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ACE Oilfield Rentals, LLC v. Western Dakota and Fabrication, LLC

United States District Court, W.D. Oklahoma

September 1, 2017

ACE OILFIELD RENTALS, LLC, Plaintiff,
v.
WESTERN DAKOTA AND FABRICATION, LLC, a South Dakota limited liability company, DOUG KERKVLIET, an individual, and TUCKER PANKOWSKI, an individual, Defendants.

          ORDER

          TIMOTHY D. DeGIUSTI, UNITED STATES DISTRICT JUDGE

         Before the Court is Plaintiff's request for damages following the Clerk's Entry of Default against Defendant Western Dakota [Doc. No. 68].[1] The Court conducted an evidentiary hearing on March 1, 2017; supplemental filings by Plaintiff followed the hearing [Doc. Nos. 71, 72, 73]. Western Dakota did not appear at the hearing. The Court has reviewed the evidence and Plaintiff's submissions. As stated more fully below, the Court awards Plaintiff actual damages in the amount of $454, 554.90; nominal damages in the amount of $1.00; punitive damages in the amount of $89, 952.80; and attorney's fees in the amount of $108, 390.25.

         BACKGROUND

         Plaintiff Ace Oilfield Rentals, LLC, sells and leases trailer-mounted hydraulic catwalks (the “HydraCat”) in the oil drilling industry. Plaintiff and Western Dakota entered into a manufacturing agreement (“Manufacturing Agreement”) on April 29, 2013. See Pl.'s Ex. 2 at Hr'g on Damages. Pursuant to the Manufacturing Agreement, Plaintiff committed to use Western Dakota as its sole and exclusive manufacturer of the HydraCat. Id. at 1. Western Dakota agreed to hold all Plaintiff's confidential, proprietary and trade secret information “in strict confidence” and not disclose any information to third parties absent “express prior written permission” from Plaintiff. Id. at 2.

         The Manufacturing Agreement also included a non-compete clause, which precluded Western Dakota from soliciting, contacting or communicating with “any person, company, or business that is or was a client, customer, or prospective client” of Plaintiff. Id. Moreover, Western Dakota agreed not to engage in the same or similar business as Plaintiff. Id. If a client or customer asked to purchase a HydraCat from Western Dakota directly, Western Dakota was required to notify Plaintiff. Id. Only after full disclosure and approval from Plaintiff could Western Dakota independently lease or sell such equipment. Id.

         From April 2013 through November 2014, Plaintiff and Western Dakota operated within the terms of the Manufacturing Agreement with Western Dakota manufacturing 10 HydraCats for Plaintiff. See Pl.'s Mot. for Partial Summ. J. at 2. In early November 2014, Plaintiff negotiated with Consolidated Wellsite Services, LLC (“Consolidated”), for the purchase of HydraCat No. 11, which Western Dakota had recently manufactured at Plaintiff's request pursuant to the Manufacturing Agreement. Id. at 6. While Plaintiff and Consolidated were negotiating the sale of HydraCat No. 11, Consolidated abruptly abandoned the transaction. Id. The president of Consolidated, Bill Benedick, advised Plaintiff that Western Dakota had independently sold Consolidated a separate HydraCat at a lower price. Id. See also Pl.'s Ex. 3 at Hr'g on Damages; Pl.'s Pet. at 3. Moreover, Western Dakota refused to deliver HydraCat No. 11 to Plaintiff. Pl.'s Mot. for Partial Summ. J. at 5.

         In addition, Western Dakota sold a HydraCat to Continental Industries Services, LLC (“Continental”), in September 2015, without prior notice to Plaintiff and absent express written consent. Id. at 7. See also Pl.'s Ex. 4 at Hr'g on Damages.

         From late 2014 until the March 1, 2017, hearing on damages, Western Dakota continued to market the HydraCat for sale on its website as its own product. See Pl.'s Exs. 5-6, 9 at Hr'g on Damages. Western Dakota invited potential customers to “Buy direct from the manufacturer and SAVE!” Pl.'s Ex. 5 at Hr'g on Damages.

         On May 13, 2015, Plaintiff filed a petition in Beckham County District Court in Sayre, Oklahoma, alleging 13 claims against Western Dakota and its two co-owners. [Doc. No. 1-2]. The action was removed to federal court on June 19, 2015, pursuant to 28 U.S.C. § 1332(a)(1). [Doc. Nos. 1, 12, 16].

         On March 24, 2016, while this action was pending, Tucker Pankowski, co-owner of Western Dakota, filed Articles of Organization with the South Dakota Secretary of State for WesDak Welding and Diesel, LLC (“WesDak”). See Pl.'s Ex. 10 at Hr'g on Damages. A search of Custer County, South Dakota property records revealed that on April 13, 2016, Western Dakota transferred all of its property and assets to WesDak. Pl.'s Ex. 11 at Hr'g on Damages. On May 5, 2016, the South Dakota Secretary of State received Western Dakota's Articles of Termination dissolving the LLC. Pl.'s Ex. 12 at Hr'g on Damages. As of March 1, 2017, WesDak continued to advertise the HydraCat for sale as its own, using the same web address previously identified with Western Dakota. Pl.'s Ex. 9 at Hr'g on Damages.

         On July 25, 2016, Defendants Pankowski and Kerkvliet filed petitions in the United States Bankruptcy Court for the District of South Dakota. Pl.'s Ex. 13 at Hr'g on Damages; see also [Doc. No. 64]. Upon receiving those notices, the Court stayed the action as to Pankowski and Kerkvliet. [Doc. No. 65]. Subsequently, Plaintiff filed a Motion for Entry of Judgment as to Defendant Western Dakota [Doc. No. 66], to which Western Dakota failed to respond.

         On January 17, 2017, finding “a willful failure by Western Dakota to comply with the Court's Orders to ensure legal representation of the company in this case, ” the Court dismissed Western Dakota's counterclaim and directed the Clerk of Court to enter default against Western Dakota. [Doc. No. 67]. In accordance with Fed.R.Civ.P. 55(b)(2)(B), a hearing was held to determine the amount of Plaintiff's damages. [Doc. No. 70]. Defendant Western Dakota did not appear at the hearing.

         STANDARD OF DECISION

         “After an entry of default, a defendant cannot defend a claim on the merits.” Olcott v. Delaware Flood Co., 327 F.3d 1115, 1125, n. 1 (10th Cir. 2003) (citations omitted). However, a default judgment does not establish the amount of damages. Plaintiff must establish that the amount requested is reasonable under the circumstances. Mathiason v. Aquinas Home Health Care, Inc., 187 F.Supp.3d 1269, 1274-75 (D. Kan. 2016). “Damages may be awarded only if the record adequately reflects the basis for [the] award via a hearing or a demonstration by detailed affidavits establishing the necessary facts.” Id. (citation omitted); Reg'l Dist. Council et al. v. Mile High Rodbusters, Inc., 82 F.Supp.3d 1235, 1243 (D. Colo. 2015) (“Actual proof must support any default judgment for money damages where there is an uncertainty as to the amount. This requirement ensures that a plaintiff is not awarded more in damages than can be supported by actual evidence.” (citing Klapprott v. United States, 335 U.S. 601, 611-12 (1949)). “The Court accepts as undisputed any facts set forth by the moving party in affidavits and exhibits.” See Id.

         DISCUSSION

         An award of damages is appropriate in this case. Plaintiff bears the burden of submitting sufficient evidence in support of its damages claim. Niemi v. Lasshofer, 770 F.3d 1331, 1355 (10th Cir. 2014). The applicable standard regarding compensatory damages is a preponderance of the evidence. Wethington v. Swainson, No. CIV-14-899-D, 2017 WL 1366068, at *2 (W.D. Okla. April 12, 2017). As a federal court sitting in diversity, the Court applies the substantive law of the forum state, Oklahoma. Hayes Family Trust v. State Farm Fire & Cas. Co., 845 F.3d 997, 1005 (10th Cir. 2017). Moreover, the Manufacturing Agreement states that the contract “is to be construed in accordance with and governed by the internal laws of the State of Oklahoma, USA.” Pl's. Ex. 2 at Hr'g on Damages.

         Plaintiff identifies and seeks damages for 13 claims: (1) breach of contract; (2) misappropriation of trade secrets; (3) conversion; (4) defamation; (5) tortious interference with contracts; (6) tortious interference with prospective economic advantage; (7) deceptive trade practices; (8) omitted; (9) breach of contract (10) fraud; (11) unfair competition; (12) civil conspiracy; and (13) unjust enrichment. [Doc. No. 1-2]. Although Rule 8 permits Plaintiff to “state as many separate claims … as it has, regardless of consistency, ” double recovery is not permitted under Oklahoma law. See Fed. R. Civ. P. 8(d)(3); see also Kruchowski v. Weyerhaeuser Co., 202 P.3d 144, 153-154 (Okla. 2008).

         Breach of Contract - Count 1

         Recoverable damages in a breach of contract claim consist of the amount that will compensate the aggrieved party for all the harm proximately caused or which would naturally and generally result from a breach in the usual course of things. Okla. Stat. tit. 23, § 21. In order to recover, the damages must be clearly ascertainable in their nature and origin.[2] See Id.

         Arthur L. Puckett, managing member of Ace, testified at the hearing on damages that Western Dakota sold directly to Consolidated and Continental in violation of the Manufacturing Agreement. E-mail correspondence between Western Dakota and Consolidated, invoices for the sale of the HydraCats to Consolidated and Continental, and the check from Continental to Western Dakota were introduced as exhibits at the hearing. Pl.'s Exs. 3-4 at Hr'g on Damages.

         An award in the form of loss profits is generally considered a common measure of damages for a contract breach. See Florafax Int'l, Inc. v. GTE Mkt Res. Inc., 933 P.2d 282, 292 (Okla. 1997). “[I]t frequently represents fulfillment of the non-breaching party's expectation interest, and it often closely approximates the goal of placing the innocent party in the same position as if the contract had been fully performed.” See Id. ‚ÄúLiability for lost profits arises where the loss of anticipated profits upon breach can reasonably be said to be ...


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