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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