at Isotronics be
There are further problems in the methodology advanced by Augat and accepted by the judge. The three managers whom Greenspan improperly solicited were just a few of the impоrtant people who left Isotronics to join Aegis in the relevant period. Greenspan, whom the judge found to be a highly competent and charismatic manager, also left Isotronics to join Aegis. His departure to Aegis was lawful. Augat I, supra at 175 n.5. The judge assigned no weight to the impact on Isotronics of the departure of Greenspan.
The judge erroneously attributed Isotronics’s expenses in connection with the operation and closing of its unsuccessful San Antonio plant to the departure of the three key employеes. There is no causal link between the departures and the closing of the San Antonio plant which opened in September, 1984. None of the three worked in that plant, nor was any of them responsible for its operations. That plant’s operating costs and the loss that resulted from its closing are not properly attributable to the departure of the three key employees.
The judge’s consideration of the decline in the value of Isotronics as a check against his calculation of lost profits is not justifiеd. Losses in earnings caused by the departure of the three employees states the measure of damages that this court fixed in Augat I. The judge’s attention to the decline in the value of Isotronics as a company dramatizes his willingness to attribute all Isotronics’s losses, not otherwise clearly proven to be caused by another identifiable event, to the departure of the three employees. This approach is inappropriate conceptually because it does not measure Isotronics’s lоss of earnings caused by the departures of the three employees. It is, moreover, speculative, and increasingly so in each successive month after the three key employees left.
It is apparent that the judge allоwed the causation claim to run out too far into the future; that he assumed a continuing growth in Isotronics’s sales that had no basis on the evidence; and that he allocated all Isotronics’s net income problems, not otherwise quantifiable, for a period of twenty-seven months to the departure of the three employees without making findings, supported by evidence, that justified that conclusion. On the other hand, although proof of the precise amount of loss is impossible, the defendants should not be permitted to esсape the consequences of their wrongful conduct that caused harm to the plaintiffs if some reasonable damages calculation can be made. See Rombola v. Cosindas,
Because the plaintiffs have been unable to point to a particular customer or sale that was lost or to a particular expense that Isotronics incurred because the three key employees left Isotronics, they must accept a generalized determination of damages. The impact of the departures would have been most significantly disruptive immediately after the three key employees left. We think that six months fairly represents the outside period for which damages should be awarded, that is, the period from January 1, 1985, to June
The only aspects of the calculation that need further analysis are adjustments for changes in the cost of gold
The judgment is vacated, and the case is remanded for a determination of compensatory damages consistent with this opinion and for the entry of a new judgment awarding (a) interest and G. L. c. 93A damages based on the new determination of compensatory damаges and (b) the attorneys’ fees previously allowed and any that may be awarded with respect to services rendered on remand. No counsel fees are awarded to the plaintiffs with respect to this appeal.
So ordered.
Notes
After assembly and sealing, Isotronics’s parts were plated, primarily with nickel and gold. The gold plating facilitated conduction of electricity and resistance to corrosion.
The principle of law that should guide the court is well stated in Lowrie v. Castle,
“Prospective profits may be recovered in an аppropriate action when the loss of them appears to have been the direct result of the wrong complained of and when they are capable of proof to a reasonable degree of certainty. They need not be susceptible of calculation with mathematical exactness, provided there is a sufficient foundation for a rational conclusion. . . . But such damages cannot be recovered when they are remote, speculative, hypothetical, and not within the realm of reasonable certainty. The nature of the business or venture upon which the anticipated profits are claimed must be such as to support an inference of definite profits grounded upon a reasonably sure basis of facts. When the elements, upon which the claim for prospective profits rests, are numerous and shifting contingencies whose relation to the wrong complained of is problematical, and such profits are not provable with assurance as a trustworthy result of the allegеd cause, then there can be no recovery. Manifest ambiguities in ascertaining what would have been the course of events in the face of complicated factors, under circumstances which never have come to pass, and inherent difficulties in calculating the amount of prospective gains, prevent the recovery of damages.” (Citations omitted.)
If total sales in the industry remained stable from 1984 to 1986, Isotronics would have had to attain more than 95% of the market in 1986 to maintain a 20% growth in annual sales from 1984.
Six mоnths was an adequate time within which to adjust to the departures. Each of the three key employees was replaced by April, 1985. In Augat, Inc. v. Aegis, Inc.,
When assessing the impact of Greenspan’s departure, the judge applied no similar test as to his successor. He found that Greenspan’s successor, despite vast differences in management style, was competent and not a cause of any loss to Isotronics. This inconsistent treatment of the question of competence is inexplicable.
Isotronics’s revenue varied with changes in the cost of gold. Any projection of future salеs based on past sales would have to be adjusted to reflect changes in the cost of gold. On remand the subject of the adjustments for gold price changes (the plaintiffs suggested two but the judge made but one) will need scrutiny.
In the first half of 1985, Isotronics had production problems because a supplier had delivered defective glass beads which had been incorporated in thousands of assembled parts. Isotronics sustained substantial costs in dealing with this problem. The judge made an adjustment in his calculation of 1985 profits to reflect the effect of this problem. His implicit finding that only 40,000 units had been affected is not supported by the admissible evidence. The only evidence to support this view was testimony of witnesses who relied solely on a document that was prepared after this action was commenced and thus was not admissible as a business record. See Quinn Bros. v. Wecker,
The defendants have raised numerous challengеs to the propriety of the judge’s findings of fact. Those findings that support the result we have reached were warranted by the evidence.
Concurrence Opinion
(concurring in part and dissenting in part, with whom Liacos, C.J., joins). I agree with the court that the judge erred in his method of determining damages and that
The court states, “We think that six months fairly represents the outside period for which damages should be awarded.” Ante at 491. The court bases this conclusion on the fact that “[s]ix months was an adequate time within which to adjust to the departures.” Supra at 492 n.6. The court does not suggest that six months was the only proper date to use in assessing damages. That should be a matter of evidence and fact-finding. “[Ajppellate courts must constantly have in mind that their function is not to decide factual issues de nova.” First Pa. Mortgage Trust v. Dorchester Sav. Bank,
Dissenting Opinion
(dissenting). Today, the majority takes an unorthodox approach in reviewing a judgment; after considering the record, it determines that the trial judge’s findings are unwarranted, and it then finds facts on its own to support an outcome which, in its judgment, is warranted. This is inappropriate. I comment briefly on several aspеcts of the majority opinion.
1. Trial judge’s award of damages. I acknowledge that prospective profits “cannot be recovered when they are remote, speculative, hypothetical, and not within the realm of reasonable certainty.” Lowrie v. Castle,
I see no clear error in the judge’s finding that Isotronics’s sales would have grown at a rate of 20 %. Indeed, the majority, while contending that the figure is without support in the record, acknowledges thаt such an estimate was made at trial. It refuses to accept the estimate because it was prof: fered by an employee of Augat. This fact, however, goes only to the weight of the evidence, and does not warrant a ruling of error. In fact, contrary to the majority’s implicit assertion, Greenspan himself had estimated Isotronics’s sales growth to be greater than 20 %. There was evidence in the record sufficient to support the finding.
I agree with the majority that the trial judge’s calculation of Isotronics’s loss in value wаs not justified. However, the judge did not rely on the figure in calculating damages (except to check that the actual damages award was not excessive), and thus, it should not be of concern.
2. Majority’s award of damages. The majority states early in its opinion that “[djamages for lost profits are recoverable only when proof is made ‘with sufficient certainty.’ ” It goes on to set forth how, in its judgment, the trial judge’s award of damages was not supported to a sufficient certainty by his subsidiary findings and the record. The majority then finds facts on its own, contradicting those found by the trial judge, and аttempts to justify doing so by stating: “ [Although proof of the precise amount of loss is impossible, the defendants should not be permitted to escape the consequences of their wrongful conduct that caused harm to the plaintiffs. . . . The defendants should pay something . . . .” This is ironic; the majority contradicts its initial stance that damages must be proven to a sufficient certainty. If the majority examined its own award of damages with the same standard it used to examine that of the trial judge, without a doubt it would be unable to conclude that it should stand.
The majority’s cut-off date of June 30, 1985, is arbitrary. That date contradicts the trial judge’s numerous preliminary findings which support his ultimate finding that causation ended at or about April 1, 1987. The majority offers no support for the date, either from the trial judge’s findings of fact or from the record. Similarly, the “assumed” sales growth figure used by the majority, as well as its profit margin figure, also contradict the trial judge’s findings of fact, and again the majority offers no support for them. Indeed, the “assumed” sales growth figure is pulled out of thin air.
If the court finds error in the trial judge’s findings of fact, оr if it determines that a conclusion or ultimate finding of the
Damages must be — and were, without error — measured in accordance with the facts as found by the appropriate fact-finding body, not by this court.