HOSPITAL MEDIA NETWORK, LLC v. JAMES G. HENDERSON ET AL.
(AC 43986)
Appellate Court of Connecticut
Argued February 2—officially released December 28, 2021
Prescott, Moll and Suarez, Js.
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Syllabus
The defendant H, a former employee of the plaintiff, appealed from the judgment rendered on remand awarding damages to the plaintiff for H‘s breach of fiduciary duty. The plaintiff had employed H as its chief revenue officer until 2013 when it fired him for cause. Thereafter, the plaintiff brought an action against H, claiming, among other things, that he breached his fiduciary duty to the plaintiff by working for G Co., a private equity investment firm, to raise capital to acquire C Co., which was involved in the same business sector as the plaintiff, while he was employed by the plaintiff, during regular business hours, and without the plaintiff‘s permission or knowledge. G Co.‘s acquisition of C Co. closed in 2013 shortly after H‘s employment was terminated, at which time H was paid a $150,000 finder‘s fee by either G Co. or C Co., was awarded a three year consulting contract with C Co. at $50,000 annually, and was given the opportunity to purchase restricted stock of C Co. H was defaulted for failure to comply with a discovery order and the trial court granted the plaintiff‘s motion for judgment on the default. Following a hearing, the trial court rendered judgment for the plaintiff and awarded damages against H. H appealed to this court, which reversed the judgment only as to the award of damages against him, concluding that the award did not achieve a just result, as it failed to take into account the equities of the case, and remanded the case for a new hearing in damages. On remand, the trial court rendered judgment in favor of the plaintiff in the amount of $323,545.84, which represented H‘s 2013 salary, certain consulting fees paid to H by the plaintiff, the finder‘s fee, and one year‘s worth of consulting fees under the consulting contract, and H appealed to this court. Held:
- In rendering its judgment, the trial court acted within the scope of this court‘s remand order by making its own independent factual findings on the basis of the entire record before it and relying on those findings to assess the equities in the case: this court did not issue a circumscribed remand order binding the trial court to the factual findings in the first action but, rather, reversed the decision as to the damages award against H and remanded the case for a new hearing in damages; moreover, given that the record on remand included additional evidence, it followed that the trial court necessarily made its own findings on the basis of the totality of the evidence in the record and, in light of those findings, considered the relevant equitable factors in determining damages.
- The damages award on remand was improper only insofar as the trial court ordered H to disgorge $50,000 in consulting fees paid pursuant to the consulting contract: contrary to H‘s claim, the court‘s finding that H did not perform substantial work before being hired by the plaintiff in 2013 that entitled him to the $150,000 finder‘s fee was not clearly erroneous, as it was supported by portions of the hearing testimony and the court was free to resolve any inconsistency in the testimony by crediting only the portions that buttressed its findings; moreover, although the record did not support the court‘s finding that H attempted to offer into evidence at the hearing in damages numerous exhibits that the plaintiff‘s counsel had not seen previously, that unsupported finding did not undermine appellate confidence in the court‘s fact-finding process and, accordingly, it was harmless; furthermore, although the court improperly ordered disgorgement of $50,000 of the $150,000 consulting fees, as it was prohibited by this court‘s previous decision from ordering disgorgement of amounts earned by H outside of H‘s period of employment with the plaintiff and it assumed that H had earned the consulting fees for services performed after his employment with the plaintiff had ended, the trial court did not otherwise abuse its discretion in awarding damages but, rather, properly balanced the equities and utilized the equitable remedies of forfeiture and disgorgement, as it properly considered the significant value of H‘s services to the plaintiff as an employee and balanced that against its other factual findings, the court was not precluded from finding that H acted wilfully and engaged in disloyal acts throughout his employment or from relying on such findings to issue the damages award, as they were supported by the record and fit within the guidance set forth in Wall Systems, Inc. v. Pompa (324 Conn. 718), there was no suggestion in the court‘s decision that it had used H‘s discovery violations to supplant the plaintiff‘s burden to demonstrate damages, and H‘s assertion that the plaintiff was unjustly enriched by the award was unavailing.
Procedural History
Action to recover damages for, inter alia, breach of fiduciary duty, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, where the court, Hon. A. William Mottolese, judge trial referee, granted the plaintiff‘s motion for default against the defendants and for nonsuit on the defendants’ counterclaim; thereafter, the court, Hon. A. William Mottolese, judge trial referee, granted the plaintiff‘s motion for judgment on the default and rendered a judgment of nonsuit as to the defendants’ counterclaim; subsequently, following a hearing in damages, the court, Hon. Taggart D. Adams, judge trial referee, rendered judgment for the plaintiff, and the defendants appealed to this court, Alvord, Keller and Flynn, Js., which reversed the trial court‘s judgment only with respect to the award of damages against the named defendant and remanded the matter for further proceedings; thereafter, following a hearing in damages, the court, Hon. Kenneth B. Povodator, judge trial referee, rendered judgment for the plaintiff, from which the named defendant appealed to this court.
Gary S. Klein, with whom was Liam S. Burke, for the appellee (plaintiff).
Opinion
MOLL, J. This matter returns to us following our decision in Hospital Media Network, LLC v. Henderson, 187 Conn. App. 40, 201 A.3d 1059 (2019) (HMN), in which this court reversed the judgment of the trial court rendered in favor of the plaintiff, Hospital Media Network, LLC, and against the self-represented defendant
This court‘s opinion in HMN sets forth the following relevant procedural background, which, although lengthy, we recite to place the defendant‘s claims on appeal in their proper context. “In November, 2013, the plaintiff commenced this action alleging that the defendant, its former employee, violated the Connecticut Uniform Trade Secrets Act (CUTSA),
“With respect to its breach of fiduciary duty count, the plaintiff alleged that it employed the defendant as its chief revenue officer and paid him substantial compensation from January 1 to September 2013. On September 5, 2013, the plaintiff terminated the defendant‘s employment ‘for cause for several reasons including, without limitation [the defendant‘s] actively working for various companies unrelated to [the plaintiff] for his own benefit and without [the plaintiff‘s] permission or knowledge during regular business hours.’ Specifically, it alleged that the defendant worked for or on behalf of Generation Partners (Generation), a private equity investment firm, ‘to raise capital for other digital media companies including but not limited to’ Captivate Network Holdings, Inc. (Captivate), and used the plaintiff‘s computers and infrastructure to conduct business for those other digital media companies without the plaintiff‘s permission or knowledge. The plaintiff claimed that the defendant played golf on a social basis and otherwise took time off during regular business hours without the plaintiff‘s permission.
“The defendant answered and filed an amended counterclaim, alleging breach of contract, wrongful termination, misrepresentation and deceit, and violation of the Connecticut Unfair Trade Practices Act (CUTPA),
“The parties engaged in discovery disputes, resulting in an April, 2016 order from the court [Hon. A. William Mottolese, judge trial referee] that the parties ‘confer face-to-face in an effort to resolve these discovery disputes, bearing in mind that reasonable good faith efforts at compromise are essential to every discovery dispute.’ On June 27, 2016, after finding the defendant‘s objections to the plaintiff‘s discovery requests ‘intentionally evasive and intended to obstruct the process,’ the court ordered full compliance within thirty days. On July 28, 2016, the plaintiff filed a motion for default and nonsuit on the basis that the defendant had failed to comply with the court‘s June 27 order. The court granted the motion, finding that the ‘[p]laintiff is clearly prejudiced by these obstructive tactics and the only appropriate remedy proportionate to the infraction is default.’ On September 26, 2016, the court rendered judgment for the plaintiff on its affirmative claims and against the defendant on his counterclaim.
“On September 27, 2016, the court [Hon. Taggart D. Adams, judge trial referee] held a hearing in damages. The plaintiff presented the testimony of Andrew Hertzmark, an employee of Generation; Christopher Culver, chief executive officer of the plaintiff; Taylor Henderson; and [the defendant]. At the conclusion of the hearing, the court requested posttrial briefing, which the parties submitted on October 18, 2016.
“On February 15, 2017, the court issued a memorandum of decision [2017 decision]. In its memorandum, the court reviewed the evidence presented during the [September 27, 2016] hearing in damages. From 2011 to 2013, the defendant was a consultant to the plaintiff, and the plaintiff compensated the defendant by making payments to his consulting company, St. Ives Development Group. On January 1, 2013, the defendant became a full-time employee and chief revenue officer of the plaintiff. The plaintiff paid him a salary of over $12,000 per month, totaling $121,579.84 in 2013, and also paid him a sales target bonus of $25,000 in May, 2013. That bonus was paid to St. Ives Development Group. Just weeks after becoming a full-time employee of the plaintiff, the defendant communicated with Hertzmark, identifying the plaintiff as a possible investment target for his fund, and included the plaintiff‘s revenues and possible buyout price.
“In 2013, Hertzmark was working on a potential transaction in which Generation would acquire Captivate from Gannett Company, Inc. (Gannett). Both Captivate and the plaintiff are involved in the same business sector. While Captivate sells advertising space on digital monitors in elevators, the plaintiff sells advertising space
“The plaintiff terminated the defendant‘s employment on September 5, 2013, and Generation‘s acquisition of Captivate from Gannett closed on September 26, 2013. Upon the transaction‘s closing, the defendant was paid a finder‘s fee of $150,000, awarded a consulting contract with Captivate for three years at $50,000 annually, and given the opportunity to purchase restricted stock of Captivate.
“The court found that ‘during the events in this case [the defendant] either never comprehended or ignored the different consequences of being a company employee and being a consultant,’ referring to the defendant‘s testimony in which he described himself as a ‘consultant employee’ of the plaintiff. The court referenced the testimony of Culver, the plaintiff‘s chief executive officer, that the plaintiff‘s sales increased from $1.9 million in 2010 to $6.6 million in 2013. The court additionally noted Culver‘s testimony that the plaintiff ‘held itself out to be the fastest growing company of its kind during this period’ and his recognition that the defendant was part of this ‘terrific growth.’ Crediting Culver‘s testimony, the court found that ‘there was a sharp increase in the [plaintiff‘s] sales’ while the defendant worked for the plaintiff.
“Turning to the plaintiff‘s claimed damages, the court first found that the plaintiff was not entitled to the defendant‘s ‘compensation from Captivate’ on the theory that the defendant usurped a corporate opportunity. Specifically, the court found that the opportunity the defendant took was ‘employment’ at Captivate, which was not an opportunity available to the plaintiff. The court determined, however, that damages were appropriate on the plaintiff‘s claim of the breach of fiduciary duty of loyalty, and measured the damages ‘by the gain to the faithless employee.’ The court awarded damages against the defendant in the total amount of $454,579.76, including $146,579.84, representing the defendant‘s 2013 salary ($121,579.84) and bonus ($25,000); $150,000, representing the finder‘s fee paid by Generation or Captivate [($150,000 finder‘s fee)]; $150,000, representing the consulting fees to be paid by Captivate from 2013 through 2016 [($150,000 consulting fees)]; and $7999.92, representing the value of the Captivate stock at the time of purchase.
“The court declined to award attorney‘s fees under CUTSA, finding that ‘there was minimal or no misappropriation of trade secrets in this case, and no justifiable basis for awarding fees under that statute.’ The court further declined to award attorney‘s fees as punitive damages under the common law, on the basis that the defendant ‘has been penalized severely already by this court‘s decision. To add hundreds of thousands of dollars more, would not only
The defendant appealed from the judgment in the 2017 decision, claiming that the damages award was improper because the plaintiff had failed to offer proof of its damages.5 Id., 48. On January 8, 2019, this court issued its opinion in HMN, reversing the judgment rendered against the defendant in the 2017 decision only as to damages. Id., 40, 60. In addressing the defendant‘s claim, this court first observed that, “[b]ecause of the default entered against the defendant, he [was] precluded from challenging his liability to the plaintiff under the claims pleaded“; id., 49; however, the defendant was “entitled . . . to challenge the determination of monetary relief awarded by the court.” Id., 50. After providing an overview of our Supreme Court‘s decision in Wall Systems, Inc. v. Pompa, 324 Conn. 718, 154 A.3d 989 (2017), which was published after the 2017 decision and which “provided guidance on the equitable remedies available to an employer upon proving that an employee has breached his fiduciary duty of loyalty“; Hospital Media Network, LLC v. Henderson, supra, 187 Conn. App. 51; this court concluded “that the award of monetary relief [in the 2017 decision] was disproportionate to the misconduct at issue and failed to take into account the equities of the case at hand.” Id., 54.
Turning first to the portion of the damages award requiring the defendant to forfeit his 2013 salary plus his sales bonus, totaling $146,579.84, this court stated that the trial court made factual findings that corresponded with the non-exhaustive list of factors delineated in Wall Systems, Inc.,6 but that the court “ultimately failed to give proper weight to these findings in fashioning its damages award.” Id., 56. This court noted that “the trial court expressly recognized the value of the services the defendant provided the plaintiff, finding ‘a sharp increase in the [plaintiff‘s] sales’ while the defendant worked for the plaintiff, and concluding that the defendant was part of this ‘terrific growth.’ That finding corresponds with the Wall Systems, Inc. factor prompting consideration of ‘the effect of the disloyal acts on the value of the employee‘s properly performed services to the employer.’ The court‘s finding, in essence a recognition that the defendant was providing extraordinary value to the plaintiff despite his breach of fiduciary duty, should have weighed in favor of a measured forfeiture, not the defendant‘s full salary and bonus.” Id.
Next, this court stated that “the [trial] court also made a finding related to the wilfulness of the defendant‘s actions, another of the Wall Systems, Inc. factors. The court characterized the defendant‘s actions as ‘uninformed, and even stupid.’ By declining to award attorney‘s fees as punitive damages under the common law on this basis, it is evident that the court rejected any notion that the defendant‘s conduct was ‘outrageous, done with a bad motive, or with reckless indifference.’ The court also found that the defendant had ‘either never comprehended or ignored the different consequences of being a company employee and being a consultant,’ referring to the defendant‘s testimony in which he described himself as a ‘consultant employee’ of the plaintiff. Despite recognizing that the defendant potentially ‘never comprehended’ the distinction between serving as an employee and a consultant and finding that the defendant‘s behavior was ‘uninformed’ rather than done with a bad motive, the court failed to give proper weight to these findings when fashioning its award.” Id., 57–58. This court continued: “[T]he trial court‘s express factual findings reflect an uninformed employee who continued to provide significant value to his employer despite his breach of fiduciary duty. These findings, clearly not in the nature of corrupt or reprehensible behavior, should have weighed in favor of an award of something less than full forfeiture.” Id., 58.
This court then noted, in reference to another Wall Systems, Inc. factor, that “forfeiture was not the sole remedy available to the [trial] court, as the court had before it evidence of the benefit the defendant received from third parties Generation and Captivate. . . . The court found those benefits . . . to amount to a total of $307,99[9].92, and ordered disgorgement in full.” (Citation omitted.) Id.
Turning to the portion of the damages award requiring the defendant to disgorge $307,999.92, which comprised the $150,000 finder‘s fee, the $150,000 consulting fees,
In sum, this court concluded that, “[i]n fashioning its damage award [in the 2017 decision], the [trial] court failed to formulate a remedy appropriate to the particular circumstances of this case, in light of its own factual findings which weighed in favor of a measured award. Ultimately, the award of wholesale forfeiture and disgorgement in full failed to take into account the equities of the case at hand and did not achieve a just result.” Id., 60. Accordingly, this court reversed the judgment rendered against the defendant in the 2017 decision only as to the damages award and remanded the case for a new hearing in damages. Id.
Following this court‘s remand in HMN, the trial court, Hon. Kenneth B. Povodator, judge trial referee, held a new hearing in damages on September 10, 2019. At the outset of the hearing and without objection, the court indicated that it would consider the exhibits admitted during the September 27, 2016 hearing in damages as part of the record before it. In addition, without objection, the court admitted as a full exhibit a certified copy of the transcript of the September 27, 2016 hearing in damages. Culver, Taylor Henderson, and the defendant testified at the September 10, 2019 hearing in damages, and additional exhibits were admitted. On October 31, 2019, the parties filed posttrial briefs.
On February 25, 2020, the court issued a memorandum of decision rendering judgment in favor of the plaintiff in the amount of $323,545.84—$131,033.92 less than the damages awarded in the 2017 decision. This award represented (1) the defendant‘s forfeiture of (a) his 2013 salary in the amount of $121,579.84 and (b) $1966 in certain consulting fees paid by the plaintiff, and (2) the defendant‘s disgorgement of (a) the $150,000 finder‘s fee and (b) $50,000, constituting one year‘s worth of the $150,000 consulting fees.7 This appeal followed. Additional facts and procedural history will be set forth as necessary.
I
We first address the defendant‘s claim that the trial court exceeded the scope of this court‘s remand order in HMN. Specifically, the defendant asserts that, on remand, the court was bound by the factual findings made in the 2017 decision that were not challenged by the plaintiff in HMN by way of a cross appeal, such that the court committed error by “reopening
“We begin our analysis with the applicable standard of review. Determining the scope of a remand is a matter of law because it requires the trial court to undertake a legal interpretation of the higher court‘s mandate in light of that court‘s analysis. . . . Because a mandate defines the trial court‘s authority to proceed with the case on remand, determining the scope of a remand is akin to determining subject matter jurisdiction. . . . We have long held that because [a] determination regarding a trial court‘s subject matter jurisdiction is a question of law, our review is plenary. . . .
“At the outset, we note that, [i]f a judgment is set aside on appeal, its effect is destroyed and the parties are in the same condition as before it was rendered. . . . As a result, [w]ell established principles govern further proceedings after a remand by this court. In carrying out a mandate of this court, the trial court is limited to the specific direction of the mandate as interpreted in light of the opinion. . . . This is the guiding principle that the trial court must observe. . . . It is the duty of the trial court on remand to comply strictly with the mandate of the appellate court according to its true intent and meaning. . . . The trial court should examine the mandate and the opinion of the reviewing court and proceed in conformity with the views expressed therein. . . .
“Compliance [with a mandate] means that the direction is not deviated from. The trial court cannot adjudicate rights and duties not within the scope of the remand. . . . No judgment other than that directed or permitted by the reviewing court may be rendered. . . . The trial court should examine the mandate and the opinion of the reviewing court and proceed in conformity with the views expressed therein.” (Citations omitted; emphasis omitted; internal quotation marks omitted.) Hurley v. Heart Physicians, P.C., 298 Conn. 371, 383-84, 3 A.3d 892 (2010).
Mindful of these principles, we turn to this court‘s opinion and remand order in HMN. As we detailed previously in this opinion, this court in HMN concluded that the damages award in the 2017 decision was improper because the trial court failed to weigh properly the equities in light of its factual findings. Hospital Media Network, LLC v. Henderson, supra, 187 Conn. App. 60. This court‘s remand order provided in relevant part that “[t]he judgment is reversed only as to the award of damages against [the defendant] and the case is remanded for a new hearing in damages . . . .” Id. On remand, the trial court conducted a new hearing in damages, hearing testimony from Culver, Taylor Henderson, and the defendant and admitting additional exhibits offered by the parties that supplemented the evidence adduced during the prior hearing in damages. Whereupon the court issued a decision in which it set forth findings of fact and, guided by the principles detailed in Wall Systems, Inc. v. Pompa, supra, 324 Conn. 718, awarded damages on the basis of its consideration of the equities in the case. See part II of this opinion.
We conclude that the trial court acted within the scope of this court‘s remand order in HMN by making its own, independent factual findings on the basis of the entire record before it and relying on those findings to assess the equities in the case. This court in HMN did not issue a circumscribed remand order that bound
II
The defendant next claims that the damages award on remand was improper because the trial court (1) made factual findings that were unsupported by the record and (2) improperly weighed the equities in the case. For the reasons that follow, we agree with the defendant that the court committed error, only insofar as the court ordered him to disgorge $50,000 of the $150,000 consulting fees.
We begin by setting forth the following applicable legal principles and standard of review. As our Supreme Court explained in Wall Systems, Inc. v. Pompa, supra, 324 Conn. 718, “[i]f an employer can prove an employee‘s breach of his or her duty of loyalty, there are a variety of remedies potentially available.” Id., 732. These include the equitable remedies of forfeiture and disgorgement. Id., 729. As to disgorgement, “if an employee realizes a material benefit from a third party in connection with his breach of the duty of loyalty, the employee is subject to liability to deliver the benefit, its proceeds, or its value to the [employer]. . . . Accordingly, [a]n employee who breaches the fiduciary duty of loyalty may be required to disgorge any profit or benefit he received as a result of his disloyal activities, regardless of
“Additionally, an employer may seek forfeiture of its employee‘s compensation. . . . [Forfeiture] is derived from a principle of contract law: if the employee breaches the duty of loyalty at the heart of the employment relationship, he or she may be compelled to [forgo] the compensation earned during the period of disloyalty. The remedy is substantially rooted in the notion that compensation during a period in which the employee is disloyal is, in effect, unearned. . . . Forfeiture may be the only available remedy when it is difficult to prove that harm to [the employer] resulted from the [employee‘s] breach or when the [employee] realizes no profit from the breach. In many cases, forfeiture enables a remedy to be determined at a much lower cost to litigants. Forfeiture may also have a valuable deterrent effect because its availability signals [employees] that some adverse consequence will follow a breach of fiduciary duty. . . . Notably, however, even in cases in which a court orders forfeiture of compensation, the forfeiture normally is apportioned, that is, it is limited to the period of time during which the employee engaged in disloyal activity.” (Citations omitted; internal quotation marks omitted.) Id., 733–34. “[W]hen imposing the remedy of forfeiture of compensation, depending on the circumstances, a trial court may in its discretion apply apportionment principles, rather than ordering a wholesale forfeiture that may be disproportionate to the misconduct at issue. Conversely, the court may conclude that all compensation should be forfeited because the employee‘s unusually egregious or reprehensible conduct pervaded and corrupted the entire [employment] relationship.” (Citation omitted; internal quotation marks omitted.) Id., 738; see also id., 734 n.11 (“[I]f an employee‘s disloyalty is confined to particular pay periods, so is the required forfeiture of compensation. . . . Conversely, if the compensation received by a disloyal employee is not apportioned to particular time periods or items of work, and his or her breach of the duty of loyalty is wilful and deliberate, forfeiture of his or her entire compensation may result.” (Citations omitted; emphasis omitted.)).
Our Supreme Court emphasized that the remedies of forfeiture and disgorgement “are not mandatory upon the finding of a breach of the duty of loyalty, intentional or otherwise, but rather, are discretionary ones whose imposition is dependent upon the equities of the case at hand.” Id., 729. “Generally speaking, equitable determinations that depend on the balancing of many factors are committed to the sound discretion of the trial court. . . . [C]ourts exercising their equitable powers are charged with formulating fair and practical remedies appropriate to the specific dispute. . . . In doing equity, [a] court has the power to adapt equitable remedies to the particular circumstances of each particular case. . . . [E]quitable discretion is not governed by fixed principles and definite rules . . . . Rather, implicit therein is conscientious judgment directed by law and reason
In determining whether to invoke the remedies of forfeiture or disgorgement, “a trial court should consider all of the facts and circumstances of the case before it,” including various factors enumerated by our Supreme Court insofar as they apply. Id., 737; see also footnote 6 of this opinion. “The several factors embrace broad considerations which must be weighed together and not mechanically applied. . . . [T]he judicial task is to search for a fair and reasonable solution in light of the relevant considerations . . . and to avoid unjust enrichment to either party.” (Citations omitted; internal quotation marks omitted.) Wall Systems, Inc. v. Pompa, supra, 324 Conn. 738.
“As a general matter, [t]he trial court has broad discretion in determining whether damages are appropriate. . . . Its decision will not be disturbed on appeal absent a clear abuse of discretion. . . . Our review of the amounts of monetary awards rendered pursuant to various equitable doctrines is similarly deferential.” (Internal quotation marks omitted.) Hospital Media Network, LLC v. Henderson, supra, 187 Conn. App. 51. “Although the determination of whether equitable doctrines are applicable in a particular case is a question of law subject to plenary review . . . the amount of damages awarded under such doctrines is a question for the trier of fact.” (Citation omitted.) Id., 51 n.13. “With regard to the trial court‘s factual findings . . . the clearly erroneous standard of review is appropriate. . . . A factual finding is clearly erroneous when it is not supported by any evidence in the record or when there is evidence to support it, but the reviewing court is left with the definite and firm conviction that a mistake has been made.” (Internal quotation marks omitted.) Howard-Arnold, Inc. v. T.N.T. Realty, Inc., 145 Conn. App. 696, 717, 77 A.3d 165 (2013), aff‘d, 315 Conn. 596, 109 A.3d 473 (2015).
In its decision on remand, the court found the following relevant facts and set forth the following reasoning in support of the damages award. The court observed that, with regard to the remand order in HMN, “[i]n stating that the goal should have been ‘a measured award’ and that the ‘wholesale forfeiture and disgorgement in full’ were improper, [this court], seemingly unambiguously, was sending a message that adjustments [to the damages awarded in the 2017 decision] were required . . . .” The court construed this court‘s “mandate [to be] to moderate the amount awarded using equitable principles” and further commented that this court had “directed [the trial court on remand] to award a more measured level of damages, taking into account work performed by the defendant prior to his employment by the plaintiff and work performed by the defendant after termination of his employment and the work performed for the plaintiff.” The court further noted that the record before it included the transcript of the September 27, 2016 hearing in damages, as well as the exhibits admitted at that hearing, as supplemented by the testimony and exhibits admitted during the September 10, 2019 hearing in damages.
At the outset of its analysis, the court stated that, during the September 10, 2019 hearing in damages, “[t]he defendant attempted to offer a large number of documents most of which counsel for the plaintiff claimed never to have seen before . . . . When the defendant proffered many of his exhibits during the . . . hearing, counsel for the plaintiff repeatedly stated that he had not seen the documents previously—
Later in its decision, in applying the principles set forth in Wall Systems, Inc., the court “identif[ied] a factor relatively unique to this case.” The court explained: “In granting a default as to the plaintiff‘s claims and a nonsuit against the defendant on his [counterclaim], the court [Hon. A. William Mottolese, judge trial referee] characterized the defendant‘s approach to discovery as reflecting ‘hardened intransigence’ . . . . Later in that same order, the court concluded that ‘the plaintiff is clearly prejudiced by these obstructive tactics and the only appropriate remedy proportionate to the infraction is default.’ This was after the court had characterized the defendant‘s objections to discovery requests in less than flattering terms: ‘[T]he objections are deemed intentionally evasive and intended to obstruct the process,’ followed by what amounted to an invitation to the plaintiff to file an application for attorney‘s fees . . . .
“The extent to which the defendant was affirmatively disloyal or engaged in self-dealing, the extent to which he took and misused proprietary or confidential information, the extent to which he may have usurped corporate opportunities (or assisted other entities in usurping corporate opportunities), the extent to which he may have interfered with the plaintiff‘s business expectancies, all would require access to materials in the possession or control of the defendant. . . . Notwithstanding the defendant‘s nonproduction of [certain] documents [offered by the plaintiff during the September 27, 2016 hearing in damages], the plaintiff was able to obtain them at least in part due to fortuitous circumstances. . . . [T]here was at least one e-mail within his business account [the January 25, 2013 e-mail] both reflecting other ventures [the defendant was engaged in] and efforts made to conceal that type of activity. Further, the use of a personal e-mail account from the plaintiff‘s computers prevented the plaintiff from being able to view e-mails themselves, but attachments such as PDF documents, apparently by
“The plaintiff, then, fortuitously had ‘leads’ relating to the defendant‘s continued interaction with Generation and especially the Captivate deal. Absent other such leads, however, the plaintiff would have no way of knowing the extent to which the defendant had used/misused his position or information available to him due to his position in manners detrimental to the plaintiff and/or benefiting the defendant. This is especially significant since the defendant has claimed that despite his having been hired as an employee of the plaintiff, he thought he was an employee-consultant and able to engage in other business ventures despite employment by the plaintiff.
“The court recognizes that the defendant already has been sanctioned for his failure to comply with disclosure obligations by virtue of the entry of a default and nonsuit. There remains, however, an asymmetry with respect to knowledge/information pertaining to dam- ages. All of the information provided by the plaintiff with respect to its damages claims was known/knowable to the defendant—there were no surprises or potential claims of withholding of information by the plaintiff. The plaintiff, however, was only able to get limited meaningful disclosure through third parties and/or its own efforts—other activities that might have led to claims of wrongdoing with associated further disgorgement, information solely controlled by the defendant, remained unknown to the plaintiff. In effect, the defendant has limited the information available to the plaintiff concerning his wrongdoing, while able to cherry-pick information to be disclosed at trial that he deemed might be helpful. . . .
“This court, then, is concerned about the implications of allowing a defendant to restrict access to detrimental evidence relating to the extent of his wrongdoing and the extent of damages, while allowing him to ask for favorable equitable treatment based on favorable information he is able to proffer (here, the extent of sales he claims to have made). The court must decide this case, but cannot ignore potential implications of allowing an adverse party to have the ability to stymie the court‘s ability to make a meaningful and reasonably accurate determination of the damages which a party is entitled to recover.” (Citations omitted.)
In light of this court‘s analysis in HMN, the trial court also addressed three specific topics: (1) the services that the defendant had provided to the plaintiff during his period of employment; (2) the defendant‘s efforts, prior to his employment with the plaintiff, to assist Generation in its acquisition of Captivate; and (3) the work performed by the defendant for Captivate after the plaintiff had terminated his employment. As to the services provided by the defendant as the plaintiff‘s employee, the court found that, although it was undisputed that the plaintiff‘s sales increased “substantially” while the defendant was employed by the plaintiff, “as [Culver] testified, it is unknown how much more growth there would have been had the [defendant] been devoting 100 percent of his time—as an employee should—to his employer‘s business rather than devoting unknown amounts of time to personal ventures. This is in the context of
Addressing the defendant‘s level of involvement in the Captivate deal before his employment with the plaintiff, the court found that, “[p]rior to employment by the plaintiff, the defendant‘s role with respect to Captivate and Generation was as a finder. There was evidence that there had been prior unsuccessful attempts at bringing those two entities together, as well as efforts by the defendant to bring other investment opportunities to the attention of Generation.
“As the court understands it, as a finder, the defendant was acting in a capacity analogous to that of a real estate broker—no compensation is earned with respect to unsuccessful prospects, no matter how much effort is expended. Only when a deal is brought to fruition—in the case of a real estate sale, typically it is obtaining a ready, willing and able buyer as memorialized in a signed contract (rather than the actual closing)—is a commission or finder‘s fee ‘earned.’ Thus, while the final dotting of i‘s and crossing of t‘s may not be necessary to earn compensation as a finder, a near final if not final deal in terms of obligations is required before any money is earned; unsuccessful efforts, no matter how extensive, do not result in any compensation.
“From this perspective, the court concludes that there was no evidence much less credible evidence that the defendant had rendered consulting services to Generation or Captivate, prior to 2013, for which he was entitled to compensation. There was no evidence or suggestion that any compensation was due or payable to the defendant relating to Captivate (or other equity investment opportunities for Generation), absent an actual agreement. Specifically
The court further found that the defendant spent time working on the Captivate deal in February through April, 2013. Specifically, the court found that (1) in March and April, 2013, the defendant responded to certain questions posed by Hertzmark concerning Captivate‘s “attractiveness as an investment,” and (2) the defendant reviewed due diligence information from Captivate from February through April, 2013. (Internal quotation marks omitted.) Additionally, the court found that the defendant sent an e-mail to Hertzmark dated July 6, 2013, writing in relevant part: “[W]hen you have my contract completed, I would like to have my attorney review it . . . .” (Internal quotation marks omitted.) The court observed that, at that time, there was official documentation reflecting that the defendant was going to be named the chief executive officer of Captivate. On the basis of “all of the available evidence, the court [could not] conclude that there was any substantial compensable work performed by the defendant, relating to the Captivate transaction, prior to his becoming employed by the plaintiff; virtually all of the work relating to that deal occurred during his tenure with the plaintiff.” Moreover, the court discredited testimony by the defendant “to the effect that most of the work on the Captivate project requiring input from him had been completed prior to his hire date of January 1, 2013.”
With respect to the defendant‘s activity after his employment was terminated by the plaintiff, the court described the evidence as “also sketchy—perhaps sketchier.” The court found that “[t]here was evidence that the defendant was to be paid $50,000 a year for three years by Captivate for consulting services, but the court does not recall any evidence that any substantial work actually was performed in that regard. Context, again, is important. There was evidence . . . that the defendant was to become the chief executive officer of Captivate, once the [Captivate] deal was consummated. The defendant did not become [chief executive officer] of Captivate, and he testified that he really had not wanted that position. He acknowledged that he was aware of that designation being a part of the documentation for the deal, that there could be regulatory conse- quences for erroneous or misleading information, but that he did nothing to correct the claimed misinformation being disseminated. The court does not find this retrospective denial of interest credible.
“Because of that lack of credibility of denial of interest, the court is concerned that the consulting agreement for the postconsummation period might have been something other than a consulting agreement—possibly compensation for him not being designated [chief executive officer], or possibly a part of the finder‘s fee paid out over time. Again, the court does not recall any substantial much less credible evidence of what the defendant actually did to earn those posttermination consulting fees.
The court proceeded to consider several of the factors expressly set forth in Wall Systems, Inc. Of import, the court found that, with respect to Generation and Captivate, the defendant‘s disloyal acts “appear[ed] to have been essentially continuous from the start of his employment until termination, with the actual frequency seemingly moderate,” and were conducted with “wilfulness in the sense of the conduct being intentional as opposed to inadvertent.” The court further found that, although the defendant claimed to believe that his employment with the plaintiff was “in the nature of a consultant on a nonexclusive basis,” his directive to Hertzmark to send correspondence to his personal e-mail rather than to his business e-mail “seems to indicate knowledge of impropriety in using the [plaintiff‘s] e-mail and server for nonemployer business in turn suggesting knowledge that the conduct itself was improper.” In addition, in analyzing most of the otherwise applicable Wall Systems, Inc. factors, the court observed that there was “limited reliable information” available to assess the factors “in large measure due to the defendant‘s noncompliance with discovery.”
At the end of its decision, the court determined that “[t]he claims upon which relief has been awarded allow remedies in the nature of disgorgement and forfeiture, and the various factors/considerations set forth in Wall Systems, [Inc.] point in varying degrees in favor of equitable relief of that nature.” The court summarized its reasoning for each component of the $323,545.84 damages award as follows. In ordering forfeiture of the defendant‘s 2013 salary and the $1966 in consulting fees paid by the plaintiff, the court stated that it “believes that the defendant‘s violation of his fiduciary duty to his employer, coupled with the discovery noncompliance precluding the determination of the actual bounds of any improprieties, warrants full forfeiture of his ‘regular’ pay from the plaintiff.11 The court has made an exception for the [$25,000 sales] bonus. The bonus was a focused target for sales, and in that narrow respect, the plaintiff got precisely what it had asked for in exchangeA
We first address the defendant‘s claim that the court made certain factual findings that were unsupported by the record. Specifically, the defendant contends that the court clearly erred in finding that (1) he did not perform substantial work prior to his employment with the plaintiff, which began on January 1, 2013, that entitled him to the $150,000 finder‘s fee, and (2) during the September 10, 2019 hearing in damages, he attempted to offer into evidence numerous exhibits that the plaintiff‘s counsel had not seen before. We analyze each finding in turn.