Miller v. Hehlen, 2 CA-CV 2004-0033.

• Citation: 104 P.3d 193,209 Ariz. 462
• Decision Date: 18 January 2005
• Docket Number: No. 2 CA-CV 2004-0033.,2 CA-CV 2004-0033.
• Parties: Margaret J. MILLER, Plaintiff/Appellant, v. William E. HEHLEN and Else Hehlen, husband and wife, Defendants/Appellees.
• Court: Court of Appeals of Arizona

104 P.3d 193
209 Ariz. 462

Margaret J. MILLER, Plaintiff/Appellant,
v.
William E. HEHLEN and Else Hehlen, husband and wife, Defendants/Appellees

No. -0033.

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

January 18, 2005.

104 P.3d 195

Good & Associates, P.C., By Gregory E. Good and Janet L. Brauneis, Tucson, The Goldstein Law Group, P.C., By Jeffrey M. Goldstein and Matthew J. Kreutzer, Washington, D.C., for Plaintiff/Appellant

John A. Baade, Tucson, for Defendants/Appellees.

OPINION

PELANDER, Chief J.

¶ 1 In this employment contract case, plaintiff/appellant Margaret Miller appeals from the trial court's grant of summary judgment in favor of Miller's former employee, defendant/appellee William Hehlen, and his wife on Miller's claims for breach of contract and of the implied covenant of good faith and fair dealing, misappropriation of trade secrets, conversion, tortious interference with business expectancy, and defamation.¹ The trial court also awarded attorney fees to Hehlen pursuant to A.R.S. § 12-341.01(A). We have jurisdiction pursuant to A.R.S. § 12-2101(B) and, for the reasons set forth below, we affirm the trial court's judgment.

BACKGROUND

¶ 2 Although the pertinent facts in this case are essentially undisputed, on appeal from a summary judgment, we view the evidence of record and reasonable inferences therefrom in the light most favorable to the party against whom judgment was entered. Bothell v. Two Point Acres, Inc., 192 Ariz. 313, ¶ 2, 965 P.2d 47, 49 (App.1998). Miller works as a tax-preparer and operates several

104 P.3d 196

offices. For approximately fifteen years, up to 2001, Miller operated her business as an H & R Block ("Block") franchise under a franchise agreement she and Block had executed. Miller employed Hehlen in that business as an income tax return preparer for five tax seasons, 1997 through 2001. At the beginning of each tax season, including 2001, Hehlen and Miller executed a form employment agreement that Block not only supplied but also required under its franchise agreement with Miller. Block terminated Miller's franchise in April 2001, which Miller is currently challenging in a separate, federal court action, and thereafter Miller operated her business under the name, "MJM & Associates."

¶ 3 In the course of her business, Miller maintained a database of customer information, including customer data sheets. Until 2001, when Miller asked him to stop, Hehlen kept a customer list he had created from those data sheets on a spreadsheet on his home computer. After Miller instructed Hehlen not to take the customer data sheets home, he surreptitiously began writing customer names on copies of receipts that he had been permitted to keep to track revenue generation. He then added the names to his computer spreadsheet at home. After Hehlen's employment with Miller had ended, in June 2001 Miller provided him with substantially the same customer list in connection with a pay dispute between them.

¶ 4 In December 2001, Miller sent her existing clients a postcard that referred to "Bill" as one of her associates, even though Hehlen no longer worked for her at that time. In 2002, Hehlen went to work at another Block office operated directly by Block in Oro Valley. At or near the beginning of the tax season that year, purportedly in response to the postcard Miller had sent out, Hehlen began contacting the customers whose names he had obtained from Miller's office, using a calling script and recording the results of the calls on his spreadsheet. When Miller became aware of those calls in February 2002, she sent Hehlen a cease and desist letter and subsequently filed this action.

DISCUSSION

Standard of Review

¶ 5 On appeal from a summary judgment, we determine de novo whether any genuine issues of material fact exist and, if not, whether the trial court erred in applying the law. Bothell, 192 Ariz. 313, ¶ 8, 965 P.2d at 50. We also review de novo issues of statutory and contract interpretation. See Andrews v. Blake, 205 Ariz. 236, ¶ 12, 69 P.3d 7, 11 (2003); Turf Paradise, Inc. v. Maricopa County, 179 Ariz. 337, 340, 878 P.2d 1375, 1378 (App.1994).

Contract Claim

¶ 6 Miller contends the trial court erred in ruling that she could not enforce against Hehlen the employment agreement he signed in 2001. She also argues Hehlen clearly breached that agreement by violating its express terms. The employment agreement was between "William Hehlen ... (`Associate')" and "Margaret Miller, doing business as H & R Block (`the Company')." It included a provision that defined "confidential business information" and generally prohibited Hehlen from reproducing, removing, divulging, misappropriating, or misusing such information. The employment agreement also contained noncompetition and nonsolicitation covenants that applied during the term of the agreement and for two years after its termination.

¶ 7 In addition, the employment agreement provided that the foregoing covenants and agreements "shall survive the termination of this Agreement." It further stated: "This Agreement shall inure to the benefit of the successors and assigns of the Company." Finally, the employment agreement provided, "[i]t is intended that [Block] and its affiliates be third party beneficiaries to this Agreement."

¶ 8 Although it is unclear whether Hehlen's calls to former clients in 2002 constituted solicitation, Hehlen acknowledged during his deposition that he had made copies of "confidential information" and had prepared a return for one of Miller's former clients. If Miller could legally enforce the employment agreement against Hehlen, his actions arguably

104 P.3d 197

would constitute a breach and preclude summary judgment on Miller's contract claim

¶ 9 The trial court, however, implicitly ruled that Miller could not enforce the employment agreement and, therefore, did not reach the question of breach. Hehlen argues that ruling was correct because, once Block terminated Miller's franchise in April 2001, she was "no longer `doing business as H & R Block'" and thereafter "lost the right to enforce the non-competition provisions contained in Hehlen's employment agreement." In contrast, Miller urges us to reject that argument because neither her franchise agreement with Block nor the employment agreement with Hehlen expressly conditioned her right to enforce the noncompetition provision and other covenants against him on her continuing status as a Block franchisee.

¶ 10 As the trial court apparently determined, Miller's breach of contract claim turns on the meaning of "Margaret Miller, doing business as H & R Block" in the employment agreement. Miller asserts that her "`doing business as' trade designation did not transform Miller into Block." Even if the trial court expressly had disagreed with that assertion,² we agree with Miller on this point; but it does not resolve the question of whether she could enforce the employment agreement after her Block franchise was terminated.

¶ 11 Both parties acknowledge that we must interpret a contract in a way that gives meaning to all its material terms and renders none superfluous. Gfeller v. Scottsdale Vista North Townhomes Ass'n, 193 Ariz. 52, ¶ 13, 969 P.2d 658, 660 (App.1998). We cannot simply ignore the phrase "doing business as H & R Block." Although we do not interpret that phrase to mean that Miller and Block are synonymous, the phrase "Margaret Miller, doing business as H & R Block" must have a distinct meaning from "Margaret Miller," a name that does not appear alone in either the employment or the franchise agreement. With these principles in mind, we focus on whether Miller was required to be "doing business as H & R Block" in order to enforce the employment agreement.

¶ 12 It is well established that contract "words ... are interpreted in the light of all the circumstances." Restatement (Second) Contracts § 202(1) (1981). "When interpreting an agreement, the court may always consider the surrounding circumstances" and "the context in which it was made." Smith v. Melson, Inc., 135 Ariz. 119, 122, 659 P.2d 1264, 1267 (1983); see also Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 350-51, 813 P.2d 710, 715-16 (1991) (same); Potter v. U.S. Specialty Ins. Co., 209 Ariz. 122, ¶ 7, 98 P.3d 557, 559 (App.2004) ("[W]e consider the language of the contract in view of the surrounding circumstances."). In addition, "courts are not constrained by textual omissions to abandon common sense and experience or to ignore the surrounding circumstances of an agreement." Southwest Sav. & Loan Ass'n v. SunAmp Sys., Inc., 172 Ariz. 553, 560, 838 P.2d 1314, 1321 (App.1992). Similarly, "[i]t is sometimes said that extrinsic evidence cannot change the plain meaning of a writing, but meaning can almost never be plain except in a context." Restatement (Second) Contracts § 212, cmt. b (1981).

¶ 13 Applying these principles, we consider the pertinent circumstances in determining the meaning or effect of the phrase, "Margaret Miller, doing business as H & R Block" in the employment agreement.³ As the trial

104 P.3d 198

court noted and as Hehlen argues, one of those circumstances is the franchise agreement between Block and Miller.⁴ And that is so even though Hehlen was not a party to that agreement and is not involved in the ongoing federal court litigation relating thereto. As he points out, the franchise agreement and employment agreement are interrelated, in that "[e]ach contemplates the existence of the other." Block drafted both form contracts and required franchisees such as Miller to not only execute a franchise agreement but also to have any franchise employees such as Hehlen execute Block's employment agreement, including its noncompetition provisions, "in the form prescribed by Block."

¶ 14 In addition, the franchise agreement provides that Block ultimately controls the confidential information in question. And, upon termination of her franchise, Miller was...