Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca6-08-06093/USCOURTS-ca6-08-06093-0/pdf.json

Parties Involved:
Helena Chemical Company
Appellee
Miles Farm Supply, LLC
Appellant

Document Text:

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 10a0056p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT _________________

MILES FARM SUPPLY, LLC,

 Plaintiff-Appellant,

v.

HELENA CHEMICAL COMPANY,

 Defendant-Appellee.

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No. 08-6093

Appeal from the United States District Court

for the Western District of Kentucky at Owensboro.

No. 06-00023—Thomas B. Russell, Chief District Judge.

Argued: January 11, 2010

Decided and Filed: February 25, 2010 

Before: SUHRHEINRICH, SUTTON and COOK, Circuit Judges.

_________________

COUNSEL

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.

_________________

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

1

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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 midNovember, 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

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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

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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., 947 P.2d 143, 147–48 (N.M. 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

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performed duties requiring “trust or confidence” in their integrity and loyalty, though Miles

never asked these questions in their depositions. Steelvest, 807 S.W.2d at 485; see DSG

Corp. v. Anderson, 754 F.2d 678, 682 (6th Cir. 1985). And perhaps the relevant Helena

officers might have thought that this “trust or confidence” creates a fiduciary relationship (if

indeed it did).

But that is as far as (and perhaps much farther than) a jury reasonably could extend

the chain of reasonable inferences. Nothing in the record supports the additional necessary

inference that Helena knew that Tincher and the Mattinglys breached their fiduciary

obligations during their December 2004 and January 2005 conversations with Helena. At

the initial December 16 meeting, the trio told Helena executives that they “wanted to be

legal” while exploring a possible business relationship with Helena. App’x 3822. Nothing

after that meeting showed to Helena that the trio did not mean it, either based on what they

later said or later did. Settled law permits an employee to prepare to compete with his

employer before leaving the company, provided the employee does not act unfairly or

otherwise injure his principal before the departure. See Restatement (Second) of Agency

§ 393 cmt. e (stating an employee may “make arrangements to compete” before resigning

“except that he cannot properly use confidential information peculiar to his employer’s

business and acquired therein”). No evidence shows that the trio attempted to usurp any

corporate opportunities of Miles by waiting to consummate sales until after they left Miles

or by urging Miles’ clients to do business with Helena before they left Miles—much less that

they signaled to Helena that they would do so. As the unrebutted evidence shows, the Big

Rivers division had its most profitable year in the calendar year ending in 2005, and no

evidence shows, or even suggests, that the trio delayed any sales until after their move to

Helena. So far as Helena was concerned, then, the trio told the company at the outset that

the trio “wanted to be legal,” App’x 3822, the law permits an employee to prepare to

compete before leaving a job and the trio did not usurp any corporate opportunities on

Helena’s behalf before leaving Miles. On this record, Helena had no “actual knowledge”

that the Miles employees were breaching any fiduciary duty.

In trying to show the contrary, Miles features two types of evidence. It first points

to a budget prepared by the trio at Helena’s request. Yet it is hardly unusual for a company

contemplating hiring individuals to start up a branch office to request them to project the

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costs and expenses of the proposed operation—and Miles does not argue otherwise. The

trio’s at-will employment at Miles also offered no suggestion to Helena that they were doing

anything other than what all at-will employees may do: pursue a new employment

opportunity. The trio’s response to Helena’s request for a budget also did not give Helena

actual knowledge of any fiduciary breach. Helena’s executives all testified that they thought

that the projections were based on the trio’s industry experiences, which were considerable.

Miles responds that one of the notes on the budget suggested that it was based on

“75% of current” sales and expenses. Establishing a cognizable claim that Helena knew the

trio breached a fiduciary duty requires more, however. Miles must also show that Helena

asked for confidential information or otherwise knew the information was protected and

could not be disclosed without a breach. Many law firms—all privately owned

businesses—publicly disclose their revenues and profits annually. So too do agricultural

supply companies: Brian Mattingly obtained 2003 agricultural chemical sales figures for

seven entities at “an industry-meeting presentation,” including Helena and a private

“distributor conglomeration” to which Miles belongs. App’x 1374–75. Not only did

Helena’s request for a budget—and the trio’s response—fail to establish a cognizable claim

that Helena had actual knowledge of a fiduciary breach, but this sequence of events also

failed to establish that Helena provided “substantial assistance” to any breach, the second

element of an aiding-and-abetting claim. A request for a budget is not a request for a

fiduciary breach, much less assistance in the breach.

 Miles also relies on the trio’s efforts to recruit other Miles employees. Yet any

facilitation of a supposed breach occurred after the trio resigned or roughly contemporaneous

with that resignation. Helena’s offer to the trio came on Saturday, January 8, and they

accepted that day. As on December 16, moreover, so too on January 7: The trio assured

Helena that they had not yet talked with any other Miles employees about leaving Miles and

joining Helena. Confirming the point, Helena directed Tincher on the morning of January

8 that he could not “make any offers” to Miles’ employees until the morning of Monday,

January 10, when the trio planned to resign. Helena thus had no actual knowledge of any

(alleged) breach on this score, and indeed attempted to ensure that no breach would occur.

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Miles responds by pointing to two things that happened over the weekend: Brian

Mattingly arranged a Monday-morning meeting with Big Rivers’ sales staff, and the trio met

with Clifton, Fuqua, Peveler and Hayden on Saturday. Even aside from the reality that all

of this happened over the weekend and that no job offers were in fact made until Monday,

Miles has no evidence that Helena had any knowledge of these activities or that Helena

otherwise did not mean what it said when it told the trio not to make any job offers until they

had left Miles. From beginning to end, Helena did not participate in any recruitment of other

employees until after the trio had left Miles. In the end, Miles has not established a

cognizable claim that Helena knew that Tincher and the Mattinglys breached any (alleged)

fiduciary duties to Miles.

This same flaw undermines Miles’ other arguments. Even if, as Miles argues,

Tincher and the Mattinglys breached their fiduciary duties as soon as they “first ma[d]e

arrangements or beg[a]n preparations to compete” against Miles on December 16, Steelvest,

807 S.W.2d at 483, that does not satisfy the knowledge requirement. The question is not

what Helena might have known from the December 16 meeting and the negotiations that

followed it, but what Helena actually knew.

III.

Miles’ claim that Helena tortiously interfered with prospective contracts necessarily

fails as well. To succeed, Miles must (1) identify a prospective contractual relation (2) that

Helena interfered with (3) through “significantly wrongful conduct.” Nat’l Collegiate

Athletic Ass’n v. Hornung, 754 S.W.2d 855, 857–59 (Ky. 1988). Because Miles’ “wrongful

conduct” allegations depend on its aiding-and-abetting claim and because that claim fails as

a matter of law, Miles necessarily cannot obtain relief under this theory.

IV.

For these reasons, we affirm.

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