Calisi v. Unified Fin. Servs., LLC, 1 CA–CV 11–0812.

• Decision Date: 11 April 2013
• Docket Number: No. 1 CA–CV 11–0812.,1 CA–CV 11–0812.
• Citation: 658 Ariz. Adv. Rep. 7,302 P.3d 628,232 Ariz. 103
• Parties: Michael CALISI, Plaintiff/ Counterdefendant/Appellant/Cross–Appellee, v. UNIFIED FINANCIAL SERVICES, LLC, an Arizona corporation; Unified Wealth Management, an Arizona corporation, Defendants/Counterclaimants/Appellees/Cross–Appellants.
• Court: Arizona Court of Appeals

232 Ariz. 103

302 P.3d 628

658 Ariz. Adv. Rep. 7

Michael CALISI, Plaintiff/ Counterdefendant/Appellant/Cross–Appellee,

v.UNIFIED FINANCIAL SERVICES, LLC, an Arizona corporation; Unified Wealth Management, an Arizona corporation, Defendants/Counterclaimants/Appellees/Cross–Appellants.

No. 1 CA–CV 11–0812.

Court of Appeals of Arizona, Division 1, Department B.

April 11, 2013.

Jaburg & Wilk, P.C. by Kraig J. Marton and David N. Farren, Phoenix, Attorneys for Plaintiff/Counterdefendant/Appellant/Cross-Appellee.

Snell & Wilmer L.L.P. by Brian J. Foster and Martha E. Gibbs and Anthony T. King, Phoenix, Attorneys for Defendants/Counterclaimants/Appellees/Cross–Appellants.

OPINION

NORRIS, Judge.

[232 Ariz. 104]¶ 1 This appeal and cross-appeal arise out of claims for unpaid wages and misappropriation of trade secrets between Plaintiff/Appellant Michael Calisi and Defendants/Appellees Unified Financial Services (“UFS”) and Unified Wealth Management (“UWM”). The superior court granted Calisi's claim for unpaid wages and UFS's counterclaim for misappropriation of trade secrets, leaving a net judgment in UFS's favor.

¶ 2 On appeal, Calisi argues, among other matters, that UFS failed to present evidence supporting its claim it had an enforceable trade secret in its customer lists. In its cross-appeal, UFS argues the superior court should not have trebled the amount of unpaid wages because a good faith dispute existed between the parties. As discussed below, we agree with Calisi that UFS failed to prove its customer lists constituted a trade secret, and disagree with UFS that it withheld Calisi's unpaid wages in good faith.

FACTS AND PROCEDURAL BACKGROUND

¶ 3 In January 2006, Calisi, a certified public accountant (“CPA”), started working as an accountant at UFS, a firm that prepares tax returns and provides financial planning services. As UFS's only CPA, Calisi focused primarily on corporate accounting, although he sometimes prepared tax returns for individual clients and hoped to develop a practice in financial planning. In January 2007, UFS promoted Calisi to vice president of operations at a salary of $75,000 per year.

[232 Ariz. 105]¶ 4 Richard Boehm, UFS's president, became dissatisfied with Calisi's performance as vice president. In January 2008, Emily Britton began to share Calisi's vice president duties. In August 2008, Britton replaced Calisi as vice president, and Calisi became a non-salaried commission-only financial advisor. Meanwhile, to “soften the blow” of the demotion, Boehm and Britton asked Calisi to serve as the “tax season coordinator.” They gave Calisi a list of tasks for the position and advised him he would be paid $15,000. The parties agreed UFS would pay the $15,000 in the form of contributions to Calisi's 401(K) account for 2008 and 2009. Accordingly, in December 2008, UFS contributed $3,185.15 to fund the balance of Calisi's 2008 401(K).

¶ 5 As tax season coordinator, Calisi was required to organize the annual tax season kickoff event, a program designed to familiarize UFS's financial advisors with the latest financial products and changes in the tax laws. As part of this event, Calisi was responsible for obtaining sponsors willing to pay for the opportunity to speak to the advisors. The event took place on January 8 and 9, 2009. An attendee testified the event was helpful to him as a financial advisor, and Boehm admitted raising sponsorship money from this event was important for UFS's tax season advertising.

¶ 6 Meanwhile, UFS was planning to associate with a new broker-dealer. Calisi, however, was unwilling to sign the documents that would allow him to work for the new broker-dealer. On January 26, 2009, Britton sent Calisi an e-mail, expressing her dissatisfaction with Calisi's refusal to sign the documents as presented. Although at trial the parties disputed whether UFS discharged Calisi or Calisi “self-eliminate[d]” his job, the parties agreed Calisi's employment with UFS ended on January 28, 2009.

¶ 7 Calisi then sought help from Daryle Messina, owner of a mortgage company that from 2004 to 2008 had maintained a mutual referral arrangement with UFS. Messina testified that on February 2, 2009, he sent out a mass e-mail to his company's database of “over 2,000” clients, some of whom were also clients of UFS. The e-mail announced Calisi had joined Messina's firm as its new in-house CPA and offered a discount on tax preparation services.

¶ 8 On the same day, Britton called Calisi and left him a voice message:

Michael, this is Emily. I received a disturbing e-mail today from several clients who are not your clients, they are clients of other UFS Advisors that you are soliciting them via e-mail for a 10% discount on their tax return. This is not in accordance with the amicable letter of separation that we discussed. You are welcome to contact your personal clients and let them know you're leaving, but it is inappropriate for you to contact other UFS Advisors' clients and I expect you to stop doing so immediately. If you have any questions you may contact me. Thank you.

Sometime later, Calisi started his own firm and began to provide personal and business tax services.

¶ 9 Subsequently, Calisi sued UFS for $1,581.84 in unpaid commissions and $11,814.85 in unpaid compensation for the tax season coordinator work, alleging he had become entitled to the full amount of the $15,000 because he had completed the tax season kickoff event. He also sought damages under Arizona Revised Statute (“A.R.S.”) section 23–355(A) (2012), a statute that permits an award of treble damages for unpaid wages. UFS counterclaimed and alleged various claims against Calisi, including a misappropriation of trade secrets claim.

¶ 10 Before trial, the superior court ordered Calisi to produce a list of UFS clients who had “moved their business from [UFS] to [Calisi's firm]” (“Calisi list”). The Calisi list identified 48 individuals and entities and showed Calisi had received approximately $50,000 in gross revenue from these clients in 2009 and 2010. At trial, Calisi testified that during his tenure at UFS, he had directly worked with several of the listed individuals and entities.

¶ 11 After a three-day bench trial, the superior court found UFS had improperly withheld Calisi's commissions and the balance of the $15,000 as tax season coordinator, and awarded him $43,760.40 in treble damages. The court rejected all of UFS's counterclaimswith the exception of the trade secret claim, finding Calisi had misappropriated UFS's “customer lists and personal information.” The court awarded UFS $51,566.54 on the trade secret claim, and after offsetting the damages awarded to Calisi, entered a net judgment in UFS's favor and against Calisi for $7,806.14 plus interest. The court denied the parties' requests for attorneys' fees and costs.

DISCUSSION

I. Trade Secret Claim

¶ 12 On appeal, Calisi argues UFS failed to present any evidence he had misappropriated a legally enforceable trade secret, specifically, any customer list. In response, UFS argues it presented ample evidence that its customer lists contained confidential customer information entitled to protection as a trade secret.

¶ 13 Whether a trade secret exists is a mixed question of law and fact. While we accept the superior court's findings of fact unless they are clearly erroneous, we review questions of law de novo. Enterprise Leasing Co. of Phoenix v. Ehmke, 197 Ariz. 144, 148, ¶ 11, 3 P.3d 1064, 1068 (App.1999). “Thus, we are not constrained by the legal conclusions from facts found or inferred in the judgment of the [superior] court nor by its findings ... in questions of law or mixed questions of law and fact.” Id. As discussed in detail below, we agree with Calisi that UFS failed to present any evidence its customer list constituted a trade secret.

¶ 14 To establish a claim for misappropriation of a trade secret, the claimant must first prove a legally protectable trade secret exists. Arizona has adopted the Uniform Trade Secrets Act (“UTSA”), which codifies the basic principles of common law trade secret protection. Id. at 148, ¶ 12, 3 P.3d at 1068. Under the UTSA, a “trade secret” is

information, including a formula, pattern, compilation, program, device, method, technique or process, that both:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

A.R.S. § 44–401(4) (2003). In interpreting the UTSA, we are entitled to rely on common law principles in the absence of a conflict. A.R.S. § 44–407 (2003) (UTSA displaces “conflicting tort, restitutionary and other laws ... providing civil remedies for misappropriation of trade secrets”); accord Ed Nowogroski Ins., Inc. v. Rucker, 137 Wash.2d 427, 971 P.2d 936, 945 (1999).

¶ 15 Because the hallmark of a trade secret is secrecy, the two-part inquiry under the UTSA focuses on: first, whether the subject matter of the information is secret; and second, whether reasonable efforts have been taken to keep the information secret. A.R.S. § 44–401(4); Enterprise Leasing Co., 197 Ariz. at 149, ¶ 15, 150, ¶ 22, 3 P.3d at 1069, 1070. In the context of customer lists, trade secret protection does not depend on whether the “list” misappropriated is in written form or memorized. Al Minor & Assoc., Inc. v. Martin, 117 Ohio St.3d 58, 881 N.E.2d 850, 853–54, ¶ 19 (2008); Ed Nowogroski Ins., Inc., 971 P.2d at 948. Rather, courts have identified several factors to determine whether a customer list qualifies as a trade secret.

¶ 16 A customer list may be entitled to trade secret protection when it represents a selective accumulation of detailed, valuable information about customers—such as their particular needs, preferences, or characteristics—that naturally “would not...