ADE Software Corp. v. Hoffman

ADE Software Corp. v. Hoffman (99-338); 172 Vt. 259; 775 A.2d 896

[Filed 20-Apr-2001]

[Motion for Reargument Denied 05-May-2001]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.


                                 No. 99-338


ADE Software Corp.	                         Supreme Court

                                                 On Appeal from
     v.	                                         Chittenden Superior Court


Carl Hoffman, et al.	                         September Term, 2000


Matthew I. Katz, J.

Karen McAndrew of Dinse, Knapp & McAndrew, P.C., Burlington, for 
  Plaintiff-Appellee.

Michael B. Clapp, Burlington, for Defendant-Appellant.


PRESENT: Amestoy, C.J., Dooley, Morse and Skoglund, JJ., and Davenport, 
         Supr. J., Specially Assigned


       AMESTOY, C.J.   Defendant-appellant Carl Hoffman appeals a final order
  of the  Chittenden Superior Court denying his motion for a determination of
  injunction damages arising  from a preliminary injunction granted to
  plaintiff-appellee ADE Software Corp.  Defendant (FN1)  asserts that he is
  entitled to a trial on the merits of plaintiff's claim in order to
  establish that the  preliminary injunction was wrongfully issued, and
  further, that he has a right to have a jury  determine damages.  We affirm
  the trial court's judgment that defendant did not meet his burden of 
  establishing that the injunction was wrongfully issued in the first
  instance, and consequently has no  right to a merits hearing.

 

       In March 1997, defendant Carl Hoffman began employment with LPA
  Software, Inc., a New  York corporation, at its office in Williston,
  Vermont.  LPA sold "integrated yield management  solutions," building
  software which could identify problems in the manufacturing process of 
  semiconductor chips.  Hoffman was employed as a sales manager for the
  Eastern United States and  Europe, and was involved in LPA's product
  design. His employment contract contained a covenant not to compete which
  read:

    Employee agrees that during the term of this Agreement and for a 
    period of one (1) year after the expiration of this Agreement or 
    termination of his employment with Employer, without the prior 
    written consent of the Employer (which consent will not be 
    unreasonably withheld), he will not . . . be employed by . . . any 
    enterprise in the United States or Canada engaged in the business
    of  preparing, designing, implementing or marketing computer
    systems  or in research and development . . . where such activity
    competes  directly with the Employer.

  The contract explicitly entitled LPA to injunctive relief "upon an actual
  or threatened breach or  violation of the provisions."

       Hoffman terminated his employment with LPA effective September 8,
  1997, and one week  later, commenced employment with defendant KLA-Tencor
  Corp., LPA's "largest and most direct  competitor."  At approximately the
  same time, ADE Software Corp. (hereinafter "plaintiff" or  "ADE") purchased
  LPA Software, Inc., including the terminated employment contract. 

       Plaintiff filed a complaint on November 3, 1997 to enforce the terms
  of the employment  agreement, and to recover damages sustained as a
  consequence of Hoffman's employment with KLA-Tencor.  After a three-day
  evidentiary hearing, the trial court issued a preliminary injunction on 
  January 16, 1998, barring Hoffman from continued employment with
  KLA-Tencor.  The trial court  found that there was "a likelihood that ADE
  will succeed in proving at trial that Mr. Hoffman's 

 

  employment by KLA-Tencor is in violation of the Employment Agreement."  The
  injunction became  effective upon the posting of a $100,000 bond. 

       Defendant filed a motion for reconsideration and, in the alternative,
  a motion for permission  to file an interlocutory appeal.  The motion for
  reconsideration was denied, but permission to file an  interlocutory appeal
  was granted.  Defendant's appeal was subsequently filed with this Court,
  and  was dismissed on the grounds that permission to appeal was
  "improvidently granted insofar as  resolution of the issues on appeal may
  be dictated by facts developed at trial."

       In September 1998, plaintiff filed a motion to voluntarily dismiss the
  action and to dissolve  the preliminary injunction.  Plaintiff claims to
  have voluntarily dismissed the action due to the fact  that the period of
  time for which it was entitled to enforce the covenant had expired, and 
  that the  pursuit of money damages was not cost effective as "any claim for
  lost profits would be based upon a  very limited period of time." 
  Defendant did not oppose the motion, and the underlying complaint  was
  dismissed.  

       One week later, defendant filed "a motion for determination of
  injunction damages" pursuant  to V.R.C.P. 65(c), 65.1 and 12 V.S.A. § 4447,
  seeking a hearing "to determine defendant Hoffman's  entitlement to
  injunction damages arising from the wrongful issuance of the preliminary
  injunction in  this matter."  The trial court noted that defendant's demand
  for a hearing was subsequent to the  dissolution of the preliminary
  injunction, and ordered defendant to "specify its grounds for damages, 
  both what has been suffered and why the injunction was wrongfully issued." 
  After receiving  defendant's response, the trial court concluded that
  defendant had "shown no new evidence" to meet  his burden of establishing
  his right to injunctive damages, and that he had not made a timely jury 
  request.  The trial court denied defendant's subsequent motion for
  reconsideration.

 

       On appeal, defendant contends that he is entitled to a trial on the
  merits of plaintiff's claim in  order to establish that the preliminary
  injunction was wrongfully issued, and that he has a right to  have a jury
  determine damages.

       The dissolution of the preliminary injunction before a final judgment
  on the merits of  plaintiff's claim distinguishes this case from the more
  usual circumstances in which a defendant  seeks injunctive damages after a
  final judgment.  Sykas v. Alvarez, 126 Vt. 420, 422, 234 A.2d 343,  345
  (1967) (appellant's "right, or lack of it, to injunctive relief is usually
  resolved by the final  decree").  Indeed, an enjoined defendant's explicit
  statutory right to injunctive damages is predicated  on a final judgment: 
  "When an injunction has been dissolved by a final judgment in favor of the 
  enjoined party, he shall be entitled to recover his actual damages caused
  by the wrongful issuing of  the injunction."  12 V.S.A. § 4447 (emphasis
  added).

       Here, no such final judgment in favor of the enjoined party exists. 
  Approximately nine  months after the preliminary injunction issued, and
  shortly after defendant filed discovery requests,  plaintiff dismissed its
  underlying claim and moved for voluntary dissolution of the preliminary 
  injunction.  Defendant did not oppose the motion, and the preliminary
  injunction was dissolved on  October 20, 1998.  The parties offer
  conflicting perspectives as to the legal consequences of the  voluntary
  dissolution of the preliminary injunction.  Defendant strenuously asserts
  that he is entitled  to compel plaintiff to prove at trial "the existence
  of facts which, as a matter of law, entitled  [plaintiff] to a judgment
  order of the court enjoining defendant . . . ."  Plaintiff argues that
  defendant  has "waived" any right to assert a claim for injunction damages
  by failing to object to the dissolution 

 

  of the preliminary injunction. (FN2)

       On appeal, defendant recognizes that while some courts have held that
  the voluntary  dismissal of an injunction operates as a final judgment,
  automatically rendering plaintiff liable for  injunction damages, see
  Wainwright Securities Inc. v. Wall St. Transcript Corp., 80 F.R.D. 103, 107 
  (S.D.N.Y. 1978); Middlewest Motor Freight Bureau v. United States., 433 F.2d 212, 243 (8th Cir.  1970), we have held that the "interlocutory
  dissolution of an injunction is not, per se, an adjudication  that the
  injunction issued wrongfully." Sykas, 126 Vt. at 422, 234 A.2d  at 345; see
  also LaSalle  Capital Group, Inc. v. Alexander Doll Co., No. 95C1640, 1995
  WL 584429, at *3-4 (N.D.Ill. Oct. 2,  1995) (holding that determinations
  should be made on a case-by-case basis).

       Defendant's inability to seek recourse through the statute because he
  lacks a final judgment in  his favor does not end our inquiry however,
  because "the power to assess injunction damages is  inherent in the court,
  independent of the statute."  Spaulding & Kimball Co. v. Aetna Chemical
  Co.,  98 Vt. 169, 172, 126 A. 588, 589 (1924).  In order to prevail in
  equity, defendant bears the burden of  establishing that the injunction was
  wrongfully issued in the first instance.  Sykas, 126 Vt. at 421,  234 A.2d 
  at 344 (deciding that the defendant was not entitled to damages after
  dissolution of an  injunction without a final judgment where the trial
  court was "unable to find that plaintiff was not 

 

  equitably entitled to a temporary injunction at the time the injunction was
  granted") (emphasis  added).  Thus, in order to obtain an assessment of
  wrongful injunction damages, the enjoined party  must show both that the
  injunction was wrongfully issued, "and that the party seeking recovery . .
  .  suffered damages resulting from the wrongful issu[ance]" LaSalle, 1995
  WL 584429, at *3.  A  determination that the defendant has not met this
  burden can be overcome in this Court only if an  opposite result is
  required as a matter of law.  Sykas, 126 Vt. at 422, 234 A.2d  at 345.

       In this case, after defendant filed a motion for a hearing to
  determine his entitlement to  injunction damages, the trial court required
  defendant to fulfill the requirements set forth above: to  specify the
  grounds for damages and claims that the injunction had been wrongfully
  issued.   Although expressing skepticism that the results of a hearing on
  injunctive damages would be  different than the results of the preliminary
  injunction hearing, the trial court did not foreclose  defendant from
  specifying evidence and argument to support his claim for injunctive
  damages. The  court subsequently denied defendant's motion because he
  failed to proffer new evidence, and merely  "repackage[d] the same . . .
  arguments which were unsuccessful before the preliminary injunction 
  judge."  

       On appeal, defendant claims that, as a matter of law, he is entitled
  to a merits hearing.   However, in Sykas, we held that in the absence of a
  final decree, the determination regarding  whether an injunction was
  wrongfully issued should not be made in a merits hearing on the  underlying
  suit, but rather during an assessment of injunction damages.  Sykas, 126
  Vt. at 422, 234 A.2d  at 345.  Thus, we construe defendant's initial
  "motion for injunction damages" filed below,  his  appeal of the trial
  court's denial of the motion and his claims on appeal for a hearing on the
  merits, to  fall squarely within the ambit of Sykas, where we stated:

 

    . . . the determination as to whether the injunction was
    wrongfully  issued is initially for the chancellor, as part of his
    role in assessing  injunction damages, where the propriety of the
    injunctive relief has  not been settled by final decree. . . . 
    The burden is on the defendant  to establish his right to damages.  

  Id. (emphasis added).

       The trial court based its decision denying defendant's motion for
  injunction damages on the  fact that defendant "proffered no different
  evidence than was presented at the original hearing."  The  court noted
  that, despite its request that defendant "specify [his] grounds for
  damages," he set forth  the same legal argument that was made at the
  preliminary injunction hearing, and "ha[d] shown no  new evidence, as might
  have been unearthed by some depositions."  We review the court's decision 
  to deny defendant's motion for a hearing on his entitlement to injunction
  damages under an abuse of  discretion standard.  See Sykas, 126 Vt. at 422,
  234 A.2d  at 345.  

       Our review of defendant's submissions to the trial court supports the
  court's determination.   Defendant's submissions did not articulate with
  any specificity the contours of his damages, nor  proffer any new evidence
  with respect to his claims.  Absent the statutory right to injunction
  damages  that arises when an injunction has been dissolved by a final
  judgment in favor of the enjoined party, a  defendant's right to injunction
  damages is predicated on a determination by the court that the  injunction
  was wrongfully issued.  It is the defendant's burden to establish his right
  to damages.

       We cannot say on the basis of this record that the trial court abused
  its discretion in deciding  that defendant failed to establish his right to
  injunction damages. (FN3)  Sykas 126 Vt. at 422, 234 A.2d  at 345
  (determination on this issue may be reversed by this Court "only if
  opposite result is  required 

 

  as matter of law").  Defendant is not entitled, as a matter of law, to a
  trial on the merits of plaintiff's  claim in order to establish that the
  preliminary injunction was wrongfully issued.

       Affirmed.


                                       FOR THE COURT:



                                       _______________________________________
                                       Chief Justice



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                                  Footnotes


FN1.  Although KLA-Tencor was also a defendant in the underlying suit, only
  defendant  Hoffman has appealed the trial court's order.

FN2.  We do not agree that defendant's perceived failure to expedite a final
  merits hearing, nor  defendant's failure to oppose plaintiff's motion to
  dissolve the preliminary injunction, can be  reasonably characterized as a
  bar to asserting a claim for injunction damages.  It would be anomalous  to
  require a defendant to oppose the dissolution of an injunction defendant
  believed to be wrongfully  issued in the first instance.  Moreover,
  defendant filed a motion for injunction damages within one  week of
  plaintiff's voluntary dismissal.  See Sykas, 126 Vt. at 423, 234 A.2d  at
  345 (After the  plaintiff discontinued his action, defendant "immediately
  brought a motion for a hearing on  injunction damages.  This he had a right
  to do because the plaintiff could not foreclose consideration  of that
  issue by a discontinuance.").

FN3.  In view of our determination that the trial court did not err in
  concluding that defendant has  not established a right to injunction
  damages, it is unnecessary to reach defendant's claim that he is  entitled
  to a jury trial on such damages.