Stonebridge Collection, Inc. v. Carmichael

• Decision Date: 26 June 2015
• Docket Number: Nos. 14–1514,14–1601.,s. 14–1514
• Citation: 791 F.3d 811
• Parties: The STONEBRIDGE COLLECTION, INC., Plaintiff–Appellant v. Keith CARMICHAEL; Glenna Carmichael; Steven Massey; John Mark Taylor; Cutting–Edge USA, LLC; Taylormade Unlimited, LLC, Defendants–Appellees The Stonebridge Collection, Inc., Plaintiff–Appellee v. Keith Carmichael; Glenna Carmichael; Steven Massey; John Mark Taylor; Cutting–Edge USA, LLC; Taylormade Unlimited, LLC, Defendants–Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

791 F.3d 811

The STONEBRIDGE COLLECTION, INC., Plaintiff–Appellant

v.Keith CARMICHAEL;

Glenna Carmichael;

Steven Massey;

John Mark Taylor;

Cutting–Edge USA, LLC;

Taylormade Unlimited, LLC, Defendants–AppelleesThe Stonebridge Collection, Inc., Plaintiff–Appelleev.Keith Carmichael;

Glenna Carmichael;

Steven Massey;

John Mark Taylor;

Cutting–Edge USA, LLC;

Taylormade Unlimited, LLC, Defendants–Appellants.

Nos. 14–1514

14–1601.

United States Court of Appeals, Eighth Circuit.

Submitted: Feb. 12, 2015.

Filed: June 26, 2015.

Gary D. Marts, Jr., Wright & Lindsey, Little Rock, AR, Perry Y. Young, Baxter Law, Benton, AR, for Plaintiff–Appellant.

Derek Scott Hickam, D. Scott Hickam Law Firm, Philip Maxwell Clay, Wood & Smith, John Howard, Hot Springs, AR, for Defendants–Appellees.

Before RILEY, Chief Judge, LOKEN and SMITH, Circuit Judges.

Opinion

RILEY, Chief Judge.

The Stonebridge Collection, Inc., an engraver of promotional pocket knives, sued (1) former distributor Cutting–Edge USA, LLC and its members, Keith and Glenna Carmichael; (2) competitor knife engraver Taylormade Unlimited, LLC(TaylorMade) and its sole member and manager John Mark Taylor, a former Stonebridge employee; and (3)Steven Massey, a TaylorMade employee and former Stonebridge employee (collectively, defendants), on ten counts arising from Massey's copying Stonebridge's computer files.Relevant to this appeal, Stonebridge brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO),18 U.S.C. §§ 1961 –1968; the Arkansas Deceptive Trade Practices Act (ADTPA), Ark.Code Ann. §§ 4–88–101 et seq.; and Arkansas common law.After a four-day bench trial, the district court¹ partially found for Stonebridge on its fraud and conversion claims, dismissed the remaining eight claims, and denied the parties' motions for attorney fees.Having appellate jurisdiction under 28 U.S.C. § 1291, we affirm in part and remand for further proceedings.

I.BACKGROUND

A.Facts

Stonebridge² engraves and sells personalized pocket knives, both directly to end-use customers and to distributors.End-use customers who order directly from Stonebridge are referred to as “inside” customers—over 50% of Stonebridge's inside-customer orders are reorders.End-use customers who order knives from a distributor like Cutting–Edge are “outside” customers.

From late 2004 through January 2011, Cutting–Edge distributed Stonebridge's engraved knives to outside customers, who paid Cutting–Edge directly.From late 2004 through March 2010, Stonebridge provided Cutting–Edge free engraved knife samples.Stonebridge delivered over 125,000 sample knives to Cutting–Edge and over 8,000 sample knives to Cutting–Edge's distributors.Stonebridge delivered 6,476 of these sample knives after July 2009.

Once Cutting–Edge represented to Stonebridge it had received an order, Stonebridge provided Cutting–Edge free “proofs,” which included the customer's logos and computer generated art depicting the customer's logo to be placed on the customer's knives.Stonebridge sent to Cutting–Edge the proofs, contained on “proof selection forms,” and “final proof pages,” used for final proof approval and ordering.Both the proof selection forms and the final proof pages generally included an order number, customer contact information, and, if applicable, a note indicating the order was a reorder.Stonebridge also sent proof selection forms and final proof pages directly to inside customers.Stonebridge created the art in Corel Draw (CDR) file format and converted it to Adobe PDF file format for customer approval.Defendants claim Stonebridge's proof selection forms and final proof pages usually were sent to customers in PDF format and rarely in CDR format.

From 2005 until he quit on July 23, 2009, Taylor was Stonebridge's general manager.Five days after quitting his job with Stonebridge, Taylor formed TaylorMade, a knife engraver.Around this time, the Carmichaels purchased two laser engraving machines for TaylorMade and loaned TaylorMade $25,000.Like Stonebridge's machines, TaylorMade's machines used computer generated art stored in CDR files.Around September 2009, Cutting– Edge started placing some of its engraved knife orders with TaylorMade.After that time, Cutting–Edge continued to place orders with Stonebridge, paying Stonebridge over $165,000.Cutting–Edge placed its last order with Stonebridge in January 2011.

From 2005 through September 14, 2009, Massey was Stonebridge's graphic artist, creating art for the engraving machines.Around September 9, 2009, unbeknownst to Stonebridge, Massey downloaded from Stonebridge's computer system, onto a flashdrive, (1) forms and templates; (2) more than 20,000 CDRs and PDFs with proof selection forms, final proof pages, and art for Cutting–Edge outside customers; and (3) more than 2,000 CDRs and PDFs with proof selection forms, final proof pages, and art for other customers, including inside customers.

By September 18, 2009, four days after Massey quit Stonebridge, Massey started working for TaylorMade.Massey uploaded the Stonebridge files from the flashdrive to his home computer and his TaylorMade work computer.TaylorMade and Cutting–Edge consulted these files to solicit Stonebridge customers.From November 2010 through March 2011, Massey sent Carmichael emails with attached images of Stonebridge proof pages for Stonebridge customers who were not yet Cutting–Edge's or TaylorMade's customers.TaylorMade modeled its proof selection, final proof approval, and ordering forms on Stonebridge's.

The parties stipulated neither Stonebridge's documents used to send proposed art to end-use customers nor its sales invoices were trademarked or copyrighted.Stonebridge claims it had an unwritten policy—communicated to Taylor and Massey—that “no artwork, no files [were] ever to leave Stonebridge property.”But Stonebridge admits it had no agreement with any defendant prohibiting them from using Stonebridge's art or forms.

Cutting–Edge's knife shipments for outside customers identified only Cutting–Edge as the shipper—Cutting Edge's customers did not know the identity of the engraver.Around September 18, 2009, four engraving orders originally placed with Stonebridge—for which Stonebridge developed art free of charge at Keith Carmichael's request—were instead engraved by TaylorMade.In early 2010, Stonebridge discovered Cutting–Edge was filling engraving orders with another engraver, so Stonebridge stopped sending free sample knives to Cutting–Edge.

In early 2011, Keith Carmichael used the information Massey downloaded about Stonebridge's inside customers to create a mailing list.Carmichael transferred the list to a marketing company, who sent advertising postcards to the inside customers in May 2011, November 2011, and April 2012, which resulted in sales to Cutting–Edge.

B.Procedural History

Stonebridge filed a complaint asserting both federal and Arkansas state law claims, invoking federal question and supplemental jurisdiction, see28 U.S.C. §§ 1331,1367(a).After a four-day bench trial, the district court issued findings of fact and conclusions of law, dismissing eight of the ten claims and partially ruling in favor of Stonebridge on its fraud and conversion claims.The district court then denied the parties' motions for attorney fees.Stonebridge appeals the partial dismissal of and damages award on the conversion claim, the dismissal of its RICO, ADTPA, and tortious interference claims, and the denial of attorney fees.Defendants cross-appeal the fraud and conversion judgments on the merits, each damages award, and the district court's attorney fee order.

II.DISCUSSION

“ ‘In reviewing a judgment after a bench trial, this court reviews the court's factual findings for clear error and its legal conclusions de novo.’ ”Tussey v. ABB, Inc.,746 F.3d 327, 333(8th Cir.2014)(quotingOutdoor Cent., Inc. v. GreatLodge.com, Inc.,688 F.3d 938, 941(8th Cir.2012) ).

A.Conversion

In Arkansas, “[t]o establish liability for the tort of conversion, a plaintiff must prove that the defendant wrongfully committed a distinct act of dominion over the property of another, which is a denial of or is inconsistent with the owner's rights.”Hatchell v. Wren,363 Ark. 107, 211 S.W.3d 516, 521(2005).We review this factual question, see, e.g., Ford Motor Credit Co. v. Herring,267 Ark. 201, 589 S.W.2d 584, 586(1979), for clear error.

1.Inside Customers

a. Merits

Defendants contend the district court erred by “[s]pecifically” finding defendants converted Stonebridge's inside customer files.³Looking primarily to copyright law from other jurisdictions, defendants argue Stonebridge had no possessory interest in copies of the art it created for its customers.We need not venture outside Arkansas tort law to resolve this issue.In Godwin v. Churchman,305 Ark. 520, 810 S.W.2d 34(1991), a solo accountant, Godwin, joined three other accountants to form their own firm.Seeid. at 35.After the business relationship turned sour and Godwin rejected the others' effort to buy him out, the other three accountants resigned.Seeid.Over a weekend, the three “took furniture, client files in progress, computer diskettes with client information, and financial data including accounts receivable from the office, without giving prior notice.”Id.

The Arkansas Supreme Court held Godwin sufficiently alleged a claim of conversion.Seeid. at 38.The court reasoned Godwin had alleged the other three accountants had “exercised dominion over property in violation of the rights of the owners” where the complaint stated, “the Defendants removed the files, including those originally brought into the practice by Plaintiff Godwin, copied the computer diskettes which were the property of Plaintiffs, took the furniture which was the property of Plaintiffs and took over the Plaintiffs' accounting practice which he had brought into the group.”Id.

Defendants contend the Arkansas Supreme Court might have considered only the taking of...