Cooper Tire & Rubber Co. v. Farese

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT August 23, 2005
Charles R. Fulbruge III
Clerk
No. 04-60774
COOPER TIRE & RUBBER CO.,
Plaintiff-Appellant,
versus
JOHN BOOTH FARESE; FARESE, FARESE & FARESE PROFESSIONAL
ASSOCIATION; JOHN DOES A-A; CLYDE TAB TURNER; TURNER &
ASSOCIATES P.A.; BRUCE R. KASTER; BRUCE KASTER, P.A.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Mississippi
Before HIGGINBOTHAM, BARKSDALE, and CLEMENT, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
For this diversity action to which Mississippi law applies,
Cooper Tire & Rubber Co. contests the summary judgment awarded John
Booth Farese, Bruce Kaster, and their law firms against Cooper
Tire’s claims for tortious interference with contract and business
relations and for civil conspiracy. Cooper Tire alleges: Cathy
Barnett, upon ending her employment at Cooper Tire, signed a
separation agreement that contained a non-disparagement clause;
nevertheless, she executed an affidavit, prepared with Farese,
containing false and disparaging statements about Cooper Tire;
despite knowledge of the separation agreement, Farese provided
Barnett’s affidavit to another attorney, who provided it to Kaster,
for use in pending litigation in Arkansas against Cooper Tire;
despite knowledge of the separation agreement, Kaster leaked the
affidavit to the media; as a result, Cooper Tire sustained
extremely substantial losses to its stock value; and Kaster paid
Farese $50,000 after the Arkansas litigation was settled. The
district court erred in holding that, as a matter of law, the
separation agreement is void for illegality and unconscionability;
in addition, material fact issues preclude summary judgment.
VACATED and REMANDED.
I.
This litigation springs from the affidavit by Barnett, a
former Cooper Tire employee at its plant in Tupelo, Mississippi.
When the affidavit was prepared with Farese, Barnett was in the
process of having her employment terminated for allegedly
embezzling gift certificates and college football tickets from
Cooper Tire’s company picnic fund. In exchange for its not filing
criminal charges, Cooper Tire required Barnett to execute the
separation agreement, which, inter alia, contained the following
non-disparagement clause:
I agree (a) not to make any public statement
or statements to the media or, directly or
indirectly, provide information of any kind,
whether written or non-written, to, or
otherwise collaborate in any way in the taking
of any action with, any third party concerning
[Cooper Tire], without first receiving the
written approval of [Cooper Tire]; and (b) not
2
to take action or make any statements which
could cause [Cooper Tire] any embarrassment or
humiliation or otherwise reflect negatively on
[Cooper Tire] or cause [Cooper Tire] to be
held in disrepute. In the event of a
violation of the terms and conditions of this
Section, I agree [Cooper Tire] shall have the
right to seek any injunctive, equitable and
other legal relief available to it.
(Emphasis added.)
The separation agreement, which was prepared on or about 4
October 2001, advised Barnett to seek legal representation before
signing it. Barnett retained Farese of Farese, Farese & Farese,
P.A., in Ashland, Mississippi. During their initial meeting on 12
October 2001, Barnett informed Farese that she and another
employee, Sheila Hall, had burned documents at the behest of Hogan
Cooper, her manager at Cooper Tire; the documents were allegedly
discoverable in pending litigation in Arkansas. See Whitaker v.
Cooper Tire & Rubber Co., No. 2:99CV00220 (E.D. Ark. 2002).
While Barnett was still at Farese’s office, and without her
knowledge, Farese telephoned Tab Turner, a products liability
lawyer in Arkansas who, Farese remembered, had recently obtained a
large verdict against Cooper Tire in Mississippi. The telephone
conversation lasted approximately 40 minutes. Turner suggested
that Farese acquire “a lot” of detailed information from Barnett.
After Farese had talked with Turner, he drafted an affidavit
for Barnett, containing her document-burning statements. She
3
executed it that day. Almost immediately after it was executed,
Farese telephoned Turner and read the affidavit to him.
A few days later (16 October), Cooper Tire emailed to Farese
its proposed separation agreement (prepared initially on or about
4 October). Among changes proposed by Farese, he made the
following to its non-disparagement clause, in order to: (1) shift
the separation agreement’s effective date from 4 to 31 October; and
(2) make the clause prospective, by inserting “hereafter” before
its operative language. Farese emailed the revised separation
agreement to Cooper Tire on 18 October.
Almost immediately after emailing his proposed revisions to
Cooper Tire, and without Barnett’s knowledge, Farese faxed her
affidavit to Tab Turner; the cover sheet stated “Tab (a/k/a Lucky
Dog): attached is a copy of the affidavit”. Prior to this email,
Farese had never addressed Turner as “Lucky Dog”. (As developed in
subsequent discovery, Farese believed that, had he provided the
affidavit to Turner after Barnett signed the separation agreement,
“we would have breached the [separation] agreement”.)
Cooper Tire rejected Farese’s proposed changes to the non-
disparagement clause and the separation agreement’s effective date,
but did acquiesce in a number of other changes. Executed by
Barnett on 23 October 2001, the separation agreement states, inter
alia: “I hereby voluntarily resign from employment at [Cooper
Tire] effective October 4, 2001 ....”; “This Agreement does not
4
become effective or enforceable until seven (7) days from the date
on which I execute this Agreement (the ‘Effective Date’)”; and, at
the bottom of the final page, “Effective Date: October 4, 2001”.
(Emphasis added.)
On 22 October 2001 (the day before Barnett executed the
separation agreement), Turner emailed Kaster and Paul Byrd,
plaintiffs’ counsel in the Arkansas Whitaker action, to inform them
of the existence of Barnett’s affidavit, but did not disclose her
identity, stating: “She is not yet ready to come forward due to a
pending employment problem, but is very concerned about what she
has done”. On the other hand, Turner did provide Kaster and Byrd
with a general overview of the affidavit’s contents and ended by
stating:
I thought you should know about this so you
can ask some questions to set the situation
up. I would suggest that you be VERY careful
about how you do this so as not to tip anyone
off about what you might know.
Subsequent to this email, Byrd and his partner, James
Swindoll, telephoned Turner repeatedly, asking whether the affiant
was ready to come forward. By a 5 March 2002 email, Turner
disclosed Barnett’s identity to Byrd. Swindoll soon obtained a
copy of the affidavit from Turner and provided it to Kaster.
The week after obtaining the affidavit, Byrd met with Farese
at his law office in Ashland, Mississippi, where they discussed
Barnett, her affidavit, and what Farese knew about Sheila Hall (as
5
noted, she is identified in Barnett’s affidavit as having burned
documents with Barnett). At his deposition in this action, Byrd
testified that Farese informed him he would have to subpoena
Barnett if he wanted to depose her. (Cooper Tire asserts Farese
did this in order to “get around the language of the [separation]
[a]greement”.)
Cooper Tire learned from Kaster of the affidavit’s existence
during a 13 March 2002 hearing in the Whitaker litigation. Kaster
initially resisted Cooper Tire’s requests to reveal Barnett’s name
and for a copy of the affidavit. The district court in Arkansas
reviewed the affidavit in camera and, in mid-April 2002, ordered
Kaster to produce it to Cooper Tire.
On 11 April 2002, the Whitaker plaintiffs noticed Barnett’s
deposition for 23 April. The record does not reflect whether she
was subpoenaed. Byrd testified in his deposition in the instant
action that he did so; but, he changed his testimony on the
deposition errata sheet, stating he could not remember whether he
had. Farese never determined the validity of the subpoena
(assuming Barnett was subpoenaed); nor, prior to Barnett’s
deposition being noticed, did he tell her that he had been in
contact with the Whitaker plaintiffs’ counsel.
By a faxed 22 April 2002 letter, Farese notified Greg Meyers,
Cooper Tire’s counsel, of Barnett’s deposition, set for 23 April.
Farese asked if Meyers believed the separation agreement prevented
6
Barnett’s testifying; advised Barnett had done nothing since the
execution of the separation agreement to violate it; and claimed
the separation agreement became effective 31 October 2001.
By a faxed 23 April letter, Meyers responded that the
separation agreement did not prevent Barnett from being deposed
pursuant to a valid federal court subpoena. Meyers took exception,
however, to Farese’s assertion that Barnett had done nothing since
the execution of the separation agreement that would violate its
terms. Meyers asserted: the separation agreement stated the
effective date was 4 October 2001; the affidavit was in violation
of the agreement; and if Barnett had executed the affidavit prior
to executing the agreement, then it was bad faith not to disclose
this to Cooper Tire.
By a faxed 24 April letter, Farese replied to Meyers: “You
are correct about the effective date of the agreement; it was
October 4, 2001”. (Emphasis added.) He stated, however, that the
separation agreement was silent regarding any disclosures made
prior to its effective date.
Barnett was deposed on 23 and 24 April 2002. Approximately
two weeks later (10 May), her affidavit was leaked to a national
business television news organization, which gave the story wide
coverage. The story broke that same day, with Cooper Tire’s stock
price dropping approximately 25% ($500 million) in the first hour
of trading and closing the day down 11% ($220 million).
7
On 14 May 2002, Barnett was subpoenaed to attend a 16 May 2002
hearing in district court in Little Rock, Arkansas, in the Whitaker
litigation. (Farese held a 13 minute telephone conversation with
the Whitaker counsel the morning the subpoena was sent to Barnett;
however, neither party to that conversation recalls its subject
matter.) At the hearing, and in a subsequent deposition, Barnett
testified that she had not wanted to attend the hearing. Despite
her not wanting to do so and her living in another state, over 100
miles from the courthouse in Arkansas, Farese made no effort to
quash the subpoena. See FED. R. CIV. P. 45(c)(3)(A)(ii) (“On timely
motion, the court by which a subpoena was issued shall quash or
modify the subpoena if it requires a person who is not a party or
an officer of a party to travel to a place more than 100 miles from
the place where that person resides ....”) (emphasis added).
The hearing concerned the Whitaker plaintiffs’ sanctions
motion for Cooper Tire’s alleged spoliation of evidence. At the
hearing, and contrary to her affidavit, Barnett testified that she
had not been instructed by Hogan Cooper or anyone else at Cooper
Tire to burn documents. She testified that, instead, she was
afraid of being blamed for the failure to remain current with
Cooper Tire’s document retention policy and of adverse consequences
if anyone found out. When Cooper Tire attempted to question
Barnett about the circumstances surrounding its terminating her
employment, the Whitaker plaintiffs objected, asserting the
8
questions were violative of the separation agreement. As a result,
the court subsequently struck Barnett’s entire testimony because
the defendants (including Cooper Tire) had been prevented thereby
from properly cross-examining her. At the end of the two-day
hearing, which included testimony by Sheila Hall and Hogan Cooper,
the court found there was no credible evidence that anyone at
Cooper Tire instructed Barnett or Hall to burn documents. The
Whitaker action subsequently settled on 31 July 2002 for an
undisclosed amount.
Post-settlement, the Whitaker plaintiffs’ counsel sent Farese
a check for $50,000. In a subsequent affidavit, Kaster stated it
was intended as a gift. After receiving the check, Farese
telephoned Barnett and offered her $25,000, without disclosing the
amount received. Per Barnett’s instructions, Farese made the check
payable to Barnett’s father, in order to hide the proceeds from
Barnett’s husband, who was still employed by Cooper Tire. On his
federal income tax return, Farese listed his $25,000 as “income”.
When deposed in the instant action, Barnett invoked her Fifth
Amendment right against self-incrimination when asked how she
treated her $25,000 for income tax purposes.
On 31 December 2002, Cooper Tire filed this action against
Farese and his law firm, claiming tortious interference with its
contract with Barnett and tortious interference with its business
relations. After obtaining additional information, Cooper Tire
9
added Turner, Kaster, and their law firms as defendants, as well as
a civil conspiracy claim. The district court bifurcated trial on
liability and damages.
Cooper Tire’s claims against Turner and his firm were
dismissed for lack of personal jurisdiction, the dismissal being
certified under Federal Rule of Civil Procedure 54(b) as a partial
final judgment. Cooper Tire’s appeal from that partial judgment
was dismissed voluntarily after a settlement with Turner.
Farese answered and counterclaimed for abuse of process. The
counterclaim was dismissed for failure to state a claim upon which
relief could be granted.
On 9 September 2003, instead of filing an answer, Kaster moved
to dismiss for failure to state a claim. Simultaneously, he moved
to stay discovery, joined later by Farese, pending disposition of
the motion to dismiss. On 20 November 2003, the district court,
inter alia, stayed discovery for 90 days. On 12 December 2003, it
stayed all scheduled depositions for 90 days, but allowed written
discovery during that period; the discovery deadline was vacated
and never reset.
On 30 January 2004, Farese moved for summary judgment.
Pursuant to Rule 56(f), Cooper Tire moved to stay Farese’s motion
pending completion of discovery; Cooper Tire described in the
requisite Rule 56(f) affidavit the numerous outstanding discovery
10
disputes preventing its responding to Farese’s motion. See FED. R.
CIV. P. 56(f).
The district court did not rule on the motion until June,
almost four months later. In the interim, on 13 February 2004,
Cooper Tire submitted an additional Rule 56(f) affidavit addressing
additional disputes that had arisen during discovery, most notably
Kaster’s numerous claims of privilege and Cooper Tire’s outstanding
motions to compel.
Shortly before expiration of the discovery stay on 18 February
2004, Kaster, joined by Farese, moved to extend it. The district
court granted the motion on 1 March 2004, with the stay being
extended an additional 90 days, or until a ruling on Kaster’s
motion to dismiss, whichever occurred first. The order, however,
allowed Cooper Tire to conduct any scheduled depositions in March
and April 2004.
In June 2004, the district court denied Cooper Tire’s Rule
56(f) motion, ruling that it “had ample time to conduct discovery”.
Cooper Tire & Rubber Co. v. Farese, No. 3:02CV210-P-A (N.D. Miss.
3 June 2004) (unpublished order). Subsequently, Kaster’s motion to
dismiss was denied. Kaster answered Cooper Tire’s complaint, and,
shortly thereafter, filed a summary judgment motion similar to his
motion to dismiss.
On 17 August 2004, without additional discovery being
conducted, the district court awarded summary judgment to Farese
11
and Kaster and their firms. The court held: (1) the separation
agreement was ambiguous as to the effective date; (2) this
ambiguity was caused by Cooper Tire’s “draft[ing] the [final]
version of the [separation] [a]greement in direct response to
somehow discovering the existence of the Barnett affidavit”; (3)
under Mississippi law, non-disparagement agreements are void per se
for illegality; (4) under Mississippi law, the separation agreement
was unconscionable; and (5) because the separation agreement was
invalid, Cooper Tire’s claims failed as a matter of law. Cooper
Tire & Rubber Co. v. Farese, No. 3:02CV210-P-A, slip op. at 4-10
(N.D. Miss. 17 August 2004) (emphasis added) (Farese).
II.
A summary judgment is reviewed de novo, applying the same
standard as the district court. E.g., Ford Motor Co. v. Tex. Dep’t
of Transp., 264 F.3d 493, 498 (5th Cir. 2001). Such judgment is
appropriate when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law”. FED. R. CIV. P. 56(c). “We construe all facts
and inferences in the light most favorable to the nonmoving party
when reviewing ... [a] summary judgment.” Murray v. Earle, 405
F.3d 278, 284 (5th Cir. 2005) (citation omitted).
12
“An issue is ‘genuine’ if the evidence is sufficient for a
reasonable jury to return a verdict for the nonmoving party.”
Hamilton v. Segue Software Inc., 232 F.3d 473, 477 (5th Cir. 2000)
(citation omitted). “A fact issue is material if its resolution
could affect the outcome of the action.” Thompson v. Goetzmann,
337 F.3d 489, 502 (5th Cir. 2003) (citation omitted).
Cooper Tire contends the district court: (1) abused its
discretion in denying the Rule 56(f) motion; (2) made improper
factual findings on summary judgment regarding material fact
issues; and (3) erred in concluding the separation agreement’s non-
disparagement clause was void for illegality and unconscionability
under Mississippi law. (Because the summary judgment is vacated,
it is not necessary to reach the Rule 56(f) issue.)
A.
As an affirmative defense, Kaster raises an agreement between
Cooper Tire and the Whitaker plaintiffs’ attorneys, reached during
settlement negotiations for that action and which was described on
the record at a hearing in district court in Arkansas regarding
those negotiations. Because of that agreement, Kaster asserts
accord and satisfaction for any claims arising out of the use of
Barnett’s affidavit or anything else stemming from the Whitaker
action.
The agreement states: “Neither side will assert sanctions
and/or ethical complaints or allegations against anyone arising out
13
of [the Whitaker] case ....” (Emphasis added.) In court, Kaster
characterized the agreement as follows:
We’ve ... agreed, in accordance with the
ethical guidelines, [that] neither side at
this point perceives any unethical violations
or misconduct by the other, and so we agreed
we will not assert any type of sanctions
motions or proceedings or any type of ethical
complaints or allegations, one side against
the other.
(Emphasis added.) Here, he relies on his verbal characterization.
Needless to say, the written agreement, not Kaster’s
characterization, controls.
Kaster raised this defense in his answer to Cooper Tire’s
complaint and in his summary judgment motion. Because the district
court found the separation agreement void on other grounds, it did
not reach this issue.
Contrary to Kaster’s contention, and for purposes of the
instant action, the agreement precludes only criminal and civil
proceedings “between Cooper and Cathy Barnett ....” The agreement
is silent regarding such proceedings against Farese, Kaster, or
their firms. Pursuant to its plain language, this agreement
pertains only to “sanctions and/or ethical complaints or
allegations ... arising out of” the Whitaker action. Restated, it
does not cover the intentional torts claimed here. Kaster’s
defense fails as a matter of law.
14
B.
The district court made several rulings concerning the
separation agreement’s terms. Two rulings are critical to this
appeal.
1.
First, it held the agreement’s effective date ambiguous. As
discussed, the separation agreement, prepared initially by Cooper
Tire on or about 4 October 2001, states: Barnett resigned
effective “October 4, 2001”; “[t]his Agreement does not become
effective or enforceable until seven (7) days from the date on
which I [Cathy Barnett] execute this Agreement”; and, at the bottom
of the final page, the effective date is given as 4 October 2001.
The agreement was not signed by Barnett, however, until 23 October
2001.
Therefore, whether it became enforceable seven days after 4
October (11 October) or 23 October (30 October) is ambiguous. If
it became effective on 11 October, Barnett’s 12 October affidavit
was covered by its terms. Because the existence of contractual
ambiguity is an issue of law, see, e.g., Miss. Power Co. v.
N.L.R.B., 284 F.3d 605, 619 n.39 (5th Cir. 2002), the district
court did not err in this ruling.
2.
The district court erred, however, in ruling that Cooper Tire
backdated the separation agreement in order to cover Barnett’s
15
affidavit. The court stated: “it is not a stretch to infer that
Cooper Tire more likely than not drafted the second version of the
[separation] [a]greement in direct response to somehow discovering
the existence of the Barnett affidavit”. Farese, slip op. at 5
(emphasis added). As noted, however, and as the district court
acknowledged in its opinion, a court is to make all reasonable
inferences in favor of the nonmovant in ruling on a summary
judgment motion. In this instance, the district court improperly
made a critical inference against Cooper Tire, the nonmovant.
Moreover, this inference is unsupported by the record.
(Indeed, no appellee contends the ruling is correct.) The record
reflects: the 4 October 2001 effective date was in the original
version of the agreement; Farese attempted to change the effective
date to 31 October 2001, but that change was rejected by Cooper
Tire; and Cooper Tire did not learn that Barnett was the source of
the affidavit until April 2002, when the district court in Arkansas
compelled its production. Additionally, communications between
Turner and counsel for the Whitaker plaintiffs show they wanted to
keep secret until the most opportune time the affiant’s identity
and the affidavit’s contents.
Accordingly, Farese and Kaster contend that, even if the
district court’s ruling on this point is reversed, summary judgment
is still appropriate because contractual ambiguities should be
resolved against the drafter (Cooper Tire). (The only authority
16
cited for this proposition is a Mississippi Supreme Court
dissenting opinion concerning a deed of trust. See Shutze v.
Credithrift of Am., Inc., 607 So. 2d 55, 72 (Miss. 1992) (Lee, J.,
dissenting).) This is a misstatement of Mississippi law.
The Mississippi Supreme Court has held: “where a contract is
ambiguous and uncertain, questions of fact are presented which are
to be resolved by the trier of facts, [therefore,] the granting of
summary judgment is inappropriate”. Shelton v. Am. Ins. Co., 507
So. 2d 894, 896 (Miss. 1987) (citing Dennis v. Searle, 457 So. 2d
941, 945 (Miss. 1984)). Accordingly, the separation agreement’s
effective date is a fact question to be decided by the trier of
fact at trial.
C.
The district court held that, as a matter of law, and
regardless of whether Barnett’s affidavit was covered by the
separation agreement, that agreement was both illegal and
unconscionable. Each ruling is erroneous.
1.
Whether a contract clause is unenforceable on grounds of
illegality or public policy is a question of law. See, e.g.,
MacPhail v. Oceaneering Int’l, Inc., 302 F.3d 274, 278 (5th Cir.
2002), cert. denied, 537 U.S. 1110 (2003). In ruling, the district
court noted the following Mississippi Supreme Court precedent:
There is no doubt that the courts have the
duty and the power to declare void and
17
unenforceable contracts made in violation of
law or in contravention of the public policy
of the state. This Court has exercised this
power in several classes of illegal contracts,
including ... when the principal purpose of
the contract directly furnishes aid and
protection to an illegal enterprise ....
Smith v. Simon, 224 So. 2d 565, 566 (Miss. 1969) (citation
omitted). The district court held the separation agreement aids
and protects an illegal enterprise because it “would discourage
employees from informing the authorities of alleged illegal actions
committed by their employers and would enable unscrupulous
employers to cover up illegal acts”. Farese, slip op. at 7.
This reasoning is flawed in several respects. First, while
the district court stated correctly that illegal contracts are
unenforceable in Mississippi, it cited no Mississippi statutes or
case law declaring non-disparagement clauses illegal. Quoting
Martin v. Estate of W.W. Martin, 599 So. 2d 966, 968 (Miss. 1992),
the district court stated that the Mississippi Supreme Court
“know[s] of no talismanic test whether a contract offends public
policy”. Farese, slip op. at 7. Two years after Martin, however,
the Mississippi Supreme Court, in refusing to invalidate a contract
clause on public policy grounds, held:
The power to invalidate contracts or
agreements on the ground that they violate
public policy is far reaching and easily
abused, and this court is committed to the
doctrine that the public policy of the state
must be found in its constitution and
statutes, ‘and when they have not directly
spoken, then [it must be found] in the
18
decisions of the courts and the constant
practice of the government officials.’
Heritage Cablevision v. New Albany Elec. Power Sys., 646 So. 2d
1305, 1313 (Miss. 1994) (quoting United States v. Trans-Missouri
Freight Ass’n, 166 U.S. 290, 340 (1897)); see also Orrell v. Bay
Mfg. Co., 36 So. 561, 564 (Miss. 1904). Appellees do not cite any
statute, constitutional provision, case law, or practice by
Mississippi government officials that supports non-disparagement
clauses being illegal per se.
Second, simply because a contract can possibly result in some
unlawful end, it does not follow that courts should automatically
withhold enforcement of the contract. See Martin, 599 So. 2d at
969. As the Martin court held: “Where the contract on its face is
without taint, we will not necessarily withhold enforcement because
some unlawful end is thereby made possible”. Id. That court noted
it had “enforced fire and property loss insurance policies though
the insured premises had been used as a house of prostitution ...
[and] a lease agreement though the demised premises ha[d] been used
as a restaurant that regularly sold to its customers (then) illegal
intoxicating liquors”. Id. (citations omitted). The mere
possibility that an employer could use a non-disparagement clause
to hide illegal activity is, therefore, insufficient to void the
clause on grounds of public policy.
19
Finally, the district court’s concern that these clauses will
discourage employees from disclosing their employers’ illegal
activities is addressed by Mississippi law. Mississippi recognizes
an exception to the employment-at-will doctrine, which allows
employees to sue for wrongful discharge if they are “terminated
because of (1) refusal to participate in illegal activity or (2)
reporting the illegal activity of [their] employer to the employer
or anyone else”. Harris v. Miss. Valley State Univ., 873 So. 2d
970, 986 (Miss. 2004) (citation omitted). Arguably, it would be
against public policy for an employer to sue a former employee for
violating a non-disparagement clause by disclosing the employer’s
illegal activities. In any event, as conceded by Cooper Tire’s
counsel in his 23 April 2003 response-letter to Farese, the
separation agreement could not prevent Barnett from testifying in
court or at a deposition pursuant to a valid subpoena.
It goes without saying that non-disparagement clauses are
common in situations where two parties terminate their employment
relationship by contract. See Equal Employment Opportunity Comm’n
v. Severn Trent Servs., Inc., 358 F.3d 438, 440 (7th Cir. 2004)
(“Such private gag orders appear to be fairly common.”). They are
intended to prevent a disgruntled former employee from
disseminating sensitive or false information in revenge for being
terminated. Id. This action demonstrates the valid legal purpose
these clauses serve.
20
2.
In addition to its void-for-illegality holding, the district
court held the separation agreement’s possible retroactive
effective date rendered the agreement unconscionable because
“Barnett had no meaningful choice in entering the [separation]
[a]greement since her reputation was on the line for future
employment, as well as Cooper Tire’s apparent threats” of criminal
prosecution. Farese, slip op. at 8-9. In so holding, the district
court relied on its improper inference, discussed supra, that
Cooper Tire employed the 4 October effective date in order to cover
Barnett’s affidavit.
Whether a contract or contractual provision is unconscionable
is a question of law. Ting v. AT&T, 319 F.3d 1126, 1135 (9th
Cir.), cert. denied, 540 U.S. 811 (2003). In Mississippi,
unconscionability can be either substantive or procedural. West v.
West, 891 So. 2d 203, 213 (Miss. 2004).
a.
“Procedural unconscionability goes to the formation of the
contract.” Id. (citation omitted). Such unconscionability
generally requires showing lack of either knowledge or
voluntariness. Norwest Fin. Miss., Inc. v. McDonald, 905 So. 2d
1187, 2005 WL 67487, at *4 (Miss. 2005).
In negotiating the separation agreement, Barnett was
represented by counsel. (Indeed, the agreement advised Barnett to
21
obtain counsel.) This weighs against procedural unconscionability.
Id. Moreover, as stated above, the district court relied on its
improper inference that Cooper Tire utilized the 4 October
effective date in order to cover Barnett’s affidavit. Considering
this factor, along with her representation by Farese during the
negotiations, and, as discussed infra, the favorable terms of the
agreement to Barnett, Barnett lacked neither knowledge nor
voluntariness in entering the agreement. There was no procedural
unconscionability.
b.
Likewise, the separation agreement was not substantively
unconscionable. “Substantive unconscionability occurs when the
terms of the agreement are so one-sided that no one in his right
mind would agree to its terms.” West, 891 So. 2d at 213 (citation
omitted).
Through Farese’s negotiations, Barnett received numerous
concessions: (1) her indebtedness for the alleged embezzlement was
reduced from $3,000 to $1,000; (2) Cooper Tire would not press
criminal charges; (3) it would not oppose her application for
unemployment benefits; (4) it agreed to language it would use if a
future employer requested a reference for Barnett; and (5) her
husband’s employment would not be affected by her resignation or
actions.
22
Considering these substantial changes favorable to Barnett,
the terms of the agreement are not “so one-sided that no one in his
right mind would agree to its terms”. Id. The separation
agreement, including its possibly having a retroactive effective
date, is not substantively unconscionable.
D.
Cooper Tire claims tortious interference with contract and
business relations, and civil conspiracy. Pursuant to Mississippi
law, tortious interference with business relations requires
showing: “(1) the acts were intentional and willful; (2) the acts
were calculated to cause damage to the plaintiffs in their lawful
business; (3) the acts were done with the unlawful purpose of
causing damage and loss without right or justifiable cause on the
part of the defendant (which constitutes malice); and (4) actual
loss and damage resulted”. PDN, Inc. v. Loring, 843 So. 2d 685,
688 (Miss. 2003). In addition to the above elements, tortious
interference with contract includes malicious interference with a
valid contract. Levens v. Campbell, 733 So. 2d 753, 759-61 (Miss.
1999). Civil conspiracy requires showing: “(1) two or more
persons or corporations; (2) an object to be accomplished; (3) a
meeting of the minds on the object or course of action; (4) one or
more unlawful overt acts; and (5) damages as the proximate result”.
Gallagher Bassett Servs., Inc. v. Jeffcoat, 887 So. 2d 777, 786
(Miss. 2004).
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As the nonmovant, Cooper Tire provided the following evidence:
Farese was aware that Cooper Tire required a separation agreement
with Barnett; Farese drafted an affidavit containing disparaging
false information concerning Cooper Tire; Farese was aware that, if
the separation agreement was then in effect, the affidavit would
violate it; before Farese drafted the affidavit, he spoke to
Turner; as soon as the affidavit was executed, Farese forwarded it
to Turner; Turner disclosed the existence of the affidavit to the
Whitaker plaintiffs’ counsel (which included Kaster) and eventually
provided them with a copy; Kaster released the affidavit to the
media during the Whitaker pre-trial mediation; Cooper Tire’s market
capitalization dropped $220 million the next day; Cooper Tire
settled the case shortly thereafter; and the Whitaker plaintiffs’
counsel paid Farese $50,000, who in turn paid Barnett $25,000.
Moreover, Farese provided the affidavit to a lawyer who had
litigated previously with Cooper Tire, and Farese did not disclose
to Barnett that she was not required to attend the hearing at the
Arkansas district court. The record contains evidence of telephone
calls between Farese, Turner, and Kaster, before and after the
dissemination of the affidavit to the media. It can be inferred
that these conversations included discussions about Barnett and the
separation agreement.
Furthermore, Cooper Tire was not allowed to complete
discovery, including pending motions to compel the disclosure of
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information claimed privileged by Kaster. Discovery remains to be
completed.
Finally, Cooper Tire’s claims turn in large part on proving
Farese and Kaster’s motives and intent. These types of
determinations, which involve the summary judgment movants’ state
of mind, are particularly ill-suited for summary judgment. Int’l
Shortstop Inc. v. Rally’s, Inc., 939 F.2d 1257, 1265 (5th Cir.
1991), cert. denied, 502 U.S. 1059 (1992). In short, genuine
issues of material fact preclude summary judgment.
III.
For the foregoing reasons, the summary judgment in favor of
Farese, Kaster, and their firms is VACATED; and this matter is
REMANDED for further proceedings consistent with this opinion.
VACATED; REMANDED
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