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D'Onofrio v. Vacation Publications, Inc.

United States Court of Appeals, Fifth Circuit

April 23, 2018

KAREN D'ONOFRIO, Plaintiff-Appellant
VACATION PUBLICATIONS, INCORPORATED, doing business as Vacations To Go, Defendant-Third Party Plaintiff-Appellee
MICHAEL D'ONOFRIO, doing business as Tranquility Base Enterprises, Third Party Defendant-Appellant KAREN D'ONOFRIO, Plaintiff-Appellant
VACATION PUBLICATIONS, INCORPORATED, doing business as Vacations To Go, Defendant-Appellee

          Appeals from the United States District Court for the Southern District of Texas

          Before WIENER, HIGGINSON, and COSTA, Circuit Judges.

          STEPHEN A. HIGGINSON, Circuit Judge:

         In this employment dispute, Karen D'Onofrio sued her former employer, Vacations to Go ("VTG" or "Vacation"), a division of Vacation Publications, Inc., the largest seller of ocean-going cruises in the world, for interfering with her rights under the Family Medical Leave Act. Vacation counter sued, alleging that Karen and her husband, Michael D'Onofrio, breached Karen's covenant not to compete, converted confidential information, and tortuously interfered with its business relationships, among other things, by conspiring to establish a competing vacation-sales franchise. A year after Vacation moved for summary judgment, the district court granted that motion-terminating all pending motions and entering final judgment on all claims, including those not addressed in its order. Finding numerous disputes of material fact, we reverse in part, affirm in part, vacate the district court's award of attorneys' fees, damages, and injunctive relief, and remand for further proceedings.



         Karen D'Onofrio began working as a sales representative for Vacation in 2012. Vacation provided Karen with specialized training in sales and marketing and with industry knowledge and confidential information including client information and marketing and sales techniques. The employment contract she signed with Vacation stated that during the course of her employment and for 18 months thereafter she would not, among other things: (1) "[w]ork in any capacity . . . for any direct or indirect competitor of VTG in any job related to sales or marketing of cruises, escorted or independent tours, river cruises, safaris, or resort stays"; (2) "[d]isclose directly or indirectly VTG's . . . Confidential Information to any person . . . for any purpose or reason whatsoever"; (3) [d]irectly or indirectly use VTG's . . . Confidential Information for [her] own benefit for any purpose whatsoever"; (4) "[s]olicit, engage in selling to, engage in business with, or call upon any person or entity who or which has purchased a cruise, escorted or independent tour, river cruise, safari or resort stay from VTG within the preceding 3 years"; or (5) "[s]olicit or induce any person that has been a customer of VTG within the preceding 3 years to terminate its relationship with VTG."

         Michael is an aerospace engineer, but has supplemented his income throughout his career with various direct-sales ventures, including cookware, kitchen gadgets, and mattresses. In 2011, he was involved in a major car accident in which he sustained severe and lasting injuries requiring multiple surgeries. Due to the injuries he sustained, he found it impossible to continue his direct-sales business as he could no longer carry the products he sold to customers or trade shows. In April 2014, prior to undergoing major back surgery, Michael decided to pursue a "long-held desire" to sell travel services, which he could do without carrying heavy merchandise. He decided to purchase a franchise of CruiseOne, a company that also sells cruises and other travel-related products and services. In support of his application to purchase the franchise, Michael attached a screenshot of Karen's sales records at Vacation, including her sales totals but not customer information. In May 2014, the D'Onofrios executed a franchise agreement between CruiseOne and Tranquility Base Enterprises, an entity jointly owned by Michael and Karen.

         On July 7, 2014, Karen received a confirmation e-mail stating that she was scheduled to attend a CruiseOne training in Florida beginning on July 10. On July 9, at the suggestion of Vacation's human resources ("HR") specialist, Karen requested leave from Vacation pursuant to the Family Medical Leave Act ("FMLA"), 29 U.S.C. § 2612(a)(1)(C), in order to care for Michael. Vacation offered Karen two options: she could go on unpaid FMLA leave or she could log in remotely a few times per week and continue to service her existing accounts so that she could keep the commissions from those accounts while on leave. Karen chose the latter option, and agreed to continue servicing existing clients but not take new leads. On July 10, she attended the CruiseOne training in Florida while Michael stayed home.

         On July 14, 2014, Vacation's senior director of HR e-mailed Karen confirming that her FMLA leave had begun on July 11 and asking that she update her e-mail away message to reflect that she was on leave but would be responding to clients periodically. On July 17, Karen's manager checked Karen's Vacation e-mail account to ensure that she had updated her away message, and noticed that Karen had not responded to any e-mails since July 12. Her manager had also received several complaints from Karen's clients that she had not responded to their voicemails. The HR director then sent Karen an e-mail reiterating Karen's responsibilities if she wanted to continue servicing clients and receiving commissions while on leave. Karen responded on July 21, stating that her laptop had not been working. On August 11, after not being able to reach Karen for over a week, her manager accessed Karen's Vacation e-mail account and found 220 unread e-mails. Karen had not read a single e-mail since July 26.

         In light of Karen's failure to respond to client e-mails and voicemails, the HR director decided to bring Karen's clients in house while she was on leave. He e-mailed her to inform her of the change, explaining that the clients would be returned to her upon her return from FMLA leave. Karen was also locked out of her Vacation accounts. The senior director of operations then e-mailed Vacation's in-house salespersons, informing them that they would be covering Karen's clients while she was on leave and asking that they inform Karen's clients of the arrangement. One manager mistakenly informed 23 clients via e-mail that Karen was no longer working at Vacation. One such e-mail went to Michael, as he had previously booked a cruise through his wife.

         After being locked out of her Vacation accounts and learning of the email that Michael received, Karen believed that she had been terminated from Vacation. She filed for unemployment benefits on August 24, 2014. In response, Vacation indicated that Karen was still employed and on FMLA leave. In October 2014, Vacation e-mailed Karen confirming that her FMLA leave had expired and asking whether she planned to return. Karen responded that she was not returning because she believed that she had been terminated in August.

         Karen also alleges that she was sexually harassed during her employment with Vacation. She alleges that one Vacation employee, an IT technician, touched her breasts and, after she reported the conduct, continued to hover around her work area, stare at her, and make unwanted physical contact with her. After reporting the continued harassment, she was reassigned to another department on a different floor, but other employees, including supervisors, allegedly made inappropriate comments and jokes, used obscene language, and engaged in unwanted physical contact.


         Because it is relevant to several of the issues raised on appeal, we recount in some detail the tangled procedural history of this case. In February 2015, Karen filed suit against Vacation in state court alleging FMLA violations. Vacation filed counterclaims against Karen for breach of contract, conversion of confidential information, fraud, tortious interference with existing and prospective business relations, and breach of fiduciary duty. Vacation subsequently removed the case to federal court. It then sought and received leave to join Michael as a third-party defendant, asserting claims against him for conversion, civil conspiracy, tortious interference, and aiding and abetting breach of fiduciary duties.

         In June 2015, Karen moved to voluntarily dismiss her FMLA claims, which Vacation opposed and the district court denied. In July, Michael moved to dismiss the complaint against him for lack of subject-matter jurisdiction. Then in August, Vacation moved for summary judgment on Karen's FMLA claims against it and its claims against both her and Michael. The next month, Karen, proceeding pro se, filed a separate federal lawsuit asserting claims for sexual harassment by two Vacation employees in violation of Title VII, which was consolidated with this case in December 2015.

         On August 22, 2016, the district court granted Vacation's motion for summary judgment.[1] The court terminated all pending motions, including Michael's motion to dismiss for lack of subject-matter jurisdiction (which was not addressed in the court's order) and issued a final judgment disposing of all claims, including the sexual harassment claims added in December 2015 (which were not addressed in either Vacation's motion for summary judgment or the court's order). The D'Onofrios timely appealed.



         Michael first contends that the district court lacked subject-matter jurisdiction over the claims against him because they were state-law claims that did not arise out of the same nucleus of operative fact as Karen's federal FMLA claims against Vacation.[2] We "review[] a district court's assumption of subject-matter jurisdiction de novo." Arena v. Graybar Elec. Co., 669 F.3d 214, 218-19 (5th Cir. 2012). Once subject-matter jurisdiction is established, we review the decision to exercise supplemental jurisdiction for abuse of discretion. See Mendoza v. Murphy, 532 F.3d 342, 346 (5th Cir. 2008).[3]

         Federal district courts have "supplemental jurisdiction over all . . . claims that are so related to claims in the action within [the district court's] original jurisdiction that they form part of the same case or controversy under Article III, " including "claims that involve the joinder or intervention of additional parties." 28 U.S.C. § 1367(a); see also State Nat. Ins. Co. v. Yates, 391 F.3d 577, 579 (5th Cir. 2004).[4] "The question under section 1367(a) is whether the supplemental claims are so related to the original claims that they . . . 'derive from a common nucleus of operative fact.'" Mendoza, 532 F.3d at 346 (quoting United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966)).

         Here, there is a "common nucleus of operative fact" between Karen's FMLA claims and Vacation's state-law claims against Michael. Karen alleged that Vacation interfered with her rights under the FMLA. In defense, Vacation argued that Karen was not eligible for FMLA leave because she misrepresented her reasons for taking leave and improperly used her leave to help Michael establish a CruiseOne franchise, including by attending a CruiseOne training. In its claims against Michael, Vacation alleges that he conspired with Karen in committing fraud, breaching her covenant not to compete, and breaching her fiduciary duty to Vacation. Thus, the question whether Karen was entitled to FMLA leave-or, more to the point, whether she misused her leave in order to start a competing enterprise with Michael- derives from the same nucleus of operative facts as Vacation's claims against Michael. Accordingly, the district court had subject-matter jurisdiction over Vacation's state-law claims against Michael. See State Nat. Ins. Co., 391 F.3d at 579, 581 (holding that district court had supplemental jurisdiction over defendant's state-law counterclaims against additional party).

         Section 1367(c) provides that district courts may decline to exercise supplemental jurisdiction over a claim if: (1) "the claim raises a novel or complex issue of State law"; (2) "the claim substantially predominates over the claim or claims over which the district court has original jurisdiction"; (3) "the district court has dismissed all claims over which it has original jurisdiction"; or (4) "in exceptional circumstances, there are other compelling reasons for declining jurisdiction." 28 U.S.C. § 1367(c). Here, consideration of those factors, and of judicial economy, convenience, fairness, and comity, lead us to conclude that the exercise of supplemental jurisdiction was proper in this case. See Mendoza, 532 F.3d at 346 (stating that our review of the exercise of supplemental jurisdiction is guided by the § 1367(c) factors and "considerations of judicial economy, convenience, fairness, and comity").

         Of the § 1367(c) factors, only the second even conceivably weighs in favor of declining supplemental jurisdiction. Vacation's claims arguably predominate "in terms of proof, . . . the scope of the issues raised, [and] the comprehensiveness of the remedy sought, " Jackson v. Stinchcomb, 635 F.2d 462, 473 (5th Cir. 1981) (quoting Gibbs, 383 U.S. at 726), though, as discussed above, the claims are intertwined. Regardless, the remaining three factors weigh clearly in favor of retaining jurisdiction. The state-law issues raised, while numerous, are neither novel nor complex; the district court had not dismissed the FMLA claims; and no other exceptional circumstances compelled declining jurisdiction.

         Consideration of the common-law factors of judicial economy, convenience, fairness, and comity further convince us that the district court did not abuse its discretion by exercising supplemental jurisdiction. By the time that Michael filed his motion to dismiss for lack of subject-matter jurisdiction, the parties had exchanged substantial discovery.[5] In fact, Vacation's motion for summary judgment was filed just one month later. Finally, there does not appear to be, nor does Michael identify, any unfairness resulting from the exercise of supplemental jurisdiction.


         Before turning to the D'Onofrios' various challenges to the district court's grant of summary judgment, we first address their evidentiary challenges. See Christophersen v. Allied-Signal Corp., 939 F.2d 1106, 1109 (5th Cir. 1991) (en banc) (stating that, in an appeal from summary judgment raising evidentiary issues, we first "review the trial court's evidentiary rules, which define the summary judgment record"), abrogated on other grounds by Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). Rulings on motions for discovery are reviewed for abuse of discretion. Atkinson v. Denton Publ'g Co., 84 F.3d 144, 147 (5th Cir. 1996).


         First, Karen contends that the district court erred by not sustaining her objections to various statements in the depositions of three Vacation employees. She argues that the following were either inadmissible conclusions or made without personal knowledge: statements in the affidavit of Thain Allen that Karen had violated the covenant not to compete, that the covenant was enforceable, and that Karen had made material misrepresentations to Vacation; statements in the affidavit of Emerson Hankamer that the covenant not to compete was reasonable; and statements in the affidavit of Robert Baker calculating damages based on his knowledge of "how commissions work in the industry" generally rather than how they work at CruiseOne specifically.

         Rule 56(c)(4) of the Federal Rules of Civil Procedure provides that "[a]n affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." Fed.R.Civ.P. 56(c)(4). At the summary judgment stage, evidence relied upon need not be presented in admissible form, but it must be "capable of being 'presented in a form that would be admissible in evidence.'" LSR Consulting, LLC v. Wells Fargo Bank, N.A., 835 F.3d 530, 534 (5th Cir. 2016) (quoting Fed.R.Civ.P. 56(c)(2)). Neither legal conclusions nor statements made without personal knowledge are capable of being so presented. See Fed. R. Evid. 602, 701, 702.

         The objected-to statements of Allen and Hankamer are legal conclusions and thus are not competent summary judgment evidence. See Cutting Underwater Techs. USA, Inc. v. Eni U.S. Operating Co., 671 F.3d 512, 515 (5th Cir. 2012) (stating that conclusions of law cannot be utilized in a motion for summary judgment). The objected-to calculation of damages in the Baker affidavit is speculative and not adequately based on personal knowledge. See Fed. R. Civ. P. 56(c)(4); Fed.R.Evid. 602. He bases his estimate of the D'Onofrios' commissions on his knowledge of "how commissions work in the industry, " not how they work at CruiseOne in particular;[6] calculates Vacation's damages to include all of the D'Onofrios' revenues while identifying only one former Vacation customer who subsequently did business with the D'Onofrios;[7]and fails to adequately explain the reasoning behind his calculations.[8] The objected-to ...

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