Hoffmann v. Clark, 19-2086

CourtUnited States State Supreme Court of Iowa
Writing for the CourtMcDERMOTT, JUSTICE
PartiesJERRY HOFFMANN and HOFFMANN INNOVATIONS, INC., d/b/a DIY AUTOTUNE, Appellees, v. SCOTT CLARK and REALTUNERS, LLC, Appellants.
Docket Number19-2086
Decision Date17 June 2022

JERRY HOFFMANN and HOFFMANN INNOVATIONS, INC., d/b/a DIY AUTOTUNE, Appellees,
v.

SCOTT CLARK and REALTUNERS, LLC, Appellants.

No. 19-2086

Supreme Court of Iowa

June 17, 2022


Submitted April 20, 2022

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Pottawattamie County, Susan Christensen and Margaret Reyes, Judges.

Defendants seek further review of a court of appeals ruling affirming the jury's verdict on libel-per-se damages and punitive damages. DECISION OF COURT OF APPEALS AFFIRMED IN PART AND VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

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Matthew G. Sease (argued) and Kylie E. Crawford (until withdrawal) of Sease & Wadding, Des Moines, for appellants.

Seth N. Katz (argued) of Shepherd Law, LLC, Atlanta, Georgia, and Robert M. Livingston of Stuart Tinley Law Firm, LLP, Council Bluffs, for appellees.

McDermott, J., delivered the opinion of the court in which all participating justices joined. Christensen, C.J., took no part in the consideration or decision of the case.

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McDERMOTT, JUSTICE

A jury awarded Hoffmann Innovations, Inc., and its owner Jerry Hoffmann $11 million in compensatory and punitive damages against a fired employee, Scott Clark, and his new competing company based mainly on defamatory statements that Clark made on social media, online forums, and in podcasts. During the course of the litigation, the district court sanctioned Clark for violating a consent order that prevented both sides from making any statements about one another-particularly online statements-outside the litigation. But the court's contempt orders and sanctions for Clark's violations of the consent order didn't stop Clark from continuing to disparage Hoffmann. After several failed attempts to secure compliance with increasing sanctions, the court struck Clark's pleadings-most importantly, his answer and affirmative defenses. Without any defense pleaded to the petition's claims, trial proceeded on the only outstanding issue: the amount of damages.

Clark and his business appealed the $11 million verdict, arguing principally that the district court erred in striking their pleadings and that the verdict was excessive. We transferred the case to the court of appeals, which affirmed the district court's judgment. Clark and his business sought further review, which we granted.

I.

Jerry Hoffmann is the CEO and part-owner of Hoffmann Innovations, Inc., a Georgia-based corporation that does business as DIY AutoTune. The company provides products and training for do-it-yourself "car tuning," a general term

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that refers to modifications to improve the appearance, performance, or handling of a vehicle from its original design. Hoffmann Innovations during times relevant to this case employed around twenty people. Clark was hired based on his acknowledged car tuning abilities. At Hoffmann Innovations, he conducted tuning classes for Hoffmann's customers on how to use Hoffmann's highest-end products, all in an effort to "create an army" of tuning enthusiasts who knew how to use the company's offerings. Clark also performed engine tuning for Hoffmann Innovations' sponsored racers. Clark signed a noncompete agreement with Hoffmann Innovations that prevented him from owning or managing any competing entity for two years after ending employment and that prevented him from disclosing any of Hoffmann Innovations' confidential business information or trade secrets.

Hoffmann fired Clark in August 2016, about a year and a half into Clark's tenure with Hoffmann Innovations, citing workplace misconduct and insubordination. Hoffmann claimed that Clark had conducted secret training classes using Hoffmann Innovations' products and materials and kept the profits for himself. Hoffmann recorded the phone call when he fired Clark. During the call, Clark requested a severance package and suggested that if he didn't receive one, he might make a "social media stink." About seven months after he was fired, Clark created his own entity, RealTuners, LLC, which would compete with Hoffmann Innovations' tuning classes.

In July 2017, Hoffmann and Hoffmann Innovations sued Clark and RealTuners for defamation, civil extortion, breach of the employee duty of loyalty,

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breach of contract, and unjust enrichment. Clark's and RealTuner's answer denied these claims; asserted an affirmative defense that the statements were truthful; counterclaimed for defamation, intentional interference with prospective business advantage, and invasion of privacy (false light); and requested an injunction.

About six months into the lawsuit, the parties jointly moved for the court to enter a consent order-an order from the court based on the voluntary agreement of the parties to be bound-in an attempt to prevent further harm to either side should one make defamatory statements about the other. By its terms, the order prevented either party

from making any disparaging or critical statements, express or implied, regardless of truth or falsity, in any form, written or oral (including but not limited to emails and online statements/postings), about an adverse Party to this case, to anyone (other than counsel and the Court). This applies to all statements about the Parties, including but not limited to about their businesses, owners and employees, their capabilities, their services, their reputation, their products, their methods of operation and business practices, their customers, their policies and/or business partners.

The consent order also prevented the parties from providing a platform for third parties to make disparaging comments about the other party and from filing any new complaints against each other. And finally, the order instructed that if they were asked by a third party about the other's abilities, products, employees, or services, they would respond, "I cannot comment. The Parties are involved in litigation." The order stated that a violation of its terms may result in sanctions, including reasonable attorney fees.

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Starting within about two months of the court's entry of the consent order, Hoffmann and Hoffmann Innovations started bringing separate motions for sanctions against Clark and RealTuners for violations of the consent order- twelve in total over the next year. Most of the motions alleged that Clark or RealTuners made disparaging statements on Facebook about Hoffmann personally, Hoffmann Innovations' products, Hoffmann Innovations' business practices, and even the judges assigned to the case. One day after Hoffmann and Hoffmann Innovations' second motion for sanctions, Clark's attorney moved to withdraw from the case, citing a breakdown in the attorney-client relationship. The court of appeals opinion in this case provides a detailed summary of each of the motions for sanctions. Hoffmann v. Clark, No. 19-2086, 2021 WL 1907746, at *3-11 (Iowa Ct. App. May 12, 2021).

Clark proceeded pro se for a time, representing himself on about a half-dozen motions for sanctions and several contempt proceedings for violating the district court's orders. A pattern developed in which Clark would agree at a sanctions hearing to stop posting comments in violation of the consent order, and then shortly thereafter would post on social media or racing industry forums that Hoffmann Innovations' products were faulty or that Hoffmann was paying people to lie about the products. Some of Clark's more egregious violations over the year include the following:

• Filing a petition for civil protection against Hoffmann in Iowa claiming that Clark and his fiancée feared Hoffmann (who lived in Georgia); a filing that the district court suggested contained falsified evidence.
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• Referring to Hoffmann Innovations' products and stating, "Nothing sucks worse than shooting the dice on a $1200 box except when tech support is ordered to lie to you about the problem."
• Selling "Free RealTuners" t-shirts online and stating about the litigation, "The other parties all are involved in this because they are actively communicating with my customers in an effort to steer business away from us. All of those businesses accept royalties from diy [Hoffmann Innovations] sales and all were aware of product problems but kept quiet in order to keep royalties flowing. . . . According to what Jerry Hoffmann has told me while employed there."
• Stating that "[t]his is a story about big money trying to silence a whistle blower. Do you know what can happen when your fuel injectors are locked open on a running engine? A couple people discovered the hard way and I'll be talking about that."
• Making statements suggesting that the judge had been paid by Hoffmann's lawyers to rule against him.
• Posting a link to the district court judge's personal Facebook page and referring to her as a "social media starlet."

After Hoffmann's fourth motion for sanctions and after the court had held two other hearings for sanctions, the court sanctioned Clark by striking his answer and counterclaims. With his answer and counterclaims struck, Hoffmann's allegations in the petition were deemed admitted, and the only remaining issue for trial was Hoffmann's and Hoffmann Innovations' damages.

The district court also ruled that Clark had committed a bevy of discovery violations for refusing to turn over social media information from his personal, business, and two alias accounts. The district court held Clark in contempt at least six times. He was repeatedly fined and, several times, even sentenced to jail for his contempt: once for thirty days, once for an indefinite term until he complied with discovery, and once for sixty days. Indeed, Clark failed to appear

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at a hearing because he feared incarceration. He stated that he needed to leave Iowa and posted online that it was "because some shady judges, lawyers, and...

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