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Mindbridge.com, Inc. v. Testa

November 21, 2008

MINDBRIDGE.COM, INC. D/B/A MINDBRIDGE SOFTWARE, PLAINTIFF
v.
SCOTT V. TESTA



The opinion of the court was delivered by: Thomas N. O'neill

MEMORANDUM

O'NEILL, J.

I. Background

Plaintiff filed a complaint against defendant on November 13, 2006. In Count I plaintiff claims that defendant violated the Lanham Act, 15 U.S.C. §1125(a), by infringing upon plaintiff's trademarked internet domain names and by using the domain names for his personal benefit and to plaintiff's exclusion. Count II of the complaint alleges that defendant breached his fiduciary duty by willfully misappropriating company funds for his personal use. The allegations in Count III of the complaint are similar to those in Count II in that plaintiff asserts that defendant converted company assets for his personal use. Count IV is a claim for tortious interference with contractual relations in which plaintiff claims to have suffered a loss of business and revenues from its existing customers due to defendant's reallocation of the company's website address. Count V of the complaint is a claim for misappropriation of trade secrets. Therein plaintiff alleges that defendant misappropriated trade secrets by removing plaintiff's customer lists. The final count of plaintiff's complaint, Count VI, is a claim for replevin in which plaintiff alleges that defendant refused to return plaintiff's software. Plaintiff seeks in excess of $500,000.00 in damages for both Counts II and III and also seeks unspecified compensatory and punitive damages for the remaining counts.

Defendant filed a counterclaim which included two counts for breach of contract and a third count for civil conspiracy and extortion. Defendant's first count for breach of contract is based upon his allegation that plaintiff executed but failed to remit payment on a $300,000.00 promissory note issued to defendant. Defendant's second claim for breach of contract is based upon his claims that he advanced plaintiff more than $800,000.00 and should be reimbursed for the monies advanced. I dismissed defendant's claim for civil conspiracy and extortion in my Memorandum and Order dated July 17, 2007.

Following a non-jury trial held from February 25-27, 2008, and after review of the parties' post trial briefs I now enter the following Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52(a). For the reasons set forth below, I find that plaintiff has not proven by a preponderance of evidence that: (1) defendant breached any fiduciary duty owed to plaintiff; (2) defendant converted plaintiff's assets for personal use; (3) plaintiff suffered damages as a result of defendant's interference with plaintiff's contractual relationships; (4) defendant misappropriated plaintiff's trade secrets; and, (6) defendant did not return plaintiff's software. I further find that defendant has proven by a preponderance of the evidence that plaintiff breached the terms of a valid promissory note, defaulted thereon, and is liable to defendant for the damages arising therefrom. Defendant did not, however, prove by a preponderance of the evidence that plaintiff breached any other contract with defendant. Therefore, I will award defendant $300,000.00 in damages.

II. Findings of Fact

The following facts were established at trial.

A. Plaintiff's Formation and Organization Structure

Plaintiff was incorporated under the laws of the Commonwealth of Pennsylvania in December 1996. Plaintiff is an intranet software development company. It develops, sells, and supports network software. From the date of incorporation until the events giving rise to this suit David Christian was plaintiff's President and Chief Technology Officer. Christian was primarily responsible for managing the technical aspects of the company including product development and customer support. Defendant was plaintiff's Chief Operating Officer. He was primarily responsible for managing the company's daily operations including marketing, sales, and managing the company's finances and record keeping. The parties agree that neither Christian or defendant were entitled to receive compensation from plaintiff nor were they considered employees of the company. Defendant and Christian were plaintiff's primary principals from its inception through June 2006.

B. Financial Management and Record Keeping

Neither defendant nor Christian are trained accountants, bookkeepers, or financial managers. Plaintiff employed a bookkeeper from 1996 through 1998 or 1999. Plaintiff also hired Mark Dorfman, C.P.A., on a part-time basis. Dorfman received compensation and a minority stock position. Although defendant was not qualified to handle plaintiff's financial affairs, defendant and Christian nevertheless agreed that in conjunction with Dorfman defendant would manage plaintiff's finances. Defendant managed plaintiff's finances from 1996 through July 2006. The only accounting records defendant maintained for plaintiff's financial transactions were plaintiff's bank statements. Defendant utilized banks statements, a checkbook software program, and online banking to keep track of plaintiff's finances. Defendant did not maintain a cash disbursement journal. Plaintiff did not have a corporate credit card.

C. Christian and Testa Make and Receive Advances to and From Plaintiff

Plaintiff regularly operated at a loss with gross receipts exceeding gross expenses for many years. Plaintiff had serious cash flow deficits and difficulties. Both Christian and defendant utilized personal funds, lines of credit, and credit cards to transfer money to plaintiff or to make purchases for the benefit of the company. Defendant's wife and mother also provided defendant with money which was used to help plaintiff meet its financial obligations. Neither ...


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