Opinion
Case No. 1:04-CV-751.
May 5, 2006
REPORT AND RECOMMENDATION
Following a hearing held on March 23, 2006, Judge Spiegel entered judgment by default against two Defendants, Charles Cypert and Edward Hartley. Neither Defendant appeared at the hearing, although both were notified and responded with written correspondence directed to the trial judge. (See Docs. 23 and 24). The undersigned was directed to conduct a hearing relative to damages and attorney fees. Such a hearing took place on April 27, 2006. Neither Defendant appeared, although the Court did consider the written correspondence.
Defendant Hartley was a former employee of Defendant, whose employment was pursuant to a written contract containing both a non-compete and a non-disclosure provision. See Plaintiff's Exhibit 1, Paragraphs 1 and 5) Defendant Cypert worked as an independent consultant/project manager to Plaintiff, but was given and had access to leads constituting trade secrets. Defendant Cypert was aware that key employees of Plaintiff had employment contracts containing non-compete and non-disclosure provisions. Q4i is a company in direct competition with Plaintiff in the business consulting arena. Both Defendants severed their relationship with Plaintiff and began work for Q4i, a company that has petitioned the Bankruptcy Court for a discharge.
Gerald Williams is Plaintiff's Sr. Business Analyst, who was recruited by Defendant Cypert to work for Q4i. Williams was flown to Dallas, Texas, but declined the job. While he was there however, he noticed the presence of other employees of Plaintiff at a joint informational meeting conducted by Q4i. Of particular interest is Plaintiff's Exhibit 9, which is one of Plaintiff's business forms, an invoice worksheet with the logo of Q4i printed thereon. That this form was converted to Q4i's use is apparent from the language printed at the bottom, "This facilitates HCMM employee payroll voucher reconciliation and assures proper reimbursement of expenses."
Mike Christmann is Plaintiff's Chief Operating Officer. Christmann testified that Defendant Hartley performed services as a senior project manager, performed business analysis and trained telemarketers. During the period from January to July, 2004, Defendant Hartley sold 1,203 hours of work at $175.00 per hour for a total of $210,525 in revenue for Plaintiff. (See Plaintiff's Exhibits 7 and 11). Christmann projected that Hartley, had he remained an employee of Plaintiff, would have produced revenue of $360,900 annually. Plaintiff operates on a commission basis for literally everyone involved in a successful sale and claims a profit margin of 56%. The projection for lost profits per year is thus calculated to be $202,140.00 and that is the amount that Plaintiff seeks in compensatory damages against Defendant Hartley.
The Max Teat Affidavit established that Defendant Cypert recruited him to work for Plaintiff in 2003. Teat than avers that in 2004, Cypert successfully recruited him to work for Q4i and represented that "many of HCMM's best employees had already made a similar move." (See Plaintiff's Exhibit 3). Christmann testified that Defendant Cypert recruited four of Plaintiff's employees to work for Q4i and that three experienced analysts actually went to work there. As a result, other less experienced analysts were assigned to various clients, the effect of which was a net reduction in the number of hours sold and a corresponding loss of gross revenue to Plaintiff in the amount of $221,589.43. (See Plaintiff's Exhibits 8 and 11). 56% of the gross revenue lost is $151,590.08, which is the figure Plaintiff seeks as compensatory damages from Defendant Hartley. Although Plaintiff seeks to recover $27,500 from Defendant Hartley for the value of documents converted, we do not find from the evidence that such damages were proved.
Plaintiff's right to compensatory damages is based on lost profits. Plaintiff may recover under such a theory if the lost profits may naturally be expected to follow from the wrongful act and if the damages are reasonably ascertainable. (See Henry v. Akron, 27 Ohio App3d 369 (1985).
Attorney fees are $21,404.00, an amount which seems reasonable in light of the status of the case and the pre-filing negotiations which took place (See Plaintiff's Exhibits 4,5 and 6). Attorney fees should be awarded to Plaintiff because the behavior of Defendants was deliberate and intentional, willful and malicious, rather than negligent or inadvertent. Ohio case law demonstrates that absent a statutory basis, attorney fees can be awarded only when the opposing party is found to have acted with malice. (See Sorin v. Bd. of Edn., 46 O.S. 2d 177 (1976) and Digital Analog Design Corp. v. North Supply Co., 63 O.S. 3d 657 (1992). Malice is defined as a conscious disregard for the rights of others that has a great probability of causing substantial harm. We find that attorney fees should be awarded in a joint and several manner.
There are two issues that concern this Court in recommending an award of damages. The first is the un-rebutted testimony that Plaintiff's profit margin is a whopping 56%. The Court finds that an award of damages that depends upon such a figure would be an unreasonable amount under the circumstances of this case. Rather, the Court believes that a 15% profit margin would be reasonable under the circumstances. Although the Court agrees that punitive damages are in order, the Court disagrees that a multiple of three is appropriate. Instead, this Court would double the compensatory damage award in reference to each Defendant. In so acting, this Court is aware that there are no specific test for determining the proper amount of punitive damages, but that a Court should consider the relationship between the parties, the probability of recurrence unless the conduct is deterred, the harm that is likely to occur from similar conduct, as well as the harm which actually occurred, the reprehensibility of the conduct, the nature of the wrong, the financial status of the parties, the deterrence value, a reasonable relationship to the compensatory damage award and whether the conduct was a single occurrence or constitutes a pattern of misbehavior. Lashua v. Lakeside Title Escrow Agency, 2005-Ohio-1728 (5th District Court of Appeals, 4/11/2005). Plaintiff is still in business; Q4i is apparently defunct and both Defendants have moved on.
In summary then, this Court recommends judgment against Defendant Hartley in the amount of $54,135 plus punitive damages of $54,135 for a total of $108,270 plus costs. This Court recommends judgment against Defendant Cypert in the amount of $33,238 plus punitive damages of $33,238 for a total of $66,476 plus costs. There is joint and several liability for attorney fees in the amount of $21,404.00.