Johnston v. Castles & Crowns, Inc.

• Decision Date: 03 November 2017
• Docket Number: 1160171
• Parties: Jami JOHNSTON v. CASTLES AND CROWNS, INC., and Delaire Tibbetts
• Court: Alabama Supreme Court

259 So.3d 643

Jami JOHNSTON

v.CASTLES AND CROWNS, INC., and Delaire Tibbetts

1160171

Supreme Court of Alabama.

November 3, 2017

Rehearing Denied February 2, 2018

Christopher W. Weller and Chad W. Bryan of Capell & Howard, P.C., Montgomery, for appellant.

W. Craig Hamilton, Frederick G. Helmsing, Jr., and J. Blair Newman, Jr., of McDowell Knight Roedder & Sledge, LLC, Mobile, for appellees.

WISE, Justice.

Jami Johnston, the defendant, counterclaim plaintiff, and third-party plaintiff below, appeals from a judgment in favor of Castles and Crowns, Inc. ("Castles"), the plaintiff and counterclaim defendant below, and Delaire Tibbetts, the third-party defendant below. We reverse and remand.

Facts and Procedural History

Castles is a children's clothing company formed by Julie Vickers and Amy Bowers. Vickers and Bowers designed the clothes, which were then manufactured at a factory in El Salvador. Castles had two clothing seasons—fall/winter and summer/spring. At the beginning of each season, Castles would submit a purchase order with the factory, which would then produce clothing for that season. Castles' clothing was sold by representatives who would host home parties to sell the clothing. The representatives would receive trunks that included samples of the fashions for that season. Customers would then place orders that would be shipped from the factory directly to the customer. At the end of each season, any unsold inventory was shipped from the factory to Castles' office. Castles would sell some of its leftover inventory through certain liquidators and consignment companies. At one time, Castles operated a factory-outlet store where it would sell some of its leftover inventory. Subsequently, Castles closed the factory-outlet store and opened a boutique store at which it would sell some of its leftover inventory.

Brandi Stuart, Johnston's sister, worked for Castles from 2006 until 2011. Stuart was initially a representative who sold Castles' clothing at home shows. Vickers subsequently offered Stuart a job working in Castles' office. Ultimately, Stuart became the operations manager for Castles. Stuart received a salary from Castles; she was allowed to purchase Castles' clothing at a discount; and she received a bonus each season based on the gross sales for that season. Stuart testified that the bonus was originally 1%, but it was increased to 3% at some point. However, Castles presented evidence indicating that Stuart received a 1% bonus the entire time she worked for Castles. Vickers testified that, on one occasion, Stuart was allowed to take her bonus in Castles' clothing but that every other bonus was in cash. However, Stuart testified that she was allowed to take her bonuses in cash, clothing, or a combination of cash and clothing.

In 2009, Stuart contacted Johnston and asked her if she was interested in selling children's clothing. Subsequently, Johnston formed Children's Liquidations, a consignment company that would provide children's clothes to other consignment companies for sale. Castles presented evidence indicating that, from 2009 to 2010, while she was working with Castles, Stuart had 7,149 pounds of Castles' clothing shipped either to Johnston or to consignment companies used by Johnston. Stuart used Castles' FedEx shipping account to ship the clothing. Tibbetts, who worked at Castles' boutique store, testified that, on one occasion, Johnston came to the store and picked up multiple boxes of Castles' clothing. Vickers testified that she was aware that, during the time Stuart worked for Castles, some clothes were being sent to Johnston from Castles. When asked about her understanding as to what was occurring with those clothes, Vickers replied that, on a couple of occasions, Stuart had asked her if it was okay if she sent some clothes to Johnston, just as she would to other liquidators; that Vickers was aware that Johnston was receiving those clothes; and that Vickers was expecting to receive a check from Johnston upon the sale of the clothes, just as she did from the other liquidators. The evidence at trial established that neither Stuart nor Johnston paid Castles for those clothes or remitted any of the proceeds from Johnston's sales of the clothes to Castles. However, Stuart maintained that the clothes sent to Johnston were part of her bonuses that she had taken in clothing. Additionally, Johnston testified that Stuart told her that she had either received the clothes as part of her bonus or that she had purchased the clothing.

Evidence was presented indicating that Johnston had sent some of the Castles' clothing she had received from Stuart to consignment companies. Johnston did not use the same consignment companies as Castles used. On some occasions, Johnston took some of the items and sold them at a warehouse sale. For the items Johnston had sent to other consignment companies, the consignee would retain a portion of the sales proceeds as a fee and remit the remaining amount to Johnston. Of that amount, Johnston would keep 30% and give Stuart 70%. For items Johnston sold at the warehouse sale, Johnston would retain the original consignee's fee. Of the amount remaining after the deduction of that fee, Johnston would receive 30% and Stuart would receive 70%.

Some of Castles' FedEx records indicated that some packages had been shipped from Castles directly to the consignment companies used by Johnston. There were also some FedEx records that listed Johnston as the sender and Johnston's consignment companies as the recipients.

In January 2011, Vickers terminated Stuart's employment based on issues with her performance. After Stuart's employment was terminated, Tibbetts, who was working at Castles' boutique store, received a telephone call from a woman who asked for "Jami." When told that no one named Jami worked for Castles, the woman asked for Stuart. When told that Stuart was no longer with the company, the woman asked if Castles' clothing was going to be sent for a consignment sale. Tibbetts told the woman she would have to get back with her, and Tibbetts contacted Vickers. Vickers testified that they subsequently started going through Castles' records. Castles' FedEx records showed the shipments to Johnston. Tibbetts also testified that her 2010 end-of-the-year inventory showed a large amount of missing inventory. Additionally, Vickers discovered credit-card statements for Castles that included personal charges made by Stuart. Johnston testified that, at the time of the trial, she still had boxes of Castles' clothing in her home.

Michelle Cox was the owner of New 2 U, a consignment company that put on events in the fall and spring in various locations in Mississippi. From September 2009 to March 2011, Cox and Johnston had an ongoing relationship pursuant to which Johnston shipped Castles' clothing to Cox; Cox sold the clothing at New 2 U consignment events; Cox retained 30% of the sales proceeds; and the remaining 70% of the sales proceeds were sent to Johnston. Cox's business relationship with Johnston ended at the conclusion of the March 2011 event. Cox testified that, during the March 2011 event in Tupelo, she received a telephone call from Tibbetts, who identified herself as working for Castles. Tibbetts asked Cox if they had any Castles' inventory. When Cox replied that they did, Tibbetts told Cox that she needed to pull those items from the sales floor. Cox testified that, when she asked why, Tibbetts asked her how she had obtained Castles' clothing and that she told Tibbetts that Johnston had shipped the items to her. She further testified that Tibbetts told her that Castles was conducting an internal audit; that some discrepancies had come to light; and that Castles wanted to look into it further. Cox testified that she did not know what Tibbetts meant; that Tibbetts never used the word "stolen"; and that she had asked Tibbetts specifically if the items that had been shipped to her had been stolen. Cox went on to testify that

"[i]t was definitely implied that they were saying that [Johnston] wasn't the rightful owner of those items and did not have the right to send them to me."

Cox testified that Tibbetts asked her to pull Castles' items from the sales floor; to return the items to Castles; and to send any proceeds from Castles' items that had been sold up to that point to Castles. Cox refused to pull the items from the sales floor, refused to send the items to Castles, and refused to send the proceeds from the items that had been sold to Castles. Ultimately, Cox remitted 70% of the proceeds from that event to Johnston. At the conclusion of the March 2011 event, Cox stopped selling Castles' items on consignment for Johnston. However, Cox testified that, about one year later, Johnston contacted her and asked her to sell another line of children's clothing that Johnston was representing. Cox said that she started selling that line of clothing.

On April 22, 2011, Castles sued Stuart and Johnston. The complaint alleged claims of conversion; civil conspiracy; "willfulness, negligence, and wantonness"; trespass to chattel; and unjust-enrichment against Johnston and Stuart. It also asserted fraudulent-misrepresentation and suppression claims against Stuart.

On May 26, 2011, Johnston filed her answer. She also asserted a counterclaim against Castles and a third-party complaint against Vickers and Tibbetts. In her counterclaim and third-party complaint, Johnston alleged claims of defamation; "negligence, wantonness, and willfulness"; conspiracy; and tortious interference with business and contractual relations. She also sought recovery against Castles under the theory of respondeat superior.

On June 28, 2011, Castles filed its "Answer to Jami Johns[t]on's Counterclaims and Third–Party Complaint."

Stuart subsequently filed an answer and an amended answer. Stuart included a counterclaim against Castles alleging libel and slander and tortious interference with Stuart's business relationships.

On January 21,...