Aert v. Acs

Decision Date07 February 2008
Docket NumberNo. 06-1145.,06-1145.
Citation372 Ark. 286,275 S.W.3d 162
PartiesADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC., Appellant, v. ADVANCED CONTROL SOLUTIONS, INC., Appellee.
CourtArkansas Supreme Court

Pettus, McGuire & Damron Law Firm, P.A., by: E. Lamar Pettus, Fayetteville, for appellant/cross-appellee.

Conner & Winters, LLP, by: Todd P. Lewis, Fayetteville, for appellee/cross-appellant.

ANNABELLE CLINTON IMBER, Justice.

This appeal arises from a complaint filed by Appellee/Cross-appellant Advanced Control Solutions, Inc. ("ACS") against Appellant/Cross-appellee Advanced Environmental Recycling Technologies, Inc. ("AERT") and Orin B. Justice. The complaint averred that AERT, a client of ACS, had hired Justice, a former employee of ACS, in violation of a covenant not to compete. The complaint alleged multiple claims against both defendants, and each defendant raised multiple counterclaims against ACS. AERT appeals from the judgment in favor of ACS on ACS's claim of tortious interference with a contract, while ACS cross-appeals from a judgment in favor of AERT on AERT's counterclaim for breach of contract. Justice is not involved in this appeal. Because this case presents a procedural issue needing clarification of the law and interpretation of a rule of civil procedure, it was certified to us by the Arkansas Court of Appeals pursuant to Ark. Sup.Ct. R. 1-2(b)(5) and (6). We find no error and affirm both the direct appeal and the cross-appeal.

ACS is an Arkansas-based professional services firm, with its principal place of business in Bentonville. It specializes in technical programming and design of control systems for industrial facilities and process plants; it also provides technical assistance and electrical control and programming for process automation. Orin Justice was employed at ACS beginning in June of 1998. He began as a part-time employee and obtained full-time status in October of 1998. In 2000, Justice was appointed vice-president of the company by its president, Jeff Call, and was made a five-percent shareholder. Justice specialized in electrical control work and was eventually placed in charge of the electrical control work for ACS's biggest client, AERT, a manufacturer of composite wood products. Testimony showed that Justice spent approximately seventy percent of his time doing electrical control work on the AERT account in 2002 and 2003. Justice was provided with a workspace at AERT's Springdale facility and developed close working relationships with AERT employees.

Justice testified that, on several occasions while he was performing electrical control work for AERT on behalf of ACS, he was offered a job at AERT. He stated that he did not take these offers seriously and considered them to be "in jest" or "in passing." Additionally, Justice had signed an employment agreement, which included a covenant-not-to-compete provision, with ACS. The employment agreement was introduced at trial by ACS. It was signed by Justice on July 17, 1998, and contained a paragraph titled "Competitive Activities," which read, in pertinent part:

Employee shall not attempt to solicit Employer's Clients or engage in activities as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, to directly compete with Employer for a period of twenty-four (24) months within the state of Arkansas after the termination of this Employment Agreement.

The agreement also stated that "[m]odifications of this Agreement will be effective only if in writing and signed by the party to be charged." However, Justice testified at trial that he had not agreed to this covenant-not-to-compete provision. He stated that the first and last pages of the employment agreement introduced by ACS, which contained the date written in by Justice and his signature, were from the agreement that he had signed. However, the pages in the middle, specifically the page containing the non-compete provision, had been replaced since he dated and signed the contract. Justice testified that the word "employee" (as part of the phrase, "engage in activities as an employee, employer, consultant ...") had been struck through on the version that he had signed. According to Justice, he had been given a copy of the contract when he signed it but was unable to locate it.

Justice did introduce at trial an unsigned copy of the agreement he claimed to have signed. In that version, the word "employee," as well as the phrase "or in any other individual or representative capacity," were crossed out. This copy also contained handwritten notations by Justice. He testified that, prior to his signing the contract, he and Jeff Call discussed these notations and included some of the suggested changes in the final version. Justice also testified that the final version of the contract he signed included a provision stating that he could terminate the agreement at any time and for any reason if he gave five days' notice to Call. According to Justice, he did not agree to the replacement of pages of the contract, which effectively removed the strikeouts and the provision giving Justice the right to terminate the agreement. Justice stated that he was not aware that these changes were made and did not receive anything in exchange for the modification of the agreement.

However, Call testified that he and Justice made these changes together. According to Call, he and Justice realized that the strike-through of the word "employee" in their employment agreements was a problem when another employee, who had signed an employment agreement with the strike-through, went to work for a company with which ACS had negotiated a purchase order. Consequently, Call and Justice together reviewed all of the employment agreements on file. They found that Justice's was the only other one with the strike-through. They then replaced the page containing the strike-through so that the non-compete provision included the word "employee" and the phrase "or in any other individual or representative capacity."

While Justice was still employed at ACS, his daughter was also hired to work for the company. In December of 2003, she was asked to sign an employment agreement with the non-compete provision. Upon her refusal to sign the agreement, Justice's daughter was terminated by Call. Justice then informed Call that, because he believed his daughter's termination to be wrongful, he planned to advise her to hire an attorney. Call then terminated Justice's employment as well. On the same day, Justice spoke with James Kelly Schmidt at AERT, who asked Justice to come in for a meeting regarding the possibility of his working for AERT. Justice met with the president, senior vice-president, and operations manager of AERT on December 10 and signed an employment contract on December 23. At the time of trial, Justice remained employed at AERT. As project manager for process controls, he performs the same type of work that he had performed on behalf of ACS. Justice also selects contractors to perform work at AERT. Since Justice began work at AERT on January 2, 2004, ACS has not performed any electrical control work for AERT. Multiple projects have been given instead to Hyme Automation and Fayetteville Electric, neither of which had done work for AERT prior to Justice's employment there. Justice actually formed and incorporated Fayetteville Electric but later transferred his interest in that company because he perceived the situation as a conflict of interest.

ACS's complaint against Justice alleged breach of covenant not to compete and civil conspiracy, violation of the Arkansas Trade Secrets Act, tortious interference with a contract, tortious interference with prospective economic advantage, and tortious interference with contractual and business relationships with clients. As to its claims against AERT, ACS alleged tortious interference with a contract and civil conspiracy, breach of contract, and conversion (stemming from AERT's alleged refusal to return ACS property that had been stored at AERT's facility). Justice filed a counterclaim against ACS, alleging violation of dissenter's rights and breach of employment contract and requesting a declaratory judgment proclaiming that the covenant not to compete was invalid and unenforceable. AERT also filed a counterclaim against ACS, alleging breach of contract and conversion and requesting specific performance and a mandatory injunction. AERT averred that, in 2003, it contracted with ACS for ACS to design, install, and make operational an automated inventory tracking system. ACS allegedly agreed to provide AERT with all information needed to access the program, known as "source codes." AERT asserted that, after ACS made the program operational, it refused to release the source codes.

The circuit court granted ACS's motion to dismiss without prejudice its claim against Justice for violation of the Arkansas Trade Secrets Act as well as its motion to dismiss with prejudice its breach-of-contract claim against AERT. All other claims were disposed of by a Benton County jury. Judgment was entered in favor of ACS and against Justice for breach of covenant not to compete, tortious interference with prospective economic advantage, and tortious interference with contractual and business relationships with clients. Judgment was also entered in favor of ACS and against AERT for tortious interference with a contract and conversion. On the counterclaims, judgment was entered in favor of ACS on Justice's claims of violation of dissenter's rights and breach of employment contract. Finally, AERT prevailed on its breach-of-contract counterclaim against ACS; however, ACS prevailed on AERT's counterclaim for conversion. AERT now appeals the judgment in favor of ACS on ACS's...

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