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NXEGEN, LLC v. JOHN CARBONE

(AC 35954)

Lavine, Beach and Borden, Js.

Argued October 22, 2014—officially released February 3, 2015

(Appeal from Superior Court, judicial district of

Hartford, Miller, J.)

James G. Green, Jr., with whom, on the brief, was

David W. Case, for the appellant (defendant).

Alexander J. Trembicki, for the appellee (plaintiff).
Opinion

BEACH, J. The defendant, John Carbone, appeals

from the judgment of the trial court granting the application to confirm the arbitration award in favor of the

plaintiff, Nxegen, LLC. The defendant claims that the

trial court erred in determining that the arbitrator did

not manifestly disregard the law in finding that the

defendant maliciously misappropriated trade secrets

and consequently awarding punitive damages to the

plaintiff. We disagree and affirm the judgment of the

trial court.

The following facts were found by the arbitrator. The

defendant is the former chief operating officer of the

plaintiff.1In 2001, the officers of the plaintiff, including

the defendant, executed employment contracts and

agreements with respect to intellectual property rights.

The defendant’s employment contract was for a term

of one year and was automatically renewed for an additional year if neither party gave sixty days notice of

intent to terminate the contract. The defendant held

the titles of secretary and vice president of operations;

he assumed the role of chief operating officer. In February, 2005, two businesses owned by Lynn Sutcliffe

agreed to work with the plaintiff for the mutual benefit

of all three companies. Sutcliffe became chief executive

officer of each of the three companies. The defendant

did not get along with Sutcliffe, to whom he technically

reported, and he was unhappy with the direction in

which the plaintiff’s business was going. In 2006, the

defendant renegotiated his employment contract. In

exchange for an increase in his compensation, he

agreed to stay with the plaintiff until May 24, 2008.

Meanwhile, in 2006, the plaintiff was awarded a

$737,203 contract by the Board of Education of the City

of Bridgeport (board) for phase I of a project encompassing energy efficiency upgrades in some of the

board’s facilities. After completion of phase I, the board

asked the plaintiff to prepare a proposal for phase II

of the project, which contemplated energy efficiency

modifications for thirteen additional school facilities.

The work required by phase II involved the use of more

complex systems than those with which the plaintiff

had previously worked. The defendant was in charge

of the plaintiff’s proposal for phase II, and he presented

it to the board in July, 2007. The board approved the

proposal at a meeting on August 27, 2007, and authorized the superintendent of schools to enter into a contract with the plaintiff for $2,304,000.

Two days later, at the plaintiff’s regular sales meeting,

the defendant failed to disclose fully the circumstances

of the $2,304,000 project and, instead, reported that the

phase II project had been held up because of personnel

turnover. On September 6, 2007, the defendant

announced his intention to resign from the plaintiff,
and he submitted his resignation on September 10, 2007,

effective at the end of the month.

The arbitrator found that on September 14, 2007,

the defendant provided the board’s purchasing director

‘‘with his business card on which he deleted his . . .

office phone number [at the plaintiff] and replaced it

with his personal cell phone number.’’ The defendant

then met with the president of the plaintiff on September 27, 2007, to discuss the projects he had been working on. The defendant did not disclose to any of his

supervisors at the plaintiff the size, nature, or dollar

value of the phase II project proposal, or the fact that

it had been approved. The defendant had expressed a

willingness to consult for the plaintiff after he resigned,

but the parties were unable to come to an agreement

on a consulting arrangement, and those discussions

concluded in November, 2007.

On December 12, 2007, the defendant formed his own

company, Power Point Energy, LLC, which he owned

solely. The defendant worked to secure the phase II

contract for his new company. He secured utility incentives for the project in January, 2008. On April 9, 2008,

the superintendent of schools entered into a contract

to complete phase II with the defendant’s company

ratherthan with the plaintiff.2 The defendant’s company

completed the project and was paid for it.

After the defendant resigned, the plaintiff discovered

various breaches of his fiduciary duties; one such

breach occurred in the context of his involvement with

the phase II contract.3 The plaintiff sought arbitration,

perthe defendant’s employment contract, on November

20, 2009. Following the arbitration hearing, the parties

submitted memoranda and reply memoranda, and the

arbitrator issued an interim award on April 6, 2012. The

arbitrator found that the defendant had wilfully and

maliciously misappropriated the plaintiff’s trade secrets

in violation of the Connecticut Uniform Trade Secrets

Act (CUTSA), General Statutes § 35-50 et seq., by using

work product developed while he was employed by the

plaintiff to obtain the contract for his new company

and that the defendant had breached his employment

contract by resigning before his two year term was

complete. The arbitrator also held that the defendant’s

actions clearly violated the Connecticut Unfair Trade

Practices Act (CUTPA), General Statutes § 42-110a et

seq., but dismissed the claim as duplicative because

no separate damages were recoverable.4 Finally, the

arbitrator found that the defendant had breached his

fiduciary duty to the plaintiff by not disclosing the

approval of the phase II contract to his superiors and

for various unauthorized uses of funds while he was

an employee.

The arbitrator awarded the plaintiff compensatory

damages and held a second hearing to determine the

amount of punitive damages, interest, costs, and attor-
ney’s fees. The arbitrator subsequently issued the final

award.5 The arbitrator declined to reconsider his finding

that the defendant’s misappropriation of trade secrets

was malicious, and awarded punitive damages6in the

amount of $340,156. The arbitrator awarded a total of

$1,031,356 in damages for the defendant’s violation of

CUTSA.7

The plaintiff applied to the trial court to confirm

the arbitration award. The defendant objected to the

application and filed an application to vacate the award

in part. Specifically, the defendant objected to the punitive damages award, claiming that it was entered in

‘‘manifest disregard of the law.’’ The plaintiff objected

to the defendant’s motion to vacate the award. The

court granted the motion to confirm the arbitration

award. This appeal followed.

The defendant claims here, as he did in the trial court,

that the arbitrator awarded punitive damages in manifest disregard of the law. The defendant argues that

the arbitrator understood that the standard to award

punitive damages under CUTSA required the actions of

the defendant to be both wilful and malicious, but

ignored precedent as to what constitutes malice and

decided the case under a different definition. We

disagree.

‘‘Our analysis is guided by well established principles

regarding a party’s application to vacate a consensual

arbitration award resulting from an unrestricted submission. Judicial review of arbitral decisions is narrowly confined. . . . When the parties agree to

arbitration and establish the authority of the arbitrator

through the terms of their submission, the extent of

our judicial review of the award is delineated by the

scope of the parties’ agreement. . . . When the scope

of the submission is unrestricted, the resulting award

is not subject to de novo review even for errors of law

so long as the award conforms to the submission. . . .

Because we favor arbitration as a means of settling

private disputes, we undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of

alternative dispute resolution. . . .

‘‘Where the submission does not otherwise state, the

arbitrators are empowered to decide factual and legal

questions and an award cannot be vacated on the

grounds that . . . the interpretation of the agreement

by the arbitrators was erroneous. Courts will notreview

the evidence nor, where the submission is unrestricted,

will they review the arbitrators’ decision of the legal

questions involved. . . . In other words, [u]nder an

unrestricted submission, the arbitrators’ decision is

considered final and binding; thus the courts will not

review the evidence considered by the arbitrators nor

will they review the award for errors of law or fact. . . .
‘‘Even in the case of an unrestricted submission, we

have . . . recognized three grounds for vacating an

award: (1) the award rules on the constitutionality of

a statute . . . (2) the award violates clear public policy

. . . [and] (3) the award contravenes one or more of

the statutory proscriptions of [General Statutes] § 52-

418.’’ (Internal quotation marks omitted.) Economos v.

Liljedahl Bros., Inc., 279 Conn. 300, 305–306, 901 A.2d

1198 (2006).

‘‘[A]n award that manifests an egregious or patently

irrational application of the law is an award that should

be set aside pursuant to § 52-418 (a) (4) because the

arbitrator has exceeded [his] powers or so imperfectly

executed them that a mutual, final and definite award

upon the subject matter submitted was not made. We

emphasize, however, that the manifest disregard of the

law ground for vacating an arbitration award is narrow

and should be reserved for circumstances of an arbitrator’s extraordinary lack of fidelity to established legal

principles.’’ (Internal quotation marks omitted.) Garrity v. McCaskey, 223 Conn. 1, 10, 612 A.2d 742 (1992).

‘‘The test [announced in Garrity] consists of the following three elements, all of which must be satisfied in

order for a court to vacate an arbitration award on the

ground thatthe arbitration panel manifestly disregarded

the law: (1) the error was obvious and capable of being

readily and instantly perceived by the average person

qualified to serve as an arbitrator; (2) the arbitration

panel appreciated the existence of a clearly governing

legal principle but decided to ignore it; and (3) the

governing law alleged to have been ignored by the arbitration panel is well defined, explicit, and clearly applicable.’’ Saturn Construction Co. v. Premier Roofing

Co., 238 Conn. 293, 305, 680 A.2d 1274 (1996).

In this case, the first two prongs of the Garrity test

have not been satisfied. In the final award, the arbitrator

properly acknowledged that the law required findings

of malice and wilfulness if punitive damages were to

be awarded. He set forth the reasons he found malice

in the defendant’s conduct: ‘‘[The defendant] is correct

that the statute requires a finding of both a ‘wilful’ and

a ‘malicious’ violation. Although there was not the type

of evidence showing malice as in Elm City Cheese [Co.]

v. Federico, 251 Conn. 59, [752 A.2d 1037] (1999) . . .

there was sufficient evidence to warrant the finding of

malice in this case. [The defendant] did not like . . .

Sutcliffe’s management style or vision for [the plaintiff].

Based on [the defendant’s] numerous violations of his

fiduciary duty to [the plaintiff], the finding is warranted

[in] that his conduct in stealing [the plaintiff’s] trade

secrets was motivated by [the defendant’s] ill will

towards . . . Sutcliffe and his desire to harm [the

plaintiff].’’ The court properly found, as to the first and

second prongs of the Garrity test, that the defendant’s

contention that the arbitrator consciously ignored the
law was not supported by the record, nor was the defendant’s contention that the arbitrator committed an obvious error.

The defendant argues in his brief to this court that

the second and third prongs of the Garrity test were

satisfied because the law is clear and the arbitrator

appreciated the law but decided to ignore it. Regardless

of whether the law is clear and well-defined, there is

nothing in the record to compel the conclusion that

the arbitrator consciously disregarded the law (second

prong) or that any alleged error was obvious (first

prong). The defendant argues that the arbitrator’s reference to Elm City Cheese Co., and his recognition that

Elm City Cheese Co. and the present case do not present

identical situations, lead to the conclusion that the arbitrator consciously disregarded the law in awarding

punitive damages. As did the trial court, we consider

the arbitrator’s findings to suggest only that the factual

situation in Elm City Cheese Co. was different from the

present case, and not that the arbitrator applied an

unauthorized standard in finding malice. Whether the

arbitrator correctly found malice is not for us to decide.

See Economos v. Liljedahl Bros., Inc., supra, 279 Conn.

305. We decide only that the arbitrator’s finding of malicious misappropriation and award of punitive damages

in this case does not ‘‘so egregiously depart from established law that [it] border[s] on the irrational [such that

judicial approval thereof] would undermine society’s

confidence in the legitimacy of the arbitration process.’’

Garrity v. McCaskey, supra, 223 Conn. 10. The defendant failed to prove that the Garrity test was satisfied

because there was no obvious error, and the record did

not show that the arbitrator deliberately ignored the

law. Therefore, there is no error in the trial court’s

conclusion that the arbitrator did not run afoul of § 52-

418 (a) (4).

The judgment is affirmed.

In this opinion the other judges concurred.

1 The defendant was one of four founding members of Energy Solutions,

LLC, which was the predecessor to the plaintiff. In 1999, Energy Solutions,

LLC, was reorganized as Nxegen, Inc., following an investment of capital

by and the involvement of new investors. In January, 2005, the relevant

assets of Nxegen, Inc., were transferred to the plaintiff. For simplicity, we

refer to these entities collectively as the plaintiff.

2 The evidence was unclear how the defendant managed to obtain the

contract for his new company because the defendant’s company never

obtained a ‘‘qualification to bid,’’ never bid on the work, and the board never

authorized the execution of the contract with anyone other than the plaintiff.

3 The president of the plaintiff learned of the defendant’s involvement in

the phase II project when an employee of the board called to complain

about the condition of its premises.

4 The arbitrator dismissed five of the eight counts. The arbitrator found

the plaintiff’s claim that the defendant breached his employment agreement

by using the plaintiff’s proprietary information was duplicative of the CUTSA

claim and therefore dismissed it. The arbitrator dismissed the other four

claims because he found that the request for an injunction prohibiting the

defendant from breaching the employment agreement was moot, that there

was insufficient evidence to sustain claims of tortious interference with the

plaintiff’s contractual or business relationships, and that the noncompete

clause in the parties’ agreement was unenforceable.
5 The arbitrator also issued an amended award to correct a computational

error as to the amount of fees and costs.

6 General Statutes § 35-53 (b) provides in relevant part: ‘‘[I]f the court

finds wilful and malicious misappropriation, the court may award punitive

damages . . . .’’

7

In the final, amended award, the arbitrator awarded compensatory damages in the amounts of $691,200 for the breach of CUTSA, $36,850 for the

breaches of fiduciary duty, and $129,211.44 for the breach of contract, as

well as an award of attorney’s fees, expert witness fees, and costs in the

amount of $204,324.13 pursuant to the breach of contract claim.