Paws With A Cause v. Crumpler ( 1996 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PAWS WITH A CAUSE, INC.,
Plaintiff-Appellee,
v.
DONNA J. CRUMPLER,
Defendant-Appellant,
No. 94-1968
and
ROBO DOGS, INC.; WILLIAM R.
JACKSON; VIRGINIA CANINES FOR
INDEPENDENCE; WILLIAM I. SYDNOR,
Defendants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-93-473)
Argued: November 2, 1995
Decided: January 3, 1996
Before WILKINS, LUTTIG, and WILLIAMS, Circuit Judges.
_________________________________________________________________
Affirmed in part and vacated and remanded in part by unpublished
per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Anthony Francis Troy, MAYS & VALENTINE, Rich-
mond, Virginia, for Appellant. H. Lane Kneedler, HAZEL &
THOMAS, Richmond, Virginia, for Appellee. ON BRIEF: An-
drew G. Mauck, MAYS & VALENTINE, Richmond, Virginia, for
Appellant. S. Miles Dumville, John A. Burlingame, HAZEL &
THOMAS, Richmond, Virginia, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Appellee Paws With A Cause (Paws), a non-profit Michigan corpo-
ration, instituted this diversity suit, see 28 U.S.C.A. § 1332(a)(1)
(West 1993), against Appellant Donna Crumpler, alleging three
claims: (1) breach of a non-competition agreement (NCA); (2) inten-
tional disregard of Paws's rights under the NCA; and (3) conspiracy
to injure Paws's business pursuant to Va. Code Ann.§ 18.2-499
(Michie 1988). Paws prayed for damages and an injunction to restrain
Crumpler from disclosing or utilizing information that Paws asserted
was protected by the NCA. The case was tried to the district court,
which issued findings of fact and conclusions of law. See Fed. R. Civ.
P. 52(a). The district court concluded that Crumpler breached the
NCA, enjoined Crumpler from disclosing or utilizing the information
and knowledge protected by the NCA for a term of three years begin-
ning December 20, 1993, and awarded compensatory damages of
$18,808. Crumpler appeals. We affirm with respect to liability and
granting the injunction, but we vacate and remand with respect to the
award of compensatory damages.
I.
This appeal comes to us subsequent to a bench trial. In such a pro-
cedural posture, "our scope of review is particularly circumscribed,
being limited to determining whether the facts as found by the district
court are clearly erroneous." Jiminez v. Mary Washington College, 57
2
F.3d 369, 378 (4th Cir.), cert. denied, 64 U.S.L.W. 3316 (U.S. Oct.
30, 1995) (No. 95-396). We reverse a factual finding as clearly erro-
neous if, "although there is evidence to support it, the reviewing court
on the entire evidence is left with the definite and firm conviction that
a mistake has been committed." United States v. United States Gyp-
sum Co., 333 U.S. 364, 395 (1948). The facts as found by the district
court, therefore, "are conclusive on appeal . . . unless they are plainly
wrong." Jiminez, 57 F.3d at 378-79. The facts recited herein and
found by the district court are not clearly erroneous.
Paws trains dogs to aid persons who are hearing impaired or mobil-
ity limited or both. Crumpler was an obedience trainer at Robo Dogs,
Incorporated (Robo), in Virginia with no formal experience in train-
ing, marketing, or placing dogs that helped the handicapped. Desiring
to obtain these skills, Crumpler enrolled in a week-long course at
Paws's Michigan headquarters in August 1991. At the conclusion of
her training, Crumpler returned to Virginia as Regional Director of
Paws Virginia.
In connection with her training, Crumpler executed the NCA,
which was styled a "Sub-contracting Trainers Agreement" and pro-
vided in pertinent part:
Since [Paws] is a non-profit organization funded largely by
United Way of Michigan and by charitable contributions
and desires to maintain the availability of the training ses-
sions on a basis satisfactory to its contributors, the terms and
conditions under which [Crumpler] receives instruction,
knowledge and/or know-how are as follows:
1. [Paws] agrees to instruct, give knowledge to, and/or
know-how to [Crumpler] in the conducting of training
sessions directed at dogs and their owners to cause the
HEARING DOGS to respond to certain sounds by alert-
ing the owner in various ways to the occurrence of such
sounds and SERVICE DOGS to responds [sic] to the
needs of the mobility[-]limited community.
2. In consideration of the above instruction, knowledge
and/or know-how, [Crumpler] agrees that he/she will
3
not communicate such instruction, knowledge and/or
know-how to others or make use of it for his/her bene-
fit, for the period of three (3) years from the date of ter-
mination of this organization.
(J.A. at 265.) Crumpler knew that she was required to execute the
NCA prior to enrolling in Paws's training course.
Eventually, at an unspecified date in early or mid-1992, relations
between Paws headquarters and Crumpler soured. As the district court
found, Crumpler embarked upon a smear campaign against Paws,
stating that she wanted to sever ties with Paws and form her own cor-
poration to train dogs for the handicapped. Consequently, Candye
Sapp, Vice President of Paws, wrote Crumpler on November 5, 1992,
advising that "[u]ntil all matters can be agreed upon by all parties and
all files are up to date and direction taken by this office only, we need
you to cease and desist. Once every item is agreed upon and in writ-
ing we will go from there." (J.A. at 258.) Based on Sapp's letter,
Crumpler considered herself discharged.
The district court found that during Crumpler's tenure as Regional
Director of Paws Virginia, Crumpler utilized Robo to train dogs, and
if a dog was certified, then Paws would pay Robo for the expenses
of training it. Based on this scheme, the district court found "that
Crumpler used [Robo] as a tool for enhancing her ability to form and
run an organization that could compete with Paws." (J.A. at 178.) The
district court also found that Crumpler competed with Paws by form-
ing Virginia Canines for Independence (VCI), an organization virtu-
ally identical to Paws, by serving as a director and trainer for VCI.
Crumpler and other directors of VCI attempted to conceal VCI's exis-
tence because Crumpler and her co-directors were"`pirating' Paws's
business." (J.A. at 178.) By competing with Paws, the district court
found that:
Crumpler has violated the [NCA] . . . by utilizing and com-
municating to others training techniques she learned from
PAWS. Crumpler acknowledged . . . that she learned"new"
techniques while in Michigan. Also, . . . Crumpler stated
that she was "using techniques used by Paws." Crumpler,
4
who admitted that she had never had any formal
hearing[-]dog training prior to attending the PAWS training
session, has been training hearing dogs. In fact, . . . a dog
named Rico was donated to Paws prior to Crumpler's sepa-
ration from Paws. Subsequently, Crumpler trained Rico as
a hearing dog and placed him with a client. Crumpler appar-
ently did so either in her own name or on behalf of VCI, but
not as an agent of Paws.
(J.A. at 178-79.) While the district court found that Crumpler violated
the NCA, the district court also found that the money-raising and dog-
training skills Crumpler learned from Paws were common in the
trade.
Applying Michigan law, the district court ruled in favor of Paws
with respect to the breach-of-the-NCA claim, held the intentional dis-
regard claim was duplicative of the breach claim, and concluded that
Paws failed to establish a conspiracy claim. Accordingly, the district
court awarded relief solely on the breach claim. With respect to equi-
table relief, the district court enjoined Crumpler, VCI, and VCI direc-
tors "from using or further communicating `information, knowledge
and/or know-how' [Crumpler] gained exclusively through her affilia-
tion with Paws with respect to the training of service and hearing dogs
and their owners" for a three-year period commencing December 20,
1993, the date the preliminary injunction issued. (J.A. at 182.) Addi-
tionally, Crumpler and directors of VCI were enjoined "from forming
any other organization comparable to VCI which would provide hear-
ing or service dogs to persons with disabilities." (J.A. at 183.) Regard-
ing legal relief, the district court awarded $18,808 in compensatory
damages based on the comparability of Paws Virginia with Paws
operations in New Hampshire and Massachusetts.
In its memorandum opinion on the damages issue, the district court
addressed Paws's contention that Crumpler was violating the injunc-
tion by operating VCI in direct competition with Paws and by con-
cealing the district court's ruling from VCI directors. The district
court rejected Paws's contention, explaining that Crumpler and her
directors were enjoined merely from using or further communicating
the information and knowledge Crumpler learned from Paws and that
Crumpler was enjoined from forming another organization similar to
5
Paws, but that Crumpler was not enjoined from operating VCI. The
district court found, however, that Crumpler and some directors of
VCI deliberately trivialized to other directors of VCI the nature and
extent of the relief granted to Paws. Accordingly, the district court
ordered counsel for Crumpler to notify Robo and VCI directors of the
existence and nature of the injunction.
II.
A federal court exercising its diversity jurisdiction, as here, must
apply the substantive law of the forum state, see Erie R.R. v.
Tompkins, 304 U.S. 64, 78 (1938), and because application of choice-
of-law rules is a substantive matter, see Klaxon Co. v. Stentor Elec.
Mfg., 313 U.S. 487, 496 (1941), Virginia's choice-of-law rule applies.
Under Virginia law, because the NCA was entered into in Michigan
and does not provide a choice-of-law provision, Michigan substantive
law controls the validity, interpretation, and construction of the NCA.
See Woodson v. Celina Mut. Ins. Co., 177 S.E.2d 610, 613 (Va.
1970). Although Michigan substantive law applies to liability, under
Virginia's choice-of-law rules, Virginia law governs procedure and
remedy. See Jones v. R.S. Jones & Assocs., 431 S.E.2d 33, 34 (Va.
1993). We therefore apply Michigan law to resolve the enforceability
of the NCA.
Michigan law provides in pertinent part:
Agreements not to compete; application
An employer may obtain from an employee an agreement
or covenant which protects an employer's reasonable com-
petitive business interests and expressly prohibits an
employee from engaging in employment or a line of busi-
ness after termination of employment if the agreement or
covenant is reasonable as to its duration, geographical area,
and the type of employment or line of business. To the
extent any such agreement or covenant is found to be unrea-
sonable in any respect, a court may limit the agreement to
render it reasonable in light of the circumstances in which
it was made and specifically enforce the agreement as lim-
ited.
6
Mich. Comp. Laws Ann. § 445.774a(1) (West 1995). Michigan law,
therefore, explicitly provides for non-competition agreements and
provides that the court, sua sponte, may amend an unreasonable
agreement so as to render it reasonable under the circumstances in
which it was made. See Superior Consulting Co. v. Walling, 851
F. Supp. 839, 847 (E.D. Mich. 1994) (modifying a former employ-
ee's non-competition agreement pursuant to section 445.774a(1) to
render it reasonable as to type of work), appeal dismissed and
remanded on other grounds, 48 F.3d 1219 (6th Cir. 1995) (per
curiam) (unpublished); Robert Half Int'l, Inc. v. Van Steenis, 784 F.
Supp. 1263, 1273-74 (E.D. Mich. 1991) (amending a former employ-
ee's non-competition agreement under section 445.774a(1) to render
it reasonable as to geographic scope). In determining whether to sus-
tain a non-competition agreement pursuant to section 445.774a(1), we
must focus our inquiry on the reasonableness of the restriction,
remaining cognizant of the fact that non-competition agreements that
restrict employment opportunities are to be narrowly tailored. See
Superior Consulting Co., 851 F. Supp. at 847.
Crumpler challenges the enforceability of the NCA, advancing
three arguments. First, she asserts that section 445.774a(1) only
applies to trade secrets or confidential information and that because
the knowledge and skills she acquired from Paws were commonly
known in the trade, section 445.774a(1) does not apply. According to
Crumpler, the NCA protects no legitimate business interest in trade
secrets or confidential information. Second, she contends that the
NCA is characterized properly as a non-disclosure agreement, not a
non-competition agreement, and because the statute only applies to
non-competition agreements, it does not apply here. Third, she posits
that the NCA is not enforceable because it is of potentially unlimited
duration. Conversely, Paws maintains that the statute is not restricted
to trade secrets and confidential information. In addition, Paws argues
that the NCA prohibits both disclosure as well as unfair competition
and thus the statute applies to this suit. We address these contentions
seriatim.
A.
Crumpler first contends that the statute is not enforceable as
applied here because its application serves no reasonable competitive
7
business interests in that the knowledge and skills she learned from
Paws were not unique to Paws but commonly known in the trade. To
advance this contention, Crumpler relies principally on Follmer,
Rudzewicz & Co. v. Kosco, 362 N.W.2d 676 (Mich. 1984). In Kosco,
the Supreme Court of Michigan observed that while restrictive non-
competition agreements can be sustained under certain circumstances,
generally they are limited to protecting trade secrets or confidential
information or both. See id. at 680-83. Crumpler's reliance on Kosco
is misplaced because Kosco predated section 445.774a(1) and thus
does not reflect the conscious legislative amendment that approved
non-competition agreements, which previously had been viewed gen-
erally as void under Michigan common law as contrary to public pol-
icy, see Compton v. Joseph Lepak, DDS, P.C., 397 N.W.2d 311, 313-
14 (Mich. Ct. App. 1986). Subsequently, non-competition agreements
were enforced provided they were reasonable. See id. at 314-15 (trac-
ing history of Michigan law respecting non-competition agreements).
Hence, while Crumpler's contention that non-competition agreements
do not apply to common knowledge has support in prior Michigan
law, the dramatic change in Michigan law made by section
445.774a(1) precludes us from simply relying on Kosco.
Rather, we must examine the statutory language of section
445.774a(1) to determine its applicability to agreements not to utilize
information commonly known in the trade. In analyzing a statute, our
first consideration is the statutory language. See United States v.
Murphy, 35 F.3d 143, 145 (4th Cir. 1994), cert. denied, 115 S. Ct. 954(1995). Absent allowable gap-filling as provided in the statute, we are
not at liberty "to read into the language what is not there, but rather
[we] should apply the statute as written." Id. Provided the statutory
language is unambiguous, properly enacted, and does not lead to an
absurd result, the canons of interpretation do not arise, and the duty
of the court is to enforce the statute as written. See id.
Applying Murphy, we cannot subscribe to Crumpler's first conten-
tion because by its plain terms, section 445.774a(1) is not confined
exclusively to trade secrets or confidential information. Rather, the
statute permits the use of non-competition agreements, the sole
restriction being that such agreements must be reasonable. Crumpler's
cramped interpretation is contrary to the language of the statute. Sec-
tion 445.774a(1) has simply not been given a confined interpretation.
8
See Superior Consulting Co., 851 F. Supp. at 847 (observing that a
world-wide geographic restriction on competition is reasonable if the
employer has a world-wide market). Contrary to Murphy, Crumpler
would have us gloss section 445.774a(1) with words that are not in
the statute. Accordingly, we reject Crumpler's contention that section
445.774a(1) is limited to trade secrets or confidential information or
both.
B.
Crumpler's second contention is that the NCA is unenforceable
because it is a non-disclosure agreement, not a non-competition
agreement, and the statute applies only to non-competition agree-
ments. A plain reading of the NCA, principles of Michigan contract
law, and section 445.774a(1) compel us to reject this argument.
Under Michigan law, "[c]ontractual language is to be given its
ordinary and plain meaning." Fitch v. State Farm Fire & Casualty
Co., 536 N.W.2d 273, 275 (Mich. Ct. App. 1995). The paramount
consideration in construing ambiguous contracts is to ascertain the
parties' intent. See Kassin v. Arc-Mation, Inc. , 288 N.W.2d 413, 415
(Mich. Ct. App. 1979). Although Michigan common law generally
precludes a court from inserting into or omitting terms from a written
contract absent fraud or mistake, see Gary Boat Club, Inc. v. Oselka,
188 N.W.2d 127, 130 (Mich. Ct. App. 1971), section 445.774a(1)
provides expressly that a court may construe a non-competition agree-
ment to render it reasonable, and Michigan courts have recognized
that gap-filling measures in contracts are permissible, see Rowe v.
Montgomery Ward & Co., 473 N.W.2d 268, 285 (Mich. 1991)
(Boyle, J., concurring).
Here, Crumpler is correct that the NCA prevents disclosure of
knowledge and skills garnered from Paws. The NCA also unequivo-
cally provides that Crumpler is precluded from "mak[ing] use of
[knowledge and/or know-how] for [her] benefit." The language of the
NCA is not confined to limiting disclosure, but rather extends to limit
competition and bars Crumpler from competing with Paws. We there-
fore decline Crumpler's invitation to read out the non-competition
provisions of the NCA.
9
The circumstances surrounding execution of the NCA bolster our
conclusion that the NCA is a non-competition agreement. For in-
stance, Crumpler solicited Paws, enrolled in Paws's training class,
received training, and undertook this course of action knowing that
she would be required to sign the NCA. Moreover, she executed the
NCA while in Michigan and returned to Virginia to be Regional
Director of Paws Virginia; her name appears on the official Paws let-
terhead as the Regional Director of Paws Virginia. Like the district
court, we are persuaded that Crumpler knew that the import of the
NCA was to prevent her from competing unfairly with Paws; the
tenor of the NCA is one of non-competition, not merely of non-
disclosure. Section 445.774a(1) provides that an employer may obtain
a non-competition agreement that protects his competitive business
interest, and the language in the NCA does just that. We conclude,
therefore, that the NCA is indeed a non-competition agreement and
is not limited to precluding disclosure.
C.
1.
Crumpler's final argument respecting enforceability is that the
NCA is void because it is of potentially unlimited duration. In its
recitals, the NCA provides that Paws "is a non-profit organization
funded largely by United Way of Michigan . . . ." (J.A. at 265.) In the
substantive clauses articulating Crumpler's obligations as Regional
Director of Paws Virginia, the NCA provides that Crumpler may not
compete unfairly with Paws "for the period of three (3) years from the
date of termination of this organization." Id. According to Crumpler,
because the use of the term "organization" in the recitals refers to
Paws's Michigan headquarters, the term "organization" in the sub-
stantive, non-competition clauses of the NCA must also refer to
Paws's Michigan headquarters. Because Paws is a corporation, and
corporations have potentially unlimited duration, see generally Harry
G. Henn & John R. Alexander, Laws of Corporations § 75, at 132 (3d
ed. 1983), she argues that the "date of termination of this organiza-
tion" may never occur. Thus, Crumpler contends that because section
445.774a(1) provides that non-competition agreements must have a
reasonable duration, the NCA is void because a potentially perpetual
10
duration is not a reasonable limit. We cannot subscribe to this argu-
ment.
The district court found as a fact that the term"organization" in the
non-competition clause referred to Paws Virginia. As the trier of fact,
the district court must resolve ambiguity in the term "organization."
See Zinchook v. Turkewycz, 340 N.W.2d 844, 848 (Mich. Ct. App.
1983) (stating that in cases of ambiguity, incomplete language, or
"unusual circumstances," the trier of fact resolves the meaning of the
parties' contract). Because the district court's factual finding regard-
ing the parties' meaning of the term "organization" is not clearly erro-
neous, it is conclusive upon the reviewing court. See Jiminez, 57 F.3d
at 378-79 (stating that unless the factual findings of the district court
are clearly erroneous, they must be sustained on appeal and explain-
ing that even if the appellate court concludes that another interpreta-
tion of the facts may be "better," it is still bound by the factual
findings of the district court provided they are not plainly wrong). The
term "organization" therefore refers to Paws Virginia.
2.
Having determined that the term "organization" refers to Paws Vir-
ginia, we must now determine the duration of the NCA. We com-
mence with the premise that Michigan "[c]ourts will not interpret a
contract in a manner which would impose an absurd or impossible
condition on one of the parties." Wembelton Dev. Co. v. Travelers Ins.
Co., 206 N.W.2d 222, 225 (Mich. Ct. App. 1973). Under Michigan
law, therefore, a "contract will not be adjudicated to be illegal when
it is capable of a construction which will [up]hold it and make it
valid." Stillman v. Goldfarb, 431 N.W.2d 247, 251-52 (Mich. Ct.
App. 1988). Michigan courts construe a contract to effectuate the par-
ties' intent. See Kassin, 288 N.W.2d at 415. Specifically with respect
to the duration of non-competition agreements, the Michigan courts
have recognized "that covenants not to compete will not be stricken
simply because they are unlimited in time. Instead they are enforced
during a period deemed reasonable." Compton , 397 N.W.2d at 314.
Indeed, section 445.774a(1) by its express terms provides that if a
restrictive agreement is unreasonable, a court, on its own accord,
"may limit the agreement to render it reasonable . . . and specifically
enforce the agreement as limited."
11
Applying these precepts, we conclude that the district court prop-
erly determined that the NCA has a three-year duration. We affirm the
district court's finding that the NCA limits the applicability of its
restrictions to three years, and thus the parties would not have con-
templated potentially perpetual application. Second, while federal
courts applying section 445.774a(1) have sustained injunctions with
durations of six months, see Superior Consulting Co., 851 F. Supp.
at 847, and one year, see Van Steenis, 784 F. Supp. at 1274, we do
not believe that a Michigan court would hold that an injunction with
a three-year duration is unreasonable, see Jamens v. Township of
Avon, 246 N.W.2d 410, 413 (Mich. Ct. App. 1976) (sustaining a
three-year injunction), and other courts have likewise permitted three-
year durations, see, e.g., Curtis 1000, Inc. v. Youngblade, 878 F.
Supp. 1224, 1262 (N.D. Iowa 1995) (noting that covenants not to
compete with a duration of two to three years generally are sustained
under Iowa law); McMurray v. Bateman, 144 S.E.2d 345, 356 (Ga.
1965) (sustaining a three-year injunction against competition under
Georgia law); see also Superior Gearbox Co. v. Edwards, 869 S.W.2d
239, 248 (Mo. Ct. App. 1993) (concluding that a five-year injunction
prohibiting competition is valid under Missouri law). We hold, there-
fore, that the district court did not err in determining that the duration
of the injunction is three years and that this duration is reasonable.
III.
Crumpler asserts alternatively that if we sustain the injunction, the
district court erred in setting the commencement of the three-year
period at December 20, 1993, the date the preliminary injunction was
entered. According to Crumpler, this results in Paws actually receiv-
ing a four-year injunction, given the delay of litigation. Crumpler
maintains that the injunction should expire on November 10, 1995,
three years from the date that Paws knew Crumpler was violating the
NCA. Although Crumpler contends that Michigan law applies to this
issue, under Virginia's choice-of-law rules, Virginia law governs pro-
cedure and remedy. See Jones, 431 S.E.2d at 34 (stating that Virgin-
ia's choice-of-law rules provide that the court is to apply the
substantive law of the forum where the contract was entered, but that
Virginia law applies to matters of procedure and remedy). The deci-
sion to grant an injunction rests with the sound discretion of the dis-
trict court and will not be reversed absent an abuse of discretion. See
12
Direx Israel, Ltd. v. Breakthrough Medical Corp., 952 F.2d 802, 814
(4th Cir. 1991). In applying this standard, we review the factual find-
ings for plain error, while the legal conclusions are reviewed de novo.
See North Carolina v. City of Virginia Beach, 951 F.2d 596, 601 (4th
Cir. 1991).
We cannot conclude that the district court abused its discretion in
fixing the commencement date from the date of entry of the prelimi-
nary injunction on December 20, 1993, even if this results in the
injunction remaining in effect longer than three years. See Roanoke
Eng'g Sales Co. v. Rosenbaum, 290 S.E.2d 882, 887 (Va. 1982)
(explaining that an injunction issued in connection with a non-
competition agreement properly commenced on the date of entry of
final judgment in litigation resolving the suit rather than the date pro-
vided for in the non-competition agreement); see also Premier Indus.
Corp. v. Texas Indus. Fastener Co., 450 F.2d 444, 448 (5th Cir. 1971)
(noting that the district court properly sustained an injunction with
respect to a non-competition agreement beyond the duration provided
for in the agreement); Home Gas Corp. of Mass. v. DeBlois Oil Co.,
691 F. Supp. 567, 578 (D.R.I. 1987) (extending an injunction so that
it commenced on the date of entry of judgment). The commencement
date is therefore affirmed.
IV.
Finally, Crumpler raises three challenges to the damages award.
First, she contends that she owed no duty of loyalty to Paws and
hence is not liable for damages. Second, she argues that Paws is not
entitled to any legal relief because it was awarded equitable relief on
the claim on which it prevailed. Third, Crumpler asserts alternatively
that if compensatory damages are appropriate, the award cannot be
sustained because there is insufficient evidence to support it. We
address these challenges in turn.
A.
Crumpler's first contention is that the district court awarded dam-
ages based on a breach of a duty of loyalty, but she owed no duty of
loyalty to Paws. This contention is belied by the district court's order,
which states that damages were awarded based on breach of the NCA:
13
"The Court has found that Crumpler . . . has violated the Agreement
she signed with Paws by utilizing and communicating to others train-
ing techniques she learned from Paws." (J.A. at 217.) Similarly, the
district court found that Crumpler "`pirat[ed]' Paws's business" by
utilizing Paws's training techniques to compete unfairly with Paws.
(J.A. at 178.) We disagree, therefore, that compensatory damages
were awarded pursuant to the tort of breach of a duty of loyalty;
rather, compensatory damages were awarded for breach of contract.
B.
Crumpler's second challenge to the compensatory damages award
is that, assuming the injunction is sustained, a compensatory damages
award would constitute a duplicative recovery because the only claim
upon which Paws prevailed was the breach claim, which was reme-
died by the district court's entry of an injunction. Relying on Eberts
v. Businesspeople Personnel Services, 620 S.W.2d 861 (Tex. Civ.
App. 1981, no writ history), and Brannon v. Auto Center Manufactur-
ing Co., 393 So. 2d 75 (Fla. Dist. Ct. App. 1981), Crumpler posits
that a court cannot award equitable and legal relief for the same harm.
Crumpler misreads Eberts and Brannon. The Eberts court stated that
applying liquidated damages and an injunction to the same time
period was improper and that "if actual damages are proved, plaintiff
may be entitled to damages for a breach that occurred before the suit
was filed as well as to an injunction restraining subsequent breaches."
Eberts, 620 S.W.2d at 864. Similarly in Brannon, the court explained
that awarding both compensatory damages and an injunction is not
improper, provided that the breaching party does not have an injunc-
tion enforced against it as well as have compensatory damages
assessed against it for the entire term of the injunction. See Brannon,
393 So. 2d at 77. Thus, an injunction and compensatory damages for
breach of a non-competition agreement are proper remedies, provided
that the compensatory damages and the injunction do not apply to the
same time period. See, e.g., Presto-X-Co. v. Ewing, 442 N.W.2d 85,
90 (Iowa 1989); Frank D. Wayne Assocs. v. Lussier, 454 N.E.2d 109,
112 (Mass. App. Ct.), review denied, 456 N.E.2d 469 (Mass. 1983).
Here, the damages were for a one-year period covering 1992-1993,
while the injunction commenced on December 20, 1993, and endures
until December 20, 1996: the injunction provides for prospective
14
relief, while the damages provide for the injury already incurred.
Thus, the award of compensatory damages is not duplicative.
C.
Crumpler's final contention respecting damages for lost profits is
that the evidence was insufficient to support the verdict. According
to Crumpler, the methodology employed for computing damages is
speculative because Paws failed to prove its projected expenses for
1993.
Under Virginia law, compensatory "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.'" See Techdyn Sys. Corp. v. Whit-
taker Corp., 427 S.E.2d 334, 339 (Va. 1993) (quoting Boggs v.
Duncan, 121 S.E.2d 359, 363 (Va. 1961)). If the damages are "specu-
lative, remote, uncertain, or contingent," then they are not recover-
able. Id. While the district court's calculation of damages will be
sustained unless it is clearly erroneous, the district court is obligated
to explain the rationale for its decision so that an appellate court
meaningfully may review the award. See Little Beaver Enters. v.
Humpreys Rys., 719 F.2d 75, 79-80 (4th Cir. 1983).
The district court awarded Paws $18,808 in lost profits. This award
represents the average of Paws's profits in New Hampshire and Mas-
sachusetts for 1993, subtracting the amount of money Paws Virginia
earned for the same time period, and deducting five percent for
expenses. The district court made these calculations by comparing
Paws Virginia to the Paws operations in New Hampshire and Massa-
chusetts: (1) all three organizations commenced operations at approxi-
mately the same time; (2) the profits for Paws New Hampshire and
Paws Massachusetts were consistent with the national growth of the
organization for the four years prior to trial; and (3) the level of com-
petency of the trainers and regional directors was comparable in the
three states.
Crumpler objects to this method of calculation, contending that the
Paws operations in New Hampshire and Massachusetts are not com-
parable to Paws Virginia. We are unable to determine the comparabil-
15
ity of the various Paws organizations based on the record before us.
First, there is no evidence that the fund-raising activities were the
same in Paws's Virginia, New Hampshire, and Massachusetts opera-
tions, despite the fact that the evidence revealed unequivocally that
the local nature of fund-raising is very germane to profits. Second,
while Crumpler worked full-time, she was the sole worker at Paws
Virginia, while Paws operations in Massachusetts had three part-time
employees. Despite this discrepancy in the number of employees, the
district court did not determine whether Crumpler's hours were com-
parable to the total number of hours worked by the employees in Mas-
sachusetts. Third, the relevant market was not established, and indeed,
at first blush, Virginia is not geographically comparable to New
Hampshire or Massachusetts. Thus, we are not persuaded that compa-
rability was established. See, e.g., Metrix Warehouse v. Daimler-Benz
Aktiengesellschaft, 828 F.2d 1033, 1044 n.21 (4th Cir. 1987) (approv-
ing use of comparability method for calculating damages in antitrust
case, but explaining that there must be reasonable comparability
between the business and markets in question), cert. denied, 486 U.S.
1017 (1988).
Also, while the district court deducted five percent for expenses,
there is no explanation of how the district court arrived at this figure,
and Virginia courts repeatedly have disapproved of damages for lost
profits if expenses are not proved and deducted, see, e.g., ADC Fair-
ways Corp. v. Johnmark Constr., 343 S.E.2d 90, 93 (Va. 1986)
(reversing lost profits award because there was no proof of expenses
and the damages award was predicated on an estimated profit margin,
not a proved profit margin); Boggs, 121 S.E.2d at 363-64 (reversing
damages award because expenses were not taken into consideration).
As we explained in Little Beaver Enters.,"the trial court, as a thresh-
old requirement, must expose `the measure of damages and method
of computation,' both to inform the litigants of the basis for its find-
ings and to afford the appellate court `a possibility of intelligent
review.'" Little Beaver Enters., 719 F.2d at 79-80 (quoting Safer v.
Perper, 569 F.2d 87, 100 (D.C. Cir. 1977)). We are not persuaded the
district court satisfied the obligations of Little Beaver Enters. We
vacate the award of compensatory damages and remand to the district
court to explain adequately the compensatory damages award and to
ensure that comparability was established.
16
V.
We affirm the district court's conclusions with respect to liability.
Likewise, we affirm the district court's granting an injunction and fix-
ing its commencement date at December 20, 1993. We conclude,
however, that the rationale supporting the damages award was not
sufficiently explained; therefore, we vacate the damages and remand
for further proceedings consistent with this opinion.
AFFIRMED IN PART; VACATED AND REMANDED IN PART
17