To schedule a confidential consultation, call (732) 572-0500
Kenneth Vercammen & Associates, P.C. 2053 Woodbridge Avenue - Edison, NJ 08817

Thursday, May 12, 2011

Sika Corp. v. Hostler Restrictive covenant


SIKA CORPORATION, Plaintiff-Appellant,


JOSEPH HOSTLER, Defendant-Respondent,



Defendant. ________________________________

Argued: October 18, 2010 – Decided: May 11, 2011

Before Judges C.L. Miniman and LeWinn.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-118-09.

Steven F. Ritardi argued the cause for appellant (Carmagnola & Ritardi, LLC, attorneys; Mr. Ritardi and Domenick Carmagnola, of counsel; Mr. Ritardi and Gina Casale, on the briefs).

Jonathan E. Hill argued the cause for respondent.



Plaintiff Sika Corporation appeals from two final orders entered on November 6 and December 18, 2009, denying its appli- cation for an award of counsel fees to be paid by defendant Joseph Hostler (Hostler) and denying its motion for reconsidera- tion of same. We dismiss the appeal from the November order because it was not timely filed. However, we reverse the Decem- ber denial of plaintiff's motion for reconsideration as a mistaken exercise of discretion.

I. The facts can be stated briefly. Plaintiff is a New Jersey

corporation with its principal place of business in Lyndhurst. Plaintiff manufactures and sells chemicals "for use in the con- struction industry and automotive markets." Among plaintiff's line of products are "epoxies, structural strengthening systems, wood floor bonding adhesives and primers, industrial flooring, polyurethane sealants and adhesives." Hostler has been employed in the wood-flooring business and the sale of wood-floor adhesives since 1992.

Plaintiff hired Hostler in July 2004 as its "National Sales Manager" for its "Wood Floor Bonding Unit." The parties exe- cuted a "Confidentiality, Non-compete and Assignment Agreement" on August 2, 2004. In Section One of the agreement, Hostler agreed to "hold in trust, keep confidential, and . . . not



publish, disclose or otherwise disseminate to any third party or make any use of the Confidential Information of [plaintiff]" without its approval. In Section Two, Hostler agreed not to solicit on behalf of a new employer any of plaintiff's customers or employees for one year following termination. Hostler also agreed in Section Three that, for a period of one year following his termination, he would not, without the prior consent of plaintiff, directly or indirectly work for one of plaintiff's competitors or prospective competitors in any state or country in which plaintiff did business. Section Six, which is at issue here, provided that "[i]n the event of a breach . . . , [plain- tiff] shall be entitled to such injunctive relief and damages and also shall be entitled to reimbursement . . . of [plain- tiff's] reasonable attorneys' fees and costs incurred by [plain- tiff] in enforcing" the agreement. Attached to the agreement was a "Schedule A Employee Statement," which included a list of clients with whom Hostler had a prior relationship that would not be deemed clients of plaintiff.

In early April 2009, Hostler notified plaintiff he was leaving its employ to go to work for defendant BASF Group (BASF), a multinational chemical corporation that employs over 15,000 employees in North America with its United States headquarters in Florham Park. Hostler had been in negotiations



with BASF since February 2009. BASF notified Hostler that his employment with them would not conflict with the agreement he signed with plaintiff because it permitted Hostler to continue business with those customers on the client list provided in Schedule A. Hostler accepted the offer of employment.

Plaintiff immediately commenced suit by way of order to show cause. In its April 14, 2009, complaint against Hostler and BASF, plaintiff alleged, in part, that Hostler (1) breached his contractual duties by emailing confidential information, including a customer contact list, to his private email address prior to leaving plaintiff and by maintaining possession of a "Top 20 Accounts" list which he emailed to himself in January 2009; (2) solicited plaintiff's customers on behalf of BASF while employed with plaintiff; and (3) solicited several of plaintiff's employees to work with Hostler at BASF.

The judge entered the order on April 24, 2009, requiring defendants to show cause why a preliminary injunction should not issue. That order temporarily restrained Hostler from commencing active employment with BASF; performing any duties for BASF; furnishing services to or for plaintiff's clients or customers; soliciting, contacting, or communicating with any client or customer of plaintiff; and soliciting, contacting, or communicating with any employee of plaintiff for the purpose of



recruiting or hiring such employee. It also restrained defendants from maintaining, disclosing, or otherwise using any confidential, proprietary, or trade secret information belonging to plaintiff and restrained BASF from putting Hostler on its payroll.

The judge heard oral argument on the application for a preliminary injunction on May 12, 2009, and on June 18, 2009, entered a preliminary injunction. That order restrained Hostler from attempting to induce plaintiff's employees to accept employment with Hostler or any entity with which he was affiliated and preliminarily restrained defendants from hiring any of plaintiff's sales representatives who reported to Hostler. With the exception of the Schedule A client list, the order preliminarily restrained Hostler from competing with plaintiff in the floor-adhesives industry, including wood floor bonding adhesives, and from soliciting or inducing plaintiff's customers who purchased products from plaintiff over the two- year period ending April 2009. The order also recognized that Hostler had returned certain of plaintiff's documents and property and that he represented he had not given same to BASF or anyone else, but compelled him to return any additional documents or property that might remain in his possession and restrained him, or anyone acting in concert with him, from using



or disclosing plaintiff's confidential information and proprietary documents. This order provided plaintiff with substantially all of the relief against Hostler that it sought in the order to show cause. The only exception was the Schedule A client list.

Following the entry of these preliminary restraints, the parties were able to amicably resolve the litigation with a final consent order. The order was entered on September 30, 2009, and reflected the parties' agreement that, through and including April 6, 2010, Hostler was restrained from soliciting or inducing plaintiff's employees to accept employment with defendants and from hiring any of plaintiff's sales representatives who reported to Hostler as of April 2009. Additionally, with the exception of the Schedule A client list, the order restrained Hostler from competing with plaintiff in the floor-adhesives industry, including wood floor bonding adhesives, and from soliciting plaintiff's customers who had purchased products or services from it during the two-year period preceding April 2009. The order also recognized that Hostler had returned certain of plaintiff's documents and property and that he represented he had not given same to BASF or anyone else, but compelled him to return any additional documents or property that might remain in his possession and



restrained him, or anyone acting in concert with him, from using or disclosing plaintiff's confidential information and proprietary documents. The order further provided that the trial judge "retain[ed] jurisdiction . . . to address the issue of attorneys['] fees," the only issue remaining for resolution.

Plaintiff filed a subsequent motion for an award of counsel fees, which was denied on November 6, 2009. At the hearing on plaintiff's application, it argued that it was entitled to fees notwithstanding the fact that the trial court did not make a final ruling on the merits of plaintiff's complaint beyond granting a preliminary injunction. Plaintiff noted that there had been "certain breaches" of the confidentiality agreement that caused it to file suit to enforce the agreement. Finally, plaintiff argued that Hostler had violated his duty of good faith and loyalty, which caused plaintiff to incur costs to enforce the agreement.

Hostler argued that plaintiff was not entitled to attorneys' fees since he abided by the terms of the agreement. Hostler explained that his understanding of and cooperation with the agreement was reflected in his correspondence with BASF and BASF's agreement to employ Hostler to the extent that he could only bring his Schedule A clients to the company.



The judge agreed with Hostler, holding that plaintiff was not entitled to attorneys' fees under the agreement. The judge explained that he was not in a position to make any findings that Hostler had violated the agreement since the case proceeded only to the preliminary injunction stage. The amicable resolution between the parties "disable[d the judge] from quantifying, or even identifying, areas of success and failure" of plaintiff's claims.

In support of plaintiff's motion for reconsideration, it cited legal authority "for the proposition that the fact that the parties resolved the matter by consent does not preclude the court from enforcing a contractual fee shifting provision." At the December 18, 2009, hearing on plaintiff's motion for reconsideration, plaintiff urged that the judge erred as a matter of law in utilizing prevailing-party analysis to determine the fee application and that the judge was able to award fees based on the grant of a preliminary injunction because that relief justified the action. From there, plaintiff urged the case ultimately settled with a final injunction in its favor. Thus, plaintiff asserted that the judge could award fees up to the point in time when the preliminary injunction was granted. Plaintiff pointed out that it was not seeking an award

of fees incurred thereafter.

Plaintiff argued that the



settlement did not preclude the award of fees incurred in securing the preliminary injunction, especially where the ultimate relief so closely mirrored the preliminary relief.

The trial judge rejected this argument, explaining that although there was some evidence of raiding, the injunction "was fundamentally about . . . whether or not Hostler was going to be able to go to work for a serious competitor of . . . plaintiff and then utilize everything he learned from that operation and compete against [plaintiff]." The judge also noted that he "never determined as a finding that there was a breach of the agreement by [Hostler]." The judge continued, "There certainly was a lot of evidence of some breaching relating to raiding of employees, but I don't remember any strong evidence, certainly no finding that there was exploitation of confidential information, that there was an improper poaching of clients, that there [were] . . . any violations nor proven determinations." The judge cited the "lack of any proceeding whereby [he] made findings of fact as to violations," and noted further that "the record . . . does not establish the extent to which the . . . final order[] reflects a success . . . by the" plaintiff. The judge denied plaintiff's motion for reconsideration following the hearing.



Plaintiff appealed from both orders denying fees on January 11, 2010. It asserts that the judge misapplied and misconstrued applicable law, resulting in a mistaken exercise of discretion to deny counsel fees. It further asserts that the judge erred in denying an award of fees and costs plaintiff was required to expend to enforce its confidentiality agreement because the judge unequivocally found that preliminary injunctive relief was necessary and subsequently entered a final order granting such relief. Thus, plaintiff was a prevailing party entitled to recover its counsel fees and costs. Finally, it urges that barring such relief simply because the parties settled the matter violates the public policy favoring settlement of litigation. Hostler responds that the judge did not mistakenly exercise his discretion and urges that the fee-shifting provision is unenforceable as a matter of law.

II. We begin with the procedural posture of this appeal. The

November order denying counsel fees was a final judgment as it disposed of all issues as to all parties. N.J. Sch. Constr. Corp. v. Lopez, 412 N.J. Super. 298, 308 (App. Div. 2010); Grow Co. v. Chokshi, 403 N.J. Super. 443, 457-58 (App. Div. 2008). Its entry triggered the running of the forty-five days allowed by Rule 2:4-1(a) for filing an appeal.



Here, the time for appeal from the November 6 order would ordinarily have lapsed on December 21. Nevertheless, the time for appeal may be tolled in certain circumstances governed by Rule 2:4-3, which provides in pertinent part:

The running of the time for taking an appeal . . . shall be tolled:


(e) In civil actions on an appeal to the Appellate Division by the timely filing and service of a motion to the trial court for . . . rehearing or reconsideration seek- ing to alter or amend the judgment or order pursuant to [R.] 4:49-2. The remaining time shall again begin to run from the date of the entry of an order disposing of such a motion.

[R. 2:4-3(e).] Plaintiff filed its motion for reconsideration on November

30, the twenty-fourth day after entry of the order denying its fee application, leaving twenty-two days for appeal.1 That motion was denied by order entered on December 18. Plaintiff then filed its notice of appeal twenty-four days later on January 11, 2010——two days late.

1 The record on appeal does not establish whether this motion was timely filed. Because the record is silent, we presume that it was filed within twenty days of service of the November 6, 2009, order on all parties, the event triggering the time for a motion under Rule 4:49-2.



Where a notice of appeal has not been timely filed, we lack jurisdiction to consider the issues presented by the appeal. Alberti v. Civil Serv. Comm'n, 41 N.J. 147, 154 (1963); In re Hill, 241 N.J. Super. 367, 372 (App. Div. 1990). Of course, the time for filing an appeal may be extended by us for thirty days pursuant to Rule 2:4-4. However, no motion for an extension of time under this rule has been made. As such, the record does not establish the requisite showing of good cause, and we will not enlarge the time without such a showing. R. 2:4-4(a). Thus, we have no jurisdiction to consider the issues respecting the November 6 order and confine our consideration to the denial of the motion for reconsideration.

III. The scope of our review is limited. A motion to alter or

amend a judgment or order under Rule 4:49-2 is a matter left to "the trial court's sound discretion." Capital Fin. Co. of Del. Valley, Inc. v. Asterbadi, 398 N.J. Super. 299, 310 (App. Div.), certif. denied, 195 N.J. 521 (2008). Additionally, a determination on a fee application is committed to the sound discretion of the trial court. Rendine v. Pantzer, 141 N.J. 292, 317 (1995); Strahan v. Strahan, 402 N.J. Super. 298, 317 (App. Div. 2008).



"[J]udicial discretion" is the option which a judge may exercise between the doing and the not doing of a thing which cannot be demanded as an absolute legal right, guided by the spirit, principles and analogies of the law, and founded upon the reason and conscience of the judge, to a just result in the light of the particular circumstances of the case.

[Smith v. Smith, 17 N.J. Super. 128, 132 (App. Div. 1951), certif. denied, 9 N.J. 178 (1952).]

The exercise of judicial discretion "is not unbounded and it is not the personal predilection of the particular judge." State v. Madan, 366 N.J. Super. 98, 109 (App. Div. 2004). Moreover, the exercise of judicial discretion must have a factual underpinning and legal basis. Id. at 110. Applying these principles, we have explained:

Judicial discretion, sound discretion guided by law so as to accomplish substantial justice and equity, is a magisterial, not a personal discretion. It is legal discretion, in which the judge must take account of the applicable law and be governed accordingly. If the judge misconceives or misapplies the law, his discretion lacks a foundation and becomes an arbitrary act. When that occurs, the reviewing court should adjudicate the matter in light of applicable law to avoid a manifest denial of justice.

[Cosme v. Borough of E. Newark Twp. Comm., 304 N.J. Super. 191, 202 (App. Div. 1997) (internal quotation marks omitted), certif. denied, 156 N.J. 381 (1998).]



See also New Century Fin. Servs., Inc. v. Nason, 367 N.J. Super. 17, 28 (App. Div. 2004) (holding that we owe no deference to an exercise of discretion based on an error of law).

Where the trial court makes a discretionary ruling, that decision will not be reversed on appeal absent a showing of a mistaken exercise of discretion. In re Estate of Hope, 390 N.J. Super. 533, 541 (App. Div.), certif. denied, 191 N.J. 316 (2007); Schweizer v. MacPhee, 130 N.J. Super. 123, 127 (App. Div. 1974). A trial judge's decision will constitute a mistaken exercise of discretion where "the 'decision [was] made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis.'" United States v. Scurry, 193 N.J. 492, 504 (2008) (quoting Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)).

Reconsideration is available only when the judge's decision is based on plainly incorrect reasoning, when the judge failed to consider evidence, or there is good reason to consider new evidence. Capital Fin. Co., supra, 398 N.J. Super. at 310; Town of Phillipsburg v. Block 1508, Lot 12, 380 N.J. Super. 159, 175 (App. Div. 2005). No new evidence was presented here; thus, we determine only whether the judge failed to consider evidence or based his decision on plainly incorrect reasoning, including a



mistake of law. Accordingly, we examine each of plaintiff's claims.

IV. Although New Jersey disfavors the award of attorneys' fees,

"'a prevailing party can recover those fees if they are expressly provided for by statute, court rule, or contract.'" Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 385 (2009) (citation omitted). Parties are clearly permitted by contract to agree to pay attorneys' fees. N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 569-70 (1999). Although the language of such contractual provisions should be construed "in light of the general policy disfavoring the award of attorneys' fees," id. at 570, there is no claim here that the language is ambiguous, nor do we find it to be so. Contractual attorneys' fees must be "reasonable," and a "threshold issue" is whether the party seeking fees is a "prevailing party." Ibid. We thus reject plaintiff's contention that the judge erred in utilizing prevailing-party analysis to evaluate its fee application. We next consider whether the judge misapplied that analysis to the facts.

Courts utilize a two-prong test to determine whether a party seeking attorneys' fees is the "prevailing party." Mason v. City of Hoboken, 196 N.J. 51, 73 (2008). The first prong



requires the claimant to demonstrate that the lawsuit is "'causally related to securing the relief obtained; a fee award is justified if [the party's] efforts are a "necessary and important" factor in obtaining the relief.'" N. Bergen Rex, supra, 158 N.J. at 570. "The first prong requires a factual causal nexus between the pleading and the relief ultimately received." Ibid. By laying the complaint beside the preliminary injunction and the final injunction, it is clear that there was "a factual causal nexus between the pleading and the relief ultimately received," ibid.; the first prong has been established as a matter of law.

The second prong requires the party seeking fees "to show that 'the relief granted had some basis in law.'" Id. at 571 (quoting Singer v. State, 95 N.J. 487, 494, cert. denied, 469 U.S. 832, 105 S. Ct. 121, 83 L. Ed. 2d 64 (1984)). There can be no doubt that an action for misappropriation of confidential business information, including trade secrets and customer lists, is a cause of action with a basis in law. That does not end the inquiry, however, because this prong requires both "a factual and legal determination." Ibid. All relief sought need not be recovered. Ibid. "[R]ather, there must be the settling of some dispute that affected the behavior of the [party asked



to pay attorneys' fees] towards the [party seeking attorneys' fees]." Ibid. (internal quotation marks omitted).

Put differently, a party prevails "when actual relief on the merits of [the] claim materially alters the relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Mason, supra, 196 N.J. at 73 (internal quotation marks omitted). Whether that resolution involves "a judicial decree, a quasi-judicial determination, or a settlement [is] not a factor." Teeters v. N.J. Div. of Youth & Fam. Servs., 387 N.J. Super. 423, 432 (App. Div. 2006), certif. denied, 189 N.J. 426 (2007). To assess whether a party prevailed, "courts must look to whether a plaintiff's lawsuit acted as a catalyst that prompted defendant to take action and correct an unlawful practice." Mason, supra, 196 N.J. at 74.

Plaintiff argues that the judge misapplied prevailing-party analysis when he concluded that it was not a prevailing party because he failed to consider that it prevailed on its application for a preliminary injunction, which led the parties to consent to a final injunction that largely mirrored the preliminary one. We agree. The issue should never have been whether plaintiff would have prevailed had the matter been tried



to a conclusion. Such an inquiry would indeed run counter to the policy favoring settlements.

The judge ought to have focused on the issue of whether "plaintiff's lawsuit acted as a catalyst that prompted defendant to take action and correct an unlawful practice." Ibid. It certainly did. For example, before the temporary restraints and preliminary injunction, Hostler violated the bar on solicitation of his co-workers for the benefit of BASF contained in Section Two, ¶ 1(b), of the Agreement and apparently admitted doing so in his deposition. In granting the preliminary injunction, the judge found that "there's sufficient evidence" that this occurred. Thereafter, Hostler was restrained from engaging in this behavior and complied with that restraint. Thus, plaintiff was a prevailing party.

We are satisfied the order denying the motion for reconsideration constituted a mistaken exercise of discretion inasmuch as the initial exercise of discretion to deny an award of fees was based on legal error. We therefore remand for an award of reasonable counsel fees and costs.

Dismissed in part and reversed and remanded in part.



No comments: