Miles Farm Supply, LLC v. Helena Chemical Co.

• Decision Date: 25 February 2010
• Docket Number: No. 08-6093.,08-6093.
• Parties: MILES FARM SUPPLY, LLC, Plaintiff-Appellant, v. HELENA CHEMICAL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

595 F.3d 663

MILES FARM SUPPLY, LLC, Plaintiff-Appellant, v. HELENA CHEMICAL COMPANY, Defendant-Appellee.

No. 08-6093.

United States Court of Appeals, Sixth Circuit.

Argued: January 11, 2010.

Decided and Filed: February 25, 2010.

ARGUED: M. Stephen Pitt, Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, for Appellant. Robert B. Craig, Taft, Stettinius & Hollister LLP, Covington, Kentucky, for Appellee. ON BRIEF: M. Stephen Pitt, Jean W. Bird, Merrill S. Schell, Wyatt, Tarrant & Combs, LLP, Louisville, Kentucky, Thomas J. Meyer, John David Meyer, Meyer, Haynes, Crone & Meyer, LLP, Owensboro, Kentucky, for Appellant. Robert B. Craig, Taft, Stettinius & Hollister LLP, Covington, Kentucky, John B. Nalbandian, Taft Stettinius & Hollister LLP, Cincinnati, Ohio, for Appellee.

Before SUHRHEINRICH, SUTTON and COOK, Circuit Judges.

OPINION

SUTTON, Circuit Judge.

Miles Farm Supply challenges the district court's summary disposition of its Kentucky-law claims that Helena Chemical Company aided and abetted a breach of fiduciary duty by three Miles employees and that, by aiding those employees, Helena tortiously interfered with Miles' prospective contractual relations. Because Miles has failed as a matter of law to show that Helena had actual knowledge that the three employees were breaching a fiduciary duty, we affirm.

I.

Headquartered in Owensboro, Kentucky, Miles is a family-run agricultural supplier. Through its Big Rivers division, it sells wholesale agricultural chemicals to farm-supply dealers in western Kentucky, southern Indiana and southern Illinois.

Starting in 1998, Benny Tincher served as Miles' General Manager. The company, however, eliminated his position in 2004, shortly after Debra Seymour replaced her father as Miles' President. Seymour transferred Tincher's responsibilities to a Leadership Council, and piling insult on injury (so far as Tincher was concerned) Seymour did not select Tincher for one of the six Leadership Council positions.

By October 2004, Tincher's future with Miles did not look promising. At that time, Seymour wanted Tincher to leave the company—and told him so—but ultimately decided that Miles still needed him after conversations with her father. On December 3, 2004, she made Tincher head of business development.

By then, it turns out, Tincher had begun exploring other opportunities. In mid-November, he reached out to a friend at Helena, a large wholesale agricultural supplier. On December 16, he met with Charles Adams, Randy Parman and Doug Goff, three high-level Helena employees, to discuss potential job opportunities. Two other Miles employees joined him at the meeting: Brian Mattingly, Big Rivers' sales and marketing manager, and Jerry Mattingly (no relation), Big Rivers' operations manager. After Tincher and the Mattinglys made their pitch, Parman told them that he would need a budget before moving forward.

Helena and the trio of Tincher and the Mattinglys remained in phone and email contact through January 8, 2005. In particular, the trio worked with Helena employees to put together a budget for a potential Helena branch in western Kentucky.

On January 7, 2005, a Friday, Tincher and the Mattinglys met with several high-level Helena employees, including Michael McCarty, Helena's President and CEO. The trio suggested that several Miles employees might join them at a new Helena branch in Owensboro but, in response to questions from Helena representatives, assured Helena that they had not yet recruited any Miles employees. The next morning, a Saturday, Helena hired the trio to open a western Kentucky branch and told them they could start offering jobs to Big Rivers employees on Monday morning.

That Saturday, Tincher and the Mattinglys had lunch with three Big Rivers employees—Greg Clifton, Anita Fuqua, Rick Peveler—and told them that they planned to resign Monday morning and that Clifton, Fuqua and Peveler should think about whether they wanted to work for Helena because they might have job offers from the company on Monday. They said the same thing to Matt Hayden, a Big Rivers salesman, when they encountered him by chance that afternoon. Brian Mattingly also used the weekend to arrange a Monday-morning meeting with his Big Rivers sales staff. At some point over the weekend, Tincher e-mailed Helena the names, positions and salaries of several employees that Helena might wish to offer jobs on Monday.

On Monday morning, Tincher and the Mattinglys resigned. Later that morning, they extended offers to the sales staff plus Clinton, Fuqua and Peveler. All of them accepted Helena's offer over the next several days.

Later in 2005, Tincher and the Mattinglys sued Miles in Kentucky state court for withholding bonuses owed them. Miles counterclaimed for breach of fiduciary duty. That suit, the parties tell us, remains pending in state court.

In January 2006, Miles filed a separate action in state court against Helena, claiming that Helena aided and abetted fiduciary breaches by Tincher and the Mattinglys and that Helena tortiously interfered with Miles' prospective contractual relationships (along with four other claims not at issue in this appeal). Helena removed the action to federal court. After discovery, Helena moved for summary judgment on both claims, and the district court, applying Kentucky law, granted the motion, holding that Miles could not show an underlying fiduciary breach by Tincher or the Mattinglys, which defeated both claims.

II.

Consistent with the district court, we think Helena is entitled to summary judgment on Miles' aiding-and-abetting claim. Inconsistent with the district court, we think it appropriate to rely on a narrower ground for reaching that decision. The easier question, as we see it, is not whether Tincher and the Mattinglys breached a fiduciary duty, a matter the parties are free to deal with in the action pending in state court. It is whether Helena knew about the alleged breach, as Kentucky law requires before treating someone as an aider and abettor.

First some basics. Kentucky law recognizes a claim for fiduciary breach. See Aero Drapery of Ky., Inc. v. Engdahl, 507 S.W.2d 166, 169 (Ky.1974). It recognizes a claim for aiding and abetting tortious conduct, which covers fiduciary-breach claims. See Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 485 (Ky.1991). And it, like the majority of jurisdictions, follows the Restatement in defining the claim. See Restatement (Second) of Torts § 876; Farmer v. City of Newport, 748 S.W.2d 162, 164-65 (Ky.Ct. App.1988). All of this means that Miles must show the following to prevail: (1) that at least one Miles employee breached a fiduciary duty; (2) that Helena gave "substantial assistance or encouragement" to that employee; and (3) that Helena "kn[ew] that the [employee's] conduct" breached a fiduciary duty. Restatement (Second) of Torts § 876(b); see Aetna Cas. & Sur. Co. v. Leahey Constr. Co., 219 F.3d 519, 533 (6th Cir.2000).

As to the third element of the claim, constructive knowledge does not suffice; Miles must show that Helena had "actual knowledge" of any breach. Aetna, 219 F.3d at 536; see also GCM, Inc. v. Ky. Cent. Life Ins. Co., 124 N.M. 186, 947 P.2d 143, 147-48 (1997). Under Kentucky law, that means showing Helena knew not just that the trio's conduct breached a fiduciary duty but also that the trio did not have consent from Miles to seek out other opportunities. See Aero Drapery, 507 S.W.2d at 169 (Ky.1974); Design Strategy, Inc. v. Davis, 469 F.3d 284, 303 (2d Cir. 2006).

Miles cannot satisfy all elements of the test, and in particular, has not made out a cognizable claim that Helena had "actual knowledge" of any breach. What did Helena know? It is by no means clear, to start, that Helena knew it was dealing with fiduciaries. The classic fiduciaries in this context, the ones presumed to owe such duties, are directors or officers, see Steelvest, 807 S.W.2d at 483, not a demoted "General Manager," a "Sales and Marketing Manager" and a "Sales/Operations/Logistics Manager," as the three Miles employees introduced themselves, App'x 7001. Perhaps the relevant Helena corporate officers might have thought that the three did business on behalf of their employer and performed duties requiring "trust or confidence" in their integrity and loyalty, though Miles never asked these questions in...