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Hospital Media Network, LLC v. Henderson

Court of Appeals of Connecticut

January 8, 2019

HOSPITAL MEDIA NETWORK, LLC
v.
JAMES G. HENDERSON ET AL.

          Argued September 18, 2018

         Procedural History

         Action to recover damages for, inter alia, breach of fiduciary duty, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, where the defendants filed a counterclaim; thereafter, the court, Hon. A. William Mottolese, judge trial referee, granted the plaintiff's motion for default against the defendants and for nonsuit on the defendants' counterclaim; subsequently, the court, Hon. A. William Mot-tolese, judge trial referee, granted the plaintiff's motion for judgment on the default and rendered judgment of nonsuit as to the defendants' counterclaim; thereafter, following a hearing in damages, the court, Hon. Taggart D. Adams, judge trial referee, rendered judgment for the plaintiff, from which the defendants appealed to this court. Reversed in part; further proceedings.

          James G. Henderson, self-represented, with whom was Taylor Henderson, self-represented, the appellants (defendants).

          Gary S. Klein, with whom was Liam S. Burke, for the appellee (plaintiff).

          Alvord, Keller and Flynn, Js.

          OPINION

          ALVORD, J.

         The self-represented defendant, James G. Henderson, appeals from the judgment of the trial court, following a hearing in damages upon default as to liability, awarding the plaintiff, Hospital Media Network, LLC, monetary relief pursuant to the equitable theories of forfeiture and disgorgement in the amount of $454, 579.76 on its claim of breach of fiduciary duty.[1]On appeal, the defendant claims that the court's award was improper because the plaintiff failed to prove it suffered any damages. We conclude that the court abused its discretion in ordering a wholesale forfeiture of the defendant's salary and bonus and requiring the defendant to disgorge in full all profits received from third parties, such that the award, in the full amount requested by the plaintiff, was inequitable. Accordingly, we reverse in part the judgment of the court as to the award of damages against James Henderson and remand the case for a new hearing in damages. We otherwise affirm the court's judgment.

         The following facts and procedural history are relevant to the resolution of this appeal. In November, 2013, the plaintiff commenced this action alleging that the defendant, its former employee, violated the Connecticut Uniform Trade Secrets Act (CUTSA), General Statutes § 35-50 et seq., committed tortious interference with the plaintiff's business and contractual relations, breached the duty of employee loyalty, breached his fiduciary duty, and usurped corporate opportunities of the plaintiff. The defendant was defaulted, and the trial court held a hearing in damages. After the hearing, the court awarded the plaintiff damages solely on its claim of breach of fiduciary duty, [2] the essential elements of which were admitted by virtue of the defendant's default.

         With respect to its breach of fiduciary duty count, the plaintiff alleged that it employed the defendant as its chief revenue officer and paid him substantial compensation from January 1 to September 2013. On September 5, 2013, the plaintiff terminated the defendant's employment ‘‘for cause for several reasons including, without limitation [the defendant's] actively working for various companies unrelated to [the plaintiff] for his own benefit and without [the plaintiff's] permission or knowledge during regular business hours.'' Specifically, it alleged that the defendant worked for or on behalf of Generation Partners (Generation), a private equity investment firm, ‘‘to raise capital for other digital media companies including but not limited to'' Captivate Network Holdings, Inc. (Captivate), and used the plaintiff's computers and infrastructure to conduct business for those other digital media companies without the plaintiff's permission or knowledge. The plaintiff claimed that the defendant played golf on a social basis and otherwise took time off during regular business hours without the plaintiff's permission.

         The plaintiff further alleged that the parties had a fiduciary relationship ‘‘by virtue of the trust and confidence'' the plaintiff placed in the defendant as its chief revenue officer, a senior executive position. Among the duties allegedly owed to the plaintiff were the duty of loyalty, the duty to act in good faith, and the duty to act in the best interest of the plaintiff. The plaintiff asserted that the defendant breached these duties in advancing his own interests to the detriment of the plaintiff. Lastly, the plaintiff alleged that the defendant's breach caused it to sustain damages.[3] The plaintiff sought, inter alia, compensatory and punitive damages.

         The defendant answered and filed an amended counterclaim, alleging breach of contract, wrongful termination, misrepresentation and deceit, and violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. The defendant requested, inter alia, compensatory and punitive damages.

         The parties engaged in discovery disputes, resulting in an April, 2016 order from the court that the parties ‘‘confer face-to-face in an effort to resolve these discovery disputes, bearing in mind that reasonable good faith efforts at compromise are essential to every discovery dispute.'' On June 27, 2016, after finding the defendant's objections to the plaintiff's discovery requests ‘‘intentionally evasive and intended to obstruct the process, '' the court ordered full compliance within thirty days. On July 28, 2016, the plaintiff filed a motion for default and nonsuit on the basis that the defendant had failed to comply with the court's June 27 order. The court granted the motion, finding that the ‘‘[p]laintiff is clearly prejudiced by these obstructive tactics and the only appropriate remedy proportionate to the infraction is default.'' On September 26, 2016, the court rendered judgment for the plaintiff on its affirmative claims and against the defendant on his counterclaim.

         On September 27, 2016, the court held a hearing in damages. The plaintiff presented the testimony of Andrew Hertzmark, an employee of Generation;[4] Christopher Culver, chief executive officer of the plaintiff; Taylor Henderson; and James Henderson. At the conclusion of the hearing, the court requested posttrial briefing, which the parties submitted on October 18, 2016.

         On February 15, 2017, the court issued a memorandum of decision. In its memorandum, the court reviewed the evidence presented during the hearing in damages. From 2011 to 2013, the defendant was a consultant to the plaintiff, and the plaintiff compensated the defendant by making payments to his consulting company, St. Ives Development Group. On January 1, 2013, the defendant became a full-time employee and chief revenue officer of the plaintiff. The plaintiff paid him a salary of over $12, 000 per month, totaling $121, 579.84 in 2013, and also paid him a sales target bonus of $25, 000 in May, 2013. That bonus was paid to St. Ives Development Group.[5] Just weeks after becoming a full-time employee of the plaintiff, the defendant communicated with Hertzmark, identifying the plaintiff as a possible investment target for his fund, and included the plaintiff's revenues and possible buyout price.

         In 2013, Hertzmark was working on a potential transaction in which Generation would acquire Captivate from Gannett Company, Inc. (Gannett).[6] Both Captivate and the plaintiff are involved in the same business sector. While Captivate sells advertising space on digital monitors in elevators, the plaintiff sells advertising space on monitors located in hospitals and medical offices. Hertzmark testified that the defendant assisted with the Captivate acquisition, giving a presentation with Hertzmark to Gannett and helping formulate the letter of intent memorializing Generation's proposed purchase of Captivate.[7] In March, 2013, Hertzmark e-mailed the defendant stating that Generation's letter of intent was not shared with the head of Captivate and, therefore, Gannett was surprised to learn that the head of Captivate was aware of plans to install the defendant as the new chief executive officer of Captivate once that business was acquired by Generation.[8]In March and April, 2013, the defendant corresponded with Hertzmark regarding Captivate's attributes as an investment and reviewed due diligence information provided by Captivate from February through April, 2013. He told Hertzmark on July 6, 2013, that he wanted his attorney to review his Captivate employment contract once completed.

         The plaintiff terminated the defendant's employment on September 5, 2013, and Generation's acquisition of Captivate from Gannett closed on September 26, 2013. Upon the transaction's closing, the defendant was paid a finder's fee of $150, 000, awarded a consulting contract with Captivate for three years at $50, 000 annually, and given the opportunity to purchase restricted stock of Captivate.[9]

         The court found that ‘‘during the events in this case [the defendant] either never comprehended or ignored the different consequences of being a company employee and being a consultant, '' referring to the defendant's testimony in which he described himself as a ‘‘consultant employee'' of the plaintiff. The court referenced the testimony of Culver, the plaintiff's chief executive officer, that the plaintiff's sales increased from $1.9 million in 2010 to $6.6 million in 2013. The court additionally noted Culver's testimony that the plaintiff ‘‘held itself out to be the fastest growing company of its kind during this period'' and his recognition that the defendant was part of this ‘‘terrific growth.'' Crediting Culver's testimony, the court found that ‘‘there was a sharp increase in the company's sales'' while the defendant worked for the plaintiff.

         Turning to the plaintiff's claimed damages, the court first found that the plaintiff was not entitled to the defendant's ‘‘compensation from Captivate'' on the theory that the defendant usurped a corporate opportunity. Specifically, the court found that the opportunity the defendant took was ‘‘employment'' at Captivate, which was not an opportunity available to the plaintiff. The court determined, however, that damages were appropriate on the plaintiff's claim of the breach of fiduciary duty of loyalty, and measured the damages ‘‘by the gain to the faithless employee.''[10] The court awarded damages against the defendant in the total amount of $454, 579.76, including $146, 579.84, representing the defendant's 2013 salary ($121, 579.84) and bonus ($25, 000); $150, 000, representing ...


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