Scanwell Freight Express STL, Inc. v. Chan
2005 Mo. LEXIS 108, 162 S.W.3d 477, 22 I.E.R. Cas. (BNA) 1435 (2005)
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Rule of Law:
While employees are generally free to plan to compete with their employer upon termination, they breach their duty of loyalty if, while still employed, they go beyond mere planning and engage in direct competition, such as disclosing confidential information or securing the employer's business premises for a direct competitor. Jury instructions in such cases must clearly define the duty of loyalty and the specific actionable conduct, avoiding overbroad language that constitutes a 'roving commission'.
Facts:
- Scanwell, a freight forwarding business, hired Stevie Chan in April 1996 to be the general manager of its St. Louis office as an at-will employee without a non-compete agreement.
- While employed by Scanwell, Chan made arrangements with Dimerco, a direct competitor, to open a Dimerco office in St. Louis and created a 'business proposal' for Dimerco.
- Chan provided Dimerco with confidential information about Scanwell's operations and customers, including a customer profile for one of Scanwell’s largest clients which contained contact information, handling requirements, rate structure, and billing instructions.
- Chan, who had signed Scanwell's original office lease in 1998, agreed to an amended lease in 1998 that moved the lease termination date to March 31, 2001, and the renewal option deadline to December 1, 2000.
- In the fall of 2000, as the December 1, 2000, lease renewal deadline approached, Chan took no action to renew Scanwell's lease and did not notify Scanwell’s home office of the approaching deadline.
- In early February 2001, while still employed by Scanwell, Chan, with Dimerco's approval, negotiated and signed a lease for Scanwell's premises on behalf of Dimerco.
- On February 20, 2001, Chan first informed Scanwell of her plan to resign and sent a letter stating that the lease would not be renewed and would end in March.
- Chan resigned from Scanwell effective March 1, 2001, and approximately one month later, Dimerco opened its St. Louis office with Chan as its general manager, operating in Scanwell’s former premises, employing most of Scanwell’s employees, and acquiring a number of Scanwell’s customers.
Procedural Posture:
- Scanwell Freight Express STL, Inc. sued Stevie Chan for breach of fiduciary duty and Dimerco Express (U.S.A.) Corp. for conspiracy to breach fiduciary duty in a trial court.
- Following a jury trial, Scanwell was awarded $54,000 in damages from Chan and $254,000 from Dimerco.
- The Court of Appeals, Eastern District, issued an opinion, which was then transferred to the Supreme Court of Missouri.
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Issue:
Did the trial court's jury instructions adequately define an employee's duty of loyalty and the conduct constituting its breach, thereby avoiding an impermissible 'roving commission'?
Opinions:
Majority - Stephen N. Limbaugh, Jr., Judge
No, the trial court's jury instructions were overbroad and constituted an impermissible 'roving commission' because they failed to properly define the employee's duty of loyalty and allowed the jury to consider non-actionable conduct. The court affirmed that every employee owes a duty of loyalty to their employer, as recognized in National Rejectors, Inc. v. Trieman and the Restatement (2d) of Agency. While employees may plan and prepare to compete with their employer after their employment terminates, they breach this duty when they go beyond mere planning and preparation to engage in direct competition while still employed. Examples of such a breach include using confidential information for a competitor or securing the employer's leased premises for a competitor. The court found that Scanwell presented a 'submissible case' that Chan breached her duty of loyalty by disclosing confidential customer information and securing Scanwell's leased premises for Dimerco. However, the instruction defining 'fiduciary relationship' was overbroad, defining the relationship instead of the specific duty to be breached. Furthermore, the verdict director instruction was fatally defective as a 'roving commission' because it broadly stated that Chan 'made arrangements to have Defendant Dimerco take over Plaintiffs business operation including securing Plaintiffs business lease for Defendant Dimerco, disclosing confidential information of Plaintiff to Dimerco.' The use of 'including' meant the jury was not limited to the specific actionable allegations of the lease and confidential information, potentially leading them to consider permissible planning and preparation as actionable conduct.
Analysis:
This case provides crucial guidance on the boundaries of an at-will employee's duty of loyalty, clarifying the distinction between permissible preparatory activities for future competition and actionable direct competition while still employed. It firmly establishes that acts such as disclosing confidential customer data or commandeering an employer's physical assets for a competitor constitute a breach. Moreover, the ruling offers a strong admonition regarding the necessity of precisely drafted jury instructions in duty of loyalty claims, emphasizing that overbroad language can lead to reversal, even when substantive evidence of wrongdoing exists. Future plaintiffs and courts will rely on this precedent for defining the scope of employee loyalty and ensuring that jury instructions accurately reflect the nuanced legal standards, thereby promoting fair adjudication and preventing juries from imposing liability based on non-actionable conduct.
