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Advanced Recovery Systems, LLC v. American Agencies, LLC

United States District Court, D. Utah, Central Division

March 6, 2017

ADVANCED RECOVERY SYSTEMS, LLC, Plaintiff,
v.
AMERICAN AGENCIES, LLC, ET AL., Defendants, AMERICAN AGENCIES, LLC, Counterclaimant,
v.
ADVANCED RECOVERY SYSTEMS, LLC, ET AL., Counterclaim Defendants.

          AMENDED MEMORANDUM DECISION AND ORDER

          DALE A. KIMBALL United States District Judge.

         This matter is before the court on several pretrial motions: American Agencies, LLC's (“AA”) Motion in Limine No. 1: Issues Resolved on Summary Judgment (Docket No. 339); AA's Motion in Limine No. 2: ARS' Disproven Allegations Regarding the $150, 000 (Docket No. 340); AA's Motion in Limine No. 3: Irrelevant Personal Information (Docket No. 341); AA's Motion in Limine No. 4: Settlement Communications with Sajax Software, LLC (Docket No. 342); Advanced Recovery Systems, LLC, Kinum, Inc., Brent Sloan, Scott Mitchell, and Blake Reynolds' (“Defendants”[1]) Sealed Motion in Limine to Exclude Testimony of Richard S. Hoffman (Docket No. 338); Defendants' Motion in Limine No. 2 to Exclude Irrelevant and/or Prejudicial Evidence of or Reference to the Court's Prior Rulings (Docket No. 343); and Defendants' Motion to Compel Disclosure of Settlement Agreement and Accounting (Docket No. 361). On March 2, 2017, the court held a hearing on the motions. At the hearing, ARS, Kinum, Sloan, Mitchell, and Reynolds were represented by Richard D. Salgado and Steven R. Sumsion, and AA was represented by Robert 0. Rice, Michael K. Erickson, and Aaron K. Olsen. The court took the motions under advisement. The court has carefully considered the parties arguments as well as the law and facts relevant to the motions. Now being fully advised, the court issues the following Memorandum Decision and Order.

         1. AA's Motion in Limine No. 1: Issues Resolved on Summary Judgment

         AA's first motion in limine seeks: (1) a preliminary instruction read to the jury summarizing the court's relevant summary judgment findings and conclusions; (2) exclusion of the amount of damages the court awarded AA for ARS' breach of contract, a ruling that those damages will be awarded to AA if the jury finds liability on AA's interference with contract claim, and preclusion of Defendants' expert Ted Tatos from testifying at trial; and (3) preclusion of any argument or evidence at trial for the purpose of contradicting the findings and conclusions previously decided by the court.

         In the court's September 28, 2016 Memorandum Decision and Order, the court found in favor of AA on its breach of contract claim against ARS and awarded AA $1, 549, 595.40. The court also found ARS and Kinum liable for misappropriation of AA's trade secrets. At trial, AA seeks to have the jury find Sloan, Mitchell and Reynolds liable for misappropriation of AA's trade secrets and damages from all defendants on the claim. AA will also be pursuing its claims against Defendants for breach of the covenant of good faith and fair dealing, unjust enrichment, interference with existing contractual relations, interference with prospective business relations, copyright, and conspiracy.

         First, the parties agree that a summary of the court's findings is relevant and will provide context for the jury. The court's findings and conclusions under FRCP 56 are established in the case and are no longer in dispute. The preliminary instruction will make the trial more efficient and preclude the re-litigation of matters that were already decided. The parties only disagree as to the content of the preliminary instruction.[2] The parties each submitted proposed instructions, but AA's instruction contains too much information and Defendants' instruction contains insufficient information. The court, therefore, will fashion a preliminary instruction from those proposals and provide it to the parties prior to trial.

         Second, the parties agree that they will not mention the amount of damages the court awarded AA for ARS's breach of contract and that Defendants will not call their expert witness Ted Tatos. The parties disagree, however, on whether the proper measure of damages for Defendants' potential liability on AA's intentional interference with contract claim is the same as the damages the court awarded for breach of contract. AA argues that if the jury finds Defendants liable for tortious interference with contract, then the damages the court awarded for ARS' breach of contract should be awarded on that claim as well. Defendants, however, claim that AA can only recover lost profits on its intentional interference claim and only about $400, 000 of the $1.5 million breach of contract damages are lost profits. Interestingly, the parties rely on the same Utah Supreme Court case for their positions, TruGreen Cos. LLC v. Mower Bros, Inc., 2008 UT 81, 199 P.3d 929.

         In TruGreen, the court “recogniz[ed] that the Utah Court of Appeals adopted section 774A of the Restatement (Second) of Torts, which defines the measure of damages for tortious interference with a contract.” Id. at ¶ 22. Section 774A provides damages for “(a) the pecuniary loss of the benefits of the contract or the prospective relation; (b) consequential losses for which the interference is a legal cause; and (c) emotional distress or actual harm to reputation, if they are reasonably to be expected to result from the interference.” Id. The TruGreen court found “especially instructive the analysis” in a Third Circuit case that “held that where ‘there are no injuries alleged other than pecuniary losses . . . the measure of damages for interference with contractual relations will be identical to that for breach of contract.'” Id. at ¶ 23 (quoting American Air Filter Co. v. McNichol, 527 F.2d 1297, 1300 (3d Cir. 1975). Because the court held “that purely pecuniary losses from tortious interference are measured by the same standard as breach of contract, ” it then applied the same measure of damages as it had applied for the breach of the noncompete agreement, which was lost profits. Id. at ¶ 24.

         Based on TruGreen, Defendants argue that AA can only recover lost profits for its intentional interference with contract claim. However, that argument ignores the TruGreen court's discussion that Utah recognizes the damages available under Section 774A of the Restatement (Second) of Torts and that in cases of purely pecuniary losses from tortious interference with contract the measure of damages are measured by the same standard as breach of contract. Under the facts at issue in TruGreen, the measure of damages for intentional interference with contract was lost profits because the breach of contract damages for breach of a noncompete agreement was lost profits. Id. ¶ 24. However, in a case involving a different measure of damages for the breach of contract at issue, the measure of damages for intentional interference with contract would mirror the breach of contract damages. Id. ¶ 23-24. Therefore, the pecuniary loss the court found for the ARS breach of contract--which was not based on a breach of a noncompete agreement but, rather, the breach of a right of first refusal--is the same pecuniary loss applicable to AA's tortious interference with contract claim.

         In this case, ARS has already proven its pecuniary loss for ARS' breach of contract and the court awarded AA that amount on summary judgment. Defendants take issue with whether AA should be required to prove the pecuniary loss to the jury, but the pecuniary loss the court imposed on summary judgment was calculated by ARS' expert witness. Defendants have not argued that it would have any different evidence or calculations to present at trial. Defendants agreed that they do not intend to call their expert witness who calculated those damages at trial. Defendants argued only that AA should be limited to lost profits. Therefore, the court concludes that, at trial, the jury need only determine whether there is liability for intentional interference with contract. If the jury finds liability, the damages will then be the same measure of damages imposed for breach of contract.

         Defendants argues that applying the same amount of damages to each Defendant found liable for intentional interference with contract amounts to joint and several liability, which is not consistent with Utah's law requiring apportionment of responsibility for intentional torts. In Graves v. North Eastern Services, Inc., 2015 UT 28, 345 P.3d 619, parents brought a negligence action against a residential treatment facility after an employee at the center sexually assault their child. The court explained that Utah abrogated the common law doctrine of contributory negligence decades ago through the 1973 Comparative Negligence Act and the Liability Reform Act of 1986. Id. at ¶ 44. Graves, however, presented the court with its first occasion to determine whether Utah's “comparative negligence regime provides for allocation of responsibility for intentionally tortious conduct.” Id. at ¶ 45. The court determined that Utah's “statutory comparative liability regime . . . call[s] for apportionment of responsibility for intentional torts.” Id. at ¶ 46.

         Based on Graves, Defendants claim that the court must allow the jury to allocate fault to each of the Defendants. But the TruGreen court explained that “the plaintiff's losses is the appropriate method of measuring damages in cases of tortious interference with contractual and economic relations.” 2008 UT 81 ¶ 22. And, in a case involving only pecuniary losses, the losses are measured by the same standard as a breach of contract. Id. ¶ 24. For such cases, the TruGreen court rejected the argument that “a tort measure” of damages should be used. Id. at ¶ 25. Each Defendant, based on his or its actions, may be liable for intentional interference with contract. If that Defendant is liable for tortious interference, then that Defendant is liable for AA's losses, which are measured by the same standard as a breach of contract, not a tort measure. AA's losses have already been calculated by Defendants' expert and adopted by this court. Moreover, Defendants agreed that their expert witness Tatos will not be testifying as to his calculations. The court, therefore, does not believe that application of those damages to any Defendant found liable for tortious interference with contract is contrary to Graves' scheme of allocation.

         At the hearing on the motions in limine, Defendants also raised for the first time whether Defendants Mitchell and Reynolds are proper defendants under AA's intentional interference with contract claim because they were signatories to the ARS-AA License Agreement for ARS. This argument is essentially a motion to dismiss those parties from the cause of action. It is hard to understand why Defendants did not raise this issue in one of their prior motions to dismiss, motions for judgment on the pleadings, and motions for summary judgment. In fact, Defendants included Mitchell and Reynolds on their proposed special verdict form.[3] Nonetheless, the court does not want to expose a party to liability on a claim to which that party may not be a proper defendant. Therefore, the court requests briefing on this issue prior to trial. Each party shall file a brief on the issue that is no longer than seven pages by noon on March 9, 2017. While this issue probably does not need to be decided prior to the court reading the jury instructions, given the number of claims and parties in this action, the court would like the issue determined before opening arguments so that the parties can clarify to the jury which claims are asserted against which parties.

         Finally, AA asks the court for an order precluding Defendants from making any argument or introducing any evidence at trial for the purpose of contradicting the findings and conclusions previously decided by the court. Although Defendants argued in their briefing that they should be allowed to present evidence that is pertinent to the remaining claims if it will absolve the individual defendants from personal liability even if those arguments or evidence is contrary to the court's findings. In addition, Defendants' proposed jury instructions ask the jury to determine whether AA took reasonable measures to protect the secrecy of the AA data and whether the AA data confers a competitive advantage on AA, both of which has already been decided by the court. At the hearing on the motions, however, Defendants stated that they have no plans to argue that AA breached the License Agreement, that ARS did not breach the License Agreement, or that AA's data housed in the ARS Software was not a trade secret. The court believes Defendants that they have no intention of relitigating matters already decided by the court but, nonetheless, cautions them against doing so.

         The court, therefore, grants AA's Motion in Limine No. 1, as discussed above.

         2. AA's Motion in Limine No. 2: ARS' Disproved ...


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