L.A. Draper & Son, Inc. v. Wheelabrator-Frye, Inc.

• Decision Date: 27 March 1987
• Docket Number: INC,No. 85-7658,WHEELABRATOR-FRY,85-7658
• Citation: 813 F.2d 332
• Parties: L.A. DRAPER & SON, INC., Plaintiff-Appellant. v., a corporation; Hessco Industrial Supply, Inc., a corporation; Fred Z. Hester, an individual, Joseph E. O'Callaghan, an individual, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 332

813 F.2d 332

L.A. DRAPER & SON, INC., Plaintiff-Appellant. v. WHEELABRATOR-FRYE, INC., a corporation; Hessco Industrial Supply, Inc., a corporation; Fred Z. Hester, an individual, Joseph E. O'Callaghan, an individual, Defendants-Appellees.

No. 85-7658.

United States Court of Appeals Eleventh Circuit.

March 27, 1987.

Thad G. Long, Bradley, Arant, Rose & White, Joseph B. Mays, Jr., Jere F. White, Jr., Birmingham, Ala., for plaintiff-appellant.

L. Vastine Stabler, Jr., Cabaniss, Johnston, Gardner, Dumas & O'Neal, L. Murray Alley, Birmingham, Ala., for Wheelabrator-Frye, Inc. and Hessco.

Ralph D. Gaines, Jr., Gaines & Cleckler, P.C., Charlie P. Gaines, Talledega, Ala., for Hester.

Appeal from the United States District Court for the Northern District of Alabama.

Before HILL and HATCHETT, Circuit Judges and THOMAS ^*, Senior District Judge.

HILL, Circuit Judge:

FACTS

This case has a rather complicated procedural history. The original action began in district court in Alabama. Appellant L.A. Draper & Sons, Inc. ("Draper"), alleged a violation of the Sherman Act, and included a state claim charging that appellee's actions constituted unfair business practices in violation of Alabama law. After Draper had presented its case at trial, the district court granted a directed verdict dismissing the Sherman Act claims, and dismissed the state claim without prejudice. Draper then simultaneously filed an appeal in this court and a claim in state court alleging similar unfair business practices. The state court dismissed the state action, because a federal appeal on the same case was pending, and the Alabama Supreme Court affirmed. Following that, we upheld the district court's dismissal of the antitrust claim, but remanded the state claim to the district court instructing it to exercise jurisdiction over the pendent state claim if the state forum was no longer available. Because the statute of limitations on the Alabama claim had run, the district court reopened the state claim of unfair competition in federal district court. The appellees then moved for summary judgment, which was granted by the district court, and Draper appeals again.

It is important to note that in granting the motion for summary judgment the court treated it, in effect, as a motion for a directed verdict because it relied on all of the evidence that Draper had presented at trial when the two claims, federal and state, were tried together. Because of this the record is more complete than one would expect to find in a summary judgment proceeding. Using all of plaintiff's evidence, the court supported its decision on alternative grounds, holding that (1) a cause of action for "unfair competition" did not exist in Alabama and/or (2) even assuming that the theory of recovery advanced by the appellant had been properly brought, the appellees would nevertheless be entitled to summary judgment based on the evidence presented at trial.

The facts, while not particularly complicated, are fairly voluminous. ¹ Ladsco, a division of appellant L.A. Draper and Son, Inc. was engaged in the distribution of foundry supplies. Ladsco sold four products--primary and secondary aluminum, refractories, grinding wheels, and abrasive shot. Each of these products was obtained from a single supplier.

At all relevant times, appellee Fred Z. Hester was a vice-president and director of Ladsco, in charge of Ladsco's operations. In the spring or early summer of 1979, Hester decided to leave Ladsco and begin his own foundry supply business. While still working for Ladsco, Hester obtained a warehouse and equipment and prepared to begin operations. Three Ladsco salesmen invested with Hester and were to join him once the new company was in business.

By August of 1979, Hester had informed several of Ladsco's suppliers of his intent to begin his own company. One of the suppliers contacted was appellee Wheelabrator-Frye (hereinafter "WF"). Joseph E. O'Callaghan, an officer of WF, offered to hire Hester if he did decide to leave Ladsco. In August of 1979, Hester resigned from Ladsco. Almost immediately he began operation of his own company, Hessco. Four days after Hester's exit, Alan Draper attempted to get many of his remaining employees including several who had secretly committed to become employees of Hessco, to sign an employment contract which contained a covenant not to compete. The employees refused and were terminated. Within three weeks, all but one of Ladsco's former employees were working for Hester. Hessco was therefore virtually identical to the Ladsco which had existed prior to Hester's resignation.

Many of Ladsco's customers soon turned to Hessco for their supplies. In early September 1979, WF offered to purchase both Ladsco and Hessco. Hessco accepted the offer and shortly thereafter became a wholly owned subsidiary of WF. Ladsco was unable to compete with Hessco and, sometime after the trial of this case, went into bankruptcy.

I. ALABAMA BUSINESS TORT LAW

The nomenclature used to describe the business torts encompassed by this case is confusing. Initially, it seems that appellant alleged that the unfair state competition claim and the Sherman Act claim were identical, except that in a Sherman Act violation one had to show public injury and an effect on interstate commerce. This particular concept was apparently a novel theory of relief in Alabama, and the novelty of the claim was one reason for the trial court's reluctance to exercise pendent jurisdiction over it once the anti-trust claims were dismissed.

The district court's opinion granting summary judgment indicates that sometime during the course of the trial counsel for the appellant realized that he had taken the wrong track in presenting Draper's claims, and began to argue various other business tort theories, which he claimed were all subsumed within the rubric of "unfair competition." The district court refused to allow the appellant to pursue these claims as "species of unfair competition," without having raised them as independent causes of action before trial commenced. It interpreted an Alabama Supreme Court decision, City Ambulance of Ala. v. Haynes Ambulance, 431 So.2d 537 (Ala.1983) as holding that Alabama law does not recognize the tort of unfair competition, and granted summary judgment partially on that basis.

We find that the district court's reading of City Ambulance was overbroad. It is true that Alabama does not recognize a tort that is distinctly called "unfair competition;" and such is the holding of the City Ambulance case. However, the cause of action labeled "unfair competition" by appellants in the City Ambulance case was for conduct amounting to trade libel. The Supreme Court of Alabama simply noted that this was subsumed by the Alabama tort of "interference with business relations," and declined to create a separate tort similar to trade libel and call it "unfair competition." The only connection between Draper's claims and the City Ambulance case is appellant's unfortunate choice of words in describing his claim.

While the trial court's reluctance to allow appellant to change horses in midstream is understandable, the appellant did allege facts in its complaint, and in the pretrial order laying out its position, which would allow it to recover under traditional business tort theories, all of which are recognized in Alabama. These claims include breach of fiduciary duty, tortious interference with contractual relations, and tortious interference with business relations. ² Specifically, Draper contends in section 4 paragraph 10 of its complaint that Hester unlawfully lured away Ladsco's employees. In paragraph 13 of the complaint, appellant alleges facts which, if proven, would amount to a breach of fiduciary duty by an employee who held a position of trust within the corporation. In paragraph 14 of the complaint, appellant alleges that Hester tried to steal away Ladsco's suppliers, while employed by Draper. This conduct would support an interference with business relations claim. In paragraph 5b of the pretrial order, appellant alleged facts which also supported its claim that Hester illegally interfered with Ladsco's relationships with its employees. Thus, it cannot fairly be said that the appellant did not allege facts stating a claim under Alabama law. The court's first reason for granting summary judgment is not adequate.

II. CLAIMS AGAINST WF AND O'CALLAGHAN

The district court did hold that, based on the evidence presented at trial, all appellees were entitled to summary judgment on the merits. By the district court's own observation, much of the evidence admitted at trial "is unnecessarily confusing and prejudicial now that there is no antitrust issue before the court." L.A. Draper & Son v. Wheelabrator-Frye, 560 F.Supp. 1138, 1145 (N.D.Ala.1983). Yet in order to grant summary judgment the court must find that there is no genuine issue of material fact, and all doubt as to the existence of a genuine issue of material fact must be resolved against the nonmoving party. Hayden v. First Nat'l Bank of Mt. Pleasant, Texas, 595 F.2d 994 (5th Cir.1979).

The court correctly dismissed all claims against Wheelabrator Frye and O'Callaghan. Business records ³ summarizing the August 1, 1979 meeting between Hester and WF representatives indicate that WF officers were merely interested observers of the activities surrounding Hester's exodus from Ladsco. (Plaintiff's ex. # 29 and 30). WF was faced with the breakup of its principal southeastern distributor. While it tried to keep out of Ladsco's intra-company difficulties, WF had to take some action to protect distribution of its product. One internal WF document demonstrates that the management considered several distribution alternatives, including buying both Ladsco and Hessco so that WF could function as its own distributor. (Plaintiff's ex. # 21, 51 and 51B). Other documents indicate that such an offer was in fact...