Breach of Contract; Attorney’s Fees; Damages; Limitation on Damages
Vinculum, Inc. v. Goli Technologies, LLC, 2021 WL 5575829 (Pa. Super. 2021), allocatur granted June 22, 2022, appeal docket 74 MAP 2022
Vinculum, Inc. (Vinculum) and Goli Technologies, LLC (Goli) appeal from the judgment of the Court of Common Pleas of Bucks County (trial court) entered in favor of Vinculum for $32,145 and in favor of Goli for $42,525, on its counterclaim, resulting in a net award of $10,380 for Goli. The relevant background as set forth by the trial court is as follows:
Vinculum and Goli [] are both IT consulting companies. Both parties hire computer software professionals, send those individuals to companies and government agencies in need of such work, and retain a portion of the contractor’s wages. On December 16, 2014, the parties entered into a consulting and non-competition agreement (hereinafter the [] Consulting Agreement[]).
Under the Consulting Agreement, Goli [] agreed to abide by a non-solicitation clause under which, “Vendor [Goli] and consultant [‘Mr. Goli’] agree to not solicit or conduct business at Vinculum’s client[, Computer Aid, Inc./ Pennsylvania Department of Transportation (‘PennDOT’),] for a period of one (1) year from termination of this contract.” Under the Consulting Agreement, for a period of about one year, Goli[,] [] through Vinculum[,] worked full time as a software architect for PennDOT. At the end of December 2015, Mr. Goli and Goli [] decided to leave Vinculum’s employ and began working for PennDOT.
Shortly thereafter, Vinculum withheld $42,525 in outstanding wages from Mr. Goli and Goli [], field suit, and moved for a preliminary injunction to prohibit Mr. Goli and Goli [] from working for PennDOT. Goli [] subsequently filed a counterclaim seeking recovery of the unpaid wages. Vinculum’s request for a preliminary injunction was denied by this [c]ourt on March 28, 2016.
Following the denial of the preliminary injunction, Goli [] continued working for PennDOT. About four years later, after the close of discovery, Goli [] moved for partial summary judgment. In response to the arguments raised, the [c]ourt denied the [M]otion on December 19, 2019. A bench trial was held on July 6, 2020, to rule on both Vinculum and [Goli’s] claims. At the conclusion of the bench trial, this [c]ourt found that the [Consulting Agreement] between Vinculum and Goli [] was enforceable. As a result of [Goli’s] breach, Vinculum was entitled to $32,145 (the amount it would have received had Goli [] been employed for a one[-]year period through Vinculum). Regarding the counterclaim, this [c]ourt fond that Vinculum owed Goli [] $42,525 less the $32,145. Therefore, the net verdict of this [c]ourt was that Vinculum owed Goli [] $10,380, Following entry of the verdict, both parties filed Motions for Post-Trial Relief and [the trial court] denied both Motions and [J]udgment was entered on the verdict. . . .
Slip op. at 2-3. Both parties filed a timely notice of appeal raising multiple issues, of which only the following will be addressed by the Supreme Court on review:
2. Whether the [t]rial [c]ourt erred as a matter of law by finding that [Vinculum] proved the elements of its claim for breach of contract, and yet refusing to enforce the nondiscretionary attorney’s fees provision in the [Consulting Agreement]?
3. Whether the [t]rial [c]ourt erred as a matter of law by sustaining [Goli’s] objections to questions at trial concerning profits beyond one-year post-breach, and thereby imposing an arbitrary one-year limitation on [Vinculum’s] damages?
Slip op. at 3, 4. The clause at issue in the Consulting Agreement provides:
10. SOLICITATION AND NON-COMPETITION: [Goli] and [Mr. Goli] agree not to solicit or conduct business at Vinculum’s Client for a period of one (1) year from termination of this contract. Violation of this covenant will result in legal action to prohibit such solicitation and[/]or conducting of business. The stipulations in this paragraph will survive the termination of this agreement.
[Goli] agrees that the Client [PennDOT] revealed in Addendum Exhibit A, Individual Work Order, or any client introduced by Vinculum to [Goli] or [Goli’s] consultant is a client of Vinculum. Once the name of the Client is revealed to [Goli], and for a period of one (1) year thereafter, whether or not the services of [Goli] are engaged by Vinculum, it shall not compete with Vinculum in any manner, either directly or indirectly, through any other vendor or company, whether for compensation or otherwise, or assist any other person or entity to compete with Vinculum with this client or any other Client so revealed to [Goli] with which Vinculum does business.
Should [Goli] breach any of the covenants of solicitation and noncompetition, Vinculum shall have the right to immediately terminate this agreement and to seek legal and/or equitable relief, including injunctive relief against [Goli]. [Goli] understands and acknowledges that a breach of this covenant would cause substantial harm to Vinculum, which would be difficult to calculate. Therefore, as liquidated damages, and not a penalty, [Goli] agrees to pay Vinculum as decided by a court of [l]aw for each violation in addition to all damages, costs, including court costs and reasonable attorney fees incurred by Vinculum in enforcing the provisions of this Agreement. [Goli] further agrees and authorizes Vinculum to withhold payment up to the damages incurred in case of any violation by [Goli] or [Mr. Goli]. It is the intention of the parties that if any court construes any of these covenants or any portion thereof to be illegal[,] void or unenforceable because of its duration or scope, such court shall reduce the duration or scope of the covenant or provision, and [in] its reduced form, the covenant or provision shall be enforced.
[Goli] agrees that [] [Mr. Goli] [] will represent only Vinculum and [Mr. Goli] will not disclose [Goli’s] company name, pay rate to the Client and any other consultant per this clause.
Slip op. at 5-6.
With respect to the issue of attorney’s fees, Vinculum argued that the trial court erred when it refused to award attorney’s fees despite finding a breach of contract. Vinculum further asserted that a court does not have the power to modify the terms of a contract because the writing itself is the best indication of the parties’ intent. To support its argument, Vinculum relies on McMullen v. Kutz, 985 A.2d 769 (Pa. 2009). Vinculum argued that, in McMullen, the Pennsylvania Supreme Court upheld an award of attorney’s fees, “where there was no dispute as to whether the husband had breached the agreement and the parties had agreed to a fee-shifting agreement.” Slip op. at 10. Vinculum contended that, since the Consulting Agreement contained a provision allowing for attorney’s fees arising from Goli’s breach, the trial court had no basis to override the parties’ express intent as evidenced by the agreement. Superior Court, however, explained that Vinculum “failed to provide any information or analysis of the attorney’s fees it seeks to collect and the reasonableness of those fees.” Slip op. at 10.
Goli countered by arguing that the trial court found Vinculum withheld more money from Goli than Goli owed to Vinculum. Goli continued, explaining that “although Vinculum won a partial victory on its breach of contract claim against Goli, judgment ultimately was entered against Vinculum.” Slip op. at 10. Accordingly, Goli asserted that Vinculum was not a prevailing party and was, therefore, not entitled to attorney’s fees. Additionally, Goli argued that Vinculum failed to disclose the amount of its attorney’s fees “until the day before trial, denying Goli the opportunity to review them.” Slip op. at 10.
Superior Court set forth the standard for an award of attorney’s fees, which is at the discretion of the trial court. Additionally, the burden is on the party claiming the right to attorney’s fees to justify the fees. After the trial court assessed the reasonableness of the fees, it made its decision regarding same. The trial court found “that based upon ‘provisions of the Consulting Agreement and the findings of the [c]ourt, attorney’s fees were neither appropriate nor reasonable to award here.’” Slip op. at 11. Superior Court agreed with the trial court’s decision and explained that “although Vinculum was successful in its breach of contract claim, judgment was ultimately entered against Vinculum for $10,380.00, the amount of the net verdict in favor of Goli.” Slip op. at 11-12. Superior Court further explained that because Vinculum failed to provide an analysis of the reasonableness of the fees and because the record supported the trial court’s decision, Superior Court could not grant Vinculum relief.
As to the one-year limitation of damages issue, Vinculum argued that the Consulting Agreement places no limitation on damages arising from a breach of the agreement. Thus, “according to Vinculum, the trial court’s one-year limitation is arbitrary and lacks any case law to support it.” Slip op. at 13-14 (footnote omitted). Vinculum also argued that other jurisdictions have allowed for “head start” damages “where a breaching party begins competing before the non-compete period was over.” Slip op. at 14.
Goli responded, arguing that “because the noncompetition period was for one year from termination of the Consulting Agreement, Vinculum was entitled to be put in the position it would have been in had Goli not obtained any PennDOT positions for a period of one year.” Slip op. at 14. Goli also distinguished Insureone Independent Insurance Agency, LLC v. Hallberg, 976 N.E.2d 1014 (Ill. App. Ct. 2012), explaining that Hallberg does not apply Pennsylvania law and involved a distinct factual scenario.
Superior Court, in agreeing with the trial court, explained it was “unable to find any Pennsylvania case law supporting Vinculum’s argument that damages should be awarded beyond the time period agreed to by the parties in the Consulting Agreement.” Slip op. at 15-16. Accordingly, Superior Court concluded that the trial court did not commit an error nor an abuse of discretion by limiting Vinculum’s damages to the one-year period.
Judge Bowes dissented, explaining that because the parties’ contract provides that Goli “must pay Vinculum’s reasonable attorney’s fees in the event of Goli’s breach, and the trial court held that Goli indeed committed a breach”, she would vacate and remand the matter back to the trial court to enter a new judgment that includes an award of attorney’s fees for Vinculum. Dissent slip op. at 1. Judge Bowes further explained that “Vinculum sought fees as an item of damages based upon the language of the parties’ contract. Whether to award attorney’s fees in these circumstances is not a matter of trial court discretion, but of interpretation and enforcement of the plain meaning of the written instrument.” Dissent slip op. at 2. Judge Bowes cited Superior Court’s recent decision in Bert Co. v. Turk, 257 A.3d 93 (Pa. Super. 2021). That case involved a non-solicitation agreement between Mr. Turk and NWI, which Mr. Turk breached and was then sued by NWI. NWI prevailed and the trial court ordered Mr. Turk to pay NWI’s reasonable attorney’s fees. Mr. Turk appealed this decision to the Superior Court which affirmed the trial court’s award of attorney’s fees. In so concluding, Superior Court applied the principles of contract interpretation, looking to the written instrument as the best indication of the parties’ intent. Turning back to the instant matter, Judge Bowes explained that “when a contract provides that a breaching party is responsible for attorney fees and the fact-finder has determined that a breach has triggered that provision, the term of the contract must be enforced and some amount of fees awarded as damages. The trial court has discretion to determine how much of the claimed fees are reasonable, but not whether to award fees in the first instance. Dissent slip op. at 6. Judge Bowes cited the relevant provision of the parties’ agreement which provides for attorney’s fees in the event Goli breaches the agreement. Thus, Judge Bowes concluded that the language of the agreement “entitles Vinculum to reasonable attorney’s fees for each breach of the non-solicitation agreement as an item of damages following a court’s determination that Gol indeed violated its terms.” Dissent slip op. at 6. Thus, Judge Bowes would have vacated the judgment and remanded the matter to the trial court for the trial court to enter a new judgment after determining the reasonable attorney’s fees owed to Vinculum.
The Supreme Court granted allocatur to consider the following issues:
(1) Whether the trial court erred as a matter of law by finding that [Petitioner] proved the elements of its claim for breach of contract, and yet refusing to enforce the nondiscretionary attorney’s [sic] fees provision in the contract?
(2) Whether the trial court erred as a matter of law by sustaining [Respondent’s] objections to questions at trial concerning profits beyond one-year post-breach, and thereby imposing an arbitrary one-year limitation on [Petitioner’s] damages?
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