Summary
holding that the party claiming duress must show a wrongful act that overcame the will of the aggrieved party who was without adequate means to protect himself
Summary of this case from Chrin v. Ibrix IncorporatedOpinion
C.A. No. 19627.
Date Submitted: January 15, 2003.
Date Decided: May 21, 2003.
Herbert G. Feuerhake, Esquire of THE LAW OFFICE OF HERBERT G. FEUERHAKE, Wilmington, Delaware; Attorney for the Plaintiff.
Scott A. Holt, Esquire of YOUNG CONAWAY STARGATT TAYLOR, LLP, Wilmington, Delaware; Attorney for the Defendant.
MEMORANDUM OPINION
Pending is an action challenging the validity of a noncompetition provision in an employment contract. The plaintiff (and counterclaim defendant), Interpreet Singh ("Singh"), was employed by the defendant (and counterclaim plaintiff), Batta Environmental Associates, Inc. ("Batta" or "the Company"), which is an environmental consulting company. Singh signed an employment contract that contained a noncompetition provision, which barred him from competing with Batta for two years during and after his employment with Batta. While working for Batta, Singh secretly formed his own environmental consulting company to compete with Batta. When the Company's senior management discovered that Singh was diverting clients and projects, Singh resigned from Batta and began openly to compete with his former employer.
Singh brought this action to invalidate the non-competition provision of his employment agreement. Batta has asserted counterclaims against Singh for violating the noncompetition provision of that agreement, for breaching his duty of loyalty, for converting Batta's business, and for wrongfully interfering with Batta's prospective client relations. Batta seeks the following relief on its counterclaim: (i) an injunction prohibiting Singh from competing against it in violation of the employment agreement, and (ii) damages, costs, and attorney's fees resulting from the violation of the noncompetition provision. This is the post-trial Opinion of the Court on the merits of all claims. For the reasons next discussed, the Court concludes that (i) the employment agreement and noncompetition provision are valid, (ii) the noncompetition provision was violated, (iii) Batta is entitled to final injunctive relief and monetary damages against Singh, and (iv) Singh's claims lack merit and will be dismissed.
I. FACTS
What follows are the facts as found by the Court. Batta is a Delaware corporation that operates primarily in Delaware and also in other mid-Atlantic States. Batta performs a variety of services including (i) bulk sampling, testing, and surveying for lead, asbestos, and other water and airborne contaminants, (ii) real estate environmental surveying, and (iii) testing for landfills and underground storage tanks. The Company is also certified to perform services to assist firms seeking to comply with the hazardous Substances Cleanup Act (HSCA).
Other facts, where necessary to establish the elements of legal claims in this case are included in the Analysis section of this Opinion.
Tr. at 217-18; JX 16.
Tr. at 212-14; JX 4.
The HSCA is a Delaware statute that requires environmental service providers to obtain a special certification to provide certain services. Tr. at 7. Singh helped Batta prepare the documentation required to obtain Batta's HSCA certification. Id. at 180.
In 1991, Singh came to the United States from India on a student visa. After receiving his Master's degree in construction science at the University of Oklahoma in 1994, Singh sought to obtain the twelve months of practical training that was required for him to obtain permanent employment and a green card. In August 1994, Singh began working for the Benham Group on a project in Arkansas, but in May 1995, when the Benham Group lost the contract for that particular project, Singh was laid off. As a result, Singh was left three months shy of the twelve months experience that he needed. Unless Singh could find another employer or go back to school, he would be forced to return to India.
Id. at 50-51.
Id. at 53.
Id. at 53-54.
Id. at 56-57.
Singh searched for a job, but was unable to find employment. He then called his father, Meher Singh ("Meher"), who was still living in India, and asked for his help in finding a job in the United States. Meher spoke to Naresh Batta ("Naresh"), an old family friend who had moved from India to the United States in 1969. Naresh lived in Delaware, where he had founded the Company in 1982. Naresh told Singh and Meher that he would try to help Singh find a job, but that Batta had no job openings for someone with Singh's background and limited experience.
Id. at 261-62.
Id. at 262.
Singh earned a: degree in construction science, whereas Batta was involved in the environmental engineering field. The two fields are different. Id. at 263-64.
Naresh invited Singh to his home in Delaware, where Singh lived for several weeks while he sought employment. Because Singh could not find any other job, Naresh hired him in June 1995. Before Siugh was hired, however, he was required to sign Batta's standard employment contract, which contained a non-competition provision. That provision of the employment agreement states, in pertinent part, that:
Id. at 264.
Id. at 264-65.
JX 2. It was later discovered that the contract's signature page was missing. Accordingly, Singh reexecuted the document in 1997. Tr. at 141-42.
2. During the term of his employment with [Batta], [Singh] shall not for himself or on behalf of any other person or corporation, other than [Batta], engage in any business in competition with [Batta] directly or indirectly, as an individual, partner, stockholder, director, officer, clerk, principal, agent, employee, or otherwise,
3. In the event of the termination of [Siugh's] employment, whether voluntary or involuntary . . . [Singh] shall not, for a period of two years from the date of termination:
a. engage in any business in competition with [Batta] nor be employed by an environmental consulting firm or organization, directly or indirectly, as an individual, partner, stockholder, director, officer, clerk, principal, agent, or employee or otherwise, in the state of Delaware or within 200 miles of the offices of [Batta], which are currently in Newark, Delaware and Georgetown, Delaware;
b. directly or indirectly solicit or aid in soliciting any business in competition with [Batta's] business, or solicit any customer who has within two years prior to the cessation of his employment dealt with [Batta] in the State of Delaware, or within 200 miles of the State of Delaware; or
c. directly or indirectly, use or disclose to any persons, except [Batta] and its duly authorized officers or employees entitled thereto, [Batta's] customer or client lists, credit classifications, records, statistics, or any other information acquired by [Singh] in the course of his employment in any capacity whatsoever, nor in any manner directly or indirectly aid or be a party to any acts the effects of which tend to divert, diminish, or prejudice the goodwill or business of [Batta].
In the autumn of 1995, Singh began working as a project manager in Batta's Geo-Environmental Services Group. Because Singh had no experience in the environmental assessment business, he received training in that field from his supervisors. In 1999, Singh received a job offer from Delaware's Public Service Commission. Singh told Naresh about the offer, but Naresh convinced Singh to stay, and later gave him a raise
Tr. at 145.
Id. at 140-41, 201.
Id. at 278.
Id. at 278-79.
Also in 1999, Singh was promoted to manager of his Group. As manager, Singh's duties were to communicate with clients, draft proposals and work orders, perform environmental services, oversee the work of other project managers, draft investigative reports, send out customer invoices, and market Batta's services to new and existing clients. In that job capacity, Singh had access to Batta's bid proposals and pricing information.
Id. at 148.
The property assessment work is divided into three phases. Phase I involves an initial investigation of the site. If contamination is found, a Phase II sampling and assessment is undertaken to determine the specific problem. Phase III involves remediation, or a clean-up, of the contamination. Id. at 6-7.
Id. at 148-49, 197-99.
After Singh earned his real estate license in 1998, he invested in several environmentally distressed properties. Singh paid Batta to perform the environmental work on those properties. In August 2001, Singh formed his own environmental consulting business, Mehar Investment Group LLC ("MIG"), and another, separate corporation as a vehicle to acquire the real estate.
Singh earned his license in 1998. Id. at 77-78.
Singh owns shares of several companies. MIG is a consulting company and the parent company of MIG Environmental. A third entity, Mehar Investment, is an investment company that owns properties. Id. at 80-81.
During the summer of 2001, Todd Zeisloft ("Zeisolft") was promoted within Batta from manager to Vice President of Operations. Singh, who now had to report to Zeisloft rather than directly to Naresh, became dissatisfied about the new hierarchy within the Company.
Id. at 89-91
As Singh began acquiring more properties, he also began performing environmental services on those properties through his own company, MIG. Eventually, Singh began to conduct MIG's environmental business from Batta's offices, using Batta's facilities, office supplies, maps, and even the services of its employees. Not only did Singh use Batta's assets to perform work on his own properties, but also he covertly took, and in some cases openly solicited, Batta's clients and projects for his firm. In numerous cases, Singh negotiated client contracts for Batta projects, and either changed them to MIG projects or sent MIG invoices to the clients.
Id. at 150-52, 165-69; Mike Sanders and Sam Baughman performed work for MIG while they worked at Batta. In July 2002, Sanders resigned from Batta and went to work for MIG.
JX 9.
Tr. at 155-65; JX 17. The record discloses numerous examples of such conduct and outright misappropriation of Batta's projects. Singh and Robert Wittig executed a Batta work order for a project, but Singh later sent Wittig a MIG invoice. Tr. at 159-61; JX 21, 22. Singh arranged for Batta to perform Phase I work on a project for Manna Christian Fellowship Church, but then arranged for MIG to perform the more valuable Phase II work. Tr. at 161-63; JX 17 19. Singh executed a work order for Batta to perform the Phase II work for BF Paving, but the project was eventually converted to MIG project. Tr at 163-65; JX 17 20.
In May 2002, Zeisloft was informed that Singh might be operating a business in competition with Batta. Zeisloft searched Singh's computer and found a MIG marketing brochure that Singh had drafted to solicit customers for his own company. Naresh and Zeisloft confronted Singh about the brochure and his possible violation of the noncompetition provision in the employment agreement Singh's response was that he had created the brochure as a means to market his company to his real estate partners, and that the only environmental work MIG had performed was on his (Singh's) personally own real estate.
Tr at 220.
Id. at 221.
Id. at 222.
After that meeting, Singh resigned from Batta on May 6, 2002. After leaving Batta, Singh continued to solicit business from Batta's existing and potential clients covered by the noncompetition provision. At trial, Singh admitted to doing business with those clients. This (preemptive) lawsuit by Siugh followed.
JX 8.
Tr. at 169-70; JX 11.
Tr. at 174-79.
II. THE APPLICABLE LAW AND THE PARTIES' CONTENTIONS
In support of his claim for declaratory relief, Singh contends that his employment agreement with Batta is invalid because (i) it lacks consideration, (ii) Singh signed it while under economic duress, (iii) it was modified so as to make the restrictive covenant inapplicable, and (iv) its restrictive covenant provision barring competition is impermissibly overbroad. Singh also contends, in response to Batta's counterclaim, that he did not breach any duty of loyalty to Batta, and that although Singh admittedly violated the noncompetition provision by working on certain projects for MIG, not all of the work performed by MIG violates that restriction.
Batta's position, as defendant and counterclaimant, is that the employment contract and its noncompetition provision are valid and enforceable. Batta contends that Singh breached his duty of loyalty to Batta, converted Batta's business, and wrongfully interfered with its client relations. Batta also argues that all of the work performed by Singh, MIG, and his company s affiliates, violates the noncompetition provision. As a result, Batta argues, it is entitled to injunctive relief preventing MM from performing environmental services for current Batta customers, and from soliciting customers for such services within Delaware or within 200 miles of Batta's offices, plus monetary damages, costs, and attorney's fees for Singh's breach of the noncompetition provision.
These contentions generate several major issues. The first is whether Singh's employment contract is legally valid and enforceable. The second issue is whether, even if the employment agreement is valid, its noncompetition provision is, nonetheless, unenforceable. The third issue is whether Singh violated the noncompetition provision. The fourth, and final, issue is what relief; if any, should be granted.
The evidence shows, and Singh concedes, that he breached the noncompetition provision. That concession, coupled with the facts found above, establish that Singh breached his duty of loyalty to Batta, converted its business, and wrongfully interfered with its client relations.
III. ANALYSIS
A. Whether The Employment Contract Is Valid
The first set of issues concern the validity of the employment contract as a whole. These issues are addressed seriatim.
1. Was There A Failure of Consideration?
Singh claims that there was a failure of consideration that invalidated his employment agreement, because Batta did not pay him for his services during the summer of 1995. The facts relevant to the failure-of-consideration claim are as follows: Singh signed the employment agreement on June 23, 1995. He was unable to start work until September 11, 1995, however, because of an injury he suffered in an automobile accident on June 11, 1995. Singh filed a claim for unemployment compensation for that period with State Farm, his automobile insurance company, which paid Singh the entire amount of his lost wages. Singh argues that he actually worked for Batta during that period, even though he was medically excused from doing so and that because Batta did not pay him for that work, a failure of consideration resulted. Batta responds that it did not pay Singh because, in fact, he was not working and in fact was receiving unemployment compensation from State Farm.
JX 28.
Tr. 145-46; JX 14.
Singh's failure of consideration claim is utterly meritless and must fail. Mutual promises between an employer and employee constitute lawful consideration for an employment contract. Here, Siugh signed an employment contract and Batta agreed to employ him. But for his injury, Siugh would have begun working for Batta when he arrived in Delaware. The physician's notes, the insurance claim filed with State Farm, and Naresh's trial testimony, which I credit, establish that (i) Singh was excused from work and in fact did not work from June 11, 1995 until September 11, 1995, and (ii) Singh received unemployment compensation for that period. Those facts are dispositive of Singh's claim.
RHIS. Inc. v. Boyce, 2001 Del. Ch. LEXIS 118, at *9 (Del.Ch. Sept. 26, 2001).
Thereafter, Singh worked for, and was regularly paid by, Batta between September 11, 1995 until he resigned on May 6, 2002. During that period, Siugh never complained that his contract was not supported by consideration, nor did he ever raise any issue as to the source of the payments made to him while he was unable to work during the summer of 1995. This claim is, therefore, rejected.
It is also barred by laches. Singh waited seven years to assert this claim. To entertain it now would prejudice Batta. Fike v. Ruger, 752 A.2d 112, 113 (stating the elements for the equitable defense of laches)
2. Was There Economic Duress?
Singh next contends that the employment agreement is invalid because he signed it under economic duress. To establish duress for the purpose of voiding a contract, the party claiming duress must show a wrongful act that overcame the will of the aggrieved party who was without adequate means to protect himself. Singh's duress argument is that he was forced to choose between (i) working for no salary under an illegal restrictive covenant (so that he could obtain the year of practical training required to obtain his green card), and (ii) returning to India. Moreover, Singh testified, when he signed the employment contract, he was dealing with the added stress of an impending marriage.
Cianci v. JEM Enterprise, Inc., 2000 Del. Ch. LEXIS 125, *30*31 (Aug. 22, 2000); Restatement (Second) of Contracts § 175(a).
Singh has failed to prove duress. First, Singh has not shown that Batta committed any wrongful act. Naresh Batta offered Singh a job because Singh could not find employment anywhere else, and was the son of an old family friend, and because he would otherwise have been forced to return to India. Thus, although he was not required to do so, Naresh created a job for Singh. And, although Naresh asked Siugh to sign an employment agreement, it was the same agreement that dozens of Batta's other employees had signed. It strains credibility to argue that these kindnesses constituted a wrongful act. Siugh's complaint that he was forced to choose between two regrettable alternatives overlooks that reality Naresh created a valuable alternative for him: He offered Singh a secure job with upward mobility. The only condition was that Singh agree (as did Batta's other employees) not to convert Batta's clientele or otherwise compete against it,
Nor has Singh proven that his will was overcome or that he lacked adequate means to protect himself from exploitation. Singh could have returned to India. Although he may not have preferred that alternative, that does not make it unacceptable. Siugh's life was not in danger if he returned to his native land, nor has Singh shown that he could not obtain employment there. Singh chose to remain in the United States and accept the one job offer he had received, not because the alternative was intolerable, but rather because he preferred to live in this country. Having to make that choice does not constitute economic duress, Indeed, from September 1995 to May 2002, Singh never complained about the employment agreement or its noncompetition provision, and even after he received a job offer from Delaware's Public Service Commission, he chose to remain at Batta.
3. Was There Undue Influence?
Singh next claims that the employment contract was invalid because he was unduly influenced to enter into it. To establish undue influence sufficient to prevent the formation of a binding contract, the party asserting undue influence must show that he was unfairly persuaded to enter the agreement by a party who dominated him, or that the parties' relationship created a justifiable belief that the influencing person would not act contrary to his interests. Where, as here, no fiduciary or confidential relationship between the parties existed, the party who claims undue influence has the burden of proof.
Rudnitsky v. Rudnitsky, 2001 Del. Ch. LEXIS 159, at *13 (Del. Ch., Dec. 20, 2001); Restatement (Second) of Contracts § 177 (1979).
Rudnitsky at *13.
Here, Singh and Naresh never had a fiduciary or confidential relationship. Naresh was the Chief Executive Officer and President of the company that hired Singh. Although the two men knew each other before Siugh was hired, Singh had no reason to repose such a degree of trust and confidence in Naresh as would impose upon Naresh the obligations of a fiduciary. Accordingly, it is Singh, not Naresh, who has the burden of proving undue influence, and Singh has failed to discharge that burden.
Siugh has not shown that he was unfairly persuaded to enter into the employment agreement or that Naresh dominated him at that time. Singh argues that he was placed in an awkward position because of the close relationship between the two families and his inability to find a job. As a consequence (Singh claims), he would have signed whatever documents Naresh asked him to. Singh also argues that he did not read the employment agreement or its noncompetition provision.
That claim lacks credibility. There may have been a long-term relationship between the Singh and Batta families, but that, without more, does not establish duress. That conclusion is buttressed by the fact that the employment terms to which Singh agreed were virtually the same terms to which the dozens of other Batta employees had agreed as well. Finally, Singh's professed failure to read the employment contract cannot provide a basis for its avoidance.
Tr. at 35-45.
Batta required all employees to sign a basic employment contract. The form contract required the name and signature of the employees. In some instances, modifications were made to some employees' contracts, on a case-by-case basis after consultation between management and the employee. In a few cases, the 200-mile restriction was removed. No such modifications were ever made to Singh's contract. Id. at 301-02; JX 2 3.
Singh tried to portray the employment agreement as an unfair form contract so that the Court would apply strict scrutiny in determining whether there was undue influence. The fact that the contract was maintained in Batta's word processing files and used for all employees does not mean that it was unfair. While Naresh did not invite Singh to change the contract terms, Singh (like certain other employees) could have asked to negotiate them, but Singh did not.
Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989).
4. Was the Contract Modified?
Singh next claims that he and Batta modified the employment agreement, and that as a consequence, its restrictive covenant was nullified. The modification, Singh argues, occurred in 1999, when he told Naresh about his job offer from the Delaware Public Service Commission and Naresh discouraged Singh from leaving Batta. At trial, Naresh testified that he told Singh, in substance, "Work for me a few years and then go do whatever you are going to do, whatever business." Singh claims that the effect of that statement, coupled with the fact that Naresh made no mention of the noncompetition provision, was to modify the employment agreement by causing the two year noncompete period to run from the date of Naresh's statement.
Tr. at 281.
That is, Singh argues that the effect of Naresh's statement was to cause the two-year noncompetition period to run from the date that statement was made. From that point forward (Singh contends), Singh's contract obligation was to avoid competing with Naresh for the next two years (the period of the non-compete restriction). The basis of this argument — which is bereft of any documentary support — is that he could have left Batta at that point, in which case the covenant would have expired two years thereafter, in 2001. Under that scenario, Singh could freely compete with Batta after he departed the firm. Because Singh did not leave Batta until 2002, by then (Singh argues), the noncompetition provision (as modified) had expired.
This claim has no record or legal support other than Singh's self-serving testimony, which I reject. Naresh's response is that he never told Singh, or even intimated, that he (Naresh) was agreeing to modify the employment contract, or that Singh would be free to form his own environmental business after he left the firm. All that Naresh intended by his statement was to retain a valuable employee and good worker that his company had trained at its own expense. Indeed, shortly after their conversation, Naresh gave Singh a raise. I credit Naresh's testimony, which further undermines the factual foundation for Singh's "modification" claim.
Singh's argument has no legal foundation either. An oral modification to a written contract must be proved with evidence that is specific and direct, and that would leave no doubt of the parties' intent to change the memorialized contract terms. No such evidence was presented here. Singh has not proved that Naresh made any specific clear statement communicating an intent to modify the employment agreement in any respect, let alone in the manner argued for by Singh. Moreover, it would be counterintuitive to conclude that Naresh would contractually agree to expose his business to a risk of that magnitude without memorializing a term of such significance in writing. No writing evidencing the supposed modification was ever proffered.
Continental Ins. Co. v. Rutledge Co., 2000 Del. Ch. LEXIS 40, at *10-*11 (Del.Ch. Feb. 15, 2000).
B. Whether The Noncompetition Provision Is Specifically Enforceable
Alternatively, Singh claims that even if the employment agreement is valid, its noncompete provision is not, because its restrictions are overbroad. To be specifically enforceable, the limitations in a noncompetition provision must be reasonable and limited to what is necessary to protect the former employer's legitimate interests. The issues framed by that rule of law are next analyzed.
RHIS at *14
1. Is the Restriction Reasonable?
In determining whether the restrictions imposed by the noncompetition provision are reasonable, the Court will consider whether the restrictions (a) are appropriately limited in time and space in the circumstances of the case, (b) protect a legitimate interest of the employer, and (c) are oppressive. Here, the Court finds that the temporal restriction is reasonable, but that the geographic restriction is not, for which reason its scope must be reduced somewhat: The Court also determines that the restriction is not oppressive.
Bernard Personnel Consultants, Inc. v. Mazarella, 1990 Del. Ch. LEXIS 137, at *7 (Del.Ch. Aug. 28, 1990).
a. Temporal and Geographic Restrictions
Singh contends that the employment agreement's two-year temporal restriction against competition is excessive, and that if the restrictive provision is found otherwise enforceable, the duration of the restriction should be reduced to one year. A one-year period, Singh urges, is amply sufficient for Batta to easily reestablish contact with any former clients that Singh diverted. Singh proposes that the restriction should expire on May 6, 2003, the one-year anniversary of the day he left the Batta firm and (serendipitously) before this Opinion would have issued. Batta urges that the two-year restriction is reasonable because it tracks the normal life cycle of an environmental project. I credit that argument, because the evidence of record shows that multiple phase projects of the kind performed by Batta often require between one a half and two years to complete. Thus, the Court has an adequate factual basis to find, and does find, that the temporal restriction is reasonable.
Tr. at 268; JX 30.
Singh next contends that the geographic restriction in the employment agreement should be deleted in its entirety and that any injunction should be crafted to prevent Singh from dealing with specific clients. Alternatively, Singh argues that there is no justification for applying the restriction beyond the Delaware state boundaries, because approximately ninety percent of Batta's work takes place within Delaware. Batta's response is that the 200-mile restriction is reasonably tailored to include the area in which most of the Company's clients are located. Naresh testified that the 200-mile limitation was intended to include clients that could be reached (cost-effectively) by car within three to four hours.
Tr. at 267.
The Court is persuaded, as a conceptual matter, that a geographic restriction is appropriate, but it is not persuaded that the 200-mile restriction at issue in this case is reasonable or necessary. The undisputed evidence shows that during the last two years, nearly ninety percent of the dollar value of Batta's business was performed within Delaware. If applied, the 200 mile restriction would preclude Singh from competing within 200 miles of Batta's Georgetown office, which would encompass much of Maryland, Washington, D.C., and Northern Virginia. In this Court's view, that sweeps with too broad a brush. Based on the evidence, the Court concludes that a reasonable geographic restriction is one that would preclude Singh from competing against Batta only within the boundaries of Delaware.
JX 16 contains a list of Batta's out of state clients, and JX 30 contains a list of the revenues earned on all of Batta's projects between September 2000 and September 2002. Singh determined that Batta earned $4,348,840.00, representing 89.7% of its revenues, from in-state clients, and $499,825, representing 10.3% of its revenues, from out-of state clients. Batta did not controvert this point. Tr. 320-21; JX 15, 16, 30; Pl. Answering Br. at 26-27.
b. Does the Restriction Protect Batta's Legitimate Interests?
The second enforceability issue is whether the noncompetition provision protects Batta's legitimate interests. Singh claims that it does not because (i) Batta did not provide any unique training that would constitute a legitimate proprietary interest, and (ii) that provision's true intent and purpose is to prevent Singh from competing with it. Singh claims also that allowing MIG to compete against Batta would benefit both society in general and the environmental services market in particular.
Batta has established to the Court's satisfaction that the competitive restriction does, in fact, serve several important purposes. The environmental consulting business is a service industry. In that industry, clients often identify and develop a loyalty to the particular employee who provides the services, rather than the employer. In this case, Singh had significant Batta client contacts, which he used to build relationships that became MIG's initial (competitive) customer base. While at Batta, Singh identified some clients with Phase I problems, and then diverted their more valuable Phase II and III business to his own company. Clearly, Batta has a legitimate interest in preventing such conduct.
Moreover, when Batta hired Singh, he had no training in the environmental assessment field. Singh was trained in the techniques of the business and firm procedures. Once Singh left Batta after having obtained knowledge of its price structure, he was in a position to underprice his former employer. Batta, therefore, has established that the restrictions further a legitimate interest in (i) preventing employees who leave the Company from taking with them clients with whom they worked while employed there, and (ii) using proprietary information obtained during their former employment, to compete after departing Batta.
While information about a particular client's problems may not be proprietary in nature (and Batta does not argue that it is), that information is highly valuable in an industry where the work comes in various phases and takes years to be completed. Bernard at *13. Also, while Batta admits that its techniques are not proprietary in nature, its prices are, and such information is protectible. Id. at *12-*13.
c. Is The Restriction Oppressive?
Lastly, the restrictive covenant is not oppressive. It does not leave Singh without a means of financial support. Singh is well educated, having earned a Master's degree and a real estate license. He is also a savvy businessman. It is therefore not unreasonable to require Singh to choose between (i) reducing the scope of his environmental business to comply with the noncompetition provision, or (ii) working in a different field in which he is adequately trained ( i.e. engineering), or (iii) simply waiting until the noncompetition period expires. In the event Singh makes the third choice, it must be noted that his wife is a physician with an independent income that would be available to support their family, at least temporarily.
Tr. at 185
The Court concludes, for these reasons, that the noncompetition provision is enforceable against Singh. Accordingly, the Court turns to the question of whether Singh violated that provision.
C. Whether The Noncompetition Provision Was Violated
Batta argues that Singh violated the noncompetition provision of their employment agreement by diverting projects to MIG while employed at Batta, and thereafter by competing directly with Batta within Delaware, within 200 miles of their offices, and within the prohibited two year post-resignation. Singh does not deny this, and the evidence of these violations is undisputed and overwhelming. The Court concludes, therefore, that the noncompetition provision has been, and continues to be, violated.
D. The Appropriate Relief
The relief Batta seeks includes an injunction, monetary damages, costs, and attorney's fees. For the reasons next discussed, the Court concludes that Batta is entitled to receive final injunctive relief, monetary damages, and costs, but not attorney's fees.
1. Injunctive Relief
To merit a final injunction, a plaintiff must show: (i) actual success on the merits, (ii) irreparable harm, and (iii) that the harm resulting from not granting an injunction outweighs the harm to the opposing party if the injunction is granted.
COPJ of Delaware, Inc. v. Kelly, 1996 Del. Ch. LEXIS 136, at *11 (Del.Ch. Oct. 25, 1996); Draper Communications, Inc. v. Delaware Valley Broadcasters L.P., 505 A.2d 1283, 1288 (Del.Ch. 1985).
Batta has succeeded on the merits of its claims because it has established that Singh breached the noncompetition restriction by diverting Batta's clients while employed there, and thereafter, by competing with Batta during the prohibited two year period. The Court is also satisfied that Batta will suffer irreparable harm unless injunctive relief is granted. Singh developed a personal relationship with certain Batta clients while employed at that firm, and the clients that he diverted from Batta have not done business with Batta since that time. How many new projects from those clients, and how many new clients Batta might have obtained had Singh not illegally competed, is unknown and possibly unknowable. That makes it impossible to calculate with any certainty the full extent of the damage that will be inflicted on Batta if Singh is allowed to continue violating the noncompetition provision. The inadequacy of damages as a remedy, as well as the difficulty of calculating damages — factors both present in this case — constitute irreparable harm.
Rovner v. Health-Chem Corp., 1996 Del. Ch. LEXIS 83, *36-*37 (Del.Ch. July 3, 1996); In re Cencom Cable Income Partners, L.P. Litig., 1996 Del. Ch. LEXIS 17, at *7 (Del.Ch. Feb. 15, 1996).
The final factor to be considered is the balance of equities, i.e., the harm that will befall either party depending on whether or not the injunction is granted. That is, the Court must compare the harm to Batta if Singh is not enjoined from competing, with the harm to befall Singh if MIG and Singh's other companies are forced to cease operating in violation of the noncompetition provision.
Singh argues that if he is enjoined from running MIG or from performing environmental services, he will be left unable to support himself or his family. The evidence does not support that contention. As earlier found, if the Court grants injunctive relief to Batta, Singh may still permissibly engage in the same business as Batta, but outside of Delaware. Moreover, Singh may provide services that Batta does not offer, and it can also perform work that Batta traditionally subcontracts out. In addition, Singh is a trained civil engineer and is still free to work in that field again.
For example, Batta subcontracts XRF work out to another company. XRF is a noninvasive technique used to test for lead in paint without disturbing the physical structure Tr. at 112.
Id. at 52.
On the other side of the equation, if injunctive relief is denied, Batta will continue to stiffer irreparable harm, its goodwill will continue to erode, and it will lose clients, referrals, and other prospective opportunities that cannot be quantified.
Having weighed the foregoing factors, the Court finds that the balance of equities favors Batta and that injunctive relief is appropriate. The injunction shall begin effective the date of the order implementing this Opinion, and shall remain in effect until May 6, 2004, the two-year anniversary of Singh's resignation from Batta. The injunction also shall prohibit Singh, MIG, and other affiliates from competing against Batta within Delaware.
RHIS at *21. RHIS is persuasive authority for this approach. There, Vice Chancellor Lamb reduced the two-year restriction in the noncompetition agreement to one year, and held that the one-year restriction should continue until the one-year anniversary of the employee's termination, rather than the one-year anniversary of the date of judgment.
2. Monetary Damages
Batta also seeks damages for the monetary value of (i) the projects that Singh diverted before he left Batta on May 6, 2002, (ii) the projects that MIG performed after Singh left Batta until September 30, 2002, and (iii) the prospective harm that will occur until the noncompetition period expires on May 6, 2004. These claims are now addressed.
September 30, 2002 was the cutoff date used by Batta's trial expert. JX 24.
a. Categories (i) and (ii)
Batta's expert economist, Stanley J. Kursh ("Kursh") testified that Singh's clients either belonged to Batta or would have belonged to the Company had Singh remained there. Kursh also testified that Batta was capable of performing that work, that the work was of the type that Batta historically performed, and that MIG's schedule of rates were similar to Batta.
Tr. at 251.
Id. at 252-53.
To determine the damages of the first two categories, Kursh calculated the gross profits of Singh's and MIG's projects. He determined the revenues by totaling the invoice amounts for the projects that Singh and MIG performed, and deducting the subcontracting costs. Kursh did not subtract overhead costs, because, as he testified, Batta had the capacity to perform the projects itself and would not have had to incur any additional costs to complete those projects. For the first category, Kursh calculated the damages at $25,385. For the second category, Kursh calculated the damages at $35,301.
Singh did not present evidence of any fixed or variable costs that Batta would have incurred to complete the projects by itself. Had Singh presented evidence that Batta would have incurred increased variable costs — such as the use of supplies — as a result of performing the projects, the Court would have considered that evidence in determining the amount of damages.
The revenues were $28,887 and the subcontracting expenses were $3,502.
The revenues were $46,131 and the subcontracting expenses were $10,830.
Singh offered no contrary expert testimony on the damages issue. Singh concedes that his actions were not all entirely defensible, and that four projects invoiced by and paid to MIG should have been paid to Batta, because the clients had contracted with Batta. Singh claims that if the Court finds he profited on those projects as a result of conversion, intentional interference with Batta's business relationships, or disloyalty, then he should disgorge (to Batta) the profits associated with those four projects.
Singh concedes that Batta is entitled to be paid for the projects for Robert Wittig, Mark Medori, BF Paving, and Reverend Moore. The amount of the damages ($6,217) was obtained by subtracting the total subcontracting costs ($1,600) from the total project revenues ($7,817).
Meyer Ventures v. Barnak, 1990 Del. Ch. LEXIS 186, at *18-*19 (Del.Ch. Nov. 2, 1990) (holding that disgorgement of profits is appropriate where a disloyal fiduciary has wrongfully taken a corporate opportunity).
With respect to those four projects, Singh calculated the damages in the same manner as did Batta's expert. He totaled the invoice amounts for the projects and subtracted the subcontracting costs. He concludes, however, that Batta is only entitled to $6,217 in damages for those specific projects.
Singh argues that his work on the other projects (aside from the four mentioned above) does not violate the noncompetition provision. He further contends that if the Court finds that the noncompetition provision is valid, then the Court should not use Kursh's formula to determine the damages owed to Batta because the formula does not account for expenses. He argues that the Court should calculate the damages by multiplying the revenues earned on (the remaining) projects by a profit margin. Singh suggests that the profit margin be based on (i) Batta's financial performance between 1999 and May 2002 or (ii) an estimate of the average project profit margin that Naresh discussed in his deposition.
As discussed in note 62 supra, if Singh had presented some credible evidence that Batta would have incurred greater operating expenses in completing Singh's and MIG's projects or provided definitive testimony with respect to Batta's profit margins, the Court would have considered that evidence in determining the damages. See, e.g Meyer at *19-*2O (finding that the compensatory damages sought were not net of operating expenses); RHIS at *23 (awarding twenty-five percent of the gross revenues as damages based on trial testimony that the business' profit margin varied between twenty-five and fity percent of revenues).
The Court cannot accept Singh's reasoning, because the damages are not limited to the four projects he concedes belonged to Batta, The number of projects diverted by Singh were more than four. The Court has found that all of the projects on which Singh and MIG performed, with the exception of work on Singh's own properties, violated the noncompetition provision, Kursh's damages calculations take all of those projects into account. The Court agrees with Kursh's calculations, and will therefore, award Batta the damages for the first and second categories of damages, less the profits that (i) were earned by Singh and MIG on projects that were performed on properties that Singh owns or (ii) were performed on properties located outside of Delaware.
b. Categoiy (iii)
Finally, Batta seeks to recover prospective damages for the period September 30, 2002 to May 6, 2004. By the time this Opinion is issued, however, some of these damages will have become actual damages. The balance — prospective damages — from that date to May 6 — would be inappropriate, because the injunctive relief being granted would prevent those prospective damages from occurring.
Kursh determined the average amount of profit that Batta earned in a month and seeks to obtain that amount for each month until May 6, 2004.
Because the Court is granting injunctive relief, Batta is not entitled to damages for future harm. For this Court to award Batta damages for the period from the date of this Opinion until May 6, 2004 is unnecessary, because Singh would not be earning the profits associated with the projects that Singh (and MIG) will be enjoined from performing.
It may be that Singh's conduct damaged Batta's relationships with certain clients and Batta may not get those clients back. That is probative of the irreparable harm Batta has suffered and is, in part, why Batta is being awarded injunctive relief. Batta has not claimed or proved any specific damages caused by impairment of client relationships. For that reason, such damages will not be awarded in this case.
3. Costs and Attorney's Fees
Under Rule 54(d), the Court has discretion to award costs to the prevailing party. Given Singh's flagrant conduct in violation of his employment agreement, the Court will award Batta its court costs, witness fees, statutory charges, and filing fees. The Court will award Batta the value of the fees paid to its expert witness for the time spent testifying in Court.
The Court will not award attorney's fees, however. Attorney's fees are rarely awarded under the American rule. Such an award is appropriate only where a statute, court rule, or contractual provision authorizes an attorney fee award or, where a party has prosecuted or defended a case in bad faith, or where the action creates a common fund or other compensable benefit. Although Singh's defenses have been rejected, there is no evidence that his defense was advanced in bad faith. Siugh was entitled to challenge the scope of the noncompetition provision, and he did succeed in reducing its geographic reach.
1 Donald J. Wolfe, Jr Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 13-3[a], at 13-7 to 13-8 (3d ed. 2001).
IV. CONCLUSION
For the above reasons, the Court will enter judgment in favor of the defendant and against the plaintiff. Counsel shall promptly confer and submit an implementing form of order.