McCallister Co. v. Kastella

• Decision Date: 28 January 1992
• Docket Number: No. 2,CA-CV,2
• Citation: 825 P.2d 980,170 Ariz. 455
• Parties: , RICO Bus.Disp.Guide 7936 The McCALLISTER CO., an Arizona corporation, Plaintiff/Appellant, v. Lynn KASTELLA and James Kastella, wife and husband, and L. K. Management, Ltd., an Arizona corporation, Defendants/Appellees. 91-0173.
• Court: Arizona Court of Appeals

Page 980

825 P.2d 980

170 Ariz. 455, RICO Bus.Disp.Guide 7936

The McCALLISTER CO., an Arizona corporation, Plaintiff/Appellant, v. Lynn KASTELLA and James Kastella, wife and husband, and L. K. Management, Ltd., an Arizona corporation, Defendants/Appellees.

No. 2 CA-CV 91-0173.

Court of Appeals of Arizona Division 2, Department B.

Jan. 28, 1992.

[170 Ariz. 456] Rosen & Friederich by Dennis A. Rosen, Tucson, for plaintiff/appellant.

Karp, Stolkin & Weiss, P.C. by Ronald J. Stolkin, Tucson, for defendants/appellees.

OPINION

FERNANDEZ, Presiding Judge.

The McCallister Company appeals from the entry of summary judgment in favor of appellees Lynn and James Kastella and L. K. Management, Ltd. (Kastella) on its claims for breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and racketeering. McCallister argues that summary judgment should have been entered in its favor or, alternatively, that material facts exist that preclude the entry of summary judgment. We affirm.

Lynn Kastella began working for McCallister in September 1987 as head of its newly created commercial property division. She had previously worked as an agent for another company in commercial property management. After she was employed by McCallister, Kastella became the designated broker for its commercial property division. She was also a vice president of the corporation.

On September 29, 1989, Kastella submitted a thirty-day notice of resignation to McCallister, stating that she intended to start her own commercial property management firm. Kastella indicated that she would continue to perform her duties for McCallister until her termination date, October 31. Also on September 29, Kastella sent letters to each of McCallister's commercial clients notifying them of her resignation and its effective date. Included in those letters was the following paragraph:

Resignations do not come easy for me, however, I am extremely pleased that an opportunity to start my own business allows me to move ahead. Please understand that this is not a solicitation for your business, but a chance to tell you how much I have appreciated your kindness and support since our relationship commenced.

On October 3, 1989, McCallister filed suit against Kastella and sought a preliminary injunction, which was denied. On October 12, two days after the injunction hearing, Kastella resigned from McCallister, effective immediately. McCallister subsequently amended its complaint to allege causes of action for breach of the implied covenant of good faith and fair dealing, racketeering based on scheme or artifice to defraud, breach of fiduciary duty, conversion, and intentional interference with contractual relationships. Kastella counterclaimed for breach of contract and breach of the implied covenant of good faith and fair dealing, alleging that McCallister owed her bonuses pursuant to their compensation agreement. McCallister later withdrew the conversion count.

McCallister moved for partial summary judgment on its counts for breach of the implied covenant, breach of fiduciary duty, and intentional interference. Kastella responded with her own motion for summary judgment on all counts of the complaint. The trial court granted summary judgment on all counts except the intentional interference count. The parties then stipulated to dismiss all remaining counts of both the complaint and the counterclaim without prejudice, agreeing that neither party would refile its pleadings if the trial court's rulings were affirmed. The trial court approved the stipulation and the inclusion of language in the judgment pursuant to Rule 54(b), Ariz.R.Civ.P., 16 A.R.S.

Both because the intentional interference count was subsequently dismissed and because the trial court denied both parties' motions for summary judgment on that claim, we do not address McCallister's arguments on that count. The denial of summary judgment is not appealable. State v. Superior Court, 140 Ariz. 365, 681 P.2d 1384 (1984). Because of the latter reason, we also do not address McCallister's contentions that the trial court erred in denying its motion for summary judgment on three counts. McCallister is correct that this court is authorized to enter summary judgment for the opposite party in an appropriate case; that is true, however, only if we first determine that the trial court erroneously entered summary judgment against that party. Roosevelt Savings Bank v. State Farm Fire & Casualty Co., 27 Ariz.App. 522, 556 P.2d 823 (1976). It does not permit us to review the denial of a summary judgment in general.

We also find no merit to McCallister's contention that the trial court erred in entering summary judgment on its racketeering count. The scheme or artifice to defraud required to support a civil action for racketeering must be sufficient to constitute a chargeable or indictable offense under the Arizona criminal laws. A.R.S. § 13-2301(D)(4). The crime of fraudulent schemes and artifices requires that a person knowingly obtain a benefit by means of fraud or misrepresentation. A.R.S. § 13-2310(A). McCallister has presented absolutely no evidence that would support a claim of racketeering. It cites nothing more in the way of evidence to support that claim than the evidence it presented in support of its other claims. That is insufficient.

Although McCallister argues that the facts support both its claims for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, we find nothing in the implied covenant count that is not included in the breach of duty count. "The covenant requires that neither party do anything that will injure the right of the other to receive the benefits of their agreement." Wagenseller v. Scottsdale Memorial Hospital, 147 Ariz. 370, 383, 710 P.2d 1025, 1038 (1985). Indeed, only the breach of duty claim encompasses all the facts alleged by McCallister. Thus, the only count we address is the breach of fiduciary duty claim.

BREACH OF FIDUCIARY DUTY

As McCallister notes, in Arizona, an employee/agent owes his or her employer/principal a fiduciary duty. Restatement (Second) of Agency § 2 (1958); see also Valley National Bank v. Milmoe, 74 Ariz. 290, 248 P.2d 740 (1952); Mallamo v. Hartman, 70 Ariz. 294, 219 P.2d 1039 (1950); Starkweather v. Conner, 44 Ariz. 369, 38 P.2d 311 (1934). In addition, "[u]nless otherwise agreed, an agent is subject to a duty not to compete with the principal concerning the subject matter of his agency." Restatement § 393. Comment e to that section provides:

Preparation for competition after termination of agency. After the termination of his agency, in the absence of a restrictive agreement, the agent can properly compete with his principal as to matters for which he has been employed.... Even before the termination of the agency, he is entitled to make arrangements to compete, except that he cannot properly use confidential information peculiar to his employer's business and acquired therein. Thus, before the end of his employment, he can properly purchase a rival business and upon termination of employment immediately compete. He is not, however, entitled to solicit customers for such rival business before the end of his employment nor can he properly do other similar acts in direct competition with the employer's business.

McCallister contends that Kastella breached her duty of loyalty both by improperly soliciting McCallister's clients and by improperly soliciting its employees. Kastella testified at the preliminary injunction hearing that of McCallister's six or seven commercial clients, four had verbally informed her that they would hire her when she set up her own company. She testified that they had called after they received her letter informing them she was leaving McCallister and asked her questions. Kastella stated she told them it was entirely up to them what they decided to do. She also testified that she told the employees she was resigning from McCallister and opening her own firm. She testified that she did not offer any of the employees a job but that several of them asked her if they could work for her. Kastella stated she told them that would be fine if the new company "got up and running...."

McCallister produced evidence that it had received letters from four of its clients within days of Kastella's resignation letter terminating their property management agreements with McCallister effective in thirty days. Three of the clients indicated that Kastella's new company would be their property manager after the McCallister agreement terminated. Six of the nine commercial property division employees submitted their resignations to McCallister between October 13 and 16, four of which were...