Court Opinion

ID: 71098
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:12:47+00
Date Added: 2024-06-11T16:49:38.187881
License: Public Domain

Case: 09-10505     Document: 00511029858          Page: 1    Date Filed: 02/18/2010

            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                  FILED
                                                                          February 18, 2010

                                     No. 09-10505                      Charles R. Fulbruge III
                                   Summary Calendar                            Clerk

ALWAYS AT MARKET INC,

                                                   Plaintiff–Appellee
v.

RONALD GIRARDI,

                                                   Defendant–Appellant

                   Appeal from the United States District Court
                        for the Northern District of Texas
                             USDC No. 3:06-CV-2145

Before BENAVIDES, PRADO, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
        Ronald Girardi, pro se, appeals, the magistrate judge’s order granting
judgment in favor of Always at Market Inc. (“AAM”). The magistrate judge
found that Girardi accepted $230,560 in kickbacks from a vendor while employed
at AAM, and that he used the funds to set up a competitor, Contempo Group,

        *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
   Case: 09-10505     Document: 00511029858        Page: 2    Date Filed: 02/18/2010

                                    No. 09-10505

Inc. (“CGI”).1 Because the district court did not commit clear error in its liability
or damages determination, we affirm in part. We remand for the district court
to determine attorney’s fees due on Girardi’s counterclaim.
            I. FACTUAL AND PROCEDURAL BACKGROUND
      AAM is a direct and secondary distributor of watches and other
merchandise, mostly through internet auction sites. AAM procures merchandise
at discounted prices from vendors, and then either sells the merchandise directly
to end-users over the internet or to internet auction sites. AAM hired Girardi
beginning January 1, 2003 to develop AAM’s watch business, because Girardi’s
experience in the watch industry left him with valuable inroads with watch
suppliers in East Asia. AAM paid Girardi $84,000 in salary.
      In summer 2004 Girardi formed CGI with his business partner Ed
Goldberg. Goldberg was at no time employed by AAM, but Girardi often worked
with Goldberg to procure watches for AAM before they formed CGI.                    CGI
engaged in the same watch business as AAM and competed directly or indirectly
with AAM by distributing watches supplied by some of the same vendors that
Girardi had brought to AAM.
      One supplier, Asad Massoud, sold watches to Girardi and Goldberg for
both AAM and CGI. Massoud, in a written deposition response, testified that he
paid “kickbacks” of between $2 to $10 per unit on watches he sold to AAM
through Goldberg and Girardi. Massoud testified that Goldberg told him that
the kickbacks were for Girardi. John House, AAM’s president and founder,
testified that Girardi bought between 70,000 and 80,000 watches from Massoud’s
companies on behalf of AAM.
      On April 15, 2005, House terminated Girardi effective April 2, 2005. On
August 10, 2005, Massoud sent AAM an invoice detailing the amount AAM owed

      1
         CGI was a co-defendant at trial, and was found jointly and severally liable with
Girardi. CGI did not appeal.

                                           2
   Case: 09-10505       Document: 00511029858         Page: 3    Date Filed: 02/18/2010

                                       No. 09-10505

on 11,320 watches. Girardi had negotiated the purchase of those watches with
Massoud before House fired him. Upon closer examination of the spreadsheet,
AAM noticed hidden columns listing a “C:per price” of $10 for each watch. The
hidden columns showed the price of the watch units both before and after the
$10 had been added.
      AAM sued Girardi and CGI in state court for breach of contract, breach of
fiduciary duty, misappropriation of trade secrets, unfair competition, and
tortious interference with contractual relations. Girardi removed the case to
federal court and counterclaimed for unpaid wages for his last two weeks of
employment. The parties consented to a bench trial before the magistrate judge.
At trial, AAM called House to testify regarding his relationship with Girardi and
Girardi’s employment. Girardi’s counsel objected on hearsay grounds when
AAM’s counsel asked what Goldberg told House. Counsel for AAM argued that
he would establish a conspiracy between Girardi and Golberg, so that Goldberg’s
statements were not hearsay. The magistrate judge told the parties that she
would carry the objection with the merits.2 AAM also introduced Exhibit 17, the
invoice sent from Massoud, and Exhibit 22, Massoud’s written deposition, into
evidence without objection.
      The parties then submitted proposed findings of fact and conclusions of
law. Girardi argued in his submission that the only evidence showing that
Girardi received kickbacks was hearsay. The magistrate judge found Girardi
liable for breach of contract, breach of fiduciary duty, and tortious interference
with contract for taking kickbacks from Massoud. The magistrate judge also
found that Girardi engaged in unlawful competition and misappropriated trade
secrets, but that AAM did not prove damages on those counts.

      2
          The magistrate judge never ruled on Girardi’s hearsay objection.

                                              3
      Case: 09-10505   Document: 00511029858     Page: 4   Date Filed: 02/18/2010

                                    No. 09-10505

The magistrate judge found that AAM proved $230,560 in damages from the
kickback scheme. The magistrate judge also found that AAM owed $4,851.78
less any applicable withholding for unpaid wages resulting from Girardi’s work
performed between April 2, 2005 and April 15, 2005. The magistrate judge
ordered Girardi to pay reasonable and necessary attorney’s fees for
misappropriation of trade secrets. AAM submitted an unopposed motion for
$40,000 in attorney’s fees and costs after the magistrate judge issued her
decision. Girardi timely appealed.
                                 II. DISCUSSION
         We review a judgment entered by a magistrate with the consent of the
parties by the same standard of review that we would apply to a decision of the
district court. Taylor v. Domestic Remodeling, Inc., 97 F.3d 96, 98 (5th Cir.
1996) (citing Lockette v. Greyhound Lines, Inc., 817 F.2d 1182, 1185 (5th Cir.
1987)). “In an appeal from a bench trial, we review the district court’s findings
of fact for clear error and questions of law de novo.” SEC v. Gann, 565 F.3d 932,
936 (5th Cir. 2009) (citations omitted). In a bench trial, the district court clearly
errs if:
         (1) the findings are without substantial evidence to support them,
         (2) the court misapprehended the effect of the evidence, and (3)
         although there is evidence which if credible would be substantial,
         the force and effect of the testimony, considered as a whole,
         convinces the court that the findings are so against the
         preponderance of credible testimony that they do not reflect or
         represent the truth and right of the case.

Id.
A.       Hearsay
         “Generally we review a district court’s evidentiary rulings for an abuse of
discretion.” Anderson v. Siemens Corp., 335 F.3d 446, 471 (5th Cir. 2003) (citing
Vance v. Union Planters Corp., 209 F.3d 438, 441 (5th Cir. 2000)).            If the

                                          4
   Case: 09-10505     Document: 00511029858         Page: 5    Date Filed: 02/18/2010

                                     No. 09-10505

appellant failed to make a specific objection, we review for plain error. Id.. To
find plain error (1) there must be error and it must be plain; (2) the error must
affect a substantial right; and (3) the error must seriously affect the fairness,
integrity or public reputation of judicial proceedings. United States v. Sandlin,
589 F.3d 749, 757–58 (5th Cir. 2009) (citations omitted). If we find these three
elements, we have discretion to find plain error. Id. at 758.
      Federal Rule of Evidence 801(c) defines hearsay as “a statement, other
than one made by the declarant while testifying at the trial or hearing, offered
in evidence to prove the truth of the matter asserted.” A statement is not
hearsay if it is made “by a co-conspirator during the course and in furtherance
of the conspiracy.” F ED. R. E VID. 801(d)(2)(E). The party seeking introduction
of the co-conspirator’s statement must prove by a preponderance of the evidence:
“(1) the existence of the conspiracy; (2) the statement was made by a co-
conspirator of the party; (3) the statement was made during the course of the
conspiracy; and (4) the statement was made in furtherance of the conspiracy.”
United States v. Hall, 500 F.3d 439, 443 (5th Cir. 2007) (citing United States v.
Cornett, 195 F.3d 776, 782 (5th Cir. 1999)).
      Girardi argues that the magistrate judge erred by admitting Massoud’s
testimony as to what Goldberg told him. However, the record shows that he did
not object to admission of any of Massoud’s testimony until he submitted his
Annotated Proposed Findings of Fact and Conclusions of Law after trial.3
Federal Rule of Evidence 103(a) requires Girardi to object upon admission of the
evidence. United States v. Gonzales, 436 F.3d 560, 576 n.11 (5th Cir. 2006)
(citing United States v. Duffaut, 314 F.3d 203, 209 (5th Cir. 2002)). Because
Girardi did not object to admission of Massoud’s written deposition or the invoice
Massoud sent, we review for plain error.

      3
        Girardi objected to some statements by House as hearsay during direct examination.
Those statements, however, are not relevant on appeal.

                                            5
     Case: 09-10505     Document: 00511029858    Page: 6   Date Filed: 02/18/2010

                                   No. 09-10505

        The magistrate judge never explicitly ruled that she would consider
Massoud’s testimony as to Goldberg’s statements because they were statements
of a co-conspirator, but she nevertheless considered the evidence. Therefore, we
assume she admitted the evidence as a statement of a co-conspirator, and we ask
whether the magistrate judge committed plain error. The evidence showed that
CGI was a joint venture between Goldberg and Girardi, which directly competed
with AAM.       Therefore, there was some evidence of a conspiracy between
Goldberg and Girardi to misappropriate trade secrets. Goldberg’s instructions
to Massoud to pay extra kickback commission for Girardi could have furthered
the conspiracy.       We cannot say that the magistrate judge plainly erred by
considering Massoud’s testimony.
B.      Sufficiency of Evidence
        “The elements of a breach of contract claim are (1) the existence of a valid
contract, (2) the performance or tendered performance by the plaintiff, (3) breach
of the contract by the defendant, and (4) damages to the plaintiff resulting from
that breach.”     Harris v. Am. Prot. Ins. Co., 158 S.W.3d 614, 622–23 (Tex.
App.—Fort Worth 2005, no pet.) (citations omitted). To find breach of a fiduciary
duty, “(1) a fiduciary relationship must exist between the plaintiff and the
defendant, (2) the defendant must have breached its fiduciary duty to the
plaintiff, and (3) the defendant’s breach must result in injury to the plaintiff or
benefit to the defendant.” Esty v. Beal Bank S.S.B., 298 S.W.3d 280, 304 (Tex.
App.—Dallas 2009, no pet.) (citations omitted).
        Girardi argues that AAM introduced insufficient evidence to show liability
or damages. We disagree. Regarding liability, there is no dispute that Girardi
owed fiduciary duties to AAM as its sales representative, see Molex, Inc. v.
Nolen, 759 F.2d 474, 479 (5th Cir. 1985) (applying Texas law to find a sales
representative owed fiduciary duties to his employer), and that he had a contract
to develop AAM’s watch business. Nor do they dispute that AAM fulfilled its

                                          6
     Case: 09-10505   Document: 00511029858      Page: 7     Date Filed: 02/18/2010

                                   No. 09-10505

obligations under the contract until the last two weeks of Girardi’s employ. The
evidence for the breach of contract is the same as the breach of fiduciary duty:
Girardi accepted secret payments from Massoud in violation of both his
contractual and fiduciary duties to AAM. This breach caused AAM damages
because, as the invoice sent from Massoud shows, AAM paid for every kickback
added in. Massoud’s deposition described this scheme, and as explained above,
Girardi did not object to its admission. We cannot say that the magistrate judge
clearly erred by finding breach of fiduciary duty and breach of contract.
        With respect to damages, the magistrate judge found that Girardi took at
least $230,560 in kickbacks. The magistrate judge applied $10 each for every
watch shown in Exhibit 17 for a total of $11,320; and $2 each for the remaining
58,680 watches, which represent the bottom of the range Massoud described.
We find that the magistrate judge did not clearly err by finding that AAM
suffered at least $230,560 in damages.
C.      AAM’s Attorney’s Fees and Costs
        “Under Texas law, trade secret misappropriation is established by
showing: ‘(a) a trade secret existed; (b) the trade secret was acquired through
a breach of a confidential relationship or discovered by improper means; and (c)
use of the trade secret without authorization from the plaintiff.’” Alcatel USA,
Inc. v. DGI Tech., Inc., 166 F.3d 772, 784 (5th Cir. 1999) (quoting Phillips v.
Frey, 20 F.3d 623, 627 (5th Cir. 1994)). “Each person who prevails in a suit
under this chapter shall be awarded court costs and reasonable and necessary
attorney’s fees.” T EX. C IV. P RAC. & R EM. § 134.005(b).
        Girardi argues that the magistrate judge erred by awarding attorney’s fees
and costs under this provision because AAM produced no evidence that Girardi
misappropriated trade secrets, and therefore the magistrate judge lacked a
statutory basis for awarding attorney’s fees. The magistrate judge found that
Girardi had misappropriated trade secrets, and also found that Texas law

                                         7
     Case: 09-10505   Document: 00511029858     Page: 8   Date Filed: 02/18/2010

                                   No. 09-10505

directed her to award attorney’s fees and costs for misappropriation of trade
secrets, even though AAM had proven no damages resulting from the
misappropriation.
        AAM produced sufficient evidence that Girardi misappropriated the trade
secret of the process of selling watches on and to internet auction sites, that
Girardi breached his confidential relationship with AAM by acquiring the trade
secret for his own gain, and that he used the trade secret for his own business
without authorization from AAM. The magistrate judge did not clearly err by
crediting the testimony AAM put forward and discrediting Girardi’s testimony.
We affirm the grant of attorney’s fees and costs because the plaintiff need not
prove damages to be entitled to attorney’s fees under section 134.005(b). See
Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 637–38 (Tex. App.—Houston [1st
Dist.] 2000, no pet.) (upholding award of attorney’s fees where jury awarded no
damages). Furthermore, AAM was also entitled to attorney’s fees based on
Girardi’s breach of contract which did result in a damage award. See Matter of
Smith, 966 F.2d 973, 978 (5th Cir. 1992) (finding that under Texas law that
attorney’s fees are mandatory on claims for breach of contract).
D.      Girardi’s Attorney’s Fees and Costs
        “To recover attorney’s fees under [Texas Civil Practice and Remedies Code]
Section 38.001, a party must (1) prevail on a cause of action for which attorney’s
fees are recoverable, and (2) recover damages.” Green Int’l, Inc. v. Solis, 951
S.W.2d 384, 390 (Tex. 1997). “The award of reasonable attorney’s fees to a
plaintiff recovering on a valid claim founded on a written or oral contract
preceded by proper presentment of the claim is mandatory.” Id. at 978 (citing
Caldwell & Hurst v. Myers, 714 S.W.2d 63, 65 (Tex. App.—Houston [14th Dist.]
1986, writ ref’d n.r.e.). A party need only prevail on a single claim to recover
under Section 38.001, and need not obtain a net recovery. Brent v. Field, 275

                                         8
     Case: 09-10505   Document: 00511029858    Page: 9   Date Filed: 02/18/2010

                                  No. 09-10505

S.W.3d 611, 622 (Tex. App.—Amarillo 2008, no pet.) (citing McKinley v. Drozd,
684 S.W.2d 7, 10–11 (Tex. 1985)).
        Girardi contends that the magistrate judge erred by denying him legal
costs based on counterclaim for breach of contract. Because Texas law mandates
awarding attorney’s fees, and because the magistrate judge awarded Girardi
$4,851.78 in damages, we find that the magistrate judge erred by not awarding
Girardi any attorney’s fees. We thus reverse and remand to the magistrate
judge for determination of reasonable attorney’s fees and costs with respect to
Girardi’s counterclaim.
E.      Motion to Supplement the Record
        “As a general rule, this court will not enlarge the record on appeal with
evidence not before the district court.” McIntosh v. Partridge, 540 F.3d 315, 327
(5th Cir. 2008) (internal quotations and citation omitted). Girardi moves to
supplement the record with materials he claims show AAM has experienced
growth since it hired him, and a transcript of a conversation he had with
Massoud. Girardi claims that the evidence would reveal a massive conspiracy
by AAM. Girardi has not provided sufficient justification to depart from the
general rule, so we deny Girardi’s motion to supplement.
                              III. CONCLUSION
        For the reasons stated above, we AFFIRM the magistrate judge’s order on
AAM’s claims against Girardi, but REVERSE and REMAND for a determination
of reasonable attorney’s fees due Girardi. We also DENY Girardi’s motion to
supplement the record.
        AFFIRMED in part, REVERSED in part, and REMANDED.

                                        9