hibu Inc. v. Peck

Filing 288

MEMORANDUM AND ORDER denying in part and granting in part 255 Motion for Summary Judgment (see order for details). Signed by District Judge J. Thomas Marten on 11/15/2017. (mam)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

HIBU, INC.,
Plaintiff,
v.
Case No. 16-1055-JTM
CHAD PECK,
Defendant.

MEMORANDUM AND ORDER

Plaintiff hibu Inc. is a digital and print media marketing and advertising
company. Plaintiff claims that defendant Chad Peck, a former employee, violated his
employment agreement by soliciting plaintiff’s customers and competing against it with
a direct competitor, Dex Media.

Plaintiff also alleges that defendant tortiously

interfered with plaintiff’s business expectancy and its employees’ non-compete
agreements.

Defendant moves for summary judgment (Dkt. 255), and argues that

plaintiff is not a party to the employment agreement and further that defendant did not
violate the restrictions. For the reasons stated herein, defendant’s motion is granted in
part, and denied in part.
I.

Uncontroverted Facts

The parties dispute the majority of underlying facts surrounding the events of
this case.1 However, the following facts are uncontroverted, or to the extent they are
disputed, taken in the light most favorable to plaintiff—the nonmoving party.
In 2006, defendant was employed as a sales manager with Yellow Book Sales and
Distribution Company, Inc. (“Yellow Book S&D”).

Defendant was responsible for

overseeing a team of sales representatives tasked with selling advertising products to
Yellow Book S&D’s customers in Wichita and portions of Kansas. Yellow Book S&D
was a subsidiary of Yellow Book USA, Inc. (“YB USA”).
On May 23, 2006, defendant signed an agreement with YB USA (the “2006
Agreement”). The 2006 Agreement collectively referred to YB USA and its subsidiaries
as the “Company” and contained several restrictions.
Accordingly, you shall not, at any time while employed by the Company
or after termination of employment, reproduce or use for your own
purposes or disclose to anyone else, for any reason or purpose other than
in furtherance of the Company’s business, any Confidential and
Proprietary Information.
(Dkt. 1-1, at 2). Additionally, for a period of 12 months commencing on the date of
termination, defendant agreed not to, in relevant part:
directly or indirectly solicit, call upon or service, or in any other manner
divert or take away or attempt to divert or take away from the Company,
on your own behalf or on behalf of any third party, any customer whose
account you serviced or supervised during the twelve (12) months
immediately preceding termination of your employment.
1 In his reply, defendant claims that plaintiff did not properly controvert defendant’s statements of fact,
and therefore, defendant’s statements of fact should be deemed admitted. District of Kansas Rule 56.1(a)
allows a material fact to be deemed admitted unless it was specifically controverted by the statement of
the opposing party. Any controverting statement must fairly meet the substance of the matter asserted.
D. Kan. R. 56.1(e). The court finds that plaintiff’s controverting statements in response fairly meet the
substance of the matter asserted.

2

...
directly or indirectly engage or become interested in (a) any business in
the Territory (as hereinafter defined) that engages in the yellow pages
directory publishing business, or (b) any other business in the Territory
that competes with the yellow pages directory publishing business or the
internet advertising business of the Company. . . . “Territory” means those
Yellow Book directory markets where you have been a manager at any
time during the eighteen (18) month period immediately [preceding] the
termination of your employment.
...
encourage or assist any of the Company’s employees to leave the
Company and you shall not directly or indirectly (on your own behalf or
in cooperation with any other person or entity) employ or retain or solicit
the employment or retention of any person who was an employee of the
Company . . .
(Dkt. 1-1, at 2–3).
On June 23, 2009, YB USA filed an Amendment of Withdrawal with the Kansas
Secretary of State, withdrawing its authority to transact business in Kansas. On March
31, 2011, YB USA merged with and into Yellow Book S&D.

The Certificate of

Ownership and Merger stated that “Subsidiary will possess all of Parent’s property,
rights, privileges and powers and will assume all of Parent’s liabilities and
obligations[.]” (Dkt. 256-13, at 4). Yellow Book S&D was the surviving corporation and
YB USA ceased to exist. However, the surviving corporation changed its name to
Yellowbook Inc. at the time of the merger. About two years later, the corporate name of
Yellowbook Inc. became hibu Inc., the plaintiff in this case.
In January 2015, defendant’s employment with plaintiff ended. Defendant held a
sales position with All-States Exteriors for the first half of 2015. Defendant began

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working with Dex Media in August 2015. Under the 2006 Agreement, defendant’s 12month restricted period began on January 2, 2015, and ended on January 2, 2016. Based
on defendant’s communications with Dex Media prior to his hiring and subsequent
work on Dex Media’s expansion into Wichita and other Kansas markets, plaintiff claims
that defendant breached the 2006 Agreement and tortiously interfered with plaintiff’s
business expectancy.
II.

Legal Standards

Summary judgment is appropriate if the moving party demonstrates that 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). A fact is “material” when it is essential to the claim,
and the issues of fact are “genuine” if the proffered evidence permits a reasonable jury
to decide the issue in either party’s favor. Haynes v. Level 3 Communs., 456 F.3d 1215,
1219 (10th Cir. 2006) (overruled on other grounds). The movant bears the initial burden
of proof and must show the lack of evidence on an essential element of the claim. Thom
v. Bristol–Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2004) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 322–23 (1986)). The nonmovant must then bring forth specific facts
showing a genuine issue for trial. Garrison v. Gambro, Inc., 428 F.3d 933, 935 (10th Cir.
2005).

The court views all evidence and reasonable inferences in the light most

favorable to the non-moving party. LifeWise Master Funding v. Telebank, 374 F.3d 917,
927 (10th Cir. 2004).

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III.

Discussion
A. Waiver

Defendant asserts that plaintiff waived several legal theories and factual claims
by not preserving them in the pretrial order. “Claims, issues, defenses, or theories of
damages not included in the pretrial order are waived.” Cortez v. Wal–Mart Stores, Inc.,
460 F.3d 1268, 1276–77 (10th Cir. 2006) (internal quotation marks omitted). However,
“pretrial orders are to be ‘liberally construed to cover any of the legal or factual theories
that might be embraced by their language.’” Zenith Petroleum Corp. v. Steerman, 656 F.
App’x 885, 887 (10th Cir. 2016) (quoting Trujillo v. Uniroyal Corp., 608 F.2d 815, 818 (10th
Cir. 1979)).
In the pretrial order, plaintiff quoted provisions of the 2006 Agreement that
referenced defendant’s agreements with the “Company.”

(Dkt. 251, at 3–4).

As

discussed below, plaintiff is the surviving corporation of the Company. While plaintiff
did not specifically state that defendant signed an agreement with plaintiff’s
predecessor and/or that plaintiff succeeded to the rights of Company identified in the
2006 Agreement, the court finds that defendant had adequate notice of plaintiff’s
claims. See Zenith Petroleum Corp., 656 F. App’x at 887 (“[T]he primary purpose of
pretrial orders is to avoid surprise by requiring parties to ‘fully and fairly disclose their
views as to what the real issues of the trial will be.’”). Plaintiff is not attempting to
assert an entirely new legal theory, and the court will not exclude plaintiff’s claim from
moving forward. See Koch v. Koch Indus., Inc., 179 F.R.D. 591, 596 (D. Kan. 1998) (“Since
it is intended to facilitate a trial on the merits, the pretrial order should not be used to
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defeat the lawsuit on a technicality or be construed in the spirit of a common law
pleading.”); Daneshvar v. Graphic Tech., Inc., 18 F. Supp. 2d 1277, 1288 n.15 (D. Kan.
1998) (omission of entire theory from pretrial order constitutes waiver, but omission of
specific position is not fatal).
The court further finds that plaintiff has not asserted new legal theories with
respect to its breach of contract claim. Plaintiff alleges, “[a]s early as September 2015,
Peck reached out, directly and indirectly, to his former colleagues at Hibu, including the
six Hibu sales representatives and others, such as Chris Hett, to recruit them to Dex
Media.” (Dkt. 251, at 4).
Likewise, plaintiff did not waive any claims with respect to its tortious
interference claim. Plaintiff alleged that defendant tortiously interfered with plaintiff’s
business expectancy. Plaintiff also asserted that each of the six sales representatives
recruited by defendant had signed similar employee agreements prohibiting them from
soliciting, for a period of 12 months, plaintiff’s customers they had serviced during the
12 months immediately preceding their termination.

Plaintiff alleged that under

defendant’s direction, “these sales representatives merely traded their former Hibu
customers among themselves so as to create the illusion that they were not servicing or
soliciting former customers in violation of their Employee Agreements.” (Dkt. 251, at
5). Plaintiff’s arguments in opposition to summary judgment match these claims. As
such, plaintiff did not waive any legal theories or factual contentions.

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B. Parties to the 2006 Agreement
Defendant claims that he entered into the 2006 Agreement with YB USA, not
plaintiff. Defendant asserts that YB USA is a separate entity—thus, plaintiff cannot
enforce the contract because there was not a valid agreement between plaintiff and
defendant.
The parties agree that Kansas law governs the substantive issues in this case.
Additionally, in diversity cases, “district courts generally apply the substantive law,
including the choice-of-law rules, of the forum state. ‘Under Kansas choice-of-law
rules, the lex loci contractus doctrine requires the Court to apply the law of the state
where the contract is made.’” Servi-Tech, Inc. v. Olson, No. 17-01148-EFM-JPO, 2017 WL
3839418, at *3 (D. Kan. Sept. 1, 2017).
In order to state a claim for breach of contract under Kansas law, plaintiff must
establish that it was a party to the contract. Shane v. Log Star Homes of Am., Inc., No.
6:14-CV-01273-JTM, 2016 WL 7242517, at *7 (D. Kan. Dec. 15, 2016).

The 2006

Agreement stated that it was between YB USA and defendant, however, it collectively
referred to itself and its subsidiaries as the “Company” throughout the 2006 Agreement.
Defendant agreed not to compete and/or take away business from the Company, i.e.
YB USA or its subsidiaries, for a period of 12 months after his employment was
terminated.

Thus, YB USA or a subsidiary of YB USA could enforce the 2006

Agreement. Defendant acknowledges this point in his reply.2 (Dkt. 269, at 18).

Defendant agrees that “[s]trictly construed, the Agreement can only be enforced by two entities: Yellow
Book USA or a subsidiary of Yellow Book USA[,]” i.e. Yellow Book S&D. (Dkt. 269, at 18).
2

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Furthermore, upon the merger, Yellow Book S&D possessed all of YB USA’s
property, rights, privileges, and powers.

Even if the 2006 Agreement did not

collectively include Yellow Book S&D—plaintiff’s predecessor—within the terms of the
agreement, Yellow Book S&D was able to enforce the contract once it merged with YB
USA. This is consistent with Kansas law. See Equifax Servs., Inc. v. Hitz, 905 F.2d 1355,
1361 (10th Cir. 1990) (“Although an employee’s duty to perform under an employment
contract generally is not delegable, . . . the right to enforce a covenant not to compete
generally is assignable in connection with the sale of a business[.]”). “In the case of a
merger, as here, the surviving corporation automatically succeeds to the rights of the
merged corporations to enforce employees’ covenants not to compete.” Id.; see also Kan.
Stat. Ann. § 17-6709(a) (upon merger or consolidation, “all such constituent
corporations except the one into which the other or others of such constituent
corporations have been merged . . . shall cease and the constituent corporations shall
become a new corporation, or be merged into one of such corporations . . . possessing
all the rights, privileges, powers and franchises as well of a public as of a private nature,
and being subject to all the restrictions, disabilities and duties of each of such
corporations so merged or consolidated; and all and singular, the rights, privileges,
powers and franchises of each of such corporations . . . shall be vested in the
corporation surviving or resulting from such merger or consolidation”).
The same is true under Delaware law, where the Certificate of Ownership and
Merger was filed. Del. Ins. Guar. Ass’n v. Christiana Care Health Servs., Inc., 892 A.2d
1073, 1077–78 (Del. 2006); 8 Del. C. § 259. “It is a fundamental principle of corporation
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law that although a merged corporation ceases to exist, in the absence of a specific
provision to the contrary, all property, rights, and privileges of the corporation continue
as the property of the surviving entity.” Id. (citing 8 Del. C. § 251(a)).
Defendant’s argument that substituting plaintiff for YB USA as the counter-party
to the 2006 Agreement would have somehow revived, altered, and/or broadened the
restrictive covenants is also unpersuasive.

At the time defendant signed the 2006

Agreement, defendant’s employer was Yellow Book S&D—the surviving corporation
and predecessor to plaintiff. Unlike YB USA, Yellow Book S&D did not cease to exist.
The fact that YB USA withdrew its authority to transact business in Kansas is irrelevant
as plaintiff is not the successor to YB USA.
Yellowbook Inc.

Instead, plaintiff is the successor to

And Yellowbook Inc. is the successor to Yellow Book S&D after

Yellow Book S&D absorbed YB USA.
Defendant references the anti-modification provision in the 2006 Agreement,
which provides the agreement cannot be changed or terminated except by an
agreement in writing signed by defendant and an officer of the “Company”—meaning
Yellow Book S&D and YB USA, not solely YB USA. After the merger, defendant’s
restrictions did not change because they also applied to Yellow Book S&D. It is true
that Yellow Book S&D “lost its status as a subsidiary of [YB] USA” the day it merged
with YB USA. (Dkt. 269, at 18). But it was the surviving corporation. Thus, it did not
lose its ability to enforce the 2006 Agreement.
The 2006 Agreement was not modified nor were defendant’s contractual
obligations revived upon the merger of YB USA with and into Yellow Book S&D.
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Defendant agreed not to compete with or solicit customers from Yellow Book S&D the
day he executed the 2006 Agreement. Because plaintiff is the surviving corporation
following the merger of Yellow Book S&D and YB USA, it can enforce the 2006
Agreement against defendant.
C. Subsequent Agreements
Defendant claims that plaintiff had a protocol for employees to sign an
agreement every 12 or 18 months. Defendant testified that he signed two or three
employment agreements after the 2006 Agreement, and argues the 2006 Agreement is
not the controlling contract.
Plaintiff counters that there is no such protocol nor has defendant produced a
copy of a subsequent employee agreement executed by defendant.

Plaintiff

acknowledges that there is evidence that it sent employee agreements to defendant in
July 2007, March 2011, and June 2014, in connection with changes in his position.
However, plaintiff’s CEO, Kevin Jasper, stated, “[t]he Company is not aware of any
later employee agreements signed by Peck and there is no evidence that he signed any
later employee agreements.” (Dkt. 265-67, at 2).
At this stage, the court construes disputed material facts in favor of the
nonmoving party. Defendant says he signed subsequent agreements; plaintiff says he
did not. The court finds that a material issue of fact exists as to whether defendant
signed subsequent employee agreements that would prevent plaintiff from enforcing
the 2006 Agreement.

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D. Breach of Restrictions
Employment with a direct competitor
Plaintiff contends that defendant breached the 2006 Agreement when he went to
work for a direct competitor within the one-year restricted period. Defendant argues
that non-compete agreements that restrict an employee from accepting employment
with a competitor, without reference to the employee’s job duties, are per se
unreasonable and thus, unenforceable. The court disagrees with both parties.
Kansas courts recognize “that customer contacts, special training of employees,
trade secrets, confidential business information, loss of clients, good will, and
reputation all qualify as legitimate business interests.”

Digital Ally, Inc. v. Corum, No.

17-CV-02026-DDC-GLR, 2017 WL 1545671, at *8 (D. Kan. Apr. 28, 2017). The court
considers “the reasonableness of the time and territory restrictions” in comparing
plaintiff’s legitimate business interests with the restrictions. Id.
Plaintiff had a legitimate business interest in protecting its relationships with its
customers and confidential information related to those accounts. The 2006 Agreement
restricted defendant’s employment with a competitor within the territory where
defendant was a manager at any time during the 18-month period preceding his
termination.

By signing the 2006 Agreement, defendant acknowledged that his

agreement not to compete in certain markets, as set forth in paragraph 3 of the 2006
Agreement, “was reasonable in its geographic scope and time period, and will not
prevent [defendant] from working in the yellow pages business or obtaining other
employment.” (Dkt. 265-25, at 5).
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Defendant cites Digital Ally in support of his position that the 2006 Agreement
was unreasonable. The agreement at issue in Digital Ally is distinguishable because it
prohibited the defendant from performing any type of service for any business or entity
that could be considered plaintiff’s competitor for two years. 2017 WL 1545671 at *11.
Here, defendant’s agreement is limited by territory and time—and is therefore not
unreasonable. See also Weber v. Tillman, 259 Kan. 457, 465, 913 P.2d 84, 91 (1996) (Dr.
Tillman “may practice dermatology anywhere and any time except within a limited
territory and time.”). Defendant’s agreement did not completely prevent him from
working with a competitor for an unreasonable amount of time.
On the other hand, the “territory” limitation cuts against plaintiff’s allegations
against defendant.

From the time defendant became employed with Dex Media

through the expiration of his restricted period, Dex Media was not a competitor in the
Wichita area or surrounding markets—defendant’s restricted territory.

Therefore,

defendant did not breach his agreement solely by working for Dex Media within the
restricted period.
Preparing to compete
It is undisputed that during the restricted period, defendant was preparing to
expand Dex Media into the Wichita market. But the parties dispute whether preparing
to compete violates the 2006 Agreement. As noted above, Dex Media was not currently
competing in defendant’s restricted territory from August 16, 2015, to January 2, 2016.
Thus, the question before the court is whether defendant’s planning to expand into the

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Wichita market with Dex Media violates the 2006 Agreement. The court finds that it
does not.
The 2006 Agreement limits defendant from competing with a direct competitor
“in the Territory.” As noted above, Dex Media was not “engag[ed] in the yellow pages
directory publishing business, or . . . any other business in the Territory that compete[d]
with the yellow pages directory publishing business or the internet advertising business
of the Company” during defendant’s restricted period. (Dkt. 265-2, at 3). As in Ossur
Holdings, Inc. v. Bellacure, Inc., No. C05-1552JLR, 2006 WL 2401269, at *4 (W.D. Wash.
Aug. 18, 2006), the court here construes the preceding language only to limit
defendant’s ability to work for a competitor, market, or sell a competing product in the
Wichita and surrounding area markets. Thus, the court finds that defendant’s mere
preparations for Dex Media’s future expansion into the territory did not violate
paragraph 3 of the 2006 Agreement.
Solicitation of Plaintiff’s Customers
Plaintiff claims defendant solicited its customers in 2015 and thereafter in
violation of the 2006 Agreement. Plaintiff argues that Dex Media hired defendant as
Director-Expansion Channel, and his job was to develop Kansas sales largely from his
former customers.
The court has reviewed the record. It is true that defendant strategically planned
to solicit plaintiff’s customers once his restricted period expired.

But there is no

evidence that defendant diverted his former customers’ business from plaintiff to Dex

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Media between January 2, 2015, and January 2, 2016.3 For similar reasons addressed
above, the court finds that preparing to solicit defendant’s former customers during the
restricted period does not equate to directly or indirectly soliciting his former
customers.

Nor does it constitute the taking away, or attempted taking away, of

customers from plaintiff. Therefore, the court grants summary judgment on this claim.
Disclosure of Confidential Information
In the pretrial order, plaintiff claims defendant “used confidential and
proprietary information to compete against [plaintiff].” (Dkt. 251, at 9). As noted
above, the court liberally construes the pretrial order, and finds that this claim is
preserved.
Defendant argues summary judgment is warranted because there is no evidence
that he disclosed confidential information. In footnote 108 of its response, plaintiff
alleges that defendant possessed plaintiff’s confidential information pertaining to
customer information, pricing information, performance of sales representatives, and
strategies for plaintiff’s directories and products in relevant markets. Mr. John Gregory,
Dex Media’s Vice President of Directory Marketing and Pricing, testified that there are
no businesses buying yellow pages advertising for the first time and that the only way
to increase yellow page revenue is to sell to existing yellow page advertisers.
Defendant had plaintiff’s sales data that allowed Dex Media to create business pro
formas for projected sales for its Kansas expansion. Plaintiff also notes that another
Defendant testified that in 2015, he did have some personal contact with plaintiff’s customers who are
friends. Or he saw them at social events or used their businesses for his own personal affairs. (Dkt. 26531, at 4–5). However, there is no evidence that defendant directly or indirectly solicited these customers
to leave plaintiff during these social interactions.

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sales representative, then employed by Dex Media, retained a banker’s box of plaintiff’s
customers files and other confidential information.
In an email dated July 26, 2015, James McCusker, Dex Media’s Chief Revenue
Officer, asked Gregory when the directory plans for defendant’s areas would be
finished. (Dkt. 265-22, at 2). Gregory responded:
Not even sure this week actually. We have the maps almost done, but
then we have to pull the numbers of businesses, etc. When we did this at
yellowbook we had all the competitor books keyed for revenue
opportunities. It took 4 weeks to do all that work. If Joe wants a buttoned
up plan, we are going to need more time, and I don’t know how long,
because I don’t know what data we have around here and how hard it is
to get.
In Mr. Jeffery Johanns’s deposition, reference was made to defendant’s active
involvement with plaintiff’s top 100 Wichita accounts and the fact that he knew the
inside scope on most of those clients. (Dkt. 265-10, at 3). Johanns testified that although
a competitor might have knowledge of the methods plaintiff utilized to scope its
directories, it would not know the specifics as far as the amount of customers and
money spent. Johanns pointed out how close the scoping of the directories were and
stated “there’s no way that the business plan that they came up with would have been
done unless he had the confidential information available to him . . . .” (Dkt. 259-6, at
2).4
Based on Dex Media’s desire for information regarding competitors’ books and
revenue opportunities coupled with defendant’s inside knowledge of plaintiff’s Wichita

The court notes that plaintiff put some of the scope, the geographic territories on the book themselves.
However, Johanns testified that this was done several years ago. (Dkt. 265-15, at 9).

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accounts, the court determines that a reasonable jury could find defendant used and
disclosed confidential information to benefit both himself and Dex Media.
Solicitation of Plaintiff’s Employees
Defendant asserts that he did not solicit any of plaintiff’s sales representatives or
other employees to join him at Dex Media. In response plaintiff argues that defendant
solicited Mr. Chris Hett in August 2015.
The record supports plaintiff’s claim that defendant solicited Hett.

In his

deposition, Hett stated that “[i]n August 2015, I was recruited by Peck to work for Dex
Media, Inc.” (Dkt. 265-69, at 2). Hett stated that he contacted defendant, who referred
him to Dex Media’s HR person. Hett, however, did not switch to Dex Media and
remained employed with plaintiff. Therefore, plaintiff cannot establish damages caused
by defendant’s solicitation of Hett during the restricted period. See Amedisys, Inc. v.
Interim Healthcare of Wichita, Inc., No. 14-1357, 2015 WL 1912308, at *4 (D. Kan. Apr. 27,
2015) (one of the elements for establishing a claim for breach of the non-compete or nonsolicitation covenants includes damages to the plaintiff caused by the breach).
Defendant was also prohibited from “encourag[ing] . . . any of the Company’s
employees to leave the Company . . . .” (Dkt. 1-1, at 3). Plaintiff argues that defendant’s
appearance at social gatherings with plaintiff’s sales team was a pretext for soliciting
them to join Dex Media.
In October 2015, defendant attended a social event in Salina, Kansas, where his
wife, Brooke Peck, and other sales representatives for plaintiff were gathered to watch a
game. Defendant also had lunch with two of plaintiff’s sales representatives, Messrs.
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Lance Flowers and Ricky Baker, in December 2015. Based on defendant’s interaction
and their discussions with Flowers, both Hett and Mike Ball got the impression that
defendant was building a team for Dex Media.5 (Dkt. 265-13, at 6–7; Dkt. 265-14, at 9–
11). Hett believed that defendant recruited plaintiff’s employees prior to January 4,
2016. (Dkt. 265-14, at 9).
Viewing all evidence and reasonable inferences in the light most favorable to
plaintiff, the court concludes that a reasonable jury could find defendant’s attendance
and conduct at these two events was to encourage plaintiff’s employees to leave their
employment. Therefore, defendant’s motion for summary judgment on this issue is
denied.
E. Tortious Interference
Interference with a contract
The elements for tortious interference with contract are: (1) the existence of a
contract; (2) defendant’s knowledge thereof; (3) his intentional procurement of its
breach; 4) the absence of justification; and (5) resulting damage to plaintiff. Ayres v. AG
Processing Inc., 345 F. Supp. 2d 1200, 1211 (D. Kan. 2004). Additionally, “[a]n action for
tortious interference with a contract is predicated on malicious conduct by the

The court understands defendant’s hearsay argument, however, Ball’s personal opinion or impression
of the situation is not hearsay. Nor is Hett’s personal belief. Regardless, the court does not find at this
juncture that plaintiff will be not be able to present Flowers’s statements in an admissible form at trial.
“Parties may, for example, submit affidavits . . . despite the fact that affidavits are often inadmissible at
trial as hearsay, on the theory that the evidence may ultimately be presented at trial in an admissible
form.” Brown v. Perez, 835 F.3d 1223, 1232 (10th Cir. 2016), as amended on reh’g (Nov. 8, 2016) (internal
quotations omitted). Here, plaintiff can call Flowers as a witness at trial, which will resolve the hearsay
issue. See Jones v. UPS Ground Freight, 683 F.3d 1283, 1293-94 (11th Cir. 2012) (“The most obvious way that
hearsay testimony can be reduced to admissible form is to have the hearsay declarant testify directly to
the matter at trial.”).
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defendant.” Wichita Clinic, P.A. v. Columbia/HCA Healthcare Corp., 45 F. Supp. 2d 1164,
1200 (D. Kan. 1999).
Defendant cites a number of cases in support of his argument that plaintiff’s sales
representatives were at-will employees, thus it was not reasonably certain that plaintiff
would gain future economic benefits from their continued employment. But plaintiff’s
tortious interference claim revolves around the sales representatives’ alleged violation
of their own restrictive covenants, not plaintiff’s expectation that these individuals
would remain plaintiff’s employees.
Evidence of a breach
“Interference with a contract requires proof of breach of a contract between the
plaintiff and a third party.” L & M Enters., Inc. v. BEI Sensors & Sys., Co., 45 F. Supp. 2d
879, 886 (D. Kan. 1999), aff’d sub nom. L&M Enters., Inc. v. BEI Sensors & Sys. Co., 231 F.3d
1284 (10th Cir. 2000) (“[A]n action for tortious interference with contract does not
extend to claims of adverse impact or increased burden which fall short of inducing or
causing actual breach.”). Each sales representative had his or her own non-compete
agreement, which provided in part.
[D]uring the period of your employment with the Company and
thereafter, for a period of twelve (12) months commencing on the date of
termination of your employment, you shall not directly or indirectly
solicit, call upon or service, or in any other manner divert or take away or
attempt to divert or take away from the Company, on your own behalf or
on behalf of any third party, any customer whose account you serviced or
supervised during the twelve (12) month period immediately preceding
termination of your employment. You acknowledge and agree that your
agreement as to non-solicitation of customers as set forth in this paragraph
2 is necessary for the protection of the Company’s trade secrets and other
Confidential and Proprietary Information, is reasonable, and will not
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prevent you from working in the yellow pages business or obtaining other
employment.
During the period of your employment with the Company and thereafter,
for a period of twelve (12) months commencing on the date of termination
of your employment, you shall not encourage or assist any of the
Company’s employees to leave the Company and you shall not directly or
indirectly (on your own behalf or in cooperation with any other person or
entity) employ or retain or solicit the employment or retention of any
person who was an employee of the Company at any time during the
twelve (12) months preceding the termination of your employment, and
you shall not be associated with any person or entity that employs or
retains any such person if you were involved in any way with the
retention or employment of that person.
Defendant waited until January 4, 2016, before asking his former sales team to
join him at Dex Media. One or two representatives left in mid-January, while others left
in mid-February. Flowers and Baker left after plaintiff fired them.
Defendant’s sales team began making sales calls on behalf of Dex Media in
March 2016, and the first sale was made in April 2016. It is undisputed that defendant
was in charge of assigning client accounts to his sales team at Dex Media. In doing so,
defendant only assigned his sales representatives client accounts they had not serviced
in the twelve months preceding their terminations.
Plaintiff claims that defendant merely swapped customer lists among the sales
team.

It also alleges that the sales representatives dropped names of the former

representative who had serviced the client while employed with plaintiff. In doing so,
the sales representative explained that the former representative could not contact them
because of the 12-month non-compete restriction.

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With respect to Baker and Flowers, plaintiff alleges that they threatened Ball that
defendant would target and take his customers if he did not join Dex Media. (Dkt. 26513, at 12–13). Ball testified that he had conversations with both Baker and Flowers
about leaving plaintiff to go work with defendant at Dex Media. (Dkt. 265-13, at 10).
Plaintiff alleges that the sales representatives used plaintiff’s confidential
customer information and records. Plaintiff states that Ms. Monica Russell returned a
banker’s box of confidential customer information almost a year after she had joined
Dex Media. In this box, were customer files; rate cards showing pricing information;
detailed customer notes; and other confidential and proprietary information belonging
to plaintiff, which pertained to customers in the relevant Kansas markets. Plaintiff
alleges that the sales representatives used plaintiff’s confidential customer information
and records.
The court finds that a reasonable jury could decide that the sales representatives
breached their employee agreements.

Thus, the court next considers whether

defendant’s actions aided in these contractual breaches.
Defendant’s actions
Defendant knew about these non-compete agreements. However, the parties
dispute whether defendant intentionally, and maliciously, procured the breach of the
sales representatives’ non-compete agreements without justification.

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Plaintiff must show defendant acted with legal malice—not actual malice6—
which is “the intent to do harm without any reasonable justification or excuse.” PIK 4th
103.05. See also PIK 4th 124.91, Notes on Use (“Based on the language in the Turner
opinion7, the Committee believes that legal malice, and not actual malice, is still the
required element for claims of tortious interference that do not involve defamation, a
qualified privilege or other claims or defenses having constitutional underpinnings.”).
“Justification exists when the defendant acts in the exercise of a right equal to or
superior to that of the plaintiff and used fair means and good faith for some lawful
interest or purpose.” PIK 4th 124.93. In determining whether the interference was
justified, the court considers the following factors:
1. the nature of the defendant’s conduct;
2. the defendant’s motive;
3. the interests of the plaintiff with which the defendant’s conduct
interfered;
4. the interests sought to be advanced by the defendant;
5. the social interests in protecting the freedom of action of the
defendant and the contractual interests of the plaintiff;
6. the proximity or remoteness of the defendant’s conduct to the
interference; and
7. the relations between the parties.
Id.
It is no secret that defendant intended to hire his former sales team, solicit
plaintiff’s customers, and compete with plaintiff. Within a few weeks after switching to

6 The parties dispute whether plaintiff must show actual or legal malice. The court has reviewed relevant
case law within this district, and finds that it is somewhat at odds with Kansas’s most recent PIK
instructions. The PIK Committee reviewed the case authority and specifically found that actual malice is
only required in certain circumstances not applicable here.
7

Turner v. Halliburton Co., 240 Kan. 1, 722 P.2d 1106 (1986).

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Dex Media, defendant assigned his sales representatives their customer lists and they
began calling plaintiff’s customers. Defendant claims that he instructed his sales team
to abide by any obligations owed to plaintiff. But the court has reviewed the record,
and finds evidence that his sales team did not follow his direction.8
In an email dated July 11, 2016, Ms. Kari Kimbro told a customer “I know Lance
told me you called him few times with changes and he sent them to home office. I hope
they got made for you.” (Dkt. 265-60, at 2).
There were a few accounts where Russell asked the former sales representative
for the contact name on the account. (Dkt. 265-61, at 49).
Bradley Winfrey testified that when he spoke to a sales representative who
would be contacting a former customer, he told the sales representative to tell the
customer “hi.” (Dkt. 265-62, at 5). Winfrey also stated that a couple days after a
different sales representative, Baker, contacted his former customer, the customer called
Winfrey and inquired if Dex Media was a real company. Winfrey responded “Yes” but
that he could not talk about it because of his employee agreement. (Dkt 265-62, at 9–10).
However, some months later, that same customer called Winfrey when he had an issue
with a Dex Media product he purchased from Baker. Winfrey did not tell the customer

8 Although not argued by the parties, the court finds that general agency liability could be relevant in this
instance. The liability of a principal for the negligent acts of his agent is determined by whether the agent
was engaged in the furtherance of the principal’s business to such a degree that the principal had the
right to direct and control the activities of the agent. Hughes v. Jones, 206 Kan. 82, 87–88, 476 P.2d 588,
592–93 (1970). Here, defendant’s sales team was acting under defendant’s supervision, he had control of
their activities, and it furthered Dex Media’s business. The court finds that a reasonable jury could find
defendant had, at the very least, constructive knowledge of his sales team’s actions.

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to contact Baker; instead Winfrey informed Baker about the customer’s problem. (Dkt,
265-62, at 11).
Although it is close call, the record contains sufficient evidence that a reasonable
jury could find defendant’s sales team indirectly serviced its former customers or
helped them with their accounts at Dex Media. Defendant’s ultimate goal with Dex
Media was to hire his sales team from plaintiff and expand into his former territory.
Defendant argues that he acted in his own self-interest without intent to harm plaintiff.
However, Johanns testified that defendant knew his timing in recruiting the Wichita
team would put plaintiff in a tremendous bind.

(Dkt. 259-6, at 2).

Because

“[d]efendant[‘s] motive and the presence or absence of justification (or malice) are
typically questions for the jury[,]” Furr v. Ridgewood Surgery & Endoscopy Ctr., LLC, 192
F. Supp. 3d 1215, 1229 (D. Kan. 2016), the court denies summary judgment on this claim.
Interference with business expectancy
To succeed on a claim of tortious interference with business expectancy or
relationship, plaintiff must show:
1. the existence of a business relationship or expectancy with the
probability of future economic benefit to the plaintiff;
2. knowledge of the relationship or expectancy by the defendant;
3. that, except for the conduct of the defendant, the plaintiff was
reasonably certain to have continued the relationship or realized the
expectancy;
4. intentional misconduct by the defendant; and
5. damages suffered by the plaintiff as a result of defendant’s misconduct.
PIK 4th 124.92. Once again, under these circumstances, plaintiff must prove defendant
acted with legal malice. Id.

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Defendant was aware of plaintiff’s business relationships with defendant’s
former customers in the Wichita and surrounding area markets. Furthermore, it is
reasonable to conclude that plaintiff would have maintained these relationships during
2016 as several accounts were up for renewal. Hett stated that he created a spreadsheet
representing multiple customers that ceased doing or reduced their business with
plaintiff because of defendant’s and his sales team’s actions.

(Dkt. 265-70, at 2).

Although defendant argues that telephone book sales were declining in 2016, there is no
evidence that all of plaintiff’s customers in the relevant markets withdrew their
business because of the general decline.
Defendant, along with his sales team, intended to take over plaintiff’s customers
in the Wichita and surrounding area markets. Kimbro stated in an email to one of
plaintiff’s customers that “[w]e hope to take over [plaintiff’s] market share
eventually[.]” (Dkt. 265-57, at 2).
On June 24, 2016, Kimbro emailed a different customer requesting that the
customer wait on renewing its contract with plaintiff until she had a chance to meet
with the customer in August. (Dkt. 265-58, at 2).
On June 30, 2016, Kimbro wrote, “I don’t know how they will contact you for
renewal as they no longer have any personnel.” (Dkt. 265-63, at 2). Kimbro also
provided the customer with a list of prices, and noted that she knew these prices were
considerably less than what the customer was currently paying plaintiff.
In another email, Kimbro stated, “I know Brad and Bob Groth both say hello!
Bob quit Yellowbook a few years ago and Brad is working with me at Dex Media so
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Yellowbook doesn’t even have sales reps left. If you want to deal with a person instead
of a phone call, you will want to switch to us. They are just starting the northwest ks
yellowbook renewals so this is a great time to drop them if you want less cost!” (Dkt.
265-64, at 2).
On July 5, 2016, Kimbro’s email to another plaintiff customer detailed, “[t]here
are several reasons we switched which we can discuss later.” (Dkt. 265-59, at 2). She
further stated, “[p]lease let me know if you have any interest. Our pricing is very good
compared to theirs and we want to earn your business away from them.” Id.
Again, the question is whether defendant committed intentional misconduct
versus general competition. The court has reviewed the record and concludes that a
reasonable jury could find intentional misconduct. Not only did defendant’s sales team
inform plaintiff’s customers that Dex Media was trying to earn away plaintiff’s
business, they specifically told customers that plaintiff no longer had a team within
their region—a fact that was false. (Dkt. 265-62, at 6). Additionally, there is evidence to
support plaintiff’s claim that defendant tortiously interfered with the sales
representatives’ non-compete agreements, which aided his efforts in soliciting plaintiff’s
customers. Therefore, summary judgment is denied on this claim.
IV.

Conclusion

The court finds that plaintiff is a party to the 2006 Agreement and can enforce the
restrictions against defendant. However, because defendant only prepared to compete
with Dex Media in his former territory, he did not the breach non-compete or nonsolicitation provisions of the 2006 Agreement. On the other hand, the court finds that a
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reasonable jury could find defendant violated his non-disclosure provision. Likewise, a
reasonable jury could find that defendant solicited plaintiff’s employees. The court also
finds that plaintiff’s claims of tortious interference with its non-compete agreements
with its sales representatives and business expectancy with its customers should
proceed to trial.
IT IS THEREFORE ORDERED this 15th day of November, 2017, that
defendant’s motion for summary judgment (Dkt. 255) is denied in part, and granted in
part as to plaintiff’s breach of contract claim (Count I).

Defendant is entitled to

summary judgment on plaintiff’s claims that defendant violated the non-competition
and non-solicitation of customers provisions.

Defendant’s motion is denied as to

plaintiff’s claims that defendant violated the non-disclosure of confidential information
and non-solicitation of plaintiff employees provisions.
IT IS FURTHER ORDERED that defendant’s motion is denied as to plaintiff’s
claims of tortious interference (Count II).

s/ J. Thomas Marten
J. Thomas Marten, Judge

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