Robert Carmichael v. Separators, Inc.

FILED
May 08 2020, 8:32 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Margaret M. Christensen Christopher C. Murray
Andrew M. Pendexter John A. Drake
Dentons Bingham Greenebaum, LLP Ogletree Deakins Nash Smoak &
Indianapolis, Indiana Stewart, PC
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Robert Carmichael, May 8, 2020
Appellant-Defendant, Court of Appeals Case No.
19A-PL-1821
v. Appeal from the Johnson Superior
Court
Separators, Inc., The Honorable Marla K. Clark,
Appellee-Plaintiff. Judge
Trial Court Cause No.
41D04-1509-PL-91
Riley, Judge.
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 1 of 44
STATEMENT OF THE CASE
[1] Appellant-Defendant, Robert Carmichael (Carmichael), appeals following the
trial court’s entry of default judgment and award of exemplary and
compensatory damages against him and his co-defendants, Olice Monday
(Monday) and Centrifuge Supplies, Inc. (CSI), (collectively, the Defendants),1
in favor of Appellee-Plaintiff, Separators, Inc. (Separators).
[2] We affirm.
ISSUES
[3] Carmichael presents this court with four issues, which we consolidate and
restate as the following three:
(1) Whether the trial court’s entry of a default judgment against
Carmichael and his co-defendants as a sanction for spoliation
of evidence in contempt of its discovery orders was clearly
erroneous;
(2) Whether the trial court properly denied Carmichael’s motion
for summary judgment; and
(3) Whether the trial court’s award of exemplary and
compensatory damages was clearly erroneous.
1
The judgments and damages were entered against all the Defendants. Monday and CSI do not participate
in this appeal.
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FACTS AND PROCEDURAL HISTORY
[4] Separators was founded in 1985 and provides its customers with centrifuge
services, equipment, and parts. Over the course of its corporate existence,
Separators amassed a collection of reference materials pertaining to the
provision and maintenance of centrifuges to its customers (the technical
library). The technical library contained hundreds of original equipment
manufacturer manuals (the manuals), some of which had been modified with
notes regarding specific alterations to Separators’ customers’ centrifuges.
Separators had converted the technical library to an electronic format, a
laborious process that entailed manually scanning thousands of pages of
documents. The technical library was password protected, and Separators did
not allow the general public or its competitors to access it. In addition to the
technical library, Separators stored other types of data on its computer network,
including customer parts lists, customer quotes, and other sales and financial
information. The Separators’ employee handbook provided that employees
were not to copy any of Separators’ data files without the company’s
permission.
[5] From 2005 to 2013, Carmichael was the parts manager for Separators, a job
which entailed interfacing with Separators’ customers on a regular basis.
Separators had hired Monday in 2002, and he became Carmichael’s assistant in
the parts department. Neither Carmichael nor Monday signed a non-compete,
non-solicitation, or confidentiality agreement with Separators. In December
2012, Carmichael formed CSI as a direct competitor to Separators. Carmichael
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was the president and sole shareholder of CSI. Carmichael formally resigned
from Separators on March 8, 2013. Before he left the company, Carmichael
copied hundreds of manuals from the technical library and subsequently copied
those electronic files onto his CSI computer, all without Separators’ consent.
[6] After Carmichael left, Monday became the manager of Separators’ parts
department. On February 20, 2015, Monday left Separators to begin working
for CSI as its vice president. Before he left Separators, and without the
company’s consent, Monday copied thousands of data files relating to
Separators’ business, including the manuals, sales documents, service parts lists,
and customer quotes, onto a Seagate USB Device (Seagate USB) and a Pockey
USB Device (Pockey USB). On February 23, 2015, Monday’s first day of work
at CSI, Monday downloaded the data from the Seagate and Pockey USBs onto
his CSI computer. Monday had internet-based data backup for his CSI
computer on an ASUS WebStorage account (ASUS account), and he had
another internet-based data storage account with Microsoft OneDrive
(OneDrive account). Carmichael used a Western Digital Passport drive (WDP
drive) to back-up financial data from his CSI computer prior to moving to an
internet-based accounting system.
[7] On September 14, 2015, Separators filed its Verified Complaint for Injunctive
Relief and Damages (Complaint) alleging that the Defendants had copied and
taken “Separators’ files containing proprietary and trade secret information
including, but not limited to, parts lists, customer lists, supplier information,
custom parts drawings, manuals, and financial reports[,]” and thus had
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“accessed, copied and used a significant portion of Separators’ technical,
commercial, and financial library.” (Appellant’s App. Vol. III, pp. 40, 42).
Separators raised claims of misappropriation of trade secrets pursuant to the
Indiana Uniform Trade Secrets Act (IUTSA) (all Defendants); breach of
fiduciary duty/duty of loyalty and computer trespass (Carmichael and
Monday); and tortious interference with business relationships, unfair
competition, unjust enrichment, conversion, theft, and civil conspiracy (all
Defendants). In conjunction with its Complaint, Separators sought a temporary
restraining order (TRO) on CSI’s unfairly competitive business activities.
Separators also sought orders directing the preservation of evidence within the
Defendants’ possession or control and for expedited discovery.
[8] On September 14, 2015, the trial court issued a TRO that enjoined the
Defendants from using Separators’ trade secrets and confidential information to
compete against Separators. The trial court also issued its Order Preserving
Electronic Evidence (OPEE) that directed the Defendants to
preserve all electronically stored date in their possession, custody,
or control relating to Separators, including emails or data that
exists or existed (before being deleted) on any computer, laptop,
PDA, backup tape, CD, DVD, USB drive, cloud storage, or
other media (including all metadata and tags).
(Appellant’s App. Vol. III, p. 157). The trial court ordered the Defendants to
comply with Separators’ expedited discovery requests by September 22, 2015,
and it set a hearing on Separators’ motion for a preliminary injunction for
September 23, 2015.
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[9] On September 14, 2015, Carmichael was personally served with the Complaint,
TRO, and OPEE at 6:00 p.m. Monday was with Carmichael when Carmichael
was served. At 6:03 p.m. on September 14, 2015, approximately 100 files
related to Separators were deleted from the Pockey USB. At 7:10 p.m. on
September 14, 2015, after Monday had been personally served with the same
documents, 1063 items related to Separators were deleted from the Seagate
USB. Sometime after September 14, 2015, Carmichael deleted approximately
twenty emails from his CSI computer that were potentially related to
Separators.
[10] On September 23, 2015, the trial court entered a stipulated preliminary
injunction order (PI) which enjoined the Defendants from
destroying, erasing, or otherwise making unavailable for further
proceedings in this matter, any records or documents (data or
information maintained in computer media, including
Defendants’ personal computers, drives, email, and other media)
in Defendants’ possession, custody, or control that were obtained
from or derived from any Separators [] documents, data, records,
or information.
(Appellant’s App. Vol. III, p. 160). The PI also ordered the Defendants to
produce their computers and electronic data storage devices, which, according
to an agreed inspection order (AIO) entered in conjunction with the PI,
included “any and all devices and media used to store electronic
information[.]” (Appellant’s App. Vol. III, p. 164). These items were to be
produced to computer forensics expert Rebecca Green (Green) for inspection.
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Between September 22, 2015, which was the day before the hearing on
Separators’ motion for a preliminary injunction, and September 24, 2015, the
day that the Defendants’ computers, electronic data storage devices, and media
were to be turned over to Green for inspection, at least 932 files relating to
Separators were deleted from Monday’s CSI computer.
[11] On September 24, 2015, in order to comply with the TRO, OPEE, PI, AIO,
and the trial court’s order granting Separators’ expedited discovery requests
(collectively, the discovery orders), Carmichael and Monday met with Green at
the CSI business premises. While there, Green specifically asked Carmichael
and Monday whether they had any internet-based data storage that was
implicated by the discovery orders. Carmichael and Monday disclosed their
internet-based accounting system and produced their CSI computers and the
Seagate USB, but they failed to produce the WDP drive and failed to disclose
the ASUS and OneDrive accounts. 2 On October 5, 2015, the day before the
Pockey USB was scheduled to be turned over to Green for inspection,
approximately 3000 images were uploaded onto the USB, rendering the
previously-deleted data irretrievable.
[12] As a result of her forensic investigation, Green discovered the deletions from
the Seagate and Pockey USBs and the CSI computers, the existence of the
2
The trial court found that Carmichael also failed to disclose an additional internet-based data storage
account at Dropbox, but it does not appear that the trial court relied upon the non-disclosure of that account
in its conclusions of law sanctioning the Defendants.
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undisclosed internet-based data storage sites and the WDP drive, and the
overwriting of deleted data by images on the Pockey USB. On February 11,
2016, Separators filed a motion for order to show cause seeking to have the
Defendants held in contempt and sanctioned for violating the discovery orders
by destroying and concealing evidence relevant to its claims. Among its
requests for relief, Separators sought a default judgment against the Defendants
on several of its claims the prosecution of which it alleged had been materially
impeded by the Defendants’ actions.
[13] On March 16, April 26, and May 17, 2016, the trial court held hearings on
Separators’ rule to show cause motion. The Defendants did not dispute that
they had copied Separators’ manuals before leaving the company and had
downloaded the copied data onto CSI computers for their use, but they did
dispute that any data they had taken constituted trade secrets or was proprietary
to Separators. Carmichael admitted that he had deleted emails from his CSI
computer after the discovery orders were entered, which he acknowledged
made it difficult to determine whether the emails were Separators-related.
Monday testified that, immediately upon learning of the lawsuit from
Carmichael and after being personally served with the Complaint himself, he
became anxious and deleted files from his CSI computer. However, Monday
denied having possession of the Seagate and Pockey USBs on September 14,
2015, the day that data had been deleted from those devices. Monday testified
that the Seagate USB had been in the possession of his girlfriend and that the
Pockey USB had been in the possession of his ex-wife, but he also related that
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 8 of 44
he did not inform his girlfriend or his ex-wife of the lawsuit until days after he
was served with the Complaint. Monday further testified that he had met with
his ex-wife on October 5, 2015, to download family photographs from the
Pockey USB before producing it to Separators. Monday could not explain how
the images were overwritten onto the Pockey USB. Neither Monday’s
girlfriend nor his ex-wife testified at the hearings. Green provided expert
testimony regarding her forensic examination and the loss of data from the
Seagate and Pockey USBs and the CSI computers.
[14] On November 8, 2016, the trial court issued its Order finding the Defendants in
contempt. The trial court ruled that the Defendants had “acted in conspiracy
with one another in violating the [c]ourt’s orders” by willfully deleting
information from the Seagate and Pockey USBs and the CSI computers,
attempting to hide the deletion of data on the Pockey USB by overwriting 3000
images onto the device, and failing to disclose the existence of the internet-
based locations of relevant electronic files. (Appellant’s App. Vol. II, p. 83). As
a sanction for these discovery violations, the trial court entered a default
judgment on Separators’ claims of misappropriation of trade secrets, breach of
fiduciary duty/duty of loyalty, computer trespass, theft, conversion, and civil
conspiracy. In addition to entering the default judgment against the
Defendants, the trial court awarded Separators attorneys’ fees and costs for
prosecuting its show-cause motion, and, in order to ensure that the Defendants
did not violate its orders in the future, the trial court ordered that they would be
subject to third-party oversight of their electronic data use for two years. The
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Defendants did not seek to set aside the default judgment, and the parties
continued to engage in discovery.
[15] On October 31, 2017, Carmichael filed a motion for summary judgment
arguing that Separators’ breach of fiduciary duty/duty of loyalty, computer
trespass, conversion, theft, and civil conspiracy claims were barred by the
applicable two-year statute of limitations. As part of its response, Separators
argued that the entry of the default judgment precluded Carmichael’s motion
for summary judgment. On March 8, 2018, after a hearing, the trial court
denied Carmichael’s motion for summary judgment in an order addressing the
merits of his arguments.
[16] On March 19 through March 22, 2018, the trial court conducted a bench trial
on Separators’ claims for exemplary and compensatory damages. Separators
showed that, in addition to taking the manuals and other technical information
that had been the subject of the discovery sanctions hearing, about two months
before leaving Separators, Carmichael had created a contact list of 203 of
Separators’ clients on his CSI computer, which, immediately after leaving the
company, he had used to target and serve Separators’ customers. Carmichael
had also taken requests for quotes from Separators which he had used to
provide quotes for potential CSI customers. Carmichael and CSI had
immediately begun using the manuals they had taken from Separators and had
continued to use them in their ordinary course of business. CSI had been
immediately profitable, which was highly unusual for a start-up company. By
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2016, its annual net income was $1.4 million, and, as of April 2017, CSI had
already generated total profits of $3.25 million for the year.
[17] To support its claims for damages, Separators presented the expert testimony of
certified public accountant (CPA) Rodney Crawford (Crawford). Crawford
testified regarding the methods he used to calculate Separators’ lost profits and
the amount lost, which he concluded was $8,680,447. Counsel for the
Defendants cross-examined Crawford on these issues. CPA Daniel Gross
(Gross) provided expert testimony for the Defendants. On the third day of trial,
the trial court excluded evidence of any independent damages calculation done
by Gross because the Defendants had not timely disclosed that opinion
evidence to Separators. Gross’s testimony was limited to a critique of the facts
and assumptions underpinning Crawford’s lost-profits calculations.
[18] The parties engaged in post-trial briefing. In its submission to the trial court,
Separators argued that it was entitled to compensatory damages for lost profits
on its misappropriation of trade secrets, breach of fiduciary duty/duty of
loyalty, computer trespass, conversion, theft, and conspiracy claims in the
amount of $8,680,447. Separators claimed exemplary treble damages pursuant
to the Indiana Crime Victim’s Relief Act (ICVRA), or, in the alternative, an
award of exemplary doubled damages under the IUTSA.
[19] On January 31, 2019, the trial court entered its Order on damages. The trial
court found that CSI could not have obtained its unusual level of success
without the data it had taken from Separators and that less than three percent of
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its business had come from customers who had not previously been customers
of Separators. The trial court further found that CSI had received a competitive
advantage through its misappropriation of Separators’ data without having to
incur the substantial costs and burdens Separators had. The trial court awarded
Separators $8,680,447 in compensatory damages.
[20] The trial court considered Separators’ request for treble exemplary damages
under the ICVRA. While it found that the Defendants had wrongfully taken
Separators’ property and had attempted to hide that fact by destroying evidence
in violation of its discovery orders, it also found that many of the manuals were
publicly available, it was industry practice for employees to compile technical
information and take it with them as they moved to another employer, the parts
industry was heavily-reliant on relationships, and that Carmichael’s relationship
with some of Separators’ clients had likely enticed them to go to CSI. The trial
court declined to enter treble damages but found that $3,000,000 in exemplary
damages was warranted. The trial court found that, if it were not awarding
damages under the ICVRA, it would have awarded the double damages
Separators sought under the IUTSA, concluding that the Defendants had
engaged in the type of willful and malicious misappropriation required to
recover under the IUTSA. Based on its findings and conclusions, the trial court
entered the following Order:
[T]he [c]ourt hereby awards [Separators] damages as set forth
above consisting of compensatory damages in the amount of
$8,680,447.00 and exemplary damages pursuant to the [ICVRA]
in the amount of $3,000,000.00.
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(Appellant’s App. Vol. II, p. 112).
[21] On March 5, 2019, Carmichael and CSI filed their Motion to Correct Error
pursuant to Trial Rule 59 in which they requested, among other things, that the
trial court vacate its November 8, 2016, default judgement, arguing that the trial
court’s finding that Carmichael and Monday had conspired to violate the trial
court’s discovery orders was a legal impossibility because, as agents of the same
principal, CSI, they could not have been two separate entities who could have
agreed to conspire. Carmichael and CSI later styled their motion as a Motion
to Reconsider. On July 11, 2019, the trial court denied the Motion to Correct
Error/Motion to Reconsider in an Order addressing the merits.
[22] Carmichael now appeals. Additional facts will be provided as necessary.
DISCUSSION AND DECISION
I. Standard of Review
[23] Carmichael appeals following the trial court’s entry of special findings of fact
and conclusions of law pursuant to Indiana Trial Rule 52(A). Therefore, we
employ a two-tiered standard of review in which we will affirm if the evidence
supports the findings and the findings support the judgment. Wysocki v. Johnson,
18 N.E.3d 600, 603 (Ind. 2014). When conducting our review, we neither
reweigh the evidence, nor do we reassess the credibility of the witnesses.
Marion Cty. Auditor v. Sawmill Creek, LLC, 964 N.E.2d 213, 216 (Ind. 2012). We
consider the evidence most favorable to the judgment, with all reasonable
inferences drawn in favor of the judgment. Stout v. Underhill, 734 N.E.2d 717,
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719 (Ind. Ct. App. 2000), trans. denied. We will not set aside the trial court’s
findings or judgment unless they are clearly erroneous. Wysocki, 18 N.E.3d at
603. Findings of fact are clearly erroneous only where they enjoy no factual
support in the record, and a judgment is clearly erroneous if it applies an
incorrect legal standard to properly-found facts. Id.
II. Default Judgment
[24] Carmichael challenges the trial court’s entry of the default judgment against
him and his co-defendants, raising the same intracorporate conspiracy
argument he raised in his Motion to Correct Error. Carmichael also argues that
there was insufficient evidence that he had an agreement with Monday to
violate the discovery orders, his individual conduct alone was inadequate to
support the default judgment, and entry of the default judgment as a sanction
for violating the discovery orders was an abuse of the trial court’s discretion.
We address each of these arguments in turn.
A. Intracorporate Conspiracy
[25] Carmichael argues that the trial court’s finding that he and Monday conspired
to violate the discovery orders was clearly erroneous because a conspiracy
requires two entities to form an agreement, and, as agents of CSI, they were but
one entity. Separators responds that Carmichael’s challenge to the default
judgment is not properly before this court because Carmichael first challenged
the default judgment via an Indiana Trial Rule 59 motion to correct error,
rather than through a TR 60(B) motion to set aside the judgment. Carmichael
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counters that Separators did not raise its TR 60(B) argument below and,
therefore, it is waived.
[26] We agree with Carmichael. TR 55 governing default judgments provides that
“[a] judgment by default which has been entered may be set aside by the
court for the grounds and in accordance with the provisions of Rule 60(B).”
TR 60(B) motions are used to set aside default judgments entered as a
sanction for discovery violations. See, e.g., Ameristar Casino E. Chicago, LLC v.
Ferrantelli, 120 N.E.3d 1021, 1026 (Ind. Ct. App. 2019) (appeal from denial
of defendant Ameristar’s TR 60(B) motion to set aside default judgment
entered as sanction for discovery violations), trans. denied; Waterfield v.
Waterfield, 61 N.E.3d 314, 331 (Ind. Ct. App. 2016) (noting that the appeal of
a default judgment sanction for discovery violations was taken after the
appellant’s TR 60(B) motion was denied), trans. denied. Be that as it may,
Separators never raised this issue in the proceedings below. It is well-settled
that “[i]ssues not raised at the trial court are waived on appeal.” Cavens v.
Zaberdac, 849 N.E.2d 526, 533 (Ind. 2006) (citing Reemer v. State, 835 N.E.2d
1005, 1007 n.4 (Ind. 2005); Ealy v. State, 685 N.E.2d 1047, 1050 (Ind. 1997)).
We conclude that, by failing to raise its TR 60(B) argument to the trial court,
Separators waived it. See id.[27] It is equally well-settled, however, that issues raised for the first time in a
motion to correct error are waived. See O’Bryant v. Adams, 123 N.E.3d 689, 694
(Ind. 2019) (finding waiver of an argument presented for the first time in a
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motion to correct error where O’Bryant failed to establish the argument had not
been available during the original proceedings); Fillmore LLC v. Fillmore Mach. &
Tool Co., 783 N.E.2d 1169, 1179 (Ind. Ct. App. 2003) (issue raised for the first
time in a motion to correct error waived where opposing party had no prior
notice of the issue, it not having been raised in the answer, as a counter-claim or
third-party complaint, in the parties’ agreed entry, or in the proposed findings of
fact and conclusions of law), trans. denied; Babinchak v. Town of Chesterton, 598
N.E.2d 1099, 1103 (Ind. Ct. App. 1992) (argument not raised or considered
before being raised in a motion to correct error was waived). Carmichael’s
intracorporate conspiracy argument was available to him at the commencement
of the instant litigation, but he did not raise it in his Answer to the Complaint,
in his written objection to the rule-to-show-cause motion or its supporting
memorandum, during the three hearings on the show-cause motion, or in his
proposed findings of fact and conclusions of law for the show-cause
proceedings. Indeed, this issue was not raised until after the trial court had
conducted a four-day bench trial on damages, the parties had engaged in post-
trial briefing, and the trial court had entered its Order on damages. The
argument Carmichael presents was not raised by the Defendants until they filed
their March 5, 2019, Motion to Correct Error. We conclude that Carmichael
waived this issue, and inasmuch as the trial court considered it in denying
Carmichael’s Motion to Correct Error, it should not have.
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B. Agreement
[28] The trial court concluded that “Carmichael, Monday, and [CSI] have acted in
conspiracy with one another in violating the [c]ourt’s orders.” (Appellant’s
App. Vol. II, p. 83). Carmichael asserts that the evidence did not support the
trial court’s determination that he and Monday conspired to violate the
discovery orders because there was no evidence of an agreement between them
to do so. As a general principle, “[a] civil conspiracy is a combination of two or
more persons engaging in a concerted action to accomplish an unlawful
purpose, or to accomplish some lawful purpose by unlawful means.” Hardy v.
South Bend Sash & Door Co., Inc., 603 N.E.2d 895, 902 (Ind. Ct. App. 1992).
The elements of an action for civil conspiracy are an object to be accomplished,
a meeting of the minds on the object or course of action, one or more overt acts,
and damages proximately caused by those acts. 16 Am. Jur.2d Conspiracy § 51.
“While an agreement between the parties is a necessary element of civil
conspiracy, such agreement need not extend to all the details of the
conspiratorial scheme.” Id. In addition,
[i]t is not necessary in order to establish a conspiracy that there
be direct evidence of an agreement. Rather, a civil conspiracy
may be asserted through circumstantial evidence or by averment
of isolated or independent facts susceptible of an inference of
concurrence of sentiment.
Miller v. Central Ind. Com. Found., 11 N.E.3d 944, 963 (Ind. Ct. App. 2014)
(citations omitted), trans. denied. Because conspiracies are usually formed in
secret and are consequently seldom supported at trial by direct testimony, it is
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particularly necessary and proper to permit them to be inferred from
circumstances. Smith v. Fiscus, 62 Ind. App. 156, 160, 111 N.E. 203, 204 (Ind.
1916). When multiple parties are found to have conspired to commit civil
contempt, each participant in the conspiracy may be held responsible as a joint
tortfeasor for damages caused by the wrongful or contemptuous acts, regardless
of the degree of active participation. Bottoms v. B&M Coal Corp., 405 N.E.2d 82,
90 (Ind. Ct. App. 1980).
[29] Here, the evidence supported the trials court’s determination that Carmichael
and Monday conspired to violate the trial court’s discovery orders in order to
frustrate Separators’ ability to successfully prosecute its Complaint. The
discovery orders contained clear directives: The Defendants were not to
destroy, or render unavailable, any data relevant to Separators, and they were
to produce all devices and internet-based accounts used to store data related to
Separators. Carmichael and Monday had a long history of working together at
Separators and admittedly removed data from Separators without Separators’
express consent before leaving that company. Carmichael is the president and
sole shareholder of CSI, and Monday is CSI’s vice president. Carmichael and
Monday subsequently uploaded the data they had taken from Separators onto
their CSI computers and into internet-based data storage accounts. Carmichael
was first served with the TRO, OPEE, and the Complaint that named the
Defendants in a suit based on their taking Separators’ data without Separators’
consent. According to Carmichael, Monday was with him at Carmichael’s
home when Carmichael was served. Within three minutes of Carmichael being
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served, 100 files were deleted from the Pockey USB. The reasonable inference
to be made from these facts and circumstances was that Carmichael and
Monday agreed that part of their efforts to defend the allegations contained in
the Complaint would be to eliminate evidence in their possession that could
prove Separators’ claims. The subsequent deletions of data from the Seagate
USB and the CSI computers, the concealment of the internet-based data storage
accounts and the WDP device, and the overwriting of deleted data on the
Pockey USB were other acts in furtherance of that agreement. In light of this
evidence that Carmichael and Monday had both been named in Separators’
Complaint, they were physically together when the data deletion began, the
suspicious timing of the first deletion from the Pockey USB so quickly after
Carmichael was served with the Complaint, and the subsequent deletions and
overwriting that occurred just before discovery was to be produced, we cannot
conclude that the trial court’s determination that Carmichael and Monday
conspired to violate the discovery orders was clearly erroneous. See Wysocki, 18
N.E.3d at 603.
[30] Carmichael’s sole argument on this point is that a finding of a conspiracy based
on an agreement between him and Monday was “counterintuitive” because
Monday deleted data from the two USBs and his CSI computer and overwrote
images onto the Pockey USB, whereas Carmichael “merely deleted only 20
‘potentially responsive’ emails” from his CSI computer. (Appellant’s Br. p. 25).
Carmichael essentially argues that he could not have agreed to violate the
discovery orders because Monday performed more overt acts than he in
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furtherance of the conspiracy. This argument is unpersuasive because it
overlooks evidence that Carmichael also failed to disclose the WDP drive and
because crediting his argument would entail us reweighing the evidence
presented to the trial court, which is contrary to our standard of review. See
Marion Cty. Auditor, 964 N.E.2d at 216.
C. Carmichael’s Individual Acts
[31] Carmichael next asserts that his individual acts of deleting his emails and failure
to disclose the WDP drive could not support a finding by the trial court that he
had intentionally violated the discovery orders. This argument is premised on
Carmichael’s contention that Monday’s acts could not be attributed to him as a
co-conspirator. Because we have already concluded that the trial court’s
determination that the Defendants conspired to violate the discovery orders was
not clearly erroneous, we do not address Carmichael’s contention that his
individual acts alone were insufficient to support the entry of the default
judgment.
D. Default Judgment as Sanction
[32] Carmichael next contends that the trial court abused its discretion when it
entered the default judgment against him and his co-defendants after
concluding that they were in contempt of the discovery orders and had
destroyed and hidden evidence. Trial courts have the inherent power to punish
litigants in order to maintain the dignity of the court, secure obedience to
process and rules, rebuke interference with the orderly conduct of business, and
to punish unseemly behavior. City of Gary v. Major, 822 N.E.2d 165, 169 (Ind.
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 20 of 44
2005). As part of that inherent power, a trial court may impose sanctions to
protect the discovery process. Noble Cty. v. Rogers, 745 N.E.2d 194, 198 (Ind.
2001). In addition, Indiana Trial Rule 37(B)(2) provides that if a party fails to
obey a discovery order, a trial court “may make such orders in regard to the
failure as are just,” including entering a default judgment against the offending
party. It is within the trial court’s sound discretion to select the appropriate
sanction for discovery violations, and, thus, we review the trial court’s decision
only for an abuse of that discretion. Whitaker v. Becker, 960 N.E.2d 111, 115
(Ind. 2012). “Trial judges stand much closer than an appellate court to the
currents of litigation pending before them, and they have a correspondingly
better sense of which sanctions will adequately protect the litigants in any given
case, without going overboard, while still discouraging gamesmanship in future
litigation.” Id. In addition, “the purpose of sanctioning discovery violations is
not merely to penalize those whose conduct may be deemed to warrant such a
sanction, but to deter those who might be tempted to such conduct in the
absence of such a deterrent.” Id. (quotation and citation omitted).
[33] Here, the trial court determined that Carmichael and Monday had deleted
evidence from the Pockey and Seagate USBs, their CSI computers, including
emails, and had concealed the existence of the WDP device and the internet-
based data storage accounts, thereby engaging in spoliation. See WESCO Dist.,
Inc., v. ArcelorMittal Ind. Harbor LLC, 23 N.E.3d 682, 702 (Ind. Ct. App. 2014)
(“Spoliation of evidence is the intentional destruction, mutilation, alteration, or
concealment of evidence.”), trans. dismissed. Our supreme court has noted that
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 21 of 44
“[c]ourts uniformly condemn spoliation. [I]ntentional destruction of potential
evidence in order to disrupt or defeat another person’s right of recovery is highly
improper and cannot be justified.” Gribben v. Wal-Mart Stores, Inc., 824 N.E.2d
349, 354 (Ind. 2005) (quotation omitted, emphasis added). Our supreme court
has provided the following guidance on the appropriateness of sanctions for
spoliation:
Determining whether sanctions are warranted and, if so, what
they should include, requires a court to consider both the
spoliating party’s culpability and the level of prejudice to the
party seeking discovery. Culpability can range along a
continuum from destruction intended to make evidence
unavailable in litigation to inadvertent loss of information for
reasons unrelated to the litigation. Prejudice can range along a
continuum from an inability to prove claims or defenses to little
or no impact on the presentation of proof. A court’s response to
the loss of evidence depends on both the degree of culpability and
the extent of prejudice. Even if there is intentional destruction of
potentially relevant evidence, if there is no prejudice to the
opposing party, that influences the sanctions consequence. And
even if there is an inadvertent loss of evidence but severe
prejudice to the opposing party, that too will influence the
appropriate response, recognizing that sanctions (as opposed to
other remedial steps) require some degree of culpability.
Howard Reg’l Health Sys. v. Gordon, 952 N.E.2d 182, 189-90 (Ind. 2011) (quoting
Rimkus Consulting Grp., Inc. v. Cammarata, 688 F.Supp.2d 598, 613 (S.D. Tex.
2010)). In light of this guidance, we will examine the trial court’s findings and
conclusions regarding the Defendants’ culpability in the spoliation as well as
the prejudice resulting to Separators.
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 22 of 44
1. Culpability
[34] The trial court entered the following relevant findings and conclusions
regarding the Defendants’ culpability in the spoliation:
55. The [c]ourt finds that the above-referenced deletions were an
attempt by the Defendants to prevent data and other evidence
from being discovered in this litigation.
****
87. Based on the facts found above, the [c]ourt concludes that
the Defendants have engaged in contempt.
****
92. The Defendants have failed to meet their burden of showing
that their violations of the [c]ourt’s clear orders were not willful.
To the contrary, the evidence shows the opposite. The
Defendants deleted Separator[s’] data despite having notice [of]
the very subject of the lawsuit filed against them concerned what
data they had taken and what they had done with it.
****
96. The Defendants’ actions were deliberate and willfully
disregarded the explicit instructions of the [c]ourt’s [discovery
orders]. As such, and to prevent further irreparable harm, the
Defendants will be held in contempt, and appropriate remedies
and sanction will now issue.
97. The [c]ourt finds that the Defendants have engaged in the
willful, bad-faith, intentional destruction of evidence.
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 23 of 44
98. Separate from the [c]ourt’s express orders, the Defendants
were under an obligation to preserve potentially relevant
evidence. They did the opposite and intentionally deleted data
that they knew might be used to support [Separators’] claims
against them.
99. The Defendants’ actions were egregious and were intended
to interfere with [Separators’] claims against the Defendants and
with the orderly administration of justice by this [c]ourt.
(Appellant’s App. Vol. II, pp. 73, 82-84). The trial court found that the
Defendants should not be permitted to benefit by their destruction of evidence
and that fairness required that default judgment be entered against them.
[35] The evidence showed that despite the clear directives of the trial court’s
discovery orders, the Defendants destroyed and concealed data relevant to
Separators’ claims. The destruction was swift and continuing. The first
deletion from the Pockey USB occurred just three minutes after Carmichael
was served with the Complaint, TRO, and OPEE, and over 1000 additional
files were deleted from the Seagate USB shortly after Monday was served. The
subsequent spoliation occurred just before the Defendants were to produce
evidence relevant to Separators’ discovery requests: Almost 1000 files were
deleted from Monday’s CSI computer between September 22 and September
24, 2015, the date the computer was to be turned over to Green for
examination, and approximately 3000 images were overwritten onto the
Pockey USB on October 5, 2015, the day before it was produced. Carmichael
deleted responsive emails from his CSI computer, and the Defendants also
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 24 of 44
failed to disclose relevant internet-based data storage accounts and the WDP
device. Despite Green’s expert testimony concerning the substance and timing
of the deletions, Monday offered implausible denials of responsibility. For his
part, Carmichael admitted that deleting emails from his CSI computer made it
difficult to discern if they were Separators-related.
[36] Carmichael only challenges his culpability for these actions with the same
arguments we have already found to be unpersuasive elsewhere, namely that
Monday’s spoliation was improperly attributed to Carmichael and that his own
individual conduct was inadequate to support the entry of a default judgment.
However, as a co-conspirator, Carmichael was equally liable for Monday’s acts
of spoliation. See Bottoms, 405 N.E.2d at 90. There is no other reasonable
inference to be made from the substance, timing, multiplicity of these actions
but that Carmichael and Monday sought to frustrate Separators’ ability to prove
its claims. This degree of spoliation represents the apex of the spoliation
culpability continuum and has been strongly condemned by our supreme court.
See Howard Reg’l Health Sys., 952 N.E.2d at 189-90; Gribben, 824 N.E.2d at 354.
While it is the regular practice of trial courts to fashion progressive sanctions
leading up to a dismissal or default judgment when it is possible to do so,
imposing intermediate sanctions is not obligatory when a party’s behavior is
particularly egregious. See Prime Mortgage USA, Inc. v. Nichols, 885 N.E.2d 628,
649-651 (Ind. Ct. App. 2008) (holding that the defendant’s production of a
forged shareholder agreement during discovery merited the sanction of a default
judgment, a sanction that is most often invoked where a party commits perjury
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 25 of 44
or destroys or doctors evidence); Whitaker, 960 N.E.2d at 116-17 (upholding the
entry of default judgment as sanction for car accident plaintiff’s late and
misleading discovery response that he had no planned treatment for his spine
when, in fact, surgery had been planned that would obscure the source of his
claimed injuries); Whitewater Valley Canoe Rental, Inc. v. Bd. of Franklin Cty.
Comm’rs, 507 N.E.2d 1001, 1007-08 (Ind. Ct. App. 1987) (holding that entry of
default judgment against Whitewater was proper where trial court found that it
had either destroyed or failed to produce documents which it had earlier
claimed were too burdensome to produce and had motioned to protect).
[37] We agree with the trial court that Carmichael’s and Monday’s conduct was
egregious and demonstrated a flagrant disregard for the trial court’s discovery
orders and the judicial process. This is precisely the type of discovery
misconduct that should be sanctioned by default so as to discourage other
litigants from attempting it. See Whitaker, 960 N.E.2d at 115. Accordingly, we
find no clear error in the trial court’s findings and conclusions, and we further
conclude that it was within the trial court’s discretion to enter a default
judgment given the high degree of Carmichael’s shared culpability.
2. Prejudice
[38] The trial court’s findings regarding prejudice to Separators concentrated on the
data deletions, as opposed to the concealment of the WDP drive and the
internet-based data storage accounts, and so we will focus our analysis there as
well. The trial court entered findings of fact generally consistent with Green’s
trial testimony. The trial court found that the overwriting of the 3000 image
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 26 of 44
files onto the Pockey USB likely made relevant data forever irretrievable. The
932 files that were deleted from Monday’s CSI computer were not recoverable
beyond the names of the files. Although Green was able to recover the names
of many files that had been deleted from the USBs and the CSI computers,
much relevant evidence had been destroyed, including additional filenames, the
contents of the files, and metadata showing how the files that been used,
transferred, or copied. There may have been additional files relevant to
Separators that had been totally deleted such that Green could not recover the
filenames or even determine how many had been deleted. The trial court
quoted one of Green’s reports and found that the spoliation had “‘certainly
destroyed relevant evidence.’” (Appellant’s App. Vol. II, p. 72).
[39] The trial court entered the additional following relevant findings and
conclusions regarding the prejudice resulting to Separators as a result of the
spoliation:
51. The acts of deleting data from the Pockey USB device, the
Seagate USB device, and the [CSI] computers have destroyed
evidence potentially relevant in this litigation and hindered the
forensic investigation. These actions added layers of complexity
that have increased the amount of time and reconstruction efforts
required of Green in conducting her forensic investigation. . . .
****
53. The deletion of evidence described above obstructs Green’s
ability to conduct a complete analysis of the electronic storage
devices to identify all of the Separators [] data that the
Defendants copied and to determine how the Defendants used
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 27 of 44
that data. That deletion therefore interferes with [Separators’]
ability to discover those facts and use them to support its claims
against the Defendants and interferes with the [c]ourt’s ability to
decide these issues.
****
100. The Defendants’ deletions risk causing substantial prejudice
to Separators [] in prosecuting its claims.
****
102. The Defendants’ deletions and anti-forensic activity have
resulted in some data being irretrievably lost.
103. The Defendants’ deletion of data thus impairs Separators []
ability to go to trial on the following claims: [misappropriation
of trade secrets, computer trespass, theft, conversion, and breach
of fiduciary duty/duty of loyalty].
104. The existing evidence shows that the Defendants copied
hundreds or thousands of Separators [] computer files onto [the
Pockey and Seagate USBs] and transferred them to [CSI’s]
computers. To determine the Defendants’ liability and damages
for computer trespass, misappropriation, theft, conversion, and
breach of their fiduciary duty and duty of loyalty, this [c]ourt
must know what computer files that the Defendants improperly
copied and what Defendants did with these computer files.
105. Indeed, the Defendants have already made clear that they
intend to defend this lawsuit in part by disputing exactly which
type of files they took. For example, the Defendants have argued
in their briefing and at the hearings that they took only [the]
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 28 of 44
manuals from Separators [] and they dispute whether such
manuals may be treated as Separators[’] property.
106. However, the Defendants’ deletion of many of the
electronic files, including the deletion of metadata and the
deletion of some files irretrievably and completely, deprives this
[c]ourt of evidence showing all of the files that the Defendants
copied and of evidence showing when and how the Defendants
used those files in operating their new competing business.
(Appellant’s App. Vol. II, pp. 71-72, 84-87) (record citations and footnote
omitted, emphasis in the original).
[40] In assessing whether prejudice resulting from discovery violations merits the
entry of a default judgment, we consider how the violation impacted the non-
violating party’s ability to bring or defend claims. Howard Reg’l Health Sys., 952
N.E.2d at 189-90. In Whitaker, 960 N.E.2d at 114, 117, our supreme court
upheld the trial court’s determination that default was merited where
Whitaker’s obfuscation during discovery about having cervical spine fusion
surgery impacted the only real issue in the case, namely whether his surgery
was prompted by the collision at the base of the lawsuit or by a pre-existing
condition. Similarly, in Prime Mortgage, 885 N.E.2d at 651, we upheld a trial
court’s entry of default judgment against the defendant for submitting a forged
shareholder agreement during discovery because that forgery went to the heart
of the shareholders’ dispute and caused the plaintiff-shareholder to change her
theory of the case. Entry of a default judgment has also been found to be
warranted where discovery violations resulted in difficulty to the opposing party
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 29 of 44
in preparing for trial and additional expense. See Sahara Mart, Inc. v. Ind. Dep’t
Revenue, 114 N.E.3d 36, 50 (Ind. Tax Ct. 2018) (concluding that defendant-
taxpayer’s perjury and witness-tampering in a sales-tax proceeding impeded
trial preparation and caused the Department to expend time and money
gathering and presenting evidence to support its rule-to-show-cause motion).
[41] Here, Carmichael and Monday admitted that they had taken data from
Separators, but they claimed that they had only taken the manuals which they
contended were not trade secrets or proprietary to Separators. Separators
disputed that Carmichael and Monday took only the manuals. It alleged in its
Complaint that the Defendants had taken other materials such as “parts lists,
customer lists, supplier information, custom parts drawings, manuals, and
financial reports[,]” and thus had “accessed, copied and used a significant
portion of Separators’ technical, commercial, and financial library.”
(Appellant’s App. Vol. III, pp. 40, 42). In order to prosecute these claims, it
was essential for Separators to know the totality of the data taken and how it
had been used by the Defendants. Therefore, the trial court’s conclusion that
the partial and complete deletions of data from the USBs and CSI computers
interfered both with Separators’ ability to proceed on its claims and with the
trial court’s ability to decide the case was not clearly erroneous. In addition, as
in Sahara Mart, the spoliation necessitated a forensic investigation by Green,
added layers of complexity to her investigation, and resulted in show-cause
proceedings, causing Separators delay and additional litigation expenses.
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 30 of 44
[42] Regarding the issue of prejudice, Carmichael merely argues that any prejudice
flowing to Separators was caused by Monday’s actions which could not be
imputed to him and that his individual conduct caused no prejudice, arguments
we find to be unpersuasive because of the trial court’s finding that he conspired
with Monday. Carmichael also quotes Nagel v. Northern Indiana Public Service
Company, 26 N.E.3d 30, 39 (Ind. Ct. App. 2015), trans. denied, for the
proposition that “[i]n determining the appropriateness of default judgment as a
[] sanction, there is a marked preference in Indiana for deciding disputes on
their merits, especially in cases involving material issues of fact, substantial
amounts of money, or weighty policy determinations.” (Appellant’s Br. p. 50-
51). In support of this argument, Carmichael identifies what he contends were
issues of material fact concerning his defense that the manuals were not trade
secrets or proprietary to Separators. What this argument overlooks is that the
Defendants’ own acts of spoliation rendered the material issues of fact
pertaining to Separators’ claims—what data the Defendants took and how they
used it—incapable of being fully known, and therefore, resolved. We
acknowledge that a substantial amount of money is involved in this case, in
excess of $11,000,000. However, Prime Mortgage illustrates that this court will
uphold the entry of default judgment as a sanction for discovery violations in
cases which involve substantial sums of money where the conduct at issue was
egregious and material prejudice has been shown. 885 N.E.2d at 672(upholding default judgment entered as a sanction and damages award in
excess of $8,000,000). Carmichael does not identify any weighty policy
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 31 of 44
determinations for us that would render the default judgment entered in this
case inappropriate.
[43] We recognize that Carmichael and Monday were not completely successful in
their spoliation efforts and that Separators was still able to gather some
evidence that large numbers of its manuals as well as some other types of
documents had been taken. Thus, Separators was not entirely precluded from
pursuing its claims. The trial court assessed the degree of prejudice to
Separators, and, together with its findings and conclusions regarding the
Defendants’ culpability, determined that the default judgment was warranted.
This court has observed that “the culpability versus prejudice balancing act,
namely, the prejudice to the non-spoliating party versus the culpability of the
spoliating party, is best left to the trial court.” Northern Ind. Pub. Serv. Co. v.
Aqua Envtl. Container Corp., 102 N.E.3d 290, 304 (Ind. Ct. App. 2018). The trial
court entered findings and conclusions which were supported by the evidence
and which in turn supported its determination that a default judgment was
merited based on the Defendants’ culpability and the prejudice resulting from
their actions. Therefore, we conclude that its determination was not clearly
erroneous. See Wysocki, 18 N.E.3d at 603.
III. Summary Judgment
[44] Carmichael next contends that the trial court erred when it denied his October
31, 2017, motion for summary judgment on Separators’ fiduciary duty/duty of
loyalty, computer trespass, conversion, theft, and civil conspiracy claims in
which he argued that those claims were barred by the applicable two-year
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 32 of 44
statute of limitations. Carmichael did not move for summary judgment on any
claims that were not already subject to the default judgment. Separators
responds that Carmichael improperly moved for summary judgment after the
trial court had entered the default judgment. Therefore, as a threshold issue, we
must determine whether Carmichael’s argument is properly before us.
[45] On March 8, 2018, after a hearing, the trial court denied Carmichael’s summary
judgment motion in an order addressing the merits of his statute of limitations
arguments. In a footnote the trial court observed the following:
The parties disagree about whether Carmichael is entitled to
move for summary judgment at this stage of the proceedings, in
light of the default judgment entered against him on some of
Separators[’] claims. For purposes of this Order, the [c]ourt
assumes without deciding that Carmichael’s motion is timely, as
his motion fails on the merits. However, language in Prime
Mortgage, 885 N.E.2d at 639 seems to suggest otherwise.
(Appellant’s App. Vol. X, p. 144).
[46] On appeal, Carmichael joins the trial court’s suggestion that this court’s
decision in Prime Mortgage provides authority for a litigant to pursue summary
judgment proceedings on claims subject to a default judgment entered as a
sanction for discovery violations. We disagree, given the circumstances of this
case. In Prime Mortgage, plaintiff Nichols, who held a fifty per cent interest in
Prime, filed an action for the appointment of a receiver and the dissolution of
the closely-held corporation when she and the only other shareholder, Law,
were unable to agree on a buyout for Nichols. 885 N.E.2d at 637. Law
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 33 of 44
responded that Nichols did not have a fifty per cent interest in Prime, as he had
issued stock to two other persons pursuant to an agreement he claimed Nichols
had signed which authorized the stock issue. Id. Nichols amended her
Complaint to add a claim of breach of fiduciary duty against Law for allegedly
improperly inducing her to sign the agreement. Id. However, Nichols
subsequently determined through discovery that Law had forged her signature
on the agreement, causing her to file a third amended Complaint alleging the
forgery and seeking treble damages against Law and his co-defendant Prime
pursuant to the ICVRA. Id. at 637-38. The defendants moved for summary
judgment, arguing that the Crime Victims Statute count was barred by the
statute of limitations. Id. at 638. The trial court denied that motion. Id.Nichols then sought sanctions against the defendants for Law’s submission of
the forged agreement during discovery. Id. The trial court granted Nichols’
sanctions motion, dismissed the defendants’ counterclaims and granted
summary judgment on some, but not all, of Nichols’s claims. Id. The trial
court later entered treble damages in favor of Nichols in excess of $8,000,000.
Id.[47] On appeal, the Prime Mortgage court considered whether the defendants were
able to appeal the denial of their motion for summary judgment after the trial
court had entered a default judgment against them as a sanction for their
discovery conduct. Id. at 638-39. The Prime Mortgage court concluded that it
was possible because the trial court had not stricken the defendants’ answers
and affirmative defenses upon entering the default judgment. Id. at 639. The
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 34 of 44
court also found it significant that the entire summary judgment proceedings
were concluded before the trial court’s entry of the default judgment. Id. The
court, therefore, addressed the merits of the statute of limitations argument. Id.[48] Prime Mortgage is distinguishable on its facts from the instant case. Here,
although the trial court did not strike his answer and affirmative defenses in
conjunction with the default judgment, Carmichael did not file his summary
judgment motion until after the trial court had entered its default judgment
sanction, and, thus, the significant procedural rationale set out in Prime
Mortgage is not present here. More importantly, we believe that the nature of a
default judgment entered as a sanction for discovery violations, as opposed to a
default judgment entered for other reasons such as a failure to appear and
answer a complaint, precludes subsequent procedural attacks such as the one
mounted by Carmichael in this case. The trial court was authorized by TR
37(B)(2) to enter default judgment as a sanction for violations of its discovery
orders. We find nothing in TR 37 or indeed in any other Indiana Trial Rule
which would permit a defendant to challenge a discovery violation sanction
through a motion alleging a procedural defense to the underlying claims of the
complaint. Thus, it is of no moment that Separators still had three active
claims, which it subsequently dismissed, and the trial court had not yet entered
final judgment when Carmichael filed his summary judgment motion.
[49] Trial courts are permitted to exercise their contempt powers to promote orderly
discovery and punish discovery violations so that others are not tempted to
engage in like conduct. See City of Gary, 882 N.E.2d at 169; Whitaker, 960
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 35 of 44
N.E.2d at 115. To allow such a procedural attack on a trial court’s sanction
would be to seriously undermine the ability of trial courts to exercise their
contempt powers to further those ends. In reaching our conclusion, we express
no opinion on the availability of summary judgment proceedings following the
entry of default judgment for other reasons. Because we conclude that
Carmichael’s summary judgment arguments are not properly before us, we do
not address them further.
IV. Damages
[50] Carmichael challenges the trial court’s award of exemplary and compensatory
damages. The computation of damages is a matter within the sound discretion
of the trial court. Fischer v. Heymann, 12 N.E.3d 867, 870 (Ind. 2014). Where
the trial court has entered special findings pursuant to TR 52(A) and the issue
on review relates to the award of damages, the award should not be reversed if
it is within the scope of the evidence before the trial court. Int’l Bus. Machs.
Corp. v. State on behalf of Ind. Family & Soc. Servs. Admin., 124 N.E.3d 1187, 1189-
90 (Ind. 2019).
A. Exemplary Damages
[51] Carmichael argues that the trial court improperly awarded exemplary damages
under the IUTSA because the trial court’s findings that he and his co-
defendants acted willfully and maliciously, as required for exemplary damages
under the IUTSA, were unsupported by evidence in the record. However, the
factual premise of Carmichael’s argument is inaccurate. The trial court
awarded exemplary damages under the ICVRA, not the IUTSA. The trial
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 36 of 44
court entered findings indicating that if it were not awarding damages under the
ICVRA, Separators would be entitled to damages under the IUTSA due to the
Defendants’ willful and malicious conduct, but its Order entering “exemplary
damages pursuant to the [ICVRA] in the amount of $3,000,000.00” is clear and
explicit regarding the grounds for the exemplary damages award. (Appellant’s
App. Vol. II, p. 112). Carmichael does not challenge any of the findings and
conclusions supporting the trial court’s award of damages under the ICVRA.
Therefore, we do not address Carmichael’s argument on this issue further.
B. Compensatory Damages
[52] The trial court entered compensatory damages for Separators’ lost profits on its
misappropriation of trade secrets, breach of fiduciary duty/duty of loyalty,
computer trespass, conversion, theft, and civil conspiracy claims. The trial
court entered the following relevant conclusions regarding compensatory
damages:
4. As a general rule, “[t]ort damages do not require absolute
certainty” and lost profits need not “be ascertainable with
absolute certainty.” Columbus Medical Services Organization, LLC v.
Liberty Health Care Corp., 911 N.E.2d 85, 96 (Ind. Ct. App. 2009).
The Indiana Court of Appeals “will affirm a damage award for
lost profits as long as there [is] some evidence on which to base
an award for [the] anticipated profits.” Id. at 97 (internal
quotations omitted).
****
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 37 of 44
19. Separators supported its calculation of its lost profits with the
opinion and testimony of an expert witness, [] Crawford, a
[CPA].
20. To prepare his lost profit calculations, Crawford analyzed
both Separators’ and CSI’s respective financial information and
the trend in Separators’ parts sales before and after Carmichael
began operating CSI in March 2013. He also identified
overlapping customers between the two companies. Crawford
determined how much of Separators’ lost sales overlapped with
CSI’s gained sales by confirming they involved the same
customers. Crawford determined that substantially all of the sales
gained by CSI were with prior-Separators customers – in the
years 2013-2017 over 90% of CSI’s parts sales were directly to
customers that were prior or current Separators customers.
21. To calculate Separators’ lost profits, Crawford started by
determining Separators’ lost sales.
22. Crawford calculated Separators’ average annual sales to each
customer that it lost to CSI during the period before the customer
switched to CSI. Crawford determined that Separators’ historical
growth trend was 5.87% based on Separators’ parts sales between
2006 and 2012.
23. Crawford applied that rate to Separators’ average parts sales
for each of the overlapping customers to calculate what
Separators’ expected sales to those customers would have been
from 2013 on. Crawford then subtracted the amount of
Separators’ actual sales to the “overlapping” customers from the
amount of its expected sales to those customers to determine the
amount of Separators’ lost sales to those customers.
24. Following identification of Separators’ lost sales, Crawford
applied a profit margin to them. Crawford then determined the
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 38 of 44
appropriate damages period, selecting a period that starts at the
date of the wrongful act and continues until operations return to
normal. In Crawford’s view, Separators’ operations had still not
returned to “normal” as of the date of trial because its parts sales
in 2016 were only $3.1 million, whereas in 2012, before
Defendants’ misconduct, they were $5.1 million. Crawford
therefore calculated damages through the most recent date for
which he had financial data.
25. Crawford then calculated Separators’ lost profits by
multiplying the lost sales to the overlapping customers by the
relevant profit margin.
26. Based on these figures, Crawford determined that Separators
suffered lost profits in the amount of $6,804,693.00 through April
2017, with the calculation through trial putting the figure at
$8,680,447.00.
27. The Court finds this methodology sound and Crawford’s
testimony to be credible.
(Appellant’s App. Vol. II, pp. 101, 104-05). Crawford testified to the facts and
calculations that were summarized in the trial court’s conclusions. In light of
this evidence which supported the trial court’s conclusions, none of which
Carmichael specifically challenges on appeal, we cannot say that the trial
court’s determination of Separators’ compensatory damages for lost profits is
clearly erroneous. See Int’l Bus. Machs. Corp., 124 N.E.3d at 1189-90.
[53] Despite the evidence supporting the trial court’s findings and conclusions,
Carmichael argues that the trial court awarded damages “without allowing
Carmichael a full opportunity to present evidence of Separators’ own causation
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 39 of 44
of its lost profits that it sought to recover as damages.” (Appellant’s Br. p. 62).
Carmichael does not further explain how he was impeded in his effort to
present evidence of Separators’ own culpability in its lost profits. We note that
Carmichael and his co-defendants did not elect to have Gross prepare an
independent damages calculation in time for presentation at trial, Gross offered
expert testimony on behalf of the Defendants, and the Defendants cross-
examined Crawford and Separators’ other witnesses pursuant to their theory of
the case and damages. Accordingly, we find no merit in this argument.
[54] Carmichael also argues that “the trial court’s finding essentially concludes that
CSI’s success was based solely on its use of the [m]anuals, despite ample
undisputed evidence to the contrary.” (Appellant’s Br. p. 62). In support of
this contention, he directs our attention to evidence in the record that he feels
demonstrated that not all of CSI’s success was attributed to its use of the
manuals taken from Separators, such as his pre-existing business relationships
with Separators clients, CSI’s lower overhead and prices, and the fact that he
had no agreement-not-to-compete with Separators. Carmichael contends these
factors should have resulted in some unspecified reduction in Separators’ claim
for damages. We find these arguments unpersuasive for at least two reasons.
Carmichael mischaracterizes the trial court’s findings and conclusions, in that it
did not find that CSI’s success was based solely on its use of the manuals.
Rather, it merely found that CSI “could not have obtained the success it did
without the data that was misappropriated from Separators” which included
not only the manuals but also a client contact list, requests for quotes, and other
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 40 of 44
information. (Appellant’s App. Vol. II, p. 99). In addition, Carmichael’s
arguments are unavailing because they entail our consideration of evidence that
does not support the trial court’s findings and conclusions, and are, therefore,
contrary to our standard of review. See Stout, 734 N.E.2d at 719.
[55] Lastly, Carmichael challenges Crawford’s methodology and the factual bases
for his damages calculations. Carmichael argues that Crawford’s method was
flawed because he erroneously assumed that all of Separators’ clients lost to CSI
would do business with Separators on a yearly basis, all of Separators’ lost
clients did business with CSI because CSI used Separators’ data, and
Separators’ financial losses were exclusively the result of CSI’s illegitimate
competition. Carmichael also contends that Crawford failed to consider a
variety of factors in his computations, including Separators’ high employee
turn-over, Separators’ decline in sales before CSI began competing, CSI’s better
pricing that lured Separators’ customers, the importance of Carmichael’s
established business relationships and expertise, and the fact that Carmichael
had no agreement-not-to-compete with Separators.
[56] In Bowden v. Agnew, 2 N.E.3d 743, 749-50 (Ind. Ct. App. 2014), this court
affirmed the award of compensatory damages where the defendants, the
Bowdens, challenged the basis for plaintiff Agnew’s expert’s calculation of
profits for purposes of a compensatory damages award. Agnew and the
Bowdens had entered into a business venture wherein they agreed to split their
net profits equally. Id. at 745. In order to cover expenses in another, unrelated
business venture, without Agnew’s consent, the Bowdens assigned all of the
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 41 of 44
profits from their venture with Agnew to a third party. Id. at 746. At trial on
Agnew’s claims for, among other things, breach of fiduciary duty and civil
conspiracy, Agnew presented the expert testimony of a CPA to support his
claim to his share of the improperly-assigned profits totaling $1,754,278. Id.
at 747. The Bowdens did not offer any expert testimony but had a
spreadsheet admitted into evidence that showed that the venture had actually
resulted in a net loss. Id. The trial court fully credited the testimony and
damages calculations of Agnew’s CPA and awarded Agnew $1,754,278 in
compensatory damages. Id. On appeal, the Bowdens challenged the trial
court’s damages award, arguing that the CPA had not requisitioned
information from the Bowdens and had excluded entire categories and time
periods of expenses from his profitability calculations. Id. at 749. After
rejecting the Bowden’s argument that the CPA’s opinion had an insufficient
factual basis, the Court found that the Bowdens were essentially challenging
the weight that the trial court should have afforded the CPA’s testimony. Id.
at 750. The Court observed that
[the CPA] was thoroughly cross-examined at trial and steadfastly
stood by his calculations. Aware of the challenges asserted by
the Bowdens, the trial court expressly found [the CPA’s]
testimony credible, explained in detail its reliance on the expert’s
calculations, and concluded in part:
66. No particular degree of certainty is required in
awarding damages so long as the amount awarded is
supported by the evidence and not based merely on
Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 42 of 44
speculation or conjecture. JKL Components Corp. v. Insul-
Reps, Inc., 596 N.E.2d 945, 954 (Ind. Ct. App. 1992).
67. Plaintiffs have readily met this burden of proof. [The
CPA] provided the Court with a detailed report and
testimony regarding Agnew's measure of damages. [The
CPA’s] measure of damages was supported by the
evidence and is neither speculative nor based upon
conjecture.
The Bowdens, who have not directly challenged any of the trial
court's specific findings or conclusions, have failed to establish
that the trial court's reliance on [the CPA’s] expert testimony
regarding damages was clearly erroneous.
Id.[57] Like the defendants in Bowden, Carmichael’s challenges essentially assail the
weight that the trial court accorded to Crawford’s expert testimony. However,
Carmichael and his co-defendants thoroughly cross-examined Crawford at trial
regarding his calculations, and they presented all of these same challenges to the
trial court through Gross’s expert testimony. Here, as in Bowden, the trial court
noted that Indiana law did not require absolute certainty in damages
calculations, it specifically found Crawford’s testimony to be credible, and it
cited Crawford’s methods and conclusions in reaching its damages
determination. Accordingly, we find that Carmichael has failed to establish
that the trial court’s findings and conclusions supporting its award of
compensatory damages based on Crawford’s calculations were clearly
erroneous. See id.Court of Appeals of Indiana | Opinion 19A-PL-1821 | May 8, 2020 Page 43 of 44
CONCLUSION
[58] Based on the foregoing, we conclude that the trial court’s findings and
conclusions supporting the entry of a default judgment against Carmichael as a
sanction were not clearly erroneous and that Carmichael’s summary judgment
arguments are not properly before us. We also conclude that the trial court’s
awards of exemplary and compensatory damages in favor of Separators were
supported by the evidence and were not clearly erroneous.
[59] Affirmed.
[60] Mathias, J. and Tavitas, J. concur
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