McCarter & English LLP v. Jarrow Formulas, Inc.

Full title: McCARTER & ENGLISH, LLP, Plaintiff, v. JARROW FORMULAS, INC, Defendant.

Court: United States District Court, D. Connecticut

Date published: Feb 8, 2024

715 F. Supp. 3d 281 (D. Conn. 2024)

Opinion

No. 3:19-cv-01124 (MPS)

2024-02-08

McCARTER & ENGLISH, LLP, Plaintiff, v. JARROW FORMULAS, INC., Defendant.

David W. Case, James A. Budinetz, James G. Green, Jr., Louis R. Pepe, Rory M. Farrell, McElroy, Deutsch, Mulvaney & Carpenter, LLP, Hartford, CT, for Plaintiff. Bernard M. Resser, Barton LLP, Santa Monica, CA, Frank J. Szilagyi, Szilagyi & Daly, Hartford, CT, James E. Heavey, Amy Yinghong Chen, Michael C. Ward, Raquel Chavez, Barton LLP, New York, NY, Jeffrey J. Tinley, Tinley, Renehan & Dost, LLP, Waterbury, CT, John J. Radshaw, III, New Haven, CT, Robert L. Sirianni, Jr., Brownstone, P.A., Winter Park, FL, for Defendant.

MICHAEL P. SHEA, United States District Judge

David W. Case, James A. Budinetz, James G. Green, Jr., Louis R. Pepe, Rory M. Farrell, McElroy, Deutsch, Mulvaney & Carpenter, LLP, Hartford, CT, for Plaintiff.

Bernard M. Resser, Barton LLP, Santa Monica, CA, Frank J. Szilagyi, Szilagyi & Daly, Hartford, CT, James E. Heavey, Amy Yinghong Chen, Michael C. Ward, Raquel Chavez, Barton LLP, New York, NY, Jeffrey J. Tinley, Tinley, Renehan & Dost, LLP, Waterbury, CT, John J. Radshaw, III, New Haven, CT, Robert L. Sirianni, Jr., Brownstone, P.A., Winter Park, FL, for Defendant.

RULING ON POST-VERDICT MOTIONS

MICHAEL P. SHEA, United States District Judge.

I. Introduction

McCarter & English, LLP ("McCarter") represented Jarrow Formulas, Inc. ("Jarrow") in a contentious Kentucky lawsuit, which resulted in a multimillion dollar verdict against Jarrow. Shortly after the trial ended, McCarter sued Jarrow to recover outstanding legal fees, and Jarrow brought counterclaims alleging that McCarter overbilled it and engaged in malpractice. In March of 2021, I granted partial summary judgment for McCarter on its breach of contract claim and awarded $980,451.44 in compensatory damages. After a July 2023 trial, a jury returned a verdict for McCarter on all counts, awarding $1,057,173.93 in additional compensatory damages. The jury also found that McCarter was entitled to prejudgment interest, and that Jarrow's breach of contract was willful and malicious, warranting punitive damages. Now, McCarter has filed motions seeking prejudgment interest under Conn. Gen. Stat. § 37-3a(a), offer of compromise interest under Conn. Gen. Stat. § 52-192a, and punitive damages. Jarrow has filed a motion for judgment as a matter of law and a

motion for a new trial or remittitur. For the reasons set forth below, I grant in part McCarter's motions for prejudgment interest and offer of compromise interest. I deny without prejudice McCarter's motion for punitive damages, as I will certify to the Connecticut Supreme Court the issue of whether punitive damages are available for willful and malicious breach of contract. I deny Jarrow's motion for judgment as a matter of law, except as to one issue, as explained below, and deny Jarrow's motion for a new trial or remittitur.

II. Procedural History

McCarter represented Jarrow in a jury trial in the United States District Court for the Western District of Kentucky (the "Kentucky Litigation"), in which Caudill Seed & Warehouse Company ("Caudill") sued Jarrow for violations of the Kentucky Uniform Trade Secrets Act, among other claims. ECF No. 194 at 1-2. The jury returned a $2,427,605 verdict against Jarrow, finding willful and malicious misappropriation of trade secrets by Jarrow. Id. at 2. Shortly thereafter, Jarrow terminated its relationship with McCarter and refused to pay the remaining attorney's fees and costs that McCarter claimed it owed. Id.

McCarter brought this action for breach of contract, account stated, and unjust enrichment/quantum meruit to recover $2,044,686.77 in outstanding legal fees. Id. McCarter filed a motion for prejudgment remedy and, after an evidentiary hearing, secured a prejudgment remedy in the amount of $1,850,000. Id. The parties agreed that Jarrow "would deposit $1.85 million into escrow during the pendency of this litigation." ECF No. 480 at 1.

In its Answer to the Complaint, Jarrow asserted eight counterclaims against McCarter, including breach of fiduciary duty, negligent/intentional misrepresentation, unfair trade practices, and legal malpractice. ECF No. 184. Jarrow alleged that McCarter misrepresented its "billing rates, billings, and discounts." Id. (quoting ECF No. 184 at 32). Jarrow also alleged that McCarter failed to meet the standard of care for an attorney in the Kentucky Litigation by (1) failing to call Jarrow Rogovin, Jarrow's Chairman and President, as a live witness, (2) failing to call a damages expert to rebut Caudill's damages evidence or present an alternative damages calculation, (3) failing to offer evidence that Jarrow did not act willfully and maliciously, and (4) failing to "adequately consult and communicate with the client." Id. at 2-3 (quoting ECF No. 184 at 33).

A. Motions for Summary Judgment

On July 15, 2020, the parties cross-moved for summary judgment. ECF Nos. 161, 164. On March 22, 2021, I granted in part and denied in part McCarter's motion for summary judgment as to the breach of contract claim and the malpractice counterclaim, denied its motion as to all other claims, and denied Jarrow's motion for summary judgment. ECF No. 194. On the breach of contract claim, I held there was no dispute of material fact as to whether "Jarrow contracted with McCarter for representation in the Kentucky Litigation," based on evidence of "a twenty-three-year course of dealing." Id. at 16. This contract required Jarrow "at a minimum ... to pay McCarter for the Kentucky Litigation at the hourly rates shown on the first invoice and ... for expenses incurred by McCarter during the representation." Id. at 20. I concluded that Jarrow breached the contract by declining to pay five invoices and reimburse expenses. Id. at 23.

However, I found that there was an issue of material fact as to whether Jarrow "agreed to pay the higher rates at which McCarter began to bill shortly after the commencement of the Kentucky Litigation." Id. at 28. Therefore, I granted summary judgment on the breach of contract claim only as to the lower rates in the first

invoice and as to all expenses incurred, and awarded $980,451.44 in damages. Id. at 29-30. Since Jarrow's breach of fiduciary duty, misrepresentation, and unfair trade practices counterclaims were based on its allegations that McCarter did not alert Jarrow to the rate increases, I denied both parties' motions for summary judgment as to these counterclaims. Id. at 30-34.

I also granted in part and denied in part McCarter's motion for summary judgment as to Jarrow's malpractice counterclaim. Id. at 37. I held that the evidence raised a genuine issue of material fact as to whether "McCarter committed legal malpractice by failing to call Rogovin to testify ... failing to address damages issues, and failing to offer evidence that Jarrow did not act wilfully or maliciously." Id. However, I concluded that there was no evidence "from which a reasonable juror could infer that McCarter failed to consult with Jarrow adequately or that any such failure caused Jarrow any injury," and I granted summary judgment on that portion of the claim. Id.

B. Preclusion of Damages Malpractice Theories

Before trial, McCarter moved to exclude testimony from Jarrow's malpractice expert. ECF No. 273. It argued, in part, that Jarrow could not "put a number to its claim that it suffered damages as a result of McCarter's alleged malpractice." ECF No. 273 at 23 n.6, 28-33. On October 14, 2022, I directed Jarrow to demonstrate that it had disclosed sufficient evidence in discovery to prove the amount of damages allegedly resulting from McCarter's alleged failure to address damages issues in the Kentucky Litigation. ECF Nos. 316, 317. According to Jarrow, McCarter engaged in malpractice when it failed to conduct sufficient discovery on damages and/or to call an expert witness on research and development damages. Jarrow claimed that this failure inflated the Kentucky verdict. After discussing the issue at multiple pretrial conferences, ECF Nos. 318, 336, 351, I determined that Jarrow had failed to disclose in discovery the evidence it sought to offer to prove that any such failure had caused any particular quantity of damages to a reasonable certainty. ECF No. 336 at 4-5; ECF No. 355. I therefore excluded that evidence under Fed. R. Civ. P. 26 and 37. ECF No. 336 at 4-5; ECF No. 355. Since Jarrow could not establish damages with reasonable certainty without that evidence, and since damages are an element of a malpractice claim, see Mayer v. Biafore, Florek O'Neill, 245 Conn. 88, 92, 713 A.2d 1267 (1998), Jarrow was precluded from raising this portion of its malpractice claim at all. ECF No. 366 at 21. Thus, the case proceeded to trial on only one malpractice theory: that McCarter's decision not to call Rogovin as a witness amounted to malpractice. Id.

C. Stipulations on Damages

Under Connecticut law, the award of prejudgment interest and, in most cases, punitive damages "is a factual question within the province of the jury." Retepromaca Representaciones Tecnicas Proyectos y Sistemas, C.A. v. Ensign-Bickford Co., No. 3:98-CV-01857 (SRU), 2004 WL 722231, at *9 (D. Conn. Mar. 30, 2004) (prejudgment interest); Larsen Chelsey Realty Co. v. Larsen, 232 Conn. 480, 518, 656 A.2d 1009 (1995) (punitive damages).^{1 1 1 1 1 1 1} Before trial, however, the parties stipulated that "the jury [would] decide whether a party is entitled to" punitive damages and prejudgment interest, and the Court would determine the amount of

1 In cases under the Connecticut Unfair Trade Practices Act, for example, it is up to the judge to decide whether to award punitive damages. See Conn. Gen. Stat. § 42-110g(a), (g).

1 The lower court made no finding of fact which describes either plaintiffs' or defendants' enclosure. For the convenience of this court a summary of the features is contained in Appendix G, p. 9a.

1 The sixth letter, Exhibit 5-S is the same as Exhibit 00. F. 157, R. 82.

1 The memorandum of decision stated that the exemplary damages were awarded for misappropriation of "trade secrets" [Count One). Mem. of Desic., R. 43, para. 3. There were no allegations of willful misconduct in connection with Count One.

1 The sixth letter, Exhibit 5-S is the same letter as Exhibit 00; F. 157, R. 82.

1 "Who's Who" is essentially an English publication of Adam & Charles Black, London. In the United States, the A. N. Marquist Company produces the so-called Who's Who directories: Who's Who in America, Who's Who in the East, Who's Who in American Women, etc.

1 The defendant, Air Devices, executed a contract for the State Street Bank job with the general contractor, the Gilbane Construction Co., on July 15, 1964.

damages. ECF No. 362 ¶ 5 (emphasis in original). However, "[b]oth parties reserve[d] their right to argue to the Court that the opposing party is not entitled to prejudgment interest and/or punitive damages for any reason, and [that] no issues related thereto should be submitted to the jury." Id. The Court instructed the jury to award prejudgment interest if it determined that "the other party wrongfully detained money that was due," and to award punitive damages if it determined that "the other party's conduct intended to violate — or showed reckless indifference to — the rights of the first party." ECF No. 430 at 38-39, 41.

D. Trial and Verdict

During the trial, Jarrow made an oral motion for judgment as a matter of law. ECF No. 409. The motion made two arguments: (1) that McCarter had not proved by clear and convincing evidence that its rate increases were fair and equitable with full disclosure, and (2) that no punitive damages could be awarded because Connecticut law does not "recognize[] bad faith breach of contract except when there is a strong public policy involved." ECF No. 452 at 220-22. The Court reserved judgment on those issues. Id. at 223-25.

The jury returned a verdict for McCarter on all issues, finding that Jarrow had agreed to all of McCarter's fee increases after the initial Kentucky Litigation invoice, and awarding $1,057,173.93 in compensatory damages. ECF No. 433 at 1-2. The jury also determined that McCarter was entitled to prejudgment interest and Jarrow's conduct was willful and malicious, id. at 2-3, and found for McCarter on all of Jarrow's counterclaims. Id. at 3-9.

E. Post-Trial Motions

After the trial concluded, McCarter filed motions for prejudgment interest, punitive damages, and offer-of-compromise interest. ECF Nos. 464, 465, 466. On September 29, 2023, Jarrow agreed to release to McCarter the $1.85 million in prejudgment remedy funds from escrow, ECF No. 480, and McCarter filed a revised calculation of prejudgment and offer of compromise interest, ECF No. 481. Jarrow filed a motion for new trial and remittitur, ECF No. 468, and a renewed motion for judgment as a matter of law, ECF No. 470.

III. Punitive Damages

First, I address an issue that is relevant to each of the pending motions: the availability of punitive damages for McCarter's breach of contract claim. Jarrow argues that McCarter cannot recover punitive damages under its breach of contract claim, because Connecticut law limits "the availability of tortious breach of contract, with the possibility of punitive damages, to insurance cases or [cases] where the breach involved the violation of an important public policy." ECF No. 471 at 23. McCarter offers a competing theory that, "[u]nder Connecticut law, punitive damages are available in breach of contract cases, when the breach takes on a tortious element." ECF No. 478 at 15.^{2 2 2} Because Connecticut law is unsettled on this question, resolving this question requires

2 In its Reply in Support of its Motion for Punitive Damages, McCarter also argues that Jarrow waived its argument that punitive damages are not available for willful and malicious breach of contract, since "the parties stipulated that the jury would decide the issue of entitlement to punitive damages." ECF No. 488 at 8 (quoting ECF No. 362 ¶ 5). But the stipulation also states that the parties "reserve their right to argue to the Court that the opposing party is not entitled to ... punitive damages for any reason, and [that] no issues related thereto should be submitted to the jury." ECF No. 362 ¶ 5. The most reasonable reading of the stipulation, and my understanding based on discussions with the parties before trial and during the trial is that, unless I directed a verdict on the issue of willful and malicious breach, I would submit the issue to the jury; but this would not prevent Jarrow from arguing, in a motion for judgment as a matter of law, that punitive damages were not available under Connecticut law on McCarter's breach of contract claim.

2 Webster's New International Dictionary defines found as "to lay the basis of ... to establish upon a basis, literal or figurative, ... to take the first steps or measures in erecting or building up ... to begin to raise. 2nd edition p. 997.

2 The finding (F. 157 f, R. 82) makes an obvious error in confusing the exhibits relating to the two Boston jobs — State Street Bank and the State Office Building — two different buildings with different general contractors and different owners.

weighing competing public policy concerns, and other states have adopted several different rules, I will certify this question to the Connecticut Supreme Court.

A. Approaches to Punitive Damages for Breach of Contract

Before diving into Connecticut precedent, I provide some background on the use of punitive damages in breach of contract suits. "Punitive damages are not ordinarily recoverable for breach of contract." Triangle Sheet Metal Works, Inc. v. Silver, 154 Conn. 116, 127, 222 A.2d 220 (1966). Traditionally, the "purpose[] of awarding contract damages is to compensate the injured party.... not punishment, and punitive damages are not appropriate." Restatement (Second) of Contracts § 355 cmt. a.

Courts have offered several reasons why punitive damages are permitted for torts, but not for contracts. First, "breaches of contract do not cause the kind of resentment or other mental and physical discomfort as do the wrongs called torts and crimes, and no retributive purpose would be served by punitive damages." Thyssen, Inc. v. S.S. Fortune Star, 777 F.2d 57, 63 (2d Cir. 1985) (internal quotation marks omitted). Second, damages in contract cases are more easily quantified, "in contrast to the law of torts, which compensates for injury to personal interests that are more difficult to value, thus justifying noncompensatory recoveries." Id. Finally, some intentional breaches of contract are "efficient and wealth-enhancing" because the breaching party's benefit from breaching exceeds the harm to the other party. Id. As such, awarding "punitive damages... would prevent many such [efficient breaches]." Id.

Building on the logic of these arguments, most states have permitted punitive damages for breach of contract only where the breach sufficiently resembles a tort. Under the narrowest version of this exception, punitive damages are recoverable for breach of contract only if "the conduct constituting the breach is also a tort for which punitive damages are recoverable." Restatement (Second) of Contracts § 355. Because states that adopt this approach require the plaintiff to allege and prove facts that amount to an independent tort, they do not permit punitive damages for willful and malicious breach of contract alone.^{3 3} However, many states

3 See, e.g., Rocanova v. Equitable Life Assur. Soc. of U.S., 83 N.Y.2d 603, 613, 612 N.Y.S.2d 339, 634 N.E.2d 940 (1994) ("Punitive damages are available where the conduct ***343 **944 constituting, accompanying, or associated with the breach of contract is first actionable as an independent tort for which compensatory damages are ordinarily available, and .... Such conduct was part of a pattern of similar conduct directed at the public generally."); Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 454 (Del. 2013) ("[P]unitive damages are not recoverable for breach of contract unless the conduct also amounts independently to a tort."); Francis v. Lee Enterprises, Inc., 89 Haw. 234, 239, 244, 971 P.2d 707 (1999) (punitive damages are unavailable for breach of contact "in the absence of conduct that (1) violates a duty that is independently recognized by principles of tort law and (2) transcends the breach of the contract," and abrogating previous rule that "wilful, wanton, or reckless breach of any contract—including an employment contract —would support the award of traditional tort damages"); White v. Nw. Bell Tel. Co., 514 N.W.2d 70, 77 (Iowa 1994) ("Punitive damages may be awarded for breach of contract... upon proof of two things: (1) that the breach also constitutes an intentional tort, and (2) that the breach was committed maliciously."); Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App. 4th 949, 960, 17 Cal.Rptr.2d 242 (1993) ("An award of punitive damages is not supported by a verdict based on breach of contract, even where the defendant's conduct in breaching the contract was wilful, fraudulent, or malicious."); Morrow v. L.A. Goldschmidt Assocs., Inc., 112 Ill. 2d 87, 98, 96 Ill.Dec. 939, 492 N.E.2d 181 (1986) ("[W]e decline to adopt plaintiffs' alternative argument that punitive damages should be awarded for certain wilful and wanton breaches of contract, even though the breach is not accompanied by an independent tort."); L.L. Cole & Son, Inc. v. Hickman, 282 Ark. 6, 10, 665 S.W.2d 278 (1984) ("[W]here on the facts either an action in contract or one in tort is possible, the plaintiff must specifically plead and prove his cause of action in tort in order to be awarded punitive damages."); Kamlar Corp. v. Haley, 224 Va. 699, 706-07, 299 S.E.2d 514 (1983) (observing that "some jurisdictions permit punitive damages [for breach of contract] where the intent of the breaching party is 'malicious,'" but following "most jurisdictions .... in requiring proof of an independent, wilful tort, beyond the mere breach of a duty imposed by contract... regardless of the motives underlying the breach"); Gen. Motors Corp. v. Piskor, 281 Md. 627, 638-39, 381 A.2d 16 (1977) ("[P]unitive damages may never be recovered in pure breach of contract suits .... There is, however, a class of actions that lies somewhere in the gray area separating pure torts from contract cases. These are the so-called 'torts arising out contractual relationships.'"); Shore v. Farmer, 351 N.C. 166, 170, 522 S.E.2d 73 (1999) "[P]unitive damages should not be awarded in a claim for breach of contract.... [W]hen the breach of contract also constitutes or is accompanied by an identifiable tortious act, the tort committed may be grounds for recovery of punitive damages." (citation and internal quotation marks omitted)). See generally 1 Punitive Damages § 7.3 (describing different approaches); Howard O. Hunter, Modern Law of Contracts Appendix 17.1, Examples of State Court Decisions (outlining additional states that have adopted the independent tort approach); William S. Dodge, The Case for Punitive Damages in Contracts, 48 Duke L.J. 629, 644-651 (1999) (summarizing different state approaches and observing that "thirty-five American jurisdictions adhere to the traditional rule and require that a contract plaintiff plead and prove the existence of an independent tort in order to recover punitive damages").

3 When production employees were hired, the Sheet Metal Union, A.F.L. organized them and executed a contract with Air Devices on July 1, 1964.

have created limited exceptions to this rule in specific circumstances, for instance, where the breach is willful and malicious and the breaching party is a public utility, an insurance company, or a fiduciary.⁴ A

4 See, e.g., Wagman v. Lee, 457 A.2d 401, 404 (D.C. 1983) ("Although punitive damages generally are not recoverable for breach of contract... this rule is inapplicable if there exists an independent fiduciary relationship between the parties."); Daniels v. Dean, 253 Mont. 465, 473, 833 P.2d 1078 (1992) ("Tort type damages may only be available in contracts where a 'special relationship' exists or for traditional contract related torts such as fraud, fraudulent inducement, and tortious interference with a contract."); Sandler v. Lawn-A-Mat Chem. & Equip. Corp., 141 N.J. Super. 437, 449, 358 A.2d 805 (App. Div. 1976) ("Where the essence of a cause of action is limited to a breach of [a commercial] contract, punitive damages are not appropriate.... [S]everal exceptions have been carved out ... where the unusual relationship between the parties reflects a breach of trust beyond the mere breach of a commercial contract."). See generally 11 Corbin on Contracts § 59.2 (2023) (observing that punitive damages are awarded "where the breach involves the malicious or wanton violation of a fiduciary duty even where the violation does not constitute an independent tort"). Many of the states that permit punitive damages for breach of contract in these limited circumstances recognize a specific cause of action for that purpose, which is often breach of the implied covenant of good faith and fair dealing. See, e.g., Great Am. Ins. Co. v. Gen. Builders, Inc., 113 Nev. 346, 354, 934 P.2d 257, 263 (1997) (recognizing "tort action for breach of the implied covenant of good faith and fair dealing," but noting that it "requires a special element of reliance or fiduciary duty" as might exist in "relationships ... formed by employment, bailment, insurance, partnership, and franchise agreements"); Rawlings v. Apodaca, 151 Ariz. 149, 160, 726 P.2d 565 (1986) ("[I]n special contractual relationships, when one party intentionally breaches the implied covenant of good faith and fair dealing, and when contract remedies serve only to encourage such conduct, it is appropriate to permit the damaged party to maintain an action in tort and to recover tort damages."). Such causes of action are essentially breach of contract claims with added requirements that (1) the breacher acts in bad faith, and (2) the parties have relationship of trust or reliance.

handful of states have expanded the tort exception to the general rule, permitting punitive damages where the breach of contract was intentional, malicious, or has elements of fraud, even if the underlying conduct is not independently tortious.⁵ The question, then, is whether Connecticut's Supreme Court is likely to adopt the minority approach, which would permit punitive damages based on a willful and malicious breach of an ordinary commercial contract.

5 See, e.g. Birchwood Land Co. v. Ormond Bushey & Sons, Inc., 194 Vt. 478, 489, 82 A.3d 539 (2013) (permitting punitive damages "when the breach has the character of a willful and wanton or fraudulent tort, and when the evidence indicates that the breaching party acted with actual malice" (internal quotation marks omitted)); Myers v. Workmen's Auto Ins. Co., 140 Idaho 495, 503, 95 P.3d 977 (2004) ("It is not the nature of the case, whether tort or contract, that controls the issue of punitive damages. The issue revolves around whether the plaintiff is able to establish the requisite intersection of two factors: a bad act and a bad state of mind." (internal quotation marks omitted)); Rogers v. Louisville Land Co., 367 S.W.3d 196, 211 n.14 (Tenn. 2012) ("Although as a general matter, punitive damages are not available in a breach of contract case, punitive damages may be awarded in such a case under certain circumstances. However, an award of punitive damages is limited to the most egregious cases and is proper only where there is clear and convincing proof that the defendant has acted either intentionally, fraudulently, maliciously, or recklessly." (internal citations and quotation marks omitted)); Hurst v. Sw. Miss. Legal Servs. Corp., 708 So. 2d 1347, 1350 (Miss. 1998) ("[P]unitive damages ... are recoverable where the breach [of contract] results from an intentional wrong, insult, or abuse as well as from such gross negligence as constitutes an independent tort" (internal quotations omitted)); Paiz v. State Farm Fire & Cas. Co., 118 N.M. 203, 210, 880 P.2d 300 (1994) ("[A]n award of punitive damages in a breach-of-contract case must be predicated on a showing of bad faith, or at least a showing that the breaching party acted with reckless disregard for the interests of the nonbreaching party."). See generally 11 Corbin on Contracts § 59.2 (2023) ("[S]ome jurisdictions have gone beyond the independent tort and fiduciary violation cases and permitted an award of punitive damages where elements of fraud, malice, gross negligence or oppression 'mingle' with the breach."). South Carolina has also eschewed the independent tort approach; it permits punitive damages for "breach of contract accompanied by a fraudulent act," a cause of action that does not require the plaintiff "to allege the elements of common law fraud and deceit." Harper v. Ethridge, 290 S.C. 112, 118-19, 348 S.E.2d 374 (Ct. App. 1986).

B. Connecticut Precedent

I turn now to Connecticut law, which does not definitively resolve this issue. "A federal court faced with a question of unsettled state law must do its best to guess how the state court of last resort would decide the issue." In re Brooklyn Navy Yard Asbestos Litig., 971 F.2d 831, 850 (2d Cir. 1992). If the state's highest court has not decided the issue, "the best indicators of how it would decide are often the decisions of lower state courts." Id. Decisions from lower state courts are not binding, but "they do have great weight in informing the court's prediction on how the highest court of the state would resolve the question." Id. (citation and internal quotation marks omitted).

In Triangle Sheet Metal Works, Inc. v. Silver , the Connecticut Supreme Court appeared to recognize the availability of punitive damages for contractual claims in some circumstances. 154 Conn. 116, 222 A.2d 220 (1966). In that case, the plaintiffs accused two of their former employees of disclosing trade secrets in violation of an express agreement and their fiduciary duties. Id. at 118-19, 222 A.2d 220. The trial court found in the plaintiffs' favor on

counts three and four of the complaint, which involved "the breach by [the employees] of their contract obligations, express or implied." Id. at 127, 222 A.2d 220. The court awarded punitive damages. Id.

In dicta, the Connecticut Supreme Court suggested that punitive damages might be available in any breach of contract case where "wanton and wilful injury is proved" or "malice is established." Id. at 127-28, 222 A.2d 220. The court observed that "[p]unitive damages are not ordinarily recoverable for breach of contract" because "punitive or exemplary damages are assessed by way of punishment, and the motivating basis does not usually arise as a result of the ordinary private contract relationship." Id. at 127, 222 A.2d 220 (citing Restatement (First) of Contracts § 342; Corbin on Contracts § 1066; McCormick on Damages § 81). But the court added that punitive damages can be awarded for tort claims, and therefore punitive damages "ha[d] been allowed" in a "few classes of [contract] cases" that "contain elements which bring them within the field of tort."⁶ Id. In tort cases, the court observed that "the basic requirement to justify an award of punitive or exemplary damages has been repeatedly described in terms of wanton and malicious injury, evil motive and violence." Id. at 128, 222 A.2d 220. The court found that the third and fourth count of the complaint did not contain "any allegation of a motivating intent or design ... to harm the plaintiffs" and "the record does not disclose the existence of that 'malicious or wanton misconduct' which would justify an award of exemplary or punitive damages." Id. So the court reversed the trial court's decision to award punitive damages.

6 The court's reference to a "class of cases [that] contain elements which bring them within the field of tort" seems to paraphrase Corbin's treatise on contracts. See 5 Corbin on Contracts § 1077 (1964) ("[A]s a general rule ... punitive damages are not recoverable for breach of contract, although in certain classes of cases, there has been a tendency to instruct the jury that they may award damages... by way of punishment. These cases... contain elements that enable the court to regard them as falling within the field of tort or as closely analogous thereto."); see also Triangle Sheet Metal Works, 154 Conn. at 127, 222 A.2d 220 (citing Corbin's treatise favorably). The 1964 edition of Corbin's treatise provided examples to support this premise, which adopt several different approaches to punitive damages for breach of contract, although few would permit punitive damages for willful and malicious breach alone. The cited cases include (1) a D.C. Circuit case, which held that punitive damages were available for breaches of contract by people who "assume certain fiduciary responsibilities," because "a breach of contract merges with, and assumes the character of, a wilful tort, calculated rather than inadvertent, flagrant, and in disregard of obligations of trust," Brown v. Coates, 253 F.2d 36, 39 (D.C. Cir. 1958), (2) a California case, which held that "[e]xemplary damages are proper in cases involving fraud and may be allowed even though the tort incidentally involves a contract," S. California Disinfecting Co. v. Lomkin, 183 Cal. App. 2d 431, 7 Cal.Rptr. 43 (1960), (3) a South Carolina case, which held that a plaintiff could recover punitive damages for breach of contract only if "the breach was accomplished with a fraudulent intention, and was accompanied by a fraudulent act," and "acts of willfulness, unless there is fraud also, will not support a claim for punitive damages," and (4) a Texas case, which held that "where a breach of contract is shown to have been accompanied by malicious and oppressive conduct, or to have occurred in such manner as to constitute a tort, the wrongdoer may be subjected not only to actual damages." Etter v. Von Sternberg, 244 S.W.2d 321, 324 (Tex. Civ. App. 1951).

To the extent the dicta in Triangle Sheet could be read to embrace a broad rule permitting punitive damages for any wanton or malicious breach of contract, however, a review of the underlying complaint undermines this interpretation. The third and fourth counts of the complaint, under which the trial court awarded punitive

damages, arguably sounded in tort, not contract.⁷ The third count alleged that the defendants, including some parties who did not have contracts with the plaintiffs, "wrongfully, intentionally, and maliciously induced" a salesman to leave the plaintiffs' employ. Substituted Complaint ¶¶ 21-24, Triangle Sheet Metal Works, 154 Conn. 116 (1965). It went on to allege that the salesman "act[ed] in concert" with the other defendants to "bid on jobs ... at figures substantially below plaintiffs'." Id. The fourth count alleges that the defendants "wilfully and fraudulently misrepresented to actual and potential customers and to Plaintiffs' sales representatives" certain facts "to interfere with the contracts and business expectancies of the Plaintiffs." Id. ¶¶ 28-30.⁸ Given that the underlying allegations likely sounded in tort, the court may have intended to adopt the independent tort approach. Alternately, since the complaint alleged that at least one of the defendants had a "confidential and fiduciary relationship" to the plaintiffs, id. ¶ 14, the court may have intended to follow states that have permitted punitive damages for willful and malicious breach of a fiduciary duty. See discussion supra at footnote 6 (citing Brown v. Coates, 253 F.2d 36, 39 (D.C. Cir. 1958)). In any event, the Connecticut Supreme Court did not need to determine the precise boundaries of its own rule, since the court found no evidence that the defendants acted maliciously.

7 The Substituted Complaint is attached to this ruling as Exhibit A.

8 The allegations in counts three and four may have been intended to meet Connecticut's requirements for tortious interference with a business expectancy or the common law tort of unfair competition. Tortious interference with a business expectancy "requires proof that the defendant was guilty of fraud, misrepresentation, intimidation, or molestation; or that the defendant acted maliciously" to interfere with a business expectancy, but does not require "that the tort have resulted in an actual breach of contract...." Jones v. O'Connell, 189 Conn. 648, 660, 458 A.2d 355 (1983) (citations and internal quotation marks omitted). Connecticut courts also recognized a common law tort for unfair competition at the time. See Yale Co-op. Corp. v. Rogin, 133 Conn. 563, 571, 53 A.2d 383 (1947). The notion that counts three and four may have sounded in tort is buoyed by a review of the issues the defendant presented on appeal, which included whether the defendant's actions "constitute a willful misrepresentation against a competitor sufficient to support an award of exemplary damages" or "constitute willful acts of unfair competition sufficient to support an award of exemplary damages." Brief of the Defendant-Appellant at 2, Triangle Sheet Metal Works, Inc., 154 Conn. 116 (1965) (attached as Exhibit B). The defendant did not argue that punitive damages were unavailable because the cause of action was for breach of contract. Id. at 25-42. Instead, the defendant argued the evidence did not support a conclusion they acted "willfully and with intent to interfere with the plaintiffs' business expectancies." Id. at 31.

In L.F. Pace & Sons, Inc. v. Travelers Indemnity Co., the Connecticut Appellate Court applied Triangle Sheet to affirm an award of punitive damages. 9 Conn. App. 30, 514 A.2d 766 (1986). The plaintiff alleged that the defendant, a surety company, had breached an "implied contract to act as surety on construction performance and payment bonds." Id. at 31, 514 A.2d 766. The court wrote that "[b]reach of contract founded on tortious conduct may allow the award of punitive damages," but "there must be an underlying tort or tortious conduct alleged and proved." Id. at 48, 514 A.2d 766. "Elements of tort such as wanton or malicious injury or reckless indifference to the interests of others giving a tortious overtone to a breach of contract action justify an award of punitive or exemplary damages." Id. Thus, the Appellate Court affirmed the trial court's decision to reject a proposed instruction "(1) that since this is a breach of contract action, punitive damages are not recoverable as a

matter of law, and (2) that since there is no contract of insurance, any claim for bad faith must fail as a matter of law." Id. at 49, 514 A.2d 766.

Jarrow argues that L.F. Pace's "tortious breach of contract claim" is limited to the "insurance context," since the case involved a surety company. ECF No. 471 at 24. The L.F. Pace opinion cites two cases that permitted punitive damages "when [an] insurer unreasonably and in bad faith withholds payment of the claim of its insured." L.F. Pace, 9 Conn. App. at 46, 514 A.2d 766 (quoting Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 575, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973)); see also id. at 46-47, 514 A.2d 766 (discussing Gruenberg and Grand Sheet Metal Products Co. v. Protection Mutual Ins. Co., 34 Conn. Supp. 46, 375 A.2d 428 (1977)). Still, the Appellate Court did not explicitly limit punitive damages to insurance cases. The section of the court's opinion that discusses Grand Sheet and Gruenberg is summarizing the trial court's reasoning, and it is unclear whether the court intended to adopt that reasoning, including its focus on the obligations of insurers. Id. at 46-47, 375 A.2d 428. And L.F. Pace was not a traditional insurance case, since the plaintiff claimed that a surety company had breached an implied contract to issue surety bonds. See Cates Constr., Inc. v. Talbot Partners, 21 Cal. 4th 28, 43-60, 86 Cal.Rptr.2d 855, 980 P.2d 407 (1999) (distinguishing insurance companies from surety companies for purposes of punitive damages on breach of implied covenant of good faith and fair dealing claim and noting mixed state approaches to this issue). Indeed, the trial court acknowledged that it was expanding Grand Sheet Metal and Gruenberg by awarding damages in "a situation other than for the payment of a claim under a contract of insurance." L.F. Pace & Sons, 9 Conn. App. at 47, 514 A.2d 766 (citation omitted).

The Appellate Court considered whether L.F. Pace applied beyond insurance cases in Barry v. Posi-Seal Int'l, Inc., 40 Conn. App. 577, 672 A.2d 514 (1996). There, a former employee sued his employer for wrongful termination, bringing claims for breach of contract, tortious breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and negligent misrepresentation. Barry v. Posi-Seal Int'l, Inc., 36 Conn. App. 1, 3, 647 A.2d 1031 (1994), revised on reconsideration, 40 Conn. App. 577, 672 A.2d 514 (1996) (setting out procedural history of case). The jury found for the plaintiff on all claims and awarded punitive damages, but the trial court set aside the verdict on all of the plaintiff's tort claims. Id. at 3-4, 647 A.2d 1031.

The Appellate Court concluded that a "punitive damages award cannot stand in the absence of a verdict in the plaintiff's favor on a cause of action sounding in tort." Barry, 40 Conn. App. at 585, 672 A.2d 514. The court argued that "the principles announced in Triangle Sheet Metal have been followed only in regards to insurance" and pointed out that L.F. Pace involved surety bonds. Id. at 584, 588 n.12, 672 A.2d 514. The court reasoned that "quasi-public" insurance companies have a "special relationship" with their insureds, as an insurer "sells protection," and "the interests of the insurer and insured are at odds, [because] payment of a claim benefits the insured and diminishes the resources of the insurer." Id. at 586-87, 672 A.2d 514. By contrast, the employer/employee relationship resembled an "ordinary commercial contract," and there was no direct conflict of interest. Id. at 586-87, 672 A.2d 514. Therefore, the court held that "where there is no allegation or proof that the termination of employment is violative of an important public policy, punitive damages cannot be recovered on a claim that a termination constituted a breach of

the implied covenant of good faith and fair dealing contained in an employment contract." Id. at 587-88, 672 A.2d 514.

McCarter argues that Barry's holding is limited to (1) wrongful termination cases with (2) good faith and fair dealing claims. I agree that part of the holding in Barry—the language regarding "public policy" concerns—is specific to good faith and fair dealing claims in wrongful termination suits. Under Connecticut law, if an at-will employee argues that her discharge breached the implied covenant of good faith and fair dealing, she must show the reason for discharge "involves... some important violation of public policy." Magnan v. Anaconda Industries, Inc., 193 Conn. 558, 572, 479 A.2d 781 (1984) (quotation marks and internal alterations omitted). This requirement prevents litigants from "transform[ing] the requirement of good faith into an implied condition that an employee may be dismissed only for good cause." Id. at 571, 479 A.2d 781. Though the plaintiff in Barry was not an at-will employee, the Appellate Court cited Magnan to support its holding that punitive damages were not available "where there is no allegation or proof that the termination of employment is violative of an important public policy." 40 Conn. App. at 587-88 & n.11, 672 A.2d 514. Therefore, I do not believe the Appellate Court intended to apply its public policy requirement to claims for punitive damages outside the wrongful termination context.

Even so, the remainder of Barry's reasoning is not limited to good faith and fair dealing claims in wrongful termination cases. Although the plaintiff did not seek punitive damages for its breach of contract claim,⁹ the arguments the Appellate Court makes about the distinctions between insurance agreements and employment contracts apply just as readily to breach of contract claims involving other "ordinary commercial contract[s]." 40 Conn. App. at 586, 672 A.2d 514. And the court considered and rejected an argument based on Triangle Sheet, stating that "the principles announced in Triangle Sheet Metal have been followed only in regards to insurance." Id. at 588 n.12, 672 A.2d 514.

9 See Amended Complaint, Barry v. Posi-Seal Int'l, Inc., No. 513813 (Conn. Super. Ct. May 25, 1990) (attached as Exhibit B).

Since Barry, however, the Connecticut Appellate Court and the Second Circuit have each applied the L.F. Pace standard to contract claims that were not brought against insurance companies, albeit in dicta. See City of Hartford v. Int'l Ass'n of Firefighters, 49 Conn. App. 805, 717 A.2d 258 (1998) (applying L.F. Pace to breach of collective bargaining agreement, which required City to provide health insurance to firefighters through Blue Cross/Blue Shield, but denying punitive damages because union "made no claim that [the City's breach] was malicious, wilful, or reckless"); Edible Arrangements Int'l, Inc. v. Chinsammy, 446 F. App'x 332 (2d Cir. 2011) (summary order) (applying L.F. Pace to commercial unjust enrichment claim, but denying punitive damages because plaintiff "failed to prove any underlying tortious conduct sufficient to warrant punitive damages"). But both courts found that punitive damages were not available because the plaintiff had either not alleged or not proven malicious conduct. City of Hartford, 49 Conn. App. at 816-17, 717 A.2d 258; Edible Arrangements Int'l, 446 F. App'x at 334.

State and federal trial courts have split on whether punitive damages are available for contract claims outside the insurance context. Compare Indep. Ins. Serv. Corp. v. Hartford Life Ins. Co., 472 F. Supp. 2d 183, 191 (D. Conn. 2007) (punitive damages

unavailable for good faith and fair dealing claim involving "ordinary commercial contract"); Tennant v. Innovative Concepts in Design, Inc., No. CV-12-6030584-S, 2015 WL 9242220, at *10 (Conn. Super. Ct. Nov. 18, 2015) (same for breach of construction contract claim); Kulkin v. Engel, No. FST-CV-08-5009226-S, 2013 WL 8213590, at *8 (Conn. Super. Ct. Dec. 31, 2013) (same for breach of contract between two neighbors); and Day v. Yale Univ. Sch. of Drama, No. CV-97-0400876-S, 2000 WL 295612, at *11 (Conn. Super. Ct. Mar. 7, 2000) (same for contract between school and student); with Canaan Apothecary, LLC v. Salisbury Pharmacy Grp., LLC, No. 3:12-CV-01571 (VLB), 2014 WL 788944 (D. Conn. Feb. 25, 2014) (in dicta, stating punitive damages are available for commercial breach of contract claim and citing Edible Arrangements); Bohn v. Dorothea L. Denton, LLC, No. DBD-CV-186024779-S, 2021 WL 4286568, at *29 (Conn. Super. Ct. Sept. 3, 2021) (citing L.F. Pace and awarding punitive damages for breach of LLC's operating agreement); Makuch v. Stephen Pontiac-Cadillac, Inc., No. 3:12-CV-00866 (WWE), 2013 WL 45887, at *2 (D. Conn. Jan. 3, 2013) (citing L.F. Pace, and concluding "punitive damages are available for a claim of breach of warrant[y] if plaintiff alleges conduct that is 'done with a bad motive or with a reckless indifference to the interest of others'"); and Esposito v. 2233-2247 Main St. LLC, No. HHD-CV-20-6134687-S, 2023 WL 3193473, at *5 (Conn. Super. Ct. Apr. 25, 2023) (applying L.F. Pace to breach of loan agreement but declining to award punitive damages because of insufficient evidence of malicious breach).

C. Certification to the Connecticut Supreme Court

Whether plaintiffs can seek punitive damages for willful and malicious breach of contract remains an unsettled area of Connecticut law. The sole Connecticut Supreme Court case discussing this issue, Triangle Sheet, does so only in dicta. And as shown, the relevant claims in that case arguably sounded in tort, not contract, so I cannot determine whether the court intended to adopt the broad rule its dicta suggests. L.F. Pace also states that punitive damages are available for tortious breach of contract, although that case involved a surety company, and some states that do not permit punitive damages for willful and malicious breach have adopted a narrow exception for contract claims against insurance or surety companies. Finally, Barry held that punitive damages were not available for a good faith and fair dealing claim in a wrongful termination lawsuit unless the termination violated public policy. As I explained above, I do not think the Appellate Court intended to apply the public policy requirement outside the wrongful termination context. And since Barry was decided, the Appellate Court and Second Circuit have both applied L.F. Pace to breach of contract claims that did not involve traditional insurance claims. Nevertheless, "it is difficult to reconcile the holding and language contained within the Barry decision" with McCarter's claim that it is entitled to punitive damages for its client's breach of contract. Kulkin, 2013 WL 8213590, at *8.

The Connecticut Supreme Court might follow the Restatement on Contracts, and most states, in holding that punitive damages are unavailable for willful and wanton breach of contract, absent an independent tort. The court frequently "relie[s] on" the Restatements to "fill gaps in and support [Connecticut] common law." Lestorti v. DeLeo, 298 Conn. 466, 477 n.8, 4 A.3d 269 (2010) (collecting cases). Indeed, Triangle Sheet Metal cited the Restatement of Contracts and the Restatement of Torts. 154 Conn. at 127-28, 222 A.2d 220. Section 355 of the Restatement (Second) of Contracts states that "[p]unitive damages are not recoverable for a breach of contract unless

the conduct constituting the breach is also a tort for which punitive damages are recoverable."¹⁰ See also Restatement (Second) of Torts § 908 cmt. b ("Punitive damages... are not permitted merely for a breach of contract. When, however, the plaintiff has a right in the alternative to sue for a breach of contract or for a tort, the fact that his act or omission amounts to a breach of contract does not preclude the award of punitive damages.").

10 Triangle Sheet did not cite Section 355, but the Restatement (Second) of Contracts was not published until after Triangle Sheet was decided. The First Restatement took the more absolutist position that "[p]unitive damages are not recoverable for breach of contract." Restatement (First) of Contracts § 342.

On the other hand, Connecticut's unique approach to punitive damages might lead Connecticut's Supreme Court to reject the "independent tort" rule. In Connecticut, "common law punitive damages serve primarily to compensate the plaintiff for his injuries and, thus, are properly limited to the plaintiff's litigation expenses less taxable costs." Berry v. Loiseau, 223 Conn. 786, 827, 614 A.2d 414 (1992). Connecticut is one of only "two jurisdictions" that awards punitive damages that "are truly compensatory in nature."¹¹ 1 John J. Kircher & Christine M. Wiseman, Punitive Damages: Law and Practice § 4:3 (2d ed. 2023); id. § 4.4 (explaining that Michigan, the other jurisdiction, awards punitive damages for "intangible injuries or injuries to feelings, which are not quantifiable in monetary terms"). In many states, the fact-finder may consider attorney's fees and costs as one of multiple factors when awarding punitive damages, but the amount of punitive damages is not limited to attorney's fees and costs.¹²

11 I note, however, that Connecticut's Supreme Court has acknowledged that common law punitive damages, "when viewed in the light of the increasing costs of litigation, also serve[] to punish and deter wrongful conduct." Berry, 223 Conn. at 827, 614 A.2d 414.

12 See Kunewa v. Joshua, 83 Haw. 65, 74, 924 P.2d 559 (Ct. App. 1996) (noting that "[t]he majority of jurisdictions ... regularly allow a jury to consider attorney fees in computing the amount of punitive damages" and collecting cases); see, e.g., Robinson v. Sarisky, 535 A.2d 901, 907 (D.C. 1988) ("Deterrence and punishment are 'the basic purposes' of punitive damages which the jury may consider in computing the amount to be awarded .... The jury may also take into account certain other factors, including the duration and cost of the litigation and the relative wealth of the defendant." (internal citations omitted)); Hazelwood v. Illinois Cent. Gulf R.R., 114 Ill. App. 3d 703, 711, 71 Ill.Dec. 320, 450 N.E.2d 1199 (1983) ("The amount of punitive damages awarded a plaintiff is a matter for the discretion of the jury .... [P]laintiff's attorney's fees may be included in the amount of the award."); Newton v. Hornblower, Inc., 224 Kan. 506, 526, 582 P.2d 1136 (1978) ("[A]ttorney fees and costs of litigation may be taken into consideration in arriving at the amount of punitive damages in an appropriate case."); see also Restatement (Second) of Torts § 914 cmt.a ("In awarding punitive damages when they are otherwise allowable, the trier of fact may consider the actual or probable expense incurred by the plaintiff in bringing the action."
Many states also have statutory caps on punitive damages. See Beard v. Wexford Health Sources, Inc., 900 F.3d 951, 956 (7th Cir. 2018) ("By our count (and with some simplifications), twenty-nine states impose a generally applicable cap on punitive damages").

Since Connecticut limits punitive damages to attorney's fees and costs, Connecticut's Supreme Court might conclude that the arguments for denying punitive damages in breach of contract cases have considerably less force. As I have explained, courts have generally relied on three arguments to explain the policy against punitive damages for breach of contract. First, "[b]reaches of contract ... do not in general cause as much resentment or other mental or physical discomfort as do the wrongs called torts and crimes," so contract

damages are awarded for "compensation... not for punishment." 5 Corbin on Contracts § 1077 (1964); see also Triangle Sheet Metal Works, 154 Conn. at 127, 222 A.2d 220 ("Punitive damages are not ordinarily recoverable in breach of contract.... because, as lucidly reasoned by Professor Corbin ... punitive or exemplary damages are assessed by way of punishment, and the motivating basis does not usually arise as a result of the ordinary private contract relationship."). But this argument assumes that punitive damages are designed for punishment, which is true in most states. In Connecticut, by contrast, "the purpose of awarding punitive damages is not to punish the defendant for his offense, but to compensate the plaintiff for his injuries," and punitive damages are therefore limited to attorney's fees and costs. Bifolck v. Philip Morris, Inc., 324 Conn. 402, 464, 152 A.3d 1183 (2016) (internal citations, quotations, and alterations omitted). And while a tort may cause more "resentment or physical discomfort" than a breach of contract, it will not necessarily cause greater attorney's fees. Thus, a distinction between tort and contract punitive damages is not justified on these grounds.

Similarly, courts have argued that punitive damages are necessary in tort cases, but not contract cases, because torts cause "injury to personal interests that are more difficult to value, thus justifying noncompensatory recoveries." Thyssen, 777 F.2d at 63. Again, this argument assumes that punitive damages account for unquantifiable personal interests. Under Connecticut law, however, any dignitary or emotional harm to the wronged party plays no role in the amount of punitive damages awarded —punitive damages are limited to "litigation expenses." Bifolck, 324 Conn. at 464, 152 A.3d 1183.

A third reason to limit punitive damages in breach of contract cases is to promote "efficient breaches." According to this argument, some "breaches of contract ... are in fact efficient and wealth-enhancing," because the "breaching party will still profit after compensating the other party for its 'expectation interest.'" Thyssen, 777 F.2d at 63. If the breaching party knows they might have to pay "punitive damages" on top of "traditional damages," however, they might be deterred from taking "such beneficial action." Id. Since Connecticut law limits punitive damages to attorney's fees and costs, the risk of deterring efficient breaches is lower. Indeed, such a policy might encourage efficient breachers to negotiate, rather than force the other party to resort to litigation to enforce its contractual rights.

Further, "[n]ot all breaches of contract are involuntary or otherwise efficient. Some are opportunistic; the promisor wants the benefit of the bargain without bearing the agreed-upon cost, and exploits the inadequacies of purely compensatory remedies (the major inadequacies being that pre- and post-judgment interest rates are frequently below market levels when the risk of nonpayment is taken into account and that the winning party cannot recover his attorney's fees)." Patton v. Mid-Continent Sys., Inc., 841 F.2d 742, 751 (7th Cir. 1988). In other words, an opportunistic party may breach a contract, even when doing so is inefficient, if they know the other party will not enforce the terms of the contract because the cost of enforcement exceeds the likely recovery. Permitting punitive damages—limited to attorney's fees and costs—could prevent such opportunistic breaches, without deterring efficient ones.¹³ See Avis Rent A Car

13 I also note that efficient breaches are rare in situations where the interests of the two parties "are at odds," as is frequently true in the insurance context. Barry, 40 Conn. App. at 587, 672 A.2d 514. An efficient breach is possible only if the benefits to the breaching party exceed the harms to the non-breaching party. Where an insurer refuses to pay a claim, every dollar that an insurer gains by refusing to pay comes out of the pocket of the insured. Such a breach can never be efficient; its benefits to the insurer never exceed its costs to the insured. Jarrow and McCarter's interests are similarly "at odds" in this case. Id. Jarrow refused to pay for legal work that McCarter had already completed. Cases involving a parties' refusal to pay its bills for services already rendered resemble insurance cases, in this regard.

Sys., LLC v. City of Dayton, No. 3:12-CV-399, 2015 WL 5636897, at *8 (S.D. Ohio Sept. 25, 2015) (quoting Patton, and finding "exception to the American Rule for attorneys' fees based on bad faith conduct giving rise to a breach of contract claim" under Ohio law); see also Hylton v. Gunter, 313 Conn. 472, 488, 97 A.3d 970 (2014) ("[T]he common purpose and effect of both statutory attorney's fees and common-law punitive damages ... [is] to ensure the full compensation of plaintiffs in mitigation of the effects of the American rule.").

I decline to predict how the Connecticut Supreme Court might weigh these policy factors, and instead will certify this issue to the Connecticut Supreme Court. Under Connecticut law, I may certify a question to the Connecticut Supreme Court "'if the answer may be determinative of an issue' in a case before [me] and 'if there is no controlling appellate decision, constitutional provision or statute.'" Munn v. Hotchkiss Sch., 795 F.3d 324, 334 (2d Cir. 2015) (quoting Conn. Gen. Stat. § 51-199b(d)). "When deciding whether to certify a question to the Connecticut Supreme Court, a court should consider, among other factors: '(1) the absence of authoritative state court decisions; (2) the importance of the issue to the state; and (3) the capacity of certification to resolve the litigation.'" Bifolck v. Philip Morris, Inc., No. 3:06-CV-01768 (SRU), 2014 WL 585325, at *2 (D. Conn. Feb. 14, 2014) (quoting O'Mara v. Town of Wappinger, 485 F.3d 693, 698 (2d Cir. 2007)).

Here, all three factors suggest that I should defer to the Connecticut Supreme Court. "There is no controlling appellate decision, constitutional provision or statute" governing punitive damages for willful and malicious breach of contract in Connecticut. Conn. Gen. Stat. § 51-199b(d). Second, Connecticut's Supreme Court "should be accorded the first opportunity to decide significant issues of state law through the certification process, ... especially where the issues implicate the weighing of policy concerns." Munn v. Hotchkiss Sch., 795 F.3d 324, 329 (2d Cir. 2015) (citations, internal quotations, and alterations omitted). The rules governing punitive damages in breach of contract cases certainly "implicate the weighing of policy concerns." Indeed, this issue has divided other state supreme courts because of the competing policy considerations. Finally, certification will resolve a legal issue that is central to this case and that will determine McCarter's ability to recover more than three million dollars in punitive damages, along with offer-of-compromise interest on that amount. Thus, I find that certification to the Connecticut Supreme Court is warranted.

IV. Motion for Judgment as a Matter of Law and Motion for New Trial or Remittitur

Next, I consider Jarrow's motion for judgment as a matter of law, and motion for a new trial or remittitur. Since Jarrow makes several of the same arguments in both motions, I discuss them jointly.

A. Legal Standard

Rule 50 Motion

Rule 50(a) of the Federal Rules of Civil Procedure permits the entry of judgment

as a matter of law if a "party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." If the court does not grant the motion made under Rule 50(a) during trial, "the movant may file a renewed motion for judgment as a matter of law." Fed. R. Civ. P. 50(b). A party who does not move for judgment as a matter of law under Rule 50(a) is barred from challenging the verdict under Rule 50(b). Lore v. City of Syracuse, 670 F.3d 127, 152-53 (2d Cir. 2012). This procedural requirement "may not be waived by the parties or excused by the district court." Bracey v. Bd. of Educ. of City of Bridgeport, 368 F.3d 108, 117 (2d Cir. 2004).

In deciding a motion for judgment as a matter of law, a court must "draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). "[A]lthough the court should review the record as a whole, it must disregard all evidence favorable to the moving party that the jury is not required to believe." Id. at 151, 120 S.Ct. 2097. "Such a motion may only be granted if there exists such a complete absence of evidence supporting the verdict that the jury's findings could only have been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so overwhelming that reasonable and fair minded persons could not arrive at a verdict against it." Connelly v. Cnty. of Rockland, 61 F.4th 322, 325 (2d Cir. 2023).

Rule 59 Motion

Rule 59 of the Federal Rules of Civil Procedure allows a district court to grant a new trial "for any reason for which a new trial has heretofore been granted in an action at law in federal court." Fed. R. Civ. P. 59(a). The Second Circuit has held that a district court should grant a motion for a new trial when it finds that "the jury has reached a seriously erroneous result or the verdict is a miscarriage of justice." Song v. Ives Laboratories, Inc., 957 F.2d 1041, 1047 (2d Cir. 1992) (alterations omitted). "A new trial may be granted ... when the jury's verdict is against the weight of the evidence." DLC Mgmt. Corp. v. Town of Hyde Park, 163 F.3d 124, 133 (2d Cir. 1998). In assessing such a motion, the "trial judge is free to weigh the evidence himself, and need not view it in the light most favorable to the verdict winner." Manley v. AmBase Corp., 337 F.3d 237, 244-45 (2d Cir. 2003). A court may grant such a motion "even if there is substantial evidence supporting the jury's verdict." Id. "A court considering a Rule 59 motion for a new trial must bear in mind, however, that the court should only grant such a motion when the jury's verdict is egregious." DLC Mgmt. Corp., 163 F.3d at 134 (internal quotation marks omitted).

B. Forfeiture of JMOL Arguments

As a preliminary matter, I must determine whether Jarrow has forfeited any of the arguments it raises in its renewed motion for judgment as a matter of law. "A party may only assert a renewed claim for judgment as a matter of law under Rule 50(b) if it previously raised that specific issue during trial in a Rule 50(a) motion." Munn v. Hotchkiss Sch., 24 F. Supp. 3d 155, 182 (D. Conn. 2014).

Jarrow's Rule 50(a) motion for judgment as a matter of law argued that: (1) McCarter had "not established [by clear and convincing evidence] that Jarrow Formula's agreement to increase rates above the initial rates ... was fair and equitable with full disclosure", and (2) punitive

damages are unavailable, because Connecticut law does not "recognize[] bad faith breach of contract except when there is a strong public policy involved." ECF No. 452 at 220-22. Its renewed motion for judgment as a matter of law makes both of those arguments, but also adds that (1) "there is no writing to satisfy the statute of frauds, and thus there was no enforceable contract that Jarrow Formulas could breach," ECF No. 471 at 9, (2) McCarter cannot seek punitive damages, because it "failed to plead willful and malicious conduct" in its amended complaint, id. at 29, (3) the first count of McCarter's complaint, which alleges breach of contract including willful and malicious breach, "fails under the economic loss doctrine," id. at 29-30, (4) there is insufficient evidence that Jarrow's actions were malicious, id. at 30-31, and (5) punitive damages would violate public policy or create a windfall for McCarter, id.

Jarrow did not raise these added arguments in its Rule 50(a) motion, and the "ensuing colloquy" was not "sufficiently specific to alert the opposing party to the supposed deficiencies in [its] proof." Galdieri-Ambrosini v. Nat'l Realty & Dev. Corp., 136 F.3d 276, 287 (2d Cir. 1998); see also Lore, 670 F.3d at 152-53 ("A Rule 50(a) motion requesting judgment as a matter of law on one ground but omitting another is insufficient to preserve a JMOL argument based on the latter"). Therefore, Jarrow has forfeited these arguments.¹⁴

14 Failure to raise a specific argument has been excused where the trial judge "intervened and on his own discussed the ... issue," which had already been raised on the "summary judgment motion and ... was the central issue at trial." Gordon v. Cnty. of Rockland, 110 F.3d 886, 887 n. 2 (2d Cir. 1997). Alternately, failure to raise an argument can be excused if "that result is required to present manifest injustice." Galdieri-Ambrosini v. Nat'l Realty & Dev. Corp., 136 F.3d 276, 287 (2d Cir. 1998) (citation and internal quotation marks omitted). Neither of these circumstances is present here.

Of the arguments in Jarrow's renewed motion for judgment as a matter of law, I consider only whether the jury erred in finding that McCarter's rate increase was fair and equitable with full disclosure and whether punitive damages are available for tortious breach of contract under Connecticut law. Because "[a] party who has failed to comply with the procedural requirements of Rule 50 is not foreclosed from challenging the verdict by means of a Rule 59 [motion for a new trial]," however, I also consider the arguments Jarrow raises in its motion for a new trial. Audet v. Fraser, 605 F. Supp. 3d 372, 388 (D. Conn. 2022).

C. Willful and Malicious Breach

Jarrow's motion for a new trial argues that "the jury's verdict finding of willful and malicious breach is contrary to the clear weight of the evidence and should be set aside." ECF No. 469 at 19. I disagree, and find that, in the event the Connecticut Supreme Court determines that punitive damages are available for willful and malicious breach of contract, McCarter is entitled to punitive damages.

Jarrow repeats the explanations for its failure to pay its legal bills that it offered at trial, all of which were aimed at rebutting the claim that it acted willfully and maliciously. ECF No. 469 at 11-19. At trial, Jarrow claimed that it initially did not pay because it "had a cash crunch," ECF No. 456 at 152, and after the Kentucky verdict, Rogovin had "the honest belief that he shouldn't have to pay because [McCarter] let him down," id. at 155. Jarrow also claimed it refused to pay IP bills on unrelated matters because it was following its counsel's advice not to pay. Id. at 156. The jury reasonably rejected Jarrow's claim that it failed to pay its outstanding legal bills before the Kentucky trial began because of a "cash crunch." The jury heard evidence that in late May of 2019, shortly before the Kentucky trial began, McCarter offered Jarrow a 5 percent discount in "exchange for payment of all ... outstanding invoices," which totaled approximately $1.3 million. ECF No. 446 at 189-90; ECF No. 477 at 220-21. Giarratana testified that Jarrow took the discount, but only "paid half" of the amount owed. ECF No. 446 at 144. On June 1, 2019, Rogovin emailed Jarrow's CFO, Ben Khowong, telling him to "[p]ut off the lawyer bills." ECF No. 448 at 119-20. Rogovin testified that he only meant to "delay the bills until [Jarrow] had money," id. at 93, and Jarrow presented some evidence that it experienced cash flow issues in the period leading up to the trial, see ECF No. 469 at 12-13 (summarizing this evidence). But the jury was not required to credit Rogovin's testimony. Nor is Jarrow's interpretation of the evidence—that Jarrow intended to pay as soon as cash flow issues were resolved —the only reasonable interpretation. The jury could have concluded that Jarrow was waiting to see the outcome of the trial, or never intended to pay, based on evidence that Jarrow accepted a discount without paying the full amount it owed, failed to notify McCarter that it needed time to resolve a cash crunch, and never ultimately paid McCarter.

A reasonable jury could also have rejected Jarrow's claim that it refused to pay McCarter because of a good faith belief that McCarter had engaged in malpractice. McCarter presented evidence that Rogovin was pleased with McCarter's work until he learned of the adverse jury verdict. See, e.g., ECF No. 448 at 29 ("[T]he trial is going in our favor."); id. at 31 ("[McCarter attorney [Tom Rechen's] trial work deserves to be a made-for-TV movie. He became courthouse buzz with law interns coming in to watch him operate without anesthesia."); id. at 32 ("[W]e are winning...."); id. at 33 ("A good day in court today.... [Opposing counsel] got their butts kicked pretty hard today ...."); id. at 36 ("[Y]ou [McCarter attorneys] are doing a fantastic job. Thank you. Big hugs."); id. at 37 ("[O]ur lawyers are totally dominating the courtroom.").

Further, a reasonable jury could have concluded that Jarrow acted willfully and maliciously based on Rogovin's other conduct. The evening after the verdict, Rogovin "butt dial[ed]" Giarratana and accidentally left a profanity-laden voicemail where he criticized McCarter's work during the trial and accused it of malpractice. ECF No. 447 at 162-67. In that voicemail, Rogovin said, "As far as I'm concerned, [McCarter] can pay the damages." Id. at 167. The jury reasonably could have viewed the "butt dial" phone call as evidence that Rogovin decided that Jarrow would not fulfill its contractual obligation to pay McCarter for the services it had already rendered out of his own personal spite—that is, because the outcome of the Kentucky trial disappointed him—rather than because of any good-faith belief that McCarter had provided poor representation. There was ample evidence to support such a finding, including letters and emails in which Rogovin reacted with vituperation when there were adverse developments in the Kentucky Litigation, leveling epithet-laden insults against those he perceived as responsible. See, e.g., ECF No. 448 at 54-56 (Rogovin calling the judge in the Kentucky Litigation "pimp deadbrain," accusing him of "whoring for [Caudill], and stating, "I am so seething with rage that there is no way I'll do anything except a walk away or take this to trial. [Judge Simpson]... can drop dead. Please!"); ECF No. 449 at 156 (Rogovin calling Caudill's counsel "a new local lawyer ... so desperate for business that he's filing a ginned up (moonshine

again) lawsuit"); ECF No. 450 at 22-23 (Rogovin calling Dan Caudill a "lying SOB," a "nutter," and "a pathological liar," and asking Caudill's counsel if he had "been evaluated by a neurologist lately?"); ECF No. 445 at 218 (Giarratana testifying that "there was a tremendous amount of anger, I would say hatred ... from [Rogovin] towards Dan Caudill, the Caudill company, their lawyers, and the court"). Further, Giarratana and Rogovin had worked together for more than two decades at the time of trial, ECF No. 445 at 20, but after the verdict was read, Giarratana testified that Rogovin "walked out" of the courtroom without saying a word and never spoke to him again, id. at 221, 228.

The jury also learned that Jarrow made the decision to fire McCarter the night the verdict came out, but did not notify McCarter right away, and continued to ask McCarter to do legal work. Rogovin testified that he told several people he was going to fire McCarter and sue for malpractice the night of the verdict, June 26, 2019. ECF No. 447 at 230-33. But Jarrow waited until July 12 inform McCarter— through new counsel—that it had been terminated.¹⁵ ECF No. 446 at 16. Giarratana testified that when he spoke to Jonathan Leventhal, Jarrow's General Counsel, and Rory Lipsky, a Jarrow executive, after the verdict, they did not tell him that Rogovin planned to fire McCarter. Id. at 7-11. In those calls, Giarratana claims he discussed strategy and informed Leventhal and Lipsky that he was going to work on post-trial motions. Id. One day after the verdict, Leventhal emailed Giarratana to ask for a "time line of key filing deadlines" and "your analysis that we discussed about for an appeal." Id. at 11-12. Leventhal testified that he was not aware that Rogovin intended to fire McCarter or refuse to pay any outstanding bills when he sent this email. ECF No. 448 at 141. The jury was not required to believe this testimony, however, and Rogovin told multiple people of his plans to fire McCarter the night of the verdict. And Jarrow did not formally terminate McCarter in the ensuing weeks, even as McCarter continued to work on the case. Giarratana prepared and sent Rogovin and Leventhal a draft motion for judgment as a matter of law on June 29, ECF No. 446 at 13, and Rechen sent Rogovin and Leventhal a detailed explanation of the post-trial deadlines on July 8, id. at 15. But Jarrow waited to fire McCarter until it had a replacement team in place. ECF No. 448 at 45-46. During this period, Jarrow hired two members of McCarter's trial team, local counsel Joel Beres and former McCarter associate John Cordani, to take over post-verdict proceedings. Id.

15 Jarrow argues that "McCarter knew full well Mr. Rogovin blamed McCarter for the verdict and was planning to have McCarter pay the judgment," because of the butt dial voicemail. ECF No. 469 at 7. The fact that McCarter overheard Rogovin's angry statements on the night of the verdict does not mean that McCarter had fair notice that it was about to be terminated and should cease working on the case. Nor does it suggest that Jarrow did not act willfully and maliciously. In addition, it is not relevant that the Rules of Professional conduct allow Jarrow to "discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer's services." Id. at 7 n.3 (quoting Conn Rules of Prof. Conduct, Rule 1.16). McCarter does not allege Jarrow breached its contract by terminating it; it alleges that Jarrow breached the contract by refusing to pay for McCarter's work.

Finally, a reasonable jury could have rejected Jarrow's claim that it was acting on the advice of counsel by not paying certain bills. On July 22, 2019, Rogovin "conveyed to McCarter ... that [he] would be paying the IP portion" of outstanding legal bills in an unrelated matter. ECF No. 447 at 174-75. Rogovin testified that he changed his mind about paying these bills

after speaking to Jarrow's counsel, Jeff Tinley. Id. Again, the jury was not required to believe Rogovin's testimony. And assuming Rogovin's testimony was true, Tinley's advice came more than a month after the Kentucky verdict and Rogovin's initial decision not to pay McCarter. So the jury reasonably could have found that Jarrow's decision to refuse to pay was not primarily motivated by Tinley's advice.

Thus, the jury's verdict on willful and malicious breach was reasonable and supported by the weight of the evidence. As the jury's verdict was not "egregious," DLC Mgmt. Corp., 163 F.3d at 134, a new trial is not warranted on these grounds.

D. Rate Increase

In its renewed motion for judgment as a matter of law, and its motion for a new trial, Jarrow argues that "McCarter failed to establish — by clear and convincing evidence — fair dealing, good faith, and full disclosure regarding its unilateral increase of the hourly rates it billed Jarrow Formulas beginning five months into the Kentucky litigation." ECF No. 469 at 19; ECF No. 471 at 12. I disagree.

I assume the parties' familiarity with the evidence presented at trial and summarize only the key evidence on this issue. The jury heard evidence that McCarter disclosed the rate increases to Jarrow. McCarter's lead counsel in the Kentucky Litigation, Mark Giarratana, testified that he notified Rogovin of the rate increases, and Rogovin agreed to them, during a phone call in April of 2013. ECF No. 445 at 160-61 ("I had indicated to [Rogovin] that Jarrow Formulas had been receiving a substantial discount.... We couldn't... keep our rates down at that low level, and we needed to increase them.... He indicated it was fine."). Rogovin denied that Giarratana ever discussed the rate increases with him, ECF No. 447 at 132, but the jury was free to credit Giarratana's testimony on this point over Rogovin's. The jury also learned that, during the ensuing six years, McCarter's bills listed the higher rates and Jarrow paid those increased rates on a total of 70 monthly bills. ECF No. 446 at 55. Rogovin wrote "ok" and his initials on most of the bills. ECF No. 447 at 187. Rogovin testified that he did not notice the increased rates, as he did not do a "line-by-line item review" of the bills, but rather "[l]ooked at the matter and sum and signed off on it." Id. at 120, 124. But the jury was free to disbelieve this testimony and it had ample grounds to do so. During cross-examination, Rogovin was confronted with evidence that he had noticed an error on page five of one of the legal bills and had insisted that it be rebilled, suggesting that he did, in fact, read the bills before approving them for payment. Id. at 210-12. The jury also heard evidence that Rogovin was an experienced consumer of legal services and had worked with Giarratana for 23 years under the same billing arrangement and with occasional rate increases. ECF No. 447 at 179-82. So there was easily enough evidence to find by clear and convincing evidence that McCarter had disclosed the higher rates to Jarrow and that Jarrow agreed to them. There was also sufficient evidence to satisfy the clear and convincing standard that the rates themselves, and the overall compensation McCarter received, were fair and reasonable under the circumstances. The jury learned that, after the initial rate increase, McCarter kept its rates frozen for the rest of the six-year Kentucky Litigation, such that the rates it was charging Jarrow by the time of the trial represented a substantial discount from its standard rates. Id. at 18-20. And the jury heard evidence that McCarter gave Jarrow further discounts for its early payment, ECF No. 445 at 197-99, and that Jarrow paid its local counsel a higher rate after it ended

its relationship with McCarter, ECF No. 448 at 46.

Jarrow introduced evidence that McCarter sent invoices to Jarrow's liability insurer, Liberty Underwriters, that listed higher rates than those listed on five bills McCarter sent to Jarrow at the outset of the Kentucky Litigation. See ECF No. 446 at 88-89. McCarter later reissued three of Jarrow's bills at the higher rates, and Jarrow paid those higher bills. Jarrow claims that this shows "McCarter engaged in deceptive conduct to achieve approval for its higher rates." ECF No. 471 at 16. Giarratana testified that issuing three bills to Jarrow at the lower rate was an honest mistake. ECF No. 445 at 170-71.

When the evidence is viewed in the "light most favorable to [McCarter]," Jarrow is not entitled to judgment as a matter of law. ING Glob. v. United Parcel Serv. Oasis Supply Corp., 757 F.3d 92, 97 (2d Cir. 2014). Again, the jury was entitled to reject Jarrow's interpretation of the evidence and credit Giarratana's testimony. Far from being "the result of sheer surmise and conjecture," or contrary to "overwhelming" evidence, Connelly, 61 F.4th at 325, the jury's verdict was supported by the evidence.

Nor was the jury's verdict sufficiently "egregious" to warrant a new trial. DLC Mgmt. Corp., 163 F.3d at 134. Instead, the weight of the evidence supports the jury's conclusion. This evidence was not, as Jarrow contends, limited to "Giarratana's testimony that he supposedly verbally informed Jarrow Rogovin of the rate increase, and that Jarrow Formulas paid the bills McCarter calculated at the higher rate." ECF No. 471 at 14-15. McCarter also submitted evidence that Rogovin read the bills, that he was an experienced consumer of Giarratana's legal services, that the two had been working together as lawyer and client in the same manner and under similar billing arrangements for over two decades, and that Jarrow received a reasonable price for McCarter's services. Therefore, Jarrow is not entitled to a new trial on these grounds.

E. Jury Instructions

Jarrow also argues that it is entitled to a new trial because (1) the court "incorrectly instructed [the jury] on McCarter's burden of proof to establish increased hourly rates" at the start of trial, and (2) the Court "failed to instruct the jury on advice of counsel as a defense to willful and malicious conduct and gave an unfair limiting instruction" on that issue. ECF No. 469 at 8-9. "A new trial is warranted if, taken as a whole, the jury instructions gave a misleading impression or inadequate understanding of the law." BAII Banking Corp. v. UPG, Inc., 985 F.2d 685, 696 (2d Cir. 1993).

Clear and Convincing Evidence Standard

Jarrow argues that "the Court's preliminary instruction to the jury [on breach of contract] ... erroneously left out any reference to the clear and convincing evidence standard applicable to the question of whether McCarter engaged in fair dealing with full disclosure in connection with its hourly rate increases." ECF No. 469 at 27. Jarrow acknowledges that the Court's closing instruction to the jury discussed the clear and convincing evidence standard, but claims that this instruction was "too little, too late." Id.

Jarrow's argument is unsupported by the record. My preliminary instructions —given immediately before opening statements—informed the jury that, "[w]ith respect to some issues in the case, the parties may have to satisfy a higher burden of proof than the preponderance of the evidence. Later, I will give you specific instructions about which issues require a higher burden of proof and what that burden

of proof is." ECF No. 444 at 15. So the jury was on notice from the outset that it might need to apply a higher burden of proof to some issues. And because the issue of whether the clear and convincing evidence standard applied, and if so, to which issues it applied, was a hotly contested one on which there was no recent, clear guidance from the Connecticut Supreme Court, it was prudent to refrain from giving a more detailed instruction on that standard until after the charge conference.

I also made clear, in both my preliminary instruction and my final instructions, that the preliminary instructions were just that—preliminary—and that they would be superseded by the final instructions, which would be the governing source of law for the trial. ECF No. 444 at 7 (Preliminary instructions: "To begin, I will give you some preliminary instructions to guide you.... What I say now will not be a substitute for the instructions on the law that I will give to you at the conclusion of the case but is simply designed to give you an overview before you begin hearing the case."); ECF No. 456 at 66 (Final instructions: "I gave you some preliminary instructions before trial began, but it is now—at the close of the evidence—that the final instructions governing your deliberations are given, so please be patient and listen closely. I believe that everything I am going to tell you is consistent with the preliminary instructions I gave you at the start of the trial, with one exception I will explain later; but if you have any doubt, you should not rely on anything different I may have said in my preliminary instructions. The instructions I am now giving you must guide your deliberations in this case."); id. at 90 (Final instructions: "In my preliminary instructions, I said to you that McCarter must prove its breach of contract claim by a preponderance of the evidence. This was correct in part and incorrect in part, and so you should ignore my preliminary instructions on this issue and focus on these instructions."). It was my final instructions, not the preliminary instructions, that were handed out to the jurors to keep during deliberations. My final instructions explained the clear and convincing evidence standard, ECF No. 456 at 76, and reminded the jury several times that McCarter was "required to prove fair dealing ... by the heightened standard of clear and convincing evidence," Id. at 92, 108-109, 129, 142. "Thus, to the extent the preliminary instructions were erroneous, the Court corrected this error repeatedly in the final jury instructions, which the jury is presumed to have followed." Fraser v. Wyeth, Inc., 992 F. Supp. 2d 68, 93 (D. Conn. 2014); see also United States v. Colombo, 909 F.2d 711, 715 (2d Cir. 1990) (explaining that courts "presume that a jury adheres to the curative instructions of the trial court" unless "there is an overwhelming probability that the jury will be unable to follow the court's instructions" (citation and internal quotation marks omitted)).

Advice of Counsel

Jarrow next argues that the Court erred in "refus[ing] to instruct the jury on the advice of counsel defense" and in giving a "limiting instruction regarding evidence of that advice being solely relevant to ... IP bills" ECF No. 469 at 19. To rectify this supposed error, Jarrow asks that the court grant a "new trial ... on will[ful] and malicious breach." Id. at 42. But my instructions to the jury on the advice of counsel defense were not in error.

During trial, Jarrow sought to introduce evidence that its recently-deceased counsel, Jeff Tinley, had advised it not to pay McCarter's outstanding legal fees. Jarrow never raised "advice of counsel" as an affirmative defense in its Answer, but "[c]ourts in the Second Circuit have allowed

parties to raise advice of counsel to defeat an element of a claim without having to include it as an affirmative defense in their answer." Nokaj v. N.E. Dental Mgmt., LLC, No. 16-CV-03035, 2019 WL 634656, at *13 (S.D.N.Y. Feb. 14, 2019) (citation and internal quotation marks omitted). In Jarrow's view, evidence that it acted on the advice of counsel rebutted McCarter's claim that its breach of contract was willful and malicious. ECF No. 447 at 242. McCarter responded that it had attempted to depose several Jarrow employees about the legal advice they received, and Jarrow had asserted attorney-client privilege. Id. at 243. To prevent Jarrow from using attorney-client privilege as a shield during discovery and a sword at trial, McCarter argued that I should preclude Jarrow from raising advice of counsel. Id. at 244. I directed the parties to send excerpts from the relevant depositions, id., which I reviewed and discussed at length with the parties, ECF No. 448 at 3-23. Those deposition excerpts established that Jarrow had invoked attorney-client privilege to prevent Jonathan Leventhal, who was Jarrow's General Counsel at the relevant time, and Rogovin from answering several questions about the legal advice they received from Tinley, but Jarrow permitted Rogovin to testify that he did not pay the IP bills "on the advice of counsel." ECF No. 448 at 4-20.

Ultimately, I permitted Rogovin to testify that he relied on the advice of counsel when deciding not to pay the IP bills, but barred him—based on assertions of privilege and instructions not to answer in the depositions—from elaborating on the content of that advice or claiming that he had decided not to pay other bills based on the advice of counsel. Id. at 147. After Rogovin testified to this effect, I told the jury that "the witness just testified that he didn't pay the IP bills based on advice he received from a lawyer. So you may consider that testimony as to whether any failure by Mr. Rogovin or his company to pay those bills was willful and malicious. That is the only purpose for which you may consider that testimony." Id. at 105. In my closing instructions, I again advised the jury that it could consider evidence that "Rogovin decided not to pay the bills for the intellectual property work unrelated to the Kentucky litigation based on advice he received from a lawyer .... only for the limited purpose of deciding whether any failure to pay the bills for the unrelated intellectual property work was willful and malicious." ECF No. 456 at 72.

My decision to exclude further testimony about advice of counsel was proper. I could not permit Jarrow to introduce "testimony or evidentiary presentations .... at trial if that same testimony or evidence was withheld from [McCarter] during discovery based on attorney-client privilege." Cary Oil Co. v. MG Refining & Marketing, Inc., 257 F. Supp. 2d 751, 761 (S.D.N.Y. 2003); see also Trouble v. Wet Seal, Inc., 179 F. Supp. 2d 291, 304 (S.D.N.Y. 2001) (holding that defendant "waived any available advice of counsel defense by objecting, based on the attorney-client privilege, to [the plaintiff's] discovery requests"). Further, the limiting instruction was proper. Jarrow did not raise advice-of-counsel as an affirmative defense, so Rogovin's testimony was only admissible to the extent it rebutted McCarter's claim that Jarrow acted willfully and maliciously. As such, I informed the jury that it should consider the advice-of-counsel testimony solely to determine Jarrow's state of mind. See Lomas v. Partner Wealth Mgmt., LLC, No. 08-FST-CV-15-5014808-S, 2018 WL 2208054, at *7 (Conn. Super. Ct. Apr. 23, 2018) (permitting advice of counsel evidence not raised as special defense and instructing jury that it was "free to consider it in determining whether or not the defendants acted in a reckless wilful or wanton manner" [sic]).

And my charge was properly limited to the IP bills based on the evidence produced at trial. See ECF No. 447 at 174-76; ECF No. 448 at 174-74.¹⁶

16 Even if I misconstrued the deposition transcripts in finding that Jarrow had asserted the privilege as to the reasons for the refusal to pay with respect to the Kentucky Litigation, it is hard to see how Jarrow was prejudiced. Rogovin testified that he made the decision not to pay for the Kentucky Litigation on the evening after the verdict, which was consistent with his spiteful reactions to adverse developments throughout the Kentucky Litigation, and predated the advice he received from Attorney Tinley by about a month.

Thus, my instructions did not give the jury "a misleading impression or inadequate understanding of the law," and Jarrow is not entitled to a new trial on these grounds. BAII Banking Corp, 985 F.2d at 696.

F. Evidentiary Rulings

Next, Jarrow argues that it is entitled to a new trial because the court erroneously: (1) precluded evidence of Jarrow's damages malpractice theory, (2) precluded evidence that a McCarter attorney assaulted Rogovin, and (3) allowed prejudicial testimony from one of McCarter's experts.

"When a party moves for a new trial on the ground that the court erroneously excluded evidence, [Fed. R. Civ. P.] 59 is read in conjunction with [Fed. R. Civ. P.] 61." Garnett v. Undercover Officer C0039, No. 1:13-CV-07083, 2015 WL 1539044, at *10 (S.D.N.Y. Apr. 6, 2015), aff'd, 838 F.3d 265 (2d Cir. 2016). Under Rule 61, "no error in admitting or excluding evidence ... is ground for granting a new trial" "[u]nless ... justice requires otherwise," and "the court must disregard ... errors ... that do not affect any party's substantial rights." An erroneous evidentiary ruling does not affect a substantial right and is therefore harmless, unless the party challenging the ruling demonstrates that "it is likely that in some material respect the factfinder's judgment was swayed by the error." Tesser v. Bd. of Educ., 370 F.3d 314, 319 (2d Cir. 2004).

Further, when a party seeks a new trial because the court admitted evidence that the party never objected to, "a new trial is warranted ... only if its admission is plain error, meaning that the error must seriously affect the fairness, integrity, or public reputation of judicial proceedings." Sharkey v. Lasmo, 55 F. Supp. 2d 279, 290 (S.D.N.Y. 1999) (citation and internal quotation marks omitted).

Preclusion of Evidence of Damages Malpractice Theory

Jarrow argues that the Court erred in precluding its malpractice theory that McCarter failed to challenge adequately Caudill's compensatory damages in the Kentucky Litigation. ECF No. 469 at 8. At the summary judgment stage, I found an issue of material fact on this portion of Jarrow's malpractice claim, which alleged that McCarter failed "to retain a qualified expert and conduct expert testimony regarding the damages that Caudill claimed and to refute and challenge Caudill's damages presentation at trial." ECF No. 469 at 29. Before trial, however, McCarter argued that Jarrow did not have sufficient evidence to prove damages for this malpractice claim with reasonable certainty. ECF No. 273 at 23 n.6, 28-33; see Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribicoff & Kotkin, 247 Conn. 48, 69, 717 A.2d 724 (1998) ("[D]amages are recoverable [for legal malpractice] only to the extent that the evidence affords a sufficient basis for estimating their amount with reasonable certainty."); Braithwaite v. Lee, 125 Conn. 10, 14, 2 A.2d 380 (1938) ("[D]amages are an essential element of the plaintiff's proof before

he is entitled to recover. They must be proved with reasonable certainty." (internal citation omitted)).

Jarrow sought to prove its malpractice damages using two witnesses. First, Kean Ashurst, a former Caudill employee who was accused of helping Jarrow steal Caudill's trade secrets, would testify that Caudill's research and development costs were "no more than $250,000." ECF No. 336 at 4-5. Based on this testimony, Jarrow intended to argue that, due to McCarter's failure to contest damages, it suffered damages of $1,773,000, the difference between the $2.023 million the Kentucky jury awarded in research and development damages and $250,000. Id. Second, Jarrow contends that Attorney Michael Berman, its expert witness, would testify that "but for McCarter's alleged malpractice, no compensatory damages would have been awarded." ECF No. 355 at 9. I determined that Jarrow had not adequately disclosed either of these theories to McCarter during discovery. ECF No. 336 at 4-7; ECF No. 355. I ultimately precluded both witnesses from testifying as to these theories under Rule 37(c)(1), which provides that, "[i]f a party fails to provide information or identify a witness as required by Rule 26(a) ..., the party is not allowed to use that information or witness to supply evidence... at a trial, unless the failure was substantially justified or harmless."

My reasons for excluding the evidence are thoroughly explained in my rulings on this issue, ECF No. 336 at 4-7; ECF No. 355, and I need not repeat them here. I will, however, address Jarrow's new argument—one it has waived by not raising it before trial, see ECF No. 355 at 9 (noting that "Jarrow has not argued that any lack of disclosure was substantially justified or harmless")—that any failure to disclose was "substantially justified or harmless," ECF No. 469 at 34-38. First, Jarrow states the wrong standard for evaluating this issue: the Second Circuit has not required district courts to find "flagrant bad faith and callous disregard of the Federal Rules of Civil Procedure" to preclude evidence under Rule 37(c)(1). Id. at 35; see Design Strategy, Inc. v. Davis, 469 F.3d 284, 296 (2d Cir. 2006) ("Since Rule 37(c)(1) by its terms does not require a showing of bad faith ... such a requirement should not be read into the Rule."). Instead, courts consider: "(1) the party's explanation for the failure to comply with the disclosure requirement; (2) the importance of the testimony of the precluded witnesses; (3) the prejudice suffered by the opposing party as a result of having to prepare to meet the new testimony; and (4) the possibility of a continuance." Design Strategy, 469 F.3d at 296 (citations and internal alterations omitted).

While one factor, the importance of the testimony, largely favored Jarrow,¹⁷ the remaining factors all weighed against admitting the evidence. Jarrow has "not yet explained why it omitted [these damages theories] in its Initial Disclosure," id. at 297, nor has it explained why it failed to disclose the theories in multiple expert reports, depositions, or supplemental disclosures.¹⁸ By the time Jarrow first introduced these two damages theories in October of 2022, discovery had been closed for more than two years. See ECF No. 119

17 I note, however, that the vagueness of and lack of support for Kean Ashurst's proposed testimony substantially diminished its probative value. See ECF No. 336 at 5.

18 The Court even declined to preclude a late-filed expert report from Berman, on the condition Jarrow make Berman available for a second deposition, at Jarrow's expense. ECF No. 173. That "supplemental report," and his second deposition, both failed to disclose a theory that Caudill's "compensatory award would have been $0 absent McCarter's malpractice." ECF No. 355 at 5, 8-9.

(setting May 1, 2020 discovery deadline); ECF No. 145 (permitting parties to finish remote depositions by June 15, 2020). The Court had decided summary judgment motions, ECF No. 164, and scheduled jury selection for November 2, 2022. ECF No. 232.¹⁹ Cf. Design Strategy, 469 F.3d at 297 (holding that failure to disclose was not harmless where "discovery had been closed for approximately one and a half years" and "at the time of the offer of expert testimony there was only a 'short time left before trial'"). So I see no reason to disturb my ruling on the ground that Jarrow's failure to disclose was harmless, because McCarter was given no notice that it needed to retain a damages expert to rebut Ashurst's testimony and Berman's new damages opinions or prepare to cross-examine them on how they calculated their figures. ECF No. 355 at 9. McCarter's statement, during a status conference, that it was "fully prepared to attack" Ashurst's testimony, ECF No. 318 at 64, does not mean it was not prejudiced by its inability to conduct discovery on this issue.

19 The trial was delayed until July 2023 for other reasons. ECF No. 336 at 336-37.

Jarrow argues that "it sought to remedy the deficiencies caused by [its] terminally ill prior counsel to conduct the requisite discovery on Caudill's damages claims" when "[t]he trial was still nine months away." ECF No. 469 at 34. Jarrow's counsel died unexpectedly on September 3, 2021. ECF No. 223. Jarrow's new counsel moved to conduct additional discovery, including on the damages portion of its malpractice claim, in April of 2022. ECF No. 244-1 at 8-9. But even as it moved to reopen discovery, Jarrow still failed to disclose Ashurst's testimony or Berman's theory as bases for its damages calculations. Id. And as the Court concluded in denying Jarrow's motion, Jarrow's prior counsel died "[l]ong after discovery closed in this case," Jarrow "had ample opportunity to conduct ... discovery," and "the discovery process in this case was lengthy, onerous, and contentious for the parties and the Court." ECF No. 254.

So my rulings excluding Ashurst's and Berman's testimony were reasonable: Jarrow had no justification for its lengthy delay in disclosing its damages theories, the theories were disclosed years after discovery ended, reopening discovery would have been costly and unfair, and McCarter was prejudiced by its inability to conduct discovery or hire an expert to rebut Jarrow's claims.

Preclusion of Evidence of Eric Grondahl's Assault of Rogovin

Next, Jarrow argues that "[t]he Court erroneously excluded evidence of an assault by Mr. Grondahl of Mr. Rogovin." ECF No. 469 at 78. During trial, Jarrow sought to offer proof that Eric Grondahl, a McCarter attorney working on the Kentucky Litigation, became intoxicated, put his "hands on" Rogovin, and later fell on the ground and had to be hospitalized. ECF 452 at 129-131. Jarrow argued the evidence would "go to some of the reasons why [Rogovin] did not feel that McCarter & English had done an adequate job leading to his decision not to pay." Id. at 131. The Court excluded the evidence because "there's been zero evidence presented that the altercation between Mr. Grondahl and Mr. Rogovin had anything to do with Mr. Rogovin's reasons for not paying. Mr. Rogovin has already testified in the billing [portion of the trial] and has explained at some length his reasons for not paying. He did not mention that." Id. Now, however, Jarrow argues that the evidence could have supported Rogovin's testimony that he felt "broken" by the time McCarter decided not to call him as a witness, which, Jarrow contends, would explain why he "did not insist on testifying." ECF No. 469 at 30-31. When it made its proffer, Jarrow never argued that the alleged assault would explain why Rogovin did not insist on being called as a witness, nor did it point to any evidence that would support such a claim. See United States v. Malka, 602 F. Supp. 3d 510, 526 (S.D.N.Y. 2022) ("The party introducing evidence carries the burden of establishing its relevance."). Even if it had, the evidence had minimal probative value,²⁰ and was unfairly prejudicial. In any event, Jarrow has not demonstrated that "in some material respect ... the [jury's] judgment was swayed" by the exclusion of the evidence regarding Grondahl. Tesser, 370 F.3d at 319.

20 As McCarter points out, it is unclear if the Grondahl incident even preceded the meeting where Rogovin claims he felt "broken." ECF No. 479 at 33. McCarter has offered different dates for the Grondahl incident. See ECF No. 452 at 129 ("Saturday, June 17"); ECF No. 469 at 38 ("Saturday, June 14, 2019"); see also ECF No. 479 at 33 (McCarter arguing the assault occurred on "Saturday, June 15, 2019," the only listed date that is actually a Saturday). And one of McCarter's attorneys testified that the decision not to call Rogovin as a witness was finalized on June 14, ECF No. 451 at 125-26, though other evidence suggests it occurred later, and McCarter may not have communicated the decision to Rogovin right away, see ECF No. 455 at 84. Either way, Jarrow does not cite any evidence that the interaction with Grondahl was actually "one of the core reasons" Rogovin felt too broken to protest McCarter's decision. ECF No. 469 at 39.

Testimony of McCarter's Expert

Next, Jarrow argues that the testimony of James Shearin, McCarter's malpractice expert, "violat[ed] Federal Rules of Evidence 702, 703, and 705," and the "entire testimony should [have] been stricken from the record." ECF No. 469 at 40. As Jarrow concedes, it made "no objection" to this testimony during trial. Id. So a new trial is warranted on these grounds only if the error "was so serious and flagrant that it goes to the very integrity of the trial." Marcic v. Reinauer Transp. Cos., 397 F.3d 120, 124 (2d Cir. 2005) (citation and internal quotation marks omitted). Jarrow does not come close to satisfying that standard.

Jarrow claims that Shearin's testimony "amounted to no more than an incoherent tirade, comprised of a combination of false accusations, naked speculation and ad hominem attacks, staged as expert testimony and facts." ECF No. 469 at 40. This claim is entirely unsupported by Jarrow's citations to the record, which include Shearin's testimony about his credentials and the evidence he reviewed to form his opinion, ECF No. 455 at 89-109, and his opinion that "there was no malpractice," id. at 109.

To litigate a legal malpractice claim under Connecticut law, parties must use expert testimony "to establish the standard of proper professional skill or care." Kalra v. Adler Pollock & Sheehan P.C., 3:18-CV-00260 (KAD), 2022 WL 280180, at *3 (D. Conn. Jan. 31, 2022) (citation and internal quotation marks omitted). This testimony "assist[s] ... members of the jury ... to understand the applicable standard of care and to evaluate the [attorney's] actions in light of that standard." Id. (citation and internal quotation marks omitted). Shearin's testimony helped the jury evaluate McCarter's decision not to call Rogovin as a witness. He appropriately testified about the risks of calling Rogovin, including harmful evidence that Caudill might have used to cross-examine Rogovin during the Kentucky Trial. See, e.g., ECF No. 455 at 111-19. Even if this testimony might have led the jury to infer that Rogovin was "a thief and a liar" who "committed trade secret misappropriation," ECF No. 469 at 40, I did not err in permitting Shearin to testify

about how he formed his opinions. Shearin's opinion that the evidence of trade secret theft in the Kentucky trial was compelling and thus posed a serious challenge to the McCarter trial team was supported by the evidence, including emails between Kean Ashurst and Jarrow Rogovin. His testimony was far from being "improper speculation" supported by "no ... facts." Id. Shearin described the information he reviewed to form his opinion, including deposition transcripts, emails, and court filings. ECF No. 455 at 100-107. My decision to permit this testimony was not plain error.

G. Grant of Summary Judgment

Jarrow also claims a new trial is warranted because I should not have granted partial summary judgment on McCarter's breach of contract claim. ECF No. 469 at 44-46. Jarrow argues that a partial grant of summary judgment on the breach of contract claim was inconsistent with my determination that there was an issue of material fact as to some of Jarrow's malpractice claims. ECF No. 469 at 45. Since "[p]erformance is an element of McCarter's [breach of contract] claim," Jarrow asserts that malpractice constitutes a failure to perform. Id. Jarrow did not raise this argument in its summary judgment briefing. See ECF Nos. 164, 178, 185; see also ECF No. 318 at 15 (rejecting attempt to raise failure to perform argument in pre-trial hearing because "that's a new argument at this point.... [T]here was a place to make that argument, which was in the summary judgment papers.").

Jarrow cannot challenge a summary judgment ruling on grounds it failed to raise in its summary judgment briefing. See Triodetic Inc. v. Statue of Liberty IV, LLC, 582 F. App'x 39, 40 (2d Cir. 2014) (summary order) ("[P]laintiff never raised these arguments in its opposition to defendants' motion for summary judgment. Accordingly, these arguments were waived."). Even if it could, a Rule 59 motion for a new trial is not the proper vehicle for Jarrow to relitigate the court's summary judgment decision. See Young v. Cabrera, No. 18-CV-03028, 2023 WL 1785526, at *6 (E.D.N.Y. Feb. 6, 2023) ("[W]hile plaintiff is free to challenge the partial grant of summary judgment on appeal, 'Rule 59 is not a vehicle for relitigating old issues, presenting the case under new theories, securing a rehearing on the merits, or otherwise taking a 'second bite at the apple,''" (quoting Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir. 1998)); SEC v. Westport Cap. Markets LLC, No. 3:17-CV-02064 (JAM), 2020 WL 6270698, at *11 (D. Conn. Oct. 26, 2020) ("[I]n the absence of any intervening change in law or facts ... post-trial Rule 50 and Rule 59 motions are not appropriate vehicles for [parties] to seek to relitigate issues long decided against them at the summary judgment stage of this action.").

Since none of the grounds on which Jarrow seeks a new trial has merit, I deny its motion for a new trial or remittitur in its entirety. I also reject all claims in Jarrow's motion for judgment as a matter of law, except its argument that punitive damages are unavailable in this case, which I have certified to the Connecticut Supreme Court.

V. Damages Motions

McCarter also moves for prejudgment interest, ECF No. 464, punitive damages, ECF No. 465, and offer of compromise interest, ECF No. 466. I deny without prejudice McCarter's motion for punitive damages, and grant in part its motions for prejudgment interest and offer of compromise interest.

A. Prejudgment Interest

McCarter moves for prejudgment interest of $854,122.50, plus $51.40

per day from September 30, 2023 until judgment enters. ECF No. 481 at 2. Federal courts sitting in diversity jurisdiction must apply Connecticut's prejudgment interest statute. See Brandewiede v. Emery Worldwide, 890 F. Supp. 79, 82 (D. Conn. 1994), aff'd, 66 F.3d 308 (2d Cir. 1995). Under Connecticut law, "interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions... as damages for the detention of money after it becomes payable." Conn. Gen. Stat. § 37-3a(a). "[A]n award of interest under § 37-3a ... is discretionary with the trial court. Interest is awarded ... when the court determines that such an award is appropriate to compensate the plaintiff for the loss of use of [its] money." DiLieto v. Cnty. Obstetrics & Gynecology Grp., P.C., 310 Conn. 38, 54, 74 A.3d 1212 (2013).

McCarter argues that it is entitled to prejudgment interest of 10 percent on the amount the Court awarded at summary judgment and the amount of compensatory damages the jury awarded, adjusted to account for release of the $1.85 million in escrow to McCarter. ECF No. 467 at 11-18; ECF No. 481 at 1-2. McCarter also contends that the interest began accruing on the date Rogovin notified McCarter that Jarrow would not make any more payments. Id. at 9-11, 18. Jarrow responds that McCarter is not entitled to prejudgment interest at all, since the money was never wrongfully detained. ECF No. 477 at 5-10. In the alternative, Jarrow maintains that the interest rate should be no more than 4 percent, id. at 11-14, and the amount of interest should be offset by a reasonable amount that "the bond for Prejudgment remedy" would have earned if it had been placed in an interest-bearing account, id. at 10.

Entitlement to Prejudgment Interest

Jarrow argues that McCarter is not entitled to prejudgment interest. Conn. Gen. Stat. § 37-3a permits parties in civil trials to recover "an award of interest on money from the time money is wrongfully withheld." Paulus v. LaSala, 56 Conn. App. 139, 150, 742 A.2d 379 (1999). "When a case is tried before a jury, ... prejudgment interest, as an element of damages, is a factual question within the province of the jury." Retepromaca, 2004 WL 722231, at *9. The parties agreed that the jury would decide whether McCarter was entitled to prejudgment interest with respect to any damages the jury awarded, and the Court would determine whether McCarter was entitled to prejudgment interest "with respect to the amount awarded at summary judgment."²¹ ECF No. 362 ¶ 5; ECF

21 As I discussed in footnote 1 with regard to punitive damages, McCarter claims that Jarrow waived any argument that "McCarter is not entitled to prejudgment interest" because the parties "stipulated that the issue of entitlement to prejudgment interest would go to the jury." ECF No. 488 at 2-3. The stipulation McCarter cites states that (1) "[i]f the issue of prejudgment interest is permitted by the Court to go to the trier of fact on any claim, the jury will be the trier of fact on whether a party is entitled to prejudgment interest," (2) "the Court will calculate the interest amount, including start and end dates, interest rate, compounding, etc., in post-trial proceedings," and (3) "[b]oth parties reserve their right to argue to the Court that the opposing party is not entitled to prejudgment interest and/or punitive damages for any reason, and [that] no issues related thereto should be submitted to the jury." ECF No. 362 ¶ 5. The most reasonable interpretation of the final portion of the stipulation is that Jarrow did not waive its right to argue that the jury's prejudgment interest award should be set aside under Rule 50 or Rule 59, because McCarter was "not entitled to prejudgment interest" as a matter of law. Jarrow does not raise the issue of McCarter's entitlement to prejudgment interest in its motion for a new trial, or its motion for judgment as a matter of law. Still, I consider the argument Jarrow raises in its response to McCarter's motion for prejudgment interest under the applicable Rule 50 and Rule 59 standards.

No. 423. The jury determined that Jarrow wrongfully withheld McCarter's legal fees, and awarded prejudgment interest.

Jarrow argues that its detention of funds was not wrongful, as a matter of law, because it had a "good faith dispute over [its] liability to pay ... the amount allegedly owed." ECF No. 477 at 6. But in the last decade, Connecticut's Supreme Court has clarified that "the wrongful detention standard of § 37-3a is satisfied by proof of the underlying legal claim, a requirement that is met once the plaintiff obtains a judgment in [its] favor on that claim." DiLieto, 310 Conn. at 52, 74 A.3d 1212. Therefore, "[i]nterest may be awarded in the discretion of the [fact-finder] even when the liable party's failure to pay the judgment was not blameworthy, unreasonable or in bad faith." Id. at 52 n.13, 74 A.3d 1212. Instead, the "primary equitable factor that [the fact-finder] must consider when exercising its discretion to award interest is the policy of compensating parties that have been deprived of the use of their money." Dish Network, LLC v. Comm'r of Revenue Servs., 330 Conn. 280, 315, 193 A.3d 538 (2018) (internal quotation marks, citations, and alterations omitted). In this case, I instructed the jury that, "to award prejudgment interest," it "must ... determine whether, under all the circumstances, the party has proven that the other party wrongfully detained money that was due.... There is no hard and fast rule for what constitutes wrongful detention. The question is whether justice requires that the party be paid interest for the loss of use of money." ECF No. 430 at 38-39.

The jury's decision to award prejudgment interest according to this standard was reasonable. Under Connecticut law, the jury was entitled to award prejudgment interest "once [McCarter] obtain[ed] a judgment in its favor on [its breach of contract] claim." DiLieto, 310 Conn. at 51, 74 A.3d 1212. Further, the jury determined that McCarter's breach of contract was willful and malicious, and, as I explained above, this portion of the verdict was supported by ample evidence. Thus, the jury's determination that Jarrow wrongfully withheld payment from McCarter was not in error.

I also award prejudgment interest on the amount I awarded at summary judgment. Prejudgment interest is reasonable to compensate McCarter for the loss of its use of its money. This litigation has taken several years and required McCarter to rack up considerable legal expenses. Jarrow has rejected at least one offer to settle the case. ECF No. 125. In the interim, as I explain below, interest rates have been unusually high. Further, declining to award prejudgment interest on the amount awarded at summary judgment would be inconsistent with the jury's verdict. The jury concluded that (1) Jarrow's breach of contract was willful and malicious, and (2) Jarrow wrongfully withheld money from McCarter, warranting prejudgment interest. The damages the jury awarded, and the amount I awarded at summary judgment, involved the same five unpaid invoices. If Jarrow's decision to withhold payment on one portion of those invoices— the portion attributable to the rate increase —was willful and malicious, its decision to withhold payment on the remaining portion of those invoices must also have been.

Start and End Date

McCarter argues that the interest should start accruing on July 22, 2019, when "Jarrow Rogovin wrote to Mark Giraratana, Thomas Rechen, and Eric Grondahl,

to notify them that JFI was not going to make any further payment on the McCarter fees and expenses from the Kentucky litigation." ECF No. 467 at 10 (citing PTX-103). July 22, 2019 is also the date when McCarter filed this action. ECF No. 1. I agree that the July 22, 2019 accurately reflects the date when the money was wrongfully withheld. Hamann v. Carl, 196 Conn. App. 583, 601, 230 A.3d 803 (2020). Under Section 37-3a, prejudgment interest continues accruing until the date of entry of judgment. See Robert Haydon Jones & Assocs., LLC v. Cosmetique, Inc., No. 3:04-CV-00417 (WWE), 2006 WL 8448195, at *2 (D. Conn. May 23, 2006). However, on September 29, 2023, Jarrow released from escrow $1.85 million in funds that were attached as a prejudgment remedy. ECF No. 480 at 2. Therefore, McCarter agreed that its "claim for prejudgment interest and offer of compromise interest would stop running on the [$1.85 million released from escrow]" on September 29, 2023. Id. Jarrow does not contest McCarter's proposed start and end dates.

Interest Rate

The parties disagree about the appropriate interest rate for McCarter's prejudgment interest. Section 37-3a provides that the court may award an "interest rate at ten percent a year, and no more." But this provision merely "establishes a maximum rate above which a trial court should not venture," and trial courts have discretion to determine the appropriate amount of interest to award. Sears Roebuck & Co. v. Bd. of Tax Rev., 241 Conn. 749, 765, 699 A.2d 81 (1997). The Connecticut Supreme Court has approved the use of "potential investment income in choosing a fair rate of interest...." DiLieto v. Cnty. Obstetrics & Gynecology Grp., P.C., 316 Conn. 790, 805, 807, 114 A.3d 1181 (2015).

I have reviewed the parties' submissions, including information on average investment yields and interest rates, and I find that a prejudgment interest rate of 8 percent is fair in this case. Interest rates and returns on investments during the period between 2019 and 2023 have been relatively high. This interest rate is within the range that other trial courts have awarded for a similar time period. See, e.g., Paniccia v. Success Vill. Apartments, Inc., No. CV-16-5031432-S, 2023 WL 5366466, at *8 (Conn. Super. Ct. Aug. 16, 2023) (awarding 6.5 percent interest); Coppola v. Palmer, No. DBD-CV-21-6039274-S, 2023 WL 6121048, at *3 (Conn. Super. Ct. Sept. 13, 2023) (awarding 8 percent interest); Spearman v. Jhilal, No. FBT-CV-18-5036543-S, 2023 WL 4575681, at *2 (Conn. Super. Ct. July 12, 2023) (awarding 10 percent interest). And the Connecticut Supreme Court has held that 8 percent interest is not an abuse of the trial court's discretion, since "the legislature has set [that rate] as fair compensation for loans and other agreements that contemplate interest but fail to set a rate." DiLieto, 316 Conn. at 806, 114 A.3d 1181.

Prejudgment Remedy

Finally, Jarrow argues that any prejudgment interest award should be "offset as a result of [McCarter] not seeking [that] the [prejudgment remedy funds] be [placed] in an interest-bearing account." ECF No. 477 at 14. As I have explained, then-Magistrate Judge Merriam awarded an attachment of $1.85 million as a prejudgment remedy. ECF No. 124. "[T]he parties agreed that [Jarrow] would deposit $1.85 million into escrow during the pendency of this litigation." ECF No. 480 at 1. Jarrow claims that Rogovin "requested an interest-bearing instrument be used, but his suggestion was ignored." Id. at 10; see also ECF No. 477-1 ¶ 2 (affidavit of Jarrow Rogovin stating that he "suggested that the funds be put in an interest bearing account. The suggestion was not followed

as being supposedly ... 'impractical' and too complicated").

I do not agree that the failure to place the funds in an interest-bearing account warrants a reduction in the prejudgment interest award. McCarter did not have use of the escrowed funds until September 29, 2023, when Jarrow agreed to release them. ECF No. 480 at 2. And the fact that Rogovin allegedly suggested that the funds be placed in an interest-bearing account is not relevant, since the Escrow Agent apparently did not follow that suggestion. Reducing McCarter's award based on interest that never accrued would not be equitable. Finally, if the funds had been placed in an interest-bearing account, it is McCarter, not Jarrow, that would have been entitled to any interest accrued. The parties' Escrow Agreement states that the Escrow Agent is "authorized and directed to open an interest-bearing account or sub-account," but any "[i]nterest ... shall accrue for the benefit of [McCarter]." ECF No. 480-1 at 7.

For the reasons explained above, I grant in part McCarter's motion for prejudgment interest, ECF No. 464. I award 8 percent simple interest on the amount awarded in this Court's summary judgment ruling ($980,451.44), and the compensatory damages awarded in the jury's verdict ($1,057,173.93). This interest began accruing on July 22, 2019, and continued accruing through September 29, 2023, when McCarter released prejudgment remedy funds from escrow. Since the amount of compensatory damages ($2,037,625.37) exceeds the amount released from escrow ($1,850,000), I also award prejudgment interest on the difference between those amounts ($187,625.37) from September 29, 2023 through the date of entry of judgment. The interest accrued through September 29, 2023 is $683,302.32. Because I will not be entering judgment with this ruling, I note for now only that interest has accrued from September 29, 2023, and that interest will continue to accrue at $41.12 per day until judgment is entered.

B. Punitive Damages

As I have explained, I will certify to the Connecticut Supreme Court the issue of whether punitive damages are available for willful and malicious breach of contract, and I therefore deny without prejudice McCarter's motion for punitive damages. If the Connecticut Supreme Court determines that punitive damages are available in this case, McCarter may renew its motion for punitive damages.

The parties stipulated that the Court should calculate the amount of the punitive damages award if the jury determined that McCarter was entitled to punitive damages. ECF No. 362 ¶ 5. In Connecticut, common law punitive damages are "limited to the plaintiff's litigation expenses less taxable costs." Berry, 223 Conn. at 827, 614 A.2d 414. Litigation expenses include both a "reasonable fee" and "reasonably necessary disbursements." Markey v. Santangelo, 195 Conn. 76, 80, 485 A.2d 1305 (1985). McCarter seeks $3,602,462.99 in punitive damages, based on its litigation expenses. This amount includes $3,083,219.33 in fees, for 5,366.3 hours in partner time (charged at rates ranging from $460/hour to $675/hour), 497 hours of associate and counsel time (charged at rates ranging from $200/hour to $300/hour), and 1546.8 hours in e-discovery and paralegal time (charged at rates ranging from $175/hour to $300/hour). ECF No. 467 at 31. This amount also includes $519,243.66 in disbursements, including expenses incurred for experts and trial consultants. Id. at 32. To support its claims, McCarter provides affidavits from its partners attesting to their hourly rates and qualifications, ECF Nos. 467-1, 467-2, 467-3, 467-4, 467-5, an affidavit from its

accountant, ECF No. 467-6, and contemporaneous time entries and records establishing that it paid the fees and disbursements listed in its motion, ECF Nos. 467-7, 467-8, 467-9, 467-10, 467-11, 467-12, 467-13, 467-14, 467-15, 467-16. Jarrow's response argues that McCarter is not entitled to punitive damages under Connecticut law, but it does not contest the hourly rates, the time spent, or McCarter's description of the amounts McCarter expended on this litigation. ECF No. 477 at 15-20.

I have reviewed evidence McCarter has submitted, and considered the length and complexity of the litigation, my knowledge of reasonable attorney's fees in this market, the voluntary 15 percent courtesy discount that McCarter has applied, the results McCarter's attorneys achieved in this litigation, and the fact that McCarter —a law firm and a sophisticated consumer of legal services—agreed to and paid these amounts, among other factors. I find that McCarter reasonably incurred $3,602,462.99 in litigation expenses to date. If the Connecticut Supreme Court determines that McCarter is entitled to punitive damages for willful and malicious breach of contract, then I will award $3,602,462.99 in punitive damages upon a renewed motion by McCarter, after which I will enter judgment.

C. Offer of Compromise Interest

Finally, McCarter moves for offer of compromise interest of $2,177,771.40, plus $1,017.90 per day in interest until judgment enters.²² ECF No. 481 at 2; ECF No. 466. Federal courts sitting in diversity jurisdiction must apply Connecticut's offer of compromise statute, Conn. Gen. Stat. § 52-192a. See Clayton Servs. LLC v. Sun W. Mortg. Co., Inc., No. 22-511, 2023 WL 2781294, at *4 (2d Cir. Apr. 5, 2023) ("[Conn. Gen. Stat.] § 52-192a(a) is substantive for Erie purposes and therefore applies in federal court."); see also Local R. Civ. P. 68. Connecticut's statute provides that:

22 Jarrow misunderstood McCarter's motion for offer of compromise interest, apparently construing the $2,161,683.20 McCarter initially sought as a contemporaneous offer to settle the case for that amount. ECF No. 477 at 20-21 ("Plaintiff offers $2,161,683.20 as a 'compromise' amount, which amount is considerably higher than even 10% — so it constitutes no offer of compromise whatsoever.").

[A]fter commencement of any civil action based upon contract or seeking the recovery of money damages ... the plaintiff may, not earlier than one hundred eighty days after service of process is made upon the defendant in such action but not later than thirty days before trial, file with the clerk of the court a written offer of compromise signed by the plaintiff or the plaintiff's attorney, directed to the defendant or the defendant's attorney, offering to settle the claim underlying the action for a sum certain.... The plaintiff shall give notice of the offer of compromise to the defendant's attorney or, if the defendant is not represented by an attorney, to the defendant himself or herself.... If the offer of compromise is not accepted within thirty days and prior to the rendering of a verdict by the jury or an award by the court, the offer of compromise shall be considered rejected and not subject to acceptance unless refiled.

Conn. Gen. Stat. § 52-192a(a). After trial, if "the court ascertains from the record that the plaintiff has recovered an amount equal to or greater than the sum certain specified in the plaintiff's offer of compromise, the court shall add to the amount so recovered eight per cent annual interest on said amount." Id. § 52-192a(c). For an offer of compromise "filed not later than eighteen months from the filing of [the] complaint," the "interest shall be computed

from the date the complaint ... was filed." Id.

Less than 18 months after the complaint was filed, McCarter filed an offer of compromise, which offered to settle all claims for $1.8 million. ECF No. 125. Jarrow did not accept that offer within 30 days. Through this Court's partial grant of summary judgment, ECF No. 194, and the jury's verdict, ECF No. 433, McCarter has recovered $2,037,625.37 in compensatory damages. That amount is "equal to or greater than" the $1.8 million set forth in McCarter's offer of compromise. Conn. Gen. Stat. § 52-192a(a). McCarter has also recovered $683,302.32 in prejudgment interest, plus $41.12 per day until judgment is entered, and depending on how the Connecticut Supreme Court rules, it may recover $3,602,462.99 in punitive damages. Connecticut courts have held that "[offer of compromise] interest must be awarded on the total amount recovered," including punitive damages and prejudgment interest. Med. Device Sols., LLC v. Aferzon, 207 Conn. App. 707, 789, 264 A.3d 130 (prejudgment interest); Kregos v. Stone, 88 Conn. App. 459, 466, 872 A.2d 901 (2005) (punitive damages). Therefore, McCarter is entitled to eight percent simple interest on its total recovery, including compensatory damages, prejudgment interest, and any punitive damages it may recover.²³ As the amount of prejudgment interest remains a moving target at this point, and I will certify the question of the availability of punitive damages to the Connecticut Supreme Court, I will calculate offer of compromise interest at the time I enter judgment in this case.

23 Under Conn. Gen. Stat. § 52-192a(c), this interest began accruing on July 22, 2019, the date the McCarter filed its complaint, and continues accruing until judgment is entered. But I note that on September 29, 2023, Jarrow released from escrow $1.85 million in funds that were attached as part of a prejudgment remedy, and McCarter agreed that its offer of compromise interest would stop running on the $1.85 million released from escrow on that date. ECF No. 480 at 2.

VI. CONCLUSION

For the reasons set forth above, I GRANT in part McCarter's motion for prejudgment interest, ECF No. 464, and award $683,302.32 in prejudgment interest, plus $41.12 per day until judgment is entered. I also GRANT in part McCarter's motion for offer of compromise interest, ECF No. 466, but reserve the calculation of such interest until judgment is entered.

I DENY without prejudice McCarter's motion for punitive damages, ECF No. 465, because I will certify to the Connecticut Supreme Court the question of whether punitive damages are available for willful and malicious breach of contract. Under Connecticut law, a certification order must include: "(1) The question of law to be answered; (2) The facts relevant to the question, showing fully the nature of the controversy out of which the question arose; (3) That the receiving court may reformulate the question; and (4) The names and addresses of counsel of record and unrepresented parties." Conn. Gen. Stat. § 51-199b(f). "If the parties cannot agree upon a statement of facts, then the certifying court shall determine the relevant facts and shall state them as part of its certification order." Id. § 51-199b(g). The parties shall stipulate to a statement of facts within 14 days of this order, i.e., on or by February 22, 2024. If the parties are unable to agree as to all or some facts, they should file a notice indicating that they cannot agree on or by February 22, 2024. If that occurs, I will use the facts set out in this opinion in my final certification order. I DENY Jarrow's motion for a new trial or remittitur, ECF No. 468, and Jarrow's motion for judgment as a matter of law, ECF No. 470, except I deny without prejudice the portion challenging the availability of punitive damages.

IT IS SO ORDERED.

EXHIBIT A

Substituted Complaint Triangle Sheet Metal Works v. Silver, 154 Conn. 116 (1965)

State of Connecticut

Supreme Court of Errors

HARTFORD COUNTY

OCTOBER TERM, 1965

5865

TRIANGLE SHEET METAL WORKS, INC. ET AL

vs.

JACOB M. SILVER ET AL

DEFENDANTS' APPEAL FROM SUPERIOR COURT

HON. JOSEPH W. BOGDANSKI, JUDGE

For Plaintiffs: For Defendants: RIBICOFF & KOTKIN SOROKIN, SOROKIN & HURWITZ LEVINE & KATZ DAY, BERRY & HOWARD

MR. RIBICOFF: With the sole additional fact, Your Honor, that neither party is waiving any

THE COURT: Oh, yes. It is understood that the continuation of this hearing shall not be construed as a waiver of any of the rights of the parties against the other by virtue of what has already taken place or which may take place in the future.

MR. RIBICOFF: May take place in the future based on what is permitted factually, not legally under this understanding.

THE COURT: Then this matter is continued until April 14th, and I urge on counsel that every effort be made to close the pleadings as promptly as possible so that you may have one trial and a determination of all the issues between the parties.

* * * * * *

In accordance with the order of the court made during trial Plaintiffs hereby substitute the following for their complaint, as amended:

SUBSTITUTED COMPLAINT

FIRST COUNT

1. Plaintiffs, Triangle Sheet Metal Works, Inc. and Modulaire Components Corporation, are corporations organized under the laws of the State of New York.

2. Plaintiff, Triangle Sheet Metal Works, Inc., hereinafter referred to as Triangle, has been since 1917 engaged in the fabrication and installation of ducts for warm air, heating, ventilating and air-conditioning systems and in other aspects of the sheet metal working

business and, since some time prior to June 1960, has been engaged in the business of manufacturing and installing under window or perimeter enclosure structures for heating and air-conditioning systems.

3. On June 13, 1960, Triangle entered into an agreement with defendant, Leonard R. Phillips, hereinafter referred to as Phillips, whereby Phillips was employed as a heating, air-conditioning and ventilating engineer to be in charge of Triangle's Special Projects Division.

4. Phillips was employed by plaintiffs from June 13, 1960, until about June 19, 1963. In the course of his employment, Phillips invented or devised ideas for, and worked on the development of, certain improvements, advances and extensions on the type of under window or perimeter enclosures then generally in use. Said improvements, advances and extensions were unique, unknown to Plaintiffs' competitors and not used by other manufacturers or sellers of enclosure structures.

5. Said improvements, advances and extensions and the methods of designing, developing, manufacturing, installing, exploiting and marketing said improvements, advances and extensions are, under the terms of the agreements with Phillips, the property of Triangle and constitute carefully guarded secrets and confidential material of the Plaintiffs.

6. Said improvements, advances and extensions resulted in, and are based upon, an enclosure structure system manufactured and installed through the use of standard, interlocking, repetitive parts which provide a flexible enclosure structure, readily and simply installed, assembled and disassembled.

7. Triangle spent substantial time and money in the development and promotion of said enclosure system. 8. During the course of his employment Phillips had access to, was aware of, and familiar with all of Plaintiffs' carefully guarded business secrets, including their secrets of design, development, manufacture, production, costing, promotion, selling and installation of said enclosures and their parts.

9. On or about February 17, 1962, Modulaire Components Corporation, hereinafter referred to as Modulaire, was organized by Triangle to handle the sales and installation of the enclosure system and parts manufactured by Triangle.

10. Defendant Phillips was designated and served as vice-president of Modulaire from February 28, 1962, to June 18, 1963.

11. Phillips, on or about June 19, 1963, resigned his employment with Plaintiffs.

12. Phillips, upon leaving his employment with Plaintiffs, entered into an agreement with Plaintiffs, dated June 19, 1963, whereby he acknowledged and agreed that the improvements, advances and extensions on the enclosure structure and designs on which he had been working were the property of Triangle and agreed that he would not disclose any trade secrets of Plaintiffs but would hold the same confidential and secret.

13. Phillips, together with defendants, Jacob M. Silver, Emanuel M. Silver and Phillip Klein, on or about August 7, 1963, caused defendant Phillips Air Devices, Inc., hereinafter referred to as Air Devices, to be incorporated. Said Air Devices proposes to manufacture and market enclosure structures in competition with Plaintiffs.

14. Phillips has disclosed to defendants Air Devices, Emanual Silver, Jacob Silver and Phillip M. Klein

secret and confidential information respecting Plaintiffs' businesses in violation of his said agreement with Plaintiffs and in violation of his confidential and fiduciary relationship to Plaintiffs.

15. Said Defendants, Phillips, Jacob M. Silver, Emanuel M. Silver and Phillip Klein and Air Devices have appropriated to themselves said trade secrets and confidential information belonging to Plaintiffs, and, acting through Air Devices, propose to manufacture and market a modular enclosure structure using improvements, extensions and advances in enclosures belonging to Plaintiffs and trade secrets and confidential material of Plaintiffs related thereto.

16. Unless Phillips is restrained from making further disclosure of secret and confidential matters pertaining to Plaintiffs' products and business, and unless Defendants are restrained from using said information and appropriating to themselves Plaintiffs' devices and secret and confidential material for their benefit, Plaintiffs will be irreparably damaged.

17. Plaintiffs have no adequate remedy at law.

SECOND COUNT

18. Plaintiffs reiterate each and every allegation contained in paragraphs 1 through 17 inclusive.

19. Upon information and belief, Phillips conspired with Jacob M. Silver, Emanuel M. Silver and Phillip Klein, all of whom had full knowledge of Phillips' association and agreements with Plaintiffs, unlawfully to appropriate to themselves said improvements, advances and extensions on the enclosure, Plaintiffs' experience, their market, and their employees, sales representatives and sub-contractors, and to use the trade secrets and

confidential information of Plaintiffs obtained by Phillips, all of which said Defendants knew Phillips could not lawfully disclose to them.

THIRD COUNT

20. Plaintiffs reiterate each and every allegation contained in paragraphs 1 through 19 inclusive.

21. Defendant, R. L. Byus, hereinafter referred to as Byus, was employed as a salesman by Triangle from February 7, 1962 to December 5, 1962, and by Modulaire as a salesman in Texas from December 5, 1962 to March 13, 1963. On or about March 20, 1963, Modulaire employed Defendant R. L. Byus as its sales manager, bringing said Byus to New York from Texas and paying his expenses of moving.

22. The other Defendants at all times had notice and knowledge that Defendant Byus was employed by Plaintiffs as sales manager and had bid jobs for Modulaire.

23. Prior to and during October 1963, the other Defendants induced said Defendant Byus to leave the employ of Plaintiffs and enter the employ of Defendant Air Devices.

24. While said Byus was employed by Plaintiffs, he acquired confidential knowledge and information relating to Plaintiffs' manufacturing, costing and pricing and bid several jobs for Plaintiffs.

25. Said Byus, acting in concert with the other named Defendants, and acting through Air Devices and making use of confidential information, including Plaintiffs' bid fitures, which had been obtained by said Byus and/or said Phillips, while they were employed by Plaintiffs, have bid on jobs on which Plaintiffs had, or were preparing to, bid to the knowledge of said Defendants. 26. Plaintiffs have demanded that Defendants withdraw Air Devices' bids on those jobs bid and/or worked on by Byus or Phillips for Modulaire, but Defendants have refused to do so.

27. As a result of Defendants' refusal, Plaintiffs have been damaged.

FOURTH COUNT

28. Plaintiffs reiterate each and every allegation contained in paragraphs 1 through 27 of this complaint.

29. In soliciting business for the furnishing and installation of enclosures in competition with Plaintiffs, the Defendants have wilfully and fraudulently misrepresented to actual and potential customers and to Plaintiffs' sales representatives the product proposed to be manufactured by Defendant Air Devices, the nature and history of Defendant Air Devices and the ability with which, and circumstances under which, it was, and is, doing business.

30. Said fraudulent misrepresentations were improper attempts to interfere with the contracts and business expectancies of Plaintiffs.

31. As a result of said improper actions of Defendants, the Plaintiffs have been damaged.

32. If said actions of Defendant are continued, Plaintiffs will suffer irreparable injury for which they have no remedy at law.

PLAINTIFFS CLAIM:

1. A Temporary and permanent injunction restraining Phillips from using and/or disclosing any trade secrets or confidential material of Plaintiffs. 2. A temporary and permanent injunction enjoining and restraining Defendants, and each of them, their agents, servants and employees from manufacturing, selling or in any way dealing with enclosures embodying any of the features which constitute the modifications and extensions and advances 'belonging to Plaintiffs.

3. A temporary and permanent injunction restraining Defendants from using or disclosing in any manner, directly or indirectly, any secret and confidential information of Plaintiffs relating to the design, development, manufacture, improvement, advance or extensions of methods, processes, designs, plans, formulations, items, products, tools, devices, equipment or to costing, selling and installation.

4. A temporary and permanent injunction requiring Defendants to return to Plaintiffs all drawings, documents and other materials taken by any of Defendants from Plaintiffs, and any and all copies thereof.

5. A temporary and permanent injunction requiring Defendants to deliver to Plaintiffs all drawings, documents and other materials based on any aspect of the improvements, extensions and advances to the Plaintiffs' said enclosure structure worked on by Phillips during his employment by Plaintiffs.

6. $500,000 damages.

7. Reasonable attorneys' fees.

8. Such other and further relief as the Court may deem just and equitable.

Plaintiffs, By RIBICOFF AND KOTKIN, Their Attorneys. Filed May 11, 1964.

EXHIBIT B

Brief of the Defendant-Appellant

Triangle Sheet Metal Works v. Silver, 154 Conn. 116 (1965)

STATE OF CONNECTICUT

Supreme Court

HARTFORD COUNTY

SUPERIOR COURT

OCTOBER TERM, 1965

(5865)

TRIANGLE SHEET METAL WORKS, INC. et al.

vs.

JACOB M. SILVER et al.

BRIEF OF DEFENDANT-APPELLANT

To be argued by: MILTON SOROKIN

ISSUES

Can there be a trade secret in a structural feature apparent on inspection in a product marketed nationally, installed in public buildings and described in detail in trade literature?

Can a statement of opinion as to one's own product, personnel and operations constitute a willful misrepresentation against a competitor sufficient to support an award of exemplary damages?

Does competition by a former employee, after termination of employment, to supply materials per plans and specifications of independent architects on jobs open for competitive solicitation constitute willful acts of unfair competition sufficient to support an award of exemplary damages?

In a case for injunctive relief and compensatory damages, can an award of exemplary damages be sustained when compensatory damages were denied and when no wanton or malicious conduct and no intent to injure the plaintiffs were established? FACTS

Defendant Leonard R. Phillips was hired in 1960 by plaintiff Triangle Sheet Metal Works. F. 10, R. 65, F. 35, R. 68. At that time Phillips, a 60 year old graduate engineer, had wide and versatile experience in the sheet metal field and had spent the bulk of his professional life in sheet metal work connected with heating and air conditioning. F. 1, R. 64. His specialty was the technical know-how and experience necessary to design new products suitable for modern production techniques and the standardization of parts; his skills included estimating costs of new products before production, establishing prices and making surveys to determine the economic and sales feasibility of a design as well as the design, development and production of many new items including under-window enclosures. F. 7, 8, 9, R. 65.

As early as 1943, Phillips had been listed on the President's Roster of Technical Men. F. 3, R. 64. Indeed, it was through this listing that Phillips obtained employment with the Anemostat Corporation of America. After two years with them, he was appointed their Director of Research and Development, a position he held for fourteen years. F. 2, R. 64. Upon leaving Anemostat, Phillips went with the plaintiff. Prior to his employment by the plaintiffs, Phillips had obtained forty patents, all of which were held by his former employers. F. 4, R. 64-65. Having held for some years a position in which he was in charge of a large and elaborate laboratory (F. 5, R. 65), Phillips was not interested in a job solely because of its remuneration or position. F. 16, R. 66. Indeed, Triangle had no research or laboratory facilities at that time. F. 17, R. 66. Rather, Phillips was interested in obtaining a position which would enable him to enjoy the exploitation of the items he would develop. F. 15, 16, R. 66; F. 37, R. 68. At that time Triangle was looking for just such an expert as Phillips — someone to work on standardization of parts, utilization of modern production techniques, the development of new products and sales. F. 10, R. 65; F. 33, R. 68. Triangle knew that Phillips was already working in this vein. F. 33, R. 68. In the summer of 1960, Phillips accepted an eighteen-month employment contract with Triangle, based upon the express representation of Triangle's officers contained in a letter drafted by Triangle's attorney that he would have an equity position which would enable him to enjoy the benefits of the items he developed. F. 13, 14, 16, R. 66; F. 37, R. 68.

Phillips was employed to head Triangle's Special Projects Division, to design and develop products using Phillips' acknowledged skills — products suitable for manufacturing by production rather than custom methods, and products having a national market. F. 38-40, R. 68-9. Late in 1960, or early in 1961, it was decided to develop an enclosure under the Special Products Division. F. 45, R. 69. Phillips designed a new enclosure for the plaintiff in the spring of 1961. F. 59, R. 71; F. 91, R. 75.

While Triangle manufactured enclosure structures prior to 1960 (F. 29, R. 67), it had faced problems and failures on these jobs even as late as December 1960. F. 26, R. 67. However, Triangle was awarded the Pan American Building contract for Triangle's Phillips-designed enclosure in the early spring of 1961. F. 69, R. 73. The contract was undertaken more than a year before the tooling, costs, packaging and installation methods were determined (F. 76, R. 74), and some months before price lists were finalized (F. 85, R. 75). Machinery for the plaintiffs' enclosure was not even delivered until nearly a year later (F. 78, R. 74). Plaintiffs' new enclosures were installed on the Pan-American and Bankers Trust Company Buildings in New York City, among others. F. 70, R. 73. Phillips made application for a patent in October 1961 and assigned the patent to Triangle. F. 90-91, R. 75. In February 1962, Modulaire, also a plaintiff, was organized as the sales company, but Triangle withheld from Modulaire the sales territory of New York City. F. 87, R. 75.

Phillips resigned his employment by letter dated June 18, 1963. F. 96, R. 76. Phillips had never received any equity interest in either of the plaintiffs' corporations which own the patent application nor any remuneration other than his salary. Thereafter, on August 7, 1963, Phillips Air Devices, Inc., a Connecticut corporation, was organized as a manufacturing company. F. 103, R. 76. Air Devices made its first bid on enclosures on September 17, 1963. F. 157 f, R. 82. On October 14, 1963, Renzel L. Byus, also a graduate engineer, was hired as the second executive employee. F. 140, R. 80. Byus had worked for the plaintiffs for a total of one year and nine months, first as a salesman and subsequently as Sales Manager. F. 135-7, R. 79-80. There is no finding that either Phillips or Byus received any increment in salary from Air Devices. Byus had no employment contract with plaintiffs and was not subject to any restrictive covenants.

Trade Secrets

Enclosures are rectangular metal structures installed along the interior perimeter of a building to conceal and cover heating and air conditioning pipes and units running along that perimeter. F. 30, R. 67. They consist of a rear stool, a piece of metal on the top that runs along the wall at the rear of the enclosure; and a front stool, a piece of metal on the top at the front of the enclosure, running parallel to the wall. The stools are generally separated by a grille through which the warm or cool air passes into the

room. A front panel covers the front side of the enclosure. A stiffener is a piece of metal used for support.¹

The court found that Triangle had no trade secrets in its 1960 enclosures (F. 24, R. 67), which featured a separate front stool and a separate rear stool fastened by welding (F. 19, R. 66), a stiffener bolted into place in pre-punched holes (F. 20, R. 66), a vertical adjustment at the base by means of a slotted hole (F. 23, R. 67), all made by conventional brake and shear fabrication. F. 22, R. 67. The court found that the plaintiffs had trade secrets not in a specific enclosure but in the idea of a system of "interchangeable" parts based upon "common tooling" for "many" areas. F. 63, R. 71. No particular "interchangeability" or "tooling" or "areas" were specified or found. Ibid. The court also found as trade secrets the ideas of field assembly, elimination of transporting large pieces, adjustments to irregularities in construction; use of the "theory" of the enclosure system to design and produce variations — all without any particular description. Ibid. parts c-d, f. The court did not grant any relief in the judgment as to these "secrets." R. 45-6; F. 269, R. 99. In addition to the idea secrets, the court found five "special features" as trade secrets: front and rear stools, both of which are separate and removable; vertical adjustment at the base of the structure with a bolt and wing nut or similarly adjustable fastening; a grille clamp; movable, removable, or adjustable stiffeners; a leveling adjustment at the top front of the structure. F. 63 e, R. 72. As to these "special features", the court granted injunctive relief to the plaintiffs but with the further limitation that a part is not separate, movable or removable if it is welded or riveted in place. F. 269, R. 100; R. 46. However, the

defendants were not permitted to use pop or blind rivets under the injunction even though the plaintiffs did not use such methods.

The court further concluded that the plaintiffs had unnamed and unidentified secrets in manufacturing, costing, selling, pricing, bidding practices (F. 92, R. 75), production, methods of packaging, shipping to the jobs, distribution of materials, installation and "know-how." F. 198, R. 91. There were no subordinate findings of fact to support these findings.

Although the court found that plaintiffs' "secrets" in general principles and special features were not known to or used by others in the trade (F. 64, R. 73), plaintiffs' chief executive, Seymour Zwerling, testified that as soon as plaintiffs started installing enclosures on the Pan-American building, their competitor, Brandt, was on the job copying details of plaintiffs' enclosure. D.F. 150, R. 51; App. A, para. 2, p. 1a. Brandt's enclosure thereafter featured a separate and removable rear stool and a separate and removable front stool and panel. D.F. 154, R. 52; App. C, para. 2, p. 5a; App. D, p. 6a. Brandt had copied plaintiffs' "secret" self-assembly, quick-fit design and was installing it for almost two years before the trial. D.F. 151, R. 51; D.F. 155, R. 52; App. A, para. 2, p. la; App. C, para. 4, p. 5a.

In addition, plaintiffs' "secrets" were depicted in detail on data sheets and brochures which the plaintiffs prepared and distributed to the trade. D.F. 178-181D, R. 53; App. A, para. 4, p. la. In 1962 alone plaintiffs distributed 815 sets of the data sheets. D.F. 178, R. 53; App. A, para. 5, p. 2a. Sales kits in the form of exact replicas of plaintiffs' enclosures were made up for loan and demonstration to third parties. App. A, para. 6, p. 2a. Even independent architects incorporated features of plaintiffs in plans and specifications which were made available to competitors and the trade. D.F. 171, R. 52; App. A, para. 7, p. 3a; App. B, para. 2, p 4a.

Misrepresentation.

Based only upon five letters¹ and with no evidence whatever as to the effect upon or opinions of the recipients of the letters, the court determined that the defendants, in describing the personal background of Phillips, their own product, their own personnel and making representations that their products would be union-made, (F. 157, R. 82), had willfully and intentionally interfered with plaintiffs' business expectancies. F. 170, R. 88; F. 258, R. 98. The court also found that the letters constitute both a passing off and a disparagement. F. 256-7, R. 98.

Competitive Solicitation.

The court further decided that defendants' competition with plaintiffs on construction jobs open for competitive solicitation to supply enclosures according to the plans and specifications of independent architects were willful acts of unfair competition. F. 259-260, R. 98. The basis for this determination was the fact that Phillips and Byus had "worked on" (F.169 a, R. 88) ten jobs (F. 159, R. 83) for plaintiffs. This work consisted of examining the plans of independent architects on these jobs, estimating costs for plaintiffs on these jobs and submitting quotations for plaintiffs on these jobs. There was not one finding among the numerous ones relating to the ten jobs (F. 159-169, R. 83-88), to indicate that the defendants competed, with knowledge of plaintiffs' price, on any job on which the plaintiffs had not already disclosed their price to third parties. Nor was there any finding that indicated defendants' prices were the same or related to plaintiffs' prices. EXEMPLARY DAMAGES.

The original complaint did not include a claim for exemplary damages. R. 2. After the trial was started and well underway, the judge requested that the plaintiffs file a substituted complaint for the purpose of narrowing the issues. It was agreed that no new issues were to be included in the substituted complaint. F. 274, R. 101. Thereafter, the plaintiffs filed a substituted complaint including a prayer for reasonable attorney's fees with a supporting allegation of willful and fraudulent misconduct. Fourth Count, R. 19. The defendants objected and moved to expunge the request on the ground that the matter was new. The plaintiffs claimed the request for exemplary damages came within the purview of a request for general equitable relief. F. 274, R. 101. The court accepted the new complaint over the defendants' objections and, subsequently, awarded $12,500 attorney's fees as exemplary damages on Counts Three and Four for the alleged misrepresentations and unfair competition.¹ F. 263, R. 98. However, the third count did not contain an allegation of willful or fraudulent misconduct.

PROHIBITION OF STATE STREET BANK JOB

At the conclusion of the trial on June 4, 1964, the court issued a temporary injunction prohibiting the defendants from manufacturing an enclosure with five enumerated features. R. 27-29. The restraint as to the enumerated features was the only one to which the defendants were subject. On July 15, 1964, Air Devices entered into a contract for the State Street Bank job. D.F. 367, R. 60-61, A.E. 10, R. 128. On August 29, 1964, the court issued a permanent

injunction which restrained Air Devices from performing the State Street Bank job and others. Judgment, Pt. II, R. 46.

The court concluded that the plaintiffs had "failed to establish their right to money damages" (Mem. Decis., R. 43, para. 2) but had nevertheless been "severely" damaged. F. 265, R. 99; F. 232, R. 95. There was no subordinate finding of fact which supported the damage conclusion and the court refused to award compensatory damages. F. 265, R. 99.

On the Second Count, involving a conspiracy among the defendants to appropriate trade secrets, the lower court ruled for the defendants. F. 266, R. 99.

The court issued a permanent injunction for one year which prohibited the defendants from manufacturing or selling an enclosure with any one of the five features enumerated therein and further prohibited the performance of any job "worked on" by Phillips or Byus while in the plaintiffs' employ. The defendants have appealed, seeking a reversal of the decision on counts One, Three and Four, reversal of the exemplary damages award and a vacating of the injunction. ARGUMENT

II. THE COURT ERRED IN FINDING A TRADE SECRET IN A STRUCTURAL FEATURE APPARENT ON INSPECTION IN A PRODUCT MARKETED NATIONALLY AND DESCRIBED IN DETAIL IN TRADE LITERATURE.

The instant case presents the question, for the first time in Connecticut, of whether or not the features of a finished product apparent on inspection may be the subject of a trade secret. To establish a protectible trade secret the plaintiff must prove that (a) the claimed secret is in fact secret, (b) the defendant is copying plaintiff's secret and (c) the defendant is making use of information acquired in the plaintiff's employ. Rabinowitz v. Dasher, 82 N.Y.S. 2d 431, 435-6 (1948), Allen Manufacturing Co. v. Loika, 145 Conn. 509 (1958). If the alleged secret is known in the industry it is not a secret. Rest. Torts § 757 b, p. 5-6. If the alleged secret is completely disclosed by the marketed goods themselves, it is not secret. Ibid. Indeed, the defendants have not been able to find any cases in which features apparent in the finished product, as marketed, have been determined a trade secret. Courts have granted protection to processes, formulae and intricacies of production machinery, but not to the design or structure of the finished product. Allen Manufacturing Co. v. Loika, supra (warm heading process); Minnesota Mining and Manufacturing v. Technical Tape Corp., 192 N.Y.S. 2d 102, 110 (1959) (formula); Rabinowitz v. Dasher, supra (special machinery).

A. Plaintiffs' Enclosure Is Not Secret

The plaintiffs' alleged secret is in the design of the special features of their enclosure. F. 63e, R. 72. These features are included in each and every finished product.

The exploitation of the alleged secret necessitated the sale and installation of plaintiffs' finished product. Indeed, the plaintiffs' product was installed in at least two large and well-known commercial buildings which were open to public and competitive inspection. F. 70, R. 73. While the court made findings to show the plaintiffs took reasonable steps to insure secrecy in their factory (F. 202, 203, R. 91-2; F. 241, R. 96) of production, installation and marketing, the trade secret which the court found and protected (F. 269, R. 99) was in the special features of the marketed product. Secrecy in the factory is wholly irrelevant to the issue when the protection sought is for the features which appear in every enclosure on every floor along the entire perimeter of the Pan American Building, the largest office building in the world.

The soundness of this proposition — that there are no secrets in the marketed goods — is apparent from the experience of the plaintiffs. No sooner had they started installing their product on the Pan American job than their main competitor, Brandt, was on that job examining its features and copying details. D.F. 150, R. 51. App. A, para. 2, p. la. Nor should the plaintiffs have been surprised or outraged by Brandt's conduct. The plaintiffs themselves, when faced with problems and failures in. their own enclosure (F. 26, R. 67) had conducted similar inspections of competitive products. F. 50, R. 70. Nor could, nor should the courts protect enclosure manufacturers against such examinations in the market place. The young lawyer who before drafting his first will goes to the probate court to examine wills drawn by his more experienced colleagues is not to be censured for seeking the ideas of others who have worked long and hard to achieve their skill, but commended for his industry. So too the manufacturer who keeps his product abreast of the latest developments freely available in the open market without infringing on the patent rights of others is rewarded by

our society. Sears Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964).

After examining plaintiffs' enclosure on the Pan American job, Brandt produced a new enclosure with separate and removable parts which fit together without any conventional fastening. D.F. 154, R. 52. App. A, para. 2, p. 1a; App. C, para. 2, p. 5a. Brandt took its ideas from plaintiffs "secret" two years before the trial, copying details of plaintiffs' "secret system." D.F. 151, R. 51; App. A, para. 2, p. la: App. C, para. 2, 4, p. 5a. Although Brandt obtained plaintiffs' secrets free, it did not choose to make a mirror-image copy. Rather, it carried plaintiffs' secret system of standardization of parts and easy installation one step further by combining the front stool and the front panel into one piece that was held in place in the enclosure by the force of gravity alone. App. C, para. 2, p. 5a.

Not only were the alleged trade secrets contained in the marketed goods of the plaintiffs, but their special features were also disclosed in brochures and data sheets, (D.F. 178-181D, R. 53; App. A, para. 4, p. la), in exact replica sales kits made up for loan and demonstration to third parties (App. A, para. 6, p. 2a) and the plans, specifications and drawings of independent architects distributed to the trade. D.F. 171, R. 52; App. A, para. 7, p. 3a; App. B., para. 2, p. 4a. The plaintiffs distributed more than 1600 copies of their data sheets in the two years before Phillips left their employ. App. A, para. 5, p. 2a.

Even the finding that the defendants were prepared to incorporate in their enclosures any feature of design specified by an architect merely substantiates the fact that there are no secrets in the field of enclosures. F. 118, R. 78. The nature of the business is such that architects design the enclosures in their plans, drawings and specifications. These documents are circulated to the trade in

order to enable suppliers to give competitive prices on the job. Obviously, in such designs, there are no trade secrets. Modulaire was specified on jobs (F. 119, R. 78), the Modulaire enclosure was shown on architects' plans for jobs (F. 120, R. 78), Modulaire's features were incorporated in the specifications on jobs (F. 121, R. 78), and Modulaire's special features were incorporated in the architects' plans for the jobs. F. 122, R. 78.

The thrust of those findings (118-122) was intended, of course, not to show that the items were published, but to indict the defendants for bidding on them. However, their real meaning and significance is in support of the defendants' position. Certainly, the plans and specifications distributed to the trade and drawn up by independent architects for owners of a variety of different construction jobs open to competitive solicitation are not in the control or subject to any restrictions of confidentiality of the plaintiffs. Plaintiffs' special features were published to the trade and available to all.

The plaintiffs have no secrets in their enclosure.

B. Defendants Did Not Copy Plaintiffs Enclosure

Nor do the plaintiffs stand on any firmer ground in connection with the requirement that they show the defendants were copying their "secret." In this respect the finding is deficient on a number of serious points. There is no finding which factually describes the plaintiffs' product or the defendants'. This weakness makes the handling of the appeal unnecessarily complicated, but more important leaves the conclusion that the defendants mockups (samples or models) constituted a use of plaintiffs' trade secrets (F. 249, R. 97) wholly unsupported by any subordinate findings of fact which show what this conclusion is based upon. See, Town & Country House & Homes Service, Inc. v. Evans, 150 Conn. 314, 321 (1963). Furthermore, the subordinate findings that were made directly contradict the conclusion. Thus the court found that at the time of the trial the defendants had no specific enclosure (F. 117, R. 78) and had not produced any enclosures. F. 114, R. 78. From such facts no conclusion of copying can be drawn.

The court also found that defendants were prepared to build any type of enclosure containing any type of feature or design that was specified by an architect. F. 116, R. 78. As a matter of law such features or designs are not trade secrets of the plaintiffs. If the feature is contained in an architect's specification it obviously is not secret. If defendants produce such a feature they are not copying plaintiffs' trade secret, but the architect's specification. Apparently this finding was designed to show that Phillips would produce a feature specified by an architect even if it was one of the five special features found by the court as plaintiffs' trade secret. Even apart from the fact that there was no secrecy in these marketed features, Phillips testified that he would not produce plaintiffs' enclosure because of his connections with them. App. B., para. 1, p. 4a.

Nor do the findings directed to the difficulty facing a competitor who tried to copy the plaintiffs' measurements aid the plaintiffs in their burden to show that the defendants copied their secrets. The court found it would take half a day and a variety of tools simply to measure their enclosure and its parts. F. 206-8, R. 92-3. However, the court did not find that the defendants were even copying these measurements. Nor did it find that these precious and would-be well-hidden measurments and toolings were trade secrets. F. 63, R. 71-2; F. 269, R. 99.

Also, the conclusion (F. 112, R. 77) that the thirty-four drawings made by Phillips for Air Devices enclosure program show "features propriety to Modulaire" is unsupported by any subordinate findings or by the drawings

themselves. App. K, p. 16a. The court accorded protection to five special features. F. 269, R. 99. It would have been an easy matter to include in the findings items which showed that those five features were contained in the drawings. It did not. Rather it stated that the drawings showed a "slightly modified enclosure" — that is, not the five features. F. 111, R. 77. To overcome this difficulty the court found the modified enclosure objectionable not because it contained the special features but because it was "based on" the principles of "separate parts produced by standardized methods, easy to adjust to job conditions and to assemble and disassemble at the job." F. 111, R. 77. The finding attempts to monopolize these basic engineering principles — standardized production, ease of adjustment, and ease of assembly — for Modulaire, but, of course, such a view is wholly without basis in law or logic. In the first place these goals and principles cannot belong to anyone — plaintiffs, defendants or even engineering professors. They are the chief asset of the American economy. Conceivably the plaintiffs might have a particular method of producing standardization in their plant — perhaps they have invented some special machinery or some special process — but they did not present it to the court. The position of the finding that the drawings were based upon a system of standardized production methods (query how drawings of features show a system of standardized production methods) and therefore contained features propriety to plaintiffs is absurd. Most important, such a view deprives Phillips of his arduously acquired and highly sophisticated skills. Phillips, with forty patents behind him and a life time in the sheet metal industry, was an expert in these very matters — standardization of parts, mass production and designing new products. F. 7, R. 65. Phillips was hired by the plaintiffs for the very reason that he had these skills. (F. 10, R. 65) and the plaintiffs cannot obtain a proprietary interest in any "system"

which has nothing more to it than these generalized goals and skills.

There are no subordinate findings which support the court's conclusion (F. 249-251, R. 97) that defendants copied, used, disclosed, or appropriated plaintiffs' trade secrets.

C. No Use Of Secret Information Acquired in Plaintiffs Employ

The plaintiff's position is similarly deficient in the effort to establish the trade secret requirement that the defendants are making use of information acquired in the plaintiffs employ. The court found that the plaintiffs have "other secrets" in manufacturing, production, packaging, shipping to the jobs, distribution of material, costing, pricing, installation, selling and know-how. F. 92, R. 75; F. 198, R. 91. Not only is this sweeping statement wholly unsupported by any subordinate finding as to what were the plaintiffs' secrets in these items, but there is no finding as to what the defendants' methods were on these items. Furthermore, there is no finding that the defendants unstated methods copied the plaintiffs undescribed items.

Nor is the substance of these items susceptible of being a trade secret. These are methods which every business in America must use. The methods may vary and certainly there may be a particular secret in a particular way of manufacturing or producing as was found in the Allen Manufacturing case, supra — in the particular method of combining the coolants, lubricants, temperatures and wiring. But there can be no trade secret in the bare fact that plaintiffs manufacture. Shipping may be by public carrier or private conveyance — hardly, without more findings, a trade secret. Packaging may be in containers or wrappings or both — not a trade secret without more. Most important, however, these skills were held by Phillips before he ever met the plaintiffs. The court found that he was an acknowledged expert in these matters before he was hired. F. 7-10, R. 65. Phillips brought these skills to plaintiffs and is entitled to take them when he leaves. He is not in the position of the academically trained young man who gains experience with one company and markets that experience at a higher level with another. B. F. Goodrich Co. v. Wohlgemuth, 192 N.E. 2d 99 (1963). Nor is he in the position of the factory worker who after many years has acquired a degree of professional skill under the aegis of his employer. Allen Manufacturing Co. v. Loika, supra .

There is no basis for a conclusion that the defendants were using any trade secrets acquired while in the plaintiffs' employ.

D. Conflict Between The Judgment And The Finding

The most striking feature of this case is the large gap between the finding of fact relating to trade secrets (F. 63, R. 71) and the judgment of the court to protect trade secrets by injunction. Judg. Pt. I, R. 45-6. The injunction prohibits the defendants from using for one year any of five enumerated items: front and rear stools, both of which are separate and removable; adjustments at the base or by a combination of slots, bolt and wing nut or similarly adjustable fastening in lieu of bolt and wing nut; a grille clamp; movable or removable stiffeners; any adjustable feature at the top front. Ibid. As a limitation on these five items the injunction provides that an enclosure part is not separate, movable or removable after it has been welded or riveted into the structure provided however that riveting does not include pop or blind rivets. R. 46. The finding of fact (F. 63, R. 71-2) of the plaintiffs

trade secret did not contain this riveting limitation. Furthermore, the conclusion in the finding, para. 269 (R. 99-100) setting forth the relief afforded contained the added limitation of requiring riveting to be done "at the shop and before shipping." R. 100. The significance of the gap between the Finding and the Judgment lies not in the difference, for it has already been demonstrated that the plaintiffs had no protectible trade secret, but rather in illuminating the misconception on which the determination of a protectible trade secret rests.

For example, front and rear stools, both of which are separate and removable were found a trade secret feature; but plaintiffs' 1960 enclosure which the court found contained no trade secrets (F. 24, R. 67) also had separate front and rear stools. F. 19, R. 66. It would seem, therefore, that the trade secret, if any, must lie in the removability. The finding of fact accords protection not to any particular method, formulae or process for making a stool removable, but to the idea of removability. While trade secret cases have traditionally granted protection to specific processes or methods kept within the factory, they have not accorded protection to general ideas or principles. Thus the Allen Manufacturing case, supra, afforded no protection to ideas and information in the public domain — what this court called the "common ingredients" — for these were not secret. It did give protection to the "recipe" — the specific method of putting the common ingredients together.

As if in unspoken recognition of this doctrine, the judgment (R. 46) and the Conclusion (F. 269, R. 100) seeks to find such a recipe by stating that if the parts are welded or riveted (but not by pop or blind rivets) there is no trade secret. But this proviso has no bearing on the plaintiffs' recipe and it grants no protection to any

process or method of theirs. There is no finding that the plaintiffs' system included pop or blind rivets — for the simple reason that it did not.

The thrust of the injunction was that it prohibited the defendants from making any parts, no matter how achieved, that could be easily removed. Thus fastenings such as bolts, screws, pop rivets, pins, bolt and wing nuts — all are prohibited under the wording; but the plaintiffs did not use these.

Indeed an examination of plaintiffs' Exhibits KKK and LLL indicates that no rivets or fastenings whatever are used to assemble the enclosure. App. G, p. 9a. Rather the enclosure is held together with a group of self-contained fittings — grooves and projections — the distinctive feature of plaintiffs' enclosure for which no projection as a trade secret was sought (the defendants did not use it). The method of making those self-contained fittings might have been the plaintiffs' recipe, but what the court afforded protection to was not any recipe but the common ingredients — the idea of removability, no matter how achieved.

Furthermore, the finding's Conclusion (F. 269, R. 100), but not the Judgment (R. 46), decrees the place of fastening. If the riveting is done outside the shop — on the job site — plaintiffs "secret" is infringed; but if those very same rivets are applied in the shop — in the confines of the defendants' factory — plaintiffs' secret is not violated. This further limitation appears to have been directed at the prohibition of field assembly, banning not any particular method used by the plaintiffs, but banning the idea or principle of field assembly itself. F. 63c, R. 72. If manufacturers can obtain trade secrets in such basic ideas — really goals of convenience — the toy, furniture and do-it-yourself industries, among others, will be crippled. E. No Secrets In Engineering Ideas.

Nor if one is to overlook the judgment and test the case solely on the basis of the finding of fact are the plaintiffs on any safer ground. The alleged trade secret is a series of any interchangeable parts. F. 63, R. 71. At no point in the finding is there any attempt to describe any special method, formula, or device by which the goal of interchangeability of parts is achieved. Nor is the series of parts defined — numerically, functionally or in any other way unique to the plaintiffs. To suggest that the plaintiffs have a trade secret in the idea that greater efficiency or economy is achieved by making the parts of a manufactured product interchangeable offends not only the law of trade secrets but the entire basis of our economy.

The hallmark of American engineering and production, at least since the era of Henry Ford, has been to increase productivity and lower costs by adopting standardized parts which are interchangeable and can be mass produced. Like the wheel of a car which can be removed and placed upon any other car of the same model, or the light bulb which fits a dozen different lamps, the idea that a part of an enclosure should fit another enclosure is not an item of trade belonging to the plaintiffs. An inventor, such as Phillips must be free to apply basic principles to any product. He might design a dozen different enclosures, or can openers or mouse traps, all of which accomplish the ultimate goal and all of which utilize the same techniques and principles but each of which is a different, particular design. Without reference to a particular method, formula or process of achieving the end product which distinguishes the plaintiffs methods from others, there can be no trade secret.

Nor does the addition of "based upon common tooling for many areas" add anything to the alleged trade secret in the idea of interchangeable parts. F. 63, R. 71. There

is no finding as to the nature of the tooling or what areas the tooling applies to or, for that matter, what makes it common. Certainly, the idea that economy is achieved by using the same machinery and the same dies or forms as often as is feasible is hardly proprietary, although the particular dies or forms may be. But no trade secrets as to dies or forms were found. Nor was there any showing that defendants' dies or forms were copied from the plaintiffs.

So, too, there can be no trade secret in the idea that when an enclosure is installed, some provision should be made to take into account the irregularities of construction that inevitably occur on a job site. F. 63 d, R. 72.

These findings as to "secrets" in basic engineering principles are the heart of the court's finding that the plaintiffs had protectible trade secrets. F. 63, R. 71; F. 242, R. 96.

Similarly, under the finding there is no trade secret in an enclosure in which only the front stool is separate and removable or in an enclosure in which only the rear stool is separate and removable. F. 63 e(1), R. 72. Thus the defendants were free to make (in any manner) and enclosure of two stools, one of which was separate and removable. It is obvious that the alleged trade secret lies not in the know-how or manufacturing process of a separate and removable stool, or even in the principle of such a stool, but rather in the idea that it might be convenient if either one of the two stools were removable, to make both removable.

In the last analysis, the conclusion that the plaintiffs had trade secrets and that the defendants used them must fall as a matter of law. Neither the ideas or abstract principles of the "system" nor the "special features" of the design were secret from the trade, copied by the defendants

or acquired by the defendants while in the plaintiffs' employ. The defendants respectfully request that the decision of the court as to trade secrets be reversed, that the injunction be vacated and the award of exemplary damages (Mem. Decis., R. 43, para. 3) be reversed.

II. PLAINTIFFS REPUDIATED THE CONFIDENTIAL RELATIONSHIP UPON WHICH THE EMPLOYMENT RELATIONSHIP WAS BASED AND THEREFORE HAVE NO CAUSE OF ACTION FOR TRADE SECRETS.

The lower court concluded that Phillips stood in a confidential relationship to Plaintiffs. F. 239, R. 96. In its finding of subordinate facts to support that conclusion the court determined that Phillips would not have entered the employ of the plaintiffs and would not have designed their new product but for the express promise of the executive officers of the plaintiffs. F. 16, R. 66; F. 37, R. 68. These promises therefore are the basis of the confidential relationship on which the plaintiffs rest their claim for trade secrets in the enclosure product. However, the court made no finding that these express promises were fulfilled — for the simple reason that they were not — and without such a finding the conclusion of a confidential relationship stands unsupported. The defendants raised these issues in their Substituted Answer, Eighth Special Defense (para. 2, 4, R. 25-6), in their claims of Law (para. 28, R. 126), and in their trial brief and trial claims of law. D.F. 378-9, R. 62. The burden was upon the plaintiffs to meet this issue. They did not.

What happened here, in essence, was that Phillips refused the usual employer-employee relationship. Prior to Phillips' signing of the employment agreement (F. 12, R. 66) and as a bargained-for inducement for his employment, the plaintiff Triangle's officers, members of the

Zwerling family, executed a written letter of intent drafted by their attorney (R. 13-15, R. 66) which bound them to permit Phillips to buy out of salary increases, if feasible, over a five-year period, twenty per cent of the stock in a corporation to be organized by them for the purpose of having the exclusive right to sell products developed by Phillips. F. 13-16, R. 66; F. 37, R. 68; App. H, p. 12a. The purpose of the requirement was to grant Phillips an equity interest in any products he developed. Phillips fully performed. He designed an enclosure which became an outstanding engineering and commercial success. He assigned the patent application to plaintiffs. F. 91, R. 75. The contemplated sales corporation, Modulaire, was in fact organized in February 1962. F. 87, R. 75. With this action the only two things which had been left open in the original understanding were established — the product and the price of the stock. The stage was set for the fulfillment of the very contractual representations which had induced Phillips to accept the employment and which Triangle's officers were in good faith required to meet. But the plaintiffs refused — they withheld from Modulaire all sales in the burgeoning construction market of New York City. F. 87, R. 75. This was a clear repudiation of the express term of the letter of intent — the "exclusive right" to sell the items developed by Phillips — and a repudiation of the contractual basis of employment. 4 Corbin, On Contracts (1951) § 954, 958. Having repudiated the basis of the employment relationship, the plaintiffs cannot now have its contractual feature as to trade secrets in the enclosure — whether express or implied — enforced. One who repudiates a contract cannot require the other party to perform. Humphrey v. Showalter, 283 S.W. 2d 91 (Tex. 1955).

Phillips, having no taste for litigation, did not care to pursue his remedies for damages in the courts. App. I. Nor is he obligated to do so. But the plaintiffs, to maintain

this trade secret action must set up the existence of the confidential relationship. The court found the basis of the employment, F. 16, R. 66, but did not find that it had been fulfilled. The conclusion that the confidential relationship existed falls in the absence of subordinate findings that the representations were fulfilled.

The letter of intent forms an essential part of the legal basis for the relationship of Phillips and the plaintiffs. While at the time it was drawn two terms were as yet unknown — the product and the price of the stock — it was nonetheless, a contract, executory in character. Phillips relied upon it and made a very substantial and irrevocable change of position based upon it. He literally gave to the plaintiffs the principal asset of their million dollar a year business. Plaintiffs Exh. 5-K.

The annals of the law of trade secrets are replete with cases where employees have not honored the faith of their employers. But we know of no case in any jurisdiction where an employer took from the employee a successful work product without compensating him as agreed and then sued him when he sought to use his acknowledged expertise in designing a different competing product for his own business. The confidential basis of the employment having been repudiated, the plaintiffs had no basis for a claim of protection of alleged trade secrets. Their unclean hands in connection with the subject matter for which they seek equitable relief precludes any right to such relief.

III. THE COURT ERRED IN AWARDING EXEMPLARY DAMAGES

The court erred in awarding attorney's fees because (a) the request for attorney's fees was improperly raised, (b) such an award was beyond the discretion of the court to grant in this case, and (c) such an award in this case is contrary to the established law of this state. A. Plaintiffs' Procedural Problems

After a number of days of trial, the court sought to narrow the issues by having the plaintiffs file a substituted complaint. F. 274, R. 101, A.E. 9, R. 128. It was agreed that no new issues would be raised in the new complaint. F. 274, R. 101. Nevertheless, the plaintiffs were able over the defendants' objections to claim as an additional prayer of relief an award of attorney's fees. Plaintiffs claimed that they were merely specifying what they meant in their original complaint by "such other and further relief as the court may deem just and equitable." F. 274, R. 101.

However, attorneys fees are a form of exemplary or punitive damage awarded to punish outrageous conduct. Rest. Torts, § 908, Maisenbacker v. Society Concordia, 71 Conn. 369, 378 (1899); Hull v. Douglass, 79 Conn. 266, 271 (1906). Such awards afford extraordinary, not incidental, relief and, therefore, cannot be encompassed by a catchall prayer for equitable relief. Indeed, a basic doctrine of equity is that it does not punish but seeks to grant only such relief as is just and fair. The plaintiffs and the lower court misconceived the breadth of the original request for general equitable relief as including exemplary damages. It does not. The substituted complaint in its request for attorney's fees raised a new issue and therefore the lower court erred in denying the defendants motion to expunge the request for attorney's fees.

B. Plaintiffs' Discretionary Problems

Where compensatory damages are denied, there is no basis for exemplary damages; in Connecticut, even at law, exemplary damages are awarded in addition to compensatory damages, not in lieu thereof. Maisenbacker v. Society Corcordia, supra ; Hull v. Douglass, supra . In a case such as this where the court determined that "plaintiffs have failed to establish their right to money damages as required

by our law" (Mem. of Decis., R. 43), there is no basis for awarding exemplary damages. Even the statement in the finding that the plaintiffs were "severely damaged ... but failed to prove with sufficient particularity their monetary damages" adds nothing to the situation. F. 265, R. 99. This effort to save the exemplary damages is unrelated to any count or to any particular claim of the plaintiffs. The lower court had no discretion to award exemplary damages in this case.

C. Plaintiffs' Substantive Problems

Even if we assume that the trial court was correct in considering the request for attorney's fees, it committed error in granting the award. It is true that a court may award exemplary damages, in Connecticut, in the form of attorney's fees. Maisenbacker v. Society Concordia, supra . However, legal principles rigorously circumscribe the kinds of cases in which such awards may be made. 22 AM. JUR. 2d Damages, § 236, p. 322. This is because of the fundamental principle that every litigant must bear his own expenses. Peterson v. Norwalk, 152 Conn. 77 (1964). Only if the action of the defendant is malicious or wanton may exemplary damages be awarded. Maisenbacker v. Society Concordia, supra ("malicious or wanton misconduct"); Shupack v. Gordon, 79 Conn. 298, 303 (1906) ("malice premeditated or wantoness"); Infeld v. Sullivan, 151 Conn. 506 (1964) ("wanton misconduct"); 22 AM. JUR. 2d Damages § 236, p. 322; Restatement of Torts § 909; Prosser, ON TORTS, (3rd ed.) § 2, p. 9.

The thread running through all of the Connecticut cases permitting attorneys fees as exemplary damages is conduct of an extreme and offensive nature. Infeld v. Sullivan, supra (evading responsibility and driving under the influence of liquor); Amellin v. Leone, 114 Conn. 478 (1932) (alienation of affection suit); Craney v. Donovan, 92

Conn. 236 (1917) (slanderous and libelous charge of adultery); Doroszka v. Lavine, 111 Conn. 575 (1930) (criminal conversation and malicious prosecution); Ives v. Carter, 24 Conn. 391 (1856) (false representation as to property sold by defendant to plaintiff); Wynne v. Parsons, 57 Conn. 73 (1889) (libelous charge against a lawyer in his professional capacity); Hassett v. Carroll, 85 Conn. 23 (1911) (slanderous and libelous charge of criminal activity made in a Sunday sermon to congregation); Hull v. Douglass, Supra (injury by "large bull of vicious disposition accustomed to attack men and do mischief"); Shupack v. Gordon, 79 Conn. 298 (1906) (wanton assault). Even the case relied upon by the plaintiffs in the lower court involved conduct of a malicious nature—the shooting of plaintiff's dog when he was off the defendant's property. Soucy v. Wysocki, 139 Conn. 622 (1953).

The kind of acts described in the lower court's findings as to the third and fourth counts as the basis for the award of attorneys fees do not come even close to satisfying any of the standards referred to in any case in Connecticut in which exemplary damages were awarded.

D. The Fourth Count—No Basis for Exemplary Damages.

On the 4th count, the lower court's conclusion rests, on a strained and distorted interpretation of five letters¹ out of literally hundreds of business papers. Even the most casual reading of the letters, written in response to inquiries about the new company, clearly shows that the defendants were not trying to hurt the plaintiffs or even to comment upon them, but rather to describe the defendants' own company, its own employees and its own product. F. 157, R. 82 para. a-g, 1st sentence of each. The letters contain not a shred of malicious or offensive matter. Furthermore, the letters contained no misstatements. Ibid. Phillips in fact had been listed in Who's Who in the East in 1948.1 F. 6, R. 65. The statement that Phillips founded Modulaire was written by a layman who indeed clearly fit the definition of a founder as contained in Webster's New International Dictionary (2nd ed., 1960, p. 997), one who lays the basis for something or originates it.² As the inventor of plaintiffs' enclosure and head of the Special Products Division, Phillips certainly met this test. F. 9, R. 65; F. 16, R. 66; F. 38, 39, R. 68; F. 59, R. 71. But for the requirements of the employment arrangement under which plaintiffs were obligated to afford Phillips an equity position in the products he developed, Modulaire might never have been organized. Likewise, it is true that Phillips was the only inventor named in the Modulaire enclosure patent. F. 90, R. 75. Inasmuch as the letters clearly indicated that Phillips had left the plaintiffs', formed a new company to market a new, entirely different enclosure, anything further would have been redundant.

Neither the "Who's Who" nor the "founder" or "inventor" statements merit significant attention. They were made in good faith to describe Phillips' personal qualifications. At worst, they were harmless self-aggrandizement. As a matter of law, the statements were not actionable misrepresentations, much less malicious and wanton misconduct designed to injure the plaintiffs. The letters also stated that the defendants would sell a "new, entirely different and improved" enclosure. F. 157d, R. 82. The context and reference was to defendants' own products. Such words, when applied to the sale of a product —whether it be toothpaste, butter or enclosures—can hardly be considered a misrepresentation. The product was new if for no other reason than that the source was new. Clearly it was different—it contained none of the tongue and groove self-assembly features. The word improved is obviously of an opinion nature stated by the seller about his own product. There is no basis whatever for the strained and artificial conclusion that the defendants offer of a new, different and improved enclosure was an offer to make an "improved Modulaire" enclosure. F. 158, R. 83. Certainly the words are devoid of any wanton, malicious or willful intent to injure plaintiffs. See conclusions in F. 254-258, R. 97-98.

So too, the statement that the new company was staffed with key personnel who formerly were associated with Modulaire is true. Phillips and Byus were, in fact, the key personnel of Air Devices; indeed, the Finding makes no reference to any other employees of Air Devices at all. The letters said nothing whatever about Modulaire's key personnel. See F. 157 d, R. 82.

The statement relating to the State Street Bank job like the "who's who" statement has no bearing upon the plaintiffs whatever. Whether the defendants did or did not have the State Street Bank job had no effect upon the plaintiffs' legitimate business interests in the absence of anything showing that they had it. Furthermore, the statement was made in reliance upon a verbal commitment which was subsequently confirmed.¹ In addition, the letters refer to

the State Street Bank job (F. 157 f, 1st sentence, R. 82) but the court's findings as to the date and amount bid and the citation of Exhibit 5-G refer to the State Office Building job.²

Finally, the statement that Air Devices had an agreement with the Union was an accurate representation of defendants' plans for operating. Phillips had met with local union officials and believed they would organize Air Devices as soon as production employees were hired. D.F. 222-224, R. 55; App. C, para. 1, p. 5a. The statement was made in good faith and was in accord with the practices that unions customarily follow.³ Here again, however, the statement was of importance only to the recipient (who did not complain) and affords the plaintiffs no cause of action, much less a basis for exemplary damages. The Union label does not belong to the plaintiffs. See F. 130, 131, 134, R. 79). The defendants' materials did not carry the plaintiffs' particular number.

These few sentences constitute the heart of the trial court's determination that the letters were written willfully and with intent to interfere with the plaintiffs' business expectancies, and that plaintiffs are entitled to exemplary damages on Count Four. See F. 225-6, R. 94; F. 170, R. 88; F. 258, 263, R. 98. The statements, in the light of ordinary business practice, are reasonable and true. Whether or not the letters could have been more artfully written or with greater care to nuance or detail is of no legal moment. They were made in good faith and are in no sense misrepresentations

— willful, fraudulent or otherwise. Even more important, not a scintilla of evidence was produced to show that any recipient of the letters was misled in any way. Nor are there any findings that any recipient relied on the statements to the detriment of the plaintiffs.

Nor would such proof avail the plaintiffs. In order for the plaintiffs to recover exemplary damages, the acts of the defendants must be done with the specific purpose of harming the plaintiffs. Not only must the defendants' acts be intentional, but the consequences of harm to the business interests of the plaintiffs must be intended in order for the standard of willful injury to be met. Roger v. Doody, 119 Conn. 532 (1935). No facts whatever appear in the finding to indicate any intent on the part of the defendants to harm the plaintiffs; no claim was made nor are there any findings of fact to support the conclusion that the purpose of making the statements was to damage the plaintiffs. Lastly, the conclusion that the plaintiffs were "severely damaged" but could not show how, leaves the decision on fraudulent misrepresentation without any support whatever. F. 265, R. 99. Furthermore, in the face of this ambiguity in the Finding, if one turns to the Memorandum of Decision to determine why the plaintiffs could not prove their damages with sufficient particularity to justify any award whatever, one finds that the court determined that the plaintiffs failed to establish their "right" to damages. Under these facts the award of exemplary damages must fall.

E. No Cause of Action for Disparagement or Passing Off

The court also concluded, from the same two sentences in the same five letters that these words, in addition to being a willful misrepresentation also constituted a "disparagment" and a "passing off." F. 256, 257, R. 98. The elements of neither action were established. Disparagement has three essential elements: (1) the publication of a disparaging statement of fact that is unquestionably false, (2) which has played a material and substantial part in inducing others not to deal with the plaintiffs and (3) incurring for the plaintiffs actual special damage which has been proved. Restatement, Torts, § 760; Prosser, ON TORTS, 3rd. ed., p. 943. All three elements are wholly unsatisfied; there are no findings of fact to fill these requirements. The conclusion that the defendants disparaged the plaintiffs' product or business is error as a matter of law.

Nor do the plaintiffs stand on any firmer ground in their efforts to support the decision in their favor on passing off. An action for passing off requires (1) a fraudulent misrepresentation as to the source of goods, (2) inducing a purchaser to rely thereon, and (3) to the damage of the plaintiffs. Rest. Torts. § 760. The five letters clearly indicate that the source of the goods is Air Devices and no one else. As to the second and third elements, there is no finding whatever. Indeed, no witnesses or evidence were produced to show that any recipient of a letter or any other person relied thereon or were misled thereby to the detriment of the plaintiffs.

The five lonely business letters are incapable of supporting the entire finding of seven separate fraudulent and willful misrepresentations (F. 157, R. 82; F. 258, R. 98) an action of disparagement (F. 256, R. 98), an action for passing off (F. 257, R. 98), and an award of exemplary damages. The defendants respectfully request that the ruling on the fourth count and the award of attorney's fees under it be reversed.

F. The Third Count—No Basis for Exemplary Damages

Like the findings on the fourth count, those which purport to support the award of exemplary damages on the

third count fall far short of even a suggestion of malicious or willful misconduct designed to injure the plaintiffs. Indeed, such conduct is not even alleged in the Third Count. Substit. Complaint, para. 20-27, R. 18-19. Despite this vital deficiency the court awarded exemplary damages on the third count. F. 263, R. 98.

There is no question in this case of competition or disloyalty by Phillips or Byus while they were in the employ of the plaintiffs. See, Town & Country House & Homes Service, Inc. v. Evans, supra ; Minnesota Mining & Manufacturing Co. v. Technical Tape Corp., Supra . The sole question raised now is the extent to which courts can or should limit the competition of former employees after termination of their employment in matters relating to sales of goods, in a case in which the former employer neither sought nor obtained a covenant not to compete.

The majority rule and the law of Connecticut is that upon the termination of agency and in the absence of a restrictive agreement, the agent can properly compete with his principal in matters for which he bad been employed. Town & Country House & Homes Service, Inc. v. Evans, supra at 317. Indeed, upon termination of employment he may immediately compete. Ibid. Rest. (2nd) Agency § 393, comment e. It is this very basic proposition which insures the mobility of employees and the opportunity of employees to secure the benefits of the American policy of freedom of employment. Yet this is the very proposition rejected by the court in its judgment prohibiting the defendants from performing any contract obtained on any job "worked on" by Phillips or Byus while employed by the plaintiffs. Judg., R. 46; F. 270, R. 100. An employee who honors the obligations of his employment necessarily works on the business of his employer. If that business is the sale of manufactures for large commercial structures and if that employee is a salesman or a sales manager he

necessarily works on those large commercial jobs. To say that he may never compete for the contracts on those jobs after he leaves the employer is to prohibit him from participating in the kind of competition which this very court just recently approved in the Town & Country House case.

Furthermore, such a rule would mark a radical departure from the established law of the land. The sales representative of a shoe manufacturer may sell his company's product to a variety of department stores and specialty shops. If he performs his job intelligently he learns the kinds of shoes, the qualities, the construction and the prices which his customer requires. He bids in competition with others for the business. He acquires the art of competing in the shoe business. He becomes acquainted with the buyers of the various stores. In some instances it is his personal relationship with the buyer or his art of salesmanship, which insures the sale. In others, it is the employer's product or the prices which determine the getting of contracts. For the courts to decree that this shoe salesman may never sell to those same stores again when employed as a salesman by a competing manufacturer is to freeze that salesman in his job or force him to start at the bottom in a new sales field. The skills and know-how he had so laboriously cultivated in the sales of shoes must be discarded. Such a result would destroy the signal feature of American employment opportunity—freedom of choice.

The thrust of the lower court's decision in this case is that all the information, data and activity connected with selling a particular enclosure customer is secret and confidential. The prohibition covers every job "worked on" by Phillips and Byus while in the plaintiffs' employ. F. 270, R. 100. The objectionable activity includes handling negotiations, (F. 160 a, R. 83; F. 161 a, R. 84); consulting with architects (F. 162 a, R. 84; F. 168 c, R. 87); pricing and estimating (F. 160 b, R. 83; 163 a, R. 85); quoting and

bidding (F. 160 a, R. 83; F. 161 b, R. 84; F. 164 b, R. 85; F. 166 b, R. 87; F. 168 d, R. 87); familiarity with the job (F. 162 g, R. 84); access to (but not use of) files (F. 165 b, R. 86) familiarity with all enclosure bids, four to five months before competing (F. 166 a, R. 87). The real basis of the court's determination can be seen in finding 169, concerning the Memphis job. There the court stated only that Phillips and Byus had "worked on" the job for Modulaire, and that Air Devices bid on the job. Based on these facts the court determined that Air Devices bid was based on secret and confidential information. F. 159(9), R. 83. In essence, by the mere performance of the duties of employment the employee forever forfeits his right of competing with the employer after the employment is terminated. Under the lower court's ruling, doing work for an employer is tantamount to signing a covenant not to compete.

Nor can the plaintiffs' position be retrieved by pointing to the subject matter of the work as secret and confidential. The names of the customers—whether these be the individual buildings themselves, the architects, or the general contractors—are not secret. Nor are they a special market created by the plaintiffs as may have been the case in the Town & Country House litigation. Rather the buildings themselves are well-known both in the trade and out. Even if they were not, the fact that construction is going to take place is publicized by both the contractors and the owners or their representatives for it is in their interest to obtain competing prices.

Similarly, the items to be supplied, the actual subject matter of the contracts, is neither secret nor confidential. It is specified by the architect and distributed or made available to the trade in the form of drawings, plans and specifications. In these matters clearly the plaintiffs have no confidential interest for which they are entitled to protection from the judiciary against anyone. Furthermore, the ability to determine prices for a manufactured item is a skill which belongs to the employee. Hahn & Clay v. A.O. Smith, Corp., 320 F. 2d 166 (1963). Pricing involves a judgment as to costs of raw materials, labor, rent, salaries and other overhead, transportation and profit. While such matters may be foreign to a doctor or lawyer, they are the stock in trade of engineers and salesmen. In the instant case, however, the matter of pricing need not be left to the general rules of law relating to the skills of the employee. Phillips before he was hired by the plaintiffs was skilled and experienced in establishing prices and estimating the costs of new products before production. F. 8, R. 65. The skills that were sought by the plaintiffs and which enabled them to bid —before they established their prices, machinery, costs, etc. (supra p. 4) — on the Pan American job are the same skills which Phillips used in his own business. The pricing of Air Devices goods was not, in fact or law, a confidential secret of the plaintiffs.

Indeed, the court did not even find that the defendants used the same prices as the plaintiffs. The reason for this is obvious. Defendants costs and profits are necessarily different from plaintiffs. A new business operates on a shoe-string. Its executives receive moderate salaries; its offices and equipment are simple; its machinery may be used. An old and established company may reward its executives handsomely, and provide for elaborate facilities. The defendants here in Connecticut are in a very different labor market from the plaintiffs' New York plant. The transporting costs, both of raw materials and finished products are different.

The realities of the business world dictate that the new, untried company must be prepared to sell its goods for a significantly smaller margin of profit than the old, established, well-known company. The fact that its overhead

may be less is not enough, for if the price difference is not substantial, the new company will not be chosen to receive a contract. Particularly is this true in the construction industry where competing prices are traditionally sought and received, as opposed to the professions, where the source of the service is more important than the price. The finding ignores completely the issue of what the prices of the parties were. The reason is that they were neither the same nor related; as a matter of business necessity they were different.

Furthermore, the striking feature of the contracting process disclosed by the finding is that, unlike other industries where one price is given in a sealed bid to be opened at an appointed time along with all other competing bids, the enclosure industry bidding process is a long, drawn-out but persistent solicitation. One may submit a quotation in June, but the following November the bidders are asked for new prices. F. 160 c, e, R. 83. In the meantime, "negotiations" are carried on. F. 160 a, R. 83. Furthermore, some bidders bid at one time, and others at another. Compare finding 160 e, R. 83 with F. 160 f, R. 84. Similarly, where a written bid was submitted by one competitor on August 3rd, the general contractor was still looking for and receiving competing bids some three months later. See, F. 161, R. 84. Unlike other "bidding" situations — one-time propositions — the process here is one of a continued competitive solicitation.

However, even the bid figures themselves cannot be the basis for the court's ruling, for in no instance did the court find the amount of the bids on the jobs, who was low bidder, or how many enclosure manufacturers bid. Indeed, in no instance in the supporting findings on the ten jobs is there a single reference to a bid of plaintiffs that had not been previously disclosed to third parties. While a proposed bid, confined to the seclusion of the bidder's office

may well be confidential, no such bid was found here. F. 160 c, R. 83; F. 161 b, R. 84; F. 162 f, R. 84; F. 163 a, R. 85; F. 165 b, R 86; F. 166 a, R. 87; F. 167 b, R. 87; F. 168 d, R. 85; F. 169 a, R. 88. Upon disclosure, the bids lose their confidential status.

Yet the plaintiffs claimed and the court found that these solicitations, these prices, after disclosure to the general contractors, and therefore, when they were no longer subject to the confidentiality of the plaintiffs' office, are the secret data which require prohibition of any competition by the defendants for these open jobs. To reach such a conclusion, the underlying assumption of the court must be that the general contractor does nothing and says nothing during the solicitation process; with the passivity of a sphinx he merely "receives" secret prices but neither discloses nor repeats them nor uses them to influence other competitors. Such an assumption is a repudiation of business reality — for it presupposes that a general contractor, patiently awaits the price he would like, without indicating, stating or suggesting it. As a practical matter the part that the biddee, the general contractor, plays is a significant one. Like the proprietor of a Venetian bazaar he receives bids, he negotiates, he urges reductions, suggests desirable prices, revises the subject matter and seeks new bids again until he obtains one that meets his business requirements. The Finding conveniently skipped over the entire question of the nature of the "secret and confidential" data and the character of the solicitation process. In the absence of subordinate findings, the conclusion cannot stand.

The homespun covenant not to compete which the lower court grafted on to the basic law that an employee may compete after termination of employment not only violated that basic law but failed to meet the tests of geography, time and reasonableness to which such covenants are rigorously subjected, even when bargained for. There was no

geographical limit whatever—indeed, the lower court found contacts which would justify prohibition of competition on jobs as far flung as Boston, Chicago and Washington, D.C. F. 270, R. 100. Like the non-existent geographical limitation, the time limit was also absent. Thus, where a span of one and one-half years intervened between the plaintiffs' quotation (F. 160 c, R. 83) and the defendants' (F. 160 f, R. 84), the covenant could still remain in effect. Even a change in the subject matter of the competition — architectural revisions in the enclosure plans themselves after both Byus and Phillips had left plaintiffs were not sufficient to free the defendants from the judicially endorsed covenant not to compete. See F. 160 d, R. 83; F. 164 h, R. 86.

The most extreme example of the misconception of the plaintiffs and the lower court, in this regard, can be seen in the decision prohibiting the defendants from performing the State Street Bank job. Phillips did not participate in any of the bidding for the plaintiffs on the State Street Bank job. F. 164, R. 85-6. Phillips bid the State Street Bank job for Air Devices prior to plaintiffs' bid. F. 164 d (164 b), R. 85-6. He made his own personal take-off for Air Devices in Providence at the office of the general contractor. F. 164 c, R. 85. Just as occurs in many jobs, there were revisions of the specifications. A competing manufacturer, Brandt, had its name specified in place of plaintiffs in the specifications after both the plaintiffs and the defendants had submitted bids. F. 164 h, R. 86. In March 1964, changes in the subject matter of the job were made requiring new offers by the enclosure competitors. Rebids were solicited for these changes. F. 164 i, R. 86; D. F. 320, R. 59-60. These changes in what the owners and contractors required for the job occurred after Byus came to work for Air Devices. Because of the revisions, there was no "work" on the job while Byus was with the plaintiffs. In

this sequence of events there is no malfeasance of any kind by the defendants. Even the supporting references to Exhibits 5 F and 5 G (F. 164 k, R. 86) are incorrect — they do not even relate to the State Street Bank job. Yet, Air Devices, who had contracted to do the job after the completion of the trial and after the issuance of the temporary injunction was prohibited by the judgment and the permanent injunction from carrying out the contractual undertaking. F. 270, R. 100.

Having failed to establish any improper inducement to Byus by the other defendants (Subst. Complaint, para. 23, R. 18), or any bid figures not disclosed to third parties, or any similarity in bids, or any methods of sale, pricing and estimating that were not part of the general skills of the former employees, or any evidence as to who would have obtained the contracts if Air Devices had not bid, the plaintiffs are left with the bare conclusion that the mere competition of the defendants on open, competitive jobs was unfair. Such competition is proper and within the framework of our system. Town & Country House & Home v. Evans, supra . Where a former employee competes with a former employer, there are bound to be some personal resentments and tensions, but the judicial system cannot be used to grant the vain hopes of a businessman to limit new competition.

Even if this court should now conclude that such competition was unfair, there is no basis for the conclusion, essential to the award of exemplary damages, that the competition of the defendants was willfully and maliciously done with intent to injure the plaintiffs. At worst, the defendants were operating in an ill-defined area of the law, with no thought of the plaintiffs, but only of soliciting contracts for their own enterprise. There was no basis for the holding in favor of the plaintiffs on the Third Count and there is not even a pretense of a finding of subordinate

facts as to willful or malicious misconduct in relation to the ten jobs enumerated. A. E. No. 7, R. 128.

The lower court erred in ruling for the plaintiffs on the third count and in awarding exemplary damages under it. The defendants respectfully request that the judgment be reversed.

IV. THE LOWER COURT ERRED IN PROHIBITING THE DEFENDANTS FROM PERFORMING THE CONTRACT ON THE STATE STREET BANK JOB.

One of the most unusual features of this case is the prohibition, contained in the judgment (Pt. II, R. 46), and the permanent injunction (F. 270, R. 100), of performance of the State Street Bank job as well as others "worked on" by Byus and Phillips while in the employ of plaintiffs. Despite the unusual nature of the probibition and its extreme creation of a covenant not to compete, the matter was not referred to in the Memorandum of Decision. Nevertheless, the court so ruled and refused to permit the defendants to include the matter in the appeal. See F. 275, R. 102, and D. F. 367, R. 60-1. The defendants claim it. A. E. No. 10, R. 128. Our practice makes provision for claiming as error matters which occur after the conclusion of the trial. Conn. Prac. Bk., § 652.

The interference by injunction with the contracts of the defendants with third persons who were not parties to the suit, coming as it did, after the issuance of the temporary injunction was wholly unjustified. 19 Am. Jun.; Equity § 128 p. 129-30. The plaintiffs had their remedies in contempt for any breach of the temporary injunction and at law for damages and or an accounting if the acceptance of the contract had been improper. Furthermore, the failure of the court to define "worked on" or to list all the jobs from which the defendants were to be prohibited subjected the defendants to a vague and uncertain requirement which cast an unreasonable, unfair and onerous burden upon them. A. E. No. 14, R. 129.

CONCLUSION

For the reasons stated, the defendants respectfully request that the judgment and award of exemplary damages be reversed and that the injunction be vacated.

Respectfully submitted, THE DEFENDANTS by MILTON SOROKIN ETHEL SILVER SOROKIN Of counsel: Sorokin, Sorokin & Hurwitz