Stuart C Irby Company Inc v. Tipton et al

Filing 102

ORDER granting 70 Defendants' Motion for Summary Judgment, denying 74 Plaintiff's Motion for Partial Summary Judgment and dismissing the case. Signed by Judge Billy Roy Wilson on 04/17/2014. (rhm)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
STUART C. IRBY COMPANY, INC.
VS.

PLAINTIFF

4:13-CV-00171-BRW

BRANDON TIPTON, et al.

DEFENDANTS
ORDER

Pending are the Motions for Summary Judgment by Plaintiff (Doc. No. 74) and
Defendants (Doc. No. 70). For the reasons set out below, Plaintiff’s Motion is DENIED and
Defendants’ Motion is GRANTED.
I.

BACKGROUND1
Defendants Brandon Tipton, Michael Gilbert, and Steven Padgett are former employees

of Treadway Electric Company, Inc. While working for Treadway, Tipton, Gilbert, and Padgett
all signed compensation agreements (the Treadway Agreements) that have the following relevant
clause:
[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 defined by Treadway Electric
Company, for at least one (1) year after leaving; and . . . that you will not to solicit
the employment of any Treadway representatives for at least one (1) year after
leaving.2
In December 2011, Treadway entered into an Asset Purchase Agreement with Plaintiff
Stuart C. Irby Company, Inc. (“Irby”), through which Irby was assigned all of Treadway’s

1

Unless otherwise noted, the background section is comprised of undisputed facts taken
from the parties motions for summary judgment and their briefs and attachments in support of
those motions.
2

Doc. No. 74, Exs. G, H, I.
1

contractual rights.3 In January 2012, Irby hired Tipton, Gilbert, and Padgett.4 About a year later
Wholesale’s agent, Defendant Kurt Blumfelder, and Tipton corresponded about Tipton coming
to work for Wholesale.
On March 13, 2013, Blumfelder met with Tipton, Gilbert, Padgett, and Robert Alkire
(who also was employed by Irby at the time) to discuss working for Wholesale.5 Blumfelder met
with them as a group and then individually, offering each of them a job with Wholesale.
By the evening next, Irby got wind that Alkire was leaving Irby for Wholesale.6 Irby’s
manager, Dwayne Newsome, called Tipton and asked whether he was leaving too. Tipton was
traveling with his children, and told Newsome he would call him back when he could speak in
private. Afterwards, Tipton called Blumfelder to confirm he had a job with Wholesale if he quit
Irby. Blumfelder confirmed he would, so Tipton called Newsome back and told him he was
quitting. The next day, Padgett and Gilbert also quit and went to work for Wholesale.
With Alkire, Tipton, Padgett, and Gilbert gone, Irby was left with fill-ins and two
employees at the Conway branch: Steven Elliot and Jeffrey Duke. After Tipton’s exodus, he told
Elliot and Duke “you have a job with Irby, and if you ever decide -- or don’t like it anymore, you
can give me a call, but I mean right now you have a job with Irby.”7 Within a week, Elliot and
Duke left Irby and joined Wholesale.

3

Doc. No. 88.

4

Doc. No. 74, Ex. C at 65; Ex. E at 27; Ex. F at 21.

5

Doc. No. 74, Ex. C at 106-110.

6

Id. at 119-122.

7

Id. at 127.
2

Irby’s Amended Complaint alleges that: (1) Tipton breached his fiduciary duty to Irby;
(2) Tipton, Gilbert, and Padgett breached their Treadway Agreements; (3) Wholesale,
Blumfelder, Tipton, and Wholesale’s Business Development Manager Gary Cummings,
tortiously interfered with the contracts Irby had with its employees; and (4) all Defendants
violated the Civil RICO Act by conspiring to “assist Tipton’s breach of fiduciary duties to [Irby],
and assist Defendants in tortiously interfering with [Irby’s] contractual relations.”8 Irby has filed
a Motion for Summary Judgment on claims I, II, and III; and Defendants have filed a motion for
summary judgment on all four claims.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate only when there is no genuine issue of material fact, so
that the dispute may be decided on purely legal grounds.9 The Supreme Court has established
guidelines to assist trial courts in determining whether this standard has been met:
The inquiry performed is the threshold inquiry of determining whether there is the
need for a trial -- whether, in other words, there are any genuine factual issues that
properly can be resolved only by a finder of fact because they may reasonably be
resolved in favor of either party.10
The Court of Appeals for the Eighth Circuit has cautioned that summary judgment is an
extreme remedy that should be granted only when the movant has established a right to the
judgment beyond controversy.11 Nevertheless, summary judgment promotes judicial economy
by preventing trial when no genuine issue of fact remains.12 I must view the facts in the light

8

Doc. No. 31.

9

Holloway v. Lockhart, 813 F.2d 874 (8th Cir. 1987); Fed. R. Civ. P. 56.

10

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

11

Inland Oil & Transp. Co. v. United States, 600 F.2d 725, 727 (8th Cir. 1979).

12

Id. at 728.
3

most favorable to the party opposing the motion.13 The Eighth Circuit has also set out the burden
of the parties in connection with a summary judgment motion:
[T]he burden on the party moving for summary judgment is only to demonstrate,
i.e.,“[to point] out to the District Court,” that the record does not disclose a genuine
dispute on a material fact. It is enough for the movant to bring up the fact that the
record does not contain such an issue and to identify that part of the record which
bears out his assertion. Once this is done, his burden is discharged, and, if the record
in fact bears out the claim that no genuine dispute exists on any material fact, it is
then the respondent’s burden to set forth affirmative evidence, specific facts,
showing that there is a genuine dispute on that issue. If the respondent fails to carry
that burden, summary judgment should be granted.14
Only disputes over facts that may affect the outcome of the suit under governing law will
properly preclude the entry of summary judgment.15
III.

DISCUSSION
A.

Breach of Contract

Arkansas law is a no friend of the noncompete clause.16 It is less fond of one made in
connection with an employment contract (as opposed to one made in connection with the sale of
a business).17 A noncompete agreement that prohibits ordinary competition is not enforceable.18
“Without statutory authorization or, some dominant policy justification, a contract in restraint of
trade is unreasonable if it is based on a promise to refrain from competition that is not ancillary

13

Id. at 727-28.

14

Counts v. MK-Ferguson Co., 862 F.2d 1338, 1339 (8th Cir. 1988) (quoting City of Mt.
Pleasant v. Associated Elec. Coop., 838 F.2d 268, 273-74 (8th Cir. 1988) (citations omitted)).
15

Anderson, 477 U.S. at 248.

16

HHR Ark., Inc. v. River City Contrs., 350 Ark. 420, 430 (2002).

17

Id.

18

Import Motors, Inc. v. Luker, 268 Ark. 1045, 1050–51 (1980).
4

to a contract of employment or to a contract for the transfer of goodwill or other property.”19
“The enforceability of a covenant not to compete depends upon its reasonableness in light of the
particular facts of the case.”20 “Generally, the employer must meet these three requirements:
(1) the employer has a valid interest to protect; (2) the geographic restriction is not overly broad;
and (3) a reasonable time limit is given.”21
Tipton, Gilbert, and Padgett did not breach the Treadway Agreements by accepting or
soliciting business from those customers with whom Irby also does business. Although Irby was
arguably assigned the Treadway Agreements, any alleged breach must have occurred within one
year of December 31, 2011 -- the day on which Tipton, Gilbert, and Padgett left Treadway.
Tipton, Gilbert, and Padgett were at-will employees with no guarantee they would have a job
after the asset purchase. Instead, they were as free to walk away from Irby as Irby was to walk
away from them; but each applied to work for Irby and, Irby, after screening the employees,
hired them.22 Because there are no allegations or facts to support a finding that anyone breached
the Treadway Agreements within one year of December 31, 2011, summary judgment is
appropriate.
Even assuming Irby somehow acquired the right to employ Tipton, Gilbert, and Padgett,
and can stand in Treadway’s stead concerning the Treadway Agreements, the noncompete clause
is too broad to enforce.

19

Bendinger v. Marshalltown Trowell Co., 338 Ark. 410, 417-418 (1999).

20

Rebsamen Ins. v. Milton, 269 Ark. 737, 742 (1980).

21

Freeman v. Brown Hiller, Inc., 102 Ark. App. 76, 81 (2008).

22

Doc. No. 74, Ex. C at 65; Ex. E at 27; Ex. F at 21.
5

First, it appears the only interest Irby seeks to protect is competition. Irby lists several
customers who have done business with Wholesale after this exodus; but nothing in the record
indicates those customers began doing business with Wholesale only after the exodus. It is
undisputed that electrical contractors buy from both supply houses. And, although customer lists
can be a valid interest to protect through a noncompete agreement,23 Irby’s customer list was
public knowledge. There’s a list of all licensed electricians in the State of Arkansas on the
Arkansas Department of Labor’s website.24 Accordingly, as to the list of customers, Irby had
little, if any, valid interest to protect.25
Next, the Treadway Agreements lack a reasonable geographic limitation. The agreement
purports to prohibit competition by restricting the employees’ abilities to solicit or accept
business from “Treadway’s customers within [their] territory, as defined by Treadway Electric
Company.” This open-ended language is similar to that previously found too broad in
Bendinger v. Marshalltown Trowell Co., and HRR Arkansas, Inc. v. River City Contractors,
Inc.26
In Bendinger, an employee agreed that for two years after leaving his employer, he would
not “directly or indirectly render service to a business competitor of [the employer].”27 The

23

See Freeman, 102 Ark. App. at 82.

24

Arkansas Department of Labor, Electrician Roster, https://www.ark.org/rosterdl/
index.php?agency=dol_electricians (accessed March 25, 2014).
25

Hi-Line Elec. Co. V. Moore, 775 F.2d 996 (8th Cir. 1985) (finding that information
about customers of electrical-supplies distributor was readily ascertainable and not a trade
secret).
26

Bendinger v. Marshalltown Trowell Co., 338 Ark. 410 (1999); HHR Ark., Inc. v. River
City Contrs., 350 Ark. 420 (2002).
27

Bendinger, 338 Ark. at 414.
6

employee went to work for a competitor and the employer argued that, because the employee’s
new company competed with it on a nationwide level, the restrictive covenant was reasonably
limited in geographic scope. Declining to vary the terms of the employment agreement, the
Supreme Court of Arkansas held that the agreement was unreasonably broad and declined to
enforce it.28
In HRR Arkansas, Inc., an out-of-state corporation (HRR) bought an Arkansas
corporation (River City) to gain presence in the central Arkansas area.29 The sole shareholder of
River City (Megee) agreed to work for HRR and signed an agreement that purported to restrict
Megee from competing with HRR “within a radius of ten (10) miles of 2824 Barrow Road, Little
Rock, Arkansas, or such others established by [HRR].”30 The trial court found the noncompete
clause unreasonable because the “such others” language in the clause left HRR in control of
designating the prohibited geographic area at some future time without any assent of the
employee.31 The Supreme Court of Arkansas affirmed, holding that the restrictive covenant
lacked an enforceable geographic restriction.32
The language of the Treadway Agreements left Treadway in control of designating the
prohibited geographic area at some future time, without any assent of the employees. Tipton’s
circumstances demonstrate the unreasonableness of Treadway unilaterally defining the territory.
When Tipton signed his Treadway Agreement, he worked at the Little Rock branch. When Irby

28

29

Id.
HHR Ark., Inc., 350 Ark. at 430.

30

Id.

31

Id. at 431.

32

Id.
7

sought to enforce the Treadway Agreement, Tipton worked at the Conway branch. That
Treadway opened the Conway branch indicates that the two branches serve a different
“territory.” This, coupled with the public list of electrical contractors (i.e., potential customers),
makes the Treadway Agreements look more like an unreasonable restraint on competition than a
protection of a valid interest.
As to Irby’s claim that Tipton breached the Treadway Agreement by soliciting
employees, nothing in the record suggests he did anything more than tell Elliot and Duke that
they have a job at Irby and to call him if they ever leave. This does not rise to the level of
solicitation.
“It has long been the rule that, when a covenant not to compete is too far-reaching to be
valid, the court will not make a new contract for the parties.”33 I decline to do so here -- Tipton,
Gilbert, and Padgett are entitled to summary judgment on this claim.
B.

Breach of Fiduciary Duty

As to Tipton’s duties, Irby has alleged the following:
[Irby] reasonably reposed confidences, dependence, and trust in Tipton. As a result
of this relationship, Tipton was under a duty to act for the benefit and in the best
interests of [Irby] and to refrain from acting in any way which he reasonably knew
was not in [Irby’s] best interest.34
Tipton did not owe Irby the duty alleged and thus, could not have breached it.
At-will employees in Arkansas who are not bound by an enforceable noncompete
agreement are free to quit one employer for a competitor.35 They may also announce their intent

33

Federated Mut. Ins. Co. v. Bennett, 36 Ark. App. 99, 104-105 (1991).

34

Doc. No. 31.

35

Vigoro Industries, Inc. v. Crisp, 82 F.3d 785, 788-89 (8th Cir. 1996) (citing Witmer v.
Arkansas Dailies, Inc., 202 Ark. 470, 151 S.W.2d 971, 973-74 (1941)).
8

to do so to coworkers and customers of the employer.36 But while still employed for the
employer, employees owe a duty of loyalty to the employer that precludes the solicitation of
coworkers and customers. “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.”37
As an at-will employee, Tipton did not breach any duty to Treadway (or Irby) by
entertaining, and ultimately accepting, another job offer. Likewise, there are no allegations, and
nothing in the record, to support a finding that Tipton solicited customers or employees of Irby
before leaving Irby. To the contrary, Irby’s Amended Complaint reads, “[f]ollowing his
resignation from Plaintiff’s Conway Branch, Tipton also engaged in tortious interference by
inducing and causing a breach of the contractual relationship Plaintiff had with its employees.”38
Accordingly, Tipton is entitled to summary judgment on this claim.
C.

Tortious Interference with a Business Contract

Nothing in the record suggests Wholesale, Blumfelder, Cummings, or Tipton caused
anyone to breach a contract with Irby. Though Irby alleges Tipton, Gilbert, and Padgett
breached their Treadway Agreements, as discussed above, they have not. Accordingly,
Defendants are entitled to summary judgment on this claim.
D.

Civil RICO

The allegations and undisputed facts, viewed in any light, in nowise support Irby’s claim
under Civil RICO. Irby’s Amended Complaint reads as follows:

36

Id.

37

Id.

38

Doc. No. 31 (emphasis added).
9

Defendants’ scheme was calculated to and in fact did (1) assist in Tipton’s breach of
fiduciary duties to Plaintiff, and (2) assist Defendants in tortiously interfering with
Plaintiff’s lawful contractual relations.39
As mentioned above, Tipton did not breach any duties to Irby, and there were no contractual
relations with which to interfere. The Amended Complaint goes on:
Defendants intentionally, willfully, maliciously, and tortiously conspired among
themselves to injure Plaintiff and had a meeting of the minds to accomplish a
purpose that was unlawful or oppressive and/or to accomplish a purpose by unlawful,
oppressive, or immoral means, which resulted in injury, damages, and loss to
Plaintiff.40
Tipton, Garret, and Padgett wanted better jobs -- Wholesale, Blumfelder, and Cummings
offered what Tipton, Garret, and Padgett considered better jobs. This does not rise to the level of
a Civil RICO violation. Accordingly, Defendants are entitled to summary judgment on this
claim.
IV.

CONCLUSION

For the reasons set out above, Plaintiff’s Motion for Summary Judgment is DENIED,
Defendants Motion for Summary Judgment is GRANTED, and this case is DISMISSED.
IT IS SO ORDERED this 17th day of April, 2014.

/s/Billy Roy Wilson
UNITED STATES DISTRICT JUDGE

39

Doc. No. 31.

40

Id.
10