In a March 28, 2022 ruling in NuVasive, Inc. v. Day, a federal judge in Massachussetts awarded $1.6 million in lost profits to former employer NuVasive, finding that Timothy Day, one of its ex-sales representatives, had violated his restrictive covenant by joining Alphatec Spine, and then enticing several surgeons to buy competing products from Alphatec instead of from NuVasive.

The ruling didn't end there, however.

In fact, the Court also found the defendants liable for violating the terms of the preliminary injunction the Court had previously ordered, as they continued to solicit and poach clients from plaintiff. Moreover, the Court was particularly troubled in finding that the defendants had apparently deleted months' worth of text messages after the litigation had started, which further prejudiced, and damaged NuVasive.

So, how did the Court arrive at this number?

How the Federal Court Calculated NuVasive's Damages for its Lost Profits

At a court-ordered hearing, NuVasive called upon a forensic accountant to assess the value of the profits NuVasive lost as a result of defendants' diversion of business from these particular Boston-area surgeons to Alphatec. After a lengthy analysis of the forensic accountant's calculations, the Court stated as follows:

"Total lost profits, including prejudgment interest, for Dr. Glazer, Dr. Shin and Dr. Kwon, just for the Injunction Period, total $1,602,123 (incorporating the “worst case scenario” figure for hardware to Dr. Glazer from the 2019 Sales Projections as explained above) to $2,005,253 (incorporating the “best case scenario” figure for hardware to Dr. Glazer from the 2019 Sales Projections as explained above)."

Predictably, the defendants argued that these damages should be denied as overly speculative. But the Court rejected these claims, stating as follows:

“Delaware law has established that [i]t is axiomatic that a plaintiff, in order to recover damages from a defendant for breach of contract, must demonstrate with reasonable certainty that [the] defendant’s breach caused the loss” (emphasis and alterations in original) (internal quotation marks and citation omitted)) ... 

“Reasonable certainty is not equivalent to absolute certainty; rather, the requirement that plaintiff show defendant’s breach to be the cause of his injury with reasonable certainty merely means that the fact of damages must be taken out of the area of speculation.”  Tanner v. Exxon Corp., No. 79C-JA-5, 1981 WL 191389, at *1 (Del. Super. Ct. July 23, 1981).

Applying these rules to the context of non-compete agreements, the Court further stated as follows:

"Base Optics Inc. v. Liu, No. CV 9803-VCG, 2015 WL 3491495, at *16 n.122 (Del. Ch. May 29, 2015) (noting that “in the context of a breach of a non-compete agreement, lost profits from business within the scope of the parties’ non-compete are direct, not consequential damages” (citing eCommerce Indus., Inc. v. MWA Intelligence, Inc., No. CV 7471-VCP, 2013 WL 5621678, at *47 (Del. Ch. Sept. 30, 2013))) .... 

“The breaching party cannot avoid responsibility for making the other party whole simply by arguing that expectation damages based on lost profits are speculative because they come from an uncertain world created by the wrongdoer.  Rather, when a contract is breached, expectation damages can be established as long as the plaintiff can prove the fact of damages with reasonable certainty.  The amount of damages can be an estimate.”  Siga Techs., 132 A.3d at 1111 (emphasis in original)."

One Takeaway

To be sure, there are a number of takeaways from this lengthy, 26-page opinion. But if I had to narrow it down to one, it would be this: parties charged with violating a non-compete that casually assume that their former employer can't be awarded damages for the value of the diverted contracts do so at their own peril.

 

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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