Trugreen Companies v. Mower Bros., Inc.

• Decision Date: 25 November 2008
• Docket Number: No. 20070451.,20070451.
• Citation: 199 P.3d 929,2008 UT 81
• Parties: TRUGREEN COMPANIES, L.L.C., a Delaware limited liability company, and Trugreen Limited Partnership, a Delaware limited partnership, Plaintiffs and Petitioners, v. MOWER BROTHERS, INC., a Utah corporation; Kevin D. Bitton dba Scotts Lawn Service, a Utah entity; Greenside, L.L.C., a Utah limited liability company; Kevin D. Bitton, an individual; Jean Robert Babilis, an individual; Ryan Mantz, an individual; Lary Gaythwaite, an individual; Jim LeBlanc, an individual; David Stephensen, an individual; Jason Hiller, an individual; Matt Walker, an individual; James Clogston, an individual; Rick Deersfield, an individual; David Van Acker, an individual; Shannon Christensen, an individual; Paul Brower, an individual; James Murray, an individual; Richard Coffman, an individual; Tammy Roehr, an individual; Jessica Spencer, an individual; Margie Smith, an individual; Alfreda Egbert, an individual; Jason Beck, an individual; and Isaiah Plumley, an individual; Defendants and Respondents.
• Court: Utah Supreme Court

199 P.3d 929

2008 UT 81

TRUGREEN COMPANIES, L.L.C., a Delaware limited liability company, and Trugreen Limited Partnership, a Delaware limited partnership, Plaintiffs and Petitioners, v. MOWER BROTHERS, INC., a Utah corporation; Kevin D. Bitton dba Scotts Lawn Service, a Utah entity; Greenside, L.L.C., a Utah limited liability company; Kevin D. Bitton, an individual; Jean Robert Babilis, an individual; Ryan Mantz, an individual; Lary Gaythwaite, an individual; Jim LeBlanc, an individual; David Stephensen, an individual; Jason Hiller, an individual; Matt Walker, an individual; James Clogston, an individual; Rick Deersfield, an individual; David Van Acker, an individual; Shannon Christensen, an individual; Paul Brower, an individual; James Murray, an individual; Richard Coffman, an individual; Tammy Roehr, an individual; Jessica Spencer, an individual; Margie Smith, an individual; Alfreda Egbert, an individual; Jason Beck, an individual; and Isaiah Plumley, an individual; Defendants and Respondents.

No. 20070451.

Supreme Court of Utah.

November 25, 2008.

Brian C. Johnson, Jacob C. Briem, William B. Ingram, Salt Lake City, for petitioners.

Richard M. Hymas, J. Mark Gibb, Erik A. Olson, Jason R. Hull, Salt Lake City, for respondents.

NEHRING, Justice:

INTRODUCTION

¶1 We consented to answer two questions that were certified to us by the United States District Court for the District of Utah. These questions are as follows:

1. Whether under Utah law a former employer is entitled to an award of lost profits damages, or instead an award of restitution or unjust enrichment damages, where a former employee has breached contractual non-competition, non-disclosure, and employee non-solicitation provisions?

2. Whether Utah law recognizes an unjust enrichment measure of damages for tortious interference with a competitor's contractual and economic relations?

¶2 We hold that lost profits is the correct measure of damages but that an analysis of a defendant's profits may be appropriate when damages are difficult to ascertain. We also hold, regarding the second question, that lost profits is the measure of damages for pecuniary injuries due to tortious interference with a competitor's contractual and economic relations.

BACKGROUND

¶3 TruGreen and Mower Brothers are competing lawn care companies operating in Utah. The underlying litigation originated when one of the defendants, Ryan Mantz, resigned from TruGreen and within a few weeks began working for Mower Brothers. Other TruGreen employees followed Mr. Mantz.

¶4 Several months later, TruGreen sent a letter to Mower Brothers, stating that the former TruGreen employees, who were employed by Mower Brothers, had signed non-compete agreements with TruGreen. TruGreen alleged that following the departure of these employees, it "suffered ... a significant loss of critical management and sales personnel, which has required the transfer of veteran sales representatives from [other branches] and the hiring and training of several new and inexperienced employees." In the meantime, Mower Brothers experienced impressive growth and revenue increases. TruGreen subsequently sued the former employees and Mower Brothers for breach of contract and tortious interference with prospective economic advantage.

¶5 TruGreen sought a temporary restraining order and preliminary injunction to enjoin its former employees from working for Mower Brothers, but it was turned away by the court. The parties then filed cross-motions for summary judgment. The court granted summary judgment for the defendants on some of their claims and denied TruGreen's motion. As part of its decision on summary judgment, the court dismissed TruGreen's allegations against several of the former employees.

¶6 At this point, only the following TruGreen claims remain: (1) that some of TruGreen's former employees breached three provisions of the TruGreen employment contract—a non-competition provision, a non-disclosure provision, and an employee non-solicitation provision; (2) that Mower Brothers, Jean Babilis and Kevin Bitton (Mower Brothers directors), and some of the TruGreen former employees tortiously interfered with TruGreen's economic and contractual relationships; and (3) that Mower Brothers, Bitton, and Babilis violated Utah's Unfair Competition Act. Utah Code Ann. § 13-5a-103 (2005). The defendants denied all of the claims.

¶7 Following the court's rulings on the summary judgment motions, a controversy arose among the parties about potential damages. TruGreen argues that an unjust enrichment or restitution measure of damages is appropriate for all of its claims. In essence, TruGreen contends that it is entitled to recover the economic benefit realized by Mower Brothers attributable to the breach of its employment contract. Mower Brothers counters that a plaintiff's lost profits, as sustained by TruGreen, is the appropriate measure of damages. The federal district court determined that there appears to be no controlling Utah law in either contract or tortious interference addressing the damages issue. The court therefore certified two questions to us in aid of obtaining guidance concerning the proper measure of damages. We have jurisdiction to answer these questions under the authority granted us in Utah Code section 78A-3-102(1) (Supp.2008).

STANDARD OF REVIEW

¶8 "When a federal court certifies questions of state law, we answer the legal questions presented without resolving the underlying dispute." Tabor v. Metal Ware Corp., 2007 UT 71, ¶ 5, 168 P.3d 814 (internal quotation marks omitted).

ANALYSIS

I. LOST PROFITS IS THE APPROPRIATE MEASURE OF DAMAGES FOR BREACH OF CONTRACTUAL NON-COMPETE PROVISIONS

¶9 The first question we are asked to review is whether under Utah law a former employer is entitled to an award of lost profits damages, or instead an award of restitution or unjust enrichment damages, where a former employee has breached contractual non-competition, non-disclosure, and employee non-solicitation provisions. We hold that lost profits is the correct measure of damages for a breach of these types of contracts.

¶10 Under Utah law it is well established that

the injured party in a breach of contract action has a right to damages based upon his expectation interest as measured by "(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform."

Ford v. Am. Express Fin. Advisors, Inc., 2004 UT 70, ¶ 39, 98 P.3d 15 (emphasis omitted) (quoting Restatement (Second) of Contracts § 347 (1981)). The purpose of these damages is to compensate the nonbreaching party "for actual injury sustained, so that [the nonbreaching party] may be restored, as nearly as possible, to the position [it] was in prior to the injury." Mahmood v. Ross (In re Estate of Ross), 1999 UT 104, ¶ 19, 990 P.2d 933 (internal quotation marks omitted).

¶11 In an employment context, it is not uncommon for an employer to require an employee to sign a contract stating that the employee will not compete with the employer, disclose private information, or solicit the employer's customers. We have held that such covenants are enforceable as long as they are supported by consideration, negotiated in good faith, necessary to protect a company's good will, and reasonably limited in time and geographic area. Allen v. Rose Park Pharmacy, 120 Utah 608, 237 P.2d 823, 828 (1951). When such a contract is breached, the injured party will often seek an injunction to prevent irreparable harm. We have held that such a remedy is appropriate. See Sys. Concepts, Inc. v. Dixon, 669 P.2d 421 (Utah 1983).

¶12 In addition to an injunction, employers may also seek to recover actual damages. Because we have not had the occasion to rule on the measure of such damages, we look to our sister jurisdictions for guidance. In our survey of employment contract breach jurisprudence, we have found that the general rule for measuring damages is "the amount that the plaintiff lost by reason of the breach, not the amount of profits made by the defendant." Trilogy Network Sys., Inc. v. Johnson, 144 Idaho 844, 172 P.3d 1119, 1121 (2007); see also Nat'l Bank of Alaska v. J.B.L. & K. of Alaska, Inc., 546 P.2d 579, 590 (Alaska 1976) ("The measure for breach of a covenant not to compete is generally not the profits earned by the breaching party, but rather the lost profits of the party asserting the breach."); Robert S. Weiss & Assoc., Inc. v. Wiederlight, 208 Conn. 525, 546 A.2d 216, 226 (1988) ("The proper measure of damages for breach of a covenant not to compete is the nonbreaching party's losses rather than the breaching party's gains."); Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 547 (Wyo.1993) ("`[L]ost profits are generally recognized as a proper element for breach of a covenant not to compete.'" (quoting In re Isbell, 27 B.R. 926, 930 (Bankr.W.D.Wis. 1983))). We accept the lost profits rule as our own because it complements our current contract law precedent.

¶13 Our adoption of a lost profits standard, however, does not prevent a nonbreaching party from examining a defendant's profits in an attempt to assess its own economic loss. We find persuasive the Idaho Supreme Court's analysis of the issue in Trilogy. There, the district court found that Johnson, a former employee of Trilogy, had breached a non-compete contract. In arguing its damages, Trilogy did not offer evidence of its own loss but instead relied solely upon Johnson's gains. The supreme court found that Trilogy "failed to offer into evidence any proof of what its costs and profits would have been" and instead relied on "conclusory statements that Johnson and Trilogy would have made similar profits." Trilogy, 172 P.3d at 1122. It then upheld the district court's decision not to award damages...