Opinion
1684CV01476BLS1
08-30-2019
Element Productions, Inc. v. Editbar, LLC et al.
File Date: September 6, 2019
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Davis, Brian A., J.
DECISION AND ORDER REGARDING DEFENDANT MARK HANKEY’S MOTION FOR APPROVAL OF DAMAGES OFFSET RESULTING FROM PLAINTIFF ELEMENT PRODUCTIONS, INC.’S RECEIPT OF SETTLEMENT PAYMENT (DOCKET ENTRY NO. 128.0) AND ORDER FOR JUDGMENT
Brian A. Davis Associate Justice
This is an action in which plaintiff Element Productions, Inc. ("Element" or "Plaintiff") alleges that one of its former executives, defendant Mark Hankey ("Mr. Hankey"), clandestinely assisted former defendants Editbar, LLC ("Editbar") and Stir Films, LLC ("Stir Films") in establishing a video production business to compete against Element. The case was filed in May 2016 and litigated aggressively for more than two years. Editbar and Stir Films eventually entered into a confidential settlement with Element shortly before trial, which resulted in their dismissal from the case. The confidential settlement included a monetary payment by Editbar and Stir Films to Element (the "Editbar Settlement Payment"), the amount of which has been disclosed to the Court, but need not be further disclosed for purposes of this decision and order.
Following Element’s settlement with Editbar and Stir Films, the case went to trial, jury-waived, in December 2018 solely on Element’s claims against Mr. Hankey, Mr. Hankey’s counterclaims against Element, and Mr. Hankey’s third-party claim against Element’s founder, Eran Lobel ("Mr. Lobel"). The trial lasted ten days. After the evidence had closed, the Court gave the parties time to submit revised proposed findings of fact and rulings of law. Closing arguments took place on April 25, 2019.
On May 24, 2019, the Court delivered its final findings of fact and rulings of law on the parties’ claims and counterclaims from the bench. The Court found in favor of Element on its breach of contract and breach of duty of loyalty claims against Mr. Hankey, but concluded that Element had failed to prove its resulting actual damages with reasonable certainty. The Court also ruled, however, that Mr. Hankey’s breach of his duty of loyalty warranted an order directing him to repay, as equitable restitution, that portion of the compensation he received from Element during the final year of his employment which exceeded the fair value of the services he had provided to Element in the same time frame. See Meehan v. Shaughnessy, 404 Mass. 419, 438 (1989) (a fiduciary who violates his fiduciary duties can be required to forfeit "that portion of his compensation, if any, that was in excess of the worth of his services to his employer") (citation omitted). See also Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 12-13 (1983) ("Chelsea Indus. ") (recognizing that a fiduciary can be required to forfeit his compensation for conduct that violated his fiduciary duties, even without a showing of actual injury to the employer). The total amount of restitution that Mr. Hankey was ordered to pay to Element comes to $609,500.00, which represents precisely one-half of the total compensation that Mr. Hankey received from Element between April 1, 2015 (i.e., the approximate date on which Mr. Hankey first began providing clandestine assistance to EditBar and Stir Films) and April 12, 2016 (i.e., the date on which Element officially terminated Mr. Hankey’s employment).
Currently before the Court is Mr. Hankey’s Motion for Approval of Damages Offset Resulting from Plaintiff Element Productions, Inc.’s Receipt of Settlement Payment (the "Motion to Offset," Docket Entry No. 128.0). In a nutshell, Mr. Hankey’s Motion to Offset asks the Court to order that the amount of restitution Mr. Hankey has been ordered to pay be reduced by the amount of the Editbar Settlement Payment pursuant to G.L.c. 231B, commonly referred to as the "Joint Tortfeasors Act." Section 1 of the Joint Tortfeasors Act provides, in relevant part, that,
[e]xcept as otherwise provided in this chapter, where two or more persons become jointly liable in tort for the same injury to person or property, there shall be a right of contribution among them even though judgment has not been recovered against all or any of them.G.L.c. 231B, § 1(a). Section 4 of the Joint Tortfeasors Act similarly provides, in relevant part, that,
[w]hen a release or covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same injury ... [i]t shall not discharge any of the other tortfeasors from liability for the injury unless its terms so provide; but it shall reduce the claim against the others to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, whichever is the greater ...Id ., § 4(a).
Relying upon the foregoing provisions of the Joint Tortfeasors Act, Mr. Hankey asserts that,
Element indisputably sued Hankey, EditBar, and Stir Films for their alleged joint torts, including Hankey’s alleged breach of fiduciary duty. Because Element has already received [the Editbar Settlement Payment] which the Court found resulted from those tortious activities, Hankey is entitled under ... § 4(a) [of the Joint Tortfeasors Act] and controlling precedent to a [comparable] offset against damages of $609,500.
Motion to Offset at 7.
Element, not surprisingly, argues that Mr. Hankey is not entitled to any set-off of the restitution that he has been ordered to pay based on Element’s receipt of the Editbar Settlement Payment. According to Element, the Joint Tortfeasors Act simply "does not apply to the Court’s equitable forfeiture order." Element’s Opposition to Defendant Mark Hankey’s Motion for Approval of Damages Offset Resulting from Plaintiff’s Receipt of Settlement Payment, dated June 17, 2019, at 7.
Neither side has requested oral argument on Mr. Hankey’s Motion to Offset. Therefore, based on the written submissions of the parties and the Court’s own legal research into the issue presented, Mr. Hankey’s Motion to Offset is DENIED for the simple reason that the Editbar Settlement Payment and the restitution that Mr. Hankey has been ordered to pay to Element do not constitute compensation for the "same injury" for purposes of the Joint Tortfeasors Act. While the Editbar Settlement Payment undoubtedly was intended to partially assuage the actual losses that Element claimed, prior to trial, to have incurred as a result of the purportedly wrongful conduct of Defendants Editbar, Stir Films, and Mr. Hankey, the Court expressly ruled, after trial, that Element had not adequately proven that it had sustained any actual damages on account of the Defendants’ conduct. The Court therefore explicitly declined to award Element monetary damages for any actual injury that Element claimed to have sustained.
The Court, however, simultaneously ordered Mr. Hankey to forfeit, on equitable grounds, one-half of the substantial pay and other benefits that he had received from Element while he was a disloyal employee, not as compensation for any injury allegedly suffered by Element, but rather as restitution to Element for payments made to Mr. Hankey for services that he did not properly perform. See Anderson Corp. v. Blanch, 340 Mass. 43, 51 (1959) (order of forfeiture against disloyal corporate officer represents an "apportionment of compensation to services properly performed"). See also Lydia E. Pinkham Medicine Co. v. Gove, 303 Mass. 1, 4 (1939) (same). The Court directed Mr. Hankey to make this restitutionary payment to Element completely independent of, and notwithstanding Element’s failure to prove, its actual damages, if any. See Chelsea Indus., 389 Mass. at 13 (fiduciary can be required to forfeit his compensation for conduct that violated his fiduciary duties, even without a showing of actual injury to the employer). Thus, the Editbar Settlement Payment and the restitution that Mr. Hankey now must pay do not compensate Element for the "same injury," and the latter is not subject to a set-off in the amount of the former under the provisions of the Joint Tortfeasors Act.
In interpreting and applying the provisions of the Joint Tortfeasors Act in the foregoing manner, the Court notes the complete lack of relevant guidance in decisions of the Massachusetts appellate courts. The Court is comfortable, however, that its interpretation is consistent not only with the express language of Sections 1 and 4 of the Joint Tortfeasors Act, but also Section 885 of the Restatement (Second) of Torts (1979), and numerous decisions of courts in other jurisdictions in comparable cases. See, e.g., Banks ex rel. Banks v. Yokemick, 177 F.Supp.2d 239, 264 (S.D.N.Y. 2001) ("[F]or any setoff rule to apply, whether state or federal, the settlement must be predicated on the tortfeasors’ liability for damages attributable to the same injury"); Borges v. County of Humboldt, No. 15-CV-00846 YGR, 2017 WL 4552006, at *2 (N.D.Cal. Oct. 12, 2017) ("A nonsettling defendant is only entitled to an offset if [he or she] ... demonstrate[s] that the settlement and award (against which the offset is sought) were for the same injury"); Glover v. Johnson, No. CIV- 14-936-F, 2016 WL 5854282, at *3 (W.D.Okla. Oct. 6, 2016) (rejecting claimed set-off where the "defendant did not demonstrate that the settlement of the co-defendants was for the ‘same injury’ suffered by plaintiff"); Gionfriddo v. Gartenhaus Café, 211 Conn. 67, 72-74 (1989) (noting that satisfaction of judgment against one tortfeasor does not preclude recovery against second tortfeasor when respective judgments are for different injuries).
Section 885(3) of the Restatement (Second) of Torts states, in relevant part, that "[a] payment by any person made in compensation of a claim for a harm for which others are liable as tortfeasors diminishes the claim against the tortfeasors, at least to the extent of the payment made ..." 4 Restatement (Second), Torts, § 885(3) p. 333 (1979). Comment (e) to Section 885 further clarifies this general principle. It says, "[p]ayments made by one of the tortfeasors on account of the tort either before or after judgment, diminish the claim of an injured person against all others responsible for the same harm ." Id., at § 885 (emphasis added).
Order for Judgment
For the foregoing reasons, and for the reasons stated in its Finding of Facts and Rulings of Law issued on May 24, 2019, IT IS HEREBY ORDERED that judgment shall enter in favor of Plaintiff Element Productions, Inc. ("Element"), against Defendant Mark Hankey ("Mr. Hankey") on Count IV of Element’s Amended Complaint in the amount of $609,500.00. Judgment also shall enter in favor of Element against Mr. Hankey on Count II of its Amended Complaint, with no damages awarded. Element may recover its costs pursuant to Mass.R.Civ.P. 54(d). No prejudgment interest is awarded, however, because Element’s recovery does not represent compensation for "personal injuries to the plaintiff or for consequential damages, or for damage to property" under G.L.c. 231, § 6B. See USM Corp. v. Marson Fastener Corp., 392 Mass. 334, 348-51 (1984) (declining to award prejudgment interest under G.L.c. 231, § 6B, on profits disgorged by defendant due to its misuse of plaintiff’s trade secrets). All other previously unresolved claims and counterclaims of the parties are dismissed with prejudice.