Tigerpaw Software, Inc. v. Cherry

TIGERPAW SOFTWARE, INC., A NEBRASKA CORPORATION, APPELLEE, v. JUSTIN R. CHERRY, AN INDIVIDUAL, ET AL., APPELLANTS.

No. A-20-708.

NEBRASKA COURT OF APPEALS

April 27, 2021

MEMORANDUM OPINION AND JUDGMENT ON APPEAL

(Memorandum Web Opinion)

NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).

Appeal from the District Court for Sarpy County: GEORGE A. THOMPSON, Judge. Affirmed.

Benjamin E. Maxell, of Govier, Katskee, Suing & Maxell, P.C., L.L.O., for appellants.

Daniel J. Fischer, John V. Matson, and Quinn R. Eaton, of Koley Jessen, P.C., L.L.O., for appellee.

RIEDMANN, ARTERBURN, and WELCH, Judges.

ARTERBURN, Judge.

INTRODUCTION

As a discovery sanction, the district court for Sarpy County entered a default judgment in favor of Tigerpaw Software, Inc., and against Justin R. Cherry, Jaxon-Raye Enterprise Advisors, LLC, and Leverage Systems, LLC (collectively appellants). The court awarded Tigerpaw Software $555,000 in compensatory damages and more than $70,000 in attorney fees. The court also entered a permanent injunction prohibiting appellants from using Tigerpaw Software's tradename, design marks, and protected software, and ordering them to stop claiming any affiliation with Tigerpaw Software. Appellants appeal from the district court's order. For the reasons set forth herein, we affirm the decision of the district court in its entirety.

BACKGROUND

At the outset, we must note that the record presented to this court on appeal consists solely of Tigerpaw Software's 48-page complaint (including attachments) and its 141-page June 2020 motion for sanctions and default judgment (including attachments), in addition to the district court's order granting the motion for sanctions and default judgment. Our recitation of the factual background for this case is collected from the pleadings provided (excluding the attachments) and the order of the court.

Tigerpaw Software, which began in 1984, is in the business of designing and licensing customer relationship management (CRM) and business automation software, which allows its customers to streamline how they deliver goods and services to their respective customers, as well as managing the relationships with those customers. Cherry worked as a sales representative for Tigerpaw Software from December 2004 through November 2009. Upon his leaving Tigerpaw Software, Cherry started two companies, Jaxon-Raye Enterprise Advisors, LLC, and Leverage Systems, LLC. Jaxon-Raye advertises a number of computer consulting services, including "Tigerpaw Consulting." Leverage Systems advertises CRM software it calls "Leverage CRM." Cherry describes himself as the creator of Leverage CRM. In a prior litigation between Cherry and Tigerpaw Software, Cherry apparently admitted that he had acquired a copy of the source code for Tigerpaw's CRM software. Tigerpaw Software believes that Leverage CRM is almost identical to its CRM software. In addition, Tigerpaw Software has discovered indications that appellants are using Tigerpaw's trade name and trademark in order to obtain its customer base. As such, Tigerpaw Software initiated this lawsuit against appellants.

Tigerpaw Software filed its complaint on January 19, 2018. In the complaint, it alleges eight different causes of action against appellants, including (1) false association and trademark infringement pursuant to the Lanham Act, 15 U.S.C. § 1125(a)(1)(A); (2) false advertising, also pursuant to the Lanham Act, 15 U.S.C. § 1125(a)(1)(B); (3) violations of Nebraska's Uniform Deceptive Trade Practices Act, Neb. Rev. Stat. §§ 87-301 et seq. (Reissue 2014 & Cum. Supp. 2020); (4) misappropriation of source code pursuant to Nebraska's Trade Secrets Act, Neb. Rev. Stat. §§ 87-501 et seq. (Reissue 2014); (5) violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(4); (6) tortious interference with actual and prospective business relationships and contracts; (7) civil conspiracy; and (8) unjust enrichment. In the complaint, Tigerpaw Software asked that it be awarded compensatory damages, injunctive relief, and attorney fees.

Although the next document which appears in our transcript is Tigerpaw Software's motion for sanctions and default judgment which is dated in June 2020, 2½ years after its complaint, our reading of that motion and the district court's subsequent order reveals some of what transpired during the 2½ years between the filing of Tigerpaw Software's complaint and the filing of its June 2020 motion for sanctions and default judgment.

The district court's order details discovery problems which have plagued the case since shortly after the complaint was filed. Tigerpaw Software apparently first served appellants with interrogatories and document requests on May 3, 2018. According to the district court's order, by the time of Tigerpaw Software's June 2020 motion for sanctions and default judgment, appellants had still not fully complied with Tigerpaw Software's discovery requests. The district court explained:

This case has involved approximately 13 motions by Tigerpaw to obtain discovery from [appellants]. The Court has held no less than 11 hearings on discovery matters, and it has issued no less than 6 discovery orders as well as directives from the bench on the record in open court. Yet as of the date of this Order, [appellants] have failed to comply with the orders of this Court to provide discovery that Cherry, as records custodian of [appellants], testified actually do exist and have not been produced.

The Court has issued multiple orders requiring the production of such discovery, and yet [appellants] have failed and refused to comply with those orders. [Appellants] have also failed to comply with this Court's October 10[, 2019] order requiring payment of $17,698.50 to Tigerpaw as sanctions for a small portion of the attorney fees Tigerpaw has expended in trying to obtain discovery from [appellants].

Despite agreed upon extensions, several hearings, a records custodian deposition, clarifications of what was still owed/sought, and several orders and directives by this Court as to what must be produced, [appellants] still have failed to produce discovery or pay the partial attorney fees discovery sanction, in compliance with this Court's orders.

It appears that Tigerpaw Software first requested that the district court enter default judgment against appellants in April 2019. The district court denied the request, allowing appellants more time to comply with discovery. Tigerpaw Software filed its second request for default judgment in August 2019. The district court again denied the request, extending the time for appellants to comply with the court-ordered discovery requests. Tigerpaw Software filed its third request for default judgment in October 2019. The district court denied the request, but indicated it would consider granting the request if appellants did not comply with all discovery requests. Tigerpaw Software filed its fourth motion requesting a default judgment in June 2020. This motion was ultimately granted by the district court and is the subject of this appeal.

In the June 2020 motion for default judgment, Tigerpaw Software requested that the district enter

a ruling that [appellants'] discovery failures and abuses should be and are hereby sanctioned by default judgment on all claims to which the overdue and unproduced discovery relates, granting all relief sought in the complaint on such claims; for an order requiring [appellants] to pay immediately jointly and severally to Tigerpaw the attorneys' fees previously awarded by the Court; for an order requiring [appellants] to pay Tigerpaw additional attorney fees incurred as a result of [appellants'] continued discovery abuses; for an order awarding damages for use of Tigerpaw's programming code; for an order enjoining any further use [by appellants of Leverage CRM software]; and for such other, different and further relief as to this Court seems just and reasonable.

After a hearing on July 10, 2020, where "[e]vidence was submitted and arguments were taken[,]" the district court granted Tigerpaw Software's motion for default judgment and sanctions. The court found that a default judgment against appellants was warranted as a result of their failure to comply with multiple court orders requiring them to submit responses to Tigerpaw Software's discovery requests. The court explained:

The Court finds in its discretion that default judgment against [appellants], jointly and severally, is warranted here. . . . [Appellants] have failed to provide responsive discovery, discovery which Cherry admitted under oath exists. [Appellants] have further failed to even conduct specific, relevant discovery searches, which Cherry admitted in deposition that [appellants] did not perform. These failures are despite several Court orders for [appellants] to produce these documents and conduct these searches.

The district court proceeded to examine evidence offered by the parties regarding the amount of damages owed to Tigerpaw Software. Based on its analysis of such evidence which included admissions made by Cherry, the deposition of Cherry as records custodian for his two companies, and a voicemail Cherry left with a Tigerpaw Software customer soliciting the customer to leave Tigerpaw Software and use Leverage CRM, the district court ordered appellants to pay $555,000 in damages to Tigerpaw Software. We note that none of this evidence has been included in the record provided to this court. In fact, no record from the July 10, 2020, hearing was requested or presented as a part of this appeal.

The district court also ordered appellants to pay $70,204 in attorney fees. This amount was in addition to the $17,698.50 in attorney fees appellants were previously ordered to pay to Tigerpaw Software as a result of discovery violations. The court found that such an award of attorney fees was permitted by Neb. Ct. R....