In unusual business interference case, court upholds loss of value damages

BVWireIssue #182-1
November 1, 2017

The 8th Circuit recently upheld a sizable jury award in an unusual damages case involving claims of tortious interference with business relations and breach of the duty of loyalty to the employer. What stands out is that none of the defendants were bound by a noncompete agreement. And, although the plaintiff was not completely destroyed, the court found the plaintiff expert’s financial analysis supported a total loss of value opinion.

‘Effectively a total loss’: In March 2012, the seller sold his agricultural commodity trading business, which included a small but profitable freight logistics brokerage, CT Freight. He declined employment with the buyer, but most of CT Freight’s brokers and support staff stayed on. No noncompete or employment agreements were put in place.

A jury found that, soon after the sale, the seller colluded with key CT freight employees to implement a plan that transferred CT Freight’s business to the seller’s new company. The employees secretly moved their largest accounts ahead of their mass resignation to ensure “uninterrupted business.” They also provided customer lists and confidential information to the seller. The buyer obtained a two-month preliminary injunction and sued for damages under a number of legal theories. It prevailed on tortious interference with prospective business relations, breach of the duty of loyalty, and conspiracy. This case was brought in federal court but adjudicated under Nebraska state law.

CT Freight’s expert showed that, as the plaintiff lost sales from its top 20 customers, the new company made those sales in the months immediately following the employees’ mass resignation. He said “that effectively the business of CT Freight at that point was … effectively a total loss.” Just before the mass resignation, the company was worth $2.1 million based on “the value of future profits,” he determined. Further, by October 2013, the plaintiff had suffered $330,000 in actual losses related to its efforts to mitigate the damage from the resignations and rebuild its business. The jury awarded the plaintiff $1.5 million in damages and over $50,000 in forfeited wages based on the disloyalty of nine of the 10 employees.

The defendants unsuccessfully challenged the award in post-trial motions and on appeal. One major argument was that it was error to permit the plaintiff’s damages expert to offer a total loss of value opinion where the plaintiff did not show its business was completely destroyed. The district court found the defendants failed to cite to a Nebraska case that so limited recovery. The general rule was that there had to be a causal connection between the damage and the alleged wrongdoing. Here, the evidence, including expert testimony, showed the immediate and permanent impact of the defendants’ actions on the plaintiff.

The 8th Circuit Court of Appeals later affirmed the district court ruling “in all respects.”

Bill Kenedy (Lutz), the expert for the prevailing party, says he performed a “middle-of-the-road” valuation. He believes the math in this case speaks for itself. As he sees it, when a company has been consistently profitable before the wrongdoing and suffers a loss of essentially all of its customers, resulting in a net loss after the plan was carried out, that’s powerful evidence of the total loss of value stemming from the incident.

A digest of West Plains, L.L.C. v. Retzlaff Grain Co., 2017 U.S. App. LEXIS 16600 (Aug. 30, 2017) (West Plains II); and West Plains, L.L.C. v. Retzlaff Grain Co., 2016 U.S. Dist. LEXIS 86344 (May 9, 2016), as well as the courts’ opinions, will be available soon at BVLaw.

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