Opinion
Civil Action No. 00-0481.
January 8, 2001
This cause came for hearing on December 20, 2000, upon the Motion of the Plaintiffs (here, the Defendants-in-counterclaim), Allen E. Frederic Jr., Wade Hladky, Norman Winters, Patty D. Boudreaux, Kyle Saucier, and Gulf Coast Bank and Trust Company ("Gulf Coast"), for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure ("FRCP"). The Court, having studied the legal memoranda and exhibits submitted by the parties, the record, and the applicable law, is filly advised on the premises and ready to rule.
ORDER AND REASONS
I. Background
The act precipitating this litigation is the simultaneous resignation of all five of the Plaintiffs, the entire New Orleans department of KBK, in order to accept offers of employment from Gulf Coast Bank Trust Company ("Gulf Coast"). In a telephone conversation on January 31, 2000, that Frederic recorded, Frederic notified his KBK supervisor that all five Plaintiffs were resigning immediately, with one day's notice, so that the four Plaintiffs without employment agreements could begin employment for Gulf Coast the next day. The fifth Plaintiff, Winters, had the Agreement with KBK requiring, inter alia, that he not work for a competitor of KBK for ninety days. He did not begin employment with Gulf Coast until May 1, 2000, apparently complying with that ninety day requirement. As part of their new employment contracts with Gulf Coast, each Plaintiff was indemnified by Gulf Coast for any legal action taken by KBK, and each Plaintiff's attorney fees for contract negotiation as well as for any litigation are to be paid by Gulf Coast. The Plaintiffs' counsel filed this action for declaratory judgment on February 1, 2000, the day after the Plaintiffs notified KBK of their mass resignation.
This Court determined that the Agreement between KBK and Winters was null and void because it was overly broad and failed to provide a geographic restriction. (See Order and Reasons, June 21, 2000). However, the Court upheld as valid the non-solicitation of employees provision contained in the Agreement. Id.
In its answer and counterclaim, KBK asserts that all of the Plaintiffs have violated their fiduciary duties owed to KBK by all resigning on the same day, forcing the KBK local office to shut down. KBK further claims that the Plaintiffs employed unfair trade practices by diverting business from KBK and soliciting KBK clients on behalf of Gulf Coast prior to resigning from KBK. In addition, KBK added Gulf Coast as a Defendant-in-counterclaim, asserting that Gulf Coast induced the Plaintiffs into resigning simultaneously from KBK and caused the Plaintiffs to breach their fiduciary duties owed to KBK.
In the instant motion for Summary Judgment, the Plaintiffs claim that no contested issues of material fact exist as to the counterclaims asserted by KBK, such that the Plaintiffs are entitled to a judgment as a matter of law. Specifically, the Plaintiffs assert that they were "at will" employees of KBK and as such, they had the right to resign from the company at any time, with or without cause. Therefore, they did not breach a duty to KBK or engage in an unfair trade practice by resigning on January 31, 2000, regardless of the fact that they all resigned on the same day. In addition, the Plaintiffs claim that KBK cannot "point to a single document or statement by a witness that supports its claims" of diversion of business prior to the Plaintiffs' resignations in violation of the Unfair Trade Practices Act. (Plaintiffs' Memorandum in Support of Motion for Summary Judgment, page 33). Accordingly, the Plaintiffs pray for summary judgment dismissing KBK's counterclaims. Finally, Gulf Coast joins the former KBK employees in the Motion for Summary Judgment, praying that this Court dismiss KBK's claims that Gulf Coast intentionally induced the Plaintiffs to resign simultaneously, thereby causing the Plaintiffs to breach their fiduciary duties owed to KBK.
The KBK Policies and Procedures Manual specifically states that "[e]mployment with . . . KBK Financial, Inc. . . . is on an at-will basis." Plaintiffs' Motion for Summary Judgment, Exhibit C. The employee and the employer are "each free to terminate the relationship at any time, with or without cause or advanced notice." Id.
II. Legal Analysis
A. Motion for Summary Judgment
The Federal Rules of Civil Procedure provide that summary judgment should be granted only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The party moving for summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. Stults v. Conoco, Inc., 76 F.3d 651, 655-56 (5th Cir. 1996) (citing Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912-13 (5th Cir.) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)), cert. denied, 506 U.S. 832 (1992)). When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. The nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis supplied); Tubacex, Inc. v. M/V RISAN, 45 F.3d 951, 954 (5th Cir. 1995).
Thus, where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no "genuine issue for trial." Matsushita Elec. Indus. Co., 475 U.S. at 588. Finally, the Court notes that substantive law determines the materiality of facts and only "facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B. The Law on "At-Will" Employment .
The doctrine of at will employment has a longstanding history in Louisiana. See La. Civ. Code art. 2747; see also Monica v. Nalco Chemical Co., No. Civ. A. 96-1286, 1996 WL 736946, at *4 (E.D.L.A. Dec. 26, 1996). That is, in Louisiana, absent an agreement to the contrary, employees and employers are free to terminate their relationships at any time, with or without cause. See La. Civ. Code art. 2747. In the present action, there were no employment contracts in effect between the Plaintiffs and KBK at the time of their resignation; therefore, the Plaintiffs were at will employees under Louisiana law. The Plaintiffs argue that because they were at will employees, they were free to resign from KBK without giving advanced notice and that such action does not constitute a breach of a fiduciary duty to KBK. In contrast, the Defendant argues that the KBK Employee Handbook required the Plaintiffs to give adequate written notice prior to their resignation from KBK. Furthermore, KBK argues that a mass resignation without notice constitutes a breach of fiduciary duty to KBK because such action is in antagonism to the interests of KBK.
In addition to stating that employment with KBK is on an at-will basis, the KBK Employee Handbook specifically states that "employees have no contract, assurances, or guarantee of continued employment with the company." See Plaintiffs' Motion for Summary Judgment, Exhibit C. Therefore, the Court finds the Defendant's argument that each Plaintiff had an employment contract with KBK that contained an implied obligation of good faith to be completely without merit.
The Defendant relies on the Section of the Employee Handbook entitled "Separation" which states that "[r]esigning employees are expected to provide appropriate advance written notice of their intent to resign." See Defendant's Memorandum in Opposition to Motion for Summary Judgment, Exhibit 18. In addition that section states that "[a]t least two weeks' written notice to the employee's supervisor is expected prior to the effective date of resignation." Id.
The Court finds that the KBK Employee Handbook does not require employees to give adequate notice, much less two weeks notice, prior to terminating their employment relationship. The Handbook specifically states that employment with KBK is "on an at-will basis," and that "the employee and the company are each free to terminate the relationship at any time, with or without cause or advance notice." See Plaintiffs' Memorandum in Support of Motion for Summary Judgment, Exhibit C. While KBK may have anticipated receiving advance notice from its resigning employees and may have intended for the Handbook to provide for such, notice is not required under KBK policy because not only does the Handbook merely state that advanced notice is expected, but the Handbook specifically states that employees may terminate their employment relationship with KBK "with or without advance notice." See Defendant's Memorandum in Opposition to Motion for Summary Judgment, Exhibit 18; Plaintiffs' Memorandum in Support of Motion for Summary Judgment, Exhibit C. Furthermore, in his deposition, Robert McGee, KBK's CEO, admitted that notice was not required under KBK policy. This Court finds that the Handbook language and the testimony of McGee evidencing a mere expectation of notice is not sufficient to create an obligation upon the Plaintiffs to furnish advance notice of their resignations. Accordingly, the Plaintiffs did not breach company policy by providing only one day's notice of their resignations.
In response to the question whether company policy required notice prior to resignation, Robert McGee responded: "You know, the policy did not require it, so the answer is no." See Plaintiffs' Memorandum in Support of Motion for Summary Judgment, Exhibit J, Dfeposition of Robert J. McGee, page 151, lines 2-7.
Nevertheless, the Defendant argues that state law dictates that a mass resignation without notice is in antagonism to the interest of KBK and constitutes both a breach of a fiduciary duty and an unfair trade practice. However, the Defendant fails to cite to any Louisiana cases that stand for such a proposition. In no Louisiana case has an employer succeed in establishing a breach of fiduciary duty as a result of the mass resignation of its at-will employees without notice, and this Court declines the invitation to find such in the instant action. While in some situations it may be a breach of a fiduciary duty for an employee seeking to resign and begin competing with his or her employer to solicit fellow employees to resign simultaneously, in this case, Gulf Coast, an unrelated third party, solicited the former KBK employees, interviewed each of them individually, and made individual offers of employment to each of them. The evidence shows that each Plaintiff individually accepted his or her offer of employment and that such offers were not contingent upon the "group" accepting employment with Gulf Coast. The Plaintiffs simply resigned and accepted employment with an unrelated third party, albeit on the same day, but this Court is not inclined to find such an exercise of their freedom of association to be a breach of the Plaintiffs' fiduciary duty to KBK. As the court in United Group of National Paper Distributors v. Vinson, 666 So.2d 1338 (La.App. 2nd Cir. 1996), stated "without a restrictive agreement, at the termination of her employment, an employee can go to work for a competitor or form a competing business. Even before termination, the employee can seek other work or prepare to compete." Vinson, 666 So.2d at 1348. Accordingly, the Plaintiffs' Motion for Summary Judgment seeking to dismiss KBK's claim that the Plaintiffs violated their fiduciary duties to KBK by simultaneously resigning on the same day without notice is hereby GRANTED.
The Louisiana Unfair Trade Practices and Consumer Protection Act ("the Act") declares that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce" are unlawful. LSA-R.S. § 51:1405(a). The determination of what constitutes unfair competition under the Act "must be made on a case-by-case basis." Dafu v. Creole Engineering, Inc., 465 So.2d 752, 757 (La.App. 5th Cir. 1985). However, in order to recover under the Act, an employer must prove "some element of fraud, misrepresentation, deception, or other unethical conduct on the part of [an employee]." Id. at 758. In the present case, the Court finds that there is no evidence that the Plaintiffs did anything more than exercise their rights as at-will employees to terminate their employment relationships with KBK. Accordingly, for the reasons discussed more fully above, the Plaintiffs' Motion for Summary Judgment seeking to dismiss KBK's claim that the Plaintiffs' simultaneous resignation constituted an unfair trade practice is hereby GRANTED.
C. The Law on Solicitation and Diversion of Customers:
It is a general rule that, unless an agreement to the contrary exists, an employee is free to compete with his former employer. See Boncosky Services, Inc. v. Lamp, 98-2239 (La.App. 1 Cir. 11/5/99), *11, 751 So.2d 278, 286 (citing Orkin Exterminating Co. v. Foti, 302 So.2d 593, 596 (La. 1974)). Free enterprise and competition are favored, "as long as conduct is neither unlawful nor offensive to public policy." See id. (citing Vinson, 666 So.2d at 1348). That is, employees do owe certain fiduciary duties to their employers. "An employee is duty bound not to act in antagonism or opposition to the interest of the employer." Id. at 287. Furthermore, employees must be loyal and faithful to the interest of the employer's business. See id.
In each case, the court must balance "the right of the employee to individual freedom on one hand and the right of the employer to honest and fair competition . . . on the other hand." Dafu, 465 So.2d at 758 (quoting National Oil Services of Louisiana, Inc. v. Brown, 381 So.2d 1269 (La.App. 4th Cir. 1980)). In Dafu v. Creole Engineering, Inc., 465 So.2d 752 (La.App. 5th Cir. 1985), the court found that an employee breached his fiduciary duty to his former employer by soliciting and diverting the employer's customers to his own company prior to resigning his employment with the employer. See Dafu, 465 So.2d at 758; see also Huey T. Littleton Claims Service, Inc. v. McGuffee, 497 So.2d 790, 792 (La.App. 3rd Cir. 1986). However, it is not a breach of fiduciary duty for a former employee to solicit clients of his former employer after terminating his employment relationship with that employer. See Boncosky, 751 So.2d at 278 (citing Ahmed v. Bogalusa Kidney Care Center, 560 So.2d 485, 489-90 (La.App. 1st Cir. 1990). Therefore, the question of whether a former employee breached a fiduciary duty to his former employer by soliciting or diverting clients of the former employer primarily turns on whether the solicitation occurred prior to or subsequent to the termination of the employment relationship.
In addition to possible breaches of fiduciary duties, former employees who solicit or divert clients of their former employers may be found to be in violation of the Louisiana Unfair Trade Practices and Consumer Protection Act ("the Act"). See LSA-R.S. § 51:1401 et seq. As stated above, the Unfair Trade Practices Act declares that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce" are unlawful. LSA-R.S. § 51:1405(a). The determination of what constitutes unfair competition under the Act "must be made on a case-by-case basis." Dafu, 465 So.2d at 757. However, in order to recover under the Act, an employer must prove "some element of fraud, misrepresentation, deception, or other unethical conduct on the part of [an employee]." Id. at 758. In Dafu, the court held that "the solicitation and diversion of an employer's customers prior to termination constitutes unfair competition entitling the [employer] to recover damages." Id. However, in First Page Operating Under the Name and Corporate Entity, Groome Enterprises, Inc. v. Network Paging Corporation, 628 So.2d 130 (La.App. 4th Cir. 1993), the court determined that it was not an unfair trade practice for a former employee to solicit customers of his former employer after resigning from that company. See First Page, 628 So.2d at 132. The court reasoned that solicitation of former clients after terminating an employment relationship is not an unfair trade practice because it promotes the significant public policy of protecting the right to compete. See id. at 137. Former employees are allowed to solicit the clients of their former employers as long as they do so based on their memory, experience, or personal contacts, rather than through the use of confidential information of the former employer's. See id. at 132-33. Therefore, as long as the solicitation or diversion of the former employer's clients occurs after the former employee resigns and without the aid of confidential information of the former employer's, such action will not be considered to be an unfair trade practice.
In the present case, the Defendant alleges that the Plaintiffs breached their fiduciary duties to KBK and violated the Act by soliciting and diverting KBK clients prior to resigning from the company. The Plaintiffs contend that there is no evidence establishing wrongdoing on the part of the Plaintiffs with respect to soliciting or diverting KBK clients prior to the Plaintiffs' resignation; thus, the Plaintiffs seek dismissal of KBK's counterclaims in this regard. However, after reviewing all of the evidence submitted by the parties and construing the evidence in the light most favorable to the non-moving party, the Court finds that there exists sufficient facts in the record to establish a genuine issue of material fact regarding whether the Plaintiffs solicited or diverted KBK clients prior to their resignation. As the court in Cenla Physical Therapy and Rehabilitation Agency, Inc. v. Lavernge, 657 So.2d 175 (La.App. 3 Cir. 1995), stated:
Because the mover has the burden of establishing that no material factual issue exists, inferences to be drawn from the underlying facts contained in the materials before the court must be viewed in the light most favorable to the party opposing the motion. The party who defended against the motion for summary judgment must have his properly filed allegations taken as true and must receive the benefit of the doubt when his assertions conflict with those of the movant.Lavernge, 657 So.2d at 176.
In the present case, the Court finds that after drawing all reasonable inferences contained in the evidence presented by the parties in the light most favorable to the Defendant, there exists genuine issues of material fact with respect to whether the Plaintiffs violated the Act and/or their fiduciary duties to KBK by soliciting or diverting KBK clients prior to tendering their resignations. Accordingly, the Plaintiffs' Motion for Summary Judgment seeking dismissal of KBK's claims that the Plaintiffs solicited or diverted KBK clients prior to tendering their resignations in violation of the Act and in breach of their fiduciary duties owed to KBK is hereby DENIED.
D. KBK's Claims against Gulf Coast
In addition to filing counterclaims against the former KBK employees, KBK claims that Gulf Coast is liable under the Unfair Trade Practices Act for soliciting the Plaintiffs simultaneously, thereby "raiding" the entire KBK New Orleans office. KBK further claims that Gulf Coast is liable with the Plaintiffs for their alleged wrongdoing because Gulf Coast participated with the Plaintiffs in arranging and facilitating the mass resignation without notice. With regard to KBK's claim against Gulf Coast under the "conspiracy" theory, this Court finds that because it has been determined that the Plaintiffs' resignations were not in violation of the Unfair Trade Act or a breach of their fiduciary duties to KBK, the claim of "conspiracy" lodged against Gulf Coast in relation to the mass resignation is without merit. Accordingly, the Plaintiffs' Motion for Summary Judgment seeking dismissal of KBK's "conspiracy" claim against Gulf Coast for participating in the mass resignation is hereby GRANTED.
KBK also claims that Gulf Coast violated the Unfair Trade Practices Act by soliciting all of the Plaintiffs to leave KBK and join Gulf Coast Bank simultaneously. As stated above, the Unfair Trade Practices Act declares that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce" are unlawful. LSA-R.S. § 51:1405(a). The determination of what constitutes unfair competition under the Act "must be made on a case-by-case basis." Dafu, 465 So.2d at 757. However, as stated by the court in First Page on the issue of hiring away a competitor's employees, in the absence of an agreement to the contrary, there is no basis to prohibit parties from exercising "the basic freedom of association which is inherent in the hiring of employees and the taking of a job with an employer." First Page 628 So.2d at 138 (quoting Brown, 381 So.2d at 1274-75). Therefore, this Court refuses to find that Gulf Coast's hiring of the Plaintiffs, who were at-will employees of KBK, constitutes an unfair trade practice. Accordingly, the Plaintiffs' Motion for Summary Judgment seeking the dismissal of KBK's claim against Gulf Coast for a violation of the Unfair Trade Practices Act for simultaneously hiring the Plaintiffs is hereby GRANTED.
E. KBK's Claim of Intentional Interference with Contractual Relations
In addition to the aforementioned claims against Gulf Coast, KBK claims that Gulf Coast improperly interfered with and caused a breach of the employment contractual relationships between the Plaintiffs and KBK. While there seems to be some confusion among the parties as to whether the claim of intentional interference with contractual relations is against each individual Plaintiff or merely against Gulf Coast, such issue is moot because this Court finds that there did not exist contracts of employment between KBK and the Plaintiffs. KBK's Employee Handbook specifically states that "employees have no contract, assurances, or guarantee of continued employment with the company." See Plaintiffs' Motion for Summary Judgment, Exhibit C. Furthermore, the Court is not inclined to find implied contracts in this instance. Therefore, because no employment contracts existed between the parties, there were no contracts with which to interfere. Accordingly, the Plaintiffs' Motion for Summary Judgment seeking the dismissal of KBK's claim for intentional interference with a contractual relationship is hereby GRANTED.
F. KBK's Claim of Breach of the Obligation of Good Faith
Finally, KBK argues that the Plaintiffs breached the obligation of good faith implied in the contracts of employment that they had with KBK. As stated above, this Court finds that the Plaintiffs had "no contract, assurances, or guarantee of continued employment with" KBK. See Plaintiffs' Motion for Summary Judgment, Exhibit C. Without a contract, the duty of good faith cannot be implied to apply between parties. Accordingly, the Plaintiffs' Motion for Summary Judgment seeking the dismissal of KBK's claim of breach of the duty of good faith is hereby GRANTED.
III. Conclusion
In conclusion, for the reasons stated above, the Plaintiffs' Motion for Summary Judgment (Doc. 134) is hereby GRANTED IN PART and DENIED IN PART. Accordingly,
IT IS ORDERED that the Plaintiffs' Motion for Summary Judgment seeking to dismiss KBK's claim that the Plaintiffs violated their fiduciary duties to KBK by simultaneously resigning on the same day without notice is hereby GRANTED.
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment seeking to dismiss KBK's claim that the Plaintiffs' simultaneous resignation constituted an unfair trade practice is hereby GRANTED.
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment seeking dismissal of KBK's claims that the Plaintiffs solicited or diverted KBK clients prior to their resignations in violation of the Unfair Trade Practices Act and in breach of their fiduciary duties owed to KBK are hereby DENIED.
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment seeking dismissal of KBK's "conspiracy" claim against Gulf Coast for participating in the mass resignation of the Plaintiffs is hereby GRANTED.
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment seeking the dismissal of KBK's claim against Gulf Coast for a violation of the Unfair Trade Practices Act for simultaneously hiring the Plaintiffs is hereby GRANTED.
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment seeking the dismissal of KBK's claim for intentional interference with a contractual relationship is hereby GRANTED.
IT IS FURTHER ORDERED that the Plaintiffs' Motion for Summary Judgment seeking the dismissal of KBK's claim of breach of the duty of good faith is hereby GRANTED.