Banks v. Mario Industries of Virginia

• Decision Date: 14 September 2007
• Docket Number: Record Nos. 061348, 061355.
• Citation: 650 S.E.2d 687
• Parties: Bette L. BANKS v. MARIO INDUSTRIES OF VIRGINIA, INC. Troy Cook, et al. v. Mario Industries of Virginia, Inc.
• Court: Virginia Supreme Court

650 S.E.2d 687

Bette L. BANKS v. MARIO INDUSTRIES OF VIRGINIA, INC.

Troy Cook, et al. v. Mario Industries of Virginia, Inc.

Record Nos. 061348, 061355.

Supreme Court of Virginia.

September 14, 2007.

Frank N. Cowan (CowanGates, on briefs), Richmond, for appellant, Bette L. Banks.

Claude M. Lauck (John D. Eure; Jeremy E. Carroll; Glenn, Feldmann, Darby & Goodlatte; Johnson, Ayers & Matthews, on briefs), Roanoke, for appellants Troy Cook, Renaissance Contract Lighting & Furnishings, Inc., Joseph Cassell and Darnell Group.

Monica Taylor Monday (Matthew W. Broughton; Gregory D. Habeeb, Gentry Locke Rakes & Moore, on briefs), for appellee.

Present: HASSELL, C.J., and KEENAN, KOONTZ, KINSER, and LEMONS, JJ., and Russell and Lacy¹, S.JJ.

OPINION BY Justice DONALD W. LEMONS.

In these consolidated appeals from civil actions in which a company alleged that certain former employees and agents formed a competing business, we consider whether the trial court erred by denying a motion to strike, submitting a breach of fiduciary duty claim to the jury, submitting a verdict form to the jury, instructing the jury, admitting a pre-resignation memorandum into evidence, and failing to set aside a punitive damages award.

I. FACTS AND PROCEEDINGS

A. The Parties

These consolidated appeals involve claims by Mario Industries of Virginia, Inc. ("Mario") a lighting manufacturer and supply company, against its former employee, Troy Cook ("Cook"); Cook's new company, Renaissance Contract Lighting & Furnishings, Inc. ("Renaissance"); the other principal in Renaissance, Joseph Cassell ("Cassell"); and two of Mario's former sales representatives, The Darnell Group ("Darnell") and Bette L. Banks ("Banks").

B. Facts

The facts will be stated in the light most favorable to Mario, the prevailing party at trial. Bitar v. Rahman, 272 Va. 130, 141, 630 S.E.2d 319, 325-26 (2006).

1. Background

Mario, a company that started more than eighty years ago, manufactures and sells lighting products. Louis Scutellaro ("Scutellaro"), who purchased Mario from his uncle in 1988, is Mario's president, and Delores Scutellaro, his wife, is its secretary.

Mario maintains two separate divisions, namely a residential retail sales division and a contract lighting division ("contract lighting" or "contract sales"). This case involves the contract lighting division which sells lighting, lamps and other lighting products to hotels, nursing homes, and government entities.

Mario did not require its employees to sign non-compete or confidentiality agreements. However, Mario's employee handbook explained that outside employment must not conflict with Mario's interests and that employees had an obligation to prevent actual or potential conflicts of interest. Mario's employee handbook also specifically addressed the protection of confidential information. Mario's employee handbook prohibited: the unauthorized removal of files from the computer and information systems, removing or copying Mario's documents, removing company property, and personal use of Mario's computer and information systems that was detrimental to Mario.

Additionally, Mario restricted access to its sales figures. Deidre Frank ("Frank"), the controller at Mario, testified that Cook knew sales information was confidential. Mario also took steps to protect its customer list that it spent eighty years developing and, as Scutellaro testified, was "worth millions" to Mario. Mario also treated as confidential its computer assisted drawings, costing sheets, target price points, selling prices, and key suppliers. Mario "copyrights [some of its] items," and its catalogs are protected by copyright.

2. Independent Sales Representatives

Mario uses independent sales representatives in its contract sales division to promote and sell Mario's products. Each of Mario's sales representatives has an exclusive territory. Scutellaro explained that "[i]n exchange [for an exclusive territory], [Mario] expect[s] their loyalty. That's the way it's done in this industry." In other words, in exchange for an exclusive territory, Mario did not permit its sales representatives to represent a competing company.

Mario's sales representatives are not Mario employees. Mario does not provide its sales representatives with a salary, health insurance, or pension benefits. Instead, the sales representatives are only paid commissions. Mario's commission rate is generally 8%, but that rate may fluctuate. Mario withholds no taxes on commissions paid and issues IRS 1099 forms to its sales representatives rather than W-2 forms. Mario pays for the catalogs, swatches, and samples it gives to its sales representatives. Mario also pays most of the sales representatives' expenses for attendance at Mario business meetings.

Cook began working at Mario in 1990. Cook, an at-will employee, served as the manager for Mario's contract sales division from 1995 to November 7, 2003.

Banks was Mario's sales representative in Virginia, Maryland, and D.C. from January 26, 1998 until her resignation on June 1, 2004. Banks testified that she "was a contract agent, an independent sales representative" and "was not an employee of Mario."

Darnell Group ("Darnell") is a sales organization formed by Joseph Darnell in 1992. Darnell was Mario's sales representative for Illinois and Michigan from 1988 through the date of its resignation on January 29, 2004.

3. Cook Forms Renaissance and Leaves Mario

In March 2003, Cook considered leaving Mario to establish his own business. Cook prepared a memorandum ("Renaissance's business plan") outlining some of his ideas and ambitions. Cook intended for his business, Renaissance, a lighting and furniture manufacturer, to compete with Mario's contract sales division. Cook also contacted Cassell, who had previously been the warehouse manager for Passport, a Mario company, about forming Renaissance. At that time, Cassell was working on his own plans to start a metal furniture manufacturing business. Cassell was unfamiliar with contract lighting, so Cook shared Renaissance's business plan with Cassell.

Renaissance's business plan contained confidential information about Mario's growth rate, yearly sales totals, past projects, target price points for customers, profit margin, vendor lists, key accounts and suppliers, marketing plans and strategies, production costs, commissions, trade secrets, and intellectual property. Cassell and Cook admitted that it was improper for Cook to reveal Mario's confidential information. Cassell also admitted that he would not want his competitor to have this information. Cassell admitted that the information about Mario's business helped Renaissance become "highly competitive."

By April 2003, Cook and Cassell had selected Renaissance's name, chosen a facility, and created company letterhead. Renaissance was incorporated in October 2003. From March to November 2003, Cook and Cassell were Renaissance's two employees. Cassell was the president of Renaissance, and Cook was the vice president.

Cook worked for Renaissance while employed by Mario and did so during normal working hours at Mario. Cook and Cassell planned to take fifteen of Mario's sales representatives to Renaissance. While employed at Mario, Cook spoke to at least three sales representatives about Renaissance, including Darnell.

Prior to his resignation, Cook sought legal advice with regard to his resignation. He prepared a memorandum for his attorney on a computer owned by Mario summarizing issues regarding Mario, the contract lighting industry, Cook's planned resignation, and Renaissance ("pre-resignation memorandum"). In the pre-resignation memorandum, Cook stated: "I feel sure I will be presented with opportunities for previously negotiated projects."

When Cook resigned in November 2003, Cook gave Scutellaro a letter indicating that he left company information in a box in his office. However, Scutellaro did not find the box. Cook's business cell phone was returned to Mario, but the cell number was not. Cook also deleted emails, quotes, files, and electronic spreadsheet forms from his computer. Mario's forensic computer expert testified that he found documents related to the formation of Renaissance on the hard disk drive of the computer Cook had used at Mario. The forensic expert also recovered the pre-resignation memorandum. The computer's hard drive also contained an electronic spreadsheet showing all of the open projects associated with the Hilton Garden Inns, a chain of hotels owned by a hotelier who was, at the time, one of Mario's most significant customers. All of these documents had been printed from Mario's computer.

Cassell admitted that it was wrong for a sales representative to take a contract from one manufacturer to another. Nevertheless, after he resigned, Cook testified that he "encouraged" Mario's sales representatives to send business to Renaissance. Cook also used Mario's business phone book, which contained valuable and confidential contact information for Mario's customers, vendors, and sales representatives, to help him at Renaissance. Cook and Cassell used Mario's confidential information to obtain financing for Renaissance. Also, Renaissance took Mario's vendor and customer list and Mario's pricing and sales figures "to use to their advantage."

4. Banks and Darnell Help Renaissance While Still at Mario

Banks testified that Cook and Cassell did not ask or encourage her to divert projects from Mario to Renaissance. Nevertheless, after Cook resigned from Mario, Banks "pretended" to be Mario's sales representative. Banks thought Mario trusted her. Banks, however, admitted that she "had no loyalty to Mario at all," and her only "boss" is her "checkbook." Banks admitted that confidential quotes should normally not be sent to competitors because the information is "commercially sensitive" to Mario. Banks also knew that Mario expected her to act as its representative, and "if [she] did a deal with a...