Jet Courier Service, Inc. v. Mulei

• Decision Date: 20 March 1989
• Docket Number: No. 87SC182,87SC182
• Citation: 771 P.2d 486
• Parties: 29 Wage & Hour Cas. (BNA) 322, 57 USLW 2580, 4 IER Cases 316 JET COURIER SERVICE, INC., an Ohio corporation, Petitioner, v. Anthony MULEI and American Check Transport, Inc., Respondents.
• Court: Colorado Supreme Court

Page 486

771 P.2d 486

29 Wage & Hour Cas. (BNA) 322, 57 USLW

2580, 4 IER Cases 316

JET COURIER SERVICE, INC., an Ohio corporation, Petitioner, v. Anthony MULEI and American Check Transport, Inc., Respondents.

No. 87SC182.

Supreme Court of Colorado,

En Banc.

March 20, 1989.

McMichael, Benedict & Multz, Mitchell Benedict II, Denver, for petitioner.

Joseph M. Fanganello, P.C., Joseph M. Fanganello, Denver, for respondent, Anthony Mulei.

Cordova, Harris & Mellon, P.C., Donald E. Cordova, and John S.L. Sackett, Denver, for respondent American Check Transport, Inc.

LOHR, Justice.

In Mulei v. Jet Courier Service, Inc., 739 P.2d 889 (Colo.App.1987), the Colorado Court of Appeals affirmed the trial court's decision that the respondent, Anthony Mulei, did not breach any duty of loyalty to his employer, Jet Courier Service, Inc. (Jet), when he organized another company, American Check Transport, Inc. (ACT), to compete with Jet in the air courier business. The court of appeals also affirmed the trial court's award of unpaid compensation due Mulei under his employment contract with Jet, plus a fifty-percent statutory penalty pursuant to section 8-4-104(3), 3B C.R.S. (1986). Finally, the court of appeals agreed with the trial court that as a matter of law, neither Mulei nor ACT engaged in a civil conspiracy to harm Jet's business interests. We granted Jet's petition for certiorari to review the court of appeals' resolution of these issues. We now conclude that the court of appeals and the trial court applied unduly narrow legal standards in determining what actions constitute a breach of an employee's duty of loyalty to his employer. Accordingly, we reverse the judgment of the court of appeals with respect to the issues upon which we granted review. ¹ Because the trial court's findings of fact are insufficient to determine whether Mulei breached his duty of loyalty, we remand the case for retrial ² consistent with the standards announced in this opinion.

I.

Although we remand this case for retrial, an understanding of the issues presented requires a familiarity with the background of this litigation. We obtain our description of the facts from the findings of the trial court, supplemented by other facts derived from undisputed evidence in the record. However, this description of the facts is not binding upon the trial court on remand.

Jet is an air courier company engaged principally in supplying a specialized transportation service to customer banks. ³ Jet provides air and incidental ground courier service to carry canceled checks between banks to facilitate rapid processing of those checks through the banking system. Shortened processing time enables the banks at which the checks are cashed to make use of the funds sooner. Because the sums involved are large, substantial amounts of daily interest are at stake. As a result, the ability to assure speedy deliveries is essential to compete effectively in the air courier business.

In 1981 Jet was an established family-owned corporation headed by Donald W. Wright. The principal offices of the corporation were in Cincinnati, Ohio. Jet had no office in Denver. Anthony Mulei at that time was working in Denver for another air courier service in a management capacity. Mulei had worked in the air courier business for a number of years and was very familiar with it. He had numerous business connections in the banking industry in Denver and other cities. On February 18, 1981, Wright and Mulei agreed that Mulei would come to work for Jet and would open a Denver office and manage Jet's Western Zone operations from that office. They orally agreed that Mulei would be vice president and general manager for the Western Zone and would have autonomy in matters such as the solicitation of business, the operation of the business, and personnel policies. The parties further agreed that Mulei would be paid $36,000 per year, plus a bonus of ten percent of the net profits of the Western Zone, to be calculated and paid every three months. Based in part on Mulei's business relationships with several regional banks, Wright and Mulei expected that Mulei would be able to expand Jet's business.

Late in 1981 Wright sent Mulei a written employment agreement containing the same terms as the oral agreement with the addition of a noncompetition covenant whereby Mulei would agree not to compete with Jet for two years after termination of his employment, without any geographic restriction. Mulei signed the written agreement. At some time before this litigation commenced, Wright also signed the agreement on behalf of Jet.

Mulei performed services as agreed and was successful in significantly increasing the business of Jet in the Western Zone as well as other areas of the United States. Although Jet regularly paid Mulei his monthly salary, and paid him additional sums from time to time totaling $31,000 over the period of his employment, Jet never computed or paid the quarterly bonuses in the manner contemplated by the contract. From time to time Mulei requested payments and accountings but was not successful in obtaining them.

Mulei became progressively dissatisfied with his inability to resolve the bonus issue and with what he believed to be intrusions into his promised areas of autonomy in personnel and operational matters. Toward the end of 1982 he began to look for other work in the air courier field and sought legal advice concerning the validity of the noncompetition covenant in his employment contract.

In the course of seeking other employment opportunities and while still employed by Jet, Mulei began to investigate setting up another air courier company that would compete with Jet in the air courier business. In January 1983, Mulei spoke with John Towner, a Kansas air charter operator who was in the business of supplying certain air transportation services, about going into business together. In February 1983, Mulei met with Towner and two Jet employees to discuss setting up this new business and obtaining customers.

On February 27, 1983, Mulei, while still employed by Jet and on Jet business in Phoenix, talked to two of Jet's customer banks to inform them he would be leaving Jet in mid-March and to tell them he "would try to give them the same service." He engaged in similar discussions with two bank customers of Jet in Dallas while still employed by Jet. Early in March 1983, Mulei met with representatives of three of Jet's Denver customers, First Interstate Bank of Denver, Central Bank of Denver, and United Bank of Denver, and discussed the new air courier company that Mulei and Towner were forming. Mulei told the United Bank of Denver float manager that "if they wished to give us [ACT] the business," then ACT would be able to serve them without any break in the service, and that ACT would be able to take over their business and fully satisfy their air courier service needs. Mulei further told United Bank of Denver that "by minimizing expenses, I would be in a position, sometime later, to reduce cost." Mulei had similar conversations with representatives of First Interstate Bank of Denver.

Prior to the termination of Mulei's employment by Jet on March 10, 1983, Mulei met with nine pilots who were flying for Jet to discuss his formation of ACT. Before his termination, Mulei also met with Jet's Denver office staff and with its ground couriers ⁴ to discuss potential future employment with ACT. ⁵ Mulei offered Jet's office staff better working conditions, including health and dental insurance and part ownership of ACT, if they were to join ACT. Mulei did not inform Wright of any of these activities with respect to Jet customers, contractors or employees.

ACT was incorporated on February 28, 1983. Mulei was elected president at the first shareholders meeting. On behalf of Jet, Wright fired Mulei on March 10, 1983, when Wright first learned of Mulei's organization of a competing enterprise. On that same day Mulei caused ACT to become operational and compete with Jet. ⁶ Five Denver banks that had been Jet customers became ACT customers at that time. Additionally, when Mulei was fired, three of the four other employees in Jet's Denver office also left Jet and joined ACT. All of Jet's ground carriers in Denver immediately left Jet and joined ACT. All nine of Jet's pilots in Denver either quit or were fired. Jet was able to maintain its Denver operations only through a rapid and massive transfer of resources, including chartered aircraft and ground couriers, from Jet's other offices.

Mulei filed suit against Jet in Denver District Court on March 10, 1983, the same day he was fired, seeking principally to recover unpaid compensation and penalties on such unpaid amounts pursuant to section 8-4-104, 3B C.R.S. (1986), and further seeking a declaratory judgment that the noncompetition covenant in his employment contract was void. Jet counterclaimed for breach of contract, breach of fiduciary duty, and civil conspiracy and sought damages and other relief. ⁷ Jet also filed a separate suit in Denver District Court against ACT, Towner, and Towner's air charter company, alleging a civil conspiracy among Towner, Mulei, ACT, Towner's air charter company, and others to harm Jet's business interests and seeking damages and injunctive relief.

The two cases were consolidated for trial. The district court concluded that Mulei's noncompetition covenant was void for lack of consideration and unreasonableness, that Mulei was entitled to salary and bonus compensation totaling $93,740.34 plus a fifty-percent statutory penalty of $46,870.17 pursuant to section 8-4-104, as well as vacation pay, attorney fees in connection with the compensation and penalty claims, interest, and costs. The district court also concluded that Mulei did not violate his duty of loyalty to Jet. Accordingly, the district court dismissed Jet's counterclaims against Mulei for damages, and it denied Jet's civil conspiracy claim for...