Sysdyne Corporation v. Brian Rousslang ( 2015 )

STATE OF MINNESOTA
IN SUPREME COURT
A13-0898
Court of Appeals Page, J.
Took no part, Lillehaug, J.
Sysdyne Corporation,
Appellant,
vs. Filed: March 4, 2015
Office of Appellate Courts
Brian Rousslang, et al.,
Respondents.
________________________
Jessica L. Roe, Mark R. Bradford, Bassford Remele, P.A., Minneapolis, Minnesota, for
appellant.
Joseph M. Sokolowski, Todd Wind, Pamela Abbate-Dattilo, Fredrikson & Byron, P.A.,
Minneapolis, Minnesota, for respondents.
William L. Davidson, Peter D. Stiteler, Lind, Jensen, Sullivan & Peterson, P.A.,
Minneapolis, Minnesota, for amicus curiae TechServe Alliance.
________________________
SYLLABUS
1. The justification defense against a claim of tortious interference with
contract may be satisfied by a defendant’s good-faith reliance on advice of outside
counsel, provided that the legal advice is obtained through a reasonable inquiry.
2. The trial court and court of appeals did not err in concluding that
respondent Xigent met its burden of proving that its interference with the contract was
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justified based on reliance on the advice of counsel, given the evidence supporting the
trial court’s findings that respondent engaged in a reasonable inquiry with outside counsel
and honestly relied on counsel’s advice that the contract was unenforceable.
Affirmed.
OPINION
PAGE, Justice.
Appellant Sysdyne Corporation sued respondent Xigent Solutions, LLC, for
tortious interference with contract resulting from Xigent’s hiring of respondent Brian
Rousslang—a former employee of Sysdyne who was subject to a noncompete
agreement—and sued Rousslang for breach of contract. Rousslang did not dispute that
he breached the noncompete agreement, and the trial court awarded damages to Sysdyne
on its breach of contract claim with respect to certain customers Rousslang brought with
him from Sysdyne to Xigent. The trial court ruled in favor of Xigent, however, on the
tortious interference claim, concluding that Xigent’s interference was justified because
Xigent conducted a reasonable inquiry into the enforceability of the noncompete
agreement and honestly believed, based on advice of outside counsel, that the agreement
was unenforceable. The court of appeals affirmed, citing our decision in Kallok v.
Medtronic, Inc., 573 N.W.2d 356, 362 (Minn. 1998), for the proposition that “a party
who relies on the advice of outside counsel may be justified in interfering with a
contractual relationship.” Sysdyne Corp. v. Rousslang, No. A13-0898, 2014 WL 902713,
at *4 (Minn. App. Mar. 10, 2014). In its appeal to our court, Sysdyne raises the
following issues: whether the justification defense to a claim of tortious interference with
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contract may be satisfied by reliance on incorrect advice of counsel; and, if so, whether
the trial court’s finding of honest reliance on the advice of counsel after a reasonable
inquiry is supported by the record. We affirm.
Sysdyne and Xigent provide staff augmentation services to companies in the
engineering and information technology industries. Sysdyne hired Brian Rousslang in
2006. Rousslang signed an employment agreement containing a noncompete provision.
For a period of 12 months following the termination of his employment with Sysdyne,
Rousslang agreed that he would not “accept employment, consult with, or otherwise
become associated or affiliated with . . . any business competitor” of Sysdyne that
provides similar services in seven specific Twin Cities metro area counties. Additionally,
Rousslang agreed that he would not, during the same 12-month period, “in any manner
contact, solicit or cause to be solicited, customers or former or prospective customers” of
Sysdyne within the same seven-county area. As a condition of his promotion to account
manager in 2007, Rousslang agreed that he would continue to abide by the terms of the
original employment agreement, including the noncompete provision.
In early 2010 Rousslang began exploring the possibility of a position with Xigent.
Rousslang provided Xigent with a copy of his 2006 offer letter and employment
agreement with Sysdyne. Xigent’s president and co-owner, Bob Bernu, sent the letter
and employment agreement to outside counsel, Joseph Sokolowski, for review.
According to Bernu, Sokolowski advised him that the noncompete agreement was
overbroad as to Rousslang’s preexisting customers and that the entire agreement was
unenforceable. Based on this advice, Xigent advised Rousslang that the noncompete
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agreement was unenforceable and offered him a position at Xigent, which Rousslang
accepted on the condition that Xigent cover any legal fees associated with his move to
Xigent.
Sysdyne sued Rousslang for breach of contract and Xigent for tortious interference
with contract and tortious interference with a prospective business relationship. Before
trial, the trial court granted partial summary judgment in favor of Xigent and Rousslang
as to clients with whom Rousslang had a relationship before he began working for
Sysdyne. The trial court denied Xigent and Rousslang’s summary judgment motion to
declare the entire noncompete agreement unenforceable, concluding that the noncompete
agreement was enforceable except as to Rousslang’s preexisting clients.
According to the trial court, Rousslang and Xigent did not dispute that Rousslang
breached the noncompete agreement as to three Sysdyne clients with whom Rousslang
did not have a preexisting relationship. Therefore, the dispute at trial centered on: (1) the
scope of the noncompete agreement; (2) the amount of damages, if any, caused by the
breach of the noncompete agreement; and (3) whether Xigent tortiously interfered with
the noncompete agreement. With respect to Sysdyne’s tortious interference claim,
Xigent argued that any interference with the noncompete agreement was justified based
on advice from outside counsel. In support of this claim, Xigent presented an e-mail
exchange between Bernu and Sokolowski regarding Sokolowski’s review of Rousslang’s
original offer letter and employment agreement. Xigent also introduced billing records
indicating that Sokolowski billed 0.4 hours for review of the letter and agreement and 0.3
hours for a telephone conference with Bernu regarding “noncompete issues.” Bernu
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testified that he told Sokolowski that Rousslang would be doing similar work at Xigent as
he had been doing at Sysdyne, with some added responsibilities, but did not describe
Sysdyne’s business. Bernu also testified that he viewed Sokolowski as an expert on
noncompete agreements, that Sokolowski had reviewed noncompete agreements for
Xigent for 10 to 12 years, and that Bernu relied on Sokolowski’s advice. The trial court
did not permit Sysdyne to call Sokolowski, who was also Xigent’s trial counsel, as a
witness. The court reasoned that Sysdyne waived its right to do so when Sysdyne
withdrew its request to depose Sokolowski, but then decided to call Sokolowski as a
witness on the “verge of trial.”
The trial court entered judgment against Rousslang in the amount of $158,240 plus
costs and interest on the breach of contract claim. The court also concluded that Xigent
was justified in interfering with the contract because Xigent “conducted a reasonable
inquiry into the enforceability of the [n]oncompete [a]greement” and, based on advice of
counsel, “honestly believed that the [agreement] was unenforceable.”
On appeal to the court of appeals, Sysdyne argued that the trial court erred in
concluding that Xigent’s actions were justified, and in refusing to allow Sysdyne to call
Sokolowski as a witness at trial.1 The court of appeals affirmed, concluding that the
record supported the trial court’s findings that Xigent made a reasonable inquiry and
1
At the court of appeals, Sysdyne also challenged the trial court’s “blue-penciling”
of the employment agreement to exclude Rousslang’s preexisting customers from the
noncompete clause and the trial court’s refusal to award Sysdyne attorney fees. Sysdyne,
2014 WL 902713, at *3, 6. The court of appeals affirmed. Id. at *4, 7. Sysdyne did not
raise any challenges related to the breach of contract claim against Rousslang in its
petition for review to this court.
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honestly believed that Rousslang’s noncompete agreement was unenforceable. Sysdyne,
2014 WL 902713, at *5.
I.
In this appeal, we are presented with two issues related to Sysdyne’s tortious
interference with contract claim against Xigent: (1) whether the justification defense to a
claim of tortious interference with contract may be satisfied by reliance on incorrect
advice of counsel; and, (2) if so, whether the trial court’s finding of good-faith reliance
on the advice of counsel is supported by the record. A cause of action for tortious
interference with contract has five elements: “(1) the existence of a contract; (2) the
alleged wrongdoer’s knowledge of the contract; (3) intentional procurement of its breach;
(4) without justification; and (5) damages.” Furlev Sales & Assocs., Inc., v. N. Am. Auto.
Warehouse, Inc., 325 N.W.2d 20, 25 (Minn. 1982). The sole element at issue in this case
is the fourth element, “without justification.” Whether the interference is justified is
normally a question of fact. Kjesbo v. Ricks, 517 N.W.2d 585, 588 (Minn. 1994). “[T]he
test is what is reasonable conduct under the circumstances.” Id. The burden of proving
that interference with a contract was justified is on the defendant. Royal Realty Co. v.
Levin, 244 Minn. 288, 295, 69 N.W.2d 667, 673 (1955).
Sysdyne contends that interference with a contract can only be justified when the
defendant acts to further a legally protected interest of its own. Sysdyne further contends
that the justification defense cannot be satisfied by a defendant’s honest but erroneous
belief, based on the advice of counsel, that a contract is unenforceable. Xigent argues
that our decision in Kallok v. Medtronic, Inc., 573 N.W.2d 356, 362 (Minn. 1998),
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impliedly recognized that it is possible to establish justification based on advice of
outside counsel if the defendant engaged in a “reasonable inquiry” with counsel.
Whether the justification defense may be satisfied by reliance on the advice of counsel is
a question of law, subject to de novo review.2 See Gieseke ex rel. Diversified Water
Diversion, Inc. v. IDCA, Inc., 844 N.W.2d 210, 214 (Minn. 2014).
II.
We turn first to Sysdyne’s argument that the justification defense cannot be
satisfied by the defendant’s reliance on the advice of outside counsel. More specifically,
Sysdyne contends that justification is limited to situations in which the defendants have
asserted, in good faith, a legally protected interest of their own, citing to Kjesbo v. Ricks,
517 N.W.2d 585, 588 (Minn. 1994), and the Restatement (Second) of Torts § 773 (1979).
Sysdyne’s argument fails. We held in Kjesbo that “[t]here is no wrongful interference
with a contract where one asserts ‘in good faith a legally protected interest of his own . . .
believ[ing] that his interest may otherwise be impaired or destroyed by the performance
of the contract or transaction.’ ” 517 N.W.2d at 588 (quoting Restatement (Second) of
Torts § 773). But we have not indicated that interference with a contract is justified only
when a defendant asserts in good faith a legally protected interest that would be impaired
2
Xigent argues that Sysdyne forfeited review of the issue of whether the
justification defense can be satisfied by the defendant’s reliance on the advice of counsel
because Sysdyne did not challenge the legal validity of Xigent’s advice-of-counsel
defense at the trial court or court of appeals. Ordinarily, we do not decide issues raised
for the first time on appeal. See, e.g., Fahrendorff v. N. Homes, Inc., 597 N.W.2d 905,
909 (Minn. 1999). After a careful review of the record, we are satisfied that Sysdyne
adequately preserved the issue below and therefore reject Xigent’s forfeiture argument.
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or destroyed by performance of the contract. See 517 N.W.2d at 588. The lack of
limiting language is significant because, in Kjesbo, our statement that “[t]here is no
wrongful interference with a contract where one asserts ‘in good faith a legally protected
interest of his own’ ” is preceded by a broader characterization of justification: “whether
interference is justified is an issue of fact, and the test is what is reasonable conduct under
the circumstances.” Id.
Further, we have never rejected the possibility that reasonable reliance on the
advice of counsel could establish justification in the context of tortious interference with
contract claims. To the contrary, we have characterized justification as evading precise
definition and have repeatedly indicated that justification is normally a question of fact.
See Royal Realty, 244 Minn. at 295, 69 N.W.2d at 672. As noted above, the appropriate
test for justification is “what is reasonable conduct under the circumstances.” Kjesbo,
517 N.W.2d at 588 (emphasis added) (citing Bennett v. Storz Broad. Corp., 270 Minn.
525, 537, 134 N.W.2d 892, 900 (1965)). A per se rule precluding reliance on the advice
of counsel from justifying a party’s interference with a contract would be inconsistent
with our fact-based, case-by-case approach.
Not only have we failed to reject reliance on the advice of counsel as a
justification for interference with a contract, but in Kallok v. Medtronic, Inc., 573 N.W.2d
356, 362 (Minn. 1998), we impliedly recognized that a defendant’s interference with a
contract may be justified by reliance on the advice of counsel. Kallok involved a tortious
interference claim by Medtronic against a rival medical device company, Angeion, based
on Angeion’s offer of employment to a Medtronic employee who was subject to a series
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of noncompete agreements. Id. at 358-59. Angeion argued that its interference was
justified because it consulted with outside counsel to determine whether the employee
would violate his noncompete agreements by accepting employment with Angeion. Id. at
362. We rejected Angeion’s argument because Angeion “did not utilize a reasonable
inquiry in ascertaining whether Kallok’s noncompete agreements with Medtronic
prevented him from being employed by Angeion.” Id. Specifically, Angeion did not
“candidly provide[] its attorneys with all relevant information” pertaining to Kallok’s
position and responsibilities at Medtronic, including his access to confidential
information. Id. We held that Angeion “may not rely upon an infirm consultation with
counsel and the resulting advice as a justification for its action.” Id.
The implication of our decision in Kallok is that the trier of fact could have
properly determined that the defendant’s interference was justified if the inquiry had been
reasonable. Given the fact-based nature of the justification-defense inquiry and our
reasoning in Kallok, we conclude that the lower courts did not err when they determined
that the justification defense may be satisfied by a defendant’s reliance on advice of
outside counsel when that reliance is reasonable.3
3
Sysdyne and amicus curiae TechServe Alliance express concerns that recognizing
this defense will effectively extinguish tortious interference with contract claims and will
unfairly transfer the consequences of erroneous legal advice onto the innocent party.
Such concerns are mitigated by the fact that Kallok does not imply that reliance on advice
of counsel per se justifies tortious interference with contract; the consultation with
counsel cannot be “infirm,” as it was in Kallok. 573 N.W.2d at 362. Moreover, an
employer can still recover in contract for an employee’s breach of a noncompete
agreement. For example, in this case Sysdyne was awarded $158,240 in its breach of
(Footnote continued on next page.)
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III.
We next turn to Sysdyne’s contention that, even if an erroneous belief based on
advice of counsel can justify intentional interference with contract, “the belief must be
informed by something more than an infirm, conclusory legal opinion.” Specifically,
Sysdyne argues that the trial court erred in concluding that Xigent’s interference was
justified because (1) Xigent provided “virtually no factual information to Sokolowski that
would have allowed him to give a reasoned opinion” and (2) nothing in the record
confirms the content of and basis for Sokolowski’s legal advice.
In Kallok, we suggested that whether a defendant was justified in interfering with
a contract based on the advice of outside counsel hinges on the reasonableness of the
defendant’s inquiry. See 573 N.W.2d at 362. The trial court found that “Xigent
conducted a reasonable inquiry into the enforceability of the [n]oncompete [a]greement,”
and the court of appeals concluded that this finding was supported by the record—
providing justification for Xigent’s interference with the contract. Sysdyne Corp. v.
Rousslang, No. A13-0898, 2014 WL 902713, at *5 (Minn. App. Mar. 10, 2014). The
first of Sysdyne’s arguments, that Xigent did not disclose necessary facts to Sokolowski,
directly challenges the trial court’s finding that Xigent engaged in a “reasonable inquiry.”
We review a trial court’s findings of fact for clear error, giving due regard to the
(Footnote continued from first page.)
contract claim against Rousslang. Xigent is ultimately responsible for this amount
because it agreed to cover any legal fees associated with Rousslang’s move to Xigent.
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opportunity of the trial court to judge the credibility of the witnesses. See Minn. R. Civ.
P. 52.01 (2014); Hubbard v. United Press Int’l, Inc., 330 N.W.2d 428, 441 (Minn. 1983).
As the court of appeals recognized, there is support in the record for the trial
court’s finding of a reasonable inquiry. Sysdyne, 2014 WL 902713, at *5. Xigent
provided Sokolowski with Rousslang’s employment agreement, including the
noncompete provision, and the original offer letter from Sysdyne. Although Xigent did
not inform Sokolowski about the nature of Sysdyne’s business, Xigent did inform
Sokolowski that Rousslang would be doing essentially the same work for Xigent as he
was doing for Sysdyne. Xigent also produced billing records confirming that Sokolowski
reviewed and discussed the noncompete agreement with Xigent’s president and co-
owner, Bob Bernu. Bernu testified that he viewed Sokolowski as an expert in
noncompete agreements and that Sokolowski had regularly reviewed noncompete
agreements for Xigent over a 10- to 12-year period. These facts, collectively, support the
trial court’s finding that Xigent engaged in a “reasonable inquiry”—particularly when
due regard is given to the trial court’s opportunity to evaluate the credibility of Bernu’s
testimony. See Minn. R. Civ. P. 52.01.
This situation is distinguishable from that in Kallok, in which the defendant not
only failed to provide relevant information to counsel regarding the employee’s position
and access to confidential information, but actually provided incorrect information. 573
N.W.2d at 360, 362. Additionally, in Kallok, outside counsel was not provided with
copies of the relevant noncompete agreements. See id.
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Sysdyne also argues that a defendant should not be permitted to avail itself of an
advice-of-counsel defense when the record contains nothing to verify the content of and
legal basis for counsel’s advice. This contention is without merit. First, a defendant is
not required to establish the legal analysis underlying an attorney’s advice in order to
prove justification. Kallok suggested that the appropriate focus of the justification
inquiry is the reasonableness of the defendant’s consultation with counsel and reliance on
the resulting advice, not the attorney’s legal analysis. See 573 N.W.2d at 362
(determining that Angeion’s interference was not justified because “Angeion did not
utilize a reasonable inquiry in ascertaining” whether Kallok’s noncompete agreements
prevented him from working at Angeion). In other contexts, an advice-of-counsel
defense similarly requires the defendant to establish that he or she fully disclosed all
material facts to the attorney, received advice that his or her conduct was legal, and acted
in good-faith reliance on that advice. See, e.g., Miller v. Am. Nat’l Bank in Little Falls,
216 Minn. 19, 23, 11 N.W.2d 655, 657 (1943) (defense to malicious prosecution claim).
Moreover, the fact that legal advice was verbal and undocumented may be
relevant to the reasonableness of the defendant’s reliance on the advice, but does not
necessarily preclude the possibility that the facts of a particular case may establish
justification.4 Such is the case here. At trial, Bernu testified regarding the substance of
Sokolowski’s advice and the court had the opportunity to evaluate the credibility of
4
A per se rule regarding the evidence necessary to establish justification would be
inconsistent with the case-by-case, fact-based nature of the justification inquiry, see
Kjesbo v. Ricks, 517 N.W.2d 585, 588 (Minn. 1994).
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Bernu’s testimony. While Bernu did not provide a detailed explanation of Sokolowski’s
advice, Bernu testified that Sokolowski at least briefly explained why he believed the
noncompete agreement was overbroad (because it encompassed Rousslang’s preexisting
customers). Bernu also testified that Xigent frequently relied on Sokolowski for advice
regarding noncompete agreements. Moreover, the billing records and e-mail exchange
Xigent provided confirm that Sokolowski reviewed Rousslang’s employment agreement
and discussed the matter with Bernu. This evidence, combined with the trial court’s
opportunity to assess the credibility of Bernu’s testimony, support the court’s finding that
Xigent honestly relied on the advice of counsel regarding the enforceability of the
noncompete agreement after engaging in a reasonable inquiry. Thus, the trial court did
not err in concluding that Xigent’s interference was justified.
In sum, we conclude that, under Kallok v. Medtronic, Inc., 573 N.W.2d 356
(Minn. 1998), the justification defense to tortious interference with contract may
encompass reasonable reliance on advice of counsel. Under the facts of this case, we
hold that the trial court did not err in concluding that Xigent met its burden of proving the
justification defense given the evidence supporting Xigent’s reasonable inquiry with
outside counsel and honest reliance on counsel’s advice that the contract was not
enforceable.
Affirmed.
LILLEHAUG, J., took no part in the consideration or decision of this case.
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