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Date: 05-07-2019
Case Style:
Advanced Recovery Systems v. American Agencies
Case Number: 17-4202
Judge: Bacharach
Court: United States Court of Appeals for the Tenth Circuit on appeal from the District of Utah (Salt Lake County)
Plaintiff's Attorney: Michael K. Erickson and Carol A. Funk
Defendant's Attorney: Richard D. Salgado, Kelley C. Cox, and Wade P.K. Carson
Description:
This appeal grew out of Mr. Brent Sloan’s participation in two
transactions. The first transaction entailed a merger between Advanced
Recovery Systems, LLC and Kinum, Inc.;1 the second transaction consisted
of a sale of software from Kinum to Sajax Software, LLC.
1 At the time of the merger, Kinum was known as “Fidelis Asset
Management, Inc.” In the interest of simplicity, however, we refer to the
entity (before and after the merger) as “Kinum.”
3
American Agencies, LLC alleged harm from these transactions and
sued Mr. Sloan for damages and restitution.2 After the close of evidence,
Mr. Sloan filed a motion for judgment as a matter of law. Following the
denial of this motion, a jury found Mr. Sloan liable on American Agencies’
claims of tortious interference with business relations, conspiracy to
interfere with business relations, tortious interference with contract,
copyright infringement, unjust enrichment, and misappropriation of trade
secrets.3 Mr. Sloan unsuccessfully renewed his motion for judgment as a
matter of law. After the district court denied this motion, Mr. Sloan
appealed. We affirm in part and reverse in part based on four conclusions:
1. On the claims of tortious interference with business relations
and conspiracy to interfere with business relations, Mr. Sloan
contends that (1) one of American Agencies’ theories of
improper means is preempted by a Utah statute and (2)
American Agencies did not present sufficient evidence of
improper means. We disagree because Mr. Sloan did not
preserve his preemption argument and the jury could have
reasonably found improper means based on deceit. We thus
conclude that the district court properly denied Mr. Sloan’s
motion for judgment as a matter of law on these claims.
2. On the claim of tortious interference with contract, Mr. Sloan
argues that the jury instructions erroneously and prejudicially
2 Federal jurisdiction existed under 28 U.S.C. §§ 1331(a)(1), 1332, and
1367(a).
3 The finding of liability for misappropriation of trade secrets is not
involved in this appeal.
4
excluded improper means as an element. We agree with Mr.
Sloan and reverse the judgment on this claim.4
3. On the claim of copyright infringement, Mr. Sloan contends
that the jury could not have reasonably found commercial use
or regarded the pertinent documents as original. We disagree,
concluding that (1) Mr. Sloan did not preserve his commercialuse
argument and (2) American Agencies’ evidence on
originality was sufficient.
4. On the claim of unjust enrichment, Mr. Sloan contends that the
jury could not have reasonably inferred the value of a benefit
to Mr. Sloan.5 We agree, so we reverse the denial of Mr.
Sloan’s motion for judgment as a matter of law on this claim.
Background
1. Advanced Recovery Systems enters into a licensing agreement
with American Agencies.
American Agencies is a debt-collection agency that entered into a
licensing agreement with Advanced Recovery Systems. Under the licensing
agreement, American Agencies enjoyed
the exclusive right to use certain debt-collection software
developed by Advanced Recovery Systems and
the right of first refusal with respect to any future sale of
Advanced Recovery Systems.
4 On appeal, Mr. Sloan also challenges the district court’s award of
attorney’s fees to American Agencies. This part of the award was based on
the claim of tortious interference with contract. Our reversal on this claim
encompasses the award of attorney’s fees.
5 Mr. Sloan also contends that other legal remedies were adequate to
compensate American Agencies. We need not address this contention.
5
The debt-collection software contained American Agencies’ customer data,
including a client list, client history, fee structure, and rate of success.
2. Advanced Recovery Systems merges into Kinum, and Kinum sells
the software to Sajax.
Without American Agencies’ knowledge, Advanced Recovery
Systems merged into Kinum. See p. 3 n.1, above. Mr. Sloan helped to
facilitate the merger and became Kinum’s chief executive officer after the
merger. As the chief executive officer, Mr. Sloan oversaw Kinum’s sale of
the debt-collection software to Sajax. With the software came American
Agencies’ customer data.
6
7
The Individual Claims and Mr. Sloan’s Appellate Arguments
1. Liability for tortious interference with business relations and
conspiracy to interfere with business relations: The evidence
adequately supported the jury’s findings of liability.
On the claims of tortious interference with business relations and
conspiracy to commit this tort, American Agencies had to prove improper
means. Overstock.com, Inc. v. SmartBargains, Inc., 192 P.3d 858, 864
(Utah 2008); see also Puttuck v. Gendron, 199 P.3d 971, 978 (Utah App.
2008) (stating that a claim of civil conspiracy under Utah law requires an
underlying tort).6 American Agencies alleged that Mr. Sloan had used
improper means in two ways:
1. using deceit to conceal transfers of the debt-collection software
and American Agencies’ customer data
2. initiating unfounded litigation against American Agencies.7
Mr. Sloan responds to these allegations by arguing that
the theory of improper means through deceit is preempted by a
Utah statute and
the evidence did not indicate that the litigation had been
unfounded.
We reject these arguments.
6 The district court and the parties treat Utah law as the applicable
law, so we also apply Utah law. See Strickland Tower Maint., Inc. v. AT&T
Commc’ns, Inc., 128 F.3d 1422, 1426 (10th Cir. 1997).
7 The parties agree that a third theory presented by American Agencies
(altering American Agencies’ license agreements with sales agents) did not
apply to Mr. Sloan.
8
A. Mr. Sloan did not preserve his preemption argument.
On appeal, Mr. Sloan urges preemption of American Agencies’
theory of deceit based on a Utah statute. But Mr. Sloan failed to preserve
his preemption argument.
To preserve the argument, Mr. Sloan needed to comply with Rule 50
of the Federal Rules of Civil Procedure, which governs motions for
judgment as a matter of law. Unitherm Food Sys., Inc. v. Swift-Eckrich,
Inc., 546 U.S. 394, 399 (2006). Under subsection (a) of this rule, a litigant
can move for judgment before the jury renders its verdict. Fed. R. Civ. P.
50(a). If a litigant moves for a pre-verdict judgment under subsection (a)
and the court denies the motion, the litigant can renew the motion after the
verdict under subsection (b) of the rule. Fed. R. Civ. P. 50(b); see
Marshall v. Columbia Lea Reg’l Hosp., 474 F.3d 733, 738–39 (10th Cir.
2007). If a ground is omitted from a pre-verdict motion, however, the
ground cannot be asserted in a post-verdict motion or in an appeal. See
Marshall, 474 F.3d at 738–39 (cannot be asserted in the post-verdict
motion); Unitherm Food Sys., Inc., 546 U.S. at 399 (cannot be asserted in
the appeal).
Before the jury returned a verdict, Mr. Sloan moved for judgment as
a matter of law under Rule 50(a), contending that American Agencies
hadn’t presented evidence of (1) intentional interference by improper
means or (2) injury caused by the interference. But Mr. Sloan’s motion did
9
not include his current argument involving preemption. As a result, this
argument was not preserved for appeal.
B. Mr. Sloan doesn’t contest the sufficiency of the evidence on
deceit, so we reject his challenge to the claims of tortious
interference with business relations and conspiracy to
commit this tort.
On appeal, Mr. Sloan does not challenge the sufficiency of the
evidence supporting American Agencies’ theory of deceit; he challenges
only the sufficiency of the evidence supporting the theory of unfounded
litigation. Given the limited scope of this challenge, we treat the deceit
theory as sufficient for liability.8
The district court’s special-verdict form didn’t distinguish between
American Agencies’ two theories of improper means, so we don’t know
8 Even if Mr. Sloan had challenged the sufficiency of the evidence on
deceit, we would have rejected the challenge. In our view, the trial
evidence permitted a reasonable jury to find that Mr. Sloan had deceitfully
concealed transfers involving the software and American Agencies’
customer data. See Bartee v. Michelin N. Am., Inc., 374 F.3d 906, 914
(10th Cir. 2004) (sufficient evidence exists if there is evidence on which a
jury could properly return a verdict for the non-movant). This evidence
included support for three findings:
First, Mr. Sloan knew before the merger with Kinum that American
Agencies had an exclusive license to use the software and a right of first
refusal on a sale of Advanced Recovery Systems.
Second, with knowledge of these rights, Mr. Sloan helped to merge
Advanced Recovery Systems into Kinum without telling American
Agencies of the merger or the transfer of software to Kinum.
10
which theory the jury credited. Given this uncertainty, we must affirm if
sufficient evidence existed on either of American Agencies’ factual
theories. Kirkbride v. Terex USA, LLC, 798 F.3d 1343, 1349 (10th Cir.
2015). So in the absence of a challenge to the sufficiency of the evidence
on deceit, we need not decide whether the evidence would have supported
American Agencies’ theory of unfounded litigation.
Mr. Sloan points to a line of cases suggesting that “reversal is . . .
necessary if either basis [for a verdict] was improper.” Appellant’s Reply
Br. at 18 (emphasis in original); see id. at 18–19. But this line of cases
applies only when the defendant challenges the validity of a legal theory.
Pratt v. Petelin, 733 F.3d 1006, 1009 (10th Cir. 2013). These cases do not
apply when the defendant challenges the sufficiency of the evidence on
some (but not all) of the plaintiff’s factual theories:
[T]hese cases address the situation where the jury may have
based its verdict on an incorrect or entirely unsupported legal
theory. They are thus distinguishable from the case at hand,
where [the defendant] claims that some, but not all, of the
factual bases presented to the jury for one legal theory—
negligence—were unsupported by sufficient evidence.
Third, without telling American Agencies, Mr. Sloan directed Kinum
to sell the software to Sajax even though the software contained American
Agencies’ customer data.
11
Id. (emphasis in original). Here we are addressing the sufficiency of
evidence on factual theories, not the validity of a legal theory. Mr. Sloan’s
cited authority is thus inapplicable.
2. Liability for tortious interference with contract: The district
court erroneously and prejudicially failed to include improper
means as an element of the claim.
American Agencies claimed tortious interference with contract,
alleging that Mr. Sloan had induced Advanced Recovery Systems to breach
its licensing agreement. The district court instructed the jury on the
elements of the claim but did not include improper means as an element.
The omission constituted an error that prejudiced Mr. Sloan.
We apply the abuse-of-discretion standard. Lederman v. Frontier
Fire Protection, Inc., 685 F.3d 1151, 1154 (10th Cir. 2012). But in
applying this standard, we conduct de novo review of the instructions as a
whole to assess their accuracy under Utah law. Royal Maccabees Life Ins.
Co. v. Choren, 393 F.3d 1175, 1179 (10th Cir. 2005).
Reviewing the instructions de novo, we conclude that the district
court erred because the Utah Supreme Court treats improper means as an
element of tortious interference with contract. See C.R. England v. Swift
Transp. Co., 2019 UT 8, ¶ 39 (Feb. 27, 2019) (“Because the weight of
authority supports St. Benedict’s adoption of the ‘improper means’ element
for the tort of intentional interference with contract, and because this
element has become firmly embedded in Utah law, we reaffirm it.”); see
12
also St. Benedict’s Devel. Co. v. St. Benedict’s Hosp., 811 P.2d 194, 201
(Utah 1991) (stating that one incurs liability for intentional interference
with contract by “intentionally and improperly” causing a party not to
perform the contract). By failing to correctly tell the jury what’s needed
for liability, the district court misled the jury. See Wankier v. Crown
Equip. Corp., 353 F.3d 862, 868 (10th Cir. 2003) (“A district court’s
failure to inform the jury of all the elements essential to a plaintiff’s claim
necessarily misleads the jury.”).
American Agencies argues that the error didn’t prejudice Mr. Sloan.
We disagree. An error in jury instructions requires reversal if the error was
prejudicial. Heggy v. Heggy, 944 F.2d 1537, 1542 (10th Cir. 1991). An
error is prejudicial if “the jury might have based its verdict on the
erroneously given instruction.” Level 3 Commc’ns, LLC v. Liebert Corp.,
535 F.3d 1146, 1158 (10th Cir. 2008) (emphasis in original) (quoting
Wankier, 353 F.3d at 867). We thus must reverse based on an erroneous
instruction if there is even a slight possibility of an effect on the verdict.
Id.
Such a possibility doesn’t always exist. For example, omission of an
element may be harmless if the verdict on another claim would have
required the jury to find the omitted element. See United States v.
McDonald, 150 F.3d 1301, 1304–05 (10th Cir. 1998) (concluding that the
omission of elements of a criminal offense in the jury instructions was
13
harmless because the verdict of guilty on a separate criminal offense
“necessarily embraced the missing elements”).
American Agencies contends that the jury necessarily found that Mr.
Sloan had used improper means to interfere with American Agencies’
licensing agreement with Advanced Recovery Systems because
the jury instructions included improper means as an element of
tortious interference with business relations and
the jury found tortious interference with American Agencies’
business relations.
This contention assumes that American Agencies’ theories of improper
means for tortious interference with business relations would also support
liability for tortious interference with contract.9 If even one theory of
improper means supported liability for tortious interference with business
relations but not for tortious interference with contract, the instructional
error would be prejudicial. See p. 12, above.
As noted above, American Agencies presented two theories of
improper means on the claim against Mr. Sloan for tortious interference
with business relations:
1. the use of deceit to conceal the transfers of the debt-collection
software and American Agencies’ customer data
9 American Agencies assumes that Utah uses the same definition of
improper means for both tortious interference with contract and tortious
interference with business relations. For the sake of argument, we can
make the same assumption.
14
2. the initiation of unfounded litigation against American
Agencies.
American Agencies based the deceit theory on two transactions:
1. Advanced Recovery Systems’ merger with Kinum
2. Kinum’s sale of the debt-collection software to Sajax.
The jury might have found liability for tortious interference with business
relations based on Kinum’s sale of the debt-collection software. For
tortious interference with contract, however, the jury might have rejected
liability on this basis by viewing Mr. Sloan as the principal of one of the
contracting parties (Kinum).
Under Utah law, a corporation cannot incur liability for interfering
with its own contract. See Leigh Furniture & Carpet Co. v. Isom, 657 P.2d
293, 301 (Utah 1982) (“[O]ne party to a contract cannot be liable for the
tort of interference with contract for inducing a breach by himself or the
other contracting party.”), overruled on other grounds by Eldridge v.
Johndrow, 345 P.3d 553 (Utah 2015). And after Advanced Recovery
Systems merged with Kinum, Kinum became a party to the licensing
agreement. See Utah Stat. § 48-3a-1026(1)(d) (explaining that when a
limited liability company merges with another entity, “all debts,
obligations, and other liabilities” of the limited liability company become
“debts, obligations, and other liabilities of the surviving entity”). So when
15
Kinum sold the debt-collection software, it was a party to the licensing
agreement and Mr. Sloan was Kinum’s chief executive officer.
To find that Mr. Sloan’s participation in this sale constituted
improper means for tortious interference with contract, the jury would have
needed to find that Kinum’s chief executive officer had tortiously
interfered with his own company’s contract. As noted above, Utah law
doesn’t authorize liability for tortiously interfering with one’s own
contract. And under Utah law, corporations can act only through their
agents. Stratton v. W. States Constr., 440 P.2d 117, 118 (Utah 1968).
In similar circumstances, courts throughout the country have held
that a corporate officer cannot incur liability for tortiously interfering with
the corporation’s own contract.10 Here, however, we need not decide
10 See Boulevard Assocs. v. Sovereign Hotels, Inc., 72 F.3d 1029, 1036
(2d Cir. 1995) (noting that Connecticut courts have held that “[a]n agent
acting legitimately within the scope of his authority cannot be held liable
for interfering with or inducing his principal to breach a contract between
his principal and a third party, because to hold him liable would be, in
effect, to hold the corporation liable in tort for breaching its contract”
(quoting Murray v. Bridgeport Hosp., 480 A.2d 610, 613 (Conn. Super. Ct.
1984))); Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 173 (3d
Cir. 2001) (stating that under New Jersey law, a corporate agent acting
within the scope of the agency relationship cannot incur liability for
tortiously interfering with the corporation’s own contract with a third
party); Kuhn v. Washtenaw Cty., 709 F.3d 612, 630–31 (6th Cir. 2013)
(“[W]ell-established Michigan law holds that ‘corporate agents are not
liable for tortious interference with the corporation’s contracts unless they
acted solely for their own benefit with no benefit to the corporation.’”
(quoting Reed v. Mich. Metro Girl Scout Council, 506 N.W.2d 231, 233
(Mich. App. 1993))); Palmer v. Ark. Council on Econ. Educ., 40 S.W.3d
16
whether Utah law would always bar liability for a corporate agent’s
interference with the corporation’s own contract. Even if Utah law would
not go that far, the jury could reasonably have determined that Mr. Sloan,
as Kinum’s chief executive officer, had not acted as a stranger to Kinum’s
contract with a third party. Such a determination would have allowed a
finding that Mr. Sloan had not used improper means to tortiously interfere
with American Agencies’ contract (even if he had used improper means to
tortiously interfere with American Agencies’ business relations). The
district court’s error thus could have affected the verdict, which requires
us to treat the error as prejudicial and to reverse the judgment on this
claim. See p. 12, above.
784, 791 (Ark. 2001) (“It is well settled that a party to a contract, and its
agents acting in the scope of their authority, cannot be liable for
interfering with the party’s own contract.”); Trail v. Boys & Girls Clubs of
Nw. Ind., 845 N.E.2d 130, 138 (Ind. 2006) (holding that when officers act
in their official capacity as corporate agents, they cannot incur personal
liability for tortiously interfering with the corporation’s own contracts);
Voiles v. Santa Fe Minerals, Inc., 911 P.2d 1205, 1210 (Okla. 1996)
(holding that a person “acting in a representative capacity for a party” to a
contract cannot incur liability for wrongfully interfering with that
contract); Morgan Stanley & Co. v. Tex. Oil Co., 958 S.W.2d 178, 179
(Tex. 1997) (“[A] contracting party’s agent or employee acting in the
party’s interests cannot interfere with the party’s contract.”); see also W.
Page Keeton et al., Prosser & Keeton on The Law of Torts 990 (5th ed.
1984) (“[T]he defendant’s employees acting within the scope of their
employment are identified with the defendant himself so that they may
ordinarily advise the defendant to breach his own contract without
themselves incurring liability in tort.”).
17
3. Liability for copyright infringement: The district court did not
err in denying Mr. Sloan’s argument for judgment as a matter of
law.
The debt-collection software contained American Agencies’ standard
collection letter and service agreement. After obtaining the software,
Kinum began using a collection letter and a service agreement like the ones
used by American Agencies. Kinum’s use of these documents led American
Agencies to include a claim for copyright infringement against Mr. Sloan.
Mr. Sloan contends that on the copyright-infringement claim, the
evidence was insufficient regarding commercial use or originality. We
reject these contentions, concluding that (1) Mr. Sloan failed to preserve
his challenge involving commercial use and (2) the evidence on originality
was sufficient for a jury to find liability.
To preserve the challenge on commercial use, Mr. Sloan needed to
raise this issue in his pre-verdict motion for judgment as a matter of law.
See p. 8, above. In that motion, Mr. Sloan did not question the sufficiency
of evidence involving commercial use. By omitting this challenge from the
pre-verdict motion, Mr. Sloan failed to preserve the issue for appeal. See
p. 8, above.
On appeal, however, Mr. Sloan also challenges the evidence of
originality. To consider this challenge, we review the issue de novo and
affirm if there is evidence on which the jury could properly return a verdict
18
for American Agencies. Bartee v. Michelin N. Am., Inc., 374 F.3d 906, 914
(10th Cir. 2004).
To establish Mr. Sloan’s liability on the claim of copyright
infringement, American Agencies had to prove the originality of its
collection letter and service agreement. Feist Pubs., Inc. v. Rural Tel. Serv.
Co., 499 U.S. 340, 345 (1991). These documents would be considered
“original” only if
American Agencies independently created the work and
the work entailed “some minimal degree of creativity.”
Id.
Mr. Sloan contends that American Agencies’ collection letter and
service agreement lacked a minimal degree of creativity. But the required
creativity “is extremely low,” and most works satisfy this requirement even
when they are “‘crude, humble or obvious.’” Id. (quoting 1 Melville B.
Nimmer & David Nimmer, Copyright § 1.08[C][1] (1990)).
Given this low standard, the jury could have reasonably inferred that
the collection letter and service agreement had entailed the required degree
of creativity. An executive for American Agencies testified that (1) she
had contributed to the format and content of the collection letter and (2)
the service agreement contained terms unique to American Agencies,
including
references to American Agencies’ services to creditors,
19
information in the “payment authorization” section,
information about a “phase one guarantee,”
language allowing a client to authorize American Agencies to
review accounts for referral to an attorney for legal action, and
language allowing clients to authorize American Agencies to
offer settlements.
Given this testimony, the jury could reasonably find at least some
creativity, rendering the evidence of originality sufficient for liability.
4. Liability for unjust enrichment: The district court should have
granted judgment as a matter of law to Mr. Sloan based on the
insufficiency of evidence regarding the value of his benefit.
Mr. Sloan contends that the district court should have granted him
judgment as a matter of law on American Agencies’ claim of unjust
enrichment because insufficient evidence existed on the value of Mr.
Sloan’s benefit. We agree.
On the claim of unjust enrichment, American Agencies had to prove
the amount of Mr. Sloan’s benefit stemming from his wrongful conduct.
See Emergency Physicians Integrated Care v. Salt Lake Cty., 167 P.3d
1080, 1086 (Utah 2007) (“The first element of [unjust enrichment] requires
the court to measure the benefit conferred on the defendant by the
plaintiff.”); Richards v. Brown, 222 P.3d 69, 81 (Utah Ct. App. 2009)
(requiring the plaintiff to prove that a wrongdoer “has been unjustly
20
enriched in some calculable amount”), aff’d on other grounds, 274 P.3d
911 (Utah 2012).
At trial, American Agencies relied on expert testimony to prove the
value of the benefit received by Mr. Sloan’s corporation (Kinum) rather
than the value of the benefit received by Mr. Sloan. American Agencies
argues that as a stockholder, Mr. Sloan benefited from an increase in the
value of his Kinum stock. But American Agencies didn’t present evidence
on the amount of the alleged increase in the stock price. Given the absence
of such evidence, American Agencies’ claim of unjust enrichment failed as
a matter of law. The district court should thus have granted Mr. Sloan’s
motion for judgment as a matter of law on this claim.
Disposition
On the claim against Mr. Sloan for tortious interference with
contract, we reverse and remand for a new trial. And on the claim of unjust
enrichment, we reverse and remand with instructions to grant Mr. Sloan’s
motion for judgment as a matter of law. We otherwise affirm.11
11 The district court’s judgment found that Mr. Sloan was jointly and
severally liable for damages of $3,104,208.11. Given our opinion, Mr.
Sloan would remain jointly and severally liable for $280,519 of that
amount.
The district court also found Mr. Sloan individually liable for
damages of $315,325. Our opinion leaves Mr. Sloan liable for an amount
between $53,831 and $153,831. (The uncertainty arises because the
assessment of the punitive damages award was based on both tortious
interference with contract and tortious interference with business relations,
and we are reversing the judgment for tortious interference with contract.)
Outcome: Reversed and remanded.
Plaintiff's Experts:
Defendant's Experts:
Comments: