Case Title: Pro-Comp Management, Inc. et al. v. R.K. Enterprises, LLC et al.

Citation: 

Docket Number: 

State: arkansas

Court: Arkansas Supreme Court

Date: 2006-01-26T00:00:00Z

Document:
, The DLJ Wright Industries, Inc., and Amedistaf, LLC v. R.K. Enterprises,... Pro-Comp Management, Inc., The DLJ Wright Industries, Inc., and Amedistaf, LLC v. R.K. Enterprises, LLC, Katherine Hefley, Mary Burks, Traca Lane, and Raymond Hefley  Download PDF PRO­COMPMANAGEMENT,INC.,TheDLJWright Industries,Inc.andAmedistaf,LLCv.R.K.ENTERPRISES, LLC,KatherineHefley,MaryBurks,TracaLane,and RaymondHefley 05­459___S.W.3d___ SupremeCourtofArkansas OpiniondeliveredJune1,20061.COURTS –JURISDICTION.–Wheretheremedythatwasoriginallysought,recovery under conversion and conspiracy, was not available under the facts, and there was a remaining theory of liability under the Trade Secrets Act that had been argued at trial, thesupremecourtdidnotlackjurisdictiontoreversethecaseandremanditfora determinationofdamagesundertheTradeSecretsActinthefirstappeal;thus,the supremecourtdidnotlackjurisdictiontohearanyfurtherappealarisingfromthat decision.2.JUDGMENT – VIOLATION OF THE MANDATE RULE – NO VIOLATION FOUND. – The order issued upon remand clearly indicated that what was at issue on remand was a determinationofdamages undertheTradeSecretsActandfurtherreaffirmedthe circuit court’s earlier finding that the appellees misappropriated and used trade secrets inviolationoftheTradeSecretsAct;thus,whereentryofthejudgmentinfavorof___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page2the appellees merely reflected the circuit court’s conclusion that appellant The Right Solutions failed to prove its damages, the circuit court did not alter its previous factual findingofliabilityagainsttheappelleesandthemandaterulewasnotviolated.3.DAMAGES–TRADESECRETSACT–DAMAGESFORACTUALLOSSNOTPROVEN.–The circuitcourtdidnoterrinfailingtoawarddamagesforactuallossuponremand, wherethecircuitcourtfoundthatalthoughliability for misappropriationoftrade secrets had been proven, the evidence presented was too speculative to prove damages;thesupremecourthadpreviouslyrecognizedaweaknessintheproofon damages in the first appeal with respect to actual loss and it appeared that upon remand,nobetterevidencewasestablished.4.DAMAGES – TRADE SECRETS ACT – UNJUST ENRICHMENT. – The conclusion in Brown v.Ruallam,73Ark.App.296,44S.W.3d740(2001),thatunjustenrichment under the Trade Secrets Act must be defined solely through analysis of profits was incorrect, as unjust enrichment, caused by misappropriation, not taken into account in computing damages for actual loss may be recovered in addition to damages for actual loss; thus, to the extent that Brown was inconsistent with the opinion, it was___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page3overruled.5.DAMAGES –TRADE SECRETS ACT –UNJUSTENRICHMENT.–Whethertheevidence giving rise to the original award of damages on conversion was relevant on the issue of unjust enrichment had not been decided by the circuit court, as given the required relianceontheBrowndecision,thecircuitcourt on remandwasnotabletofully consider the issue of damages under unjust enrichment; thus, the supreme court reversedandremandedforadecisionondamagesunderunjustenrichment.6.ATTORNEY &CLIENT–ATTORNEY’SFEES–FAILURETOOBTAINRULINGPRECLUDED REVIEW. – Where theorder appealed from contained no reference to attorney’s fees,andwhereappellantTheRightSolutionsfailedtoobtainarulingonitsclaimfor attorney’sfees,thesupremecourtwasprecludedfromreviewingtheissuebecause therewasnoorderofalowercourtontheissueforthesupremecourttoreviewon appeal.AppealfromWashingtonCircuitCourt;MaryAnnGunn,Judge;affirmedinpart; reversedandremandedinpart. ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page4Gilker&Jones,AProfessionalAssociation,by:PaulAlvinGilker,forappellants. Mitchell,Williams,Selig,Gates&Woodyard,P.L.L.C.,by: HermannIvesterand MargaretA.Johnston,forappellees.JIM HANNAH, Chief Justice.Pro­CompManagement,Inc.,d/b/aTheRightSolutions, anArkansascorporation,TheD.L.J.WrightIndustry,Inc.,d/b/aTheRightSolutions,an Oklahoma corporation, and Amedistaf, L.L.C., d/b/a The Right Solutions, a Delaware corporation, (TRS) appeal a decision of the Washington County Circuit Court entering upon remand a judgment in favor of R.K. Enterprises, L.L.C., d/b/a Nationwide Nurses, a Nevada corporation, Katherine Hefly, Mary Burks, Traca Lane, and Raymond Hefly. Theappellees cross­appeal, alleging that this court lacked jurisdiction to remand the case for a 1 determination of damages under the Trade Secrets Act. Thedecisiononthepriorappealinthis case is R.K. Enterprise, L.L.C. v. Pro­Comp Management, Inc., 356 Ark. 565, 158 S.W.3d 685 (2004) (R.K. I). Our jurisdiction is pursuant to Ark. Sup. Ct. R. 1­2(a)(7) becausethisisthesecondappealinthiscase. Jurisdiction1Ark.CodeAnn.§4­75­606(Repl.2001).___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page5Although the issue of jurisdiction is raised by appellees on cross­appeal, we address the issue of jurisdiction first because appellees allege that this court exceeded its jurisdiction in remanding the case for a determination of damages in R.K. I under the Trade Secrets Act. Appelleesfurtherallegethatbecausethiscourtlackedjurisdictiontoissuethedecisionin R.K.I,itnowlacksjurisdictiontohearanyfurtherappealarisingfromthatdecision. Appellees’ argument is that only Katherine Hefly, Mary Burks, and Traca Lane were foundtohaveacquiredandremovedtradesecretsfromTRS;therefore,Nationwideand Raymond Hefly could not be liable under the Trade Secrets Act. However,thecircuitcourt also found that Nationwide benefitted from the misappropriation, meaning that Nationwide used the illegally obtained tradesecrets.Useof a misappropriated trade secret gives rise to liability under Ark.CodeAnn.§4­75­601(2)(B)(Repl.2001).Thus,thereisafindingthat Nationwideisliable. Raymond Hefly is likewise liableasheranthebusinessandwasthe personwhousedthetradesecretstofurtherNationwide’sbusiness. Appellee’s cross­appeal alleges that this court lacked jurisdiction to remand the case in R.K. I for a determination of damages under the Trade Secrets Act because TRS did not cross­appeal in R.K. I. Theyarguethatbymakingtheelectionofremediesattrialforthose offeredunderconversionandconspiracy,therewasarulingbythecircuitcourtthatTRS failed to appeal in R.K. I, and that circuit court ruling now controls under the law of the case ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page6doctrine. This,appelleesargue,meansthatthiscourtlackedjurisdictiontoreversethiscase and remand it for relief benefitting TRS. Theprincipleofthelawofthecaseisthat,“[w]hen there is no cross­appeal, the order from which cross­appeal is not taken becomes the law of the case.” Clemmons v. Office of Child Support Enforcement, 345 Ark. 330, 351, 47 S.W.3d 227,241(2001). However,whatwasatissueonappealinR.K.Iwaswhetherthecircuit court erred in deciding the case on conversion and conspiracy. Thiscourtheldthatappellees were correct, that the circuit court erred, and we reversed and remanded the case for a determination of damages under the Trade Secrets Act, the other remaining theory of liability argued at trial. AppelleesrelyontheelectionofremediesbyTRStoserveasthereasonlaw of the case must apply. However,thedoctrineofelectionofremediesappliestoremedies, not to causes of action, and bars more than one recovery on inconsistent remedies. Regions Bankv.Griffin,364Ark.193,___S.W.3d___(2005). Heretheremedysought,recovery under conversion and conspiracy, was a remedy that was not available under this set of facts. Therefore,therecouldbenoelectionbetweenremediesanduponremandthecircuitcourt wastoconsidertheonlyavailableremedy,adeterminationofdamages undertheTrade SecretsAct. ViolationoftheMandateRule TRS argues that the circuit court violated the mandate rule as evidenced by ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page7reconsideration of the judgment entered in favor of TRS and entry of a judgment in favor of appellees. Alowercourtisboundbythejudgmentordecreeofahighercourtaslawofthe case and must carry the decision of the higher court into execution pursuant to the mandate issued by that court. Smith v. AJ&K Operating Co., 365 Ark. 229, ___ S.W.3d ___ (2006). The lower court may not vary the decision or judicially examine it for any purpose other than execution. Id. Alowercourtmaynotvarythereliefgrantedinthemandateandmaynot intermeddleevenwherethereisapparenterrorinthemandate. Id. TRSarguesthatinenteringjudgmentinfavorofappellees,thecircuitcourtaltered itspreviousfactualfindingofliabilityagainstappellees.Therecordfailstosupportthis conclusion. The order issued upon remand clearly indicates that what was at issue on remandwas“adeterminationofdamagesunderthestatutoryprovisionsoftheArkansas TradeSecretsAct....” Further,theorderuponremandreaffirmstheearlierfindingthat appellees misappropriated and used trade secrets in violation of the Trade Secrets Act.Entry ofjudgmentinfavorofappelleesmerelyreflectedthecircuitcourt’sconclusionthatTRS failedtoproveitsdamages. ActualLossandUnjustEnrichment TRSarguesthatthecircuitcourterredinfailingtoawarddamagesuponremand. InR.K.I,thiscourtheldthat“theTradeSecretsActprescribesanexclusiveremedyfor ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page8misappropriationoftradesecrets....” R.K.I,356Ark.at568,158S.W.3dat686.This courtalsoheldthat“thestatutorylanguageoftheTradeSecretsActdisplacesorpreempts the award of damages based upon tort claims for conversion of trade secrets, as well as other tortclaimssuchasconspiracy,thatmayariseunderaclaimofmisappropriationoftrade secrets.” R.K. I, 356 Ark. at 574, 158 S.W.3d at 690. Section 4­75­606 (Repl. 2001) provides: (a) In addition to or in lieu of injunctive relief, a complainant may recoverdamagesfortheactuallosscausedbymisappropriation. (b)Acomplainantalsomayrecoverfortheunjustenrichmentcaused bymisappropriation thatisnottakenintoaccountincomputingdamagesfor actualloss. InR.K.I,westatedthatactuallossnotedinthestatuteiscalculatedas“theplaintiff’slost profits or the defendant’s gain, ‘whichever affords the greater recovery.’” R.K. I, 356 Ark. at 575,158 S.W.3d at 690 (quoting Saforo & Assocs., Inc. v. Porocel Corp., 337 Ark. 553, 566, 991 S.W.2d 117, 124 (1999)). We then noted that while the circuit court had determined that the market value of the trade secrets was $262,303, “[t]he abstract before us does not establish TRS’s lost profits or Nationwide’s gains resulting from the misappropriationoftradesecrets.” R.K.I,356Ark.at575,158S.W.3dat691. Wealso stated that the “computation of damages did not address the measure of lost profits suffered___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page9by TRS or the gain realized by appellants as a result of the misappropriation of trade secrets asrequiredbyArk.CodeAnn.§4­75­606.” Id. Westatedinconclusion: Theabstractbeforeusdoesnotreflectadeterminationoftheissuesrelating to disgorgement of profits by Nationwide or the recovery of TRS’s lost profits, whichever affords the greater recovery, as articulated in Ark. Code Ann. § 4­ 75­606 and Saforo, supra. Accordingly, we reverse and remand for a determination of damages under the statutory provisions of our Trade Secrets Act. R.K. I, 356 Ark. at 576, 158 S.W.3d at 691. Thiscourtnotedin R.K. I, that “Arkansas Code Annotated § 4­75­606 includes the recovery of actual loss plus any unjust enrichment when themisappropriationoftradesecretsisinvolved.” R.K.I,356Ark.at575,158S.W.3dat 690. Uponremand,thecircuitcourtconsidereddamagesbasedonbothactuallossaswell as unjust enrichment. Thecircuitcourtfoundthatalthoughliabilityformisappropriationof trade secrets had been proven, the evidence presented on both theories of recovery was too speculative to prove damages; therefore, the circuit court entered a judgment for the appellees. Werecognizedaweaknessintheproofondamagesin R.K.Iwithrespectto actualloss,whenwestatedthattheabstractpresentedonappealdidnotestablisheither TRS’slostprofitsorNationwide’sgains. Itappearsthatuponremand,nobetterevidence wasestablished;therefore,norecoverycouldbegrantedonthistheory. Withrespecttounjustenrichment,thecircuitcourtreliedonBrownv.Ruallam,73___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page10Ark. App. 296, 44 S.W.3d 740 (2001). Brown was on point and declared the law with respecttounjustenrichmentundertheTradeSecretsAct. Thus,being bound tofollow precedent,thecircuitcourtcouldnotlooktomoregenerallawonunjustenrichment.In Brown,thecourtofappealsreliedonSaforo,supra,andconcludedthatunjustenrichment in the context of the Arkansas Trade Secrets Act “must mean the benefit conferred upon the defendant by the profit margin earned was a result of the wrongful taking of trade secrets.” Brown, 73 Ark. App. at 302, 44 S.W.3d at 745. In Saforo, we noted that recovery under the TradeSecretsActincludedbothactuallossandunjustenrichment. Whilewementioned unjust enrichment in Saforo, the issue in that case and the matter discussed and decided was the meaning of actual loss. Theconclusionin Brown that unjust enrichment must be defined solely through analysis of profits is incorrect. Pursuant to section 4­75­606(b), a complainantmayrecovernotonlyfortheactuallossasmaybeshownbyprofits,butalso theunjustenrichmentcausedbymisappropriationwherethatisnottakenintoaccountin computing damages for actual loss. To the extent that Brown is inconsistent with this opinion,itisoverruled. The circuit court may look to more general law on unjust enrichment. Forexample, in ServewellPlumbingv.SummitContractors,362Ark.598,612,___S.W.3d___,___ (2005),westatedthat: ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page11Unjust enrichment is an equitable doctrine. First Nat!l Bank of DeWitt v.Cruthis,360Ark.528,203S.W.3d88(2005).Itistheprinciplethatone personshouldnotbepermittedunjustlytoenrichhimselfattheexpenseof another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law oroppositiontopublicpolicy,eitherdirectly or indirectly. The circuit court found overwhelming evidence that Katherine Hefly, Mary Burks, and Traca Lanemisappropriatedthetradesecrets. Thecircuitcourtalsofoundthatthetradesecrets wereusedtosomeextentbyNationwideandRaymondHeflyinsettingup thebusiness before the offices of Nationwide were searched and the trade secrets taken by police. Misappropriation of a trade secret includes use of a trade secret taken by another. Ark.Code Ann.§4­75­601(2)(B). Attrial,damageswereawardedunderconversion,andthefairmarketpriceofthe trade secrets was determined to be a total of $262,303. Whethertheevidencegivingriseto the award of damages on conversion may be relevant on the issue of unjust enrichment has notbeendecidedbythecircuitcourt. Giventherequiredrelianceon Brown,supra,the circuitcourtonremandwasnotabletofullyconsidertheissueofdamagesunderunjust enrichment. ThedecisionreachedbythecircuitcourtonremandonactuallossundertheTrade Secrets Act is affirmed. However,wereverseandremandforadecisionondamagesunder ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page12unjustenrichment. TRSalsoarguesthat the circuitcourterredinfailingtoawardattorney’sfeesas allowed for willful or malicious misappropriation under Ark. Code Ann. § 4­75­607 (Repl. 2001). Theorderappealedfromcontainsnoreferencetoattorney’sfees.TRSfailedto obtain a ruling on this issue. The failure to obtain a ruling precludes appellate review because there is no order of a lower court on the issue for this court to review on appeal. See Gwinv.Daniels,357Ark.623,892S.W.2d526(2004). Affirmedinpart,reversedandremandedinpart. BROWN,DICKEY andGUNTER,JJ.,concurinpartanddissentinpart. Iagreewiththemajoritythatthecircuitcourtconcludedthatitwasboundbythe Court of Appeals’ decision in Brown v. Ruallam, 73 Ark. App. 296, 44 S.W.3d 740 (2001), a decision that incorrectly interpreted our analysis in Saforo & Assocs., Inc. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999). TheTradeSecretsActspecificallyallowsfor anawardofdamagesforunjustenrichmentunderArk.CodeAnn.§4­75­606(b)thatisin addition to the amount recovered for actual loss under Ark. Code Ann. § 4­75­606(a). The Browndecisionimproperlyconflatedthetwodamageawards.Accordingly,Iconcurin overturningthatportionofBrownwhichisinconsistentwiththestatuteandourcaselaw. Ialsoagreethatthiscaseshouldberemandedtothecircuitcourtforadeterminationof ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page13damages for unjust enrichment. However,Idisagreethattheplaintiffsarenotalsoentitled to an award of damages for actual loss under Ark. Code Ann. § 4­75­606(a). Forthatreason, Idissentinpart. In the circuit court’s first order, the court clearly determined that the defendants had misappropriated plaintiffs’ trade secrets and that plaintiffs had been damaged as a result. In thatfirstorder,thecourtsaid: Plaintiffs[’] Exhibits #54 and #56 are the profit and loss statements for NationwideNursesfromMay2001throughApril2002.Theyreflecttotal sales of $1,226,202.58, payroll expenses totaling $652,797.97, total nurse travelexpensesof$202,123.43,andanetincomeforthatperiodoftimeof $204,889.41. TheCourtfindsthatthebalancesheetofNationwideNursesas of June 30, 2002, shows total accounts receivable of $255,067.00. TheCourt findsthetotalequityofNationwideNursestobe$229,228.32. TheCourt findsthattheseprofitsandmoniesweregeneratedinaveryshortperiodof timewiththehelpoftheinformationthatwastakenfromTRS. (Emphasisadded.)Undertheplainlanguageinthecircuitcourt’sfirstorder,thedamages for the misappropriation of trade secrets would have been the amount of Nationwide’s profits,whichwas$229,228.32. The circuit court also determined in its first order that the defendants were liable for thetortofcommonlawconversionofthosetradesecrets,forwhichthecourtawardedthe plaintiffs the fair market value of the converted personal property.Thecourtdeterminedthat___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page142 amounttobe$262,312.00. Becausetheplaintiffselectedtorecoverunderthetorttheoryofconversion,thefinaljudgmententeredintheirfavorwas$262,312.00. In R.K. Enter., L.L.C. v. Pro­Comp Mgmt., Inc., 356 Ark. 565, 158 S.W.3d 685 (2004) (R.K. I), this court reversed the damages award for conversion and held that the sole recoverywasundertheTradeSecretsAct.Forthatreason,weremandedthecasebackto the circuit court for a determination of damages under that Act. Inouropinion,wesaidthat the“abstract”thatwasbeforeusdidnotreflectNationwide’sgainsformisappropriation. While we were certainly correct in making the statement that the income data was not in the abstract,thedatareflectingprofitswasincludedin theAddendum,asanattachmenttothe circuit court’s order.Ourstatement,therefore,wasmisleadingandunderstandably misled the circuit court. On remand, the circuit court relied on our opinion in finding that the damages for misappropriation of trade secrets could not be determined from the information ithadbeforeitdespitethefactthatthecourthadalreadymadesuchafinding.2Thecircuitcourtsaidthefollowingregardingthedamagesawardedforeachitem converted: Forthenursedatabases,theCourtawardsthe$68,882.00.Forthe conversionofthetestsdevelopedforverifyingthecompetencyofnurses, theCourtawards$400.00.Fortheclient/hospitallists,theCourtawards $166,489.00.FortheStaffProcomputerprogram,theCourtawards $26,532.00. ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page15Thecircuitcourt,initssecondorder,foundthat“[t]herewassufficientevidenceto show that Nationwide did avoid at least some of the initial start­up costs of . . . a travel nurse agency at the considerable expense of another.” However, it also made the following findings: TheCourtcannotdetermine,withanyspecificity,whatprofitsNationwide earned during the time it possessed the information. The first nurse Nationwide was able to put in the field was in June of 2002 after the informationwasseizedbytheBooneCountySheriff’sOfficeviaasearch warrant based upon [a] criminal complaint. . . . The database, computer programs and other items taken from TRS were in custody of law enforcement formanymonths.. . . Thus,Nationwidelogicallycouldhavenogainduring the period of time it did not have access to the items seized. Thereisnoway for this Court to determine the amount of profits or net gain Nationwide realized from the misappropriation for the time period at issue. Itwassimply notdevelopedattrial. Clearly,thecircuitcourtcouldnotalteritsfindingsinthesecondorderfromthefindings madeinitsfirstorderasourmandatehadissuedandourremandinR.K.Iwassolelyto determine damages under the Trade Secrets Act. See R.K. I, supra; see also Dolphin v. Wilson, 335 Ark. 113, 983 S.W.2d 113 (1998). Thefindingsinthecircuitcourt’sfirstorder control. In short, it is clear tomethatbased on the circuit court’s initial order, it had enough evidence before it to make a determination of actual loss for misappropriation of trade secrets under § 4­75­606(a). Withclearerdirectionfromthiscourtandwithoutrelianceon Brown, ___________________________ HANNAH,C.J.­1PRO­COMPMGMT., INC.v.R.K. ENTERS., LLC Citeas36_Ark.___(2006)Page16thecircuitcourtcouldmakeanappropriatefindingofdamagesforactuallossinasecond remandofthiscaseforsuchadetermination. Any confusion surrounding this court’s directions and the Brown decision should not preclude the plaintiffs from fully recovering what is rightfully owed to them for actual loss under the Trade Secrets Act. Becauseofthis,Idissentfromthemajority’sconclusionthat theplaintiffscannotfullyrecovertheirdamages. Itoowouldreversethecircuitcourt’s decision, but I would remand the case for the circuit court to make a determination of damagesforbothactuallossunder§4­75­606(a)andforunjustenrichmentunder§4­75­ 606(b)basedontheevidencethatwasalreadybeforethecourtpriortoourfirstremand. Forthesereasons,Iconcurinpartanddissentinpart. DICKEYandGUNTER, JJ.,jointhisopinion.___________________________ HANNAH,C.J.­1