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New Jersey Appellate Court Affirms No Damages Award Against Individual Defendants In Non-Compete Case

Posted in Non-Compete Enforceability, Practice & Procedure

A New Jersey jury decided that two individual defendants violated their non-competition contractual commitments but that they owed no damages.  The trial court then denied the former employer’s motion to enjoin the individuals from continuing to compete.  A few days ago, the State’s Appellate Court held that there was a plausible explanation for these several results and affirmed.  Miles Technology, Inc. v. Apex I.T. Group, LLC, Case No. A-3453-11T4 (NJ App. Court, 4/5/13).

Former employer’s first lawsuit.  Yetter, an employee of Miles Technology, signed a contract prohibiting him from providing competitive services to Miles’ customers for two years after his employment terminated.  Yet, almost immediately after resigning from Miles and acknowledging his obligation not to compete, he went to work for Miles-competitor Apex I.T. Group and began soliciting his former employer’s customers.  Miles sued Yetter and Apex.  The suit was dismissed without prejudice, however, when Apex’s counsel wrote Miles’ lawyer that Apex had fired Yetter. 

Former employer’s second lawsuit.  Shortly following the dismissal, Apex rehired Yetter and then hired Tavares, another Miles Technology employee who also had signed a non-compete.  On behalf of Apex, Yetter and Tavares solicited two of Miles’ customers, and Apex obtained an order or two from one while the other moved all of its business to Apex.  Miles filed a second lawsuit.  Yetter and Taveres were charged with breach of contract, and Apex was accused of intentional interference with (a) non-compete contracts, and (b) prospective economic advantage.  Miles sought hundreds of thousands of dollars in compensatory damages, as well as an injunction against the individuals and punitive damages from Apex. 

The puzzling result.  After a jury trial, Miles prevailed with respect to liability but was awarded nothing from the individual defendants, and just $70,000 in compensatory damages and $30,000 in punitive damages from Apex.  The defendants appealed the denial of their motion for judgment notwithstanding the verdict, and Miles appealed the denial of its motion for an injunction.  The Appellate Court affirmed.

Justifying the jury verdict regarding the ex-employees.  According to the court of appeals, “The jury may well have perceived that the gravamen of the harm to Miles here did not stem from the contractual breaches of its employees’ restrictive covenants but instead was principally caused by Apex’s arguably more venal act of deception in falsely assuring that Tavares would no longer work there.”  Miles claimed the misconduct of the defendants caused a loss of business aggregating about $700,000 over six years.  The Appellate Court surmised that even though the jury found Yetter and Tavares breached their contractual obligations, the jury may have concluded that the evidence tying the breaches to a specific dollar amount of damages was insufficient. 

Explaining the verdict against the new employer.  The $70,000 compensatory damages award against Apex equaled approximately 90% of the lowest one year’s alleged loss of revenue from just one of the customers.  This was enough, according to the appeals court, to render the award reasonably related to the evidence.  With respect to the punitive damages assessed against Apex, “the [trial] judge charged the jury in accordance with [the applicable] legal principles.  . . . We see no reason to disturb this result.” 

Reasons for not enjoining the ex-employees.  The question of whether to issue an injunction “is typically a matter of the trial court’s discretion,” the Appellate Court said, and it found no abuse of discretion.  Further, since the two-year non-compete period had expired by the time of the appellate ruling, “there is no longer a justification to impose restrictions on” the individual defendants.

Lessons learned.  Conventional wisdom teaches that a plaintiff like Miles Technology often will fare better with respect to a damages award in a jury trial rather than in a bench trial.  The jury did sympathize with Miles, ruling in its favor with respect to liability as against all defendants, but for some reason only minimal damages were awarded.    

The jury may have returned a compromise verdict, slapping the defendants with findings of liability but not hammering them with a punishing damages award.  We’ll never know, however, because jurors do not have to explain their rationale; affirmance was not surprising because jury verdicts rarely are reversed on appeal.   

If the Miles Technology case had been the subject of a bench trial, the judge would have had to disclose precisely how his or her decision was reached.  One can only speculate as to whether there would have been an affirmance if (a) that hypothetical bench trial had produced the same verdict as the one actually reached by the jury, (b) the trial judge, in explaining the basis for the verdict, had rationalized it in a manner similar to the way the Appellate Court surmised the jury reached its decision, and (c) the verdict was appealed.