752 S.E.2d 634 (N.C.App. 2013), COA13-239, GE Betz, Inc. v. Conrad

Docket Nº:COA13-239.
Citation:752 S.E.2d 634
Opinion Judge:HUNTER, ROBERT C., Judge.
Party Name:GE BETZ, INC., Plaintiff, v. R.C. CONRAD, Robert Dodd, Benjamin Lukowski, Barry Ownings, and Zee Company, Inc., Defendants.
Attorney:Ellis & Winters LLP, Raleigh, by Matthew W. Sawchak, Stephen D. Feldman, and Zia C. Oatley, for individual defendants-appellants. Robinson Bradshaw & Hinson, P.A., Charlotte, by John R. Wester and Jonathan C. Krisko, for defendant-appellant Zee Company, Inc. Graebe Hanna & Sullivan, PLLC, Raleigh...
Judge Panel:Judges BRYANT and STEELMAN concur.
Case Date:December 03, 2013
Court:Court of Appeals of North Carolina

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752 S.E.2d 634 (N.C.App. 2013)

GE BETZ, INC., Plaintiff,


R.C. CONRAD, Robert Dodd, Benjamin Lukowski, Barry Ownings, and Zee Company, Inc., Defendants.

No. COA13-239.

Court of Appeals of North Carolina.

December 3, 2013

         Heard in the Court of Appeals 11 September 2013.

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          Appeals by individual defendants and Zee Company, Inc. from judgments entered 25 July 2011 and 23 May 2012 by Judge Phyllis M. Gorham in New Hanover County Superior Court. Appeal by additional appellants from orders entered 18 and 22 June 2012 by Judge Gorham in New Hanover County Superior Court.

          Ellis & Winters LLP, Raleigh, by Matthew W. Sawchak, Stephen D. Feldman, and Zia C. Oatley, for individual defendants-appellants.

          Robinson Bradshaw & Hinson, P.A., Charlotte, by John R. Wester and Jonathan C. Krisko, for defendant-appellant Zee Company, Inc.

          Graebe Hanna & Sullivan, PLLC, Raleigh, by Mark R. Sigmon, for additional appellants.

          McGuireWoods, LLP, Charlotte, by Bradley R. Kutrow and Monica E. Webb, and Ward and Smith, P.A., by Jenna Fruechtenicht Butler and John M. Martin, for plaintiff-appellee GE Betz, Inc.

          HUNTER, ROBERT C., Judge.

         Three categories of appellants bring distinct issues before us in this case.

         First, R.C. Conrad, Robert Dodd, Benjamin Lukowski, and Barry Owings (collectively " individual defendants" ) appeal from judgment entered 25 July 2011 by Judge Phyllis M. Gorham in New Hanover County Superior Court. On appeal, individual defendants argue that the trial court erred by: (1) misinterpreting various provisions of the employment agreement they had with GE Betz, Inc. (" GE" ) and concluding that individual defendants breached their contracts, (2) allowing GE to succeed on the merits of its claims without proving causation, and (3) concluding that individual defendants used GE's trade secrets and violated N.C. Gen.Stat. § 75-1.1. After careful review, we affirm the trial court's judgment as to these individual defendants.

         Second, Zee Company, Inc. (" Zee" ) appeals the trial court's award of damages and attorneys' fees. Zee argues that the trial court erred by: (1) as a discovery sanction, allowing GE to use Zee's gross sales as a measure of compensatory damages, (2) entering punitive damages that violated defendants' due process rights and were impermissibly levied on a per-defendant rather than per-plaintiff basis, and (3) awarding unreasonable attorneys' fees and erroneously awarding GE fees incurred as a result of Zee's counterclaims. We affirm the trial court's judgment as to the measure of compensatory damages, but reverse and remand as to punitive damages and attorneys' fees.

         Third, Mark A. Dombroff (" Dombroff" ) and Thomas B. Almy (" Almy" ) (collectively " additional appellants" ) appeal from the trial court's orders holding Almy in criminal contempt of court, ordering Almy to pay GE's attorneys' fees in addition to $500.00 as a contempt sanction, and revoking the pro hac vice admissions of both Dombroff and Almy. On appeal, additional appellants claim: (1) the trial court failed to follow statutory and constitutional procedures in holding Almy in criminal contempt of court, (2) the court erred by ordering Almy to pay GE's attorneys' fees because Almy was not a " party" under the language of the statute authorizing the fee award, and (3) the court abused its discretion by revoking additional appellants' pro hac vice admissions. We reverse the trial court's orders as to Almy's criminal contempt and attorneys' fees, remand for reconsideration of Almy's pro hac vice revocation, and affirm the court's order revoking Dombroff's pro hac vice admission.

         I. BACKGROUND

         A. Substantive Claims

          Individual defendants were employees of Betz Entec or BetzDearborn, alternative names for the same company, which was acquired by GE and renamed GE Betz, Inc. (" GE" ). They signed employment agreements before GE acquired the company. The employment agreements contained language restricting individual defendants from " directly or indirectly" soliciting GE's current or prospective customers with whom the individual had " any contact, communication or ... supervisory responsibility" for

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eighteen months after employment with GE ended. The agreements also prohibited disclosure or misuse of GE's confidential information, including sales data, formulas, costs, treatment techniques, and customer information. The agreements state that they shall be construed under and governed by Pennsylvania law.

         In 2006, GE's restructuring of its water treatment business resulted in the layoffs of defendants Conrad and Dodd. Conrad and Dodd began working for Zee shortly thereafter. During the restructuring, GE created a position of " area manager" and offered the area manager positions to defendants Owings and Lukowski. GE did not increase Owings's or Lukowski's compensation, and the position offers contained no compensation terms. On 18 July 2006, Zee offered Owings a job as a " team leader" ; Owings never told GE he had an offer from Zee and was allowed to remain working at GE for two weeks after Zee's offer.

         Following the " area manager" offers, GE began to email Owings and Lukowski " descending sales reports," which contained reports of actual sales and sales forecasts of about 175 GE customers. Owings and Lukowski ultimately resigned; Owings never received an offer letter for the area manager position and Lukowski stated via letter that he wanted to evaluate " other opportunities inside and outside" the water treatment industry. Lukowski continued receiving descending sales reports from GE after he hinted at resignation and was considered to be an " immediate flight risk." Lukowski did not notify GE that he was leaving until two weeks after signing an employment agreement with Zee and did not notify GE he was joining a competitor. Shortly after resigning, Owings and Lukowski started working for Zee. The trial court found as fact that Owings and Lukowski affirmatively misled GE about their post-resignation plans.

         Lukowski asked GE for a copy of his employment agreement, but did not receive it until weeks after beginning employment with Zee. In the interim between beginning employment with Zee and receiving his employment agreement, Lukowski contacted customers he previously helped while employed by GE. The trial court found as fact that all individual defendants began contacting former GE customers that they or another team member serviced or supervised while employed by GE and that Zee knew about and encouraged this conduct. GE learned of these tactics and sent cease-and-desist letters enclosed with copies of the employment agreements to Lukowski, Dodd, and Zee's President, Robert Bullard. GE informed Zee that individual defendants were " cross-selling" to each other's former GE customers and directly contacting GE customers. Zee responded that individual defendants were not competing with GE because they were selling products unrelated to the water treatment industry.

         GE sued Zee and individual defendants in April 2007. GE sought a preliminary injunction to preclude all defendants from contacting around 175 companies that GE contended were covered by individual defendants' non-solicitation clauses. The trial court granted the injunction except as to ten " carve-out" companies (" carve-outs" ) with which Zee had already obtained contracts. GE retained its claim for monetary recovery for Zee's sales to the carve-outs, and GE ultimately sought damages for conduct regarding eight of the carve-outs.1

          The employment agreements forbade individual defendants from " directly or indirectly ... call[ing] upon, communicat[ing] or attempt[ing] to communicate with any customer ... for the purpose of selling" competing products, services, or equipment. The trial court determined as a matter of Pennsylvania law that " indirect communication occurs when a member of a sales team contacts a prohibited customer of another team member." The court granted GE's motion in limine to prevent individual defendants from introducing parole evidence as to the meaning of the terms " switching" or " cross-selling" in their employment agreements. The trial court also excluded evidence that GE's customer departures stemmed from causes other than defendants' actions. However,

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the trial court admitted evidence of a lawsuit filed 12 September 2006 by another water treatment company, Chem-Aqua, in which Chem-Aqua alleged that Zee tortiously interfered with the contracts of Chem-Aqua employees, among other claims. The case settled with Zee admitting no wrongdoing and no money exchanging hands between the parties.

         The trial court ultimately ruled that all individual defendants violated their employment agreements by indirectly or directly soliciting GE customers and breaching confidentiality terms and that Owings and Lukowski exercised supervisory responsibility while employed by GE. All defendants were held liable for misappropriating trade secrets, violating N.C. Gen.Stat. § 75-1.1, and Zee was individually held liable for tortiously interfering with individual defendants' employment contracts. The court awarded GE compensatory and punitive damages and attorneys' fees and costs. Zee and individual defendants filed timely notices of appeal.

         B. Damages and Attorneys' Fees

         Following the trial court's final ruling in its favor, GE had the option of seeking disgorgement of Zee's profits or its own lost profits as damages for its claim of unfair or deceptive practices pursuant to section 75-1.1. 2 It sought to...

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