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KVL Audio Visual Services, Inc. v. Hackworth

January 15, 2010

KVL AUDIO VISUAL SERVICES, INC., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
MICHAEL HACKWORTH, DEFENDANT-RESPONDENT, AND ESPLANADE LIVINGSTON LLC, D/B/A THE WESTMINSTER HOTEL, DEFENDANT-RESPONDENT/CROSS-APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4379-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 9, 2009

Before Judges Sabatino and Lyons.

Plaintiff, KVL Audio Visual Services, Inc. (KVL), appeals a trial court's order granting summary judgment in favor of defendants Michael Hackworth and Esplanade Livingston, LLC, d/b/a Westminster Hotel (the Hotel) on all of KVL's claims, except for its claim for liquidated damages against the Hotel; granting the Hotel $68,544.49 in counsel fees on its offer of judgment; and granting KVL $9,900 as liquidated damages against the Hotel. The Hotel cross-appeals the amount of counsel fees awarded to it. The following factual and procedural history is relevant to our consideration of the issues advanced on appeal.

Plaintiff provides audio-video services in the hotel and conference center industry. The Hotel, which also acts as a conference and banquet center, entered into a written contract with plaintiff on October 17, 2002, in which plaintiff agreed to provide audio-visual rental services to the Hotel's banquet and conference room customers. The contract, drafted by plaintiff, did not give plaintiff the exclusive right to provide the Hotel with audio-visual services. It did, however, require that the Hotel "recommend KVL exclusively for all audio visual equipment and services." The contract, which was effective for a three-year term, commenced on January 1, 2003, and was set to expire on December 31, 2005. The parties agreed that an extension of the contract would require "further agreement" at a later date.

The contract contained a restrictive covenant with respect to the non-solicitation of employees and trade secrets:

10. Non-Solicitation and Trade Secrets: The parties hereto understand and agree that the other party's employment policies and practices, training methods, compensation schedules and methods, marketing techniques, specifications of equipment and services, suppliers, methods of determining its charges, and all forms, contracts and other writings pertaining to any of the foregoing are proprietary and constitute confidential business information (referred to as "Trade Secrets"). Each party further understands and agrees that the unauthorized use or disclosure by either party of the Trade Secrets of the other party could cause such party irreparable harm and injury. Consequently, each party hereto covenants and agrees that for a period commencing as of the date hereof and terminating one (1) year after termination hereof, each party shall not, (except in furtherance of its duties hereunder), whether as a sole practitioner, partner, investor or stockholder, consultant, independent contractor, employer or otherwise:

a. disclose or divulge any of the other party's Trade Secrets;

b. hire or engage or attempt to hire or engage, any individual who is an employee of the other party at the time during the term of this Agreement; or

c. employ or utilize for itself or for the benefit of any other person or business entity, directly of [sic] indirectly, any of the other party's Trade Secrets.

In the event either party breached subparagraph (b) quoted above, the contract provided for a payment of liquidated damages to the non-breaching party: the defaulting party shall pay to the non-defaulting party, thirty percent (30%) of the employee's annual salary . . . . Notwithstanding the foregoing, nothing herein shall preclude either party from pursuing a claim against the other for any actual and/or consequential damages sustained, as a result of a breach of any of the other terms of this agreement.

During the first two years of the contract's term, the Hotel's management staff was dissatisfied with the on-site audio-video managers plaintiff assigned to the Hotel and expressed this dissatisfaction to plaintiff. In June 2004, plaintiff assigned Michael Hackworth, the co-defendant in this case, as the on-site manager. Hackworth was hired by plaintiff on February 10, 2004, with a salary of $33,000 per year. The Hotel management was very pleased with Hackworth's performance.

In November 2005, Kevin Swill, the Hotel's president, instructed Michael Polese, the Hotel's general manager, to review the contracts for all of its outsourced work, including the audio-visual contract with plaintiff, to determine if any of the outsourced functions should be moved in-house. Polese stated during his deposition that, at that time, he had no interest in the Hotel taking in-house its audio-visual work because he was very happy with Hackworth.

In December of 2005, Hackworth expressed to Polese that he was unhappy with his current employment with plaintiff, specifically with regard to his compensation. He kept Polese informed of his negotiations with plaintiff. Polese became concerned that he would lose Hackworth as the on-site audio-visual manager if he left plaintiff's employment.

In mid-December of 2005, Polese contacted plaintiff's executive vice president, Bruce Borland, to discuss the possibility of extending the contract. Polese informed Borland that the Hotel would not renew the contract unless plaintiff could guarantee that Hackworth would remain the on-site manager. Borland stated that he could not promise that but indicated that he would make an attempt to keep Hackworth in his current position. Borland also offered to incorporate a provision into the new contract that would "make it easier" for the Hotel to terminate the contract if Hackworth ever left.

According to Swill, "at the end of '05," he decided not to renew the contract with plaintiff. Swill stated that he based this decision on Polese's audit of the Hotel's outsourced contracts as well as his own research on the cost of retaining plaintiff as the Hotel's audio-visual provider. Swill believed the most cost-effective plan was to bring the audio-visual services in-house.

On December 21, 2005, plaintiff submitted a proposal to the Hotel for a new three-year contract. The Hotel did not respond to the proposal. In January 2006, Polese contacted another audio-visual service provider to discuss the possibility of entering into a contract with them, but the negotiations never progressed beyond the preliminary phase.

In early 2006, during the course of his negotiations with plaintiff concerning his salary, Hackworth created a chart that outlined "all the bills between KVL and the [H]otel" in order to illustrate the various profits and expenses associated with that customer relationship. Hackworth used 2005 data to create a financial "forecast" for plaintiff's business with the Hotel for 2006. Hackworth accessed this data using plaintiff's computer system. He hoped that by showing plaintiff's representatives how profitable the Hotel's contract was, he would be more likely to receive an increase in his pay. Despite Hackworth's efforts, plaintiff refused to increase his pay to his desired amount.

On February 3, 2006, Hackworth contacted Polese via e-mail to inform him that plaintiff had refused to meet his salary demands and that he intended to leave the company. Hackworth formally tendered his resignation on February 21, 2006. When Polese learned that Hackworth had left plaintiff's employment, Polese immediately asked Hackworth if he would be interested in working for the Hotel as part of an in-house audio-visual department. Hackworth told Polese that "if the package [was] good, he would consider it." Polese also asked Hackworth if he had any agreement with plaintiff that would restrict his ability to work for the Hotel. Hackworth responded that he did sign such an agreement but that he believed it only prevented him from working for a competing audio-visual company.

Hackworth had in fact signed a non-compete agreement upon being hired by plaintiff. That contract stated the following:

In the event that you leave the employ of KVL, you agree to respect the confidentiality of the foregoing types of information pertaining to our business, including not accepting employment by or rendering services to any other business competing with KVL within a fifty mile radius of KVL's Westin Morristown location, for a period of one year. Within said period: you agree not to do business with any KVL customer for your own account while in our employ or for one year thereafter. You further agree not to induce any customer of KVL to terminate its relationship with us and not to disclose any confidential or proprietary information such as the identity of customers, the principal contact in position of authorize who gives or has given business to KVL, customers of the Company, their credit worthiness and other information relating to KVL's customers, business and manner of operations.

Hackworth was never able to produce a copy of the non-compete agreement. Ultimately, plaintiff provided the contract during a meeting with the Hotel in September 2006.

The Hotel made Hackworth a formal offer of employment on March 6, 2006, which he accepted. Hackworth's salary was set at $55,000. His work as an employee of the Hotel was the same as the work he performed while employed by plaintiff.

Hackworth testified at his deposition that he did not take anything, other than his personal belongings, from plaintiff when he left. He specifically stated that he did not share any of plaintiff's employment forms or manuals with the Hotel upon being hired. However, after Hackworth started in his new position, the Hotel management asked him what he estimated the 2006 profits would be for the in-house audio-visual department. In response, Hackworth gave the Hotel the chart he created which outlined plaintiff's profits from the Hotel's contract.

On May 23, 2006, plaintiff filed its complaint against Hackworth and the Hotel. Plaintiff asserted the following causes of action against both parties: fraud and conspiracy to convert business; conspiracy to commit conversion; breach of contract and the implied covenant of good faith and fair dealing; unjust enrichment; tortious interference with economic advantage; unfair competition; and constructive trust. Plaintiff also asserted the following causes of action against Hackworth individually: conversion; breach of the duty of loyalty; and misappropriation and disclosure of confidential and proprietary information.

In response to the Hotel's interrogatories, plaintiff identified the following "confidential proprietary trade secrets" it claimed Hackworth divulged to the Hotel, in contravention of his employment contract:

a. Employee handbook

b. Customer lists

c. Rental contract software

d. Various company licensed software such as Office 2003, Windows 2003, Norton Antivirus, Spysweeper, etc.

e. Purchase orders

f. Estimate template

g. Knowledge of vendors and pricing

h. Rental contract terms, ...


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