Classic Aviation Holdings LLC v. Harrower
| Decision Date | 30 September 2022 |
| Docket Number | 2:20-cv-00824-RJS |
| Parties | CLASSIC AVIATION HOLDINGS LLC and CLASSIC AIR CARE LLC, d/b/a CLASSIC AIR MEDICAL and d/b/a CLASSIC LIFEGUARD, Plaintiffs, v. KIM HARROWER and GRETCHEN SCHMID, Defendants. |
| Court | U.S. District Court — District of Utah |
CLASSIC AVIATION HOLDINGS LLC and CLASSIC AIR CARE LLC, d/b/a CLASSIC AIR MEDICAL and d/b/a CLASSIC LIFEGUARD, Plaintiffs,
v.
KIM HARROWER and GRETCHEN SCHMID, Defendants.
No. 2:20-cv-00824-RJS
United States District Court, D. Utah
September 30, 2022
MEMORANDUM DECISION AND ORDER IMPOSING RULE 11 SANCTIONS AND DENYING MOTION FOR ATTORNEYS' FEES
ROBERT J. SHELBY UNITED STATES CHIEF DISTRICT JUDGE
Believing two of their former employees surreptitiously competed with them before leaving the company, Plaintiffs sought to file suit against their former employees, a Wyoming company the employees allegedly formed as a competitor, and a Georgia doctor who Plaintiffs believed was financing the competing venture. Plaintiffs hired skilled, experienced counsel to prepare and prosecute a lawsuit in this court. Those lawyers appropriately conducted a pre-lawsuit investigation. That investigation yielded no evidence the Georgia doctor had any meaningful contacts with the State of Utah. The lawyers nevertheless prepared and filed a lawsuit in which they alleged that all the defendants had engaged in “regular and substantial business in the State of Utah.” The lawyers knew they had no factual basis to make that allegation against the Georgia doctor but did so anyway. This was a clear breach of their duties as lawyers and officers of the court. It is the kind of conduct that harms citizens and undermines confidence in judicial proceedings.
Now before the court is Plaintiffs' Response to the court's Order to Show Cause concerning potential Federal Rule of Civil Procedure 11 violations.[1] For the reasons explained below, the court concludes Plaintiffs' counsel violated Rule 11. Also before the court is Defendants' Motion for Attorneys' Fees.[2] For the reasons explained below, that Motion is denied.
BACKGROUND
This case arose from a dispute between Plaintiffs Classic Aviation Holdings LLC and Classic Air Care LLC, d/b/a Classic Air Medical and d/b/a Classic Lifeguard (collectively, Classic) and two of Classic's former employees, Defendants Kim Harrower and Gretchen Schmid. Classic, an air medical services company based in Utah, tasked Harrower (a pilot) and Schmid (a nurse) with implementing its business plan to establish a new base of operation in Jackson Hole, Wyoming, a “critical new market” for Classic.[3] Classic had spent six years and millions of dollars researching, building relationships, and securing licenses and contracts to launch the potentially lucrative Jackson Hole operation.[4] Classic alleged Harrower and Schmid, while still employed by Classic, worked to establish a competing venture in Jackson Hole, Mountain Air Medical, LLC, funded by Dr. Gary Roubin.[5] Classic further alleged that Defendants, in working to establish Mountain Air Medical, used confidential information from Classic, sought to poach employees, and even took a valuable space at the Jackson Hole airport hangar meant for Classic.[6]
Represented by the law firms Gibson, Dunn, & Crutcher and Magleby Cataxinos & Greenwood, Classic filed suit in November 2020, shortly before Defendants' anticipated launch of Mountain Air Medical as early as the following month.[7]
PROCEDURAL HISTORY
A detailed account of the procedural history is provided to supply context for the substantive discussion that follows.
I. The Initial Complaint and Motion for Temporary Restraining Order
On November 20, 2020, Classic filed the above-captioned action against Defendants Kim Harrower, Gretchen Schmid, Gary Roubin, and Mountain Air Medical, LLC,[8] together with a simultaneous Motion for a Temporary Restraining Order.[9] November 20 was the Monday before Thanksgiving. The court is aware that a high volume of complaints and TROs tend to be filed during the holiday season. At times, those motions and applications for TRO are designed to harass and oppress the other side. Sometimes, the timing of the filings of those motions is unnecessary in view of the facts that are known and available to counsel. At the same time, sometimes it is unavoidable that an action is initiated and emergency injunctive relief is sought during the holiday season. The court makes no judgment about the timing of the filing except to note it was potentially concerning given the aforementioned issues observed in other cases and the fact that Classic later abandoned the Motion notwithstanding its argument it would be irreparably harmed unless an emergency order issued.
In its Initial Complaint, Classic asserted ten separate causes of action, including claims for breach of contract, breach of the covenant of good faith and fair dealing, various tort claims,
and both state and federal misappropriation of trade secrets claims.[10] Classic alleged the court enjoyed subject matter jurisdiction under both and 28 U.S.C. § 1331[11] and 28 U.S.C. § 1332.[12]In addition to restitution, lost profits, and punitive damages,[13] Classic asserted emergency injunctive relief was necessary to prevent irreparable harm to its Jackson Hole venture.[14] In fact, Classic alleged that immediate injunctive relief would be necessary to prevent the impending December 2020 launch of Mountain Air Medical.[15]
A. Personal Jurisdiction Allegations
Classic maintained the court had personal jurisdiction over all Defendants “because Defendants are engaged in regular and substantial business in the State of Utah and the District of Utah.”[16] At the time, the court found that statement to be ambiguous in a way that was potentially troubling. As explained below, the court now knows this statement was false and that Classic's counsel (Counsel) knew it was false when they made the allegation. Classic's pre-suit investigation yielded no evidence that Defendant Roubin had any contacts with the State of Utah. Indeed, the same paragraph asserting the court's personal jurisdiction over each Defendant only specifically stated that Defendants Harrower and Schmid “traveled to and/or directed their activities into this jurisdiction in connection with their employment.”[17] As to Defendant Roubin,
Classic alleged he was a resident of Alabama and Wyoming, and that “[o]n information and belief,” he was the principal financial backer of Mountain Air Medical.[18] The Initial Complaint contained no specific factual allegations tying Roubin to Utah.
B. Breach of Contract Allegations
Classic's breach of contract claims were based in part on the assertion that a “valid and enforceable contract[]” was formed by Classic's Employee Handbook (the Handbook), which contained provisions concerning non-disclosure, business ethics, and conflicts of interest, and also contained an Employee Acknowledgement Form for employees to sign.[19] The Initial Complaint quoted extensively from the Handbook,[20] and asserted that “[b]oth Harrower and Schmid” were bound by it,[21] despite alleging only that Harrower had signed the Acknowledgment Form.[22]
Classic also alleged both Harrower and Schmid were bound by a Confidentiality Agreement which all employees purportedly signed, but only specifically alleged Schmid signed the Confidentiality Agreement.[23] The Initial Complaint did not attach as an exhibit a copy of either alleged contract.[24] While it is not required that any litigant asserting a claim for breach of contract attach the actual document, because the Initial Complaint quoted so extensively from
both documents but did not attach either document, the court found the exclusion of the documents at the time notable.
C. Motion for TRO/Preliminary Injunction
The same day it filed the Initial Complaint, Classic filed a Motion for Temporary Restraining Order and Preliminary Injunction (TRO).[25] The Motion stated Classic had learned of Defendants' actions within the previous two weeks, Defendants aimed to launch their Jackson Hole operation “as soon as December 2020,”[26] and the extraordinary relief of a TRO was necessary to prevent irreparable harm to Classic's Jackson Hole operation.[27]
The Motion for TRO asserted Classic was “substantially likely” to succeed on the merits of all claims in the Initial Complaint.[28] As to the breach of contract claim against Harrower and Schmid, Classic asserted that “both parties physically signed agreements manifesting an intention to bargain,” those agreements were supported by the consideration of continued at-will employment, and Classic performed its end of the bargain by employing Defendants.[29] Classic further asserted that Defendants breached the terms of the agreements by misappropriating confidential information and seeking to start a competing business.[30] Thus, a contract was formed by the parties' “manifestation of mutual assent, by words or actions or both, which reasonably are interpretable as indicating an intention to make a bargain.”[31]
However, most of the application for TRO focused on the likelihood of success on the merits on the trade secret claims, and the court focused much of its initial attention on the misappropriation of trade secrets claims.[32] On November 25, 2020, the day before Thanksgiving, the court held an emergency status and scheduling conference on the TRO.[33] The court set an expedited briefing schedule for the Motion for TRO, in preparation for a hearing on the merits to take place December 21, 2020.[34] The court explained its usual practice of requiring an applicant for a TRO on the basis of trade secrets to make an initial disclosure more specifically identifying the trade secrets, so that defendants can respond in kind. Rather than proceed in the manner directed by the court, Classic eventually voluntarily withdrew its TRO Motion without making any trade secret disclosure.[35] When the Motion for TRO was withdrawn, the court found it notable that despite the language in the Initial Complaint and TRO Motion, it was apparently no longer urgent for Classic to obtain immediate...
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