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National Railroad Passenger Corporation v. Veolia Transportation Services

August 21, 2012

NATIONAL RAILROAD PASSENGER CORPORATION, PLAINTIFF,
v.
VEOLIA TRANSPORTATION SERVICES, INC., ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Barbara J. Rothstein United States District Judge

MEMORANDUM OPINION DENYING MOTION FOR JUDGMENT OF DISGORGEMENT

Before the court is [Dkt. # 196] plaintiff National Railroad Passenger Corporation's ("Amtrak") motion for a judgment of disgorgement of the profits that defendant Veolia Transportation Services, Inc., and Veolia Transportation, Inc. ("Veolia") has earned to date on its contract with the South Florida Regional Transportation Authority to operate the Tri-Rail commuter line ("the contract"). Amtrak also seeks a constructive trust that would award it all of the future profits that Veolia earns on the contract. Upon review of Amtrak's motion, the opposition thereto, and the record of this case, the court concludes that Amtrak's motion must be denied.

I.BACKGROUND

In 2008, Amtrak sued Veolia for aiding and abetting the breach by three Amtrak employees of their fiduciary duties of loyalty to Amtrak, among other torts. The facts underlying this this lawsuit are recounted in more detail in other court filings. See National R.R. Passenger Corp. v. Veolia Transp. Servs., Inc., 791 F. Supp. 2d 33 (D.D.C. 2011). After the Honorable Reggie B. Walton denied the parties' cross motions for summary judgment, this court oversaw a jury trial on the aiding and abetting claim. Id. On May 10, 2012, the jury returned a verdict finding that Amtrak had proved by a preponderance of the evidence (1) that any or all of the three Amtrak employees breached the fiduciary duty of loyalty that each owed to Amtrak; (2) that Veolia had knowledge of the breach; and (3) that Veolia substantially assisted or encouraged the breach. Verdict Form [Dkt. # 194]. The jury also found that Amtrak had not proved by a preponderance of the evidence that Veolia's wrongful conduct was a proximate cause of Amtrak's failure to win the Tri-Rail operations contract. Id. Accordingly, the jury did not award Amtrak compensatory or punitive damages.

Amtrak now seeks a judgment of disgorgement of the Veolia's profits earned to date- which amount to over $2.2 million-as well as imposition of a constructive trust for Amtrak's benefit with respect to Veolia's future profits. Before trial, and over Veolia's objection, this court ruled that Amtrak is entitled to pursue a disgorgement remedy against Veolia. See Order of April 18, 2012, at 2--4 [Dkt. # 165]. It also concluded that the court, rather than the jury would determine whether such a judgment was warranted. The court now evaluates Amtrak's claim and finds it without merit. *fn1

II.ANALYSIS

A. The Jury Verdict Compels Denial of Disgorgement

Amtrak argues that it need not show injury in order to win disgorgement of Veolia's past and future profits on the contract. Veolia disagrees and advances a raft of arguments against the remedy. It maintains that disgorgement is a restitutionary remedy meant to restore to the plaintiff property that was wrongfully transferred or misappropriated, and that Amtrak has failed to make such a showing. Veolia further asserts the attorney-client cases that Amtrak cites in support of its motion are inapposite.*fn2 Veolia's position is more persuasive. As well, the court finds additional ground for rejecting Amtrak's arguments.

Disgorgement is an equitable remedy entrusted to the discretion of the district court. So v. Suchanek, 670 F.3d 1304, 1310 (D.C. Cir. 2012) (citing United States v. Nacchio, 573 F.3d 1062, 1080 (10th Cir. 2009); BASF Corp. v. Old World Trading Co., 41 F.3d 1081, 1096 (7th Cir. 1994)); Smith--Haynie v. Dist. of Columbia, 155 F.3d 575, 578 (D.C. Cir. 1998)); see also Remsen Partners, Ltd. v. Stephen A. Goldberg Co., 755 A.2d 412, 421 (D.C. 2000). It is rarely awarded. See Bode & Grenier, L.L.P. v. Knight, 821 F. Supp. 2d 57, 65 (D.D.C. 2011) (citing Avianca v. Corriea, 1992 WL 93128, at *12 (D.D.C. April 13, 1992)).*fn3 In determining the appropriateness of the remedy in this case, the court will apply District of Columbia law. See Hendry v. Pelland, 73 F.3d 397 (D.C. Cir. 1996). It will also look to the Restatements of Restitution and Agency. Id.

As a general matter, plaintiffs are not required to show injury in order to disgorge a defendant's ill-gotten profits. See Restatement (Third) of Restitution, § 43. According to § 43 of the Restatement, "[a] person who obtains a benefit . . . in consequence of another's breach of such a duty, is liable in restitution to the person to whom the duty is owed." Id. To illustrate this rule, the Restatement furnishes an apt example:

A and B are employed as estimators by public-works Contractor. While still employed by Contractor, A and B form a partnership to bid on a county project in competition with Contractor. The A--B partnership is awarded the contract and performs the job, realizing a profit of $25,000. On suit by Contractor, the court determines that A and B breached their duty of loyalty when they bid on the new project in competition with their employer. Contractor is entitled to restitution of $25,000 from A and B by the rule of this section. It is not a condition of liability that, absent the disloyalty, Contractor would either have won the contract or made a profit on the job.

Id., Illus. 12 (emphasis added).

Amtrak maintains that this rule absolves it of any burden to show that it was harmed by Veolia's aiding and abetting of the employees' breach of their duty to Amtrak. Pointing to the jury finding that Veolia knowingly aided and abetted the employee's breach of their duty to Amtrak and to evidence entered at trial which, according to Amtrak, shows Veolia would not have earned the contract without the disloyal conduct, Amtrak argues that it is entitled to all of Veolia's past and future profits from the contract. In so asserting, Amtrak suggests that the jury's additional finding that Veolia did not proximately cause Amtrak's failure to win the contract is of no moment. For several reasons, Amtrak is incorrect.

First, the jury's finding on causation closes the door to disgorgement. Although, by the Restatement, "it is not a condition of liability that, absent the disloyalty, [Amtrak] would either have won the contract or made a profit," id., the jury's finding that Amtrak would not have won the contract absent the breach extinguishes Amtrak's entitlement to relief. In other words, the Restatement rule relieves the plaintiff of the burden of showing harm when it has been the victim of a disloyal agent's breach. However, when, as here, the factfinder determines that the defendant's profits would never have been enjoyed by the ...


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