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Vibra-Tech Engineers, Inc v. Scott Kavalek

March 29, 2012

VIBRA-TECH ENGINEERS, INC., PLAINTIFF,
v.
SCOTT KAVALEK, ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Honorable Joseph E. Irenas

OPINION PURSUANT TO FED. R. CIV. P. 52(a)(1)

IRENAS, Senior District Judge:

This case involves claims by Vibra-Tech Engineers, Inc. ("Vibra-Tech") that Defendants Scott and Roberta Kavalek (collectively "the Kavalek Defedants") breached employment agreements, violated the duty of loyalty, converted Vibra-Tech's property, and engaged in a civil conspiracy in order to benefit their own competing corporations, Geotech Instruments, Inc. ("Geotech") and Integrated Geotechnical Solutions, Inc. ("IGS").*fn1

Vibra-Tech seeks compensatory, punitive and treble damages and attorneys' fees. A twelve-day bench trial commencing on January 11, 2012 was held. The Court now issues this Opinion in accordance with Federal Rule of Civil Procedure 52(a)(1).*fn2

On June 3, 2010, the attorney for Defendants entered a stipulation which stated, inter alia:

A. Scott Kavalek and Roberta Kavalek, acting on behalf of themselves and on behalf of defendants Integrated Geotechnical Solutions, Inc. ("IGS") and Geotech Instruments, Inc. ("Geotech") (collectively, the "Kavalek Defendants"), knowingly and purposefully changed, manipulated, tampered with and withheld evidence that was contrary to the factual and legal contentions they have advanced in this action;

B. In so doing, Scott Kavalek and Roberta Kavalek acted with the intent and purpose to deceive both the court and the other parties to this action; and

C. After performing the acts of tampering, Scott Kavalek and Roberta Kavalek then engaged in a series of acts to conceal and cover up the actions they had taken. These included giving false deposition testimony, filing and supplying false affidavits and declarations under oath, and causing their counsel to make a series of false representations to the court, most of which were made in the Kavaleks' presence.

The Kavaleks' response to legitimate discovery requests mirrored the conduct they displayed while employed by Vibra-Tech and, in the case of Scott Kavalek, while bound by a two-year non-compete agreement.

TABLE OF CONTENTS

I. Introduction ............................................. 5

II. Findings of Fact

A. Vibra-Tech .......................................... 10

B. IGS ................................................ 12

C. Scott Kavalek's involvement with IGS ................ 15

D. Diversion of business from Vibra-Tech to IGS ........ 21

E. Geotech ............................................ 37

F. Scott Kavalek's termination ......................... 44

G. Evidence Tampering .................................. 45

H. Damages ............................................. 51

a. IGS-related damages ............................ 51

b. Geotech-related damages ........................ 55

III. Conclusions of Law

A. Breach of fiduciary duty ........................... 56

B. Breach of employment agreements ..................... 60

C. Tortious interference with prospective economic advantage .................................... 62

D. Tortious interference with existing business relationships ......................................... 64

E. Tortious interference with the Bauman Employment Agreement .............................................. 65

F. Conversion .......................................... 66

G. Civil conspiracy ................................... 67

H. Unjust enrichment ................................... 68

I. Common law fraud .................................... 69

J. New Jersey Consumer Fraud Act ....................... 71

IV. Damages

A. Theories of recovery ............................... 74

B. Disgorgement of profits ............................. 78

C. Treble damages and attorneys' fees .................. 79

D. Punitive damages .................................... 81

V. Conclusion .............................................. 83

I. Introduction

Vibra-Tech asserts the following claims against Defendants Scott Kavalek, Roberta Kavalek, Geotech and IGS: (1) breach of fiduciary duties; (2) breach of employment agreements; (3) tortious interference with prospective economic advantage; (4) tortious interference with existing business relationships; (5) conversion of property; (6) civil conspiracy; (7) unjust enrichment; (8) common law fraud; (9) tortious interference with Charles Bauman's employment agreement; and (10) consumer fraud under the New Jersey Consumer Fraud Act.*fn3

The following are stipulated facts as stated in the Joint Final Pre-Trial Order.

Vibra-Tech specializes in the measurement of vibrations in construction, quarry, and mining operations, and consults in the areas of liability seismology, blasting, efficiency, structure dynamics and geophysics. (Joint Final Pre-Trial Order, Part II, ¶ 1.) Vibra-Tech also provides methods, instrumentation, and expertise to minimize effects of blasting. (Id.) Vibra-Tech maintains an office in New Jersey located at 500 A Campus Drive, RR 30, Mount Holly, NJ 08060. (Id. ¶ 2.)

Scott Kavalek was employed by Vibra-Tech at the New Jersey office from April 1998 until his termination on May 30, 2008.*fn4

(Trial Transc. (D. Rudenko) 1/11/2012, 180:19.) Scott was hired as an Area Manager of the New Jersey office, and during his tenure at Vibra-Tech was made a Vice-President and elected to the Board of Directors. (Id. ¶ 4.) Upon commencing employment with Vibra-Tech, Scott signed an employment agreement containing the following provisions:

2. During the time of his/her employment with Employer, Employee will devote his/her entire time and energy to the furtherance of the business of Employer and shall not, in any advisory or other capacity, work for any individual, firm, or corporation other than Employer with regard to matters that would conflict with the business of employer without first having obtained the written consent thereto of Employer duly executed by an executive officer of Employer.

3. It is recognized that the customer lists, files, books, records and accounts and all other information, data and records wherever located are the sole and exclusive property of Employer. Employee will not, at any time, either himself/herself or through or with the aid or assistance of others, take, make available to anyone not authorized to receive it by written permission, divulge or use any customer list, file, book, record or account which is the property of Employer. This prohibition includes all forms of computer programs and data.

4. Employee, at all times, recognizes and respects the advantageous business relationship which exists between Employer and its customers. Employee expressly agrees to do nothing to interfere with that advantageous relationship during the term of employment with Employer or any time after that.

5. Neither during the term of Employee's employment with Employer, nor thereafter, will he/she disclose to any third party or make any use of any secret process, trade secret or other confidential information or confidential knowledge relating to the business, merchandising or distributing methods, processes, sources of supply, techniques, products, inventions, devices or research of Employer or its subsidiaries or affiliated companies or of any persons, firms, corporation or other individuals with whom Employer had or shall, in the future have, any business dealings or relations. Further, upon leaving the employ of Employer, Employee will not take with him/her any drawings, blueprint or other reproduction, or other specification, record or copy of confidential or proprietary material or information, without the prior written consent of any executive officer of Employer.

6. Because of the special and unique services that he/she is bringing to his/her employment with Employer and because of the confidential nature of the information with which he/she will come in contact in the course of his/her employment with Employer, he/she will not, upon the termination of his/her employment with Employer, directly or indirectly, own, manage, operate, join, control, be employed by or participate in the management, operation or control of, or be connected in any manner with any business that deals in the same products sold or services rendered while in the employ of Employer. (P-1.)

Roberta (Wright) Kavalek was employed at the Vibra-Tech New Jersey office from September 1997 until December 2006.*fn5 (Joint Final Pretrial Order, Part II, ¶ 6.) She began as a secretary and later became the Office Manager. (Id.) Upon commencing employment with Vibra-Tech, Roberta signed an employment agreement containing the following provisions:

2. Duties. [...] Employee acknowledges that he/she is a part-time employee of the Company. Employee agrees nevertheless that he/she shall use his/her best efforts for the benefit of the Employer and shall not engage in any other employment of a full or part-time nature during the term of employment with the Company unless the Employee shall notify the Employer thereof in writing in advance of accepting such employment.

6. Confidential Information. The Employee agrees that all formation information of a technical or business nature, such as know-how, trade secrets, business information, plans, data, processes, techniques, identity of customers and customer lists, pricing information, and instrument development (the "Confidential Information") acquired in the course of his/her employment under this Agreement is a valuable business property right of the Company. The Employee covenants and agrees that such Confidential Information, whether in written, verbal or other form, shall not be disclosed to anyone outside the employment of the Company without the Company's written authorization. The disclosure restriction shall apply during employment and after Employee's termination of employment with the Company, until the Confidential Information is generally available to the public.

7. Return of Documents. Upon the termination of this Agreement for any reason, the Employee shall forthwith return and deliver to the Company any properties belonging to the Company including, but not limited to, keys, credit cards, and equipment. Moreover, the Employee shall not retain any original or copies of any books, papers, price lists, customer contracts, bid or customer lists, files books of account, notebooks or other documents or data relating to the Company or any of its operations, all of which materials are hereby agreed to be the property of the Company. (P-2.)

Charles Bauman was hired as a field technician for VibraTech's New Jersey office and was employed from June 2004 to November 2006. (Joint Final Pretrial Order, Part II, ¶ 10.) Upon hire, Bauman signed an employment agreement with convenience and restrictions identical to those in Scott Kavalek's employment agreement. (Id. ¶ 11.) The Bauman Employment Agreement was signed by Scott Kavalek on behalf of Vibra-Tech and witnessed by Roberta Kavalek. (Id. ¶ 12.)

On December 3, 2004, Scott and Roberta Kavalek incorporated Geotech, which is in the business of selling geotechnical equipment. (Id. ¶¶ 13-14.) Scott is the President of Geotech and Roberta is an employee of Geotech. (Id. ¶¶ 15-16.)

On May 16, 2005, Roberta incorporated IGS and acts as its President. (Id. ¶¶ 18-19.) Since its incorporation in 2005, IGS performs vibration monitoring services and is a competitor of Vibra-Tech. (Id. ¶ 20.)

The employment agreements at issue in this case are governed by Pennsylvania law, while the common law claims as well as the New Jersey Consumer Fraud Act claim are governed by New Jersey law. (Id. ¶¶ 23-24.)

II. Findings of Fact

A. Vibra-Tech

1. Vibra-Tech works primarily in the area of vibration monitoring, but also installs geotechnical equipment, such as crack meters, tilt meters, and inclinometers. (Trial Trans. (D. Rudenko) 1/11/2012, 110:21 - 121:6; Trial Trans. (D.T. Froedge) 1/18/2012, 107:9 - 107:23).

2. Because of the specialized nature of the services VibraTech provides, most new employees, including Scott Kavalek, are trained within the company. Upon commencement of his employment, Scott received substantial training to acquaint him with the business of Vibra-Tech. He also attended a variety of seminars and conferences during his employment to further his technical and management skills. (Trial Trans. (D. Rudenko) 1/11/2012, 137:2 - 137:18, 140:25 - 141:5).

3. Vibra-Tech employees establish close relationships with its clients. Because of the specialized services Vibra-Tech performs and the safety issues involved, the clients must be confident that Vibra-Tech is able to protect them from future problems or solve existing problems. Customer relationships are important to Vibra-Tech's work. Vibra-Tech is frequently called by repeat clients that are prime contractors on major construction projects and asked to submit a bid as a subcontractor. (Trial Trans. (G. Newmark) 1/12/2012, 131:12 -131:21; Trial Trans. (D.T. Froedge) 1/18/2012, 131:15 - 131:20; Trial Trans. (S. Kavalek) 1/26/2012, 95:3 - 96:3).

4. Marilyn Rochner was the Chief Financial Officer of VibraTech. Six months after the commencement of this action, on November 21, 2008, Rochner passed away. (Trial Trans. (D.T. Froedge) 1/18/2012, 119:8 - 119:9).

5. Vibra-Tech Area Managers serve a central role in the company's operations. They are responsible for promoting the services and products of Vibra-Tech, conducting direct and indirect sales, collecting past due accounts, attending trade shows, soliciting new business, writing proposals and bids for new business, providing support and assisting in the development and implementation of promotional activities, strategies and budgets. Area Managers receive bonuses which are based upon the profits generated within their area. Area Managers are also responsible for hiring all employees, firing all employees, and scheduling all employees in their area offices.

6. As Area Manager of the New Jersey office, which covers New Jersey, the five New York City boroughs and Long Island, Scott Kavalek gained more than ten years of experience learning the business of Vibra-Tech, fostering relationships with customers, earning customer trust, and developing the New Jersey office into a productive and profitable branch of Vibra-Tech.

7. During Scott's tenure, the New Jersey office became one of the most successful at Vibra-Tech and he was therefore elected as a member of the Board of Directors on November 29, 2007.

8. While employed at Vibra-Tech, Roberta was trained in vibration monitoring techniques and equipment, and gained knowledge of Vibra-Tech's customers and the vibration monitoring industry in general. In addition to office duties, she perfoemd field work when necessary. Field work included conducting vibration monitoring, pre-blast inspections, post-blast inspections, claim investigations, and environmental monitoring, as well as the operation of equipment.

9. Vibra-Tech Office Managers are responsible for assisting the Area Manager in the day-to-day operations of the office, including preparing reports, preparing sales orders, collecting past due accounts and scheduling employee work assignments.

B. IGS

10. Until recently, IGS conducted its business from 213 Front Street, Mt. Holly, NJ, which was and is the home address of the Kavaleks. Recently, IGS opened a new office at 2800 Sylon Boulevard, Hainesport, NJ.

11. Roberta Kavalek acted as the President and sole record owner of IGS, performing various duties for the company including customer solicitation, contract negotiation, billing, field work, remote monitoring, and meeting with clients. (Trial Trans. (R. Kavalek) 1/17/2012, 99:15 - 100:2, 101:5 - 101:9; 1/25/2012, 7:11 - 7:13; P-313 at KE 0281). Scott Kavalek performed numerous services on behalf of IGS while he was still employed by VibraTech, including customer solicitation, field work, remote monitoring, meeting with clients, billing clients, and contract negotiation.

12. The Kavaleks used IGS's business accounts as if they were their own personal bank accounts, making large amounts of personal purchases on their company issued credit cards. (P-118; P-119; P-120). Those credit card bills were then paid using IGS company funds from IGS bank accounts. (Trial Trans. (R. Kavalek) 1/17/2012, 151:23 - 162:23; P-306J). In addition, Roberta Kavalek transferred $946,775 from the IGS business checking account to her own personal checking accounted between May 2006 and June 2011. (P-172). The Kavaleks also arranged for Roberta Kavalek's three teenaged children to receive $44,388 in payments from IGS. (P-173).

13. From its creation, Roberta Kavalek withdrew hundreds of thousands of dollars from IGS either in the form of checks, cash withdrawals or electronic bank funds transfers. (Trial Trans. (R. Kavalek) 1/18/2012, 71:7 - 77:9; P-172). Two electronic transfers totaling $145,000 from an IGS business checking account to Roberta Kavalek's personal bank account were made on June 4, 2008, four days after the Complaint in this action was filed and served on the Kavalek Defendants. (Trial Trans. (R. Kavalek) 1/18/2012, 73:13 - 74:24; P-172).

14. Of the five employees hired by IGS in its first five years of operation, four were present or former Vibra-Tech employees: Scott Kavalek, Roberta Kavalek, Charles Bauman, and Michael Conrow. (Trial Trans. (R. Kavalek) 1/26/2012, 28:22 -31:13).

15. Scott Kavalek never reported to anyone at Vibra-Tech that he had a business relationship with IGS. (Trial Trans. (D.T. Froedge) 1/18/2012, 112:15 - 113:7; Trial Trans. (D. Petras) 1/19/2012, 138:17 - 138:19). In fact, he affirmatively lied to Douglas Rudenko and Sean Shamany about this at the time of his termination interview, saying that neither he nor Roberta Kavalek had any involvement with IGS. (Trial Trans. (S. Shamany) 1/19/2012, 95:12 - 95:22; Trial Trans. (S. Kavalek) 1/17/2012, 93:18 - 93:24).

16. Roberta Kavalek never reported to anyone at Vibra-Tech, other than Scott Kavalek, that she had a business relationship with IGS. (Trial Trans. (D. Rudenko) 1/11/2012, 153:8 - 153:10; Trial Trans. (D.T. Froedge) 1/18/2012, 112:15 - 113:7).

17. Scott and Roberta Kavalek purposefully failed to disclose to Vibra-Tech that they were the owners and employees of IGS. (Trial Trans. (R. Kavalek) 1/25/2012, 104:18 - 104:22).

18. Scott and Roberta Kavalek failed to disclose their relationship with IGS to Vibra-Tech, in part, because they feared that Vibra-Tech would fire them for their disloyalty. (Trial Trans. (R. Kavalek) 1/25/2012, 57:3 - 57:7; Trial Trans. (S. Kavalek) 1/26/2012, 97:25 - 98:6).

C. Scott Kavalek's involvement with IGS

19. Scott Kavalek has conducted business on behalf of IGS under the job titles "Vice President," "Senior Project Manager," and "Sales Representative." (P-30; P-38; P-38A; P-38B; P-38C; P-38D; P-38E; P-38F; P-38G; P-38H; P-39; P-39A; P-39B; P-39C; P-39D; P-39E; P-39F; P-39G; P-39H; P-39I; P-39J; P-39K; P-39L; P-306K; P-124 at KE 2052 - 2053; P-313 at KE 0059, 1952; P-327; P-334 at McLAREN 708).

20. Scott Kavalek set up the domain name for IGS's website, as well as IGS's e-mail system and all individual IGS e-mail accounts. With Roberta Kavalek's knowledge and agreement, Scott Kavalek assigned several IGS e-mail addresses to himself. Scott Kavalek thereafter used those addresses to conduct IGS business. (Trial Trans. (S. Kavalek) 1/13/2012, 49:3 - 49:9, 56:10 - 57:8).

21. From IGS's formation, Scott Kavalek had check signing authority for the principal bank account of IGS. On the signature card for the account, Scott Kavalek listed himself as "Vice-President" of IGS. The card was signed by both Scott and Roberta Kavalek, attesting to its accuracy.*fn6 By signing the document the Kavaleks certified that "(1) I am the Secretary or Assistant Secretary of the Corporation named above, (2) the above named person(s) are these person(s) currently empowered to act under the Corporate resolutions authorizing this account and the banking services provided therein, (3) that the title and signature set forth opposite the names of each person are true and genuine." (P-306K; (Trial Trans. (S. Kavalek) 1/13/2012, 62:23 - 63:13, 65:17 - 66:10).

22. Scott Kavalek was the drawer of seventeen IGS paychecks to Charles Bauman, including the first seven. All of these checks were issued to Bauman before Scott Kavalek left Vibra-Tech. (Trial Trans. (S. Kavalek) 1/13/2012, 68:16 - 69:4; P-129A). Scott Kavalek was also the drawer of numerous other checks issued on behalf of IGS. (Trial Trans. (B. Lindenberg) 1/24/2012, 129:17 - 129:18; P-93E). Scott Kavalek also endorsed for deposit numerous checks made payable to IGS. (Trial Trans. (B. Lindenberg) 1/24/2012, 132:17 - 135:5; P-306C at BOA 676, 681, 686, 692, 695, 696, 717).

23. Scott Kavalek also had IGS credit cards issued in his name. (Trial Trans. (R. Kavalek) 1/17/2012, 107:3 - 107:12; P-118). The IGS credit cards issued in Scott Kavalek's name were used by him for over $60,000 in purchases. (P-170). All receipts for credit card purchases produced by the Kavalek Defendants were signed by Scott Kavalek. (P-119 at D 00431 -00433).

24. During the time that he was still employed by Vibra-Tech, Scott Kavalek ordered computers on behalf of IGS. (P-127; Trial Trans. (S. Kavalek) 1/13/2012, 99:24 - 102:10; P-124 at D 00333 -00335).

25. During the time he was still employed by Vibra-Tech, Scott Kavalek communicated with the following manufacturers and suppliers on behalf of IGS:

a. Bruel & Kjaer. (Trial Trans. (S. Kavalek) 1/13/2012, 102:11 - 103:9, 104:25 - 105:7; P-124 at D 00339, 00343-00344).

b. Instantel. (Trial Trans. (S. Kavalek) 1/17/2012, 9:4 -10:9; P-169A).

c. RST Instruments. (Trial Trans. (S. Kavalek) 2/1/2012, 93:2 - 95:1; P-360 at RST 0102 - 0103; P-227).

26. During the time that he was still employed by Vibra-Tech, Scott Kavalek communicated with or about the following IGS clients (who were also present or former Vibra-Tech clients) on behalf of IGS:

a. McLaren Engineering: Port Imperial job. (P-92; Trial Trans. (S. Kavalek) 1/13/2012, 105:18 - 110:5, 113:1 - 120:10, 141:9 - 142:15; 1/17/2012, 65:14 - 68:17; Trial Trans. (R. Kavalek) 1/25/2012, 221:3 - 222:13; P-124 at D 00434 - 00441, 00454 - 00589, 00617; P-334 at McLAREN 691).

b. McLaren Engineering: Staten Island job. (Trial Trans. (S. Kavalek) 1/13/2012, 126:2 - 127:21, 131:16 - 133:15; P-124 at D 00589 - 00595).

c. Langan Engineering. (Trial Trans. (S. Kavalek) 1/13/2012, 134:19 - 141:7; P-124 at D 00600 - 00602).

d. Newmark Engineering. (Trial Trans. (S. Kavalek) 1/13/2012, 156:20 - 159:2; P-124 at D 007835 - 007845; Trial Trans. (G. Newmark) 1/23/2012, 11:7 - 11:19, 13:3 - 13:9, 14:23 -15:7, 15:25 - 16:22).

e. Kline Engineering: Astor Place job. (Trial Trans. (S. Kavalek) 1/13/2012, 169:20 - 171:9; P-124 at D 007855, 007856; P-326).

f. Kline Engineering. (P-313 at KE 0058-60, 1951-52; P-124 at D 007879).

g. Kline Engineering: Parkview job. (P-508 (Deposition of Marie Gardiner) at 39:14 - 40:9).

h. Kline Engineering: 95th Street job. (P-508 (Deposition of Marie Gardiner) at 39:14 - 40:9).

i. Atlantic Yards Development Corporation, Inc. (Trial Trans. (S. Kavalek) 1/17/2012, 12:25 - 13:5; P-124 at D 007882; P-169 at D 00748).

27. During the time that he was still employed by Vibra-Tech, Scott Kavalek performed field work on behalf of IGS for at least the following IGS clients who were also present or former Vibra-Tech clients:

a. McLaren Engineering: Port Imperial job. (Trial Trans.

(S. Kavalek) 1/13/2012, 123:20 - 124:25; 1/17/2012, 65:14 -68:17; Trial Trans. (R. Kavalek) 1/25/2012, 220:21 - 222:13; P-334 at McLAREN 691).

b. McLaren Engineering: Staten Island job. (Trial Trans.

(S. Kavalek) 1/13/2012, 126:25 - 127:6).

c. Kline Engineering: Astor Place job. (Trial Trans. (S. Kavalek) 1/13/2012, 162:15 - 163:15, 164:18 - 165:11; 1/17/2012, 24:21 - 25:8; Trial Trans. (R. Kavalek) 1/25/2012, 78:15 - 84:4; P-327; P-313 at KE 0231, ...


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