In an August 7 decision, a Broward County, Florida trial court awarded $5.2MM in compensatory and punitive damages against 2 former employees who unlawfully diverted patients to a competing entity they had formed - all while still working for, and collecting substantial paychecks from their employer, Therapies 4 Kids, Inc. Lest anyone think the Court viewed this as a "close call," the trial court put all such speculation to rest, stating as follows at the outset of its decision:
This Court has presided over many non-compete cases over the past 19 years. None were as egregious as this one. It was clear from the outset that Defendants, Sobrino-Sanchez and Santoro set forth in a surreptitious and purposeful manner to divert away both revenue and patients from their employer, T4K, for their own profit and gain ...
Sobrino-Sanchez and Santoro took advantage of information provided to them during their employment with T4K, including patient data, to form competing businesses while they continued their employment with Plaintiff. In other words while drawing a salary with T4K, they were concurrently stealing clients and opening their own competing businesses. This went on for many years before their fraud was discovered ...
T4K only learned of these activities shortly before the action was filed when its Chief Administrative Officer, Col. Noel Pace, Esq., was cleaning out the office previously occupied by Santoro. Mr. Pace found documents in Santoro’s desk, which reflected the diversion of T4K’s patients as well as monies derived from such patient accounts. The evidence established the Defendants intentionally targeted T4K’s highest revenue-generating clients to benefit their own businesses in disregard of T4K’s relationship with such clients. Significantly, Defendants also unlawfully and knowingly diverted insurance reimbursements belonging to T4K to their competing businesses. The evidence demonstrated that Defendants, Santoro and Sobrino-Sanchez, substantially profited from the operation of their parallel competing businesses at the same time that they were continuing to earn substantial salaries working for Plaintiff.
In setting forth the basis for its damages calculations, which were premised both upon compensatory and punitive damages, the Court stated as follows:
Disgorgement of the Defendants’ ill-gotten gains is an appropriate remedy for their breach of fiduciary duties and the duty of loyalty that was owed to T4K, tortious interference, fraud, conspiracy, and unfair competition. See, e.g.,TT Community Dev. Corp. v. Barton, 457 F. Supp. 224, 230 (M.D. Fla. 1978)
The court further finds that T4K is entitled to claw back some of the compensation T4K paid to Santoro and Sobrino-Sanchez during the period of disloyalty in which they were engaging in a fraudulent scheme and operating unlawful parallel side businesses. Disgorgement of salary and bonuses paid by T4K are properly recoverable under Florida Law. See ICMfg & Associates, Inc. v. Bare Bd. Group, Inc., 238 So. 3d 326, 338 (Fla. 2d Dist. App. 2017) (affirmed “damages awards, including ... for disgorgement of salaries and bonuses against” former officers, directors, and employees who breached fiduciary duties);
Not all of the damages elicited by the Plaintiff is recoverable. As to Sobrino-Sanchez, during the years 2017, 2018, and 2019 T4K paid her $362,740. During these years, while employed with T4K, she also was operating her other businesses. Plaintiff argues all of these wages should be “clawed back”. It cannot be said that T4K did not benefit from some of Sobrino-Sanchez’s work.
One Interesting Takeaway
Although not particularly critical to the overall analysis of this case, it is worth noting that the Florida court's limitation on the amounts of compensation that could be clawed back for the individual defendants' breaches of their respective fiduciary duties to T4K under the faithless servant doctrine because "it cannot be said that T4K did not benefit from some of [defendants'] work," differs from the New York rule, which in most cases allows for the disgorgement of all compensation paid during the period of disloyalty. In my view (and that of a number of my colleagues in the noncompete space), the Florida rule, which paints with a far narrower and targeted brush, seems more logical.