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Centrix HR, LLC v. On-Site Staff Management

April 20, 2010

CENTRIX HR, LLC
v.
ON-SITE STAFF MANAGEMENT, INC. D/B/A/ CENTRIX STAFFING, ET AL.



The opinion of the court was delivered by: Thomas J. Rueter Chief United States Magistrate Judge

MEMORANDUM OF DECISION

This Memorandum of Decision addresses the calculation of counterclaim plaintiff's damages after remand by the Third Circuit Court of Appeals. Centrix v. On-Site Staff Management, Inc., Nos. 08-2834 & 08-2984 (3d Cir. Oct. 19, 2009).

I. TRIAL COURT -- PROCEDURAL HISTORY

The court conducted a bench trial in the above-captioned case from October 22 to October 24, 2007. Thereafter, the court issued a Memorandum of Decision dated March 25, 2008 (the "March 2008 Opinion"). The court entered judgment in favor of plaintiff Centrix HR, LLC ("HR") and against defendants, On-Site Staff Management, Inc. ("On-Site"), Centrix HR Logistics, Inc. ("Logistics") and William Black, as guarantor, jointly and severally, on Count 6 of the Complaint in the amount of $865,999.36. The court also entered a judgment on Count 6 of the Complaint in favor of plaintiff HR in the amount of $1.00 for the breach of the non-compete clause of the Licensing Agreement. On the remaining counts of the Complaint, judgment was entered in favor of defendants and against HR. See March 2008 Opinion.

Defendant Logistics asserted numerous counterclaims against plaintiff (the "Counterclaims"). The court entered judgment in favor of Logistics and against HR on Counts 1 and 2 of the Counterclaims (Breach of Contract and Conversion) in the amount of $1,603,673, to be offset by the $865,999.36 judgment against Logistics and in favor of plaintiff, for a balance of $737,673.70, plus pre-judgment interest.*fn1 Judgment was entered in favor of HR and against Logistics on Count 3 of the Counterclaims (Accounting). See March 2008 Opinion.

Thereafter, plaintiff filed a Motion for Reconsideration, and/or for a New Trial or to Correct, Amend or to Supplement the Court's March 25, 2008 Order and/or to Make Additional or Supplemental Findings of Fact (Doc. No. 53). Defendants filed a Motion for Relief Pursuant to Federal Rules of Civil Procedure 52, 59 and 60 (Doc. No. 54). The parties filed various briefs in support of and in opposition to the motions. The court issued a second Memorandum and Order dated June 3, 2008 (the "June 2008 Opinion"). For the reasons stated in the March 2008 Opinion and the June 2008 Opinion, this court found that Logistics is liable to plaintiff for loans in the amount of $865,999.36, which amount shall be offset by amounts plaintiff owes to Logistics in the amount of $1,603,673. The court also found that defendant On-Site, as the successor corporation, is merely a continuation of Logistics and therefore is liable for its debts. The court revised its prior judgment and concluded that defendant Black is not liable under the Guaranty Agreement for Logistics' obligations to plaintiff. However, defendant Black remained liable for damages in the amount of $1.00 for breach of the non-compete provision of the Licensing Agreement.*fn2 See June 2008 Opinion.

II. THIRD CIRCUIT COURT OF APPEALS -- REMAND

Thereafter, plaintiff appealed various aspects of this court's order, and defendants cross-appealed on one issue. Centrix v. On-Site Staff Management, Inc., Nos. 08-2834 & 08-2984, slip op. at 2 (3d Cir. Oct. 19, 2009) (the "Third Circuit Opinion"). The Third Circuit Court of Appeals affirmed on all issues except as to the calculation of the award of counterclaim damages, which the Third Circuit Court of Appeals remanded for further consideration. Id.

The Third Circuit Court of Appeals stated as follows with respect to this court's award of counterclaim damages to Logistics and its mandate on remand.

HR argues that the Magistrate Judge clearly erred when he awarded approximately $1.6 million to Logistics on its counterclaim, representing the net amount due to Logistics based on HR's own books. HR does not appear to dispute that its books showed that it owed Logistics a net amount of $1.6 million at the conclusion of the parties' relationship. It argues, however, that the correct amount of damages should have been $505,965, because, at various points in the litigation, Defendants made clear that they were seeking only $505,965 in damages on the counterclaim.

Defendants' expert testified at trial that the total amount owed to Logistics was $1.6 million, but he also testified, almost immediately thereafter, that $505,965 was "the amount that would be required to restore [Logistics] to the financial position it otherwise would have been in, had there been no breach that is alleged in the counterclaim" -- "the amount due to Logistics from [HR]...." (App. at 229.) Moreover, while the $1.6 million figure is listed as "net amount due [Logistics]" in Exhibit B to the expert's rather sparse report, Exhibit A to that report lists $505,965 as the "Total Net Amount Due [Logistics]." (Id. at 107-08.) Defendants also argued for $505,965 in their Proposed Findings of Fact and Conclusions of Law and post-trial brief (although, at another point in the brief, they stated that the total amount owed by HR to Logistics was $1.6 million and that any award to HR should be offset by this amount), and counsel summarized the counterclaim to the Magistrate Judge saying "my client is out a half of a million bucks." (Id. at 279.)

HR moved for reconsideration of the $1.6 million award. The Magistrate Judge denied the motion, concluding that the Proposed Findings of Fact and Conclusions of Law were not evidence, that there was sufficient evidence to support the $1.6 million figure in the form of HR's own records and Defendants' expert's unrefuted testimony, and that at trial Defendants' expert qualified his calculation of $505,965, stating, "Yeah, when you take everything into account and if you accept the arguments in the counterclaim and if you find liability, that would be the amount...." (Id. at 229.) The Magistrate Judge stated that it was "unclear" what the expert thought had to be taken "into account" to arrive at the $505,965 figure or even which counterclaim the expert was referencing. (Id. at 393.) What is clear, at least to us, is that the expert directly, albeit confusingly, undermined the $1.6 million figure and did so right on the heels of having first espoused it.

Given the contradictions noted above, the inadequate explanation by the parties and the Magistrate Judge of those contradictions, and the somewhat haphazard portions of the record presented to us on appeal, we are unable to determine that the Magistrate Judge's award of $1.6 [sic] was clearly erroneous -- or that it was not. Accordingly, we will remand this issue to the Magistrate Judge for clarification or recalculation of that award. We are confident that, following clarification or recalculation, there will be no need for further review.

Third Circuit Opinion at 6-8 (footnote omitted).

In light of the Third Circuit Court of Appeals' remand quoted above, the court held a hearing on January 21, 2010 (the "Remand Hearing"). Prior to the Remand Hearing, this court ordered the parties to submit prehearing memoranda listing, inter alia, all witnesses and exhibits to be introduced at the Remand Hearing (Doc. Nos. 77 and 78). The parties submitted Proposed Findings of Fact and Conclusions of Law prior to the Remand Hearing (Doc. Nos. 79 and 80). Counsel also submitted Proposed Findings of Fact and Conclusions of Law after the Remand Hearing (Doc. Nos. 93 and 94). On March 29, 2010, plaintiff submitted a response to the Proposed Findings of Fact and Conclusions of Law submitted by Logistics (Doc. No. 95).

On March 17, 2010, well after the conclusion of the Remand Hearing, plaintiff filed a Motion to Strike Defendants' Expert Report, Expert Testimony, and Evidence of Damages Pursuant to Fed. R. Evid. 702 and 703 (the "Motion to Strike") (Doc. No. 92). Counsel for Logistics filed an opposition to the Motion to Strike on April 5, 2010 (Doc. No. 96). Plaintiff filed a Reply by letter dated April 12, 2010.*fn3

III. DISCUSSION

A. Logistics' Counterclaims and the Licensing Agreement

At the Remand Hearing, Logistics presented testimony and evidence regarding amounts due to Logistics by HR under the Licensing Agreement. This court will briefly address Logistics' counterclaims and the Licensing Agreement at issue.*fn4

Defendant Logistics asserted three counterclaims against HR based upon a certain Licensing Agreement. See Answer with Affirmative Defenses of Defendants with Counterclaims Against Plaintiff by Defendant Centrix HR Logistics, Inc. at 10-14 (the "Ans. with Counterclaims"). It is undisputed that plaintiff, as licensor, and Logistics, as licensee, entered into a Licensing Agreement dated March 15, 2002 (the "Licensing Agreement"). See Ans. with Counterclaims ¶5; Plaintiff's Answer to Defendants' Counterclaims ¶5 ("Pl.'s Ans. to Counterclaims"). Plaintiff and Logistics each submitted a copy of the Licensing Agreement as an exhibit at the trial ("Tr. Ex."). See Tr. Ex. P-2; Tr. Ex. D-7.

Pursuant to the terms of the Licensing Agreement, HR was to provide employment related services to Logistics. See, e.g., Licensing Agreement ¶¶ 3, 6. Pursuant to the terms of the Licensing Agreement, HR was to collect payments owed by Logistics' clients for services provided. See Licensing Agreement ¶ 3A. Logistics was to instruct all clients to make payment for services to HR at an address specified by HR. See Licensing Agreement ¶ 5. The Licensing Agreement required HR to deposit all monies thus collected into a General Operating Account ("GOA"). All funds necessary to timely pay HR's payroll taxes, withholdings, and statutory additions were to be transferred to an escrow account from the GOA. See Licensing Agreement ¶ 6. Any funds received from clients or from any funding source in excess of the monetary requirements to timely pay Licensor's ...


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