J.A. Morrissey, Inc. v. Smejkal

• Decision Date: 02 July 2010
• Docket Number: No. 09-215.,09-215.
• Citation: 6 A.3d 701,2010 VT 66
• Parties: J.A. MORRISSEY, INC. v. Peter SMEJKAL, Iva Smejkal, Merkur Construction, LLC and IS Enterprises, LLC.
• Court: Vermont Supreme Court

6 A.3d 701

2010 VT 66

J.A. MORRISSEY, INC.

v.Peter SMEJKAL, Iva Smejkal, Merkur Construction, LLC and IS Enterprises, LLC.

No. 09-215.

Supreme Court of Vermont.

July 2, 2010.

Michael J. Gannon of Affolter Gannon & Rose, Ltd., Essex Junction, for Plaintiff-Appellee.

Robert S. DiPalma and Sonya L. Sibold of Paul Frank + Collins P.C., Burlington, for Defendants-Appellants.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

JOHNSON, J.

¶ 1. This case arises from the demise of a business relationship within a construction company. Defendants Peter Smejkal, Iva Smejkal, Merkur Construction, LLC, and IS Enterprises, LLC appeal from the partial denial of their post-trial motion for judgment as a matter of law, or in the alternative, for a new trial, following a jury verdict in favor of plaintiffs Jeanne Morrissey and J.A. Morrissey, Inc. in an action for breach of fiduciary duty, interference with business relations, and fraudulent conveyance. We affirm.

¶ 2. Peter Smejkal began his employment as an estimator and project manager at J.A. Morrissey, Inc. (JAM) shortly after it was established by Jeanne Morrissey in the summer of 1993. By 1997, Smejkal held the position of vice-president and corporate director of JAM. Morrissey remained the sole shareholder and president of the company and retained control over personnel and financial decisions. The relationship between the parties began to deteriorate when Morrissey discovered that Smejkal had engaged in self-dealing, contrary to company policy. Following the deterioration of their employment relationship, Smejkal was terminated from JAM in September 2003. Also in that month, Smejkal began operating his own construction company, Merkur Construction, LLC (Merkur), which was officially incorporated in January 2004.¹

¶ 3. The current dispute involves the actions of Smejkal, individually and as the owner of several contracting companies, both before and after he was terminated from JAM, with regard to several projects commissioned by clients originally belonging to JAM: (1) the Paluska project; (2) the Johnson project; and (3) the Benware project. These projects involved clients who had initially contracted with JAM for services and with whom Smejkal worked as an employee of JAM prior to his termination. Following Smejkal's termination, each of these projects was completed wholly or partially by Smejkal's newly-formed contracting company. JAM also took issue with Smejkal's actions concerning property at 174 Avenue C in Williston, Vermont (Avenue C), a commercial property that Smejkal personally purchased and renovated during his employment at JAM. JAM moved its offices into Avenue C upon Smejkal's suggestion and argues that Smejkal's conduct with regard to the move and lease-including unauthorized use of JAM personnel and equipment and unauthorized fit-up expenses charged to JAM-caused JAM to lose a substantial amount of money.

¶ 4. JAM filed suit in May 2004, with Smejkal alone listed as the defendant. JAM later amended its original complaint, adding Iva Smejkal (Iva), Merkur, and IS Enterprises, LLC, as defendants. The amended complaint included the following: (1) a claim for breach of fiduciary duty against Smejkal; (2) an interference with prospective business relationships claim against Smejkal, Iva, and Merkur ²; and (3) a fraudulent conveyance claim against Smejkal and Iva. Additionally, Smejkal and Iva counterclaimed against JAM for damages that resulted from JAM's departure from Avenue C.³ A five-day jury trial was held in Chittenden Superior Court in November 2008.

¶ 5. The jury found Smejkal liable for breach of fiduciary duty with respect to the Paluska, Johnson, and Avenue C projects. The jury concluded that Smejkal was liable for interference with prospective business relationships only with respect to the Johnson project, but that Merkur was liable with respect to both the Paluska and Johnson projects. The jury also found that Smejkal and Merkur fraudulently transferred assets to Iva and/or IS Enterprises. The court awarded JAM a total amount of $293,043.32, including compensatory damages, punitive damages, and costs. Of that amount, $25,000 represented punitive damages against Smejkal. Punitive damages against Iva Smejkal were assessed at $75,000. Additionally, the jury determined that the Smejkals were entitled to damages on their counterclaim against JAM, and judgment was entered in the amount of $12,166.53.

¶ 6. Following the verdict, defendants moved for judgment as a matter of law or, in the alternative, for a new trial. In its decision and entry order, the trial court partially granted defendants' motion by striking the award of punitive damages against Iva, finding that because Iva wasnot found liable for any claim, there was no basis to sustain punitive damages against her. The court upheld the rest of the jury's verdict, denied the motion for a new trial, and entered an amended final judgment. This appeal followed.

¶ 7. On appeal, defendants challenge the trial court's denial of their motion for judgment as a matter of law or, in the alternative, for a new trial. First, they assert that the evidence did not support the jury's conclusion that Smejkal breached his fiduciary duties with respect to the Paluska, Johnson, and Avenue C projects. Second, defendants challenge the jury's verdict with respect to interference with prospective business relationships, contending that the evidence did not support a finding of liability against Merkur or Smejkal. Third, defendants argue that the fraudulent conveyance finding was erroneous as to the conveyance of the Avenue C building to IS Enterprises. Finally, defendants assert that punitive damages were not properly assessed against Smejkal because there was insufficient evidence of malice.

¶ 8. We review a denial of a motion for judgment as a matter of law de novo pursuant to Vermont Rule of Civil Procedure 50 "in the light most favorable to the nonmoving party, excluding the effect of any modifying evidence." Follo v. Florindo, 2009 VT 11, ¶ 26, 185 Vt. 390, 970 A.2d 1230. Judgment as a matter of law is appropriate where "there is no legally sufficient evidentiary basis for a reasonable jury to find for [the nonmoving] party on that issue." V.R.C.P. 50(a)(1). Thus, we will reverse the trial court's denial of a motion for judgment as a matter of law only where no evidence exists that fairly and reasonably supports the jury's verdict. Brueckner v. Norwich Univ., 169 Vt. 118, 122, 730 A.2d 1086, 1090 (1999).

¶ 9. In reviewing the denial of a motion for a new trial under Vermont Rule of Civil Procedure 59(a), we note that "[t]he law favors upholding jury verdicts" and that the decision to grant or deny a motion for a new trial is committed to "the sound discretion of the trial court." Shahi v. Madden, 2008 VT 25, ¶ 14, 183 Vt. 320, 949 A.2d 1022. We will reverse the trial court's decision only where, viewing the evidence in the light most favorable to the verdict, we conclude that there has been an abuse of discretion. Id.

¶ 10. With this deferential standard of review in mind, we turn to defendants' first argument. Defendants contend that the jury verdict finding that Smejkal breached his fiduciary duties with respect to the Paluska, Johnson, and Avenue C projects was against the weight of the evidence. To establish a claim for breach of fiduciary duty, JAM had to show that: (1) Smejkal owed JAM a fiduciary duty; and (2) that duty required Smejkal to act in good faith and with loyalty for the advancement of JAM's interests. In Vermont, a corporate director must discharge his or her duties: "(1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner the director reasonably believes to be in the best interests of the corporation." 11A V.S.A. § 8.30(a)(1)-(3). As part of the fiduciary duty owed to the corporation, a director may not profit at the expense or against the interest of the corporation. Lash v. Lash Furniture Co. of Barre, 130 Vt. 517, 522, 296 A.2d 207, 211 (1972). The duties of good faith and loyalty require that a director must not allow personal interests to interfere with or supersede the interests of the corporation.

¶ 11. It is undisputed that Smejkal owed a fiduciary duty to JAM in his role as vice-president and corporate director ofthe company. This duty imposed an obligation upon Smejkal to act with the utmost good faith and loyalty for the best interests of JAM. See Vt. Dep't of Pub. Serv. v. Mass. Mun. Wholesale Elec. Co., 151 Vt. 73, 89, 558 A.2d 215, 224 (1988) ("Directors of a corporation are regarded as fiduciaries and are required to exercise their own independent judgment for the highest welfare of the corporation ...." (quotation omitted)); Lash, 130 Vt. at 522, 296 A.2d at 211 ("The relationship of a director ... to his corporation binds him to use the utmost good faith and loyalty for the furtherance and advancement of the interest of that corporation.").

¶ 12. First, with regard to the Paluska project, there is sufficient evidence that Smejkal breached his fiduciary duties to JAM. Unknown to Morrissey, Smejkal purchased an excavator and utilized his own newly-formed excavation company, Landworks Adventures, LLC, to complete excavation work at the Paluska site. Creating an excavation company for purposes of in-house excavation work was contrary to JAM policy, and Morrissey had expressly rejected Smejkal's previous attempts to convince her to allow in-house excavation work. Further, during Smejkal's work on the Paluska project, it became clear that the quality of the excavation work was sub-par. Testimony at trial indicated that in response to the client's concern Smejkal attributed the poor-quality work performed by his excavation company to JAM-including the failure to obtain proper insurance, VOSHA violations, increased costs and delays, and failure to adhere to engineering...