Kelly Services, Inc. v. Dale De Steno ( 2019 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 19a0011n.06
No. 18-1118
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
KELLY SERVICES, INC., ) Jan 10, 2019
) DEBORAH S. HUNT, Clerk
Plaintiff-Appellee, )
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
DALE DE STENO; JONATHAN PERSICO; ) COURT FOR THE EASTERN
NATHAN PETERS, ) DISTRICT OF MICHIGAN
)
Defendants-Appellants. )
)
BEFORE: BATCHELDER, GIBBONS, and ROGERS, Circuit Judges
ROGERS, Circuit Judge. Defendants signed one-year noncompete agreements with their
employer, plaintiff Kelly Services, and later left Kelly’s employ to join one of Kelly’s competitors.
Kelly sued, and obtained preliminary injunctive relief that lasted long enough to prevent
defendants from working for the competitor for the duration of their noncompete clauses. The
only remaining relief sought by Kelly was attorneys’ fees, which the district court awarded
pursuant to provisions in the noncompete agreements. Defendants appeal the attorneys’ fee award,
arguing that they did not violate their contractual noncompete obligations in the first place, and
that the contractual attorneys’ fees in any event could not be awarded without a jury trial under the
Seventh Amendment. Neither argument, however, precludes the award of attorneys’ fees in this
case.
No. 18-1118, Kelly Servs., Inc. v. De Steno
I
Defendants were employees of a division of Kelly Services, a staffing and consulting
company, in Minneapolis. They each signed employment agreements when they were hired.
Defendant Dale De Steno’s employment agreement contained a noncompete provision,
under which De Steno agreed that he would “not compete against Kelly . . . for one year after [he]
leave[s] Kelly in any market area in which [he] worked.” The agreement also contained an
attorneys’ fees provision:
If I break this Agreement, Kelly is entitled to recover as damages from me the
greater of the amount of the financial loss which Kelly suffers as a result or the
amount of the financial gain which I receive. I will pay Kelly’s reasonable
attorney’s fees and costs involved in enforcing this Agreement.
(Emphasis added.) The agreement contained a choice of law provision selecting Michigan law.
Defendants Jonathan Persico and Nathan Peters signed similar employment agreements.
Like De Steno’s, these agreements contained year-long noncompete provisions and attorneys’ fees
provisions. The attorneys’ fees provisions read as follows:
6. Remedies/Damages. I agree that the Company’s remedies at law for any
violations of this Agreement are inadequate and that the Company has the right
to seek injunctive relief in addition to any other remedies available to it.
Therefore, if I breach this Agreement the Company has the right to, and may
seek issuance of a court ordered temporary restraining order, preliminary
injunction and permanent injunction, as well as any and all other remedies and
damages, including monetary damages. I further agree to pay any and all legal
fees, including without limitation, all attorneys’ fees, court costs, and any other
related fees and/or costs incurred by the Company in enforcing this Agreement.
(Emphasis added.) These agreements also contained a Michigan choice of law provision.
In early 2016, defendants accepted offers from a competitor of Kelly’s. According to
defendants, the offers were “for the same or similar staffing position in the same Minneapolis
market area.” Kelly sued. Kelly asserted three state law causes of action, including breach of the
non-competition provisions and a common law claim for breach of duty of loyalty. In its
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complaint, Kelly alleged that it had suffered “damages” as a result of the two breaches of its
contracts, including “lost profits and attorneys’ fees.” Defendants removed the case to the federal
court below, and Kelly moved for a preliminary injunction. The district court held a hearing, and
on May 2, 2016, entered an order granting Kelly’s motion for a preliminary injunction.
The district court found first that Kelly had “made an initial demonstration that irreparable
harm may occur” if no injunction was granted. Next, the court found that the harm to Kelly from
not issuing an injunction outweighed the harm to defendants. Third, the district court found that
Kelly had “shown that it would likely prevail on the merits.” The district court wrote:
The Defendants are almost certainly in violation of their non-compete agreements
with Kelly. The Defendants’ only argument would be that the non-competes are
void. They have not alleged any fraud or other defect in the signing of the
agreements, so the Defendants’ only legal option is to contend that the non-
competes are unreasonable. Reasonable non-compete agreements should be
enforced as a matter of policy.
The agreements in question had a duration of one year, apply to the markets in
which the Defendants worked or had responsibility, and forbid the Defendants from
working in Kelly’s line of business, staffing services . . . . The Defendants have not
provided compelling authority explaining why the outcome here should not be
identical [to cases upholding the enforceability of identical agreements.]
The Defendants are working for staffing companies in the same market they
serviced for Kelly within weeks, even days, of leaving Kelly. The Court is
especially troubled by the Defendants’ suggestion that they were working in IT,
and not engineering, staffing . . . . Kelly has presented unrebutted evidence that at
least one of the Defendants has solicited for multiple positions in the engineering
industry. The attempt to argue otherwise would indicate that the Defendants know
they are violating their non-compete agreements . . . . In sum, because the
agreements are reasonable, and the Defendants have almost certainly violated them,
Kelly has demonstrated a likelihood of success on the merits.
(Citations omitted.) Finally, the court found that the public interest was slightly more favorable to
Kelly. The court enjoined the defendants “from violating their noncompete agreements until the
dispute is resolved and the Court ends the injunction.” A subsequent more specific order, entered
on May 29, 2016, broadly prohibited defendants from working for any competitors of Kelly in
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Minneapolis, and was to last for sixty days, at the end of which Kelly could “request entry of a
further injunction.” Defendants filed an interlocutory appeal challenging the preliminary
injunction.
On July 25, 2016, with the injunction set to expire in three days, Kelly requested a sixty-
day extension. On August 30, the court extended the injunction “indefinitely until the Sixth Circuit
rules on the defendants’ interlocutory appeal.” That ruling never came: Defendants voluntarily
dismissed the interlocutory appeal a few weeks later, on September 21. Defendants did not move
the court to withdraw the injunction, and the court did not address the matter on its own. February
1, 2017 marked the one-year anniversary of defendants’ exit from Kelly. Were it not for the
indefinitely running preliminary injunction, the defendants would have been free to work for any
competitor of Kelly under the terms of their agreements after that date. But litigation proceeded,
and neither defendants nor Kelly sought to lift the injunction. Nor did Kelly or the defendants
move the court to dismiss the proceeding as moot.
On June 2, 2017, the court entered a “Mediation Order,” retroactively lifting the
preliminary injunction as of May 29, 2017, one year from its entry. After a failed attempt at
mediation, the court amended the scheduling order in the case and set the dispositive motions
deadline for July 29. Both Kelly and the defendants moved for summary judgment.
In defendants’ motion papers, they contended primarily that the noncompete agreements
were not enforceable in the first place, and that the district court’s grant of preliminary injunctive
relief did not amount to a determination of the merits of Kelly’s claims. They also argued that
under the Seventh Amendment they were entitled to a jury determination of any award of
contractual attorneys’ fees. Kelly’s motion stated that, by the time it filed for summary judgment,
Kelly had been “granted all of the injunctive relief it sought in its Complaint against defendants
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and [the] only issue remaining is the amount of attorneys’ fees and costs owed to Kelly by
defendants.” Kelly’s response to defendants’ motion for summary judgment further contended
that Kelly had “prevailed” by virtue of having obtained all the injunctive relief it had sought, but
that:
Even if Kelly had not prevailed on it[s] claims against Defendants, it would still be
entitled to its reasonable attorneys’ fees and costs. Defendant De Steno’s
employment agreement expressly states that he “will pay Kelly’s reasonable
attorney’s fees and costs involved in enforcing this Agreement.” Likewise,
Defendants Persico’s and Peters’ employment agreements expressly state they
“agree to pay any and all legal fees, including without limitation, all attorneys’ fees,
court costs, and any other related fees and/or costs incurred by the Company in
enforcing this Agreement.
(Citations omitted.) Defendants did not appear to contest the enforceability of the attorneys’ fees
provisions in their employment agreements, but contended only that the “reasonableness” of the
fee should be determined by a jury.
In an opinion and order, the district court, noting that Kelly did not seek further
enforcement of the non-compete agreements, accepted Kelly’s reasoning and rejected that of the
defendants. See Kelly Servs., Inc. v. De Steno, Case No. 2:16-cv-10698, 2017 WL 4786105 (E.D.
Mich. Oct. 24, 2017). The court determined that Kelly was entitled to fees “under a plain reading
of the contracts,” relying on the contractual language quoted above providing for fees “involved
in enforcing” or “incurred . . . in enforcing” the contracts. Id. at *2. The court rejected each of
the defendants’ primary arguments because: (1) the operative provisions before the court at that
point were the covenants to pay attorneys’ fees, not the noncompete clauses, and (2) “a ruling on
the merits is not required to trigger the attorney’s fees provisions.” With respect to the latter
holding, the district court reasoned:
The attorney’s fees section is distinct from the noncompete clause, and there is no
language specifically linking the two. Moreover, the parties did not include
language requiring Plaintiff to prevail before it was entitled to the fees.
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Accordingly, a plain reading of the contracts suggests that the parties intended for
Defendants to pay attorney’s fees if Plaintiff merely sought to enforce the contracts.
And enforcement is precisely what the lawsuit involves: Plaintiff, albeit not on the
merits, persuaded the Court to enter an order enjoining Defendants from competing
for the duration of the noncompete clauses.
Id. at *2. The court accordingly determined that Kelly was contractually entitled to reasonable
attorneys’ fees, and ordered additional briefing on defendants’ jury-trial issue. Id.
After additional briefing, the court decided that a jury was not required to decide the
amount of damages. The court reasoned that submitting the issue of the amount of fees to a jury
would mean that the “trial would then become a trial about the cost of the trial itself, ultimately
requiring the jury to calculate the cost of each passing minute.” After Kelly and the defendants
submitted briefing on the reasonable amount of fees to be awarded, the district court determined
that $72,182.90 was a reasonable fee award, ordered the defendants to pay it, and closed the case.
Defendants appeal.
II
Apart from the jury-trial issue, defendants on appeal make essentially the same arguments
that they made below: that the noncompete agreements were not enforceable under Michigan law;
and that the district court, by making preliminary but not final rulings, did not properly or finally
rule on the merits of those issues. In doing so, defendants do not squarely address the district
court’s reasoning that these arguments are beside the point. The district court ruled in effect that
attorneys’ fees were owed under the contract even if the district court did not determine that the
noncompete agreements were enforceable. On the procedural facts of this case, the district court
was correct.
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No. 18-1118, Kelly Servs., Inc. v. De Steno
A
Given what the defendants agreed to in their employment agreements, the district court
was correct to conclude that defendants owe Kelly attorneys’ fees. De Steno agreed that he would
“pay Kelly’s reasonable attorney’s fees and costs involved in enforcing this Agreement.” Persico
and Peters agreed “to pay any and all legal fees, including . . . all attorneys’ fees . . . incurred by
the Company in enforcing this Agreement.” Kelly brought an action to enforce the employment
agreements, the district court granted Kelly’s request for a preliminary injunction, and the
defendants were prohibited from working for an alleged competitor for one year, the full scope of
injunctive relief available under the employment agreements. Kelly’s attorneys’ fees in this case
were, under a plain reading of the contracts, “involved” or “incurred” “in enforcing” these
agreements, and therefore, under a plain reading of the contracts, Kelly is entitled to have the
defendants pay those fees. These contracts are governed by Michigan law and Michigan courts
“will enforce [attorneys’ fees’ provisions] like any other term [in a contract] unless contrary to
public policy.” Pransky v. Falcon Grp., Inc., 874 N.W.2d 367, 383 (Mich. Ct. App. 2015). As
with any other term in a contract, courts should look first to the plain language of the contract, and
if the language is unambiguous it will be enforced “as written . . . . [A]n unambiguous contractual
provision is reflective of the parties’ intent as a matter of law.” Quality Prods. and Concepts Co.
v. Nagel Precision, Inc., 666 N.W.2d 251, 259 (Mich. 2003).
The contracts by their terms do not require a final determination of liability in favor of
Kelly as a condition for the award of fees. Unlike numerous similar agreements, these contracts
do not employ the words “prevailing party,” nor by their literal language do they require a final
determination of liability. In fact, as the district court correctly noted, defendants argued below
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that these provisions were not prevailing party provisions. De Steno, 2017 WL 4786105, at *2
n.2.
In reasoning that a final determination of contract breach was not required, the district court
may have stated too freely that the contract required former employees to pay attorneys’ fees “if
[Kelly] merely sought to enforce the contracts.” De Steno, 2017 WL 4786105, at *2. One can
imagine cases where efforts to “seek enforcement” could for instance be unreasonable, made with
little or no basis, or made for purposes of oppression or harassment, or could be simply
unsuccessful. A court might read the words “reasonable . . . fees . . . involved in enforcing” and
“fees . . . incurred . . . in enforcing this Agreement” not to extend to such situations. We do not
address the possibility of such a limited interpretation, however, because the record is clear that
none of these situations is present in this case. The district court entered a preliminary injunction
that resulted in substantial relief, based on a determination that Kelly had shown a strong likelihood
of success on the merits. Indeed, defendants withdrew their appeal from the grant of that relief.
None of the imagined oppressive or unreasonable situations has occurred here. The contracts
accordingly clearly provided for recovery of attorneys’ fees.
B
The remaining issue is whether the district court erred in determining on its own the amount
of fees owed, instead of giving the question to a jury. The district court’s ruling refusing to
empanel a jury to hear attorneys’ fees issues did not violate the Seventh Amendment, which
provides that
In Suits at common law, where the value in controversy shall exceed twenty dollars,
the right of trial by jury shall be preserved, and no fact tried by a jury, shall be
otherwise reexamined in any Court of the United States, than according to the rules
of the common law.
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Defendants argue primarily that they are entitled to a jury determination of the amount of
attorneys’ fees. This argument lacks merit for the persuasive reasons given by the Second Circuit
in McGuire v. Russell Miller, Inc., 1 F.3d 1306 (2d Cir. 1993). Under the Seventh Amendment,
parties have a right to a jury only for a determination of “legal,” as opposed to “equitable,” issues,
Curtis v. Loether, 415 U.S. 189, 193 (1974), and:
The Supreme Court has held that in determining whether an issue is “legal” or
“equitable” under the Seventh Amendment, a court should consider, among other
things, “the practical abilities and limitations of juries.” Ross v. Bernhard, 396 U.S.
531, 538, 90 S.Ct. 733, 738, 24 L.Ed.2d 729 (1970). To compute a reasonable
amount of attorneys’ fees in a particular case requires more than simply a report of
the number of hours spent and the hourly rate. The calculation depends on an
assessment of whether those statistics are reasonable, based on, among other things,
the time and labor reasonably required by the case, the skill demanded by the
novelty or complexity of the issues, the burdensomeness of the fees, the incentive
effects on future cases, and the fairness to the parties. Such collateral issues do not
present the kind of common-law questions for which the Seventh Amendment
preserves a jury trial right. In fact, in Alyeska Pipeline Service Co. v. Wilderness
Society, 421 U.S. 240 (1975), the Supreme Court refused to extend the American
Rule that parties pay their own fees absent statutory authorization precisely because
of the equitable considerations involved in computing a reasonable amount of
attorneys’ fees.
Accordingly, although plaintiff had the right to a jury decision on whether
defendants should recover attorneys’ fees, plaintiff did not have the right to a jury
decision on a reasonable amount of attorneys’ fees. Unlike the client in Simler v.
Conner, [372 U.S. 221 (1963),] no party here claimed that the contract directed the
amount of attorneys’ fees to be awarded by specifying a percentage of an
ascertainable sum. Therefore, the district court, in its equitable role, should have
determined a reasonable fee.
McGuire, 1 F.3d at 1315. The Second Circuit concluded that “there is no absolute right to have a
jury determine the amount” of fees, and supported the conclusion with further considerations of
fairness and efficiency. Id. at 1315-16.
In the instant case it would similarly be highly impractical for a jury to determine the
amount of attorneys’ fees. As the district court noted below, if these questions were left to juries,
“[t]he trial would then become a trial about the cost of the trial itself, ultimately requiring the jury
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to calculate the cost of each passing minute.” Put differently, it “would be impractical to require
the parties to submit evidence on attorney fees before the end of the trial and resultant necessary
legal services.” Redshaw Credit Corp. v. Diamond, 686 F. Supp. 674, 676 (E.D. Tenn. 1988).
Further, the jury would have to “look behind the curtain of the case,” and review, for example,
pre-trial motions in order to calculate the reasonable amount of time spent litigating the case.
McGuire, 1 F.3d at 1317 (Jacobs, J., concurring).
Defendants rely on cases where plaintiffs brought freestanding breach of contract claims
seeking to recover attorneys’ fees and in which courts determined that the defendants had a right
to a jury determination of the amount of fees awarded. See J.R. Simplot v. Chevron Pipeline Co.,
563 F.3d 1102, 1116 (10th Cir. 2009); Timken Alcor Aerospace Techs., Inc. v. Alcor Engine Co.,
No 1:06-CV-2539, 2010 WL 2650026 (N.D. Ohio July 2, 2010). In such cases, however, having
a jury determine the amount of fees would not present the same problems as it would in this case.
In J.R. Simplot and Timken Alcor, the legal action for which the party sought attorneys’ fees had
already concluded, and therefore the juries would not have had practical difficulties determining
the legal cost of the proceeding. Because there would be no practical limitation on the jury’s
determination of damages in such a case, that determination may present “legal” issues under a
Seventh Amendment analysis. Indeed, both the Simplot and Timken courts specifically
distinguished the McGuire holding on the ground that the court in McGuire (like the district court
below) did not “decide the availability of a jury trial for fees where . . . a claimant seeks contractual
indemnification for fees incurred in a separate litigation against a third party.” Simplot, 563 F.3d
at 1117; accord Timken Alcor, 2010 WL 2650026, at *2.
When determining whether an issue is “legal” or “equitable” under the Seventh
Amendment, courts also consider “the pre-merger custom with reference to such questions,” i.e.,
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whether such questions were brought in law or in equity before the Federal Rules did away with
the distinction. Ross, 396 U.S. at 538 n.10. The impracticability concern is dispositive in this
case, but “pre-merger custom” also provides some support for considering the calculation and
award of attorneys’ fees in an underlying action as a matter for the court, and not the jury. See
Schmidt v. Zazzara, 544 F.2d 412, 414 (9th Cir. 1976); A.G. Becker-Kipnis & Co. v. Letterman
Commodities, Inc., 553 F. Supp. 118, 122 (N.D. Ill. 1982).
The Seventh Amendment accordingly does not require a jury determination of the amount
of attorneys’ fees in this case. Although the defendants’ Seventh Amendment argument primarily
addresses the determination of the amount of fees, their brief at one point appears to argue that the
underlying issue of whether Kelly has a contractual right to fees should have gone to a jury.
Appellants’ Br. 26-27. This aspect of their argument is not disposed of by the reasoning in
McGuire, which assumes that before the court decides the amount of attorneys’ fees, “the jury is
to decide at trial whether a party may recover such fees.” 1 F.3d at 1313. Here, however, no jury
was required because summary judgment was proper on that issue.
Regardless of whether an issue is “legal” or “equitable” for Seventh Amendment purposes,
a judge may grant summary judgment when there is no genuine issue of material fact. “[S]ummary
judgment does not violate the Seventh Amendment.” Biegas v. Quickway Carriers, Inc., 573 F.3d
365, 373 n.3 (6th Cir. 2009) (quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 336 (1979)).
As discussed above, summary judgment was proper with respect to whether Kelly was entitled to
fees in this case, and therefore it was unnecessary to put the question of entitlement to a jury.
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Apart from the Seventh Amendment challenge, defendants do not contest the
reasonableness of the awarded amount, and we do not address that issue.
III
The district court’s judgment awarding fees is affirmed.
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JULIA SMITH GIBBONS, Circuit Judge, concurring. I join the portion of Judge Rogers’
opinion relating to defendant’s argument that they were entitled to a jury trial. My reasoning as to
the other issues in the case differs somewhat from his.
Kelly Services’ brief does not accurately reflect the procedural history of this case. The
district court never reached the ultimate merits questions of whether Kelly was entitled to enforce
its contracts and whether defendants had breached those contracts. A preliminary injunction is not
a ruling on the ultimate merits of the dispute.
Instead, what happened here is that, after Kelly Services had obtained all the relief it needed
via preliminary injunction, the district court decided that a decision on the ultimate merits was
unnecessary. It reasoned, in conclusory fashion, that the contract language did not require breach
of the agreement to recover attorneys’ fees. Defendants have made no effort to counter this
interpretation, either in the district court or on appeal.
The district court’s interpretation may be the best interpretation of the language, but it is
not the only possible interpretation. One might argue that the sentence requires actual enforcement
of the contract—a circumstance that did not occur here because of the absence of a merits
determination. Or one might argue that the reference to breach in the prior sentence is intended to
apply to all remedies, in deciding attorneys’ fees. But defendants made neither of these arguments.
In the district court, defendants argued that they had not breached their employment
agreements and that the agreements were not enforceable. They also sought a jury trial to
determine the amount of attorneys’ fees. They did not seem to realize that plaintiff’s argument
was that plaintiff was entitled to attorneys’ fees simply because it had sought judicial help in
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enforcing the contracts. On appeal, defendants repeat those same arguments, and never address
the question of the proper construction of the attorneys’ fee provision.1
Therefore, defendants waived these arguments. When a party appeals the district court’s
judgment and raises arguments on appeal that were not raised before the district courts, we
generally consider those arguments waived. Singleton v. Wulff, 428 U.S. 106, 120 (“It is the
general rule, of course, that a federal appellate court does not consider an issue passed upon
below.”). Only a narrow exception is available under the Singleton rule—we will consider
untimely arguments in “exceptional cases” or “when the rule would produce a plain miscarriage
of justice.” Pinney Dock and Transp. Co. v. Penn Cent. Corp., 838 F.2d 1445, 1461 (6th Cir.
1998) (citations omitted). This is not an exceptional case. Application of the district court’s ruling
does not create a plain miscarriage of justice. Defendants therefore waived these arguments.
1
Although defendants briefly mentioned “the contract language at issue here,” they did so only within their argument
for a Seventh Amendment right to a jury trial, rather than in an argument about the proper construction of the contract.
(CA6 R. 22, Defendants-Appellants Brief, Page ID 33.)
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