Augat, Inc. v. Aegis, Inc.

• Decision Date: 12 April 1994
• Citation: 417 Mass. 484,631 N.E.2d 995
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: AUGAT, INC., & another 1 v. AEGIS, INC., & others. 2

Page 995

631 N.E.2d 995

417 Mass. 484

AUGAT, INC., & another ¹ v. AEGIS, INC., & others. ²

Supreme Judicial Court of Massachusetts Bristol.

Argued Oct. 5, 1993.

Decided April 12, 1994.

Edmund C. Case, Boston (Scott A. Birnbaum with him), for Aegis, Inc., and another.

Blair L. Perry, Boston (Robert C. Kirsch, Manchester, with him), for plaintiffs.

Before LIACOS, C.J., and WILKINS, ABRAMS, NOLAN, LYNCH, O'CONNOR and GREANEY, JJ.

WILKINS, Justice.

After our decision in Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 565 N.E.2d 415 (1991) (Augat I ), in which we rejected all but one theory under which the trial judge had ruled that the defendants were liable to the plaintiffs (id. at 168, 565 N.E.2d 415), the case was tried on the damages question. The defendants have now appealed from a judgment awarding substantial damages to the plaintiffs. The plaintiffs have appealed challenging one ruling of the judge. We granted the defendants' application for direct appellate review. We conclude that the judge erred in his determination of damages and, therefore, we remand the case for a new determination of damages.

In Augat I, we identified a theory of liability which we characterized as "important but substantially isolated." Id. at 173, 565 N.E.2d 415. 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, 565 N.E.2d 415. 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 least adequate managerial personnel" at Isotronics. Id. at 173-174, 565 N.E.2d 415.

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, 565 N.E.2d 415. 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 problems 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., 13 Mass.App.Ct. 166, 173 (1982)." Id. at 175-176, 430 N.E.2d 1221.

The trial judge conducted a thirty-day nonjury trial on the damages question. He issued a memorandum of decision and order containing numerous findings of fact. He entered judgment against the defendants jointly and severally in the amount of approximately $40,617,000, based on compensatory damages of $14,140,000, interest on that amount, attorneys' fees of approximately $1,216,000, costs of approximately $376,600, and a doubling of the compensatory damages under G.L. c. 93A (1992 ed.).

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, 387 Mass. 841, 858, 443 N.E.2d 1308 (1983), we said that where multiple "defendants have participated through their own individual acts in a single wrong" several liability is appropriate. Here Scherer and Aegis did not act individually. Aegis acted wrongfully only through its agent Scherer. See Pepsi-Cola Metro. Bottling Co. v. Checkers, Inc., 754 F.2d 10, 19 (1st Cir.1985).

2. The defendants urge that we reconsider our determination in Augat I, supra, 409 Mass. at 177 n. 7, 565 N.E.2d 415, 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, 414 Mass. 96, 100, 605 N.E.2d 832 (1993), which was released after Augat I, in support of their claim that Scherer's acts were not wilful and knowing within the meaning of those words in § 11. The Underwood case, which concerned the nondisclosure of information of which the defendant was not aware, is not relevant here. The judge was warranted in concluding that Scherer and Aegis knowingly and intentionally acted in violation of G.L. c. 93A. Scherer knew that Greenspan held a responsible top managerial position at Isotronics and was soliciting the departure to Aegis of key employees while still an Isotronics employee.

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, ³ Isotronics's profits would have been 17% of sales. The judge then adjusted the resulting profit calculation by subtracting various identifiable expenses that were not caused by the departure of the three key employees. The judge made no downward adjustments in his hypothetical profit calculation to reflect either Isotronics's unsuccessful attempt to operate a plant in San Antonio or the effect of Aegis's competitive impact on Isotronics's actual sales. The judge then calculated the differences between his projected before-tax profits for 1985, 1986, and the first quarter of 1987, and Isotronics's actual operating results during the same periods, and came to damages attributable to the departure of the three key employees of $5,629,000 in 1985, $6,914,000 in 1986, and $1,597,000 in the first quarter of 1987. The judge cut off damages as of April 1, 1987, because "the effect of other events unrelated to the departures began to be felt after [March 31, 1987]." The judge made no finding that Isotronics had lost a customer or a particular sale or incurred a measurable extra expense as a result of the departure of the three key employees.

The plaintiffs had to prove that Isotronics sustained monetary losses due to the defendants' wrongdoing. Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 180, 385 N.E.2d 1349 (1979). It was not sufficient simply to show Isotronics's projection of its sales and the historic return on total sales. Id. Many factors bear on the financial performance of a company. The plaintiffs had to show the portion of Isotronics's losses, at least in general terms, that was attributable to the defendants' misconduct. See BBF, Inc. v. Germanium Power Devices Corp., 13 Mass.App.Ct. 166, 175-176, 430 N.E.2d 1221 (1982). Damages for lost profits are recoverable only when proof is made "with sufficient certainty." Jet Spray Cooler, Inc. v. Crampton, supra, 377 Mass. at 181, 385 N.E.2d 1349. BBF, Inc. v. Germanium Power Devices Corp., supra, 13 Mass.App.Ct. at 176-177, 430 N.E.2d 1221 (plaintiff must establish that "harm had a reasonably ascertainable monetary value"). The problem with the judge's decision is that his conclusion concerning damages is not supported by his underlying findings. ⁴

The judge erred in concluding that, but for the departure of the three employees whom Greenspan wrongfully solicited, Augat's sales would have increased in 1985, 1986, and part of 1987 at an annual rate of 20%. If this conclusion is a finding of fact, it is clearly erroneous. Mass.R.Civ.P. 52(a), 365 Mass. 816 (1974). If it is an inference purportedly drawn from underlying findings, it is not warranted. In 1984, Isotronics already had two-thirds of the sales in the industry. The potential of a 20% annual growth in sales by such a company in 1985, 1986, and 1987 is not supported by the record or the judge's findings. There is no evidence that the market expanded sufficiently to justify such a projection. ⁵ Moreover, the judge may have misled himself on this matter because he erroneously attributed to Greenspan the judgment that sales would increase annually by 20% in 1985, 1986, and 1987. The views of one affiliated with the defendants, such as Greenspan, might be entitled to special weight. The estimate of 20% growth was made, however, by an Augat employee after this litigation had begun.

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...