Automotive Support Group, LLC v. Dale Hightower

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a1122n.06
Nos. 11-2508 & 12-1067 FILED
Oct 31, 2012
UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT
AUTOMOTIVE SUPPORT GROUP, LLC, a )
Michigan limited liability company, dba ASG )
Renaissance, LLC, )
)
Plaintiff - Appellant, )
) ON APPEAL FROM THE UNITED
v. ) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
DALE HIGHTOWER; DON RAY ) MICHIGAN
MCGOWAN, III, )
)
Defendants - Appellees. )
Before: GUY, DAUGHTREY, and STRANCH, Circuit Judges.
JANE B. STRANCH, Circuit Judge. Automotive Support Group, LLC (“ASG”) initiated
this action against former employees Dale Hightower and Don Ray McGowan for alleged breach of
contract, breach of fiduciary duty, and several related claims. Hightower could not afford an
attorney, and the district court entered a default judgment against him. McGowan filed an answer
and a counterclaim asserting breach of contract based on ASG’s failure to pay him final wages and
severance. McGowan then filed a motion for summary judgment on all pending claims, and the
district court granted the motion in two separate orders. ASG appeals, and we now AFFIRM.
I. BACKGROUND
ASG is a professional services firm that specializes in marketing and human resource
outsourcing. The company has its principal place of business in Farmington Hills, Michigan, and
does business also through a wholly-owned subsidiary, Blue Force Services, LLC. Laurie Bradley
is the president of ASG and is responsible for sales and operations in the company’s Human Capital
Division, which focuses its efforts on contract staffing services. Under the contract staffing business
model, ASG hires technical services employees and provides them on a contract basis to work in
house or out of ASG offices for client companies.
Defendant Hightower worked with Bradley before either he or Bradley joined ASG. Bradley
was President and Hightower was Vice President of Sales for a company called ThinkPath. Bradley
left ThinkPath for ASG first, and in November 2004 she recruited Hightower to join her to help ASG
move into government and defense industry contracting. ASG gave Hightower the title of Vice
President of Sales, Government Operations and Business Development, and Hightower opened an
ASG office in Charleston, South Carolina, with an eye on the defense business in South Carolina and
Florida.
In January 2008, Hightower took the first actions that would lead to this lawsuit. He
registered an Internet domain name and created a website for an entity called Staff Search & Rescue
(“SSR”). At the time, Hightower did not attempt to incorporate SSR, hire any employees, or seek
any business for SSR. In fact, Hightower later testified, SSR was never incorporated, never took in
any funds, and never provided any financial benefit to anyone. As Hightower described it, the
website was simply a placeholder that would allow him to someday think about starting a company.
In late 2008, ASG began to recruit technical writers to work out of the Charleston office for
one of its defense industry clients, Force Protection, Inc. (“FPI”). Defendant McGowan was working
in Cincinnati as a technical writer for Lockheed Martin at the time. After receiving an unsolicited
phone call from ASG, McGowan moved to Charleston to work for Blue Force, ASG’s wholly-owned
subsidiary, as a technical writer on the FPI contract. McGowan signed an employment agreement
2
with ASG on November 4, 2008. The agreement contains noncompete language that forms the basis
for ASG’s claims against him:
During the Restricted Period, Employee shall not directly or indirectly, on the
Employee’s behalf or on behalf of any other company, organization, individual or
legal entity, solicit business from or perform services for any Customer or Potential
Customer of ASG.
R. 31-7 at Page ID #435. The Restricted Period is defined as beginning with the date of the
agreement and ending one year subsequent to termination or breach of the employment contract. The
agreement also contains provisions protecting confidential information and requiring employees to
devote their full time and attention to ASG and its clients.
The FPI contract for which ASG had hired McGowan was terminated in early 2009, and
McGowan moved into a hybrid position on staff in Charleston, working largely on sales and
development with Hightower as his supervisor. During the summer of 2009, Hightower directed
McGowan to redesign the website for Blue Force. Satisfied with McGowan’s work, Hightower
asked or directed McGowan to redesign the website that Hightower had previously created for SSR.
Hightower provided McGowan with all of the content for the website, and McGowan spent several
hours over a weekend adding the content and changing the layout and color schemes. In September
2009, Hightower also asked McGowan to create a networking group for SSR on LinkedIn, a social
networking website, and provided him with the content to do so.
At his deposition Hightower testified that when he asked McGowan for help on the website
he told McGowan that SSR was only a placeholder and was not conducting any business. McGowan
said that he had never heard of SSR before Hightower asked him to do the work and that he doubted
at the time that SSR was a real entity. Hightower testified that he created an SSR email address for
3
McGowan because he wanted McGowan’s help, but there is no evidence in the record that
McGowan ever used the email address. In fact, Hightower testified that he had never invited
McGowan to be a part of or to be involved with SSR, that he never asked McGowan to do anything
more than redesign the website and create the LinkedIn account, and that he did not pay McGowan
for the assistance he did receive.
After the FPI contract was terminated in early 2009, Bradley hoped that Hightower and his
remaining employees could drum up new business for ASG and Blue Force. By October 2010, the
new business had not materialized, however, and Bradley had to lay off several employees.
McGowan and two other employees were kept on to work for Hightower. Around this time, Bradley
began to have an uneasy feeling about the Charleston office. She suspected that when she called the
office asking for Hightower she was being transferred to his cell phone, and when she visited the
office for meetings she noticed glances between employees that she thought were out of the ordinary.
She was perturbed by McGowan’s failure to produce billable product for Raydon, a client company,
and she came to the conclusion that the Charleston office had to be closed and the employees
terminated because ASG was spending too much money with too little to show for it.
Sometime shortly before the office was closed, an ASG employee found SSR’s LinkedIn
account from Hightower’s LinkedIn profile and brought it to Bradley’s attention. The LinkedIn
account identified McGowan as the account “owner.” Bradley also testified that someone, though
she could not remember who, brought to her attention an advertisement for SSR in the Charleston
Business Journal. The telephone number for SSR in the advertisement was associated with
Hightower’s home address.
4
On December 8, 2010, Bradley traveled to Charleston to confront Hightower, and ASG flew
McGowan to Michigan under the pretext of a performance review. McGowan was interviewed by
ASG’s human resource director, Lisa Speaks, and Vice President Rick Simon. Speaks advised
McGowan that the Charleston office was being closed because business had not been as strong as
ASG had hoped and that the remaining staff, including both Hightower and McGowan, were to be
terminated that day. Simon then asked McGowan what he knew about SSR. McGowan said that
he had completed the website at Hightower’s request, but that he did not know anything else.
Speaks then presented McGowan with a severance agreement letter, which he signed. The
letter committed ASG to a severance payment of $2500 in exchange for McGowan’s waiver of any
claims arising up to the date of the agreement. The letter also stated that McGowan’s final paycheck
would be dated December 24, 2010, and would provide his pay for the period December 6 to
December 8, 2010.
In Charleston, Bradley interrogated Hightower about SSR before terminating him as well.
Hightower told her that he had come up with the idea of SSR as a way to help his son, who had just
graduated from high school, to earn some money. He told her, however, that SSR had not done any
business, and he gave no indication that McGowan was involved.
Bradley had traveled to Charleston with ASG’s Information Technology Manager Tim Watt.
After Hightower and Bradley left the office that day, Watt spent two days dismantling the computer
server and packing up the remaining items in the office to be sent to headquarters in Michigan.
According to Speaks and Bradley, Watt placed items from each employee’s desk in boxes labeled
respectively with each employee’s name, and then he drove the boxes back to Michigan in a van.
5
Within a couple of days of Watt’s arrival in Michigan, Simon presented Bradley with a folder
allegedly taken from the box labeled with McGowan’s name. The folder was labeled “AAR/SSR”
and inside were twenty-nine resumes printed in April 2010 from an internet job board and copied
onto SSR letterhead. Hightower testified that the folder had been in or on his own desk at the office
and that McGowan had never pulled any resumes or done any solicitation on the part of SSR.
Hightower also admitted that he and his son Travis had downloaded the resumes and copied them
onto letterhead, and Hightower pointed out that the notes taken on the resumes were in his own
handwriting. Watt was not deposed during discovery, and Speaks stated that she had not spoken to
Watt to confirm the folder had in fact come from McGowan’s desk.1
ASG believed that the AAR on the folder referred to the Oklahoma-based AAR Aircraft
Services, a long-time customer of ASG. Bradley instructed ASG staff to contact the individuals
whose resumes were in the folder and that two of them claimed SSR had submitted their resumes
to AAR. She also alleges that she called AAR’s vice president, Dan Durning, who told her that some
of AAR’s recruiters had dealt with SSR, but that he didn’t know whether any payment had ever been
made. Bradley testified that when she first asked Durning to provide records for this suit, he told
her, “Not a good way to keep a customer, Laurie.” R. 31-4 at Page ID #403.
Durning did give Bradley the names of AAR staff she could contact to procure the records,
but Bradley never followed up. Bradley never confirmed that AAR had in fact ever paid SSR for
any services or that McGowan had ever contacted AAR on behalf of SSR, and no one from AAR
1
In her affidavit, Bradley also testified that a folder entitled “SSR Invoices” was also found
in McGowan’s desk. In that folder, however, the invoice from the Charleston Regional Business
Journal had Hightower’s handwriting on it. None of the invoices appear to have mentioned
McGowan by name, and in any case they were not entered into evidence.
6
was deposed for this litigation. Bradley made one other phone call to an ASG customer, Raydon,
but her Raydon contact said he had not had any communication with SSR. Bradley acknowledged
that she did not contact any other ASG customers or have any evidence that SSR had contacted other
ASG customers.
Nonetheless, after finding the AAR/SSR folder, Bradley instructed the company’s lawyer in
Charleston to send McGowan a cease and desist letter stating that ASG had discovered that he had
been operating a competing business out of the ASG offices. The letter, dated December 14, 2010,
stated that McGowan had violated his employment agreement and therefore that ASG was
withdrawing its offer of severance pay and would not make its final salary payment to him.
Subsequently, Bradley received more information tying Hightower to SSR. The phone
number on an SSR brochure allegedly found at the Charleston office was the number belonging to
Hightower’s wife. On December 21, 2010, Bradley received a printout of a business networking
website, Manta.com, which listed Hightower’s home address as the address of the company and his
wife’s cell phone number as the company’s number.2 Two days later, Bradley intercepted a “Merry
Christmas” email from an employee at AAR to Dale and Travis Hightower, identifying them as
working for SSR. On January 3, 2011, ASG’s attorney sent a cease and desist letter to Hightower.
In the final sequence of correspondence, ASG accused both Hightower and McGowan of
failing to return three company laptops that had been delivered to the Charleston office. McGowan
2
Speaks and a colleague found the Manta.com profile and other references to SSR while
conducting an internet search in the week following Hightower’s and McGowan’s dismissal. It
appears that during this search, the ASG employees also discovered a page on the SSR LinkedIn
corporate group listing McGowan as the “Business Development Manager” for SSR. While the
LinkedIn page was entered into the record as an exhibit in the court below, ASG entered none of the
other sites into the record.
7
and Hightower both testified that McGowan had never been issued a laptop, however, and Speaks
admitted she was not sure that McGowan was ever in possession of a laptop. ASG nonetheless
reported the missing laptops to the police, but ASG never followed up, and the report was never
acted on.
After his termination, McGowan applied for unemployment benefits. On December 20,
2010, the South Carolina claims adjudicator mailed ASG a determination that McGowan was
eligible to receive benefits. ASG failed to appeal the decision within the ten-day appeals period and
Speaks later advised the tribunal that “she felt it improper to file an appeal until all information was
gathered regarding the claimant’s separation.” Decision of Appeal Tribunal, R. 32-7 at Page ID
#547. On January 19, 2011, ASG belatedly appealed the determination, but the appeal was denied
as untimely. McGowan was unemployed for several months before he eventually was hired on April
11, 2011 as a technical writer for Calgon Carbon Corporation in Pittsburgh, Pennsylvania.
II. PROCEDURAL HISTORY
ASG initiated suit against Hightower and McGowan on January 21, 2011 in the United States
District Court for the District of South Carolina. The case was transferred to the Eastern District of
Michigan pursuant to McGowan’s motion invoking the forum selection clause in the employment
agreement. After the transfer, ASG filed an amended complaint against McGowan listing thirteen
separate counts, including (1) Temporary Restraining Order / Preliminary and Permanent Injunction,
(2) Breach of Contract / Breach of Covenant of Good Faith and Fair Dealing, (3) Breach of Fiduciary
Duty / Duty of Loyalty, (4) Interference with Contractual and Business Relations, (5) Conversion,
(6) Unjust Enrichment / Restitution, (7) Constructive Trust / Accounting, (8) Civil Conspiracy, (9)
Declaratory Judgment [that Defendants forfeited any rights to receive severance pay] / Forfeiture,
8
(10) Declaratory Judgment [for the same reason] / Rescission, (11) Violation of the Michigan
Uniform Trade Secrets Act, (12) Enforcement of Covenants Against Competition Pursuant to Statute
[M.C.L. § 445.774a(1)], and (13) Unauthorized Access of a Protected Computer in violation of 18
U.S.C. § 1030(a)(4).
McGowan filed an answer and a counter-complaint against ASG, seeking $750 in unpaid
final wages and $2500 in severance pay. In addition, McGowan requested treble damages and
attorney’s fees under § 41-10-80(C) of the Code of Laws of South Carolina. After discovery, ASG
filed a motion for a default judgment as to Hightower, and McGowan filed a motion for summary
judgment both on ASG’s claims and on McGowan’s counterclaims. After a hearing on October 20,
2011, the district court entered a default judgment against Hightower for $45,000 in damages. The
court set that amount based on Bradley’s testimony that Hightower was paid $90,000 per year and
that she thought he had devoted only one half of his time to ASG during the final year of his
employment. ASG asked the court to find that the judgment was based on intentional tort or fraud,
but the court denied the request and noted dissatisfaction with the evidence ASG had presented in
support of those claims.
On October 26, 2011, the district court also granted summary judgment to McGowan on all
of ASG’s claims, finding they were based on unsubstantiated suspicions and inadmissible hearsay.
The court determined that each of ASG’s thirteen counts was based either on the alleged breach of
McGowan’s employment agreement or on his alleged failure to return the laptops and proprietary
data. The court found no evidence in the record to support the latter allegation. And the court held
that McGowan’s actions at his supervisor’s request did not violate the terms of his employment
agreement absent a showing of admissible evidence that he acted to promote an entity he knew was
9
competing with ASG. In the district court’s estimation, the only admissible evidence implicated
Hightower, not McGowan. In any case, the court noted, there was no evidence that Hightower’s and
McGowan’s actions had caused injury to anyone.
In a separate order, the court granted summary judgment in McGowan’s favor on his
counterclaims, noting that ASG’s defenses were based on theories of alleged breach the court had
already rejected. Pursuant to the South Carolina statute and caselaw under which the counterclaim
was brought, the court found no bona fide dispute as to whether ASG had been required to pay the
wages and severance when originally due. Consequently, it granted McGowan’s request for treble
wage damages, attorney’s fees, and reasonable costs. ASG filed a motion for reconsideration of
McGowan’s stated attorney’s fee amount, and the court reduced the amount by $3,962. The final
award to McGowan included $2500 in severance pay, $2250 in treble wages, $63,826.15 in
attorney’s fees, and $1,925.16 in costs.
ASG now appeals both the summary judgment order disposing of its claims against
McGowan and the summary judgment order granting relief to McGowan on his counterclaim. ASG
contests the district court’s evidentiary decisions. It argues the court did not properly consider all
thirteen counts in the complaint. And it maintains the court should have allowed the jury to
determine whether the defendants’ testimony was credible, whether McGowan breached his
employment agreement, and whether ASG had a good faith basis to withhold McGowan’s wages.
III. DISCUSSION
A. Standard of review
This court reviews a district court’s grant of summary judgment de novo. Geiger v. Tower
Auto., 579 F.3d 614, 620 (6th Cir. 2009). Under Federal Rule of Civil Procedure 56(a), summary
10
judgment is appropriate if there is no genuine issue as to any material fact and the movant is entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(a). Courts consider the evidence in the light most
favorable to the nonmoving party and draw all reasonable inferences in that party’s favor. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The ultimate question is “whether the evidence
presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law.” Id. at 251–52.
A summary judgment opponent is obliged to “make her case with a showing of facts that can
be established by evidence that will be admissible at trial.” Alexander v. CareSource, 576 F.3d 551,
558 (6th Cir. 2009) (citing Fed. R. Civ. P. 56(e)(2)). Thus, hearsay evidence cannot be considered
in a motion for summary judgment. Jacklyn v. Schering-Plough Healthcare Prods. Sales Corp., 176
F.3d 921, 927 (6th Cir. 1999). Likewise, this court has repeatedly emphasized that “unauthenticated
documents do not meet the requirements of Rule 56(e).” Alexander, 576 F.3d at 558 (listing cases).
A district court’s hearsay determination on evidence proffered at summary judgment is reviewed
de novo. Carter v. Univ. of Toledo, 349 F.3d 269, 274 (6th Cir. 2003).
B. ASG’s claims against McGowan
In appealing the dismissal of its claims against McGowan, ASG focuses almost entirely on
its contention that McGowan breached the noncompete provisions in his employment contract. In
relevant part, McGowan’s employment agreement prohibited him from “directly or
indirectly . . . solicit[ing] business from or perform[ing] services for any Customer or Potential
Customer of ASG.” R. 435. Reviewing the record and considering evidentiary questions de novo,
we find no genuine dispute of material fact as to whether McGowan violated this agreement.
11
As an initial matter, we note that neither Hightower nor McGowan admits that McGowan
solicited ASG’s customers or other entities. There is no deposition testimony or affidavit in the
record from any ASG customer or potential customer to show that McGowan solicited business on
behalf of SSR. And Bradley failed to undertake a reasonable investigation by which she could have
confirmed or dispelled her suspicions about McGowan. Durning, the vice president of AAR, gave
Bradley the names of individuals who could have provided her further information about the
company’s dealings with SSR, but Bradley never followed up with those individuals. She admits
that her investigation led her to call only one other company, Raydon, and there she was told that
Raydon employees had never heard of SSR.
The only evidence ASG musters in support of its claim that McGowan directly solicited ASG
customers is the folder of resumes that Watt allegedly found on McGowan’s desk. Bradley’s
allegation that the folder came from McGowan’s desk, however, lacks personal knowledge and is
not otherwise supported in the record. See Moore v. Holbrook, 2 F.3d 697, 699 (6th Cir. 1993)
(noting that Fed. R. Civ. P. 56(e) requires that affidavits supporting a motion for summary judgment
be based on personal knowledge). ASG did not depose Watt or include in the record an affidavit
from him. And Speaks admits that she never even followed up to find out whether Watt in fact
found the folder on McGowan’s desk. The only competent evidence in the record about the folder
is Hightower’s testimony that he and his son produced and used the resumes, that the resumes
contain Hightower’s writing, and that Hightower left the folder on his own desk when the office was
closed. In short, there is no genuine dispute as to the origins of the folder and therefore no genuine
dispute as to whether McGowan directly solicited anyone on behalf of SSR.
12
Neither does ASG show any genuine dispute as to whether McGowan indirectly solicited
customers for SSR in breach of his contract. A finding of indirect solicitation requires some
evidence that McGowan was aware that SSR was an operating company and competing with ASG.
Solicitation in this context is “an attempt or effort to gain business,” Black's Law Dictionary 1520
(9th ed. 2009), which necessitates some expectation or knowledge that gaining business is an actual
possibility. Hightower directed McGowan to redesign the SSR website and create the LinkedIn
account but told him that SSR was a placeholder. McGowan testified that he doubted at the time that
SSR was a real business, and there is no evidence in the record that McGowan had any knowledge
of efforts by Hightower or his teenage son to solicit customers on behalf of SSR. The fact that
McGowan redesigned the website over a weekend during the summer of 2009 and spent a very short
time creating the LinkedIn account—both at his supervisor’s request—does not create a genuine
dispute of material fact as to whether McGowan indirectly solicited customers.3
While the parties appear to agree that Michigan law applies to ASG’s claim for breach of
contract, the Michigan cases ASG provides are inapposite. In St. Clair Medical, P.C. v. Borgiel, the
defendant “readily admit[ted]” to providing services that would be barred by the agreement. 715
N.W.2d 914, 918 (Mich. Ct. App. 2006). McGowan, of course, has not done so. In Radio One, Inc.
v. Wooten, the defendant argued that a noncompete agreement was unreasonable to the extent that
it barred him from practicing his trade in a certain geographic area. 452 F. Supp. 2d 754, 758 (E.D.
Mich. 2006). Here, McGowan does not contest the validity of his employment agreement. The only
3
To the extent that ASG makes the argument, we do not consider whether the specific
language in the LinkedIn account suggests McGowan breached his contract. In his motion for
summary judgment, McGowan argued that the printouts of the LinkedIn account were inadmissible
hearsay, and ASG did not contest the argument. The question is thus not preserved for appeal. See
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir. 2008).
13
issue before the court is whether ASG provided sufficient competent evidence to create a genuine
dispute of fact as to whether McGowan breached the agreement. ASG has not.
ASG also presses its civil conspiracy claim on appeal, attempting to impose responsibility
for Hightower’s actions on McGowan. The conspiracy claim, however, fails for much the same
reason as did the breach of contract claim. ASG has provided no admissible evidence that McGowan
had the tortious intent necessary to make out a claim of civil conspiracy under Michigan law. An
essential component of a civil conspiracy claim is that “each particular defendant who is to be
charged with responsibility shall be proceeding tortiously, which is to say with intent to commit the
tort or with negligence.” Rosenberg v. Rosenberg Bros. Special Account, 351 N.W.2d 563, 569
(Mich. Ct. App. 1984) (quoting W. Prosser, Law of Torts § 46, at 292 (4th ed. 1971)). In other
words, “[o]ne who innocently does an act which furthers the tortious purpose of another is not acting
in concert with him.” Id. If ASG cannot prove at least constructive knowledge on McGowan’s part
that SSR was or would be a going concern, then the record cannot support a finding of tortious
intent.
In addition, “the core of an actionable civil conspiracy is a question of damages.” Fenestra
Inc. v. Gulf Am. Land Corp., 141 N.W.2d 36, 48 (Mich. 1966). ASG’s explanation of damages is
largely limited to Bradley’s speculation. Based on Durning’s “not a good way to keep a customer”
statement to her, Bradley speculates that ASG lost goodwill with AAR and potentially lost future
contracts, all due to Hightower’s actions. This argument is not based on McGowan’s improper
diversion of business from ASG, but on Bradley’s unsuccessful efforts to draw AAR into her dispute
with Hightower. More importantly, Durning’s statement is inadmissible hearsay. And there is no
evidence in the record—admissible or not—that SSR ever received payment from any other party
14
for services rendered, much less from a customer or even potential customer of ASG. For all these
reasons, the civil conspiracy claim fails.
Finally, while ASG complains that the district court dismissed its other eleven counts without
careful consideration, the company’s briefing on appeal is limited to the breach of contract and civil
conspiracy claims. The briefs provide no argument regarding the remaining claims. This court
applies the “settled appellate rule that issues adverted to in a perfunctory manner, unaccompanied
by some effort at developed argumentation, are deemed waived.” United States v. Elder, 90 F.3d
1110, 1118 (6th Cir. 1996) (internal quotation marks and citation omitted).
In sum, ASG has provided no basis for disturbing the grant of summary judgment for
McGowan on ASG’s claims against him. Summary judgment may be appropriate when the case of
the nonmoving party rests merely upon “unsupported speculation.” Medina-Munoz v. R.J. Reynolds
Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990). We therefore affirm the district court’s summary
judgment order as to ASG’s claims against McGowan.
C. McGowan’s wage and severance counterclaim
The district court granted summary judgment to McGowan on his claim for $750 in unpaid
wages and for the $2500 he was owed under the severance agreement. In addition, citing South
Carolina Code of Laws § 41-10-80(C), the court granted McGowan attorney’s fees, costs, and treble
damages on his wage claim. Section 41-10-80(C) provides, in relevant part:
In case of any failure to pay wages due to an employee as required by Section 41-10-
40 or 41-10-50 the employee may recover in a civil action an amount equal to three
times the full amount of the unpaid wages, plus costs and reasonable attorney’s fees
as the court may allow.
15
§ 41-10-80(C). The court’s application of this language raised the unpaid wages portion of the
judgment to $2250, in addition to $2500 in severance pay, and provided the basis for assessing
$65,751.31 in fees and costs.
The parties agree that McGowan’s counterclaim for unpaid wages and severance pay is
intertwined with ASG’s direct claims for breach of contract and breach of fiduciary duty. ASG
argues that an employer may not be liable for back wages or severance where the former employee
breached his duty of loyalty. See, e.g., Futch v. McAllister Towing of Georgetown, Inc., 518 S.E.2d
591, 594 (S.C. 1999) (“[A]n employee who breaches the common law duty of loyalty to an
employer . . . forfeits the right to compensation.”).4 But this argument is foreclosed where, as here,
the court has already rejected the direct claims of breach by the employee.
ASG also argues that severance pay is not covered by § 41-10-10 and therefore that
McGowan has no legal basis to claim it. The district court, however, did not award severance pay
pursuant to the statute, as evidenced by the exclusion of the severance pay from the calculation of
treble damages. The severance pay is due to McGowan under a common law breach of contract
theory based on the letter agreement itself. Recognizing this, ASG argues in the alternative that the
severance letter amounted only to “a gratuitous offer.” This argument is specious. McGowan
provided consideration by waiving his right to bring a variety of legal claims. The letter represented
a valid agreement, and McGowan is thus due both his final $750 in wages and $2500 in severance
pay.
4
While the employment agreement specifies the application of Michigan law to disputes,
ASG does not contest McGowan’s claim that he may seek relief for alleged violations of South
Carolina employment statutes.
16
Finally, ASG appeals the grant of treble damages on McGowan’s wage claim and the grant
of attorney’s fees and costs pursuant to § 41-10-80(C). McGowan argues that South Carolina law
requires this court to review the trial court’s decision to grant treble damages and attorney’s fees
under an abuse of discretion standard. The question is surprisingly complex, which perhaps explains
ASG’s failure to articulate a counter-argument.5 In any case, even reviewing the district court’s
determination de novo, we agree that McGowan is due treble wages and fees and costs under the
statute.
Interpreting § 41-10-80(C), South Carolina courts have held that treble damages are
permissive rather than mandatory where there is a “good faith dispute over wages allegedly due.”
Rice v. Multimedia, Inc., 456 S.E.2d 381, 383 (S.C. 1995). “[A] finding that an employee is entitled
to recover unpaid wages is not equivalent to a finding that there existed no bona fide dispute as to
the employee’s entitlement to those wages.” O’Neal v. Intermedical Hosp. of S.C., 585 S.E.2d 526,
531–32 (S.C. 2003). Thus, even if a plaintiff ultimately prevails, a court may decline to impose
treble damages and attorney’s fees when the issue involved a “valid close question of law or fact
which should properly be decided by the courts.” Rice, 456 S.E.2d at 383.
5
State rules governing attorney fee awards are generally considered to be substantive law and
therefore apply in federal court diversity actions under the Erie doctrine. See Acwoo Intern. Steel
Corp. v. Toko Kaiun Kaish, Ltd., 840 F.2d 1284, 1291 (6th Cir. 1988). Cf. Scottsdale Ins. Co. v.
Tolliver, 636 F.3d 1273, 1279 (10th Cir. 2011) (distinguishing substantive and procedural fees).
However, the standard of review to be applied to fee awards is generally considered to be procedural
and therefore is “likely governed by federal law.” Newberry v. Burlington Basket Co., 622 F.3d 979,
983 (8th Cir. 2010). But cf. Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct.
1431, 1448 (2010) (Stevens, J., concurring) (“[T]here are some state procedural rules that federal
courts must apply in diversity cases because they function as a part of the State’s definition of
substantive rights and remedies.”). And while we generally review the decision to award attorney’s
fees and the amount of those fees under an abuse of discretion standard, “any elements of legal
analysis and statutory interpretation which figure in the district court’s decision are reviewable de
novo.” Hall v. Bolger, 768 F.2d 1148, 1150 (9th Cir. 1985).
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The “relevant date for determining whether the employer reasonably withheld wages is the
time at which the wages were withheld, i.e. when the employer allegedly violated the Act.” Mathis
v. Brown & Brown of S.C., Inc., 698 S.E.2d 773, 782 (S.C. 2010). According to the severance
agreement, it appears that ASG was required to pay McGowan his final wages by December 24,
2010. The issue is whether a good faith dispute existed on that date.
Bradley and ASG may have suspected or even believed on December 24 that McGowan had
violated his contract. But even a reasonable suspicion or belief does not necessarily create a “valid
close question of law or fact.” Rice, 456 S.E.2d at 383. At the outset, we note that McGowan’s
admission that he redesigned the SSR website and created the LinkedIn page cannot form the basis
of a bona fide dispute given that ASG knew McGowan had done so before it promised payment of
his final wages and severance. ASG’s argument that the court should consider hearsay or other
inadmissible evidence for the purpose of this determination also fails. To the extent the authority
ASG cites is to the contrary, we disagree. See Moore v. Sears, Roebuck & Co., 683 F.2d 1321,
1322–23 (11th Cir. 1982) (holding otherwise inadmissible evidence supporting employer’s good
faith in a wrongful discharge claim was not hearsay). Without admissible evidence to support its
suspicion, ASG should have known that no close question of law or fact existed for a court to decide.
Moreover, ASG tacitly admitted as much by failing to timely appeal McGowan’s unemployment
benefits decision by December 30, 2010. The stated basis for ASG’s failure to appeal was the lack
of a sufficiently complete record at the time. While this admission may not be dispositive, it
certainly indicates ASG’s position that the company did not have sufficient evidence of McGowan’s
breach to proceed in court at the time it owed and refused to pay his wages.
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The district court carefully parsed the record and found no bona fide dispute as to whether
ASG owed McGowan his final wages. We have independently taken the same steps and come to
the same conclusion. It was not reasonable for ASG to withhold McGowan’s final wages solely on
the basis of Bradley’s suspicion, particularly in light of Bradley’s concurrent failure to carry out the
kind of investigation that could have either confirmed or dispelled her concerns. Thus, whether
considered de novo or under an abuse of discretion standard, we affirm the determination of the
district court that treble damages and attorney’s fees are appropriate in this case.
The standard of review for the amount of the attorney’s fees awarded is abuse of discretion.
See Imwalle v. Reliance Med. Prods., Inc., 515 F.3d 531, 551 (6th Cir. 2008). ASG highlights the
lower fee awards in other South Carolina wage cases and contends that the award here was
excessive. But ASG provides no statutory authority or constitutional theory to support this
argument, and ASG cannot dispute that its complex defense to the wage counterclaim required
significant research and briefing on McGowan’s part. The court below reviewed ASG’s motion for
reconsideration and reduced the award where appropriate. We find no abuse of discretion.
IV. CONCLUSION
For the reasons stated above, we AFFIRM both orders of the district court.
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