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Vanguard Dealer Services, LLC v. Scarano

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 24, 2010

VANGUARD DEALER SERVICES, LLC PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
GREG T. SCARANO, DEFENDANT-APPELLANT/CROSS-RESPONDENT.

On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-33-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted May 4, 2010

Before Judges Wefing, Messano and LeWinn.

Plaintiff, Vanguard Dealer Services, LLC (Vanguard), is an automotive services company engaged in the "sale of products such as extended warranties, gap insurance [and] window etching...." Vanguard does not market these products to the general public; rather it trains sales people at car dealerships to sell Vanguard's products at the time of sale of the automobiles.

James Polley, one of Vanguard's principals, described the company's operation as follows:

Ultimately, the dealership, [the] F&I (Financial & Insurance) Department, would sell [our products] to the customer. It's our responsibility to train their people at the dealerships to sell these products properly and to be able to sell them at a high level and make the proper presentation, disclose the coverages properly and the end result, being able to sell more products to more customers.

....

Typically we train them on the products themselves, then we train them how to sell those products to the customers.

....

The primary basis of training is our people in the dealerships, working with those people directly.

Vanguard was formed in 1999, when it purchased another company, Transcapital Partners.

Defendant was hired by Transcapital in June 1999 and became Vanguard's national sales manager, a position he held until he was terminated in January 2005. Defendant was in charge of training the F&I sales people at the dealerships.

Vanguard and defendant entered into a "Confidentiality and Non-Compete Agreement" on August 12, 2004. Section two of that agreement provided:

During his... employment by the Company and thereafter, Employee will not disclose to anyone, either directly or indirectly, any Confidential Business Information of the Company, or use any such Confidential Business Information of the Company, either directly or indirectly, other than in the course of Employee's employment by the Company. All files, records, documents, equipment, computer programs and data relating to the business of the Company, whether prepared by Employee or otherwise coming into Employee's possession in the course of his... employment, are and shall remain the exclusive property of the Company and shall not be removed from the Company's premises without the prior written consent of the Company's President. Employee further agrees that, upon the cessation of his... employment by the Company for any reason whatsoever, Employee will not take with him... or retain, without prior written authorization of the Company, any documents, data, lists, books, files, devices, or copies of such items or information of any kind belonging to or licensed to the Company, including, but not limited to, Confidential Business Information of the Company.

Section three of the agreement required defendant to "exercise extreme care in protecting the confidentiality of any Confidential Business Information"; section five prohibited defendant from "participat[ing] in any employment or activity competitive with Vanguard" during his employment and for two years following termination of employment for any reason. The agreement further provided that, in the event of any breach by defendant, Vanguard would have the right "to obtain an immediate injunction enjoining any breach of this agreement, as well as the right to pursue any and all other rights and remedies available at law or in equity for such a breach."

In January 2005, Vanguard learned that defendant had used money in an account held by one of Vanguard's customers, Oasis Ford, to pay for work that the dealership had performed on defendant's sister's automobile. Vanguard determined that defendant's use of those funds from Oasis was unauthorized, and terminated him.

Shortly after defendant's termination, a situation arose in which two of Vanguard's major customers, Oasis and Global Motors, learned that Vanguard included in its pricing a $50 commission on each sale made to the dealerships. Vanguard considered this commission as confidential and proprietary information, and concluded that defendant had disclosed this information to the two dealerships. As a result of the disclosure, Vanguard was compelled to renegotiate its pricing structure with Oasis and Global.

On February 28, 2005, Vanguard filed a complaint and order to show cause against defendant in the Chancery Division, seeking temporary and permanent injunctive relief, restraining defendant from: (1) "disclosing or attempting to disclose to any person or entity, any Confidential Business Information belonging to Vanguard for any purpose whatsoever"; (2) "contacting customers of Vanguard for any reason"; (3) "making defamatory statements regarding Vanguard, its owners, employees or agents"; (4) "interfering with Vanguard's relationships with its customers and/or vendors"; and (5) "directly or indirectly, contacting any owner, employee and/or their family members[.]" The complaint also sought an order directing defendant "to return any and all documents relating to Vanguard's business[,]" and sought compensatory and punitive damages.

Following his termination from Vanguard, defendant apparently formed a business entity known as GTS & Associates, and conducted the same training function he performed with Vanguard; some of his customers included dealerships which Vanguard had served.

On March 2, 2005, the trial judge entered an order to show cause with temporary restraints enjoining defendant from using or disclosing any of Vanguard's confidential business information and from contacting any of Vanguard's customers; the order further required defendant to return all company property and restrained him from making any defamatory remarks about Vanguard. On April 27, 2005, the judge entered an order continuing those restraints.

On August 1, 2005, defendant filed an answer and counterclaim alleging defamation, extreme mental anguish and wrongful termination. On Vanguard's motions, defendant's wrongful termination count was dismissed with prejudice on November 15, 2006; his extreme mental anguish count was dismissed on April 23, 2007.

Prior to trial, defendant moved to hold Polley in contempt on the basis that Polley had made false statements that prevented defendant from obtaining employment after his termination. The trial judge reserved on that motion, stating that she would judge demeanor and credibility at trial.

Trial ensued in the Chancery Division between February 20, 2007 and July 22, 2008. On October 14, 2008, the trial judge issued a comprehensive written decision, holding the restrictive covenant enforceable and finding that defendant had violated it.*fn1

The judge found that the "testimony was replete with evidence that [defendant] even in those early days before the [c]omplaint was instituted was in and out of the various dealerships that were under contract with Vanguard[,]" and that defendant's own "testimony... and his view as to his behavior in this case satisfies [sic] this [c]court that he has no regard for restrictive covenants."

The judge denied Vanguard's claim for damages, however, finding that the "proofs of damages presented were speculative at best." The judge also denied Vanguard's request to extend the restrictive covenant period "prospectively" based upon defendant's failure to honor the restrictive covenant while in effect.

On November 5, 2008, defendant filed a motion for reconsideration, once again asserting that Polley had given false discovery information and testimony, and noting that the judge had not decided defendant's pending motion to hold Polley in contempt. Defendant sought to amend the judgment to find Polley in contempt and to "provid[e] sanctions against... Polley, and also award[] damages to [defendant] for [Polley's] misrepresentations."

On December 2, 2008, the trial judge entered an order denying both defendant's motion for reconsideration and his pending motion to hold Polley in contempt.

On appeal, defendant raises only one issue, namely that the trial judge erred in denying his motion to hold Polley in contempt "for intentionally misrepresenting facts to the court by way of certification and testimony."

Vanguard cross-appeals from the trial judge's refusal to extend the restrictive covenant prospectively and the failure to award it monetary damages.

We turn first to defendant's appeal. The gravamen of defendant's claim against Polley is set forth in his attorney's certification in support of defendant's post-trial motion for reconsideration. There, counsel noted that defendant had previously made a motion to hold Polley in contempt "for misrepresenting to the [c]court factual statements...

[s]pecifically,... [with] reference to conversations with owners of automobile dealerships that indicated that [defendant] had revealed confidential information to the detriment of Vanguard." Counsel noted that the judge had reserved decision on this motion pending completion of trial, but had failed to address it in her opinion.

Counsel further noted that, in her decision, the judge had made the following observation pertinent to the issue of Polley's credibility:

However, the [c]court is also not without questions as to the credibility of Mr. Polley. The early pleadings in this matter suggested information about [defendant's] conduct came directly from dealers. During trial, the testimony revealed the information came to Mr. Polley and his partners through Vanguard employees who "saw... or heard... or... learned" information from individuals they could not (or would not) identify.

Based on this paragraph in the judge's decision, counsel asserted that it was "clear from the opinion of the [c]court that Mr. Polley directly misrepresented to the court and completely contradicted his prior testimony in depositions." Therefore, counsel contended that the judge was "left with no other choice but to find... Polley[] in contempt of [c]court and award damages" to defendant.

In her oral opinion denying defendant's motion for reconsideration, the judge noted that she "found very specific credibility issues in this case[,]" adding:

And I think what I found in this case was a tremendous misapprehension of what in reality existed. And... while I question in some ways the deviation from deposition testimony to trial testimony... of Mr. Polley, I don't believe and I did not find and I still do not find that it rose to the level that would require this [c]court to impose contempt sanctions.

....

I did not find [defendant's] testimony with regard to any effect on his ability to earn income credible at all. Whether Mr. Polley actually could stand up and say yes, I told so-and-so about [defendant]... even if that had happened, I could find no cause and effect with regard to any business relationships -- or damage to business relationships that [defendant] asserted during trial.

On appeal, defendant raises essentially the same arguments he made before the trial judge. He contends that Polley misrepresented statements defendant made to Michael Ciasulli, the owner of several dealerships served by Vanguard, and falsely claimed that Ciasulli stopped doing business with Vanguard because of information he received from defendant. Defendant cites to Ciasulli's deposition testimony, in which he stated that he chose not to continue his business with Vanguard because its prices were too high.

Defendant next argues that Polley misrepresented to the court that Vanguard lost business as a result of defendant's comments to Ciasulli about Vanguard's etch product. Again, defendant points to Ciasulli's denial in his deposition that defendant provided any such information to him.

Defendant also argues that Polley lied to "create the appearance that [defendant] was improperly competing" in order to bar defendant "from pursuing certain job opportunities, specifically finance training at Vanguard and non-Vanguard customers, which caused [defendant] to suffer financially." Defendant further argues that a certification from Ron Rosen of Oasis shows that defendant did not provide confidential information to Oasis, as alleged by Polley. Finally, defendant contends that although Polley "repeatedly tried to give the court the impression that [defendant] was speaking badly of Vanguard... there is no evidence to support these claims." Defendant alleges, to the contrary, that he "actually drove business to Vanguard after his termination."

Defendant contends that as a result of the trial judge accepting these false accusations about him, the judge erroneously issued pre-trial orders to enforce the restrictive covenant. In sum, defendant argues that Polley's "baseless accusations and fabricated 'proof' served as a foundation for the court's repeated insistence on enforcing the already overly broad and restrictive non-compete and non-disclosure agreements as broadly as possible."

Vanguard contends in response that all of the above-mentioned discrepancies are unsupported and refer to certifications and deposition testimony that were not in evidence below. Vanguard further argues that the trial judge found that neither defendant nor the auto dealership witnesses who testified on his behalf were credible.

We note initially that defendant premises his argument on Rule 1:10-1 which provides, in pertinent part:

A judge conducting a judicial proceeding may adjudicate contempt summarily without an order to show cause if:

a) the conduct has obstructed, or if continued would obstruct, the proceeding;

b) the conduct occurred in the actual presence of the judge, and was actually seen or heard by the judge;

c) the character of the conduct or its continuation after an appropriate warning unmistakenly demonstrates its willfulness;

d) immediate adjudication is necessary to permit the proceeding to continue in an orderly and proper manner; and

e) the judge has afforded the alleged contemnor an immediate opportunity to respond.

Even assuming for the purpose of this opinion that defendant has standing to assert a claim under this rule, he has not established a basis for the judge to award damages to him even if he were able to sustain this claim. Defendant alleges that Polley's false statements led to the trial judge's pre-trial orders barring defendant from pursuing job opportunities "specifically finance training at Vanguard and non-Vanguard customers." As noted, defendant does not challenge the validity of the restrictive covenant itself on appeal. Therefore, even assuming Polley misrepresented facts to the trial court in support of Vanguard's requests for injunctive relief, defendant has failed to provide either the trial judge or this court with any evidence of damages so incurred. Moreover, defendant has not cited, and we are not aware of, any authority supporting an award of damages to a party under Rule 1:10-1.

We note, moreover, as Vanguard has stated, that the certifications and deposition testimony which defendant submitted in support of his motion for reconsideration were not in evidence at trial. Defendant points to no testimony or any other evidence at trial to refute Polley's testimony, other than Polley's cross-examination and the testimony of Michael Ciasulli, to the effect that Ciasulli's decision to discontinue selling certain products through Vanguard had nothing to do with any information received from defendant.

Greg Liccardi, the proprietor of two dealerships which were Vanguard clients, also testified that defendant never gave him "any information regarding the details of Vanguard's pricing structure...." In her trial opinion, however, the judge acknowledged Liccardi's "outright deni[al] that [defendant] gave him any information"; also the judge observed that "Ciasullo's testimony did not help the [c]court's fact finding in any way." Thus, the judge considered the testimony of these two witnesses and concluded they did not necessarily impugn Polley's credibility.

The essence of defendant's argument is that the trial judge erred in her assessment of Polley's credibility in her findings of fact. Such a claim is subject to limited review on appeal. Findings of fact made by a trial judge sitting without a jury "are considered binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). A reviewing court should "not disturb the factual findings and legal conclusions of the trial judge unless [it is] convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice...." Ibid. (internal quotation marks omitted). Moreover, and particularly pertinent here, "[a]ppellate courts should defer to the courts' credibility findings that are often influenced by matters such as observations of the character and demeanor of witnesses and common human experience that are not transmitted by the record." State v Locurto, 157 N.J. 463, 474 (1999).

Having reviewed the extensive trial record in light of these principles, we find no basis to disturb the trial judge's credibility assessments of all witnesses, including defendant himself. It is clear in her decision that the trial judge's conclusions are based substantially on her assessment of defendant's credibility, and that whatever deficiencies of proof the judge found in defendant's case resulted from that assessment.

We turn briefly to Vanguard's arguments on cross-appeal. First, we are satisfied that the trial judge properly found that the only evidence of Vanguard's damages came from its own witnesses who "provided testimony in a summary fashion." The trial judge noted further that the "backup documentation... was voluminous, difficult to untangle, and fail[ed] to establish a certain quantum of damages."

"'Under contract law, a party who breaches a contract is liable for all of the natural and probable consequences of the breach of that contract.'" Totaro, Duffy, Cannova and Co., v. Lane, Middleton & Co., 191 N.J. 1, 13 (2007) (quoting Pickett v. Lloyd's 131 N.J. 457, 474 (1993)). "[T]he goal is 'to put the injured party in as good a position as... if performance had been rendered.'" Id. at 13-14 (quoting Donovan v. Bachstadt, 91 N.J. 434, 444 (1982)).

However, "in order to be compensable, 'the loss must be a reasonably certain consequence of the breach....'" Totaro, supra, 191 N.J. at 14 (quoting Donovan, supra, 91 N.J. at 445). The party claiming a breach must "'prove damages with such certainty as the nature of the case may permit, laying a foundation which will enable the trier of the facts to make a fair and reasonable estimate.'" Ibid. (quoting Lane v. Oil Delivery Inc., 216 N.J. Super. 413, 420 (App. Div. 1987)). The "award of damages is left to the sound discretion of the trier of fact...." Endress v. Brookdale Cmty. Coll., 144 N.J. Super. 109, 142 (App. Div. 1976.)

Applying these principles here, we are satisfied that plaintiff's proofs were fatally deficient. While there was testimony that Vanguard was compelled to reduce its commissions from Oasis, it failed to provide a comparative analysis of the commissions previously earned before this forced reduction. Vanguard's renegotiated contract with Oasis is not in the record.

In its brief, Vanguard refers to the summaries of damages submitted by its controller, Russell Jones, which were in evidence. Our review of those documents supports our conclusion that the trial judge properly denied damages because of the insufficiency of Vanguard's proofs.

Finally, Vanguard's appeal of the trial judge's refusal to extend its restrictive covenant with defendant prospectively is "without sufficient merit to warrant discussion in a written opinion...." R. 2:11-3(e)(1)(E). Suffice it to say, we concur with the trial judge's conclusion that such an extension "would not serve to improve Vanguard's position or protect any viable interest. Nor d[id] th[e] [c]court believe an extension would have any impact on [defendant's] future conduct."

Other than contending that it did not get the "benefit of its bargain" from the restrictive covenant with defendant, Vanguard has provided neither the trial judge nor this court with any sound basis to extend that restrictive covenant. Beyond seeking a punitive measure for defendant's violations, Vanguard offers no explanation as to how extending the restrictive covenant would protect its interests more than three years after it expired. Moreover, Vanguard has not cited, and we are not aware of, any controlling legal support for this relief.

The appeal and cross-appeal are affirmed.


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