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Hibu Inc. v. Peck

United States District Court, D. Kansas

November 15, 2017

HIBU, INC., Plaintiff,
CHAD PECK, Defendant.


          J. Thomas Marten, Judge

         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.
. . .
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 working with Dex Media in August 2015. Under the 2006 Agreement, defendant's 12-month 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).

         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 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.

         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).

         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 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. Instead, plaintiff is the successor to Yellowbook Inc. 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. 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 ...

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