Stuart C. Irby Company, Inc. v. Brandon Tipton , 796 F.3d 918 ( 2015 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 14-1970
___________________________
Stuart C. Irby Company, Inc.
lllllllllllllllllllll Plaintiff - Appellant
v.
Brandon Tipton; Wholesale Electric Supply Company, Inc.; John Doe, 1-5;
Michael Gilbert; Stephen Padgett; Kurt Blumfelder; Gary Cummings
lllllllllllllllllllll Defendants - Appellees
___________________________
No. 14-2682
___________________________
Stuart C. Irby Company, Inc.
lllllllllllllllllllll Plaintiff - Appellant
v.
Brandon Tipton; Wholesale Electric Supply Company, Inc.; John Doe, 1-5;
Michael Gilbert; Stephen Padgett; Kurt Blumfelder; Gary Cummings
lllllllllllllllllllll Defendants - Appellees
____________
Appeals from United States District Court
for the Eastern District of Arkansas - Little Rock
____________
Submitted: April 16, 2015
Filed: August 6, 2015
____________
Before WOLLMAN and GRUENDER, Circuit Judges, and GRITZNER,1 District
Judge.
____________
GRUENDER, Circuit Judge.
In this appeal, we consider claims brought by an employer after several of its
employees left to work for a competitor. The district court granted summary
judgment to the defendants on all claims and awarded them attorneys’ fees and costs.
We conclude that granting summary judgment to the defendants was inappropriate
and that the award of attorneys’ fees and costs must be vacated.
I. Background
Brandon Tipton, Michael Gilbert, and Steven Padgett worked for Treadway
Electric Company, Inc. (“Treadway”), a distributor of electrical products. Tipton
initially worked for Treadway in its office in Little Rock, Arkansas and later became
the branch manager for its Conway, Arkansas location. Gilbert and Padgett worked
as inside salesmen for Treadway in Conway. While working for Treadway, Tipton,
Gilbert, and Padgett each signed agreements that contained the following non-
compete provision:
[I]f and when you leave Treadway’s employ, for whatever reason, you
will not compete with Treadway or its subsidiaries by soliciting or
accepting business from Treadway’s customers within your territory, as
1
The Honorable James E. Gritzner, United States District Judge for the
Southern District of Iowa, sitting by designation.
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defined by Treadway Electric Company, for at least one (1) year after
leaving; and . . . you will not solicit the employment of any Treadway
representatives for at least one (1) year after leaving.
Thereafter, Stuart C. Irby Company, Inc. (“Irby”) became interested in
purchasing many of Treadway’s assets, and an asset purchase agreement (“APA”)
was signed on December 8, 2011. The APA stated that Treadway “will assign and
transfer to [Irby] . . . all of [Treadway’s] rights, title and interests in and to, and [Irby]
will take assignment of and assume, all rights and interest in and obligations under
the Assigned Contracts.” Irby’s chief operating officer has averred that Tipton’s,
Gilbert’s, and Padgett’s non-compete agreements were assigned to Irby. Indeed,
when Treadway and Irby discussed which contracts would be assigned, they
discussed the non-compete agreements, and Treadway’s president showed Tipton’s
agreement to Irby.
The APA took effect on January 1, 2012, at which time Tipton, Gilbert, and
Padgett became Irby employees. Irby retained them with essentially the same benefits
and seniority. For the employees, the transition from Treadway to Irby appears to
have been seamless. Tipton testified that Irby’s business was the same as Treadway’s
had been. As a branch manager for Irby, Tipton directed the office’s operations,
including sales, delivery of products, and administrative activities. Tipton interacted
daily with customers, even taking them out for meals and on annual fishing trips. As
inside salesmen for Irby, Gilbert and Padgett also dealt with customers on a regular
basis.
After working for Irby for about one year, Tipton began talking with Kurt
Blumfelder, the Executive Vice President of Wholesale Electric Supply Company,
Inc. (“Wholesale”). Tipton admitted that Wholesale did “pretty much the same thing”
as Irby, and Blumfelder likewise acknowledged that the companies were competitors
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in Arkansas. On March 14, 2013, Tipton announced that he was leaving Irby to work
for Wholesale. The next day, Gilbert and Padgett did the same.
What happened in advance of these resignations forms the core of this case.
During his deposition approximately eight months after he left Irby, Tipton had very
little recollection about any conversations he had with Blumfelder about coming to
work for Wholesale. Tipton did not remember whether he had informed Gilbert and
Padgett about a meeting he had with Blumfelder. Nor could Tipton recall whether he
told Blumfelder that he should hire Gilbert and Padgett. Blumfelder, however,
testified that he spoke with Tipton by telephone “a number of times” in early 2013
about him coming to work for Wholesale. Tipton acknowledged that he was
“[p]ossibly looking for employment” if he was talking to Blumfelder around this time.
On January 5 and 8, the following text-message exchange occurred:
Blumfelder: Interested in meeting tomorrow AM or lunch; Or
Thursday . . . I can meet anytime 11AM-9PM . . . In
Conway or Little Rock . . . Let me know if you guys r
available any of these times please. Thanks.
Tipton: Thursday would be better.
Blumfelder: Ok great. Are you guys able to come to Little Rock to see
our place or would you prefer to meet in Conway?
And on January 29, the following text-message exchange occurred:
Tipton: What time does everyone leave the store in conway[?]
Blumfelder: I’ll chase them out at 5 and will be there waiting on you
guys. What beer u like[?]
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Furthermore, when asked whether he talked with Gilbert and Padgett about leaving
Irby and going to Wholesale, Tipton admitted that he met with them and Blumfelder
on March 13, the day before Tipton resigned from Irby. Tipton did not remember
whether he had spoken to Gilbert and Padgett about leaving Irby before then.
Irby sued Tipton, Gilbert, Padgett, Blumfelder, and Wholesale asserting claims
for breach of fiduciary duty, breach of contract, civil conspiracy, and tortious
interference with a contract.2 On cross-motions for summary judgment, the district
court granted summary judgment to the defendants on all claims. The court then
awarded the defendants in excess of $200,000 in attorneys’ fees and costs. Irby
appeals both rulings.
II. Discussion
A.
We review the district court’s grant of summary judgment de novo, Loftness
Specialized Farm Equip., Inc. v. Twiestmeyer, 742 F.3d 845, 849 (8th Cir. 2014),
affirming if “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law,” Fed. R. Civ. P. 56(a). “At the summary
judgment stage, facts must be viewed in the light most favorable to the nonmoving
party only if there is a ‘genuine’ dispute as to those facts.” Scott v. Harris, 550 U.S.
372, 380 (2007) (quoting Fed. R. Civ. P. 56(c)). To survive a summary-judgment
motion, the evidence must be “such that a reasonable jury could return a verdict for
the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The parties agree that Arkansas substantive law applies here. Consequently, we
2
Irby also sued Gary Cummings, another Wholesale employee, but Irby’s briefs
on appeal do not contest the district court’s decision to dismiss the claims against
Cummings.
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“apply decisions of the Arkansas Supreme Court construing Arkansas law, and we
attempt to predict how that court would decide any state law questions that it has not
yet resolved.” G&K Servs. Co, Inc. v. Bill’s Super Foods, Inc., 766 F.3d 797, 800
(8th Cir. 2014).
1. Breach of Fiduciary Duty
Irby first argues that the district court erred in granting summary judgment on
its fiduciary-duty claim against Tipton. As the branch manager of Irby’s Conway
office, Tipton owed a fiduciary duty to Irby. See Pennington v. Harvest Foods, Inc.,
934 S.W.2d 485, 495 (Ark. 1996) (“[A] manager owes a fiduciary duty to his
business.”); Tandy Corp. v. Bone, 678 S.W.2d 312, 318 (Ark. 1984) (same). The
parties disagree about whether a trial is necessary to determine if Tipton abided by
that duty.
Irby contends that Tipton breached his fiduciary duty by recruiting Gilbert and
Padgett to join Wholesale. “Arkansas law strikes a careful balance between an
employer’s right to employee loyalty, and an employee’s right—absent contrary
contractual commitment—to resign and pursue his career with a competing
employer.” Vigoro Indus., Inc. v. Crisp, 82 F.3d 785, 788 (8th Cir. 1996). Under
Arkansas law, “[e]ven corporate officers and directors, who have fiduciary duties to
the corporation beyond those of less essential employees, are free to resign and go
into competition, so long as they remain loyal prior to resigning.” Id. And a
corporate fiduciary, while still employed, is free to notify his colleagues and his
employer’s customers of his intent to leave. Id. However, before resigning, a
manager has a duty of loyalty that “preclude[s] him from soliciting other employees
or customers to leave [the employer] with him.” Id.
We conclude that a trial is necessary to determine whether Tipton, while still
employed by Irby, solicited Gilbert and Padgett to leave for Wholesale. Tipton spoke
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with Blumfelder by telephone “a number of times” in early 2013 about joining
Wholesale. In January 2013, Blumfelder and Tipton exchanged text messages to
arrange a meeting for “you guys” at which Blumfelder would provide beer and a tour
of Wholesale’s facility. A reasonable jury could conclude that the “guys” for whom
Tipton was arranging a meeting included Gilbert and Padgett, especially because
Blumfelder admitted that he was interested in meeting them. Furthermore, a
reasonable jury could infer that by arranging a meeting with Blumfelder that involved
beer and a tour of Wholesale’s facility, Tipton was trying to convince Gilbert and
Padgett to join Wholesale with him. See Anderson, 477 U.S. at 248. Tipton could not
recall whether he asked Blumfelder to hire Gilbert and Padgett, but Tipton admits
that, before he left Irby, he met with them to discuss leaving Irby to become
Wholesale employees. This meeting, which Blumfelder attended, occurred on March
13, the day before Tipton resigned. Tipton could not recall whether this was the first
time that he had discussed leaving Irby with Gilbert and Padgett.
We acknowledge that Tipton’s conduct may have been consistent with his duty
of loyalty. In the absence of a contractual commitment (a topic discussed below in
Part II.A.2), Tipton was free to explore other employment options, including with a
competitor like Wholesale. See Vigoro, 82 F.3d at 788-79. And Tipton was not
required to keep his departure from Irby a secret. See id. That said, making all
reasonable inferences in favor of Irby, we conclude that a reasonable jury could find
that Tipton crossed the line between discussing his intent to leave Irby with Gilbert
and Padgett and recruiting them to follow him to Wholesale. See Anderson, 477 U.S.
at 248. We therefore disagree with the district court’s finding that there is “nothing
in the record” to suggest that Tipton disregarded his duty of loyalty. Irby has
presented sufficient evidence to create a genuine dispute of material fact.
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2. Breach of Contract
Irby next argues that Tipton, Gilbert, and Padgett breached their non-compete
agreements. The district court granted summary judgment on this claim for three
reasons. First, the court found that although the non-compete agreements were
“arguably assigned” to Irby, there was no evidence that Tipton, Padgett, or Gilbert
breached their agreements. No such evidence existed, the court explained, because
the non-compete agreements’ one-year period was triggered when Tipton, Gilbert,
and Padgett became Irby employees and because they did not join Irby’s competitor,
Wholesale, until more than one year later. Second, the court found that the non-
compete agreements were unenforceable because they did not protect a legitimate
business interest. Finally, the court determined that the non-compete agreements
were unenforceable due to the lack of a reasonable geographic limitation.
We begin with the threshold question of whether Arkansas law permits the
assignment of an employee’s non-compete agreement to a successor employer. The
district court did not reach this issue, and the parties have not directed us to an
instance where the Arkansas Supreme Court has decided the question. State courts
are split on this issue, with the majority rule being that a covenant not to compete can
be assigned to a successor employer. 6 Williston on Contracts § 13:13 (4th ed. 1990).
We predict that the Arkansas Supreme Court would adopt the majority rule that a
covenant not to compete can be assigned. See Managed Health Care Assocs., Inc. v.
Kethan, 209 F.3d 923, 928-30 (6th Cir. 2000) (making a similar prediction under
Kentucky law). While it is true that Arkansas law is generally skeptical of covenants
not to compete, see, e.g., Duffner v. Alberty, 718 S.W.2d 111, 112 (Ark. Ct. App.
1986) (en banc), Arkansas courts also recognize the legitimate roles that non-compete
agreements can play. For example, a covenant not to compete can protect a business
against the appropriation of its customers, Borden, Inc. v. Huey, 547 S.W.2d 760,
761-62 (Ark. 1977), or against the loss of its trade secrets, Orkin Exterminating Co.
of Ark. v. Murrell, 206 S.W.2d 185, 189-90 (Ark. 1947). Permitting the assignment
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of non-compete agreements is in keeping with preserving these legitimate business
interests. We also note that the Arkansas Supreme Court has spoken favorably about
allowing the assignment of a covenant not to re-engage in business, Bledsoe v.
Carpenter, 254 S.W. 677, 678 (Ark. 1923), a different but analogous contract right,
see Madison Bank & Trust v. First Nat’l Bank of Huntsville, 635 S.W.2d 268, 270-73
(Ark. 1982). For these reasons, we predict that the Arkansas Supreme Court would
follow the majority rule by allowing a covenant not to compete to be assigned to a
successor employer.
This conclusion leads to the question of whether Tipton’s, Gilbert’s, and
Padgett’s non-compete agreements were validly assigned. “Whether an assignment
of contract rights has occurred is determined by the intent of the parties; the assignor
must intend to transfer a present interest in the subject matter of the contract.” Beal
Bank, S.S.B. v. Thornton, 19 S.W.3d 48, 51 (Ark. Ct. App. 2000) (quoting 6 Am. Jur.
2d Assignments § 135 (1999)); see also Koch v. Compucredit Corp., 543 F.3d 460,
465 (8th Cir. 2008). Assignment is a question of fact. Beal Bank, 19 S.W.3d at 51.
We agree with the district court’s conclusion that the non-compete agreements were
“arguably assigned.” The APA indicates that Treadway assigned some of its
contracts to Irby. Irby’s chief operating officer sought to eliminate the APA’s
ambiguity by averring that the non-compete agreements were assigned to Irby. This
statement is consistent with record evidence that, while discussing the assignment of
contract rights, Treadway and Irby discussed the non-compete agreements, at which
point Treadway’s president showed Tipton’s agreement to Irby. This evidence about
assignment is not conclusive, but it is sufficient to generate a genuine dispute of
material fact about whether Treadway assigned the non-compete agreements to Irby.
We turn now to the legal effect of this assignment of contract rights. The
general rule is that “an assignment operates to place the assignee in the shoes of the
assignor, and provides the assignee with the same legal rights as the assignor had
before assignment.” Cascades Dev. of Minn. LLC v. Nat’l Specialty Ins., 675 F.3d
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1095, 1099 (8th Cir. 2012) (alteration and emphasis omitted) (quoting Ill. Farmers
Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 803 (Minn. 2004)); see Citibank, N.A.
v. Tele/Res., Inc., 724 F.2d 266, 269 (2d Cir. 1983) (“Insofar as an assignment
touches on the obligations of the other party to the underlying contract, the assignee
simply moves into the shoes of the assignor.”). An assignment of contract rights is
a “separate agreement between the assignor and the assignee which merely transfers
the assignor’s contract rights, leaving them in full force and effect as to the party
charged.” Citibank, 724 F.2d at 269.
The district court found that Irby only partially stepped into Treadway’s shoes
as a result of the assignment, reasoning that Irby could enforce the non-compete
agreements against Tipton, Padgett, and Gilbert but only could do so for one year
after they left Treadway’s employ. The court reached this conclusion because it
found that becoming Irby employees after the asset sale triggered the beginning of the
non-compete agreements’ one-year period. As a result of this approach to the
assignment, the district court determined that the non-compete agreements had
expired by the time Tipton, Gilbert, and Padgett left Irby to work for Wholesale in
March 2013. The district court offered no legal support for this peculiar result, and
we see no reason to deviate from the normal manner in which the assignment of
contract rights operates. Consequently, we conclude that if the non-compete
agreements were in fact assigned to Irby, it fully stepped into Treadway’s shoes and
received Treadway’s rights “in full force and effect as to the party charged.” Id.
Following the assignment, “[t]he only thing that changed was the entity now entitled
to enforce the terms and conditions that [Tipton, Gilbert, and Padgett] had previously
agreed to when [they] entered into [the non-compete] agreement[s].” See Kethan, 209
F.3d at 927-28. Thus, if the non-compete agreements were assigned, we conclude
that Irby had the ability to enforce them for one year after Tipton, Gilbert, and Padgett
resigned from Irby.
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This brings us to the district court’s alternative conclusion that the non-
compete agreements are unenforceable under Arkansas law. Generally, a non-
compete agreement must meet three requirements to be enforceable: “(1) the
[employer] must have a valid interest to protect; (2) the geographical restriction must
not be overly broad; and (3) a reasonable time limit must be imposed.” Duffner, 718
S.W.2d at 112. The validity of a covenant not to compete depends upon the facts and
circumstances of each case. Optical Partners, Inc. v. Dang, 381 S.W.3d 46, 53-54
(Ark. 2011). The district court held that the non-compete agreements were
overbroad, and thus unenforceable, because they did not protect a valid interest and
because they lacked a reasonable geographic limitation.
The district court concluded that it “appears” that the only interest protected
by the non-compete agreements was ordinary competition. See Bendinger v.
Marshalltown Trowell Co., 994 S.W.2d 468, 472 (Ark. 1999) (“[T]he law will not
protect parties against ordinary competition.”). Irby counters that a covenant not to
compete validly can protect an employer against the loss of its customers. This is
true.
The most important single asset of most businesses is their stock of
customers. Protection of this asset against appropriation by an employee
is recognized as a legitimate interest of the employer. A restrictive
covenant, therefore, fulfills the first requirement on which its
enforceability depends, if it is necessary to protect the employer against
loss of his customers.
Borden, 547 S.W.2d at 761 (quoting 41 A.L.R. 2d 15, 71 (1955)). An employer’s
need to protect itself against the loss of its customers can be particularly meaningful
with respect to an employee, such as an outside salesman, who “deals with customers
away from the employer’s place of business and builds up personal relationships that
bind the customers to himself instead of to the employer’s business.” Id. at 761-62;
see also Girard v. Rebsamen Ins. Co., 685 S.W.2d 526, 527-28 (Ark. Ct. App. 1985).
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A district court in Arkansas has reasoned that an employer has a valid interest in
protecting against the loss of its customers with respect to employees who “were the
face of the company in their sales territories and spent several years cultivating
relationships with their customers.” Church Mut. Ins. Co. v. Copenhaver, No.
4:09CV00487JMM, 2010 WL 2105623, at *3 (W.D. Ark. May 24, 2010).
We conclude that a genuine issue of material fact exists concerning whether the
non-compete agreements were necessary to protect Irby from losing its customers.
See Mercy Health Sys. of Nw. Ark., Inc. v. Bicak, 383 S.W.3d 869, 873-75 (Ark. Ct.
App. 2011); Statco Wireless, LLC v. Sw. Bell Wireless, LLC, 95 S.W.3d 13, 16 (Ark.
Ct. App. 2003). Before becoming Wholesale employees, Tipton, Gilbert, and Padgett
spent several years developing customer relationships as Treadway and Irby
employees. According to Tipton, cultivating these customer relationships is
important to Irby’s business. He further agreed that “it take[s] a while to develop a
customer so that they buy from you.” As Irby’s branch manager, Tipton spoke with
customers on a daily basis. Tipton acknowledged that some customers did business
with Irby because they knew him, liked him, and had worked with him before. Tipton
fostered customer relationships by taking customers on fishing trips to locations as
far away as Colorado. Tipton also took customers out for meals. When he left Irby,
Tipton called some of his Irby customers “[j]ust to let them know where I was.” As
inside salesmen, Gilbert’s and Padgett’s jobs likewise entailed building and
maintaining customer relationships. Gilbert attested that, during his time with Irby,
he came to know customers on a personal basis. As an example, Gilbert discussed
his relationship with one customer, listing some of the companies for which the
customer had worked and describing the nature of the customer’s business. Padgett
also testified that some of his Irby customers called him after he went to Wholesale
and placed orders with him. Viewing this evidence in the light most favorable to
Irby, we find that a reasonable jury could conclude that the non-compete agreements
were necessary to protect Irby against a loss of customers. See Anderson, 477 U.S.
at 248.
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The district court also concluded that the non-compete agreements lacked a
reasonable geographic limitation. In particular, the court emphasized that the
agreements limited an employee’s activities “within [his] territory, as defined by
[Irby].” The court was concerned that Irby could unilaterally define an employee’s
territory so as to create an unreasonable geographic limitation. We doubt that the
non-compete agreements permit the boundless reading that the district court
envisioned. As we understand the plain language quoted above, the agreements
merely limit an employee’s activities within the territory to which Irby had assigned
him during his employment.
With the non-compete provisions properly construed, it becomes apparent that
there is a genuine dispute of material fact about whether the non-compete agreements
have a reasonable geographic limitation. See Advanced Envtl. Recycling Techs., Inc.
v. Advanced Control Solutions, Inc., 275 S.W.3d 162, 172 (Ark. 2008); Bendinger,
994 S.W.2d at 472-73. A limitation on an employee’s activities in the trade area
where his former employer operates can be reasonable. See All-State Supply, Inc. v.
Fisher, 483 S.W.2d 210, 211-12 (Ark. 1972); Jaraki v. Cardiology Assocs. of N.E.
Ark., P.A., 55 S.W.3d 799, 804 (Ark. Ct. App. 2001) (“Where a geographic restriction
is greater than the [employer’s] trade area, the restriction is too broad and the
covenant not to compete is void.”). However, the parties have not directed us to any
record evidence about the size of Irby’s trade area or the size of the territory to which
Tipton, Gilbert, and Padgett were assigned. In any event, we note that a reasonable
factfinder could rely on the relatively limited intrusion that the non-compete
agreements imposed on a former employee’s livelihood to find that the non-compete
agreements’ geographic limitation is reasonable. See Freeman v. Brown Hiller, Inc.,
281 S.W.3d 749, 752, 756 (Ark. Ct. App. 2008) (upholding non-compete agreement
that lacked a geographic limitation but only limited the employee from soliciting
business from his former employer’s customers); Girard, 685 S.W.2d at 528-29
(upholding agreement that lacked a geographic limitation but only limited the
employee from soliciting or accepting business from customers whose accounts he
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serviced at the time of his termination). For these reasons, we conclude that a
genuine issue of material fact exists about whether the non-compete agreements have
a reasonable geographic limitation.
3. Civil Conspiracy
Irby next argues that the district court erred in granting summary judgment on
its claim that Blumfelder and Wholesale conspired with Tipton to violate his fiduciary
duty to Irby. Under Arkansas law, Irby “must show a combination of two or more
persons to accomplish a purpose that is unlawful or oppressive or to accomplish some
purpose, not in itself unlawful, oppressive or immoral, by unlawful, oppressive or
immoral means, to the injury of another.” Dodson v. Allstate Ins. Co., 47 S.W.3d 866,
876 (Ark. 2001). The district court granted summary judgment on Irby’s civil-
conspiracy claim because the court viewed it as derivative of Irby’s unsuccessful
claim for breach of fiduciary duty. The defendants reiterate this rationale on appeal,
asserting that “quibbles over details about phone calls, text messages, or dinner
meetings” are insufficient to reverse the court’s grant of summary judgment.
However, as discussed in Part II.A.1, Tipton’s act of coordinating with Blumfelder
what appears to be a recruiting meeting for Irby employees as well as Tipton’s other
communications with Blumfelder, Gilbert, and Padgett are sufficient to generate a
genuine dispute of material fact about whether Tipton breached his fiduciary duty.
Consequently, the district court’s rationale for dismissing Irby’s civil-conspiracy
claim no longer holds, and the grant of summary judgment on this basis was
inappropriate.
4. Tortious Interference with a Contract
Irby also argues that granting summary judgment on its claim against
Wholesale and Blumfelder for tortious interference with a contract was inappropriate.
To succeed on this claim, Irby must show:
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(1) the existence of a valid contractual relationship or a business
expectancy; (2) knowledge of the relationship or expectancy on the part
of the interfering party; (3) intentional interference inducing or causing
a breach or termination of the relationship or expectancy; and (4)
resultant damage to the party whose relationship or expectancy has been
disrupted.
K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 280 S.W.3d 1, 11 (Ark.
2008). Reasoning that this claim depends on a successful claim for breach of the non-
compete agreements, the district court granted summary judgment to Blumfelder and
Wholesale. However, as discussed in Part II.A.2, genuine disputes of material fact
remain on Irby’s claim for breach of contract, thereby undermining the district court’s
reason for dismissing this claim.
As an alternative basis for affirming the district court’s grant of summary
judgment, Blumfelder and Wholesale invoke Arkansas law’s recognition of a
competitor’s privilege to compete. See Office Machines, Inc. v. Mitchell, 234 S.W.3d
906, 908 (Ark. Ct. App. 2006) (“[T]he defendant will not be liable [for tortious
interference with a contract] if he shows that his interference was privileged.”). In
the context of a claim for tortious interference with a contract, Arkansas courts have
held that hiring a competitor’s employee is part of this privilege so long as hiring him
was not a breach of a non-compete agreement. W. Memphis Adolescent Residential,
LLC v. Compton, 374 S.W.3d 922, 928 (Ark. Ct. App. 2010); Office Machines, 234
S.W.3d at 909. If Blumfelder and Wholesale merely recruited and hired Tipton,
Gilbert, and Padgett, then such conduct would constitute privileged competition
because, as discussed above, the non-compete agreements allowed Tipton, Gilbert,
and Padgett to work anywhere so long as they did not compete with Irby. See id.
However, recruiting and hiring Tipton, Gilbert, and Padgett so that they would solicit
or accept business from Irby customers in their former territory within one year in
violation of their non-compete agreements falls outside of the privilege to compete.
See id.
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The evidence in the record is sufficient to create a genuine dispute of material
fact on this issue. Blumfelder and Wholesale hired Tipton, Gilbert, and Padgett to
work for Wholesale in the same town where they worked for Irby. Moreover, there
is no dispute that Irby and Wholesale were competitors. Tipton admitted that, within
one year of becoming a Wholesale employee, he called some of his Irby customers
“[j]ust to let them know where I was.” Gilbert and Padgett similarly testified that,
within one year of becoming Wholesale employees, they did business with their
former Irby customers. This evidence, viewed most favorably to Irby, creates a
genuine dispute of material fact about whether Blumfelder and Wholesale recruited
and hired Tipton, Gilbert, and Padgett so that they would solicit or accept business
from Irby customers in their former territory within one year in violation of their non-
compete agreements.
B.
The district court awarded the defendants more than $200,000 in attorneys’
fees and costs under Ark. Code Ann. § 16-22-308. This provision states that “[i]n any
civil action to recover . . . for . . . breach of contract . . . the prevailing party may be
allowed a reasonable attorney’s fee to be assessed by the court and collected as
costs.” Id. Because of our disposition of this appeal, the defendants are no longer
prevailing parties under the statute. See Bendinger, 994 S.W.2d at 475; Armstrong
Remodeling & Constr., LLC v. Cardenas, 417 S.W.3d 748, 757 (Ark. Ct. App. 2012).
We therefore vacate the district court’s award of attorneys’ fees and costs.
III. Conclusion
For the reasons described above, we reverse the district court’s grant of
summary judgment on Irby’s claims for breach of fiduciary duty, breach of contract,
civil conspiracy, and intentional interference with a contract; vacate the district
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court’s award of attorneys’ fees and costs; and remand for further proceedings
consistent with this opinion.
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