Tradesmen International, Inc. v. Kahoe, Unpublished Decision (3-16-2000)
Tradesmen International, Inc. v. Kahoe, Unpublished Decision (3-16-2000)
Dissenting Opinion
While I agree with Part IV of the majority decision, I respectfully dissent from the remainder of the decision for the simple reason that the conclusions rendered by the majority are contrary to law and the notion of "substantial justice". The majority erred in finding: (1) this court's review of the character and purpose of contempt sanctions is limited by the label (either "civil" or "criminal") affixed to the sanction by the parties and Judge Jose Villanueva; and (2) the sanctions are "civil" in nature, rather than "criminal," because they are "remedial" in character and "coercive" in purpose. Moreover, because I conclude that the sanctions imposed are criminal in nature, Tradesmen's attorney should not have prosecuted the action and, as a result, could not recover attorney fees.
The underlying difficulty with this case is Tradesmen's failure to properly draft the contractual remedies available upon a party's violation of the settlement agreement. It waived monetary damages not just in the original non-competition agreement, it waived them a second time in the consent judgment. In addition to waiving damages, Tradesmen also failed to provide for any other remedy upon Kahoe's or Cherotti's violation of the agreed injunction. "[A] settlement agreement is a contract designed to terminate a claim by preventing or ending litigation[;] * * * such agreements are valid and enforceable by either party."Continental W. Condominium Unit Owners Assn. v. Howard E.Ferguson, Inc. (1996),
Unlike most areas of law, where a legislature defines both the sanctionable conduct and the penalty to be imposed, civil contempt proceedings leave the offended judge solely responsible for identifying, prosecuting, adjudicating, and sanctioning the contumacious conduct. Contumacy "often strikes at the most vulnerable and human qualities of a judge's temperament," Bloom,
391 U.S., at 202 ,88 S.Ct., at 1482 , and its fusion of legislative, executive, and judicial powers "summons forth * * * the prospect of `the most tyrannical licentiousness,'" Young v. United States ex rel. Vuitton et Fils S.A.,481 U.S. 787 ,822 ,107 S.Ct. 2124 ,2145 ,95 L.Ed.2d 740 (1987) (SCALIA, J., concurring in judgment), quoting Anderson [v. Dunn], 6 Wheat. [204], at 228, [5 L.Ed. 242 (1821)]. [Bagwell,512 U.S. at 831-832 ,114 S.Ct. at 2559 .]
Given this potential, the reason a reviewing court must conduct an independent review is obvious: if appellate review is limited to a trial judge's characterization of a sanction as "civil," when in fact and law it is "criminal," then the application of the protections afforded to the citizenry by the federal and state constitutions are left entirely to the discretion of the trial judge. Cf. Hicks,
While I acknowledge that a criminal contempt sanction is usually characterized by an unconditional prison sentence,4Brown,
With regard to the first sanction, the majority contends that "extending the terms of the noncompetition agreements for an additional six month period is a classic example of [a] civil contempt sanction serving to coerce the defendant into compliance with the court's order," and they conclude that the sanction is remedial because it "restored the status quo between the parties" (Decision at 4-6 [emphasis added]). However, because the terms of the consent decree expired or were about to expire, logic dictates that there was nothing to comply with. Because this sanction essentially rewrites the terms of the parties' original consent judgment entry rather than enforces it, this first sanction serves both to punish Kahoe and Cherotti for their alleged violation of the consent judgment entry and to vindicate the authority of the court.
I acknowledge, however, that the prospective nature of the sanction, an additional six-month period of semi-competition-free business, appears to benefit Tradesmen — a trait which would signify a civil contempt remedy — and "restores the status quo" as the majority contends. This, however, is illusory.
Tradesmen apparently sought to extend the terms of the consent judgment solely because it had agreed that any injury due to a breach of the terms of the Confidentiality and Non-competition Agreements (later incorporated into the consent judgment and settlement agreement) would "not be susceptible to monetary evaluation." Therefore, it waived recovery for any monetary damages it may have incurred as a result of defendants' breach of the non-competition agreements and subsequent breach of the consent judgment. Tradesmen's intent in seeking an extension of the clause and restraining Kahoe's and Cherotti's business dealings as an alternative means of compensation is not dispositive of the character and purpose of the sanction. SeeConTex,
The judge also ordered Kahoe and Cherotti to sever any current formal and informal business relationship with each other, including those with a potential conflict with Tradesmen; he also restrained these defendants from entering into any contractual relationship with each other or their intermediaries to manage, operate, or administer such business during the six-month period. These sanctions appear, at first blush, to be coercive in nature because they require future compliance with an order of the court. A sanction ensuring future compliance would denote indirect civil contempt. However, the future compliance these sanctions require is with the second extension of the non-competition clause, the first sanction, rather than the original consent judgment entry. As such, they serve to further the purpose of punishment. In addition, a violation of one of these sanctions would necessarily result in a violation of the extension of the non-competition clause. Therefore, these sanctions also denote indirect criminal contempt.
Because the sanctions imposed are criminal contempt sanctions, I would remand this action for further hearing and application of the proper burden of proof.
It is a well-settled rule that, absent explicit statutory authority or a showing that "the losing party has acted in bad faith, vexatiously, wantonly, obdurately, or for oppressive reasons," attorney fees are not recoverable as part of the costs of an action. Sorin v. Board of Ed. of Warrensville Hts. Sch.Dist. (1976)
It is doubtful that attorney fees are available in matters involving purely criminal contempt sanctions. The reason is simple: "proceedings at law for criminal contempt are between the public and the defendant, and are not a part of the original cause." Gompers,
Between the private life of the citizen and the public glare of criminal accusation stands the prosecutor. That state official has the power to employ the full machinery of the state in scrutinizing any given individual. Even if a defendant is ultimately acquitted, forced immersion in criminal investigation and adjudication is a wrenching disruption of everyday life. For this reason, we must have assurance that those who would wield this power will be guided solely by their sense of public responsibility for the attainment of justice. A prosecutor of a contempt action who represents the private beneficiary of the court order allegedly violated cannot provide such assurance, for such an attorney is required by the very standards of the profession to serve two masters.
Young v. U.S. ex rel. Vuitton et Fils S.A. (1987),
Tradesmen has argued that it is entitled to its attorney fees through the consent judgment and incorporated non-competition contracts. However, Tradesmen chose not to enforce the judgment. As noted above, due to its poorly drafted settlement agreement, it was left without monetary compensation for the alleged violation and, as a result, was left with little of the settlement agreement to enforce. Rather, Tradesmen sought to punish Kahoe and Cherotti by pursuing an action in criminal contempt. Therefore, because Tradesmen did not assert its rights under the consent judgment, it is not entitled to attorney fees in accordance with its terms.
Based upon the foregoing, I respectfully dissent from parts I, II and III of the majority opinion, and concur with part IV.
[C]onstitutional protections for criminal defendants other than the double jeopardy provision apply in nonsummary criminal contempt prosecutions just as they do in other criminal prosecutions. See, e.g., Gompers v. Bucks Stove Range Co.,
221 U.S. 418 ,444 ,31 S.Ct. 492 ,499 ,55 L.Ed. 797 (1911) (presumption of innocence, proof beyond a reasonable doubt, and guarantee against self-incrimination); Cooke v. United States,267 U.S. 517 ,537 ,45 S.Ct. 390 ,395 ,69 L.Ed. 767 (1925) (notice of charges, assistance of counsel, and right to present a defense); In re Oliver,333 U.S. 257 ,278 ,68 S.Ct. 499 ,510 ,92 L.Ed. 682 (1948) (public trial). We think it obvious, and today hold, that the protection of the Double Jeopardy Clause likewise attaches. Accord, Menna v. New York,423 U.S. 61 ,96 S.Ct. 241 ,46 L.Ed.2d 195 (1975) (per curiam); Colombo v. New York,405 U.S. 9 ,92 S.Ct. 756 ,30 L.Ed.2d 762 (1972) (per curiam).
See Garfield Hts. v. Stefaniuk (1998),
Opinion of the Court
Tradesmen later learned that both defendants had started a new company called Electricians Unlimited ("EU") that directly competed against it by leasing electricians. Defendants started this new company before the expiration of the noncompetition agreements as set forth in the consent decree. Tradesmen filed a motion to show cause why defendants should not be held in contempt for failing to abide by the consent decree. The court conducted a hearing and found both defendants in contempt. It ordered defendants to sever all ties to customers it lured away from Tradesmen, extended the noncompetition agreements for an additional six months, restrained each defendant from entering into contracts with the other or their intermediaries to operate any business enterprise coming within the reach of the noncompetition agreements, and awarded Tradesmen $51,459.78 in uncontested attorney fees. Defendants appeal and contest all parts of the court's contempt citation.
The distinction between civil and criminal contempt is not always apparent, and even the United States Supreme Court has stated, "[a]lthough the procedural contours of the two forms of contempt are well established, the distinguishing characteristics of civil versus criminal contempts are somewhat less clear."International Union, United Mine Workers of America v. Bagwell
(1994),
The preceding discussion presupposes there is a colorable claim that the contempt proceedings below were criminal in nature. The facts do not support this presupposition. The court's order extending the terms of the noncompetition agreements for an additional six month period is a classic example of civil contempt sanction serving to coerce the defendant into compliance with the court's order.
In Brown v. Executive 200, Inc., the Ohio Supreme Court stated:
While both types of contempt contain an element of punishment, courts distinguish criminal and civil contempt not on the basis of punishment, but rather, by the character and purpose of the punishment. Punishment is remedial or coercive and for the benefit of the complainant in civil contempt. Prison sentences are conditional. The contemnor is said to carry the keys of his prison in his own pocket since he will be freed if he agrees to do as ordered. Criminal contempt, on the other hand, is usually characterized by an unconditional prison sentence. Such imprisonment operates not as a remedy coercive in its nature but as punishment for the completed act of disobedience, and to vindicate the authority of the law and the court. Therefore, to determine if the sanctions in the instant cause were criminal or civil in nature, it is necessary to determine the purpose behind each sanction: was it to coerce the appellees to obey the consent judgment decree, or was it to punish them for past violations?
Here, the court's actions were intended to force defendants' compliance with the terms of a consent decree. In that decree, defendants agreed that, as part of their wish to "terminate the lawsuit and settle and adjust any and all claims that may exist" they would abide by the terms of noncompetition agreements they signed with Tradesmen.
We think there is little doubt the court's contempt citation was designed to coerce defendant's into complying with the noncompetition agreements. The court's order stated that defendant's "contemptuous and recalcitrant behavior" in violating the consent decree required "substantial court intervention." In its findings of fact, the court scrupulously detailed numerous instances where both defendants violated the terms of the noncompetition agreements. Defendants hired roofers in violation of the noncompetition agreements. They dispatched electricians and electrician apprentices in violation of the noncompetition agreements. One of the defendants admitted making as many as fifty telephone calls in an attempt to develop his client base in the construction industry, an activity that violated the noncompetition agreements.
Because the terms of the noncompetition agreements against defendant Kahoe had expired and, in the case of defendant Cherotti, would have expired only sixteen days after the court's contempt findings, it might be argued that the court's decision to reinstate the noncompetition agreements for an additional six month period constituted a form of punishment, thus demonstrating criminal contempt. We would reject such an argument on grounds that the court's order is remedial in nature, not punitive.
The supreme court has said civil contempt contains an element of punishment, See Brown,
Ordinarily, criminal contempt is characterized by an unconditional prison sentence. Brown,
We therefore find neither the court nor the parties erred by considering the contempt citation imposed on defendants to be civil in nature.
Civil contempt must be established by clear and convincing evidence. Morford v. Morford (1993),
The court issued detailed findings of fact and conclusions of law showing it had more than enough evidence from which it could find by clear and convincing evidence that defendants violated the consent decree. The decree provided that "Kahoe and Cherotti shall abide by and obey the terms" of their employment contracts. Those contracts prohibited them from carrying on or engaging in any business that, either directly or indirectly, competes with Tradesmen by providing "skilled trades persons and safety related products to companies or individuals who require their service."
Tradesman is in the business of providing skilled workers to the construction industry. It provides skilled construction workers either by placing individual workers on an "as needed" basis or by agreeing to hire the entire workforce of a company and assuming all administrative requirements (tax withholding, workers' compensation, unemployment compensation, pensions, etc.) and leasing those employees back to the employer.
Cherotti joined Tradesmen in 1993; Kahoe joined Tradesmen, at Cherotti's suggestion, in 1995. Both signed noncompetition agreements that generally described Tradesmen's business as a construction labor contracting company which provides skilled tradespeople and safety-related products to companies or individuals requiring that service. Both agreed that they would not:
"carry on, engage in, own, manage, operate., finance, consult, or contract with any business which is engaged in [the same business as Tradesmen] * * * or to solicit any customer or supplier of [Tradesmen] to cease doing business with [Tradesmen] * * *.
Kahoe resigned in April 1996., and near the end of 1996, Tradesmen learned that Kahoe had started his own business called Outsource, Inc., a business that competed directly against Tradesmen. Although Cherotti remained on the Tradesmen payroll, Cherotti not only permitted Kahoe to use the basement of his home to operate Outsource, Inc., but planned to quit Tradesmen and go into business with Kahoe. The two were using modified forms taken from Tradesmen and had contacted a Tradesmen employee with an offer to pay that employee $500 for any business leads. Defendants contacted some companies doing business with Tradesmen and managed to win over some of Tradesmen's business.
At this point, Tradesmen sought a restraining order. Defendants originally indicated a desire to challenge the validity of the noncompetition agreements but, after an evidentiary hearing, the parties entered into a consent decree, dated January 17, 1997, reaffirming the noncompetition agreements and agreeing to abide by them. The consent decree specifically provided that both defendants would abide by the terms of the noncompetition agreements beginning January 3, 1997, rather than from the respective dates that their employment with Tradesmen terminated. The consent also provided that Kahoe's term of noncompetition would run for only six months.
In October 1997, the court held hearings on Tradesmen's motion to hold both defendants in contempt for violating the consent decree. The court's findings of fact show Kahoe incorporated Electricians Unlimited in January 1997, with the specific purpose of entering into competition with Tradesmen. The court found Kahoe not only intended to copy Tradesmen's business, but modified a Tradesmen's "Client Services Agreement" and adapted it for his own use.
Cherotti formed his own company called Outsource Computer Upgrade Services, Inc. and allied himself closely with Kahoe's Outsource, Inc. They conducted their businesses from the same premises, and Kahoe leased office space from Cherotti. Cherotti's wife was an original incorporator of Kahoe's Electricians Unlimited, and she also worked for Kahoe by preparing brochures and creating an internet web site for Kahoe. Cherotti's sister also worked for Kahoe, performing secretarial tasks.
The court found that three of the accounts managed by Cherotti during the time he worked for Tradesmen left Tradesmen and became accounts for Electricians Unlimited. The evidence also showed that Kahoe leased out roofers, persons directly involved in the construction trade. Moreover, his Electricians Unlimited leased out "telecommunications technicians," a group of workers the court found were skilled workers who performed much the same work as electricians and could therefore be considered part of "construction labor" as that term was used in the noncompetition agreements.
Defendants primarily complain about the court's finding that telecommunications workers were the functional equivalent of electricians. They claim these workers do not compete directly with electricians and therefore do not fall within the noncompetition agreements.
We defer to the court's factual findings. See C.E. Morris Co.v. Foley Constr. Co. (1978),
We find the court's factual findings fully supported by the record. Hence, the court did not abuse its discretion by finding defendant's in contempt of the consent decree. The first and second assignment of error should be overruled.
Given the court's wide discretion in imposing contempt citations, it follows that the courts are given fairly wide discretion in fashioning appropriate remedies and punishments. A court may hold a party in contempt for failure or refusal to comply with its orders and may impose such penalties as are reasonable and just. See Marshall v. Marshall (1997),
The evidence showed that neither defendant complied with the terms of the consent decree and actively violated the terms of their non-competition agreements after signing the consent decree. Although the six month terms of the noncompetition agreements either expired at the time the court conducted the contempt hearing or were about to expire, the court's failure to further impose the actual terms of the non-competition agreements may well have nullified those agreements. In other words, had the court not extended those agreements, defendants' violation of the consent decree would have been a contempt of a court order with no repercussions.
Moreover, the court recognized that both defendants were likely to engage in future collusive activity, particularly given their past conduct under the consent decree. The court stated:
However, the court finds that the continuing close relationship that exists between these two individuals, particularly while they are both enjoined from competing with Tradesmen is fraught with opportunities for improper cooperation and collusion. In light of the ample record evidence of other violations of the defendants' Confidentiality and Non-Competition Agreements and the January 22, 1997 Injunction and Judgment Entry On Consent, the court finds that there is a need to impose some condition which will help in monitoring the future collusive behavior of defendants Cherotti and Kahoe.
The court's findings are amply supported by the record and do not constitute an abuse of discretion under the circumstances. The third assignment of error is overruled.
Defendants waived the right to contest attorney fees when they withdrew any objection to Tradesmen's motion for attorney fees. Upon issuing its findings of fact and conclusions of law relating to the contempt ruling, the court ordered Tradesmen to file a motion for attorney fees within five days and ordered defendants to respond to the motion within five days. Defendants originally requested a hearing be held on the motion, but subsequently withdrew their objection stating they "hereby 1) withdraw their Motion for a Hearing on Plaintiff's Application for Attorney Fees and costs and 2) request that judgment be entered against them in an amount deemed appropriate."
As this quoted language demonstrates, defendants waived the right to challenge the imposition and amount of fees by withdrawing their objection to Tradesmen's motion for attorney fees. Opposing counsel's objection to attorney fees in the lower court is a prerequisite to appellate review. See, e.g., Procterv. Procter (1988),
The general rule is that where the meaning of terms of a settlement agreement is disputed, or where there is a dispute that contests the existence of a settlement agreement, a trial court must conduct an evidentiary hearing prior to entering judgment. Rulli v. Fan Co. (1997),
This distinction is important, for the defendants had the opportunity to contest the validity of the noncompetition agreements before agreeing to abide by them. Once they entered into the consent decree, they forfeited the right to question the validity of the noncompetition agreements. In Association ofCommunity Orgs. for Reform Now v. Edgar (C.A.7, 1996),
A party to a consent decree or other judgment entered by consent may not appeal unless it explicitly reserves the right to appeal. The purpose of a consent judgment is to resolve a dispute without further litigation, and so would be defeated or at least impaired by an appeal. The presumption, therefore, is that the consent operates as a waiver of the right to appeal. It is because the parties should not be left guessing about the finality and hence efficacy of the settlement that any reservation of a right to appeal should be explicit.
See, also, Slaven v. American Trading Transp. Co., Inc. (C.A.9, 1998),
The court considered this same claim and rejected it on the basis that defendants' execution of the consent decree did not specifically reserve the right to contest the validity of the noncompetition agreements. The court correctly noted defendants agreed "to abide by and obey the terms of those agreements as written * * *." With no reservation of the right to contest the noncompetition agreements, we find the court did not err by refusing to entertain a challenge to them. The fifth assignment of error is overruled.
Judgment affirmed.
It is ordered that appellees recover of appellant their costs herein taxed.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the Court of Common Pleas to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.
LEO M. SPELLACY, J. CONCURS, ANNE L. KILBANE, J., CONCURSIN PART AND DISSENTS IN PART. SEE CONCURRING AND DISSENTINGOPINION, ANNE L. KILBANE, J., ATTACHED.________________________________ JOHN T. PATTON, PRESIDING JUDGE
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