Eldim, Inc. v. Mullen

Citations: 47 Mass. App. Ct. 125; 710 N.E.2d 1054; 1999 Mass. App. LEXIS 686Docket: No. 96-P-1897

Court: Massachusetts Appeals Court; June 15, 1999; Massachusetts; State Appellate Court

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The defendants appeal a Superior Court ruling that awarded the plaintiff, Eldim, Inc., damages and attorney’s fees for contempt of an injunction related to a noncompetition agreement. The defendants argue that the injunction's terms were unclear, that their activities did not violate the injunction, that the plaintiff did not prove lost profits, that there was no basis for the return of noncompetition payments, and that the evidence for the plaintiff’s legal fees was insufficient. The court affirms the judgment but remands the issue of attorney’s fees back to the Superior Court.

Factual background indicates that Eldim designs and manufactures proprietary metal foil honeycomb products. Stephen J. Mullen and his company, SJM Engineering, served as Eldim's engineering manager under a consulting agreement that included a noncompetition clause lasting 18 months post-termination. Mullen was critical to Eldim’s operations and its largest client, contributing significantly to the company’s revenue.

After Mullen left Eldim in July 1994, he presented updated product proposals to Eldim's client in February 1995, prompting Eldim to seek injunctive relief in Superior Court. On April 6, 1995, a temporary injunction was issued, prohibiting the defendants from competing with Eldim until January 13, 1996. An arbitrator later confirmed this injunction and allowed Eldim to withhold future payments to Mullen under the noncompetition agreement, while requiring any overdue payments for the noncompetition period covered by the temporary injunction. The arbitrator's award effectively vacated the temporary injunction.

On September 20, 1995, the Superior Court confirmed an arbitrator's award favoring Mullen as a final judgment. Subsequently, Eldim filed a civil contempt complaint on March 8, 1996, claiming Mullen violated this judgment. Following a jury-waived trial, the court found Mullen in contempt. The trial judge established that Mullen had provided engineering graphics and specifications to the client regarding a new honeycomb concept, which Mullen initially presented in February 1995. Mullen also supplied engineering services and critical information, sent a testable design sector between October and December 1995, and approved an RFQ incorporating his design specifications on December 15, 1995. Additionally, Mullen sent suggestions for a related project on December 18, 1995, and submitted quotations in response to the RFQ on January 3 and 4, 1996, indicating he could not accept purchase orders until after January 13. The client awarded the RFQ to Mullen shortly after. The judge concluded Mullen's actions were a clear violation of the court's injunction but limited the relief to remedial damages, awarding Eldim lost profits of $158,800, legal fees of $80,000, and $45,440.80 for noncompetition agreement payments. 

To justify contempt, there must be a clear command and disobedience. Mullen claimed the injunction was unclear and that he did not disobey it, but the court found these arguments without merit. The noncompetition terms mirrored the consulting agreement established four years prior to Mullen's departure, indicating he was aware of the potential for contempt. The onus was on Mullen to ensure his actions complied with the injunction, and he could have sought clarification if he perceived ambiguity. The trial judge's findings were supported by the record, particularly regarding Mullen's credibility, and the evidence indicated he had indeed sent a quotation to the client before January 14, 1996.

The judge determined witness credibility and allowed Mullen to present additional evidence regarding Mullen’s motion to amend findings or request a new trial. After reviewing the new evidence, the judge maintained that his findings were primarily based on credibility and denied Mullen's motion, concluding that the conduct in question constituted contempt without abusing his discretion.

In the civil contempt proceedings, the judge awarded damages including lost profits, reimbursement of noncompetition fees, and attorney’s fees, all of which Mullen contested. 

1. **Lost Profits**: The judge awarded damages for anticipated contracts based on prior dealings between Eldim and the client, concluding that Mullen’s violation of the court order likely resulted in Eldim losing the contract. The judge's findings were supported by evidence of Eldim's previous contracts and the urgency of the RFQ during the holiday season. The judge's approach to estimating lost profits was deemed appropriate despite the inherent difficulties in proving such damages, particularly due to Mullen’s conduct causing uncertainty.

2. **Reimbursement for Noncompetition Payments**: The judge ordered Mullen to reimburse Eldim for noncompetition payments made prior to the relevant court order, countering Mullen’s argument that these payments were justified because Eldim continued sales during that time. The judge amended the pleadings to include the period of the earlier injunction but clarified that reimbursement was warranted regardless of the amendment, as Mullen's actions during the injunction undermined the value of those payments, necessitating Eldim to be made whole.

3. **Attorney’s Fees**: The judge awarded Eldim $80,000 in attorney’s fees, which he deemed reasonable, based on the Eldim damage summary documenting these legal costs. The awarding of attorney’s fees is legally recognized as a valid component of civil contempt proceedings.

Eldim’s general manager testified that the company had paid at least half of an $80,000 fee and anticipated paying the remainder upon receiving an invoice, asserting that this amount was reasonable compared to arbitration costs. Mullen challenged the award of attorney's fees on appeal, arguing the lack of evidence regarding hourly rates and hours worked, which the court acknowledged. However, Mullen did not raise this issue during the trial and only briefly mentioned it in a posttrial motion, suggesting it could be addressed on appeal. Eldim claimed Mullen waived the issue due to non-compliance with Mass. R.A.P. 18(b), although Eldim did not submit additional materials to show prejudice. Consequently, the court remanded the attorney's fees award to the Superior Court for further review as per established case law. Eldim also sought attorney's fees for the appeal, arguing that such costs were part of the damages incurred due to Mullen’s contempt. The court noted that awarding fees for civil contempt should include appellate fees. Eldim, having largely succeeded on appeal, may file a petition for appellate fees within fifteen days of the rescript, detailing hours worked and fees requested, while Mullen will have fifteen days to respond. The court affirmed the award of lost profits and reimbursement for noncompetition payments and interest but vacated the award of legal fees, remanding this aspect for further action. The order denying Mullen’s motion to amend findings or for a new trial was affirmed.