MEMORANDUM OPINION1

Related Dkt. Nos. 259, 262, 268, 276

GREGORY L. TADDONIO, UNITED STATES BANKRUPTCY JUDGE

Prithvi Catalytic, Inc. ("PCI")2 was an information technology staffing company that deployed teams of highly skilled employee "resources" to work on projects at jobsites maintained by PCI's customers.3 Prior to its bankruptcy filing, approximately 90 percent of PCI's revenue derived from a single client, Microsoft Corporation.4 By September 2013, PCI was billing Microsoft at a rate of approximately $2 million per month.5

PCI filed a petition for bankruptcy relief on September 10, 2013, after Kyko Global, Inc. obtained a $17 million judgment against it and several of its affiliates. When significant allegations of fraud were leveled against PCI's chief executive officer, Madhavi Vuppalapati ("Madhavi"), the Court appointed, with Kyko's consent, a chief restructuring officer to oversee PCI's operations.6 As PCI's largest creditor, Kyko obtained confirmation of a plan of reorganization whereby it acquired all of the equity interests in PCI. The success of the plan was predicated upon PCI maintaining a sustainable level of work from Microsoft.7

Despite replacing the corporate leadership, re-branding the business as "Abilius, Inc.," and attempting to repair damaged customer relationships, the reorganized debtor was unable to maintain the revenue stream it enjoyed before the bankruptcy filing. Claiming that PCI was no longer reliable, Microsoft chose not to renew most of its PCI contracts when they expired in June 2014, opting instead to send the work to Beyondsoft Corporation and Collabera, Inc.

PCI, Kyko, and Kyko Global GmbH (the "Plaintiffs"), initiated this action for damages under ten separate causes of action on the basis that Microsoft, Collabera, and Beyondsoft conspired to steal PCI's profitable contracts and employee "resources" who were subject to non-compete agreements. Plaintiffs also asserted claims against Shannon Krohn and Ian Olson, former PCI executives who left to work for Collabera and are accused of using PCI's proprietary information to transition resources from their old employer to their new one.

The Court is presently confronted with four competing motions for summary judgment. Defendants have separately filed motions seeking summary judgment on each claim asserted against them.8 Meanwhile, Plaintiffs seek partial summary judgment as to two counts alleging violations of the automatic stay and civil contempt.9 Although each party asserts individual arguments, the Court notes that there are no significant inconsistencies in their treatment of the issues. Defendants also presented a joint statement of uncontested facts, and Plaintiffs responded. The Court will therefore address all four motions in this Memorandum Opinion. The Court will follow the organization of the remaining Counts of Plaintiffs' Complaint (1, 2, 3, 5, 6, 8, 9, 10), treating issues raised in the four motions as to each count.

Factual Background10

The origins of this matter date back several years.11 In mid-2011, Kyko's CEO, Kiran Kulkarni, was contacted about the possibility of providing accounts receivable factoring services to Prithvi Information Systems, Ltd. ("PISL"), an affiliate of PCI. As the chairperson of PISL, Madhavi and her brother Satish (together, the "Vuppalapatis"), offered Kyko the ability to purchase PISL's accounts receivable invoices from five distinct customers.12 Under the arrangement, Kyko advanced millions of dollars to PISL based upon the face amount of the invoice, less certain fees, and then possessed the right to collect the full amount of the receivable directly from the customer between 45 and 60 days later.

The entire arrangement was later exposed as a fraudulent scheme. In findings rendered last year by the United States District Court for the Western District of Washington, it was determined that the five customers did not exist and were instead part of an elaborate fabrication concocted by the Vuppalapatis to defraud Kyko:13

PCI commenced its bankruptcy case shortly after Kyko obtained a judgment against PCI and its affiliates in the amount of $17,568,854.15 PCI is a guarantor of the debt owed by PISL and that guarantee is the foundation of Kyko's claim as a creditor of PCI in this bankruptcy proceeding. PCI does not challenge that the debt arising from this litigation, together with approximately $8 million in unpaid withholding taxes, triggered PCI's bankruptcy.

At the time of its bankruptcy filing, PCI employed approximately 200-250 individuals.16 Most of the employee resources were deployed at Microsoft and performed work on three distinct projects:17 (1) the Windows Test Team Operating Services Group ("OSG"), utilizing approximately 95-105 resources;18 (2) the Sharepoint Online Group ("Sharepoint"), staffed by approximately 28-30 resources;19 and (3) the Customer Services & Support Group ("CSS"), which included a project known as "Mission Control," requiring 30-35 resources.20 Other Microsoft projects employed an additional 18 PCI staffers.

Microsoft's relations with its vendors are governed by a Master Vendor Agreement ("MVA"). The MVA between Microsoft and PCI became effective on May 4, 2011, and had a five-year term. Within the guidelines of the MVA, Microsoft and the vendors execute individual contracts, known as Statements of Work ("SOW") and corresponding Purchase Orders ("PO"), to engage, authorize, and pay vendors to perform services within a particular group or on a particular project. The parties refer to the cumulative SOWs and POs as the "Microsoft Contracts." While the individual SOWs and POS may have had different terms, Plaintiffs acknowledge in their Complaint that all Microsoft Contracts expired on June 30, 2014.21

Following the filing of the bankruptcy petition, there were allegations of complaints made by PCI resources to management personnel at Microsoft regarding PCI, its alleged missed payrolls, and its failure to provide insurance coverage. These are all hotly disputed by the parties and remain open material questions.22 In addition, the Vuppalapatis' shadow loomed over the business, prompting Kyko to seek the appointment of a trustee to prevent a feared dissipation of PCI's assets.23 Kyko eventually agreed to the appointment of David Amorose as the Chief Financial Officer and Treasurer of PCI as a means of providing both stability and transparency to PCI.24 Pursuant to the consent order, Amorose was granted operational authority over PCI's business, controlled all disbursements, and was held accountable for all actions undertaken by PCI during the bankruptcy case.25

Several months into the bankruptcy case, PCI's customer base began to erode. In December 2013, Expedia notified PCI that it was discontinuing its relationship and would not extend any new work to PCI.26 Amorose, in his deposition, attributed the loss to "the association to Madhavi and the fraud charges."27

In December 2013, PCI explored options to transition its business to another supplier.28 PCI employees met with Microsoft regarding the possibility of transferring PCI's existing projects to either Collabera or RGen Solutions.29 At some point between late December 2013 and the first week of January 2014, Olson (while still employed by PCI) exchanged financial data and other information related to the resources deployed on the Sharepoint and OSG projects with Krohn, who was now employed by Collabera.30 These discussions culminated in a "Consultant Referral Agreement," whereby PCI agreed to transition resources to Collabera in exchange for a referral fee.31 The agreement was subsequently terminated when, according to PCI, Madhavi perceived a conflict of interest.32

On January 17, 2014, Microsoft informed PCI that it was terminating 27 purchase orders within the CSS project for cause/convenience.33 PCI responded by instituting an adversary proceeding against Microsoft, alleging a violation of the automatic stay and breach of an executory contract that had not been rejected.34 A week later, Microsoft and PCI resolved the matter in a stipulation whereby Microsoft agreed to revoke the termination letter in exchange for PCI's withdrawal of its complaint.35 The Court approved the stipulation and dismissed the adversary proceeding on January 30, 2014.36

In the spring of 2014, PCI took affirmative steps to re-brand itself under new leadership. On February 26, 2014, it hired Audrey Koocher to serve as Acting Chief Executive Officer of PCI.37 A few weeks later, PCI filed an emergency motion to change its corporate name to "Abilius, Inc."38 In support of the motion, Amorose filed an affidavit which justified the change as follows:

The Court approved the name change to Abilius, Inc. on March 27, 2014.40

When PCI failed to advance a plan of reorganization, Kyko proposed one of its own.41 On May 30, 2014, the Court confirmed Kyko's Plan.42 Notably, the Plan contemplated that Microsoft would continue to utilize PCI resources, and PCI would continue in business under the ownership of Kyko.43 The effective date of the Plan was June 26, 2014.44

Despite the positive momentum generated by the Plan, PCI continued to face roadblocks in its efforts to smooth over customer relationships. On May 14, 2014, Microsoft notified PCI that it would not renew the Sharepoint contract and would instead consolidate the work with Beyondsoft.45 On June 4, 2014, Microsoft notified PCI that certain elements of the CSS contract would also not be renewed after June 30, 2014, because they were now awarded to Collabera.46 During the rest of June, Microsoft continued to notify PCI of other portions of the CSS/Mission Control project that were no longer being renewed.47 These contracts were instead awarded to Collabera.48 Although Microsoft renewed a single purchase order under the OSG contracts with PCI, the renewal was for only a six-month period.49

Thus, before the effective date of the Plan, it was clear that PCI had lost the Sharepoint contracts to Beyondsoft and the CSS contracts to Collabera. After July 1, 2014, OSG remained as PCI's only active Microsoft project, and all work was performed through a single purchase order which expired on December 31, 2014.50 By January 1, 2015, PCI had no ongoing projects with Microsoft.51

On August 21, 2014, Plaintiffs filed their Complaint in the instant adversary proceeding asserting ten separate causes of action against Microsoft, Collabera, Beyondsoft, Krohn, and Olson.52 Due to prior developments, Counts 4 and 7 are no longer at issue and the claims against Beyondsoft in Counts 9 and 10 were dismissed.53 Following the close of discovery, the parties were unsuccessful in their efforts to reach a resolution through mediation. Accordingly, the respective summary judgment motions are now pending before the Court.

Jurisdiction and Venue

The Court examined its jurisdiction over these proceedings in the Dismissal Opinion. The Court has "arising under" jurisdiction as to Counts 9 and 10 which allege violations of the automatic stay and civil contempt of this Court's Orders. The Court may issue a final judgment with respect to those two claims.

As to Counts 1, 2, 3, 5, 6, and 8, the Court previously determined that it was exercising its "related to" jurisdiction and therefore such matters are necessarily non-core.54 To the extent the Court grants summary judgment as to any claim contained within Counts 1, 2, 3, 5, 6, and 8, this Memorandum Opinion and the associated Order shall constitute the Court's proposed findings of fact, conclusions of law, and report and recommendation to the United States District Court for the Western District of Pennsylvania for those specific claims in the absence of consent by the parties to the entry of a final judgment by this Court.

Venue is proper in this district under 28 U.S.C. § 1409(a).

Summary Judgment

Summary judgment should be granted whenever "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law."55 A genuine issue of material fact exists "only if there is a sufficient evidentiary basis on which a reasonable [trier of fact] could find for the non-moving party, and a factual dispute is material only if it might affect the outcome of the suit under governing law."56 The party seeking summary judgment bears the burden of demonstrating that "the evidentiary record presents no genuine issue of material fact."57

To avoid summary judgment, "the non-moving party must identify facts in the record that would enable them to make a sufficient showing on [the] essential elements of their case for which they have the burden of proof."58 A failure of proof regarding any essential element in the non-moving party's case necessitates judgment as a matter of law and renders all other facts immaterial.59 Reviewing the record as a whole, the Court is to "draw all reasonable inferences in favor of the non-moving party and will not weigh the evidence or make credibility determinations."60

Choice of Law

As discussed below, the principal remaining issues in this dispute concern allegations of tortious interference by Defendants in the contractual relations between PCI and its employees deployed at Microsoft. In their legal briefs, the parties cite to caselaw of both the Commonwealth of Pennsylvania and the State of Washington. When previously confronted with choice of law issues, the Court determined that it could refer to the laws of each state interchangeably because there was no substantive difference as to how each jurisdiction defined these types of claims.61

Now that discovery has concluded, the Court can renew its choice of law inquiry with the benefit of additional information that was previously unknown. Among these items, the Court can review the non-compete agreements which are at the center of this litigation. The non-compete agreements do not contain choice of law clauses,62 but both Pennsylvania and Washington have adopted the "most significant relationship" test of the Restatement (Second) of Conflict of Laws (1971) to assist with a determination of the appropriate legal standards to apply here.63

Although the Court has the highest regard for the persuasive value of the Commonwealth's caselaw, it concludes that, in the disputes presently before it, Washington has the most significant relationship. Plaintiffs were allegedly injured when PCI resources deployed at the Microsoft campus breached their non-compete agreements by going to work for Beyondsoft and Collabera at the same Microsoft location. The place of injury was Washington. The conduct causing the injury was the various actions allegedly taken by Defendants to induce the resources to move to Collabera and Beyondsoft. That conduct was targeted at the resources, who were primarily Washington residents. None of the non-competes agreements in the record were executed by residents of Pennsylvania, and none of the actions allegedly taken by Defendants originated within the Commonwealth. It would appear that the only significant relationship of the parties to Pennsylvania is that PCI is headquartered in Pittsburgh, Pennsylvania,64 and some communications between the parties originated from there.65 It is also noteworthy that PCI's acting chief executive officer, Koocher, relocated to Washington as the events of the Complaint unfolded.

For these reasons, the Court concludes that the State of Washington has the most significant relationship to the disputes in this case and it will hereafter apply Washington law when applicable in this adversary proceeding.

Count 1:

Tortious Interference with a Prospective Contract

The first count alleges that Collabera, Krohn, and Olson (together, the "Collabera Defendants") tortuously interfered with PCI's efforts to secure a new CSS contract with Microsoft for the period beginning on July 1, 2014.66 Olson was PCI's Director of Consulting and Krohn served as its Director of Business Development until both executives left to join Collabera.67

To prevail on a claim for tortious interference with a business expectancy in Washington, a plaintiff must establish the following five elements: (1) the existence of a valid business expectancy; (2) the defendants had knowledge of that expectancy; (3) an intentional interference inducing or causing a breach or termination of the expectancy; (4) the defendants interfered for an improper purpose or used improper means; and (5) resultant damage.68 According to the Supreme Court of Washington, the cause of action:

The Court will assess whether Plaintiffs can satisfy each of the essential elements.

The existence of a valid business expectancy. A valid business expectancy requires proof of "any prospective contractual or business relationship that would be of pecuniary value."70 It is not necessary to establish proof of a specific contract.71 The business expectancy must also be reasonable. A plaintiff must show that future business opportunities "are a reasonable expectation and not merely wishful thinking."72 Whether a plaintiff had a reasonable business expectancy is a question of fact.73

Under the facts of the case, the Court is unable to make a finding at this time on the reasonableness of PCI's belief that it had a valid business expectancy regarding the renewal of the CSS projects. After the initial cancellation of the projects and their reinstatement in January 2014, Microsoft made no further comment to PCI regarding the potential (or lack thereof) renewal of the CSS projects for Fiscal Year 2015 (i.e. after June 30, 2014) until after the Plan was confirmed.74 Equally relevant, Microsoft was never under an obligation to renew the contracts.75 Instead, Microsoft indicated that the status of all projects would be discussed after PCI exited from bankruptcy.76 PCI understood this to mean that there was a possibility of renewal of the CSS contracts and other projects.77 In addition, PCI claims it relied on a "standard procedure" by which a supplier is notified in writing of Microsoft's decision not to renew a contract.78 Whether PCI's belief that it could obtain an extension of the CSS projects was reasonable or merely wishful thinking is a question of material fact that would need to be determined at trial.

However, trial will not be required on this Count. As discussed below, the Collabera Defendants could not have formed the intent to tortiously interfere with any business expectancy PCI had in the CSS projects because Microsoft already informed them that the work would be transferred to Collabera before the Collabera Defendants undertook the allegedly tortious actions.

That the defendant had knowledge of the expectancy and intentionally interfered. It can be fairly assumed that the Collabera Defendants were aware that PCI wanted Microsoft to renew at least part of their CSS contracts. But the Collabera Defendants could not "intentionally interfere" with an expectancy that they knew would not ripen into a contractual agreement.

A review of the PCI involvement in the CSS projects is useful here. PCI provided staffing to Microsoft on the CSS projects since 2011. Until the filing of the bankruptcy petition and the events of Autumn 2013, Microsoft was apparently satisfied with its relationship with PCI and the quality of resources provided.79 Cordial relations changed after the filing of the petition. Microsoft managers received complaints from the resources regarding missed payroll, failed insurance payments, and general concern over the future of PCI and their jobs.80 Microsoft procurement officers, responsible for the administration of vendor contracts, became increasingly concerned.81 These concerns were expressed to PCI's management and some were even relayed on to the Court.82 On December 8, 2013, Rebecca O'Connor, Microsoft's Strategic Sourcing Manager for the Global Procurement Group, warned Amorose that "[w]ithout any due diligence being provided to us by Prithvi, we are put in a position where Procurement can no longer, in good faith, recommend that our stakeholders engage Prithvi on any new projects."83 Then later in December 2013, Tammy Widmyer Joy, the Microsoft procurement manager for CSS, wrote that "CSS [] wanted to transition a bunch of projects to another supplier" due to PCI losing its status as an "approved" supplier.84

Microsoft exercised its contractual right to terminate 27 of the open CSS projects in a letter to Amorose on January 17, 2014, effective February 16, 2014.85 The warnings and termination letter caused PCI to file an adversary proceeding against Microsoft on January 22, 2014, for breach of an unrejected executory contract and violation of the automatic stay.86 Microsoft and PCI signed a stipulation revoking the termination letter and withdrawing the complaint and adversary proceeding. But the message had been sent: Microsoft was no longer interested in working with PCI on the CSS contracts. The Court approved the stipulation and dismissed the adversary proceeding on January 30, 2014.87

Although Microsoft agreed to withdraw its early termination notice on January 29, 2014, it is undisputed that its decision to terminate all relationships with PCI did not change after that date:

Simply put, on or before January 29, 2014, a firm decision was made by Microsoft to terminate its relationship with PCI and that decision never changed. There is no evidence in the record that the Collabera Defendants significantly affected Microsoft's decision as of that date.90

Further, it is undisputed that the Collabera Defendants were aware of Microsoft's decision to terminate its relationship with PCI, at least as to the CSS/Mission Control project, as of January 2014:

And even though Microsoft publicly retracted the CSS termination letter, it is undisputed that the Collabera Defendants knew that Microsoft was still planning to terminate its relationship with PCI, at least as to the Mission Control projects.

Thus, the record indicates that Microsoft made its independent decision to terminate its relationship with PCI no later than January 29, 2014. Microsoft's procurement officers previously recommended Collabera as an acceptable substitute vendor on the CSS projects, and the record indicates that by the end of January 2014, Collabera was advised that it would be awarded those contracts as soon as Microsoft could move them.

To satisfy the second element of their claim, Plaintiffs must prove that the tortious interference was intentional. Interference with a business expectancy is deemed intentional "if the actor desires to bring it about or if he knows that the interference is certain or substantially certain to occur as a result of his action."95 Before the Collabera Defendants took any of the allegedly tortious actions suggested by Plaintiffs, they knew that PCI had no possibility of obtaining new work on the CSS projects. Microsoft previously informed them that Collabera had won the right to replace PCI on its existing CSS projects, and it was only a matter of time until the transition was set to occur. The Collabera Defendants therefore could not have intended to tortiously interfere with a business expectancy they knew to have already been extinguished by the prospective counterparty.96

That the defendant interfered for an improper purpose or used improper means. The lack of intention is dispositive and requires dismissal of Count 1. But in addition to intention, the Court observes that the third element, wrongful means, is also not present here. A plaintiff must establish that the intentional interference was wrongful.97 Interference with a business expectancy is wrongful if it is done for an improper purpose or by improper means.98 Interference is done with an improper purpose if it is deemed wrongful by statute, regulation, common law, or some established standard of trade or profession.99 However, the means allegedly used by the Collabera Defendants, at least as to Count 1, appears to fall within the acceptable range of conduct for competitors in the same line of business.

The Washington Supreme Court has accepted the Restatement (Second) of Torts as "authority" on the proper and improper means of competition in the context of alleged tortious interference with either a contract or a prospective contractual relation.100 The general rule on acceptable conduct in competition is found in RESTATEMENT (SECOND) TORTS § 768:

Notably, the first words of § 768 restrict its coverage to parties who intentionally interfere with a contract or prospective contractual relation. Thus, as discussed above, it does not apply in Count 1. However, even in this stricter case of intentional interference, Washington recognizes that a competitor has a certain leeway in its conduct to secure business, even if the actions are directed toward a specific competitor. A party that acts with the purpose of advancing his competing interests on a business matter for which he and the competitor are actively engaged may do so without fear of tortious interference liability so long as the conduct does not employ unlawful means or result in an illegal restraint of trade.101

Here, there is no suggestion that the Collabera Defendants were engaged in a restraint of trade. Whatever allegations have been made about their conduct, it appears that they acted in pursuit of securing for themselves the contract for CSS projects. There is no indication or argument that they acted for any other purpose (such as an attempt to destroy the competitor). While in another context it might be argued that their conduct employed wrongful means,102 whatever conduct is alleged occurred after Microsoft decided to independently award Collabera the CSS contracts.

For the above reasons, the Court GRANTS summary judgment to the Collabera Defendants and Count 1 of the Complaint is DISMISSED.

Count 2:

Tortious Interference with Contractual Relations

Count 2 alleges that Krohn and Olson acted intentionally and improperly in their attempts to "poach" PCI's resources. Collabera hired Krohn away from PCI in December 2013 to manage its customer accounts (including the Microsoft account) in the Pacific Northwest.103 Olson joined Collabera in January 2014.104 Plaintiffs claim that both former PCI executives used improper means to lure the resources over to their new employer in conjunction with an overall effort to transfer the entirety of the CSS/Mission Control work to Collabera.

Unlike Count 1 where the prospective contract at issue was the CSS contracts between Microsoft and PCI, in Count 2 the contracts involve the employment agreements between PCI and the individual resources and, in particular, any provisions in those agreements that prohibit the resources from accepting employment with a competitor of PCI within one-year in a certain defined geographic area (the "non-compete" agreements). This Court already determined that the non-compete agreement in the PCI employment contracts is property of PCI's bankruptcy estate:

Under Washington law, the elements necessary to establish a tortious interference with a contractual relationship are the same as those required for a tortious interference with a business expectancy.106 The Court will examine each of these elements in turn.

The existence of a valid contractual relationship. The first element presents the Court with a close call. Defendants dispute that the non-compete agreements are valid contracts, contending instead that they place unreasonable restrictions on future employment that render them unenforceable.107

In general, non-compete agreements are presumptively valid and enforceable under Washington law if they are reasonable and lawful.108 Restrictions as to time and territory are reasonable to the extent necessary to protect the employer's interest without imposing an undue hardship on the employee.109

The determination of whether a covenant not to compete is reasonable is a question of law.110 The reasonableness of a non-compete agreement is assessed through a three-part test. The Court must determine: (1) whether the restraint is necessary to protect the employer's business or goodwill, (2) whether it imposes on the employee any greater restraint than is reasonably necessary to secure the employer's business or goodwill, and (3) whether enforcing the covenant and the resulting loss of the employee's skills and service would violate public policy to the extent that covenant should not be enforced.111

The initial inquiry focuses on whether PCI had a legitimate business interest to protect with the non-compete agreement. The extent to which a restrictive covenant protects an employer's business can vary with the nature of the employment.112 Among the legitimate and protectable business interests recognized by the courts, employers may rely on restrictive covenants to prevent departing employees from taking their established clients113 or to protect against the loss of an employer's investment in materials or training.114 Appellate courts in Washington also caution against a narrow construction of the employer's business interests, finding that an employee's access to the employer's business model and goodwill may give rise to a protectable business interest.115

The business model of a staffing company differs substantially from those of more traditional enterprises. The ability to produce and maintain a workforce of highly skilled employees capable of satisfying client demands is its stock-in-trade.116 It can invest considerable time, money, and effort to identify and recruit personnel tailored to the client's qualifications. The staffing company provides a benefit to its customers in that it assembles and screens potential candidates and then selects those best suited to the needs of each particular project. Given this level of involvement, a critical component of the staffing company's goodwill is its ability to preserve ongoing relationships with the employee-resources.

One of the biggest threats to a staffing company is disintermediation, which occurs when a customer and employee cut out the "middle man"—in this case, the staffing company—so as to deal with each other directly.117 If a customer can obtain the employee's services by circumventing the staffing company altogether and foregoing its customary fees, the inherent value of the staffing company vanishes and its goodwill is eliminated.118

Although the appellate courts in Washington have yet to rule on this issue, the Court predicts they would follow the evolving trend of cases which hold that disintermediation constitutes a valid business interest that warrants protection through a non-compete agreement.119 In other jurisdictions, the use of a non-compete agreement by a staffing company to preserve its business model and goodwill has been deemed to be inherently reasonable.120 Indeed, the use of non-compete agreements within the IT staffing environment appears to be quite common as Beyondsoft and Collabera also utilize restrictive covenants in their own employment agreements.121 The record also suggests that Microsoft was aware of the pervasive use of noncompetes by their suppliers.122

Upon consideration of these factors, the Court determines that the unfettered departure of resources from PCI threatens to impair its business model if suitable restrictions are not imposed. For this reason, PCI and its competitors rely on non-compete agreements to minimize the damage inflicted by employee defections and preserve its ability its ability to continue operations as a viable enterprise. Accordingly, the preservation of PCI's goodwill and the prevention of disintermediation serve as legitimate business interests that may be protected through a restrictive covenant.

The second factor is highly contested as well. The parties dispute whether the non-compete agreements impose any greater restrain upon the resources than is reasonably necessary to secure PCI's business and goodwill. In other words, the Court must assess whether the scope of the restriction is reasonable. A court determines the reasonableness of a covenant by analyzing its geographic and temporal restrictions.123

Defendants argue that each non-compete agreement is unenforceable because its geographic scope and the restricted employment activities are so overbroad as to preclude former PCI employees from earning a living. An initial reading of the non-compete lends some credence to this position. Upon the termination of employment, the non-compete agreement prohibits the resources from engaging in any "software services business in direct or indirect competition" with PCI for a period of one year in the following geographic areas: Washington State, California, New York State, Massachusetts, Texas, Connecticut, British Columbia (Canada), and Andhra Pradhesh (India).124 Significantly, Defendants do not object to the one-year prohibition.125

A covenant that restricts employment in six different states and parts of two foreign nations would appear to be excessive on its face. The prohibition against any "software services business in direct or indirect competition" may equally appear to be unduly expansive. However, the Court need not examine whether the large geographic area or the swath of restricted activities identified in the non-compete agreements is overbroad, because it is only being asked to apply the non-compete agreement within a narrowly-defined context in this case.

Under Washington law, the review of a non-compete is not a simple black-and-white issue where the court either accepts or rejects the restrictions in their totality.126 Instead, courts must save as much of the covenant as can be reasonably and fairly enforced.127 When partial enforcement is possible without causing injury to the public or injustice to the parties, a court may use the "blue pencil test" and strike out the offending portions of the covenant and enforce the remaining provisions.128 Restated, the court should "seek to enforce the covenant to the extent reasonably possible to accomplish the contract's purpose."129

In this instance, the Court must determine whether the non-compete constitutes an unreasonable restraint when it is used to prohibit the resources from joining Collabera's ranks to perform the same job they previously performed for PCI just a few days earlier. Considering that these resources were working for the same customer, on the same project, in the same location within the Seattle region,130 and provided the same services they previously offered to PCI, the Court finds the non-compete is neither overbroad nor unduly restrictive when applied within the context presented in the Complaint.131 In doing so, the Court rejects Defendants' contention that PCI was no longer a competitor of Collabera once it lost the CSS contracts.132 This ignores the fact that PCI aggressively pursued an extension of its existing projects and accelerated its exit from bankruptcy for the express purpose of improving its standing with Microsoft.

The last factor in the "reasonableness" test requires the Court to consider whether the non-compete provisions violate public policy. Although the parties have extensively briefed this matter, the Court has yet to identify any public policy that would be affronted by the enforcement of PCI's non-compete agreements as presented. The Court also struggles to find any harm to the public, whether through a restraint of trade or the denial of necessary services, which precludes the Court from enforcing the restrictive covenant here. As noted above, the non-compete may be facially overbroad, but in the context of this action, PCI seeks relief only to the extent that CSS resources performed the same work in the same location, but for a different employer. Some courts have held that the enforcement of non-competes by staffing agencies can actually serve the public interest by ensuring that their services remain available for both employees and customers alike.133 Under these limiting circumstances, the Court concludes that non-compete does not cause harm to the public at large, nor does it impact any larger interests outside of the resources and the parties to this litigation.

After considering all three of the "reasonableness" factors established under Washington law, the Court concludes that, for summary judgment purposes, PCI's non-compete agreements are reasonable and enforceable as it pertains to those resources who left PCI's employment and began work for Collabera performing the same job in the same location.

Before leaving this topic, the Court observes that Plaintiffs bear the burden of establishing a valid, enforceable contract for each of the affected resources identified in their claim. Plaintiffs allege that 61 resources (inclusive of both the CSS and Sharepoint projects) violated their restrictive covenants, but they can only produce executed agreements from 53 individuals.134 Plaintiffs are unable to locate executed non-compete agreements for seven individuals who were among the PCI resources hired by Collabera to continue working on the CSS projects.135

Lacking documentary proof for these seven resources, Plaintiffs suggest that "[i]t was standard operating procedure at PCI to require an employee-resource to enter into a non-compete agreement with PCI as a condition of his or her employment."136 The testimony upon which Plaintiffs rely does not support their contention. To the contrary, Shannon Krohn testified that when resources were offered a job at PCI, they received "employment paperwork" which included a non-compete agreement."137 But the Court cannot locate any evidence within the record that demonstrates that every PCI employee was obligated to sign a non-compete as a condition of employment. Instead, the record shows that several PCI employees refused to execute a non-compete agreement yet continued working for the company.138 Plaintiffs' Complaint even acknowledges that non-compete agreements were not mandatory for every employee.139

During an extensive discovery period, Plaintiffs had ample opportunities to develop the record, including the ability to direct inquiries to the seven affected employees. In the absence of any evidence showing that these seven resources agreed to be bound by a non-compete agreement, there can be no genuine issue of material fact. As Plaintiffs bear the burden of proof on this issue, the Court finds Krohn and Olson are entitled to partial summary judgment as it pertains to any claims related to the seven CSS resources for which non-compete agreements cannot be produced.

That the defendants had knowledge of the contractual relationship. It is beyond cavil that Krohn and Olson knew of the existence and content of PCI's non-compete agreements. Both were among the small group of managers of PCI at the time it filed for bankruptcy relief.140 Krohn testified that a non-compete agreement was included in the paperwork provided to each new PCI resource,141 and Olson admitted that he created an early version of the non-compete used by PCI's affiliates.142 Krohn was also instrumental in negotiating the failed Consultant Referral Agreement between PCI and Collabera which would have transferred certain PCI resources to Collabera in exchange for a referral fee.143 During those discussions, Krohn specifically requested a waiver of non-compete agreements.144 Based on these uncontested facts, Plaintiffs demonstrate that Krohn and Olson had a general knowledge of the non-compete agreements which is sufficient to satisfy this element for summary judgment purposes.

Intentional interference with an improper motive or by improper means that causes breach or termination of the contractual relationship. Plaintiffs must establish that Krohn and Olson not only intentionally interfered with PCI's agreements, but that the interference was wrongful. Interference is deemed wrongful if the defendant was guided by "improper motives" or used "improper means."145 As previously noted, the interference uses improper means if it is wrongful by some standard measure such as by statute, regulation, common law, or an established standard of a trade or profession.146 Conversely, interference that stems from a defendant exercising good faith in the pursuit of its own legal interests does not give rise to a claim for tortious interference.147

Genuine issues of material fact exist as to whether Krohn and Olson intentionally interfered with the PCI non-compete agreements. Plaintiffs produced sufficient evidence to create a question of fact as to whether Krohn and Olson used improper means to identify and contact the resources Collabera hired to work on the CSS projects. After she left PCI, Krohn retained a laptop which contained PCI's proprietary information.148 Krohn admits that she did not return the PCI documents and information stored on the laptop to her former employer.149 Plaintiffs also cite to testimony from Amorose which suggests that both Krohn and Olson allegedly shared PCI's confidential business information with Collabera in an effort to transition PCI resources to Collabera.150 Conversely, Defendants claim that it was not the standard practice within Microsoft's "ecosystem" for an outgoing vendor, including PCI,151 to enforce a non-compete agreement.152 Together, these disputed issues cannot be handled at summary judgment and must instead be assessed at trial.

Resultant damages. Plaintiffs also establish a sufficient basis at this stage to create a question of material fact as to the damages sustained by PCI. PCI previously attempted to transition its work to other suppliers through the Consultant Referral Agreement, and later, to RGen Solutions.153 Those efforts, albeit for different projects, suggest that PCI could expect to receive cash consideration in exchange for a release or waiver of the non-compete agreements.154 Krohn and Olson claim that there can be no damages because PCI had no work to offer the resources once the Microsoft contracts were lost.155

As to the extent of any damages, the parties rely upon their respective expert witnesses, who would presumably testify in a manner consistent with their written conclusions.156 The Collabera Defendants did not submit their own expert report, but joined in Beyondsoft's motion regarding damages.157

Plaintiffs assert damage claims under a variety of theories.158 Each of these damage claims are heavily disputed, both as to fact and amount. However, the Court notes that one area is most closely aligned with the tortious interference claims alleged in Counts 2 and 5: the lost value related to the transfer of resources to Collabera and Beyondsoft in alleged violation of their non-compete agreements. Plaintiffs suggest their damages in this regard exceed $10,000,000.

Defendants' valuations are vastly smaller than PCI's damage calculations.159 However, they represent a consensus among Plaintiffs and Defendants that there would be some level of damage to PCI, well beyond minimal, if the non-compete agreements are deemed to be enforceable and Plaintiffs can substantiate all of the required elements to their claim. Microsoft estimates the value of the lost resources to be approximately $690,000, with roughly $161,000 related to resources hired by Collabera and the remainder attributable to employees who left to work for Beyondsoft.160 Beyondsoft's estimates are very close to Microsoft's, with a projected damage claim of $505,327 for resources who joined Beyondsoft.161 As noted, Collabera did not submit an expert valuation, opting instead to adopt Beyondsoft's arguments as its own.

This is sufficient to establish resulting damage to PCI for summary judgment purposes. Damages, if any, will be determined at trial. Plaintiffs are free to continue their various damage theories at trial.

Summary of Count 2. The Court grants partial summary judgment to Krohn and Olson on Count 2 as it pertains to the seven employee resources for whom a non-compete agreement cannot be produced. As to the remainder of Count 2, Krohn and Olson's request for summary judgment is denied.

Count 3:

Civil Conspiracy

Count 3 alleges that Krohn, Olson, and Collabera agreed to commit the tortious actions described in Counts 1 and 2. Under Washington law, in order to establish a civil conspiracy, a plaintiff must prove by clear, cogent, and convincing evidence that: (1) two or more people combined to accomplish an unlawful purpose, or combined to accomplish a lawful purpose by unlawful means; and (2) the conspirators entered into an agreement to accomplish the conspiracy.162

To succeed with a conspiracy claim, there must be an underlying tort claim. Under Washington law, civil conspiracy is not an independent cause of action, but rather a theory of liability to hold others responsible for a wrongful act.163 Plaintiffs must show an underlying actionable claim that was accomplished by the conspiracy for the claim of conspiracy to be valid.164 A suspicion or "commonalty of interests" is insufficient to prove a conspiracy.165 If the facts and circumstances on which the Plaintiffs base their claim of conspiracy are "as consistent with a lawful or honest purpose as with an unlawful undertaking," the facts are insufficient to establish a conspiracy.166

As indicated above, the Court does not find that the Collabera Defendants tortiously interfered with PCI's prospective contractual relations with Microsoft regarding the CSS contracts. However, Count 2 contains several questions of material fact regarding a tortious interference with the agreements between PCI and its resources. Furthermore, Krohn and Olson were both employed by Collabera during the time when PCI's resources were migrating to Collabera, suggesting that a sufficient threshold of circumstantial evidence exists to create a question of fact as to the commonality of interests among the Collabera Defendants. Although Collabera was not named as a defendant in Count 2, this does not insulate it from potential liability in Count 3. A defendant may be liable for a civil conspiracy even it did not actively engage in the underlying tort.167 Thus, the Court DENIES summary judgment as to the Collabera Defendants and Count 3 will continue to trial.

Count 5:

Tortious Interference with Contractual Relations

Count 5 alleges that Microsoft and Beyondsoft acted intentionally and improperly by allegedly "poaching" PCI's employees and shepherding them to equivalent positions at Beyondsoft. This claim mirrors the tortious interference cause of action alleged in Count 3, only this time it is Microsoft and Beyondsoft who allegedly interfered with the non-compete agreements for those employees who worked for PCI on the Sharepoint project. Given that the Court previously reviewed the elements of a tortious interference with contractual relations claim in the context of PCI's non-compete agreements, it incorporates the discussion on the law and facts from Count 2 where applicable here.

The existence of a valid contractual relationship of which the defendants have knowledge. The Court previously determined that the non-compete agreements were valid and enforceable contracts as applied in the context of this case. It must now consider whether Microsoft and Beyondsoft had knowledge of the non-compete provisions in PCI's employment agreements. Unlike Count 2, where Krohn and Olson unquestionably knew of the existence of the non-compete agreements, there is a material disputed fact as to whether Microsoft and Beyondsoft had knowledge of these agreements, and if so, when they acquired this knowledge.

Paragraph 40 of Plaintiffs' Concise Statement of Facts states: "By no later than May 16, 2014, Beyondsoft knew that PCI used non-compete agreements and that some or all of the PCI Sharepoint employee-resources were subject to non-compete agreements."168 In support of these assertions, Plaintiffs cite to Audrey Koocher's deposition, where she reported on a discussion with Alvin Yang, Beyondsoft's senior vice president.169 Koocher states that she informed Yang that PCI's employees were subject to non-compete agreements.170 In contrast to these assertions, Beyondsoft notes that Yang was twice asked if he recalled the conversation with Koocher, and both times he denied any specific recollection, admitting only that she might have mentioned the non-competes.171

The Court cannot accept this as probative that Beyondsoft knew that the PCI resources were subject to non-compete agreements or had knowledge of the contents of those agreements before it extended employment offers to PCI's resources. This remains a disputed material fact that must be determined at trial.

The Koocher deposition provides more information on Microsoft's knowledge of the employment contract between PCI and its employees deployed on the Sharepoint contract. Specifically, Koocher testified that certain information concerning the non-compete agreements was withheld from Microsoft.

Nevertheless, there is sufficient evidence in the record to suggest that Microsoft had general knowledge of the non-compete agreements as early as November 2013. Plaintiffs rely upon deposition testimony and e-mail communications involving Microsoft employees which suggests they had knowledge that at least some of the PCI resources were subject to non-compete agreements which restricted their movement to other projects.173 Whether it knew of the specific terms of the non-compete agreements entered into by the Sharepoint resources is an unsettled material fact.

Intentional interference with an improper motive or by improper means that causes breach or termination of the contractual relationship. Plaintiffs must also demonstrate that Beyondsoft and Microsoft intentionally interfered with PCI's agreements and such interference was wrongful. After reviewing the record, the Court finds genuine issues of material fact exist as to whether Beyondsoft and Microsoft intentionally interfered with the PCI's non-compete agreements with improper motives or through the use of improper means.

According to the Plaintiffs, Beyondsoft knew that PCI considered its non-compete agreements to be valuable assets. After it lost the Sharepoint contract for FY2015, PCI attempted to negotiate a transition of its employee resources to Beyondsoft. PCI expressed a willingness to waive the non-compete agreements in exchange for a referral fee paid to PCI.174 Plaintiffs claim that Beyondsoft later determined it could obtain the resources without PCI's involvement if it enlisted Microsoft's assistance.

The record also shows that Microsoft sought to retain access to PCI's Sharepoint resources through Beyondsoft.175 Microsoft admits that Beyondsoft was awarded the Sharepoint contract, in part, because it had a superior plan for retaining PCI's resources.176 As part of this process, Microsoft obtained assurances that Beyondsoft would offer compensation to PCI's employees comparable to the wages paid by PCI.177

Microsoft and Beyondsoft then discussed job opportunities directly with PCI's resources, all while they remained employed by PCI.178 It appears that certain Microsoft personnel were aware that PCI's non-compete agreements prevented resources from going to work on a Microsoft project for another supplier.179 Nevertheless, some documentation suggests that Microsoft pursued the transition with an improper motive of procuring the services of the resources while side-stepping the non-compete agreements. Microsoft accentuated the point by instructing the resources to contact Beyondsoft if they wanted to retain their jobs.180

Evidence within the record also suggests that Beyondsoft may have abused its access to Microsoft's global address list by using it to improperly identify and recruit PCI resources.181 If proven true, such actions would constitute a violation of Microsoft's Vendor Code of Conduct if done without Microsoft's blessing.182

Similar to their co-defendants, Beyondsoft and Microsoft claim their actions were justified by the custom and standard practice used by staffing companies in this industry. They suggest that Microsoft vendors generally do not enforce their non-compete agreements when a project is awarded to a new vendor. In support of this view, Defendants refer to several instances where PCI refrained from enforcing the non-compete agreements.183 Beyondsoft and Microsoft also assert that they cannot be liable for intentional interference when it was the PCI resources who initiated the contact with Beyondsoft.184

As these issues require the Court to weigh the credibility of the evidence presented, it is not appropriate to grant summary judgment at this time.

Resulting damage. As discussed above in Count 2, Plaintiffs have established a sufficient basis at this stage to create a question of material fact as to the damages sustained by PCI.

Summary of Count 5. In consideration of each of these elements, the Court finds that Plaintiffs have demonstrated that genuine issues of material fact exist as to several of the essential elements to their claim for tortious interference against Beyondsoft and Microsoft. Accordingly, the Court DENIES the request for summary judgment as to Count 5.

Count 6:

Civil Conspiracy

Count 6 alleges that Microsoft and Beyondsoft agreed to commit the tortious actions described in Count 5. Once again, the Court incorporates here the law and factual analyses in Counts 2, 3 and 5.

As explained in Count 3, there must be an underlying tort before the Court can make a finding of conspiracy. Additionally, there must be some evidence of an agreement between Microsoft and Beyondsoft to carry out the tortious interference. Contrary to the Defendants' position, however, direct evidence of an agreement is not required:

Recognizing that conspirators are unlikely to create written documents evidencing their own conspiracy, the Supreme Court of Washington concludes that "since direct evidence of a conspiracy is ordinarily in the possession and control of the alleged conspirators and is seldom attainable, a conspiracy is usually susceptible of no other proof than that of circumstantial evidence[.]"186

Plaintiffs have provided sufficient evidence of a concert of action by Microsoft and Beyondsoft to tortuously interfere with the non-compete agreements to create a genuine issue of material fact. Specifically, there is deposition testimony and documentation indicating that in May 2014, Microsoft provided assistance to Beyondsoft by, among other things, supplying the names of PCI resources deployed on the Sharepoint project and granting it access to the confidential global address list by which Beyondsoft could contact the resources.187 There is also evidence that Microsoft's Soon Chong introduced Beyondsoft's Yang to PCI resources working on the Sharepoint project. Finally, Microsoft's Tammy Joy discussed Microsoft's intent to retain PCI resources through Beyondsoft:

Upon consideration of these items, the Court concludes that there is a material question of fact as to whether Microsoft and Beyondsoft engaged in a concert of action to funnel resources from PCI to Beyondsoft in violation of their existing non-compete agreements. Accordingly, the Court DENIES summary judgment to Defendants Microsoft and Beyondsoft on Count 6.

Count 8:

Breach of the Implied Covenant of Good Faith and Fair Dealing

Count 8 alleges that Microsoft breached the implied covenant of good faith and fair dealing by interfering with or failing to cooperate with PCI in the performance of the Microsoft Contracts. Under Washington law, a duty of good faith and fair dealing is implied in every contract.189 This duty requires that parties to a contract cooperate with each other so that each may obtain the full benefit of performance.190 The duty of good faith and fair dealing is implicated when "the contract gives one party discretionary authority to determine a contract term," which term the party is obligated to perform.191

There is no "free-floating" duty of good faith and fair dealing.192 It arises out of the obligations created by a contract and only exists "in relation to the performance of a specific contract term."193 In other words, the covenant does not add or diminish express contract terms.194 Thus, a party is only required to perform the obligations explicitly imposed by the contract in good faith.195 The party that asserts a breach of the duty of good faith must point to the specific contract term that was not performed in good faith.196

Whether a party to a contract has breached the implied covenant (or duty) of good faith and fair dealing is a question of fact for the trier of fact.197 To assist the factfinder with this determination, Washington law provides the following factors for consideration:

PCI recites a litany of grievances against Microsoft in connection with Count 8.199 Among the allegations, Plaintiffs complain of the following conduct: (1) As an independent contractor, PCI reasonably expected that Microsoft would not inject itself into the employment relationship between PCI and its employees or obstruct its access to those employees; (2) While Microsoft was preparing to transition all of PCI's work to Beyondsoft and Collabera, it "allowed certain false pretenses to persist" by causing PCI to believe it was being considered for new work; (3) PCI reasonably expected that Microsoft would not reduce the number of PCI resources deployed on projects or reduce their hours; (4) PCI did not expect that Microsoft would stop issuing purchase orders on a contract that still had 18 months left on its term or retaliate when, at Microsoft's suggestion and encouragement, PCI "partnered" with an approved Microsoft supplier in connection with that work; and (5) When PCI reported to Microsoft that vendors were attempting to poach PCI resources, in violation of the Vendor Code of Conduct, Microsoft took no action.

With the exception of the fifth grievance regarding the alleged poaching of employees in violation of the Vendor Code of Conduct,200 Plaintiffs do not cite to any specific contract provision relating to these grievances. Indeed, Plaintiffs do not identify which contract is implicated by each allegation.201 In some instances, the Court is unsure whether it even has all of the agreements.202 Without a reference to a particular provision of a particular contract, the Court is unable to interpret the applicable contractual language to determine if Microsoft abused its discretion in taking the actions of which PCI complains. The Court also lacks the capacity to precisely determine which of PCI's specific contractual expectations were diminished by Microsoft's alleged conduct or how the purpose of the contracts were frustrated.

It is not the Court's function to scour the filings in search of the elements that may substantiate Plaintiffs' claims.203 As to the summary judgment motions alone, the Court received over 4,500 pages of legal briefs, proposed statements of fact, and exhibits. Although it spent considerable time wading through this vast record, the Court should not be left to speculate as to the specific agreements and contractual provisions which are implicated by Plaintiffs' good faith and fair dealing claims. Because Plaintiffs bear the burden of establishing the essential elements of their claim, this deficiency alone is fatal to their cause of action in Count 8.

In contrast to Plaintiffs' grievances, the evidence shows that PCI obtained all of the revenue it was contractually entitled to receive on all of the Microsoft contracts. As Kulkarni admitted in his deposition:

The Court similarly concluded that PCI was paid for all work performed on the CSS and Sharepoint contracts expiring on June 30, 2014.205 Koocher and Amorose also conceded that Microsoft was under no obligation to renew the contracts.206

Although a party can fulfill its written contractual obligations and still be liable for violating the covenant of good faith and fair dealing under Washington law,207 the duty cannot be used to contradict express contract terms.208 Here, Plaintiffs appear to do just that. Microsoft was given unconditional authority to set the number of individuals and hours spent on the OSG project.209 But there can be no duty of good faith and fair dealing where a party is vested with unilateral authority to do or not do something under the contract.210 In addition, it does not appear that any of the contracts established minimum thresholds for projects, purchase orders, resources, or working hours. Without more, the Court simply cannot locate the contractual terms that serve as the foundation for Plaintiffs' expectations under the various agreements.

Plaintiffs do not effectively address these shortcomings. Rather, their position is that Microsoft deceived PCI regarding the possibility of future work, and failed to allow additional work on existing projects, thus depriving PCI of the benefit of its bargain. Their larger complaint is that Kyko bankrolled a confirmed plan of reorganization, only to have the rug pulled out when Microsoft refused to issue new contracts to the reorganized Abilius.

These frustrations, however, do not give rise to a breach of the duty of good faith and fair dealing. Simply stated, there is nothing in the Bankruptcy Code or bankruptcy case law that obligates a party to continue a business relationship with a debtor after it emerges from bankruptcy.211 And as a matter of contract law, Plaintiffs have shown no provision in any of the Microsoft Contracts that require extensions or renewals of any work by PCI.212 Keenly aware of this, PCI readily acknowledged that there was no guarantee that Microsoft would extend its existing contracts.213 In fact, PCI projected a 50% decline in revenue from Microsoft during its first year of reorganization.214 Kyko also proceeded to confirmation knowing that PCI could implode if the Microsoft business was lost.

In sum, the covenant of good faith and fair dealing is a derivative duty tied to the performance of specific contract obligations.215 If there is no contractual obligation, then there is nothing that must be performed in good faith.216 Plaintiffs' inability to cite to specific contract terms that give rise to PCI's allegedly unfulfilled contractual expectations means that, as a matter of summary judgment law, Plaintiffs failed to "identify facts in the record that would enable them to make a sufficient showing on essential elements of their case for which they have the burden of proof."217

Accordingly, the Court GRANTS summary judgment in favor of Microsoft as it pertains to Count 8.

Count 9: Violation of the Automatic Stay

and

Count 10: Civil Contempt for Violation of the Automatic Stay

In Count 9, Plaintiffs allege that the actions undertaken by Microsoft, Collabera, Krohn, and Olson in Counts 1-8 were intentional and occurred during a time when the automatic stay was in place.218 Plaintiffs maintain that these Defendants knowingly violated the automatic stay by attempting to exercise control over the non-compete agreements, thereby entitling PCI to damages as provided by 11 U.S.C. § 362(k).219 Count 10 alleges that Microsoft, Collabera, Krohn, and Olson should be held in civil contempt for violating the automatic stay order. Plaintiffs and each of the remaining Defendants seek summary judgment on these two causes of action.

An individual seeking damages under section 362(k)220 for a violation of the stay must establish three elements by a preponderance of the evidence: (1) that the action taken was in violation of the automatic stay; (2) that the action was willful; and (3) that the violation caused actual damages. A violation of the stay is "willful" when a creditor with knowledge that a bankruptcy petition has been filed commits an intentional act that violates the stay.221 Willfulness does not require that the creditor intend to violate the stay, but only that the creditor intend to take the action that is then determined to be in violation of the stay.222

Proof of contempt in Count 10 requires a movant to demonstrate: "(1) that a valid order of the court existed; (2) that the defendants had knowledge of the order; and (3) that the defendants disobeyed the order."223 Each element must be proven by clear and convincing evidence, with ambiguities resolved in favor of the party charged with contempt.224 "Although courts should hesitate to adjudge a defendant in contempt when `there is ground to doubt the wrongfulness of the conduct,' an alleged contemnor's behavior need not be willful in order to contravene the applicable decree. In other words, `good faith is not a defense to civil contempt.'"225

At the outset, it is important to clarify the time period within which the automatic stay was in effect. The stay began on September 10, 2013, the date PCI filed its voluntary petition for bankruptcy relief,226 and it continued through June 26, 2014, the Effective Date of the Plan.227 For the purposes of Counts 9 and 10, the Court will only examine the allegations of acts that took place between those two dates.228

Plaintiffs have proven that each of the remaining Defendants had knowledge of their bankruptcy. Krohn and Olson were both employed by PCI at the time it commenced its bankruptcy case.229 They, in turn, communicated with Microsoft employees about the bankruptcy proceedings in 2013.230 By February 2014, Microsoft was receiving weekly reports concerning the status of PCI's efforts to emerge from bankruptcy.231 Collabera was also aware of PCI's bankruptcy by December 2013.232

An examination of the remaining elements reveals that questions of material fact exist as to whether a violation of the automatic stay occurred and the extent to which PCI may have been damaged. Count 9 is derivative of Counts 2, 3, 5, and 6 in the Complaint. Accordingly, to the extent a question of material fact exists as to those underlying counts, it prevents the Court from granting summary judgment on Count 9. Similarly, Count 10 is strictly derivative of Count 9.

The critical issue in Counts 9 and 10 is whether Defendants' actions violated the automatic stay and were willful. As discussed earlier, genuine issues of material fact remain as to whether Defendants used improper means or had improper motives when they allegedly identified and contacted PCI resources for the purpose of transitioning them to other suppliers. Krohn and Olson are accused of wrongfully sharing PCI's confidential and proprietary business information with Collabera in an effort to cause PCI resources to breach their non-compete agreements. Plaintiffs also produced evidence showing that Microsoft directly communicated with PCI resources and may have threatened their ability to continue work on Microsoft projects if they did not transition to the new vendors. In turn, Defendants claim that Plaintiffs' attempt to enforce the non-compete agreements in this context is inconsistent with the course of conduct in the IT staffing industry (and the Microsoft "ecosystem" in particular), and contrary to PCI's own actions whereby it previously released resources from the obligations of their non-compete.233 Defendants also contend that none of their actions impeded PCI from actually enforcing the non-compete agreements against the resources themselves. In light of this record, the Court is unable to render a conclusion as to the willfulness of each Defendant or assess whether the automatic stay was violated without weighing the credibility of the evidence.

The Court finds similar questions of fact exist as to any damages PCI may have sustained if a stay violation occurred.234 The computation of damages for a violation of the automatic stay under section 362(k) is somewhat different from the calculation of tort damages under Washington law. In Washington, tort damages are triggered by a proximate cause.235 Arguably in the context of each tort, the proximate cause of any alleged damage are the employment offers from Collabera and Beyondsoft that the PCI resources accepted and led to the alleged breach of their non-compete agreements. In federal bankruptcy law, damages under section 362(k) are triggered by a willful violation of the stay. No specific intent to violate the stay is required; a good faith belief that the stay is not being violated is not relevant to the inquiry into willfulness, "or to the award of damages."236

Although the calculation of damages differs between the tort claims in Counts 2, 3, 5, and 6 and the stay violation claims in Counts 9 and 10, both arise from the acts allegedly committed in violation of the stay. The Court previously determined that whether Defendants intentionally and willfully committed the acts of contacting PCI resources to entice them to go to work for Collabera and Beyondsoft in violation of their non-compete agreements was a disputed question of fact. The Court also finds a significant factual dispute exists as to whether Defendants exercised control over the non-compete agreements in violation of the stay. Thus, the question of damages for violation of the stay must be carried forward to trial.

CONCLUSION

For the reasons expressed above, the Court grants partial summary judgment to the Collabera Defendants and dismisses Count 1 of the Complaint with prejudice. Partial summary judgment is also granted to the Collabera Defendants in Counts 2 and 3 as to any claims related to the seven PCI employees working on the CSS project for whom Plaintiffs cannot produce evidence of a non-compete agreement. Lastly, the Court grants partial summary judgment as to Defendant, Microsoft Corporation and dismisses Count 8 of the Complaint with prejudice. In all other respects, the motions for summary judgment are denied. A separate Order will issue.