Advanced Marine Enterprises v. Prc Inc.

• Decision Date: 05 June 1998
• Docket Number: Record No. 971950.
• Citation: 256 Va. 106,501 S.E.2d 148
• Parties: ADVANCED MARINE ENTERPRISES, INC., et al. v. PRC INC.
• Court: Virginia Supreme Court

501 S.E.2d 148

256 Va. 106

ADVANCED MARINE ENTERPRISES, INC., et al. v. PRC INC.

Record No. 971950.

Supreme Court of Virginia.

June 5, 1998.

Frank K. Friedman (Michael F. Urbanski; Matthew P. Pritts, Roanoke; James M. Saunders; David Alan Sattler, Arlington; Woods, Rogers & Hazlegrove; Hudgins, Carter & Coleman, Alexandria; Brooks, Suiters & Sattler, Arlington, on briefs), for appellants.

Thomas C. Papson, Washington, DC (Michael W. Smith; John W. Montgomery, Jr., Richmond; Daniel E. Johnson; Todd A. Suko, Washington, DC; Christian & Barton, Richmond; McKenna & Cuneo, Washington, DC, on brief), for appellee.

Present: All the Justices.

KEENAN, Justice.

In this appeal, we consider issues in a chancery proceeding involving both equitable and legal claims arising from an alleged business conspiracy and breach of an employment agreement.

PRC Inc. (PRC) is a Delaware corporation that, among other things, provided marine engineering services under contract to the United States Navy. Included in those services was "shipbuilding support" that PRC rendered to the Naval Sea Systems Command (NAVSEA). Advanced Marine Enterprises, Inc. (AME), a Virginia corporation engaged in the business of marine engineering, also provided services under contracts with the Navy, including NAVSEA.

PRC requires every new employee to sign a uniform Employment Agreement as a condition of employment. The Employment Agreement obligates PRC employees to protect PRC's proprietary information and to refrain from disclosing such information to individuals outside the company. The Employment Agreement also contains a non-competition provision, which provides in relevant part:

Employee agrees not to compete with PRC for a period of eight months following termination of employee's employment, by rendering competing services to or, with respect to such services, solicit any customer of PRC for whom Employee performed services while employed by PRC, within 50 miles of a PRC office.

At various times during 1995, due to the loss of certain marine engineering contracts, PRC informed some of its marine engineering employees that they should look for other employment. On December 13, 1995, PRC announced that the company would be sold to Litton Industries, Inc. (Litton).¹

In November 1995, prior to the announcement of the sale, C. Michael Pirrera, a senior manager in PRC's marine engineering department, contacted AME and inquired whether AME would be interested in employing all seven managers from PRC's marine engineering department (PRC Managers). When AME expressed interest in hiring the PRC Managers, AME and the PRC Managers, led by Pirrera, formed a plan (the Plan) under which AME would attempt to hire every employee in the PRC marine engineering department.

Under the Plan, AME agreed to make secret job offers to all employees in PRC's marine engineering department. These employees would be required to resign on the same day, December 29, 1995, without notice to PRC, despite PRC's requirement that employees provide two weeks notice of their intent to leave PRC's employ. The Plan's objective was to transfer PRC's entire marine engineering department to AME, including the PRC Managers, the other employees, all customer relationships, and all existing contracts. As one PRC Manager stated, the idea was "to put together an entity that the [PRC] customer can't live without."

AME knew about the terms of PRC's Employment Agreement before implementing the Plan. AME was aware that it faced a potential lawsuit by PRC to enforce the Employment Agreement, and that PRC could assert other causes of action against AME, such as tortious interference with contract. After projecting the nature and amount of damages that might result from a lawsuit by PRC, AME decided that the benefits of the Plan outweighed the potential consequences of a lawsuit.

To implement the Plan, some of the PRC Managers developed a "matrix" describing how the PRC Managers would obtain the business of PRC's marine engineering department. This "matrix" included detailed confidential and proprietary information about PRC's workload, the value of certain work, and the amount of government funding available for each job in PRC's marine engineering department. The "matrix" also evaluated each of PRC's jobs regarding the ease with which the job could be "pulled" from PRC or "diverted" to AME.

Based on employee information supplied by the PRC Managers, AME prepared "offer" letters to each of the PRC Managers and other marine engineering employees and authorized Pirrera to negotiate salaries with each employee. The "offer" letters included a provision in which AME agreed to indemnify and hold harmless each PRC employee against any claim, demand, damage, or injury asserted by PRC in connection with the employee's employment by AME.

The PRC Managers devised a schedule for distributing the "offer" letters to the PRC employees based on the PRC Managers' concern that some employees might "blab" to PRC after receiving their AME "offer" letter. Under this schedule, the PRC Managers planned to give job offers to those PRC employees who might "blab" only after offers were given to the employees who were unlikely to "blab."

The PRC Managers distributed the "offer" letters in mid-December 1995. The PRC Managers delivered each letter personally, encouraged each employee to accept AME's offer, and emphasized the need to keep PRC from gaining knowledge of the Plan prior to December 29, 1995, the date of the scheduled mass resignation.

On December 20, 1995, Pirrera learned that rumors of the Plan might "leak out" to PRC. In response, Pirrera sent an "e-mail" message to the other PRC Managers on December 21, 1995, which stated:

Subject: Execute

Gentlemen:

Based on yesterday's events we need to do the following:

With the exception of the highest risk team members (i.e., people we are absolutely sure will blab), talk to the rest of the team today.

Determine task backlogs immediately.

Back up computer files immediately.

Transfer files to client sites immediately.

Remember gentlemen, we got to this point as a team and we will see this through as a team. Let's roll!

Mike

On December 29, 1995, the whole group of 26 managers and employees from PRC's marine engineering department submitted letters resigning their employment with PRC, effective immediately. Before leaving PRC and without PRC's knowledge or consent, many of the PRC Managers and other PRC employees copied their client files and sent the files to client sites so that the files would be available once the employees began working at AME. Many of the PRC Managers and employees also made "back up" copies of PRC computer documents and files, which they removed from PRC without PRC's knowledge. Some PRC Managers and employees also removed, without PRC's consent, various documents pertaining to ongoing projects and work in progress at PRC. In many cases, there were no similar documents left at PRC. All of the above-described information constituted confidential and proprietary information of PRC.

In January 1996, PRC filed a bill of complaint against AME, two AME executives, the former PRC Managers, and the other former PRC marine engineering employees.² Among other things, the bill of complaint contained a request for a temporary restraining order to prevent the defendants from using or disseminating PRC's confidential and proprietary information and from soliciting or performing services for their former PRC customers. The chancellor entered the temporary restraining order on January 2, 1996, but later modified its terms to exclude AME's business with governmental entities. As amended, the bill of complaint also asserted both legal and equitable claims for relief. The five Counts relevant to this appeal are: 1) breach of fiduciary duty (Count I); 2) intentional interference with contractual relations (Count II); 3) intentional interference with prospective business and contractual relations (Count III); 4) specific performance and breach of the Employment Agreement (Count IV); and 5) violation of Code § 18.2-499 (Count VII).

The matter was tried before a chancellor, who heard testimony from two expert witnesses and 41 other witnesses. PRC presented the testimony of Mark Bleiweis, a certified public accountant, who is an expert in the area of damage calculation in contract disputes. Bleiweis estimated that, of the several types of economic damage suffered by PRC in the loss of its marine engineering unit to AME, the largest amount of damages resulted from lost goodwill. Bleiweis defined goodwill as the excess of the sales price of a business over the fair market value of the business' identifiable assets.

To estimate the lost goodwill associated with the departure of the PRC Managers and employees, Bleiweis examined two sales of comparable businesses, PRC's sale of its 400D unit to Vitro and the sale of AME to Nichols. Bleiweis subtracted the value of each "comparable company's" assets from its sales price to determine the goodwill associated with each comparable sale. With respect to the Vitro sale, he then adjusted this figure to reflect the value to Vitro associated with the funded 400D contract. To account for the larger number of employees involved in both comparable sales, Bleiweis apportioned the estimated goodwill figure for each of the two comparable businesses among the total number of employees involved in each transaction.

This calculation yielded a ratio or percentage that Bleiweis applied to calculate the goodwill lost by AME's acquisition of the 26 PRC employees. Using the Vitro sale, Bleiweis estimated that PRC sustained $925,123 in goodwill damages from the loss of its marine engineering unit to AME. Using the sale of AME to Nichols, Bleiweis estimated that PRC's lost goodwill damages were $841,965.

Bleiweis also testified that PRC will suffer a loss of profits as a result of the departure of the PRC Managers and employees....