First Express Servs. Grp., Inc. v. Easter

286 Neb. 912

840 N.W.2d 465

First Express Services Group, Inc., Appellee,

v. Arlene A. Easter and Mark T. Easter, Appellants,andMiller Agency, doing business as Davidson Insurance and Real Estate, Appellee.

No. S–12–304

Supreme Court of Nebraska.

Filed November 22, 2013

Appeal from the District Court for Otoe County: Randall l. Rehmeier, Judge. Affirmed in part as modified, and in part reversed.

Matthew D. Hammes, of Locher, Pavelka, Dostal, Braddy & Hammes, L.L.C., for appellant Arlene A. Easter.

Abbie J. Widger and Cameron E. Guenzel, of Johnson, Flodman, Guenzel & Widger, for appellant Mark T. Easter.

Heather Voegele–Andersen and David A. Yudelson, of Koley Jessen, P.C., L.L.O., for appellee First Express Services Group, Inc.

Heavican, C.J., Wright, Connolly, and Mcdormack JJ., andMoore Riedmann, and Bishop, Judges.

Syllabus by the Court

1. Summary Judgment: Moot Question: Appeal and Error. The denial of a summary judgment motion generally becomes a moot issue on appeal after a final trial on the merits.

2. Judgments: Verdicts: Appeal and Error. In reviewing rulings on motions for directed verdict and judgments notwithstanding the verdict, an appellate court gives the nonmoving party the benefit of all evidence and reasonable inferences in his or her favor, and the question is whether a party is entitled to judgment as a matter of law.

3. New Trial: Appeal and Error. Regarding motions for new trial, an appellate court will uphold a trial court's ruling on such a motion absent an abuse of discretion.

4. Appeal and Error. An appellate court will not consider an issue on appeal that was not presented to or passed upon by the trial court.

5. Appeal and Error. Generally, an appellate court disposes of a case on the theory presented in the trial court.

6. Appeal and Error. When a party raises an issue for the first time on appeal, an appellate court will disregard it because a lower court cannot commit error in resolving an issue never presented and submitted to it for disposition.

7. Trade Secrets: Restrictive Covenants. Courts are reluctant to protect customer lists to the extent that they embody information that is readily ascertainable through public sources. Only where time and effort have been expended to identify particular customers with particular needs or characteristics will a list be protected. Such lists are distinguishable from mere identities and locations of customers that anyone could easily identify as possible customers.

8. Breach of Contract: Unjust Enrichment. A party cannot be liable for both breach of contract and unjust enrichment for the same conduct.

9. Breach of Contract: Unjust Enrichment. There is no question regarding the priority of a claim for breach of contract and a claim for unjust enrichment flowing from the same conduct; liability under a contract displaces liability under an unjust enrichment theory.

Connolly, J.

I. SUMMARY

Arlene A. Easter sold crop insurance for First Express Services Group, Inc. (First Express). In 2009, however, Arlene resigned from First Express and went to work for her son, Mark T. Easter, a part owner of a competing agency. When she resigned, Arlene took a First Express customer list and transferred many of First Express' customers to Mark's agency. When First Express discovered this, it sued Arlene for breach of contract and it sued Arlene, Mark, and Mark's agency for misappropriation of trade secrets and unjust enrichment. A jury found for First Express on all claims. Arlene and Mark (but not Mark's agency) appealed. The primary issues are (1) whether Arlene preserved for review her arguments challenging the enforceability of the underlying contract, (2) whether the customer list was a trade secret, and (3) whether the theory of unjust enrichment applied.

We will explain our holding with specificity in the following pages, but, briefly stated, it is as follows:

• Arlene did not challenge the enforceability of the underlying contract in the district court, so she cannot do so now for the first time on appeal.

• The customer list was not a trade secret, because the customers' identities and contact information were ascertainable from public sources and because the other information on the list was also ascertainable by proper means.

• The theory of unjust enrichment could not apply to either Arlene or Mark. Arlene is already liable for breach of contract, and the corporate veil protects Mark.

Therefore, Arlene is liable only for the portion of the judgment attributed by the district court to the breach of contract claim, which is $360,121.72 (after applying the setoff of $5,759.28). We modify the judgment against her accordingly. And because Mark is not liable for either misappropriation of trade secrets or unjust enrichment, we reverse the judgment against Mark.

II. BACKGROUND

In 1979, Arlene began selling crop insurance, on her own. In 1986, she began working full time at the Otoe County National Bank in Nebraska City, Nebraska, but continued selling crop insurance independently as Arlene Easter Insurance. In 1990, Grant Gregory purchased the bank (through a holding company) and kept Arlene on as a bank employee. Gregory also hired her as an independent crop insurance agent for First Express, which opened an office in the bank. Arlene brought her crop insurance customers with her to First Express.

1. Arlene's Agreement With First Express

Arlene and Gregory negotiated the terms of her business relationship with First Express, which they reduced to a written agreement. The agreement contained several notable provisions. In paragraph 7, Arlene agreed that “[a]ll renewals and goodwill arising out of the conduct of the insurance agency business shall be and remain the property of [First Express]; provided, however, that [Arlene] shall be entitled to retain the customers listed on Exhibit ‘A’.” It is undisputed, however, that there was no exhibit A attached to the agreement, though Arlene claimed that exhibit A existed. Throughout these proceedings, no one could produce a copy of exhibit A, although Arlene did attempt to recreate it.

In paragraph 8, Arlene acknowledged that she would be handling (and adding to) “confidential information of a special and unique nature and value relating to [First Express'] trade secrets, and customer lists, as well as the nature and type of products used and preferred by [First Express'] customers.” Arlene agreed that she would not, “at any time, during or following the term of this Agreement, directly or indirectly divulge or disclose any of the confidential information that [had] been obtained by [Arlene] as a result of the services provided.”

Finally, in paragraph 9, Arlene agreed to a covenant not to compete, among other things. But the parties, during trial, agreed to redact the covenant not to compete from the agreement, presumably becauseit was unenforceable and because First Express abandoned its claim based on the covenant. The pertinent remaining portions of paragraph 9 provided that during the term of the agreement and for 5 years after, Arlene would not “divulge, directly or indirectly, to any other insurance company, broker, or agency any information or lists or records with respect to business of [First Express], and [Arlene would], upon termination of this Agreement, properly return to [First Express] all records, lists and prospect cards.”

Paragraph 9 also prohibited Arlene from allowing “anyone to see or copy any of the cards or records, which [were] acquired, made or used while [Arlene] was retained by [First Express], or in any other way do any act contrary to the interest of [First Express].” It acknowledged, however, that “the customer's [sic] listed on Exhibit ‘A’ were customers of [Arlene] prior to [Arlene's] retainer by [First Express]” and that, were the agreement terminated, Arlene would be “entitled to continue to write insurance for the customers listed on Exhibit ‘A’.” The jury based its finding that Arlene breached her contract on her taking and using the customer list in violation of the provisions in paragraphs 8 and 9 (excluding the covenant not to compete).

2. Arlene Resigns and Takes Customer List

Arlene worked for both the bank and First Express for many years. But in separate letters dated November 30, 2009, she resigned from both positions effective December 31, “[d]ue to health reasons.” She personally delivered the bank resignation letter to the bank president, but the letter to First Express did not reach Gregory until sometime in January 2010.

When she resigned, Arlene took with her a First Express customer list. The list was an “Agency Commission Statement” from one of the companies for which First Express wrote crop insurance. This list apparently was available only by logging in using First Express identification and a password. The document listed all of First Express' customers with that company and contained other significant information about each customer. The document included customers' names and their 2009 information: what crops the farmers had, what counties the crops were located in, what insurance plan the farmers bought, what percentage of coverage each farmer had, and what commission First Express had earned. First Express considered this information both confidential and valuable.

3. Arlene Transfers Customers To Mark's Agency And First Express Sues

Shortly after her resignation, Arlene started transferring First Express' customers to her at Mark's agency. In late January 2010, First Express began receiving transfer notices from those customers. By March 15, the critical deadline in crop insurance, 90 percent of Arlene's customers had transferred to Mark's agency. Upon discovering this, First Express sued Arlene for breach of contract and sued Arlene, Mark, and Mark's agency for misappropriation of trade secrets and unjust enrichment. First Express based all of its claims on Arlene's alleged use of the customer list to transfer her customers.

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