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Orca Communications Unlimited, LLC v. Noder

Court of Appeals of Arizona, First Division, Department B

October 17, 2013

ORCA COMMUNICATIONS UNLIMITED, LLC, a limited liability company, Plaintiff/Appellant,
v.
ANN J. NODER and CHRISTOPHER C. NODER, wife and husband; PITCH PUBLIC RELATIONS, LLC, a limited liability company, Defendants/Appellees.

Appeal from the Superior Court in Maricopa County Cause No. CV2010-023187 The Honorable John A. Buttrick, Retired Judge

David B. Earl Phoenix Attorney for Plaintiff/Appellant

Law Office of Monica A. Limón-Wynn PLLC Tempe by Monica A. Limón-Wynn and Snell & Wilmer LLP Phoenix by Martha E. Gibbs Attorneys for Defendants/Appellees

OPINION

RANDALL M. HOWE, Judge

¶1 Orca Communications Unlimited, LLC, appeals the trial court's dismissal of its complaint against Ann J. Noder that alleged that Noder breached her contract with Orca and committed several business torts against the company. For the reasons set forth below, we affirm the court's dismissal of Orca's claims for breach of contract and fraud, but vacate the court's dismissal of Orca's claims for breach of the covenant of good faith and fair dealing, breach of fiduciary duty and duty of loyalty, tortious interference with business expectancies and unfair competition.

FACTS AND PROCEDURAL HISTORY

¶2 Orca is an Arizona limited liability company that provides public relations services primarily to companies in the United States. From July 1, 2002, until May 1, 2009, Noder served as Orca's president. As president, Noder had full access to and control over Orca's financial information, customer information, contracts with vendors and customers, and customer and employee relationships. Because Noder had no professional experience in public relations when she began working for Orca, Orca provided her with extensive on-the-job training. As part of her employment, Noder executed a Confidentiality, Non-Solicitation, and Non-Competition Agreement ("the Agreement"). The Agreement consisted of four restrictive covenants that prohibited Noder from using or disclosing confidential information for any purpose other than to benefit the company without the company's consent ("the confidentiality covenant"); providing conflicting services ("the non-compete covenant"); soliciting any customer or "potential customer" ("the customer non-solicitation covenant"); and hiring current or certain former employees ("the employee non-solicitation covenant"). The Agreement was not itself a "contract of employment" between Orca and Noder but addressed only her confidentiality, noncompetition, and non-solicitation obligations to Orca. Orca and Noder agreed that the Agreement should be read consistently with any employment agreement that they may enter.

¶3 The confidentiality covenant, set forth in section 4.3, prohibited Noder from "directly or indirectly circumvent[ing] or compet[ing] with The Company with regard to any Confidential Information." The Agreement defined confidential information in section 2.2 as "knowledge or information not generally known to the public or in the public relations industry" that Noder learned from her employment with Orca that related to Orca, its business partners, or the business of its customers or potential customers. This included "any information [Noder] learn[ed] of, possess[ed] as a result of, or access[ed] through" Noder's employment. The definition excluded "publicly known" information, information "readily accessible to the public in a written publication, " but included information that was only available through "substantial searching of published literature" or that had to be "pieced together" from a number of publications or sources. In the event of a dispute, the covenant placed on Noder the burden of proving that information was not confidential. The confidentiality covenant had no geographical or temporal limitation, but the Agreement stated in section 4.3.5 that if a temporal limitation was required to enforce the covenant, the covenant would bind Noder for twelve months from the last date of her employment with Orca.

¶4 The non-compete covenant, set forth in section 4.4.1, prohibited Noder from directly or indirectly advertising, soliciting, or providing "Conflicting Services" within the "Restricted Territory." The Agreement defined "Conflicting Services" in section 2.1 as "any product, service or process of any person or organization other than The Company, which directly competes with a product, service or process with which Employee works directly or indirectly during [her] employment with The Company or about which Employee acquires Confidential Information during Employee's employment with The Company." The Agreement defined "Restricted Territory" in section 4.4.4 as the largest of the following geographic areas that a court would find enforceable: all fifty United States and the District of Columbia; Maricopa County, Arizona; within 150 radial miles of Orca's Phoenix offices; within 100 radial miles of Orca's Phoenix offices; within 50 radial miles of Orca's Phoenix offices; within 25 radial miles of Orca's Phoenix offices; or within 10 radial miles of Orca's Phoenix offices.

¶5 The customer non-solicitation covenant, set forth in section 4.4.2, prohibited Noder from "request[ing], induc[ing], or attempt[ing] to induce any Customer or Potential Customer who does business in the Restricted Territory to terminate or adversely alter its relationship with The Company." The Agreement defined "Customer or Potential Customer" in section 2.3 as any person or entity who "at any time during [Noder]'s employment" with the company had contracted or billed, or "received any product or service, or process from the company"; was in contact with the company or its employees, agent, or owner about receiving "any product, service, or process" from the company that Noder knew or should have known about; or "had been solicited" by the company, or whom the company had been considering or planning to solicit, in an effort in which Noder was involved or of which she should have been aware. The employee non-solicitation covenant prohibited Noder from attempting "to hire, employ or associate in business with any person employed by [Orca] or who has left the employment of [Orca] within the preceding six months."

¶6 The Agreement also provided in section 4.4 that Noder was required to abide by the non-compete and the nonsolicitation covenants for eighteen months after her employment with Orca ended. That section further provided that if a court determined that the eighteen-month period was unenforceable, the time-limitation would be stepped down to the longest of the following enforceable periods: fifteen months, twelve months, nine months, or six months.

¶7 In February 2009, Noder negotiated with Orca's owner to purchase the company. During these negotiations, Noder represented to the owner that she agreed with the owner's proposed sale terms and would have counsel prepare a sale and purchase agreement based on those terms. Noder never gave the owner a purchase agreement, however, and instead presented a counter-proposal. The owner refused this counter-proposal, and the negotiations ended. Noder then contacted a number of Orca's potential customers, telling them that she planned to form a competing company and encouraging them to wait until she formed her own company so that she could obtain their business. On May 1, 2009, Noder resigned from Orca and formed Pitch Public Relations, LLC, an Arizona limited liability company that offered the same or similar services as Orca.

¶8 On August 18, 2010, Orca filed a complaint against Noder. In count one, breach of contract, Orca alleged that Noder violated all four restrictions of the Agreement by operating a business that provides "conflicting services, " by hiring a former Orca employee, by disclosing and using confidential information belonging to Orca, and by inducing "Orca's customers to stop doing business with Orca and to do business with Pitch Public Relations instead." In count two, breach of fiduciary duty and duty of loyalty, Orca alleged that Noder established a competing business while employed, took Orca's corporate opportunities for herself and her new business, and worked on her new business during work time while using Orca's resources.

¶9 In count three, breach of the covenant of good faith and fair dealing, Orca alleged Noder "hid from Orca her intentions to start a competing business and divert customers away from Orca, " breaching "the covenant of good faith and fair dealing implied in her employment relationship with Orca." In count four, fraud, Orca alleged that Noder falsely represented to Orca that she agreed with the proposed terms of sale and would have an attorney draw up the terms, but instead offered Orca a conflicting counter-proposal. In count five, tortious interference with business expectancies, Orca alleged that Noder interfered with its business expectations with its customers by taking those customers. In count six, unfair competition, Orca alleged that Noder established Pitch Public Relations using confidential and trade secret information.

¶10 Noder moved to dismiss all counts pursuant to Arizona Rule of Civil Procedure 12(b)(6), for failure to state a claim for which relief could be granted. She made several arguments:

The breach of contract claim should be dismissed because the four restrictive covenants were overbroad and unenforceable. The breach of the covenant of good faith claim should be dismissed because the contract was unenforceable. The breach of fiduciary duty, the tortious interference, and the unfair competition claims should be dismissed because Arizona's Uniform Trade Secret Act ("AUTSA") preempted them. Finally, the fraud claim should be dismissed because Orca failed to sufficiently allege fraud.

¶11 The trial court granted Noder's motion and awarded her attorneys' fees. The court dismissed the breach of contract and the breach of the covenant of good faith and fair dealing counts because neither count stated a claim "upon which an action may be based." The court dismissed the breach of duty, the tortious interference, and the unfair competition claims because AUTSA preempted them. Finally, the court dismissed the fraud claim because the facts did not support a claim for fraud. The court did, however, allow Orca leave to amend its fraud claim as a contract claim. Orca subsequently amended its complaint according to the court's order, but Noder moved to dismiss the amended complaint, and the court did so.

¶12 Orca timely appeals the trial court's dismissal. This court has jurisdiction on appeal pursuant to Arizona Revised Statutes ("A.R.S.") ...


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