Opinion
CAUSE NO. IP 98-0167-C H/G
September 20, 1999.
ENTRY ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
This commercial dispute highlights the fluid contractual relationships that have emerged as alternatives to more familiar employment relationships, especially in fields like computer programming where customers' needs and skilled persons' interests change quickly. In 1994, plaintiff HAS, Inc. and defendant Bridgton, Inc. entered into a series of contracts under which Bridgton agreed to supply skilled computer programmers to HAS. HAS then assigned the Bridgton programmers to staff projects for HAS clients.
The HAS-Bridgton contracts contained a covenant not to compete that placed certain restrictions on Bridgton's interactions with HAS's employees and clients.
This diversity lawsuit concerns competition for a major HAS client, USA Group, which is a not-for-profit guarantor and administrator of student loans. HAS alleges that Bridgton and defendant DelSoft Consulting, Inc. breached the covenants not to compete in the HAS-Bridgton contracts by bypassing HAS and supplying computer programmers directly to USA Group. HAS also claims that both defendants tortiously interfered with its business relationship with USA Group. Defendant Bridgton asserts a counterclaim against HAS for breach of contract for failing to pay Bridgton for services that its programmers provided to HAS after July 1997. The defendants seek summary judgment on all claims, including Bridgton's counterclaim against HAS.
As explained below, the court grants defendants' motion for summary judgment in part and denies it in part. The court finds that the plain language of the HAS-Bridgton contracts did not prohibit Bridgton from competing with HAS during their business relationship. The court also grants summary judgment for defendants on HAS's claim for tortious interference with its business relationship with USA Group because defendants did not act illegally. The court finds, however, that genuine issues of material facts preclude summary judgment on HAS's breach of contract claim against DelSoft on the theory that Bridgton's managers used DelSoft as an alter ego or successor corporation to evade Bridgton's covenant not to compete with HAS. The court also finds that summary judgment is not warranted on that claim based on a lack of evidence of damages. Finally, the court also grants summary judgment for Bridgton on its counterclaim for payment for services that it rendered to HAS, that HAS accepted, and for which HAS accepted payment from its client.
Summary Judgment Standard
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Under Rule 56(c) of the Federal Rules of Civil Procedure, the court should grant summary judgment if and only if there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See Qian v. Kautz, 168 F.3d 949, 953 (7th Cir. 1999).
In determining whether a genuine issue of material fact exists, courts must construe all facts in the light most favorable to and draw all reasonable inferences in favor of the non-moving party, in this case plaintiff HAS. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Haefling v. United Parcel Service, Inc., 169 F.3d 494, 497 (7th Cir. 1999); Miller v. Borden, Inc., 168 F.3d 308, 311 (7th Cir. 1999). The issue is whether a rational trier of fact could reasonably find for the party opposing the motion with respect to the particular issue. Vitug v. Multistate Tax Comm'n, 88 F.3d 506, 512 (7th Cir. 1996).
Undisputed Material Facts
The following material facts are either undisputed or represent the evidence of disputed material facts in the light reasonably most favorable to plaintiff HAS. Additional facts are discussed where necessary in other sections of this Entry.
Plaintiff HAS is a computer consulting company wholly owned by Paul R. Clark and based in Indianapolis. It places both its own full-time employees and a smaller number of independent contractors on computer programming and systems design projects at client sites for various durations of time.
Defendant Bridgton is a Georgia corporation formed in January 1994 by Jerry Rosemeyer. Rosemeyer formed Bridgton to market his expertise with a computer assisted engineering tool called Application Development Workbench (ADW). Rosemeyer and his brother-in-law, Ben Giacchino, each own approximately 47.5 percent of Bridgton's outstanding stock, and both have been directors and executives of Bridgton since its inception. Santo Curcio owns the remaining Bridgton shares. Curcio has also been a director of Bridgton throughout its existence.
Defendant DelSoft Consulting is a Georgia corporation that Rosemeyer and Giacchino incorporated on July 1, 1996. Its initial shareholders included Rosemeyer and Giacchino (34.26 percent each), Curcio (2.15 percent), and Jeffrey Rinde (27.89 percent). When they formed DelSoft, Rosemeyer and Giacchino served as its only directors and executives. DelSoft did not gain any new officers or directors until 1997. In approximately December 1996, DelSoft effected a reverse merger with a publicly traded company and DelSoft stock began trading on the over-the-counter market.
Bridgton and DelSoft are in the same business and have dealt with many of the same clients and vendors. Bridgton and DelSoft assert, however, that they are separate and distinct corporations. Neither DelSoft nor Bridgton has ever owned stock in the other, and DelSoft and Bridgton have maintained separate bank accounts and financial records. Rinde Aff. ¶¶ 26-27, 33; Giacchino Dep. at 171-72; 224. Rosemeyer resigned as DelSoft's president in August 1997.
HAS argues that Bridgton and DelSoft are so closely related and acted in concert to evade Bridgton's contractual obligations that DelSoft should be held subject to Bridgton's obligations. Within the first month of DelSoft's formation, DelSoft had no clients other than companies who were also clients of Bridgton. Giacchino Dep. at 112-14. The two companies have entered into more than one contract under which each provided consultants to the other on certain jobs. Pl. Exs. 33, 35 at 10, 38. Moreover, the two companies shared office space, and DelSoft purchased Bridgton's office furniture in 1997 for the amount that Bridgton paid for it. Additional facts relevant to the two companies' relationship are set forth below.
Although Bridgton continues to be a corporation in good standing, it is not actively doing business. Its only significant asset it its counterclaim in this case. Giacchino attributes Bridgton's current status in part to DelSoft management team members Rinde and Adil Choksey conditioning their employment with DelSoft on Bridgton ceasing its pursuit of new business because of their fear that Bridgton would otherwise pose a competitive threat to DelSoft.
In late 1993, HAS entered into an agreement to provide computer programmers to Indianapolis-based USA Group, Inc., a not-for-profit guarantor of student loans. Under that agreement, USA Group would issue work orders to HAS for programmers, including ADW programmers for USA Group's Eagle II project, at rates that the parties would agree to on an order-by-order basis. By June 1994, HAS had placed three of its programmers at USA Group under the agreement.
In approximately June 1994, HAS's manager of the USA Group account, Ronda Young Woldmoe, contacted Michael Osso, a Bridgton employee from Florida who had sent a resume to HAS. Woldmoe contacted Osso because she believed HAS did not have any additional personnel on its own staff who had the requisite ADW experience or qualifications to work on USA Group's Eagle II project. Woldmoe Dep. at 78, 130. Woldmoe wanted to see if Osso might be interested in working for HAS in Indianapolis. Osso said he was not interested in leaving Bridgton for HAS, but he indicated that Woldmoe should contact Bridgton's President, Jerry Rosemeyer, because Osso would be willing to work at USA Group as HAS's subcontractor if Woldmoe could arrange it with Rosemeyer. Osso Dep. at 25-27; Woldmoe Dep. at 77.
The parties and the evidence have referred to Ronda Young Woldmoe both as Ronda Young and Ronda Woldmoe. She apparently married and changed her name after some of the events underlying this suit had occurred. This Entry consistently uses the surname Woldmoe.
Woldmoe contacted Rosemeyer and learned that he had other contacts with people experienced in ADW. After his conversation with Woldmoe, Rosemeyer sent Osso to Indianapolis for an interview, forwarded Woldmoe the resumes of Bridgton employees Ronald Fleming and Catherine Bilbrey, and provided Woldmoe the name of Dick Eberhardt, a non-Bridgton employee who had ADW experience. Based on Rosemeyer's referral, Woldmoe eventually assigned Eberhardt to work at USA Group as an independent contractor of HAS.
In July and September 1994, HAS and Bridgton executed three of HAS's "Standard Form Consulting Contracts." The contracts enabled Bridgton to supply HAS with programmers Michael Osso, Catherine Bilbrey, and Ronald Fleming, and HAS could in turn assign the programmers to USA Group. Pl. Exs. 19, 28, 29. The Standard Form Consulting Contracts include a paragraph of "stipulations," including a noncompetition and a nonsolicitation clause that placed certain restrictions on Bridgton, as well as an integration clause and a statement about being "discreet" about the relationship around HAS's clients:
Stipulations. Consultant [Bridgton] hereto agrees that, while performing services under this Agreement, and for a period of twelve (12) months following the termination of this Agreement, Consultant will not solicit or offer employment to the Company's [HAS's] employees or staff engaged in any efforts under this Agreement. Consultant also agrees not to work directly for a Company account for which Consultant has subcontracted through Company for a period of one (1) year after Consultant has ceased being a subcontractor for Company.
* * *
Complete Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the matters covered herein. No other agreements, representations, warranties or other matters, oral or written, purportedly agreed to or represented by or on behalf of Consultant by any of its employees or agents, or contained in any sales materials or brochures, shall be deemed to bind the parties hereto with respect to the subject matter hereof. Company and Consultant acknowledge that they are entering into this Agreement solely on the basis of the representations contained herein.
* * *
Understanding. While we do not intend to misrepresent the relationship of Company and Consultant, we would like to be discreet about the relationship, particularly around Company's clients and personnel. We feel that this would help both the Company and Consultant relationship with Company's clients and personnel.
Pl. Exs. 19, 28, 29.
In addition to her contacts with Bridgton regarding consultants for USA Group's Eagle II project, Woldmoe continued to search for ADW-qualified people within HAS, as well as in the general marketplace, throughout the life of the project. Whenever she identified a candidate who she thought might meet USA Group's criteria, she submitted the person's name and/or resume to Randy Pflanzer, the USA Group representative in charge of hiring outside contractors for the Eagle II project. Woldmoe Dep. at 45-46, 100, 130-31. Meanwhile, USA Group continued to work with other computer consulting companies on various projects, including the Eagle II project. Pflanzer Aff. ¶¶ 3-4.
Rosemeyer testified that shortly after Bridgton executed the Standard Form Consulting Contracts with HAS, he sent Woldmoe the resumes of approximately nine programmers from India who had ADW skills that he believed would be appropriate for the Eagle II project. Rosemeyer Dep. at 130-31; Woldmoe Dep. at 125-26. According to Rosemeyer, Woldmoe said words to the effect: "they don't take those kind." See Rosemeyer Dep. at 130-35. Woldmoe disputes Rosemeyer's testimony by stating that she does not remember receiving a set of resumes from Rosemeyer at the time he described. She also testified that the closest she ever came to making the statement that Rosemeyer attributed to her was to say that she needed candidates who could communicate effectively in English because of USA Group's demands. Woldmoe Dep. at 127. For purposes of summary judgment, of course, the court accepts Woldmoe's testimony on the point. Rosemeyer later told USA Group's Randy Pflanzer about Woldmoe's comment and said that HAS had said it would not present these candidates to USA Group because they were Indian. See Pflanzer Dep. at 29-30.
In late 1994, USA Group needed additional programmers with ADW skills for the Eagle II project. Pflanzer knew (or at least believe) that Bridgton and HAS had a contractual relationship that prohibited Bridgton from placing programmers directly at USA Group. Nevertheless, Pflanzer asked Woldmoe whether HAS would permit Bridgton to do so. Pflanzer Dep. at 27-29; Woldmoe Dep. at 102-03. Woldmoe testified that she "can't imagine" that she did not reply to Pflanzer with a statement to the effect of "I don't think so, I'll ask [HAS owner] Bob [Clark] and if I'm incorrect I'll call you back." Woldmoe Dep. at 103-04. Clark in fact said no to Pflanzer's request. Woldmoe did not call Pflanzer with Clark's response. She believed her initial response to Pflanzer made it obvious that he should assume that Clark responded negatively unless Woldmoe informed him otherwise. Id. at 104.
In the meantime, Rosemeyer had asked Osso to arrange a meeting with Pflanzer to discuss the possibility of Bridgton working directly with USA Group. Osso Dep. at 58-59; Pflanzer Dep. at 28-29. Pflanzer testified that he and Rosemeyer discussed the noncompetition clause of the HAS-Bridgton contracts during their meeting. Id. Pflanzer was then asked about the Indian candidates whom HAS declined to present to USA Group:
Q What else did Jerry [Rosemeyer] say at that meeting concerning the contract or this restrictive covenant provision?
A He — nothing more specifically about the contract. He just — he just basically said that if HAS would not represent them [the Indian programmers], then Delsoft would represent them to us.
Q Delsoft or Bridgton?
A Or Bridgton, I'm sorry.
Rosemeyer testified that Pflanzer or another USA Group employee initiated contact with him 2 concerning ADW programmers that Bridgton might be able to provide to USA Group. Rosemeyer Dep. at 146-47. Rosemeyer testified that he replied affirmatively, but that he indicated that HAS previously indicated that it was not interested in those programmers. Id. at 150. Rosemeyer testified that he then sent Osso the resumes of those programmers at the USA Group employee's request. Id. at 150-51. Because HAS is the nonmoving party, the court cannot rely on Rosemeyer's testimony for purposes of the pending motion. In any event, which party initiated the discussions between Bridgton and USA Group is not material to the summary judgment motion.
Bridgton began providing programmers directly to USA Group on December 6, 1994. Giacchino Dep. at 70-72; Pflanzer Dep. at 32-33; 35-37. About three weeks later, on December 30, 1994, Bridgton entered into a Programmer Agreement with USA Group to provide programmers directly to USA Group. Pl. Exs. 3-5, 30; Pflanzer Dep. at 33, 35-37. Pflanzer testified that this sequence of events was unusual. Vendors of technology services usually do not begin to provide programmers to a customer until they have executed a programmer agreement with the customer. Pflanzer Dep. at 20. Bridgton continued placing programmers directly with USA Group throughout 1995 and 1996. Giacchino Dep. at 75-76; Rosemeyer Dep. at 159-63. As of July 7, 1996, Bridgton was invoicing USA Group for thirteen consultants. Pflanzer Dep. at 67-70; Pl Ex. 1.
HAS and Bridgton dispute when HAS first learned that Bridgton was placing programmers directly at USA Group. Woldmoe testified during her deposition that she could not remember the precise date she learned of Bridgton's activities. After looking at her notes concerning the USA Group account, she identified May 1, 1996, as the date she first learned of Bridgton's direct placements. Woldmoe Dep. at 171-73. Pflanzer testified that he discussed the placements with HAS's "marketing gal" "shortly after" Bridgton made the initial placements. Pflanzer Dep. at 50. Regardless of the date that HAS first learned of Bridgton's direct placements, there is no evidence that anyone from HAS voiced an explicit objection to Bridgton until Clark spoke twice to Giacchino about the placements during the summer of 1997. Clark Dep. at 40-41. Viewing the evidence in the light reasonably most favorable to HAS, that was still more than a year after HAS's Woldmoe first learned of the situation.
In the first conversation, Clark told Giacchino that HAS would not pay any further invoices because of Bridgton's violation of the HAS-Bridgton contracts. Id. at 40. In the second conversation, Clark presented the following alternatives to Giacchino: (1) Bridgton could leave its direct placements at USA Group and HAS would not pay Bridgton for its placements through HAS; (2) Bridgton could remove all of its placements from USA Group; or (3) Bridgton could rectify its standing with HAS. Id. at 41.
In addition to Bridgton's direct placements, USA Group's work orders show that Giacchino agreed as early as January 15, 1996, "as Incorporator for DelSoft Consulting, Inc.," to provide several consultants to USA Group, including consultants who previously were either employees of or independent contractors for Bridgton. Pl. Ex. 46. Shortly after Rosemeyer and Giacchino incorporated DelSoft in July 1996, DelSoft and USA Group executed a Programmer Agreement for Consultants under which DelSoft agreed to provide programmers to USA Group. Rinde Aff. at Ex. E. On July 1, 1996, Bridgton and DelSoft executed subcontract agreements whereby each agreed to subcontract "human resources" (i.e., programmers) to the other. Giacchino Dep. at 147; Pl. Exs. 33, 38. Pursuant to those agreements, DelSoft agreed to subcontract the services of Osso and Fleming to Bridgton. Giacchino Dep. at 142-43; Pl. Ex. 37. As of July 1996, DelSoft invoiced USA Group for all the consultants who continued to work on USA Group's Eagle II project after being placed there by Bridgton. Pflanzer Dep. at 70; Pl. Exs. 1 16. DelSoft eventually placed more than thirty consultants at USA Group. Osso Dep. at 83.
Osso and Fleming continued to work at USA Group pursuant to the HAS-Bridgton contracts, Osso until September 1997 and Fleming until February 1998. See Pl. Exs. 19, 28, 29. In September 1996, Osso became an employee of DelSoft, although he never submitted a resume or application to DelSoft. Osso Dep. at 66-67. In fact, Osso was unaware of this change in his employment status until he received a paycheck from DelSoft. The change in employer did not change the character of his work. Id. at 66-67, 105-07. Osso terminated his work under the HAS-Bridgton contracts on approximately September 1, 1997. Also in or about September 1996, Fleming switched from working as a subcontractor for Bridgton to a subcontractor for DelSoft. Giacchino Dep. at 142-43. Fleming continued to work at USA Group until February 6, 1998, when USA Group terminated its order for his work. Pl. Ex. 15; Pflanzer Dep. at 54-56. Fleming later returned to work under a direct contract with USA Group. Pflanzer Dep. at 55.
After early 1995, HAS did not present Pflanzer with any candidates that USA Group considered qualified for the Eagle II project. Pflanzer Aff. ¶¶ 4-5. In total, HAS placed no more than five people on the Eagle II project — Osso, Fleming, and Bilbrey (all of whom HAS obtained from Bridgton), Dick Eberhardt (whom Rosemeyer referred to HAS), and Cindy Cox (who Woldmoe testified might have actually worked on a different project even though her work order indicates she worked on Eagle II). Def. Ex. 1 at Tab A (Work Order X); Pflanzer Aff. ¶ 4 ; Woldmoe Dep. at 73, 124.
In July 1997, after Clark's telephone call with Giacchino, HAS stopped paying Bridgton's invoices for Osso's and Fleming's services. HAS believed that Bridgton and DelSoft, as Bridgton's alter ego, were violating the HAS-Bridgton contracts by providing programmers to USA Group directly. Nevertheless, HAS continued to accept their services, continued to bill USA Group for their services, and continued to accept payment from USA Group for their services.
HAS filed suit in this court on February 6, 1998. Bridgton filed a related case in the Northern District of Georgia. The Georgia case was transferred to this district and consolidated with this action. HAS then filed its amended complaint and defendant Bridgton filed its counterclaim against HAS. Defendants have now moved for summary judgment on all claims.
Discussion
The court considers in turn plaintiff HAS's claims against both defendants for breach of contract and tortious interference with business relationship. (HAS conceded in its brief that summary judgment is appropriate on its claims for tortious interference with contract, so the court does not address that issue.) The court addresses first the merits of the claims and then the defendants' argument that HAS cannot prove any recoverable damages. Finally, the court turns to Bridgton's counterclaim against HAS for payment for the work that Osso and Fleming performed under the HAS-Bridgton contracts after HAS stopped paying Bridgton's invoices in July 1997.
I. HAS's Breach of Contract Claim
In count one, plaintiff HAS alleges that Bridgton and DelSoft, as Bridgton's alter ego, breached the HAS-Bridgton contracts by placing programmers directly at USA Group while the contracts' noncompetition clauses prohibited such placements. The evidence shows that Bridgton assigned programmers directly to USA Group at the same time it provided programmers to HAS for HAS to assign to USA Group. After Bridgton stopped providing programmers to HAS, however, Bridgton did not assign any programmers directly to USA Group. DelSoft, however, assigned consultants directly to USA Group both during and after the time during which Bridgton provided programmers to HAS for assignment to USA Group.
The "Stipulations" paragraph in each HAS-Bridgton contract provides:
Consultant [Bridgton] hereto agrees that, while performing services under this Agreement, and for a period of twelve (12) months following the termination of this Agreement, Consultant will not solicit or offer employment to the Company's [HAS's] employees or staff engaged in any efforts under this Agreement. Consultant also agrees not to work directly for a Company account for which Consultant has subcontracted through Company for a period of one (1) year after Consultant has ceased being a subcontractor for Company.
Defendant Bridgton argues that it did not breach the HAS-Bridgton contracts because the meaning of this provision is plain: it prohibited Bridgton from working directly for an HAS account only for one year immediately after Bridgton stopped supplying any programmers to HAS for HAS to staff at USA Group, but did not bar Bridgton from working directly for an HAS account during the term of its contract with HAS. Defendant DelSoft argues that the HAS-Bridgton contracts have never governed its conduct because it is not a party to those contracts and has always maintained its corporate identity separate from Bridgton.
A. Bridgton's Obligations Not to Compete with HAS
The court concludes as a matter of law that the Bridgton-HAS contracts did not prohibit Bridgton from competing with HAS for an HAS client during the two companies' contractual relationship.
Under Indiana law, the interpretation of a written contract is generally a question of law that the court can often decide on summary judgment. See, e.g., Kiltz v. Kiltz, 708 N.E.2d 600, 602 (Ind.App. 1999); Tanton v. Grochow, 707 N.E.2d 1010, 1013 (Ind.App. 1999); Francis v. Yates, 700 N.E.2d 504, 506 (Ind.App. 1998); Whiteco Industries, Inc. v. Nickolick, 571 N.E.2d 1337, 1339 (Ind.App. 1991). The court interprets the contract language to determine the intent of the parties at the time that they made the contract, as expressed by the agreed language. See, e.g., Rothe v. Revco D.S., Inc., 148 F.3d 672, 674 (7th Cir. 1998); Wolvos v. Meyer, 668 N.E.2d 671, 675 n. 1 (Ind. 1996); First Federal Savings Bank of Indiana v. Key Markets, Inc., 559 N.E.2d 600, 603-04 (Ind. 1990) (citing cases).
The court should neither look beyond the contract language to extrinsic evidence nor attempt to harmonize all the contract provisions unless the contract is ambiguous or uncertain in its terms. See, e.g., First Federal Savings, 559 N.E.2d at 604; Delaplane v. Francis, 636 N.E.2d 169, 171 (Ind.App. 1994). The terms of a contract are not ambiguous merely because the parties disagree in a lawsuit concerning the proper interpretation of the contract. See, e.g., Kiltz, 708 N.E.2d at 602; Tate v. Secura Insurance, 561 N.E.2d 814, 819 (Ind.App. 1990).
The court finds no ambiguity in the contract language at issue. The plain language of the HAS-Bridgton contracts provides that the covenants not to compete prohibited Bridgton from placing programmers directly at USA Group for a period of one year after Bridgton ended its subcontractor relationship with HAS, but not during its relationship with HAS.
A comparison of the two sentences in the "stipulations" paragraph shows why this interpretation is correct. The first sentence bars Bridgton from soliciting or offering employment to HAS employees or staff. That sentence specifically applies "while performing services under this Agreement, and for a period of twelve months following the termination of this Agreement." The second sentence prohibits "work directly for a Company account," but it applies only "for a period of one (1) year after Consultant has ceased being a subcontractor for Company," without mentioning the period "while performing services under this Agreement." If HAS intended the two clauses to govern Bridgton's conduct for an identical period of time, it should have drafted the two sentences with identical language.
HAS argues that this narrow interpretation is not sound because it emphasizes the language of those two sentences at the expense of the contracts as a whole. HAS contends that, when read as a whole, its contracts with Bridgton generally "demonstrate the parties' intent to preclude Bridgton from benefitting under the contracts at the expense of HAS." Pl. Br. at 12; see Tastee-Freez Leasing Corp. v. Milwid, 365 N.E.2d 1388, 1390 (Ind.App. 1977) ("In order to glean the meaning of a contract, all its provisions must be considered rather than individual words, phrases or paragraphs."). HAS cites the provision in which Bridgton agreed to hold confidential certain information that it learned about HAS, and the provision in which Bridgton agreed to be "discreet" about its relationship with HAS around HAS's clients and personnel. Id., citing Pl. Exs. 19, 28, 29. HAS argues that the "Bridgton-HAS contracts reflect HAS's sensitivity to introducing a competitor into its business mix and its desire to protect its interests" and that such "intent must be given effect." Pl. Br. at 12.
Courts must consider all the language of the contract when construing its meaning "so as not to render any words, phrases, or terms ineffective or meaningless" and to avoid an interpretation that "causes the provisions to be conflicting." Schoemer v. Hanes Associates, Inc., 693 N.E.2d 1333, 1339 (Ind.App. 1998); accord, e.g., Indiana-American Water Co. v. Town of Seelyville, 698 N.E.2d 1255, 1259 (Ind.App. 1998); Barrington Management Co. v. Paul E. Draper Family Ltd. Partnership, 695 N.E.2d 135, 140 (Ind.App. 1998). Giving effect to the plain meaning of the covenants not to compete does not render other clauses of the contracts ineffective or meaningless, nor does it cause other provisions to conflict with the noncompetition clause.
HAS is arguing, in essence, that the court should interpret every clause in the contract to confer the widest possible benefit on HAS just because some of the contract provisions benefit HAS. That approach would undermine the bargain at the heart of contract law. One expects contracts to reflect a compromise of competing interests that works to the benefit of both sides. The contracts may reflect "sensitivity" about the relationship with HAS customers, but the parties addressed that "sensitivity" with clear and specific promises. Those promises are enforceable, but the "sensitivity" does not provide a basis for expanding or rewriting those promises.
The strongest argument in favor of HAS's interpretation is that it would not make much commercial sense for HAS and its consultants to agree on a covenant not to compete for one year after their relationship ended but to allow consultants to compete during the relationship. That is an argument, however, that HAS should have made in the contract negotiations. The argument is not sufficient to undermine such plain language in the contract.
Perhaps the contracts' different treatment of solicitation of HAS employees (prohibited both during 3 and after the relationship) and competition (prohibited only after the relationship) merely show that when HAS drafted the form contract, it assumed that a consultant would be an individual person. An individual probably could not physically work full-time on an HAS contract and moonlight in serious competition with HAS. Such an assumption would not apply to a corporate consultant like Bridgton, of course, but HAS used the same standard form contract here.
HAS's interpretation would also violate the principle that covenants not to compete are "strictly construed against the covenantee." Harvest Insurance Agency, Inc. v. Inter-Ocean Insurance Co., 492 N.E.2d 686, 688 (Ind. 1986). If HAS intended the covenants not to compete to govern Bridgton's conduct while Bridgton worked as HAS's subcontractor, HAS should have changed its form contract to state that intent plainly.
In addition, the HAS-Bridgton contracts are standard forms that HAS itself drafted to govern its relationships with consultants. That fact further undermines HAS's argument that the court should look beyond the contract's plain meaning. See, e.g., Bishop v. Sanders, 624 N.E.2d 64, 67-68 (Ind.App. 1993) ("when all other rules of construction fail," courts should construe ambiguous contract provisions against the drafter).
HAS also seeks to avoid the effect of the contracts' plain language by arguing that Bridgton owed it a duty of good faith. HAS contends the duty of good faith provides an independent basis for claiming that Bridgton breached the contracts by contracting directly with USA Group while its contractual relationship with HAS continued. This argument is not sufficient to expand the scope of the clear covenant not to compete.
Section 205 of the Restatement (Second) of Contracts embraces a duty of good faith and fair dealing in performance and enforcement for each party to a contract. Indiana courts, however, have not adopted that provision of the Restatement (Second), at least where a written contract specifically addresses the matter in dispute. See Beacham v. MacMillan, Inc., 837 F. Supp. 970, 975 (S.D.Ind. 1993); First Federal Savings Bank of Indiana v. Key Markets, Inc., 559 N.E.2d 600, 604 (Ind. 1990); Hamlin v. Steward, 622 N.E.2d 535, 540 (Ind.App. 1993). In First Federal Savings Bank, the Supreme Court of Indiana reversed an injunction that barred a landlord from withholding its consent to an assignment or sublease by its tenant. The trial court had based the injunction on an implied duty to act reasonably and in good faith.
The Supreme Court of Indiana said it "is not the province of courts to require a party acting pursuant to . . . a contract to be `reasonable,' `fair,' or show `good faith' cooperation. Such an assessment would go beyond the bounds of judicial duty and responsibility. . . ." 559 N.E.2d at 604. The court added: "It is only where the intentions of the parties cannot be readily ascertained because of ambiguity or inconsistency in the terms of a contract or in relation to extrinsic evidence that a court may have to presume the parties were acting reasonably and in good faith in entering into the contract." Id. More recently, the Indiana Court of Appeals explained:
The existence of express terms in a valid contract precludes the substitution of and the implication in law of terms regarding the subject matter covered by the express terms of the contract. When the rights of parties are controlled by an express contract, recovery cannot be based on a theory implied in law. Implied covenants are not favored in Indiana, especially where they restrict the freedom to enter into contracts.
Keystone Carbon Co. v. Black, 599 N.E.2d 213, 216 (Ind.App. 1992) (citations omitted). The HAS-Bridgton contracts use plain, explicit language to impose restrictions on Bridgton's ability to contract directly with USA Group. This court cannot properly imply additional restrictions on Bridgton that the parties did not choose to include in their contracts.
HAS argues further, though, that the general rule does not apply here because Bridgton was HAS's agent. The argument is not persuasive. HAS has cited cases focusing on whether the alleged principal in a principal-agent relationship was bound by or responsible for the actions of the alleged agent. See Woodworth v. Estate of Yunker, 673 N.E.2d 825, 827 (Ind.App. 1996) (Indiana Dead Man's statute rendered witnesses incompetent to testify about alleged oral contract between plaintiff and decedent; witnesses were plaintiff's agents in continuing the alleged contract with the decedent, and court rejected plaintiff's argument that "he did not exert sufficient control over the witnesses' actions to create an agency relationship"); Burkett v. Crulo Trucking Co., 355 N.E.2d 253, 261 (Ind.App. 1976) (reversing wrongful death judgment against trucking company because trial court failed to instruct jury that respondeat superior theory of liability does not apply to hold third party liable for negligence of an independent contractor); Andonov v. Christoff, 348 N.E.2d 84, 85 (Ind.App. 1976) (reversing trial court's determination that plaintiff was authorized to file suit as the attorney-in-fact of another party). Those cases do not support HAS's agency theory for extending the scope of the contract's covenant not to compete.
Likewise, the cases HAS cites to support its argument that Bridgton owed it a fiduciary duty are also unpersuasive as applied to this case. Both Egan v. Burkhart, 657 N.E.2d 401 (Ind.App. 1995), and Smitley v. Nau, 238 N.E.2d 681 (Ind.App. 1968), involved real estate brokers who had undisclosed interests adverse to their principals. The duties that a real estate agent owes a principal are not instructive for determining the duties that Bridgton owed HAS in this case, especially when the duty that HAS asks the court to imply would expand upon the plain meaning of the covenants not to compete in the HAS-Bridgton contracts.
As a separate claim of breach of contract, HAS also argues that Bridgton breached its contract when Ron Fleming entered into a contract directly with USA Group after Fleming terminated his relationship with the defendants. The court disagrees. Fleming had already terminated his relationship with both defendants when he entered into a contract directly with USA Group. Plaintiff has not come forward with evidence tending to show that Fleming acted under the control of or on behalf of defendant Bridgton when he entered into the contract with USA Group.
HAS has not submitted any evidence to show that Bridgton provided it with any programmers after September 1, 1997, and HAS has submitted no evidence to show that Bridgton provided any programmers directly to USA Group during the year immediately following that date. Therefore, the plain meaning of the covenants not to compete in the HAS-Bridgton contracts compels the court to grant summary judgment to defendant Bridgton on HAS's breach of contract claim against it.
As stated above, in September 1996, Osso became a DelSoft employee and Fleming became a 4 subcontractor of DelSoft. Those two programmers continued to work at USA Group through HAS and DelSoft until September 1997 and February 1998, respectively. Given the court's construction of the covenant not to compete, for purposes of HAS's breach of contract claim against Bridgton, it does not matter which of these three dates Bridgton ceased being a subcontractor of HAS. HAS has not produced any evidence to show that Bridgton (as opposed to DelSoft) supplied programmers directly to USA Group after 1996.
B. Defendant DelSoft's Alleged Breach of Contract
HAS alleges that "DelSoft, as the `alter ego' of Bridgton, violated the Bridgton-HAS contracts by placing consultants directly with USA Group." Am. Cplt. ¶ 35. Plaintiff HAS has produced evidence showing that DelSoft supplied several consultants directly to USA Group throughout the period from September 1, 1996, to September 30, 1998. See Pl. Ex. 48. Therefore, the court must address plaintiff HAS's allegation that DelSoft is Bridgton's alter ego.
There is some uncertainty about when exactly Bridgton stopped providing consultants to HAS. Osso and Fleming became employees of DelSoft and subcontractors for Bridgton in September 1996. The relevant timeframe could be the twelve months following that date or the twelve months after DelSoft stopped supplying those individuals to HAS in September 1997 and February 1998, respectively.
HAS argues that Bridgton's officers and shareholders manipulated DelSoft's corporate form to avoid Bridgton's post-termination obligations not to compete with HAS for its accounts. The parties have devoted a significant portion of the briefs to Indiana's requirements for piercing the corporate veil. The court does not believe that HAS's claim against DelSoft depends on showing grounds for piercing Bridgton's corporate veil. Plaintiff does not seek relief from DelSoft for Bridgton's actions. Instead, plaintiff argues that Bridgton's principal owners and officers, Rosemeyer and Giacchino, created DelSoft as a means for evading the promises that Rosemeyer and Bridgton made in their contracts with HAS.
In general, Indiana courts will disregard the legal fiction of a corporate entity in circumstances where a corporation is so organized and controlled and its affairs are so conducted that it is, in fact, a mere instrumentality or adjunct of another corporation or person. See, e.g., Henderson v. Sneath Oil Co., 638 N.E.2d 798, 802 (Ind.App. 1994); Stacey-Rand, Inc. v. J.J. Holman, Inc., 527 N.E.2d 726, 728 (Ind.App. 1988); Burger Man, Inc. v. Jordan Paper Products, Inc. 352 N.E.2d 821, 834 (Ind.App. 1976); Clarke Auto Co. v. Fyffe, 116 N.E.2d 532, 535 (Ind.App. 1954) (in banc); Feucht v. Real Silk Hosiery Mills, 12 N.E.2d 1019, 1021 (Ind.App. 1938).
HAS's claim in this case is remarkably similar to a claim approved by the Indiana Court of Appeals in Norlund v. Faust, 675 N.E.2d 1142, 1158 (Ind.App. 1997). In Norlund, optometrist Dr. Faust sued Dr. Ronald Norlund for violating a covenant not to compete with Dr. Faust after leaving his employ. The trial court enjoined Dr. Ronald Norlund from competing with Dr. Faust, but it also enjoined Dr. Dawn Norlund (Ronald's wife) and a company she controlled from competing with Dr. Faust. The Indiana Court of Appeals affirmed the trial court's determination that the preliminary injunction should properly extend to enjoin Dr. Dawn Norlund and her eye care business.
Evidence showed that Dr. Dawn Norlund used her business to assist Dr. Ronald Norlund in breaching the covenant not to compete. Upon accepting a job as Dr. Faust's "optometric liaison," Dr. Ronald Norlund had agreed to a covenant not to compete that prohibited him from engaging in similar work for a two-year period after the termination of his employment with Dr. Faust. Within two weeks after Norlund left his job with Faust, he made a $30,000 interest-free loan to his wife to help her start a secondary eye care business very similar to Dr. Faust's business.
The appellate court noted that Dr. Ronald Norlund never had an ownership interest in his wife's business, that he had never been in the business building while a patient was present, that he was not involved in the business's day-to-day operations, and that the business never employed him or paid him any compensation. Id. at 1147-48. On the other hand, the court noted that Dr. Ronald Norlund had done several things on behalf of the business. These included assisting in the recruiting of an optometric liaison, interviewing ophthalmologists, contacting hospital administrators concerning privileges at hospitals, assisting with the purchase of equipment, painting, and moving office furniture. Id. at 1148. Dr. Ronald Norlund also told one ophthalmologist that his wife's new business's referral network would consist of optometrists with whom he had developed relationships while he worked with Dr. Faust. Id. On balance, the court determined that the covenant not to compete governed the activities of Dr. Dawn Norlund and her business because of the "fundamental principle in Indiana that `[t]he law will not permit him to do indirectly, or through [others], what he could not do directly, by himself.'" Id. at 1158, quoting Eisel v. Hayes, 40 N.E. 119, 119 (Ind. 1895).
Judge Friedlander dissented from the portion of the opinion affirming the injunction against Dr. Dawn Norlund and her business. See 675 N.E.2d at 1159-60 (Friedlander, J., dissenting in part).
The court distinguished the Norlunds' actions from a situation in which there is no evidence that the covenanter was acting with or through the non-covenanting party that the plaintiff sought to enjoin. Id. The court stated:
If D. Norlund was already engaged in a secondary care optometric business before R. Norlund's covenant not to compete came into play, then that business would genuinely be hers. However, here the coincidences follow one on top of another. D. Norlund started the business shortly after R. Norlund left Faust; R. Norlund threatened to take business from Faust; R. Norlund loaned money to D. Norlund; R. Norlund contacted [the individual who became the optometrist liaison for D. Norlund's business]; R. Norlund wrote a letter to all optometrists in northeastern Indiana; R. Norlund performed services for ICL (albeit without compensation).Id.
Norlund is consistent with decisions from other jurisdictions dealing with similar efforts to evade covenants not to compete. For example, in In re Tennessee Pools Recreation, Inc. v. Mr. Pools, 36 B.R. 602 (Bankr. M.D. Tenn. 1983), Tennessee Pools was entitled to enforce a covenant not to compete against Lantroop Contracting Company. The owners of the Lantroop company then set up a new company, Mr. Pools, to compete with Tennessee Pools. The bankruptcy court held that the covenant not to compete should be enforced against the new company, Mr. Pools, because it was an alter ego of Lantroop, the company that had promised not to compete. Id. at 603.
Both companies had the same officers, and Lantroop had transferred its assets to Mr. Pools for no consideration. Mr. Pools used motor vehicles titled to Lantroop. In addition, Mr. Pools was not even chartered and incorporated until after plaintiff filed suit against it, and its advertisements directed callers to the telephone number of the Lantroop company. Also, Mr. Pools ceased operation after the bankruptcy court recommended that it be preliminarily enjoined from competing with plaintiff. These facts were sufficient to persuade the court not to allow evasion of the covenant not to compete by the creation of a new corporation to carry on the same business. Id. at 603. See also Ingredient Technology Corp. v. Nay, 532 F. Supp. 627, 632 (E.D.N.Y. 1982) (enforcing covenant not to compete against covenantor's wife and son where covenantor helped them set up businesses to compete with plaintiff); West Shore Restaurant Corp. v. Turk, 101 So.2d 123, 127-29 (Fla. 1958) (enforcing covenant not to compete against corporation set up to aid and abet evasion of the covenant).
Other courts have endorsed this general theory but have found in the cases before them that the facts were not egregious enough to apply the covenants not to compete to related entities. See Alexander Alexander, Inc. v. Danahy, 488 N.E.2d 22, 30-31 (Mass.App. 1986) (collecting cases in which covenants not to compete were enforced against business entities that were alter egos of the covenanting party and that were created for the purpose of competing; "Depending upon the circumstances, a stranger to a noncompetition agreement who is aware of the agreement may be enjoined from violating the agreement."). In H.G. Fenton Material Co. v. Challet, 121 P.2d 788, 790-91 (Cal.App. 1942), the court explained:
One who is in no sense a party to the covenant cannot properly be restrained from carrying on such competing business although he may properly be restrained from aiding the covenanter in violating the covenant or from employing the covenanter in such a way as would involve a breach of the covenant or from engaging in a competing business, in partnership with, or as an agent or employee of the seller. The court may, where the contract is valid, enjoin the party complained of not only from violating its terms but also from employing or combining with others to accomplish the same result. The rule that a stranger to a restrictive covenant can properly be enjoined from engaging in business with a covenanter so as to result in a breach of the covenant applies to corporations. Ordinarily, however, the corporation should not be enjoined from conducting a business independently of the covenanter, unless the circumstances are such that the corporation is to be regarded as the alter ego of the covenanter or a mere instrumentality by means of which the covenanter seeks to evade the agreement.
Accord, Otto v. Weber, 379 N.W.2d 692, 694 n. 1 (Minn.App. 1986) (recognizing that a covenant not to compete may be enforced against a corporation where an individual agrees not to compete and then sets up a corporation to evade the agreement).
Viewed in the light reasonably most favorable to plaintiff HAS, the facts in this case appear to be similar to those that supported the Indiana court's decision in Norlund. Giacchino and Rosemeyer did not incorporate DelSoft until after Bridgton had entered into the covenant not to compete with HAS. When Giacchino and Rosemeyer incorporated DelSoft, they owned approximately 95 percent of Bridgton's shares and approximately 70 percent of DelSoft's shares. Both men have served as Bridgton officers and directors throughout Bridgton's existence and served as DelSoft's only officers and directors for most of the time relevant to this suit. The actual operations of both Bridgton and DelSoft permit the inference that their operations were blended, at least when it came to work performed for HAS and/or USA Group. Rosemeyer began signing work orders on DelSoft's behalf for programmers that Bridgton had supplied to USA Group before DelSoft was even incorporated. Pl. Ex. 46. Although DelSoft had no clients when it was formed, within a few weeks its clients (other than HAS) were exactly the same as Bridgton's clients. Giacchino Dep. at 112-14. Shortly after Giacchino formed DelSoft, DelSoft became the actual employer or contractor of individuals who continued to be assigned to HAS under the HAS-Bridgton contracts. One programmer submitted a time sheet to HAS labeled "DelSoft Time Distribution Report" even though it later served as the basis for Bridgton's invoice to HAS. Giacchino Dep. at 143, 148, 176. Moreover, Bridgton stopped doing business shortly after DelSoft's incorporation. Bridgton's last invoice to USA Group for Bridgton's direct placements is identical to DelSoft's first invoice to USA Group for its placements. Compare Pl. Ex. 1 with Pl. Ex. 16. HAS received at least one set of invoices in a Federal Express package with a mailing label for DelSoft, and HAS employees who called Bridgton's offices were told they had reached DelSoft's office. Clark Dep. at 135.
The factual record here, again when viewed in the light reasonably most favorable to HAS, is also sufficient to distinguish the Seventh Circuit's decision in National Soffit Escutcheons, Inc. v. Superior Systems, Inc., 98 F.3d 262 (7th Cir. 1996). There the Seventh Circuit applied Indiana law and affirmed summary judgment in favor of a second corporation finding that it was not liable for the debts and the noncompetition covenants of another related corporation. Neither the doctrine of piercing the corporate veil nor the theory of a successor corporation justified relief against the new company. With respect to successor corporation liability, the Seventh Circuit explained:
Generally, when one corporation transfers or sells its assets to another, the latter corporation does not assume the debts and liabilities of the former. [Winkler, 638 N.E.2d 1228.] However, courts will impose liability where there exists: (1) an implied or express agreement to assume the obligation; (2) a fraudulent sale of assets done for the purpose of escaping liability; (3) a purchase that is a de facto consolidation or merger; or (4) instances where the purchaser is a mere continuation of the seller.98 F.3d at 266. The Seventh Circuit found that the second corporation in National Soffit had not acquired any meaningful assets from the first, including business contracts. Id. at 266-67. Because the plaintiff had presented only conclusory declarations in support of its successor liability theory, the Seventh Circuit affirmed summary judgment for the second corporation. Id. at 267-68.
In this case, by contrast, a significant quantity of specific evidence described above would allow a jury to find that Bridgton quickly and almost seamlessly transferred most of its consulting business to DelSoft. Especially in light of Rosemeyer's discussions with USA Group's Pflanzer about the HAS noncompetition covenants, a jury could find that Bridgton transferred its business relationships to DelSoft as a means for evading its covenants not to compete with HAS.
Viewing the facts in the light reasonably most favorable to plaintiff HAS, the court finds sufficient evidence to support HAS's theory that Rosemeyer and Giacchino created DelSoft and used it as a means to continue Bridgton's business while evading the covenants not to compete in the HAS-Bridgton contracts.
If parties to a contract were free to evade their contractual obligations by such a mechanism, the acts of bargaining for and assenting to a contract's terms would be rendered meaningless. See generally, Norlund, 675 N.E.2d at 1148. The court therefore denies DelSoft's motion for summary judgment on HAS's breach of contract claim against it.
II. Tortious Interference with Business Relationship
Plaintiff HAS alleges in count three of its amended complaint that defendants Bridgton and DelSoft tortiously interfered with HAS's relationship with USA Group by placing consultants directly at USA Group. HAS must prove the following five elements to prevail on this claim against Bridgton and/or DelSoft: (1) the existence of a valid business relationship between the plaintiff and USA Group; (2) the particular defendant's knowledge of that relationship; (3) the particular defendant's interference in the relationship; (4) the absence of any justification for the interference; and (5) damages resulting from the interference. Def. Br. at 28-29; Pl. Br. at 22; Flintridge Station Associates v. American Fletcher Mortgage Co., 761 F.2d 434, 440-41 (7th Cir. 1985) (applying Indiana law). The parties dispute whether a plaintiff must also show that the defendant's actions were illegal to prevail on a claim for tortious interference with a business relationship, as distinct from tortious interference with a contract.
Although the Supreme Court of Indiana has not addressed the issue directly, the weight of authority suggests that a plaintiff alleging tortious interference with a business relationship must prove the defendant acted illegally in achieving its end. See Harvest Life Insurance Co. v. Getche, 701 N.E.2d 871, 876-77 (Ind.App. 1998), citing Watson Rural Water Co. v. Indiana Cities Water Corp., 540 N.E.2d 131, 139 (Ind.App. 1989); see also Spier v. Home Insurance Co., 404 F.2d 896, 898 (7th Cir. 1968) (applying Indiana law, "it is critical that there the defendant acted illegally in achieving his end"); Butts v. Oce-USA, Inc., 9 F. Supp.2d 1007, 1012 (S.D.Ind. 1998) ("In addition, `it is critical that the defendant acted illegally in achieving his end.'"), quoting Economation, Inc. v. Automated Conveyor Systems, Inc., 694
F. Supp. 553, 556-57 (S.D.Ind. 1988); Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp.2d 667, 686 (S.D.Ind. 1998) (requiring unlawful act); Furno v. Citizens Insurance Co. of America, 590 N.E.2d 1137, 1140 (Ind.App. 1992); Johnson v. Hickman, 507 N.E.2d 1014, 1019 (Ind.App. 1987); Biggs v. Marsh, 446 N.E.2d 977, 983 (Ind.App. 1983). Cf. Comfax Corp. v. North American Van Lines, Inc., 587 N.E.2d 118, 124 (Ind.App. 1992) (not mentioning illegality as an element); Near East Side Community Org. v. Hair, 555 N.E.2d 1324, 1331-32 (Ind.App. 1990) (same); Fields v. Cummins Employees Federal Credit Union, 540 N.E.2d 631, 641 (Ind.App. 1989) (same). This court will follow the weight of recent authority in holding that HAS must show that the defendants acted unlawfully to prevail on its tortious interference claim.
HAS relies heavily on the lack of any reference to "illegality" in Bochnowski v. Peoples Federal Savings Loan Ass'n, 571 N.E.2d 282, 284-85 (Ind. 1991), but the Supreme Court of Indiana was dealing in that case with tortious interference with a contract. The court's silence as to "illegality" provides no additional guidance on tortious interference with a business relationship.
The real legal question is whether a breach of contract amounts to "illegality" sufficient to support a claim for tortious interference with a business relationship. Indiana recognizes in most situations that a party to a contract is free to breach the contract subject to a duty to pay damages to make the other party whole. In Winkler v. V.G. Reed Sons, Inc., 638 N.E.2d 1228, 1235 (Ind. 1994), the court found that the plaintiff should be left to his remedies for breach of contract. The court held that a purchaser of a corporation's assets could not be held liable for tortiously interfering with an employee's contract with the seller even if the seller breached its contract as a result of the sale of assets. That reasoning is a strong indication that the Indiana courts would not consider breach of contract alone to be a sufficient "illegal act" to support a claim for tortious interference with business relationships. The Indiana courts would instead leave the plaintiff to its contract remedies.
Because plaintiff has come forth with no evidence that either defendant acted illegally, the court grants summary judgment to both defendants on plaintiff's claims for tortious interference with business relationship.
III. HAS's Damages
Under the court's reasoning thus far, only HAS's claim against DelSoft for breach of contract survives the motion for summary judgment. The defendants argue they are entitled to summary judgment on any surviving claim because HAS cannot prove it suffered any measurable damages as a result of the defendants' conduct. Defendants cite portions of Pflanzer's affidavit stating that USA Group would not have hired more consultants from HAS because HAS did not have qualified candidates and because HAS's prices were too high. Pflanzer Aff. ¶¶ 4-6. Alternatively, the defendants argue that even if any of HAS's claims survive summary judgment on other grounds, summary judgment still should be granted because HAS's claims for damages are too speculative. Def. Br. at 33, citing Clark Dep. at 108-09 and Sammons Communications of Indiana, Inc. v. Larco Cable Construction, 691 N.E.2d 496, 498 (Ind.App. 1998) ("Damages may not be awarded on guess or speculation but must be ascertainable with reasonable certainty.").
Viewing the evidence in the light reasonably most favorable to the plaintiff, defendants' first argument is not persuasive. USA Group's Pflanzer testified in his deposition that if DelSoft had not provided the number of consultants it provided to USA Group, USA Group would have tried to hire consultants from other vendors, including HAS. Pflanzer Dep. at 80. Pflanzer also testified that if HAS had been able to provide the consultants that DelSoft provided, USA Group would have hired the consultants from HAS. Id. at 81. Although Pflanzer opined that HAS's rates "probably" would have been higher than DelSoft's rates, he testified that he could have negotiated for a lower rate, and he stopped short of stating that HAS's rates would have precluded USA Group from hiring consultants from HAS. Id. Moreover, Pflanzer actually did hire a significant number of programmers through HAS. In light of Pflanzer's actions and his deposition testimony on this point, the court cannot treat as undisputed Pflanzer's statement in his affidavit that USA Group would not have hired any more consultants from HAS.
The more troubling argument for defendants is that any damages that might be awarded to HAS are too speculative to survive summary judgment. In addition to relying on Sammons Communications, the defendants cite the following portion of Clark's deposition to support this argument:
Q Okay. I want you to assume that Bridgton didn't offer these people to you. They didn't offer them to USA Group, and that they didn't fill any positions at USA Group. And I was asking you if you, under those circumstances, had any way of determining how many additional positions HAS would have filled?
MR. CLEMENS: Objection, calls for speculation.
A We would have filled as many as we possibly could have by engaging our subcontractors.
Q How many do you think that would be?
A That would be like pulling numbers out of the sky.
Clark Dep. at 108-09.
The court rejects the defendants' argument. Under Indiana law, in the absence of an enforceable liquidated damages clause, lost profits are a proper measure of damages in actions involving covenants not to compete. Turbines, Inc. v. Thompson, 684 N.E.2d 254, 257 (Ind.App. 1997). Lost profits may still be awarded even if the amount is uncertain so long as there is a sufficient basis for the factfinder to make a fair and reasonable determination. Id. at 258, citing Farm Bureau Mutual Insurance Co. v. Dercach, 450 N.E.2d 537 (Ind.App. 1983). Although Clark's testimony foreshadows the difficulty HAS may have proving its damages to a jury at trial, the court will not construe it at the summary judgment stage in a manner that completely forecloses HAS's opportunity to prove its damages. Clark's testimony was based on the assumption that Bridgton/DelSoft would not have provided any further programmers to USA Group. If HAS can prove that DelSoft is liable for breach of contract as Bridgton's alter ego, HAS may have a viable damage claim based on profits it might have made from those programmers that DelSoft actually did provide to USA Group by bypassing HAS.
Simply put, HAS is entitled to an opportunity to show that it would have earned DelSoft's fees if DelSoft had not violated the covenant not to compete in the HAS-Bridgton contracts. A claim for damages limited to lost profits on the programmers that DelSoft actually provided directly to USA Group might not cross the boundary that separates reasonable estimates from guesswork and speculation. See Turbines, 684 N.E.2d at 257.
Defendants' arguments concerning damages in this case would apply to most cases involving the breach of a covenant not to compete. Although the serious difficulties involved in determining damages often weigh in favor of injunctive relief to enforce a valid covenant, it is not always impossible as a matter of law to prove damages. The damages arguments are not grounds for denying HAS's surviving claim at the summary judgment stage.
IV. Bridgton's Counterclaim Against HAS
Bridgton asserts a counterclaim against HAS for breaching the HAS-Bridgton contracts by failing to pay Bridgton for services that Osso and Fleming provided HAS between July 1997 and February 1998. Bridgton seeks more than $90,000 in principal, as well as prejudgment interest on that amount.
HAS concedes that Bridgton provided it with the services of Osso and Fleming until approximately September 1, 1997, and February 6, 1998, respectively. HAS also concedes that it stopped paying Bridgton for their services in July 1997 because it believed that Bridgton and DelSoft were violating the covenants not to compete in the HAS-Bridgton contracts. HAS argues, however, that even if Bridgton is entitled to judgment on its breach of contract claim, summary judgment on the counterclaim would not be justified because Bridgton had a duty to mitigate its damages after HAS informed Bridgton in the summer of 1997 that it would not pay further invoices from Bridgton if Bridgton continued to supply programmers directly to USA Group. HAS's Clark testified that when he talked to Bridgton's Giacchino, he gave Bridgton three choices: (1) leave at USA Group its programmers it had placed there directly and not be paid by HAS; (2) remove from USA Group all programmers it had placed there directly; or (3) "rectify its standing with HAS." As HAS views things, Bridgton made its choice. It left at USA Group the programmers it had placed there directly, so HAS did not pay Bridgton.
The problem with this argument is that HAS continued to accept performance by Bridgton. HAS also continued to bill USA Group for Osso's and Fleming's services and continued to accept payment from USA Group for those services. The court understands HAS's desire to hold the payments to Bridgton as hostages or set-offs in its wider dispute with Bridgton. The court also understands HAS's apparent desire not to upset its client by disrupting the services from Osso and Fleming. But HAS's mitigation argument does not make sense where everyone continued to perform (despite the alleged breach), and where HAS continued to accept the performance by Bridgton and the payments from USA Group. Regardless of who prevails on HAS's claims for breach of contract, the undisputed facts show that Bridgton provided services to HAS, that HAS continued to accept that performance, and that HAS has failed to pay Bridgton for those services. Bridgton is entitled to summary judgment on its counterclaim for the principal sum owed, plus prejudgment interest.
Based on HAS's responses to defendants' statement of undisputed facts, it appears that there is a dispute over a few hundred dollars of the principal. See Pl. Resp. to Nos 157-165 (questioning June 13, 1997, invoice, of which $508.50 remained unpaid). The court will address resolution of that issue at the pretrial conference.
Conclusion
For the reasons set forth above, the defendants' motion for summary judgment is GRANTED with respect to all claims except HAS's breach of contract claim against defendant DelSoft. After conferring with counsel in the near future, the court will set new dates for a final pretrial conference and trial.
So ordered.