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If a defendant refuses to comply with a discovery request because it claims the information is confidential, what’s a court to do? One court’s answer would be to enter a default judgment as a sanction. But then what happens? According to a Montgomery County, Pa. Court of Common Pleas judge, the next step would be to assess damages. And that’s exactly what Judge Maurino J. Rossanese did, ruling that a defendant’s failure to meet a discovery request should not stop a plaintiff from recovering damages. In making that decision Rossanese awarded nearly $2.3 million in a breach of employment, tortious interference with contractual relations and theft of trade secrets case. “In the case subjudice, default judgment was entered against the defendants for failure to produce documentation (i.e. job candidates and clients that the individual defendants secured for Alliance,) that would make assessment of damages possible,” Judge Maurino J. Rossanese ruled. “Defendants cannot withhold discovery and then complain that the plaintiff’s evidence is insufficient to prove damages.” Judge Technical Services, a wholly owned subsidiary of Judge Inc., sued three former employees and their new employer, Alliance Consulting Group, alleging that the employees left Judge and breached their respective restrictive covenants. Judge and JTS place information technology consultants with specialized computer skills throughout the Philadelphia area. The plaintiffs alleged that three employees who left took client names with them and made contacts with JTS clients while working at their new job in direct competition with JTS. Attorney Michael D. Kristofco, of Blue Bell, Pa.’s Wisler, Pearlstine, Talone, Craig, Garrity & Potash, represented Judge and JTS. He said the judge’s decision sends a clear message to those who fail to comply with discovery requests. “It sends a message that discovery orders need to be taken seriously,” Kristofco said. “Not only are you facing a default as to liability, but also the prospect of having the failure to produce documents held against you at the damage phase.” Philadelphia lawyer Daniel S. Bernheim defended the case along with Bradley T. Beckman and Frederick McBrien. Bernheim said the decision to award damages was an “unfortunate” one based on the case’s history. From the onset of the dispute, Bernheim said the plaintiffs requested that Alliance produce its entire database of consultants. The defendants “respectfully refused,” to protect his client’s best interest, and asked that a neutral third party be designated where both sides could submit their lists and the third party could compare the names on the list to see which, if any, were similar. “Plaintiff refused to do that,” Bernheim said, “and much to our chagrin, the court did not require it.” Kristofco said he wouldn’t agree to the idea of the neutral third party because there would have been no way to verify if the defendants’ list of names constituted a full and complete compliance with the discovery request. “They could not pick and choose the manner in which they could comply,” Kristofco said. Beckman is no longer counsel in the case, due to a “mutual” decision. He said he believed Rossanese’s decision “to be erroneous based upon the facts of the case.” McBrien could not be reached for comment. The defendants, however, have made it clear that the judge’s decision awarding damages is not the final chapter in the case. Two new lawyers have joined the team and the judge has extended the time to file post-trial motions to July 24 from the court’s June 27 order. Attorneys Marvin Wilenzik of Elliott Reihner Siedzikowski & Egan and Art Schwab of Buchanan Ingersoll will “add new eyes” to the case. “If there’s anything that we realize going into this case is that it presents a number of fascinating questions,” Wilenzik said, “and we’re taking Judge Rossanese’s decision very seriously because he is a very able judge.” Bernheim said the defendants will “respectfully ask the court to take a hard look at this” and reconsider its decision. “If the court is not so inclined,” Bernheim said, “the matter will be appealed.” BACKGROUND Thomas Clancy and Lawrence J. Senko both worked for JTS before becoming employed with Alliance. Brett Pinto worked for Judge. While Judge concentrated on permanent placement, JTS concentrated its efforts on placing employees temporarily. Alliance is based in New York City, but maintains an office in Philadelphia as well as several other offices in major metropolitan areas across the country. Alliance places specialized computer consultants on a temporary basis. On Nov. 25, 1997, JTS and Judge filed a complaint and a motion for a preliminary injunction against its three former employees and Alliance alleging breach of employment agreement by Clancy, Senko and Pinto, tortious interference with contractual relations against Alliance and theft of trade secrets against Senko. The motion sought injunctive relief for the three employees’ breach of restrictive covenants. In January 1998, Judge and JTS made a discovery request that the defendants produce a list identifying all of Alliance’s technical engineers and consultants. The defendants objected to the request, saying it was “too broad” and then requested plaintiffs to produce identification of those consultants and clients deemed protected under each of Clancy, Senko and Pinto’s restrictive covenants. Both parties filed motions to compel discovery and the court ordered both parties to respond to the document requests. Defendants then filed a motion for reconsideration, which the court denied. On March 30, 1998, the court issued an order of contempt against the defendants and later granted a second petition for contempt in May 1998. The May order appointed a “discovery master” to review discovery en camera pursuant to the defendants’ concern over confidentiality. In June 1998, the defendants appealed both of the courts’ orders compelling discovery. The Superior Court quashed the appeal as interlocutory. The court then entered default judgment on Aug. 11, 1998 as a sanction for not complying with the discovery requests. The defendants again sought relief from the Superior Court, but the middle appeals court quashed the appeal again. The Montgomery County court then held a hearing in August 1999 to determine damages. DAMAGES The court first noted in its conclusions of law that the plaintiff has the burden of proving damages by a fair preponderance of the evidence. JTS and Judge sought recovery for lost profits for the alleged breach of the three employees’ restrictive covenants and Alliance’s alleged interference with their contract. In Pennsylvania, lost profits constitute what the plaintiffs actually earned and what they would have earned had the breach not happened. In rendering its decision based on the default judgment, the court cited Commonwealth Trust Co. of Pittsburgh v. Hachmeister Lind Co., where the state high court ruled that “a defendant whose wrongful conduct has rendered difficult the ascertainment of the precise damages suffered by the plaintiff is not entitled to complain that they cannot be measured with the same exactness and precision as would otherwise be possible …” Rossanese said that following Commonwealth Trust would require the court to estimate damages in Judge’s case. The court awarded Judge and JTS liquidated damages under a clause in the contracts with all three employee defendants. Finding there was a tortious interference by Alliance, the court ordered Alliance to pay compensatory and punitive damages. “Where, as here, the parties to a restrictive covenant do not assign a specific value for the covenant in the contract, the proper measure of damages is to ascertain what business the defendant company obtained as a direct result of the breach of those covenants,” Rossanese wrote. “Because we entered default judgment against defendant Alliance for tortious interference with Pinto, Senko and Clancy, contracts, we must award damages for same.” “And, as defendant Alliance has refused to produce any discovery which would aide us in determining this damage amount, we conclude that it is reasonable to award compensatory damages equal to 18 months worth of Pinto, Senko and Clancy’s salaries …,” the court wrote. Although the court ordered the three employee defendants to pay attorney’s fees, the court did not require Alliance to pay any attorney’s fees. The court, however, said Alliance should pay $700,000 in punitives because Alliance was “the driving force behind all defendants’ refusal to abide by our discovery requests.” The total award to the plaintiffs came to approximately $2.277 million. The court also issued a permanent injunction preventing Alliance, Senko, Clancy and Pinto from engaging in competition similar to JTS’s for a period of 18 months.

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