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First American Title Insurance Co. v. Northwest Title Insurance Agency

United States Court of Appeals, Tenth Circuit

October 9, 2018


          Appeal from the United States District Court for the District of Utah (D.C. No. 2:15-CV-00229-DN)

          Mary Anne Q. Wood (Stephen Q. Wood, with her on the briefs), Wood Balmforth LLC, Salt Lake City, Utah, for Defendants-Appellants.

          Matthew L. Lalli (Mark O. Morris, Bret R. Evans, and W. Danny Green, with him on the brief), Snell & Wilmer, L.L.P., Salt Lake City, Utah, for Plaintiffs-Appellees.

          Before TYMKOVICH, Chief Judge, LUCERO, and HARTZ, Circuit Judges.

          HARTZ, Circuit Judge.

         This is an appeal from a large jury award based on breaches of contractual and fiduciary duties by employees of a title company who left to form a competing company and encouraged former coemployees to join them. The plaintiffs below were two wholly owned subsidiaries of First American Financial Corporation: First American Title Insurance Company (FA Company) and First American Title Company, LLC (FA LLC) (collectively Plaintiffs). The defendants below who are appealing the judgment (Defendants) are Michael Smith, Kristi Carrell, and Northwest Title Insurance Agency, LLC. Jeffrey Williams was also a defendant below but is not a party to the appeal. Defendants raise numerous grounds on appeal, many of which have not been adequately preserved or presented. Exercising appellate jurisdiction under 28 U.S.C. § 1291, we affirm.

         I. BACKGROUND

         A. Factual History

         The individual defendants originally worked for Equity Title Insurance Agency, Inc. Carrell became the vice president and manager of Equity's office in West Jordan, Utah. Smith was Equity's chief operations officer and general counsel. Both signed employment agreements with Equity. Carrell's agreement, executed in August 2003, contained a noncompete clause stating that "[d]uring [her] employment with Equity Title and for a period of one year thereafter, [she] may not participate in any competing title insurance or escrow business within a 40-mile radius of any of Equity Title's offices."

         Aplt. App., Vol. IV at 935. Smith's agreement, executed in August 2004, limited Smith's right to compete with Equity during and after his employment there, and contained a nonsolicitation provision barring him from trying to recruit away Equity employees.[1] In May 2006 Williams signed an employment agreement with Equity to serve as the senior vice-president for Equity's escrow operations. It also contained nonsolicitation and noncompete provisions.

         Between 2003 and February 2009, FA Company acquired all of Equity's stock: a 50% share between 2003 and 2005; a 45% share in October 2008; and the remaining 5% in February 2009. The October 2008 purchase was effected through a Stock Purchase Agreement (SPA). After the final February 2009 purchase, Equity became a wholly owned subsidiary of FA Company.

         In November 2012, Equity and FA LLC filed a merger plan with Utah regulators. Merger documents stated that Equity and FA LLC would "merge into a single entity"- which would be FA LLC, a subsidiary of First American Financial Corporation. Aplt. App., Vol. III at 754.

         After FA Company acquired all the stock of Equity, employees at the title-company office were required to review various documents, including the First American Employee Handbook (the Employee Handbook) and the Code of Ethics and Conduct (the Code of Ethics). The Employee Handbook required that employees use office equipment only for company business and limited personal matters; it also barred outside business activity competing with First American. The Handbook referred to the Code of Ethics, which contained similar restrictions on the use of company equipment and outside employment. Office records indicate that Smith, Carrell, and Williams reviewed the Employee Handbook and the Code of Ethics.

         Smith's efforts to create Northwest began in late 2014. On March 9, 2015, Northwest opened for business and Smith quit his FA LLC job. The following day, Carrell resigned and started at Northwest. Within two weeks, at least 25 other employees defected as well.

         B. Procedural History

         FA Company and FA LLC (referred to individually and jointly throughout the litigation simply as First American) promptly sued Northwest, Smith, Carrell, and Williams, alleging, among other things, (1) breach of contract against Smith, Carrell, and Williams (based on their Equity employment agreements, the Employee Handbook, and the Code of Ethics); (2) tortious interference with contract against Northwest, Smith, Williams, and Carrell; (3) breach of fiduciary duty against Smith; (4) tortious interference with economic relations against Northwest; and (5) civil conspiracy against all the defendants.

         Before trial Plaintiffs agreed to dismiss some claims and the court granted summary judgment against Plaintiffs on the tortious-interference claims against Carrell and Williams. Plaintiffs also enjoyed some victories. The district court granted them partial summary judgment, holding that (1) the Equity employment contracts had legally transferred to First American; (2) Williams and Carrell-but not Smith-had breached their employment contracts' noncompete provisions; and (3) Smith and Williams had breached their employment contracts' nonsolicitation provisions. The court clarified, however, that it had not "resolve[d] all issues related to validity of the contracts, such as reasonableness of scope and duration; First American's performance; or whether First American suffered damages." First Am. Title Ins. Co. v. Nw. Title Ins. Agency, LLC, No. 2:15-cv-00229-DN, 2016 WL 6091540, at *15 (D. Utah Oct. 18, 2016) (First American I). Later it rejected several potential defenses against the enforceability of the Equity employment agreements, the Employee Handbook, and the Code of Ethics, such as unconscionability and alleged material breach by Plaintiffs. See First Am. Title Ins. Co. v. Nw. Title Ins. Agency, LLC, No. 2:15-cv-00229-DN, 2016 WL 6902473, at *3 (D. Utah Nov. 23, 2016) (First American II).

         At the first phase of the trial, which addressed liability and compensatory damages, the jury found Smith, Williams, and Carrell liable for breach of contract, Smith liable for breach of fiduciary duty, and Smith and Northwest liable for tortious interference with contract; but it found Northwest not liable for tortious interference with business relations and Defendants not liable for civil conspiracy. It awarded Plaintiffs $1.625 million from Smith; $50, 000 each from Carrell and Williams; and $1 million from Northwest. After the second phase of the trial, which addressed punitive damages, the jury awarded Plaintiffs an additional $500, 000 from Northwest. The court later awarded Plaintiffs attorney fees of almost $2.9 million.

         II. ANALYSIS

         A. Standing

         Defendants argue that Plaintiffs failed to establish constitutional standing to bring their claims. Although we doubt that Defendants preserved this issue in the district court, constitutional standing is a jurisdictional matter that must be addressed even if raised for the first time on appeal. See New England Health Care Emps. Pension Fund v. Woodruff, 512 F.3d 1283, 1288 (10th Cir. 2008).

         Defendants assert that the district court "erred by disregarding the [Plaintiffs'] burden to each prove their separate and distinct standing to sue for each cause of action." Aplt. Br. at 34. Regarding the breach-of-contract claims, they complain that Plaintiffs "proceeded jointly on the breach of contract claims in the common name of their parent company 'First American,' without even attempting to prove which entity, if any, had the right to enforce the Equity Agreements" and, similarly, that Plaintiffs "did not attempt to prove which entity, if any, was a party to the First American Employee Handbook and Code of Ethics." Id. at 36-37. They then add that Plaintiffs "also improperly proceeded jointly as 'First American' on their tortious interference and breach of fiduciary duty claims." Id. at 38 (footnotes omitted). Defendants' arguments are misguided.

         "Article III of the Constitution limits federal-court jurisdiction to 'Cases' and 'Controversies.' Those two words confine the business of federal courts to questions presented in an adversary context and in a form historically viewed as capable of resolution through the judicial process." Massachusetts v. EPA, 549 U.S. 497, 516 (2007) (internal quotation marks omitted). "At bottom, the gist of the question of standing is whether petitioners have such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination." Id. at 517 (internal quotation marks omitted). Consequently, the elements of constitutional, Article III standing are "(1) injury in fact that is (2) traceable to the defendant and (3) redressable by the court." Jackson v. Volvo Trucks N. Am., Inc., 462 F.3d 1234, 1241 (10th Cir. 2006). As we have noted:

The purpose of the standing inquiry is not to determine whether a party has proven its case but to gauge whether it should be granted access to the federal courts. The focus of the injury element is on ensuring a legitimate dispute between the parties. A plaintiff who is personally harmed has a stake in the litigation and is not a mere intermeddler. For this reason, the issue generally arises in the constitutional or public law context and is rarely implicated in private civil disputes.

Id. at 1241-42 (citations omitted).

         All three elements of constitutional standing are clearly satisfied for the Utah title company that lost key employees and clients to Northwest. There was evidence, which the jury believed, that its business was injured, the injury was caused by Defendants, and damages would provide redress for the injury. We have before us a proper Case or Controversy. There may be some question as to what entity-FA Company, FA LLC, or both-speaks for that Utah title company (although the portion of the record before us shows that the business was part of FA LLC). But that raises the question of who is (are) the real party (parties) in interest, which is not a jurisdictional issue. See Norris v. Causey, 869 F.3d 360, 366-67 (5th Cir. 2017) (The defendants' argument that the plaintiffs' claim belonged to the bankruptcy trustee was a real-party-in-interest issue, not a matter of constitutional standing, because they certainly had standing: "The [plaintiffs'] injury is clear: They lost thousands of dollars. They argue that [the defendants'] diversion of funds caused that injury. And this litigation can redress the loss through damages, as the judgment demonstrates."); Cranpark, Inc. v. Rogers Grp., Inc., 821 F.3d 723, 730 (6th Cir. 2016) ("one who sells his interest in a cause of action is not deprived of Article III standing, but he is susceptible to a real-party-in-interest challenge"); Whelan v. Abell, 953 F.2d 663, 671-72 (D.C. Cir. 1992); see generally 6A Charles Alan Wright et al., Federal Practice & Procedure § 1542, at 468, 471-75 (3d ed. 2010) (distinguishing real party in interest and standing); 13A Charles Alan Wright et al., Federal Practice & Procedure § 3531, at 1, 23 (3d ed. 2008) (suggesting that concept of real party in interest is a better fit than standing in context of private disputes).

         To the extent that Defendants are raising a real-party-in-interest issue, they have waived that issue-in two ways. First, by including only a small fraction of the trial transcript in its appendix on appeal, they have precluded this court from examining the factual basis for the real-party-in-interest status of either plaintiff. Second, the parties saw fit to treat both FA LLC and FA Company as one entity, at least for trial purposes, and so stipulated. The district court's preliminary (that is, before opening statements) Instruction No. 8, which is not challenged on appeal, states as follows:

The plaintiffs and the defendants have stipulated-that is they have agreed-to certain facts. You must therefore treat those facts as conclusively proven. I will now read the stipulated facts:
* * *
Over time [FA Company] acquired ownership in Equity, and in 2012, [FA LLC] merged with Equity. [FA Company] and [FA LLC] are referred to as ...

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