Wealth Management Associates LLC v. Farrad

Background

Wealth Management Associates LLC (WMA) provides business-management services to clients in the entertainment and sports industries. Christian Farrad worked for WMA as an account manager from 2010 to 2016. In 2013, Farrad signed a contract that included promises not to disclose WMA’s confidential information, compete with WMA, or solicit WMA’s clients for three years after his employment ended.

Farrad published a book in March 2016 that WMA alleged described its confidential business practices. He resigned in June 2016 and started CF MGMT LLC. WMA later lost business from Client JB and Client AF. WMA alleged that Farrad’s conduct caused those losses and asserted claims involving a declaratory judgment, copyright infringement, breach of contract, breach of fiduciary duty, trade-secret misappropriation, unfair competition, and interference with a prospective economic advantage.

The defendants’ counsel withdrew in November 2017. After the defendants did not respond to an order directing them to say whether they intended to obtain new counsel, the court entered default judgment against them on February 7, 2018. The matter was then referred to Magistrate Judge Henry B. Pitman to determine damages. Judge Pitman recommended $322,916.67 in lost profits, nine-percent prejudgment interest from November 25, 2016, $116,438 in attorneys’ fees, and $400 in costs. WMA objected to the recommendation concerning lost profits for Client AF, goodwill damages, and costs. The defendants did not respond.

Court’s analysis

A default judgment established the defendants’ liability based on the complaint’s factual allegations that did not concern damages. It did not automatically establish that Farrad solicited every WMA client or that WMA could recover damages for every client it later lost. WMA still had to prove damages with reasonable certainty and connect them to Farrad’s wrongful conduct.

Client AF lost profits

The court agreed with Judge Pitman that WMA had not proved its entitlement to lost profits connected to Client AF. WMA showed that Farrad had serviced Client AF’s account while working for WMA, stayed in contact with Client AF after leaving WMA, attended Client AF’s events, and made social-media posts connected to Client AF’s performances. But WMA did not establish with reasonable certainty that Farrad caused Client AF to end its relationship with WMA or that Farrad was then acting as Client AF’s business manager.

The court declined WMA’s request to add new declarations and other evidence to the record. It found that WMA had not justified failing to present that evidence during the damages proceeding.

Goodwill damages

WMA sought $250,000 for lost goodwill and business opportunities. The court explained that such damages require proof that the goodwill loss occurred, objective proof of the amount, and proof that the opposing party caused the loss. WMA had not provided objective proof of the amount during the damages proceeding. The court declined to consider evidence submitted for the first time in WMA’s objections and did not award goodwill damages.

Costs, fees, and final award

The court allowed WMA to supplement the record with documentation supporting $4,696.76 in costs. It found WMA’s failure to submit that documentation earlier excusable because Judge Pitman had specifically required verification of attorneys’ fees but had not similarly directed WMA to submit a bill of costs. The court therefore modified the recommended costs award from $400 to $4,696.76.

Judge Katherine Polk Failla reviewed the disputed portions of the report and recommendation anew and reviewed the undisputed portions for clear error. She adopted the remainder of Judge Pitman’s report and recommendation. The court awarded WMA $322,916.67 in lost profits, nine-percent prejudgment interest from November 25, 2016, through entry of judgment, $116,438 in attorneys’ fees, and $4,696.76 in costs. The Clerk was directed to terminate pending motions, adjourn remaining dates, and close the case.