Ingram v. Cantwell-Cleary Co.
| Docket Number | 421-2022 |
| Decision Date | 22 December 2023 |
| Parties | TIMOTHY INGRAM, ET AL. v. CANTWELL-CLEARY CO., INC |
| Court | Court of Special Appeals of Maryland |
1
TIMOTHY INGRAM, ET AL.
v.
CANTWELL-CLEARY CO., INC
No. 421-2022
Court of Special Appeals of Maryland
December 22, 2023
Circuit Court for Anne Arundel County Case No. C-02-CV-18-002875
Leahy, Reed, Battaglia, Lynne A. (Senior Judge, Specially Assigned), JJ.
OPINION
Leahy, J.
A group of key employees of Cantwell-Cleary Co., Inc. ("Cantwell-Cleary" or "Appellee") abandoned their jobs one July afternoon in 2018 to take positions with Cleary Packaging, LLC, a rival company formed weeks earlier by Cantwell-Cleary's erstwhile President, Vince Cleary Jr. ("Vince Jr.").[1] Leading the way was Kevin Barstow, who, together with Timothy Ingram ("Appellants"), brought many of their former clients with them to Cleary Packaging and sold those clients the same shipping and packaging products that they had purchased in the past from Cantwell-Cleary. Suddenly, Cantwell-Cleary experienced a sharp decline in revenue.
Cantwell-Cleary brought two lawsuits in the Circuit Court for Anne Arundel County, Maryland. The first, against Mr. Barstow, asserted claims for breach of contract and injunctive relief for violating the company's standard "Duty of Confidentiality and Covenant Not to Compete" agreement ("Non-Compete" or "Agreement"), along with a claim for misappropriation of trade secrets in violation of the Maryland Uniform Trade Secrets Act, (or "MUTSA"), codified at Maryland Code (1975, 2013 Repl. Vol.), Commercial Law Article ("CL"), sections 11-1201 to 1209. Similarly, the second lawsuit, against Mr. Ingram and Dennis Ibbott[2] (another former Cantwell-Cleary salesperson), included claims for breach of contract and injunctive relief against each for violating the Non-Compete and for misappropriation of trade secrets in violations of MUTSA. The First
Amended Complaint against Ingram and Ibbott included claims for conspiracy and breach of their duties of loyalty. The two actions were consolidated for trial.
Following an eight-day bench trial, the court delivered an oral ruling on September 2, 2021. The court found Mr. Barstow liable for breach of contract and misappropriation of trade secrets in violation of MUTSA. The judge also found Mr. Ingram and Mr. Ibbott liable on all counts, including breach of duty of loyalty and civil conspiracy. On September 24, 2021, the court entered a corresponding written judgment setting forth its findings as to liability and ordering Mr. Barstow, Mr. Ingram, and Mr. Ibbott to pay damages in the amount of $780,757.32, $867,335.44, and $273,004.72, respectively, for the misappropriation of Cantwell-Cleary's trade secrets. The court also entered injunction orders against the three former employees which required, among other things, that they return to Cantwell-Cleary any records relating to the company's business operations, and prohibited them from competing with Cantwell-Cleary in the sale of packaging products within a 75-mile radius of the company's primary facility for a period of one year from the date of the order.[3]
On February 14, 2022, after a tangled series of post-judgment motions relating to a collateral bankruptcy proceeding and stay, the circuit court struck the September 24, 2021, judgment and re-entered the judgment and injunctions in the same form and based upon the same findings of liability. The court specified, however, that the clerk "shall enter the monetary judgments on the docket against the [Appellants], but shall not issue Notices of
Judgment as to the monetary judgment without further order of the United States Bankruptcy Court[.]" In a separate order entered on the same date, the court denied Cantwell-Cleary's petition for attorneys' fees after finding no malice by Appellants. Cantwell-Cleary filed a motion requesting clarification of the court's order denying attorneys' fees, and Appellants filed a motion to alter or amend the February 14 Judgment.
On April 13, 2022, the court denied Appellants' motion to alter or amend the February 14 Judgment and entered a separate order clarifying its ruling on attorneys' fees and stating that, although Appellants had engaged in malicious conduct that caused a deliberate and intentional injury to Cantwell-Cleary in violation of MUTSA, that malicious conduct did not apply to Cantwell-Cleary's request for attorneys' fees.
Appellants noted a timely appeal and present four questions for our review, which we have re-ordered and re-cast as follows:
I. Did the trial court err in not enforcing the liquidated damages provision of Appellants' Non-Compete Agreements with Cantwell-Cleary
II. Did the trial court err by concluding that customer lists and pricing information constituted trade secrets under the Maryland Uniform Trade Secrets Act?
III. Was the trial court's award of damages for misappropriation of trade secrets based upon a speculative methodology for approximating Cantwell-Cleary's lost profits?
IV. Did the trial judge abuse his discretion in clarifying his factual findings in support of his ruling denying Cantwell-Cleary's motion for attorneys' fees?
We hold that the court did not err in declining to enforce the liquidated damages provisions contained in Appellants' Non-Compete Agreements because they did not bar Cantwell-Cleary from recovering damages under its separate claims for misappropriation
of trade secrets under MUTSA. We also hold that the court did not err in finding that Cantwell-Cleary's confidential customer lists and pricing information constituted trade secrets and that Appellants had misappropriated that information. Regarding the third issue, however, we conclude that the court erred in relying on Cantwell-Cleary's expert's damages calculations because, among other things, those calculations impermissibly included lost sales that were not proven to have flowed from the acts of misappropriation. Finally, we hold that the court abused its discretion in deciding, without explanation, that Appellants engaged in conduct that amounted to malice in regard to their misappropriation of trade secrets, but not for purposes of awarding attorneys' fees under MUTSA.
In line with these holdings, we vacate the February 14 Judgment as it pertains to damages and the April 13 Order clarifying attorneys' fees. Proceedings on remand shall be limited to: (1) re-calculating Cantwell-Cleary's damages for lost profits, and (2) specifying the grounds for any finding of malice against Appellants. In all other respects, we affirm the judgments of the trial court.
BACKGROUND
Because of the segmented nature of the issues presented, we present a brief background to provide context for our discussion. The following account draws from the evidence presented at the bench trial that began on August 23 and concluded on September 2, 2021. More details relevant to the issues on appeal are included in the discussion.
The Family Business
Since the 1960s, Cantwell-Cleary has operated as a family business based in Howard County, Maryland. The company sells packaging materials, paper products,
janitorial and sanitation supplies, and office supplies. Among other services, the company provides clients with custom-made packaging for their products that is designed and manufactured by third-party vendors to protect the products in transit. Cantwell-Cleary is owned by Shirley Cleary, the matriarch of the Cleary family who ran the business alongside her late husband, Vincent Cleary Sr. All of the Cleary children-Vince Jr., Mary-Anne, Billy, Therese, Shirley, and Kathleen-have been involved in running the family business at various times.
After Vincent Cleary Sr. passed away, Vince Jr. took control of the day-to-day operations of the company. Vince Jr.'s relationship with his mother then began to fray. Specifically, Shirley claimed that Vince Jr. prevented her from coming into the office and inspecting the company's records, and that he threatened to "fine" her $10,000 for interfering with operations. In May 2018, at Shirley's direction, outside counsel drafted and sent a term sheet to Vince Jr. in an effort to settle the company's succession plan and ease tensions. Vince Jr. refused to respond, and Shirley terminated his employment in June 2018 after she purportedly heard that he was preparing to start a competing business. As Shirley foresaw, on June 22, 2018, Vince Jr. incorporated Cleary Packaging, LLC, as a competing operation and then entered into a commercial lease on July 13, 2018.
Non-Compete Agreements
Bruce Canham, a longtime employee at Cantwell-Cleary, testified that the company had used the same standard Non-Compete agreement with new sales employees throughout his tenure. The Non-Compete contained very specific covenants and instructions, pursuant to which employees agreed, among other things: 1) not to compete with Cantwell-Cleary,
as an employee or in any other capacity, in the business of selling packaging, paper, and related products within a 75-mile radius of any office of Cantwell-Cleary for one year following termination of employment for any reason; and 2) to keep confidential information that was important to the company's ability to compete, including all customer lists, prices charged for products, names of vendors and suppliers, and the contents of marketing, sales, and other business plans. Under the terms of the standard Non-Compete, which was admitted into evidence at trial, employees agreed to pay Cantwell-Cleary $50,000 "as and for liquidated damages, and not as a penalty," in the event they breached their duty of confidentiality or any covenants not to compete. The stated consideration for employees who signed the Non-Compete was "compensated services as a Cantwell-Cleary employee" and a $50 check. Therese Cleary testified that records showed the company issued $50 checks to Appellants. Moreover, Therese disclosed that she conducted an audit of Cantwell-Cleary's files containing signed...
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