Backstabbers (What They Do!)

By Daniel Richardson

J.A. Morrissey, Inc. v. Smejkal, 2010 VT 66

I imagine Justice William Shakespeare beginning his opinion in this case along the following lines:

Look no farther to see the sad tragedy that struck the house of Smejkal.  Once a prince of construction under the Queen of Morrissey, Lord Smejkal plotted with Lady Smejkal to discredit the throne, take the riches of the kingdom, and establish a new order where all could come for quality construction services.  But alas, good Sir Gannon of the Rose firm hath persuaded this bench and the jury below that the actions of Lord Smejkal are at odds with our laws and jurisprudence.  Therefore, we must award the fruits of justice to Queen Morrissey and restore her crown.  Thus spaketh, the Court.

I realize that my imaginary justice does not speak in the proper iambic pentameter.  Just work with me.  Law school ground the poetry out of him. 

While Defendant’s story does smack of Shakespearean overtones, the facts are somewhat more prosaic.  During his ten-year tenure with J.A. Morrissey, Defendant Peter Smejkal made two big decisions.  First, he decided to leave the company and start his own construction business.  Second, he, like many departing employees, decided to take a few office supplies with him as he was leaving.  The problem in this case is that the supplies included a free building renovation and two sets of customers. 

At trial, Morrisey accused Smejkal of breach of fiduciary duty and interference with prospective business relationships based on three separate incidents.  The first was the Paluska project.  This was a Morrissey construction project.  Smejkal, who oversaw the project for Morrissey had also recently, unbeknownst to Morrissey, formed his own private excavating company.  Contrary to company policy, Smejkal hired his own company to do all of the excavation work.  When the work proved to be subpar, Smejkal blamed it on Morrissey and sought to persuade the client that he, rather than Morrissey, could complete the work.

The second incident was the Johnson project, another construction job.  This time, the client approached Smejkal, who was still vice-president at Morrissey, about a residential house project.  Smejkal failed to inform Morrissey about Johnson and again utilized his own company to start work with a view toward taking the client. 

The third and final incident involved a building that Smejkal purchased in Williston.  He persuaded Morrissey to rent space at the building for their offices for a year.  Morrissey did so with the understanding that Smejkal would remain with the company for the entire year.  Smejkal proceeded to use Morrissey employees to perform renovations throughout the building; billed Morrissey for costs to renovate the entire building; obtained sub-contractors for other portions at drastically reduced rates in return for the promise to hire them for future Morrissey work; and billed Morrissey for other costs through an unrelated account. 

Morrissey first filed suit against Smejkal alone, later adding Smejkal’s wife and his companies as defendants.  After a trial, needless to say, the jury found for Morrissey and awarded the company $380,000 in damages.

On appeal, the defendants do not have much to work with and focus on the trial court’s denial of their motion for a judgment as a matter of law or, in the alternative, a new trial.  Defendants argue that the evidence did not support a judgment against Smejkal for breach of his fiduciary duty on the three projects.  They also argue that the evidence did not support the jury’s verdict against Smejkal and one of his companies for interference with prospective business relationships.  The defendants also sought to set aside a finding of fraudulent conveyance between Smejkal and another of his companies that had taken title to the Williston office building.  Finally, Smejkal sought to set aside the punitive damages assessed against him for insufficient evidence of malice.

The SCOV takes up the first question of sufficiency for the fiduciary duty.  The standard falls under Rule 50 (“in the light most favorable to the nonmoving party, excluding the effect of any modifying evidence”).  In little over ten paragraphs, the Court finds that Smejkal owed Morrissey a fiduciary duty and there was more than enough evidence to support a finding that he breached that duty for each of the three projects. 

Moving on to the tort of interference with a prospective business relationship, the Court has a good and pithy recitation of the standard (the existence or a reasonable expectation of business relationship; knowledge of this relationship or expectancy; intentional interference; damages; and proof that the interference caused the harm).  Again, the Court has no problem matching the elements to the evidence at trial to find that the jury had a sufficient basis for its findings.  In this case, there was an example of each type of interference.  Paluska was an existing business relationship that Morrissey lost due to Smejkal’s interference, and Johnson was a potential business relationship of which Morrissey had a reasonable expectation.  The only wrinkle that gives the SCOV some pause is the fact that Smejkal’s company, which was also held liable by the jury was formed after the alleged interference.  This fact ultimately does not bother the SCOV because the company benefited from it all and Smejkal likely interfered on the company’s behalf.  Such interference was “work” undertaken at the time on behalf of the future company.

As to the fraudulent conveyance claims, the SCOV points out Smejkal, his wife, and their companies transferred the Williston property and shifted around their assets after the lawsuit started and appeared to have done so for the sole purpose of shielding their assets from judgment.  This was sufficient to allow the court to undo the transactions and put the assets back on the table for Morrissey to use to fulfill its judgment.

Finally, the SCOV looked to the issue of malice and found more than sufficient evidence to support a finding of malice.  As the SCOV notes, “Malice may be found where one seeks to profit, through conduct that is deliberate and outrageous, at the expense of another even where the conduct is intended to benefit oneself.”  Smejkal’s actions, the SCOV concludes gives a practically textbook example of this element. 

On a positive note, this case proves that defendants, as excavators, know how to effectively dig their holes broad and deep.