MDT Services Group, LLC v. Cage Drywall, Inc.
Filing
80
FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Chief Judge Kevin H. Sharp on 2/20/2015. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
MDT SERVICES GROUP, LLC,
Plaintiff,
v.
CAGE DRYWALL, INC.
Defendant.
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No. 3:12-cv-1080
Judge Sharp
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In this action, Plaintiff MDT Services Group, LLC (“MDT”) seeks damages from
Defendant Cage Drywall, Inc. (“Cage”) arising out of the following causes of action: “(1) breach
of express and implied contract; (2) promissory estoppel; (3) quantum meruit; (4) unjust
enrichment; (5) tortious interference with contractual relations; and (6) promissory fraud.”
(Docket No. 1 at 1).
After denial of Defendant’s Motion for Summary Judgment and later Motion to Dismiss,
the Court held a bench trial on July 15-17, 2014, after which the Parties were instructed to file
proposed findings of fact and conclusions of law, and any responses thereto. The last such filing
was entered by Defendant on September 22, 2014.
Having reviewed the Parties’ proposed findings and conclusions, their arguments, the
record, exhibits received in evidence, and testimony of the witnesses after considering their
interests and demeanor, the Court enters the following Findings of Fact and Conclusions of Law
in accordance with Rule 52(a) of the Federal Rules of Civil Procedure. Except where the Court
discusses different testimony on a specific issue, any contrary testimony on a specific matter has
1
been rejected in favor of the specific fact found. Further, the Court omits from its recitation facts
that it deems immaterial to the issue presented.
I. FINDINGS OF FACT
1. Plaintiff is a Georgia limited liability company that offers temporary employment
placement services connecting skilled laborers with construction subcontractors.
2. Defendant is a Tennessee corporation and construction subcontractor that specializes
in drywall services.
3. Defendant was hired as a subcontractor by Turner Construction in 2010 to provide
framing, drywall, and acoustical ceilings for construction of a hospital in Owensboro, Kentucky
(the “Owensboro Project”).
This ten-story, $600 million hospital was the largest project
Defendant had ever undertaken.
4. Plaintiff contacted Defendant around the end of August 2011. Their subsequent
negotiations resulted in the Parties’ first contract, which defined hourly rates for each class of
worker (e.g., mechanic, hanger, finisher, etc.) that Plaintiff would send to the Owensboro
Project.
5. Defendant paid Plaintiff directly. Plaintiff, in turn, paid a portion of the hourly rate to
each worker as a base rate, plus per diem. Plaintiff also paid a portion of workers’ housing costs
when they relocated to a hotel or apartment near the work site. However, because Plaintiff hired
its employees as “independent contractors”, they were not paid overtime wages.1
6. The first MDT employees reported to Owensboro on September 11, 2011.
1
Defendant’s Exh. 4.
2
7. From September to December 2011, 50 to 80 laborers from MDT worked on the
Owensboro project each week. The majority of laborers were provided by other companies, first
Rimax and later Intercontinental.
8. The Parties’ relationship was not entirely smooth during this period.
Defendant
received complaints from workers who were fined by Plaintiff for infractions like “tardiness,
failure to appear at the designated job site, failure to notify MDT of unavailability,
underperformance, and lack of productivity.”2
9. For its part, Plaintiff complained that Defendant did not adhere to the agreed payment
schedule. Defendant had originally paid Plaintiff on a weekly basis, as Plaintiff paid its workers.
Over time, Defendant’s payments become increasingly intermittent – first biweekly and then
monthly. Plaintiff engaged a factoring company to fund the payroll.
10. At the end of November, Defendant began cutting back the number of MDT workers
on the Owensboro Project. Riley Kinzer, Cage Project Superintendent, notified MDT in an
email dated December 5, 2011, that “due to the progression of the job not being what it should
we had to make a big cut in the number of employees” and MDT’s services were no longer
required.3
11. However, two days later, Defendant requested Plaintiff return as the primary labor
supplier on the Owensboro Project. A recent Homeland Security investigation had revealed
workers from Intercontinental lacked I-9 forms for employment eligibility verification. Unlike
2
Defendant’s Exh. 2. This contract also included a non-compete clause.
3
Plaintiff’s Exh. 15.
3
Intercontinental, Plaintiff used E-Verify to confirm the legal status of each worker before they
entered the job site.4
12. Plaintiff agreed to take over worker supply but faced regulatory compliance
challenges of its own. At the end of November, MDT was audited by the Kentucky Labor
Cabinet and United States Department of Labor (“DOL”), revealing its workers had been
improperly hired as independent contractors.
Instead, the workers qualified as statutory
employees subject to the requirements of the Fair Labor Standards Act (“FLSA”), including
statutory overtime pay.
13. In light of these developments, the Parties renegotiated and drafted a subsequent
contract (the “final contract”).5 The final contract defined new hourly rates “[for] all projects
where MDT provides manpower for Cage Drywall except for projects requiring certified payroll
reporting,”6 higher than the rates in the original contract, as well as an overtime rate to comply
with FLSA requirements. The final contract also included a “non-solicitation/no-hire” provision,
in which Defendant agreed not to “solicit to hire, or in any way engage, contract or hire” MDT’s
employees while the contract was in force and for one year after.7
4
E-verify is an Internet-based system offered by U.S. Citizen and Immigration Services “that compares information
from an employee’s Form I-9, Employment Eligibility Verification, to data from U.S. Department of Homeland
Security and Social Security Administration records to confirm employment eligibility.” What is E-Verify, U.S.
CITIZENSHIP AND IMMIGRATION SERVICES, http://www.uscis.gov/e-verify/what-e-verify (last visited Feb. 3, 2015).
Mr. Kinzer asserted in his deposition taken on July 14, 2014, that many of the workers from Intercontinental who
were terminated promptly returned with MDT. (Docket No. 69 at 12). He based this claim on his recollection of
workers’ faces but offered no further evidence. Plaintiff disputes this allegation.
5
Plaintiff’s Exh. 13. The Parties first drafted a contract on December 8, 2011, which contained a slightly higher
hourly rate but no overtime provision. This contract was never implemented and was quickly replaced by the final
contract.
6
Id.
7
Id. (“Non-Solicitation/No-Hire Covenant. CAGE DRYWALL INC understands and agrees that MDT will
expend significant time and resources in recruiting, qualifying, hiring, training its employees. In recognition
thereof, and to ensure MDT continues such efforts, CAGE DRYWALL INC hereby agrees that during the term of
its Agreement with MDT, and for a period of one (1) year following the termination of this Agreement, that it will
not, directly or indirectly, by, as or through any affiliate or related companies, employees, officers, directors,
4
14. Work in Owensboro continued on schedule. January was Plaintiff’s busiest month
on the project, with over 100 MDT workers on the job and weekly net profits over $30,000, three
times the net profit of prior weeks.8
15. Yet, despite the project’s success, Plaintiff sent a letter to its employees the week of
January 23, 2012, informing them that “[d]ue to the high amount of payroll in the recent work
weeks starting next week [MDT is] temporary [sic] forced to move our pay period on two weeks
in hold. This means that the current week (01/23-01/29) wages will be paid on 02/10/2012. You
will not have a check next week.”9
16. Mr. Ivanov and MDT CEO Luis Nunez travelled to Owensboro shortly after the
letter was sent. They met with their employees on the Owensboro Project to explain the
circumstances of the delay and offer cash advances to those who needed them. Mr. Nunez
testified that just a few workers requested advances.
17. The Parties’ respective versions of subsequent events differ. According to Mr.
Ivanov, when the workers arrived on site on Monday, February 1, following the news of the pay
delay, Defendant presented them with two time sheets – the usual MDT sheet and a new Cage
time sheet. Cage management allegedly informed the workers that if they signed the MDT time
sheet, they would no longer have jobs.
18. This account was largely supported by the testimony of witnesses employed by MDT
on the project. As explained by Joseph Cox, a drywall hanger and finisher who began working
for MDT at Owensboro around November 2011, and subsequently joined Cage at the end of
members, subcontractors or owners, solicit to hire, or in any way engage, contract or hire, the employees supplied by
MDT.”)
8
Plaintiff’s Exh. 18.
9
Defendant’s Exh. 1.
5
January 2012, “Monday morning when I got to the job, there was [sic] two papers on the table.
You sign this one [MDT], you’re fired; if you sign this one [Cage], you’re hired.”10 “[Cage]
didn’t want us to quit or they didn’t want us to get fired. They wanted us to stay and work for
them, so we signed in for them that we would have a job.”11
19. The number of MDT employees at the Owensboro site immediately dropped as
workers moved to Cage. As of the first week of February, MDT retained only 16 workers and
weekly net profits had fallen to $2,600.12
20. Supervisors at Cage, including Mr. Kinzer, knew that at least some of the workers
hired in February 2012 were from MDT. However, at that time, Defendant’s highest priority
was ensuring the project was properly staffed.
21. Defendant offers inconsistent testimony regarding how it hired MDT employees.
Mr. Kinzer claims that when their pay was delayed, MDT workers approached Ramon Zuniga of
Ponce Drywall, another Cage subcontractor, requesting to continue on the Owensboro Project.
Mr. Kinzer also stated in his deposition that the morning the workers received the letter from
MDT, he met “probably 100 employees standing at [his] job trailer with these letters in hand
refusing work because they wasn’t [sic] being paid.”13 Because Mr. Kinzer did not testify at the
bench trial, the Court has no basis on which to judge his credibility or demeanor.
22. Mr. Zuniga testified that after disgruntled MDT workers approached him for work,
he contacted Cage, who agreed to hire the workers and paid Mr. Zuniga a commission fee.
10
Docket No. 71 at 153.
11
Id. at 142.
12
Plaintiff’s Exh. 5.
13
Docket No. 69 at 25.
6
23. Chris Loftis, Cage Superintendent, testified that the Monday after MDT notified
workers of the delay in pay, approximately 85 of the 100 MDT workers failed to arrive on site.
He believed they had quit and were not coming back. While workers did filter back in over the
coming weeks, it took over a month to restore the labor force to full operation and the project fell
behind.
24. John Carter, Senior Vice President of Cage, testified that Cage had trouble building
back up its labor force after MDT workers walked out and depended on Ponce Drywall to supply
new labor. Though he claimed to have “no idea” where the new workers came from,14 he also
testified he recognized workers who moved from Intercontinental to MDT and “some familiar
faces” from MDT when Ponce brought in workers in February 2012.15
25. Mr. Carter testified that if he had known the workers returning to the site were
former MDT employees, he “would have tried to have avoided” hiring them, not because of the
non-solicitation provision in the Parties’ contract, but because Defendant had “too many
problems” with the workers complaining about deductions from their MDT paychecks.16
However, because Cage “was at a critical point in the job” Mr. Carter “didn’t tell [his] guys to
make sure that there are no MDT employees or former MDT employees” when they
supplemented the crew.17
26. Defendant hired the former MDT workers supplied by Mr. Zuniga at a lower hourly
rate than it had paid MDT.18 Defendant did not pay for workers’ lodging.
14
Docket No. 73 at 140.
15
Id. at 151.
16
Id. at 152-53.
17
Id. at 153.
18
Id. at 148.
7
27. Drywall hanging on the Owensboro site concluded in October 2012 and the project
was completed by June 2013.
28. At trial, Plaintiff relied almost entirely on witness testimony to support its damages
claim, which originates from three sources: (1) costs associated with losing employees on the
Owensboro Project, (2) opportunity costs incurred by MDT as it rebuilt its labor force, and (3)
the rate difference between the Parties’ first and final contracts, also described in testimony by
Plaintiff’s witnesses as costs related to the DOL audit.
29. As for the first source of damages, Plaintiff claims that replacing the employees lost
at Owensboro cost the company $46,000.19 Mr. Ivanov testified that the average cost to MDT to
hire an employee is $600 and that approximately 80 employees were hired specifically for the
Owensboro Project. He estimated 60 to 70 of the workers who moved to Cage eventually
returned to MDT, but it took his company eight months to a year to build back up a full
workforce.
30. To support this testimony, Plaintiff entered into evidence a table entitled “The Cost
of Hiring an MDT Employee.”20 The Court affords this document little weight – it contains no
date or other indication that it was created in the course of business rather than in anticipation of
this litigation. The table lists time and cost estimates for various steps in the hiring process and
arrives at a final cost per employee of $600. Some estimates are calculated in the aggregate and
others per individual, though the document contains no identification to this effect. This
approach creates wide ranges of estimates that are too indefinite to provide any reasonable basis
for calculating damages. For example, the estimated time and cost for reviewing resumes is “(25
19
Docket No. 75 at 15.
20
Plaintiff’s Exh. 19.
8
minutes to 21 hours) - $12.50-$525.”21 Mr. Ivanov explained that this range includes review of
one to hundreds of resumes.
31. Mr. Ivanov testified that re-hiring a worker who was previously employed at MDT
also cost the company around $600. However, Mr. Nunez contradicted this estimate when he
testified that the cost to rehire a former employee is approximately $50.22
32. MDT management also testified to the extensive training that MDT employees
received, which also increased the cost of replacing them. However, this vague claim was not
supported by MDT employees’ testimony. Jose Magana testified that employees did not receive
training from MDT and instead learned “in the field.”23 Similarly, Lorenzo Vazquez and Joseph
Cox both testified that they came to MDT fully trained and with many years’ experience.
33. Plaintiff’s second source of damages is opportunity costs associated with the
company’s insufficient workforce. To this end, Plaintiff entered into evidence invitations that it
received to bid on projects between February and May 2012.24 Mr. Nunez testified that the
company received 50 such invitations during that time period. In normal circumstances, if MDT
was not occupied with the Owensboro Project, it would “try to bid on most of them,” depending
21
Plaintiff’s Exh. 19.
22
Plaintiff seeks to resolve this conflict in its proposed “Conclusions of Fact and Findings of Law” by explaining the
witnesses based their estimates on different groups of employees. Mr. Ivanov testified it cost $600 each to replace
75 employees while Mr. Nunez referred to “20 of the 95 employees [who] came back” thus, “the cost to ‘rehire’
these 20 employees was only about $50.00.” (Docket No. 75 at 9). The Court is not satisfied by this explanation. If
the 20 employees allegedly referred to by Mr. Nunez are workers who immediately departed Owensboro with the
owners of MDT at the beginning of February 2012, then their employment never terminated and there would be no
need to rehire them. If they are employees who were hired by Cage, then there is no indication why rehiring them
cost $550 less than the other 75 employees that MDT rehired from Cage. At trial, the Court understood Mr. Nunez
to be referring to the same population of employees as Mr. Ivanov and concludes the conflicting testimony is just
that.
23
Docket No. 71 at 122.
24
Plaintiff’s Exh. 17.
9
on factors including “the availability of workers.”25 He estimated MDT generally gets 10% of
the projects it bids on. While Plaintiff employed an additional 200 workers on other projects in
early in 2012, all were otherwise occupied and MDT lacked the labor to bid on any of the
invitations exhibited.
34. The only additional evidence presented on opportunity costs was witness testimony,
which did little to reinforce a causal connection between Defendant’s breach of the nonsolicitation/no-hire clause and Plaintiff’s subsequent failure to obtain alternate projects. For
example, during Mr. Ivanov’s cross-examination, the witness attributed its failure to bid on
alternative projects to Defendant before the alleged theft of workers occurred:
Q: [D]id you bid on the EMG Corporation bid on January the 9th?
A: I said no.
Q: Why not?
A: Because we didn’t have the workers. Cage stole our workers.
Q: Well, my understanding was that Cage – that the employees
quit on January 29th. And you told the Court at the time that you
had a workforce of over 300 laborers. On January the 9th a
hundred of your laborers were up in Owensboro. Sir, are you
trying to tell the Court that you didn’t make a bid on January the
9th because Cage stole your employees?
A: Yes. That’s what I’m saying.26
35. Plaintiff’s third source of damages concerns an unpaid invoice sent by Plaintiff to
Defendant on March 22, 2012. The results of the DOL audit were released that spring. The
audit assessed various violations by MDT against its employees, including failure to pay
overtime prior to December 15, 2011, loans to employees, fines for alleged misconduct, and fees
for drug tests and tools. MDT was apprised of the findings and given the opportunity to
25
Docket No. 73 at 28.
26
Id. at 9.
10
negotiate the prospective fines. The DOL concluded MDT owed a total of $14,413.25 to 108
employees.27
36. While negotiating with the DOL, Plaintiff sent Defendant an invoice for
$136,821.77, for which Mr. Ivanov offered various explanations at trial.28 First, he explained
this amount represented MDT’s costs related to the audit.
With MDT’s net profits at
approximately 20%, Plaintiff planned to retain approximately $27,000 of the $136,821.77 as
profit, and pay the remainder to the employees identified in the DOL audit.
37. This explanation falls short, as the Court noted at trial, because the total amount of
penalties associated with the audit is $14,413.25. Though the initial sum before negotiations
between MDT and the Department of Labor might have been much higher,29 only the actual cost
to MDT is relevant. Mr. Ivanov pointed out that the results of the audit by the Kentucky Labor
Board are still pending and may include further fines. However, this is also irrelevant to a
damages inquiry, as Plaintiff cannot recover for injuries that are at best speculative.
38. Based on subsequent testimony and Plaintiff’s submissions, it appears the invoice
actually represented the difference between the hourly rates specified in the first contract and the
higher rates/overtime in the final contract applied to all hours worked between September 11 and
December 8, 2011.
Plaintiff asserts that the Parties’ agreement to apply the higher rates
retroactively was enshrined in the following provision of the final contract: “The rates bellow
27
Plaintiff’s Exh. 25.
28
Plaintiff’s Exh. 22.
29
Mr. Ivanov pointed out that the $14,413 figure was the product of negotiation with the DOL and that the original
amount owed was around $136,821.77. As the Court explained at trial, MDT can recover no more than its actual
losses.
11
[sic] to be in force for all projects where MDT provides manpower for Cage Drywall except for
projects requiring certified payroll reporting.”30
39. Plaintiff also claims that Cage made oral representations to this effect, which
Defendant vehemently denies.
Mr. Ivanov testified that during negotiations for the final
contract, he emphasized the “need to have everything done right from the beginning” in light of
the DOL investigation.31 Mr. Ivanov was concerned that MDT might be required to reimburse
workers for overtime they were entitled to as statutory employees prior to the audit. Cage
representatives assured him “when we cross that bridge, then we’re going to take care of it,”
which he interpreted as a promise to retroactively apply the rates and overtime provision set forth
in the final contract to the previous months’ work.32 Mr. Ivanov testified it was “[his] mistake”
not to include this agreement in the final contract.33
40. The description above summarizes Plaintiff’s claims for damages. No evidence was
offered at trial concerning how many of Plaintiff’s former employees remained with Defendant
to work on the Owensboro Project, how many hours they worked per week, in what capacity, or
at what hourly rate. No evidence was offered on how long former MDT employees remained on
the Owensboro Project. Plaintiff was unaware of when the project was completed.
41. Plaintiff’s proposed “Conclusions of Fact and Findings of Law” sought to resolve
this hole in the evidentiary record by summarizing Mr. Ivanov’s testimony as follows:
Mr. Ivanov explained that the Cage Project was not the value to
MDT but it was the MDT employees that were of value to MDT
because, if any employee left the Cage project at any time, or if all
30
Plaintiff’s Exh. 13.
31
Docket No. 71 at 63.
32
Id. at 63.
33
Id. at 67.
12
of them left then [sic] next day after January 30, 2012, then MDT
had sufficient other projects to send the temporary employees to,
resulting in no diminution in profits if Cage had not hired them
away.34
Therefore, Plaintiff concludes, its failure to collect this information during discovery did not
negatively affect its claim for damages.
42. Plaintiff requests the Court order Defendant to pay “$46,000 for the costs of hiring
replacement employees; $532,000 in lost profits; $14,413 for the audit reimbursement; and
$121,587 for the unpaid invoice ($136,000-$14,413 = $121,587)” for a grand total of
$714,000.00.35
43. At the conclusion of the bench trial, Defendant repeated a charge made in its pre-trial
filings that Plaintiff was forum shopping and had “the same or similar claims pending in Daviess
County Circuit Court.” (Docket No. 66 at 2). Defendant requested that Plaintiff’s claims be
dismissed under Rule 41 of the Federal Rules of Civil Procedure. The Court declined to address
this issue and limited its consideration to the matters before it, namely the breach of contract and
related claims.
44. Based on the foregoing, the Court finds the following facts by a preponderance of the
evidence:
(A) Defendant hired MDT workers in violation of the “non-solicitation/no-hire”
provision of the Parties’ final contract and Plaintiff was harmed as a result.
(B) The final contract did not address retroactive application of the hourly wages and
overtime provision contained therein, nor did the Parties have any additional
agreement on the subject.
34
Docket No. 75 at 10.
35
Id. at 15.
13
(C) Plaintiff could not have reasonably interpreted or relied on Defendant’s statements or
actions as a promise to pay the final contract rates retroactively, or compensate
Plaintiff for the costs of their violations from the DOL audit.
II. CONCLUSIONS OF LAW
A. Breach of Contract
To prevail on a breach of contract claim, Plaintiff must show “‘(1) the existence of an
enforceable contract, (2) nonperformance amounting to breach of the contract, and (3) damages
caused by the breach of the contract.’” In re Estate of Beazley, 2012 WL 3025176, at *4 (Tenn.
Ct. App. July 24, 2012) (quoting ARC Lifemed, Inc. v. AMC–Tenn., Inc., 183 S.W.3d 1, 26
(Tenn. Ct. App. 2005)).36
The existence of an enforceable contract, containing a non-solicitation/no-hire clause, is
undisputed in this case. The plain language of that clause clearly prohibited Defendant from
hiring MDT workers. However, Defendant offers multiple reasons why its actions do not
constitute a breach.
First, witnesses for Defendant, Mr. Loftis and Mr. Carter, testified that they did not know
the workers hired at the beginning of February came from MDT. Yet, upon further questioning,
the witnesses admitted that they did in fact recognize some workers. Furthermore, Mr. Kinzer
admitted in his deposition that he was aware MDT workers approached Mr. Zuniga and were
subsequently hired by Cage.
Second, Defendant claims MDT workers quit in anger that they would not be paid on
time and subsequently approached Mr. Zuniga and Mr. Kinzer for work. Thus, Cage did not
36
The Parties appear to agree that Tennessee law applies to their dispute. Because Tennessee is Defendant’s State
of incorporation, and the contract was likely formed in Tennessee, the Court is satisfied there is sufficient basis to
apply the law of this State.
14
solicit the workers at all. The Court notes it found Mr. Cox’s testimony that Cage offered
workers the choice between two sign-in sheets credible. However, even if this were not the case,
Defendant’s argument does not obviate the no-hire portion of the provision, which prohibits
Cage from acting to “in any way engage, contract or hire, the employees supplied by MDT.”
(Plaintiff’s Exh. 13). A preponderance of the evidence presented showed that former MDT
employees were hired by Cage and received paychecks from Cage for some time after.
Third, Defendant points to Mr. Zuniga as the party “responsible for keeping the former
MDT employees at work on the project.” (Docket No. 63 at 4). Even if this assertion were
credible, it would still breach the final contract, which enjoins Cage from engaging MDT
employees “indirectly, by, as or through any affiliate or related company” including
subcontractors, like Ponce Drywall (Plaintiff’s Exh. 13).
Finally, in its Proposed Findings of Fact and Conclusions of Law (Docket No. 74 at 20),
Defendant invokes the “first-to-breach” rule. Defendant asserts that Plaintiff “committed the
first uncured material breach” and thus cannot recover for Defendant’s subsequent breach of the
contract. See White v. Empire Exp., Inc., 395 S.W.3d 696, 715 (Tenn. Ct. App. 2012) (“A party
who has materially breached a contract is not entitled to damages stemming from the other
party’s later material breach of the same contract.”) (internal citations omitted). While this
defense is untimely – not having appeared in Defendant’s previous filings or the Pretrial Order –
even if it was raised earlier, the Court would remain unconvinced.
The Court does not consider Plaintiff’s ten-day delay of its internal payment schedule to
be a material breach of the Parties’ final contract. See DePasquale v. Chamberlain, 282 S.W.3d
47, 53-54 (Tenn. Ct. App. 2008) (setting forth the five factors Tennessee courts consider in
determining whether “a breach is material such that the non-breaching party could avoid
15
performance”). In fact, the final contract does not obligate Plaintiff to provide any workers to
Defendant. It simply sets forth the non-solicitation/no-hire covenant and specifies hourly rates
“where MDT provides manpower.” (Plaintiff’s Exh. 13).
Having disposed of Defendant’s arguments to the contrary, the Court concludes that Cage
breached the Parties’ final contract when it hired former MDT workers on the Owensboro
Project. The issue of damages will be further considered below.
Plaintiff asserts an additional breach on the part of Defendant – the failure to pay the
$136,000 invoice transmitted on March 22, 2012. Plaintiff claims the Parties agreed that “as a
condition of the MDT employees returning to the job site, the unpaid overtime and other
amounts due to the MDT workers for the period between September and December 2011, in the
amount of $136,000, would be paid in full by Cage.” (Docket No. 63 at 2). It points to the final
contract provision stating the hourly rates therein apply to “all projects where MDT provides
manpower for Cage Drywall.”
Plaintiff’s interpretation reaches far beyond the plain language of the contract. The Court
does not read the above quoted text to include any agreement to pay the final contract rates
retroactively for work completed between September and December 8, 2011. Had this been the
Parties’ intention, which Defendant denies, it should (and, the Court believes, would) have been
stated explicitly. The Court’s understanding is supported by Mr. Ivanov’s own testimony that
the alleged agreement was not included in the contract and that the omission was “[his] mistake.”
(Docket No. 71 at 67). Therefore, Plaintiff fails the first element and cannot recover the invoice
amount under a breach of contract theory.
16
B. Unjust Enrichment and Promissory Estoppel
In the alternative, Plaintiff seeks to recover the $136,000 invoice under a theory of unjust
enrichment. See Town of Smyrna, Tenn. v. Mun. Gas Auth. of Ga., 2012 WL 1313340, at *13
(M.D. Tenn. April 17, 2012) (“It is true that recovery may not be had under both a breach of
contract and an unjust enrichment theory, but a party is allowed to plead alternative theories of
recovery.”) (citing FED. R. CIV. P. 8(d)(3) (“A party may state as many separate claims or
defenses as it has, regardless of consistency”)); Wachovia Ins. Serv. Inc. v. Fallon, 682 S.E.2d
657, 665 (Ga. App. 2009) (citation omitted) (“A claim for unjust enrichment is not a tort, but an
alternative theory of recovery if a contract claim fails”).
Throughout its filings, Plaintiff has referred alternatively to theories of unjust enrichment,
quantum meruit, promissory estoppel, detrimental reliance, and promissory fraud regarding the
invoice.37 Unjust enrichment and quantum meruit are “essentially the same” under Tennessee
law and often “used interchangeably to describe that class of implied obligations where, on the
basis of justice and equity, law will impose a contractual relationship between parties.” Lakeside
Realtors, Inc. v. Ross, 1990 WL 17212, at *1 (Tenn. Ct. App. Feb 28, 1990) (citing Paschall’s,
Inc. v. Dozier, 407 S.W.2d 150, 154 (Tenn. 1966)). Similarly, “Tennessee courts refer to claims
of detrimental reliance and promissory estoppel interchangeably.” Quik Find Plus, Inc. v.
Procon, Inc., 2010 WL 2158808, at *6 (E.D. Tenn. May 25, 2010) (citing Shedd v. Gaylord
Entm’t Co., 118 S.W.3d 695, 700 (Tenn. Ct. App. 2003)). For efficiency, the Court considers
Plaintiff’s equitable claims under unjust enrichment and promissory estoppel.
37
To illustrate Plaintiff’s interchangeable use of these equitable theories, the Court notes the Joint Proposed Pretrial
Order omits reference to detrimental reliance (Docket No. 63), and Plaintiffs’ proposed “Conclusions of Fact and
Findings of Law” makes no mention of quantum meruit (Docket No. 75). The Court can find no mention of
promissory fraud apart from the Complaint. Therefore, the Court considers this cause of action abandoned. Even if
it had been properly plead, by the same reasoning applied to Plaintiff’s unjust enrichment and promissory estoppel
claims, a promissory fraud argument would not succeed.
17
The theory of unjust enrichment is “founded on the principle that a party receiving a
benefit desired by him, under circumstances rendering it inequitable to retain it without making
compensation, must do so.” Paschall’s, Inc., 407 S.W.2d at 154. It includes three elements: “1)
‘[a] benefit conferred upon the defendant by the plaintiff’; 2) ‘appreciation by the defendant of
such benefit’; and 3) ‘acceptance of such benefit under such circumstances that it would be
inequitable for him to retain the benefit without payment of the value thereof.’” Freeman Indus.,
LLC v. Eastman Chem. Co., 172 S.W.3d 512, 525 (Tenn. 2005) (quoting Paschall’s, Inc., 407
S.W.2d at 155); accord Hood Land Trust v. Hastings, 2010 WL 3928647, at *6 (Tenn. Ct. App.
Oct. 5, 2010).
“A benefit is any form of advantage that has a measurable value including the advantage
of being saved from an expense or loss.” Freeman Indus., LLC v. Eastman Chem. Co., 172
S.W.3d 512, 525 (Tenn. 2005). “The most significant requirement ... is that the benefit to the
defendant be unjust.” Id. “The remedy for unjust enrichment requires that the person who has
been unjustly enriched at the expense of another make restitution to that person.” Chase
Manhattan Bank, N.A. v. CVE, Inc., 206 F. Supp. 2d 900, 909 (M.D. Tenn.
2002) (citing Browder v. Hite, 602 S.W.2d 489, 491 (Tenn. Ct. App. 1980)).
Tennessee courts have described promissory estoppel as “[a] promise which the promisor
should reasonably expect to induce action or forbearance of a definite and substantial character
on the part of the promisee and which does induce such action or forbearance.” Shedd v. Gaylord
Entm’t Co., 118 S.W.3d 695, 700 (Tenn. Ct. App. 2003) (quoting Alden v. Presley, 637 S.W.2d
862 (Tenn. 1982)). To prevail on this claim, Plaintiff must show “(1) that a promise was made;
(2) that the promise was unambiguous and not unenforceably vague; and (3) that [Plaintiff]
reasonably relied on the promise to [its] detriment.” Chavez v. Broadway Elec. Serv. Corp., 245
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S.W.3d 398, 404-05 (Tenn. Ct. App. 2007).
“Tennessee courts generally disfavor claims based
upon promissory estoppel: ‘Tennessee does not liberally apply the doctrine … To the contrary, it
limits application … to exceptional cases.’” Holt v. Macy’s Retail Holdings, 719 F. Supp. 2d
903, 913 (W.D. Tenn. 2010) (citing Chavez, 245 S.W.3d at 406) (internal citations omitted).
Plaintiff asserts that it detrimentally relied on statements made by Defendant when Mr.
Ivanov voiced concerns about potential problems related to the DOL audit. Specifically, Mr.
Ivanov testified that Cage management stated “when we cross that bridge, then we’re going to
take care of it,” which he took to be a promise by Cage to apply the final contract rates
retroactively to the period governed by the Parties’ first contract (September 11 to December 8,
2011) (Docket No. 71 at 63). Plaintiff states that Defendant was “unjustly enriched by the
$136,000 in unpaid services” as a result (Docket No. 63 at 5).
The evidence presented at trial does not show Defendant made any promise to pay the
final contract rates retroactively. The “cross that bridge” comment and the unspecified “we” is
simply insufficient, particularly in light of the high bar set by Tennessee courts regarding
promissory estoppel.
Similarly, the Court fails to see what uncompensated benefit Defendant received from
Plaintiff. Certainly, Defendant received the benefit of Plaintiff’s continued supply of workers to
the project. However, Plaintiff was compensated for this service with the increased hourly and
overtime rates memorialized in the final contract. It was not inequitable for Defendant to retain
this service because Defendant paid for its value. Plaintiff fails to satisfy its burden under unjust
enrichment and promissory estoppel.
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C. Tortious Inducement
Plaintiff made passing reference throughout its filings to the claim that “Cage tortuously
[sic] interfered with the contractual relations MDT had with each of its employees” (Docket No.
63 at 5), but never developed the assertion to even the minimal standard of Rule 8 of the Federal
Rules of Civil Procedure 8. See FED. R. CIV. PRO. 8(a)(2) (“A pleading that states a claim for
relief must contain: a short and plain statement of the claim showing that the pleader is entitled
to relief.”) The Court treats the issue very briefly for the sake of completeness.
To prevail on a claim of tortious inducement, Plaintiff must show (1) “an existing
business relationship with specific third parties,” (2) that “defendant [knew] of the relationship,
and (3) intended “to cause the breach or termination of the business relationship,” (4) defendant
has “improper motive” or used “improper means,” and (5) plaintiff suffered injury from this
tortious interference. Watson’s Carpet and Floor Coverings, Inc. v. McCormick, 247 S.W.3d
169, 176 (Tenn. Ct. App. 2007) (citing Trau–Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d
691 (Tenn. 2002)).
Plaintiff never exhibited a current example of the contract it enters with its workers. The
only similar document entered into evidence was an outdated “Independent Contractor’s
Agreement and Release” provided by Defendant (Defendant’s Exh. 2).
Without this
information, the Court cannot determine the specifics of the business relationship between MDT
and its employees. Moreover, the evidence presented at trial did not show by a preponderance
that Defendant intended to cause a breach of this relationship when it hired the employees.
Multiple witnesses for the Defense stated Cage’s intention was to maintain a sufficient
workforce to complete work on the Owensboro Project on time. To the extent that Plaintiff
seeks to recover under a theory of tortious interference, this effort fails.
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D. Damages
Having found Defendant breached the non-solicitation/no-hire covenant in the Parties’
final contract, the next issue is the appropriate award of damages.
Plaintiff relies heavily on Waggoner Motors, Inc. v. Waverly Church of Christ, 159
S.W.3d 42 (Tenn. Ct. App. 2005), for the proposition that it need only show a breach occurred in
order to recover damages equal to its calculation of lost profits. It concludes that “MDT
established from relevant and comparative historical data a clear pattern of net profits on the
actual Cage project, and similar projects that were available during the 8-10 month period it took
MDT to replace the stolen employees.” (Docket No. 75 at 13). However, the Court reads
Waggoner very differently.
In Waggoner, the Tennessee Court of Appeals modified the judgment of the trial court to
reduce the amount of damages awarded to the plaintiff, an automotive dealer whose inventory
had been damaged by paint spray from construction at the church next door. In calculating the
adjusted damages, the court found that “Waggoner’s financial records provided an appropriate
basis for calculating its anticipated future profits.” Waggoner, 159 S.W.3d at 63-64. However,
the court noted that “if the only evidence of Waggoner’s lost profits consisted of Mr.
Waggoner’s and [plaintiff’s expert witness’]38 testimony, we would have no alternative other
than to conclude that Waggoner was not entitled to damages even though it had presented
adequate evidence that its business had been damaged.” Id. at 64.
The Court here finds itself in a similar situation to the one hypothesized by the Waggoner
court, as Plaintiff relies primarily on witness evidence to establish its lost profits. The previous
months’ earnings on the Owensboro Project are not an accurate proxy from which to extrapolate,
38
The court noted that the plaintiff’s expert witness performed only an “ordinary examination” of plaintiff’s
financial statements, which “required no economic expertise to comprehend.” Waggoner, 159 S.W.3d at 61.
21
given September to mid-December 2011 was governed by a different contract, with different
hourly rates, and a variable number of workers. January 2012 is the only complete month when
the final contract rates were in force. However, by Plaintiff’s own admission, January was a
very unusual month with net profits three times higher than usual.
Furthermore, Plaintiff
offered little evidence concerning alternative projects available in the year following Defendant’s
breach of the contract, and admitted that had the Owensboro Project proceeded according to
plan, it would not have bid on any additional projects anyway.
Given the scant evidentiary record on which to calculate damages, the Court has not
definitely decided the appropriate amount to be awarded to Plaintiff, and will give the Parties an
opportunity to pursue settlement of this case now that Defendant’s liability has been decided.
The Parties are strongly urged to make full use of this opportunity to reach a resolution of this
matter that is mutually agreeable and to negotiate in good faith.
Although the Court defers final ruling on the appropriate remedy, the Court has made
some preliminary determinations and makes certain observations which may benefit the Parties’
negotiations:
“Generally speaking, damages for breach of contract include only such as are incidental
to or directly caused by the breach and may be reasonably supposed to have entered into the
contemplation of the parties.” BVT Lebanon Shopping Ctr., Ltd. v. Wal-Mart Stores, Inc., 48
S.W.3d 132, 136 (Tenn. 2001) (citation omitted). This is because “[t]he purpose of assessing
damages in breach of contract cases is to place the plaintiff as nearly as possible in the same
position she would have been in had the contract been performed, but the nonbreaching party is
not to be put in any better position by recovery of damages for the breach of the contract than she
would have been if the contract had been fully performed.” Id. Moreover, Plaintiff has the
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“burden of proving the damages sustained,” and, “[w]hile damages do not have to be proved
exactly, they must be proved with a reasonable degree of certainty to allow the trier of fact to
make a fair assessment without speculation.” Stonecipher v. Estate of Gray, 2001 WL 468673,
at *6 (Tenn. Ct. App. 2001).
III. CONCLUSION
On the basis of the foregoing, the Court will enter an Order finding in favor of Plaintiff
and against Defendant on Plaintiff’s claim for breach of contract insofar as it relates to
Defendant’s breach of the non-solicitation/no-hire provision. The Court will defer ruling on the
appropriate award of damages, and strongly encourages the Parties to use this opportunity to
explore the possibility of settling this case.
_________________________________________
KEVIN H. SHARP
UNITED STATES DISTRICT JUDGE
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