UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-2028
WESTERN INSULATION, LP,
Plaintiff - Appellee,
versus
HAL MOORE; MELANIE MOORE,
Defendants - Appellants.
No. 06-2075
WESTERN INSULATION, LP,
Plaintiff - Appellant,
versus
HAL MOORE; MELANIE MOORE,
Defendants - Appellees.
Appeals from the United States District Court for the Eastern
District of Virginia, at Richmond. James R. Spencer, Chief
District Judge. (3:05-cv-00602-JRS)
Argued: May 24, 2007 Decided: July 25, 2007
Before MICHAEL, Circuit Judge, WILKINS, Senior Circuit Judge, and
David C. NORTON, United States District Judge for the District of
South Carolina, sitting by designation.
Affirmed in part, reversed in part, vacated in part, and remanded
by unpublished per curiam opinion.
ARGUED: John B. Simpson, MARTIN & RAYNOR, P.C., Charlottesville,
Virginia, for Appellants/Cross-Appellees. Stephen C. Tedesco,
LITTLER MENDELSON, P.C., San Francisco, California, for
Appellee/Cross-Appellant. ON BRIEF: Ronald S. Sofen, GIBBS, GIDEN,
LOCHER & TURNER, L.L.P., Los Angeles, California, for
Appellants/Cross-Appellees. Paul J. Kennedy, LITTLER MENDELSON,
P.C., Washington, D.C.; Mendy L. Mattingly, LITTLER MENDELSON,
P.C., San Diego, California, for Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Hal and Melanie Moore appeal a judgment against them in an
action brought by Western Insulation, LP (“Western”), for the
Moores’ alleged breaches of certain non-compete agreements.
Western cross-appeals the decision of the district court to deny
its request for injunctive relief. We affirm in part, reverse in
part, vacate in part, and remand for further proceedings.
I.
In March 2001, Hal, as sole shareholder of the San Diego
insulation company Western Insulation, Inc. (“Western, Inc.”),
entered into an agreement whereby Western, Inc. sold most of its
assets to Western, a wholly owned subsidiary of Service Partners,
LLC, for $41,990,000.00 (“the Sale Agreement”). At the time of the
Sale Agreement, Hal’s wife Melanie was an employee and the CFO of
Western, Inc. Pursuant to the Sale Agreement, both Moores entered
into identically worded Confidentiality, Non-Competition, and Non-
Solicitation Agreements (“the Non-Competes”), which, as is relevant
here, provided:
As consideration for and to induce the Partnership
to pay the consideration set forth in the Contribution
and Sale Agreement, Moore hereby covenants and agrees
that, except as the Partnership may expressly authorize
or direct in writing, he [/she] shall not, for a period
of seven (7) years from the date hereof (the “Non-Compete
Period”), directly or indirectly (a) own, manage,
operate, join, or control (or participate in the
ownership, management, operation or control of), any ...
business entity that, within the restricted territories
identified ..., which are the territories in which
3
[Western, Inc.] conducted business immediately prior to
the transactions set forth in the Contribution and Sale
Agreement, engages in the business of selling,
distributing or installing Restricted Products ... or (b)
serve as an employee, agent, consultant, officer,
director or representative of any such business entity
....
....
During the Non-Compete Period, Moore shall not directly
or indirectly:
A. employ or retain any individual who is or was
an employee or officer of [Western, Inc.] during the
twelve (12) month period immediately preceding the date
hereof ... [or]
B. contact, solicit or assist in the solicitation
of any [such] individual ....
J.A. 943-44, 951-52. The geographic scope of the ban was the state
of California and the area within a 125-mile radius of Phoenix,
Arizona. The agreement provided that it would be interpreted and
enforced in accordance with Virginia law.
Over more than 20 years, Hal had developed a close and
longstanding relationship with City National Bank. Melanie used
this relationship to help obtain financing for two insulation
companies that would compete with Western. In March 2005, she
signed a secondary personal guaranty for a $1.41 million line of
credit to assist Stephanie Schulkamp in forming one of those
companies, American Insulation, Inc. Schulkamp was a friend of
Melanie’s and had served for several years as a high-level employee
of Hal’s businesses, including Western, Inc. By virtue of Hal’s
ties to the bank, Melanie was able to obtain preferential treatment
4
for Schulkamp, who would not have been able to obtain the financing
without Melanie’s assistance. According to the loan guarantee
agreement, Schulkamp may earn only $90,000 per year and must obtain
Melanie’s consent to make any purchase for the company in an amount
exceeding $25,000. The agreement also entitles Melanie to certain
financial information regarding American.
In return for the guaranty, Schulkamp granted Melanie a
security interest in American’s assets and secured the guaranty
with her home and her shares in American. The parties’ agreements
prohibit Schulkamp from transferring any of this collateral without
Melanie’s consent. They further grant Melanie an option to
purchase 90 percent of the company for $9,000. The option may be
exercised between March 13, 2008 (the expiration date for her Non-
Compete) and March 5, 2010, or immediately if Melanie’s Non-Compete
is held to be unenforceable by a court of competent jurisdiction.
Melanie also signed a secondary personal guaranty for a $1.015
million commercial line of credit to help another former longtime
Western, Inc. employee, Dave Barnes, obtain financing to start his
own insulation business to compete with Western, Empire Insulation.
Melanie also advised Barnes concerning the loan amount he should
seek. As she did with Schulkamp, Melanie used the relationship Hal
had developed with City National Bank to obtain this financing for
Barnes, which he would not have received without her assistance.
5
Hal also had dealings with American and Empire after signing
his Non-Compete. Since 1984, Hal has owned a building in San Diego
that he used for many years as the headquarters for Western, Inc.
and several of his other businesses. Western was also
headquartered there for approximately three years, ending March 1,
2004. Following Western’s departure, much of the space in the
building remained vacant until Hal leased it to American in March
2005. Around that same time, State Insulation, Inc., another of
Hal’s businesses, leased trucks to American, and Hal also sold two
trucks to Empire.
Western subsequently brought suit against the Moores in
Henrico County, Virginia Circuit Court, alleging, as is relevant
here, that they violated their Non-Competes in their dealings with
American and Empire. Western sought, inter alia, money damages and
injunctive relief.
The Moores removed the action to federal district court, and
both parties moved for partial summary judgment. The court
purported to deny the motions, but in so doing, ruled that the
scope of the restrictive covenants was reasonable as a matter of
law. See Western Insulation, L.P. v. Moore, 2006 WL 208590, at *5-
*7 (E.D. Va. Jan. 25, 2006). The court noted “the vast difference
between restrictive covenants in employment agreements and
restrictive covenants in the context of a sale of a business,
particularly when sophisticated parties are involved.” Id. at *5.
6
The court ruled that the geographical scope of the covenants was
reasonable inasmuch as Western did business in approximately half
of the counties in California as well as in Phoenix and that it
advertises throughout California. See id. at *6. The court also
ruled the seven-year length was reasonable, noting that the length
of that period was an integral factor in Western’s decision to
purchase Western, Inc. for the price that it paid. See id.
Finally, the court noted that the covenants would not impose an
undue hardship on the Moores, who own several businesses, and that
public policy supported enforcement of the covenants considering
that they were negotiated and entered into by sophisticated parties
who were represented by counsel. See id. at *7 n.6.1
Following a non-jury trial, the court determined that
Melanie’s Non-Compete was adequately supported by consideration in
that she received the right to enter into an employment agreement
with Western as the result of signing her Non-Compete.2 The court
also found that both Moores breached their Non-Competes. Hal was
found to have breached his agreement by leasing his building and
1
The court ruled, however, that genuine issues of material
fact remained regarding whether Melanie’s Non-Compete was
supported by adequate consideration and whether the Moores
breached the Non-Competes. See id. at *7-*8.
2
The Sale Agreement provided that at closing Hal and Melanie
“shall execute and deliver to [Western] an employment agreement
containing terms mutually satisfactory to [Western] and him or
her.” J.A. 881. Melanie did indeed enter into an employment
agreement with Western.
7
his trucks to American, “contacting customers of Western ... (e.g.,
RHA) in order to determine whether additional insulation work was
available and providing work to Empire,” J.A. 868, selling trucks
to Empire, and hiring two former Western, Inc. employees. Melanie
was found to have breached her Non-Compete by making the loan
guaranties; securing a financial interest in American’s assets,
profits, and shares; securing an option to buy 90 percent of
American; having financial oversight and control over the company;
using former Western, Inc. employees and consultants for American
and Empire; and giving financial advice to Barnes. The district
court also determined that the Moores jointly violated the Non-
Competes by “provid[ing] their long-standing business contacts and
relationships” to Empire and American,3 id. at 870, and by
Melanie’s use of Hal’s longstanding relationship with City National
Bank to help secure financing for Empire and American. As we
discuss in greater detail below, the court awarded Western
$943,659.00 in money damages but denied injunctive relief.
II.
The Moores first argue that the district court erred in ruling
that Melanie’s right to enter into an employment agreement with
3
The district court specifically cited “City National Bank,
lawyer Frank Levin, long-time friend John Hardisty, insurance
provider Schell & Eckert, payroll service Paychex, insulation
supplier Guardian, and the car dealership Connell Chevrolet.” Id.
at 870.
8
Western was adequate consideration to support her Non-Compete.
Assuming arguendo that this right did not constitute adequate
consideration, we conclude that the Non-Compete was nevertheless
adequately supported.
Consideration supporting a promise need not benefit the
promisor himself. See Brewer v. First Nat’l Bank of Danville, 120
S.E.2d 273, 280 (Va. 1961); Restatement (Second) of Contracts § 71
cmt. e (1981). In fact, a promisee’s agreement to enter into a
contract with a party other than the promisor can be sufficient
consideration for a promise. See Restatement (Second) of
Contracts § 71 cmt. d, illus. 12. Here, the Sale Agreement
provided that Melanie was required at closing to execute the Non-
Compete, and indeed, the Non-Compete recited that her covenant was
“consideration for and to induce the Partnership to pay the
consideration set forth in the ... Sale Agreement.” J.A. 951. We
therefore conclude that Melanie’s Non-Compete was not unenforceable
for lack of consideration.4
III.
The Moores next contend that the district court erred in
determining that Hal violated his Non-Compete. In reviewing this
determination, we review the findings of the district court
4
The Moores also argue that the district court erred in
ruling as a matter of law at the summary judgment stage that the
restrictive covenants were reasonable in scope. We affirm that
ruling on the reasoning of the district court.
9
regarding “‘what the parties said or did’” for clear error, “‘while
principles of contract interpretation applied to the facts are
reviewed de novo.’” United States v. Martin, 25 F.3d 211, 217 (4th
Cir. 1994) (quoting L.K. Comstock & Co. v. United Eng’rs &
Constructors, 880 F.2d 219, 221 (9th Cir. 1989)). Applying this
standard, we find no valid basis for the determination that Hal
breached his Non-Compete in any manner other than by hiring two
former Western employees.5
The Moores do not deny that Hal leased property and trucks to
American and sold trucks to Empire. They argue, however, that the
actions did not amount even to “indirect[] ... participat[ion] in
the ownership, management, operation or control of” these
businesses. J.A. 943. We agree. Simply put, Western failed to
demonstrate that these transactions were anything more than arm’s-
length business transactions, which the Non-Competes do not
prohibit. Nor does the record support the finding that Hal
“contact[ed] customers of Western ... (e.g., RHA) in order to
determine whether additional insulation work was available and
providing work to Empire.” Id. at 868. The record reflects only
that Hal returned a telephone call made to him by RHA and gave
5
The district court found that Hal’s hiring of these
employees constituted a breach of his Non-Compete but that Western
failed to prove damages therefrom. The Moores do not dispute that
these hirings constituted breaches, and Western does not challenge
the determination that it failed to prove any damages therefrom.
10
Barnes a good recommendation in the process. Hal’s Non-Compete did
not prohibit such an action.
Additionally, no evidence justified a reasonable inference
that Hal jointly violated the Non-Competes with Melanie. Although
the district court found that Melanie used Hal’s preexisting
relationships with City National Bank to help finance American and
Empire, no evidence tended to show that Hal did anything to support
or even permit Melanie’s actions. His mere possession of a
relationship with the bank that preexisted his execution of his
Non-Compete certainly could not itself constitute a violation,
regardless of whether Melanie unilaterally took advantage of that
relationship. Indeed, Western’s failure to show that Hal knowingly
allowed Melanie to support Empire and American is what
distinguishes the present case from Rash v. Hilb, Rogal & Hamilton
Co., 467 S.E.2d 791 (Va. 1996), on which the district court relied.
There, the court held that the record was “replete with evidence”
that a man violated a covenant not to compete similar to Hal’s when
he knowingly allowed his wife to use his credit card, money,
automobile, and home to support a competing business. Rash, 467
S.E.2d at 794. Here, Hal did not offer any of his resources for
his wife’s use, and he had no authority to control her actions.6
6
Melanie’s loan guaranties did not affect Hal’s assets, which
were protected by a prenuptial agreement.
11
Similarly, Hal’s preexisting relationships with other people
and organizations with which Empire and American eventually did
business was not itself a violation of the Non-Compete. And, even
assuming that Hal’s introducing Empire and American to these
contacts while his Non-Compete was in force would have constituted
a breach, nothing in the record gives rise to a reasonable
inference that Hal made such introductions. For all of these
reasons, we conclude that the district court erred in finding that
Hal breached his Non-Compete (other than by hiring two former
Western employees).7
IV.
The damages the district court awarded to Western were
comprised of several components: $500,000.00 simply by virtue of
its finding that the Moores both breached their agreements,
$222,999.00 in profits lost from jobs Empire received, $35,460.00
in profits lost from jobs that American received, and $185,200.00
for a 2-3% general reduction in profit margin resulting from the
increased competition from these companies. The Moores contend
that the evidence was insufficient to support any damages award.
We agree.
7
The Moores also contend that the district court erred in
finding that Melanie’s signing of the guaranties and related
documents constituted breaches. We disagree, and affirm these
findings on the reasoning of the district court.
12
“[D]amages may not be determined by mere speculation or
guess.” Story Parchment Co. v. Paterson Parchment Paper Co.,
282 U.S. 555, 563 (1931). “It is well settled that damages are
recoverable for loss of profits prevented by a breach of contract
only to the extent that the evidence affords a sufficient basis for
estimating their amount in money with reasonable certainty.” Boggs
v. Duncan, 121 S.E.2d 359, 363 (Va. 1961) (internal quotation marks
omitted).
A.
The Moores first maintain that the district court erred in
awarding the $500,000 component of the damages award. The
explanation offered by the district court for that component was
brief:
[T]he Court finds that in the [Sale Agreement], the [Non-
Competes] were valued at $250,000.00 at the suggestion of
the Moores. Western ... is, therefore, entitled to
recover $250,000.00 for each of the Moores’ breach of the
Agreements.
J.A. 871.
Having established breaches of the Non-Competes, Western was
entitled to damages sufficient to give it the benefit of its
bargain, i.e., to put it in the place it would have been had the
Moores not breached. See Orebaugh v. Antonious, 58 S.E.2d 873, 875
(Va. 1950). However, there was no evidence that the $250,000
figure had any relation to Western’s injuries. Rather, it was
simply the value that the parties assigned to the Non-Competes at
13
the time that they agreed to them.8 As such, it was insufficient
evidence that Western was entitled to damages.
This result follows from Estate of Taylor v. Flair Property
Assocs., 448 S.E.2d 413 (Va. 1994). In Taylor, the parties
negotiated a land sale and the seller then agreed to reduce the
price by $60,000 in exchange for the buyer’s promise to connect the
land conveyed to a sewer service. See Taylor, 448 S.E.2d at 415.
In an action for breach of the buyer’s promise to connect the
sewer, the Supreme Court of Virginia held that the amount of the
price reduction was not sufficient proof of the extent of the
seller’s injury from the breach. See id. at 416. The court
reasoned that although the parties could have agreed to a $60,000
liquidated damages provision in the contract, they had not done so.
See id. Similarly, here, even if the allocation of $250,000 of the
sales price to the Non-Competes could be viewed as evidence of the
amount Western was willing to pay for them, it did not constitute
evidence of the extent of Western’s injury from a breach thereof.
The district court erred in treating the $250,000 value as if it
were a liquidated damages provision, which it plainly was not.9
8
The record showed that Hal Moore was allowed to choose the
allocation amount because the amount had tax ramifications only
for him. See 26 U.S.C.A. § 1060 (West 2002) (requiring allocation
of consideration received in an asset purchase for purpose of
determining the transferee’s basis in the assets and the gain or
loss of the transferor with respect to the transaction).
9
Even if there were a basis for a $250,000 award for the
Moores’ combined breaches, there would not be a basis for awarding
14
B.
The Moores also contend that the district court erred in
awarding Western damages for lost profits for particular jobs that
it lost to Empire and American. We agree.
The district court found that without the Moores’ support,
American and Empire would not have been in a position to compete
with Western. The court further found that Western lost sales of
$2,027,266.00 to Empire and $322,370.00 to American, by losing
particular jobs to those companies. Based on testimony that
Western historically earned a 10-12 percent profit on its work, the
court found that Western suffered lost profits of $222,999.00, and
$35,460.00, respectively, from these jobs. These lost-profit
findings rest on several premises (in addition to the validity of
the 10-12-percent figure): (1) Empire and American obtained the
jobs in question, (2) Western would have received the jobs had
Empire and American not, and (3) the amounts Western would have
been paid for the jobs were $2,027,266.00 and $322,370.00,
respectively. The Moores challenge the sufficiency of the evidence
regarding each of these premises. We conclude that Western failed
to prove these premises, and therefore that the district court
erred in awarding the damages in question.
$250,000 for each of the Non-Competes that was breached. Schedule
2.7, listing the parties’ allocations, listed $250,000 as the
value of “Covenants Not to Compete.” J.A. 968 (emphasis added).
15
1.
We begin our analysis with the jobs that the district court
found were lost to Empire. Western’s only evidence that Empire was
awarded any of the jobs in question were Plaintiff’s Exhibits 35
and 37, both of which were documents created from information
contained in Western’s bid logs. The exhibits purported to contain
information regarding jobs for which Western tendered bids since
Empire began competing with it, including the company that received
each of the jobs and the “Approximate Bid Amount” or “Project
Total” for each job. J.A. 1093, 1095-1102. The Moores objected
unsuccessfully to the admission of both exhibits at trial and
contend again now that, for several reasons, they were not
admissible to prove the facts contained in them.
One contention urged by the Moores is that the information in
these exhibits regarding which companies received the jobs Western
did not receive was based on inadmissible hearsay. Stephen Heim,
Western’s President and CEO, testified that the information in the
bid logs regarding which companies received the jobs was obtained
from customers through specific inquiries by Western’s sales
representatives, who entered the information on bid logs, which
they transmitted to their branch managers, who, in turn,
transmitted the logs to Heim. Western maintains that Exhibit 37
was admissible under the business record exception to the hearsay
16
rule, see Fed. R. Evid. 803(6).10 We disagree. Even if this
exception addresses the first level of hearsay--the fact that the
bid logs were out-of-court declarations--it does not address the
fact that the information in the bid logs was based on the out-of-
court statements of agents of Western’s customers. See Fed. R.
Evid. 805; Rowland v. Am. Gen. Fin., Inc., 340 F.3d 187, 195 (4th
Cir. 2003).
For the exhibit to be admissible to show the truth of that
information, the customers’ statements must themselves fit within
a hearsay exception. See Rowland, 340 F.3d at 195. Western argues
that the statements themselves fit within the business record
exception and that, alternatively, they fit within the residual
10
Rule 803(6) provides:
The following are not excluded by the hearsay rule,
even though the declarant is available as a witness:
....
(6) Records of regularly conducted activity.--A
memorandum, report, record, or data compilation, in any
form, of acts, events, conditions, opinions, or
diagnoses, made at or near the time by, or from
information transmitted by, a person with knowledge, if
kept in the course of a regularly conducted business
activity, and if it was the regular practice of that
business activity to make the memorandum, report, record
or data compilation, all as shown by the testimony of
the custodian or other qualified witness ..., unless the
source of information or the method or circumstances of
preparation indicate lack of trustworthiness. The term
“business” as used in this paragraph includes business,
institution, association, profession, occupation, and
calling of every kind, whether or not conducted for
profit.
17
hearsay exception, see Fed. R. Evid. 807. We conclude that neither
is applicable.
The business record exception does not apply because Western
made no showing that the information obtained from its customers
was obtained from the customers’ business records.11 See 5 Jack B.
Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence
§ 803.08[3], p. 803-61 (Joseph M. McLaughlin, ed., 2d ed. 2006)
(“To qualify as a business record ..., the record must be in the
form of a ‘memorandum, report, record or data compilation.’”).
Western suggests that the exhibit was admissible to prove Empire
received the jobs in question because even if the customers’
statements were not obtained directly from the customers’ business
records, Western verified them after receiving them. See Air Land
Forwarders, Inc. v. United States, 172 F.3d 1338, 1348 (Fed. Cir.
1999) (explaining that company possessing documents prepared by
another company may introduce them as its own business records,
even if sponsoring witness from custodian company cannot vouch for
circumstances under which documents were prepared, if custodian
11
Nor did Western show that the representatives of the
customers who provided the information had firsthand knowledge of
the information they were passing on to Western’s sales
representatives. See 5 Jack B. Weinstein & Margaret A. Berger,
Weinstein’s Federal Evidence § 803.08[3], p. 803-63 (Joseph M.
McLaughlin, ed., 2d ed. 2006) (explaining that “if the source of
information reported in a record cannot be identified, it cannot
qualify for the exception” because the record must be shown to
“have been compiled by persons with knowledge of the facts
recorded”).
18
company “has made an independent check of the records, or can
establish accuracy by other means” (internal quotation marks
omitted)). However, Western points to nothing in the record to
support this assertion, and we have found no support for it.
Nor do the customers’ statements fit within the residual
hearsay exception. That exception applies only when the evidence
in question has “equivalent circumstantial guarantees of
trustworthiness” as the Rule 803 or 804 exceptions, “is more
probative on the point for which it is offered than any other
evidence which the proponent can procure through reasonable
efforts,” and the proponent notifies the opposing party before
trial of “the proponent’s intention to offer the statement and the
particulars of it, including the name and address of the
declarant.” Fed. R. Evid. 807.12 None of these requirements was
12
In its entirety, Rule 807 provides:
A statement not specifically covered by Rule 803 or
804 but having equivalent circumstantial guarantees of
trustworthiness, is not excluded by the hearsay rule, if
the court determines that (A) the statement is offered
as evidence of a material fact; (B) the statement is
more probative on the point for which it is offered than
any other evidence which the proponent can procure
through reasonable efforts; and (C) the general purposes
of these rules and the interests of justice will best be
served by admission of the statement into evidence.
However, a statement may not be admitted under this
exception unless the proponent of it makes known to the
adverse party sufficiently in advance of the trial or
hearing to provide the adverse party with a fair
opportunity to prepare to meet it, the proponent’s
intention to offer the statement and the particulars of
it, including the name and address of the declarant.
19
met here. First, there was no indication regarding the
trustworthiness of the information the customers allegedly gave to
Western’s sales representatives. In fact, the customers may well
have had a motive to mislead Western in order to cause Western to
submit lower bids in the future. Second, clearly it would have
been more probative to produce the testimony of the customers
themselves rather than secondhand accounts of the information the
customers provided. And third, Western failed to notify the Moores
that they were relying on Rule 807 and failed to provide the names
or addresses of the specific people who supplied the information in
question. Thus, the customers’ statements were not covered by any
exception to the hearsay rule, and Exhibits 35 and 37, which were
based on these statements, therefore could not serve as proof that
Empire was awarded any of the jobs in question.13
13
Moreover, Heim did not claim to have any firsthand knowledge
of the amounts of the contracts awarded. Even assuming arguendo
that Western established the value of the master contracts for
these jobs, it failed to prove to a reasonable degree of certainty
the value of the work that Western would have received had it
received the contracts. Heim conceded on cross-examination that
an award of a master contract does not necessarily translate into
a contract to construct the entire project for which the bid was
submitted. Heim explained that the projects are phased and houses
are “released” to the contractor in groups; thus, there are
circumstances in which the developer refuses to release further
phases to a contractor and causes the projects to be rebid.
Therefore, even assuming that Western established the value of the
master contracts, without any testimony from Empire or the
customers regarding whether particular contracts were awarded for
the whole project or only part of the project, there was no basis
for determining the value of the work actually awarded.
20
2.
Western’s proof with regard to the jobs allegedly awarded to
American was flawed for a different reason, namely, that Western
presented insufficient evidence that it would have received the
jobs absent competition from American. Two of the three jobs
Western claimed to have lost to American were with The Olson
Company, a San Diego company with which Heim admitted Western had
“not been successful” in obtaining work. J.A. 386. Indeed, Heim
testified that prior to 2005, Western was performing only 30
percent of that company’s work. In light of that history, any
conclusion that Western would have obtained these jobs from Olson
had American not bid them could only be based on rank speculation.14
The third job Western claimed it lost to American was with
Touchstone Development, for which Heim admitted Western had not
performed any prior work. Western’s only basis for claiming that
it would have received the Touchstone job had American not received
it was Heim’s testimony that Western at one time had a contract to
do the work but lost it after an increase in its materials cost
prompted it to raise its price. Heim testified that after the
price increase, American had the low bid and was awarded the
contract. Since Western presented no testimony that after the
14
Additionally, as with the jobs claimed to be lost to Empire,
there was no admissible evidence that American received Olson’s
Paradise Walk job. In fact, Schulkamp testified that American did
not receive it.
21
price increase, Western was the second lowest bidder, any
conclusion that Western would have received the job had American
not could only be based on speculation.
For all of these reasons, there was no basis in the record for
a finding that, but for competition from Empire and American,
Western would have received any of the jobs at issue here. Thus,
the district court erred in awarding damages to Western for lost
profits from these jobs.
C.
The Moores finally maintain that the district court erred in
awarding damages for reduced profit margins from competition with
Empire. We agree.
The basis for the award of these damages was the following
testimony from Heim on direct examination:
Q Was there ... any other way that Western Insulation
has been damaged by competition from Empire?
A Since Empire has been in business, our margins have
suffered between two and three percent off of the
gross profit we have been making.
....
Q Can you tell me how you calculated the damage
caused by that loss of margin?
A I added up the total amount of sales when Empire
was in business, May of 2005 until November of 2005
and came up with a figure of approximately $7.4
million, and then I took the average between two
and three percent loss in margins, came up with the
average of two-and-a-half, and multiplied the
previous figure of $7.4 million by two-and-a-half
and came up with $185,260.
22
Id. at 390-91. The amount of speculation necessary to reach a
conclusion that Western actually would have made an additional
profit of 2-3% but for American’s and Empire’s competition was
highlighted in Heim’s testimony on cross-examination. Heim
testified that he arrived at the conclusion that Western lost 2-3%
from its gross profit margin by reviewing monthly financial
statements (that were not in evidence). He did not explain how he
calculated that number, nor did he even know what profit Western
had earned in any of the months for which Western is claiming
damages. Although admitting that the cost of materials and fuel
affects profit margins, he testified that he did not know whether
those costs increased during the period in question. Nor did he
even testify that Western reduced its prices during this period.
In the end, all Western produced was Heim’s conclusory testimony
that he would have expected Western’s gross profit margin to be
2-3% greater had American and Empire not been competing with it.
This evidence is plainly insufficient to prove lost profits with a
reasonable degree of certainty under Virginia law. See Saks Fifth
Ave., Inc. v. James, Ltd., 630 S.E.2d 304, 311 (Va. 2006)
(explaining that to prove entitlement to damages, “a plaintiff must
prove the amount of those damages by using a proper method and
factual foundation for calculating damages”); cf. ADC Fairways
Corp. v. Johnmark Constr., Inc., 343 S.E.2d 90, 92-93 (Va. 1986)
(holding that company did not prove lost profits to a reasonable
23
degree of certainty when it offered only testimony of construction
company president that bid included approximately 15% in
anticipated profit when 15% number was based on estimated expenses
and company offered no records indicating the actual per unit
expenses on project).
V.
Western argues in its cross-appeal that the district court
erred in denying its request for injunctive relief. We agree.
Western requested many different forms of injunctive relief,
including injunctions requiring Hal to “divest himself ... in any
lease agreements with American” and Melanie to “divest herself ...
of any loan guaranties” to American and Empire. J.A. 834. The
district court denied injunctive relief, ruling that:
[T]here are indispensable parties not before the Court,
whose presence would be necessary in order for the Court
to fashion complete injunctive relief.... Furthermore,
Plaintiff has not proven all of the requisite elements
for injunctive relief [because] [t]he public interest is
not served by undermining legitimate commercial contracts
or employment agreements when innocent third parties
(e.g., banks and employees hired by American Insulation
or Empire Insulation) are involved--especially if those
third parties are not before the Court and have not had
an opportunity to be heard.
Id. at 871-72.
Western argues that this reasoning did not justify the denial
of all of the injunctive relief that it requested because much of
the requested injunctive relief would not have harmed third parties
had it been awarded. Western specifically points to (1) enjoining
24
the Moores from further breaching the Non-Competes by providing any
additional financing or leasing equipment or property to a
competing business, soliciting any additional Western employees to
leave their employment or employing them, and contacting or having
their employees contact customers of Western in an effort to
solicit work from them; (2) enjoining Melanie from exercising the
option agreement or security agreement with American or entering
into any such agreement with Empire; and (3) equitably tolling the
Moores’ Non-Competes. Although clearly some of the injunctive
relief that Western requested would “undermin[e] legitimate
commercial contracts or employment agreements,” id., this subset of
relief Western has identified would not do so. Accordingly, we
reverse the denial of injunctive relief on this basis and remand to
the district court to determine in the first instance whether to
award such relief. In so doing, we express no opinion on whether
any particular form of injunctive relief--or, indeed, any
injunctive relief at all--would be appropriate.
VI.
In sum, we affirm the rulings of the district court that the
Non-Competes were enforceable and that Melanie breached her Non-
Compete by entering into the guaranties and related agreements, but
we reverse the finding that Hal breached his Non-Compete (except to
the extent that he hired two former Western employees). Further,
we vacate the damages award and reverse the ruling of the district
25
court that injunctive relief should not be awarded because the
relief requested would impact third parties not before the court.
We also remand to the district court for further proceedings
consistent with this opinion.15
AFFIRMED IN PART, REVERSED IN PART,
VACATED IN PART, AND REMANDED
15
The district court awarded attorneys’ fees and costs to
Western as the prevailing party pursuant to the terms of the Non-
Competes. Because we vacate the damages award in Western’s favor,
we vacate the award of fees and costs without expressing any view
concerning the merits of the award.
26