Dominion Enterprises, F/K/A Trader Publishing Company v. Dataium, LLC ( 2013 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
September 12, 2013 Session
DOMINION ENTERPRISES, F/K/A TRADER PUBLISHING COMPANY v.
DATAIUM, LLC, ET AL.
Appeal from the Chancery Court for Davidson County
No. 10-311-IV Russell T. Perkins, Chancellor
No. M2012-02385-COA-R3-CV - Filed December 27, 2013
This case involves litigation between two business entities: Dominion Enterprises, f/k/a
Trader Publishing Company (“Dominion”), the former employer of six of the seven
individual defendants, and Dataium, LLC (“Dataium”), a company subsequently formed by
those defendants. Dominion filed a complaint against the defendants, alleging numerous
causes of action, including breach of covenants not to compete, breach of fiduciary duty,
breach of the duty of loyalty, breach of a non-solicitation agreement, and civil conspiracy.
The trial court found that Dataium and two of the individual defendants were liable for
breach of contract but dismissed Dominion’s other claims. Dominion appeals. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
T HOMAS R. F RIERSON, II, J., delivered the opinion of the Court, in which D. M ICHAEL
S WINEY and J OHN W. M CC LARTY, JJ., joined.
Teresa Bult and Katherine Summers Scarbrough, Nashville, Tennessee, and David Phippen,
Fairfax, Virginia, for the appellant, Dominion Enterprises, f/k/a Trader Publishing Company.
Mark A. Baugh, Nancy A. Vincent, and Ben H. Bodzy, Nashville, Tennessee, for the
appellees, Dataium, LLC; Eric Brown; D. Jason Ezell; Mark E. Krabacher; Jeffrey R. Dopp;
Aaron West; Michael B. Ghaffari; and John Gerber.
OPINION
I. Factual and Procedural Background
Dominion, a partnership with headquarters in Virginia, provides marketing services
to a number of industries. Dealerskins, a subsidiary of Dominion, creates and maintains
websites and website solutions for automotive dealers and manufacturers. Dataium is a
limited liability company that collects, aggregates, and analyzes data from websites.
Defendants Eric Brown, D. Jason Ezell, Mark E. Krabacher, Jeffrey R. Dopp, Aaron West,
and Michael B. Ghaffari are employees of Dataium who previously worked for Dealerskins.
Defendant John Gerber currently owns an interest in Dataium and was a former investor in
Dealerskins.
In 1999, Mr. Ezell co-founded Dealerskins, while Mr. Gerber was involved in its
formation, owning an interest therein through a company called Radnor Point. Dealerskins
was later sold to Trader Publishing Company (“Trader”), predecessor to Dominion, in April
2005. As part of the sale, Mr. Ezell and Mr. Gerber1 executed non-compete agreements valid
until April 2010. Mr. Ezell remained employed with Trader following the acquisition. Two
employees of Dealerskins, Defendants West and Dopp, transitioned to Trader with the sale.
They signed agreements with Trader containing certain provisions, including that: 1) they
would not compete with Trader, 2) they would not solicit employees from Trader, and 3) they
would act with loyalty and in good faith. By such agreements they also assigned all
inventions or innovations developed in the course of their employment to Trader. Defendant
Krabacher, who became an employee of Dealerskins in 2007, signed a similar agreement.
In early 2008, Dealerskins developed a product called “Psychic Sales.” By design,
the product could generate sales leads for car dealers by collecting website users’ information
and emailing same to the dealer, along with information regarding the types of cars viewed
by each user. Defendant Brown accepted the position of general manager of Dealerskins in
January 2008, shortly after Psychic Sales was developed. Mr. Brown signed an employment
agreement similar to those signed by Defendants West, Dopp, and Krabacher. Mr. Brown’s
work included further developing the Psychic Sales product and creating increased demand.
Mr. Ghaffari was hired by Dealerskins in May 2008. He apparently never signed an
employment agreement.
In March 2008, Mr. Brown and others on the management team at Dealerskins
conceptualized a hypothetical “nightmare competitor” that would be able to aggregate,
analyze, and report user behavioral data from multiple networked auto dealer websites.
Dealerskins then began to explore development of a product that would allow such
aggregated data collection and reporting from networked Dealerskins’ websites in order to
create additional revenue for Dealerskins.
In March 2009, unknown to higher management of Dealerskins, Mr. Brown and Mr.
1
Mr. Gerber executed the agreement on behalf of Radnor Point.
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Ezell began working to develop their own business intended to aggregate and report data
from a broad network of websites and online sources. In furtherance of the undertaking, Mr.
Ezell introduced Mr. Brown to Mr. Gerber for the purpose of securing financial backing.
These steps in the formation of Dataium were not reported to Dealerskins. Mr. Ezell later
solicited key employees of Dealerskins, both for employment by Dataium and to develop
Dataium’s product. He first approached Mr. West, Dealerskins’ development manager, in
May or June 2009. Mr. Ezell later contacted Mr. Dopp, Mr. Ghaffari, and Mr. Krabacher,
who were considered some of Dealerskins’ most talented technology employees.
On July 13, 2009, Mr. Brown’s employment was terminated by Dealerskins due to
declining performance concerns. Dataium was incorporated in June or July 2009. Mr.
Brown and Mr. Ezell continued planning for this new “data mining” product to be offered
by Dataium through the fall. A meeting was held at Mr. Brown’s home with the other
individual defendants in October 2009. Numerous email messages regarding the formation
of Dataium were exchanged between the individual defendants. All individual defendants
except Mr. Brown and Mr. Gerber were still employed by Dealerskins as they developed a
plan to stagger their resignations so as not to draw attention to their actions. When Mr. Ezell
was questioned on two occasions by Dealerskins personnel about rumors that he was
launching a new company, he denied the accusations.
Dealerskins became aware of the individual Defendants’ plans on December 16, 2009,
when Mr. Brown inadvertently transmitted an email message regarding Dataium to a
Dealerskins email account. Dealerskins immediately adopted measures safeguarding its
intellectual property, which included terminating the employment of Mr. West, Mr. Ghaffari,
and Mr. Krabacher. Consequently, Dealerskins was forced to recruit new employees to
replace those who had exited. The company also strove to continue development of planned
new products, but development was hampered by the loss of the key employees. On
February 25, 2010, Dominion filed suit against Dataium and the individual defendants,
alleging numerous causes of action, including breach of covenants not to compete, breach
of fiduciary duty, breach of the duty of loyalty, breach of a non-solicitation agreement, and
civil conspiracy. Dominion sought compensatory damages in excess of seven million dollars,
as well as punitive damages and injunctive relief.
The case was tried from March 28, 2011, to April 5, 2011. The trial court dismissed
all claims against Mr. Dopp, Mr. West, Mr. Krabacher, Mr. Ghaffari, and Mr. Gerber. The
court assessed compensatory damages of $50,000.00 against Mr. Brown and Dataium for
violation of the non-solicitation agreement and $100,000.00 against Mr. Ezell and Dataium
for violation of the covenant not to compete. The court dismissed all other claims. The court
found, inter alia, that although Dataium’s product was somewhat similar to Dealerskins’
product, the companies were not in direct competition and Dataium had not solicited
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Dealerskins’ customers. The court also ordered that Dataium, Mr. Brown, and Mr. Ezell not
solicit or hire any Dealerskins employees for a period of one year. Dominion additionally
sought an attorney’s fee award exceeding $600,000.00. Regarding the request, the court
awarded attorney’s fees of $87,039.76 plus costs of $4,783.40 based on the “amounts
requested and the results obtained.” Defendants sought $267,604.20 in attorney’s fees for
defense of Dominion’s claim brought pursuant to the Tennessee Trade Secrets Act, with the
court denying this request. Dominion timely appealed.
II. Issues Presented
Dominion presents the following issues for our review, which we have restated
slightly:
1. Whether the trial court erred in failing to find that Mr. Brown, in a conspiracy with
Mr. Ezell, Mr. Gerber, and others, breached a fiduciary duty to Dominion.
2. Whether the trial court erred in holding that Dominion failed to establish a civil
conspiracy claim.
3. Whether the trial court erred in holding that no predicate tort supported Dominion’s
civil conspiracy claim.
4. Whether the trial court erred in holding that the intra-corporate immunity doctrine
applied to the conspiracy.
5. Whether the trial court erred in holding that Mr. West, Mr. Dopp, and Mr. Krabacher
did not breach their contractual duties of loyalty and good faith.
6. Whether the trial court erred in holding that Dominion had failed to establish that
conspiring defendants intentionally interfered with the contractual relations between
Dominion and Mr. West, Mr. Dopp, and Mr. Krabacher.
7. Whether the trial court erred in holding that Mr. West had not breached his
contractual duty not to solicit co-employees.
8. Whether the trial court erred in finding that no individual defendant other than Mr.
Ezell breached an enforceable covenant not to compete.
9. Whether the trial court erred in holding that Dominion had not established its claim
of unfair competition.
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10. Whether Dominion is entitled to increased actual and/or punitive damage awards.
11. Whether the trial court erred in not ordering broad injunctive relief.
12. Whether the trial court erred in failing to hold that each defendant is jointly and
severally liable as a result of the claimed conspiracy.
Defendants present the following issues for our review, which we have restated
slightly:
13. Whether the evidence preponderates against the trial court’s findings that Mr. Ezell
and Mr. Brown are liable to Dominion for violation of restrictive covenants.
14. Whether the award of compensatory damages to Dominion should be reversed.
15. Whether the trial court erred in failing to award Defendants attorney’s fees arising
from the Tennessee Trade Secrets Act claim due to Dominion’s alleged bad faith in
bringing the claim.
16. Whether the trial court erred in enforcing an unconscionable attorney’s fee provision
contained in Mr. Brown’s agreement.
III. Standard of Review
The standard of review is de novo with a presumption of correctness as to the trial
court’s findings of fact unless the preponderance of the evidence is otherwise. Tenn. R. App.
P. 13(d); McCarty v. McCarty, 863 S.W.2d 716, 719 (Tenn. Ct. App. 1992). No presumption
of correctness attaches to the trial court’s legal conclusions. Union Carbide Corp. v.
Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993). The findings of the trial court involving the
credibility of witnesses are entitled to great weight on appeal. Sisk v. Valley Forge Ins. Co.,
640 S.W.2d 844, 849 (Tenn. Ct. App. 1982).
IV. Claim of Breach of Fiduciary Duty
Dominion contends that the trial court erred in failing to find that Mr. Brown breached
his fiduciary duty by planning and developing Dataium while he was still employed as
general manager of Dealerskins. Dominion asserts that this breach includes Mr. Brown’s
involvement in soliciting employees of Dealerskins to work for Dataium. A thorough review
of the record, however, reveals that Dominion failed to prove that Mr. Brown breached a
fiduciary duty while still employed at Dealerskins.
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Breach of fiduciary duty to a company has been defined by this Court as “assum[ing]
positions of conflict with the interests of the corporation.” B & L Corp. v. Thomas &
Thorngren, Inc., 162 S.W.3d 189, 205 (Tenn. Ct. App. 2004) (quoting Hayes v. Schweikart’s
Upholstering Co., 55 Tenn. App. 442, 402 S.W.2d 472, 483 (1966)). The question of
whether a fiduciary duty has been breached is a question of fact. B & L Corp., 162 S.W.3d
at 205.
The evidence at trial demonstrated that Mr. Brown conceived the idea for a company
specializing in data collection in 1998, prior to his employment with Dealerskins. Although
Mr. Brown did begin discussing and planning Dataium with Mr. Ezell and Mr. Gerber while
still employed at Dealerskins, he did not actually take a position with Dataium or speak to
any other Dealerskins employees about Dataium until after his termination from Dealerskins.2
The trial court found there was no breach of fiduciary duty, relying upon Venture Exp., Inc.
v. Zilly, 973 S.W.2d 602, 606 n.2 (Tenn. Ct. App. 1998), wherein this Court held that a
corporate officer is allowed to prepare to compete prior to his termination from the company
without breaching a fiduciary duty. As further stated therein:
The fact that one was once a director or officer of a corporation does not
preclude his engaging in a business similar to that conducted by the company.
It is said that it is a common occurrence for corporate fiduciaries to resign and
form a competing enterprise and that unless restricted by contract, this may be
done with complete immunity, because freedom of employment and
encouragement of competition generally dictate that such persons can leave
their corporation at any time and go into a competing business. It is
recognized that in doing so they can use in their own enterprise the experience
and knowledge they gained while working for their former corporation . . . .
Venture, 973 S.W.2d at 604 (quoting 18B Am. Jur. 2d Corporations § 1713 (1985)).
Accordingly, it was not a breach of fiduciary duty for Mr. Brown to engage in planning for
another business opportunity prior to his termination from Dealerskins. Moreover, it was not
a breach of his fiduciary duty for Mr. Brown to accept a position with another company after
his termination from Dealerskins. We find no error in the trial court’s dismissal of
Dominion’s claim of breach of fiduciary duty against Mr. Brown, as there was no showing
that he assumed a position of conflict with Dealerskins’ interests while he was employed
there.
2
The only other employee of Dealerskins who was contacted about the Dataium concept prior to
Mr. Brown’s termination was Mr. West, but he was contacted by Mr. Ezell. There was no proof that Mr.
Brown had knowledge of that contact.
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V. Duty of Loyalty and Good Faith
Dominion argues that the trial court erred in failing to hold that Defendants West,
Dopp, and Krabacher had breached their contractual3 duty of loyalty and good faith. The trial
court found that preparing to compete with an employer before resignation or termination
does not constitute a breach of the duty of loyalty an employee owes to an employer, and that
these employees were merely preparing to participate in a company that does not directly
compete with Dealerskins. See B & L Corp., 162 S.W.3d at 205; Venture, 973 S.W.2d at
606. Dominion contends, however, that these Defendants should be held to a different
standard because they signed contracts that contained a more stringent duty-of-loyalty
provision. This provision stated that “at all times during my employment, I owe Trader a
duty of loyalty and a duty to act in good faith. I agree that during my employment, I will not
individually, or in combination with any other employee, individual, or competitor of Trader,
violate or breach the terms of this agreement.”
Dominion asserts that Defendants West, Dopp, and Krabacher did more than prepare
to compete with Dealerskins. According to Dominion, these individuals also embarked upon
a plan to leave their employment with Dealerskins in a choreographed “mass defection” and
failed to disclose their true intentions. The evidence demonstrated, however, that the conduct
of these defendants did not rise to the level of “preparing to compete,” as the business they
joined was not a direct competitor of Dealerskins. Upon a careful review of the evidence,
we cannot conclude that the trial court erred in determining that the conduct of these
defendants in failing to fully disclose their reasons for leaving the employ of Dealerskins rose
to the level of bad faith or breach of contractual duty of loyalty. There was also no evidence
that Defendants West, Dopp, and Krabacher breached the terms of their respective
agreements. This issue is without merit.
VI. Claim of Intentional Interference with Contractual Relations
Dominion contends that the trial court erred in holding that Defendants Dataium,
Brown, Ezell, and Gerber did not intentionally interfere with the contractual relations that
Mr. West, Mr. Dopp, and Mr. Krabacher maintained with Dominion. Our courts have
recognized that in order to establish intentional interference with contractual relations, one
must show the following:
3
Defendants contend that their contractual agreements were with Trader and not Dominion. As the
trial court properly found in its final order, the contracts in question are enforceable by Dominion, as there
was sufficient evidence to establish that Dominion and Trader were the same entity. Trader’s name was
simply changed to Dominion.
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1. There must be a legal contract.
2. The wrongdoer must have knowledge of the existence of the contract.
3. There must be an intention to induce its breach.
4. The wrongdoer must have acted maliciously.
5. There must be a breach of the contract.
6. The act complained of must be the proximate cause of the breach of the
contract.
7. There must have been damages resulting from the breach of the
contract.
Jones v. LeMoyne-Owen Coll., 308 S.W.3d 894, 908 (Tenn. Ct. App. 2009).
In this case, there was no evidence of a malicious intent, as in other cases where this
element has been satisfied. See New Life Corp. of Amer., 932 S.W.2d at 927 (genuine issue
of fact found which precluded summary judgment wherein a representative of the defendant
company admitted that the defendant was trying to drive the plaintiff out of business or injure
the plaintiff to induce a lower sales price for the company); Dorsett Carpet Mills, Inc. v.
Whitt Tile & Marble Dist. Co., 1986 WL 622 at *5 (Tenn. Ct. App. Jan. 2, 1986) (wherein
malice was shown because the defendant company was paying sales commissions to
employee of the plaintiff while he still worked for the plaintiff). We conclude that the trial
court did not err in finding that Dominion failed to establish an intentional interference with
contractual relations.
VII. Claim of Civil Conspiracy
Dominion posits that the trial court erred in failing to find the existence of a civil
conspiracy among the Defendants. As this Court has previously explained:
The elements of a cause of action for civil conspiracy are: (1) a common
design between two or more persons, (2) to accomplish by concerted action an
unlawful purpose, or a lawful purpose by unlawful means, (3) an overt act in
furtherance of the conspiracy, and (4) resulting injury.
Kincaid v. SouthTrust Bank, 221 S.W.3d 32, 38 (Tenn. Ct. App. 2006). Civil conspiracy
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requires an underlying predicate tort allegedly committed pursuant to the conspiracy.
Watson’s Carpet & Floor Coverings, Inc. v. McCormick, 247 S.W.3d 169, 180 (Tenn. Ct.
App. 2007). If the claim underlying the allegation of civil conspiracy fails, the conspiracy
claim must also fail. Levy v. Franks, 159 S.W.3d 66, 82 (Tenn. Ct. App. 2004).
In this case, the trial court found that the claim of civil conspiracy failed due to the
lack of an underlying predicate tort. Dominion asserts that such a tort existed, alleging that
it demonstrated that Mr. Brown breached his fiduciary duty to Dealerskins by pursuing
another business opportunity during the time he was employed as general manager of
Dealerskins. As we have concluded above, however, the trial court properly found that Mr.
Brown did not breach his fiduciary duty. In fact, Dominion has failed to show any
underlying predicate tort upon which a conspiracy claim can be based. As such, the trial
court properly dismissed Dominion’s conspiracy claim. Dominion’s issues regarding the
intra-corporate immunity doctrine and joint and several liability are therefore pretermitted
as moot.
VIII. Claim of Unfair Competition
Dominion asserts that the trial court erred in holding that it could not prevail upon a
claim of unfair competition. With regard to the unfair competition claim, the trial court
stated:
Unfair competition is a generic name for several related torts involving
improper interference with business prospects. B & L Corp. v. Thomas &
Thorngren, Inc., 162 S.W.3d 189, 215 (Tenn. Ct. App. 2004) (citing Prosser
and Keeton on the Law of Torts § 130 at 1013 (5th ed.1984)). Plaintiff’s
unfair competition claim is duplicative of its claims for breach of fiduciary
duty and breach of duty of loyalty, and it fails for the same reasons discussed
above. Defendants did not wrongfully appropriate confidential information,
products, tools, or clients from Plaintiff nor interfere with Plaintiff’s business
prospects. Plaintiff was suffering certain declines while Brown was manager
before the Dataium concept was conceived. In fact, Dealerskins was critical
of Brown’s performance and eventually fired him for those declining results.
Upon a careful review of the evidence, we agree with the trial court. As this Court
has explained:
Quite apart from any improper motive, unfair competition, or for that matter
other interferences with prospects, can be found when the defendant engages
in any conduct that amounts to a recognized tort and when that tort deprives
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the plaintiff of customers or other prospects. Liability for such losses may be
imposed from defamation, disparagement, intimidation or harassment of the
plaintiff's customers or employees, obstruction of the means of access to his
place of business, threats of groundless suits, commercial bribery and inducing
employees to commit sabotage.
B & L Corp., 162 S.W.3d at 215-17 (quoting Prosser and Keeton on the Law of Torts § 130
at 1013 (5th ed.1984)). See also FTA Enters., Inc. v. Pomeroy Computer Res., Inc., No.
E2000-01246-COA-R3-CV, 2001 WL 185210 at *5 (Tenn. Ct. App. Feb. 12, 2001). As with
the claim of civil conspiracy, a claim of unfair competition also requires an underlying tort,
which the evidence did not establish in this case. As the trial court properly found,
Dominion’s unfair competition claim must fail for the same reason that the conspiracy claim
fails. This issue is accordingly without merit.
IX. Mr. West’s Duty Not to Solicit Employees
Dominion contends that the trial court should have found that Mr. West violated his
contractual duty not to solicit employees of Dealerskins. In support, Dominion argues that
Mr. West’s non-solicitation clause addressed both direct and indirect solicitation and that Mr.
West’s involvement in the “conspiracy” would mean that the acts of his co-conspirators
could be imputed to him. Dominion’s argument regarding imputation must fail, however,
because the trial court properly found that there was no actionable conspiracy. Further, in
its findings of fact, the trial court found that only Mr. Brown and Mr. Ezell solicited
Dealerskins’ employees, not Mr. West, although Mr. West did have some knowledge of the
situation. The findings of fact of the trial court involving the credibility of witnesses are
entitled to great weight on appeal. See Sisk, 640 S.W.2d at 849. We conclude that the
evidence does not preponderate against the trial court’s determination that Mr. West did not
violate the non-solicitation clause in his agreement.
As Defendants point out, Plaintiff has not cited any authority for finding a breach of
a non-solicitation clause where the employee merely had knowledge that a third party was
soliciting other employees. In fact, as the trial court noted, this Court has previously declined
to find that a defendant breached a non-solicitation clause where there was no evidence that
the defendant arranged interviews or took other steps to recruit the plaintiff’s employees. See
McDaniel v. Manufacturers Consol. Servs., Inc., No. 02A01-9111-CH-00284, 1992 WL
218073 at *2 (Tenn. Ct. App. Sept. 11, 1992). We find no error in the trial court’s
adjudication of this issue.
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X. Covenants Not to Compete
Dominion contends that the trial court erred in ruling that no individual defendants
other than Mr. Ezell breached an enforceable covenant not to compete. Dominion asserts
that Mr. Gerber’s agreement was identical to Mr. Ezell’s, such that if Mr. Ezell was found
to be in violation of the agreement, Mr. Gerber also should have been found to be in violation
of the agreement. Dominion’s argument ignores that the main basis for the trial court’s
imposition of liability on Mr. Ezell was Mr. Ezell’s personal solicitation of Dealerskins’
employees. There was no proof that Mr. Gerber solicited Dealerskins’ employees or had any
involvement in the development of Dataium other than as an investor.
Regarding the remaining individual defendants and the non-competition provisions
contained within their respective agreements, the trial court found that the non-competition
provisions were overly broad to the extent that they prohibited the Defendants from engaging
“in a business in which Plaintiff was not engaged or engaging in ordinary competition.” See,
e.g., Vantage Tech., LLC v. Cross, 17 S.W.3d 637, 644 (Tenn. Ct. App. 1999). The court
found that the provisions could be interpreted to apply to a similar product that did not
compete with Dealerskins’ products and were therefore unenforceable in Tennessee because
“a restrictive covenant may not be enforced in the absence of competition.” Id. The court
also found that the provisions could not be enforced to prohibit competition with
Dealerskins’ future products.
We agree with the trial court’s factual findings. In a case addressing the enforceability
of a non-competition provision, this Court explained:
Covenants not to compete, because they are in restraint of trade, are disfavored
in Tennessee. As such, they are construed strictly in favor of the employee.
However, when the restrictions are reasonable under the circumstances, such
covenants are enforceable. The factors that are relevant in determining
whether a covenant not to compete is reasonable include “the consideration
supporting the agreements; the threatened danger to the employer in the
absence of such an agreement; the economic hardship imposed on the
employee by such a covenant; and whether or not such a covenant should be
inimical to public interest.” Allright Auto Parks, Inc. v. Berry, 219 Tenn. 280,
409 S.W.2d 361, 363 (1966).
The first factor, consideration, is not an issue on appeal. In balancing the other
three factors, a threshold question is whether the employer has a legitimate
business interest, i.e., one that is properly protectable by a non-competition
covenant.
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Several principles guide the determination of whether an employer has a
business interest properly protectable by a non-competition covenant. Because
an employer may not restrain ordinary competition, it must show the existence
of special facts over and above ordinary competition. These facts must be
such that without the covenant, the employee would gain an unfair advantage
in future competition with the employer.
See Vantage, 17 S.W.3d at 644 (other internal citations omitted).
The trial court implicitly found that 1) Dominion had no legitimate business interest
in protecting itself from similar products that only competed with Dealerskins’ products in
a limited fashion and 2) non-competition provisions could not restrain ordinary competition.
See Vantage, 17 S.W.3d at 644. We agree. As the trial court explained:
Dataium sells automotive web data. It collects, aggregates and reports
on consumers’ behavior on automotive websites. Dataium places a tracking
code on various internet sources across website platforms. Dataium collects
clicks through the tracking codes and normalizes and reports the data.
Dataium’s data allows customers to benchmark their own web presence to
others in the market, permitting customers to also see industry-wide trends
across website platforms.
Dataium uses different technology from Psychic Sales. Dataium uses
three licensed products and Java Code licenses from another vendor to collect
data from websites. Dataium uses licensed business intelligence software from
MicroStrategy to report data. Dataium does not use Dealerskins’ technology.
Psychic Sales does not collect data from more than one website; it reports
existing data on a website. Psychic Sales does not normalize or translate data.
Dataium collects, aggregates, normalizes, and analyzes data.
Psychic Sales facilitates a single car sale to a single buyer. Dataium’s
products are not focused on single sales, but are designed to help the customer
understand trends in the industry and to compose or benchmark their own
performance to those trends.
(References to transcript omitted.)
The evidence in this case demonstrated that the product offered by Dataium does not
directly compete with products offered by Dealerskins because the products serve different
purposes. Dealerskins’s products allow consumer data to be gleaned from only Dealerskins’
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websites for the purpose of generating sales leads, whereas Dataium’s product allows
consumer data to be gleaned from a variety of websites and online resources for the purpose
of predicting demand and trends in the marketplace. The products use different technology,
and Dataium’s product has broader function. The fact that the products are directed to the
same consumers, automotive dealers and manufacturers, does not render them to be
competing, as they actually can be used in tandem. The evidence did not establish that
anything proprietary or confidential to Dealerskins was involved with the development of
Dataium. There was also no proof that Dealerskins lost any customers to Dataium. We
conclude that the trial court properly found that these two companies only competed in a
limited sense. The trial court did not err in ruling that there was no breach of the non-
competition provisions contained in the agreements signed by Defendants Brown, West,
Dopp, and Krabacher.
XI. Request for Increased Damages and Broader Injunctive Relief
Dominion asserts that the trial court should have rendered a larger compensatory
damage award, an award of punitive damages, and broader injunctive relief based on its
claims of conspiracy, breach of fiduciary duty, unfair competition, intentional interference
with contractual relations, breach of the duty of loyalty, and further breach of the non-
competition provisions. Having found these claims to be without merit, we conclude further
that there is no basis for awarding increased compensatory damages or broader injunctive
relief.
Regarding the compensatory damage award generally, the trial court stated that it “was
not persuaded by the hard-to-substantiate claims of damages offered by [Dominion],” finding
that the claimed damages were somewhat “remote.” We agree. In a non-jury case such as
this, we review the amount of damages awarded by the trial court with a presumption of
correctness unless the preponderance of the evidence demonstrates otherwise. Memphis
Light, Gas & Water Div. v. Starkey, 244 S.W.3d 344, 352 (Tenn. Ct. App. 2007). Dominion
included in its damages claim such speculative and arbitrary components as the potential loss
of revenue caused by a delay of more than a year in the launch of new products, the potential
loss of revenue from Psychic Sales customers who might decide to cancel, and the decline
in Dealerskins’ profitability from March 2009 to the time of trial (even though the decline
began before March 2009). We conclude that the evidence does not preponderate against the
amount of compensatory damages awarded by the trial court. This issue is discussed in
greater detail below.
Dominion also contends that the trial court’s award of attorney’s fees was too low.
Dominion concedes that an award of attorney’s fees is reviewed under an abuse of discretion
standard. See In re Estate of Greenamyre, 219 S.W.3d 877, 885 (Tenn. Ct. App. 2005). In
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Greenamyre, this Court elucidated that standard as follows:
The “abuse of discretion” standard is a review-constraining standard of review
that calls for less intense appellate review and, therefore, less likelihood that
the trial court’s decision will be reversed. Appellate courts do not have the
latitude to substitute their discretion for that of the trial court. Thus, a trial
court’s discretionary decision will be upheld as long as it is not clearly
unreasonable, and reasonable minds can disagree about its correctness.
Discretionary decisions must, however, take the applicable law and the
relevant facts into account. Accordingly, a trial court will be found to have
“abused its discretion” only when it applies an incorrect legal standard, reaches
a decision that is illogical, bases its decision on a clearly erroneous assessment
of the evidence, or employs reasoning that causes an injustice to the
complaining party.
Greenamyre, 219 S.W.3d at 885-86 (internal citations omitted).
Our Supreme Court has instructed that “a trial court should apply the factors set forth
in RPC 1.5(a)(1)-(10) when determining a reasonable attorney’s fee.” Wright ex rel. Wright
v. Wright, 337 S.W.3d 166, 176 (Tenn. 2011). These factors are:
(1) The time and labor required, the novelty and difficulty of the questions
involved, and the skill requisite to perform the legal service properly;
(2) The likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the lawyer;
(3) The fee customarily charged in the locality for similar legal services;
(4) The amount involved and the results obtained;
(5) The time limitations imposed by the client or by the circumstances;
(6) The nature and length of the professional relationship with the client;
(7) The experience, reputation, and ability of the lawyer or lawyers performing
the services;
(8) Whether the fee is fixed or contingent;
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(9) Prior advertisements or statements by the lawyer with respect to the fees
the lawyer charges; and
(10) Whether the fee agreement is in writing.
Tenn. Sup. Ct. R. 8, RPC 1.5.
In this case, Dominion’s attorneys sought total fees of $611,324.94 and costs of
$8,403.34. The trial court concluded that as Dominion had prevailed only on certain issues,
it was entitled to an award of attorney’s fees pursuant to the contracts that were breached.
The trial court found that the hourly rates charged by Dominion’s counsel were reasonable
and consistent with rates charged in the Nashville area. The court further found that the
amount of time devoted by Dominion’s counsel was reasonable.
The court noted, however, that in consideration of the “amounts requested and the
results obtained,” an award of the entire amount of fees requested was not warranted. The
court thus awarded partial fees based upon twenty percent of the time spent by lead counsel
and ten percent of the time spent by other attorneys and paralegals. The trial court’s total
award of attorney’s fees was $87,039.76. The court also awarded claimed costs and expenses
of $4,783.40, stating further that it had “excluded and declined to award those expenses the
Court did not believe were allowable costs pursuant to the definition of ‘discretionary costs’
as defined by the state and federal rules.”
Although the trial court did not specifically discuss Rule of Professional Conduct 1.5,
the court clearly considered and applied the factors contained therein. The court specifically
relied upon the factors regarding the reasonableness of time spent and hourly rates, finding
that the time expended was reasonable, as were the hourly rates charged. The court also
noted that the hourly rates were commensurate with those charged in the locality for similar
services. The court placed great importance upon the “amount involved and results
obtained,” relying heavily upon this factor in awarding a reduced amount of fees. We
conclude that the trial court did not apply an incorrect legal standard, reach a decision that
is illogical, base its decision on a clearly erroneous assessment of the evidence, or employ
reasoning that caused an injustice to the complaining party. See Greenamyre, 219 S.W.3d
at 885-86. Therefore, we agree with the trial court’s award of fees and find no abuse of
discretion therein.
XII. Liability of Mr. Brown and Mr. Ezell
Defendants posit that the trial court erred in finding that Mr. Brown and Mr. Ezell
were liable for a violation of the restrictive covenants contained in their agreements. First,
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Defendants argue that Dominion did not have standing to enforce the agreements Defendants
executed because those agreements were entered with Trader, not Dominion. The trial court
specifically rejected this argument, as do we. Dominion was permitted to present evidence
that Dominion and Trader were the same legal entity, as Trader simply changed its name to
Dominion. The admissibility of this evidence is addressed to the trial court’s discretion, and
we do not find that the court abused its discretion in allowing the evidence of the business
name change to be introduced. See Greenamyre, 219 S.W.3d at 885-86. We also note that
several witnesses’ testimony substantiated this name change. We therefore find this
argument to be unavailing.
Defendants also argue that the non-solicitation provision of Mr. Ezell’s agreement had
expired before the actions complained of herein took place. We agree. The trial court did
not base its ruling regarding Mr. Ezell on the non-solicitation provision however. Rather,
the court grounded its adjudication regarding Mr. Ezell on the non-competition provision,
stating in relevant part:
[T]here is some limited competition between the parties that leads the Court
to conclude that certain of the conduct in soliciting Dealerskins’ employees
warrants the award of some relief for Dominion. This conduct disregarded
Dominion’s legitimate interests, within this limited area of competition, in a
way that should not be countenanced by the Court.
There is no question that the non-competition provision did not expire until April 2010. This
argument is also without merit.
Defendants further assert that the trial court erred in finding that Mr. Brown breached
the non-solicitation provision contained within his agreement, as there was no proof that he
actively recruited Dealerskins’ employees. Contrary to Defendants’ assertion, there was
proof presented that Mr. Brown hosted a meeting at his home in October 2009 for employees
of Dealerskins to discuss their potential involvement with Dataium. The evidence also
demonstrated that Mr. Brown sent emails to other individual Defendants regarding their
potential employment at Dataium while they were still working for Dealerskins. The
evidence supports the trial court’s finding that Mr. Brown violated the non-solicitation
provision contained in his agreement with Dominion.
XIII. Compensatory Damage Award
Defendants contend that the trial court’s award of compensatory damages to
Dominion should be reversed because it was not based on lost profits, as required by law, but
rather was based on “probable loss of goodwill.” The trial court, when fashioning its damage
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award, found that Dominion did prove certain elements of damages caused by the loss of its
employees, including the costs involved in replacing those employees. The court stated that
these costs, which totaled $65,318.00, gave the court “some indication of the impact of the
breach on Dealerskins.” The court also determined that Dominion did not meet its burden
of proof on other claimed damages, including the loss of revenue due to the delay in
launching new products, but noted that it would take into account “that Ezell and Brown
recruited some of the individual defendants while being paid by Dealerskins and that
Brown’s conduct probably caused some damage to Dealerskins’ goodwill.” The court
continued:
The Court does not believe that damages in this context are categorically
limited to lost profits, even though lost profits are usually the measure of
damages in the covenant not to compete context. Plaintiff has not
demonstrated lost profits flowing from the portions of its breach of contract
claim upon which they have prevailed.
The court awarded $50,000.00 against Mr. Brown and Dataium, and $100,000.00 against Mr.
Ezell and Dataium, finding that Mr. Ezell’s conduct was more damaging because he was a
founder of Dealerskins and “the face of Dealerskins for a period of time.” As the court
found, Mr. Ezell was paid significant consideration for his non-competition agreement, was
more active in recruiting Dealerskins’ employees, and his conduct “probably damaged
Dealerskins’ goodwill to some difficult to ascertain extent.”
As Defendants contend and the trial court recognized, damages in these types of
actions are generally awarded based on lost profits. See Baker v. Hooper, 50 S.W.3d 463,
470 (Tenn. Ct. App. 2001). Lost or expected profits are recoverable as damages if they are
shown to be a consequence of the breach, provided the amount can be proven with
reasonable certainty. Id.; see also Med. Educ. Assistance Corp. v. State ex rel. E. Tenn. State
Univ. Quillen Coll. of Med., 19 S.W.3d 803, 818-19 (Tenn. Ct. App. 1999) (holding that
remote and speculative damages may not be recovered for a breach of contract, but contract
damages that are proved with reasonable certainty may be recovered). As this Court has
explained:
Under the law of this state [the plaintiff] is entitled to be placed in the same
position it would have been in had the contract been performed. Profits that
[the plaintiff] would have realized had [the defendant] honored his agreement
not to compete must be based upon certain assumptions. It cannot be
established conclusively what would have happened had [the defendant]
honored the restrictive covenant because he did not do so. Uncertain and
speculative damages are prohibited only when the existence of damages is
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uncertain, not when the amount of damages is uncertain. All that is required
is proof with a reasonable degree of certainty.
Powell v. McDonnell Ins., Inc., No. 02A01-9608-CH-00176, 1997 WL 589232 at *8 (Tenn.
Ct. App. Sept. 24, 1997) (internal citations omitted). In addition to lost profits, other
incidental damages may be awarded in order to place the plaintiff in the same position it
would have been in had the contract been performed. See Package Exp. Ctr., Inc. v. Maund,
No. E2000-02059-COA-R3-CV, 2001 WL 579051 at *4 (Tenn. Ct. App. May 30, 2001).
The trial court herein awarded damages based not on claimed lost profits, which were
not proven, but rather on other incidental damages that Dominion would not have suffered
had Mr. Ezell and Mr. Brown not breached their agreements. Those damages included
amounts spent recruiting and replacing the employees that were solicited, as well as monies
expended on Mr. Ezell’s salary while he was being paid by Dealerskins and simultaneously
recruiting employees away from Dealerskins. Although the trial court also referenced the
loss of goodwill Dominion experienced, we do not find any authority for awarding damages
for breach of a non-competition or non-solicitation provision for loss of goodwill. We
specifically conclude that Dominion is not entitled to any monetary award based on loss of
goodwill. We agree with the trial court, however, that its damage awards were a “reasonable
estimate of Plaintiff’s damages incurred by the precipitous exit of these employees” with
regard to the incidental damages listed above. We therefore find no error in the amount of
the trial court’s award of compensatory damages.
XIV. Tennessee Trade Secrets Act and Attorney’s Fees
In the instant action, Defendants sought $267,604.20 in attorney’s fees for the defense
of Dominion’s claim brought pursuant to the Tennessee Trade Secrets Act. The court,
however, denied this request. Defendants assert that this was error, maintaining that this
claim was brought in bad faith and lacked any factual basis. Defendants rely on Tennessee
Code Annotated § 47-25-1705 (2013), which states that if a claim of misappropriation of
trade secrets is made in bad faith, attorney’s fees may be awarded to the prevailing party.
Bad faith is defined as “dishonesty of belief or purpose.” B LACK’S L AW D ICTIONARY
th
149 (8 ed. 2004). The trial court found that Dominion’s claim pursuant to the Tennessee
Trade Secrets Act was not brought in bad faith. On this issue, the trial court stated,
“Plaintiff’s counsel ought not be charged with being both advocate and judge of their client’s
claims, and though the claim was not strong, it was plausible.”
As Dominion points out, it had a reasonable basis to assert that its trade secrets might
have been exploited in the Defendants’ development of Dataium, this being a disputed issue
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at trial. A few of the individual Defendants maintained knowledge of the inner workings of
Dealerkins’ processes, systems, and software. Whether that information was utilized in the
formation of Dataium was ultimately an issue for the trier of fact. We conclude that the
evidence preponderates in favor of a finding that this claim was not brought with dishonesty
of belief or purpose. The trial court therefore did not err in declining to award attorney’s fees
pursuant to Tennessee Code Annotated § 47-25-1705.
XV. Claim of Attorney’s Fee Provision as Unconscionable
Finally, Defendants raise the argument that the trial court erred by enforcing the
attorney’s fees provision in Mr. Brown’s contract because it is unconscionable. In support,
Defendants argue that the attorney’s fees provision is unilateral, that it is the result of unequal
bargaining power, and that such provisions should be deemed per se unconscionable in the
context of restrictive covenants in employment, even though this has never been recognized
as the law in Tennessee. Defendants assert that “[t]here is no legitimate interest that warrants
the enforcement of an attorney’s fee provision that allows the recovery of exorbitant fees by
a party of unequal bargaining power in the context of the employment relationship.”
The trial court rejected Defendants’ argument that the contract was unconscionable,
and we agree. As this Court has previously elucidated:
A court will generally refuse to enforce a contract on the ground of
unconscionability only when the inequality of the bargain is so manifest as to
shock the judgment of a person of common sense, and where the terms are so
oppressive that no reasonable person would make them on the one hand, and
no honest and fair person would accept them on the other. In determining
whether a contract is unconscionable, a court must consider all the facts and
circumstances of a particular case. If the provisions are then viewed as so
one-sided that the contracting party is denied any opportunity for a meaningful
choice, the contract should be found unconscionable.
Whitton v. Hoover, 313 S.W.3d 262, 264-65 (Tenn. Ct. App. 2009) (internal citations
omitted); see also Taylor v. Butler, 142 S.W.3d 277, 285 (Tenn. 2004). We find no evidence
of such a one-sided and oppressive agreement in this case. Mr. Brown was a sophisticated
businessman who was given the opportunity to review and either accept or reject the
agreement in question as part of the process of negotiating his employment with Dominion.
There has been no showing that Mr. Brown’s bargaining position was unequal relative to that
of Dominion or that he had no reasonable alternative but to sign the contract. This issue is
without merit.
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XVI. Conclusion
The judgment of the trial court is affirmed. Costs on appeal are taxed to appellant,
Dominion Enterprises. This case is remanded to the trial court, pursuant to applicable law,
for enforcement of the trial court’s judgment and collection of costs assessed below.
_________________________________
THOMAS R. FRIERSON, II, JUDGE
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