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Innovative Technologies Corporation v. Advanced Management Technology

October 28, 2011

INNOVATIVE TECHNOLOGIES CORPORATION PLAINTIFF-APPELLEE/ CROSS-APPELLANT
v.
ADVANCED MANAGEMENT TECHNOLOGY, INC. DEFENDANT-APPELLANT/ CROSS-APPELLEE



T.C. NO. 2003CV3674 (Civil appeal from Common Pleas Court)

The opinion of the court was delivered by: Donovan, J.

Cite as Innovative Technologies Corp. v. Advanced Mgt. Technology, Inc.,

OPINION

{¶1} Defendant-appellant/cross-appellee Advanced Management Technology, Inc. (hereinafter "AMTI") appeal multiple judgments of the Montgomery County Court of Common Pleas, General Division, overruling two motions for summary judgment, a motion for judgment notwithstanding the verdict ("JNOV"), and a motion for a new trial rendered in the civil suit brought against them by plaintiff-appellee/cross-appellant Innovative Technologies Corporation (hereinafter "ITC"). AMTI also appeals the trial court's decision that conditionally granted its motion for remittitur of both the compensatory and punitive damages awarded by the jury. Lastly, AMTI appeals the trial court's decision granting attorney's fees to ITC.

{¶2} In its cross-appeal, ITC argues that the trial court erred when it conditionally granted AMTI's motion for remittitur which reduced the compensatory damages award from $5,752,894.00 to $1,970,599.44, and the punitive damages award from $17,000,000.00 to $5,832,974.34.

{¶3} AMTI filed a timely notice of appeal with this Court on January 5, 2010. ITC filed a timely notice of cross-appeal on January 15, 2010. I

{¶4} Plaintiff-appellee/ cross-appellant ITC is an Ohio-based government contractor that provides onsite administrative, operational, and consulting services primarily for the Department of the Air Force located at Wright Patterson Air Force Base (hereinafter "WPAFB"). From May of 1995 until August 31, 2001, ITC was under contract to provide support services to the Mobility Systems Program Office (hereinafter "Mobility SPO") at WPAFB. The Mobility SPO contract required ITC to provide twenty-two civilian employees to work at WPAFB. The Mobility SPO contract was initially scheduled to be renewed in May of 2001.

{¶5} Defendants James Silcott, Sheila Silcott, and David Nicholas (hereinafter collectively referred to as "the individual defendants") were employees of ITC assigned to work on the Mobility SPO contract at WPAFB. James Silcott was ITC's on-site task manager for the Mobility SPO, and was described as ITC's "eyes and ears" for the project at WPAFB.

{¶6} At the beginning of their employment, the individual defendants were required by ITC to sign two documents, "An Agreement Covering Confidentiality, Conflict of Interest, Non-competition, Proprietary Rights, and Related Matters," and a "Full-Time At-Will Employment Agreement." Viewed together, the agreements required employees to maintain the confidentiality ITC's trade secrets and proprietary information and relinquish said information upon termination of their employment. The agreements also restricted employees of ITC from soliciting business from ITC's current client base or any potential clients who were being actively courted for business purposes for a period of six months after termination. The agreements prohibited employees from engaging in business activities which competed with ITC, as well as requiring the written consent of ITC in order to hire away any ITC employees. Lastly, the agreements prohibited employees from accepting employment from another contractor competing for work currently being performed by the employee for ITC.

{¶7} The individual defendants formed defendant business entity Kenton Trace Technologies, L.L.C. (hereinafter "KTT") on April 3, 2000, while they were still employed by ITC. Since KTT had no work history and no employees other than the three individual defendants, the newly formed company was ineligible to enter a bid for the Mobility SPO contract. In order to gain the necessary credentials,

James Silcott secretly approached representatives from defendant-appellant/cross-appellee AMTI, a large, publicly held, government contracting firm based in Washington, D.C. AMTI immediately expressed interest in Silcott's proposal as it had been attempting, albeit unsuccessfully, to win government contracts at WPAFB.

{¶8} In September of 2000, KTT and AMTI entered into a "teaming agreement" in order to submit a bid against ITC for the Mobility SPO contract. James Silcott promised that he could persuade the incumbent employees currently working for ITC to leave and come work for KTT. In return, AMTI promised that it would employ KTT as its subcontractor once it received the Mobility SPO contract. Both AMTI and KTT believed their plan would be successful because the Air Force would be able to retain the incumbent work force for the Mobility SPO contract. KTT and AMTI utilized ITC's proprietary salary information and incumbent employee information in order to prepare a bid for the contract.

{¶9} On January 30, 2001, KTT was granted a General Services

Administration (hereinafter "GSA") schedule which permitted it to bid on various government contracts at WPAFB, including the Mobility SPO contract held by ITC. In March of 2001, AMTI helped KTT acquire the necessary security clearance for employment at WPAFB. On April 26, 2001, Silcott informed AMTI that KTT intended to submit a bid for the Mobility SPO contract and that KTT looked forward to working with AMTI in the future. On May 3, 2001, the individual defendants resigned from their employment at ITC. On May 4, 2001, the GSA formally announced that ITC, KTT, AMTI, and H.J. Ford would receive a Request for Proposal (hereinafter "RFP") for the renewal of the Mobility SPO contract. An RFP is a mechanism which provides a contractor with permission to submit a bid on a government contract set for renewal. Although AMTI and H.J. Ford received RFPs for the Mobility SPO contract, both companies abstained from bidding and did not submit proposals. As part of its bid proposal, KTT attached employee resume authorization forms from several ITC employees who were already working for ITC on the Mobility SPO contract.

{¶10} Upon becoming aware of the actions taken by KTT, ITC filed a complaint (2001 CV 2521) against KTT, as well as a motion for a temporary restraining order and preliminary injunction in order to enjoin KTT from competing for the Mobility SPO contract. Following hearings held on May 30, 2001, and June 4, 2001, the trial court issued a written decision on June 21, 2001, in which it held that ITC's employment agreements signed by the individual defendants were enforceable and that the Silcotts and Nicholas had breached them. Specifically, the trial court held that the individual defendants, while employed by ITC and for six months after their employment had been terminated, could not compete with ITC for a service that ITC was providing or had a contract to provide. Additionally, the court held that once ITC's Mobility SPO contract with WPAFB expired, the employment agreements no longer operated to prevent the individual defendants or other incumbent employees from going to work for a new contractor while performing the same job. Thus, KTT was denied permission to bid on the Mobility SPO contract, and ITC received an extension on its contract with the Air Force until August 31, 2001.

{¶11} In light of the events surrounding the May 2001 bid, officials at WPAFB decided to issue a second RFP in August of 2001. Since KTT was enjoined from submitting a bid for the August 2001 RFP, AMTI again offered to hire the company as a subcontractor if KTT promised to provide the incumbent employees from ITC, and KTT agreed. AMTI met with the ITC incumbent employees and obtained their pledge to work for the KTT/AMTI team as early as July of 2001. In August of 2001 AMTI, along with four other contractors (including ITC), submitted bids for the Mobility SPO contract. Testimony adduced at the trial established that AMTI utilized privileged and confidential proprietary information provided by the individual defendants, as well as other incumbent employees from ITC, in formulating its proposal for the Mobility SPO contract.

{¶12} AMTI submitted its bid to WPAFB on August 22, 2001. On August 29, 2001, the Air Force awarded the Mobility SPO contract to AMTI. Along with the three individual defendants, nineteen former employees of ITC went to work for AMTI after it won the Mobility SPO contract. Ultimately, AMTI was awarded the Mobility SPO contract for three additional option years, maintaining it until May of 2005. During the entire four-year period in which it held the Mobility SPO contract, AMTI utilized substantially the same group of incumbent employees who had previously worked for ITC.

{¶13} On April 30, 2003, ITC filed a notice of dismissal without prejudice pursuant to Civ. R. 41(A) in Case No. 2001 CV 2521. Less than a month later, ITC re-filed its complaint against KTT, the Silcotts and Nicholas, as well as adding AMTI as a defendant in the litigation after learning of the defendants' conspiracy. On June 22, 2004, ITC filed a motion for partial summary judgment. KTT and the individual defendants filed a joint motion to dismiss and motion in opposition to ITC's motion for partial summary judgment on July 26, 2004. On February 15, 2005, the trial court issued a decision overruling KTT's joint motion to dismiss. In the same decision, the trial court overruled in part and sustained in part ITC's motion for partial summary judgment. Specifically, the court held that as a matter of law, the individual defendants violated their employment agreements with ITC and were faithless servants. The trial court also held that it could not determine, as a matter of law, whether KTT misappropriated trade secrets from ITC because genuine issues existed regarding whether the information which ITC sought to protect constituted trade secrets under Ohio law. Lastly, the court held that genuine issues existed regarding ITC's claim for tortious interference against all of the defendants.

{¶14} On November 4, 2005, ITC filed an amended complaint against AMTI, KTT, and the individual defendants in which it made the following claims: Count I, breach of contract and enforcement of restrictive covenants against the individual defendants; Count II, misappropriation of trade secrets against all defendants; Count III, disgorgement of compensation by faithless servants against the individual defendants; Count IV, breach of contract for award of attorney's fees against the individual defendants; Count V, tortious interference with contracts and business relationships against all defendants; Count VI, tortious interference with prospective economic advantage against all defendants; Count VII, breach of fiduciary duty against the individual defendants; Count VIII, civil conspiracy against AMTI; and Count IX, unjust enrichment against AMTI.

{¶15} ITC filed a motion for partial summary judgment on its claims for misappropriation and tortious interference with contracts against AMTI on April 4, 2006. AMTI filed a motion for summary judgment against ITC on the same day. In its motion, AMTI argued that ITC cannot prove as a matter of law that AMTI proximately caused ITC to lose the Mobility SPO contract. In a decision filed on July 13, 2006, the trial court overruled both parties' motions.

{¶16} On November 22, 2006, AMTI filed a motion for partial summary judgment in which it again argued that ITC could not prove that the actions taken by AMTI proximately caused ITC to lose the Mobility SPO contract. The trial court overruled AMTI's motion in a written decision filed on March 5, 2007. The court found that genuine issues of material fact existed regarding whether ITC would have retained the Mobility SPO contract "but for" the actions of AMTI.

{¶17} We note that shortly before the trial began in December of 2007, the trial court issued a decision which limited ITC to introducing evidence of lost profits from only the base year of the Mobility SPO contract. Thus, ITC was barred from introducing evidence of lost profits from any of the three subsequent option years since the trial court found such evidence to be speculative insofar as the Air Force had the sole discretion to either renew or decline to renew the Mobility SPO contract with the winning bidder after the base year expired. We also note that the compensatory damages portion of the trial was bifurcated from the punitive damages portion.

{¶18} The compensatory damages portion of the jury trial began on December 10, 2007. AMTI moved for a directed verdict both at the close of ITC's case, as well as at the close of all of the evidence. The trial court overruled both motions for directed verdict. After a ten-day trial, the jury rendered a verdict finding AMTI, KTT, and the individual defendants liable for ITC's damages. The jury subsequently awarded ITC $752,894.00 against AMTI for misappropriation of trade secrets; $4,000,000.00 against AMTI for tortious interference with ITC's contracts with its employees; and $1,000,000.00 against AMTI for civil conspiracy for an aggregate total of $5,752,894.00 in compensatory damages against AMTI. KTT was found liable for $471,744.00 for misappropriation of trade secrets against ITC. With respect to the individual defendants, the jury awarded ITC the wages and benefits it had paid them while they were illegally conspiring with AMTI, to wit: $128,161.40 to James Silcott; $32,928.66 to Sheila Silcott; and $90,127.38 to David Nicholas. AMTI moved for judgment notwithstanding the verdict on December 31, 2007, prior to the beginning of ITC's case on punitive damages. The trial court overruled AMTI's motion for JNOV on January 3, 2008. After the punitive damages portion of the trial, AMTI was found liable for $17,000,000.00 in punitive damages. The jury also found AMTI liable for ITC's attorney's fees in this litigation.

{¶19} On February 4, 2008, AMTI filed a motion for JNOV, a motion for a new trial, and an alternative motion for vacatur or remittitur of the compensatory and punitive damages awards. In a thorough decision filed on July 10, 2008, the trial court overruled AMTI's motion for JNOV and motion for new trial. However, the trial court granted AMTI's motion for remittitur as to both the compensatory and punitive damages awarded by the jury, which reduced the compensatory damages award from $5,752,894.00 to $1,970,599.44, and the punitive damages award from $17,000,000.00 to $5,832,974.34.

{¶20} A three-day hearing on attorney's fees was held during late February and early March of 2009. In a written decision filed on December 11, 2009, the trial court awarded ITC $2,941,502.31 in attorney's fees, but denied ITC's motion for prejudgment interest.

{¶21} The instant appeal of AMTI and cross-appeal of ITC are now properly before us.

II

{¶22} Because they are interrelated, AMTI's first, second, and third assignments of error will be discussed together as follows:

{¶23} "THE TRIAL COURT ERRED IN DENYING AMTI'S MOTIONS FOR SUMMARY JUDGMENT BECAUSE ITC FAILED TO DEMONSTRATE A GENUINE ISSUE OF MATERIAL FACT THAT AMTI WAS THE PROXIMATE CAUSE OF ITC NOT WINNING THE AUGUST 2001 MOBILITY SPO CONTRACT."

{¶24} "THE TRIAL COURT ERRED IN DENYING AMTI'S MOTION FOR A DIRECTED VERDICT ON ALL CLAIMS BECAUSE ITC PRODUCED NO EVIDENCE ON THE ESSENTIAL ELEMENT OF CAUSATION."

{¶25} "THE TRIAL COURT ERRED IN DENYING AMTI'S MOTIONS FOR JNOV ON ALL CLAIMS BECAUSE A REASONABLE JURY COULD NOT CONCLUDE THAT ITC PROVED CAUSATION."

Motions for Summary Judgment

{¶26} In its first assignment, AMTI contends that the trial court erred by overruling its two motions for summary judgment. Specifically, AMTI argues that ITC failed in its burden of coming forward with evidence which demonstrated the existence of a genuine issue regarding whether AMTI proximately caused the damages sustained by ITC when it lost the bid for the Mobility SPO contract. AMTI claims that ITC finished behind three other competitors in the bidding for the Mobility SPO contract in August of 2001. Specifically, AMTI asserts that evidence of the Air Force's ranking of the candidates established that ITC would not have won the Mobility SPO contract even if AMTI had not interfered with ITC's incumbent employees. Thus, AMTI argues that ITC cannot prove, as a matter of law, that AMTI proximately caused it damages.

{¶27} ITC argues that conflicting evidence existed at the time the motions for summary judgment were filed regarding whether ITC stood behind any of the other competitors in the ranking for the bids for the Mobility SPO contract. More importantly, ITC asserts that the Air Force's main concern in accepting a bid for the August 2001 Mobility SPO contract was that it keep the incumbent employees in place to perform the contract. ITC further asserts that the only reason that AMTI won the contract was because it promised the Air Force that it could provide ITC's incumbent workforce. Throughout the course of the litigation, ITC has consistently maintained that it would have won the Mobility SPO contract but for AMTI's tortious interference with ITC's incumbent workforce.

Standard of Review

{¶28} An appellate court reviews an award of summary judgment de novo. Grafton v. Ohio Edison Co. (1996), 77 Ohio St.3d 102, 105. We apply the same standard as the trial court, viewing the facts in the case in a light most favorable to the non-moving party and resolving any doubt in favor of the non-moving party. Viock v. Stowe-Woodward Co. (1983), 13 Ohio App.3d 7, 12.

{¶29} Pursuant to Civil Rule 56(C), summary judgment is proper if:

{¶30} "(1) No genuine issue as to any material fact remains to be litigated;

(2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party." Temple v. Wean United, Inc. (1977), 50 Ohio St.2d 317, 327. To prevail on a motion for summary judgment, the party moving for summary judgment must be able to point to evidentiary materials that show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Dresher v. Burt (1996), 75 Ohio St.3d 280, 293. The non-moving party must then present evidence that some issue of material fact remains for the trial court to resolve. Id.

{¶31} "Causation" refers to the cause and effect relationship between tortious conduct and a loss that must exist before liability for that loss may be imposed. Dobran v. Franciscan Med. Ctr., 149 Ohio App.3d 455, 459, 2002-Ohio-5378. While difficult to define, "proximate cause" is generally established "'where an original act is wrongful or negligent and, in a natural and continuous sequence, produces a result [that] would not have taken place without the act.'" Strother v. Hutchinson (1981), 67 Ohio St.2d 282, 287. It is also well settled that because the issue of proximate cause is not open to speculation, conjecture as to whether the breach of duty caused the particular damage is not sufficient as a matter of law. See Townsley v. Cincinnati Gardens, Inc. (1974), 39 Ohio App.2d 5, 9. Further, a plaintiff must establish proximate cause by a preponderance of the evidence. See Littleton v. Good Samaritan Hosp. & Health Ctr. (1988), 39 Ohio St.3d 86, 92.

{¶32} In its merit brief, AMTI relies on two cases which it maintain support its contention that ITC failed to establish that it would have won the Mobility SPO but for the conduct of AMTI. In Costaras v. Dunnerstick, Lorain App. No. 04CA008453, 2004-Ohio-6266, a teacher employed by Clearview school district sought employment with a competing school district. Id. The Clearview superintendent contacted the superintendent from the competing district and informed him that the teacher was already employed by Clearview and therefore, unavailable for other employment. Id. The teacher brought suit against Clearview, alleging tortious interference with a business opportunity. Id.

{¶33} The appellate court held that the trial court erred when it failed to grant Clearview's motion for directed verdict because the teacher failed to produce any evidence, other than her own testimony, that she would have been awarded the new teaching position but for the Clearview superintendent's decision to contact the superintendent from the other school district. Id. The court specifically found that the teacher's speculative testimony regarding how the prospective employer may have reacted to the call from Clearview's superintendent was insufficient to support the element of proximate cause. Id.

{¶34} In Technology for Energy Corp. v. Scandpower, A/S (C.A. 6, 1989), 880 F.2d 875, the Sixth Circuit Court of Appeals affirmed the district court's decision sustaining the defendants' motion to dismiss pursuant to Fed.R.Civ.P. 41 finding that the plaintiff failed to prove that it probably would have been awarded a contract but for defendants' wrongful interference, as required under California law.

The court concluded that its decision "prevents the plaintiff from obtaining a 'windfall' in the form of damages for interference with an economic opportunity which it would not have obtained even if the defendant had done nothing wrong." Id.

{¶35} Upon review, we conclude that the facts in Costaras and Scandpower are distinguishable from the facts in the instant case. Initially, we note that the holdings in Costaras and Scandpower are distinguishable. In neither case relied upon by AMTI did the plaintiffs come forward with convincing evidence which created a genuine issue regarding whether they would have been awarded employment (Costaras) nor a contract (Scandpower) but for the actions of the defendants. Herein, ITC presented sufficient facts establishing a genuine issue regarding whether the actions of AMTI proximately caused ITC to lose the Mobility SPO contract in August of 2001. Although AMTI presented evidence that ITC ranked fourth out of five bidders in the competition for the contract in August of 2001, ITC relied upon the deposition testimony of Fred Whitican, AMTI's Dayton Operations Manager, who stated that the continued service of ITC's incumbent employees was of primary concern to the Air Force when deciding to whom to award the Mobility SPO contract after re-competing the contract in August of 2001. While relevant to our inquiry, AMTI's list provided by Lt. Karraker that ranks the August of 2001 bidders is not the smoking gun which AMTI portrays to be. The list is simply another piece of evidence to be taken into account when determining whether AMTI is liable for ITC's loss of the Mobility SPO contract in August of 2001.

Moreover, we note that the testimony provided by Lt. Karraker was partially undermined by the fact that he submitted two sworn affidavits which contain conflicting and contradictory averments. We also note that ITC presented evidence that in the absence of KTT's and AMTI's tortious conduct prior to the first bid in May of 2001, ITC would have been the only entity to submit a bid at that time and would have been awarded the Mobility SPO contract, thus obviating the need to issue a second RFP in August of 2001. Accordingly, the trial court did not err when it overruled AMTI's motions for summary judgment regarding the issue of whether it proximately caused ITC to lose the Mobility SPO contract in August of 2001.

B. Motion for Directed Verdict

{ΒΆ36} As we recently stated in Stephenson v. Upper Valley Family Care, Inc., Miami App. ...


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